The Bush Economy, 29 December 2008
- From: Curly Surmudgeon <CurlySurmudgeon@xxxxxxxx>
- Date: 29 Dec 2008 20:10:16 GMT
Crisis impact spreads
By Keith Weir and Claudia Parsons Keith Weir And Claudia Parsons 2 hrs 41
mins ago
LONDON/NEW YORK (Reuters) – The global financial crisis scuppered a $17
billion petrochemicals joint venture and drove three Japanese insurers
into merger talks, while data from Europe showed the region's economies
face a bleak 2009.
Israel's assault on Gaza added another element of risk to the mix on
Monday, sending oil and gold prices higher and weighing down the dollar.
"It's a terrible situation and it just seems to be again causing major
concerns for all the markets," Peter McGuire, managing director at
Commodity Warrants Australia, said of the Gaza violence.
Consumers, investors, central bankers and politicians are hoping to see
some signs of recovery next year from the worst downturn since the 1930s
as governments pump over $1 trillion into their ailing economies.
However, it looks like being a long haul everywhere.
U.S. stock indexes fell again as the collapse of a $17 billion joint
venture between Kuwait and Dow Chemical threatened to unravel one of the
large merger deals of the year and overshadowed gains in energy shares on
rising oil prices.
The planned Dow joint venture had angered some Kuwaiti parliamentarians
who said it was not economically viable amid the global financial crisis
and slumping petrochemical sales.
This year will see one of the biggest ever stock market falls. The U.S.
S&P 500 benchmark was down 41 percent with three trading days left in
2008. Its biggest yearly drop was in 1931 in the Great Depression when it
fell 47.1 percent.
The fallout has hit all sectors from banks to autos to commodities and
resources. Unemployment has climbed, house prices have plummeted and cash-
strapped consumers have curtailed spending, heaping more pressure on
companies struggling to survive recession.
Three big Japanese insurance companies were the latest firms considering
a merger to tackle a downturn that has hit demand for car and fire
insurance in the world's second-largest economy.
Shares of Mitsui Sumitomo Insurance Group Holdings Inc, Aioi Insurance Co
and Nissay Dowa General Insurance Co surged on Monday on hopes that a
merger would increase profits and reduce competition.
Data from South Korea underlined the broad impact of the crisis. Central
bank data showed consumer sentiment tumbled to a 10-year low in December
as household incomes fell and the jobs market worsened.
In Europe, sentiment among Italian businesses hit the lowest level
recorded in a monthly survey dating back to January 1991 and data showed
the French economy grew only 0.1 percent in the third quarter.
A report by Britain's Chartered Institute of Personnel Development
forecast as many as 600,000 people could lose their jobs in Britain next
year.
Russia devalued the rouble again on Monday and Kremlin leaders urged
government unity to deal with the biggest economic challenge in a decade.
CURRENCY MOVES
A surging yen was cited by analysts as part of the motivation for the
insurance merger, because it has eroded the value of the insurers'
foreign-currency assets.
Yen strength has prompted official concern, underscored on Monday by
Finance Minister Shoichi Nakagawa, who told the Financial Times that he
was watching volatility in the foreign exchange market with alarm.
The yen has surged more than 18 percent against the U.S. dollar this
year, slamming Japanese exporters like Toyota and Sony and triggering
speculation the government may intervene to halt the currency's rally.
"Every day I am looking at the market developments with a sense of alarm
and urgency," the paper quoted Nakagawa as saying in reference to yen
volatility in an interview.
The dollar fell, eroded by a grim economic outlook and concerns Israeli
attacks in the Gaza strip will destabilize the Middle East and threaten
oil supplies.
Sterling hit a record low against the euro, approaching parity with the
single currency, after reports pointed to a further slide in UK home
prices in 2009.
The Swiss franc jumped as well as gold and oil prices as Israeli
warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day.
"Geopolitics had disappeared from the oil scene for the last couple of
months but will regain some price premium with the latest Israeli attack
in Gaza," Olivier Jakob, of consultants Petromatrix, said in a research
note.
