Actual finance blog

WASHINGTON–Consumer prices plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.

The Labour Department said Wednesday that consumer prices fell by 1 per cent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 per cent decline analysts expected.

The big drop reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 per cent last month, the first drop in core prices in more than a quarter-century.

The big retreat in consumer prices reflects a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.

Since that time, the economy has been jolted by the most serious financial crisis in seven decades with all the turbulence expected to push the country into a severe and prolonged recession.

The U.S. troubles have quickly spread overseas, depressing growth around the world and cutting into demand for oil and other products, a development that has resulted in sharp declines in the price of crude oil and other commodities cash in 1 hour.

While some are worried that the price retreat could raise the prospect of a deflation, a prolonged bout of falling prices, most economists believe that current conditions are not likely to set the stage for such a development, which last occurred in the U.S. during the Great Depression.

Over the past 12 months, consumer prices have risen by 3.7 per cent, substantially below the 17-year high of a 12-month price increase of 5.6 per cent set this summer. Core prices are up 2.2 per cent over the past 12 months.

This price moderation is giving the Federal Reserve the room it needs to cut interest rates to battle the economic slump. The central bank is expected to cut the federal funds rate, the interest that banks charge each other, down to 0.5 per cent at its December meeting, even lower than the 1 percent where the funds rate stands currently. The 1 per cent funds rate ties the record low for the past half century.

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EDINBURGH–Fresh from a surprise election victory, Scotland’s leader, Alex Salmond, vowed last year to win independence from the United Kingdom and with it, bring a wave of prosperity.

Salmond, whose separatist Scottish National Party won control of Scotland’s national Parliament last May from Britain’s governing Labour Party, has long aspired to end the 300-year union with England. He wants to take control of lucrative oil and natural gas reserves, slash corporate tax rates and transform this country of five million into an economic powerhouse.

But that was before the global financial meltdown redrew the economic map. Salmond once dreamed of a North Atlantic "arc of prosperity" stretching from Ireland through Iceland and Scotland to Norway. Now, his nation’s similar-sized neighbours are struggling with the ravages of the downturn.

Iceland, held up by Scottish nationalists as an example of how smaller nations can transform their fortunes, is possibly headed toward bankruptcy, while Ireland has slumped into recession.

At home, two of Scotland’s iconic businesses – the Royal Bank of Scotland and the Halifax Bank of Scotland – have found themselves savaged by the economic turmoil.

RBS is now partly owned by British – not just Scottish – taxpayers, who’ll also have a major stake in HBOS if it finalizes a combination with Lloyds TSB after a rescue deal was brokered by Salmond’s nemesis and fellow Scot, British Prime Minister Gordon Brown.

It has left Salmond’s claims that Scotland can cope without leadership from London, and his hopes of winning an independence vote in 2010, in tatters.

A year ago, RBS – Scotland’s largest business – was a proud emblem of economic prowess as it led buyouts of Dutch bank ABN AMRO and the Belgian-Dutch Fortis bank, turning in pre-tax profits in 2007 of £10 billion, or $20 internet pay day loans.3 billion (Canadian). Now it’s partly nationalized and has taken a £20 billion handout from the British government. If the combination of HBOS and Lloyds TSB goes ahead, the new bank will take a similar £16 billion cash injection.

Brown – a robust defender of the United Kingdom – claims that without England, Wales and Northern Ireland, Scotland could never have afforded to bail out its own banks. He suggests an independent Scotland would have an annual GDP of only about £100 billion, in contrast to a British annual total of around £2 trillion.

But Salmond argues that membership in the United Kingdom seems only to be dragging Scotland down.

Unemployment in Scotland rose by 19,000 people in September, economic growth slowed to 0.1 per cent and, according to the Nationwide Building Society, the nation’s once-booming housing sector saw prices drop by 5 per cent.

He said Brown’s "age of irresponsibility" was over. "The new age of responsibility means Scotland taking charge of its own destiny with independence," Salmond wrote.

Though Salmond, a former economist with RBS, has enjoyed an extended honeymoon in the 18 months since his party took power as a minority government at the Scottish Parliament, support for independence remains low. Most polls show that less than a third of Scots currently want to leave the union.

But Salmond’s SNP trounced Brown’s Labour Party in a special election for a British Parliament seat in Glasgow in July and is predicted to win again on Nov. 6 when a second special election takes place.

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Wachovia reported a massive loss of nearly $24 billion Wednesday, in what was expected to be its last quarter as an independent company.

