Financial thoughts

A consortium of private equity and hedge fund firms, including J.C. Flowers & Co, is close to a deal to buy the assets of failed mortgage lender IndyMac, a source familiar with the matter said on Sunday.

The prospective buyers also include Dune Capital Management, a private investment firm run by former Goldman Sachs executives, and hedge fund Paulson & Co, the source said.

The consortium would buy the bank and its 33 branches, IndyMac’s reverse-mortgage unit and a $176 billion loan-servicing portfolio, the source said.

The presence of private equity and hedge fund firms comes after the FDIC said last month it was expanding the pool of qualified bidders to include those institutions that do not currently have a bank charter, although they must have conditional approval for a charter from the responsible agency.

The Federal Deposit Insurance Corp and IndyMac as well as the buyers in the consortium could not be immediately reached.

Last week IndyMac spokesman Evan Wagner said a deal was expected before the end of the year. The deadline for final bids for IndyMac’s assets was December 15.

FDIC estimates IndyMac’s failure cost the agency $8.9 billion. Barclays Capital and Deutsche Bank are advising the FDIC on the sale.

The mortgage specialist’s IndyMac Bank unit was taken over by regulators after it failed on July 11 in one of the largest bank failures in U payday cash loan.S. history. At the time, it had $32 billion in assets and $19 billion in deposits.

IndyMac Bancorp Inc (IDMCQ.PK), the holding company, filed for Chapter 7 protection soon after with the U.S. bankruptcy Court in Los Angeles, indicating it plans to liquidate.

Founded in 1985 by Angelo Mozilo and David Loeb, who also founded Countrywide Financial Corp, IndyMac once specialized in "Alt-A" home loans, which often didn’t require borrowers to fully document income or assets.

It collapsed after defaults mounted and as tight capital markets caused losses on mortgages it couldn’t sell.

The seizure came after panicked customers withdrew more than $1.3 billion of deposits over 11 business days. The withdrawals followed comments in late June by U.S. Sen. Charles Schumer questioning IndyMac’s survival.

Have you filed for first-time unemployment benefits in the past month? Or have you accepted a significant pay cut — 20%, 30% — in order to start working again? If so, e-mail realstories@cnnmoney.com and you could be included in an upcoming article.  

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GRAND BLANC, Mich. (AP) – The financing arm of General Motors Corp. has until midnight Friday to clear a final hurdle in its quest to become a bank holding company, even though it already received the Federal Reserve’s stamp of approval earlier this week.

GMAC Financial Services LLC must complete a complicated debt-for-equity exchange by 11:59 p.m. EST. The effort to raise $30 billion in equity from bondholders was helped along late Wednesday by the Fed’s decision making the ailing auto and home loan provider eligible to access part of the government’s $700 billion bank rescue fund.

GMAC wouldn’t say Friday how close the company was to completing the exchange. Yet both actions — completion of the debt exchange and the Fed’s acceptance of GMAC as a bank holding company — were tied to each other.

The Federal Reserve apparently needed to see that the bondholders were willing to inject more capital into GMAC, a critical requirement to get bank holding status. GMAC bondholders needed reassurance that the Fed would approve GMAC’s application to qualify for federal aid.

"The success builds upon itself. The Fed vote sends a strong signal to the remaining bondholders to help them reach a deal," said Scott Talbott, a financial services lobbyist in Washington, D.C.

Shares of GM surged on Friday, the first day of trading since the Fed’s announcement late Wednesday. Shares rose 41 cents, or nearly 13 percent, to $3.66.

The Fed’s action Wednesday came as GMAC was still struggling to get bondholders to convert 75 percent of their debt into equity of the company. Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM’s own chances for survival. The Fed cited "emergency conditions" in justifying its decision.

GMAC’s goal is to reach $30 billion in capital, the majority of which would come from the exchange of debt. Another part of the equity requirement included a demand from the Fed that $2 billion of the total come from new equity. So far, GMAC has received a commitment of $750 million from its parents GM and Cerberus Capital Management. It’s unclear whether that funding would come from the bridge loans the U.S. Treasury granted GM and Chrysler LLC — which is owned by Cerberus– earlier this month.

GMAC spokeswoman Gina Poria said she couldn’t speculate on the precise "tipping point" that prompted the Fed to act on GMAC’s application earlier than generally expected.

"We’ve kept the Fed and other regulators apprised of the bond exchange," she said Friday. "We still need to complete that bond exchange. It needs to be settled by the end of the year payday loans."

