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Monthly Archives: July 2012

The Federal Housing Finance Agency said it had concluded after months of study that debt forgiveness might benefit up to half a million homeowners, but that the costs — including the cost to taxpayers — outweighed the potential benefits.

Offering debt forgiveness “would not make a meaningful improvement in reducing foreclosures in a cost-effective way for taxpayers,” the agency’s acting director, Edward J. DeMarco, said in a statement.

“The choices we’ve had to make are hard but they need to be made,” he told reporters.

The decision is a direct rebuff to the Obama administration, which has pressed Mr. DeMarco for more than a year to reconsider his longstanding opposition. It is also a blow to the administration’s efforts to increase help for homeowners.

The Treasury Department emphasized Tuesday that Mr. DeMarco had the “sole legal authority” to make the decision, but it released a letter to Mr. DeMarco from Treasury Secretary Timothy F. Geithner asking the agency to reconsider.

“I do not believe it is the best decision for the country,” Mr. Geithner wrote.

 The decision also is likely to infuriate Congressional Democrats, who have pressed for a debt forgiveness program. Republicans have supported Mr. DeMarco’s refusals.

 Mr. DeMarco did announce Tuesday two other changes sought by the Obama administration. He said that Fannie and Freddie would offer lower-cost refinancings to a broader universe of borrowers. The agency also will seek to encourage new lending by addressing concerns that lenders will be forced to absorb the cost of defaults on loans purchased by Fannie and Freddie. Federal Reserve officials have said that such a change is a crucial step to increase the benefits of lower interest rates for borrowers.

The Obama administration initially shared Mr. DeMarco’s opposition to principal reduction, arguing as he does now that the government should focus on other, less costly means of helping homeowners. But since 2010, the government has offered incentives to private mortgage companies to offer principal reduction to some troubled borrowers.

In January, the administration said that it would sharply increase the amount of those incentives, partly to induce the participation of Fannie and Freddie.

The housing agency is charged by Congress with minimizing the cost of bailing out the two companies, which were seized in 2008. The administration said it would cover the cost of debt forgiveness from a separate pot of money, the $700 billion that Congress allocated in 2008 to bail out the financial system. Administration officials argued that this would allow the housing agency to meet its statutory responsibility.

In rejecting debt forgiveness on Tuesday, Mr. DeMarco also rejected this argument.

He said that he interpreted his mandate as requiring a minimization of the total cost to taxpayers, and that the administration’s plan did not change that math.

The housing agency’s analysis showed that roughly 500,000 borrowers would be eligible for debt forgiveness, although it noted that no more than half were likely to participate. Even on that basis, the agency found that taxpayers could save $500 million because aid recipients would be more likely to continue making mortgage payments.

But the agency concluded that the likely pool of beneficiaries was even smaller, based on participation in existing programs. Moreover, it estimated that executing the plan would impose significant costs on Fannie Mae and Freddie Mac.

And Mr. DeMarco also referred to the agency’s abiding concern that offering debt forgiveness would encourage borrowers to default in hopes of a better deal.

There has been little indication that the broad availability of debt forgiveness to borrowers whose loans are owned by private companies has caused such a problem. But Mr. DeMarco said the risks would be greater for Fannie and Freddie because, he argued, such a program would be more comprehensive and better publicized.

The agency’s analysis is unlikely to appease its critics.

Mr. DeMarco said Tuesday that the program could have benefits for taxpayers, but he argued that those benefits were uncertain and that there were additional costs beyond the numbers, like potential disincentives to future lending.

Mr. DeMarco also said that the agency did not consider whether lower levels of debt might bolster economic growth. Economists have long argued that this is a primary reason for the government to support debt reduction.

That has fueled criticism that the agency is seeking reasons to reject principal forgiveness even if the program appears to meet the requirements of the law.

“I just don’t understand why they’re applying this level of caution and scrutiny,” said Jared Bernstein, a former economic adviser to Vice President Joseph R. Biden Jr. “It strikes me as bad for homeowners, bad for taxpayers and bad for the macroeconomy.”

 

Opinion »

Shopping to Save the Planet?

Room for Debate asks whether eco-friendly spending makes a difference, or just makes people feel better about buying.

Citigroup's headquarters in Manhattan.Jin Lee/Bloomberg NewsCitigroup’s headquarters in Manhattan.

