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Bucks Blog: More Americans Planning Holiday Travel This Year

November 30, 2011 by Leave a Comment

Holiday traffic near Washington, D.C.Getty ImagesHoliday traffic near Washington, D.C.

It’s that time of year again, and more Americans are saying they will take a trip of at least one night during this holiday season, a recent survey found.

Nearly 60 percent of adults were confident they would take a holiday trip this season. That’s up from 50 percent last year and more comparable with 2009 levels (61 percent), according to a poll conducted by Ipsos Public Affairs on behalf of Mondial Assistance USA, which sells travel insurance and assistance services.

But while more people said they planned to travel, they expected to spend less on their trips — $980 on average, down from $1,040 last year, the survey found. Whether they’ll stick to their budgets, however, remains to be seen. Last year, adults who took a holiday trip reported spending $1,530 on average, well above their initial expectations.

The poll, conducted by telephone in early November, was of a nationally representative sample of 1,000 randomly selected adults. The margin of sampling error is plus or minus 3 percentage points.

More than half of adults (54 percent) said that an annual holiday trip was important. Those most likely to find it important included parents of children under 18; those with a household income of $75,000 or more; and adults under 35.

Still, about two in 10 of those who said it was important to take an annual holiday trip were not confident that they would take one this year. Still, that was an improvement over the 32 percent who were not sure they would take a holiday trip in 2010, which means the “vacation deficit” has decreased.

Car travel is still the top mode of holiday transportation, cited by 56 percent of those surveyed. A third of travelers plan to travel by plane this year, compared with about a quarter last year. Just 1 percent said they’d take a train.

Of those people who did not take a vacation last year, but feel confident they will take a holiday trip this year, 11 percent say that they are alternating travel year by year to save money.

Will you travel for the holidays this year? If not, is it primarily due to economic reasons?

Article source: http://feeds.nytimes.com/click.phdo?i=f8061f75f72a8e9050d0d9e87b62d27e

Filed Under: Your Money Tagged With: , ,

Bucks Blog: Foreclosure Crisis Isn’t Even Halfway Over, Analysis Finds

November 30, 2011 by Leave a Comment

Click to enlarge.Click to enlarge.

A new analysis suggests that the tide of home foreclosures isn’t going to recede soon.

The report from the Center for Responsible Lending, “Lost Ground, 2011,” finds that at least 2.7 million mortgages loaned from 2004 through 2008, or about 6 percent, have ended in foreclosure and that nearly 4 million more home loans (roughly 8 percent) from the same period remain at serious risk.

Put another way, “The nation is not even halfway through the foreclosure crisis,” says the report, which analyzed 27 million mortgages made over the five years.

While most of those who have lost their homes are white, the report found, African-American and Latino borrowers have been disproportionately affected. Roughly a fourth of all those borrowers have lost their home to foreclosure or are seriously delinquent, compared with just under 12 percent for white borrowers.

And across the country, low- and moderate-income neighborhoods and neighborhoods with high concentrations of minorities have been hit especially hard, the report found.

The Center for Responsible Lending is a nonprofit group that works to eliminate abusive financial practices.

Its report also noted that certain types of loans have much higher rates of completed foreclosures and serious delinquencies. They include loans originated by brokers; hybrid adjustable-rate mortgages, option ARMs, loans with prepayment penalties and loans with high interest rates (subprime). African Americans and Latinos were more likely to receive a high-cost mortgage with risky features, regardless of their credit. For example, among borrowers with good credit (a FICO score of over 660), African-Americans and Latinos received a high-interest-rate loan more than three times as often as white borrowers.

Accompanying the report is an online map showing foreclosures and delinquencies by state.

Are you at risk for foreclosure? How has your neighborhood been affected by the crisis?

Article source: http://feeds.nytimes.com/click.phdo?i=9c9eeced7b2b02c7a84403b6c3404f4a

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China, in Surprising Shift, Takes Steps to Spur Bank Lending

November 30, 2011 by Leave a Comment

The central bank said that commercial banks would be allowed to keep a slightly lower percentage of their deposits as reserves at the central bank. The change, which will take effect on Monday, means that commercial banks will have more money to lend, which could help to rekindle economic growth and a slumping real estate market.

Real estate developers, small businesses and other borrowers have been complaining strenuously in recent weeks of weakening sales and scarce credit. Prices have dropped as much as up to 28 percent for new apartments in some Chinese cities this autumn, real estate brokers have been laying off thousands of agents as transactions have dried up, and export orders have slumped.

