WASHINGTON -- The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.
The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.
Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.
Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.
What may be the shakeout following President Obama's effort to regulate executive pay in the financial world? Matthew Rose discusses.
At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.
It is unclear how such a bill would fit with what the Fed and others are already considering. But any legislation passed would make it harder for policy makers to dial back limits once the financial crisis subsides.
Any new compensation rules would likely be rolled out alongside a broader revamp of financial-markets regulation that the Treasury is pushing. The compensation effort is the latest example of the government's increasing focus on aspects of the financial sector that once were untouched.
Regulators have long had the power to sanction a bank for excessive pay structures, but have rarely used it. The Office of the Comptroller of the Currency last year quietly pressed an unidentified large bank to make changes "pertaining to compensation incentives for bank personnel responsible for assigning risk ratings," a spokesman said. Since 2007, it has privately directed 15 banks to change their executive compensation practices.
Government officials said their effort, which is just beginning, isn't aimed at setting pay or establishing detailed rules. "This is not going to be about capping compensation or micro-management," said an administration official. "It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation."
Despite the banking industry's weakened state, it would likely try to push back against curbs on how financial firms can compensate people. Bank executives have complained to federal officials that strict rules could prompt some of their best employees to move to parts of the financial industry that aren't regulated, such as hedge funds, private-equity firms and foreign banks. They've also argued that paying substantial bonuses is integral to how the industry works.
[Cash Flow]
"Our companies have already enhanced, strengthened and expanded the number of compensation programs that are tied to long-term incentives," said Scott Talbott, a senior vice president at the Financial Services Roundtable, a trade group.
Edward Yingling, chief executive of the American Bankers Association, said banks might be able to accept new rules "as long as they are general in nature and could be enforced on a case-by-case basis. What would never work is detailed regulation of compensation."
President Barack Obama and Treasury Secretary Timothy Geithner have both blamed the way banks structured compensation plans for contributing to the financial mess. In February, Mr. Obama said executive pay helped lead to a "reckless culture and a quarter-by-quarter mentality that in turn helped to wreak havoc in our financial system."
Mr. Geithner recently instructed his staff to begin discussions with the Fed, the SEC and others about ways to address compensation practices.
During a recent congressional hearing, Chairman Ben Bernanke said the Fed was working on rules that will "ask or tell banks to structure their compensation, not just at the very top level but down much further, in a way that is consistent with safety and soundness -- which means that payments, bonuses and so on should be tied to performance and should not induce excessive risk."
In an indication of how broad the effort may become, Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators need to examine compensation practices in the mortgage industry, suggesting new limits could stretch beyond banks.
"We need to make sure that incentives are aligned among all parties by making compensation contingent on the long-run performance of the underlying loans," Ms. Bair said on Tuesday.
The discussions follow a narrower effort by the administration to clip pay at firms that get federal aid. Earlier this year, it issued guidelines limiting salaries for top executives at firms that received funds under the Troubled Asset Relief Program.
Congress chimed in with even tougher rules curbing bonuses for top earners at the same firms, among other things. One rule bars firms receiving federal funds from paying top earners bonuses that equal more than a third of their total compensation.
The administration is still wrestling with how to marry those two efforts, which in combination are more punitive than officials intended. The Treasury is expected to issue new rules sometime in the next few weeks.
Wednesday, 13 May 2009
Qatari gas to reduce Russian dominance
Once dismissed as an economic pipe dream, liquefied natural gas has come of age.
LNG has become a transforming force in the global energy market and a potential answer to Russian domination of Europe's gas supplies.
The first super-tanker from Qatar has begun delivering frozen gas at –160C to the South Hook LNG Terminal in the south-west Wales port of Milford Haven, which was formally opened on Tuesday.
The biggest and most advanced LNG terminal in Europe, it will boast five giant storage tanks as large as the Albert Hall by the end of the year.
The hi-tech project is a joint venture by Qatar Petroleum, ExxonMobil and Total.
Qatar's LNG fleet will send one ship to Wales every three days, each supplying enough to meet Britain's gas needs for 24 hours.
It is hoped that the new trade from Qatar's vast fields in the Persian Gulf will guarantee Britain a reliable source of gas as the North Sea basin goes into rapid depletion.
As the world's biggest exporter of LNG, Qatar provides a counter-weight to Russian control of pipelines feeding Europe's grids – prompting Moscow's frantic efforts to rope Qatar into an OPEC-style gas cartel.
The revolution in LNG technology over the last decade has opened up Qatar's off-shore gas fields, transforming the tiny sheikdom of 1.5m people (240,000 citizens) into the planet's richest country per capita.
By 2013, Qatar aims to produce 5.5m barrels per day of oil equivalent, half as much as Saudi Arabia but with a fraction of the population.
The task for Britain is to ensure that the fleet of LNG tankers keep sailing to Wales rather going East, where prices have been higher.
Abdullah Al-Attiya, Qatar's energy minister, said yesterday: "Asia demand for LNG now, in other parts such as India and China, is becoming very high.
"China's needs are still not satisfied. They need huge amounts of gas. So now China is the centre of the new LNG compass."
LNG has become a transforming force in the global energy market and a potential answer to Russian domination of Europe's gas supplies.
The first super-tanker from Qatar has begun delivering frozen gas at –160C to the South Hook LNG Terminal in the south-west Wales port of Milford Haven, which was formally opened on Tuesday.
The biggest and most advanced LNG terminal in Europe, it will boast five giant storage tanks as large as the Albert Hall by the end of the year.
The hi-tech project is a joint venture by Qatar Petroleum, ExxonMobil and Total.
Qatar's LNG fleet will send one ship to Wales every three days, each supplying enough to meet Britain's gas needs for 24 hours.
It is hoped that the new trade from Qatar's vast fields in the Persian Gulf will guarantee Britain a reliable source of gas as the North Sea basin goes into rapid depletion.
As the world's biggest exporter of LNG, Qatar provides a counter-weight to Russian control of pipelines feeding Europe's grids – prompting Moscow's frantic efforts to rope Qatar into an OPEC-style gas cartel.
The revolution in LNG technology over the last decade has opened up Qatar's off-shore gas fields, transforming the tiny sheikdom of 1.5m people (240,000 citizens) into the planet's richest country per capita.
By 2013, Qatar aims to produce 5.5m barrels per day of oil equivalent, half as much as Saudi Arabia but with a fraction of the population.
The task for Britain is to ensure that the fleet of LNG tankers keep sailing to Wales rather going East, where prices have been higher.
Abdullah Al-Attiya, Qatar's energy minister, said yesterday: "Asia demand for LNG now, in other parts such as India and China, is becoming very high.
"China's needs are still not satisfied. They need huge amounts of gas. So now China is the centre of the new LNG compass."
Oil Prices: Norwegian Supply Falls; Is $100 Oil Far Away?
Norway, the world’s fourth biggest crude exporter, said Monday that its oil production fell a sizeable 7% in April to 1.99 million barrels a day last month from 2.15 million barrels a day in March.
Viking_longboat_art_200h_20090511104911.jpg
Another Norwegian export that’s declined (AP)
Though preliminary, the data highlight one of the big underlying supply problems in non-OPEC states that many oil analysts believe is likely to send crude prices back over the $100 a barrel mark in coming years. Oil closed Friday at $58.63, its highest settle since mid-November. It is trading around $57.75 a barrel this morning.
The Norwegian situation is being replicated in other non-OPEC oil producers, such as Mexico and the U.K. These regions are mature and giving up less oil, meaning that keeping production flat is getting harder and harder.
If analysts are right, this underlying supply struggle will keep oil prices relatively strong in coming years. And that’s a boon for renewable energy developers. Not just are they set to receive an enormous infusion of cash, low-interest loans and other support out of capitals from Washington D.C. to Beijing, they appear set to get some tailwind from high oil prices. If the worst global recession in decades can’t derail oil prices for long, that’s a good sign that the global economy is entering a period of oil prices high enough to support ongoing investment in renewable (a.k.a. competing) energy sources.
In addition to the so-called “below ground” geological issues, non-OPEC producers, which currently meet about 60% of the world’s daily crude demand, are grappling with the global economic recession. The International Energy Agency in Paris last month cut its 2009 non-OPEC supply forecast by 320,000 barrels a day to 50.3 million barrels a day due to falling spending on drilling projects. It was the IEA’s eighth straight monthly downward revision to non-OPEC supply.
The agency said it could spring further reductions to its non-OPEC supply projections, so be on the outlook when the IEA releases its May monthly oil market report on Thursday.
Viking_longboat_art_200h_20090511104911.jpg
Another Norwegian export that’s declined (AP)
Though preliminary, the data highlight one of the big underlying supply problems in non-OPEC states that many oil analysts believe is likely to send crude prices back over the $100 a barrel mark in coming years. Oil closed Friday at $58.63, its highest settle since mid-November. It is trading around $57.75 a barrel this morning.
