Sunday, April 19, 2009

Recession? ... Depression? ... What is Going On? (Part 3)

Part 1 ( 06 October 2008)
Part 2 (02 February 2009)
Harley-Davidson slashes 1,000 jobs as profits skid
16 Jul 2009
WASHINGTON: US motorcycle maker Harley-Davidson said Thursday it would cut 1,000 more jobs this year after a devastating second quarter as the
global recession slashed sales. The Milwaukee, Wisconsin-based company announced the new job cuts along with a 91 percent plunge in second quarter net profit from a year earlier. Earlier this year the company had said it planned between 1,400 and 1,500 job cuts over the next two years and would close two factories to realign production with softer demand. "While the underlying fundamentals of the Harley-Davidson brand remain strong and our dealers' retail motorcycle sales declined less than our competitors, it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases," said Harley-Davidson president and chief executive Keith Wandell. Harley-Davidson reported net profit fell to 19.8 million dollars in the second quarter. Worldwide retail sales of its iconic motorcycles plummeted 30.1 percent from a year ago.
California To Begin Issuing IOUs; Gov. Declares Fiscal EmergencyThursday, July 02, 2009
Today, California Controller John Chiang (D) is expected to begin printing 28,742 IOUs to cover $53.3 million in state payments, the Los Angeles Times reports.
The IOUs became necessary after lawmakers failed to reach a budget agreement before the start of the new fiscal year yesterday (Rothfeld/Goldmacher, Los Angeles Times, 7/2).
If legislators fail to pass a budget plan by the end of the month, Chiang is expected to issue almost $3.4 billion in IOUs to individuals, vendors, social service providers and others.
Certain obligations, such as state employee paychecks, cannot be paid with IOUs.
However, California can issue IOUs to cover most health and welfare programs, including facilities that receive funds from Medi-Cal, California's Medicaid program (Sweeney, San Diego Union-Tribune, 7/2).
Deficit Grows
The Legislature's failure to pass any budget stop-gap measures this week propelled the state's deficit to swell by an additional $2 billion.
Gov. Arnold Schwarzenegger (R) now projects the total shortfall at $26.3 billion.
Mike Genest, director of the Department of Finance, said the deficit could grow by an additional $1 billion if legislators do not approve a budget plan by the end of July (Yi, San Francisco Chronicle, 7/2).
Fiscal Emergency DeclaredYesterday, Schwarzenegger declared a fiscal emergency for California and called a special legislative session under Proposition 58.
Proposition 58 gives legislators 45 days to send a budget plan to the governor's desk. If lawmakers fail to reach an agreement within 45 days, legislators would be prohibited from taking up any other measures until they resolve the deficit (Office of the Governor release, 7/1).
Senate President Pro Tempore Darrell Steinberg (D-Sacramento) also canceled all hearings on bills unrelated to the budget (Los Angeles Times, 7/2).
Schwarzenegger said that until lawmakers present a plan to cover the entire deficit, he will not sign any bills except those that are urgent and absolutely necessary (San Francisco Chronicle, 7/2).
As economy drops jobs, paychecks drop some weightBy Jeannine Aversa, AP Economics Writer
Thursday, July 2, 2009
(07-02) 14:29 PDT WASHINGTON (AP) --
Americans lucky enough to still have a job are noticing something unpleasant in their paychecks: They're making less money.
Employers cut 467,000 jobs in June, far more than expected, and the jobless rate hit a 26-year high of 9.5 percent. Just as worrisome, wages shrank to their lowest in nearly a year.
The bleak news Thursday from the Labor Department underscored one of the big threats to an economic turnaround: Rising joblessness and falling wages for those still working could send Americans back into spending hibernation and short-circuit any recovery.
President Barack Obama acknowledged concern. "What we're still seeing is too many jobs lost, too many families who are worried about whether they're going to be next in terms of job loss, or whether they can find another," he told The Associated Press.
The falling wages come from furloughs, pay freezes and pay cuts imposed by employers across the country. Many also have cut hours: The average work week in June fell to 33 hours, the lowest on records dating to 1964.
Nathan Bieber, 26, who works at Einstein Bros. Bagels in Phoenix, works 28 to 30 hours a week now, down from his previous 37 — a loss of up to $100 weekly. He's canceled his Internet service and deferred payments on student loans six times.
His wife, who is legally blind and works at another Einstein Bros. location, has had her hours slashed from 30 to 15. They rely on her disability pay for rent and the electric bill.
"If it weren't for that," he said, "we'd be homeless."
The bleak jobs news sent stocks sinking. All the major stock indexes finished down more than 2.5 percent, including a 223-point drop for the Dow Jones industrials, its worst performance in more than two months.
Job losses had decreased every month since January, but they rose in June. The 467,000 job losses were up from 322,000 in May and far worse than the 363,000 economists were expecting.
By comparison, the rise in the unemployment rate for June was small, up just a tenth of a percentage point to 9.5 percent. Many economists predict it will hit 10 percent this year and keep rising into next year before falling back.
Including laid-off workers who have given up looking for jobs or have settled for part-time work, the so-called underemployment rate was 16.5 percent in June — the highest on records dating to 1994.
The recession has taken out 6.5 million jobs in about a year and a half. All told, nearly 15 million people were considered unemployed in June.
"Whatever is available, you kind of have to take it," said Shirley Walker, 58, who lost her job running a nonprofit in Orlando, Fla. "If you've been out there working, and you have a career, now it's like starting a career all over again."
Illustrating how hard it is to land a job, 29 percent of the unemployed have been out of work six months or longer. That's the most on records dating to just after World War II. The unemployment rate for teenagers is 24 percent, the highest since 1983.