The Chinese move was a particular surprise because the central bank usually announces moves on Friday evenings, to allow banks and markets plenty of time to digest the news.

The Shanghai stock market slumped 3.3 percent on Wednesday before the announcement was made, its worst one-day loss in four months, on worries that the government might not act. Central bank officials in the United States said the change was not made in coordination with the action taken by the Federal Reserve and central banks in Canada, Britain, Europe and Japan to lower the cost of borrowing dollars for foreign banks.

The central bank increased the so-called reserve requirement ratio six times this year, and raised interest rates three times. The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policy makers.

Monetary policy changes in China are made not by the country’s central bank but by the State Council, the country’s cabinet. Shifts in the broad direction of policy are usually made only with the approval of the Standing Committee of the Politburo of the Chinese Communist Party — the nine men who really run China.

Analysts said that the central bank’s decision to announce a change in reserve requirements instead of quietly nudging state-controlled banks to make more loans showed that an important political decision had been made.

“The public nature of this move — a move that would have gone through the State Council — is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation,” wrote Stephen Green, a China economist at Standard Chartered Bank, in a research note. “This is a big move, it signals China is now in loosening mode.”

The People’s Bank of China, the country’s central bank, cut the reserve requirement ratio by half a percentage point beginning Monday, to 21 percent for large banks and to 19 percent for smaller banks.

The Chinese move was such a surprise that one of the 15 members of the central bank’s monetary policy committee, Xia Bin, had just said at a seminar in Beijing Wednesday morning that China would only “fine tune” its monetary policy and would maintain an overall stance that he characterized as “prudent.”

Those remarks set off a slump in share prices during Wednesday’s trading in Shanghai; the stock market there had been closed for several hours by the time the central bank announced its policy reversal.

The People’s Bank of China is considerably more secretive than central banks in the West and particularly wary of foreign governments because of years of international pressure to allow faster appreciation of the renminbi, China’s currency.

The Chinese central bank provided no explanation for its move on Wednesday evening. The one-sentence statement only said: “The People’s Bank of China decided to cut financial institutions’ renminbi deposit reserve ratio by 0.5 percentage points.”

Easing domestic monetary policy makes it harder for China to maintain its policy of strictly limiting the appreciation of the renminbi against the dollar. The Chinese central bank has been taking most of the money that commercial banks deposit with it as reserves and then using it to buy dollars in international markets, so as to slow the renminbi’s appreciation.

But economists have seen signs in the past month that international investors are losing their appetite for speculative investments in China’s currency and have been buying fewer renminbi. That in turn has reduced the pressure from markets for the renminbi to appreciate and has meant that the central bank no longer needs to maintain its reserve requirements at record-high levels to raise the cash for its huge currency market intervention program.

Among the most widely watched economic indicators in China are the various monthly indexes of orders, backlogs and other details, gathered through surveys of companies’ purchasing managers. HSBC’s preliminary survey for November, released last week, showed an overall index of 48 points. A reading below 50 suggests a slowing economy, and 48 was the lowest reading since March 2009, when the world economy was struggling to recover from the Lehman Brothers bankruptcy and ensuing financial shocks.

The monthly release of the government’s survey is scheduled for Thursday morning in Beijing. It is widely expected to show a dip below 50 for the first time in more than two years.

The central bank’s move on reserve requirements comes as inflation in consumer prices has started to slow, from a peak of 6.5 percent in May down to 5.5 percent in October, according to official data. But private economists say that the true rate of consumer inflation is up to twice as fast, as the official data has a series of methodological shortcomings. China’s National Bureau of Statistics has acknowledged some of these shortcomings, although not the extent of their effect on inflation measurements, and is working on solutions.

Inflation in any case remains well above the government’s target of 4 percent. HSBC predicted in a research note on Wednesday evening that the government would not start reducing regulated interest rates for loans of various maturities until the official inflation rate fell below 3 percent.

Correction: November 30, 2011

An earlier version of this article incorrectly referred to the timing of the Chinese central bank statement, which was issued Wednesday evening, not Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=1d9e622f4e4f6d8f979cfc40bdc759b0

Filed Under: Economy News Tagged With: , ,

Stocks Surge on Action by Central Banks

November 30, 2011 by Leave a Comment

Stocks in the United States surged nearly 4 percent on Wednesday, with the Dow Jones industrial average up more than 400 points, after central banks took action to address growing concern about the debt crisis in the euro zone.

The Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank all moved to bolster financial markets by increasing the availability of dollars outside the United States.