The struggling Charlotte, N.C.-based bank, which agreed to be acquired by Wells Fargo earlier this month, reported a net loss of $23.9 billion, or $11.18 a share, which included a whopping $18.8 billion impairment charge partly related to the planned merger.

Just a year ago, the company reported a profit of $1.62 billion, or 85 cents a share.

Despite the recent turmoil in financial markets, analysts were actually expecting the company to report a third-quarter profit of $547 million, or 2 cents a share.

Wachovia (WB, Fortune 500) shares fell 1.6% in early NYSE trading.

Wells Fargo execs, including CEO John Stumpf, said Wachovia’s results were about as dreary as they expected after poring over the company’s books and agreeing to buy the bank earlier this month.

"Wachovia’s third-quarter results were very much in line with our expectations," Stumpf said in a statement.

Like many of its peers, Wachovia was hit hard this quarter by issues of credit and bad bets on the U.S. mortgage market, most notably its 2006 purchase of the California mortgage lender Golden West Financial Corp.

Over the last three months, the company said it set aside $4.8 billion for loan losses, as the economy showed increasing signs of weakness and the housing market continued to deteriorate in already hard-hit parts of the country such as California and Florida.

Wachovia added Wednesday that non-performing assets, or loans that are not collecting interest or principal payments, increased five-fold from a year earlier to just over 3% of all loans.

Still, much of the blame for Wednesday’s results was the $18.8 billion impairment related, in part, to the tie-up with Wells Fargo.

Morgan Keegan analyst Robert Patten said the charge represented just how hard the two companies were working to clean up Wachovia’s books before proceeding with the merger.

"You want to set up ‘09 to look as good as possible," he said direct payday loan cash advance.

Assuming the company’s anticipated merger with Wells Fargo (WFC, Fortune 500) comes off without a hitch, Wachovia’s latest quarterly numbers will prove largely moot.

Still, the results offer a glimpse into just how badly the company was faring when investors seemed all but certain that Wachovia was destined to collapse.

Fears about Wachovia’s ultimate demise first took hold in mid-September following the collapse of Lehman Brothers and shortly after Lehman rival Merrill Lynch was forced into the arms of Bank of America (BAC, Fortune 500).

Speculation continued to swirl about the 129-year-old bank in the days that followed, including rumors of a possible merger with with investment bank Morgan Stanley (MS, Fortune 500).

Even as Wachovia’s consumer customers remained relatively calm about the bank’s fate in the days that followed, Wednesday’s results revealed that commercial depositors feared that the bank could be next. In just one quarter, the amount of commercial core deposits plunged by a colossal 24% from the previous quarter to $83.4 billion.

(Big customers flee)

Regulators finally interceded on Wachovia’s behalf the last weekend in September, helping broker a $2.2 billion purchase of Wachovia’s banking assets by Citigroup (C, Fortune 500).

Wachovia had a change of heart just days later, as it agreed to a sweetened offer from San Francisco-based Wells Fargo for all of Wachovia’s operations.

After some legal wrangling, Citigroup eventually walked away, leaving Wells Fargo in control of Wachovia in a deal worth $11.7 billion.

Wachovia shareholders have yet to approve the deal, although they are widely expected to do so by year’s end.

The combination of the two firms would transform Wells Fargo into a major player in the U.S. banking industry, with approximately $1.4 trillion in assets, a footprint in 39 states and the nation’s second-biggest retail brokerage network. 

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The global financial crisis will add at least 20 million people to the world’s unemployed, bringing the total to 210 million by the end of next year, the U.N. labor agency said Monday.

That will be the first time in a decade of record keeping that the global total has been above 200 million people, said officials of the International Labor Organization.

Global leaders need to focus on the impact on individuals rather than just financial institutions when they devise rescue plans, ILO Director-General Juan Somavia told reporters.

"We thought it was not good to talk about the financial crisis exclusively in financial terms," Somavia said. "We have to talk about the financial crisis in terms of what happens to people and in terms of what happens to jobs and enterprises."

He said it is already clear that people are going to be hurt by the financial crisis and that measures should be taken to provide unemployment compensation and other social protection.

"If we have enough resources to pump into the financial system, this is not the moment to say, ‘Yes, but we don’t have the resources to care about people,"’ said Somavia.

He said the first step in a global rescue plan remains getting out of "the credit paralysis."

