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Judge Approves GM Assets Sale

2009-07-06T06:22:09Z

NEW YORK — A bankruptcy judge says General Motors can sell the bulk of its assets to a new company, clearing the way for the automaker to quickly emerge from bankruptcy.

U.S. Judge Robert Gerber ruled late Sunday that the sale is needed to avoid "immediate and irreparable harm" to GM.

GM's government-backed plan for a quick exit from Chapter 11 bankruptcy protection hinges on the sale, which will allow the automaker to leave behind many of its costs and liabilities.

The Treasury Department has vowed to cut off funding to GM if the sale doesn't go through by July 10.

Hundreds of parties filed objections asking Gerber to reject the sale.

The Detroit car maker's Chapter 11 filing on June 1 was the fourth-largest in U.S. history.

As Retailers Cut Back CIties Confront 'Ghostboxes'

2009-07-06T06:07:36Z

BISMARCK, N.D. — Hundreds of anxious shoppers watched as city officials used power saws to cut 2-by-4s during Home Depot Inc.'s ribbon-cutting ceremony for its 102,700-square-foot building center in Bismarck. Less than three years later, the home improvement retailer shuttered the underperforming store, leaving a big orange empty eyesore on the outskirts of town.

The building, sitting derelict and silent on acres of asphalt, is now listed for sale at $10.5 million. But there's been little interest in the near windowless warehouse-like building that occupies a lot the size of a dozen football fields.

For potential tenants "it's a hard pitch because for most uses it seems to be a bit of a tough fit," said Brian Ritter, business development director of the Bismarck-Mandan Development Association.

As the recession takes its toll on big-box retailers, more communities across the country are having to confront not just the eyesore of giant empty stores, but also the loss of jobs and tax revenue that follow.

Many are trying to find creative uses for those near windowless monoliths. In Minnesota, one became a Spam Museum. In Texas, an indoor go-cart track. In Illinois, a church moved into an empty Wal-Mart. The new tenants, however, often generate less revenue for local governments.

And with the recent spate of bankruptcies and store closures, including Circuit City and Linens 'N Things, more abandoned buildings will be added to a struggling commercial real estate market. There are already hundreds of empty "ghostboxes" around the country.

"There is not a landfill on earth able to handle all the big boxes that we have sitting empty," says Julia Christensen, author of the book "Big Box Reuse," who has been studying the trend since 2002.

Some have been transformed into museums, community centers, hospitals or schools. Future tenants, however, can be restricted by the former retail chain.

"Often, they sign leases that prohibit competitors from moving in there, so they're willing to pay on an empty building for a long time," said Christensen, also a visiting professor at Oberlin College in Ohio.

The International Council of Shopping Centers said 6,913 retail stores _ of all types _ announced closures last year, compared with 4,603 in 2007.

Excess Space Retail of Lake Success, N.Y, specializes in real estate disposition and lease restructuring for retailers, including Home Depot, Wal-Mart, JC Penny and Kmart. The company has seen a more than 30 percent jump in the number of empty retail locations in the past year, he said.

"We are handing in excess of 2,000 locations for some 50-odd retailers, said Michael Burden, a principal with Excess Space Retail. "The square footage is in the tens of millions."

Home Depot, for example, closed 15 underperforming stores last year, and 41 its smaller home improvement brands, including Expo Design Centers and YardBIRDS.

"The goal is to sell or lease the property as quickly as possible," said Ron DeFeo, a spokesman for the Atlanta-based Home Depot. "The last thing we want is to see an empty store in a community _ it's a difficult enough decision to close a store in the community."

In Frankfort, Ky., an empty Home Depot is adjacent to a sign welcoming visitors to the city.

Focusing on the positive, Phil Kerrick, economic development director for the city and Franklin County, says, "It's a great building, in good shape and in a good location."

Frankfort, Kentucky's capital city, has dealt with vacant big box space before, when Lowe's Cos. moved into a bigger box in town. The building was converted to a state office building.

In Round Rock, Texas, a former Wal-Mart was converted into a go-cart track for a time.

City manager Jim Nuse said while the indoor racetrack was better than having the building sit vacant, it was far from the ideal use of the space.

The track was open for about two years until the building's owners renovated the building to house several businesses, including a health club, restaurant and gourmet market.

Owners of the building gave it a new facade and landscaping to make it look less boxy to attract new tenants, all at no cost to the city.

"We were lucky," Nuse said. "It was a less-than-attractive space for awhile but it turned out to be really nice, though it took several years for that to happen."

Hormel Foods Corp., maker of the famous canned luncheon meat, opened the Spam Museum in Austin, Minn., in an old Kmart building that also had been a Sears store.

Sandy Forstner, executive director of the Austin Chamber of Commerce, said the Spam Museum, which opened in 2002, has been more valuable to the southeastern Minnesota community than the previous retailers, both in terms of property tax revenue and the number of visitors it draws to the area.

"The property has been significantly improved," Forstner said. "Hormel has spent millions of dollars redeveloping the property."

The 16,500-square-foot building also houses the headquarters for Hormel and offices for a hospital, he said.

Forstner said the Spam Museum is one of the biggest destinations in the state, and has brought tourism dollars to the town of about 23,000 people, near the Iowa border.

"It's always a problem for a community when a business leaves a building," he said. "The bigger the business, the bigger the facility and the bigger the problem."

Wal-Mart Stores Inc. is opening 157 stores this year, but the world's largest retailer has 147 vacant U.S. stores its trying to get rid of.

