Merced Sun-Star
49 years in her home -- and now Merced woman may lose it
Merced county was highest in the state last year with 10 percent of residences in foreclosure...SCOTT JASON
It's another dubious distinction: Merced County led the state last year in foreclosure filings.
One out of 10 houses in the county were in some stage of foreclosure, according to a report released Thursday by RealtyTrac Inc.
That 10 percent figure translated to 8,291 homes in the county.
The filings jumped by 122 percent from 2007, when 3,731 properties had received notices for a mortgage default, a trustee's sale or a bank repossession.
While the figure is large for one of the smallest counties in California, it barely registers statewide. It's only 1.6 percent of the 523,624 properties going through foreclosure.
San Joaquin County ranked second with 9.46 percent of its homes, or 21,127, in foreclosure. Stanislaus County was third with 8.9 percent of properties, or 14,883, headed back to banks.
Within those staggering statistics are people who are losing their homes either because of bad mortgages or predatory lenders.
Rose Martinez is one of them.
The 80-year-old Merced resident is on the verge of losing the West Avenue home she moved into on July 4, 1960. The four-bedroom, two-bathroom house cost $13,500 at the time.
She seems unnerved by the thought of losing it. Jeff, her 41-year-old son who lives at home to care for her, admits he's more scared.
"I thought I'd be dead by now," she said, a Virgin of Guadalupe necklace dangling on her sweater. "What can I do? I can't do nothing."
Forty-five years later -- at the height of a housing boom that seemed endless -- she took out a $175,000 loan.
Martinez used the money to consolidate debt, buy new appliances, replace the roof and take a couple trips to visit her children.
Close to that same time in 2005, she was diagnosed with multiple myeloma, a form of bone cancer, which has forced her in and out of the hospital. Her husband, an Army veteran who fought in World War II, had died four years earlier.
The flag that hung over his coffin is set atop a glass case.
By winter 2007, she had begun falling behind on payments. Collecting about $1,500 every month through Social Security and her husband's retirement, she felt comfortable with the $600 payments. Then they grew to $750 and later to $1,500.
By May 2008, she had stopped trying to pay off the loan.
A statement from the summer shows that she owes $191,819. That's since grown to $212,000 because of lawyer's and late fees.
Her home is set to be auctioned in front of the county courthouse in February.
If that goes through, there's a good chance she'll be forced to move within 90 days.
Her son has been trying with no success to strike a compromise with the lender. He's also been lobbying state and federal representatives, suggesting that the government trade seized drug homes for bank-owned homes as a way to fight the foreclosure problem.
Banks, he argues, would still end up with a house, while residents could keep their home.
At this point, he's run out of options. Rose has applied for low-income housing. She's on a long list, he's told, though his dad's military status may help her chances.
Outside the home where he grew up, he sighed, "I don't know what we're going to do."
Thousands of others don't either.
Critics say Merced Irrigation District has a culture of abuse...JONAH OWEN LAMB
A recent lawsuit filed against Merced Irrigation District alleging retribution for whistleblowing may be part of a larger pattern of employee abuse, according to interviews and documents.
The culture of harassment, bullying and retribution alleged in MID employee Lamonte Tumbling's case may not be isolated. The possibility is based on allegations found in interviews of former employees and documents obtained by the Sun-Star.
The Tumbling case involves allegations of racial harassment and retribution. His 2008 suit alleges that he was demoted and harassed after he walked in on a supervisor fondling another employee. Tumbling was demoted from a management position to a ditch weed sprayer for this action as well as notifying management that an MID board member may have bought water at a discounted rate. Recently Tumbling was put on administrative leave because of continued workplace harassment. Tumbling is black.
In the past 10 years, seven cases of sexual harassment, age and race discrimination have been filed with the Fair Housing and Employment Commission, a body charged in part with dealing with discrimination and harassment cases.
Currently, three former employees, not including Tumbling, have cases pending before the California Public Employment Relations Board for alleged unfair labor practices, according to documents related to the cases.
While not all cases filed through either body imply any conclusive findings, the types of cases suggest a history of worker complaints.
MID's general manager, Dan Pope, thinks the culture at MID is the opposite of these "groundless claims," he asserted. "Every employee is authorized to identify unsafe workplaces," he said. "I believe that's what I've communicated to the work force and rank-and-file."
He also insisted that harassment is never tolerated in the workplace at MID.
Others portray a different corporate culture. Troy Brasuell worked as a lineman for MID electric until he was fired in 1996.
After he complained of unsafe working conditions and nothing allegedly was done, he was harassed and called negative names over the radio, he said. Soon, he was put on administrative leave. His complaints were only taken seriously, he said, after he talked to his union and threatened a lawsuit.
Eventually, he filed a complaint and was, he said, awarded $50,000 as a settlement not to sue MID. "That's just how MID works; the whole structure works that way," he said.
It may have been more than a decade ago, said Brasuell, but "nothing has changed there. They're all still there."
Another former employee at MID, who worked there more recently, corroborated Brasuell's statement.
The person declined to give a name, also out of fear of retribution. The person claims that MID failed to correct unsafe working conditions even after the district was notified of them.
"I believe they fired me because I complained about unsafe work habits," the person claimed. The source stated that one of the main areas of contention had to do with electrical workers not being certified to work on 12,000- to 21,000-volt wires. In these situations, the person said, it was dangerous enough that someone could die if a wrong move was made. If contact was made with one of the high-tension wires it could penetrate a man's body. "You have an entry wound and an exit wound, just like a gun," the source noted.
According to the source, only linemen who were "rubber-glove certified" could work in certain situations. But MID had apprentices and others who were not certified working where they shouldn't have been, the person claimed.
Two other former MID employees told similar stories, but declined to be identified because they also feared retribution.
A case filed by the International Brotherhood of Electrical Workers (IBEW) with California's Public Employment Relations Board, which illustrates some of the alleged arbitrary behavior at MID, claims that three union members were unfairly fired by MID in 2008.
The suit states: "MID ignored the parties' layoff policy, and unilaterally laid off three permanent journeymen linemen while retaining temporary apprentice linemen who should have been laid off first, and also permanent apprentice linemen with less seniority."
The other cases in the history of employee complaints paint a more ambiguous picture.
According to the Department of Fair Housing and Employment (DFHE), seven cases filed since 1997 involved, among other charges, sexual and racial harassment. All cases are given the option to sue.
Annmarie Billotti with the DFHE said that seven complaints at MID weren't above average for an organization of MID's size. "This is a small amount," she said. "On none of these complaints was there a finding of discrimination."
Corbett Browning, an attorney with the law firm that represents MID, echoed that statement. "I don't believe the number of complaints that are raised at the district is that different from other businesses and organizations the size of the district."
For Pope, MID's general manager, the claims put forward by the electrical workers' union and others that depict a culture of harassment at MID are groundless. MID has a serious commitment to safety, said Pope: "We have a very strong safety program and adhere to that we have approved procedures for rubber glove safety that are followed."
Pope said the IBEW case was already found to be groundless, adding that it was merely a second attempt by the union to try the same case. Regardless, the three linemen were let go for lack of jobs, he explained.
As for employees at MID and harassment, said Pope, they can use a number of avenues to communicate harassment or unsafe workplaces to their supervisors and human resources:
"There is no tolerance for hostility or harassment at MID."
Loose Lips: Distribute that idea elsewhere
Would the pro-business Greater Merced Chamber of Commerce let the voice of the anti-Wal-Mart distribution center movement be heard in concert with the company's hired spokesman for the project? Nope.
The Stop Wal-Mart Action Team, or SWAT, sent a letter Wednesday to the chamber asking asking that it be able to present "an alternative vision for how to move Merced in a positive direction" during the chamber's "State of the Community" event Wednesday.
At the meeting, county honcho Dee Tatum, city leader John Bramble and smiley-face retailer spokesman Marko Mlikotin are set to speak. We think it'll go like this: Economy bad. Distribution center good.
Chamber exec Jennifer Krumm checked with her board, which advised her to politely decline the offer.
"The Chamber is an advocate for business and that we strongly support any organization that can bring much needed jobs to the community and this includes the much needed Wal-Mart distribution center," she wrote to Kyle Stockard, SWAT's co-chair.
The chamber event isn't a town-hall-style meeting, Krumm explained in her response. Of course, Lips likes to dig deeper.
Part of the business alliance's vision statement: "The chamber offers a meeting place for ideas to be shared and where a community consensus can be reached."
Perhaps it should add an asterisk: "Just not the ideas of the anti-Wal-Mart group."
Modesto Bee
Public lands bill passed by Senate
Measure includes money to restore San Joaquin River...Michael Doyle, Bee Washington Bureau
WASHINGTON -- The Senate on Thursday approved a grab-bag public lands bill that's supposed to save the San Joaquin River, store Madera County groundwater and secure Sierra Nevada wilderness.
Weighing in at 1,296 pages, the public lands bill was stuffed with more than enough goodies to ensure its passage over conservative opposition. Once approved by the House, it's bound to become one of the first bills signed by President-elect Barack Obama after he takes office.
"Restoring the once-mighty San Joaquin River -- and putting an end to the years of legal battles over the river's resources -- has long been one of my top priorities," Democratic Sen. Dianne Feinstein declared. "The good news is that the Senate today took us one step closer to this vital goal."
Lawmakers call the bill the Omnibus Public Lands Management Act of 2009. Skeptics call it pork, but they could not block its 150-plus provisions through a filibuster. The bill passed 73-21.
"I believe we're doing this because we're thinking in the very short term," said Republican Sen. Tom Coburn of Oklahoma, citing the "blatant, corrupting process of earmarks."
Senators constructed the public lands package by combining individual bills, some of which had been floating around for years. The California provisions include:

  • San Joaquin River restoration: The bill directly provides $88 million and the work necessary to restore water flows and the salmon population below Friant Dam east of Fresno. This federal money is a down payment on an ambitious effort that settles a lawsuit filed by the Natural Resources Defense Council in 1988.
