It’s one of the biggest if not the biggest asset for millions of Americans in or near retirement. Despite a global financial crisis, it has kept all of its value.
But we have little practical knowledge of this asset — assuming we even think about how to get the most out of it.
I am taking about Social Security retirement benefits, which by all rights should be a major component of any retirement income plan.
Consider: The average monthly Social Security retirement benefit, after a 5.8 cost-of-living increase, will be about $1,153 in 2009. To receive that much inflation-adjusted income for life, a 65-year-old man would have to pay an insurance company a lump-sum premium of about $204,000 for an immediate annuity, and a 65-year-old woman about $225,000, based on the lowest quotes I found from highly rated companies.
Is your IRA or 401(k) worth that much? In addition, Social Security offers attractive spousal and survivor benefits.
Clearly, we should pay attention to the ins and outs of Social Security. The decision of when best to start collecting benefits — as early as age 62 for reduced benefits to as late as age 70 for enhanced benefits, or anywhere in between — can hinge on many factors.
Aside from any immediate need for money, these factors include how long you expect to live, your tax bracket, whether you’re still working and whether you are single or married.
"Social Security-related decisions can be complex and there can be tradeoffs," said Carolyn Clancy, an executive from Fidelity Investments. A recent online survey commissioned by Fidelity shows many Americans lack the basic knowledge to understand these tradeoffs and make informed decisions.
A vast majority (85 percent) of 300 61-year-olds surveyed did identify age 62 as the earliest they can start collecting reduced benefits. But 56 percent didn’t know when they would receive unreduced benefits if they waited to collect same day payday loans. (The answer is age 66 for anyone born between 1943 and 1954. After that, the age of eligibility rises by two months every year until it becomes age 67 for those born in 1960 or later.)
More than half didn’t know we have to file for benefits three months before we want to start receiving them. Almost a third believed incorrectly that Social Security benefits are not taxed (up to 85 percent of benefits may be taxed depending on what other income we have).
Nearly three-quarters didn’t know that a non-working or lesser-earning spouse could be eligible for benefits based on the work record of the higher-earning spouse. More than half didn’t know that a surviving spouse could be eligible to receive the Social Security benefit of the deceased spouse if it was larger than the survivor’s own benefit.
Also, 45 percent of the 61-year-olds say they plan to start taking benefits as soon as they are eligible at age 62. The most common reason given was that they need the money.
Such an action would lower their benefits permanently. Among those planning to collect as soon as possible, 73 percent didn’t have a retirement income plan. So perhaps there is another way to bridge the income gap until full retirement age that they didn’t consider.
Also, just 22 percent said they knew exactly how much their benefits would be — and 26 percent had no idea. And yet Social Security has been mailing Americans an annual benefits estimate since 1997, and this year the agency introduced an improved benefits estimator at www.socialsecurity.gov/estimator). Fidelity also has launched a site, www.socialsecurity.com/socialsecurity, that while obviously commercial does include valuable educational information.
AskHumberto@aol.com
2008, TRIBUNE MEDIA SERVICES INC.
Welder Robert England has been out of work since his former employer Dana Canada shut its plant in St. Mary’s last summer.
"Everyone says: `Go West.’ These days anything is worth a try," said the 34-year-old father of two, who welded Ford-150 frames at the plant near London for the past seven years.
Armed with a stack of resumés and high hopes, he and wife Melanie visited the Workwest career caravan in Mississauga yesterday with their 4-year-old son and daughter, 2, in tow, looking for work in Alberta’s oil patch.
Ontario’s manufacturing sector has been getting hammered lately thanks to the ailing auto industry, the weakening economy and a stronger loonie that’s only recently slid back – just not in time for those like England.
A dozen Western Canadian employers at the job fair are chomping at the bit to recruit Ontarians struggling in a tighter job market and eager to sign on as civic planners, labourers, firefighters, transit drivers, electricians, sandblasters, health-care professionals – you name it.
"One of the oil field companies told us the jobs pay $50 an hour. It’s hard work, but that makes it worth moving a family of four out there," said England.
