Tag Archives: Coverage
by Liz Hester
Chrysler Group filed for an initial public offering on Monday after its majority owner and employee union couldn’t reach a valuation. Fiat would like to own the company outright, but needs to placate the union in order to do so.
Here’s the Wall Street Journal story.
Chrysler Group LLC Monday filed for an initial public offering, a move forced by the failure of the auto maker’s Italian majority owner and its main union to agree on the company’s value.
Fiat SpA, which owns 58.5% of Chrysler, doesn’t want a share sale and is eager to own the company outright. But the United Auto Workers union health trust, holder of a 41.5% stake in the No. 3 Detroit auto maker, has demanded that its shares be offered to the public after negotiations to sell them to Fiat stalled.
In its Monday filing, Chrysler warned that if Fiat can’t get control, the Italian auto maker could turn its back on Chrysler, unwinding a deal that was a centerpiece of the Obama administration’s 2009 auto industry rescue.
Analysts and others familiar with the situation say Fiat will likely now redouble efforts to reach a private deal with the UAW.
An IPO would follow General Motors Co.’s record-breaking offering in November 2010, which at $23.1 billion was the world’s largest at the time. Analysts estimate Chrysler could be worth between $10 billion and $11 billion, depending upon market conditions.
The UAW health-care trust holds its minority stake in Chrysler as part of the auto maker’s 2009 government-led bankruptcy restructuring. The filing doesn’t state a price for the shares, or how many will be offered. J.P. Morgan is the sole underwriter listed.
The New York Times added these details about the union’s financial obligations to employees and why they’re pushing for the IPO.
The Detroit automakers have large financial responsibilities to their retirees. On Monday, General Motors said it would raise money in the bond market to buy preferred stock in the company owned by its retiree health care trust at a cost of $3.2 billion. Chrysler’s offering arises from an unusual conflict of interests, made possible by the remarkable turnaround at Chrysler since the federal government shepherded it through bankruptcy four years ago.
The United Automobile Workers health care trust has the legal right to cash in a large part of its 41.5 percent stake in Chrysler, which is a legacy of a deal brokered in 2009 by the Obama administration’s auto task force. At the time, the deal was seen as a last effort to save the faltering automaker, while preserving peace with the U.A.W.
Now, with profits flowing again and the trust in need of cash, it has formally requested that Chrysler register for a public offering covering about 16 percent of the company’s overall shares. The offering is another sign of how Chrysler — like General Motors — has recovered since the bailout. In the case of G.M., the Treasury Department is continuing to sell its ownership position, and now owns less than 8 percent of the company’s stock.
The Chrysler offering, however, is not supported by Sergio Marchionne, the chief executive of Fiat and Chrysler and the architect of the American company’s revival.
Reuters pointed out that Chrysler has come a long way since its government bailout, but still has some ways to go to reach sustainable profitability.
Marchionne and the UAW trust, a voluntary employee beneficiary association, or VEBA, have been at odds over the value of Chrysler. Their inability to agree on a price for the VEBA stake led to Monday’s IPO filing.
Chrysler has risen from a nearly dead company in 2009 to one that is stronger than its parent in Italy.
Still, Chrysler said in its filing: “Despite our recent financial results, we have not yet reached a level of sustained profitability for our U.S. operations.”
Chrysler, based in suburban Detroit, had cash and cash equivalents of $12.2 billion as of June 30. Its net profit in the first half of the year fell 21 percent to $764 million from $966 million in the previous year.
Marchionne had wanted to avoid the IPO because the sale could delay his plans for a full merger of the two companies. A full merger would make it easier – but not automatic – to combine the cash pools of the two companies, giving Fiat more funds to expand its product lineup.
Currently, Chrysler and Fiat are forced to manage their finances separately, even though they are run by the same executive team.
USA Today made an excellent point about valuing the trust’s shares.
But how to value the trust’s share? As Brent Snavely reported last week in the Detroit Free Press, the trust thinks its stake is worth $5 billion. A JP Morgan analyst puts the value at $3 billion, a figure likely closer to what Marchionne is willing to embrace. Asked last week about the trust’s higher valuation, Marchionne was quoted by the LaPresse new agency, via AP, as saying, “Let them buy a lottery ticket” to make up the difference.
