European Central Bank President Jean-Claude Trichet pressed Greece to halt its flirtation with International Monetary Fund aid and work with European allies to tame its record budget deficit.
As protesters besieged the Greek Finance Ministry to denounce 4.8 billion euros ($6.5 billion) of tax increases and spending cuts, the Athens government said the absence of European support might force it into the hands of the IMF.
Trichet yesterday spoke out against appealing to the Washington-based lender “as a supplier of help,” keeping the pressure on Greece to cut the highest deficit in the euro’s 11- year history — and on European governments to step in if Greece can’t go it alone.
“For Trichet, using the IMF would be an admission that Europe can’t deal with its own business,” said Gilles Moec, a senior economist at Deutsche Bank AG in London and a former Bank of France official. “Trichet’s very keen on saying that Europe has its own system of safeguards. He went almost as far as saying Europe has something in the pipeline.”
The region’s biggest deficit spender collides with Europe’s largest economy when Greek Prime Minister George Papandreou meets tonight in Berlin German Chancellor Angela Merkel, co-author of a Feb. 11 European pledge of “determined and coordinated action, if needed” to aid Greece.
Domestic Pressure
Facing political pressure at home not to squander German taxpayers’ money, Merkel said two days ago that tonight’s Berlin encounter won’t be “about aid commitments.”
Starting five days of financial diplomacy that take him to Berlin, Luxembourg, Paris and Washington, Papandreou pushed for European help in getting credit at rates below the 6.11 percent investors currently demand on Greek 10-year bonds. Papandreou will meet with U.S President Barack Obama and not the IMF in his swing through Washington.
“We’re not asking for money,” Papandreou said in an interview in today’s Frankfurter Allgemeine Zeitung. “We don’t want to be the Lehman Brothers of the EU. I’m not demanding loans for Greece at the same favorable conditions that Germany gets, but we need more favorable terms than we’re getting now.”
Greece bought time yesterday by selling 10-year bonds with investors bidding for more than three times the 5 billion euros it sought to raise. The goal was to avoid a repeat of a five- year note sale in January, when the debt tumbled on the first day of trading. Greece faces more than 20 billion euros in debt redemptions in April and May.
Wage Cuts
“Now it’s really playing for time,” said Carsten Brzeski, an economist at ING Group in Brussels who used to work at the European Commission.
Tax increases and pay cuts for government employees outlined on March 3 were designed to guarantee Greece would meet a January pledge to trim the deficit to 8.7 percent of gross domestic product from 12.7 percent, more than four times the euro region’s 3 percent limit.
Concern that Europe will fail to cope with Greece’s fiscal woes has knocked the euro down 5.4 percent against the dollar this year. Trichet’s opposition to the IMF as a safety valve further undercut the currency yesterday. It fell more than 1 cent to $1.3560.
“Europe is being short-sighted,” said Ted Truman, a senior fellow at the Peterson Institute for International Economics and a former adviser to U.S. Treasury Secretary Timothy F. Geithner. “If Europeans get it wrong then this impacts financial markets. It will likely impact European growth and that of the rest of the world.”
Greek Backlash
Yesterday brought mixed messages about Greece’s romance with the IMF. Finance Minister George Papaconstantinou called the IMF a last resort if the European Union fails to “rise to the occasion.”
That shifted the focus back to Greece’s efforts to get out of the fiscal jam on its own, a job made harder by protests against austerity steps by a socialist government that came to power in October on promises of higher wages and pensions.
“Grossly unfair” was the verdict of Dimitris Bratis, president of the Greek teaching federation, on NET TV yesterday. Teachers plan to walk off the job today, along with the main public transport union.
Trichet — involved in drawing up the Feb. 11 declaration of moral support for Greece — didn’t rule out European support yesterday, while keeping vague about what the EU would do.
“I gave publicly my support for the statement,” Trichet said, reading excerpts aloud at his Frankfurt press conference. “I take that commitment as very, very important.”
German lawmakers briefed on the aid discussions have spoken of contingency plans to offer Greece about 25 billion euros, enough to cover the maturing debt. One option may be for state- owned lenders such as Germany’s KfW Group to buy Greek bonds.