Hundreds of others of various ages and training toured the booths yesterday to see what the West and its storied economic boom have to offer them.
Workwest, the Calgary-based company running career fairs for the past two years in Ontario, said despite the recent doom and gloom on world markets, most of B.C., Alberta, Saskatchewan and Manitoba continue to thrive, and have yet to feel the fallout Ontario has same day cash advances.
"We burned out our labour pool a long time ago. Even with oil at $64 a barrel instead of $150, these companies are still doing well and projects need to be built," said Workwest president Ray Edwardson.
Gary Griffin and his father Brad drove in from their Haliburton home and found it was worth the three-hour trip. They were thrilled to hear a recruiter for the City of Calgary Fire Department say they’re looking for 200 new firefighters next year and another 200 the year after.
"It’s difficult to get a job here. They had 800 applicants for the Barrie fire department when I applied," said Gary, 19, who recently graduated from Georgian College’s firefighter program and would love to move to Calgary.
"A young guy like me, I’ve got nothing to lose moving out west," agreed Brandon Chaston, 24, who has struggled to find work in Hamilton after getting a degree in environmental sciences.
Windsor resident Ranjan Subramaniam told exhibitors he’s looking for a job in information technology, noting his area has been hard-hit by job losses.
"I lost a job in January because of the U.S. housing crisis," said the 26-year-old, who worked in the banking industry in IT. "I don’t mind going where the jobs are."
The job fair continues today from 9 a.m. to 6 p.m. at the International Centre at 6900 Airport Rd. For information about employment opportunities go to Workwest.ca.
Mutual fund company AIC Ltd., buffeted by the worldwide financial crisis, has trimmed its workforce by 20 per cent to keep costs down and better position itself in a tough economic environment.
The privately owned company, which has suffered a large number of redemptions since the market meltdown began, laid off 53 out of some 290 employees on Thursday, spokesperson Terri Oswald said.
"The areas that were affected were mostly marketing and information technology," said Oswald, adding that some employees on the investment side and in sales were also let go.
There were no layoffs of fund managers, but three analysts were cut.
"The key reason for the reduction is simply that the market conditions are so difficult right now," she said.
The company doesn’t see any more financial problems down the road and no more pink slips are contemplated, Oswald added.
"We’re trying to keep our cost structure so that we can continue to remain profitable through this storm that every other company is experiencing internet pay day loans."
AIC, which is controlled by billionaire Michael Lee-Chin, has been suffering from net redemptions for several years. Some of its stock portfolios were hit hard because of holdings in the battered financial sector.
Canadian investors redeemed a record $4.5 billion in mutual funds last month, making September the worst month for outflows since the Investment Funds Institute of Canada started collecting data in 1990.
AIC, Canada’s 19th largest fund company, saw net outflows of $86 million in September.
The downturn is expected to spur consolidation but AIC has said it is not up for sale.
The Canadian Press
The global economic crisis claimed its first Japanese financial institution on Friday and the government looked to prop up smaller banks, as Tokyo shares flirted with their biggest one-day fall since the 1987 market crash.
Escalating bankruptcies in the property sector and among small businesses, along with fears of a global recession, have dragged Japan’s export-dependent economy into the crisis, sending blue chip shares sliding by a quarter so far this week.
“This is panic. New York, the currencies — there’s nothing left for us to trust,” said Takashi Ushio, head of investment strategy at Marusan Securities, as the Nikkei share average slid more than 10 percent, following sharp falls on Wall Steet.
“Investors are scurrying to convert to cash. A lack of confidence is coupling with panic.”
As unlisted Yamato Life Insurance Co failed, the government said that to help hard-hit smaller lenders it may revive a bank rescue law from the 1990s Japanese banking crisis (no fax instant cash advance). One newspaper report suggested Tokyo may set up a $100 billion fund.
Fearful selling also sent Hong Kong and South Korean shares down 7 percent while Singapore declared its first recession in six years as the U.S. stock plunge heaped pressure on economic powers to halt a global spiral of financial distress and slowing growth.
Financial policy makers from the Group of Seven major industrial nations, including Japan, are to meet in Washington later on Friday to consider what to do next, as bank bailouts, liquidity injections and interest rate cuts across the world have failed to quell investor anxiety.