Of course, it’s hard not be sympathetic to the trust. The more money they get for their share of Chrysler, the more that will be available to make good on retiree’s health care coverage.
But it sounds like Marchionne would rather stake his companies’ future on IPO shares — with the market setting the price — and not on lottery tickets.
It’s definitely an unconventional way to go public. Let’s hope that the market will give the trust closer to the value it needs in order to pay its obligations. And that Chrysler’s management can get onboard with the plan.
by Chris Roush
Paul Koenig of The Kennebec Journal in Maine reports that the state’s chamber of commerce has signed a deal with a website, JustGOODNews.BIZ, to report good business news about Maine.
Koenig writes, “The company, JustGOODNews.BIZ, publishes a mix of stores from local and state organizations like the state chamber, as well as summaries of stories pulled from media outlets such as newspapers and TV stations.
“The partnership means the Maine State Chamber of Commerce will feature a feed of Maine-based stories on its website and will contribute news to JustGOODNews.BIZ, according to Kris Rush, founder and CEO of the company.
“Rush launched the Oklahoma City-based company in May after running a similar program at the State Chamber of Oklahoma, where her husband was president for more than 20 years.
“She said she started the company to spread positive business news about local communities to a wider audience.
“Connors said an example of the positive news the state chamber wants to publicize is that J.S. McCarthy Printers recently hired 80 full-time seasonal workers for its upcoming greeting card season, more than double the usual 35 workers it hires for the season.”
Read more here.
by Liz Hester
Blackberry is struggling to stay relevant as it loses ground to Apple and other smartphones, especially in the business market where it once held a near monopoly. Covering a businesses reinvention is always interesting, especially as the technology company struggles to keep customers. Often once customers make the switch, they don’t want to come back.
The Wall Street Journal wrote this story:
BlackBerry Ltd. begins life this week as a company focused on selling smartphone services to businesses, a risky, last-ditch bet that it can hang on to rapidly eroding ground in the market it pioneered.
The plan appears to be to position the company as the go-to provider of systems to manage smartphone use for employers like the government and banks, where the need to ensure security is at a premium.
That approach plays to the company’s strengths in markets where it has suffered the least damage, but BlackBerry’s position in the business market has eroded greatly amid gains by devices like Apple Inc.’s iPhone. It also faces tough competition from startups and established rivals like Microsoft Corp.
Executives responsible for buying smartphones and the software to manage them say BlackBerry faces long odds.
Tracey Rothenberger, chief operating officer of Ricoh Americas Corp., Malvern, Pa., said that fewer than 500 of the 9,000 smartphones he manages for the printer and copier maker are BlackBerrys. The remainder are made by Apple or powered by Google Inc.’s Android software. “For me, it’s kind of ‘game over’ for them,” he said.
The move comes as Blackberry is succumbing to market pressure about its earnings and ability to continue to make money. The Guardian had this story on Saturday:
With the fall of Nokia looming over him, this weekend will be an uncomfortable one for Thorsten Heins, chief executive of BlackBerry. While the Finnish firm sold its mobile phone business to Microsoft for €5.4bn (£4.5bn) this month, questions are swirling as to how long BlackBerry – which signalled its distress in August by putting itself up for sale – can survive, and in what form.
Things are so bad that on Friday night, market rumours forced Heins to announce the top-line quarterly results a week early. And they are grim: an operating loss of up to $995m (£620m), including $960m of inventory writedowns on its new Z10 handsets released in January, a net loss of more than $250m, revenues half what analysts expected at $1.6bn, and phone shipments of 3.7m – which Apple will comfortably exceed with its new iPhones this weekend alone.
For a company that once dismissed the iPhone for having no keyboard (a key selling point for BlackBerry phones), it’s a humiliation. The low shipment figure exposes Heins’s claim in April that the new Q10 phone – the first keyboard-equipped model using its new BB10 software – would sell “tens of millions”. It might have sold a million.
Now the question is turning to how long BlackBerry has to go. On Friday, the company said it will cut 4,500 jobs, roughly 40% of its 11,000 total worldwide, adding to 7,000 jobs cut in the two previous financial years. It will reduce its future phone portfolio from six to four.
