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Congress Urges More OversightMadoff and Me]]>

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Ford Motor Co. reported December sales were off more than 32 percent, year over year, a decline on par with drops at General Motors Corp., Toyota Motor Corp. and Honda Motor Co. Ford said in a news release that December individual vehicle sales fell 27 percent, and fleet sales were down 42 percent, across Ford, Lincoln and Mercury brands. For the full year, sales decreased 20 percent overall. Nonetheless, the automaker saw its market share increase by 0.7 percent over the month, to an estimated 14.6 percent, driven by strong sales for its new F-150 pickup truck. Ford estimated its full-year market share at 15 percent. Toyota, which bases its motor engineering and manufacturing operation in Erlanger, saw an even bigger drop in December. Toyota’s sales fell 37 percent during the month, according to MSNBC.com, and 16 percent for 2008. Honda saw its December sales plummet by 35 percent, and registered an 8 percent decline for the year. Honda of America Manufacturing Inc., in Marysville, Ohio, runs five production and assembly plants in Ohio and recently opened an assembly plant in Indiana. General Motors’ December sales were down 31.4 percent, according to MSNBC.com. G.M. and other automakers are expected to report full-year sales later Monday.Related LinksUgh, What a Feeling, ToyotaThen There Were NoneThe Drive to Save Detroit

The victims of Bernard L. Madoff's fraud includes no small number of boldface names and institutional investors. There are Hollywood moguls Steven Spielberg and Jeffrey Katzenberg, financiers Fred Wilpon and Henry Kaufman, and actors Kevin Bacon and Kyra Sedgwick. Then there were banks like HSBC and Banco Santander, and nonprofit groups including Yeshiva University and the Robert I. Lappin Charitable Foundation. But a number of average-Joe investors have discovered that they, too, had money invested with Madoff. Their retirement funds, family trusts, and other savings usually found its way to Madoff through "feeder" funds, some of which were run by friends, acquaintances, or financial advisers. Since they were not direct investors with Madoff, their status in recovering any money is uncertain. But there is no doubt that they, too, are victims of what appears to be the greatest Ponzi scheme in history. Here, in his own words, is one investor's story: In 1992, when I was 67 years old, I unexpectedly found myself with some extra cash on hand. During the preceding half century, I had served in three wars, earned a master's degree, married, bought and paid off a house, and put three daughters through college. I had started my fulltime working life in 1950 as a copyboy and later reporter on the San Francisco Chronicle and then, for over 30 years, was simultaneously a science writer at UCLA and a freelance journalist. My wife, Rachel, had worked full or part-time during much of that period. We had bought a hillside house in suburban Los Angeles in 1968 and were close to paying off our mortgage. Our two older daughters had married, were working and raising their own families, and our youngest child was independent, and likely to marry in the near future. As a family, we were always quite disciplined about the household budget. As a matter of principle, we never got into debt and we paid off our credit card balances in full every month. I wasn't exactly a tightwad, we traveled frequently overseas, but, as my daughters like to remind me, when they were kids and scrawled drawings, I made them use BOTH sides of a blank sheet. So in 1992, Rachel and I found ourselves with an extra $25,000 in the bank and decided to invest it, but knew enough to know that we knew nothing about the market. So we turned to a trusted friend, whom we shall call Phil, who was our sometime lawyer and a fellow volunteer in local political campaigns. Phil had many years of successful investment experience, and although $25,000 was pretty small potatoes in his league, we insisted that we wanted into the game.  