"We've been pretty successful identifying new tenants or new owners," said Greg Rossiter, a spokesman for Bentonville, Ark.-based company Rossiter. "Some of the uses are pretty unique."

A former Wal-Mart in Carlinville, Ill., was converted to a church, but not before a legal battle from the city.

Mayor Robert Schwab said retail space is at a premium in the city of about 6,000, so when Wal-Mart announced it was building a new Supercenter in town, community leaders were hopeful the old facility could be turned into new retail space.

Instead, Wal-Mart sold the 50,000-square-foot building to the Carlinville Southern Baptist Church in 2007.

"Nothing against churches, but the city loses, the county loses and the school district loses sales tax and property tax as a source of revenue," the mayor said.

"It was probably the largest building available in probably the whole county," Schwab said. "There was a lot of interest in it but Wal-Mart found a willing buyer that gave them no competition at all."

The city and the church settled a federal lawsuit last year over the church's right to operate in a commercially zoned property, Schwab said. The church was given and a special-use permit, and the city's insurer paid $125,000 in compensation to the church and $50,000 to the city in a settlement, he said.

Schwab said the city had paid hundreds of thousands of dollars in infrastructure improvements to roads and stoplights leading the old Wal-Mart building, built in the early 1980s.

He said the mega-retailer should have consulted with city officials before selling.

"We should have had the right of first refusal," he said.

Bruce Botelho, the mayor of Juneau, Alaska, said when the town's Kmart store closed in 2003, the city lost jobs, sales tax and had an embarrassing eyesore until Wal-Mart opened a store at the site last year.

The abandoned building was the target of vandals who painted graffiti on outside walls and junk cars littered the parking lot. The building also was not maintained properly during the time it sat derelict, and the interior of the building flooded, Botelho said.

"It was no doubt a stressful time," he recalled.

Wal-Mart has relocated three times to bigger locations in Bardstown, Ky., a community of 11,000. Two of the buildings have been filled with more retail space, and one was torn down to make way for a new courthouse, said Kim Huston, president of the Nelson County Economic Development Agency

The city has imposed new design standards for big boxes and has imposed new rules that require a building to be razed if it cannot be sold, said Huston.

In Bismarck, the business development director says most cities are reluctant to impose such rules on big box retailers, fearing a lost bid for the store.

"If you do, they simply won't locate in your community," Ritter said. "Depending on how you look at it that may be a good thing or a bad thing."

Paying For Healthcare Overhaul Likely To Fall Unevenly On States

2009-07-06T02:42:23Z

When Congress decides how to pay for President Obama's signature healthcare initiative, some of his strongest political bastions may be footing a heavy bill.

Obama's Regulatory Plan Would Trim Back Financial Powerhouses

2009-07-06T01:59:03Z

WASHINGTON — They are the biggest of the big _ the Citigroups, the Goldman Sachses, the AIGs and other financial behemoths. The Obama administration doesn't want so many around anymore.

Financial regulations proposed by the president would result in leaner and simpler institutions that don't carry the weight of the system on their marble columns.

Around Washington and Wall Street they have come to be known as TBTF _ too big to fail. It's not just size, though. These companies are so far-flung, so intertwined and so precariously leveraged that a single one's collapse can create systemwide tremors that imperil the finances of millions of Americans.

With that fear in mind, the government stepped in to bail out Citigroup Inc., Bank of America Corp. and American International Group Inc. with tens of billions of public money last year.

Looking to avoid such a costly intervention, President Barack Obama's regulatory plan calls for large, interconnected companies to pay a heavy price for the systemwide risk they pose.

So far, however, congressional debate has centered on the administration's plan to put the Federal Reserve in charge of these "systemically significant" companies. Less attention has focused on the potential effect on the institutions and the financial system's hierarchy.

Under the administration's proposal, companies such as Citi, Goldman Sachs and others in a broad top tier engaged in complex transactions would face stricter scrutiny and have to hold more assets and more cash as cushions against a downturn.

They also would have to anticipate their own demise, drafting detailed descriptions of how they could be dismantled quickly without causing damaging repercussions. Think of it as planning their own funerals _ and burials.

Obama's plan, in short, aims to make it far less appealing to be so big. That was the middle ground the administration sought, a step short of an outright ban on systemically risky companies.

"Without banning them we're providing some pretty heavy penalties for entering" the top group of institutions that could pose a risk to the entire financial system, said Diana Farrell, deputy director of the White House's National Economic Council.

"The regulator might say to a large institution, 'Make sure there is very good reason to allow yourself to get that big, or that interconnected, or that complex because the penalties will wipe out any advantages, such as lower cost of capital, you might have."

Some companies, such as Citi and Goldman Sachs, might bite the bullet and take on the added burden; in global capital markets some firms need to be large.

Others might choose to reduce their financial footprint.

"It's a very sophisticated and very effective way to force institutions to deconsolidate," said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a consulting firm that advises financial institutions

One nonbank giant is already fighting back.

General Electric Co. has come out against a proposal that would tighten rules limiting companies from mixing banking and commerce. That could require GE to get rid of GE Capital, its sizable financial unit. Analysts say some of the top banks that had Fed stress tests, such as Wells Fargo & Co. or Morgan Stanley, might have to weigh the cost of meeting new regulations against the benefits of their size and reach.

The severity of the conditions remains to be seen. Under Obama's plan, those details would be worked out by the Fed and a council of regulators led by the treasury secretary. Congress would have to agree to that framework, however, and lawmakers from both parties have voiced misgivings about putting the Fed in charge.

