New Orleans: Recovery, interrupted

NEW ORLEANS (CNNMoney.com) -- In a century-old building at 220 Camp St. bustle a bunch of new-fangled companies -- the kind once considered as likely to call New Orleans home as the Saints winning the Super Bowl.

Since April 2007, the building's fifth floor has housed the Receivables Exchange, an online financial firm that pairs small- and medium-sized businesses with financing. It employs 55 people.

One floor down is Free Flow Power. The green energy firm, based in Massachusetts, plans to sink hundreds of thousands of fan-like turbines deep into the Mississippi River to create hydropower. Its goal is to employ 1,200 Louisianans.

Welcome to Entrepreneur's Row, one of a handful of new economic development "hubs" sprinkled throughout the Crescent City. City leaders hope the business networks will pave the way for a new type of economic recovery.

"There is both a recovery and a reinvention going on," said real estate developer Sean Cummings, 44, who owns Entrepreneur's Row and invests in some of its companies."It's not good enough to talk about heavy cream sauces, paddle wheel boats and beignet donuts."

One person in the middle of the effort to get the economy back on track is Mayor Ray Nagin.

Nagin, 53, has earned more criticism than wrinkles over his nearly eight-year tenure, which ends next May. The term-limited mayor joked during a recent speech to a group of business people that he had "done had enough. I'm ready to go. Some of y'all are sick of me, and I'm definitely sick of some of y'all."

In the meantime, Nagin is quick to tout the city's bright spots. Low unemployment. No major drop in housing prices. Drop in violent crime.

But Nagin also acknowledges that his economic optimism can be a "tough sell" to small business owners who continue to struggle.

"I remind them that the average recovery takes 10 to 15 years. It's something they really don't want to hear, but it's the reality of the recovery," Nagin said.

The two New Orleans

Four years ago, Katrina punched holes in flood walls and pushed Lake Pontchartrain into homes, stores and the lives of thousands of people.

0:00/1:59Biz booms for NoLa muffler shop

Today the aftermath has had a peculiar impact on the city's economy.

Construction is booming. There's a budding tech and film industry. Yet, at the same time, many mainstay small businesses once woven into the fabric of everyday New Orleans life are struggling to stay afloat.

Since oil and gas fled to Texas in the 1970s, and tourism emerged as the city's main bread-and-butter industry, the New Orleans economy has never really been considered vibrant or diverse.

Despite a sprinkling of mining and port jobs, the city has relied on minimum-wage service sector employment. An under-funded and poorly-run school system had provided scant help in preparing future workers.

But the hurricane changed everything. Some companies fled. Others cut back and slimmed down. Some changed courses entirely.

Take 52-year-old Wenji Zhong, who closed the family furniture company after the storm flooded its inventory. This summer, heopened a tidy sushi restaurant in the still-ravaged neighborhood of Gentilly on a thoroughfare near universities.Good Time Sushi is a first for the area.

The can-do, recovery spirit has fueled a new entrepreneurial renaissance of sorts in New Orleans. Dozens of young adults who grew up here or who had ties to the city are returning in the name of recovery.

Kurt Buchert was sitting at a Dallas Starbucks trying to think of some way to get back home to New Orleans. His employer, The Hartford, had transferred him to Texas after the storm.

Over a double shot of espresso with heavy cream,Buchert remembered a spray foam insulation he had used -- and liked -- on a house he had renovated in New Orleans. A month later, he opened Greenbean Insulation and was crawling under houses and inside attics, sealing up old homes throughout the city.

"I wanted to work here and have my own business," said Buckert, 32, whose company started making a profit within the first five months. "This way, I then was also going to help with rebuilding the city."

Another New Orleans native, Jon Guidroz, left a San Francisco finance firm to work for the Free Flow Power, after his mother mailed him a story about the green energy company's plans to harness energy from the Mississippi River.

"It's a different environment than existed down here before the storm," said Guidroz, 27.

Back in business but still struggling

Economists say recovery stimulus funding has allowed New Orleans to weather the national recession better than most other metropolitan areas.

At least $50 billion has been sent to state agencies following Katrina. The money has gone to everything from housing residents in trailers and other disaster responses to erecting schools, parks and libraries, according to the Louisiana Recovery Authority. Neon-vested construction workers are digging up parts of the city and recovery dollars are finally being flexed to rebuild levies, pipes, roads, streetlights, schools and, hopefully, hospitals.

Statewide unemployment has remained two to three percentage points below the national average. Home sales have slowed, but not collapsed as they have elsewhere.

However, for many small businesses, recovery remains a long way off.

Restaurants, bookstores and funeral homes are still waiting for residents who have yet to return to middle-class neighborhoods. Green kudzu and mold have taken over many homes, and it's easy to spot the fading red Xs and numbers that marked the search for survivors in the weeks after Katrina hit.

Vera Warren-Williams owns the Community Book Center, one of a half dozen businesses on a stretch of historic Bayou Road in the Mid-City area. The first four to open were started by women who call themselves the "Belles of Bayou Road."

Warren-Williams rebuilt her business after replacing the book shelves, floors, walls and wiring after being deluged by two feet of water. She has been back in business, officially and without much insurance help, for more than two years.

"I don't see how the city could be faring better in a recession," said Warren-Williams, 49, a former social worker and teacher.

But few of her old customers are back, and she's beginning to doubt they will all return. Even though she's diversified her stock to include framed pictures of President Obama, artwork and T-shirts, she's worried about the survival of her store.

The recession has also hurt tourism throughout the city, as tourists and convention-goers have trimmed back travel plans. The number of hotel reservations tied to conventions and meetings are down by 15% compared to 2008 bookings, according to the New Orleans Convention and Visitors Bureau. That hurts restaurants, hotels and tourist shops citywide.

For each of the past five years, glass artist Mitchell Gaudet has produced some 500 glass fleur-de-lis -- a symbol of the city -- that city tourism officials gave as gifts to VIP tourists who especially liked the green, blue and purple ones. This year, he sold 30 to the tourism bureau. The lack of work prompted him to shut down one of his furnaces for the summer.

"New Orleans could always be doing better," Gaudet said. "But that's why we live in New Orleans, we love that hopelessness about it." 

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Job growth

NEW YORK (CNNMoney.com) -- The long-battered U.S. job market showed some signs of improvement in July as employers cut far fewer jobs from payrolls and the unemployment rate fell for the first time in more than a year, according to a government report Friday.

The Labor Department reported a net loss of 247,000 jobs in July, the fewest job losses since August 2008. Economists surveyed by Briefing.com had forecast a loss of 325,000.

The job loss in June was also revised lower -- to 443,000 job losses from 467,000.

The unemployment rate fell to 9.4% from 9.5% in June, the first decline in that closely watched reading since April of 2008. Economists had expected unemployment to rise to 9.6%.

The unemployment rate fell even as employers continued to cut jobs because the Labor Department estimated there were 237,000 fewer people it counted as unemployed.

That decline in the labor force can be due to discouraged job seekers who have stopped looking for work, people who now consider themselves retired or those have gone back to school rather than applying for jobs.

"You can't lose jobs and have the unemployment rate decline unless folks are opting out," said Tig Gilliam, CEO of Adecco Group North America, a unit of the world's largest employment staffing firm. "That means unemployment is going to go back up again."

0:00/3:17Stimulus impact on GDP

There were other signs of improvement in the report, however.

The average hourly work week edged up to 33.1 hours, from a record low of 33.0 hours in June. The number of workers who wanted full-time work but could only find part-time jobs fell by 191,000, or 2%. That suggests that many workers who had their hours cut or were given unpaid days off in the current downturn are going back to full-time status.

But there was also plenty of bad news to be found in the report.

The number of people unemployed for more than six months continued to rise, reaching nearly 5 million people, a record high. The average time that an unemployed person has been out of work reached 25.1 weeks, the highest reading in the 61 years that this has been tracked by the Labor Department.

The Labor Department also said that one reason for the declining number of job losses was because cuts had been so deep leading up to July that there were fewer workers to lay off during the seasonal shutdown that happens in some factories, such as those in the auto industry.

Since the start of 2008, 6.7 million jobs have been lost in the U.S. Several economists said that while the report confirms other economic readings suggesting that the recession may be ending, it's too soon to predict a sharp gain in jobs in the near term.

"The dawn of an economic recovery is here," said Sung Won Sohn, a professor of economics at Cal State University Channel Islands. "The economy is in the process of bottoming, but the job market will lag behind. Businesses, which engaged in preemptive layoffs earlier, are not about to start hiring people."