The jump in stocks was an extension of the turmoil and volatility that have weighed on global markets concerned about sovereign debt pressures in Europe for more than a year.

Yet analysts noted that sharp gains have often failed to stick. Even with Wednesday’s jolt, the Standard Poor’s 500-stock index was down 1.4 percent for November so far and down more than 1.6 percent for the year to date. In afternoon trading, the Dow was up more than 419 points, or more than 3.6 percent. The S.P. 500 and the Nasdaq composite index each rose more than 3.5 percent.

“The markets are breathing a sigh of relief,” said Stanley A. Nabi, chief strategist for the Silvercrest Asset Management Group.

But the coordinated action also signaled that the problem had reached a crisis point, he said, and that the central banks recognized there was a “lot of danger” in letting the current situation continue.

Still, he questioned the lasting effects of the action if not followed up with steps to address the roots of the sovereign debt problems in countries like Greece and Italy. The yield on the 10-year Treasury note, which moves in the opposite direction of its price, rose 6 basis points, to 2.054 percent, from 1.99 percent late on Tuesday.

Ralph A. Fogel, head of investment strategy for Fogel Neale Wealth Management, said rates would probably remain very low in the bond markets.

But in equities, Mr. Fogel added, the “fear is off that there is going to be any sort of tremendous move down like there was in 2008.”

Investors and traders were also treated to a swath of economic news on Wednesday in two of the most sensitive sectors, housing and jobs. Statistics from the payroll processing company ADP showed that the economy added 206,000 jobs in November, more than consensus forecasts, while pending home sales rose 10.4 percent in October from the previous month.

Still, the economic news was considered a sideshow in the markets.

“It is all about the central banks,” Mr. Fogel said.

Steven Ricchiuto, chief economist for Mizuho Securities USA, said the economic reports provided a fresh example of how data could be inconsistent as the economy bounces along a shallow growth path.

“The apparently decisive turn in the data follows an equally decisive turn to the downside this past summer, which proved to be only temporary,” he wrote an e-mailed commentary, “and I can see no fundamental reason why the current upside breakout will be any different. Instead, I see this upturn as just one more in a series of false starts.”

The Euro Stoxx 50 closed up at 4.3 percent, and the CAC 40 in Paris ended up 4.2 percent, while the DAX index in Germany was up almost 5 percent. The FTSE 100 in London rose 3.16 percent.

On Wall Street, shares of banks, energy companies and materials providers all powered ahead by more than 4 percent.

Bank of America shares, which on Tuesday fell more than 3 percent, to $5.08, their lowest closing level since March 2009, were up more than 3 percent, at $5.24, on Wednesday.

Financial shares have come under particular pressure as the euro crisis has dragged on, and after the market closed on Tuesday, the Standard Poor’s ratings agency reduced its outlook on several big banks, including JPMorgan Chase and Bank of America.

The dollar fell against an index of major currencies. The euro rose to $1.3460 from $1.3317.

Binyamin Appelbaum contributed reporting from Washington.

Article source: http://feeds.nytimes.com/click.phdo?i=858859a4973570e501d1915b2ffa6099

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Economix Blog: Casey B. Mulligan: Bankers, Too, Cast a Safety Net

November 30, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

The combination of housing market events and the profit motive of mortgage lenders turned trillions of dollars of household debt into a huge safety net.

Today’s Economist

Perspectives from expert contributors.

Household debt had been increasing during the 1980s and 1990s, but the rate of increase was extraordinary in the years leading up to the recession. By 2007, household sector debt had reached 114 percent of the nation’s personal income – more than $14 trillion. The change was almost entirely due to accumulation of home mortgage debt.

Normally, home mortgages are fully secured by a residential property, and when a homeowner fails to make the scheduled payments on time, the lender can seize the property and sell it to recover its principal, interest and fees. When the lender has this valuable foreclosure option, borrowers overwhelming either make their home mortgage payments on time or sell their property in an orderly fashion to obtain the money to repay the mortgage lender, even in cases when the homeowner is unemployed.

When residential property values plummeted in 2008 and 2009, a number of residential properties were suddenly “under water” — worth less than the mortgages they secured. In those cases, the lender’s foreclosure option was no longer valuable – selling the property would be likely to yield too little money to cover principal, let alone interest and fees.

Lenders needed a way to estimate which borrowers would still pay in full and a way for other borrowers to work out a mortgage modification that would give them an incentive to pay at least a bit more than their homes were worth.

