Financial thoughts

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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Dealing with the fallout from the financial crisis — namely, the anxiety about your job and investments — is hard enough. Talking about it all with teenage kids can be even more daunting. But it’s a conversation worth having, especially now that they’re old enough to share the stress. Not only can you ease their concerns, says Atlanta psychologist Mary Gresham, "you can turn these into teaching moments."

Help them understand what’s going on. The last recession was in the early 2000s, meaning your children were probably too young to notice. This time they may grasp the severity of the situation even if they don’t entirely understand it.

Explain what’s happening — consumers are spending less, stocks are falling, companies are cutting jobs — and put it in perspective. Tell them that recessions occur regularly and that while this one may be especially severe, the economy will rebound.

Let them know how it’s affecting your family. The biggest question on your kids’ minds is probably: What does this mean to me? Answer this as straightforwardly as you can. "You don’t want to convey anxiety, just the facts," says Gresham, who specializes in financial issues. Start with what’s not at risk: their allowance, say, or your ability to pay the mortgage. (Whew! They won’t have to move and leave their friends.)

Then say what could be vulnerable: your job, for example, or your ability to cover all their college costs. Tell them exactly how you plan to cope. "You can’t just say, ‘We’re going to be okay,’ " says New York City psychologist Marlin Potash, who focuses on money and relationships. "You must explain why you’re going to be okay."

Involve them in decisions no credit check payday loans. With the 529s meant to cover his kids’ college education down 25% last year, Allentown, Pa. financial adviser Russell Wild knew he needed to stash more this year in the plans. He explained this to his children, ages 12 and 15, adding that the more the family could save now - by moving this year’s vacation from a European to a domestic destination, say - the less the kids might have to kick in for school later. With the issue framed that way, his son and daughter could see how the sacrifices they make now could benefit them later. Let your teens know about choices that affect them. Give them a chance to share their feelings and suggestions.

Make it a teaching moment. Even if your family hasn’t been hurt by the downturn, your teens can still learn valuable lessons. Kathy Stepp, a financial adviser in Overland Park, Kans., showed her kids articles about foreclosure victims to warn them about getting overextended.

"I want them to understand the concept of living within their means," she says, "and the potential consequences if they don’t." Use headlines about rising bankruptcy filings or news of a friend’s parent being laid off to underscore the importance of saving money. Says David, Barnett, a Tustin, Calif. financial adviser: "Times like these really help explain why you need that emergency fund."

Need help with a financial dilemma? In an upcoming issue, Money magazine will be answering reader questions. Email money_letters@moneymail.com.  

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A key index of the nation’s manufacturing activity fell to a 28-year low in December, according to a report released Friday.

The Institute for Supply Management, a purchasing management group based in Tempe, Ariz., said its manufacturing index was 32.4 for December. That’s the lowest reading since June 1980, when it stood at 30.3.

An index of 35.4 was expected for December, according to a consensus of economist opinions provided by Briefing.com. That’s down from November, when the index was 36.2.

"Manufacturing activity continued to decline at a rapid rate during the month of December," said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee, in a press release. "The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time."

Manufacturing activity failed to grow for the fifth consecutive month, according to the ISM, while the overall economy contracted for the third month running faxless cash advance.

An index reading above 50 indicates growth, while a reading below 50 indicates a slowdown. A reading below 41 is typically associated with recession in the broader economy.

The ISM report is a national survey of purchasing managers in the manufacturing sector. The monthly survey tracks new orders, production, employment, deliveries, inventories and other aspects of the sector.

New orders have experienced the lengthiest contraction thus far - 13 months - and plunged to 22.7 in December from 27.9 the prior month. Ore said this is the lowest figure since January 1948.

Production fell to 25.5 from 31.5, in its fourth month of declines. Employment fell to 29.9 from 34.2, in its fifth month of declines. 

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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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Japan outlined steps to ease strains on its banks, as Tokyo stocks hit a 26-year low on fears that lenders will need billions of dollars to boost capital, and as the yen rose despite a G7 warning of excess volatility.

