Meltdown

[BachQ]

SUVs hit used car lots as consumers look to downshift into more affordable vehicles
By ADRIAN SAINZ , Associated Press
April 27, 2008

MIAMI - For used car dealer Ivan Hoyos, accepting a sport utility vehicle as a trade-in is no longer good business. The only SUV he's offering at his Florida Auto Sales and Finance is his mother's red 2004 Mitsubishi Endeavor.  "Nobody is buying used SUVs," said Hoyos, 35, who stopped accepting them six months ago. "The truth is more and more dealers are staying away from used SUVs and large trucks ... It doesn't pay. You can't have a unit sitting on the lot forever."
As gas prices pass $3.50 a gallon nationally and the economy teeters on recession, independent used car dealers like Hoyos and massive chains like AutoNation Inc. are having trouble selling used SUVs as buyers prefer smaller, more fuel-efficient vehicles likes hybrids and crossovers (CUVs). 

[BorisG]

SUVs, the Edsels of the 21st century? Good.

I welcome high oil prices, anything, to get these roadhogs out of my sight.

[BachQ]

Buffett says recession may be worse than feared
Mon Apr 28, 2008 11:09am EDT
By Jonathan Stempel



NEW YORK (Reuters) - Warren Buffett, the world's richest person, said on Monday the U.S. economy is in a recession that will be more severe than most people expect.  Buffett made his comments on CNBC television after his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) agreed to invest $6.5 billion in the takeover of chewing gum maker Wm Wrigley Jr Co (WWY.N: Quote, Profile, Research) by Mars Inc in a $23 billion transaction.

"This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think," Buffett said. "This will not be short and shallow.  "I think consumers are feeling gas and food prices," he added, "and not feeling they've got a lot of money for other things."
He was not immediately available for further comment. Known for his frugality, the 77-year-old Buffett has lived in the same 10-room Omaha, Nebraska, house for a half-century, despite being worth an estimated $62 billion.

On Wednesday, the U.S. Commerce Department is expected to say how fast the economy grew in the first quarter. Economists on average have projected that gross domestic product grew at an annualized 0.2 percent rate in the quarter.  Two quarters of declining GDP is a traditional indicator of recession. That last happened in 2001. Economists expect the U.S. Federal Reserve on Wednesday to cut a key lending rate for a seventh time beginning last September.  Berkshire is a $197 billion conglomerate best known for its insurance holdings, such as auto insurer Geico Corp, but it owns more than 70 businesses.
Many of those businesses are tied to the housing market, including Acme Brick Co, insulation maker Johns Manville, and the real estate brokerage HomeServices of America Inc.

[BachQ]

OPEC president sees $200 oil possible: report
Mon Apr 28, 2008 5:59am EDT

ALGIERS (Reuters) - OPEC President Chakib Khelil does not rule out oil prices reaching $200 a barrel, even though supply is adequate, because the market is driven by the dollar's slide, Algerian government newspaper El Moudjahid reported on Monday.  "Questioned about a possible rise which would go to $200, the minister did not rule out this eventuality, explaining that this rise is indexed from now on to the fall in the dollar or to the rise in the dollar," El Moudjahid reported.

"In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he was quoted as saying.  Khelil, a former World Bank official, is also Algeria's Minister of Energy and Mines.
He added: "The prices are high due to the fact of the recession in the United Sattes and the economic crisis which has touched several countries, a situation which has an effect on the devaluation of the dollar, and therefore each time the dollar falls one percent, the price of the barrel rises by $4, and of course vice versa," he was quoted as saying in brief remarks to journalists on Sunday.
He added that: "If this (the dollar) strengthens by 10 percent, it is probable that (oil) prices will fall by 40 percent."

If the U.S. economic situation improved from now to the end of the year "that would help the market to stabilize."  "But I don't think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years."  The independent El Watan newspaper reported Khelil as saying that if the dollar's value on currency markets stayed as it was at present, then oil prices would be expected to remain at between $80 and $110 a barrel.

[BachQ]

Gas Could Hit $10 a Gallon: Report
2008-04-28 12:40pm

The price of a gallon of gasoline could soon cost $10 - more than double what the average national price currently is - based on predictions by a pair of industry analysts.

Based on current market conditions and the volatile world in which we live, the analysts said, there is every reason to believe gasoline prices in the U.S. could skyrocket as the summer driving season approaches.

Their conclusion that gas prices could rise to somewhere between $7 and $10 a gallon are also based on indications crude oil prices could climb as high as $200 a barrel in a few years.

The chairman of Houston-based Dune Energy, Alan Gaines, told The New York Sun he sees prices rising to between $7 and $8. The other analyst, Sean Brodrick - a commodities tracker at Weiss Research in Jupiter, Fla. - believes gas will reach $8 - $10 a gallon, the paper reported.

Such prices would be a shock to the U.S., but drivers in Europe are used to paying as much as $9 a gallon - which includes a $2-per-gallon tax.

Early in 2007, when oil was hovering around $50 a barrel and gas prices averaging around $2.30 Gaines was accurate in his prediction that oil would soar above $100 a barrel and gasoline would reach $4 a gallon this summer.

But, the Sun reported, the prediction of $200 oil is more dubious, considering it would cause major economic distress in the U.S. and the world.

"Further, just about every expert I talk to cautions me to expect a sizable pullback in oil prices, maybe to between $50 and $70 a barrel, expecially if there's a global economic slowdown," Sun writer Dan Dorfman said.