Thus I became one of some 99 limited partners in Caroline Investment Co. Phil told me that the partnership had consistently returned 15 percent to 16 percent a year, sometimes as much as 20 percent, and added that he had millions of his own money in the fund. But he warned me that even he, with decades of experience, had no idea how the partnership managed to generate such high and steady returns. Phil sent me a 73-page document, which I never read closely until after I learned about my link to Bernard Madoff. In the papers, I have learned that Caroline was a limited partner in the Lambeth Fund, operated entirely by Beverly Hills investor and arbitrage maven Stanley Chais, whom Phil had known for many years. Chais, in turn, passed on the funds in Lambeth, Caroline and other partnerships to an unnamed brokerage and investment firm in New York. That firm, we learned since, was Madoff Investments; Chais had known Bernie Madoff for decades, but the name never appeared in any papers and was unknown to Phil. For years, this opacity didn't matter. Like most small-time amateur investors, with a full work and family life, I had happily watched as my stake steadily grew. Even with 25 percent of the profits going to Chais and 5 percent to Phil for their administrative work, I averaged an annual net return of 10 percent to 14 percent. This compounded rapidly, since I didn't need the income to make ends meet. Since my investment was in the form of an I.R.A. account, I didn't have to withdraw money until I was 70½ years old and started receiving mandatory minimum distributions. I had about $150,000 accumulated in Caroline on Dec. 11, when I received an e-mail from Phil, which started, "I have some terrible news for us." The shocking news, of course, was that Madoff had been arrested for fraud and that the many millions Phil and his daughter, a successful Los Angeles restaurateur, had been wiped out, as had Chais' Lambeth Co.—and my $150,000. Sure the loss hurts, and with the simultaneous devaluation of our house, we have dropped plans to move into an upscale retirement community. On the upside, our mortgage is paid off, I still earn money as a journalist, and I get Social Security. Although my retirement-savings plan with the University of California is sinking like a stone, I'm pretty confident that my wife and I will not go hungry. I take some irrational satisfaction from the thought that, for the first time in my life, I'm in the company of so many millionaires and billionaires, and we are all going down together on the same financial Titanic. The real losers, I'm afraid, will be the families of my three daughters, and my eight grandchildren, to whom I will now leave a rather meager monetary inheritance.Related Links8,000 Pleas for HelpSmart Money, R.I.P.Sex, Drugs, and Options Backdating

2008 was one of the most tumultuous years ever for the U.S. economy, but Condé Nast Portfolio readers had fair warning of the disasters before they unfolded. From the looming threat of credit derivatives—which Warren Buffett famously characterized as "financial weapons of mass destruction"—to the many false dawns promised by bankers to the oil-price spike and crash, the year hammered investors like few others. The following are a list of Condé Nast Portfolio articles and columns over the last year that presciently warned of these disasters. Reading them now can answer the question that President Bush not long ago plaintively posed on behalf of almost everyone else: "How did we get here?" The $300 Trillion Time BombBy Jesse Eisinger • May 2007 Why credit derivatives will doom the U.S. economy. A Legend's Bloated LegacyBy Jesse Eisinger • September 2007 Citigroup is staggering under its own excessive weight. It's too big to succeed. Crash Test EconomyBy Jesse Eisinger • October 2007 Parallel economic conditions in 2007 and 1987 indicate a stock market crash ahead. Wall Street RequiemBy Jesse Eisinger • November 2007 Banks are overleveraged with dangerous amounts of debt; take note—many will fail. Wall Street's Next CrisisBy Jesse Eisinger • January 2008 After the subprime shakeout, another real estate mess looms: commercial property. The Banker's BailoutBy John Cassidy • March 2008 Despite denials, Washington is covertly planning a massive financial rescue for banks. The Economy of FearBy John Cassidy • April 2008 Why this recession is going to hit harder and last longer than leaders are predicting. Bank JobBy Jesse Eisinger • July 2008 Banks are convincing investors that the worst is over; they couldn't be more wrong. Angelo's Many "Friends"By Daniel Golden • August 2008 The scandal at Countrywide wasn't limited to just subprime loans. Black HoleBy John Cassidy • September 2008 Why the price of oil will drop dramatically. The $58 Trillion in the RoomBy Jesse Eisinger • November 2008 The bankers who invented credit derivatives speak. The EndBy Michael Lewis • December 2008/January 2009 The author of Liar's Poker returns to Wall Street to chronicle its collapse.   Related LinksThe Morning AfterThe He Said, She Said EconomyThe Great Panic