Investors dumped Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) and other major Japanese banks, on concern that their heavy exposure to domestic equities could trigger the kind of massive losses that tore through Wall Street but have so far skirted Japan.

Prime Minister Taro Aso said the government would expand a scheme that gives banks access to public funds and also strengthen regulation on the short-selling of shares.

Aso has also said a state body should be used to buy shares from banks, and that limits on bank recapitalizations should be raised, Economics Minister Kaoru Yosano told reporters.

The prime minister also called for extending tax relief on income from stocks and dividends, Yosano said.

On Sunday, Yosano said that a newly announced bank bailout scheme should be increased several-fold to nearly $110 billon.

The measures underscore the difficulties now facing lenders in the world’s No.2 economy, which at first appeared to have avoided the credit crisis, allowing them to invest in overseas rivals.

“The government will have to do something for banks,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments no teletrack payday loans.

“The problem here is that the stock market has fallen, it has nothing to do with derivatives or anything like that. As stocks have dropped, banks are faced with rising paper losses.”

Tokyo’s benchmark Nikkei share average .N225 briefly dropped as low as 7,141 on Monday, its lowest since 1982.

The benchmark has lost about half of its value so far this year — falling by nearly a third this month alone — as a rise in the yen and a weakening outlook for the economy has curbed appetite for Japanese stocks.

The losses, which drove more risk-averse investors away from currencies such as Australian dollar and back into the yen, overshadowed Group of Seven warnings on Monday that the yen’s sharp swings posed a threat to financial and economic stability.

TRADITIONAL JAPAN

Although Japanese banks have had little exposure to the risky credit instruments that crippled Wall Street, investors now fear that lenders’ extensive shareholdings and rising bad-loan costs will unravel profits this year.

Traditionally, Japanese lenders hold large stakes in their corporate clients as a means to cement business ties. The value of those stocks totaled more than $250 billion at the end of March, data from the Japan Bankers Association shows. 

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U.K. retail sales fell in September as rising unemployment and the specter of a recession prompted British shoppers to curb spending.

Sales declined 0.4 percent on the month after rising 1.1 percent in August, the Office for National Statistics said today in London. Economists forecast a 0.7 percent decline, according to the median of 33 estimates in a Bloomberg News survey. On the year, sales increased 1.8 percent, the least since February 2006.

DSG International Plc, the U.K.'s largest electronics retailer, said today that a sales drop persisted in the past two months. Bank of England Governor Mervyn King told business leaders this week that Britain probably faces a recession after the nation's worst banking crisis since World War I.

“The U.K. consumer will hold back,'' said Amit Kara, an economist at UBS AG in London, who formerly worked at the central bank. “I see a negative growth rate for next year and unemployment going up. Things are looking pretty bad.''

The pound rose as much as 0.2 percent against the dollar after the report showed a smaller than forecast sales drop. It traded at $1.6307 as of 10 a.m. in London. The U.K. currency reached a five-year low of $1.6147 yesterday after King said that a recession “seems likely.''

The central bank cut the benchmark interest rate to 4.5 percent in a surprise joint global action on Oct. 8. All nine policy makers voted in favor, saying that there was evidence consumer spending was weakening and that the economy “deteriorated substantially,'' minutes of the decision showed.

Electrical Items

Sales at non-food stores led the decline on the month, falling 1.1 percent, the statistics office said low fee cash advance. Household goods shops reported a 2 percent drop, led by electrical items, while textile, clothing and footwear sales slipped 2.3 percent.

DSG said that revenue slid 7 percent at stores open at least a year in the 24 weeks ended Oct. 18. The company plans to cut capital spending as consumers rein in spending on computers, washing machines and appliances.

Food sales rose 0.3 percent on the month. They fell 0.4 percent from a year earlier, and declined 0.1 percent in the third quarter, the first drop since records began in 1986, the statistics office said.

London's workforce will shrink this year for the first time since 2004 and the slide will extend through 2009 as the global financial crisis hurts banks and builders, according to the city's economic forecast. Unemployment rose to the highest level in almost two years in September, and house prices fell at the fastest annual rate in at least six years this month, Rightmove Plc said Oct. 20.

