Fed missed warning signs in 2007 as crisis gained steam

WASHINGTON, Mon Jan 21, 2013 — Top policymakers at the Federal Reserve felt for most of 2007 that problems in housing and banking were isolated and unlikely to tear down the U.S. economy as they ultimately did.

Even as crisis signals started flashing red with the freezing of credit markets during the summer, Fed officials believed the troubles would be moderate and short-lived, according to transcripts of the 2007 meetings released on Friday after the customary five-year lag.

 

U.S. Treasury Secretary Timothy Geithner, then president of the New York Federal Reserve Bank, said during an emergency telephone call on August 10 of that year that most of Wall Street was still doing fine.

“We have no indication that the major, more diversified institutions are facing any funding pressure,” Geithner said according to the transcripts, which total 1,370 pages. “In fact, some of them report what we classically see in a context like this, which is that money is flowing to them.”

Similarly, Fed Chairman Ben Bernanke underestimated the risks of a looming financial blow-up.

“I do not expect insolvency or near insolvency among major financial institutions,” he said in December 2007.

By then, the Fed had already launched emergency liquidity measures and begun cutting interest rates, which by December 2008 would be brought all the way down to effectively zero.

Global economy navigating through political storms

WASHINGTON, Mon Jun 18, 2012  — A global  economy edging toward recession and confronting huge political challenges adds urgency to the G20 summit in Mexico this week for strong world leadership of the kind last seen at the height of the 2007-09 financial crisis.

“The world is facing some very difficult times, economically and financially, socially and politically,” said Charles Dallara, managing director of the Institute of International Finance.

“We need once again a global coordinated approach.”

Leaders from the 20 industrialized and developing nations, representing more than 80 percent of world economic output, are expected to deliver pledges to stimulate growth while balancing those efforts against steps to rein in budget deficits at a meeting in Los Cabos, Mexico, on Monday and Tuesday.

But there is a sense of pessimism that politicians, after spending more than $1 trillion to stimulate growth – on top of $6 trillion in central bank money printing the past four years—can offer policies sufficiently convincing to restore business and consumer confidence.

Political differences over the future shape of Europe, a U.S. Congress bitterly divided over fiscal policy and a leadership change in China, not to mention political turmoil in Egypt and violence in Syria, will all cast a troubling shadow over the meeting.

“Significantly weaker fiscal positions and entrenched divergences both among governments and within countries mean that achieving even moderate cooperation, let alone any concrete results, at the Los Cabos summit will be a huge – probably insurmountable – task,” said Oxford Analytica in a client note.

If politics disappoint and financial market turbulence escalates next week, it will rest on the shoulders of central bankers to restore some calm.

How Carol Wior works hard to stay positive even during the toughest of times

Carol Wior, Founder and CEO, Carol Wior Inc.

Carol Wior has a lot of experience at overcoming challenges. She started her business in a garage with three sewing machines and $77, built it into a $75 million clothing design company and then watched as it fell apart and she had to start all over again.

Add to that a couple of tough recessions and you realize Wior has spent much of the past 20 years in recovery mode at Carol Wior Inc. Fortunately for her, she can still laugh about all the ups and downs.

“You can survive anything if you want to,” says Wior, the 200-employee company’s founder and CEO. “Believe me, there are times when I’d like to bury my head in the sand. Every person goes through that, especially when you start a business on a shoestring like I did. But here’s what you can do about it. There’s a solution to every problem.”

The most recent recession hasn’t completely squelched that optimism, but Wior is still very concerned about the future of her industry.

“A lot of people are using up their reserves and their savings to get them through this rough time hoping that eventually, things are going to turn around,” Wior says.

One of the most common challenges during a recession is that with everyone struggling, you begin to have customers who have trouble paying their bills. You’ve got to find a way to connect with them and work with them to find a solution.

“I have people that owe me money that won’t take my phone call,” Wior says. “That is the most infuriating thing. So I leave messages like, ‘Listen, if you don’t have the money to pay me, I totally understand. If you can give me something, give me 10 percent of what you owe me. Just a little something. I’m not going to pressure you right now. I understand it’s tough. But I need a call back. I need you to talk to me.’

“When people are silent, you don’t know what’s going on and that’s your unknown and that’s when you start to get very worried and upset. Unfortunately, people tend to do that.”

Wior feels strongly that collaboration is vital when it comes to surviving economic slowdowns. That goes both for collecting money from customers and vendors and seeking money from lenders and creditors.

“Sit down with people who won’t give you credit and say, ‘Look, you’re not giving me credit, but I want to show you why you should. Here’s what I can do,” Wior says. “Explain what you have and why you think it’s great.”

Of course, you need to do more than just tell people that what you’re doing is awesome. You need data that backs it up and shows you’ve built something worth investing in.

“If you don’t know what your figures are, your financial statements or your working capital, that will completely turn them off,” Wior says. “You need to know your financial statement upside down and sideways. You have to know the answers to all the questions they are going to ask you.”

Don’t be afraid to bring your accountant along to help with those details and also back up your proposals.

“It’s much easier for your accountant to sell you than for you to sell yourself,” Wior says. “The accountant knows the answers. They speak the same language. As a businessperson, I get very excited. I see the marketing potential and I see the design ideas. I’m all excited about that. The bottom line, the accountants can address that. If you’re going to answer financing questions, bring your accountant with you.”

The key whether you’re trying to collect on bills or add investors is to keep the lines of communication open.

“Face it straight on and attack the problem,” Wior says.

