The fight over health care overhaul is on track to be the most expensive issue ever to hit the hallways of Congress.
The bill for lobbyists, television ads and political donations has topped $375 million — or enough to pay the entire insurance tab for about 30,000 families a year.
The big spenders range from drug companies, hospitals and doctor groups to organizations that advocate for unions, immigrants and retirees.
The largest chunk has gone to direct lobbying of lawmakers and other policymakers. In the first half of 2009, the health care industry spent nearly $280 million on lobbyists, according to the Center for Responsive Politics.
Another $75 million was spent on television advertising airtime by health care interests, mostly politically left-leaning groups and health industries. And another $23 million has flowed from the health care sector into the campaign war chests of 2010 candidates for federal office, on the heels of some $95 million raised during the 2008 cycle.
"The health sector is on track in 2009 to spend more on lobbying than it has on any other year in U.S. history — and by a lot," said Dave Levinthal of the Center for Responsive Politics, which analyzes and collects lobbying and campaign spending figures.
Taking the Hill
Part of the reason for the big price tag is that so many different types of groups and companies could be affected by health care reform. Business models could be upended — for better or worse — for everything from urgent care clinics to providers of electronic medical records.
Lobbyists have been hired for groups as varied as the College of American Pathologists, which has spent $775,717 on lobbying this year, and the prestigious University of Texas M.D. Anderson Cancer Center, which spent $220,000.
The other reason for the big bucks is the duration of the debate. Every week it goes on, millions more are spent trying to influence the negotiations.
The lobbying figures alone are on track to exceed half-a-billion-dollar mark by the end of the year, which would be a record.
The big payoff for such spending? Open doors to policy makers.
Consider that Richard Umbdenstock, who heads the American Hospital Association, has spent $7 million on lobbying this year and made seven White House visits since March to talk to staffers, according to a White House letter to Citizens for Responsibility and Ethics, a nonprofit watchdog group that sued to get such information.
Other advocates that have made White House visits include the head of the lobbing group for drug makers, Pharmaceutical Research and Manufacturers of America, and the head of the health insurance lobbying group, America’s Health Insurance Plans.
"Health care is supposed to be a personal issue that addresses the issues of individual Americans, but now it’s addressing drug and insurance industry concerns, thanks to their lobbyists," said Christine Hines of Public Citizen, a nonprofit group that tracks money and power on the Hill.
Yet, lobbying and advertising is guaranteed by the Constitution. And several big spenders, such as the Pharmaceutical Research and Manufacturers of America, say they’re educating not advocating for any particular bill creditreport.
"All of our advertising to date has been done to raise awareness of the importance of passing bipartisan health care reform this year," said Ken Johnson, a senior vice president at the pharmaceutical group, which has spent $13 million on lobbying this year.
Johnson points out that his association’s members have told policymakers they’ll commit $80 billion to cutting costs over the next 10 years. However, the group is also wary of legislative attempts to allow government to use its purchasing power to force drugmakers to negotiate pricing or allow cheaper foreign drugs to be imported.
"Our companies directly employ nearly 700,000 workers around the country as well as another 2.5 million indirectly," Johnson said. "I would say that we have a pretty significant stake in this debate, too."
TV ads get the word out
A popular way to influence public opinion is through television ads, and August was the biggest month this year for health care advocacy ads, according to the Campaign Media Analysis Group.
About $1 million a day has been spent on health care reform TV ads since June, said Evan Tracey, president of the the media research group.
In August alone, $20 million was spent on 34,000 ads, with foes of congressional reform proposals outspending proponents. Earlier in the year ads supporting reform outnumbered those opposing by a margin of 2-to-1.
The buyers range from left-leaning groups Health Care for America Now, whose members include unions and immigrant advocacy groups, to the U.S. Chamber of Commerce and anti-tax groups such as Our Country Deserves Better.
"What you’ve got is the perfect storm of lots of stakeholders who have access to all kinds of capital, so they’re putting everything into this," said Tracey, whose group consults for CNN. "Everyone has a dog in this fight. That’s what is compounding this from an advocacy perspective."
Another way to influence the debate is through election campaign contributions. Although it is early in the 2010 election cycle, the health care sector has contributed $23 million, according to the Center for Responsive Politics.
One of the biggest beneficiaries has been conservative Blue Dog Democrats.
Many Blue Dogs are on the fence about controversial health care issues, such as whether to create government-run insurance plans. Their votes are crucial to passing a final bill, so they also tend to attract more attention and campaign contributions than other Democrats and Republicans.
Health and accident insurers, HMOs and health services organizations increased their contributions to Blue Dogs from $106,200 in the first quarter of 2009 to $122,650 in the second, according to the Center for Responsive Politics.
That is a 15% increase. By comparison, Democrats not in the Blue Dog group saw a 3% hike in contributions.
The Obama administration pledged unprecedented transparency in its accounting of the $700 billion bank and auto bailouts (TARP) and the $787.2 billion Recovery Act. A lot of information has been made public but there are some key details where the transparency falls far short.
Here’s what we still don’t know:
They’re important questions: We want the government to ensure it is spending our money wisely, and experts want to know why the Obama administration won’t provide the answers.
