WASHINGTON–U.S. President Barack Obama wants to strengthen the government’s authority over financial institutions in a sweeping attempt to modernize a regulatory latticework that failed to detect early signs of a worldwide crisis.
The president was to detail the administration’s overhaul plan on Wednesday, recommending new powers for the Federal Reserve; a new consumer protection agency to govern lending and credit; and new rules that would reach into currently unregulated regions of the financial markets.
An 85-page draft of the administration’s plan details an effort to change a regulatory regime that Obama’s economic team maintained had become too porous for the innovations and intricacies of the today’s financial markets.
With Congress already embroiled in health care legislation, Obama has set an ambitious schedule, pushing lawmakers to adopt a new regulatory regime by year’s end.
Obama said Tuesday his administration was going to put forward “a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again.”
Meanwhile, Christina Romer, chairman of the White House Council of Economic Advisers, said Wednesday morning the administration’s proposal strikes "the appropriate balance" and that it was "not bulldozing the whole system.”
But House Republican Leader John Boehner differed with that assertion, predicting "we’ll have the federal government deciding what interest ought to be charged on credit cards, having the government decide what kind of financial products are available,” the Ohio Republican said.
"I think it’s just going to be too big of a foot on an industry that already is having financial problems," Boehner said in an appearance on ABC’s "Good Morning America." Appearing on the same program, Romer insisted that wholesale regulatory change is crucial to overall economic health, saying that in the past "there were gaps, there were failures, in our regulatory system, and we need to make it better.”
The financial sector and lawmakers from both parties concede the need for significant changes in the rules that govern the intricate and interconnected world of banking and investment. But the details of Obama’s proposal already are facing resistance, signaling a tough sell for a president who is spending major political capital on his health care overhaul.
Under Obama’s plan, the Fed would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation’s financial system. But even as it gains new powers, the Fed also would lose some banking authority to a new Consumer Financial Protection Agency.
Obama’s proposal would require the Fed, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury approval before extending credit to institutions in "unusual and exigent circumstances.”
The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration’s proposal. Many bankers oppose a new consumer protection regulator and many lawmakers worry the Fed could become too powerful. Friction over those points could slow any major overhaul.
Besides having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system creditreport. The arrangement is designed to prevent crashes like those that felled AIG and Lehman Brothers.
In conjunction with the Fed’s authority over large financial institutions and the new consumer agency, Obama also will propose:
– Additional protections for investors, including greater disclosure by hedge funds; regulation of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight; and new conditions on brokers and originators of asset-backed securities.
– A system for the orderly disposition of any troubled, interconnected firm whose failure poses a risk to the entire financial system, together with rules that insist that financial institutions hold more capital to avoid over-leveraging.
Obama’s plan does not attempt major consolidation of turf-conscious regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight.
"We don’t want to tilt at windmills," Obama said on CNBC.
Obama’s decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt.
The new regulator would have the power to demand that customers have the option of simple financial products, to impose fines and to allow states to pass laws that are stricter than the federal standards. Consumer protections are now spread among various state and federal authorities, including the Fed, the Securities and Exchange Commission, the Federal Trade Commission and banking regulators.
Financial lobbyists rallied against the new agency, saying it’s impossible to separate bank regulation from oversight of the products they offer.
"We’re supposed to be trying to plug holes and connect dots” with the regulatory overhaul, said Scott Talbott, top lobbyist with the Financial Services Roundtable. "The consumer regulator idea moves in the opposite direction.”
Sen. Chuck Schumer, D-N.Y., called the new consumer products agency "the cornerstone of regulatory reform." The Fed and other banking regulators, he said, were too focused on the "safety and soundness" of the institutions they oversee, and "did not do a very good job of protecting consumers.”
Rep. Bill Delahunt, a Massachusetts Democrat who has helped write a consumer protection bill in the House, said: "Here we are just beginning to extract ourselves from this mess that was on the cusp of total collapse, and the banks don’t want further regulations. Give me a break.”
The administration will also have to use its political skills to strengthen the Fed. While Democrats generally agree with a need for regulatory changes, many oppose a Fed with expanded powers.
Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking, Housing and Urban Affairs Committee, has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks.
Dodd, however, is a strong proponent of a consumer protection agency and is likely to champion that component of Obama’s plan.
Michigan officials said Friday that the state is closing three prisons and five prison camps in hopes of narrowing a $1.4 billion budget gap for fiscal 2010.