"If I was a big player, I'd be very interested in what the specific requirements were likely to be so I would know whether I needed to restructure," said Oliver Ireland, a partner in the financial services practice of the law firm of Morrison & Foerster. "It creates an uncertainty for a significant period going forward."

In the end, there will be institutions that meet top tier specifications and will not break themselves up to escape the tougher oversight.

But others whose business would place them just inside or outside of that classification could end up divesting or reconsidering expansion or acquisitions,

"Where you're going to see the impact of that regime affecting size and complexity decisions of management is on the cusp," said John Dearie, executive vice president of the Financial Services Forum, a group made up of chief executives of 17 of the largest and most diversified financial institutions doing business in the United States.

For those that qualify for top tier designation, the administration proposes a system that would dismantle them quickly if they get into financial trouble. Right now, the government has authority to step in and take down troubled banks, but not the conglomerates that pose greater risks to the economy. That lack of authority prevented the government from dissolving Bear Stearns Cos., Lehman Brothers and AIG in an orderly manner.

Under the administration's plan, the Treasury could decide to take a company swiftly through a bankruptcy-like process, appointing the Federal Deposit Insurance Corp. as a conservator or receiver. The FDIC currently now only has the authority to take over troubled banks.

If a swift end could cause a systemwide risk, the administration would allow a government intervention that still could require taxpayer money up front. The administration recommends that the cost of any taxpayer infusion be paid later with fees assessed on bank holding companies. Farrell noted that capitalization requirements for the companies would help lessen the infusion of government money.

The government would be aided by the failing company's own plan to wind down.

Anil Kashyap, an economist at the University of Chicago School of Business, said simply creating a "funeral plan" could lead some companies to reconsider some of their business strategies.

"The ones that would be more complicated would have to explain to their shareholders why they are so complicated and why they would have to have more capital" to cover their dissolution, Kashyap said. "That would be a very productive outcome."

___

On the Net:

Treasury's financial stability site: http://www.financialstability.gov/

Dan Dorfman: The Fat Lady Hasn't Sung Yet

2009-07-06T00:44:28Z

Enough already of all those silly, unduly sunny and unrealistic economic predictions that are proving to be as accurate as those woefully inept forecasts we get from the local weatherman.

One of the latest such nonsensical predictions, a declaration by General Electric's CEO, Jeffrey Inmelt, that "the (economic) crisis is over," couldn't have come at a worse time, judging from the bum tidings that followed his glowing forecast.

Abraham Lincoln once said "Tis better to be thought a fool than to speak and remove all doubt." Maybe Inmelt ought to take note of that observation.

Judging from Thursday's dismal economic disclosure--higher than expected June layoffs of 467,00, the 18th consecutive month of job losses--the GE boss is obviously way off base. Those layoffs boosted the unemployment rate to 9.5%, the loftiest level in 26 years, and the number of unemployed Americans to 14.7 million.

Also raising serious questions about Inmelt's rosy outlook are several other harsh economic facts that he ignored--namely:

--The rising number of foreclosed and abandoned homes, now at roughly 2 million.

--The ongoing surge in credit card defaults and delinquencies, prompting credit card companies to curb consumer borrowing.

--Falling incomes and stagnation in wage growth, leading to sharp cutbacks in consumer spending.

--Sharply declining values and mounting delinquencies in commercial real estate. The shoe, it's widely felt, has already dropped in this area, based on the mushrooming number of empty and boarded-up retail outlets and restaurants and the ballooning amount of vacant office space.

Judging from the market's immediate reaction to the jobs news--a wicked 223-point dive that day in the Dow Jones Industrials--obviously a lot of investors are signaling that they, too, believe Inmelt is all wet in his positive economic outlook. Importantly, those job losses--which are widely expected to head higher--raise renewed doubt about the widespread bullish argument that all the bad news is already discounted in the marketplace.

For some thoughts on where we stand now, I rang up veteran investment adviser Martin Weiss, who made some super economic forecasts last January, among them warnings of massive job cuts, much steeper real estate losses, major financial problems at the giant banks and an inevitable Wall Street meltdown. His current outlook--if he's right again--suggests Inmelt, economically speaking, could probably use a seeing-eye Lucky or Lucy.

Weiss, 62, known in Wall Street as the Grim Reaper and head of Weiss Research in Jupiter, Fla., concedes there has been a temporary economic stabilization in some sectors. But he hastens to note that's by no means unusual after the precipitous economic declines of 6.3% in the fourth quarter of last year and 5.5% in the first quarter of this year.

The economy, as Weiss sees it, "is at a high between the storms," a prelude, he believes, to a good deal more economic anguish.

Why more anguish? For starters, Weiss, author of the Ultimate Depression Survival Guide, currently on the New York Times' best seller list, contends the administration--in its efforts to revitalize the economy--is addressing the symptoms, not the causes, such as the housing crisis, the shortage of liquidity and the excess debt in the world economy. The government may be pumping liquidity back into the system and has said it would back millions of dollars of credit, but the fact is, says Weiss, "the credit and liquidity crises have not been resolved."

Making matters worse, he says, are the next time bombs. For starters, he points to the remaining toxic asset problems, notably the bad debts on the books of financial institutions. "They haven't removed all the garbage, which is still poisoning the economy," he says.