[BachQ]

Gas prices hammer small businesses
Service providers look to cut costs

By KEN SUGIURA
The Atlanta Journal-Constitution
Published on: 04/28/08

The miles pile up on Stephanie Wiernik's Ford Ranger, and the math makes less and less sense.
For six years, Wiernik has been the rare violin teacher who traveled to students' homes to give lessons.
"I enjoy that, because it makes me more a part of their family culture," said Wiernik, 29, of Woodstock.
But with gas prices at record levels and still rising, Wiernik has concluded she has to make a change to make the job worthwhile — raising fees or having students come to her are two options."It doesn't make sense, money-wise, to drive to people's houses," she said.

The bite of historically high fuel prices has snared even young violinists. Those reliant on their cars and trucks to make a living — couriers, plumbers, mobile dog groomers — are making changes to stay afloat.
"It's costing me about $500 a day to run six trucks," said Jonathan Perez, owner of a Duluth air conditioning and heating service company. "It's a huge impact on our business."

Perez has made some difficult concessions to gas prices. Two weeks ago, he bumped up the cost of a service call from $55 — the price it had been since he went to work for his father nine years ago — to $65. While Perez' Cool Masters companyprides itself on same-day service, dispatchers now wait a day or two until more calls arrive in the same area to cut down on trips.

Perez estimates that three out of 10 potential customers go elsewhere when they learn of the wait time.
Previously, fuel costs were not "a major factor in our overhead," Perez said. "Now it's the first thing we have to think about."

At Marietta Dodge, the Sprinter cargo van has become an increasingly popular purchase. Business link manager Don Garner said he has sold about 100 Sprinters, noted for their fuel efficiency, since January.
Among his customers is Superior Plumbing in Kennesaw, which says it is benefiting, relatively speaking, from its decision to switch its entire fleet of cargo vans to the Sprinter. Owner Jay Cunningham said the Sprinter gets about 20 miles per gallon compared with about 10 mpg in the old vans.

"When you're using what feels like hundreds of gallons an hour, you want to look at that idea seriously," he said.

Fuel efficiency is a drain for Sonya Sanchez, a mobile dog groomer. Her ambulance-sized truck putters along at 9 mpg, she said. The truck is saddled with 80 gallons of water, adding about 640 pounds.
She spends between $1,600 and $2,000 on gas monthly. Because of the extra costs, she says her assistants take home more money than she does.
In an Atlanta Journal-Constitution article in November 2006, Sanchez touted mobile businesses — office supplies, veterinarians, car service and the like — as the wave of the future.

Now, she said, "I don't know how they're hanging on."

In a typical year, Georgia Messenger Service, a courier in the Doraville area, might raise rates once, possibly twice. However, because of gas increases, the company has already raised rates twice since January."We have a heart, too," said vice president Kenny Overby. "It hurts us to have to do it."
Wiernik knows all about it. Teaching the violin helped put her through college and has been her full-time job for five years. When considering raising her fees — between $20 and $37.50 for a half-hour lesson — she anguishes over squeezing out middle-class students.

But, with students spread out across Cobb and north Fulton counties, she doesn't think she has a choice as long as gas prices stay high.

At the end of the school year, she said, "I'm putting on my ruthless face."

[BachQ]

Brazil Oil Trapped by 500-Degree Heat, Salt Barrier (Update2)
By Joe Carroll

April 28 (Bloomberg) -- Brazil's plan to become one of the world's biggest oil exporters hinges on exploiting crude 6 miles below the ocean surface in deposits so hot they can melt the metal used to carry uranium to nuclear plants.

Tapping what may be the biggest oil finds in the Western Hemisphere in three decades will require equipment that can withstand 18,000 pounds per square inch of pressure, enough to crush a pickup truck, pipes that can carry oil at temperatures above 500 degrees Fahrenheit (260 Celsius) and drill bits that can penetrate layers of salt more than one mile thick.

Petroleo Brasileiro SA, the state-controlled oil company, is betting on the Tupi and Carioca fields to become one of the world's seven biggest crude exporters. Until the tools needed to exploit the reservoirs are invented, the crude will remain locked under the sea, said Matt Cline, a U.S. Energy Department economist.

``This is a very, very technically challenging environment where no one's ever done this,'' Cline, who tracks the Latin American oil industry, said in a telephone interview from Washington. ``These discoveries are in very deep water, and once you get to the seabed they are very deep under the floor, with a layer of salt that is definitely a difficult barrier.''

Brazil's oil will be harder to develop than the Gulf of Mexico, where the deepest wells are now in production, Cline said. Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. oil companies, saw diamond-crusted drill bits disintegrate and steel pipes crumple when they attempted to tap deposits beneath the Gulf's seafloor two years ago.

Uncharted Depth

Pumping oil from the Brazilian finds, parts of which are 32,000 feet (10,000 meters) below the ocean's surface, will require boring almost twice as far down as the world's deepest producing offshore well.
The obstacles will discourage development unless crude prices stay high, said Tina Vital, an analyst at Standard & Poor's in New York. U.S. oil futures, which reached a record at $119.93 a barrel in after-hours electronic trading yesterday, have jumped 81 percent in the past year.

Engineers will have to overcome temperatures that range from near freezing above the ocean floor to temperatures that can melt bismuth, used for transporting uranium rods and for shotgun shells. Layers of salt will also increase the challenge because the crystals absorb seismic waves used to pinpoint oil deposits.

