Finance and Economic

New York Federal Reserve Bank President William Dudley said it is too early to talk about curtailing the central bank’s long-term security purchases while the economic recovery is fragile.

“As financial conditions improve, which seems to be the trajectory, it’s a legitimate point to consider what you want to do in terms of your purchase programs,” Dudley told CNBC in an interview broadcast on Monday.

“My own personal view is I think it’s a little premature to be so confident that you want to pull all these things back right now because the economy still isn’t growing very fast and we do have a very high unemployment rate.”

Dudley’s comments show a divergence of views on the Fed’s interest-rate setting Federal Open Market Committee. Richmond Fed President Jeffrey Lacker said last week the Fed should consider foregoing the full extent of its long-term securities-buying pledge, which includes the plan to purchase $1.45 trillion of mortgage agency debt by the end of the year.

The Fed cut rates to zero in December and has pumped hundreds of billions into the financial system to fight the worst recession in 70 years. With signs of recovery in housing and manufacturing, the Fed has said the downturn appears to be leveling out. However, it also said any recovery is likely to be sluggish with unemployment, which was at 9.4 percent in July, painfully high for a while.

Dudley said in the interview that he is confident the central bank can withdraw its massive economic stimulus measures without allowing dangerous inflation to take hold.

“I’m completely committed to taking away the punch bowl at the right time,” he said. “I have no desire whatsoever to see inflation get out of control.”

The New York Fed head, who formerly ran the central bank’s trading operation that buys and sells Treasury securities to meet the Fed’s target interest rates, said the Fed has a range of options to prevent inflation even with the massive amount of money it has put into the financial system.

“We have tools to manage our balance sheet so that we’re not going to have an inflation outcome, bad inflation outcome,” Dudley said.

The Fed’s next policy-setting meeting is September 22-23. It has pledged to keep interest rates exceptionally low for an extended period to bolster the economy, but has already begun to taken some small steps toward exiting its aggressive stimulus measures.

The Fed said earlier this month it would end its program of buying $300 billion of longer-term Treasury securities by the end of October. It also said it would shrink the size of short-term cash auctions in September.

At the same time, sensitive to pockets of economic weakness, the Fed moved to boost credit to the ailing market for commercial real estate by extend an emergency lending program to mid-2010.

(Reporting by Mark Felsenthal; editing by Neil Stempleman)

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Airline shares have rallied ahead of Labor Day, an anticipated turning point for the troubled industry when many carriers will begin slashing seat capacity to match the drop in demand.

Investors are hoping capacity cuts will allow airlines to jack up ticket prices and reverse declining revenue. But the plan could falter because business travelers, the industry’s bread and butter, have yet to return.

"We’ve seen some improvement, but I think the bulk of that is being driven by the leisure traveler," said analyst Matt Jacob. "But the business traveler, those who buy close to booking and pay a premium price, that section of the business has continued to be weak.

"So the concern is, once we reach Labor Day and the end of the leisure travel period, how will that impact the improvement we’ve seen?"

Airline stocks have been volatile as investors try to figure out that answer.

After hitting its lowest point on record in March, the NYSE Arca Airline Index has bumped along this summer as airlines readjusted outlooks because of depressed demand and declining revenue. But since late June, the industry benchmark has managed to climb more than 44 percent.

That enthusiasm is tempered among many airline analysts.

"Our short-term revenue data suggest a little strength in late summer," said UBS analyst Kevin Crissey in a recent note.

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CIT Group Inc secured a $3 billion loan facility from its bondholders on Monday and said it plans a comprehensive restructuring of its liabilities, but gave few details.

With the emergency loan, the 101-year-old lender to small and mid-sized businesses warded off a threat of imminent bankruptcy, but many experts questioned its ability to survive in its current form.

Several analysts and bankers said earlier in the day that the rescue financing might only delay a bankruptcy filing, in light of skittishness among CIT customers and the New York-based company’s inability to readily tap capital markets.

But the scarcity of the details made public by CIT shows that much remains to be worked out as bondholders and the company seek an “orderly process” to split off CIT’s profitable operations from its money-losing businesses, said one expert.

What’s more, the high interest rates CIT will have to pay bondholders jeopardize the lender’s odds for survival, said Michael Goldsmith, a managing director at financial advisory firm BBK.

“CIT will be hard pressed to be profitable when it lends to its clients– they’re losing money on every loan– not a very good sign,” Goldsmith said.

The loan gives the CIT more time to restructure its debt, and preserves the ability of thousands of businesses to obtain cash needed for day-to-day operations.

