History > 2008 > USA > Economy (XIIa)

Monte Wolverton

The Wolvertoon

Cagle

1 December 2008

Fannie to Help Renters

Stay in Foreclosed Homes

December 15, 2008
Filed at 11:38 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

NEW YORK (AP) -- Fannie Mae said Monday it's finalizing a plan to help renters stay in their homes even if their landlord enters foreclosure.

The mortgage giant said it's working on a national policy to allow renters living in foreclosed properties -- and who can make their rental payments -- to sign new leases with Fannie while the property is up for sale or get cash to help move into a new home.

Last month, Fannie and sibling company Freddie Mac suspended foreclosure sales on occupied single-family homes and evictions from those properties through the holidays until Jan. 9, 2009. Fannie said these actions helped an estimated 7,000 to 10,000 families to remain in their homes.

The company said the new renter policy will go in effect before Jan. 9.

Last week, New Haven Legal Assistance Association Inc. in Connecticut, which represents several tenants facing eviction on properties held by Fannie Mae, raised the concerns about renter evictions and discussed the situation with Fannie on Friday.

''Fannie Mae had the tendency to empty these properties with no attempt before or after the foreclosure to contact these tenants,'' said Amy Marx, an attorney at the legal aid group. ''A lot of these renters are low-income and an eviction wreaks havoc on their lives due to moving costs and the lack of affordable housing.''

Despite the suspension on foreclosure sales and evictions, some Fannie evictions were still going forward, Marx said. Fannie said Monday it contacted its lawyer and broker network to halt those evictions.

Fannie and sibling company Freddie Mac own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt. The government seized control of the pair in September.

Company spokesman Brad German said Monday that Freddie Mac also aims to have a similar plan in place by early January.

''Clearly, renters are caught in the crossfire,'' German said. ''The goal is to provide them some stability and not evict them as a result of another's foreclosure.''

    Fannie to Help Renters Stay in Foreclosed Homes, NYT, 15.12.2008, http://www.nytimes.com/aponline/2008/12/15/business/AP-Fannie-Mae-Renters.html

Fraud Inquiry Centers

on Investment Firm’s Sanctum

December 15, 2008
The New York Times
By DIANA B. HENRIQUES and ALEX BERENSON

The epicenter of what may be the largest Ponzi scheme in history was the 17th floor of the Lipstick Building, an oval red-granite building rising 34 floors above Third Avenue in Midtown Manhattan.

A busy stock-trading operation occupied the 19th floor, and the computers and paperwork of Bernard L. Madoff Investment Securities filled the 18th floor.

But the 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen staff members and rarely visited by other employees. It was called the “hedge fund” floor, but federal prosecutors now say the work Mr. Madoff did there was actually a fraud scheme whose losses Mr. Madoff himself estimates at $50 billion.

The tally of reported losses climbed through the weekend to nearly $20 billion, with a giant Spanish bank, Banco Santander, reporting on Sunday that clients of one of its Swiss subsidiaries have lost $3 billion. Some of the biggest losers were members of the Palm Beach Country Club, where many of Mr. Madoff’s wealthy clients were recruited.

The list of prominent fraud victims grew as well. According to a person familiar with the business of the real estate and publishing magnate Mort Zuckerman, he is also on a list of victims that already included the owners of the New York Mets, a former owner of the Philadelphia Eagles and the chairman of GMAC.

And the 17th floor is now an occupied zone, as investigators and forensic auditors try to piece together what Mr. Madoff did with the billions entrusted to him by individuals, banks and hedge funds around the world.

So far, only Mr. Madoff, the firm’s 70-year-old founder, has been arrested in the scandal. He is free on a $10 million bond and cannot travel far outside the New York area.

According to charges against Mr. Madoff, his firm paid off earlier investors with money from new investors, fitting the classic definition of a Ponzi scheme. It unraveled as markets declined and many investors who lost money elsewhere sought to withdraw money from their investments with Mr. Madoff.

But a question still dominates the investigation: how one person could have pulled off such a far-reaching, long-running fraud, carrying out all the simple practical chores the scheme required, like producing monthly statements, annual tax statements, trade confirmations and bank transfers.

Firms managing money on Mr. Madoff’s scale would typically have hundreds of people involved in these administrative tasks. Prosecutors say he claims to have acted entirely alone.

“Our task is to find the records and follow the money,” said Alexander Vasilescu, a lawyer in the New York office of the Securities and Exchange Commission. As of Sunday night, he said, investigators could not shed much light on the fraud or its scale. “We do not dispute his number — we just have not calculated how he made it,” he said.

Scrutiny is also falling on the many banks and money managers who helped steer clients to Mr. Madoff and now say they are among his victims.

Mr. Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm.

While many investors were friends or met Mr. Madoff at country clubs or on charitable boards, even more had entrusted their money to professional advisory firms that, in turn, handed it to Mr. Madoff — for a fee. Investors are now questioning whether these paid advisers were diligent enough in investigating Mr. Madoff to ensure that their money was safe. Where those advisers work for big institutions like Banco Santander, investors will most likely look to them, rather than to the remnants of Mr. Madoff’s firm, for restitution.

Santander may face $3.1 billion in losses through its Optimal Investment Services, a Geneva-based fund of hedge funds that is owned by the bank. At the end of 2007, Optimal had 6 billion euros, or $8 billion, under management, according to the bank’s annual report — which would mean that its Madoff investments were a substantial part of Optimal’s portfolio.

A spokesman for Santander declined to comment on the case.

Other Swiss institutions, including Banque Bénédict Hentsch and Neue Privat Bank, acknowledged being at risk, with Hentsch confirming about $48 million in exposure.

BNP Paribas said it had not invested directly in the Madoff funds but had 350 million euros, or about $500 million, at risk through trades and loans to hedge funds. And the private Swiss bank Reichmuth said it had 385 million Swiss francs, or $327 million, in potential losses. HSBC, one of the world’s largest banks, also said it had made loans to institutions that invested in Madoff but did not disclose the size of its potential losses.

Calls to Mr. Zuckerman and his representatives were not returned on Sunday night.

Losses of this scale simply do not seem to fit into the intimate business that Mr. Madoff operated in New York.By the elevated standards of Wall Street, the Madoff firm did not pay exceptionally well, but it was loyal to employees even in bad times. Mr. Madoff’s family filled the senior positions, but his was not the only family at the firm — generations of employees had worked for Madoff and invested their savings there.

Even before Madoff collapsed, some employees were mystified by the 17th floor. In recent regulatory filings, Mr. Madoff claimed to manage $17 billion for clients — a number that would normally occupy far more than the 20 or so people who worked on 17.

One Madoff employee said he and other workers assumed that Mr. Madoff must have a separate office elsewhere to oversee his client accounts.

Nevertheless, Mr. Madoff attracted and held the trust of companies that prided themselves on their diligent investigation of investment managers.

One of them was Walter M. Noel Jr., who struck up a business relationship with Mr. Madoff 20 years ago that helped earn his investment firm, the Fairfield Greenwich Group, millions of dollars in fees. Indeed, over time, one of Fairfield’s strongest selling points for its largest fund was its access to Mr. Madoff.

But now, Mr. Noel and Fairfield are the biggest known losers in the scandal, facing potential losses of $7.5 billion, more than half the firm’s assets.

Jeffrey Tucker, a Fairfield co-founder and former federal regulator, said in a statement posted on the firm’s Web site: “We have worked with Madoff for nearly 20 years, investing alongside our clients. We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme.”

The huge loss comes at a time when the hedge fund industry has already been wounded by the volatile markets. Several weeks ago, Fairfield had halted investor redemptions at two of its other funds, citing the tough market conditions as dozens of hedge funds have done. The firm reported a drop of $2 billion in assets between September and November.

Fairfield was founded in 1983 by Mr. Noel, the former head of international private banking at Chemical Bank, and Mr. Tucker, a former Securities and Exchange Commission official. It grew sharply over the years, attracting investors in Europe, Latin America and Asia.

Mr. Noel first met Mr. Madoff in the 1980s, and Fairfield’s fortunes grew along with the returns Mr. Madoff reported. The two men were very different: Mr. Madoff hailed from eastern Queens and was tied closely to the Jewish community, while Mr. Noel, a native of Tennessee, moved in the Greenwich social scene with his wife, Monica.

“He was a person of superb ethics, and this has to cut him to the quick,” said George L. Ball, a former executive at E. F. Hutton and Prudential-Bache Securities who knows Mr. Noel.

Fairfield boasted about its investigative skills. On its Web site, the firm claimed to investigate hedge fund managers for 6 to 12 months before investing. As part of the process, a team of examiners conducted personal background checks, audited brokerage records and trading reports and interviewed hedge fund executives and compliance officials.

In 2001, Mr. Madoff called Fairfield and invited the firm to inspect his books after two news reports questioned the validity of his returns, according to a person close to Fairfield. Outside auditors hired to inspect Mr. Madoff’s operations concluded that “everything checked out,” this person said.

The Fairfield Greenwich Group “performed comprehensive and conscientious due diligence and risk monitoring,” Marc Kasowitz, a lawyer for Fairfield, said in a statement. “FGG, like so many other Madoff clients, was a victim of a highly sophisticated massive fraud that escaped the detection of top institutional and private investors, industry organizations, auditors, examiners and regulatory authorities.”

Now, Fairfield is seeking to recover what it can from Mr. Madoff.

“It is our intention to aggressively pursue the recovery of all assets related to Bernard L. Madoff Investment Securities,” Mr. Tucker said in a statement. “We are also committed to the operation of our continuing funds. We hope to have a better idea of the entire situation as the facts develop.”

Working alongside the federal investigators on Madoff’s 17th floor, staff workers for Lee S. Richards 3d, the court-appointed receiver for the firm, are trying to determine what parts of the firm can keep operating to preserve assets for investors.

“We don’t have anything to report to investors at this time,” he said. “We are doing everything we can to protect the assets of the Madoff entities that are subject to the receivership, and to learn what we can about the operations of those entities.”

Eric Dash, Jennifer 8. Lee, Zachery Kouwe, Michael J. de la Merced and Nelson D. Schwartz contributed reporting.

    Fraud Inquiry Centers on Investment Firm’s Sanctum, NYT, 15.12.2008, http://www.nytimes.com/2008/12/15/business/15madoff.html?hp

A Palm Beach Enclave,

Stunned by an Inside Job

December 15, 2008
The New York Times
By IAN URBINA

PALM BEACH, Fla. — The room of somber whispers fell silent when the two men walked in.

Just days after the collapse of Bernard L. Madoff’s suspected $50 billion Ponzi scheme, two of his emissaries returned to the epicenter of the financial disaster to face some of the hardest-hit investors, many of them old friends whom they had recruited to invest in Mr. Madoff’s firm.

As Carl J. Shapiro and Robert M. Jaffe sat down at the Men’s Grill of the Palm Beach Country Club they scanned an awkwardly quiet room, seemingly looking for friendly faces and reassuring nods.

The moment was a stark reversal for two men whom people used to trip over themselves to meet in hopes of a chance to invest with Mr. Madoff.

“You doing O.K.?” asked one of the several club members who approached the men in a show of support. “We’re here for you.”

While the fallout from Mr. Madoff’s suspected con game shook investors around the world, perhaps nowhere was there a higher concentration of victims than in this room. Investors were said to have paid hundreds of thousands of dollars a year to remain members of this club in hopes of an introduction to Mr. Madoff, usually by Mr. Jaffe or Mr. Shapiro. Mr. Madoff has been a member since 1996.

But more than wealth, these people seemed to have lost a sense of trust and prestige. During a visit to the club on Saturday, many members, asked for their reactions, requested not to be named because they did not want to ruin their standing among friends.

In Mr. Madoff’s fall, their world turned upside down, they said. Those who prided themselves as financially savvy suddenly seemed gullible. The trusted friend, sage adviser and model philanthropist they thought they knew was now charged with being a multibillion-dollar swindler.

There is no evidence that either Mr. Shapiro, who is 95 and joined the club in 1974, or his son-in-law, Mr. Jaffe, who is 64 and joined in 1992, knew of the fraud. Both men, who give millions every year to countless charities, are also said to have been duped of hundreds of millions of their own money, according to friends of their families.

But as a steady stream of older men in pastel sweaters and sockless penny-loafers slowly stood and approached the center table for hushed conversations and to offer pats on their backs, Mr. Shapiro and Mr. Jaffe looked ashen.

“All I can say is that this is an awful awful time for us,” Mr. Shapiro’s wife, Ruth, said in a short phone interview.

This was not the first swindle to hit this country club, which was formed in the 1950s by Jewish residents who had been barred from other island haunts.

Only three years ago, a handful of its members were victims of a similar, albeit smaller, pyramid scheme. Two men, John and Yung Kim, ran a company called the KL Group, which was based on the island and bilked investors of more than $190 million.

“But everyone at the club saw this differently,” said Laurence Leamer, an island resident and author of a forthcoming book, “Madness Under the Royal Palms,” about the island’s elite.

“Anyone can get robbed,” he said. “Madoff’s scam was so much worse because he was one of their own.”

Everywhere at the club, it was the topic of conversation.

Upstairs in the women’s dining room, a woman joked that she now knew the proper way to pronounce his name.

“Made off,” she said. “You know, like he made off with all our money.”

Even off the island, many investors said they were impressed with how careful Mr. Madoff had seemed.

“He just didn’t make mistakes,” said Richard Spring, 73, from Boca Raton. “He was just a sound, smart, reasonable guy.”

Mr. Spring recounted meeting Mr. Madoff in the early 1970s when they shared a helicopter each day commuting from Long Island to Wall Street.

He said he vividly recalled one commute when Mr. Madoff “bawled out” one of his traders for sloppy work, not protecting against a downturn.

Impressed, he later invested with Mr. Madoff, over time putting more than $11 million into the firm, virtually every cent of his savings, he said.

“I’m taking care of my sick mother-in-law. My wife has cancer. I just can’t deal with it,” Mr. Spring said, only barely choking back tears. “I’m cooked.”

The shock and sense of betrayal reached far beyond the country club.

Just three hours before the news hit, Tommy Mayes, director of the Palm Beach office of the wealth management company Calibre, said he was at a conference meeting with investors who spoke glowingly of Mr. Madoff.

“They were attributing their success to their access to a guy like Bernard Madoff,” he said. “I cannot imagine that all of us have been duped like this.”

For Morse Life, a nonprofit residence for the elderly in West Palm Beach, news of Mr. Madoff’s arrest came on Thursday night as the organization held its Silver Anniversary Ball at The Breakers, the prominent oceanfront hotel in Palm Beach.

“Nobody wanted to be the one to make a general announcement or alarm anyone who might not be involved,” said Marjorie Agran, the chairwoman of the Friends of Morse Life, a volunteer fund-raising group.

But the mood was gloomiest at the country club where, people here said, at least a third of the 300 or so members had money invested with Mr. Madoff.

The shame of the Madoff scandal seemed especially bitter here in part because the club is known for its noblesse oblige in requiring members to give tens of thousands of dollars each year to charity.

The attention was also particularly unwelcome for a community whose grand homes sit hidden behind 20-foot-tall ficus hedges and steel gates.

In cultivating an aloof mystique, Mr. Madoff had fooled those who fancied themselves the wiser.

Typically, investors needed at least $1 million to approach Mr. Madoff. Being a member of this club also helped.

But even with those prerequisites, there was little guarantee that Mr. Madoff would take the client.

Looking out on the stunning beauty of the country club’s driving range, wedged between the Intracoastal Waterway and the Atlantic Ocean, one club member commented that the outsiders of Mr. Madoff’s clique turned out to be the lucky ones.

“It’s funny how these things work out,” the member said, adding that he had never tried to invest with the firm because he did not like Mr. Madoff’s unwillingness to explain his methods.

Ross B. Intelisano, a lawyer representing a collection of its members, said he thought relations at the country club and on the island generally might never be the same again.

“He had this reputation that he’s one of these guys, that he’s what Wall Street’s all about,” he said about Mr. Madoff. “It’s all about a handshake, and people trusted him.”

That sort of trust may be gone now, Mr. Intelisano said.

“People may not really trust the guys they play golf with,” he said.

Even before Mr. Madoff’s scandal, a way of life was coming under strain here.

In a world where worrying publicly about money was verboten, a worker at the country club said he was surprised recently that some patrons were asking about the prices of certain things on the menu or for certain golf course services.

Along the island’s extravagant shopping district on Worth Avenue, an attendant at Jimmy Choo complained that it was bad enough that customers had stopped buying. But in recent months, some even came in his store to complain to him about their finances.

“And I looked out front and there is a Bentley when I saw they were driving a Lexus just two months ago,” he said.

“Palm Beach is a place of fantasy,” Mr. Leamer said. “There are no hospitals, funeral homes, people don’t talk about the negative.”

But in recent months, the overall financial crisis has been causing worry.

Mr. Leamer told of several friends who were aghast when a friend offered to take them out to dinner and he took them to a pizza parlor rather than the swanky spot they were used to going.

“Even though they still had millions, people were getting panicked about money,” he said. “They were angry that they were seeing such losses.”

For some on the island, the news of Mr. Madoff’s demise inspired soul-searching.

At Green’s Pharmacy, a popular lunch counter in downtown Palm Beach, a man who said two of his relatives were founding members of the country club wondered aloud whether the club’s unusually exclusive nature, especially among the wealthiest investors, is what enabled the suspected scheme to go on so long.

“There was such insularity of this inner circle of an already pretty exclusive club,” he said. But then he observed that lots of investors who were not members of the club had been duped, too.

“I don’t know,” he said. “The whole thing just makes you question your assumptions.”

Thomas R. Collins contributed reporting.

    A Palm Beach Enclave, Stunned by an Inside Job, NYT, 15.12.2008, http://www.nytimes.com/2008/12/15/business/15palm.html

States’ Funds for Jobless Are Drying Up

December 15, 2008
The New Tork Times
By JENNIFER STEINHAUER

With unemployment claims reaching their highest levels in decades, states are running out of money to pay benefits, and some are turning to the federal government for loans or increasing taxes on businesses to make the payments.

Thirty states are at risk of having the funds that pay out unemployment benefits become insolvent over the next few months, according to the National Association of State Workforce Agencies. Funds in two states, Indiana and Michigan, have already dried up, and both states are borrowing from the federal government to make payments to the unemployed.

Unemployment taxes are collected by states from employers, but the rate varies from state to state per employee. In good times states build up trust funds so that when unemployment is high there is enough money to cover the requests for benefits, which are guaranteed by the federal government.

“You don’t expect the loans to happen this early in a jobs slump,” said Andrew Stettner, the deputy director of the National Employment Law Project, an advocacy organization for low-wage workers. “You would expect that the states should, even when they are not well prepared, to have savings.”

The Labor Department said last week that initial applications for jobless benefits rose to 573,000, the highest reading since November 1982. It is recommended that states keep at least one year of peak-level benefits in their trusts, but many have not, and already some states are far worse off than others.

Indiana’s unemployment trust fund went insolvent last month, and has borrowed twice from Washington since then — the first such loans to the state since 1983. It also expects to request an additional $330 million early next year.

Michigan, which has been borrowing money from the federal government for the past few years to replenish its fund, is now $508.8 million in the hole and unable to repay it. Next month the state, where the unemployment rate is more than 9 percent, will begin levying a special “solvency tax” against some employers to replenish its trust fund.

California, New York, Ohio, Rhode Island and other states are inching toward insolvency as well, and may have to borrow from the federal government to get through at least the first quarter of 2009.

In South Carolina, officials recently requested a $15 million line of credit.

“Right now we have $40 million in our trust fund, and we are paying out around $11 million a week,” said Allen Larson, deputy executive director for the unemployment insurance program at the South Carolina Employment Security Commission. “So we think it is going to be very close as to whether or not we can get through this year. We have never experienced anything like this.”

Officials in New York said the state’s trust fund has about $314 million, compared with $595 million last year, and will most likely have to borrow from the federal government in January.

The situation puts states, many of them facing huge deficits, in an even tighter vise. As more people lose their jobs, the revenue base that the benefits are drawn from shrinks, making it harder to pay claims. Adding to that burden is that states will eventually have to pay back what they borrow.

Some states are worried about next year because the lion’s share of unemployment taxes are collected early in each year, and they are not sure the money will stretch through the end of the next year. The maximum amount of income the federal government can tax employers for each worker is $7,000. (The amount ranges from about $7,000 to about $25,000 for state taxes.)

“It is something that we are concerned about,” said Kim Brannock, a spokeswoman for the Office of Employment and Training in Kentucky, where the unemployment trust fund balance now sits at $133 million, compared with $250 million a year ago. The fund has not borrowed money from the federal government since the 1980s. “At this point we are solvent,” she said, “but we are monitoring the situation.”

States that come up short have the option of borrowing from the federal government, but if the loan is not paid back within the federal fiscal year, 4.7 percent interest is accrued, which cuts into states’ general funds.

“With longer term solvency issues due to the sharp increase in unemployment, federal borrowing quickly becomes expensive,” said Loree Levy, a spokeswoman for the Employment Development Department in California, which is already facing a multibillion dollar budget gap. “We are anticipating interest payments of $20 million in 2009-10 and if nothing is done to revise the revenue generation model the interest would be $150 million in 2010-11.”

As such, they are then forced to raise taxes or cut services, or both.

Robert Vincent, a spokesman for the Gtech Corporation, a technology company for the lottery industry based in Rhode Island, said, “Unemployment taxes are one of a number of taxes that make it difficult to do business here.”

In many cases, states that have kept unemployment tax rates artificially low — or in some instances decreased them — find themselves in the worst pickle now. Indiana legislators, for example, reduced the tax rates to businesses by 25 percent in 2001.

“So, frankly, they created the perfect storm,” said John Ruckelshaus, the deputy commissioner for the Indiana Department of Workforce Development. “The Legislature will have to go in and look at the whole unemployment trust find first thing when they begin their session.”

At the same time payments have gone up in some states.

To recalibrate the balance, several states are raising taxes on businesses — often through an automatic increase that is triggered when fund levels are endangered — to keep the unemployment checks flowing. An example is the Michigan solvency tax, which will be levied against employers whose workers have received more in benefits than the companies have contributed in unemployment insurance taxes, to the tune of $67.50 per employee.

In Rhode Island, where the unemployment rate is 9.3 percent, the taxable wage base will go to $18,000 from $14,000 in 2009, the highest rate in a decade.

“There is a possibility that we might be slightly under the funds we need come the end of the first quarter,” said Raymond Filippone, the assistant director of income support at the Rhode Island Department of Labor and Training. The state has not borrowed from the federal government since 1980, he said.

“Many states have not raised that tax in years,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington. “Some states have automatic triggers. But then of course you have businesses saying, ‘Whoa, you are raising taxes on me when we are having a tough time and it is a recession, too.’ ”

Still, some said they were thinking beyond the dollars.

“In these times of financial stress every extra cost is a concern,” said Linda Shelton, the spokeswoman for Lifespan, a large health care system in Rhode Island. “However there are many things that worry us even more. We are much more concerned about Rhode Island’s budget crisis, about rising unemployment, the rising number of uninsured and the continuing cuts to health care.”

    States’ Funds for Jobless Are Drying Up, NYT, 15.12.2008, http://www.nytimes.com/2008/12/15/us/15funds.html

Bad Times

Draw Bigger Crowds to Churches

December 14, 2008
The New York Times
By PAUL VITELLO

The sudden crush of worshipers packing the small evangelical Shelter Rock Church in Manhasset, N.Y. — a Long Island hamlet of yacht clubs and hedge fund managers — forced the pastor to set up an overflow room with closed-circuit TV and 100 folding chairs, which have been filled for six Sundays straight.

In Seattle, the Mars Hill Church, one of the fastest-growing evangelical churches in the country, grew to 7,000 members this fall, up 1,000 in a year. At the Life Christian Church in West Orange, N.J., prayer requests have doubled — almost all of them aimed at getting or keeping jobs.

Like evangelical churches around the country, the three churches have enjoyed steady growth over the last decade. But since September, pastors nationwide say they have seen such a burst of new interest that they find themselves contending with powerful conflicting emotions — deep empathy and quiet excitement — as they re-encounter an old piece of religious lore:

Bad times are good for evangelical churches.

“It’s a wonderful time, a great evangelistic opportunity for us,” said the Rev. A. R. Bernard, founder and senior pastor of the Christian Cultural Center in Brooklyn, New York’s largest evangelical congregation, where regulars are arriving earlier to get a seat. “When people are shaken to the core, it can open doors.”

Nationwide, congregations large and small are presenting programs of practical advice for people in fiscal straits — from a homegrown series on “Financial Peace” at a Midtown Manhattan church called the Journey, to the “Good Sense” program developed at the 20,000-member Willow Creek Community Church in South Barrington, Ill., and now offered at churches all over the country.

Many ministers have for the moment jettisoned standard sermons on marriage and the Beatitudes to preach instead about the theological meaning of the downturn.

The Jehovah’s Witnesses, who moved much of their door-to-door evangelizing to the night shift 10 years ago because so few people were home during the day, returned to daylight witnessing this year. “People are out of work, and they are answering the door,” said a spokesman, J. R. Brown.

Mr. Bernard plans to start 100 prayer groups next year, using a model conceived by the megachurch pastor Rick Warren, to “foster spiritual dialogue in these times” in small gatherings around the city.

A recent spot check of some large Roman Catholic parishes and mainline Protestant churches around the nation indicated attendance increases there, too. But they were nowhere near as striking as those reported by congregations describing themselves as evangelical, a term generally applied to churches that stress the literal authority of Scripture and the importance of personal conversion, or being “born again.”

Part of the evangelicals’ new excitement is rooted in a communal belief that the big Christian revivals of the 19th century, known as the second and third Great Awakenings, were touched off by economic panics. Historians of religion do not buy it, but the notion “has always lived in the lore of evangelism,” said Tony Carnes, a sociologist who studies religion.

A study last year may lend some credence to the legend. In “Praying for Recession: The Business Cycle and Protestant Religiosity in the United States,” David Beckworth, an assistant professor of economics at Texas State University, looked at long-established trend lines showing the growth of evangelical congregations and the decline of mainline churches and found a more telling detail: During each recession cycle between 1968 and 2004, the rate of growth in evangelical churches jumped by 50 percent. By comparison, mainline Protestant churches continued their decline during recessions, though a bit more slowly.

The little-noticed study began receiving attention from some preachers in September, when the stock market began its free fall. With the swelling attendance they were seeing, and a sense that worldwide calamities come along only once in an evangelist’s lifetime, the study has encouraged some to think big.

“I found it very exciting, and I called up that fellow to tell him so,” said the Rev. Don MacKintosh, a Seventh Day Adventist televangelist in California who contacted Dr. Beckworth a few weeks ago after hearing word of his paper from another preacher. “We need to leverage this moment, because every Christian revival in this country’s history has come off a period of rampant greed and fear. That’s what we’re in today — the time of fear and greed.”

Frank O’Neill, 54, a manager who lost his job at Morgan Stanley this year, said the “humbling experience” of unemployment made him cast about for a more personal relationship with God than he was able to find in the Catholicism of his youth. In joining the Shelter Rock Church on Long Island, he said, he found a deeper sense of “God’s authority over everything — I feel him walking with me.”

The sense of historic moment is underscored especially for evangelicals in New York who celebrated the 150th anniversary last year of the Fulton Street Prayer Revival, one of the major religious resurgences in America. Also known as the Businessmen’s Revival, it started during the Panic of 1857 with a noon prayer meeting among traders and financiers in Manhattan’s financial district.

Over the next few years, it led to tens of thousands of conversions in the United States, and inspired the volunteerism movement behind the founding of the Salvation Army, said the Rev. McKenzie Pier, president of the New York City Leadership Center, an evangelical pastors’ group that marked the anniversary with a three-day conference at the Hilton New York. “The conditions of the Businessmen’s Revival bear great similarities to what’s going on today,” he said. “People are losing a lot of money.”

But why the evangelical churches seem to thrive especially in hard times is a Rorschach test of perspective.

For some evangelicals, the answer is obvious. ”We have the greatest product on earth,” said the Rev. Steve Tomlinson, senior pastor of the Shelter Rock Church.

Dr. Beckworth, a macroeconomist, posited another theory: though expanding demographically since becoming the nation’s largest religious group in the 1990s, evangelicals as a whole still tend to be less affluent than members of mainline churches, and therefore depend on their church communities more during tough times, for material as well as spiritual support. In good times, he said, they are more likely to work on Sundays, which may explain a slower rate of growth among evangelical churches in nonrecession years.

Msgr. Thomas McSweeney, who writes columns for Catholic publications and appears on MSNBC as a religion consultant, said the growth is fed by evangelicals’ flexibility: “Their tradition allows them to do things from the pulpit we don’t do — like ‘Hey! I need somebody to take Mrs. McSweeney to the doctor on Tuesday,’ or ‘We need volunteers at the soup kitchen tomorrow.’ ”

In a cascading financial crisis, he said, a pastor can discard a sermon prescribed by the liturgical calendar and directly address the anxiety in the air. “I know a lot of you are feeling pain today,” he said, as if speaking from the pulpit. “And we’re going to do something about that.”

But a recession also means fewer dollars in the collection basket.

Few evangelical churches have endowments to compare with the older mainline Protestant congregations.

“We are at the front end of a $10 million building program,” said the Rev. Terry Smith, pastor of the Life Christian Church in West Orange, N.J. “Am I worried about that? Yes. But right now, I’m more worried about my congregation.” A husband and wife, he said, were both fired the same day from Goldman Sachs; another man inherited the workload of four co-workers who were let go, and expects to be the next to leave. “Having the conversations I’m having,” Mr. Smith said, “it’s hard to think about anything else.”

At the Shelter Rock Church, many newcomers have been invited by members who knew they had recently lost jobs. On a recent Sunday, new faces included a hedge fund manager and an investment banker, both laid off, who were friends of Steve Leondis, a cheerful business executive who has been a church member for four years. The two newcomers, both Catholics, declined to be interviewed, but Mr. Leondis said they agreed to attend Shelter Rock to hear Mr. Tomlinson’s sermon series, “Faith in Unstable Times.”

“They wanted something that pertained to them,” he said, “some comfort that pertained to their situations.”

Mr. Tomlinson and his staff in Manhasset and at a satellite church in nearby Syosset have recently discussed hiring an executive pastor to take over administrative work, so they can spend more time pastoring.

“There are a lot of walking wounded in this town,” he said.

    Bad Times Draw Bigger Crowds to Churches, NYT, 14.12.2008, http://www.nytimes.com/2008/12/14/nyregion/14churches.html

Even Workers

Surprised by Success of Factory Sit-In

December 13, 2008
The New York Times
By MICHAEL LUO and KAREN ANN CULLOTTA

CHICAGO — The word came just after lunch on Dec. 2 in the cafeteria of Republic Windows and Doors. A company official told assembled workers that their plant on this city’s North Side, which had operated for more than four decades, would be closed in just three days.

There was a murmur of shock, then anger, in the drab room lined with snack machines. Some women cried. But a few of the factory’s union leaders had been anticipating this moment. Several weeks before, they had noticed that equipment had disappeared from the plant, and they began tracing it to a nearby rail yard.

And so, in secret, they had been discussing a bold but potentially dangerous plan: occupying the factory if it closed.

By the time their six-day sit-in ended on Wednesday night, the 240 laid-off workers at this previously anonymous 125,000-square-foot plant had become national symbols of worker discontent amid the layoffs sweeping the country. Civil rights workers compared them to Rosa Parks. But all the workers wanted, they said, was what they deserved under the law: 60 days of severance pay and earned vacation time.

And to their surprise, their drastic action worked. Late Wednesday, two major banks agreed to lend the company enough money to give the workers what they asked for.

“In the environment of this economic crisis, we felt we were obligated to fight for our money,” Armando Robles, a maintenance worker and president of Local 1110 of the United Electrical, Radio and Machine Workers of America, which represented the workers, said in Spanish.

The reverberations of the workers’ victory are likely to be felt for months as plants continue to close. Bob Bruno, director of the labor studies program at the University of Illinois at Chicago, predicted organized labor would be emboldened by the workers’ success. “If you combine some palpable street anger with organizational resources in a changing political mood,” he said, “you can begin to see more of these sort of riskier, militant adventures, and they’re more likely to succeed.”

The tale of how this small band of workers came to embody the welter of emotions in the country’s economic downturn is flecked with plot turns from the deepening recession, growing anger over the Wall Street bailout and difficult business calculations. The workers were not aware, for example, that Republic’s owners had quietly set up a new company, Echo Windows LLC, incorporated on Nov. 18, according to records with the Illinois secretary of state’s office. And Echo had bought a window and door manufacturing plant in Red Oak, Iowa.

Company officials in Iowa declined to comment, but Mary Lou Friedman, the human resources manager at Echo, said in a telephone interview that the factory had 102 employees, all nonunion.

And at the last minute of negotiations, according to Representative Luis V. Gutierrez, Democrat of Illinois, who helped moderate talks to resolve the standoff, and union officials, Republic’s chief executive, Richard Gillman, demanded that any new bank loan to help the employees also cover the lease of several of his cars — a 2007 BMW 350xi and a 2002 Mercedes S500 are among those registered to company addresses — as well as eight weeks of his salary, at $225,000 a year.

The demand held up the settlement, which was reached only after Mr. Gillman agreed to back down. (Mr. Gillman said Friday that he had sought the money to offset a large bonus in 2007 that he had chosen not to accept.)

In many ways, however, Republic was an unlikely setting for a worker uprising. Many workers interviewed, including some who had been at the plant for more than three decades, said they considered it a decent place to work. It was a mostly Hispanic work force, with some blacks. Some earned over $40,000 a year, including overtime, pulling them into the middle class and enabling them to set up 401(k) retirement accounts and buy modest homes.

But after Mr. Gillman took over as owner in 2006, there were several rounds of layoffs, and the number of employees fell to about 240, from more than 500.

The company had been affected by the declining housing market, and Mr. Gillman said it had also been affected by Chicago’s higher production costs. He said he had hoped to salvage the business by buying another manufacturer in Ohio, but was turned down by Bank of America.

“This has been the worst week of my life,” he said. “I know many of those workers at Republic personally, and I put 34 years of my life into that business, and all my money, too. No stone was left unturned in our effort to save Republic.”

By mid-October, the company had exhausted its $5 million line of credit with Bank of America, and the bank was refusing to lend the company any more money.

“We declined to provide an additional loan because of the company’s dire financial conditions,” said Julie Westermann, a bank spokeswoman.

Bank officials said Republic filed for bankruptcy on Friday.

In mid-November, during a late-night vigil to see where the missing equipment was going, Mark Meinster, 35, one of the factory’s union organizers, broached the possibility of a sit-in with Mr. Robles, the president of the local, if the plant should be closed.

Mr. Robles, 38, who had worked at the factory for eight years, said he was excited by the idea but also mulled the potential repercussions. “We’d basically be trespassing on private property,” he said. “We might get arrested.”

