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N.Y. Governor Calls for Federal Relief for States

October 29, 2008 12:35 PM

ABC News' Huma Khan reports: In testimony before the House Committee on Ways and Means, New York Gov. David Paterson chided the federal government for not providing enough oversight to prevent the financial crisis and urged it to provide aid to states to curb their budget deficits. In contrast, South Carolina Gov. Mark Sanford called for less federal involvement in state matters and more flexibility.

“There is no doubt we are currently in a statewide recession,” Paterson said. “And if history is any guide, the recession will be more severe and longer lasting in New York state than it is in the nation as a whole.”

Paterson said he will propose the largest spending reductions in the history of the state next year.

“Funding for many worthy programs, several of which I personally support, will have to be curtailed dramatically,” he said. “This is not something I want to do, but it must be done.”

Paterson said he expects the needs for social services to increase while investment in infrastructure by states declines. He proposed federal funding for states for transportation and water improvement projects.

He called on the federal government to assist states, especially in the form of “direct and immediate fiscal relief” to help close budget deficits. He emphasized that New York had been “shortchanged” by federal officials in terms of aid, saying that the post-9/11 recovery package the federal government promised the state was never given.

Other measures he proposed included: an extension of Emergency Employment Compensation benefits and modernization of the unemployment insurance system, a temporary boost in funding for the food stamp program and a moratorium on federal regulations that negatively impact state budgets.

“States didn’t cause this crisis and we shouldn’t be left to deal with it alone,” he said. “A rescue package from the federal government will help soften the blow for average Americans. It could make the difference between targeted, surgical spending reductions that will help heal our fiscal condition… Unless states receive fiscal relief, I believe the goal of stabilizing the economy cannot be achieved.”

Trenton, N.J. Mayor Douglas Palmer echoed the theme, emphasizing that a partnership needs to exist between the federal government and city governments.

Sanford, meanwhile, strongly urged Congress to not approve a new stimulus package, saying that it would only boost the national budget deficit.

“I believe that some time in the not-so-distant future we’re going to reach a breaking point when that $52 trillion will come due, and that our potential inability to pay will have frightening ramifications by either completely trashing the value of the dollar or creating hyperinflation, which robs from every middle class worker across America,” he said.

Sanford was referring to a stimulus package under consideration by Congress that would help states in financing infrastructure projects. The size of the new plan is expected to between $150 and $300 million, although an exact dollar figure is not yet known.

 

The economic crisis, Sanford said, was predictable “for the simple reason that gravity always works… One could go as far back as Biblical times and look at the passage of the seven fat and seven skinny cows coming out of the Nile in Pharaoh’s dream to remember that this notion of business cycles, credit cycles, the up-and-down of the economy, is one of the constants in history."

Sanford questioned the need for more federal government expansion and involvement in states’ affairs, instead asking for more state freedom and flexibility.   

An expansion of federal government scope “will create strong negative unintended consequences, particularly with the $52 trillion dollars of liability the federal government already has,” he said.

Sanford recommended to instead give states relief from unfunded mandates so that they have more options.

Most of the speakers placed emphasis on the need for more infrastructure investment for schools and education, citing the decline in quality of schools.

“With the frightening rise in mortgage foreclosures, schools are seeing record numbers of students who are homeless or poor enough to qualify for free school meals,” said Dennis Van Roekel, president of the National Education Association.

There was also discussion on more job creation and infrastructure investment.

October 29, 2008 | Permalink | User Comments (48) | TrackBack (0)

Gas Prices Drop Again

October 27, 2008 4:49 PM

ABC News' Charles Herman reports: The Energy Department reported Monday that retail gasoline prices dropped yet again as oil prices have plummeted. The latest government data shows that the average gallon of regular unleaded is now $2.66, down $0.26 from last week.

Since last month, the price has declined nearly 31 percent: On Sept. 15, the average price for a gallon of gasoline was $3.84.