The company, which lends to nearly one million small and mid-sized businesses, said as a first step in its recapitalization plan, it has started a cash tender offer for its outstanding floating rate senior notes due August 17 compare car insurance rates.

The offer will be for $825 for each $1,000 principal amount of notes tendered on or before July 31.

CIT said it and a bondholder committee would work on the “balance of the recapitalization plan, which is expected to include a comprehensive series of exchange offers designed to further enhance CIT’s liquidity and capital.”

The company canceled its plan to report second-quarter results on July 23, saying it would now do so when it files its quarterly report on Form 10-Q.

CIT’s shares, which closed up 78.6 percent at $1.25 on the New York Stock Exchange, were up another 9 cents, or 7.2 percent, to $1.34 in after hours trading.

LOAN TERMS

The $3 billion secured term loan has a 2.5-year maturity. The term loan proceeds of $2 billion are committed and available now, with an additional $1 billion expected to be committed and available within 10 days.

CIT would pay interest of 10 percentage points above the three-month London Interbank Offered Rate, a source familiar with the matter said. This equates to an annual rate of about 10.5 percent.

This financing would be backed by unsecuritized CIT assets, which probably exceed $10 billion, another source previously said. 

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The possible collapse of a key lender is sending panic through the retail industry, threatening to hang up deliveries of back-to-school clothing and other merchandise and throw holiday ordering into disarray.

A bankruptcy filing by CIT Group would hurl more trouble at an industry already hammered by the worst spending slump in decades.

The ripple effect could be as simple as a zipper maker that can’t rely on CIT to advance payment for orders. That would then hurt trucking companies that would ship the zippers and overseas factories that need the zippers to make dresses. The result could be mounds of zipperless dresses at factories, piles of goods sitting on docks — and products not making it to store shelves.

"CIT is like an octopus with its tentacles that reach out to so many industries and subindustries," said Jeffrey Knopman, a principal at Profit Solutions Group, which helps suppliers recover chargeback money from merchants.

A primary business of CIT is short-term financing, mostly to small- to medium-sized businesses that can’t afford to wait the 60 to 90 days it takes to get paid for shipments to retailers.

This business, known as "factoring," also guarantees that suppliers get paid by the merchants. Without that guarantee, suppliers would have to ship goods at their own risk.

As the prospect of a CIT bankruptcy filing loomed, industry trade groups increased their pitch to lawmakers to prevent the collapse of CIT, which they say would imperil their small-business members and derail the already fragile economy.

"This is a potential crisis for Main Street," said Kevin Burke, president and chief executive of the American Apparel and Footwear Association. "The industry is already battling less inventory and battling a recession. If you can’t get the product, how do you get consumers into the store?"

Bud Konheim, president of designer dress firm Nicole Miller, said any disruption in manufacturing caused by a lack of financing could shut down the pipeline for new goods. His company depends on CIT to finance its fabrics.

"Everybody is frantically thinking about what could happen," said Konheim.

"CIT reaches everybody in the business, from the fabric guy to the zipper guy. If we can’t get the zippers, we can’t make the item. One little thing can stop the whole process."

New York-based CIT serves as factor to about 2,000 vendors that supply merchandise to 300,000 stores, according to Craig Shearman, spokesman at the National Retail Federation.

Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain no fax needed payday loans.

Any disruption in financing couldn’t happen at a worse time for retailers. Stores have slashed inventory to respond to lower demand, and this holiday, analysts expect inventories to be down as much as 20 to 30 percent.

Shearman said that if suppliers aren’t able to finance their orders, consumers will see even fewer choices in the stores.

Furthermore, he noted that if vendors can’t get their financing, some retailers may have to pre-pay for orders, which could put more financial pressure on them.

Federal official negotiating with CIT knew a collapse would affect the economy, a Treasury spokeswoman said Thursday. But because the company had scaled back lending in previous months, she said, the economic hit would not be as bad as some earlier predictions suggested.

Retail industry insiders argue that with other lenders already under financial strain, many CIT clients may lose their financing options. That could lead to another flurry of bankruptcies.

Harold Reichwald, an attorney in Los Angeles with the firm Manatt, Phelps & Phillips, said CIT has been refusing requests from manufacturers to withdraw credit balances — the equivalent of bank deposits, except that they are not federally insured.

Already many of CIT’s clients were scrambling to find other financing. But Andrew Jassin, co-founder of apparel consultant Jassin-O’Rourke Group LLC, noted that doing that takes time even for the financially healthy.

Melissa Savarino, owner of a Houston-based children’s wear maker that has CIT as a factor, said she is trying to find other financing from places like Wells Fargo, but it’s been difficult.