The state, which has been hammered by the auto industry meltdown, estimates that it will save $120 million by shuttering the eight facilities. None of the 4,149 prisoners in the facilities will be released early, but up to 1,000 workers may lose their jobs.
Michigan is not alone in turning to its prison system for savings. Some 25 states cut spending on corrections in fiscal 2009 and another 25 are proposing to do so in fiscal 2010, as they struggle to address massive budget shortfalls.
"It’s a trend we’ll be seeing more and more of in coming months given the dire revenue situation states are in," said Sujit CanagaRetna, senior fiscal analyst at the Council of State Governments, a research group.
The Wolverine State is targeting the correctional system because it takes up 22% of the state’s general fund budget, the largest component. (Education is funded separately.) The state must close the $1.4 billion gap before its fiscal year ends on Sept. 30.
In part because of a 5-year-old initiative to reduce recidivism, Michigan has seen its prison population decline to 47,552, down 7.3% from January 2007. It already closed two prisons and a camp earlier this fiscal year for a savings of $30 million, Cordell said. The latest downsizing eliminates 6,400 beds from the system.
"Rightsizing our prison system is the responsible thing to do," said John Cordell, a spokesman for the Michigan Department of Corrections.
The facilities being closed are Camp Cusino in Shingleton, Camp Kitwen in Painesdale, Camp Lehman in Grayling, Camp Ottawa in Iron River and Camp White Lake in White Lake.
Camps are the lowest security facilities in the system and house the lowest-risk prisoners who are within two years of release online payday advance. Camp detainees, who do public works projects for the state or local communities, will be transferred to other locations. These are the last remaining camps in the system, signaling an end to the program that has existed for more than 50 years.
The three prisons that are closing are Muskegon Correctional Facility, a medium security institution in Muskegon, Hiawatha Correctional Facility, a minimum security location in Kincheloe, and Standish Maximum Correctional Facility in Standish.
Instead, the state will put $60 million toward increased supervision of some paroled prisoners. The savings include that figure.
Dire straits
Friday’s announcement was the latest in a string of spending cuts in Michigan.
With tax revenues coming in below estimates, Gov. Jennifer Granholm last month was forced to slash spending by $350 million, including a 4% across-the-board reduction. The move comes after the governor cut $134 million from the budget in December.
"Michigan government can no longer afford to be all things to all people," Granholm said in a May 5 statement. "We expect to have to make more cuts like these in the future, which are the very type of wrenching cuts we have worked so hard to avoid in the past."
The cuts made in May mean adults on Medicaid are losing dental and vision coverage. New state trooper graduates are losing their jobs, and local communities are losing 1/3 of their remaining state revenue-sharing funds.
Like other states, Michigan is seeing its tax revenues dry up. Personal income taxes are down 22.6%, while sales taxes fell 7.6%.
Oil settled at a six-month high above $66 per barrel Friday, for its largest monthly percentage gain in more than a decade, after U.S., Japanese and Indian data suggested the economic downturn may be easing.
Oil prices have jumped around 30% this month, the largest monthly rise since March 1999, buoyed by expectations of a global economic recovery later this year, which helped push stock markets higher.
U.S. crude oil for July delivery settled up $1.23 at $66.31 per barrel, after reaching $66.47. The settlement was the highest since it closed at $70.53 on Nov. 4.
The dollar hit a five-month low against a basket of other currencies. A weak dollar makes oil cheaper for holders of other currencies and tends to support prices.
Data Friday showed Japanese industrial production rose 5.2% in April on a monthly basis, and the government said it expected continued gains through June.
U.S. growth data Friday also reinforced the sense that the global economic slump might be abating.
The Commerce Department said the world’s largest economy contracted slightly less than initially estimated in the first quarter, dropping at a 5.7% annual rate, rather than the 6.1% fall published by the government last month.
The revision was nevertheless below market expectations for a 5.5% contraction for the January-March quarter.
India’s economy grew faster than expected in the first quarter, helped by strength in farm and services sectors.
"Oil market participants’ conclusion that the worst of the recession has passed and a recovery in demand must be at hand was bolstered overnight by higher-than-expected first-quarter growth in India and a sharp jump in Japan’s April industrial production," said Mike Fitzpatrick, vice president at MF Global in New York payday loan.
