Economix Blog: Ask About ‘The House Edge’

House Prices Rise Again, but the Pace Could Slow

In 2013’s last glimpse at the housing market, figures released on Tuesday showed that home prices in major metro areas kept rising in October. Year-over-year, prices were up 13.6 percent, the biggest gain in more than seven years.

After plummeting during the housing bust, prices have increased steadily since the spring of 2012. Prices in 20 major American metro areas increased a modest 0.2 percent between September and October, without seasonal adjustment, evidence that the quick rebound in prices is slowing, according to the closely watched S&P/Case-Shiller data. Higher mortgage rates might continue to slow the pace of improvement going forward, analysts say.

Nationally, the increase in home prices is moderating, the S&P/Case-Shiller analysis said. Prices decreased in nine metro areas between September and October, including Denver, Chicago and Washington, whereas just one saw price decreases between August and September.

“Monthly numbers show we are living on borrowed time and the boom is fading,” said David M. Blitzer of S&P Dow Jones Indices in an analysis of the new data. A big question, he said, is how quickly the Federal Reserve pulls back from its extraordinary efforts to keep rates low.

“The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates,” Mr. Blitzer said. “Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices.” He added: “Most forecasts for home prices point to single-digit growth in 2014.”

In many metro areas where prices declined sharply — particularly those encompassing Sun Belt and Rust Belt cities like Phoenix, Las Vegas and Detroit — similarly sharp rebounds followed. But generally, prices have not touched their pre-bust heights, with prices across the country remaining about 20 percent lower, the S&P/Case-Shiller data show. In Dallas and Denver, however, prices have hit new peaks, the report said.

Many economists expect price increases to moderate next year, with higher prices and higher mortgage costs making homes less affordable, even though the labor market recovery might pick up some steam and inventory might increase in some areas.

In December, the Fed said that improving economic conditions warranted the central bank starting to ease up on its stimulus efforts. The Fed said it would cut its monthly purchases of Treasury and mortgage-backed securities to $75 billion a month from $85 billion a month.

“Even after this reduction, we will be still expanding our holdings of longer-term securities at a rapid pace,” Ben S. Bernanke, the Fed chairman, said at a December news conference, his last before Janet L. Yellen takes over, pending Senate confirmation. “Our sizable and still-increasing holdings will continue to put downward pressure on longer-term interest rates, support mortgage markets, and make financial conditions more accommodative, which in turn should promote further progress in the labor market.”

But mortgage rates have risen, and the pace of sales has slowed in many metro areas. According to the National Association of Realtors, the government-backed mortgage finance company, existing-home sales dropped 4.3 percent to a seasonally adjusted annual rate of 4.9 million in November. New-home sales dropped 2.1 percent to a seasonally adjusted annual rate of 464,000, the Census Bureau said.

“While most housing markets still remain affordable, rising mortgage rates and rising house prices over the past six months are making it more challenging for the typical family to purchase a home without stretching beyond their means,” said Frank Nothaft, chief economist at Freddie Mac, in an analysis. “We expect mortgage rates to rise over the coming year, so it’s critical we start to see more job gains and income growth in the coming year.”

In some areas, limited housing supply has pushed prices high. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” said Lawrence Yun of the National Association of Realtors, in an analysis. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction.”

In a separate report released Tuesday, the Conference Board, a research group, said that consumer confidence jumped to 78.1 in December, from 72.0 in November, with sentiment about current economic conditions reaching its highest level since the spring of 2008. “Despite the many challenges throughout 2013, consumers are in better spirits today than when the year began,” said Lynn Franco, director of economic indicators at the Conference Board.

Many economists do expect jobs and income growth to improve, and to have a resulting effect on housing. “We expect that the improving employment picture next year will be accompanied by a sustained increase in interest rates, which in turn will roll over into the mortgage market,” said Doug Duncan, chief economist at Fannie Mae. He said the housing recovery might continue on a “modest upward trend.”

In the S&P/Case-Shiller report, a survey of 10 major metro areas, as well as a broader survey of 20 major metro areas, showed year-on-year price increases of about 13.6 percent in October, the biggest such rise since early 2006.

Economists have said foreclosures and short sales are making up a smaller proportion of sales, making housing price gains look larger, since those homes can trade at steep discounts.

Disruptions: New Targets for Hackers: Your Car and Your House

The House Edge: A Shuffle of Aluminum, but to Banks, Pure Gold

The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country.

Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process “a merry-go-round of metal.”

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to compa-nies that control operations at major ports like Oakland, Calif., and Seattle.

In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Goldman Sachs says it complies with all industry standards, which are set by the London Metal Exchange, and there is no suggestion that these activities violate any laws or regulations. Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

Gretchen Morgenson contributed reporting from New York. Alain Delaquérière contributed research from New York.

This article has been revised to reflect the following correction:

Correction: July 20, 2013

A previous version of this article misstated one of the financial institutions that received approval to buy up to 80 percent of the copper available on the market. It is BlackRock, not the Blackstone Group.

The House Edge: A Shuffle of Aluminum, but to Banks, Pure Gold

The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country.

Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process “a merry-go-round of metal.”

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to compa-nies that control operations at major ports like Oakland, Calif., and Seattle.

In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Goldman Sachs says it complies with all industry standards, which are set by the London Metal Exchange, and there is no suggestion that these activities violate any laws or regulations. Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

Gretchen Morgenson contributed reporting from New York. Alain Delaquérière contributed research from New York.

This article has been revised to reflect the following correction:

Correction: July 20, 2013

A previous version of this article misstated one of the financial institutions that received approval to buy up to 80 percent of the copper available on the market. It is BlackRock, not the Blackstone Group.

Penguin and Random House Merge, Saying Change Will Come Slowly

Receptionists cheerfully answered the phones with a new greeting: “Good morning, Penguin Random House.”

E-mails were sent to nervous employees assuring them that their health plans would not change.

And a new temporary logo — with a penguin in profile next to a tidy house — was released until a permanent one could be designed.

On Monday, the newly formed company of Penguin Random House began to take shape, only hours after a middle-of-the-night announcement that the long-planned merger had been completed.

Together, Penguin and Random House will make up the biggest and most dominant publisher in the business, one that has unmatched leverage against Amazon.com and the potential to inspire other mergers in the industry.

Markus Dohle, the chairman and chief executive of Random House, who will take on the role of chief executive of the new company, announced the completion of the merger in an e-mail to employees on Monday.

“Today, we are Penguin Random House,” he wrote. “You should be proud of what you’ve accomplished and what we are all now a part of: the first truly global trade book publishing company. Together, we are even better positioned to fulfill our core purpose: to bridge authors and readers by publishing the very best books.”

Bertelsmann, the owner of Random House, and Pearson, the owner of Penguin, disclosed the merger in October, saying that Bertelsmann would control 53 percent of the company and Pearson 47 percent. Since then, the merger has sailed through regulatory approvals in the United States and Europe, as well as China, Canada and other countries.

The combined companies will control more than 25 percent of the book business, with more than 10,000 employees, 250 independent publishing imprints and about $3.9 billion in annual revenues.

Mr. Dohle, in a telephone interview from London, where he was about to embark on a three-week tour around the globe to meet with employees, said that part of his message is simple: there will not be much change at first.

There are no immediate plans for laying off employees or closing imprints. Both Penguin and Random House have long leases on their buildings in Manhattan, so they will not work from the same building anytime soon — maybe not for at least a decade, Mr. Dohle said.

“The continuity will far outweigh the change,” said Mr. Dohle, who has a reputation for deliberate moves. “We have the luxury to take the time before we make any strategic decisions. There is no need to rush.”

One goal of the merger, he said, is to “crack the code of discoverability” — of how to put books in front of potential buyers — “in a world with fewer bookstores.”

Several important leadership changes for the new company were announced Monday. David Shanks, the chief executive of the Penguin Group USA, has stepped down and will be a senior adviser to Mr. Dohle and the executive team. John Makinson, the head of Penguin Group since 2002, will be the chairman of Penguin Random House.

Executives sought to reassure anxious employees, authors and agents that there was nothing to worry about. In a letter to authors, Mr. Dohle said that the new company would invest in distribution and marketing, maximizing potential readers. The authors’ relationship with their editors and publishing teams, he said, “will remain untouched.”

Executives at Penguin and Random House said the initial focus would be on unifying the infrastructure of the companies, including establishing pay scales, health benefits and new e-mail addresses.

But there will also be an effort to sort out redundancies, a process that typically involves a reduction in employee count. As physical book sales decrease, so does the need for gigantic warehouses to store and ship books; the newly combined company is likely to find ways to trim printing, distribution and storage costs.

