Financial life in a big town

Federal Reserve Chairman Ben Bernanke said on Monday banks need to have more capital at hand in order to ensure the financial system is stable.

Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers, even if they allow for a long period of implementation to prevent any market disruptions.

“We need to have higher capital, and that’s what Basel III does,” he said in response to questions at an Atlanta Fed conference, referring to the latest international effort to tighten bank oversight. “That’s essential for a stable financial system.”

Bernanke made the comments the same day that an international bank lobby group, the Institute of International Finance, urged policymakers to pause in regulating the industry.

Toughened capital standards, new liquidity requirements and rules that limit activities all restrict banks’ ability to provide businesses and households with the credit needed to lift economic growth, the IIF said in a letter to central bankers and finance ministers.

Whether big banks have sufficient levels of capital to protect against possible losses has been an ongoing source of contention. A call by the head of the International Monetary Fund, Christine Lagarde, last year for European banks to raise up to 200 billion euros in new capital was quickly rejected by European politicians.

In his prepared remarks on Monday, Bernanke said the U.S. economy has yet to fully recover from the effects of the financial crisis, and regulators must continue to find new ways to strengthen the banking system.

“The heavy human and economic costs of the crisis underscore the importance of taking all necessary steps to avoid a repeat of the events of the past few years,” Bernanke said.

In a speech that did not touch directly on the outlook for economic growth or monetary policy, Bernanke focused on the lingering blind spots for financial authorities trying to prevent a repeat of the 2008-2009 meltdown.

He said financial stability matters had historically played second fiddle to monetary policy issues in the list of central bank priorities, but the crisis changed that.

“Financial stability policy has taken on greater prominence and is now generally considered to stand on an equal footing with monetary policy as a critical responsibility of central banks,” he said.

Bernanke said recent bank stress tests will become a regular feature of the supervisory landscape, and for that reason the latest round of tests is being reviewed to identify possible areas of improvement in “execution and communication.”

He reiterated a worry that he and other top policymakers have expressed about the continued vulnerability of money market funds.

“Additional steps to increase the resiliency of money market funds are important for the overall stability of our financial system and warrant serious consideration,” Bernanke said.

“The risk of runs … remains a concern, particularly since some of the tools that policymakers employed to stem the runs during the crisis are no longer available,” he said.

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Yahoo said Wednesday that it will eliminate 2,000 employees, around 14% of its workforce, as new CEO Scott Thompson begins radically streamlining the company.

The long-rumored job cuts could be the first of several rounds, as Thompson pares Yahoo (, Fortune 500) down to focus on what he views as the company’s core business lines.

Thompson, who joined Yahoo in January, plans to provide more information about his strategy during the company’s first-quarter earnings announcement, which is scheduled for April 17.

In a written statement, Thompson said the cuts "are an important next step toward a bold, new Yahoo — smaller, nimbler, more profitable and better equipped to innovate. Our goal is to get back to our core purpose — putting our users and advertisers first."

Yahoo said its job cuts will save the company $375 million a year when they are completed. It expects to take a $125 million to $145 million charge this quarter for severance costs.

Thompson is aiming to do something his recent predecessors — including Carol Bartz, who was forced out in September — have repeatedly failed to do: articulate a vision of what Yahoo is.

The Internet’s first giant portal has retained a massive user base, but has lost its edge in nearly every field to newer, nimbler rivals. The company gave up on search in 2009, and it’s losing ground in display advertising to new entrants to the market such as Google (, Fortune 500) and Facebook fast cash advance.

Thompson’s busy 2012: Wednesday’s layoffs come three months to the day that Thompson took over at Yahoo — and his tenure has already been a busy one. In February, four longtime board members, including chairman Roy Bostock, announced they would not seek re-election.

Exactly one week after that, activist shareholder Daniel Loeb and his hedge fund Third Point launched a proxy fight. Third Point, which owns a 5.56% stake in Yahoo, is proposing four new Yahoo board members, including Loeb himself.

Mere weeks later, in March, Yahoo filed a lawsuit against Facebook. The high-profile suit alleges that Facebook infringed on 10 of Yahoo’s patents related to advertising, privacy, customization, messaging and social networking.

