The System is ONLY by the Corporate Elite's Designs

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Solutions to the Economic Crisis: New Ideas for a New Economy
http://voices.washingtonpost.com/solutions/
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MONEY GUIDES
Insurance:
http://topics.nytimes.com/your-money/insurance/index.html
Credit:
http://topics.nytimes.com/your-money/credit/index.html
Loans:
http://topics.nytimes.com/your-money/loans/index.html
Planning:
http://topics.nytimes.com/your-money/planning/index.html
Investment:
http://topics.nytimes.com/your-money/investments/index.html
Retirement:
http://topics.nytimes.com/your-money/retirement/index.html
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(above) Political Cartoon, October 14, 2008, The Boston Globe Online
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(above) Political Cartoon, September 29, 2008, The Boston Globe Online
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http://en.wikipedia.org/wiki/Social_class_in_the_United_States
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www.boston.com/business/personalfinance/
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http://abcnews.go.com/Business/PersonalFinance/
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www.bankrate.com/bos/news/Financial_Literacy/borrowing_money/brainless_borrowing_a1.asp?caret=107b
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"GE stock reaches lowest point since 2003"
The Associated Press, Monday, June 16, 2008

FAIRFIELD, Conn. (AP) — Shares of General Electric Co. fell to its to its lowest point in more than four years today, as an analyst downgraded the company's shares and predicted a challenging environment for its business operations.

Shares fell to $28.46 Monday before rebounding slightly to $28.60, a drop of nearly 2 percent for the industrial conglomerate, which makes jet engines, railroad locomotives, water treatment plants, household appliances and owns NBC television. Shares were at its lowest since Nov. 17, 2003, when the company's stock traded at $27.67.

The drop came as JPMorgan's C. Stephen Tusa Jr. cut GE to "neutral" from "overweight" in a note to investors. He predicted difficulties for GE's operations, particularly slower sales for its aviation unit amid capacity cuts at U.S. airlines. He also predicted lower income from GE's real estate operations on challenges in the real estate market.

In addition, the analyst saw challenges for NBC Universal on weaker advertising sales, while its industrial segment could also see slower sales.

Still, Tusa said the company continues to have attractive assets and talented management that could move the company forward if it were restructured properly.

A phone call was placed to GE seeking comment.

Tusa lowered his 2009 earnings outlook to $2.30 per share from $2.42. Analysts polled by Thomson Financial expect earnings of $2.44 per share.

In April, GE shocked analysts by with its first-quarter earnings, in which profit fell 6 percent, to $4.3 billion. GE lowered its outlook for earnings in April from $2.42 to between $2.20 and $2.30 per share.

Last month, GE announced plans to sell or spin off its appliance business as part of a plan to exit slower growth and more volatile businesses. The company has already sold its insurance, plastics and other businesses.

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2/28/2008

Dear NH Union Leader:

William F. Buckley, Jr. never represented my political interest, nor those like me of my "have-not" background. His conservative messages only served to support the elitist institutions all ran by the corporate elite's wealthy interests. His life achievement was to give back the political agenda to the wealthy--the upper 10%--after 20-years of Democratic Party U.S. Presidents (New Deal).

I found Bill Buckley's life-work to be both inequitable to the poor and undemocratic to the masses. Unlike Buckley, I believe in equity and democracy for all people, especially the other 90% of society & the bottom 10%. I believe an investment in people is an investment in the HUMANITARIAN ideals of our American Nation: Democracy, Liberty & Human Rights!

Sincerely,

Jonathan A. Melle

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"Farewell, WFB: Remembering Bill Buckley"
NH Union Leader, Editorial, 2/28/2008

YESTERDAY morning, William F. Buckley Jr. passed from this life, and America lost one of the greatest public intellectuals, and greatest friends, it has ever produced.

Numerous conservatives have made their mark on American politics and culture since Barry Goldwater won the Republican presidential nomination in 1964. All trod the path first blazed by the mischievous, brilliant and charismatic Mr. Buckley.

With National Review, founded in 1955, and through his newspaper column, books, speeches, and TV show, "Firing Line," Buckley gave the spark of life to post-war conservatism in the United States. Without him, there would have been no Republican Revolution of 1994, no Reagan revolution, and possibly no Goldwater nomination in 1964. Historians will judge, but it is safe to say that Buckley was probably the most influential political thinker of his time, and one of the most influential in all of American history.

When Buckley founded National Review, there was one viable political movement in America: liberalism. Buckley lifted his lance and charged directly at the massive, growing beast. His attacks on the intellectual foundations of statism, collectivism and relativism were so brilliant, so devastating, that his crusade quickly won converts by the thousands.

By 1980, his lone challenge to the established political order had become a national movement that elected one of its own in a landslide. Ronald Reagan, the President who adhered most closely to Buckley's teachings, won 43 states. In 1984, Reagan won 49 states.

Buckley had not destroyed New Deal liberalism, but he had defeated it. Buckley's brand of intellectual, free-market conservatism had become the dominant American political movement, so much so that in 1996 President Bill Clinton declared "the era of big government is over."

Bill Buckley brought down the predominant political order of the 20th century and replaced it with a better one. And he did so simply by debating the merits of the two. Few in history have achieved so much with only words. Few, of course, chose their words so carefully, too.

America is a stronger, more prosperous, more just nation because Bill Buckley worked tirelessly to make it so. He has passed, but his profound and positive influence on the nation he loved so much will last for generations.

Time will fade his memory. May it never fade his legacy.

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There are only two debts that one is NOT able to write-off to bankruptcy: Child Support and Student Loans. Every other debt can be forgiven. Just like many of the other federal, state and local laws the people have to abide by to avoid "the strong arm of the state", one asks WHY? The answer lies in a hidden truth: The Corporate Elite predominantly influences the system by designing public policies to ensure its political power over the masses.

Every single year since the late 1970's, the Corporate Elite has enriched themselves while the people have gotten poorer. I liken this phenonemon to a financial equation known as "the Rule of 72". If one wants to know how many years it will take for them to double their money, they take the interest rate yield and divide it into the number 72, and the result will be how many years it will be before their money is doubled. To illustrate, if I invest $10,000 into a CD at my local Credit Union at a APY of 6%, then it will take 12 years for my money to double. I am 32-years-old now, so I will have to wait until I am 44 to collect my $20,000 ($10,000 in principal plus $10,000 in yielded interest).

How does this apply to the Corporate Elite v. the masses? The answer is that the yield on a wealthy person's money is higher than the yield on a working person's money. On average, a wealthy person will yield a rate between 9% to 12% without great financial risks, which means that they will double their money every 6 to 8 years on average. On average, a working person will yield a rate between 3% and 6% (or the variable rate of inflation), which means they will double their money every 12 to 24 years on average. Moreover, the wealthy have much larger sums of principal to invest than their working class counterparts. Furthermore, when a working class person doubles their money, they have either lost a marginal amount of their principal or pretty much broken even due to INFLATION. Taken over the years, or since the gap between the wealthy and the working class has widen every year since the late 1970's, and the wealthy have doubled their larger sums of money by about 4 times versus the working class doubling their smaller sums of money about 1 time, which averaged the rate of inflation, which means the working class broke even or stagflation.

The System is ONLY by the Corporate Elite's Designs. The only reason why the two forms of debts one cannot write off to bankruptcy are child support and student loans is because it keeps the masses working and the Corporate Elite or wealthy's profits 4x that of those who serve, work for or live under their strong influences in politics.

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5/14/2007

I read a lot of Rinaldo's, et al, letters and essays about shared parenting. I will be 32 years old this coming summer and have not mutually selected a spouse and mutually made the decision to have children yet. I understand the trade-off I am making if I ever do mutually decide to both get married and have children. The trade-off of waiting to get married is, of course, that I am deferring the costs of marriage and having children towards my future years when finances may become even more constrained than they are in my recently past and current years.

The reason why marriage and having children matters is because for the average American citizen, it is the BIGGEST financial decision that one will ever make with another! Yes, getting married and having children is bigger than buying a home, going to college, investing in mutual funds, and so on. That message is lost on Rinaldo and his colleagues at the Berkshire Fatherhood Coalition and elsewhere.

Let us do the math, please. I am the theoretical example. In my 32nd year, I meet the woman of my dreams. Whomever she is, I put aside all of my goals, interests and financial planning to "pop the question" to her. This woman says "yes, I will marry you, Jonathan!" We are so in love and the situation is so romantic that nothing else matters. Then, we get married. The ceremony is subsidized by our families so the $10,000 event is not a financial setback. Then, we go on our honeymoon, and my new wife and I have just spent several thousands of dollars on a trip to paradise for a week. Then, we put a down-payment on a home in a community my new wife and I want to live in and foresee our future children being happy in. We put $50,000 towards our new home and have a 30-year mortgage for $200,000 plus property taxes and home maintenance. When I am 35-years and my wife of 3 years and I decide to have our first baby, we must financially manage a minimum of $200,000 for our first child from the womb to his or her 18th birthday. Then, when I am 38-years and my wife of 6 years and I decide to have our second baby, we must financially manage a minimun of $150,000 for our second child from the womb to his or her 18th birthday. Then, I turn 53 and my first child is in college; and then I turn 56 and my second child is in college. My wife of 21/24 years will have to financially manage about $400,000 to educate our young adult children with skills they will need to have careers and self-sufficient futures in their lives.

Let me add up all of the math of my decision to get married and have children: (a) Marriage ceremony: $10,000, (b) honeymoon: $3,000, (c) downpayment of a new home: $50,000, (d) 30 year mortgage on $200,000 principle: $500,000; (e) basis living expenses $20,000 per year for 30 years: $600,000; (f) children expenses: $350,000; (g) future college expenses: $400,000. The minimal middle class costs of me getting married and having a family in today's world EQUALS around $2 Million over the next 30 years of my life from 32 until 62! Then, my new wife and I get to retire, which will mean we will have to have had saved another $1 Million dollars for the next 30-years. So, if I decide to get married at 32, my wife and I have to earn $3 Million in the next 30 years, or $1 Million every decade for the next 3 decades.

BUT, if my wife and I get divorced when I turn 42 then I am not only financially constrained, but now I am drowning in debt! THAT IS THE REALITY, GUYS!

When you guys got married and then got your divorces, you should have sat down and administered the financial costs of getting married and having children!

-Jonathan A. Melle

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On Friday evening on PBS, I watch one of my favorite news shows, "Bill Moyers Journal". On 9/28/2007, one of Mr. Moyers' guest was John C. Bogle, who is known in the Corporate Elite World as an "Investment Giant" and the "Father of Index Funds" who founded The Vanguard Group, which has over a Trillion Dollars in Assets. Recently, Mr. Bogle wrote a book entitled, "The Battle For The Soul of Capitalism". Moreover, Mr. Bogle's essay entitled, "Democracy in Corporate America" is being posted on PBS' web-site.

Mr. Bogle explained that there is a CRISIS in American Capitalism. The ecomomic problems are centered around Private-Equity Firms, strong CEO's and upper-echelon management, a short-term focus on business (& government), complex systems (instuments: stock certificates and debt notes, and schemes: wages, pension, health benefits) with no accountability to the consumers/citizenry, and GREED having the dominant role in society.

When Mr. Bogle began his career in business in the 1950s, he described the system as "Owner's Capitalism". The function of Corporations was to provide consumers goods and services at a fair price. He also spoke of the value of business innovations, new technologies and progress. He went onto explain that "The returns on business in the long-run are 100% the dividends a corporation pays at the rate which its earnings grow. The system's focus over 50-years-ago was on a productive economy that added value to our society over the long-term to address the real societal problems the free market self-corrects.

Now, in the early 21st-Century, Mr. Bogle describes the system as a bottom-line society with a myopic focus on businesses' short-term goals. He explains that the Financial Service Sector is subtracting value from our society for the purpose of adding to its own profits. He illustrated that the Financial Economy is the most profitable business sector in America today. He estimated that the Corporate Elite subtracted $560 Billion from the American Economy in 2006. He illustrated his point by citing the inequitably high compensation the highest 25-paid Hedge Fund Manager's grossed on Wall Street in 2006: A staggering +$129 Million per Hedge Fund Manager! Mr. Moyers quipped that $1 Billion will not even get one into "The Fortune 400".

Mr. Moyers showed the PBS viewers the names of some of these top private-equity firms: (a) WARBURG PINCUS, (b) FORMATION CAPITAL, (c) FILLMORE CAPITAL PARTNERS, (d) CERBERUS CAPITAL MANAGEMENT, L.P., (e) THE CARLYLE GROUP, (f) BLACKSTONE. Mr. Moyers cited a news article in the 9/23/2007 Sunday Edition of The New York Times newspaper, entitled, "At Many Homes, More PROFITS & Less Nursing: Insulating From Lawsuits, Private Investors Cut Costs & Staff". Mr Moyers and Bogle both explained that the system is now being designed for the Corporate Elite to develop and then administer complex business structures that have no accountability to the consumer/citizenry in order for the Corporate Elite to cover their tracks by operating in secret. The reasoning behind the designs are for the Corporate Elite to make quick and big returns (high earnings and profits) on their capital (high yields) by reducing the costs of doing business. After stripping a business of their liabilities, the Corporate Elite will then re-sell the business initially purchased by the private-equity firms for big profits, thereby further adding to their bottom-line.

The new Corporate Elite way of increasing their wealth is by diminishing the value of business to the masses. This subtraction of value is the wealthy businesses looting the already paltry pockets of the "have-nots" or approximately 90% of society. Mr. Bogle was quoted: "When you have strong managers, weak directors, and passive owners, it is only a matter of time until a looting begins." He further explains that we have mutated from "Owner's Capitalism" (of the 1950's) to "Manager's Capitalism" (of the 21st Century) where rewards are designed primarily for the CEO's and upper echelon management.

My thoughts on Mr. Bogle's message and the Corporate Elite in general is that the focal point of the system designed by the wealthy has dramatically changed from a system serving society, especially the middle class, to one now only rewarding the Corporate Elite. Because money is yielding higher returns on money (investment capital) than the production of goods and services (global economy: China, India, etc.), it is in the interest of Wall Street to diminish the Middle Class so that one day a worker in America will compete for the $1 a day wages of a worker in China or India, etc.

On a "Main Street" level, the structure of American Finance has changed from your neighborhood banks to unknown financial institutions who could care less about the increasing number of home foreclosures, mortgage defaults, and zero-sum savings rate. Moreover, American governance has changed from Congress having a long-term focus on a healthy citizenry to a short-term focus of a healthy Corporate Elite profit-margin. Due to the many PUBLIC policies on Capitol Hill, the average American Citizen is now spending more than they are earning! In short, Congress is now only serving their Corporate Elite masters, not the people! The United States of America is no longer a DEMOCRACY! Our nation has now become an Oligarchy that likes to pretend that the system if Of, For & By the People.

The long-term function of business, in both the public and private sectors, is efficient and equitable service to the client (consumer, citizen) before service to self. The system is failing to be equitable and is only serving the Corporate Elite. The good news is that Mr. Bogle said that the free-market will self correct itself in the long-run. The bad news is that by that time, the Middle Class will be a footnote in U.S. History.

Mr. Bogle's solution is for the Federal Government to enact a FEDERAL CORPORATE CHARTERING STATUTE to regulate Fiduciary Duties with new laws on Corporate Governance. He prescribes centralizing Government Oversight from the States to the National Level. His focus is on returning to long-term investing.

-Jonathan A. Melle

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Source: Time Magazine, 11/5/2007, received on 10/29/2007, “The Curious Capitalist: How Dumb is Your Bank?: Citi looks stupid and JPMorgan smart, but they have a lot in common”

Citigroup announced a nearly 60% drop in earnings, BofA 32%, Wachovia 10%, Morgan Stanley 7%, Merrill Lynch also lost money. The financial services business is in the midst of a “systemic debt crisis.” i.e., private-equity loans; plus, AAA-rated subprime mortgage securities are now junk bonds mortgage securities.

The banking industries diversification and large-scale operations in many states may save the financial service sector from long-term ruin, and banks now operate in many states and now sell financial products ranging from stocks to insurance.

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02-October-2007

Re: The satellite voice for the Corporate Elite comes to Manchester, NH next month

Dear George Will:

On Thursday evening, November 15th, 2007, you will be giving the keynote speech at the "Nackey S. Loeb School of Communications" Annual First Amendment Dinner in Manchester, NH. This conservative institution's mission is to: Promote both understanding and appreciation of the First Amendment and to foster interest, integrity, and excellence in journalism and other forms of communication (603-627-0005, www.loebschool.org).

While enjoy reading political news columns, or your political essays, and insights from political observers Mary E. Carey (Amherst, Massachusetts) or Alan Chartock (Albany, N.Y.), I am also unnerved by your blatant bias for Wall Street's Corporate Elite. Your political columns attack anyone who counters the exclusive agenda of powerful corporate interests. Your constituency is made up of lucrative corporate executives, powerful lobbyist firms and the top 10% of America's wealthy. Culturally, it is like you never moved passed the mythological 1950's propaganda machine, when the Republican Party finally regained The White House after 20 consecutive years of Democratic Party control through co-opting the masses or have-nots with pseudo-identity politics. You are a throw back to a post-World War 2, Cold War Era conservative political movement two-plus generations removed from the 21st Century.

As for integrity in journalism and communications, you have none. You are part of an out-dated group of conservative political theorists who will ultimately diminish the already ebbing Middle Class for the Corporate Elite's agenda to control the World through Economic Efficiency, Oligarchic Democracies, and societies dependent of the system for their manipulated choice between serving their Corporate Elite Masters or perishing into poverty.

I believe that Politics should stand for Human Rights for ALL Peoples! Democracies should have a myriad of voices from all sides of the spectrum. I believe you are wrong for attacking anyone who counter's the Corporate Elite's political and economic agendas. I believe that economics should be a balance between efficiencies and equities. I believe that by the end of the 21st Century, there will be no more poverty in the World! I believe that the system should serve the people(s), not just the powerful.

I am sure that my here-and-now views conflict with your utopian old-World-Order view of America and the World. I am happy to express them to you in order to promote the First Amendment and integrity in communications.

My favorite journalist is Mary E. Carey because her voice is the opposite of your voice. Mary's voice sings for the voiceless. She stands for truth and social justice in her essays. She represents diversity and all people(s) in her work, speaks the truth about inequity, and reaches out to U Mass Amherst English/Journalism students. I also admire Alan Chartock because he calls the system as he sees it without ideological biases towards any powerful group. Alan also stands for my own political platform of Human Rights for ALL Peoples!

In closing, if I had a dinner honoring excellence in journalism and communications, my keynote speaker would be Mary E. Carey. I would also extend an invitation to Alan Chartock to speak on the subject, too. If I had a dinner honoring one who was like a human satellite relaying the powerful's messages of Wall Street for the purposes of manipulating the masses (or have-nots) to serve our Corporate Elite Masters' political and economic agendas, I would invite you, George Will, to further indoctrinate the people(s) who don't know otherwise with your out-dated messages of 1950's conservatism.

-Jonathan A. Melle

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Re: FRAUD and Deception in the Mortgage-Broker Industry!

ELIZABETH WARREN of Harvard Law School had an Op-Ed (in The Boston Globe, Tuesday, 10/2/2007, OPINION, A11) entitled, "Mortgage brokers' sleight of hand", where she explained that FRAUD and Deception in the Mortgage-Broker Industry stripped $9.1 Billion in equity from homeowners, especially the elderly and working-class families. She illustrated that 1/2 of sub-prime mortgage holders would have qualified for prime-rate loans; 1/9 for middle-class families; 1/14 for upper-income households. She cites studies done by the Center for Responsible Lending.

Warren explains a term called "YIELD SPREAD PREMIUM" (YSP), which is ap payment the mortgage company makes to the broker to persuade the homeowner into buying a higher-priced loan (or a sub-prime loan with high fees and high-interest rates). The buyer ends up paying the "BRIBE" or YSP as additional "points" added to the closing costs. The premiums are also described as "lender kickbacks". The buyer pays these costs via the closing document as part of the closing costs. YSP's are present in 85% to 90% of sub-prime mortgages, but may also appear in prime-rate mortgages.

Warren concedes that mortgages are COMPLEX, even for experts. Her prescription is to support a proposed Massachusetts State Law that would mandate that the mortgage-broker has to disclose if he or she took a "BRIBE" or YSP, how much it was for, and how much it cost the borrower. Warren explains that this reform must be done at the state level because Congress allows this practice on the federal level.

Also, in the Sunday Boston Globe, there appeared a business column endorsing a new book by a former Mortgage-Broker David Reed entitled, "Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You" (American Management Association, $16.95). Mr. Reed has closed more than 1,000 loans and has seen it all, including the loan FRAUD and Deception that Elizabeth Warren wrote about. Mr. Reed says that borrowers need to understand certain mortgage terms. He explains the importance of the term "MARGIN", which is expressed as a % that part of what is used to determine the rate a borrower will pay typically found in an Adjustable Rate Mortgage or ARM.

-Jonathan A. Melle

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News Article:
Shift in bankruptcy laws staggers mortgage holders
New rules prompt debtors to pay off credit cards first
By Bloomberg News | November 11, 2007

Washington Mutual Inc. got what it wanted in 2005: a revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest US savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

"Be careful what you wish for," Westbrook said. "They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures."

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co., and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a nonpartisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for US financial institutions. It also reached to the top echelons of the financial services industry.

Citigroup chief executive Charles O. Prince III stepped down this past week after the country's biggest bank by assets said it may have $11 billion of writedowns on top of more than $6 billion in the third quarter. Stan O'Neal was ousted as chief executive of Merrill Lynch & Co., the world's largest brokerage, after an $8.4 billion writedown. Both firms are based in New York.

Morgan Stanley, the second-biggest securities firm, said in a statement that subprime losses will cut fourth-quarter earnings by $2.5 billion. The New York-based bank said it lost $3.7 billion in the two months through Oct. 31 as prices for securities linked with home loans to risky borrowers sank further than traders expected.

Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on US credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.

In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the federal agency said. New foreclosures rose to a record in the second quarter, led by defaults in subprime adjustable-rate mortgages, according to the Mortgage Bankers Association in Washington.

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive of Capital One Financial Corp., the largest independent credit card issuer in the country. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

"What we conclude is that people are saying, 'Honey, let the house go,' " but keep the cards, Fairbank said at a conference earlier this month in New York sponsored by Lehman Brothers Holdings Inc.

The new bankruptcy code makes it harder for debtors to qualify for Chapter 7, the section that erases nonmortgage debt. It shifted people who get paychecks higher than the median income for their area to Chapter 13, giving them up to five years to pay off nonhousing creditors.

The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys.

Two-thirds of such debtors won't be able to complete their payback plans, according to the Center for Responsible Lending.

"We have people walking away from homes because they can't afford them even post bankruptcy," said Sommer, a Philadelphia-based bankruptcy attorney. "Their mortgage rates are resetting at levels that are completely unaffordable, and there's nothing the bankruptcy process can do for them as it now stands."

Four million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40 percent in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody's Economy.com, a research firm.

Bad mortgages slashed Washington Mutual's profit by 72 percent in the third quarter from a year earlier, the Seattle-based thrift said Oct. 17. Income from credit card interest rose 8.8 percent to $689 million in the period, helping to offset losses.

"The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have," said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. "It's bad for the mortgage borrowers and bad for subprime investors because it means more losses."

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News Article:
Bankruptcy filings shed light on foreclosure tactics
By Gretchen Morgenson, New York Times News Service | November 6, 2007

As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of borrowers.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers are profiting from foreclosures.

Bankruptcy specialists say lenders often do not comply with even the most basic legal requirements.

"Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers' calculation and collection practices leave families vulnerable to foreclosure," said Katherine M. Porter, associate professor of law at the University of Iowa.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help borrowers save their homes, Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

In one example, Porter found a lender had filed a claim stating the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a loan.

Porter's analysis comes as more homeowners face foreclosure. Testifying before Congress on Tuesday, Mark Zandi, the chief economist at Moody's Economy.com, estimated that 2 million families would lose their homes by the end of the current mortgage crisis.

Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. Last month, it disclosed plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees, or fail to account properly for loan payments after a bankruptcy has been discharged.

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10/5/2007

Dear State Senator Stanley C. Rosenberg, Democrat, Amherst, Massachusetts:

FIRST QUESTION

What exactly did you mean? ...when you stated:"This is complicated stuff, I'm not going to kid you. There are potential problems with resort casinos. There are also potential revenues, revenues the state needs but can't seem to get because there is insufficient support for such things as a progressive income tax or the closing of corporate tax loopholes, a plan that I have guided through the Senate for the past several years -- a plan that the governor has endorsed -- a plan that can't seem to get to the governor's desk. / My point is simply this: When the going gets complicated, it's time to be rational. There are many ways to make a bad decision, but maybe only one way to make a good one. And that's what I want, a good decision."

INEQUITABLE PUBLIC POLICIES ALL AROUND

If by what you mean is that the Corporate Elite annually will inequitably annually take in Billions of Dollars from the Massachusetts masses or "have-nots" so that the state government can take its 1/2-Billion-Dollar-Cut per-fiscal-year cut, then you have just illustrated my point on the inequitable hypocrisies by both fiscal conservatives and liberals.

The problems with big governments are two-fold: The fiscal conservatives do the bidding of the Corporate Elite at the expense of society. The fiscal liberals do the bidding of the government at the expense of society. NO ONE in government is doing the BIDDING of the PEOPLE or SOCIETY! Meaning: There is no emphasis on fiscal equity in big government public policies!The reason why Beacon Hill's State House is allowing casino gambling is because it serves the dual demands of big government: Enriching the Corporate Elite (Casino Owners and Managers) and the Government (Enriching the state's fiscal coffers)...at the inequitable expense of the "have-nots" or masses, which is 90% of the population; (Remember, the function of you state representative is to serve the people, NOT the Corporations or the Government--SPECIAL INSTERESTS).

PERSONAL NOTE TO STAN

Once again, Stan Rosenberg, you have disappointed me today. However, I LOVE reading your monthly reports on Massachusetts state government. It serves both my interests in public policies and my dissent against the inequitable hypocrisies by big business and government.

TWO MORE QUESTION$, if you please...

Moreover, if the state is running a budget surplus, then is it also time to be rational with the excess surplus public dollars accumulating in the commonwealth's coffers or various accounts? When is it a good time to be irrational in fiscal public policy?

IN CONCLUSION

My answer lies in reality, not that I personally agree with "the truth". With big government it is ALWAYS time to be irrational with the people's tax dollars! To illustrate, for the Fiscal Conservatives, financial management governance means enriching the already wealthy businesses or Corporate Elite (who--the wealthy or the top 10% of the population--prefer to "benignly" neglect society's social problems on the fallacious economic theory that the free market will correct all social problems). For the Fiscal Liberals, financial management governance means enriching the big governments to control society's masses or "have-nots".

The bottom-line is that the Casino Gambling debate in Massachusetts clearly illustrates how fiscally INEQUITABLE public policies are in big business and government. The American Indian Tribes and Corporate Casino Managers will earn many Billions of Dollars per year on Casino Gambling in The Commonwealth of Massachusetts. The Massachusetts State Government will receive a cut of approximately $1/2-Billion per fiscal year from Casino revenues. The state's masses or "have-nots", which are about 90% of the population, will take a net loss in both negative societal outcomes and their personal net-worth. The system will further enrich the already wealthy private and public societal institutions by taking money from the working class and further redistributing it to the Corporate Elite and Ruling Classes.

Best regards,

Jonathan A. Melle

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Subject: The Rosenberg Report - Vol. 52

The Rosenberg Report
Vol. LII

October 5, 2007

Hello!

On Sept. 17th, the discussion over casino gaming kicked into high gear when Governor Patrick announced his proposal to site three resort casinos in Massachusetts. And, like all good, spirited political discussions, this one has had its share of hyperbole. Some have gone so far as to suggest that casinos will mark the beginning of the end of our civilization, while others have voiced the belief that casino revenues will solve all the Commonwealth's revenue problems.

The truth, of course, will be found somewhere in the middle.

Most of you probably know that I was tasked several months ago by Senate President Therese Murray to be the Senate's point person on gaming. Part of that job involves recommending to the full Senate a particular course of action, but an even more important part of the job is to keep the discussion rational so that we can make a good decision with regard to casino gaming. So with that in mind, I want to offer these rational thoughts:

* We have the largest state lottery in the country, so it seems we've already answered the moral question about state-sanctioned gaming and gaming revenues.

* The "destination resort casinos" that Governor Patrick is talking about are fundamentally different than the state lottery. Scratch tickets are widely available. Destination resort casinos are, as the name implies, places that will attract people who will spend their discretionary income there instead of someplace else.

* The state of Massachusetts has a newly federally recognized Indian tribe in the southeastern part of the state that will, under federal law, be able to have some sort of casino gaming even if the state disagrees. So the question becomes: Should the state do nothing, and, consequently, get nothing and have no means to combat the attendant problems, or should the state work with the tribe to establish a comprehensive resort-style casino, regulate it, and draw revenue from it?

* If the answer is "yes" to the latter, then the question becomes: Is Governor Patrick's proposal to have three resort casinos a good idea? And where should they be . . . and what about the attendant problems . . .

This is complicated stuff, I'm not going to kid you. There are potential problems with resort casinos. There are also potential revenues, revenues the state needs but can't seem to get because there is insufficient support for such things as a progressive income tax or the closing of corporate tax loopholes, a plan that I have guided through the Senate for the past several years -- a plan that the governor has endorsed -- a plan that can't seem to get to the governor's desk.

My point is simply this: When the going gets complicated, it's time to be rational. There are many ways to make a bad decision, but maybe only one way to make a good one. And that's what I want, a good decision.

Yours,

Stan

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Governor's casino plan:
http://www.mass.gov/?pageID=gov3modulechunk&L=1&L0=Home&sid=Agov3&b=terminalcontent&f=features_2007_09_17_casino_announcement&csid=Agov3

October Focus

Cultural Facilities Fund

I was extremely pleased when the Massachusetts Development and Finance Agency and the Massachusetts Cultural Council, in early September, awarded the first grants from the new Cultural Facilities Fund, a program I have been working on for many years. I was also pleased that projects in my district received a disproportionate share in this inaugural funding round.

The grants, which require a dollar-for-dollar local match, are:

National Yiddish Book Center - $352,000Amherst Cinema - $675,000Emily Dickinson House - $28,500Available Potential Enterprises, Ltd. (Northampton) - $18,750

There’s no question that arts and cultural facilities make enormous contributions to our state economy by serving as tools for economic development and community revitalization. But the arts also encourage creative thinking and free expression. And that ultimately helps strengthen our democracy. I hope this program helps us preserve our state's considerable cultural treasures.

Governor's Commonwealth-Springfield Partnership Plan

On Oct. 3rd, Governor Patrick unveiled his administration's proposal to work in partnership with the city of Springfield to revitalize that area's economy, an initiative that will help the entire region. Included in his plan is the commitment to site a new fire training academy in Springfield, a proposal that I had filed with the Senate earlier this year. I am pleased that the governor has recognized the need for such a facility and I will continue to work with the administration, my legislative colleagues, and the western Mass. fire chiefs, to make sure it becomes a reality. Better trained firefighters means increased safety for the people of western Massachusetts, and for the firefighters themselves. This facility would help achieve that goal. Plus, this new facility would help relieve the burden on the academy in Stow, currently the only firefighter training facility in the state.

Here is the full text of the governor's Commonwealth-Springfield Partnership plan:

http://www.mass.gov/?pageID=pressreleases&agId=Agov3&prModName=gov3pressrelease&prFile=071003_Springfield_Partnership.xml

Noteworthy

New UMass Trustees

In recent months there has been quite an upheaval with regard to UMass-Amherst and it's status as the flagship campus. Although this situation has not been totally resolved, a few things have happened that give me hope that the future holds the promise for reason to prevail. The first is that the governor, as part of his Readiness Project, has appointed several committees to make recommendations regarding the organizational structures in public education, including higher education. A number of local people have been named to these committees and I am looking forward to working with them to chart a new course for our education system, UMass in particular.

Governor Patrick's Readiness Project
http://www.mass.gov/?pageID=pressreleases&agId=Agov3&prModName=gov3pressrelease&prFile=070914_cross_section_readiness_project.xml

Also, Governor Patrick has made his first appointments to the UMass Board of Trustees. These five new trustees include two from western Mass. and one UMass graduate. So that makes three new trustees who will be committed to western Mass. in general and the UMass-Amherst campus -- the flagship campus -- in particular. I am looking forward to working with them as well.

Oceans Act

On September 27th, the Senate voted for legislation that would provide oversight of the Commonwealth’s ocean resources. The Ocean Act will allow Massachusetts to properly manage the state’s territorial waters and ensure a public voice and state oversight of future development projects.

“Our ocean is the last great stretch that has not yet been developed,” Senate President Therese Murray (D-Plymouth) said. “We have well-established laws for planning how we use our land, but nothing for our ocean. It is essential that we put forth a framework and process that will protect and preserve one of Massachusetts’ greatest assets.”

This legislation provides oversight, coordination, and planning authority of ocean resources. This includes the development of an ocean management plan incorporating the best available scientific understandings of marine and ocean resources, mapping, monitoring, and other data collection activity. It will identify management measures, mitigation requirement, or use limitations, to be employed in the control of any activities in the planning area.

The final ocean management plan will guide how state environmental agencies interpret, monitor and enforce the environmental laws of the Commonwealth. The legislation also provides safeguards for the treatment of fisheries, recognizing the central role that commercial and recreational fishing plays in our economy.

“Massachusetts oceans and coastlines play a vital, though often unrecognized role in our commonwealth’s economy and identity,” said Senator Robert O’Leary (D-Barnstable), who sponsored the legislation. “Yet, until now we have failed to create adequate management and planning frameworks for this significant resource. Passage of ocean management legislation is the important first step that Massachusetts must make to protect our coastal waters for generations to come.”

Senator Pamela Resor (D-Acton), Senate Chairwoman of the Joint Committee on Environment, Natural Resources and Agriculture, was a co-sponsor of the bill.

“This legislation addresses the diverse uses of our ocean resources and will strengthen the authority for managing those resources,” Senator Resor said. “Proposed ocean related projects are widely diverse and include liquefied natural gas terminals, desalinization plants, and energy facilities. This bill will balance the many marine interests with environmentally sustainable practices while preserving our valuable fishing, tourism and oceanographic research industries.”

Senator Bruce Tarr (R-Gloucester) said: “Proposed uses for our ocean resources are constantly emerging, and the state needs a comprehensive plan to address those uses and protect traditional industries such as commercial fishing.”

The legislation will set a standard framework to judge future ocean development proposals for state-owned waters which encompass approximately three nautical miles from the coastline.

Under the authority of the Secretary of Energy and Environmental Affairs, an ocean management plan would be developed by a 16-member commission which will include: state agency representatives, legislators, municipal officials, and environmental, fishing and industry stakeholders.

The commission will gather and consider recommendations of seven regional working groups from affected coastal areas.

The bill also sets up an ocean science advisory council of marine scientists, non-profits, government agencies, and fishing interests to assist the Executive office of Energy and Environmental Affairs in analyzing our ocean resources.

The Secretary must present the plan to the Legislature before it can go into effect.

The legislation now goes to the House of Representatives.

Commonwealth Corps

On September 20th, the Senate voted for legislation that would establish a new community service force in Massachusetts to address unmet needs in our communities. Called the “Commonwealth Corps,” the program would recruit from a wide-ranging talent pool of college students, professionals and retirees to volunteer on a full-time and part-time basis.

“The benefits of volunteerism cannot be overlooked,” Senate President Therese Murray (D-Plymouth) said. “Not only would this program provide additional resources for so many people and communities in need, but the personal rewards for those participating will shape their lives in a very positive way.”

Commonwealth Corps would contract with the Massachusetts Service Alliance (MSA) for the operation of its programs. The MSA serves as the Commonwealth’s umbrella organization for community service and volunteerism.

Governor Deval Patrick announced the Commonwealth Corps initiative in January as a compliment to the work of Senator Mark R. Pacheco (D-Taunton), a strong advocate for community activism and volunteerism reforms.

“I am inspired by the countless men and women who join together to educate our students, assist our elderly, clean up our neighborhoods and protect our city streets,” Senator Pacheco said. “We must do all we can to maintain and increase the opportunity for service throughout the state. I am pleased that the Senate has joined together with the Governor to advance citizen service in Massachusetts. Through service, citizens of all ages learn responsibility and gain a life-long ethic of civic participation, all of which translates into stronger, healthier communities.”

Senator Dianne Wilkerson (D-Boston), who worked on the legislation as co-chair of the Joint Committee on State Administration and Regulatory Oversight, is also an avid supporter of the Commonwealth Corps program.

“Governor Patrick spoke to the ideals and importance of volunteerism during his campaign,” Senator Wilkerson said. “Today, the Massachusetts Senate takes a giant step toward making these ideals real.”

The program would seek to enroll 1,000 volunteers to provide services for the elderly, the homeless, after-school programs, municipal projects and many other social and community needs.

Another component of the community service initiative would be to create pilot programs at five college campuses for the creation of the Commonwealth Student Corps that would integrate community-service learning into school curriculums to encourage volunteerism.

The bill will now go to the House of Representatives.

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Roundup

State Grants

In August, the South Hadley Housing Authority was awarded a $225,000 technical assistance and emergency capital improvement bond from the Department of Housing and Community Development to supplement its own capital reserves to replace the siding and roofs at the Authority's 705-1 Abbey Street development.

Also in August, the Amherst Housing Authority received a $50,000 technical assistance and emergency capital improvement bond from the Department of Housing and Community Development to supplement its own capital reserves to renovate an accessible unit at the Authority's 667-2 Ann Whalen development.

And finally in August, the Department of Education made the following awards to local school districts from the Foundation Reserve program:

Gill-Montague -- $21,000
Mohawk Trail -- $200,000
New Salem-Wendell -- $13,000
Greenfield -- $41,000
Hampshire Regional -- $17,000
Erving -- $17,000
Wendell -- $25,000
Belchertown -- $34,000
South Hadley -- $5,000
Franklin County -- $58,000

Local Artist

A collection of recent paintings and drawings by Greenfield artist Tracey Physioc Brockett is being shown at my office at the State House in Boston. The group of works, entitled "The Light That Misses Nothing" will run until October 26th.

The paintings, light filled environments of dynamic and ambiguous space, are the artist's emotional responses to the landscape of western Massachusetts. Physioc Brockett studied at Mount Holyoke College and The School of the Museum of Fine Arts, Boston. Her work is in collections around the world.

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10/16/2007

Dear George Will:

Re: "An Inconvenient Price: Want to eliminate what otherwise will soon be the world's second leading cause of death? Impose a global speed limit of 5 mph" (Newsweek, "The Last Word", By George F. Will, October 22, 2007): You ask our nation and her industrialized foreign nation brethen an economics question: "How much pain are we willing to take before we stand up to the liberal environmentalists on Climate Change?" You cite a European scientist named Bjorn Lomborg, whose work postulates that Globe Warming will have moderate impacts on the World with some positive externalities. You further state that the costs of global warming would me "the medievalization of the world".

Re: "This Week with George Stephanopolous" (ABCNews, Political TV, October 14, 2007): The Host, George Stephanopolous, starts off the Roundtable by directing the recent event where former Vice President Al Gore, Jr., was awarded the Nobel Peace Prize on Global Warming. He says to you, "George Will does not like (a) The Nobel Peace Committee, (b) Al Gore, and (c) Global Warming being seen as a crisis." You respond by saying, "Over the next Century, scientists might anticipate a one-foot increase in the sea levels; however, Al Gore says 20-feet. Al Gore assumes all of the ice in Greenland will melt...The public policy question is "how much are the developed nations willing to pay in cash, forgone productivity, inconvenience, circumscribed freedom, in order to have no measurable effect on Global Warming." George Stephanopolous, yourself (George Will), Sam Donaldson, and Cokie Roberts, then surmise that Al Gore is seen by the Corporate Elite as a Propaganda-ist.

As an aside, George Stephanopolous then parlays Al Gore's "folly" on Global Warming not by paralleling the economics of the War in Iraq with Al Gore's economics on Global Warming, but rather, he questions the Roundtable on Hillary Clinton's public record in the United States Senate on her votes in favor of war resolutions, most notably her recent vote against Iran as a terrorist state. The point is made that Hillary Clinton's votes are contradictory to her liberal campaign messages as a candidate for the American Presidency in 2008. Then, instead of talking about Iraq bankrupting the U.S. Treasury, George Stephanopolous points out that Hillary Clinton may raise the cap on top-wage-earners to keep Social Security financially solvent.

In response to all of this, Mr. Will, I must ask you, "WELL, what about the economics of our nation's long-running War in Iraq? How come you attack Al Gore for speaking out on a matter a great majority of scientists agree with him about -- Global Warming, while you remain silent on President George W. Bush cutting taxes 3 consecutive times while increasing federal spending and deficits to record levels caused by an unnecessary, illegal and immoral War in Iraq? How come you are against the Nobel Peace Committee? Are you so whetted to the Corporate Elite that you don't allow efficacious dissent to the wealthy's inequitable economic public policies? Did those ultra-rich Wall Street tweed- coated boys brainwash your fragile intellectual mind with capitalist indoctrinations that has the perverse societal outcome of the average homeless American being a six year old girl sleeping on a sidewalk and growing up with developmental disabilities? How come you don't like Al Gore? What if the Republican Presidential candidate won the 2000 election and then 5 Democrats gave Al Gore The White House anyways? What would you have to say about that?

In closing, here we have a real problem -- George W. Bush -- basically bankrupting the U.S. Treasury with an unnecessary, illegal and immoral long-running War in Iraq, and the Corporate Elite's response is to blame Al Gore, Global Warming, along with Hillary Clinton and her desire to keep Social Security solvent so that elderly Americans will be able meet a minimum standard of living.

In Dissent,

Jonathan A. Melle

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11/30/2005

The demise of the private pension plan

Boomer Bucks by Barbara Whelehan • Bankrate.com

Do you hear a faint, but ominous-sounding, bell? It's ringing the death knell for traditional pension plans.

Some folks believe that these so-called "defined benefit" plans will all but disappear over the next 20 years. These plans pay a lifelong pension benefit that is determined by an employee's tenure and salary.

Many plans are in deep trouble. Companies are supposed to fund their pensions each year to cover the benefits they're promising, but many aren't funding them enough.

The shortfall for corporate plans totals more than $450 billion, according to the Pension Benefit Guaranty Corp., a quasi-government organization that takes over pension plans dumped on it by financially troubled companies. The PBGC recently announced that its exposure to financially weak companies -- those flirting with bankruptcy -- rose to $108 billion in fiscal year 2005, from $96 billion the previous year.

The PBGC guarantees that workers will get the pensions promised them -- to an extent. It will pay the promised amount up to about $45,000 a year for workers who retire at age 65. The cap is lower for younger retirees, higher for older ones.

Public pensions are also in bad shape. These are the pension plans promised to government employees -- firefighters, policemen, teachers, etc. Some 90 percent of public employees are promised a pension for life versus 20 percent of corporate employees. But public plans are also short of funds, by as much as $760 billion, according to Barclays Global Investors.