Consumer Squeeze

“The combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand,'' King said in his speech on Oct. 21 in Leeds.

Inflation reached 5.2 percent in September, the fastest pace in at least a decade. King said that the risks to consumer prices shifted “decisively'' to the downside in the past month. The annual price deflator, a measure of cost changes in shops, showed a 1 percent annual increase in September, the statistics office said today.

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Lennar Corp., one of the nation’s largest homebuilders, said Tuesday its third-quarter loss narrowed as it cut costs, but revenue fell by more than half amid a prolonged housing slump.

The Miami-based company’s loss for the quarter ended Aug. 31 was $89 million, or 56 cents per share, compared with a loss of $513.9 million, or $3.25 per share, a year ago.

Revenue fell 53% to $1.11 billion from $2.34 billion.

Analysts surveyed by Thomson Reuters, on average, predicted a loss of 52 cents per share on revenue of $1.07 billion.

Deliveries of homes fell 49% in the quarter and the average sale price of homes fell 9%.

"While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards," Chief Executive Stuart Miller said in a statement.

Miller said that the landmark housing stimulus bill enacted in July, which included a temporary, $7,500 tax credit for first-time homebuyers, has failed to stabilize the skid in U.S. home prices. He said more government intervention is needed.

Lennar (LEN, Fortune 500) has homebuilding operations in 14 states, including California and Florida, the hardest-hit housing markets in the nation.

Like other builders, the company’s business has been hurting due to the combination of weakened demand for new homes, tightening mortgage lending standards and buyer uncertainty over how long home values will continue to drop. The business is also facing mounting competition from deeply discounted, foreclosed properties and other preowned homes on the market.

To cope, Lennar has cut prices and is "aggressively" reducing construction costs, cutting jobs and consolidating divisions in an effort to improve results.

The builder ended the third quarter with $857 million in cash - an increasingly important indicator as the slide in home sales continues - and no outstanding borrowings under its credit facility.

During the quarter, Lennar delivered 3,791 homes, down from 7,636 in the same period last year. The sharpest drop occurred in Western markets.

The average sale price of homes delivered fell to $270,000 as the builder cut prices or offered incentives, such as discounts matching the $7,500 tax credit for first-time buyers.

In all, Lennar offered sales incentives amounting to $45,900 per home delivered during the quarter. That compares with incentives valued at $46,000 per home delivered in the same period last year.

New orders totaled 3,387 homes, down 42% from 5,804 last year.

The cancellation rate from buyers backing out on home contracts was 27%, improving from 32% in the same quarter last year.

Lennar’s backlog, or homes under contract yet to be delivered, fell during the quarter. As of Aug. 31, the figure stood at 3,554, compared with 6,367 units at the close of the same quarter last year.

The value of homes in backlog plunged by 53% from a year ago to about $1.05 billion.

Loss on land sales totaled $28.8 million in the third quarter, including $21.4 million of valuation adjustments and $10.9 million of write-offs of deposits and pre-acquisition costs related to about 900 home sites under option that Lennar does not intend to buy.

For the first nine months of Lennar’s fiscal year, the company’s net loss narrowed to $298.1 million, or $1.88 per share. That compares with a loss of $689.4 million, or $4.37 per share, in the same period last year.

Revenue fell to $3.3 billion, compared with $8.01 billion in the same period last year.  

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Mortgage-related problems continued to hammer regional banks, according to a report released Wednesday.

Credit rating agency Standard & Poor’s downgraded two regional banks and said it could downgrade eight more in the near future after a review of their respective portfolios. In all, 37% of regional banks could see further downgrades, S&P said.

S&P lowered its credit rating on National City Corp. (NCC, Fortune 500) to A- from A and the rating of First Horizon National Corp. (FHN) to BBB from BBB+.

Lower ratings make it more expensive for banks to borrow money since loans to these institutions are considered to carry a higher risk.