She noted that she panicked after not getting $11,000 from CIT on Wednesday, though the funding was restored the next day. Next week, she starts buying fabric for the holiday season but may have to be more conservative with her orders.

"If CIT stops funding our business, and there is no one else to replace it, then I can’t go on," she said.

Harry Kazazian, CEO of privately held Exxel Outdoors Inc., the top U.S. maker of sleeping bags, said that he withdrew as much of the company’s money as he could from CIT on Monday.

Kazazian is worried that the absence of federal help will have big consequences.

"How could they leave these sectors twisting in the wind?"

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some rays of hope for the unemployed. Can the recovery last? Most important: Where are the jobs?

Get the answers when Anderson Cooper and Ali Velshi host our panel of experts and check in on virtual town halls across the country.

Thursday, June 18 at 8p.m. ET

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After a bleak beginning to 2009, stocks are rallying and many investors are hopeful that the worst has passed.

Funny thing is, that’s where we were this time last year, just before the markets and the economy went into a tailspin.

Consider the parallels. Gold briefly traded above $1000 an ounce, a sure sign of investor fear, at the beginning of last year and this year.

In March 2008, Bear Stearns was "saved" when it was sold to JPMorgan Chase (JPM, Fortune 500) in a government-approved fire sale. In late February of this year, Citigroup (C, Fortune 500) was pulled from the brink by yet another bailout from the Federal Reserve.

Government stimulus packages have also played a role in both years. Last year, it was President Bush’s tax rebates that led some to think the economy might have hit bottom. This year, President Obama’s plan to create more jobs is raising similar hopes.

In fact, it’s uncanny how the performance of the major market barometers in the first five months of 2008 mirror this year’s January through May period (see charts to the right).

Sure, the dip earlier this year was more severe, and the subsequent rally has been more explosive. But the charts essentially show the same pattern.

And as we all know, that movie didn’t end too well last year. In case you forgot, the third chart to the right is a painful reminder.

Stocks took a turn for the worse heading into last July as it started to become evident that the bottom had yet to truly fall out of the financial sector. The market really nosedived in September following the implosion of Lehman Brothers.

Is this time going to be different? It’s tempting to say that it is. But some investors are understandably still wary, having been burned a year ago.

"The next few weeks will be critical. There is some skepticism with respect to the economy," said Todd Salamone, senior vice president with Schaeffer’s Investment Research in Cincinnati. "There is still uncertainty about whether the credit crisis has completely played out and concerns about the unintended consequences of stimulus, such as inflation."

Talkback: Do you feel better about the economy and markets than this time a year ago? Leave your comments at the bottom of this story.

But others think that these fears are already priced into the markets. Even with bank stocks rallying sharply, investors seem to be aware of, if not necessarily worried about, potential problems with commercial real estate loans, for example.

What’s more, inflation would be a consequence of an improving economy. It’s, of course, something that needs to be closely monitored. Still, it seems like it’s a risk investors are willing to live with for the time being No teletrack payday loans.

Don’t get me wrong. Few are forecasting rosy times ahead for the economy. In fact, the American Bankruptcy Institute reported Tuesday that U.S. consumer bankruptcies in May were up 37% from a year ago.

Then again, the level of bankruptcies was down slightly from April of this year. That could be further proof that the economy no longer seems to be staring into the abyss. And that’s what seems to be sparking this rally.

"This is not going to be an easy couple of years for people. There’s no truly great news out there but the economy isn’t in free fall. It’s stabilizing," said Eric Ross, director of U.S. research for Canaccord Adams, an investment bank. "Because of that people and businesses can start to make more intelligent decisions about what to do with their money."

It is remarkable how investors have shrugged off developments that, if they happened last summer, might have been viewed as further signs of economic disaster.

Honestly, would anyone have predicted a year ago that markets would surge on a day when General Motors (GMGMQ) (that GMGMQ ticker is going to take some time getting used to) filed for bankruptcy?

Investors have not only become inured to more bad news. They also appear to be genuinely more upbeat than they were now at this time a year ago. And that’s important.

Salamone points out that the sheer level of fear-induced selling earlier this year was much greater than it was before Bear almost went under in March 2008. That’s evident from the fact that the VIX (VIX), a key index that measures volatility on Wall Street, was much higher in March this year than it was a year ago.

"One can look at sentiment and potentially, you could conclude that 2009 will turn out better than 2008," Salamone said. "This past March, the market was at one of the most oversold levels in decades. That’s not a condition we had last year."

In other words, the sense of impending doom is largely gone. And unless it returns, Ross thinks the markets will, at the very least, chug along. Even if they don’t continue to surge, he doubts they’ll plummet like they did last summer and fall.