If nothing is done, who's ultimately going to bail out these public and private plans? If you answered "the taxpayers," you are right.

Congress in action

Over the past year, members of the House and Senate have been working hard on legislation that addresses private pension deficits in an attempt to avert such a taxpayer bailout. Their goal is to put a finalized bill on the president's desk for his signature before the end of the year. A chief concern is the PBGC's own deficit of nearly $23 billion -- the difference between its assets of $56.5 billion and liabilities of $79.2 billion. A bill that recently passed the Senate imposes strict time limits, generally seven years, for companies to eliminate their funding shortfalls. It also calls for an increase in annual premiums to the PBGC, from $19 to $30 per covered employee.

Does that strike you as a ridiculously low premium payment, considering the guarantee that companies are getting? For 2005 alone, the PBGC received roughly $1.5 billion in premiums from companies. Yet in that same time frame the agency took over the payments of 120 terminated company plans, which were only half-funded on average, involving 235,000 workers.

The extra 11 bucks per person that the agency may collect, if the bill becomes law, won't even come close to eradicating the agency's current deficit, let alone future liabilities.

But companies are not thrilled about paying the $30 annual premium because it will add to their pension fund burden. And that's another reason why we are closer to the demise of the corporate pension plan.

Trick accounting

To make matters worse, the assumptions used by companies to determine whether they have enough money in their pension accounts are so dodgy that they're now under scrutiny by the Securities and Exchange Commission. The concern is that companies can fudge the numbers concerning future pension obligations as well as the quarterly profits they report to shareholders.

For instance, the discount rate is one assumption that companies use to determine whether they have enough money in their pension funds. That rate is used to calculate the present value of the money companies will need to pay future benefits. That's a tough concept to wrap your mind around, I know. But variations in the discount rate, even by as little as a quarter of a percentage point, can make a pension fund look flush or, conversely, anemic. The lower the discount rate used, the more money a company must pile into a fund. The higher the rate, the lower the pension-fund obligation.

The SEC is looking into how company managements arrive at the discount rate, and if they are massaging their firms' rates to present healthier, though inaccurate, fiscal reports to shareholders.

Companies, ever mindful of the effect of quarterly results on shareholders, can also, quite legally, "smooth" their earnings numbers over a period of years by using an "assumed" return for their pension plans rather than the actual return. Thanks to an accounting quirk, the assumed performance of pension assets can be reflected in quarterly net income.

In a recent editorial, former SEC chairman Arthur Levitt denounced the practice, saying "the smoothing of assets and obligations masks underlying volatility and is producing financial statements that are deceptive."

In response to these complaints, the Financial Accounting Standards Board announced in mid-November that it is planning to address some of these accounting issues, though approved changes won't go into effect until the end of 2006 at the earliest. One revision under consideration would require that companies include their pension surplus or shortfall on the balance sheet (instead of in the footnotes, where it currently resides). Also, changes in the value of the pension asset or liability would be excluded from net income.

The move to strengthen pension rules

In 2004, Congress passed a two-year measure that enabled companies to use a corporate bond rate as its discount rate, rather than the lower 30-year Treasury rate. That gave companies some breathing room, enabling them to put less money in their pension funds.

But the tide has reversed, and the Bush administration is now pushing for tougher pension-funding rules. In theory, that's a great idea. Companies shouldn't get away with any shenanigans with respect to something as sacrosanct as their employees' pension plans. But critics say that if regulations become too tough, that will cause more companies to terminate or freeze their plans, and that that's what the Bush administration ultimately wants: to free businesses of onerous pension obligations.

Well, it's hard to know what our president's goal really is. Maybe pension plans don't fit in with his vision of an ownership society. It's a vision that the president has to like because, quite frankly, he already owns a lot of stuff. According to financial disclosure forms he released earlier this year, our leader owns a 1,583-acre ranch worth between $1 million and $5 million, and a tree farm valued at about $600,000. On top of that he has about $5 million in Treasury notes and $1 million in CDs and checking and money market accounts. And after putting in eight years at the White House, the president will get, in addition to lifelong Secret Service protection, a nice big pension check every month.

I'm not saying he didn't earn all this stuff, but I wonder if he's in the best position to judge how important a pension check may be to the average Jane and Joe. I also wonder why he flip-flopped on the pension fund issue, first loosening the restrictions and now gunning for tightening them. To push for laws that make it tougher for businesses to offer pension plans may take a load off corporate America (though, incidentally, companies do get a big tax deduction for money they put into these plans), but the demise of pension plans will put a lot of pressure on workers.

The pension system will continue to live on in the public sector, no doubt, but what's being done to address those colossal deficits? The accounting rules that govern these plans are even looser than those of private plans. "We believe that public plans may be using an artificially high discount rate in their liability calculations," says Lance Berg, a spokesperson for Barclays Global Investors. (Remember: high discount rate, less funding required.)

There is no agency to protect or police public plans. The backup plan is that taxpayers will have to pay for the shortfalls, whether now or in the future.

For those of us who lack traditional pension benefits -- if we're unable to find government jobs -- we have no alternative but to create our own pension funds. We can do that by stockpiling a wad of assets. Then we can create our own pensions by using these assets to purchase immediate annuities that guarantee an income stream for as long as we live.

Of course, the tricky part of that plan is accumulating a big enough wad of assets. But that goes hand in hand with the vision of an ownership society, which in this case means: You're on your own.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

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Retirees' tab could break local gov'ts

By Bob Porterfield, Associated Press

Monday, September 25, 2006

SAN FRANCISCO — The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services like education and public safety.

This staggering burden is coming to light because of new accounting rules issued by the Government Accounting Standards Board. They require public agencies to disclose the future cost of health care and other benefits — such as dental, vision and life insurance — promised alongside traditional pensions to the nation's estimated 24.5 million active and retired state and local public employees.

Massachusetts' share is estimated at $13.2 billion out of a estimated $285 billion. Legislators there plan to reintroduce a bill next year that would establish a trust fund to cover the shortfall over time through annual appropriations from the state budget.

"It's serious, both in that it will take discipline to meet our responsibilities to future retirees and it's serious in that we dare not fail," said state Rep. Jay Kaufman, D-Lexington, one of the lead sponsors of the legislation.

Retiree health care costs have been quietly mounting for decades while public agencies have passed out generous retirement benefits during labor negotiations — often in lieu of salary increases. But government negotiators rarely considered the long-term financial consequences of awarding such perks, according to Brian Whitworth, a retirement benefits specialist with JP Morgan Chase and Co.

"A surprising number of public entities didn't even make informal estimates of long-term costs prior to the new accounting rules," Whitworth said.

Many cities and state agencies already are struggling to fully fund their pension obligations, but experts say those liabilities pale in comparison to the debt accumulated for other retirement benefits.

Last month, JP Morgan released what it considers the most comprehensive preliminary estimate. It projects the present value of unfunded health care and other non-pension benefits at between $600 billion and $1.3 trillion.

By comparison, the debt rating agency Standard and Poors estimates the country's total unfunded public pension debt at around $285 billion.

National union officials say it's not their fault municipalities put themselves in a hole by promising more than they can deliver.

"This is a monumental problem and government is going to have to deal with it," said Steve Regenstrief, head of the retirement division at the American Federation of State, County and Municipal Employees.

When the new accounting rules take effect in 2008, taxpayers will be able to see for the first time just how much they're paying to provide benefits to active and retired state and local public employees.

"When the numbers are produced, they're going to be shocking," said Ronald Snell, director of state services for the National Conference of State Legislatures. "They'll be in the hundreds of billions, and it's definitely something that policy-makers are going to have to take notice of and act upon. ... There are consequences of decisions made in the past."

The Government Accounting Standards Board is an independent nonprofit organization that establishes accounting standards for public agencies. Seeing a need to bring public sector disclosure rules in line with those of the private sector, the board unveiled the rules change in 2004 and gave governments several years to implement them.

The new rules don't require governments to come up with the money right away, just to disclose the present value of these future costs and estimate how much more money is needed to pay for them. To prepare for these disclosures, public officials across the country already are beginning to calculate how much they might owe.

So far, California, New York, and Maryland appear to have the biggest burdens, but that could change when estimates begin trickling in from Florida, Texas, Illinois and Pennsylvania.

Of the country's 10 most populous states, none has completed a formal estimate of their liabilities, but those that have completed preliminary assessments are reporting astounding numbers.

* The California Legislative Analyst's Office estimates $40 billion to $70 billion in retiree health care and related liabilities for the state. With cities and counties included, JP Morgan pegs California's debt at $70 billion to $200 billion. The state controller is just now beginning a detailed study.

* New York's preliminary analysis puts state liabilities between $47 billion and $54 billion. In a recent budget report, the state acknowledged "these costs are substantial and would significantly reduce or even potentially eliminate" New York's current $49.1 billion in positive net assets.

* Maryland has initially estimated its liability at $20 billion.

* Other states also have reported significant amounts: Alabama estimates $19.8 billion, Alaska at least $7.9 billion, and Nevada between $1.62 billion and $4.1 billion.

Many local governments also are beginning to acknowledge huge liabilities. The city of San Francisco reported its burden at $4.9 billion, and the Los Angeles Unified School District said its liability is $10 billion. New York City has yet to complete its analysis, but is expecting a large shortfall and already has set aside $2 billion to help cover it.

How this will impact citizens depends upon the size of their government's obligation and how it's handled.

At the least, experts say, the public can expect increased taxes and fees or reduced public safety and public works services as governments adjust their budgets to amortize the debt.

They probably can't expect much in the way of concessions from public employee unions, said Suzi Rader, director of district and financial services for the California School Boards Association. Any attempt to limit benefits already granted in future negotiations will be a contentious issue, she said, so employers must instead hold the line on granting additional perks to future retirees.

John Abraham of the American Federation of Teachers said union negotiators have long been aware that future retirement benefits must be paid from shrinking resources.

"If they haven't been looking at the numbers, shame on them," he said. "Do we recognize there is a cost problem? Absolutely. As costs have gone up we've made accommodations."

Lori Moore, spokeswoman for the International Association of Fire Fighters, said nothing is really changing except the need for cities to reveal how much they'll owe in non-pension retirement benefits.

"The liability has always been there," she said. "They had to know in the back of their minds that it was there."

Most governments now fund retiree health care on a pay-as-you-go basis, with annual appropriations from their general funds, focusing most of their attention on current expenses.

Under the new accounting rules, the liability can be paid over 30 years, just like a home mortgage, but it forces public officials to recognize the debt and calculate an annual payment.

If officials choose not to set aside additional money each year to cover the payment, it counts against net assets, potentially putting a city or agency deeper into the red. Because assets are a critical component in the credit ratings that allow governments to borrow money at lower interest rates, governments that don't handle their liability properly could end up insolvent.

Parry Young, director of public finance at Standard and Poors, said few governments are prepared for the annual contributions they'll be expected to make.

"It's been a growing liability that wasn't being addressed. But now the chickens are coming to roost," he said. "For some it's going to be a big credit issue depending upon what resources they have."

Young says one way governments can get a jump on their liabilities is by putting more money into retiree health care plans, something "easier said that done."

Public officials "might also choose to issue bonds, or review benefit costs and maybe make changes in the benefits themselves," he said.

Some states have taken a proactive stance. Ohio sought to address its future liabilities by establishing a Post Employment Health Care Fund containing more than $12 billion, an amount the fund's trustees say will not be enough. In order to cut health care costs, the state has reduced the amount it will pay for employees who retire with less than 30 years of service.

Utah, with a relatively small liability estimated at between $536 and $828 million, has taken a unique approach, earmarking unused sick leave for retiree health care expenses. Under a law passed last year and upheld by the Utah Supreme Court, retirees can no longer cash out unused sick leave earned after January 2006. Instead, 25 percent must be placed in an employee's 401K and the remainder in a Health Reimbursement Account.

"The law really stopped the out-of-control-escalation of health care costs," said John C. Reidhead, director of Utah's Division of Finance. "From a financial perspective it's a good deal. From the employee perspective, maybe not."

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Stocks Fall Again As Another Bank Tallies Its Losses
By Nancy Trejos
Washington Post Staff Writer
Saturday, November 10, 2007; D01

Wall Street ended a turbulent week Friday with stocks plunging after a major U.S. bank announced a large write-down because of its subprime mortgage losses and technology stocks took a severe hit.

The Dow Jones industrial average dropped 223.55 points, or 1.7 percent, to 13,042.74. The Dow was down 4.1 percent for the week. The broader Standard & Poor's 500-stock index fell 21.07 points, or 1.4 percent, to 1453.70 and was down 3.7 percent for the week.

Wachovia wrote down the value of its loan-backed securities by about $1.1 billion, and said it would set aside as much as $600 million for loan losses in the fourth quarter. The news sent the bank's shares tumbling early in the day before they recovered to post a gain of 35 cents to $40.65. Problems at Wachovia, Fannie Mae and other financial institutions sparked fears among investors that the problems in the subprime loan market, which caters to people with blemished credit, are not over and would continue to have a broad impact on the economy.

"It's a mess, and obviously the focus right now is on the credit markets and the possibility of deep ongoing losses in the banks and brokerages," said Christopher Low, chief economist for FTN Financial. "The sense is there are other banks that are going to follow that lead."

The technology sector, which had been virtually unscathed by the credit crisis, showed signs of weakness this week, with the wireless company Qualcomm warning of a drop in business into next year. Cisco Systems, a maker of computer networking equipment that is considered a bellwether for the technology sector, made a similar pronouncement.

The technology-heavy Nasdaq composite index plunged 68.06, or 2.5 percent, to 2627.94. It was down 6.5 percent for the week.

"It was really interesting to see that the mighty Cisco is not immune from the problems we were seeing in the U.S. economy," said Wendell Perkins, chief investment officer at Johnson Asset Management. "I think investors probably thought tech would be immune from that."

Other technology stocks such as Google and Apple also have posted losses in recent days.

Andy Brooks, head of stock trading at T. Rowe Price, likened the week's activity to that of the turmoil that gripped Wall Street in August, when a rise in mortgage foreclosures and growing concerns over the housing slowdown sent stocks into a nosedive.

"It was a tough week for investors," Brooks said. "It's hard to know when we're going to be through most of the damage from the write-downs and the losses related to subprime exposure. It reminds us of the period we had the first couple of weeks in August, which were brutal."

This time, he and other analysts said, the problems are compounded by rising oil prices, crises in the Middle East, the sinking value of the dollar and weaknesses in corporate earnings.

Federal Reserve Chairman Ben S. Bernanke's comments this week that the economy was likely to slow through the first half of 2008 also weakened investor confidence.

"This time it's just a variety of negative news from the retailers, from the tech companies, internationally," said Randy Bateman, chief investment officer of Huntington Asset Advisors. "It's just unfortunately kind of a perfect storm of bad news this week."

Movers

Fannie Mae fell 80 cents, to $49.

Qualcomm fell $1.66, to $38.10.

Estee Lauder rose $3.17, to $44.25. Former Procter & Gamble food-snacks president Fabrizio Freda is to replace chief executive William Lauder within two years.

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Employers, not union, use violence
The Berkshire Eagle - Letters
Tuesday, November 20, 2007

It was good to see that reader Tom Maloney, (Letters, Nov. 10), was able to clarify the facts of an op-ed piece that contained incorrect information about the "Bread and Roses" strike in Lawrence in 1912 with regard to the involvement of the Industrial Workers of the World.

But it was frustrating to see him regurgitate the myth commonly used by the mill owners and the mainstream press to paint the IWW with a broad brush as "violent." While Mr. Maloney was merely using descriptions others have made, he didn't qualify them in any way.

A study of the history of the Lawrence strike and many other struggles the IWW has been involved in since 1905 will prove who really uses violence to reach their desired ends. Employers, using company thugs, local and state police and federal troops, and with help from various armed citizens councils, have attacked, maimed and killed countless members of our union. But don't take my word for it.

You may, as was suggested in Mr. Maloney's letter, want to read Melvyn Dubovsky's, "We Shall be All." But I would like to suggest you find a copy of Joyce Kornbluh's "Rebel Voices" for a look at Lawrence and many other struggles through the eyes of the workers themselves, in words, poems, verse, songs and cartoons.

GREG GIORGIO
Altamont, N.Y.

The writer is a delegate of the James Connolly Upstate N.Y. General Membership Branch of the IWW.

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News Article:
Fed forecasts slower growth and more out of work next year
By Jeannine Aversa, AP Economics Writer
November 20, 2007

WASHINGTON (AP) -- The Federal Reserve reported Tuesday that it expects slower economic growth and a slight bump up in unemployment next year due to the housing slump and a credit crunch. The board also said, however, that it thinks inflation will remain moderate.

The fresh assessment of the country's future economic performance was issued by the Fed in the first of its quarterly reports to the nation.

On the growth side, the Fed said it believes that business growth will slow next year, with the gross domestic product (GDP) coming in between 1.8 percent and 2.5 percent. That would be weaker than how the Fed expects the economy to perform this year and would mark a downgrade to a previous projection released in the summer.

The downgrade was due to a number of factors, including "the tightened terms and reduced availability of subprime and jumbo mortgages, weaker-than-expected housing data and rising oil prices," the Fed explained.

The credit crunch has both made it more costly and more difficult for people and companies to borrow money. The worst carnage has taken place in the market for "subprime" home loans -- those made to people with spotty credit histories. Credit problems started there and have spread to more creditworthy borrowers including those that are looking for home loans of more than $417,000, so-called jumbo loans.

The overriding worry is that these housing and credit problems will make people less inclined to spend, putting a damper on economic growth.

That concern is on the Fed's radar, too.

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Subprime mortgage rates could be frozen for some
Lenders pressured to forgo increases for owners not in arrears
By Binyamin Appelbaum, Globe Staff | December 1, 2007

The nation's largest financial institutions, under mounting pressure from federal officials, might soon disclose a plan to suspend scheduled increases in the monthly payments for many borrowers with subprime loans.

The plan would freeze the interest rates on subprime loans with adjustable rates, which generally begin to increase after a two-year introductory period. Borrowers would instead continue to pay the introductory rate.

The industry and US Treasury Secretary Henry Paulson have agreed to focus the plan on borrowers who can afford their current payments, but could not afford increased payments. Other borrowers, both those able to afford the increased payments and those who can't even afford current payments, would still face rate increases.

The details - including the duration of the freeze, which could range from one year to seven years - are still being negotiated. But Paulson and other participants say they hope to have a deal by next week. It would be the largest step yet taken to curtail the rapid growth in foreclosures nationwide.

"I'm really happy to hear they're on this track because they've spent so much time talking about counseling and hotlines and 800 numbers and all of this while Rome burns," said John Taylor of the National Community Reinvestment Coalition, a consumer group that has pressed for stronger action by the Bush administration.

Taylor said a lot of borrowers can still be helped before their payments increase. "The peak is coming in May 2008," he said. "There's a million homes lost to foreclosure, but there's two million more still coming."

In Massachusetts, more than 24,650 adjustable-rate mortgages will reset to higher interest rates in 2008, according to First American Loan Performance, a California data provider.

For subprime loans with adjustable interest rates made in 2006, the average introductory rate was about 8.5 percent. Those loans will reset in 2008. If they reset at current market conditions, the new rate would be about 11 percent. For a borrower with a $300,000 mortgage, the monthly payment would increase more than $500.

For much of this year the lending industry resisted proposals to rewrite large numbers of the at-risk loans, preferring instead to working with borrowers individually. The federal government focused on encouraging borrowers to contact lenders.

Both sides started to consider more dramatic action after a September survey by Moody's Investors Service determined lenders modified only 1 percent of adjustable-rate subprime loans that reset during the first three quarters of 2007.

Paulson signaled his intentions in an interview last week, saying restructuring loans individually had proven ineffective and that a new approach was needed.

The industry has negotiated with Paulson through the Hope Now alliance, a new group that includes nine of the nation's largest servicers of subprime loans; the group estimates its members collect payments on about 85 percent of subprime mortgages.

"I think everyone agrees that there needs to be an expedited mechanism for handling these things," said Paul Leonard of the Financial Services Roundtable, an industry group that is one of the forces behind Hope Now. He said it was in everyone's interest to help those borrowers able to make some amount of payments.

Paulson and industry representatives met on Thursday to discuss the plan. In addition to the length of the freeze, it is not yet clear who would determine which borrowers are eligible, and on what basis precisely, and whether investors holding the rights to collect loan payments would be compensated.

The major sticking point is the reluctance of these investors. Financial analysts say major investors are not yet convinced a broad restructuring would avoid enough foreclosures to make it worthwhile to forego the additional payments.

In a sign that stance may be softening, Thursday's meeting included the American Securitization Forum, which represents participants in the business of investing in mortgage loans. The forum issued a statement yesterday saying it was now amenable to the idea of "systematic procedures to modify loans."

Representative Barney Frank, a Massachusetts Democrat, who coauthored legislation to increase regulation of the mortgage industry that has passed the House and awaits Senate action, hailed the progress in a statement. "If additional legislative action is necessary, we stand ready to work with the secretary as this process moves forward," Frank said.

The nascent federal plan has some precedent. Countrywide Home Loans, the nation's largest mortgage lender, has pledged to freeze interest rates for 80,000 customers by refinancing their adjustable-rate loans into fixed-rate loans.

Countrywide and three other mortgage companies also agreed last week to freeze interest rates on subprime loans for some customers in California. The deal, revealed by Governor Arnold Schwarzenegger, did not specify how many loans would be frozen - probably about 100,000 - or how long the freeze would last.

Binyamin Appelbaum can be reached at bappelbaum@globe.com.

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Teen superstar Miley Cyrus aka Hannah Montana, in June show in city.

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http://www.nydailynews.com/news/2007/11/25/2007-11-25_thanks_to_gov_spitzer_only_superrich_can.html

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NY DAILY NEWS
Michael Daly

Thanks to Gov. Spitzer, only super-rich can afford 'Hannah Montana' tickets
Sunday, November 25th 2007, 4:00 AM

Maybe Gov. Spitzer can score a couple of Hannah Montana concert tickets for 2-year-old Jack Nuciforo and his 5-year-old sister, Mia.

After all, Spitzer helped make it impossible for two of the singer's most passionate and devoted fans to get tickets to the concert tour sweeping through here next month.

Back in June, a smiling Spitzer signed legislation that scrapped New York's restrictions on ticket scalping.

Until then, Article 25 of the Arts and Cultural Affairs Law had limited resale hikes to 45% over face value for facilities of more than 6,000 seats and 20% for smaller venues.

In ending all limits on scalping, Spitzer assured us it had nothing to do with the $40,000 in campaign contributions he had taken from ticket brokers.

"This law makes sense because it eliminates resale price controls and lets the free market determine prices," Spitzer said.

The official bill summary included a section headed "Justification" whose logic is twisted even by Albany standards:

"The primary sale price of tickets has increased to a point that many tickets are already unaffordable for consumers. Therefore, controlling the prices on the secondary market is not an effective consumer protection."

In other words, most consumers can't afford to buy tickets in the first place, so it really doesn't matter if the prices skyrocket even further beyond their reach.

A few weeks after the scalpers' unreasoning greed was officially deemed reasonable, tickets went on sale for the Hannah Montana/Miley Cyrus: Best of Both Worlds Tour. Jack and Mia's mom hurried online. Julie Nuciforo knew how thrilled the two would be to see their hero.

After all, little Jack goes into a wild and gleeful dance every time the Hannah theme song comes on. And Mia is as infatuated with Hannah Montana as young girls once were with Britney Spears. The happy difference is Hannah is not likely to run around without her underwear and otherwise be a terrible role model in a few years.

"Hannah's safe," mom said.

But as fast as mom got online, every venue in the metropolitan area was already sold out, along with every other concert hall in the country. Ticket scalpers had bought everything in the first minutes using software that enables them to cut to the head of the cyberline ahead of everyone else.

The box office price for the two concerts at the Nassau Coliseum ranged from $23 for the upper level to $63 for the primo seats. But all those tickets had been snapped up for resale.

Under the old New York law, the scalpers would have been prohibited from charging more than $33.35 for the upper level, within the range of the majority of parents, no matter what the state's "justification" might say about prices already being out of reach.

The legal limit on the resale of the very best seats would have been $91.35. That is not exactly a bargain, but it is still possible when both parents are working and both kids are Montana maniacs.

But those restrictions vanished with a stroke of Spitzer's pen. Jack and Mia's mom went on one scalper Web site to see that seats at Nassau Coliseum were selling for as much as $3,409, or a 5,133% markup. The cheapest were $148, a mere 543% markup, not including binoculars to see the stage.

Jack and Mia's dad, James, retired from the NYPD as a first-grade detective and here he was, confronted by the legalized robbery of youngsters.

The one alternative in the metropolitan area was the Prudential Center in Newark. The box office prices there ranged from $26 to $66, but those tickets were also gone in a flash.

New Jersey restricts scalping, prohibiting licensed brokers from charging more than 50% above face value. Anyone else is barred from hiking the price more than 20%.

But the cheapest tickets for the Newark concert were going for $145 on Stub Hub. The primo seats were $1,530, or a 2,218% markup, 1,059% more than the maximum legal hike.

No doubt Spitzer would point to the Newark prices as proof that such laws are all but unenforceable in this age of cyber-scalping.

Hey, Eliot, what happened to the tough-guy prosecutor we elected?

Maybe you can spare $6,818 to get Jack and Mia a couple of good seats.

mdaly@nydailynews.com

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News Article in The Boston Globe Online:
Credit card execs defend rate policies
By Dibya Sarkar, AP Business Writer | December 4, 2007

WASHINGTON --Credit-card executives on Tuesday deflected congressional criticism of their practice of using falling credit scores to charge customers higher interest rates.

Industry critics say it's another example of abusive, confusing credit-card practices that can push consumers deeper into debt.

Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, said customers who consistently pay on time are getting whacked by credit-card issuers that raise such rates without an adequate warning or a clear notice.

"The bottom line for me is this: when a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit-card issuer should have to do the same," he said Tuesday.

Levin is holding out the club of possible legislation to spur voluntary changes by the industry.

But executives from Bank of America Corp. and Discover Financial Services LLC. told the subcommittee that a credit score is one of several factors in determining whether to increase a customer's interest rate.

"It's important criteria for how to manage risk and pricing," said Roger Hochschild, Discover's president and chief operating officer.

Bruce Hammonds, president of Bank of America Card Services, said his bank also considers customer behavior on an account and their debt to others, in addition to credit scores.

But it's the behavior of credit-card issuers that prompted several consumers to testify before Levin's subcommittee about not being informed when their rates were hiked.

Janet Hard of Freeland, Mich., said her Discover credit-card rate nearly tripled without adequate notice and that issuers send "deliberately misleading and confusing" information.

With Americans weighed down by some $900 billion in credit-card debt -- an average $2,200 per household -- practices of the very profitable industry have been ripe for scrutiny by the Democratic-controlled Congress.

Levin's subcommittee, which has been investigating the industry, looked at how credit-card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline -- even if they've paid credit-card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.

In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said Monday: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."

Five big financial companies -- Discover, Bank of America., Citigroup Inc., JPMorgan Chase & Co. and Capital One Financial Corp. -- issue around 80 percent of U.S. credit cards, according to the subcommittee. A Capital One official also testified at Tuesday's hearing.

Citigroup, JPMorgan Chase and Capital One said they will discontinue the practice; Citigroup's change already is in place and JPMorgan Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.

Larry DiRita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase."

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AP Business Writer Marcy Gordon in Washington contributed to this report.

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"Inflation rate rises most in two years: Gas fuels increase as economic growth continues to slow"
By Martin Crutsinger, Associated Press, December 15, 2007

WASHINGTON - Led by higher gasoline prices, consumer inflation shot up in November by the largest amount in more than two years.

The rise in inflation is coming at a time when economic growth is slowing sharply.

"We are in store for a period of very weak if not recessionary growth and uncomfortably high inflation," said Mark Zandi, chief economist at Moody's Economy.com. "People are going to get hit with both a weaker job market and having to pay more to fill their gas tanks and buy groceries."

The Labor Department report yesterday showed its closely watched consumer price index rose 0.8 percent last month, the biggest gain since September 2005, as energy prices surged 5.7 percent, reflecting a big gain in gasoline. Core inflation, which excludes energy and food, was also up last month, rising 0.3 percent as the cost of clothing, airline tickets, and prescription drugs all took big jumps.

The bad news on inflation sent stock prices lower yesterday as investors worried that rising prices will keep the Federal Reserve from cutting interest rates quickly enough to keep the country out of a recession. The Fed uses lower interest rates to stimulate a weak economy and higher rates to slow growth and keep inflation in check.

The Dow Jones industrials fell 178.11 points to 13,339.85. With the economy slowing at the same time that inflation is rising, the Fed could face a tough policy dilemma similar to the problems it faced in the 1970s when a series of oil shocks sent inflation soaring at the same time the country was struggling with weak economic growth. The combination of stagnant growth and inflation got branded as "stagflation."

The report on consumer prices followed one Thursday showing inflation at the wholesale level jumped an even larger 3.2 percent in November, the biggest increase in 34 years.

The Fed cut a key interest rate by a quarter-point on Tuesday but failed to give a strong signal about future cuts, which sent the Dow average plunging 294 points. However, investors were encouraged when the Fed on Wednesday joined with other central banks around the world to unveil initiatives designed to combat a serious global credit crunch that is weighing on economic activity as banks cut back on their lending.

Despite the higher inflation, many economists said they still believe the Fed will keep cutting interest rates because of the severity of the credit crunch.

"The danger associated with what is playing out in the credit markets will dominate the Fed's attention in the coming year," said Jim Glassman, senior economist at JPMorgan Chase & Co.

Lyle Gramley, a former Fed governor, now an economist with the Stanford Financial Group, said there was a danger the Fed could respond too slowly because of a split among policy makers. Federal Reserve chairman Ben "Bernanke and others see an economy that is in danger of falling into a recession because of the credit crunch, but if you read the public speeches of some of the regional bank presidents, you would hardly feel there is anything wrong with the economy. They are very hawkish on inflation," Gramley said. Several bank presidents have delivered speeches recently emphasizing the need to fight inflation.

With one month to go, inflation in 2007 is rising at an annual rate of 4.2 percent, far above the 2.5 percent increase in 2006. The acceleration has been driven by energy prices, which are rising at an annual rate of 18.1 percent this year, compared to an increase of 2.9 percent in 2006.

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"In the Course of Human Events, Still Unpublished: Congress Pressed on Founders' Papers"
By Jeffrey H. Birnbaum
Washington Post Staff Writer
Saturday, December 15, 2007; A01

More than 200 years after they were written, huge portions of the papers of America's founding fathers are still decades away from being published, prompting a distinguished group of scholars and federal officials to pressure Congress to speed the process along.

Teams of experts have been laboring since Harry Truman was president in the late 1940s to compile and annotate the letters, correspondence and documents of George Washington, John Adams, James Madison, Benjamin Franklin and Thomas Jefferson. About $58 million has been spent in the past 30 years alone.

Yet, according to a study by the National Historical Publications and Records Commission, the Washington papers will not be finished until 2023, with 54 volumes published and 35 more to go. The Adams papers, 29 volumes shy of the planned 59-volume set, will not be done until 2050.

Only the papers of Alexander Hamilton have been finished, largely because scholars did not have as many papers to comb through. Hamilton died at age 49 after a duel with Aaron Burr.

An assortment of highbrow lobbyists -- led by the Pew Charitable Trusts, and including presidential historian David McCullough, the librarian of Congress and the archivist of the United States -- have been trying to persuade lawmakers to allocate more funds for the effort, known as the Founding Fathers Project. They also want Congress to demand that the papers, as well as the scholarship that accompanies them, be much more widely distributed, especially online.

"I feel very strongly that this is as worthy as any publishing effort that I know of," said McCullough, winner of two Pulitzer Prizes. "It's just a shame that it is taking so long."

Dan Jordan, president of the Thomas Jefferson Foundation, describes the delay in harsher terms: "It's an embarrassment. I've also heard other words used, like 'criminal,' 'scandal.' "

Access to the documents, which include letters to and from the principals, diary and journal entries as well as official papers, has been strictly limited. Scholars, historians and other interested parties have been able to glimpse the originals over the years, but these privileged few have had to travel to the six locations where the documents are kept, primarily at major universities.

McCullough, for example, said he had access to the Adams papers at the Massachusetts Historical Society in Boston when he was researching his biography of the second president. But he said the book, which won the Pulitzer Prize, would have been better if the annotated version of those papers had been completed.

Many of the founding fathers' letters have been transcribed and made available over the years, and the original documents can increasingly be found online. But it is the painstaking annotation of these thousands of documents -- their detailed explanation -- that takes so long. Scholars check and double-check each reference and then try to explain each one and put it in context. A page of the massive annotated tomes can contain a snippet of a document and then a long footnote of explanation.

Scholars in charge of the five remaining sets of papers strongly believe that those annotations cannot be rushed and are resisting the lobbyists' push. They say that top-flight scholarship requires them to deal accurately and completely with these precious documents and that such work takes time -- lots of time.

"This is not an industrial process, this is a skilled process," said Stanley N. Katz, chairman of the Papers of the Founding Fathers, which represents the five efforts, many at major universities. "Scaling up would be difficult for us if we are to maintain the general character of the volumes we have now."

The timeline is so long that Rebecca W. Rimel, the Pew trusts' president, said only half in jest that her goal is to have the papers completed "in our lifetime."

Pew, a large foundation in Philadelphia, has been trying to make the founding fathers' writings accessible to the public since 1981. It has poured $7.5 million into the papers and wants to see that investment reach fruition.

Rimel and Jordan took a major step in that direction in the 1990s. They were instrumental in persuading Princeton University to allow a portion of Jefferson's papers, those from his retirement years, to be annotated by the Thomas Jefferson Foundation near Jefferson's home, Monticello, in Charlottesville. Princeton had been working on Jefferson's oeuvre by itself since the 1940s, but agreed to split off the final papers Jefferson accumulated as a way to complete the full set of documents earlier than expected.

The effort has speeded publication considerably. But, typically, the decision did not occur without a fight. John Catanzaritti, who was the editor of the papers at Princeton, took early retirement rather than see the project divided into two parts, Katz and Jordan said.

Pew is now trying a new, governmental tack to move the process forward. At least $30 million of taxpayer funds have gone into the papers projects since 1965, though federal accounting has not always been easy to follow.

This year Pew retained Michael A. Andrews, a former Democratic congressman from Texas, to organize an effort to persuade Congress to provide more oversight for the projects and to scare up more funding for them.

Rimel and Andrews assembled a heavyweight group of advocates. In addition to McCullough and Jordan, its supporters include Richard Moe, president of the National Trust for Historic Preservation; U.S. Archivist Allen Weinstein; and Deanna B. Marcum, an associate librarian of Congress, who represents Librarian of Congress James H. Billington.

Besides their concern about the pace of the projects, the activists are eager to provide the scholarship and the papers to a broader audience. A recent poll of public libraries found that very few have many if any of the volumes on their shelves.

The main reason is cost. A complete set of 26 volumes of the papers of Hamilton runs about $2,600.

"Many of us have been concerned that the scholarly editions have been very slow to be produced, and ordinary people don't have as much access to those materials as we would like them to have," Marcum said. "We've already digitized the founding fathers' papers that we hold at the Library of Congress; we would like to see more of this kind of access to such papers from the projects as well."

That's easier said than done, the papers' editors say, especially when it comes to the annotated books. "We would love to have the volumes done and would love to do them more quickly, but physical and fiscal constraints indicate that's not likely to happen," said Theodore J. Crackel, editor of the Washington papers at the University of Virginia.

"It's unrealistic unless we radically reconceptualize the product," Katz agreed.

Both men noted that efforts have already been stepped up to put the documents onto the Internet, with the University of Virginia considered a leader in that effort.

But the Pew-led lobbyists are not satisfied that enough has been accomplished, especially McCullough, who does not believe that a quicker completion would sacrifice quality. Instead, he blames the slow progress on "the little fiefdoms of each project, which have been working in their own way in their world for over two generations."

"I liken this all to the Washington Monument, which ran out of money and stood there on the Mall like a giant marble stump," he said. "Finally, they went ahead and finished it."

The papers project also needs to be completed, he said. "It is a monument that will last longer than any of the monuments we now have."

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December 17, 2007

I read Dr. Wilkerson’s lengthy argument for political change in a paid advertisement in the NH Sunday News (Union Leader) on 12/16/2007, Page A5, which may be found below my name via my annotated form. I believe Dr. Wilkerson’s plea for political change via a new third political party is both myopic and anything by classically liberal in nature.

THE TRUE SYSTEM!

The Federal Government in Washington, D.C. is controlled by The Corporate System on Wall Street, NY, NY, and also by The Corporate Elite’s Financial Systems in Europe, especially in London, U.K.

Money equals CONTROL of the System.

Authority equals INFLUENCING the System (for the benefit of the wealthy).

The Corporate System is by the design of “The Corporate Elite” and encompasses ALL of the Western World’s Nation-State’s Democracies. Ergo, our American Democracy is an adjunct part of, or a branch of, the real system. The Federal Government’s role in the corporate system is to influence the have-nots for the benefit of the wealthy, whereas the Corporate Elite’s role is to control the entire system via MONEY. This means that we do not live in a any kind of democracy, but rather, we live within a fascist system whereby we may influence the wealthy’s decisions for the primary benefit of the wealthy.

It is sort of like a child having a bedtime and offering to do more household chores for their parents to stay up an hour later on the weekend. The child still has a bedtime, but has influenced the time restraint to their preferential liking though performing more household chores for their parents.

We live in a Corporate System, not a democratic system! We live in a society whereby the government only serves the corporate elite.

How does this happen? The answer lies in the AGENDA. Instead of the people going to their members of Congress and saying I believe this should get done, that should be changed, we need more money for our social programs, and the like, the corporate elite via highly paid lobbyists go the members of Congress with a lot of MONEY, which is taken by members of Congress without conscience. In return, the people are marginalized and the corporate elite sets the AGENDA on Capitol Hill and The White House. Now instead of what the people wanted done, changed and public money for, the focus goes to the special interests of big business.

An example of how the system works is a child wanting their parents to buy them a dog, eat a fast food restaurant more than just once a month, and receive an increase in their allowance. The child’s parents listen to the child’s request, but look at the increased costs of what the child wants done, changed and more money for. The parents are then given money from the child’s wicked Aunt in order for the wicked Aunt to deprive or exploit her young relative of their demands, and then the child’s wicked Aunt convinces the child’s parents that if the child wants their demands met then the child has to work for the wicked Aunt at no less then 20 hours per week. The wicked Aunt knows that by setting the agenda, the child’s parents will profit by the wicked Aunt’s monetary contributions and she will profit by the child’s weekly labors at a cut-rate price or the wicked Aunt using schadenfreude by seeing her young relative deprived of their demands. The child now has a choice, but it was not the choice the child thought they initially had when they went to their parents. The child may either tell their parents that their Aunt is a “bitch” and they won’t work for her, thereby losing out on all of their demands, or the child may tell their parents that they will work for their wicked Aunt in exchange for their demands.

The child made demands like the people do with their members of Congress. The wicked Aunt gave money to the child’s parents like lobbyists do with their members of Congress. The wicked Aunt, like the lobbyist, used their money for control in order to set the agenda. The parents of the child, like our members of Congress, then use influence over the child to convince their kid to either keep things as they are or for the child to trade-off most of their free time to work for their wicked Aunt. Either way, the wicked Aunt, like the corporate elite, deprives the child of either their demands or free time, and the parents, like members of Congress, make out financially from their child’s requests, with the wicked Aunt getting the best deal of all.

THE CORPORATE SYSTEM IS FASCISM!

Because MONEY is CONTROL, and the only group that has control of the system is the corporate elite, then the corporate system is fascist. Today’s “Corporate Fascism” in America and Europe is based on a highly powerful business and military financial complex. The corporate elite uses the pseudo-democracies they control as a pretext for illegally and immorally waging economic and/or military wars against other peoples and their nation-states and regional interests. While we live under corporate fascism, we are pointing our finger at oil-rich Muslim countries that have extremist elements and banally label them as “Islamofascists.”

Why is Dr. Wilkerson’s plea myopic? The answer to this question is that he is only looking at the federal government and blaming Congress and the President for our domestic, international & military problems. He does not see the corporate elite’s designs over people and places, nor does he even see the corporate system. Moreover, he does not understand that all the federal government is able to do is influence these multitudes of issues with micro-level changes.

Why is Dr. Wilkerson’s plea anything by classically liberal in nature? The answer to this question is that for the system to change, a third party would have to change the current corporate system from fascism to democracy. In order for the third party to be classically liberal in nature it would have to ensure the protections of human rights for all peoples through a free and democratic state that meets the philosophies of our Founding Fathers. He puts forth no new economic system that would redistribute wealth back to the people and their communities.

In closing, the problems with pointing out societal problems are two-fold: (a) Scarcely a political observer will be unpatriotic and state the realities of our system, and (b) Most political observers will use their ideologies to explain what needs to be done to change the system for the benefit of society. George Will is my best example of this phenomenon. George Will often cites James Madison as his favorite philosopher, but then uses the corporate elite’s fiscal conservative supply-side economic philosophies to argue for change. The problem with George Will’s use of Madison and then Reaganomics is that the two are mutually exclusive of each other. When James Madison lived and wrote the U.S. Constitution, he began the system based on Slavery. There were no industries, capitalism or Marxism yet. In fact, capitalism is never once mentioned in the U.S. Constitution—as it did not yet exist. After the Civil War and Industrial Revolution, the U.S. scrapped the Slave System and adopted the Corporate System, which as ruled the people ever since. George Will’s use of Madison along with Ronald Reagan is Orwellian because the Madison’s Slave System had nothing in common with Reagan’s Corporate System, except the same U.S. Constitution. Change will come when people address society’s problems by looking at the realities of our system without ideology and spurious connections.

Sincerely,
Jonathan A. Melle

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Daniel C. Wilkerson, Jr., M.D., of 8 Brays Lane, Amherst, NH 03031: “A Plea for Political Change Via a New Third Political Party”

“Ills to which America is Heir” -- Annotated --

A. Domestic

1. National Debt approximately $9 Trillion and growing. Interest paid on debt is the third largest expense in the Federal Budget with Social Spending ranking highest.

2. Social Security is expected to become insolvent. Problems will begin by 2017 with bankruptcy by 2041.

3. Medicare is also expected to become insolvent in the future.

4. There are a shortage of Doctors in American Healthcare.

5. Public schools are inadequate.

6. State & Federal Prisons are expected to have increased numbers of inmates. The USA has the highest per capital incarceration rate in the World.

7. Criminal Gangs are a growing threat to civilized society.

8. Motor vehicle mortality rates are devastating.

9. Gasoline costs are high. The energy crisis is unresolved.

10. Congress and the President have low approval rating numbers.

B. International & Military

1. Iraq War spending is unsustainable.

2. Iraq War was waged on false pretenses.

3. Iraq War was incompetently managed.

4. Uncertain future with hostile Muslim nations.

5. Torture needs to be defined and codified into law.

6. Americans want to end the War in Iraq.

7. Immigration is in a state of crisis.

The People must be involved in politics. We need to explore new ideas. We need to go back to classical liberal ideas of our Founding Fathers. We need a new third political party for our Federal Government.