Announcing quarterly results early and layoffs is rough. What’s even worse is all the speculation around potential bidders for the company and no one actually pulling the trigger to make an offer. The latest was a New York Times story saying that Blackberry’s founder was considering an offer, but none came during the weekend:
Mike Lazaridis, the co-founder of BlackBerry who stepped down as co-chief executive in 2012, has reached out to private equity firms about a possible bid for the troubled company.
Mr. Lazaridis has separately approached the Blackstone Group and the Carlyle Group about making an offer, according to people familiar with the matter. These people cautioned, however, that the talks were preliminary and might not lead to any bids.
The potential of any effort to take BlackBerry private was muddied further on Friday, as shares in the company tanked after the company announced quarterly revenue far below analyst expectations. BlackBerry shares listed in the United States plunged 17.1 percent to $8.73.
The Journal had a separate story about the company’s layoffs, which talked about the how hard the last several years have been on employees who don’t know if they’ll have a job or not:
BlackBerry’s spectacular fall has taken a heavy toll on current and former employees of the smartphone maker, which once controlled more than half of the U.S. smartphone market. That has dropped below 3%, according to IDC. BlackBerry employed 12,700 people as recently as March, and the latest cuts—about 4,500 employees—will weigh heavily on this town of about 100,000 people 68 miles west of Toronto.
BlackBerry executives began to realize how badly their new line of phones was selling this summer. Smaller rounds of layoffs had already started, but it became clear that more drastic cuts were needed, people familiar with the matter said.
With a push from board members, the company in August set up a committee to explore the company’s strategic alternatives, including a possible sale. The hope, people familiar with the matter said, was to sell quickly, before BlackBerry’s dismal financial results were announced.
Employees said that during that same period there was confusion about the future of various projects and mixed messages from managers. Some employees said they were still working on new phones but held out little hope about the company’s prospects. At the same time that the company announced the layoffs, it said it would write down nearly $1 billion in unsold phones.
It seems like every week there’s a new story about Blackberry’s next move to save the company. What isn’t apparent is how they’re going to do it. At least it’s keeping the technology reporters supplied with good stories.
by Chris Roush
Alvie Lindsay of The Indianapolis Star writes Sunday about how the Gannett paper plans to expand its Sunday business coverage.
Lindsay writes, “The new Sunday ‘Business & Jobs’ section will emphasize coverage of an area we know is increasingly important to our readers in Central Indiana — employment, the workplace and the economy.
“We will continue to explore various business topics in-depth, but this also gives us an opportunity to roll out some new features. Here’s a look at some of what we’re planning — and a request for a bit of help from you:
•” On the Move. Want to know who landed the CEO job at a local company? Or, who has been promoted to that cool new job? Or, maybe join in celebrating the retirement of a local business leader. On the Move will be the weekly one-stop place to catch up on personnel comings and goings in local business.
“• 5 Questions. Each week, we will pose five questions to someone interesting in the business community — a leader, an entrepreneur, an innovator — and allow that person to share his or her wisdom and advice.
“• Notably New. This weekly feature will spread the word on something new — typically a retail business or a commercial development. But — just as the name says — we want it to be notable. Not just any new shoe store or the latest law firm is going to make the cut. We’ll be emphasizing significant developments, businesses that are new to the area or companies that do something or sell something in a different way.”
Read more here.
by Liz Hester
As we get closer to the Oct. 1 deadline for the launch of health exchanges, a key part of President Obama’s health care reform law, there seem to be several issues that still need to be worked out.
One of the stories in today’s Wall Street Journal coverage was about a computer glitch making it difficult to determine pricing:
Less than two weeks before the launch of insurance marketplaces created by the federal health overhaul, the government’s software can’t reliably determine how much people need to pay for coverage, according to insurance executives and people familiar with the program.
Government officials and insurers were scrambling to iron out the pricing quirks quickly, according to the people, to avoid alienating the initial wave of consumers.
A failure by consumers to sign up online in the hotly anticipated early days of the “exchanges” is worrisome to insurers, which are counting on enrollees for growth, and to the Obama administration, which made the exchanges a centerpiece of its sweeping health-care legislation.
If not resolved by the Oct. 1 launch date, the problems could affect consumers in 36 states where the federal government is running all or part of the exchanges. About 32 million uninsured people live in those states, but only a fraction of them are expected to sign up in the next year.
The remaining 14 states are running separate marketplaces with their own software. One of those states, Oregon, has already announced that it would delay some features to fix software bugs, though consumers will be able to enroll offline.
