Are We In An Economic Depression Part 2

Releasing its first global economic forecasts since June, the World Bank was more upbeat about this year's outlook, with the rate of recovery expected to reach 2.7% instead of 2%.

The contraction in 2009 was also estimated to be more modest than expected, a drop of 2.2% instead of 2.9%. The 2011 forecast was left unchanged at 3.2%.

But the bank painted a more sobering picture for next year and beyond, as credit conditions remain tight and governments start to withdraw extraordinary support measures.

"If the private sector continues to save in order to restore balance sheets, a double-dip recession, characterized by a further slowing of growth in 2011, is entirely possible--especially as the growth impact of fiscal stimulus wanes," the bank said. Goldman Sachs Group Inc. responded to intense criticism of big Wall Street paychecks by putting less money into its bonus pool, a move that helped it earn a record $4.79 billion fourth-quarter profit.

The big bank said yesterday that it rewarded employees with $16.2 billion in salaries and bonuses for 2009. That’s up 47 percent from the previous year but much lower than many expected. In all, compensation accounted for 36 percent of Goldman’s $45.17 billion in 2009 revenue, the lowest annual ratio since the company went public in 1999. In 2008, Goldman set aside 48 percent of its revenue to pay employees.

The company is also shifting more pay into deferred stock, allowing it to hold off recording compensation costs for years.The pay restructuring helped the bank easily top analysts’ earnings estimates. Goldman earned $8.20 a share in the last three months of the year, well above the $5.20 a share expected by analysts surveyed by Thomson Reuters.The $4.79 billion profit was the biggest quarterly gain ever for the New York-based bank. The previous record was $3.16 billion in the fourth quarter of 2007, as the bull market on Wall Street was peaking.Trading of fixed income, commodities, and currencies buoyed Goldman’s profits for the third straight quarter.

The bank also reported higher fees from underwriting stock and debt offerings.Berkshire Hathaway reinsurer General Re agreed to pay almost $100 million to settle several charges and a lawsuit related to its involvement in accounting frauds by American International Group and Prudential Financial, the Securities and Exchange Commission said Wednesday.Gen Re agreed to pay $12.2 million to settle SEC charges that it helped AIG (AIG 28.01, +0.05, +0.18%) and Prudential (PRU 53.70, +0.08, +0.15%) manipulate and falsify their financial statements, the regulator said.

Gen Re will also pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund as part of a nonprosecution agreement unveiled by the Department of Justice, the SEC said. That was related to a criminal investigation into Gen Re's transactions with AIG.Gen Re also agreed to pay $60.5 million to settle a class-action lawsuit on behalf of injured AIG shareholders. Gen Re also forfeited to the government roughly $5 million in fees it got from helping AIG falsify its financial statements, the SEC said.Berkshire (BRK.A 104,500, +300.00, +0.29%) (BRK.B 3,492, +15.99, +0.46%) bought Gen Re in 1998. The acquisition has been one of Chairman Warren Buffett's most troubled deals. Read about Gen Re and Berkshire.

The settlements stem from an accounting scandal that erupted at AIG during the previous decade, before the insurance giant almost collapsed and had to be bailed out by the government.

The controversy led to the departure of longtime AIG Chief Executive Maurice "Hank" Greenberg.The SEC alleges that a foreign subsidiary of Gen Re entered into two "sham" reinsurance transactions with AIG in 2000. The contracts allowed AIG to falsely report rising loss reserves and premiums written, the regulator claimed. AIG paid more than $800 million to settle the charges.Gen Re also arranged a series of "sham" reinsurance contracts with Prudential's property and casualty division from 1997 to 2002.

The deals helped Prudential improperly recognize more than $200 million in revenue in 2000, 2001 and 2002, the SEC said. Prudential was separately charged with securities law violations in 2008, the regulator noted. [As you can see, members of the illuminati never go to jail; they just buy their way out. Warren Buffett and Maurice Greenberg are both crooks. If you or I did what they did we’d be doing 10 years in the slammer. This is a national disgrace that these people can get away with this.

It is simply horrifying. Bob]California is poised to become the first state to set time limits for doctors to see patients, the Department of Managed Health Care said.Regulations to be announced today require family practitioners in health maintenance organizations to see patients seeking an appointment within 10 business days.The deadline for specialists is 15 days.A patient seeking urgent care that does not require prior authorization must see a doctor within 48 hours.However, doctors can extend the waiting period if they determine it will not harm the patient’s health.

The rules, set to take effect in January 2011, “set reasonable expectations about when care should be provided,’’ said Cindy Ehnes, Department of Managed Health Care director.The regulations follow years of negotiations among state officials, doctors, hospitals, HMOs, and consumer and health care activists. A 2002 state law mandated more timely access to medical care but didn’t provide specifics.The rules could be an important change for the 21 million Californians who subscribe to HMO plans, state officials said.