“There’s positives and negatives,” said Elyse Cheney, a literary agent. “The positive is that I hope they will be able to have greater leverage with companies like Amazon. But more importantly, that they figure out new and innovative ways to reach consumers, now that the marketplace is changing so rapidly.”

Analysts said it was too early to predict the consumer impact of the merger. Mike Shatzkin, the founder and chief executive of Idea Logical, a consultant to publishers, speculated that Penguin Random House would eventually use its large list of books to create a digital subscription offer, much like a book-of-the-month club for e-books, or build minibookstores within retailers like clothing stores.

For authors, the suddenly larger presence of Penguin Random House will make it a more attractive prospect, Mr. Shatzkin said.

“If you’re a Penguin author or a Random House author, you should be pretty happy today,” he said. “If you’re another publisher or an author with another publisher, you should be watching this with a wary eye.”

But authors and agents also quietly voiced concern that there would be fewer major publishing houses competing for their work.

Harlan Coben, the best-selling novelist who is published by Dutton, an imprint of Penguin, said that “the one thing that worries every writer is that there is going to be fewer houses and less competition.”

But, he added, “this business so constantly changes that whatever we’re talking about now will be nonsense a few years from now.”

In House, Maxine Waters Takes New Tack on Banks

OVER her 22 years in Congress, Maxine Waters has likened bank executives to “gangsters,” snarkily addressed them as “captains of the universe” and threatened to tax their companies “out of business.”

The Democrat from Los Angeles, in other words, is not known for showing love to the financial industry.

So in March, when she visited a group of community bankers in a conservative corner of her district, she seemed ready for a chilly reception. “Let’s see what these guys have to say for themselves,” Ms. Waters said with a smirk as she emerged from her S.U.V.

Escorted to a private conference room at Malaga Bank, Ms. Waters grabbed a seat at the head of the table. A dozen or so bankers shuffled in, each armed with a tale of woe about the Dodd-Frank banking overhaul passed by Congress in the aftermath of the financial crisis.

The law is too tough, they groaned. Its capital requirements are too steep. One banker’s voice quivered as she described a regulatory examination of her bank. Another griped about regulators overstepping their bounds: “They can tell you how many pens and pencils we have in our drawers!”

In the past, such grumbling might have set off Ms. Waters’s famous hair-trigger temper. But with each complaint, she leaned in for more, nodding appreciatively. “We’ve heard they chase down silly stuff,” Ms. Waters said, referring to regulators and shaking her head in disapproval. “I’m willing to take a hit” to help lower the capital requirements, she said. She even suggested the bankers hire new lobbyists to better represent them. “Influence us,” Ms. Waters said softly, reminding them of her new role as the ranking Democrat on the House Financial Services Committee. “Help us understand the intricacies of your business.”

This was not “kerosene Maxine,” the nickname Ms. Waters has earned for her tendency to hurl flammable remarks. (Exhibit A: She once screamed onstage in Los Angeles that “The Tea Party can go straight to hell, and I intend to help them get there.”) Rather, she was all empathy, vowing to use her new sway in Washington to protect the bankers’ interests. “You have a lot of good will right now,” she said. As for Dodd-Frank, Ms. Waters said she stood ready to defend the law, but also instructed the bankers to compile a “laundry list” of their concerns. “I don’t want you to look at this as being impossible to tweak,” she said.

After an hour of swiveling nervously in their chairs, the bankers broke into grins. One executive slapped Ms. Waters a high-five. Another embraced her.

“You’ve softened,” Paul C. Hudson, the chairman of Broadway Federal Bank, teased Ms. Waters. “I love the new Maxine.”

The New Maxine was born in part from Ms. Waters’s ascension, in January, on the House Financial Services Committee. Exonerated in September at the end of a three-year ethics investigation, she replaced Barney Frank, Democrat of Massachusetts, for whom the banking overhaul bill was named.

The influential Financial Services Committee oversees community banks and Wall Street alike. And Ms. Waters has softened somewhat, not just toward local bankers in her district who might expect her ear, but also toward the Wall Street C.E.O.’s she formerly reviled.

In recent months, she dined with John Stumpf, the C.E.O. of Wells Fargo, and met Wall Street chief executives like Michael L. Corbat of Citigroup and Jamie Dimon of JPMorgan Chase. It’s what she called “an open-door policy.” Most notably, given her penchant for railing against Wall Street abuses, she recently pushed regulators to delay certain rule changes on high-stakes derivatives trading. The regulators ultimately agreed.