Facebook called the lawsuit "puzzling," while outside critics decried the move as "pathetic" and "desperate."

Still, considering that his predecessors failed at fixing Yahoo, Thompson clearly knows he has to make bold moves. Whether they’re enough for the long-promised but so far elusive Yahoo turnaround remains to be seen. 

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No one knows for sure what the Supreme Court will do with health care reform. But unless it strikes down the whole law, millions of wealthy families can expect a tax increase come January.

Two big Medicare tax changes were enacted to help pay for the new federal subsidies that millions of Americans will get when they buy health insurance. The tax changes themselves were not among the specific provisions of the law being challenged at the court.

Quiz: What the rich really pay in taxes

The new increases in Medicare taxes will apply to individuals making more than $200,000 a year, or $250,000 for married couples.

The measure, set to go into effect next year, is estimated to raise more than $200 billion over 10 years.

Roughly 4 million households — or 2.4% — will be affected by the increase initially, according to new estimates from the Tax Policy Center. By 2022 that number will grow to 8.3 million, or 4.6%.

What if the health reform mandate dies?

How much more households will pay depends on which Medicare increase they’ll be subject to since the Affordable Care Act calls for two changes. Some households will only be subject to one, and some will be subject to both.

The first involves the Medicare tax on earnings. Today, workers pay 1.45% of their wages into Medicare. Starting next year, high-income individuals will pay another 0.9 percentage points on their earned income over $200,000 ($250,000 if married).

The second change pertains to investment income, which to date has never been subject to the Medicare tax instant payday loan. But next year high-income households will start paying a 3.8% tax on at least a portion of their investment income, such as capital gains, dividends and rental income.

Households subject only to the Medicare tax increase on earnings will pay an estimated $2,430 more on average next year. But amounts vary widely depending on one’s income level. Those making between $200,000 and $500,000, for instance, will only pay about $633 extra while households making $1 million or more would pay another $11,242.

By contrast, millionaires subject only to the new investment income tax will see a much bigger tax bill, paying $38,149 more.

And — no surprise — households subject to both versions of the Medicare tax increase will get hit the hardest. More than 90% of those with incomes over $1 million fall into this group, according to Tax Policy Center estimates. And their average tax increase would top $45,000 next year. By 2022, they’ll pay $57,125 more.

While it’s easy to make the case that the wealthy can absorb these kinds of increases without much strain, that argument may not hold up as well over time as lawmakers seek to raise more revenue from the $250,000-and-up crowd to pay for any number of endeavors, including reducing deficits.

Said Tax Policy Center senior fellow Roberton Williams: "The well is only so deep." 

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The tornadoes that swept through Missouri last year will cost homeowners who didn’t feel so much as a stiff breeze. Home insurance rates in Missouri are rising a little more than 5 percent, according to figures from the Missouri Department of Insurance.

Illinois state insurance officials wouldn’t provide an estimate on how much homeowners premiums may be rising this year.

People in the insurance industry call 2011 “the year of the cat,” as in catastrophe. And that partly explains the rising cost of home insurance here.

Several tornadoes ripped through St. Louis: one on New Year’s Eve of 2010 and then on April 22. Tornadoes laid waste to parts of the mid-South in April, then a massive twister erased much of Joplin in May. All told, twisters killed 1,900 people last year.

The result was the fourth biggest disaster loss in the history of insurance. The $21.3 billion tornado loss ranked just short of the $24 billion cost of 9-11, $25 billion for Hurricane Andrew in 1992 and $47.6 billion for Katrina in 2005.

The tornadoes capped a decade of disaster, in which catastrophic losses of all sorts more than doubled from the 1990s. This year is also shaping up as nasty with 270 tornadoes reported as of March 5, compared to a 7-year average of 123, according to the insurance rating firm A.M Best.

Tornado losses used to be a minor headache for insurers, who were more worried about hurricanes on the coast.

“Insurers are starting to say, ‘maybe this is the new normal,’” said Steve Weisbart, chief economist for the Insurance Information Institute, an insurance trade group. “They’re building into rates a little more margin for catastrophic loss.”