Seismic Issue

``The seismic issue is important because if you don't identify the location of the oil properly, you're going to waste a lot of money when you drill the hole in the wrong spot,'' said Vital, a former Exxon engineer.

Brazil pumped 2.13 million barrels of oil a day in the last three months of 2007, more than OPEC members Angola, Libya and Algeria.

Tupi, 155 miles (250 kilometers) off Brazil's coast, may begin production by 2012, according to consulting firm Strategic Forecasting in Austin, Texas. The field may have 8 billion barrels of recoverable oil.

No start date has been set for Carioca, which Petroleo Brasileiro said will take at least three months to evaluate. A Brazilian regulator said this month the reservoir may have 33 billion barrels.
If confirmed by further drilling, the reserves will be triple the size of Alaska's Prudhoe Bay, the largest U.S. field.

Record Depth

The ocean-depth record for production was set last year by Anadarko Petroleum Corp. The company is extracting natural gas from beneath 8,960 feet of water in the Gulf of Mexico, where pressure measures 3,069 pounds per square inch, squeezing joints and tearing at seals.

``What we do at that water depth in the ocean is similar to NASA's space program, but they get to do it without any pressure trying to attack them,'' Kevin Renfro, production engineering manager at Woodlands, Texas-based Anadarko, said in a November interview.

Petrobras hasn't said how much it spent to sink wells at Tupi and Carioca. Similar drilling by Exxon and Chevron Corp. in the Gulf of Mexico cost $180 million to $200 million for each well.
``A big find might not be a good find if it costs so much to develop that it's not commercially viable,'' S&P's Vital said. ``We don't have any idea at all yet of all the costs that are going to be involved. Those costs are going to set the floor for oil prices.''

$50,000 Drill Bits

Chevron, which has the deepest Gulf of Mexico exploration well, including distance below the seafloor, destroyed as many as a dozen $50,000 drill bits at each of the 14 wells in its $4.7 billion Tahiti project.
Exxon Mobil abandoned a Gulf project that would have been the deepest well after pressure and heat shut down the venture in August 2006. The Irving, Texas-based company developed pipes tough enough to withstand temperatures that would shatter regular steel at its Sakhalin-1 project in Russia. The metal may help make Brazil's offshore fields accessible, Vital said.

``These challenges in the Brazilian offshore area are too great for any one company or even country to be able to digest themselves,'' Vital said.

[BachQ]

Retail gasoline price hits record $3.60/gallon: EIA
Mon Apr 28, 2008 4:47pm EDT

WASHINGTON (Reuters) - The U.S. average retail price for gasoline skyrocketed 9.5 cents over the last week to a new high of $3.60 a gallon, the federal Energy Information Administration said on Monday.
The national average price for regular, self-service gasoline is up 63 cents from a year ago due to high crude oil costs, which on Monday reached a record $119.93 a barrel at the New York Mercantile Exchange.

The pump price has jumped 21 cents a gallon in the last two weeks alone and is expected to keep climbing.

The EIA's weekly survey of service stations showed gasoline was the most expensive on the West Coast at $3.79 a gallon, up 5.2 cents. San Francisco had the highest city price at $3.92, also up 5.2 cents.

The Rocky Mountain states had the lowest regional price at $3.48 a gallon, up 6.2 cents. Houston had the best bargain at the pump, up 8.1 cents to $3.47.

Separately, the average price U.S. truckers paid for diesel fuel reached a new record of $4.18 a gallon, up 3.4 cents in the last week and $1.37 higher than a year ago, the EIA said.

The central Atlantic states had the most expensive diesel at $4.38 a gallon, up 0.6 cent. The Gulf Coast region had the cheapest fuel at $4.11, up 3.6 cents, the EIA said.

Truckers on Monday drove their big rigs through downtown Washington and held a rally at the Capitol to protest high diesel prices. It costs about $1,200 to fuel up a tractor trailer.

Rising fuel costs could increase the cost of goods transported by trucks, including food, retail and manufactured goods.

[Sean]

What's the price of oil today? Is it over $120 yet? Is peak oil happening now? I hope not.

[Al Moritz]

Glenn Beck: U.S. is a suicidal superpower

http://www.cnn.com/2008/US/04/24/beck.oil.prices/index.html?iref=mpstoryview

NEW YORK (CNN) -- If you're a poor sap who needs to eat or drive in the near future, then you might want to consider taking out a second mortgage (assuming you could even get one) pretty soon.

Food and gas prices have been all over the news lately, and even a big dumb rodeo clown like me can see that it's all connected. Our policies, which try to cater to everyone from oil company executives to environmentalists, end up benefiting no one -- and now we're all paying the price.

I know that real economists probably will say that the causes of these skyrocketing prices are extremely complicated to understand, but the truth is that it's actually pretty simple: We've done this to ourselves.

I don't know if it's because of our arrogance, our stupidity or maybe both, but I believe that history may one day judge America as the most suicidal superpower of all time. After all, what country that cares about its future would do what America has done to its supply of food and fuel, two of the most critical things that any civilization needs to survive?

For example, look at the way we treat our food supply. We've spent decades giving billions of dollars in government subsidies with incentives for the wrong things, we've mandated that huge areas of farmland stay open for "conservation" and we're using grains that could feed tens of millions of people to make a crappy biofuel that you can't even buy anywhere.

That's not arrogance?

Our fuel policy has been even more absurd. We're completely dependent on foreign countries, many of whom hate us, to keep our trucks moving, our planes flying and our homes warm.

That's not arrogance and suicidal stupidity?