Weiss is by no means alone in his worries about toxic assets because the extent of this problem is still an unknown at many banks, in turn leading to more cautious lending practices and an unwillingness to take risk despite Uncle Sam's billions of dollars of bailout money. Alarming here is said to be the threat of more--or perhaps substantially more--bank writeoffs

The financial plight of California, a $1.8 trillion economy which is unable to come up with a working budget, is defaulting on its short-term obligations and is broke, is viewed as another time bomb. As such, Weiss sees a rash of downgrades of the state's credit by the credit agencies, which will make it either extremely expensive or impossible for California to roll over its maturing debt. Weiss also raises the risk that California's financial woes could spread to other state governments.

Yet a couple of other ticking time bombs, according to Weiss, are the prospects of a big selloff in insurance stocks, followed by a slew of industry bankruptcies, and falling long-term Treasury bond prices, a reflection of the burgeoning deficit and increasing concerns about the credit of the U.S. Treasury and the stability of the dollar.

Wall Street estimates, factoring in the stimulus package, call for the GDP to grow 0.5% in the current quarter following an expected 2% decline in the second quarter, and gains of 2% in the fourth quarter and 2%-2.5% in the first period of next year. Too exuberant, our bear says. Given his worries and bleak outlook, Weiss expects a resumption of a large economic decline later this year or in early 2010 on the order of about a 6% GDP retreat.

What are the implications for the stock market? Weiss's outlook: another bloodbath, with the Dow Industrials tumbling to about 5,000 later this year or in early 2010. Describing the market as grossly overvalued on current price-earnings multiples, which Weiss notes are totally inconsistent with those at the bottom of bear markets, he thinks investors would be well advised to sell into every rally. "And I would do it before it's too late and time runs out," he says.

"It ain't over till it's over" was one of Yogi Berra's more colorful Yogi-isms. That's precisely Weiss's view when it comes to the sagging economy and the falling market. He takes it one step further, predicting a lot more chaos before it's all over.

Dandordan@aol.com

Waylon Lewis: Starbucks: From Fair-trade Zero to Local Hero?

2009-07-06T00:23:40Z

Starbucks is already Fair-Trade. Now, they say they're going green--and supporting local--by 2010.

If they actually do it, I might have to give up my 15-year buycott of Starbucks. I used to dislike 'em 'cause they put my favorite local cafes outta business in Boston, Cambridge etc. Then I moved back to my hometown of Boulder, and looked with shriveled eyes at idiot college kids and yuppies who hung about their non-local Starbucks, spending money on The Man.

Then, Starbucks not only got on the Fair-trade wagon, but started leading the charge. Hmmm, I said, and turned my Conscious Consumer Alarm off the Starbucks channel.

Then, Starbucks pioneered the 10% recycled content to-go cup (something my favorite-ever local cafe, from which I'm writing this piece, still doesn't do). May not sound like a big deal, but no one else was doing it, and Starbucks' very size--the cause of We the People's resentment for years--suddenly becomes a very (very) good thing when they start using that power eco-responsibly. They also offer a discount (a paltry, but still didn't-have-to-do-it 10 cents) to anyone who uses a reusable cup.

Then, I read that Starbucks not only didn't put local cafes out of business, but that locally-owned cafes actually thrived in towns where Starbucks moved in. Apparently, Starbucks served as a gateway drug (or ambassador) to the masses...they went to Starbucks, developed a fancy for overpriced fancy coffee, then took that fancy next door to their local cafe. Humph, I said, and grudgingly stopped hating Starbucks at all. This was a year or so ago.

Then, this morning, I read this, via Brandweek. Excerpt:

...On Thursday, Starbucks announced that the company aims to earn LEED certification on all new company-owned stores beginning in 2010.

Cool, I said to myself. If it actually happens, that is. Every big company's always making big pronouncements about what they'll do in the future. If they said they'd start right away, I'd be sold. The article continued...

Among the company's eco-friendly goals for all new company-owned stores are that 50 percent of each store's energy be derived from renewable sources, and that they will be 25 percent more energy efficient. The company has set long-term goals

whatever that means

including replacing all stores' incandescent bulbs with LED bulbs and ensuring 100 percents of its cup supply is reusable or recyclable by 2015.

Nice! Why not do it now: ecoproducts.com. Bonnaroo, the Suns, my local football stadium and many local cafes are already doing it.

Beyond the energy-saving measures, the company aims to give its stores a more local feel. All new and renovated stores beginning in 2010 will tap the skills of local craftsmen and use materials associated with the store's neighborhood.

Okay, you got me. This is thinking that reflects real inspiration, not just greenwashing or aping local cafes that've been doing such for years without needing to get all Press Release about it.

One recently built store that reflects this new strategy is the company's 1st Avenue and Pike Street store in Seattle, opened in March of 2009. The bar's leather façade is made of scrap leather from local shoe and automobile factories, the cabinets from fallen trees in the Seattle area, and the community table from a nearby restaurant.

So cool. So cool. So cool. Do this everywhere and I'll become a patron. And I drink a lot of coffee, as my ever-shaking hands attest.

"We recognize the importance of continuously evolving with our customers' interests, lifestyles and values in order to stay relevant over the long term," said Arthur Rubinfeld...

And remember, Starbucks always does well in Fortune's "Best Companies to Work For" rankings, along with Whole Foods and other such. And whatever their faults, let's be grateful they don't use styrofoam, like Dunkin' Donuts, or genetically engineered coffee beans, like Nestle.
-

Tweet me: you can follow Waylon Lewis at @elephantjournal.