After arguing for months that Japan had avoided the worst of the global financial crisis, its leaders acknowledged they were increasingly worried about the stock falls.
After two weeks of contentious and often emotional debate, the federal government’s far-reaching and historic plan to bail out the nation’s financial system was signed into law by President Bush on Friday afternoon.
"By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said less than an hour after the House voted 263 to 171 to pass the bill.
The House vote followed a strong lobbying push by the White House and other supporters of the bill. The House rejected a similar measure on Monday - a defeat that shocked the markets and congressional leaders on both sides of the aisle.
The law, which allows the Treasury Secretary to purchase as much as $700 billion in troubled assets in a bid to kick-start lending, ushers in one of the most far-reaching interventions in the economy since the Great Depression.
Federal Reserve Chairman Ben Bernanke said he welcomed the news. "The legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses," he said.
Treasury Secretary Henry Paulson said he would act swiftly but "methodically" to carry out the plan.
"The broad authorities in this legislation, when combined with existing regulatory authorities and resources, gives us the ability to protect and recapitalize our financial system as we work through the stresses in our credit markets," Paulson said.
Republicans picked up 26 votes in favor of the bill among caucus members who’d originally voted against it on Monday, while Democrats picked up an additional 32 votes.
According to voting results, 172 Democrats voted in favor of the bill while 62 opposed it; and 91 Republicans voted for it and 108 voted against it.
"We did today what we had to do because past mistakes made it necessary," said Rep. Barney Frank, D-Mass., one of the lead negotiators on the bill.
Republicans who switched their votes from "no" to "yes" included Rep. Howard Coble, R-N.C., and Rep. Sue Myrick, R-N.C. In a statement before the vote, Myrick said, "We’re on the cusp of a complete catastrophic credit meltdown. There is no liquidity in the market. We are out of time. Either you believe that fact, or you don’t. I do."
Democrats who switched to "yes" votes include Rep. John Lewis, D-Ga., Rep. Elijah Cummings, D-Md., and Rep. Donna Edwards, D-Md.
Cummings noted before the vote that this was the most difficult vote for him in his 12 years in Congress. "But today we must step up and lead," he said.
Earlier this week, Cummings and Edwards were part of a group that had been working on an alternate proposal. The lawmakers had lobbied strongly but unsuccessfully to include, among other things, a change to the bankruptcy law that would let judges modify mortgages on primary residences, a move the lending industry has strongly opposed.
Cummings and Edwards said they had received calls from Democratic presidential nominee Barack Obama, encouraging them to change their minds. They said they received assurances that he was committed to the bankruptcy provision.
House Minority Whip Roy Blunt, R-Mo., told reporters before the vote on Friday morning that three things have happened to change some Republican members’ opposition to the bill since the House defeated the measure on Monday: more calls to their district offices in support of the bill; a clarification of SEC accounting rules; and the Senate additions, passed on Wednesday, including a number of tax break extenders and an increase in FDIC deposit insurance coverage. (What’s in the law.)
The House debate began on the heels of two market-moving events early Friday morning: a worse-than-expected monthly jobs number; and a surprise merger announcement between Wachovia and Wells Fargo (500 fast cash).
For the past two weeks, lending between banks and between banks and businesses has gotten considerably more expensive. Small businesses are having trouble getting loans. As of midday Friday, one key measure showed that banks were hoarding cash rather than loaning it. Meanwhile, a risk indicator showing banks’ willingness to lend to each other was at an all-time high.
Advocates say the plan is crucial to government efforts to attack a credit crisis that threatens the economy and would free up banks to lend more. Opponents say it rewards bad decisions by Wall Street, puts taxpayers at risk and fails to address the real economic problems facing Americans.
Lawmakers who voted against the bill warned that "being stampeded" into voting the bill through would be a serious mistake.
"Wall Street is so hungry for the $700 billion they can taste it. To get it they need to … create panic, block alternatives and herd the cattle. We ask Congress not to rush. Defeating this bill today isn’t the last step. It’s the first step in passing a good bill," said Rep. Brad Sherman, D-Calif., before the vote.