U.S. inventories
Another supportive influence was Thursday’s report by the U.S. Energy Information Administration on U.S. crude oil stocks, which fell 5.4 million barrels in the week to May 22, way above analysts’ expectations in a Reuters poll for a 700,000 barrel decline.
Gasoline inventories also fell for the fifth week in a row as demand rose in the week preceding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the United States.
"The market has reacted to the headline figures," said Harry Tchilinguirian, analyst at BNP Paribas in London. "That has helped extend technical buying as we moved above the psychologically important 200-day moving average (MA)."
The front month for U.S. crude oil futures crossed up through its 200-day MA on its daily price chart Tuesday and it is now acting as a strong support, according to technical analysts who track prices on charts.
OPEC’s decision to hold oil production steady also helped prop up prices. The producer group Thursday kept its output targets unchanged as expected, betting on a strengthening world economy and tentative signs of increased demand.
Analysts said Saudi Arabia’s statement this week that the global economy could now cope with $75 to $80 a barrel oil was a shift from the world’s largest oil producer, which has until recently hinted it would be happy with a lower price to help the world economy back on its feet.
From remote grasslands to the heart of the capital, Mongolians cast their ballots on Sunday to elect a new president residents and investors hope will facilitate the country’s efforts to tap its vast mineral wealth.
The tight race between incumbent Nambariin Enkhbayar of the ruling Mongolian People’s Revolutionary Party (MPRP) and opposition Democratic Party (DP) candidate Tsakhiagiin Elbegdorj is seen as a barometer of how soon the country will be able to reach a deal with foreign investors on a landmark mining deal.
Any repeat of the type of unrest and ensuing legal struggles that followed last year’s parliamentary elections, in which five died, could postpone approval of a draft investment agreement on developing the pivotal Oyu Tolgoi copper and gold project.
“It’s a beautiful day today, and I hope it’s also going to be a very good election. I firmly believe in the bright future of our people and the prosperity of our country,” Enkhbayar said after voting in a university gymnasium in the capital Ulan Bator.
Coming at a time when the young Central Asian democracy has been hit hard by falling mineral prices, the election pits Enkhbayar’s pledge to beef up the rule of law against Elbegdorj’s promises of change and fighting corruption. Both are dangling payouts from mining revenues and further help for students.
“The most important thing the new president needs to do is develop the country, to pull us out of poverty,” said Davaadorjiin Suvdaa, a 56-year-old retired worker.
A win by Elbegdorj could complicate policy making on mining, given his track record of anti-foreign and populist inclinations, analysts say.
Voters turned out in droves in the capital, many dressed in traditional long silk cloaks known as deels, in a sign of their respect for the largely ceremonial head of state and symbol of national unity cash advance loans.
Polling stations close at 10 p.m. (10:00 a.m. EDT) and the latest survey put the two parties in a statistical tie. A result could be known later on Sunday or early Monday but it also could take several days if it is a tight race.
SEEKING STABILITY
In the country’s vast windswept grasslands, many nomadic herders traveled dozens of kilometers on horseback and motorbike to the nearest polling stations.
“Stability is the most important thing to me,” said Sandagyn Bayarmaa, 46, who lives with her husband in a round felt tent and herds goats and sheep like much of the population.
The countryside is the traditional base of support for the MPRP, the reincarnation of the party that ran Mongolia as a Soviet satellite through much of the last century, while Elbegdorj draws largely on urban voters.
Exit polls are banned, but if voter turnout is high, meaning around 80 percent, that will probably bode well for challenger Elbegdorj, said Luvsandendev Sumati, director of the Sant Maral Foundation, a group that does polling and surveys.
“What might change the election outcome is only feet,” Sumati said. “The MPRP and their candidates were always better organized so their supporters are voting in an organized manner. But Democratic Party supporters, they are rather those who think, ‘Well, should I go or not?’”
Congress on Wednesday sent to President Obama a bill that makes it tougher for credit card issuers to raise fees and interest rates.
The move caps a years-long crusade by consumer groups and Democrats to rein in what they say are abusive practices that prey on consumers. The approval came despite strong objections by banking industry advocates, who say it could result in tightened credit to Americans.
The House voted 361-64 in favor and also approved by 279-147 an unrelated measure allowing people to carry guns into national parks.
The Senate passed the credit card bill, along with the unrelated gun measure, by a 90-5 vote on Tuesday.