“It has been a game of chicken,” said Paul de Grauwe, a professor at the Catholic University of Leuven in Belgium. “The European authorities have not been willing to give clear signals because they are afraid that the Greeks will not go far enough in budgetary tightening. But now I think we can say the Greeks have gone quite far. The euro zone governments should take a step forward now which could create a virtuous circle.”
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About 1.5 million Graco strollers have been recalled because they could pose a risk of fingertip amputations and lacerations to children, federal safety officials announced Wednesday.
The recall includes certain models of strollers and travel systems made by Graco Children’s Products, including the Graco Passage, Alano and Spree Strollers and travel systems, the Consumer Product Safety Commission said.
The hinges on the product’s canopy pose a fingertip amputation and laceration hazard to the child when the consumer is opening or closing the canopy, the CPSC said.
Graco has received seven reports of children injured when they placed their fingers in the stroller’s canopy hinge mechanism, including five fingertip amputations and two lacerations, according to the commission online cash advance.
The CPSC said consumers should immediately stop using the recalled strollers and contact Graco to receive a free protective cover repair kit.
The recalled strollers were sold at Babies "R" Us, Toys "R" Us, Kmart, Sears, Target, Walmart and other retailers nationwide from October 2004 and December 2009.
The strollers had a suggested retail price of between between $80 and $90. The travel systems, which include a detachable car seat, sold for between $150 and $200.
Heightened airport security after a botched terrorist attack on Christmas Day means one more cost for an airline industry that’s already experiencing considerable turbulence.
Consumers will likely be the ones to bear the brunt of the additional expenses, said John McKenna, president and chief executive officer of the Air Transport Association of Canada.
"Any time there are new security measures of any type, the travelling public pays for it," McKenna said.
After Friday’s attempted attack aboard a Detroit-bound Northwest Airlines flight, travellers now face a pat-down by security agents as well as tougher restrictions on what they are allowed to take on the plane.
Bags with wheels are no longer being allowed as a carry-on, and only one bag per traveller can be taken on the plane.
The secondary checks can take up to five minutes per person. That could add up to a delay of several hours for each flight if more employees aren’t brought in.
"If you add the people, you add costs. And these costs will have to be paid for by somebody," said McKenna.
"If they are permanent measures, this clearly costs the airlines and the travelling consumer a lot more money."
In Canada, Transport Minister John Baird requested help from the RCMP on Sunday night, and the Mounties helped provide additional screening security at Canada’s largest airports on Monday.
Transport Canada employees were also been called in on overtime for what was supposed to be a federal holiday to deal with the extra security needs.
For WestJet Airlines Ltd. (TSX: WJA), a Calgary-based carrier, tallying the added costs is not a "primary focus" at the moment, said spokesman Robert Palmer.
"We are focused on our guests and their experience," Palmer said.
He recalled that airlines struggled a year ago with an onslaught of snowstorms that snarled air traffic at the height of the holiday rush.
"In some ways, this is not dissimilar to last Christmas, when we went above and beyond to help our guests get home for the holidays," Palmer said.
McGill University professor Karl Moore said he doesn’t believe air travel will be affected significantly during this holiday period because most consumers will already be committed to their travel plans and will adapt.
"It will get back to normal, or the new normal, with a few more restrictions," said Moore, who noted that passengers are already used to taking off their shoes and belts and having liquid bottles checked.
"Travel is not fun in the way it used to be 15 years ago," Moore said.
"What we will see is a little bit of a slowdown but I think the restrictions will ease over time," said Moore, who teaches globalization and management in McGill’s Desautels Faculty of Management.
Moore said Air Canada in particular may actually see a bit of an increase in traffic as a result with travellers being able to choose international routes and connecting flights that avoid the United States.
"The more difficult it is to fly through the U.S., Canada gains a little bit from that."
A number of travellers at Toronto’s Pearson International Airport said over the holiday weekend that they were impressed with the way Air Canada handled the new security measures.
Stock in WestJet, Jazz Air Income Fund (TSX: JAZ.UN) and Montreal-based travel company Transat AT Inc. (TRZ.B0 felt a downdraft Tuesday in the first trading since Friday’s attempted bombing.