U.S. light, sweet crude was up $1.16 at $38.87 a barrel by 10:06 a.m.
EST, below a session high of $42.20.
Oil is on track for a nearly 60 percent loss this year, the biggest
annual fall since futures began trading 25 years ago.
http://news.yahoo.com/s/nm/20081229/bs_nm/us_financial/print
=====
Lehman bankruptcy filing wiped out billions: report
2 hrs 59 mins ago
NEW YORK (Reuters) – Lehman Brothers Holdings Inc's emergency bankruptcy
filing wiped out as much as $75 billion of potential value for creditors,
The Wall Street Journal reported on Monday, citing an analysis by the
bank's restructuring advisers.
A more planned and orderly filing would have allowed Lehman to sell some
assets outside of bankruptcy court protection and would have given it
time to unwind derivatives positions, according to the analysis by
Alvarez & Marsal.
The Journal said it was too early to say how much money Lehman creditors
would recover; it said unsecured creditors have asserted they are owed
$200 billion.
Lehman filed for bankruptcy protection in September after the U.S.
government declined to bail it out and a frantic weekend of negotiations
to save the investment bank failed.
The Lehman meltdown touched of a stock market panic and credit crisis and
was quickly followed by a government rescue of American International
Group Inc, once the world's largest insurer.
Lehman's demise also ignited a wave of fire sales of other giant
financial groups such as Wachovia Corp and Merrill Lynch & Co Inc.
Lehman executives were not immediately available to comment on the
Journal report.
http://news.yahoo.com/s/nm/20081229/bs_nm/us_lehman_bankruptcy
=====
US economy's gloom expected to begin lifting by late '09
By Ron Scherer Ron Scherer Mon Dec 29, 3:00 am ET
New York – The economic storm that has engulfed the United States – and
the world – is expected to continue for most of 2009.
If there is a silver lining, it is that as the year progresses,
economists expect the rate of decline in the economy to start to slow –
with some modest growth possible by the last quarter of the year.
Before the skies brighten, however, unemployment will rise, business
bankruptcies will accelerate, housing prices will continue to fall, and
consumer confidence will remain low, according to most forecasts.
"It's a struggle to say there is an upbeat outlook," says Richard
DeKaser, Washington-based chief economist at National City Corp. "We
would not call the forecast for 2009 optimistic."
Indeed, the worst of the economic news may be just arriving, economists
say. Consumer spending for the holidays will be the worst in years, even
with all the store promotions. Stores will continue to offer bargains
into 2009 in a desperate attempt to unload inventory. Weak consumer
spending will be one of the major reasons the economy as measured by the
gross domestic product (GDP) will shrink by as much as 4 to 6 percent on
an annualized basis in the fourth quarter.
Lagging economic growth at year-end is not a good sign for the New Year.
"You try to get a push off into the next year, and if you don't, it sets
the tone," says Dan Meckstroth, chief economist at Manufacturers Alliance/
MAPI in Arlington, Va.
By the end of March, the economy, as measured by GDP, will shrink another
4 percent on an annualized basis, estimates IHS Global Insight, an
economic forecasting concern in Lexington, Mass. By the second quarter,
the annualized rate of decline will slow to 1 percent, according to
Global Insight. Then the 2economy will grow by 1 percent in the third
quarter and by 2 to 3 percent in the final quarter of the year.
"You can't stop the economy from contracting in a big way in early 2009,"
says Nariman Behravesh, chief economist at IHS Global Insight.
Few areas in the US will escape the downdraft, says Mark Zandi, chief
economist at Moody's Economy.com in West Chester, Pa. "It will be
touching every industry, every occupation, every corner of the nation."
For example, Moody's now estimates that the economies of 33 states are in
recession, with most of the others close to shrinking as well. Less than
22 percent of the nation's metropolitan areas are experiencing job
growth, says Mr. Zandi. "That's the smallest percentage since 1975 and I
wouldn't be surprised if it falls to a new low in the months ahead," he
writes in an e-mail.