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Becoming a bank holding company would qualify GMAC to access the government’s bank rescue funds, and support GMAC loans to car buyers and GM dealerships.

GMAC has not said publicly how much it was requesting from the $700 billion bank bailout fund. CreditSights analyst Richard Hoffman estimated in a research note Friday that GMAC "could have applied for up to about $6.3 billion."

Sources close to the negotiations with bondholders said earlier this week that talks with GMAC were not going well, with creditors wanting more for their debt investments.

But Talbott said that any stubbornness among bondholders might have softened in recent weeks given the stakes.

"Anytime you ask investors to change their expectations and get less than anticipated, it causes strife," Talbott said. "But as the weeks wore on it became clear that without change the choice was getting very little in bankruptcy or accepting the changes in order to ensure the strength of GMAC to get the bulk of their investment back."

GMAC, which is 49-percent owned by GM, provides auto financing to GM customers and dealerships.

The Fed order says GM will reduce its stake to less than 10 percent of the voting and total equity interest of GMAC. GM’s remaining equity interest in GMAC will be transferred to an independent government-accepted trustee who must dispose of the equity held in the trust within three years of the trust’s creation.

Cerberus, which led an investment group that bought a 51-percent stake in GMAC from the automaker for $14 billion in 2006, will reduce its stake in GMAC to no more than 33 percent of the lender’s total equity.

The Fed’s move to provide government aid to one of the nation’s biggest suppliers of auto loans was just the latest extension of the federal bailout program, initially designed to shore up ailing banks. As the credit crisis kept ballooning, the program expanded to include insurers, credit card companies, and the automakers themselves. Just last week, President George W. Bush ordered an emergency bailout of the industry, offering $17.4 billion in rescue loans, and citing imminent danger to the national economy.

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Shares of General Motors and Ford Motor took a dive on Tuesday after ratings agencies issued bleak outlooks for the U.S. auto industry.

Shares of General Motors (GM, Fortune 500) plunged 14.8% and Ford (F, Fortune 500) 15.4%.

On Monday, Standard & Poor’s Rating Services said it would not raise its "CCC" junk ratings for General Motors and Chrysler in the near future, despite emergency loans from the U.S. and Canadian governments to help them avoid bankruptcy.

In fact, S&P downgraded Chrysler’s corporate rating from "CCC+" to the even lower junk rating of CC.

"We do not believe governments are willing to provide open-ended support to these companies," said S&P in a release, adding that bankruptcy risk "remains high" for GM, Chrysler and Ford in 2009.

Also on Monday, Moody’s Investors Service lowered Ford’s rating from "Caa1" to "Caa3," an even lower junk bond status.

"Even if Ford ends up not needing government loans because of its stronger liquidity position, the company must have UAW [union] parity with GM and Chrysler," said Moody’s senior vice president Bruce Clark, in a report payday loans. "But the UAW is unlikely to make concessions to Ford unless Ford’s creditors also bear some pain in the form of a debt restructuring."

Toyota Motor (TM) slid a fraction of a percent Tuesday, following its Monday forecast that the company would report an operating loss of about $1.5 billion to $1.7 billion this fiscal year, its first operating loss since 1950.

On Tuesday, The Wall Street Journal reported that Toyota Chief Executive Katsuaki Watanabe would step down in 2009, according to "people familiar with the situation." A Toyota spokeswoman would not comment on the report. 

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When the 2008 holiday shopping season wraps up next week, analysts expect to see far more retail losers than winners this year.

The recession has spooked consumer spending to such an extent that some industry experts have renamed their usual holiday "winners and losers" tally to "survivors and losers."

"The winners’ side is a pretty thin book," said Craig Johnson, president of retail consulting group Customer Growth Partners. "Beyond the usual suspects, it’s a tough find [for winners] in this exceptional difficult year."

The year-end shopping period is crucial for stores. Merchants often accumulate as much as half of their profits and sales for the full year just in November and December.

A healthy holiday season also bodes well for the economy since consumer spending fuels two-thirds of economic activity. As long as households are spending, it signals that Americans are feeling confident about their jobs and personal wealth.

That hasn’t been the case for most of this year as retail sales have progressively slumped heading into the holiday season.

The National Retail Federation expects holiday sales to show the weakest gain in six years.

"People are very scared to spend their money," said Love Goel, chairman and CEO of Growth Ventures Group, a specialty-retail private-equity firm.

