Financial Dispatch: Make Or Break
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Gene Bloch
Managing Editor
CNN New York
As President Obama prepares to outline his health care reform plan to a joint session of Congress tonight, we take a look at how the plan might be financed. The compromise proposal floated by Senate Finance Committee Chairman Max Baucus includes a new tax on insurance companies.
The 35% tax would be levied on any plan that costs more than $8-thousand for individual and $21-thousand for family coverage. Supporters say taxing the most expensive health care plans will raise revenue and curb overall health care costs. But critics say this tax could mean higher premiums for everyone, if insurers try to pass the cost on to consumers. Poppy Harlow reports today in The Breakdown.
The battle to shape health care reform has been bitter...and very expensive. Health care lobbying, advertising, political donations have cost about $375 million so far, the most expensive fight ever to hit Congress. Jennifer Liberto has this story on CNNMoney.
Financial Dispatch: Jobs picture remains bleak
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Gene Bloch
Managing Editor
CNN New York
The most important component of the economy – jobs – is still a sad story. Today the government reported that 631,000 people filed unemployment claims for the first time last week. That number is 12,000 less than the previous week, but still very high, and the number of people who continue to collect jobless benefits rose to yet another record high of 6.62 million. The stock market is now lower, largely because of concerns about the economy.
And we hate to repeat ourselves, but gas prices are up again. AAA reported a gallon of regular unleaded jumped nearly 3-cents to $2.33, the 23rd straight gain. In that time, gas is up 15%.
As states around the country face budget shortfalls – get ready for a deluge of tax hikes. Illinois is a good example, it’s considering a 50% income tax increase.
What kind of cuts will states have to make if these hikes don’t go through?
The finance arm of General Motors may be in store for a new round of federal assistance. The Wall Street Journal is reporting the Treasury Department is poised to inject more than $7 billion into GMAC, the first part of an aid package that could reach $14 billion. Treasury and GMAC are not commenting on the report, but if it happens it could make the U.S. government a majority shareholder in the company. The move comes as General Motors works toward a June 1 deadline to announce a restructuring, and a Chapter 11 filing is looking likely. Chrysler, which is already operating under bankruptcy, is also dependent on GMAC, as it now relies on the company for consumer auto loans and dealer inventory financing.
Financial Dispatch: Home construction at record low
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Gene Bloch
Managing Editor
CNN New York
A stark sign this morning that the housing market is not yet out of the woods. The Commerce Department reporting new home construction plunged 12.8% in April to a record low, as rising unemployment and mounting foreclosures slammed new projects. A plunge in new apartment projects led the decline. Applications for new permits fell as well, indicating the rough patch for housing is likely to continue. The news underscores the recession is still taking its toll.
The upside of the housing decline is, of course, lower prices for homebuyers. Homes are, in fact, at their most affordable in two decades.
A big announcement today on one of the most important energy and environmental issues, fuel economy standards. The Obama administration today is setting new CAFE (Corporate Average Fuel Economy) standards in an effort to reduce fuel emissions. The plan will require cars and light trucks to get an overall average of 35.5 miles per gallon by 2016, according to a senior administration official with knowledge of the plan. Cars will be required to average 39 mpg, and for light trucks the number will be 30 mpg. There is a 1215p announcement from President Obama, who will be joined by Calif. Gov. Arnold Schwarzenegger and Michigan Gov. Jennifer Granholm, who have played major roles in the policy (think environment and industry).
Financial Dispatch: Pain at the Pump redux
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Gene Bloch
Managing Editor
CNN New York
The upward creep in gas prices is not letting up. AAA reports the national average price for a gallon of regular unleaded gasoline increased to $2.311, up 3 tenths of a cent from the previous day’s price. This is the twentieth consecutive increase. In the last twenty days the average price of gas has increased 26 cents or 12.8 percent. The average price however is down $1.80 or 43.8% from the record high price of $4.114 that AAA reported on July 17, 2008.
All 50 states and the District of Columbia have regular unleaded gas prices of $2 and higher.
The monthly Lundberg Survey reports that gas prices are up 25 cents in two weeks, biggest jump in more than a year, but Lundberg says the trend likely won’t continue.
Newsweek Editor Jon Meacham interviews Treasury Secretary Tim Geithner on "Recession and Recovery: The Road Ahead."
The 1p event at the National Press Club will be coming in live.
Financial Dispatch: GM Dealerships Hit Hard
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Gene P. Bloch
Managing Editor
CNN New York
CNNMoney.com was the first to report this morning that General Motors has notified 1,100 dealerships targeted to be shut down. The company has indicated up to 2,600 of its dealerships – or 42% – will be closed over the next year. Unlike Chrysler’s announcement Thursday which detailed a list of 789 dealers as part of filing in bankruptcy court, GM says it will not put out a master list of dealers that are hearing from the company today. As CNNMoney reports, metro area and suburban dealers are expected to feel the biggest hit.
GM has a conference call to discuss its strategy on noon today – it’s headed toward a June 1 restructuring deadline, and a Chapter 11 filing is looking increasingly likely.
No relief at the gas pumps – AAA reports regular unleaded rose 9-tenths of a cent to $2.29 a gallon, the 17TH straight increase. The average price is still 44% lower than last July.