The move may seem at odds with her track record as a rabble-rouser and consumer activist. In her long committee tenure, Ms. Waters positioned herself to the left of fellow Democrats, making her name on issues like affordable housing and foreclosure prevention. Ms. Waters acknowledged that “some of my friends will not agree” with all of her recent decisions. But after two decades in Congress, she says she has learned to pick her battles.

One battle emerged in recent days. In the face of intense lobbying pressure, Ms. Waters voted on Tuesday to oppose several House bills that would water down Dodd-Frank, a move that one consumer advocate called “gutsy.”

House Takes On Fiscal Cliff

Lawmakers said that Representative Eric Cantor of Virginia, the No. 2 Republican, indicated to his colleagues in a closed-door meeting in the basement of the Capitol that he could not support the legislation in its current form. Many other Republicans were voicing stiff objections to a plan that they saw as raising taxes while doing little to rein in spending. Several conservatives assailed it on the House floor as the chamber convened at noon for an unusual New Year’s Day session.

“There’s not a lot of support for the bill as is. I personally hate it,” said Representative John Campbell, Republican of California. “The speaker, the day after the election, said we would give on taxes, and we have, but we wanted spending cuts. This bill has spending increases. Are you kidding me?”

Aides said that Speaker John A. Boehner, who had pledged to put any measure the Senate passed on the House floor for a vote, was mainly listening to the complaints of his rank and file and had not taken a firm position on the legislation, though he had clear reservations.

The situation loomed as a significant test for Mr. Boehner, who had been unable to pass his own proposal to increase taxes only on $1 million in income and above. He has said repeatedly that he would allow a vote on the Senate bill, but he has also said he did not want to pass a bill with predominantly Democratic votes. Public opposition from Mr. Cantor, who has up to this point sided with Mr. Boehner in the fiscal fight, would also complicate his position.

Brendan Buck, a spokesman for Mr. Boehner, said that during the meeting, “the lack of spending cuts in the Senate bill was a universal concern amongst members.” The Republican leadership expected to continue discussions Tuesday “on the path forward,” he added.

The 112th Congress comes to a close Thursday.

Democrats emerged from their own closed-door meeting with Vice President Joseph R. Biden Jr. generally sanguine about the deal, if not ecstatic. Few Democrats, if any, suggested a Democratic rebellion was in the works after a forceful — and lengthy — presentation by Mr. Biden, which walked them step by step through the negotiations, the legislation and the path forward on future deficit confrontations.

“It is clear that the vice president and the president are convinced that they have done the right thing. They don’t see it as a perfect deal though, and nobody else does,” said Representative Elijah Cummings, Democrat of Maryland.

It appeared that members were favoring trying to amend the measure and send it back to the Senate.

“I would be shocked if this bill doesn’t go back to the Senate,” said Representative Spencer Bachus, Republican of Alabama.

With just two days to go before a new Congress convenes, the House has essentially three choices: reject the bill, pass it as written by the Senate after what is certain to be a robust, even rancorous debate, or amend the bill and quickly return it across the rotunda to the Senate. Should the House choose to amend the measure, it would almost certainly imperil its chances of becoming law before the new Congress convenes. The Senate compromise, which enjoyed wide bipartisan support, was so hard fought and senators do not anticipate taking another vote on it.

Any failure to pass the measure before the 112th Congress ends as of noon Thursday would require the process to start over in the new 113th Congress, meaning the Senate would have to vote again with a changed membership due the departure of several veteran lawmakers and the arrival of newcomers from both parties as a result of victories in the November elections.

But the strong, bipartisan 89-to-8 vote in the Senate about 2 a.m. on Tuesday will put strong pressure on the House to approve the legislation since a defeat would essentially leave the House responsible for a steep series of tax increases and spending cuts that some economists warn could send the nation back into a recession.

Yet it was clear Tuesday morning that many House Republicans were disenchanted with the plan, which, while containing many concessions that angered Democrats, still favors the latter party’s priorities and imposes a tax increase on the wealthiest Americans.

“I am halfway through reading it and haven’t found the cuts yet,” said Representative Trey Gowdy of South Carolina, who generally votes against budget bills. “It’s part medicinal, part panacea, and part treating the symptoms but not the underlying pathology.”

Democrats have their own issues with the measure because of what they see as too many concessions on taxes, making it apparent some combination of Democrats and Republicans will have to come together behind the measure if it is to clear the House and be sent to President Obama for his signature.

