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This one could have been seen coming from several miles away.
Jeffrey McCracken and Lee Hawkins Jr. report in the Wall Street Journal.
Delphi Corp. has asked the United Auto Workers union for substantial concessions, including a cut of more than two-thirds to wages and benefits and the elimination of a costly program giving full pay to laid-off workers, according to a union official's letter sent to Delphi UAW workers.A bankruptcy filing now is increasingly likely, people familiar with Delphi's legal situation said. The terms set out in the letter would be difficult to accept for members of the UAW. While the auto-parts maker could still reach a last-minute agreement, Delphi's negotiating stance appears to make a deal with the union to reduce labor costs unlikely.
Here's the amazing thing. As of about 3:00 p.m. eastern time today, Delphi's common stock was still worth $623 million.
Posted by dan at 03:03 PM
The buzzword for today is: "demand destruction."
Here's Claude Mandil, head of the International Energy Agency, in the Financial Times.
"Claude Mandil, head of the International Energey Agency, the industrialized countries' energy watchdog, said oil demand had clearly begun to fall.But he said it was too early to know whether the drop in petrol consumption was long-term, or just a short-term reaction to hte recent hurricanes. "The question precisely is whether the demand destruction phenomenon is a short-lived one, created by distrubances in the logistics chain, or whether it is a more long-lasting one caused by more energy efficiency and savings," he said. "That makes all the difference."
And Krugman in today's New York Times
In fact, the current crisis is nobody's fault, except Mother Nature's. Both Katrina and Rita were stronger hurricanes when they plowed through offshore oil and gas fields than when they made landfall. And because damaged refineries and other energy faicliteisa re competing for a limited number of repair crews, it's taking a long tiem to get those facilities back up and running.What this means is that a lot of 'demand destruction' must take place over the next few months. That is, one way or another, people will have to be persuaded to limit their consumption of natural gas, gasoline and heating oil to match the available supply."
Posted by dan at 02:47 PM
With each passing year, more and more taxpayers are losing the temporary marginal income tax reductions they received in 2001 and 2003 because they're becoming subject to the Alternative Minimum Tax. Congress has dealt with the growing number of AMT'ers through a series of patchwork temporary fixes that shielded a chunk of filers from the tax. But that's going by the wayside. The truth is that Congress and the White House need the AMT revenues -- and, by definition, anybody who pays the AMT is experiencing a tax increase -- to fund the war, hurricane relief, etc.
This bit was buried in a David Rogers article in today's Wall Street Journal.
"No new tax increases are being discussed. But one option being considered in the Senate would extend less relief to upper-middle-income families threatened by the steady encroachment of the individual alternative minimum tax, or AMT, because exemption levels aren't indexed for inflation.The Republican budget resolution last spring had assumed that Congress would again extend a temporary one-year inflation-adjustment "patch" to soften the AMT's impact, at a cost of about $25 billion. The proposal now being discussed would instead extend the patch protection only to individuals earning less than $75,000 a year and married couples below $150,000 a year, thereby saving an estimated $11 billion. Millions of families would still be affected, and the idea has rankled some on the Senate Finance Committee.
Senate Budget Committee Chairman Judd Gregg (R., N.H.) declined to discuss details. But he confirmed that revenue provisions such as the AMT patch were part of the discussions, which also include possible new federal fees and expanded auction sales of radio spectrum to wireless-communications companies."
They're playing word games. On the one hand, no new tax increases are being discussed. On the other hand, a bunch of people who wouldn't have had to pay the AMT will have to pay it. That's an $11 billion tax increase on individuals making $75,000 a year or more, and on married couples below $150,000 a year or more. Turns out the Bush tax cuts are set to expire a lot sooner than many people expected.
That silence you hear is the sound of anti-tax Bush hacks like Amity Shlaes of the Financial Times and the entire staff of the Wall Street Journal editorial page saying nothing.
Posted by dan at 02:39 PM
Ordinarily, the prospect of an oil-rich country turning selling or moving some $15 billion in foreign reserves into other currencies might be cause for alarm. But the list of great authoritarian left-wing dictators/currency traders is a very short one.
Andy Webb-Vidal reports in the Financial Times:
“Venezuela has transferred about half of its $30.4bn of foreign reserves out of US Treasuries and US banks into banks in Europe, seemingly for political reasons.The decision, which was disclosed in an off-the-cuff comment by President Hugo Chavez last week, has fuelled confusion among bondholders and analysts concerned about Venezuela’s opaque public finances.
