Finance and Economic

Steven Rattner will leave as head of the U.S. autos task force, which oversaw bankruptcies at General Motors Corp and Chrysler Group, at a time when a probe into how the private equity firm he co-founded gained New York pension business has intensified.

In announcing Rattner’s resignation on Monday, Treasury Secretary Timothy Geithner said that the investor would be returning to private life and his family in New York. A source close to Rattner said he does not plan to rejoin his former firm, Quadrangle.

Rattner, a former journalist, made his name as a media banker and co-founder of media-focused private equity fund Quadrangle, and surprised Wall Street when he took the autos role in the government in February.

Quadrangle and Rattner have in recent months been linked to a corruption probe by New York’s attorney general, Andrew Cuomo, into the pensions industry.

A source familiar with the matter said that Cuomo’s investigation of Rattner has “intensified” in recent weeks.

“The attorney general’s office has been seeking additional documents from Quadrangle concerning the New York pension fund investments,” the source said.

Rattner and Quadrangle have not been accused of wrongdoing.

The pensions scandal involved allegations that high powered political lobbyists were paid by private equity firms to pull in pension fund business from New York and other state pension funds.

The investigation has already led to the indictment of several of those involved, including Henry Morris, who was the former state comptroller’s top fund-raiser cash advance no faxing.

When the controversy broke in April, U.S. President Barack Obama stood by Rattner, saying he had not been accused of wrongdoing.

There was no indication from administration officials that the state pension probe was connected with Rattner’s departure from the task force.

Cuomo, a Democrat and possible gubernatorial candidate, has spent over two years investigating whether investment firms were buying access to the state’s pension fund by using paid agents. The U.S. Securities and Exchange Commission later joined his probe; so far, Cuomo has extracted two guilty pleas.

Rattner is the person identified only as a “senior executive” of Quadrangle Group in an SEC complaint against two former New York political officials and others, a source previously told Reuters.

Rattner was not available to comment and a Treasury spokeswoman declined to comment on whether the New York pension investigation was a factor in his decision to leave.

Treasury spokeswoman Meg Reilly said: “Steve’s decision to leave is the first step in a planned scaledown of the task force and there will of course be more departures in the future. It was always part of the plan to downsize once Chrysler and GM emerged from bankruptcy.”

AUTO ROLE 

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Patricia Hector-Toussaint has spent seven months trudging through the desert of unemployment.

She sends out resum?s – as many as 10 on some days – and is always ready for a job interview though, to her frustration, she has done only a handful of those.

"You roll with the punches," the 52-year-old said yesterday. "I work very hard; 12 hours a day is no problem. I’m used to that. I tell myself when the right position comes along, I will get it."

Hector-Toussaint hopes an oasis may be near. She has more than 20 years of experience in financial services, a sector that has been hiring lately, the most recent jobs report from Statistics Canada shows.

Hiring across many sectors such as financial services, insurance, real estate, information, culture and recreation in June helped offset job losses in manufacturing.

As a result, Canada’s unemployment rate edged up 0.2 per cent to 8.6 per cent last month, to its highest level in 11 years.

In the Toronto area, the news was worse: the unemployment rate jumped from 9.1 per cent to 9.6 per cent, largely because of declines in tourism and construction. In 1997, by comparison, unemployment hit 9.1 per cent for the year.

On the national level, though, economists had been bracing for much worse. A surprisingly low 7,400 jobs were lost in June, compared with 42,000 in May.

That puts the total net losses during the past three months at 13,000, a fraction of the 273,000 decline in employment in Canada’s economy over the first three months of this year.

In total, 454,000 jobs have been lost since the economy peaked last October.

"The first quarter was an absolute horror show," said Doug Porter, BMO Capital Markets deputy chief economist. "I wouldn’t want to see those job losses repeated ever again."

It may also be a sign that the worst of the recession has passed, economists say.

But the good news ends there.

The loss of full-time jobs – 47,500 positions in June – was filled in by part-time and self-employment business cards online. The losses have been offset by self-employment and part-time work. Self-employment rose by 37,000 in June, StatsCan said, while the number of part-time workers rose by 40,100.

Economists have many concerns about that trend.

"In the heart of a recession, when you get self-employed gains and no gains elsewhere, I would see that as a sign of weakness, rather than a sign of strength," Porter said. "Usually it suggests people really can’t find any other alternative and are striking out on their own."

Part-time work "leaves ample room for businesses to have existing employees work more hours if and when they decide to ramp-up production," says Erin Weir, economist with the United Steelworkers. "As a result, an initial recovery in economic output is unlikely to entail much new hiring."

Community agencies are also concerned about the trend away from full-time work.

"We see a lot of people who are working two or three part-time jobs," said Saleem Hall, manager of adult employment services at WoodGreen Community Services in east Toronto.