"Why are we bailing out banks, and what are we getting out of it?" asked Craig Jennings, senior fiscal policy analyst at transparency research organization OMBWatch. "These are very big questions, and the administration doesn’t seem to be willing to answer them."
What we do know. To make the bailouts and stimulus more transparent, the administration commissioned Web sites like recovery.gov and financialstability.gov, which have given the public previously unattainable information about how taxpayer funds are spent.
"The president and vice president made a clear commitment from the beginning that we would provide unprecedented accountability and transparency," said Liz Oxhorn, the Obama administration’s spokeswoman for the Recovery Act. "Look at recovery.gov and compare it to the standard of how government worked in the past. It is truly a pioneering site in terms of access."
But many analysts and overseers say that the provided information is not nearly enough.
"The administration’s transparency goals clearly have not been reached," said John Clippinger, co-director, of the Berkman Center for Internet & Society at Harvard University. "I think this administration is making a huge effort to enable them, considering where we’ve been in the last eight years, but they’re certainly not there yet."
Accounting for TARP. The Treasury Department states on financialstability.gov that the $204 billion in capital investments in banks are "for stability or lending." But it does not require banks who have received the funds to show how they are using the money.
Special Inspector General for TARP (SIGTARP) Neil Barofsky, and Prof. Elizabeth Warren’s Congressional Oversight Panel (COP) have been outspoken on this issue, and Barofsky even performed his own voluntary survey to show the accounting could be done. Treasury responded that its current method of accounting is sufficient — reporting on broad trends for the top 21 banks’ lending habits.
"We share SIGTARP’s interest in tracking the level of lending by those institutions that have received government investment," a Treasury official said. "To that end, Treasury has released monthly reports tracking how much these institutions are actually lending."
Experts say without deeper digging into the question of "where the money is going," the public will never really know if the program is working: If banks are lending, what do they have to show for it? How has lending improved?
"Are they giving loans just to extremely credit-worthy people? Subprime borrowers? Are minorities able to secure loans?" asked Jennings online payday loans.
Besides "is it working," Treasury also won’t answer how taxpayers’ investments are faring, declining to make public the fair market value for the shares and warrants it holds as a result of TARP. Taxpayers won’t have any way of knowing whether they have lost or gained money on their investments in companies like General Motors, AIG (AIG, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) until after the government sells its stakes.
Digging into stimulus. The accounting of stimulus has been met with less scrutiny, mostly because Congress made it a point to track how every dollar was spent after struggling to get the same information from the TARP program.
Still, the government’s accounting only goes as far as the first tier recipients from the states. For example, say a construction company gets stimulus funds from the state of Nebraska. That company has to report the receipt of those funds to the government, but if they hire a dump truck company and an asphalt company to do the work, that doesn’t get reported.
Why do we care? "It would enable the Obama administration to say there were X amount of businesses that benefited from a particular project, and the government could connect the dots if there is fraud, waste or abuse," said Jennings.
What can be done. Some argue open-source technology is the best solution for both the government and the public.
That is, use the Internet to provide all forms of government data in a very sortable, searchable database, said Clippinger. He argues that if all the data are in one place, with independent eyes looking at it, then the data couldn’t be co-opted, or selectively made available.
"When you get lots of people looking at it, you’ll create better accountability and efficiency," said Clippinger.
That idea is supported by House bill H.R. 1242, backed by Reps. Carolyn Maloney (D-N.Y.) and Peter King (R-N.Y.). The bill would take the reporting out Treasury’s hands, and require the administration to send all data straight into a database.
It’s similar to the model used by recovery.gov, which is run by the independent Recovery Accountability and Transparency Board (Recovery Board), not by the Obama administration, which runs financialstability.gov.
"We’re fully aware of what our name is and what the public expects of us," said Ed Pound, a Recovery Board spokesman. "We’re not going to fall into that trap of not sharing certain information."
In the end, experts say the Obama administration will have to find ways to make a greater amount of data even more accessible to achieve the transparency goals it set out for itself.
"There are other ways of skinning this cat," said Clippinger.
After several months of growing optimism about the state of the economy, suddenly there’s a lot of concern that a recovery has come off the tracks.
A June employment report included an unexpected jump in job losses. That was followed by last week’s report of a nearly 5% decline in June year-over-year sales at major retailers other than discounter Wal-Mart Stores (WMT, Fortune 500), which no longer releases monthly results.
The gloomier economic outlook has hurt stocks, and prompted talk among some economists and policymakers about whether a new round of economic stimulus is needed to get the economy growing sooner.
But there are still many economists who believe the early signs of a turnaround in the economy are there — and growing.
They’re not saying the recession that started 19 months ago is already over. But many believe the economy will reach bottom and finally start to improve as soon as late summer. Some even believe employers could again start adding jobs before the end of this year.
"It would have certainly been better if the jobs report had continued to show improvement," said Lakshman Achuthan, managing director of Economic Cycle Research Institute, which specializes in calling when the economy will turn from recession to recovery and back again. "The fact that after a few steps forward we had a step back doesn’t negate the indicators pointing to a recovery this summer."
Reasons for encouragement: There are several factors accounting for these economists’ optimism.
They say that business inventories have been cut so deep that production will need to start to resume simply to keep minimal supply of product on shelves.