Average weekly earnings fell about $2 in June to $611.49, the lowest in nearly a year and the first month-to-month drop since March.
Federal Reserve Chairman Ben Bernanke has predicted the recession, the longest since World War II, will end later this year. And most economists still think that will happen.
But the strength of any recovery will depend heavily on Americans' willingness to borrow and spend. And they have been using more of their income to save or pay down debt.
"The job market will become the Achilles' heel of the coming recovery," said Sung Won Sohn, an economist at California State University, Channel Islands.
Last month's job losses were widespread. Professional and business services slashed 118,000 jobs. Manufacturers cut 136,000, construction companies 79,000, retailers 21,000. Education and health services were among the few industries hiring.
Economists said a chunk of the job losses probably came from plant shutdowns at General Motors Corp. and by other auto industry troubles that may ease later this summer.
The White House last week said federal stimulus money was being shoveled out of Washington quickly but states aren't steering the cash to counties that need jobs the most. Much of the benefit of Obama's increased government spending on big public works projects won't kick in until 2010, analysts say.
"We are in some very hard and severe economic times," Labor Secretary Hilda Solis said in an interview Thursday. "The president and I are both not happy."
Still, Solis said it was too early to consider a second government stimulus, saying more time is needed for the first one to take hold. "I do think the public needs to be patient," she said. "We know they are hurting."
California to see record number of hotel foreclosures
26 June 2009
AMHNN Newswire
IRVINE, Calif., June 26 – The number of California hotels in default or foreclosed on jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default, according to California-based Atlas Hospitality.
With 19.6% of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County follows with 16.1% and San Diego County has 12.9%. Los Angeles County, with 12% of the total, has the most hotels in default. San Bernardino County is next with 9.7% and San Diego County follows with 8.0%.
Non-franchised hotels account for a disproportionate number of foreclosures. They make up about 87% of the total. However, franchised otels make up 59% of the defaulted properties.
Initially, the wave of distress in California was seen by the smaller, non-flagged hotels in secondary and tertiary markets. As the hotel conomy worsened, we have seen it impact all property types. The properties range from the luxurious St. Regis Monarch Beach Resort in Dana Point to the more economical Extended Stay and Red Roof Inn chains.
No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing. Unfortunately, based on today’s market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenues (California is down 21.5% year-to-date) combined with the jump in cap rates has resulted in a massive loss in values. We estimate that values are currently 50-80% lower than at the market’s peak in 2006-2007.
Another Hotel Defaults on Mortgage Debt
by CalculatedRisk on June/23/2009
From the WSJ: Red Roof Inn Defaults on Mortgage Debt (hat tips to all in the comments!)
Red Roof Inn Inc. ... defaulted on $332 million of mortgage debt ... Red Roof confirmed the defaults Tuesday.All told, Red Roof's properties carry at least $1 billion in debt, including mortgages, mezzanine loans and other notes. "As a result of the extraordinary stress in the hospitality industry and the economy overall, we have entered into some restructuring discussions with our lenders," said Andrew Alexander, an executive vice president of Red Roof....Occupancy at Red Roof's properties, which averaged 62% when the mortgages were originated in 2007, sank to 50.7% in the first four months of this year.
The drop in occupancy rates are similar to the overall industry decline. And not only are occupancy rates off sharply, but so are room rates. Smith Travel Research reported last week that revenue per available room (RevPAR) was off 18.6 percent for the comparable week last year. I think this is just the beginning for the hotel related defaults.
Simon Halabi’s Companies Default on $1.9 Billion Debt By Chris Bourke
June 19 (Bloomberg) -- Billionaire investor Simon Halabi’s real estate companies defaulted on 1.15 billion pounds ($1.9 billion) of bonds backed by nine London office buildings as the recession cut the value of the properties by about 50 percent.
The properties, including JPMorgan Chase & Co.’s offices at 125 London Wall and 60 Victoria Embankment, are now worth less than the value of the loans that back them, loan manager Hatfield Philips International Ltd. said in a statement today.
The buildings were valued at 929 million pounds as of June 8, down from 1.83 billion pounds in October 2006, Hatfield Philips said. Halabi’s companies borrowed against the buildings in 2006. The debt, which was packaged into bonds, expires in October. It’s the U.K.’s largest mortgage bond issue maturing this year, according to Bloomberg data.
Halabi’s companies have 10 business days to make good on the default, according to the statement. Kamlesh Bathia, finance director at Halabi’s investment company, Buckingham Securities Holdings Plc, declined to comment.
Fitch Ratings Ltd. downgraded the bonds on June 5, citing the prospect that JPMorgan would move from Halabi’s buildings. Fitch also said the notes were unlikely to be repaid when they expire.
White Tower 2006-3 Plc issued the commercial mortgage- backed securities. The properties they back have combined space of 2.2 million square feet (202,124 square meters), according to a Hatfield Philips report. Most are in the City of London, where some of the largest banks and insurers have their headquarters, and the West End. They include the U.K. headquarters of insurance group Aviva Plc, the Aviva Tower.
Sold Shard StakeHalabi’s other assets include the Naval and Military Club on London’s Piccadilly; and Mentmore Towers, the former home of Baron Mayer de Rothschild in Buckinghamshire, England. He was one of the original backers of the planned London skyscraper called the Shard before selling his stake last year.
Halabi started as a director of real estate investment company Property Trust in the 1980s. The Syrian-born investor is worth about $4 billion, according to Forbes magazine. He bought health chain Esporta for around 460 million pounds in 2006, using 330 million pounds of debt from Societe Generale, according to Eurohypo AG research.
Halabi was among investors that banks lent money to during a property boom fueled by the growth of securitization.
