Ford makes buyout offer to workers, including 200 at St. Paul plant

Minneapolis / St. Paul Business Journal

Ford Motor Co. is offering a buyout to all of its 41,000 hourly workers in the United States, according to media reports.

Ford officials wouldn’t say how many of those workers might accept the offer, which includes $50,000 plus the choice of either a $25,000 voucher to buy a car or an extra $20,000 in cash. Workers need to have worked at least a year for the automaker to qualify.

Out 760 employees at Ford’s Ranger pickup truck plant in St. Paul, 200 would be able to take the buyout, a United Auto Workers official at the factory told the St. Paul Pioneer Press.

The buyout offer comes after union workers across the company rejected a cost-cutting agreement. The majority of workers at the St. Paul plant had approved the deal.

Dearborn, Mich.-based Ford (NYSE: F) has shown itself to be more financial stable than the other two major U.S. automakers, Chyrsler and General Motors, avoiding bankruptcy and government bailout money. But company officials still say there are too many workers.

When Ford made a similar buyout offer earlier this year, only 1,000 workers took it.

cnewmarker@bizjournals.com | (612) 288-2107

Visualizing One Trillion Dollars

by WallStats.com

It’s official, trillion is the new billion. No longer is government spending talked about in terms of a mere ten digits. With the recent flurry of government spending, we are going to need another three zeros to make sense of it all.

One trillion dollars; it’s a number that few people can comprehend, let alone your standard nine digit calculator. There have been attempts to put this number into perspective before. A trillion dollar bills laid end to end would reach the sun or you spend a dollar per second for 32,000 years or one trillion dollars in pennies would weigh as much as 2,755,778 Argentinosauruses (the largest known dinosaur). Fanciful as this may be, the real story behind one trillion dollars is in its economic impact. Let’s investigate what one trillion dollars can do.

Record 19 Million Houses Seized and Vacant in the US

By Kathleen M. Howley

Feb. 3 (Bloomberg) -- A record 19 million U.S. homes stood empty at the end of 2008 and homeownership fell to an eight-year low as banks seized homes faster than they could sell them.

The number of vacant homes climbed 6.7 percent in the fourth quarter from the same period a year ago, the U.S. Census Bureau said in a report today. The share of empty homes that are for sale rose to 2.9 percent, the most in data that goes back to 1956. The homeownership rate fell to 67.5 percent, matching the rate in the first quarter of 2001.

The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and make it more likely owners will walk away from properties worth less than their mortgages. About a third of owners whose home values drop 20 percent or more below their loan principal will “hand the keys back to the bank,” said Norm Miller, director of real estate programs for the School of Business Administration at the University of San Diego.

“When you’re underwater and prices continue to fall, you tend to walk,” Miller said in an interview. “It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.”

Obama’s Plans

The figures demonstrate the intensity of the U.S. housing crisis as President Barack Obama considers ways to help homeowners.

The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.

The proposal, which may also have taxpayers share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”

Congress and the new president are grappling with how to repair the housing market as the recession enters its second year and unemployment rises. The U.S. economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 percent annual pace, the Commerce Department said on Jan. 30.

Legal Wrangling

The U.S. had 130.8 million housing units in the fourth quarter, including 2.23 million empty homes that were for sale, the Census report said. The vacancy rate was 3.5 percent in urban areas and 2.6 percent in suburbs, the report said.

In addition, the report counted 4.1 million vacant homes for rent and 4.8 million seasonal properties.

“Wealth loss and housing in combination with loss in the equity market will have ripple effects,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. “The silver lining is that while home prices are coming down, incomes have stayed about the same, and in a lot of markets we’ll hit equilibrium this year. That’s a good sign for the long term.”

Most foreclosures are contained in the report’s “other” category, which includes homes tied up in legal proceedings as well as properties that are empty because the owner is renovating and living somewhere else, according to the Census Web site. There were 7.8 million homes in that category in the fourth quarter, up from 7.3 million a year earlier, the report said.

Bank Holdings

There were 2.22 million new foreclosures in 2008, an average of 6,090 a day, according to Washington-based Hope Now Alliance. Those resulted in 917,000 property sales, according to the group that represents 27 mortgage lenders and servicers.

U.S. banks owned $11.5 billion of homes they seized from delinquent borrowers at the end of the third quarter, according to the Federal Deposit Insurance Corp. in Washington. That’s up from $5.4 billion a year ago.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said in a report today.

