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U.S. labor group unveils plan to tackle joblessness
The head of the largest U.S. labor federation urged President Barack Obama on Tuesday to use the $700 billion Wall Street bailout fund to help cash-starved small businesses as a way to stem rising joblessness.
In a preview of labor's contribution to Obama's December jobs summit, AFL-CIO President Richard Trumka said money from the Troubled Asset Relief Program could be lent directly to small- and medium-sized businesses at commercial rates.
He said TARP money could also help small community banks that were ignored during the financial rescue effort by having them manage the loans.
The proposal, unusual for a labor organization, is part of a five-point AFL-CIO plan to address rising unemployment that hit 10.2 percent in October, its highest rate in 26-1/2 years.
The AFL-CIO jobs plan also calls for extended unemployment benefits, food assistance and healthcare for the unemployed, more money for infrastructure projects and state and local governments, and job creation aimed at distressed communities.
Trumka will take the plan to the White House next month, when he joins business leaders, economists and others for a December 3 brainstorming session on how to tackle joblessness in the weakest economy since the Great Depression.
Rising unemployment poses a political danger to Obama as his fellow Democrats in Congress approach the 2010 election with voters increasingly dissatisfied with incumbents.
The AFL-CIO and other union groups need to retain the Democratic majority to win reforms that could reverse decades of labor decline. Trumka is also trying to sweeten labor's appeal to businesses, young workers and college students as part of an effort to reverse decades of declining union membership.
"If small businesses can get credit, they will create jobs. And we need jobs now," Trumka said in a speech to the Economic Policy Institute, a left-leaning Washington think tank.
"This is something they can do right now and it would make a critical difference."
The TARP fund was created in the depths of the 2008 financial crisis to shore up banks after investment bank Lehman Brothers failed.
The AFL-CIO's proposal comes as the White House considers whether some of the TARP fund's remaining $210 billion should be used to help debt-burdened families and small businesses.
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IRS settles with 14,700 over foreign accounts
More than 14,700 U.S. taxpayers came forward to disclose billions in offshore bank accounts in 70 countries under a voluntary Internal Revenue Service program allowing most to avoid criminal prosecution as long as they pay what they owe, IRS officials said Tuesday.
A flood of people came forward in the last days before the amnesty program expired Oct. 15, IRS Commissioner Doug Shulman said. The final total far surpasses the number who disclose offshore accounts in a typical year — about 100 — and comes amid a broad U.S. crackdown on international tax evasion at Swiss bank UBS AG and other institutions.
"To put it simply, this is a historic milestone for the nation's hardworking taxpayers," Shulman said in a conference call from Washington.
The total in taxes, interest and penalties collected from those in the voluntary disclosure program will be in the "billions of dollars," Shulman said. The disclosures involved accounts on every continent but Antarctica.
Taxpayers flocked to the amnesty program after the U.S. reached an agreement in August with the Swiss government and UBS to obtain names of 4,450 U.S. taxpayers believed to be hiding assets in secret bank accounts. Earlier this year, UBS paid a $780 million penalty under a deferred prosecution agreement filed in a Florida federal court that included disclosure of an additional 150 names.
Seven of those people have been charged criminally, with at least two getting sentenced to prison time.
Shulman said the combination of the UBS disclosures and the amnesty program have fundamentally changed the offshore tax landscape, particularly in Switzerland where bank secrecy was the tradition for centuries.
"It shows we are serious about piercing the veil of bank secrecy," he said. "The whole game has changed."
Also Tuesday, the IRS and Swiss unveiled the criteria being used to determine which American UBS accounts will be disclosed under the August agreement.
Accounts being targeted include those that contained 1 million or more Swiss francs at any time between 2001 and 2008; instances in which there was clear fraudulent actions, such as false documents; and accounts that earned an average of 100,000 francs a year for at least three years.
The Swiss have until the end of August to hand over the names. Swiss officials said the first 400 names will be chosen by the end of this week, with another 100 expected to be ready by the end of the month. Those taxpayers who are picked for disclosure can appeal to Switzerland's top administrative court.
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Stocks jump as retail sales rebound in October
Investors grew more upbeat about the economy Monday after retail sales rebounded more than expected in October on higher auto sales.
The stock market's gains followed advances overseas propelled by a weakening dollar and stronger gold prices, which boosted commodities and shares of companies that produce raw materials.
Major stock indexes rose more than 1 percent, including the Dow Jones industrial average, which advanced 125 points.
The Commerce Department said retail sales rose 1.4 percent in October, easily surpassing the 0.8 percent increase forecast by economists polled by Thomson Reuters. It was a sharp rebound following the 2.3 percent drop in September. Excluding the gain from autos, however, sales rose just 0.2 percent, half of what economists predicted.
Jamie Cox, a managing partner at Harris Financial Group, said the sales growth was a good sign heading into the holiday shopping season, especially because the data were not affected by factors such as sales tax holidays and government stimulus programs that had been present in the preceding months.
In midmorning trading, the Dow rose 126.29, or 1.2 percent, to 10,396.76. The Standard & Poor's 500 index rose 16.53, or 1.5 percent, to 1,110.01, while the Nasdaq composite index rose to 28.76, or 1.3 percent, to 2,196.64.