  • Storing Madera County groundwater: The bill authorizes $22.5 million to help the Madera Irrigation District build an underground water bank, designed to store up to 250,000 acre-feet of water. Notably, the bill unilaterally declares the project planned for the 13,646-acre Madera Ranch near Highway 99 to be "feasible" and establishes that "no further studies" are needed.
  • Expanding Sierra Nevada wilderness: The bill honors former Fresno area congressman John Krebs by designating 39,740 acres of land in Sequoia and Kings Canyon national parks as the John Krebs Wilderness.

The legislation adds wilderness protection to land in Inyo and Mono counties, on the eastern side of the Sierra Nevada. It orders a study of adding the infamous Tule Lake camp where Japanese-Americans were confined in World War II to the national park system. It transfers 66 acres in Tuolumne County to the Mewuk Indians.
Compromise needed, too
Well beyond California, the bill sets the stage for a potential William Jefferson Clinton Birthplace Home National Historic Site in Arkansas, creates the Ice Age Floods National Historic Trail in four Northwestern states and adds to Everglades National Park.The Senate package required compromise as well as muscle.
The Krebs wilderness area, for instance, shrunk from original plans to designate some 69,000 acres. Negotiators also exempted privately owned cabins in the Mineral King Valley and allowed Southern California Edison to use helicopters in maintaining check dams in the otherwise pristine wilderness.
The wilderness will become one of the very few in the nation named for a living individual. Krebs, who turned 82 last month, wrote the 1978 legislation that protected the Mineral King Valley from potential development.
Negotiators similarly cut the cost of the San Joaquin River bill after it was introduced in 2006. They had been having trouble finding the $250 million needed to offset the original price tag.
"This is a truly momentous effort," said Monty Schmitt, senior scientist with the Natural Resources Defense Council, "because it will result in restoring flows and salmon to one of California's largest rivers while also providing water supplies for farms and cities."
Enrollment cap will not affect UC Merced, but pay freeze will...Michelle Hatfield
MERCED -- Of two budget- trimming maneuvers approved by University of California regents this week, only one affects UC Merced.
Reacting to downward spirals in the national and state economies, regents approved limiting freshman student enrollment for the 2009-10 school year and freezing senior management salaries and some benefits at the 10 campuses and the UC central office.
The hold on compensation affects 11 UC Merced administrators, but the enrollment cap does not. The four-year-old campus still is building up its student population and officials don't want to hinder those efforts, said Kevin Browne, UC Merced associate vice chancellor of enrollment.
"We're in a special situation -- where do we take a cut when you're trying to build up a program?" Browne said. "The (UC) system, the state and the region have been very supportive."
There are 2,700 students this school year and officials plan to grow to 3,200 for 2009-10. This spring will bring the first graduation of students who have attended classes at UC Merced all four years. Those 450 graduates, and then some, need to be replaced to keep enrollment on the upswing, Browne said.
Overall, UC campuses will enroll 2,300 fewer freshmen -- 35,300 in 2009-10 compared with 37,600 this year.
The pay freezes apply to 285 of UC's top administrators, 11 of them at UC Merced, from the campus's chancellor down to its deans. Some could get increases if they receive offers of employment elsewhere and UC officials decide to provide a counteroffer.
The freeze amounts to $149,000 at UC Merced, assuming an average 3 percent salary increase a year.
"The senior management is aware of the financial situation and is trying to reduce costs," said Mary Miller, UC Merced vice chancellor of administration. "We're trying to protect the lower paid employees."
She said she has heard no complaints from the 10 other administrators facing the freeze.
The freeze includes bonuses and cash awards for some of the UC system's top administrators.
EPA: Cemex to pay $2M, reduce pollutants...last updated: January 15, 2009 05:56:21 PM
LOS ANGELES -- Cemex Inc. has agreed to pay a $2 million penalty and reduce emissions at its Victorville cement plant by 40 percent to comply with the Clean Air Act.
The settlement, filed Thursday in U.S. District Court in Los Angeles, would resolve two complaints by the Environmental Protection Agency.
The complaints, filed in 1997 and 2000, said the plant made major changes that led to more pollutants released into the air without getting the required permits.
The EPA says the facility, one of the country's largest cement plants, is California's biggest source for nitrogen oxide, which causes ozone smog and respiratory problems.
Fresno Bee
CEMEX California Cement Agrees to Reduce Emissions and Pay $2 Million Fine to Settle Clean Air Act Claims...U.S. Department of Justice...Press Release
Cement manufacturer will reduce smog-causing pollution s at Victorville plant by nearly 2,000 tons yearly WASHINGTON, Jan. 15 /PRNewswire-USNewswire/ -- In the largest settlement yet in the U.S. Environmental Protection Agency's ongoing cement kiln enforcement initiative, the U.S. Department of Justice, on behalf of EPA, today lodged a consent decree with the U.S. District Court for the Central District of California resolving Clean Air Act claims against CEMEX California Cement LLC with respect to the company's Victorville, Calif., Portland cement plant.
The settlement will resolve claims asserted in a 2007 complaint that CEMEX is releasing pollutants to the air, including nitrogen oxide, sulfur dioxide and carbon monoxide, without required permits setting emission limits under the Clean Air Act. Under the terms of the settlement, CEMEX must meet new limits for these pollutants at the Victorville plant, one of the largest cement plants in the United States, including stringent new limits for nitrogen oxide that will reduce emissions by 1,890 tons per year, a nearly 40 percent reduction. The cement manufacturer must also pay a $2 million civil penalty. EPA estimates that achieving and maintaining compliance with the new emission limits, depending on the control technology used, could cost CEMEX millions of dollars.
"Today's settlement shows the federal government's continued commitment to enforcing the federal environmental laws and protecting the nation's air quality," said Ronald J. Tenpas, Assistant Attorney General for the Environment and Natural Resources Division of the U.S. Department of Justice.
"This settlement will result in cleaner air for California," said Deborah Jordan, director of the EPA's Air Division in the Pacific Southwest region. "This facility is the largest source of nitrogen oxide -- an air pollutant that causes smog -- in California, so the state-of-the-art air pollution controls that CEMEX is installing will have a significant impact on air quality."
The settlement resolves the EPA's claims that on two separate occasions, in 1997 and 2000, CEMEX violated the Clean Air Act by undertaking major plant modifications resulting in significant increases in the Victorville plant's capacity to pollute without first undergoing required regulatory review or obtaining required permits under the Clean Air Act's Prevention of Significant Deterioration, or PSD, program and without installing state-of-the-art emission controls that would reduce contaminants such as nitrogen oxide.
Nitrogen oxide is a harmful air pollutant that causes smog and leads to respiratory problems in children and the elderly. The Victorville area fails to meet federal air quality standards for both ozone and particulate matter.
The proposed consent decree is subject to a 30-day public comment period and final court approval. A copy of the consent decree is available on the Department of Justice Web site at http://www.usdoj.gov/enrd/Consent_Decrees.html. For more information on the settlement and the Clean Air Act, please visit: http://www.epa.gov/region09/air/index.html.
EPA finds toxins throughout Columbia Basin...JEFF BARNARD, Associated Press Writer
GRANTS PASS, Ore. The Environmental Protection Agency said in a report Thursday that toxins remain at levels harmful to people, fish and wildlife throughout the Northwest, despite decades-long cleanups.
The agency said Thursday that pollutants such as fire retardants, mercury and compounds related to DDT remain at unacceptable levels in the air, water and soil of the Columbia Basin, which includes most of Oregon, Washington and Idaho, plus small parts of Montana, Wyoming, Utah, Nevada and Canada.
Although bald eagles and ospreys have rebounded from the effects of DDT over the past 20 years, mercury and flame retardants are increasing in fish and wildlife, said Elin Miller, the EPA's administrator for the Northwest region.
"We need to up the ante to increase toxic reduction efforts once we understand these sources better," she said in a teleconference from Seattle.
The agency's report is the first of its kind in the nation, and was compiled from existing data over two years in conjunction with state and federal agencies, Indian tribes and environmental groups.
"The Columbia River Basin, one of the world's great river basins, is contaminated with many toxic contaminants, some of which are moving through the food web," the report said. "These toxics in the air, water and soil threaten the health of people, fish, and wildlife inhabiting the Basin."
Hot spots include the Spokane River in Washington state, the Willamette River in Oregon and the Lower Columbia between the two states.
One fire retardant in particular is showing up in increasing amounts in fish, the report said. PBDE - polybrominated diphenyl ether - is found in laptop computers, clothing and furniture, as a result of recommendations by the Consumer Products Safety Commission. A study has found brain damage in mice exposed to PBDEs before they were born.
Though some forms of PBDEs have been phased out by industry, others continue in use. Some states, including Washington, have taken steps to outlaw them once alternatives are found.
The report cited studies of trout in the Spokane River that showed PBDE levels rising from virtually nothing in 1996 to more than 400 parts per billion in 2005.
"We are very concerned about it," said Mary Lou Soscia, EPA Columbia River coordinator. "We don't want it to become the PCB or DDT of the future. If we get this information out, we can figure out how to better understand this chemical."
PCBs are another fire retardant, and have been outlawed since 1970, but continue to leach out of landfills and illegal dumping sites.
The pesticide DDT also was outlawed in 1972, but it remains deposited in soils and finds its way into rivers through erosion, said Miller. Farmers continue to bring it in when communities hold collections of old pesticides.
Mercury is particularly difficult to control, because it comes from burning coal and circulates around the world in the atmosphere. Instruments on top of Mount Bachelor have detected mercury in soot from China. A 2007 survey by EPA and Oregon State University found mercury in every fish and every river sampled in 12 Western states. States regularly advise against eating fish in certain rivers due to mercury contamination.
Miller said the report focused on the four toxins because they pose the greatest threat. EPA will use the report to identify gaps in data on toxic contamination, increase monitoring of pollution, and plot efforts to clean up the watershed.