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The bedroom radiator is broken in the Roxbury apartment of Shareka Murdaugh, who is nine months' pregnant. (Suzanne Kreiter/Globe Staff)
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"IN THE COLD: Heat a casualty in foreclosures: As Boston buildings are taken over by mortgage firms, tenants face slow repairs of systems and limited fuel deliveries"
By Binyamin Appelbaum, (Boston) Globe Staff, December 22, 2007

Tenants in some foreclosed Boston apartment buildings are living without adequate heat because the new landlords - mortgage companies often based in other states - have not repaired broken systems or paid for the delivery of heating oil.

Karla Herrera, who gave birth to a daughter Wednesday, has lived without heat in her Roxbury apartment since November, when the system broke. "Sometimes, I turn on the oven for 20 minutes for heat," she said in Spanish, speaking through an interpreter.

Some foreclosed buildings also lack electricity, or hot water, or even running water, and the tenants may have no one to call: The new landlords often fail to provide tenants with a contact number, as required by Massachusetts law. And when landlords can be reached, the response is often so limited - half a tank of heating oil, for example - that the problems recur within a few days.

City officials say they have dealt with a dozen cases in the last two weeks of utility problems at foreclosed apartment buildings. Michael Kelley, acting administrator of the city's Rental Housing Resource Center, said the numbers are rising as foreclosures pile up and temperatures drop.

He said the city is searching for ways to compel companies to fulfill their responsibilities as landlords. The city also is trying to persuade the companies to improve voluntarily. "It is a sad state of affairs," he said, "that it takes a government agency to reach out to a responsible party to get some action."

At Boston Medical Center, a growing number of children who live in foreclosed buildings are being treated for problems related to a lack of heat, hot water, or electricity, according to the hospital's legal aid clinic, the Medical-Legal Partnership for Children.

One malnourished child was living in a building without running water, making it hard for the mother to mix formula. A child with sickle-cell anemia was treated for pain after temperature fluctuations in an unheated apartment caused the disease to flare up. The medical center's emergency room has treated children whose asthma inhalers cannot be recharged because their apartments have no electricity.

State law prevents utility companies from suspending service in the winter months if a tenant can prove financial hardship. Ellen Lawton, the legal aid clinic's executive director, said that isn't always enough. "The law on the books says they can't, but they do," she said. "And then who do you go to to get it turned back on?"

Massachusetts requires landlords to heat apartments to 68 degrees by day and 64 degrees at night. But on a recent 25-degree morning, Herrera's apartment was comfortable only with a winter coat. The thermostat was broken. When the heating system was engaged, the vents blew cold air into the living room.

Herrera's heating problems actually date to February, before the foreclosure. It is not uncommon for such problems to precede foreclosure, since landlords in financial trouble often allow their buildings to deteriorate.

In August, Herrera received a letter from a representative of IndyMac Bank, a California company, informing her that it now owned the building. She wrote back to say that the gas stove wasn't working. That problem was fixed in early October. Shortly after Thanksgiving, however, the heat went off and the electricity stopped working in every room except the kitchen.

Herrera said she bought space heaters for her bedroom and her son's bedroom, both operating on extension cords run from the kitchen.

She is scheduled to return from the hospital tomorrow with her new baby girl and said she is resigned to the possibility that the heat still won't be working.

"At the beginning I was very upset but I see that in any case, with pressure or without pressure, things basically continue all the same," she said.

Contacted by the Globe, IndyMac said it was committed to fixing any problems.

"The last thing we want to do is have people living in the buildings we now own, freezing," said Grove Nichols, a company spokesman. "If it's our responsibility to provide heat to the building and to the occupant, then that's what we're going to do."

Mortgage companies say they are trying to make the best of a situation forced on them when the previous landlords defaulted on their loans. Most companies try to empty buildings quickly by paying tenants to leave, and evicting those who don't.

But legal aid attorneys can stall the process for months with procedural issues and counterclaims.

In late November, when the heat went off at Herrera's apartment, the company responded to one request for repairs with a note suggesting she should leave if she wasn't happy.

It also is common, according to legal aid attorneys, for companies to deliver a small amount of heating oil - 100 gallons, for example, into a tank that holds 250 gallons. When that runs out, the tenant must begin the entire process again.

Esme Caramello, a legal aid attorney with the WilmerHale Legal Services Center, who represents Herrera, said another client has lost heat four times this fall because the company did not provide sufficient oil. The mortgage company in that case, also IndyMac, has been operating under a court order to provide heat since mid-November.

The oil ran out on Dec. 6 and was not restored until Dec. 11, after Caramello returned to court. The heat went out again on Dec.16, and was not restored until Wednesday.

Once again, the tank was not filled. The oil is likely to run out around Christmas.

Heating is not the only problem. The walks outside Shareka Murdaugh's Roxbury apartment building have not been shoveled since the season's first snow. At more than nine months pregnant, Murdaugh can't do it.

All but one of the other tenants, a woman with a new baby, left after receiving $1,000 from New England Group, which represents the new landlord, GMAC Financial Services.

Murdaugh's reply to the offer: "Are you serious? Where do we have to go?"

The women say they started calling New England Group in early November to ask for heating oil.

On Nov. 30, the company arranged for the delivery of 100 gallons, they said. It lasted four days.

On Wednesday, after the intervention of City Life/La Vida Urbana, a tenant advocacy group, the company delivered another 100 gallons. But the radiator in Murdaugh's bedroom isn't working. She has covered her windows in plastic. Two space heaters are pointed at the bed. She uses them so continuously that one of the extension cords melted.

Michael Abbott of New England Group denied responsibility for heating the building.

He referred calls to a law firm, which referred calls to GMAC, which said there had been some miscommunication.

"We will go ahead and immediately take care of these things," said Stephen Dupont, a spokesman for GMAC. "We do everything we can to make sure that we're living up to our obligations."

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Binyamin Appelbaum can be reached at bappelbaum@globe.com.

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"Looking ahead: Recession or not, economists glum about 2008"
By Robert Gavin, (Boston) Globe Staff, December 23, 2007

Some economists predict the US economy will slide into recession next year. Others expect the nation to avoid recession, if only barely. A few even think the economy will see solid growth. But for many middle- and lower-income families, the distinction won't matter.

Whether called a recession or not, the economy seems certain to slow in 2008, pushing unemployment higher and hundreds of thousands of people out of work. Surging energy costs, falling housing prices, and tightening credit will punish consumers, most analysts agree, putting the brakes on spending and undermining the six-year expansion.

"We are in the danger zone," said Nariman Behravesh, chief economist at Global Insight, a Waltham forecasting firm. "It wouldn't take very much to push the economy over the edge."

The outlook is the gloomiest in years, particularly for the first half of 2008. Global Insight, for example, projects the economy will barely grow at all in the first six months, expanding at an annual rate of just over 1 percent. Many economists expect the unemployment rate, now at 4.7 percent, to climb above 5 percent, with each tenth-point increase representing 150,000 jobless workers.

Additionally, the housing market's slide is expected to continue. Home sales could hit bottom by mid-2008, some economists predict, but prices will fall at least into early 2009. And oil prices should re treat from near-record levels but stay high, keeping the pressure on low- and moderate-income families.

Despite this, most economists expect the nation to skirt a recession - roughly defined as two consecutive quarters of negative economic growth. Keeping the economy afloat: employers and exports.

US companies are expected to keep hiring next year as stronger global demand requires them to add to their workforces, still lean in the aftermath of the 2001 recession. Hiring, however, will be cautious and at rates insufficient to keep the unemployment rate from rising as new workers enter the labor force.

Strong exports, aided by a weak dollar that makes American goods cheaper in foreign markets, should also lend support until lower interest rates spark faster growth in the second half of the year.

The Federal Reserve has cut interest rates three times since September, lowering its benchmark rate to 4.25 percent. Economists expect the Fed to keep cutting, dropping the rate to as low as 3 percent by mid-year, which would be the lowest since May 2005. That should help the economy because lower interest rates encourage consumer and business spending by lowering borrowing costs.

Massachusetts, too, is likely to skirt a recession, but growth here, as in the United States, will slow substantially. The state's sluggish job growth, expanding at just over 1 percent in 2007, is projected to be cut in half next year, according to a forecast by the New England Economic Partnership, a nonprofit research group.

The US economy will be most vulnerable in the first half 2008, when growth is so slow that even a mild shock, such as another surge in oil prices, could push it into recession. By mid-2008, Diane Swonk, chief economist of Mesirow Financial, a Chicago investment firm, said the impact of lower interest rates should filter through the economy, and boost growth to an annual rate of nearly 3 percent by year end. But such growth rates, while solid, only tell part of the story, said Swonk.

Economic activity, benefits, and losses are spread unevenly through the economy, she said, and aggregate statistics are masking hard times. The housing sector, for example, is already in recession, and states like Florida, Nevada, and California with large construction and home building sectors, are following the industry. Michigan and Ohio, battered by a shrinking auto industry, have slipped into recession, too.

Wealthy households are bearing up fine, spending at a solid clip, Swonk said. Middle- and lower-income families are struggling under the weight of soaring energy costs and sliding home equity.

"This is not a feel-good economy," Swonk said. "It may look good on paper, but for a lot of consumers it feels more like a recession than expansion."

How consumers hold up will be critical, since consumer spending accounts for about 70 percent of economic activity. So far, American shoppers have demonstrated a remarkable resilience, spending in the face of war, energy shocks, and housing collapses. But now, economists worry consumers are tiring under the weight of these problems, losing confidence, and curtailing spending.

At Boston's Faneuil Hall, Linda DeMarco, owner of the Boston Pretzel Bakery, has already noticed consumers pulling back. Customers who might have spent the extra $1.50 for an Asiago cheese pretzel now order plain, she said. Families, who might have bought pretzels for each member, are now splitting them.

So far this month, business has slipped 20 percent from a year ago.

"People are very cautious with their dollar," DeMarco said. "The uncertainty about the future is definitely on their minds. You can see them thinking about it."

Nouriel Roubini, economics professor at New York University, in New York, said consumers are retrenching. Now, he says, it's not a question of the economy falling into recession, but whether it will be mild or severe. Roubini's forecast: Severe.

Roubini predicts the recession will last through most of 2008, and employers will shed 1.6 million jobs. Housing starts, a key measure of the housing industry, will plunge another 25 percent. National home prices will tumble until the end of 2009, plunging 20 percent from the 2005 peak.

"The worst housing recession in US history is getting worse. You have a credit crunch. Oil prices are soaring. The corporate sector has stopped investing," Roubini said. "This recession will be deeper, more protracted and severe than the last recession and the one in the 1990s."

Roubini's view is among the most pessimistic. On the other hand, Rich Yamarone, director of economic research at Argus Research Corp. in New York, predicts the economy will chug along, expanding at a solid 2.7 percent rate next year. He expects consumers, supported by a healthy job market and low interest rates, to do what they've done for 63 consecutive quarters: Spend more.

The impact of falling home values on consumer psyches is overstated, he added.

"We seriously doubt," he said, "that there's a mom pushing a child down the aisle of a Wal-Mart in Sheboygan, Wis., saying 'The house is worth 4 percent less than it was last year, we're not buying any toys this year.' "

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"Bond insurers may be victims of recent crisis"
By Associated Press, December 27, 2007

NEW YORK - The biggest casualty of the crisis surrounding bond insurers may well be the insurers themselves.

Issuers and bond buyers alike may find it easier now to dispense with insurance, specialists say, given that the finances of industry players like ACA Capital and MBIA Inc. have come under strain.

"It may not be that important in today's market to get bond insurance," said R.J. Gallo, a portfolio manager at Federated Investment Management Co. who specializes in the municipal bond market. "People now realize that there are plenty more buyers for munis than was realized. The market is now broad and deep and even if issuers have to give a bit more, they will be able to get their capital."

The market creates funds for such vital projects as sewage treatment systems, library expansions, and dam construction. About $1.7 trillion worth of munis issued by more than 50,000 entities are currently held by investors, according to the Securities Industry and Financial Markets Association.

In general, bond issuers pay extra for insurance, but in better times the financial strength of the insurer allows the issuer to sell the bonds with lower interest rates.

Most bond insurers carried excellent ratings until recently, and these companies were able to pass those strong ratings to the local entities they insured. This gave instant credibility to obscure borrowers like local school districts and road-paving projects.

But recent disclosures about the insurers' strained finances and uncertain ratings prospects put the value of bond insurance in question.

Many cities, counties, and states have excellent track records of avoiding default and may conclude they don't need the extra backing - or the extra expense - of insurance, said John Flahive, director of fixed income for BNY Mellon Wealth Management.

On the other hand, nonprofit institutions like local museums and school districts with little history of issuing bonds are likely to end up paying higher premiums to investors. But they should be able to find investors for their bonds without insurance if they are willing to grant more attractive terms, according to John Nelson, a managing director in Moody Investors Service's public finance group.

Last week Standard & Poor's downgraded ACA, a relatively small bond insurer, to junk status, making it unlikely ACA will be able to insure any more bonds. Previously ACA held an investment grade "A" rating. And Fitch Ratings has put Ambac Financial Group Inc. and MBIA on warning that the insurers must raise fresh capital or face downgrades.

Only about half of muni issuances are insured and if more credibility problems surface, the proportion could fall further, analysts said. For instance, this week there is greater demand in the municipal market for uninsured bonds than insured debt, said BNY Mellon's Flahive.

"We existed a long time without municipal bond insurance, and we could continue to do so," Flahive said. He noted that local US governments and institutions have been issuing debt for centuries, but bond insurance only dates back to around the 1970s.

In addition, the need for bond insurance in the muni market also may be undermined by the sector's low default rate, which makes them superior to corporate debt in some investors' view.

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US home values fell 6.1 percent in October from a year earlier. In Boston, the decline was 3.6 percent year-to-year, and 0.8 percent in one month. (Associated Press)
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"Home prices falling faster than expected"
By Bloomberg News, December 27, 2007

WASHINGTON - Single-family home prices in 20 US metropolitan areas, including Boston, fell from September to October by the most in at least six years, raising the risk that more Americans will walk away from properties that are worth less than they owe.

And values fell a greater-than-forecast 6.1 percent from October 2006, the S&P/Case-Shiller home-price index showed yesterday.

Prices will continue falling as record foreclosures put even more homes on the market.

"You are likely to see more people giving up on their loans as they end up with little or no equity in their homes," said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York.

Compared with a month earlier, home prices dropped 1.4 percent. The figures aren't seasonally adjusted, so economists prefer to focus on the year-over-year change. The median forecast of 12 economists surveyed by Bloomberg News was for a 5.7 percent decline. The index fell 4.9 percent in the 12 months ended in September.

Seventeen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year decline in prices, led by 12 percent slumps in Miami and Tampa in Florida. Three cities, Charlotte, N.C., Seattle, and Portland, Ore., showed an increase. In the Boston area, prices were down 3.6 percent over one year.

All 20 areas covered showed a drop in prices compared with September.

"There is no silver lining" in the report, said David Blitzer, chairman of the index committee at Standard & Poor's. "If you look across the cities, more often than not, the bigger the run-up, the more it comes down. There is no clear sign of a bottom in these numbers."
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Robert Shiller, a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index.

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THE GLOBALIST QUIZ
World's five richest people
December 30, 2007

To rank among the five richest people on earth, you would have to amass a wealth of more than $50 billion. Because of the ups and downs of global stock prices, the names on that exclusive list and the precise figures for their net worth are always in flux. How many of the world’s five richest people currently hail from emerging market countries?

A. 0 B. 1 C. 2 D. 3

D. 3 is correct. Three of the five richest people on earth are from emerging market economies. Indian businessman Mukesh Ambani's fortune rapidly rose from $20.1 billion in March 2007 to $63.2 billion in October 2007, thanks to India's booming stock market.

Mexico's Carlos Slim, with a fortune of $62.3 billion, ties Bill Gates, the chairman of Microsoft, for second place. Slim has profited greatly from the privatization of Mexico's national phone company.

Rounding out the top five is another Indian, Lakshmi Mittal, the owner of the world's largest steel company, who is worth $50.9 billion.

As of October 2007, there are two Americans among the five richest people. Gates, who ties for second place, has a fortune of $62.3 billion. Investor Warren Buffet, founder of Berkshire Hathaway, is in fourth place, with $55.9 billion.

The Globalist Quiz is produced by The Globalist, a Washington-based research organization that promotes awareness of world affairs. © 2007 The Globalist, theglobalist.com.

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"Unemployment up, stoking recession fears"
By Jeannine Aversa, AP Economics Writer, January 4, 2008

WASHINGTON --Wary employers clamped down on hiring and pushed the unemployment rate to a two-year high of 5 percent in December, an ominous sign that the economy may slide into recession. President Bush explored a rescue package, including a tax cut, with his economic advisers.

Gripped by uncertainty, government and private employers last month added the fewest new jobs to their payrolls in more than four years. In fact, employment at private companies alone actually declined. The Labor Department's report, released Friday, provided evidence of an economy greatly strained by a housing slump and a credit crunch.

The disappointing employment figures sent Wall Street into a nosedive, thrust the White House into damage control and ratcheted up the blame game as Republicans and Democrats battle for the presidency. The employment numbers also sparked expectations that the Federal Reserve will have to lower interest rates again. As expected, the Fed took action to make cash more available to banks.

Bush said he is on top of the situation. "We can't take economic growth for granted," he said. "There are signs that will cause us to be ever more diligent and make sure that good policies come out of Washington."

The president said he wants to work with Congress "to deal with the economic realities of the moment and to assure the American people that we will do everything we can to make sure we remain a prosperous country."

With the odds of a recession increasing, Bush is weighing the need for an economic stimulation package. The president, who has been plagued by low public approval ratings for his handling of the economy, isn't expected to make any decisions until later this month. Tax cuts are under consideration, White House spokesman Tony Fratto said. "We've done tax cuts before and it's led to growth," he said.

The State of the Union address is Jan. 28 and Bush is likely to unveil his package then.

The civilian unemployment rate jumped from 4.7 percent in November to 5 percent in December, the highest since November 2005 after the Gulf Coast hurricanes dealt the country a mighty blow. Total payrolls -- both private employers and government -- grew by just 18,000 last month, the worst showing since August 2003, when the economy suffered job losses as it struggled to recover from the 2001 recession.

"This is a major warning shot that the economy is in trouble," said economist Joel Naroff, president of Naroff Economic Advisors.

On Wall Street, the stocks tumbled. The Dow Jones industrials were down more than 200 points in afternoon trading.

As part of its recently launched effort to make credit more readily available, the Federal Reserve announced that it will provide banks an additional $60 billion worth of loans through two auctions on Jan. 14 and Jan. 28. The Fed's first two auctions offered banks a total of $40 billion in loans.

The December employment picture was much weaker than economists were expecting.

Employers have grown cautious as they try to cope with fallout from housing and credit problems and rising uncertainty about how the economy will fare in the months ahead. Galloping energy prices and bad weather in some parts of the country also probably figured into the weak job figures.

Manufacturers, construction companies, financial services all cut jobs in December -- casualties of the housing slump. Retailers also sliced jobs.

The government added 31,000 jobs in December, while private employers actually cut payrolls by 13,000, underscoring the weakness.

"Businesses have turned super conservative. With slower economic growth, has come the pink slips," said economist Ken Mayland, president of ClearView Economics.

The unemployment rate for blacks jumped to 9 percent in December, a 15-month high. The jobless rate for Hispanic climbed to 6.3 percent, the highest in more than two years. For all of 2007, the economy added 1.33 million jobs and the unemployment rate averaged 4.6 percent, the same as in 2006. Employment growth averaged 111,000 a month in 2007, down from 189,000 a month in 2006.

Countered Sen. Charles Schumer, D-N.Y.: "If there were ever a shot across the bow to this administration to get off its laissez-faire boat and start helping the economy, this is it."

Fratto said the 5 percent jobless rate should be viewed in proper historical context, saying the figure still is relatively low despite the problems.

Rep. Barney Frank, D-Mass., said the employment figures "should be a wake-up call that a public policy response is needed to help the economy recover more quickly." Other Democrats, including presidential contender Sen. Hillary Clinton, pointed to the employment figures as evidence of what they called Bush's flawed economic stewardship.

The health of the nation's job market is critical in determining whether the economy will survive the stresses from housing and harder-to-get credit. The positive forces of job and wage growth have helped to cushion individuals from all the negative forces in the economy. The big worry is that people will clamp down on their spending and businesses will put a lid on investment and hiring, throwing the economy into a tailspin.

For all of 2007, wages increased 3.7 percent, down from a 4.3 percent gain in 2006. High energy prices, though, probably made some workers feel like their paychecks aren't stretching as far as they would like.

To fend off the possibility of a recession, the Federal Reserve cut a key interest rate three times last year. Policymakers are expected to lower rates again when they meet at the end of the month. Some analysts are predicting a bold half-point reduction in light of the weak employment report.

The big question, said Stephen Stanley, chief economist at RBS Greenwich Capital: "Has the economy hit a big pothole or careened into the ditch?"

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On the Net:

Employment report: www.bls.gov/

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"Voters admire, doubt Edwards' anti-corporate stance"
By Scott Malone, January 5, 2008

PORTSMOUTH, New Hampshire (Reuters) - When Democratic presidential contender John Edwards takes to the stump, he rails against the political clout of corporate America, promising to limit the power of big business in Washington.

Voters in New Hampshire, the next key battleground in the 2008 presidential election, say they like his ideas, even if they're not convinced he can achieve his goals.

"If you can believe what he says about cracking down on lobbyists, that would be a thing worth doing," said Richard Ward, 75, a Portsmouth, New Hampshire, retiree, who said he was leaning toward former Massachusetts Republican Gov. Mitt Romney, but also considering voting for Edwards in Tuesday's primary.

While conceding that the change would not be easy, Ward said: "With our political system, if you are strong and you are willing to push for it, I think it is achievable."

Other voters who turned out to hear Edwards' pitch wondered if the Democratic Party's 2004 vice presidential candidate's promises were realistic

.

"I'm not sure if he can really do all he says in terms of taking on corporations," said Jeff Hillier, 65, a retired educator from North Hampton, New Hampshire, who said he was considering voting for Edwards, but currently leaning toward Illinois Democratic Sen. Barack Obama.

"And I'm not sure it's all their fault," Hillier said. "There might be some middle ground."

Edwards, the son of a textile mill worker, regularly says that if elected in November, one of his top priorities would be to curtail the power of corporate lobbyists in Washington.

He blames them for the slow pace of health care reform in the United States. Edwards said he would ban campaign contributions from lobbyists and prohibit them from taking top government jobs.

"You cannot sit at a table and negotiate with these people. It won't work," Edwards, a former North Carolina senator, said in a Portsmouth campaign appearance on Friday. "They are in a position of power. They have spread their money around Washington for decades and I think it's a fantasy to think that you can negotiate with them.

"You can't be just nice to these people. It doesn't work," added Edwards, who finished a better-than-expected second in his party's Iowa caucus on Thursday and is in third place in New Hampshire, according to a Reuters/C-SPAN/Zogby poll released on Saturday.

The New Hampshire primaries will help decide who runs in November's election to succeed U.S. President George W. Bush.

Even if Edwards does not attain all of his goals, his supporters said they liked the idea of a president trying to take on corporations.

"He's very genuine and he has the people's best interests at heart," said Diane Robinson, a 59-year-old registered Democrat who, along with her 57-year-old husband Wayne, a registered Republican, plans to vote for Edwards.

"I think he's going to give it a good effort," Robinson said. "It would be good just to see somebody try."

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"The country needs a third party"
The North Adams Transcript - Letters
Thursday, January 10, 2008

To the Editor:

God forbid! Five Iranian motorboats recently threatened three U.S. warships entering the Persian Gulf. Weapons of mass destruction all over again.

"Dangerous, provocative and unduly aggressive" complained the Bushies. "We take this deadly seriously," said the commander of the U.S. 5th Fleet, which patrols the Gulf.

Did I miss something? Was that body of water re-named the American Gulf one night when I was asleep? Nothing would surprise me anymore. Can you picture our Coast Guard welcoming three foreign warships into the Gulf of Mexico with champagne, roses and chocolates? This war-mongering government just doesn't get it and never will. Why do we now have 800 military bases throughout the world?

I trust you are all enjoying the eternal campaigning. For presumably intelligent people, most of the Republican candidates, with the exception of Ron Paul, appear hopelessly stupid. They could be clones of Bush. At least the Democratic candidates appear to be thinkers — sensible and capable of seeing all sides, sadly even attacking Iran. Thankfully, not all of them leave this option open, and without a doubt any one of them would be far cry from a Bush.

If just once we could have an election where money and the media don't determine the winners, the world would be a better and safer place.

The words Republican and Democrat have lost all usefulness and credibility. Having a strong ethical and responsible third party with candidates like Biden, Richardson, Kuchinick, Gravel, Dodd, Bloomberg, Ron Paul, Nader, etc. on the ballot, would be a vast improvement over the mess the two parties have created.

What could this third party be called — The United Party — Restore America Party — Peace Party — Honesty and Common Sense Party — any name would be a refreshing change from the two worn-out ones we have now.

Norman Burdick
Williamstown
Jan. 8, 2008

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(Globe Staff Illustration by Anthony Schultz)
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"Whose side are they on?: Government efforts to stem foreclosures mean fewer chances for people priced out of the market"
By Binyamin Appelbaum, (Boston) Globe Staff, January 13, 2008

Some people are cheering for a plunge in local housing prices: Those who watched the market rocket skyward and waited patiently for the return trip, resisting the temptation to spend more than they could afford.

Linda Werbner and Mark Muzeroll sat out the boom in a small Lynn condominium. Now they're eyeing the housing market "longingly but cautiously," Linda said, hoping for "a slew of homes to be had for a song."

They'd like to buy a small Colonial where Mark, a piano teacher, can play a partita at 2 a.m.

In Boston and other hyper-expensive markets, the surge in foreclosures and the resulting drop in prices isn't bad for everyone. Government efforts to limit foreclosures have the effect of favoring people who want to stay in their homes over the people who want to move in next.

Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, said he's torn by concern for homeowners, but "our hope for home buyers is that the market softens somewhat.

"When a market has been as hot as it's been for the last while, your hope is for prices to come down," he said.

Prices in the Boston area more than doubled between 1995 and 2005, even adjusting for inflation. Lax lending standards played a big part. Sellers raised prices, and buyers easily borrowed the wanted money.

By 2005, the area's median housing price was $492,000. Under federal standards, such a home was affordable to families making at least $135,000 a year. The area's median family income: $82,600.

Many families chose to stretch, agreeing to monthly mortgage payments that consumed a larger share of income than the recommended 28 percent - often a much larger share. Many of them are now are facing foreclosure.

Werbner and Muzeroll chose not to stretch. Werbner is a social worker. Muzeroll teaches piano. In 2003, the couple paid $155,000 for a 750-square-foot condo, with comfortable monthly payments. They watched the housing boom lift Lynn. Abandoned industrial buildings became desirable residential lofts. Prices went up, up, and away. New residents came flooding in. Then they watched the market start to collapse. Desirable residential lofts became difficult to sell. Prices started plunging. Residents started leaving.

They began dreaming about buying a sin gle-family home this spring.

The opportunity is emotionally complicated for Werbner. If prices keep falling, their chances will improve. But prices are going down because other people are losing homes to foreclosure.

The mortgage companies resell those homes at discounts of 20 percent and more, driving down the prices of other similar properties.

"I feel guilty when I'm going through one of these websites and it says bank-owned property," Werbner said. "I know that there's a really sad story attached to that. It's like finding a wedding ring on the sidewalk."

It is not clear how many people benefit from the falling prices.

A Boston home purchased for a dollar in 1997, when the boom began, was worth $2.42 at the peak in 2005. As of October, it was worth $2.26. Forecasting firm Global Insight predicts it will still be worth about $2 when the market hits bottom in 2009. That will remain beyond the reach of many renters, or people hoping for a larger home.

Furthermore, falling housing prices have broader economic consequences. Homeowners spend less, so companies make less, so workers earn less. For those workers, less expensive homes aren't necessarily more affordable. The entire economy is moving downward. As a result, the renters aren't getting closer to homeownership.

And there's the issue of location. Falling prices don't change homes, but they do change neighborhoods. Some houses sit empty, while others are rented. People leave and communities dissolve. A home that sold for $300,000 may now be on the market for $200,000, but it could be worth even less if the neighborhood around it is collapsing.

Still, Callahan said attendance has been increasing at Massachusetts Affordable Housing Alliance classes for first-time buyers.

"I do think there's some renewed interest from people who may have been discouraged in the past," he said.

It's also not clear that the government can prevent prices from falling, even if it wanted to. A number of modest efforts are underway to help people keep their homes.

Lending companies will forgo scheduled increases in monthly payments on some loans. In other cases, they will reduce the payment. But there is no plan in place to forestall the majority of impending foreclosures.

Even if there was, prices would keep declining. Tightened lending standards have thinned the ranks of potential buyers, or limited how much they can spend. The number of homes already on the market is enough to satisfy almost a year of demand at the current level. A normal backlog is about six months.

Officials are talking about ways to reduce supply and increase demand: Cut interest rates to make loans cheaper; return money to taxpayers to stimulate spending; give money to borrowers who can't afford loans; and reduce monthly payments for more borrowers to help them keep their homes.

George Marshall, a Boston renter who wants to buy a home in the suburbs, doesn't favor any of those strategies. He has money saved for a down payment, but he's waiting for prices to drop a little more.

Marshall said he wants people to understand "how frustrating it is for people who are looking to buy a home to see their governor using their tax dollars against them."

Leave the market alone, Marshall said, so he can buy a home.

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Binyamin Appelbaum can be reached at bappelbaum@globe.com.

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Massachusetts Foreclosures
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"Thousands in Mass. foreclosed on in '07: 7,563 homes were seized, nearly 3 times the '06 rate"
By Binyamin Appelbaum, (Boston) Globe Staff, January 19, 2008

Mortgage companies foreclosed on 7,563 Massachusetts homes last year, almost nine times the number in 2005, when the housing boom peaked, and almost three times the number in 2006.

It was the most foreclosures in a year since the early 1990s, during the last protracted decline in housing prices. The figures are compiled by Warren Group, a publisher of real estate data and news.

Many housing analysts expect 2008 will be even worse. Housing prices are expected to fall through the year, driven in part by mortgage companies selling foreclosed homes at discounted prices. At the same time, thousands of Massachusetts borrowers face increased monthly mortgage payments as their interest rates jump sharply.

The lending industry is under mounting pressure to help borrowers avoid foreclosure, specifically by reducing the monthly payments on loans that borrowers cannot afford. Sheila Bair, who heads the Federal Deposit Insurance Corp., told a conference in New York Thursday that voluntary industry efforts are moving too slowly.

"We must see a pickup in the pace, and the sooner the better," she said. If not, she said, the government might need to "step in," though she did not specify a course of action. A growing chorus from all parts of the political spectrum favors spending public money to save homes, but that is an idea the Bush administration has resisted.

The lending industry has defended its efforts. The Mortgage Bankers Association reported Thursday that mortgage companies granted some leeway to 236,000 borrowers nationwide between July and September. Only 53,600 of those borrowers received a reduction in monthly payments. Most instead got a repayment plan: They must keep making their regular payments, but missed payments and penalty fees are deferred until the end of the loan.

A preliminary report released yesterday by the Hope Now Alliance, another industry group, said the number of loan modifications tripled in the last three months of the year.

"The number of borrowers being helped is accelerating rapidly," said Faith Schwartz, the group's executive director.

But housing advocates said it is not clear that the industry is helping borrowers avoid foreclosure. People who cannot afford their payments are not helped by deferring repayment of penalties and missed payments, and modification only works if the payment is reduced sufficiently. The Mortgage Bankers' report said 29 percent of foreclosure actions in the third quarter of 2007 were taken against borrowers who previously had received assistance.

"People are using the term modification very loosely and very broadly," said John Taylor, president of the National Community Reinvestment Coalition, which advocates for borrowers. "The real proof of the pudding is the foreclosure numbers, and there is no indication that's changing," he said.

The assistance offered to Massachusetts borrowers tracks the national pattern. The Mortgage Bankers Association reported that 917 Massachusetts borrowers between July and September received a reduction in loan payments, and 3,252 received a repayment plan.

But during that three-month period lenders initiated foreclosure proceedings against 7,467 Massachusetts homeowners, 29 percent of whom previously had received assistance from a lender.

Many foreclosure proceedings do not end in foreclosure - the seizure of the home and the eviction of the borrower. Many homeowners are able to resume making payments or reach a deal with the lender or find a buyer for the home. But the number of new filings against delinquent borrowers suggests a continuing increase in seized homes.

The Patrick administration announced several responses to the foreclosure crisis last summer, but so far the efforts have not had a significant impact on the problem. The most tangible plan created a fund to refinance subprime borrowers into fixed-rate loans, but most applicants haven't met the program's strict eligibility standards. Only four borrowers have been refinanced to date.

To expand access, the program in December dropped a requirement that applicants demonstrate they were the victim of a predatory loan. The state also sent letters to 12,500 homeowners in communities with high foreclosure rates, offering guidance to troubled borrowers.

"The high number of foreclosures in 2007 speaks to a continuing need for an urgent and comprehensive response from all who have a stake in keeping families in their homes and stabilizing our communities," an administration spokeswoman said. "More than ever, we look forward to working with lenders who share our common goal of sustaining homeownership and finding real solutions to this national problem."

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Binyamin Appelbaum can be reached at bappelbaum@globe.com.

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"Stocks plunge worldwide: Worries about a US recession send markets into turmoil"
By Mark Landler and Heather Timmons, New York Times News Service, January 22, 2008

FRANKFURT - Fears that the United States is in a recession reverberated around the world yesterday and early today, sending stock markets from Frankfurt to Mumbai into a tailspin and puncturing the hopes of many investors that Europe and Asia will be able to sidestep an American downturn.

The world's eyes have been trained nervously on the United States, which did not have market trading yesterday in observance of Martin Luther King Day. Investors reacted with what many analysts described as panic to the multiplying signs of weakness in the American economy.

Shares of banks led the decline in many countries, underscoring that the subprime crisis continues to hobble the global financial system. A big German state bank, WestLB, said it would report a loss of $1.4 billion in 2007 because of its exposure to deteriorating mortgage assets.

"There is indeed some panic," said Thomas Mayer, the chief European economist at Deutsche Bank in London. "What we're seeing, in Europe and Asia, is that the markets are pricing in a recession."

Yesterday's sell-off was evenly distributed from West to East, with indexes plunging in London, Paris, Frankfurt, Tokyo, Hong Kong, Seoul, and Mumbai. The Frankfurt Stock Exchange's DAX index plummeted 7.2 percent, its steepest one-day decline since the Sept. 11, 2001, terrorist attacks. The 7.4 percent drop in Mumbai's Sensex index was the second-worst single-day tumble in its history.

The troubles continued after the Asian markets opened this morning. Japan's Nikkei 225 index, the benchmark for the continent's biggest market, stumbled after the opening bell and continued falling, losing 752.89 points, or 5.65 percent, to 12,573.05 by closing. The loss, the index's biggest since Sept. 11, 2001, follows a loss of 3.9 percent yesterday. The turmoil was the same in Hong Kong, Australia, and China, with markets plunging another 5 to 8 percent.

In India, trading was halted for about an hour this morning as its benchmark index fell 9.5 percent.

Investors were scarcely comforted by President Bush's announcement on Friday of an economic stimulus package of as much as $145 billion. Bush's "shot in the arm," economists said, did not persuade the rest of the world that the United States will escape a recession, or that it will either.

The turmoil will put even more pressure on the European Central Bank, which has charted a different course from the US Federal Reserve by warning that it might raise interest rates to curb inflation, rather than cut them, as the Fed has, to ward off a recession. Mayer and others predict the bank will be forced into an about-face in coming months.

While Asia has been less buffeted by the credit crisis than Europe, the Bank of China now appears vulnerable, with analysts predicting it will have to write down the value of its American mortgage holdings.

Investors in Asia have been in a state of denial about a possible recession in the United States, said Adrian Mowat, JPMorgan's chief strategist in Asia. But now, he said, "there's no debate about it." The only question, he added is "how long and deep" a recession might be.

The angst about the United States belies the popular theory that Europe and Asia are not as dependent on the American economy as they once were, in part because they trade more with each other. The theory, known as decoupling, has been used to explain why economies like China and Germany have kept growing robustly, even as the United States has slowed.

"The market is not at all convinced about decoupling, and I think the market is probably right," Mayer said. "When you look at it more closely, we're suffering from the same issues."

The housing market, after a long boom, is cooling off in several countries, notably Britain, Spain, and Ireland. That will depress the growth rate in those countries, which are among Europe's economic pace-setters.

European banks continue to make unwelcome disclosures about write-downs of mortgage assets, even if the losses are not as dire as those reported by Citigroup or Merrill Lynch. Banks loans across Europe are being constrained, according to a recent survey by the European Central Bank.

Also yesterday, Commerzbank warned it would make additional write-downs in the fourth quarter of 2007. This caught analysts off guard, since Commerzbank has been fairly upbeat about its exposure. "The amounts are not so significant," said Simon Adamson, a banking analyst at CreditSights, an independent research firm in London. "It was more the way the market was caught by surprise."

Shares of Commerzbank fell 6.8 percent, Deutsche Bank fell 6.2 percent, Societe Generale of France 7.7 percent, BNP Paris 8 percent, and the ING Group of the Netherlands was off 8.2 percent.

But the damage extended to the shares of energy companies like BP and Royal Dutch Shell, which dropped on worries that a global economic slowdown would cramp the damage for oil and gas.

"The problem is more deeply rooted in anxiety about the global economy than it is in Germany," said Boris Boehm, an asset manager at Nordinvest in Hamburg. "People are really afraid. But it's a good thing because fear, along with action, gets the market to its proper level quickly."

No matter how many bridges, roads, and power plants China builds, or how many new cars India sells, a downturn in the United States will ripple across Asia's economies, specialists said.

"If the United States consumer quits buying things, it is going to hurt in Asia," said Deborah Schuller, an Asia regional credit officer for Moody's Investors Service. She said most rated corporations there would be able to withstand a nine-month recession in the United States, but if it were to stretch to 12 months or more, there could be some serious problems.

Worries about China are adding to Asia's uneasiness. Its private property market is in the midst of a shakeout, and scores of small developers have gone out of business. Chinese banks were hard hit yesterday, in part because they hold the bulk of Asia's exposure to subprime mortgages.

In Japan, stock markets fell to their lowest levels in more than two years on concerns that an American recession could be accompanied by a home-grown one. Investors were unnerved by data from the Japanese Finance Ministry, which said that growth was slowing in five of the Japan's economic regions. The Japanese economy has been weighed down by stagnant housing investment and a poor employment picture.

In Europe and Asia, there may be further shocks, as banks total the fallout from their investments in the American mortgage market.

"There's an old saying in the market that banks lead us into recession and banks lead us out," Boehm said.

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Material from the Associated Press was used in this report.

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"Fidelity: Couple needs $225,000 to cover health care in retirement"
By Eileen Alt Powell, AP Business Writer, March 5, 2008

NEW YORK --A couple retiring this year will need about $225,000 in savings to cover medical costs in retirement, according to a study released Wednesday by Boston-based Fidelity Investments.

The figure, calculated for a couple age 65, is up 4.7 percent from the $215,000 estimate for 2007, the financial services company said.

And it is similar to other projections for health care costs in retirement -- daunting figures given that longer life spans also are requiring workers to increase retirement nest eggs.

A separate study released last month by the Center for Retirement Research at Boston College estimated that an individual needs to go into retirement with some $102,000 earmarked just for health care coverage, while a couple needs about $206,000.

Given current levels of retirement savings, the center said, six in 10 older workers are "at risk" of being unable to maintain their standard of living in retirement.

The Fidelity study, which has been conducted annually since 2002, assumes workers do not have employer-sponsored retiree health care coverage. It includes expenses associated with Medicare premium payments as well as co-payments and deductibles, plus out-of-pocket prescription drug costs.

"With health care costs continuing to outpace wage increases and companies trimming retiree health benefits, financing health care has to be central to retirement planning," Brad Kimler, executive vice president of Fidelity's benefits consulting group, said in a statement accompanying the report.

Fidelity's first study in 2002 found that a couple needed $160,000 in savings to fund medical costs in retirement, and that total has risen an average of 5.8 percent a year.

The study blamed the rising health care costs this year on higher unit costs, for example the cost of a doctor's visit; higher utilization rates for health care services; rising costs associated with new technologies; and increased incidence of some chronic conditions, like diabetes.

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On the Net:

Fidelity Investments: www.fidelity.com

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Repossessions
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Tow truck operator Dana Williamson loaded a repossessed Ford Explorer in Peterborough, N.H., yesterday. (Globe Staff Photo / John Tlumacki)
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"Entering the repossession lane: Default rate soars on auto loans in pattern likened to mortgage crisis"
By Jenn Abelson, (Boston) Globe Staff, March 7, 2008

When lenders sent a tow truck to repossess his silver 2001 Lincoln LS last month, Myles Chilcot eagerly handed over the keys.

Last year, Chilcot, 21, bought the $15,000 car - a sweet ride with tinted windows and custom chrome rims, and a loan with $370 monthly payments that he could not afford on his $12 hourly wage at Home Depot. By the fall, facing mounting credit-card debt, student loans, and rent, he stopped paying the car bills.

"I ran around smiling for 20 minutes when they took the car away," Chilcot said. "It was a relief."

It is also an increasingly common story as more Americans, under growing economic pressure, are deciding to surrender their rides rather than the roofs over their heads: The rate of auto-loan defaults recently reached a 10-year high of 3.4 percent. And one local auction company saw repossessions nearly triple last month compared with a year ago.

As with the subprime-loan crisis that has caused waves of home foreclosures, trouble has been brewing with car loans for years. As the economy boomed, lenders made it easy for shoppers to buy cars they couldn't afford by stretching their loan payments to five or six years, which more than doubled the total of Americans' auto-loan balances over the past decade to $772 billion from $282 billion in 1998. As with home buyers, lenders relaxed standards for car buyers such as Chilcot, who had blemished credit and put no money down.

With oil prices skyrocketing and the economy in a downturn, consumers are looking to downsize to cheaper, more fuel-efficient models, and reduce their payments. And many - even those with good credit and lower interest rates - are finding they can't afford to sell their vehicles because they have more left to pay off than their cars are worth. Lenders, meanwhile, are writing off billions of dollars in defaulted loans, and some analysts worry this could escalate to a foreclosure crisis on wheels.

"The suddenness with which we saw repossessions hit the market at the beginning of the year has been unusual and appears to reflect not only the general economic slowdown, but some spillover from the mortgage crisis," said Tom Kontos, chief economist at Adesa Inc., which runs 58 car auctions across North America. "With folks getting resets on adjustable-rate mortgages, it forces many people to decide whether to default on their home loan or default on their car loan. When they have that kind of choice, predictably, they gravitate toward defaulting on car loan."