Nevertheless, Mr. Robles told Mr. Meinster that he believed most workers would participate. In the coming days, the idea would take root among other union leaders.

On Tuesday, Dec. 2, Barry Dubin, the company’s chief operating officer, delivered the final verdict to workers, telling them they would probably not be getting severance pay or be paid for accrued vacation days. Union leaders quickly moved to hash out details of an occupation.

“We knew keeping the windows in the warehouse was a bargaining chip,” said Melvin Maclin, a groove cutter and vice president of the local.

While some workers picketed Bank of America, others began attending to their own financial worries, with many liquidating their 401(k)’s. Others cast worried eyes on their meager savings accounts.

On Friday, union officials met with company officers and learned the workers’ health insurance was being cut off.

Later, with employees gathered in the cafeteria, Mr. Robles asked for a show of hands of how many would be willing to stay at the factory. All hands went up, with shouts of, “Sí, se puede!” — or “Yes, we can!”

“I ain’t got no other choice,” Alexis McCoy, 32, a driver’s assistant, said later. “I have a newborn. I have to take care of my family.”

Local politicians discouraged the police from arresting the workers. Exasperated company officials decided not to press the matter as the news media began arriving in droves.

The workers organized themselves into three shifts and set up committees in charge of cleanup, security and safety. A sign was taped to a cafeteria wall banning alcohol, drugs and smoking.

Negotiations involving the company, Bank of America and union officials began late Monday afternoon at the bank’s offices downtown.

At the root of much of the discussions was the federal law requiring employees to be given 60 days’ notice, or that amount of severance, when plants close.

Bank officials said it was not their responsibility as lenders to ensure that the company made these payments. They said later that they had been discussing closing the plant with the company as far back as July, giving it plenty of time to fulfill its obligations to its workers.

Nevertheless, union officials argued that Bank of America had received billions of taxpayer dollars in the recent federal bailout, meant to free up credit to companies like Republic.

“We never made the argument you have a legal responsibility,” said Mr. Gutierrez, who described bank officials as willing to be helpful almost immediately. “We said, ‘Will you make a corporate responsibility decision?’ ”

Bank of America’s offer to lend the company roughly $1.35 million came on Tuesday, and additional help came from William M. Daley, the brother of Mayor Richard M. Daley of Chicago and the Midwest chairman of JPMorgan Chase, which owned 40 percent of the window company and agreed to lend an additional $400,000.

Mr. Gillman’s demands, however, became a major sticking point. “I’m not going to describe to you the words that were used when those issues were brought up,” Mr. Gutierrez said.

Eventually, the parties agreed that the workers would be the only ones to benefit. They would be paid severance and for vacation, and receive two months’ health coverage. The company owners also agreed to come up with $114,000 to cover the payroll for their last week of work.

When union negotiators returned to the factory on Wednesday evening with the agreement, the workers approved it unanimously. They emerged from the factory chanting, “Yes, we did!”

Karen Ann Cullotta contributed reporting.

    Even Workers Surprised by Success of Factory Sit-In, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/us/13factory.html

Store Brands Lift Grocers

in Troubled Times

December 13, 2008
The New York Times
By ANDREW MARTIN

LOVELAND, Ohio — Linda Severin, a Kroger vice president, has spent the last two years dreaming up new products to sell under the chain’s store-brand labels. Her creations, while inexpensive compared to national brands, are often fancier than the store brands of old. They include Mediterranean-style pizzas and cake mix with edible images of princesses.

Her timing could not have been better.

As the economy plunges into a deep recession, grocery stores are one of the few sectors doing well. That is because cash-short consumers are eating out less and stocking up at the supermarket. And store brand products, which tend to be cheaper than national brands and more profitable for grocers, are doing especially well.

Led by chains like Trader Joe’s, Kroger, Wegmans and Safeway, grocers have expanded their store brands beyond cheap generics and simple knockoffs of Cheerios, Oreos and Coca-Cola. Now, retailers are increasingly adding premium store-brand items like organics, or creating products without direct competition.

For instance, the team led by Ms. Severin, Kroger’s vice president for corporate brands, developed three-minute microwaveable pizzas as an easy snack for children when they return home from school.

“This is designed for moms,” Ms. Severin said. “This is a good example where we didn’t knock off the national brand, but we thought, ‘How can we deliver what our customers are looking for?’ ”

Dollar sales of store brands increased 10 percent during the 52 weeks before Nov. 1, compared with a 3 percent gain for branded products, according to the Nielsen market research company.

Store brands now account for nearly 22 percent of products sold at the grocery, up from 20 percent a year ago, Nielsen found. At Kroger, store brands account for 26 percent of grocery sales.

In this economic climate, the numbers suggest, many shoppers are willing to try the newly developed store brands. They also say it is hard to resist the low prices of store brands for staple goods like milk, sugar and cheese.

“They are less expensive and they taste just as good,” said Kim Dittelberger, 49, whose shopping cart at a Kroger store here on a recent day included store-brand “toaster treats,” aluminum foil, coffee filters and coffee. “Now even more so because the economy stinks.”

Jan-Benedict E. M. Steenkamp, marketing professor at the University of North Carolina, Chapel Hill, said past recessions had given consumers a reason to trade down from national brands. This time, he said, the gains may stick because the quality and consistency of store brands have improved.

“Sometimes, it will be disappointing,” said Mr. Steenkamp, co-author of a book on private-label strategy. “More often, it will be better than expected.”

Besides the weak economy, the growth of store brands reflects a historic shift in the balance of power between packaged food manufacturers and grocery retailers. As grocery chains have consolidated and grown bigger, they are increasingly able to stock their shelves with their own products, which bring higher profits and drive customer loyalty — all to the detriment of major food brands.

“The brands aren’t as dominating,” said Alex Miller, president of Daymon Worldwide, a broker for store-brand products. “The retailer is much more in the driver seat about what goes on in their stores.”

The increase in store-brand sales has been a boon for some manufacturers, too. Some store brands are made by major food companies like ConAgra Foods and Sara Lee, but many of the goods are made by companies that few customers have heard of, like Ralcorp Holdings (cereal, cookies and crackers), Johanna Foods (yogurt and fruit juice) and Treehouse Foods (soups, salad dressings and salsa).

“Those who are winning at retail are those who have decided that rather than be a warehouse for national brands, they have to establish their own brand,” said Sam K. Reed, the chairman and chief executive of Treehouse Foods. A former chief executive at Keebler, Mr. Reed said he started Treehouse in 2005 because “private label was consistently growing at a faster rate than branded foods across many categories.”

Of course, major branded food companies dispute the idea that store brands are just as good as their products. They argue that branded products offer better taste, consistency and innovation, justifying a premium price.

“We’re committed to providing our consumers with great-tasting products that are a good value against any competitor,” said Michael Mitchell, a spokesman for Kraft Foods.

Others argue that store-brand manufacturers have not been able to replicate some of America’s best-known brands, like Cheerios, Budweiser and Brawny paper towels. Grocers certainly sell store brands that look like Cheerios or like Heinz ketchup, but to many palates, the knockoffs do not taste the same.

“A lot of it depends on what product it is,” said Sharon Frey, 42, a Kroger shopper who was trying Kroger premium ice cream for the first time because it was on sale. “If it’s eggs, it doesn’t matter. I would buy Heinz. I prefer Heinz ketchup.”

Store brands have evolved over the years from homemade items like the sauerkraut that Kroger’s founder, Barney Kroger, stocked on his shelves to the plainly labeled generics that were sold in the 1970s.

In the 1980s, a Canadian grocery executive, Dave Nichol, borrowed from a British grocer the idea of introducing premium store-brand products, like a chocolate-chip cookie with more chips than national brands. Mr. Nichol, then an executive and pitchman for the Loblaws chain, sold the cookies under the President’s Choice label. Within two years, the brand was the best-selling cookie in Canada.

“That’s when the alarm bells went on and that’s when I realized this was the whole answer,” Mr. Nichol said.

In the United States, a growing number of grocery retailers are embracing Mr. Nichol’s philosophy, including Kroger.

The Cincinnati-based chain, the nation’s second-largest grocer after Wal-Mart, hired Ms. Severin two years ago to expand Kroger’s store brands, which include a value brand, a medium tier that competes directly against national brands, and a premium category.

A veteran of major food brands, Ms. Severin said her model was not competitors in the United States, but grocers in Canada and Europe, where store brands account for as much as 40 percent of the items sold. She said her focus had been on developing products that offered something other than simply low prices, like premium ingredients or innovative packaging.

During a tour of the Loveland store, she pointed to store-brand packages of cut vegetables that were microwave-ready, compact fluorescent light bulbs that were environmentally friendly and dog food made with natural ingredients.

She said she was particularly proud of a curved, 12-ounce bottle of hand soap with scents like cherry blossom and coconut lime. The Kroger logo was barely visible.

A typical shopper wants hand soap that “looks good and smells pretty,” Ms. Severin explained, but does not want a “big Kroger logo staring out at her.” The Kroger product was also cheaper, per ounce, than nearby Softsoap, a popular national brand.

Even as it develops fancier products, Kroger is being careful to keep unadorned store brands on its shelves, too, recognizing that they appeal to many shoppers for the sole reason that they are cheap. One top seller in Kroger’s value line is four rolls of toilet paper in plain packaging for 77 cents.

“It’s really a price that isn’t going to be beat,” Ms. Severin said.

    Store Brands Lift Grocers in Troubled Times, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/business/13private.html

After 15 Years,

North Carolina Plant Unionizes

December 13, 2008
The New York Times
By STEVEN GREENHOUSE

After an expensive and emotional 15-year organizing battle, workers at the world’s largest hog-killing plant, the Smithfield Packing slaughterhouse in Tar Heel, N.C., have voted to unionize.

The United Food and Commercial Workers, which had lost unionization elections at the 5,000-worker plant in 1994 and 1997, announced late Thursday that it had finally won. The victory was significant in a region known for hostility toward organized labor.

The vote was one of the biggest private-sector union successes in years, and officials from the United Food and Commercial Workers said it was the largest in that union’s history.

The union won by 2,041 votes to 1,879 after two years of turmoil at the plant. As a result of a federal crackdown on illegal immigrants, more than 1,500 Hispanic workers have left the plant. Its work force is now 60 percent black, up from around 20 percent two years ago.

After the results were announced, Wanda Blue, a hog counter, was among the many workers who were celebrating.

“It feels great,” said Ms. Blue, who makes $11.90 an hour and has worked at Smithfield for five years. “It’s like how Obama felt when he won. We made history.”

“I favored the union because of respect,” said Ms. Blue, who is black. “We deserve more respect than we’re getting. When we were hurt or sick, we weren’t getting treated like we should.”

“The union didn’t win by a big margin, but it’s an important positive sign for labor,” said Richard Hurd, a professor of labor relations at Cornell University. “They may be able to use it as leverage to organize other meatpacking plants in the South. The victory may be tied to the political environment. The election of Barack Obama may have eased people’s concerns about speaking out and standing up for a union.”

The United Food and Commercial Workers maintained that it lost the 1997 election because Smithfield broke the law by intimidating and firing union supporters. In 2006, after seven years of litigation, the United States Court of Appeals for the District of Columbia Circuit ruled that Smithfield had engaged in “intense and widespread” coercion.

The court ordered Smithfield to reinstate four union supporters it found were illegally fired, one of whom was beaten by the plant’s police on the day of the 1997 election. The court also said Smithfield had engaged in other illegal activities: spying on workers’ union activities, confiscating union materials, threatening to fire workers who voted for the union and threatening to freeze wages and shut the plant.

The unionization campaign this year was conducted under unusual conditions and rules, intended to reduce the vitriol.

In October, the company and the union reached a settlement under court supervision in which the union agreed to drop its nationwide campaign intended to denounce and embarrass Smithfield and the company agreed to drop a lawsuit asserting that the union’s denunciations and calls for a boycott violated racketeering laws.

The union’s pressure campaign had been intended to persuade the company to let the workers decide on unionizing not through secret balloting but through having a majority of workers sign pro-union cards.

Under the settlement, the two sides could campaign in a limited fashion, and they could not denounce each other. The agreement also allowed union organizers on the plant’s property; union organizers are generally barred from setting foot on company property, even a parking lot, unless management consents.

“We won because that gave us more of a level playing field,” said Joseph Hansen, the union’s president. “That was probably the major thing.”

Dennis Pittman, a Smithfield spokesman, said: “It was close, and the people had a chance to do what we wanted all along, to speak their voice in a secret ballot, and they spoke. As we said all along, we will respect their decision.”

Mr. Pittman said he expected that the two sides would begin negotiations early next year.

Many unions are pushing Congress to pass legislation that would enable unions to organize workers by having them sign pro-union cards. “I would say in this case, it shows that the union can win without a card check,” Mr. Pittman said.

But Mr. Hansen said the 15-year unionization fight showed how hard it was to win under the normal system.

To win the election, union organizers pushed for the cooperation of the plant’s black and Hispanic workers. At lunchtime, outspoken workers sometimes wore T-shirts saying “Smithfield Justice” and gave speeches to hundreds of workers. Several workers said that in the days leading up to the vote, some 2,000 workers had “Union Time” written on their hard hats.

Professor Hurd said one factor that helped the union was the growing percentage of black workers at the plant. “African-Americans are the strongest supporters of unions,” he said.

Lydia Victoria, who helps cut off hog tails at the plant, acknowledged that many Hispanic workers were afraid of being seen as union supporters. Illegal immigrant workers are especially worried because they fear deportation.

“A lot of Hispanic people,” Ms. Victoria said, “were scared to support the union, sometimes because of the language, and sometimes because they feel they don’t get the same treatment like the people who speak English.”

“But people came together,” she said. “People wanted fair treatment. We fought so long to get this, and it finally happened.”

    After 15 Years, North Carolina Plant Unionizes, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/us/13smithfield.html?hp

For Investors, Trust Lost, and Money Too

December 13, 2008
The New York Times
By DIANA B. HENRIQUES and ALEX BERENSON

The zoning lawyer in Miami trusted him because his father had dealt profitably with him for decades. The officers of a little charity in Massachusetts respected him and relied on his advice.

Wealthy men like J. Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets; and Norman Braman, who owned the Philadelphia Eagles, simply appreciated the steady returns he produced, regardless of market conditions.

But these clients of Bernard L. Madoff had this in common: They chose him to oversee much of their personal wealth.

And now, they fear, they have lost it.

While Mr. Madoff is facing federal criminal charges, accused by federal prosecutors of operating a vast $50 billion Ponzi scheme, many of his clients are facing an abrupt reversal of fortune that is the stuff of nightmares.

“There are people who were very, very well off a few days ago who are now virtually destitute,” said Brad Friedman, a lawyer with the Milberg firm in Manhattan. “They have nothing left but their apartments or homes — which they are going to have to sell to get money to live on.”

From New York to Palm Beach, business associates of Mr. Madoff spent Friday assessing the damage, the extent of which will not be known for some time. Many invested with Mr. Madoff through other funds and may not know that their money is at risk.

Emergency meetings were being held at country clubs, schools and charities to assess the potential losses on their investments and to look for options.

There is not much guidance available yet from regulators. On Friday, a federal judge appointed a receiver to oversee the Madoff firm’s assets and customer accounts. A Web site is being set up to keep customers informed, but no one is sure yet whether any sort of safety net will catch the most vulnerable investors.

For Stephen J. Helfman, a lawyer in Miami whose father had opened an account with Mr. Madoff more than 30 years ago, the news on Thursday came as a hammer blow.

“The name ‘Madoff’ has overnight gone from being revered to reviled in the Helfman family,” Mr. Helfman said on Friday. His grandmother, at 98, relied on her Madoff money to pay for round-the-clock care, he said, and his two children’s college funds were wiped out.

“Thirty-six years of loyalty, through two generations, and this is what we get,” he said.

The news was equally devastating for the Robert I. Lappin Charitable Foundation in Salem, Mass., which works to reverse the dilution of Jewish identity through intermarriage and assimilation by sending teenagers to Israel and supporting other Jewish education efforts.

The foundation was forced on Friday to dismiss its small staff and shut down its programs to cope with its losses in the Madoff funds, according to Deborah Coltin, its executive director.

“We’ve canceled everything as of today, everything,” she said tearfully.

Ms. Coltin said she did not know how the little foundation came to be so exposed to the Madoff firm. Its most recent tax filings show that it had $7 million at the end of 2006, with $143,344 in stocks and the rest in “government securities.”

It reported the sale that year of “Bernie Madoff” securities, but did not explain what those securities were.

Sam Englebardt, a media investor in Los Angeles, said several relatives had entrusted virtually all of their assets to Mr. Madoff — and he understood why.

“It seems like a huge over-allocation, I know,” Mr. Englebardt said. “But remember, they had started out small and invested over 5 years, 15 years, 30 years — and every year they got a great return, and they could always take money out without ever having a problem.”

As that track record lengthened, his relatives gradually entrusted more of their savings to Mr. Madoff, he said. “I suspect that is what has happened across the board,” he added. “People came to trust him so much that, eventually, they trusted him with everything.”

Such stories were repeated in e-mail messages and telephone calls throughout the day on Friday. A woman in Brooklyn whose father died just weeks ago found that his entire estate and a substantial portion of her stepmother’s money was invested with Mr. Madoff. A law school official in Massachusetts fears he has lost millions in the collapse of the Madoff operation.

Some wealthy victims, of course, can afford to seek redress on their own. But for them, litigation seems the only certainty.

Throughout the rumor-fueled hedge fund world on Friday, money managers were comparing notes and assessing losses. By all accounts, they run broad and deep — in the billions.

Mr. Merkin, a prominent philanthropist and the founder of several hedge funds, including one called Ascot Partners, jolted his clients on Thursday with a letter announcing that “substantially all” of that fund’s $1.8 billion in assets were invested with Mr. Madoff.

“As one of the largest investors in our fund, I have also suffered major losses from this catastrophe,” Mr. Merkin said in the letter. “We have retained counsel to determine what our next steps should be.”

Some of Mr. Merkin’s investors have also “retained counsel.” Harry Susman, a lawyer in the Houston office of Susman Godfrey, said he was talking with several clients about legal options.

“These investors were never aware that all of their money was invested with Madoff,” Mr. Susman said. “They are obviously shocked.”

Sterling Equities and the Wilpon family acknowledged on Friday that they had money at risk in the Madoff scandal.

“We are shocked by recent events and, like all investors, will continue to monitor the situation,” said Richard C. Auletta, a spokesman for Sterling and the Wilpons.

The Mets organization issued a statement saying that the scandal would not derail its new Citi Field stadium project in Queens or “affect the day-to-day operations and long-term plans of the Mets organization.”

A lawyer for Norman Braman of Miami, a wealthy retired retailer and the former owner of the Philadelphia Eagles football team, confirmed that Mr. Braman, too, had money locked up and perhaps lost in the Madoff mess.

And Bramdean Alternatives, a London asset manager run by Nicola Horlick, saw its share price plummet nearly 36 percent on Friday after it announced that nearly 10 percent of its holdings were caught in the Madoff scandal.

Mr. Madoff has resigned from his positions at Yeshiva University, where he was treasurer for the university’s board and deeply involved in the business school.

“Our lawyers and accountants are investigating all aspects of his relationship to Yeshiva University,” said Hedy Shulman, a spokeswoman for the university.

The most recent tax filings for the university show that its endowment fund, a separate charity, was heavily invested in hedge funds and other nontraditional alternatives at the end of its fiscal year in 2006.

The school paper, the Yeshiva Commentator, recently reported that its endowment’s value had dropped to $1.4 billion from $1.8 billion — before the scandal broke.
 

Reporting was contributed by Stephanie Strom, Julie Creswell, Eric Konigsberg, Zachery Kouwe and Charles Bagli.

    For Investors, Trust Lost, and Money Too, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/business/13investors.html?hp

Hedge Funds Are Victims, Raising Further Questions

December 13, 2008
The New York Times
By MICHAEL J. de la MERCED

Frauds on Wall Street aren’t unheard of. But a $50 billion Ponzi scheme, one that prosecutors say struck at boldface names on several continents, is a bombshell by any standard.

The case against Bernard L. Madoff, the respected longtime trader accused of running one of the biggest frauds in Wall Street history, has been Topic A in the investor community. But close behind is a heated discussion of how the sordid drama will affect the already-battered community of hedge funds and other investment firms — many of which invested with Mr. Madoff.

Mr. Madoff’s case could hardly have come at a worse time for hedge funds. The whipsawing markets and suddenly unfriendly lenders have already taken their toll on high financiers, and many have already suffered what amounts to runs on the bank by investors clamoring to withdraw their investments.

“It can’t help but have the effect of further chipping away at the confidence that the investor community has in the hedge fund industry,” said Ralph L. Schlosstein, the chief executive of Highview Investment Group, a money management firm and a former president of BlackRock. “But like many things that come at moments of fragility, its impact is magnified.”

The collapse of Mr. Madoff’s firm took the vast majority of investors by surprise. Mr. Madoff, once the largest market maker on the Nasdaq stock market, was known for his modest demeanor and, perhaps more important, his steady and overwhelmingly positive returns. That in turn appears to have attracted scores of investors, from Palm Beach country clubs to Manhattan social circles.

It is difficult to map out the swath of damage that the Madoff firm’s collapse is likely to cut through the hedge fund industry, not to mention a wide range of other investors. But among its biggest investors were funds of funds, firms that invest in several hedge funds and are nominally among the most sophisticated judges of character in the industry. Because Mr. Madoff reported consistently positive returns for more than a decade — some say impossibly so — he drew vast amounts of business from them.

Now, the collateral damage is likely to add to the chaos that has already been ravaging hedge funds. Spooked by losses and forced to raise cash quickly as the financial crisis ballooned, investors have sought to pull out their money from hedge funds, causing serious pain, and even some forced closures. A growing list of large, well-known firms have sought to block redemption requests in an effort to stem a mass exodus of investors who now desperately want to get into cash.

In a letter sent Friday, the Citadel Investment Group said it was halting redemptions at its two largest hedge funds through March 31.

Confidence will only weaken further with the Madoff firm scandal, intensifying pain for the industry.

“If you couple this with the deleveraging already, this means one thing: more redemptions,” said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.

The losses from the Madoff firm will also raise more questions about how well funds of funds perform due diligence, a concern already magnified by losses in the hedge fund industry.

“Funds of funds that invested in Madoff will get a double whammy,” said Whitney Tilson, who runs the T2 Partners hedge fund. “Not only will they have to take a loss, but they are going to have to do an awful lot of explaining for how they ever got fooled here.”

Indeed, while many investors are asking how regulators could have missed a towering Ponzi scheme, some are beginning to question the whole process of due diligence. Several potential investors had raised questions about Mr. Madoff’s claims of steady returns over the years, but regulators apparently took few steps to investigate.

“Where were the auditors?” asked Bill Grayson, the president of Falcon Point Capital, a hedge fund based in San Francisco. “Where was his chief compliance officer? Where was the S.E.C.?”

Already under heightened scrutiny, the collapse of the Madoff firm is likely to propel calls for greater regulation of the hedge fund industry, beyond the current optional registration with the Securities and Exchange Commission.

What’s more, many investors in hedge funds are likely to ask tougher questions of the managers of these firms. Executives who are loath to disclose their investment strategies — instead running a “black box” model, as Mr. Madoff infamously did — will probably come under increased pressure to open the lid on their operations, at least a little bit.

“I suspect that many investors are going to start asking many more questions of their managers,” Mr. Tilson said. “They will be much less tolerant of black box managers.”

Still, some disagree that Mr. Madoff’s arrest will lead to widespread contagion throughout the industry. Mr. Tilson argued that most investors would see the case as an unusual circumstance whose breadth and brazenness is unlikely to be duplicated. “This is not a Lehman Brothers,” he said.

    Hedge Funds Are Victims, Raising Further Questions, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/business/13damage.html?ref=business

Questions Are Raised in Trader’s Massive Fraud

December 13, 2008
The New York Times
By ALEX BERENSON and DIANA B. HENRIQUES

For years, investors, rivals and regulators all wondered how Bernard L. Madoff worked his magic.

But on Friday, less than 24 hours after this prominent Wall Street figure was arrested on charges connected with what authorities portrayed as the biggest Ponzi scheme in financial history, hard questions began to be raised about whether Mr. Madoff acted alone and why his suspected con game was not uncovered sooner.

As investors from Palm Beach to New York to London counted their losses on Friday in what Mr. Madoff himself described as a $50 billion fraud, federal authorities took control of what remained of his firm and began to pore over its books.

But some investors said they had questioned Mr. Madoff’s supposed investment prowess years ago, pointing to his unnaturally steady returns, his vague investment strategy and the obscure accounting firm that audited his books.

Despite these and other red flags, hedge fund companies kept promoting Mr. Madoff’s funds to other funds and individuals. More recently, banks like Nomura, the Japanese firm, began soliciting investors for Mr. Madoff internationally. The Securities and Exchange Commission, which investigated Mr. Madoff in 1992 but cleared him of wrongdoing, appears to have been completely surprised by the charges of fraud.

Now thousands, possibly tens of thousands, of investors confront losses that range from serious to devastating. Some families said on Friday that they believed they had lost all their savings. A charity in Massachusetts said it had lost essentially its entire endowment and would have to close.

According to an affidavit sworn out by federal agents, Mr. Madoff himself said the fraud had totaled approximately $50 billion, a figure that would dwarf any previous financial fraud.

At first, the figure seemed impossibly large. But as the reports of losses mounted on Friday, the $50 billion figure looked increasingly plausible. One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Mr. Madoff.

The collapse of Mr. Madoff’s firm is yet another blow in a devastating year for Wall Street and investors. While Mr. Madoff’s firm was not a hedge fund, the scope of the fraud is likely to increase pressure on hedge funds to accept greater regulation and transparency and protect their investors.

On Thursday, the Federal Bureau of Investigation and S.E.C. said that Mr. Madoff’s firm, Bernard L. Madoff Investment Securities, ran a giant Ponzi scheme, a type of fraud in which earlier investors are paid off with money raised from later victims — until no money can be raised and the scheme collapses.

Most Ponzi schemes collapse relatively quickly, but there is fragmentary evidence that Mr. Madoff’s scheme may have lasted for years or even decades. A Boston whistle-blower has claimed that he tried to alert the S.E.C. to the scheme as early as 1999, and the weekly newspaper Barron’s raised questions about Mr. Madoff’s returns and strategy in 2001, although it did not accuse him of wrongdoing.

Investors may have been duped because Mr. Madoff sent detailed brokerage statements to investors whose money he managed, sometimes reporting hundreds of individual stock trades per month. Investors who asked for their money back could have it returned within days. And while typical Ponzi schemes promise very high returns, Mr. Madoff’s promised returns were relatively realistic — about 10 percent a year — though they were unrealistically steady.

Mr. Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.

But because he had his own securities firm, Mr. Madoff kept custody over his clients’ accounts and processed all their stock trades himself. His only check appears to have been Friehling & Horowitz, a tiny auditing firm based in New City, N.Y. Wealthy individuals and other money managers entrusted billions of dollars to funds that in turn invested in his firm, based on his reputation and reported returns.

Victims of the scam included gray-haired grandmothers in Florida, investment companies in London, and charities and universities across the United States. The Wilpon family, the main owners of the New York Mets, and Yeshiva University both confirmed that they had invested with Mr. Madoff, and a Jewish charity in Massachusetts said it would lay off its five employees and close after losing nearly all of its $7 million endowment. Other investors included prominent Jewish families in New York and Florida.

On Friday afternoon, investors and lawyers for investors with Mr. Madoff packed Judge Louis L. Stanton’s courtroom at federal court in Manhattan, hoping to question lawyers for Mr. Madoff and the S.E.C. But a deputy for Judge Stanton canceled the hearing, leaving investors with few answers. Several investors said they were planning to file lawsuits against the firm in the hope of recovering some money.

Based on the vagueness of the complaints against Mr. Madoff, his confession, as detailed in court filings, seems to have taken the F.B.I. and S.E.C. by surprise. Investigators have not explained when they believe the fraud began, how much money was ultimately lost and whether Mr. Madoff lost investors’ money in the markets, spent it, or both. It is not even clear whether Mr. Madoff actually made any of the trades he reported to investors.

The F.B.I. and S.E.C. have also not said whether they believe Mr. Madoff acted alone. According to the authorities, Mr. Madoff told F.B.I. agents that the scheme was his alone. He worked closely with his brother, sons and other family members, many of whom have retained lawyers.

Also likely to face very difficult questions are the hedge funds, investment advisers and banks that raised money for Mr. Madoff. At least some big investment advisers steered clients away from putting money with Mr. Madoff, believing the returns could not be real.

Robert Rosenkranz, principal of Acorn Partners, which helps wealthy clients choose money managers, said the steadiness of the returns that Mr. Madoff reported did not make sense, and the size of his auditor raised further concerns.

“Our due diligence, which got into both account statements of his customers, and the audited statements of Madoff Securities, which he filed with the S.E.C., made it seem highly likely that the account statements themselves were just pieces of paper that were generated in connection with some sort of fraudulent activity,” Mr. Rosenkranz said.

Simon Fludgate, head of operational due diligence for Aksia, another advisory firm that told clients not to invest with Mr. Madoff, said the secrecy of his strategy also raised red flags. And Mr. Madoff’s stock holdings, which he disclosed each quarter with the Securities and Exchange Commission, appeared to be too small to support the size of the fund he claimed. Mr. Madoff’s promoters sometimes tried to explain the discrepancy by explaining that he sold all his shares at the end of each quarter and put his holdings in cash.

“There were no smoking guns, but too many things that didn’t add up,” Mr. Fludgate said.

However, the S.E.C. had already investigated Mr. Madoff and two accountants who raised money for him in 1992, believing they might have found a Ponzi scheme. “We went into this thing just thinking it might be a huge catastrophe,” an S.E.C. official told The Wall Street Journal in December 1992.

Instead, Mr. Madoff turned out to have delivered the returns that the investment advisers had promised their clients. It is not clear whether the results of the 1992 inquiry discouraged the S.E.C. from examining Mr. Madoff again, even when new red flags surfaced. Lawyers at the S.E.C. did not return calls.

Meanwhile, Fairfield Greenwich Group, whose clients have $7.5 billion invested with the Madoff firm, said it was “shocked and appalled by this news.”

“We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme.”

At the court hearing, an individual investor, who declined to give his name to avoid embarrassment, expressed a similar sentiment.

“Nobody knows where their money is and whether it is protected,” the investor said.

“The returns were just amazing and we trusted this guy for decades — if you wanted to take money out, you always got your check in a few days. That’s why we were all so stunned.”

Zachery Kouwe and Stephanie Strom contributed reporting.

    Questions Are Raised in Trader’s Massive Fraud, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/business/13fraud.html?hp

Senate Drops Automaker Bailout Bid

December 13, 2008
The New York Times
By DAVID M. HERSZENHORN

WASHINGTON — The Senate on Thursday night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and Congressional Democrats.

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

“It’s over with,” the Senate majority leader, Harry Reid of Nevada, said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

Mr. Reid added: “This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.”

The Republican leader, Senator Mitch McConnell of Kentucky, said: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”

Mr. McConnell added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work.”

Moments later, the Senate fell short of the 60 votes need to bring up the auto rescue plan for consideration. The Senate voted 52 to 35 with 10 Republicans joining 40 Democrats and 2 independents in favor.

The White House said it would consider alternatives but offered no assurances.

“It’s disappointing that Congress failed to act tonight,” Tony Fratto, the deputy press secretary, said. “We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress.”

Markets reacted quickly in Asia. In Japan, the Nikkei 225 index closed down 5.6 percent after the proposal failed and other markets registered substantial retreats as well.

Immediately after the vote, the Bush administration was already coming under pressure to act on its own to prop up G.M. and Chrysler, an idea that administration officials have resisted for weeks.

House Speaker Nancy Pelosi and other lawmakers called on the administration to use the Treasury’s bigger financial system stabilization fund to help the automakers, but there may not be enough money left to do so.

About $15 billion remains of the initial $350 billion disbursed by Congress and Treasury officials have said that money is needed as a backstop for existing programs.

Democrats instantly sought to blame Republicans for the failure to aid Detroit, while a number of Republicans blamed the union. But on all sides the usual zest for political jousting seemed absent given the grim economic outlook.

“Senate Republicans’ refusal to support the bipartisan legislation passed by the House and negotiated in good faith with the White House, the Senate and the automakers is irresponsible, especially at a time of economic hardship,” Ms. Pelosi said in a statement.

She added: “The consequences of the Senate Republicans’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options.”

Senator George V. Voinovich, Republican of Ohio, and a supporter of the auto rescue efforts, said: “I think it might be time for the president to step in.” Senator Christopher S. Bond, Republican of Missouri, also urged the White House to act.

So far, the Federal Reserve also has shown no willingness to step in to aid the auto industry.

Democrats have argued that the Fed has the authority to do so and some said the central bank may now have no choice but to prevent the automakers from entering bankruptcy proceedings that could have ruinous ripple effects.

G.M. and Chrysler issued statements expressing disappointment.

G.M. said: “We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.”

Chrysler said it would: “continue to pursue a workable solution to help ensure the future viability of the company.”

Earlier in the day, G.M. said that it had legal advisers, including Harvey R. Miller of the firm Weil Gotshal & Manges, to consider a possible bankruptcy, which the company until now has said would be cataclysmic not just for G.M. but for Chrysler and the Ford Motor Company as well.

Ford, which is better financial shape than its competitors, had said it would not seek the emergency short-term loans for the government, but urged Congress to help its competitors because the fates of the Big Three are so closely linked.

The rescue plan approved by the House on Wednesday, by a vote of 237 to 170, would have extended $14 billion in loans to the G.M. and Chrysler and required them to submit to broad government oversight directed by a car czar to be named by Mr. Bush.

But even before the House vote, Senate Republicans voiced strong opposition to the plan, which was negotiated by Democrats and the White House.

At a luncheon with White House chief of staff, Joshua B. Bolten, on Wednesday they rebuffed his entreaties for support.

And on Thursday morning, Mr. McConnell dealt a death blow to the House-passed bill, giving a speech on the Senate floor in which he said that Republican senators would not support it mainly because it was not tough enough.

“In the end, it’s greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow,” Mr. McConnell said.

Mr. McConnell, however, held out slim hope for a compromise suggesting that Republicans could rally around a proposal by Senator Bob Corker, Republican of Tennessee, to set stiffer requirements for the automakers.

Mr. Obama, whose transition team consulted with Congressional Democrats and the White House on the efforts to help the automakers, urged Congress to act in his opening remarks at a news conference on Thursday in Chicago.

“I believe our government should provide short-term assistance to the auto industry to avoid a collapse while holding the companies accountable and protecting taxpayer interests,” he said. “The legislation in Congress right now is an important step in that direction, and I’m hopeful that a final agreement can be reached this week.”