President Obama will sign the bill on Friday, a White House spokeswoman told CNN.
The credit card rules would take effect in February. The bill is moderately tougher on banks and card issuers than are new Federal Reserve rules set to take effect July 2010.
The legislation makes it harder for people under age 21 to get credit cards. It would also ban rate hikes unless a consumer is more than 60 days late — and then restore the previous rate after six months if minimum payments are made.
"Over the past three years as I have labored on this bill, the need to stop credit
card abuses has become ever more apparent with every passing billing cycle," said the bill’s House sponsor, Rep. Carolyn Maloney, D-N.Y., on Tuesday.
The bill marks a major loss for the banking industry.
Financial services representatives have decried the bill, saying it would exacerbate the credit crisis and force banks to drop some risky credit card holders. The American Bankers Association said the legislation would prompt banks to reinstate annual fees and higher interest rates for all card holders, an outcome that would penalize those with good credit who pay their bills on time.
Some House members voiced those concerns Wednesday faxless payday advance.
"At a time when Americans are struggling to pay their mortgages, groceries and health care costs, why would we want to make credit more expensive and less available?" said Rep. Jeb Hensarling, R-Texas.
The credit card legislation has been a long work in progress. The House passed a bill in 2008 and again earlier this year. The legislation, which stalled in past years, was propelled by public outrage and pressure by President Obama.
Maloney added that she thought it was "unfortunate" that the measure to allow concealed weapons in national parks remained as part of the credit card measure. She and several other Democrats voted against the gun measure.
In recent months, credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average to 13.08% from 12.02%, according to a Federal Reserve Board report.
At the same time, more people are not able to make their credit cards payments and are walking away from debt, according to a Federal Reserve report.
However, Treasury Secretary Tim Geithner said Monday he was not concerned about a consumer debt "bubble."
"Americans are going to be reducing how much they borrow, improving their balance sheets, saving more," he said. "Banks are still going to have losses they’re going to have to adjust to. And that’s what’s going to make the process of repair here longer …. But that’s a necessary, healthy process of adjustment for us to go through."
-CNN senior White House correspondent Ed Henry contributed to this report.
A day after the World Health Organization upgraded the swine flu to a "pandemic threat" level, the nation’s pharmaceutical industry warned that a vaccine to protect against the virus could still be at least three to six months away.
"It’s going to be very hard to be doing it any faster," said Alan Goldhammer, vice president of scientific and regulatory affairs with the Pharmaceutical Research and Manufacturers of America (PhRMA).
The biggest obstacle is the egg-based technology used to develop all flu vaccines in the United States.
The process involves first growing the virus in chicken eggs, then harvesting it into vaccines.
Not only is this a time-consuming process, but Goldhammer points out that the quantity of the vaccine produced is limited to the egg’s volume.
"It’s only so fast that you can make a chicken lay eggs," said Goldhammer.
"It’s a 1940s technology that’s not efficient anymore," said Devon Herrick, senior fellow with non-profit research group the National Center for Policy Analysis (NCPA).. He said a cell-based technology not approved in the United States — but used in Europe — could cut the vaccine development time to 13 weeks from its current 24 weeks.
Competition for eggs: Complicating matters is the fact that the cumbersome U.S. vaccine process was already gearing up to treat a different strain of the flu later this year.
At the beginning of each year — usually in January — the Centers for Disease Control and Prevention (CDC) tries to predict what new virus strains will hit the United States nine to 12 months later. The government has not revealed the 2009-10 strain.
To do this, the CDC looks at flu strains that have already impacted Asia, said Herrick. Once the agency agrees on a strain for all manufacturers to develop into a vaccine, commercial scale production usually begins in March for market availability in late September to October.
That process had already started when the swine flu or H1N1 virus struck Mexico. Now the two strains will compete for the limited resources manufacturers have to develop seasonal vaccines.
"In general, the normal flu vaccine given in October and November is about 80 to 100 million doses," said Goldhammer. "’We’re talking about producing 70 to 80 million doses just for swine flu."
Goldhammer said vaccine makers also need to run multiple tests to find the right dose for each vaccine to determine the necessary immunity against the virus.
The roadblocks to speedy production don’t end there. Goldhammer said only six companies last year manufactured flu vaccines and two of them are relatively small payday cash loans.
And Herrick said he’s concerned that the H1N1 virus outbreak might overburden the already fragile supply within the vaccine industry.
