Financial life in a big town

DENVER–A record U.S. economic contraction dragged oil prices below $43 a barrel Friday, a day after crude surged on signs that weak U.S. demand could be recovering.

Benchmark crude for April delivery fell $2.42 to $42.80 a barrel in early trading on the New York Mercantile Exchange.

The drop came after oil prices rose for two consecutive days on news that imports in the last two weeks have fallen more than 10 per cent below the prior month’s average, indicating overseas producers are cutting production to keep pace with fading demand. Meanwhile, gasoline demand declined less than expected.

Still, the Commerce Department said Friday the economy contracted at a staggering 6.2 per cent pace at the end of 2008, the worst showing in a quarter-century.

The report showed the economy sinking much faster than the 3.8 per cent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 per cent annualized decline economists expected.

"We’re still dealing with a historic drop in demand and historic retraction on the economy," said Alaron Trading Corp payday loans with no fax. analyst Phil Flynn.

Economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

Meanwhile, federal regulators launched an investigation into the United States Oil Fund, which at times controls enough oil contracts to supply the world with crude for a day.

It sold more than 85,000 contracts on Feb. 6, with each contract representing 1,000 barrels of oil.

Oil traders have become increasingly critical of the fund, which at one point built a stake equal to 20 percent of contracts traded on the open market.

Retail gasoline prices were essentially unchanged overnight at $1.883 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.

In other Nymex trading, gasoline futures fell 8 cents to $1.21 a gallon, while heating oil declined 6 cents to $1.23 a gallon. Natural gas for March delivery dropped 9 cents to $3.98 per 1,000 cubic feet.

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WASHINGTON — The government began to conduct financial "stress tests" Wednesday to determine how well the biggest U.S. banks could hold up if the recession gripping the country got worse. Here are some questions and answers about the tests.

What are these "stress tests," anyway?

The government is looking at the financial conditions of the biggest banks — Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co. and others — to help decide whether they have sufficient capital to withstand fresh shocks to the

economy over the next two years.
Economic scenarios used in the bank stress tests help reveal any potential weakness. Stress testing is widely used in the financial industry; federal regulators use it in their periodic "safety and soundness" reviews of banks, and banks run their own stress tests.

How do they work?

The tests use computer-generated models to gauge the effect of various "stressors" on the bank’s financial condition, trying out several hypothetical settings of factors such as interest rates, unemployment and business conditions.

As a banker, "you run a variety of future scenarios and what it means for your bank," said Wayne Abernathy, an executive vice president of the American Bankers Association.

What scenarios will the Treasury Department use in this new stress testing?

The tests are expected to take into account a broader-than-usual range of economic indicators. Also, looking two years ahead pushes the tests well beyond the usual time frame of six months.

The banks will be tested under two economic scenarios: what the government calls a "baseline" and a "more adverse scenario," reflecting a deeper and longer recession.

The scarier scenario includes a 3.3 percent decline in gross domestic product this year; unemployment rising to 8.9 percent this year and 10 payday loans online.3 percent in 2010 from the current 7.6 percent (already the highest in more than 16 years); and house prices plunging 22 percent this year and 7 percent next year.

Should we be worried about this worse-case scenario?

Government officials say — stress, even — that the worse-case "adverse" scenario is unlikely to occur. But they also say it can’t be ruled out.

Will regulators be getting their hands on more information than they usually have access to?

No, they won’t get any more information than usual — they just plan to scrutinize it in a more-intensive way.

How long will the stress tests take, and will banks be graded on them? What will the government do with the results?

They’re expected to be completed by the end of April. And there won’t be any grades.

The tests will help regulators decide whether individual banks need additional government money so they can meet the mission of boosting lending — a crucial component to turning around the economy.

Federal Reserve Chairman Ben Bernanke said Wednesday that if a stress test reveals that a bank needs more capital, it will have up to six months to raise it from private sources. If it fails to do that, then the government would come in with additional aid to shore up the bank’s capital cushion against potential losses.

Will results of the stress tests be released to the public?

The government says it won’t announce the results, though it expects the banks themselves to do so. Either way, the public could get an indication indirectly — from actions the Treasury takes, such as the injection of additional government money into certain banks.

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Home prices declined at a record pace around the nation in the final three months of 2008, according to an industry report released Tuesday.

The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007.

Case-Shiller’s index of 20 major metropolitan areas fell 18.5%, also a record.

"The broad downturn in the residential real estate market continues," said David Blitzer, chairman of the Index Committee at Standard & Poor’s, in a statement. "There are very few, if any, pockets of turnaround that one can see in the data."