Rep. Marcy Kaptur, D-Ohio, who has called for the FDIC and SEC to use their powers to ease the credit crisis, said, "Pray for our Republic. She’s being placed in … very greedy hands."
Lawmakers who stood in support of the plan noted that it will help Main Street, not Wall Street. "We [would] rescue the jobs, the savings and the ability to get a loan for each hard-working American," said Rep. Louise Slaughter, D-N.Y.
Rep. Maxine Waters, D-Calif., noted in the floor debate that the plan as amended by lawmakers also supports homeowners at risk of foreclosure by giving the government more say in how loans for troubled borrowers are modified so people can stay in their homes.
"When we buy up this toxic paper, we’re in charge. We can do the kind of loan modifications we’ve been urging [the industry coalition] Hope Now to get done. … We’ll be able to set some standards," Waters said during the floor debate. "For anybody who says there’s nothing in this bill for homeowners, they’re incorrect."
Even though the financial rescue plan has been signed into law, there are still a lot of unanswered questions regarding how some key provisions will work.
For instance, just how will Treasury structure the pricing and purchase of the troubled assets, which are troubled precisely because they’re difficult-to-value? For one thing, Treasury will be buying a variety of asset types backed by mortgages and loans of hard-to-verify credit quality. And financial institutions are not all in the same pickle - they each have their own combination of problems.
"The challenges our institutions face are just as varied - from holding illiquid mortgage backed securities, to illiquid whole loans, to raising needed capital, to simply facing a crisis of confidence," Paulson said after the House vote.
How much will the investment managers that Paulson will hire to run the asset purchase program be paid? What will the hiring guidelines be to prevent conflicts of interest?
One thing seems certain: Treasury staff are likely to be working more nights and weekends in the next month trying to figure it all out.
CNN congressional producers Deirdre Walsh and Lesa Jansen contributed to this report.
NEW YORK — A few corners of the frozen credit markets thawed a bit Monday on news of the U.S. government’s bank bailout plans, but business was hardly back to normal. And, when the dust settles, credit market participants’ lending and borrowing operations probably will be changed dramatically.
Last week, the credit markets — where the world buys and sells debt — were thrown into a tumult after a cascade of troubling events, from the bankruptcy of Lehman Brothers Holdings to the bailout of insurer American International Group. Over the weekend, the U.S. government said it would buy $700 billion in mortgage debt and asset-backed commercial paper from the nation’s struggling banks.
Although several credit market indicators improved Monday compared with last week, they did not show restored confidence. And they aren’t likely to for some time, said John Atkins, a fixed-income analyst at research company IDEAGlobal.com.
"For the next five years, certainly, we’re going to see a real retrenchment in risk appetite, risk extension," Atkins said.
As investors waited for more information on the bailout plan, they reacted to news that Morgan Stanley and Goldman Sachs were going to become commercial banks, and that Morgan Stanley was selling up to a 20 percent stake to Japan’s Mitsubishi UFJ Financial Group Inc.
The status of Morgan Stanley and Goldman Sachs as commercial banks regulated by the government could force the two institutions to take on less risk going forward than they did as investment banks.
"We’ve essentially just eliminated a whole way of doing business," said Howard Simons, strategist with Bianco Research in Chicago, referring to the changes at Morgan Stanley and Goldman Sachs.
That may mean that the level of lending in the credit markets may never get back to its year-ago levels. Over the last year, the asset-backed commercial paper market has shrunk from about $1.2 trillion to a little over $700 billion, according to Federal Reserve data.
To be sure, the commercial paper markets have not completely shut down; UnitedHealth Group Inc., for one, said it was able to sell commercial paper last week. And companies are relying on the market operating in the future; Microsoft Corp same day payday loans. on Monday established a $2 billion commercial paper program.
Still, the market is not functioning normally, which is a worry for corporations — particularly those who issue paper backed by assets such as mortgages.
Simons compared the credit markets’ role in the business world to the wiring in a building. You might not usually notice it, but it’s essential — and when it turns faulty, it becomes dangerous. "All of a sudden, we’re finding out those are causing the building to burn down," he said.