"The industry is already in a tenuous position," said Herrick.
Costly proposition: Not only is it very expensive to make vaccines — on average it costs about $700 million to bring a vaccine to market — but 60% of the costs are also "fixed costs." So if the H1N1 outbreak is contained quickly, or if experts made the wrong guess on the predicted seasonal flu, the manufacturers are stuck with an oversupply.
"If the CDC picked a wrong strain of a virus then the vaccine could be entirely worthless and the manufacturers can’t recoup their costs," Herrick said.
Although President Obama has asked Congress for an additional $1.5 billion to fight the H1N1 outbreak, Herrick said he’s not sure if that’s enough to also fund the sizeable quantity of vaccine production that a pandemic would require.
What might allay industry concerns, he said, is if the Food and Drug Administration were to fast-track approval for cell-based technology to manufacture the H1N1 vaccine and also guarantee vaccine makers a market for their finished product.
Since no vaccines will be immediately available for H1N1, health experts advised people to follow common sense precautions to mitigate their risk of exposure to the flu.
"Wash your hands frequently, wear a mask if you are around an infected person or area and stay home if you’re not feeling well, said Dr. James Koopman, professor of Epidemiology at University of Michigan’s School of Public Health
In the meantime, the CDC said it has stockpiled antiviral drugs Tamiflu and Relenza for the treatment and prevention of the H1N1 virus.
However, the agency has recommended that the two prescription drugs currently be given to "confirmed, probable or suspected cases" of the H1N1 virus infection.
Koopman said the public policy on the antiviral medication should be to make it available to everybody, and not just to high-risk individuals.
"There’s a trade-off in deciding what to do and when," he said. "It should not just be a containment strategy, but a mitigating strategy to delay the onset of the fall outbreak of the virus."
Experts say the U.S. will likely have the H1N1 vaccine ready should there be a second outbreak of the virus in the fall.
VIENNA–Switzerland, Austria and Luxembourg offered yesterday to relax strict bank secrecy in some tax evasion cases in a response to a global crackdown on tax havens that is rattling the offshore banking industry.
The three countries made the concessions ahead of a meeting starting yesterday of G20 finance ministers that was to discuss tax havens.
Similar moves were made by Andorra and Liechtenstein on Thursday.
All five were on a list handed to the G20 this week by the Organization for Economic Co-operation and Development (OECD), which deems bank secrecy rules as undesirable.
British Prime Minister Gordon Brown, who is chairing a G20 summit in April, welcomed the Swiss move and said he hoped this was the beginning of the end for tax havens. "The summit in London next month is an opportunity for global agreement on the further actions we need to take to clean up the global financial system," Brown said.
Switzerland will now co-operate in cases of suspected tax evasion, at least once double taxation agreements are renegotiated with other countries, which may take time. It also said it could seek an amnesty for existing clients.
Previously, the world’s biggest offshore banking centre would only co-operate with foreign authorities once outright tax fraud could be proved, which has recently hindered American access to client data of Switzerland’s biggest bank UBS in an ongoing tax probe.
Switzerland’s finance minister, Hans-Rudolf Merz, who also holds his country’s rotating presidency, said Switzerland is now co-operating because being put on a blacklist, and the possibility of sanctions, would have hurt the economy.
The OECD blacklist currently includes Liechtenstein, Andorra and Monaco, but France and Germany have been pushing for others, including Switzerland, to be added.
The tax debate is crucial for the wealth-management industry, which handles an estimated $7 trillion (U.S.) of assets out of offshore centres around the globe, of which about $2 trillion is held in Switzerland and about $1 trillion in Luxembourg.
Merz said it is hard to say whether yesterday’s moves would prompt an outflow of money, noting that other tax havens such as rising Asian rivals Singapore and Hong Kong have also adopted the OECD’s rules recently no credit check payday loans.
The European countries insist the move will not lead to "fishing expeditions" by other states for client data and say banking secrecy rules would be otherwise upheld.
"It is not an open-door policy," Merz said. "It is an easing of access to information in respect to tax crime."
Switzerland has accused the United States of being on a "fishing expedition" by pursuing a civil case against UBS to try to access details of 52,000 clients, even after the Swiss bank paid $780 million to avert related U.S. criminal charges.
In a separate statement yesterday, the Swiss government said it would instruct a U.S. law firm to defend the country’s position in the civil case against UBS.