Nationwide, repossessions are up about 15 percent so far this year, Kontos said. At North Shore Auto Auction in Ipswich, repossessions almost tripled in February to 125 vehicles, with gas-guzzling sport utility vehicles, pickup trucks, and vans being turned over more quickly than cars at a rate of two to one. As homeowners get squeezed by rising mortgage payments, contractors are also feeling the pinch as people cut back on home-improvement projects, leading to a glut of repossessed pickups, according to Frank Iovanella, president of North Shore Auto Auction.

For two years, Carole Beausoleil, 58, of Southbridge has been trying to get rid of a black pickup, a 2003 Chevy Silverado the family bought in 2004. Beausoleil says the family was pressured by the dealer into costly add-ons the members quickly regretted, such as LoJack and an extended warranty. These services added thousands to the $21,900 sticker price and pushed up the monthly car bill to $465.

Beausoleil fell behind on payments in 2006 and debated allowing the lender to repossess the car. She reconsidered because she didn't want to ruin her credit and her husband needed the vehicle for work. Instead, they tried to downsize to a less expensive, more fuel-efficient model. But they have been unable to because they owe $13,000, and lenders told Beausoleil the truck's value has shrunk to $10,000.

"We got swindled and overpriced. It was a mistake, and now it's too late," Beausoleil said.

Beausoleil, who is trying to pay off other debts, including overdue credit card, gas, and electric bills, says she plans to use the anticipated federal tax rebate this spring to help make up the $3,000 difference so the family can finally get rid of the truck.

Lenders, meanwhile, are cracking down. GMAC Financial Services, the country's largest auto-finance operator, recently tightened its underwriting standards to authorize fewer subprime loans and also increased its collection force to work with customers who are late on auto payments. During the last two quarters of 2007, the riskiest subprime borrowers had interest rates of about 15 percent for their auto loans, while borrowers with top credit ratings carried car loans with 5.7 percent interest rates, according to J.D. Power and Associates' Power Information Network, a market research firm.

Jack Tracey, executive director of the National Automobile Finance Association, the trade group that represents subprime lenders, said, "The nonprime auto-financing industry is very important for the economy because it provides many economically disadvantaged consumers with the ability to own a car and have the ability to hold a job where they need to commute to work."

But the most recent data available from a member survey showed that delinquencies on subprime loans jumped to 11.6 percent, up from 6.8 percent.

"Just as in the subprime mortgage industry, car dealers have been giving consumers with less-than-prime credit ratings car loans with rates and payments they can't afford," said Yvonne Rosmarin, a consumer-protection lawyer in Arlington.

Some industry analysts do not expect the problems within the auto industry to reach the crisis level of the mortgage industry. Lenders can more quickly recover, in many cases, because vehicle repossessions can occur within 90 days after a loan is past due, while home foreclosures can take up to a year. Still, some lenders, like Eastern Bank, which have seen an increase in repossessions, are taking a hit at auction, getting at least 10 percent less than last year for larger vehicles.

That means the problems for consumers may not end when their repossessed cars are towed away. They still may owe money if the lender sells the car for less than the balance owed. Moreover, the repossession typically stays on consumers' credit reports for up to seven years.

Chilcot, who recently had his car repossessed, had initially intended to purchase an $8,000 Nissan Altima, but he couldn't get a loan to cover the vehicle because it had too many miles. He knew he had bad credit, so when a loan offer was approved instead for the $15,000 Lincoln, Chilcot seized on what he thought was a good deal - even though it came with a 18-percent interest rate.

Since his car was taken away, Chilcot has started walking to work at his new job - as a car salesman at a dealership in Plymouth.

When asked whether he tries to caution people against buying a car they can't afford based on his recent experience, Chilcot chuckled: "Not really. You become pretty shameless pretty quick when the paycheck comes."
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Jenn Abelson can be reached at abelson@globe.com.
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"College loans see subprime fallout: Options may shrink for some students"
By Peter Schworm, Boston Globe Staff, March 7, 2008

The fallout from the subprime mortgage crisis is sending shock waves through the college loan industry in New England, limiting options for some students seeking assistance for the fall semester.

Amid a deepening credit squeeze and cutbacks in federal loan subsidies, New Hampshire's nonprofit student-loan agency said this week that it will no longer offer private loans. The Massachusetts Educational Financing Authority, which lent money to 42,000 college students last year, has so far failed to secure any financing for its loans, as skittish investors shy away from taking on debt.

"The broader dislocation in the capital markets has definitely affected the student loan industry," said Tom Graf, executive director of MEFA, a nonprofit state organization. "Clearly there's a trend where [investors] are hesitant to enter the market, and it's a nationwide phenomenon."

Graf said the agency would need to raise about $500 million to meet expected loan demand, adding that he remained confident it would raise the money to finance "some portion, if not all, of the loans."

Financial aid specialists are urging families not to be overly concerned, saying that government-backed loans such as Stafford and PLUS should remain readily available at capped interest rates.

"There are at least 2,000 to 3,000 lenders out there, with roughly the same rates," said Seamus Harreys, dean of student financial services at Northeastern University. Stafford loans are capped at 6.8 percent, while PLUS loans for parents and graduate students are either 7.9 percent or 8.5 percent.

Still, higher-interest private loans, which have surged in popularity in the past few years, could become scarcer and more expensive, particularly for families with marginal credit histories. Sallie Mae, the country's largest student lender, has announced it will tighten eligibility for private loans.

With a growing number of students taking out loans to handle surging tuition, that could hinder some families' ability to pay fall tuition bills.

"It really means there are going to be slim pickings for private lenders," said Clantha McCurdy, vice chancellor for student financial assistance for the Massachusetts Board of Higher Education. "It's going to be a real problem for students who have maxed out their federal loans but still need additional funds to fill the gap."

Private loans accounted for 24 percent of all education loans last year, up from 6 percent a decade ago, according to the College Board's latest survey. Private borrowing among undergraduates increased by 12 percent, when adjusted for inflation.

At Northeastern, about 20 percent of students take out private loans, Harreys said.

"We're in somewhat of a wait-and-see mode across the industry," he said. "We don't want people to panic, but we've never seen this before. Most institutions are creating plan B's and plan C's" to steer students to alternative lenders, he added.

Justin Draeger, spokesman for the National Association of Student Financial Aid Administrators, said that while lenders are having a hard time attracting money, "we have not heard of any students to date who can't find a lender for a federal loan."

Financial aid officers at the University of Massachusetts at Boston, which steers its undergraduate students toward loans provided directly from the government, and at Bunker Hill Community College said they expect their students will be able to secure higher-interest federal loans.

But Rene Drouin, president of the New Hampshire Higher Education Assistance Foundation Network, said he worries that the 5,000 students who took private loans through the network will not be able to find replacements. The move in New Hampshire followed similar scalebacks by state agencies in Michigan and Pennsylvania.

Mark Kantrowitz, who publishes FinAid, a college finance website, said he expects only a small percentage of students to encounter difficulty borrowing money. But he added that the situation remains in flux.

"It's not at a crisis point, but it's definitely something that needs to be monitored closely," he said.

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"NH loan agency suspends some college loans"
The Boston Globe Online, March 6, 2008

CONCORD, N.H. --Thousands of students in New Hampshire's university system will have to look somewhere else for college loans after a major nonprofit suspended part of its loan program.

The New Hampshire Higher Education Loan Corp. said it can no longer offer alternative student loans because investors have been scared away by the subprime mortgage crisis and because of cuts Congress has made in federally guaranteed student loan programs.

The alternative loans often are a last resort for needy students who have reached the limits of thousands of dollars borrowed through other college loan programs, said Tara Payne, spokeswoman for the organization.

Payne said that last year, 6,160 university system students -- including 4,769 from New Hampshire -- took out alternative loans that averaged $7,956.

"That's $7,956 on top of other federal loan programs," she said.

The agency is among numerous municipalities, public agencies, hospitals and state student-loan agencies nationally that have had interest rates on their bonds pushed sharply higher in the so-called auction-rate securities market. Interest rates on auction-rate securities are reset periodically through auctions, some of which are failing to attract buyers.

Other affected borrowers in New Hampshire include Manchester-Boston Regional Airport, Elliot Hospital and the state's own Treasury Department.

Members of Congress from both parties are proposing a fix -- asking the U.S. Securities and Exchange Commission to temporarily let bond issuers buy back their own bonds in the auction-rate market without being subject to rules intended to prevent market manipulation.

Last month, Rep. Paul Hodes and 20 congressional colleagues urged the federal Treasury and Education departments to pump more money into college loan programs before the credit crisis spread further.

"We urge you to work without delay within your organizations and with appropriate federal financial institutions and overseers to address this problem before it significantly decreases access to higher education opportunities for students and their families," they wrote.

In January, the New Hampshire agency suspended a program to let student borrowers consolidate multiple alternative education loans into one. It said it will suspend its alternative loan program effective Tuesday so it can concentrate on other student loans.

"Some people have expressed that students should not be concerned about accessing funds," said the organization's president and CEO, Rene Drouin. "Tell that to the 4,769 New Hampshire residents who borrowed from our alternative loan program last year."

He said students still may have options for financing, but loans are likely to cost more and be harder to find.

Payne said the program could be restored if investors realize the loans are not the high-risk subprime mortgage loans that have caused turmoil in the market.

"These are very safe investments," she said.

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On the Net:

www.nhheaf.org

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"In one year, foreclosure rate tripled: Cities taking action in bid to prevent blight"
By Kathy McCabe, Boston Globe Staff, March 6, 2008

Benigna Alarcon hoped that reducing her mortgage payment by $700 per month would be enough to save her Chelsea home from foreclosure.

But she still can't afford the $1,971 payment. Now two months behind on payments, Alarcon said she must either sell her home or risk foreclosure.

"I don't want to lose my house," said Alarcon, 50, an immigrant from El Salvador who is the co-owner of a local restaurant. "I spent everything I had [saved] to buy it."

Alarcon's dilemma is shared by hundreds of local homeowners. Foreclosures tripled across the North region in 2007, rising to 1,040 last year from 361 in 2006, according to data prepared by The Warren Group, a Boston publisher of Banker and Tradesman, a real estate trade journal.

Hardest hit are cities such as Chelsea, Haverhill, and Lynn, where the foreclosure crisis threatens the stability of old neighborhoods. Foreclosures of two- and three-family homes soared 202 percent, to 353 homes in 2007 from 117 in 2006, the data show. Foreclosures of condominiums, the source of new housing growth in cities, increased 192 percent, to 216 units, from 74 the prior year. Foreclosures on single-family homes rose 177 percent, to 471, from 170 in 2006, according to the data.

Abandoned homes, many of them boarded up, have cast a long shadow over the urban housing market.

"It's tragic when you see it," said Mayor Edward J. Clancy Jr. of Lynn, remarking about the Highlands, one of Lynn's oldest and poorest neighborhoods. "People got into deals that looked too good to be true. . . And then they were left with nothing."

"It's a big, big worry," said Mayor James Fiorentini of Haverhill. "One blighted house can ruin a neighborhood."

The foreclosures have prompted communities to take a preemptive strike against blight. Peabody is enforcing an ordinance that requires property owners to keep up vacant properties. The city may also create a loan pool to assist buyers of foreclosed properties to improve them. "We want to work with them to get the properties revitalized," said Jean Delios, community development director in Peabody.

In Lynn, the city has boarded up eight abandoned houses. The city has put liens on the properties to recover the costs. "We don't have time to be chasing down mortgage companies," said Michael Donovan, the city's inspectional services director. "We can't have nuisance properties in our neighborhoods."

Haverhill plans to form a task force to monitor foreclosed properties, and help people at risk of losing their homes. "We're going to have a watch list," said Fiorentini, who said he got the task force idea after attending a US Conference of Mayors meeting in January. "We're going to make sure the people who are responsible for the properties keep them up."

A new online foreclosure registry, salemdeeds.com, contains information about the owners of foreclosed properties. The registry has also started to fax copies of foreclosure deeds to local officials, such as health inspectors, to alert them to a vacant property.

"We send it as soon as it's recorded," said John L. O'Brien, registrar of deeds for Southern Essex County. "We hope this helps communities get a better handle on this."

Foreclosures, which also tripled during the month of January across Massachusetts, are expected to continue at a high rate, further weakening the housing market, a specialist said.

"From what we've seen, they're going to be as high as they've ever been," said Tim Warren, chief executive of The Warren Group. "Unfortunately, because real estate prices have dropped, these distressed properties just aren't worth what they were."

The fallout has made it nearly impossible for struggling homeowners to take advantage of so-called "rescue loans." The government-backed loans aim to replace adjustable rate mortgages with fixed-rate loans. But homeowners often are too far behind on payments, or their property value has dropped too low to qualify.

The Home Saver Program, a $250 million loan pool made available by the state last July, has so far made only six loans, totaling $1.5 million, according to MassHousing, the state's affordable housing bank.

"When the program was being put together, the expectation was that a lot of people would be able to be helped," said Thomas Farmer, a spokesman for MassHousing. "But since then, it's become pretty clear that the [foreclosure] situation is even more dire than first thought."

And that leaves homeowners like Alarcon with little hope.

After renting an apartment in Chelsea for 16 years, Alarcon bought a house for about $330,000 four years ago. She used $35,000, her life savings, as a down payment. She received an adjustable rate mortgage from a local bank, but it was not considered a subprime loan.

The mortgage payment first was $2,000 per month. After two years, the interest rate adjusted, and the payment climbed to $2,300. It then adjusted again, hitting $2,700 last year, she said.

At the same time, business at her restaurant also declined, greatly reducing her salary, she said. She lives with her husband, who makes deliveries for the restaurant, and her sister, who cleans houses. Her 21-year-old son is unemployed, she said.

Together, the four of them do not earn enough to keep up with the payments, Alarcon said.

She sought counseling from Chelsea Restoration Corp., a nonprofit housing advocacy group. They worked with a local bank, which agreed to restructure the adjustable rate mortgage, reducing the monthly payment by about $700.

But with business down at the restaurant, Alarcon still can't afford the reduced payment. She's behind on gas and electricity bills, too. She sees little hope in reversing her misfortune. "I saved for 20 years to buy a house," Alarcon said, speaking in her native Spanish. "Now I have nothing."
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Matt Carroll and Katheleen Conti of the Globe staff contributed to this report. Kathy McCabe can be reached at kmccabe@globe.com.
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www.boston.com/news/local/articles/2008/03/06/in_one_year_foreclosure_rate_tripled/
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"Recession fears rise as firms slash jobs: US payrolls cut by more than 60,000"
By Robert Gavin, (Boston) Globe Staff, March 8, 2008

The US economy may have slid into a recession, and the risks are growing for a long and deep downturn, economists said.

The darkening assessment followed yesterday's Labor Department report that US employers cut more than 60,000 jobs last month, the biggest decline in nearly five years and the second consecutive month of job losses. Without government employment, the picture would have been worse. Private employers cut payrolls by 101,000 jobs in February, the third consecutive month they cut jobs.

The job market's deterioration comes as oil prices climbed this week to a record $105.47 a barrel. Meanwhile, the Mortgage Bankers Association reported a record number of American homes went into foreclosure the last three months of 2007, and the Federal Reserve said homeowner equity, battered by sliding home prices, fell to the lowest level since World War II. This all means a tighter squeeze on consumers, who are likely to pull back on spending, which drives about 70 percent of the US economy.

Stock prices, too, continued their slide. The Dow Jones industrial average shed 146.70 points yesterday, closing at 11,893.69, the lowest since October 2006.

"It's a very toxic mixture," said Nigel Gault, chief US economist at Global Insight, a Waltham forecasting firm. "Things are go ing to get worse in the immediate future."

President Bush, reacting to the unexpected job losses, yesterday acknowledged economic activity has slowed. But he said the recently approved package to stimulate the economy, primarily through tax rebate checks to most Americans, will provide a "booster shot." In addition, aggressive interest rate cuts by the Federal Reserve will provide a further lift.

Economists expect the Fed to cut rates again, perhaps by three-quarters of a point, when policy makers meet March 18. The Fed has already cut the benchmark rate by 2.25 points since September, to 3 percent, the lowest level in nearly three years. Many economists forecast that the rate, which influences just about every other borrowing rate, will fall to 2 percent or lower before the Fed is done cutting.

Lower interest rates aim to stimulate the economy by reducing borrowing costs, which encourage businesses and consumers to borrow and spend. But the impact of rate cuts has been blunted by the so-called credit crunch as banks, many sustaining huge losses from rising defaults in risky mortgages known as subprime, have become reluctant to lend.

"The rate cuts are setting the stage for better times later, but they can't deal with the credit crunch going on," said Allen Sinai, chief economist at Decision Economics Inc., a Boston financial market advisory firm. "We are in a very dangerous situation that the downturn won't be mild and short, but long and deep."

A recession is defined as several consecutive months of broadly declining economic activity. As a result, it won't become clear whether the country is in a recession until several months after it has started. Many economists say the recent stream of bad economic news makes it almost certain the United States is in a recession. It may have started in December.

Yesterday's employment report represents the strongest evidence of a recession yet, economists said.

Job losses were broad, spread across construction, manufacturing, financial services, retail, and professional and business services. The unemployment rate slipped to 4.8 percent from 4.9 percent, but the decline was driven by a shrinking labor force, a sign that workers are becoming discouraged and no longer looking for work.

The Labor Department only counts people as unemployed and in the labor force if they actively look for work.

The deteriorating job market is particularly worrisome because historically job loss is the main reason homeowners end up in foreclosure, economists said. If job losses accelerate, it could send record-high foreclosures even higher, sparking a cycle in which foreclosures weaken the economy, leading to more job losses, which lead to more foreclosures.

"The difference between a slow growing economy and recessions is you descend into self-reinforcing negative cycles in which these things feed upon themselves," said Mark Zandi, chief economist at Moody's Economy.com. "We seem to have slipped into this negative vortex."

Representative Barney Frank, Democrat of Newton and chairman of the House Financial Services Committee, said the recent job losses show the federal government must move aggressively to stem the foreclosure crisis.

"If we do not act promptly and effectively, as the very disappointing employment numbers indicate, we will face a slowdown that is far worse than appeared six weeks ago," he said in a statement.

Not all economists believe a recession is here. Rich Yamarone, director of economic research at Argus Research Corp. in New York, said the dip in the unemployment rate and an increase in credit card borrowing reported yesterday by the Fed, show the job market and consumers still have some staying power.

"Not all the economic data suggest a recession," Yamarone said. But, he conceded, "That's getting harder to defend."
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Robert Gavin can be reached at rgavin@globe.com.
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"Surging costs of groceries hit home: Bread, eggs, milk prices up sharply"
By Robert Gavin, Boston Globe Staff, March 9, 2008

American families, already pinched by soaring energy costs, are taking another big hit to household budgets as food prices increase at the fastest rate since 1990.

After nearly two decades of low food inflation, prices for staples such as bread, milk, eggs, and flour are rising sharply, surging in the past year at double-digit rates, according to the Labor Department. Milk prices, for example, increased 26 percent over the year. Egg prices jumped 40 percent.

Escalating food costs could present a greater problem than soaring oil prices for the national economy because the average household spends three times as much for food as for gasoline. Food accounts for about 13 percent of household spending compared with about 4 percent for gas.

Rising food prices can be particularly corrosive to consumer confidence because people are so frequently exposed to the cost increases. "It's the biggest risk we face economically, and it might be the thing that does us in," said Rich Yamarone, director of economic research at Argus Research Corp. in New York. "There's nothing really worse than having a job, making money, and forking most of it over just so you can have the same amount of food. You're running in place, and it really weighs on you."

As with energy, higher food costs cut into discretionary income that buys everything from cars to computers to movie tickets and drives the consumer-based US economy. Falling home values and a faltering stock market have battered consumer confidence, spurring a retrenchment in spending that is contributing to recent job losses and pulling the economy toward recession.

Many analysts expect consumers to keep paying more for food. Wholesale food prices, an indicator of where supermarket prices are headed, rose last month at the fastest rate since 2003, with egg prices jumping 60 percent from a year ago, pasta products 30 percent, and fruits and vegetables 20 percent, according to the Labor Department.

"No retailer can absorb cost increases indefinitely," said Laura Sen, president of BJ's Wholesale Club, the Natick chain of discount warehouse stores. "Given what we are seeing, all retail channels need to raise prices, and from our observations, are doing so."

Amy Brnger, 43, of Portsmouth, N.H., just needs to look at her grocery receipts. For a long time, feeding her family of three used to cost around $125 a week. Suddenly this winter, her bill leaped to about $200.

Quickly, Brnger, a school counselor and mother of a 9-year-old daughter, looked for ways to save. She buys fewer organic products, which can cost twice as much as conventional goods. Instead of buying chicken breasts, she buys whole chickens and cuts them into parts, saving about $2 a pound. She buys dried beans, instead of canned. And she is baking her own bread.

"I can't believe a loaf of bread is like $4," she said. "I'm just being a lot more conscious of buying things."

Several factors contribute to higher food prices, analysts say, but none more than record prices for oil, which last week closed above $105 a barrel. Oil is not only driving up production and transportation costs, but also adding to demand for corn and soybeans, used to make alternative fuels such as ethanol and biodiesel.

As a result, corn prices have more than doubled in commodity markets over two years, and soybeans nearly tripled, according to DTN, a commodities analysis firm in Omaha. Meanwhile, with poor harvests in major wheat-producing regions, wheat prices have more than tripled.

These crops have a profound impact on food prices because they form foundations for many products, including oils, sweeteners, and flour. Corn, for example, is a key ingredient in livestock feed. When the price of corn rises, so does the price of feed, and ultimately, so do the prices of meat, poultry, and eggs.

Darin Newsom, senior analyst at DTN, said the same dynamics pushing oil prices to new highs are at work in agricultural commodities. They start with strong global demand, growing as living standards improve in developing nations such as China and India and food consumption increases.

The weak US dollar, at or near historic lows against the euro and other currencies, adds more pressure. Oil and other commodities trade in dollars, so when the dollar is worth less, producers demand higher prices to make up for the loss in value. This pressure raises inflation fears, which in turn make commodities attractive to investors, who view them as holding value during inflationary periods. As investors buy, demand grows and commodity prices go even higher.

This combination of a weak dollar, soaring energy prices, and global demand recalls the 1970s, when retail food prices rose an average of nearly 9 percent a year, said Bill Lapp, president of Advanced Economic Solutions, an Omaha research firm. Over the past year, Lapp said, food prices rose nearly 5 percent, more than double the average rate of the previous 10 years. Prices will rise even faster the next five years, he forecasts, increasing at an annual rate of 7.5 percent.

"Much as we saw in the '70s," he said, "these sharp increases are going to be sustained."

The US Department of Agriculture forecasts overall food prices this year will rise about 4 percent, about half Lapp's forecast, but still faster than recent years.

Anthony Conti, executive vice president at Agar Supply Inc., a Taunton food distributor, said there is little doubt consumers will continue to pay more. "Every day we get notices from manufacturers that prices are going up," he said.

Agar sells to supermarkets, restaurants, and other outlets, and it is paying some of the highest prices ever, Conti said. Cheese prices have doubled from a year ago, and beef prices have risen more than 50 percent. On top of these costs, Agar is paying about $3.70 a gallon for diesel - more than $1 above last year's prices - for a truck fleet that travels about 4 million miles per year.

It all adds up to even higher prices in grocery aisles and restaurants as costs get passed down the supply chain. Barb Phillips of Medway, for example, said the price on a case of formula for her 7-month-old son recently jumped from $32 to $38. Phillips, a loan processor who earns less than $40,000 a year, said she has stopped buying snacks and fresh produce for herself because prices are too high and stretches her meat purchases by making soups and stews.

"Everything just keeps going up," said Phillips, 41. "It's all really grim."
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Robert Gavin can be reached at rgavin@globe.com.
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"Frank renews call to regulate financial markets"
March 20, 2008, 11:06 AM

Representative Barney Frank, chairman of the House Financial Services Committee, said the excesses of the subprime mortgage crisis will result in a new era of regulation, similar to those that broke the monopolistic trusts of the early 20th century and restored the financial system following the Great Depression.

Frank, addressing the Greater Boston Chamber of Commerce, said most problem mortgages, which have led to record foreclosures and infected financial markets where mortgage-backed securities are traded, emerged from lightly regulated or unregulated sectors of the financial system, such as mortgage brokers and investment banks. Commercial and savings banks, subject to much stricter oversight, didn't write the risky loans to people unable to pay them back, Frank said.

"We now see a situation that more damage was done by inadequate regulation," Frank said. "What we have is a systemic problem, and that's what we want to address. Sensible regulation is pro-market because it can instill confidence."

Frank, noting Congress must first address the immediate threat of rising home foreclosure, said he expects to take up legislation next year to put in place new regulations, such requiring investment bank to operate under rules similar to commercial banks. Investment banks buy mortgage loans, bundle them into mortgage-backed securities and buy and sell them for profit.

This system, which relieves lenders of the risk and responsibility of collecting loans, has broken the "discipline of the lender-borrower relationship," and which regulation ultimately must restore, Frank said. In other words, he said, "You don't make loans if you don't think people will pay you back."
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(By Robert Gavin, Globe staff)
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"The sting of poverty: What bees and dented cars can teach about what it means to be poor - and the flaws of economics"
The Boston Sunday Globe, By Drake Bennett, March 30, 2008

IMAGINE GETTING A bee sting; then imagine getting six more. You are now in a position to think about what it means to be poor, according to Charles Karelis, a philosopher and former president of Colgate University.

In the community of people dedicated to analyzing poverty, one of the sharpest debates is over why some poor people act in ways that ensure their continued indigence. Compared with the middle class or the wealthy, the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.

To an economist, this is irrational behavior. It might make sense for a wealthy person to quit his job, or to eschew education or develop a costly drug habit. But a poor person, having little money, would seem to have the strongest incentive to subscribe to the Puritan work ethic, since each dollar earned would be worth more to him than to someone higher on the income scale. Social conservatives have tended to argue that poor people lack the smarts or willpower to make the right choices. Social liberals have countered by blaming racial prejudice and the crippling conditions of the ghetto for denying the poor any choice in their fate. Neoconservatives have argued that antipoverty programs themselves are to blame for essentially bribing people to stay poor.

Karelis, a professor at George Washington University, has a simpler but far more radical argument to make: traditional economics just doesn't apply to the poor. When we're poor, Karelis argues, our economic worldview is shaped by deprivation, and we see the world around us not in terms of goods to be consumed but as problems to be alleviated. This is where the bee stings come in: A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The more of a painful or undesirable thing one has (i.e. the poorer one is) the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems.

Poverty and wealth, by this logic, don't just fall along a continuum the way hot and cold or short and tall do. They are instead fundamentally different experiences, each working on the human psyche in its own way. At some point between the two, people stop thinking in terms of goods and start thinking in terms of problems, and that shift has enormous consequences. Perhaps because economists, by and large, are well-off, he suggests, they've failed to see the shift at all.

If Karelis is right, antipoverty initiatives championed all along the ideological spectrum are unlikely to work - from work requirements, time-limited benefits, and marriage and drug counseling to overhauling inner-city education and replacing ghettos with commercially vibrant mixed-income neighborhoods. It also means, Karelis argues, that at one level economists and poverty experts will have to reconsider scarcity, one of the most basic ideas in economics.

"It's Econ 101 that's to blame," Karelis says. "It's created this tired, phony debate about what causes poverty."

In challenging decades of poverty research, Karelis draws on some economic data and some sociological research. But, more than that, he makes his case as a philosopher, arguing by analogy and induction. This approach means that he remains relatively unknown, even among poverty researchers. The book in which he laid out his argument, "The Persistence of Poverty: Why the Economics of the Well-Off Can't Help the Poor," wasn't widely read when it was published last year.

A few, though, have taken notice, and are arguing that Karelis does have something important to say.

"There's not much evidence in the book, and there are a lot of bold claims, but it's great that he's making them," says Tyler Cowen, an economics professor at George Mason University. It "was a really great book, and it was totally neglected."

The economist's term for the idea Karelis takes issue with is the law of diminishing marginal utility. In brief, it means the more we have of something, the less any additional unit of that thing means to us. It undergirds, among other things, how the US government taxes people. We assume that taking $40,000 in taxes from Warren Buffett will be a lot less onerous to him than to an elementary school teacher, because he has so much more to begin with.

In many cases, Karelis says, diminishing marginal utility certainly does apply: Our seventh ice cream cone will no doubt be less pleasurable than our first. But the logic flips when we are dealing with privation rather than plenty. To understand why, he argues, we need only think about how we all deal with certain familiar situations.

If, for example, our car has several dents on it, and then we get one more, we're far less likely to get that one fixed than if the car was pristine before. If we have a sink full of dishes, the prospect of washing a few of them is much more daunting than if there are only a few in the sink to begin with. Karelis's name for goods that reduce or salve these sort of burdens is "relievers."

Karelis argues that being poor is defined by having to deal with a multitude of problems: One doesn't have enough money to pay rent or car insurance or credit card bills or day care or sometimes even food. Even if one works hard enough to pay off half of those costs, some fairly imposing ones still remain, which creates a large disincentive to bestir oneself to work at all.

"The core of the problem has not been self-discipline or a lack of opportunity," Karelis says. "My argument is that the cause of poverty has been poverty."

The upshot of this for policy makers, Karelis believes, is that they don't need to fret so much about the fragility of the work ethic among the poor. In recent decades, experts and policy makers all along the ideological spectrum have worried that the more aid the government gives the poor, the less likely they are to work to provide for themselves. David Ellwood, an economist and the dean of Harvard's John F. Kennedy School of Government, has called this "the helping conundrum." It was this concern that drove the Clinton administration's welfare reform efforts.

But, according to Karelis, that argument is exactly backward. Reducing the number of economic hardships that the poor have to deal with actually make them more, not less, likely to work, just as repairing most of the dents on a car makes the owner more likely to fix the last couple on his own. Simply giving the poor money with no strings attached, rather than using it, as federal and state governments do now, to try to encourage specific behaviors - food stamps to make sure money doesn't get spent on drugs or non-necessities, education grants to encourage schooling, time limits on benefits to encourage recipients to look for work - would be just as effective, and with far less bureaucracy. (One federal measure Karelis particularly likes is the Earned Income Tax Credit, which, by subsidizing work, helps strengthen the "reliever" effect he identifies.)

Few economists are familiar with Karelis's work, and when it's presented to them, they tend to be skeptical of its explanatory power. If Karelis is right, we should see even more defeatist behavior than we do from the poor, says Kevin Lang, chairman of the Boston University economics department and author of "Poverty and Discrimination." Plus, he argues, there's little evidence that simply making poor people less poor increases their work ethic - and some evidence that it does the opposite. In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work.

Karelis responds that the data from that experiment is in fact quite ambiguous, and there has been debate among economists over how to interpret the results. But ultimately, he believes, the strength of his arguments is less in how they fit with the economic work that's been done to date on poverty - much of which he is suspicious of anyway - but in how familiar they feel to all of us, rich or poor.

"The bee sting argument, or the car dent one," he says, "I've never had anybody say that that isn't true."
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Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.
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3/31/2008

I read the news article, below, about one of many causations of poverty. I could not disagree more with the author's thesis that the economic law of diminishing marginal utility is not the newly found cause of poverty, but rather poverty is the cause of poverty. The reason for my dissent is that the real cause of poverty is the Corporate Elite's economic control over the system, meaning the federal government, that does nothing more than "regulate the poor" in order to keep the rich wealthy and the poor anxious.

The economic law of diminishing marginal utility was used by the federal government in the mid-1990's to "reform" welfare by placing legal time constraints on social or entitlement programs. All welfare "reform" really did was save the federal government billions of dollars on entitlement programs granted to the states in the name of prodding poor people to work multiple $8 per hour jobs to set a good example for their children on how they would be "regulated" in the near future when they grew up to adulthood. Instead of the federal government "regulating the poor" through social entitlement programs, now the system is placing the proverbial single mother into multiple low-wage jobs. (Since, the Bush II Administration passed three consecutive tax cuts that benefit the Corporate Elite or wealthy).

Poverty is NOT the cause of poverty! Poor people are unable and/or unwilling to work. If they are unwilling to work because at the end of the day they are still poor then they are irrational because they are better off to manage their debts than to go bankrupt. If they are unable to work because of poor market conditions, McCarthyismesque (or "Luciforo-esque") political blacklists, disabilities, and the like, then the cause of one's poverty is external.

In Dissent,
Jonathan Melle

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(A Boston) GLOBE EDITORIAL
"Not so well after welfare"
April 6, 2008

THE GOAL of welfare reform wasn't to slash social spending to the bone, but to equip poor families to become self-sufficient. The rolls would shrink, the idea went, as recipients of cash assistance joined the labor force. States would then reinvest the savings in the toughest cases - such as those parents who needed extensive training and child care help to succeed at work. So what happened to all the money?

In Massachusetts, welfare caseloads plunged, from 103,000 in 1995 to 45,000 in February. But there hasn't been a dramatic reinvestment. Instead, from 1995 to 2007, total spending on low-income families fell by $588 million in real dollars to about $1.4 billion, according to a report released Tuesday by the Massachusetts Budget and Policy Center and the Home for Little Wanderers, a nonprofit human service agency in Boston.

Sadly, the spending decline isn't the result of upward mobility among former welfare families. Massachusetts instituted welfare reform in 1995. Federal reform followed in 1996. Nationwide, the percentage of people living below the poverty line fell from 14.5 percent in 1994 to 12.3 percent in 2006. But the new report says that the Massachusetts rate has held steady at about 10 percent.

And even when families climb above the federal poverty rate, a paltry $17,600 for a family of three, they don't get very far. In Massachusetts, the rate of individuals living at or below 200 percent of poverty has "hovered around 25 percent between 1995 and 2007," according to the report.

And the federal poverty standard understates the problem in Massachusetts, where heat and housing are unusually pricey. In Boston, for example, a family of three with a preschool and a school-age child needs an income of more than $58,000 a year to cover basic expenses independently, according to the Crittenton Women's Union, a local nonprofit.

It's time to "begin a new conversation" about how to help poor people move into the middle class, argues Noah Berger, the executive director of the budget center.

Universal healthcare is one good step. And the state can make long-term plans and short-term investments in child care and training. The state's Department of Early Education and Care has invested in full-day preschool programs that support working families year-round. Massachusetts must also help more adults gain advanced skills needed for jobs in healthcare, information technology, and other industries.

Cutting welfare caseloads isn't enough. A state investment in families who are stuck earning minimal wages could help the entire economy prosper.

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U.S. Treasury Secretary Henry Paulson, left, meets with Chinese Finance Minister Xie Xuren in Beijing.
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"Paulson says Chinese companies ’biggest threat’ to further economic reform"

By Associated Press, April 3, 2008, www.bostonherald.com, Asia Pacific

BEIJING - Influential Chinese companies that want to avoid competition are the biggest threat to more economic reform in China, U.S. Treasury Secretary Henry Paulson said Thursday.

Paulson’s comment echoed complaints by foreign investors that Beijing is trying to shield its companies by raising barriers to investment in insurance and other industries and hampering the foreign acquisition of Chinese corporations.

"I think the biggest threat to more reform in China is the strong domestic industry that doesn’t want competition," Paulson told reporters as he wrapped up a two-day visit.

The secretary lobbied Chinese leaders earlier to open state-dominated financial markets wider to foreign competition and cut tariffs on imports of environmental technology.

The American and European chambers of commerce accuse Beijing of violating free-trade commitments by blocking access to banking and other financial industries to shield Chinese companies. The government insists it is abiding by its agreements but says it wants to create national economic champions in oil, banking and other industries.

Beijing still welcomes foreign investment, and the total rose 38.3 percent in February from a year ago to $6.9 billion, according to the government. But investors complain that acquiring an existing company in China is more difficult than it has been in at least five years, due partly to opposition from Chinese competitors.

On Wednesday, Paulson said the U.S. credit crisis might be making Chinese leaders hesitant about further financial reform. He said Thursday they were closely studying the impact on Wall Street but said he did not want to speculate about how they might react.

Paulson was in Beijing to prepare for a June meeting of a U.S.-Chinese high-level dialogue meant to address tensions over China’s soaring trade surplus and defuse demands by American critics for punitive action.

In a speech earlier Thursday at a government think tank, he called for closer cooperation on energy conservation and for Beijing to cut import duties on environmental technology.

Washington and Beijing agreed in December to cooperate over the next 10 years on climate change, energy security, promoting sustainable use of natural resources and other environmental issues. The United States and China are the world’s top two oil consumers.

"U.S. and Chinese institutions need to manage the new demands of energy and environmental issues in innovative ways," Paulson said.

Paulson met with Premier Wen Jiabao, who affirmed Beijing’s commitment to the U.S.-Chinese Strategic Economic dialogue.

"It can not only enhance out mutual trust but solve problems and difficulties in our economic and trade ties," Wen said. "The mechanism can also set the long-term direction for our economic cooperation and design the details, and therefore it’s of great importance."

On Wednesday, Paulson met Chinese President Hu Jintao and Wang Qishan, Beijing’s new point man on trade ties with Washington. Paulson calls Wang, a former star Chinese banker, a friend and says their relationship should help smooth the transition in the dialogue following the retirement of his predecessor, Vice Premier Wu Yi.

In the speech Thursday, Paulson said Beijing had to liberalize financial markets for the good of its own people.

"A deep and more efficient financial sector will help Chinese households earn a higher return on their investments and thus achieve their financial goals," he said.

Referring to China’s efforts to curb inflation by freezing retail prices of gasoline and diesel, Paulson warned that the United States ran into problems in the 1970s with price caps that led to heating oil shortages and rationing.

"China, by setting price controls on fuel, is facing similar consequences today" with widespread shortages, he said. "And because market forces can never be completely eliminated, price controls often lead to smuggling and corruption."

Paulson said China could benefit from importing technology to improve energy efficiency, reduce greenhouse gas emissions and supply cleaner water. But he said that is hindered by high tariffs and other import barriers.

"A high priority should be given to eliminating tariffs and non-tariff barriers on products, goods and services that can improve the health and welfare of the Chinese people," he said.

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"'Soft money' battle brewing: Millions raised; attack ads set"
By Scott Helman, (Boston) Globe Staff, April 6, 2008

Four years ago, wealthy Republicans bankrolled two influential, loosely regulated political organizations that helped President Bush win reelection with TV ads invoking the 2001 terrorist attacks and maligning the Vietnam War record of Democratic nominee John F. Kerry.

Now, some of the same GOP donors and operatives are planning a similar independent group to help the party hold onto the White House this fall, according to Republicans familiar with the discussions.

The organization is one of several independent groups aligned with both Democrats and Republicans that are busy arming for the general election, in a year that could see record activity by such outside entities. They are plotting strategy, crafting ad campaigns, and raising millions in "soft money" - largely unrestricted contributions from wealthy individuals, corporations, and labor unions.

The new GOP group is still in embryonic form, Republicans strategists say, but it is being led by operatives who ran the 2004 Republican group Progress for America, and will probably be funded at least partly by "alumni" of the Swift Boat Veterans for Truth, the group that used TV ads four years ago to challenge Kerry's well-documented heroism in Vietnam.

One Republican strategist familiar with the plans said Republicans expect Senator Barack Obama, who leads rival Hillary Clinton in the Democratic race, to be their opponent and have begun assembling material to turn voters against him.

"They're beginning to put the book together on Obama," said the strategist, who discussed the effort on condition of anonymity.

Campaign finance rules limit individual donations to candidates to $2,300 per person, per election, and the candidates must publicly disclose their contributors. But loopholes in the law allow independent groups to operate more freely, permitting unlimited donations to the 527 organizations, named for a section of the tax code, and to 501(c)4 entities, tax-exempt nonprofits that can engage in some political activity if their primary mission is "social welfare."

It is too early to get a complete picture of third-party spending planned for 2008, in part because many of the groups keep their intentions and activity cloaked from public view. But in a presidential race that is already breaking fund-raising records, 527s, nonprofit organizations, and unions appear poised to spend at least $500 million combined to help swing the election to the candidates they favor, according to analysts and news accounts.

Early indications suggest a greater level of activity this cycle than in 2004, when independent spending - led on the right by the Swift Boat group and Progress for America, and on the left by organizations called America Coming Together and the Media Fund - was a major force. Four years ago, 527 groups raised $424 million, according to the Campaign Finance Institute, a nonpartisan organization affiliated with George Washington University that studies money in politics.

Such 527 groups raised $13 million more in 2007 than they did in 2003, the last off-year before a presidential race, the institute found in an analysis it released Thursday. "Soft-money groups in the 2008 election are off to a strong start," the analysis said.

Election law prohibits 527 groups from coordinating their activities with a candidate's presidential campaign or expressly advocating a candidate's victory or defeat. But critics of the soft-money loophole say it is easy for third-party organizations to evade these restrictions and still have great sway on Election Day.

A host of organizations are active on the Democratic side, which have historically raised more money than their Republican counterparts. One of the biggest Democratic groups this cycle is the Fund for America, which formed last year to funnel money to progressive causes. Funders of the group, which is expected to raise $100 million, include left-leaning financier George Soros and the Service Employees International Union, each of whom have contributed at least $2.5 million.

Late last year, the Fund for America gave $1 million to the Campaign to Defend America, a 501(c)4 nonprofit organization registered in Washington, D.C., that ran a TV ad in Pennsylvania last month seeking to link Senator John McCain, the presumptive Republican nominee, to the policies of President Bush, such as "tax cuts for millionaires."

"We need a new direction, not the 'McSame' old thing," the ad's narrator says.

Other active Democratic organizations include the Campaign for America's Future, a non-profit that calls itself the "strategy center for the progressive movement"; MoveOn.org, the liberal activist group that reportedly plans to spend $30 million this year; and Patriot Majority for a Stronger America, a 501(c)4 that is an offshoot of a 527 that ran ads to help Governor Deval Patrick of Massachusetts win election in 2006. The latter group launched a new website, patriotmajoritytoday.com, to attack Bush and McCain on military readiness and other issues, and its leaders say they may run TV ads.

"We've had policies for the last seven years that have weakened America," said Craig Varoga, president of the Patriot Majority group. "We will all be poor patriots if we don't talk about that, but also about ways to fix it."

On the Republican side, strategists say that the offspring of Progress for America, whatever form it takes, will probably be a major player. In 2004, the group raised $45 million to help Bush and attack Kerry, according to the Center for Responsive Politics, which tracks campaign finance activity. It ran a powerful TV ad called "Ashley's Story," which showed Bush embracing Ashley Faulkner, the teenage daughter of a woman killed in the Sept. 11, 2001, terrorist attacks, at an event in Ohio.

Progress for America was run by executives of a Washington-based consulting firm called DCI Group, which has close ties to Karl Rove, Bush's longtime political strategist. The chairman and founding partner of DCI Group, Tom Synhorst, is helping lead the new third-party effort this year, according to GOP strategists familiar with the plans. Synhorst was not available for interviews last week, a company spokesman said.

One of Progress for America's biggest donors was T. Boone Pickens, a Texas oilman who gave it $2.5 million and who also gave $3 million to the Swift Boat group. Pickens will be part of the new effort, the strategists said. He did not return a call seeking comment.

Another big donor to Progress for America was A. Jerrold Perenchio, the former chairman of Univision, an influential Spanish-language broadcast network, and a leading fund-raiser for McCain. Perenchio, who gave $4 million to Progress for America, does not give interviews, his office said.