Ontario lost 56,000 jobs in June, but that was offset by the addition of 57,000 part-time jobs, StatsCan said. That was enough to bump up the province’s unemployment rate by 0.2 percentage points to 9.6 per cent, its highest level in 15 years.

Since last October, employment in the province has fallen by 232,000, with more than half the losses in manufacturing.

The jump in the rate for the Toronto area is a particular cause for concern, Porter said. "We’ve seen a greater deterioration in Toronto’s unemployment rate than we have nationally since Canada lurched into recession last fall."

The city’s construction sector, in particular, has been hit hard, with employment down about 24 per cent from last year.

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U.S. Treasury Secretary Timothy Geithner is set to propose on Friday giving securities and futures regulators authority to police the over-the-counter derivatives market, according to a document obtained by Reuters.

“Our plan will help prevent market manipulation, fraud and other abuses by providing full information to regulators about activity in the OTC derivative markets,” Geithner says in the testimony to be delivered to Congress.

The $450 trillion privately-traded global derivatives market includes credit default swaps, the financial instrument which nearly toppled insurer American International Group.

Later on Friday, Geithner is due to testify before two key Congressional committees on the government’s plan to regulate derivatives.

According to the document, major dealers such as JPMorgan Chase and Goldman Sachs would be subject to “substantial supervision and regulations,” including conservative capital requirements and strong business conduct standards.

The Securities and Exchange Commission, which oversees securities, and the Commodity Futures Trading Commission, which supervises futures markets, would have authority to impose recordkeeping and reporting requirements on the derivatives.

CLEAR AUTHORITY

The SEC and the CFTC would also have clear authority for civil enforcement and regulation of fraud, market manipulation and other abuses, the document said car loan.

The Obama administration has already proposed sweeping reforms for the country’s financial regulation, including broad proposals to regulate derivatives.

Its plan is geared toward removing counterparty risks by requiring greater use of central counterparties and imposing stricter capital standards on participants.

The administration is also trying to encourage greater use of standardized contracts to help push the instruments onto a central clearing house and exchanges.

That has stoked concern among financial institutions who say certain contracts are customized to their clients and not meant to be cleared or traded on an exchange.

In the testimony, Geithner provided more detail on what will be deemed a standardized contract.

The administration will propose a broad definition that will be capable of evolving with the markets and will be designed to be difficult to evade, he said.

Other characteristics include high volume of transactions in the contract and a presumption that a derivative accepted for clearing by any central counterparty is standardized. 

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CIT Group Inc, a commercial U.S. lender struggling to finance its business, is pressing U.S. regulators to allow it to issue government-backed bonds to allay concerns over its financial health, the Financial Times reported on its website late on Wednesday.

CIT converted to a bank holding company in the fourth quarter of 2008 to qualify for U.S. government funds, but it has been unable to issue government-backed debt as the Federal Deposit Insurance Corp (FDIC) has yet to approve its application.

The FT cited people close to the situation as saying CIT, which has about $75 billion in assets, had already drastically cut lending, but warned that without the FDIC’s assistance the company might be forced to ask the Treasury and the Federal Reserve for help payday loans guaranteed no fax.

A former government official familiar with the situation told the paper CIT and the regulators were meeting almost every week but it was not clear why the FDIC had not yet approved the application.

CIT and the FDIC told the FT the application was still pending but declined to comment further.

On Wednesday, Fitch Ratings cut its ratings on CIT deeper into junk territory, citing concerns over the commercial lender’s funding sources.

CIT and the FDIC could not be immediately reached for comment by Reuters.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Anshuman Daga)

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The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy after the $787 billion rescue package launched in February, an adviser to President Barack Obama said.

“We should be planning on a contingency basis for a second round of stimulus,” Laura D’Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis. said on Tuesday.

Addressing a seminar in Singapore, Tyson said she felt the first round of stimulus aimed to prop up the economy had been slightly smaller than she would have liked and that a possible second round should be directed at infrastructure investment.

“The stimulus is performing close to expectations but not in timing,” Tyson said, referring to the slow pace at which the first round of stimulus had been spent on the economy.

Tyson, who is a dean of the Haas School of Business at University of California, Berkeley and was also a White House economic adviser to former President Bill Clinton, said an additional factor affecting the stimulus was that the economy was in a far worse shape than the administration had estimated.

INFLATION NOT A CONCERN

Tyson dispelled concerns about the ballooning U.S. fiscal deficit that is estimated to hit nearly 10 percent of gross domestic product, and its possible inflationary consequences.

“The Federal Reserve is not going to allow the U cash advances.S. to inflate away its debt,” she said.

Asked about the value of the dollar, Tyson said the market was wrong to be concerned about inflation in the U.S. economy, given the amount of slack in most industries.

“It is almost in no one’s interest to have a sharply spiraling downward dollar,” she said. The dollar ought to decline in the longer term on a trade-weighted basis but she did not anticipate a sharp and sudden decline.

