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Tuesday, September 20, 2011

GOP leaders urge Fed to back off from more stimulus

Four Republican leaders sent a letter to Federal Reserve Chairman Ben S. Bernanke ahead of the central bank’s meeting this week, urging him to avoid “further extraordinary intervention” in the economy.

The letter, reported by the Wall Street Journal on Tuesday, shows the pressure Bernanke is facing from the GOP as the Fed considers whether to try to bolster economic growth with additional monetary stimulus.

The letter was signed by House Speaker John Boehner of Ohio, Sen. Minority Leader Mitch McConnell of Kentucky, Sen. Minority Whip Jon Kyl of Arizona and House Majority Leader Eric Cantor of Virginia, the Journal said.

Fed policymakers will wrap up their meeting on Wednesday and are widely expected to announce a new bond-buying plan specifically aimed at pulling longer-term interest rates lower.

Bernanke has signaled that the Fed could resurrect a move it undertook in the 1960s known as Operation Twist: The Fed, which owns $1.6 trillion in Treasuries, could shift that portfolio by selling shorter-term debt and using the proceeds to buy longer-term bonds.

The net effect would be to twist the so-called yield curve, meaning the level of longer-term interest rates compared with short-term rates. In theory, by adding to demand for longer-term Treasury bonds, the Fed could pull those rates down further. That could translate into lower rates on corporate, municipal and mortgage bonds, for example.

If the Fed commits to a new Operation Twist, it would be the third bond-buying program it has launched since November 2008. The last one was a $600-billion purchase program completed in June.

The difference this time is that most analysts believe that the Fed wouldn’t print new money to fund its purchases. If the central bank merely swaps shorter-term Treasuries for longer-term securities, the net amount of its holdings won't change.

That would allow the Fed to say that it isn’t engaging in so-called quantitative easing -- pumping more money into the financial system -- and therefore that the bond purchases wouldn’t threaten to stoke inflation.

Whether that would be enough to appease GOP leaders isn’t clear.

From their letter to Bernanke, according to the Journal:

Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.

It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board members, academics, business leaders, members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.

The Fed will issue its post-meeting statement at about 11:15 a.m. PDT on Wednesday.

U.S. poverty totals hit 50-year high

Texas Gov. Rick Perry takes a shot at Bernanke

-- Tom Petruno

Photo: House Speaker John Boehner, left, and Senate Minority Leader Mitch McConnell. Credit: Karen Bleier / AFP / Getty Images

California sells $2.4 billion of bonds amid falling yields

California on Tuesday wrapped up its first long-term debt sale of 2011, paying interest rates substantially below what it paid on bonds last November -- a savings for taxpayers.

The drop in yields curbed demand for the bonds from individual investors, but buying by institutional investors such as mutual funds allowed Treasurer Bill Lockyer to issue nearly the full amount planned.

The state said it sold $2.37 billion of tax-free general obligation bonds to refinance previously issued bonds and pay off other debt.

Individual investors put in orders for $655 million of the bonds on Friday and Monday. Institutions bought $1.74 billion of the deal on Tuesday, which is when final yields on the securities were set.

When it issued bonds in November the state paid an annualized tax-free yield of 4.23% on 10-year securities in that offering. This time around Lockyer set the yield on 10-year bonds at 3.17%, more than a full point less. Yields were lower across the board on bonds of other maturities as well.

Although California’s credit rating remains the lowest of any state, the budget passed by the Legislature in June has given investors more comfort about the state’s fiscal outlook, Lockyer spokesman Tom Dresslar said. “We believe the budget has helped constrain the price” of borrowing, he said.

Credit rating firm Standard & Poor's in early July raised its outlook for the state’s rating to “stable” from “negative,” saying the state's plan to balance its budget was "largely realistic."

It also has helped California that muni bond interest rates in general have tumbled this year, along with yields on U.S. Treasury bonds, as the economy has weakened and many investors have favored bonds over stocks for safety. The 10-year Treasury note yield was at 1.94% on Tuesday, down from 3.30% at the start of the year.

But falling yields have pushed some individual investors to the sidelines because they believe the returns aren’t high enough to justify the risk, analysts say. Small investors are “deeply unhappy” with muni yields now, said Matt Fabian, analyst at research firm Municipal Market Advisors.

Orders from individual investors in Tuesday’s California bond sale were well below the nearly $1 billion they put in for the November sale, although this time around bonds of certain maturities were available only to institutions. The state said it raised yields on bonds maturing between 2013-2016 and 2022-2028 by as much as 0.05 percentage points from its initial estimates to get the deal done.

