Financial thoughts

Japan’s Prime Minister-elect Yukio Hatoyama said on Saturday he had picked Naoto Kan, a former health minister, to head a powerful new agency that will oversee the budget process and set policy priorities.

Hatoyama, who will take office on September 16, said that in addition to heading the National Strategy Bureau, Kan, 62, will also be deputy prime minister, and that Katsuya Okada, 56, had been chosen to be foreign minister.

Both Kan and Okada are former leaders of the Democrats and had been tipped as potential finance ministers. Hatoyama said that he will formally nominate them at a party meeting on September 7.

The Democrats come to power with ambitious spending plans to put more money in the hands of consumers, raising concerns they will inflate a public debt already about 170 percent of GDP, the highest among advanced countries.

The new National Strategy Bureau, to include both public and private sector officials, will be tasked with reforming what the Democrats have said is a cumbersome policy-making system.

Kan’s experience in tangling with bureaucrats when he exposed a scandal over tainted blood products at the health ministry could stand him in good stead.

The new strategy bureau will seek to implement a Democrats’ promise to bring elite bureaucrats to heel and put politicians back at the center of policymaking auto loans for bad credit.

Although Japanese media have reported Hirohisa Fujii, a former finance minister, is likely to be picked for that post, they quoted Hatoyama as saying on Saturday that he was not yet ready to name his choice for finance minister.

Fujii, 77, is the head of the Democratic Party’s tax panel, and he has called for funding Japan’s social welfare costs with consumption tax revenue and discussing over the next four years the issue of raising the sales tax.

He said Tokyo should not step into currency markets unless exchange rates move abnormally, adding that a strong yen is good for Japan.

Nikkei also said Masayuki Naoshima, the DPJ’s policy chief, was likely to hold one of the economic cabinet posts.

The Mainichi daily newspaper said Hatoyama picked Okada for his connections in the United States.

Hatoyama’s choice for the top diplomatic portfolio is being closely watched after concerns emerged that his party’s policy of adopting a more independent stance from the United States could damage ties with Tokyo’s biggest security ally.

(Additional reporting by Taiga Uranaka and Edwina Gibbs; Editing by Alex Richardson)

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The yen and dollar both rose Tuesday as fears of further U.S. bank failures overshadowed unexpectedly strong manufacturing data, boosting the two currencies’ safe-haven appeal.

On Wall Street, U.S. stock indexes were all down around 2% at the close as investors fretted that chatter from hedge funds on a bank failure could prove accurate.

The decline came despite upbeat economic news from the United States and euro zone as well as a stabilization in Chinese shares after a rout on Monday.

The hedge fund talk "is a huge driver" of currency markets, said Dan Cook, senior market analyst at IG Markets Inc. in Chicago. "When you have data like we had but the Dow drops, people are running for that safe haven."

In late afternoon trading in New York the dollar index, which tracks a basket of six major currencies, was up 0.7% at 78.747, rebounding from a session low of 77.944, according to Reuters data.

The dollar was down 0.1% against the yen at ¥92.89, above Monday’s seven-week low of ¥92.53, according to Reuters data.

But the yen was up 1% against the Canadian dollar, 0.7% against the Swiss franc, 0.9% against the euro and 0.8% against the pound.

The euro was down 0.8 percent against the dollar at $1.4212, well below a session high of $1.4377.

What recession?

The U.S. manufacturing sector expanded in August for the first time in more than a year and a half. The Institute for Supply Management’s index of national factory activity rose to 52.9 from 48.9 in July.

Separate data showed pending sales of previously owned U.S. homes raced to a two-year high in July, further evidence the housing market was on a steady recovery path.

"Clearly, the U.S. data is surprising to the upside," said Jack Iles, senior portfolio manager who helps manage $2.5 billion assets at MFC Global Investment Management in Boston.

But despite a batch of upbeat U.S. economic numbers, major currencies remained in ranges as investors continued to debate about the outlook for the global economy, analysts said.

"At the end of the day, the market is still in wait-and-see mode," said Firas Askari, head of currency trading at BMO Capital Markets in Toronto. "We’re getting jostled around by every piece of data that comes out and I don’t think there’s a consensus that this economy has legs."

