Saturday, 7 February 2009

US suffers biggest job losses since 1974

The US economy suffered its biggest loss of jobs in January since the 1970s, driving to 3.6 million the number of Americans who have been put out of work since the recession began in late 2007.


The depth of the current downturn has drawn comparisons with the Great Depression of the 1930s
The depth of the current downturn has drawn comparisons with the Great Depression of the 1930s

Figures released by the US Bureau of Labour Statistics show 598,000 jobs were lost in the public and private sectors last month – the most since December 1974, and 11pc more than the 540,000 figure economists had predicted. The Bureau also revised upwards the estimate of jobs lost in December, from 524,000 to 577,000.

The overall unemployment rate in the US, which is calculated using slightly separate figures, rose to 7.6pc, the highest in 16 years. 11.3m Americans are now out of work.

Ian Shepherdson, chief US economist at High Frequency Economics, agreed, saying: "If ever there were an economy in need of stimulus, this is it.” Mr Sheperdson called the data set "another horrific report, showing job losses across the economy."

The new figures mean that 3.6m Americans have now lost their job since the US recession began in December 2007, with a rapid acceleration in losses in the last three months.

No sector of the economy was spared in January, with the manufacturing sector bleeding 207,000 posts, construction 111,000, and retail 45,000 jobs. Well-known companies to axe workers included Microsoft and Boeing, with more than 60,000 job losses announced on one day – January 26 – alone.

The White House said the numbers highlighted the need for bold fiscal action, as the US Senate resumed debate of President Barack Obama’s near-$900bn economic stimulus package. Christina Romer, who chairs the President’s Council of Economic Advisers, said that the numbers reflected the largest 13 month job loss since payroll records began in 1939.

“If we fail to act, we are likely to lose millions more jobs and the unemployment rate could reach double digits. The American people are counting on leadership from Washington to help the economy recover and lay the long-term foundation for long-term economic growth,” added Ms Romer.

Goldman Sachs’ chief US economist Jan Hatzius said the numbers were as they bad as they looked, and implied that there was still a downside risk to the bank’s forecast of a gross domestic product decline of 4.5pc in the first three months of the year.

President Obama is later on Friday expected to name the new members of his Economic Recovery Advisory Board, to be led by former Federal Reserve chairman Paul Volcker. Members are set to include General Electric chair Jeff Immelt and UBS Americas chairman Robert Wolf.

In Ireland, "the game is up"

DUBLIN — At 2 a.m., with time for compromise running out, the Irish prime minister finally presented his emergency plan for the floundering economy to the country’s trade union leaders.

He proposed an average 7 percent reduction in gross pay for bureaucrats, teachers, police, firefighters, road cleaners and everyone else on the public payroll, in the form of a levy to finance their pensions.

He made clear that without an agreement the government would do it anyway.

Inevitably the union leaders said “No.” They couldn't sell it to their members.

At 4 a.m. the delegates acknowledged that Ireland’s unique social partnership had broken down; they left the government buildings, and staggered off through the driving sleet to get some sleep.

This afternoon in the Irish parliament, Dail Eireann, a haggard-looking Taoiseach Brian Cowen announced that the government would legislate immediately for his proposals.

With his bleary-eyed finance minister Brian Lenihan beside him, he spelled out other measures to cut expenditures by 2 billion euros (about $2.6 billion) this year, including reduced fees to doctors and lawyers on state contracts, a smaller child care supplement for parents and a reduction in overseas development aid.

Cowen then appeared on television at prime time to make what amounted to a state of the nation address.

“We are experiencing the most profound economic crisis in 70 years,” he intoned solemnly. “The Irish economy is suffering from the aftermath of a large housing and construction boom and a loss of competitiveness … exacerbated by the decline in the value of sterling (the pound) relative to the euro (Ireland’s currency).”

Declaring what amounted to a national emergency, he warned that, “We are borrowing half our day-to-day expenses for this country for the course of this year.”

Ireland’s international creditworthiness is at stake with the emergence of a gap of 20 billion euros (about $25.7 billion) between revenue and expenditure this year.