In the auto industry, for example, General Motors is restarting six of its assembly lines Monday after what was typically a two-week summer shutdown was extended to up to three months this year.
Chrysler Group also had its own extended shutdown as it went through the bankruptcy process. Ford Motor (F, Fortune 500), after cutting production plans repeatedly, recently announced it was increasing third-quarter production by 25,000 to deal with low inventories of some of its more popular vehicles.
The same kind of inventory bounce back is likely to be seen in many other industries, according to the economists who see a recovery sooner rather than later. They say much of the drop in gross domestic product, the broad measure of the nation’s economic activity, at the end of 2008 and the first three months of 2009 came from businesses slamming the brakes on production due to excess inventories.
"If you just stop cutting inventory, you add $80 to $90 billion to GDP. That’s pretty impressive," said Robert Brusca of FAO Economics us fast cash.
The severe job cutting done by businesses over the past year is another reason some economists are expecting a bounceback sooner rather than later. They say the low employment levels should help corporate income rebound relatively quickly once demand starts to build again.
Thomson Reuters is forecasting two more quarters of double-digit percentage earnings declines in the second and third quarter, but a 187% jump in income among S&P 500 companies in the fourth quarter as they move to put the year-earlier losses behind them. That could be a key to employers hiring again, according to some economists.
"You have a super-lean corporate sector that should be able to generate earnings fairly quickly," said Joseph Carson, chief economist at AllianceBernstein. "You usually need the health of the corporate sector to flow to the labor markets, and I think that’s the way this is playing out."
Jump in confidence: The Conference Board’s CEO Confidence Index released last week showed a huge jump, with nearly 55% of business leaders expecting economic conditions to improve in the next six months, up from only about 17% in the previous reading three months ago.
Lynn Franco, director of the business research group’s consumer research center, said that kind of jump in CEO confidence is a good predictor that spending on capital spending is about to increase, even if management will be more cautious about hiring again.
But businesses might not be the only ones poised to start spending again. Many economists believe there is pent-up demand among consumers that will cause a rebound in spending, once confidence in the labor market stabilizes.
"Even people with jobs have been pulling back on spending, concerned they’re going to be next," said Brusca. "I think the people with jobs will spend a little more freely when they’re less concerned about the economy."
Achuthan said two factors giving him hope are that the financial stimulus bill passed earlier this year has yet to have much effect on spending and jobs, and that credit markets are still constrained by troubled assets due to the problems in the housing market and foreclosures. He said it’s possible both those things could change quickly before the end of the year.
"If the stimulus dollars start to hit, and the financial system starts to behave more normally, there is a wall of money that will begin to flow through the economy," he said.
Chrysler’s bankruptcy lasted just six weeks, but its next test — operating as a Fiat SpA-controlled company — arguably will last longer.
The road ahead for Chrysler Group LLC remains a rocky one, analysts say, despite being saved from liquidation by Fiat of Italy.
Benefits of the partnership, such as sharing vehicle platforms and dealership networks, won’t surface until mid-2011, when the first vehicles using Fiat platforms arrive at U.S. dealerships, according to one analyst’s timeline.
Until then, the alliance must figure out how to endure a dire market without a strong portfolio of new products. It also must implement its plans to make and sell Fiat vehicles in the U.S.
"The next couple of years are going to be about figuring out the difference between the idea and reality," said Stephanie Brinley, a Troy, Mich.-based analyst for auto consulting firm AutoPacific.
Already, the automaker has taken sweeping steps: It laid off workers, cut production and announced plant closures — including both assembly plants in Fenton — to restructure and survive. It has a new leader, Fiat Chief Executive Sergio Marchionne, who spearheaded a turnaround at the Italian automaker in recent years.
But Marchionne and Chrysler still face worrying obstacles:
— Tumbling sales caused by the global recession and tight credit.
— Consumers’ negative perception of a bankrupt company.
— An aging product line with few new products in the pipeline until the Fiat-based vehicles arrive.
Those issues will push Chrysler’s U.S. market share below 5 percent in the next 12 to 15 months, predicted Erich Merkle, president of Autoconomy.com in Grand Rapids, Mich.
Chrysler had a 13.6 percent market share in 2005 and was the No. 3 automaker in terms of U.S. market share, according to data from J.D. Power and Associates. The next year, Toyota pushed Chrysler into the fourth spot.
Merkle estimates Nissan and the South Korean conglomerate of Hyundai-Kia Automotive Group will outpace Chrysler’s U.S. market share in the next six months. That could push Chrysler to the No. 7 spot, he said.
"Every time you find a new partner, the product cadence and product pipeline takes a hit," Merkle said of Chrysler’s new alliance.
Chrysler, for its part, contends it has 24 new vehicles in the next four years. Spokesman Rick Deneau declined to say how many of those were new-name products versus redesigned versions of existing models.
In 2010, it will launch completely redesigned versions of the Chrysler 300, Jeep Grand Cherokee, Dodge Charger and Dodge Durango, he said.
Another analyst, Jim Hall, said that for the next few years, Chrysler will need to live off its profitable vehicles — the minivans and the Dodge Ram. Both have had sales challenges.