Mark Vitner, senior economist at Wells Fargo, agreed that job losses are likely to continue into early next year, with unemployment eventually rising to about 10% to 10.5%. He said the fact that unusual extended shutdowns in auto plants distorted these seasonally-adjusted numbers.

"We're not ready to break out the champagne," he said. "There's less improvement than meets the eye."

Gilliam also doesn't expect to see overall job gains until late this year at the earliest.

"The glass is both half empty and half full in this report," said Gilliam.

But Robert Brusca of FAO Economics said he believes there is more strength in the job market than many people are willing to acknowledge. He said that the government may even report an overall payroll gain for August next month.

"There is nothing about these numbers that suggest it's a fluke," he said.

More jobs were lost in July in the manufacturing and construction sectors as well as in the retail and business and professional services industries . But there were net gains in the education, health care and leisure hospitality sectors. Government employers also added jobs.

Average hourly wages edged up 3 cents an hour, to $18.56. That increase, combined with a slightly longer work week, lifted average weekly wages by 0.5%.

But that still left weekly wages only 1% higher than they were a year ago, little better than the 0.9% rise posted for June. That increase was which the smallest increase in paychecks in 23 years.

Talkback: Are you encouraged by the latest jobs report? Share your comments below. 

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Confusion rules in recovery puzzle

(breakingviews.com) -- Shares are having a choppy week. Most of the leading indices are down 2-3% from their recent peaks. But it's too early to say whether the markets have merely paused briefly or reached the end of their long run. Stocks in Europe and the U.S. are up by 35-50% since March.

One thing is clear. A collection of revolutionary fiscal, monetary and corporate policy experiments has helped stop the GDP freefall which started last September. This favorable change in economic direction -- and the cash created by these policies -- explains the stock market rally.

But looking forward, confusion reigns. To take one example, credit is still getting tighter in the U.S., according to the Federal Reserve's survey of loan officers. But the U.S. Treasury reports loans advanced by the 22 banks receiving government aid are up 13% in a month. There are similarly mixed signals in most countries about inventories, unemployment, production and even prices.

Economists would like to help clarify matters, but they are largely at a loss. Neither theory nor history can provide much guidance. The crisis showed the detailed models used by all economists were inadequate in exactly the point of greatest current uncertainty -- how changes in financial conditions affect economic activity. Incredible, but true.

What's more, the models assume the existence of a simple economic pattern: a succession of fairly similar cyclical distortions around fairly stable underlying GDP growth rates. But the credit bubble and crunch may not fit into the schema.

Some economists prefer to throw out the detailed workings of inputs and outputs in favor of relying on what happened in similar situations in the past. But no one knows which, if any, past episodes are relevant.

There have been many recessions and many debt crises in many countries, but this time -- near-zero interest rates, near-record peacetime government deficits and unprecedented government support for the financial system -- really could be different.

Of course, the future will come whether or not it is accurately predicted. But investors and experts have good reasons to keep changing their minds. There could be some more big market reversals before the trends are clear. 

Recovery slow and steady - Larry SummersMortgage rates climb after falling for 3 weeks

White House may push health care without GOP

WASHINGTON (CNN) -- The Obama administration is looking hard at pushing through a health-care reform bill without Republican backing, top Democrats close to the White House have told CNN.

The Democratic majority in the Senate has been stymied in the health-care debate by Republicans and conservative Democrats, leaving them short of the 60-vote "filibuster-proof" margin needed to pass the bill.

Democratic success could depend on an obscure tactic called reconciliation, a type of budget maneuver that requires only a simple majority -- 51 votes -- to pass.

Congressional Democrats authorized the maneuver specifically for health-care reform legislation during the debate over the 2010 budget, which passed in April.

One top Senate Republican warned at the time that using reconciliation to pass such a measure would be "like a declaration of war."

Going it alone could be risky for Democrats, not because they couldn't raise the votes, but because Republicans could cast it as a power play, accusing them of failing to win bipartisan support. A Quinnipiac University survey released two weeks ago showed that 59% of registered voters nationwide oppose passage of health-care legislation if the bill fails to win bipartisan support.

White House Press Secretary Robert Gibbs insisted Wednesday that President Barack Obama has not yet given up hope for a bipartisan plan.

0:00/3:16Affordable health care

"The president has said countless times he will work with anybody and everybody who wants to work constructively on health-care reform," Gibbs said.

"We continue to be hopeful that we can get bipartisan support and we'll continue to work with those that are interested in doing that."

But moving ahead on a more partisan basis might ultimately be a strategy Democrats are willing to employ.

"If we have to push it through this way, no one is going to remember how messy it was," a top White House adviser told CNN. "At the end of the day, they'll remember we got health-care reform done. A win is a win."

White House officials are beginning to lay the groundwork for such a move, telling CNN that they'll have to take drastic measures if there's no movement.

Sources from the administration and the Democratic side of Capitol Hill have told CNN that they're becoming increasingly convinced that Republicans -- particularly Iowa Sen. Charles Grassley -- involved in the negotiating process aren't serious about striking a deal.

Grassley is one of six members of the Senate Finance Committee -- three Democrats and three Republicans -- negotiating the only bipartisan health-care legislation so far.

The six negotiators are not considering a government-funded public health insurance option favored by President Barack Obama and Democratic leaders, but are looking at nonprofit cooperatives that would negotiate collective polices for members.

Grassley warned at a weekend town hall meeting that the months of negotiations may fail to produce a bill he can support.

Asked for a response to the Democrats' claims Wednesday, Grassley told CNN, "I've said all year that something as big and important as health-care legislation should have broad-based support. So far, no one has developed that kind of support, either in Congress or at the White House. That doesn't mean we should quit. It means we should keep working until we can put something together that gets that widespread support."

Gibbs appeared to back Grassley, telling reporters that there are "Republicans on the Finance Committee and others that we believe are working in a constructive way to get reform through the Senate and ultimately to (the president's) desk."

If Democrats choose to go it alone, the public health insurance option is likely to be back on the table, because there would be no need to win the votes of Republicans or conservative Democrats. But it would be a change in tactics after the White House appeared to shift its stance on the issue over the weekend.

On Saturday, Obama said the "public option, whether we have it or we don't have it, is not the entirety of health-care reform."

Then on Sunday, Health and Human Services Secretary Kathleen Sebelius said a public option is "not an essential element" of overhauling the health-care system.

Their comments were interpreted in media reports as a softening of the administration's support for the public insurance option.

However, Sebelius denied Tuesday that anything had changed in Obama's policy.

"Here's the bottom line: Absolutely nothing has changed," she said at a Medicare conference. "We continue to support the public option. That will help lower costs, give American consumers more choice and keep private insurers honest. If people have other ideas about how to accomplish these goals, we'll look at those, too. But the public option is a very good way to do this."

Earlier, White House Press Secretary Robert Gibbs said Obama and Sebelius have consistently called for making health insurance affordable to all in a competitive market, and that they think a public option is the best way to do so, but were open to other ideas.

-- CNN's Ed Henry and Dana Bash contributed to this report.  

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Real estate lifeline extended through mid-2010

WASHINGTON (Reuters) -- The U.S. Federal Reserve said Monday it will extend to mid-2010 an emergency program aimed at boosting lending in the ailing commercial real estate market.

In a joint announcement with the U.S. Treasury Department, the Fed said it would extend its Term Asset-Backed Securities Loan Facility (TALF) to June 30 for newly issued commercial mortgage-backed securities, a program that has yet to get off the ground.

The Fed and the Treasury also extended through March 31 its TALF for newly issued securities backed by auto, credit card, student and small business loans, and existing CMBS.

Analysts said the move is most important to the commercial real estate sector being buffeted by a lack of credit and as the recession curbs revenue from office, retail and apartment buildings. The industry has been often cited by Fed officials in the past month as a particular danger to a U.S. economic recovery if borrowers with maturing loans find no other outlet than default.

"It seems to me that the Fed realizes that this program has had a positive impact on the markets and also that the markets are not yet healthy enough to walk on their own at this point," said Scott Buchta, a strategist who follows ABS and CMBS at Guggenheim Capital Markets in Chicago.

While financial conditions have improved recently, markets for ABS backed by consumer and business loans and for CMBS are still under strain and seem likely to remain so for some time, the Fed said. TALF is largely seen as a success for lowering some consumer borrowing costs and driving some of the biggest rallies in securities markets where the money is raised.

ABS yields are now so low that that investors have begun to purchase bonds independent of the federal program. Under TALF, investors apply for non-recourse loans whose proceeds are earmarked for designated securities.

The issuance window for new issue CMBS was extended to June since those deals take more time to arrange, the Fed said. Five or six issues from real estate investment trusts are expected, said Brian Lancaster, head of mortgage and other asset-backed strategy at RBS Securities in Stamford, Connecticut.