But in Washington, there was little appetite among Senate Republicans for yet another multibillion-dollar bailout of private companies. Still, with the Democrats and the White House eager to reach a deal, Mr. Corker’s proposal became the subject of intense negotiations well into the evening.

Under his plan, the automakers would have been required by March 31 to slash their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in outstanding debt.

The automakers would also have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees in the United States.

It was over this proposal that the talks ultimately deadlocked with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging a deadline in 2011 when the U.A.W. contract expires.

G.M. and Chrysler have said the two companies would likely not survive through this month without government aid, and the companies had already agreed to carry out sweeping reorganization plans in exchange for the help.

The negotiations over Mr. Corker’s proposals broke up about 8 p.m. and Mr. Corker left to brief his Republican colleagues on the developments.

The Republicans senators emerged from their meeting an hour later having decided they would not agree to a deal. Several blamed the autoworkers union.

“It sounds like the U.A.W. blew it up,” said Senator David Vitter, Republican of Louisiana.

Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee and a leading critic of the auto bailout proposal, said: “We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give. If they want a bill they can get one.”

The last-ditch negotiations made for a dramatic scene on the first floor of the Capitol, where high-level lobbyists for G.M. and Ford, as well as Stephen A. Feinberg, the reclusive founder of Cerberus Capital Management, the private equity firm that owns 80 percent of Chrysler, gathered with senators and legislative staff in an ornate conference room.

A Democratic aide said that there were no lobbyists present who represented Chrysler.

At times, various participants huddled in corners of the cavernous hallway outside the conference room, shielding their documents and whispering into their cellphones, as a throng of reporters and photographers waited nearby.

Some of the lobbyists and banking committee staff members huddled by two towering windows, looking out on a frigid rain that had been falling all day.

    Senate Drops Automaker Bailout Bid, NYT, 13.12.2008, http://www.nytimes.com/2008/12/13/business/13auto.html?hp

Stocks Fall After Trade and Unemployment Data

December 12, 2008
The New York Times
By MICHAEL M. GRYNBAUM and DAVID JOLLY

Stocks on Wall Street fell sharply on Thursday afternoon, with the major indexes giving up their earlier gains, as investors weighed a lower sales outlook and a widening trade gap that could spell trouble for American businesses.

The trade deficit widened in October as exports dropped 2.2 percent, with declines across a range of American industries. Foreign buyers appear to be put off by the strengthening dollar and a general slackening of demand because of a global financial downturn.

Meanwhile, the Labor Department reported that first-time claims for unemployment benefits climbed to the highest level in 26 years last week, all but assuring that the labor market will continue to head south in December. Applications rose to a seasonally adjusted 573,000, more than economists had expected.

Stocks appeared to shrug off the news for most of the day, an increasingly common occurrence that has suggested to some analysts that expectations of a historically bad downturn are already priced in. But by mid-afternoon, the Dow Jones industrial average was heading south, falling more than 100 points in just over an hour.

By 3 p.m., the blue-chip index was down 200 points and had fallen below the 8,600 mark. The broader Standard & Poor’s 500-stock index was off by 2.6 percent, and the technology-heavy Nasdaq composite index lost more than 3 percent.

The downturn appeared to start after it became clear the government bailout package for the troubled Detroit automakers did not have the votes to pass the Senate. Shares of General Motors dropped 13 percent.

Oil prices rose, up $4.29 to settle at $47.81, extending a recent bullish streak, in part because of a forecast from the International Energy Agency that global growth in oil demand would resume in 2009.

Energy stocks led the gainers in the stock market, with shares of Chevron up 1 percent. Financial shares fell as Goldman Sachs, JPMorgan Chase and Merrill Lynch all fell about 9 percent.

In Europe, stocks ended mixed following a similar session in Asia, as more central banks aggressively cut interest rates.

In Seoul, South Korea, the Bank of Korea cut by a full percentage point, the most ever, to 3 percent. In Taiwan, the central bank its main rate by 0.75 points to 2.0 percent, the fifth such move in the last two months. The rate cut, which was announced after the close of the market, was the biggest in 26 years.

The Swiss National Bank cut its benchmark rate by half a percentage point, the fourth time in two months that it has eased monetary policy.

The FTSE 100 index in London finished up 0.5 percent and major indexes in Paris and Frankfurt slipped less than 1 percent.

Asian markets finished mixed. The Tokyo benchmark Nikkei 225 stock average gained 0.7 percent and the Hang Seng index in Hong Kong rose 0.2 percent.

    Stocks Fall After Trade and Unemployment Data, NYT, 12.12.2008, http://www.nytimes.com/2008/12/12/business/12markets.html

House Passes Auto Rescue Plan

December 11, 2008
The New York Times
By DAVID M. HERSZENHORN and DAVID E. SANGER

WASHINGTON — The House voted on Wednesday to approve a $14 billion government rescue of the American automobile industry, but the bailout plan, which would provide emergency loans to General Motors and Chrysler, was in jeopardy because of strong Republican opposition in the Senate.

The House approved the rescue plan by 237 to 170, mostly along party lines, with 32 Republicans mainly from states heavily dependent on the auto industry joining 205 Democrats in supporting the measure. Voting against were 150 Republicans and 20 Democrats.

The White House so far has failed to generate support among Senate Republicans, who have the power to kill the bill.

General Motors and Chrysler have said they cannot survive much longer without the federal aid, while Ford Motor Company, which is in better shape than its competitors, has said it will not seek the emergency loans.

As an amendment to the auto rescue plan, the House approved a measure that would require banks receiving assistance from the Treasury’s $700 billion economic stabilization program to detail new lending activity each quarter.

The White House chief of staff, Joshua B. Bolten, attended a lunch at the Capitol with Republican senators to persuade them to back the auto rescue plan but met stiff resistance.

Some Republican senators said the automakers should be allowed to fail. Others said the proposed oversight of the rescue by a so-called car czar was too weak. Senator George V. Voinovich, an Ohio Republican who is one of the few outspoken Republican supporters of a taxpayer-backed rescue, emerged from the lunch sounding deeply pessimistic. Mr. Voinovich said that Senate Republicans had refused to participate in negotiations with the White House because of general opposition to an auto bailout.

“The leadership did not want to participate because they felt whatever came out of the negotiations, they probably wouldn’t support,” Mr. Voinovich said. He said he still intended to vote for the plan.

The Republican leader, Senator Mitch McConnell of Kentucky, was noncommittal. The Republicans had a “spirited” discussion about the auto rescue plan, he said, but it was too soon to take a stand because they had just received a final draft of the bill.

“Everybody’s still kind of poring through it, trying to figure out exactly what it does,” Mr. McConnell said. “At this particular juncture, I couldn’t handicap for you the level of support that may exist in our conference. But we did begin a conferencewide learning process during the course of the last hour.”

Even some auto-state lawmakers were unhappy with the bailout plan the White House helped to design. “While I am fighting to save Missouri auto jobs,” said Senator Christopher S. Bond, Republican of Missouri, “Congress is just putting off the inevitable unless we force the companies to reform fundamentally, which this latest plan fails to do and is why I am offering changes to make it work.”

A number of other Senate Republicans said they had every intention of scuttling a taxpayer-financed rescue for General Motors and Chrysler.

Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, called the proposal “a travesty” and said that he would filibuster the bill. “This is an installment on a huge bailout that will come later,” he said.

Others, while critical of the legislation, suggested there was hope of a compromise.

Senator Bob Corker, Republican of Tennessee, who was working to draft alternative legislation, said the proposal put forward by the White House and Congressional Democrats provided only weak authority for the car czar, who would supervise the sweeping reorganization plans that the automakers have agreed to carry out.

“I have a banking staffer who can carry out the responsibilities of this so-called czar,” Mr. Corker said. “I mean it’s a liaison. This person has no power.”

Mr. Corker said the bill put forward by the Bush administration and Democrats and approved by the House would entangle the federal government in the operations of the auto companies for too long. Without substantial changes, he said, the legislation was unlikely to win passage in the Senate.

“I didn’t see anybody in the group who is willing to blink,” he told reporters. An aide to the Senate majority leader, Harry Reid of Nevada, said the Democrats were trying to negotiate a deal with Mr. McConnell under which there would be several votes on measures intended to aid the auto industry including, perhaps, alternative proposals by Mr. Corker or other Republicans.

Some Congressional Democrats speculated that if Senate Republicans were kill the rescue plan, the Treasury secretary, Henry M. Paulson, Jr., would have no choice but to keep G.M. and Chrysler afloat, at least until the new Congress begins early next month and wider Democratic majorities are sworn into office.

In the compromise measure that emerged from negotiations with the White House, House Democrats agreed to drop a provision to force the automakers to end their legal challenges to state emissions standards, including a lawsuit in California.

In the broadest sense, the House and Senate bills provide an identical government rescue of the two most imperiled automakers, G.M. and Chrysler, in the form of $14 billion in emergency loans. In exchange for the loans, the auto manufacturers would have to submit to strict government oversight and carry out sweeping reorganization plans.

G.M. has not said how it will respond if the federal loans are not forthcoming. It is spending more than $2 billion in cash each month, and is close to falling below the minimum level of cash needed to operate.

Without immediate federal assistance, G.M. would be in danger of not paying its suppliers, employees and creditors, and could miss interest payments on its outstanding debt. Failure to pay creditors, for example, could result in legal actions leading to a forced bankruptcy filing.

“I wouldn’t like to speculate what would unfold, but suffice it to say the survival of the company as we know it would be highly questionable if we don’t get some bridge loan,” G.M.’s vice chairman, Robert Lutz, said in an interview on Monday.

The bill would also give the government warrants to take an equity stake in the automakers. It would limit executive pay, bar golden-parachute severance packages and prohibit the paying of shareholder dividends while the emergency government loans were outstanding.

The bill would require the companies and their stakeholders, including creditors, labor unions and dealers to agree on sweeping reorganization plans that would lead to long-term financial viability. If they failed to agree, the auto czar would be able to impose a plan, and could also force the companies into bankruptcy if they failed to meet requirements.

The plan seeks to save the auto industry from what one senior White House official called “30 years of slow suicide.”

The bill sets a March 31 deadline for the automakers to produce long-term viability plans, but it is not certain how the auto czar would determine viability. Joel Kaplan, the deputy White House chief of staff, said that “simply stated, it’s that the firm will have a positive value going forward when you take into account all of its costs.”

Those costs include health care, pensions, salaries and research and development on new technologies, and depending on how they are accounted for, the companies — or the auto czar — could potentially tinker with the meaning of “viable.” Mr. Kaplan said the White House goal was “a bridge to either fundamental restructuring, or bankruptcy.”

The bill would require the automakers to seek permission from the auto czar for any business transaction of $100 million or more. Congressional Democrats said that provision was intended specifically to prevent the companies from taking any steps that would result in American manufacturing jobs moving overseas.

But with overseas markets presenting better profit opportunities for the automakers these days, the Democrats’ political goal of preserving jobs, and the overarching goal of the rescue legislation — to return the automakers to profitability — could be at odds, with the companies discouraged from seeking the most profitable markets.

The House-approved auto bailout measure would also grant federal judges a cost-of-living increase and would provide federal guarantees for financial deals that some major transit agencies are in danger of defaulting on in part because of the credit crisis.

Bill Vlasic contributed reporting from Detroit.

    House Passes Auto Rescue Plan, NYT, 11.12.2008, http://www.nytimes.com/2008/12/11/business/11auto.html?hp

Fighting Foreclosures, F.D.I.C. Chief Draws Fire

December 11, 2008
The New York Times
By CHARLES DUHIGG

On the weekend before Thanksgiving, Washington’s top financial regulators were gathered on a conference call to discuss the rescue of the banking giant Citigroup when Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, interrupted with a concern.

Speaking from her home, Mrs. Bair declared that the F.D.I.C. would contribute to a bailout only if Citigroup were forced to participate in a foreclosure prevention program she was championing on Capitol Hill. After a brief discussion, she got her way.

That meeting of the minds was one of the rare agreements in an increasingly rancorous debate in Washington over how to help millions of at-risk borrowers stay in their homes as the economy deteriorates.

More than any administration official, Mrs. Bair has called publicly for using billions of taxpayer dollars to finance the modification of loans threatened by default. But her advocacy has contributed to a battle that is pitting White House and Treasury officials against the F.D.I.C. and lawmakers in Congress. The discord has influenced programs that have so far proved insufficient to stem a tide of foreclosures that Moody’s Economy.com expects will affect 10 million homeowners over the next five years. And it is drawing personal conflicts and animosities into the policy-making process.

White House and Treasury officials argue that Mrs. Bair’s high-profile campaigning is meant to promote herself while making them look heartless. As a result, they have begun excluding Mrs. Bair from some discussions, though she remains active in conversations where the F.D.I.C.’s support is needed, like the Citigroup rescue.

A Treasury official involved in the discussions said that while Mrs. Bair was seen as a valuable part of the team, there was a sense of distrust and a concern that she always seemed to be pushing her own agenda.

Mrs. Bair, for her part, says she has always sought to work constructively with other officials and is one of the few voices within the administration pushing for a comprehensive program to help at-risk borrowers.

“I’ve heard the stories of people who are suffering and can stay in their homes if there is just a small adjustment to their loans,” said Mrs. Bair, a Republican who was appointed to her post by President Bush two years ago. “There are some people in the Republican Party who resent the idea of helping others,” she added. “But the market is broken right now, and unless we intervene, these people and the economy won’t be helped.”

Yet behind the infighting, there is also the genuine difficulty of making a policy that can quickly aid millions of homeowners at a reasonable cost. Mrs. Bair unveiled a program to help the 65,000 borrowers who are more than two months delinquent on their mortgages at IndyMac, the giant failed bank taken over by her agency this summer. But so far, that program has benefited only 7,200 people.

A representative of IndyMac said that many of the overdue loans turned out to be ineligible for the program, and that some borrowers had not yet responded to the bank’s modification offers.

Other efforts have also stumbled. A $300 billion foreclosure prevention program passed by Congress this summer to help up to 400,000 homeowners wound up larded with requirements, like requiring background checks and restricting eligibility for mortgage relief to people at risk of foreclosure as of March 1.

As a result, fewer than 200 people have applied for the program since it opened in October, according to officials from the Department of Housing and Urban Development, and no loans have been modified.

In the meantime, pressure is mounting on homeowners in need of relief.

“We’re hurting,” said Aoah Middleton, 31, who began missing payments on her mortgage in 2006 when her 5-year-old daughter was found to have cancer. She says she knows of people who took out loans they knew they could not afford, and do not deserve help. But she spent a year trying to catch up, and could meet her obligations if her interest rate were reduced.

Instead, her home is scheduled to be sold at a foreclosure auction this month. “We are doing everything we can to be responsible. Banks are getting helped. Rich people are getting helped. Why isn’t there anyone to help me?”

In the running debate, Mrs. Bair was an early proponent of an aggressive and costly program aimed at helping millions of homeowners.

Around the time that the F.D.I.C. took over IndyMac, Mrs. Bair began urging Treasury and White House officials to use taxpayer money to encourage other lenders and mortgage servicing companies to modify large numbers of at-risk loans, a plan she expected would help 1.5 million borrowers avoid foreclosure and reduce an oversupply of homes on the market. She estimated the program would cost taxpayers about $24 billion.

But critics, mainly within the Treasury Department and the White House, estimated the cost at nearly $70 billion. The F.D.I.C., they argued, was underestimating how many people would redefault after their loans were modified.

This week, the Office of the Comptroller of the Currency reported that more than half of at-risk borrowers whose loan terms were changed this year by banks, including JPMorgan Chase, Citigroup and Bank of America, had already redefaulted on their payments. Mrs. Bair said those results most likely reflected sloppy loan modifications.

Critics also argue that Mrs. Bair’s program, as well as others sought by Congressional Democrats, fail to adequately distinguish between homeowners who are genuinely at risk and those who might skip payments just to qualify for a modification. And they are skeptical of how much impact such plans will have on the national economy.

“Every one of these programs seems like a great idea at first,” said Tony Fratto, the White House deputy press secretary. “Our concerns are that many of them pay off people who knowingly made bad decisions and lenders who created the subprime crisis. It’s unquestionable that rewarding those people lacks support among the American people.”

F.D.I.C. officials, in response, said that that those concerns should not outweigh the benefits of a program that would help hurting homeowners and lift the economy. Mrs. Bair has said that data collected by the F.D.I.C. indicates that her plan would work, and that the agency has made the rationale behind its cost estimates publicly available.

Still, when she failed to draw enthusiasm from the White House or Treasury, Mrs. Bair decided to go public with her idea, prompting quiet attacks from other administration officials.

“Our plan was being leaked and people were taking shots at us,” she said in the interview, “so I decided we needed to go public to protect ourselves and to clarify what we were proposing.” She said the F.D.I.C. has worked constructively with other agencies on numerous issues.

“The F.D.I.C. has been working on loan modifications for 20 years,” she added. “I’m frustrated that nobody gives us any deference for knowing how this stuff works. And at the end of the day, I’m happy if Treasury just picks a plan and does it. Even if it’s not my plan, its better what we’re doing right now.”

Treasury and White House officials said they were reviewing plans, though they declined to discuss specifics, timelines or why they had not proposed a comprehensive alternative to Mrs. Bair’s suggestion.

In the meantime, Democratic lawmakers have latched onto Mrs. Bair’s proposal as a political weapon, further muddying the debate. When Treasury Secretary Henry M. Paulson Jr. went to Capitol Hill last month, he was pummeled by Democratic lawmakers asking why he had ignored Mrs. Bair’s plan and other proposals.

“Treasury has been disingenuous,” said Senator Christopher J. Dodd, a Democrat of Connecticut and the chairman of the Senate banking committee. “A month ago Mr. Paulson gave me an assurance that the funds we allocated would be used for loan modifications. Now all you get is foot-dragging. There has been no real attempt to address this problem, and when they make any movements, it’s very sluggish.”

A Treasury spokeswoman, Michele A. Davis, said that the department was not required to establish a loan modification program. But until Mr. Paulson promises to establish a widespread loan modification program, Congress is unlikely to give him the second half of a $700 billion rescue fund he is seeking to undergird the economy.

In the meantime, homeowners are unlikely to see any new policy unveiled soon.

“It’s become clear that if you stick your head up, it’ll get cut off,” said one White House official. “We’re done in two months. The next administration can try to find a way out of that maze.”

That will probably come too late for Ms. Middleton, whose home is scheduled to be sold this month.

Despite repeated attempts, she has been unable to work out a modification with the company managing her loan.

“We wanted to own a home to have a place to raise our children,” she said. “I work two jobs. My husband works full time. We just wanted to have something to call our own. I don’t know what we’ll do now.”

    Fighting Foreclosures, F.D.I.C. Chief Draws Fire, NYT, 11.12.2008, http://www.nytimes.com/2008/12/11/business/11bair.html?hp

Wal - Mart to Pay Up to $54 Million to Settle Wage Suit

December 9, 2008
Filed at 10:43 a.m. ET
The New York Times
By REUTERS

NEW YORK (Reuters) - Wal-Mart Stores Inc said on Tuesday that it will pay up to $54.25 million to settle a class-action lawsuit that accused the world's largest retailer of failing to grant workers their full rest breaks and requiring hourly employees to work off-the-clock in Minnesota.

In a joint statement, Wal-Mart and plaintiffs' attorneys said the settlement includes roughly 100,000 current and former hourly employees who worked at Wal-Mart and Sam's Club stores in Minnesota from September 11, 1998 through November 14, 2008.

As part of the settlement, Wal-Mart agreed to maintain electronic systems, surveys, and notices to comply with wage and hour policies, and Minnesota laws.

In July, Minnesota District Court Judge Robert King Jr ruled that Wal-Mart owed $6.5 million to thousands of current and former employees because of wage violations.

Wal-Mart also faced a fine of up to $1,000 for each violation of the Minnesota wage and hour rules. With more than 2 million violations cited by the judge, that meant the discount retailer was facing more than $2 billion in fines.

Wal-Mart said the settlement is subject to approval by the court and a hearing for preliminary approval of the settlement is scheduled for Jan 14. The retailer said the exact amount to be paid in the settlement will depend on the court's approval and on the number of claims submitted by class members.

The settlement also includes a "substantial" payment to the state of Minnesota, the statement said..

Wal-Mart shares fell 1 percent to $56.89 in morning New York Stock Exchange trading.

(Reporting by Nicole Maestri, editing by Matthew Lewis)

    Wal - Mart to Pay Up to $54 Million to Settle Wage Suit, NYT, 9.12.2008, http://www.nytimes.com/reuters/business/business-us-walmart-suit.html

Editorial

Mortgages and Minorities

December 9, 2008
The New York Times

The mortgage crisis that has placed millions of Americans at risk of losing their homes has been especially devastating for black and Hispanic borrowers and their families. It seems clear at this point that minorities were more likely than whites to be steered into risky, high-priced loans — even when researchers controlled for such crucial factors as income, loan size and location.

The Congress that takes office in January can start to deal with this problem by strengthening fair-lending laws, especially the Community Reinvestment Act, which encourages fair, sound lending practices while requiring banks to lend, invest and open branches in low- and moderate-income areas.

Lawmakers should also extend that law to cover the often fly-by-night mortgage-lending companies that helped drive the subprime crisis. Those companies saddled entire neighborhoods with risky, high-priced loans that borrowers could never hope to pay back, sold those loans to Wall Street and then went out of business.

Congress needs to keep in mind that many of those players are surely to be back in operation somewhere down the line. Some already have returned in the guise of offering to help homeowners avoid foreclosure.

The need to revisit fair-lending law is evident in numerous studies of federal lending data. A particularly striking analysis in 2006 by the National Community Reinvestment Coalition found that nearly 55 percent of loans to African-Americans, 40 percent of loans to Hispanics and 35 percent of loans to American Indians fell into the high-cost category, as opposed to about 23 percent for whites. There also were troubling gender differences. Women got less-favorable terms than men.

A classic discrimination study by the reinvestment coalition found that black and Hispanic people who posed as borrowers received significantly worse treatment and were offered costlier, less-attractive loans more often than whites — even though minority testers had been given more attractive financial profiles, including better credit standings and employment tenures. That study, and others, go a long way to rebutting mortgage companies’ claims that lending patterns are explained by so-called risk characteristics like credit scores.

John Taylor, the coalition’s president, told a Congressional hearing last year, that minority borrowers were paying a “race tax.” While lenders are required to report to the federal government such things as race, gender, census tract, amount of loan and income, they omit credit score data. By guarding the single most important statistic used in making loans, the lenders have given themselves a ready shield against charges of discrimination.

But with indications of discrimination popping up everywhere, Congress has no choice but to require lenders to report on all data that form the basis of lending decisions, including data that would permit neutral third parties to determine whether lenders were discriminating by race. Ideally, lenders would have to report, not just on the borrower’s credit worthiness, but on details of the terms and conditions of the loan itself.

Looking back, it’s hard to say whether such reporting requirements would have forestalled the subprime crisis. Certainly, they would have given consumer advocates and regulators more information earlier on. There is no excuse for not putting them in place now to avoid the possibility of history repeating itself and having all those risky, high-priced loans issued and sold off as securities before anyone intervenes.

    Mortgages and Minorities, NYT, 9.12.2008, http://www.nytimes.com/2008/12/09/opinion/09tue1.html

Uninsured Put a Strain on Hospitals

December 9, 2008
The New York Times
By REED ABELSON

As increasing numbers of the unemployed and uninsured turn to the nation’s emergency rooms as a medical last resort, doctors warn that the centers — many already overburdened — could have even more trouble handling the heart attacks, broken bones and other traumas that define their core mission.

Even before the recession became evident, many emergency rooms around the country were already overcrowded, with dangerously long waits for some patients and the frequent need to redirect ambulances to other hospitals.

“We have no capacity now,” said Dr. Angela F. Gardner, the president-elect of the American College of Emergency Physicians, which represents 27,000 emergency doctors. “There’s no way we have room for any more people to come to the table.”

In a report to be released Tuesday, her group warns that the nation’s system of emergency rooms is in “serious condition.” Dr. Gardner argues that any public discussion of overhauling the current health system must include the nation’s emergency departments.

The number of patients coming to emergency departments has been steadily increasing. Helping push up that volume have been the growing ranks of the uninsured, because emergency rooms are legally obliged to see all patients who enter their doors, regardless of their ability to pay. But even insured patients who have no quick access to regular doctors are also showing up — among them older people, who represent the fastest growing population of emergency room visitors.

So far, there are no firm figures on the recent influx. But even two years ago, when a government survey found that the annual volume of visits to emergency departments had reached 120 million — a third higher than a decade earlier — doctors considered many emergency rooms overburdened.

Now the recession, whose full impact is yet to be seen, threatens to make conditions even worse, emergency doctors say. Hospitals are absorbing increasing amounts in unpaid medical bills, and some are already experiencing much higher numbers of patients without insurance.

For example, Denver Health, a public hospital system, had a 19 percent increase in emergency visits by uninsured patients in November — to 3,325, up from 2,792 a year earlier.

“Virtually every time I work a nine-hour shift, I encounter a couple of patients who have never been here before because they’ve just lost their insurance,” said Dr. Vincent J. Markovchick, the director of the hospital’s emergency medical services.

They include patients like Matthew Armijo, 29, who was laid off from his client services job at a technology company in August and could continue his health insurance only through October. He showed up at Denver Health’s urgent care center, a part of the emergency department, suffering from increasing abdominal pain. Mr. Armijo said he went there because he would not have to pay anything.

Denver Health expects the amount of care it delivers for which it will never be paid to grow to more than $300 million this year, compared with $276 million in 2007.

Some patients are people who have delayed seeking medical care as long as they can, like those who arrive during an asthma attack after deferring treatment.

“I am definitely seeing patients coming in presenting worse in their illness because they are further along,” said Dr. Katherine A. Bakes, the director of the program’s emergency services for children.

Other doctors around the country also report treating people who seem to have no other option. One emergency room doctor in Iowa, Dr. Thomas E. Benzoni, said he recently saw a mother come in with her two children for what he thought was routine care. When he asked her why she had not gone to her family doctor, she said she did not have health insurance.

“I don’t know what else she was supposed to do,” Dr. Benzoni said.

The increase is not affecting all emergency rooms. Some emergency physicians, in fact, said there had actually been a recent decline in visits. A report by the American Hospital Association for July, August and September found a slight overall decrease in hospital traffic, including emergency visits, as some people apparently sought to avoid spending money on anything they did not deem absolutely essential.

But as the recession continues, many officials of the college of emergency doctors predict it is only a matter of time until the rising number of uninsured and the delays in getting primary care create a crisis.

“I think we’re seeing the tip,” said Dr. Nicholas J. Jouriles, the group’s current president. Patients, he said, will have no choice but to come to the emergency department when they have no money or insurance. “They will get turned away elsewhere,” he said.

One of the doctors’ major concerns is the long waits by patients requiring a hospital bed. The doctors group, surveying its members last year, learned of at least 200 deaths related to the practice of “boarding” — in which patients on stretchers line the corridors until they can be moved into a bed.

“Crowding is a national public health problem,” said Dr. Jesse M. Pines, an emergency physician in Philadelphia.

Patients forced to wait for hours on end for a bed clearly suffer.

“It was pure hell,” recalled Robert Roth, whose 90-year-old mother, Kato, last year spent 36 hours at the emergency department of a Queens hospital, near her home in Jackson Heights, waiting for a room after going to the emergency room in the middle of the night. Mrs. Roth, who had a recent series of falls, said she had been hearing music in her ears, and both her son and the doctor he called were worried about a possible stroke.

After the first five hours of waiting, she became increasingly disoriented and delusional. Mr. Roth was unable to stay with her during the entire wait. After he left and returned, he said, the hospital staff told him they had no idea where she was. She turned up in an empty room off the emergency department, and her physical and mental condition had clearly deteriorated, Mr. Roth said. She believed that she had been kidnapped.

When she had to go several weeks later to another emergency department in Manhattan, she endured a 20-hour wait for a room, again becoming disoriented after several hours, forcing her to be sedated.

The emergency staffs “just seemed overwhelmed, overwhelmed,” said Mr. Roth, who wondered why emergency departments could not handle the elderly in a special fashion.

Dr. Ann S. O’Malley is a physician and senior researcher for the Center for Studying Health System Change, a nonprofit group in Washington that has studied emergency services in different communities. While some hospitals have taken steps to reduce crowding and move patients more efficiently from the emergency department into rooms, Dr. O’Malley said, others have responded by expanding their facilities — attracting more patients.

“Emergency departments,” she said, “are a kind of barometer of the general health of the rest of the system.”

Dr. Eric J. Lavonas, an emergency physician in Denver, said: “The nation’s emergency rooms are the end of the line. We will strain and stretch and bulge under the weight.”

Dr. Gardner, of the emergency doctors’ group, said the question now is whether the emergency room safety net will break — how often people with heart attacks will not be able to get care in time to be saved. Her group’s report, she said, is meant to alert people to the precarious nature of the system.

“What they don’t understand,” she said, “is that the system is fundamentally flawed and will fail.”

Melinda Sink contributed reporting from Denver.

    Uninsured Put a Strain on Hospitals, NYT, 9.12.2008, http://www.nytimes.com/2008/12/09/business/09emergency.html?hp

Storefronts in Virtual Worlds Bringing in Real Money

December 8, 2008
The New York Times
By STEFANIE OLSEN

Want to walk a mile in Elvis Presley’s blue suede shoes? It’ll cost you 50 cents.

In a down economy, that might be an affordable luxury to a teenager or twentysomething hanging out in a virtual world like Gaia Online, which this week will start selling a range of digital accessories depicting the rock legend’s style, including blue suede shoes, a white-rhinestone jumpsuit ($4) and a pompadour ($1.50).

Younger people unfamiliar with Elvis might prefer to shell out $2 for Justin Timberlake’s signature fedora or $3 for a pair of Snoop Dogg Dobermans to raise the cool quotient of their characters, known as avatars.

That is the premise behind Virtual Greats, a start-up in Huntington Beach, Calif., that represents celebrities and brands in the burgeoning American virtual goods business. The one-year-old company acts as a broker between Hollywood and the technologists who run youth-oriented virtual worlds like Gaia, Whyville and WeeWorld.

So far, the deepening recession has not slowed sales of virtual goods, which executives attribute to people spending more time at home. Gaia Online, a youth world with seven million monthly visitors, sells more than $1 million a month of virtual goods and expects a record month in December, said its chief executive, Craig Sherman. One rival, IMVU, has also had a 15 to 20 percent increase in sales since September.

Facebook, the leading social network, allows members to spend real money to send virtual gifts, and it has worked with corporations like Ben & Jerry’s Homemade, which gave away 500,000 virtual ice cream cones in April as part of a Free Cone Day promotion in stores.

Consumers are tightening their belts, but they still want to socialize with peers and express themselves, industry executives say. Virtual goods like Paris Hilton’s pet Chihuahua or Mr. Timberlake’s puffy jacket can offer a cheap way to stand out.

“People are thinking that they’re sacrificing in other areas so I’ll indulge here with a dollar,” said Charlene Li, a social media analyst formerly with Forrester Research. “Is it worth it? It depends on them.”

By most estimates, customers spend about $1.5 billion a year on virtual goods worldwide. Tencent Holdings, a publicly traded Internet media company based in China, is the leader, with hundreds of millions in annual revenue from virtual goods in online games and other applications. Internet companies in the United States are behind the curve.

For celebrities, licensing virtual products is a new way to make a buck and stay hip with a young crowd. Snoop Dogg’s manager, Constance Schwartz, said she did not have a clue about virtual worlds when Virtual Greats approached her this year, so she and her team spent a week exploring Gaia Online.

After seeing that many teenagers were spending their time and allowances there, Ms. Schwartz explained the concept to Snoop Dogg. She said it was an easy sell, given that Snoop Dogg had been one of the first rap musicians to license works for ring tones and voice tones. His only requirement was that all of the goods be “true to himself,” down to the hair braids, house slippers and plates of Roscoe’s chicken and waffles he regularly eats in Los Angeles.

At Elvis Presley Enterprises, virtual worlds are just another drop in the bucket — 250 licensees worldwide sell 5,000 Elvis products and promotions, including talking dolls, Pez dispensers and a Facebook page. “Elvis is everywhere,” said Kevin Kern, a spokesman for the company, which controls the name, image and likeness of the rock star. “Why not the virtual worlds?”

Virtual Greats appeals to partners like Snoop Dogg and Elvis Presley Enterprises because it does the legwork that neither party — rights holder or virtual-world operator — has the desire or time to do. On one end, it courts celebrities and brands, negotiates licenses and aggregates talent; on the other end, it coalesces an otherwise fragmented market of virtual worlds starved for added sources of revenue.

Dan Jansen, former head of the Boston Consulting Group’s global media and entertainment practice, started Virtual Greats in partnership with Millions of Us, a marketing agency in Sausalito, Calif., that builds virtual worlds. The two companies shared the idea that virtual worlds lacked diverse revenue sources and had no presence when it came to celebrity or branded goods. The Omnicom Group, a marketing and advertising firm, and Allen & Company, an investment bank, invested an undisclosed sum in Virtual Greats.

Virtual goods have profit margins of 70 percent to 90 percent because they do not cost much to store, reproduce or distribute. Still, making a profit requires high volume. Next year, Virtual Greats hopes to represent 30 worlds and more than 50 artists.

It is talking with movie studios about licensing rights to characters like Ferris Bueller and with sports leagues for the rights to jerseys. It is also courting luxury brands like Gucci, Prada and Chanel for the rights to represent their goods online.

One challenge for Virtual Greats and its partners is to create legitimacy for the online brands while ensuring that there is not too much supply.

Mr. Sherman says Gaia uses “forced forms of rarity,” or limited editions of items. Over time, those items can command a premium in the secondary market, where members trade their goods for virtual currency. For example, a Gaia golden halo now out of production sold for $6,000 on eBay, he said.

Similarly, Virtual Greats has learned that it underpriced some items, like the Hulk Impact Crater, which originally sold for 50 cents, then went up sixfold in the Gaia aftermarket. In its several months of testing, Virtual Greats has found that people prefer more expensive items with a brand name over cheaper, generic items. And larger items that are easier to see are more popular than small ones.

Licensed virtual goods probably will not be more than a tiny niche business. Generic items are a huge portion of the virtual-goods market, and company-sponsored promotions like the Ben & Jerry’s cones on Facebook will probably grow in importance as marketers try to extend their brands onto social networks.

The economic downturn could make many people reconsider the notion of spending real money to outfit fictional personas with an Elvis pompadour or a Snoop Dogg hoodie.

Still, Mr. Jansen argues that people always crave a bit of brand-name glamour. “Maybe you can’t afford that Louis Vuitton bag, but you could in virtual form,” he said. “They’re an affordable luxury in this difficult economy.”