General Motors Co. said it lost $1.2 billion in the period since emerging from bankruptcy and the end of the third quarter on Sept. 30. Despite the loss, GM said it will begin to repay $6.7 billion in government loans and was seeing a stabilization in its business.
Home improvement retailer Lowe's Cos. reported lower profits that matched analysts' expectations and said it was seeing stabilization in some of the hardest hit housing markets. The company's shares rose 24 cents, or 1.1 percent, to $22.09.
Investors will get more insight into consumer spending as other retailers including Home Depot Inc., Target Corp. and TJX Cos. report earnings Tuesday.
Cox said the wide range of retailers reporting earnings during the week will provide insight into whether shoppers are willing to step up their spending and move back toward more expensive goods. Investors will be carefully parsing any updated outlooks from the companies ahead of the holiday shopping season.
The stock market is coming off a strong week, which added more than 2 percent to major indexes. On Friday the market was buoyed by encouraging earnings reports and outlooks from major retailers Abercrombie & Fitch Co. and J.C. Penney Co. as well as The Walt Disney Co.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, fell to 3.40 percent from 3.42 percent late Friday.
The dollar mostly fell against other major currencies, while gold prices rose to another record. Gold rose $11.50 to $1,129.20 an ounce after reaching a record of $1,133.50.
Crude oil rose $1.63 to $77.98 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 11.70, or 2 percent, to 597.98.
Overseas, Japan's Nikkei stock average rose 0.2 percent. In afternoon trading, Britain's FTSE 100 rose 1.4 percent, Germany's DAX index gained 1.3 percent, and France's CAC-40 rose 1.2 percent.
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GM posts loss, vows to repay U.S. debt early
General Motors Co (GM.UL) posted a quarterly loss on Monday but said stabilizing sales since its bankruptcy would allow it to begin paying down $8.1 billion in debt to the United States and Canada next month.
GM said it expected to repay its government debt by the end of 2011 and could opt to move faster by refunding money left over in an account created by the Obama administration to finance GM's fast-track sale out of bankruptcy in July.
Analysts said GM's third-quarter results underscored the pressure facing the largest U.S. automaker despite sharply lower debt and operating costs and a $50 billion financing package that has made the U.S. government a 61-percent owner.
"They are still on life support as a business and they are going to continue to be," said Mirko Mikelic, a portfolio manager at Fifth Third Bank in Grand Rapids, Michigan.
GM's third-quarter sales dropped 26 percent to $28 billion. It posted a net loss of $1.2 billion for the period from its July 10 bankruptcy emergence to the end of September.
"There are some signs of stability," Chief Executive Fritz Henderson said. "But when you come away from it, we lost money. It's certainly not satisfactory."
But Henderson also said the financial damage to GM's business from a volatile quarter that saw it transferred to U.S. government ownership had been less damaging than feared.
Henderson's predecessor, Rick Wagoner, was asked to step down by the White House after resisting plans for a bankruptcy that GM had long argued would hurt consumer confidence.
"The underlying business, relative to the projections that we had going into bankruptcy, has actually performed better," Henderson said.
'SURPRISING' AND 'DISAPPOINTING'
Bolstered by its bailout, GM ended September with almost $43 billion in cash compared with $14 billion a year earlier.
That included $17.4 billion in a special account created with bankruptcy financing provided by the U.S. government. GM said it had allocated $8.1 billion from that taxpayer-funded account to pay down its government debt.
GM's results were not prepared according to generally accepted accounting principles and were not comparable to past results. GM has lost $88 billion since 2005.
The company's global share of auto sales slipped to 11.9 percent in the third quarter compared with 13 percent a year earlier. In the United States, where the "cash for clunkers" sales incentives helped lift a sagging market, GM's U.S. share slipped to 19.5 percent from 24.3 percent a year earlier.
Aaron Bragman, an analyst with IHS Global Insight, called the GM results "surprising and a little disappointing."
"The bankruptcy was effective in some ways, the debt is a lot less, the structural costs are dramatically less, but why are they still turning in a loss?" Bragman said. "We expected better."
GM said its international operations including its European Opel unit had earnings before interest and taxes of $238 million for the shortened third-quarter period. By contrast, GM's North American operations posted a loss of $651 million.
In a move that has strained relations with its German union and Germany's government, GM's board reversed course earlier this month and decided to keep Opel.
The German government had pledged to contribute 4.5 billion euros ($6.7 billion) to finance a deal that would have sold Opel to a Russian-backed group led by Canadian auto parts supplier Magna International (MGa.TO).
GM is readying a new restructuring plan for Opel that will rely less on help from Germany's government.
GM said it would repay Berlin the remaining $600 million in bridge loans for Opel by the end of November. It said its European operations were carrying $2.9 billion in cash as of the end of September.
Separately, GM plans to begin paying back $6.7 billion of loans from the U.S. Treasury and $1.4 billion from the governments of Canada and Ontario through quarterly payments totaling $1.2 billion.