The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Half a billion pound bail - out for 2012 Olympics

| Source: Reuters

LONDON (Reuters) - The government released hundreds of millions of pounds of contingency funds on Wednesday to keep work on the London Olympic 2012 venues on track amid a worsening credit crunch.

It also announced the media centre would be completely funded from public coffers after its planned private partner failed to secure sufficient loans.

The government released 496 million pounds from the 2 billion-pound contingency fund, with the bulk, 326 million pounds, going to the athletes' village.

This included 95 million pounds of contingency announced last October.

About 135 million pounds will go towards the International Broadcast and Main Press Centres (IBC/MPC) -- meeting the shortfall left by the absence of private sector funding. The centre will be permanent, with some temporary fixtures.

A further 35 million pounds will go towards projects including the aquatics centre, main stadium and handball arena.

The overall budget for the Games remains 9.3 billion pounds and there is sufficient contingency, the government added.

"With private sector funding now much more difficult to secure because of the global economic downturn, it is right that we take steps to safeguard these projects," Olympics minister Tessa Jowell said in a statement.

Olympic organisers had warned last year that the inability to secure bank loans could result in possible shortfalls in the two public-private projects.

Talks are continuing between Olympic organisers and Lend Lease, an Australian developer, over private investment for the estimated 1 billion-pound athletes' village.

The slump in property prices, which could damage the chances of recouping money from the village after the Games, has already resulted in the number of post-Olympic apartments being reduced from 4,200 to about 3,000.

Cheaper construction costs meant 25 million pounds had been saved on the 355 million-pound media centre.

(Editing by Astrid Zweynert)

A Look Back at Bush's Economic Missteps

From Time Magazine:

By JUSTIN FOX

Brooks Kraft / Corbis for TIME

INTRODUCTION

George Bush is leaving the White House with a dismal economic record. By almost every measure — GDP growth, jobs, median incomes, financial-market performance — he stacks up as probably the least-successful President on the economic front since Herbert Hoover.

It's not all Bush's fault. He inherited an inevitable recession in 2001, and even last year's financial collapse was to some extent the result of unsustainable trends in place long before he moved to Washington. Also, we generally give Presidents both more credit and more blame for economic outcomes than they probably deserve. As Bush mock-moaned in his final White House press conference, "Why did the financial collapse have to happen on my watch?"

His next words, though, were, "It's just pathetic, isn't it, self-pity?" So let's spare him the pity. As the decider in the White House for the past eight years, George Bush made some economic calls that don't look smart today. Here are eight of them.

1. The Return to Deficits

Jim Young / Reuters

When President Bush took office in 2001, Republicans and Democrats in Washington had built a strong consensus on the need for fiscal responsibility. Bush blew that apart within a few months. With the country in a recession, a temporary return to deficits was inevitable. But Bush's tax cuts and spending increases — and clear disdain for the pay-as-you-go approach that had brought deficits down in the 1990s — brought a return to permanent deficits. These actions almost certainly didn't cause the current crisis, but they have left the Federal Government in a much weaker position to combat it.

2. Iraq

Spencer Platt / Getty

Doing a cost-benefit analysis on a war is awfully hard. There are just too many what-ifs. But the cost of invading and occupying Iraq has been staggeringly high — whether you believe the $3 trillion figure of economists Linda Bilmes and Joseph Stiglitz or side with the Congressional Budget Office estimate of a mere trillion or two. It's the biggest part of the explanation for the yawning Bush-era budget deficits. So even if you think the war did bring benefits to the U.S., they would have to be pretty gigantic to justify the cost.

See pictures of Bush's friendship with Tony Blair.

3. Tax Cuts for the Rich

Rhona Wise / AFP / Getty

When Ronald Reagan slashed taxes on capital gains and high earners in the early 1980s, inflation was pushing the middle class into top tax brackets, financial markets had been stuck in a funk for 15 years and income inequality had been declining for almost five decades. Like him or not, the man's actions fit the times — and the U.S. economy boomed for most of his two terms in office. Bush came to Washington facing almost diametrically opposing economic conditions, yet he offered up the same solutions as Reagan. Guess what: they weren't what the economy needed.

See TIME's gallery of politicians outed in scandals.