They’re also trying to bolster sagging profits. Earnings for property and casualty insurers dropped about 40 percent last year to $11.7 billion as “catastrophe-related losses wreaked havoc,” according to A.M. Best.

And so, St. Louis homeowners will be paying higher prices for coverage. The Missouri Department of Insurance says that insurers covering 80 percent of homes have filed rate increases averaging a bit over 5 percent from July of last year to early this month.

That was actually lower than in previous years. “Base rates” – rates before any discounts - rose 14 percent in 2009 and 9 percent in 2010, according to Missouri Insurance Director John Huff.

Those 2009 and 2010 increases were due in part to another ‘catastrophe’ hitting insurers — poor returns on their investments. 

Investment income has taken a big hit in recent years because of low interest rates, and falling investment income was pushing up rates before the rash of tornadoes.

Insurance premiums also depends on other factors, such as the amount of competition in the market and the amount of loss claims.

Huff says competition remains strong in Missouri with 130 companies angling to cover homes.

Insurers are looking for ways to lower their disaster losses beyond simply raising rates. More are moving to percentage deductibles, under which the homeowner pays a fixed percentage of any loss, says Weisbart. That’s a step away from fixed deductibles, in which the homeowner pays a certain dollar amount with the insurance company paying everything else up to the policy limit.

In Missouri, regulators are seeing some insurers move away from coverage that replaces damaged property with new property. If an old roof is blown off, they may give the owner a check for the value of an old roof, even if it costs more to replace it with a new roof.

Homeowners have to read their policy to know that they’re getting. “It’s really up to the consumer to do their own homework,” says department spokesman David Owen.

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A development group is proposing to turn the Doe Run lead smelter property in Herculaneum into a $100 million facility that will have a port and additional commercial and industrial uses.

St. Louis-based Environmental Operations Inc. and J.H. Berra Construction Co. in St. Louis County have partnered to create a development group, Riverview Commerce Park LLC, to purchase 500 acres in Jefferson County that includes the Doe Run Co’s lead smelting facility and adjoining property in Herculaneum, the companies announced Friday.

The project is in an early stage and will undergo six months of due diligence before more details are announced in the fall, said Environmental Operations’ chairman and CEO Stacy Hastie.

“We’ve talked to two to three potential users for the site, and we think it has a lot of potential.”

Riverview Commerce Park LLC has signed a letter of intent to purchase the property for an undisclosed amount from Maryland Heights-based Doe Run Co.

The property has been used as a lead smelter for more than a century, and in recent years, Doe Run has come under fire because of environmental problems at the site.

In 2010, the company announced it planned to cease production of primary lead at the Herculaneum smelter. In a settlement with federal and state environmental regulators, Doe Run also agreed to pay for clean-up at the site.

Bruce Neil, Doe Run Co.’s president and chief executive officer, said in a statement that the property has “infrastructure and environmental challenges.”

It chose Environmental Operations and J.H. Berra as buyers and developers of the property, he said, because of their expertise in handling similar challenges.

“We’ve been looking at how we could re-purpose the property and still provide some economic vitality for the area,” said Doe Run spokesperson Tammy Stankey. Doe Run’s smelter currently has 277 employees.

Doe Run is developing an alternative lead metal production process, called electrowinning, that uses a wet chemical process to dissolve lead that it claims reduces emissions.

The company is testing the process at a facility in southeastern Missouri and will decide this spring whether to make a recommendation to the company’s board to open a commercial-scale plant for the new technology.

If it moves forward, the new commerce center proposed at Herculaneum would be considered as a possible location, Stankey said.

Jefferson County officials have worked for years to get a port built along the Mississippi River to spur job growth, said Dan Govero president of the port authority.

“We have all this water frontage and we’re not using it,” he said. “The studies we’ve done show there’s an opportunity to ship grain, sand and other materials, and we have the highway and rail access.”

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As spring approaches, Occupy Wall Street protesters who mostly hibernated all winter are beginning to stir with plans for renewed demonstrations six months after the movement was born.

The global protests against corporate excess and economic inequality are generally thought to have begun Sept. 17 when tents sprang up in a small granite plaza in lower Manhattan. The movement has lost steam in recent months, with media attention and donations dropping off as Occupy encampments across the country were dismantled, some by force.

