news.notes20090523a

[Biography of the Day] from [Britannica]

Saturday, May 23, 2009
Captain Kidd
Captain Kidd, a British privateer and semilegendary pirate celebrated in literature as one of the most colourful outlaws of all time, was hanged in London this day in 1701 after being found guilty of murder and piracy.

[On This Day] from [Britannica]

Saturday, May 23, 2009
1951: Tibet annexed by China
China formally annexed Tibet as an autonomous region on this day in 1951, giving rise to a Tibetan independence movement—led by the Dalai Lama, winner of the 1989 Nobel Peace Prize—that continued into the early 21st century.

[TODAY'S TOP STORIES] from [The Japan Times]

[NATIONAL NEWS]
Saturday, May 23, 2009
Flu policy given more flexibility
Containment measures will vary based on infection rate

By NATSUKO FUKUE
Staff writer

The government adopted a new policy Friday that designates infected regions under one of two categories so local governments, hospitals and schools can react with greater flexibility.

The policy, which includes ending onboard quarantine checks on airplanes, is aimed at minimizing the impact of the state's flu response on businesses and daily life, since the symptoms of the H1N1 virus have been relatively mild.

Until now, Japan's flu protocol was based on an outbreak of the more powerful H5N1 bird flu, which is estimated to have a 60 percent mortality rate. The policy required that countermeasures be uniformly applied to all infected areas.

Under the new policy, however, infected areas will be categorized according to the number of patients.

The first category is for areas where the infection is in its early stage and there are only a few patients. The second is for areas where cases are rapidly increasing.

To keep the infection rate down, all H1N1 flu patients in first-category areas will be hospitalized, and the national government will request that all schools except universities be closed. Depending on how serious the situation is, a prefecture-wide school closure could be ordered.

In second-category areas, where the flu is already widespread, each school principal will make the call on whether to suspend classes. Patients with mild symptoms may be asked to stay home so hospitals can put more priority on those with chronic diseases, such as diabetes or asthma, who are more at risk of developing serious complications from the virus.

The new policy also ends the onboard quarantine checks that were being conducted at the nation's three major international airports.

"I really appreciate (the new policy) because it fits the reality facing local governments," Osaka Gov. Toru Hashimoto said.

Under the previous policy, municipal governments were required to put patients into designated hospitals regardless of the severity of their symptoms, straining resources in Hyogo and Osaka prefectures, where infections ballooned over a short period of time.

"It is important for local municipalities to take a flexible approach (to containing the flu) in accordance with circumstances specific (to each region)," Prime Minister Taro Aso told his Cabinet at a meeting in his office, where the new policy was approved.

Prefectural governments and major cities with public health offices, in consultation with the national government, will decide which category to assign each area.

According to the Health, Labor and Welfare Ministry, the policy change puts more emphasis on preventing further infections and on helping people with chronic diseases who have the flu get treatment.

"This of course doesn't mean that it's OK for healthy people to be infected. But it's good to prioritize people at higher risk," said Nobuhiko Okabe, director of the Infectious Disease Surveillance Center at the National Institute of Infectious Diseases.

Okabe also said that people with chronic diseases should be aware that keeping their health problems under control will help mitigate the impact of contracting swine flu.

The Hyogo Prefecture Government decided to reopen on Saturday all public schools in the prefecture and elementary and junior high schools in Kobe.

Before the new policy was adopted, more than 4,000 schools in Hyogo and Osaka prefectures were closed due to the significant number of teenagers with the new flu.

On Thursday, a Korean man who arrived at Narita airport from Chicago tested positive for the new flu, and 11 people who had close contact with him were quarantined at a hotel near the airport. Because of the policy change, they were released Friday morning.

Meanwhile, in western Tokyo, a man in his 20s tested positive for H1N1 on Friday, becoming the third case in the capital, the metropolitan government said. The man, a resident of Mitaka, recently visited Osaka Prefecture, it said.

Neighboring Saitama Prefecture also reported its first swine flu case — a 29-year-old Japanese man — and said another person was being tested.

Growing infections in western Japan had brought the nationwide total to 317 as of Friday evening.


[BUSINESS NEWS]
Saturday, May 23, 2009
BOJ sees recession starting to level out

(Bloomberg) The Bank of Japan on Friday raised its view of the economy for the first time in almost three years on signs that the record-setting contraction suffered in the first quarter was probably the worst of the recession.

"Economic conditions have been deteriorating, but exports and production are beginning to level out," the central bank said in a statement in Tokyo Friday. Previously it said the world's second-largest economy had "deteriorated significantly."

It also decided to accept foreign currency-denominated sovereign bonds as collateral to make it easier for lenders to get cash.

The first upgrade in the BOJ's economic assessment since July 2006 indicates BOJ Gov. Masaaki Shirakawa and his board might be reluctant to expand the program for buying corporate and government debt, even as deflation looms.

"The upgrade of the economic assessment simply came as an endorsement to the recent set of data which had already signaled signs of a bottoming out," said Izuru Kato, chief economist at Totan Research Institute Ltd. Adding foreign currency-denominated debt as collateral should be taken as "one of many other tools for a rainy day," Kato said.

The central bank said "the pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy."

Industrial production and exports began to stabilize at the end of the first quarter, when gross domestic product shrank an annualized 15.2 percent, the steepest decline since records began in 1955.

"It looks like we're coming out of the free-fall stage," Shirakawa said at a news conference. He said that GDP this quarter will be "significantly better" than the 15.2 percent annualized plunge in the first three months, which is the worst since records began in 1955.

Board members are mindful of the risks to growth, and spending by companies and consumers "will remain weak," the governor added. The BOJ said "the pace of deterioration in economic conditions is likely to moderate gradually."

The policy board unanimously voted to keep the benchmark overnight lending rate at 0.1 percent Friday. Since cutting the rate in December, it has begun buying commercial paper and corporate bonds from lenders, helping to ease a funding squeeze for companies.

"Financial conditions have remained tight, although there has been some easing of tension compared to some time ago," the central bank said. It will accept bonds issued by the U.S., U.K., Germany and France in exchange for loans to lenders as part of a program to keep credit flowing in the economy.

The central bank's assessment improved even as prospects for a global recovery darken.

The U.K. had the outlook on its AAA debt rating cut by Standard & Poor's Thursday, and Treasury yields rose on speculation that the AAA rating of the United States may also be under threat. Treasury Secretary Timothy Geithner committed to cutting the budget deficit.

Finance Minister Kaoru Yosano said this week that the GDP report signaled the "worst may be over, but efforts still need to be made to put the economy on an upward trend."