4. Financial Regulation

The only major piece of regulatory legislation enacted during the Bush years was the Sarbanes-Oxley Act, which dramatically increased regulation of corporate financial disclosures. The really big regulatory changes being pointed to now as possible culprits for the crisis date back to Bush's predecessors: Bill Clinton, Ronald Reagan, even Jimmy Carter and Gerald Ford. So the popular Democratic refrain that "Bush-era deregulation" is to blame for our troubles is a little hard to square with the evidence. What is true is that most Bush-era financial regulators were less than enthusiastic about the very act of regulating, and that Bush's "ownership society" push glossed over a lot of potential dangers. Bush didn't cause the financial regulatory breakdown, but he didn't jump in to fix it either.

See pictures of the top 10 scared traders.

5. Telling Us to Go Shopping

Mario Tama / Getty

After the 9/11 terrorist attacks, President Bush didn't call for sacrifice. He called for shopping. "Get down to Disney World in Florida," he said. "Take your families and enjoy life, the way we want it to be enjoyed." Taken on its own, this wasn't such a horrible sentiment. But Boston University historian Andrew Bacevich has made a convincing case that it was part of a broader pattern of encouraging financial irresponsibility. "Bush seems to have calculated — cynically but correctly — that prolonging the credit-fueled consumer binge could help keep complaints about his performance as Commander in Chief from becoming more than a nuisance," Bacevich wrote in the Washington Post in October. Now we're paying the bill.

See pictures of expensive things that money can buy.

6. Energy Policy

Justin Sullivan / Getty

Not much to say here, except that there wasn't an energy policy. Again, this wasn't new to the Bush era. But with a years-long oil-price slide finally coming to an end not long before he took office, the President's (and Vice President's) unwillingness to take serious steps to reduce the country's dependence on fossil fuels left the country vulnerable and way behind the rest of the developed world in preparing for a post-oil future.

7. A State of Denial

Stephen Jaffe / AFP / Getty

Every Administration spins and sugarcoats the economic truth. But the Bush White House took this disingenuousness to new levels. The surest way to get yourself fired as a Bush economic adviser was to say something that was true. Paul O'Neill was ousted from Treasury for warning about deficits. Larry Lindsey was kicked out of the top White House economic job for predicting in 2002 that the Iraq war would cost $100 billion to $200 billion — far below the actual cost but much more than what the White House was officially projecting. This disdain for reality, and for expertise, pervaded the Bush economic approach, and made it impossible for the Administration to react intelligently to real-world economic problems like the housing bubble.

Read "Four Steps to Ending the Foreclosure Crisis."

8. The Muddled Bailout

Gerald Herbert / AP

It could have been much, much worse. For the first time, Bush gave someone with more expertise than political bona fides — Treasury Secretary Henry Paulson — control over economic policy and didn't let the hacks in the White House undercut him. Paulson's financial rescue has been awfully messy and expensive, but one shudders to think what might have happened if his much weaker predecessor, John Snow, had still been in charge at Treasury when trouble struck. The main problem has been the ambivalence with which both Paulson and the White House have approached the financial rescue. They backed into it, never articulating clear principles for how it should work. That's yet another thing the new Administration is going have to rectify.

See pictures of TIME's Wall Street covers.

Porn industry seeks federal bailout

From CNN's Rebecca Sinderbrand and Mark Preston

Larry Flynt is asking for a bailout.

WASHINGTON (CNN) — Another major American industry is asking for assistance as the global financial crisis continues: Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis said Wednesday they will request that Congress allocate $5 billion for a bailout of the adult entertainment industry.

“The take here is that everyone and their mother want to be bailed out from the banks to the big three,” said Owen Moogan, spokesman for Larry Flynt. “The porn industry has been hurt by the downturn like everyone else and they are going to ask for the $5 billion. Is it the most serious thing in the world? Is it going to make the lives of Americans better if it happens? It is not for them to determine.”

Francis said in a statement that “the US government should actively support the adult industry's survival and growth, just as it feels the need to support any other industry cherished by the American people."

“We should be delivering [the request] by the end of today to our congressmen and [Secretary of the Treasury Henry] Paulson asking for this $5 billion dollar bailout,” he told CNN Wednesday.

Flynt and Francis concede the industry itself is in no financial danger — DVD sales have slipped over the past year, but Web traffic has continued to grow.

But the industry leaders said the issue is a nation in need. "People are too depressed to be sexually active," Flynt said in the statement. "This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex."

"With all this economic misery and people losing all that money, sex is the farthest thing from their mind. It's time for congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly."

So far, there has been no congressional reaction to the request.

–CNN’s Chloe Melas contributed to this report

No Job, Bad Mortgage- You're Out of Luck

NEW YORK (CNNMoney.com) -- All the foreclosure prevention plans announced to date will do little to help the next wave of delinquent homeowners, who can't make their monthly payments because they've lost their jobs.

