Behind the war between Obama and big business - July 29, 2010

Corporate chiefs may seem hardboiled, but they can be sensitive, too. Take the ruckus they've been raising over what they perceive to be rough treatment from the Obama White House.The bubbling resentment of the administration among top corporate brass burst into the open in late June, when Verizon (VZ, Fortune 500) CEO Ivan Seidenberg addressed a lunchtime crowd gathered at a hotel in downtown Washington. "By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses," he said.

The critique was remarkable because Seidenberg was speaking in his capacity as chairman of the Business Roundtable, a trade group representing 170 top CEOs and, until recently, Obama's last apparent ally among the major Beltway business collectives. The White House identified Seidenberg himself earlier this year as one of four chief executives whom Obama admires.

Seidenberg and others have been laying out substantive cases for how the administration's economic agenda is failing to foster growth -- pointing to regulatory uncertainty about how the health-care and Wall Street reform bills will be implemented, and complaining about what they call anti-competitive tax policies.

But there is another, more personal reason for the souring. Obama's rhetoric on the stump, they say, has been overly broad and overly harsh in blaming big business for the nation's economic woes. The charge has developed into a refrain. U.S. Chamber of Commerce president Tom Donohue said the administration's push to overhaul health care, and financial and oil regulations has left companies "demonized."

Billionaire real estate and media mogul Mort Zuckerman, appearing Sunday on CNN's State of the Union, said the White House has "done something here that affects everybody's confidence in the attitudes of this administration to the business community and to the economy. They have demonized the business world." Even ousted BP (BP) chief Tony Hayward, a man deserving of rebuke if there ever was one, this week complained he was "demonized and vilified" in the U.S.

Democrats countercharge that the complaints from business leaders are overblown and misplaced. They argue Obama and his party made painful decisions to avert an economic catastrophe: bailing out the automakers, saving the banks without nationalizing them, and passing a massive stimulus package that they say wrenched the nation out of a tailspin. And they point as proof of their success to the performance of the private sector: second-quarter profits so far show big businesses are humming again, far outpacing analysts' estimates.

That said, Democrats have made an attack on major industries an explicit part of their campaign message. The majority wants to make the election a choice between the two parties as opposed to what the GOP is pushing for -- a referendum on the party in power. To do that, since spring, party leaders have hammered on a contrast they hope will stick: Democrats stand up for Main Street, while the GOP champions Wall Street; Democrats are for patients and doctors, while the GOP is for insurance industry profits; Democrats want to protect small businesses in the Gulf, while the GOP protects the oil companies. Et cetera.

For some CEOs, the tack appears to be confirming long-held suspicions that Obama is fundamentally anti-business. George W. Bush tried to hone an image as the CEO president, stocking his cabinet with former corporate captains. Obama appointed none. But he named some to an advisory board -- and assiduously solicited input from a range of them. Seidenberg, for example, acknowledged he has been to the White House 16 times.

One Democratic lobbyist says CEOs, after plenty of face time with the President, now believe it hasn't amounted to much. "There's a lot of talk, but not a lot of action," he says. Seidenberg's speech last month, for example, came a day after the Business Roundtable responded to a White House request by sending budget director Peter Orszag a 54-page report outlining pending regulations they believe will stifle growth. Many now question whether their letter will do anything but gather dust.

Finding a middle ground

Jim Kessler, vice president for policy at Third Way, a business-friendly Democratic think tank, attributes the White House's rhetoric to the need to sell moderate legislative wins to a dispirited base. "When your legislation moves to the center, your rhetoric has to move to the left," he said. "And even sophisticated business people are not going to read a 2,000 page bill, so what they hear is the rhetoric."

But the danger for the White House in going after corporate bigwigs too aggressively, Kessler said, is that Americans are still fundamentally pro-business. A recent survey his group commissioned from Benenson Strategy Group, Obama's campaign pollster, found 63% of Americans think "most American companies value their employees and treat them well." A minority felt large companies have too much power and hurt the middle class -- and a majority believe the private sector, rather than the government, will be the engine of the economic recovery.