"Consumers are losing their jobs, their home values are lower, their savings are eroding," he said.

Still, retail watchers say most families will dig deep to find that extra money to buy the Christmas gifts for loved ones.

So even in this environment of very cautious discretionary spending, some sellers will gain market share.

But they are few and far between.

Wal-Mart (WMT, Fortune 500), the world’s largest retailer, is sitting in a sweet spot. "If ever there was a year made for Wal-Mart, this is it," said Johnson.

A survey of 1,000 consumers conducted last week by America’s Research Group showed half, or 49.5% versus 32.2% last year, said they were doing their holiday shopping at a Wal-Mart.

"With recessionary cutbacks at the top of the mind, American consumers are flocking to Wal-Mart for discounts. Wal-Mart will be the only clear winner," said Britt Beemer, CEO and founder of America’s Research Group.

To his point, Wal-Mart’s November same-store sales, which are a measure of sales at stores open at least a year, were stronger than expected as consumers continue to trade down, not just in their everyday purchases, but also for gifts health insurance.

"What’s really driving Wal-Mart’s sales are staples like food, beverages and detergent," said Goel. Beyond that, the retailer has also made successful forays into branded consumer electronics, which is a hot category for holiday gifts, he said.

Goel and others said Wal-Mart, with its lower prices, has stolen market share this holiday season from industry leader Best Buy (BBY, Fortune 500).

Analysts said wholesale club operators like BJ’s (BJ, Fortune 500) and Costco should also be able to grow holiday sales over last year because of their low prices model.

"If you’re looking to score a Wii Fit you might not find it at BJ’s," said Johnson. "BJ’s appeal is the value-priced serendipitous gift that you just happen to come across while you are there."

Drug store chains like CVS should do well, said Beemer. "About 40% of consumers buy prescription drugs every month. So drug stores already have a built-in consumer base," he said, adding that these retailers have been very smart about expanding their merchandise to aggressively compete on holiday products like decorations and packaged gifts.

Although most analysts are expecting department stores to emerge as big losers, Johnson said he’s optimistic about Kohl’s (KSS, Fortune 500).

"The discounts have looked very sharp at Kohl’s. They’re selling a good mix of gifts and stylish merchandise like Vera Wang at affordable prices," he said.

Among online sellers, Goel is positive about Amazon.com (AMZN, Fortune 500). "We think Amazon will see high single-digit to low double-digit sales growth over last year," he said.

Beemer’s projection for losers is simple: "It’s everyone else," he said. "Most retailers either didn’t have the right merchandise, didn’t discount enough, or lost out to a competitor who did a better job on both counts."

He predicts that luxury sellers will post a 20% drop in holiday sales while toy sellers’ sales will decline between 10% to 15%. One toy seller - KB Toys - already filed for bankruptcy midway through the season.

Since toys and electronics are both highly discretionary purchases, Goel said most consumers who did buy these types of products either bought fewer items or traded down to less expensive options.

Both those trends will damage merchants’ holiday sales, he said. 

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Like the conclusion that Lee Harvey Oswald was a lone gunman, the theory that Bernard Madoff acted alone is hard to swallow.

True, Madoff has allegedly confessed that he perpetrated a massive fraud that left behind $50 billion in losses; and he claimed to have done this all alone.

But this is a man who kept false records, sent bogus documentation, bilked investors for billions, lied for years to friends and knowingly harmed charities. It’s within the realm of acceptable behavior to cast a jaundiced eye upon his confession.

"Speaking as a Jew on Christmas, I would be less shocked if Santa Claus showed up to my house than if Bernie Madoff pulled off this fraud alone," says Ron Geffner, a partner at law firm Sadis & Goldberg who specializes in structuring, organizing and counseling hedge funds and other investment advisors.

"It’s hard to imagine that given the amount of assets that he managed that people would not have been aware. If nothing else, employees, no matter what floor they were on, would have known that somewhere within the firm money was being lost," Geffner adds.

To put it into perspective, if a company generated $50 billion in revenue, it would be in the Fortune 50. That’s a huge sum to hide, even over a period of years. To date, the largest similar fraud has been Sam Israel’s Bayou Group, which turned out to be a $400 million ponzi scheme. Even Tom Petters, who managed to keep a huge investment scheme going for 13 years, only lost $3 billion for investors.