The Norwegian situation is being replicated in other non-OPEC oil producers, such as Mexico and the U.K. These regions are mature and giving up less oil, meaning that keeping production flat is getting harder and harder.
If analysts are right, this underlying supply struggle will keep oil prices relatively strong in coming years. And that’s a boon for renewable energy developers. Not just are they set to receive an enormous infusion of cash, low-interest loans and other support out of capitals from Washington D.C. to Beijing, they appear set to get some tailwind from high oil prices. If the worst global recession in decades can’t derail oil prices for long, that’s a good sign that the global economy is entering a period of oil prices high enough to support ongoing investment in renewable (a.k.a. competing) energy sources.
In addition to the so-called “below ground” geological issues, non-OPEC producers, which currently meet about 60% of the world’s daily crude demand, are grappling with the global economic recession. The International Energy Agency in Paris last month cut its 2009 non-OPEC supply forecast by 320,000 barrels a day to 50.3 million barrels a day due to falling spending on drilling projects. It was the IEA’s eighth straight monthly downward revision to non-OPEC supply.
The agency said it could spring further reductions to its non-OPEC supply projections, so be on the outlook when the IEA releases its May monthly oil market report on Thursday.
State budget crisis threatens to tackle high school sports
Ed Buller roamed the sideline for 23 seasons at San Jose's Oak Grove High, the portrait of a high-energy football coach. He called plays and exhorted his players while guiding the Eagles to 214 wins, 18 league titles and five Central Coast Section championships.
Four months after his retirement from coaching, Buller spent last Sunday morning raising tents, setting up concession stands and scrawling starting numbers for a 5K Fun Run/Walk at nearby Mount Pleasant High. This type of volunteer effort is common for Buller now, as he pours endless hours into his new role: trying to save sports in the East Side Union High School District.
"I told him, 'This is your second calling,' " said Rick Huck, a lineman for Buller in the 1980s and an Oak Grove assistant coach the past 15 years. "He's gone after it as he did coaching - full speed ahead."
Buller's quest offers a snapshot of the challenge confronting high school athletics throughout California. The state budget crisis has prompted school districts to contemplate painful cuts to sports programs - including the possibility of eliminating athletics entirely - and forced them into frenzied fund-raising.
Budget crunch
State lawmakers, in trying to close a $41.6 billion budget deficit in February, proposed $8.4 billion in cuts to public education. That number would rise significantly if voters reject education-related propositions in the May 19 special election, school officials say. Those measures all trail in the polls.
Bay Area high schools are responding to the funding crunch in different ways. Pleasanton, for example, eliminated coaching stipends at Foothill and Amador Valley High, so the district will seek a $300-$400 donation from students participating in sports. Novato officials are asking voters to approve an additional $96 parcel tax on June 2, to help fund athletics at Novato High and San Marin High.
San Francisco's 12 high schools will absorb cuts but expect to maintain their 20 sports thanks to Proposition H, the Public Education Enrichment Fund passed by city voters in 2004. Oakland's six high schools and 15 sports will continue to operate on a "tremendously small budget," in the words of Oakland Athletic League Commissioner Michael Moore.
"We were already cut to the bone," Moore said. "We're just getting all the quarters out of the couch."
Eliminate athletics?
Buller, 53, didn't plan to relax on his couch after leaving coaching. He had pulled double duty at Oak Grove since 1994, also serving as athletic director, and he hoped to devote himself to teaching and administrative duties while carving out time for his family, including watching his nephews play high-school football.
Then, in December, East Side superintendent Bob Nuñez announced his proposal to eliminate athletics. The district's board of trustees approved the initial budget, causing a public outcry. The board backtracked in February, saying athletics would stay if they were self-funded.
Many parents heard the first part of the revised message (athletics were back) and didn't digest the second part (find $2 million to pay for it). Buller made it his mission to spread the word and raise money, filling his schedule with meetings three or four nights per week.
"I actually decided to retire before this happened," he said. "But when it did happen, I thought, 'Here's a perfect opportunity to fill the void.' ... These kids need the opportunity more than we need other things."
Buller's challenge
Buller easily could have returned to coaching. San Jose State fans, in an online chat room, implored their school to hire him as offensive coordinator (Buller spent three years as wide-receivers coach at SJS in the early 1990s). One fan even described him as "the Bill Walsh of high-school football."
Buller originally suspected Nuñez merely was trying to bring attention to the East Side district and spark fund-raising - a logical conclusion, given how early he publicly threatened athletics. But it soon became clear the threat was serious, given the district's projected shortfall of more than $20 million.
Now, as Buller and other East Side athletic directors and parents scramble to raise money, the window is closing. Alan Garofalo, the associate superintendent who oversees athletics, said the district - the largest high school district in Northern California (and 12th-largest in the nation) with 11 schools and 26,000 students - might have to cut another $5 million from its overall budget if voters don't approve those state propositions. (East Side's sheer size might help explain the extent of its financial problems.)
District officials expect to raise about $600,000 by asking each student who plays sports to contribute $200. The Fun Run brought in another $120,000, still leaving the campaign well short of its target.
"Am I optimistic the fund-raising will bring in the needed $2 million-plus to fund athletics next year? Not terribly, no," Garofalo said. "But I am optimistic we will collectively come up with an alternative plan to help the district find ways to fund the sports program."
Garcia's plan
Eddie Garcia, a former baseball and basketball player at James Lick High (another East Side school), is trying to find one way. Garcia, who was appointed to the board of trustees in January, will introduce his plan at the next board meeting on May 21. Garcia wants to preserve sports for 2009-10 by dipping into a reserve fund and then ask voters to pass a parcel tax next year to help fund athletics in future years.
He, like Buller, sees value in prep sports - such as studies showing kids involved in athletics miss about six fewer days of class each year than kids not involved in athletics. Schools receive state funding based partly on attendance, so eliminating athletics could cost even more money than it saves, according to the California Interscholastic Federation.
Buller told the story of one Oak Grove student who was injured and couldn't play his senior season. He soon started getting in fights and was thrown out of school.
"If he was involved in athletics, I guarantee that doesn't happen," Buller said.
Buller and Garcia were candid in saying fund-raising hasn't gone well, given early confusion and the slumping economy. But Buller's cachet in San Jose - 214 wins and 18 league championships tend to earn respect - has helped the effort.
One example: Garcia wanted to hold a town hall meeting to unveil his plan. He asked Buller to help organize the meeting; five days later, 400 people packed the auditorium at Oak Grove.
"When Ed Buller steps up and says, 'This is real, we need to pull together,' people listen," said Garofalo, the associate superintendent.
The Positive Coaching Alliance honored Buller as a National Double-Goal Coach Award winner last month, recognizing his on-field success and off-field efforts. Buller insisted he sees nothing extraordinary in morphing from football coach to community organizer.
"Hey, when I was growing up in high school, there was always someone doing it for us," he said. "So it's my turn."
Four months after his retirement from coaching, Buller spent last Sunday morning raising tents, setting up concession stands and scrawling starting numbers for a 5K Fun Run/Walk at nearby Mount Pleasant High. This type of volunteer effort is common for Buller now, as he pours endless hours into his new role: trying to save sports in the East Side Union High School District.
"I told him, 'This is your second calling,' " said Rick Huck, a lineman for Buller in the 1980s and an Oak Grove assistant coach the past 15 years. "He's gone after it as he did coaching - full speed ahead."
Buller's quest offers a snapshot of the challenge confronting high school athletics throughout California. The state budget crisis has prompted school districts to contemplate painful cuts to sports programs - including the possibility of eliminating athletics entirely - and forced them into frenzied fund-raising.
Budget crunch
State lawmakers, in trying to close a $41.6 billion budget deficit in February, proposed $8.4 billion in cuts to public education. That number would rise significantly if voters reject education-related propositions in the May 19 special election, school officials say. Those measures all trail in the polls.
Bay Area high schools are responding to the funding crunch in different ways. Pleasanton, for example, eliminated coaching stipends at Foothill and Amador Valley High, so the district will seek a $300-$400 donation from students participating in sports. Novato officials are asking voters to approve an additional $96 parcel tax on June 2, to help fund athletics at Novato High and San Marin High.
San Francisco's 12 high schools will absorb cuts but expect to maintain their 20 sports thanks to Proposition H, the Public Education Enrichment Fund passed by city voters in 2004. Oakland's six high schools and 15 sports will continue to operate on a "tremendously small budget," in the words of Oakland Athletic League Commissioner Michael Moore.
"We were already cut to the bone," Moore said. "We're just getting all the quarters out of the couch."
Eliminate athletics?