Ireland was the first European country to go into recession in the current global downturn, and its economy is forecast to contract by an unprecedented 10 percent this year.

But rarely has a developed country been asked to swallow such harsh medicine as Cowen prescribed.

In a typical case, a couple made up of a firefighter and a teacher would have to forfeit 5,000 euros (about $6,422) of their gross joint pay of 60,000 euros (about $77,000).

The country’s trade union leaders will meet in the coming weeks to decide whether they will follow French trade unionists and organize strikes.

David Begg, the Irish Congress of Trade Unions general, warned of a “revolution” from lower-paid public workers.

Already there are signs of social unrest in a country where the morale of the people, according to Enda Kenny, leader of the main opposition party Fine Gael, is “at a historic low.”

Teachers, pensioners and students have staged separate protests at government cutbacks in recent months. Meanwhile, hundreds of workers at bankrupt Waterford Crystal are in the fifth day of a sit-in at the plant in Waterford to protest the layoffs of 480 employees and the loss of their pension entitlements.

Yesterday former prime minister Bertie Ahern was jostled by students at Galway University protesting the planned introduction of college fees. Ahern was forced to abandon a public debate.

Such incidents are rare in Irish public life, but there is growing outrage against the politicians and the bankers perceived to be responsible for Ireland’s mess.

With calls for everyone — including those financially well off — to share the pain, highly-paid broadcasters on RTE, the government-subsidised TV and radio station, volunteered to take a 10 percent pay cut.

The ramifications of the economic crisis are being felt across Irish society: In the private sector there are now 300,000 unemployed. Some 10,000 people are losing their jobs every month and unemployment is predicted to rise from 6 percent to 10 percent this year.

Many developers who paid inflated prices for land at the height of the property boom are deeply indebted to the banks for sites they cannot exploit. On several major building sites, motionless cranes tower over the skeletons of office blocks draped with giant canvasses depicting what the finished buildings will look like. One prominent developer, Mike Wallace, admitted on Irish television that he is not able to pay interest on his bank loans, and said he believed other developers were in the same boat.

Businessmen who borrowed heavily and cannot meet repayments are being publicly shamed.
Oisin Fannin, former chief executive of broadband supplier Smart Telecom, was ordered by a judge to surrender his stately home when he failed to maintain payments on an 8.6 million euros (about $11 million) loan from Anglo Irish bank.

Last week, in a major setback for high-profile developer Sean Dunne, the national planning board rejected as too obtrusive his 1.5 billion euro (about $1.9 billion) high-rise scheme for the wealthy Dublin suburb of Ballsbridge.

Dunne paid 350 million euros (about $450 million) for a large site, including Jurys and Berkeley Court hotels, to create a fashionable quarter “like Knightsbridge” in London. Now the property is worth about half of that, he can do nothing with it, and he has massive debts with the banks.

The setback for Dunne, wrote Irish Times journalist Frank McDonald, a veteran critic of Dublin’s profit-driven development, “officially buried the Celtic Tiger.”

Or as Enda Kenny put it in the Dail today, “Developers and bankers are bust. The trade unions have little to offer. The game is up.”

UPDATE 4-US Treasury overpaid $78 bln under TARP-watchdog

By Kevin Drawbaugh and Karey Wutkowski

WASHINGTON, Feb 5 (Reuters) - The U.S. Treasury looks to have overpaid financial institutions to the tune of $78 billion in carrying out capital injections last year, the head of a congressional oversight panel for the government's $700 billion bailout program told lawmakers on Thursday.

Elizabeth Warren, a Harvard law professor, said her group estimated the Treasury paid $254 billion in 2008 in return for stocks and warrants worth about $176 billion under the Troubled Asset Relief Program, or TARP.

Warren said the Treasury, under then-Secretary Henry Paulson, misled the public about how it would price them.

"Treasury simply did not do what it said it was doing ... They described the program one way, and they priced it another," Warren said at a hearing before the Senate Banking Committee. She added that Paulson "was not entirely candid" in describing TARP's bank capital injection program.