"I don’t think we will have the same collapse in confidence like we had last year. That was all about liquidity problems followed by panic," he said. "Now, people think the worst case is the economy is in a slow grind. A slow grind doesn’t get you into a panic."

Talkback: Do you feel better about the economy and markets than this time a year ago? 

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Chrysler is on the verge of a Motor City miracle: a make-over in bankruptcy that will bring in new management under Italy’s Fiat SpA and its highly touted small car technology.

Rescued from liquidation with $8.6 billion of emergency U.S. government loans and bankruptcy financing, Chrysler has been given a new lease on life.

But what’s next?

The new Chrysler will be up against formidable and entrenched competitors in the small vehicle market like Honda Motor Co.

It will also struggle with the aftermath of freezing product development to conserve cash, analysts said.

But in what could be its biggest challenge, the No. 3 U.S. automaker has to break free of a reliance on aggressive discounting and a reputation for poor quality.

In the short term, analysts said Chrysler will have to find a way to hang on until early 2011, when Fiat is expected to debut the first of its smaller cars in the U.S. market.

“The big challenge is not getting through this bankruptcy,” IHS Global Insight analyst Aaron Bragman said. “The big challenge is what do they do between the end of this bankruptcy and the arrival of the Fiat vehicles?”

“There is still at least 18 months they have to try to survive in a down market with largely the same showroom and really no extra cash to get them through it,” Bragman said bad credit payday loan.

Industry analyst and consultant Maryann Keller said that estimates of the investments required for the new Chrysler after bankruptcy have been way too low.

“They have to be rebuilt, and we don’t even know if Chrysler can be rebuilt,” Keller said. “There hasn’t been any development work done in the last 12 months.”

Chrysler, bought by Cerberus Capital Management from Germany’s Daimler AG in August 2007, filed for bankruptcy protection on April 30 under the direction of the Obama administration’s auto task force.

Based in Auburn Hills, Michigan, Chrysler was seeking bankruptcy court approval on Wednesday for an assets sale, putting it ahead of an aggressive government schedule.

Chrysler has achieved more to cut costs in a shorter time than most analysts thought possible, including wiping out plants and jobs along with dealerships. Chrysler is due to cut nearly 800 dealerships, or 25 percent of its network, by early June.

It has used the bankruptcy process to eliminate $6.9 billion in debt and to halve a $4.5 billion payment that was due to a union trust fund by making it part of a note and part equity that could be sold later. 

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MINNEAPOLIS — Airlines are doing a better job of taking care of the passengers they still have, according to a new study.

Passenger satisfaction with airline service rose 3.2 percent earlier this year, the first increase in six years, according to a University of Michigan study to be released today.

The increase came as the number of passengers dropped and airlines reduced flying. Also passengers checked fewer bags as luggage fees became more common, making it easier for airlines to keep track of the bags that remained. Enplanements on U.S. routes dropped 1.5 percent in 2008, according to the Federal Aviation Administration.

And if fewer passengers are the reason for the improved satisfaction score, imagine how happy they’ll be this year, when the FAA expects domestic boardings to fall 8.8 percent.

Southwest Airlines Co. had the highest score, 81 on a zero-to-100 scale. After that it was Continental Airlines Inc. at 68, Delta Air Lines Inc. at 64, AMR Corp.’s American Airlines at 60, US Airways Group Inc. at 59, Northwest Airlines at 57, and UAL Corp.’s United Airlines at 56.

The overall satisfaction improvement at airlines masked some big jumps at individual carriers, according to the university’s American Customer Satisfaction Index.

The most improved were Continental Airlines Inc., up 9.7 percent, and US Airways Group Inc., up 9.3 percent. Customer satisfaction at US Airways was on the rebound after a big drop in 2007, when it had the worst on-time showing among big carriers. For 2008, US Airways was first among big carriers for on-time arrivals.

Continental also regained lost ground after a drop the previous year. Delta Air Lines Inc.’s score rose 6.7 percent.

American Airlines’ score fell 3.2 percent, though it was still in the middle of the airline pack.

American Airlines spokesman Tim Smith said the airline’s internal customer satisfaction measurements show big improvements from a year ago pay day loans. He said American has "customer experience teams" at its airports that look for ways to improve customer service, and that last week American paid out some $14 million in employee rewards for meeting customer service and operational goals.

United’s score was unchanged from last year, when it was also in last place.

"We need to focus on the basics of running a good airline, and that means one that runs on-time with clean planes. When our flights are on-time and our planes are clean, we can deliver great service to our customers," United spokeswoman Robin Urbanski said.