"It's encouraging (for CMBS) but we are not quite there," Lancaster said.

Lenders are reluctant to refinance billions of dollars in loans made under easy terms and aggressive expectations that rents and property values would rise. But revenues are falling and prices nationally are now off 35% since October 2007, forcing borrowers to either put more equity in their properties or plead for extensions of current loan terms.

General Growth Properties Inc. (THE U.S. FEDERAL), the second largest U.S, mall-owner, in April blamed its bankruptcy on investors of its loans in CMBS.

The Fed said authorities had considered expanding TALF to other types of collateral, but decided against it for now. Investors had hoped the TALF would cover existing residential mortgage securities, but that speculation dimmed in recent weeks with those bonds seen drawing support from the Treasury's public-private investment plan.

The Fed said officials could reconsider that decision if economic or financial conditions warrant.

"It is rather like triage," said Jay Mueller, senior portfolio manager with Wells Capital Management in Milwaukee, Wisconsin. "Several of the markets that were in trouble are functioning much better. The Fed is putting resources where they are most needed." 

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Manufacturing (ISM)

NEW YORK (CNNMoney.com) -- Manufacturing activity rose significantly in July, suggesting that while the sector remains in contraction, there's a possibility of growth in the current quarter, a purchasing managers' group said Monday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index reading of 48.9 beat estimates from economists, who expected a jump to 46.5 from June's 44.8, according to a Briefing.com consensus survey.

July's report marks the 18th straight month of contraction in the sector. Still, ISM signaled cautious optimism.

"Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggest we will see growth in the third quarter if the trends continue," the report said.

The month-to-month improvement indicates that the rate of contraction has slowed, but not reversed. Manufacturing is a key gauge of the strength of the overall economy.

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing sector. Index readings above 50 signal growth, while levels below 50 indicate contraction. Readings below 41.2 are associated with a recession in the broader economy.

"Even though the index is still in contraction, it's above that recession threshold," said Sam Bullard, economist at Wachovia. "These numbers are stronger, and definitely significant."

The data track new orders, production, employment, supplier deliveries, inventories, customers' inventories, backlog of orders, prices, new export orders, imports and buying policy.

Of the 18 manufacturing sectors, six reported growth -- including categories such as transportation equipment, appliances and paper products. The 11 that reported contraction included machinery and food.

New orders snap decline: The key new orders component jumped to 55.3 in July, from 49.2. New orders are an indicator of manufacturing activity in the near future.

The rise in new orders broke nine straight months of decline, and"it's encouraging to see that index jump above the expansion mark," Bullard said.

Employment: The employment component rose to 45.6 in July, up 4.9 points from the previous month.

Despite the index's increase, it marks the 12th consecutive month of decline in employment. Consistent readings above 49.7 are generally tied to an increase in government data on manufacturing employment, the report said.  

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Credit card rates rise in 1st half of '09

NEW YORK (CNNMoney.com) -- The nation's banks raised credit card rates and increased their profit from lending to consumers in the first half of 2009, according to a consumer advocacy group.

The Pew Safe Credit Cards Project said Monday the median lowest advertised credit card rate rose to 11.99% in July from 9.99% in December. At the same time, the group said, the profit banks made on credit card debt rose 46%.

The group, which says on its Web site that it seeks to "protect customers from unfair credit card practices," said its figures are based on a survey of nearly 400 credit card issuers. The full results of the survey are scheduled to be published next month.

The study said the rate banks charge on credit card loans on top of what it costs to borrow from the Federal Reserve rose to 8.74% in July from 5.99% in December. That came as banks' borrowing costs were cut in the wake of the Fed slashing its benchmark interest rate to a range near zero percent.

A spokesman for the financial services industry said the ongoing financial crisis made raising money difficult and expensive, with the costs passed on to consumers in the form of higher rates.

"A key thing to recognize is that about half of the funding for credit card loans comes from securitization" through private investors, said Peter Garuccio, a spokesman for the American Bankers Association. "We all know what happened in the secondary (credit) market last fall, and it's still very dry, which has made it more difficult and more expensive to fund credit cards."

Credit card law: The initial findings from the study came days before the first provisions of the Obama administration's credit card reform act go into effect.

Beginning Thursday, cardholders will be able to reject rate increases imposed by banks and will have up to five years to pay off their credit card balance at the current rate.

The new provisions also prevent credit card issuers from more than doubling a borrowers' minimum payment and raised the minimum number of days that banks need to give before making significant changes to a contract to 45 from 30.

The act, which President Obama signed into law in May, will not be fully implemented until February.

Eleni Constantine, director of Pew's financial security portfolio. said the final version of the act will ban retroactive rate increases and prohibit "hair trigger" penalties for errors such as late payments. 

Leading economic indicators riseMortgage rates climb after falling for 3 weeks

Feasting on failed banks

NEW YORK (Fortune) -- Shares of BB&T Corp. shot higher Friday after reports that it might be scooping up the remains of Colonial BancGroup.

It's no wonder: Such purchases give healthier banks a chance to grow on the cheap. That's valuable at a time when many institutions have been shrinking in response to the recession.

More than 70 banks have failed this year. Scores of additional failures are expected in coming years, as the industry works through trillions of dollars worth of residential and commercial real estate problems.

While most of the biggest recent bank failures have been resolved via sales to major institutions or investor groups, regional banks have been bulking up as well.

Since the banking crisis started last year, six regional banks have bought at least two failed banks from the FDIC. The leader has been Zions Bancorp (ZION), a Salt Lake City-based institution that has acquired four banks from the FDIC.

Other buyers of multiple troubled banks include U.S. Bancorp (USB, Fortune 500), the Minneapolis-based bank that last year bought the remains of troubled thrifts Downey Savings and PFF, which failed on the same day. The joint purchase of Downey and PFF wound up being the third largest deal by assets for failed banks last year, after the WaMu and IndyMac sales.

FDIC rules require the agency to resolve bank failures in the manner that's least costly to the deposit insurance fund. The deposit fund is backed by fees paid by banks, but the FDIC has a credit line with the Treasury Department that it could tap in an emergency.

The rash of failures over the past year and a half has come at heavy cost to the fund, which is now 75% below its statutory minimum balance.

The cost to the FDIC fund in the U.S. Bancorp and Zions deals alone was $3.6 billion. The agency also agreed to so-called loss-sharing agreements on some of the transactions, which means the fund could end up shouldering additional costs on troubled assets taken on by the acquirers.

It's this provision -- capping the acquirer's losses at the expense of the fund -- that is most alluring to regional banks and their investors.

In addition to BB&T (BBT, Fortune 500), analysts have pointed to Cincinnati's Fifth Third (FITB, Fortune 500) and Atlanta's SunTrust (STI, Fortune 500) as regional banks that might be chosen to participate in future deals.

Some bankers have downplayed questions about buying failed institutions. Such deals "really are off our radar," Fifth Third chief executive officer Kevin Kabat told investors last month, noting that there have been relatively few bank failures in the Midwest.

But given the advantageous terms, no one is ruling FDIC-assisted deals out, either.

U.S. Bancorp chief executive officer Richard Davis said in a conference call with analysts and investors last months that the bank "will always be available" for any "opportunities that come along" on the FDIC failed bank list, though it is keeping an eye out for bigger ones. 

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BB&T buys Colonial bank; 4 other banks fail

NEW YORK (CNNMoney.com) -- Troubled Colonial BancGroup will be bought by rival BB&T Friday, the government said after state regulators closed the bank whose assets had been frozen by a federal judge.

The Montgomery, Ala., bank, which has 346 branches spread across Florida, Alabama, Georgia, Nevada, and Texas,is the sixth largest bank failure in U.S. history and by far the largest failure of 2009.

With $25 billion in assets and $20 billion in deposits, Colonial is 100 times larger than the typical bank to have failed this year.

BB&T (BBT, Fortune 500) will buy $22 billion of Colonial's assets, as well as its deposits and branches, leaving the remaining assets in the hands of the Federal Deposit Insurance Corp.

BB&T, based in Winston-Salem, N.C., is also a regional banking power, with 1,500 branches across the Southeast. It is also a major mortgage lender.

Most customers of Colonial should not be affected by the closing. The FDIC, the federal agency that has protected bank deposits since the Great Depression, will guarantee account balances up to $250,000.

But home buyers and those who want to refinance their mortgages could end up paying somewhat higher rates, even if they have never heard of Colonial, said Guy Cecala, publisher of trade publication Inside Mortgage Finance.

