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The Commerce Department's report on new home sales is out. Note the trends: sales down 13.4% from February 2005; sales in the West down 28% from February 2005; inventory up 22 percent from February 2005; median sales price down for the fourth straight month, and below the figure from Feburary 2005.
Posted by dan at 10:46 AM
Norma Cohen in the Financial Times picks up on the Orwellian pension legislation making its way through Congress:
Employers will be allowed to slash their contributions to underfunded pension schemes by tens of billions of dollars over the next five years under proposed legislation before Congress that was expected to have the opposite effect.Legislation was proposed by the White House last year to avert the risk of a taxpayer bailout of the the Pension Benefit Guaranty Corporation, a federal safety net for pension schemes.
According to an analysis prepared this week by the Joint Committee on Taxation, which is working to reconcile House and Senate versions of the bill, the Pension Security and Transparency Act of 2005 will bring at least $10bn (£5.76bn) in additional tax revenue as employers reduce their pension contributions, on which they would have been eligible for tax relief.
Assuming an average corporate tax rate of 35 per cent, that suggests a significant drop in payments from employers into pension schemes.
The analysis shows tax revenues will rise by $10.2bn under the House version of the bill, and by $12bn under the Senate's, between 2006-11 as a result of the weakened contribution requirements. Funding of pension schemes will reach a low ebb in 2008 under both the House and Senate versions of the bills while tax relief for schemes will not begin to rise until 2011.
The PBGC saw its deficit widen to $22bn at the end of its last fiscal year. According to the Center on Federal Financial Institutions, a private think-tank, current and future losses caused by the underfunded schemes of insolvent employers could lead to a bailout of around $92bn in today's money. . . .
Posted by dan at 09:15 AM
S&P is rolling out indexes on housing future, reports Karen Talley in the Wall Street Journal.
Investors who think the housing bubble is about to burst will soon be able to bet not only on when it will happen, but where.Standard & Poor's, a unit of McGraw-Hill Cos., is rolling out 10 indexes that will track housing prices in various regions of the U.S., as well as a composite index. The indexes, which plan to launch in April, will serve as the basis for futures and options contracts that will trade on the Chicago Mercantile Exchange.
The contracts will allow investors to go long or short on a specific housing market -- that is, bet on it rising or falling in value.
Dubbed the S&P/Case-Shiller Metro Area Home Price Indices, the 10 cities comprise Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C.
The composite index will be weighted, with New York, for instance, carrying more influence than Miami because the Big Apple has higher housing values and more homes.
Posted by dan at 08:43 AM
A distressing snippet from yesterday's Wall Street Journal coverage of the GM buyout.
Some were able to make the decision quickly. Bob Mercado, 51, said he would happily accept his buyout to get away from his job in the paint-repair shop at the Pontiac plant -- where he breathes in paint fumes all day.That will mean giving up income of about $100,000 a year in exchange for the package with a $35,000 lump-sum payment. Still, he said, "I'm tired of coming here and this will allow me to enjoy life and spend more time fishing." None of his three children plan to attend college, he added, so that won't be an issue.
If Mr. Mercado's kids think they'll be able to earn $100,000 a year some day without a college education, they're in for a rude awakening.
Posted by dan at 08:41 AM
Paul Krugman takes Treasury Secretary John Snow to task in today's New York Times for silly comments he's made about (1) executive compensation; and (2) the growth of average incomes.
He writes:
We don't have detailed data for more recent years yet, but the available indicators suggest that after 2003, incomes at the top and the overall level of inequality came roaring back. That surge in inequality explains why, despite your best efforts to talk up the economic numbers, most Americans are unhappy with the Bush economy.I find it helpful to illustrate what's going on with a hypothetical example: say 10 middle-class guys are sitting in a bar. Then the richest guy leaves, and Bill Gates walks in.
Because the richest guy in the bar is now much richer than before, the average income in the bar soars. But the income of the nine men who aren't Bill Gates hasn't increased, and no amount of repeating "But average income is up!" will convince them that they're better off.
And then:
Speaking of executive compensation, Mr. Snow, it hurts your credibility when you say, as you did in a recent interview, that soaring pay for top executives reflects their productivity and that we should "trust the marketplace." Executive pay isn't set in the marketplace; it's set by boards that the executives themselves appoint. And executives' pay often bears little relationship to their performance.You yourself, as you must know, are often cited as an example. When you were appointed to your present job, Forbes pointed out that the performance of the company you had run, CSX, was "middling at best." Nonetheless, you were "by far the highest-paid chief in the industry."
Of course, faithful Moneyblog readers already knew that Snow was speaking out of his rear end about average income growth and executive compensation. We flagged these remarks earlier this week. (See "Snow Job," below.)
Posted by dan at 07:37 AM
Lets see, Citigroup is the nation's largest financial institution, is enormously profitable, and has a sterling credit rating. New York State, on the other hand, has tons of debt and faces perpetual fiscal problems. So guess which entity is making below-market loans to the other? As Clint Riley reports in the Wall Street Journal, it's a trick question:
"But not all of Citibank's increasing number of branches are thriving in Manhattan.Earlier in the day, Diana L. Taylor, New York state's superintendent of banks, used a unique tool to aid Citibank in its efforts to turn a profit at a similar, but struggling, Manhattan branch a subway ride away in resurgent Harlem.
