Jury awards family $600K in Denny's suit 26 minutes ago

Jury awards family $600K in Denny's suit 26 minutes ago



EAST ST. LOUIS, Ill. - A jury has ordered the Denny's restaurant chain to pay $600,000 to 15 members of a black family who claimed their white waiter deliberately ignored them and used racial slurs.

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The federal jury awarded each family member $5,000 in compensatory damages and $35,000 in punitive damages on Friday.

Sandra Green's family sued over a November 2003 meal at a Denny's restaurant in the St. Louis suburb of Fairview Heights. The waiter, who later was fired, allegedly served white patrons and ignored the family. Some of Green's family members said they had to get their own drinks, utensils and napkins.

"It's not really about the money. We don't want another black family or our children to have to go through what we went through," family member Charles Tart Sr. said.

Ed Ordonez, an attorney for Spartanburg, S.C.-based Denny's Corp., told jurors that the Green family had received bad service but they were not harmed.

He said the company will decide whether to appeal.

Fears spread among U.K. bank's customers By D'ARCY DORAN, Associated Press Writer

Fears spread among U.K. bank's customers By D'ARCY DORAN, Associated Press Writer
26 minutes ago



LONDON - Hundreds of customers lined up to withdraw their savings from a British mortgage bank Saturday, ignoring government assurances that their money was safe despite the bank's request for an emergency loan.

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Police were called in some cities to steer panicked crowds away as Northern Rock bank branches closed for the day.

Fears have spread over the bank's request earlier in the week for an emergency Bank of England loan amid the global credit crisis. Northern Rock, Britain's fifth-largest mortgage lender, is the first British bank in 15 years to be bailed out by regulators.

Customers withdrew $2 billion from the bank Friday, The Financial Times reported, citing an unidentified person described as close to the situation. The bank declined to confirm the figure, which represents 4 percent of its deposit base.

Treasury chief Alistair Darling and the country's Financial Service Authority tried to assure customers there was no doubt over Northern Rock's solvency.

The authority "has reiterated yet again tonight that it is satisfied that Northern Rock is solvent, can carry on doing business and, crucially, paying out money if people want to withdraw their funds," Darling said on Channel 4 TV on Saturday night.

But The Sunday Telegraph said Northern Rock was preparing itself for a sell-off. Quoting unidentified sources, the paper said one plan would divide the bank's mortgage portfolio between other major banks in what would be a private-sector rescue of the lender.

The bank made the loan request Thursday because it relies heavily on wholesale money markets for cash, and had been unable to borrow the amounts it required from other banks since the money markets choked up last month. That was caused in part by U.S. banks making mortgage loans to Americans with poor credit histories.

Although Northern Rock requested substantial emergency funds at a penalty rate, the bank has said it had billions of pounds in cash at its disposal. It has yet to draw on any emergency funding.

Despite Darling's message, lines stretched around the block Saturday at some of the bank's 76 branches in Britain and the bank extended opening hours to deal with the situation.

"Yes, we are making matters worse, but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe," account holder Jane Taylor told Sky News while waiting outside a branch in Kingston-upon-Thames, west of London.

But others said they had faith in the bank and financial authorities and watched the lines in disbelief.

"It's mostly, in my opinion, ignorance and that's why they're panicking," said another bank customer who gave only his first name, Tom. "I'm leaving mine there."

Under Financial Services Compensation Scheme, deposits of up to $63,900 are guaranteed should a bank default.

Ron Stout, a spokesman for Northern Rock, told The Associated Press that reckless comments by some analysts about the bank's solvency prompted customers to panic and line up outside branches or strain the company's online banking system.

He said Northern Rock would continue to extend its banking hours, by opening one hour ahead of schedule on Monday, and to reassure customers that their investments are safe with the bank.

Greenspan faults Bush over spending By JEANNINE AVERSA and ANN SANNER, Associated Press Writers

Greenspan faults Bush over spending By JEANNINE AVERSA and ANN SANNER, Associated Press Writers
13 minutes ago



WASHINGTON - Former Federal Reserve Chairman Alan Greenspan, in his new book, bashes President Bush for not responsibly handling the nation's spending and racking up big budget deficits.

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A self-described "libertarian Republican," Greenspan takes his own party to task for forsaking conservative principles that favor small government.

"My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan wrote.

And he weighed in briefly but pointedly on the Iraq war: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."

Bush took office in 2001, the last time the government produced a budget surplus. Every year after that, the government has been in the red. In 2004, the deficit swelled to a record $413 billion.

"The Republicans in Congress lost their way," Greenspan wrote. "They swapped principle for power. They ended up with neither. They deserved to lose."

In 2006, voters put Democrats in charge of Congress for the first time in a dozen years.