"They have to play with what they’ve got," said Hall, principal of 2953 Analytics in Birmingham, Mich.
FIAT TURNAROUND
But the automaker will be playing with a new leader, Marchionne.
Marchionne took the helm of Fiat in 2004, when the automaker was at the edge of bankruptcy. By changing its management and elevating younger employees to higher positions, he helped Fiat rebound, said Pierluigi Bellini, an associate director in Milan, Italy, for IHS Global Insight.
"He’s a very strong leader. He thinks very much outside of the box," Bellini said. "He’s very demanding (of those he oversees) but also gives a lot of empowerment to them."
Marchionne also has forged more than two dozen partnerships globally, Bellini added. And it seems he intends to do more: Marchionne told trade publication Automotive News that manufacturers need to make 5.5 million vehicles a year to remain profitable and survive.
Fiat made about 2.4 million vehicles last year among its Fiat, Alfa Romeo, Ferrari, Maserati and Iveco units, according to IHS Global Insight data. Chrysler made about 1.9 million vehicles among its Chrysler, Jeep and Dodge brands.
Bellini expects that Marchionne will continue to pursue alliances.
Just two weeks into his position as the head of the new Chrysler company, he is using a similar shake-up to the one implemented with Fiat.
Earlier this month, on the day Chrysler and Fiat finalized their deal, Marchionne announced changes to the new company’s leadership affordable car insurance. He promoted several Chrysler executives, including Jim Press as his deputy chief executive, but also brought in a few Fiat leaders.
Fiat is "certainly not coming in and taking over," Brinley said, adding that Marchionne kept many responsibilities with North American, not Italian, executives.
A request to talk with Marchionne or one of his executives was not granted. Chrysler spokeswoman Shawn Morgan said the company is not making executives available for interviews.
WHAT’S NEXT
Fiat SpA took an initial 20 percent stake in the U.S. automaker earlier this month. In exchange, the Italian automaker will give Chrysler access to small-car platforms at a time when the U.S. company’s lineup is skewed toward pickups and sport utility vehicles. It also gives Chrysler another inroad to selling vehicles outside North America — a feat the U.S. automaker has struggled to achieve.
For Fiat, the alliance gives it access to Chrysler’s manufacturing facilities and dealership network. Fiat made a strong push in the U.S. market in the 1960s and 1970s but pulled out after distribution and quality problems, according to IHS Global Insight.
"Fiat has been looking for returning to the U.S. with the Alfa Romeo (luxury) brand for years," Bellini said.
Several Alfa Romeo cars are scheduled for the U.S. market in the next few years, according to a research note by IHS Global Insight. Likely plans include:
— The Alfa 169 sedan will be built in Chrysler’s Brampton, Ontario, plant in November 2011 for the 2012 model year.
— The Alfa Romeo GTX will be built at Chrysler’s Jefferson North Assembly Plant in Detroit in July 2011.
— The Alfa Romeo MiTo hatchback will be built at the Belvidere, Ill., plant in July 2011.
Some Chrysler products — like the Dodge Caliber and Jeep Liberty — likely will be built on Fiat-based platforms, the research note said.
The only Fiat-badged model to be sold in the U.S., the Fiat 500 subcompact, will be made at Chrysler’s Toluca, Mexico, plant starting roughly in July 2011, according to IHS Global Insight.
Chrysler’s Deneau said Marchionne told employees a few weeks ago that product plans for the Chrysler-Fiat alliance could be unveiled in 60 to 90 days. He could not provide details about specific vehicles.
Deneau also wouldn’t comment on IHS Global Insight’s report of the mid-2011 timeline for Fiat-based vehicles to be sold in the U.S.
But before those car designs come to the U.S., Fiat and Chrysler will have to address differences in federal vehicle regulations and pricing structures.
"Europeans are willing to pay more for small cars (than Americans), and they’re willing to pay for features in small cars," Brinley said.
Several analysts said American car shoppers may not eagerly embrace the Fiat products for several reasons. First, the reputation of poor quality that Fiat left in the U.S. may dissuade consumers from returning to the automakers’ brands, analysts said.
Second, analysts question whether the U.S. government, and not consumer demand, is leading the push for smaller cars on U.S. roads.
"The U.S. is not (a big market) for small, compact cars," even if gasoline prices go higher and the government implements higher fuel regulations, Bellini said. "I still think the American people like big cars, maybe with smaller engines."
Whether Fiat can sell these smaller vehicles in the U.S. is difficult to gauge.
And some say the Fiat alliance won’t accomplish Chrysler’s most important goal: saving it from an eventual breakup.
Merkle said he was glad a bankruptcy judge approved the alliance because it gives Chrysler a chance to wind down operations versus a quick liquidation.
A possible scenario, he said, is Fiat selling off the Jeep and pickup brands, while keeping some Chrysler plants open to produce its own products in North America.
"I take no pleasure in saying that because I love the Chrysler (brands)," he said. "I just don’t see how they get through this."
Singapore’s exports dropped the least in eight months in May, adding to signs the worst global recession since the Great Depression is easing.
Non-oil domestic exports fell 12.1 percent from a year earlier, after contracting 19.2 percent in April, the trade promotion agency said in a statement today. Economists had expected an 11.7 percent decline.