A jury on Tuesday cleared a former Citigroup executive of wrongdoing connected to the bank’s sale of risky mortgage-related investments at the peak of the housing boom, dealing a blow to the government’s effort to hold Wall Street executives accountable for their conduct during the financial crisis.

In addition to handing up its verdict, the federal jury also issued an unusual statement addressed to the Securities and Exchange Commission, the government agency that brought the civil case.

“This verdict should not deter the S.E.C. from investigating the financial industry and current regulations and modify existing regulations as necessary,” said the statement, which was read aloud in the courtroom by Judge Jed S. Rakoff, who presided over the trial.

The trial of Brian Stoker, a former mid-level Citigroup executive, served as a referendum on a questionable practice that became common in the years leading up to the financial crisis: Selling clients complex securities tied to the housing market while simultaneously betting against those same securities.

The S.E.C. did not accuse Mr. Stoker of committing securities fraud. Instead, it accused him of negligence in preparing sales materials for a complex mortgage-related investment called a collateralized debt obligation, or C.D.O.s. The government claimed that Mr. Stoker knew or should have known that he was misleading investors by not disclosing that Citigroup helped select the underlying mortgage securities in the C.D.O. and then placed a large bet against it.

The S.E.C separately sued Citigroup, but Mr. Stoker was the only bank executive charged in the case. None of Citigroup’s senior management was named by the commission.

As Mr. Stoker prepared for trial, his former employer, Citigroup, agreed to pay $285 million to settle a civil complaint brought by the S.E.C. related to the same deal. But Judge Rakoff, who presided over the trial of Mr. Stoker, rejected that settlement. Both the commission and Citigroup have appealed the rejection of the settlement.

Mr. Stoker’s lawyer, John Keker, had depicted his client as a scapegoat for the industry’s sins. While decrying the “high-stakes, high level gambling” that banks engaged had in during the housing boom, Mr. Keker urged the jury to set aside any distaste that it had for Wall Street’s questionable behavior and the mind numbingly complex mortgage securities that it concocted.

“It’s not the bank or the transaction that’s on trial here,” said Mr. Keker in his closing argument. “It’s Brian Stoker.”

Mr. Stoker’s lawyers argued that Credit Suisse, the bank that Citigroup brought in to serve as a manager of the C.D.O., did its own homework on the underlying securities.

“We’re grateful that justice was done and Brian Stoker can get back to his life,” Mr. Keker said outside the courtroom shortly after the verdict came down.

The allegations against Citigroup and Mr. Stoker parallel those brought by the S.E.C. in a more high-profile case against Goldman Sachs and Fabrice Tourre, a relatively junior Goldman executive.

In April 2010, the S.E.C. claimed that Goldman and Mr. Tourre deceived investors in a C.D.O. that the bank had created called Abacus. Mr. Tourre, the government said, failed to disclose that the hedge fund manager John Paulson helped select the underlying assets. Mr. Paulson profited by betting against the C.D.O.

Goldman quickly settled the case in July 2010 for $550 million, but Mr. Tourre, who has left the bank, is fighting the civil charges. Unlike the case against Mr. Stoker, which proceeded to trial quickly, Mr. Tourre’s case has moved at glacial speed and no trial date has been set.

The numbers from the European Union’s statistical agency, Eurostat, come before the meeting Thursday of the European Central Bank’s governors, a gathering upon which many hopes for a decisive new intervention to stem the crisis have been pinned.

On the unemployment report, European stocks ended their three-day rally, led downward by Spain’s benchmark IBEX 35 index, which was off nearly 1.6 percent.

The yield, or interest rate, on Spain’s 10-year bond, a measure of the government’s borrowing costs, edged higher after several days of declines, ticking up to 6.672, a rise of 0.144 percentage point. Italy’s 10-year bond rose back over 6 percent.

According to Eurostat, the seasonally adjusted unemployment rate for the 17 nations that use the euro was 11.2 percent in June, stable compared with the revised May statistics but significantly higher than the 10 percent recorded a year earlier. For the 27 nations of the European Union, the unemployment rate was also stable, at 10.4 percent.

Eurostat estimates that 25.1 million men and women were unemployed in the European Union in June, of whom 17.8 million were in the euro zone.

With the European economy paying the price for an acute lack of business confidence, hopes are high that the president of the European Central Bank, Mario Draghi, will follow through on his pledge, made in London last week, to do “whatever it takes” to preserve the euro.

