National News

Justice dept. targets GM in subprime auto loan probe

Marketplace - American Public Media - Tue, 2014-08-05 13:50

GM Financial, the unit of General Motors in charge of auto financing, has received a subpoena in a federal investigation of subprime car loans.   

The company disclosed the request in a recent regulatory filing. GM said it’s complying and that it believes the request is focused on the subprime auto-finance industry in general, not GM in particular.

While some of these auto loans can look similar to the subprime mortgages that led to the financial crisis, the scale is different, says Lawrence White, an economics professor at New York University's Stern School of Business.

“The magnitudes are nowhere near in subprime auto what they were in subprime mortgage lending,” he says. “So it’s highly unlikely that there will be any significant macro-economic consequences."

But that doesn’t mean lenders and investors won’t feel some pain if the loans go wrong, White says. The set of borrowers who were impacted most by the mortgage crisis are the ones at risk again, says Chris Kukla, senior vice president at the Center for Responsible Lending.

“It’s also the same practices,” he says. “Loans that were being made at higher interest rates, generally to people who had lower credit scores [with] terms and conditions to them that just made them unaffordable.”

Just like a foreclosure, having a car repossessed can devastate a household.

“Access to an automobile is extraordinarily critical to low-income families and working families," says Stuart Rossman, director of litigation at the National Consumer Law Center. “They are reliant on it for their job, they’re reliant upon it for their education.”

 Take away access to a car for enough people, he says, and you could have a serious economic problem on your hands.

The filing:

On July 28, 2014, General Motors Financial Company, Inc. (the “Company”) was served with a subpoena by the U.S. Department of Justice directing it to produce certain documents relating to its and its subsidiaries’ and affiliates’ origination and securitization of subprime automobile loan contracts since 2007 in connection with an investigation by the U.S. Department of Justice in contemplation of a civil proceeding for potential violations of Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Among other matters, the subpoena requests information relating to the underwriting criteria used to originate these automobile loan contracts and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loan contracts.

Gannett's print arm will fend for itself

Marketplace - American Public Media - Tue, 2014-08-05 13:48

Media company Gannett announced Tuesday it plans to split in two.

Its newspaper and publishing arm – including USA Today – will split off to become one company, retaining the name Gannett. Its broadcast and digital arm, which has yet to be named, will become its own company. That company also, and not coincidentally, just bought up Cars.com.  

It’s the latest example of a decade-old scramble to figure out what to do with newspapers. 

In some ways, Gannett is spinning off its publishing side, but you could also say it’s ditching it.

“They’re doing it for the simple reason that newspapers are in a downward spiral that’s irreversible,” says Porter Bibb, managing partner at Media Tech Capital Partners.

The idea is that newspapers drag down earnings, stock prices, and even investment from the broadcast and digital side of the company. Those companies could excel, ostensibly without needing to subsidize their ailing brother.

“The latest number showed that while 70 percent of [Gannett’s] revenues were coming from newspapers, already 60 percent of profits were coming from broadcast,” says Ken Doctor, media analyst at Newsonomics.

Even though digital ad spending for newspapers is expected to increase 4.3 percent this year to $3.64 billion, traditional print newspaper ad spending is expected to drop 4 percent to $16.73 billion. That brings the total ad spending down 2.6 percent from last year, according to eMarketer.   

The decline of newspapers is intimately tied to why the broadcast and digital side of Gannett will buy Cars.com. Auto advertising used to be the hand that fed newspapers. Now that hand is feeding someone else. 

“Print media’s lost billions in ad revenue in the last decade, and a large part of that is from auto dealerships who have shifted spending from print classifieds over to digital,” says Mike Hudson, an analyst with eMarketer.

The broadcast and digital side of Gannett followed the money and it's leaving publishing and newspapers behind in what has become a popular strategy.  Time Warner spun out Time Inc. and News Corp split off from 21st Century Fox.

It’s not necessarily leaving print behind to die, just to fend for itself.