Naturally, a borrower’s income is a factor considered – borrowers with high income can be expected to repay more than borrowers with low income. Thus, a partial solution to the lenders’ collection problem is to insist that high-income borrowers pay more of the mortgage amount due and allow at least some low-income borrowers to pay less.

From this perspective, the lenders’ desire to maximize debt collections (after the collapse of residential real estate values) causes them to create a kind of safety net program that gives low-income people more help with their housing expenses (much the way the federal food stamp program gives low-income people more help with their food expenses) in the form of modified mortgage payments.

To quantify the size of the loan modification safety net and its changes over time, I estimate the amounts that “home retention actions” (as the federal government calls these mortgage modifications that allows people to stay in their homes) actually changed mortgage payments from the original mortgage contract, which specified only payment in full or foreclosure.

To estimate those amounts for 2008-10, I first measured the number of residential properties in each quarter receiving loan modifications, lender permission for short sale or lender permission for deed-in-lieu of foreclosure.

Next, I multiplied the number of transactions by a $20,319 average value of each loan modification (a typical modification reduced monthly payments by $400 for a minimum of 60 months; at an annual discount rate of 7 percent, that’s a present value of $20,319). I do not have data on the number of home retention actions for the years 2006 and 2007, but I assume the dollar value of discharges those years were, as a proportion to discharges in 2008, the same as total mortgage loan discharges by commercial banks.

Because the home retention actions are necessary primarily when homes are worth less than the mortgages they secure, the amount discharged by home retention actions is much less in 2006 and 2007 when residential property values were still high. During 2010, mortgage lenders discharged more than $70 billion of mortgage debt through home retention actions. Seventy billion dollars for one year is small in comparison to the total amount that homeowners were under water but is more than the spending by the entire food stamp program for that year.

The last row of the table displays discharges on other consumer loans, such as credit card debt. Those discharges are smoother over time because they are not directly tied to the housing cycle but still totaled more than $70 billion in 2010. The combination of discharges of other consumer loans and discharges of home mortgages by home retention actions was almost $150 billion in 2010, which exceeds the peak spending for entire unemployment insurance system.

Bankers deserve a lot of blame for getting us into this mess, have dipped far too deeply into the United States Treasury to help themselves, and have been far too slow to modify mortgages. For these reasons, it’s remarkable that their own selfish pursuits have forced them to create a safety net of sorts that rivals the amounts spent by public sector safety net programs.

Article source: http://feeds.nytimes.com/click.phdo?i=f0a9e27a51ba4d0f9f582cf3a628574f

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Andrew M. Kramer, Leading Labor Lawyer, Dies at 67

November 30, 2011 by Leave a Comment

Andrew M. Kramer, a lawyer who handled dozens of labor disputes for major corporations and helped old-line manufacturers figure out how to cope with crushing health care costs for retirees, died on Nov. 21 at his home in Potomac, Md. He was 67.

The cause was cancer, said his law firm, Jones Day. .

General Motors, Westinghouse Electric and the Boston Red Sox were among the many prominent companies that turned to Mr. Kramer as a wily, patient labor negotiator who knew how to sort through emotionally charged issues to reach a settlement with union leaders.

“Andy was a problem solver,” said Ron Bloom, who served as President Obama’s senior counselor on manufacturing policy and had been a top negotiator for the United Steelworkers. “Oftentimes in labor relations, there can be a decent amount of bluster and threatening and jumping up and down and macho. Andy just wasn’t into that. Andy was into sitting down and figuring out where the deal was.”

Mr. Kramer was a leading architect of a new financial mechanism that has helped save many manufacturing companies from extinction. As companies like General Motors and Goodyear faced outsize liabilities for their retirees’ health care, corporate officials began fearing huge losses and bankruptcy unless they found a way to reduce those liabilities. Some of these companies had three times as many retirees as workers.

“Many of these companies have legacy costs which constitute balance sheet and survival issues,” Mr. Kramer said in a 2006 interview with the publication Metropolitan Corporate Counsel. “The ratio of active workers to retirees today is the opposite of what it was 30 years ago. As a consequence we are negotiating and strategizing on billions of dollars of liability. Our efforts in this regard will determine the future of some of these enterprises. It is an interesting time to be a labor lawyer.”

With General Motors, Goodyear and other companies, Mr. Kramer worked with unions, actuaries and corporate officials to help the companies shed many of those obligations by creating a trust, known as a Voluntary Employee Beneficiary Association (VEBA), into which many companies injected cash, stock holdings or both to finance retiree health coverage, while limiting their future liabilities.