Japan still faces hurdles, including a swine flu outbreak and gains in the yen that threaten to exacerbate exporters' losses. The currency has surged 4.7 percent against the dollar this month and Friday climbed to the highest since March 19.

"Japan's economy will probably return to a cyclical expansionary path later this year," said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. "But it will be an L-shaped recovery rather than a full-fledged one" as spending by consumers and businesses falters, he said.

news.notes20090523b

[TODAY'S TOP STORIES] from [The Japan Times]

[BUSINESS NEWS]
Saturday, May 23, 2009
U.S. may loan Nissan \100 billion

(Kyodo News) Nissan Motor Co. is likely to receive more than \100 billion in low-interest loans set up by the U.S. government to promote the development of and transition to electric vehicles and other fuel-efficient cars, sources said Friday.

Nissan is the first foreign automaker that is close to winning approval for the direct loans, which would enable Japan's third-largest automaker to research the production of zero-emission electric vehicles in the United States.

Left out of the fierce competition between Toyota Motor Corp. and Honda Motor Co. over low-priced hybrids, Nissan apparently hopes to boost its green-car technology with financial support from the U.S. government.

In a stark departure from George W. Bush's policies, President Barack Obama has advocated a Green New Deal that calls for shoring up the economy and creating jobs through heavy investment in environmental technologies.

To qualify for the loans, foreign companies need to cooperate with the U.S. government to accelerate the development and spread of green technology, the sources said.

Access to the U.S. loans is likely to alter Nissan's global production plans for electric vehicles.

Nissan plans to roll out an electric vehicle in both Japan and the U.S. in fiscal 2010 and has already decided to make the model at its plant in Yokosuka, Kanagawa Prefecture.

The company is also studying producing electric vehicles locally in China, where it hopes to begin selling the cars by the beginning of 2011.

The U.S. government has set aside $25 billion (about \2.35 trillion) in direct loans from its greening program to support advances in fuel economy and the establishment of manufacturing facilities in the U.S. for green cars.


[BUSINESS NEWS]
Saturday, May 23, 2009
Prices drop for European cars

(Kyodo News) Japanese importers of European vehicles have started discount campaigns to spark demand for high-priced cars amid the deepening recession, industry officials said.

The campaigns are targeting fuel-efficient models because the government plans to offer subsidies to promote sales of environmentally friendly cars, they said.

Audi Japan K.K. launched a campaign last week offering a \250,000 discount when Audi owners agree to switch to other models designated by the German automaker.

The discount corresponds to Japan's subsidy program, which will offer \250,000 to drivers who agree to scrap cars registered at least 13 years ago and switch to fuel-efficient vehicles, such as hybrid and electric-powered cars. The subsidy will be retroactive to April 10.

Because the subsidy program will cover fewer imported models than Japanese vehicles, Audi Japan hopes to stimulate demand with the discount campaign, which is valid from May 15 through June 30 and includes cars registered less than 13 years ago.

Buyers of Audis that are eligible under both programs will receive an effective price cut of \500,000.

BMW Japan Corp. is providing similar price cuts for five models in the Mini family during its campaign from May 1 to June 30.

Saturday, May 23, 2009
No plans to weaken yen's surge: Yosano

(Kyodo News) Finance Minister Kaoru Yosano said Friday that there are no plans to intervene in the currency market to respond to the recent rise in the yen.

"At this point, the government is not thinking at all about intervening in the foreign-exchange market" to try to stem the yen's strength, said Yosano, who is triple-hitting as the financial services and the economy and fiscal policy ministers, at a regular news conference. He said the government has not yet thoroughly analyzed the major factors behind the yen's appreciation.

In New York at one point Thursday, the yen rose to as high as \93.96 to the dollar, its highest since mid-March.

After Yosano's remarks Friday, the yen strengthened against the dollar in Tokyo and moved into the \93 range for the first time since February.

Yosano also said a government-proposed plan to use taxpayers' money to buy equities from the market in the event a free-fall takes place in stock prices is losing momentum because the Nikkei stock average has recovered to the 9,000 level.

Earlier this year, the Liberal Democratic Party-New Komeito ruling coalition submitted a bill on ensuring the security of the stock market to the Diet.

Asked about the growing H1N1 flu outbreak, Yosano said the government must work closely with local authorities to minimize the impact on the economy and the public.


[BUSINESS NEWS]
Saturday, May 23, 2009
Flu virus starts to take toll on businesses
Travel industry seen facing biggest risk

By HIROKO NAKATA and TAKAHIRO FUKADA
Staff writers

The spreading H1N1 swine flu virus is having an ill effect on a wide range of businesses from tourism to retailing, particularly in the western regions where the outbreak was first detected, industry sources said Friday.

Economists bemoaned the timing of the outbreak, fearing its impact on an already weakened economy.

The outbreak "could pour cold water on the Japanese economy at a time when it just started to bottom out and was about to recover," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute Inc.

The share prices of sports event organizers, amusement park and theater operators, airline and railway companies, tourist agencies and retailers, among others, are already sliding, he noted.

On the other hand, pharmaceutical firms and mask makers have benefited, he said.

Nagahama likened the situation to the SARS (severe acute respiratory syndrome) scare in 2003. The chilling effect of a strong yen and relatively cold summer forced the government to retract an optimistic declaration that the sluggish economy had bottomed out and better days lay ahead.

"This time, too, I am worried that the same will occur because of the strong yen and the influenza," Nagahama said.

Many group tours and conferences have been canceled. Normally the season for school trips, many high school and junior high school students will instead be forced to stay put this year.

The Japanese Society of Anesthesiologists said it has decided to postpone its conference originally set for Friday to Sunday at a hotel in Kobe.

According to the hotel and the society, about 80 percent of the country's anesthesiologists, or about 12,000 people, were to participate in the three-day conference.

The impact on the hotel business in western Japan is huge, said Hiroshi Dan, the secretary general of the Japan Ryokan Association's Kinki branch.

Dan said Friday that 195 "ryokan," or Japanese-style hotels, in the region lost 362,200 customers through cancellations from May 17 to May 19, amounting to a loss of \4.3 billion.

Cancellations of school trips cost Kyoto and Nara 150,000 and 30,000 visitors, respectively, during this high season for excursions to the historic cities.

"It hurts a lot because it's one of the peak times for school trips, especially to Kyoto and Nara," Dan said.

"Not only our region but the industry as a whole would be damaged" if schools in the Kansai region are forbidden from going on excursions elsewhere, he said.

