Financial thoughts

The economy is showing signs of modest improvement

The head of the European Commission says more unification is critical to the EU’s survival.

Jose Manuel Barroso, president of the European Union’s executive arm, says without “more unification,” there will be “more fragmentation.” He is giving his state of the union address in Strasbourg, France, on Wednesday.

“I think this is going to be a baptism of fire for a whole generation,” Barroso says.

However, he asserts that the EU can summon the leadership and the political will to come up with overall solutions to its crises, which involve the common currency and the borderless travel area.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

BRUSSELS (AP) _ The head of the European Commission says more unification is critical to the EU’s survival cheap business cards.

Jose Manuel Barroso, president of the European Union’s executive arm, says without “more unification,” there will be “more fragmentation.” He is giving his state of the union address in Strasbourg, France, on Wednesday.

“I think this is going to be a baptism of fire for a whole generation,” Barroso says.

However, he asserts that the EU can summon the leadership and the political will to come up with overall solutions to its crises, which involve the common currency and the borderless travel area.

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Russia’s influential finance minister resigned Monday following a televised confrontation with President Dmitry Medvedev, who had angrily demanded that Alexei Kudrin immediately explain his criticism of Medvedev’s policies or step down.

The open tension within Russia’s leadership follows the announcement over the weekend that Prime Minister Vladimir Putin plans to return to the presidency next year and Medvedev would then take his old job as prime minister. Russia will have a presidential vote despite the backroom maneuvering, but Putin is sure to win it.

The departure of Kudrin is likely to unsettle investors. He has been finance minister since 2000 and his tight hold over the budget has been seen as the key to Russia’s economic stability.

“It is difficult to see how Mr. Kudrin’s resignation can be anything but market-negative,” said Neil Shearing, chief Emerging Markets economist at Capital Economics Ltd in London. “With oil prices starting to slide and financial markets still jittery, now is not a good time for the government to lose its arch-fiscal hawk.”

Speaking over the weekend, Kudrin said he would refuse to serve if Medvedev was made prime minister because of disagreements over policy, including plans to substantially boost military spending.

Addressing Kudrin on Monday, Medvedev called the minister’s remarks “irresponsible chatter” and “improper,” especially since they were made in the United States while the minister was in Washington for meetings of the International Monetary Fund and the World Bank.

“If you disagree with the course set by the president and being implemented by the government, you have only one choice: Resign,” Medvedev said.

Kudrin said he would decide only after talking to Putin.

“You can seek the advice of whomever you want, but as long as I’m president, such decisions are made by me,” Medvedev retorted.

The Kremlin said Medvedev signed a decree on Kudrin’s resignation. Kudrin confirmed that he had quit in brief remarks reported by state news agencies.

Kudrin has been widely credited with helping Russia weather the 2008-2009 global financial crisis. During Putin’s presidency from 2000 to 2008, Kudrin stashed some of the revenue from Russia’s oil exports in a stabilization fund, despite strong opposition from other ministers who wanted to spend the money. But when the financial crisis hit and oil prices sank sharply those savings proved crucial in reducing the blow to Russia’s economy.

Some market analysts speculated that Kudrin’s departure could have a greater effect on Russia’s economy than the 2012 presidential election itself.

“It is unlikely that Mr. Kudrin’s replacement will share his predecessor’s credentials and clout,” Shearing wrote in a note to investors.

Before last weekend, Kudrin had been mentioned as a possible prime minister under Putin if Putin returns to the presidency.

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The headline on this section says it all: 61,000.

Of all the numbers generated by the economic downturn, this one puts the enormity of the employment crisis for St. Louisans in context.

Neither percentage, forecast nor trend, it’s a simple head count of the toll exacted on our friends, neighbors and loved ones.

And they should be counted one at a time.

In the nearly three years I’ve spent covering employment, I’ve been able get to only about 500 area residents displaced by a recession that allegedly ended 27 months ago.

One by one, they’ve shared their stories.

Sixty-one thousand people could overflow Busch Stadium by half, fill the Scottrade Center three times over and nearly fill the 70,000-seat Edward Jones Dome. One, by one, by one, each of them bears the scars of a job crisis the likes of which we last endured during the Great Depression.