Domingo Maza Zavala, a director at the central bank, said yesterday that during the past four months 60 percent of the bank’s roughly $24 bn in operational reserves, or about $14.4 bn, had been liquidated and the funds deposited at the Bank for International Settlements in Basel, Switzerland.
Most of the $14.4 bn transferred was previously invested in US Treasuries or held on deposit at US banks, he said.
Posted by dan at 08:47 PM
Apparently, conservation is more than just a sign of personal virtue and driving gas guzzling cars is no longer part of the American way of life.
Edward Alden and Christopher Swann report in the Financial Times:
“higher energy costs, exacerbated by Hurricanes Katrina and Rita, could persit for several years, Samuel Bodman, US energy secretary, warned yesterday.Mr. Bodman told a meeting of reporters: “Both oil and natural gas availability have been severely impaired and the effects of this will reverberate through the economy of this country for some time.
“The main thing that US citizens can do is conserve. We simply have to do it.”
The energy secreatray predicted that conservation could make “a major dent” in demand.
US petrol imports last week hit a record 1.4 m barrels a day, the Energy Information Administration said yesterday.
Mr. Bodman said: “We all need to be more thoughtful in how we use energy.”
The bad news: all this was painfully obvious long before Hurricane Katrina began to brew in the Atlantic.
The good news: there may be a grown-up Republican in Washington after all.
Posted by dan at 08:45 PM
Bankruptcy filings are on the rise. Andrew Blackman reports in the Wall Street Journal:
Debt-laden consumers across the country are rushing to file for bankruptcy before a tougher bankruptcy law takes effect Oct. 17.Filings jumped to a record 68,287 from Sept. 26 to Oct. 1 from the normal level of about 30,000, according to Lundquist Consulting Inc. of Burlingame, Calif., which compiles bankruptcy statistics from daily reports by U.S. bankruptcy courts. Filings have risen 14% so far this year from 2004, to more than 1.3 million.
In personal bankruptcy, people who don't have many assets to begin with lose much of what little they have. So much for extending the ownership society.
Meanwhile, at the upper rung of the income ladder, ownership is increasing apace. David Cay Johnson reports in the New York Times:
After falling for two years, the share of income going to the richest slice of Americans - the top tenth of 1 percent - grew significantly in 2003 while the share going to 99 percent of Americans fell, tax data released yesterday showed.At the same time, the effective income tax rates paid by the top tenth of 1 percent fell sharply, declining at more than 10 times the rate reduction for middle-class taxpayers, the new report, by the Internal Revenue Service, showed.
Overall incomes rose by 2.7 percent in 2003, compared with the previous year, the I.R.S. said. A quarter of this increase went to the top tenth of 1 percent, the 129,000 taxpayers with reported incomes of $1.3 million or more, an analysis of the data showed.
Posted by dan at 05:12 PM
A couple of weeks ago, on a Lufthansa flight from Frankfurt to New York, I was delighted to find that one could get high-speed wi-fi Internet access on-board. Sure, it cost a few Euros. But it made the trans-Atlantic trip go much faster, and turned dead time into productive time. I got to wondering why U.S. airlines don't offer the same service.
In yesterday's New York Times, Alexei Barrionuevo explained:
"to make an office in the sky these days you have to fly a foreign airline. After five years of intense marketing, Boeing is still struggling to bring the Internet to domestic airlines, whose financial woes and concerns about added weight on planes are making them reluctant to invest in hot spots in the sky. . .For Boeing, which once appeared poised to make its satellite-based Internet system a big business, time is running out to win over the American airlines.
It decided recently to cut 100 positions at Connexion, or about 15 percent of its work force, by early next year. And new competitors, including Verizon Wireless, are refining less-ambitious technologies that some airlines find more palatable investments amid surging fuel prices and the constant threat of bankruptcy.
While American carriers continue to be hesitant, European, Asian, even Middle Eastern airlines - which rely heavily on business travelers, particularly on long-haul flights - are taking the plunge in increasing numbers. Boeing has signed up 13 foreign airlines since 2003, with 9 already offering the service to customers on 84 planes, soon to be 100. Boeing has also signed 630 corporate agreements to make it easier for companies' employees to use the service."
Sigh.
Posted by dan at 05:08 PM
Josh Bolten, head of the Office of Management and Budget, is supposed to be one of the grown-up, level-headed, pragmatic people in the administration. But he either has the math skills of a pre-K student or is in fantasy-land. Check this out from Christopher Cooper's Wall Street Journal article today, which suggests that Bush will endorse entitlement cuts to fund Katrina relief.