Not only is it difficult to hide $50 billion in losses without anyone knowing, it’s hard to manage that much money. The amount of paperwork generated by a legitimate operation requires a huge backroom operation and lots of employees just to keep careful records of trades, profit and loss, and investor distributions and redemptions.

To successfully run a fraudulent operation for as long as Madoff did, he would not only need to keep records of what was actually going in and out of his operation, he would have to falsify an alternative sets of books, trading records and investor returns.

"This was a very large scheme, and he couldn’t have done it without the cooperation and assistance of someone well informed who could process trades, report them and create monthly statements," says Doug Kass, founder of the dedicated short fund Seabreeze Partners. "Someone had to help him falsify all those reports, conduct mail fraud and create multiple sets of books low fee pay day loans."

The usual suspects

So who were his accomplices? Bernard Madoff Investment Securities was essentially a family operated business. His brother Peter Madoff was the chief compliance officer. His son Andy Madoff was the director of trading, and his son Mark Madoff was the director of proprietary trading. Shana Madoff, his niece, was the firm’s compliance attorney.

And account statements uncovered by the website CityFile show that Mark Madoff’s charitable trust was handled by asset-management firm Neuberger Berman, rather than by his dad. The millions in Bernie Madoff’s foundation were managed by his own investment firm.

Strikingly, his family has been largely ruled out as suspects in the case; and it is possible that they only ran the trading operation. In a move that distanced them from their father, neither son was willing to sign Bernie Madoff’s bail papers.

As for outside help, Cohmad Securities, a Boston based investment firm is being subpoenaed by regulators to find out more about its relationship with Madoff.

The firm is 20% owned by Madoff and 80% owned by Maurice Cohn; and its name is a combination of the names Cohn and Madoff. Cohmad’s New York office is in the same building as Bernard Madoff Investment Securities, on the 10th floor. On the 17th floor, Madoff allegedly carried out his ponzi scheme in private.

An executive at Cohmad is Robert "Bob" Jaffe, who helped introduce members of the Palm Beach Country Club to Madoff’s investment outfit. He is also the son-in-law of Carl Shapiro, a man who made his fortune in New York City’s Garment District and was one of Madoff’s earliest and largest investors.

But as with Madoff’s family, Jaffe has said that he was unaware of the fact that Madoff’s investment arm was a fraud. And it has been exceedingly difficult to turn up any real leads in the case. Even those close with former Madoff employees are exceedingly frustrated by the opacity of the situation. No one knows with for sure how many people actually worked for Madoff. No one knows how many investors he had or how much money he actually managed.

"This is clearly the biggest financial scandal and cover up in history," says Kass.

Let’s hope that the SEC is better at closing the case than the Warren Commission. 

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Job hopping, a widely accepted way to get ahead, has gone by the wayside as workers fear making moves will make them more vulnerable to layoffs.

Under normal conditions, workers average more than 10 different jobs by age 42, according to the Bureau of Labor Statistics, and use each move to build a career, network and skill set.

But in today’s market, turnover is slowing to a standstill. For the past three months, the quits rate, which serves as a barometer of workers’ ability to change jobs, has remained at 1.6%, a near four-year low. The rate, a measure of the number of quits during the month as a percent of total employment, declined significantly across industries, including manufacturing, retail and finance, the BLS said. Only the mining industry has seen the rate rise significantly.

"When times are bad, people don’t quit," said Robert Brusca, chief economist at Fact and Opinion Economics.

Not only are there fewer jobs available, but new hires may be at greater risk of being laid off.

"Often it’s LIFO, or last in first out," Brusca said. "You don’t want to be the recent hire so you stay where you are because you have seniority."

As a result, many workers are staying put - even if they are unhappy.

About 62% of workers surveyed by TheLadders.com, a job search site, said they were not likely to achieve their career goals at their current company. A whopping 96% of them said they were likely to achieve their career goals at another company — although nearly 37% said they would not relocate for another job opportunity.

"There’s a ‘hunker down mentality,’" explained Marc Cenedella, founder and CEO of TheLadders.com.

Consulting firm Accenture found that 53% of the middle managers it recently surveyed said they are dissatisfied pay day loan centers. But only 13% said they are actively looking for a new job.

Additionally, 66% of respondents said they would consider a new job but are not actively looking; 46% said taking a new job in the current economic environment is risky.

"Talent mobility is frozen in the market place," said David Smith, managing director of Accenture’s Talent & Organization Performance practice in North America. And that’s not because the opportunities aren’t there but because workers are afraid to take them.