Another new conservative group active this year is Freedom's Watch, a nonprofit created to be a Republican answer to MoveOn.org. It reportedly aims to raise as much as $250 million, though some Republicans say there is growing skepticism in the party about whether the group will be as influential as many had hoped.

"We plan to have a strong presence this year advocating for issues that conservatives care about," said spokesman Jake Suski.

Part of what's driving Republicans' interest in independent groups this year is the tremendous fund-raising advantage the Democratic presidential candidates have. Obama and Clinton raised nearly as much in March as McCain had overall through February.

"There's a spreading fear of what that might mean in November," said Jan Baran, a leading Republican election lawyer in Washington.

Groups aligned with both parties are mindful of the six-figure fines the Federal Election Commission slapped on Progress for America and America Coming Together for violating, during the 2004 cycle, the rules against helping specific candidates win elections. At the same time, analysts note that the FEC, because of a congressional fight over appointments to its six-member panel, is largely toothless with just two commissioners.

"You've got a completely emasculated FEC going into what's going to be a mega-year in terms of money," said Philip A. Musser, a Republican strategist in Washington.

The leaders of organizations planning major investments in the general election season say that they feel compelled to charge ahead despite not knowing the Democratic nominee. Even though Obama and Clinton would run different races in the fall, activists say, the stakes are too high to wait for clarity.

"It is really important for people to get active even now, and that's one of the reasons we wanted to get the Fund for America going," said Anna Burger, secretary-treasurer of the SEIU. "Waiting until the Democratic primary [ends] is too late."
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Scott Helman can be reached at shelman@globe.com.
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THE GLOBALIST QUIZ
"Comparing public pensions"
April 6, 2008

As populations everywhere age, it is becoming more costly to run generous public retirement systems. Which of these member countries of the Organization for Economic Cooperation and Development promises the average worker the most generous public pension benefits?

A. United Kingdom
B. Switzerland
C. Spain
D. Turkey

D. Turkey is correct.

Turkey is one of several OECD members that provide pensions so generous that retirees receive more income than they earned as workers. A Turkish worker with average earnings receives 104 percent of his wages in pension benefits. In Greece, the figure is 110 percent, and in Hungary, 102 percent. The Netherlands comes close, with pensions replacing 95 percent or more of earnings.

These pension systems are bound to become an enormous burden on the national economies as the population ages, both because benefits are so costly and because they make early departure from the labor force attractive.

In the United Kingdom, persons with average earnings can expect to receive benefits equal to only about 40 percent of their pay. The OECD average pension is equal to 70 percent of average lifetime earnings. In Switzerland, the figure is 64 percent, and in Spain it is 85 percent.

The Globalist Quiz is produced by The Globalist, a Washington- based research organization that promotes awareness of world affairs. © 2008 The Globalist, theglobalist.com.

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"Study: Middle-class Americans increasingly downbeat about their short-term economic progress"
By Hope Yen, AP, April 9, 2008

WASHINGTON (AP) -- Growing numbers of middle-class Americans say they aren't better off than they were five years ago, reflecting economic pressures amid growing debt, a study released Wednesday shows. Their short-term assessment of personal progress, according to the study, is the worst it's been in nearly half a century.

The survey by the Pew Research Center, a Washington-based research organization, paints a mixed picture for the 53 percent of adults in the country who define themselves as "middle class," with household incomes ranging from below $40,000 to more than $100,000.

It found that a majority of Americans said they haven't progressed in the last five years. One in four, or 25 percent, said their economic situation had not improved, while 31 percent said they had fallen backward. Those numbers together are the highest since the survey question was first asked in 1964. Among the middle class, 54 percent said they had made no progress (26 percent) or fallen back (28 percent).

Middle-class prosperity also lagged compared with richer Americans. From 1983 to 2004, the median net worth of upper-income families -- defined as households with annual incomes above 150 percent of the median -- grew by 123 percent, while the median net worth of middle-income families rose by just 29 percent.

At the same time, most middle-class people remained upbeat when asked to measure their progress over a longer timeframe, although their level of optimism lagged behind their richer counterparts. Two-thirds, or 67 percent, of middle-class Americans say their standard of living is better than the one their parents had at the age they are now.

In contrast, 80 percent of richer people said they exceeded their parents' standard of living. Among the lower class, only 49 percent reported better conditions.

"It's been a lousy run for the American economy and people feel it," said Paul Taylor, director of Pew's Social & Demographic Trends project and lead author of the study. He noted that people's pessimism largely tracks annual median household income, which has seen little gain in recent years. Middle-class people also may be disproportionately feeling the pinch because they tend to borrow more heavily against their homes to support their lifestyles, Taylor said.

"Still, over a span of a generation, it's been a pretty good run, even as there are some recent pressures that I think people are feeling," he said.

The Pew poll involved telephone interviews with 2,413 adults, conducted from Jan. 24 to Feb. 19. The margin of sampling error was 3 percentage points.

Among the other findings:

--Nearly eight in 10 of all people, or 79 percent, said they believe it has become more difficult compared with five years ago for the middle class to maintain their standard of living, up from 65 percent in 1986.

--Among the middle class, no consensus existed on who was to blame for their economic problems. Twenty-six percent blamed the government, while 15 percent faulted the price of oil and 11 percent said the people themselves were responsible. Others faulted foreign competition and private corporations for economic woes.

--Some demographic groups have improved their income status between 1970 and 2006, while others saw declines. Among the winners were seniors ages 65 and older, blacks, native-born Hispanics and married adults. Losers included young adults (ages 18 to 29), the unmarried, foreign-born Hispanics and people with a high-school education or less.

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On the Net:

Pew Research Center: www.pewsocialtrends.org

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"Pending home sales hit new nadir"
By Associated Press, April 9, 2008

WASHINGTON - Homeowners and investors hunting for any indication the housing market has bottomed out didn't get it yesterday, as the latest data from a real estate trade group moved that sign further down the road to recovery.

The National Association of Realtors said pending US home sales fell in February to the lowest reading since the index began in 2001. The trade group's seasonally adjusted index of pending sales for existing homes fell to 84.6 from January's upwardly revised reading of 86.2. A year earlier, the index stood at 107.6.

Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.3.

A reading of 100 is equal to the average level of sales when the index started. The previous low was August's reading of 85.8, recorded at the height of the credit crunch.

With house prices falling and credit continuing to tighten, many economists say the housing market is likely to worsen in the coming months, though some remain hopeful about a recovery in the second half of the year.

"The question was whether things were starting to stabilize," said Global Insight economist Patrick Newport. "Apparently they're not." Newport predicts home sales will fall by another 5 to 10 percent before picking up at the end of the year, while the Realtors group forecasts sales will remain flat in the first half of the year before rebounding in the second half.

The Realtors report gives an early indication of how existing home sales are likely to fare for March, because of the typical lag of a month or two between when a buyer signs a home sales contract and the closing of the deal.

Moody's Economy.com forecasts sales of existing homes will fall 1.6 percent in March to an annual rate of 4.95 million units, down from 5.03 million units in February. That month's 2.9 percent increase in home sales was the first increase since last July.

"Despite recent steps to provide more liquidity to the mortgage market and ease financing constraints for potential buyers, access to credit remains restricted, especially for marginal buyers," Aaron Smith, senior economist at Economy.com, wrote. If job losses prove worse than expected as the economy slows, "the floor forming under home sales could begin to cave in."

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"Little guy pays for Wall St. mess"
The Berkshire Eagle - Letters
Sunday, April 20, 2008

We have been notified a few times recently that our term deposits (IRAs CDs) were maturing. The first thing you notice is the new interest rate is a lot less than what we were getting. Who to blame? The subprime bailout? The Fed? Not on Greenspan's watch, he was a genius! Surely not the new guy who looks like a deer in the headlights at congressional hearings, he inherited it.

The Fed had the authority to stop lenders from granting mortgages to people who couldn't afford them. The lenders sold those to investors (see Bear Stearns) who apparently didn't grasp the risk. Where was the SEC? Where was the comptroller of the currency? Where was Congress? They all should hang their heads in shame!

The powers that be were bragging that a record 69.2 percent of Americans owned their own homes. Well they didn't, the Bear Stearns of the world did, and they couldn't afford them either. The candidates all have a solution, and they should, as they were part of the problem.

So who is paying? You guessed it, the little guy with a few bucks in the bank or a small investment for retirement. The next time you hear phrases like "deregulate" "free market" or "right to work" be suspicious, be very suspicious.

ROBERT D SPINNEY
Hinsdale, Massachusetts

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(A Boston) Globe Editorial, Short fuse, April 21, 2008

Legislating: Sleazy riders

Shame on the US Senate for loading up the Foreclosure Prevention Act with tax breaks for major businesses. Perhaps the senators could justify the rebates for homebuilders, and manufacturers such as Ford and General Motors, on the grounds that they have been hurt by the ailing economy, but these arguments ought to be made openly and not hidden in a bill intended to help struggling homeowners. The same conditions ought to be applied to another provision, which would provide tax breaks for producers of renewable energy. These kinds of insider games erode trust in Congress. The bill has been sent to the House, which ought to clean it up and focus on its prime objective.

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"An angry GE pensioner"
The Berkshire Eagle - Editorial
Tuesday, April 22, 2008

General Electric Company CEO Jeffrey Immelt has some explaining to do at tomorrow's annual meeting in Erie, Pennsylvania in the wake of a first-quarter earnings report that rattled the stocks of shareholders, including many GE retirees in Pittsfield and Berkshire County. Unless Mr. Immelt has suddenly become incompetent, GE's difficulties suggest that the company is not immune to the economic realities that plague other companies, no matter what shareholders and top executives believe.

Mr. Immelt, who sold off GE's profitable Pittsfield-based plastics division because it didn't reach the 10 percent profit margin he insists upon, will try to explain the company's stunning 6 percent first-quarter decline in profits. That doesn't happen at GE, as Mr. Immelt was reminded when his predecessor, Jack Welch, went on CNBC to announce he would "get a gun and shoot" Mr. Immelt should he fail to live up to expectations again. Mr. Welch's attack must have stunned corporate headquarters in Connecticut, where Mr. Welch is an iconic figure seen as above criticism and so revered that when the multi-millionaire retired, the generous company agreed to pick up his laundry bills, wine tab and restaurant checks. (Mr. Welch grudgingly abandoned those perks when the press uncovered them.)

Perhaps Mr. Welch's long-term business strategy was unsound, or maybe Mr. Immelt isn't the golden boy Mr. Welch claimed he was. It could be that GE's struggling financial services business, heavily invested in real estate as it is, was hurt in the same way many other Wall Street enterprises have been hurt this year, shaking the entire company to its roots.

If GE is now "just another good company" as a Sterne Agee analyst said last week, that should be more than enough to satisfy realistic investors, as opposed to those who drank the Welch's Kool-Aid of never-ending mega-profits. "Tell them you're going to grow 12 percent and deliver 12 percent," growled Mr. Welch, the angry pensioner, to his successor via CNBC. Those were the days.

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"Conspiracy against American people"
The Berkshire Eagle - Letters
Tuesday, April 22, 2008

We live in the age of conspiratorial capitalism. The Federal Reserve, the investment bankers, the highest echelons of corporate America and the most powerful members of the federal government are all in it up to their eyeballs in a collusive scam that views the American people as a bunch of adversaries and patsies. How do they lie to us? Let me count the ways.

Goldman Sachs, along with the other investment banks, sell predatory loans to investors around the world while the bank itself goes short on the very same low-class loans. This all occurs under the leadership of Henry Paulson. His reward is an invitation through the revolving door to become secretary of the Treasury. The other banks, not as trade savvy as Goldman, get stuck with mountains of the worthless paper they created. Their reward is an unprecedented bailout by the Federal Reserve. Their CEOs are quietly retired with obscene pay packages while their shareholders and victims are left to go down in flames.

The powers that be extol the virtues of free markets when in truth their fingerprints are all over the houses that trade equities, bonds, currencies and precious metals. They carry out their agenda in the paper derivative markets on a daily basis. The stock market must be supported, as its demise at the same time as the housing debacle continues, would be fatal. The long-term bond market is allowed to drop a little in order that the spread between short and long-term rates widens enough to allow the banks, which exist on the spread, to build up some of the capital they lost. But they can't let the bond market plunge because that would increase mortgage rates and intensify the real estate crisis.

They publish a phony Consumer Price Index each month which shows inflation under control when, in the real world, it is going through the roof. Food prices are up 89 percent in the last three years which has led to food riots all over the globe. Oil has quadrupled. So, unless you're one of those unfortunate people who has to eat, drive a car or heat your home, the fraudulent "core" CPI should present you with no problems. That's the CPI the government uses to screw you out of your cost of living increase you legally deserve to receive in your Social Security checks.

The Federal Reserve is increasing the money supply at a 20 percent clip. Increasing the money supply is what causes inflation.

Perhaps the worst lie comes from the financial press. Every economic report and earnings announcement is given the kind of spin one would expect from a public relations firm on behalf of its client. Citibank only lost $5 billion last quarter and still has $60 billion of nearly worthless paper on its books — but that's better than we thought. So the over-the-counter derivative weapons of mass destruction problem must be nearly over.

Finally, none of the three candidates for president has had the guts to tell the country that it is essentially broke. Nor do they have the slightest idea about how to fix the problem. Instead, they tell the American people what they want to hear in order to get elected. Never mind the unfunded liabilities of $56 trillion in entitlement programs waiting in the wings.

The people got shafted in 2000, got what they deserved in 2004 and are living in a fantasy world in 2008. At least, someone should tell them the truth so they can take evasive measures and protect their financial well being. The inflation being produced at this very moment by the central banks of the world will make what we've experienced thus far seem like a walk in the park.

CHARLES STEINHACKER
Sheffield, Massachusetts

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"Your new best friend in the credit crisis: Consumer crusader Elizabeth Warren wants lenders to stop cheating you - and she has a way to get them to behave."
Interview by Donna Rosato, Money Magazine senior writer
May 28, 2008

(Money Magazine) -- Your credit-card terms are usurious; your mortgage contract disguises the real cost of your home; and you need a magnifying glass to catch all the fees in your auto loan. As a result, you may be paying thousands more than you should for these products, says Harvard Law professor Elizabeth Warren.

She's long made it her job to shine a light on the worst practices of the financial services industry - before Congress, on the blog CreditSlips.org and in her bestseller, "The Two-Income Trap."

Now she's calling for a new watchdog agency to oversee financial products. And with support from at least one presidential contender, the idea is gaining some traction.

Question: You are proposing a Financial Product Safety Commission to protect consumers. How would it work?

Answer: It would function much like the Consumer Product Safety Commission, which protects buyers of goods. It would review contracts for things like mortgages, credit cards and insurance, making sure they're easily understood and modifying or eliminating terms that are dangerous. And it would promote effective, uniform disclosure to make it easier to compare products.

Q. Why do you think it's necessary?

A. Twenty-five years ago, financial products were strictly screened to make sure borrowers could repay and there was no such thing as double-cycle billing or $49 late fees. Today someone engaging in an ordinary transaction faces an unreadable contract and risks that are nearly impossible to assess. It's like sticking your hand down a dark hole and hoping nothing bites you.

Q. But if I didn't get seduced by a too-good-to-be-true mortgage and I pay my credit card in full, why should I care?

A. Some of what goes on is very sophisticated - you may not even realize you're paying more on your mortgage than you have to. Also, you can say, "Don't be a victim," but it's the government's job to keep predators in check.

Q. Hillary Clinton has put your idea on her agenda. But what happens if a Republican is elected?

A. At some point the demand will be loud enough that politicians will ignore it at their peril. Remember, Nixon was President when the CPSC was created.

Q. Until your idea is a reality, what can we do to protect ourselves?

A. Treat all financial products as dangerous until proved otherwise. Do not carry credit-card debt - none, never, no matter what - because credit-card contracts in particular are loaded with tricks and traps. And because unnecessary debt like that can make your family vulnerable to other bumps in the road.

I can't promise that a Financial Product Safety Commission will stop people from over-spending on credit cards, but it will help make sure your card isn't misusing you.

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"Facing up to your financial future: Many young adults clueless about money"
Pilar Conci, Columbia News Service
Thursday, June 12, 2008

Alicia Antonio, 17, a senior at Grover Cleveland High School, in Queens, N.Y., will start college at Saint John's University next fall. She says she had a hard time figuring out how to apply for financial aid and to find the resources to finance her education.

"They don't prepare you for that in high school," she said. "We take an economics class, but every senior needs to take it for the credit. No one really pays attention, because it's your last year and they only speak about the economy in the past."

College-bound students like Antonio are sending alarming signals about their ability to manage money and make the right choices for their futures.

Princess Wynn, 17, a senior at St. Jean Baptiste High School, in Manhattan, also doesn't know much about student loans or how they work.

Her parents can't help her cover all of the tuition, so she might have to apply for financial aid.

She is also thinking of getting a credit card when she turns 18. But she says she is worried she might get in trouble with it. "I like to spend," she said. "I like to buy sneakers."

Antonio and Wynn are not uncommon among people her age, consumers on the verge of adulthood who don't know a lot about the financial challenges they will soon face.

A new study suggests that fewer students are prepared to confront the difficult decisions that may lay ahead. More than half of college-bound students lack basic skills in the management of personal finance, according to the recently released JumpStart Coalition's biennial survey for Personal Financial Literacy.

At a time when the United States is, by many estimates, on the verge of a recession, the study suggests that young adults entering the world of financial independence are sending alarming signals.

"People of all income levels are having to adapt to the changes that are being made," said Dr. Lewis Mandell, professor of Finance and Managerial Economics at SUNY Buffalo, referring to the downturn of the economy.

Mandell, who conducted the study, explained that in the short run, students will have more difficulty finding jobs and maintaining their standards of living. In the long run, he continued, the crisis will pass, but some things will be different. Most important, energy and consumer prices are going to be higher.

"People who understand finances better are anticipating the changes and already making changes to their lives in a way that's going to cost them the smaller amount of disruption," he said. "People who are not financially literate don't pay attention and react at the wrong time." He added, "It's going to have an immense impact on their lives."

The study posed questions to almost 7,000 high school seniors in 40 states. According to the results, on average the students answered correctly 48.3 percent of the questions, a decrease from the senior class of 2006, which answered 52.4 percent correctly.

The study showed that most high school seniors don't know what are the best choices for them regarding banking, saving and investing, skills they may need the most considering the uncertainties about the future.

"These are the skills that people need for survival," said Dr. Mandell. "We lost the ability to teach people life skills."

Mandell likens the scenario to someone who lacked agricultural skills in America 200 years ago, when they would be vital to survival. "Now those skills are no longer agricultural or manufactural, but they involve really sophisticated decision-making, in particular in finance," he said

In one of the multiple choice questions, students were asked which was the best way to put away money for a period of 18 years. Only 17 percent gave the correct answer: stocks. About 5 percent answered a checking account, 37 percent said a U.S.government savings bond and 41 percent said a savings account.

Only 40 percent knew that they would lose their health insurance if their parents became unemployed. And only 48 percent knew that a credit card holder who pays only the minimum amount on monthly card balances will pay more in annual finance charges than somebody who pays their balance in full.

For the first time, the survey, which was funded by the Merrill Lynch Foundation, was also given to about 1,000 college students. Their performance wasn't much better. These students answered on average 62 percent of the questions correctly. Their scores increased with their rank in school. For example, freshmen scored 59 percent, while seniors got 65 percent of the answers right.

Vanessa King, of the Bronx, N.Y., is concerned about sending her 17-year-old daughter to college in the fall.

"She's afraid" of getting in trouble with money, "and I am concerned about her money management," King said. "I'm concerned about credit cards. I'm glad she's going to be close to home, at St. John's University."

Among other findings, only 36 percent of the students know that a house financed with a fixed-rate mortgage is a good hedge against a sudden increase in inflation, compared with 45 percent of students who said they knew this in 2006.

Mandell explained that current economic conditions may have made it difficult for students to identify things that would be true in normal times. For example, stock prices tend to go up, and buying a house with a fixed-rate mortgage is considered one of the best investments against inflation.

Laura Levine, executive director of the Jumpstart Coalition, says the group she leads advocates for financial education to be integrated into schools. She said young people should learn about savings and investments, risk management and insurance, credit and debit, in a comprehensive way.

"We are not trying to teach kids to memorize facts, what we want to teach them is how to solve problems," she said.
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E-mail: mc2931@columbia.edu
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KAREY WUTKOWSKI, The Boston Globe Online Newspaper
"New SEC disclosure rules could help investors by letting in more sunshine"
By Karey Wutkowski, June 25, 2008

Securities regulators are planning to issue a blueprint to revamp disclosure requirements for public companies, mutual funds, brokers, and other regulated entities.

The Securities and Exchange Commission yesterday said it will conduct a study labeled the "21st Century Disclosure Initiative." It will consider how to use new technology to deliver information and how to create disclosure forms that are easier for investors to understand.

The study will lay the groundwork for future SEC rules on disclosure, one of the cornerstones of the investor protection agency's mission.

"Sunlight remains the best disinfectant for problems in our capital markets," the SEC's chairman, Christopher Cox, said in a prepared statement.

"We'll be examining how to improve the way disclosure works, including tapping the full potential of today's technology and integrating it seamlessly into our regulatory approach."

Cox said the outcome could be fewer confusing forms and more useful information for investors.

The study will review all existing SEC forms and reporting requirements and will consider ways to get the best real-time distribution of financial numbers and management discussion to investors.

The blueprint will be ready by the end of the year, the SEC said. After that, an advisory committee will hold public meetings to help implement the recommendations.

The study will be led by former securities lawyer William Lutz, an emeritus professor at Rutgers University and a plain-English specialist.

During his time as chairman, Cox has been an advocate of plain-English reporting and of using technology to improve disclosure. Cox is a Republican appointed by President Bush, whose term expires in January. A new president typically replaces the heads of federal agencies.

The review will also look at how disclosure will change after the adoption of an interactive data format known as extensible business reporting language, or XBRL.

XBRL tags are like bar codes attached to each piece of financial data, allowing investors to easily find and compare key financial figures.

The SEC proposed rules last month that would made it mandatory for the largest public companies to start filing their financial results in XBRL in early 2009.

It proposed similar rules for mutual funds to report their risk and return information using the digital tags by the end of 2009.

An SEC advisory committee has been meeting since last year on ways to make the financial reporting system less complex and costly.

The group, chaired by Robert Pozen, the former vice chairman of Boston-based Fidelity Investments, has been studying how to reduce the number of restatements, make management discussions of financial results clearer, and simplify accounting.
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Karey Wutkowski is a Reuters reporter.
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"Markets Plummet as Oil Hits Record; New Automaker and Bank Fears: The Dow Falls 350 Points, Hitting Its Lowest Level Since September 2006"
By ALICE GOMSTYN, ABC NEWS Business Unit, June 26, 2008 —

Stocks plummeted today as oil hit a new record and signs of trouble from the financial, automotive and high-tech industries soured the mood on Wall Street.

The Dow Jones Industrial Average lost more than 350 points, falling to its lowest level since September 2006. It closed at 11,453.42, a loss of more than 3 percent. The Nasdaq and S&P 500 also had bad days: the Nasdaq closed down 3.3 percent -- nearly 80 points -- at 2,321.37 while the S&P 500 closed down 2.9 percent at 1,283.15 after a loss of nearly 39 points.

Among the factors driving the drop:

After investment bank Goldman Sachs downgraded General Motors to a "sell" rating, the share price for the struggling automaker and Dow component plummeted to its lowest level since 1955. Major GM suppliers also saw their shares plunge.

Goldman Sachs also urged investors to lower their expectations of the financial sector, cutting Citigroup to a "sell" rating. The bank saw its shares drop more than a dollar by the late afternoon.

Blackberry-maker Research In Motion issued first quarter earnings results and a second-quarter outlook that missed analyst's expectations. Meanwhile, Oracle, another major player in the tech sector, posted a strong showing in its fourth-quarter results but released a disappointing first-quarter outlook.

Oil prices surged into record territory today, boosted by a report predicting that gas prices will hit $7 a gallon in the United States within two years. The market didn't like the news.

After an intra-day high of $140, oil closed at $139.65 a barrel. The new price represents a more-than-$5 spike from yesterday's close and was caused in part by statements by OPEC's president that a barrel of oil could soon be trading for more than $150 and reports that Libya is weighing cutting its oil production.

Investors also grew wary that the Federal Reserve would not raise interest rates until late this year, leaving little hope that the dollar with strengthen. Oil is traded in dollars and part of the run-up in oil prices has been attributed to the weak dollar.

$7 a Gallon Gas?

But today's oil price surge may pale in comparison to what some economists are predicting will happen in the near future. American motorists may soon find more pain at the pump thanks to a $3 spike in gas prices by 2010, according to a new report by economists at CIBC World Markets.

Economists at the investment bank predict that motorists will see the price of gas rise to $7 per gallon within two years, a 75 percent increase.

CIBC Chief Economist Jeff Rubin contrasted the expected price surge with those that occurred during the 1970s and 1980s OPEC oil shocks.

"Back in '73 and '79 [to] '81, somebody turned off the spigot," Rubin told ABC News.

Today, he said, "the spigot is wide open the problem is not enough is running through it relative to world demand."

The CIBC report said that Saudi Arabia's pledged 200,000 barrels per day oil production increase and China's reduction of subsidies for domestic fuel prices will not do enough to hold oil prices in check.

The "basic laws of supply and demand" are "no longer operative in crude oil markets," the report said.

The run-up in prices will cause a dramatic change in American driving behavior, the report said. Rubin and co-author Benjamin Tal predicted that by 2012, there would be roughly 10 million fewer cars on U.S. roads than there are today.

Roughly half of those giving up their cars will be low-income Americans specifically, those earning less than $25,000 a year, according to the report who won't be able to afford to continue paying for gas but do have access to public transportation.

"This is going to cost money," Rubin said. "The idea of commuting 30, 40 miles a day to work is going to be untenable for most people when gasoline costs $7 a gallon."
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The Associated Press and ABC News' Scott Mayerowitz contributed to this report.
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"Analyst sees 10 million fewer cars by 2012"
By John Wilen, AP Business Writer, June 26, 2008

NEW YORK --Growing global demand and supply constraints will push oil prices to $200 a barrel and gas prices to $7 a gallon within four years, forcing 10 million U.S. cars off the road, according to Jeff Rubin, chief economist at CIBC World Markets.

"Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year," Rubin said in a statement. "At their current driving habits, filling up the tank will have risen from about seven percent of their income to 20 percent, an increase that will see many start taking the bus."

The rise of gas prices to an average of about $4.07 a gallon from $1.80 in 2004 is already forcing changes in Americans' car-buying habits. Car sales have dropped to about 14 million a year from 17 million in the first half of the decade, and will fall further to about 11 million a year by 2012, Rubin said.

Gasoline demand is also falling sharply in the face of record prices. Demand dropped 2.1 percent over the past four weeks on average compared to the same period a year ago, the Energy Department said earlier this week. Demand is headed for the first year-over-year decline in 17 years, and will continue falling as long as gas prices remain high, Rubin said.

By 2012, "average miles driven will likely fall by as much as 15 percent, while the market share of light trucks, SUVs and vans will be literally halved," Rubin said.

Gas prices were unchanged Thursday at a national average of $4.067, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express. Gas prices have retreated slightly from a record of $4.08 set June 16, but are unlikely to fall much more as long as crude oil remains in its recent range between roughly $131 and $140.

Front-month crude futures surged above $140 a barrel for the first time Thursday, propelled by OPEC comments that oil could rise well above $150 a barrel, reports Libya is considering cutting oil production and a view that the dollar will continue falling against the euro.

Rubin thinks that as gas prices continue rising Americans will, of necessity, begin imitating the driving habits of Europeans, who have long faced much higher fuel prices. He notes that while over 90 percent of American households currently use a car to get to work, only 60 percent of British households do so. Also, more than 60 percent of U.S. households own two or more cars; only 25 percent of British households own more than one vehicle.

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"Raft of bad news pummels Wall St."
By (Boston) Globe Staff And Wire Services, June 27, 2008

US stocks tumbled, sending the Dow Jones industrial average to its worst June since the Great Depression, as record oil prices, credit market write-downs, and a slowing economy threatened to extend a yearlong profit slump.

Oil's surge past $140 a barrel was just one of the day's worrisome developments. Warnings about the key financial, automotive, and high-tech industries added up to an increasingly troubled economy.

The Dow closed at its low of the day, down 358.41, or 3.03 percent, to 11,453.42, its lowest finish since Sept. 11, 2006, while all the major indexes lost around 3 percent. The Dow has slumped 9.4 percent this month, its worst June since an 18 percent tumble in 1930 during the Great Depression. All 30 index companies have posted losses in the month.

Yesterday's sell-off was sparked by a raft of negative news, including stock downgrades of General Motors Corp., and financial firms, and yet another record close for oil prices. "Right now fear is trumping greed," said John Bitner, the chief economist at Eastern Investment Advisors, a unit of Eastern Bank of Boston.

Analysts said stock markets reflect the economy's precarious position - and the growing sense that there's not much more the Federal Reserve can do to help. With the housing slump continuing to weigh on the economy and soaring oil prices adding to inflation pressures, the Fed is boxed in, analysts said.

It can't cut rates to boost the economy without risking an inflationary surge. But it can't raise them to quell inflation without risking a deeper downturn.

"The Fed is powerless, and maybe the market is coming to that realization," said Richard Yamarone, the director of economic research at Argus Research Corp. in New York. "Things are going to have to play themselves out."

Nariman Behravesh, chief economist at Global Insight, a forecasting firm in Waltham, said the Fed will likely keep a close eye on oil markets, and whether soaring energy prices spur broader inflation.

But with the economy struggling, that's something policy makers want to put off for a while, analysts said. They're betting the weak economy will cut oil demand enough to moderate prices.

"It feels like a catch-22," said Oscar Gonzalez, senior economist at John Hancock Financial Services in Boston. "Their only hope is that there is going to be enough time for the slowdown to have an impact on oil prices."

Analysts' negative comments on GM drove shares of the largest US automaker to their lowest level in more than 30 years, while Citigroup Inc. fell sharply after an analyst placed a "sell" rating on the stock and warned investors to expect less from the brokerage sector in an uneasy economic climate. Disappointing outlooks from technology bellwethers Oracle Corp. and BlackBerry maker Research In Motion Ltd. further soured investors' moods.

The gloom was compounded by an unnerving forecast about oil prices that raised the specter of higher inflation and even more damage to the economy.

OPEC president Chakib Khelil was quoted as telling a French television station that oil could rise to between $150 and $170 per barrel this summer before pulling back later in the year. That and a falling dollar helped send light, sweet crude as high as $140.39 before settling at a record $139.64 on the New York Mercantile Exchange. Rising oil has saddled nearly all parts of the economy with higher costs.

The stream of downbeat assessments drove home to investors how much US companies stand to be hurt from the fallout of the prolonged housing slump, the nearly year-old credit crisis, and the soaring price of oil. The great fear on the Street has been that rising prices and worries about their finances will force consumers to further curb their spending, sending the economy into even more of a decline.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index dropped 38.82 to 1,283.15, and the technology-laden Nasdaq Composite slid 79.89 to 2,321.37.

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(A Boston) Globe Editorial, Short Fuse, June 30, 2008

"Taxes: Only for people who can't afford them"

The alternative minimum tax was meant to keep rich people from avoiding taxes. But it now pinches the middle class, while a loophole allows zillionaire hedge fund managers to pay lower tax rates than their secretaries. So the US House passed a bill last week to close the loophole to raise money for AMT relief. Predictably, most Republicans balked. Representative Jim McCrery complained that "Congress should not raise taxes on one group of taxpayers in order to prevent a tax increase on another set of taxpayers." But big tax cuts for rich taxpayers that raise the burden on posterity? Apparently, those are just fine.

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"If they go belly up, we all will have to pony up"
By Martin Crutsinger and Alan Zibel, Associated Press, July 15, 2008

WASHINGTON - Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads.

There were encouraging signs yesterday for the rescue plan, but also signs of concern - notably on Wall Street, where shares of the two companies slumped further - that the plan won't be enough.

Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.

"It sends the wrong message to the world," said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.

Sung Won Sohn, an economics professor at The Smith School of Business at Cal State Channel Islands, cited soaring oil costs, a weakening economy, and an unstable housing market that he said will only get worse.

"I don't think these steps are enough to arrest the deterioration," he said.

As long as more homeowners default on mortgages, losses to financial institutions will mount. Those losses already exceed $400 billion, and some analysts say they will top $1 trillion before the carnage is over.

By comparison, Congress has authorized $650 billion so far to fight the Iraq war.

The Bush administration and the Federal Reserve disclosed an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages - almost half the nation's total.

The plan would temporarily increase a longstanding Treasury line of credit that could be provided to either company. Treasury also said it would, if necessary, buy stock in the companies to make sure they have enough money to operate.

The Fed also said it would allow Fannie and Freddie to get loans directly from the Fed - a privilege previously granted only to commercial banks until this March, when the Fed extended the borrowing to investment banks to deal with the collapse of Bear Stearns.

House Financial Services Committee chairman Barney Frank, a Massachusetts Democrat, predicted Congress would grant approval for the extended line of credit as part of a broader housing measure that he believes President Bush could sign by the end of next week.

Right now, the Treasury can extend up to $2.25 billion in loans each to Fannie and Freddie. Officials refused to discuss what the new limit might be but dismissed one report of a $300 billion limit as too high.

Treasury officials also said directly buying Fannie and Freddie stock would be a last resort.

Substantial sums are involved in any event. Analysts say the economic risks of doing nothing are just too great.

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"Tax Havens Cost U.S. $100 Billion a Year: Senate Report Cites 2 European Banks"
By Bradley S. Klapper, Associated Press, Thursday, July 17, 2008; D03

GENEVA, July 16 -- A U.S. Senate subcommittee accused banks in Switzerland and Liechtenstein of helping wealthy Americans evade billions in taxes each year, and urged tougher laws to combat offshore tax havens around the world.

In a report released late Wednesday, the Senate subcommittee on investigations estimated that offshore abuses were costing U.S. taxpayers about $100 billion a year.

It recommended reforms to squeeze tax cheats, including more stringent U.S. requirements for foreign banks and harsher penalties for institutions that fail to provide the Internal Revenue Service with details on accounts American clients hold.

"Tax havens are engaged in economic warfare against the United States and the honest, hardworking American taxpayer is losing," said Sen. Carl M. Levin (D-Mich.), chairman of the subcommittee on investigations. "Congress needs to enact strong penalties on tax haven banks that help U.S. taxpayers avoid paying taxes."

A Senate subcommittee hearing will be held Thursday.

The 109-page report took aim at Switzerland's UBS, arguably the world's largest wealth manager, and Liechtenstein's LGT group, owned by the principality's royal family.

The Swiss Finance Ministry and UBS declined to comment. The bank has said it is cooperating with Swiss and American investigations and will disclose records involving U.S. clients who might have broken tax laws. It has also banned its Swiss bankers from traveling to the United States.

[LGT said it "has always been and continues to be in compliance with pertinent laws and regulations," according to Bloomberg News. The committee examined isolated cases that "do not reflect the way LGT is generally doing business today," it said.]

A U.S. federal judge ruled earlier this month that the IRS could serve legal papers to UBS in an expanding investigation of U.S. taxpayers who may have used overseas accounts to hide assets.

The Justice Department requested the summons after former UBS private banker Bradley Birkenfeld, 43, pleaded guilty in a Florida federal court to defrauding the IRS. Birkenfeld, who is cooperating with investigators, said in court that UBS has about $20 billion in assets in undeclared accounts for U.S. taxpayers.

Prosecutors say Birkenfeld and others helped California billionaire Igor Olenicoff hide $200 million in assets overseas. Olenicoff, who controls a real estate empire, pleaded guilty last year to tax charges and agreed to pay the IRS more than $52 million.

U.S. taxpayers are required to report all foreign financial accounts if their value exceeds $10,000, prosecutors said. Failure to report the accounts can result in a penalty of as much as 50 percent of their amount.

The subcommittee report said, "UBS Swiss bankers targeted U.S. clients, traveled across the country in search of wealthy individuals and aggressively marketed their services to U.S. taxpayers who might otherwise never have opened Swiss accounts."

It said the bank's practices resulted in billions of dollars of U.S. taxpayer money in accounts not disclosed to the IRS.

Although UBS did not technically violate U.S. reporting requirements under the 2001 "qualified intermediary program," it actively assisted clients in structuring their Swiss accounts to avoid disclosure responsibilities with the IRS and thus aided tax evasion, the report said.

In Liechtenstein, the report said the royal family's LGT Group aided a "culture of secrecy and deception" that enabled clients to "evade U.S. taxes, dodge creditors and ignore court orders."

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August 1, 2008 (posted on: July 31st, 2008)
"Rising Oil Prices Swell Profits at Exxon and Shell"
By CLIFFORD KRAUSS and JULIA WERDIGIER
(The NY Times Online)

HOUSTON — Exxon Mobil, the world’s largest publicly traded oil company, reported on Thursday its best quarterly profit in history, but investors sold off shares in morning trading after expecting even higher earnings because of soaring oil and natural gas prices.

Record earnings for the world’s largest publicly traded oil company have become almost as predictable as the surge of gasoline prices at the pump in recent years, and for the second quarter income rose 14 percent, to $11.68 billion.

It was the highest quarterly profit ever for any American company, as Exxon made nearly $90,000 a minute.

Such profits have made Exxon Mobil a target of politicians in recent years, propelling calls for windfall profits taxes to finance research and development for renewable fuels to replace oil.

The principal reason for the company’s banquet of riches is rising fuel prices. Crude oil prices in the second quarter averaged more than $124 a barrel, 91 percent higher than the same quarter in 2007, according to Oppenheimer & Company. Natural gas prices averaged $10.80 per thousand cubic feet, up 43 percent from the quarter a year ago.

But while high energy prices brought Exxon $10 billion in earnings from selling oil in the quarter, up about $4.1 billion or nearly 70 percent, not everything in its earnings report heartened investors. The company reported that its oil production decreased 8 percent from the second quarter of 2007, largely because of an expropriation of Exxon assets by the Venezuelan government and labor strife in Nigeria.

The company spent $7 billion, or nearly 40 percent more than the same quarter last year, to find and produce oil from new fields.

The company’s $1.6 billion in profits from refining was less than half than those in last year’s quarter because of lower worldwide refining margins. Earnings from its chemical business of $687 million were $326 million down from last year.

“Record crude oil and natural gas realizations were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs,” Rex W. Tillerson, Exxon’s chairman, said in a statement.

Net income of $2.22 a share compared with $10.26 billion, or $1.83 a share, in the quarter a year ago. Revenue rose 40 percent, to $138.1 billion, from $98.4 billion in the quarter a year ago.

Excluding an after-tax charge of $290 million tied to an Exxon Valdez court settlement, earnings were $11.97 billion, or $2.27 a share.

Excluding one-time charges, analysts had expected Exxon Mobil to earn $2.52 a share on revenue of $144 billion, according to Thomson Financial.

With this quarter’s result, Exxon topped its own record of $11.66 billion in the fourth quarter of last year.

Wall Street did not respond positively to the results. Exxon shares sold off in mid-morning trading by more than 3 percent. Oil and natural gas prices continued their recent slide, as investors viewed the slowing economy increasing the probability that energy demand would slip over the next several months.

Earlier in London, Royal Dutch Shell, Europe’s largest oil company, reported a 33 percent increase in second-quarter profit on Thursday, helped by a higher oil price even as production declined.

Like a smaller rival, BP, earlier this week, Shell profited from higher oil prices, , but a 13 percent drop from a record on July 11 raised some concern among investors about whether oil companies can keep up the pace of earnings growth. BP said earlier this week that higher oil prices have started to affect consumer demand for gasoline.

Shell’s profit rose to $11.56 billion from $8.67 billion in the period a year ago. BP reported a 28 percent increase in profit earlier this week and the Italian oil company Eni said on Thursday that profit in the second quarter rose 52 percent.

Oil companies are under pressure to find new reserves as their traditional fields age and are face increasing competition from state-run oil companies in Russia and the Middle East. Shell is also looking to make up for production lost in Nigeria, where militants attacked an offshore production vessel in June, and in Russia, where it had to sell its share in the Sakhalin Island oil and natural gas project to the state-controlled energy company, OAO Gazprom, last year.

Oil and gas production fell to 3,126 thousand barrels of oil equivalent a day from 3,178 thousand barrels.

Shell’s chief executive, Jeroen van der Veer, pledged to continue investing to spur growth. “Shell is making substantial, targeted investments to grow the company for shareholders and help ensure that energy markets remain well supplied,” Mr. van der Veer said in a statement Thursday.

The company agreed two weeks ago to spend about $5.9 billion to buy the Duvernay Oil Corporation of Canada to increase its gas production from tough rock formations and is in talks with Iraq about some service contracts.
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Clifford Krauss reported from Houston and Julia Werdigier from London.
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"Stock fall on worries about financial sector"
By TIM PARADIS, AP Business Writer, August 7, 2008

Wall Street tumbled Thursday as worries about further trouble in the financial sector, higher unemployment and lackluster sales at retailers touched off fresh concerns about the economy. The Dow Jones industrials skidded nearly 225 points, while bond prices shot higher as investors once again sought the safety of government debt.

The market's pullback erased most of the 370-point gain the Dow logged the two prior sessions and perhaps shows the lack of solid conviction behind many of the investors' recent bets.

Heading investors' list of worries, insurer American International Group Inc. reported a loss of more than $5 billion for the second quarter and the Labor Department said the number of newly laid off people seeking jobless benefits last week jumped to its highest level in more than six years. Weak sales reports from Wal-Mart Stores Inc. and other retailers added to investors' unease.

Meanwhile, an announcement by the credit-ratings agency Moody's Investors Service that it placed the long-term ratings of credit card lender American Express Co. on review for possible downgrade added to investors' jitters.

Bill Stone, chief investment strategist for PNC Wealth Management, said the stream of economic news has been somewhat negative lately, often short-circuiting the market's attempts to build on rallies. Thursday's reports on employment and financials only added to investors list of worries, he said.

"The concerns about a weakening economy always run to worries about the financials and then you add some negative news to them on their own and you've got what we've got today," he said.

According to preliminary calculations, the Dow fell 224.64, or 1.93 percent, to 11,431.43.

Broader indicators also slid Thursday. The Standard & Poor's 500 index fell 23.12, or 1.79 percent, to 1,266.07, and the Nasdaq composite index fell 22.64, or 0.95 percent, to 2,355.73.

Oil prices that fell sharply earlier in the week rebounded Thursday, likely adding to Wall Street's downbeat mood. Light, sweet crude rose $1.44 to settle at $120.02 on the New York Mercantile Exchange.

Bonds jumped as investors sought the protection of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, fell to 3.93 percent from 4.05 percent late Wednesday. The dollar mostly rose against other major currencies, while gold prices fell.

The Labor Department said the number of newly laid off people seeking jobless benefits increased by a seasonally adjusted 7,000 to 455,000 last week, the highest level since late March 2002. Wall Street had expected new claims to rise to around 430,000.

The number of people continuing to collect unemployment benefits rose for the week ending July 26 to the highest level since early December 2003, the Labor Department said. In recent weeks, General Motors Corp., Weyerhaeuser Co. and Starbucks Corp. have all announced job cuts, sending more people to the unemployment lines.