But drivers are paying just 7.5 percent less per gallon today compared to a year ago, when the average gallon of regular unleaded cost $2.87.

For more information on gas price drops across the country, click on the chart below.

October 27, 2008 | Permalink | User Comments (49) | TrackBack (0)

Why Markets Crash in October

October 24, 2008 1:51 PM

ABC News’ Scott Mayerowitz reports: What is it with October?

Is it the changing seasons, the diminishing sunlight or maybe just a desire to be back on the beach?

Whatever it is, October has historically been a bad month for the stock market.

Today marks the anniversary of Black Thursday, the initial stock market crash in 1929 that eventually led to the Great Depression. (The two selloffs on Monday and Tuesday, Oct. 28, 1929 and Oct. 29, 1929, actually set off the panic.)

Then fast-forward to 1987. On Oct. 19 of that year, stock markets around the world crashed. On what became known as Black Monday, the Dow Jones Industrial Average lost 22.6 percent of its value.

Now to this October, as if anyone needs reminding. This month, the Dow has lost about 2,500 points, or 23 percent of its value amid a global financial crisis and economic slowdown. And there's still a week of trading to go.

So what is it about October?

“That’s a good question. It’s been asked before. Believe me, I don’t think I have an answer for you," Charles Geisst, a finance professor at Manhattan College, told me today. “I think it’s mostly coincidence."

Geisst, who has written several books about the markets, including “100 Years of Wall Street,” “Wall Street: A History” and “Undue Influence: How the Wall Street Elite Puts the Financial System at Risk,” thinks the Great Depression stigma might now perpetuate itself in some traders’ minds.

“The best I can say for it is that since 1929, there’s been a myth about October. And I think it’s more myth than anything else,” he said. “Maybe it’s Halloween or something approaching. I’m not sure. But it’s nothing serious. No.”

Well maybe history had some clues for us. After all, October was the month that the Great Fire of Chicago broke out in 1871. Hundreds were killed and another 90,000 were left homeless.

October was also the month -- in 1881 – when that most famous Western gunfights occurred: the shootout at the O.K. Corral.

Not that either of those events relates to the stock market and its gyrations.

So we then might have to turn to 1901, when on this day a 63-year-old schoolteacher named Annie Edson Taylor became the first on record to take the plunge over Niagara Falls in a barrel.

Plunge? Falls? A bit of a stretch? Probably, but it’s the best we could do.

It should be noted that October doesn’t always mean bad news for the stock market.

Look back just one year, when on Oct. 9, 2007 the Dow hit its all-time high close of 14,164.53, more than 40 percent above today's level.

October 24, 2008 | Permalink | User Comments (37) | TrackBack (0)

Boeing's Emergency Airplane Repair Team

October 24, 2008 10:27 AM

ABC News’ Matt Hosford reports that: Nothing fires me up like a good song.

My new favorite starts with a shredding guitar lick -- something you might have heard on college radio circa 1993. The vocals echo Les Claypool’s days in Primus.

And the lyrics, “Well, we’re toolin’ and a spoolin’ and a riggin and a jiggin” are straight out of the Mike Watt playbook.

Now what if I told you it was set to footage of guys fixing a plane? Sounds cool, huh?

The video is called “Put Together Quickly” and was produced by Boeing.

It shows the company’s Aircraft on Ground team fixing a damaged Boeing 767 airplane. That’s its job: When a plane needs repairs, it goes out and fixes it. Or as the team sings in its song, “We’ll come and fix any airplane, where it happens to be, we’ll get it in the air flying, where a plane ought to be.”

The AOG story -- and accompanying video -- are featured on the Air and Space Magazine Web site. The plane AOG fixed in the video had to be taken apart and reassembled all in three weeks.

Doesn’t sound like much of a challenge for a team that promises: “We fix it from the top, And we fix it from below, We get it done fast and put you on the go, Gotta beat feet, Just give me a good crane and safety helmet.” I know I’m fired up.