Singapore’s government said last month the nation may have “hit the bottom” of its deepest recession since independence in 1965. Factory production fell at the slowest pace in seven months in April, boosting economists’ expectations the export collapse may also ease as manufacturers start rebuilding stockpiles in anticipation of improving demand.
“We are still in the midst of a bottoming out in the global economy and there will be better visibility of a recovery towards the end of the year,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore. “We aren’t seeing very strong demand from consumers but demand from producers is significantly better on the back of restocking.”
The Bank of Japan today raised its assessment of the economy for a second month and said the situation has stopped worsening after exports improved and factory output climbed at the fastest pace in 56 years. U.S. Treasury Secretary Timothy Geithner said June 9 that the “global storm” is showing signs of receding.
A rally in world equity markets has added more than $11 trillion to the value of global stocks since this year’s low on March 9 everyone approved 1 hour payday loans.
Manufacturing Expands
Singapore’s purchasing managers’ index showed manufacturing expanded in May for the first time in nine months. Export orders climbed last month, according to a June 2 report by the Singapore Institute of Purchasing & Materials Management.
“While trade is still expected to be weak for the rest of 2009, further declines of the magnitude seen earlier this year seem unlikely,” the government said last month.
Singapore’s non-oil exports rose a seasonally adjusted 5.6 percent last month from April, when they slid a revised 1.4 percent, today’s report showed. Economists had expected a 1.4 percent increase.
Electronics shipments plunged 21.8 percent in May from a year earlier, the 28th consecutive drop, following a 25.6 percent decline in April. Sales of electronics products by companies including Chartered Semiconductor Manufacturing Ltd. were worth S$3.89 billion ($2.7 billion) last month.
Non-electronics shipments, which include petrochemicals and pharmaceuticals, fell 5.6 percent in May from a year earlier. Pharmaceutical shipments rose 40.2 percent.
NEW YORK — A federal bankruptcy judge approved the sale of most of Chrysler LLC’s assets to Italy’s Fiat, moving the American automaker a step closer to its goal of a quick exit from court protection.
But a trio of Indiana state pension and construction funds filed an appeal, saying that the ruling sets aside the rights of the company’s secured lenders while doling out the company’s assets to others.
Judge Arthur Gonzalez said in his ruling late Sunday that a speedy sale — the centerpiece of a restructuring plan backed by President Barack Obama’s automotive task force — was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company’s stakeholders than if it had liquidated.
"Any material delay would result in substantial costs in several areas, including the amounts required to restart the operations, loss of skilled workers, loss of suppliers and dealers who could be forced to go out of business in the interim, and the erosion of consumer confidence," Gonzalez wrote in his ruling.
As a result, the proposed sale must be approved in order to preserve the value of Chrysler’s business and what is ultimately left for its stakeholders, Gonzalez said.
"While this has been an extremely difficult chapter in Chrysler’s history for all involved, the new company and its customers, employees and suppliers can now begin on a fresh page," Robert Nardelli, Chrysler’s outgoing chairman and chief executive, said in a statement payday loans lenders.
Nardelli is slated to leave Chrysler once the sale is final. The ruling came ahead of fellow U.S.-automaker General Motors Corp.’s government-backed bankruptcy protection filing on Monday.
President Barack Obama released a statement Monday saying that Gonzalez’s decision "paves the way for the new Chrysler to successfully emerge from bankruptcy as a new, stronger, more competitive company."
Gonzalez’s ruling came after three days of testimony last week, during which everyone from the automaker’s outgoing chief executive to dealers slated to lose their franchises took the stand.
Chrysler has maintained that selling the bulk of its assets to Fiat Group SpA is the only way it can avoid selling itself off piece by piece.
With the approval of the sale, Chrysler could emerge from Chapter 11 bankruptcy protection as soon as this week, defying observers who said that the company could linger under court oversight for years.
China’s foreign-exchange reserves, the world’s biggest, had their smallest gain in eight years as exports slumped and the slowing economy deterred investment from abroad.
Foreign-currency holdings rose about $7.7 billion in the first quarter to $1.9537 trillion, the People’s Bank of China said today on its Web site. That was the smallest increase since the second quarter of 2001 and compares with a $40 billion jump in the fourth quarter.
China’s first-quarter trade surplus shrank 45 percent from the previous three months and foreign direct investment tumbled as the global recession choked off demand. Slower growth in the reserves may limit Chinese purchases of U.S. Treasuries just as the Obama administration seeks to sell record amounts of debt to fund a $787 billion stimulus package.
“The trend of slower expansion in reserves will continue throughout the rest of this year because it will be hard for exports to recover,” said Xing Ziqiang, an economist in Beijing at China International Capital Corp. “Smaller increases in reserves certainly mean less demand for U.S. debt.”
The currency reserves plunged by $32.6 billion in January, the biggest monthly decline since Bloomberg started compiling data in 1996. The holdings shrank by $1.4 billon in February and expanded $41.7 billion in March.
Treasuries, Euro
Today’s numbers compare with a record $154 billion gain in the first quarter of last year, when China’s currency, the yuan, was appreciating against the dollar and the economy was growing at a faster pace, encouraging inflows of capital. Economic growth slowed to 6.8 percent in the fourth quarter, the weakest in seven years.