Some of the short-term political fallout for Democrats is already evident. The party's fundraising from major Wall Street donors has fallen off a cliff, with collections out of New York down 65% since two years ago, according to a recent Washington Post report. Many of those donors now sitting on their wallets had been important boosters for Obama in his campaign -- like J.P Morgan Chase CEO Jamie Dimon, who has cut off donations to the Democratic party committees and written a check to Mark Kirk, the Illinois Republican seeking Obama's old Senate seat.

The disconnect with Wall Street, in particular, was brought into fresh relief this week as Obama traveled up to New York on Wednesday for back-to-back fundraisers. Both high-dollar events -- one at the Greenwich Village home of Vogue editor-in-chief Anna Wintour, the other at the Four Seasons Hotel -- sold out, according to the Wall Street Journal. But a Democratic fundraiser told the paper that anger toward Democrats among financial services executives will limit repeat engagements in town -- and that Wall Street types asked to attend the events this week were either uninterested or only wanted to come so they could complain to the President.

How will Obama fix this problem? Jeffrey Garten, a professor of international trade and finance at the Yale School of Management, said he thinks the administration "is going to try to meet these guys halfway, because it's genuinely concerned that the sour attitude will translate into a lack of investment." Obama has already signaled he wants to get moving on stalled trade agreements with Korea, Colombia, and Panama.

"It's going to be better in the short term," predicted Garten, author of "The Mind of the CEO." "He'll bring in one or two business leaders into the administration, if he can find them. And he'll try to cut a deal in which the rhetoric stops, and he finds some things that both he and the business community can say they're going to go forward on, on a congenial basis." 

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Foreclosure filings climbed in 75% - July 29, 2010

Foreclosure filings climbed in 75% of the nation's metro areas during the first half of 2010, according to a report issued Thursday.

RealtyTrac, an online marketer of foreclosed homes, said that California, Florida, Arizona and Nevada continue to lead the nation in the rate of foreclosures. Las Vegas was the worst-hit city.

But now unemployment has replaced toxic mortgages as the leading cause of foreclosures throughout the country, according to spokesman Rick Sharga.

"Las Vegas has seamlessly shifted from having a high level of foreclosures due to bad loans," said Sharga, "to defaults caused by a high level of unemployment." Some 14.5% of its work force was idle in June, up 2.1 points from last June.

Las Vegas had one filing for every 15 households in the metro area. The second highest rate was in Cape Coral/Fort Myers, Fla., with one for every 20 households. Two California cities, Modesto and Merced, tied for third with one filing for every 22 households.

The good news is that most of the worst-hit cities have actually seen their foreclosures rates decline, as the subprime crisis fades.

But while those cities have seen slight improvement, other areas are getting hit harder by the economy.

"Look at a place like Salt Lake City," said Sharga. "The foreclosure rise there appears to be entirely related to the economy," not because people can't afford their subprime loans.

Salt Lake's unemployment is up this year, rising 0.2% to 7.1% in June, even as the national unemployment rate dropped 0.2% to 9.5%.

Lenders filed foreclosure notices for one in every 48 Salt Lake City households during the first six months of 2010, a 55% increase over the same period in 2009.

Besides Salt Lake City, other metro areas where foreclosures have soared primarily due to the economy include Chicago, which saw filings climb 23% year-over-year to one in every 48 households. Charleston, S.C.'s, rate climbed 17% to one in every 68 homes, while Albuquerque saw a 157% jump in filings to one in 80 households.

Each of these cities has rising unemployment. Chicago's unemployment stood at 10.6% in June, more than a point above the national rate, while Albuquerque's unemployment jumped to 8.9% from 7.9% in the last 12 months and Charleston's rate stands at 9.5%.

Still, the report found that there are some remarkably untroubled markets, many of them in the Northeast, Midwest and Texas, where home prices never really bubbled during the boom and have not fallen very far during the bust.

Utica, N.Y., had the lowest filing rate of any of the 206 cities in the report, just one in 4,859 households. Burlington, Vt., recorded one foreclosure for every 3,305 homes, while Charleston, W.Va., had a rate of one in 2,799 households.