On March 7, the finance accounting group in New York City reported that just about $119,000 remained in Occupy’s bank account _ the equivalent of about two weeks’ worth of expenses.

The Occupy movement has influenced the national dialogue about economic equality, with the word “occupy” itself becoming part of the public lexicon. In his third State of the Union address, President Barack Obama issued a populist call for income equality that echoed the movement’s message. But has anything really changed in the past six months?

Some achievements that can be connected to the efforts of the Occupy movement, and some plans for the near future:

WHAT GOT DONE

In Albany, N.Y., Occupy protesters dubbed Democratic Gov. Andrew Cuomo “Gov. 1 Percent” for his refusal since the 2010 campaign to agree to a millionaire tax, and because his major campaign financial support comes from corporate executives.

Cuomo tried to evict Occupy Albany from the park co-owned by the city and the state. But the Democratic mayor, Gerald Jennings, agreed to allow Occupy Albany to stay on the city-owned side. Local Democratic District Attorney David Soares also announced he wouldn’t prosecute anyone for disorderly conduct at Occupy Albany who might be arrested by state police _ who answer to Cuomo.

In a surprise, Cuomo reversed his position on the millionaire tax in December to avoid further cuts to schools and health care. Part of the $2 billion in revenue went to a modest but rare income tax cut of $200 to $400 for most middle class families. Cuomo refers to the millionaire tax as the biggest tax cut for the middle class in decades.

Democratic lawmakers attributed Cuomo’s move in part to the Occupy protesters who had targeted him across the street from the Capitol for months and had begun demonstrating just outside his office.

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An Atlanta pastor, whose church struggled to pay its bills after its building was struck by a 2008 tornado, credits Occupy Atlanta with helping it to avoid foreclosure. The Rev. Dexter Johnson’s church, the Higher Ground Empowerment Center, took out a loan to rebuild and has struggled to pay its mortgage in recent months.

Johnson said the bank had agreed to work with the church to help pay its mortgage after demonstrations by Occupy members. Demonstrators had set up a camp at the church in Atlanta’s Vine City neighborhood, just west of downtown.

In January, Johnson learned his congregation would be allowed to stay in the building.

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In Rhode Island, Occupy Providence pushed for _ and won _ a temporary day center to serve the homeless during the winter. Protesters made the center’s opening a condition of their departure from a public park downtown, where they had camped against the city’s wishes for more than three months.

While the city didn’t fund the center, officials pledged to help its operator, the Roman Catholic Diocese of Providence, find money for it.

“It shows that with pressure from people, a government can be made to move,” protester Robert Malin said at the time of the center’s opening.

The city had threatened legal action to remove the protesters and their tents from the park, but the two sides instead went into mediation before a judge.

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Also in Rhode Island, the state’s junior U.S. senator, Sheldon Whitehouse, introduced a bill in November to crack down on high credit card interest rates _ the same week he visited the Providence encampment. While there was no direct relationship between Occupy and the bill, Whitehouse spokesman Seth Larson said Thursday, the legislation no doubt resonated with the protesters.

“It was timely, and I’m sure the Occupy folks appreciated this bill,” Larson said.

Whitehouse had introduced similar legislation a year earlier.

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Occupy protesters helped save an Iraq war veteran’s home from foreclosure in Atlanta, the Huffington Post reported. “I strongly believe Occupy Atlanta accelerated the process and helped save my home,” Brigitte Walker, whose home activists began occupying Dec. 6, told the website. “If it had not been for them standing up, I probably wouldn’t be having this happy ending.” Walker had left Iraq in May 2004 when she was injured by the shock from mortar rounds, the Post reported.

Occupy Minneapolis also worked with community organizers to help a former Marine who faced eviction from his home strike a deal with his bank, the Post reported.

WHAT’S NEXT

Occupiers in New York City will commemorate the six-month mark with a rally Saturday in Zuccotti Park, where protesters camped out for months until the city ousted them in November.

Organizers are hoping donations will start to flow in as protests begin anew this spring, including a global day of “economic disruption” on May 1.