"Hopefully, the decisions that have been taken are going to work," he said, adding that all measures should be taken to contain as much as possible the fall of the real economy and reduce the recession possibilities as much as possible.

But then attention should turn to "taking care of those enterprises that produce the most jobs," Somavia said payday advance lenders. "Those tend to be the small enterprises."

"The financial system has to go back to its fundamental function," he said, meaning providing credit to people with entrepreneurial spirit to set up a company that will produce goods and services and create jobs.

Another issue is protecting pensions, especially for those whose funds are invested in the stock market, he said.

"You better give enough credit to the pension systems so they don’t have to sell [shares] in a battered market," said Somavia, noting that the U.S. Congress had passed a US$700 billion rescue plan for financial institutions.

"Make sure some of that money goes to the pension systems so that they can pay pensions," he added. "People are very afraid all over the world."

The ILO based its unemployment projection in part on the latest forecast by the International Monetary Fund that the economies of the United States and Europe would virtually stop growing and that Japan would have only 0.5% growth, Somavia said.

The agency also factored in data from the United Nations and from countries that have produced recent statistics, he said.

"The estimate that we are now making is that as compared with January 2008 to December 2009 we are probably going to have about 20 million jobs lost, and this may be underestimated," Somavia said.

He said the agency had yet to break the forecast down by region or country. 

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The $700 billion bailout plan signed into law Friday may get banks to start lending to each other again. But it remains to be seen how long that will take to jumpstart an ailing economy.

The goal is to unfreeze the credit markets. Financial institutions have become paralyzed with fear and though they have plenty of cash on hand, they’ve been hoarding it. Without this intra-bank lending, businesses are having trouble getting the financing they need even for daily operations, much less loans for longer-term projects.

"Hopefully, this will lend a calming effect to the markets," said Joe Belew, president of the Consumer Bankers Association. "We need to take a deep breath, relax and start doing business again."

Don’t expect lending to ramp up overnight, however. It may take weeks for confidence to return, experts said. Or even longer.

The centerpiece of the bill allows the government to eventually buy up to $700 billion in assets tied to shaky mortgages. Getting the bad paper off banks’ balance sheets hopefully will give institutions more confidence to start lending again. (Bailout 101: What the new law says)

Treasury Secretary Henry Paulson has up to 45 days to devise a plan to purchase the assets.

But one big question is what the Treasury Department will pay for those assets. Too low a price - which is good for taxpayers - and banks may find they still need to take steps to shore up their balance sheets. Some may have to raise additional capital, which has been scarce in this tumultuous market. Investors may remain on the sidelines for a while until things shake out, experts said.

The plan’s passage did little to allay fears in the stock market, which sold off once the House approved the bill. Investors, who remain skittish that the bailout plan will achieve its goals, sent the Dow Jones industrial average down 1.5%.

"Thaws take time," said Diane Casey-Landry, chief operating office of the American Bankers Association, noting that the bailout plan won’t instantly eliminate all concerns. "We’ll be in the Ronald Reagan mode of ‘Trust but verify’."

Even President Bush told Americans to have patience. "Americans should also expect that it will take some time for this legislation to have its full impact on the economy," he said. "With a smoother flow of credit, more businesses will be able to stock their shelves and meet their payrolls (fast cash). More families will be able to get loans for cars and homes and college education. More state and local governments will be able to fund basic services."

Many economists, however, say the president and other supporters of the bailout were painting too rosy a picture.

Until the tidal wave of foreclosures ends and home values stop their stomach-churning drops, banks will remain reluctant to lend and the economy won’t improve, experts said.

"This bill doesn’t contain any element of stability for the housing market or the real economy," said Christian Menegatti, lead analyst for economic research firm RGE Monitor. "The problems are going to come back and the lack of confidence will come back."

In fact, nearly one in three financial services executives said they expect credit standards to continue to tighten even if the bailout plan is approved, according to a Deloitte poll taken Thursday. So it will still be tough to get a mortgage or small business loan.

"We’re back to more normal underwriting standards," Casey-Landry said. "People will need to have good credit to get a loan."

As long as the constant drumbeat of bad economic reports continues, consumers and businesses may not be so eager to borrow money anyway even if banks start extending more credit. Friday’s dismal jobs report, showing that 159,000 people lost their livelihoods, did little to inspire people to spend.

"You tell me I can have the credit, but I don’t want it," said Amiyatosh Purnanandam, assistant professor of finance at the University of Michigan. "If people are not going to buy cars whether they can get credit or not, it’s not going to help the economy."