All 20 metro areas in the 20-city index recorded declines, with home prices falling more than 20% in eight of those cities. National home prices have dropped 26.7% since they peaked during the second quarter of 2006.

In a separate release from the government, the Federal Finance Housing Agency (FFHA) reported that prices on its home purchase index fell 8.2% during the quarter on a year-over-year basis, and 3.4% compared with the third quarter of 2008.

The government index, which used to be known as the OFHEO home price index, differs from the S&P Case-Shiller index in that it only compares sales of homes that are purchased with so-called "conforming loans", ones guaranteed or bought by mortgage giants Fannie Mae and Freddie Mac.

Homes purchased without financing or ones too expensive to qualify for a Fannie-Freddie loan are not counted in the FFHA statistics.

No slowdown

The decline does not seem to be slowing - just the opposite. The average home price dropped 2.5% between November and December in the 20 top metro areas. That was a larger increase than the 2.3% drop a month earlier.

"The deterioration in U.S. home prices continues apace, with the rate of decline picking up steam late last year," said Mike Larson, an analyst with Weiss Research."Rising foreclosure activity is putting pressure on prices, as lenders are increasingly pursuing a ‘take what we can get’ selling strategy."

Karl Case, the Wellesley economist who, with Yale economist Robert Shiller, co-developed the index, pointed out during a news conference following the index’s release that the markets experiencing the steepest falls also enjoyed the biggest run-ups during the boom small personal loans.

"Those markets were driven by subprime lending expansion from the summer of 2003 on," he said. "After the [Federal Reserve’s lowered interest rates] to fight against the recession of 2001, subprime took off like gangbusters."

Sun Belt cities suffered the worst declines, with Phoenix down 34%, Las Vegas off 33% and San Francisco lower by 31.2%. Denver fared best, down 4%, while Dallas was lower by 4.3% and Cleveland slid 6.1%.

Of the nation’s three largest housing markets, New York home prices dipped by 9.2%, prices in Los Angeles dropped by 26.4% and Chicago prices declined 14.3%.

Despite the drop in home prices, which has given affordability a big boost, the pace of home sales continues very weak. Existing homes have been selling at an annualized rate of fewer than 5 million, down more than 40% from the peak.

New home sales, at an annualized rate of about 331,000, are at their lowest level since the Census Bureau began keeping records back in 1963.

The worst may be yet to come, according to Peter Schiff, president of Euro Pacific Capital, an investment firm specializing in overseas investments and a noted bear on home prices.

"Prices are going to continue to fall," he said. "They have to reflect economic reality."

That reality includes stock prices down to their lowest level in nearly 12 years. "Where would real estate prices be if they went back to where they were 12 years ago?" said Schiff.

The index statistics do not contain a lot of good news for the future, according to Case.

"We’ll learn more in the spring market," he said. "Sales should pick up and we’ll begin to see how well the president’s program is working. There’s no evidence in the data to tell us that home prices will bottom out."
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South Korea’s consumers became the least pessimistic they’ve been in four months in anticipation that interest-rate cuts and the government’s stimulus measures will support the ailing economy.

The sentiment index rose for a second month in February to 85 from 84 in January, the Bank of Korea said in Seoul today. A reading less than 100 indicates pessimists outnumber optimists.

Finance Minister Yoon Jeung Hyun said Feb. 19 the government plans to boost spending by a “significant” amount this year to rejuvenate an economy that’s headed for the first recession since 1998. That would add to the 51 trillion won ($34 billion) already allocated in tax cuts and extra spending to spur local demand as exports slump.

South Korea’s economy shrank the most since the 1997-1998 Asian financial crisis last quarter as the deepening global recession cooled demand for cars, mobile phones and computer chips cheapest personal loan rates. Exports, which make up about 60 percent of gross domestic product, tumbled a record 32.8 percent in January.

The central bank reduced the key interest rate to a record-low 2 percent on Feb. 12, extending the most aggressive round of easing since it began setting a policy rate in 1999. Governor Lee Seong Tae said he’s ready for another cut and will seek new ways to revive growth and protect the financial system.

The consumer confidence index is based on a survey of 2,200 households in 56 major cities conducted by mail and telephone from Feb. 11 to Feb. 18.

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Russia’s most indebted tycoon, Oleg Deripaska, said he does not need help from the state which is tackling an economic slowdown and hopes to reach agreement with creditors on restructuring billions of dollars in debt in the coming months.

Deripaska’s comments came just a day after one of Prime Minister Vladimir Putin’s most trusted aides said the billionaire had already received unprecedented state support and should find a compromise with private banks.

