Do not be fooled by unemployment numbers as reported. As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.

According to the government's broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.

The number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2 percent for October, the highest it has been since June 1983.

The difference is that what is traditionally referred to as the "unemployment rate" only measures those out of work who are still looking for jobs. Discouraged workers who have quit trying to find a job, as well as those working part-time but looking for full-time work or who are otherwise underemployed, count in the U-6 rate.

With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.

"To me there's no easy solution here," says Michael Pento, chief economist at Delta Global Advisors. "Unless you create another bubble in which the economy can create jobs, then you're not going to have growth. That's the sad truth."

Pento warns that forecasts of a double-dip ("W") or a straight up ("V") recovery both could be too optimistic given the jobs situation.

Instead, he believes the economy could flatline (or "L") for an extended period as small businesses struggle to grow and consequently rehire the workers that have been furloughed as the U-3 unemployment rate has doubled since March 2008.

As that trend has happened, the U-6 rate has expanded at an even more dramatic pace. Economists cite several reasons for the phenomenon.

For one, more workers are becoming discouraged as real estate—the focal point for the expansion in the earlier part of the decade—has collapsed and taken millions of directly related and ancillary jobs with it.

Many workers believe those jobs aren't coming back, and have thus quit looking and added themselves to the broader unemployment count.

"In the earlier part of this decade, 40 percent of all new jobs created were in real estate. Attorneys, mortgage brokers, agents, construction—they were all circled around housing," Pento says. "We've had a jobless recovery in the last two recessions. This is going to be the third jobless recovery in a row."

Another factor that may be leading people onto the rolls of those no longer looking for jobs is the government's accommodative extensions of jobless benefits.

"Workers are unemployed for a much longer span than we've seen historically," says David Resler, chief economist at Nomura Securities International in New York. "Part of that may be affected by the longer availability of benefits. It reduces the incentives for an urgent job search."

The U-6 rate debuted in January of 1994 at 11.8 percent, while the U-3 was at 6.6 percent. The measure hit a low of 6.9 percent in April 2000 while U-3 sat at 3.8 percent.

While the current methodology only dates back 15 years, a former U-6 gauge was in existence previously and peaked at 14.3 percent in 1982. Economists predict the current measure would fall just below that number using the same methodology.

"We're in the process of discovering how severe this recession and the long-run impact on certain industries will be and what that will do to overall employment," Resler says. The U-6 rate "portends a very slow, sluggish recovery."

If that holds and the US economy stays weak, that presents challenges for investors.

"People focus too much on that 10 percent number and not on the larger number," says Kevin Mahn, chief investment officer at Hennion & Walsh in Parsippany, N.J. "There's a humongous inventory of people out there looking for work and have been looking for work for a long time. Where are those jobs going to come from?"

High unemployment and the resulting pressure on consumers is driving many investors to look for opportunities overseas and in other assets.

Walsh says that trend is going to continue, with clients going to foreign markets, real estate investment trusts, certain bonds—anywhere that can offer profits above the slow-growth mire of US-based investments.

"If full employment is 4 percent, people are wondering how we're going to get from 10 (percent) to 4. Well, try getting from 17 to 4. We may not get back to full employment for a decade," Mahn says. "As an investor, that causes me to look for different places now. Maybe you can't just put money in US large caps and ride out this recovery."

The future economic growth will come from nations such as China and India which have significant future consumer needs. However, these consumers will not be buying expensive USA produced products. They will be buying low priced items made in.....China and India!

Therefore any forward looking business will start a factory not in the USA, but rather in China or India, where wages are under $1 per hour. This is just common sense.


Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.

The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.

“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.

On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.

Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China. Why buy a bond that pays literally no interest?

The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.

Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.

The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.

Lenders to these debt burdened borrowers want to see a reasonable interest rate paid on the debt instruments that they are buying!

Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.

But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.

The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.

To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.

Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.

This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.

“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.

“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”

There is no prudent fiscal policy in the USA right now, and not likely to be any as the Congress considers nothing but anti-business high tax policies.


As a small business owner over the last 30 years, I have seen it all, but I have never experienced the sheer economic illiteracy as is being exhibited right now, and as best as I can tell into the next 3 years of the present administration.

In the middle of one of the worst economic slow-downs, the economic illiterates, and their initials are Barney F., Nancy P., Harry R., Chuck S., Joseph B.,....and on and on, are learning nothing, and are charging forward with policies that will surely destroy all entrepreneurial enterprises and new business development.