Josh Bolten, Mr. Bush's budget director, said recently that the White House wants to finance hurricane relief -- an expenditure that may run as much as $200 billion -- by trimming at least $35 billion from farm subsidy programs, as well as food stamps, Medicare and Medicaid.Mr. Bush reiterated that he had no intention of cutting military or homeland-security programs, and Mr. Bolten has said it is unlikely the administration will tamper with Social Security benefits or the new Medicare prescription-drug benefit. Mr. Bolten also appeared to shut the door on tax increases, which some Democrats favor, branding them "retrograde" steps that could slow economic growth.
To offset spending that may amount to $200 billion, Bush/Bolten are willing to cut $35 billion, a big chunk of which will come out of programs (Medicaid and food stamps) that are presumably there to help poor people, including those impoverished by Katrina. That leaves $165 billion. And where will we get it?
Says Bolten: no cuts in military or home-land security. No "tampering" (i.e. cuts) in Social Security or the new Medicare prescription-drug benefit. Oh, and no tax increases. Ever.
So I guess that $165 billion will have to come out of non-defense discretionary funding. According to the most recent budget figures that spending for all of Fiscal 2005 amounts to $388 billion. To truly "pay for" Katrina relief of up to $200 billion, then, on top of cutting $35 billion in farm subsidies, Medicaid, and food stamps, the powers that be would have to come up with cuts equivalent to 42 percent of an entire year's non-defense discretionary spending.
Given Bolten's pedigree, I'm guessing his math skills are a bit above pre-K levels. Which means that, like much of the rest of the crowd that passes for economic policy makers in Washington, he's in fantasy-land.
Posted by dan at 04:46 PM
The National Association of MAnufacturers has found a new enemy to replace the trial lawyers: the natural gas industry. Kevin Morrison reports in the Financial Times:
Hank Cox, spokesman for the National Association of Manufacturers in the US, which represents 14,000 manufacturers, said: "Right now natural gas prices are the biggest concern for our members, it has replaced healthcare costs."Some of our members are talking about shifting production offshore to countries where they can get access to cheaper natural gas supplies."
Posted by dan at 04:28 PM
My latest on Slate, on the coming home heating fuel shock.
Posted by dan at 05:44 PM
John Bogle, founder of Vanguard, has a great op-ed in the Wall Street Journal today, noting that when it comes to corporate capitalism, the ownership society isn't all it's cracked up to be. (Sorry, no link.) The argument is basically that the institutional investors who control stocks on behalf of individuals continue to fail to exercise control over corporations. Money quote:
"Institutional investing is now largely the business of giants. America's 100 largest money managers alone now hold 58% of all stocks. When such a relative handful of professional mangers substantially displaces a diffuse group of millions of inchoate individual invetors, one might have expected the managers to more aggressively assert their rights of stock ownership and demand more enlightened corporate governance focused on shareholder interests. With few notable exceptions, however (some state and local pension plans, unions, and TIAA-CREF), our institutional investors have refrained form active participation in corporate affairs.)"
Articles like this, as well as the great piece on Saturday about CEOs of publicly held companies using corporate jets to go play golf, make the Journal worth subscribing to. Now, if only there was an edition whereby subscribers could pay an extra fee to get the paper without the unsigned editorials--then Peter Kann might be able to figure out how to make the nation's second-best newspaper profitable again.
Posted by dan at 05:16 PM
The Wall Street Journal's editorial team think that the fact that the Securities and Exchange Commission failed to uncover fraud at hedge fund Bayou Management is a good argument for why the SEC shouldn't be allowed to regulate hedge funds. It's hard to see how the SEC could have uncovered the theft that went on at Bayou, given that the SEC doesn't really regulate hedge funds. But never mind. That's not the idiotic part. This is the idiotic part:
"It's true that investors who'd trusted Bayou's managers with up to $450 million lost a bundle. But most, if not all, of those investors had money they could afford to lose."
Hmmm. So it's OK to steal from people who can afford to lose money? That's the sort of reasoning you might expect to find in Granma. Oh, and if they had bothered to do some reporting (i.e. do a Google search), they would have determined that one of the investors that lose money was the Jewish Federation of Metropolitan Chicago, which is out $4 million. Yes, I bet the people who run the Jewish Children's Bureau of Chicago, the Hebrew Immigrant Aid Society, and the Jewish Family and Community Service, and the people who rely on their services are happy they can afford to lose $4 million.
Schmucks.
Posted by dan at 05:07 PM