Struck as well by a falloff in foreign tourism, the association's Kinki branch on Friday asked the government for emergency funds, he said.

As the virus spreads from west to east, travel agency JTB Corp. reported that the rate of package tour cancellations from the Kanto region to Kansai rose to an above-average 4 percent between May 16 and May 18.

"If the situation continues, it will have an impact on our earnings," said JTB spokesman Yasoji Kato.

"It is not clear how long the epidemic will continue, but I hope things will stabilize as soon as possible," he said.

Some tottering companies have even collapsed.

Osaka-based toy retailer Iseya and its affiliate began bankruptcy proceedings at the Osaka District Court, private credit research agency Teikoku Databank said Thursday.

With about \290 million in outstanding debts, it is the first bankruptcy case linked to the influenza in Japan.

Teikoku blamed the collapse on sluggish sales at Kansai and Itami international airports — both in the Osaka area — and at Narita International Airport near Tokyo, as travelers decline.


However, economists such as Koichi Haji, chief economist at NLI Research Institute, downplayed the impact on the economy thus far.

"Unless the outbreak is truly widespread, it will not have a large impact on the economy," Haji said, suggesting the latest H1N1 swine flu is basically similar to the seasonal flu and that the fatality threat posed cannot be compared with that of SARS.

On the other hand, he warned that if the outbreak lasts through the fall, as more people get infected, the sick time they take will weigh on businesses.

news.notes20090523c

[Business on Today's Paper] from [Los Angeles Times]

California unemployment drops slightly in April
The state lost 63,700 jobs even though the jobless rate fell to 11% from March's 11.2%. Cuts by state and local governments loom, and new graduates are scrambling.

By Marc Lifsher and Tiffany Hsu
May 23, 2009

Reporting from Los Angeles and Sacramento Tiffany Hsu -- California's unemployment picture improved slightly in April, but a bit of good news brought little cheer to the thousands of college and high school graduates flooding into the worst job market in decades.

Although the often volatile unemployment rate dropped to 11% from March's 11.2%, the Golden State still lost 63,700 jobs during the month. The number of people seeking work has swelled by 842,800 from a year ago, the state Employment Development Department reported Friday.

Economists predict that jobs will continue to disappear for at least the rest of the year. "The unemployment rate will creep up," said Esmael Adibi, an economist at Chapman University in Orange. "During the summer months, there is a jump in the labor force mainly because of new college graduates or students seeking temporary positions. Clearly, there would not be that many jobs."

The grim job market -- the worst in almost half a century -- has put a damper on the graduation season celebrations of students such as UCLA English major Rachel Beezy.

"I'm doing my very best to stay optimistic, but I'm in the same boat as everyone else," Beezy said. "It's a horrible time to graduate."

Before the recession sank its claws in her dreams, the 28-year-old Van Nuys resident hoped to make a career in film production.

So far, she's sent out 20 resumes without getting a concrete response.

Now, Beezy said, she'd be willing to go back to the retail management job she held before college. Even a $10-an-hour internship would sound attractive.

Campus career center directors and recruiters agree that they've never seen competition as tough as it is this spring.

"It's unprecedented. We see fewer and fewer firms coming to hire graduating students," said Gary Greener, associate dean for career services at Southwestern School of Law in Los Angeles.

In a normal year about 600 employers come to interview juniors and seniors at USC, said Eileen Kohan, who runs the Career Planning and Placement Center, but recruiting efforts are down about 30%.

"Every firm that has laid off people in the past year didn't come," she said. "It's been an incredibly difficult year."

State data bear out Kohan's observations. In March, nearly one in seven job seekers between the ages of 20 and 24 -- many of whom are high school and college graduates -- were unemployed.

That's up 40% from a year earlier, and unemployment among people of all ages with bachelor's or advanced degrees increased by 50%.

The outlook is even worse for teenagers graduating with high school or general educational development diplomas. Unemployment among 16- to 19-year-olds hit 26.2% in March, up from 18.7% a year earlier.

Landing a good job, though more challenging than in recent years, is not impossible, experts point out. At Pepperdine University in Malibu, 35% of graduates already have found jobs.

That is below last year's 40% figure but well above the national average of 20%. And four out of five graduates who were hired managed to find work in fields related to their major.

Graduates still can find opportunities in healthcare, technical and engineering fields, said John A. Challenger, chief executive of the Chicago outplacement firm Challenger, Gray & Christmas Inc.

But new college graduates must compete against both their classmates and other young workers who have been laid off recently.

"Everyone sees the level of competition increased," said Adeola Ogunwole, a spokeswoman for CollegeGrad.com, a career placement website based in Foster City near San Francisco. "They're up against people who have one, two or three years' experience and lost their way in the economy."

Nevertheless, Ogunwole noted that many top employers, such as Verizon Wireless, Enterprise Rent-A-Car and the Internal Revenue Service, are hiring relatively large numbers of entry-level workers despite the recession.

Unfortunately, many of those jobs get snapped up almost as soon as they are posted, grumbled Christopher Johnson, 25, who earned his bachelor's degree in Spanish with honors last week from USC.

He'd like to get a job as a translator but meanwhile is working part-time in a $30-an-hour tutoring job and struggling to earn enough to pay rent on the apartment he shares with his new, just-graduated wife.

Johnson said he's quickly learning just how cloistered college life can be. "School pumps you up and gives you opportunities to shine in your GPA and extracurricular activities," he said, "but that world doesn't translate into the work environment."

The dearth of entry-level hires and the cold economics of the job market are stifling the motivation of new graduates to hunt for jobs, at least for the short term.

Some say they are considering applying to law school or other postgraduate programs. Others are taking short-term, unpaid internships in hopes of positioning themselves to get a salaried job once good times come back.

"There's more willingness to consider jobs that they probably would've turned their noses down in the past," said Barbara Hubert, director of Chapman University's Career Development Center.

Other students are taking more altruistic routes. Applications this year for the Teach for America program, which sends recent college graduates to teach at inner-city and rural schools, are up 42%. The Peace Corps got a 16% jump in applicants, the largest increase in five years.

Even work at nonprofit organizations is drying up as the groups' funding runs out, lamented Danielle Riffenburgh, 24, who graduated with a degree in psychology from San Diego State in December.

She hoped to snag a job at a drug rehabilitation center or a school for at-risk children.

Instead, she's working part-time as a hotel concierge and occasionally as a baby sitter.