When all this started, we never expected we’d have to count so high.

As the economy headed down, my editors assigned me to cover an emerging and important story the experts predicted would dominate the economic conversation for maybe the next year.

That was three years ago; the story shows no signs of fading any time soon.

The mere fact that I have a full-time job covering jobs - even as the newspaper business has shed thousands of its own workers - underscores the degree to which job security has become the central focus of our lives. I used to cover education, a beat that spawned hundreds of stories on the benefits of a college degree. Now even an education doesn’t guarantee you a job.

My only comparable reference point to what I’ve encountered on this beat are the years I spent as a young police reporter, interviewing shocked relatives reeling from the homicides and accidents that stole the lives of loved ones.

George Batten, a laid-off area executive out of work three years, put it in perspective last week: “A lot of carnage comes with losing a career,” he said. “It carries into your family. It attacks your life.”

That was never more clear than on the morning a year or so ago that I wandered into a salon for job-hunters at the moment the facilitator was conducting a word association exercise.

“First word that pops into your head when I say,

Fannie Mae missed chances to catch law firms illegally signing foreclosure documents and its government overseer did not take the right steps to ensure Fannie was doing its job, federal regulators say.

The Federal Housing Finance Agency’s inspector general said in a report Friday that Fannie failed to establish an “acceptable and effective” way to monitor foreclosure proceedings between 2006 and early 2011. Government regulators then failed to ensure it was complying with demands that it clean up its programs.

Mortgage industry employees _ including law firms employed by Fannie Mae _ signed documents they hadn’t read and used fake signatures on foreclosure cases across the country. The practices, known collectively as “robo-signing,” resulted in a suspension of foreclosures last fall and a probe by all 50 state attorneys general into how corners were cut to keep pace with the crush of foreclosure paperwork.

In 2005, Fannie hired outside investigators to look into allegations about faulty foreclosure documents. A year later, Fannie received a report from the investigators that found law firms working for Fannie had filed false documents.

Fannie said it was developing a computer system to improve communication and monitor its attorneys but regulators said they found no evidence Fannie had made any improvements in overseeing its attorneys.

FHFA was created in 2008 to oversee mortgage buyers Fannie Mae and Freddie Mac. To make sure Fannie was doing its job, FHFA has the authority to fire and replace employees; issue cease and desist orders; and impose fines. To date, the agency has not taken any of those actions, the inspector general’s report said.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. So anyone looking to buy a home would be forced to pay higher rates on new loans.

The Bush administration seized control of the mortgage giants in September 2008, hoping to stabilize the beleaguered housing industry.

In a separate report released Friday, the inspector general says the FHFA lacks examiners to monitor Fannie. Just a third of its 120 non-executive examiners are federally accredited, the report found. Other federal regulators, such as the Federal Deposit Insurance Corp., usually require all of their examiners to be accredited.

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Oswald Gruebel, the chief executive of UBS, has dismissed calls for his resignation as politically motivated, even as the Swiss banking giant raised its estimated loss by a rogue trader to $2.3 billion.

UBS AG had previously put the loss at $2 billion when news of the scandal first broke Thursday.

In a bid to reassure investors, the Zurich-based bank said Sunday it has “now covered the risk resulting from the unauthorized trading” and its equities business “is again operating normally within its previously defined risk limits.”

UBS also confirmed for the first time that the trader, 31-year-old Kweku Adoboli, was already under investigation by the bank when he revealed his actions to authorities Wednesday.

“The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months,” UBS said, adding that the magnitude of the bank’s risk exposure was hidden by fake trades.

Adoboli remains in custody in London, charged Friday with acts of fraud and false accounting dating back to 2008. His next court appearance is Thursday.

The fact that the fraud took place over three years raises serious questions about the bank’s ability to manage its risk. UBS said it has set up a special committee chaired by David Sidwell, the bank’s senior independent director, to investigate the incident.

But speaking for the first time since UBS revealed the loss Thursday, Gruebel told the Swiss weekly Der Sonntag that the loss couldn’t have been prevented.

“If someone acts with criminal energy, then you can’t do anything. That will always be the case in our business,” he said in the interview published Sunday.

