Financial thoughts

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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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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