Finance news. My opinion.

The government said Wednesday the federal budget deficit for the first five months of fiscal 2009 surged to $764.5 billion, more than $300 billion above the gap for all of the prior year.

The Treasury Department said the federal budget deficit grew by $192.8 billion in February, according to the report released Wednesday.

Economists were expecting the budget deficit to grow by $205 billion in February, according to a consensus estimate compiled by Briefing.com.

In January, the government added a revised $86.5 billion to the deficit. Last February, the government added $175.6 billion to the deficit.

The deficit for the year that began in October is 68% above the $454.8 billion gap in all of fiscal 2008.

The government has been spending at a breakneck pace in recent months in an attempt to pull the economy out of recession, including various stimulus packages and numerous attempts to recapitalize the nation’s banking system.

Not a shock: Given the spending program on which the government has embarked, the deficit numbers are not surprising, according to Diane Lim Rogers, chief economist for the Concord Coalition, a deficit watchdog group.

"The combination of this commitment to do a massive amount of deficit spending as stimulus, coupled with the fact that recession has taken a huge toll on our revenue base, means that deficits will be larger than we even anticipated when we started working on the recovery package," said Rogers.

Rogers said that while the government needs to be spending in the short term in order to spur a recovery, massive amounts of deficit spending are detrimental to the economy in the long term.

"These scary budget numbers in the monthly statement are intentional," said Rogers, "They are intended to look bad for a while, and that is OK - so long as we have a plan to make them look less scary once we are out of the recession."

Even as the Obama administration has been ramping up spending at a rapid pace, the new administration’s longer-term plans are "deficit neutral," according to Rogers quick cash.

"We have to avoid the current level of deficit spending becoming a permanent thing because that will just feed back to the economy, and make it harder and harder to keep our economy strong in the future," said Rogers.

Spending up, revenue down: The total outlays for February were $280.1 billion ,and have totaled $1.63 trillion so far in fiscal 2009. The government has spent 32% more than the $1.23 billion spent at this point in fiscal 2008.

The government projects that total outlays for the fiscal year will be $3.94 trillion.

Meanwhile, the government has been taking in less from individuals and companies as the recession cuts into personal incomes and corporate profits.

Total receipts for February were $87.3 billion, bringing the total amount of money the government has collected so far this fiscal year to $860.9 billion. That was 11% lower than the $967.2 billion the government had received at the same time in the prior year.

The government collected $8.7 billion in individual income taxes in February. So far this year, the government has collected $388.5 billion in individual income taxes, and that is 13% less than the $446.9 billion the government collected at the same time last year.

The government collected $4.7 billion in corporate income taxes, but paid out $6.8 billion in refunds, resulting in a net decline from corporations of $2.1 billion.

So far in fiscal 2009, the government has collected $52.8 billion in corporate taxes, 46% less than the $96.9 billion collected in the first 5 months of fiscal year 2008.

With receipts lagging and spending increasing, the administration estimates the deficit for fiscal year 2009 will reach $1.75 trillion, which is 12.3% of U.S. gross domestic product. That’s a record in dollar terms, and is the highest as a share of GDP since World War II. 

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Former U.S. Federal Reserve Chairman Alan Greenspan said lower rates on long-term, fixed-rate mortgages and not the Federal Reserve’s policies are to blame for the U.S. housing bubble.

“Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate,” Greenspan wrote in the Wall Street Journal.

Calling his explanation of the causes far more credible than blaming ‘easy money’ policies, Greenspan wrote that “it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate,” adding that U.S. mortgage rates’ linkage to short-term rates had been close for decades.

The Federal Reserve became aware of the disconnect between monetary policy and mortgage rates when the latter failed to respond as expected to the Fed tightening in mid-2004, said Greenspan, who was the Federal Reserve Chairman from 1987 to 2006.

Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble, he said payday loan.

“The solutions for the financial-market failures revealed by the crisis are higher capital requirements and a wider prosecution of fraud — not increased micromanagement by government entities,” Greenspan wrote.

Any new regulations should improve the ability of financial institutions to effectively direct a nation’s savings into the most productive capital investments, he said.

“Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy,” he said.

(Reporting by Ratul Ray Chaudhuri in Bangalore; Editing by Rupert Winchester)

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A judge Friday approved changes to Yahoo Inc.'s severance plan that could make a buyout by Microsoft Corp. or others easier.