Stocks briefly came off their lows after the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from a downwardly revised figure of 84.5 for May. Despite the June increase, the index sits 12 percent below year-ago levels. Economists surveyed by Thomson/IFR had predicted the index would fall to 84.3.

Jerry Webman, chief economist at Oppenheimer Funds Inc., said swift pullback in stocks after the day's economic readings illustrates the fragility of investor sentiment. He said the market's volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood.

"We react very strongly to bits of news," he said. "The whipsaw danger is pretty high here."

In corporate news, American International Group fell $5.25, or 18 percent, to $23.84 after the company reported its loss and said weakness in the credit markets has erased several billions of dollars in value from its credit default swaps portfolio and other investments. The stock was by far the steepest decliner among the 30 that make up the Dow industrials.

Other insurers declined following AIG's report. Genworth Financial Inc. fell $1.62, or 9.9 percent, to $14.67.

American Express fell $1.59, or 4.2 percent, to $36.40 after the Moody's announcement.

Citigroup Inc. fell $1.23, or 6.2 percent, to $18.47 after federal and state regulators announced settlements Thursday in which the company will repurchase more than $7 billion in auction-rate securities and pay $100 million in fines. The company neither acknowledged nor denied wrongdoing under the settlements. New York Attorney General Andrew Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.

The latest worries about financials offered an unwelcome reminder of the trouble companies are having with bad debt on their balance sheets. Tightness in the credit markets makes it hard for companies to unload and even value mortgages and other paper. And the reports of rising unemployment Thursday only added to fears that defaults on mortgages and other borrowings aren't likely to end soon as consumers continue to struggle.

The results from Wal-Mart and other retailers only fanned concerns about consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Wal-Mart, the world's largest retailer, said same-store sales, or stores open at least one year, rose 3 percent in July as consumers began using up their government stimulus checks. Analysts who follow the important measure of a retailer's health had expected a 3.4 percent rise, on average. Wal-Mart, also a Dow stock, fell $3.80, or 6.3 percent, to $59.96.

Other retailers' reports disappointed Wall Street. Target Corp. fell $2.25, or 4.7 percent, to $45.76, while Macy's Inc. fell 76 cents, or 3.9 percent, to $18.92.

Among technology names that helped the Nasdaq minimize its losses compared with the other indexes, Intel Corp. rose 87 cents, or 3.8 percent, to $23.67, while Microsoft Corp. advanced 37 cents $27.39.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume totaled 1.28 billion shares compared with 1.2 billion shares traded Wednesday.

The Russell 2000 index of smaller companies fell 12.49, or 1.72 percent, to 713.41.

Overseas, Japan's Nikkei stock average fell 0.98 percent. Britain's FTSE 100 fell 0.16 percent, Germany's DAX index fell 0.27 percent, and France's CAC-40 added 0.20 percent.
___

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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"Small Kansas bank is 9th failure this year"
Reuters, August 22, 2008

WASHINGTON (Reuters) - Bank regulators closed Columbian Bank and Trust Company on Friday, the ninth U.S. bank to fail this year as the weakening economy and falling home prices take their toll on financial institutions.

Customers can access their money over the weekend by check, teller machine or debit card, the Federal Deposit Insurance Corp (FDIC) said.

Citizens Bank and Trust has agreed to assume the failed bank's insured deposits. Columbian Bank and Trust's branches will reopen on Monday as branches of Citizens Bank and Trust, which is based in Chillicothe, Missouri.

The FDIC said Columbian Bank and Trust of Topeka, Kansas, had $752 million in assets, $622 million in deposits, and nine branches.

The failure is expected to cost the FDIC deposit insurance fund an estimated $60 million.

The FDIC oversees an industry-funded reserve used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks.

The biggest bank failure this year was IndyMac , seized by regulators on July 11. IndyMac had $32 billion in assets and $19 billion in deposits as of March. It was the third-largest bank insolvency in U.S. history.

Columbian Bank is the first bank to fail in Kansas since Midland Bank of Kansas in Mission, Kansas, on April 2, 1993, the FDIC said.

The FDIC said that as of June 30 Columbian Bank had about $46 million in uninsured deposits held in about 610 accounts that potentially exceeded insurance limits.

The failed bank also had about $268 million in brokered deposits that are not part of Friday's transaction. The FDIC said it would pay the brokers directly for the amount of their insured funds.

The FDIC has a list of problem banks that its examiners closely monitor. The regulator does not name institutions on the list, but at the end of the first quarter 90 were on it.

The FDIC is expected to update the list this month for the second quarter.

(Reporting by Karey Wutkowski and Diane Bartz; Editing by Andre Grenon)

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(A Boston) GLOBE EDITORIAL
"Backed into a bailout" - September 9, 2008

IN THE current credit and housing meltdown, yesterday's worst-case scenario always seems to become today's urgent need for government intervention.

When Treasury Secretary Henry Paulson sought and received congressional authority this summer to prop up Fannie Mae and Freddie Mac, he and other backers of the plan hoped that federal support alone would be enough to stabilize the two mortgage giants. Ideally, they suggested, taxpayers wouldn't need to inject much money into the firms. But that effort has now morphed into a federal seizure and bailout, in which taxpayers could be expected to put up $200 billion.

Still, at this point, there is no better option. The deepening troubles of Fannie Mae and Freddie Mac show how the underregulation of the US mortgage industry has destabilized the global credit system. And financial regulators are only playing catch-up, even as they intervene in the economy in unprecedented ways.

Fannie Mae and Freddie Mac are government-chartered corporations that were created by Congress and can borrow money at low federal rates. Functioning mostly like private companies, they have grown over time to play dominant roles in the nation's home-mortgage markets. Paulson first stepped in because the two crucial firms had begun running short on capital, as homes, and securities backed by unsustainable mortgages on those homes, lost their value. But prospects for Fannie Mae and Freddie Mac have only worsened in recent weeks.

The latest plan calls for taking over Fannie Mae and Freddie Mac and replacing their executives and their boards of directors. (Severance terms will likely ensure that, unlike the millions of homeowners facing foreclosure, the firms' ousted executives will make a soft landing.) The Treasury's move will also lead to some long-overdue restructuring of the two firms.

Their status as private entities with public purposes has allowed the companies to grow to gargantuan size, even as they take insufficient steps to promote affordable housing - the goal that justifies their public role. In taking over the firms, Paulson implied, and rightly so, that their ambiguous status had become untenable, declaring Sunday that "government support needs to be either explicit or nonexistent." In this case, if US taxpayers are already on the hook implicitly, the federal government might as well take over the firms' obligations formally.

Financial markets around the world are watching nervously to see if the credit contagion that has now taken down Fannie Mae and Freddie Mac will be contained. Sadly, optimists have been proved wrong before - and have been proved wrong quickly.

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Uncertainty reigned yesterday outside the world headquarters of Lehman Brothers Holdings Inc. in New York. (Shannon Stapleton/Reuters)
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SHOCK WAVES: "Stocks plunge after crisis in investment firms: US hastens to ease fears, keep credit flowing; Another stimulus package and rate cut may be in offing"
By Robert Gavin, (Boston) Globe Staff, September 16, 2008

Stocks suffered their worst losses in seven years as the failure of investment firm Lehman Brothers Holdings Inc. and the sudden sale of Merrill Lynch & Co. stoked investor fears of even deeper problems in the nation's financial system.

The Dow Jones industrial average plunged more than 500 points, the biggest one-day drop since the Sept. 11 terrorist attacks in 2001. Investors also nervously watched the fate of the world's largest insurance group, American International Group Inc., which is scrambling to line up as much as $75 billion to shore up its weakened finances. The Dow ended at 10,917.51, the lowest close in more than two years.

Meanwhile, policy makers from President Bush to New York Governor David Paterson moved yesterday to prevent further panic that could cause even greater damage to the financial system and the US economy.

The Federal Reserve has made additional money available to banks to keep the flow of credit going in markets, while New York regulators allowed AIG to use $20 billion in assets from its insurance subsidiaries to bolster the parent firm's balance sheet. The insurance firm last night was also trying to arrange additional capital through loans from Goldman Sachs Group Inc., and JPMorgan Chase & Co., after US officials rebuffed its request for federal help, according to news accounts.

Late last night, the major credit-rating agencies - Standard & Poor's, Moody's Investors Services, and Fitch Ratings - downgraded AIG's ratings at least two notches. While the new ratings are all still considered investment grade, the moves add to the pressure on AIG.

"Adjustments in financial markets can be painful," Bush said. "But in the long run I am confident that our capital markets are flexible and resilient and can deal with these adjustments."

The fallout has reached across the globe. The Asian markets plummeted today, with Japan's benchmark Nikkei 225 index down 5.3 percent to 11,560.66 in mid-afternoon trading and Hong Kong's blue-chip Hang Seng Index shedding 5.7 percent.

The market upheaval could also reshape the financial services industry in Greater Boston, raising questions about the future of Bank of America's money management operations in Boston. Bank of America is buying Merrill Lynch, but bank officials said they have not determined how they will combine operations.

Meanwhile, the financial crisis could mean the loss of hundreds of financial services jobs, not just at Lehman's offices, but at other investment firms in Boston. Losses in the stock market and declining values of other assets reduce the profits of the many mutual fund companies and private equity and venture capital firms that are located here.

"We've been dealing with this situation for the better part of 18 months," said Kevin M. Cronin, chief of investments at Putnam Investments in Boston. "It's just gone on much longer than people had anticipated. It has broadened in its scope and its reach and its duration as well."

In Washington, congressional Democrats said they would push to pass a new, $50 billion stimulus package to aid the US economy in the wake of the financial turmoil. Some analysts predict the Fed may again also cut interest rates - perhaps as early as today, when policy makers meet. That could boost the economy by making it cheaper for businesses and consumers to borrow.

The Fed, concerned about rising inflation this year, has held its key interest rate steady since spring, at a historically low 2 percent. But oil prices, which have largely been blamed for the jump in inflation, are suddenly dropping, and that could give the Fed the room to lower rates again.

Crude plunged about $9 barrel yesterday and early today to $91.80. The fall was the biggest two-day drop in almost four years.

"Inflation is not a problem," said Nariman Behravesh, chief economist at Global Insight. "The Fed is going to have to cut, if not Tuesday, then soon after."

Meanwhile, another positive for the economy is the recent drop in mortgage rates, which fell more than a half percentage point after the US government took over home loan funders Fannie Mae and Freddie Mac last week. Rates again nudged downward yesterday, as investors piled into the safety of bonds such as 10-year Treasury notes, to which many mortgage rates are tied.

Still, many analysts say lower interest rates won't have much impact because lenders, worried about ending up like Lehman, will cut back on making loans to preserve capital they may need to survive the turmoil. In Boston, real estate professionals said that will worsen a credit crunch that has already forced developers to delay major projects, such as the redevelopment of Downtown Crossing and Columbus Center.

"The reality is the headwinds have never been greater for financing large projects," said George Fantini, chairman of mortgage banking firm Fantini & Gorga. "There is no nice way to state how difficult that situation is."

Lehman and Merrill Lynch are the latest to succumb to the nation's housing crisis, which began with risky loans known as subprime mortgages and spread in a vicious downward cycle to the broader credit markets. Both Lehman and Merrill Lynch had large holdings of securities backed by mortgages, which have fallen sharply in value as home prices have declined and foreclosures soared. Both have reported billions of dollars in losses over the past year.

For these companies, the decline in the housing market made it difficult to recover. As home values slipped, so did the value of their assets, requiring them to raise more money to offset the losses, which in turn became even harder as housing markets deteriorated without an end in sight. Merrill acted before it was too late, finding a buyer in Bank of America, which has the financial underpinnings to weather the downturn.

Lehman, which was long ranked among Wall Street's more troubled firms, was too far gone. Federal officials over the weekend tried to engineer a sale, such as the one that avoided the collapse of investment firm Bear Stearns Cos. in March. But unlike the Bear Stearns deal, in which the Federal Reserve guaranteed up to $30 billion of Bear Stearns' troubled assets to entice the buyer, JPMorgan Chase, policy makers refused to put taxpayer money at risk to provide a similar guarantee for Lehman.

Two potential suitors, Bank of America and Barclays PLC, the British financial services company, walked away, according to published reports.

Under criticism already for the Bear Stearns bailout and the takeover of mortgage giants Fannie Mae and Freddie Mac, policy makers decided they could let Lehman fail without catastrophic results, analysts said.

Conditions had changed since that sudden Bear Stearns collapse, which prompted a Depression-era style run on funds by investors, and a near-halt of the global financial system. Since then, the Fed has opened its lending window to securities dealers and other investment firms to provide liquidity, or ready cash, to keep the system operating.

With the Fed making plenty of money available, it became unlikely that Lehman would bring down the financial system, analysts said. "The only reason you do is you think the turmoil is going to be so great, the market can't cope," said Jaret Seiberg, policy analyst with the Stanford Group in Washington. "Everyone knows the Fed is there to provide emergency liquidity, so it's not complete chaos."

While Lehman's collapse will add to unemployment rolls - the nation's jobless rate has soared above 6 percent in recent months as hundreds of thousands of employees were laid off - some economists found a silver lining: The failure may signal that the financial industry is finally working through its crisis of devalued assets and problem loans.

"The Lehman fallout should be fairly contained," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. "The reality is the economy is already in recession, and Lehman is more a symptom than a cause."
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Robert Gavin can be reached at rgavin@globe.com. Globe staffers Beth Healy, Ross Kerber, Jenifer McKim and Casey Ross contributed to this story. Material from Globe wire services was also used.
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The Boston Globe, Editorial (Short Fuse), September 24, 2008

"Financial crisis: No regulation, no bailout"

As Congress considers a Wall Street bailout that could cost $700 billion or more, submitting to federal oversight ought to be a condition of receiving taxpayer dollars. But as a veteran industry consultant told the Globe, a version of the bailout plan by Senator Christopher Dodd has eligibility criteria that may be broad enough to take in hedge funds - vast, minimally regulated pools of capital that disclose little to the public. Yet hedge funds can't insist on the right to buy and sell whatever, whenever, without restriction while still expecting the Treasury to save them when they make bad bets. Taxpayer help should come with strings attached.

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"Stocks rise on bailout hopes; credit remains tight"
By Tim Paradis, AP Business Writer, September 25, 2008

NEW YORK --Financial markets grew more upbeat Thursday as congressional leaders said they had struck an agreement in principle on the government's plan to revive the crippled financial system. The Dow Jones industrial average rose as much as 300 points on optimism about the plan, and demand for short-term, safe-haven assets eased slightly as some investors bet that a deal would help unclog credit markets.

Stock market investors clearly were more upbeat after lawmakers said they would present the $700 billion plan to the Bush administration and hoped for a vote by both houses of Congress within days.

The statements out of Washington came after Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers Tuesday and Wednesday to quickly sign off on the plan, which they contend would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. Distrust of the financial companies that hold these assets has led to a seizing up of the credit markets, which in turn threatens the overall economy by making it harder and more expensive for businesses and consumers to borrow money.

Bush highlighted what he sees as the urgency in a national address Wednesday night. Still, White House officials have yielded to a key demand by congressional leaders, agreeing to include widely supported limits on pay packages for executives whose companies benefit from any deal. Major elements are still being worked out, including how to phase in the mammoth cost of the package and whether the government will get an ownership stake in troubled companies.

Alan Lancz, director at investment research group LanczGlobal, said stock market investors are encouraged that a financial rescue is looking more likely than it had earlier in the week. He said the move could help unclog credit markets by allowing banks and investors to place values on assets tied to mortgages.

"How do you establish a floor? Well, this is the bazooka. This is how you establish a floor," he said of the plan's goal of buying up the toxic debt.

Still, some investors had their doubts. Demand eased but remained high for the 3-month Treasury bill, considered the safest short-term investment. Its yield rose to 0.82 percent from 0.49 percent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.89 percent from 3.81 late Wednesday.

In early afternoon trading, the Dow Jones industrial average rose 247.15, or 2.28 percent, to 11,072.32. The Dow fell 563 points, or 4.95 percent, in the first three sessions this week so Thursday's buying didn't come as a surprise.

Broader stock indicators also rose Thursday. The Standard & Poor's 500 index advanced 28.54, or 2.41 percent, to 1,214.41, and the Nasdaq composite index rose 45.75, or 2.12 percent, to 2,201.43.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to a relatively light 680.9 million shares.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude for November delivery rose $1.18 to $106.91 on the New York Mercantile Exchange.

To help ease credit market strains, the Federal Reserve early Thursday issued more than $20 billion in collateral such as Treasury bills in exchange for dollars to help meet demand for safe assets.

Meanwhile, disappointing readings on employment, housing and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., underscored the difficulties facing the economy.

The Labor Department said the number of people seeking unemployment benefits increased by 32,000 to a seasonally adjusted 493,000 last week -- the highest level in seven years and well above analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.

The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales dropped by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991.

The department also said orders for expensive manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 percent last month, far worse than the 1.6 percent decline that economists expected and the biggest drop since a 4.7 percent fall in January.

GE lowered its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets. The stock, which had declined in the early going, rose $1.13, or 4.6 percent, to $25.72 alongside the broader market.

The Russell 2000 index of smaller companies rose 13.78, or 1.97 percent, to 711.55.

Overseas, Japan's Nikkei stock average fell 0.90 percent. Britain's FTSE 100 rose 1.99 percent, Germany's DAX index added 1.99 percent, and France's CAC-40 jumped 2.73 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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"THE FINANCIAL CRISIS: Key elements of bailout plan"
The Boston Globe (Online), September 29, 2008

OBJECTIVE: The bill provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury Department to purchase troubled assets, mainly in the area of mortgages, that are weighing down the US financial system. The goal is to help free up frozen credit.

COST OF BILL: The $700 billion would be doled out by Congress in stages. After the first $250 billion is authorized, the president could request another $100 billion. The final $350 billion could be cleared by a further act of Congress.

ASSET PURCHASES: The Treasury Department, working with specialists chosen by the government, will have authority to fashion a program to buy devalued assets of banks.

PROTECTING TAXPAYERS: The government would be given ownership stakes in companies whose bad assets are purchased. After five years, if the government is facing a loss in the program, the Treasury Department will be required to submit a plan recommending how the money can be recouped from financial companies.

EXECUTIVE PAYS: Restrictions will be imposed on the pay and benefits received by executives whose companies are selling some of their bad assets through the program. If the Treasury takes a stake in a company, the top five executives would be subject to limits on their compensation. Executives hired after a financial company offloads more than $300 million in assets will not eligible for "golden parachutes."

OVERSIGHT: The Treasury would be required to provide details of its purchases within two days of the transactions and an oversight board would be created to monitor the operation of the program. The board would have members selected by Democratic and Republican leaders in the House and Senate, and top government officials also would provide oversight.

INSURANCE OPTION: The bill establishes a program in which banks could buy government insurance that would cover the principal and interest on certain troubled assets, rather than selling them outright.

BANK INTEREST: The program would permit the Federal Reserve to begin paying interest on bank reserves, giving it another tool for easing credit strains.

STUDY OF STANDARDS: The bill mandates a study on the impact of mark-to-market accounting standards, which critics blame for a downward spiral in bank assets.

EASING FORECLOSURES: The federal government may stall foreclosure proceedings on home loans purchased under the plan.

SOURCE: Associated Press, Reuters

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"House Narrowly Defeats Bailout Legislation: President Bush Had Urged Quick Approval"
By Paul Kane and Lori Montgomery, Washington Post Staff Writers
Monday, September 29, 2008, 2:23 PM

In a narrow vote, the House today rejected the most sweeping government intervention into the nation's financial markets since the Great Depression, refusing to grant the Treasury Department the power to purchase up to $700 billion in the troubled assets that are at the heart of the U.S. financial crisis.

The 228-205 vote amounted to a stinging rebuke to the Bush administration and Treasury Secretary Henry M. Paulson Jr., and was sure to sow massive anxiety in world markets. Just 11 days ago, Paulson urged congressional leaders to urgently approve the bailout. He warned that inaction would lead to a seizure of credit markets and a virtual halt to the lending that allows Americans to acquire mortgages and other types of loans.

As it became apparent that the measure was heading to defeat, stock markets took a steep dive. The Dow Jones industrial average fell more than 700 points but then rebounded a bit. By 2:20 p.m. the Dow was down 455 points, about 4 percent. The Standard & Poor's 500 stock index was down 5.4 percent and the Nasdaq was off 6 percent.

After a week of intense debate in both party caucuses, House members opposed the bill just five weeks before they face voters in an election that is shaping up as a referendum on the economy.

"Today's the decision day. I wish it weren't the case," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who kicked off three hours of impassioned debate just as the opening bell sounded on Wall Street this morning.

Global markets have followed the congressional negotiations closely since Paulson's dire warnings to congressional leaders in a Sept. 18 nighttime meeting in the offices of House Speaker Nancy Pelosi (D-Calif.). As debate began today, news broke that Citigroup was purchasing another troubled bank, Wachoiva, and an hour into the debate the Dow Jones industrial average had dropped by 285 points.

The bailout plan would have allowed Paulson to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates. Paulson, and his successor in the next administration, would have given the government broad latitude to purchase any assets from any firms at any price and to assemble a team of individuals and institutions to manage them. Paulson and others hoped to contain a crisis that already has caused the failure or forced the rescue of a half-dozen major Wall Street firms and unnerved markets around the world.

Before the debate started, Bush issued a final public plea urging lawmakers to support the plan, acknowledging that the vote will be "difficult" in the face of opposition from taxpayers and voters, but necessary to protect the economy. "A vote for this bill is a vote to prevent economic damage to you and your community," Bush said, attempting to undercut arguments that the proposed legislation bolsters Wall Street at taxpayers' expense. "This is a bold bill that will keep the crisis in our financial system from spreading through our economy."

Frank said no lawmaker wants to approve such a large bailout that was made necessary by the mistakes of Wall Street financiers and the mortgage industry, but inaction risked a more widespread financial meltdown. If nothing is done, he said, "the consequences will be much more severe."

Democratic and Republican leaders frantically pushed for votes this morning among their rank-and-file members to assure passage. During early morning votes on other noncontroversial matters, Pelosi hurried around the chamber floor, button-holing rank-and-file members, asking for their support.

Speaking on the floor of the House, in the final minutes before the close vote, Pelosi tried to assure her most liberal colleagues that further bailout hearings and legislation would come next year. Knowing that her party was fearful of how many Republicans would support the bill, Pelosi noted the bipartisan talks over the last week and the pledges made among both side's leaders to rally support. "I know that we will live up to our side of the bargain, I hope the Republicans will, too," she said.

On Sunday, Rep. Roy Blunt (R-Mo.), a lead negotiator and the GOP's top vote counter, hauled the nearly 30 retiring Republicans into his office to plead for what may be their final vote in office, warning that it will shape their legacy. James Nussle, the director of Bush's Office and Management and Budget and a former House member, worked the Capitol's halls and the House cloakroom in search of votes, cautioning beforehand of a very narrow vote.

Leaders met strong resistance from a liberal wing that opposed bailing out Wall Street's corporate executives and a conservative wing that denounced the measure as an abandonment of free-market principles.

Arguing that the country was on a "slippery slope toward socialism," Rep. Jeb Hensarling (R-Texas) urged his colleagues to oppose the bill because of the "unintended consequences" to come. "If we lose our ability to fail, we will soon lose our ability to succeed. If we bail out risky behavior, we will soon see even riskier behavior," said Hensarling, the leader of a conservative caucus.

"It's not sustainable and we know it won't solve the underlying problem," said Rep. Peter DeFazio (D-Ore.), likening the proposal to the Bush administration's "surge" of troops into the Iraq war last year.

Many lawmakers cast the vote as the equivalent of a war resolution or a presidential impeachment. Their speeches invoked 19th-century Russian novelist Fyodor Dostoyevsky and King Henry.

The House vote had been regarded as the most risky, because restive Republicans balked at the emerging proposal last week at a White House summit with Bush and the presidential candidates, Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.). And Democrats warned that dozens of their members, hailing from poor and liberal districts, would never endorse such a bailout.

But the Saturday negotiations produced a few compromises that brought a full-throated endorsement from GOP leaders, most particularly a provision that requires the Treasury secretary to establish a new federal insurance program, funded by the banks, that would protect firms against losses from troubled assets. Although Paulson and Federal Reserve Chairman Ben S. Bernanke had concluded that such a program would not pump needed cash into struggling firms, House Republicans said it offered an alternative method for shoring up companies at no cost to taxpayers.

After the legislation was unveiled Sunday, both McCain and Obama endorsed it as a necessary step to avert economic disaster, in a signal to skittish lawmakers that the political risk of backing the bill might not be as dire as they feared.

On Sept. 20, Paulson presented Congress with a three-page economic rescue plan that would have granted the Treasury nearly unfettered power to shore up the nation's financial system, unchecked by federal or judicial review. By yesterday, the measure had grown to 110 pages, many of them devoted to the creation of myriad oversight agencies, including an independent inspector general. Still, the measure would give Paulson broad authority to create an Office of Financial Stability within the Treasury, to hire its staff and to direct their activities. The head of the office would be subject to Senate confirmation and would be required to quickly publish guidelines for identifying, pricing and purchasing troubled assets.

Money for the program would be released in segments, with the Treasury secretary receiving $250 billion immediately. Paulson has said he expects to spend about $50 billion a month on the program. To protect taxpayers, participating firms would be required to give the government warrants to buy stock so taxpayers could benefit if they return to profitability. If the government does not regain all of its money after five years, the president would be required to submit a plan for recovering the money "from entities benefiting from the program."

The measure also would require federal officials to rein in excessive compensation for corporate executives who participate in the bailout program.

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JUAN ENRIQUEZ AND JORGE DOMINGUEZ: "What about austerity?"
The Boston Globe, Op-Ed, By Juan Enriquez and Jorge Dominguez, October 1, 2008

WITHIN THE billions of sentences about the financial bailout there is one word notably absent, austerity. All talk is of payments, supports, subsidies, incurring more debt, stimulus packages. The thesis seems to be: If only we spend more the party can go on. True, only if the financial meltdown is a temporary mismatch and dislocation in housing and credit markets. But suppose there is something fundamentally wrong with the US economy. Then spending more will not fix it. Getting the diagnosis right means getting the treatment right. It may save us a trillion or two.

The subprime collapse is one symptom of years of little regulation, under-taxing, overspending, and massive debt. One way to understand what is happening in the United States is to look at what occurred time and again in Latin America and Asia, hotbeds of financial and banking crises. What we are living through happened time and again in Brazil, Argentina, and Mexico, as well as Korea and Thailand.

If there is too much debt, people lose confidence in the banks, then credit markets, currency, and government.

For more than a decade, the international financial cop, the International Monetary Fund, forecast a hurricane was heading toward US shores. As did many heads of the treasury and the Fed. It is, to paraphrase a great writer, a chronicle of an agony foretold. There are five basic drivers of these crises, all based on excess: high income concentration, too much debt, too much reliance on foreign money, not enough tax revenue, and reckless government spending. Time after time governments believe they are different. They are bombarded by warnings but ignore, postpone, spend even more, and crash.

Over past decades, most US wages have fared poorly. Despite stagnant wages, consumer spending and debt increased, fueled by cheap credit. Companies also went on a debt binge. Careless deregulation allowed financial cowboys to run the system. Responsible CEOs who kept some cash, maintained moderate debt, invested for the long term, got pink slips. Financial chop shops did leveraged buyouts using a company's own cash and credit. To survive, companies piled on debt.

Many politicians decided reelection depended on cutting taxes and offering more benefits. Increase Medicare, postpone Social Security reform, hire more bureaucrats, and pay for a two-front war. Debt grew to pay for this party. These were not true tax cuts, just postponed debt; now we owe more and the bill has come due with interest.

Complicating this crisis is US economic hegemony. There were few places to park a lot of money. Despite the euro, European policies on debts and deficits are not much to brag about. So foreigners have gorged on US debt. The United States continues importing more than it exports. Middle Easterners and Asians who save and invest bought dollars for decades, but some of this money is now fleeing. The dollar has dropped sharply. Gold and oil have skyrocketed. In financial crises, huge pools of capital cross borders very quickly; a few can make a great deal of money shorting the country's currency.

The United States requires a massive restructuring to address its debt, cutting back on its borrowing, spending, and wars. The bailout package is essential to keep the credit markets open. But absent sentences that include the word austerity all the bailout will accomplish is a temporary postponement. Bailout and stimulus are a stopgap.

A solution requires the country to begin to spend what it earns, reduce its mountainous debt, and address massive liabilities, restructure Social Security, pension deficits, military, and Medicare. No wonder politicians would rather spend more of your money now rather than address these problems. Because we have been spending 5 to 7 percent more each year than we earn, a forced restructuring, triggered by a currency collapse, would have the same effect on wages and purchasing power that the housing collapse had on housing prices. So let's learn from our Latin and Asian friends and act before it is too late.
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Juan Enriquez, managing director of Excel Medical Ventures, is author of "The Untied States of America: Polarization, Fracturing, and Our Future." Jorge Dominguez is vice provost for international affairs and a professor of Mexican and Latin American Politics and Economics at Harvard University.
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"Meltdown 101: How can the Fed's rate cut help?"
By Christopher S. Rugaber, AP Business Writer, October 8, 2008

WASHINGTON --Will U.S. consumers benefit from the interest rate cuts announced Wednesday by the Federal Reserve and several other countries' central banks?

For most people, probably not much, at least for a while. But people with strong credit could see lower credit card rates soon, and the move could eventually help point the economy in the right direction.

Here are some questions and answers about the interest rate cuts.

Q: Will the rate cuts help fix the financial crisis?

A: Not in the short term, most economists say. The cuts don't directly address the main problem behind the financial meltdown: the reluctance of banks to lend money.

But the coordinated rate cuts might deliver a psychological boost to the financial markets. That's because the cuts mean that once banks do start lending again, many borrowers will be able to get loans at lower rates. That, in turn, could help counter fears that the global economy is on the verge of a steep recession.

The U.S. stock markets weren't immediately encouraged. The Dow fell 189 points Wednesday, or 2 percent, to 9,258, and the S&P 500 dropped 11.3 points, or 1.1 percent, to 984.9.

Q: Why won't the rate cuts have a more immediate effect?

A: Because right now, banks aren't making very many loans at any rate. In today's economic climate, they're worried about borrowers' ability to pay them back. They're also hoarding cash because they lost money on bad mortgages and mortgage-linked investments.

"People who couldn't get loans yesterday ... can't get a loan today," said Carl Weinberg, chief economist for High Frequency Economics, a consulting firm.

Q: What exactly is this rate that was cut?

A: The Fed cut the federal funds rate, which banks charge each other for overnight loans. Cutting it is the Fed's main tool for energizing a sluggish economy. In normal times, a cut in the rate is supposed to ripple through the credit markets, lowering rates for mortgages and auto and other loans. But the effect is likely to be more limited this time, because of banks' reluctance to lend money at all.

Q: So if rate cuts won't quickly turn the credit crisis around, what can?

A: Economists hope the new $700 billion bailout package will encourage banks to offer more loans by removing bad mortgage-related assets from their balance sheets and providing more capital for them to lend.

In addition, the Fed this week said it will buy up huge amounts of short-term debt, known as "commercial paper," that companies use for short-term needs such as payroll. The goal is to jump-start a crucial part of the credit market by making cash available to businesses for their most urgent expenses.

Q: Which consumers should benefit from the rate cut?

A: Credit card users may see some benefit, particularly if they have good credit.

"Within one or two billing cycles, individuals ... should see their interest rates decline," said Keith Leggett, senior economist with the American Bankers Association.

But card issuers may provide those lower rates only to those with the best credit scores, said Greg McBride, a senior financial analyst at Bankrate.com.

Borrowing costs should also drop almost immediately for consumers with variable-rate home equity and other loans that are tied to the prime interest rate, which Bank of America Corp., Wells Fargo & Co. and other banks cut by a half point Wednesday.

Q. What about adjustable-rate mortgages?

A. That depends on how your rate is set. Adjustable-rate mortgages tied to Treasury rates are likely to drop as many Treasury yields have fallen in recent weeks, McBride said.

But those that are tied to the London Interbank Offered Rate, or LIBOR, will likely see a "big payment increase" in the next couple of months regardless of the Fed's cut, McBride said.

That's because LIBOR, which is the rate at which big international banks lend to each other, has spiked in recent weeks -- those banks just aren't eager to lend each other money, so they're charging higher rates when they do.

Q: What about people preparing to take on new fixed-rate mortgages?

A: They probably won't see much benefit. Fixed mortgage rates typically track the yield on the 10-year Treasury note, which is set in the bond market. The yield on that note rose by almost a quarter point Wednesday. Fixed mortgage rates have remained above 6 percent for most of the year despite the Fed's previous rate cuts.
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Associated Press writer Eileen AJ Connelly in New York contributed to this report.
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The New York Times (Online), October 9, 2008
"Central Banks Coordinate Global Cut in Interest Rates"
By CARTER DOUGHERTY and EDMUND L. ANDREWS

In a move of unprecedented scope, the world’s major central banks lowered their benchmark interest rates Wednesday, a coordinated effort to halt a collapse of share prices and a freeze in credit markets that threatens to set off the first global recession since the early 1970s.

The action failed to calm gyrating markets, however, amid the growing realization that a serious and prolonged recession may be difficult to avoid.

The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates.

In another monetary first, the Chinese central bank joined the effort — without explicitly saying it was doing so — by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending.

The Fed’s benchmark short-term rate now stands at 1.5 percent. The European Central Bank’s is 3.75 percent.

Taken together with other moves in the United States, Britain and Continental Europe in the last few days, the rate cuts look like part of a broader, global strategy that embraces aggressive use of monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among crisis-weary analysts.

“The gravity of the times requires out-of-the box responses,” said Jim O’Neill, the chief global economist at Goldman Sachs. “Atop of all the other things we have seen this week, it gives me great confidence.”

The efforts led to a brief rally on European stock markets, but it quickly fizzled. Benchmark indexes were off by 5 percent to 6 percent in Germany, Britain and France. Markets in New York were trading in a 400-point range, swinging between positive and negative.

Credit market conditions remained extremely tight, with the gap between yields on safe, three-month government securities and the rate that banks charge one another for loans of the same duration rising to more than 4 percentage points not long after the central banks acted — showing financial institutions remained deeply concerned about lending to one another.

Federal Reserve officials said Wednesday’s action was the first time ever that the Fed had coordinated a reduction in interest rates with other central banks, though the United States has periodically joined with other countries to intervene in currency markets to stabilize foreign exchange rates.

The closest thing to a precedent came in November 2001, when the Fed and the European Central Bank announced a rate reduction on the same day. But those actions were nominally independent, and they did not involve any additional foreign central banks.

The cut came despite what had been a divergence of views between the United States and Europe ever since the financial crisis erupted in August 2007. The European Central Bank had been much more reluctant to lower interest rates, because policy makers there tended to see the mortgage meltdown primarily as an American problem with secondary ripple effects in Europe.

But any lingering comfort outside the United States evaporated in the last week, as money markets froze up around the world and major corporations and banks across Europe began suffocating from their inability to do even routine financial transactions.

Making matters worse, none of the epic emergency measures taken in the United States — the passage of a $700 billion bailout plan to buy up distressed securities; a doubling and redoubling of emergency loan facilities at the Fed to $900 billion on Monday; and the Fed’s unprecedented decision on Tuesday to start buying up short-term commercial debt for businesses of all types — had prevented the stock markets from plunging at vertigo-inducing amounts day after day.

Some analysts responded positively to the news.

“At last, a coordinated show of force,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The move is to be applauded but there is more to come. The playbook to avoid depressions says rates need to be as close to zero as possible.”

Other economists were cautious about whether the various measures would be successful, after previous plans like the United States’ economic bailout have not halted steep declines in share prices.

“There’s no silver bullet for these problems,” said Derek Halpenny, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London. “But the actions by the Fed on Tuesday, the U.K. government’s bailout plan today and the bit-by-bit approach European governments are taking show the authorities are getting more proactive.”

The central feature of the acute credit crunch, which began in the United States and is now spreading rapidly in Europe, is the reluctance of banks to lend at any rate because they have taken such heavy losses already and are hoarding cash.

Not only does that interrupt the normal flow of credit for activities as basic as modernizing production lines or meeting payrolls, it gums up the normal mechanisms central banks use to ease credit and stimulate economic activity.

“The key lesson is when you face a confidence issue where the market participants no longer trust each other, the conventional macroeconomic tools are not as effective,” Olaf Unteroberdoerster, the International Monetary Fund’s representative in Hong Kong, said Wednesday.

The Sept. 15 bankruptcy filing of Lehman Brothers and subsequent near-failures of European banks drained financial market confidence globally. And whatever the shortcomings, rate cuts do help confidence, even if they have lost their power to spur stock market rallies, analysts said.

In some respects the rate cut was should not have been unexpected. On Tuesday, the chairman of the Federal Reserve, Ben S. Bernanke, had telegraphed such a move. In a speech, he said that the financial turmoil had forced the Fed to downgrade its already gloomy economic outlook and investors had all but assumed that it would lower the benchmark Federal funds rate no later than its next scheduled policy meeting on Oct. 28 and Oct. 29.

Until a few weeks ago, Fed officials had tried to separate its rescue efforts in the financial markets from problems of the underlying economy.

After a rushed series of rate reductions last fall and early this year, bringing the overnight Fed funds rate down to 2 percent in April, the central bank had concentrated its efforts on injecting hundreds of billions of dollars into the financial system to keep banks lending to one another and to their customers. But policy makers held back from further reducing interest rates, which reduce the overall cost of money, because they were worried about rising inflationary pressures.

Consumer prices have climbed sharply, largely because of huge increases in energy and commodity prices. As recently as the Fed’s policy meeting three weeks ago, the central bank’s official position was that its concerns about slowing economic growth were roughly equal to its concerns about rising prices. In reality, many policy makers were more worried about the onset of a recession — which many private economists say has already arrived. But there were still disagreements among members of the Federal Open Market Committee, which sets interest rates.
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Contributing reporting were Keith Bradsher, David Jolly, Martin Fackler, Bettina Wasserman, Michael M. Grynbaum, Hilda Wang and Peter Gelling.
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"THE SAVINGS GAME: Sorry, but there's no way to avoid paying taxes when you cash in an annuity"
The Boston Globe Online, Business: MONEY, October 17, 2008

Q: Years ago, I bought a fixed deferred annuity, as I didn't have, and still don't have, any retirement plan at work. The banker said it was like a certificate of deposit except I didn't have to pay tax on the interest.

Over the years, I've been contacted to renew the term, and restrictions on my ability to take money out start over.

When the current term matures in six years, can I take the lump sum and invest it as I wish, or do I have to take lifetime payments to avoid paying taxes on the interest?

I put in $20,000 of after-tax dollars and the annuity is now worth $45,000.

A: Fixed annuities, as the name implies, pay a fixed rate of interest. Although often sold at banks, they are issued by insurance companies and are not bank products. The issuing company, not any government agency, makes annuity guarantees.

Still, fixed annuities from financially strong insurance companies are considered fairly safe investments. Like CDs, many pay a set rate of interest, declared in advance, for a set period of time. And just as with CDs, you'll lose some of your money if you want to cash them before the term ends.

With bank CDs, the early withdrawal penalty is usually a few months' interest. With fixed annuities, you typically pay stiffer "surrender charges" that amount to a percentage of principal. On a six-year fixed annuity, a typical surrender charge may be 6 percent the first year, declining one percentage point each year until there is no charge after six years.

Many fixed annuities give you a window of say 30 days at the end of each term to cash it in without surrender charges. Every time you renew, surrender charges usually start all over again.

Sorry, but there is no way to take money out of the annuity without paying taxes on the interest. It's not accurate to say you don't have to pay taxes - you only delay paying the taxes until you take your money out. On top of regular taxes, there's generally a 10 percent tax penalty if you take money out of an annuity before age 59 1/2. If you cash in the annuity as a lump sum, you will owe taxes on the difference between the account value at the time of withdrawal and the $20,000 you put in. If you take lifetime annuity payments, taxes will be spread out but not spared. Part of each lifetime payment will be considered a tax-free return of the original $20,000 principal but another and bigger part will be taxable interest.

Many annuities allow investors to withdraw either the annual interest or 10 percent of principal a year without surrender charges, but the 10 percent penalty still applies if under 59 1/2. This type of withdrawal from your annuity will be fully taxable until there is only $20,000 left in the account, or what you put in initially.

You did not say whether you have ever opened an individual retirement account, or IRA. As a rule, you should contribute the maximum to an IRA before buying fixed annuities. Both give you tax deferral, but fixed annuities generally place more restrictions on accessing your money.
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Humberto Cruz is a columnist for the South Florida Sun-Sentinel.
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"'Golden years' losing luster amid deep investment losses: Many retirees fear lengthy downturn"
By Todd Wallack, Boston Globe Staff, October 18, 2008

Maxine Yarbrough's "golden years" suddenly look terrifying. As the stock market has unraveled, so have her plans for a secure retirement.

"I'm scared to death," said Yarbrough, 76, a former public school teacher in Sudbury. "I'm too old to go back to work."

Like other older investors, she is finding it hard to heed the advice many financial planners are dispensing these days: Stay calm, think long-term. That's easier for people whose careers have decades to go. But for retirees, and those who plan to leave the workforce soon, fears of a prolonged economic downturn are intense - they might need to tap into savings for everyday expenses and can't wait years for a recovery.

Since financial markets peaked last October, the Dow Jones industrial average is off 38 percent and the S&P 500 has shed 39 percent of its value. After the technology crash in 2000, it took nearly seven years for the S&P 500 to regain its previous highs.

A Suffolk University/Boston Globe poll taken in September, before this month's steep stock market decline, found that for Massachusetts workers on the verge of retirement, anticipation of a less stressful lifestyle has been replaced by deep concern. Fifty-six percent of residents age 55 to 64 were "very concerned" about the safety of their investments, more than any other age group. The Congressional Budget Office recently estimated that the market wiped out $2 trillion in retirement savings over the past 15 months.

And an AARP nationwide poll conducted last month indicated that one-third of workers 45 and older are so alarmed by the economy that they have considered putting off retirement, and one-fifth have stopped adding money to retirement accounts.

"They are very concerned," said Brenda Wenning, principal of Wenning Investments LLC in Newton, which helps manage investments for many older workers and retirees. To help protect her clients, Wenning moved much of their money out of the stock market in June, sparing them from some of the most brutal losses over the past few months.

Older workers and retirees wonder whether their remaining savings, even in conservative investments, are safe, and those who rely on dividends and interest to pay bills are watching their income shrink as companies slash dividends and US Treasury bills offer meager interest rates. In addition, many have watched the value of their homes steadily decline. The worries about making ends meet are compounded by the high costs of food and fuel.

"What we're going through is hurting workers of all ages, but it's more difficult for older workers because they have less time to recover and replace those losses they are suffering now," said Deborah Banda, AARP of Massachusetts director. Banda said the problem is exacerbated by the fact that a growing number of companies are scrapping guaranteed pensions in favor of 401(k) savings plans, spurring many employees to rely more on the stock market for retirement savings.