The shrinking economy means that unemployment will continue to rise
through most of 2009 even if the economy shows a modest gain by year-end.
The unemployment rate, currently 6.7 percent, could rise to 8 to 9
percent of the workforce. From peak to trough, Zandi estimates the
economy will shed 5 million jobs, mostly likely the worst performance
ever.
It could be worse. Even though business is trying to cut expenses, some
companies are trying to do it creatively, says Mr. Behravesh. "Some
senior executives at places like Federal Express and Caterpillar are
taking big pay cuts, and some workers are taking time off without pay,"
he explains. "As companies have learned, it's expensive to fire workers
and then retrain them again."
One of the areas likely to be worst hit is manufacturing. Economists
consider industrial production to be one of the best gauges of the
sector. Mr. Meckstroth estimates it will fall 1.4 percentage points on an
annualized basis this year. Next year is worse, with a drop of 4.2
percent. "If you don't include high tech, then industrial production will
fall 6.3 percent," he estimates. "Most of that decline will occur in the
first half of 2009."
A good portion of the decline in industrial production is from falling
business investment. "Business is cutting spending as fast as it can," he
says.
The auto sector, in particular, is expected to shrink, even with bailout
money from the government. For example, Meckstroth says Chrysler is
expected to merge with another automaker. "They have pretty much admitted
they don't expect to operate on their own," he says.
However, once the economy starts to improve, he anticipates that the
automakers will benefit. "We are seeing building pent-up demand," he
says. "The automotive fleet is getting older and repairs cost so much
it's cheaper to replace vehicles."
The weak economy means consumers are likely to continue to get a break at
the gas pump. The Energy Information Administration is estimating regular
grade gasoline will average $2.03 a gallon, down from about $3.27 a
gallon in 2008. "That will convert into a 1 percent tail wind for the
economy in 2009," says Mr. DeKaser.
Before the economy turns around, Congress is expected to have passed a
two-year fiscal-stimulus package that could be close to $800 billion.
Zandi estimates some of it might be some form of tax cut that moves into
the economy right away. The same would be true of an increase in food-
stamp eligibility and perhaps an increase in Medicaid funds to the states.
The incoming Obama administration, which has set a goal of creating 3
million jobs in two years, is also expected to ask for a sharp increase
in infrastructure spending.
"If they do shovel-ready infrastructure, that can be spent pretty
quickly," says Alice Rivlin, a senior fellow at the Brookings Institution
in Washington. "But it would be ill-advised to do too much of that."
Instead, she would like to see Congress spend some time planning the
types of spending the nation needs. "For example, there are new things
like medical technology where the money does not get spent right away,
but it's an investment in the long-run rate of growth of health spending.
It's not conventional stimulus."
The sharp rise in government spending may come at a cost to the economy,
worries Axel Merk of Merk Hard Currency Fund in Palo Alto, Calif. "It
will make it more difficult for the corporate sector to raise money," he
predicts. "There is a huge amount of corporate debt to be rolled over
next year."
Mr. Merk says banks' aversion to making loans will continue into 2009. As
the year ends, corporate bond spreads – that is the difference between
Treasury bills and investment-grade corporate debt – are at a record
high. "I think financial institutions are in a survival mode and that
will continue," he says.
http://news.yahoo.com/s/csm/20081229/ts_csm/aoutlook/print
=====
AP
GMAC quiet on bailout hurdle after deadline passes
Saturday December 27, 3:47 pm ET
By Kimberly S. Johnson, AP Auto Writer
GM's finance arm GMAC remains silent on final bailout hurdle even after
key deadline passes
GRAND BLANC, Mich. (AP) -- Even after a crucial deadline came and went,
the financing arm of General Motors Corp. remained silent Saturday on
whether it cleared a final hurdle to become a bank holding company and
gain access to billions in federal bailout money.