With the stroke of a pen, she created a 48-square-block Banking Development District around Citibank's existing full-service branch. By doing so, Ms. Taylor made the unprofitable Citibank location eligible to receive a variety of tax incentives and a combined $20 million in "below market" deposits (meaning they get less than the market's interest rate) from New York state and New York City. Company executives contend that those below-market deposits will allow the bank to expand the services it provides to the central Harlem community, as well as earn a small profit at the branch within a year. . . .
Citibank executives, in documents submitted to state regulators, acknowledge that without the below-market-rate deposits from the state and city, the bank would continue to lose more than $350,000 a year operating the three-year-old branch in a neighborhood where 38% of the residents live below the poverty line, yet refurbished four-story brownstones now sell for more than $1.5 million. . .
Citibank is one of 16 banks and thrifts currently participating in the New York program. Others include Commerce Bancorp, Banco Popular and New York Community Bank. Entering the state program is the only way thrifts like Carver and Greater Buffalo Savings Bank can become depositories for state and city funds. New York is the only state that allows only commercial banks to hold municipal deposits. . .
Through the statewide program, unprofitable branches in banking-development zones are eligible for as much as $10 million in below-market-rate deposits and an additional $25 million of market-rate deposits from the state. Banks located in the zones in New York City are eligible for an additional $10 million of deposits at below-market rates. . . .
Last year the state provided $152.5 million in below-market-rate deposits and an additional $210 million in market-rate deposits to 16 banking-development-district branches statewide. On top of the state money, New York City deposited $60 million at below-market rates at eight branches located in banking-development districts around the city. . .
New York remains the only state in the nation where below-market public deposits are used as economic-development incentive for banks. New York state officials say at least two other states and the city of San Francisco have expressed interest in setting up similar programs.
Posted by dan at 10:30 AM
Dismayed right-wingers frequently accuse Warren Buffett--who supports the estate tax and has generally opposed Bush administration fiscal adn tax policy--as being a billionaire class warrior. It's nice to see he gets accused of the type of class warfare that most of his Republican critics wage, too.
Lavonne Kuykendall reports in the Wall Street Journal:
Berkshire Hathaway Inc.'s Geico Corp. insurance unit has drawn criticism from a consumer advocacy group and a competitor for a pricing practice the opponents believe can shortchange less-profitable customers, including minorities and blue-collar workers.The Consumer Federation of America and the New Jersey Citizens United Reciprocal Exchange, a private insurer, are taking aim at the fourth-largest U.S. auto insurer for using the education and profession of potential customers as criteria to offer and price auto-insurance policies. The two groups argue this practice is discriminatory in favor of more-affluent customers and could increase prices for lower-wage workers. The groups called for a nationwide ban.
Geico has rebuffed criticism by defending the practice as widespread and useful for determining risk.
The problem is that these factors may help predict profitability, but can also penalize otherwise good drivers who don't make the cut, said a former insurance regulator and Consumer Federation official.
"To say blue collar is worse than white collar, I don't think that is right," said J. Robert Hunter, the Consumer Federation's director of insurance. Mr. Hunter is also a former Texas insurance commissioner and federal insurance administrator.
Posted by dan at 10:27 AM
Robert Worth reports in the New York Times on the birth of an exciting new business in Iraq: terrorism insurance.
Posted by dan at 10:25 AM
The whole Bush Administration=Enron meme has faded substantially. But maybe it's time to revive it. From the AP's report in yesterday's New York Times.
Enron tried to dodge accounting rules by dropping a plan to sell assets in a failed water business, a former Arthur Andersen accountant said on Monday at the trial of two former Enron executives.John R. Sult, who oversaw the books on Enron's Azurix water venture for Andersen, said Enron sought to avoid a write-down of hundreds of millions of dollars by promoting a $1 billion growth strategy for the unit instead.
"By merely standing up and making the assertion that the strategy exists somehow makes the problem go away," he testified, explaining his view of Enron's plan.
Does this sound familiar? Why, yes it does.
Posted by dan at 10:19 AM
One of the biggest open questions of the coming decades is whether India's flawed but comparatively transparent system of democracy and the rule of law coupled with burgeoning free-market capitalism will ultimately outpace China's comparatively transparent system of authoritarianism and burgeoning free-market capitalism. One point in favor of India today. The New York Times reports:
BANGALORE, India, March 20 — As its economy surges, India is taking steps to make the rupee fully convertible against other global currencies, the finance minister, Palaniappan Chidambaram, said Monday.The rupee is now only partly convertible: while trade-related transactions are free from restrictions, other types of foreign investments are subject to approval by India's central bank. The step will enable more foreigners to acquire Indian stock, real estate and other assets, as well as ease delays in overseas transactions.
The announcement comes after remarks last week by India's prime minister, Manmohan Singh, that its economic position had become "more comfortable."