I previously thought of keeping the business and handing it to my children to operate, but the struggle that it has been in the last year, the "kids" do not want the struggle.

My company has had to deal with an OSHA matter requiring us to put in unnecessary handicap access ramps and a variety of needless "changes" and "safety updates" to our building. This $79,000 cost was financed by borrowing against our credit line.

Then one of the employees was diagnosed with cancer, and the policy for the business was increased by $300,000 annually!

The local county increased the tax on our building to $84,000 from $59,000, and added reporting burdens on a variety of issues that are meaningless.

Our customers are paying their bills slower so we had to borrow against our credit line to meet our payroll and now we are at the limit of our credit line.

I will not be able to borrow more, since there is no more collateral to provide to the bank.

With the looming threat of added costs for compliance, for health care and government mandates on the horizon, there is no point for me to personally expose myself financially to continue the business above its present lines of credit.

Therefore, at the end of this year, I am planning an auction sale of the business assets and property since there is no buyer that can get financing.

Washington is killing business, and is not listening to the people who actually run businesses, like me.

I am lucky, I am getting out while I still can.


The unemployment rate is likely to go higher. AND WHY NOT, THE GOVERNMENT IS DOING ABSOLUTELY NOTHING TO STOP IT. We have economic illiterates in Washington calling the shots, and announcing new taxes, employer mandates, and higher operating costs for everyone though crazy things like a cap and trade tax!

Nearly 16 million people can't find jobs even though the worst recession since the Great Depression has apparently ended. Many economists worry that persistently high unemployment could undermine the recovery by restraining consumer spending, which accounts for 70 percent of the economy.

The Labor Department said Friday that jobless rate rose to 10.2 percent, the highest since April 1983, from 9.8 percent in September. The economy shed a net total of 190,000 jobs in October, less than the downwardly revised 219,000 lost in September, but more than economists expected.

The jump in the jobless rate reflects a sharp increase in the tally of unemployed Americans, which rose to 15.7 million from 15.1 million. The net loss of jobs occurred across most industries, from manufacturing and construction to retail and financial. That tally is based on a separate survey of businesses.

Economists say the unemployment rate could climb as high as 10.5 percent next year because employers remain reluctant to hire. WHO ARE THESE ECONOMISTS...MENTAL PATIENTS? That rate will be reached in December of 2009!

Counting those who have settled for part-time jobs or stopped looking for work, the unemployment rate would be 17.5 percent, the highest on records dating from 1994.

We need explosive growth to take the unemployment rate down, and there is nothing in the works by our clueless government to make that happen. Tax cuts, a tax holiday will assure growth, nothing else!

Persistently high unemployment is likely to become a political liability for President Barack Obama and Democrats in Congress. Most realistic economists expect the jobless rate will remain high and growing through next November, when congressional elections are held.

When unemployment topped 10 percent in the fall of 1982, President Ronald Reagan's Republican Party lost 26 seats in the House.

One sign of how hard it still is to find a job: the number of Americans who have been out of work for six months or longer rose to 5.6 million, a record. They comprise 35.6 percent of the unemployed population, matching a record set last month.

Congress sought to address the impact of long-term unemployment this week by approving legislation extending jobless benefits for the fourth time since the recession began. The bill would add 14 to 20 extra weeks of aid and is intended to prevent almost 2 million recipients from running out of unemployment insurance during the upcoming holiday season. Obama is expected to quickly sign the legislation. This will only provide LESS incentive for the unemployed to find jobs.

October was the 22nd straight month the U.S. economy has shed jobs, the longest on records dating back 70 years. The report showed job losses remain widespread across many industries. Manufacturers eliminated a net total of 61,000 jobs, the most in four months. Construction shed 62,000 jobs, down slightly from the previous month.

Retailers, the financial sector and leisure and hospitality companies all continued to reduce payrolls. The economy has lost a net total of 7.3 million jobs since the recession began in December 2007.

The average work week was unchanged at 33 hours, a disappointment because employers are expected to add more hours for current workers before they begin hiring new ones.

Still, economists expect jobs likely will remain scarce even as the economy improves. Diane Swonk, chief economist at Mesirow Financial, said that small businesses, a primary engine of job creation, still face tight credit and don't have the cash reserves to support extra workers.