"The science has been there for a number of years," said Lauren Goldberg, staff attorney for Columbia Riverkeeper in Hood River. "That said, what this report shows is that we need action now, and it demonstrates quite frankly the failures in the past." 
Sacramento Bee
State new-home sales down 63% from year ago...Jim Wasserman
California home builders reported a dismal November, selling 1,336 new houses and condominiums after credit markets froze in October.
Statewide, sales were down 63 percent from November 2007, itself a poor sales month, the California Building Industry Association reported Thursday. Sales were also down 8.6 percent from October.
The industry trade group used the poor showing to renew a call for temporary tax credits for buyers and measures to shore up the economy. It has been describing the state of its industry as a "depression."
Builders in the Sacramento area defied one statewide trend: Their 163 sales of homes and condos in El Dorado, Placer, Sacramento and Yolo counties were 8.6 percent higher than October. Builders in Tulare and Orange counties also showed an uptick.
Sacramento-area new home sales, however, were 58.7 percent below November 2007, according to the CBIA. Seventeen new home sales in Yuba and Sutter counties also fell 69.1 percent below the same month in 2007.
Sacramento airport seeks bird-kill law for air safety...Tony Bizjak
Calling bird collisions with commercial jets a safety threat, Sacramento International Airport officials this week are seeking a law allowing them to kill birds that can't be frightened from airport grounds by other means.
The county's initiative came, ironically, just two days before a dramatic crash landing Thursday of a U.S. Airways flight into New York's Hudson River after the pilot reported a bird strike, apparently while flying through a flock.
Birds and jets collide frequently, with 7,666 reported instances nationally in 2007, or about one known strike for every 10,000 flights. But it is rare for strikes to cause crashes, injuries or fatalities to passengers, federal officials said.
Sacramento – which lies in the Pacific Flyway bird migration path – has the most bird strikes of any airport in the West, and sixth most in the country, the Federal Aviation Administration reports.
Sacramento recorded 1,300 collisions between birds and jets between 1990 and 2007, causing an estimated $1.6 million in damage to jets. The collisions usually happen during takeoffs and landings.
No crashes or passenger injuries have been recorded as a result of those strikes, Sacramento officials said.
"Bird strikes are a problem for us," Sacramento airport spokeswoman Karen Doron said Thursday. "And we want to do everything we can to make this airport as safe as we can for passengers."
Airport officials are working to draft legislation that will suit their needs and then will seek a lawmaker to sponsor it.
The FAA requires airports to take ongoing steps to reduce wildlife on and around airports, FAA spokesman Ian Gregor said. In Sacramento, that includes a federal permit to use guns, nets, pesticides, drugs, falcons and traps, permits show.
Sacramento airport officials say they previously used shotguns to kill a small percentage of problem birds, but only when the birds could not be rousted by other means, such as booming noises played through loudspeakers.
Sacramento officials were forced to stop in 2007 when the state Department of Fish and Game notified them they were violating state codes.
Airport reports indicate officials killed 891 birds in 2007, less than 2 percent of birds that airport workers "harassed" or hazed.
Attorney Jim Pachl of the Friends of the Swainson's Hawk group called that number "ridiculous" and unnecessary.
"Occasionally, you have to remove a bird to protect human safety," Pachl said. "But this can be handled for the most part by hazing or other non-lethal methods. If this bill passes as written, I'm afraid airports are going to take it as carte blanche" to kill birds.
Most local bird strikes occur during the December and March migration season. Eleven bird strikes were reported in Sacramento during the first week of December, and six planes were damaged, officials said.
One Sacramento bird strike in 2005, listed as significant by the FAA, caused $200,000 damage to a jet. The pilot of a plane reported seeing a large white bird fly past the cockpit, then heard a loud pop. The left engine began to vibrate. The pilot turned around and made a safe landing.
In another significant Sacramento incident in 2004, passengers reported seeing a flock of geese flying by. The subsequent strike dented and punctured a wing, causing the plane to make a precautionary landing.
The FAA reports 82,000 bird strikes since 1990, mainly in the United States, but estimates that only 20 percent of incidents get reported.
One out of seven bird strikes involves a bird being sucked into an engine, federal data show.
If a jet engine becomes inoperable because of a bird strike, most twin-engine jets can fly long distances on one engine, the FAA's Gregor said.
More frequently, birds hit the windshield or the nose of the plane, federal data show.
In one notable instance, a bird that struck a jet taking off at Los Angeles International caused so much damage that the engine housing fell off and landed on a nearby beach, Gregor said. 
Stockton Record
Region's new home sales plunge
New wave of foreclosures will hinder recovery...Bruce Spence
Last year finished as it started for home builders - slow became brutally slow.
For every four new homes sold in San Joaquin and Stanislaus counties in 2005 - before the housing downturn seriously set in - one sold last year.
A total of 386 new homes sold in the first quarter, and that pace slowed to 119 by the fourth, according to new numbers from the Gregory Group, a real estate information and consulting service in Folsom.
Don't expect that to change this year, because foreclosures will continue to dominate the residential market, say home builders and real estate experts.
The Gregory Group reported that 1,080 single-family houses were sold last year in the two counties, down from 2,207 in 2007 - and way down from 3,823 in 2005.
That's a statewide pattern. More than 92,000 single-family home sales in 2005 declined to fewer than 21,000 last year, not counting December's tally, which isn't in yet.
But the last couple of months of 2008 were especially tough on builders, as consumer uncertainty and fear about the recession piled onto the general sentiment that very low-priced foreclosures were by far the best buys in the residential market, said Greg Paquin, president of the Gregory Group, a real estate information and consulting service in Folsom.
Economic fear becomes almost paralyzing and doesn't bode well for home builders, he said.
"The first half of the year will be difficult for builders and consumers," he said. "It's a very difficult selling season."
This new home downturn has been accelerating despite mortgage interest rates steadily falling week to week, according to national weekly surveys by federal mortgage giant Freddie Mac.
For example, average interest rates for 30-year, fixed-rate mortgages fell for the 11th straight week to another record low - 4.96 percent - for the week ending Thursday, due in part to the slowing economy and government actions, the company reported Thursday.
Even sinking interest rates won't help new home sales much, said Joe Anfuso, president and chief executive officer of Stockton-based Florsheim Homes.
"You've got to get rid of foreclosures in the market for other houses to sell," he said. "You have to get the distressed market out of distress. The market is not going to get healthy until that ends."
Stockton-based Grupe Co. shut down its home construction work at the end of 2007 because of slowing sales.
New home building and sales will be anemic again in 2009, said Shane Hart, vice president in charge of acquisitions, development planning and marketing for the company.
Thus, Grupe Co. won't be starting any new homes in 2009 unless the new home market drastically changes for the better, which the company doesn't foresee at this time, he said.
"There appears to be a new wave of existing home foreclosures coming," Hart said. "It is extremely difficult for new home prices to compete with foreclosed home prices, so locally, the new home market won't rebound until the foreclosures get through the system or the federal government does something to reduce the number of homeowners going into foreclosure."
In its latest monthly report released Thursday, the California Building Industry Association called the home sales pace "glacially slow" following the October credit freeze.
The trade group's CEO, Robert Rivinius, said the continued depression in the state's home-building industry will only improve if state and federal lawmakers quickly deal with the foreclosure situation and pass economic stimulus measures to jump-start the economy.
The most recent outlook of University of the Pacific's Business Forecasting Center projected that housing starts statewide hit bottom in late 2008 at about one-fifth of its peak level. The forecast said competition from foreclosure properties, a general recession and tight financing will keep housing starts depressed through 2009.
Still, there was a long-term positive note in the December report: After a tough 2009, the Central Valley home-building sector is poised for a strong recovery, partly because housing affordability will have returned and made the region more attractive to commuters and investors.
The right prescription?
Fast-track Valley med school proposal deserves examination...Editorial
An intriguing, and perhaps possible, proposal has been made to help get more doctors practicing in the Valley.
Lt. Gov. John Garamendi recently suggested that a planned medical school at the University of California, Merced, be streamlined, eliminating the research component found at other UC medical schools and fast-tracking students through the system.
Garamendi's suggestion comes as support for the UC Merced medical school, at least among some university officials, seems to be wavering.
Garamendi is a staunch supporter of the school and for good reason. His ties to UC Merced go much deeper than his duties as a UC regent. He also helped launch the UC Merced Foundation, a body of influential campus friends charged with overseeing and supporting fundraising activities. And his son, John Jr., is vice chancellor for university relations at UC Merced.
It might also be suggested that there is at least some incentive to push this proposal as part of Garamendi's latest run for governor next year.
San Francisco Chronicle
Industry, environmentalists gang up on climate...David R. Baker
An alliance of environmental groups and big corporations concerned about global warming released a detailed plan on Thursday to slash America's greenhouse gas emissions, hoping to shape legislation that President-elect Barack Obama and Congress have promised to pursue.
The United States Climate Action Partnership - whose members include PG&E Corp., oil giant BP and the Natural Resources Defense Council - called for setting hard limits on the amount of carbon dioxide produced each year by the American economy, with the limits declining steadily over time. Companies would buy and sell credits to emit specific amounts of the gas, essentially setting a price on carbon dioxide.
"We share the view that the time is now, and time is of the essence," said PG&E Chief Executive Officer Peter Darbee. "We firmly believe that climate change can be addressed in ways that create more economic opportunity than economic risk. The key is setting clear targets and timetables and then allowing the power of the market to find the best solutions."
The 2-year-old group had already suggested such a system, but never in great detail. The plan released Thursday delves into the complexities of setting up a carbon market, staking out positions on deeply controversial topics.
For example, the plan proposes giving away many of the carbon credits for free when the market first opens, an idea criticized by Obama during the presidential campaign. The partnership also insists that both coal and nuclear power have a role in America's energy future, a position many environmentalists hate. Carbon dioxide from coal plants should be captured before it reaches the atmosphere and stored underground, an idea that has been tested but remains uneconomical.