The right-wing Swiss People’s Party said the government had betrayed citizens and bank customers with its concessions. "With today’s decision the government is sacrificing a centuries-old principle of protecting citizens," it said in a statement.
The moves by Austria and Luxembourg, both European Union members, may not be enough to satisfy fellow member states such as Germany, which has been vocal in the fight against tax havens since it obtained bank data of citizens suspected of parking money in Liechtenstein last year.
Luxembourg’s treasury and budget minister, Luc Frieden, said the OECD framework for case-by-case information exchange should be the only principles applied in the EU and the Commission gave a guarded welcome to Friday’s announcements.
A study for British charity Oxfam showed that developing countries miss out on tax receipts worth more than the billions of dollars they receive in foreign aid because their own nationals put cash in offshore tax havens.
They lose as much as $124 billion in taxes a year, more than their yearly $103 billion in foreign aid, the study showed.
The pace of borrowing by U.S. consumers increased in January for the first time in four months as rising joblessness caused Americans to pull out their credit cards to take advantage of post-holiday discounts.
Consumer credit unexpectedly rose by $1.76 billion, or 0.8 percent at an annual rate, to $2.56 trillion, the Federal Reserve said today in Washington. Credit decreased by $7.48 billion in December and a record $9.13 billion in November, more than previously estimated in both months. The Fed’s report doesn’t cover borrowing secured by real estate.
The value of car and truck loans rose 0.7 percent while deep discounts at retailers such as Limited Brands Inc. and Macy’s Inc. boosted consumer spending in January for the first time in seven months. Still, the gains in credit and spending may be short-lived as payrolls drop and banks remain reluctant to lend.
“Consumer credit bounced in January on the heels of sharp declines in November and December,” Steven Wood, president of Insight Economics LLC in Danville, California, said in a note to clients. Overall, Wood said, “consumers are deleveraging along with the rest of the economy, which “does not bode well for real consumer spending in the months ahead.”
Economists had forecast consumer credit would drop $5 billion in January, according to the median of 27 estimates in a Bloomberg News survey. Projections ranged from an $8.1 billion drop to a gain of $3.2 billion.
Revolving debt such as credit cards increased by $926.5 million. Non-revolving debt, including auto loans and mobile home loans, rose by $830.2 million.
Consumer Spending
Other reports indicated consumer spending improved in the first two months of the year as Americans seized on retailers’ discounts. Wal-Mart Stores Inc., TJX Cos. and Aeropostale Inc. yesterday reported better-than-anticipated February sales free instant credit reports.
Retailers had less merchandise left over from the holidays in February and offered new spring items, bringing more people out to shop than the month before, Stifel, Nicolaus & Co. analyst Richard Jaffe said.
Retail Metrics, a researcher, said U.S. comparable-store sales rose 0.7 percent in February, better than the 1.1 percent decline analysts had estimated and the first positive result since September. The outcome was helped mostly by Wal-Mart, Retail Metrics President Ken Perkins said.
Still, the unemployment rate jumped in February to 8.1 percent, the highest level in more than a quarter century, the Labor Department said today, a surge likely to send more people into bankruptcy and force further cutbacks in consumer spending.
‘Remained Tight’
Payrolls fell by 651,000. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since the data began in 1939. Revisions to the previous two months lopped off an additional 161,000 positions.
Lending fell across the U.S. and credit availability “remained tight” over the last two months, the Fed said March 4 in its regional business survey.
More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth, First American CoreLogic said the same day. Households at or near negative equity account for a quarter of mortgage holders.
Declining U.S. auto sales in February indicate auto loans will drop. Sales slid to a 9.1 million annual pace during the month, the lowest rate since December 1981, according to Autodata Corp. The drop was led by General Motors Corp., Ford Motor Co. and Chrysler LLC.
The Toronto stock market fell to levels not seen in more than five years today as a fresh wave of pessimism trumped assurances from U.S. regulators on the financial system.
"There’s just a lot of fear in the air and I don’t think investors really know what to do," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.
"I think they would like to make a decision but I don’t think anybody really knows what in the world is going on and how deep this problem is."
Toronto’s S&P/TSX composite lost 302.32 points to 7,647.67, its lowest close since October 2003.
New York indexes revisited 1997 levels as investors succumbed to their growing worries about a recession that has no end in sight. The Dow Jones industrials fell 250.89 points to 7,114.78.