And many companies are squeezing more production from their existing work forces. Productivity, the amount of output per hour worked, jumped 9.5 percent in the third quarter, the Labor Department said Thursday.

That's the sharpest increase in six years and followed a 6.9 percent rise in the second quarter. The increases enable companies to produce more without hiring extra people.

The Federal Reserve said earlier this week that it will keep a key interest rate at a record low level of nearly zero for an "extended period" to support the economy.

The central bank said economic activity has "continued to pick up," but Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit could restrain the rebound in the months ahead.

While the unemployment rate hasn't yet topped the post-World War II high of 10.8 percent set in December 1982, many experts say this recession is worse and this rate will easily be topped soon.

The unemployment rate was much lower when the recession began -- 4.9 percent in December 2007, compared with 7.2 percent in July 1981, when a brutal downturn started. That means the current job cuts have been much steeper to get to the 10 percent mark.

And the work force, on average, is older now as the baby boomers have aged and fewer teenagers are out looking for work. Gary Burtless, an economist at the Brookings Institution, notes that older workers are more likely to be employed than younger ones. As a result, it takes a tougher job market to push the rate to 10 percent.

"This may be the toughest employment situation we've seen in the postwar era," Mark Gertler, an economics professor at New York University, said in an interview earlier this week.

No kidding, genius!


Today a report came out showing the the nation's productivity was up significantly in the last quarter....what a surprise! NOT!

It is only normal and natural for employers to try and make do with less employees, yet still put out the same amount of goods/services, etc....We all know how slacking on the job accounts for probably at least 30% of the real time at work, so getting rid of the slackers, still produces the work or goods, but at less cost, since there are less employees doing the same work.


Employers will be finding out that the remaining employees are more than capable of producing the same output of goods and services, and they will not hire new people.

So where is the recovery?

Let's face it, the unemployed are typically the less productive employees, and they are out, thus the remaining employees, the non slackers produce more.

When will they hire the slackers? Never...or others may hire them when times improve.


As our elected officials ponder additional ways to tax every type of income or asset owned by anybody, or as Hillary Clinton put it..."we tax everything that moves or does not move...", these grim statistics show that the USA is a tough place to do business.

Our tax bite is at or near the top of the world statistics, and therefore it is unlikely that this bodes well for the future economic recovery. A recovery needs to be primed by lower taxes to lure investors and entrepreneurs into investing in new businesses, new plants, etc., and the statistics below are a grim reminder of why the recovery will be longer than predicted.

We are a rich country compared to others, but our government seeks to take a larger and larger total of the wealth of its businesses and citizens, which is not good for its future growth.


View this page with: Just Stats Sources Definitions Both
Components of taxation > Corporate income tax u6.7% [20th of 28]
Components of taxation > Goods and service tax 17.6% [30th of 30]
Components of taxation > Personal income tax 37.7% [5th of 30]
Components of taxation > Property tax 10.1% [3rd of 18]
Contribution by middle 40% 28.4% [13th of 14]
Contribution by poorest 30% 6.3% [9th of 14]
Contribution by richest 30% 65.3% [3rd of 14]
Customs and other import duties > % of tax revenue 1.82 % Time series [48th of 82]
Customs and other import duties > current LCU 25316000000 Time series
Highest marginal tax rate, corporate rate > % 35 % Time series [9th of 108]
Highest marginal tax rate, individual > on income exceeding, US$ 326,450 $ Time series [1st of 93]
Highest marginal tax rate, individual rate > % 35 % Time series [27th of 102]
Tax revenue > % of GDP 11.2 % Time series [65th of 98]
Tax revenue > current LCU 1391230000000 Time series
Taxes on goods and services > % value added of industry and services 0.67 % Time series [84th of 89]
Taxes on income, profits and capital gains > % of revenue 55.26 % Time series [2nd of 98]
Total tax rate > % of profit 46 % Time series [87th of 171]
Total tax wedge > Single worker 30% [21st of 29]
Total tax wedge > Single-income family 19.4% [21st of 29]
Total taxation as % of GDP 29.6 % of GDP [17th of 18]


Every morning I walk my lovable dog, and then the doggie and I turn on the TV and watch the morning financial reports while we have our breakfast. wE WERE BOTH SHOCKED TO SEE AND HER THE STORY THIS MORNING. This particular morning financial channel has formed a strange adoration of Warren Buffet and even when he says something really stupid, they fawn all over his statements.