October 24, 2008 | Permalink | User Comments (1) | TrackBack (0)

Where Scared Wall Streeters Can Go: Church?

October 24, 2008 9:41 AM

ABC News’ Alice Gomstyn reports: Traders and other financial types looking for relief from all the economic and market turmoil in recent weeks haven’t had to venture far from their Wall Street stomping grounds. Since last month, a New York City church blocks away from the New York Stock Exchange has recently started offering sessions geared to those suffering from the financial crisis.

Trinity Church, in cooperation with the Psychotherapy and Spirituality Institute, has offered sessions on coping with stress as well as “navigating career transitions,” which offers guidance to those who have lost their jobs or fear for their job security.

“The thing that I hear most frequently is this is scary,” said psychologist Mary Ragan, who leads the stress counseling sessions. “There is a sense of helplessness. … These seminars are really focusing on helping people to understand where they do have control.”

Despite the church’s proximity to Wall Street, Ragan indicated that Wall Street suits are not necessarily the target audience.

“There certainly are some people who are financially sophisticated, but there are lots of other people who are coming to these seminars who are not,” she said. “We’ve had retirees on a fixed income. We’ve had people in the neighborhood.”

Among the more surprising visitors: foreign tourists.

“I would say in almost every seminar I’ve done, there’s been somebody from Europe or in one case India who was here on holiday who saw the sign and came,” Ragan said. “One woman actually was running a small business in Ireland and under pretty significant stress.”

For some foreigners, she said, “there may simply be a curiosity factor: ‘What are these Americans going through?’”

The sessions have drawn anywhere from just a handful of people to more than 20.

I recently checked out a daytime career counseling session led by Michael Bednarski of the Psychotherapy and Spirituality Institute. Just one other person came.

Bednarski told me afterward that the daytime session may have been less convenient to attend than the nighttime ones.

But, he said, he expects more people will come out soon.

“We’re not yet officially in a recession,” he said. Once a recession is official, he said, “I think you’re going to see these rooms fill up.”

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October 24, 2008 | Permalink | User Comments (11) | TrackBack (0)

Searching for a Home ... and a Mortgage

October 23, 2008 5:00 AM

ABC News’ Alice Gomstyn reports: In an era of plummeting home values and skyrocketing foreclosure rates, it’s a scary time to be a homeowner.

But Nancy Nichols still wants to be one.

Nichols, a single mother of two who rents a home in Cheyenne, Wyo., has been waiting for three years to buy a house. A math teacher at a community college, Nichols says her wait might be ending.

“With the housing market being down, I know I could get a lot more house now for my money than I could have two or three years ago,” she said.

If there’s a silver lining to today’s housing crisis, it’s for people like Nichols. Home prices saw their biggest drop in nine years recently -- the median price for a single family home in the U.S. in August was $203,100, down more than 9 percent from the year before.

The lower prices make it easier for Nichols and others to find the homes that meet their needs. For Nichols, 42, that includes staying in Cheyenne --  where her kids are in school  --  and finding more space.   

“There’s not even enough room in the bathroom for more than one person to even stand there,” she said. “Since it’s a rental unit, it’s not like I can hire somebody to put another bathroom in the basement.”

Not that would-be homebuyers like Nichols, pictured below, have it easy. Borrowers have fewer options than before because some lenders have gone out of business since the start of the housing slump. Those who are offering loans have tightened their lending standards –- they often require higher down payments and borrowers typically must have credit scores of 720 or higher to qualify for the lowest interest rates on a home loan.

Nichols, who earns about $50,000 a year through her community college job and other teaching work, said her credit suffered after her divorce  --  it was tough to pay some bills on time.

“That’s one reason that I’ve waited this long  --  I was trying to rebuild my credit,” she said.

Her score today, she said, is at 700. She said she expects it to rise soon, but she’s still nervous.

“I’ve heard such bad stories ... people were talked into taking out loans that they really couldn’t afford,” she said. “That’s one of my big fears.”