Buller, 53, didn't plan to relax on his couch after leaving coaching. He had pulled double duty at Oak Grove since 1994, also serving as athletic director, and he hoped to devote himself to teaching and administrative duties while carving out time for his family, including watching his nephews play high-school football.
Then, in December, East Side superintendent Bob Nuñez announced his proposal to eliminate athletics. The district's board of trustees approved the initial budget, causing a public outcry. The board backtracked in February, saying athletics would stay if they were self-funded.
Many parents heard the first part of the revised message (athletics were back) and didn't digest the second part (find $2 million to pay for it). Buller made it his mission to spread the word and raise money, filling his schedule with meetings three or four nights per week.
"I actually decided to retire before this happened," he said. "But when it did happen, I thought, 'Here's a perfect opportunity to fill the void.' ... These kids need the opportunity more than we need other things."
Buller's challenge
Buller easily could have returned to coaching. San Jose State fans, in an online chat room, implored their school to hire him as offensive coordinator (Buller spent three years as wide-receivers coach at SJS in the early 1990s). One fan even described him as "the Bill Walsh of high-school football."
Buller originally suspected Nuñez merely was trying to bring attention to the East Side district and spark fund-raising - a logical conclusion, given how early he publicly threatened athletics. But it soon became clear the threat was serious, given the district's projected shortfall of more than $20 million.
Now, as Buller and other East Side athletic directors and parents scramble to raise money, the window is closing. Alan Garofalo, the associate superintendent who oversees athletics, said the district - the largest high school district in Northern California (and 12th-largest in the nation) with 11 schools and 26,000 students - might have to cut another $5 million from its overall budget if voters don't approve those state propositions. (East Side's sheer size might help explain the extent of its financial problems.)
District officials expect to raise about $600,000 by asking each student who plays sports to contribute $200. The Fun Run brought in another $120,000, still leaving the campaign well short of its target.
"Am I optimistic the fund-raising will bring in the needed $2 million-plus to fund athletics next year? Not terribly, no," Garofalo said. "But I am optimistic we will collectively come up with an alternative plan to help the district find ways to fund the sports program."
Garcia's plan
Eddie Garcia, a former baseball and basketball player at James Lick High (another East Side school), is trying to find one way. Garcia, who was appointed to the board of trustees in January, will introduce his plan at the next board meeting on May 21. Garcia wants to preserve sports for 2009-10 by dipping into a reserve fund and then ask voters to pass a parcel tax next year to help fund athletics in future years.
He, like Buller, sees value in prep sports - such as studies showing kids involved in athletics miss about six fewer days of class each year than kids not involved in athletics. Schools receive state funding based partly on attendance, so eliminating athletics could cost even more money than it saves, according to the California Interscholastic Federation.
Buller told the story of one Oak Grove student who was injured and couldn't play his senior season. He soon started getting in fights and was thrown out of school.
"If he was involved in athletics, I guarantee that doesn't happen," Buller said.
Buller and Garcia were candid in saying fund-raising hasn't gone well, given early confusion and the slumping economy. But Buller's cachet in San Jose - 214 wins and 18 league championships tend to earn respect - has helped the effort.
One example: Garcia wanted to hold a town hall meeting to unveil his plan. He asked Buller to help organize the meeting; five days later, 400 people packed the auditorium at Oak Grove.
"When Ed Buller steps up and says, 'This is real, we need to pull together,' people listen," said Garofalo, the associate superintendent.
The Positive Coaching Alliance honored Buller as a National Double-Goal Coach Award winner last month, recognizing his on-field success and off-field efforts. Buller insisted he sees nothing extraordinary in morphing from football coach to community organizer.
"Hey, when I was growing up in high school, there was always someone doing it for us," he said. "So it's my turn."
Governor: Deficit $21 billion if measures fail
California's budget deficit will balloon to $21.3 billion this summer if voters reject key ballot measures in next week's special election, Gov. Arnold Schwarzenegger warned Monday in a letter to legislative leaders.
And even if voters approve the measures, the shortfall will be staggering: $15.4 billion, the governor said.
California and the rest of the nation are "facing the deepest recession since the Great Depression," and for the first time since 1938, the Golden State will see a decline in personal income, the governor wrote.
"In order to avert both a budget shortfall and a cash crisis, it is imperative that we begin work immediately to address these challenges," Schwarzenegger's letter stated.
Less than three months ago, Schwarzenegger and legislative leaders announced a compromise budget deal they said solved the enormous fiscal crisis the state was facing. The deal, reached Feb. 19 after marathon legislative sessions, would close a nearly $42 billion deficit through June 2010 with deep spending cuts and temporary tax increases.
That plan included the package of six ballot measures that on May 19 will ask voters to allow the state to borrow against future state lottery sales and dip into special funds, among other things.
Five of the six measures have been trailing in polls, and Schwarzenegger has warned in recent days that if the measures fail, the state will have to make devastating cuts that could undermine public safety, schools and local government.
On Monday, the governor's revelation made it apparent even with passage of the measures, cuts are inevitable.
"I don't know how we close a deficit that big," said Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County).
'Beyond triage'
Senate President Pro Tem Darrell Steinberg, D-Sacramento, who last week told reporters that the budget could be triaged if voters approved the measures, said Monday: "We're well beyond triage."
Senate Republican leader Dennis Hollingsworth, R-Murrieta (Riverside County), said he agrees with Schwarzenegger that the state's budget crisis "requires immediate action, and that means some pretty painful cuts are going to have to be done."
With California's economy continuing to deteriorate, most state finance officials began predicting another large deficit only weeks after the February budget deal was reached. The nonpartisan Legislative Analyst's Office in March forecast an $8 billion revenue shortfall for the upcoming fiscal year, which begins July 1.
"They clearly need to go back and come up with something else," said Dave Fratello, spokesman for the No on 1D and 1E campaign. "The hope, or fiction, that this was going to solve the California budget was over in a couple of weeks, and the story is just getting worse and worse."
Still, the governor is continuing to urge Californians to pass the six measures.
The propositions would limit spending, create a rainy-day fund and guarantee schools billions of dollars in future years. The measures would also allow California to borrow $5 billion against future state lottery sales and shift nearly $1 billion in taxes collected for children's and mental health services to pay for other programs.
The only measure that has been leading in polls is one that would freeze pay for lawmakers and top state officials such as the governor during tough budget years. Schwarzenegger doesn't take a state salary.
Also Monday, the governor said he will release on Thursday two versions of revised budget plans detailing how he would solve the state's deepening fiscal crisis - one that includes the passage of the ballot measures and another that takes into account the failure of the measures. The budget plans will be unveiled five days before the election and two weeks before the governor's earlier plans to release the revised budget.
The governor moved up the release date because he has the responsibility to share with Californians the severity of the state's fiscal crisis as soon as possible, said Matt David, a spokesman for Schwarzenegger.
'Scare tactics'
Opponents of the ballot measures, however, accused the governor of trying to scare voters into supporting the measures with a week before the election.
"I think the timing of this (letter) is one in a line of many scare tactics that the governor is using to put fear into voters," said Mike Roth, a spokesman for the "no" campaign.
When asked about the governor's argument that voters should know the consequences of their decision, Roth said: "I think the timing of the release speaks for itself."
Last week, Schwarzenegger informed fire officials that he plans to eliminate more than 1,700 firefighting positions and shutter scores of fire stations if the ballot measures are defeated.
The governor's other solutions include forcing cities and counties to lend $2 billion to the state from property tax collections, the early release of as many as 19,000 lower-risk offenders from state prisons and laying off more than 50,000 teachers.
And even if voters approve the measures, the shortfall will be staggering: $15.4 billion, the governor said.
California and the rest of the nation are "facing the deepest recession since the Great Depression," and for the first time since 1938, the Golden State will see a decline in personal income, the governor wrote.
"In order to avert both a budget shortfall and a cash crisis, it is imperative that we begin work immediately to address these challenges," Schwarzenegger's letter stated.
Less than three months ago, Schwarzenegger and legislative leaders announced a compromise budget deal they said solved the enormous fiscal crisis the state was facing. The deal, reached Feb. 19 after marathon legislative sessions, would close a nearly $42 billion deficit through June 2010 with deep spending cuts and temporary tax increases.
That plan included the package of six ballot measures that on May 19 will ask voters to allow the state to borrow against future state lottery sales and dip into special funds, among other things.
Five of the six measures have been trailing in polls, and Schwarzenegger has warned in recent days that if the measures fail, the state will have to make devastating cuts that could undermine public safety, schools and local government.
On Monday, the governor's revelation made it apparent even with passage of the measures, cuts are inevitable.
"I don't know how we close a deficit that big," said Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County).
'Beyond triage'
Senate President Pro Tem Darrell Steinberg, D-Sacramento, who last week told reporters that the budget could be triaged if voters approved the measures, said Monday: "We're well beyond triage."
