Former Federal Reserve Chairman Alan Greenspan says the current financial crisis is a "once-in-a-century credit tsunami" which will have a severe impact on the U.S. economy, driving unemployment higher. Greenspan, who headed the nation's central bank for more than 18 years, says in testimony prepared for Congress that he and others who believed lending institutions would do a good job of protecting their shareholders are in a "state of shocked disbelief." In testimony he was giving to the House Oversight Committee, Greenspan blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt. During questioning, Greenspan was challenged about various statements he had made during the five-year housing boom, including forecasts that it was unlikely that there would be a nationwide collapse of home prices. Greenspan said he had failed to predict a significant decline in home prices because the country had never experienced such a decline before.
Greenspan says the current financial crisis has uncovered a flaw in how the free market system works and that has shocked him. Greenspan told the committee that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proven in the latest crisis to be wrong. Greenspan said he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan said that he had found "a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
The White House is signaling that the economy will remain under pressure through at least the end of the year, inching closer toward a recognition the United States is in a recession. White House press secretary Dana Perino says the gross domestic product report due out next week will not "be a good one." She says the report for the following quarter will be "tough as well.'' The report on third-quarter GDP is due next Thursday.
The head of the Federal Deposit Insurance Corporation says the government can use its new emergency authority from Congress to help struggling homeowners overhaul mortgages by giving banks an incentive to modify the loans. Sheila Bair, chairman of the FDIC, has been urging that the government do more to help tens of thousands of home borrowers avert foreclosure. She suggested in prepared testimony to Congress that could be done by having the government set standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them. Bair's proposal came in testimony she readied for a Senate Banking Committee hearing.
The official running the government's $700 billion financial rescue program says "tremendous progress" has been made implementing it. The Treasury Department's Neel Kashkari tells the Senate Banking Committee that since the announcement last week that the government will buy bank stocks, there have been "numerous signs of improvement." Analysts have cited a steady decline in bank-to-bank lending rates as a sign that the credit freeze is slowly beginning to thaw. In his testimony, Kashkari cautions that while there have been positive developments, "the markets remain fragile." Kashari says the department intends to get a program to help struggling homeowners revise mortgages up and running soon. It could include setting standards for changing mortgages to make them more affordable and giving loan guarantees to banks that meet them. Kashkari told a senate hearing that "we are passionate about doing everything we can to avoid preventable foreclosures."
A foreclosure listing service says the number of homeowners ensnared in the foreclosure crisis grew by more than 70 per cent during the third quarter compared to a year ago. RealtyTrac says nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September. That's up 71 per cent from the 3rd quarter of 2007. The survey indicates that foreclosure numbers are down for Texas in September—a 15.4 per cent decline from August. Texas saw a 5.7 per cent decline in the third quarter compared to the previous quarter. By the end of the year, RealtyTrac expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S. Six states--California, Florida, Arizona, Ohio, Michigan and Nevada--accounted for more than 60 per cent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all U.S. foreclosure filings.
The Mortgage Bankers Association this week said it expects economic growth to remain negative through the first half of 2009. MBA expects residential mortgage production in 2009 to be $1.67 trillion—down from an expected $1.86 trillion in 2008 and $2.2 trillion in 2007.
The government says new claims for jobless benefits increased by more than expected last week as companies cut jobs due to the slow economy. The Labor Department reported that new applications for unemployment benefits rose 15,000 to a seasonally adjusted 478,000, slightly above analysts' estimates of 470,000. The four-week average, which smoothes out fluctuations, dropped slightly to 480,250, down from a seven-year high in the previous week. Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said. Signaling more weakness to come, Goldman Sachs Group is said to plan to cut 3,260 jobs, or about ten per cent of its work force. Earlier this week, Yahoo! said it plans to cut ten per cent of its employees, or 1,500 people, in the next two months. Financial services firm National City also said Tuesday that it would cut 4,000 jobs. Analysts expect work will be harder to come by as companies not only eliminate jobs but also cut back on hiring.
Cooper Industries plans to cut more than 1,000 employees, with the slow economy affecting demand for its products. The Houston-based company has more than 31,500 workes in 23 countries.
Sliding crude oil prices led the average retail cost of gasoline in Texas to drop about 30 cents this week, to settle at $2.59 a gallon. AAA Texas reports the national average price for gasoline tumbled 26 cents, reaching $2.82 per gallon. The least expensive gasoline in Texas was in Corpus Christi, at $2.37 a gallon. El Paso had the highest reported average price, at $2.95 a gallon. Association spokeswoman Sarah Schimmer says if the trends continue, gas prices nationwide could be as low as $2.50 per gallon before Thanksgiving.