The credit markets are huge and diverse, so they cannot be measured as definitively as the stock market. But there are ways to monitor the willingness to lend in these markets.
One is the 3-month Treasury bill, considered one of the safest short-term investments and an alternative when other short-term debt markets are tight. As oil prices jumped and stocks tumbled on Monday, demand for the 3-month Treasury bill remained high. The yield, which moves opposite from price, was at 0.91 percent by Monday afternoon, down modestly from 0.94 percent late Friday. That means the investment will earn less than 1 percent after three months.
Another indicator is the rate on commercial paper, or the bonds that companies sell to borrow money for a short period of time, usually 30 days. Higher rates mean people are less willing to lend companies money in return for their bonds.
Richard Cantor, chief credit officer at Moody’s Investors Service, said during a conference call Monday that the ratings agency expects credit conditions to tighten in the near term for individuals and businesses, and that it is "also likely that the commercial paper market will remain challenging" for issuers for some time before returning to normal.
According to Bianco Research’s Simons, 30-day dealer commercial paper traded at a rate of 3.2 percent, the same as Friday. That rate is still well above 2.38 percent on Sept. 12, but below the rate of 3.27 percent reached last Wednesday.
Tom Murphy of The Associated Press in Indianapolis contributed to this report.
A judge has approved a class-action settlement involving BJC HealthCare and uninsured patients who alleged that the area’s largest hospital system overcharged them.
The settlement was reached in March, but a few plaintiffs objected, saying the settlement was insufficient. Judge David L. Dowd approved the settlement on Friday. BJC provided a copy of the judge’s order to the Post-Dispatch today.
Under the settlement, uninsured patients who were treated at a BJC hospital since Jan. 1, 1999, and paid some or all of the bill may be eligible for a partial refund or reduction in their bill.
Class members will be notified of their right to submit a claim for a refund. The discounts will apply to uninsured patients receiving treatment until at least 2012.
The suit was one in a string filed across the nation in 2004 on behalf of patients without insurance who alleged that they were charged two to three times as much for treatment as patients with insurance cash advance. In 2007, the local lawsuit became the first of those filed in 2004 to receive class-action status.
Under the settlement, which was announced in March, all uninsured patients visiting a BJC hospital for inpatient or outpatient hospital services will receive the 25 percent "self-pay" discount. Those able to pay within 30 days will receive an additional 5 percent discount.
Patients in families earning less than 400 percent of the federal poverty level, or about $84,800 for a family of four, will continue to be eligible for additional "charity care" discounts. Patients in families earning less than 200 percent of the poverty level, or about $42,400 for a family of four, will receive care free of charge.
mjfeldstein@post-dispatch.com | 314-340-8209
The credit crisis is far from over, star analyst Meredith Whitney tells Fortune magazine in its upcoming issue.
Whitney, who audaciously - and correctly - predicted last October that Citigroup (C, Fortune 500) would have to cut its dividend, tells the magazine that banks in general today are still facing much bigger credit losses than what they’ve reported so far.
The Oppenheimer & Co. analyst warned last year - and continues to warn today - that the "incestuous" relationship between the banks and the credit-rating agencies during the real estate bubble will have a long-lasting impact on banks’ ability to recover.
For years the ratings agencies, which are paid by the issuers of bonds, gave high marks to securities backed by subprime mortgages. Many of those bonds, of course, turned out to be anything but safe.
With Moody’s (MCO) and Standard & Poor’s (MHP, Fortune 500) now trying to make up for past wrongs, the pace of downgrades on mortgage securities is quickening.
This is a problem, because every time their portfolios are hit by significant credit downgrades, banks are forced to improve their capital ratios. Often that means issuing reams of new stock, which leads to serious dilution, as shareholders at Citi, Merrill Lynch (MER, Fortune 500), and Washington Mutual (WM, Fortune 500) now know.
"You’re going to have this stealth pressure on bank balance sheets until you start to see the ratio of downgrades to upgrades change," Whitney tells the magazine. (This is an excerpt from "The Woman Who Called Wall Street’s Meltdown and What She Sees Next" in the August 18 issue of Fortune. Read the complete story.)