Isolating the effectiveness of the government's $700 billion Troubled Asset Relief Program is proving more difficult than expected, the Treasury Department said Wednesday in a written response to an oversight agency. However, the department said it does believe that its actions, "in combination with other actions, stemmed a series of financial institution failures." The 15-page report seeks to answer a series of pointed questions raised earlier in December in the initial report from a special Congressional Oversight Panel led by Harvard professor Elizabeth Warren. To support its assertion that "the financial system is fundamentally more stable than it was when Congress passed the legislation," the report said that the average credit default swap spread for the eight largest U.S. banks has declined by "about 240 basis points" since the TARP was created. The department was more circumspect about whether billions of dollars in direct capital injections into banks has done anything to thaw frozen credit markets. Loan issuance in the U.S. in 2008 dropped 55 percent, from $1.69 trillion to $764 billion, making it the slowest year since 1994, Thomson Reuters Loan Pricing Corp. says. "It is important to note that nearly half the money allocated to the Capital Purchase Program has yet to be received by the banks," Treasury said. "Clearly this capital needs to get into the system before it can have the desired effect." Even then, it cautioned that the financial crisis and economic slump have combined to erode business and consumer confidence, which naturally dampens demand for loans as well as lenders' willingness to make them. "As confidence returns, Treasury expects to see more credit extended," the agency said. "This lending won’t materialize as fast as anyone would like, but it will happen much faster as a result of having used the TARP to stabilize the system and to increase the capital in our banks." The report was vague about how TARP is helping to prevent foreclosures, a key interest of many members of Congress. It a voluntary program to insure refinanced mortgages, and two programs to modify existing mortgages, but gave few specifics on how well any of the initiatives were working. Seeking to address complaints that TARP tactics changed radically soon after Congress approved the plan, the report said rapidly deteriorating circumstances persuaded Treasury officials that their initial idea of buying illiquid mortgage-backed securities would be too slow and too little to prevent disaster. To keep the financial system solvent, Treasury Secretary Henry Paulson and his lieutenants decided that they could provide quicker and more meaningful help by investing government money directly into bank holding companies. "Capital injections," the report said, "provide better 'bang for the buck.' "Related LinksSign of a Bottom?Worst of TimesT.A.R.P.: Tearing Apart the Rescue Plan

Fair-value accounting was not the culprit of the financial meltdown that has brought down the biggest financial institutions in the country, the U.S. Securities and Exchange Commission said today in a report to Congress. This method of accounting, where assets are valued at a calculated current market price, should remain the standard, the S.E.C. said, adding recommendations to strengthen accountability and sensitivity to market changes. The study, produced on more than 200 pages, was ordered as part of Congress' $700 billion bailout package. Many banks and industry organizations have blamed this accounting practice for the downward economic spiral, as it forces businesses to assign a low value to assets as they would trade today, even if the company doesn't intend to sell them. Critics have also charged that it is impossible to determine fair market value in an illiquid market, such as the one that began to materialize after the risky trading of mortgage backed securities reversed course. The S.E.C. said it entertained all such concerns and cited several others which, the agency's paper said, likened the notion of suspending fair value accounting to " 'shooting the messenger' and hiding from capital providers the true economic condition of a financial institution." The report described the recent economic souring like this: "Rather than a crisis precipitated by fair value accounting, the crisis was a 'run on the bank' at certain institutions, manifesting itself in counterparties reducing or eliminating the various credit and other risk exposures they had to each firm. "This was, in part, the result of the massive de-leveraging of balance sheets by market participants and reduced appetite for risk as margin calls increased, putting enormous pressure on asset prices and creating a 'self-reinforcing downward spiral of higher haircuts, forced sales, lower prices, higher volatility, and still lower prices.' "The trust and confidence that counterparties require in one another in order to lend, trade, or engage in similar risk-based transactions evaporated to varying degrees for each firm very quickly. What would have been more than sufficient in previous stressful periods was insufficient in more extreme times."Related LinksDefending TARPWhen Monetary Policy Is Fiscal PolicyFinally, Drama! A Geithner vs. Bair Clash?