House G.O.P. Looks to a Round 2 Obama Hopes to Avoid

“I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” the president said, pausing to repeat himself. “We can’t not pay bills that we’ve already incurred.”

But it is not clear exactly how Mr. Obama can avoid engaging in just such a tug of war.

In the wake of the president’s victory on taxes over the New Year’s holiday, Republicans in Congress are betting that by refusing to unconditionally raise the $16.4 trillion debt ceiling, they can force Mr. Obama to the bargaining table on spending cuts and issues like reform of Medicare and Social Security.

That would inevitably reprise the bitter clash over the debt ceiling in the summer of 2011, when the government came close to shutting down before lawmakers and the president agreed to a $1.2 trillion package of spending cuts in exchange for Republican agreement to raise the debt ceiling by about the same amount.

And that is exactly what Republicans want.

The party’s caucus in the House will discuss its debt ceiling strategy at its retreat in Williamsburg, Va., in a couple of weeks, according to a top Republican aide, who said it was determined to insist again on spending cuts that equal the increase in the amount the country can borrow.

“The speaker told the president to his face that everything you want in life comes with a price. That doesn’t change here,” the Republican aide said. “I don’t think he has any choice.”

That strategy could risk a new round of criticism aimed at Republicans from a public weary of brinkmanship. The 2011 fight ended with a last-minute deal but led to a downgrade in the rating of the nation’s debt and a slump in the economic recovery.

But Brendan Buck, a spokesman for Speaker John A. Boehner, said Republicans had made it clear what they wanted in exchange for a willingness to allow borrowing to increase.

“If they want to get the debt limit raised, they are going to have to engage and accept that reality,” Mr. Buck said. “The president knows that.”

In fact, the White House has been on notice for months that Republicans view the debt ceiling as leverage in the next budget fight. Now, the question is what Mr. Obama and his advisers can do to sidestep that fight.

One possibility is to turn to business executives for support. Many top chief executives view the possibility of a debt ceiling crisis as a significant impediment to the nation’s economy just as it is beginning to grow again. Those executives might try to pressure Republican lawmakers not to use the country’s credit as a negotiating tool.

Mr. Obama might also take to the road again, using the power of his office to try to convince the public that another fight over the debt ceiling risks another economic crisis. Public polls after the last debt ceiling fight suggested that more people blamed Republicans for the threat of a default.

The president and his aides have signaled that they will try to educate the public by explaining that the increase in the borrowing limit is necessary to cover debts that the government has already incurred. In his statement on Tuesday night, Mr. Obama warned about what would happen if the country did not meet its obligations.

“If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic — far worse than the impact of a fiscal cliff,” Mr. Obama said.

In the coming days and weeks, Mr. Obama is likely to try to focus negotiations on the other looming issue: how to avoid deep across-the-board cuts to the nation’s military and domestic programs. The deal passed on Tuesday postpones those cuts for two months, but Mr. Obama and lawmakers in both parties are eager to avoid them.

Instead, the president wants a debate over spending cuts and tax changes that would remove loopholes and deductions for wealthy Americans.

That fight is coming. The question is whether the president can avoid conducting it in the middle of a nasty, drawn-out debate over the debt limit.

Media Decoder Blog: Awaiting Merger With Random House, Penguin Settles E-Book Case

Penguin, trying to ensure a clean slate before its planned merger with Random House, announced late Tuesday that it was settling a lawsuit brought by the Department of Justice over the pricing of e-books.

In a terse statement the company said, “Penguin has always maintained, and continues to maintain, that it has done nothing wrong and has no case to answer.”

Nevertheless, the company said, it was agreeing to settle because of the impending merger between Random House, a division of the German media company Bertelsmann, and Penguin, a division of the English conglomerate Pearson. That deal, in which Bertelsmann will assume 53 percent control of the new company, was announced this past October as the publishing industry begins to consolidate to try to better meet the online challenge from Amazon.

The company said in its statement, “It is also in everyone’s interests that the proposed Penguin Random House company should begin life with a clean sheet of paper.”

In April, the Justice Department filed a lawsuit accusing five major publishing houses and Apple of conspiring to fix the price of e-books. These five had moved from a wholesale pricing model that allowed retailers to charge what they wanted to a system that allowed publishers to begin setting their own e-book prices, what was known as “agency pricing.”

The publishers had been looking for a way to prevent Amazon from pricing books below their actual cost, a practice that they said would hurt the entire industry over time. But the government said that the publishers “conspired” in e-mails, in telephone conversations and at lavish dinners to keep e-book prices artificially high.