With thanks for the tip to:

Via my first eco idol, Umbra, a great writer over at Grist.org:

Madoff's Lawyer: I Would Do It All Again Despite The Death Threats

2009-07-05T22:49:05Z

The man who defended Bernard Madoff would not hesitate to do it again.

"Absolutely," says Ira Sorkin, who vigorously argued for leniency on behalf of his client only to see him sentenced last week to a 150-year prison term for running a $65bn Ponzi scheme that devastated thousands of lives.

Biden Ignores Warnings Of Krugman, Stiglitz, Roubini And Others

2009-07-05T19:23:39Z

During his interview with ABC's This Week on Sunday, Vice President Joe Biden made what will be a much-discussed admission in the week ahead. The Obama administration, he said, had "misread" the extent of the economic catastrophe it inherited.

"The truth is, we and everyone else misread the economy," declared Biden. "The figures we worked off of in January were the consensus figures and most of the blue chip indexes out there."

"We misread how bad the economy was, but we are now only about 120 days into the recovery package," the vice president said later in the interview. "The truth of the matter was, no one anticipated, no one expected that that recovery package would in fact be in a position at this point of having to distribute the bulk of money."

Certainly, the Obama administration's acknowledgment that it misjudged the crisis it inherited is rife with possibilities for its political opponents. House Minority Leader John Boehner rapped the White House repeatedly on Sunday for presiding over the loss of more than two million jobs since January. Former Bush strategist Matt Dowd, appearing on the ABC panel after Biden, did much the same. For an Obama White House that, two weeks ago, told the public to measure the success of its policies based on jobs they created, it is difficult to decry these critiques as inherently unfair, regardless of what troubles were passed on from the Bush administration.

But equally problematic is Biden's assertion that "everyone" - not just the White House - was off in their prognostications. This is simply untrue.

Host George Stephanopoulos pointed out that "a lot of people were saying that you needed to do something bigger and bolder" when it came to the stimulus package. He named New York Times columnist Paul Krugman as one example. There are many others.

The prize-winning Columbia University economist Joseph Stiglitz not only warned that the stimulus was too small during its construction, the day after Obama signed it into law he predicted how its shortcomings would make themselves apparent.

"I think there is a broad consensus but not universal among economist that the stimulus package that was passed was badly designed and not enough. I know it is not universal but let me try to explain. First of all that it was not enough should be pretty apparent from what I just said: It is trying to offset the deficiency in aggregate demand and it is just too small," Stiglitz said. "The shortfall in state revenue [is] probably in the order of 150 to 200 billion dollars a year. And the states have balanced budget frameworks so if you follow the newspaper you know the drastic problems that California and New York are in, these are really serious problems and because of their balanced budget frameworks they have to reduce their spending... if their income comes down. So that would be a negative stimulus of 150 to 200 billion unless there is federal aid. And the stimulus package there was a little of federal aid but just not enough. So what we will be doing is we will be laying off teachers and laying off people in the health care sector while we are hiring construction workers. It is a little strange for a design of a stimulus package. You ask, why do you want to hire construction workers and fire teachers. I don't know what is the rationale behind that."

Stiglitz was joined by a whole host of liberal economists -- from the University of Texas' James Galbraith to Dean Baker of the Center for Economic and Policy Research -- who warned that the stimulus package inexplicably underestimated the size of the crisis.

Several weeks after the stimulus passed, economist Nouriel Roubini, known affectionately as Dr. Doom, made the case that the administration's approach to stabilizing the economy lacked an effective international component.

"You have to have a set of concerted, coherent policies done not just by the U.S. but by Europe, Japan, China and everyone else," he said. "The credit crunch is just massive. One thing that's needed is much more aggressive monetary easing. The second dimension is that you need much more fiscal stimulus -- in the countries that can afford it -- that is front-loaded. The U.S. [stimulus package] is $800 billion, but only $200 billion is front-loaded. Of that $200 billion [in stimulus] this year, half of it is tax cuts. That's going to be a waste of money, because people are not going to spend it."

In mid-June, weeks before the latest round of poor job numbers came out, U.C. Berkeley professor and former Clinton administration official Brad DeLong was arguing that "the Obama administration's federal fiscal stimulus programs are on the low side of what is appropriate by a substantial margin."

"This is the largest economic downturn since the Great Depression and the standard tools of expansionary monetary policy are tapped out and broken right now," he wrote.

The day that June's job numbers came out, meanwhile, Nassim Taleb, principal of Universa Investments and author of 'The Black Swan,' offered a far more grim interpretation of what was transpiring, though one relatively consistent with what he had said in the past.

"We're in the middle of a crash," said Taleb during an appearance on CNBC. "So if I'm going to forecast something, it is that it's going to get worse, not better."

Certainly Krugman himself has aired his share of skepticism. In late June, he reminded his readers that his early concerns had not been misplaced.

"[S]ome of us warned about what might happen: if unemployment surpassed the administration's optimistic projections, Republicans wouldn't accept the need for more stimulus," he wrote in the Times. "Instead, they'd declare the whole economic policy a failure. And that's exactly how it's playing out. With the unemployment rate now almost certain to pass 10 percent, there's an overwhelming economic case for more stimulus. But as a political matter it's going to be harder, not easier, to get that extra stimulus now than it would have been to get the plan right in the first place.

This past week, meanwhile, he declared once more that the Obama stimulus plan, while "better than nothing" needs to be supplemented with something more.