Workers are now "over conservative," he added. "They’re creating their own frozen mobility. …There are companies that are growing, but it’s hard to find new talents."

For those willing to take the plunge, Bob Eubank, executive director of the Northeast Human Resources Association, recommends carefully researching any prospective companies to determine their stability, including checking attitudes among current or former employees and understanding why positions are open.

He also suggests asking thorough questions during the interview process. For example, find out if there is an initial probationary period so that there are no surprises after you start.

"Make sure you’ve done all that you can to determine this is a good fit for you, because if it is a good fit, then you’re probably no more at risk than anyone else in terms of being cut," he said.

In fact, you may even be safer than more tenured employees, he added, because of your potential promise: "If you can really add value and be valuable, then you’re going to stay." 

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The U.S. Federal Reserve’s radical step of slashing its key interest rate to between zero and 0.25 percent raised expectations the Bank of Japan and other central banks will follow with their own moves to support the stumbling global economy.

Asian markets rallied on news of the larger-than-expected cut from 1 percent, which virtually exhausts the traditional Fed tools to battle the year-long recession. Asian stocks took cues from Wall Street, where shares closed up 5 percent on Tuesday.

The Fed said it would employ “all available tools,” echoing a policy pursued by Japan earlier this decade when it flooded banks with money to promote lending.

Its move could push the Bank of Japan (BOJ) to cut interest rates to almost zero from 0.3 percent when it meets on Thursday and Friday and possibly follow the Fed into buying commercial paper outright or purchasing asset-backed securities, reviving a scheme it put in place five years ago during the bank crisis.

Other central banks could follow, analysts said.

“I think it’s more and more likely that key rates in Asia are going to converge at a level much lower than previously forecast,” said Glenn Maguire, Asia chief economist with Societe Generale in Hong Kong.

“We will see an ultra-low interest rate policy across Asia and central banks on a case by case basis will target liquidity in the banking system where needed.”

Hong Kong, which pegs its currency to the U 500 fast cash payday loan.S. dollar, cut its discount window base rate by 100 basis points on Wednesday.

STRONG YEN PRESSURES EXPORTERS

U.S. Treasury debt rallied sharply after what Japan’s top financial diplomat Naoyuki Shinohara called the Fed’s “bold” move, pushing the benchmark note’s yield down to five-decade lows.

Japanese government bonds surged on Wednesday, with the two-year yield hitting its lowest level in nearly three years on expectations for a BOJ rate cut.

The dollar plumbed 13-year lows against the yen and 2- month lows versus the euro on Wednesday, extending a slide on Tuesday.

The strong yen has put additional pressure on Japanese exporters, who are already facing a slump in overseas demand. This includes Honda Motor Co Ltd, whose shares slid nearly 8 percent on expectations it will announce a profit warning later on Wednesday.

Adding pressure on the BOJ, Japan’s top government spokesman said that he hoped that the BOJ would consider the impact of the strong yen — at a 13-year high against the dollar — when considering monetary policy.

“The abnormal rise in the yen could affect export industries and I hope that the BOJ will make a comprehensive consideration, including those factors to decide its monetary policy,” Chief Cabinet Secretary Takeo Kawamura told a news conference. 

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EU leaders prepared Friday to back a $264.3 billion economic stimulus package as new statistics highlighted just how deep a slowdown they are facing.

EU governments will pledge later Friday to spend around 1.5% of EU gross domestic product to stoke growth, according to a draft text of a joint statement obtained by The Associated Press.

They said they were certain this "will make a decisive contribution to the European economy’s rapid return to the path of growth and job creation."

Several European nations are sliding into a recession - and the 15 nations that share the euro have already seen two quarters of negative growth since the spring’s second quarter.

The final three months of the year aren’t looking any better, according to figures the EU statistics agency Eurostat published Friday.

Falling demand at home and abroad dragged down October’s industry production figures in the euro zone by 5.3% from a year ago, the worst drop so far this year after a 2.7% decrease in September. The entire 27-nation EU saw a 5% tumble.

This adds urgency to the recovery plan that EU governments should back later Friday.

But the EU statement also set limits on what each country could do, saying massive state subsidies had to be short-term and targeted to limit competition problems that would favor one industry or one part of the 27-nation bloc over rivals elsewhere in Europe.

They singled out automakers and builders as most in need of help as shoppers avoid major purchases such as new cars and homes.