Senate Republican leader Dennis Hollingsworth, R-Murrieta (Riverside County), said he agrees with Schwarzenegger that the state's budget crisis "requires immediate action, and that means some pretty painful cuts are going to have to be done."
With California's economy continuing to deteriorate, most state finance officials began predicting another large deficit only weeks after the February budget deal was reached. The nonpartisan Legislative Analyst's Office in March forecast an $8 billion revenue shortfall for the upcoming fiscal year, which begins July 1.
"They clearly need to go back and come up with something else," said Dave Fratello, spokesman for the No on 1D and 1E campaign. "The hope, or fiction, that this was going to solve the California budget was over in a couple of weeks, and the story is just getting worse and worse."
Still, the governor is continuing to urge Californians to pass the six measures.
The propositions would limit spending, create a rainy-day fund and guarantee schools billions of dollars in future years. The measures would also allow California to borrow $5 billion against future state lottery sales and shift nearly $1 billion in taxes collected for children's and mental health services to pay for other programs.
The only measure that has been leading in polls is one that would freeze pay for lawmakers and top state officials such as the governor during tough budget years. Schwarzenegger doesn't take a state salary.
Also Monday, the governor said he will release on Thursday two versions of revised budget plans detailing how he would solve the state's deepening fiscal crisis - one that includes the passage of the ballot measures and another that takes into account the failure of the measures. The budget plans will be unveiled five days before the election and two weeks before the governor's earlier plans to release the revised budget.
The governor moved up the release date because he has the responsibility to share with Californians the severity of the state's fiscal crisis as soon as possible, said Matt David, a spokesman for Schwarzenegger.
'Scare tactics'
Opponents of the ballot measures, however, accused the governor of trying to scare voters into supporting the measures with a week before the election.
"I think the timing of this (letter) is one in a line of many scare tactics that the governor is using to put fear into voters," said Mike Roth, a spokesman for the "no" campaign.
When asked about the governor's argument that voters should know the consequences of their decision, Roth said: "I think the timing of the release speaks for itself."
Last week, Schwarzenegger informed fire officials that he plans to eliminate more than 1,700 firefighting positions and shutter scores of fire stations if the ballot measures are defeated.
The governor's other solutions include forcing cities and counties to lend $2 billion to the state from property tax collections, the early release of as many as 19,000 lower-risk offenders from state prisons and laying off more than 50,000 teachers.
New hires get less pay as jobs remain scarce
WASHINGTON — With nearly 14 million Americans unemployed, a growing number of people are competing for a dwindling number of job openings, allowing some employers to drive down pay and benefits for new hires.
And the latest government figures show competition for jobs intensified in the first few months of 2009.
Employers are laying off workers and taking other steps to cut costs as they grapple with the recession, the longest since the Great Depression. Some companies also are reducing the pay and benefits for new employees, according to a new survey released by the Society for Human Resource Management.
Nearly 15 percent of service-sector companies reduced pay and benefits for new hires in April compared with March, the survey found. Only 2 percent increased such compensation. The rest made no change in new-employee pay or didn't hire at all.
Until this spring, far more service-industry employers — such as in retail, hotel and financial services industries — had boosted rather than reduced pay for new workers, the group said. About 75 percent of Americans work in services.
Jennifer Schramm, manager of workplace trends and forecasting for the society, said companies have concluded that layoffs and other cost-cutting measures haven't gone far enough.
Employers are having an easier time offering lower pay as more unemployed workers chase fewer jobs. The number of job openings nationwide fell to 2.7 million in March, down from 3 million in February and 4 million a year ago, the Labor Department reported Tuesday. It's the lowest number in the eight years the department has tracked job openings.
It means roughly five workers are competing, on average, for each opening, compared with less than two for each job about a year ago.
Openings in education and health services fell to 558,000 from 589,000, the report said, while openings for manufacturing jobs dropped to 123,000 from 141,000. Openings in leisure and hospitality fell to 296,000 from 332,000.
The figures come after the department said Friday that the number of unemployed Americans rose to 13.7 million in April. And the jobless rate reached 8.9 percent, the highest in more than 25 years.
Other recent reports indicate that hiring hasn't picked up since the department gathered the job openings data in March.
"We haven't seen a big uptick yet" in new job openings, said Joanie Ruge, senior vice president at Adecco Group North America, a human resources firm that places mostly temporary and contract workers.
Without new hiring, the unemployment rate will rise further. In part, that's because many people who were discouraged and stopped looking for work at the depths of a recession customarily begin looking again once a recovery begins. If jobs aren't available, new job seekers join the pool of unemployed workers.
The private Conference Board said this week that its Employment Trends Index dipped 0.7 percent in April, a smaller decline than in recent months but still a sign of labor market weakness.
Gad Levanon, senior economist for the Conference Board, said the job market has improved from earlier this year. But he said he doesn't expect openings to increase for several more months.
More layoffs were announced in the past week. DuPont said it will cut 2,000 jobs, while Microsoft Corp. said it was starting thousands of the 5,000 job cuts it announced earlier this year and left the door open to even more.
And the latest government figures show competition for jobs intensified in the first few months of 2009.
Employers are laying off workers and taking other steps to cut costs as they grapple with the recession, the longest since the Great Depression. Some companies also are reducing the pay and benefits for new employees, according to a new survey released by the Society for Human Resource Management.
Nearly 15 percent of service-sector companies reduced pay and benefits for new hires in April compared with March, the survey found. Only 2 percent increased such compensation. The rest made no change in new-employee pay or didn't hire at all.
Until this spring, far more service-industry employers — such as in retail, hotel and financial services industries — had boosted rather than reduced pay for new workers, the group said. About 75 percent of Americans work in services.
Jennifer Schramm, manager of workplace trends and forecasting for the society, said companies have concluded that layoffs and other cost-cutting measures haven't gone far enough.
Employers are having an easier time offering lower pay as more unemployed workers chase fewer jobs. The number of job openings nationwide fell to 2.7 million in March, down from 3 million in February and 4 million a year ago, the Labor Department reported Tuesday. It's the lowest number in the eight years the department has tracked job openings.
It means roughly five workers are competing, on average, for each opening, compared with less than two for each job about a year ago.
Openings in education and health services fell to 558,000 from 589,000, the report said, while openings for manufacturing jobs dropped to 123,000 from 141,000. Openings in leisure and hospitality fell to 296,000 from 332,000.
The figures come after the department said Friday that the number of unemployed Americans rose to 13.7 million in April. And the jobless rate reached 8.9 percent, the highest in more than 25 years.
Other recent reports indicate that hiring hasn't picked up since the department gathered the job openings data in March.
"We haven't seen a big uptick yet" in new job openings, said Joanie Ruge, senior vice president at Adecco Group North America, a human resources firm that places mostly temporary and contract workers.
Without new hiring, the unemployment rate will rise further. In part, that's because many people who were discouraged and stopped looking for work at the depths of a recession customarily begin looking again once a recovery begins. If jobs aren't available, new job seekers join the pool of unemployed workers.
The private Conference Board said this week that its Employment Trends Index dipped 0.7 percent in April, a smaller decline than in recent months but still a sign of labor market weakness.
Gad Levanon, senior economist for the Conference Board, said the job market has improved from earlier this year. But he said he doesn't expect openings to increase for several more months.
More layoffs were announced in the past week. DuPont said it will cut 2,000 jobs, while Microsoft Corp. said it was starting thousands of the 5,000 job cuts it announced earlier this year and left the door open to even more.
Empty big-box stores drag down their neighbors
Large vacant stores cast their shadows on empty parking lots. Several shopping carts lie on their sides.
Images
Shopping carts lie overturned in the abandoned parking lo...Dublin's retail blues (Todd Trumbull / The Chronicle)Rachelle Forest and her brother Bret Lowder walk through.
The retail area in Dublin near the 580 and 680 freeways looks like it's halfway to becoming a ghost town.
A slumping economy has transformed part of this city, where Mervyns, Circuit City and Expo Design Center have all closed recently, into an extreme example of the malaise affecting shopping centers across the Bay Area.
The retail exodus is forcing some cities to scramble in the face of lost sales tax revenue at a time when money is already tight. Meanwhile, they're grappling with how to resurrect the zombie neighborhoods, where many of the remaining merchants complain about declining foot traffic and the eyesores of buildings plastered with "for lease" signs.
"It feels abandoned and lonely," said Rachelle Forrest, assistant manager at the Floor Store, a flooring shop in Dublin that is encircled by shuttered businesses.
Dublin, a relatively prosperous East Bay community of 47,000, has long been a retailing hub. During the most recent boom, Dublin added several new shopping centers on its outskirts, supplementing older strip malls downtown. As the economy soured, that older core, along Dublin Boulevard and San Ramon Boulevard, started to empty out.