The settlement came in a case brought by investors who said Sunnyvale-based Yahoo (NASDAQ:YHOO) had erected unreasonable barriers to a $47.5 billion buyout offer by Microsoft last year.

The severance plan that drew the lawsuit would have required a reported $1 billion in pay to workers if their jobs were eliminated or altered after a change in control of Yahoo. The company at the time said it was simply trying to retain employees.

The plan approved by Delaware Chancery Court Judge William B payday loan. Chandler III allows proxy fights without triggering severance payments to employees and makes it harder for workers to claim the benefits if the company receives an offer.

“We are very pleased that the settlement was approved because we believe it is in the best interests of the company and our shareholders,” Yahoo said in a written statement following the decision.

Executives at both Yahoo and Microsoft (NASDAQ:MSFT) signaled last month they are open to an Internet-search alliance.

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A leading contender to serve as the top deputy to Treasury Secretary Timothy Geithner is no longer under consideration for the post, as 17 top jobs at the department remain unfilled in the middle of the financial crisis.

Annette Nazareth, a former top official at the Securities and Exchange Commission, was being considered for the prestigious post of Deputy Treasury Secretary but is no longer in the running, according to an official familiar with the matter.

While Nazareth was never formally nominated for the job, she did have interviews for the post and a background search was being conducted. But the official stressed that this "was not a vetting issue," such as the tax matters that tripped up nominees like Tom Daschle and Nancy Killefer.

Nevertheless, the development could be a blow to Geithner as he struggles to deal with the financial crisis at a time when 17 top jobs beneath him remain unfilled at the mammoth agency free copy of my credit report. Treasury officials declined to comment on the matter Thursday evening.

But earlier Thursday, White House Press Secretary Robert Gibbs downplayed any problems when asked at his daily briefing about the fact that there are so many holes to fill at Treasury.

"We have tremendous confidence in Secretary Geithner and we are working with the committees of jurisdiction in order to get nominees both up to Capitol Hill and through the process of getting them into government," Gibbs said.

Gibbs chalked the delays up to a "very rigorous process. And we’re doing it with all involved as quickly as we can." 

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DALLAS–Blockbuster Inc. said Thursday that its fourth-quarter domestic same-store sales climbed 4.4 per cent, as increased sales of games, game merchandise and consumer electronics offset a decline in movie rentals.

The chain posted a 2.6 per cent drop in domestic same-store rentals for the quarter ended Jan. 4, while retail comparables – which includes games, game merchandise and consumer electronics – surged 36.5 percent.

The good news comes on the heels of the struggling company's hiring of corporate restructuring specialists Kirkland & Ellis to help rescue it from a financial bind. Blockbuster is hoping the firm can re-negotiate the terms of its outstanding loans and arrange financing to keep it afloat during the economic downturn.

The company has been leaning heavily on a $400 million revolving line of credit scheduled to expire in August. As of Oct. 5, Blockbuster had just $35 million available on the credit line.

"We continue to work diligently to resolve the August 2009 debt maturities, aggressively reduce costs and maximize the company's strong cash flow generation," Chairman and Chief Executive Jim Keyes said in a statement.

The credit crunch is just the latest challenge to confront Blockbuster, which has sustained more than $4 billion in losses since 2001 as it struggled to adapt to alternative movie rental options that deliver entertainment through the mail, cable and satellite TV services, and high-speed Internet connections.

Besides diminishing the need to travel to Blockbuster's stores, the new rivals – which include Netflix Inc credit reports free. – also have eroded the revenue that the company used to collect for charging for late returns of rented movies.

With competitive and credit pressures weighing heavily, Blockbuster's domestic same-store sales results are a bright spot and may indicate the company's turnaround efforts may be starting to bear some fruit.

Keyes, who formerly ran 7-Eleven convenience stores, has been trying to engineer the turnaround by transforming Blockbuster's video rental stores into entertainment hubs that sell a variety of merchandise.

His efforts can be seen in the company's quarterly and fiscal 2008 domestic same-store sales performance. Blockbuster reported that its full-year domestic same-store sales rose 6.4 per cent, a sharp turnaround from the 6.9 per cent decline reported a year ago.

The results included a 1.2 per cent rise in rentals and a 37.4 per cent jump in retail comparables.

Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance since they measure growth at existing stores.

Blockbuster plans to report its fourth-quarter and full-year results on March 19. The company said it is currently assessing how much of a goodwill impairment charge it will take in the quarter and is also evaluating its debt maturities and refinancing actions.

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Clint Ballinger, the president and CEO of Evident Technologies Inc., filed for personal bankruptcy on Wednesday.

Ballinger, who co-founded the Troy, N.Y., company, listed $540,000 in debts—mainly in two mortgages and at least six credit card bills.

His court filing lists $389,000 in assets, most of which is connected to his house in Burnt Hills, appraised at $320,000.

Calls to Ballinger and his Albany attorney, Michael O’Connor, were not returned. It’s unclear if the personal bankruptcy affects his company.

Evident Technologies was the region’s first purely nanotech-related company. Nanotechnology is a developing scientific field where researchers manipulate molecules and other subatomic particles to develop microscopic devices and materials.

Evident Technologies, founded nine years ago, was the first company ever to develop nanocrystal “quantum dots.” That technology is used in everything from flat screen TVs to cancer treatments to Christmas lights.

In December 2008, Ballinger, 43, told The Business Review he expected annual revenue to reach $4 million. He said he expected the company’s LED lighting, mainly used for decorations during the Christmas season, to account for half of this year’s revenue car loan interest rates.

Court papers say that Ballinger’s wife, Jacqueline, is a housewife. The couple has three children under the age of 12.

The bankruptcy filing says Ballinger earned $146,472 from Evident Technologies in the 2008 fiscal year.

Ballinger filed a Chapter 13 case, in which individuals with stable income develop plans to repay at least part of their debts over a three- to five-year period.

Under Ballinger’s proposed plan, he will submit any future income or earnings to the “supervision and control” of a court-appointed trustee, for purposes of paying off debts. In 2005, Congress changed bankruptcy laws to push more people into Chapter 13 cases and away from Chapter 7 cases, in which most debts are waived.

An April 2 hearing has been scheduled in Albany on the status of Ballinger’s repayment plan and one of his mortgages.

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Fewer Americans than forecast signed contracts to buy previously owned homes in January as the housing slump deepened at the start of its fourth year.

The index of pending home resales fell 7.7 percent after a 4.8 percent gain in December, the National Association of Realtors said today in Washington.

A lack of credit and record foreclosures that are pushing property values even lower may keep prospective buyers out of the market for much of 2009. President Barack Obama has pledged to keep more Americans in their homes and create jobs, and Federal Reserve Chairman Ben S. Bernanke today said policy makers may need to expand aid to the banking system.

“There are just too many headwinds for homebuyers — tight credit, mounting job losses and fears of further price declines,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The housing market is showing no sign of a bottom. This could be the story for the first half of this year.”

Economists forecast a 3.5 percent drop in pending sales after an originally reported gain of 6.3 percent in December, according to the median forecast of 32 economists in a Bloomberg News survey. Estimates ranged from declines of 0.8 percent to 5 percent.

Policy makers may need to boost aid to banks beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits, Bernanke said in the text of testimony before the Senate today. The chairman last week warned the recession may last into 2010 unless policy makers can stabilize the financial system.

Leading Gauge

Stocks held gains following Bernanke’s comments and Treasury securities fell. The Standard & Poor’s 500 index rose 0.7 percent to 705.81 at 10:21 a.m. in New York. The yield on the benchmark 10-year note rose to 2.94 percent from 2.86 percent late yesterday.

Pending resales are considered a leading indicator because they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The pending index was first published in March 2005 and included data going back to January 2001.

The group’s index decreased to 80.4 in January, the lowest level since records began.

Three of four regions dropped, led by a 13 percent slump in the Northeast and a 12 percent slide in the South. Pending sales increased 2.4 percent in the West.

Compared with January 2008, pending sales decreased 6 auto loan interest rates.4 percent.

Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest level since 1997, according to the Realtors group. New-home purchases, which make up the rest, plunged to the lowest level since records began in 1963, Commerce Department figures showed.

Prices Fall

The median price for existing and new houses decreased in January from a year ago, the reports showed.

Falling prices and lower borrowing costs have brought more homes with reach of buyers. The NAR’s affordability index jumped to 166.8 in January, the highest level since records began in 1970.

“Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales,” Lawrence Yun, the group’s chief economist, said in a statement. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions.”

Builder Shares

The Standard & Poor’s 500 Supercomposite Homebuilding Index fell 20 percent in the first two months of this year as sales plunged. The index dropped 76 percent over the last three years. Pulte Homes Inc., the largest U.S. homebuilder, last month reported its ninth consecutive quarterly loss.

Housing-related companies are also struggling. Home Depot Inc., the largest home-improvement retailer, had a fourth-quarter loss, closed its Expo design unit and is cutting about 7,000 jobs.

“The home improvement market in 2009 will remain just as challenging as 2008,” Chief Executive Officer Frank Blake said in a statement on Feb. 24.

The economy shrank at a 6.2 percent annual rate in the fourth quarter, the most since 1982, revised government figures showed last week. Home construction contracted at a 22 percent pace following a 16 percent decline in the prior quarter.

Policy makers are counting on a series of steps to stem the deterioration. Obama last month introduced a plan to help as many as 9 million people restructure mortgages to avoid foreclosures. The Treasury Department is doubling the amount of stock purchases of Fannie Mae and Freddie Mac, the mortgage-finance companies now under government control.

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Lear Corp is no longer in compliance with its primary credit facility and expects auditors to cast doubt on its ability to continue as a ‘going concern,’ the auto parts maker said Friday.

The warning is the latest in a series of grim outlooks from automakers and parts suppliers reeling from tight credit conditions and the lowest U.S. auto sales in 27 years.

Lear, which makes seating and electrical equipment for vehicles, has been hurt by steep production cuts by General Motors Corp (GM, Fortune 500) and Ford Motor Co (F, Fortune 500), which account for more than 40% of its global revenue.

In a filing with the U no teletrack payday loans.S. Securities and Exchanges Commission, Lear also said it was unable to file its annual report on time because it needed more time to conclude talks with lenders regarding an amendment to its credit facility.

Lear said the annual report will contain an explanatory paragraph from auditors with respect to the company’s ability to continue as a going concern.

A going-concern opinion means the auditors cannot have reasonable assurances the companies will survive for the next fiscal period. 

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Ireland plans to create a new commission for banking regulation, seeking to end what Prime Minister Brian Cowen said has been a “sorry chapter” for the nation’s lenders.

“There will be radical reform of the system,” Cowen said late yesterday at the annual conference of his ruling Fianna Fail party in Dublin. The Central Banking Commission “will have new powers for ensuring the financial health, stability and supervision of the banking and financial sector.”

Ireland’s banks have been battered by the global credit crisis and face rising bad debts as the domestic property market slumps. At the same time, a series of scandals that have led to resignations across the industry have marred the sector’s reputation.

The government has promised a 7 billion-euro ($8.9 billion) bailout to Bank of Ireland Plc and Allied Irish Banks Plc, the two biggest Irish lenders, and has nationalized a third, Anglo Irish Bank Corp. Police this past week searched Anglo’s offices as part of an investigation by the country’s corporate enforcement agency.

The commission will incorporate the responsibilities of the central bank and the financial regulator, Cowen said in the speech, which was received by e-mail. The reforms will begin within weeks and “will mark an end to a sorry chapter in Irish banking history,” he said.

Canadian Model

The commission will be similar to the model used in Canada, where banks have avoided government bailouts and have had a fraction of the debt-related writedowns recorded globally personal loan for poor credit. Bank of Nova Scotia Chief Executive Officer Richard Waugh earlier this week said Canada’s model is “worth careful consideration” when looking at “ways to improve the global financial sector.”

As he battles to save the nation’s banks, Cowen is also grappling with a soaring budget deficit, the threat of a credit rating downgrade and public anger over proposed tax increases. Ireland’s economy is shrinking at the fastest pace in the euro area and more than 100,000 people marched in Dublin last week against government budget plans.

The government aims to “restore balance” to the public finances by 2013 through a combination of higher taxes and increased spending cuts, Cowen said. Ireland budgeted for 55 billion euros in spending this year and expects to raise a maximum of 37 billion euros from taxes, leaving a shortfall of 18 billion euros.

“Everyone will need to pay more,” the prime minister said. “While no one can be insulated from this reality, we will seek to do it in a fair way that is based on ability to pay.”

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