Many of the financial services companies that have received the majority of taxpayer-funded capital through the U.S. Treasury are likely in worse shape than previously disclosed, according to a research report. Audit Integrity, a Los Angeles firm that rates companies based on corporate integrity risk, looked at the 25 financial services companies that have received more than 90 percent of funding doled out so far through the federal government's Troubled Asset Relief Program, or TARP. More than 80 percent of those companies have a "very aggressive" or "aggressive" accounting and governance risk rating based on recent regulatory filings, and have a high likelihood to restate earnings or be affected by other adverse events such as regulatory actions or shareholder litigation. That compares with a 35 percent "very aggressive" or "aggressive" rating among the 7,000 public companies measured overall by Audit Integrity. Fourteen of the 25 financial services companies studied were rated as "very aggressive." Among those 14 companies, 10 received the largest amounts of TARP funding to date, including American International Group, Bank of America, Citigroup, Fifth Third Bancorp, Goldman Sachs Group, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, PNC Financial, and Wells Fargo. Among the TARP recipients receiving the largest amount of taxpayer funds, the study rates Wells Fargo, Merrill Lynch, and Regions Financial as having a "weak" financial condition. Zions Bancorp, which operates Houston-based Amegy Bank of Texas, was the only financial services company that received TARP funding to earn a "conservative" rating during the most recent quarter. "As a group these are very risky companies," said Jack Zwingli, Audit Integrity chief executive. The use of federal money to bail them out should be pause for concern on several levels. "Unfortunately," Zwinglin added, "the odds are that a number of these companies will fail at some level in the future, which raises the concern that the government is throwing good money after bad. At a minimum we should demand a thorough review of their accounting and corporate governance practices."Related Links(T)Hanks PartnerFrom Frying Pan to Fire, Stockbroker EditionWall Street Huddles for Safety

Two roads diverged in a wood, and I, I took the one less traveled by, And that has made all the difference.                                              —Robert Frost When Robert Frost wrote "The Road Not Taken" almost a century ago, few choices existed for personal health care. Without antibiotics, an infection took its course. Diabetes was largely untreatable. X-ray images were new. And remedies for many diseases were little changed from the Renaissance. Virtually no one talked about preventive or predictive medicine beyond mothers insisting that their children down a tablespoon of wretched-tasting cod liver oil. A century later, physicians have vast arsenals of drugs, procedures, therapies, and data to deploy if one gets sick. Until now, however, major health-care decisions have tended to be made or guided by doctors. In the coming year, one of the big stories in life sciences will be the explosion of information that will become available to individuals about their current health and what may happen to their health in coming years. This gives new meaning to Frost's poem about which road we will want to travel as data proliferates about our genes, the impact of the environment on our bodies, and the health and function of our brains. Integrating all of this—everything from how a person's diet interacts with his or her unique genetic profile to how mercury and other pollutants affect cognitive function in the brain—is in its infancy, but the process will begin to significantly change health care for a growing number of people in 2009 and beyond. Outgoing Secretary of Health Michael Leavitt recently issued a 300-page report: Personalized Health Care: Pioneers, Partnerships, Progress that offers one of many blueprints that have recently emerged from government and industry that insist the long-awaited era of individualized medicine is on the cusp. "We are at an early stage in our ability to differentiate between variations in the biology of individual patients and provide effective treatment for different diseases," the report says. "Even our definitions of diseases remain rooted in 18th- and 19th-century terms. We refer to asthma, but there are many varieties of asthma," Leavitt continues. "From a treatment perspective, they are actually different diseases, yet we are barely at the cusp of being able to identify them accurately and provide the right treatment at the first encounter." Other proselytizers of individualized health care include Lee Hood of the Institute for Systems Biology in Seattle and George Church of Harvard. They've long called for redirecting medicine and medical research toward personalized medicine to focus on the well rather than the sick. This has begun and will accelerate in 2009. New online companies—led by 23andme, deCODEme, Navigenics, and DNA Direct—are offering individual customers access to their own genes. Genetic sequencing companies such as Illumina, Affymetrix, and Applied Biosciences are being joined by new firms such as Complete Genomics and Knome to mine individuals' genomes, and are rapidly reducing costs.  