Mr. Kramer often engaged in tense negotiations over how much companies would contribute and how much retirees’ health coverage would be rolled back. When he worked with General Motors and the United Automobile Workers, G.M. agreed to contribute $35 billion to its VEBA.

In 2007, American Lawyer magazine called Mr. Kramer “the undisputed king of VEBA law.”

Andrew Michael Kramer was born in Manhattan on Nov. 2, 1944. He grew up in Detroit, where his father was a lawyer. He graduated from Michigan State University in 1966 and from the Northwestern University School of Law in 1969.

He went to work for the law firm Seyfarth Shaw in Chicago, although he took a leave in 1973 and 1974 to serve as executive director of the Illinois Office of Collective Bargaining, helping draft an executive order giving many of that state’s workers the right to bargain.

In 1983 he joined Jones Day, where he became head of its employment law practice and later of its worldwide client affairs.

Also in 1983, he married Nita Albert, who survives him, as do a son, Howard; three daughters, Jennifer Lukowski and Stephanie and Samantha Kramer; and four grandchildren.

George H. Cohen, director of the Federal Mediation and Conciliation Service, said that at a time when numerous governors and companies were challenging the institution of collective bargaining, “Andy stood out as one of the main management-side opponents of that approach. He advised a lot of corporations on how to accommodate strongly competing interests and get to an agreement. That’s what Andy’s forte was.”

Article source: http://feeds.nytimes.com/click.phdo?i=3cb76d72648f8708daf86e0827eb5018

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Center for Automotive Research Predicts Sharp Gain in Auto Jobs

November 30, 2011 by Leave a Comment

DETROIT — Employment in the auto industry will return to prerecession levels by 2015, with carmakers and their suppliers adding about 167,000 jobs by then, according to estimates by an auto industry research firm.

The job growth would represent a 28 percent increase over current levels but would still replace only about a third of the jobs lost in the last decade. And much of the increase is made possible by labor agreements ratified this fall that allow the Detroit automakers to hire more workers on the lower of their two pay scales.

The industry group, the Center for Automotive Research in Ann Arbor, Mich., said it expected the Detroit automakers to hire 14,750 hourly employees in the next four years. They would receive entry-level wages of $16 to $19 an hour. Workers hired before 2007 earn about $29 an hour.

The group projected that about 15 percent of the new jobs would be at Detroit automakers, and nearly 80 percent would be at suppliers. Foreign automakers would account for the rest.

Sean McAlinden, the group’s chief economist, said that about one in six hourly workers at the three Detroit companies would be earning entry-level wages in 2015. They will account for 23 percent of hourly workers at Chrysler, 17 percent at General Motors and 12 percent at Ford, he said.

Currently, about 5 percent of hourly workers at the three automakers are paid entry-level wages.

Mr. McAlinden said that he expected the companies eventually to stop using a two-tier wage system but that it would most likely survive past their next contract negotiations with the United Automobile Workers union, in 2015. Chrysler’s chief executive, Sergio Marchionne, unsuccessfully pushed to eliminate the system during this year’s negotiations, though he said he did not propose cutting wages for any existing workers.

The two-tier system was created in 2007 to help the automakers cut labor costs as they were hemorrhaging money, but only recently were they able to begin hiring new workers in large enough numbers for the savings to have a noticeable effect on the bottom line.

“This was the only real option for lowering labor costs and increasing employment,” said Kristin Dziczek, director for the labor and industry group at the Center for Automotive Research.

The automakers have said the new contracts would result in a minimal increase to their labor costs, which was their overarching goal during the negotiations, while the union tried to recover some of the concessions it had given up in recent years.

Mr. McAlinden estimated that the new contracts would add $114, or 8 percent, to the companies’ average per-vehicle labor costs by 2015. The increases range from $85 a vehicle at G.M. to $166 at Chrysler, though Chrysler’s per-vehicle labor costs would remain the lowest of the three, at $1,293.

About 590,000 people now work in the auto industry, 13 percent more than in July 2009, when G.M. emerged from bankruptcy, Ms. Dziczek said. That figure is expected to grow to 756,800 in 2015.

Much of the job growth will happen in Michigan, where the three Detroit automakers cut more than half of their jobs since 2001, she said.