"I knew it was going to be hard," she said, "but I didn't know it would be this hard . . . to be an adult and support yourself."

news.notes20090523d

[Business on Today's Paper] from [The New York Times]

Chrysler Dealers Make Case Against Closings

By NICK BUNKLEY
Published: May 22, 2009

DETROIT — The calls from Chrysler officials were coming nearly every day, sometimes several times a day, right through the final weeks before the company filed for bankruptcy. And the message, said Robert Archer, who runs three Chrysler dealerships in the Houston area, was simple: Take more cars.

“They tell me, ‘The only way that we can survive is if you order cars, and Fiat and the government see money coming in,’ ” Mr. Archer said.

He acquiesced, he said, thinking he was doing his part to save the company. “I’m a team player and I don’t want them to go out of business, so I ordered a ton of cars.”

Then, a week ago, Chrysler told Mr. Archer, a dealer for three decades, that his three stores were among the 789 dealerships the company was eliminating as of June 9. Mr. Archer had 700 new vehicles and $1.7 million in new parts in stock when the letters arrived.

Now, Mr. Archer is among 330 dealers, calling themselves the Committee of Chrysler Affected Dealers, who are contesting the company’s action. Next week and on June 3, the bankruptcy judge handling Chrysler’s case will consider their objections.

Many of those fighting the hardest are dealers who recently spent huge amounts of money to stay in the company’s good graces, who sacrificed their own profits to help keep the company intact or who otherwise thought they had bent over backward to ensure that Chrysler could survive, only to learn that they were the ones who would not.

“I’m mad at myself for being duped all these years by them and going along with all of the things they wanted me to do,” said Homer Cutrubus, a Chrysler dealer in Utah since 1969. “If I treated my customers like Chrysler treated me, I wouldn’t have any business.”

For years, Chrysler had been urging Mr. Cutrubus and other dealers to combine dealerships with just one or two of the company’s brands into “alpha” stores selling all three: Chrysler, Dodge and Jeep. It stepped up that pressure in February, he said, and in April he finally agreed to move his Dodge store in Layton, Utah, into a Chrysler-Jeep showroom half a mile away, even though he thought the change made little sense financially and had to be done at his own expense.

Included in the exhibits filed in bankruptcy court is an e-mail message from a Chrysler official in Denver to Mr. Cutrubus that said the company wanted to keep only one of the four area dealerships, preferably him. It concluded, “Are you our guy?”

“I called them the next day and said, ‘Yeah, we’ve got a deal,’ ” Mr. Cutrubus said. Six weeks later, after he already had spent $100,000 making the move, he got the letter cutting all his franchises.

Chrysler executives this week defended their decision to cut a quarter of its dealers and the process they used to determine which dealers should be eliminated. They said stores were evaluated on a number of factors, including sales, customer satisfaction, location and condition of the dealership.

If Chrysler does not streamline its operations and complete the proposed sale of its good assets to the Italian automaker Fiat, “the stark reality is all 3,181 dealers will face elimination,” Steven J. Landry, the company’s vice president of North American sales and marketing, said in a statement.

“It was not an easy decision to ask the court to reject a portion of our dealer contracts, but the reality is Chrysler’s viability depends on a vibrant, profitable dealer network,” Mr. Landry said. “As presently configured, Chrysler’s dealer network does not meet that test.”

Mr. Landry also argued that the company was “treating the rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, paying incentive and warranty payments due.” But many dealers disagree.

Chrysler is not buying back any inventory, including the vehicles and parts that dealers say they never wanted and bought only under pressure. And the entire process, which gives them only until June 9 to liquidate everything, is far from fair, they contend.

The company’s actions have bewildered William Coulter, a dealer in Phoenix. Several years ago, Mr. Coulter spent $2.7 million to buy out a competitor because Chrysler wanted him to sell all three of its brands. More recently, he paid $3.5 million for 12 acres of land in a more upscale, fast-growing suburb. Chrysler approved the relocation, but Mr. Coulter had to delay moving because the recession had cut deeply into sales.

“All the local people were telling us we had nothing to worry about,” he said. “We were pretty confident, having invested all this money. And after making all these investments, I don’t have a choice.”

Chrysler said 89 percent of the dealers being cut sell more used vehicles than new ones and are, therefore, expected to keep selling and servicing used vehicles. It said 44 percent of the dealers being cut also sell a competing manufacturer’s vehicles at the same store, something it does not like.

In Panama City, Fla., Buzz Leonard Chrysler Jeep used to also sell cars from Mazda and Mitsubishi. But the owner, Gerald Spitler, dropped the Mazda franchise a year ago and in February he paid $200,000 to give up Mitsubishi, even though it did decent sales, to show that he was fully committed to Chrysler. Right before Chrysler filed for bankruptcy, he said he tried to help the company by taking on 25 new vehicles, when he needed only 10.

“I was told several times that I was doing all the right things and that going forward I was going to be one of their guys,” Mr. Spitler said. “I thought I was right on track with them. I thought this was going to be fun.”

On May 14, Mr. Spitler learned that his efforts were wasted, while the Dodge dealer across the street, which also sells Lincoln, Mercury and Hyundai, would survive. Mr. Spitler plans to keep Buzz Leonard open to sell used vehicles, but he had to lay off 20 of his 45 employees. Banks that he has worked with to finance sales have dropped him because he no longer has a new-car franchise.

“It doesn’t make any sense,” he said. “You can’t expect us to unwind businesses we’ve had for years and years in weeks. They expect us to vanish.”

news.notes20090523e

[Business on Today's Paper] fom [The Washington Post]

Revealing the Hidden Cost Of Credit Cards

By Michelle Singletary
Sunday, May 24, 2009

Credit card users who crow that they're seldom charged interest on purchases because they pay their bills on time may not be able to crow much longer. President Obama is about to sign into law new restrictions on the credit card industry that lenders say may lead to the return of widespread annual fees.

Perhaps that's how it should be.

Wait, wait, hold your ire! Don't write me a nasty letter or e-mail just yet. Hear me out.

I know many of you feel entitled to use a credit card without any cost because you diligently and responsibly pay off the bill before the due date. But did you ever stop to think what that is?

You probably never considered that the credit pushers made your access to "free" money possible by gouging the less fortunate with hideous penalty fees and wicked double-digit interest rates. Effectively, the most financially vulnerable consumers have subsidized the low interest rates and rewards programs that the more financially secure enjoy.

I know what some of you may be thinking: "Good for me; too bad for them. That's how capitalism works."

Right you are. That is how capitalism works. And at times it's a selfish system.

We live in a society where many people who do well can't sympathize with those who don't. We've created a culture in which people live by "I pulled myself up by my own bootstraps" or "I got mine; it's up to you to get yours."