Much of the genetic data available direct to consumers is incomplete and preliminary, but in coming years, it will be tested and validated. A few genetic tests are well validated and already a part of the standard of care. Genentech's breast cancer drug Herceptin, for instance, is indicated only for patients who test positive for an over-expression of the HER2 gene. Other companies, mostly in stealth mode, are plotting to tease out details of people's protein signatures and the impact of environmental influences. A host of books documenting the personalized medicine revolution are already in the works. Tom Goetz of Wired and Misha Angrist of the Duke Institute for Genome Sciences and Policy are writing about their own experiences of being genetically screened for diseases and other traits, and what these tests will mean for people in the future. Geneticist Francis Collins, one of the architects of the human genome project and until recently the director of the National Human Genome Research Institute, is writing a book on personalized medicine. My own book on being genetically screened for health and environmental influences—Experimental Man: What One Man's Body Reveals About His Future, Your Health, and Our Toxic World—will be out this spring. (I've also written a series of columns on this subject for Portfolio.com.) New groups are forming, including the Quantified Self, founded by technology guru and Wired magazine's "senior maverick" Kevin Kelly and Wired contributing editor Gary Wolf. Members share their experiences in gathering data about themselves—from diet to sleep patterns and beyond—in monthly meetings held in the San Francisco Bay Area. A raft of new technologies will help make this new age happen, creating a world where one day a doctor's exam will include a quick scan of our bodies that tells us hundreds or thousands of bits of data seamlessly integrated by a computer into a health score card. Think of the sickbay on the starship Enterprise. Or maybe we'll have our own handheld device—let's call it an iHealth (with apologies, or perhaps a suggestion, to Apple)—that will keep track of our genomes, incorporate the most recent scans of our brain and body, and record real-time environmental data about what we are exposed to as we walk around, eat, and work. This could include levels of mercury and benzene, say, as well as exposure to ultraviolet rays. This information will be synched up at home with sophisticated biomonitors that daily record levels of thousands of chemicals, proteins, and other substances inside us. Our iHealth could download the data, assess our current health, and determine up-to-the-minute probabilities for acquiring various diseases and exposures. At the same time, it could assess risks for everything from eating a steaming piece of swordfish to walking in an environment teeming with hidden chemicals. While we're waiting for all of the data to sync we can play a game, check emails, or watch a video on a futuristic version of YouTube. The impact of such a device and the intimate information it will provide is hard to fathom, much as people in Robert Frost's day had no idea what antibiotics would mean to future generations. The poet who contemplated which road to take in a wood couldn't have imagined that tuberculosis, whooping cough, and other diseases that terrified his era and cut lives short would largely disappear in the West, and that millions of people would remain alive and vibrant into their 70s and 80s. I suspect that some people will obsessively check their iHealths and will be terrified to go outside, and others will love having the information. Everyone will worry about privacy, health-hackers, and new forms of identity theft that will make today's fears seem quaint. Yet this era is coming, and 2009 may well be the year people remember as the moment when we stepped onto a path never before traveled. I for one can't wait to see what difference this will make.Related LinksDiscount DNADo Some Men Have a Commitment-Phobia Gene?Gene-Sequencing Warrior

Industrial nations have been pumping trillions of dollars into their economies in the form of stimulus investments, bailouts and tax rebates. Their hope is to boost consumer and business spending, save distressed banks and other businesses, and lessen the severity and longevity of the global recession. China created a $600 billion stimulus package focused on construction and infrastructure. Japan unveiled a $500 billion plan that includes tax help for struggling businesses, homeowners and consumers. European central banks are propping up languishing financial institutions and pumping substantial cash into strained credit markets. European nations also are considering a bailout of troubled automakers. There is plenty of business impetus behind the Wall Street bailout in the U.S., as well as political backing from President-elect Barack Obama for a public works construction-oriented stimulus package. But some economists worry that