“The state should be left alone. We do not need financial help from the state,” Deripaska told reporters late on Saturday. His comments were embargoed for release on Sunday.

Deripaska, the main owner of aluminum giant United Company RUSAL ORALM.UL, has already received $4.5 billion in state help to refinance western loans that UC RUSAL used to buy a one-quarter stake in Norilsk Nickel.

His empire, stretching from airports to cement production, is still struggling under billions of dollars of debt and has been forced to divest assets in Canada and Germany payday loan in advance.

Deripaska said RUSAL had a mechanism to restructure debts. He said he hoped to agree with creditors in March to delay payment on the principal part of the debts.

But Deripaska, who was last year ranked as Russia’s richest man, denied reports his debts total about $30 billion.

“This figure has nothing in common with reality,” Deripaska said.

He said RUSAL broke even in 2008 and that there were investors who had long sought a stake in RUSAL. He said the state was not seeking to become a shareholder.

Deripaska said Russian companies could forget about foreign borrowing for about seven years.

(Reporting by Polina Devitt, writing by Guy Faulconbridge, editing by Dmitry Solovyov)

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The severe U.S. factory slump appeared to be getting even worse this month while sentiment among home builders shows few signs of recovering after the bursting of the housing bubble, data showed on Tuesday.

U.S. homebuilder sentiment held near all-time lows in February, suggesting sales of new single-family homes would be meager as long as mortgage foreclosures flood the market, the National Association of Home Builders said.

Factory activity in New York State fell to a record low in February, the New York Federal Reserve said, with new orders and employment falling sharply as the U.S. recession deepened.

The New York survey suggested that January’s minor halt in the worsening of factory data was an aberration rather than a signal of recovery that would also bring about a rebound in the economy.

“The data reaffirms other data we’re getting, which shows that economic activity continues to be weak,” said Jim Awad, managing director at Zephyr Management in New York.

“It’s possible that all four quarters will be negative this year. The data continues a pattern of bad data that will weigh on the markets for the foreseeable future.”

U.S. stocks slumped and U.S. Treasury bonds, which generally benefit during tough economic times, rose sharply in price as investors moved into safer havens.

EMPIRE STATE

The New York Federal Reserve’s Empire State factory index fell to minus 34.65, the lowest in the history of the index, which dates back to July 2001 payday loans guaranteed no fax. It was down from January’s already contractionary reading of minus 22.20.

Economists had expected a reading of minus 24, according to the median of their 46 forecasts, which ranged from minus 36.5 to negative 17.50.

The NAHB/Wells Fargo Housing Market Index eked out a one-point gain to 9 from the record low set in January, the group said in a statement. Economists polled by Reuters had predicted the index would stay at 8, the lowest reading since this measure started in January 1985.

Readings below 50 mean more builders view market conditions as poor than favorable. It was the fourth straight month the builder sentiment gauge clung to single digits, and was less than half of the reading of 20 posted a year ago.

The weakness of the day’s reports highlighted the magnitude of the problems facing world leaders, who are desperately trying to stem a global economic slump.

The finance ministers and central bankers of the G7 industrial powers, fearing a 1930s-style resurgence of protectionism, ended crisis talks in Rome on Saturday with a pledge to do all they could to combat recession without distorting free trade.

With the United States already more than a year into what may yet be the worst recession since the Great Depression, clouds also appeared to be darkening over its trading partners in Europe and Asia by the day. 

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India may unveil its biggest budget deficit in 18 years as the government increases spending to protect the economy from the global recession ahead of elections in two months.

The shortfall may widen to 6.5 percent of gross domestic product in the year ending March 31, almost three times the government’s target of 2.5 percent, according to Macquarie Capital Securities. Citigroup Inc. estimates a 6.3 percent gap. The budget will be presented today in parliament in New Delhi.

Prime Minister Manmohan Singh’s government says spending to revive the economy is more important now than worrying about the deficit. The largest budget shortfall since 1991 may prompt rating companies to lower their assessments of India’s credit worthiness, spooking foreign investors who are already retreating from emerging markets.

“It is essential to improve public finances,” said James McCormack, head of Asia sovereign ratings at Fitch Ratings in Hong Kong. “Failure to do so could undermine India’s economic growth prospects and put at risk its ability to continue to attract international capital flows, which have had an important role in financing its development.”

India received an average $10 billion of foreign investments between 2001 and 2003. Inflows from companies including General Motors Corp. and Royal Dutch Shell Plc. increased to $108 billion in the 12 months to March last year, helping the economy grow at a record average pace of 9.3 percent in the three years to March 2008, Morgan Stanley economist Chetan Ahya said.