"It's critical to use coal in the future, but it's critical that we have the technologies that reduce the carbon from the use of coal," said James Rogers, chief executive officer of Duke Energy, an electric utility that relies on coal-fired plants. "This is not, as some people have suggested, shutting down coal."
The group hopes that its ability to reach a consensus will become a model for Washington. Environmentalists and corporate CEOs spent a year hammering out the details of a plan they could all support. Obama and congressional Democrats say they want to create a cap-and-trade system as soon as possible, but many Republicans remain leery.
"This is a game-changer," said Fred Krupp, president of the Environmental Defense Fund, a nonprofit group focused on solving environmental problems. "Just as we have come together, it is time for both parties to come together, move forward and pass legislation now."
Europe already has a carbon cap-and-trade system, although its rollout has been plagued with problems. California has been working to create a cap-and-trade system with six Western states and four Canadian provinces. Ten Northeastern states are creating their own carbon market.
Among the plan's other details:
-- Within 10 years of creating a cap-and-trade system, greenhouse gas emissions would be, at most, 10 percent lower than they are today. Within 15 years, they would be 10 percent to 30 percent lower than current levels, and by 2050, they would be 20 percent to 40 percent lower than today.
-- Companies would be allowed to use "offsets," projects that trap greenhouse gases or prevent them from being released into the atmosphere. One example: planting trees to absorb carbon dioxide.
-- By the end of the year, Congress should establish a national greenhouse gas registry to take precise measurements of the country's emissions.
-- Companies that are already trying to cut their emissions should get some kind of credit for acting early.
In a sign of just how much the global-warming debate has changed, some of the plan's most pointed criticism on Thursday came from environmentalists.
The Union of Concerned Scientists praised the partnership for coming this far but took issue with some of the plan's key details. The emission cuts aren't big enough, said Alden Meyer, the union's policy director. Giving away pollution credits when the market opens will reward polluters, and allowing too many offsets would give companies an excuse to avoid making real cuts in their emissions, Meyer said.
"This proposed cap-and-trade program is a starting point," he said, "but it must be strengthened significantly to ensure that it's effective."
And there remain people opposed to the entire concept. Myron Ebell, energy policy director at the Competitive Enterprise Institute think tank, says a carbon cap-and-trade system will inevitably raise energy prices.
"It's a sneaky tax," said Ebell, whose organization has long opposed what it calls global-warming alarmism. "The proponents of energy rationing - of forcing us to use less oil, coal and natural gas - know it's not politically feasible to suggest a tax."
For more information
To read the U.S. Climate Action Partnership's proposal, go to www.us-cap.org
Cash crunch halts 4,000 conservation projects...Jane Kay, Chronicle Environment Writer
California's fiscal crisis has derailed 4,000 conservation projects across the state, from restoration of tidal marshes on San Francisco Bay to expansion of the coastal trail, and threatens major land acquisitions on the Sonoma, Big Sur and Mendocino coasts, state officials say.
Facing a cash crunch, state officials notified 1,100 groups last month that they were losing $647 million in environmental grants that were tied to bond funds issued under voter-approved propositions. Now most of the groups can't meet deadlines to apply for matching funds, pay contractors or fulfill obligations under purchase agreements. Many of them are laying off staff and shutting down work.
"We're very disturbed. There are projects all over the state that could be building parks, improving people's quality of life and providing jobs," said Elizabeth Goldstein, president of the California State Parks Foundation.
Goldstein, who worked to win funds to restore Yosemite Slough on Candlestick Point in San Francisco's Hunters Point, had to tell plan designers to stop work - which could delay cleanup and restoration of the 34-acre site for bayside wildlife habitat and public access.
The California Coastal Conservancy, the Wildlife Conservation Board and other agencies that dole out bond money instructed land trusts, cities, resource agencies and small nonprofits to suspend all work paid from bond sales as of Dec. 17.
Projects are expected to be halted at least until the state passes a budget and improves its financial standing enough that investors will consider California bonds a solid investment.
Today, the State Pooled Money Investment Board, which includes the state's treasurer, controller and finance director, will meet to consider whether to ease the freeze on financing for schools, roads, levees, environmental protection, veterans homes and others. The staff has recommended releasing $500 million until the end of the fiscal year in June.
Bay Trail work halted
In recent weeks, every county in the Bay Area ended work on 30 projects aimed at closing 41 miles of gaps in the planned 400-mile Bay Trail. Some $4 million in bond funds leveraged $19 million in additional funds from foundations to government agencies.
Other key projects that have been halted include:
-- Restoration of 16,500 acres of former Cargill Inc. salt ponds around the bay to marshes that benefit birds and fish, one of the biggest environmental projects in the nation. Philip Williams & Associates in San Francisco, the San Francisco Estuary Institute in Oakland and private consultants contracted to do the work may have to lay off staff.
-- Restoration of five islands in Oakland's Lake Merritt. Angel Island also was relying on bond funds to mount an exhibit on the immigration station in the barracks building.
-- A decadelong, $16 million campaign to spray or dig out East Coast cordgrass that mats up and chokes the edges of San Francisco Bay. It is on hold because the yearly $1.5 million grant isn't available. Scientists are afraid that without the annual digging, the aggressive plants will come back, and past work will be lost.
-- The purchase of 5,630 acres of Sonoma coast at Jenner, which depends on $16 million in bond money to complete the $36 million purchase by September. Other acquisitions are at risk on the Carmel River, where the Big Sur Land Trust is trying to buy or restore key pieces for walking, biking and flood control, and on Big River in Mendocino County.
Some cities and nonprofit groups also got stuck.
Pulling plug on EcoCenter
Literacy for Environmental Justice, a small nonprofit organization, is preparing to pull the plug on construction of a $1.2 million EcoCenter at Heron's Head Park in Hunters Point after a decade of trying to get grants and permits to build a green building to educate 1,000 public school students about the environment each year.
Santa Cruz started erosion-control projects under a $200,000 state grant. With the funds now frozen, "the city has no choice but to pay the contractors involved with the projects" and wait for the state to reimburse, said Steve Hammack, the city's superintendent of parks and recreation.
The Point Reyes Seashore Association paid out more than $600,000 on the Giacomini wetland restoration near Point Reyes Station, only to learn that the money was on hold.
"It's potentially catastrophic," said Mark Bartolini, the group's executive director. "We're operating on a line of credit, and when it comes due, we simply don't have that kind of money in reserve to cover that shortfall."
Another project brought to a near-standstill is a UC Davis study on pathogens in 10 tributaries to Monterey Bay that cause gastrointestinal diseases. The results are expected to aid fishermen, kayakers, surfers and otters who use the ocean below.
On Monterey Bay, scientists stopped counting fish stocks, and several dam removals to help steelhead have been halted. A dozen projects to prevent erosion after last year's wildfires along the Carmel and Big Sur watersheds also have been stopped.
"We are urging the Schwarzenegger administration and the Legislature to immediately restore funding for these projects to put people back to work," said Michael Wellborn, president of the California Watershed Network, which works with 300 community groups.
Projects halted
Alameda County - Work on Berkeley Meadow in Eastshore State Park; study on county creeks.
Marin County - Wetland restoration at Hamilton Field and Bel Marin Keys; wetland work at Giacomini Ranch.
San Francisco - Construction of Heron's Head EcoCenter Park at Hunters Point; restoration of Yosemite Slough on Candlestick Point.
San Mateo County - Expansion of coastal trail to Pillar Point, Fitzgerald Marine Reserve and Pigeon Point Lighthouse; development of Año Nuevo Marine Education Center.
Sonoma County - Complete plan for Santa Rosa Creek and Bodega Bay Trail; wetland restoration at Sears Point.
Wildlife in the crosshairs as poaching ramps up...TRACIE CONE, Associated Press Writer
Fresno, CA (AP) -- The country's financial tumult is exacting a toll on wildlife in California and Florida, where game wardens are seeing a surge in poaching for money as the economy declines.
In California, where officials are calling 2008 "The Year of the Extreme Poacher," state records show that arrests for the illegal killing of game birds, deer, bear, fish and abalone, which fetch $100 a pound, have risen dramatically since 2005.
One man was arrested four times for poaching lobsters in a La Jolla marine conservation area. A Gilroy man was caught with 335 waterfowl in his freezers, including protected species. And two people were arrested in Sacramento for allegedly poaching and selling deer to a meat market for $150 each.
With the struggling economy, some people are desperate enough to seek profits by poaching species that can be sold on the black market to consumers, retailers and restaurants. And officials say increased poaching here and in Florida may be a harbinger for the rest of the country.
"Most trends in the fish and wildlife world seem to start in Florida and California," said Lt. Col. Jim Brown of the Florida Fish and Wildlife Conservation Commission.
Florida wildlife officials say that poaching arrests are down because of budget-related staffing cuts but poaching for sale has taken off during the recession. In recent months, authorities nabbed two men in Central Florida with 20 dead does and stags, and three men in the Florida Keys with 771 undersized lobster tails.
"It's all about money," Brown said.
Poaching is not a federal offense, so U.S. Fish and Wildlife Service officials say they do not keep national statistics.
While wildlife authorities in New York have not noticed any increase in poaching, Michigan officials are seeing increased demand for legal hunting permits for female deer. "We were hearing a lot more people were out trying to take as many as they could to stock their freezers," said Mary Dettloff, spokeswoman for Michigan's Department of Natural Resources, adding that figures for 2008 are not yet available.
California officials acknowledge the pickings here are particularly easy because there are only 374 game wardens to patrol this state with thousands of miles of mountains and seashore.
"It's like the perfect storm," said Nancy Foley, chief of the California Department of Fish and Game's law enforcement division. "The thing about wildlife, like abalone, is that we don't know what its breaking point is."
Although this year's California poaching statistics are not yet compiled, records show that between 2005, when the economy was relatively good, and 2007, when it was faltering, the number of poaching-related violations increased from 14,150 to 17,840. Illegal bear kills alone went from nine to 49.