This becomes a vicious cycle. If consumers don’t spend, the economy fails to improve. The jitters may return to the financial markets, prompting another government intervention.

That’s why many fear the $700 billion rescue may not be the last step.

"This is a tremendously expensive stopgap measure," said Adam Levitin, associate professor of law at Georgetown University. 

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In the span of just 11 days, the Bush administration and lawmakers, seeing ominous warnings in the credit markets, rushed to create legislation to prevent a potential economic meltdown. Monday, the resulting $700 billion bailout package was defeated in a dramatic House vote.

The bill was designed to get financial institutions lending again by letting the U.S. Treasury buy up their troubled assets, most of which are tied to the housing market crash.

But after much contentious debate, and the addition of several taxpayer protections, the package was rejected by the House in a vote that was 228 to 205 against. The measure would have needed 218 votes for the House to pass. The next steps were not immediately clear but supporters were scrambling to put it up for another vote.

"I’m disappointed," said House Financial Services Chairman Barney Frank, D-Mass., talking to reporters after the vote. Noting that the Administration painted a dire picture of economic calamity if legislation didn’t pass, Frank said, "I’d like nothing better than to be proven wrong in the next few days. I was persuaded that we have a serious crisis and we’re threatened with a shutdown of the credit system when the economy is already weakened."

The credit markets had been seized up all day Monday, and after the vote, the Dow Jones Industrial Average started to plummet and ended the day down 778 points, the worst point drop ever. On a percentage basis, though, the Dow drop was only about 7%, far less than the 22% slide on Black Monday in 1987.

Here’s a quick breakdown of some of the bill’s key provisions:

Doling the money out: The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use. Authority to use the money would expire on Dec. 31, 2009, unless Congress certifies a one-year extension.

Protecting taxpayers: The ultimate cost to the taxpayer is not expected to be near the amount the Treasury invests in the program. That’s because the government would buy assets that have underlying value.

If the Treasury pays fair market value - which investors have had a hard time determining - taxpayers stand a chance to break even or even make a profit if those assets throw off income or appreciate in value by the time the government sells them. If it overpays for the assets, the government could be left with a net loss but would get something back on the open market for the assets when it eventually sells them.

If it ends up with a net loss, however, the bill says the president must propose legislation to recoup money from the financial industry if the rescue plan results in net losses to taxpayers five years after the plan is enacted.

In addition, Treasury would be allowed to take ownership stakes in participating companies.

Stemming foreclosures: The bill calls for the government, as an owner of a large number of mortgage securities, to exert influence on loan servicers to modify more troubled loans.

In cases where the government buys troubled mortgage loans directly from banks, it can adjust them more easily.

Limiting executive pay: Curbs would be placed on the compensation of executives at companies that sell mortgage assets to the Treasury quick payday. Among them, companies that participate will not be able to deduct the salary they pay to executives above $500,000.

They also will not be allowed to write new contracts that allow for "golden parachutes" for their top 5 executives if they are fired or the company goes belly up. But the executives’ current contracts, which may include golden parachutes, would still stand.

Overseeing the program: The bill would establish two oversight boards.

The Financial Stability Oversight Board would be charged with ensuring the policies implemented protect taxpayers and are in the economic interests of the United States. It will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.

A congressional oversight panel would be charged with reviewing the state of financial markets, the regulatory system and the Treasury’s use of its authority under the rescue plan. Sitting on the panel would be 5 outside experts appointed by House and Senate leaders.

Insuring against losses: Treasury must establish an insurance program - with risk-based premiums paid by the industry - to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 14, 2008.

The amount the Treasury would spend to cover losses minus company-paid premiums would come out of the $700 billion the Treasury is allowed to use for the rescue plan. 

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Credit rating agencies, criticized for moving too slowly in cutting ratings on Wall Street firms and the complex instruments they devised, are now accused of acting too quickly.

As the credit crisis enters a new phase, the pendulum has swung too far back, critics argue. The agencies are still missing the mark, only now they are too aggressive, adding to market volatility, or changing their views within days or weeks.

Case in point: AIG.

A week ago, Standard & Poor’s warned that if insurance giant American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) didn’t demonstrate adequate access to capital in the short term, the rating company could cut its ratings by as much as three notches.

Late Monday, S&P, Moody’s Investors Service and Fitch Rating struck a triple blow to AIG’s investment-grade rating and warned more downgrades could follow.