Greenspan's memoir, "The Age of Turbulence: Adventures in a New World," is scheduled for release Monday. The Associated Press purchased a copy Saturday at a retailer in the Washington area.

The book is a recollection of his life and his time as Fed chief.

Greenspan, 81, ran the Fed for 18 1/2 years and was the second-longest serving chief. He served under four presidents, starting with his initial nomination by Ronald Reagan.

He says he began to write the book on Feb. 1, 2006, the day his successor — Ben Bernanke — took over. A caption under a photo of Bernanke's swearing-in has Greenspan saying he was "very comfortable leaving the post in the hands of such an experienced successor."

The ex-Fed chief writes that he regrets the loss of fiscal discipline under Bush.

"`Deficits don't matter,' to my chagrin, became part of Republicans' rhetoric."

Greenspan long has argued that persistent budget deficits pose a danger to the economy over the long run.

At the Fed, he repeatedly urged Congress to put back in place a budget mechanism that requires any new spending increases or tax cuts to be offset by spending reductions or tax increases.

Large projected surpluses were the basis for Bush's $1.35 trillion, 10-year tax cut approved in the summer of 2001.

Budget experts projected the government would run a whopping $5.6 trillion worth of surpluses over the subsequent decade after the cuts. Those surpluses, the basis for Bush's campaign promises of a tax cut, never materialized.

"In the revised world of growing deficits, the goals were no longer entirely appropriate," Greenspan noted. Bush, he said, stuck with his campaign promises anyway. "Most troubling to me was the readiness of both Congress and the administration to abandon fiscal discipline."

Greenspan, in testimony before Congress in 2001, gave a major boost to Bush's tax-cut plan, irking Democrats.

He argued then that a tax cut could help the economy deal with sagging growth. The economy slipped into a recession in March 2001. The downturn ended in November of that year.

Surpluses quickly turned to deficits after the bursting of the stock market bubble and the 2001 recession cut into government revenues.

Government spending increased to pay for the fight against terrorism and receipts declined because of a string of tax cuts.

The Bush White House defended its fiscal policies in light of the Greenspan book.

"Clearly those tax cuts proved to be the right medicine for an ailing economy," White House spokesman Tony Fratto said. The 2001 recession was a mild one.

"Tax cuts contributed a portion to early deficits, but those tax cuts accelerated growth over time," Fratto said. He added: "We're not going to apologize for increased spending to protect our national security."

Greenspan said he was surprised by the political grip that Bush exerted over his administration.

The Bush administration turned out to be different from "the reincarnation" of the Ford administration that Greenspan said he had imagined. "Now the political operation was far more dominant." Greenspan was chairman of the Council of Economic Advisers under President Ford.

Greenspan enjoyed a good relationship with Bush's predecessor, Bill Clinton, "a fellow information hound."

They also were on the same economic page. During the Clinton administration, budget deficits turned to surpluses.

Greenspan recalled a conflict with the White House when Bush's father was president. The elder Bush wanted lower interest rates and challenged Greenspan's inclination to raise them because of inflation risks.

For Bush's father, the economy was his "Achilles' heel, and as a result we ended up with a terrible relationship." The economy went into a recession in the summer of 1990 and emerged from it in the spring of 1991.

Many supporters of the elder Bush blamed Greenspan's tight-money policies for the recession that contributed to Bush's loss to Clinton.

Greenspan says in the book he does not lament the loss of America's manufacturing base.

"The shift of manufacturing jobs in steel, autos and textiles, for example, to their more modern equivalents in computers, telecommunications and information technology is a plus, not a minus, to the American standard of living," Greenspan wrote.

Greenspan's memoir includes his early years growing up in a New York City neighborhood of low-rise brick apartment buildings filled with families of Jewish immigrants, his stint as a jazz musician and his decades as a Washington policymaker.

On other topics, Greenspan:

• Says he believes looser mortgage terms for "subprime" borrowers — those with spotty credit histories or low incomes — raised financial risks. However, he says the benefit of expanded home ownership in the United States was worth the risk.

• Questions whether global powerhouse China can continue its economic successes over the long run if it doesn't incorporate democratic processes. However, he predicts that if Beijing continues to move ahead on free-market principles "it will surely propel the world to new levels of prosperity."

• Predicts the most important economic decision U.S. lawmakers and courts will confront in the next quarter century will be to clarify rules involving intellectual property — patents, copyright and trademarks.

• Proposes lowering barriers to skilled immigrants and improving education to narrow income inequality.

China recalls tainted leukemia drugs By CHRISTOPHER BODEEN, Associated Press Writer

China recalls tainted leukemia drugs By CHRISTOPHER BODEEN, Associated Press Writer
26 minutes ago



BEIJING - Chinese authorities ordered the recall of tainted leukemia drugs blamed for leg pains and other problems, state media reported Sunday, the latest crisis to strike the country's embattled food and drug industries.