With the steep drop in muni yields this year “the market is not very conducive to doing a bang-up retail business,” Dresslar said. Still, he said, the state was “very pleased” with the demand it saw.

The state plans another general obligation bond sale in mid-October, although the amount hasn’t been determined, Dresslar said.

Some investors may be shying away from muni bonds because of President Obama’s proposal to limit the amount of muni bond interest that high-earners can exclude from their taxable income beginning in 2013. The proposal would help pay for the economic-stimulus program in the jobs bill Obama sent to Congress earlier this month.

But Congress could quash the idea. Lockyer and other state officials already have raised objections, warning that the move could mean investors would demand higher yields on muni bonds, driving up state and local governments' cost of issuing debt.

Muni bond market was a big winner as stocks dived

Fed expected to launch new program to push long-term interest rates lower

-- Tom Petruno

Inset photo: Treasurer Bill Lockyer. Credit: Armando Arorizo/Bloomberg News

Solyndra execs to take 5th, refuse to testify before House panel [Updated]

Solyndra Inc.'s chief executive officer and chief financial officer will invoke their 5th Amendment rights and not answer questions during a Friday hearing before a House investigative committee, their attorneys said.

Attorneys for Solyndra Chief Executive Brian Harrison and W.G. “Bill” Stover, the company’s chief financial officer, sent letters to the House Energy and Commerce Committee’s investigative subcommittee Tuesday saying the two executives would not answer any questions during the hearing.

“I have advised Mr. Harrison that he should decline to answer questions put to him by this subcommittee based on his rights under the Fifth Amendment,” Harrison’s attorney, Walter F. Brown Jr., said in a letter to Rep. Clifford B. Stearns (R-Fla.), the committee’s chairman, and Rep. Diane DeGette (D-Colo.).

“This is not a decision arrived at lightly, but it is a decision dictated by current circumstances,” Brown said in the letter.

Agents with the FBI and Energy Department’s inspector general executed a search warrant at Solyndra’s Fremont headquarters on Sept. 8, two days after the company declared bankruptcy despite receiving $528 million in federal loans. The FBI and Energy Department have declined to say what prompted the investigation or who it is targeting.

Stover's attorney, Jan Nielsen Little, said in a letter to the committee that the criminal investigations prompted the decision for Stover to decline to testify. Stover still intends to appear at the hearing, Little said.

"Under these circumstances, Mr. Stover must invoke his rights under the Fifth Amendment of the U.S. Constitution," Little wrote. "It would be irresponsible for anyone in his position not to do so."

Solyndra was the first recipient of Energy Department loans under the Obama administration intended to spur economic growth and create jobs through investments in green technology. To date it is the only DOE loan recipient to cease operations.

[Updated at 2:37 p.m. Solyndra released a statement that acknowledged the executives' plans to take the Fifth, but said the company "is not aware of any wrongdoing by Solyndra officers, directors or employees in conjunction with the DOE loan guarantee or otherwise, and the company is cooperating fully with the office of the United States Attorney for the Northern District of California in its investigation." The company also said it "believes that the record will establish that Solyndra carefully followed the rules of the competitive application process, starting in December 2006 under the Bush administration and continuing under the Obama administration."]

Solyndra: House committee grills officials over failed solar firm

Democrats say Solyndra scandal touches Republicans, too

--Stuart Pfeifer

Photo: FBI agents leave Solyndra with boxes of records during Sept. 8 search. Credit: Associated Press

Solyndra execs to take 5th, refuse to testify before House panel

“This is not a decision arrived at lightly, but it is a decision dictated by current circumstances,” Brown said in the letter.

"Under these circumstances, Mr. Stover must invoke his rights under the Fifth Amendment of the U.S. Constitution," Little wrote. "It would be irresponsible for anyone in his position not to do so."

Lawmakers want to question Solyndra investors about its collapse

Solyndra: House committee grills officials over failed solar firm

Democrats say Solyndra scandal touches Republicans, too

--Stuart Pfeifer

Photo: FBI agents leave Solyndra with boxes of records during Sept. 8 search Credit: Associated Press

Airlines protest fee increase plan

The airline industry is protesting the Obama administration's plan to increase fees and taxes on commercial passengers and corporate jets to help battle the nation's debt crisis.

Two of the world's largest airline trade groups say the proposed fees and taxes would hurt the economy and force the industry to eliminate jobs.

To help cut the nation's debt, the Obama administration has suggested doubling the aviation security fee imposed in response to the Sept. 11, 2001, terrorist attacks. Each passenger is now charged $2.50 for each leg of a trip, with a maximum of $5 for a one-way trip. Under the proposal, the charge would be replaced with a standard $5 per trip fee, with annual increase of 50 cents from 2013 to 2017.