The recent push in Congress to halt some of the industry's most egregious practices was aimed at helping less-fortunate consumers buried under credit card debt. Certainly many lower- and middle-income people irresponsibly racked up unnecessary charges, but others resorted to credit to pay for medical expenses because they lacked health insurance. They were using credit to buy groceries or make needed car repairs so they could get to work.

Demos, a nonpartisan public policy research and advocacy group, took a look at which credit card users were the worst hit by credit card practices. In a report called "The Winners and Losers of Credit Card Deregulation," the organization pointed out that low-income and lower-middle-

income cardholders were about five times more likely than the wealthiest cardholders to pay more than 20 percent interest.

The Demos report separated credit card users into four categories:

-- Nonusers, who have credit cards but do not use them.

-- Convenience users, who accumulate balances each month but pay them in full without incurring interest charges or fees.

-- Revolvers, who accumulate balances each month without paying in full and as a result incur monthly interest charges.

-- Late payers, who miss deadlines or skip payments altogether, accumulating balances and incurring high interest charges and late fees.
The revolvers and late payers are the credit card industry's most lucrative customers. While I don't necessarily disagree with the idea that lenders should be allowed to charge more to customers who are higher credit risks, many of the fees and high interest rates imposed on such borrowers are predatory and unfairly deepen people's debts.

Now that Congress has sent Obama a bill intended to rein in unfair credit card practices, it won't be long before the industry responds with new or old ways to make up for lost revenue.

Already the language from the lenders is pitting so-called "good" credit card users against "riskier" ones.

"Those who have managed their credit well and currently have very good credit card deals will find that card companies are limited in their ability to distinguish between them and those that have credit problems," Edward L. Yingling, president and chief executive of the American Bankers Association, said in a brief written statement after the legislation passed. "The result will be some subsidy from those that manage their credit well to those that have problems, affecting negatively the terms the former will receive."

Yingling added that the "new rules will limit the ability of card companies to price according to risk."

No, they won't. There's nothing in the law to prevent the companies from charging higher interest rates to irresponsible or riskier borrowers. What the industry is lamenting is that they won't be able to continue gouging lower- to middle-income cardholders. It means these people won't be subsidizing convenience users.

This change won't be easy for some, as evident from the following comment I received from a reader during a recent online discussion. The person wrote: "I am fortunate enough to be able to pay off my credit card bills in full every month and on time. I am concerned that, with the new legislation, my American Express annual fees will go up and I will get asked to pay annual fees on the MasterCard and Visa, both of which are now free."

No, those cards were never free.

news.notes20090523f

[Today's Business Press] from [Slate Magazine]

Cars and Cards: The Lil' Guys Fight Back

By Sara Behunek
Posted Saturday, May 23, 2009 - 7:15am

The Wall Street Journal has the exclusive on a ban the Securities and Exchange Commission has enacted on trading securities
that are part of an investigation into potential insider trading violations involving two of the agency's enforcement lawyers. Bloomberg reports that General Motors (GM) has received $4 billion from Treasury ahead of the company's restructuring deadline, while the New York Times says some 330 Chrysler dealers have banded together under the moniker "the Committee of Chrysler Affected Dealers" to contest being shut down. The Journal and Bloomberg take a look at salary raises at Morgan Stanley (MS) and claw back provisions at UBS (UBS). The Washington Post outlines a credit card reform bill signed into law yesterday that prevents credit card companies from raising interest rates "arbitrarily" and charging certain fees, and CNNMoney reports that stocks slumped at the end of the week, as investors "went into a holiday weekend with lingering concerns about the economy."

The SEC, in addition to banning trading activity for companies under investigation as part of the insider-trading debacle reported a week ago by the paper, now requires staff members have their brokers turn in trading statements to be reviewed by the agency's ethics officers for accuracy, among other rules. The measures are intended to beef up the SEC's internal compliance, which is made up of ordinances the inspector general reviewing the case called "confusing and inadequate." The lawyers under investigation are Glenn Gentry and Nancy McGinley, two friends who "shared a ‘passion' for financial markets, and spent a good part of their work day emailing each other with stock ideas," the Journal writes. They haven't been charged with any crime.

GM had previously said it would need $2.6 billion to get through the month, so the additional $1.4 billion to make up the $4 billion loan taken out yesterday will be deducted from the $9 billion the automaker would receive after filing for bankruptcy, which it now says is probable. The Journal reports that the company also struck a tentative cost-cutting labor deal with the Canadian Auto Workers union, following tentative approval of new contract terms with the United Auto Workers union that would reduce labor expenses in the United States. "Still unresolved is GM's effort to swap equity for $27 billion in bondholder claims," Bloomberg says. Bondholders have until Tuesday to respond to a debt-for-equity swap offered by the company.


The Committee of Chrysler Affected Dealers is comprised of 330 of the 796 dealers Chrysler informed earlier this month it would no longer have a relationship with as of June 9. But the problem, highlighted by the NYT, is that "many of those fighting the hardest are dealers who recently spent huge amounts of money to stay in the company's good graces, who sacrificed their own profits to help keep the company intact or who otherwise thought they had bent over backward to ensure that Chrysler could survive, only to learn that they were the ones who would not." For instance, Robert Archer, a Houston dealer, continued to order more and more cars at the behest of Chyrsler as the company neared bankruptcy. So when he got the letter informing him his dealership would be shut down, he had 700 new vehicles and $1.7 million in new parts in stock.

Chrysler executives said they used a number of factors to determine which stores should shut down, including sales, customer satisfaction, location, and condition of the dealership. Defending the decision, Steven Landry, the company's vice president of North American sales and marketing said in a statement that if Chrysler did not streamline its operations and complete the deal with Italian automaker Fiat, "the stark reality is all 3,181 dealers will face elimination." And while the company will not be buying back any inventory, Landry said the company was "treating the rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, paying incentive and warranty payments due," according to the Times. Chrysler has also said 89 percent of the dealers being cut have historically sold more used vehicles than new ones and are expected to keep selling and servicing used vehicles. Forty-four percent of the dealers being cut also sell a competing manufacturer's cars at the same store, "something [the company] does not like."