Cecala said Colonial was a significant player in the sector of the business known as "mortgage warehouse" lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

"The more firms like this that get out, the more dependent we get on large banks, and less competition there is. That's never a good thing," he said. Warehouse lending used to be a huge source of funds for home loans, according to Cecala, but the mortgage defaults and declining home prices of recent years has decimated the business.

"The warehouse lending market is now so fragile and so small, it doesn't help when we lose anybody," he said. "We have only a cup of water where we used to have a bucket of water."

Trust fund hit: The failure of Colonial is another blow to the FDIC trust fund, which has had to cover 77 bank failures so far in 2009 -- including four more late Friday (see below).

The fund took a $35.1 billion hit in 2008, and an additional $4.3 billion decline in the first quarter of this year, leaving it with assets of only $13 billion as of March 31. But most of last year's decline was due to $25 billion the agency set aside to cover future losses.

"The past 18 months have been a very trying period in the financial services arena," said FDIC Chairman Sheila Bair, in the Colonial failure release. "Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected.

Little more than a year ago, bank failures were relatively rare, with only four occurring in the first six months of last year. The collapse of IndyMac, a major mortgage lender, in July 2008, signaled a rash of failures to follow. IndyMac cost the FDIC about $10.7 billion by itself, and is the most expensive failure in history.

Colonial will likely be one of the most expensive bank failures, according to Chip MacDonald, a banking lawyer at Jones Day, given its active position in mortgage warehouse lending across the Southeast.

The FDIC said Colonial's closing will cost the Deposit Insurance Fund $2.8 billion. "That's a significant share of the FDIC fund," he said.

It is now a rare Friday night that the agency does not seize the assets of a newly failed bank. And the number of banks judged as troubled has soared to 305 as of March 31, up from only 90 a year earlier. Those 305 problem banks on the FDIC's confidential list have combined assets of $220 billion.

The trust fund that covers the deposits is paid by banks, and the weaker banks have seen those premiums rise about 14% in the last year. The agency has also announced a special one-time assessment on bank assets that will raise $5.6 billion for the fund this September. But those funds will come from money that the banks will not lend out to businesses and consumers in hopes of reviving the economy.

Legal problems: MacDonald said that Colonial is also unusual because of the allegations of criminal wrongdoing at the bank.

Colonial disclosed on Aug. 4 that federal agents had executed a search warrant at its mortgage warehouse lending offices in Orlando, Fla. It also had been forced to sign a cease and desist order with the Federal Reserve and regulators at the end of last month related to its accounting practices and recognition of losses, which limited its abilities to make dividends or other payments to investors.

The agents who searched its offices came from the Special Inspector General for the Troubled Asset Relief Program, even though Colonial never received TARP funds.

Colonial applied for TARP assistance but had been told it needed to be able raise an additional $300 million in private capital to be eligible for the federal assistance. On March 31 Colonial announced it had found such an investor in Taylor, Bean & Whitaker Mortgage Co., a major non-bank mortgage lender based in Florida. But that deal collapsed, and TBW halted operations on Aug. 5 as its offices were also searched by federal agents.

The bank had issued a statement to investors in November saying it had applied for TARP and had no reason to believe its application was being processed through the normal channels. After it later disclosed the need to raise the additional $300 million in capital to get TARP, it was hit by a shareholder suit.

Colonial could end up as the second-most expensive bank failure, according to Chip MacDonald, a banking lawyer at Jones Day, given its active position in mortgage warehouse lending across the Southeast.

"It's probably going to be cheaper than IndyMac, but my guess is it could be $5 billion to $7 billion," he said. "That's a significant share of the FDIC fund."

The sale of Colonial to BB&T also comes a day after U.S. District Judge Adalberto Jordan ruled in favor of Bank of America (BAC, Fortune 500), which had requested a temporary restraining order to keep Colonial from liquidating or transferring assets worth $1 billion.

"Viewing Colonial's contractual breach in conjunction with the fact that Colonial is on the brink of collapse and is suspected of criminal accounting irregularities, the potential for immediate substantial injury to Bank of America is clear," the judge said in his order.

The lawsuit that prompted the order was filed by Bank of America. It involved more than 6,000 mortgages issued by its subsidiary and held in trust by Colonial. According to the motion, Bank of America is owed more than $1 billion in assets, but Colonial had failed to pay the amount owed.

Last month, the bank said in a statement that it had "substantial doubt about Colonial's ability to continue" due to uncertainties about its ability to increase its capital levels.

Shares of Colonial (CNB), which fell 80% in 2009, were not trading Friday. But shares of BB&T (BBT, Fortune 500) gained nearly 9% on the report of the acquisition.

Four other banks fail: Late Friday, the FDIC also said that four other banks had failed. Outside of Colonial, the largest collapse of the day was Community Bank of Nevada in Las Vegas, which went under with assets of $1.52 billion and total deposits of about $1.38 billion. Its failure will cost the FDIC's Deposit Insurance Fund an estimated $781.5 million

The Nevada bank did not find a buyer, leaving the FDIC in control of its assets. The agency immediately created a new institution, the Deposit Insurance National Bank of Las Vegas, which will remain open for approximately 30 days to allow depositors access to their insured deposits and give them time to open accounts at other insured institutions. Banking activities, such as direct deposit, writing checks, and using ATM and debit cards, will continue normally through the transition.

Dwelling House Savings and Loan Association in Pittsburgh closed its door for the last time Friday. The FDIC said PNC Bank will assume control of its assets. It was the first Pennsylvania bank to fail this year.

As of March 31, Dwelling House held assets worth $13.4 million and total deposits of $13.8 million. The FDIC estimates that this closure will cost the its insurance fund $6.8 million.

MidFirst Bank of Oklahoma City assumed all deposits of two failed Arizona banks, Union Bank in Gilbert and Community Bank of Arizona in Phoenix. Community Bank of Arizona had assets of $158.5 million and total deposits of approximately $143.8 million. Union Bank had assets of $124 million and total deposits of approximately $112 million.

The two failures, the first in Arizona this year, will together cost the FDIC's insurance fund around $86.5 million.

The 77 bank failures so far in 2009 has more than tripled last year's total of 25. 

Corker bill gives more say-so to regulatorsSmall Wyoming bank fails

Consumer Confidence

NEW YORK (CNNMoney.com) -- A key index of consumer confidence fell more than expected in July as the dismal job market continued to darken the outlook for household spending.

The Conference Board, a New York-based business research group, said Tuesday its Consumer Confidence Index fell to 46.6 in July from a reading of 49.3 in June.

Economists had expected the index to decline to 49, according to a consensus forecast gathered by Briefing.com.

The measure's present situation index fell to 23.4 from 25 last month. The expectations index slipped to 62 from 65.5.

The overall index, which fell to an all-time low in February, had recovered earlier this year as consumers were heartened by a rally on Wall Street, lower energy prices and new government programs to aid the economy.

But that optimism was premature and has given way to concerns about the weak job market, according to Adam York, an economist at Wells Fargo Economics Group.

"Now it seems we have a renewed sinking feeling," York said in a research report.

In June, the economy lost 467,000 jobs and the unemployment rate rose to 9.5%. Many economists think the jobless rate will top 10% later this year.

"With the economy still losing a massive number of jobs each month and the unemployment rate well on its way to double digits, we do not expect a meaningful improvement in confidence in the near term," York said.

Measures of consumer confidence are closely watched by economists and investors because spending by consumers makes up nearly two-thirds of U.S. gross domestic product.

"More consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead," said Lynn Franco, director of the Conference Board's consumer research center, said in a statement.

Economists predict GDP fell at an annual rate of 1.5% in the second quarter of this year after a 5.5% drop in the first quarter. The government will release its advance second-quarter GDP report Friday. 

Wall St. seeks to extend rallyConsumer Confidence

Bigger paychecks on a comeback

NEW YORK (CNNMoney.com) -- More employers are planning to reverse pay cuts and other employee cutbacks, another sign that the employment picture is improving, according to a survey released Thursday.

The percentage of employers who will reverse pay cuts jumped to 44% in August from 30% just two months ago, consulting firm Watson Wyatt said.

About one-third of companies plan to unfreeze salaries within the next six months, up from 17%, according to the report that surveyed 175 large employers.

"Some employers are seeing the light at the end of tunnel and feeling optimistic," said Laura Sejen, a director at Watson Wyatt, in a statement..

Almost one-quarter of employers plan to reverse reductions to 401(k) match contributions in the next six months, up from just 5% in June.

However, health care did not fare as well. The survey found 66% of companies that increased the percentage employees pay for health care premiums do not expect to reverse that decision.

And 40% are planning to increase the percentage employees pay for health care premiums. About the same number expect to increase the deductibles, co-pays or out-of-pocket maximums for 2010 health care plans. 