Claes Fornell, a University of Michigan business professor and director of the research center that compiled the customer satisfaction data on airlines and other industries, said traffic dropoff appears to have as much to do with the airline improvement as any action taken by the airlines.

"Nobody’s making any money," he said. "It’s very difficult in that environment to provide good customer service."

The study noted that even though airlines showed some improvement, their average score of 64 was good enough for a tie with newspapers but lower than most other industries measured, including utilities (74) the Postal Service (82), express delivery companies (82), movies (70), and cellular phone service (69).

The phone survey of about 25,000 people during the first quarter of this year had them rate their satisfaction with companies in a variety of industries, including airlines. The index was created based on responses to questions about overall satisfaction, intention to be a repeat customer and perception of quality, value and expectations.

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NEW YORK — Chrysler President and Vice Chairman Jim Press said Wednesday that the government’s May 1 deadline for the automaker to complete a deal with Fiat allows "ample time" to reach a definitive agreement that is key to saving Chrysler from bankruptcy.

"We prefer having a shorter timeframe to get through this period, get all the questions out of our minds, and get back to business as usual," Press said during the first day of media previews at the New York International Auto Show.

He surprised reporters at Chrysler’s news conference to unveil a new Jeep Grand Cherokee by arriving on the stage in an iconic Fiat 500 subcompact. The 500, one of the Italian automaker’s most successful models, would help fill the void of small vehicles in Chrysler’s lineup if Chrysler survives and brings Fiat cars to U.S. showrooms by 2011, as planned.

"Don’t you think that this would be a perfect car to get around New York City?" he asked reporters.

Press said Chrysler aggressively has been moving to reduce costs while still unveiling new vehicles. The company plans to introduce eight new vehicles in the next 18 months.

"We realize we have a responsibility to the American public," he said.

Press said Chrysler has been having a "constructive dialogue" with Fiat free 3-in-1 credit report. "At this point in time with Fiat, we don’t see anything that would be an impasse or a deal breaker," Press said. He said the company is progressing under the assumption that bankruptcy will not be required.

"We’re pursuing the deal with Fiat assuming that a bankruptcy would not be the favored option. It wouldn’t be in the best interest," he said.

The government has said it will continue providing short-term aid for Chrysler while the Auburn Hills, Mich., company works out a deal, but Press said Chrysler hasn’t needed more than the $4 billion the government provided earlier this year.

"We’ve been assured that if we need additional short-term aid, it’s available from the government," he said. "Right now we’re OK at this point in time."

Press declined to comment on reports that banks that lent Chrysler $6.8 billion in 2007 are resisting efforts to convert most of the automaker’s debt to equity.

"We’ve got a lot of discussions going on with a lot of stakeholders, a lot of balls in the air," he said. "Those discussions are going on right now."

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American International Group Inc, whose $61.66 billion quarterly loss was the largest ever for a U.S. company, has been sued for securities fraud by former Chief Executive Maurice "Hank" Greenberg.

Greenberg, the insurer’s largest individual shareholder, accused AIG of overstating its financial health and masking losses on credit default swaps that hedged default risk for at least $527 billion of debt.

He said AIG’s (AIG, Fortune 500) "material misrepresentations and omissions" had caused him to acquire shares as part of various deferred compensation plans at an inflated price, and later to lose nearly his entire investment after AIG’s losses became known.

AIG shares closed at $54.37 on Jan. 30, 2008, the date that Greenberg said he acquired AIG shares through the deferred compensation plans.

The shares closed Monday at 42 cents after news of the fourth-quarter loss and yet another government rescue deal.

Greenberg is seeking the difference between what he paid for the shares and what he said the shares were worth, as well as reimbursement of more than $70 million of taxes.

The lawsuit also named several individuals as defendants, including Greenberg’s successor Martin Sullivan and Joseph Cassano, the former chief of AIG’s financial products unit, which originated many of the credit default swaps auto loan.

AIG spokeswoman Christina Pretto said the lawsuit was without merit, and that the insurer would defend itself vigorously. Sullivan and Cassano did not immediately return calls to their homes seeking comment.

Greenberg ran AIG for nearly four decades before being ousted in March 2005, when New York Attorney General Eliot Spitzer was investigating transactions involving the insurer.

AIG’s quarterly loss led to a loss of $99.29 billion for the year, largely stemming from writedowns related to credit default swaps, mortgage securities and other toxic debt.

The problems resulted in a new government bailout for AIG, which will get access to as much as $30 billion of new capital. The government had already given AIG $150 billion as part of a rescue last year, and took a nearly 80 percent equity stake. 

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