Over at Morgan Stanley, the Journal reports that the base salary of certain executives is going up to make up for an expected dearth of bonuses. Co-Presidents James Gorman and Walid Chammah will increase by one-third to $800,000 a year, according to a securities filing. Chief Financial Officer Colm Kelleher, Chief Legal Officer Gary Lynch and Chief Administrative Officer Thomas Nides will get a base salary of $750,000 each. In fiscal 2008, Chammah, Kelleher, Lynch, and Nides had base salaries of $300,000 to $322,903. Gorman's base salary couldn't be learned. Chairman and Chief Executive John Mack's salary will remain unchanged at $800,000. The raises come as the government "pushes its own overhaul of compensation practices at banks and securities firms. Those companies got government assistance after investors lost confidence in their balance sheets, and are now facing tougher oversight aimed at curbing the sort of excessive risk-taking that helped cause the continuing financial crisis," the paper says.

Bloomberg adds that Morgan Stanley and UBS, which also raised bankers' base pay 50 percent, have added so-called "claw back provisions," which set aside a part of workers' bonuses that is eligible to be "recouped in later years if an employee leaves or is found to have behaved in ways that are harmful to the company." UBS cut its bonus pool by 78 percent in January "after amassing the biggest loss in Swiss corporate history in 2008." Bank of America (BAC) said this year it might boost salaries as well.

The WP writes that President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act yesterday, boosting credit-card holders' rights as companies have come under fire for predatory and unfair practices. Card companies can no longer raise interest rates on existing balances unless the borrower is 60 days behind on payments. And if the cardholder pays on time for the following six months, the company will have to restore the original rate. "On cards with more than one interest rate, issuers will have to apply payments above the minimum first to the debts with the highest rates. Before increasing rates, the card company will have to give cardholders 45 days' notice," the WP explains. As a result of the new regulations, credit card executives have said they will be unable to "properly distinguishing between risky and non-risky borrowers and force them to charge everyone higher rates and annual fees or withhold credit." Most provisions won't go into effect for another nine months.

The Dow Jones industrial average (INDU) lost 15 points, or 0.18 percent, to close at 8277.3, the Dow's fourth straight loss, CNNMoney says. However, the average "still managed to end the week with a slight gain." The S&P 500 (SPX) index dropped 0.15 percent to 887 but was up 0.5 percent for the week. The Nasdaq composite (COMP) fell about 0.2 percent. The dollar, meanwhile, slipped to its lowest level in five months "against a basket of currencies." Bonds slumped as well, with the yield on the 10-year note climbing to a six-month high. Analysts interviewed by the site said that "the market lacked conviction Friday because many investors were absent ahead of the Memorial Day holiday." U.S. markets will be closed Monday.

news.notes20090523g

[News Politics] from [abcNEWS]

President Obama and Dick Cheney's War of Words Stirs National Debate
Showdown Over the President's and Former Vice President's National Security Views

By HUMA KHAN and KAREN TRAVERS
May 22, 2009

The dueling speeches by President Obama and former Vice President Dick Cheney rippled across the airwaves today as surrogates took up the heated debate about how to keep America safe.

Today, Cheney's daughter and former State Department official Liz Cheney defended her father's views on enhanced interrogation techniques and assailed the Obama administration for not releasing the classified intelligence memos her father requested.

The memos, the Cheneys say, show that techniques like waterboarding yielded valuable information from detainees.

Last month, the Department of Justice released memos showing the legal justification for waterboarding -- an interrogation tactic that simulates

Releasing those memos gave "terrorists a new insert for their training manual," said Liz Cheney on "Good Morning America," echoing remarks her father made yesterday at the American Enterprise Institute. "It takes a tool out of the toolbox for every future president."

On the contrary, Lawrence O'Donnell, former Senate Democratic chief of staff, argued that policies of the Bush-Cheney administration actually made the country less safe.

"It is torture. This government has prosecuted people in the past for doing exactly this," O'Donnell said on "GMA." "He [Dick Cheney] can never acknowledge what waterboarding actually was as practiced by the Bush administration."

"If [it was] so effective, why did they use it only on three?" questioned O'Donnell. "Why didn't they use it on the 500 people the Bush-Cheney administration released from Guantanamo -- 75 of whom we know ... have gone back into the terrorism business."

The waterboard was used on three prime terror suspects held in Guantanamo Bay.

War of Words on National Security

Obama and Cheney's major speeches Thursday given back to back -- a unique event for Washington, D.C. -- has stirred a national debate on how to keep Americans safe.

The president argued Thursday that his predecessor's policies on terrorism made the country less secure. He affirmed that he considered waterboarding torture and said techniques such as those not only made the United States less safe, they were also against American values.

"I know some have argued that brutal methods like waterboarding were necessary to keep us safe. I could not disagree more," the president said in his speech at the National Archives. "As commander in chief, I see the intelligence. I bear the responsibility for keeping this country safe. And I categorically reject the assertion that these are the most effective means of interrogation."

In another part of town, Cheney argued the opposite.

"I was and remain a strong proponent of our enhanced interrogation program," the former VP said. "The interrogations were used on hardened terrorists after other efforts failed. They were legal, essential, justified, successful, and the right thing to do."

Obama also assailed the Bush administration for employing an ideology of fear rather than sound principles.

"We are indeed at war with al Qaeda and its affiliates," the president said. "We do need to update our institutions to deal with this threat. But we must do so with an abiding confidence in the rule of law and due process; in checks and balances and accountability."

"Too often, our government made decisions based upon fear rather than foresight, and all too often trimmed facts and evidence to fit ideological predispositions," he said.

Cheney -- as he has argued vehemently in recent months -- said the Bush administration's strategy was successful.

"You can look at the facts and conclude that the comprehensive strategy has worked, and therefore needs to be continued as vigilantly as ever," he argued.

"Critics of our policies are given to lecturing on the theme of being consistent with American values, but no moral value held dear by the American people obliges public servants to sacrifice innocent lives to spare a captured terrorist from unpleasant things. And when an entire population is targeted by a terror network, nothing is more consistent with American values than to stop them," Cheney said, offering a starkly opposing view to that of the president.

Obama gave a professorial explanation on why his administration needed to reverse the Bush Administration policies that "established an ad hoc legal approach for fighting terrorism that was neither effective nor sustainable."

Obama Lays Out Reasons for Ending Enhanced Interrogations

In a speech that ran nearly 50 minutes, Obama laid out his case for ending so-called enhanced interrogation methods, closing the detention center at Guantanamo Bay and moving detainees currently held there. He stressed that he inherited these complex legal and ethical questions from the previous administration.

"We are cleaning up something that is -- quite simply -- a mess; a misguided experiment that has left in its wake a flood of legal challenges that my administration is forced to deal with on a constant basis, and that consumes the time of government officials whose time should be spent on better protecting our country," he said.

Cheney took a shot at the president's decision to shut down the detainee center.