Article source: http://feeds.nytimes.com/click.phdo?i=9a202fba39af079f2b885e22aa39c7da

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DealBook: For 92nd St. Y, a Break From Wall St. Worry

November 30, 2011 by Leave a Comment

The 92nd Street Y, a premier Upper East Side cultural institution, has some unusual insurance against the market's vagaries.Jennifer S. Altman for The New York TimesThe 92nd Street Y, a premier Upper East Side cultural institution, has some unusual insurance against the market’s vagaries.

Clients of John A. Paulson, the billionaire hedge fund manager, have had a brutal year, absorbing losses of as much as 50 percent.

But one of Mr. Paulson’s investors — the 92nd Street Y — has nothing to worry about.

That’s because Mr. Paulson, a member of the organization’s board, has guaranteed he will cover the Y for any losses it incurs in his funds. Barring a sharp recovery, Mr. Paulson will have to write a personal check to the organization for several million dollars.

“This is a very uncommon arrangement,” said Andrew M. Grumet, a lawyer specializing in philanthropy. “But the 92nd Street Y isn’t your average nonprofit, and John Paulson isn’t your average money manager.”

John Paulson has guaranteed the 92nd Street Y against losses in his funds.Rick Maiman/Bloomberg NewsJohn Paulson has guaranteed the 92nd Street Y against losses in his funds.

One of New York’s premier cultural institutions, the 92nd Street Y also houses an exclusive preschool and nursery school, which Mr. Paulson’s daughters attended. Tuition runs as high as $27,150 a year. The Y, on the Upper East Side of Manhattan, is headed by a board that includes some of best-known names in business: Bronfman, Lauder, Tisch.

Its board is also stocked with Wall Street titans, including Mr. Paulson, who emerged from relative obscurity a half-decade ago to become one of Wall Street’s most successful speculators. He made about $4 billion in 2007 by betting against subprime mortgages. He made another $5 billion in 2010, largely from investments in gold.

But his fortunes have turned this year. Mr. Paulson’s largest funds — his assets under management had swelled to nearly $40 billion — are down 30 to 50 percent, largely as a result of a wager that the economy would recover more quickly than it has.

As a result of such losses, he could owe the 92nd Street Y as much as $4 million, according to two people with knowledge of the agreement who requested anonymity because they were not authorized to discuss it. Yet given Mr. Paulson’s wealth — Forbes magazine estimates his fortune at $15.4 billion — a $4 million check would be pocket change for the 55-year-old native of Queens.

Mr. Paulson is the 92nd Street Y’s largest outside manager, running about $10 million of the school’s $37.9 million in investments, the two people said.

“We’re certainly not ashamed of any of this,” said Sol Adler, the executive director of the 92nd Street Y. “This institution has particularly generous board members, including John and a number of others.”

Mr. Paulson’s agreement to backstop his fund’s losses at the 92nd Street Y is alluded to in the organization’s financial statements, where it is disclosed in a footnote titled “related-party transactions.” The disclosure says that four board members or their immediate families manage money for the 92nd Street Y’s investment portfolio, and that they promised to cover any losses. They also agreed to reimburse the organization for certain fees on the investments.

Other hedge fund managers who have the arrangement with the 92nd Street Y are board member Curtis Schenker, the chief executive of Scoggin Capital Management, and Ricky Sandler, the head of Eminence Capital, whose wife serves as a director. The fourth manager was not disclosed. Mr. Paulson and the other hedge fund managers declined to comment.

“Paulson Company manages funds for approximately 50 foundations and endowments,” said Armel Leslie, a spokesman for Mr. Paulson. “Due to client confidentiality, we do not disclose either the names of our clients, or the terms of their investments with us.”

The 92nd Street Y’s board approached Mr. Paulson and the other managers with the idea several years ago, according to a person with knowledge of the matter. The concept was to gain the benefits of the directors’ investment expertise while protecting itself against losses. Also, by securing such extraordinary terms, the board felt it would eliminate any concern that the board would favor its own trustees over a disinterested money manager.

Philanthropy and corporate governance specialists said that while agreements to personally guarantee against losses were highly unusual, they did not violate any nonprofit laws — as long as the organization made the proper disclosures and forbade trustees from voting on matters in which they had a personal stake.

Several experts said they admired the deal the 92nd Street Y had with the fund managers because of how it upended the traditional risk-reward equation that came with investing, especially in the more volatile hedge fund sector.

“It’s the proverbial win-win,” said a New York-based philanthropy adviser who requested anonymity because she works with a number of the city’s charitable organizations and did not want to risk alienating them. “The Y gets the benefit of potentially lavish hedge fund returns, while limiting their downside risk to zero.”