Whitney’s bearishness has deep roots. In fact, she was the first analyst to sound the alarm loudly about subprime mortgages, predicting back in October 2005 that there would be "unprecedented credit losses" for subprime lenders. The problem, as she saw it, was that loose lending standards and the proliferation of teaser-rate mortgage products had artificially inflated the U.S. home-ownership rate.
A lot of the new homeowners were in over their heads, she believed, and would have trouble making their monthly payments when home prices started to fall and their teaser rates got bumped up.
Whitney’s current concern is that banks aren’t slashing costs and cutting losses in their loan portfolios fast enough. On the cost side, she says, banks have yet to come to terms with the disappearance of the securitization market, which she believes will stay in hibernation for the next three years fast cash advance loan.
Why does this matter? From 2001 through 2005, for every dollar of bank capital used to make mortgage loans, ten were supplied via investors in mortgage securities. All that secondary-market capital is now sidelined, but the staffing levels of bank lending departments don’t yet reflect it.
By Whitney’s reckoning, banks have laid off about 7% of their employees; she thinks the cuts need to reach 25%.
She also argues that banks need to "get real" about how they’re valuing their problem mortgage-related debt, much as Merrill Lynch has now done. Merrill recently sold a large package of toxic mortgage debt for just 22 cents on the dollar.
Whitney’s idea of "real" is pretty drastic. Whereas most banks are estimating 20% to 25% peak-to-trough declines in housing prices, the Case-Shiller housing futures traded on the Chicago Mercantile Exchange portend a much steeper 33% decline, she points out.
In fact, Whitney thinks the actual declines will be worse - closer to 40% - because of the loss of the securitization market and the paucity of mortgage credit available. And that means more defaults: "The consumer’s ability to refinance his way out of trouble has diminished greatly."
Whitney’s critics, and there are many among bankers and analysts, contend her bearishness at this point shows she simply doesn’t know how to measure the remaining downside risk.
Her response: If she has no idea how to properly value bank stocks now, it’s because the metrics don’t work. Price-to-earnings ratios are useless when earnings are nonexistent. And valuing banks on price-to-book ratios is just as futile. Those book values - which reflect underlying assets and liabilities - are moving targets.
"Citibank has lost 50% of its book value since last year," says Whitney, who is married to pro wrestler John Layfield.
"I do not think we are near the end of write-downs," she tells Fortune, "so I continue to see capital levels going lower, capital raises diluting existing shares further, and stocks going lower."
Congress Wednesday examined a proposed $3.1 billion merger that would create the world’s largest carrier as critics of the deal warned it could drive up the price of air travel.
In his opening statement, committee Chairman James Oberstar, D-Minn., said that the merger would have far-reaching ramifications for the global airline industry.
"This should not be and must not be considered as a standalone, individual transaction but rather as the trigger of what will surely be a cascade of subsequent mergers that will consolidate aviation in the United States and around the world into global, mega carriers," he said.
Oberstar said the Delta-Northwest merger would discourage competition at major hubs, reduce service to customers and result in higher fares.
Executive testimony: Delta Chief Executive Officer Richard Anderson said that the merger would not limit competition because the carriers primarily serve different geographic regions. Delta focuses domestically on the East and the "mountain" West and internationally on Europe and Latin America, while Northwest’s domestic strengths are in the Midwest and internationally in Asia. The companies only have 12 overlapping markets.
Anderson and Northwest Chief Executive Officer Douglas Steenland testified under direct questioning that they would not be surprised if other airlines considered a merger to compete with their merged airline.
The executives said they would not close any hubs following the proposed merger and would not eliminate any frontline positions, instead realizing savings by trimming management, corporate staff and overhead costs.
"We think it’s procompetitive," Anderson said. "It’s good for small communities and it will be good for our employees."
Witnesses on tap: About a dozen witnesses scheduled to testify before the House Subcommittee on Transportation and Infrastructure were likely to focus on whether a merger between Delta Air Lines (DAL, Fortune 500) and Northwest Airlines (NWA, Fortune 500) would benefit consumers by lowering prices through cost savings, or harm them by reducing competition.