Mr. Draghi’s comments led to a reduction in the borrowing costs of Spain and Italy, which had been hitting the sorts of critical levels that analysts say would make their debt unsustainable in the medium term.

But financial markets will be looking closely to see if there is any more detail forthcoming Thursday about moves to lower the interest rates paid by Spain and Italy. One theory is that the euro zone’s rescue fund, the European Financial Stability Facility, could intervene alongside the E.C.B., which has recently stayed out of the bond markets.

On Monday, President Barack Obama said European leaders could save the euro by acting promptly to solve their debt crisis.

“I don’t think ultimately that the Europeans will let the euro unravel, but they are going to have to take some decisive steps,” Mr. Obama told a $40,000-a-plate fund-raiser at the NoMad Hotel in New York, according to Bloomberg News. “And I am spending an enormous amount of time trying to work with them. The sooner that they take some decisive action, the better off we are going to be.”

Before heading to France, Finland and Spain for talks with fellow leaders, Prime Minister Mario Monti of Italy added to the growing sense of anticipation Tuesday over an easing of the euro zone debt crisis in an interview with an Italian radio station, but again without providing any detail. “Some light is appearing at the end of the tunnel,” Mr. Monti said. “We and the rest of Europe are approaching the end of the tunnel.”

“We are now seeing results both in the willingness of European institutions as well as from the governments of individual countries, including Germany,” he added.

Financial analysts like Holger Schmieding, chief economist at Berenberg Bank, and Christian Schulz, senior economist there, think they can see the outlines of the new strategy, although it remains unclear how much action will be forthcoming in the very short term.

“News agency reports suggest that the E.C.B. may already be planning a coordinated bond purchase with the rescue fund E.F.S.F., where the latter would lend support in primary markets and the E.C.B. would intervene in secondary markets,” they wrote in a briefing note. “More likely than not, the E.C.B. will not act immediately but deliver a strong verbal intervention instead. Draghi is likely to warn officially that turmoil in sovereign bond markets impairs the transmission of E.C.B. monetary policy and that the E.C.B. will react decisively if the situation deteriorates.”

However, Mr. Schmieding and Mr. Schulz said Mr. Draghi was unlikely to confirm publicly any potential cooperation with the E.F.S.F. “With luck, a forceful verbal intervention might already be enough to end this wave of the euro crisis,” they said.

Central bankers generally set policy based on their judgment about the most likely path for the nation’s economy. But Mr. Greenspan argued that the Fed sometimes should do more than its forecast suggested, buttressing the economy against large, potential risks. He described such moves as “taking out insurance.”

On the eve of the Fed’s policy-making committee meeting on Tuesday and Wednesday, members who favor additional action argued that the likely path of the economy was itself sufficient reason for action. The committee predicted in June that without new measures unemployment would fall slightly, if at all, in the second half of the year.

But officials, including the Fed’s vice chairwoman, Janet L. Yellen, have sought to reinforce the case for action by arguing that the Fed also should seek to offset the looming risk that a European turndown will set off a global financial crisis, or that a failure to dismantle the potential year-end fiscal cliff of government spending cuts and tax increases will tip the economy back into recession.

“There are a number of significant downside risks to the economic outlook, and hence it may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest,” Ms. Yellen said in a June speech.

Laurence H. Meyer, a former Federal Reserve governor who, like Ms. Yellen, served under Mr. Greenspan, said that the return of “insurance” as a factor in the Fed’s decision-making was a necessary response to the current environment.

“There are many people who look at that idea and feel that this is what was done under Greenspan, and maybe this was one of the factors that led to excessive speculation,” said Mr. Meyer, now senior managing director at Macroeconomic Advisers, an economic forecasting firm based in St. Louis. “But when the downside risks have grown as large as they have become, I think you have to consider it.”

Proponents of new action continue to face resistance from officials who remain uncertain that the economy has lost momentum and would prefer to wait at least until the Fed’s next meeting in September. Ms. Yellen herself is not among the officials who have said publicly that they are convinced the Fed should act now.

The hesitation also reflects widespread concern about the waning potency of the Fed’s remaining tools, and about the cost of the most powerful measure, an expansion of its holdings of Treasuries and mortgage-backed securities.