Job Losses

The government has said growth in the current financial year may slow to 7.1 percent, the weakest since 2003, rendering millions jobless. Exporters may cut 10 million jobs by next month, according to the Federation of Indian Export Organisations. The International Labor Office says India’s economy must grow at 10 percent a year to increase employment by one percent.

Prime Minister Singh’s government, seeking a re-election in polls that are scheduled to be held in April and May, wrote off 717 billion rupees ($14.7 billion) of farm loans and raised the salaries of 5 million government employees by 21 percent in the past nine months. Since December, it has cut taxes and announced an extra 200 billion rupees of spending to boost the economy.

That’s straining government finances because the economic slowdown is also putting the brakes on tax collections. India’s personal and corporate tax revenue was 2.47 trillion rupees between April and January, compared with a target of 3 no teletrack payday loan.65 trillion rupees by March 31, according to the tax department.

‘Worsened Significantly’

The government last week said it will sell 460 billion rupees of additional debt in the year to March 31, 2009. The government has raised 2.4 trillion rupees through the sale of securities this financial year, compared with the 1.79 trillion rupees budgeted earlier, according to the central bank.

“India’s fiscal dynamics have worsened significantly in the last few months,” said Rajeev Malik, a Singapore-based economist at Macquarie. “It could trigger the wrath of the credit rating agencies.”

Malik estimated the federal government’s budget deficit could touch 8.1 percent of GDP if the government includes bonds sold during the year to subsidize fuel and fertilizer in its books. India regards these bonds as “off-budget” items and does not show them in state accounts.

Fitch last week maintained India’s credit rating at BBB-, its lowest investment grade, because of rising debt that it estimates at about 80 percent of GDP. Standard & Poor’s also places India’s credit rating in its lowest investment category.

New Government

Today’s statement in parliament will include initiatives for the first four months of the next fiscal year that starts April 1, as well as spending and revenue estimates for the full year ending March 31, 2010. These figures will be revised when the new government announces its budget after assuming office in May.

Still, Suresh Tendulkar, the top economic adviser to Prime Minister Singh, says “limitations in the fiscal space” put the onus of supporting India’s growth on monetary policy.

India’s central bank kept interest rates unchanged in its scheduled policy review on Jan. 27 after reducing them to an unprecedented low on Jan. 2. The repurchase rate, which has been cut four times since October, is 5.5 percent and the reverse repurchase rate is 4 percent.

“The central bank must see the implications of the borrowing program before it next sets rates,” Tendulkar said. “They have to figure out how to maintain adequate liquidity supply in the economy. My guess is they would review rates after seeing the interim budget.”

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A new presence in Massachusetts is helping a Buffalo insurance wholesaler expand.

Russell Bond & Co. Inc. opened an office in Southampton, Mass., its second new bricks-and-mortar site in under a year. The company, based in the Ellicott Square Building downtown, opened an office in Hamilton, N.J., this summer.

“We had been doing business on a multistate basis, but in our industry, we need people on the ground to really make an impact,” said Kurt Bingeman, owner/president.

Founded in 1950, the company offers insurance brokerage services with access to specialty and high-risk insurance markets in most states. In addition to its three offices, the 52-person company has employees who work remotely from home in Syracuse, Charlotte, N.C., and Richmond, Va.

The two new offices have led to several hires and promotions in the Buffalo office, as well installment payday loans. This year’s budget calls for several more new positions.

“We like to be prepared and we like to invest in having enough people,” Bingeman says.

“But on the other hand, you have to be cautious you’ve got enough business to warrant those positions,” he says.

Though the company saw a decline of 4 percent last year – its first down year in 28 years – January was “exceptional” and brought in record numbers. Bingeman says the new offices are helping balance declines in some parts of the business and are the reason he projects the company will grow 10 percent in 2009.

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and a preview of where the debate could heat up.

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By Jeanne Sahadi, CNNMoney.com senior writer

Last Updated: February 9, 2009: 10:49 AM ET

NEW YORK (CNNMoney.com) — In the coming days, a compromise version of the economic recovery plan is likely to pass the Senate with a handful of Republican votes.

But a final bill is still a ways off.

If the Senate passes the bill, leaders will need to then negotiate the final bill with the House, which passed a different version nearly two weeks ago.

Senate Democrats can’t pass a stimulus package without at least a few Republicans signing on - unlike, the House Democrats, who passed their version without a single Republican vote. That means the Senate bill will dominate the House-Senate negotiations.

The aim of the plan’s proponents: Final votes in both chambers before Congress begins its Presidents Day recess on Friday.

The House and Senate bills are identical in many ways. But there are some key differences in the area of tax breaks, spending measures and direct benefits to people hurt by the recession. Those differences offer a preview of the issues that could arise this week.