To contact the reporter on this story: Chris Bourke in London at
'Cash-for-Clunkers' Bill Passes in Bid To Revive Car Sales
Trade-In Plan Set for Obama's SignatureBy Kendra Marr
Washington Post Staff Writer
Friday, June 19, 2009
The Senate approved a $1 billion program yesterday to give vouchers to consumers who trade in their gas-guzzling clunkers for more fuel-efficient models -- a move that dealers hope will revive slumping auto sales.
Congressional leaders attached the legislation to a $106 billion spending bill to fund troops in Iraq and Afghanistan. The spending bill passed by a 91 to 5 vote but not before some Republican lawmakers unsuccessfully sought to strip the measure from the bill.
"Let's not add a billion dollars of unnecessary debt," said Sen. Judd Gregg (R-N.H.) during the Senate floor debate.
Dealers, unions, trade groups and automakers have been lobbying for months for the legislation in hopes that it would stop the streak of dismal U.S. auto sales.
"The simple fact is that we need to get Americans into car showrooms, and this is the bill that will do it," Rep. Candice S. Miller (R-Mich.), a co-sponsor of the legislation, said in a statement.
The auto sales program, which offers vouchers of up to $4,5000, now moves to the White House for the president's signature. President Obama has repeatedly encouraged Congress to pass a so-called cash-for-clunkers bill.
Consumers would be able to start using the vouchers as soon as the National Highway Traffic Safety Administration finalizes the rules -- a process that must conclude within 30 days of the president's approval.
Under the program, trade-in vehicles, 1984 models or newer, must have average fuel economy of no more than 18 miles per gallon. And the new car or truck must get better gas mileage than the one that was scrapped.
The payoff grows depending on the difference in the fuel efficiencies of the old and new cars. For instance, a new car getting at least 4 more miles per gallon than the old car will be eligible for a $3,500 voucher. A new car getting at least 10 more miles per gallon would get a $4,500 voucher. To guarantee vehicles are actually roadworthy -- and not just sitting on cinder blocks -- trade-ins must be registered and insured to the same owner for at least a year.
Speaking on the Senate floor, Sen. Carl M. Levin (D-Mich.) said the program "will provide a much-needed boost to the automobile industry."
The legislation's funding would last through the end of the fiscal year, Nov. 1. But some lawmakers are already pushing to expand the program.
Several other countries, such as China and Italy, have offered similar trade-in vouchers. And lawmakers point to the success of Germany's program as indication that vouchers can turn dismal auto sales around.
At the end of the program's first month, sales in Germany were up 21 percent from a year before. During the same period, U.S. sales slumped 41 percent.
Dealers applauded the Senate's action yesterday, and some got additional good news. GM said it had decided to keep 60 of the more than 1,000 dealers with whom it had sought to terminate agreements. The reversals were made after the automaker corrected financial information that was used to evaluate which stores to keep.
The company, which is operating under bankruptcy protection, declined to name the individual dealers.
Smoot-Hawley Lives
The United States is Canada’s largest trading partner, ProtectionismBy Matthew Vadum
Sunday, June 7, 2009
As I wrote previously, it seems as if the disastrous Smoot-Hawley protectionist statute has been quietly revived. Protectionism has come back to America, and only now have we begun to notice. Predictably, the Canadian Federation of Municipalities has endorsed a plan to support communities that refuse to buy products from countries that slap trade restrictions on Canadian products and services, Reuters reports:
The measure is a response to a provision in the U.S. economic stimulus package passed by Congress in February that says public works projects should use iron, steel and other goods made in the United States.
The United States is Canada’s largest trading partner, and Canadians have complained the restrictions will bar their companies from billions of dollars in business that they have previously had access to.
“This U.S. protectionist policy is hurting Canadian firms, costing Canadian jobs and damaging Canadian efforts to grow our economy in the midst of a worldwide recession,” said Sherbrooke, Quebec, Mayor Jean Perrault, also president of the federation that represents cities and towns across Canada. [...]
It’s only going to get worse.
US retailers report May sales declines
By: Mae Anderson, Associated Press
NEW YORK — U.S. retailers reported same-store sales fell in May below expectations, as pressures like rising unemployment continued to curtail consumer spending.
Luxury chains and department-store operators continued to be the weakest sectors, with discounters and teen apparel retailers such as The Buckle Inc. stronger. Cheap chic discounter Target reported a bigger drop than analysts expected, as apparel and home products continued to be weak sellers. Overall, necessities like food and health care products continued to be the strongest sellers.
Notably, Wal-Mart Stores Inc., the world's largest retailer did not report results this month, making conclusions about the broader economy more difficult, said Ken Perkins, president of retail consulting firm Retail Metrics LLC. He said Wal-Mart accounts for about 10 percent of retail sales.
The world's largest retailer also has been a standout in recent months. "Wal-Mart has been lifting everybody for the last year and half," Perkins said.
Elsewhere, "the trends we've seen through the first quarter are continuing," said Stifel Nicolaus analyst Richard Jaffe. "The consumer has voted with their pocketbook, they want better value and higher quality at better prices."
According to a preliminary tally a tally by Goldman Sachs and the International Council of Shopping Centers same-store sales fell 4.6 percent, worse than the 3 percent predicted.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones. Economists closely monitor consumer spending because it accounts for about 70 percent of U.S. economic activity.
ICSC Chief Economist Michael Niemira said while many sectors were weak, but some individual retailers reported improved results.
"I think that's important from the standpoint that you'll see change more generally coming from individual stories at this stage in the cycle," he said. "That's encouraging even though the number is by no means encouraging."