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Most of the drugs involved — methotrexate and cytarabin hydrochloride — have been recovered and authorities have traced the remainder, the Xinhua News Agency said. The report did not say if any of the drugs had been exported.

Authorities have banned the sale and distribution of the drugs, produced by the Shanghai Hualian Pharmaceutical Co., it said.

China, a major global supplier, has been facing growing international pressure to improve the quality of its exports after dangerous toxins — from lead to an antifreeze ingredient — were found in goods including toys and toothpaste.

China has been eager to cast itself as a victim, too, of unsafe imports. Xinhua on Saturday announced that inspectors recently found residue of the banned stimulant ractopamine in frozen pig kidneys imported from the United States and frozen pork spareribs from Canada. The names of the exporting companies were not identified. Ractopamine is forbidden for use as veterinary medicine in China.

Xinhua said the 18.37 tons of frozen pork kidneys and 24 tons of frozen pork had been returned to importers exporters, said the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ).

Ractopamine, a hormone that promotes the growth of lean meat in pigs and cattle, is banned by China and most other countries as a health hazard, although its use in stock animals is permitted in the U.S. and Canada. China has also recently banned imports of U.S. meat contaminated with salmonella, additives, and veterinary drugs.

Xinhua said the State Food and Drug Administration and Health Ministry banned the two leukemia drugs after several child leukemia patients who were taking them complained of leg pains and difficulty walking. Xinhua said some patients also complained of urine retention.

It said the Health Ministry and drug administration had traced the problems with the drugs to their being tainted with vincristine sulfate, an anticancer drug. Xinhua said factories manufacturing the drugs had been closed.

China has taken a series of steps to crackdown on tainted drugs and other unsafe products, in part due to concern over the reputation of its exports.

In the harshest action so far, the country's former top drug regulator was executed in July for taking millions of dollars in bribes to approve substandard medicines, including an antibiotic that killed at least 10 people.

GM, UAW make progress; hurdles remain By DEE-ANN DURBIN, AP Auto Writer

GM, UAW make progress; hurdles remain By DEE-ANN DURBIN, AP Auto Writer
17 minutes ago



DETROIT - General Motors Corp. and the United Auto Workers made progress at the bargaining table Saturday but still faced significant hurdles and ended negotiations for the day without reaching an agreement.

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Negotiations ended around 9 p.m. EDT, GM spokeswoman Katie McBride said. They are scheduled to resume midmorning Sunday.

Some union subcommittees — which handle issues such as pensions, benefits and job security — have wrapped up talks, but an agreement wasn't expected Saturday because negotiators were still dealing with some key issues, according to a person who was briefed on the negotiations.

The person, who spoke on condition of anonymity because the talks are private, also confirmed that GM Chairman and CEO Rick Wagoner and UAW President Ron Gettelfinger are actively involved in the discussions.

Several local union officials who have been in touch with bargainers said the talks are going well but the outstanding issue is retiree health care expenses. GM wants the union to take over responsibility for retiree health care costs using a company-funded trust and the union was asking for job guarantees in exchange for taking on the costs.

The local officials spoke on condition of anonymity because they weren't authorized to speak publicly about the talks.

GM's 73,000 U.S. auto workers were without a contract as of midnight Friday and could go on strike at any time if negotiations break down. In Spring Hill, Tenn., hundreds of union members were at the local UAW hall Saturday, waiting for news.

"Members are very apprehensive. These are historic times and everybody realized that," said UAW Local 1853 President Mike O'Rourke. Workers have faith in the UAW's negotiating team, he added.

Some other union halls were quiet as local leaders prepared for membership meetings or awaited word from the UAW. In Lansing, UAW Local 652 President Chris "Tiny" Sherwood said he was keeping the hall open and making sure members were ready if a strike was called.

A message was left Saturday for UAW spokesman Roger Kerson.

Five of GM's 18 U.S. assembly plants were operating Saturday, GM spokesman Tom Wickham said, including two plants in the Lansing area and one each in Flint, Wentzville, Mo., and Lordstown, Ohio. Only two plants in Flint and Lansing were scheduled to be running Sunday.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said tensions often run high when the union and the automakers dive into the details.

"If there aren't some raised voices and sweaty palms, you're not doing your job," he said.

But Cole said he believes there's little chance for a strike. A short strike might not have much effect on GM but could backfire against the UAW if the public believes the union is asking for too much from a company that is struggling, Cole said.

"They've got to be very careful of anything that could hurt their public image," he said.

This year's contract talks are considered crucial to the survival of GM and its U.S.-based counterparts, Ford Motor Co. and Chrysler LLC. Ford and Chrysler were also in talks over the weekend, but they extended their contracts with the UAW indefinitely Thursday after the UAW named GM the lead company in the negotiations. Once the union wraps up talks with GM it will try to implement similar agreements at Ford and Chrysler.

