American Bankruptcy Blog’s blog

Fed chief Ben Bernanke said he is watching commercial real estate trends.

Regional banks face a big commercial real estate problem - Jul. 24, 2009*

WILMINGTON, Delaware (Reuters) - Bankrupt publisher Tribune Co has asked a court to give it until November 30 to come up with a plan to reorganize, according to court documents filed on Monday.

If approved, the request will give Tribune the exclusive right to propose a plan of reorganization. Tribune currently has that exclusive right until August 4, after which creditors may ask the court to accept their plan of reorganization.

Tribune said it deserves the extended period because of the complexity of the case.

The company said it has made significant progress toward the sale of the Chicago Cubs baseball team, which if sold could impact any plan of reorganization.

It also said that it estimates creditors have claims of about $13.7 billion, but the company has received claims for $606 billion in aggregate, which it said may be "duplicate or otherwise redundant claims."

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

As consumers in the US have been hit by sharply rising unemployment and the severe economic downturn, credit card defaults have risen. Billions of dollars of losses have been suffered in the credit card portfolios of banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo, as well as credit card issuers like American Express. UK charity National Debtline has reported the number of calls from consumers concerned about loans, credit cards and mortgage arrears had risen from 20,000 in May 2008 to 41,000 in May this year. The International Monetary Fund has predicted that of the 2,467 billion dollars of consumer debt in Europe, much of which comes from the UK, seven per cent will be lost.

Story Highlights

• Obama's April 20 challenge to Cabinet: Cut $100 million in spending in 90 days
  
• The 90 days are up, but White House hasn't issued a report yet on progress
  
• White House spokesman Robert Gibbs: Information still being compiled
  

WASHINGTON (CNN) -- On April 20, President Obama challenged his Cabinet to cut $100 million in spending over the next 90 days.
The deadline came -- and went -- without a report from the White House on whether or not that promise was fulfilled.
Asked about the spending cuts, White House spokesman Robert Gibbs said Monday that information still was being compiled.
"Those are being reviewed now, and we'll release something in the coming days," Gibbs told the daily White House briefing.
At time the challenge was announced, critics said $100 million in savings was a small amount on the context of the federal budget.
"Any amount of savings is obviously welcome," Senate Minority Leader Mitch McConnell, R-Kentucky, said in April. "But [$100 million is] about the average amount we'll spend every single day just covering the interest on the stimulus package that we passed earlier this year."
In April, Gibbs insisted that ordinary Americans nevertheless would appreciate the savings effort.
"Only in Washington, D.C., is $100 million not a lot of money," Gibbs said.
The issue is a sensitive one for Obama at a time of fierce Republican criticism about increased government spending for the economic stimulus plan.
Republicans also oppose health care reform proposals by Democrats that would cost $1 trillion or more over the next 10 years.
Obama is pushing for fast congressional action on a health care overhaul.

As the recession took hold, bankruptcies surged in the second quarter of 2009.

Exactly 699,104 bankruptcy petitions were recorded in the United States during the first six months of this year, according to data collected by Automated Access to Court Electronic Records. The vast majority were personal bankruptcy petitions, filed by hard-pressed consumers.

In 2004, just before the more stringent rules took effect, 6,339 bankruptcy petitions were filed during an average business day. In 2006, with the law fully in force, the rate plunged to 2,372 per day. Now, Americans are flooding back into bankruptcy court at the rate of 5,593 per day.

The data on bankruptcy (see interactive bankruptcy statistics graphic) illustrates the coast-to-coast pain. Per-capita rates have increased in virtually every state since 2007 -- in many cases, doubling or tripling.

Unemployment is not a lagging indicator but rather a leading one, Nicu Harajchi, CEO of N1 Asset Management said Friday. As a result, the US economic contraction is still intact, he added. Daniel Vassall-Adams from Helvetia Wealth joins the discussion.

Is the worst of the economic storm behind us?

Consider the evidence: the Dow Jones Industrial Average leapt about 7.3 percent this week to its biggest weekly gain since March. Positive earnings or upbeat remarks from Intel, Goldman Sachs, and JPMorgan Chase have contributed to the optimism. During the past five days, stock market bears have been roasted alive.

Yet. And but. There is another side to the story, which is the lackluster state of much of the rest of the economy. Heavy consumer debt loads have not vanished. Neither have the housing market's woes, and still-to-come price declines in many areas. CIT Group's potential demise -- for once, a Wall Street firm that didn't get a bailout -- is further evidence that the plague of financial contagion has not run its course.

On the earnings front, the Wall Street Journal reminds us that analysts predict all 10 of the major industry groups represented in the Standard & Poor's 500-stock index will experience a second-quarter decline in profitability from 2008 to 2009.

A Goldman Sachs report says: "We find that under reasonable parameters of supply and demand growth, it will take at least two years, and probably more like three to five years, to eliminate spare capacity in the manufacturing sector... In the labor market, the unemployment rate is likely to remain above the current concept of 'normal' for an even longer period."