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Schwarzenegger orders minimum wage for California state workers - July 2, 2010

As many as 200,000 state workers in California could see their pay scale slashed to minimum wage, if orders from the governor's office are followed.

In a letter to the state controller Thursday, Gov. Arnold Schwarzenegger's administration ordered the department to reduce the payment of state workers to the hourly rate of $7.25 unless a budget is reached soon.

"These are preparations for the prospect of not having a budget passed this month," said Lynelle Jolley with the California Department of Personnel Administration.

Without a budget, the July payroll, sent to go out the end of the month, would be cut, she said.

"This is not a scare tactic," she said. "This is based on a very real legal requirement."

The legal requirement was ordered in 2003, when the California Supreme Court ruled that the state controller had no legal authority to pay wages in the absence of a budget.

"His role is to process the payroll that we give him," Jolley said.

But the state controller disagreed.

"I will not be following the governor's orders," John Chiang told CNN Radio, calling the governor's actions dangerous. "I don't understand why we would continue to impose greater hardships upon the good workers here in California and delay the economic recovery that needs to take place as soon as possible.

"It's my responsibility to protect the state's pocketbook," Chiang said, "and even though the governor is trying to fix a budget, he understands that he had that opportunity, he still has that opportunity, and he should not put people in harm's way."

Chiang said he is willing to work with the governor to come up with a better solution.

The wage cut directive would not affect state employees who already have a contract, Jolley said.

"Thirty-seven thousand employees are under a contract that protects them, and the state is currently in negotiations with its largest state employee union, the Service Employees International Union," she said.

That union has as many as 95,000 workers, she said.

If the governor's order is followed, the pay cut would take effect this month, according to Jolley. The workers will get their missed wages once a budget is enacted, she said.

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Job recovery hits a wall - July 2, 2010

The U.S. economy lost jobs in June, for the first time this year, as modest hiring by businesses only partly offset the end of Census jobs.

The Labor Department on Friday reported a net loss of 125,000 jobs in the month. That was due primarily to the loss of 225,000 Census jobs that had swelled payrolls in May.

Business hiring rebounded to 83,000, which was still a bit weaker than hoped. While it's up from the jobs private sector employers added in May, it was well below hiring levels in March and April.

"It's job growth, but it's a kind of growth that doesn't please anybody," said John Silvia, chief economist of Wells Fargo Securities. "We're not creating the jobs at a pace to help people who are looking for jobs. Jobs are going to remain hard to find."

Silvia and some other economists said the fact that businesses are still adding jobs should lessen fears that the economy is about to topple into another downturn, a so-called double-dip recession.

"Though disappointing, employment gains are substantially ahead of the 2002 recovery," said Kurt Karl, chief U.S. economist at Swiss Re.

But others suggested that the weak labor market raises the risk the economy could fall back into recession later this year.

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The Millionaire Boys' Bank - June 2, 2010

Alexander Hamilton founded the Bank of New York in 1784, J.P. Morgan gave his bank its eponymous name in 1895, and 31 businessmen of note established Fieldpoint Private Bank & Trust in 2008.

That last fact is unlikely to become a headliner in banking textbooks, but it makes the news here because this de novo private bank called Fieldpoint is extraordinarily unusual. Not because of its size, certainly: It has only 30 employees and is an also-ran among the 8,000 U.S. banks. In location, it's largely obscure as well, its one-and-only office sitting inconspicuously on Field Point Road in Greenwich, Conn. True, that town is rich territory for any bank; the median sale price for a Greenwich home in 2009 was $1.6 million. But it is far less the surroundings of the bank than its remarkable provenance -- those 31 people who started it -- that makes Fieldpoint unique.

These founders (all of them indeed men) are for the most part a who's who of business, many retired, some not, and two-thirds having a link to Merrill Lynch. Among the Merrill alumni are three of the company's CEOs, William Schreyer, Daniel Tully, and David Komansky, whose tenure at the top covered 17 continuous years. The non-Merrill founders include luminaries such as James Kilts, former CEO of Gillette; private equity pioneer Jerome Kohlberg; and the outspoken investment banker Kenneth Langone.