One particular success story for the month was Gap Inc.'s Old Navy, which reported a 3 percent same-store sales increase, compared with a 25 percent drop last year. The company has been working to turn around the struggling chain, which focuses on value. Still, Gap's overall same-store sales fell 6 percent, worse than expectations.
"There's general softness across the board, as consumers continue to face rising unemployment, falling home values and rising gas prices," said Ken Perkins, president of retail consulting firm Retail Metrics LLC. He expected same-store sales to fall 3.6 percent overall. "One good sign so far is that results aren't coming in drastically worse than expected, so maybe there is stabilization taking place here."
Target same-store sales fell 6.1 percent, a bigger drop than the 4.3 percent analysts expected. Non-discretionary items such as healthcare and baby products and food were the best sellers, while apparel and home products were weaker.
Warehouse club operator Costco Wholesale Corp. said same-store sales slipped 7 percent in May, mainly due to lower year-over-year gas prices. Its strongest categories included fresh food and other food products.
Meanwhile BJ's Wholesale Corp. said same-store sales fell 6.8 percent, also hurt by lower gas prices, while analysts predicted a 4.4 percent decline. Traffic was up 5 percent compared with a year ago, however. Food, TVs and computer equipment were the strongest sellers.
Clothing discounter TJX Cos. — which said same-store sales rose 5 percent, above expectations — also said traffic increased.
Department-store operator Macy's Inc. said same-store sales slipped 9.1 percent, slightly above the 9.3 percent drop Wall Street expected.
The teen sector continued to be among the best performing sectors, with low-price stores doing the best. The Buckle Inc. and Aeropostale Inc. both known for good deals on trendy fashions, reported double-digit increases.
However, Abercrombie & Fitch — which has kept prices high despite competitors' markdowns — said same-store sales fell 28 percent. Last month, Abercrombie finally bowed to pressure and said it has started to reduce prices.
Limited Brands, which operates Victoria's Secret and Bath & Body Works stores, said same-store sales fell 7 percent, matching analyst expectations.
Luxury retailers continued to struggle. Saks Inc.'s same-store sales fell 26.6 percent, while Nordstrom reported a 13.1 percent drop.
California will run out of cash in 14 daysKathy Robertson
Pacific Business News (Honolulu)
Tuesday, June 2, 2009
The state wallet is empty. The bank closed. Credit has dried up, Gov. Arnold Schwarzenegger told lawmakers in a special Tuesday morning address at the Capitol.
“California’s day of reckoning is here,” he said. With no action, the state will run out of cash in 14 days. Three months after the state budget was approved, California faces a $24 billion deficit.
Schwarzenegger has already proposed massive cuts to education, health care and prisons. Now he’s looking for structural reform to make government more efficient and stretch taxpayer dollars.
He’s asked the State Board of Education, for example, to make textbooks available in digital formats — a move that could save millions.
In 2004, the governor talked about blowing up boxes and consolidating agencies, but the initiatives never gained traction.
They’re back.
Schwarzenegger is proposing once again to eliminate and consolidate more than a dozen state departments, boards and commissions. This includes the Waste Management Board, the Court Reporters Board, the Department of Boating and Waterways and the Inspection and Maintenance Review Committee.
Earlier this year, the state began consolidating information technology departments.
Now Schwarzenegger wants to consolidate departments that oversee financial institutions and merge tax collection operations. In July, state leaders will receive recommendations on how to modernize the tax code.
“This will be a tremendous opportunity to make our revenues more reliable and less volatile and help the state avoid the boom and bust budgets that have brought us here today,” Schwarzenegger told lawmakers.
It’s not going to happen in 14 days, he said. But it could happen before the Legislature adjourns for summer recess on July 17.
Obama's job claims 'obnoxious and outrageous'
Economist blasts stimulus bluster, possible European-style sales tax
Posted: May 30, 2009
© 2009 WorldNetDaily
President Barack Obama says his mammoth 787 billion dollar stimulus plan has saved or created 150,000 jobs in the first 100 days since it cleared Congress.
J.D. Foster, a senior fellow in economics at the Heritage Foundation, argues Obama's claims of job creation are "obnoxious and outrageous." and that despite the spin, the U.S. has lost some "2 million jobs" since Obama took office."When the economy is contracting as rapidly as it is and we're losing jobs as rapidly as we are, it is just outrageous for the president to stand up and say that his program has created any specific number, or any number of jobs at all," he added.
Foster spoke with Greg Corombos of Radio America/WND. The audio of the exchange is embedded here:
"Whatever happens with employment we know the stimulus had nothing to do with it," he continued. "You can't create jobs by the federal government spending money ... you can create jobs in specific sectors ... but for every job you create in a specific sector ... there's a job lost somewhere else."
Foster isn't surprised Obama is said to be considering "a very sophisticated national sales tax" to pay for the ballooning deficit and to fund his government-run health care program.
The European-style value-added tax is "a money maker of the first order."
According to Foster, if the value-added tax were implemented, along with the other tax hikes proposed in Obama's budget, the U.S. "would begin to make France and Germany look like low-tax countries."
"This is a very dangerous place to be in, the economy cannot sustain that, the American family cannot sustain that," Foster said.
"The problem is the president wants to make government the dominate force in our economy and in our lives, that's wrong, we should shrink the government."
About 12 percent of U.S. homeowners late paying or foreclosedBy Lynn Adler
May 28, 2009;_ylt=AhSd0_KAi865DmPTiTB1jnd0fNdF NEW YORK (Reuters) – One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday.
U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs.
Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year.
"We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview.
The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates.
Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent.
"The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers."
A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis.
Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group.
Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter.