To be fair, the process of economic forecasting is, as Taleb noted in his CNBC segment, an inherently tricky proposition. In October 2008, for instance, Roubini was arguing that the government needed a $400 billion stimulus package, which ended up being just more than half of what the Obama White House settled on.

But among those who were sounding the loudest alarms about the potential inadequacies of the economic recovery plan, the consensus seems to be emerging that more now needs to be done. Later in his ABC segment, Biden - who is responsible for overseeing the stimulus - was asked if a second package was in the offing. No, he replied, without dismissing the possibility outright. "I think it's premature to make that judgment. This was set up to spend out over 18 months. There are going to be major programs that are going to take effect in September, $7.5 billion for broadband, new money for high-speed rail, the implementation of the grid -- the new electric grid. And so this is just starting, the pace of the ball is now going to increase."

Roubini: The Green Shoots Are Mostly Yellow Weeds

2009-07-05T17:12:32Z

The June employment report suggests that the alleged 'green shoots' are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.

Biden: "We Misread How Bad The Economy Was"

2009-07-05T15:56:29Z

WASHINGTON — The Obama administration "misread" the depth of the economic troubles it inherited and still expects more new jobs in the long term as the spending pace from the $787 billion stimulus plan quickens, Vice President Joe Biden said.

Republican congressional leaders expressed disappointment about the impact of stimulus spending. "I'm very skeptical that the spending binge that we're on is going to produce much good and, even if it does, anytime soon," Senate Republican leader Mitch McConnell of Kentucky said in a statement Sunday.

"I think the economy is just as likely to begin to recover on its own, wholly aside from this, before much of this has an impact."

Biden, in an interview that aired on ABC's "This Week," said the 9.5 percent unemployment rate is "much too high." The administration had predicted unemployment would stay below 8 percent with its stimulus plan.

"The figures we worked off of in January were the consensus figures and most of the blue chip indexes out there," Biden said. "We misread how bad the economy was, but we are now only about 120 days into the recovery package."

He cited the economic conditions inherited from the Bush administration. "It's now our responsibility. So the second question becomes ... is it the right package given the circumstances we're in? And we believe it is the right package given the circumstances we're in."

While Biden argued that more jobs will be created in the coming months, House Republican leader John Boehner of Ohio said the GOP had wanted the bill to focus on small businesses and helping people keep more of what they earned.

"This was supposed to be about jobs, jobs and jobs. And the fact is it turned into nothing more than spending, spending and more spending on a lot of big government bureaucracy," Boehner said.

Even House Majority Leader Steny Hoyer, D-Md., said no one is satisfied with the results of the stimulus so far. "But we believe the stimulus was absolutely essential," he said.

Biden noted that the plan was set up to spend the money over 18 months. Major programs will take effect in September, including $7.5 billion for broadband Internet service, plus new money for high-speed rail and the nation's electrical grid, he said.

Biden said it's premature to say whether the country will need a second stimulus package.

Other issues Biden discussed during his ABC interview:

_Asked whether the United States would put the lives of U.S. troops on the line should violence flare up again in Iraq, he said "no." The U.S. still plans to withdraw all troops by 2011, Biden said. "We believe the Iraqis will be fully capable of maintaining their own security."

_Biden said if the Iranian government seeks to engage in a dialogue with the United States, the U.S. will engage. "The offer's on the table."

_Biden said Israel has the right to pursue a different course of action on Iran than the U.S. does. "Look, Israel can determine for itself _ it's a sovereign nation _ what's in their interest and what they decide to do relative to Iran and anyone else."

_On North Korea's Saturday launch of missiles, he said such actions appear to be efforts to seek attention. "The question is, is there anything that we should do about it?" Arguing that the U.S. policy has been correct so far, he said, "We have succeeded in uniting the most important and critical countries to North Korea on a common path of further isolating North Korea."

_The Obama administration is "well on the way" to resolving a dispute between CIA Director Leon Panetta and National Intelligence Director Dennis Blair, Biden said. The conflict centers on Blair's effort to choose his own representatives at U.S. embassies instead of relying only on CIA station chiefs. "He declined to give details.

Fake Treasury 'Promissory' Notes Being Used To Scam Desperate Homeowners

2009-07-05T15:54:50Z

Yet another scam designed to separate homeowners from their money is making its way across the country from the West, where desperate sellers are willing to accept just about any kind of compensation to get out from under.

This scheme involves the use of fraudulent Treasury-related promissory notes and bonds as down payments by charlatans who claim to be short on cash. In most cases the scam artists try to buy homes using these worthless documents, but in one case they actually tried to purchase an office building.

Vatican Runs Deficit Amid Global Economic Crisis

2009-07-05T08:17:53Z

VATICAN CITY — The Vatican said Saturday it ran a deficit in 2008 as its finances and donations from across the world were hit by the global economic crisis.

The Vatican posted a budget deficit for a second straight year, though the figures improved strongly from 2007. The Holy See's 2008 deficit was around euro0.9 million ($1.28 million), compared with a loss of euro9.06 million a year earlier.

The financial report released Saturday by the Holy See's press office listed revenues of euro253.9 million and expenses for euro254.8 million.

Most of expenses went to support the activities of Pope Benedict XVI and the Holy See's offices, especially Vatican Radio and other media divisions, the report said.

It said the separate administration of the Vatican City state was particularly hit by the economic crisis. High costs to restore the Vatican's cultural treasures and ensure security left the tiny state with a euro15.3 million deficit, after closing 2007 with a euro6.7 million gain.