China has allowed the yuan to fall 0.16 percent this year, after it gained every year since a peg against the dollar was scrapped in July 2005. The yuan closed at 6.8336 per dollar in Shanghai yesterday, according to the China Foreign Exchange Trade System.
The size of the reserves is affected by trade, investment flows and currency movements that determine the valuation of the nation’s non-dollar assets.
The declines in January and February were mostly due to falling Treasury returns and a weaker euro, according to China International Capital’s Xing. Merrill Lynch & Co.’s U.S. Treasury Master index fell 0.5 percent in February, after a 3.1 percent decline in January. The euro dropped 8.3 percent against the dollar in January and 1.1 percent in February.
Wen’s Concern
The U cash till payday advance.S. has been the biggest investment destination for the reserves. China’s Treasury holdings climbed 52 percent in 2008 and now stand at about $740 billion, according to U.S. government data.
Premier Wen Jiabao said on March 13 that he was “worried” about the safety of the nation’s holdings and called on the U.S. “to guarantee the safety of China’s assets.” Central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.
Treasuries have declined this year partly on concern that the U.S. government’s spending plans will spur inflation.
“Those governments that have foreign reserves, especially those holding Treasuries, should demand that the U.S. links the purchases of Treasuries with inflation,” Zheng Xinli, deputy director at the policy research office of the ruling Communist Party, said at a conference in Beijing today. “If the dollar depreciates and there’s inflation, the U.S. should pay more.”
Still, China has “no other choice” but to continue buying Treasuries, China International Capital’s Xing said.
Oil Spending
Foreign direct investment in China fell 26 percent in the first two months and the trade surplus plunged to $4.8 billion in February, the least since 2006, before rebounding to $18.56 billion last month.
Spending by China on oil and other natural resources may also have prevented larger gains in the reserves.
As much as $50 billion may have flowed out of China this year, largely because of the nation’s deals to acquire natural resources, according to Wang Tao, an economist with UBS AG in Beijing.
China may agree next week on lending $10 billion to Kazakhstan in return for the right to take a stake in an oil producer in the Central Asian country, an official at China National Petroleum Corp. said yesterday. The official declined to be identified because of internal rules.
Rosneft, Russia’s largest crude producer, and Transneft, an oil pipeline operator, agreed in February to supply China with oil for 20 years in exchange for loans.
Chinese companies have announced $21 billion in spending on Australian companies this year. Australia approved Hunan Valin Iron & Steel Group’s A$1.3 billion ($920 million) investment in Fortescue Metals Group Ltd. last month.
When John Maynard Keynes came to Washington in 1934 to persuade President Franklin Roosevelt to spend more to revive the U.S. economy, Roosevelt didn’t pay the British economist much attention, Thomas Worsley recalls. He hopes President Barack Obama won’t repeat Roosevelt’s mistake.
Worsley, then a 23-year-old about to take a job in the Treasury Department, says Roosevelt balked at too much economic stimulus, and even allowed conservative Democrats to talk him into reining in federal outlays in 1937.
Now, at 97, Worsley is watching as Obama wrestles with the deepest economic slump since the Great Depression and is coming under fire from critics at home and abroad over his spending plans. Ultimately, Worsley said, only World War II delivered the U.S. from its hard economic times, and he advises Obama to keep pumping money into the economy.
“That vindicated Keynes’s argument,” Worsley said during an interview at his brick townhouse in Alexandria, Virginia, where his framed economics degrees from the University of Virginia, including a doctorate, are displayed. “You have to get enough spending going to get private enterprise interested in taking chances on investing.”
The similarities between the current crisis and the Depression are clear, said Worsley. Speculation and a failing banking system stoked both disasters. The two presidents confronted competing pressures over whether to spend more money or cut taxes. A lack of regulation contributed to the mess.
And neither president had an obvious path to success.
Rare Perch
Worsley’s is only one view, though from a rare perch. He worked in the government during the greatest economic meltdown and lived to see federal officials try to staunch another one.
His counsel for Obama is straightforward: Keep spending until it has an effect — then start paying attention to the deficit.
It’s a warning that Obama’s administration is heeding so far. Christina Romer, chairman of the White House Council of Economic Advisers, told a congressional panel this week that a lesson of the Great Depression is to “beware of cutting back on stimulus too soon.”
As an economist contracted by then-Treasury Secretary Henry Morgenthau, Worsley conducted a farm-income study and surveyed bank conditions in Cleveland in 1935. Then he served in other government jobs during the New Deal before becoming an academic.
Now, when he comments on the parallels of the two economic emergencies, he quotes from Keynes to draw comparisons.
‘Profit Inflation’
“The people that had lost a lot of money in the speculation that led up to the Great Depression, the Roaring Twenties, had made out like bandits; they had what John Maynard Keynes called ‘profit inflation,’” said Worsley, who sported a navy cardigan that a professor might wear and a collared shirt. “Those at the bottom were ‘the forgotten man.’ Obama is dealing with much the same situation now.”
During his Treasury stint, Worsley interviewed bankers and borrowers to determine how to remedy the credit crunch. He recalled that bankers — “very unpopular with the general public” — were eager to explain why they weren’t lending business card design.