Bernadette Connaughton, 69, a retiree from West Roxbury, said she decided to look for a part-time job a month ago after watching the value of her mutual funds decay. She recently placed an ad on Craigslist offering a dog-walking service, as a way to generate extra income.

"I don't make enough from my pension and Social Security alone," Connaughton said.

Marguerite Sullivan, 65, who works part-time for a community health center, said the shaky economy derailed a planned trip to Europe to research her family history.

"Now those are dreams," said Sullivan, a West Roxbury resident. "What I thought I had was gone."

Sullivan said she is trying to stay calm whenever the Dow Jones average falls by hundreds of points in a single day. But it hasn't been easy - Sullivan knows she will have to rely on those investments when she stops working altogether.

Nearly one-quarter of workers ages 55 and older said they had at least $250,000 in investments - excluding home equity - compared with just 2 percent of those 25 to 34, according to the Employee Benefit Research Institute, a Washington, D.C., nonprofit. But that money can shrink fast when the markets tumble.

Roland Barrett, 66, of Milford said it is hard to watch years of savings evaporate, even though he doesn't need to cash out his investments now.

"You had what you thought was a lot of money," Barrett said. "Now you have that much less."

Phyllis Spiro was looking forward to retiring from her job as a benefits assistant for a Boston law firm, or at least taking part -time work. But not anymore.

"I'm going to die on the job," said Spiro, 70, of Norwood. "I would like to stay home, but that is not going to happen now. . . . I need the money and I need the benefits."

And Kate Collins, 75, of Medford said she's had to cut back on the amount she spends on food as her investments have withered. "The economy is terrible," said Collins, who attended the Senior Benefits Expo at Boston City Hall this month, where nonprofits and government agencies provided information on housing and other benefits to seniors. A similar meeting was held in Taunton this month.

To be sure, not every senior has been affected by the market swoon. Many retirees rely solely on pensions and Social Security for income and don't have any significant investments. Others say they can afford to wait for the market to spring back.

"Investing in the long run means that you can ride out a storm like this," said Stephen Soffron, 65, a retired industrial engineer from Marblehead. Soffron said he doesn't need to sell any of his investments right away and is optimistic stocks will go back up.

Still, many Massachusetts seniors are worried.

Allen Williams, 66, of Franklin had been hit by a triple whammy - the slowing job market, tumbling stock indexes, and the real estate slump.

Williams, who manages a small electronics manufacturing company, is taking a buyout this month. He's been trying to sell his Colonial-style home since May. And his 401(k) has lost 30 percent of its value.

"I have a tremendous sense of timing," Williams said wryly. "It's kind of hard to be cheerful."

If the stock market hadn't declined, Williams said, he would probably be looking forward to spending more time with his family this winter. Instead, he plans to hunt for another job.

"The next time it goes up, I think I'll take the money and put it in a sock," he said.
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Todd Wallack can be reached at twallack@globe.com.
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"Treasury may add insurers to investment list"
By Bloomberg News, October 25, 2008

WASHINGTON - The US Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections to target regional banks and other financial companies, a person briefed on the plan said.

A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to reveal investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.

An initial $125 billion out of $700 billion approved by Congress was allocated last week to buy shares of nine of the largest US banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.

"Capital adequacy has been a major concern among investors" in insurance companies, said Nigel Dally, an analyst at Morgan Stanley in New York, in a note to investors yesterday. "If the Treasury were to purchase preferred equity stakes in some insurers, it would help calm these concerns."

Paulson has shifted the government's financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers Thursday.

A group of insurance companies - primarily life insurers - asked the Treasury this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.

Some life insurers have asked the government to make the participation of life insurance companies mandatory because firms don't want to identify themselves as needing funds, the person said.

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"Retirement investment blows are smaller for lawmakers: Treasury backs their pension plan"
By Erica Werner, Associated Press, November 2, 2008

WASHINGTON - Along with the rest of America, Representative George Miller has watched the value of his retirement investments plummet in recent weeks.

"I've lost 30 percent like everybody else. This hits home with the Miller family, too," the California Democrat said in a recent interview.

But the blow is softer for members of Congress than for most. Although lawmakers have lost value in their thrift savings plans - the government's version of a 401(k) - they are also offered a defined-benefit pension plan backed by the US Treasury and largely insulated from Wall Street fluctuations.

That puts Miller and the other lawmakers into an increasingly privileged category - workers with guaranteed retirement benefits that aren't subject to the vicissitudes of the financial markets.

Market meltdown or no, if Miller, 63, were to retire at the end of this year he'd take an annual pension of about $122,000, according to the National Taxpayers Union, a nonprofit advocacy group in Arlington, Va. On top of that, he could tap whatever remains in his 401(k)-like savings plan.

Lawmakers' retirement benefits start earlier and accrue faster than in plans offered to other federal workers, or by the average private company. Lawmakers also get cost-of-living increases, increasingly rare in the private sector.

Five percent of private sector workers have defined benefit pension plans, in which the employer pays into an account and promises benefits based on years of service, salary levels, and other factors. That's down from 1980, when 60 percent of workers had such plans, according to the Center for Retirement Research at Boston College.

Increasingly, employers are putting the responsibility for retirement - and the risk - onto workers by switching to investment plans like 401(k)s. About 30 percent of workers have 401(k)s, in which employees contribute to their own accounts, often with employers matching a small percentage of contributions, according to the Employee Benefit Research Institute. Thirteen percent have both defined-benefit pensions and 401(k)s. The remaining workers don't have retirement coverage from their employers, according to the institute.

Despite the financial crisis - and the fact that lawmakers' retirement benefits are out of step with most ordinary Americans - Congress has made no effort to revisit its unusually sweet retirement deal.

Representative Howard Coble, Republican of North Carolina, who has declined participation in the congressional pension or thrift savings plan, said his efforts to scale them back have not been welcomed.

"It would certainly be a timely gesture at this juncture," said Coble. "It certainly appears to be a different standard, and I can see how people on the outside of that standard might resent it."

The generous retirement arrangement for members of Congress is meant to respond to the job insecurity that comes with elected office, according to Barbara Bovbjerg, director of education, workforce, and income security issues at the Government Accountability Office.

Members elected before 1984, like Miller, get a better deal on their pensions than those elected since because the rules changed that year to bring lawmakers into the Social Security system as well.

But any member with five years of service is eligible for full pension benefits at age 62 - though Social Security benefits conform with those of other workers, with early retirement bringing reduced benefits. Lawmakers with 20 years in office can get full pension benefits at 50, younger than most workers.

"The government plans are certainly very rich even if you compare them to the pension plans in corporate America," said Robyn Credico, national director of defined contribution consulting at Watson Wyatt, an employee benefits consulting firm.

"I certainly believe it affects policy," Credico said, suggesting that members of Congress don't experience the harsher reality of ordinary workers' retirement plans. "If you're not impacted yourself it's very easy to make different rules."

Congress has in recent years promoted the dramatic movement in corporate America away from defined-benefit pensions to 401(k)s with policies encouraging automatic enrollment and raising contribution limits. Under 401(k) plans, employees contribute to their own investment accounts and assume the risks and rewards that go with them. Lately, with the crisis on Wall Street and across the globe, it's been more risk than reward.

Earlier this month, Miller's House Education and Labor Committee found that Americans' retirement plans - pension plans and 401(k)s included - have lost as much as $2 trillion in the past 15 months - about 20 percent of their value.

And although private sector employees with defined benefit pensions are guaranteed their pensions even if the value of the plan drops, employers may make up for the extra cost in other ways, like layoffs and cutting other benefits, specialists say.

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"The middle class helplessly watches wealth evaporate"
By Robert Weisman, Boston Globe Staff, November 7, 2008

It's getting eerily familiar: another plunge in the Dow. The index has tumbled nearly 930 points in the past two days, retreating to a level that, until the current economic crisis, hadn't been seen in five years.

Another stock loss also means another loss of personal wealth for tens of millions of middle-class Americans who invest in financial markets, either directly or through retirement accounts. And it's not just stocks. In September, median home prices in Massachusetts dropped below $300,000 for the first time since the spring of 2003.

For some, the five years of growth and prosperity that preceded the financial crisis now seem like a mirage, as if the run-up in financial markets and real estate prices simply did not occur. Stocks alone have lost more than $5 trillion in value in the past 13 months, leaving legions of investors in a state of shock.

"Nobody put a gun to my head and said, 'Put it in mutual funds.' It seemed like a logical thing to do at the time, but now there's a whole lot less of it," said Diane C. Darling, 49, a Boston business consultant.

Darling spent years paying rent while she squirreled away money in mutual funds, hoping to eventually buy a home. But she recently made the wrenching discovery that five years of her savings - more than $50,000 - had vanished with the stock market plunge. "All of a sudden, I had half of what I thought I was going to put down for a down payment," she said. "It's not where I thought I'd be at this stage of my life."

The near daily barrage of troubling economic news has challenged assumptions about building wealth, especially the buy-and-hold philosophy of investing for the long term, which has been broadly embraced by ordinary investors. Yesterday, the Dow fell 443.48 points, or 4.9 percent, to 8,695.79.

"There are feelings of loss and grief over losing a nest egg, a feeling of security," said Boston clinical psychologist Inna Khazan, a psychology instructor at Harvard Medical School. "There's a lot of second guessing of past decisions: 'I wish I hadn't invested my 401(k) money in stocks, I wish I picked different stocks.' They had a plan they thought was working. Now they'll have to make a different plan."

Some have begun to do just that. Frank Gerry, a 47-year-old software engineer, bought his house in Brighton in 2003, and after its value climbed steadily for five years, watched it sink back to roughly what he paid for it. Gerry, however, said he shifted much of his 401(k) savings into cash in the past year because he was wary of a market bubble. Now that it's popped, he's putting it back in stocks.

"I don't consider myself poorer," Gerry said. "I consider this an opportunity to make a killing in the next five years. I could lose my job next week, for all I know. But if I do, I'll do something else. I'll get another job, I'll go to work at Home Depot, or I'll start a business."

Not everyone is dealing with the loss of wealth with equanimity. Judy Ludwig, a financial planner for Braver Wealth Management in Newton, said people are "spending less and they're stressing more. I don't know if they're drinking more. There's a sense of unreality. They say if they had just put their money under their mattress for the past five years, at least it would still be in the same place."

In many cases, the default reaction to tough times is to tighten the purse strings, a tendency that has begun to show up in the economic data. The economy shrank 0.3 percent in the third quarter, largely because consumer spending dropped at an annual rate of more than 3 percent, the sharpest fall in 30 years.

"The psychological impact is creating a kind of paralysis for many individuals," warned business author Shoshana Zuboff, a retired Harvard Business School professor now living in Maine. "There's shock, and people literally don't know what to do. And as a result, they are trying to do absolutely nothing. They don't want to spend anything."

And some are having second thoughts about the buy-and-hold strategy as they reassess their tolerance for risk.

"If you're down 30 percent, you're asking yourself whether you can get that back in five years or whether it will take longer," said Donald Klepper-Smith, chief economist at DataCore Partners, a New Haven, Conn., research firm. "Buy and hold works for the long term, but if you're about to retire, you're taking it on the chin."

Financial planners like Ludwig counsel their clients to stay in the market and wait for it to rebound, buying stock at beaten-down prices along the way. But that message isn't an easy sell these days.

"People want it both ways," Ludwig observed. "They don't want to lose more money, but they don't want to miss out on the days when the Dow goes up 889 points. They're not being realistic."

Khazan, the clinical psychologist, has her own words for patients reeling from erosion in their personal wealth: "I advise people to experience their anxiety, nor run away from it," she said. "Anxiety is very unpleasant, so people try to push it away and not face it. But there's a good reason to be anxious, and anxiety is there for a reason."
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Robert Weisman can be reached at weisman@globe.com.
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11/9/2008

Politics is all a fix anyway. Denis E Guyer is a Billionaire Crane Family Golddigger. "Luciforo" is the son of a Judge, nephew of a Pittsfield Mayor and also a State Representative, both of whom ran Berkshire Community College. John Forbes Kerry is a Billionaire Heinz Family Golddiger & the wealthiest member of US Congress. Barack Obama broke his pledge on sticking with public campaign financing and outspent John McCain by a ration of 3 to 1, which made the 2008 Presidential Election an anointment rather than a fair competition. The Corporate Elite has a record number of lobbyists who do more work than most US Congress-members. The system is all a fix!

- Jonathan Melle

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Nouriel Roubini Understands the Financial Crisis; His Own Life Is Just as Complicated
(ABC News Photo Illustration)
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"The Man Who Saw It Coming: Meet Dr. Doom: Nouriel Roubini Understands the Financial Crisis; His Own Life Is Just as Complicated"
By ALICE GOMSTYN, ABC NEWS Business Unit, Nov. 6, 2008 —

He's known as Dr. Doom, but Nouriel Roubini doesn't really resemble the comic book villain who originally held the name.

In fact, unlike his green-caped alter ego, Roubini, 50, is a rather popular guy. Visitors to his sunny, bustling Manhattan office will find a slightly-rumpled intellectual with a relaxed air that betrays the fact that he is constantly on the move.

Any given day might find Roubini in a different time zone or a different continent, whether at a business meeting in Europe, a Congressional hearing in Washington, D.C., or the occasional eyebrow-raising party at his own spacious city loft.

So what's with the morbid nickname? It has to do with Roubini's prescience: Two years ago, the economist and New York University professor predicted a severe U.S. recession, triggered by a giant housing slump and exacerbated by rising oil prices and rising debts.

"This is a tipping point for the U.S. consumer," Roubini wrote in late August, 2006, "and the effects will be ugly."

Days later, he shared his forecasts in a speech before economists at the International Monetary Fund. He predicted the downfall of subprime mortgage lenders and the risks to U.S. mortgage giants Fannie Mae and Freddie Mac, to banks and, ultimately, to the world economy.

"I started talking about subprime mortgages being a problem when 99 percent of the world had never even heard the word subprime," Roubini said in a recent interview with ABCNews.com.

"At the time, people thought I was crazy," he recalled.

To be sure, Roubini wasn't the only economist to warn of a housing bust and related consequences.

But "the bulk of the people in the audience at that point were not where Nouriel was," said Prakash Loungani, the IMF research advisor who invited Roubini to speak. "They thought what he was describing was something out in the left field."

Don't expect economists who doubted Roubini to concede that they were wrong, Loungani added.

"Economists don't come out and say these things," he said. "I think it's reflected just in the respect and the following he has now. That's where you see the shift."

Not a 'Permabear'?

Still, not everyone is convinced of Roubini's prognostication skills. Kenneth Rogoff, an economics professor at Harvard who has known Roubini since he was a grad student, said Roubini has been pessimistic about the economy for a long time.

"He provides a lot of value-added [analysis] because he's looking at dark scenarios and what could happen and how it could happen," he said.

But, he said, "I don't think the point is that he called the recession, because he's called the recession repeatedly for many years."

Roubini dismisses the idea that he is a "permabear" -- economist slang for someone who systematically projects downturns -- just as he dismissed skepticism about the dire predictions he made two years ago.

"When there is a bubble, there is euphoria and irrational exuberance and people lose track of the overall underlying fundamentals," he said. "I was comfortable with the rigor of my analysis."

After a decade spent studying financial crises in emerging markets, Roubini was able to draw parallels between emerging market countries and the well-established U.S. economy through everything from housing and credit bubbles to enormous deficits.

The United States, Roubini told the New York Times in August, "looked like the biggest emerging market of all."

His work, he said, is holistic in that he relies not just on statistical models but also on empirical experience and history.

Roubini's own history is as complicated as some of his analysis.

The son of an Iranian-Jewish Persian carpet exporter and a homemaker, Roubini lived in three different countries before the age of 5. He was born in Turkey while his parents were there on business, later moved to Tehran and then Tel Aviv, Israel before his family -- Roubini is the oldest of four -- finally settled in Italy.

The 'Little Geek'

It was as a young teenager that Roubini discovered his interest in economics.

"I was already a little geek by the age of 14 or 15," he said.

After graduating college in Italy, Roubini moved to the United States to pursue a h.D. at Harvard University, where he studied under noted economists Jeffrey Sachs and Lawrence Summers, who later served as Treasury Secretary under President Clinton and has been named as a candidate to fill that post again in the Barack Obama administration.

Roubini began his own teaching career at Yale University, where he worked as an assistant professor before transferring to become a tenured professor at NYU's Stern School of Business. For two years, he left his NYU post for D.C., first to work at the White House Council of Economic Advisers and then to join Summers at the Treasury Department.

Along the way, he started an economics blog that grew to become a full-blown business: In addition to its economic analysis subscription service, RGE Monitor -- short for Roubini Global Economics -- advises private and public sector clients around the world.

Today, RGE business accounts for much of Roubini's global travels -- "In the next few weeks I'm going to be traveling to France, Germany, Switzerland and Spain and spending Thanksgiving in Russia, of all places," he said recently -- which he balances against his NYU teaching schedule, economic conferences, speaking engagements and, last but not least, a busy social calendar.

Though Roubini works 12 hours a day, the great thing about New York, he said, is that after work there's always a gallery opening, a museum event, a dinner party or a banquet to attend.

But his social outings have recently garnered Roubini some unwelcome media attention that has evolved into a bizarre feud with the editor of a gossip Web site.

The Birth of Dr. Boom?

Nicholas Denton, the founder of Gawker.com, recently wrote a post labeling Roubini, who is single, as a playboy, citing the numerous party pictures of a smiling Roubini posted on the social networking Web site Facebook. Gawker also published a message that Roubini wrote to a woman, joking about a decadent vacation in St. Tropez and inviting her out for drinks.

The Gawker posts prompted an angry response from Roubini, who excoriated Denton by posting messages on Denton's own Facebook page, accusing him of "Nazi-style anti-Semitism."

Neither man will comment on the situation, but Roubini says he stands by his posts on Denton's page. He is also unapologetic about his social life.

"I don't stay home," he said. "I have a life."

The cheery face that Roubini wears at social gatherings may be finding its way into his professional life & at least a little.

His predictions for the economy remain dire -- he expects an 18- to 24-month-long recession, far longer than the typical 8-month U.S. downturn. But he believes that a range of measures, from more government spending on infrastructure to more money for banks to a temporary freeze on foreclosures, could allow the country to avoid an even more severe financial crisis.

And he doesn't think the nation is headed toward another Great Depression.

"I'm sure we'll get out of it," Dr. Doom said.

"A year and a half from now when things are changing," he added, "I might be Dr. Boom."

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The $700b bailout
"With $40b spent on AIG stock, half of funds are accounted for. Who will get what is left?"
By Michael Kranish, Boston Globe Staff, November 11, 2008

WASHINGTON - The ingredients: an economy in peril, a lame-duck Congress and president, a president-elect in transition, and a $700 billion pile of bailout money available to those in greatest need.

The result: The available bailout money is shrinking even faster than anticipated, and it's already being spent in ways not previously anticipated. Yesterday, the Bush administration decided to use $40 billion from the bailout funds to buy stock in the struggling insurance company American International Group Inc., while automakers teetering on the brink urged that they be added to the list of those allowed to tap the funds.

President-elect Barack Obama, meanwhile, was not asked whether he approved of the decision to invest an additional $40 billion in AIG, an administration official said. Obama is waiting in the wings, hoping there is enough bailout money left for him to put his imprint on the program by the time he takes office Jan. 20. Already, his aides have said they want to help automakers, but they have not provided specifics.

Indeed, with many homeowners facing foreclosure and some businesses near bankruptcy, there are countless ways to spend the money "if you add up all the companies in the country that are in trouble," said Peter Morici, a University of Maryland School of Business professor who is closely monitoring the expenditure of bailout funds. But unless systemic changes are made in the companies that get the money, he said, it might not go far in turning around the economy. For example, Morici questioned whether the auto industry can recover without a new labor agreement and a way to cut more of its healthcare costs.

Last week, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid wrote to the Bush administration asking whether automakers could be included in the $700 billion package. Although Congress separately approved a $25 billion loan to the industry, the auto companies have said they need more money and have looked to the bailout program as a potential source.

But Massachusetts Democrat Barney Frank, chairman of the House Financial Services Committee, said in an interview yesterday he opposes using any of the $700 billion for the auto industry. The bailout money is needed to free up credit, said Frank, who stressed he would not be opposed to finding other ways to help the auto industry.

"I do think there should be aid to automakers, but not as part of this program," he said.

Under the bailout bill, President Bush was given the authority to spend the first $350 billion as he sees fit, with another $350 billion contingent on whether lawmakers are satisfied with how the program is working. Frank said he will hold hearings next week in an effort to determine whether banks are lending as much money as they receive from the government.

Of the $350 billion allocated so far, $250 billion is to be used to recapitalize financial institutions, $40 billion is for AIG, and the remaining $60 billion is available for other uses. While automakers and other troubled industries might try to stake a claim to the $60 billion, Frank said it should be used largely to buy up troubled mortgage-backed assets and other bad debts. But while the purchase of bad mortgage-backed assets was at the center of the debate over the bailout, none of those assets have been purchased so far, a Treasury spokeswoman said yesterday.

A separately funded program to help homeowners who face foreclosure, Hope for Homeowners, has been underway for less than six weeks, too little time to determine its effectiveness, according to government officials.

The decision by the Bush administration to provide more money to AIG underscored the difficulty of predicting how the bailout money will be spent. Administration officials said the precariousness of AIG's financial condition in September was underestimated. The government had hoped federal loans and a credit line worth $123 billion would save the massive insurer. The administration now says AIG, deemed too vital to the economy to be allowed to fail, needs $150 billion and more time to repay its debt. As a result, the government eased the terms of the previous loan and used $40 billion of bailout funds to buy preferred stock in the company.

The government's decision to become a major investor in AIG is bound to raise questions about whether it should similarly invest in auto companies and other businesses suffering massive losses. Louis Lataif, former president of Ford Motor Co.'s European operations and now dean of Boston University's School of Management, said the government should consider loaning money to automakers to help them get through the next two years. Without such a loan, Lataif said, it is possible that General Motors Corp. or another large carmaker could collapse, sending damaging reverberations throughout an already weakened economy. Still, he opposes using public money to buy outright stakes in the firms.

The Bush administration did not consult Obama or congressional leaders in deciding to spend the $40 billion on AIG. Frank, who was briefed on the plan Sunday night, said he hoped the White House would work more closely with the Obama transition team on expenditures it wants to make before the presidency changes hands.

As for the second installment of $350 billion, it is not yet clear whether that will be allocated before or after Obama becomes president. Either way, officials said it is likely Obama will be able to control how most of the money is spent.
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Michael Kranish can be reached at kranish@globe.com.
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"Another AIG Resort "Junket": Top Execs Caught on Tape: KNXV Discovers $343,000 Secret Gathering, AIG Signs and Logos Hidden"
By BRIAN ROSS and JOSEPH RHEE, abcnews.go.com, November 10, 2008 —

Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.

Reporters for abc15.com (KNXV) caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite apparent efforts by the company to disguise its involvement.

"AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported.

A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word [AIG]."

A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff.

"We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed."

"What do they have to hide," asked Congressman Elijah Cummings (D-MD) who said he had been promised by AIG CEO Edward Liddy that the company would stop such "junkets."

"They came to us and said they were drowning and needed help. A person who is drowning doesn't jump up and start partying," said Congressman Cummings.

Cummings said Liddy should resign as AIG CEO.

The AIG spokesman said Cummings "was mistaken" about the nature of the Phoenix event.

"It's terrible," said former AIG chairman Hank Greenberg. "I don't think the left hand knows what the right hand is doing there."

AIG came under fire last month when Congressional investigators revealed its executives attended a seminar for independent insurance agents at another luxury resort, in Southern California.

The AIG spokesman said the meeting in Phoenix was for independent financial advisors and "was the kind of thing we have to do to run our business."

Company officials confirmed the company spent an estimated $343,000 to sponsor the 2008 Asset Management Conference. A spokesperson said much of the cost would be recouped from product sponsors at the conference.

KNXV said the president of AIG unit Royal Alliance Associates, Art Tambaro, stayed in a two-story Casita suite and worked out at the spa while others participated in seminars.

Tambaro and other AIG executives declined to comment when approached by KNXV.

The AIG spokesman said the Casita suite was provided for free by the hotel because it had booked so many rooms.

AIG confirmed that former football quarterback Terry Bradshaw had been scheduled to appear and sign autographs. The company said it canceled Bradshaw's appearance which was to have been paid for by another company that was a sponsor of the event.

AIG said it conducted a "top to bottom review" of expenses "to validate that only expenses required to ensure the meeting's success are incurred."

The president of the AIG Advisor Group, CEO Larry Roth declined to speak to KNXV.

In a written statement, he said "We take very seriously our commitment to aggressively manage meeting costs." He said financial planners were charged a registration fee and for their travel.

A spokesman said the rooms at the luxury resort were made available at a discount rate of $189 a night.

The reports of the resort gathering came on the same day the U.S. Treasury announced it would invest $40 billion in AIG to bring the amount the federal government has put up to prevent the troubled insurance company from declaring bankruptcy to $150 billion.

"This action was necessary to maintain the stability of our financial system," said Neel Kashkari, who heads the government's bailout program.

"In return," said Kashkari in a speech today, "AIG must comply with stringent limitations on executive compensation for its top executives, gold parachutes, its bonus pool, corporate expenses and lobbying."

In addition to Roth and Tambaro, the AIG executives who spent last week at the Phoenix resort, according to KNXV, were Mark Schlafly, president and CEO, FSC Securities' Gary Bender, senior vice president, Investment Advisory Services; and Stuart Rogers, senior vice president.

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"A Fannie-Freddie Fix: In Lawrence Summers, the president-elect has found the right person to reform the mortgage giants."
The Washington Post, Editorial, Friday, November 28, 2008; A28

IT LOOKS like Lawrence Summers will be the economic ideas man inside the Obama White House. As a former Treasury secretary and Harvard president, he is well qualified for his new post, which carries the formal title of director of the National Economic Council. And we have a suggestion for his first special task: devising a long-term solution to the mess at Fannie Mae and Freddie Mac.

When the Bush administration took over the two companies, which specialize in securitizing home mortgages, this year, it pledged that the move would make the mortgage market more liquid. This was true, in the sense that Fannie and Freddie -- which own or back more than $5 trillion in mortgages and which reported combined losses of $54 billion in the third quarter -- would probably be in even worse shape now if the government had not acted.

However, the government's action created new uncertainties about the two firms, and those uncertainties are impeding housing's recovery. One market worry -- the precise nature and strength of the government's guarantee -- was partly resolved on Tuesday when the Federal Reserve announced that it would buy Fannie and Freddie's mortgage-backed securities and some of their debt. But the more fundamental question of Fannie and Freddie's future remains unresolved. Market wariness toward their debt reflects investor doubts as to whether they will remain government-sponsored enterprises, or GSEs, owned by private shareholders but with taxpayers on the hook for their losses -- or whether they will be reformed.

Mr. Summers is the right person to lead a Fannie-Freddie rethink because he so clearly comprehends what went wrong. In a July 16 posting on the Creative Capitalism Web site, he provided this succinct postmortem: "The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation." "When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were 'private companies.' But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe."

In a Post op-ed on July 28, Mr. Summers suggested that after the current crisis has passed, the government could divide the firms' "functions into government and private components, the latter of which would be sold off in multiple pieces. The proceeds could be used to fund the low-income housing support activity that was previously mandated to the GSEs." Whether or not that precise formula is best, Mr. Summers is clearly right that the hybrid public-private model no longer makes sense -- a point that his future boss, President-elect Barack Obama has also embraced. Now all that's left is for the new administration to place a high priority on fixing Fannie and Freddie, give Mr. Summers the assignment, and start working with Congress to make it happen. For a presidency that promises fundamental change, we cannot think of a more appropriate undertaking.

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"Stocks end short session with 5th straight gain"
By Tim Paradis, AP Business Writer, November 28, 2008

NEW YORK --Wall Street climbed again Friday, wrapping up its biggest five-day rally in more than 75 years, even as investors digested signs of a bleak holiday season for retailers and fears that a flurry of reports next week will show more economic distress.

On the short trading day, investors snapped up the battered shares of blue-chip stalwarts Citigroup Inc., General Motors Corp. and Ford Motor Co., fueling a rally that has surprised many market experts whipsawed by wild swings during the past three months.

The market got big boosts over the past week from President-elect Barack Obama naming his economic team, the government propping up Citigroup, and the Federal Reserve deciding to buy massive amounts of mortgage-backed securities. These efforts sent mortgage rates plunging, and reassured the market that broad efforts are still being made to fight the financial crisis that intensified in September with the bankruptcy of Lehman Brothers Holdings Inc.

Just last week, the S&P 500 index fell to its lowest point since 1997 while Citigroup and GM were trading at 15-year and 70-year lows, respectively -- touching off worries about how far the market would slide.

While the stock market's strong rebound was certainly welcome, analysts were hesitant about getting too optimistic. Not only did were trading volumes very light on Friday, but investors will be digesting a slew of economic data next week ranging from a reading on the manufacturing sector to the all-important employment report from the Labor Department. Both are expected to be dismal.

"We're seeing some confidence come back into this stock market, but I don't think that's necessarily a reason to be dropping our guard," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "You still have to be cautious. There's opportunity, but you have to be extremely selective and defensive."

The stock market closed three hours early the day after Thanksgiving and locked in gains of 16.9 percent for the Dow since the rally began Nov. 21, 19.1 percent for the S&P 500; and 16.7 percent for the Nasdaq.

It was the first time the Dow rose for five consecutive sessions since July 2007, and the biggest five-day percentage gain over five sessions since Aug. 8, 1932. For the S&P 500, it was the first five-day string of gains since July 2007, and the largest five-day percentage gain since March 16, 1933.

The month of November wiped out $1 trillion of shareholder wealth, but the last five days gained $1.2 trillion, according to the Dow Jones Wilshire 5000 Composite Index, which reflects the value of nearly all U.S. stocks.

What could stymie the rally, however, is if the holiday shopping period, which began in earnest Friday, turns out even worse than expected. Wall Street already anticipates that retailers will suffer as consumers, nervous about a difficult job market, lower home values and a jittery stock market, grow more restrained in their spending this year.

"You've seen all sorts of numbers that point to the fact that discretionary spending in the economy has come to an absolute halt," said David Reilly, director of portfolio strategy at Rydex Investments.

Some retail stocks rose Friday as some investors hoped the predictions have been overly dour. Macy's Inc. added 5.6 percent, though some discounters, like Wal-Mart Stores Inc., slipped.

A rare drop in year-over-year holiday spending would be troubling, as it is the most important period of the year for most retailers and because consumer purchases account for more than two-thirds of U.S. economic activity. But while some stores around the nation appeared busy Friday as shoppers looked for bargains, the early evidence was anecdotal and Wall Street would have to wait for cash register tallies.

"The discounting appears to be unbelievable," said Reilly. "The retail sector is going to do whatever it can to get people through the door."

On Friday, the Dow rose 102.43, or 1.17 percent, to 8,829.04.

Broader stock indicators also rose. The S&P 500 index advanced 8.56, or 0.96 percent, to 896.24, while the Nasdaq composite index rose 3.47, or 0.23 percent, to 1,535.57 after spending much of the session lower.

The Russell 2000 index of smaller companies rose 4.28, or 0.91 percent, to 473.14.

Government bonds rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 2.92 percent from 2.99 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, edged up to 0.05 percent from 0.03 percent Wednesday.

The average overnight rate on a 30-year fixed mortgage was 5.76 percent Friday, according to Bankrate.com, down from 6.00 percent a week ago. The average overnight rate on a 15-year fixed mortgage was 5.50 percent, down from 5.64 percent.

Citigroup was by far the biggest gainer Friday among the 30 stocks that make up the Dow industrials, rising $1.24, or 17.6 percent, to $8.29. Just a week ago, the bank's stock was selling off precipitously, before the government put together a plan to backstop more than $300 billion of the bank's assets.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, noted that the day after Thanksgiving is historically a winning day for the market, and that the recent bounce resembles those seen in October when the market stormed higher on relatively light volume only to retreat in the face of gloomy economic readings. Market advances on light volume can indicate that there are simply fewer sellers rather than a strong number of buyers snapping up stocks with conviction.

"We're looking at this like not much more than a light-volume, bear market bounce," Detrick said. "They go away just as quickly as they happen, unfortunately."

In addition to next week's economic data, investors will be waiting to see if Detroit's major automakers can secure federal loans after sending restructuring plans to Capitol Hill by Tuesday. General Motors Corp. rose 43 cents, or 8.9 percent, to $5.24 Friday, while Ford Motor Co. rose 54 cents, or 25 percent, to $2.69. Chrysler LLC isn't publicly traded.

The dollar mostly rose against other major currencies, while gold prices also advanced.

Light, sweet crude fell a penny to settle at $54.43 per barrel on the New York Mercantile Exchange.

Advancing issues outpaced decliners by more than 2 to 1 on the New York Stock Exchange, where consolidated volume came to 2.63 billion shares, down from 5.71 billion shares on Wednesday.

Overseas, Japan's Nikkei stock average fell 0.23 percent. Stocks in India rose a day after trading was suspended because of the terrorist attacks in Mumbai, the country's financial capital. The Sensex Index ended the day with an advance of 0.7 percent.

Britain's FTSE index rose 1.46 percent, Germany's DAX index rose 0.09 percent, and France's CAC-40 advanced 0.38 percent.

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The Dow Jones industrial average ended the week up 782.62, or 9.73 percent, at 8,829.04. The Standard & Poor's 500 index finished up 96.21, or 12.03 percent, at 896.24. The Nasdaq composite index ended the week up 151.22, or 10.92 percent, at 1,535.57.

The Russell 2000 index finished the week up 66.60, or 16.38 percent, at 473.14.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 8,945.20, up 1,019.14 points, or 12.86 percent, for the week. A year ago, the index was at 15,581.48.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.comd

(This version CORRECTS closing number for Nasdaq.)

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"Meltdown not over, new US mortgage crisis looms"
By Associated Press, Thursday, November 27, 2008, www.bostonherald.com, Real Estate

WASHINGTON - The full scope of the U.S. housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts across the country.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls around the United States are entering foreclosure.

Hotels in Tucson, Arizona, and Hilton Head, South Carolina, also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

"We’re probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

"It’s a toxic drug and nobody knows how bad it’s going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don’t pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens ’n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won’t have the money.

Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won’t write mortgages as long as investors won’t purchase them.

"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They’re not buying anything."

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

"The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

"He’s created havoc in the marketplace by changing the rules," Rosen said. "It was the stupidest statement on Earth."

The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don’t have to declare huge losses whenever the market declines.

But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, "There’s going to be a lot of pain going forward."
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Article URL: www.bostonherald.com/business/real_estate/view.bg?articleid=1135304
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"Blaming the bankers"
Posted by Scott Van Voorhis, Boston.com, November 28, 2008, 9:00 AM

It’s a tough time to be in real estate, especially the business of selling homes.

But here’s one thing real estate folks can give thanks for. While the housing market is a mess, the Joe the Plumbers of the world are blaming the bankers, not their local real estate agents.

Bankers now find themselves one of the public’s favorite targets after the meltdown on Wall Street, according to a new Gallup poll. Nor can I imagine the sudden clampdown on credit – and the mountain of rejection letters sent out to would-be borrowers of car and home loans - is helping the industry’s popularity either.


Bankers saw a decline in their positive ratings from 35 percent to 23 percent, according to the Gallup survey. That’s the slice of the public that believes bankers have high or very high ethical standards. It was also the only profession that saw such a dramatic drop in the annual survey by the public opinion firm.

For bankers, it’s an all-time low.

To put it into historical perspective, the last time bankers were viewed this unfavorably was twenty years ago during the savings-and-loan crisis. But even then bankers won positive ratings of 26 percent, compared to 23 percent today.

Not that real estate agents get off without a scratch. While the public’s view of real estate practitioners and their ethical standards has pretty much stayed the same over the past year, there’s not a lot to boast of here.While 57 percent of those polled by Gallup think real estate practitioners have “average ethics,’’ only 17 percent give them a positive rating for having high or very high ethical standards.

The news media can’t crow either, though.

Nearly half those surveyed, 44 percent, judged journalists to be just “average’’ on the integrity front. Another 31 percent believe journalists have low or very low ethical standards.

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The Lehman Brothers booth on the trading floor of the New York Stock Exchange, September 16, 2008. (REUTERS/Brendan McDermid)
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"Lehman bankruptcy filing wiped out billions: report"
December 29, 2008, NEW YORK (Reuters) -

Lehman Brothers Holdings Inc's emergency bankruptcy filing wiped out as much as $75 billion of potential value for creditors, The Wall Street Journal reported on Monday, citing an analysis by the bank's restructuring advisers.

A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions, according to the analysis by Alvarez & Marsal.

The Journal said it was too early to say how much money Lehman creditors would recover; it said unsecured creditors have asserted they are owed $200 billion.

Lehman filed for bankruptcy protection in September after the U.S. government declined to bail it out and a frantic weekend of negotiations to save the investment bank failed.

The Lehman meltdown touched of a stock market panic and credit crisis and was quickly followed by a government rescue of American International Group Inc, once the world's largest insurer.

Lehman's demise also ignited a wave of fire sales of other giant financial groups such as Wachovia Corp and Merrill Lynch & Co Inc.

Lehman executives were not immediately available to comment on the Journal report.
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(Reporting by Juan Lagorio, editing by John Wallace)
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"Mortgage matters: The very good reasons to refinance"
Posted by Rona Fischman, boston.com, January 8, 2009, 3:04 PM

When I wrote about the hidden cost of the additional years of mortgage payments, several people wrote in with very good reasons to refinance anyway. Today, let’s discuss those:

Cash flow: Paying less on mortgage every month gives you more money in your pocket for other spending. There is a value to money in your pocket. It may be needed for basic needs; it may be helpful in times of unemployment or underemployment. You can invest it. You can save it for a rainy day.

You will pay a higher proportion of interest to principal in your refinanced loan, but you will have money now for your life. Is that worth it to you? Why?

You will sell before you get to the end of the mortgage: For younger buyers who expect a trade-up or relocation in the future, this is true.

Most people do not stay in one home for 30 years. I generally advocate buying for the long term. I have a higher than typical number of clients who get to the end of their mortgage. Most of the people who have owned longer have enough equity to refinance now with little difficulty. They are also the ones that lose the most if they increase their loan term too much.

How long do you expect to stay in your home? If it is for less than ten years, how do you expect to get your equity out of your current home?

No matter what the housing economy does, you will be ahead with a lower interest rate:
If you believe the economy will see sustained housing cost deflation, the debt you are paying for your home is on an inflated price. Refinance now so you can at least have a low interest rate. Also, if you foresee sustained deflation, you should refinance now while your property will still appraise above your debt level.

If you believe the economy will see a return of home price increases, then locking into a low rate helps you hold your housing debt costs stable.

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"Mortgage matters: The rush to refinance"
Posted by Rona Fischman, boston.com, January 5, 2009, 3:17 PM

The mortgage interest rates have gone down again. Does that mean that refinancing is the best thing you can do?

It’s a dirty little secret that most of the homeowners who are under water got there through refinancing, not by borrowing for their initial purchase. It was tempting to buy new kitchens, cars, vacations, college educations and just junk by using cash-out refinancing products. These products were given out like candy. (Let’s not even bother trashing home equity loans; that’s just too easy.)

While housing prices were going up, the “value” in equity was burning a hole in a lot of people’s pockets. You felt rich. If you paid $250,000 for a house that’s worth $500,000 five years later, you are $250,000 ahead, right? Wrong. It seemed perfectly reasonable to borrow only $50,000 or $100,000 of the profits. Right? Even more wrong.

At a time when real wages were not going up for Americans, borrowing on home equity became the way to feel prosperous. It was just a feeling. You still had to pay it back with your income, which was not going up in relation to inflation.

Then, there are all the additional costs of those cash-back refinancing loans:
Cost of the refinancing service: even if you get a “no points, not closing cost” loan, you are paying for it somehow. Sometimes the rate is higher than a mortgage with more fees. Sometimes the fees are added into your principal.

Time: suppose you refinance into a new loan after three years, you can be hurting yourself by setting the clock back. If you go from a 30-year product to another 30-year product, you are adding years to your payments. Are you really ahead? Most of the time, no. Also, interest is front-loaded, so your lender takes more interest from you in the first years.

Here’s some quick math: (corrected 1/6)
(This is without taking any cash back.)
If you borrowed $325,000 at 6.125 percent, the principal and interest is $1975. Three years later, you reduce your rate to 5.125 percent, and you borrow what is due on your existing loan – about $312,000. The principal and interest is now $1699. Wow, you are saving nearly $275 a month. (That's $99,000 over the life of the loan.)
But, you are paying your loan for an additional three years. Add the 36 more payments of $1699; that’s $61,164. That cuts your savings some, doesn't it?

When borrowers refinanced with cash back, they frequently were not ahead if they looked at the added payments. Also, most refinances do not drop a full percentage point. Do the math for yourself: www.ronafischman.com/id36.html.

Real estate advice in the current refinance boom: If you can afford to shorten the term of your loan, you will be in much better shape. Otherwise, don’t rush into a low rate without looking at the whole picture.
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Note added 1/6/09 -- both spelling an math errors are corrected. I appreciate all constructive criticism. Thank you. RF
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www.boston.com/realestate/bigmove/fall2008/buyer_mistakes/
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A BOSTON GLOBE EDITORIAL: "Short Fuse" - January 14, 2009

"Taxes: If by 'middle-class' you mean 'for the rich'"

As Washington debates economic recovery ideas, Senate minority leader Mitch McConnell has called for a bigger temporary tax break for the middle class. One idea he favors is cutting the 25 percent income tax rate to 15 percent. Sounds good, but assuming the alternate minimum tax is adjusted yet again, it's hardly a middle-class tax cut at all. "The average tax cut from his proposal would be $1,820 for the top 1 percent of taxpayers in 2009, but just $22 for taxpayers in the middle 20 percent," reports Citizens for Tax Justice. The lowest 40 percent, who don't pay at the 25 percent rate, would get nothing. Thanks but no thanks, Senator.

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Jeffrey R. Immelt, chairman and chief executive of General Electric leads a discussion with business leaders at an Ecomagination news conference at Universal Studios in Los Angeles, California May 24, 2007. (REUTERS/Fred Prouser)
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"GE profit down 44 percent, CEO stands by dividend"
By Scott Malone, www.boston.com, January 23, 2009

BOSTON (Reuters) - General Electric Co reported a 44 percent drop in quarterly profit on weakness at GE Capital and its lighting and appliance units, and warned that 2009 would be "extremely difficult."

Despite meeting Wall Street's lowered estimates, earnings at GE Capital -- its Achilles heel for the past year -- tumbled 67 percent. GE's energy infrastructure unit, which makes electric turbines and windmills, was the highlight, recording 11 percent profit growth.

Chief Executive Jeff Immelt said on Friday the result -- which met Wall Street's expectations -- reflected brutal economic conditions.

"We're planning for a really tough environment," Immelt told analysts on a conference call. "The recession is tough, the financial services crisis is worse."