Turning to the Federal Reserve’s near-zero rates policy and credit easing, Tyson said inflationary expectations remained “well-grounded”, giving policymakers room to pursue these expansionary policies.

She said she was also not worried about whether the Fed can exit such a policy. “The Federal Reserve has the ability to make rapid adjustments in its balance-sheet as necessary.”

But Tyson said the combination of near-zero interest rates and heavy debt issuance would keep the U.S. yield curve steep. And, while the rate at which the economy was contracting had fallen, the latest jobs data showed the economy was still not stabilizing.

U.S. unemployment rate hit 9.5 percent in June, the highest in nearly 26 years.

(Editing by Jan Dahinten)

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GRANITE CITY — In this gritty steel town, the coconut cream pie and twice-baked potatoes at Jerry’s Cafeteria serve as unlikely gauges of the national economy.

During the boom times, back when the steel mill hummed with the metal sheets to make all the new cars and fridges consumers were snatching up with easy credit, the pies and potatoes really moved. Same for the fried chicken and Jell-O salad and breaded pork chop, too.

"Going gangbusters," recalls cafeteria owner Jerry Roderick.

The same term is used by steel workers to describe what was happening a couple of blocks down at Granite City Works, the massive steel mill with soaring cobalt-blue walls so large that they appear to envelop the town.

More than 2,000 people worked there. An additional 4,000 held jobs related to the mill. They all needed to eat. And they did not have to go far. You can see the plant’s smokestacks from Jerry’s parking lot.

And then … You know what happened. People stopped buying much of anything. Manufacturers stopped needing steel. In December, the steel mill was idled. Almost everyone was laid off.

"And it all rolled downhill," Roderick says.

It rolled downhill and across city streets, a wave of economic bad news hitting everything in sight, down 20th Street and over to Edison Avenue, where Jerry’s sits in a low-slung block building with newspaper racks and a daily specials sign out front.

"It was like someone closed the door," says Roderick, 67, whose parents opened a restaurant in Granite City in 1945. He started the cafeteria in 1986.

Sitting in his office behind the kitchen, past a wall plastered with his grandchildren’s photos, a rack of pies cooling outside his door, Roderick wonders how long he can hold on. Six months? A year? Things need to turn around. It’s the mindset everywhere, from the steel mill’s corporate offices across the street to the union hall — across the nation, too. How long can this go on?

One sign of hope: Union officials said recently that they expect nearly half of the steel mill’s workers to be rehired soon. But a full recovery could take several months, possibly years.

Roderick has never seen it like this.

He is missing not just the steel workers.

He misses the salesmen no longer stopping by for a bite between calls to the steel plant.

And the outside warehouse workers.

And the truck drivers picking up meals-to-go before hauling away another batch of steel.

"They’re gone," Roderick says, wistfully.

Roderick still does a decent Sunday business. Lots of churchgoers. Catering for weddings "has been pretty good fast payday loans. Don’t know if in another six months that’s going to be true." He’s found a market catering to pharmaceutical sales reps visiting doctors’ offices. He still sees the familiar faces from the local engineering firm, the law firm girls, workers from City Hall and the Prairie Farms dairy.

"The lunch business is kind of there," Roderick says. "It’s puny. But it’s there."

Walking into Jerry’s Cafeteria, it smells like melted butter and green beans. The food line is at the back, past the dining room’s green carpet, red chairs and tables. White trays on the right. The salads — fruit, lettuce, Jell-O — are first. Then the fried chicken and the vegetables. Then the pies. Fifteen different varieties. Banana cream. Chocolate cream. Custard. Pecan. Cherry. $1.95 a slice.

Cafeterias like Jerry’s seem to belong to another era. Roderick reads the newspaper obits and says, "I think I’m losing another customer." Young people have been slow to take up the slack. But he has hung around.

So have his workers. Some have been with him more than 20 years. Roderick has tried to avoid layoffs, instead cutting hours here and there.

"You feel you have an obligation to keep them employed best you can," he says.

But the tough times had to be passed on in some way. So last month he posted a sign in the window: "Due to the economic downturn, we will no longer be making donations until further notice."

No ad this year in a Catholic church’s family digest. No money for the Shrine Club. Or various golf tournaments. People asked for money to send a local hockey team to Russia, and sponsor their daughter in a contest, and fund a local softball team. No, no, no.

"It seemed like everyone was coming to us at one time," says manager Sheila York, who has worked at Jerry’s for 24 years.

"That’s all out the window," Roderick says.

Roderick still feeds people who show up at his cafeteria hungry but too poor to pay. He was out there with free coffee and doughnuts during a steelworkers rally earlier this year.

And the steelworkers have not forgotten Jerry’s Cafeteria.

Vicky Guth was laid off from Granite City Works in December. Money is tight. But when she goes out to eat, she makes a point of stopping at Jerry’s for the twice-baked potatoes.

"It’s just one meal," Guth said. "But it’s going to give them some hope."

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