Take a look at the top five countries we currently rely on for oil imports. You tell me if these are the five you would choose if you were creating your own world superpower from scratch: Canada, Saudi Arabia, Mexico, Nigeria, Venezuela.

Aside from Canada, that's not exactly a "Who's Who" list of stable, America-loving countries.

And if you think I cut off the list at five because the next five are so friendly, think again. Here's the next five: Iraq, Angola, Kuwait, Colombia, Ecuador.

The point is that we don't control our own destiny, foreigners do. Despite bipartisan hatred for high oil prices, they've gone up 49 percent since 2006. If we could've done something, anything, to stop that, we would have. But the sad fact is that we can't.

That's why, instead of offering real solutions, most politicians offer something else: blame. Democrats blame Republicans, Republicans blame Democrats, and nothing ever gets solved. President Bush provided a good example of that last week when he was asked about high oil and gas prices.

"We've had an energy policy that neglected hydrocarbons in the United States for a long period of time, and now we're paying the price. We should have been exploring for oil and gas in ANWR, for example," he said. "But, no ... our Congress kept preventing us from opening up new areas to explore in environmentally friendly ways. And now we're becoming, as a result, more and more dependent on foreign sources of oil."

Personally, I think the president is right; we should be drilling in the Arctic National Wildlife Refuge. In fact, we should've been drilling there a decade ago, but that's not the point anymore. Opening ANWR now would be like stopping at the bathroom on your way to the electric chair; you're only delaying the inevitable.

Should we still do it? Yes. Frankly, we need all the time we can buy ourselves to find a long-term solution; our nation's very survival is at stake. But ANWR is not the answer, it's a Band-Aid, and I worry that our shortsighted politicians would use it as an excuse not to look for viable replacements for oil, which is what we really need.

Fortunately, there is some good news in all of this: Oil prices this high mean that a lot of formerly dismissed alternatives will finally make good economic sense.

For example, back in 1980, Congress passed the Energy Security Act, which led to the creation of something called the Synthetic Fuels Corp. (SFC). Lawmakers provided SFC with up to $88 billion in loans and incentives to get started (the equivalent of about $230 billion in today's dollars) with the goal of creating two million barrels a day of synthetic oil within seven years.

So why aren't you putting SFC oil into your SUV right now? Well, it turns out that members of the Organization of Petroleum Exporting Countries didn't appreciate the competition so they started bringing down the price of oil. From 1980, when SFC launched, to 1986, when it was shut down, oil went from more than $39 a barrel to less than $8 a barrel. Suddenly, synthetic oil didn't seem so important anymore.

In announcing the SFC's closure, then-Energy Secretary John Herrington said that oil prices had simply dropped too low to make it a viable business.

But the good news is that those economics don't work anymore. The state of Montana, which is leading the synthetic fuel charge, says we can now make it for somewhere around $55 a barrel. That's more than a 50 percent discount from what it costs to buy the real stuff.

It's the opportunity of a lifetime, a chance to use OPEC's price gouging and monopoly against it.

So let me be the big, dumb rodeo clown once again and ask the obvious question: Why aren't we doing it?

[Al Moritz]

http://en.wikipedia.org/wiki/Synthetic_fuel

[BachQ]

We've done this to ourselves.

Precisely.  We're our own worst enemy.

[BachQ]

Opening ANWR now would be like stopping at the bathroom on your way to the electric chair; you're only delaying the inevitable.

  (also very true!)

[MN Dave]

Precisely.  We're our own worst enemy.

Well duh. 

Our time is over. We blew it.

[BorisG]

BP and Shell post big profits in era of record oil prices

By Jane Wardell, AP Business Writer, Tuesday April 29, 11:02 am ET

BP and Shell post forecast-busting first quarter profits on back of record oil prices

LONDON (AP) -- BP PLC and Royal Dutch Shell PLC, Europe's two biggest oil producers, posted forecast-busting first-quarter earnings on Tuesday thanks to record crude oil prices that are expected to bolster profits across the industry.
The combined profits of $17 billion reignited calls for a windfall tax on oil profits as consumers struggle to pay for food and fuel.

British Prime Minister Gordon Brown suggested that some of those profits should be reinvested in costly exploration for new oil reserves in the North Sea.

BP posted a 63 percent surge in first-quarter net profit to $7.6 billion (4.9 billion euros), while Shell reported a 25 percent rise, to a record $9.08 billion (5.81 billion euros).

Revenue at BP jumped 44 percent to $89.2 billion (57.1 billion euros), while sales at Shell soared 55 percent to $114 billion (72.95 billion euros).

Last week ConocoPhillips reported a 16 percent rise in net income to $4.14 billion. Like BP and Shell, the third biggest U.S. producer far outpaced industry expectations. More big profits are expected from the biggest two U.S. companies, Exxon Mobil Corp. and Chevron Corp., when they report first-quarter earnings later this week.

Crude oil hit $111.80 per barrel during the quarter, while gas jumped an average of 22 percent. Crude has pushed even higher since, reaching a record $119.93 per-barrel this week.

BP shares jumped 5.7 percent to 611.5 pence ($12.06, while Shell rose 5.2 percent to 26.03 euros ($40.51).

The enormous profit reports from European companies coincided with the end of a two-day refinery strike in Britain that shut off 700,000 barrels of oil per day, brought from the North Sea to a BP plant.

Truck drivers staged a protest in London's Park Lane on Tuesday, blaring their horns to protest a 30 percent rise in the price of diesel over the past year. A similar protest took place in Washington, D.C. on Monday, and it wasn't the first.