WestJet dropped 17 cents or 1.4 per cent to $12.29 while Jazz, a former Air Canada subsidiary that’s now a separate airline company, dropped 13 cents or 2.9 per cent to $4.30 and Transat (TSX: TRZ.B) slipped 20cents to $21.
Air Canada (TSX: AC.B) was unchanged at $1.25.
In the wake of the 2001 terrorist attacks in the United States, airline travel fell dramatically around the world and led to billions of dollars in losses for the global airline sector.
Earlier this month, The International Air Transport Association revised its financial outlook for 2010 to an expected US$5.6 billion global net loss, larger than the previously forecast loss of $3.8 billion. However, passenger traffic is expected grow by 4.5 per cent in 2010.
For this year, the airline research group maintained its forecast of a $11 billion net loss.
Umar Farouk Abdulmutallab, 23, of Nigeria was charged Saturday with trying to blow up a Northwest Airlines flight as the plane approached Detroit on Christmas Day. He’s accused of igniting an explosive substance hidden in his pants. An al-Qaida group claimed responsibility for the attempt on Monday.
U.S. consumer sentiment fell in early November to the weakest in three months amid grim expectations for job and income prospects, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for November fell to 66.0, the lowest since August, from 70.6 in October. This was well below economists’ median expectation of a reading of 71.0, according to a Reuters poll.
The index of consumer expectations fell to 63.7 in early November from 68.6 in October.
“Confidence tumbled in early November due to the grim financial realities faced by consumers as well as weaker economic prospects for the year ahead — importantly, the decline in confidence was already in place before the announced increase in the unemployment rate to 10 fast payday loan.2 percent on November 6,” the Reuters/University of Michigan Surveys of Consumers statement said.
Within the survey, the 12-month economic outlook index fell to 67, the lowest since April, from 81 in October. The 1-year inflation expectation eased to 2.8 percent from 2.9.
(Reporting by Chris Reese; Editing by Chizu Nomiyama)
Even as the Obama administration is unveiling plans to impose unprecedented pay caps on top officials at the seven U.S. companies receiving the largest federal bailouts, the U.S. Supreme Court is preparing to hear a case that turns on whether to apply analogous pay caps on certain financial advisers.
Even more important, the court’s ruling in the case known as Jones v. Harris Associates — being argued November 2 — will provide insight into how the current roster of justices view the economic question of our day: When should market forces be reined in by government?
Typically, when directors pay a CEO a suspiciously bloated salary, the action raises only state-law questions, not warranting the Supreme Court’s attention.
The upcoming case, however, raises a closely analogous issue that does happen to be controlled by federal law: What happens when ostensibly independent directors of a mutual fund approve bloated fees for the fund’s financial adviser — the same adviser who most likely created the fund and, in most cases, still oversees it? (A 1970 amendment to the federal Investment Company Act imposes a fiduciary duty on fund advisers not to accept excessive compensation and empowers investors to enforce that duty in court.)
The facts of the case are these: In 2004 investors in three Oakmark mutual funds — which had, ironically, each just completed three years of stellar performance — sued the funds’ adviser, Harris Associates, for allegedly accepting too much in fees during that time. (The investors’ law firm also brought similar cases against 11 other leading fund advisers, including those for American Century, Fidelity, Janus (JNS), and Putnam.)
Citing the fact that Oakmark’s fees had been fully disclosed and were well within industry standards — roughly 1% of assets for the first $2 billion invested — the district judge threw the case out before trial in 2007.
Last year the federal appeals court in Chicago affirmed that decision. U.S. Circuit Judge Frank Easterbrook, one of the most eminent jurists of the conservative Chicago School of Law and Economics, explained his ruling bluntly: "A fiduciary must make full disclosure and play no tricks but is not subject to a cap on compensation." Ho-hum.
Then things took a turn toward the extraordinary. In August 2008, when the full Seventh Circuit Court of Appeals declined to rehear the case, five judges signed a rare dissenting opinion. More remarkable still, the dissent was authored by Judge Richard Posner, another towering intellect of the free-market Chicago school.