the U.S. and foreign bailouts, liquidity infusions and stimulus outlays—which now total $8.5 trillion in the U.S. alone—could result in inflation and a weakened dollar. Peter Schiff, an economist and chief global strategist for Connecticut-based Euro Pacific Capital, said those economic rescue attempts could result in hyper-inflation because of all the money being pushed into the economy by central banks and the federal government. He said the markets and consumers could lose confidence in the U.S. dollar. “The government is trying to create additional consumer spending, and they are trying to do it by printing more money,” Schiff told the Toronto-based IWT-Real News Network. He said a worst-case scenario would be an inflation-fueled depression of the U.S. economy. Hyper-inflation occurs when prices rise as currency values and consumer confidence diminish, such as in post-World War I Europe and the current situation in Zimbabwe. Two leading Arizona economists are not too worried about inflation and a weak dollar in the short term, saying the U.S. economy needs more money pumping through it. But they note inflation and a weak dollar should be kept in mind for the long term. Herb Kaufman, a finance professor at Arizona State University’s W.P. Carey School of Business, said a public works stimulus package could help, but he wonders how long that money might take to trickle down and wants to ensure the federal government chooses to fund projects with great impact. Kaufman also wants to see some immediate benefits for consumers via temporary and immediate cuts to payroll and withholding taxes. The ASU finance expert said inflation is not a short-term concern, and stimulus spending could reduce the length and intensity of the recession. John Mathis, an international finance expert at the Thunderbird School of Global Management in Glendale, agreed that money and liquidity need to be pumped into the economy, but he said inflation may need to be addressed down the road. “I think getting this economy turned around is a top priority. Two years from now, I think reducing money supply growth and fiscal spending will be a top priority to curtail inflation and a weakening dollar,” he said. Mathis said stimulus spending should be prioritized according to economic benefit, but also noted that future taxpayers will be paying for these government outlays.Obama’s stimulus concept has the backing of construction companies, unions, governors and mayors, including Phoenix Mayor Phil Gordon. Many believe it will create jobs and pump money into the economy while helping the beleaguered construction sector. “Barack Obama has unveiled an economic recovery plan that will not only jump-start the economy, but will put Americans to work building the foundation of a greener, smarter, more connected future,” said Arizona Gov. Janet Napolitano, who is Obama’s pick for U.S. homeland security secretary. “Obama’s plan makes the single largest new investment in our nation’s infrastructure since the creation of our national highway system in the 1950s,” Napolitano said in a prepared statement. “All states have highway, road, water and other infrastructure projects that are already approved and ready to build immediately upon federal investment. Shovels in the ground mean people back to work.” Related LinksFinally, Drama! A Geithner vs. Bair Clash?Worst of TimesIncentives for Inflation

It's an auto-finance company! No, it's a bank holding company! Wait. It's both—and it is yet another company getting a handout from Washington. G.M.A.C. will get $6 billion from Washington: The Treasury is buying $5 billion in senior preferred shares that pay an 8 percent dividend from G.M.A.C., and will lend it another $1 billion. The money is aimed at keeping G.M.A.C. able to lend to car buyers, thus contributing to the lifeline for General Motors, which before the government investment owned 49 percent of G.M.A.C. The private equity firm Cerberus Capital Management, which owns Chrysler, owned 51 percent before the Treasury stake. G.M. and Chrysler are receiving $13.4 billion from Washington, and ensuring that that money is not being spent in vain is the main reason for propping up G.M.A.C. It has been overused phrase during the financial crisis, but it can truly said of G.M.A.C. that it has suffered a perfect storm: Its auto-financing business has been hammered by the plunge in auto sales, its mortgage business has virtually collapsed in the housing slump, and it is struggling with is own debt in the financial crisis. Add to that its controlling stake by a private equity firm, Cerberus Capital Management, and you have a formula for trouble with a capital T, and that doesn't necessarily stand for TARP. Indeed, the money going to G.M.A.C., as the Wall Street Journal notes, raises the question about whether the government's rescue of Detroit could become open-ended. The Journal notes that Treasury has set up a separate program within the $700 billion TARP, which was intended for financial institutions, one that does not have a specific dollar limit. The agreement with Treasury comes amid some confusion over whether G.M.A.C. has achieved its goal of swapping at least 75 percent of some $38 billion in debt. The swap was aimed at reducing its debt load so that it could qualify as a bank holding company. Ahead of a deadline last Friday, the company had about 60 percent tendered. So did the government make an exception for G.M.A.C.?In any case, Felix Salmon points out that the holdouts in the swap now have reason to feel "pretty smug" about their decision: Their G.M.A.C. debt is senior to the preferred equity that Treasury is buying. Related LinksSign of a Bottom?W.M.D.? What W.M.D.?The Downside of CDS Demonization