All three companies want to cut or eliminate what they say is about a $25-per-hour labor cost gap with their Japanese competitors. The gap, the companies say, is one reason why the Detroit Three collectively lost about $15 billion last year, forcing them all to restructure by shedding workers and closing factories.

The UAW is also fighting for its survival. The union represented 302,500 active workers during the last contract talks in 2003. This year, that number fell to 180,681.

The central issue this year has been skyrocketing health care costs. Automakers have been pushing the union to take over responsibility for retirees' health care, an unfunded expense estimated at more than $90 billion for GM, Ford and Chrysler. The automakers want that liability off their books in order to improve their stock prices and credit ratings.

Both sides have been wrangling over how much the automakers would contribute to the trust. In a note to investors Friday, Lehman Brothers analyst Brian Johnson said the automakers want to fund the trust at 65 to 67 percent of their total health care obligation. But Johnson said he believes automakers will agree to 75 percent because they don't want strikes.

Johnson also said he expects the union to compromise and accept a two-tier wage system that pays newer employees less money in order to ensure continuing membership and work at U.S. plants.

___

AP Auto Writer Tom Krisher contributed to this report.

EU court to deliver Microsoft ruling By AOIFE WHITE, AP Business Writer

EU court to deliver Microsoft ruling By AOIFE WHITE, AP Business Writer
Sat Sep 15, 5:43 AM ET



BRUSSELS, Belgium - When Europe's second-highest court rules Monday on Microsoft Corp.'s appeal of its landmark antitrust conviction, more will be at stake for regulators than just the behavior of the world's largest software company.

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Experts say an affirmation of the European Commission's 2004 order and record 497 million euro ($613 million) fine could embolden regulators as they pursue probes of Intel Corp., Rambus Inc. and Qualcomm Inc., among others.

But a major victory for Microsoft could turn the regulatory landscape upside down, curbing the ambitions of European officials who have recently taken a more aggressive stance against alleged monopolists than regulators in the United States.

The 13 judges on the Luxembourg-based Court have been considering Microsoft's appeal for 15 months. Judge Bo Vesterdorf — on his last day on the job — will read the order that could change how the world's most powerful corporations are regulated by Europe.

The case started in the 1990s with complaints from Microsoft rivals about how the software giant used its presence on most desktop computers to elbow into new markets and block competitors. It's also always been about something more — nothing less than the role of Europeans in the regulation of U.S. companies.

If the Commission's tougher approach is upheld, that means U.S. companies with a global presence will have to conform to Europe's rules, said Keith Hylton, a professor at Boston University School of Law.

"The end result is, the EU ends up being the global regulator of dominant firms," he said.

Both sides can appeal the decision Monday to Europe's highest court.

The case, which originated from a 1998 complaint by U.S.-based server maker Sun Microsystems Inc., has become a classic David and Goliath tale. Here, however, both sides claim the role of David.

EU regulators say they're battling a corporate bully that stifled competition and used its Windows monopoly to muscle in on new markets — media players and servers. A similar U.S. Department of Justice case against Microsoft was settled in 2002.

Microsoft counters that it's the one being bullied by regulators who imposed heavy fines and buried the software maker under reams of criticism without suggesting specific remedies for their complaints.

On March 24, 2004, the European Commission found Microsoft guilty, ordering it to share the code that would help rivals' servers work well with Windows and make a version of its operating system available without its media player software. It also levied the record-setting fine.

How much Microsoft has complied with the code-sharing order is still up to debate. Last year, it was fined an additional 280.5 million euros ($357 million) for failing to supply the "complete and accurate" interoperability information. Microsoft has said it will appeal that decision.

The company also offered a version of Windows without its Media Player — a year and a half after the initial ruling. The software designed by EU lawyers was a total failure. No computer makers bothered to ship it with new PCs.

The case is about "whether or not the state can force a company to provide its research and development to its direct competitors at little or no cost," said Microsoft lawyer Erich Andersen.

EU spokesman Jonathan Todd said Microsoft does not have the right to exclude competitors "without constraint." By selecting who gets to play in the market, "Microsoft wants to make those choices for the consumer," he said

But a ruling in favor of Microsoft would have implications far beyond the current case, said Ted Henneberry, a lawyer in Heller Ehrman's London and Washington, D.C. offices and a former member of the Irish competition authority.

"There is an issue as to what the Commission's abilities are to restructure markets," he said. "This will set the bounds" for how aggressive the EC can be in regulating technology companies.

It's a question that applies to many more companies than just Microsoft.

In July, EU regulators charged Intel Corp. with monopoly abuse for allegedly offering customer rebates and below-cost pricing. They said Intel's actions undercut smaller rival computer chip-maker Advanced Micro Devices Inc.