For now, Nichols is on the hunt for a mortgage broker. She hopes to find a real estate agent soon too.   

“I was thinking I’ll probably wait till the economy calms down a little bit -- I think right now everybody’s so panicked, I’m not sure right now is a good time to do it,” she said of her real estate agent  search. “Maybe in another month or so.”

We’ll check in with Nichols in a few weeks to see how she’s doing. Stay tuned.

October 23, 2008 | Permalink | User Comments (34) | TrackBack (0)

Will GM Seek Cash from the UAW?

October 21, 2008 7:00 AM

ABC News' Alice Gomstyn reports: There are signs that the credit market is thawing, but that doesn’t mean it will be easy for General Motors to get the cash it needs to finance a merger with Chrysler.

“We can’t finance consumer car loans for now, so how they will find the financing for this,  I don’t know,” said Kristin Dziczek, the senior project manager of the Economics and Business Group at the Center for Automotive Research.

The Wall Street Journal, citing unnamed sources, reported Monday that GM has had trouble attracting investors, despite the automaker’s pitch that a merger would help the combined company save as much as $10 billion. (Neither GM nor Chrysler have confirmed that they are in merger talks.)

Some of the savings, presumably, would come from job cuts, but Dziczek said that GM would also need money to fund severance packages for the workers who lose their jobs. In addition, she said, GM may need money to defend itself from litigation: if a GM-Chrysler merger results in the discontinuation of certain auto brands, dealers who sell those brands may sue.

Exactly where might GM go to secure the funds it needs? Dziczek suggested a surprising source  --  the United Auto Workers. Starting in 2010, the union is supposed to receive billions from GM and Chrysler to fund retiree health care. If GM is late on its payments, she said, it would have to pay a 9 percent interest rate.

If GM delays its payments and later pays the 9 percent rate, Dziczek said, the company would, in effect, be borrowing from itself at a lower rate than it could ever find at a bank.

Of course, such an arrangement would need the UAW’s blessing, and there’s the catch: The UAW has already come out against a merger. If the union changed its mind and agreed to not only support the merger but also to help finance it, GM might have to scale down on merger-related job cuts.

For example, the UAW likely won’t agree to help if the merger “wipes out all the Chrysler workers,” Dziczek said.

There is another financing option: the government.

Last month, Congress approved $25 billion in low-cost loans for the auto industry. Dziczek said she wasn’t ruling out the possibility that there’d be more in the way of such aid.

But Michigan Rep. Thaddeus McCotter, whose district includes many auto industry employees, said the government won’t step in to the help aid the merger unless it’s asked   …and no one’s asked yet.

“It would be imprudent for the federal government to try to stick its nose into these merger talks if the parties have not made any reference to the federal government coming in,” he said.

October 21, 2008 | Permalink | User Comments (35) | TrackBack (0)

Relief for Your Tank: Gas Prices Drop Again

October 20, 2008 5:48 PM

ABC News’ Dan Arnall reports: The Energy Department reports that retail gasoline prices have had another week of steep price drops. The newest government data shows that the average gallon of regular unleaded is now going for $2.91, down $0.24 from the previous week.

In the past two weeks, consumers have seen prices drop by $0.57, the largest two-week price drop in the history of the government report. It’s the first time since early February that prices have been below the $3 a gallon mark.

With this quick drop in prices consumers are spending just 3 percent more per gallon today when compared to a year ago, when they were paying $2.82.

Consumers in the Midwest region are actually paying LESS per gallon today than they were a year ago –-
two cents less to be exact. For more on the gas prices changes around the country, click on the chart below.

October 20, 2008 | Permalink | User Comments (45) | TrackBack (0)

Government’s Plan to Invest Billions in Banks

October 20, 2008 2:46 PM

ABC News’ Kirit Radia reports: Treasury Secretary Henry Paulson this morning provided the latest details of the government’s $700 billion bailout plan. The government is going to offer $250 billion to U.S. banks, which, as an industry, have been hammered by the housing market collapse.