"The price of fuel is becoming something many families are struggling with," said Sheila Ranger, a spokeswoman for the RAC Foundation, a commuter advocacy group. "This will be the last straw for some motorists."

Shell's Chief Financial Officer Peter Voser said oil companies are not to blame.

"We don't understand the oil price at this stage," he said. "The fundamentals will not justify an oil price as we see it at the moment."

Shell's earnings from oil production rose 52 percent to $5.14 billion (3.3 billion euros), due almost entirely to the price increases. The company said combined production of gas and oil equivalents increased by less than 1 percent to 3.4 million barrels per day, as a 9 percent rise in gas production outweighed a 6 percent fall in oil production.

Stripping out the impact of oil inventories that have risen in value, refining profits would have fallen 20 percent, Shell said.

"It seems that better marketing and trading were able to offset the weak refining environment," analyst Alexandre Weinberg of Petercam.

Shell has invested heavily to improve production after a string of setbacks, including an accounting scandal in 2004. More recently, it has faced attacks on its pipelines in Nigeria and a forced sale of part of its stake in a major project on Russia's Sakhalin Island to a state-run enterprise.

BP's profit follows an even rougher period for the company from production outages, U.S. environmental fines and fraud and the scandal-tinged departure of its chief executive.

Chief Executive Tony Hayward, who took over from John Browne a year ago, has focused on bringing new production and refining capacity on line to improve earnings.

"At last, it appears that BP is beginning to improve its operational performance and this looks set to drive a stronger financial performance in the second half," said Tony Shephard, analyst at Charles Stanley & Co.

BP's closely watched replacement cost profit rose 48 percent to $6.59 billion (4.34 billion euros), compared with $4.44 billion in the first quarter of 2007. The replacement cost figure is viewed by many analysts as the best measure of an oil company's underlying performance because it excludes changes in the value of crude inventories, measuring the amount it would cost to replace assets at current prices.

The company said refining availability improved for the sixth successive quarter.

"BP is still not firing on all cylinders but its operational turnaround looks to be on track with a strong second half recovery in prospect," said Charles Stanley & Co. analyst Tony Shephard.

AP Business Writer Toby Sterling in Amsterdam contributed to this report.

[bwv 1080]

New York Bank Failure


In The Bronx, N. Y., a small merchant went to a branch of Bank of United States and asked officials to buy his stock in the institution. They told him to keep it, that it was a good investment. He misunderstood, and by late afternoon a good-sized run had developed. Police kept clamorous depositors in line. The bad news spread to other branches.

That afternoon most of the great bankers of New York gathered on the tenth floor of the Federal Reserve Bank of New York. Specifically, their meeting was precipitated by the run on Bank of United States. But actually the run was only the climax to weeks of silent withdrawals, months of rumor, two attempts to merge Bank of United States with three other banks (TIME, Dec. . Only two days before the run, it was announced that the second attempt to merge had failed.

To the bankers' meeting came about 100 executives. Practically all of the great Manhattan institutions were represented. A late arrival was Charles Edwin Mitchell of National City Bank. He found the door locked, turned to a guard and said: "I am Mr. Mitchell."

"That doesn't impress me," responded the guard.

Eventually Mr. Mitchell was admitted. The gathering he saw was probably as great in dollar-power as any similar meeting ever held. Perhaps Mr. Mitchell recalled the momentous meeting in 1907, the year he arrived from Chicago to start his Manhattan banking career.*

The room into which Mr. Mitchell was admitted was the Governor's Room. Soon the bankers began breaking up into little groups, wandering through the building, earnestly and gravely discussing what should be done if Bank of United States failed.

Another late arrival was lanky Owen D. Young who came about 11 p. m. in full dress, accompanied by Thomas William Lamont of J. P. Morgan & Co. Looking taller than usual in his full dress, Mr. Young paused to peer down at and converse with small, able Isidor Kresel, counsel for Bank of United States, also the busy new special investigator of New York's magistracy scandals. Shortly before 3 a. m. Lieutenant Governor Herbert H. Lehman came, was hurriedly ushered into the conference room by James Herbert Case, chairman of Federal Reserve Bank of New York, who, for the public good, had previously agreed to head the merger into which Bank of United States failed to go.

Not until 3 a. m. did the bankers begin to leave. And not until 4 a. m. did the entire conference disband. Then Joseph A. Broderick, Superintendent of Banks in New York State, announced that he would have something to say in the morning. Reporters easily guessed what it would be, were sorry that their morning papers could not carry the sensational news that the Superintendent of Banks had taken over Bank of United States.

To the bank's depositors, many of whom were in line by 9 a. m., the news brought some hysteria. To the Stock Exchange, unsettled all week by fear of this development, the news brought uncertainty, alternate selling and buying. To the market in bank shares it brought much selling. If the Bronx merchant who had tried to sell his Bank of United States stock the day before had succeeded, he would have received 11½a share. After the closing, he would have been lucky to get more than $3. Last year this stock sold at $240.

But while the late conference of the preceding night had failed to prevent the closing, it had at least given bankers a definite plan of action. To all European. houses and newspapers assurance had been sent that Bank of United States, despite its imposing name, was only a small State bank, had no connection with the U. S. Government. And with unprecedented speed, members of New York Clearing House announced they would lend 50% of Bank of United States' deposits as soon as balances could be checked. Proudly signing the Clearing House statement were two banks which had contemplated entering the four-ply merger—Manufacturers Trust and Public National Bank.∙Their admission to the Clearing House relieved many a person of worry.