Last month, the Commission charged Rambus Inc. with antitrust abuse, alleging the memory chip designer demanded "unreasonable" royalties for its patents that it said were fraudulently set as industry standards.

And it's also pondering further moves on Microsoft and its new Windows Vista operating system as well as investigating complaints about Qualcomm Inc.'s licensing fees for cell phone chip patents.

Ultimately, though, Microsoft isn't the same company it was in the 1990s, said Matt Rosoff of independent consultancy Directions on Microsoft. Today, it's an aging octopus struggling to match Google Inc. on Internet search and Apple Inc. on music players.

"Microsoft is not perceived as the all-powerful giant it was ten years ago," he said. "It's a combination of rapid change in the technology industry, the natural life cycle of any company growing and maturing."

___

AP Technology Writer Jessica Mintz in Seattle and Christopher S. Rugaber in Washington contributed to this report.

Chicken chain takes on Southern fryers By DANIEL YEE, Associated Press Writer

Chicken chain takes on Southern fryers By DANIEL YEE, Associated Press Writer
Sat Sep 15, 5:41 AM ET



HIRAM, Ga. - Robert Bowman loves his chicken, especially when it's breaded and loaded in a fryer. "When I go on a trip, that's all I'll eat is fried chicken. I just like fried chicken," the 67-year-old retired postal worker says.

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But during a recent lunch at a restaurant near his home, the poultry on Bowman's plate was prepared differently from the Southern style he was used to. Instead of being fried, it was grilled and marinated with citrus, herbs and spices.

It's part of a move by a California-based fast food chain to sell Mexican-style grilled chicken deep inside the deep-fried South and begin expanding beyond its West Coast markets.

"We're giving the South, which loves its chicken, a healthy, wholesome alternative to fried chicken," said Steve Carley, CEO of Irvine, Calif.-based El Pollo Loco Inc. (pronounced El Po-yo Lo-co).

The suburban Atlanta restaurant, which opened at the end of August, is the first Southern location for the chain, which is ranked 70th in the nation's list of top restaurant chains based on sales according to Restaurants & Institutions magazine.

Last month, the privately held company of 340 restaurants reported a net income of $1.59 million for the 26 weeks ended June 30, a 26.4 percent increase over the $1.26 million in net income it reported for the same period a year ago. The company was purchased in November 2005 by affiliates of the New York-based equity investment firm Trimaran Capital L.L.C. and company management.

El Pollo Loco is under contract with a company led by a former Church's Chicken executive to open 50 restaurants in the Atlanta area in the next six years. The chain also plans to open restaurants in the Orlando and Tampa, Fla., areas, in Charlotte, N.C., and in Norfolk, Va.

"We think the South is ready for El Pollo Loco," Carley said. "We have a high level of confidence this is going to be a big winner."

Although grilled chicken is not new to the South — it's often found on backyard grills, a labor of love for weekend chefs — it's not the traditional focus of Southern palates, said John T. Edge, director of the University of Mississippi's Southern Foodways Alliance.

"We tend to argue about the foods to which we are devoted — fried chicken and barbecue," Edge said. "Nobody's fussing and fighting over grilled chicken in the South."

Indeed, the South's chicken wars tend to be of the fried variety. Some of the nation's Top 100 restaurant chains built upon their success serving up fried chicken in the South, including Louisville, Ky.-based KFC, which is part of Yum Brands Inc., the Atlanta-based chains Chick-fil-A and Popeyes Chicken & Biscuits, San Antonio-based Church's Chicken, Charlotte, N.C.-based Bojangles' Restaurants Inc. and Athens, Ga.-based Zaxby's.

"The heaviest weighting of our outlets are in the South, testimony to the fact that fried chicken is a Southern staple," said Kirk Waisner, vice president of menu development for Popeyes Chicken & Biscuits.

Most of the country's "major chicken players" in the $15.1 billion industry of limited service chicken chains — which includes fried chicken outlets — are based in the South, said Darren Tristano, executive vice president of the Chicago-based Technomic, Inc., a research and consulting firm that serves the food industry.

If successful, El Pollo Loco's move into the heavily competitive Southern market gives the company a good chance to become a national chain instead of remaining a regional West Coast brand, Tristano said.

"The more they are able to grow in larger cities in the East, the stronger their brand is, which allows them to leverage their advertising, marketing and customer loyalty as their brand grows," he said.

Once in the South, Carley said, the chain will stick to its roots, meaning fried chicken won't be served anytime soon. Instead, the chain is banking on the view that offering grilled chicken instead of fried food will be attractive in a region that struggles with obesity.

Last month Mississippi was named the first state to pass the 30 percent mark of adults considered obese, with Alabama and West Virginia not far behind, according to the Trust for America's Health, a research group that focuses on disease prevention.