"They're just taking as many as they can to make money," said Patrick Foy, a game warden who has been monitoring the increase.
Poaching is a misdemeanor in California, punishable by up to a year in jail and a $10,000 fine, though abalone violations can be four times higher. Yet officials say some repeat offenders seem undeterred.
One of the most lucrative creatures sought by repeat offenders is the abalone, a prized mollusk sought for its delicate flavor. Abalone harvesting is off limits south of the San Francisco Bay, but game wardens say that did not stop Ty Lieu and Hoa Pham, who took advantage of an extreme low tide Nov. 13 to pry dozens of abalone from rocks along the Big Sur Coast 200 miles south of the cutoff line.
Officials said it was Lieu's fourth arrest for abalone poaching, a crime for which he had two prior convictions, and Pham's fourth offense on a fish and game violation. He was convicted once. The two are scheduled to be arraigned on the new charges this month.
In Sacramento, wardens arrested the owner of a meat market for allegedly purchasing deer from two people who were found with at least 11 deer at their home, along with abalone and squirrels.
California's rich waterfowl population is suffering more poaching than it has for a century, officials said.
"Not since the market poaching days of the early 1900s have we seen waterfowl poaching of this scope," Foley said of one recent case.
Sandhill Cranes and Tundra Swans were among hundreds of endangered, threatened and protected birds that wardens found in the freezers of Peter Ignatius Ciraulo, who pleaded no contest in November to three violations. He was placed on two years probation and ordered to pay a $7,105 fine and perform 100 hours community service.
Not all killing is for profit, wardens said. Jesse Cal Rodes, 25, whose truck sported the bumper sticker "Kill All the Furry Creatures," was fined $10,000 and served 90 days in jail for killing 26 deer. Authorities say he tacked the tails to his garage wall, ate some deer and let the carcasses of others rot on his property near Sonora.
Fish and Game's enforcement chief has seen evidence of nine illegal deer kills in the woods near her Sacramento-area home.
"A lot of poachers would go into the same category as drug dealers and automobile thieves; they're tenacious," Foley said. "It's really frightening to see what's been happening."
$50 million promised to soften border fence impact...CHRISTOPHER SHERMAN, Associated Press Writer
The Department of Homeland Security will allocate as much as $50 million to mitigate the environmental impact of the U.S.-Mexico border fence ordered by the Bush administration.
The agency signed an agreement Wednesday with the Department of the Interior to set aside funds for projects that the Interior department determines will soften the environmental damage caused by the fence.
"Today's signing of this memorandum of agreement demonstrates that our commitment is not only words, but actual resources, which have been set aside to allow DOI to mitigate the impact of our border security efforts in environmentally sensitive areas," Customs and Border Protection Commissioner W. Ralph Basham said in a statement released Thursday. The Department of Homeland Security includes Customs and Border Protection, which is overseeing the fence project.
The Department of Interior must give DHS its list of proposals by June 1.
The environmental consequences have been part of the loudest opposition to building 670 miles of pedestrian fence and vehicle barriers along the U.S.-Mexico border.
"It's about time," said Julie Hillrichs, spokeswoman for the Texas Border Coalition, a group of politicians and business leaders opposed to the fence. "DHS officials finally got around to doing what the Texas Border Coalition has been asking them to do for at least six months. We support it completely."
Matt Clark, southwest representative for Defenders of Wildlife, said he expected the projects to target threatened and endangered species most affected by the fence.
"It demonstrates goodwill on the part of both agencies," Clark said. "We see this as a down payment; $50 million will not come close to fixing the damage caused by the wall. Some of these impacts may not be able to be offset."
On April 1, Homeland Security Secretary Michael Chertoff used authority granted by Congress to waive a host of environmental protection laws sparking howls of opposition and lawsuits. At that time, Chertoff promised the agency would be a good environmental steward even while the change allowed speedier construction of the fence.
In place of the established environmental impact statements that require a long list of extensive studies, the agency developed its own plans. Some, including one for the Rio Grande Valley that would clear about 508 acres of land, acknowledged the fence would affect wildlife and "potential for gene flow" because some species cross the border into Mexico to mate.
Seventeen of the 21 fence sections in the Valley will affect wildlife management areas or national wildlife refuges, 14 of them directly.
Los Angeles Times
Ken Salazar promises reform at Interior Department
'I want to clean up the mess,' the Interior secretary-designate tells senators in his confirmation hearing. He pledges support for renewable energy development...Jim Tankersley
Reporting from Washington — A Cabinet nominee took the Gary Cooper role in a showdown with Washington on Thursday, when a low-talking former lawman in boots and bolo tie pledged to clean up a federal agency gone amok.
Sen. Ken Salazar (D-Colo.), nominated by President-elect Barack Obama to lead the Interior Department, appeared before a Senate committee that technically still counted him as a member for his confirmation hearing.
The Interior Department has been criticized by lawmakers and environmentalists in recent years over a sex and drugs scandal in one of its bureaus and an auditors' report saying employees manipulated endangered species decisions to advance a political agenda.
"I want to clean up the mess," Salazar said in his opening statement.
But he offered few details on his plans and sidestepped several subjects, including protections for gray wolves, the relationship between global warming and the Endangered Species Act, and whether he would continue to allow guns and snowmobiles in national parks.
In some areas he was more direct, promising to reform the nation's signature mining law and to consider numerous options for energy independence, including offshore oil drilling and, under the right conditions, oil shale development.
He pledged support for renewable energy development -- a cause he championed as senator -- and promised a balanced approach to energy and land-use policy.
He emphasized his rural roots, having grown up on a ranch in Colorado's San Luis Valley. And he called for a national conservation program putting young people to work in parks and public spaces.
Republicans and Democrats on the Senate Energy and Natural Resources Committee repeatedly told Salazar how much they admired his integrity and how they would miss him when he left the Senate. They called him "brother" and invited him to visit their states. Sen. Mel Martinez (R-Fla.) even offered to arrange for Salazar to wrestle alligators in the Everglades.
"This is on its way to being a full-fledged bouquet-tossing contest," Sen. Ron Wyden (D-Ore.) joked.
Many environmental groups support the nomination, but some continue to voice their displeasure.
In a news release, Nicole Rosmarino of WildEarth Guardians said Salazar would "not take strong stances on behalf of science and environmental protection and is not up to the task of undoing the enormous damage the Bush administration has done."
Salazar repeatedly promised to put science first in Interior Department decision-making. But asked if he thought the government should consider global warming in endangered species protection -- a position environmentalists favor but the Bush administration rejects -- he gave only a hint of an opinion.
"There is no doubt that climate change and global warming is having an impact on a whole host of natural features of this world, including endangered species that we have," Salazar said. "It is something that we will take a look at."
Salazar said he was open to compromise over a pair of domestic oil initiatives: drilling on the outer continental shelf, which he said could make sense in some areas but not others, and leasing federal land for oil shale development -- a particularly hot issue in his home state, where most shale efforts are located.
He pledged to pursue research into so-called clean-coal technology that seeks to capture and store carbon dioxide emissions from coal to curb global warming.
Even initially skeptical Republicans declared themselves pleased.
Sen. Jim DeMint (R-S.C.) had said he was concerned that Salazar's energy approach was "to cut off America's energy supply." But after speaking with him this week, DeMint told Salazar at the hearing, he had come to think "we're pretty much on the same page."
Barack Obama criticized -- again -- over pick of Ken Salazar as Interior secretary...Pete Thomas, Outposts
Soon-to-be President Barack Obama is not off to a strong start as a friend of the environment, thanks to his choice of Sen. Ken Salazar (D-Colo.) as Interior secretary.
Or such is the belief among many conservationists, who were critical after Salazar  was chosen to fill the post in mid-December, and again as he awaits Senate confirmation.
In anticipation of the confirmation hearing, WildEarth Guardians and more than 100 scientists and conservation groups today issued a group letter to Obama's transition team expressing their displeasure.
They cite Salazar's "hostility to Endangered Species Act enforcement and deference to agriculture in particular."
"Ken Salazar does not bring the change we need at Interior," stated WildEarth Guardians Spokeswoman Nicole Rosmarino. "Salazar will not take strong stances on behalf of science and environmental protection and is not up to the task of undoing the enormous damage the Bush administration has done to public lands, endangered species, and the credibility of the Department of the Interior over the last eight years."
The groups' letter cites as an example that Salazar, while serving as Colorado's attorney general in 1999, threatened a lawsuit against the Department of the Interior if the U.S. Fish and Wildlife Service listed the black-tailed prairie dog under the Endangered Species Act.
The groups contend that many of that state's vanishing species, which are threatened by agribusiness, would likely remain unprotected under Salazar as Interior secretary.
About 300 species await listing as formal candidates or species proposed for ESA listing. The Bush administration has been extremely slow to add to the list, and it is feared the backlog will grow under Salazar, who has the final word on listings.
New York Times
E.P.A. Pick Vows to Put Science First...JOHN M. BRODER...1-15-09
WASHINGTON — Lisa P. Jackson, chosen to head the Environmental Protection Agency, said at her confirmation hearing Wednesday morning that her first task would be to restore scientific and legal integrity to an agency battered by charges of political interference and coziness with industry.
But she evaded questions on whether as administrator of the E.P.A. she would immediately grant authority to California and 16 other states to regulate vehicle tailpipe emissions, promising only a speedy review of the issue. Nor did she directly answer questions on whether and how the agency would address regulation of carbon dioxide under the Clean Air Act, an authority granted the E.P.A. by the Supreme Court in 2007.
The Bush administration has declined to act on either matter.
Her promise to be guided by science and the law was an implicit rebuke of the management of the E.P.A. under President Bush, where career officials’ recommendations were sometimes ignored in decisions regarding lead in the air, arsenic in water, and carbon dioxide in the atmosphere.
“Science must be the backbone of what E.P.A. does,” Ms. Jackson said in her opening statement to the Senate Environment and Public Works Committee. “If I am confirmed, I will administer with science as my guide. I understand the laws leave room for policymakers to make policy judgments. But if I am confirmed, political appointees will not compromise the integrity of E.P.A.’s technical experts to advance particular regulatory outcomes.”