"I think the president will find upon reflection that to bring the worst of the worst terrorists inside the United States would be cause for great danger and regret in the years to come," he argued.

The Congress this week rejected $80 million from the war funding bill to help pay to shutter the detainee center. Some Democrats argue that the president needs to show them a more comprehensive plan on how his administration plans to shut down the facility, and what they will do about the more than 200 prisoners housed there.

Obama argued yesterday that Guantanamo Bay's existence has in fact created more terrorists rather than help American national security.

He added that the toughest issue facing his administration, and the one that is causing him headaches from Republicans and Democrats on Capitol Hill, concerns the detainees at Guantanamo who cannot be prosecuted but also cannot be released because of the threat they pose.

The president did not lay out a specific plan for these terror suspects but said there must be "clear, defensible and lawful standards for those who fall in this category."

"We must have fair procedures so that we don't make mistakes. We must have a thorough process of periodic review, so that any prolonged detention is carefully evaluated and justified," he said.

Opposing Philosophies

Some Republicans are capitalizing on Democratic lawmakers' hesitance to go along with the White House's plan to shutter Guantanamo Bay's detainee center.

"His persistent reminders that he 'inherited' these problems are unproductive and trite. Americans are looking for leadership, not finger pointing and excuses for the implementation of ill-advised policies," said chairman of the National Republican Senatorial Committee, Sen. John Cornyn, R-Texas, Thursday. "I think the vice president is controversial in some quarters, but there is nobody that knows better than he does about what the threats are that face our nation and why it was necessary to take extraordinary measures to protect our country."

House Minority Leader John Boehner, R-Ohio, said the president needs to prevent an alternative plan.

"Let me just state right up front that Republicans oppose releasing these terrorists or importing them into our local communities. I've supported the president's approach to Afghanistan and with regard to Iraq. But I think on this one, he's dead wrong," Boehner said.

Others disagree.

"I am confident. I'm confident that this administration will do what it has done since being inaugurated, pursuing a very thoughtful, considered path to address challenges confronting the country," Rep. Steny Hoyer, D-Md., said about Obama's decision to shut down the detention facility.

news.notes20090523h

[Asia News] from [The Wall Street Journal]

Former South Korean President Is Dead After Mountain Fall
Lawyer Says Roh Left Suicide Note

ASIA NEWS
MAY 23, 2009, 1:56 A.M. ET
By EVAN RAMSTAD and SUNGHA PARK

SEOUL -- South Korea's immediate past president, Roh Moo-hyun, a progressive-nationalist lawyer who was recently caught up in a bribery scandal, died Saturday morning in an apparent suicide.

An aide said Mr. Roh jumped from a mountain cliff near his rural home in a southern province and left a note to his family.

"It's been too hard," Mr. Roh wrote in the note, according to local media reports. Police said they were investigating his death as a possible suicide.

The incident occurred about 6:40 a.m. near his home in Gimhae and he was pronounced dead a few hours later at Pusan National University Yangsan Hospital in the nearby city of Yangsan, officials said.

President Lee Myung-bak, Mr. Roh's conservative successor, was deeply saddened and shocked by the news, a spokesman said. "It's very hard to believe," the spokesman said.

Mr. Roh, 62 years old, won a surprise victory in the 2002 election. He presided over South Korea during a prosperous five years when the country's economy and businesses grew solidly following the Asian financial crisis of 1997-98. Mr. Roh concentrated his energy on strengthening ties with North Korea that were started by his predecessor, Kim Dae-jung. Mr. Roh staged a summit with the North's dictator, Kim Jong Il, in October 2007, just four months before leaving office.

Mr. Roh's death, coming amidst an investigation into bribery and influence-peddling, could enflame a deep political division in South Korea. The former president had been a hero to South Korea's left-wing politicians and supporters for his 2002 victory and for running a relatively clean administration in a country with a long history of political corruption. For a time, Mr. Roh appeared likely to be the first South Korean president to not be scrutinized for criminal activity.

But in recent months, Mr. Roh came under investigation for allegedly taking about $6 million from a businessman in return for favors during his tenure as president. On April 8, Mr. Roh made a surprise announcement on his Web site that his wife received about $1 million from the key figure in the case. "I'm overwhelmed by shame," Mr. Roh wrote at the time.

On April 30, Mr. Roh presented himself to prosecutors for 14 hours of questioning about the financial dealings, which also involved other members of his family. Prosecutors had not decided whether to indict Mr. Roh before his death.

On Saturday, Mr. Roh was taking an early-morning hike with a bodyguard in a hilly area near his home when he jumped or fell from the cliff. An aide, Moon Jae-in, told reporters that Mr. Roh jumped from a rocky point and had left a "small will" behind.

An ambulance took Mr. Roh to the hospital, where he arrived at 8:15 a.m. unconscious and not breathing, with numerous fractures and a severe head injury, Paek Seung-wan, the hospital's president said in a nationally-televised news conference. Doctors and nurses tried for more than an hour to resuscitate him. He was declared dead at 9:30 a.m., Mr. Paek said.

South Korean Justice Minister Kim Kyung-han said in a statement that police are investigating the cause and circumstances of Mr. Roh's death. He said he understands the corruption investigation will be halted.

Mr. Roh was the fourth president elected in South Korea after the country became a constitutional democracy in 1987 – and he was the first who wasn't directly involved in writing the constitution. His election was seen as the ascendancy of a new generation to power and he filled his administration with people who had been student activists in the 1980s struggling against military dictatorship.

Prior to becoming president, Mr. Roh held a parliamentary office for four years and served as a cabinet minister for his predecessor, Mr. Kim. He first gained national attention when, as a member of the National Assembly, he questioned government officials in prosecutorial style over a corruption episode.

In the 2002 presidential race, Mr. Roh defeated a veteran conservative politician, Lee Hoi-chang, by a margin of 2.3 percentage points. He trailed in opinion polls for much of the campaign.

On economic matters, Mr. Roh emphasized fairness and regional balance in development more than overall growth, opening himself to critics who said the country wasn't reaching its economic growth potential. One of his main efforts to reshape urban and rural areas – a plan to move much of the national government out of Seoul to a small town in the middle of the country – didn't pan out. Mr. Roh pursued free trade agreements with Chile and the U.S., though he said little about them publicly.

Mr. Roh rode to office on a surge of anti-Americanism in South Korea in 2002 and pledged in one debate, "I have no intention of kowtowing to the U.S.," the country's defense partner since 1950. He also asserted a more nationalist stance toward Japan and had a fractious relationship with both the U.S. and Japan over North Korea policy.