"Everybody I think needs to change their eating habits," said Kimberly Newkirk, a 38-year-old nurse from Dallas, Ga., who came to El Pollo Loco at a friend's recommendation.

Chris Elliott is a former Church's Chicken COO and the CEO of Fiesta Brands, Inc., which has contracted with El Pollo Loco to open the 50 new restaurants. He said grilling the chicken provides "healthy overtones."

"For the same size chicken breast if you fry one versus grill it, it's about 300 calories difference," he said.

El Pollo Loco's plan of attack also includes a year's worth of marketing to people who live within a few miles of a store, including offers to try the chicken for free. In addition to Hiram, the chain initially will focus on suburban Atlanta. It January the company plans to open a restaurant inside the city.

"We know we do have to work to get in people's considerations, we have to change their routines," Carley said.

Bowman said he's not sure all lovers of fried chicken will turn to the grilled variety. But he hopes many will at least try it.

"That's the way Southerners are — a bunch of them will stick to fried chicken," Bowman said. "But when something new comes to them, they'll get used to it."

____

On the Net:

El Pollo Loco: http://www.elpolloloco.com/

Countrywide caught in mortgage spiral By ALEX VEIGA, AP Business Writer

Countrywide caught in mortgage spiral By ALEX VEIGA, AP Business Writer
Sat Sep 15, 5:42 AM ET



LOS ANGELES - Countrywide Financial Corp. grew from a two-man startup in 1969 to become the nation's leading mortgage lender by deftly riding out housing boom-and-bust cycles. This time around, however, the ride has been a lot rougher, leaving the company in a scramble to regain its footing as the housing market has turned from boom to bust.

To survive, it's been forced to borrow billions of dollars, announce thousands of job cuts and dramatically restructure its lending practices to nearly eliminate risky subprime loans to borrowers with shaky credit that have led to massive foreclosures and defaults wracking the housing market.

"In an absolute level sense, this is the biggest challenge" Countrywide has ever faced, said Frederick Cannon, an analyst with Keefe, Bruyette & Woods Inc.

Several analysts believe Countrywide will survive the crisis, based on the strength of its retail banking operation, track record in the industry and operating changes made in recent weeks.

But they said it could see deeper cutbacks and lose ground to competitors while weathering a housing crisis expected to last at least 18 more months.

"At the end of the day, in this environment, Countrywide is not in as strong a position as its biggest competitor, Wells Fargo," Cannon said.

Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern California, said Countrywide will face intense competition as big and small lenders move to focus on prime loans, a sector once dominated by Countrywide.

"It's going to take time, and I think their cutbacks are going to be greater than perhaps we anticipate," Ross said.

Countrywide dominated the industry when interest rates began to plummet at the start of the decade and competitors rushed to make subprime loans.

The company didn't lead the charge to make those loans, "but as an industry leader, they were right there," said Robert Napoli, an analyst with Piper Jaffray.

"They have an effect on the market. They have to, being the biggest," he said.

The Calabasas, Calif.-based company's loan production last year totaled $468 billion and it accounted for more than 13 percent of the loan servicing market as of June 30, according to the mortgage industry publication Inside Mortgage Finance.

Countrywide and the rest of the mortgage industry also got caught up in the frenzy to make nontraditional loans then resell the mortgages for hefty profits to Wall Street banks.

Fortunes dove when demand for those loan packages plummeted amid rising defaults. The resulting credit crunch that tore through the markets has left Countrywide and others holding loans they couldn't sell and hurting for cash to keep funding new ones.

"The market changed very quickly on them ... they just underestimated how rapidly the market changed," Napoli added.

A report in The New York Times cited unnamed former Countrywide employees saying the company used financial incentives to encourage employees to steer borrowers into subprime loans to boost profits.

The allegations prompted North Carolina Treasurer Richard Moore to send a letter dated Tuesday to Countrywide asking for an explanation. Moore is the trustee of a pension fund that holds more than $11 million in Countrywide shares.

"Countrywide has sacrificed long-term sustainability for short-term profits," Moore wrote. "As an investor, I expect assurances that these practices have ceased and that the company is returning to a business model that both respects consumers and protects shareholder value."

Countrywide has strongly refuted the report, noting its business processes are designed to prohibit pushing customers who qualify for prime loans into subprime loans, and that its loan officers do not receive higher commissions for selling subprime loans.

During a conference call with Wall Street analysts in January, Countrywide Chairman and Chief Executive Angelo Mozilo said the company expected rising delinquencies and a weak housing market but was "well positioned and extremely optimistic about our prospects to continue generating growth and superior returns over future cycles."

Since then, Countrywide stock has dropped about 60 percent and is now trading around $19 a share.