Enroll offline? I can’t imagine that’s going to go over well with the younger uninsured people many companies are looking to attract to the exchanges. But at least the federal government isn’t the only one experiencing problems with the software.
USA Today reported that exchanges are here to stay, especially as some large employers such as Walgreens begin to use them:
These private exchanges, which have only existed for about a year, are run by outside benefits companies and typically offer more insurance choices than those offered by employers. Employers contribute a set amount and employees choose which plan best suits their needs.
The Walgreen exchange, announced Wednesday with benefits company Aon Hewitt, is similar to the state exchanges required under the Affordable Care Act. In those exchanges or marketplaces, uninsured Americans will buy health insurance plans on their own that are often subsidized by the federal government. In this case, Walgreen provides the financial assistance.
In five years, more than a quarter of the estimated 170 million people now covered by insurance through their employers will be getting their benefits this way, according to research from consulting firm Accenture. At that time, enrollment in these private exchanges is expected to top that of the new state exchanges. That’s despite the fact most Americans are unaware of private insurance exchanges, Accenture says.
But it’s still unclear whether the contributions from employers, including Walgreen, will keep pace with the cost of health care, warns Ron Pollack, executive director of non-profit health care group Families USA. If companies keep paying “the same nominal dollar amount to its workers, that amount will cover a smaller percentage of premium dollars as premiums increase,” he says.
Reuters reported that Home Depot also planned to move part-time workers to the exchanges in an attempt to give them more options for coverage:
Home Depot Inc is shifting medical coverage for part-time workers to new public marketplace exchanges ahead of new benefits requirements under the U.S. Affordable Care Act, a spokesman said on Thursday.
The world’s largest home improvement retail chain announced its move shortly after a similar announcement from Trader Joe’s Co, a popular privately held grocery chain.
Home Depot’s change would affect roughly 20,000 part-time workers who previously had chosen the limited liability medical plan the company offered, spokesman Stephen Holmes said.
After December 31, companies can no longer offer those plans under the health law, also known as Obamacare.
“We’re going to shift them over to the public exchanges, where there are more options,” Holmes said.
The public exchanges being set up under the law will allow individuals to buy government-subsidized healthcare based on income. Enrollment begins on October 1.
A separate Wall Street Journal story said that larger insurers are skipping being a part of exchanges betting that many of those who sign up may have chronic illnesses:
Instead, the insurance companies that are likely to draw attention on the exchanges—which are expected to enroll an estimated 7 million Americans in the first year—are lesser-known, and in many cases will be offering comparatively lower rates.
The biggest health insurers are eschewing many of the exchanges out of concern that many of the individuals who will purchase coverage need it because they have chronic illnesses or other medical conditions that are expensive to treat.
Too many sick patients could mean that the collective inflow of premiums insurers reap from the exchanges won’t cover their total costs. And it remains unclear how many young, healthy people will sign up.
Some large insurers, like Cigna, don’t sell insurance to individuals in most states, limiting their ability to launch plans on the exchanges since they don’t have a provider network in place.
As if finding insurance wasn’t confusing enough, now consumers will have to navigate unfamiliar companies, concerns about price quotes, and determine if public or private exchanges will offer the best deals. The clock is ticking to get this right and much of the Obama administrations’ reputation depends on it. What is certain is that insurers will see an increase in demand, consumers and likely profits, making this an important area for business reporters to watch in the coming year, especially given all the moving parts and angles to the story.
by Liz Hester
The Federal Reserve Board surprised everyone Wednesday by saying it would actually continue its unprecedented stimulus efforts despite the expectations of everyone. And investors cheered the news, sending the stock market to record highs.
The New York Times had this story, excerpted below:
All summer, Federal Reserve officials said flattering things about the economy’s performance: how strong it looked, how well it was recovering, how eager they were to step back and watch it walk on its own.
But, in a reversal that stunned economists and investors on Wall Street, the Fed said on Wednesday that it would postpone any retreat from its monetary stimulus campaign for at least another month and quite possibly until next year. The Fed’s chairman, Ben S. Bernanke, emphasized that economic conditions were improving. But he said that the Fed still feared a turn for the worse.