The gap in productivity growth between the United States and Europe widened sharply as US businesses were more aggressive in laying off workers and pushing their remaining employees to be more efficient, according to a business research group. Growth in productivity is the key factor in rising living standards.

In a new report, the Conference Board estimated that productivity - the amount of output per hour of work - rose in the United States by 2.5 percent in 2009 while productivity was falling by 1 percent on average in the euro area, the 16 European nations that use the euro currency.

The Conference Board said in a report to be released today that the gap would narrow in the current year but the United States would still outperform much of the euro area.The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials.

These policy changes, scheduled to be announced on Wednesday, are part of the agency's effort to beef up its ailing finances, which have been eroded by rising defaults in its increasingly popular flagship mortgage insurance program. The FHA currently backs about 30 percent of all loans for home purchases and 20 percent of refinanced loans.

Under this plan, the agency would increase the up-front insurance premium that borrowers pay at the closing table from 1.75 percent to 2.25 percent of the loan's value starting this spring.While most FHA borrowers can continue to make down payments of as little as 3.5 percent when they take out a loan, those with a credit score of less than 580 will have to make a down payment of at least 10 percent, possibly starting in the early summer.The agency also plans to propose limits on the amount of money sellers can kick in, including by paying closing costs or giving free upgrades.

The agency will reduce seller concessions from 6 percent to 3 percent of the home's value, in line with the industry norm, this summer.EVER SINCE his inauguration a year ago, President Obama has tried to motivate Congress with a strong ultimatum: Pass climate-change legislation, or the Environmental Protection Agency (EPA) will use its authority under the Clean Air Act to curb carbon emissions without your input.Instead of accepting this as a prod toward useful action, Sen. Lisa Murkowski (R-Alaska) apparently wants to disarm the administration.

This week she is set to offer a measure, perhaps as an amendment to a bill raising the federal debt ceiling, that would, one way or another, strip the EPA of its power to regulate carbon emissions as pollutants, perhaps for a year, perhaps forever. We aren't fans of the EPA-only route.

The country would be better off if Congress established market-based, economy-wide emissions curbs. But hobbling the agency isn't the right course, either.If Congress fails to act, carefully administered EPA regulation of carbon emissions could ensure that America makes some real reductions, if not necessarily in an optimally efficient manner.

If Congress passes climate legislation, the EPA's role, if any, could be tailored to work with a legislated emissions-reduction regime. So removing the EPA's authority now is at least premature. The correct response to the prospect of large-scale EPA regulation is not to waste lawmakers' energy in a probably futile attempt to weaken the agency. Instead, the Senate should provide a better alternative.

That effort is already fraught. The best policies -- a simple carbon tax or cap-and-trade scheme -- aren't gaining steam. Instead, the House passed a leviathan bill, and the Senate is stalled. Majority Leader Harry M. Reid (D-Nev.) indicated last week that he fears Ms. Murkowski's measure will diminish chances of producing a bipartisan climate-change bill. Ms. Murkowski would do better by helping end the Senate's paralysis than by seeking to condemn the rest of government to the same inaction.

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index rose 2% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis. The increase--the biggest in the past month--came as consumers "headed to discounters to fight the post-holiday blues," ICSC said. The group noted that January is a low-volume month and can be affected by small swings.

"Sales shifted towards discounters during this past week, which helped to lift the week-over-week pace," added ICSC chief economist Michael Niemira. Last week, ICSC said consumers after the holidays had tended not to purchase items unless they were on sale. Niemira also reiterated that January industrywide comparable-store sales are likely to be flat to up 1% "as lean inventories and the lack of the consumer's need to shop will keep sales moderate for the month." On a year-on-year basis, the reading rose 2.6% last week.Building permits in the U.S. unexpectedly jumped in December, signaling gains in housing will be sustained into 2010 after winter weather depressed construction at the end of last year.

Applications rose 11 percent to a 653,000 annual rate last month, the most since October 2008, the Commerce Department said today in Washington. Work began on houses at a 557,000 pace, down 4 percent from November. Wholesale prices in the U.S. rose at a slower pace in December, showing the economy is recovering without the immediate threat of inflation.

The 0.2 percent increase in prices paid to factories, farmers and other producers followed a 1.8 percent jump in November, according to Labor Department data released today in Washington. The gain was more than anticipated and reflected higher food costs. Excluding food and fuel, so-called core prices were unchanged. Senate Democrats are to seek an increase to the federal government's borrowing limit by $1.9 trillion lifting the total amount the U.S. government can owe to $14.294 trillion, several congressional aides said Wednesday.