The Fed also is under significant but counterbalancing political pressure in the midst of a presidential election. Republicans oppose additional action, which they describe as ineffective and likely to increase inflation, while Democrats want the Fed to do more.

Several leading analysts of the central bank predict that the Fed is most likely to take a relatively modest step on Wednesday, to show its concern while it awaits more economic data. The most likely action, they said, is an extension of the Fed’s forecast that interest rates will remain near zero at least until late 2014.

Sven Jari Stehn, an economist at Goldman Sachs, said in a note to clients on Monday that the Fed would extend that forecast to mid-2015. That would be more than a year beyond the term of the Fed’s current chairman, Ben S. Bernanke.

Mr. Greenspan described his approach to monetary policy in a 2004 speech in which he said that central banks are in the business of risk management, and that sometimes requires “insurance against especially adverse outcomes.”

He gave as an example the Fed’s response when Russia defaulted on its debts in 1998. The American economy was expanding, and Fed officials predicted that it would continue to do so. Some had been pushing Mr. Greenspan to tighten monetary policy. He did the opposite.

“We eased policy because we were concerned about the low-probability risk that the default might trigger events that would severely disrupt domestic and international financial markets, with outsized adverse feedback to the performance of the U.S. economy,” Mr. Greenspan said then. “The product of a low-probability event and a potentially severe outcome was judged a more serious threat to economic performance than the higher inflation that might ensue in the more probable scenario.”

Mr. Greenspan’s impressionistic approach to monetary policy was widely held in awe during his time atop the Fed, mostly because it seemed to be working. But his ideas lost considerable luster when the economy collapsed, and some concluded that he had suppressed and exacerbated the underlying problems.

Mr. Bernanke, in contrast to his predecessor, has pushed the Fed in the direction of transparent and predictable decision-making, which he says he regards as significantly increasing the Fed’s power by better controlling market expectations.

Some officials and economists also look askance at the idea of insurance because of the cost. It implies that inflation will be somewhat faster in the future.

And some see little reason to talk about insurance now.

Alan S. Blinder, a professor of economics at Princeton who was a Fed governor under Mr. Greenspan, said that the central bank should incorporate an assessment of less-likely risks into its decision-making.

But he added that there was little need for such nuances now.

“The Fed shouldn’t really be worrying about the finer points of risk management,” he said. “It should be hellbent on getting the unemployment rate down.”

The numbers from the European Union’s statistical agency, Eurostat, come ahead of the meeting Thursday of the European Central Bank’s governors, a gathering upon which many hopes of a decisive new intervention to stem the crisis have been pinned.

On the unemployment report, European stocks ended their three-day rally, led downward by Spain’s benchmark IBEX index, which was off by more than 1 percent in late-afternoon trading.

The yield, or interest rate on Spain’s 10-year bond, a measure of the government’s borrowing costs, edged higher after several days of declines, ticking up to 6.541 percent, up 0.13 percentage point. Italy’s 10-year bond edged back above 6 percent.

According to Eurostat the seasonally adjusted unemployment rate for the 17 nations that use the euro was 11.2 percent in June, stable compared with May’s revised statistics but significantly higher than the 10 percent recorded a year earlier. For the 27 nations of the E.U., the unemployment rate was also stable, at 10.4 percent.

Eurostat estimates that 25.1 million men and women were unemployed in the European Union in June, of whom 17.8 million are in the euro zone.

With the European economy paying the price for an acute lack of business confidence, hopes are high that the president of the European Central Bank, Mario Draghi, will follow through on his pledge, made in London last week, to do “whatever it takes” to preserve the euro.

Mr. Draghi’s comments led to a reduction in the borrowing costs of Spain and Italy, which had been hitting the sorts of critical level that analysts say would make their debt unsustainable in the medium term.

But financial markets will be looking closely to see if there is any more detail forthcoming Thursday about moves to lower the interest rates paid by Spain and Italy. One theory is that the euro zone’s rescue fund, the European Financial Stability Facility, could intervene alongside the E.C.B., which has recently stayed out of the bond markets.

On Monday, President Barack Obama said European leaders could save the euro by acting promptly to solve their debt crisis.

“I don’t think ultimately that the Europeans will let the euro unravel, but they are going to have to take some decisive steps,” Mr. Obama told a $40,000-a-plate fund-raiser at the NoMad Hotel in New York, according to Bloomberg News. “And I am spending an enormous amount of time, trying to work with them. The sooner that they take some decisive action, the better off we are going to be.”