Nashville medical trade center hires adviser with Vanderbilt tiesInflation (CPI)

Bailed-out banks: Meet the pay czar

NEW YORK (CNNMoney.com) -- Just how much is a rainmaker at a bailed-out bank really worth? Or a senior executive at a recently bankrupt automaker for that matter?

Such questions will soon be a subject of discussion at the White House as the biggest recipients of government aid begin submitting compensation plans for their top 100 employees to the Obama administration's recently appointed pay czar.

Seven companies -- AIG (AIG, Fortune 500), Chrysler, Citigroup (C, Fortune 500), Chrysler Financial, Bank of America (BAC, Fortune 500), General Motors and GMAC -- are due to submit proposed employment contracts for their 25 highest-paid employees Friday. Compensation proposals for the next 75 most compensated employees are due by Oct. 13.

Kenneth Feinberg, the man charged with handling the task, is expected to rule on the first set of pay plans within the next 60 days. That information is due to be made public by Treasury sometime after, although any announcement may not include details of pay packages for individual employees.

Feinberg, a Washington attorney who first entered the public spotlight after overseeing compensation payments to September 11 victims, has already met with the seven firms to discuss some of the employee payment plans.

However, details of those talks have remained mostly under wraps, although there have been indications of a lot of back-and-forth between Feinberg's office and the institutions.

Citigroup, for example, has been working hard to claim that its agreement to pay star energy trader Andrew Hall $100 million this year is beyond Feinberg's authority, according to recent news reports.

Feinberg's authority, while broad enough to approve or deny proposed employment contracts, is more limited on bonuses and other retention awards promised before Feb. 17 of this year. Citigroup is claiming that Hall's compensation package is protected since his contract was signed before the law creating the compensation review program was established, according to the New York Times .

Thorny problems: Resolving the issue of Hall's pay would certainly clear a major hurdle for both Citigroup and Feinberg, who effectively serves as an adviser to the Treasury Department.

But experts contend that making determinations on the other 699 employees at these seven firms could very well be a very messy process, particularly as it relates to those workers at AIG, Citigroup and Bank of America.

0:00/5:39TARP oversight: More stress tests

Imposing too many restrictions could prompt more top performers to flee Citigroup and Bank of America, hampering the firms' ability to attract talent.

Both banks have already experienced a loss of talent in recent months, both to foreign firms such as Deutsche Bank and competitors such as JPMorgan Chase (JPM, Fortune 500) that are no longer beholden to government.

At the same time, the issue of excessive pay remains a rallying cry for lawmakers and taxpayers alike, who are still incensed over bonuses paid out to AIG executives earlier this year.

"It is a bit of a balancing act," said Claudia Allen, a partner at law firm Neal Gerber & Eisenberg and the chairwoman of the firm's corporate governance practice. "In some ways, how he deals with compensation will be a reflection of what the Treasury and the [Obama] administration finds to be appropriate or acceptable."

What's appropriate?: What the White House has offered so far in terms of what is proper and what isn't, has been limited.

When it outlined its pay restrictions for banks and other firms that got money under the Troubled Asset Relief Program in June, it decreed that any company that got help this year must limit bonuses for senior executives and other highly-paid employees to one-third of their total compensation.

At the same time, it absolved those employees making less than $500,000 in total annual compensation at those firms that were bailed out more than once, saying they would not be subject to scrutiny.

But that still leaves Feinberg's office with the difficult task of determining what is an appropriate mix of bonus, salary and deferred payments such as restricted stock that rise and fall alongside the firm's overall health, noted James Reda, a managing director of the compensation consultancy James F. Reda & Associates.

Critics have charged that banks, in particular, relied too heavily on short-term rewards such as bonuses in the years leading up to the crisis. That ultimately prompted employees to benefit from risky bets, such as those on the U.S. housing market, without suffering the consequences when the market unraveled years later.

Already, many financial firms have been placing greater emphasis on salary and other forms of restricted awards amid recent scrutiny from lawmakers and taxpayers alike.

But with the government taking a hard look at compensation, bailed-out firms may have little choice than to push even further on that front. That push could include instituting so-called "clawback" provisions to reclaim pay from some executives, as well as more stock-based compensation or even caps on bonuses.

"There are not many other ways to do it," said Reda. 

Bailed-out companies face ‘pay czar’How Obama’s transparency promise holds up

Keep your cash safe

NEW YORK (CNNMoney.com) -- As yet another bank faces collapse, consumers are worried about their cash.

So far this year, 72 banks have failed, according to the Federal Deposit Insurance Corporation. Struggling southern regional bank Colonial Bank could be the 73rd.

But individuals with deposits at Colonial, or any other troubled bank, are insured by the FDIC for up to $250,000. And in the FDIC's 75-year history, no customer has ever lost an insured deposit.

"When your money is in a bank that is FDIC insured it is backed by the full force of the United States government, and it doesn't get any better than that," said Carol Kaplan, a spokeswoman with the American Bankers Association.

So, if your cash is in an account with less than $250,000 at a bank insured by the FDIC, "there is virtually no way you are going to lose your money," Kaplan said.

0:00/1:26Bank failure: What next?

Consumers who are worried that their account may exceed the $250,000 mark can spread funds around by opening additional accounts within the same bank -- as long as they are under different names, like a joint account with your spouse or a trust for your children. Consumers can also shield themselves from losses by opening up different accounts with less than $250,000 under the same name, as long as they are at different banks.

Kaplan suggests that account holders speak to a bank employee about strategies to get additional FDIC insurance. Banks will help people reorganize their funds to get full coverage or set up a sweep account, which will automatically move any amount in excess of $250,000 to another bank.

To calculate their personal exposure, consumers can go to http://www.fdic.gov/ and click on the Electronic Deposit Insurance Estimator, also known as EDIE.

When your bank fails

In the case of a bank failure, the FDIC assumes control of the troubled institution and will try to arrange a quick sale to a different bank. If another buyer does not immediately step up, the FDIC will remain in control of the bank until a buyer can be found.

Even under these circumstances consumers can access their deposits within a couple of days, if not immediately, Kaplan said.

But the odds of a bank failure are still relatively rare. The current crop of bank failures hardly comes close to what happened during the savings & loan crisis two decades ago. Between 1987 and 1991more than 1,900 financial institutions went under -- with 534 failures in 1989 alone.

The FDIC disclosed that it was closely watching 305 financial institutions on its "problem bank list" at the end of the first quarter. While that number is higher than it has been in the last few years, there were 2,165 on the list in 1987. The FDIC does not publish the names of the troubled banks for fear of spurring a bank run. 

Small Wyoming bank failsCorker bill gives more say-so to regulators

Consumers not feeling a recovery

NEW YORK (CNNMoney.com) -- Two key reports Thursday showed one thing: happy days are not here again for American consumers.

Retail sales fell in July after two straight months of gains, the government reported Thursday, a drop that surprised economists. Without car sales from the "Cash for Clunkers," the numbers would have been even worse.

And Wal-Mart (WMT, Fortune 500), the world's largest retailer, reported an unexpected decline in its key measure of U.S. sales.

"From a consumer finance position, people are still struggling," said Scott Hoyt, senior director of consumer economics for Moody's Economy.com. "Wages have fallen from the previous year and consumers don't [still] have alternative sources of cash."

0:00/1:56Xmas spending ... now?

Consumer spending fuels two-thirds of all economic activity in the United States. So even though an economic recovery could use people splurging on coats, bags and shoes again, Hoyt said it's unlikely that consumers are going to lead the nation out of this recession.

"There will have to be other areas providing the lift to the economy such as business investment and inventory levels," Hoyt said

Reality check: The Commerce Department said total retail sales declined 0.1% in July, compared with June's revised gain of 0.8%. Total sales were originally reported to have increased 0.6%.

Economists surveyed by Briefing.com expected June sales to increase 0.7%.

Sales excluding autos and auto parts also registered an unexpected decline of 0.6%, compared to a revised 0.5% increase in the measure in June. Sales, excluding autos, were originally reported to have increased 0.3% in the prior month.

Economists had forecast a gain of 0.1% in July sales, excluding auto purchases.

"This is awful. A reality check for the green shooters," Ian Shepherson, chief U.S. economist for High Frequency Economics, wrote in a note Thursday

"The big story is the core [retail sales]. Excluding autos, gas and food, sales fell 0.4%. That's the fifth straight decline," Shepherdson said. "People are cash-constrained and credit-starved. Remember, their spending accounts for 89% of private sector GDP."

While the Cash for Clunkers program did create some "healthy" demand for new automobiles "there were widespread declines everywhere else," Hoyt said.

Excluding a 2.4% gain in automobile sales and a 0.6% gain in clothing purchases in the month, most other retail categories suffered sales declines.