The increase is forecast to support the federal government's borrowing needs the end of 2010, one Senate Democratic aide said.The borrowing hike comes fast on the heels of a $290 billion increase to the debt ceiling agreed to by lawmakers at the end of 2009.This is not a perfect world, and there will be no way out of the current crisis – which has been decades in the making – without even more pain. But best to suffer the pain sharply than to drag it out like the death of a thousand cuts, as will be the case if we remain on the path of perpetual spending we are now on.

Ohio's unemployment rate has edged up to 10.9 percent for December, from 10.6 percent the month before.The U.S. government's move to deepen its ties to mortgage-finance giants Fannie Mae and Freddie Mac by agreeing to absorb unlimited losses for the next three years is igniting a debate over whether it should bring the business operations of the companies onto its books.A decision on how the government treats Fannie and Freddie could have broader political implications. So far, the White House has resisted calls by Republicans to bring Fannie's and Freddie's obligations onto the government's books, a move that could boost the federal deficit by tens of billions of dollars.

At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies' future.The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies.Manufacturing conditions in the Philadelphia Fed area have continued improving in January, although at at a slower pace than in December, according to the latest Business Outlook Survey by the Federal Reserve of Philadelphia.

The Philly Fed current business conditions Index has eased to 15.2 in January from 22.5 in December, somewhat below the 18.2 index forecasted by market analysts.New orders and business indexes have continued growing although also at a slower pace than in December.

New orders Index dipped to 3.2 in January from 6.5 in December, while shipments Index dropped to 11.0 from 15.3 in December.The Leading Economic Index for the US grew to 1.1% in January from 0.9% in December. This result marks the ninth consecutive month of gains in the index and is ahead of forecasts of a slight decline to 0.7%.The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week - an increase a U.S. Labor Department economist said is partly due to an administrative backlog in processing claims.

Total claims lasting more than one week, meanwhile, declined. Initial claims for jobless benefits rose by 36,000 to 482,000 in the week ended Jan. 16, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 446,000 from 444,000. Economists surveyed by Dow Jones Newswires expected a decrease of 4,000 initial claims. The four-week moving average, which aims to smooth volatility in the data, also increased as well last week.

The Labor Department said the four-week moving average increased by 7,000 to 448,250 from the previous week's revised average of 441,250.The loan troubles of many U.S. consumers weighed down fourth-quarter results at Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp, but bank executives predicted loan losses are near a peak.The three banks hold a combined 24% of all U.S. deposits and operate more than 15,000 retail branches, making them important barometers of consumer sentiment and the health of the U.S. banking industry.

The Treasury Department asked bond dealers on Friday what, if any, impact the Federal Reserve's completion of its mortgage-related security purchases will have on bond markets, and financial markets more broadly. The Fed has said it would buy $1.425 trillion by late March.

Before each quarterly debt refunding, the department meets with its primary dealers to discuss supply issues and anything else affecting the markets. The request came in its survey of dealers before that meeting. Estimates on how much mortgage rates may rise after the purchases end, including from the last committee meeting, range as high as one percentage point.

As Goldman Sachs prepared to announce its fourth quarter earnings and employee compensation levels yesterday, the bank had bomb-sniffing dogs and police barricades on hand at its New York City headquarters, the New York Post reports.The decision to boost security as its offices was apparently driven by growing fervor over the bank's huge profits and bonuses.

Yesterday, the bank announced that it earned $13.4 billion for the year, and set aside $16 billion for employee compensation. Goldman was widely expected to set aside approximately $20 billion for employee pay, but CFO David Viniar suggested yesterday in a call with reporters that the bank wasn't blind to the "pain and suffering in the world" and "wasn't deaf to the calls for restraint."Viniar's remarks indicate an abrupt change in tone among Goldman Sachs execs.

In November, CEO Lloyd Blankfein -- who had previously bragged that the bank was doing "God's work" -- said the following at an industry conference:I often hear references to higher compensation at Goldman. What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world.

"Despite what seems to be a new concern among the firm's leaders about the PR implications of Goldman's banner year, the bank's announcement of the pay packages that individual executives receive will be closely scrutinized. Dealbook spoke to one Goldman insider, who suggested Blankfein's bonus will be a measuring stick for employees who may see their pay cut. (Blankfein earned $68 million in 2007, but didn't receive a bonus last year.)

Here's Dealbook:"It all depends on what Lloyd gets," said one midlevel Goldman employee, referring to Lloyd C. Blankfein, Goldman's chairman and chief executive. He said Mr. Blankfein's bonus had become a popular water-cooler topic. "If Lloyd takes home a big bonus, even if it's all stock, and everyone else receives less, there will be some concern," he said.