Iran is calling on OPEC to slash oil production by two million barrels a day in an effort to keep prices from falling any lower. Oil is selling at prices not seen since last summer, and OPEC ministers seem to agree it's time to talk about cutting back production. But they also want to act with caution since many of the world's economies are still on shaky ground. Tomorrow's emergency meeting was pushed up from mid-November to address these concerns. The Saudis, the unofficial leaders of OPEC, haven't said much about tomorrow's meeting. Production cuts usually cause prices to surge, but with demand still falling, that might not happen this time. Members of OPEC are gathering in Vienna ahead of official talks tomorrow. Other OPEC members were more circumspect about a cut. Oil ministers from Kuwait and Algeria said a production cut of any size should be done in a way that doesn't bring more turmoil to already fragile global economies.
Toyota's Scion brand tops the list of most reliable cars in Consumer Reports' annual vehicle reliability study, as Asian automakers continue to fill the top of the magazine's rankings. The study surveyed more than 1.4 million subscribers in the spring, covering model years 1999 to 2008. The results show Scion vehicles as the most reliable, followed by Acura and Honda. Consumer Reports was tough on domestic brands. The nonprofit says Land Rover ranked least reliable, followed by Saturn, Chrysler, Cadillac and Dodge. Ford's brands are ranked most reliable among the U.S. automakers.
There's not much confidence in the economy right now, but most of those responding to a new poll seem to think things will be getting better and better as the months go on. Most economists see things very differently. Despite experts' talk of recession, most people surveyed by the AP and market research firm GFK expect the economy to generally be better and the stock market to be rising three months from now. But majorities also doubt unemployment will fall or home values will rise by then. People are split over whether their personal finances will improve. Extend the timeline to a year and the survey shows the public's mood grows cheerier. Most say they expect more jobs and higher real estate values. The also think their own financial situations will be better a year from now. Forty-four per cent of those surveyed said the economy would get better if Barack Obama wins. About a third said it would improve if John McCain wins.
A new report says family health care premiums rose almost six times faster than earnings in Texas from 2000 to 2007. The report was released by nonprofit advocacy group Families USA. The review found that the annual premiums for family health coverage provided through the workplace in Texas rose from about $6,600 to about $12,400--or about 87 per cent. It also found that median earnings increased 15 per cent during that period. Families USA says that the number of non-elderly uninsured people in Texas is about six million, or about 27 per cent of the non-elderly population. Families USA is dedicated to achieving affordable health care for all Americans.
Michigan lawmakers plan to ask Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson to use their regulatory powers to loosen up credit to help finance car loans. The members of Congress say in a letter obtained by the Associated Press that the disappearance of liquidity in credit markets "threatens to cripple these industries and the communities in which they operate." The letter is expected to be sent to the Bush administration. It asks Bernanke and Paulson to use their "broad regulatory authority" and the powers they received in the $700 billion bailout of the financial sector to restore liquidity in the U.S. auto industry.
The Bureau of Land Management has brought in more than $19 million in revenues from the sale of 64 federal oil and gas leases in new Mexico, Oklahoma and Texas. The quarterly lease sale was held in Santa Fe. Bids for 30 parcels in New Mexico brought in more than $7 million, while 20 parcels in Oklahoma brought in more than $8.8 million. Bids for 14 parcels in Texas brought in just over $3 million. The highest bid per acre was $4,100 by Marbob Energy of Artesia for 40 acres in Lea County. The highest overall bid was $3.78 million by Samson Resources of Tulsa, Oklahoma, for 1,240 acres in Oklahoma's Roger Mills County. Nearly half of the revenue from the sale goes to the states where the mineral leases occur.
General Motors says it is suspending several employee benefit programs as it navigates the downturn in the auto industry. GM spokesman Tom Wilkinson said the company's buyout program for salaried employees has been "well-received," though he wouldn't say how many white-collar workers have accepted the offer. The automaker has said it is trying to eliminate 15 per cent of costs associated with its white-collar work force in the U.S. and Canada by November 1st. Wilkinson says GM executives received an update on the buyouts on Wednesday. He also says the company is temporarily suspending company matching of its 401(k) program as of November 1st. He says GM is suspending tuition reimbursement and adoption assistance programs as of the end of this year.
