WEDNESDAY, APRIL 7, 2010
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AUTOMOTIVE
GM, Chrysler pensions ‘uncertain,’ says GAO
General Motors and Chrysler will need to put billions of dollars into their pension plans over the next five years to meet funding requirements, the Government Accountability Office said.
The GAO concluded that GM
will have to add $12.3 billion by 2014, while Chrysler is expected to need $2.62 billion more during that time for its pension plan to keep it properly funded. GM and Chrysler both went through government-orchestrat- ed Chapter 11 bankruptcy protec- tion last year.
They emerged as restructured companies able to shed huge debts but remain responsible for the pension plans of workers and retirees. The GAO said the future of those plans “remains uncer-
AUTO SALES
CHRIS HONDROS/GETTY IMAGES
Rising costs of borrowing are making it more difficult for Greece to raise the money it needs to carry out an economic restructuring plan.
Rescue plan fails to boost Greece
SKEPTICISM
ON AID PACKAGE
Bond sale disappoints; IMF visit raises concern
by Howard Schneider
Greek borrowing costs spiked
Tuesday and an International Monetary Fund team departed for Athens amid concern that an emergency plan offered by the country’s European neighbors will not avert a crisis in the deeply in- debted nation. A further downturn in Greece could have broader ramifications for the European economy — par- ticularly in nations such as Portu- gal and Spain that are struggling with rising public debt. Greece’s problems have already exacerbat- ed strains among the 16 nations that share the euro as a currency, undermining the euro’s value and casting doubt on how far the coun- tries will go to adopt the type of common regulations some argue
are needed in the wake of the glob- al financial crisis. The eurozone nations two weeks ago said they would stand behind Greece with emergency loans if the country is unable to raise the money it needs in coming months to keep its government op- erating. The plan was designed to include a Greek appeal to the IMF. The hope was that the pledge by neighboring nations would re- assure markets and lower Greece’s borrowing costs, allowing it to raise the money it needs as offi- cials carry out an economic re- structuring plan.
But an initial Greek effort to sell bonds after the plan was an- nounced fell short of expectations. Rates have continued rising, as has the gap between the interest rate paid by Greece and that paid by fi- nancially stable European coun- tries such as Germany — a bench- mark for whether the European ef- fort is having the intended impact. If that benchmark, known as a risk spread, widens, “it will be dif- ficult for Greece” to raise the mon- ey it needs, said Mohamed El- Erian, chief executive of Pimco, a bond investment firm. “Markets are signaling skepticism.”
With Greek bond prices falling sharply on Tuesday, the IMF an- nounced that a technical team was heading to the country for a two- week visit. While Greek and IMF officials said the mission was part of an effort that has been un- derway for several weeks, the an- nouncement drew attention to the fact that the European agreement had failed to stabilize the situa- tion. The emergency plan “was basi- cally an unworkable fudge — smoke and mirrors — in the hope that the markets would think some solution was in place,” said Nariman Behravesh, chief econo- mist with the IHS Global Insight consulting firm. “Financial mar- kets woke up to the fact that there was nothing there.” In theory, if Greece’s borrowing costs become unworkably steep, the country would tap the Euro- pean and IMF emergency pro- gram. But the European plan left unclear how much money might be available to Greece, or the terms on which it might be provided. It also gave any of the other 15 euro nations an effective veto over any loans if they did not feel Greece had followed through on plans to
tain” as the firms struggle to make money again. Chrysler and GM will be able to
meet their funding needs if they are profitable, the GAO said. The Treasury Department, which oversees the government’s sizable stake in the two companies, thinks that will happen. But if GM and Chrysler falter and are forced to terminate their pensions, the government’s Pen- sion Benefit Guaranty Corp. in- surance program would have to absorb $14.5 billion worth of company obligations to workers. GM has roughly 702,000 peo- ple covered under its pension plans for hourly and salaried em- ployees. Chrysler’s collection of plans covers about 254,000 re- tirees and employees.