And the Fed undermined its own efforts when it declared in June that it intended to begin a retreat by the end of the year, causing investors to immediately begin to demand higher interest rates on mortgage loans and other financial products, a trend that the Fed said Wednesday was threatening to slow the economy.
Investors cheered the Fed’s hesitation. The Standard & Poor’s 500 stock-index rose 1.22 percent, to close at a record high, in nominal terms. Interest rates also fell; the yield on the benchmark 10-year Treasury reversed some of its recent rise.
Some analysts, however, warned that the unexpected announcement was likely to worsen confusion about the Fed’s plans, increasing the volatility of the markets in the coming months as investors sort through the Fed’s mixed messages about how much longer it plans to continue its bond-buying campaign. The delay also means that the decision to retreat may ultimately be made by the next Fed chairman, after Mr. Bernanke steps down at the end of January. President Obama has said that he plans to nominate a replacement as soon as next week. Janet L. Yellen, the Fed’s vice chairman, is the leading candidate.
The Wall Street Journal story added this context about the program and how long it’s been in place:
The bond-buying program, also known as quantitative easing, or QE, was relaunched last year and is meant to stimulate economic growth and hiring by holding down interest rates and encouraging households and businesses to spend and invest. This round of purchases, together with earlier efforts along the same lines, has swelled the Fed’s holdings of securities to nearly $4 trillion.
Mr. Bernanke began signaling in May that, because the job market was gradually improving and because the Fed anticipated faster growth by year-end, the central bank might pull back on the bond-buying program.
After two days of deliberations, however, Fed officials decided Wednesday the economy hadn’t lived up to their expectations for growth. In fact, they lowered their growth estimates for this year and next—and expressed worry that a jump in long-term interest rates over the past several months could squeeze an already weak upturn.
The Financial Times added the details of the purchasing programs and said that interest rates will likely stay low for years to come:
The Fed will continue to purchase mortgage-backed securities at a pace of $40bn a month and Treasury securities at a pace of $45bn a month. It made no change to its 6.5 per cent unemployment rate threshold for a rise in interest rates. The vote for the decision was 9-1 in favour.
One factor may have been a downgrade to the FOMC’s growth forecasts for this year and next. The Fed now expects growth of 2.2 per cent in 2013 compared with a June forecast of 2.5 per cent; and 2014 growth of 3 per cent compared with a June forecast of 3.3 per cent.
In a strong signal that the Fed intends to keep rates low for a long time into the economic recovery, the FOMC estimated that interest rates would be 1 per cent at the end of 2015 and 2 per cent at the end of 2016.
The interest rate forecast for 2016 is low even though the Fed expects the economy to be close to full employment by then. It predicted an unemployment rate of 5.7 per cent at the end of 2016 compared with a long-run equilibrium of 5.5 per cent.
The markets obviously liked the news, and I’m sure real estate agents and mortgage brokers were thrilled with the thought of low interest rates for the foreseeable future. It’s interesting that Bernanke is potentially punting the decision to the next Federal Reserve head. All eyes are now on Obama to make a choice.
by Liz Hester
The New York Times columnist David Carr’s piece Sunday was about the business of media, specifically the increasing blur between journalism and paid content across many major news outlets.
What is the most disconcerting is an allegation by Joe McCambley, founder of digital design firm The Wonderfactory, that some public relations firms are being allowed to post directly to news organizations sites:
Now the new rage is “native advertising,” which is to say advertising wearing the uniform of journalism, mimicking the storytelling aesthetic of the host site. Buzzfeed, Forbes, The Atlantic and, more recently, The New Yorker, have all developed a version of native advertising, also known as sponsored content; if you are on Buzzfeed, World of Warcraft might have a sponsored post on, say, 10 reasons your virtual friends are better than your real ones.
It is usually labeled advertising (sometimes clearly, sometimes not), but if the content is appealing, marketers can gain attention and engagement beyond what they might get for say, oh, a banner ad.
Mr. McCambley is wary. He says he thinks native advertising can provide value to both reader and advertiser when properly executed, but he worries that much of the current crop of these ads is doing damage to the contract between consumer and media organizations.
It’s a tough call – either pull in the revenue or watch your traditional media outlet fall apart as readers decamp. Publishers have few choices for earning money, especially since subscriptions continue to fall and companies pay less and less for online ads.