“Essentially, the theory goes if you spin off the print piece, the print can have the freedom to focus on the business of print itself,” says Hudson. 

There are often crossovers – relationships between TV and print remain. In Gannett’s case, the print company would very likely continue to provide news services to the broadcast side. 

But to the extent these spinoffs are independent, they are also vulnerable.

“The companies are left as standalone companies, that means they operate now without a safety net,” Doctor says.

So far the print spinoffs aren’t looking great, either. 

“All these publishing companies are still negative on revenue year over year, and for most of them they haven’t grown revenue for seven years really since the recession,” Doctor says. “So we don’t know about the long-term impact of it.”

The broadcast companies appear to be doing better in terms of earnings and stock prices, but that doesn't prove spinning off is a good strategy. Broadcasters have their own battles to fight – think about cable TV and its battles with Aereo and Netflix.

So while the spinoff is a popular move, it’s also a new and unproven one. 

Graphic by Shea Huffman/Marketplace

Banks' 'living wills' aren't looking so good

Marketplace - American Public Media - Tue, 2014-08-05 13:45

A report today from two bank regulators, the Federal Reserve and the Federal Deposit Insurance Corporation, basically said that "too big to fail" thing.

It was an update on how banks are faring in putting together their living wills, as mandated by the Dodd-Frank law.  Basically, it explains how they would handle failure without involving the government. 

It's not looking so good. In the words of Thomas Hoenig, the second in command at the FDIC:

"Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support." 

In other words:  Wall Street's totally still going to hose us. 

1.2 Billion Web Credentials Said To Be In Russian Gang's Hands

NPR News - Tue, 2014-08-05 13:38

From its base in south central Russia, the relatively small group has reportedly collected passwords along with user names and email addresses.

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1.2 Billion Web Credentials Said To Be In Russian Gang's Hands

NPR News - Tue, 2014-08-05 13:38

From its base in south central Russia, the relatively small group has reportedly collected passwords along with user names and email addresses.

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Obama Says U.S. Exports Have Room To Run In Africa

NPR News - Tue, 2014-08-05 13:37

The White House says U.S. exports to Africa have jumped 40 percent in five years. But the administration says growth can be even faster. "I want Africans buying more American products," Obama said.

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Obama Says U.S. Exports Have Room To Run In Africa

NPR News - Tue, 2014-08-05 13:37

The White House says U.S. exports to Africa have jumped 40 percent in five years. But the administration says growth can be even faster. "I want Africans buying more American products," Obama said.

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Can you sue GoPro if you crash your bike?

Marketplace - American Public Media - Tue, 2014-08-05 13:10

There’s this pretty amazing YouTube video featuring Rafael Dumon at Lake Garda, Italy.  Dumon attempts a self-proclaimed world’s first: using a wingsuit to jump off a mountain, gliding onto the lake far below.

“I’m not going to be using my chute, and I will end up skimming on the lake. And instead of bouncing, I will hope to kind of glide in at a trajectory, similar to a plane,” Dumon says.

Believe it or not, he does it, capturing the feat with a GoPro camera:

But what if something had gone wrong? Could GoPro be held liable? After all, the company has its own YouTube channel for users to share extreme videos.

“Well, I would say that they’re certainly at risk for a lawsuit, but not necessarily at risk for losing a lawsuit,” says Jim Underwood, a law professor at Baylor University in Waco, Texas.

He says for GoPro to lose, the plaintiffs would actually need to prove there was something wrong with the camera that caused the accident. 

Underwood says another possible lawsuit would be for a plaintiff to blame the risky behavior on the company’s marketing, "and that they failed to provide adequate warnings of those dangers.” 

But in the same breath, he says the courts have ruled that when the danger is clear, there’s no need to spell out it.

“In fact, that’s why these videos are so popular - because the danger is so obvious and sometimes shocking,” Underwood says.

Even though it may be difficult for GoPro to lose one of these lawsuits, the company wants would-be investors to know they could be sued.