The victims are a who's who of failed and struggling retailers. Mervyns closed around the holidays, followed by Circuit City and Home Depot's Expo Design Center. Anderson's TV, Don Sherwood Golf & Tennis World and a couple of mom-and-pop retailers have also pulled out. A Good Guys store that shut down a few years ago is still vacant.
In one parking lot, a visitor can see four empty storefronts by simply turning 360 degrees. Building facades have been stripped of signs, making it difficult to tell which retailers once called this area home.
Similarly, Antioch's Somersville Towne Center mall is suffering after the departure of an array of retailers, with one anchor, Mervyns, gone and another, Gottschalks department store, planning an exit. In Tracy, the West Valley Mall - owned by bankrupt parent General Growth Properties - has a number of closed shops, and the Gottschalks there also plans to close soon.
On a recent afternoon, the Floor Store in Dublin was empty of customers, an increasingly common phenomenon since Circuit City closed next door. Only a handful of people had walked in since morning.
"Five is not so great," said Forrest, the assistant manager, after checking a list of shoppers that the staff updates throughout the day.
She was hopeful about a Jacuzzi store moving into Circuit City after seeing workmen in the building. In fact, a spa, pool and patio store had only leased the space for a three-week clearance sale, unbothered by the red color scheme favored by the previous tenant.
Next month, the Floor Store plans to relocate across the parking lot to another building left vacant last year when the Don Sherwood golf shop moved out. Because the storefront is more visible from the street, it should attract more customers, Forrest predicted.
Linda Maurer, economic development director for Dublin, said she still believes the area where empty stores abound remains a beacon for shopping. She pointed to its high-profile location near the intersection of Interstates 580 and 680, the heavy street traffic and a BART station scheduled to open in the neighborhood next year.
"Maybe we're putting on our rose-colored glasses, but that's still a very attractive place to be for retailers," Maurer said.
Restoring the area's luster could take two years, she acknowledged, and not just because the economy must first recover. The vacancies are garnering some interest, she said, but ultimately the companies say the buildings are simply too big.
Maurer suspects that the cavernous stores will have to be subdivided or razed and replaced.
In the meantime, the loss of sales tax revenue, combined with a drop in residential property values, is eroding Dublin's coffers. A $3 million deficit is projected for next fiscal year, up from a $2.5 million deficit this year, making for tough choices over which programs to cut.
On the bright side, a Target store in the neighborhood appears to still be doing a brisk business, despite being surrounded by emptiness. Nearby, sales at the GameStop video game store and Aaron Brothers Art & Framing are up from a year earlier, according to their managers.
Helen Bulwik, managing director at New Market Solutions, a retail industry consulting firm, said a few isolated cases of mass vacancies in the Bay Area doesn't mean that all local shopping centers are being hit hard. But count on more retailers to go out of business or consolidate in the coming months, she said.
Revitalizing a troubled shopping center is possible, Bulwik added, in some cases by bringing in new kinds of businesses such as entertainment rather than retail. There are limits, however, based on the area's demographics.
"You can't take a discount mall and, all of a sudden, put in a Gucci store," Bulwik said.
Despite the pockets of distress, the local retail industry is doing better than elsewhere. San Francisco's retail vacancy rate was 3.9 percent at the end of 2008, among the lowest in the nation, while Oakland's was 5.5 percent, according to commercial real estate brokerage Marcus & Millichap.
The national average was 8.4 percent.
Sandy Hill, who co-owns Lighthouse Christian Supply in Dublin with her son, said her sales were down 10 percent last year, and another 10 percent this year. Whether that's because of the economy, the surrounding vacancies or both is difficult to tell, she said.
"Anytime anyone next to you closes, you probably lose some customers," Hill said. "But God is still providing."
Images
Shopping carts lie overturned in the abandoned parking lo...Dublin's retail blues (Todd Trumbull / The Chronicle)Rachelle Forest and her brother Bret Lowder walk through.
The retail area in Dublin near the 580 and 680 freeways looks like it's halfway to becoming a ghost town.
A slumping economy has transformed part of this city, where Mervyns, Circuit City and Expo Design Center have all closed recently, into an extreme example of the malaise affecting shopping centers across the Bay Area.
The retail exodus is forcing some cities to scramble in the face of lost sales tax revenue at a time when money is already tight. Meanwhile, they're grappling with how to resurrect the zombie neighborhoods, where many of the remaining merchants complain about declining foot traffic and the eyesores of buildings plastered with "for lease" signs.
"It feels abandoned and lonely," said Rachelle Forrest, assistant manager at the Floor Store, a flooring shop in Dublin that is encircled by shuttered businesses.
Dublin, a relatively prosperous East Bay community of 47,000, has long been a retailing hub. During the most recent boom, Dublin added several new shopping centers on its outskirts, supplementing older strip malls downtown. As the economy soured, that older core, along Dublin Boulevard and San Ramon Boulevard, started to empty out.
The victims are a who's who of failed and struggling retailers. Mervyns closed around the holidays, followed by Circuit City and Home Depot's Expo Design Center. Anderson's TV, Don Sherwood Golf & Tennis World and a couple of mom-and-pop retailers have also pulled out. A Good Guys store that shut down a few years ago is still vacant.
In one parking lot, a visitor can see four empty storefronts by simply turning 360 degrees. Building facades have been stripped of signs, making it difficult to tell which retailers once called this area home.
Similarly, Antioch's Somersville Towne Center mall is suffering after the departure of an array of retailers, with one anchor, Mervyns, gone and another, Gottschalks department store, planning an exit. In Tracy, the West Valley Mall - owned by bankrupt parent General Growth Properties - has a number of closed shops, and the Gottschalks there also plans to close soon.
On a recent afternoon, the Floor Store in Dublin was empty of customers, an increasingly common phenomenon since Circuit City closed next door. Only a handful of people had walked in since morning.
"Five is not so great," said Forrest, the assistant manager, after checking a list of shoppers that the staff updates throughout the day.
She was hopeful about a Jacuzzi store moving into Circuit City after seeing workmen in the building. In fact, a spa, pool and patio store had only leased the space for a three-week clearance sale, unbothered by the red color scheme favored by the previous tenant.
Next month, the Floor Store plans to relocate across the parking lot to another building left vacant last year when the Don Sherwood golf shop moved out. Because the storefront is more visible from the street, it should attract more customers, Forrest predicted.
Linda Maurer, economic development director for Dublin, said she still believes the area where empty stores abound remains a beacon for shopping. She pointed to its high-profile location near the intersection of Interstates 580 and 680, the heavy street traffic and a BART station scheduled to open in the neighborhood next year.
"Maybe we're putting on our rose-colored glasses, but that's still a very attractive place to be for retailers," Maurer said.
Restoring the area's luster could take two years, she acknowledged, and not just because the economy must first recover. The vacancies are garnering some interest, she said, but ultimately the companies say the buildings are simply too big.
Maurer suspects that the cavernous stores will have to be subdivided or razed and replaced.
In the meantime, the loss of sales tax revenue, combined with a drop in residential property values, is eroding Dublin's coffers. A $3 million deficit is projected for next fiscal year, up from a $2.5 million deficit this year, making for tough choices over which programs to cut.
On the bright side, a Target store in the neighborhood appears to still be doing a brisk business, despite being surrounded by emptiness. Nearby, sales at the GameStop video game store and Aaron Brothers Art & Framing are up from a year earlier, according to their managers.
Helen Bulwik, managing director at New Market Solutions, a retail industry consulting firm, said a few isolated cases of mass vacancies in the Bay Area doesn't mean that all local shopping centers are being hit hard. But count on more retailers to go out of business or consolidate in the coming months, she said.
Revitalizing a troubled shopping center is possible, Bulwik added, in some cases by bringing in new kinds of businesses such as entertainment rather than retail. There are limits, however, based on the area's demographics.
"You can't take a discount mall and, all of a sudden, put in a Gucci store," Bulwik said.
Despite the pockets of distress, the local retail industry is doing better than elsewhere. San Francisco's retail vacancy rate was 3.9 percent at the end of 2008, among the lowest in the nation, while Oakland's was 5.5 percent, according to commercial real estate brokerage Marcus & Millichap.
The national average was 8.4 percent.
Sandy Hill, who co-owns Lighthouse Christian Supply in Dublin with her son, said her sales were down 10 percent last year, and another 10 percent this year. Whether that's because of the economy, the surrounding vacancies or both is difficult to tell, she said.
"Anytime anyone next to you closes, you probably lose some customers," Hill said. "But God is still providing."