In today’s Energy Fix, gas prices should go down if electric cars hit the market in large numbers. When that times comes, car shoppers will find the new vehicles look different than what’s on the road right now. The GM and Ford designers we talked to said that taking out the internal combustion engine and the cooling system that goes with it, a whole new world of design possibility opens up. Ford is even taking it’s inspiration from nature… fish and other animals!
Financial Dispatch: Chrysler dealerships hit hard
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Gene Bloch
Managing Editor
CNN New York
The pain of Chrysler’s bankruptcy filing is hitting hard today – 789 Chrysler dealerships representing about 25% of the auto maker’s 3,181 dealerships – are getting word today they will be shut down. That means thousands of salespeople and staff out of work and a major impact on communities. General Motors is expected to soon announce an even bigger number of closures, as it heads toward a June 1st deadline to restructure with or without a Chapter 11 filing.
Most analysts expect GM will have to file as well.
Ahead of the Chrysler news this morning, more signs that the jobs picture is worsening, even as some signs on the economy are positive, or at least showing a slower pace of deterioration. A record 6.5 million people are now collecting unemployment claims, and the number of first time filers jumped last week by 32-thousand to a total of 637-thousand.
Inflation at the wholesale level jumped a bigger than expected 0.3% in April, but the year-over-year change in the Producer Price Index was DOWN 3.7%, which is the biggest decline since 1950, as a weak economy means prices must be cut to entice retailers to buy.
President Obama, as I write this is making a push at a high school town hall event in New Mexico the credit card legislation making its way through Congress – Mr. Obama has railed against hidden fees and sudden interest rate hikes that have many Americans outraged.
Financial Dispatch: Fresh lows on Wall Street
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Gene Bloch
Managing Editor
CNN New York
You hear people talk about it wherever you go – deep concerns about retirement savings. The Dow Industrials are stuck below 7000 for the first time in almost 12-years after a 299 point plunge Monday. The Dow is down 23% so far this year and down 52% from its record high only 16 months ago. The slow-motion crash has everyone is asking – where is the bottom? The market reversed an earlier gain and is now lower.
In a particularly sensitive stock market, any comment or clue on the future from key players in government could have a big influence. We’ll be listening for that today when three of them testify about the President’s budget on Capitol Hill. At 10a Fed Chairman Ben Bernanke appears before the Senate Budget Committee, while Budget Director Peter Orszag simultaneously testifies before the House Budget Committee. At 1230p Treasury Secretary Timothy Geithner will appear before the House Ways and Means Committee.
Financial Dispatch: Incredible shrinking economy
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Gene Bloch
Managing Editor
CNN New York
The recession gathered speed in the last three months of 2008. The government this morning reported Gross Domestic Product – the sum total of goods and services produced within U.S. borders – declined at a 3.8% annual rate in the fourth quarter, the worst performance in 26 years. It may come as small comfort, but most economists were expecting worse.
Things probably couldn’t be worse for the New York City economy, and Mayor Bloomberg is expected to outline a dire budget plan which seeks to save $1 billion next year, and 23-thousand city jobs could be at risk. Among those reportedly facing job loss, 15-thousand teachers, and some new taxes and fees—including one in grocery stores on plastic shopping bags. The NYC budget shortfall got much worse after the financial crisis and a big drop in tax receipts from Wall Street. The Mayor will lay this out in a City Hall speech at Noon today.
Financial Dispatch: Will Madoff even go to trial?
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Gene Bloch
Managing Editor
CNN New York
Will Bernie Madoff be allowed to remain free on bail in his $7 million apartment on Manhattan’s Upper East Side??
Today the federal government will get another crack at putting him behind bars. The alleged Ponzi schemer will make an appearance in federal court today for an appeals hearing on the bail issue. Federal prosecutors are fighting a magistrate judge’s decision Monday for him to remain free on bail. Prosecutors say Madoff violated terms of his home detention by mailing several valuable items, like jewelry, a Cartier watch, and mittens to friends and relatives…items valued at more than $1 million. The defense says Madoff did this innocently, not realizing he was not permitted to send the items, which they described as “gifts.” A revocation of bail would be welcome news to many who believe that it’s an outrage that someone accused of ripping off billions of dollars from individuals, banks, charities, foundations, and thousands of their beneficiaries would be given better treatment than some kid busted for a small amount of pot. We have live cameras outside his apartment and downtown at federal court.
Financial Dispatch: Statutory theft at Madoff estate
Program Note: Be sure to tune in to watch Ali Velshi, CNN's Chief Business Correspondent, discuss the implications of Madoff's offshore accounts tonight on AC360 at 10pm ET.
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Gene Bloch
Managing Editor
CNN New York
Karma or coincidence? Police in Palm Beach, Florida, say one or more burglars recently broke into the estate of accused Ponzi schemer Bernard Madoff and made off with a statue worth more than $10,000. The statue portrays two lifeguards sitting on a bench, according to police. "The property manager left the residence one afternoon, and when she returned, she noticed a statue that was normally kept by the pool was missing," Palm Beach Police Sgt. Richard Sorge told CNN.
There are no leads to report.
Meanwhile, we may soon know a lot more about where Madoff put those billions of dollars he was supposed to be investing for his clients. A federal judge has given Madoff a December 31st deadline to provide a written accounting to the SEC of “all assets, liabilities and property” including “bank accounts, brokerage accounts, investments, business interests, loans, lines of credit, and real and personal property.”
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