Analysts have speculated that if GMAC Financial Services LLC doesn't
obtain financial help it would have to file for bankruptcy protection or
shut down, which would be a serious blow to parent GM's own chances for
survival.
GMAC had received the Federal Reserve's approval to become a bank holding
company earlier in the week, but the approval was contingent on the
ailing auto and home loan provider completing a complicated debt-for-
equity exchange by 11:59 p.m. EST Friday.
In an e-mail early Saturday, GMAC spokeswoman Gina Proia did not provide
any specifics.
"The offer did expire yesterday at 11:59 p.m. as planned. We have not yet
issued final results but intend to in the near term. I have no further
comment on the exchange until then," she wrote.
Becoming a bank holding company would both qualify GMAC to access the
government's bank rescue funds and support GMAC loans to car buyers and
GM dealerships. GM owns 49 percent of GMAC.
The Federal Reserve apparently needed to see that bondholders were
willing to inject more capital into GMAC. The bondholders needed
reassurance that the Fed would approve GMAC's application to qualify for
federal aid.
If the auto lender failed to meet the exchange deadline, the
repercussions for General Motors could be dire, according to Erich
Merkle, an auto industry analyst with Crowe Horwath LLP.
General Motors' ownership of GMAC has kept the finance arm lending to
dealers and car buyers, even as credit from banks has dried up. If GMAC
goes under, other institutions aren't likely to step in to replace the
credit lost by GM's dealers and customers, Merkle said.
"It would make a difficult selling environment for GM that much more
difficult," Merkle said in an interview Saturday.
More than half of all new vehicle sales in the U.S. involve loans made at
the dealership through financing entities like GMAC, said Tom Libby, an
industry analyst at J.D. Power and Associates.
"When that source of credit dries up, it has an immediate negative impact
on the industry," Libby said in an interview.
The Fed's action Wednesday came as GMAC was struggling to get bondholders
to convert 75 percent of their debt into equity of the company.
GMAC's goal is to reach $30 billion in capital, the majority of which
would come from the exchange of debt. Another part of the equity
requirement included a demand from the Fed that $2 billion of the total
come from new equity. So far, GMAC has received a commitment of $750
million from GM and Cerberus Capital Management. It's unclear whether
that funding would come from the bridge loans the U.S. Treasury granted
GM and Chrysler LLC -- which is owned by Cerberus-- earlier this month.
GMAC has not said publicly how much it was requesting from the $700
billion bank bailout fund. CreditSights analyst Richard Hoffman estimated
in a research note Friday that GMAC "could have applied for up to about
$6.3 billion."
The Fed order says GM will reduce its stake to less than 10 percent of
the voting and total equity interest of GMAC. GM's remaining equity
interest in GMAC will be transferred to an independent government-
accepted trustee who must dispose of the equity held in the trust within
three years of the trust's creation.
Cerberus, which led an investment group that bought a 51 percent stake in
GMAC from the automaker for $14 billion in 2006, will reduce its stake in
GMAC to no more than 33 percent of total equity.
http://biz.yahoo.com/ap/081227/gmac_financing.html
=====
Reuters
JC Flowers and others close to IndyMac deal: source
Monday December 29, 8:06 am ET
By Paritosh Bansal
NEW YORK (Reuters) - A consortium of private equity and hedge fund firms,
including J.C. Flowers & Co, is close to a deal to buy the assets of
failed mortgage lender IndyMac, a source familiar with the matter said on
Sunday.
The prospective buyers also include Dune Capital Management, a private
investment firm run by former Goldman Sachs executives, and hedge fund
Paulson & Co, the source said.
The consortium would buy the bank and its 33 branches, IndyMac's reverse-
mortgage unit and a $176 billion loan-servicing portfolio, the source
said.
The presence of private equity and hedge fund firms comes after the FDIC
said last month it was expanding the pool of qualified bidders to include
those institutions that do not currently have a bank charter, although
they must have conditional approval for a charter from the responsible
agency.