Data released earlier also showed euro zone purchasing managers’ index (PMI) rose to 48.2 in August against forecasts for a 47.9 reading while German unemployment unexpectedly fell in August.

The data comes before a European Central Bank policy meeting on Thursday widely expected to keep benchmark rates steady at a historic low of 1%, with the focus on policymakers’ outlook on the economy.

Sterling erased early gains against the dollar and the euro after an unexpected dip in U.K. manufacturing in August, stoking concerns about the pace of recovery in the British economy.

Sterling was down 0.7% at $1.6155, after touching a six-week low, and was little changed against the euro at 87.96 pence.

In other trading, the Australian dollar fell 2.2% to US$0.8254, in its biggest one-day drop in more than two months. The Reserve Bank of Australia, holding its cash rate at 3.0% as expected, said the current low level of rates was appropriate, countering speculation it would adopt an explicit tightening bias. 

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Wal-Mart is recalling about 1.5 million Durabrand DVD players because of a potential for the device to burst into flames, the U.S. Consumer Product Safety Commission said Thursday.

Wal-Mart (WMT, Fortune 500) received 12 complaints of the DVD players overheating; in five of the cases, the overheating caused a fire that damaged property, according to a statement from the CPSC. No injuries have been reported.

The DVD player, imported from China, was sold at Wal-Mart stores from January 2006 through July 2009 for $29.

The DVD player came with a remote control and is silver with a U-shaped opening at the top to insert the DVD free credit report without a credit card.

Consumers should stop using the DVD player immediately and return it to Wal-Mart for a full refund.

For additional information, contact Wal-Mart at (800) 925-6278 between 7 a.m. and 9 p.m. CT Monday through Friday, or visit the Web site at http://walmartstores.com/.  

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California will have enough cash to stop issuing IOUs on Sept. 4, almost one month earlier than expected, the state controller said Thursday. That’s also the date when people and companies can redeem their IOUs with the state treasurer.

The controller’s office has issued 327,000 IOUs worth a total of $1.95 billion so far.

The Golden State was forced to start handing out IOUs on July 2 after Gov. Arnold Schwarzenegger and lawmakers failed to close a $24 billion budget deficit. Controller John Chiang had to start issuing the vouchers so the state would have enough money to cover debt payments and fund education. It was the first time the state issued IOUs since 1992, though it did delay payments in February during another cash crunch.

Even after the governor signed a budget agreement in late July, the controller’s office had to determine when there’d be enough money in the state coffers to end the IOU issuance. Since the budget was signed, Chiang has issued 100,000 IOUs totaling more than $800 million.

"Along with short-term loans that are routinely obtained in the fall, this spending plan should provide sufficient cash to meet all of California’s payment obligations through the fiscal year," Chiang said payday loan.

The IOUs were sent to the state’s vendors, county social service agencies and residents expecting tax refunds. The state’s biggest banks accepted them until July 10, but then most cut them off, hoping to bring lawmakers and the governors to the negotiating table.

They were told they could redeem the paper on Oct. 2 or when the state had enough money in the bank, whichever came first. They will be paid an annual interest rate of 3.75%.

California still isn’t out of its hole: The state will need to borrow $10.5 billion to meet California’s cash needs for the fiscal year, Chiang said. Ending the IOUs on Sept. 4 is contingent on the state obtaining a $1.5 billion loan by Aug. 28, which the state treasurer assured the controller will happen.  

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For some banks, the grim reality is that another dose of TARP may be their best shot at salvation.

Overwhelmed by loan losses, some hard-hit lenders are hitting up the Treasury Department for even more money from the Troubled Asset Relief Program.

Last week, Midwest Banc Holdings (MBHI), a community bank based just outside of Chicago, outlined an extensive capital raising initiative after suffering its second consecutive quarterly loss. The bank said it had applied for as much as $138 million under Treasury’s Capital Assistance Program, or CAP, an extension of the original TARP. The bank received $84.7 million in TARP funds last December.