This morning they of course carried the announcement that BURLINGTON NORTHERN agreed to be acquired by BERKSHIRE HATHAWAY, and then decided to have the "Oracle of Omaha" spit out some words of wisdom for us all to take note.

One of the hosts and guests asked if the way to stimulate the economy would be to lower the overall tax rates ( an obvious and universally recognized way to to so), but Buffet, clearly indicating either that he was clearly senile or just finally admitted to being stupid, stated that he remembered 90% tax rates, and that they did not affect his decision to make money.

Hearing this "advice" from the Oracle, we both spit out our food in shock.

Ok Warren, I can understand how when you have a net worth of $40 billion, you could care less how much of your token salary is appropriated by the government, but the rest of us can not accept a 90% tax rate as being just fine. (Warren takes a $100,000 salary for the last 27 years, by the way, so at 90% tax he would be left with $10,000 to live on, which I do not believe would be enough to support any type of lifestyle, much less pay for his medicare and drugs).

Your advice is just plain stupid ( I know that you supported the election of Mr. Obama who would agree with you that a 90% income tax is just fine) and I would hate to have you being in charge of the country. We would all be on the government dole sine your ideas would bankrupt us all!

In case you do not remember, in addition to the federal tax, we also have a state tax, county and city taxes, real estate taxes, sales taxes, telephone taxes, Social security taxes, unemployment taxes, gasoline taxes, taxes, taxes and more taxes that can be listed on this page.

Also, just a note of interest....It is true that your firm has made money and some of your decisions resulted in making money for the company. But, a monkey with a dart, throwing it at the newspaper in 1987, and buying the DJIA COMPONENTS DID BETTER THAN YOU, and did not have to hold the stock for 50 years. In addition, buying your stock in the last few years resulted in a loss of 30%-40% as well.

So how would you propose that we pay all these taxes and still buy groceries, pay the mortgage or the car payment? Oh, and how do we start a business and have any motivation to make a profit which would be taxed at 90%????

Pandering just looked so stupid to a financial channel that became famous for one of its morning commentators in supporting the tea party, anti-tax movement.

Hey Warren, it's time to retire, really.....and distribute the excess funds at Berkshire to its true owners, the stockholders so they too can enjoy their retirement without your further advice to give it all up in taxes.


Every week, some government bureaucrat appears on a TV show snippet and predicts that we are on a recovery...we are out of the recession, or the depression, etc..

There are no real reasons provided for this optimistic prediction other than usually some reference to some daily rumor about there being a sale at Macy's or some such, and therefore more people were seen shopping that weekend.

On a recent shopping trip I noticed that retailers were posting their job openings right on their doors, rather than in the help wanted section of the papers. The retailers said that they were saving money and that they had plenty of takers without doing more advertising. No wonder newspapers are complaining about smaller revenues.

Every job posting was for a part-time position, and it was seasonal, or temporary!

Nothing represented a long term job created or saved. It was make do work that was not to last and would not represent real employment.

Think about it...if you were an employer, what government action that was announced to date, would cause you to hire more or new employees permanently?

What government action would you credit with wanting to provide your new hired employees with health benefits for instance? The threat of fines, and added 8% health care costs to be paid by the employers are looming, and therefore why would an employer consider hiring more people?

As an aside, we looked at the reality of what an 8% TAX on payrolls for the purposes of health care would do to a typical employer. Surprisingly, it would be clear that ALL employees would be dumped into the public pool.

Let's use some simple estimates to demonstrate why ALL employees would be dumped into the "public option" pool; the government plan.

take for example a person earning a hypothetical $10 an hour, gross wages and working 40 hours a week. That would represent a wage cost of $400 a week.

Under that scenario, the employer would be charged 8% of that payroll cost, or $32 for the week for the health care tax. That translates to $140.80 a month (4.4 weeks), and is the alternative to the employer provided health care.

THERE WILL BE A STAMPEDE TO GET THIS PROGRAM, there will be absolutely no chance of a private company providing this "health-care" at this cost, thus everyone now working anyplace will be shifted into the government option by EVERY employer!

Wow, what a care for $140 a month!

Unknowingly, the government does not even realize that ALL employers will opt for this option since it is cheaper, way cheaper than anything that can be purchased in the FREE market health insurance industry.

However, keep in mind that to those employers who now do not provide the insurance coverage and MUST then pay the tax to cover their employees, they will certainly offset this cost though either layoffs equal to at least 8% of the workforce or some other what has just happened?