"It's an important reminder that just because the housing market was one of the causes of recession ... it won't be the first sector of the economy to return to normal," said Jed Kolko, associate director of research at the Public Policy Institute of California in San Francisco.
Federal mortgage modification and refinance programs will keep delinquencies and foreclosures from spiking even more than they would otherwise, housing analysts said.
"Even if the recession officially ended soon, in the sense of GDP turning positive again, the continued rising unemployment rate and the re-set of existing adjustable-rate mortgages would continue to aggravate both foreclosures and delinquencies," Kolko said.
The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier.
California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts.
Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards.
"Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said.
When a house is "under water," its price has fallen below the size of the mortgage.
Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes.
Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans.
The freezes artificially tempered new foreclosures before federal loan modification programs took root.
But loans that had already been modified often re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, he added.
Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said.
On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent.
The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.
Chrysler Eliminates 789 Dealers, 25% of Total
Tyler Durden
Thursday, May 14, 2009
In bankruptcy court earlier, Chrysler filed an initial salvo in its quest to trim its cost side from uber-bloated to merely bloated. The list presented [at website], highlights the 789 dealers (out of a total of 3,200) that Chrysler has decided to eliminate at the first possible opportunity. Zero Hedge is attempting to evaluate the geographic fallout of these massive initial cuts, and will present its readers with the results as soon as practicable. If you are a dealer and you are on the list: tough luck - you may have a chance to appeal, but the process will likely be a moot point. However Zero Hedge summons all dealers and readers to show up at the designated hearing date in New York bankruptcy court, before the honorable Judge Gonzalez at One Bowling Green, on June 3, at 10:00 am. Should make for a very exciting hearing.
Desperate ‘baby boomers’ return to workBy Sarah O’Connor in Washington
Published: May 8 2009
Eva Coffey had planned to fill her retirement with sewing and good deeds. She would make uniforms for the school band and flags for its cheerleaders.
Instead, the 60-year old spent last week driving a school bus and is worrying about how she will replace her $17.50-an-hour wage when that work dries up in the summer. “I’m not going to retire. Can’t afford it,” she says, sipping soup in a Chinese noodle joint in Springfield, Virginia. “You still have to put the food on the table and the gas in the car.”
Instead of pushing older Americans like Ms Coffey out of work, the economic slump has forced more of them back into it. Since the recession started in December 2007, some 5.7m US workers have lost their jobs, pushing up the unemployment rate to 8.9 per cent, data showed on Friday. But the number of over-55s in work has risen more than 800,000.
The impending retirement of America’s 78m-strong “baby boomer” generation has caused consternation among policymakers for years. Now the “silver tsunami” may be on hold. “Older workers are actually coming into the labour force – many are finding jobs,” says Richard Johnson, a senior fellow at the Urban Institute. “It is being driven by economic insecurity . . . they have become so desperate that they are returning to work.”
The collapse in share prices and property eroded the value of assets many older people thought would sustain them. Ms Coffey and her husband have two townhouses as investments, but these have dropped in value from $450,000 each to $275,000 for the pair. Their savings, which were largely in mutual funds, have halved. An extension to their kitchen sits half-finished, with walls but no appliances.
The participation of older people in the labour force has been growing as health and life expectancy improves. Before the recession, about 15 per cent of baby-boomers said they intended to work until they died. That has risen to more than 25 per cent, according to one survey.
“We did expect people would continue to work longer,” says Bob Skladany at RetirementJobs, a recruitment website. “What we did not expect was this economic crush, which has propelled retirees back to work.”
Older people face mixed fortunes in the recession-ravaged labour market. Some have skills and experience sorely in demand. An ex-nurse “could have purple hair and be 72 and still get hired”, quips Mr Skladany.
Ms Coffey has an accounting background, but has struggled to find such work because technology has moved on. “I could take a set of books from nothing . . . and bring it all the way through to financial statements, tax returns and everything else,” she says. “But tell me how to do it on the computer!”
Older people without highly valued skills are taking low-paying jobs in shops, hotels and restaurants. “I was thinking of checking out Wal-Mart,” Ms Coffey says. “I’m sure there are so many people looking for work there’s probably not going to be much of anything out there . . . I may be in for a rude awakening.”
Free cars for poor fuel road rageBy Hillary Chabot
Thursday, May 7, 2009 Gov. Deval Patrick’s free wheels for welfare recipients program is revving up despite the stalled economy, as the keys to donated cars loaded with state-funded insurance, repairs and even AAA membership are handed out to get them to work.
But the program - fueled by a funding boost despite the state’s fiscal crash - allows those who end up back on welfare to keep the cars anyway.
“It’s mind-boggling. You’ve got people out there saying, ‘I just lost my job. Hey, can I get a free car, too?’ ” said House Minority Leader Brad Jones (R-North Reading).
The Patrick administration decided last month to funnel an additional $30,000 to the nearly $400,000 annual car ownership program.
The program, which is provided by the State Department of Transitional Assistance, gives out about 65 cars a year, said DTA Commissioner Julia Kehoe.
The state pays for the car’s insurance, inspection, excise tax, title, registration, repairs and a AAA membership for one year at a total cost of roughly $6,000 per car.
The program, which started in 2006, distributes cars donated by non-profit charities such as Good News Garage, a Lutheran charity, which also does the repair work on the car and bills the state.
Kehoe defended the program, saying the state breaks even by cutting welfare payments to the family - about $6,000 a year.
“If you look at the overall picture, this helps make sure people aren’t staying on cash assistance. It’s a relatively short payment for a long-term benefit,” Kehoe said.
But Kehoe admitted about 20 percent of those who received a car ended up back on welfare, and while they lose the insurance and other benefits, they don’t have to return the car.