Citizens Republic Bancorp (CRBC), a Flint, Mich.-based bank that has suffered along with the local automotive industry, revealed in late June that it too was considering tapping up to $290 million from CAP, part of which would be used to redeem a portion of the Treasury’s original $300 million investment made last December.

Experts say it seems certain that more small banks will follow the lead of Midwest and Citizens Republic.

"I think we have only started to hear about the applications for CAP," said Eileen Rooney, an analyst with Keefe, Bruyette & Woods.

Feeling the pressure

A combination of factors are driving banks to seek even more government assistance. Banks are facing intense pressure from regulators to raise new capital, particularly in the form of stock, which boosts a firm’s closely-watched tangible common equity levels, a key gauge of their capital health.

Complicating matters further is the fact that many community and regional lenders are having a difficult time attracting fresh funds from the private markets. Investor demand for new stock and debt from smaller banks has tapered off significantly over the past two years.

As a group, banks and thrifts have raised just $306 million in subordinated debt so far this year, according to research firm SNL Financial. That’s a fraction of the $12.7 billion during the same period in 2007.

"You have got a lot of banks and boards of banks who are really between a rock and a hard place," said Lawrence Kaplan, a former attorney for the Office of Thrift Supervision who now focuses on bank regulatory issues for the law firm Paul Hastings my credit score.

Widespread credit problems aren’t helping small banks either, particularly the rapidly deteriorating commercial real estate market. Roughly one third of all loans held by regional banks, on average, are tied to commercial real estate in some way, according to Moody’s.

Making the cut

So far, Treasury has invested $204 billion in more than 500 different financial institutions through TARP as of the end of July. Treasury has not revealed how many lenders have submitted applications for funds under CAP. Banks have until November 9 to apply to the program.

This time around however, experts anticipate the government will be a little more selective about who they approve for more funding.

With the U.S. financial system and broader economy no longer on the brink of collapse, regulators arguably have a better sense of how the different corners of the nation’s banking industry are faring than they did during the panic-stricken days of last fall.

In addition, lawmakers and the Obama administration alike have become increasingly wary about committing ongoing aid to troubled financial institutions at the expense of American taxpayers.

Last month, the White House rebuffed requests for aid from CIT (CIT, Fortune 500), prompting the commercial lending giant to seek help from its bondholders.

But if Treasury specifically uses CAP to target wobbly community and regional lenders, the government may be able to provide aid without fear of a public backlash, said Douglas Elliott, a fellow at the Brookings Institution.

Unlike large Wall Street firms such as Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500) and Bank of America (BAC, Fortune 500) that continue to play the role of public pariah, small banks boast a much friendlier relationship with local borrowers. At the same time, they avoided the hot-button issue of big bonuses that has incensed taxpayers.

"The political landscape is a lot more favorable for [community banks]," Elliott said.

Talkback: Should the government concentrate more on helping smaller, community banks instead of giants like Citigroup and Bank of America? Share your comments below. 

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CHAMPAIGN, ILL. — Just two weeks after the federal government revived plans to build the FutureGen power plant in eastern Illinois, two of the experimental coal plant’s financial backers said Thursday they are withdrawing.

The exit of American Electric Power Co. and Southern Co. leaves the nine power and coal companies that are still part of what’s known as the FutureGen Alliance searching for new partners to help cover costs they expect to reach $2.4 billion.

The Department of Energy said June 12 that it would provide just more than a billion dollars in stimulus money as it agreed to restart the project, aimed at proving that the pollutant carbon dioxide can be removed from coal and safely stored paydayloans.

At one time, 13 companies were involved. Peabody Energy Corp., Consol Energy Inc. and the others decided in late 2007 to build the plant in Mattoon, Ill. The Department of Energy shelved the project weeks later over cost overruns that later proved to be inaccurate.

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Matthew Boddy graduated with more debt than the average university student – and without fully appreciating how hard it would be to repay.

The shock didn’t hit him until he had been out of school for six months. That is when students must start repaying government loans plus the interest for the previous six months.