Members of the committee condemned management of the TARP program, which is barely four months old.

"Implementation ... proceeded in a chaotic, unorganized and ad hoc manner," said Democratic Sen. Daniel Akaka of Hawaii.

Warren said Treasury may have had a reason for paying more for investments than they appear to have been worth at the time of the transaction. "Once again, Treasury needs clear goals, methods, and measurement," she said.

Warren will release a report Friday on TARP.

Neil Barofsky, another watchdog for the TARP program, told the Senate committee his office is turning to criminal investigations. "That's going to be a large focus of my office," he said.

Barofsky, the inspector general for TARP within Treasury, told the Los Angeles Times in an interview Wednesday that misrepresentations in applications for TARP funds would be grounds for criminal prosecution.

OVERHAULING TARP

The Obama administration plans to unveil a new strategy on Monday aimed at reviving paralyzed credit markets, helping struggling homeowners, and lifting the economy out of recession.

Tighter TARP management is expected to be a part of that package. A preview of that came on Wednesday when the White House announced a $500,000 annual cap on executive pay at companies receiving TARP money.

On projections by some analysts that the TARP program may need more money soon, Indiana Democratic Sen. Evan Bayh said, "There will be no additional funding for this program without airtight assurances that it will be better managed."

The TARP was launched last year by the Bush administration in response to an alarming slowdown in global capital markets triggered by a housing slump that undermined mortgage-backed bonds carried on the books of major financial institutions.

Congress approved the $700 billion program after Paulson said it would be used to buy broken bonds and clean off banks' balance sheets. But days after that approval, Paulson changed the focus to buying preferred shares in banks.

Warren told the banking committee that after three months on the job, her panel is still not getting enough answers from Treasury. She described the bailout as "an opaque process at best."

Barofsky raised concerns about potential fraud in one of several programs funded by bailout money -- the Federal Reserve's Term Asset-Backed Loan Facility (TALF).

"Treasury should consider requiring that some baseline fraud prevention standards be imposed," Barofsky said in his first report to Congress.

He told the committee the government has collected more than $271 million in dividends from its TARP-financed bank shares and said the department needs a strategy for administering its holdings.

A Treasury spokesman said the department would adopt many of Barofsky's recommendations.

Treasury holds $279.2 billion in preferred shares from 319 financial institutions, paying dividends of between 5 and 10 percent, according to Barofsky's report.

The government also received common stock warrants from 230 institutions, most of which are now out of the money. The largest positions in warrants include AIG (AIG.N), Bank of America (BAC.N), Citigroup (C.N) and General Motors (GM.N).

Yet another watchdog group -- Congress's Government Accountability Office -- told the committee Treasury needs to keep closer track of TARP money disbursed and that the program needs internal controls and "a clearly articulated vision."

Barofsky's report was posted on the Web here . (Additional reporting by John Poirier, Julie Vorman; Editing by Tim Dobbyn)

Thursday, 5 February 2009

California Stops Paying Many Bills

Swiss Re turns to Buffett for new funding

By Haig Simonian in Zurich

Published: February 5 2009 07:53 | Last updated: February 5 2009 11:50

Swiss Re on Thursday turned to Warren Buffett, the legendary US investor, for fresh funding and cut its dividend to a “nominal” amount in an effort to retain its investment grade credit rating.

The Swiss reinsurer also scrapped its financial markets activities following large writedowns on structured credit default contracts and reported a SFr1bn ($860m) annual loss.

The results, which were released early following heavy share price falls in recent days on rumours of losses and refinancing needs, confirmed analysts’ worst fears. Swiss Re shares plunged 15 per cent to SFr25.76 in early afternoon Zurich trading.

More than half of the SFr5bn Swiss Re may raise – SFr3bn – will come from Berkshire Hathaway, Warren Buffett’s investment group, which is already a big shareholder. Mr Buffett could eventually own more than 20 per cent of the Swiss reinsurer.