“Given the state’s fiscal condition, paying for AAA and auto inspection costs is outrageous,” said Senate Minority Leader Richard Tisei (R-Wakefield). “There are so many families out there trying to deal with layoffs and pay cuts. You have to wonder what the state’s priorities are at this point.”
Applicants for cars must have a job or prove they could get one if they had the car in order to qualify. Once they have the wheels, they must send DTA their pay stubs to prove they are employed.
To get the cars, they must be unable to reach work by public transportation and have a clean driving record. The program is only available to families on welfare with children.
Kehoe said the bulk of cars go to places with less public transportation, such as Fitchburg, New Bedford and Lowell.
“I can’t believe there are no restrictions on how they use the car,” Jones said. “I just don’t see this as a core function of government.”
General Growth files largest U.S. real estate bankruptcyBy Ilaina Jonas and Emily Chasan
Apr 16, 2009
NEW YORK (Reuters) – General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on Thursday in the biggest real estate failure in U.S. history.
Ending months of speculation, General Growth, along with 158 of its 200-plus U.S. malls, filed Chapter 11 while it tries to refinance its debts.
But the ongoing global financial crisis made it impossible for General Growth to restructure outside of bankruptcy and could signal further troubles for other financial institutions who are General Growth creditors.
The collapse underscores the pressure on U.S. commercial real estate with few sources of available funding.
The company received approval on Thursday from federal bankruptcy Judge Allan Gropper to use its cash collateral to operate its businesses during bankruptcy.
Chicago-based General Growth, which owns such valuable properties as South Street Seaport in New York, Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston, listed total assets of $29.56 billion and total debts of $27.29 billion.
The collapse marks a sad chapter for a company that has been growing since 1954, when brothers Martin and Matthew Bucksbaum decided to expand their family's grocery business and build a shopping center in Cedar Rapids, Iowa.
The company expanded steadily through both building and buying malls, the largest acquisition being the 2004 purchase of high-end mall owner Rouse Cos for $14.2 billion. That deal, financed entirely with debt, added 37 valuable U.S. malls to its portfolio, but also added enormously to its debt load.
"There are quite a few companies out there on the buyside who can now buy properties at a deep discount," said Anthony LoPinto, chief executive of real estate executive search firm Equinox Partners. "A lot of fortunes are going to be made out of the Bucksbaums' misfortune."
Since November, General Growth had been warning it might seek protection from its creditors due to its failure to refinance maturing mortgages. Earlier this month, the company had tried to restructure Rouse bonds, but failed to get the necessary support.
"When we did not achieve the necessary amount of agreement on the bond solicitation, at that point we recognized that it was conceivable that we would not get the time outside of bankruptcy that we had hoped for to work on a restructuring," General Growth President Thomas Nolan told Reuters.
The company's collapse is not expected to be an isolated event. About $814 billion of commercial mortgage debt is expected to mature over the next two years, according to real estate research firm Foresight Analytics.
"We will see a significant rise in delinquent and defaulted mortgages in commercial real estate above and beyond what we already experienced," said Sam Chandan, president and chief economist at Real Estate Economics.
The Wall Street Journal reported on Thursday that the Federal Reserve was considering offering longer loans to investors in commercial mortgage-backed securities to help jump-start the market for commercial real estate debt.
Searching for AnswersGeneral Growth said in a statement that it would keep exploring strategic alternatives during bankruptcy protection, from which it is seeking to emerge as quickly as possible through a reorganization that preserves its national business.
Its filing in the U.S. Bankruptcy Court in Manhattan makes it one of the largest nonfinancial companies to succumb to the global financial crisis and is the biggest bankruptcy of a U.S. real estate company, according to
General Growth had previously put several of its flagship properties, including all three of its Las Vegas malls, up for sale.
Analysts and other real estate experts have speculated that mall owners Simon Property Group Inc -- the largest U.S. mall owner -- and Australia's Westfield Group would be interested in buying some of General Growth's assets from bankruptcy.
"Their stock of malls in the U.S. is pretty good -- they are decent quality retail real estate. And I imagine the market reaction if there are any sales of their assets will be positive," said Bruce Nutman, UK head of retail capital markets at CB Richard Ellis.
General Growth said its properties would be open for business and operating as usual.
"Our core business remains sound and is performing well with stable cash flows," General Growth Chief Executive Adam Metz said in a statement. "While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11."
The company's fortunes have not been helped by the slowdown in U.S. consumer spending. While retailers should not see an immediate negative impact from the filing, there could be long-term concerns about leases and property maintenance, sources told Reuters.
Ackman and the Dip
General Growth has received a debtor-in-possession financing commitment of about $375 million from Pershing Square Capital Management LP as agent.
Pershing Square, the hedge fund run by William Ackman, owns about 25 percent of General Growth shares and had been urging the company to file for bankruptcy.
Activist investor Ackman is joining General Growth's board -- an unusual step. DIP lenders typically do not get involved with managing a company during restructuring.
"We're going to be very actively working with the company to reorganize it," Ackman said in an interview with Reuters.
"This company is doing fine. Its problem is that it can't get mortgages, but nobody can get a mortgage now," he added.
At the end of 2008, about $15.17 billion of General Growth's debt consisted of mortgage loans that had been securitized into commercial mortgage-backed securities, according to research firm Trepp.
"This underscores that real estate companies are most vulnerable to refinancing risk rather than market risk," said Nomura's London-based property analyst Mike Prew.
General Growth shares were halted and eventually suspended by the New York Stock Exchange on Thursday. In premarket trade, they had fallen some 43 percent to 60 cents. The shares hit a 52-week high of $44.23 in May 2008 and a lifetime high of more than $67 in early 2007.