"They tacked on another $2,000 (for interest)," recalls the graduate of mathematics and English literature, who completed his second undergraduate degree in 2007 and has since found work in market research. "It was very surprising to me. People enter into these loans at 18 and they don’t know the consequences."

The Toronto resident faced monthly payments in the range of $600. He has since become an expert in seeking temporary interest relief – as a matter of necessity.

His wife has lost her job, the labour market has tightened and he cannot afford the loan payments on his own. His experience holds valuable lessons for other recent graduates because a student loan is the one debt you cannot reduce or clear away through bankruptcy within the first five to seven years after graduation.

Laurie Campbell, executive director of Credit Canada, a non-profit credit counselling service, says graduates who anticipate having difficulty finding a job should apply for relief from interest charges right away.

Federal and Ontario student loan programs currently offer interest relief, but only for six months at a time and not indefinitely. The National Student Loans Service Centre manages both the federal and Ontario Student Assistance Program. Both agencies have websites with information about repayment requirements, relief programs, tax credits for interest on government loans and online calculators.

"A lot of people think they don’t have to pay (student loans) for six months, but that period isn’t interest-free," Campbell says.

"So, if you aren’t going to be in a position to pay, you have to get to the government quickly about it. They make you pay the interest before you can qualify (for relief). It gets messy."

Campbell adds, "We are seeing more people coming in with student loans who can’t get jobs and we say to them, `You cannot ignore this. You need to get on to interest relief. You need to access the programs available before you fall behind. Then it’s almost impossible to catch up.’"

Statistics Canada reports about 27 per cent of 2005 graduates with bachelor’s degrees still owed an average of $16,200 in government loans two years after they graduated in 2005. Another 15 per cent owed an average of $31,600 in government and other loans.

Fully 43 per cent of those owing more than $25,000 reported having difficulty paying their loans, although fewer than 11 per cent were unemployed in 2007 cheap payday loans.

It’s likely unemployment among recent grads has risen, but Statistics Canada was unable to provide figures yesterday. Many recent graduates may only find short-term jobs with no benefits at the start of their working careers.

"I’ve applied for interest relief on three separate occasions," Boddy says. "In the first, bad advice left my application stalled at various stages, and resulted in my credit (rating) being damaged. I was denied (and) told I could do an appeal. (I) proved my point with a budget showing my living expenses, (but was) rejected.

"The second time was months later when I was in a different situation – my wife lost her job – and, after many delays and follow-ups, was approved.

"The third time, just this month, I followed instructions exactly, and two to three separate times in the process it was stalled because of errors (at the) student loans call centre.

"I’ve come to the conclusion that, even if you follow the instructions perfectly, they’ll omit telling you something, or lose a form, or something else, to delay the process. You literally need to call five to 10 times in a month to get it approved, or even make sure it’s processed."

A spokesperson for Human Resources and Skills Development Canada was unable to arrange an interview yesterday about the number of graduates seeking interest relief and the time it takes to get approved.

Ottawa has announced it will begin to phase out interest and other debt relief options for borrowers under the Canada Student Loans Program beginning Aug. 1. They will be replaced by a new program known as the repayment assistance plan or RAP.

Payments will be geared to income, with a limit of 13.3 per cent of a borrower’s monthly gross income for federal loans and 20 per cent in provinces where governments adopt the RAP for their loans. No payments on federal loans will be required for those individuals with a gross annual income of $20,000 or less. For those required to make only partial payments, Ottawa will pay the remainder to ensure payments can cease after 15 years or 10 years for persons with permanent disabilities.

Borrowers who are not eligible for the repayment assistance plan will be able to apply to extend their repayment period to reduce their monthly loan payments.

More information is available at CanLearn.ca, which includes a repayment assistance calculator.

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The Treasury Department is poised to open its $700 billion bailout program to life insurers, officials said Wednesday.

Investors have been increasingly worried about the health of life insurers, which have been hit hard by worries about capital requirements and growing losses.

A number of insurers that are also bank holding companies or thrifts have been eligible for funds from the Troubled Asset Relief Program since last fall.

Now Treasury is signaling that it may approve some of those applications for bailout funds.