Three big publishing houses — HarperCollins, Simon & Schuster and Hachette — settled with the Justice Department, but Penguin, Macmillan and Apple decided to fight the charges, until Penguin reversed course on Tuesday.

In the terms of a settlement that a judge approved in September, the three publishers that settled agreed to end contracts with Apple and with e-book retailers that contained restrictions on their ability to set prices, and agreed not to make such restrictive contracts for the next two years.

In May, when Penguin filed its response in United States District Court in New York, it argued that it was Amazon that treated books as “widgets.” It further argued that Amazon was “predatory” and a “monopolist” and that the government’s case was based on “innuendo.”

Penguin said in its statement on Tuesday that it still believed that agency pricing was just. “Penguin continues to believe that the agency pricing model has encouraged competition among distributors of both e-books and e-book readers and, in the company’s view, continues to operate in the interest of consumers and author.” it said.

The terms of the settlement with the Justice Department were not available, but people with knowledge of the details said that they were the same as those received by the other three publishers.

This post has been revised to reflect the following correction:

Correction: December 18, 2012

Because of an editing error, an earlier version of this post carried an erroneous byline.

The House Loses

They say the house always wins at a casino; however, against all odds, one would wager that a recent case brought in Atlantic County, N.J., seems to be a victory for the gamblers instead.

At White House Budget Meeting, Old Hurdles and New Attitude

Both sides indicated after the 70-minute White House meeting that their goal is a two-step compromise, since they have little time to work before the end of the year. That is when more than $500 billion in automatic tax increases and across-the-board spending cuts hit all Americans, and potentially shake the economy, unless Congress enacts an alternative deficit reduction agreement.

As tentatively envisioned, a compromise would provide an immediate down payment of at least $50 billion to reduce this year’s projected deficit, in lieu of the automatic measures that would hurt the economy by their size and suddenness, economists say. Second, it would define a framework for negotiating a long-term “grand bargain” in 2013 to shave annual deficits by perhaps $4 trillion over the first decade.

The framework would have separate goals for raising revenues and cutting the two types of federal spending: so-called discretionary financing that Congress sets annually for most programs, domestic and military; and entitlement spending, chiefly for Medicare and Medicaid, which by their growth in an aging population are driving projections of mounting debt.

The agreement to aim for a framework only in the initial talks is a quick step forward. Some lawmakers, including the Senate Republican leader, Mitch McConnell of Kentucky, had wanted a larger deal before Jan. 1 as the price for shutting off the automatic deficit reduction that would hit then. Representative Nancy Pelosi of California, the House Democratic leader, went so far as to predict that a deal to head off that so-called fiscal cliff would be at hand “well before Christmas.”

While such a two-pronged deal would put off the hardest and most far-reaching policy decisions until next year, no deal is possible unless the negotiators first decide on the deficit down payment. That installment, it is widely believed, must be large enough to satisfy financial markets, which oppose the automatic measures as too large and threatening but still want Washington to show some resolve toward getting the nation’s fiscal house in order.

Mr. Obama, Vice President Joseph R. Biden Jr. and the Democrats — Harry Reid of Nevada, the Senate majority leader, and Ms. Pelosi — made it clear around the negotiating table that the down payment is easily made by letting the Bush tax cuts expire, as scheduled on Dec. 31, for annual income of $250,000 and above for couples and $200,000 for individuals. The Bush rates would be extended for lower incomes, preserving them for 98 percent of taxpayers.

The Republicans — House Speaker John A. Boehner and Mr. McConnell — were just as plain that, while they support raising additional revenues by curbing deductions and through economic growth, they would oppose an increase in marginal tax rates. They want the down payment in spending cuts.

Yet after an election campaign in which Mr. Obama made this a top issue, Republicans have reduced leverage, many acknowledge. That shift in the Washington fiscal dynamic since Mr. Obama’s re-election also explains the rapidity with which the Republican leaders have agreed that higher revenues will be part of the deficit-reduction solution — if not through higher rates.

If the president has his way, the top rates, now 33 percent and 35 percent, would rise to 36 percent and 39.6 percent, the Clinton-era levels, on Jan. 1. But Mr. Obama has suggested he is open to a compromise that would set the rates somewhere in between, in combination with limits on deductions.