The government report showed building materials sales fell 2.1%, electronics purchases fell 1.4%, department store sales slumped 1.6% and sales at general merchandise stores declined 0.8%.

Furniture sales fell 0.9% and sales at food and beverage sellers declined 0.3% in the month.

Commerce Secretary Gary Locke said in a statement Thursday that, despite the slight decline in retail sales, the Obama administration remains "encouraged that the Recovery Act and other economic initiatives have stabilized conditions and helped those harmed by the economic crisis."

"The road to recovery is long, but with every recovery dollar we spend and project we start, we are one step closer to getting there," he said.

Weakness at Wal-Mart: The much worse-than-expected government report followed a worrisome quarterly report from Wal-Mart in which the discount giant logged an unexpected 1.2% drop in its second-quarter same-store sales.

Bentonville, Ark.-based Wal-Mart said it earned 88 cents a share in the three months ended July 31 compared to 86 cents a year earlier.

The earnings were at the high end of Wal-Mart's own forecast range of between 83 cents and 88 cents, and topped analysts' consensus expectations of 86 cents a share.

Wal-Mart's revenue for the quarter decreased 1.4% to $100 billion, which the retailer blamed on the negative impact from exchange rate fluctuations.

Analysts surveyed by Thomson Reuters had forecast an increase of 1% in same-store sales.

Given Wal-Mart's dominance in the retailing industry, and the fact that more than 200 million consumers shop at its stores every week, the seller is seen as a barometer of the health of the consumer and of the economy.

While most of its peers have been struggling to grow sales through the recession, Wal-Mart's been one of the lucky few that has grown its market share, as more consumers across all income levels trade down in their discretionary purchases to its value prices.

From April 2008 to April 2009, Wal-Mart reported 13 straight months of same-store sales gains. The company stopped reporting monthly same-store sales in May, moving to a quarterly reporting of its comparable sales.

To that end, last quarter's same-store sales decline marks the first drop in that measure for Wal-Mart in more than a year.

Not worried: However, Wal-Mart executives said in a statement that the company's quarterly performance "has been good, despite headwinds from price deflation, the effects of the recession and currency exchange rates."

"Even though our comparable sales were lower than we had expected, we believe our comparable sales outperformed the retail sector almost in every place that we do business," Wal-Mart CEO Mike Duke said in the company's pre-recorded call to discuss its results.

Duke also said Wal-Mart saw increased foot traffic in its U.S. stores last quarter. The company said its expects third-quarter same-store sales for the 13-week period from Aug. 1 through Oct. 30 to be between flat and up 2%.

For his part, Hoyt said he's not too surprised by the drop in Wal-Mart's same-store sales. He pointed out that the retailer got a big sales lift in the same period last year from the government rebate checks that were given to consumers in an attempt to boost spending.

Last year, Wal-Mart offered free rebate cash checking in its stores in an attempt to grab a bigger share of the rebate money, a strategy that helped pump up its same-store sales 5.8% in June and 3% in July.

"The stimulus that consumers got this year was not concentrated in one quarter but was spread out over the last nine months," Hoyt said.  

Consumer ConfidenceRetail sales dip 0.1 percent in July

How Obama's transparency promise holds up

NEW YORK (CNNMoney.com) -- The Obama administration pledged unprecedented transparency in its accounting of the $700 billion bank and auto bailouts (TARP) and the $787.2 billion Recovery Act. A lot of information has been made public but there are some key details where the transparency falls far short.

Here's what we still don't know:

How are banks using TARP funds?Who are bailed out banks lending to?What is the value of the assets that Treasury has accumulated as a result of TARP?Where are stimulus funds ultimately going?

They're important questions: We want the government to ensure it is spending our money wisely, and experts want to know why the Obama administration won't provide the answers.

"Why are we bailing out banks, and what are we getting out of it?" asked Craig Jennings, senior fiscal policy analyst at transparency research organization OMBWatch. "These are very big questions, and the administration doesn't seem to be willing to answer them."

What we do know. To make the bailouts and stimulus more transparent, the administration commissioned Web sites like recovery.gov and financialstability.gov, which have given the public previously unattainable information about how taxpayer funds are spent.

"The president and vice president made a clear commitment from the beginning that we would provide unprecedented accountability and transparency," said Liz Oxhorn, the Obama administration's spokeswoman for the Recovery Act. "Look at recovery.gov and compare it to the standard of how government worked in the past. It is truly a pioneering site in terms of access."

But many analysts and overseers say that the provided information is not nearly enough.

"The administration's transparency goals clearly have not been reached," said John Clippinger, co-director, of the Berkman Center for Internet & Society at Harvard University. "I think this administration is making a huge effort to enable them, considering where we've been in the last eight years, but they're certainly not there yet."

Accounting for TARP. TheTreasury Department states on financialstability.gov that the $204 billion in capital investments in banks are "for stability or lending." But it does not require banks who have received the funds to show how they are using the money.

Special Inspector General for TARP (SIGTARP) Neil Barofsky, and Prof. Elizabeth Warren's Congressional Oversight Panel (COP) have been outspoken on this issue, and Barofsky even performed his own voluntary survey to show the accounting could be done. Treasury responded that its current method of accounting is sufficient -- reporting on broad trends for the top 21 banks' lending habits.

"We share SIGTARP's interest in tracking the level of lending by those institutions that have received government investment," a Treasury official said. "To that end, Treasury has released monthly reports tracking how much these institutions are actually lending."

Experts say without deeper digging into the question of "where the money is going," the public will never really know if the program is working: If banks are lending, what do they have to show for it? How has lending improved?

"Are they giving loans just to extremely credit-worthy people? Subprime borrowers? Are minorities able to secure loans?" asked Jennings.

Besides "is it working," Treasury also won't answer how taxpayers' investments are faring, declining to make public the fair market value for the shares and warrants it holds as a result of TARP. Taxpayers won't have any way of knowing whether they have lost or gained money on their investments in companies like General Motors, AIG (AIG, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) until after the government sells its stakes.

Digging into stimulus. The accounting of stimulus has been met with less scrutiny, mostly because Congress made it a point to track how every dollar was spent after struggling to get the same information from the TARP program.

Still, the government's accounting only goes as far as the first tier recipients from the states. For example, say a construction company gets stimulus funds from the state of Nebraska. That company has to report the receipt of those funds to the government, but if they hire a dump truck company and an asphalt company to do the work, that doesn't get reported.

Why do we care? "It would enable the Obama administration to say there were X amount of businesses that benefited from a particular project, and the government could connect the dots if there is fraud, waste or abuse," said Jennings.

What can be done. Some argue open-source technology is the best solution for both the government and the public.

That is, use the Internet to provide all forms of government data in a very sortable, searchable database, said Clippinger. He argues that if all the data are in one place, with independent eyes looking at it, then the data couldn't be co-opted, or selectively made available.

"When you get lots of people looking at it, you'll create better accountability and efficiency," said Clippinger.

That idea is supported by House bill H.R. 1242, backed by Reps. Carolyn Maloney (D-N.Y.) and Peter King (R-N.Y.). The bill would take the reporting out Treasury's hands, and require the administration to send all data straight into a database.

It's similar to the model used by recovery.gov, which is run by the independent Recovery Accountability and Transparency Board (Recovery Board), not by the Obama administration, which runs financialstability.gov.

"We're fully aware of what our name is and what the public expects of us," said Ed Pound, a Recovery Board spokesman. "We're not going to fall into that trap of not sharing certain information."

In the end, experts say the Obama administration will have to find ways to make a greater amount of data even more accessible to achieve the transparency goals it set out for itself.

"There are other ways of skinning this cat," said Clippinger. 

Recess for Congress, relief for ObamaStimulus funds to help VW plant in Tennessee

Foreclosure plague: No cure yet

NEW YORK (CNNMoney.com) -- The foreclosure plague continued to devastate last month.

There were more than 360,000 properties with foreclosure filings -- including default notices, scheduled auctions and bank repossessions -- an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. In fact, one in every 355 U.S. homes had at least one filing during July.

"July marks the third time in the last five months where we've seen a new record set for foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac. "Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions."

The jump occurred as several foreclosure moratoriums phased out. They were initiated by many states to give the administration's foreclosure-prevention efforts time to work. But for many help did not come: The modification and refinancing programs have met with less success than hoped.

"It's starting to reach more and more people, but we have to do better and make sure the program reaches the millions of folks we intended it to reach," said Jared Bernstein, an economics adviser to vice president Biden.

The picture would be even worse, however, without the programs.