On page 34 of GoPro’s IPO filing with the Securitites and Exchange Commission under a section entitled “risk,” the company writes:

“Consumers use our cameras and accessories to self-capture their participation in a wide variety of physical activities, including extreme sports, which in many cases carry the risk of significant injury. We may be subject to claims if consumers are injured while using our products.”

GoPro may have reason to be concerned. The workout app Strava, which lets cyclists and runners compete virtually, has been criticized -- and even sued -- for encouraging dangerous biking in busy cities.

“Trial lawyers will never miss an opportunity to try to open a new avenue for litigation. Certainly the world of apps is one of those," says Bob Hartwig, president of the Insurance Information Institute.

He says unless laws start to change, the way litigation works in this country -- lawyers are actually encouraged to file a lawsuit against everything and everyone involved in an accident. Even a GoPro camera.

Spurs Hire NBA's First Female Full-Time Assistant Coach

NPR News - Tue, 2014-08-05 13:08

"I'm just thrilled for the opportunity to coach these unbelievable athletes," WNBA star Becky Hammon says at a news conference announcing her hire by San Antonio.

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Obama Calls On Business To Bridge Divide Between U.S. And Africa

NPR News - Tue, 2014-08-05 12:48

President Obama capped the U.S.-Africa Business Forum in downtown Washington, D.C., with a speech to the collected leaders and business people at the conference.

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Murdoch Withdraws Bid To Buy Time Warner

NPR News - Tue, 2014-08-05 12:32

Instead of buying Time Warner for a reported $80 billion, Twenty-First Century Fox will buy back $6 billion worth of shares of its own stock.

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The secret life of food stamps might get less secret

Marketplace - American Public Media - Tue, 2014-08-05 12:31

Should the public know how much money Wal-Mart, or that convenience store down the street, takes in through the federal food stamp program? Or does that amount to a retail trade secret? Those are the questions at the heart of a request for public comment announced Monday by the U.S. Department of Agriculture, which runs the food stamp program.

Here’s the background: Last year we spent $76 billion tax payer dollars on the food stamp program (officially known as the Supplemental Nutrition Assistance Program or SNAP). That money goes to about 47 million low-income Americans, who use it to buy food at more than 250,000 retail stores across the country.

But, as I have reported here before, exactly which stores and which companies benefit most from those food stamp dollars is something the federal government has never disclosed. Officials have long argued they are required by law to keep the information secret, in order to protect retailers.

A few years ago the Argus Leader, a newspaper in South Dakota, sued the USDA, arguing the public has a right to see this data. The issue is still tied up in court. Last spring, when I interviewed Agriculture Under Secretary Kevin Concannon about the issue in March, he told me that in his opinion, greater transparency would be a good thing.

“I think personally it’s in the interest of the American public,” he said. “These are public benefits that are moving through the economy.”

Yet when I asked him if he would push his agency to disclose the information he said he needed to “talk to the lawyers.”

Judging from the USDA’s announcement Monday, the lawyers have been consulted.

In the press release announcing the agency’s request for public input, Concannon said: “Our goal is to provide more transparency so that people can have access to basic information about the amount of SNAP benefits that individual grocery stores and retailers are redeeming. We hope that this public comment period will be informative as to how we can do that in the most thoughtful and appropriate way possible."

The USDA will take public comment until Sept. 8. As for what kind of comments might come in over the next month, we have some clues already.

When I asked Wal-Mart spokesman David Tovar last spring about how much revenue his company took in from food stamps, he told me it was proprietary information.

“We don’t provide our market-share data on any categories like that,” he said, pointing out that knowing how much a particular Wal-Mart in a particular location makes in food stamps could be helpful to competitors. “I think any information that a retailer shares about how they’re serving customers and how they’re going to market would be interesting to lots of other retailers.”

It’s worth pointing out that aside from being the nation’s largest retailer, Wal-Mart likely takes in the most food stamp dollars, an estimated 18 percent last year, according to leaked comments from a company vice president at a private dinner last fall, which Walmart later confirmed. That sum would amount to $13 billion, or about 4 percent of Wal-Mart’s total U.S. sales.