While General Growth bonds were not trading, Rouse's 5.375 percent notes due 2013 rose to 37.5 cents on dollar versus 29.25 cents on Wednesday, according to MarketAxess.
General Growth's refinancing troubles led to the firing of former CFO Bernard Freibaum in October. John Bucksbaum, who succeeded his father Matthew in 1999, stepped down as CEO the same month, but he remained chairman.
The company has hired law firms Weil Gotshal & Manges and Kirkland & Ellis to represent it, according to court papers. Pershing Square has hired law firm Jones Day and lead attorney Robert Profusek to represent it.
Recession depressionFear can fuel mental depression during an economic recessionBy Sharon Kirkey, Canwest News Service
March 2009
Panic attacks, obsessive thinking and binge drinking. More anxiety and depression. Psychotic episodes in people vulnerable to them.
The deepening economic turmoil will bring a worsening of anxiety, personality and mood disorders, experts believe.
They also see another danger: worrying itself can turn catastrophic predictions into self-fulfilling prophecies.
People who panic do dangerous things, says Frank Farley, past president of the American Psychological Association and a native of Edmonton. "Some jump out of windows. Other people walk away from the life they're in. They leave their families, or they don't look after themselves and begin thinking, 'It's all over for me', and so, down they go."
New research suggests increased emotional reactions to constant strains and constant worry may even trigger psychosis-like experiences — feeling suspicious, hearing voices others can't hear, seeing things that aren't there — especially in those genetically at risk.
Some experts believe the recession will be enough, in and of itself, to push people over the edge into major mental illness.
One of the greatest sources of human fear and anxiety can be captured in a single word, they say: uncertainty.
People with anxiety are "allergic" to uncertainty, and the economic situation is filled with it, says Dr. Eilenna Denisoff, treatment leader of the work, stress and health program at the Centre for Addiction and Mental Health in Toronto.
People are calling their financial advisers obsessively, and repeatedly checking bank accounts online. "Those are signs of stress and anxiety," Denisoff says. "People are getting exhausted. Throw some unhealthy coping in there, and we're more likely to see major depression."
Farley, a professor at Temple University in Philadelphia, predicts more low-level depression "and a significant amount of anxiety."
"If that gets aggregated across large numbers of people, you have de-motivated people, apathy," Farley said. "They would lose a lot of their drive and motivation at a time when it's sorely needed. People give up. They begin to feel hopeless. They begin to think, 'We're never going to turn this corner.' "
And it becomes self-fulfilling.
Stress becomes corrosive. Worries over losing a job begin to eat away at people, he says, "and pretty soon, things start to head south at home. Even though you have a job, your interpretation of the possibilities can begin to hurt you."
"If you're employed, are you happy because you're employed? Do you think, 'Wow, I'm lucky?' But if that's not the way you frame it — if you think, I'm next, the look the boss gave me the other day, I think the axe is coming — then you're not as effective on the job. You're worried all the time, you're not behaving in the usual way, and people begin to notice it."
But the economic turmoil is just the latest in a constant bombardment of stressors, experts say. It wasn't long ago people were stressed over SARS, and before that, flying and terrorism.
"It's important to note most people are very resilient," says psychologist Richard Shadick, a member of the New York State Disaster Response Unit.
"We've seen this in lots of different types of disasters, from 9/11 to hurricanes to recessions."
One exception to the resiliency is suicide, which increases during times of severe economic stress.
In January, eight children from two families — one in Quebec, the other from California — were killed by their parents in alleged murder-suicide pacts, both of which have been linked in news reports to job loss and financial troubles.
"It's absolutely not what most people would do. Most people would never come up with that as a reasonable solution," Denisoff says. "When we get such anomalous occurrences, we have to stop and think: What was pre-existing, even in terms of family history? What else was going on?"
Still, some people worry: Will I lose control?
Chronic stress boosts the production of a hormone in areas of the brain associated with fear and emotion. A study by University of Calgary scientists released this week shows that a protein that acts as a break on the brain's stress response, after a threat or challenge is over, stops functioning properly in chronic stress. "When the brain goes to hit the breaks on the stress response, it actually accelerates the response to stress," says Jaideep Bains, an associate professor in the Hotchkiss Brain Institute.
Two things feed our stress: First, the external stressors, such as the "perfect storm" Farley says we're in today — a massive piling on of job losses, falling house prices, mortgage and credit problems. But the internal causes of stress are more insidious: an inability to tolerate uncertainty, pessimism, negative self-talk, perfectionism and unrealistic expectations.
"For some people, additional stress from any source will push their ability to cope over the limit," Denisoff says. "What we already know with episodes of anxiety, episodes of depression and even episodes of psychosis is that, often, these major illness are preceded by increased levels of stress."
She worries people are making catastrophic predictions about the future.
"Definitely, there's a current economic crisis, but that doesn't necessarily mean we will never take another vacation, or I won't be able to put my kids through school."
Farley and others say the current downturn could be an opportunity to re-think careers or work life, spending and saving habits, and to get new skills and training to better prepare for when the economy does turn around.
"FDR said the only thing we have to fear is fear itself. How profound was that?" Farley asked. "We can get through this. It's not going to destroy us. These are the themes you have to have, because it is so heavily psychological."
That's why Farley wishes the pundits "would shut up."
"They're relentless. They're swarming. There is an epidemic of pundits, many of whom are ill-informed and haven't lived a life outside punditry, and so many of them are wiling to comment on what might happen, what will happen, etc., etc., and that just stirs the pot.
"It's confusing. It raises fear levels, and predicting the future is a dismal science. Very few sciences, including my own, are good at predicting the future."