In a recent letter to employees announcing as many as 12,000 layoffs, he characterized the current housing market cycle as "the most severe in the contemporary history of our industry."

Countrywide didn't return calls seeking an interview with Mozilo.

The son of a butcher, he has guided Countrywide through a number of housing cycles.

He co-founded the company nearly four decades ago with fellow New Yorker David Loeb, taking the fledgling company public only six months after it launched.

Trading at less than $1 a share, the startup failed to generate much investment capital, so Mozilo and Loeb headed West in the fall of 1969 and set up shop in suburban Los Angeles, a housing hotbed.

Its rise was part of a broader trend in which banks and traditional savings and loans lost market share as borrowers turned to more market-savvy mortgage firms offering a wider variety of loan programs.

Countrywide's expansion was also fueled by its move to sell conventional mortgage loans that were then resold to government-sponsored mortgage companies the Federal National Mortgage Association, also known as Fannie Mae, and the Federal Home Loan Mortgage Corp, or Freddie Mac.

The strategy helped Countrywide weather the crash of the high-flying housing market at the end of the 1980s. In 1990 the company reported its loan production totaled more than $3 billion.

The interest rate upheaval during the 1990s had a mixed impact on the company. Low rates at the start of the decade helped boost business amid a surge in refinancing.

But when rates eventually kicked back up, the company and other mortgage lenders saw loan production fall off.

Countrywide coped with that downturn by diversifying into more financial services, eventually opening its retail bank.

When interest rates began to plunge at the start of this decade, Countrywide joined the rest of the industry in rushing to feed an unprecedented demand on Wall Street for home loans.

Last fall, Wall Street investors began to sour on mortgage loans, particularly subprime loans.

While Countrywide was less exposed to subprime loans than the rest of the market, it had stepped up high-yield loan products such as pay option loans, which give borrowers the option to make a lower payment but can result in the unpaid portion being added to the principal balance.

In recent weeks, the company has drawn down on an $11.5 billion line of credit and raised $2 billion by selling a stake to Bank of America.

This week, it boosted its borrowing capacity by another $12 billion through new or existing credit agreements.

To further help reassure investors of the company's stability, management has implemented layoffs and shifted its loan production through its banking arm.

It's also closed the door to all subprime loans except for those it can sell back to U.S. government-backed lenders.

"Countrywide is quickly adjusting to market conditions and ... now has the breathing room to do so," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "One sees glimmers of hope."

Fed rate cut may spark rally on Wall St. By JOE BEL BRUNO, AP Business Writer

Fed rate cut may spark rally on Wall St. By JOE BEL BRUNO, AP Business Writer
Sat Sep 15, 5:40 AM ET



NEW YORK - Wall Street players aren't the only ones with a lot riding on whether the Federal Reserve cuts interest rates on Tuesday — Main Street could also see some pretty dramatic benefits.

Policy makers are widely expected to decrease short-term rates by up to one-half of one percentage point, a move big institutional investors have been clamoring for in recent months.

For the man on the street, a cut would lower credit card bills, make mortgages cheaper and perhaps inject enough confidence into the stock market to revive ailing 401(k) investments.

Economists will likely debate until the 11th hour what the Fed will do when it releases its decision Tuesday afternoon. Even those far removed from high finance are nervous about what could be the biggest decision the Fed has made in years.

"Customers have told me not to touch their loans until the Fed meets," said Darin Hardin, owner of San Clemente, Calif.-based Coastal Hills Mortgage Inc. "People have been assuming for the past six months that rates will be lowered, and nobody wants to make a move until some kind of event happens."

Hardin said his business has been slower in brokering mortgages in California's Orange County, one of the nation's hottest real estate markets. New calls for mortgages aren't coming in as frequently, and those looking to switch to fixed-rate financing from adjustable have been stalling.

A cut in interest rates would immediately make fixed-rate mortgages cheaper. Homeowners with lines of credit will pay less, and those "waiting on the fence to borrow" will have reason to pick up the phone, he said.

A whole host of other borrowings will also become cheaper as U.S. banks follow an interest rate cut by lowering their own prime rates. For those that qualify, loans spanning everything from automobiles to education will be affected — as will the amount consumers are charged by credit cards issuers.

There's also the psychological impact a rate cut would have on the stock market, where the Dow Jones industrial average has plunged into volatility after hitting an all-time high in July. Traders have been cagey since then, sending the blue chip index bouncing around with triple-digit swings.

Wall Street pundits have pinned their hopes on a rate cut to stem the choppy market conditions, and send stocks higher. That would bring welcome relief in the short term to individual investors whose stock portfolios have fallen in the process.

"The whole thing with the stock market is perception," said Adam Hewison, president of ino.com, a financial Web site catering to individual investors. "We've had a five-year expansion in stock prices, and in the history of things, that's a long time before there's some kind of retrenchment. That has investors on edge."