With Mr. Obama leaving on Saturday for a four-day diplomatic trip to Asia and Thanksgiving looming, the negotiators directed their staffs to flush out the Republican bottom line on the size and type of savings to get from Medicare and Medicaid in preparation for the leaders’ next meeting in the week after the holiday.

Republicans were heartened that Mr. Obama designated his soon-to-retire Treasury secretary, Timothy F. Geithner, as his lead negotiator, instead of the White House chief of staff, Jacob J. Lew. Mr. Boehner’s relations with Mr. Lew soured during the prolonged and bitter budget talks in 2011.

Random House and Penguin to Be Combined

Confirmation on Monday that Random House and Penguin will merge narrows the business to a handful of big players, led by a new international giant, Penguin Random House. And it could set off a long-awaited round of consolidation, analysts said.

Bertelsmann, the owner of Random House, and Pearson, which owns Penguin, said Monday that they had reached an agreement to combine the two houses to create the largest consumer book publisher in the world. Analysts said the deal between Bertelsmann, of Germany, and Pearson, of Britain, would give the combined companies greater scale to deal with the challenges arising from the growth of electronic books and the power of Internet retailers.

Together, Penguin Random House would have a global market share of more than 25 percent, and a book list that includes contemporary best sellers like Random House’s “Fifty Shades of Grey” and Penguin’s back list of classics from authors including George Orwell.

With e-book sales growing, publishers are increasingly worried about the leverage wielded by Internet giants like Google, Apple and, especially, Amazon. These companies have huge resources to invest in new technology, including digital sales platforms and algorithms that steer people toward books that match their interests. Their scale gives them the power to negotiate better terms on book prices.

“That is very attractive in a business that is going to become more and more digital,” said Douglas McCabe, an analyst at Enders Analysis in London.

The remaining of the so-called Big Six publishers could face increased pressure to respond to Penguin Random House, which will be based in New York. The other four are also owned by larger media conglomerates: HarperCollins, which is part of News Corp.; Macmillan, which is owned by Georg von Holtzbrinck of Germany; Hachette, whose parent company is Lagardère of France; and Simon & Schuster, a division of CBS.

“I wouldn’t be surprised if all the major trade publishers were having conversations like this,” said Ned May, an analyst at Outsell, a research firm. “I would expect to see similar realignment.”

“Some of these publishers, which last week no one would have called small, are realizing that they need to gain scale to invest in digital transformation,” he added.

Of the Big Six, HarperCollins has already signaled its interest in consolidation. News Corp. reportedly approached Pearson informally during the weekend as it was meeting with Bertelsmann to complete their talks, which had been going on for months.

One person close to the merger talks said Pearson had considered all options for Penguin, including an outright sale rather than the joint venture that was announced. But a sale would have been difficult, this person said, because it would have prompted prohibitively high capital gains taxes in the United States.

The deal requires approval by regulators in the United States and Europe. But if it is completed and further consolidation occurs, midsize players in the crowded field of publishing mass-market books might find it especially difficult to compete, analysts say, with bigger players more able to extract favorable terms from customers or to invest in digital operations. Small publishers with a niche focus and loyal groups of authors and readers might manage to remain independent, Mr. McCabe said.

While the music industry, which was hit earlier and with greater force by the digital revolution, has already shrunk to three major players — Warner Music Group, Sony Music Entertainment and the pending combination of Universal Music Group and EMI — the publishing world has remained relatively fragmented.

John Makinson, the chief executive of Penguin, who will serve as chairman of the new company, said that with consolidation inevitable, “we decided it was better to get in early rather than be a follower.”

The House Loses

They say the house always wins at a casino; however, against all odds, one would wager that a recent case brought in Atlantic County, N.J., seems to be a victory for the gamblers instead.

Your Money: The Psychic Toll Paid in a Special Needs House

They put together a team of health, legal and financial experts who understand their family member’s condition. Then comes the estate plan and making sure they understand the eligibility rules for any state or federal benefits.

Checking these items off, however, as I did in a column last week, often proves to be the easier part of special needs planning. The harder part springs from two challenges that are ultimately rooted in emotion and behavior. It’s the psychological side, after all, that often plays a big role in just about every major financial decision.

The first is the question of where a special needs child or sibling should live. The second is not letting the stress of managing the affairs of a special needs family member contribute to the end of a marriage or other long-term romantic partnership.

When Alice Walther’s son was small and experiencing developmental delays, she and her husband took him to a major children’s hospital in the St. Louis area. A top doctor there told them that he was severely retarded. “He said to put him in a home, that it will ruin your family,” she recalled.