"There are a number of life insurers who met the requirements for the Capital Purchase Program because of their thrift or bank holding company status and applied within appropriate deadlines," said Treasury Department spokesman Andrew Williams. "These are among the hundreds of financial institutions in the CPP pipeline that will be reviewed and funded as appropriate on a rolling basis."

Prudential Financial Inc. (PRU, Fortune 500), Hartford Financial Services Group Inc. (HIG, Fortune 500) and Lincoln National Corp. (LNC, Fortune 500) are among those that have applied.

About $135 billion remains from the original $700 billion allocated for the bailout last October credit reports free.

Several life insurance companies told CNNMoney.com that they haven’t heard from Treasury whether or not they would get public assistance.

"Months ago, we had heard Treasury was going to be making a decision one way or another," said Whit Cornman, spokesman for the American Council of Life Insurers. "We’re looking forward to the official decision."

Last year, the Office of Thrift Supervision approved applications from Hartford Financial Services Group Inc. and Lincoln National Corp. to become bank holding companies, due to their planned bank purchases. Becoming a bank holding company qualifies the life insurers for TARP assistance.

Philadelphia-based Lincoln is buying Newton County Loan & Savings FSB in Goodland, Ind. Hartford, based in Hartford, Conn., is buying Federal Trust Bank in Sanford, Fla.

Hartford spokeswoman Deborah Raymond said the company has not heard anything from Treasury about its application for TARP assistance. 

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I’m always amazed by the size of the tax refund most Americans get year after year. The average refund was $2,429 last year, up from $2,324 in 2007, according to the Internal Revenue Service.

I’ll lay heavy odds that this year’s refunds will be bigger, thanks to higher contribution limits for IRAs, deductions for non-itemizers for real estate taxes and disaster losses, and tax credits for certain home buyers (see pages 30-32, 34-35 and 61 of the IRS instruction booklet for Form 1040).

Bigger refunds, however, mean millions of Americans struggling in this lengthy recession unnecessarily overpaid taxes all year. Many have had — and probably still have — $200-plus a month needlessly withheld from their paychecks, potentially pushing them into credit card debt if not mortgage default.

The irony is that many of these taxpayers, suddenly impatient for their money, will pay hefty fees for short-term refund-anticipation loans.
A new report by the National Consumer Law Center and Consumer Federation of America found that about 8.7 million taxpayers paid more than $900 million in fees for such loans in 2007. Another 11.2 million taxpayers received a "refund anticipation check" in 2007 at a cost of about $336 million.

Then, if history is any guide, many taxpayers will use at least part of their refund to pay down debt they might have avoided if not for the tax overpayments throughout the year.

To be sure, many people who are entitled to refunds and sign up for refund-anticipation loans are low-income earners who qualify for the earned income credit. Even after zero withholding, they may get a tax refund (technically a refundable credit).

But it makes no sense for other taxpayers to scrape by all year and perhaps go into debt only to get their money back at the end — and without interest to boot.

Solution? File a new W-4 form with your employer so less money is withheld (check IRS Publication 919, available at www payday loans in one hour.irs.gov). Or, if you make quarterly estimated tax payments, pay less each quarter. The goal of smart tax planning is to anticipate your annual tax liability and get to April 15 without owing or being owed a lot.

That should be your goal also with the "Making Work Pay" credit Congress approved for 2009 and 2010.

You earn the credit at the rate of 6.2 percent of your work income, with the total credit capped at $400 a year for singles and $800 for joint filers.

Therefore, singles must earn $6,452 and couples $12,904 before they can get the full credit.

But if you have too much income, you lose out. The credit is reduced at the rate of 2 percent of modified adjusted gross income above $75,000 for singles and $150,000 for couples. (Thus, singles with incomes of $95,000 and couples with incomes of $190,000 get no credit.)

For those who qualify, this credit amounts to a rebate of the 6.2 employee Social Security payroll tax for old age, survivor and disability insurance until the credit reaches the maximum amount. Most workers will start seeing the credit reflected on their take-home pay shortly after April 1 as employers start using new IRS tables calling for lower withholding.