But some Swiss politicians and commentators have called for Gruebel’s head to roll over the loss, which is likely to put UBS’s third-quarter results deep in the red. Such a move would signal defeat for the gravel-voiced German, who was brought in more than two years ago to revive the bank’s fortunes after a series of missteps that included vast losses in the U.S. subprime mortgage market and an embarrassing U.S. tax evasion case cash advance loans.

Gruebel told Der Sonntag that he has no intentions of resigning.

“I’m responsible for everything that happens at the bank,” Gruebel told the paper. “But if you ask me whether I feel guilty, then I would say no.”

Gruebel pledged to stamp out risky business practices at UBS when he came out of retirement in early 2009 to take the helm of Switzerland’s biggest bank. UBS had just suffered its biggest losses ever due to mistakes by the very investment unit that is now making headlines again, and had to take a $60 billion bailout from the Swiss government to stay afloat.

Swiss media on Sunday cited unnamed UBS board members saying the 67-year-old Gruebel retains the confidence of major shareholders, including the Government of Singapore Investment Corp. The sovereign wealth fund holds more than 6.4 percent of UBS’s stock, whose value dropped almost 10 percent following the announcement about the fraud.

Gruebel is expected to survive until at least Nov. 17, when he is presents investors with an update on the bank’s activities. Banking experts in Switzerland have suggested the investors day may be used to announce a downsizing or even a spin-off of the investment unit.

In a previous case of rogue trading causing massive losses, the chairman of French bank Societe Generale, Daniel Bouton, stepped down more than a year after the bank revealed that a single trader lost euro4.9 billion ($6.7 billion). Bouton said that repeated attacks on him were becoming a threat to the bank’s health.

So far, it is unclear who could even replace Gruebel.

The only name that has been mentioned is that of Sergio P. Ermotti, chief executive of the bank’s Europe, Middle East and Africa business. Promoting Ermotti would satisfy those who want to see a Swiss at the head of the country’s most important financial institution, to counterbalance incoming chairman Axel Weber, another German and a former president of Deutsche Bank.

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About 200 Longshore workers involved in a hostile labor dispute in Washington state gathered at a courthouse on Friday, challenging the sheriff to peacefully arrest anyone in the crowd accused of committing a crime.

“We’re here. If you want us, come and get us,” shouted ILWU Local 21 President Dan Coffman, looking up at the building. Union members cheered his declaration but largely stood quietly in two long lines.

No law enforcement officers approached the crowd, and nobody was arrested during the demonstration. After about 30 minutes, Coffman led the group away and said he hoped they could live their lives without fear of confrontation from authorities.

But later in the day, authorities arrested ILWU Local 21 Vice President Jake Whiteside, said Grover Laseke, a spokesman for the Cowlitz County Sheriff’s Office. He was charged with criminal trespass in 2nd degree and obstructing a train in connection with a massive protest that blocked a train in Longview last week.

Union leaders balked at the arrest, which came just after they had offered themselves to authorities. Laseke said the union had not communicated to law enforcement about their plans to visit the courthouse.

“That isn’t the way we’re going to be doing business,” Laseke said. He said officers were going out and making arrests as they would do with any other crime.

The union had complained that authorities have not responded to requests to peacefully coordinate with those charged with crimes related to the protest.

Officials estimate they have made roughly 200 arrests throughout the months-long labor dispute. Many of the charges have been minor _ such as for trespassing _ but authorities are also investigating a raid last week in which witnesses said Longshore workers stormed a grain terminal, damaged property and overwhelmed security guards.

One of them _ 45-year-old Ronald Patrick Stavas of Kelso _ has been charged with first-degree burglary, second-degree assault, intimidating a witness and sabotage.

The union had characterized the arrests that have occurred as “abusive.”

Laseke said he would be glad to facilitate a discussion between union leadership and the sheriff about how to bring in those suspected of crimes, but he disputed the suggestion that workers were being unfairly targeted. He also said investigators still have a “pretty good handful of arrests that they want to make.”

ILWU workers believe they have the right to work at a new grain terminal operated by EGT. The company has instead hired another firm that is staffing the site with a different set of union workers.