The troubles of Bank of United States began shortly after it entered a vigorous period of expansion. For many months its deposits have fallen, and it is estimated that now $160,000,000 is tied up against $212,000,000 on deposit Oct. 17. Half of the deposits are thought to be in thrift accounts.† Many large accounts were also tied up. The Salvation Army had on deposit $50,000 of the proceeds of the Army-Navy charity football game (see p. 34). J. C. Brownstone & Co., a clothing firm whose senior partner is a Bank of United States director, had the bulk of its liquid assets in the bank, asked for a receiver. Burns Bros. Coal dropped sharply on the Exchange on rumors that it too was involved, but the company announced it had less than $100,000 in the bank. The City of New York sought in vain to release a $1,500,000 deposit. Another big depositor was Industrial Council of Cloak, Suit & Skirt Manufacturers. The bank has around 400,000 depositors, 23,000 shareholders. Last week the State was busy investigating reports that the bank had sold stock to depositors at $198 a share, promised repurchase in the event of a decline, an illegal banking act.

The immediate difficulties are supposed to lie in large frozen assets, consisting of loans on mortgages, real estate and buildings, loans to the garment and fur trades. The bank's exact position will not be known for a long time, but the official hope that it will be reorganized is not widely accepted.

Conservative Manhattan bankers last week were angry at Bernard K. Marcus, dark-haired, heavily-built president of Bank of United States. His aim was perhaps much too high. Only last year he stated: "Often we've put two or three days work into one. We have gone ahead two or three times as fast as we would have had we been working only one day at a time." To bankers, a day's work is a day's work, to be done well, thoroughly. Constantly repeated was the story that at every conference Banker Marcus had adopted an attitude of "You know you are afraid to let my bank fail, so meet my terms." Complicating the bank's affairs is the existence of 57 subsidiary companies which are believed to have borrowed $20,000,000 of the bank's funds.

Significance. Many a banker argued late and loudly over the question of whether the big organizations ought to have prevented the failure of Bank of United States, cost what it might. One side said it would have been worth $50,000,000 to prevent fear from spreading through the ranks of the financially ignorant. The other side said that in helping the weak the strong impair their own strength, and hence the fundamental strength of the country. Agreed: It depends upon the particular case.

[bwv 1080]

The Biggest Bankruptcy Ever

THE nation's largest railroad succumbed last week to a lethal combination of politics, tight money, mismanagement and fumbled Government rescue efforts. A federal court ordered the tottering Penn Central Transportation Co. into a bankruptcy reorganization. The order prevents creditors from collecting a mountainous debt, while permitting trains to run as usual. Its impact was felt far beyond the railroad. The Penn Central's financial collapse, largest in U.S. corporate history, spread anxiety among businessmen and Government officials about the fortunes of several other large corporations—to say nothing of other railroads.

There have been widespread, but so far unconfirmed, rumors that some conglomerates, airlines and other fast-expanding companies are in money trouble. In Philadelphia, Dolly Madison Industries, an overbuilt conglomerate, last week petitioned for a bankruptcy reorganization. So did Four Seasons Nursing Centers, a large Oklahoma-based chain.

Both the Penn Central debacle and the general corporate cash bind raised concern about the precarious condition of the commercial-paper market (see following story). Like Penn Central, many companies have been using short-term borrowings in that market to finance long-term projects, a classic formula for disaster. Now corporations with anything less than top credit ratings will find increasing difficulty in selling their own notes and bonds, even to refinance existing debts.

Potential for Mischief. It was the Penn Central's liquidity crisis that forced the railroad to declare insolvency. In his petition to the court, Chairman Paul Gorman said that the line was "virtually without cash, unable to meet its debts, [and] has no means of borrowing." The petition declared only that the company could not repay $9,795,000 in commercial notes and $21,900,000 in debt and rental charges on its equipment, all due by July 1. But that is a minuscule part of the railroad's financial woes.

The transportation company lost $182 million last year, and by Government estimate is highballing toward a $150 million deficit this year. Though the railroad's parent holding company, Penn Central Co., has assets of nearly $7 billion, the bulk of its salable holdings of real estate, securities and other non-rail property is already pledged to secure some $2.6 billion of debt, including $700 million falling due this year.

Three weeks ago the Administration agreed to help the railroad by letting the Defense Department underwrite $200 million in bank loans. But that plan ran into such severe political fire from key Democrats in Congress that the Administration withdrew its offer. The critics threatened to make an election issue out of the loan by portraying it as a bailout for the Administration's friends in big business and banking. "The potential for political mischief really scared people," says a top Administration official.

Many Congressmen and Senators questioned whether the Government ought to come to the aid of any private company—large or small—with a record of sloppy management. The hardest blows were struck by Wright Patman, chairman of the House Banking Committee. A Texarkana Populist who detests both big city banks and railroads, Patman attacked the legality of the Administration's plan to guarantee the loans under the Defense Production Act.

Delaying the Debtors. With that, Penn Central executives hastily presented the bankruptcy petition. The bankruptcy covers only the Penn Central Transportation Co. (1969 assets: $4.6 billion), which operated the railroad. Neither the parent Penn Central Co. nor the several solvent subsidiaries of the railroad corporation were immediately affected. Among the latter are the Buckeye Pipe Line Co., a 7,000-mile network of petroleum lines; Arvida Corp., which is developing land and apartments on 35,000 acres in Florida; and Great Southwest Corp., which has extensive housing and other realty ventures in California, Texas, Georgia, Hawaii and Missouri. Ultimately, the courts will decide whether, as congressional critics of the Penn Central insist, the profits and property of the railroad's affiliates should be siphoned off to meet its debts.