The decision to raise capital followed Swiss Re’s admission that, at year-end, it was SFr1.5bn-SFr2bn below the level required to maintain its current AA credit rating. To preserve capital, the group intends to cut its dividend to a nominal amount.

Shareholders’ equity fell to SFr19bn-SFr20bn at year-end following unrealised losses on investments in the fourth quarter and exchange rate factors.

Swiss Re’s problems contrasted with the relative health of its arch rival Munich Re. The German group this week said that although 2008 profits had slumped to €1.5bn from €3.9bn, it would maintain its €5.50 dividend.

Berkshire’s holding, which is subject to Swiss Re shareholders’ approval, will probably be via a perpetual note paying 12 per cent. The US investor will have the option in three years to convert into Swiss Re shares at SFr25.

“We’ve seen a much, much larger movement in asset values in the fourth quarter than anyone anticipated”, said George Quinn, chief financial officer.

Swiss Re, which had claimed to have taken extraordinary steps to protect the value of its near SFr200bn investment portfolio, said it would continue reducing risk while raising new funds.

Apart from the injection from Berkshire, the group said it would raise further equity of up to SFr2bn, subject to market conditions.

“We are disappointed with our overall results in 2008, but our core business – property and Casualty and life and health – are performing well”, said Jacques Aigrain, chief executive.

The comments showed how deeply the group suffered in its financial services division, which has already had to write down about SFr2.7bn since late 2007 on two disastrous structured credit default swaps for a client.

In a surprise move, the group announced a full scale retreat from its former strategy of moving increasingly into sophisticated, and sometimes esoteric, financial insurance and trading.

Swiss Re will disband its financial markets activities, with remaining businesses being reorganised into asset management and a “bad bank” legacy business, which will hold the structured CDS and other troubled assets. Swiss Re said the legacy unit booked a SFr6bn writedown for the year, of which SFr2bn stemmed from the structured CDS.

Mr Quinn said the aim of the legacy unit would be to run down the portfolio as quickly as possible.

The group said underlying re-insurance activities remained strong. In property and casualty, it expected a combined ratio – a key industry yardstick of costs and claims as a proportion of premiums – of 97.4 per cent. Life and health also remained “strong”, it said, with a full year benefit ratio of about 85.5 per cent.

Swiss Re said demand for reinsurance had increased, and rates were expected to rise by about 2 per cent, leading to a 6 per cent rise in the group’s volume of business at constant exchange rates. By contrast, Munich Re said renewals in January – one of the key periods for negotiating new contracts, had not gone as well as expected.

Swiss Re will publish its full figures on February 19.

Tuesday, 3 February 2009

Even worse than it looks

America's economy shrank sharply in the fourth quarter. There are few reasons for optimism


Shutterstock

IT IS a measure of the prevailing gloom that the worst economic performance in 26 years could still be described as better than expected. Real gross domestic product fell at an annual rate of 3.8% in the fourth quarter, below the decline of 5% or more that many economists had anticipated.

However, there is precious little reason for optimism. Almost all the unexpected growth came from a small rise in business inventories. This is almost certainly because firms did not reduce production quickly enough to keep pace with slumping orders. To get inventories back in line, more production cuts in the current quarter are likely. Morgan Stanley had expected GDP to fall by 4.5% in the current quarter, but now thinks it will fall by 5.5%.

Other details are no less grim. Consumer spending sank at a 3.5% annual rate, similar to its third-quarter drop, despite a big rise in real after-tax income, thanks to the huge drop in petrol prices. Spending and incomes went in opposite directions because once-profligate consumers are now trying to save more. They put aside 2.9% of their income (after tax) in the fourth quarter, the highest rate since the beginning of 2002. They are doing so either by choice, because retirement savings have been devastated and they fear losing their jobs, or by necessity, because it has become so difficult to borrow.

Businesses are cutting back more savagely. Their investment sank by 19%, worse than any quarter in the 2001 recession which was, after all, a business investment-led slump. And that was despite some firms boosting spending to exploit a temporary tax benefit that expired at the end of the year.