    Storefronts in Virtual Worlds Bringing in Real Money, NYT, 8.12.2008, http://www.nytimes.com/2008/12/08/technology/internet/08virtual.html

Obama Warns of Further Economic Pain

December 8, 2008
The New York Times
By BRIAN KNOWLTON

WASHINGTON — Saying that the United States economy was likely to worsen before it improves, President-elect Barack Obama on Sunday pledged to pursue a recovery plan “equal to the task ahead,” including the creation of a vast public-works program not just built around bridge and highway projects, but on creating “green jobs” and disseminating new technologies.

Even if the current economic crisis looks nothing like the Great Depression, Mr. Obama said, “This is a big problem, and it’s going to get worse.”

In a pre-taped interview with NBC’s “Meet the Press,” Mr. Obama said that the survival of the domestic automobile industry was important; yet he said that any bailout should be tied to a reinvention and streamlining by Detroit to create an industry “that really works.”

With Congress expected to act within days on the automakers’ urgent pleas for help, Mr. Obama said the auto industry had made “repeated, strategic mistakes,” but that “I don’t think it’s an option to simply allow it to collapse.” He reiterated his position about the auto industry during a news conference later in the day.

“I think Congress is doing exactly the right thing by asking for a conditions-based assistance package that holds the auto industry’s feet to the fire,” he said. Asked whether the automakers’ top executives should lose their jobs if they fail to perform, Mr. Obama took a tough position.

“If this management team that’s currently in place doesn’t understand the urgency of the situation and is not willing to make tough choices and adapt to new circumstances,” he said, “then they should go.”

As his transition team formulates its plans for recovery from one of the deepest economic declines in decades, Mr. Obama promised far tougher regulation of the financial sector.

“As part of our economic recovery package, what you will see coming out of my administration right at the center,” he said, “is a strong set of new financial regulations, in which banks, ratings agencies, mortgage brokers, a whole bunch of folks start having to be much more accountable and behave much more responsibly.”

He also said that he was disappointed that the current administration had not moved more decisively to ease the plight of troubled home owners, and said he would make it a top priority to help them.

The president-elect reiterated his pledge to give tax cuts to 95 percent of Americans, and he said that the days of the rich benefiting disproportionately while the middle class loses ground were a “real aberration.” He would not say whether he favored raising taxes quickly on the wealthiest Americans, or waiting for the Bush tax cuts to expire in 2011, to the same effect.

With jobs evaporating and the recession deepening, the biggest news Mr. Obama made over the weekend, laid out in an address on Saturday, probably came in the details he offered for the recovery program he is trying to fashion with congressional leaders in hopes of being able to enact it shortly after being sworn in on Jan. 20.

It would be, he told NBC, “the largest infrastructure program in roads and bridges and other traditional infrastructure since the building of the federal highway system in the 1950s.”

His address followed a report on Friday indicating that the country lost 533,000 jobs in November alone, bringing the total number of jobs lost over the past year to nearly 2 million.

Mr. Obama would not put a dollar value on his proposed works program, but said the key in deciding which projects to fund would be not “the old, traditional politics” but in determining how the government would get “the most bang for the buck” while assuring accountability.

Mr. Obama’s wide-ranging NBC interview was aired a few hours before an afternoon news conference at which he said he would nominate General Eric Shinseki as the new secretary of veterans affairs. The general had a falling out with the Bush administration after saying before the invasion of Iraq that the occupation would require hundreds of thousands of American troops.

“He was right,” Mr. Obama told NBC’s Tom Brokaw. Mr. Obama sidestepped Mr. Brokaw’s question about the pace of a troop withdrawal from Iraq, saying he would confer with . generals on a plan “for a responsible drawdown.” He has hinted that his planned 16-month withdrawal of combat troops might be adjusted based on the generals’ advice.

He reiterated his intention to pursue “tough but direct” diplomacy with Iran over its nuclear program.

And, at a time of considerable tension with Russia, he said that his administration would “reset U.S.-Russia relations” — without offering any elaboration of how he planned to do that.

Despite the bleak economic picture awaiting him, Mr. Obama sought to project an air of determined optimism.

“I am absolutely confident,” he said during his afternoon news conference, “that if we take the right steps over the coming months, that not only can we get the economy back on track, but we can emerge leaner, meaner and ultimately more competitive and more prosperous.”

Peter Baker and John M. Broder contributed reporting.

    Obama Warns of Further Economic Pain, NYT, 8.12.2008, http://www.nytimes.com/2008/12/08/us/politics/08obama.html

Back at Junk Value, Recyclables Are Piling Up

December 8, 2008
The New York Times
By MATT RICHTEL and KATE GALBRAITH

Trash has crashed.

The economic downturn has decimated the market for recycled materials like cardboard, plastic, newspaper and metals. Across the country, this junk is accumulating by the ton in the yards and warehouses of recycling contractors, which are unable to find buyers or are unwilling to sell at rock-bottom prices.

Ordinarily the material would be turned into products like car parts, book covers and boxes for electronics. But with the slump in the scrap market, a trickle is starting to head for landfills instead of a second life.

“It’s awful,” said Briana Sternberg, education and outreach coordinator for Sedona Recycles, a nonprofit group in Arizona that recently stopped taking certain types of cardboard, like old cereal, rice and pasta boxes. There is no market for these, and the organization’s quarter-acre yard is already packed fence to fence.

“Either it goes to landfill or it begins to cost us money,” Ms. Sternberg said.

In West Virginia, an official of Kanawha County, which includes Charleston, the state capital, has called on residents to stockpile their own plastic and metals, which the county mostly stopped taking on Friday. In eastern Pennsylvania, the small town of Frackville recently suspended its recycling program when it became cheaper to dump than to recycle. In Montana, a recycler near Yellowstone National Park no longer takes anything but cardboard.

There are no signs yet of a nationwide abandonment of recycling programs. But industry executives say that after years of growth, the whole system is facing an abrupt slowdown.

Many large recyclers now say they are accumulating tons of material, either because they have contracts with big cities to continue to take the scrap or because they are banking on a price rebound in the next six months to a year.

“We’re warehousing it and warehousing it and warehousing it,” said Johnny Gold, senior vice president at the Newark Group, a company that has 13 recycling plants across the country. Mr. Gold said the industry had seen downturns before but not like this. “We never saw this coming.”

The precipitous drop in prices for recyclables makes the stock market’s performance seem almost enviable.

On the West Coast, for example, mixed paper is selling for $20 to $25 a ton, down from $105 in October, according to Official Board Markets, a newsletter that tracks paper prices. And recyclers say tin is worth about $5 a ton, down from $327 earlier this year. There is greater domestic demand for glass, so its price has not fallen as much.

This is a cyclical industry that has seen price swings before. The scrap market in general is closely tied to economic conditions because demand for some recyclables tracks closely with markets for new products. Cardboard, for instance, turns into the boxes that package electronics, rubber goes to shoe soles, and metal is made into auto parts.

One reason prices slid so rapidly this time is that demand from China, the biggest export market for recyclables from the United States, quickly dried up as the global economy slowed. China’s influence is so great that in recent years recyclables have been worth much less in areas of the United States that lack easy access to ports that can ship there.

The downturn offers some insight into the forces behind the recycling boom of recent years. Environmentally conscious consumers have been able to pat themselves on the back and feel good about sorting their recycling and putting it on the curb. But most recycling programs have been driven as much by raw economics as by activism.

Cities and their contractors made recycling easy in part because there was money to be made. Businesses, too — like grocery chains and other retailers — have profited by recycling thousands of tons of materials like cardboard each month.

But the drop in prices has made the profits shrink, or even disappear, undermining one rationale for recycling programs and their costly infrastructure.

“Before, you could be green by being greedy,” said Jim Wilcox, a professor at the Haas School of Business at the University of California, Berkeley. “Now you’ve really got to rely more on your notions of civic participation.”

The impact of the downturn on individual recycling efforts varies. Most cities are keeping their recycling programs, in some cases because they are required by law, but also because the economics, while they have soured, still favor recycling over landfills.

In New York City, for instance, the city is getting paid $10 for a ton of paper, down from $50 or more before October, but it has no plans to cease recycling, said Robert Lange, the city’s recycling director. In Boston, one of the hardest-hit markets, prices are down to $5 a ton, and the city expects it will soon have to pay to unload its paper. But city officials said that would still be better than paying $80 a ton to put it in a landfill.

Some small towns are refusing to recycle some material, particularly the less lucrative plastics and metals, and experts say more are likely to do so if the price slump persists.

Businesses and institutions face their own challenges and decisions. Harvard, for instance, sends mixed recyclables — including soda bottles and student newspapers — to a nearby recycling center that used to pay $10 a ton. In November, Harvard received two letters from the recycler, the first saying it would begin charging $10 a ton and the second saying the price had risen to $20.

“I haven’t checked my mail today, but I hope there isn’t another one in there,” said Rob Gogan, the recycling and waste manager for the university’s facilities division. He said he did not mind paying as long as the price was less than $87 a ton, the cost for trash disposal.

The collapse of the market is slowing the momentum of recycling overall, said Mark Arzoumanian, editor in chief of Official Board Markets. He said the problem would hurt individual recycling businesses, but also major retailers, like Wal-Mart Stores, that profit by selling refuse.

Mr. Arzoumanian said paper mills in China and the United States that had signed contracts requiring them to buy recycled paper were seeking wiggle room, invoking clauses that cover extraordinary circumstances. “They are declaring ‘force majeure,’ which is a phrase I’d never thought I’d hear in paper recycling,” he said.

Mr. Arzoumanian and others said mills were also starting to become pickier about what they take in, rejecting cardboard and other products that they say are “contaminated” by plastic ties or other material.

The situation has also been rough on junk poachers — people who made a profitable trade of picking off cardboard and other refuse from bins before the recycling trucks could get to it. Those poachers have shut their operations, said Michael Sangiacomo, chief executive of Norcal Waste Systems, a recycling and garbage company that serves Northern California.

“I knew it was really bad a few weeks ago when our guys showed up and the corrugated cardboard was still there,” he said. “People started calling, saying ‘You didn’t pick up our cardboard,’ and I said, ‘We haven’t picked up your cardboard for years.’ ”

The recycling slump has even provoked a protest of sorts. At Ruthlawn Elementary School in South Charleston, W.V., second-graders who began recycling at the school in September were told that the program might be discontinued. They chose to forgo recess and instead use the time to write letters to the governor and mayor, imploring them to keep recycling, Rachel Fisk, their teacher, said.

The students’ pleas seem to have been heard; the city plans to start trucking the recyclables to Kentucky.

“They were telling them, ‘We really don’t care what you say about the economy. If you don’t recycle, our planet will be dirty,’ ” Ms. Fisk said.

    Back at Junk Value, Recyclables Are Piling Up, NYT, 8.12.2008, http://www.nytimes.com/2008/12/08/business/08recycle.html?hp

Dow Chemical to Cut 5,000 Jobs and Close 20 Plants

December 8, 2008
Filed at 10:59 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

NEW YORK (AP) -- Dow Chemical Co. said Monday it will slash 5,000 full-time jobs -- about 11 percent of its total work force -- close 20 plants and sell several businesses to rein in costs amid the economic recession.

The company, one of the largest chemical makers in the world, expects the moves to save about $700 million per year by 2010. Dow also will temporarily idle 180 plants and prune 6,000 contractors from its payroll.

''We are accelerating the implementation of these measures as the current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn,'' Chief Executive and Chairman Andrew N. Liveris said in a statement.

Last month, Dow Chemical had said it would review all options to reduce costs and eliminate or defer capital spending. ''We are going to take necessary, bold and proactive measures to manage our transformation through these extremely challenging times,'' Liveris said at the time.

The company said it will take a fourth-quarter charge of $700 million, or 50 cents to 60 cents per share, to cover $350 million in severance payments and $350 million worth of plant shutdown costs.

But the company denied it will suspend dividend payments as a way to conserve cash. In a conference call Monday, Liveris said Dow has paid a dividend each quarter for nearly 100 years, and has no plans to stop that trend.

''We will not break that string...not on my watch,'' he said.

The Midland, Mich.-based company expects ''the new Dow'' to be comprised of three units: joint ventures; performance products; and health and agriculture, advanced materials and other market-facing businesses.

The reorganization comes just days after the company closed on its K-Dow Petrochemicals joint venture with a company controlled by the Kuwait government. The K-Dow venture, which both companies estimate will be worth about $17.4 billion, is slated to open by Jan. 1 and will market plastics and other related products. Dow and Kuwait's Petrochemical Industries Co. hope the venture will help them capture a larger share of the global chemicals market and boost profitability.

Dow also is slated to close on its $15.3 billion buyout of Rohm & Haas Co. early next year, a deal it hopes will help it grow into the high-margin specialty chemicals market. The company expects that deal to results in about $800 million in savings over time.

The joint venture and Rohm & Haas deal come as the global credit markets have all but ground to a halt, leading some to question the validity of high-priced deals amid the economic turmoil.

Dow Chemical's latest actions follow those of rival DuPont, who last week said it would cut 2,500 jobs and warned it won't turn a profit in the fourth quarter due to a severe slowdown in the automotive and construction markets.

Wilmington, Del.-based DuPont also is releasing 4,000 contractors by the end of this year, with additional contractor reductions expected in 2009, and will implement work schedule reductions and redeploy more than 400 employees on projects to reduce working capital and operating costs.

DuPont, one of the world's largest chemicals makers, is stopping all discretionary spending, slowing or halting noncritical projects, and temporarily idling more than 100 manufacturing units. The year-long restructuring plan will affect about 4,200 employees, or roughly 7 percent of DuPont's work force.

Shares of Dow Chemical jumped $1.24, or 6.5 percent, to $20.24 in morning trading. The stock is still worth less than half of its 52-week high of $45.50, set nearly a year ago. Shares of DuPont rose $1.17, or 4.9 percent, to $25.29, as the broader markets rallied early in the session.

------

AP Business Writer Ernest Scheyder in New York contributed to this report.

    Dow Chemical to Cut 5,000 Jobs and Close 20 Plants, NYT, 8.12.2008, http://www.nytimes.com/aponline/business/AP-Dow-Chemical-Job-Cuts.html

In Factory Sit-In, an Anger Spread Wide

December 8, 2008
The New York Times
By MONICA DAVEY

CHICAGO — The scene inside a long, low-slung factory on this city’s North Side this weekend offered a glimpse at how the nation’s loss of more than 600,000 manufacturing jobs in a year of recession is boiling over.

Workers laid off Friday from Republic Windows and Doors, who for years assembled vinyl windows and sliding doors here, said they would not leave, even after company officials announced that the factory was closing.

Some of the plant’s 250 workers stayed all night, all weekend, in what they were calling an occupation of the factory. Their sharpest criticisms were aimed at their former bosses, who they said gave them only three days’ notice of the closing, and the company’s creditors. But their anger stretched broadly to the government’s costly corporate bailout plans, which, they argued, had forgotten about regular workers.

“They want the poor person to stay down,” said Silvia Mazon, 47, a mother of two who worked as an assembler here for 13 years and said she had never before been the sort to march in protests or make a fuss. “We’re here, and we’re not going anywhere until we get what’s fair and what’s ours. They thought they would get rid of us easily, but if we have to be here for Christmas, it doesn’t matter.”

The workers, members of Local 1110 of the United Electrical, Radio and Machine Workers of America, said they were owed vacation and severance pay and were not given the 60 days of notice generally required by federal law when companies make layoffs. Lisa Madigan, the attorney general of Illinois, said her office was investigating, and representatives from her office interviewed workers at the plant on Sunday.

At a news conference Sunday, President-elect Barack Obama said the company should follow through on its commitments to its workers.

“The workers who are asking for the benefits and payments that they have earned,” Mr. Obama said, “I think they’re absolutely right and understand that what’s happening to them is reflective of what’s happening across this economy.”

Company officials, who were no longer at the factory, did not return telephone or e-mail messages. A meeting between the owners and workers is scheduled for Monday. The company, which was founded in 1965 and once employed more than 700 people, had struggled in recent months as home construction dipped, workers said.

Still, as they milled around the factory’s entrance this weekend, some workers said they doubted that the company was really in financial straits, and they suggested that it would reopen elsewhere with cheaper costs and lower pay. Others said managers had kept their struggles secret, at one point before Thanksgiving removing heavy equipment in the middle of the night but claiming, when asked about it, that all was well.

Workers also pointedly blamed Bank of America, a lender to Republic Windows, saying the bank had prevented the company from paying them what they were owed, particularly for vacation time accrued.

“Here the banks like Bank of America get a bailout, but workers cannot be paid?” said Leah Fried, an organizer with the union workers. “The taxpayers would like to see that bailout go toward saving jobs, not saving C.E.O.’s.”

In a statement issued Saturday, Bank of America officials said they could not comment on an individual client’s situation because of confidentiality obligations. Still, a spokeswoman also said, “Neither Bank of America nor any other third party lender to the company has the right to control whether the company complies with applicable laws or honors its commitments to its employees.”

Inside the factory, the “occupation” was relatively quiet. The Chicago police said that they were monitoring the situation but that they had had no reports of a criminal matter to investigate.

About 30 workers sat in folding chairs on the factory floor. (Reporters and supporters were not allowed to enter, but the workers could be observed through an open door.) They came in shifts around the clock. They tidied things. They shoveled snow. They met with visiting leaders, including Representatives Luis V. Gutierrez and Jan Schakowsky, both Democrats from Illinois, and the Rev. Jesse Jackson.

Throughout the weekend, people came by with donations of food, water and other supplies.

The workers said they were determined to keep their action — reminiscent, union leaders said, of autoworkers’ efforts in Michigan in the 1930s — peaceful and to preserve the factory.

“The fact is that workers really feel like they have nothing to lose at this point,” Ms. Fried said. “It shows something about our economic times, and it says something about how people feel about the bailout.”

Until last Tuesday, many workers here said, they had no sense that there was any problem. Shortly before 1 p.m. that day, workers were told in a meeting that the plant would close Friday, they said. Some people wept, others expressed fury.

Many employees said they had worked in the factory for decades. Lalo Muñoz, who was among those sleeping over in the building, said he arrived 34 years ago. The workers — about 80 percent of them Hispanic, with the rest black or of other ethnic and national backgrounds — made $14 an hour on average and received health care and retirement benefits, Ms. Fried said.

“This never happens — to take a company from the inside,” Ms. Mazon said. “But I’m fighting for my family, and we’re not going anywhere.”

    In Factory Sit-In, an Anger Spread Wide, NYT, 8.12.2008, http://www.nytimes.com/2008/12/08/us/08chicago.html?hp

In Private Equity, the Limits of Apollo’s Power

December 7, 2008
The New York Times
By JULIE CRESWELL

LEON BLACK, one of Wall Street’s buyout kingpins, is having a tough year.

In the spring, the home furnishings retailer Linens ’n Things went bust, costing the Apollo Group, the private equity firm that Mr. Black co-founded 18 years ago, its entire $365 million investment.

Apollo’s attempt to disentangle itself from another potentially bad deal — an acquisition of Huntsman, the chemical company — has resulted in a messy flurry of lawsuits.

The sagging economy and piles of debt, meanwhile, are causing several other companies that Apollo owns, including Harrah’s, Claire’s and a real estate entity that controls Century 21 and Coldwell Banker, to struggle — putting at risk about a third of some $10 billion Mr. Black raised years ago during the buyout boom.

On top of all that, a gymnasium that housed Mr. Black’s indoor tennis courts on his 90-acre Westchester County estate burned to the ground in October. And just last week, in a new twist on the term “frenemies,” Mr. Black’s good buddy and longtime tennis partner Carl C. Icahn sued another Apollo company because he was unhappy with its plans to restructure debt.

So it just ain’t easy being Leon Black — or any other Master of the Universe — these days.

“Traditional private equity is dead and has been for a year,” says Mr. Black, seated at a round conference table in an office once occupied by L. Dennis Kozlowski, who was ousted as chief executive of Tyco International. “It will probably remain so for a couple of years.”

Part of the allure of private-equity honchos like Mr. Black is that they made an art out of making money during the boom years. Their fist-pounding negotiations were legendary. Their corporate turnarounds became Harvard Business School case studies. Their multiple homes, black-tie parties, sports cars and yachts were alternately envied and vilified.

Today, with Wall Street in tatters and the easy money long gone, the question now for Mr. Black and his peers is whether they have enough moves left to turn the bleak outlook for private equity into something rosier for themselves, their companies, their investors and the legions of workers they employ.

Achieving that will hinge on whether Mr. Black and his peers can persuade banks and investors to give their companies more time to make good on their debts, something that Mr. Icahn’s lawsuit suggests is not always easy.

The other parts of the equation — how long the economic malaise lasts and how deep it becomes, as well as its ultimate impact on the companies they own — are something that even the Wall Street power brokers can’t control.

Over the last year, Stephen A. Schwarzman, the co-founder of the Blackstone Group, has watched his company’s high-profile stock plunge 71 percent. And Henry R. Kravis has yanked copycat plans for his storied firm, Kohlberg Kravis Roberts, to go public as well.

Several other superstars in the private-equity universe, including TPG and the Carlyle Group, are scrambling as some of their companies collapse — firms for which they paid top dollar during the recent buyout boom.

Those mounting losses — and the dearth of cheap and easy financing that fueled private equity’s rocketing returns over the years — have some people wondering what the future holds for private-equity firms and the companies they have acquired.

Mr. Black has an answer. His shirt wrinkled and his tie askew, he calmly says that the outlook for him and his competitors is not as bleak as it seems. In fact, he says his firm is poised to take advantage of the turbulence.

Apollo has just raised $20 billion in new money that he says will go, in part, toward buying cheap debt.

“We’ve totally turned into a bond house,” he declares.

MR. BLACK says the big money over the next few years will be made in vast restructurings — the financial, operational and structural changes that companies will need to make if they hope to survive the economic malaise.

Of course, the question is how many of these overhauls will involve Mr. Black’s own companies.

Apollo thought it had a home run with Linens ’n Things. It bought that struggling retailer in 2005 for $1.3 billion — $365 million of its own money, the rest from co-investors and banks — and installed a retail industry veteran as its chief executive.

The deal, however, soured quickly. Sales continued to slide and nervous investors who held its debt started to dump it. In May, a mere two years after Apollo acquired the company, Linens ’n Things filed for bankruptcy.

“It was an incredibly fast implosion,” said Kim Noland, the director of high-yield research with Gimme Credit.

Some point to the collapse of Linens ’n Things as an omen for the private-equity industry and some of the companies these firms acquired during the gold rush.

Armed with cheap bank funding, private-equity firms — just like consumers who bid up home prices on the back of cheap mortgages — paid sky-high prices for troubled companies that they promised they could streamline and make more efficient.

They piled layers and layers of debt — “leverage,” in Wall Street parlance — onto these companies just before the economy came screeching to a halt.

“The idea was that Apollo was going to turn it around and fix whatever was causing the issues, but operations just got worse and worse and then there was the overleverage,” Ms. Noland said of Linens ’n Things. “They just didn’t have too much of a chance.”

Mr. Black calls the Linens collapse “unusual,” saying that Apollo “underestimated the severity of the downturn of the housing market.”

Besides, he says, the Linens bankruptcy barely singed his investors, costing them half a percentage point on returns. (The Apollo fund that held Linens has returned 49 percent to investors, net of fees, since its inception in 2001.)

The promise behind private-equity firms like Apollo is that they can fix broken companies far from the bright glare of the public eye. No longer tied to meeting investors’ quarterly earnings expectations, company management can focus instead on improving operations.

Private-equity firms raise huge sums from investors like pension funds and endowments and then borrow more from banks and other lenders so they can put ever larger sums to work.

During the period when they own a company, private-equity firms pay out some of the company’s profits to their investors — and the buyout firm itself — sometimes recouping several times their original investment in dividends before they either sell the company or take it public again.

One of the longstanding criticisms of buyout firms is that they engorge targets with debt and skim the profits for themselves. That image was reinforced during the boom with stories about buyout executives’ over-the-top birthday parties and other lavish excesses.

The notion that buyout firms were only on the hunt for quick gains was further strengthened by actions of Apollo and some of its peers. Sometimes within just a year of acquiring a company, they issued debt that was used to pay fat dividends to the funds themselves.

Besides layering more debt onto the companies, the move effectively allowed Apollo and its competitors to handily recoup some, if not all, of their initial investments.

Earlier this year, a major ratings agency, Moody’s Investors Service, said that Apollo and a handful of other buyout firms were particularly aggressive about yanking out nearly all of their initial investments.

“We saw some firms taking out a large amount of the equity they put in, and they were doing this less than a year after announcing the buyouts,” said John Rogers, an analyst at Moody’s. “It would be rare that the performance of the business had improved so much during that time.”

Mr. Black defends the payouts.

“In some cases, we took 60 percent, 85 percent or even 100 percent of our investment out,” says Mr. Black, adding that Apollo can put more money into the deals if necessary. “It was the right thing to do for our investors.”

Josh Lerner, a professor at Harvard Business School who has studied private equity, says it is too soon to say whether those debt deals further weakened the affected companies.

“So far,” he said, “I think it’s hard to find any statistical difference between the performance of companies that did the dividend deals and those that didn’t.”

But do these deals remove the incentive that Apollo and others have to stick around and fix troubled companies, when they have already cashed out?

“There is a fundamental conflict in private equity between taking steps that generate a good return for investors and doing things that are in the best interests of the companies,” Mr. Lerner says. “In an ideal world, those are aligned. But in the real world, they aren’t always.”

Some data suggests that that disconnect is causing trouble.

In a report by the ratings agency Standard & Poor’s, 86 companies weren’t meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.

The firm’s analysts anticipate that an additional 125 companies could default by next fall, raising the nation’s default rate to 7.6 percent from current levels of 3.2 percent.

Whatever transpires, Mr. Black says he’s not planning to walk away from his stable of companies.

“Most of the companies we own are businesses or industries that we really like,” he says. In the same breath, however, he concedes that that won’t be the case with every company.

“There are going to be cases like Linens ’n Things,” he says. “We didn’t put more money into Linens because it would have been just putting good money after bad.”

That argument could be sorely tested with Apollo’s troubled sixth fund, which raised about $10 billion from investors and went on a spending spree from 2006 through this year.

It acquired a broad range of companies — cruise lines, paper companies and grocery store chains. Mr. Black allows that five of those companies are “cyclically challenged.”

Those five are the hot-tub manufacturer Jacuzzi; the accessories retailer Claire’s; Realogy (which owns Century 21 and Coldwell Banker) and the Countrywide real estate firm in Britain; and a gambling company, Harrah’s.

WHILE Mr. Black remains upbeat about the prospects for those companies, some analysts say most of them are severely indebted and are crumbling quickly because of the economy.

That has had an impact on Apollo’s 2006 fund. The fund has had a net internal rate of return of negative 12.8 percent from its inception through the end of September, according to someone with direct knowledge of its performance who was not authorized to release the data. The fund didn’t disclose its more recent performance to investors in a November letter.

That letter did state that the fund has returned $1.3 billion to investors through dividends, but that it marked down the overall value of its holdings by $789 million.

In an effort to conserve cash and give themselves some breathing room, Harrah’s and Realogy are trying to persuade investors to exchange the securities for new debt that will reduce overall leverage or lengthen maturities. Currently, Harrah’s, Realogy and Claire’s are keeping up with some of their debt payments by issuing more debt to investors rather than paying them in cash — a maneuver made possible by agreements reached during the boom.

Some analysts see these moves as little more than putting off the inevitable.

“What they’re doing is putting more debt on a company at a time when we are in a recessionary environment. Also, the companies that we’re talking about are some of the lowest-rated companies out there, so the margin for error is razor thin,” says Diane Vazza, head of global fixed-income research at Standard & Poor’s. “What this does is buys them a little bit of time, but the day of reckoning is around the corner.”

Mr. Black has one of the financial world’s most interesting and varied pedigrees. And some of his past is rooted in tragedy.

On Feb. 3, 1975, his father, Eli M. Black, strode into his office on the 44th floor of the Pan Am Building in Manhattan. He then used his heavy attaché case to smash through his office window and leapt to his death.

It was later revealed that regulators were investigating whether payments made by the company Mr. Black led, United Brands (predecessor to Chiquita), to a Honduran official were illegal.

Until that moment, Leon Black had led a fairly serene and even gilded life. His mother is an artist and a beloved aunt owned a Manhattan gallery, which he says influenced his early appreciation of the arts.

Today he is one of Manhattan’s best-known collectors. “Art and literature are what differentiate us from barbarians,” he says, adding that he will probably give away most of his collection eventually. Mr. Black and his family have also given or committed more than $150 million to various educational, health care and cultural institutions.

After studying history and philosophy at Dartmouth, Mr. Black envisioned himself someday teaching at Oxford, but his father convinced him to give business school a try. He was in his second year at Harvard Business School when his father died. (Mr. Black has financed chairs at Dartmouth in Shakespearean studies in his own name and Jewish studies in his father’s honor.)

“After my father died, we were pretty much wiped out, financially, as a family,” Mr. Black says. “So I decided to give finance a try.”

AFTER Harvard, Mr. Black landed on the steps of the investment banking firm Drexel Burnham Lambert, where he had a rocky start.

His boss at the time said Mr. Black wanted to jump immediately into big-picture planning, but he believed Mr. Black needed to understand the basics first. He “wasn’t working as hard as we had hoped, so I had some harsh discussions with him,” recalls Frederick H. Joseph, the former head of Drexel.

Not long after that little heart-to-heart, Mr. Black began climbing the ranks at the firm and became an influential financier as Drexel began financing megabuyouts.

“He would work all day, party all night and come back and do it again the next day,” Mr. Joseph says. “But he brought a lot more brains and a lot more strategic capacity to his deals than a lot of other guys on Wall Street at the time.”

Mr. Black and Drexel financed deals orchestrated by the likes of Mr. Icahn, Ted Turner and Kohlberg Kravis Roberts, particularly in its famed takeover of RJR Nabisco.

Although Mr. Black comes across as a quiet, introverted man, he has a famous temper. Mr. Joseph recalls seeing that temper flare a few times at Drexel when he disagreed with co-workers over whether to get involved in deals.

But Mr. Black said that what he loved most in his 13 years at Drexel was the frenetic pace.

“The day they closed the doors was a bad day,” he says, nodding ruefully.

Drexel collapsed in 1990 after investigations into illegal activities in the bond market, driven by one of Mr. Black’s close associates, Michael Milken, who was eventually imprisoned for securities violations.

“I think what happened to the firm was unfair, but we were very politically naïve,” Mr. Black says. “I’m not sure fairness was relevant.”

Mr. Black, who was the head of Drexel’s huge mergers-and-acquisitions group at the time of its demise, walked away from the collapse unscathed. Along with two other Drexel refugees, he started Apollo in 1990.

Armed with the experience he and his team earned at Drexel in tearing apart balance sheets and understanding complex credit structures, Mr. Black and Apollo emerged as one of the shrewdest investors of the 1990s, specializing in distressed companies.

“When we do distressed-debt investing, we have made money in 98 percent of those deals,” he says.

In Apollo’s early days, Mr. Black sought to distance himself and his firm from the bad-boy image of leveraged buyout firms in the 1980s. His message was that he was a long-term investor, not a raider out for short-term gains.

“We want to be like Warren Buffett,” Mr. Black said in an interview with The New York Times in 1993. In that same interview, Mr. Black also eschewed the notion of investing in high-tech companies and said that any future leveraged buyouts would be “more rational” and involve “less leverage, more equity.”

Yet, over time, Mr. Black would venture again into leveraged buyouts — and those buyouts would involve, in more recent deals, gobs of debt.

Over the years, Apollo has built up a strong track record, posting net internal rates of return of 27 percent, on average, after fees, according to filings Apollo made with the Securities and Exchange Commission this summer.

That compares with about 19 percent for Blackstone and 20 percent for Kohlberg Kravis Roberts.

Today, of course, the returns at Apollo are threatened, and the company is also mired in a legal fracas.

In July 2007, the Hexion Specialty Chemicals unit of Apollo offered $28 a share, plus assumption of debt, to buy Huntsman in a deal valued at $10.6 billion. Hexion was buying a company twice its size in a deal financed almost entirely by two banks, Deutsche Bank and Credit Suisse.

But earlier this year when soaring commodity prices and the sharply declining dollar took a huge bite out of Huntsman’s profits, Hexion tried to pull out of the deal, citing earnings declines.

Huntsman’s management said that Apollo merely had cold feet and regretted the bidding war that forced it to pay handsomely to get the deal done. In court, Hexion argued that if the two entities were combined, the resulting company would be insolvent.

The Delaware Chancery Court ordered Hexion to move forward with the merger, but by then nervous banks wanted no part of the deal. Huntsman has sued the banks in Texas to force them to back the deal.

NOW Apollo is stuck trying to figure out how to make an unwanted marriage work out and how to persuade the banks to be a part of the nuptials, analysts say. Mr. Black declined to speak about the deal other than in generalities.

“Sure, I regret where things stand now. But there was originally a very good industrial logic to doing the deal,” he says. “I’m not smart enough to predict how things will turn out.”

As for the rest of the companies he now oversees, Mr. Black acknowledges that the markets have all but written off some of them.

But he’s been in tight corners before, Mr. Black notes, saying that he has overcome previous downturns and produced solid returns.

“I don’t believe in the notion of Masters of the Universe. People either do their job or they don’t,” he says, shrugging. “It’s ultimately all about performance.”

    In Private Equity, the Limits of Apollo’s Power, NYT, 7.12.2008, http://www.nytimes.com/2008/12/07/business/07leon.html?hp

Parenting

In a Time of Worry, Value-Added Lessons

December 7, 2008
The New York Times
By MICHAEL WINERIP

THE other morning on the way to school, out of the clear blue, my youngest child, Annie, a ninth grader, asked if we were going to be all right.

I was caught off guard. Usually during the morning rush we just grunt at each other. But I knew exactly what she meant: all this economic worry.

I explained that nobody knew what would happen, that this is a scary time, but I thought we’d be as O.K. as anyone.

I pointed out that we have always lived frugally — at that particular moment, we were driving in our second-hand Volkswagen convertible with 98,000 miles that we bought for $5,000 for our teenage sons. It is our lowest-mileage car. (The Volvo my wife drives to the train station has 150,000, the Astro van 110,000.)

Annie was quiet, then asked, “How do people lose money?”

It’s a lot for a child to absorb, everything that we and the world are going through. A friend compares this moment to waiting for a hurricane looming offshore. We know it’s big, we know it’s dangerous, we know it’s going to smack us good, we know the worst is to come, but until we get whacked, mostly what we can do is wait and worry.

Kids are very good at absorbing our worries, but they’re confused, too, because for most of us, nothing is too different so far.

Annie keeps asking, “Are we in a depression yet?”

I tell her if it comes to that, she won’t have to ask.