— Associated Press
S
A11
control spending. Germany in par- ticular has been hesitant to offer concessions or approve any help for Greece that might be perceived as a “bailout.” Given the uncertainty, bond rat-
ing agency Standard & Poor’s left its rating on the country un- changed after the European deci- sion — reflecting a sense that Greece’s prospects hinged more on the government’s “political re- solve” in cutting costs rather than on possible European support. “It may be difficult for Greece’s leaders to demonstrate the politi- cal will” needed to tame debt levels projected to rise over the next two years to 133 percent of the coun- try’s economic output, the agency said in an analysis published on Tuesday. Officials at Greece’s Public Debt
Management Agency were not available for comment. Rising government debt among the world’s developed economies has become a growing concern, with borrowing levels at historic highs and more countries — in- cluding the United States — ap- proaching levels that some consid- er unsustainable.
schneiderh@washpost.com
focusing on how the mainstream business press contributed to the recent economic crisis with fawning, uncritical coverage of the financial sector that ignored the evidence of abusive lending and bought into the myth that unregulated markets are more innovative and self-correcting. It’s a common view these days,
I
attended a conference at Columbia University earlier this week that wound up
After the meltdown, a case of selective memory
STEVEN PEARLSTEIN
new york
particularly on the Internet, and although it’s a bit overdone, I’ll admit there is a dollop of truth in it. To demonstrate that we still haven’t learned our lesson, one of the speakers held up a story from last summer about the close relationship between J.P. Morgan Chase chief executive Jamie Dimon and top officials of the Obama administration — so close, in fact, that White House Chief of Staff Rahm Emanuel had agreed to speak privately at an upcoming meeting of the bank’s board of directors. That these ties were reported without the requisite amount of outrage was cited as proof that “legacy” media continue to glorify and suck up to Wall Street titans. It was left to Chrystia Freeland
of Thomson Reuters to point out that the story was seen by both Dimon and his gleeful rivals as a public relations disaster and caused such a ruckus that Emanuel was forced to cancel his appearance. Three years after the onset of
what was then thought of as the “subprime crisis,” there remarkably is still no consensus on why it happened, who is to blame, how necessary the government bailouts were and what needs to be done to prevent such a cataclysm from
happening again. Over time, the issues have been overwhelmed by populist anger, infused with
political ideology, distorted by partisan maneuvering and special-interest pleading, and ultimately eclipsed by economic recovery. Any reforms that emerge from the political process are likely to reflect this collective confusion.
Over the past year, there has been a steady stream of books trying to make sense of the crisis. The latest, and perhaps the most accessible and even-handed, is Roger Lowenstein’s “The End of Wall Street.” A decade ago, Lowenstein chronicled the last global financial
Jamie Dimon, chief executive of J.P. Morgan.
meltdown in “When Genius
Failed,” which retold the rise and dramatic fall of Long-Term Capital Management, a giant hedge fund. In reporting on this latest crisis, Lowenstein says the one thing that kept jumping out at him was how little the world had changed. “The lessons are pretty much the same,” he told me. Too much leverage. Overreliance on mathematical models. Excessive and behavior-distorting fees and compensation. Overconfidence that trading positions could be unwound quickly if markets turned.
One of the strengths of Lowenstein’s account is that he
resists the temptation to paint with too broad a brush. Although many of the titans of finance come across as arrogant, intolerant of dissent and shockingly uninformed about the activities they were meant to oversee, he’s quick to point out that there were exceptions, chief among them the aforementioned Dimon. Under Dimon, J.P Morgan saw the subprime mortgage bubble early and moved quickly to reduce its exposure. It never got into playing games with off- balance-sheet vehicles nor did it traffic in collateralized debt obligations, real or synthetic. Dimon insisted that his bank have access to enough liquidity to get through two years without having to tap short-term credit markets, if necessary. And when other executives were confidently telling shareholders in early 2008 that the future looked bright, Dimon was acknowledging that underwriting had gotten dangerously sloppy, that too much of what passed for financial innovation served no useful purpose, that growth rates in the industry were unsustainable and that serious turbulence lay ahead. But three years of industry
vilification now seem to have taken their toll on Dimon. His latest shareholder letter, released last week, still has plenty of candor, some of it refreshing and some of it self-serving, but there was also an undercurrent of
JOSE LUIS MAGANA/ASSOCIATED PRESS
Toyota presses incentives
Toyota will continue to offer many of its heavy incentives through
April after the deals helped lift its sales more than 40 percent last month, the automaker said. Toyota will offer lease discounts on up to eight popular models, including the Camry, Corolla and RAV4. It is scaling back its interest-free financing offers to six vehicles but is ex- panding a two-year free-maintenance program to all customers. The extension comes a day after the Transportation Department said it would seek to fine Toyota $16.4 million, the largest penalty allowed, for waiting months to notify safety officials about vehicles with a “sticky pedal” defect.