Employers do not want to add employees, and those that have them and do not have insurance will first reduce them by the amount of the added tax for health care.

ANOTHER SMART MOVE BY THE GOVERNMENT....OH, AND SINCE EVERYONE WILL BE SHIFTED TO THE GOVERNMENT OPTION, AND THAT OPTION WILL PAY medicare rates to the medical community, expect about half of the hospitals to close, or not take the patients....
Canada fro our health care?

Dream on....another great idea from our elected officials.


CIT, a key lender that helps retailers stock their shelves is adding to the industry's worries ahead of the critical holiday shopping season.

CIT Group Inc. filed for Chapter 11 bankruptcy protection Sunday in New York after months of struggling to avoid collapse. The company provides badly needed credit to thousands of small and mid-sized businesses, and is a critical part of the flow of capital in the retail sector.

CIT stressed that its lending operations will continue to operate as it proceeds through bankruptcy with the hope of shedding $10 billion in debt. Chairman and CEO Jeffrey M. Peek said the company's prepackaged reorganization plan "will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy."

But retail groups and analysts warn that the case will likely add to the instability in the retail sector. CIT is an important source of capital, working with 2,000 vendors that supply merchandise to more than 300,000 stores. About 60 percent of the apparel industry depends on CIT for financing.

In the last few weeks, the nation's stores have begun filling their floors with holiday merchandise, but they still need a reliable source of lending to prevent shipping disruptions and to restock after the holidays. Even one day that vendors are cut off from much-needed financing could create a bottleneck, resulting in shipments of merchandise left on docks or in vendors' warehouses.

CIT expects to emerge from bankruptcy by the end of the year, but a dragged-out case or any glitches could further disrupt the already tight credit markets for retailers, said Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.

"CIT is the 600-pound gorilla in the industry," Alouf said.

Craig Sherman, vice president of government affairs at the National Retail Federation, thinks the industry "dodged a bullet on the holiday season" for the most part, because most merchandise is in stores' distribution centers. However, he said CIT's woes could throw a wrench in ordering for the important 2010 spring season. NRF officials say that as stores prepare for a rebound in consumer spending next year, access to credit is very important.

Harold Reichwald, co-chair of law firm Manatt, Phelps & Phillips' banking group, said that CIT's case will likely force the company's customers to look elsewhere for financing.

"If I was a small businessman, I would say to myself, 'I have to find alternatives,'" Reichwald said. "In this marketplace, there isn't a lot of alternatives."

CIT's Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. The bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. The move wipes out current holders of its common and preferred stock, meaning the U.S. government will likely lose the $2.3 billion in taxpayer funds it sunk into CIT last year to prop up the company.

The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year. Treasury Department spokesman Andrew Williams said Sunday that the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."

CIT had been trying to fend off disaster for several months and narrowly avoided collapse in July. It had struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis. The company pulled back sharply on lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009, compared with $11.3 billion in the first half of 2008.

The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to persuade bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.

Ever since CIT's troubles flared up last summer, the retail industry has carefully monitored the lender, with many vendors scrambling to find alternative financing at rivals like Rosenthal & Rosenthal. But finding a replacement hasn't been easy because competitors can only take on so many more clients. Moreover, while large publicly traded companies with sales of more than $2 billion have found the credit market loosening up in recent months, small and medium-based companies have largely found themselves shut out, Alouf said.

The big question is how long CIT will remain under court protection. A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could help it exit court protection in a matter of months. A swift exit by the holidays could alleviate some retailers' worries.

But, when CIT is active again, will it be able to support financing vendors who sell to troubled retailers?

Factoring works when the customer pays its bills timely, pays timely to CIT which then decides if that vendor can continue to sell goods to that retailer to receive factoring advances.

In my 40 plus year of being involved in the retail industry, I have never seen a larger constriction in available credit, especially since CIT has absorbed so many other factors over the years.

The prepackaged plan allows CIT to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses. The plan keeps CIT's operations alive and makes it possible for the company to exit bankruptcy by year's end.

But here's the bad news: While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer.

William Black, professor at the University of Missouri-Kansas City School of Law is dumbfounded. "We put ourselves on the hook in a completely inept way where we lose first. We lose entirely as the taxpayers."

Black, a former top federal banking regulator, blames Treasury Secretary Timothy Geithner for negotiating such a bad deal on behalf of the American public.