The government will take ownership shares in the banks through preferred shares. Any bank that agrees to participate will be subject to certain conditions, including limits on executive compensation.

Here are some points federal regulators made to ABC News about the plan.

What Is the Deadline for Banks to Act?

The banks must submit initial applications by Nov. 14 but could be given a few extra days if needed. Federal regulators will then recommend to the Treasury Department whether to put government funds into that bank or not. That said, the government hopes to start this as soon as possible, and if the bank is approved before then, won't wait until the deadline to make its first purchases.

What Would Get a Bank Rejected From the Program?

Officials were reluctant to provide details on what might be grounds for rejection, trying not to tip their hand. They said they want the program to be "broad-based" and to reach as many banks as possible.

They insisted there would be enough money in the $250 billion allocated for the program to be able to invest in all the banks that are interested.

One regulator said that they do have a list of "problem banks" but wouldn't elaborate on which banks made the list, or how that might affect an application for federal funds.

Why Would Banks in Good Standing Subject Themselves to Restrictions to Get This Money?

The regulators insisted this is a good investment for the banks, saying the government was offering them "attractive capital."

The regulators said they have already received significant interest in the program from several banks.

Why Would the Banks Use This Money to Make Loans Rather Than Hold Onto It?

The officials said they are confident that banks have high-quality loans they want to make, if only they had the extra capital, and would likely make these desired loans with government funds, as it would be the fastest way to get return on investment.

So What Happens to This Program When the New Administration Comes In?

They acknowledged that there may be a need to "unwind" the program and said that there will be talks about this when the program gets up and running.

They insisted the new administration will have the ability to refine the program if it so desires.

October 20, 2008 | Permalink | User Comments (33) | TrackBack (0)

A Stock Market Cease-Fire

October 15, 2008 10:10 AM

ABC News' Betsy Stark reports: The furious financial-policy diplomacy of the last week has produced what feels like a cease-fire in the financial markets. Overseas, stocks are trading lower. Here in the United States, they opened lower as well.  But we can live with that after so many mornings of waking up to the news that they were in free fall or ready to plunge at the open.

To borrow the medical metaphor, policymakers have stopped the bleeding. We are no longer witnessing a bank a day fail. But if the patient is out of the emergency room, it still requires intensive care and should anticipate a long recovery. The "real economy"-- not to be confused with the financial system governments have been working overtime to save -- has deteriorated during this crisis. It may take more fiscal stimulus from Congress and more interest rate cuts from the Federal Reserve to revive the economy as we move forward.

For now, success will be measured by a different yardstick. The good news today is that the massive capital infusion by the federal government into the nation's banking system, which should begin later this week, is likely to shore up bank balance sheets and public confidence in their balance sheets. LIBOR rates--the rate at which banks make short-term loans to each other and a bellwether of the health of the credit markets -- have inched down a notch. These are positive developments in a system where the flow of credit was frozen and there were paralyzing questions about the solvency of major financial institutions.

But if Rescue 2.0 is already showing signs of being good for banks, it will take a little longer before we know what it does for other sectors of the economy and for the man and woman on the street. Will credit start flowing soon enough and cheaply enough to keep the U.S. auto industry afloat? How far off is the kind of relief that could help the housing market? Rates on 30-year fixed rate mortgages actually inched up in the last week.  And what will the massive cleanup of bank balance sheets do to the balance sheet of the United States of America? Estimates of the new potential price tag have risen from $700 billion for Rescue 1.0 to $2 trillion to $3 trillion for Rescue 2.0.

The fever may have broken, but the patient requires serious ongoing supervision. Or, if you prefer sports metaphors, I heard one analyst say recently: "My best guess is we're in the fifth or sixth inning of this game. But it could turn out to be a double-header."

October 15, 2008 | Permalink | User Comments (3) | TrackBack (0)