In ordinary bankruptcy proceedings, the assets of the company are turned into cash, which is distributed among creditors. The Penn Central, however, filed under Section 77 of the federal Bankruptcy Act, which is designed to help railroads delay paying their debts while they keep running. Since the start of the Depression, some three dozen railroads have been reorganized under Section 77, and none have gone out of business. The process often requires 20 years. Last week the Philadelphia district court picked Judge John P. Fullam, 48, to handle the Penn Central case.

Fullam's first big job, after a mid-July hearing, will be to appoint one or more trustees to run the railroad. The trustees will have the power to float new loans to keep the line operating. While waiting for those loans, Transportation Secretary John A. Volpe warned last week, the railroad may have to shut down for lack of cash to meet expenses, which include the $20 million a week payroll for its 94,000 employees. Said Volpe: "I don't believe any of us can say with any degree of certainty if the payroll will be met or not."

Volpe may have been exaggerating in order to gain support for an Administration bill to aid the Penn Central and other impoverished railroads. That measure would empower the Transportation Department to underwrite up to $750 million in private loans. Volpe said that four or five more railroads might soon follow the Penn Central into bankruptcy unless federal aid is forthcoming.

Whether the Penn Central failure foreshadows further trouble for the U.S. economy remains to be seen. Most bankers and economists consider chances of a money crisis to be slight, but they add a crucial qualifier: provided there is no unexpected series of bankruptcies among big companies. When the federal financial managers last year severely restricted the money supply in order to hold back inflation, they knew that there would be some business failures—though they hardly expected the world's largest transportation company to go under. By most measures, the recession so far has been mild, and it has succeeded in breaking an inflationary psychology. In May, the wholesale price index rose at an annual rate of 1.2%, after four straight months of 3.6% gains. Profit-starved companies have been reducing their capital spending and inventories, and such moves should help relieve the squeeze on corporate cash during the next few months.

Meanwhile, consumers are accumulating a great deal of spending power, which could later help to revive the economy. The personal savings rate has rebounded. Personal income, already increased by raises in social security benefits and Government pay, will rise further with expiration of the 5% income tax surcharge this week. Most important, the Federal Reserve has been feeding money into the economy at a brisk though uneven rate since February. But since it usually takes nine months for a change in money policy to turn the economy around, business is not likely to start picking up until late this year or early in next year.

[BachQ]

The truth is that peak oil has already had an impact on all of the major events of this young century. And it will have a major impact on all of our lives at a most personal level in the years to come. The public needs to be informed. Our civilization is about to undergo a radical change unparalleled in history. And those we are allowing to call the shots are more concerned with their own personal gain than with the general welfare.



ALso,
http://blogs.earthsky.org/beverlyspicer/2008/04/28/the-waking-up-syndrome/

[BachQ]

Bush Blames Congress for Failing to Act on Energy (Update1)
By Roger Runningen

April 29 (Bloomberg) -- President George W. Bush blamed Congress for blocking his initiatives to mitigate rising energy costs by expanding domestic production and said lawmakers also are delaying action on other measures to address higher food costs and the mortgage crisis.  ``It's a tough time for our economy,'' Bush said at a news conference today at the White House. While the public is demanding action, ``on many of these issues, all they are getting is delay.''  Bush said lawmakers have been ``vocal'' in opposing measures to expand U.S. oil production, including exploration in the Arctic National Wildlife Refuge.

He dismissed calls by to stop oil purchases for the Strategic Petroleum Reserve. A group of 14 Senate Republicans earlier today asked Bush to stop filling the reserve to ease price pressures, matching a similar request previously made by Democrats in the House.  Bush said ``it is in our national interest'' to get the reserve filled, and halting purchases wouldn't lower the cost of oil because it amounts to 0.10 percent of global demand.  ``I have analyzed the issue and I don't think it would affect price,'' Bush said.

Gasoline Taxes

In the presidential campaign, Democrat Hillary Clinton and Republican John McCain propose a ``gas tax holiday'' by suspending the 18.4-cent per gallon federal gasoline tax and the 24.4-cent tax on diesel fuel. Democrat Barack Obama opposes a tax suspension, saying it will do little for consumers and divert money needed for highway and bridge repairs.  Bush said he would ``take a look'' at any proposals that may come from Congress. He said Congress would open more domestic land to oil exploration if it was ``truly interested'' in solving the problem of high gas prices.  Gasoline is averaging $3.60 a gallon nationally, up 66 cents from a year ago. Diesel, used by trucks that transport many goods to retailers, is at $4.24 a gallon, up from $2.92 last year, according to a survey by the American Automobile Association.  He declined to say whether the U.S. economy is in a recession.  ``Economists can argue over the terminology,'' Bush said. ``The average person doesn't really care what we call it.''

