ABCDE Business sunday, september 19, 2010 CARPAGES
Plug it in, and wait If you have the patience for it, you might get all charged up about the all-electric Mitsubishi i-MiEV, Warren Brown writes. l Plus, ads for thousands of vehicles.
FASTFORWARD
When smaller is just less With new iPod nano and shuffle, we’re all fingers. G4 KIPLINGER’SPERSONALFINANCE
Locking down your online profile Five Facebook posts that put you at risk. G3
COMMERCIAL REAL ESTATE Short when the loan comes due Owners of Washington landmarks cast about for refinancing or cash to ride out the real estate crisis MARKETS
Stocks rally on upbeat tech sector Oracle’s earnings beat estimates and Cisco Systems says it will pay out a dividend. G6
YTD: Dow NASDAQ S&P 500 +1.72% +2.05% +0.94%
VA allowed Prudential to withhold cash to soldiers’ kin
BY DAVID EVANS Bloomberg News
The Department of Veterans Affairs
failed to inform 6 million soldiers and their families of an agreement enabling Prudential Financial to withhold lump- sum payments of life insurance benefits for survivors of fallen service members, according to records made public through a Freedom of Information re- quest. The amendment to Prudential’s con-
tract is the first document to show how VA officials sanctioned a payment prac- tice that has spurred investigations by lawmakers and regulators. Since 1999, Prudential has used re- tained-asset accounts, which allow the company to withhold lump-sum pay- ments owed to survivors and earn invest- ment income on the money for itself. The Sept. 1, 2009, amendment to Pru-
dential’s contract with the VA ratified another unpublicized deal that had been struck between the insurer and the gov- ernment 10 years earlier — one that was never put into writing. This oral agree- ment in 1999 provoked concern among top insurance officials of the agency, according to the documents released in the FOIA request. For a decade, until the contract was formally changed, Prudential wasn’t ful- filling its obligations to survivors of fallen service members, said Brendan Bridgeland, an insurance lawyer who runs the nonprofit Center for Insurance Research in Cambridge,Mass. “It’s very clear they violated the origi-
BILL O'LEARY/THE WASHINGTON POST
The Shops at Georgetown The Shops at Georgetown Park once marked the center of Georgetown’s bustling and chic shopping corridor. But a feud between two developers over its ownership slowed leasing and left the 315,000-square-foot brick mall half-empty. The debt was sold at auction in New York in July and the new management has begun signing retailers.
BY JONATHAN O’CONNELL Capital Business
AND KATHERINE REYNOLDS LEWIS The Fiscal Times
I
t was dubbed Washington’s second best address by Harry S. Truman, and it has hosted events for every presidential inauguration since Calvin Coolidge. Franklin Roosevelt
used it as a retreat to work on his 1933 inaugural address. And FBI Director J. EdgarHoover was a lunchtime regular. The elegant Renaissance Mayflower
Hotel, a Washington landmark since 1925, was considered a hot property
JACQUELYN MARTIN/ASSOCIATED PRESS
TheWatergate Hotel Monument Realty planned to convert the hotel into condos when it bought the property with the backing of Lehman Brothers in 2004. But after the condo market and Lehman busted, Monument defaulted on a loan and ended up in foreclosure. Euro Capital bought the property for $45 million in May and plans to restore it as a luxury hotel.
whenRockwoodCapital of San Francisco acquired it for $260 million in March 2007. Then, practically overnight, the real estate market collapsed and credit evaporated in a historic global financial meltdown. The new hotel owners, sad- dled with $200 million in debt, watched as the value of the property tumbled. By August, credit agency Realpoint estimat- ed its value at $128 million. The Mayflower loan was underwater,
JACQUELYN MARTIN/ASSOCIATED PRESS
Renaissance Mayflower Hotel Blocks from theWhite House, the Mayflower lobby bustles. But after Rockwood Capital purchased the hotel for $260 million in 2007 —the peak of the market—the economy and the hospitality industry collapsed, and that took the property’s value down by as much as half. Recently, Rockwood managed to hold on by refinancing its debt.
the plight of hundreds of billions of dollars’ worth of commercial properties across the nation that are worth less than their mortgages. If the hotel’s owner couldn’t find a way to restructure the debt, it could lose the property. A staggering $1.4 trillion of commer-
cial real estate loans will come due nationwide in the next four years, forcing borrowers such as Rockwood to refi- nance or default on their obligations.
Reynolds Lewis writes for the Fiscal Times, an independent news organization that special- izes in fiscal and economic matters. It is funded by Peter G. Peterson, who separately sup- ports groups that advocate for long-term debt reduction.
BILL O'LEARY/THE WASHINGTON POST
Market Square Market Square, a pair of 13-story office buildings on Pennsylvania Avenue, is part of a portfolio of 20 office properties in the District, Northern Virginia and the Seattle area that Beacon Capital Partners purchased in 2007 after borrowing $2.64 billion. Analysts consider the portfolio distressed, but many expect a deal will be made.