National City’s holdings include a large concentration of mortgage and housing-related investments that could continue to deteriorate over the next few quarters, according to S&P.

The Tennessee-based First Horizon was downgraded on problems related to a decline in the credit market, particularly at its retail banking arm. But the bank’s move to scale back its operations could help it regain its footing, S&P said.

Meanwhile S&P said that Fifth Third Bancorp (FITB, Fortune 500) could face a credit rating downgrade because of its heavy investments in the sour Florida real estate market.

The decline in Florida home values also presents a large risk to the rating of Regions Financial Corp no fax payday loan. (RF, Fortune 500) Last week it acquired $974 million in deposits from Integrity Bank, which failed and was taken over by the Federal Deposit Insurance Corporation.

S&P affirmed its current rating of A+ for Regions, but cautioned that the bank doesn’t have much of a cushion against further losses.

Integrity Bank was the 10th regional bank to fail this year, and there has been growing concern for the health of the regional banking system, as well as the funding available to the FDIC to insure customers’ savings.

The rating agency also warned of potential downgrades at Citizens Republic Bancorp Inc. (CRBC), Comerica Inc. (CMA), Synovus Financial Corp. (SNV), Wilmington Trust Corp. (WL), Zions Bancorp. (ZION), and Colonial BancGroup Inc. (CNB) 

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Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) agreed to buy Dresdner Bank from Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) on Sunday in a $14.5 billion all-German deal that will break the country’s banking mould and cost 9,000 jobs.

Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) will buy its competitor in two steps, taking 60 percent this year and the rest in 2009 to create a rival to sector leader Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) in Europe’s biggest economy.

Much of the purchase price will be paid to Allianz in the form of shares, leaving Europe’s biggest insurer with a stake of almost 30 percent in the new Commerzbank.

The new owner plans to close more than a third of the combined group’s 1,900 branches and pare back laggard investment bank Dresdner Kleinwort, which has been further hobbled by the credit crunch.

The deal puts a price tag of 9.8 billion euros on Dresdner fast payday loans. Allianz paid 24 billion for it in 2001.

A further strand to the deal sees Allianz buying Commerzbank’s fund management business Cominvest.

Analysts and insiders were skeptical over whether the pairing of what many see as two mediocre performers could create a financial champion.

“It is good for Allianz. In the seven years they have owned Dresdner they have learned that they don’t have a clue about running a bank,” said Dirk Becker, an analyst with Landsbanki Kepler. 

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The slumping U.S. economy has become the top issue on voters’ minds, according to a new poll and that concern is likely to carry on up through election day.

According to a recent CNN/Opinion Research Poll released Tuesday, 93% of voters say the economy is "extremely" or "very" important to their vote for president this November. 84% of the more than 900 registered voters surveyed from June 26 to 29 said the situation in Iraq was their top concern.

In January, the economy was virtually tied with the Iraq war as the top concern for voters.

"With the poor economic environment right now, it’s not surprising at all," said Wachovia economist Mark Vitner.

As bad news out of Iraq has taken a back seat to dour economic news, Americans say the economy has become the issue that may decide the election in November, according to the survey.

Economic bad news continues to mount, with the S&P and Dow suffering their worst June since the Great Depression.

Adding to the pain, more than 324,000 jobs have been lost so far in 2008, and the mortgage and credit crises have crushed consumer confidence low rates payday advance. Also, rising food and energy costs are hurting Americans in the pocketbooks.

Accordingly, 77% of those polled felt gas prices were "extremely" or "very" important to their vote, making fuel costs the third most important issue for American voters.

Economists say that the economic pain will not ease for voters come the November election.

"The next two quarters are likely to see a bit of an improvement, mainly because of the tax rebates, but there really isn’t anything out there on the horizon that’s going to change the economic landscape in a meaningful way," said Vitner. "Consumers are likely to be very concerned about the economy come election day."

That may be good news for Barack Obama.

"When the economy is bad, it tends to favor the party that’s out of power," said Vitner. "It’s going to be very difficult for the Republicans to take the White House." 

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