Ms. Jackson, 46, holds degrees in chemical engineering from Tulane University and Princeton University. She worked as a career employee at E.P.A. for 15 years and most recently served as head of New Jersey’s Department of Environmental Protection,
Senator Barbara Boxer, chair of the committee, said she had waited a long time for new leadership at the environmental agency. “E.P.A. works for the American people and in my view we have seen it hurt the American people these past eight years,” she said. The agency, she added, “needs to be awakened from a deep and nightmarish sleep.”
Ms. Jackson said that President-elect Barack Obama believes that sound stewardship of the environment can co-exist with economic growth. “Done properly,” she said, “these goals can and should reinforce each other.”
She said that the new administration’s environmental priorities would be curbing global warming, reducing air pollution, cleaning up hazardous waste sites, regulating toxic chemicals and protecting water quality.
Republicans on the committee expressed concern that Ms. Jackson would try to do too much at E.P.A. Senator John Barrasso, the newly-elected Republican from Wyoming, cautioned Ms. Jackson against using the Clean Air Act to regulate carbon dioxide and other greenhouse gases.
“Ranchers and miners in Wyoming know that addressing climate change through the Clean Air Act is a disaster waiting to happen,” he said.
That drew a rebuke from Ms. Boxer, who said that Mr. Barrasso had not read the Clean Air Act or did not accept Supreme Court decision giving the E.P.A. power to regulate carbon dioxide under it.
The ranking Republican on the committee, Senator James Inhofe of Oklahoma, noted that former Vice President Al Gore and many other experts of global warming had suggested that a tax on carbon would be a more effective means of reducing carbon emissions than a cap-and-trade system like the one advocated by President-elect Barack Obama.
Ms. Jackson said that it was a legitimate subject for debate, but that she would support Mr. Obama’s preference for cap-and-trade, under which a limit is set on emissions and polluters must buy or trade permits to meet it.
Mr. Inhofe also made Ms. Jackson promise to read a speech he delivered on the Senate floor last week, citing a number of scientists and other experts who question the consensus view on global warming.
Mr. Inhofe left Ms. Jackson, a native of New Orleans, with a warning. “This job is no Mardi Gras,” he said. “This job is really tough.”
After committee members finished questioning Ms. Jackson, they turned to the appointment of Nancy Sutley, 46, currently deputy mayor of Los Angeles for energy and environment, to chair the White House Council on Environmental Quality.
Ms. Sutley told the committee that she intended to move the nation toward reliance on cleaner forms of energy, to protect public health and to combat global warming. She did not detail how she, Ms. Jackson and Carol Browner, the designated White House coordinator for energy and the environment, would divide their responsibilities. Ms. Browner’s post does not require Senate confirmation.
Senator Boxer said she expected the committee to vote favorably on both nominees on Inauguration Day or shortly thereafter.
CNN Money
Stimulus: Fix the banks first
Even an $825 billion fiscal stimulus plan won't work without a restored banking sector, economists warn...Colin Barr, senior writer
NEW YORK (Fortune) -- The success of President-elect Barack Obama's fiscal stimulus plans may hinge on fixing the banking system - again.
House Democrats have proposed spending $825 billion over two years on tax cuts and new government programs in a bid to offset the steep decline in the economy.
But some economists warn that no matter how quickly the government deploys stimulus funds, the effort may not support a sustained recovery unless officials first take decisive action to close the gaping wounds in the financial sector.
Treasury Secretary Henry Paulson has said repeatedly that U.S. financial institutions were "stabilized" by last fall's government interventions, including Treasury's pledge of $350 billion to recapitalize banks.
But new cracks have been emerging by the day, which only increases the urgency.
"The financial system needs to be fixed, in a more forceful way," said Northern Trust economist Asha Bangalore. "We can't afford to postpone this any longer."
The Treasury Department decided early Friday to extend Bank of America (BAC, Fortune 500) another $20 billion to help it deal with rising losses tied to its Merrill Lynch acquisition. BofA reported Friday morning that Merrill lost more than $15 billion in the fourth quarter.
Citigroup (C, Fortune 500), the recipient of more than $300 billion of federal aid in recent months, is trying to shrink its way to long-term viability.
The bank reported a more than $8 billion quarterly loss Friday morning, and also announced that it is splitting into two businesses. That follows Citi's decision earlier this week to sell a majority stake in its Smith Barney unit to Morgan Stanley (MS, Fortune 500).
Those setbacks - together with a promise by the incoming Obama administration to limit dividend payouts by recipients of "exceptional" government aid to a penny a share quarterly - have helped to send bank stocks tumbling again.
The KBW Bank Index, a key barometer for the banking group, has lost almost a quarter of its value so far this month. That's on top of a dreadful 2008, in which the index plunged 50%.
Investors are fleeing bank stocks again in part because the drains on profits are getting bigger. While big banks spent 2008 taking billions of dollars of losses on ill-advised mortgage investments and misguided trading bets, banks of all stripes now face rising losses on their credit card, auto loan and other portfolios.
With unemployment rising and credit scarce, those trends aren't likely to moderate any time soon.
More capital is not enough
As a result, banking experts expect many of the big institutions will rebuild their capital cushions against losses - even though many of them already received funds from Paulson's Troubled Asset Relief Program, or TARP, just a few months ago.
University of Oregon economics professor Tim Duy said "there's a nontrivial risk" that the government will have to allocate even more capital to banks in the next few months.
"This spring we're going to find out just how badly the deteriorating economy has affected bank balance sheets," Duy said.
But the experience of the past three months, in which lending failed to pick up even as governments lavished banks with new capital, suggests that merely filling the holes on bank balance sheets won't be enough to get credit flowing again.
That's why some economists are saying the U.S. government and other governments around the globe must go further.
"There's a real risk of policy not doing enough," says Lena Komileva, an economist at interdealer broker Tullett Prebon. "The increased liquidity government has provided hasn't translated into improved credit flows."
Indeed, while the Federal Reserve and other central banks have vastly expanded the scope of reserves available to the banking system, banks remain leery of lending as asset prices continue to fall and many developed countries sink deeper into a recession.
Those trends, Komileva said, translate into a crisis of confidence about the solvency of borrowers on all sorts of loans. The crisis is particularly acute because consumer debt-to-income readings were setting records even before Lehman Brothers collapsed in September and sent the economy further into a tailspin.
How to really fix the banks
Komileva says the answer isn't to expand the government role in the economy, but to set up incentives for private lenders to start making loans again. One way to do so, she said, is for governments to offer tiered loan guarantees to lenders in a bid to cover what she calls the "excess risk" that borrowers will default.
A plan of this nature could encourage lenders to make loans in spite of the enormous uncertainty now afflicting practically every economic sector.
"The key is to get market structures working again and restart private capital flows," Komileva said.
There are other options as well. Gary Townsend, a former bank analyst who runs Townsend Hill Capital in Chevy Chase, Md., advocates suspending the mark-to-market accounting rules that he thinks are responsible for many of the writedowns that have sapped bank capital.
Because of these rules, banks have to report what the fair value of their investments were if they were to sell them now -- and the value of many of those investments, especially mortgage-backed securities, have plunged in the wake of the credit crunch.
"They just need to admit that adopting that rule was a stupidity," Townsend said. "They need to put that one where the sun doesn't shine."
While the latest collapse in stock prices reinforces the fact that banks need capital, Townsend doesn't believe rescues like the one the government just unveiled for Bank of America will become commonplace.
He said banks that have either failed or need help fall into three categories: thrifts that lent aggressively such as Washington Mutual, banks that made too many acquisitions such as BofA, and investment banks that levered up too much such as Lehman Brothers.
Whatever approach the Obama team takes, it will walk a thin line with legislators eager to crack down on fat cat banking types and investors who are wary of an expanded federal presence.
"The government needs to be careful that it doesn't make itself the only source of capital," Townsend said
BofA: $20B bailout, huge Merrill loss
U.S. injects capital in nation's largest bank yet again, shields it from up to $118B in losses. CEO Lewis: Treasury thought 'walking away' from Merrill would hurt markets...David Goldman, Tami Luhby and Grace Wong, CNNMoney.com staff writers...CNN's Scott Spoerry contributed to this report.
NEW YORK (CNNMoney.com) -- Bank of America has received another $20 billion from the federal government's bailout fund, along with guarantees on $118 billion of assets at the bank, to absorb its recent purchase of the ailing Merrill Lynch.
Details of the deal were announced by the government in the early hours of Friday.
The new arrangement provides additional capital for Bank of America (BAC, Fortune 500) in exchange for preferred stock with an 8% dividend, according to a joint statement by the Treasury Department and the Federal Reserve.
The Treasury will extend $20 billion more to the bank under the $700 billion Troubled Asset Relief Program. The funding will come from the TARP Targeted Investment Program, not the subset $250 billion Capital Investment Program designed to prop up healthy banks' balance sheets.
The bailout deal also provides a $118 billion backstop from the Fed in case of "unusually large losses" on assets backed by real-estate loans, most of which are being absorbed by Bank of America in its buyout of brokerage house Merrill Lynch. Bank of America will pay 3.7% of those assets as a fee for the backstop, and is responsible for the first $10 billion of losses and 10% of the remaining losses.
According to Ken Lewis, Bank of America's chief executive, Bank of America realized soon after its merger deal with Merrill Lynch in mid-September that Merrill's losses were accelerating beyond expectations. In December, the bank discovered Merrill's asset deterioration was "much, much higher" than anyone had forecast.
But when the bank considered renegotiating the deal, the Treasury Department intervened.
"As we saw the anticipated loss accelerating, we reevaluated our rights under the deal," Lewis said on a conference call with investors. "The government was under the view that walking away would cause significant concerns and serious systemic harm to the financial markets."
Lewis said the government's response led to considerable uncertainty about its next steps, but in the end, he concluded that sticking with the deal would best benefit the national economy.