Perhaps undergoing a mid-financial-crisis crisis, Posner urged that market forces could not be trusted in this situation. In his view Judge Easterbrook’s analysis was "ripe for reexamination" because of the "feeble incentives of boards of directors to police compensation." He stressed that Harris charged mutual fund investors roughly twice what it charged independent institutional investors.
Seeing the deep rift within the Seventh Circuit and a conflict with other circuit court rulings, the Supreme Court snatched the case up in March.
Even aside from its implications for CEO pay, Jones v. Harris Associates directly affects the $10 trillion mutual fund industry in which 92 million investors participate. At least 14 outside groups have filed friend-of-the-court briefs.
Jones’s supporters include Vanguard founder John C. Bogle, AARP, and the U.S. Securities and Exchange Commission. Rooting for Harris Associates, on the other hand, are various industry trade groups and the libertarian Cato Institute.
We’re wagering that the court will reject Judge Easterbrook’s view — that virtually any fee, so long as it’s disclosed, is okay — but still won’t find Oakmark’s fees to have been illegally out of whack.
Of greater interest will be the straw poll of the Supreme Court’s views on laissez-faire capitalism itself. Is it, too, "ripe for reexamination"?
College costs are higher than ever, according to a new report, putting a degree even further out of reach for many Americans.
Tuition and fees at private 4-year schools rose 4.4% in the current school year to $26,273, according to a survey released by the College Board Tuesday.
Charges at public 4-year universities spiked over 6% for both in-state and out-of state students, to $7,020 and $18,548, respectively.
"We’re in a very strong sellers market for higher education," said Pat Callan, president of the National Center for Public Policy and Higher Education, who noted that the high school graduating class of 2009 was the largest in history.
"Colleges and universities are capitalizing on that more than any other institution in the economy. If you walk around a shopping mall, nobody else is raising prices at the same rate."
Tuition prices are going up at private schools at least in part because those schools have seen their endowments dwindle. Public schools are suffering from a dip in state funding, which declined 5.7% per student this year. (College Cost Finder: Get the latest tuition.)
Less grant money. At the same time, the availability of financial aid isn’t keeping up with these climbing costs. Grant funding grew only 4.7% in the 2008-2009 academic year, the most recent for which data is available, which means that undergraduates’ out-of-pocket costs are higher than ever.
That, combined with higher unemployment and stagnant household incomes, is making it harder than ever to finance a degree.
The good news, if it can be called that, is that about two thirds of full time students receive financial aid that doesn’t need to be repaid. After taking grants into consideration, coupled with federal tax benefits, the net cost of college is much lower than the sticker price. On average, students at private schools are paying $11,900, while those attending public schools are spending about $1,600 out of pocket each year.
That still leaves a third of students paying full freight, and every undergrad is still contending with room and board costs that are also climbing, up 5 payday loans with low fees.4% at public schools at 4.2% at private schools this year.
"Tuition is only one part of the picture," said Sandy Baum, a senior policy analyst at Collage Board. "Even though the net tuition might not be rising for students who get grants, the aid is not enough to cover living costs."
More borrowing. To help bridge the gap between what college costs and what families can afford, student loans are also up. Total borrowing increased 5% between the 2007-2008 and 2008-2009 school years, the most recent for which data is available.
If these trends continue, experts say that it will become even harder to get a college degree.
"If we don’t find a way to constrain costs and invest in financial aid at the same time, we won’t have any gain in increasing the accessibility or affordability of higher education," said Pat Callan from the National Center for Public Policy and Higher Education.
Callan and his colleagues say that state governors and legislators have to put pressure on public colleges and universities to limit tuition hikes, while trustees must do the same at private schools.
Simultaneously, Callan adds, schools need to invest more financial aid in students who really need it. For instance, at public schools during the 2007-2008 year, two-thirds of grant money went to students without regard to financial circumstances. Students from the lowest income families got an average of just $570 in non need-based grants, while students from upper-middle income families received $730.
But the College Board’s Sandy Baum is optimistic that this is one challenge that the education community can address.
"I think that the silver lining to the current problem is that we’ll waste less money on kids who don’t need it," she said, "and focus on kids who need the funds."