Over Thanksgiving my twin freshman sons came home from college, and my wife and I talked to them honestly. We told them about the money we lost in the stock market and our 401(k)’s. We told them that our jobs seem safe for now, but explained how shaky the newspaper business is and how quickly that could change. We told them their college money appears safe because it was conservatively invested and then explained what that means.

Our oldest, Ben, a junior, is in Australia doing a semester abroad, and when we spoke on the phone I tried to make him understand how different the country he left in July is going to feel when he returns at Christmas. “I get it, Dad,” he tells me.

They do and they don’t.

I think the best we can hope for is that they’re equipped for whatever’s ahead.

It will help, I believe, that though they have been raised in an upper-middle-class home, my wife and I are frugal. They didn’t get money to buy lunch at school, always went with a brown bag and carried water bottles filled from the tap.

Now that they are adult size, they notice our kitchen is too small to fit all six of us. And they know that four years ago we had an architectural plan drawn for a $150,000 addition that we were all excited about, then mothballed it when we realized we’d need the money for their college educations.

From their early teenage years, they were expected to have jobs. When Ben was 12, he’d wake at 5 a.m. on weekends to assemble the Sunday papers at the corner deli. All four had regular baby-sitting jobs starting in middle school. All worked summers, starting at age 14. At college, Ben has made his pocket money — $75 a week — lifeguarding at the university pool. And all three boys paid for their first semesters from their summer earnings. None of this is to say that they have a clue about what’s about to hit.

And that is mostly a blessing.

They won’t notice near as much as we do, because they don’t have as much at stake. They own little, can be more flexible, and in some ways will benefit financially from their parents’ generation’s losses.

For years the media has done stories about middle-aged parents complaining because their grown kids couldn’t afford to buy a house in suburban New York. No need to complain anymore. This downward economic spiral is creating tons of affordable housing, although what we parents couldn’t have foreseen is that the opportunities for our children will be subsidized by our lost equity.

I have lived through two bad economic stretches, when I was single and not much older than my sons are now. Both served me well.

I graduated from Harvard in the mid-1970s, during a period of stagflation — high unemployment (7.2 percent) and high inflation (8.8 percent). Kids a few years ahead of me routinely got entry-level reporting or clerk’s positions at papers like The New York Times, The Washington Post, The Wall Street Journal. My senior year, I wrote 50 letters and got 49 rejections. The only paper that would hire me was in Rochester.

I didn’t want to go, but very quickly, I stopped thinking of myself as a victim of the economy. I just loved waking every morning and being a reporter. Over the next several years, as I climbed from Rochester, to Louisville, Ky., to Hazard, Ky., to Miami, I didn’t know it at the time, but I was benefiting from being a bigger fish in smaller ponds. Right out of college, I was doing investigative pieces, celebrity profiles, long narratives. When I got to The Times a decade later, an editor younger than I, who in an improved economy had arrived straight from the Ivy League, informed me that every feature story had to end in a quote. I didn’t say, “Yes sir,” as I would have if I’d come straight from college; I figured ways to work around him.

The severe recession and high inflation of the early 1980s? I still didn’t own anything, still was single. Economically, what I remember most was earning 12 percent interest on Treasury bills. The inflation that was gnawing at older people on fixed incomes would help grow the down payment for our first home, the home that my wife and I bought at a bargain price in a depressed Long Island housing market, the same home where we’ve raised our children.

My son Sam called from college recently with a business proposal. He wants to make T-shirts that extol one of the college’s great virtues in Sam’s eyes: the female-to-male ratio is two to one. My initial reaction was forget it, get a job at McDonald’s, you need to make your spending money. But then I thought, well, who knows. I agreed to let Sam take $400 of his savings from his summer jobs to make 40 T-shirts that read, “Preserve the ratio.” He plans to sell them at school the weeks before Christmas for $15 each. If it works, he makes $200 on the first batch. “And that’s just the beginning, Pops,” Sam said. “I got this idea...”

The young are foolish, but that’s their blessing, too. I keep reading that we’re suffering a crisis in confidence. For better or worse, my sons are not, at least not yet. With luck, these hard times will make them tougher and wiser. With luck, they’ll fight their way through, accumulating war stories to draw on when they are middle-aged like their Pops and the world goes bad on them.

    In a Time of Worry, Value-Added Lessons, NYT, 7.12.2008, http://www.nytimes.com/2008/12/07/nyregion/new-jersey/07Rparent.html

When a Job Disappears, So Does the Health Care

December 7, 2008
The New York Times
By ROBERT PEAR

ASHLAND, Ohio — As jobless numbers reach levels not seen in 25 years, another crisis is unfolding for millions of people who lost their health insurance along with their jobs, joining the ranks of the uninsured.

The crisis is on display here. Starla D. Darling, 27, was pregnant when she learned that her insurance coverage was about to end. She rushed to the hospital, took a medication to induce labor and then had an emergency Caesarean section, in the hope that her Blue Cross and Blue Shield plan would pay for the delivery.

Wendy R. Carter, 41, who recently lost her job and her health benefits, is struggling to pay $12,942 in bills for a partial hysterectomy at a local hospital. Her daughter, Betsy A. Carter, 19, has pain in her lower right jaw, where a wisdom tooth is growing in. But she has not seen a dentist because she has no health insurance.

Ms. Darling and Wendy Carter are among 275 people who worked at an Archway cookie factory here in north central Ohio. The company provided excellent health benefits. But the plant shut down abruptly this fall, leaving workers without coverage, like millions of people battered by the worst economic crisis since the Depression.

About 10.3 million Americans were unemployed in November, according to the Bureau of Labor Statistics. The number of unemployed has increased by 2.8 million, or 36 percent, since January of this year, and by 4.3 million, or 71 percent, since January 2001.

Most people are covered through the workplace, so when they lose their jobs, they lose their health benefits. On average, for each jobless worker who has lost insurance, at least one child or spouse covered under the same policy has also lost protection, public health experts said.

Expanding access to health insurance, with federal subsidies, was a priority for President-elect Barack Obama and the new Democratic Congress. The increase in the ranks of the uninsured, including middle-class families with strong ties to the work force, adds urgency to their efforts.

“This shows why — no matter how bad the condition of the economy — we can’t delay pursuing comprehensive health care,” said Senator Sherrod Brown, Democrat of Ohio. “There are too many victims who are innocent of anything but working at the wrong place at the wrong time.”

Some parts of the federal safety net are more responsive to economic distress. The number of people on food stamps set a record in September, with 31.6 million people receiving benefits, up by two million in one month.

Nearly 4.4 million people are receiving unemployment insurance benefits, an increased of 60 percent in the past year. But more than half of unemployed workers are not getting help because they do not qualify or have exhausted their benefits.

About 1.7 million families receive cash under the main federal-state welfare program, little changed from a year earlier. Welfare serves about 4 of 10 eligible families and fewer than one in four poor children.

In a letter dated Oct. 3, Archway told workers that their jobs would be eliminated, and their insurance terminated on Oct. 6, because of “unforeseeable business circumstances.” The company, owned by a private equity firm based in Greenwich, Conn., filed a petition for relief under Chapter 11 of the Bankruptcy Code.

Archway workers typically made $13 to $20 an hour. To save money in a tough economy, they are canceling appointments with doctors and dentists, putting off surgery, and going without prescription medicines for themselves and their children.

Archway cited “the challenging economic environment” as a reason for closing.

“We have been operating at a loss due largely to the significant increases in raw material costs, such as flour, butter, sugar and dairy, and the record high fuel costs across the country,” the company said. At this time of year, the Archway plant is usually bustling as employees work overtime to make Christmas cookies. This year the plant is silent. The aromas of cinnamon and licorice are missing. More than 40 trailers sit in the parking lot with nothing to haul.

In the weeks before it filed for bankruptcy protection, Archway apparently fell behind in paying for its employee health plan. In its bankruptcy filing, Archway said it owed more than $700,000 to Blue Cross and Blue Shield of Illinois, one of its largest creditors.

Richard D. Jackson, 53, was an oven operator at the bakery for 30 years. He and his two daughters often used the Archway health plan to pay for doctor’s visits, imaging, surgery and medicines. Now that he has no insurance, Mr. Jackson takes his Effexor antidepressant pills every other day, rather than daily, as prescribed.

Another former Archway employee, Jeffrey D. Austen, 50, said he had canceled shoulder surgery scheduled for Oct. 13 at the Cleveland Clinic because he had no way to pay for it.

“I had already lined up an orthopedic surgeon and an anesthesiologist,” Mr. Austen said.

In mid-October, Janet M. Esbenshade, 37, who had been a packer at the Archway plant, began to notice that her vision was blurred. “My eyes were burning, itching and watery,” she said. “Pus was oozing out. If I had had insurance, I would have gone to an eye doctor right away.”

She waited two weeks. The infection became worse. She went to the hospital on Oct. 26. Doctors found that she had keratitis, a painful condition that she may have picked up from an old pair of contact lenses. They prescribed antibiotics, which have cleared up the infection.

Ms. Esbenshade has two daughters, ages 6 and 10, with asthma. She has explained to them why “we are not Christmas shopping this year — unless, by some miracle, mommy goes back to work and gets a paycheck.”

She said she had told the girls, “I would rather you stay out of the hospital and take your medication than buy you a little toy right now because I think your health is more important.”

In some cases, people who are laid off can maintain their group health benefits under a federal law, the Consolidated Omnibus Budget Reconciliation Act of 1986, known as Cobra. But that is not an option for former Archway employees because their group health plan no longer exists. And they generally cannot afford to buy insurance on their own.

Wendy Carter’s case is typical. She receives $956 a month in unemployment benefits. Her monthly expenses include her share of the rent ($300), car payments ($300), auto insurance ($75), utilities ($220) and food ($260). That leaves nothing for health insurance.

Ms. Darling, who was pregnant when her insurance ran out, worked at Archway for eight years, and her father, Franklin J. Phillips, worked there for 24 years.

“When I heard that I was losing my insurance,” she said, “I was scared. I remember that the bill for my son’s delivery in 2005 was about $9,000, and I knew I would never be able to pay that by myself.”

So Ms. Darling asked her midwife to induce labor two days before her health insurance expired.

“I was determined that we were getting this baby out, and it was going to be paid for,” said Ms. Darling, who was interviewed at her home here as she cradled the infant in her arms.

As it turned out, the insurance company denied her claim, leaving Ms. Darling with more than $17,000 in medical bills.

The latest official estimate of the number of uninsured, from the Census Bureau, is for 2007, when the economy was in better condition. In that year, the bureau says, 45.7 million people, accounting for 15.3 percent of the population, were uninsured.

M. Harvey Brenner, a professor of public health at the University of North Texas and Johns Hopkins University, said that three decades of research had shown a correlation between the condition of the economy and human health, including life expectancy.

“In recessions, with declines in national income and increases in unemployment, you often see increases in mortality from heart disease, cancer, psychiatric illnesses and other conditions,” Mr. Brenner said.

The recession is also taking a toll on hospitals.

“We have seen a significant increase in patients seeking assistance paying their bills,” said Erin M. Al-Mehairi, a spokeswoman for Samaritan Hospital in Ashland. “We’ve had a 40 percent increase in charity care write-offs this year over the 2007 level of $2.7 million.”

In addition, people are using the hospital less. “We’ve seen a huge decrease in M.R.I.’s, CAT scans, stress tests, cardiac catheterization tests, knee and hip replacements and other elective surgery,” Ms. Al-Mehairi said.

    When a Job Disappears, So Does the Health Care, NYT, 7.12.2008, http://www.nytimes.com/2008/12/07/us/07uninsured.html?hp

Obama Pledges Public Works on a Vast Scale

December 7, 2008
The New York Times
By PETER BAKER and JOHN M. BRODER

WASHINGTON — President-elect Barack Obama committed Saturday to the largest public works construction program since the creation of the interstate highway system a half-century ago as he seeks to put together a plan to resuscitate the reeling economy.

With unemployment on the rise and no end to the recession in sight, Mr. Obama began highlighting elements of the economic recovery program he is trying to fashion with Congressional leaders in hopes of being able to enact it shortly after being sworn in on Jan. 20.

Mr. Obama’s remarks sought to expand the definition of traditional work programs for the middle class, like infrastructure projects to repair roads and bridges, while also pushing a federal effort to bring in new-era jobs in technology and so-called green jobs.

Although he put no price tag on it, he said he would invest record amounts of money in the vast infrastructure program, which also includes work on schools, sewer systems, mass transit, electric grids, dams and other public utilities. He vowed to upgrade computers in schools, expand broadband Internet access, make government buildings more energy efficient and improve information technology at hospitals and doctors’ offices.

“We need action — and action now,” Mr. Obama, said in an address taped for broadcast Saturday morning on radio and YouTube.

The address followed the latest grim economic report indicating that the country lost 533,000 jobs in November alone, bringing the total job loss over the past year to nearly 2 million. Although Mr. Obama remains weeks away from taking office, the report heightened pressure on him to assert leadership before his inauguration.

Mr. Obama and his team are working with Congressional leaders to devise a spending package that some lawmakers have suggested could total $400 billion to $700 billion. Some analysts forecast even higher costs.

A big part of that will be public works spending, particularly on projects aimed at conserving or expanding energy supplies and cleaning up the environment. “We will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s,” Mr. Obama said.

He did not estimate how much he would devote to that purpose, but when he met with the nation’s governors last week, they said the states had $136 billion worth of road, bridge and other projects approved ready to go as soon as money became available. They estimated that each billion dollars spent would create 40,000 jobs..

“He hasn’t given us any commitment, but we are fairly certain it’s going to be large,” Gov. Edward G. Rendell of Pennsylvania, a Democrat and chairman of the National Governors Association, said in an interview Saturday. “I think he understands if you’re trying to reverse the economy and turn it around, this is not the time to do it on the cheap. This is not the time to do it in small doses. It’s got to be big.”

President Bush and other Republicans have resisted such an approach in part out of concern for the already soaring federal budget deficit, which could easily hit $1 trillion this year. Borrowing hundreds of billions of dollars today to try to fix the economy, they argue, will leave a huge bill for the next generation.

Conservative economists have also long derided public works spending as a poor response to tough economic times, saying it has not been a reliable catalyst for short-term growth and instead is more about politicians gaining points with constituents.

Alan D. Viard, an economist at the American Enterprise Institute, told Congress recently that public works spending should not be authorized out of “the illusory hope of job gains or economic stabilization.”

“If more money is spent on infrastructure, more workers will be employed in that sector,” Mr. Viard told the House Ways and Means Committee. “In the long run, however, an increase in infrastructure spending requires a reduction in public or private spending for other goods and services. As a result, fewer workers are employed in other sectors of the economy.”

Mr. Obama implicitly tried to counter such arguments by invoking the federal interstate highway program, widely seen as one of the most successful public works efforts in American history. President Dwight D. Eisenhower signed the Federal Aid Highway Act in 1956, ultimately resulting in the construction of 42,795 miles of roads. In 1991, the government concluded that the total cost came to $128.9 billion, with the federal government paying $114.3 billion and the states picking up the rest.

Mr. Obama also responded to criticism of waste and inefficiency in such programs by promising new rules to govern spending, like a “use it or lose it” requirement that states act quickly to invest in roads and bridges or sacrifice federal money.

“We won’t do it the old Washington way,” Mr. Obama said. “We won’t just throw money at the problem. We’ll measure progress by the reforms we make and the results we achieve — by the jobs we create, by the energy we save, by whether America is more competitive in the world.”

Mr. Rendell said such rules would help get people to work right away. In his state, he said, contractors generally have 120 days to turn in bids for projects, but he will cite these rules to cut it to 30 days. “If they complain and moan and whine,” he said, “I’m going to say, ‘use it or lose it.’ ”

A substantial part of the proposed economic package will go toward creating so-called green jobs, those that benefit the environment or save energy. That part of the package could run as high as $100 billion over two years, according to an aide familiar with the discussions.

A blueprint for such spending can be found in a study financed by the Political Economy Research Institute at the University of Massachusetts and the Center for American Progress, a Washington research organization founded by John D. Podesta, who is a co-chairman of Mr. Obama’s transition team.

The study, released in November after months of work, found that a $100 billion investment in clean energy could create 2 million jobs over two years.

Daniel J. Weiss, an environmental analyst at Mr. Podesta’s center, said the government should start by providing fresh money to the beleaguered automakers, preserving hundreds of thousands of jobs, on the condition that they commit to cleaner and more fuel-efficient cars, like plug-in hybrids.

Then, Mr. Weiss said, Washington should invest money in existing programs that create work while cutting energy use, like home weatherization programs that have been chronically underfinanced. Congress authorized $900 million for the federal weatherization assistance program this year but only a third of that has been spent.

Mr. Obama has also spoken of retrofitting schools, post offices and other public buildings with high-efficiency heating and cooling systems and cool-burning fluorescent lighting. Money could also go to mass transit and solar, wind and biofuels projects.

A senior Obama adviser said the transition team was trying to translate his campaign promises into a legislative blueprint. “Part of what we’re doing is taking a look at that entire proposal and seeing what elements could be accelerated and what could be done as a down payment on the larger plan,” the adviser said. “We are also looking for things to the greatest degree possible that would spend out over two years and be a natural short-term investment.”

Several Congressional committees are planning hearings, including one next week by the Senate Energy and Natural Resources Committee. Senator Jeff Bingaman, Democrat of New Mexico and the panel chairman, said in an interview that he would focus on energy-saving projects that could be financed quickly and create jobs.

Mr. Bingaman noted a huge backlog of maintenance projects at national parks and other federal lands. Such a program would be similar to Franklin D. Roosevelt’s Civilian Conservation Corps, which built many of the original roads, bridges, trails and buildings on public lands in the 1930s.

“We have a queue of projects that are ready to go immediately if we can get the funding,” said Gov. James E. Doyle of Wisconsin, a Democrat. “These could produce large numbers of jobs here in Wisconsin, from Ph.D. researchers in our labs to people working in manufacturing, agriculture and forestry. We’re not trying to resurrect the past, but we’re looking to the kinds of jobs we’ll have in the future.”

    Obama Pledges Public Works on a Vast Scale, NYT, 7.12.2008, http://www.nytimes.com/2008/12/07/us/politics/07radio.html?hp

300,000 Apply for 3,300 Obama Jobs

December 6, 2008
The New York Times
By NEIL A. LEWIS

WASHINGTON — Brenda Benton, a veteran media relations employee with the Los Angeles Police Department, is now part of a record-breaking political phenomenon.

Ms. Benton was so thrilled with the election of Barack Obama as president that she has become one of about 300,000 people who have, so far, put themselves forward for posts in the new administration. At the equivalent time in the George W. Bush transition eight years ago, with his election still in dispute, there were about 44,000 applicants, according to Clay Johnson, who led the Bush transition effort. Mr. Johnson said the final figure was about 90,000.

In 1968, President-elect Richard M. Nixon’s aides were so uncertain about the availability and willingness of people to take administration jobs that they sent more than 70,000 letters to everyone listed in Who’s Who in America, asking for names of potential federal appointees.

But that is surely not a problem at Obama transition headquarters in Washington, where more than 50 staff aides have been busily classifying and downloading résumés into a computer system that lists applicants’ special skills and, one official said, what notable political sponsors they might have.

The excitement about an Obama administration along with the cyclical pent-up eagerness of Democrats denied the employment bounty of the executive branch for eight years has fueled the surge, although the unraveling economy may be adding its own boost.

The presidential historian Michael R. Beschloss said that “it’s hard to find a parallel in modern times to this degree of enthusiasm for going into government,” all the more striking in a period previously known for cynicism about government employment.

Ms. Benton, an African-American who is well-known in Los Angeles political circles, said she would love to work in some way for the future first lady, Michelle Obama, because she is greatly impressed “with her style and the dignified way she handles situations.” Ms. Benton has sent her résumé to www.change.gov, the transition clearinghouse, and has begun thinking about who she knows who could put in a good word.

Obama officials have said they might have more than double their current number of applications by Inauguration Day. “There are a lot of people who want to work in the administration,” David Axelrod, a senior Obama aide, exulted to reporters this week. “That’s great. That’s great for the country.”

But not necessarily great for the job seekers because there are actually only about 3,300 positions an incoming administration gets to fill. That means that despite the appealing notion of hordes of eager newcomers swarming to change Washington, the vast majority of those seeking jobs will be disappointed.

Mr. Johnson, who is now deputy director for management at the Office and Management and Budget, said most people were stunned to learn that the percentage of politically appointed employees in the federal government is so small, a mere 0.17 percent of the civilian work force of 1.9 million.

Mr. Johnson, who is well regarded by Republicans and Democrats alike for his expertise about federal employment issues, said that there were about 1,000 senior positions in the federal agencies that required Senate confirmation. These are typically positions like assistant, deputy and under secretary.

In addition there are 8,000 senior bureaucrats in what is called the Senior Executive Service and by law, no more than 10 percent, or 800, of these managerial positions may be filled by political appointees. Finally, he said, an administration has some 1,500 jobs to fill, known as Schedule C slots, with salaries ranging from about $25,000 to $150,000. The lower end of this scale are those jobs that people traditionally think of as political slots — suitable, say, for some party leader’s niece who just graduated from college.

(That adds up to 3,300, not including hundreds of federal judges, diplomats and members of boards and commissions.)

“To have one or two political appointees for every thousand employees is not unreasonable,” Mr. Johnson said. “It’s actually a minimal number given that every new administration wants to bring its own initiatives and needs a fresh set of people committed to those new policies.”

The long odds of landing a position have probably contributed to the frenzy of job seekers trying to gain whatever advantage they can.

One person involved in the Obama campaign said she had been contacted for help on behalf of someone who was three degrees removed — a friend of a relative of a friend. The Obama person spoke on the condition of anonymity, saying that to do otherwise, or to name names, would simply embarrass all concerned.

Another Obama supporter, a prolific fund-raiser, said that he had forwarded dozens of names to the Obama transition office although he acknowledged that he still found the sorting and hiring process mysterious.

“I believe that those who actually make the decisions on hiring are part of a relatively tightly held group,” he said, but job seekers inevitably go to the most visible supporters to seek help.

He also spoke on the condition of anonymity, saying he hoped to reduce the number of supplicants coming his way.

Another route for applicants is to begin with an elected Democratic official. Aides to Senator Charles E. Schumer of New York said they had, so far, about 100 requests to forward expressions of interest in jobs at all levels of government. Mr. Schumer himself added another explanation for the flood of job seekers: Democrats, he said, are more likely to believe in the power of government to improve things.

The situation of job seekers is further complicated by what seems to be the unresolved issue, chronic to many administrations, as to whether hiring decisions in federal departments will be made by the cabinet secretaries themselves or the White House.

    300,000 Apply for 3,300 Obama Jobs, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/us/politics/06seek.html

Laid-off workers occupy factory in Chicago

6 December 2008
USA Today

CHICAGO (AP) — Workers laid off from their jobs at a factory have occupied the building and are demanding assurances they'll get severance and vacation pay that they say they are owed.

About 200 employees of Republic Windows and Doors began their sit-in Friday, the last scheduled day of the plant's operation.

Leah Fried, an organizer with the United Electrical Workers, said the Chicago-based vinyl window manufacturer failed to give 60 days' notice required by law before shutting down.

Workers also were angered when company officials didn't show up for a meeting Friday that had been arranged by U.S. Rep Luis Gutierrez, a Chicago Democrat, she said.

During the peaceful takeover, workers have been shoveling snow and cleaning the building, Fried said.

"It's a rarely used tactic," Fried said. "But we're in very drastic time and the workers have taken measures necessary to win what they're owed."

Representatives of Republic Windows did not immediately respond Saturday to calls and e-mails seeking comment.

Police spokeswoman Laura Kubiak said authorities were aware of the situation and officers were patrolling the area.

Crain's Chicago Business reported that the company's monthly sales had fallen to $2.9 million from $4 million during the past month. In a memo to the union, obtained by the business journal, Republic CEO Rich Gillman said the company had "no choice but to shut our doors."

    Laid-off workers occupy factory in Chicago, UT, 6.12.2008, http://www.usatoday.com/news/nation/2008-12-06-chicago-factory_N.htm

North Dakota Asks, What Recession?

December 6, 2008
The New York Times
By MONICA DAVEY

FARGO, N.D. — As the rest of the nation sinks into a 12th grim month of recession, this state, at least up until now, has been quietly reveling in a picture so different that it might well be on another planet.

The number of new cars sold statewide was 27 percent higher this year than last, state records through November showed. North Dakota’s foreclosure rate was minuscule, among the lowest in the country. Many homes have still been gaining modestly in value, and, here in Fargo, construction workers can be found on any given day hammering away on a new downtown condominium complex, complete with a $540,000 penthouse (still unsold, but with a steady stream of lookers).

While dozens of states, including neighboring ones, have desperately begun raising fees, firing workers, shuttering tourist attractions and even abolishing holiday displays to overcome gaping deficits, lawmakers this week in Bismarck, the capital, were contemplating what to do with a $1.2 billion budget surplus.

And as some states’ unemployment rates stretched perilously close to the double digits in the fall, North Dakota’s was 3.4 percent, among the lowest in the country.

“We feel like we have been living in a bubble,” said Justin Theel, part owner of a dealership that sells Toyotas, Dodges and Scions in Bismarck. “We see the national news every day. We know things are tough. But around here, our people have gone to their jobs every day knowing that they’re going to get a paycheck and that they’ll go back the next day.”

North Dakota’s cheery circumstance — which economic analysts are quick to warn is showing clear signs that it, too, may be in jeopardy — can be explained by an odd collection of factors: a recent surge in oil production that catapulted the state to fifth-largest producer in the nation; a mostly strong year for farmers (agriculture is the state’s biggest business); and a conservative, steady, never-fancy culture that has nurtured fewer sudden booms of wealth like those seen elsewhere (“Our banks don’t do those goofy loans,” Mr. Theel said) and also fewer tumultuous slumps.

As it happens, one of the state’s biggest worries right now is precisely the reverse of most other states: North Dakota has about 13,000 unfilled jobs and is struggling to find people to take them.

“We could use more people with skills for some of these jobs,” Marty Aas, who leads the Fargo branch of the state’s Job Service North Dakota, said as his offices — where the unemployed might come for help — sat quiet and nearly empty. State employees outnumbered the six clients on a recent afternoon. (Mr. Aas insisted that such a slow afternoon was rare.)

State officials and private companies have begun looking elsewhere to recruit workers, including traveling in October to Michigan, where tens of thousands of workers have been laid off, and, this month, holding an “online job fair,” anything to lure people to a place that is, at least for now, removed from the deep financial dismay — if also just plain removed.

“Our problem is that everybody thinks that it’s a cold, miserable place to live,” said Bob Stenehjem, a Republican and the State Senate’s majority leader. “They’re wrong, of course. But North Dakota is a pretty well-kept secret.”

With 635,867 residents, North Dakota is among the least populous states, and, in the past few years, more people have moved away, census figures show, than have moved here.

Katie Hasbargen, a spokeswoman for Microsoft’s Fargo campus, which is in the middle of a $70 million or so building expansion and is, even now, looking for a few additions to its work force (of more than 1,500), said false perceptions of the state are the problem when it comes to recruiting workers. “The movie,” Ms. Hasbargen said, referring to the 1996 Coen brothers’ film that bears this city’s name, “didn’t do us a lot of favors.”

On a recent evening, as the night shift arrived at DMI Industries, where 383 workers (an all-time high) weld gigantic towers for wind turbines and where a $20 million expansion is under way, Phillip Christiansen, the general manager, wandered the plant, noting those who had been recruited from elsewhere — three from Michigan not long ago, another from Louisiana. “It’s very competitive around here trying to find people,” he said. “In this environment, it’s a little hard.”

Not that people are complaining much. Downtown, in the line of gift shops along Broadway, where shop owners reported sales that were healthy (though always sensible), residents said they were pleased — if a tad guilty — about the state’s relative good fortune.

No one was gloating. No wild spending sprees were apparent. No matter how well things seemed to be going, many said they were girding, in well-practiced Midwestern style, for the worst.

“You’re always a little worried,” Mr. Christiansen admitted. “You get a tickle at the pit of your stomach.”

In truth, economic analysts said North Dakota has already begun showing some of the painful ripples seen elsewhere. Some manufacturing companies here have lately made temporary job cuts as orders for products have dropped nationally. Shrinking 401(k)’s — “201(k)’s,” some here grump — are no bigger here than anywhere else. And, most of all, drops in oil prices and farm commodity prices are sure to sink local fortunes, experts said.

An economist at Moody’s Economy.com recently warned that conditions in North Dakota had “slowed measurably in recent months, and the state is now at risk of being dragged into recession.” In an interview, Glenn Wingard, the economist, described North Dakota as “an outlier” up to now in a broad, national slump.

“It’s not going to hold,” Mr. Wingard said, suggesting that the state would now probably have to suffer through a reversal, or at least, a slowdown, much like other places that benefited from rising fortunes tied to energy, high oil prices and booming farm commodity prices.

Still, Ernie Goss, an economist at Creighton University in Omaha, who conducts a regular survey of economic conditions in nine states through the nation’s middle, found North Dakota to be the only one expected to experience an expanding economy over the next three to six months. “This will hit North Dakota,” Dr. Goss said of the recession, “I just don’t think it’ll ever be as significant.”

Just as state officials in Minnesota — due east of here — this week revealed a staggering $5.2 billion deficit, Gov. John Hoeven of North Dakota gathered with lawmakers at the State Capitol to talk, in part, about the $1.2 billion budget surplus — the result, in part, of increased revenues from oil, and a sum that is all the more astonishing given the size of the state’s total budget, $7.7 billion over the next two years.

Mr. Hoeven, a Republican whose party controls both chambers of the state legislature and who was re-elected last month with more than 70 percent of the vote, offered proposals few other states are likely to hear this year: $400 million in property and income tax relief, $130 million more for kindergarten through 12th-grade education, 5 percent raises for state workers, $18 million for expansion of a state heritage center, and so on.

The surplus, several lawmakers asserted, will actually make their jobs and choices far more complicated.

“Now that there is money,” said State Senator David O’Connell, a Democrat and the party’s minority leader, “I could go to three meetings a day with people who will say they want more money or want a one-time spending package or something.”

Mr. Stenehjem, who likewise complained that “when you have $1.2 billion sitting around, there’s about 50 billion ideas of what to spend it on,” quickly noted that there were worse budget problems to have.

“Don’t get me wrong,” he said. “I would rather deal with this.

“Prudence is important at this point,” Mr. Stenehjem, a lifelong North Dakotan, went on. “North Dakota never gets as good as the rest of the country or as bad as the rest of the country, and that’s fine with us.”

    North Dakota Asks, What Recession?, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/us/06dakota.html?em

Warning Given on Use of 4 Popular Asthma Drugs, but Debate Remains

December 6, 2008
The New York Times
By GARDINER HARRIS

WASHINGTON — Two federal drug officials have concluded that asthma sufferers risk death if they continue to use four hugely popular asthma drugs — Advair, Symbicort, Serevent and Foradil. But the officials’ views are not universally shared within the government.

The two officials, who work in the safety division of the Food and Drug Administration, wrote in an assessment on the agency’s Web site on Friday that asthma sufferers of all ages should no longer take the medicines. A third drug-safety official concluded that Advair and Symbicort could be used by adults but that all four drugs should no longer be used by people age 17 and under.

Dr. Badrul A. Chowdhury, director of the division of pulmonary and allergy products at the agency, cautioned in his own assessment that the risk of death associated with the drugs was small and that banning their use “would be an extreme approach” that could lead asthmatics to rely on other risky medications.

Once unheard of, public disagreements among agency experts have occurred on occasion in recent years. The agency is convening a committee of experts on Wednesday and Thursday to sort out the disagreement, which has divided not only the F.D.A. but also clinicians and experts for more than a decade.

Sudden deaths among asthmatics still clutching their inhalers have fed the debate. But trying to determine whether the deaths were caused by patients’ breathing problems or the inhalers has proved difficult.

The stakes for drug makers are high. Advair sales last year were $6.9 billion and may approach $8 billion this year, making the medication GlaxoSmithKline’s biggest seller and one of the biggest-selling drugs in the world. Glaxo also sells Serevent, which had $538 million in sales last year. Symbicort is made by AstraZeneca and Foradil by Novartis.

Whatever the committee’s decision, the drugs will almost certainly remain on the market because even the agency’s drug-safety officials concluded that they were useful in patients suffering from chronic obstructive pulmonary disease, nearly all of whom are elderly.

Dr. Katharine Knobil, global clinical vice president for Glaxo, dismissed the conclusions of the agency’s drug-safety division as “not supported by their own data.” Dr. Knobil said that Advair was safe and that Serevent was safe when used with a steroid.

Michele Meeker, a spokeswoman for AstraZeneca, said that the F.D.A.’s safety division improperly excluded most studies of Symbicort in its analysis, and that a review of all of the information shows that the drug does not increase the risks of death or hospitalization.

Dr. Daniel Frattarelli, a Detroit pediatrician and member of the American Academy of Pediatrics’s committee on drugs, said that he was treating children with Advair and that his committee had recently discussed the safety of the medicines.

“Most of us felt these were pretty good drugs,” Dr. Frattarelli said. “I’m really looking forward to hearing what the F.D.A. committee decides.”

About 9 percent of Advair’s prescriptions go to those age 17 and under, according to Glaxo. Ms. Meeker could not provide similar figures for Symbicort.

In 1994, Serevent was approved for sale, and the F.D.A. began receiving reports of deaths. A letter to the New England Journal of Medicine described two elderly patients who died holding Serevent inhalers. Glaxo warned patients that the medicine, unlike albuterol, does not work instantly and should not be used during an attack.

In 1996, Glaxo began a study of Serevent’s safety, but the company refused for years to report the results publicly. In 2001, the company introduced Advair, whose sales quickly cannibalized those of Serevent and then far surpassed them.

Finally in 2003, Glaxo reported the results of its Serevent study, which showed that those given the medicine were more likely to die than those given placebo inhalers. Glaxo said problems with the trial made its results impossible to interpret.

Asthma is caused when airways within the lungs spasm and swell, restricting the supply of oxygen. The two primary treatments are steroids, which reduce swelling, and beta agonists, which treat spasms. Rescue inhalers usually contain albuterol, which is a beta agonist with limited duration. Serevent and Foradil are both beta agonists but have a longer duration than albuterol and were intended to be taken daily to prevent attacks.

Advair contains Serevent and a steroid. Symbicort, introduced last year, contains Foradil and a steroid. In the first nine months of this year, Symbicort had $209 million in sales.

The problem with albuterol is that it seems to make patients’ lungs more vulnerable to severe attacks, which is why asthmatics are advised to use their rescue inhalers only when needed. The long-acting beta agonists may have the same risks.

But drug makers say this risk disappears when long-acting beta agonists are paired with steroids. The labels that accompany Serevent and Foradil instruct doctors to pair the medicines with an inhaled steroid.