India is the world's second-fastest-growing economy after China. This year, the economy is expected to grow 8.1 percent, after 7.5 percent growth last year, according to the government.
The rupee was worth about 23 cents yesterday.
Mr. Chidambaram said that India's central bank, the Reserve Bank of India, would announce steps to open up the currency in the next few days.
India's foreign exchange reserves have risen to $144 billion in the last few years from practically nil in the early 1990's. Until 1991, when an economic liberalization process began, the government fixed the exchange rate for the rupee. India contemplated making its currency fully convertible in the late 1990's, but that plan was dropped because of the Asian currency crisis.
Posted by dan at 10:15 AM
Edgar Bronfman, Jr., who lost a lot of his money for his relatives by turning the family liquor business into an entertainment conglomerate, has managed to do it again. Peter Smith reports in the Financial Times:
High-profile investors including Edgar Bronfman Jr, the Warner Music chief executive, have lost their entire investment of close to $500m (£285m) in Asprey & Garrard, the 225-year-old jeweller to the UK's royal family.Asprey was resurrected yesterday after six weeks of "technical administration", with the backing of the New York private equity firm Sciens Capital and Plainfield Asset Management, a US hedge fund. They have agreed to invest $80m-$100m to fund the lossmaking group's ongoing expansion.
The move follows more than 18 months of turmoil between shareholders and management over funding commitments - the chain is undergoing an ambitious luxury roll-out programme - and the collapse this year of talks to sell a minority stake in spite of interest from Tod's, the Italian luxury shoemaker; LVMH, the French luxury goods group; and the Ong family of Singapore.
The other shareholders to have shared the loss are: Sportswear Holdings, the vehicle of Lawrence Stroll and Silas Chou, the fashion entrepreneurs behindthe Tommy Hilfiger brand,which had 40 per cent; Morgan Stanley's private equity unit with 20 per cent; and TAGgroup, the holding company of the Ojjeh family, with 8 per cent. Mr Bronfman's SBS Partners had 32 per cent.
They are left with no stake in the new business.
Posted by dan at 10:08 AM
Greg Ip had a great piece in yesterday's Wall Street Journal, wherein Treasury Secretary John Snow, a Ph.D. in economics, offered a range of absurd observations.
Exhibit A: he believes the orgy of executive compensation is evidence of an efficient market.
What's been happening in the United States for about 20 years is [a] long-term trend to differentiate compensation," Mr. Snow said in an interview with The Wall Street Journal last week. "Look at the Harvard economics faculty, look at doctors over here at George Washington University...look at baseball players, look at football players. We've moved into a star system for some reason which is not fully understood. Across virtually all professions, there have been growing gaps."Mr. Snow said the same phenomenon explains why compensation for corporate chief executive officers has climbed so sharply. "In an aggregate sense, it reflects the marginal productivity of CEOs. Do I trust the market for CEOs to work efficiently? Yes. Until we can find a better way to compensate CEOs, I'm going to trust the marketplace."
Guess he missed the Wall Street Journal's great story on Saturday, in which Charles Forelle and James Bandler demonstrate how companies rig the timing of options grants.
On a summer day in 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich.His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.
Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.
Suspecting such patterns aren't due to chance, the Securities and Exchange Commission is examining whether some option grants carry favorable grant dates for a different reason: They were backdated. The SEC is understood to be looking at about a dozen companies' option grants with this in mind.
The Journal's analysis of grant dates and stock movements suggests the problem may be broader. It identified several companies with wildly improbable option-grant patterns. While this doesn't prove chicanery, it shows something very odd: Year after year, some companies' top executives received options on unusually propitious dates. (Read an explanation of the methodology.)
The analysis bolsters recent academic work suggesting that backdating was widespread, particularly from the start of the tech-stock boom in the 1990s through the Sarbanes-Oxley corporate reform act of 2002. If so, it was another way some executives enriched themselves during the boom at shareholders' expense. And because options grants are long-lived, some executives holding backdated grants from the late 1990s could still profit from them today.
Exhibit B: Snow thinks that if Bill Gates makes an extra $300 million in one year, and the other 299,999,999 Americans make an extra $0 in on year, that all Americans made an extra $1, and should be really happy about it.
Mr. Snow distributed a fact sheet that showed after-tax income per person, adjusted for inflation, rose 8.2% from January 2001, when George W. Bush took office as president, through January 2006. The sheet also showed that per-person net worth -- total assets minus debt -- rose 24%, unadjusted for inflation, from early 2001 to the end of 2005. "People have more money in their pocket" and in their bank accounts, he said.Mr. Snow's case relies on averages, which can be skewed by big gains among the wealthiest. Other data suggest the typical family has seen little advance in income or net worth since Mr. Bush took office. Census Bureau data show median family income -- half of families have income greater than the median, half have less -- fell 3.6% from 2000 through 2004. Incomes for the poorest families fell even further. The only group to gain was the family at the 95th percentile -- that is, richer than 95% of all families. Data for 2005 are unavailable.
Posted by dan at 09:56 AM