The founders -- even those lacking immediate name recognition -- had one big fact going for them as this enterprise got started: They were millionaires, irrefutably so, because each put up either $1 million or $2 million to capitalize the bank, contributing a total of $35 million. The group then pulled in private investments of another $10 million and started out -- officially opening in April 2008 -- with $45 million in capital.

And why were these specimens of the unneedy starting a bank? Basically, because they were persuaded by a few instigators -- chief recruiter Tully among them -- that the world needed a new private bank to serve people just like themselves: high-net-worth individuals wanting good service and not always getting it from their existing providers. The origins of the bank also say a powerful amount about business connections and how readily they can be tapped. (For an explanation of the links that formed Fieldpoint, see graphic.) This is in fact a case in which every man who signed up "knew somebody" and thereby ended up a founder.

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Unemployment claims show long-term problem - March 11, 2010

The number of Americans filing continuing claims for unemployment insurance spiked last week, the Labor Department said Thursday, as sluggish hiring continues to drag on the labor market's recovery.

The number of people filing continuing claims jumped to 4,558,000 in the week ended Feb. 27, the most recent data available. That was up 37,000 from the preceding week's upwardly revised 4,521,000 claims. Economists were expecting continuing claims to remain unchanged at 4,500,000.

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43% have less than $10k for retirement - March 9, 2010

The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday. The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

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Unemployment Claims Drop - March 5, 2010

The number of Americans filing for initial unemployment insurance fell last week, the government said Thursday. There were 469,000 initial jobless claims filed in the week ended Feb. 27, the lowest level since Jan. 9 and down 29,000 from a revised 498,000 the previous week, the Labor Department said in a weekly report.

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Can snail mail get any slower? - March 2, 2010

The U.S. Postal Service plans to propose Tuesday an adjusted mail service schedule, which will likely cut Saturday delivery. The agency will also suggest closing some branches and expanding its use of self-service kiosks in grocery stores and other popular retail spots, as part of its effort to work its way out of a mountain of debt.

USPS posted a $3.8 billion loss in its 2009 fiscal year, the latest in a multiyear string of whopping losses. Mail volume was down 12.7% for the year, a trend the agency expects to continue over the next decade as more consumers opt for online bill payments and message delivery.

The Post Office was $10 billion in debt as of Sept. 30 -- not far off from its $15 billion debt limit, which the agency expects to hit in its 2011 fiscal year.

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Foreclosure Flood - February 18, 2010

Blame the "shadow inventory" – nearly 1.8 million homes that are on the road to foreclosure but for all kinds of reasons haven't gotten there yet.

Many homeowners have fallen behind on their mortgages or stopped paying, but foreclosure has not yet arrived. Mortgage servicers, the folks who send you the bills and file for foreclosure when you can't pay them, are overwhelmed. Courts, too, are backed up. Mortgage modifications and foreclosure moratoriums have put off the day of reckoning for borrowers, but not forever. And unemployment is sabotaging more homeowners every day.

Out of more than $1.6 trillion in existing mortgages that were packaged into mortgage-backed securities by Wall Street, some $425 billion worth are extremely late on their payments, and therefore likely to go into foreclosure. Only a fraction of borrowers who fall seriously behind are able to catch up, with the help of a loan modification. And even then the majority end up falling behind again. That amount of bad mortgage debt has been spiking up every month, slowing down just a little thanks to the government's Home Affordable Modification Program, but still continuing to rise.

Meanwhile, even as the amount of unpaid mortgage debt rises, the number of foreclosed, bank-owned homes for sale has been holding fairly steady. That tells us that the number of foreclosures for sale on the market is actually just a sliver of all the ones that are really out there. S&P's chilling conclusion: "Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market."

The bottom line: just counting the homeowners who are currently behind on their mortgages, along with the existing number of foreclosures for sale, at the current pace it will take nearly three years to sell all the foreclosures out there. That doesn't include all the borrowers who haven't fallen behind yet but are going to, because of unemployment or because their Option ARM payments are spiking up or because they just decide to stop paying.

The shadow inventory is equal to half the size of the entire market of homes for sale. When it starts getting listed, expect home prices in areas with lots of foreclosures to plummet. Yes, more.