But others point to an issue that has long been debated in philanthropy circles: Should members of a nonprofit’s board be managing its money, regardless of any special deals they cut for the organization?

The problem is that a nonprofit that does business with its board members subjects itself to accusations of favoritism, say critics of the practice. Another concern is whether the organization has done the same due diligence on its directors’ money management firms as it would for funds unconnected to the board.

“With all the money managers in New York City, I’m not sure it’s necessary to select people who are also trustees of the school,” said Richard Chait, a research professor at the Harvard Graduate School of Education.

New York’s elite private schools have something of a high-class problem, as their boards are filled with top Wall Street executives. They write big checks for capital campaigns and consistently donate generous sums to the annual fund. But they also offer access to hedge funds and private equity funds, many of which are closed to new investors — or at least nonconnected ones.

As colleges and universities have shifted investments over the last decade away from plain-vanilla stocks and bonds and into more high-risk, high-reward investments like hedge funds and private equity, private schools have followed suit. And a driving force has been the presence of some of the prominent investors on the schools’ boards.

At Horace Mann there’s Eric Mindich, the former Goldman Sachs wunderkind who founded Eton Park Capital Management, a multibillion-dollar hedge fund. The Ethical Culture Fieldston School has Laura Blankfein, the wife of the Goldman Sachs chief executive, Lloyd C. Blankfein. The Dalton School’s board includes Douglas Braunstein, the chief financial officer of JPMorgan Chase.

Yet despite these schools’ deep Wall Street ties, several of them, including Dalton and Horace Mann, have a policy of not investing money with their trustees to avoid a conflict of interest or any appearance of favoritism.

Many of the 92nd Street Y’s board members send, or have sent, their children to its nursery school, where the competition for openings is intense. Their largess also accounts for a sizable portion of the institution’s financing. During 2009 and 2010, board donations accounted for nearly half of the 92 St Y’s total contributions, according to its financial statements.

A decade ago, the 92nd Street Y suffered through an embarrassing episode when it emerged that Sanford I. Weill, then the chief executive of Citigroup, tried to help the twins of Jack Grubman, the bank’s star stock analyst, gain admission to the preschool. Citigroup donated $1 million to the organization around the time that Mr. Weill made his request. Both Citigroup and Mr. Weill denied any wrongdoing.

Mr. Paulson’s two daughters attended the 92nd Street Y nursery school. At least one of them now goes to Spence, an all-girls private school on the Upper East Side. Mr. Paulson joined Spence’s board last year and manages money for the school.

It is unclear whether he has a similar agreement in place with Spence as his one with the 92nd Street Y. A representative for Spence declined to comment.

Article source: http://feeds.nytimes.com/click.phdo?i=db25dcb4e4c1408a97c416abc40a4fc8

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Britons Strike as Government Extends Austerity Measures

November 30, 2011 by Leave a Comment

Courts, schools, hospitals, airports and government offices could all be hit by the strike, which has come to be seen as an emblem of resistance to government plans to squeeze public-sector pensions and cut government spending to reduce debt.

Education authorities across Britain said thousands of schools had closed because teachers were on strike, and many parents had taken a day off from work to look after children.

The stoppage was billed as the most extensive in decades, mirroring the turmoil in the debt-plagued euro zone across the English Channel and offering a reminder of the potential social and political impact of the financial crisis seizing much of Europe. While Britain is not part of the single European currency, it is a member of the European Union and relies on the continent for much of its trade.

The chancellor of the Exchequer, George Osborne, said on Tuesday that because of the slowdown in the euro zone, British economic growth this year and next would be slower than forecast in March and “debt will not fall as fast as we’d hoped.”

He added that Britain could avoid a recession next year only if the euro zone found a solution to its crisis.

“We’ll do whatever we can to protect Britain from this debt storm,” Mr. Osborne told a packed Parliament. “If the rest of Europe heads into a recession, it may be hard to avoid one here in the U.K.”

News reports on Wednesday spoke of picket lines being set up outside public buildings while workers planned rallies and demonstrations across Britain. Some of the first workers to strike were in Liverpool, where tunnels under the River Mersey were closed. But the overall level of participation remained unclear.

Some routes into London, normally clogged with commuter traffic and cars ferrying children to school, were virtually deserted as the strike began.

Medical officials said up to 60,000 nonurgent hospital procedures — from surgery to outpatient visits — were postponed because of the strike. But airport operators said that two Britain’s two biggest airports — Heathrow and Gatwick near London — were functioning with relatively little delay because many border service personnel had not joined the strike and were being assisted by other government officials to inspect the passports of arriving passengers.