His argument goes as follows:

The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we'd be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, "it's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously," says Black.

Black believes the problem stems from regulators' fears that if the banks recognize a loss on the bad assets it will create a domino effect that will wipe out the entire financial system.

"If that's true we've got to get rid of capitalism," he warns, "because if we can't recognize losses in a capitalist system we have no future."


Ford Motor Company on Monday posted a surprise third-quarter profit of $997 million and said it had its first profitable quarter in North America in more than four years. Why should it be considered a surprise to make a profit, just because the government sponsored companies competing with them will never show a profit?

The carmaker also said it increased its cash reserves by $2.8 billion during the quarter, ending September with $23.8 billion.

For all of 2009, Ford, the only Detroit automaker to avoid bankruptcy this year, has had a profit of more than $1.8 billion. It reported $834 million of income in the first half of the year.


Its goal has been to break even or earn a full-year profit by 2011. On Monday the company said in a statement that it “now expects to be solidly profitable in 2011, excluding special items, with positive operating-related cash flow.” It did not indicate whether a fourth-quarter or full-year profit is expected this year.

Earnings of $357 million in North America broke a streak of 17 consecutive quarterly losses in that region. In the third quarter of 2008, Ford lost $2.6 billion in North America, where sales by all automakers have fallen significantly.

“Our third quarter results clearly show that Ford is making tremendous progress despite the prolonged slump in the global economy,” Ford’s chief executive, Alan R. Mulally, said in the statement. “Our solid product lineup is leading the way in all markets. While we still face a challenging road ahead, our One Ford transformation plan is working and our underlying business continues to grow stronger.”

The company posted an after-tax operational profit of $873 million, or 26 cents a share, beating even the most optimistic of forecasts by Wall Street analysts. Its overall profit is equal to 29 cents a share.

The profit occurred even as third-quarter revenue fell 3 percent, to $30.9 billion,. The company said it now expected to reduce its annual structural costs by $5 billion this year, $1 billion more than its original target.

“Positive cash flow, a stronger balance sheet and a third-quarter operating profit are evidence that Ford is meeting the global economic challenges,” Lewis Booth, Ford’s chief financial officer, said in the company’s statement.

Also on Monday, the United Automobile Workers union is expected to announce that its members soundly rejected a deal to help Ford further cut its labor costs. The deal generally would have matched concessions that workers at Chrysler and General Motors approved in the spring.

Ford workers ratified a deal in March that saves the company an estimated $500 million a year, but this time many expressed anger at being asked to make more sacrifices at a time when the company’s finances and market share are improving.

But Ford easily won approval of a separate deal from its 7,000 union workers in Canada over the weekend. The Canadian Automobile Workers union said 83 percent voted in favor of that deal, which freezes wages until 2012 and allows Ford to close its 41-year-old assembly plant in St. Thomas, Ontario.

The U.A.W. deal would have frozen wages for newly hired workers until 2015, combined some job classifications and barred the union from going on strike to demand higher pay or benefits. In rejecting the deal, workers gave up a $1,000 bonus that Ford would have paid them in March.

Many in the U.A.W. undoubtedly were affected by Ford’s efforts to portray itself as different from G.M. and Chrysler since those companies each borrowed billions of dollars from the federal government and filed for Chapter 11 protection.

Ford has been having more success than its cross-town rivals at attracting customers, and its newest vehicles are winning commendations from third-party sources like the magazine Consumer Reports, which last week declared Ford’s quality to be “as dependable — or better than — some of the industry’s best.”

The company’s sales in the United States are down 22 percent this year through September, the smallest decline among the six largest automakers; the industry is down 27 percent over all.

As recently as two years ago, Ford was widely regarded as the laggard of the Detroit Three. (That unwelcome distinction now is held by Chrysler, which intends to outline its future plans with its Italian partner, Fiat, on Wednesday.)

Last year, Ford lost $14.6 billion, the most in its history. Mr. Mulally initially joined the leaders of G.M. and Chrysler in pleading with members of Congress to aid their companies, but Ford later decided to forgo emergency loans.

Yeahhhhh, now let's all go out and buy a FORD!!!!!!

Despite its improvements, Ford remains heavily in debt. It borrowed $23.5 billion in 2006, a move initially viewed as an ominous sign of its future prospects but which turned out to be extremely fortunate after the credit markets collapsed