GM says 2 top execs have dumped their stock
General Motors reported that two top executives sold all their shares in the automaker - further evidence that GM will likely file for bankruptcy. Vice Chairman Bob Lutz sold 81,360 GM shares and North America President Troy Clarke sold 21,380 shares, according to regulatory filings Monday. The sales were in a window when such transactions are allowed, following the company's quarterly earnings report Thursday. The period may be the last for executives before the government's June 1 deadline for GM to restructure or file for bankruptcy.
New Microsoft bonds
-- Microsoft sold $3.75 billion of debt in its first bond offering, taking advantage of its top credit ratings to help fund a share buyback and technology investments. With its shares down 34 percent in the past year, Microsoft is seizing on a credit-market rally to help fund a $40 billion stock repurchase program.
Windows 7 on way
-- Microsoft confirmed it will start selling the Windows 7 operating system by the year-end holiday season. After initial tests and feedback the company has received from partners, the software is "tracking well for holiday availability," Microsoft said Monday.
New antitrust focus
-- The Obama administration warned corporate America on Monday that the government will more aggressively investigate big companies that hurt smaller competitors, contending that lax enforcement by the Bush administration contributed to the current economic troubles. The Justice Department is abandoning legal guidelines established by George W. Bush's administration in September that critics complained made it difficult to pursue antitrust cases against big companies.
New Microsoft bonds
-- Microsoft sold $3.75 billion of debt in its first bond offering, taking advantage of its top credit ratings to help fund a share buyback and technology investments. With its shares down 34 percent in the past year, Microsoft is seizing on a credit-market rally to help fund a $40 billion stock repurchase program.
Windows 7 on way
-- Microsoft confirmed it will start selling the Windows 7 operating system by the year-end holiday season. After initial tests and feedback the company has received from partners, the software is "tracking well for holiday availability," Microsoft said Monday.
New antitrust focus
-- The Obama administration warned corporate America on Monday that the government will more aggressively investigate big companies that hurt smaller competitors, contending that lax enforcement by the Bush administration contributed to the current economic troubles. The Justice Department is abandoning legal guidelines established by George W. Bush's administration in September that critics complained made it difficult to pursue antitrust cases against big companies.
GM shares tumble to lowest level since depression
Shares of General Motors Corp. tumbled to their lowest level since 1933 Tuesday morning as investors feared significant dilution of their stock values or bankruptcy as the company approached a June 1 restructuring deadline.
In early trading, GM shares dropped to $1.09, the lowest level since April 28, 1933, according to the Center for Research in Security Prices at the University of Chicago. By midmorning they had rebounded to $1.12, still down 32 cents, or 22.2 percent.
GM has received $15.4 billion in federal loans and is a little more than two weeks away from a government-imposed deadline to finish a restructuring plan or be sent into Chapter 11 bankruptcy protection.
The company has said it would prefer to restructure out of court, but Chief Executive Fritz Henderson said Monday that bankruptcy is more probable with so much to accomplish and the deadline closing in.
GM has offered bondholders 10 percent of the company's equity in exchange for wiping out $27 billion in debt. The company also is negotiating with the U.S. government for a potential 50 percent share of GM stock, and with the UAW to take 39 percent in exchange for half of the $20 billion that the company owes the trust fund.
The remaining 1 percent would go to those who hold the company's current 611 million outstanding shares.
If the bond exchange goes through, GM plans to issue 62 billion new shares and then do a 100-for-1 reverse stock split. The whole deal would severely cut the existing shares' value.
In addition, GM said Monday in a regulatory filing that six top executives sold more than 200,000 company shares on Friday and Monday. A spokeswoman said they sold after the company warned that shareholders could see significant dilution if the stock swap goes through or lose their entire investments.
Executives selling stock include retiring Vice Chairman Bob Lutz, who disposed of 81,360 shares at $1.61 each for a total of $130,990. Vice Chairman Thomas Stephens and Group Vice Presidents Carl-Peter Forster, Ralph Szygenda, Gary Cowger and Troy Clarke sold smaller amounts.
On Monday, Efraim Levy, an auto analyst with Standard & Poor's Equity Research, wrote in a note to investors that there is increased likelihood of GM shares declining in value as June 1 approaches.
"In our view, either GM reaches a deal with bond and other stakeholders that will result in government ownership of about 50 percent of GM common and existing shareholders seeing their interests diluted to 1 percent stake, or, as we think is increasingly likely, GM will file for bankruptcy protection, making existing shares almost worthless," he wrote.
In early trading, GM shares dropped to $1.09, the lowest level since April 28, 1933, according to the Center for Research in Security Prices at the University of Chicago. By midmorning they had rebounded to $1.12, still down 32 cents, or 22.2 percent.
GM has received $15.4 billion in federal loans and is a little more than two weeks away from a government-imposed deadline to finish a restructuring plan or be sent into Chapter 11 bankruptcy protection.
The company has said it would prefer to restructure out of court, but Chief Executive Fritz Henderson said Monday that bankruptcy is more probable with so much to accomplish and the deadline closing in.
GM has offered bondholders 10 percent of the company's equity in exchange for wiping out $27 billion in debt. The company also is negotiating with the U.S. government for a potential 50 percent share of GM stock, and with the UAW to take 39 percent in exchange for half of the $20 billion that the company owes the trust fund.
The remaining 1 percent would go to those who hold the company's current 611 million outstanding shares.
If the bond exchange goes through, GM plans to issue 62 billion new shares and then do a 100-for-1 reverse stock split. The whole deal would severely cut the existing shares' value.
In addition, GM said Monday in a regulatory filing that six top executives sold more than 200,000 company shares on Friday and Monday. A spokeswoman said they sold after the company warned that shareholders could see significant dilution if the stock swap goes through or lose their entire investments.
Executives selling stock include retiring Vice Chairman Bob Lutz, who disposed of 81,360 shares at $1.61 each for a total of $130,990. Vice Chairman Thomas Stephens and Group Vice Presidents Carl-Peter Forster, Ralph Szygenda, Gary Cowger and Troy Clarke sold smaller amounts.
On Monday, Efraim Levy, an auto analyst with Standard & Poor's Equity Research, wrote in a note to investors that there is increased likelihood of GM shares declining in value as June 1 approaches.
"In our view, either GM reaches a deal with bond and other stakeholders that will result in government ownership of about 50 percent of GM common and existing shareholders seeing their interests diluted to 1 percent stake, or, as we think is increasingly likely, GM will file for bankruptcy protection, making existing shares almost worthless," he wrote.
US to borrow 46 cents for every dollar spent
The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink — increasing it to more than four times last year's all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money.
The unprecedented deficit figures flow from the deep recession, the Wall Street bailout and the cost of President Barack Obama's economic stimulus bill — as well as a seemingly embedded structural imbalance between what the government spends and what it takes in.
As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.
Just a few days ago, Obama touted an administration plan to cut $17 billion in wasteful or duplicative programs from the budget next year. The erosion in the deficit announced Monday is five times the size of those savings.
For the current year, the government would borrow 46 cents for every dollar it takes to run the government under the administration's plan. In 2010, it would borrow 35 cents for every dollar spent.
"The deficits ... are driven in large part by the economic crisis inherited by this administration," budget director Peter Orszag wrote in a blog entry on Monday.
The developments come as the White House completes the official release of its $3.6 trillion budget for 2010, adding detail to some of its tax proposals and ideas for producing health care savings. The White House budget is a recommendation to Congress that represents Obama's fiscal and policy vision for the next decade.
Annual deficits would never dip below $500 billion and would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic — just a 1.2 percent decline in gross domestic product this year and a 3.2 percent growth rate for 2010 — than those of private sector economists and the Congressional Budget Office.
As a percentage of the economy, the measure economists say is most important, the deficit would be 12.9 percent of GDP this year, the biggest since World War II. It would drop to 8.5 percent of GDP in 2010.
In the past three decades, deficits in the range of 4 percent of GDP have caused Congress and previous administrations to launch efforts to narrow the gap. The White House predicts deficits equaling 2.9 percent of the economy within four years.
Polling data suggest Americans are increasingly worried about mounting deficits and debt.
An AP-GfK poll last month gave Obama relatively poor grades on the deficit, with just 49 percent of respondents approving of the president's handling of the issue and 41 percent disapproving. By contrast, Obama's overall approval rating was 64 percent, with just 30 percent disapproving.
"Even using their February economic assumptions — which now appear to be out of date and overly optimistic — the administration never puts us on a stable path," said Marc Goldwein of the Committee for a Responsible Federal Budget, a bipartisan group that advocates budget discipline. "The president ... understands the critical importance of fiscal discipline. Now we need to see some action."
For the most part, Obama's updated budget tracks the 134-page outline he submitted to lawmakers in February. His budget remains a bold but contentious document that proposes higher taxes for the wealthy, a hotly contested effort to combat global warming and the first steps toward guaranteed health care for all.