Both exports and imports fell sharply, leaving no net impact on GDP (lower imports raise the calculation of GDP, while lower exports reduce it). Matters are likely to get worse. The dollar has strengthened in recent months and much of the rest of the world is in worse shape than America. According to JPMorgan, the economy in Britain probably shrank at an annual rate of 5.9% in the fourth quarter, the euro-area by 5%, and Japan by a heart-stopping 9%, in a country with no housing bubble or banking crisis.

If there is any silver lining, it is that while the recession was a year old in December, its first half was not especially deep: net GDP actually rose in the first half, and the downturn is actually a bit milder than the median post-war recession after 12 months. But the typical post-war recession was over (or close to it) by this point; this one is getting worse. Claims for unemployment insurance were high in January, sales of new homes slumped in December, and several big companies, most recently Starbucks, Boeing and Sprint Nextel, have announced thousands of job cuts.

Faint though it is, there is a glimmer of hope in financial markets: interest rates on short-term loans between banks and on longer-term corporate debt have fallen notably since the autumn, and there has been a flood of new bond issues. But that may simply be evidence that investors no longer expect a catastrophic wave of bankruptcies. It does not mean that either companies or consumers are about to open their wallets.

What could turn this around? Most recessions end as companies clear excess inventories and as households, with a boost from lower interest rates, release pent-up demand for cars and houses. This time is different. Tightened credit severely limits the ability of consumers and companies to spend even if they were so inclined.

More than usual, an end to this recession will depend on policy. Enormous hopes are riding on Barack Obama’s $819 billion stimulus package, which has passed the House of Representatives and is now being debated in the Senate. Of that sum, just $170 billion will find its way into the economy before this fiscal year ends on September 30th, largely in the form of expanded unemployment insurance benefits and reduced income tax which will make their mark within months. But most of the impact will be next year because infrastructure funds, even once the money is available, takes a long time to be spent as federal, state and local governments secure the necessary approvals and seek bids for the work. “Even ‘shovel ready’ projects will not need shovels for some time,” notes Economics from Washington, a consultancy.

Still, the package will help. The Congressional Budget Office thinks that GDP by the end of 2009 will be between 1.3% and 3.6% higher than it otherwise would have been, thanks to the stimulus. It had thought that the unemployment rate would rise from 7.2% in December to 9% by the end of this year; with the stimulus in place, it thinks it will only rise to between 7.9% and 8.6%.

But more must be done. “The real problem is a feedback loop from the economy to credit losses,” says Richard Berner of Morgan Stanley. The fiscal stimulus will achieve little until that is fixed. Thus the administration’s real work lies ahead: coming up with a bigger and more comprehensive plan for recapitalising banks and relieving them of bad loans.

When you watch these ads, the ads check you out

Watch an advertisement on a video screen in a mall, health club or grocery store and there's a slim — but growing — chance the ad is watching you too.


Small cameras can now be embedded in the screen or hidden around it, tracking who looks at the screen and for how long. The makers of the tracking systems say the software can determine the viewer's gender, approximate age range and, in some cases, ethnicity — and can change the ads accordingly.
That could mean razor ads for men, cosmetics ads for women and video-game ads for teens.

And even if the ads don't shift based on which people are watching, the technology's ability to determine the viewers' demographics is golden for advertisers who want to know how effectively they're reaching their target audience.

While the technology remains in limited use for now, advertising industry analysts say it is finally beginning to live up to its promise. The manufacturers say their systems can accurately determine gender 85 to 90 percent of the time, while accuracy for the other measures continues to be refined.

The concept is reminiscent of the science-fiction movie "Minority Report," in which Tom Cruise's character enters a mall and finds that retinal scanners identify him and prompt personalized ads that greet him by name.

But this technology doesn't go nearly that far. It doesn't identify people individually — it simply categorizes them by outward appearances.

So a video screen might show a motorcycle ad for a group of men, but switch to a minivan ad when women and children join them, said Vicki Rabenou, the chief measurement officer of Tampa, Fla.-based TruMedia Technologies Inc., one of the leaders in developing the technology.