Trouble lingers even at doorsteps in Washington, one of the strongest mar- kets in the country thanks to a broad employment base, a sound infrastruc- tureanda massive government presence. This is happening at a time when the
capacity to absorb such debt has been slashed, following the bankruptcies of financial firms such as Lehman Brothers and the collapse of the commercial mort- gage-backed securities issuance down to a tenth of its peak size. The thought of a string of commercial real estate defaults walloping the barely recoveringeconomy
real estate continued onG5 Sure, it’s a fine idea: Cut the deficit. But howwould tea parties do it? “Runaway deficit spending aswenow EZRA KLEIN Economic and Domestic Policy R
emember the good old days,when Washingtoncared about deficits? I do. PresidentObama signed an
executive order forming a commissionto consider spending cuts, tax increases and other reforms thatwould balance the budget. Sen.MitchMcConnell opposed that commission, but he seemed equally concerned: “MostAmericanswould say the real emergency here is a $13 trillion debt,” he thundered. The good old days, of course,were just
a fewmonths ago.Today,Washingtonhas anopportunity to take anenormous stride toward a balanced budget—and both parties are running inthe opposite directionas fast as possible. The opportunity is theBush tax cuts,
which are set to expire this year. If they do expire this year—or inthenext few years—the budget outlook brightens considerably.Butneither party is about to let that happen.TheRepublicans are proposing to increase the deficit by about
$4 trillionby extending all of theBush tax cuts and theDemocrats are counteringwith anoffer to increase the deficit by a bitmore than$3 trillionby extending only the tax cuts for those making less than$250,000 a year.Look at thosenumbers again: $4 trillionand $3 trillion.That’s vastlymore deficit spending thanthe stimulus, bank bailouts, health-care bill (which actually
see inWashington,D.C., compels us to take actionas the increasingnational debt is a grave threat to ournational sovereignty,” reads themissionstatement ofTea Party Patriots, themovement’s largest umbrella group.Aspokesmanfor Rand Paul, a tea party favoritewho captured theRepublicannominationfor Senate inKentucky, assured theDaily Beast that Paulwould “vote against and filibuster any unbalanced budget proposal inthe Senate.” Butwill the tea party candidates,
WASHINGTON POST PHOTO ILLUSTRATION Christine O’Donnell, Sarah Palin and Rand Paul:How will you pay for all that tea?
reduces the deficit) and everything else we’ve done inthe past fewyears combined. Enter the tea parties. Plural, of course,
because there aremany tea parties, and they havenot decided tomake the lives of policy columnists easier by collaborating ona party platform.But the one thing they do appear to agree onis deficits: They’re bad.
whenit comes downto it, be any different fromtheRepublicanParty that serves as their uncomfortable home?As of yet, there’s little signof it.The tea partiesmay be somethingnewin Americanpolitics, or at least something rare.They’re grass-roots, decentralized and deeply authentic.But their candidates sound,well, like any other politicians. Take Paul.TheLexington-Herald
Leader asked himwhether theBush tax cuts should be fully extended. “Absolutely,” he replied. “Themoney is not the government’s. It is ours.”The problem, of course, is thatwe, as a democratic society, granted the government the power to tax thatmoney inorder to spend it onthingswe thought
klein continued onG3
MICHELLE SINGLETARY The Color of Money
A caveat on that drop in credit card debt
I
keep wondering if consumers will learn their lesson from this recession —to rely less on credit cards and
more on the cash they have. If you look at recent reports, it does
appear that people are pulling back from plastic and becoming more frugal. Just last month, TransUnion, one of
the three big credit bureaus, said the average debt on all bank-issued credit cards continued to drift downward for the fifth consecutive quarter. During the second quarter of this year, the debt dropped more than 13 percent compared with the second quarter of 2009—to an average $4,951 from $5,719. This marked the first time credit card debt was below the $5,000 average since early 2002. The national credit card delinquency
rate for the second quarter of this year was down by 17 percent compared with the previous quarter, TransUnion reported, noting that consumers continue to pay down their credit cards in response to economic uncertainty and high unemployment.
CreditKarma.com, aWeb site that provides credit information, reported that its “U.S. Credit Score Climate Report” data show that consumer credit card debt has decreased 3 percent since January. Federal Reserve data appear to back
up these reports. According to the central bank, July was the 23rd
singletary continued onG2
nal terms of the contract,” said Bridge- land, who is a funded consumer repre- sentative for the National Association of Insurance Commissioners. “Every veteran I’ve spoken with is appalled at the brazen war profiteering by Prudential,” said Paul Sullivan, who served in the 1991 Persian GulfWar as an Army cavalry scout and is now executive director ofVeterans forCommonSense, a nonprofit advocacygroupbased inWash- ington. “Now vets are upset at the VA’s
insurance continued onG4 G KK EE
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