A congressional oversight panel has said the U.S. government is unlikely to recover all of the $50 billion financing it provided GM.
Henderson said it was an "open question" as to whether U.S. government-imposed restrictions on executive compensation would lift with the repaying of the government loans.
GM is in the process of revaluing its balance sheet after bankruptcy. That process of readying "fresh start accounting," which is expected to take until the first quarter of next year, is a step toward an eventual IPO.
In a move that would represent its first return to the capital markets, GM also plans to get a revolving line of credit in preparation for the IPO, Henderson said.
"All of our shareholders want to sell shares," Henderson said. "Creating a market for an orderly trading of the stock is important."
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Ahead of the Bell: Rise in gas reserves expected
The Energy Department on Friday is expected to report a build of 14 billion to 18 billion cubic feet of natural gas storage inventories for the week ended Nov. 6, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Energy Information Administration — the statistical agency of the Department of Energy — releases its weekly report at 10:30 a.m. EST.
A reading above or below estimates can influence market trading.
Last Thursday, the EIA said for the week ended Oct. 30 natural gas inventories held in underground storage in the lower 48 states grew by 29 billion cubic feet to a new record high of about 3.79 trillion cubic feet. Analysts had expected a boost of between 29 billion and 33 billion cubic feet.
After that report, natural gas for December delivery plunged 18.7 cents to settle at $4.595 per 1,000 cubic feet on the New York Mercantile Exchange.
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Germany economy recovers, but advisors slam debt
Germany is well into recovery, official data showed Friday shortly before the government's own advisers slammed "deceptive" plans to reduce ballooning debt in Europe's biggest economy.
Data from the national statistics office "indicate that the German economy managed a remarkable comeback" in the second and third quarters of 2009 from its worst post-war recession, UniCredit economist Andreas Rees said.
But a coalition government agreement to cut the public deficit and pay down debt "is vague and deceptive in every way," a panel of top economists dubbed the "Five Wise Ones" added in an attack on Chancellor Angela Merkel's cabinet.
"The massive new public deficits must be rolled back from 2011 ... Without significant spending cuts tax hikes will be unavoidable," they said.
Germany is emerging from its historic recession in large part owing to huge injections of cash -- some 80 billion euros (119 billion dollars) -- from the state.
The Destatis statistics office said activity expanded by a provisional 0.7 percent in the third quarter from the previous three-month period, more than twice the figure achieved in neighbouring France which showed growth of 0.3 percent. Italy posted growth of 0.6 percent.
Across the 16-nation eurozone, economic activity increased by 0.4 percent according to the European Union's data agency Eurostat, ending a recession that began in the second quarter of 2008.
In Germany, Desatis revised its initial estimate for second-quarter growth slightly higher as well, to 0.4 percent from 0.3 percent previously.
That followed four quarters of contraction, including a plunge of 3.5 percent in the first three months of this year.
"The German economy has emerged from the deep recession earlier and faster than many had thought," ING senior economist Carsten Brzeski said.
Destatis is to release detailed results on November 24.
Fears of rising unemployment and an end to Germany's car scrapping premium have weighed on consumer spending however, while imports jumped, "probably the main reason why third quarter GDP (gross domestic product) came in a nudge weaker than we had expected," said UBS economist Martin Lueck.
On a 12-month basis, German activity contracted by 4.8 percent, in line with forecasts and better than a decrease of 5.8 percent in the second quarter, Destatis said.
Germany's export-dependent economy was slammed by the global downturn, but is now meeting fresh demand for machine tools, automobiles and chemical products.
Economy Minister Karl-Theodore zu Guttenberg has forecast the economy would grow by 1.2 percent in 2010, while the "Five Wise Ones" were more optimistic, issuing an outlook for growth of 1.6 percent.
Although Germany has recovered quickly from recession, the country faces the prospect of rising unemployment, despite subsidised shorter working hours that have limited the damage.
"Today's figures exaggerate the underlying pace of growth," Commerzbank's chief economist Joerg Kraemer warned.
He said that a large part of the gain came from the fact "that companies around the globe are now catching up on some of the spending shelved when the shock news of Lehman Brothers? collapse was announced" in September 2008.
But Kraemer and other analysts also noted that some government stimulus measures had still not kicked in.
"Ongoing monetary and fiscal stimulus also in 2010 - notably government investment in infrastructure and higher child support payments for the consumer - will remain supportive for German economic growth in the quarters ahead," Global Insight senior economist Timo Klein concluded.
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Fed: banks need customer consent on overdraft fees
Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.
The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.
For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.
Under the Fed's new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.
Many consumers do want checks and regular electronic bill payments to be covered in the event of an overdraft, Fed officials said. As a result, those transactions aren't covered by the rule.
Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.
Many larger banks, including Bank of America Corp., JPMorgan Chase & Co., U.S. Bank and Wells Fargo & Co. began instituting similar "opt-in" plans in late September after coming under fire for the fees.
But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, said new rules were still necessary to ensure smaller banks followed suit.
Many lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year's financial crisis. Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.
Dodd also proposed legislation last month that would have imposed limits similar to the Fed's on the banks' ability to charge overdraft fees.
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