While a rate cut would likely give the markets a short-term boost, whether its effects would be long lasting remains unclear. There are still a number of economic challenges facing individual investors, with some economists believing that the U.S. might be heading into a recession.

Though a cut might help boost mortgages, it might do little to help the slumping housing industry. Stocks might rally if the Fed delivers, but it won't help some of the underlying problems behind why corporate earnings are weakening.

"As far as rate cuts, when the Fed begins changing direction, there's a very short-run relief rally," said Tom Wilson, managing director of institutional investments at Brinker Capital. "But you have to keep in mind that they are cutting because there is something not right with the economy in one way or another."

UAW, GM end marathon bargaining session By DEE-ANN DURBIN

UAW, GM end marathon bargaining session By DEE-ANN DURBIN
2 hours, 5 minutes ago



DETROIT - Negotiators for the United Auto Workers and General Motors Corp. ended a marathon bargaining session early Saturday, more than four hours after their contract was set to expire.

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Bargainers, who on Friday night agreed to extend the contract while they continued negotiations, decided to resume talks later Saturday, said GM spokesman Dan Flores, who did not know exactly when negotiators would return to the table.

"The parties have agreed to take a break and resume later on this morning," Flores said. "Our bargaining continues, but both parties have agreed to take a short break."

The hiatus came hours after workers at factories nationwide mobilized Friday night for a possible strike. Local union leaders had expected a call from Detroit around 10 p.m. telling them whether the union would walk off the job, but the call never came.

Instead, negotiators agreed to bargain hour by hour as the workers stood by and a midnight contract expiration deadline passed. By early Saturday, local leaders said they were told to go home and wait for updates from Detroit.

This year's contract talks are considered crucial to the survival of GM and its U.S.-based counterparts, Ford Motor Co. and Chrysler LLC.

All three companies want to cut or eliminate what they say is about a $25-per-hour labor cost gap with their Japanese competitors.

The gap, the companies say, is one reason why the Detroit Three collectively lost about $15 billion last year, forcing them to restructure by shedding workers and closing factories.

The central issue in this year's talks has been skyrocketing health care costs. Automakers have been pushing the union to take over responsibility for retirees' health care, an unfunded expense estimated at more than $90 billion for GM, Ford and Chrysler.

Automakers want to pay billions into a union-run trust that would pay retiree health care bills, and both sides have been wrangling over how much the automakers would contribute to the trust, according to people who have been briefed on the talks.

A local UAW leader said early Saturday the union also was seeking guarantees for future work at U.S. plants in exchange for taking over health care. The local leader and the other people who were briefed on the talks spoke on condition of anonymity because the talks are private.

If the union takes on the health care costs, the companies could remove a huge liability from their books — potentially improving their credit ratings and stock prices.

Industry analysts have said they expect GM to offer the union 65 to 70 percent of the retiree health care obligation.

The UAW chose GM as its lead company and possible strike target Thursday. Typically, the union negotiates a contract with the lead company and then presses the other two to accept the same terms. Ford and Chrysler have extended their contracts indefinitely, although talks were continuing and either side could break off the contract extension with three days' notice.

Ahead of the deadline, some workers prepared picket signs, while others watched late-night television or just chatted.

"I'm waiting patiently. We're in it for the long haul," said Douglas Rademacher, president of UAW Local 602 near Lansing. "We're planning for the worst, hoping for the best. We support the international union 100 percent."

Jim Graham, president of Local 1112 in Lordstown, Ohio, told union members early Saturday to go home and return in the morning for a progress report. He made the decision after speaking with union negotiators.

"From what they're telling us, they're making good progress. If this thing falls through the floor, we're going to be right back here (in the morning)."

As the automakers cut their hourly work forces by thousands through early retirement and buyout offers, UAW membership continued to drop. The union represented 302,500 active workers during contract talks in 2003; that fell to 180,681 this year.

The UAW still could strike GM, or the two sides could continue negotiating and workers would be covered by the terms of the old four-year contract.

Industry analysts said a short strike wouldn't hurt GM that badly. The company had a 65-day supply of vehicles at the end of August, slightly lower than the 67-day average for the U.S.-based automakers, according to Ward's AutoInfoBank. Paul Taylor, chief economist for the National Automobile Dealers Association, said the ideal is a 60-day supply, so that indicates GM didn't build up its inventory in anticipation of a strike.

A short strike could actually help GM reduce its inventory of pickups. Right now, the Chevrolet Silverado stands at a 90-day supply, higher than the industry average of 81 days for pickups. GM announced last month that it plans to cut 1,200 jobs at one of the plants that makes the Silverado, and a strike could speed that process.

But Taylor said a longer strike, or a strike that could hurt hot-selling vehicles, would be disastrous.