Her son Sean is now 43 and he never left his family’s home. He works part time at a library and pursues his passion for golf in his spare time, watching tournaments on television and maintaining a collection of scorecards from all over the world that is so large it takes up three bookshelves.

“He’s gotten so used to his own room and his own bathroom that he wouldn’t fit into a group home, quite honestly,” Ms. Walther said.

Mary Anne Ehlert, a financial planner in Lincolnshire, Ill., who specializes in advising people with family members who have special needs, has heard versions of this before. Her own late sister, who had cerebral palsy, lived with her parents as an adult before her parents finally decided to have her move out.

“You want to keep them totally in a bubble,” she said. “But it’s not in their best interest, and it’s not what they want. The problem is, if the parents die, then what?”

Ms. Walther’s other son Michael, a financial planner himself, has thought through every angle of his younger brother’s situation. He sees things as Ms. Ehlert does and thinks his brother should move out of his parents’ home sooner rather than later.

“Change is not something he does well with,” he said. “If we were to introduce it at the same time as the loss of a parent, that’s going to be an awful lot to swallow. ”Their parents have a plan for this. “The minute one of us goes, the two who are left will move into assisted living,” Ms. Walther said. Meanwhile, they’re building a financial war chest for that moment, in part by living in the same house they have been in for 45 years.

Once Sean’s other parent dies or is close to death, Mike plans to move his brother to the Chicago area where he lives. He’s made peace, more or less, with his parents’ decision about where Sean will do best in the meantime. “They’re going to win this argument while they’re alive,” he said. “And I’m going to win it when they’re dead.”

The elder Walthers will celebrate their 49th wedding anniversary next month, but not every couple is so lucky. Just how many couples never make it that long while caring for a family member with special needs is a bit uncertain, though. Families I’ve spoken to in the last two weeks have repeated a statistic that about 75 percent of parents with a special needs child end up getting divorced or splitting up.

There does not seem to be any data backing this up, but it’s clear why people may fear the financial consequences of a divorce in a family that is caring for a child or live-in relative with special needs.

Christopher Currin, a financial planner in Dallas who has an 18-year-old son with Down syndrome, knows of a family that ended up paying for three residences after a divorce. One is for the mother, one for the father and one is the house they used to share. They didn’t think their child with special needs could easily move back and forth from one residence to another, so the parents trade off moving back in.

Mr. Currin’s marriage is intact, but as someone who has counseled many families with special needs relatives, he understands why many partnerships do not. “One person in a couple with a child whose disability was unexpected may have difficulty accepting it,” he said. “A deeper wellspring of love may open up in one of them, while the other goes to that well and finds it empty.”

Some people also turn to a higher power when faced with a different sort of parenting challenge. “It can reinforce or cause someone to rediscover religious feelings,” he said. “But others might be cast into doubt that can lead to losing faith.”

The one advantage to frightening, if exaggerated, divorce data is that it might nudge people into some preventive marriage counseling. Or if not that, the persistent, low-grade fear of a failed partnership may at least encourage people to invest in some quality time as a couple.

Mr. Currin said he was particularly grateful for the respite programs that Methodist churches in his area have offered over the years. There, special needs children and their siblings can spend an evening with others like them while their parents get a few hours alone.

“We don’t ever use the D word,” said Matt Syverson, a financial planner in Overland Park, Kan. He and his wife have twins and a younger daughter, Lily, who has Down syndrome. “We don’t ever need to go there. We make the best with what we’ve been dealt, and with God’s help we keep getting through it.”

In fact, now that Lily is in kindergarten, the Syversons have decided to add another child to their family. In the spring, they hope to adopt a boy they’ve named Levi and bring him home from China. He has a severe heart ailment, and once he’s moved in, they will cross their fingers when the time comes for the surgery that will give him the best chance at a long life.

The House Loses

They say the house always wins at a casino; however, against all odds, one would wager that a recent case brought in Atlantic County, N.J., seems to be a victory for the gamblers instead.

BUSINESS: House Advantage: The Sure Thing

October 18, 2010 By Zach Wise|Danielle Belopotosky

An animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

BUSINESS: House Advantage: The Sure Thing

October 18, 2010 By Zach Wise|Danielle Belopotosky

An animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

The House Loses

They say the house always wins at a casino; however, against all odds, one would wager that a recent case brought in Atlantic County, N.J., seems to be a victory for the gamblers instead.