"This is proactive merchandising," Rabenou said. "You're targeting people with smart ads."

Because the tracking industry is still in its infancy, there isn't yet consensus on how to refer to the technology. Some call it face reading, face counting, gaze tracking or, more generally, face-based audience measurement.

Whatever it's called, advertisers are finally ready to try it, said advertising consultant Jack Sullivan, a senior vice president of Starcom USA in Chicago. "I think you're going to see a lot of movement toward it by the end of this year in the top 10 markets," he said.

Because face tracking might feel reminiscent of Big Brother, manufacturers are racing to offer reassurances. When the systems capture an image of who's watching the screen, a computer instantly analyzes it. The systems' manufacturers insist, however, that nothing is ever stored and no identifying information is ever associated with the pictures. That makes the system less intrusive than a surveillance camera that records what it sees, the developers say.

The idea still worries Lee Tien, a senior staff attorney with the Electronic Frontier Foundation, a civil-liberties group in San Francisco. Tien said it's not enough to say some system is "not as bad as some other technology," and argues that cameras that study people contribute to an erosion of privacy.

In general, the tracking systems work like this: A sensor or camera in or near the screen identifies viewers' faces by picking up shapes, colors and the relative speed of movement. The concept is similar to the way consumer cameras now can automatically make sure faces are in focus.

When the ad system pinpoints a face, it compares shapes and patterns to faces that are already identified in a database as male or female. That lets the system predict the person's gender almost immediately.

"The most important features seem to be cheekbones, fullness of lips and the gap between the eyebrows," said Paolo Prandoni, chief scientific officer of Quividi, a French company that is another player in face-tracking technology. Others include Studio IMC Inc. in New York.

The companies say their systems have become adept at determining a viewer's gender, but age is trickier: The software can categorize age only in broad ranges — teens, younger to middle-aged folks and seniors. There's moderate demand for ads based on ethnic information, but the companies acknowledge that determining ethnicity is more challenging than figuring out gender and age range.

Prandoni provided The Associated Press a limited version of Quividi's software, which uses an ordinary webcam to stream video to a computer. The trial version tracked gender only, using color-coded circles to distinguish male and female faces.

The sample size was too small to be statistically significant, but it was accurate about 80 to 90 percent of the time.

That might be as precise as the systems ever get, said Deborah Mitchell, a professor of consumer psychology at the University of Wisconsin-Madison. Even the human brain can't always determine gender, age or ethnicity.

Still, "even if it gets to 70 percent accuracy, that's still giving you a wealth of information," said Mitchell, who teaches in the Wisconsin School of Business.

That information is certainly valuable to Bill Ketcham, the chief marketing officer of Adspace Networks Inc. His New York company sells video advertising on 1,400 video screens at 105 malls around the nation.

Adspace is testing six TruMedia systems at malls in Winston-Salem, N.C., Pittsburgh and St. Louis. The kiosks display a daily list of top 10 sales at the mall, as well as paid advertising that comes largely from movie studios and TV networks.

A 15-second video ad that replays across Adspace's national network can cost as much as $765,000 per month. So advertisers expect rigorous information about who sees the spots — information that face tracking can now provide, Ketcham said.

For now, at least, Adspace isn't changing the ads based on who's watching — Ketcham said the kiosks' audiences are so large that it wouldn't be practical to personalize ads to individuals.

While advertisers like the face-tracking technology, another privacy advocate, Harley Geiger, questions whether it should be used on consumers without their knowledge. Geiger, staff counsel for the Center for Democracy & Technology in Washington, D.C., said advertisers should be telling consumers what details about them are being collected and for what purpose.

"With the technology proliferating, now or the short-term is the time to consider privacy protections," he said. "If you don't build it in at an early stage it becomes very difficult to build it into an already established system."

NY Times: Business Owners Hiring Mercenaries as Police Budgets Cut

In Oakland, Private Force May Be Hired for Security In a basement office that serves as a police headquarters and community center, Oakland ...