— Associated Press
ALSO IN BUSINESS
Jailed financier Stanford gets
new attorneys: R. Allen Stanford, the jailed Texas financier, sparred with a federal judge over the businessman’s latest request to have new lawyers represent him to defend against charges that he bilked investors out of $7 billion as part of a massive Ponzi scheme. U.S. District Judge David
defensiveness. It may be true, as Dimon claims, that J.P. Morgan would have survived in even better shape if the government had not stepped in to bail out the industry, although that is only conjecture. And although he is right to push back against the populist notion that, when it comes to banking, big is always bad, he also clings to the free- market fiction that the benefits of scale and scope are passed on to customers rather than captured by the banks’ shareholders and employees. The levels of trading profits and compensation surely suggest otherwise. Like other Wall Street titans, Dimon is eager to demonstrate that he supports reform of financial regulation even as he opposes many specific ideas proposed by the Obama administration and Democrats in Congress. What’s missing, however, is even a hint of acknowledgment of how wrong the industry has been in its lobbying on such issues. After all, the industry opposed
registration and disclosure requirements for hedge funds, just as it opposed all regulation of energy and credit derivatives. When bank regulators in the George W. Bush era took the first steps to put the brakes on runaway real estate lending, the industry put up such a stink that implementation was delayed until the bubble had burst. And when the government proposed rules to make sure new “structured products” were not used by corporate customers to evade regulation or mislead investors, industry pressure resulted in watered-down rules that allowed such abuses not only to continue but flourish. Given this track record, why should we listen to them now?
pearlsteins@washpost.com
Hittner granted the request after a sometimes-heated exchange over the number of attorneys Stanford has had in the case. “We may want to add addition- al counsel later on,” said Stan- ford, wearing a green prison jumpsuit and handcuffs. “No, sir . . . you got ’em,” Hittn- er responded. Michael Essmyer and Bob Ben-
nett of Houston are Stanford’s fourth set of attorneys since he was indicted less than a year ago.
Stanford, once considered one of the wealthiest men in the Unit- ed States with an estimated net worth of more than $2 billion, had his assets seized. Stanford’s attorneys, who were
first appointed by the court and at one time included a federal public defender, have now been hired and are being paid through an insurance policy from Lloyd’s of London that said Stanford’s company would pay for up to $100 million in legal fees.
GM’s Hummer nears end of the
line: General Motors said that it will wind down its Hummer brand and offer rebates of as much as $6,000 to sell remaining sport-utility vehicles. Retailers will get letters within days about ending their franchises, a com- pany spokesman said. After filing for bankruptcy last year, GM is also winding down Saturn and Pontiac. It sold Saab in February.
Faster Forward
ROB PEGORARO
Excerpt from voices.washingtonpost.com/posttech
A not-so-enthusiastic review of Yelp changes
Yelp announced two changes to its review system last night that it hopes will quell accusations of extortion. First, the San Francisco-based site, which collects user reviews of local businesses, services and other places, will allow people to see write-ups that had been whisked out of sight by its automatic filter. Second, it will no longer offer establishments the option of paying extra to have a “Favorite Review” displayed atop its Yelp page. Yelp’s habits of hiding reviews based on criteria it has yet to explain in much detail (a cute video on its blog offers only generalities) and charging businesses for prominent displays of positive assessments have led critics to accuse it of running a protection racket. Yelp has denied those claims. The changes make sense to me, but I don’t see how they’ll end this controversy. Yelp makes it a little too hard to look up reviews that it had screened — you have to click on a small “Filtered” link at the bottom of an establishment’s page, then type in a random series of characters to verify that you’re a person and not a program — and leaves some mystery about why they were hidden. Consider the situation with the Scion restaurant in Dupont Circle, which was cited in a recent Washington Post article on Yelp by Michael Rosenwald. Yelp’s page for Scion lists 43 reviews, with an average score of 31
⁄2
reviews that Yelp filtered, it’s hard to see a clear pattern: Some five-star raves got canned, but so did some one-star pans.Most of the filtered reviews came from users who had written few reviews and had no friends listed on Yelp, but having five Yelp friends did not help the cause of one reviewer.
on washingtonpost.com
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out of five stars. But when you look through the 27
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