Hours later, the U.S. government had rescued AIG with an $85 billion loan, and the rating companies scrambled once again to revise their outlooks.

“AIG was a signal they are being more aggressive in today’s environment,” said Joseph Mason, a finance professor at Louisiana State University payday advance lender. “They’ve had their backs against the wall, and they are being forced to cut.”

Credit market turmoil culminated this week in the government loan for AIG, once the world’s largest insurer based on market value; the bankruptcy filing of Lehman Brothers Holdings Inc(LEH.N: Quote, Profile, Research, Stock Buzz)(LEHMQ.PK: Quote, Profile, Research, Stock Buzz), spelling the demise of a 158-year-old trading company that was the parent of a major U.S. investment bank, and the hasty sale of Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), the largest U.S. retail brokerage whose advertising symbol is the bull, to Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz). 

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Sunrise Senior Living and Conrad Properties Corp. are capitalizing on one of the few bright spots in the depressed housing market: They are reopening Clayton on the Park this week for luxury independent senior living.

They have transformed the nine-year-old property from a luxury boutique hotel and apartments into Clayton on the Park, a Sunrise Senior Living Residence, with 208 designer apartments and top amenities.

A grand-opening celebration is scheduled for Saturday so the public can tour the converted building at Bonhomme Avenue and Brentwood Boulevard.

Sunrise spent $12.5 million to gut and remodel the first three floors, including the area where the old Finale nightclub was located, and to refurbish all the residences. Residents of the 23-story high-rise will have a clear view of downtown Clayton’s business towers or of Shaw Park’s public pool and gardens.
Sunrise expects to attract residents who want a top-flight building that’s in many ways like a luxury hotel, but who also want special support services.

"This is for vibrant seniors who want to continue their lifestyle and opportunity in a maintenance-free, worry-free environment," said Stacy Tew-Lovasz, who is executive director.

Rents will be begin at $2,800 a month for a studio and go up to $9,200 for the six three-bedroom, two-bathroom units. That includes housekeeping, laundry, utilities and "an incredible array of programs and services," including a concierge, said Tew-Lovasz bad credit payday loans. The building has 24-hour security and special emergency-response systems in each apartment.

Those who knew the building as a hotel will see a new art studio with floor-to-ceiling windows, a theater, a remodeled business center, a spa, a brain-fitness gym, new dining rooms, a wine bar and new art and colors around the building.

Tew-Lovasz said that "in keeping with Clayton’s focus on the arts, we have original art that includes two Chihuly pieces."

Wendy Timm, chief financial officer of Conrad Properties, said the Clayton-based company had enjoyed success in the original Clayton on the Park, with its 213 luxury apartments and boutique hotel suites. But, she said, the proposal from Sunrise was too good to pass up.

"We had a high-performing asset with Clayton on the Park," Timm said. "Sunrise approached us with a compelling opportunity to convert and operate as independent living luxury senior apartments as an operating joint venture."

Under the joint venture, Conrad Properties and its chairman, Bob Saur, manage and maintain the majority ownership of the building, Timm said. Sunrise is the manager of the senior living operation and has an ownership interest in the property, she said.

"In the real estate business, it’s always about timing," Timm said. "It was good timing and compell

Declining property-tax revenues, high energy prices and other financial headwinds will create greater economic hardships in 2009 for most cities across the U.S., a new report says.

City budget officials say they expect more layoffs for municipal workers, cutbacks in parks and recreation programs and library hours, and higher fees for everything from garbage pickup to building permits.

"Cities for a long while now have been on the upside of the curve, generally experiencing pretty good growth in revenues," said Chris Hoene, director of policy and research for the National League of Cities, which collected data from 319 municipalities in its annual survey. "Now we’re coming over the top of the curve and heading down the wrong side of it."

The housing crisis has already damaged municipal coffers in 2008, especially in the West, with rising foreclosures and falling home prices resulting in decreased property-tax revenues.

Four out of five budget officials who responded to the survey of U.S. cities say next year is likely to be worse.

Small but fast-growing suburbs that used low tax rates to attract families are most vulnerable to budget constraints.

The three main sources of revenue for cities - income tax, property tax and sales tax - are all declining, the report warns. In the meantime, health care, public safety and fuel are getting more expensive.

Two of every three cities with more than 50,000 residents say it’s harder to meet basic city needs this year than last, the survey found. One in two budget officials responding to the survey say they have raised fees on city services during the past year.