The fee could collect an additional $8.8 billion over five years and $24.9 billion over 10 years.

The administration also wants to raise a per-flight fee from $60 to $100 for all corporate planes that fly in controlled airspace, generating an estimated $11 billion over 10 years.

The Air Transport Assn., the trade group for the nation's largest airlines, said the industry already pays more than its share of taxes.

"We oppose any new taxes on airlines or their passengers," said ATA President Nicholas E. Calio.

The International Air Transport Assn., the trade group for the world's airlines, also issued a statement Tuesday, objecting to the proposed new fees.

“Airlines and their passengers are being asked to pay for national security, although it clearly is a responsibility of government,” said IATA Director General Tony Tyler.

When it comes to adding new fees on passengers, however, the nation's airlines have not been reluctant to act.

The nation's largest airlines collected $1.38 billion for charging passengers to check baggage and change reservations in the first three months of the year, a 4% increase over the same period in 2010, according to the U.S. Bureau of Transportation Statistics.

20% of Americans expect to be millionaires by 2020

Even with a turbulent economy, 20% of Americans expect to become millionaires in the next decade.

But the majority –- 62% -- still believe it’s “very unlikely” that they’ll reach the threshold by 2020, according to a new poll from the Associated Press and CNBC. Just 8% of U.K. residents believe they’re on the millionaire track.

And last year, only 5% of Americans reached the million-dollar mark -– which two in ten believe is the minimum amount of money for a comfortable retirement.

Volatility in the stock market, along with stalled job openings, dropping home values and low consumer confidence likely prevented more Americans from shooting for millionaire status.

Even with that amount of money, respondents said they would save or invest nearly a third of the pot while spending less than 15%. The rest would go to family, debt payments, real estate and charitable donations.

Still, the number of U.S. millionaires is rising, set to double to 20.5 million in 2020, according to the Deloitte Center for Financial Services. The combined worth of the group would soar to $87 trillion from $39 trillion this year.

College graduates earn 84% more than high school grads, study says

-- Tiffany Hsu

Photo credit: Scott Eells / Bloomberg

Consumer Confidential: Airline fees, hot toys, less Coke

Here's your to-sir-with-love Tuesday roundup of consumer news from around the Web:

--If you're traveling abroad, don't pack too much. A USA Today survey of airline fees shows that some carriers have hit or surpassed the $400 mark for international passengers traveling with overweight baggage. On most international flights, Continental is charging $400 for a bag weighing 71 to 100 pounds. United Airlines similarly charges $400 for bags weighing 71 to 99.9 pounds on intercontinental flights. American Airlines will charge you $450 for overweight luggage bound for Asia. The reason, AA spokesman Tim Smith told USA Today, is to both defray fuel costs and to dissuade passengers from checking such heavy bags in the first place. Call it tough love.

--Is it too soon to think about what toys you'll be buying for Christmas? Of course not. Toys R Us, for one, is betting that 15 toys ranging from a flying, inflatable remote-control fish to tiny collectible monsters will be big hits this season. Making the right picks early is crucial for toy sellers so they have the right mixture of toys at the right prices to lure shoppers. The holiday season can account for about 40% of a toy seller's annual profit. In 2010, U.S. toy sales rose 2% to $21.87 billion, according to the NPD Group. Toys on the Toys R Us list include: Air Swimmers Extreme by Animal Planet, $49.99; Lalaloopsy Silly Hair dolls by MGA Entertainment, $34.99; and Monster High Fearleading 3-Pack by Mattel, $42.99.

--Coca-Cola thinks less may be more. The company will announce this week the launch of 12.5-ounce, 89-cent bottles to accompany the 16-ounce, 99-cent bottles it rolled out nationally last year as an alternative to 20-ounce bottles in U.S. convenience stores. It will also slash the suggested retail price on its recently introduced eight-pack of 7.5-ounce Coke "mini'' cans in supermarkets by about 20% to $2.99 to try to lure more customers. The proliferation represents a departure from years of relying heavily on three basic packages -- 20-ounce bottles in convenience stores and two-liter bottles and cases of 12-ounce cans in supermarkets -- as it battled rivals Pepsi and Dr Pepper in the $75-billion U.S. retail soda market. But sugar water is still sugar water, no matter how modest the serving.

-- David Lazarus

Photo: You may want to travel light to avoid higher baggage fees. Credit: Rainier Ehrhardt / Associated Press