"The … dirty little secret of these megamergers is the permanent end to meaningful competition between the United States and Continental Europe," Kevin Mitchell, chairman of the Business Travel Coalition, said in prepared testimony.
Delta announced its plans to acquire Northwest on April 14. The combined carrier, which would operate under the Delta name, would have $35 billion in combined sales, operate more than 800 airplanes and employ 75,000 workers, according to Delta http://payday-faxless.com.
After the merger, Delta would still be headquartered in Atlanta and operate the nine hubs of both airlines in the United States, Europe and Asia, serving 390 destinations in 67 countries.
The airline executives claimed that record fuel prices and increased competition from discount carriers and foreign airlines necessitate the merger, which will create a more profitable combined company that will offer greater choice and competitive fares to travelers.
Monopoly fears: Critics decry such arguments.
"It is my firm belief, and the belief of many others, that airline executives are using a crisis of their own making to justify the establishment of what can only be called a monopoly," Robert Roach, general vice president of the International Association of Machinists and Aerospace Workers, said in a prepared statement.
Figures from the U.S. Department of Transportation show that the airline industry was profitable in 2007, with an overall net income of $3.8 billion, up from $1.7 billion in 2006. Record fuel prices in 2008, however, led to a total loss of about $1.7 billion in the first quarter of 2008.
Aviation industry outlook: "Going forward, the outlook for airlines has certainly become cloudy," said Michael Reynolds, acting assistant secretary for aviation and international affairs at the U.S. Department of Transportation. Reynolds did not comment specifically on Delta or Northwest.
Reynolds said fuel prices, a potentially weaker economy and labor-cost pressures pose significant challenges to the aviation industry in 2008.
"Our consideration of aviation economic policy must focus on what is best for both a healthy and competitive industry," Reynolds said. "Our goal must be to strike what is admittedly a very difficult balance in the face of a complex and dynamically changing industry. It must also embrace not just a short-term view of the impact on a particular group of stakeholders, but must consider the longer term, collective impact on all stakeholders."
James O’Connell Jr., deputy assistant attorney general in the Antitrust Vision of the U.S. Department of Justice, said his division takes a special interest in trust issues in the airline industry. The merger will need approval from the Department of Justice in order to proceed. O’Connell declined to comment specifically on the Delta-Northwest merger because of the ongoing evaluation.
The allure of rotting mortgage bonds has grown so strong that Wall Street’s vultures have begun picking over their carcasses — a signal the credit crisis has entered a crucial stage in its vicious cycle.
In the past two months, these intrepid investors have begun betting billions of dollars on a hunch that mortgage security prices have fallen enough. It is a risk few have taken for a year or more as the credit crisis rooted in this very market wreaked havoc in financial markets around the world.
In early February, bid lists for bonds backed by middle-quality mortgages found no takers, even at what were then considered fire-sale prices, between 75 cents and 80 cents on the dollar. But the following month, though, Jeffrey Gundlach, chief investment officer at bond manager Trust Company of the West, began snapping up these same securities at 65 cents on the dollar during what he calls the “darkest moments for the markets.
“You had a massive, massive supply-demand imbalance that had developed into a death spiral,” Gundlach said of the systemic liquidity squeeze in early March cash advances. “Those securities were really cheap against the fundamentals, so we went in big and started buying.”
WATCH THE VULTURES
The behavior of Gundlach and those like him is important because this brand of investor — patient, value scavengers willing to stomach some initial loss in exchange for huge windfalls when a market turns — frequently signals that a market is forming a bottom when they are active.
In early March, banks and hedge funds stripped of access to credit had to sell mortgage securities to raise cash for margin calls. That helped send already panicky U.S. markets into a full-fledged credit freeze.
But the Federal Reserve stepped in and announced that it would lend up to $200 billion of U.S. Treasury securities to banks for 28-day periods in return for debt, including a range of mortgage-backed securities. That broke a month-long sell-off, sending the mortgage securities rallying strongly.
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