    Warning Given on Use of 4 Popular Asthma Drugs, but Debate Remains, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/health/policy/06allergy.html?em

Grim Job Report Not Showing Full Picture

December 6, 2008
The New York Times
By DAVID LEONHARDT and CATHERINE RAMPELL

As bad as the headline numbers in Friday’s employment report were, they still made the job market look better than it really is.

The unemployment rate reached its highest point since 1993, and overall employment fell by more than a half million jobs. Yet that was just the beginning. Thanks to the vagaries of the way that the government’s best-known jobs statistics are calculated, they have overlooked many workers who have been deeply affected by the current recession.

The number of people out of the labor force — meaning that they were neither working nor looking for work and that the government did not consider them unemployed — jumped by 637,000 last month, the Labor Department said. The number of part-time workers who said they wanted full-time work — all counted as fully employed — rose by an additional 621,000.

Take these people into account, and the job market may be in its worst condition since the early 1980s. It is still deteriorating rapidly, too.

Already, the share of men older than 20 with jobs was at its lowest point last month since 1983, and very close to the low point of the last 60 years. The share of women with jobs is lower than it was eight years ago, which never happened in previous decades.

Liz Perkins, 24 and the mother of four young children in Colorado Springs, began looking for work in October after she learned that her husband, James, was about to lose his job at a bed-making factory.

But the jobs she found either did not pay enough to cover child care or required her to work overnight. “I can’t do overnight work with four children,” she said. She has since stopped looking for work.

The family has paid its bills by dipping into its savings and borrowing money from relatives. But Ms. Perkins said that unless her husband found a job in the next three months, she feared the family would become homeless.

Even Wall Street economists, whose analysis usually comes shaded in rose, seemed taken aback by the report. Goldman Sachs called the new numbers “horrendous.” Others said “dreadful” and “almost indescribably terrible.” In a note to clients, Morgan Stanley economists wrote, “Quite simply, there was nothing good in this report.” HSBC forecasters said they now expected the Federal Reserve to reduce its benchmark interest rate all the way to zero.

Such language may sound out of step with a jobless rate that, despite its recent rise, remains at 6.7 percent; the rate exceeded 10 percent in the early 1980s. But over the last few decades, the jobless rate has become a significantly less useful measure of the country’s economic health.

That is because far more people than in the past fall into the gray area of the labor market — not having a job and not looking for one, but interested in working. This group includes many former factory workers who have been unable to find new work that pays nearly as well and are unwilling to accept a job that pays much less. Some get by with help from disability payments, while others rely on their spouses’ paychecks.

For much of the last year, the ranks of these labor force dropouts were not changing rapidly, said Thomas Nardone, a Labor Department economist who oversees the collection of the unemployment data. People who had lost their jobs generally began looking for new work. But that changed in November.

Much as many stock market investors threw in the towel in early October, and consumers quickly followed suit by cutting their spending, job seekers seemed to turn darkly pessimistic about the American economy in November. Unless the numbers turn out to have been a one-month blip, large numbers of people seem to have decided that a job search is, for now, futile.

“It’s not only that there’s nothing out there,” said Lorena Garcia, an organizer in Denver for 9to5, National Association of Working Women, a group that helps low-wage women and women who are looking for work. “But it also costs money to job hunt.”

Just how bad is the labor market? Coming up with a measure that is comparable across decades is not easy.

The unemployment rate has been made less meaningful by the long-term rise in dropouts from the labor force. The simple percentage of people without jobs — including retirees, stay-at-home parents and discouraged would-be job seekers — can also be misleading, though. It has dropped in recent decades mainly because of the influx of women into the work force, not because the job market is fundamentally healthier than it used to be.

The Labor Department does publish an alternate measure of unemployment, which counts part-time workers who want full-time work, as well as anyone who has looked for work in the last year. (The official rate includes only people who told a government surveyor that they had looked in the last four weeks.)

This alternate measure rose to 12.5 percent in November. That is the highest level since the government began calculating the measure in 1994.

Perhaps the best historical measure of the job market, however, is the one set by the market itself: pay.

During the economic expansion that lasted from 2001 until December 2007, when the recession began, incomes for most households barely outpaced inflation. It was the weakest income growth in any expansion since World War II.

The one bit of good news in Friday’s jobs report, economists said, was that pay had not yet begun to fall sharply. Average weekly wages for rank-and-file workers, who make up about four-fifths of the work force, rose 2.8 percent over the last year, only slightly below inflation.

But economists said those pay gains would begin to shrink next year, if not in the next few weeks, given the rapid drop in demand for workers. “Wage increases of this magnitude will be history very soon,” said Joshua Shapiro, an economist at MFR Incorporated, a research firm in New York.

    Grim Job Report Not Showing Full Picture, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/business/economy/06idle.html

U.S. Loses 533,000 Jobs in Biggest Drop Since 1974

December 6, 2008
The New York Times
By LOUIS UCHITELLE, EDMUND L. ANDREWS and STEPHEN LABATON

This article was reported by Louis Uchitelle, Edmund L. Andrews and Stephen Labaton and written by Mr. Uchitelle.

The government’s report of a giant job loss in November, the biggest monthly decline in a generation, puts more pressure on Congress and the administration to move quickly on a stimulus package, mortgage relief and perhaps financial aid for Detroit’s big automakers.

The nation’s employers cut 533,000 jobs in November, the Bureau of Labor Statistics reported Friday.

Not since December 1974, toward the end of a severe recession, have so many jobs disappeared in a single month — and the current recession, far from ending, appears to be just gathering steam.

“We are caught in a downward spiral in which employment, incomes and spending are collapsing together,” said Nigel Gault, chief domestic economist for IHS Global Insight. “With private spending frozen, we have no choice but to rely on a stimulus package to revive the economy.”

The unemployment rate rose to 6.7 percent, up just two-tenths of a percentage point from October, but up six-tenths over the last three months. More than 420,000 men and women who had been working or seeking work in October left the labor force in November.

More significantly, the unemployment rate does not include those too discouraged to look for work any longer or those working fewer hours than they would like. Add those people to the roster of the unemployed, and the rate hit a record 12.5 percent in November, up 1.5 percentage points since September.

Noting that 1.9 million jobs have been lost since the start of the recession a year ago — two-thirds of them since September — President-elect Barack Obama invoked public spending as the best way to get a dead-in-the-water economy moving again. “This painful crisis,” he said in a statement, is an opportunity “to improve the lives of ordinary people by rebuilding roads and modernizing schools for our children,” and by investing in clean energy projects.

A goal of all this spending is to generate 2.5 million jobs over the next two years, he said, repeating an earlier pledge. Given the accelerating job losses, hitting that target would barely recover the jobs that have disappeared over the last year.

As part of Friday’s announcement, the government revised higher its estimates of jobs lost in September and October. Instead of 524,000 jobs disappearing in those months, 723,000 were lost, or a total of 1.2 million jobs in just three months. In all, jobs have been lost in each of the last 11 months.

“Obama is being deliberately unclear about those 2.5 million jobs,” said Robert Pollin, a University of Massachusetts economist. “He is not going to add 2.5 million on top of recovering the 1.9 million that have been lost so far this year.”

Despite the deterioration of the labor market, Democrats in Congress and a lame-duck president remain in a standoff over rescue measures.

At its core, the stalemate between the Republicans and the Democrats springs from fundamentally different views about the nature of the crisis and the role of government in resolving it. The White House contends that it has rightly focused on the credit and housing markets, while the Democrats see economic problems that can be resolved only through broader intervention.

New efforts to adopt a broad economic package are likely to wait until the new president takes office and Democrats have bigger majorities in Congress. That delay poses the possibility of a deeper recession, according to some experts.

President Bush, appearing in front of cameras on Friday morning at the White House, said he was “concerned about our workers who have lost jobs.” But he offered no hint of softening his opposition to either a stimulus package or a bailout of the automobile industry, saying that the measures already put in place by the Treasury Department and the Federal Reserve to ease credit problems would take time to work.

Shortly after his appearance, a White House spokesman, Scott Stanzel, dashed any expectation of a change in policy when he said that officials expected a stimulus package would “happen in the next administration.”

Support is building for a significant stimulus package as the economy slips into a deep recession. Most forecasters expect the gross domestic product to contract in the current fourth quarter at an annual rate of 4 or 5 percent, and continue to contract through most of next year, shrinking by 2 percent for all of 2009 — a contraction that has occurred only once since World War II: in 1982, a year of severe recession.

“If there was any doubt that a very large fiscal stimulus is required, then the numbers we have been getting recently should dispel that doubt,” said Jan Hatzius, chief domestic economist for Goldman Sachs. To offset the private sector retrenchment, he added, “we will need a stimulus package of $600 billion at an annual rate, or $1.2 trillion over two years.”

Economists and policy makers increasingly share his estimate of what it will take to revive America’s $14 trillion economy, with Democratic leaders talking recently about a stimulus package of $400 billion or more.

Though any broad economic package seems to be delayed, Democrats still had faint hopes of approving next week a rescue package for the car companies. Their goal would be to prevent far more rapid deterioration in the job market.

The latest job numbers were stark evidence of a breakdown in consumer spending and business investment since mid-September, when the Treasury Department and the Federal Reserve decided to let Lehman Brothers fail, delivering a shock to the financial sector. Almost simultaneously, stock prices began a free fall, undermining the wealth and the retirement accounts of millions of Americans.

“We have recorded the largest decline in consumer confidence in our history,” said Richard T. Curtin, director of the Reuters/University of Michigan Survey of Consumers, which started its polling in the 1950s.

Job loss has played a big role in this erosion, he acknowledged. But so have fewer hours of work, smaller bonuses, less overtime, falling home prices, falling stock prices and a drumbeat of job cut announcements — the most recent, this week, from big names like AT&T, Viacom, CVS, DuPont and the Avis Budget Group.

The Dow Jones industrial average, down more than 20 percent since mid-September, fell Friday morning in response to the November jobs report, but recovered later and gained 259.18 points, or 3 percent, by the end of trading, to close at 8,635.42.

With home prices still in decline, one in 10 mortgage holders was either delinquent on loans in September or in foreclosure, the Mortgage Bankers Association reported Friday. That was up from 9.2 percent in June and the highest percentage since the association began to collect this data 30 years ago.

The mortgage crisis makes lenders ever more reluctant to lend for the purchase of homes, autos and other big consumer items. In more normal times, lenders bundle these loans into securities and sell them. The buyers of these securities have disappeared in the current credit crisis, however, and the Federal Reserve is considering ways for lenders to borrow from the Fed, using the securities as collateral.

Jobs disappeared last month from every sector of the economy except health care and state government, which mainly added educators. The biggest losses were in manufacturing, construction, retailing — despite the first month of Christmas shopping — financial services, hotel and restaurant work and temporary workers. Over the course of the recession, 604,000 jobs — nearly one-third of the total — have been eliminated in manufacturing, and the Big Three automakers promise more layoffs to qualify for a federal bailout.

“Business shut down in November,” said Mark Zandi, chief economist at Moody’s Economy.com. “Businesses are in survival mode and are slashing jobs and investment to conserve cash. Unless credit starts flowing soon, big job losses will continue well into next year.”

The administration says its recent actions are beginning to make credit flow more easily. “We are pulling some very significant levers on the economy right now, through what we’re doing with Treasury and what we’re doing with the Fed,” said Tony Fratto, a White House spokesman.
 

Jack Healy contributed reporting.

    U.S. Loses 533,000 Jobs in Biggest Drop Since 1974, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/business/economy/06jobs.html?hp

Jobless Rate Rises to 6.7% as 533,000 Jobs Are Lost

December 6, 2008
The New York Times
By LOUIS UCHITELLE

With the economy deteriorating rapidly, the nation’s employers shed 533,000 jobs in November, the 11th consecutive monthly decline, the government reported Friday morning, and the unemployment rate rose to 6.7 percent.

The decline, the largest one-month loss since December 1974, was fresh evidence that the economic contraction accelerated in November, promising to make the current recession, already 12 months old, the longest since the Great Depression. The previous record was 16 months, in the severe recessions of the mid-1970s and early 1980s.

“We have recorded the largest decline in consumer confidence in our history,” said Richard T. Curtin, director of the Reuters/University of Michigan Survey of Consumers, which started its polling in the 1950s. “It is being driven down by a host of factors: falling home and stock prices, fewer work hours, smaller bonuses, less overtime and disappearing jobs.”

The jobless rate was up from 6.5 percent in October. The job losses far exceeded the 350,000 figure that was the consensus expectation of economists.

Over all, the job losses since January now total more than 1.9 million, with most coming in the last three months as consumers and businesses cut back sharply in response to the worsening credit crisis.

The report on Friday by the Bureau of Labor Statistics included sharp upward revisions in job-loss figures for October (to 320,000 from the previously reported 240,000) and for September (to 403,000 from 284,000).

The employment report increased the likelihood that Congress, with the support of President-elect Barack Obama, will enact a stimulus package by late January that could exceed $500 billion over two years. More than half that money would probably be channeled into public infrastructure spending. Many economists consider such investments an effective way to counteract, through federally financed employment, the layoffs and hiring freezes spreading through the private sector.

“Basically $100 billion of public investment in such things as roads, bridges and levees would generate two million jobs,” Robert N. Pollin, an economist at the University of Massachusetts, said. “That would offset the two million jobs that we are now on track to lose by early next year.”

The manufacturing sector has been particularly hard hit, losing more than half a million jobs this year. That is nearly half the 1.2 million jobs lost since employment peaked in December and, in January, began its uninterrupted decline. The cutbacks seem likely to accelerate as the three Detroit automakers close more factories and shrink payrolls even more as they try to qualify for the federal loans they asked Congress this week to approve.

While manufacturing has led the way, the job cuts are rising in nearly every sector of the economy. “My sense is there is just a collapse in demand,” said Marc Levinson, research director for the union Unite Here, whose 450,000 members are spread across apparel manufacturing, hotels, casinos, industrial laundries, airport concessions and restaurants. “Our members are being laid off big time,” Mr. Levinson said.

The latest jobs report came during a week of compelling evidence that the American economy is falling precipitously. On Monday, the National Bureau of Economic Research ruled that a recession — the 12th since the Depression — had begun last December, even earlier than many people had thought.

That news was followed by fresh reports of cutbacks or declines in construction spending, home sales, consumer spending, business investment and exports. And companies in every industry sector announced layoffs this week, including AT&T, the telecommunications company, with 12,000 job cuts; DuPont, the chemical company, 2,500; and Viacom, the media company, 850.

Even retail sales in the Christmas season were off sharply. The International Council of Shopping Centers on Thursday described November sales at stores open at least a year as the weakest in more than 30 years.

With all this in mind, and particularly the shrinking employment rolls, economists are estimating that the gross domestic product is contracting at an annual rate of 4 percent or more in the fourth quarter, after a decline of 0.3 percent in the third quarter.

“Our G.D.P. forecast for 2009 is now minus 1.8 percent, rather than minus 1 percent,” HIS Global Insight, a forecasting and data gathering service, informed its clients in an e-mail message this week, explaining that all the latest bad news left it no choice but to issue a sharp downward revision.

“We see the unemployment rate at 8.6 percent by the end of 2009,” Global Insight said.

    Jobless Rate Rises to 6.7% as 533,000 Jobs Are Lost, NYT, 6.12.2008, http://www.nytimes.com/2008/12/06/business/economy/06jobs.html?hp

Late mortgage payments and foreclosures hit record

Fri Dec 5, 2008
3:29pm EST
Reuters
By Lynn Adler

NEW YORK (Reuters) - Late mortgage payments and the rate of home loans in foreclosure rose to record highs in the third quarter, threatening to escalate as the recession erases jobs and further strains homeowners, the Mortgage Bankers Association said on Friday.

The number of loans entering the foreclosure process would have been even higher without various programs halting them in favor of loan modifications.

A spiking unemployment rate in the midst of what many economists fear to be a deep recession, however, points to rising mortgage delinquency and foreclosure rates next year, the trade group said.

"We haven't gone into past recessions with a housing market in as bad of a shape," Jay Brinkmann, chief economist and senior vice president for research and economics, told Reuters in an interview.

The Mortgage Bankers Association estimates 2.2 million home mortgages will start the foreclosure process this year, before sweeping national efforts to stem the tide take effect.

"The bigger issue is going to be the underlying economy," Brinkmann said. "As much as any of the overbuilding issues, poor lending or speculative issues, as these job losses spread to some of the rest of the economy ... That certainly doesn't speak to a foreclosure rate coming down."

The share of loans in the foreclosure process rose to a record 2.97 percent from 2.75 percent the prior quarter and 1.69 percent a year earlier, the trade group said.

U.S. employers cut 533,000 jobs in November, the weakest performance in 34 years, according to the Labor Department on Friday. Unemployment rose to a 15-year high of 6.7 percent.

"The economy as a whole has been doing very poorly. The job market is equally dismal and home prices are falling," said Millan Mulraine, economics strategist at TD Securities in Toronto. "We have an increasing number of homeowners whose homes are becoming under water and that clearly doesn't offer much incentive to remain in the home."

The rate of one-to-four-unit residential loans at least one payment past due rose to a seasonally adjusted 6.99 percent in the third quarter, up from 6.41 percent in the second quarter and 5.59 percent a year ago.

Mulraine said that he expected both delinquencies and foreclosures to rise in coming months, adding: "A number of initiatives are in motion that eventually will have a positive impact, but it will take time for those to take hold."

Loans that were 90 days or more past due. but not in foreclosure, raced to a record in the quarter. This indicated that more companies were holding onto troubled mortgages longer in effort to alter terms and avert foreclosure.

While 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state but Alaska had an increase in the 90 days or more delinquent category, the MBA said in a release.

But the share of loans entering the foreclosure process was flat overall in the third quarter, with rates differing greatly depending on loan type and location.

Nine states had foreclosure start rates above the national average: Nevada, Florida, Arizona and California, Michigan, Rhode Island, Illinois, Indiana and Ohio. The others were below the average.

"Prime and subprime adjustable-rate mortgages continue to have the highest share of foreclosures and California and Florida have about 54 percent and 41 percent of the prime and subprime ARM foreclosure starts respectively," Brinkmann said in the release. "Until those two markets turn around, they will continue to drive the national numbers."

Policies to stimulate job growth and restore faith in financial institutions are key, he said on a conference call.

Stabilizing home prices would also lure buyers who are afraid of making a huge investment that swiftly loses value.

The Standard & Poor's/Case-Shiller 20-city price index has slumped almost 22 percent from its summer 2006 peak and more declines are widely expected.

A new government plan to buy hundreds of billions of dollars in mortgage bonds has helped tug loan rates down to about 5-1/2 percent, causing a spike in applications. The rate last fell to this level briefly in January, but not on a sustained basis in more than three years.

The Treasury is considering added steps, including offering 30-year fixed mortgages at a 4-1/2 percent rate through major U.S. mortgage finance sources Fannie Mae and Freddie Mac, sources with knowledge of the matter said this week.

Such rates could boost demand, pare near-record unsold supply and put a floor under prices, Brinkmann said on the call. Many struggling homeowners might then be better able to make timely payments, sell or refinance their loans.

(Editing by James Dalgleish)

    Late mortgage payments and foreclosures hit record, R, 5.12.2008, http://www.reuters.com/article/ousiv/idUSTRE4B442320081205

High & Low Finance

Trump Sees Act of God in Recession

December 5, 2008
The New York Times
By FLOYD NORRIS

Guess who is complaining that condominiums in Donald Trump’s latest big project are ridiculously overpriced.

Donald Trump is.

But he isn’t cutting the prices. He says the banks won’t let him.

The project is the Trump International Hotel and Tower in Chicago, which is to be the second-tallest building in that city (after the Sears Tower). By Mr. Trump’s account, sales were going great until “the real estate market in Chicago suffered a severe downturn” and the bankers made it worse by “creating the current financial crisis.”

Those assertions are made in a fascinating lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank says is due and payable.

Rather than have to pay the $40 million, Mr. Trump thinks the bank should pay him $3 billion for undermining the project and damaging his reputation.

He points to a “force majeure” clause in the lending agreement that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering “any other event or circumstance not within the reasonable control of the borrower,” and Mr. Trump figures that lets him out, even though construction is continuing.

“Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” he said in an interview. “A depression is not within the control of the borrower.”

He wants a state judge in the Queens borough of New York to order the bank to delay efforts to collect the loan until “a reasonable time” after the financial crisis ends.

Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable.

Mr. Trump, it may be noted, does not think remorseful condominium buyers are in a similar position. When I asked him if he would let them walk away from contracts to buy apartments at predepression prices, he said he would not. “They don’t have a force majeure clause,” he said.

The suit, and a parallel one by Deutsche Bank seeking the money, provide a glimpse into both how Mr. Trump does business and into the way the real estate loan market was operating in 2005, when the loan was made.

For this big project, built on the site of the old Chicago Sun-Times building, it appears from the court papers that Mr. Trump put in little of his own money. He got a construction loan for up to $640 million from a syndicate headed by Deutsche Bank and a $130 million junior loan from another syndicate headed by Fortress Investments, a hedge fund operator that has troubles stemming in part from bad loans made for other real estate projects.

The people who negotiated the construction loan did not think real estate prices could tumble. The loan agreement requires partial repayment each time an apartment is sold and provides a detailed list of the minimum prices to be charged.

According to Mr. Trump’s suit, he cannot cut prices without the unanimous consent of the lenders, and that has not been forthcoming. There are a lot of lenders in the deal, and some of them appear to be banks and hedge funds that are no longer in good shape.

The loan was due Nov. 7, and the lenders did not grant a requested extension. Mr. Trump filed his lawsuit just before that deadline.

Mr. Trump sees a dark conspiracy. He says Deutsche Bank, through a subsidiary, owns $30 million of the junior loan, and he says that is a blatant conflict of interest because in some cases the interests of the two loans can differ. To Mr. Trump, the bank’s actions suggest it is trying to seize the building just before its great success is assured.

The bank responds that the loan agreement makes clear that it has a right to do everything it has done, and that Mr. Trump should live up to his obligations, paying $40 million of the $334 million outstanding balance on the construction loan. The rest is owed by the Trump-controlled company sponsoring the project but is not personally guaranteed by him.

If Mr. Trump was forced to pay the $40 million, he would be unlikely to permanently lose it, since his company would owe it to him. If the project went under, his claim would rank higher than the Fortress loan. Deutsche will make nothing from its investment in the junior loan if Mr. Trump does lose any money.

Some sort of settlement seems wise. It is in everyone’s interest that construction be completed, and in fact the bank advanced $13 million to pay contractors’ bills this week.

Mr. Trump has not said by how much he thinks the apartments are overpriced, and he did not tell me. But it seems unlikely that sales will be very good until prices are cut.

In his suit, Mr. Trump claims that the bank’s “predatory lending practices” are harming his reputation, “which is associated worldwide with on-time, under-budget, first-class construction projects and first-class luxury hotel operations.”

The bank seized on the opportunity to discuss Mr. Trump’s reputation. “Trump is no stranger to overdue debt,” it said in asking that his suit be thrown out of court. It noted that Mr. Trump’s casino operations have filed for bankruptcy twice, adding, “This suit is classic Trump.”

The bank did not discuss why that history did not dissuade it from making the loan. One explanation might be that the fees it got for arranging the loan more than offset the risk from the small part of the loan it kept on its own books.

Mr. Trump is vigilant in protecting his reputation. After I interviewed him and two associates, his general counsel sent me a note saying “it was a pleasure” talking to me, and adding: “Please be assured that if your article is not factually correct, we will have no choice but to sue you and The New York Times.”

The Friday after Thanksgiving was not a really good one for Mr. Trump. Trump Entertainment Resorts, the casino company, announced it would miss an interest payment on its bonds, raising the likelihood of a third bankruptcy. Most of the shares are publicly owned, having been distributed to creditors in the last bankruptcy. They have fallen from a peak of $23.80 two years ago to 24 cents on Thursday.

Mr. Trump is doing his best to sound like that is not important to him. The casino company’s announcement emphasized that Mr. Trump was the “nonexecutive chairman” who was “not involved in the daily operations” of the company. He told me that “less than 1 percent of my net worth” is in the casino company.

At the current price, no shareholder could have a large net worth in that stock.

On the same day, in New York, Deutsche Bank asked a judge to issue a summary judgment requiring Mr. Trump to pay the $40 million.

In that filing, the bank quoted from a best-selling book Mr. Trump wrote last year, “Think Big and Kick Ass in Business and Life.” In it, the developer said he loved “to crush the other side and take the benefits” and mocked the banks that had lost money on loans made to him before another real estate downturn, in the 1990s:

“I figured it was the bank’s problem, not mine. What the hell did I care? I actually told one bank, ‘I told you you shouldn’t have loaned me that money. I told you the goddamn deal was no good.’ ”

If Mr. Trump manages to persuade a judge that the current crisis provides him with a good reason not to meet his obligations, he will have some great tales to tell in his next book.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

    Trump Sees Act of God in Recession, NYT, 5.12.2008, http://www.nytimes.com/2008/12/05/business/05norris.html?hp

Retail Sales Are Weakest in 35 Years

December 5, 2008
The New York Times
By STEPHANIE ROSENBLOOM

The nation’s retailers turned in the worst sales figures in at least a generation on Thursday, starting the holiday shopping season with double-digit declines across a broad spectrum of stores.

For many chains, the precipitous sales drops that took hold in September and October got worse, not better, in November, despite relatively strong sales in the few days after Thanksgiving.

The International Council of Shopping Centers, an industry group, described November’s figures as the weakest in more than 35 years. Declines were recorded in every retail segment the group tracks, with the biggest coming from department stores, with sales down 13.3 percent compared with November a year ago, and specialty apparel retailers, down 10.4 percent.

Some retailers, though, have begun to figure out how to manage in the bleak environment, selling huge amounts of merchandise at steep discounts to generate cash. That will erode profits, of course. Department store profits will most likely plummet 20 to 60 percent in the final three months of the year, said Bill Dreher, senior retailing analyst with Deutsche Bank Securities. But retailers who are unloading merchandise early in the season are at least demonstrating an ability to take control.

“Even if they’re giving away the product, it reduces inventory levels and keeps the problem from continuing,” Mr. Dreher said. “It shows retailers are being disciplined.”

Retail stocks rallied Thursday as investors interpreted the sales report as showing that, with sufficient discounts, goods can be sold in volume despite the poor economy. The Standard & Poor’s retail index rose 1.5 percent.

The discounts being dangled by stores are the biggest retailing analysts have ever seen. “When did you ever see, on Dec. 1, 70 percent off apparel on the high end?” said Claire Gruppo, managing director of Gruppo, Levey & Company, a New York investment bank. “You just don’t.”

Any retailer that refused to trot out jaw-dropping bargains in November paid the price.

For example, Abercrombie & Fitch, the chain that uses sexy bodies in seductive poses to sell clothes to teenagers and young adults, has refused to get on the discount bandwagon. In November, sales at stores open at least a year, an important measure of retail health, fell a whopping 28 percent for the company, in contrast to a 2 percent increase for the period a year ago.

That is a far worse decline than previous months: Sales at Abercrombie & Fitch stores open at least a year were down 14 percent in September and 20 percent in October.

Saks, on the other hand, has driven consumers into shopping frenzies with eye-popping deals on luxury names like the Armani Collezioni and Zac Posen. The tactic worked: In November, Saks had only a 5.2 percent decline in sales at stores open at least a year, clawing its way up from months of double-digit declines.

Other stores that improved their lot in November took a page from the same playbook. Neiman Marcus, for example, has also been selling luxury goods at startling discounts. Sales at Neiman Marcus stores open at least a year fell 11.8 percent in November — better than the 15.8 percent drop in September and the 27.6 percent dive in October.

“If you don’t understand the consumer and his mood right now and you’re doing things as usual,” said Walter Loeb, president of Loeb Associates, a consultant firm, “you’re not going to get any business.”

Stunning declines have become the norm in retailing since sales first plunged in September amid the financial crisis. The November figures indicate the downturn is migrating to some discount and warehouse stores, some of which even had sales growth in October.

Ken Perkins, president of Retail Metrics, a research firm, said either Wal-Mart Stores was stealing market share from its bargain competitors or the whole sector was softening.

At Target, sales at stores open at least a year tumbled 10.4 percent, in contrast to a 10.8 percent increase a year ago. Sales at Target were down 3 percent in September and 4.8 percent in October.

Sales at Kohl’s stores open at least a year sank 17.5 percent, in contrast to a 10.2 percent increase last year. Sales at Kohl’s stores dropped 5.5 percent in September and 9 percent in October. Sales at Costco were down 5 percent in November after a 7 percent increase in September and a 1 percent dip in October.

Even some stores with October sales increases lost their edge in November. Children’s Place, which had a 4 percent sales increase in October, sank 7 percent in November. Aéropostale, which was up 1 percent in October, was down 5 percent in November.

Of all the major retailers, only Wal-Mart and BJ’s Wholesale Club, two of the country’s best-known discount chains, thrived, in part because of robust grocery sales. Wal-Mart, in fact, enjoyed the biggest grocery sales spike in its history.

With new lines of brand-name merchandise from makers like Sony and Samsung, and with rock-bottom prices and an ability to move high volumes of merchandise, Wal-Mart seems to have cornered the market on Christmas this year.

The company began the critical holiday season by exceeding expectations. Sales at stores open at least a year increased 3.4 percent in November, not including fuel, compared with a 1.5 percent increase a year ago.

(The company made a point of being subdued in its sales announcement, noting its sadness that a worker, Jdimytai Damour, had been trampled to death at a Wal-Mart in Valley Stream, N.Y., when rowdy shoppers burst through the doors on Black Friday.)

Sales at BJ’s Wholesale Club stores were up 4.1 percent in November, not including fuel, compared with a 7.7 percent increase a year ago.

Many retailers were buoyed by sales over Black Friday weekend, which increased about 0.9 percent, compared with a 6.5 percent increase last year, according to ShopperTrak, a research firm. Yet the weekend after Thanksgiving did not account for the majority of retailers’ November sales. Results for the month were weakened, many people in retailing said, by the calendar — a later Thanksgiving this year meant fewer post-Thanksgiving shopping days in November.

“The Thanksgiving weekend improvement was not enough to significantly alter the month’s outcome,” Linda M. Farthing, president and chief executive of Stein Mart, said in a statement on Thursday. “We expect to continue aggressive promotional activity through the remainder of the year.”

It was a plan echoed on Thursday by other retailers, like American Eagle Outfitters and Kohl’s.

John D. Morris, an analyst with Wachovia whose Holiday Sale Rack Index tracks promotions at specialty mall retailers, said discounts were up 12 percent compared with last year. That may not sound like much, but it is the biggest jump in the decade-long history of the index. Usually, a big promotional period sends the index up 5 percent.

“It’s a terrible story for retailers and their margins,” said Michael Unger, a principal with Archstone Consulting. “But if you’re a consumer looking for a good deal, you will find it.”

    Retail Sales Are Weakest in 35 Years, NYT, 5.12.2008, http://www.nytimes.com/2008/12/05/business/economy/05shop.html?hp

College May Become Unaffordable for Most in U.S.

December 3, 2008
The New York Times
By TAMAR LEWIN

The rising cost of college — even before the recession — threatens to put higher education out of reach for most Americans, according to the biennial report from the National Center for Public Policy and Higher Education.

Over all, the report found, published college tuition and fees increased 439 percent from 1982 to 2007 while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families.

“If we go on this way for another 25 years, we won’t have an affordable system of higher education,” said Patrick M. Callan, president of the center, a nonpartisan organization that promotes access to higher education.

“When we come out of the recession,” Mr. Callan added, “we’re really going to be in jeopardy, because the educational gap between our work force and the rest of the world will make it very hard to be competitive. Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.”

Although college enrollment has continued to rise in recent years, Mr. Callan said, it is not clear how long that can continue.

“The middle class has been financing it through debt,” he said. “The scenario has been that families that have a history of sending kids to college will do whatever if takes, even if that means a huge amount of debt.”

But low-income students, he said, will be less able to afford college. Already, he said, the strains are clear.

The report, “Measuring Up 2008,” is one of the few to compare net college costs — that is, a year’s tuition, fees, room and board, minus financial aid — against median family income. Those findings are stark. Last year, the net cost at a four-year public university amounted to 28 percent of the median family income, while a four-year private university cost 76 percent of the median family income.

The share of income required to pay for college, even with financial aid, has been growing especially fast for lower-income families, the report found.

Among the poorest families — those with incomes in the lowest 20 percent — the net cost of a year at a public university was 55 percent of median income, up from 39 percent in 1999-2000. At community colleges, long seen as a safety net, that cost was 49 percent of the poorest families’ median income last year, up from 40 percent in 1999-2000.

The likelihood of large tuition increases next year is especially worrying, Mr. Callan said. “Most governors’ budgets don’t come out until January, but what we’re seeing so far is Florida talking about a 15 percent increase, Washington State talking about a 20 percent increase, and California with a mixture of budget cuts and enrollment cuts,” he said.

In a separate report released this week by the National Association of State Universities and Land-Grant Colleges, the public universities acknowledged the looming crisis, but painted a different picture.

That report emphasized that families have many higher-education choices, from community colleges, where tuition and fees averaged about $3,200, to private research universities, where they cost more than $33,000.

“We think public higher education is affordable right now, but we’re concerned that it won’t be, if the changes we’re seeing continue, and family income doesn’t go up,” said David Shulenburger, the group’s vice president for academic affairs and co-author of the report. “The public conversation is very often in terms of a $35,000 price tag, but what you get at major public research university is, for the most part, still affordable at 6,000 bucks a year.”

While tuition has risen at public universities, his report said, that has largely been to make up for declining state appropriations. The report offered its own cost projections, not including room and board.

“Projecting out to 2036, tuition would go from 11 percent of the family budget to 24 percent of the family budget, and that’s pretty huge,” Mr. Shulenburger said. “We only looked at tuition and fees because those are the only things we can control.”

Looking at total costs, as families must, he said, his group shared Mr. Callan’s concerns.

Mr. Shulenburger’s report suggested that public universities explore a variety of approaches to lower costs — distance learning, better use of senior year in high school, perhaps even shortening college from four years.

“There’s an awful lot of experimentation going on right now, and that needs to go on,” he said. “If you teach a course by distance with 1,000 students, does that affect learning? Till we know the answer, it’s difficult to control costs in ways that don’t affect quality.”

Mr. Callan, for his part, urged a reversal in states’ approach to higher-education financing.

“When the economy is good, and state universities are somewhat better funded, we raise tuition as little as possible,” he said. “When the economy is bad, we raise tuition and sock it to families, when people can least afford it. That’s exactly the opposite of what we need.”

This article has been revised to reflect the following correction:

Correction: December 4, 2008
Because of an editing error, an article on Wednesday about the increasing cost of higher education gave an incorrect context for two figures: the 439 percent increase in college tuition and fees and the 147 percent increase in median family income since 1982. Those figures were not adjusted for inflation. The error was repeated for the data in an accompanying chart. A corrected chart appears at nytimes.com/national.