The Federal Deposit Insurance Corp and IndyMac as well as the buyers in
the consortium could not be immediately reached.
Last week IndyMac spokesman Evan Wagner said a deal was expected before
the end of the year. The deadline for final bids for IndyMac's assets was
December 15.
FDIC estimates IndyMac's failure cost the agency $8.9 billion. Barclays
Capital and Deutsche Bank are advising the FDIC on the sale.
The mortgage specialist's IndyMac Bank unit was taken over by regulators
after it failed on July 11 in one of the largest bank failures in U.S.
history. At the time, it had $32 billion in assets and $19 billion in
deposits.
IndyMac Bancorp Inc (Other OTC:IDMCQ.PK - News), the holding company,
filed for Chapter 7 protection soon after with the U.S. bankruptcy Court
in Los Angeles, indicating it plans to liquidate.
Founded in 1985 by Angelo Mozilo and David Loeb, who also founded
Countrywide Financial Corp, IndyMac once specialized in "Alt-A" home
loans, which often didn't require borrowers to fully document income or
assets.
It collapsed after defaults mounted and as tight capital markets caused
losses on mortgages it couldn't sell.
The seizure came after panicked customers withdrew more than $1.3 billion
of deposits over 11 business days. The withdrawals followed comments in
late June by U.S. Sen. Charles Schumer questioning IndyMac's survival.
http://biz.yahoo.com/rb/081229/business_us_indymac.html
=====
Reuters
Two potential bidders shun Boston Globe, Red Sox
Monday December 29, 2:18 pm ET
NEW YORK (Reuters) - Two prominent Bostonians on Monday denied media
reports that they might try to buy the New York Times Co's Boston Globe
newspaper and a stake in the group that owns the Red Sox professional
baseball team.
Patrick Purcell, owner and publisher of the Globe's rival daily, the
Boston Herald, said he had not held discussions with and had not been
approached by potential bidders for the Globe. Former advertising
executive Jack Connors, meanwhile, told the Globe he is not interested in
the Times properties.
Purcell recently was hired as executive chairman of Ottaway Newspapers, a
group of local papers owned by Rupert Murdoch's News Corp. He continues
to run the Herald as a separate business.
He said a Financial Times report on Friday evening that described a
scenario of merging the Globe into News Corp and shutting down the Herald
"is completely unfounded and not rooted in reality."
A source close to News Corp told Reuters on Friday that the company is
not in discussions regarding that idea. Purcell's statement, released by
the Herald, said he wants to make sure that Boston remains a two-
newspaper town, an increasing rarity in the United States where
increasing numbers of papers face an uncertain future as readers desert
their print editions.
"Mr. Purcell is steadfast in his desire to keep two editorial voices in
Boston," the statement said.
Connors, who expressed interest in buying the Globe two years ago along
with former General Electric Co chief Jack Welch, told the Globe that he
was not interested in the paper or a 17.5 percent stake in New England
Sports Ventures, which owns the Red Sox.
The New York Times is seeking a buyer for its New England Sports Ventures
stake, a source familiar with the matter but not authorized to speak
about it told Reuters on Saturday.
The Wall Street Journal and Financial Times reported last week that the
Times had approached Connors. He could not be reached for comment. A New
York Times spokeswoman was not immediately available for comment, and a
spokeswoman for Welch declined to comment.
New England Sports Ventures owns the Red Sox, the Fenway Park field where
the Boston-based team plays, and 80 percent of the New England Sports
Network, a cable network that covers New England and broadcasts Red Sox
games.
The Times is shopping the stake as it tries to pay off debt and shore up
its cash resources as it faces a severe decline in advertising revenue at
its newspapers.
New York Times shares fell 85 cents or 12.14 percent to $6.15 on the New
York Stock Exchange on Monday afternoon.
http://biz.yahoo.com/rb/081229/business_us_newyorktimes.html
=====
--
Regards, Curly
------------------------------------------------------------------------------
23 Days More of George Walker Bush Plundering the Economy
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