Worsley remembers the bold action Roosevelt took, including shutting the banks shortly after he was sworn in.
“All of the VIPs who came to the inauguration couldn’t cash checks at the hotels they were staying in,” he said. The government solved the credit problem by lending money to private businesses and creating the Federal Deposit Insurance Corp., which made the banks feel secure in lending again.
A New World
Still, Worsley said changes in the national economy might complicate Obama’s efforts to right the situation quickly.
Public debt is higher as a percentage of the economy. The failing banks are global institutions, not the smaller local lenders that went bust during the Depression. And the root causes of this crisis — complex financial instruments such as derivatives — didn’t exist in the 1930s.
It’s also unlikely Obama can rely on what Keynes called a “massive external shock” like a war, Worsley said. “The question is, can we spend enough with peacetime spending to get us out?”
Another lesson from the Depression is that the nation’s mental state is almost as important as its policies, he said.
Roosevelt’s ability to boost morale was among his greatest contributions, he said. And Obama is “doing an excellent job of explaining things.”
“He’s not having fireside chats with the radio. He’s using the TV, a little bit better instrument.”
Watching the Babe
A native of Columbus, Georgia, Worsley spent much of his youth on his grandfather’s cotton plantation, where his favorite toy was a goat cart. He arrived at the University of Virginia in 1929, a month before the stock market crashed. His memories of the era are vivid — watching Babe Ruth play in Yankee Stadium in 1927, driving a Model T, listening to Glenn Miller perform at his university.
Another parallel with Obama is Roosevelt’s draw with young people. Worsley was part of an army of youth who flocked to Washington because they were inspired. “Everybody felt sort of close to him,” said Worsley, who had listened to Roosevelt’s fireside chats at his college fraternity house.
‘Have a Blast’
Now an amateur historian, he collects presidential biographies and Civil War histories. At 94, he published a memoir.
He retired in 1973 and, since then, has served as a consultant and sat on numerous civic boards, including the Northern Virginia Association for History.
Today Worsley, who enjoyed ballroom dance until he was 94, keeps busy. He’s trying to get a national monument to James Madison and recently sent a letter to Obama asking for support. It’s part of his prescription for longevity.
On the final page of his memoir, Worsley sports a T-shirt reading: “Have a blast while you last.”
Latvia faces bankruptcy in three months if it fails to deliver budget cuts required by the International Monetary Fund and the next installment of its bailout is delayed, Premier-designate Valdis Dombrovskis said.
“If we do not continue to receive this international loan, then we go bankrupt in June,” Dombrovskis, 37, said in an interview on March 6.
Latvia, in the grip of the severest crisis since independence in 1991, was granted a 7.5 billion-euro ($9.5 billion) bailout last quarter after the economy shrank 10.5 percent and the state seized its second biggest bank. The government fell on Feb. 20 after agreeing to budget cuts needed to keep the deficit below 5 percent of gross domestic product.
Dombrovskis wants the IMF to approve a deficit of 8 percent of GDP to avoid crippling the economy. Latvia must cut the budget to meet terms of the bailout or get a bigger loan from the IMF- led group and European Commission or it will run out of money.
“It’s hardly possible” to keep to the earlier target, Dombrovskis said. “The previous memorandum of understanding was signed under the assumption of a 5 percent recession, meanwhile the forecast is for 12 percent and it may get worse.”
Latvia faces a deepening contraction as its currency peg to the euro forces it to push through wage cuts to remain competitive. The economic collapse threatens to spread through the whole Baltic region, and there may be need for a broader bailout that includes Lithuania and Estonia, Dombrovskis said online payday loans.
‘Domino Effect’
“In the Baltic region there is a fear of a domino effect, if one country would go, then probably the whole region will go,” he said. Any plan “could talk about all three countries, with a focus on Latvia as its weakest link.”
Last quarter, Estonia’s economy shrank an annual 9.4 percent, the most in at least 15 years, while Lithuanian GDP contracted for the first time in nine years, shrinking 2 percent.
Bankruptcy in Latvia would also affect Sweden, Dombrovskis said. Swedish banks have claims in Latvia, Lithuania and Estoni worth about $75 billion, according to ING Groep NV.
Standard & Poor’s cut Latvia’s credit rating to junk on Feb. 24, lowering the country to BB+ from BBB-. Credit-default swaps for Latvia soared to a record 1,109 basis points on March 3, the highest in the EU.
Dombrovskis’s five-party coalition, which may be confirmed by a parliamentary vote this week, is planning to cut spending by 360 million lati ($642 million) instead of the 700 million lati that would be necessary to keep the deficit under 5 percent.
Full text of the letter:
Dear Mr. Sloan:
Recent events have fatally undermined investor confidence in Bank of America (BAC) Chairman and CEO Kenneth D. Lewis. With BAC’s share price now down 90% in 5 months, we call upon the BAC board of directors to immediately seek the resignation of Chairman and CEO Ken Lewis. Absent prompt action to remove Mr. Lewis, we will have no choice but to call upon BAC shareholders to join us at BAC’s upcoming annual meeting in voting against Mr. Lewis, Thomas Ryan, as chair of the Corporate Governance Committee responsible for CEO succession, and you as lead independent director.