The article also described incorrectly the report for the National Center for Public Policy and Higher Education that cited the figures. It is produced every other year, not annually.

    College May Become Unaffordable for Most in U.S., NYT, 3.12.2008, http://www.nytimes.com/2008/12/03/education/03college.html?em

AT&T Plans to Cut 12,000 Jobs

December 5, 2008
The New York Times
By THE ASSOCIATED PRESS

AT&T Inc. joined the recession’s parade of layoffs Thursday by announcing plans to cut 12,000 jobs, about 4 percent of its work force.

AT&T, which is based in Dallas and is the nation’s largest telecommunications company, said the job cuts would take place in December and throughout 2009. The company also plans to reduce capital spending next year.

A company spokesman, Walt Sharp, said the layoffs would be “across the company and across the country,” but he would not specify what departments and cities would be most affected. These layoffs are in addition to the 4,600 jobs the company said in April that it would eliminate.

The company is being pulled by two currents at once. Not only is the recession leading businesses and consumers to curtail spending, but a long-term trend in the telecom industry is also at play. AT&T, which provides local phone coverage in California, Texas and 20 other states, has been seeing many customers defect from landline phones to wireless services. In the last quarter, AT&T basic voice lines in service dropped 11 percent.

Reflecting that shift, the company said Thursday that even as it cuts some jobs, it would still be hiring in 2009 in parts of the business that offer cellphone service and broadband Internet access. AT&T, whose shares are down about 30 percent this year — while the Dow Jones industrial average is off 35 percent — remains profitable, and it benefits from being the nation’s sole carrier for Apple’s popular iPhone.

AT&T plans to take a charge of about $600 million in the fourth quarter to pay for severance costs. The company said many of its nonmanagement employees had guaranteed jobs because of union contracts. All affected workers will receive severance “in accordance with management policies or union agreements,” the company said.

AT&T’s shares were down 0.5 percent in morning trading, at $28.88.

    AT&T Plans to Cut 12,000 Jobs, NYT, 5.12.2008, http://www.nytimes.com/2008/12/05/technology/companies/05phone.html

An Online Sales Boom That May Not Last

December 4, 2008
The New York Times
By CLAIRE CAIN MILLER

SAN FRANCISCO — In a rare bright spot for the retail industry, e-commerce sites had a strong holiday weekend, with online sales from Friday through Monday up 13 percent compared with last year, according to data released Wednesday by comScore.

The Monday after Thanksgiving was the second-heaviest online spending day on record, comScore said, behind only Dec. 10, 2007. Online sales climbed to $846 million, up 15 percent from the previous year.

“It was higher than I would have anticipated, but I’m not entirely surprised, just because the level of discounting was so aggressive,” said Andrew Lipsman, a senior industry analyst at comScore, which tracks a variety of Internet data.

Still, strong Web sales are unlikely to bail out the retail industry, which is contending with a recession and a sharp decline in consumers’ wealth. E-commerce now accounts for only 7 percent of overall sales, according to Shop.org, the e-commerce arm of the National Retail Federation. And online sales were down 2 percent for the season so far — the first decline since the Web became a significant retail channel.

The Monday after Thanksgiving — which Shop.org calls Cyber Monday — has been a bellwether for online holiday sales. Sales growth on that day has historically fallen within two percentage points of total online sales growth for the season.

This year will be a different story, Mr. Lipsman said. ComScore has predicted that sales will be flat this season, and the firm is not changing its forecast as a result of sales Monday.

“There was evidently some pent-up demand,” said Scott Silverman, executive director of Shop.org. “The consumer could have said, ‘I’m going to do most of my shopping this day,’ and we could see a drop-off for the rest of the season.”

The online sales growth over the weekend mirrored offline sales, which the National Retail Federation said increased 18 percent over last year. Many retailers will give precise figures Thursday in their November sales reports.

Online, the virtual big-box stores, which had some of the steepest discounts, got the most visits. On Monday, eBay, Amazon, Wal-Mart, Target and Best Buy were the top e-commerce sites, Nielsen Online said.

At PayPal, which is used to process almost all eBay sales, the number of transactions Monday was up 27 percent from the year before, said Jim Griffith, whom eBay calls its marketplace expert. To lure shoppers, the auction site is promoting $1 holiday “doorbusters.”

The most popular product sold on eBay Monday was the Nintendo Wii game console — 3,017 were sold for an average price of $349. The Wii Fit, an add-on device for the console, was also popular, with 1,305 units sold for an average $143.

Amazon.com had strong sales of consumer electronics and toys, said Sally Fouts, a spokeswoman for the company. Deals included a Logitech universal remote control, marked down to $137.28 from $249.99, and a Canon digital camera, down to $159.94 from $299.99.

Beauty products accounted for a surprisingly large slice of sales Monday, said Sucharita Mulpuru, an e-commerce analyst at the research firm Forrester. “Cosmetics are doing really well this year, because it’s those affordable luxuries,” she said.

Average order values have been smaller this year, Ms. Mulpuru said: “It may not be a sweater, but it’s a scarf.”

One reason that shoppers finally filled their online shopping carts might be that there are five fewer shopping days between Thanksgiving and Christmas this year than last. “People have to spend a certain amount of money during Christmas,” Ms. Mulpuru said, “and that money was not spent in November, which means it has to be spent in December.”

    An Online Sales Boom That May Not Last, NYT, 4.12.2008, http://www.nytimes.com/2008/12/04/technology/internet/04online.html

Black Friday Fails to Stem Sales Drop

December 5, 2008
The New Times
By STEPHANIE ROSENBLOOM

Most of the nation’s stores kicked off the critical holiday shopping season with double-digit sales declines, portending more price cuts in December and raising questions about the long-term prospects for many retailers.

November sales figures released Thursday underscored that such declines had become the norm across the retail spectrum. Sales at stores open at least a year at Abercrombie & Fitch, long a darling of Wall Street, fell 28 percent compared with a 2 percent increase for the period a year ago.

Even discount stores, some of which had sales growth in October, are suffering. At Target, sales at stores open at least a year, a critical measure of retail health, tumbled 10.4 percent compared with a 10.8 percent increase a year ago.

Sales at Kohl’s sank 17.5 percent compared with a 10.2 percent increase last year. Children’s Place, which had a 4 percent sales increase in October, was down 7 percent. Costco, which had a 1 percent sales decline in October, saw sales sink in November to 5 percent, lower than expected. Aeropostale, which had a sales increase of 1 percent in October, was down 5 percent. Ross Stores sales were off by 2 percent.

Overall, November sales are likely to drop about 2 percent, according to Retail Metrics, a research firm. That is the biggest monthly decline since the company began tracking data in 2000. And were it not for Wal-Mart, the nation’s largest retailer, sales would have declined more than 6 percent.

Only Wal-Mart and BJ’s Wholesale Club, two of the country’s best-known discount stores, thrived, in part because of robust grocery sales.

Sales at Wal-Mart stores exceeded expectations, increasing 3.4 percent, not including fuel, compared with a 1.5 percent increase a year ago. As gas prices dropped, shopping trips increased. And so did the amount of money consumers spent at the store. Wal-Mart on Thursday reported record grocery sales for November.

But Eduardo Castro-Wright, vice chairman of Wal-Mart Stores, said in a news release that the company’s sales figures were overshadowed by the death of Jdimytai Damour, who was trampled at a Wal-Mart in Valley Stream, N.Y., when rowdy shoppers burst through the doors on Black Friday morning.

“We consider Mr. Jdimytai Damour part of the extended Wal-Mart family and are saddened by his death,” Mr. Castro-Wright said.

Sales at BJ’s Wholesale Club stores were up 4.1 percent, not including fuel, compared with a 7.7 percent increase a year ago.

Most department stores — Neiman Marcus, Nordstrom, Macy’s, J.C. Penney — continued to have double-digit declines, though sales at Saks stores open at least a year were improved this month, with sales only down 5.2 percent. That is far better than what was expected. Saks, however, has been radically slicing prices and its profits are expected to be significantly hurt. A similar story, of course, is playing out at retailers across the country.

“It’s a terrible story for retailers and their margins,” said Michael Unger, a principal with Archstone Consulting, “but if you’re a consumer looking for a good deal, you will find it.”

Retailers were buoyed by sales over Black Friday weekend, which increased about 0.9 percent compared with a 6.5 percent increase last year according to ShopperTrak, a research firm. Yet the weekend after Thanksgiving did not account for the majority of retailers’ November sales.

Major sectors like apparel, luxury goods and electronics and appliances all suffered steeper declines in November than in September and October according to SpendingPulse, a report by MasterCard Advisors.

To make matters worse, retailers’ weak sales were hurt even more by a calendar shift that left fewer post-Thanksgiving shopping days in November. Analysts estimate that could hurt stores anywhere from 1 to 3 percent.

Retailers that include American Eagle Outfitters and Kohl’s said Thursday they would simply continue trying to lure consumers with sales.

As Linda M. Farthing, president and chief executive of Stein Mart, said in a statement on Thursday: “the Thanksgiving weekend improvement was not enough to significantly alter the month’s outcome, and we expect to continue aggressive promotional activity through the remainder of the year.”

    Black Friday Fails to Stem Sales Drop, NYT, 5.12.2008, http://www.nytimes.com/2008/12/05/business/economy/05shop.html?hp

Bernanke: More Action Needed to Cut Foreclosures

December 4, 2008
Filed at 12:12 p.m. ET
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke called on the government Thursday to ramp up efforts to stem soaring home foreclosures, which are feeding into the country's deep economic troubles.

Although a flurry of actions have been taken to ease the housing crisis, foreclosures still remain ''too high'' with adverse consequences for struggling homeowners, squeezed lenders and the broader economy, Bernanke said in remarks to a Fed conference here on housing finance.

''More needs to be done,'' he declared.

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, he said.

To provide additional relief, Bernanke outlined a number of what he called ''promising options'' to reduce preventable foreclosures.

Under one plan, Bernanke called on Congress to ease the terms of a government program called ''Hope for Homeowners,'' which lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.

Bernanke suggested Congress lower lender's upfront insurance premium as well as reducing the interest rate borrowers pay, which presently is quite high, roughly 8 percent. To bring down this interest rate, Treasury could buy Ginnie Mae securities, which fund the mortgage program, or Congress could decide to subsidize the rate.

Another option would ease the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make monthly mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.

Under the so-called IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years. Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing. Bernanke suggested this threshold could be lowered to perhaps 31 percent of income, with the government sharing some of the cost.

Yet another option would have the government purchase delinquent or at-risk mortgages in bulk and then refinance them into the ''Hope for Homeowners'' or another government program that insures home mortgages.

Other options include a broader push for lenders to forgive a portion of the home loan for certain borrowers, and other permanent modifications over the longer term so that people don't fall back into distress again.

The housing crisis has driven up foreclosures and forced financial companies to take massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.

All the fallout has plunged the country into a painful recession.

Bernanke stressed the importance of curbing the foreclosure mess because it is so inter-linked with the economy's health.

''Weakness in the housing market has proved a serious drag on overall economic activity,'' he said. ''Steps that stabilize the housing market will help stabilize the economy as well.''

Fielding questions after his speech, Bernanke didn't foresee government intervention specifically aimed at boosting sagging home prices.

''I don't think we would be either willing or able to target house prices. I think that would probably be an impossible thing to do given the size of the national housing market,'' Bernanke said.

Instead, the government can take steps to improve the functioning of the mortgage market, which would allow more people to secure home loans and help stabilize the housing market, he said.

The Fed chief's remarks come as the Treasury Department weighs new plans to revive the moribund housing market.

Under one plan, Treasury would seek to lower the rate on a 30-year mortgages to 4.5 percent by purchasing mortgage-backed securities from Fannie Mae and Freddie Mac, according to financial industry officials. It's unclear exactly how much the plan would cost. It is possible that Paulson will ask Congress for the second $350 billion installment of the $700 billion financial bailout package to bankroll the effort.

Paulson and his colleagues within the Bush administration have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.

President-elect Barack Obama signaled a desire Wednesday to use a significant portion of the $700 billion pot to stanch foreclosures. ''The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes,'' he said.

Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by FDIC chief Sheila Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.

    Bernanke: More Action Needed to Cut Foreclosures, NYT, 4.12.2008, http://www.nytimes.com/aponline/washington/AP-Bernanke.html

Starbucks to Cut More Costs In Tough Economy

December 4, 2008
Filed at 11:58 a.m. ET
By REUTERS
The New York Times

NEW YORK (Reuters) - Starbucks Corp said on Thursday it would take new steps to save on costs and keep its fundamental strategy unchanged despite a U.S. recession, sending the coffee shop operator's shares up 8 percent.

Starbucks Chief Financial Officer Troy Alstead said at an investor meeting in New York on Thursday that he had found a way to save another $200 million by making in-store labor more efficient, managing waste and streamlining its supply chain.

Analysts gathered at the meeting had said they were looking for more clarity from Starbucks on plans to lower fixed costs and preserve profits as sales fall amid the biggest U.S. financial crisis since the Great Depression.

Starbucks is more focused than ever before on cutting costs "out of necessity," Alstead said.

The savings, which will be realized over a few years, are in addition to a previously announced $205 million in fiscal 2009 cost cuts to come from closing stores and cutting jobs.

Now that Starbucks is operating fewer stores, it is also looking to improve efficiency in each store, said Cliff Burrows, president of its U.S. business.

Developments include a 20 percent discount on Starbucks gift cards sold at Costco Wholesale Corp <COST.O> and a loyalty program offering discounts to paying participants. But the company is not discounting the drinks on its menu or changing its fundamental strategy.

"This is not the time to throw the baby out with the bathwater and say we need to shift our strategy," said Starbucks CEO Howard Schultz. "We need to find a balance."

A TOUGH HOLIDAY

Looking ahead Schultz also called the holiday season "a very tough environment" and forecast that 2009 will be more difficult than the second half of 2008.

"Keeping our core customers during these hard times has to be job No. 1," said Terry Davenport, Starbucks' senior vice president of marketing, since it would be more expensive to get them back.

Company executives said that while Starbucks was not losing customers to the recession, some were visiting less often.

Meanwhile fast-food chain McDonald's Corp is pushing its own espresso drinks, which cost less than those at Starbucks.

Starbucks said last month it expected sales at established restaurants to decline in the fiscal year ending in September 2009. In fiscal 2008, the company shut 205 out of 600 stores slated to be closed by the end of fiscal 2009. It closed 61 Australia restaurants in August.

At the end of the fourth quarter, there were more than 11,500 Starbucks stores in the United States and more than 5,000 abroad.

Starbucks shares were up 10 cents at $8.74 on the Nasdaq just before noon.
 

(Reporting by Lisa Baertlein; Writing by Martinne Geller; Editing by Lisa Von Ahn, Dave Zimmerman and Gunna Dickson)

    Starbucks to Cut More Costs In Tough Economy, NYT, 4.11.2008, http://www.nytimes.com/reuters/business/business-us-starbucks.html

Oil Falls Below $46, Lowest In Nearly 4 Years

December 4, 2008
Filed at 2:41 a.m. ET
The New York Times
By REUTERS

SINGAPORE (Reuters) - Oil fell below $46 a barrel to its lowest in nearly four years on Thursday, extending four consecutive days of falls as continued demand worries minimized bullish draws in U.S. oil stocks.

Oil prices have lost more than $100 a barrel since an all-time high of $147.27 hit in July, and some 16 percent from last week, as demand is seen weakening worldwide and analysts expect it to contract this year and next.

U.S. light crude for January delivery fell $1.16 to $45.63 a barrel by 0655 GMT (2:55 a.m. EST), off an earlier low of $45.30, the lowest since a $44.60 low hit on February 9, 2005.

Oil settled down 17 cents at $46.79 on Wednesday.

London Brent crude slid $1.34 to $44.10, up from an earlier $43.80 low.

"Stabilization in macroeconomic expectations is likely to precede any switch in oil market sentiment away from a mainly demand-side focus," Barclays Capital said in its weekly oil data review.

Bullish oil data on Wednesday pushed prices higher during the session, when the U.S. Energy Information Administration said crude stocks fell 400,000 barrels in the week to November 28, against an expected 1.7 million barrels build.

Distillate stocks, which include heating oil, fell 1.7 million barrels to 125 million, against a forecast for a 300,000-barrel increase, while gasoline supplies dropped 1.6 million barrels, having been expected to rise by 900,000 barrels.

But the product inventory falls came amid lower refinery utilization, which fell 1.9 percentage points to 84.3 percent of capacity last week against a predicted rise of 0.2 percentage point, showing weakening demand.

"Refiners began to cut processing rates significantly," said Jan Stuart, economist in New York for UBS, in a report.

Worries about a deepening economic downturn resurfaced as a measure of the U.S. service sector, which represents about 80 percent of U.S. economic activity, slumped further than expected to a record low in November, according to the Institute of Supply Management.

The Institute said its non-manufacturing index came in at 37.3 versus 44.4 in October, and against expectations for a reading of 42.0.

Adding to the gloom, U.S. private employers cut 250,000 jobs in November, a 7-year high, and U.S. third-quarter labor costs were revised lower as the recession hit jobs.

Growing economic woes and falling prices have prompted oil producer group OPEC to consider another round of cuts to oil output when it next meets December 17 in Algeria.

(Editing by Clarence Fernandez)

    Oil Falls Below $46, Lowest In Nearly 4 Years, NYT, 4.12.2008, http://www.nytimes.com/reuters/business/business-us-markets-oil.html

A Rush Into Refinancing as Mortgage Rates Fall

December 4, 2008
The New York Times
By TARA SIEGEL BERNARD

The housing market may finally be getting some relief, with lower mortgage rates already encouraging refinancing and Treasury officials considering ways to entice new buyers.

Last week, the Federal Reserve announced that it would buy $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage rates immediately dropped, and that led to a surge in mortgage refinancing activity for the week — even with the Thanksgiving holiday.

On Wednesday, people close to the discussions said that the Treasury had been talking with Fannie Mae and Freddie Mac about ways to drive down mortgage rates to as low as 4.5 percent. That rate is about a percentage point lower than the going rates for such loans.

Any government efforts to jump-start the housing market have a number of obstacles, the biggest being borrowers’ worries that the economic downturn will affect them. Meanwhile the best interest rates will go only to borrowers in sound financial shape. And even if the efforts go as planned, they may not help the most distressed homeowners.

Still, the jump in refinancing activity showed that there was an appetite that could be whetted by lower rates. The Mortgage Bankers Association said its refinance index, which measures refinancing activity, tripled to 3,802.8 last week from the week before. The index was also 37.7 percent higher than in the same week a year ago. It was the largest increase in refinance applications in the survey’s 18-year history, though it does not measure how many applications become loans.

Refinancing activity accounted for 69.1 percent of all mortgage applications submitted last week, up from 49.3 percent the week before.

“We did quadruple our normal volume last week,” said Bob Walters, chief economist of Quicken Loans. “We had loan officers staying past midnight to get back to all of the people that had been calling. There is still a silent majority of people who can refinance and qualify.”

Callers cited a variety of reasons for their new interest in refinancing, mortgage lenders said. But the main reason was that they wanted to lock in a lower mortgage rate and reduce their monthly costs in case they fell victim to the economic downturn. Others were looking to extract cash to pay down more expensive credit card debt, the lenders said, and some were trying to trade in their adjustable-rate mortgages for a fixed rate.

Annie Lu, 30, a nurse practitioner, said she called about refinancing when she heard that the economy was officially in a recession. She and her husband bought their house in Brooklyn about three years ago with a mortgage rate of 6.25 percent. She is hoping to qualify for a rate almost a percentage point lower. “It is good to prepare for the worst, and nobody minds saving as much as we can,” she said.

The Treasury’s consideration of additional efforts to breathe life into the housing market was first reported on The Wall Street Journal’s Web site. People familiar with the Treasury’s plans said that Treasury officials had met with top executives at Fannie and Freddie last week but that neither had been notified that any steps were taken toward putting such a plan into effect. By one account, the new program would be available only to home buyers, not to people who simply want to refinance their existing loan at a lower rate.

But those looking to refinance are already eyeing the lower rates. “Borrowers with reasonably good credit and a home that hasn’t lost too much value are going to find mortgage money plentiful and readily available,” said Brad Blackwell, national sales manager at Wells Fargo Home Mortgage.

As rates drop, more people, in theory, qualify for loans because their monthly principal and interest payments will be lower. But to qualify for the best rates, borrowers need to have impeccable credit — or a credit score of 720 or higher — as well as at least 10 to 20 percent of equity in their homes.

And while experts said they were heartened by the pickup in activity, the overall number of refinancings this year was expected to be only slightly more than a quarter of the volume at the height of the housing boom in 2003.

“It is not going to spike up rapidly or anywhere near as it has in the past because credit is still tight, the economy is still weak and there are fewer people that could refinance now than could before,” said Celia Chen, senior director of housing economics at Moody’s Economy.com. “But the decline in rates will help those that can.”

For all the renewed interest in refinancing, about 12 million households, or 15 percent of owners of single-family homes, are not eligible. Their mortgages exceed the value of their home, Ms. Chen said.

Meanwhile, entire categories of loan products have been eliminated. Subprime loans are not available along with stated income loans, where borrowers do not have to fully document their income. That has limited the options for many small-business owners and other self-employed individuals. People with inconsistent or unpredictable incomes, like those who rely on commissions, are also affected.

“You can imagine how many inquiries we get where we are done just as soon as we are done talking,” said Rick L. Dunham, vice president of Impact Mortgage Network in Mesa, Ariz., whose clients include small-business owners as well as individuals whose mortgages exceed the value of their home. “So we go to the next step and say, ‘O.K., your options are loan modification, short sale or nothing at all.’ ”

Credit standards have also tightened, which has made it more expensive — often prohibitively so — for many individuals to get a loan. Generally, individuals need a credit score of 620 to qualify for a loan, but they have to pay a fee equivalent to about 2.75 percent of the loan amount, which can translate into a rate of about 1 percentage point higher than the best rate available. In some cases, these individuals can get a better deal through the Federal Housing Administration.

“For borrowers on the fringe — low credit score, erratic documentation, high debt loads, et cetera — mortgage money may actually be available but the other terms and conditions that need to be jumped to have access to that financing make it prohibitive,” said Keith Gumbinger, vice president of the financial publisher HSH Associates.

Javier and Irina Lattanzio were motivated to refinance by the potential for monthly savings. Their strong credit history enabled them to refinance the $800,000 mortgage on their four-bedroom Manhattan apartment to a rate of about 5.6 percent. But the Lattanzios had to pay $70,000 so that their loan would qualify for conforming mortgage rates. Jumbo mortgages remain, on average, a full percentage point higher.

Edmund L. Andrews and Charles Duhigg contributed reporting.

    A Rush Into Refinancing as Mortgage Rates Fall, NYT, 4.12.2008, http://www.nytimes.com/2008/12/04/business/04refi.html?hp

U.A.W. Makes Concessions in Bid to Help Automakers

December 4, 2008
The New York Times
By BILL VLASIC

WASHINGTON — The United Automobile Workers union said Wednesday that it would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid.

The surprising move by the U.A.W. could be a critical factor in the automakers’ bid not only to get government assistance, but also to become competitive with the cost structure of nonunion plants operated by foreign automakers in the United States.

At a news conference in Detroit, the U.A.W.’s president, Ron Gettelfinger, said that his members were willing to sacrifice job security provisions and financing for retiree health care to keep the two most troubled car companies of the Big Three, General Motors and Chrysler, out of bankruptcy.

“Concessions, I used to cringe at that word,” Mr. Gettelfinger said. “But now, why hide it? That’s what we did.”

Labor experts said the ground given by the union underscored the precarious condition of the Detroit companies, as the U.A.W.’s own prospects for survival are also in doubt. “It is an historic and awfully difficult moment for the U.A.W.,” said Harley Shaiken, professor of labor studies at the University of California, Berkeley.

The union’s willingness to modify its 2007 contract came a day after G.M., Chrysler and the Ford Motor Company submitted business plans to Congress in support of their loan requests.

Those efforts won praise from President-elect Barack Obama, who said the automakers had offered “a more serious set of plans” to save the industry.

G.M. and Chrysler have both said they are dangerously close to running out of cash to run their operations by the end of the year. Ford is somewhat healthier, but is also seeking government loans.

The chief executives of the Big Three, along with Mr. Gettelfinger, are to appear before Congress on Thursday and Friday in hopes of building support for emergency assistance.

Democratic Congressional leaders have said that they want to help the automakers and that they were heartened by the gesture of contrition that the executives made by driving to Washington — rather than flying on corporate jets, as they did two weeks ago — and by the more comprehensive plans submitted by the companies.

But the political climate on Capitol Hill is still doubtful for the automakers, and only seemed to worsen on Wednesday with a new CNN poll showing a majority of Americans opposing a taxpayer rescue.

As a result, there is growing concern among the Democratic leadership that they will simply not be able to drum up enough votes to pass an aid package next week, and that to do so will require a major lobbying effort by President Bush and Mr. Obama.

“We don’t have a good sense from our members that this is something they want to do,” a senior House Democratic aide said. “It’s going to take Bush and Obama calling people.”

Many conservative Republicans remain staunchly opposed to any further corporate bailouts by the government, and some are openly calling for Congress to let one or more of the automakers go into bankruptcy.

“Not only should bankruptcy be an option for domestic automakers, but it is considered by most experts to be the best option,” Representative Jeff Flake, Republican of Arizona, said in a statement on Wednesday.

Many lawmakers are reluctant to approve another large expenditure of taxpayer money to prop up private corporations, especially given the mounting criticism of the Treasury’s $700 billion stabilization program for the financial system.

On Wednesday, the Senate majority leader, Harry Reid, said there did not seem to be enough support in Congress to use that fund to help the auto companies. “I just don’t think we have the votes to do that now,” he told The Associated Press.

Two weeks ago, the Detroit executives left Washington empty-handed after skeptical lawmakers refused to approve federal aid until they heard detailed plans on how the companies could be viable in the long term.

Other lawmakers were withholding judgment on the plans until after hearings by the Senate Banking Committee on Thursday and the House Financial Services Committee on Friday.

But the automakers’ hopes for aid were buoyed by the positive comments on Wednesday from Mr. Obama. At a news conference on his latest cabinet appointment, Mr. Obama said the new plans were an indication that the Detroit companies were responsive to earlier concerns raised by lawmakers.

“I’m glad that they recognize the expectations of Congress, certainly my expectations, that we should maintain a viable auto industry,” Mr. Obama said. “But that we should also make sure that any government assistance that’s provided is designed for and is based on realistic assessments of what the auto market is going to be and a realistic plan for how we’re going to make these companies viable over the long term.”

The new plans were also being studied by officials in the Bush administration, which has yet to come to an agreement with lawmakers on how to finance a loan package for Detroit.

In its plan to Congress, G.M. said it would significantly reduce jobs, factories, brands and executive compensation in a broad effort to become more competitive with American plants operated by Toyota, Honda and other foreign auto companies.

But G.M.’s president, Frederick Henderson, said it was also important for the company to get help from the U.A.W. to close the gap with its foreign competition.

Currently, the average U.A.W. member costs G.M. about $74 an hour in a combination of wages, health care and the value of future benefits, like pensions. Toyota, by comparison, spends the equivalent of about $45 an hour for each of its employees in the United States.

Base wages between the Big Three and the foreign companies are roughly comparable, with a veteran U.A.W. member earning $28 an hour at the Big Three compared to about $25 an hour at Toyota’s plant in Georgetown, Ky. (Toyota pays less at its other American factories.)

But the gap in labor costs becomes larger when health care, particularly for thousands of retirees and surviving spouses, and job security provisions are considered.

Mr. Gettelfinger said Wednesday that the union would suspend the much-criticized “jobs bank” program, which allows laid-off workers to continue drawing nearly full wages.

He also said the union would agree to delay the multibillion-dollar payments to a new retiree health care fund that the automakers were scheduled to start making next year.

Beyond those two concessions, Mr. Gettelfinger said the U.A.W. would be open to modifying other terms of its contracts. Changes could include reductions in wages, health care or other benefits, and would require approval from union members.

Suspending the jobs bank program, which supports about 3,600 workers, removes one of the most politically sensitive union perks from the discussions in Washington.

“The jobs bank has become a sound bite that people use to beat us up,” said Mr. Gettelfinger. In the last five years, the U.A.W.’s membership at G.M., Ford and Chrysler has declined to 139,000 workers, from 305,000, because of plant closings and a series of buyout and early-retirement programs.

Both G.M. and Chrysler have said they are not considering bankruptcy as an option to restructure their businesses because of the damage a Chapter 11 filing would do to their reputations with consumers.

Mr. Henderson said that G.M.’s restructuring plan included cutting up to 30,000 more jobs in the next few years, as well as closing another nine factories in North America. He stressed that cooperation from the union would be crucial in the company’s overall efforts to match Toyota in labor costs by 2012.

A G.M. spokesman, Tony Cervone, said Wednesday that the U.A.W.’s offer to make modifications in its contract would help the automaker survive its current financial crisis.

“Clearly the U.A.W. and Ron Gettelfinger have shown a willingness to work with the industry to restructure and make it fully competitive going forward,” Mr. Cervone said.

Ford’s chief executive, Alan R. Mulally, said in an interview Wednesday that Detroit needed the union’s help to speed its transformation, particularly in replacing current workers with entry-level employees who will be making $14 an hour in wages under the terms of the 2007 labor agreement.

He said that suspending the jobs bank program was also important for cutting costs. “That would contribute to us closing the gap,” Mr. Mulally said.

The Detroit companies will remove billions of dollars in financial obligations from their books when the U.A.W. health care trust takes over responsibility for the medical bills of retirees in 2010. But delaying payments to the trust by the companies is a more pressing concern for the automakers.

G.M., for example, is scheduled to make a payment of $7 billion to the health care trust before the end of next year. The U.A.W.’s offer to delay that payment will significantly help G.M.’s cash flow as it tries to recover.

“Taking retiree health care off the books will save the companies billions and billions of dollars,” said Mr. Shaiken. “By not paying into the trust next year, it won’t postpone the trust, but it will save G.M. and the others a lot of money for now.” At the U.A.W. meeting in Detroit, union officials described their members as extremely anxious about the prospect of more concessions but at the same time afraid of what would happen if the union did not aid the automakers.

“We’ve helped them before, but it seems like they always come back to us,” said Shane Colvard, chairman of Local 2164 in Bowling Green, Ky., where G.M. builds the Chevrolet Corvette sports car.

Bill Vlasic reported from Washington and Nick Bunkley from Detroit. Reporting was contributed by David Herszenhorn, Peter Baker, Mary M. Chapman and David Stout.

    U.A.W. Makes Concessions in Bid to Help Automakers, NYT, 4.11.2008, http://www.nytimes.com/2008/12/04/business/04auto.html?hp

In November, Shoppers Cut Spending Even More

December 3, 2008
The New York Times
By STEPHANIE ROSENBLOOM

November was yet another brutal month for the nation’s retailers, according to new figures that showed stunning sales declines across a broad array of consumer goods.

Figures released on Tuesday in the SpendingPulse report, from MasterCard Advisors, showed that sales of electronics and appliances sank 25.2 percent in November, compared with the same month last year. Luxury goods were down 24.4 percent, and specialty retail, which includes clothing and department store sales, fell 20.2 percent.

Those figures were all several percentage points worse than the comparable numbers for October. The report, while not the last word on the performance of retailers last month, suggested that the lines of bargain-hunting consumers that turned out for Black Friday had not managed to salvage retail sales for November. Definitive word on the question will come Thursday, when retailers themselves release their sales figures for the month.

Standard & Poor’s Equity Research Services is forecasting an 11.3 percent sales decline for its index of 14 apparel retailers and a 3.6 percent drop for its broader measure of 25 retailers. John D. Morris, an analyst with Wachovia, said in a report this week that most retailers were pessimistic about November sales when they discussed their earnings this month.

The MasterCard Advisors report estimates sales, using some data as well as computer modeling to estimate spending with other forms of payment. When retailers release their own figures, all signs are that they will confirm the bad news.

Analysts said November had a rocky start because consumers were preoccupied with the presidential election. The third week of the month was also tough, said Michael McNamara, vice president of SpendingPulse, because consumers avoided stores, waiting to shop the sales on Black Friday.

And shop they did. Conflicting reports from various analysts and industry groups agreed on one thing: sales surged on Black Friday.

ShopperTrak, a research firm, said sales were up 1.9 percent on Saturday and Sunday. Consumers generally bought lower-price items, though, like clothing, books and DVDs.

That was a trend throughout the month: the higher the price, the more reluctant consumers were to spend. Mr. McNamara said that, in general, purchases of more than $1,000 plummeted far more than 25 percent. Electronics items costing more than $1,000, for instance, were down 30 to 35 percent in November compared with the period a year ago.

For months, consumers shellshocked by the state of the economy have been hoarding their cash and trading down to cheaper stores. Discounters like Wal-Mart, BJ’s Wholesale Club and T.J. Maxx are expected to continue to fare better than other stores when the retailers report on Thursday.

As if retailers did not have enough to contend with already, their sales for the month were hurt by a calendar shift. Last year, there was a week of post-Black Friday shopping in November. This year, there were three days. Standard & Poor’s and analysts at other equity research companies said that loss would hurt November sales from 3 to 5 percent.

The next few weeks will show whether retailers can maintain the momentum generated on Black Friday. Jennifer Black, president of Jennifer Black & Associates, which follows apparel retailers, said in a report this week that it was most likely “just the beginning of a longer-term ratcheting down of apparel consumption in the United States.”

The good news for stores is that there will probably be another shopping surge 5 to 10 days before Christmas. Historically, that is when most consumers turn out to finish their holiday shopping.

Mr. McNamara said falling gas prices might make consumers feel better about driving to many stores, giving retailers a lift.

As for all those drastic price cuts, “the only way it helps the retailer,” said Marie Driscoll, an analyst with S.& P.’s Equity Research Services, “is it’s clearing through inventory.”

    In November, Shoppers Cut Spending Even More, NYT, 3.12.2008, http://www.nytimes.com/2008/12/03/business/economy/03shop.html

Ford Says It Can Get By if Rivals Survive

December 3, 2008
The New York Times
By NICK BUNKLEY

DETROIT — The Ford Motor Company told Congress on Tuesday that it wanted access to $9 billion in loans but that it could survive and become profitable in three years without the money unless the current recession “is longer and deeper than we now anticipate.”

In a 33-page plan submitted to the Senate Banking Committee, Ford said it was healthier than the other two Detroit automakers but warned that its fortunes were closely tied to that of its two rivals, General Motors and Chrysler, both of which have said they could soon run out of money. “Because our industry is an interdependent one, with broad overlap in supplier and dealer networks, the collapse of one or both of our domestic competitors would threaten Ford as well,” the company said in its plan. “It is in our own self-interest, as well as the nation’s, to seek support for the industry at a time of great peril to this important manufacturing sector of our economy.”