Meanwhile, the congressional budget plan approved last month would not extend Obama's signature $400 tax credit for most workers — $800 for couples — after it expires at the end of next year.
Obama's "cap-and-trade" proposal to curb heat-trapping greenhouse gas emissions is also reeling from opposition from Democrats from coal-producing regions and states with concentrations of heavy industry. Under cap-and-trade, the government would auction permits to emit heat-trapping gases, with the costs being passed on to consumers via higher gasoline and electric bills.
Also new in Obama's budget details are several tax "loophole" closures and increased IRS tax compliance efforts to raise $58 billion over the next decade to help finance his health care measure. The money would make up for revenue losses stemming from lower-than-hoped estimates for his proposal to limit wealthier people's ability to maximize their itemized deductions.
The unprecedented deficit figures flow from the deep recession, the Wall Street bailout and the cost of President Barack Obama's economic stimulus bill — as well as a seemingly embedded structural imbalance between what the government spends and what it takes in.
As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.
Just a few days ago, Obama touted an administration plan to cut $17 billion in wasteful or duplicative programs from the budget next year. The erosion in the deficit announced Monday is five times the size of those savings.
For the current year, the government would borrow 46 cents for every dollar it takes to run the government under the administration's plan. In 2010, it would borrow 35 cents for every dollar spent.
"The deficits ... are driven in large part by the economic crisis inherited by this administration," budget director Peter Orszag wrote in a blog entry on Monday.
The developments come as the White House completes the official release of its $3.6 trillion budget for 2010, adding detail to some of its tax proposals and ideas for producing health care savings. The White House budget is a recommendation to Congress that represents Obama's fiscal and policy vision for the next decade.
Annual deficits would never dip below $500 billion and would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic — just a 1.2 percent decline in gross domestic product this year and a 3.2 percent growth rate for 2010 — than those of private sector economists and the Congressional Budget Office.
As a percentage of the economy, the measure economists say is most important, the deficit would be 12.9 percent of GDP this year, the biggest since World War II. It would drop to 8.5 percent of GDP in 2010.
In the past three decades, deficits in the range of 4 percent of GDP have caused Congress and previous administrations to launch efforts to narrow the gap. The White House predicts deficits equaling 2.9 percent of the economy within four years.
Polling data suggest Americans are increasingly worried about mounting deficits and debt.
An AP-GfK poll last month gave Obama relatively poor grades on the deficit, with just 49 percent of respondents approving of the president's handling of the issue and 41 percent disapproving. By contrast, Obama's overall approval rating was 64 percent, with just 30 percent disapproving.
"Even using their February economic assumptions — which now appear to be out of date and overly optimistic — the administration never puts us on a stable path," said Marc Goldwein of the Committee for a Responsible Federal Budget, a bipartisan group that advocates budget discipline. "The president ... understands the critical importance of fiscal discipline. Now we need to see some action."
For the most part, Obama's updated budget tracks the 134-page outline he submitted to lawmakers in February. His budget remains a bold but contentious document that proposes higher taxes for the wealthy, a hotly contested effort to combat global warming and the first steps toward guaranteed health care for all.
Meanwhile, the congressional budget plan approved last month would not extend Obama's signature $400 tax credit for most workers — $800 for couples — after it expires at the end of next year.
Obama's "cap-and-trade" proposal to curb heat-trapping greenhouse gas emissions is also reeling from opposition from Democrats from coal-producing regions and states with concentrations of heavy industry. Under cap-and-trade, the government would auction permits to emit heat-trapping gases, with the costs being passed on to consumers via higher gasoline and electric bills.
Also new in Obama's budget details are several tax "loophole" closures and increased IRS tax compliance efforts to raise $58 billion over the next decade to help finance his health care measure. The money would make up for revenue losses stemming from lower-than-hoped estimates for his proposal to limit wealthier people's ability to maximize their itemized deductions.
Fed buys $3.51 billion in Treasurys
NEW YORK (Marketwatch) -- The Federal Reserve Bank of New York bought $3.51 billion in Treasurys maturing between 2026 and 2039 on Monday. The buyback is part of the central bank's program to keep borrowing costs lower and spur economic activity. Dealers offered $10.426 billion to be purchased. Ten-year note yields /quotes/comstock/31*!ust10y (UST10Y 3.17, 0.00, -0.06%) , which move inversely to prices, remained lower by 8 basis points to 3.21%. U.S. debt was supported by the Fed purchases and declining stock markets.
Trade Numbers Reflect Scope of Slump
The United States’ trade deficit widened for the first time in eight months in March, the government reported on Tuesday, primarily because of a drop in exports.
But economists said the sharp declines in the value of trade between the United States and the rest of the world appeared to be hitting a plateau. For economists, the new figures added another small piece of evidence to theories that the worst declines were over, and that the economy was beginning to stabilize, although at lower levels.
The total value of goods and services exported by the United States fell by $3 billion in March to $123.6 billion as overseas demand dropped for American-made automobiles, chemicals, airplanes and telecommunications equipment.
Import values fell $1.6 billion for the month, to $151.2 billion, as the country bought less foreign-made natural gas, fewer industrial goods and fewer consumer goods like clothing, cosmetics and televisions.
But imports of crude oil rose a seasonally adjusted $400 million for the month as prices rose from recent lows.
Still, plunging exports in China and the Philippines and sluggish industrial output in India underscored the fact that the world’s intertwined economies remain in the throes of a broad downturn.
The Commerce Department reported that the trade deficit grew to $27.6 billion in March, from $26.1 billion in February. That was a smaller increase than economists had been expecting.
“This is genuine improvement here,” said Aaron Smith, a senior economist at Moody’s Economy.com. “It does suggest that the worst of the global trade downturn is over. We are nearing stabilization in the economy, and it does look like we’ll resume growing in the third quarter.”
Imports have plunged 27 percent since last March, and the continuing declines suggest that businesses are still trying to reduce their inventories to match lower levels of consumer spending.
Consumer spending has fluctuated this year, and economists are uncertain about how American consumers will behave as unemployment rises and the country struggles to start growing again. Although consumer spending is no longer falling as quickly as it did last year, Americans are saving more and may act more conservatively as they worry about losing their jobs or a return to $4-a-gallon gasoline. Although the flow of goods and services between the United States and the rest of the world has slowed during the global downturn, American exports have held up relatively well, compared with plunging imports.
In February, exports rebounded slightly after six months of declines, growing by $2 billion as the country exported more automobiles, semiconductors, pharmaceuticals and chemicals. The increase helped bring the trade deficit to its lowest levels in nine years, and spurred discussion about whether the recession was beginning to bottom out.
In recent surveys of the manufacturing and service sectors, the Institute for Supply Management said declines in American exports were beginning to taper off slightly in April.
Demand for foreign-made electronic equipment, clothes and oil has dipped sharply as consumers cut their spending.
China reported on Tuesday that its exports fell 22.6 percent in April, a deeper drop than economists had expected, and a worse decline than in March, when overseas shipments dropped 17.1 percent.
In India, data also released Tuesday showed industrial output down 2.3 percent in March versus a year earlier, more than economists had expected, while the Philippines reported exports in March were 30.9 percent below a year earlier.
The data served as a sobering reminder that much of the global economy remains in the throes of a recession, and that a string of recent figures showing the pace of decline easing in parts of the world by no means heralded an actual turnaround.
China’s economy continues to grow, in part because of a huge package of spending and other stimulus efforts announced since November.
These measures have included a big burst of lending by the country’s state-owned banks, which helped send Chinese urban fixed-asset investment in the first four months of the year up 30.5 percent, according to figures released Tuesday — more than economists had forecast.
Other recent data have shown production activity slowly recovering, prompting economists at several Western banks to raise their forecasts for China’s economic growth.
Still, many analysts have continued to caution that a significant and sustained global recovery remains months off.
“China’s ongoing recovery is driven by fixed-asset investment, with a focus on infrastructure,” economists at Bank of America Merrill Lynch said in a research note on Tuesday. But with weak exports continuing to drag down China’s growth, they added, “the foundation for a recovery is still not firm.”
But economists said the sharp declines in the value of trade between the United States and the rest of the world appeared to be hitting a plateau. For economists, the new figures added another small piece of evidence to theories that the worst declines were over, and that the economy was beginning to stabilize, although at lower levels.
The total value of goods and services exported by the United States fell by $3 billion in March to $123.6 billion as overseas demand dropped for American-made automobiles, chemicals, airplanes and telecommunications equipment.
Import values fell $1.6 billion for the month, to $151.2 billion, as the country bought less foreign-made natural gas, fewer industrial goods and fewer consumer goods like clothing, cosmetics and televisions.
But imports of crude oil rose a seasonally adjusted $400 million for the month as prices rose from recent lows.