Before heading to France, Finland and Spain for talks with fellow leaders, Prime Minister Mario Monti of Italy added to the growing sense of anticipation Tuesday over an easing of the euro zone debt crisis in an interview with an Italian radio station, but again without providing any detail. “Some light is appearing at the end of the tunnel,” Mr. Monti said. “We and the rest of Europe are approaching the end of the tunnel.”

“We are now seeing results both in the willingness of European institutions as well as from the governments of individual countries, including Germany,” he added.

Financial analysts like Holger Schmieding, chief economist at Berenberg Bank, and Christian Schulz, senior economist there, think they can see the outlines of the new strategy, although it remains unclear how much action will be forthcoming in the very short term.

“News agency reports suggest that the E.C.B. may already be planning a coordinated bond purchase with the rescue fund E.F.S.F., where the latter would lend support in primary markets and the E.C.B. would intervene in secondary markets,” they wrote in a briefing note. “More likely than not, the E.C.B. will not act immediately but deliver a strong verbal intervention instead. Draghi is likely to warn officially that turmoil in sovereign bond markets impairs the transmission of E.C.B. monetary policy and that the E.C.B. will react decisively if the situation deteriorates.”

However Mr. Schmieding and Mr. Schulz said Mr. Draghi was unlikely to confirm publicly any potential cooperation with the E.F.S.F. “With luck, a forceful verbal intervention might already be enough to end this wave of the euro crisis,” they said.

The earnings will do nothing to assuage the concerns of investors, who are already discontented with the performance of the company and its chief executive, Bob Dudley. BP’s share price was down 4 percent in afternoon trading in London.

“This is a very, very disappointing set of results; they missed across all fronts by a wide margin,” said Peter Hutton, an oil analyst at RBC Capital Markets in London. Stripping out the $4.8 billion in write-downs, BP’s results were still 17 percent below the consensus estimates of analysts, Mr. Hutton said.

Mr. Dudley is caught between pressure from investors who want to see an improvement in the stock price, which is still down about 30 percent from the level at the time of the disastrous Gulf of Mexico oil spill in April 2010, and his own determination to make BP a safer, more reliable and ultimately more profitable company. Unfortunately, such a transformation requires time and weighs on performance in the short term as oil fields are shut down for major repair work.

“Managing competing priorities is always a problem,” Mr. Hutton said. “If you want to be thorough and make sure everything is right, it is a major, major exercise.”

Mr. Hutton said that to convince investors he is on the right track, Mr. Dudley needs to demonstrate that costly shutdowns in the Gulf of Mexico, where BP has much of its most profitable oil, are nearing an end.

The Gulf of Mexico has been a two-edged sword for BP. The 2010 spill has already cost the company $38 billion in charges, including another $847 million this quarter, and even threatened its existence at one point. But BP has also been the leader in developing deep water oil fields in the Gulf, and these properties produce some of the most profitable oil in the company’s portfolio. Production in the Gulf has dropped sharply in the past two years because of the need for repairs and a halt to drilling that is now resuming. Its oil production in the United States was down a huge 25 percent compared with a year earlier to just 350 million barrels per day.

In a telephone call with reporters, Mr. Dudley said two major Gulf of Mexico oil fields, Mad Dog and Atlantis, which he said were among “the most profitable fields in the world,” had been shut for major repairs. BP has been replacing the subsea infrastructure of Atlantis, which has long been the target of safety critics. BP production in the Gulf of Mexico was down 85,000 barrels per day in the quarter, according to a spokesman, Robert Wine, who said that the two fields would be coming back in the second half of this year and that a new field, Galapagos, was ramping up.

While Mr. Dudley said the Gulf of Mexico work was nearing an end, repairs will now begin in the North Sea, whose oil is also very lucrative. “One of the things we are not going to do is drift off the path of focus on safety,” he said. “Stepping up the accelerator of performance in place of that is not going to happen.”

Mr. Dudley is trying to use the Gulf of Mexico disaster as an opportunity to streamline BP into a smaller but more profitable company. He wants to focus on high-risk, high-return exploration and difficult megaprojects like those in deep water. Since the beginning of 2010 BP has sold about $24 billion worth of oil fields and other assets that it deems nonstrategic and plans for the total to reach $38 billion by the end of 2013.. It has cut overall production, excluding its TNK-BP Russian affiliate, to about 2.3 million barrels per day from about 3 million barrels per day in 2009. “It is going to be value over volume,” Mr. Dudley said.