The aggressive tactics used by union protesters has not only drawn the ire of local law enforcement but also the National Labor Relations Board and a federal judge. The judge found the union in contempt on Thursday and is considering a fine in connection to last week’s protests.

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Consumers are spending more to fill their tanks, feed their families and pay the rent. At the same time, the number of people applying for unemployment benefits has reached the highest level in three months.

The latest government data show that inflationary pressures and a depressed job market are hurting an economy that barely grew in the first half of the year.

Higher prices could also keep the Federal Reserve from taking major steps to stimulate the growth next week when policymakers meet.

When prices rise, consumers cut back on big purchases, such as appliances, furniture and vacations. Mixed reports on manufacturing Thursday and flat retail sales in August suggest that may already be happening.

A decline in demand forces businesses to put off hiring and even lay off workers. In August, the economy added zero net jobs. Unemployment benefit applications have increased in three of the past four weeks.

“Unless spirits improve soon, businesses will ramp up layoffs, consumers will pull back, and the economy will fall back into recession,” said Mark Zandi, chief economist at Moody’s Analytics.

Consumer prices rose 0.4 percent in August, according to the Labor Department’s Consumer Price Index. Prices for food, energy, rent, and clothing all increased. Excluding volatile food and energy costs, core prices increased 0.2 percent.

Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people.

For the 12 months that ended in August, core prices surged 2 percent. That’s the biggest year-over-year increase in nearly three years, and it’s at the high end of the Federal Reserve’s informal inflation target.

Rising inflation is a key reason Macroeconomic Advisors lowered its growth estimate for the July-September quarter from 1.9 percent to 1.6 percent. The economic consulting firm said higher prices will reduce consumer spending.

Economists don’t expect prices to rise much further, mostly because employers aren’t hiring much or handing out big raises. Still, the spike in prices over the past year has cut into consumers’ pay and limited their purchasing power.

“In an environment where you’re now looking at zero job growth, it will be difficult to have much success passing on any additional costs,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

Unemployment benefit applications rose to 428,000 last week, the Labor Department said in a separate report. And the four-week average, a less volatile measure, rose for the fourth straight week to 419,500, the highest level in eight weeks.

Applications need to fall below 375,000 to indicate that hiring is increasing enough to lower the unemployment rate. They haven’t been that low since February.

The unemployment rate stayed at 9.1 percent for the second straight month in August. It has been above 9 percent for all but two months since May 2009 _ one month before the recession officially ended.

U.S. factories have helped drive growth over the past two years. But manufacturing began to falter this spring, slowed by supply chain disruptions caused by the Japan crisis and diminished consumer demand.

Overall factory output rose in August for the second straight month, according to a report from the Federal Reserve. The gain was driven by strong auto production. Carmakers have rebounded over the past two months, mostly because supply chains are flowing more freely.

Many economists took that as a positive sign in the otherwise gloomy data.

Still, two regional surveys from Federal Reserve banks showed manufacturing contracted in the Northeast and Mid-Atlantic this month.

“The common thread among all of today’s data is one of weakness,” Porcelli said.

The Fed will discuss additional stimulus measures at its two-day meeting next week. Most economists expect it will announce a plan to shift money out of short-term securities and into longer-term Treasury bonds. The move could lower rates on mortgages, auto loans and other consumer and business loans.

But some Fed officials are worried the Fed’s policies could push inflation higher. Last month, three board members opposed the Fed’s decision to keep interest rates near zero for the next two years, unless economic conditions changed dramatically. It was the first time as many members dissented from a decision in almost 20 years.

Fed Chairman Ben Bernanke acknowledged last week that rising commodity prices had pushed up inflation this year. But he said it was likely to moderate in coming months.

There are some signs that core inflation, which the Fed pays close attention to, could level off soon. Cotton prices have come down from the spring, and clothing costs are expected to follow. New-car prices were unchanged for the second straight month in August, after rising earlier this year.

“The combination of disappointing growth but rising core inflation puts the Fed in a difficult situation,” said Michelle Meyer, an economist at Bank of America Merrill Lynch.

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AP Business Writer Daniel Wagner contributed to this report.

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