"Each of these programs nips away at the problem of excess supply," said Doug Duncan, cheif economist for Fannie Mae, "and fights against declining prices. ... The hope is that the aggregated programs will result in less loss than would happen in the free market."

Out of their homes

RealtyTrac statistics revealed that more than 87,000 properties were repossessed by lenders, effectively sending many families out of their homes. There have been a total of 464,058 repossessions -- or REOs in industry parlance -- so far this year (through the end of July).

"We're seeing more option ARM resets, triggering defaults and more prime loans, which are failing due to job losses," said RealtyTrac spokesman Rick Sharga.

That is resulting in more filings on higher priced homes, for two reasons: 1. option ARMs were typically used for more expensive properties; 2. borrowers using prime loans generally had better credit and were able to afford more expensive houses.

Best and worst

The worst hit areas continue to be in the "sand states," with California posting the highest number of total filings, 108,104, and Nevada posting the highest rate of foreclosure at one for every 56 homes.

The other hardest hit states are Arizona, at one filing for every 135 homes, and Florida, at one for every 154. Las Vegas, with one for every 47 homes, had the highest rate among metro areas. That's Sin City's 31st consecutive month topping the list.

These were bubble states, where home prices soared and banks financed mortgages for anyone who could fog a mirror.

"We're seeing the highest levels of foreclosures in the markets that had the highest appreciation [during the boom] and the worst lending practices," said Sharga.  

1.5 million homes in foreclosurePsychiatric Solutions selling business unit for $70 million

U.S. budget deficit grows $180 billion in July

WASHINGTON (Reuters) -- The U.S. government posted a $180.68 billion budget deficit for July, a record for the month, as outlays rose to a record level to fight a recession that continued to wither tax revenues.

The July budget gap was the 10th consecutive monthly deficit and brought the fiscal year-to-date deficit to $1.267 trillion, more than triple the deficit for the same period a year ago. 

Consumer prices rise 0.7% in JuneRetail sales dip 0.1 percent in July

Fed not ready to use other R-word: Recovery

NEW YORK (CNNMoney.com) -- Suddenly, it seems, economists everywhere are starting to talk about the end of the recession.

But don't expect the economists at the Federal Reserve to join in that bullish banter when they issue their statement Wednesday at the end of their two-day policy meeting.

"I think we're arriving at the turn," said Mark Zandi, chief economist at Moody's Economy.com. "I think we'll reach it this month, maybe September, but we'll look back and say this is the quarter the recession ended."

But Zandi and other Fed watchers say that central bank policymakers are likely to stay with far more general language about expecting modest growth to return sometime in the second half of this year.

The central bank's policymakers also are virtually certain to leave the key interest rate near zero.

They also are unlikely to give many details about when or how it will start to pull back the roughly $1 trillion expansion of the Fed's balance sheet that it has used to pump money into the economy over the last year.

"I think they're going to be a little more optimistic, but not get too carried away by it," said David Wyss, chief economist for Standard & Poor's. "These are central bankers and they tend to be pessimistic by nature."

"You pull stimulus back when you see all four wheels rolling at the same time," said Kevin Giddis, managing director of fixed income at Morgan Keegan. "We still have something of a traction problem. For the Fed to declare 'game over' is way premature."

0:00/4:08The Fed's balancing act

Other economists say that even though recent economic readings, such as slowing job losses and rising home prices, have been encouraging, it could cause problems for the Fed be too optimistic in its outlook.

Investors and economists would take that as a sign that higher rates are just around the corner.

That belief in itself could cause the rates on Treasurys to rise.

Inflation risk

"That would slow the recovery, not accelerate it," said Lyle Gramley, a former Fed governor and now senior economic adviser for Soleil Securities. "They have to acknowledge it's doing better and turned the corner. But their expectation is for a very mod

However, if the Fed is behind the curve in recognizing the recovery, all the money it has pumped into the economy, along with the low interest rates, can themselves cause problems, such as inflation.

The $1 trillion expansion of Fed activity has included some extraordinary steps.

They include buying Treasurys, mortgage-backed securities and the debt of Fannie Mae and Freddie Mac.

The Fed also expanded its loans, moving beyond the loans to commercial banks to also lend to Wall Street firms.

And it helped finance the operations of major corporations through the purchases of commercial paper. It has also loaned money to firms so they could make auto and other consumer loans.

Fed Chairman Ben Bernanke has insisted the central bank will be able to unwind its position when the time comes. But inflation hawks would like more of a timetable, fearing that maintaining the current activity too long could cause prices to soar down the road.

Wyss said Wednesday's statement could give hints about such an unwinding, but only in the most indirect way.

"They'll have some stuff about credit markets returning to more normal conditions, and perhaps something in there about a gradual unwinding of the special facilities. But there will be no promises or details," said Wyss.

Wyss said the recovery will be in a very fragile state at the start, and that the Fed therefore has to be careful not to get ahead of itself, especially since inflation remains in check.

"Things are looking good now, but we thought they were looking good last summer, too," he said. 

Small Wyoming bank failsRetail sales dip 0.1 percent in July

Hired! Coming out of retirement at 65

NEW YORK (CNNMoney.com) -- Forget lazy days rocking on a creaky porch swing, these days working is the new retirement.

Last year's severe market losses left many once-healthy retirement accounts depleted, forcing many seniors to put their retirement plans on hold and head back to work.

There were 450,000 people age 65 and over actively looking for work in July, a whopping 60% increase from a year ago, according to the Bureau of Labor Statistics.

Boyd Barger was one of them --until just recently when he found a job. After a long career in the Air Force, Barger climbed the corporate ladder to senior management at the Dept. of Labor's Job Corps program. He retired three years ago.

Barger opened a small arts and antiques business out of his home to supplement his retirement plans.

"The first year was OK," he said, "but then the economy turned."

Like many small businesses, sales grew sluggish as the recession took hold. That's when, in April, Barger, 65, decided he needed to go back to work.

0:00/4:33Boomers unprepared for retirement

But getting back in the game wasn't easy. "I found that when I went back and read my old résumés they were not really focused on today's employers' needs," he said.

So Barger got up to speed on the current job market by networking with old friends and Air Forcebuddies, researching tips on how to update his résumé, watching webinars and online videos related to his job search and learning today's computer requirements.

Barger got a lead on an opening in his area when a former colleague told him about a position at Serco North America as an Army OneSource community support coordinator, providing support and access to services, such as day care and health care, for soldiers and their families.

Barger applied online and heard back within a week. After a series of interviews he was hired and started in June.

According to Barger's supervisor, Johannes Graefe, age was never an issue.

"What stood out to me was what Boyd did in the Air Force, working with individuals and spouses and how well spoken he is," he said.

Graefe said he interviewed several other candidates for the position, but "you have to have it in your heart and Boyd has that."

Getting back in the game

Workers forced to delay retirement and reenter the workforce will find that today's job market bears little resemblance to those found 40, 30, 20 and even 10 years ago, according to Bob Skladany, chief career coach at RetirementJobs.com.

"Mailed, hard copy résumés and walk-in applications have given way to Internet-based job listings and interactive, online applications. Yesterday's job searching techniques and skills are generally not effective today and new skills are required, particularly for workers in their 60s, 70s and 80s," Skladany said.

Skladany recommends that job seekers first update and rejuvenate their résumé, get up to speed on basic computer skills, such as word processing and e-mail, join social networks and be easily accessible by cell phone and e-mail.

For mature workers with previous military experience, like Barger, there are also many advantages that often go unnoted, according to John O'Connor, president and CEO of Career Pro Inc. in Raleigh, N.C., which specializes in helping military personnel transition into the workforce.

In addition to an extremely vast and valuable network, there are also often many technological, logistical and coordination skills obtained in the military that can translate to today's job market, he said.

"There's so much coordination that needs to be done, working with inside and outside vendors. That could be the same thing that a manufacturer or distributor does."

"It may be called something different," O'Connor said, but that's just "the semantics of it."

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Job GrowthUnemployed short on opportunities, benefits

Hunger hits Detroit's middle class

DETROIT (CNNMoney.com) -- On a side street in an old industrial neighborhood, a delivery man stacks a dolly of goods outside a store. Ten feet away stands another man clad in military fatigues, combat boots and what appears to be a flak jacket. He looks straight out of Baghdad. But this isn't Iraq. It's southeast Detroit, and he's there to guard the groceries.

"No pictures, put the camera down," he yells. My companion and I, on a tour of how people in this city are using urban farms to grow their own food, speed off.

In this recession-racked town, the lack of food is a serious problem. It's a theme that comes up again and again in conversations in Detroit. There isn't a single major chain supermarket in the city, forcing residents to buy food from corner stores. Often less healthy and more expensive food.

