WASHINGTON (July 15) - Soaring costs for gasoline and food pushed inflation at the wholesale level up by a larger-than-expected amount in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.
The Labor Department reported that wholesale prices jumped by 1.8 percent last month, the biggest one-month rise since last November. Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.
Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.
Federal Reserve Chairman Ben Bernanke, who was scheduled to deliver his mid-year report on the economy to Congress on Tuesday, was expected to highlight the threat posed by inflation pressures. The central bank at its June meeting brought an end to an aggressive rate-cutting campaign that had been designed to keep a prolonged housing slump and severe credit crunch from pushing the country into a deep recession.
The central bank is currently caught between the opposing forces of rising inflation and slumping economic growth.
For June, energy prices at the wholesale level shot up by 6 percent, as the price of gasoline surged by 9 percent following an even bigger 9.3 percent increase in May.
By Ashley Powers
LAS VEGAS -- Teri Zunick rapped on the window of a downtown pawnshop. She was wilting in 113-degree heat, and clutching the gold bracelet she needed to hock so her electricity would stay on.
Zunick, 45, is also struggling to pay her mortgage and fill up her $60-a-tank SUV. She has stopped getting her pool professionally cleaned. She plans to cancel her cable subscription.
But desperate to pay her electric bill -- now -- Zunick had few options besides Gold & Silver Pawn, a 24-hour shop on a gritty sliver of Las Vegas Boulevard.
Business there is terrific.
When the economy is troubled and the rent takes precedence over heirlooms, the pawnbroker is king. Skyrocketing gas and grocery bills and a rash of foreclosures have been windfalls for the industry's nearly 13,000 shops. So has the surging price of gold, at more than $900 an ounce; people are cashing in their pins, watches, earrings, necklaces and wedding bands.
Earnings of the three publicly traded pawn companies -- Cash America International Inc., EZCORP Inc. and First Cash Financial Services Inc. -- grew by double-digit percentages this year.
Last week, at the National Pawnbrokers Assn. convention here, shop owners said they were lending more money to more customers for longer periods. Even the well-to-do are bringing in motorcycles, laptops and power tools for cash, pawnbrokers said.
"If it weren't for me, by the 15th of the month the whole town would go dark -- they couldn't pay their utility bills," said Larry Hipps, who owns Larry's Jewelry & Pawn in Florence, Ala.
Pawnshops specialize in small loans -- the average is $75 -- and hold everything from televisions to saddles as collateral. More than two-thirds of customers redeem their goods by paying back their loans plus interest, said the pawnbrokers association. The shops sell the remaining items.
Pawnbrokers' experiences are a window on how the economic downturn has wounded the working class.
"The sector we deal with is living paycheck to paycheck," said Frank Ellis, a vice president for Capitol City Pawn & Jewelry, which has nine stores in Nebraska and Kansas.
Many customers are extending their loans by 30 to 45 days -- presumably because it's tougher to scrape together money. "They don't want to lose what they have," Ellis said.
Typically, spring and summer are sluggish for Joe Maciaszek's American Cash Pawn in Monroe, La. The store usually extends eight to 10 pawn loans a day, but the rate has tripled in recent months. His employees are forced to quiz customers more thoroughly.
"We have to be aware of the economy," said Kathy Summers, Maciaszek's daughter. "If they're coming in to get gas money, what can they actually afford to repay?"
Televisions and stereos that customers don't pick up gather dust on shelves, Maciaszek said. Shoppers aren't buying much besides DVDs and videos.
Scott Pasternack, who runs two pawnshops in the Denver suburbs, has $750,000 out in loans -- nearly $150,000 more than usual. His storage space is atypically packed with 3- and 4-carat diamonds, Rolexes and a Tiffany & Co. diamond, ruby and sapphire pin worth at least $5,000.
One woman pawned 20 pieces of jewelry, including diamond rings and gold tennis bracelets, to keep her daughter's home from foreclosure.
By Catherine Clifford and Chris Isidore
NEW YORK (CNNMoney.com) -- In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bank was taken over by federal regulators on Friday.
The operations of the Pasadena, Calif.-based bank - once one of the nation's largest home lenders - were shut down at 3 p.m. by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp.
According to the FDIC, 10,000 IndyMac customers could lose as much as $500 million in uninsured deposits. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.