"We did think we were doing the right thing for the country," Lewis said.
Huge quarterly losses
The news came just before the nation's largest bank reported a net loss of $1.79 billion in the fourth quarter of 2008, compared to earnings of $268 million at the same period in 2007.
The net loss to common shareholders, including the issuance of preferred stock dividends that the government receives from its preliminary capital investment, was $2.39 billion, or 48 cents per share. Analysts expected earnings of 8 cents per share.
The loss did not include Merrill Lynch's results. The recently acquired investment bank reported a loss of $15.31 billion, or $9.62 per share. Bank of America cited "severe capital markets dislocations" for Merrill's huge loss, especially late in the quarter.
"The acquisition of [Merrill Lynch] significantly increases [Bank of America's] exposure to currently depressed capital markets-related revenues," wrote Jeff Harte, analyst with Sandler O'Neill & Partners, in a note.
Citing escalating credit costs, significant writedowns, trading losses and a deep economic recession, Bank of America slashed its dividend from 32 cents a share to just a penny. The bank had already cut its dividend in half in the previous quarter.
"These are extraordinary times," said Lewis. "The credit markets literally hit a wall, and nobody lending to consumers or who is in the capital markets is immune."
Third bailout's a charm
Bank of America has now received a total of $45 billion in government aid. Before the latest injection, it had been the recipient of $15 billion in government capital in October, and $10 billion last Friday - an investment that had been set aside for Merrill Lynch.
The deal marks the second time the federal government has had to step in again to prop up a faltering financial institution. In November, officials injected another $20 billion into Citigroup (C, Fortune 500), which had already received $25 billion, and agreed to backstop more than $300 billion in troubled assets.
Aimed at fostering stability in the financial system, the $20 billion lifeline should be transferred to Bank of America later Friday, according to a senior government official.
Banks receiving TARP funds have been criticized for hoarding the cash to raise capital ratios, rather than lending it to improve the credit situation.
"Legislators raised concerns that we're pulling back on credit," Lewis said. "It is true, our appetite on credit risk is greatly reduced. How could it be otherwise?"
Still, Lewis noted that the bank originated $115 billion in new credit in the fourth quarter, including many new home loans. The bank said demand for mortgages surged in late December as loan rates fell.
Bank of America's shares fell 10% in early trading after dropping 18.4% Thursday and 42% so far this week on concerns that the bank -- which had been viewed as one of the strongest in the country -- may be buckling as the nation's economy worsens.
The Charlotte, N.C.-based bank has also taken over two ailing companies that thrust it deeper into the most troubled sectors of the financial system. Not only did it take a big gamble on its $24 billion acquisition of the faltering brokerage titan, but it also bought battered mortgage lender Countrywide Financial early last year.
Bank of America already has announced it plans to shed up to 35,000 jobs over the next three years as it integrates the Wall Street firm. Chief Executive Ken Lewis gave up his 2008 bonus last week.
More to come?
Officials didn't disclose whether other troubled banks would need similar assistance. "Each time we do one of these, we hope it's the last one we will ever have to do," one official said.
Bank earnings this quarter have been dismal so far. Citigroup reported a whopping loss Friday, while JPMorgan Chase (JPM, Fortune 500) said its profits plummeted 76% Thursday.
The Treasury Department has less than $60 billion left to inject into banks under its capital purchase program. President-elect Barack Obama on Thursday secured access to the $350 billion remaining in the federal bailout package, after a measure that would have blocked the funds' release failed in the Senate.
Some analysts say banks are likely to get additional capital infusions this year. Federal Reserve Chairman Ben Bernanke said Tuesday that the government must pump more money into troubled financial institutions and that further guarantees of their debt could be necessary.
Citi splitting into two after $8.3 billion loss
Results come in far worse than analysts were anticipating; banking giant will realign into two units, ending its so-called 'universal banking' business model...David Ellis
NEW YORK (CNNMoney.com) -- Citigroup reported a much bigger-than-expected $8.3 billion quarterly loss Friday, while the beleaguered banking icon also revealed plans to split up into two businesses, effectively bringing an end to the company's "financial supermarket" model.
Under the new arrangement, Citigroup would split into two units: Citicorp and Citi Holdings. Citicorp would house, among other things, the company's private and investment bank as well as its credit card and consumer banking business, with about $1.1 trillion in assets.
The smaller Citi Holdings would incorporate its so-called non-core businesses, including its Smith Barney brokerage and a pool of troubled assets that have plagued the firm for more than a year.
The Citi Holdings division would also include the $301 billion in assets that the government agreed to backstop against future losses as part of a massive rescue package plan unveiled for Citigroup in November. In addition to this guarantee, the government has also injected $45 billion into the company in exchange for preferred shares.
CEO Vikram Pandit said the difficult economic and market environment for both Citigroup and the broader banking sector forced the company's hand, adding that the move will help simplify the organization and help better serve both clients and customers.
"The realignment will preserve what makes Citi unique -- its global, universal banking footprint," he said in a statement. "We will continue to move aggressively to get Citi back on the right track and return it to a position of sustainable financial success."
Pandit: No rush to sell any more businesses
Citigroup (C, Fortune 500) stock, which has lost 43% of its value over the past week amid concerns about its future, gained 4% in morning trading on the news.
By splitting up the company, Citigroup will effectively divide the company into a so-called "good bank-bad bank" structure.
Such a move is expected to allow the company to provide greater transparency to investors about the troubled assets. It will also allow Citi to hold some loans that have not gone bad, such as existing mortgages and student loans, until they are paid off.
"They had to get smaller and this was as good a way as any to do it," Jason Tyler, a senior vice-president at the Chicago-based Ariel Investments, which manages about $7 billion in assets, but does not own shares of Citigroup.
"This provides stability and the ability to tell your largest depositors and clients 'There is no need to worry, things are fine.' "
Citigroup, which ranks as one of the world's biggest banks by assets, said it would work to implement the changes as quickly as possible, with the new structure reflected in its reporting by the second quarter of this year.
Pandit said during a conference call with investors Friday morning that the bank was not in a rush to sell some of the Citi Holdings units. Analysts have speculated in recent months that the company may look to sell additional divisions in an effort to raise cash.
The broader restructuring by Citigroup, however, would effectively reverse the 1998 merger between Citicorp and Travelers Group overseen by then-CEO Sanford Weill.
That deal created the modern-day Citigroup and its so-called "universal bank" business model, which aimed to offer clients and customers a smorgasbord of financial services.
For years, both shareholders and analysts have clamored for Citigroup to abandon this business model because they believed it did not work. The latest results from Citi seem to prove them right.
Another tough quarter for Citi
The New York City-based bank recorded a net loss of $8.29 billion, or $1.72 a share, during the fourth quarter, representing the company's fifth-straight quarterly loss. The bank lost a total of $18.72 billion in 2008.
Hoping to silence market speculation about its underlying health, Citigroup moved up Friday's report. Still, the numbers was far worse than Wall Street was anticipating. Analysts were expecting the New York City-based bank to record a loss of $4.49 billion, or $1.31 a share.
"Our results continued to be depressed by an unprecedented dislocation in capital markets and a weak economy," said Pandit.
Citigroup was once again hammered by substantial writedowns on its portfolio of mortgage-related securities. The firm also recorded losses on some private equity investments, and its investment banking business took a hit as capital markets activity remained at a standstill during the final three months of 2008.
The bank also increased its loan loss reserves by $6 billion during the quarter, a sign that the company is bracing for future loan losses.
Helping to offset those losses was a one-time gain of $3.9 billion from the sale of the company's German retail banking business during the quarter.
The results cap another tumultuous week for Citi and the broader banking sector. Citi's breakup announcement was widely expected after the bank announced on Tuesday that it was selling a majority stake in Smith Barney to Morgan Stanley (MS, Fortune 500) for $2.7 billion.
Last week, long-time board member Robert Rubin stepped down following scrutiny about his failure to stop the company from ramping up its risk exposure.
Late Thursday, the federal government moved to inject another $20 billion into rival Bank of America (BAC, Fortune 500), in addition to guaranteeing $118 billion in assets, to help the company complete its purchase of Merrill Lynch.
The Charlotte, N.C.-based firm followed that up by reporting a quarterly loss of $1.8 billion before the opening bell Friday.
Brutal job losses continue in 2009
As recession deepens, companies like Pfizer and Alcoa shed jobs...Aaron Smith
NEW YORK (CNNMoney.com) -- The job market is off to a terrible start this year, with companies announcing more than 80,000 job losses so far, in one of the most painful symptoms of the ongoing recession.
Circuit City Inc. is the biggest culprit of 2009. The bankrupt retailer said on Friday that it is shutting down because of dried-up consumer spending and liquidating its 567 U.S. stores, dooming some 30,000 jobs.
Also on Friday, the Hertz (HTZ, Fortune 500) rental car company said it would cut 4,000 jobs in the first quarter, because of decreased demand for its cars. Japanese auto maker Honda Motor (HMC) said it would cut 3,100 jobs and healthcare company WellPoint (WLP, Fortune 500) said it would slash 1,500.
Other massive job cuts from this week include electronics producer Motorola (MOT, Fortune 500), with 4,000 cuts, finance firm Barclays, with 2,100, and packaging company Meadwestvaco (MWV, Fortune 500), with 2,000.
These announcements come on the heels of the devastating news that the U.S. economy lost 2.6 million jobs in 2008, making it the worst year since 1945. This brought the annual unemployment rate up to 7.2%.
In recent days, the most hard-hit industries include retailers and manufacturers.
The 2009 job market got off to a rough start on Jan. 5, when health benefits company Cigna said it was cutting 1,100 jobs. The following day, aluminum giant Alcoa (AA, Fortune 500) announced 13,500 cuts, while computer mouse maker Logitech (LOGI) said it was shedding 500 jobs.