World oil consumption will rebound next year as the global economy recovers from a deep slump, according to a report released Friday.
The Paris-based International Energy Agency said it expects global oil demand to grow 1.7% in 2010 to an average 86.1 million barrels per day. That’s an increase of 350,000 barrels per day from its previous estimate.
Crude for November delivery rose 8 cents and settled at $71.77 a barrel. Oil prices had slipped earlier in the session as the U.S. dollar recovered some ground on speculation that the Federal Reserve could tighten monetary policy as the economy recovers.
In its monthly oil market report, the IEA said "buoyant economic activity in more oil intensive emerging countries" will help support demand next year. However, the group warned that next year’s economic outlook "is still fraught with uncertainty."
Global oil demand in 2009 is expected to average 84.6 million barrels per day, according to the IEA. That’s up 200,000 barrels per day from last month’s forecast. But overall consumption in 2009 is still expected to be down 1.9% versus the year before.
Oil surged more than $2 in the previous session as the dollar fell to a 14-month low and a surprise profit from aluminum producer Alcoa (AA, Fortune 500) on Wednesday boosted economic recovery hopes no fax pay day loans.
The dollar rebounded Friday after Fed Chairman Ben Bernanke said late Thursday that the U.S. central bank could reverse its easy money policies as economic conditions improve to ward off inflation.
"My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period," Bernanke said. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."
The greenback was up 0.3% against the euro to $1.4755. It gained 0.5% versus the British pound to $1.5993. Against the Japanese yen, the dollar rose 0.4% to ¥88.74.
Crude often falls when the dollar strengthens because a more robust greenback makes commodities priced in dollars more expensive for overseas buyers.
Mortgage applications surged last week as interest rates on home loans remained low, an industry group said Wednesday.
The Mortgage Bankers Association said its index of mortgage application volume rose 16.4% last week versus the previous week.
The surge in activity came as rates on 30-year fixed rate mortgages, the most widely used loan, remained below 5% for the third week in a row.
The average interest rate for 30-year fixed-rate mortgages fell to 4.89% last week from 4.94% the week before, according to the MBA. It was the lowest level since May 2009 when 30-year rates were 4.81%.
The MBA said refinancing applications jumped 18.2%, climbing to the highest level since mid-May. Purchase applications rose 13.2% to reach the highest level since January.
The report bodes well for the U low fee pay day loans.S. housing market, which has been stabilizing following a major slump. In addition to low interest rates, home sales have been supported by affordable prices and government tax credits.
But analysts say the market remains hampered by rising unemployment and warn that the budding recovery could falter if a popular $8,000 tax credit is allowed to expire at the end of the year.
Meanwhile, the average rate for 15-year fixed-rate mortgages eased to 4.32%, the lowest rate ever recorded in the survey.
Rates for one-year adjustable rate mortgages, or ARMs, rose to 6.56%.
ST. LOUIS — The Avalon Theater, dark for a decade and fallen into severe disrepair, is for sale — for $1 million, as is.
Bjaye Greer, listing agent for the property for the Realty Exchange, said that SOPO Corp. put the property up for sale last month. Some clarification of the building’s ownership still needs to be resolved in court, but Greer hopes a redeveloper or preservationist will soon buy the old theater, in the South Kingshighway commercial district near Chippewa Street.
Greer said the 8,500-square-foot building could be sold for renovation and adapted reuse or torn down for redevelopment.
"That’s up to whomever buys it and what they are able to do within city and zoning parameters," Greer said. The entire lot is about 25,000 square feet.
"It was a beautiful building and supposedly one of the best Art Deco buildings in St. Louis to save," Greer added. "I was hoping someone could restore it and save it. But I also know that the area is a real prime spot for redevelopment."
The area around the Avalon, 4225 South Kingshighway, was once a hub of south St. Louis activities, a destination for shoppers as well as moviegoers. The theater opened in 1935 as one of St. Louis’ "movie palaces."
Now, the building is missing large sections of the shingled roof and has a barricade instead of a box office. The property is now condemned, cited scores of times by the city for building code violations.