Wal-Mart is also one of several retailers that have a significant number of employees who make little enough that they rely on food stamps to get by. In Ohio, up to 15 percent of Wal-Mart’s workforce uses SNAP, based on our analysis of state food stamp enrollment data.

Outside the retail community, there are voices advocating for making the data public, arguing that it could help citizens and policy makers better understand which stores profit the most from food stamps, what kinds of foods they promote and sell, and what their business practices are.

“It could be used to improve SNAP and make it more accessible to poor families,” writes Stacy Cloyd, the Senior Domestic Policy Analyst at Bread for the World Institute, an anti-hunger organization. Knowing which stores attract the most SNAP customers would “allow hunger advocates to learn from successful businesses and share best practices. It would also help them identify the highest-volume vendors so that they can offer the stores information and recommendations on how they can supply a variety of nutritious foods,” she writes.

As Jonathan Ellis, the South Dakota journalist who sued the USDA to make food stamp data public, points out: “Typically, if a business participates in a government program, you can get a copy of their contract and find out how much they’re being paid.” 

That’s how it works when the government pays a construction company to build a bridge, or a defense contractor to build a fighter plane.

But that’s not how it works when the government reimburses retail companies that participate in the federal food stamp program, at least for now.

Gunman Kills American General In Shooting At Afghan Facility

NPR News - Tue, 2014-08-05 12:17

A U.S. Army major general was killed and another 15 other soldiers — including a German brigadier general — were injured when a man dressed in an Afghan military uniform opened fire on them. The attack took place in Kabul City, Afghanistan.

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Player In Baseball's Steroid Scandal Surrenders To DEA

NPR News - Tue, 2014-08-05 12:17

Federal prosecutors have formally charged the owner of an anti-aging clinic with distributing illegal steroids. Anthony Bosch surrendered to federal agents, and he has been cooperating with investigations. Last year, Major League Baseball suspended a dozen players, including Alex Rodriguez, with ties to Bosch and his clinic.

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Border Bloodshed: Murder Rate Rises Along Texas Oil Routes

NPR News - Tue, 2014-08-05 12:17

Another kind of border security issue is afoot in Texas, where the region's network of pipelines has seen a steady rise in the number of murder victims in the past decade. Joe Carroll of Bloomberg News explains the situation.

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Shadow Events Hope To Skim Some Attention From U.S.-Africa Summit

NPR News - Tue, 2014-08-05 12:17

While the U.S.-African Leaders Summit has aimed to facilitate meetings between American companies and African leaders, it's also provided an opportunity for smaller investors to make contacts and for human rights workers to try to get their voices heard.

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As Moscow Beefs Up Its Border Presence, What's Driving Putin?

NPR News - Tue, 2014-08-05 12:17

NATO estimates that some 20,000 Russian troops have massed along the border with Ukraine, just days after the U.S. and EU ratcheted up sanctions on Russia. Melissa Block asks David Remnick, editor of the New Yorker, about the possibility that Russia will invade Ukraine.

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As Gaza Settles Into Cease-Fire, U.N. Takes Stock Of Damage

NPR News - Tue, 2014-08-05 12:17

Audie Cornish talks to Robert Turner, director of operations for the United Nations Relief and Works Agency, about what the organization is calling a "health and humanitarian disaster" in Gaza.

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In Quest To Harpoon A Comet, A Spacecraft Stalks Its Prey

NPR News - Tue, 2014-08-05 12:17

The European Rosetta mission arrives at its target comet Wednesday morning. In the coming months, its lander unit will harpoon the space rock.

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Ukraine Forces Near Rebel City As Russia Escalates Border Exercises

NPR News - Tue, 2014-08-05 11:13

Government troops and separatists have been fighting for months for control of eastern Ukraine. Ukrainian leaders say Russia has been supplying the separatists — a charge Moscow denies.

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