Comcast says it will begin rolling out faster Internet speeds over the next few weeks in selected markets to homes and businesses. The nation's largest cable operator and residential Internet service provider will offer speeds up to 50 megabits per second. That means a user could download a high-definition movie in 16 minutes and a standard definition movie in five minutes. There will be no additional cost for most Comcast customers. The service will be available in parts of New England, including the Boston area and southern New Hampshire, as well as portions of Philadelphia, New Jersey and the twin cities in Minnesota. Over the next few months, Comcast expects to roll it out to over ten major markets. To get the new Internet plans, individuals must also subscribe to Comcast's cable TV service.
The Federal Reserve says the amount of commercial paper in the market fell for the sixth straight week. Commercial paper outstanding has shrunk by $61.4 billion to a seasonally adjusted $1.45 trillion in the week ended Wednesday. That is down from $1.82 trillion six weeks ago, and down from $2.2 trillion when the market peaked in the summer of 2007. Commercial paper are short-term, unsecured loans companies get to finance their day-to-day operations. The drying up in demand has accelerated since the September bankruptcy of Lehman Brothers Holdings. The Fed on Monday will start buying commercial paper from highly rated companies unable to sell their paper on the market.
American International Group, now supported by a federal bailout, has agreed to freeze millions of dollars in compensation and bonuses for former executives. In a letter to AIG's new chairman, Edward Liddy, New York Attorney General Andrew Cuomo wrote that after his office's review of company documents, the insurance and finance giant agreed to stop payments under former chief executive Martin Sullivan's $19 million pay package. AIG also confirmed that no payments will be made from the $600 million compensation and bonus pools of its financial products subsidiary. That includes $69 million the former head of the subsidiary, Joseph Casano, could have been paid and about $93 million that five other top executives might have been eligible to receive. Cuomo says the next step for his office will be investigating how to recoup executive bonuses paid previously, saying a fraud law could apply depending on timing, circumstances and contracts.
Bennigan's diners can expect a bigger emphasis on booze, burgers and other bar and grill fare in the days and months to come. That's the word from the new owner of the bankrupt restaurant chain. Joel Holsinger is managing director of private equity firm Atalaya Capital Management. He says he plans to reposition the brand by re-establishing its place in the high-margin bar segment and by focusing on sandwiches, onion rings and appetizers. Holsinger said Bennigan's was one of the most dominant casual dining brands in the early 1990s with 30 to 40 per cent of its business coming from beer, wine and liquor sales. Those products typically sell for significantly more than they cost, helping a company boost its margins. Bennigan's was also well known for its appetizers and sandwiches. But as the decade came to a close, that dominance eroded. The parent company of both the Bennigan's and Steak & Ale brands filed for Chapter 7 bankruptcy at the end of July under pressure to repay its debts., S&A Restaurant Corporation was owned by Plano-based Metromedia Restaurant Group. In a Chapter 7 filing, a company seeks to liquidate its assets and close its doors.
Dow Chemical says its profit rose six per cent in the third quarter, helped by price hikes that offset a nearly 50 per cent increase in raw materials and energy costs. Its earnings adjusted for one-time items such as hurricane damage to its Gulf of Mexico operations beat Wall Street estimates. The Midland-based company said it earned $428 million in the three months ended September 30th. That is up from earnings of $403 million a year ago. It says sales rose 13 per cent to $15 billion. Analysts expected $15.6 billion.
Union Pacific says its third-quarter earnings jumped 32 per cent on higher prices and better productivity, despite damage and delays from Hurricanes Gustav and Ike. The nation's largest freight railroad operator says it earned $703 million. The Omaha, Nebraska-based railroad says hurricane-related disruptions cut its earnings by about eight cents per share. Revenue rose 16 per cent. Both results were well above Wall Street expectations.
Back-to-school laptop computer sales and strong demand for digital television converters and GPS navigation devices helped RadioShack boost its third-quarter profit. The Fort Worth-based consumer electronics retail chain reports a better-than-expected eight per cent third-quarter earnings increase. For the three months ending September 30th, it earned $50.2 million. Total revenue jumped six per cent to $1.02 billion, helped by a 45 per cent rise in online sales. Analysts surveyed by Thomson Reuters expected RadioShack to earn revenue of $989.1 million. Same-store sales increased 7.7 per cent during the third quarter compared with a year ago. Again, RadioShack credits demand for digital television converter boxes, GPS devices and laptop computers, among other products. The converters allow customers to still use analog television sets after a nationwide switch to digital television next year.
Chrysler lost about $772.5 million in the second quarter. Daimler included a $154.5 million operating loss for its 19.9 per cent share of privately-held Chrysler in its third-quarter earnings. Figures for Chrysler are delayed one quarter. Chrysler says the second-quarter loss is $660 million when taking into account the differences between international and U.S. accounting standards. New York-based Cerberus Capital Management owns the rest of Chrysler.