Food Prices

On the rising cost of food, which Bush said is related to higher energy prices, the president said lawmakers also were partly at fault because they have failed to overhaul the ``massive, bloated'' farm bill. Now is the time for ``reducing unnecessary subsidies'' to wealthy farmers, he said.
``We are deeply concerned about food prices here at home,'' he said. This year, Bush said, the U.S. would be ``generous'' in food donations because of scarcities overseas.
He also called on lawmakers to act on his proposals to ease the housing crisis.
``Americans should not have to wait any longer for their elected officials to pass legislation to help more people stay in their homes,'' Bush said.
Home prices in 20 U.S. metropolitan areas fell in February by the most on record, pointing to an imbalance between supply and demand that shows no sign of ending.
Prices will probably keep sliding as foreclosures push even more properties onto the market just as stricter lending rules limit the number of qualified buyers. Shrinking home values have contributed to a slowdown in consumer spending that may already have tipped the economy into a recession.

[BachQ]

We Must Imagine a Life Without Oil
By Mark Hertsgaard, The Nation
Posted on April 29, 2008, Printed on April 29, 2008
http://www.alternet.org/story/83548/

It used to be that only environmentalists and paranoids warned about running out of oil. Not anymore. As climate change did over the past few years, peak oil seems poised to become the next big idea commanding the attention of governments, businesses and citizens the world over. The arrival of $119-a-barrel crude and $4-a-gallon gasoline this spring are but the most obvious signs that global oil production has or soon will peak. With global demand inexorably rising, a limited supply will bring higher, more volatile prices and eventually shortages that could provoke -- to quote the title of the must-see peak oil documentary -- the end of suburbia. If the era of cheap, abundant oil is indeed coming to a close, the world's economy and, paradoxically, the fight against climate change could be in deep trouble.
Though largely unnoticed by the world media, a decisive moment in the peak oil debate came last September, when James Schlesinger declared that the "peakists" were right. You don't get closer to the American establishment and energy business than Schlesinger, who has served as chair of the Atomic Energy Commission, head of the CIA, Defense Secretary, Energy Secretary and adviser to countless oil companies. In a speech to a conference sponsored by the Association for the Study of Peak Oil, Schlesinger said, "It's no longer the case that we have a few voices crying in the wilderness. The battle is over. The peakists have won." Schlesinger added that many oil company CEOs privately agree that peak oil is imminent but don't say so publicly.
One who does is Jeroen van der Veer, CEO of Royal Dutch Shell. Without using the term "peak oil," van der Veer warned in January, "After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand."
Of course, peak oil could arrive sooner than 2015; columnist George Monbiot has claimed in the Guardian that a Citibank report calculates the date at 2012. But even 2015 leaves a very short time in which to prepare, because modern societies were built on cheap, abundant oil.
"The world has never faced a problem like this," warned a 2005 study funded by George W. Bush's Energy Department. "Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary."
The United States, with its two-hour commutes, three-car families, atrophied mass transit and petroleum-based food system, is most vulnerable to an oil shock. But similar vulnerabilities exist in most industrial societies, not to mention the roaring economies of China and India, where oil consumption is rising faster even than GDP as newly middle-class consumers buy the cars they have long dreamed of.
At first glance, one might think that peak oil would help the fight against climate change. After all, less available oil should translate into less oil consumption and lower greenhouse gas emissions. But modern civilization, to borrow George W. Bush's term, is addicted to oil. If peak oil arrives before the addiction is treated, the junkie will seek even more dangerous ways to get his fix.
Indeed, this is already happening. In Canada, energy companies are mining so-called tar sands -- a mix of sand, water and heavy crude oil that can be refined into usable petroleum. But burning tar sands is about the worst thing to do if we want to avoid catastrophic climate change because the resulting petroleum has a much greater carbon footprint than conventional oil. Currently, a dozen such projects are under way; projects awaiting approval would quadruple the emissions those projects generate. One encouraging sign: in response to a lawsuit filed by Ecojustice, the top federal court in Canada has temporarily blocked a tar sands project proposed by an ExxonMobil subsidiary on climate change grounds. "This is something which will clearly apply to every single oil-sands project that comes before environmental assessment of any kind," said Sean Nixon, a lawyer for Ecojustice Canada.
More encouragement: some high-level government officials recognize the danger of peak oil and may be contemplating action. British Foreign Secretary David Miliband wants his country to consider creating "a post-oil economy." New York Governor David Paterson has spoken in detail about the imminence of peak oil and what government can do about it: invest in greater energy efficiency in the short term and new low-carbon energy sources in the medium to long term. Plug-in hybrid cars, for example, can get more than 100 miles per gallon -- double that of today's generation of hybrids. And if the plug-in hybrids rely on electricity generated by solar, wind or other green energy sources, they fight climate change and peak oil at the same time.
Finally, activists in scores of towns and cities around the world are trying to prepare their communities for the transition to a post-oil economy. Rather than wait for national governments and multinational corporations to save them, these ordinary citizens are examining how their communities can produce their own energy, food, buildings and other essentials using local resources rather than materials that arrive from afar via oil-based transport. "Economic relocalization will be one of the inevitable impacts of the end of cheap transportation fuels," argues peak oil theorist Richard Heinberg. In Britain this movement has taken the form of "transition towns," which seek, in the words of organizer Rob Hopkins, "to design a conscious pathway down from the oil peak." Drawing on the experience of his hometown of Totnes, in Devon, Hopkins has just published The Transition Handbook, which explains how other towns can also begin preparing for the post-oil future.
Some of the transition movement's ideas -- printing local currency, forming solar buying clubs, building "cob" houses made of mud -- may seem quaint, inconvenient or naïve. But nothing is more naïve than assuming that the endless oil that modern societies grew addicted to over the past fifty years will last forever. The day of reckoning appears imminent, and as Hopkins says, "it is better to plan for it than be taken by surprise."