But something needs to be done for them, experts said, or the country will sink deeper into an economic recession.

"Because of the financial crisis, they can't afford their mortgages on any terms," said Kathleen Engel, associate professor at Cleveland-Marshall College of Law. "None of the federal or bank programs will provide them any relief at all."

Loan modification plans have focused on assisting borrowers facing interest rate resets or other mortgage terms that have rendered the monthly payments unaffordable. Most proposals have attacked the problem by adjusting the interest rate or length of the loan so that the monthly payments drop to what is considered an affordable level, or between 31% and 38% of a borrower's gross income.

This, however, does little for people whose monthly income is virtually nothing. Representatives from lenders and firms that service loans say the unemployed have to be assessed on a case-by-case basis and can't be part of the streamlined modifications underway.

"This is a different problem and a more challenging problem," said Tom Kelly, spokesman for JPMorgan Chase (JPM, Fortune 500), which last month unveiled a loan modification plan aimed at helping 400,000 delinquent homeowners. "If you are unemployed for a long time, there is no affordable range."

A record 1.2 million homes were in foreclosure during the second quarter of 2008, according to the Mortgage Bankers Association. Consumer advocates, as well as certain Democratic lawmakers and officials within the Bush administration, have pushed banks and government officials to do more to help struggling homeowners.

A new wave of empty homes on the market won't help anybody. In fact, it will just lead to further price declines, which in turn, will further weaken the economy. Until this cycle is broken, everyone suffers, experts say.

The problem of rising foreclosures due to unemployment is only expected to get worse. With companies announcing mass layoffs almost daily, more people will fall behind on their payments. Already the unemployment rate is at 6.5%, its highest level in more than 14 years.

The effects are already showing up in the housing market. In June, 45.5% of all delinquencies reported by Freddie Mac were due to unemployment or the loss of income, according to the company. That's an increase from 36.3% in 2006.

The problem won't go away anytime soon. Some estimates say another 2 million families could lose their homes to foreclosure in the next two years.

More unemployed homeowners calling

Already overwhelmed with calls from families plagued by rate resets, servicers said they are now seeing an increased number of calls from the newly unemployed. At this point, they have to handle each case individually.

For those with good prospects of landing another job with a comparable income, banks might offer the homeowner a short-term modification or forbearance. This allows borrowers to make smaller payments - or in some cases, no payments - for up to a year until they find new employment. The bank would then increase the monthly payments until the borrower is caught up or add the missed months back into the principal and recalculate the monthly payment over the life of the loan.

"It depends on the likelihood of finding a similar job with similar income," said Terry Francisco, spokesman for Bank of America (BAC, Fortune 500), which has announced a plan to help 400,000 troubled borrowers. "In a declining economy when unemployment is rising, more people are facing this situation. We realize more people may need short-term modifications."

But borrowers who may have trouble getting another good job have fewer options, experts said. In these cases, the servicer may offer the homeowner a short-sale, in which the bank forgives the difference between the sale price and the mortgage balance.

"If it's driven by unemployment, they may not be able to keep the house," Kelly said.

Homeowners are often left in the lurch. Take Dave Breitenbach, who lives in an upscale condo apartment with ocean views in Fort Lauderdale Beach. He had no trouble making his $5,000-plus monthly payments when he was employed. But now that he's lost his executive job at a fitness chain, he's struggling.

After hearing in October that his bank had launched a program to help troubled homeowners, he called. But representatives said there was nothing they could do.

"They said we can't help you because you don't have any income," said Breitenbach, who has started his own business and is trying to sell the place, but has seen little interest. "You don't qualify. They said once I get a job, I could call back and they could try to help me then."

Something must be done

If the wave of job-loss foreclosures isn't addressed, home values will continue to drop, preventing the economy from recovering, economists said. This, in turn, will spur more job loss, creating a vicious cycle.

The solution, this time, may not lie with the servicers.

"When it was simply a matter of the amount of the payment, there were more options for servicers," said Richard DeKaser, chief economist at National City Corp. "When the income is gone, the flexibility of the workouts diminishes considerably."

Instead, the government needs to stop the cycle by spurring job creation, experts said. The quickest and most effective measure could be an economic stimulus package aimed at boosting employment.

"Just giving consumers money won't help," said Alan White, assistant professor at Valparaiso University School of Law. "We need government spending to create jobs.