But Carr isn’t the only one worried about the rise of paid content. The Federal Trade Commission plans to look into the area, according to The Hill:
The Federal Trade Commission will examine the growing field of “sponsored content” in digital media, the organization announced Monday.
The agency will hold a workshop in December on the ads, which look similar to stories posted on news and social websites and have become increasingly common as media look for new ways to make money.
The FTC, which has the authority to bring charges against companies that deceive consumers, now has nonbinding guidelines on the use of the sponsored content ads. The workshop could be a first step toward expanding or strengthening them.
“Increasingly, advertisements that more closely resemble the content in which they are embedded are replacing banner advertisements — graphical images that typically are rectangular in shape — on publishers’ websites and mobile applications,” the FTC said Monday.
Carr goes on to outline some of the same issues the FTC plans to raise:
Publishers might build a revenue ledge through innovation of the advertising format, but the confusion that makes it work often diminishes the host publication’s credibility.
Of course, some publishers have already gone flying off the edge, most notoriously The Atlantic, which in January allowed Scientology to create a post that was of a piece with the rest of the editorial content on its site, even if it was differently labeled. They got clobbered, in part because handing the keys to the car to a controversial religion with a reputation for going after journalists was dumb.
Forbes is one of the best know names to have fully embraced the concept and has come under some criticism for the choices, Carr writes:
Lewis Dvorkin is the chief product officer of Forbes and a veteran of both traditional and digital media publications, having worked at The New York Times, Newsweek, The Wall Street Journal and AOL.
“I believe that people gravitate toward content they trust and over the last three years, according to comScore, our audience has grown from 12 million unique users to 25 million,” he said. “We have very high standards and we spend a lot of time vetting our contributors and making sure that our marketers put real effort into what they put on the site, and understand the importance of coming up with accurate, useful information.”
Forbes’s BrandVoice allows advertisers to produce editorial products that reflect their best efforts to engage audiences. The content is clearly labeled advertising, but has the familiar headline, art and text configuration of an editorial work.
As a result, things can get pretty complicated pretty quickly. In addition to staff posts, the site has a roster of 1,200 contributors — consultants, academics, journalists and others — who are compensated according to the audience they attract. And then there are the posts from the marketers, with a current roster of 15 active brands.
That’s enough to make your head spin just reading it. No wonder it’s hard for readers to determine the motivation or bias behind stories. But according to Carr’s column, they don’t seem to mind:
Malcolm Forbes might not recognize this version of his magazine, but it has been a hit: revenue from BrandVoice has doubled in the last year. Right now, Forbes can charge a premium for being a well-known brand that is an early adopter of a very sexy strategy, but the execution could dilute the power of that brand over time.
Mr. Dvorkin is quick to point out that the magazine is fresh off two prestigious Loeb awards, with magazine newsstand sales up 17 percent in the first half of the year. He suggests that the cornucopia of content is enabling, not preventing, his staff from producing sticky, credible work.
It seems to be working for Forbes, but that’s not to say that the model is one that can and should be repeated at other news outlets. It’s a constant struggle for many media outlets to make money and it will be interesting to see if the FTC steps in to regulate it in the future.
by Liz Hester
In an unexpected move, Larry Summers has decided not to try to succeed Ben Bernanke as the head of the Federal Reserve Board despite being the presumed front-runner for the job.
Here’s the story from the New York Times:
Lawrence H. Summers, one of President Obama’s closest economic confidants and a former Treasury secretary, has withdrawn his name from consideration for the position of chairman of the Federal Reserve amid rising opposition from Mr. Obama’s own Democratic allies on Capitol Hill.
In a statement released by the White House on Sunday afternoon, Mr. Obama said he had accepted the decision by his friend even as he praised him for helping to rescue the country from economic disaster early in the president’s term.
Mr. Summers appeared to have been the White House’s favored candidate to succeed Ben S. Bernanke as chairman of the Fed, though Mr. Obama had repeatedly said he had not yet made a decision between Mr. Summers, Janet L. Yellen, who is a vice chairwoman of the Fed, or someone else.
But Mr. Summers’s reputation for being brusque, his comments about women’s natural aptitude in mathematics and science, and his decisions on financial regulatory matters in the Clinton and Obama administrations had made him a controversial choice.