A year ago, we communicated grave concerns with BAC’s failure to manage risk in a February 6, 2008 letter to three members of the board’s Asset Quality Committee. Absent a compelling explanation, we indicated our intent to oppose the directors’ re-election at BAC’s 2008 annual meeting. In response, you invited us to a meeting in Charlotte during which you assured us the board was diligent in its oversight of management and had already taken steps to substantially improve risk management. Based on these assurances, we did not oppose the election of any BAC directors.
The board, however, subsequently allowed Mr. Lewis to take outsized, reckless risks by acquiring Merrill Lynch in the midst of severe financial uncertainty. After hastily arranging the ill-considered acquisition, management then failed to disclose Merrill’s staggering fourth quarter losses prior to the shareholder vote on the merger. In addition, BAC’s senior management was reportedly aware of Merrill Lynch’s intent to distribute nearly $4 billion in bonuses at a time when Merrill Lynch was suffering heavy losses. It also appears that Mr. Lewis had the ability to prevent the payments under a previously undisclosed agreement.
Removing Mr. Lewis is now a necessary prerequisite to restoring BAC’s credibility with shareholders, regulators and the public. If the board fails to remove Mr. Lewis prior to filing its 2009 annual meeting proxy this month, we will urge shareholders to join us in opposing Mr. Lewis’ re-election and that of the independent directors most culpable for his continued employment.
The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a coalition of unions representing 6 million members, to enhance long-term shareholder value through active ownership. These funds, together with public pension funds in which CtW union members participate, are substantial long-term Bank of America shareholders.
At the time of our March 2008 meeting to discuss BAC’s risk management failures, BAC had lost approximately 30% of its market capitalization over the previous year, in significant part due to liquidity support agreements included in the terms of CDOs BAC had issued since 2005. At that meeting, we were assured by you and BAC’s risk management team that the company understood the mistakes it had made, and had already taken steps to substantially improve its risk management process going forward, including a commitment to seeking outside opinions concerning future developments in the financial markets.
Subsequent events suggest that neither the board nor management put adequate risk management practices in place: despite serious concerns with the Merrill acquisition voiced by numerous outside observers, the board supported Mr. Lewis’ gamble, with devastating results. Whereas BAC had entered the September-October meltdown in relatively strong shape compared to peer institutions - having lost only about 40% of its January 2007 market capitalization at the time Lehman Brothers collapsed - the board’s acquiescence to the Merrill Lynch acquisition has since precipitated a 90% fall in BAC’s share price free 3-in-1 credit report.
Shareholders’ loss of confidence in BAC stems from the announcement on January 16 that Merrill Lynch had lost an additional $15.3 billion - and over $19 billion in shareholders’ equity - in the fourth quarter of 2008, essentially doubling its losses for the year.
BAC shareholders could have avoided these devastating losses had BAC either exercised its rights under the Material Adverse Effects clause or disclosed the losses to its shareholders prior to our voting on the merger. Mr. Thain has reportedly indicated that BAC had ongoing access to Merrill Lynch’s daily profit and loss reports. Nevertheless, Mr. Lewis claims that he and his team were unaware of the scale of Merrill’s losses until after the December 5 shareholder vote. At that time, Mr. Lewis requested and received considerable further taxpayer support in the form of additional preferred equity and a partial guarantee of the value of approximately $118 billion in assets. But despite apparently recognizing the severity of Merrill’s condition and the damage a merger would do to BAC, Mr. Lewis neither informed shareholders of the scale of Merrill’s fourth quarter losses nor invoked BAC’s contractual rights under the merger agreement’s Material Adverse Effects clause.
More recently, shareholders have learned that at essentially the same time as the merger agreement, BAC and Merrill Lynch entered into a previously undisclosed agreement according to which Merrill was able to issue bonuses from a pool of approximately $5.8 billion, and that the bonuses “shall be determined by the company (Merrill) in consultation with the parent (Bank of America).” Indeed, it appears that BAC used its authority to influence Merrill’s bonus awards to reduce the size of the available pool from $5.8 billion to “under $4 billion.” As a consequence of BAC’s failure to disallow bonus payments by Merrill Lynch, the company is now under investigation by the New York Attorney General.
These decisions have prompted shareholder litigation alleging breach of fiduciary duty. At minimum, they represent a failure of judgment on Mr. Lewis’ part. Any one of these actions alone would justify Mr. Lewis’ removal: he either knew the scale of Merrill’s losses and failed to inform shareholders of them, or he was grossly negligent in failing to keep abreast of Merrill’s deteriorating performance. Moreover, in allowing Merrill executives to extract $3.6 billion from the company even while BAC recorded over $15 billion in losses and was seeking further taxpayer support, Mr. Lewis endangered the solvency of BAC and severely tarnished its public image and reputation.
While we believe shareholders are entitled to a full explanation of what the board knew, when it knew it, and whether it approved of Mr. Lewis’ disastrous decisions, it is more important in our view that the board do what is necessary to restore investor confidence. Removing Mr. Lewis as Chairman and CEO is necessary first step in this challenging process.
Thank you for your timely consideration.
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