The Vatican said annual donations from churches worldwide, the so-called Peter's Pence, were down to almost $75.8 million from $79.8 million in 2007. Leading donors were faithful in the United States, Italy and Germany.

The pope uses the fund to help churches in poor countries and other charitable causes.

The Vatican has published the annual report since 1981, when Pope John Paul II ordered financial disclosure as part of his efforts to debunk the idea that the Vatican is rich.

___

On the Net:

http://www.vatican.va

(This version CORRECTS UPDATES with details; corrects larger loss was in 2007, not last year.)

Michael Martin: Broke: The New American Dream

2009-07-05T07:32:29Z

A new documentary Directed by Michael Covel has been released that takes a hard look at the decisions we as a country make about money. Broke: The New American Dream is a study in Behavioral Finance - how and why people do the things they do with their money - or avoid it all together. The result is a shocking expose on the belief systems behind how Americans handle their money and what drives our decisions from the regulator, the money manager, the guru, and the end-user...the American public.

This is not a partisan film. This is a film about personal responsibility, and he blames everyone for the financial meltdown - including me and you. Greed, ego, and arrogance overcame everyone from the most sophisticated financier to the most rural participant...especially in real estate. Greed took over the buyer, the mortgage broker, the seller, the agents, and Wall Street. To Covel, all are responsible: if you're broke, it's because you have a lot to do with it.

When I first viewed the DVD, I thought Covel was being confrontational and controversial to have such inflammatory remarks. You can sit and blame everyone - it will feel good - but is that going to help you retire? Financial literacy is more about knowing how to handle risk than quoting Suze Orman or knowing how to "dollar-cost average" - which only pays off in rising markets. It's about managing risk and that starts with diversification - a technique to minimize risk - but not an "investment edge" to make money.

You think the government has your back? Guess again. Covel quotes statistics that show that 40% of those who make $35,000 and less feel that playing the lottery was the best way to amass $500,000 for retirement. Lotteries are marketed heavily to the poor -- people who can least afford them. Wanda Sykes comedy routine about saving for retirement is both hilarious and sad. Problem is, state lotteries are a game of negative expectation.

That means over the long run you'll never win. As Professional Poker player Chris "Jesus" Ferguson states in the film, "your odds of winning the lottery aren't that much better if you buy a lottery ticket than if you didn't. They're very close to the same (zero). I don't try to play too fancy...I just keep my dollar." Ferguson, who is one of many professional poker players quoted in the movie, created games for California lotteries before pro poker, so he would know. Some of the other players who appear are Evelyn Ng, Antonio Esfandiari, Howard Lederer, and his sister Annie Duke.

But someone always "wins" you say? That's true, the government.

Playing investigative journalist, Covel gets a Virginia gaming commission member to say off camera, "we don't even want people to marry the words investment and lottery - we try to discourage that." And 2 weeks later, Covel found a Cramer look-alike in a VA Lottey ad!

Congressman Chris Van Hollen (D-MD) explains, "you can try to get rid of the lottery, but you have to replace it with tax income." So you have the poor thinking the lottery is an investment and at the same time the lawmakers knowing that it is a voluntary tax.

Something is rotten in the state of Denmark.

Online poker, a game of skill, is banned. Lotteries are not. As Congressman Barney Frank (D-MA) insists in the film, "In areas where we need to act together to protect our quality of life and the environment...in transportation and public safety...we abstain. But in those areas where individuals ought to be able to make their own choices, we intervene." Regardless of your political leaning, you're going to have a tough time blaming the "other side" for financial calamity because Covel has covered his bases, which supports his argument that the problem is you.

Michael Mauboussin says, "Warren Buffett has more in common with a professional poker player than he does with investor." And Legg Mason's Bill Miller chimes in "they ought to teach poker in business school. In poker, you can make all the right moves and still lose." Buffett is more lucky than talented. As a professional trader interviewed for this movie, I can attest that self-awareness and emotional intelligence have as much to do with risk management as the rules themselves. Learning to lose deliberate, small amounts of capital, are a staple of winning the money game - something that is echoed again and again in the movie - whether you're a trader or investor.

Maybe you believe that everybody on Wall Street are barren robbers...that the stock market is legalized gambling...that all mortgage brokers and real estate agents are unethical. Covel argues that does not give you a hall pass to leave your money unattended. You are responsible for the results you get even if you've hired a financial advisor - a provocative statement, but one that I believe is true. It's your money - no one is going to care about it more than you.

In the end, Covel argues you cannot legislate behavior. Like water, capitalists will always seek a new level. Congress and the Regulators will always be a day late and a bailout short in filling loopholes. Religion doesn't anchor anyone any better: Religious beliefs cannot legislate morality: Madoff committed a white-collar crime against people of his own religion.

Covel believes that you have to contend with the fact that Social Security is in dire straits. We are paying into a system that might not pay out benefits. He challenges you by asking "What are you doing to about it?" If you're doing what the folks he interviewed are doing, you need a lot of help. As Barry Ritholtz said, "if in 20 years you're eating cat food, don't look at me." In other words, it's your money. Own it. Do something about it. The solutions lies with Financial Literacy: know how to take small, consistent losses.

Admittedly, our educational system does play a role in conditioning our way of thinking. Human beings are not built to manage risk. We want to know "why" things happen. We want to understand things. And smart people don't like being wrong. Their self-esteem is heavily invested in being smart. A great example of this is illustrated from an interview Covel had with a Georgetown student: "I bought Blackstone on the IPO (at $35) and I'm staying in because I don't want to be wrong. I'd rather lose the 3,500 bucks and be wrong. I am waiting for it to come back."