Politicking in Washington isn't likely to aid economic fundamentals. The Obama administration is contemplating a sweeping changes to the financial regulatory apparatus -- never mind that a crop of regulatory agencies, sporting initials like SEC, FDIC, FINRA, OCC, NCUA, FFIEC, OTS, FHRA, and FRB failed to prevent last year's turmoil, and to some extent even aided it through regulatory failure and artificially low interest rates.

There's also the potential for higher taxes as a result of Democrats' plans for cap and trade legislation and health care plans. The conservative Heritage Foundation puts the cost of cap and trade at 2.5 million jobs lost, an average GDP loss of $393 billion a year, and additional increase in family debt at $114,915 by 2035. The Congressional Budget Office's estimates use different assumptions and are lower, but the CBO has said the health care proposal would increase, not decrease costs spent in the area.

All of these pending legal and regulatory changes create uncertainty, and could yield higher taxes, neither of which tends to delight investors. They also produce opportunities for what economists call "rent-seeking," a term meaning seeking favors through the political system at someone else's expense (which may aid the victor, true, but not the general public).

Then there's unemployment. The Associated Press reported Friday that 15 states have crossed the threshold of 10 percent unemployment, and more will likely follow. My (new) home state of California is in especially poor shape; unemployment here is at 11.6 percent, with the state losing 66,500 jobs last month and 766,300 jobs so far this year.

If you think that's alarming, check out the alternate data calculated by a Web site called Shadowstats.com. Using the earlier method of calculating unemployment, which takes into account "discouraged workers," it puts the national rate at just over 20 percent. (Here's more on calculating unemployment rates from John Miller, who teaches economics at Wheaton College in Massachusetts.)

Foreclosures are at a record high, despite the federal government's best efforts to lessen them, and jumbo loans remain difficult to obtain in pricier areas. If you believe that house prices will tend to return to their long-run, inflation-adjusted mean (a heretical concept in some circles, true), metro areas like San Francisco, New York, and Washington, D.C. have a long way to fall.

This is not to say that the U.S. economy is in execrable shape. If anything, we've stepped back from the precipice that was looming in front of us last fall -- at the possible cost of significant inflation once banks begin to lend out the remarkable amount of excess reserves they've accumulated.

But all of this should be a cautionary note. Bubbles don't deflate immediately, economic distortions take a while to unwind, and week-long stock market rallies may provide only temporary hope.

WASHINGTON (CNN) -- An average of five national polls conducted in July indicates that President Obama's approval rating has slipped to under 60 percent.

Fifty-seven percent of Americans surveyed approve of the job Obama's doing as president, according to a CNN Poll of Polls compiled and released Friday, with 36 percent disapproving.
In early June, Obama's average approval rating was 62 percent. It dropped a point to 61 percent in mid-June and stayed at that level through the rest of the month.
"Recent polls indicate that Obama's lowest ratings -- and biggest losses -- come on the public's perception of how he is handling the economy," said Keating Holland, CNN polling director.
Holland adds: "And the latest CNN/Opinion Research Corp. poll shows a double-digit drop in the number of Americans who think that the president has a clear plan for solving the country's problems. The public may not be as willing to give Obama the benefit of the doubt after six months on the job as they did when he first took office."
So how does Obama compare to his most recent predecessors six months into a first term?
Former President George W. Bush also drew a 57 percent approval rating six months into his presidency, in July 2001. Bill Clinton stood at 48 percent in July 1993. Two-thirds of Americans polled approved of George H.W. Bush's job as president in July 1989, and six out of 10 gave Ronald Reagan the thumbs-up in July 1981.
"Reagan, like Obama, got approval ratings in the high 50s and low 60s during most of his first summer in office," Holland said. "But as unemployment remained high, Reagan's approval rating dropped below 50 percent for the first time in November of 1981, and it stayed under 50 percent for the next two years."
The national unemployment rate rose for the ninth straight month in June, climbing to 9.5 percent from 9.4 percent and hitting a 26-year high. Nearly 3.4 million jobs have been lost during the first half of 2009, more than the 3.1 million lost in all of 2008.
One state in particular has been hit especially hard.
Michigan became the first state in 25 years to suffer an unemployment rate exceeding 15 percent, according to a report released Friday by the Labor Department.
The state's unemployment rate rose to 15.2 percent in June. It was the highest of any state since March 1984, when West Virginia's unemployment rate exceeded 15 percent.
Michigan, which has been battered by the collapse of the auto industry and the housing crisis, has had the highest unemployment rate in the nation for 12 months in a row.
CNN's Poll of Polls consists of five national surveys with interviews conducted in July: the Gallup tracking poll (July 13-15); Ipsos/McClatchy (July 9-13); Diageo/Hotline (July 9-13); USA Today/Gallup (July 10-12) and CBS News (July 9-12). The Poll of Polls does not have a sampling error.