And in some states, Occupy supporters are making forays into politics. Asher Platts is running for the state senate in Maine as a “Clean Elections” candidate. Platts, an activist who attended the protests last fall, is running on an Occupy platform.

In suburban Philadelphia, Occupy protester Nathan I. Kleinman is running a write-in campaign for Congress against four-term Rep. Allyson Schwartz in the Democratic primary on April 24. The 29-year-old said he never would have mounted a run without his Occupy experience. Kleinman withdrew from the ballot after a court hearing in which Schwartz’s supporters questioned some of the 1,500 required signatures he had gathered to appear on the ballot.

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Retail sales in the U.S. probably rose in February by the most in five months, spurred by the strongest demand for automobiles since 2008, economists said before a report today.

The 1.1 percent rise would follow a 0.4 percent gain in January, according to the median forecast of 81 economists surveyed by Bloomberg News. Excluding autos, purchases may have climbed 0.7 percent.

Sales at chains like Gap Inc. (GPS) and Target Corp. (TGT) last month beat analysts

Oil prices rose slightly to near $107 a barrel Monday in Asia as simmering tensions over Iran’s nuclear program kept crude near 10-month highs.

Benchmark oil for April delivery was up 29 cents to $106.99 in electronic trading on the New York Mercantile Exchange. Brent crude was up 15 cents to $123.80 per barrel in London.

Crude jumped to $110.55, the highest since May, late Thursday after an unconfirmed Iranian media report of a pipeline explosion in Saudi Arabia. Saudi officials denied the report, which helped send crude down $2.14 to settle at $106.70 per barrel in New York on Friday.

“The magnitude of the response to the unfounded rumor highlights a tight crude supply situation that will be keeping the entire market highly responsive to even the smallest hint of a supply disruption,” energy consultant Ritterbusch and Associates said in a report.

Crude has risen from $96 last month amid investor fears that growing tension over Iran’s nuclear program will spark an armed conflict and disrupt global crude supplies. Analysts say Saudi Arabia and other oil producers do not have enough spare capacity to quickly make up for Iran’s 4 million barrels a day of crude.

Traders will also be closely watching the latest U.S. economic indicators this week. The economy has been showing signs of gradual improvement in recent months, which has bolstered investor optimism and pushed crude prices up from $75 in October.

Monthly employment data is scheduled to be released on Friday.

In other energy trading, heating oil added 0.2 cent to $3.20 per gallon and gasoline futures were up 0.7 cent at $3.28 per gallon. Natural gas fell 4.9 cents at $2.44 per 1,000 cubic feet.

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Gas prices are spiking. But this time, Detroit is ready.

When prices soared in 2008, the city’s three U.S. automakers were caught flat-footed. They didn’t have competitive small cars and relied on trucks and SUVs for profits. When gas prices peaked at $4.12 in July of that year, sales from the Big Three plummeted more than 20 percent. That same month, sales of the fuel-sipping Toyota Corolla jumped 16 percent.

Fast forward to February 2012. Overall U.S. auto sales rose 16 percent to 1.1 million last month, largely on the strength of Detroit’s small cars. The annual sales pace hit 15.1 million, the best rate in four years.

This time, the Detroit Three saw a 13-percent sales increase. The difference: They have spent billions since 2008 to roll out new models such as the Dodge Dart and Chevrolet Cruze.

The timing is fortunate. Buyers are shifting to small cars again. Twenty-three percent of new-car sales were small cars in February, up from 17.9 percent in December, according to auto information site Edmunds.com.

So far, the shift isn’t as dramatic as it was in 2008, when small-car sales leaped to 27 percent of the market in May as gas suddenly spiked to near $4 per gallon. But prices have never been as high for this time of year. The price of a gallon of gas is up 46 cents this year to an average of $3.74. Analysts say gas could hit $4.25 by late April.

It bodes well for Detroit, which has a newfound confidence that it can weather the pain at the pump.

“We are very well positioned as a company to thrive in a world of escalating gasoline prices,” Bill Ford, chairman of Ford Motor Co, told The Associated Press in a recent interview.