The airports had been an early focus of worries that travelers could be delayed by up to 12 hours.

“Immigration queues are currently at normal levels,” BAA, the leading airport operator, said. In addition to drafting in support staff, the operator had also asked airlines to restrict the number of passengers booked on flights.

“However, there still remains a possibility for delays for arriving passengers later in the day,” BAA said.

The company operating Eurostar, the high-speed train using the Channel tunnel, had urged passengers to be prepared for delays. But, by midmorning, a Eurostar spokeswoman said, “everything is fine, with no delays or cancellations.”

At the weekly parliamentary session devoted to questions to the prime minister, the strike provoked fierce exchanges between Prime Minister David Cameron and the Labour opposition leader, Ed Miliband, who accused the government of secretly welcoming the walkout.

“I don’t want to see any strikes,” Mr. Cameron said. “I don’t want to see our schools closed. I don’t want to see problems on our borders.”

He called the strike “something of a damp squib,” but acknowledged that it had forced the closure of 60 percent of British schools. He also said that “less than a third” of civil service employees were on strike.

Article source: http://feeds.nytimes.com/click.phdo?i=6b45846e58d39f5d7b29fbaae1cdace2

Filed Under: Business News Tagged With: , ,

China Unexpectedly Reverses Economic Policy

November 30, 2011 by Leave a Comment

The central bank said Wednesday that commercial banks would be allowed to keep a slightly lower percentage of their deposits as reserves at the central bank. The change, which will take effect on Monday, means that commercial banks will have more money available to lend, which could help to rekindle economic growth and a slumping real estate market.

Real estate developers, small businesses and other borrowers have been complaining strenuously in recent weeks of weakening sales and scarce credit. Prices have dropped up to 28 percent for new apartments in some Chinese cities this autumn, real estate brokers have been laying off thousands of agents as transactions have dried up, and export orders have slumped.

The Chinese move was a particular surprise because the central bank usually announces moves on Friday evenings, to allow banks and markets plenty of time to digest the news.

The Chinese announcement came after the Shanghai stock market had slumped 3.3 percent on Wednesday, its worst one-day loss in four months, on worries that the government might not act.

The reduction in the so-called reserve requirement ratio came after the central bank had increased the same ratio six times this year, and raised interest rates three times. The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policymakers.

Monetary policy changes are made not by the country’s central bank but by the State Council, the country’s cabinet. Shifts in the broad direction of policy are usually made only with the approval of the Standing Committee of the Politburo of the Chinese Communist Party – the nine men who really run China.

Analysts said that the central bank’s decision to announce a change in reserve requirements instead of quietly nudging state-controlled banks to make more loans showed an important political decision had been made.

“The public nature of this move – a move that would have gone through the State Council – is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation,” wrote Stephen Green, a China economist at Standard Chartered Bank, in a research note. “This is a big move, it signals China is now in loosening mode.”

The People’s Bank of China, the country’s central bank, cut the reserve requirement ratio by 0.5 percentage points as of Monday, to 21 percent for large banks and to 19 percent for smaller banks.

The Chinese move was such a surprise that one of the 15 members of the central bank’s monetary policy committee, Xia Bin, had just said at a seminar in Beijing on Wednesday morning that China would only “fine tune” its monetary policy and would maintain an overall stance that he characterized as “prudent.”

Those remarks triggered the slump in share prices during Wednesday’s trading in Shanghai; the stock market there had been closed for several hours by the time the central bank announced its policy reversal.

It was unclear if the Chinese move had been coordinated with the six central banks in the United States, Europe and Japan that agreed an hour later to provide more liquidity to world financial markets.

 

     The United States Treasury notifies the Chinese government of policy moves by the Obama administration, so as to reassure the United States government’s largest foreign creditor. But economists say that there has been little international coordination of monetary policy by China’s central bank.

    The People’s Bank of China is considerably more secretive than central banks in the West and particularly wary of foreign governments because of years of international pressure to allow faster appreciation of the renminbi, China’s currency.

 

     The Chinese central bank provided no explanation for its move on Thursday evening. The one-sentence statement only said, “The People’s Bank of China decided to cut financial institutions’ renminbi deposit reserve ratio by 0.5 percentage points.”

Article source: http://feeds.nytimes.com/click.phdo?i=f92ba141d1e22e42d3c10afc2ff5ca68

Filed Under: Business News Tagged With: , ,
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