De-dollarisation is upon us – and the question at this point is how quickly it is unfolding, says Fredrik Nerbrand, head of global investment strategy at HSBC Private Bank.
“Russian, Chinese and other emerging market policymakers are clearly concerned about their sizeable dollar holdings,” he says. “Even if the US seems to be leading the global recovery, the greenback is likely to lose some of its reserve status in coming years.”
Mr Nerbrand says major policy changes are needed for the US to achieve sustainable debt levels. Moreover, its ability to pay down debt is dependent on economic growth, which he believes will be fragile.
“Against this backdrop, US policymakers will likely err on the side of caution so as not to choke the recovery. As such, the Federal Reserve is likely to talk tough but act softly with regard to longer-term inflation pressures.
“Treasury bonds should be viewed as ‘return free risk’ rather than ‘risk free return’. Thus, Treasury yields should rise, which in turn will cause mortgage rates and corporate funding costs to increase, resulting in slower growth.
“Furthermore, as all assets rest on the now unstable foundation of US government bond yields, valuations of riskier assets may appear less attractive.
“So it is not just emerging market central banks that should diversify their currency exposures – private investors need to be aware and positioned for a multi-polar world.”

The Financial Times Limited 2009

A new forecast raised fresh doubts yesterday about how strong any economic recovery might be, as the Federal Reserve projected that the unemployment rate may surpass 10 percent by year's end and warned that the economy may not return to full health for at least five years.
The projections, by 17 top Fed leaders, suggest that a jobless recovery could be approaching -- one in which the economy begins growing again in the coming months but times remain tough for American workers. The Fed leaders forecast higher unemployment rates than they had just two months earlier. At the same time, they upped their expectations for economic growth.
The stock market rose yesterday on similar optimism about growth, recording a 3 percent gain, as measured by the Standard & Poor's 500-stock index. Industrial firms like General Electric and Caterpillar, in particular, climbed steeply on industrial production figures that were better than analysts expected.
Economists increasingly agree that the economy will begin growing again in coming months, but there is no consensus about what shape that expansion may take.
The Fed's forecasts suggest that the recovery, when it comes, is unlikely to have much immediate impact on the job market. Most of the Fed governors and regional bank presidents expect that the unemployment rate will be 10 percent or higher in the final quarter of the year, according to projections released along with minutes of a June policymaking meeting.
While economic growth and job creation often go hand in hand, that relationship has broken down in the aftermaths of the past two recessions. This could reflect efforts by companies to become more efficient as they emerge from hard times. But economists are not sure of the reason.
The Fed leaders also expect the economy to shrink less than previously expected in 2009 and to grow at a steady clip in 2010. But they anticipate that the economy will require an unusually long time to regain its vigor.
"Most participants indicated that they expected the economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output growth and rates of unemployment and inflation," the document said, "but several said full convergence would take longer."
For months, the economy has been declining more slowly than at the beginning of the year. But there has been little evidence of actual growth. That was reflected in a separate report yesterday that industrial production contracted in June for the eighth consecutive month, though at the slowest rate in that span.
"Eventually we're going to need to see some better numbers, as opposed to just less bad," said Robert A. Dye, a senior economist at PNC Financial Group.
That said, the Fed officials were disinclined at their late June policymaking meeting to take new steps to try to strengthen the economy. The central bank could have expanded its purchases of long-term government bonds and other assets to try to push down interest rates further, for example, but concluded that the effects would be uncertain, according to the minutes.
The minutes offered little detail about how or when the Fed might wind down its emergency programs to support the availability of credit in the economy and ease the effects of the financial crisis. Some traders and analysts have expected clearer guidance on the Fed's exit strategy. The absence of this information helped fuel confidence that the central bank would continue its current efforts to support economic activity.
"All the programs remain on the table," said Richard Yamarone, chief economist at Argus Research. "The battle is still being fought, and the economy is not out of recession."
Prices are rising, though. The Labor Department said yesterday that the consumer price index rose 0.7 percent last month, driven primarily by a 17 percent rise in the price of gasoline. Even excluding volatile food and energy costs, prices rose more than analysts expected, by 0.2 percent.
The data offer the most solid evidence yet that the nation has avoided the onset of deflation, a dangerous process in which the weak economy causes prices to fall, leading people to further rein in spending and setting off a vicious downward cycle. Instead, prices for a wide range of goods -- clothing, medical care, even automobiles -- increased in June.
Another report, meanwhile, supported the prevailing view among economists that an expansion will begin soon. Industrial production fell 0.4 percent in June, less than analysts had forecast and the most modest decline since October. Many analysts argue that the industrial sector has now contracted so much -- it is producing at only 68 percent of its capacity, the lowest on record -- that it will soon have to turn positive to keep up even with tepid demand. In particular, the reopening of Chrysler and General Motors assembly lines in coming weeks will provide a boost, even though they will operate at much lower levels than a year ago.
In another piece of evidence that the factory sector is stabilizing, an index of manufacturing activity in the New York region came in at negative 0.6 percent, the strongest since April 2008, up from negative 9.4 in June. An index of zero in the Federal Reserve Bank of New York survey represents the line between contraction and expansion.
"The bottom line is that the economy is still very weak and very fragile," said Bill Hampel, chief economist of the Credit Union National Association. "We're talking about a recovery beginning in the third or fourth quarter, but that's just barely a recovery."