Three Senate Democrats on the Banking Committee had come out against Mr. Summers’s nomination, meaning that the White House might have had to barter for as many as three Republican votes for him even to pass out of committee.
In a letter to the president, Mr. Summers said, “I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the administration or, ultimately, the interests of the nation’s ongoing economic recovery.”
For Mr. Obama, the concession by Mr. Summers ends a frustrating period in which the most private of White House deliberations became a public spectacle and fodder for an ugly disagreement among the president’s supporters and allies.
The Wall Street Journal reported on some of the other names President Obama may be considering now that Summers is no longer in the mix:
Lawrence Summers pulled out of the contest to succeed Ben Bernanke as chairman of the Federal Reserve after weeks of public excoriation, forcing President Barack Obama to move further down the list of contenders to head the central bank.
One leading candidate is Janet Yellen, the Fed’s current vice chairwoman, who has garnered substantial support among Democrats in Congress and among economists. But the public lobbying on her behalf appears to have annoyed the president, say administration insiders, and may lead him to look elsewhere.
Mr. Obama has said he interviewed Donald Kohn, a former Fed vice chairman who is now a senior fellow at the Brookings Institution. Administration insiders say Timothy Geithner, the former Treasury secretary, also is a possibility, though he has said he doesn’t want the job. Dark horse candidates include Stanley Fischer, an American citizen who recently stepped down as governor of the Bank of Israel, and Roger Ferguson, another former Fed vice chairman and now chief executive of TIAA-CREF, the nonprofit pension company.
Bloomberg explained the issues surrounding Summers confirmation at the end of their story:
The decision by Tester, Brown and Senator Jeff Merkley of Oregon, to publicly oppose the nomination of Summers created a hurdle for the administration on the banking panel, where Democrats hold a 12-10 edge. Support from Republicans, none of whom declared support for Summers, would have been needed for the nomination to clear the committee.
If Summers had been sent forward by the committee, a Senate floor fight would likely have followed. Lawmakers who have been critical of the Fed under Bernanke, such as Senator Rand Paul, a Kentucky Republican, and Sanders, indicated they might have been willing to try holding up the nomination.
Sanders today praised Summers for withdrawing and clearing the way for a better candidate.
“The truth is that it was unlikely he would have been confirmed by the Senate,” Sanders said in a statement e-mailed to reporters. “What the American people want now is a Fed chairman prepared to stand up to the greed, recklessness and illegal behavior on Wall Street, not a Wall Street insider.”
Behind the scenes, staff and lawmakers, even those who said they would support Summers, voiced concern in interviews about the intraparty fight a Summers nomination would cause. Democrats, who hold a majority in the Senate, face negotiations on the budget and an increase in the debt ceiling in the coming weeks.
The shock of Summers withdrawing from consideration will wear off and the race to name the next person to top the list is now underway. I just hope that the speculation will die down soon and there will be a substantive debate about monetary policy and the future of our economy. The nation deserves a vetting process that will hopefully spark a good debate.
by Chris Roush
Neil Irwin of the Washington Post writes what it was like five years ago to cover the financial crisis the weekend that Lehman Brothers closed and Bank of America bought Merrill Lynch.
Irwin writes, “So I went into the office, and indeed the source was correct. That evening, Lehman Brothers announced it would go bankrupt, Bank of America was buying Merrill Lynch, AIG sat on the precipice of failure, and a global financial rout was set to begin. We ripped up the front page of the next day’s Post and tried, in the late evening of that Sunday night, to figure out what we could about what had happened and what it meant. The lede on one of the stories I wrote that evening holds up well: ‘The U.S. financial system this weekend faced its gravest crisis in modern times, as regulators resorted to triage on Wall Street to contain the spreading damage from a meltdown in the housing and mortgage market.’
“Financial writers don’t usually experience fear on the job. War correspondents put their lives on the line as a matter of course; the biggest risk that economics writers usually face on the job is that they will eat an undercooked piece of chicken at some conference.
“But that fall, as I did my work as the Post’s Federal Reserve reporter, it was against a backdrop of deeply felt fear, for what the world’s economic future had in store.”
Read more here.
by Liz Hester
Many business news outlets have been running series this week about the state of the financial system five years after the crisis. It’s been interesting to see what topics are being covered, indicating where the financial system may still have problems.