Still, plunging exports in China and the Philippines and sluggish industrial output in India underscored the fact that the world’s intertwined economies remain in the throes of a broad downturn.
The Commerce Department reported that the trade deficit grew to $27.6 billion in March, from $26.1 billion in February. That was a smaller increase than economists had been expecting.
“This is genuine improvement here,” said Aaron Smith, a senior economist at Moody’s Economy.com. “It does suggest that the worst of the global trade downturn is over. We are nearing stabilization in the economy, and it does look like we’ll resume growing in the third quarter.”
Imports have plunged 27 percent since last March, and the continuing declines suggest that businesses are still trying to reduce their inventories to match lower levels of consumer spending.
Consumer spending has fluctuated this year, and economists are uncertain about how American consumers will behave as unemployment rises and the country struggles to start growing again. Although consumer spending is no longer falling as quickly as it did last year, Americans are saving more and may act more conservatively as they worry about losing their jobs or a return to $4-a-gallon gasoline. Although the flow of goods and services between the United States and the rest of the world has slowed during the global downturn, American exports have held up relatively well, compared with plunging imports.
In February, exports rebounded slightly after six months of declines, growing by $2 billion as the country exported more automobiles, semiconductors, pharmaceuticals and chemicals. The increase helped bring the trade deficit to its lowest levels in nine years, and spurred discussion about whether the recession was beginning to bottom out.
In recent surveys of the manufacturing and service sectors, the Institute for Supply Management said declines in American exports were beginning to taper off slightly in April.
Demand for foreign-made electronic equipment, clothes and oil has dipped sharply as consumers cut their spending.
China reported on Tuesday that its exports fell 22.6 percent in April, a deeper drop than economists had expected, and a worse decline than in March, when overseas shipments dropped 17.1 percent.
In India, data also released Tuesday showed industrial output down 2.3 percent in March versus a year earlier, more than economists had expected, while the Philippines reported exports in March were 30.9 percent below a year earlier.
The data served as a sobering reminder that much of the global economy remains in the throes of a recession, and that a string of recent figures showing the pace of decline easing in parts of the world by no means heralded an actual turnaround.
China’s economy continues to grow, in part because of a huge package of spending and other stimulus efforts announced since November.
These measures have included a big burst of lending by the country’s state-owned banks, which helped send Chinese urban fixed-asset investment in the first four months of the year up 30.5 percent, according to figures released Tuesday — more than economists had forecast.
Other recent data have shown production activity slowly recovering, prompting economists at several Western banks to raise their forecasts for China’s economic growth.
Still, many analysts have continued to caution that a significant and sustained global recovery remains months off.
“China’s ongoing recovery is driven by fixed-asset investment, with a focus on infrastructure,” economists at Bank of America Merrill Lynch said in a research note on Tuesday. But with weak exports continuing to drag down China’s growth, they added, “the foundation for a recovery is still not firm.”
Options for Fannie, Freddie May Include ‘Wind-Down’
May 11 (Bloomberg) -- Options for overhauling Fannie Mae and Freddie Mac, the government-run mortgage-finance companies, may eventually include liquidating their assets, according to an analysis released today by the Obama administration.
The Office of Management and Budget also projected today in its budget analysis for fiscal 2010 that the companies, which have received or requested $78.8 billion in aid since their federal takeover in September, will need at least $92.2 billion more. The Treasury Department doubled an emergency capital commitment for each company in February to $200 billion. The 2010 fiscal year ends Sept. 30, 2010.
Alternatives range from “a gradual wind-down of their operations and liquidation of their assets,” to returning the two companies to their previous status as government-sponsored enterprises that seek to maximize shareholder returns while pursuing public-policy goals, according to OMB’s analysis of President Barack Obama’s proposed federal budget.
“The last entities that are going to be set free will be Fannie and Freddie because they’re so key to the housing market,” said Bradley Hintz, an analyst at Sanford C. Bernstein & Co. in New York, in a phone interview today.
The companies are coming under increasing strain as the Obama administration leans on them to help refinance and modify loans at risk of foreclosure amid the worst housing market since the Great Depression, Fannie Mae and Freddie Mac have said in securities filings. The government-sponsored enterprises pose a risk to the economy, though the federal takeover and Treasury backing have “substantially reduced” that threat, OMB said.
‘Vital Parts’ of Economy
“The GSEs borrow huge amounts from various types of investors, and the health of the housing market critically affects the overall economic activity,” the budget office said. “Thus, financial trouble at one or more of the GSEs could unsettle not only the mortgage finance markets but also other vital parts of the financial system and economy.”
Fannie Mae and Freddie Mac may be nationalized, dissolved and broken up into several smaller companies, revamped as public utilities with the full faith and credit of the U.S. government or converted into insurers for covered bonds backed by U.S. mortgages, OMB said.
Washington-based Fannie Mae has booked seven consecutive quarters of losses totaling $86.8 billion as of March 31. McLean, Virginia-based Freddie Mac, which is expected to report its first-quarter results this week, has reported six straight quarters of losses totaling $53.8 billion as of Dec. 31.
Like many other U.S. financial institutions, Fannie Mae and Freddie Mac face “market risk, credit risk and operational risk,” according to the budget office.
Obama’s Housing Program
The companies play a leading role in Obama’s Making Home Affordable program to curb mortgage defaults. The government initiatives, announced in February, have yet to curtail the surge in foreclosures and delinquencies. A record 803,489 U.S. properties received a default or auction notice or were seized in the first quarter, 24 percent more than a year earlier, as employers cut jobs and temporary programs to assist homeowners came to an end, RealtyTrac Inc. said April 16.
Fannie Mae and smaller competitor Freddie Mac, which own or guarantee almost half of the U.S. residential mortgage debt, were seized by regulators in September because the two were at risk of failing and regulators feared that may threaten the health of the broader U.S. economy.
Treasury’s capital commitment for the companies expires on Dec. 31. While the companies won’t have to repay their federal aid by then, they won’t be able to borrow more unless Congress extends the date.
The Office of Management and Budget also projected today in its budget analysis for fiscal 2010 that the companies, which have received or requested $78.8 billion in aid since their federal takeover in September, will need at least $92.2 billion more. The Treasury Department doubled an emergency capital commitment for each company in February to $200 billion. The 2010 fiscal year ends Sept. 30, 2010.
Alternatives range from “a gradual wind-down of their operations and liquidation of their assets,” to returning the two companies to their previous status as government-sponsored enterprises that seek to maximize shareholder returns while pursuing public-policy goals, according to OMB’s analysis of President Barack Obama’s proposed federal budget.
“The last entities that are going to be set free will be Fannie and Freddie because they’re so key to the housing market,” said Bradley Hintz, an analyst at Sanford C. Bernstein & Co. in New York, in a phone interview today.
The companies are coming under increasing strain as the Obama administration leans on them to help refinance and modify loans at risk of foreclosure amid the worst housing market since the Great Depression, Fannie Mae and Freddie Mac have said in securities filings. The government-sponsored enterprises pose a risk to the economy, though the federal takeover and Treasury backing have “substantially reduced” that threat, OMB said.
‘Vital Parts’ of Economy
“The GSEs borrow huge amounts from various types of investors, and the health of the housing market critically affects the overall economic activity,” the budget office said. “Thus, financial trouble at one or more of the GSEs could unsettle not only the mortgage finance markets but also other vital parts of the financial system and economy.”
Fannie Mae and Freddie Mac may be nationalized, dissolved and broken up into several smaller companies, revamped as public utilities with the full faith and credit of the U.S. government or converted into insurers for covered bonds backed by U.S. mortgages, OMB said.
Washington-based Fannie Mae has booked seven consecutive quarters of losses totaling $86.8 billion as of March 31. McLean, Virginia-based Freddie Mac, which is expected to report its first-quarter results this week, has reported six straight quarters of losses totaling $53.8 billion as of Dec. 31.
Like many other U.S. financial institutions, Fannie Mae and Freddie Mac face “market risk, credit risk and operational risk,” according to the budget office.
Obama’s Housing Program
The companies play a leading role in Obama’s Making Home Affordable program to curb mortgage defaults. The government initiatives, announced in February, have yet to curtail the surge in foreclosures and delinquencies. A record 803,489 U.S. properties received a default or auction notice or were seized in the first quarter, 24 percent more than a year earlier, as employers cut jobs and temporary programs to assist homeowners came to an end, RealtyTrac Inc. said April 16.
Fannie Mae and smaller competitor Freddie Mac, which own or guarantee almost half of the U.S. residential mortgage debt, were seized by regulators in September because the two were at risk of failing and regulators feared that may threaten the health of the broader U.S. economy.
Treasury’s capital commitment for the companies expires on Dec. 31. While the companies won’t have to repay their federal aid by then, they won’t be able to borrow more unless Congress extends the date.
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