But if you have multiple jobs or anticipate too high an income this year to qualify for the credit, you may have too little money withheld. Again, the solution is to file a new W-4 form appropriate to your situation, and/or adjust your quarterly estimated tax payments.

AskHumberto@aol.com

2009, TRIBUNE MEDIA SERVICES INC.

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President Barack Obama opted against naming a “car czar,” instead asking Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers to head a task force on revamping the U.S. auto industry, according to people familiar with the decision.

Ron Bloom, a United Steelworkers union adviser and former Lazard Ltd. vice president, will join administration members on the team, according to the two people, who declined to be named because the announcement hasn’t been made publicly.

The task force puts an end to reports Obama would recruit a well-known figure from outside to serve as the so-called car czar. The president was under pressure to say who would handle the issue before tomorrow, when General Motors Corp. and Chrysler LLC must give progress reports on plans to restructure as a condition of $17.4 billion in U.S. Treasury loans.

“It’s going to be something that’s going to require sacrifice not just from the auto workers, but also from creditors, from shareholders and the executives who run the company,” senior White House adviser David Axelrod said yesterday on NBC’s “Meet the Press.”

After Congress failed to approve a bailout for the automakers, former President George W. Bush’s administration authorized loans Dec. 19. That effectively made the Treasury secretary the car czar, with responsibility for making sure the companies meet deadlines and authority to revoke the loans.

Geithner will remain Obama’s official “designee” to oversee the restructuring. The Treasury secretary will have authority to recall the aid if the automakers fail to show they have a plan by March 31 to become profitable.

Cabinet Departments

Representatives from Cabinet departments and White House offices will serve on the Presidential Task Force on Autos along with Bloom, who was described by administration officials as an expert in restructuring who also has experience in manufacturing and in working with unions.

Absent from the administration’s team is Steven Rattner, co- founder of private-equity firm Quadrangle Group LLC in New York. He had been under consideration for the post of car czar, people familiar with the matter said last month.

Members of Congress, automakers and industry analysts have spent weeks discussing who might be chosen from outside Washington to serve as the car czar and what expertise that person should bring to the task paperless payday loans.

Democrats’ Letter

Five Senate Democrats, including Debbie Stabenow of Michigan, wrote a letter on Feb. 5 urging Obama to name an expert in manufacturing as part of a panel to help oversee the auto loans.

“This advisory group provides a tremendous opportunity to bring together our country’s greatest manufacturing leaders to help our domestic automakers create the vehicles and technology of the future,” the senators said in the letter.

Bloom, who will be a senior adviser at the Treasury, has experience with an issue at the heart of the restructuring — health-care costs. Bloom helped negotiate the Goodyear Tire & Rubber Co. health-care fund, union spokesman Wayne Ranick has said. In 2005, Bloom met with UAW officials who were then evaluating GM’s request for health-care concessions.

Terms of the Dec. 19 loan agreements require GM and Chrysler to persuade the United Auto Workers to accept half of scheduled payments into a union-run retiree health-care fund next year in equity instead of cash.

Airline Pilots

Bloom counseled airline pilots in the $4.9 billion employee buyout of UAL Corp., parent of United Airlines. That 1994 deal included wage and work-rule concessions in exchange for 55 percent of the company.

He also helped steelworkers negotiate an agreement with Goodyear in 2003. The deal preserved 85 percent of union jobs at 12 U.S. plants in exchange for agreements on productivity improvements, health-care cuts and other issues to save Goodyear at least $1.15 billion.

The Presidential Task Force on Autos will include officials from the Treasury, Labor, Transportation, Commerce and Energy departments, as well as from the National Economic Council, the White House Office of Energy and Environment, the Council of Economic Advisers and the Environmental Protection Agency.

The industry’s preference for an overseer with a mastery of its workings and culture was voiced by Bill Ford, executive chairman of Ford Motor Co., on Jan. 11.

“It would be really helpful to have somebody in there who would take the time to have a deep understanding of our industry,” Ford said then at a dinner with reporters covering the Detroit auto show.

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