Sales of the Focus small car, which Ford rolled out last year, more than doubled to 23,350, making it the best February for the Focus in 12 years. The new Focus gets up to 40 mpg on the highway, seven miles per gallon better than the 2008 model. The company’s sales were up 14 percent in February compared to the same month last year.

The story is the same at General Motors Co. In July 2008, Honda Motor Co. sold 12,266 Fit subcompacts, besting the Chevrolet Aveo by nearly 5,000 cars. But GM recently replaced the unappealing, underpowered Aveo with the sportier Sonic, which gets up to 40 mpg on the highway and has luxurious options like heated side mirrors. The company sold 8,000 Sonics in February, outselling the Honda Fit and Toyota Yaris combined.

Don Johnson, GM’s U.S. sales chief, said that three years ago, just 16 percent of the cars and trucks GM sold got over 30 mpg on the highway. Now, it’s close to 40 percent.

“We believe that this puts us in a very strong competitive position,” Johnson said Thursday. GM’s sales rose 1 percent in February.

Even Chrysler Group, whose lineup is weighted toward SUVs and big cars, will become a bigger player in the small car market this spring, when the new Dodge Dart goes on sale. In the meantime, its Fiat 500 subcompact had its best month ever in February, helping Chrysler’s sales climb 40 percent.

Carl Galeana, who owns a Fiat dealership north of Detroit, said sales were flat in the first part of the month but picked up the last two weeks as gas prices jumped. Shoppers were constantly asking about the fuel economy of the 500, which can get up to 38 mpg on the highway, Galeana said.

“All of the sudden, boom! We’re starting to sell Fiats,” Galeana said.

Japanese carmakers are also benefitting. In 2008, they saw sales slide because they couldn’t make their most efficient cars, like the Toyota Prius hybrid, quickly enough to satisfy demands. But this February, Toyota’s sales rose, led by a 52-percent jump in the Prius hybrid. Honda’s sales were also up, thanks to a 36-percent increase for the small Civic.

Bigger vehicles from both U.S. and Japanese automakers are also less vulnerable to gas spikes, since they get better gas mileage than they did in 2008. Ford’s new Explorer SUV, which came out last year, sits lower and is more aerodynamic to save fuel. It gets up to 28 mpg on the highway; its 2008 predecessor didn’t even get 20. Honda’s new CR-V gets up to 31 mpg compared to 27 for the 2008 model.

But many buyers are still choosing to downsize. Dennis Beshear of Monument, Colo., recently bought a new Focus for his 100-mile round-trip commute to Denver. The advertising salesman now gets around 35 miles per gallon, up from just 21 mpg in the 2006 Nissan Murano crossover SUV he used to drive. He fills up the Focus every third day, compared with every day and a half with the Murano.

Gas prices were his main motive for buying.

“I had a feeling they were going to go up. They were just too good to be true,” he said.

For automakers, there’s tough competition ahead for small cars. They’re trying to make them more profitable by loading them up with pricey features such as leather seats and navigation systems. As a result, prices are rising. Vehicles sold for an average of $30,605 last month, up almost 7 percent from a year earlier, mostly due to more luxurious small cars, according to the TrueCar.com automotive website.

Companies that don’t move fast enough in the small-car market will be hurt.

The Honda Civic, Chevrolet Cruze and Ford Focus all gained market share in the compact car segment last month, with some of the sales coming at the expense of Toyota’s aging Corolla, said Jeff Schuster, senior vice president of forecasting for the LMC Automotive consulting firm. That’s a very different story than 2008, when the Corolla was the runaway best-seller in the segment.

The shift to smaller cars is becoming a regular pattern. Buyers also leaned toward smaller cars at the beginning of last year, when gas prices jumped 80 cents between February and May before moderating in the summer. Last March, when gas prices reached $3.74 per gallon, 23 percent of buyers purchased small cars. But they went back into bigger cars once gas prices eased.

Edmunds chief economist Lacey Plache said rising gas prices won’t make car buyers hold off on purchases altogether. That’s because they’re more confident about the jobs market and because cars on U.S. roads are getting so old that they have to be replaced. She says people will simply put more emphasis on fuel economy and cut back on the miles they drive.

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