As the area's economy worsens --unemployment was over 16% in July -- food stamp applications and pantry visits have surged.

Detroiters have responded to this crisis. Huge amounts of vacant land has led to a resurgence in urban farming. Volunteers at local food pantries have also increased.

But the food crunch is intensifying, and spreading to people not used to dealing with hunger. As middle class workers lose their jobs, the same folks that used to donate to soup kitchens and pantries have become their fastest growing set of recipients.

"We've seen about a third more people than before," said Jean Hagopian, a volunteer at the New Life food pantry, part of the New Life Assembly of God church in Roseville, a suburb some 20 miles northeast of Detroit. Hagopian said many of the new people seeking assistance are men, former breadwinners now in desperate need of a food basket.

Hagopian is an 83-year old retired school teacher. She works at the pantry four days a week, spending two of those days driving her own minivan around town collecting food from local distributors.

The pantry, housed in the church basement, gives away boxes of food that might feed a family of four for a week. It includes dry and packaged goods like cereals and pasta, peanut butter, canned fruits and vegetables, 7 or 8 pounds of frozen meat (usually chicken or hot dogs), and eight pan pizzas donated from a local Pizza Hut. Most of the other food is purchased from a distributor or donated by the county food program. Last month they gave out 519 boxes.

Hagopian hopes the demand for food doesn't get much worse.

"I hope we're at the top of it because we'll run out of food, and then we'll have to go out and find some more," she said.

She should brace for the worst. Across metro Detroit, social service agencies are reporting a huge spike in demand for food assistance.

Gleaners, an agency that distributes excess food donated from food processors, says their distribution is up 18% from last year. Michigan Department of Human Services, which handles federal food assistance like food stamps, WIC checks and such, has seen a 14% spike in applications since October. Calls to the United Way's help line have tripled in the last year.

"Given the resources, we could double our numbers," said Frank Kubik, food program manager for Focus:Hope, a Detroit aid organization that fed 41,000 mostly elderly people last year. Kubik said his program is restricted by charter and budget from serving more than its current number of clients. But if that were changed, he could certainly serve up more meals.

"There's no doubt about it, there's just so many out there that are really struggling right now," he said.

The changing face of hunger

There have been plenty of people struggling in Detroit for a long time. What makes this recession different is the type of people coming in. It's no longer just the homeless, or the really poor.

Now it's middle class folks who lost their $60,000-a-year auto job, or home owners who got caught on the wrong side of the real estate bubble.

Many of these people have never navigated the public assistance bureaucracy before, and that makes getting aid to them a challenge.

"They have no idea where the DHS office is," said DeWayne Wells, president of Gleaners, the food distributor.

To assist these newly hungry, Wells pointed to the United Way's 211 program, where people can call the hotline and speak to an operator that guides them through a wide range of available social services.

The Michigan Department of Human Services is going digital, rolling out a program where people can apply for food stamps via the Web.

That may help ease another challenge in getting aid to the middle class: pride. Many people feel so bad about having to ask for help that they just don't, or they have issues with it once they do.

"They'll say things like 'I've never had to do this before' and they feel a little uncomfortable," said Hagopian, the retired school teacher. But she says times have changed, the good union jobs are disappearing and it's harder and harder to find work.

"I just tell them society is not what it used to be," she said.

Detroit responds

Actually running out of food doesn't seem to be a problem, so far. In fact, because more people are being affected the response seems to be greater.

"A few years ago it was someone you saw a profile of on TV," said Wells. "Now it's your brother in-law, or the people your kid plays soccer with."

Wells said volunteers are up at Gleaners, as is general community awareness.

The Feds have helped too. Food stamp allowances were increased 14% nationwide under the stimulus plan.

Detroiters are also helping themselves in smaller ways. Thanks to the dearth of big supermarkets in Detroit proper - a phenomenon largely attributed to lack of people - and plenty of vacant land, community gardening has caught on big.

0:00/2:22Can farming save Detroit?

It's not so much that these gardens are going to feed the city, although they certainly help. It's more that they can be used to teach people, especially children, the value of eating right.

"I use vegetables every day," said one child at an after school gardening program run by Earthworks Urban Farm, near the heart of the city. "Last night, an onion I picked from here, I had in my potatoes."

Hearing that is good news to people like Dan Carmody, president of Eastern Market Corp., a century-old public market selling fresh produce and other foodstuffs near downtown Detroit.

Carmody is part of a group of people trying to bring healthy food to town. The efforts include setting up mobile produce stands around the city, working with convenience store owns to stock better produce, and trying to set up a program that allows food stamp recipients to spend twice as much money if they buy from a local farmer.

He says the food situation in Detroit is particularly depressing because the surrounding areas are chock full with some of the best eats around: Michigan grows some of the most varied crops in the nation, everything from apples and cantaloupes to peaches and watermelon. Windsor, just across the bridge, is the hydroponics capital of Canada. Artisan Amish farms are also close by in Ohio and Pennsylvania.

Getting this food to Detroit, and getting Detroiters to buy it is the challenge. That's where the urban farms come in.

"Once kids start seeing where their food comes from," he said, "it changes the whole approach to how they eat."  

Two tax plans would take a big bite from the richHouse OKs $2 billion more for Clunker program

Initial claims drop in latest week

NEW YORK (CNNMoney.com) -- The number of Americans filing first time claims for unemployment benefits fell last week, while the number of people requesting ongoing benefits rose, the government said Thursday.

There were 550,000 initial jobless claims filed in the week ended Aug. 1, down 38,000 from an upwardly-revised 588,000 the previous week, according to the Labor Department's weekly report.

The total was smaller than the 580,000 new claims economists surveyed by Briefing.com had forecast.

The number of initial jobless claims filed in recent weeks had been distorted by seasonal adjustments related to plant closures in the auto industry, which occurred earlier this year. But a Labor Department official said this seasonal volatility had "run its course."

The report suggests that the pace of the decline in the labor market is slowing. But many economists warn that it's too soon to say the nation's job woes are over.

"The numbers are volatile even when the trend is clear," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research report. "We need to see several more weeks at this level to confirm a real shift."

Still, last week's tally "certainly looks good" compared to previous weeks, Shepherdson said.

The four-week moving average of initial claims, which smoothes out volatility in the measure, was 555,250. That's a decrease of 4,750 from the previous week's revised average of 560,000. The average has declined for six weeks in a row.

The government also said 6,310,000 people filed continuing claims in the week ended July 25, the most recent data available. That's up 69,000 from the preceding week'srevised 6,241,000 claims.

The four-week moving average of continuing claims fell 148,500 to 6,278,750.

Thursday's report came a day before the government's closely watched monthly jobs report.

The Labor Department report is expected to show that the economy shed 328,000 jobs in July, less than the 467,000 reported for June. The unemployment rate is predicted to rise to 9.6% from 9.5%. 

Job GrowthMortgage rates climb after falling for 3 weeks

Manufacturing (ISM)

NEW YORK (CNNMoney.com) -- Manufacturing activity rose significantly in July, suggesting that while the sector remains in contraction, there's a possibility of growth in the current quarter, a purchasing managers' group said Monday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index reading of 48.9 beat estimates from economists, who expected a jump to 46.5 from June's 44.8, according to a Briefing.com consensus survey.

July's report marks the 18th straight month of contraction in the sector. Still, ISM signaled cautious optimism.

"Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggest we will see growth in the third quarter if the trends continue," the report said.

The month-to-month improvement indicates that the rate of contraction has slowed, but not reversed. Manufacturing is a key gauge of the strength of the overall economy.

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing sector. Index readings above 50 signal growth, while levels below 50 indicate contraction. Readings below 41.2 are associated with a recession in the broader economy.

"Even though the index is still in contraction, it's above that recession threshold," said Sam Bullard, economist at Wachovia. "These numbers are stronger, and definitely significant."

The data track new orders, production, employment, supplier deliveries, inventories, customers' inventories, backlog of orders, prices, new export orders, imports and buying policy.

Of the 18 manufacturing sectors, six reported growth -- including categories such as transportation equipment, appliances and paper products. The 11 that reported contraction included machinery and food.

New orders snap decline: The key new orders component jumped to 55.3 in July, from 49.2. New orders are an indicator of manufacturing activity in the near future.

The rise in new orders broke nine straight months of decline, and"it's encouraging to see that index jump above the expansion mark," Bullard said.

Employment: The employment component rose to 45.6 in July, up 4.9 points from the previous month.

Despite the index's increase, it marks the 12th consecutive month of decline in employment. Consistent readings above 49.7 are generally tied to an increase in government data on manufacturing employment, the report said.  

Manufacturing (ISM)Unemployed short on opportunities, benefits