The three Detroit automakers are scheduled to appear before Congressional committees later this week as they seek $25 billion in government loans. The executives are returning to Washington a second time after they were unable to convince lawmakers during earlier hearings that taxpayer money could save the industry. Lawmakers told the auto companies to submit plans to how they would restructure to become viable.

Ford’s chief executive, Alan R. Mulally, said in a statement: “For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company.”

If the company does access the loans, it said Mr. Mulally’s salary, which amounted to $21 million last year, would be reduced to $1 a year. Last month, when he and the chief executives from G.M. and Chrysler were asked whether they would be willing to eliminate their own pay, Mr. Mulally had been the most resistant.

The three men also had been criticized for flying corporate jets to Washington to ask for financial assistance. This week, Mr. Mulally plans to drive a Ford Escape hybrid sport-utility vehicle to Washington to testify a second time before Congress, and Ford said in its submission that it now plans to sell all five of its corporate jets.

The company said that it would speed up its plans for electric vehicles, starting to roll them out in 2010. Ford will also invest up to $14 billion to improve fuel efficiency over the next seven years.

Ford acknowledged making “mistakes and miscalculations in the past” but asserted that it has made considerable progress in its restructuring. It said its performance was improving before the weakening economy and tighter credit markets caused industry sales to plummet.

The company said it expected to break even or earn a profit in 2011, the first time it has given such financial guidance since abandoning its goal of making money in 2009. Its original restructuring plan had called for a return to profitability in 2008. Ford lost $8.7 billion in the first nine months of this year.

    Ford Says It Can Get By if Rivals Survive, NYT, 3.12.2008, http://www.nytimes.com/2008/12/03/business/03auto.html?hp

November Was Another Dismal Month for Auto Sales

December 3, 2008
The New York Times
By NICK BUNKLEY

DETROIT — Toyota said Tuesday that its sales in the United States fell 33.9 percent last month, even as the company offered record-high discounts on its vehicles. The Ford Motor Company said its sales declined 30.6 percent and estimated that total vehicle sales for the industry fell 35 percent.

General Motors, Chrysler and other automakers are scheduled to release their November sales results later in the afternoon. All are expected to say that they sold significantly fewer vehicles than in November 2007 as the economic downturn and tight credit markets deterred consumers from buying a car or truck.

The reports come on the same day that the Detroit automakers are submitting restructuring plans to Congress in a bid to secure at least $25 billion in government-backed loans, and a day after the National Bureau of Economic Research declared that the United States has been in a recession for the last year.

Overall vehicle sales were down 14.6 percent this year through October, when the industry’s sales rate fell to a 25-year low.

Though G.M., Ford and Chrysler have been hit hardest because they sell higher percentages of trucks and sport utility vehicles, this has been an unpleasant year for foreign carmakers like Toyota and Honda as well. Those companies have been deeply discounting their vehicles, something they have done only sparingly before.

Toyota’s discounts averaged $1,908 a vehicle, an all-time high for the company, according to Edmunds.com. Toyota offered zero-percent loans on 11 models. Incentives were more than $3,000 a vehicle for the Detroit automakers, but the average for each company was down slightly from October.

“The story of the industry seems to have shifted a little bit from potential buyers being unable to close the deal due to the credit tightening, towards a widespread reluctance to purchase durable goods at this point, amid continued very weak consumer confidence,” Brian A. Johnson, an analyst with Barclays Capital, wrote in a recent report.

Ford said it planned to make 430,000 vehicles in the first quarter of 2009, 38 percent fewer than it did in the period of 2008. It also expected to build 430,000 vehicles in the current quarter.

“We believe the economy will continue to weaken in 2009,” James D. Farley, Ford’s marketing chief, said in a statement. “Our near-term production plan reflects this view, as we continue to align capacity with customer demand.”

    November Was Another Dismal Month for Auto Sales, NYT, 3.12.2008, http://www.nytimes.com/2008/12/03/business/03sales.html?ref=business

Governors Urge Obama to Help The Poor, Boost Economy

December 2, 2008
Filed at 1:03 p.m. ET
The New York Times
By REUTERS

PHILADELPHIA (Reuters) - U.S. state governors urged President-elect Barack Obama on Tuesday to pump money into infrastructure and help support the poor as a sinking economy hits state budgets hard.

Obama, who takes over from President George W. Bush on January 20, pledged to involve states in his plans to tackle the U.S. recession and create or save 2.5 million jobs.

The president-elect has spent much of the time since his November 4 victory over Republican John McCain forming his economic team and advocating a massive new stimulus package.

"I'm not simply asking the nation's governors to help implement our economic recovery plan, I'm going to be interested in having you help draft and shape that economic plan," Obama told a meeting that included Alaska Gov. Sarah Palin, the former Republican vice-presidential candidate.

"I'm going to listen to you, especially when we disagree because one of the things that has served me well in my career is discovering that I don't know everything," Obama said.

The meeting came the day after the National Bureau of Economic Research confirmed that the United States had entered recession in December 2007. The downturn, which many economists expect to persist through the middle of the next year, is already third-longest since the Great Depression.

Pennsylvania Gov. Ed Rendell, touted as a possible energy secretary in the Obama administration, opened the meeting by pressing for Congress to extend unemployment benefits and increase food stamp availability.

"Those are things that don't go to us as governors, don't go to our budgets but help our citizens," he said.

Rendell said on Monday governors would ask for $136 billion in infrastructure funds to stimulate the economy immediately and cover health care for the poor.

Obama acknowledged that, unlike the federal government, U.S. states had to balance their budgets. He said immediate measures were needed to help deal with the crisis.

"Forty-one of the states that are represented here are likely to face budget shortfalls this year or next, forcing you to choose between reining in spending and raising taxes," Obama said. "To solve this crisis and to ease the burden on our states, we need action and we need action swiftly."

Nearly all 50 governors attended, including California's Arnold Schwarzenegger, who on Monday declared a fiscal emergency and called lawmakers into a special session to tackle a widening budget gap.

(Editing by Alan Elsner)

(additional reporting by Deborah Charles and Lisa Lambert)

    Governors Urge Obama to Help The Poor, Boost Economy, NYT, 2.12.2008, http://www.nytimes.com/reuters/washington/politics-us-usa-obama.html

Officials Vow to Act Amid Signs of Long Recession

December 2, 2008
The New York Times
By EDMUND L. ANDREWS

WASHINGTON — The United States economy officially sank into a recession last December, which means that the downturn is already longer than the average for all recessions since World War II, according to the committee of economists responsible for dating the nation’s business cycles.

In declaring that the economy has been in a downturn for almost 12 months, the National Bureau of Economic Research confirmed what many Americans had already been feeling in their bones.

But private forecasters warned that this downturn was likely to set a new postwar record for length and likely to be more painful than any recession since 1980 and 1981.

“We will rewrite the record book on length for this recession,” said Allen Sinai, president of Decision Economics in Lexington, Mass. “It’s still arguable whether it will set a new record on depth. I hope not, but we don’t know.”

As if adding a grim punctuation mark to what could become the worst holiday shopping season in decades, the Dow Jones industrial average plunged nearly 680 points, or 7.7 percent, to 8,149.09.

Part of the drop may have reflected profit-taking after last week’s surge in stock prices, but it also came in response to new data showing that manufacturing activity dropped to its lowest point in 26 years.

Both the chairman of the Federal Reserve, Ben S. Bernanke, and the Treasury secretary, Henry M. Paulson Jr., vowed to use all the tools at their disposal to restore a measure of normalcy to the economy.

Mr. Bernanke, speaking to business leaders in Austin, Tex., said it was “certainly feasible” to reduce the Fed’s benchmark overnight lending rate below its current target of 1 percent, signaling that the central bank would lower the rate at its next policy meeting in two weeks.

And in an unusually explicit follow-up, Mr. Bernanke said the central bank was also prepared to use the “second arrow in our quiver” if policy makers have already reduced that rate, called the federal funds rate, to nearly zero.

Among the options, he said, the Fed can start aggressively buying up longer-term Treasury securities. That would have the effect of driving down longer-term interest rates. The Fed is already doing something of that sort, by buying up commercial debt from private companies as well as mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Investors reacted to Mr. Bernanke’s remarks by pouring money into longer-term Treasury bonds, which briefly pushed already-low yields on 10-year and 30-year Treasuries to new record lows. Investors appeared to be reacting mainly to the clear signal from Mr. Bernanke that the Fed was preparing to pump money into the economy by buying up longer-term bonds.

The yield on 30-year Treasuries declined 0.23 percentage points, to 3.21 percent, and briefly touched a record low of 3.18 percent. The yield on 10-year Treasuries fell 0.19 percentage points, to 2.73 percent.

In normal times, those kinds of yields would automatically mean lower interest rates on mortgages, automobile loans and other forms of consumer debt. But the credit markets have been stalled by continued fears among financial institutions about who can be trusted for even short-term transactions, so the effects on home loans and other purposes could remain modest.

Mr. Paulson, in a speech in Washington on Monday, vowed to look at new ways to use the $700 billion bailout fund that Congress approved in October.

In Congress, Democratic leaders are drawing up a huge new fiscal stimulus plan that could total more than $500 billion. Democrats said they planned to have the measure ready as soon as Congress convened with a strengthened Democratic majority in January. Meanwhile, Democrats could take up legislation next week that would provide financial assistance to the automobile industry.

President Bush, increasingly the odd man out in the last weeks of his term, said his administration would do whatever was necessary to safeguard the system.

“I’m sorry it’s happening, of course,” Mr. Bush said in an interview with ABC’s “World News” on Monday. “Obviously, I don’t like the idea of Americans losing their jobs or being worried about their 401(k)s. On the other hand, the American people got to know that we will safeguard the system.”

But many analysts said they saw no signs yet that the economy was nearing a bottom. American consumers, who for decades have been the country’s tireless source of growth when all else failed, have cut back on their spending more sharply than at any time since the early 1980s.

Consumer spending plunged in the third quarter of this year, and the evidence so far suggests they may pull back even more in the fourth quarter. Consumers account for about 71 percent of American economic activity, and their most recent retreat is occurring even though gasoline prices have dropped by almost half in the last month and left people with more money in their pockets.

In officially declaring that the current recession began in December 2007, the National Bureau of Economic Research paid little heed to the fact that the nation’s gross domestic product actually expanded slightly in the first and second quarters of 2008.

In explaining its decision, the bureau noted that a wide variety of other indicators, including payroll employment and personal income, peaked in December 2007. Payroll employment has dropped every month since then. Personal income declined and then zigzagged until June, and has declined steadily since then.

The gross domestic product often fluctuates widely from quarter to quarter, but it also received a somewhat artificial boost from the tax rebate checks that the government mailed out last spring and early summer as a temporary stimulus.

Ed McKelvey, an economist at Goldman Sachs, said the bureau’s starting point of last December for the recession was close to Goldman’s own estimates.

The announcement means that the downturn is already one year old. That is longer than the average length of 10.5 months for recessions since World War II. The current record for the longest recession over the last half-century is 16 months, which was reached in both the downturns of 1973-74 and 1980-81.

Mr. Sinai of Decision Economics said it was hard to imagine that this downturn would have hit bottom within the next four months, which would make it all but certain to set a new record.

Mr. Paulson, who teamed up with the Fed last week to begin a new $200 billion program to buy up consumer debt and small-business loans, said he had committed all but about $20 billion of the first $350 billion Congress authorized for the bailout fund.

“We are actively engaged in developing additional programs to strengthen our financial system so that lending flows to our economy,” Mr. Paulson said in his speech. “We are continuing to examine potential foreclosure mitigation ideas that may be an appropriate” use of the funds.

Democratic lawmakers have sharply criticized Mr. Paulson for refusing to use any of the money yet for reducing foreclosures. Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, warned last month that as many as 4.5 million people were likely to lose their homes through foreclosure. Ms. Bair proposed a plan that she said could prevent about one-third of those foreclosures.

    Officials Vow to Act Amid Signs of Long Recession, NYT, 2.12.2008, http://www.nytimes.com/2008/12/02/business/economy/02econ.html

It’s Official: Recession Started One Year Ago

December 2, 2008
The New York Times
By MICHAEL M. GRYNBAUM and DAVID JOLLY

It’s official: for the last year, the United States economy has been in recession.

The evidence of a downturn has been widespread for months: slower production, stagnant wages and hundreds of thousands of lost jobs. But the nonpartisan National Bureau of Economic Research, charged with making the call for the history books, waited until now to weigh in.

In a statement released Monday, the members of the group’s Business Cycle Dating Committee — made up of seven prominent economists, most from the academic sector — said that the economy entered a recession in December 2007.

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators,” the members said in a statement. “A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”

The committee noted that the contraction in the labor market began in the first month of 2008 and said that the declines in most major indicators, like personal income, manufacturing activity, retail sales, and industrial production, “met the standard for a recession.”

“Many of these indicators, including monthly data on the largest component of G.D.P., consumption, have declined sharply in recent months,” they wrote.

The announcement came as the stock market fell sharply, its first decline in five sessions. The Dow Jones industrial average was off more than 440 points by early afternoon. The Standard & Poor’s 500-stock index fell nearly 6 percent.

Analysts said that after last week’s gains — the biggest five-day rally in decades — a sell-off was to be expected.

“You had the biggest weekly gain in 30, 35 years,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “Some profit-taking is warranted.”

Still, Monday’s losses were striking. Stocks were dragged down by double-digit declines in shares of financial firms. Citigroup, a source of concern on Wall Street of late, dropped 11 percent; American Express and Bank of America were off about 10 percent.

“Financials led the rally on the way up, and they’re leading on the way down,” Mr. Conroy said.

Investors may also be playing defense ahead of Friday’s report on the job market, one of the most important monthly indicators of the health of the economy. Analysts expect that employers shed more than 300,000 jobs in November, underscoring the problems facing American workers and businesses.

This is the first official recession since 2001, when the economy suffered after the bursting of the technology bubble. The period of expansion lasted 73 months, from November 2001 to December 2007.

Monday brought its own share of poor economic news. The manufacturing industry suffered its worst month since 1982, according to a closely watched index published by the private Institution for Supply Management. The index fell to 36.2 in November from 38.9 in October, on a scale where readings below 50 indicate contraction.

That was the worst monthly reading since 1982, and a sign that the worldwide credit crisis was taking a serious toll on American businesses. New orders fell sharply, although export orders held steady from October.

“However you look at the numbers, the message is the same: manufacturing is in free fall, with output collapsing,” Ian Shepherdson of High Frequency Economics wrote in a note to clients. “We see no prospect for near-term improvement.”

A separate report from the Commerce Department showed that spending on construction projects fell 1.2 percent in October, after staying unchanged in September. Private construction dropped 2 percent with a sharp drop in the residential sector, offering few signs of relief from the housing slump.

The declines on Wall Street came after stocks in Europe and most of Asia moved lower, as investors refocused attention on a gloomy economic outlook.

Benchmark indexes in Paris and Frankfurt were down more than 4 percent, and London’s FTSE-100 dipped 3.6 percent. The declines were minor compared with the 13 percent increase that European stocks enjoyed last week.

“We’re giving back some of the appreciation in equities that we gained in the last few weeks,” said Robert Talbut, a fund manager at Royal London Asset Management.

“I think in terms of valuations there are some good deals starting to appear,” Mr. Talbut said. “But valuations are never enough in themselves.”

Any serious market recovery would require a determined response from global governments, he said, but investors have lots of questions about how the policy measures that have already been announced will work.

Investors were also troubled by mounting evidence that consumer spending in the United States would fall sharply this holiday shopping season, choking off one of the prime fuels of American economic growth. Retailers received more business than expected over the Thanksgiving shopping weekend, but the steep discounts they used to lure customers could undermine profits.

Black Friday sales were 3 percent higher than the year before, according to ShopperTrak, which tracks the industry.

Asian stocks ended mostly lower. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent, while the S.& P./ASX 200 in Sydney fell 1.6 percent.

The Kospi index in Seoul declined 1.6 percent. But the Hang Seng index in Hong Kong rose 1.6 percent, and the Shanghai Stock Exchange composite index rose 1.3 percent.

United States government debt was strong amid the poor economic outlook and expectations that the Federal Reserve would cut interest rates again soon.

The yield on the two-year Treasury note, which moves in the opposite direction of the price, fell to a record just below 0.95 percent, while the yield on the 10-year note fell to 2.86 percent, the lowest on record.

Investors expect the Bank of England, the Reserve Bank of Australia and the European Central Bank to cut interest rates this week amid evidence that inflation is easing and growth flagging. “Evidence continues to build suggesting that these central banks have further aggressive monetary easing to undertake in order to stem the risks of a dramatic shift in price expectations going forward,” Derek Halpenny, a foreign exchange strategist at Mitsubishi UFJ in London, wrote in a note to investors.

The Federal Reserve’s main rate is aimed at 1 percent currently, though the effective rate in the market is 0.5 percent because of the enormous quantity of cash that the Fed has pumped into the market to keep foundering financial institutions afloat.

Crude oil futures for January delivery fell $4.54, to $49.88 a barrel.

    It’s Official: Recession Started One Year Ago, NYT, 2.12.2008, http://www.nytimes.com/2008/12/02/business/02markets.html?hp

Construction Spending Reflects Economic Slowdown

December 2, 2008
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) — Two economic reports released on Monday — one on construction spending and the other on manufacturing — were the latest indications of a sinking economy and a credit crisis that was likely to persist.

In the first report, the Commerce Department said that construction spending dropped 1.2 percent in October, much more than the 0.9 percent decline that many analysts had expected.

The weakness was led by another sizable drop in home construction, which has fallen every month except two over the last two and a half years. Nonresidential building also weakened as developers faced tougher times getting financing.

Economists say they believe the construction industry will be facing severe troubles until an economic recovery is firmly under way, probably not until the second half of 2009.

These analysts say they believe the country has slipped into what could be the worst recession since the 1981-82 downturn. The current slump is being worsened by the most serious financial crisis to hit the country since the 1930s. Banks are struggling to deal with billions of dollars of loan losses, including mortgage debts that reflect a record level of foreclosures.

Housing construction, which has been in a slump for more than two years, fell 3.5 percent in October after a 0.5 percent drop in September. Private residential building activity, which totaled $338.8 billion at a seasonally adjusted annual rate in October, has managed increases in only 2 months over the last 31.

The Commerce Department report on Monday also showed that nonresidential construction dropped 0.7 percent in October, the third decline in four months, leaving activity at a seasonally adjusted annual rate of $417.7 billion. Nonresidential activity had been an island of strength in the midst of the steep downturn in housing, but that area has begun to weaken because of the severe credit squeeze, which is making it harder for developers to get financing.

Government building projects showed strength in October, rising 0.7 percent to an annual rate of $316.1 billion. State and local construction was up 0.3 percent to a rate of $291.1 billion, while federal construction activity totaled $25 billion at an annual rate, an increase of 5.5 percent from September.

In the second report, a trade group says a measure of manufacturing activity fell to a 26-year low in November as new orders fell for a 12th consecutive month.

The Institute for Supply Management’s monthly index of manufacturing activity fell to 36.2, from October’s 38.9. The reading is worse than Wall Street economists’ expectations of 38.4, according to a survey by Thomson Reuters. A figure below 50 indicates the sector is contracting.

The November reading is the lowest since May 1982, the trade group said, when the economy was in the midst of a painful recession.

The report “indicates a continuing rapid rate of contraction in manufacturing,” said Norbert Ore, chairman of the trade group’s survey committee.

The survey’s new orders index fell to 27.9, from 32.2, the report said, its lowest level since June 1980. The production index fell to 31.5, from 34.6, its third consecutive month of decline.

Manufacturing employers continue to cut jobs, the survey found. The employment index fell to 34.2, from 34.6, its fourth drop in a row.

    Construction Spending Reflects Economic Slowdown, NYT, 2.12.2008, http://www.nytimes.com/2008/12/02/business/economy/02econ.html

Deep Discounts Draw Shoppers, but Not Profits

December 1, 2008
The New York Times
By STEPHANIE ROSENBLOOM

Sales in the nation’s stores were strong over the weekend, to the relief of retailers that had been expecting a holiday shopping period as slow as the overall economy.

But while spending was up, there were troubling signs in the early numbers. The bargains that drove shoppers to stores were so stunning, analysts said that retailers — already suffering from double-digit sales declines the last two months — would probably see their profits erode even further.

Also, after shoppers flooded stores on Friday, foot traffic trailed off significantly on Saturday and Sunday.

Retailing professionals consider the weekend after Thanksgiving a barometer of overall holiday sales, which account for 25 to 40 percent of their annual sales. And in a year marked by an economic crisis, they are desperate for any signs that consumers are still willing to spend.

Their first glimpse came from two industry surveys released on Sunday. ShopperTrak, which does research for retailers, said sales increased 3 percent on Friday, compared with last year.

The National Retail Federation, adding up sales Thursday through Saturday and projected sales for Sunday, said that each shopper spent about 7 percent more this year than last year. Shoppers spent an average of $372.57 Friday though Sunday, according to the federation, a trade group.

“It seems that not only did retailers do a good job of attracting shoppers but it seems that shoppers were also excited again to take part in the tradition of Black Friday weekend,” said Kathy Grannis, a spokeswoman for the federation.

That study also showed that Friday was by far the busiest day of the weekend, with traffic trailing off by more than 16 million people on Saturday.

Analysts said the discounts that drew in shoppers over the weekend were so steep that many ailing chains might be no better off in the long run.

“You’re looking at discounts of 50 to 70 percent off,” said Matthew Katz, managing director in the retail practice of Alix Partners, an advisory and restructuring firm. “You have to sell two to three times as much to break even.”

Chains as varied as Target and Neiman Marcus offered goods at some of their lowest prices ever. At Target, a 26-inch LCD HD-TV, originally $429.99, was selling for $299. Last week Tracy Mullin, president and chief executive of the National Retail Federation, noted that “this could be the most heavily promotional Black Friday in history.”

And those promotions came on top of already radical price cuts.

“There is a sense of desperation among retailers,” said Hana Ben-Shabat, a partner in A. T. Kearney’s retail practice, “because everybody knows consumers are very stretched.”

As Marshal Cohen, chief industry analyst for the NPD Group, put it: “This weekend was like having a huge party and just hoping anybody shows up.”

Even with the cheery news from industry groups, many retailing professionals worry the shorter holiday shopping season, on top of an ailing economy, will hurt sales through Christmas. There are 27 shopping days between Thanksgiving and Christmas this year; there were 32 last year. Bill Martin, co-founder of ShopperTrak, said the abbreviated season “may catch some procrastinating consumers off guard, leading to lower sales levels.”

Also potentially troubling for retailers is that consumers say they are further along in their holiday shopping — on average, 39.3 percent done versus 36.4 percent a year ago, according to the National Retail Federation, whose survey was conducted by BIGresearch.

Already, stores had seen double-digit sales declines in the first two weeks of November, according to SpendingPulse, a report by MasterCard Advisors. Michael McNamara, vice president of SpendingPulse, said sectors like electronics and luxury goods declined by more than 19 percent versus the period a year ago.

But both ShopperTrak and the National Retail Federation said Friday was a reminder that shopping remained an American pastime. ShopperTrak said foot traffic was up almost 2 percent, though its estimate for the full holiday season is a nearly 10 percent plunge in sales compared with last year.

The National Retail Federation said some 172 million shoppers visited stores and Web sites over Thanksgiving weekend, up from 147 million shoppers last year.

Most people shopped at discount stores. But in what must be welcome news for struggling department stores, about 11 percent more consumers shopped at them this year than last year.

Over all, though, most shoppers ended up buying lower-cost items: clothes, accessories, video games, DVDs, and CDs. Gift cards were down 10 percent, perhaps in part because of concerns about retail bankruptcies.

Despite the industry surveys’ findings, many consumers and longtime retailing analysts attested to lighter crowds.

“There was definitely more elbow room,” said John D. Morris, a Wachovia analyst whose retail team fanned out at malls across the country on Friday.

Mr. Cohen of the NPD Group said that on Friday foot traffic at stores was down 11 percent and the shopping bag count was down 24 percent compared with last year.

In online retailing, comScore said spending for the first 28 days of November declined 4 percent, to $10.4 billion, compared with $10.8 billion for the period a year ago. Online spending on Friday bumped up 1 percent, to $534 million, compared with $531 million last year.

Retailers did not report Friday sales on Sunday; most will wrap them into their November sales reports on Thursday.

J. C. Penney, for instance, said in a statement on Saturday that “in light of the challenging and volatile economic climate, and shifts in this year’s retail calendar, we don’t believe that reporting sales data for any one day (or weekend), including Black Friday, would provide a meaningful barometer of our business.”

Black Friday is named for the day when, historically, retailers moved into the black, or became profitable for the year. Retailing professionals now use the whole holiday shopping season, November through December, to help determine the health of a retailer.

Mr. Martin of ShopperTrak cautioned that Black Friday “is just one day” and said he was not changing his prediction for flat holiday sales this year.

Other retailing groups have predicted sales declines. Standard & Poor’s Equity Research Services estimated a 5 percent drop. IBISWorld, a research firm, said overall holiday spending would sink by about 3 percent.

In the wee hours of Friday morning, retailers were optimistic.

In the Herald Square area of Manhattan, the head of Macy’s, Terry J. Lundgren, said he was feeling “very encouraged that customers are out,” as he stood amid a swirl of bleary-eyed shoppers. There were about 5,000 people lined up outside before 5 a.m. Friday, he said, about the same as last year. “We’re all anxious to see how the customer responds.”

By Saturday, consumers said the frenzy — which resulted the death of a Wal-Mart worker in suburban New York when shopping commenced on Friday morning — that had accompanied the weekend’s limited-time jaw-dropping deals was gone.

“The parking lot didn’t have a lot of cars in it, so it was easy to find a spot up front,” said Kimi Armstrong as she wandered around the Domain, an upscale shopping center in Austin, Texas. “At this exact time last year it was raining, but the sidewalks were packed with people. It was wall-to-wall people. It was hard to walk down the sidewalk without running into anybody.”

Some shoppers, including Ms. Armstrong, hit the stores over the weekend just to partake of the Christmas spirit, brainstorm gift ideas or check deals that many expected to improve in the weeks to come.

On a bench in front of a Macy’s store in Century City, Calif., Jill Capanna, 47, was eating frozen yogurt with her family. It was their only purchase after having wandered the mall for three hours. “Normally we buy presents way ahead of time,” Ms. Capanna said, “but this year I’m waiting until the last minute.”

At Westfield Century City Shopping Center in California, Harper Mance, 31, said: “I’m looking around, thinking, ‘If there are discounts on everything now, what’s it going to be like after Christmas?’ You know it’s going to go down further.”

Ms. Mance’s mother, Zoë, 59, agreed. “They’ll be paying us to take things after Christmas,” she said.

Rebecca Cathcart and Abha Bhattarai contributed reporting.

    Deep Discounts Draw Shoppers, but Not Profits, NYT, 1.12.1008, http://www.nytimes.com/2008/12/01/business/01shop.html

The Media Equation

Media and Retailers Both Built Black Friday

December 1, 2008
The New York Times
By DAVID CARR

This weekend, news reports were full of finger-wagging over the death by trampling of a temporary worker, Jdimypai Damour, at a Wal-Mart store in Long Island on Friday. His death, the coverage suggested, was a symbol of a broken culture of consumerism in which people would do anything for a bargain.

The willingness of people to walk over another human being to get at the right price tag raises the question of how they got that way in the first place. But in the search for the usual suspects and parceling of blame, the news media should include themselves.

Just a few days ago, the same newspaper writers and television anchors who are now wearily shaking their heads at the collective bankruptcy of our mass consumer culture were cheering all of it on.

In a day-before story, The Atlanta Journal-Constitution advised readers to leave the children at home, at least the ones not big enough to carry the loot, because they will just slow you down: “Strollers and crowds just don’t mix, though we know a few shoppers willing to use four wheels and a child as a weapon. Younger children may also be seduced by the shopping mania and pitch a tantrum that slows your progress. That said, teens and young adults can be an asset to a divide-and-conquer shopping strategy. And you’ll have someone to help carry the bags.”

An article distributed by McClatchy-Tribune Business News sounded as if the writers were composing a sonnet for fishing or camping until they got to the punch line: “Nothing rivals the thrill of waking up before the sun, or that sprint through the store for the perfect present.”

Another article distributed by the news service said that “some hard core shoppers will be up before the sun, banging on store windows as the official start of the holiday shopping season begins. Weak economy, pshaw! There are sales out there.”

In the wake of death by shopper, Newsday, the daily paper on Long Island, wrung its hands in the opinion page blog: “Was this deadly rush to lower prices an illustration of the current economic malaise (people mobbing Wal-Mart because they fear they can’t afford higher prices elsewhere) or just proof that even a recession can’t suppress stuff-lust?” Then it added, rather unfortunately, “This awful death is another Joey Buttafuoco-like stain on the too-often sordid image of our island.”

But on the run-up, Newsday offered a “Black Friday blueprint,” with store openings listed so shoppers could plot strategy, including noting that at 5 a.m., the Green Acres Wal-Mart would open and customers could expect to buy a 42-inch LCD television for $598. Many continued to pursue that particular bargain even as Mr. Damour lay dying.

The New York Times had an article in its Circuits section on how “Black Friday Calls for a Strategy Session,” but the overall coverage was far from frantic, reflecting grim economic realities.

It’s convenient to point a crooked finger in the wake of the tragedy at some light coverage of some harmless family fun. Except the coverage is not so much trite as deeply cynical, an attempt to indoctrinate consumers into believing that they are what they buy and that they should be serious enough about it to leave the family at home.

Media and retail outfits are economic peas in a pod. Part of the reason that the Thanksgiving newspaper and local morning television show are stuffed with soft features about shopping frenzies is that they are stuffed in return with ads from retailers. Yes, Black Friday is a big day for retailers — stores did as much as 13 percent of their holiday business this last weekend — but it is also a huge day for newspapers and television.

In partnership with retail advertising clients, the news media have worked steadily and systematically to turn Black Friday into a broad cultural event. A decade ago, it was barely in the top 10 shopping days of the year. But once retailers hit on the formula of offering one or two very-low-priced items as loss leaders, media groups began to cover the post-Thanksgiving outing as a kind of consumer sporting event.

“Media outlets have been stride for stride with the retailers,” said Marshal Cohen, chief retail analyst for the NPD Group, a market research firm. Speaking on the phone on Friday evening after nearly 24 hours of working the malls, he suggested, “Something like this was bound to happen at some point. The man who died at Wal-Mart was, from what I understand, a temporary employee and had no idea what he was dealing with.”

Given that early shoppers stomped him to death and later arrivals streamed past him as he was being treated, he could not be blamed for failing to understand the ungovernable mix of greed and thriftiness that was under way. Black Friday blows a whistle many of us cannot hear — I would rather spend some quality time with my dentist than stand in the dark chill waiting for a store to open.

Some people think of Black Friday as an abundance of holiday generosity, but in a survey conducted by the International Council of Shopping Centers and Goldman Sachs, 81 percent of the respondents said that they planned to shop for themselves, an army of self-seeking Santas.

News outlets that advised consumers to sharpen their elbows for the big day were selling something that has, in an online world, lost most of its value. If you want to define your self-worth as buying a $300 laptop, you can use the Web and a down cycle in the gadgets business to come out a winner. (Black Friday is now followed by Cyber Monday, another cynical construct that suggests that you can beat the system by buying things on the right day.)

“This is a tired American ritual that has had its day even before this happened,” said Kalle Lasn, editor of AdBusters, a magazine and Web site that promotes the day after Thanksgiving as “Buy Nothing Day.” “It accrues to the benefit of the media to somehow promote all of this craziness. There is something very sick about it.”

Buying stuff in the teeth of recession represents a vulgar but far too common impulse. Consumption is a core American value, so much so that President Bush suggested people head to the mall after the attacks of Sept. 11 as an expression of solidarity.

The message is persistent. After the current housing collapse turned a lot of the financial system to red mist, we’re told we have a crisis of consumer confidence and need to stimulate spending. Again, there’s something sensible, even vaguely patriotic, about buying stuff, even after people used cheap credit to spend themselves into a ditch.

Even consumption may have limits. Mr. Cohen said that in his 32 years interviewing consumers in malls during the holiday season, he had never heard what he did this year. “People really have no idea what they want,” he said.

    Media and Retailers Both Built Black Friday, NYT, 1.12.2008, http://www.nytimes.com/2008/12/01/business/media/01carr.html?ref=business

Recession is official, economists say

1 December 2008
USA Today
By Barbara Hagenbaugh

WASHINGTON — It's official: The USA is in a recession that started in December 2007.

The committee of economists responsible for determining the dates of business cycles said Monday that they met by conference call on Friday, Nov. 28 and "the committee determined that a peak in economic activity occurred in the U.S. economy in December 2007.

" The peak marks the end of the expansion that began in November 2001 and the beginning of a recession."

December 2007 is the last month in which U.S. employers added jobs. Since then, businesses have shed workers.

The responsibility for defining U.S. recessions falls to economists who are members of the Business Cycle Dating Committee at the private, non-profit National Bureay of Economic Ressearch in Cambridge, Mass. The organization has been dating business cycles since 1929 and first formed the all-volunteer committee 30 years ago.

While recessions are often described as two consecutive quarters of decline in economic output, that's not the official definition.

Instead, the panel looks at a multitude of economic data, including gross domestic product, income, employment, industrial production and retail sales. The economy contracted in the July-September quarter at the fastest pace in seven years.

Panel members include Robert Hall of Stanford University, Martin Feldstein and Jeffrey Frankel of Harvard University, Robert Gordon of Northwestern University, James Poterba of MIT, David Romer of the University of California, Berkeley, and Victor Zarnowitz of the Conference Board.

Private economists months ago shifted their focus from whether the economy was in a recession to how long the downturn will last and how deep the slump will be.

As bad news on the economy continues to pour in, those forecasts become more dire.

Monday, the Institute for Supply Management said its gauge of manufacturing activity fell in November to the lowest level in 26 years as measures of orders, production and jobs all fell.

The private group said its index fell to 36.2 last month, from 38.9 in October and 50 a year earlier. November's number was the lowest since May 1982, when the economy was in one of the longest post-World War II recessions.

A reading below 50 indicates contraction in the manufacturing sector; readings above 50 indicatge expansion. The gauge has been below 50 for four months.

"It's going to take a few months for most of these things to find a bottom," says Norbert Ore, who chairs the ISM manufacturing committee.

President Bush, expressing remorse that the global financial crisis has cost jobs and damaged retirement accounts, told ABC's "World News" in an interview that he will support additional federal intervention, if necessary, to ease the recession. The interview will air Monday night.

Contributing: Associated Press

    Recession is official, economists say, UT, 1.12.2008, http://www.usatoday.com/money/economy/2008-12-01-recession-official_N.htm