How to reach: Carol Wior Inc., (562) 927-0052 or www.carolwior.com

Have a solution in mind

You may think you’re doing your employees a favor when you offer an overly rosy view of your company’s current financial state. But Carol Wior says you’re just asking for trouble down the road.

“If people understand situations, they can handle them,” says Wior, the 100-employee clothing design company’s founder and CEO. “It’s the unknown that freaks people out.”

When your employees hear a lot of bad news outside the company, and then hear you talk about positives without anything to back it up, you’re going to leave them very confused. And that’s not good.

So don’t be afraid to talk about problems, but do so with a real solution in mind for how to solve it.

“I usually have solutions before I present my problem,” Wior says. “Have some solutions before you express the problem. Here it is. We have a big cancellation and that’s going to mess up shipping for the month. Or so and so isn’t paying us, and they filed for bankruptcy, and that’s really going to hurt our cash flow next month. But here’s what we can do about it. You get the solutions together and then your team sees you working with solutions. They don’t just see you as, ‘Oh my God, we’ve got this problem.’”

Whirlpool takes axe to outlook, jobs following Electrolux’s lead

BENTON HARBOR, Mich. ―  Whirlpool Corp., the world’s largest maker of household appliances, is responding to “recessionary” demand in major developed markets by cutting jobs and manufacturing capacity, following a similar move by rival AB Electrolux.

Whirlpool will cut more than 5,000 positions, about a tenth of its workforce in North America and Europe, close a plant in Arkansas, and reduce its overall manufacturing capacity by about 6 million units.

The maker of Maytag and KitchenAid appliances, which slashed its annual profit forecast and reported weak quarterly results, has been hurt by high material costs and by shoppers cutting back on big-ticket buys such as washing machines and dishwashers.

“Given the weakening global economic environment, we are today announcing aggressive plans that will result in substantial cost and capacity reductions,” Chief Executive Jeff Fettig said in a statement.

Earlier, Electrolux, the world’s No.2 appliance maker, said it would seek further cost cuts after forecasting that key markets would see declining demand this year.

Whirlpool, which employs 71,000 staff globally, expects industry demand in North America to fall more than it previously estimated, and it predicted no growth in shipments in Europe, the Middle East and Africa this year.

July-September adjusted profit was $2.35 a share, below the average analyst forecast for $2.68 a share, according to Thomson Reuters I/B/E/S.

“Our results were negatively impacted by recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs,” Fettig said.

Whirlpool now expects full-year profit of $4.75-$5.25 per share, down from its previous estimate at the low-end of $7.25-$8.25 a share.

The company will take a restructuring charge of about $500 million from the next quarter through 2013 related to the cost-cutting moves, which will remove $400 million from annual costs by end-2013.

Whirlpool shares were signaled down around 15 percent in pre-market trade, after closing at an 8-week high of $60.47 in New York on Thursday.

U.S. facing slow growth, not slipping back into recession, CEOs say

COLUMBUS, Ohio ― The economy is not slipping back into recession, but will face a long, slow recovery as political gridlock in Washington and Europe make businesses nervous about investing, U.S. corporate leaders said.

That was the word from General Electric Co. Chief Executive Jeff Immelt and FedEx Corp. CEO Fred Smith at an event in Columbus, Ohio, on Thursday.

“Recovery is under way, but it’s a long, slow recovery. Slower than we’d like,” Immelt told a group of about 500 executives from midsized U.S. companies.

FedEx’s Smith offered a similar outlook.

“We don’t see a contraction; we don’t see a recession,” the founder of the No. 2 package-delivery company said. “It’s steady as you go, slow growth.”

ExxonMobil Corp. CEO Rex Tillerson sounded a similar note in Washington.

“I am not as optimistic as I was six months ago. It will continue, I am afraid, to be a sluggish (U.S.) economy, and globally the economy will not perform as well as we expected,” Tillerson told the Washington Ideas Forum.

“We will have positive growth (but) it is not going to be as positive as we hoped.”

Their measured confidence comes at a time when the U.S. economy is highly fragile, spooking investors and contributing to the nearly 10 percent decline in broad Standard & Poor’s 500 index .SPX since the start of the year.

Their remarks came at an event where GE Capital and Ohio State University Fisher College of Business unveiled research on the “middle market” sector of U.S. business, companies with between $10 million and $1 billion in annual revenue.

The study found that tier of business is an underappreciated jobs engine for the U.S. economy, accounting for about one-third of employment and continuing to add workers through the recession, while big U.S. companies were shedding people.

Increase in July payrolls may soothe recession fears

WASHINGTON ― U.S. job growth accelerated more than expected in July as private employers stepped up hiring, a development that could ease fears the economy was sliding into a fresh recession.

U.S. payrolls increased 117,000, the Labor Department said on Friday, above market expectations for an 85,000 gain. The unemployment rate dipped to 9.1 percent from 9.2 percent in June, but this was mostly the result of people leaving the labor force.

The payrolls count for May and June was revised to show 56,000 more jobs added than previously reported

The report was the first encouraging piece of economic data in some time.

Fears that U.S. economy might be sliding back into recession, coupled with Europe’s inability to tame its spreading debt crisis have roiled global financial markets. Economists see the odds of a recession as high as 40 percent.

U.S. stocks on Thursday suffered their worst sell-off in two years.

Top policymakers at the Federal Reserve will sift through the report when they meet on Tuesday but are not expected to announce any new measures to support the sputtering recovery.

The U.S. central bank has cut interest rates to zero and spent $2.3 trillion on bonds. Policymakers have said they want to see how the economy fares before taking any further action.