Mr. Roh believed strongly in a program of economic assistance to the North with few strings attached and no public criticism of transgressions by Pyongyang. On several occasions, he said he feared U.S. President George W. Bush wanted to start a war with North Korea, something that Mr. Bush and his secretaries of state, Colin Powell and Condoleezza Rice, repeatedly refuted in the South Korean media.

But Mr. Roh moved the South Korea-U.S. relationship forward on other levels, including writing the free-trade pact, reshaping the defense alliance to give South Korea's military more control on the Korean peninsula and making it possible for South Korean tourists to visit the U.S. without a visa.

South Korean presidents serve a single five-year term.

news.notes20090523i

[HEALTH] from [CNN.com]

Former S. Korean President Roh commits suicide

(CNN) -- Former South Korean President Roh Moo-Hyun committed suicide Saturday by leaping to his death from a hill behind his house, the South Korean government announced.

He was 62.

Roh, who was president from 2003 to 2008, had gone hiking near his home with an aide around 6:30 a.m. Saturday (5:30 p.m. ET Friday), the state-run Yonhap news agency said. He was found later with head injuries, and died at 9:30 a.m. after being taken to a hospital in Busan, police said. A hospital spokesman declined to comment.

Roh left a suicide note for his family that family lawyer Moon Jae-in handed out to South Korean media. News reports said Roh wrote it on his computer about half an hour before he left the house.

"I am in debt to too many people," the note reads. "Too many people have suffered because of me. And I cannot imagine the suffering they will go through in the future."

Roh's death came amid an investigation into a bribery scandal that had tarnished his reputation.

Prosecutors were investigating the former president for allegedly receiving $6 million in bribes from a South Korean businessman while in office. Roh's wife was scheduled to be questioned by prosecutors Saturday, and Roh was planning to answer a second round of questions next week.

With Roh's death, prosecutors said, the case against him has been suspended.

Roh had said he was ashamed about the scandal. In the first round of questioning, he said he was losing face and that he was disappointing his supporters.

The former president said he learned about the payments only after he left office and that some of them were legitimate investments, Yonhap reported.

Roh wrote about his thoughts on a blog that he maintained, which also attracted supporters and tourists to his hometown, Yonhap said.

Roh's suicide note said his health was poor and that "nothing is left in my life but to be a burden to others."

"Don't be too sad. Aren't life and death both a piece of nature? Don't be sorry. Don't blame anyone. It is fate," he wrote.

The note asks that his body be cremated and for a small headstone to be left near his house.

"It's what I have thought about for a long time," he writes at the end.

Although Roh had not made a formal guilty plea, many were disappointed that a man who came to power vowing an end to corruption would face such allegations.

Roh hoped to leave a legacy of improved relations with North Korea.

Just before he left the presidency, Roh became the first South Korean leader to cross the demilitarized zone and meet with North Korean leader Kim Jong il. Roh believed in the "sunshine policy" of his predecessor, Kim Dae-Jung, that sought to engage the north and Roh also promised aid.

Roh spoke to CNN Correspondent Sohn Jie-ae just after that trip and said he thought his legacy would be to ensure that many others crossed the demilitarized zone after him. The current South Korean president, Lee Myung-Bak, however, takes a harder line on the north and has so far not continued Roh's efforts.

news.notes20090523j

[Today's News] from [The Guardian]

Consumer spending falls at fastest rate since 1980
ONS confirms GDP fell 1.9% in the first three months of the year, with only government spending continuing to grow

Julia Kollewe
guardian.co.uk, Friday 22 May 2009 11.45 BST
Article history


UK households are cutting back on spending at the fastest rate since 1980, contributing to the worst economic slowdown in three decades.

Figures from the Office for National Statistics (ONS) showed consumer spending fell by 1.2% in the first three months of the year. People spent less on housing, household goods and services, while those who went on holiday abroad also spent significantly less.

Consumers tightened their belts in the face of job losses, pay cuts or freezes and sharply reduced City bonuses. The figures showed employees' compensation falling by 1.1% in the quarter, the largest fall since records began in 1955. Wages and salaries declined, with lower bonus payments in the financial sector than normal, while employment also fell.

The data was released as part of the ONS's latest assessment of the UK economy, which confirmed that gross domestic product shrank by 1.9% in the first quarter, its sharpest decline since 1979. GDP stood 4.1% lower than a year ago, the biggest annual fall since 1980.

The figures also showed that business inventories suffered their biggest fall in half a century, taking City economists by surprise and underlining the severity of the recession. Only government spending made a positive contribution to the economy, growing by 0.3% in the first quarter.

Yesterday, Britain suffered a downgrade of its economic outlook by Standard & Poor's, which means it could lose its cherished top-tier credit rating. The ratings agency expressed alarm about the country's ballooning budget deficit and switched its outlook from "stable" to "negative".

"The breakdown of first-quarter GDP gives a pretty grim picture of weakness right across the economy in the early months of this year," said Jonathan Loynes of Capital Economics.

"With key components like household spending and investment set to fall considerably further in response to the weakness in the housing market, the labour market and bank lending, we remain unconvinced that recent 'green shoots' will translate into a return to decent growth next year."

Inventories shrink, but serious obstacles remain

Faced with a slump in demand, companies ran down stocks at an unprecedented rate in the first quarter. Inventories fell by £6bn, the biggest decline since records began in 1948, with big falls in the car and construction industries. This contributed 0.6 percentage points to the quarterly decline in GDP.

Firms also cut investment to save money. Business investment fell by 5.5% in the quarter.

With world trade collapsing, British exports and imports fell sharply. Exports of goods such as cars dropped 8.3% in the quarter, while imports dropped 8.2%.

Exports of services were down 3%, mainly due to financial and insurances services and royalties.

The grim economic picture prompted a warning from the Economist Intelligence Unit today.

It said the most "brutal" slump in Britain since the Great Depression would prolong the property downturn for up to two more years and see unemployment rise to close to 11% by its peak in 2011.

Most economists think the first quarter marked the low point in the recession, although recovery is likely to be slow.

"From here on, the slower pace of destocking will help output in the coming quarters," said Philip Shaw, the chief economist at Investec. "We remain hopeful that GDP will be able to rise again later this year, probably in the third quarter."

Howard Archer of IHS Global Insight said: "There are mounting signs in the latest data and surveys that the rate of economic contraction has moderated appreciably so far during the second quarter.

"Nevertheless, serious obstacles to economic recovery remain and we suspect that further, albeit much more modest, contraction will occur over the rest of the year."