The index lost more than six per cent last week, partly on fears the U.S. government will move to nationalize parts of the financial sector, in particular troubled banks Citigroup and Bank of America.
The U.S. Treasury Department, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Reserve issued a joint statement saying they will do all they can to shore up the struggling banking system.
The regulators also said they will launch a revamped program to inject fresh capital into financial institutions this week.
"Unless the financials stabilize, it’s going to be hard for the rest of the market to have any kind of positive momentum – even if the news is good in other places," said Kate Warne, Canadian market specialist at Edward Jones in St. Louis.
"With the focus being on the financials skating down, that tends to make everyone nervous about everything else as well."
The statement did not name any specific banks or respond to reports that the government was considering increasing its ownership of Citigroup Inc.
The Wall Street Journal reported that Citigroup is negotiating with government officials to have the U.S. boost its stake in the bank to as much as 40 per cent.
The Journal, which said Citigroup made the proposal to its regulators, noted that sources said executives would prefer to keep the government’s stake closer to 25 per cent.
In New York, Citigroup shares were still up 19 cents to US$2.14 .
The Canadian dollar was down 0.12 cent at 79.92 cents US as retail sales fell 5.4 per cent in December to $33 billion – the largest monthly decline in over 15 years.
Statistics Canada said three-quarters of the December retail decline was rooted in the automotive sector, without which retail sales fell 1 personal loans for people with bad credit.8 per cent.
The TSX Venture Exchange lost 13.96 points to 878.94.
The Nasdaq composite index declined 53.51 points to 1,387.72 while the S&P 500 index slipped 26.72 points to 743.33, falling to 1997 levels.
The TSX financial sector, which lost over 14 per cent last week, fell another 3.5 per cent today.
Canada’s big banks start to report their first-quarter earnings this week and Warne said expectations are fairly minimal.
"We certainly know the economy is slowing down faster than people expected and at this stage we’re expecting the normal buildup in reserves that comes from wherever you see an economic slowdown," Warne said.
"The best that can come out of them is no negative surprises."
Royal Bank (TSX: RY), which reports on Thursday ahead of its annual meeting in Vancouver, lost $1.25 to $25.82, while insurer Manulife Financial (TSX: MFC) moved down 59 cents to $12.53.
The energy sector was down 5.4 per cent after starting the day off positive as gains in crude prices reversed. The crude contract on the New York Mercantile Exchange was down $1.59 at US$38.44 a barrel.
Canadian Natural Resources (TSX: CNQ) fell $1.72 to $36.54 and EnCana Corp. (TSX: ECA) gave back $3.49 to $44.78 .
The gold sector gave back 2.9 per cent as the April bullion contract on the New York Mercantile Exchange fell $7.20 to US$995 after closing above US$1,000 on Friday. Barrick Gold Corp. (TSX: ABX) faded $1.40 to $44.68.
Shares in Iamgold Corp. (TSX: IMG) added cents to $ after the company said proven and probable reserves at the end of 2008 were 9.6 million ounces, an increase of 20 per cent from a year earlier.
The industrial sector was also a major drag, down 4.5 per cent, as Canadian National Railways (TSX: CNR) gave back $ .74 to $39.07 while Bombardier Inc. (TSX: BBD.B) lost 17 cents to $2.63.
Canadian investors also took in a major deal as Nova Chemicals Corp. (TSX: NCX) has agreed to be bought out for US$2.3 billion by Abu Dhabi-based International Petroleum Investment Co. Nova Chemicals shares, which had hit a new low earlier this month, gained C$4.83 to $6.49 in Monday trading.
Toronto-area steel distributor Russel Metals Inc. (TSX: RUS) is cutting 500 jobs and reducing executive and white collar salaries by 10 per cent to deal with a battered steel market. Its shares dropped $1.69 to $14.45.
It began in late 2007 as a routine audit. Retail giant Wal-Mart noticed that some exit signs at the company’s stores and warehouses had gone missing.
As the audit spread across Wal-Mart’s U.S. operations, the mystery thickened. Stores from Arkansas to Washington began reporting missing signs. They numbered in the hundreds at first, then the thousands. Last month Wal-Mart disclosed that about 15,800 of its exit signs – a stunning 20 per cent of its total inventory – are lost, missing, or otherwise unaccounted for at 4,500 facilities in the United States and Puerto Rico.