"It's possible this will be the most costly bank failure in history, but it's too soon to say," FDIC Chairman Sheila Bair said in a conference call late Friday night. The failure could also affect premiums paid by all banks for deposit insurance, she added.
IndyMac, with assets of $32.01 billion and deposits of $19.06 billion, is the fifth bank to fail this year. Between 2005 and 2007, only three banks failed. And in the past 15 years, the FDIC has taken over 127 banks with combined assets of $22 billion, according to FDIC records.
"There will be increased failures, but it will be within range of what we can handle," Bair said. "People should not worry."
IndyMac marks the largest bank collapse since 1984, when Continental Illinois, which had $40 billion in assets, failed, according to FDIC records. The two most expensive failures were in 1988: American Savings and Loan Association in California ($5.4 billion) and involved First Republic Bank in Texas ($4 billion).
What now for IndyMac customers?
Bair said that the FDIC will try to sell IndyMac as a complete entity within 90 days.
When a bank shuts down, traditional bank accounts are insured to at least $100,000. Some accounts such as annuities and mutual funds are not insured at all. Individual Retirement Account funds are insured to $250,000.
Customers with uninsured deposits will get at least half that money back, and they could get more back, depending on what the FDIC gets when it sells the bank, said Bair.
IndyMac customers will have their funds transferred to a new entity - IndyMac Federal FSB - controlled by the FDIC. They will have uninterrupted customer service and access to their funds by ATM, debit cards and checks.
However, customers will have no access to online and phone banking services this weekend, according to the FDIC. Service will resume on Monday. Loan customers were advised to continue making loan payments as usual.
For additional information, the FDIC has established a toll-free number for customers of IndyMac Federal Bank, FSB.
The toll-free number is 1-866-806-5919 and will operate today from 3:00 p.m. to 9:00 p.m. (PDT), and then daily from 8:00 a.m. to 8:00 p.m. thereafter, except Sunday, July 13, when the hours will be 8:00 a.m. to 6:00 p.m. Customers also may visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/IndyMac.html for further information.
How it got to this point
IndyMac specialized in loans it had long argued were of minimal risk: low documentation loans to residential mortgage borrowers.
On Tuesday, IndyMac - which had 33 branches - announced that it was firing 53% of its workforce and exiting its retail and wholesale lending units. Last year, the lender was ranked 11th in residential mortgage origination, according to trade publication Inside Mortgage Finance.
More importantly, IndyMac also disclosed that regulators no longer considered it "well capitalized." As a result, since Tuesday, the bank wasn't able to accept brokered deposits, or short-term investments in large dollar amounts from brokers seeking the highest return on certificates of deposit.
Over the past two years, IndyMac dropped over 95% in stock price, or about $3.5 billion in market capitalization. Shares traded down nearly 10% on Friday to close at 28 cents.
IndyMac lost $184.2 million in the first quarter and announced on Monday that it was expecting a wider loss for the second quarter. It lost $614 million last year stemming from its focus on the Alt-A mortgage sector, where it originates loans to borrowers who fall between prime (or conforming) and sub-prime on the credit spectrum. The lender's chief executive, Michael Perry, had long argued that it was being unfairly punished given its relatively paltry exposure to sub-prime mortgages.
Rising Alt-A and prime mortgage delinquencies likely were enough indication for investors that the housing crisis had moved beyond the weakest borrowers. Even worse, with the securitization markets in collapse, IndyMac had no way to get new loans off its books. As it turned out, IndyMac was a leader in loans requiring little income and asset documentation, a category that has had disastrous levels of delinquencies at other troubled lenders. What loans the bank had made recently were to borrowers with well-documented assets and income, but those are sharply less profitable with respect to fees and interest income.
IndyMac, in its filing on Monday, said it would focus on its reverse mortgage business, retail branch network and mortgage servicing operations. But the growth restrictions placed on IndyMac by regulators and the banks and brokerages it did business with, as well as the sharply higher borrowing costs, placed the profitability of even its non-mortgage-related banking efforts in doubt.
Even efforts to prop up the bank hurt it. Last month, Sen. Charles Schumer, D-N.Y., wrote a series of letters to regulators in Washington and California asking them to take steps to prevent the bank's "likely collapse." In response, about $100 million in customer deposits has been withdrawn from the bank, according to one of its filings.
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