The report follows a litany of gloomy financial news for the nation’s local and state governments in recent months.

The Center on Budget and Policy Priorities reported Sept. 8 that midyear shortfalls opened in the budgets of at least 13 states in the current budget year. At least 29 states and the District of Columbia faced or are facing combined budget shortfalls of $48 billion in the fiscal year that began July 1.

The Rockefeller Institute for Government said in July that adjusted state tax revenues remained in decline for the third quarter in a row and that sales tax collections were flat for the first time in six years.

Cities that rely mostly on property taxes are in for the toughest ride because the loss of revenue from a foreclosed house today won’t be felt in budgets for months.

Home prices for the 20-city Standard & Poor’s/Case-Schiller index peaked in July 2006, and some economists predict prices won’t recover until mid-2009 or later.

For cities already tightening their belts, the squeeze could get even stronger.

– In Columbus, the city is facing a $75 million budget hole and planning 100 job cuts, including about 40 layoffs. All spending over $1,000 is now under close review. Revenue from the city’s income tax grew by at least 4% a year for 40 years, including the recession of the 1990s cash advance. Since 2000, that revenue has topped 4% only once.

– In Palm Bay in central Florida, one of the country’s fastest-growing cities in recent years, officials have eliminated 32 jobs out of about 850, cut public-pleasing events like the annual Easter Egg hunt and are raising fees on the cost of renting ball fields and other park facilities.

– In Indianapolis, city officials ordered a 5% budget reduction this year and plan to continue it next year. A proposal to hire 100 additional police officers is on hold. Next year’s budget includes a proposed reduction of the city’s $1.5 million arts budget by a third and millions cut from the parks program.

"As we spend more and more on the public safety side, taking away from the investments in education and the developmental things, are we in fact creating bigger problems for ourselves down the line?" said Jackie Nytes, a city-county councilwoman.

Among the report’s other findings:

– Cities on average are facing a 2.8% budget deficit this year, forcing fee increases, reduced spending or use of rainy-day funds.

– The biggest spending pressures on cities are coming from increases in fuel costs; maintaining roads, bridges and water and sewer systems; keeping up police and fire services; and increases in employee costs, including wages and health care.

– Three of every four fiscal officers in Western states reported their budgets were worse this year. Conditions were most optimistic in the South, with one in every two budget officials responding to the survey saying conditions were worse in 2008.

In pothole-ridden Tacoma, Wash., officials planning a long-awaited street repair program were counting on $19 million during the current two-year budget cycle. But that figure is down to a projected $12 million as real estate tax revenue plunges, including a 50% drop from July 2007 to this past July.

One of the biggest problems for cities is that revenue from sales and property taxes are declining together for the first time in decades. As consumer confidence sags in the face of declining home values, people are less likely to make big-ticket purchases.

Fortunately, most cities have healthy rainy-day funds, filled as buffers in recent years as it became clear to local governments that state and federal funding was drying up.

Not every city is ready to raise fees or taxes.

In Riverside, Calif., in the state’s inland region, the budget was cut by $10 million from 2007 to this year as numerous departments saw reductions, including fewer hours and staff at libraries. Riverside, with a population of 294,000, saw 2,500 foreclosures last year and could have another 7,500 homes at risk.

"If you take the premise this is the worst economy in the inland area since World War II, it’s not good time to raise fees,"said Mayor Ron Loveridge. 

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A radical shake-up on Wall Street and heavy losses in financial markets have recast the debate for Tuesday’s Federal Open Market Committee meeting to set interest rate policy.

Fed officials will assemble as a storm rages over the global financial system, overshadowing discussion of such bread-and-butter issues as the medium-term growth and inflation outlook.

As recently as Friday, analysts had expected the Fed to keep benchmark interest rates steady on Tuesday as it weighs a sputtering economy and an ebbing of inflation pressure.

On Monday, however, bets that the Fed will be forced into a quarter-point cut to the federal funds rate, to 1.75 percent from 2 percent, were rising paydayloans. Dealers now see more than an even-money chance of a rate cut.

“Fed views have swung dramatically in response to the gut-wrenching developments,” said Marc Chandler, currency strategist at Brown Brothers Harriman in New York.

The FOMC held rates steady when the panel met in June and August, after lowering them in April. That cut bought the fed funds rate down by a cumulative 3.25 percentage points from mid-September 2007.

Following are some factors policy-makers are considering:

FINANCIAL INSTITUTIONS: 

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