The onslaught continued. Some of the larger cuts included Japanese electronics maker TDK Corp., (TDK) with 8,000 casualties announced on Jan. 8, and airplane manufacturer Boeing (BA, Fortune 500), with 4,500 cuts announced on Jan. 9.
It's getting worse
The job market isn't likely to get much better in 2009, according to projections. The Conference Board forecast two million more job cuts this year.
Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said that leading indicators are hinting at further job cuts in 2009. The most telling, he said, is the Labor Department statistic that the average work week has shrunk to 33.3 hours, which is down 0.2 hours over the last two months.
"That tells you that job growth is going to get worse going forward," said Achuthan. He said the shrinking work week shows that employers "don't need [workers] as much."
Even after the economy bottoms out, it could take a while before employers start hiring again, said Achuthan, noting that job market didn't begin to grow until a full year after the end of the 2001 recession.
"We're going to have to have a recovery well under way before we can reverse the trend of job losses," he said.
Moody's chief economist John Lonski said the shrinking job market is a casualty of collapsing retail sales. Therefore, the job market won't recover until after retail sales start to pick up, he said.
"Businesses will probably continue to lay off people in large numbers until demand stabilizes at a lower level," said Lonski. "Once we have the situation arise where inventories are in line with expectations, there is less of an incentive to cut back on staff." 
Financial Times
Circuit City to liquidate all stores...Jonathan Birchall in New York
Circuit City, the US consumer electronics retailer, on Friday became the largest retail victim of the financial crisis after saying it would have to liquidate all its assets.
The group, with more than 30,000 employees, will on Saturday launch going-out-of-business sales at its 567 remaining stores after failing to find a buyer to keep one of the country’s best known retail names afloat.
The appearance of yellow and black liquidation signs at its stores will add to the bleak mood across US malls amid a slump in consumer spending.
Circuit City was already struggling before the economy worsened sharply late last year, as were most of the other smaller retailers – such as Linens ’n Things and Mervyns – that have been swept away through bankruptcy.
The retailer had reported two years of falling sales, as it struggled to compete with Best Buy, its large rival, and Wal-Mart, the low-cost discounter, whose expanded consumer electronics business has cut prices for items such as flat-screen TVs.
James Marcum, chief executive, said the company was “extremely disappointed by this outcome”, having failed to find a buyer ahead of Friday’s court deadline in spite of detailed discussions with two interested parties.
“Regrettably . . . we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company,” he said in a statement.
The two potential bidders were reported to be Ricardo Salinas, a Mexican billionaire who bought 28 per cent of the retailer as it entered bankruptcy, and Golden Gate Capital, a private equity fund.
The lenders providing the interim financing had been pushing the company to reach a decision on a sale of its assets by Friday’s deadline.
Circuit City had already closed 155 stores since filing for bankruptcy protection, affecting 5,000 employees.
The two potential buyers were the latest in a series of ultimately unsuccesful suitors in recent years. In 2003 Carlos Slim, the Mexican investor, made a $1.6bn approach. Highfields Capital, the private equity firm, made an unsolicited $3.25bn bid in 2005 and Blockbuster Video made an approach last year about a possible bid.
BofA lifeline fails to calm Wall St...Alistair Gray in New York
A punishing week for Wall Street stocks that saw the market’s gains over the past six weeks disappear drew to a close with more selling as fresh government efforts to support the banking sector did little to abate investor fears.
Banks lost further ground on Friday after large falls in the week when Citigroup and Bank of America disclosed more heavy losses.
“The banks are desperately short of common equity, the first round of the troubled asset relief program has done little and there is an increasing risk of partial or total nationalisation,” said Richard Staite, US banks analyst at Atlantic Equities. “It’s not surprising share prices keep falling.”
Bank of America dropped 14.6 per cent to $7.11 to extend its decline for the week to 45.3 per cent after posting its first loss since 1991 and cutting its dividend to a penny.
The further selling came in spite of confirmation that the bank would receive a $20bn cash injection and a government guarantee covering most of a further $118bn of toxic assets.
Investors remain wary that further government intervention in the sector will bring with it onerous terms, such as more dividend cuts.
“It’s such a disaster,” said Pran Tiku, president of Peak Financial Management.
Weekly losses at JPMorgan Chase were somewhat less spectacular – down 15.4 per cent – as its 76 per cent fall in fourth-quarter profit was nevertheless not as bad feared. But its shares lost further ground on Friday, off 9.7 per cent to $21.98.
Citigroup shed 2.4 per cent to $3.74, taking its weekly decline to 44.6 per cent, after the bank confirmed its break-up plan along with a fourth-quarter loss.
Wells Fargo tumbled 11.4 per cent and 28.9 per cent for the week to $17.87 after analysts warned that it, too, was short of equity and investors feared the dividend would be cut.
The benchmark S&P 500 index opened higher as strength in other sectors – notably defensive areas such as utilities, consumer staples and healthcare – propped up the market.
But by mid-afternoon in New York, the S&P 500 was down 0.4 per cent to 840 points, the Dow Jones Industrial Average was 0.3 per cent weaker at 8,184.53 points and the Nasdaq Composite Index was off 0.3 per cent at 1,507.80 points.
Investors took scant comfort from the release of economic data that was less dire than usual. The Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly rose in January – a rare upbeat development amid another glut of downbeat figures released in the week.
The further losses on Friday took the sell-off for the week, marked by growing fears that banks would struggle to handle rising credit losses, to 5.7 per cent for the S&P, 4.8 per cent for the Dow and 4.1 per cent for the Nasdaq.
That shrank the S&P’s gain since the 11-year low reached last November to less than 12 per cent.
The Vix, referred to as Wall Street’s fear gauge, leapt 13.8 per cent over the week and was at one point above 50 for the first time in a month.
The heavy losses among financials, off 16 per cent overall, dwarfed those of other stocks.
All 10 main economic sectors were in the red, although industrials were also particularly hard hit, down 7.8 per cent.
General Electric was among the worst performing blue chips of the week, 15.5 per cent lower at $13.52 after Barclays forecast tax benefits could account for as much as $0.20 of an estimated $0.36 earnings per share in the fourth quarter, more than expected.
The earnings season got off to a downbeat start. Intel shed 3.8 per cent to $13.61 after the chipmaker disclosed a 90 per cent drop in profit and declined to predict future sales.
Some defensive stocks provided a haven over the week. Kraft was among the few Dow stocks to find positive territory, up 2.3 per cent to $28.44.
Do not squander America’s stimulus on tax cuts...Joseph Stiglitz...1-15-09
As news of the US economy worsens, worries about whether a stimulus could restart the economy are growing. Making matters more complicated is the fact that our 2009 fiscal deficit will exceed 8 per cent of gross domestic product, even before the stimulus.
What is clear is that tax cuts will not help much. When Barack Obama, president-elect, last week proposed to use nearly 40 per cent of the stimulus for tax cuts, he was rightly told this would be less effective than, say, spending on infrastructure. It has been surprising, then, to see President George W. Bush’s former economic advisers, including Greg Mankiw, argue that tax cuts are the way forward.
Mr Mankiw cites a recent study by Christina Romer and David Romer, economists at the University of California, Berkeley, who found that each dollar of tax cuts raises GDP by about $3 (€2.30). Such studies, based on past data, may have little to say about the situation the world now faces. Americans confronted with debt, shrinking retirement accounts, houses worth less than mortgages and a tough credit environment will save more of their money than in the past. That was the experience with the February 2008 tax cut, where less than half of it has been spent. It matters who gets the break – if it is lower income Americans, the fraction spent will, on average, be greater than for wealthier Americans.
Tax breaks for business may prove to be a sink-hole as bad as the troubled assets relief programme. Particularly worrisome are rumours that companies will be allowed to set off their losses against profits made in the past five years to get tax rebates – a big gift to those who mismanaged risk, including banks such as Citibank. Some suggest that, having exhausted the more transparent bail-out strategy, banks are seeking less transparent help through the tax code. We learnt the lesson from Tarp: we need to link handouts to changes in behaviour. We should have insisted banks commit to more lending. Now we should insist any tax breaks for business are linked to investment.
Similar caution needs to be exercised in evaluating each element of the stimulus package. The Obama team has issued a report projecting its potential for job creation. In estimating the impact of offering relief to the states, it assumed, based on experience, that 30 per cent of the relief would be used to stall tax increases that would otherwise have occurred. (States are facing a shortfall of perhaps $150bn a year.) But with property values plummeting, there is pressure to cut property taxes. And, in any case, state taxes are more regressive than federal taxes – more of the burden of taxation is borne by those with lower incomes. This means that if tax cuts come partly at the expense of state relief, and states are forced to raise taxes, the net effect on the economy is likely to be negative.
There is a more fundamental point that the Bush team missed. Tax cuts have increased our national debt. They encouraged America to live beyond its means, increasing our liabilities without commensurate increases in assets. Further tax cuts would do the same. Good accounting looks at assets and liabilities. Spending on infrastructure, education and technology create assets; they increase future productivity.
Some of the spending in the stimulus serves multiple ends. Increased unemployment benefits have the largest multiplier effects – cash-strapped families spend every cent given – and meet vital social needs. It is imperative to provide health insurance to the unemployed: without that, a single serious incident can push a family into bankruptcy. Helping the unemployed meet house payments reduces foreclosures, addressing one of the underlying causes of the crisis. There are thus triple benefits.
We are in uncharted territory in this crisis. But household tax cuts, except for possibly the poorest, should have no place in the stimulus. Nor should business tax breaks, except when closely linked with additional investment. The one tax cut that should be included is a temporary incremental investment tax credit; it provides a big bang for the buck, encouraging companies to invest now when the economy needs the spending. Increased investments in infrastructure, education and technology, relief to states, and help to the unemployed need pride of place.
This is a stimulus that some Republicans will find less attractive than previous give-aways. But Americans voted for change they could believe in. I trust that that is what we will get.
The writer was awarded the Nobel Prize in economics in 2001. His latest book is The Three Trillion Dollar War, co-authored with Linda Bilmes (2008)