Blackstone is about $11 now. Sometimes they don't come back.

Steve Parker: Auto warranties --- avoid the rip-offs!

2009-07-05T07:01:02Z

Hope you all had a wonderful and safe holiday! Please excuse my recent absence, but starting today we're getting back to business.

Now, let's try and save everyone some money and hassle when it comes to auto warranties.

First of all, in spite of the sometimes-confusing terminology you might hear when someone's trying to sell you a warranty, keep this in mind: "warranty" in this case is just a fancy word for "insurance policy." When it comes down to it, that's all a new- or used-car warranty is --- an insurance policy for car repairs. You pay the premium, usually in one lump sum after you buy the car; when it needs repair, the company backing the policy pays for them, depending on what's covered in the policy.

And they are very profitable for dealers, which explains the "hard sell" which usually surrounds them.

Normally, in a blog post like this, we'd talk mostly about the potential dangers of "third-party" warranties, those backed by companies not affiliated with the car-maker. There have been instances (one I remember happened with the #2 Japanese car-maker some 20-or-more years ago) when the third-party company backing the warranty goes out of business, leaving the warranty holders high and dry. It's very rare, but it's happened.

But buyers never thought they'd have to worry about a warranty purchased at a dealership from the car-maker. Today, though, both Chrysler and General Motors are putting out confusing messages about their own factory-backed warranties. That has a lot of people worried, and rightly so.

Both companies are making noises about refusing to honor warranties on older cars and trucks, claiming those sales have become part of their "old" selves, "bad Chrysler" and "bad GM," the parts of the companies which are now being closed or sold-off as part of their respective bankruptcy and reorganization plans.

We came across the following information from the Service Contract Industry Council (www.go-scic.com), which describes itself as "a national trade association whose member companies collectively offer approximately 80 percent of the service contracts sold in the U.S. for home, auto, and consumer goods."

Here's what they have to say:

-- Most service contracts are sold face-to-face at the point of sale from reputable automotive dealerships. Many reputable providers administer and service the contracts sold through these outlets, and also sell them independently, some via the Internet.

-- Do not buy a service contract if the provider will not supply you with a copy of the contract terms and conditions prior to purchase.

-- Be alert to service contract providers who use unsolicited mass marketing techniques, such as direct mail and telemarketing (e.g. "robo-calls").
Yes, warranties are available for most motorcycles, too, like this exotic Ducati --- the same rules apply as far as not getting ripped-off

-- Avoid purchasing service contracts if you feel overly pressured by sales personnel. Service contract coverage for autos can typically be purchased on the spot or days after the product purchase, giving consumers time to review the terms and research the provider (more on this below).

-- Thoroughly read and understand the terms and conditions of your service contract and be prepared to realistically fulfill all responsibilities related to regular maintenance, such as oil and filter changes, etc.

-- Some service contracts provide a 30-day, "free-look" period for consumers to review the contract and return it for a full refund if they decide not to purchase the service contract.

-- Consumers should locate the name of the service contract provider on the contract. If a contract does not list an administrator's contact information, contact your state Department of Insurance or the Better Business Bureau to determine if the company is authorized to do business in your state. Keep in mind that not all states regulate service contract providers and that many states exempt manufacturers from regulation.

-- While many "e-providers" offer competitive pricing and reputable service, use caution when purchasing a service contract over the Internet and guard against "phishing" scams; make sure you know who you are giving information to.

-- Maintain a dedicated file for contracts, receipts, and maintenance records and use the service contracts as often as needed and applicable to enhance product use and maximize investment.

A couple of more points from us: perhaps most important, prices for these warranties are very negotiable.

After you decide to buy a car or truck at the dealer, the F&I (finance and insurance) person will hold you captive in a hot, tiny room in the bowels of the dealership, and try to sell you everything from undercoating to roof racks to "stylish" wheels to upgraded audio to security and alarm systems --- they'll also offer a warranty.

It's at this point, if you decide you do want the warranty, that you turn-on your negotiating power (or what's left of it after going through the whole car-buying process). If the price for the warranty is $700, for instance, offer half that, and let the games begin.

But, depending on where you live, you may have up to a year to buy that new-car warranty, so don't let yourself be pressured --- there's really no hurry.

Take the time to make-up your mind; after you take the new car home, and you've talked with the F&I person about the warranty and know what their offer is, you can do some research and comparison shopping. In fact, in some states, you can buy a new-car warranty at any dealership which handles the same brand of car.

In future posts, we'll talk a bit about used car warranties (a relatively new phenomenon, and usually part of the new "certified used car" programs many manufacturers offer), how to make sure the warranty stays in-effect for its full time and mileage period, how and when to make a claim, what happens if you buy a car from a private party which has a warranty and more.

And if you have any specific questions on any automotive topic, or motor racing, or an idea for a blog post, don't hesitate to e-mail us at steveparker@roadrunner.com. Thanks!

Ten Ways Banks Take Your Money

2009-07-05T06:49:52Z

Consumers need to keep their guard up as financial institutions increasingly impose new fees and charges.

Banks and credit-card companies have gone on the offensive in advance of new consumer protections the Obama administration is asking Congress to enact. For many consumers, that could mean an unexpected financial sting.

"The fee income is becoming increasingly more important as interest income is falling as a percentage of total revenues," says Bob Hammer, chief executive of bank-card advisory firm R.K. Hammer.