His most important move in this regard is his plan to sell its stake in TNK-BP, which amounts to 50 percent. BP is negotiating with both its Russian partners and the state oil company Rosneft to dispose of the stake, which analysts think could bring $20 billion to $30 billion.

BP has made good money out of the $8.1 billion Russian investment, agreed to in 2003, but the deal has been tarnished by frequent bouts of infighting between BP and its Russian shareholders. Thane Gustafson, a Russia oil specialist at IHS CERA, said there was always a strategic conflict between BP and its Russian partners, who are led by Mikhail Fridman. BP, he said, “was always looking for a long-term strategic partner to go offshore,” while the partners “wanted to go outside” Russia.

Last year, the partners used a legal veto to break up a BP deal to invest in a joint venture with Rosneft to explore and develop what could be hugely productive Arctic blocks off Russia. ExxonMobil wound up replacing BP in the deal.

BP’s share in TNK-BP accounts for about 30 percent of the British company’s oil production, but the markets and the company have come to see the Russian affiliate as a dead end. The partners block BP from other Russian investments, and BP receives little benefit in its own stock price, analysts say.

Mr. Dudley acknowledged that no matter what he does, investors will be nervous until they see a resolution of the Russian situation and more clarity on how much BP will need to pay the U.S. government and other entities for the 2010 spill. The court case that is to decide on those liabilities has been postponed until 2013, but Mr. Dudley said BP was amenable to a fair and reasonable settlement.

Like many companies, BP attributed the weak earnings to the impact of lower oil and gas prices. The shale gas boom, which has helped sharply lower natural gas prices in North America, is affecting BP and other companies, including Shell, Europe’s largest oil company. Mr. Dudley said the Russian tax system, which lags prices by a month, took about $700 million off profits. He pointed out that the prices of both oil and U.S. natural gas rose in July.

Economic reports offered some glimmers of hope on Tuesday, including impovements in home prices, incomes and consumer confidence. American home prices rose in May from April in every city tracked by a leading index, a sign that increasing sales and tight inventories were supporting a modest housing recovery.

The Standard & Poor’s/Case-Shiller home price index released Tuesday reported increases in all of the 20 cities tracked. And a measure of national prices rose 2.2 percent from April to May, the second increase after seven months of flat or declining readings.

Chicago, Atlanta and San Francisco had the biggest monthly increases, while Detroit, San Diego and Charlotte had the smallest gains.

The increases partly reflect the impact of seasonal buying. The month-to-month prices are not adjusted for seasonal factors.

In the last year, the 20-city price index has dropped 0.7 percent, the smallest decline since September 2010, and much lower than the 1.8 percent year-over-year decline in April.

David Blitzer, chairman of the S.&P.’s index committee, cautioned that the trend would need to continue into the summer and fall to ensure that it was not just a reflection of strong springtime and early summer sales.

“The housing market seems to be stabilizing, but we are definitely in wait and see mode for the next few months,” he said.

The S&P/Case-Shiller monthly index covers roughly half of the homes in the United States. It measures prices compared with those in January 2000 and creates a three-month moving average. The May figures are the latest available.

Even with the gains, the index is 33 percent below its peak, reached in the summer of 2006. Based on the 20-city index, home prices are now at about the same level as in early 2003.

Also on Tuesday, the Conference Board said consumer confidence rose in July after four months of declines, as a brighter outlook for short-term hiring offset longer-term worries about the economy.

The group said its Consumer Confidence Index increased to 65.9, from 62.7 in June. That was the highest reading since April and better than the reading of 62 that economists had forecast.

Still, the index remains well below 90, which indicates a healthy economy. The index has not been near that level since the Great Recession began in December 2007. The index fell to an all-time low of 25.3 in February 2009 — four months before the recession officially ended.

Also, the Commerce Department said on Tuesday that incomes in the United States rose 0.5 percent in June from May. That was the biggest gain since March and was driven by a 0.5 percent increase in wages, the largest component of income. After taxes and adjusting for inflation, income grew 0.3 percent.

The extra money in June paychecks went straight to savings. The savings rate rose to 4.4 percent in June, the highest level in a year.