To help combat the stress, Denisoff recommends exercise, proper sleep and social support. "Having somebody to talk to, at least one close friend or family member, makes a difference."
Signs stress levels are getting too high and you should see a doctor:
Problems with memory and concentration
Only seeing the negative
Constant worry you just can't seem to turn off
Trouble sleeping
Irritability and moodiness
Feelings of hopelessness and helplessness
Smoking and drinking more
Stress in your personal relationships
Physical complaints, such as stomach aches, back aches and headaches.
PETA Killed a Record Number of Pets in 2008PETA's pet extermination programBy Center for Consumer Freedom
Thursday, March 26, 2009
On "The Fifth Down," the New York Times football blog, a guest contributor posed a provocavtive question today: If you had to give up your beloved pet, would you be better off giving it to disgraced quarterback Michael Vick (of dogfighting notoriety), or Ingrid Newkirk, the president and founder of PETA? Answer: If you truly care about the family pup’s welfare, you should keep it as far from PETA as possible.
It’s wise advice—and timely too.
Today, we’re telling reporters that the latest proof of PETA’s pet extermination program is available at This unapologetic hypocrisy has been going on for years. Despite its $32 million budget, PETA does not operate an adoption shelter. And its employees make no discernible effort to find homes for the thousands of pets they kill every year.
Even after years of public outrage over its dog and cat killing, the animal rights group is still putting down an average of nearly six pets every day at its Norfolk, VA headquarters. Every day.
According to public records from the Virginia Department of Agriculture and Consumer Services, since 1998 a total of 21,339 dogs and cats have died at the hands of PETA workers. Last year, PETA killed 2,124 pets and placed only seven in adoptive homes.
Just seven. Out of 2,124. That’s a new record. Can you imagine what would happen if the Red Cross helped one-third of one percent of people who needed their help following a tornado or hurricane? Or if a soup kitchen fed only seven people when a line of over two thousand trailed around the block?
That’s exactly why the Center for Consumer Freedom petitioned Virginia’s State Veterinarian last year to reclassify PETA as a slaughterhouse.
In addition to exposing PETA’s hypocritical record of killing defenseless animals, we’ve been tirelessly publicizing the animal rights group’s ties to violent activists, and putting the spotlight on its aggressive and grossly inappropriate message-marketing to children.
Read more about PETA’s unforgivable acts here. And click here if you’d like to sign the petition to strip the deceptive animal rights group of its tax-exempt status.
Global slowdown to take heavy toll on mental healthBy Tan Ee Lyn, Reuters
15 October 2008 HONG KONG (Reuters) - Chiu Hei-chun spent 50 years washing dishes at a roadside stall in Hong Kong only to lose his life savings when Lehman Brothers went belly up.
"I saved it (HK$520,000) bit by bit. It was meant for my wife and I, for our medical bills and our coffins after we die so we won't have to bother our children," the 72-year-old said.
"HK$20,000 of that belongs to my wife and she hasn't been talking to me. I used to get 4 hours' sleep a night, but I haven't even been getting an hour a night after this happened."
The global financial meltdown has hit not only pockets. Greater numbers of people are suffering from insomnia, anxiety and depression and psychiatrists say suicide rates may creep up.
"There is a lot of insomnia, depression and anxiety. More people are depressed with the money they have lost, worried about the security of their jobs and the financial situation of their families," said Dominic Lee, a psychiatrist in Hong Kong who counts investment bankers among his patients.
Experts say the situation will get much worse when the impact seeps down further and people with fewer savings than investment bankers begin to lose their jobs as companies cut back due to an expected credit crunch.
"If people start losing their jobs and unemployment rates rise, it would be even more serious," said Paul Yip, director of the Hong Kong Jockey Club Center for Suicide Research and Prevention at the University of Hong Kong.
"People who are unemployed are six to 30 times more likely to kill themselves," he said.
In Japan, the number of suicides leapt to 32,863 in 1998, compared with 24,391 in 1997 -- a development blamed on a rising tide of bankruptcies after Japan's economic bubble burst.
It has stayed over 30,000 a year since then. Studies have shown suicide in Japan is strongly linked to unemployment.
Suicide, DiseaseSuicide figures in Hong Kong rose 50 percent from 12 per every 100,000 people in 1997, when the Asian financial crisis hit, to 18 per 100,000 in 2003, the year of the SARS epidemic.
"The worst is yet to come. People committed suicide in the past after constant harassment by debt collectors. We haven't seen that, but when the credit crunch in the consumer market happens, we will see an increase in suicide rates," Lee said.
Physical well-being is also an area of concern.
"There is a lot of evidence that stress and depression can affect physical health. Stress can affect a lot of conditions like asthma, stroke and cardiovascular disease. They are more connected than we tend to believe," Lee said.
In Hong Kong, the government set up round-the-clock crisis hotlines for those with "emotional and family problems" this week. Calls are answered by social workers and face-to-face counseling will be provided if needed.
At least 43,700 people in Hong Kong are known to have paid HK$20.2 billion (US$2.6 billion) for Lehman-related products. Of these, 33,600 paid HK$11.9 billion for minibonds.
Chiu used to keep his money in fixed deposits but he bought Lehman products three years ago after a bank staff member assured him it was safe. "I told the staff I knew nothing and that I was putting full trust in her," the old man said.
Asked about the financial situation, Sayoko Yamamoto, a 59-year-old company employee in Japan said: "People will be worried about their old age, and it's really hard to find a way of dealing with these problems yourself."
"There are a lot of reasons to worry and I think many people really don't know what to do."
(Additional reporting by Isabel Reynolds in TOKYO; Editing by Paul Tait)