Want to make a C.E.O. nervous? Ask him what he’s doing about raises. “Hold on, I need to close my door,” one C.E.O. said when he answered a reporter’s recent call on the topic. As year’s end approaches, many firms are making decisions about raises and bonuses for their employees. Those are sensitive, high-stakes decisions anytime. With a recession howling at the door and everyone uncertain about what next year will look like, the stakes have gotten even higher. “This is a real crapshoot on what’s going to happen next year,” said Richard Webb, C.E.O. of Atlantic Financial Federal Credit Union in Hunt Valley, Maryland. “All of our steps are going to be very cautiously taken to make sure we’re well planned.” Webb expects to propose to his board a 3.5 percent increase in salaries for next year. Webb, who belongs to an informal roundtable of credit union C.E.O.s, said most are considering increases in the 3 percent range this year. A.F.F.C.U. earned $726,000 in the first nine months of 2008, down by about 10 percent from last year, but loans and assets have grown. Despite the tough economic conditions, many companies are sticking close to their regular pay increases. On average, employers plan to increase base pay—salary or hourly wages—by 3.6 percent next year, according to a survey done in October by compensation consultant Mercer. Even after the credit crunch hit home, those numbers barely varied from employers’ predictions in April. But Mercer senior consultant Jeanie Adkins warned that employers’ plans are still very much in flux. In a November survey by Mercer, 73 percent of companies surveyed said they were likely to reduce what they had originally budgeted for salaries. Bonuses will take a bigger hit, as Mercer projects that short-term incentives for 2008 performance will decline 20 percent nationwide. And all those complaints about executives taking home big paychecks while running companies into the ground seem to have taken hold. Executives on average will get bonuses totaling 35 percent of their salary this year, down from more than 40 percent last year, Mercer said. Baltimore City’s government leaders recently learned the perils of giving raises to top leaders while slashing other parts of the budget. With city revenues under pressure, Mayor Sheila Dixon cut police overtime and said the city would consider all alternatives for budget cuts. But in November, a city panel recommended cost-of-living pay increases for top officials, and the Baltimore City Board of Estimates approved them. After public outcry, Dixon said December 11 that she would donate her 2.5 percent pay raise to charity. Several other council members also said they would donate their raises. “Trying to predict where business is going to be in 2009 is like trying to predict the weather,” said Michael Imgarten, president of United Source One, a Belcamp, Maryland-based international food distribution company. United Source One expects to pay bonuses equal to 5 percent to 10 percent of employees’ salaries this year. In recent years, the company has paid bonuses worth as much as 15 percent to 20 percent of employees’ salary. The firm expects 2008 revenue of $65 million—a 23 percent increase from last year—but that unexpected growth has been a drain on resources, Imgarten said. Hanover-based specialty contracting firm Structural Group makes its salary adjustments in April and will begin the process in January. “We’re monitoring what’s going on in the economy,” said company Vice President Brian Gallagher. “We still have a little bit of time.” The firm has averaged salary increases of about 4 percent in recent years, Gallagher said. Structural Group will likely give raises in 2009, but they may be slightly less than last year, he said. The firm had revenue of $480 million for the fiscal year ended Sept. 30. “We do not hold our employees responsible for the economy going up and down,” said Howard Schloss, C.E.O. of Industry Sales Co., known as Indusco, which makes and supplies wire rope and rigging gear. The firm’s fiscal year ends May 31, and it expects to give raises on par with what it has done in recent years, Schloss said, declining to provide specific figures. “We’re having one of our best years, but that may be impacted by the last few months,” Schloss said. The firm, which reported $50 million in revenue in 2007, has a long lead time on its projects, so the downturn could hit home later, he said. Related LinksA Great Leap ForwardC.E.O.'s on the Hot Seat Over Pay What to Watch For In Wisconsin & HawaII

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