"Measures to support demand must aim to produce immediate effects, be of limited duration and be targeted at the sectors most affected and the most important as regards the structure of the economy, e easy payday loan.g. the automotive industry and the construction sector," the text said.

Countries would be free to choose how they would help out troubled industries, picking between more public spending, tax or social security cuts, aid for specific industries or financial support for cash-strapped households.

EU leaders acknowledged that this heavy public spending will pile on public debt but swore to return swiftly to efforts to eliminate budget deficits - the yearly difference between what governments spend and receive.

They also called on banks to pass on recent cuts in borrowing costs. Some British lenders were reluctant to cut the interest rates they charge borrowers even though the Bank of England has repeatedly reduced the key lending rate to ease tight credit conditions.

The EU stimulus plan aims to make more money available to banks to lend on to companies. The EU government-funded European Investment Bank will release $39.65 billion in loans next year and 2010 to increase lending for small businesses, and for projects that support renewable energy and cleaner transport.

This includes $5.3 billion in soft loans for the car industry to help them make cars that release less greenhouse gas. That falls short of the $53 billion they asked for to help them invest in clean technology during a slump that has slashed car sales. 

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The U.S. dollar was mixed against major currencies Tuesday, as stocks declined and investors awaited details of a proposed bailout of the auto industry.

The euro fell to $1.2931 in New York trading from $1.2936 late Monday.

Britain’s pound slid versus the dollar to $1.4783 from $1.4904.

The Japanese yen gained against the dollar, dropping to ¥92.03 from ¥93.01.

The dollar was holding in a narrow range Tuesday, said Gareth Sylvester, senior currency strategist at foreign exchange brokerage HiFX. Sylvester said that there’s not enough negative or positive news to push the market in either direction.

Currency traders view the low-yielding dollar as safe haven. As a result, the greenback often rallies when the broader stock market retreats. Conversely, the buck often loses ground against the higher yielding euro and pound when the stock market’s appetite for risk is more robust.

The confidence that sent all three major gauges up 3.5% on Monday on news of a possible bailout for Detroit and investment in American infrastructure has since evaporated, said Sylvester.

An agreement on a loan package for the auto industry had been expected late Monday. But lawmakers were still debating the details Tuesday, with a package expected later today.

Dollar’s near-term strength. Sylvester thinks that there’s a good chance of continued dollar strength through December and into the first quarter of 2009 as investors remain pessimistic low cost car insurance.

On the economic front Tuesday, the National Association of Realtors reported a smaller-than-expected 0.7% decline in pending home sales for October. Analysts had forecast a drop of 3%.

Meanwhile, the dollar has gained nearly 9% against the euro and roughly 17% against the pound since the failure of Lehman Brothers in mid-September.

Sterling was pressured by a report stating industrial production fell by 1.4% in October from the month prior, according to the British government.

The 15-nation euro fell against the dollar despite an unexpected rise in sentiment from German consumers. The index stands far below historical levels.

In contrast, the dollar has fallen nearly 13% against the yen during the same period.

Analysts say investors have been borrowing yen over the past 10 years in order to buy other assets, often in the United States, that have provided a higher return. As those assets, which include real estate, have fallen in value, investors have had to pay back the money to Japan, pushing up the value of its currency. 

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Americans say the sagging economy is making the 2008 holiday season more stressful than previous years, according to a CNN poll out Monday, with up to two-thirds of them reporting some belt-tightening.

Four in 10 people questioned in the CNN/Opinion Research Corp. survey said the recession is adding stress to their holiday season. The poll found 67% of the 1,096 adults questioned said they are cutting the amount they plan to spend on Christmas or Hanukkah gifts, and 65% said they are cutting back on leisure travel, dining out or going to the movies.

"That means that cutting back on holiday is the number one way that Americans are reacting to the recession," CNN Polling Director Keating Holland said. "More Americans are cutting their gift-giving budget than are cutting back in any other category of spending, from leisure activities, like going to movies or restaurants, to clothing to major purchases such as furniture or other appliances quick pay day loans."

In the poll, 31% of respondents said they had cut back on necessities such as food or medicine, and 38% said they had cut heating or electric bills. Half said they have postponed a major purchase like furniture or appliances — always a bad sign for the economy.

"No wonder so many Americans are stressed out this holiday season," Holland said.

The CNN/Opinion Research Corp. poll was conducted December 1-2, with a sampling error of 3 percentage points. 

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