Tax breaks

Make Work Pay Credit: The Senate bill would narrow President Obama’s signature tax provision. The full credit ($500 per worker or $1,000 per couple) would be paid to people making $70,000 or less ($140,000 per dual-earner couple). Under the House bill, those making $75,000 or less ($150,000 or less for couples) would qualify.

Break for higher income families: The Senate version includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. The House bill has no such provision.

Credit for car buyers: The Senate voted for an amendment that would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase banks issue payday loans. The House bill doesn’t include this provision.

Home-buyer credit: The Senate bill would double the size of an existing temporary home-buyer credit to $15,000. It would also allow all homebuyers to claim it and remove the requirement under current law that the credit be paid back. The House bill also removes the repayment requirement but leaves the credit maximum at $7,500 and would offer it only to first-time buyers.

Child-care credit: Both the Senate and House would expand the eligibility provisions of the child-care tax credit, so that lower income families could claim more of it. But the Senate expansion is smaller.

Direct spending

Education funding: The compromise Senate bill allocates $39 billion to a fiscal stabilization fund that states would use in great part to help fund public colleges and universities. That is well below the $79 billion allocated by the House.

The Senate version also provides less funding for Head Start and teacher quality programs, as well as education efforts for the disadvantaged. It would also eliminate funding in the House bill for K-12 construction and higher education facilities.

Health wellness and flu prevention: The Senate bill excludes money allocated by the House for a prevention and wellness program as well as for pandemic flu research.

Green government vehicles: The Senate version offers $300 million to purchase fuel-efficient government vehicles. That’s half the amount allocated by the House bill.

Direct lifeline benefits

Subsidy for health insurance for those laid off: Both the Senate and House bills include provisions to help jobless workers pay for health insurance if they choose to stay on their ex-employer’s plan. The Senate, however, offers less of a subsidy - 50% for 12 months - than the House, which calls for a 65% subsidy over 12 months.

Tax break on unemployment benefits: The Senate bill, unlike the House version, would make the first $2,400 of unemployment benefits tax free. Both the Senate and House bills extend the time that jobless workers can collect benefits.

Overall price tag

The Senate’s bipartisan compromise aimed to reduce the package’s overall price tag and remove elements that critics argued did not belong in a stimulus bill.

The House-passed version was estimated to increase the deficit by $820 billion over 10 years. The version initially considered by the Senate cost $885 billion, but grew to more than $900 billion after amendments were passed last week.

Now lawmakers and others estimate that the cost of the revised package, including the bipartisan compromise, is between $820 billion and $827 billion, the same or higher than the House package.

But those are unofficial estimates. The final word on the official taxpayer cost of the Senate bill belongs to the Congressional Budget Office and the congressional Joint Committee on Taxation. Their evaluations will likely be released early this week.

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For the second time this week, the Real Estate Council of Ontario has frozen bank accounts of a local real estate office.

The council, known as RECO, has issued a freeze order at a HomeLife Arianna Realty Inc. office in Don Mills, and is investigating broker Hamid Azizi.

In a separate investigation announced earlier, RECO said it had frozen accounts in three Re/Max Executive Realty Inc. offices, located in Richmond Hill, Oak Ridges and and Scarborough.

The head broker, David Seto, is also under scrutiny.

When a prospective homebuyer gives a deposit to a real estate agent, those funds are held in a trust account until the deal closes. Those funds, which typically are insured, are then used to pay the balance of the purchase price, as well as commission to the agent.

RECO also announced this week that it revoked the registration of broker Thomas Lee and HomeLife All Way Realty Inc. on Jan. 23, following an investigation that began in mid-November.

Council officials will not say why Lee’s registration was pulled.

The self-governing group can do so if it has reasonable grounds to believe that the agent or broker is not conducting business "with integrity, honesty, and in accordance with law make quick cash today."

The council is responsible for more than 56,000 real estate brokers, brokerages and salespeople in the province.

The recent rash of enforcement cases is "unusual," said Tom Wright, president and chief executive officer of the real estate council. "Is it some indication of a trend? At this point in time, my answer would be no."

He added that RECO tries to act quickly and ensure that the public is protected.

"This can be a stressful situation for people and we don’t want to add to the stress. We want to provide the necessary assurances."

Veteran real estate lawyer Bob Aaron, who writes a column for the Star, said he is very concerned about these cases. "I’m concerned about the public, I’m concerned about the agents’ commissions. I’m concerned about the integrity of the money and I’m also concerned about the image of the real estate community when something like this happens," Aaron said.

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