Poor housekeeping, certainly, but what’s the big deal?
In a word: radiation.
The signs contain tritium gas, a radioactive form of hydrogen. Tritium glows when it interacts with phosphor particles, a phenomenon that has led to the creation of glow-in-the-dark emergency exit signs.
It’s estimated there are more than 2 million tritium-based exit signs in use across North America.
It turns out that Ontario-based companies SRB Technologies (Canada) Inc. of Pembroke and Shield Source Inc. of Peterborough have sold the lion’s share of these signs, which use tritium produced as a by-product from the operation of Canadian-made Candu nuclear reactors.
The health effects of tritium exposure continue to be a hot topic of debate. It’s not strong enough to penetrate the skin, and in low quantities regulators and industry groups say tritium is safe. But when inhaled or ingested it can cause permanent changes to cells and has been linked to genetic abnormalities, developmental and reproductive problems and other health issues such as cancer.
"The problem is that because it’s hydrogen it can actually become part of your body," says Shawn-Patrick Stensil of Greenpeace Canada. "The radiation doesn’t emit far, but when it actually becomes part of your cell it’s right next to your DNA. So for a pregnant woman, for example, it can be really dangerous."
General exposure from one broken sign might be the equivalent of getting up to three chest X-rays, even though today we no longer give pregnant women X-rays. If tritium is ingested, for example, by a child who breaks a sign with a hockey stick, it’s much more potent. If only 5 per cent of the tritium in a large exit sign is ingested, it would be equivalent to 208 years of natural background radiation, according to a report from the Product Stewardship Institute at the University of Massachusetts.
And what about exposure from thousands of signs dumped near a source of drinking water, or packed with explosives in the back of a truck that has been driven into a crowded building?
"I’m sure thousands of them would create a credible dirty bomb," says Norm Rubin, director of nuclear research at Energy Probe in Toronto. "Most experts think the main purpose of a dirty bomb is to cause panic, disruption and expensive cleanup rather than lots of dead bodies. A bunch of tritium, especially if oxidized in an explosion, would probably do that job fine instant payday loan."
Tritium is also a component in nuclear warheads. In 2005, SRB Technologies got permission from the Canadian Nuclear Safety Commission to export 70,000 of its tritium exit signs to Iran. Foreign Affairs Canada blasted the regulator for allowing shipment to a country that’s attempting to develop weapons of mass destruction. The shipment went through.
South of the border, the U.S. Nuclear Regulatory Commission appears more concerned with tritium contamination of landfills and the threat of leaching into drinking water. The agency regulates the use of tritium devices, requiring the reporting of lost, stolen or broken property and proper cleanup and disposal.
"Throughout the whole process we stayed in very close contact with the NRC and received their guidance," said Wal-Mart spokesperson Daphne Davis Moore. "We no longer use these signs in our stores."
Wal-Mart’s poor recordkeeping was a wake-up call for the nuclear agency, which in January sternly reminded users of the signs of their regulatory obligations. At the same time, it assured the public there’s nothing to worry about.
Still, the agency was concerned enough to demand that any organization possessing 500 or more tritium exit signs conduct audits and report their findings within 60 days. The list included Home Depot, AMC Theatres and a number of universities and schools.
Wal-Mart Canada says it has a few tritium exit signs in most of its stores. "We’ve gone back over our records and have not found any reason for concern," said spokesperson Kevin Groh. "We are doing an audit to get an accurate inventory." The difference, in Canada, is they don’t have to do it. Users of the signs are not licensed in Canada as long as the product is properly marked as radioactive, according to the Canadian Nuclear Safety Commission. This makes it difficult to determine exactly how many tritium signs exist in Canada and where they end up.
Stensil of Greenpeace said it’s a strange way for a government to treat a radioactive device, but he’s not surprised. He said the federal government has always had lax rules when it comes to tritium, partly because Canada, through its Candu nuclear plants, is one of the biggest producers of the substance in the world.
Dorothy Goldin Rosenberg, who teaches environmental health at the University of Toronto, said there’s a double standard in Canada when it comes to regulating tritium. Permissible levels in drinking water here are 100 times greater than in Europe and more than 400 times greater than in California.
She was shocked when told about the 15,800 missing tritium signs at Wal-Mart, but even more surprised to learn that use of such signs isn’t tracked or monitored in Canada.
"Most people haven’t even heard of tritium," she lamented.
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