The Wall Street Journal series, running under the headline “Crisis Plus 5 Years,” included stories about the surge in the debt markets, Fannie Mae and Freddie Mac, lessons from the crisis, and a story about how hard it’s been for regulators to write rules restricting banks’ ability to invest their own money.
Excerpts from the Volcker rule story are below:
The Volcker rule, a centerpiece of the sweeping overhaul of financial regulation known as Dodd-Frank, is an attempt to protect the financial system from risk. It is simple in concept. Banks are prohibited from making investment bets with their own money.
But it has proved fiendishly difficult to apply. Five years after cratering financial firms ignited a global crisis, and three years after Dodd-Frank outlined the Volcker rule as a central part of the government response, the rule languishes unfinished and unenforced, mired in policy tangles and infighting among five separate agencies whose job is to produce the fine print.
The rule’s long gestation, described in interviews with dozens of current and former officials, is emblematic of the struggles that federal agencies face as they attempt to make fixed language of regulation fit a financial world that is ever evolving.
Just 40% of Dodd-Frank’s nearly 400 provisions have been fleshed out with regulatory language and made final, the law firm Davis Polk & Wardwell LLP has estimated.
Some provisions have run into courtroom trouble, with judges faulting regulators for misinterpreting the law, as with a rule to cap debit-card fees and one that would limit speculative positions in futures contracts. Other provisions have been bogged down by the sheer breadth of change they would cause and concern it could ripple unpredictably through markets.
The result is that despite the profound shock the crisis dealt to the nation, revealing its vulnerabilities, significant parts of the U.S. financial infrastructure remain potentially at risk. Assets at the 10 largest U.S. banks have grown nearly 40%, to $11 trillion, raising questions of whether the government has solved the problem of certain financial institutions being “too big to fail.”
Bloomberg’s story said that five years after the collapse of Lehman Brothers, banks were still at risk:
While the amount of capital at the six largest U.S. lenders has almost doubled since 2008, policy makers and some Wall Street veterans say that’s not enough. They see a system still too leveraged, complicated and interconnected to withstand a panic, and regulators ill-equipped to head one off — the same conditions that led to the last crisis.
More than 50 bankers, regulators, economists and lawmakers interviewed by Bloomberg News disagreed about what needs to be done. Some said the six biggest U.S. banks have only gotten bigger since 2007 — a 28 percent increase in combined assets, according to data compiled by Bloomberg — making it harder to let them fail. Others said they weren’t troubled by bigness or a system that requires government intervention every now and then, calling it an inevitable cost of financing global business.
Congressional inquiries and more than 300 books about the crisis have identified many villains: homeowners borrowing beyond their means, banks selling subprime mortgages, government-supported agencies backing the loans, Wall Street packaging them for investors, ratings firms giving seals of approval, regulators offering little objection and politicians encouraging it all to happen.
Three fundamental flaws stand out. Regulators stripped of power allowed banks to embrace too much risk and load up on toxic debt with short-term funds. Insufficient capital left them little margin for error when those assets plunged in value. A system too large, opaque and interconnected meant they couldn’t fail without catastrophic consequences for the economy.
A USA Today story said the economy was only marginally better five years after the crisis, making it hard for businesses to expand and consumers to spend:
The economy is growing but at a listless 2% annual pace.
Employers are adding jobs, but many are part time and low-paying.
Mortgages are easier to get, but not for first-time home buyers.
Five years after Lehman Bros. collapsed and the ensuing financial crisis set off the Great Recession, the aftershocks of the historic upheaval are still being felt in nearly every corner of the economy. The recovery, which began in June 2009, and the job market undoubtedly have made significant strides. After growing at the slowest pace since World War II, the economy, many analysts project, is finally expected to expand a healthy 3% next year.
A week ago, the International Monetary Fund said the U.S. is expected to fuel global growth in the near term.
But the vestiges of the financial crisis and recession continue to restrain growth, leaving lenders more tight-fisted, businesses more hesitant to hire and invest, and consumers less inclined to splurge.
Five years later and regulators are still struggling to write rules and figure out how to keep banks from taking on too much risk. The economy is growing, which is positive, but just not that much. It’s hard to see that there’s been any improvement to the financial system when you look at some of these stories. Here’s hoping that all those lessons and the painful aftermath don’t go to waste. It has been five years.