LANDMARK STATUS?
The Landmarks Association of St. Louis last spring put the theater at the top of its list of most-endangered historic properties. Many neighbors see it as a significant neighborhood landmark that should be preserved.
Others call it an eyesore and a threat to the health and safety of the neighborhood. They want it torn down as soon as possible.
The area’s alderman, Stephen Gregali, believes the building is probably doomed. He called the theater a "a never-ending story."
"I’d like to see some venue there, but we have made numerous attempts," he said. "We’ve tried to take it off their (the owners) hands, but they blew us off."
Gregali said the city also offered business assistance.
"Since the building has deteriorated, we may have no alternative but to tear it down," Gregali said. "The last time I was in the building 18 months ago, I had to wear a mask and a hat — the mold is that bad. It’s like ‘The Blob’ movie come to life.
"It’s really a shame because other than the Chase and Moolah and Hi-Pointe, we don’t really have movie theaters in the city. I have had theater and club groups approach me … but unfortunately, they want the building for nothing."
Richard Dempsey, an attorney representing SOPO, could not be reached for comment.
The attempt to sell the building is proceeding even though the building is the subject of a suit filed by the city in May in St. Louis Circuit Court.
The suit seeks to clarify the property’s ownership.
That is complicated because SOPO Corp., which has owned the theater since 1977, has been defunct since 1983, and its last known principals, Constantin and Kay Tsevis, are deceased.
"We don’t believe anybody has clear title to the Avalon Theater so we’ve asked the court to assign somebody to speak for the defunct corporation and take the necessary steps to transfer title to an actual person or valid legal entity," said Erika Zaza, an assistant city counselor.
Zaza said that at the city’s request, Circuit Judge Robert H. Dierker last month appointed one of the Tsevises’ heirs, Larry Tsevis, as the trustee to act on behalf of SOPO. His role will be to distribute assets to shareholders, or wind down the business. That will require the probate estate to be reopened. Once the probate matters are clarified, city officials say, there should be a clear title, allowing for the sale.
Also the city would have a legal owner that would be responsible for the current condition of the property. City officials said they wanted to make sure there was a clear title and if necessary they want to be able to hold the owners responsible for any neglect.
Dierker will hold another hearing on the matter on Sept. 14.
GE Capital is taking on the doubters. The finance arm of General Electric (GE, Fortune 500) on Tuesday addressed investors skeptical of its fit within the industrial conglomerate.
Chief among the messages: The business is adequately funded; it has enough capital to handle potential loan losses; and it is basically above average in what it does relative to big U.S. banks. But if that’s all true, why does GE Capital need the special treatment it is fighting for on Capitol Hill?
The Obama administration’s regulatory reform plans would ramp up the constraints on financial firms that are big enough to represent a systemic risk. But GE Capital is lobbying to exempt its $650 billion balance sheet from such a high level of oversight. But if it’s so good at what it does, it shouldn’t need that kind of help.
The full-court press the company is unleashing in Washington is also at odds with what GE Capital itself conveyed to shareholders. The first slide of its 63-page manifesto says its loan portfolios are "performing as expected or slightly better" and exhibiting loss rates "most below the Federal Reserve Base Case." It expects loan losses in 2010 to mirror those of the current year, and it doesn’t need more capital "even under adverse scenarios color business cards."
GE Capital rolled out the numbers to buttress its above-average banking prowess. The company said it has $25 billion of financial receivables to U.S. consumers, with reserves equal to 6.6% of these loans — above the 6.1% average held by the top three American banks. Similarly, it has reserves equal to 1.5% of the $93 billion of loans extended to U.S. businesses, higher than the 1.1% held by the big banks.
But here’s the problem. If GE Capital really is adequately capitalized to handle rising defaults, manages to get more than rivals from customers who can’t pay their bills, and has enough funding to weather ructions in the capital markets, it makes special treatment as a non-bank financial institution seem unnecessary.
The company also considers itself to be an "important source of liquidity to U.S. businesses and consumers." GE Capital’s balance sheet would make it the country’s fifth-largest bank. So GE Capital is right that it’s an important player in the financial system. And that’s how it should be regulated.
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