Investors have become increasingly concerned over the past month that the world's largest maker of jet engines and electric turbines may have to sacrifice its $1.24 per share annual dividend.

Analysts are also asking whether it could lose its coveted top-tier credit rating, after Standard & Poor's lowered its outlook to "negative" in December.

"GE is not fully out of the woods and macro uncertainties continue to point to continued risk for the dividend and AAA-rating," said Goldman Sachs analyst Terry Darling.

The 52-year-old Immelt defended the dividend, calling it "a good return to investors in this moment of uncertainty. But we're not straining in order to pay it ... We've got lots of cash."

GE shares fell 5 percent, or 68 cents, to $12.80 on the New York Stock Exchange.

MEETS FORECAST, MAINTAINS OUTLOOK

The Fairfield, Connecticut-based company reported a fourth-quarter profit of $3.72 billion, or 35 cents per diluted share, compared with $6.7 billion, or 66 cents, a year earlier, as the U.S. conglomerate and economic bellwether closed out one of the toughest years in its 117-year history.

Factoring out one-time items, results met Wall Street's expectations, according to Reuters Estimates.

Revenue fell 4.8 percent to $46.21 billion.

In early December, the company sharply lowered the high end of its fourth-quarter profit forecast.

"While GE clearly is being impacted by recession and its financial business is being impacted by the financial meltdown, they are navigating it," said David Katz, chief investment officer, Matrix Asset Advisors. "They are getting through, they are earning money through it."

The company, the only original member to remain in the Dow Jones industrial average, stood by its 2009 outlook.

GE has ceased providing numeric per-share profit targets, instead opting to spell out a "framework" for how its individual businesses will perform. That calls for profit at its infrastructure units and its NBC Universal unit to be flat to up 5 percent, with GE Capital profit down about 40 percent.

Company officials on a conference call said they raised their forecast credit losses at GE Capital to $10 billion for the year, up from a previous forecast of $9 billion. They also noted that infrastructure equipment orders -- an indicator of future sales -- declined 11 percent in the quarter.

Across the industrial sector, companies are braced for a rough year. United Technologies Corp, the world's largest maker of elevators and air conditioners, on Wednesday warned that it expected a particularly brutal first half.

The company has said it would cut jobs across its operations this year, but has not given an overall target for reductions. It employs more than 300,000 people worldwide.

GE is trimming back its finance arm, which accounted for about half of its profits in 2007. The company aims to rely on GE Capital for 30 percent of its profits, with 10 percent from NBC Universal and 60 percent from its core industrial units.

Over the past year, GE shares have tumbled about 60 percent, erasing some $200 billion in market capital, and sharply outpacing the 32 percent fall of the Dow Jones industrial average.
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(Reporting by Scott Malone, additional reporting by Rebekah Curtis, Dominic Lau and Atul Prakash in London and Christoph Steitz in Frankfurt, Nick Zieminski and Leah Schnurr in New York; Editing by Derek Caney)
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"How Much Does Your CEO Really Make? Go Figure."
By Nancy Trejos, Washington Post Staff Writer, Sunday, February 8, 2009; F04

Ask the Securities and Exchange Commission what Walt Disney Co. chief executive Robert A. Iger made last year, and you get $30.6 million.

Now ask Paul Hodgson, a senior research associate for the Corporate Library, and you get a different answer: $21.4 million.

Want another opinion? It's not hard to find one. Here's what Graef Crystal, an expert on executive compensation, came up with: $51.1 million.

Figuring out what and why a company is paying its top executives is no small feat. Although the SEC requires companies to disclose their compensation structures in their annual proxy statements, even some of the nation's leading experts on the topic often disagree on what an executive is actually walking away with in any given year. That's because most companies pay their executives a mixture of salaries, perks, bonuses, stock options and other equity awards that might be paid out in one year or spread out over time.

"As a shareholder, it can be terribly confusing figuring out what the pay is," said Charles G. Tharp, executive vice president for policy at the Center on Executive Compensation.

The financial crisis has made that all the more apparent. Frustrated with executives who walked away with large salaries despite free-falling stock prices and declining company profits, shareholders are proposing changes to their companies' compensation structures. Patrick McGurn, special counsel at RiskMetrics Group, a proxy advisory firm, said he expects the number of shareholder proposals on executive compensation to reach 400 by the time companies have their annual meetings this spring.

Some shareholder activists, ranging from labor unions to church groups, have supported "say on pay," which requires boards of directors to let their shareholders take annual advisory votes on compensation. Other proposals call for shareholder votes on large severance packages and better disclosure of conflicts of interest among compensation consultants that work with a company.

Even President Obama has weighed in on the matter, saying last week that his administration would impose executive compensation restrictions at some firms receiving federal aid.

But any reforms must address one fundamental problem, experts said: Companies don't always make it easy for shareholders to understand what their executives make. Three years ago, the SEC adopted rules that were supposed to make companies' executive compensation structures more transparent. But more transparency has actually bred more confusion, some experts said.

"We've got both a blessing and a curse with the changes that have been made with disclosure," said Timothy J. Bartl, vice president and general counsel at the Center on Executive Compensation. "On the one hand, we have a lot more information about what these programs are, and on the other hand, we have much more information to decipher."

Much of that information is contained in the company's annual proxy statement, which can be found on both the company's and the SEC's Web sites. But just because the information is all there doesn't mean you'll understand what it all means. You'll also need to pull out your calculator. And don't think you can get away with skimming through the proxy. You can miss an awful lot if you ignore, say, the footnotes.

"Particularly large companies in the S&P 500 have some of the most complicated compensation structures you can imagine," Hodgson said.

A good place to start is the section often labeled the compensation discussion and analysis. "It basically takes the reader through the philosophy of a company, the different components of compensation, how they work, how they compare to the marketplace," said Steven Hall, managing director for pay consultancy at Steven Hall & Partners.

The CFA Institute Centre for Financial Market Integrity in Charlottesville, recommends that investors be leery of companies that reward executives despite poor company and share-price performance as well as those that give executives outsize severance packages. Shareholders should also compare the company's payment structure to those at companies of similar size and marketplace.

Keep in mind, though, that sometimes pay raises or bonuses can be justified.

"Just because the share price has gone down doesn't mean the senior management hasn't been making good decisions, doesn't mean it hasn't done things to make the company stronger than it would have been going into the recession," said Jim Allen, director of the capital markets policy group for the CFA Institute Centre. "But at the same time, what's significantly aggravating to investors is when you have a company that has made all sorts of bad decisions . . . yet senior executives come out of this without the same hurt that shareholders or other stakeholders are feeling."

Once you get past the philosophical discussion, you can turn to the number crunching.

Let's go back to our Disney example.

If you look at the summary compensation table in the proxy statement, you will see that Iger made $30.6 million in fiscal 2008. "The table itself looks like a total number of what the executive took that year, except that it's not," Bartl said. "It mixes apples and oranges."

The problem, he said, is that the table joins the current year's salary and incentives with long-term incentives such as stock awards that the executive cannot cash out for years.

Iger, for example, had $7.8 million in stock awards and $6 million in option awards, both of which are included in total compensation.

Compensation experts Hodgson and Crystal subtracted those totals because they were a mix of awards from previous years that were intended to be spread out over time. That left Iger with $16.8 million.

Hodgson then moved to the fiscal 2008 option exercise and stock vested table, which shows the number and value of the shares that actually vested, or were exercised. In Iger's case, it was 150,797 shares worth $4.6 million. The total compensation: $21.4 million.

Crystal went a step further. He added $3.4 million in option awards from the grants of plan-based awards table, which shows what Iger got in free stock and option shares for the year. He also added awards that were granted in fiscal 2008 but would have future payouts. That included $5.9 million in future estimated payments for restricted stock units listed under the column for estimated future payouts under equity incentive plan awards. Then he added 3 million options awarded in 2008 but are scheduled to vest through 2013. Worth $25 million, those options were given to Iger as an incentive to enter into an extended employment agreement.

Hodgson described the differences among the three approaches. The SEC total looks at all the equity awards that might have vested during the year. Included in that could have been awards from the past. Crystal's approach looks at target pay. It takes into account awards made during the fiscal year even if they cannot be cashed out for years.

Hodgson's approach, he said, comes up with a figure for the cash at hand. "This is money that is in his wallet now. It's realized compensation," he said.

Crystal explained why he counted awards that were granted in 2008 but might not be realized for years: "It's like saying part of the bonus is 100 pounds of coffee. Someone says we don't count that because she didn't drink it. But it's still sitting on your shelf."

Iger is not the only chief executive who has thrown shareholders and executive compensation experts for a loop. The SEC said J.P. Morgan Chase chief executive James Dimon made $27.8 million in fiscal 2007, the most recent year available. But Crystal put Dimon's compensation closer to $40.8 million because of current and future payouts on stock and equity awards.

"It's not an exact science," Hodgson acknowledged.

If you're a shareholder dissatisfied with this lack of certainty, you do have some recourse. Any shareholder who owns at least $2,000 worth of shares in a company, and has owned the stock for at least one year, can file a proposal to be included in the annual proxy statement.

Even if you meet those requirements, there is no guarantee your proposal will actually end up in the proxy statement and be brought for a vote at the annual meeting, said McGurn of RiskMetrics Group.

The SEC allows the company to omit a proposal for a number of reasons, such as it being too similar to proposals from previous years that did not achieve a certain vote. The company has to explain its reasons to the SEC. If the SEC rules in favor of the company, the shareholder can appeal but probably will lose, McGurn said.

Only about half the proposals make it on the ballot, McGurn said, either because the SEC allows an omission or the shareholder settles the dispute with the company.

For those proposals that do make it onto the ballot, a majority vote is not necessarily a victory. Most of the proposals are nonbinding, which means that the company's board of directors does not have to implement them. "It's a stacked system," said Richard Metcalf, director of the corporate affairs department for the Laborers' International Union of North America, which has submitted shareholder proposals this year.

Is there anything else a shareholder can do to demand a better pay system?

"You can sell the shares and get out of the stock," said Hall of Steven Hall & Partners. "That's the tried-and-true method and the path of least resistance."

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"Stimulus cash", February 11, 2009

Both the House and Senate versions of the economic stimulus plan include direct tax relief for workers, which is different from the payments last year.

House: About $145 billion for tax credits of $500 per worker and $1,000 per couple in 2009 and 2010. Workers could expect to see about $20 a week less in federal income taxes withheld from their paychecks starting around June. Those who don't make enough to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.

Senate: The credit would phase out at incomes of $70,000 for individuals and couples making more than $140,000 and phase out more quickly, reducing the cost to $140 billion.

2008: $110 billion for rebate checks, as much as $600 for single filers making less than $75,000 a year and as much as $1,200 for couples earning less than $150,000 a year. Parents received an additional $300 per child. Those who do not owe income taxes but have at least $3,000 in income received $300 checks.

SOURCE: Associated Press

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"Major Stock Market Indexes Fall to 1997 Levels: Dow, S&P 500 fall to 1997 levels as sagging confidence pulls stocks sharply lower"
By SARA LEPRO, The Associated Press, abcnews.go.com, 2/23/2009, late-afternoon time.
NEW YORK, NEW YORK

The major market indexes have staggered to their lowest levels in a decade, pulled lower by investors rapidly waning confidence. The Standard & Poor's 500 index fell to April 1997 levels Monday, while the Dow Jones industrial average, down about 215 points, reached its levels of October 1997 as investors succumbed to their growing worries about a recession that has no end in sight.

"People left and right are throwing in the towel," said Keith Springer, president of Capital Financial Advisory Services.

Most financial stocks were pounded even as government agencies led by the Treasury Department said they will launch a revamped bank rescue program that includes the option of increasing government ownership in financial institutions without having to pour more taxpayer money into them.

Although the government has said it doesn't want to nationalize banks, many investors are clearly still concerned that this could be a possibility as banks continue to suffer severe losses because of the recession. They're also worried that banks' losses will keep escalating as the recession sends more borrowers into default.

"The biggest thing I see here is the incredible pessimism," Springer said. "The government is doing a lousy job of alleviating fears."

The Treasury and other agencies issued a statement after The Wall Street Journal reported that Citigroup is in talks for the government to boost its stake in the bank to as much as 40 percent. Analysts said the market, which initially rose on the statement, wanted more details of the government's plans.

"It's only a very partial picture of what we may get," said Quincy Krosby, chief investment strategist at The Hartford. "This proverbial lack of clarity is damaging market psychology."

Meanwhile, technology stocks are also falling after The Wall Street Journal reported that Yahoo Inc.'s new chief executive is planning a companywide reorganization. But the selling came across the market as pessimism about the recession and its toll on companies deepened.

"There's no where to hide anymore," said Jim Herrick, director of equity trading at Baird & Co.

The market's decline extends massive losses from last week when the major stock indexes tumbled more than 6 percent. The major indexes plunged through the lows they reached in late November, at the height of the credit crisis.

In the final hour of trading, the Dow dropped 215.76, or 2.93 percent, to 7,149.91, after earlier falling to its lowest level since Oct. 28, 1997.

The Standard & Poor's 500 index fell 22.12, or 2.87 percent, to 747.93. Earlier, the S&P fell to its lowest level since April 1997.

The technology-laden Nasdaq composite index dropped 44.60, or 2.41 percent, to 1,406.46.

The Russell 2000 index of smaller companies fell 13.08 or 3.18 percent, to 397.88.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to a light 1.03 billion shares.

Among tech stocks, Hewlett-Packard Co. fell $1.56, or 5 percent, to $29.68, and Intel Corp. dove 67 cents, or 5.2 percent, to $12.11.

Other big decliners included General Electric Co., which dropped to a 14-year low of $8.80, but later traded down 48 cents, or 5.1 percent, at $8.90. Alcoa Inc. tumbled 43 cents, or 6.8 percent, to $5.86.

Some financial stocks managed to hold on to their earlier gains, including Citigroup, which rose 33 cents, or 16.7 percent, to $2.28, and Bank of America Corp., which gained 30 cents, or 7.9 percent, to $4.09.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.78 percent from 2.79 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.28 percent from 0.26 percent Friday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $1.90 to $38.13 per barrel on the New York Mercantile Exchange.

Overseas, Britain's FTSE 100 fell 0.99 percent, Germany's DAX index fell 1.95 percent, and France's CAC-40 slipped 0.82 percent. Earlier, Japan's Nikkei stock average fell 0.54 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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"From 401ks to Finding a New Job: ABC Contributors Mellody Hobson and Tory Johnson Answer Viewers' Questions"
By SARAH NETTER, ABC News, February 25, 2009 —

The day after President Obama outlined his strategy to turn the nation's faltering economy around, many Americans still have questions about how they will survive the recession.

Though the federal government has pledged to put hundreds of billions of dollars toward new jobs, new projects and tax cuts, families are still struggling with everything from education to mortgages.

ABC News financial contributor Mellody Hobson and ABC News workplace contributor Tory Johnson say the answers to many people's questions can be found by making some changes and staying smart about money.

Is Your Money Safe?

Hobson, the president of Ariel Investments, said many people are worried that the federal government is going to move toward nationalizing banks. But she said that's unlikely to happen for a few reasons, including the fact that such a system would be hard for the government to manage.

"Nationalization of other banks in other countries has not worked," she added.

Hobson said that as long as people have their money stored in a FDIC bank, it will be protected.

Time to Hit the Books Again?

Johnson, the CEO of Women for Hire, said workers considering going back to school need to decide whether it's worth delaying their careers and amassing more debt to earn another degree when they may be able to find employment using the skills they already have.

"You don't have to let your career be defined or limited by your major," she said, noting that many workers have jobs outside their fields of study.

But if you decide you really want to further your education, Johnson said, go for it. She added that it's important to make sure you've truly exhausted all career possibilities.

Saving for the Future

Several high-profile companies and their smaller counterparts have announced they will either cut or eliminate their 401(k) matching programs, a cost-saving measure that has caused Americans to worry about how they should be saving their money.

Hobson said Americans need to find some way to save, and a 401(k) is still a good option.

"First and foremost the money is tax-deferred," she said, adding that it also grows in the account tax-free.

And even if the company is no longer matching funds, a 401(k) can be a stable nest egg.

"It's really the only way to guarantee a comfortable retirement these days," she said.

Preying on Desperate Job Seekers

While some well-established businesses, such as Avon and Mary Kay, require workers to put up some of their own start-up money, Johnson said to beware of Internet job offers that require a fee and promise big money for little work.

"If you're asked to send money to a random PayPal account ... stay away," Johnson said.

With Internet scammers getting more savvy, job seekers need to be extra-cautious about where they send their money and their personal information.

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"Citizens loses $929m as bad loans proliferate"
By Ross Kerber, Boston Globe Staff, February 26, 2009

Citizens Financial Group, New England's second-largest banking system, reported a $929 million loss in 2008 and said it may have to write off nearly $2 billion in bad loans, a surprisingly deep hit for the Providence company.

Citizens made the disclosure in a filing to federal banking regulators this month. The loss is a huge swing from the previous year, when Citizens reported nearly $1.5 billion in profit, and reflects how even a mainstream lender that did not dabble in exotic investments has been hurt by the collapse of the housing sector and the economic downturn.

In addition to losses on housing loans and credit cards, Citizens' loss was also driven by a $1.5 billion charge it took to lower its total "goodwill" or the total value of some of its assets. The company would not provide an explanation for the charge, but analysts believe it relates to its beleaguered Midwestern banking operation, Charter One, which operates in states hit hard by the downturn, such as Michigan and Ohio.

Still, by some common financial measurements, Citizens remains in average shape compared with other banks. But its parent company, the Royal Bank of Scotland Group, is among the most troubled of the world's large banks. Royal Bank is expected to reveal a major restructuring this morning that could include selling off portions of its far-flung international empire.

Royal Bank has been under government control since the fall, when the United Kingdom stepped in with $29 billion of emergency capital to keep it afloat. In exchange the UK central bank, the Bank of England, now owns 70 percent of Royal Bank and holds several seats on its board of directors.

Neither the Royal Bank of Scotland nor Citizens would comment yesterday because Royal Bank is scheduled to release its earnings in London this morning. In addition to Citizens, Royal Bank's US operations include investment unit RBS Greenwich Capital in Greenwich, Conn., which also has financial problems, and credit card operations.

Citizens' US filing indicated the bank in 2008 more than doubled the amount it sets aside for bad loans, to $1.93 billion, from $727 million in 2007. Moreover, Citizens disclosed that for 2008, it made no dividend payments to parent company RBS compared with $2 billion in 2007.

As a subsidiary of a foreign bank, Citizens does not release financial statements as frequently as US-based banks, so its brewing problems were not as well known as those of institutions that received funds from the $700 billion US government banking bailout. Now, though, its latest financial filing reveals that Citizens has some of the same problems that have dragged down other prominent US banks.

"This is really quite surprising to me," said Milton banking analyst Suzanne Moot. "Certainly Citizens in the Northeastern states had a reputation of being a responsible lender and you hadn't heard much about them making crazy loans."

Moot noted that about half the amount Citizens has reserved for bad loans, some $916 million, stemmed from consumer borrowings such as home-equity lines of credit and credit cards.

Citizens' performance is not extraordinary by any means. It ranks about average in many categories compared with its peers, such as ratio of losses to total loans and leases, or the amount of bad loans it has been able to recover. If anything, said Robert Patten, a banking analyst at Morgan Keegan in New York, Citizens is part of a crowd of banks rushing to shore up sagging finances.

"The banks continue to play catch-up in loan-loss reserves and charge-offs," and Citizens "is no exception," he said.

US officials have been working for months to restore the nation's banks to sound footing. Just yesterday the Obama administration gaves new details on how it would provide funds for large banks if they need more backing. But it said it would begin to subject large recipients of government aid to "stress tests" to determine if they would be able to withstand further downturns in the economy, for example, another spike in unemployment. The results of those tests would determine if the banks will receive the additional funds.

As an RBS unit, Citizens hasn't been eligible for the US infusions, but it also isn't subject to lending restrictions that RBS faces in England as a condition of loans from the British government.

The Providence company owns Citizens Bank, which has branches in 13 states, from New Hampshire to Pennsylvania, and Cleveland-based Charter One, which it bought in 2004 for $10 billion. Now, both Moot and Neil Smith, an analyst for German commercial bank WestLB, said the $1.5 billion charge appears to be for Charter One, to reflect a lower value for the franchise.

Royal Bank has said it plans to write off at least $21 billion in charges across all its operations. The Scottish bank's new chief executive, Stephen Hester, has said he was considering asset sales but had been noncommittal about Citizens Financial or its units.

Some British newspapers have reported the Royal Bank is contemplating splitting itself in two, a "good bank" and a "bad bank," with the latter made up of assets that could be sold or written off.

Smith said he found that solution unlikely and he expects bank executives and British officials to present a plan that would instead set up some kind of asset-protection system in which bad assets would stay on RBS's books but with government backing.

Either way, Smith said, it would be difficult for RBS to sell Citizens to raise money to reinforce its own position. For one thing, there would be hardly any buyers. "It would be difficult to sell a US bank at a reasonable price," he said.
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Ross Kerber can be reached at kerber@globe.com.
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"US banks post first quarterly loss since 1990"
By Marcy Gordon, AP Business Writer, February 26, 2009

WASHINGTON --The nation's banks lost $26.2 billion in the last three months of 2008, the first quarterly deficit in 18 years, as the housing and credit crises escalated.

The Federal Deposit Insurance Corp. said Thursday that U.S. banks and thrifts also more than doubled the amount they set aside to cover potential loan losses, to $69.3 billion in the fourth quarter from $32.1 billion a year earlier.

Rising losses on loans and eroding values of assets "overwhelmed" banks' revenues in the fourth quarter, the FDIC said. More than two-thirds of all banks and thrifts turned a profit in that period but their earnings were outstripped by large losses at a number of major banks.

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990, according to the FDIC.

The fourth-quarter loss was the biggest in the 25 years that the agency has been compiling quarterly results. It compared with a $575 million profit in the fourth quarter of 2007.

FDIC Chairman Sheila Bair, reaching for a silver lining in the dismal picture, noted that total bank deposits increased in the October-December period by $307.9 billion, or 3.5 percent -- the largest rise in 10 years. Deposits in domestic bank offices rose $274.1 billion, or 3.8 percent.

That showed confidence in the banking system and deposit insurance, Bair said. But she acknowledged that "the fourth quarter was a tough end to a tough year for the banking industry."

The latest indications of financial distress came as the Obama administration proposed boosting the federal deficit by an additional $250 billion this year, enough to support as much as $750 billion in increased spending under the government's rescue program for banks and other financial institutions. That would more than double the $700 billion bank bailout passed by Congress last October that has provided aid to Citigroup Inc., Bank of America Corp. and hundreds more financial institutions of all sizes.

The government began "stress tests" Wednesday for 19 of the largest banks that will gauge whether each institution has adequate capital to survive a severe downturn. Banks that need new funds will be given six months to raise the money from the private sector or, failing that, from additional capital injections under the bailout program.

The FDIC report "confirms what we already know -- the weak economy is continuing to make it difficult for some businesses and individuals to repay their loans," James Chessen, chief economist at the American Bankers Association, said in a statement. At the same time, "banks are taking the necessary steps to put losses behind them" and continue to actively lend, he added.

Two-thirds of U.S. banks increased their lending in the fourth quarter, Chessen said.

The Office of Thrift Supervision, meanwhile, announced a loss of $3 billion in the fourth quarter and a record $13 billion annual loss for savings and loans last year.

The agency, part of the Treasury Department, also said it is launching a new unit to monitor thrifts with more than $10 billion in assets. The new "large bank unit" will be working onsite at about 25 savings institutions.

The OTS also will create new standards for reviewing enforcement actions on thrifts that do not meet minimum standards.

Thrifts are important to consumer lending because they must have at least 65 percent of their lending in mortgages and other consumer loans. That also has made them especially vulnerable to the housing downturn: troubled assets now account for more than 2.5 percent of total thrift assets, up from nearly 1.7 percent a year ago.

Two of the biggest bank failures in the nation's history occurred last year and involved thrifts, and some lawmakers have raised concerns about the OTS' oversight of the industry.

Pasadena, Calif.-based IndyMac Bank collapsed in July and cost the federal deposit insurance fund nearly $9 billion, and Seattle-based Washington Mutual Inc. was the largest U.S. bank failure ever. WaMu fell in September, with around $307 billion in assets, and was acquired by JPMorgan Chase & Co. for $1.9 billion in a deal brokered by the FDIC.

The FDIC now believes U.S. bank failures will cost the deposit insurance fund more than $40 billion over the next four years amid the ravages of rising unemployment and falling home prices that have sent loan defaults soaring.

Fourteen federally-insured institutions already have failed this year, extending a wave of collapses that began in 2008 -- when regulators shut down 25 U.S. banks. Last year's tally was more than in the previous five years combined and up from only three bank failures in 2007.

The failures sliced the amount in the deposit insurance fund to $18.9 billion as of Dec. 31, the lowest level for the fund since 1993. That compares with $52.4 billion a year earlier.

Bair said the FDIC on Friday will raise the insurance premiums paid by U.S. banks and thrifts, effective in the second quarter. That will follow a plan to rebuild the deposit insurance fund put in place in October that increased average premiums to 13.5 cents for every $100 of banks' deposits from 6.3 cents.

U.S. banks and thrifts in the third quarter suffered a 94 percent drop in profits to $1.7 billion, from $27 billion in the same period in 2007. The institutions wrote off $27.9 billion in loans as uncollectible during the July-September quarter.
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AP Business Writer Daniel Wagner contributed to this report.
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"Economy shrinks at fastest pace in 26 years"
By Jeannine Aversa, AP Economics Writer, February 27, 2009

WASHINGTON --The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending -- which accounts for about two-thirds of economic activity -- along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

"Right now we're in the period of maximum recession stress, where the big cuts are being made," said economist Ken Mayland, president of ClearView Economics.

On Wall Street, stocks were down slightly, but rebounded from earlier lows as investors appeared to second-guess Citigroup Inc.'s plans to turn over a bigger piece of itself to the government in a move designed to keep the banking giant alive and bolster its capital in the face of growing losses amid the global recession. The Dow Jones industrials lost about 10 points in early afternoon trading.

The new report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter of last year came as the financial crisis -- the worst since the 1930s -- intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.

Before Friday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter. However, given the fourth quarter's showing and the dismal state of the jobs market, Mayland believes a decline of closer to 6 percent in the current quarter is possible.

The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.

A smaller decline in the economy is expected for the second quarter of this year. But the new GDP figure -- like the old one -- marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

"It's going to be a challenging 2009," Scott Davis, chief executive officer of global shipping giant UPS, said Thursday while speaking to the U.S. Chamber of Commerce in Washington.

American consumers -- spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.

It's creating a self-perpetuating vicious cycle that Washington policymakers are finding hard to break.

To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

For all of 2008, the economy grew by just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

With Friday's figures, Mayland lowered his forecast for this year to show a deeper contraction of just over 2 percent.

In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That also was deeper than first reported and was the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects by 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

Businesses also cut investments in inventories -- as they scrambled to reduce stocks in the face of dwindling customer demand -- another factor contributing to the weaker fourth-quarter reading. The government last month thought businesses had boosted inventories, which added to gross domestic product, or GDP.

GDP is the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

Fed Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a "severe contraction" and is likely to keep shrinking in the first six months of this year. But he planted a seed of hope that the recession might end this year if the government managed to prop up the shaky banking system.

Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.

That's partly because many analysts don't think the early stages of any recovery will be vigorous, and because companies won't be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.

More job losses were announced this week. JPMorgan Chase & Co. on Thursday said it would eliminate about 12,000 jobs as it absorbs the operations of failed savings and loan Washington Mutual Inc. That figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.

The NFL said Wednesday that the league dropped 169 jobs through buyouts, layoffs and other reductions. Textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, while jeweler Zale Corp. said it will close 115 stores and eliminate 245 positions.
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AP Business Writer Harry Weber in Atlanta contributed to this report.
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"Buffett takes blame in firm's failures: Tells shareholders he did some 'dumb things'"
By David Segal, New York Times, March 1, 2009

NEW YORK - The renowned investor Warren E. Buffett was uncharacteristically critical of himself and the business world at large in his annual letter to the shareholders of his holding company yesterday, as he sifted through the wreckage of his worst year in four decades.

Buffett's company, Berkshire Hathaway, reported a 62 percent drop in net income for 2008 and posted negative results for only the second time since he took control in 1965.

Buffett took the blame for some of that grim performance, stating that he "did some dumb things," but he also registered anger at the decisions and practices in the rest of the business world that he predicted would leave the stock market a shambles through 2009.

The letter, as ever, gives shareholders an overview of Berkshire's annual performance, but it also doubles as a folksy state-of-the-economy address from one of the country's most revered investors.

In language that was by turns blunt and witty, he lamented "a series of life-threatening problems within many of the world's great financial institutions." His heaviest scolding was reserved for the heads of private equity firms and mortgage issuers.

Buffett, an inveterate optimist about the American economy, also found reasons for cheer.

"As we view Geico's current opportunities," he wrote, referring to the insurance company that Berkshire Hathaway owns, he and his company's chief executive "feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere."

Reviewing the performance of Clayton Homes, a Berkshire Hathaway subsidiary that sells manufactured homes, he noted that its lending arm had managed to keep foreclosure rates to less than 4 percent, even among subprime borrowers, or those with weak credit ratings.

He contrasted that relative success with the failures of just about everyone else in that business.

"The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies, and investors," he wrote.

He went on: "These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible. They then made this experience a yardstick for evaluating future losses. They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn't afford."

Also blissfully ignored, he wrote, were the perils of relying on mathematical models devised without worst-case situations in mind. Too often, he wrote, Americans have been enamored of "a nerdy-sounding priesthood, using esoteric terms such as beta, gamma, sigma and the like." Some skepticism about these models is overdue, he added.

"Our advice: Beware of geeks bearing formulas."

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Jeffrey R. Immelt, chairman and chief executive of General Electric leads a discussion with business leaders at an Ecomagination news conference at Universal Studios in Los Angeles, California May 24, 2007. (REUTERS/Fred Prouser)
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"GE shares up after analysts say big writeoffs unlikely"
boston.com, March 6, 2009

BOSTON (Reuters) - General Electric Co shares rose 5 percent on Friday after analysts at Merrill Lynch and BernsteinResearch said they did not see the U.S. conglomerate sharply marking down assets in its hefty finance arm in the near future.

GE shares have been pounded this week -- leaving them down 59 percent for the year, more than double the fall of the widely watched Dow Jones industrial average <.DJI> -- amid investor worries that GE Capital has not adequately reserved against an expected rise in delinquencies on its loans.

"With financial companies around (the) world under increasing pressure and governments injecting funds into multiple financial institutions, we think investors have rightly questioned managements' forecast and planning assumptions that continue to seem too optimistic and out-of-step with the environment," wrote Merrill Lynch analyst John Inch, in a note to clients.

BernsteinResearch analyst Steven Winoker wrote that, while he thinks GE will need to mark down the value of its financial portfolio over time, he does not see an immediate and large writedown as likely.

"Probably the biggest controversy surrounding GE right now is what the fair value of (GE Capital's) $661 billion is if/when a write-down to fair value should occur," Winoker wrote in a note to clients.

He estimated that parts of GE could be overestimating the value of some of its assets -- for example, he calculates that its real estate equity is worth about $20 billion, rather than the $32.7 billion GE estimated it at the end of the year.

But he saw no need for immediate action.

"We think such write-downs, if needed, would be spread over several years, which will lessen the need for equity raises, but will hurt long-term earnings," Winoker wrote.

Inch, of Merrill Lynch, wrote that he considered it unlikely GE would have to raise additional capital -- a step the company has repeatedly said it regards as unlikely. But he warned that if that changes, GE may it find it difficult to raise substantial money in equity markets due to its low stock price.

He noted that if GE Capital did face a funding crisis, he believed it would be likely the U.S. government would step in to block a bankruptcy filing or a spin-off, given the lender's huge role in the U.S. financial system.

"Investors cannot assume that the risks of a future government bailout of GE Capital are zero," Inch wrote.

Merrill Lynch cut its 2009 profit target for the Fairfield, Connecticut-based company to $1.16 per share, below his prior view of $1.32 but more in line with Reuters Estimates of $1.19, which would represent a roughly 38 percent drop on a per-share basis, excluding unusual items. It cited the deteriorating economy.

GE, which also runs the NBC Universal media business, has not provided a numeric per-share profit target for the year, instead setting out a framework that allows for a drop in profit at GE Capital but modest growth at its big infrastructure businesses.

Another question facing GE is what will happen to its current top-notch credit rating. Many on Wall Street expect Moody's Investors Service and Standard & Poor's to cut GE's "triple-A."

GE's chief financial officer and noted bond investor Dan Fuss of Loomis Sayles said on Thursday they believed any cut to GE's rating would keep the company in the "double-A" range.

If its rating was lowered further, to "A+," Winoker estimated GE would be on the hook for an $8.2 billion collateral call. A far deeper cut, to "BBB+" would mean another $2.9 billion payment.

GE shares rose 36 cents to $7.02 on the New York Stock Exchange. Earlier this week they hit an 18-year low of $5.87. They have traded as high as $38.52 over the past 52 weeks.

The cost of insuring GE Capital's debt through credit-default swaps declined on Friday, according to Phoenix Partners Group. Investors were paying 15.5 percent upfront, meaning that it required an immediate $1.55 million payment plus an additional $500,000 per year to ensure $10 million of GE debt for five years. At Thursday's close they had stood at 16.5 percent upfront.
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(Reporting by Scott Malone, additional reporting by Dena Aubin in New York, editing by Dave Zimmerman)
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"Layoffs continue to pile up"
Tali Arbel, Don Thompson, & Daniel Lovering, AP Economics Writers, Associated Press, March 7, 2009

WASHINGTON -- Tolling grimly higher, the recession snatched more than 650,000 Americans' jobs for a record third straight month in February as unemployment climbed to a quarter-century peak of 8.1 percent and surged toward even more wrenching double digits.

The human carnage from the recession, well into its second year, now stands at 4.4 million lost jobs. Some 12.5 million people are searching for work -- more than the population of the entire state of Pennsylvania.

No one seems immune: The jobless rate for college graduates has hit its highest point on record, just like the rate for people lacking high school diplomas.

The wintertime blizzard of layoffs -- nearly 2 million lost jobs in just three months -- is destroying any hope for an economic turnaround this year while feeding insecurities among people who still have jobs as well as those who desperately want to find work.

"In this economy, if you have a family to feed like I do, beggars can't be choosers," said Greg Ovetsky, who lost his job at an information technology company two weeks ago.

Ovetsky, 37, of Staten Island, N.Y., said he'll take any position. "You can rest assured I'll say yes. Get a paycheck, get food on the table."

Across the country, Douglas Walch, 54, worries about losing his job as a park maintenance foreman because his employer of 15 years -- the city of Sacramento -- is preparing for layoffs.

"It's the worst I've ever seen it in my lifetime," Walch said.

President Barack Obama, barely a month into his own new job, acknowledged the layoffs were coming at an "astounding" clip but urged Americans to allow him time for his economic revival policies to take root.

"This recovery plan won't turn our economy around or solve every problem," Obama said. "All of this takes time, and it will take patience."

For a day, Wall Street seemed to agree. Stocks seesawed up and down before finishing with a modest Dow Jones industrials gain of 32.5 points. Still the Dow was down a dispiriting 6.2 percent for the week.

The Labor Department's report, released Friday, showed pink slips nationwide hitting all categories -- blue-collar, white-collar, highly educated and not.

Employers slashed payrolls by a net total of 651,000 last month -- the third month in a row that job losses topped 600,000. It was the first time that's happened in government record-keeping dating to 1939.

"These are gargantuan declines," said Stuart Hoffman, chief economist at PNC Financial Services Group.

"Horrible," said Ian Shepherdson, chief economist at High Frequency Economics.

Employers also are holding hours down and freezing or cutting pay as the recession eats into sales and profits.

The unemployment rate leapt to 8.1 percent from 7.6 percent in January, the highest in more than 25 years. Some economists now predict the rate could hit 10 percent by year-end and peak at 11 percent or higher by the middle of 2010.

"The massive hemorrhage of jobs is reminiscent of the 1982 recession when the jobless rate hit 10.8 percent. Unfortunately, it will get much worse," predicted Sung WonSohn,economist at the Martin Smith School of Business at California State University. "It is hard to see where the bottom is."

Besides the 12.5 million total for unemployed people in February, the number of people forced to work part time for economic reasons rose by a sharp 787,000 to 8.6 million. Those are people who would like to work full time but whose hours were cut back or were unable to find full-time work.

If those people -- along with discouraged workers -- were factored in, the jobless rate would have been 14.8 percent in February, the highest in records dating to 1994.

The jobless rate for people with bachelor's degrees or higher jumped to 4.1 percent. And the rate for people without a high-school diploma climbed to 12.6 percent. Both are the highest in records dating to 1992.

The jobless rate for blacks rose to 13.4 percent, the highest since June 1993; the rate for Hispanics hit 10.9 percent, the highest since April 1993.

With no place to land, the number of "long-term unemployed" -- those out of work for 27 weeks or more -- climbed to 2.9 million, the most in records back to 1948.

Construction companies eliminated 104,000 jobs last month. Factories axed 168,000. Retailers cut nearly 40,000. Professional and business services got rid of 180,000, temporary-help agencies 78,000.Financial companies reduced payrolls by 44,000. Leisure and hospitality firms chopped 33,000.

The few areas spared: education and health services, as well as government, which boosted employment last month.

For those with jobs, employers kept a tight rein on hours. The average workweek in February stayed at 33.3 hours, matching the record low set in December.

Disappearing jobs and evaporating wealth from tanking home values, 401(k)s and other investments have forced consumers to retrench, driving companies to lay off workers. It's a vicious cycle in which all the economy's problems feed on each other, worsening the downward spiral.

A bit of positive economic news came from the Federal Reserve, which reported that consumer borrowing increased at an annual rate of $1.76 billion in the first month of the year. Still, the small rise is unlikely to shake economists' views that borrowing will remain weak this year as fearful consumers tighten their belts.

The economy contracted at 6.2 percent in the final three months of 2008, the worst showing in a quarter-century. Analysts believe the economy in the current January-March quarter is contracting at a pace between 5.5 and 6 percent or more.

A new wave of layoffs hit this week, with General Dynamics Corp., Northrop Grumman Corp., Tyco Electronics Ltd., and others announcing job cuts.

Obama is counting on a multi-pronged assault to lift the country out of recession: a $787 billion stimulus package of increased federal spending and tax cuts, a revamped bailout program for troubled banks and a $75 billion effort to stem home foreclosures.

But economists said the jobs situation seems to be killing any hopes for an economic recovery later this year as some had hoped.

"Faith in a rebound is running low no matter where you look these days," said Stephen Stanley, chief economist at RBS Greenwich Capital.
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Associated Press Writers Tali Arbel in New York, Don Thompson in Sacramento and Daniel Lovering in Pittsburgh contributed to this report.
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"The Loss Generation: Young Americans are more cautious, less hopeful about nation's economy"
By Jenn Abelson, Boston Globe Staff, March 8, 2009

It was spring 1995, and four Bentley College roommates had plastered the walls of their Waltham apartment with more job offers than rejection letters. The economy was growing, and stocks were on the rise. The guys were feeling good, the way college graduates could back then, confident that they would make it big in business.

By 2001, Craig Berlinski and C.C. Chapman were earning more than their parents combined, and their college roommates Jim Spoto and Greg Maynard had made tens of thousands of dollars in the stock market.

Like many in their generation, the four roommates believed in an ever-expanding economy and an unstoppable stock market. But now, Berlinski keeps extra money in savings accounts and refuses to look at his retirement fund. Maynard and Spoto have watched their investments drop more than 50 percent. And most of Chapman's savings were wiped out when he carried two mortgages because he couldn't sell his house after buying a new one.

Their first decade out of the school will be remembered not for its unprecedented boom, but for the striking string of bubbles that have burst: technology, housing, stocks. This recession's stunning job losses, plunging home values, and plummeting portfolios have turned 30-somethings uncharacteristically cautious. It's a sweeping shift in psychology for a group that is entering its prime earning and spending years - one that could turn them into a generation of savers and have a lasting effect on the economy.

"If I didn't have the memories of the good times, it wouldn't be so hard to accept now," said Berlinski, 36, who described the high life working at EMC between 1997 and 2004. He traveled the world, ate out most nights, grew his brokerage account to $50,000, and watched the Hopkinton tech company's stock break $100. (Today it's at about $10.) "But it was fiction. And it has changed my mind and my approach."

Thirty-somethings have been hit particularly hard by the current financial crisis, which last week sent the Dow Jones industrials average to its lowest level since 1997. Blame it on bad timing. They often bought homes and stocks at or near their peaks and now face the steepest losses. Indeed, over the past decade, this group has seen a greater accumulation and loss of wealth than any other age cohort, according to financial analysts. In 2007, households headed by someone under age 35 had an average household net worth of about $106,000, said Michael Feroli, an economist at JPMorgan who recently detailed the trend in a report titled "The Young and the Leveraged." That sum plunged 28 percent to $76,000 by the end of 2008, the largest drop among all age groups. Meanwhile, the percentage of 30-somethings taking hardship withdrawals from their retirement plans jumped to 2.6 percent at the end of last year from 0.9 percent in 2000, according to Fidelity Investments.

"The investing experience over the past 10 years has totally skewed their view of the way markets typically work. It's definitely going to change the way this group does longer-term investing," said Sharon Rich, a financial planner in Belmont. "You saw after the Depression that the mentality of conservative investing - leaving it under the mattress or in the bank - lasted a generation."

Such an attitude could stunt the economic recovery. That's because this age group is entering a period normally characterized by sustained spending, whether it's starting a family, buying a bigger home, or getting another car.

Nigel Gault, chief US economist at IHS Global Insight, said many 30-somethings could be reluctant to return to stock investments after their harsh realization that what goes way up can come crashing down quickly. A new fiscal prudence and increased savings will ultimately help the economy in the long term, he added, but reduce the size or scope of future booms.

"They've learned some lessons fairly early on that other generations haven't had to learn because we haven't seen market moves like this since the 1930s," Gault said.

These days, Berlinksi, a staffing manager at Veritude, a temporary staffing firm, is feeling insecure. His brokerage account has shed half of its value, falling to about $25,000. Job loss is on his mind. Last year, Berlinski's $50,000 home equity line was slashed to $25,000. He can't refinance because the Framingham home he bought for $295,000 in 2001 is now worth about $265,000. So projects like a new deck and driveway are on hold.

"It's all been so jolting," said Berlinski, who majored in business communications.

Chapman, too, is feeling the brunt of the housing bust. At the start of the decade, Chapman, who studied computer information systems, had saved more than $25,000 in retirement funds working in information technology. But he drained that account in 2003 to buy a small home in Milford for $250,000.

At the time, it seemed like a no-brainer. Chapman and his wife figured they could live there comfortably for five years, and, given the way housing prices were soaring around them, make a profit when they wanted to upgrade. In summer 2007, they fell in love with a new, larger home and signed the mortgage without selling their first house. They put the old home up for $265,000. And then they waited in agony, lowering the price for nine months while paying both mortgages, until someone was willing to buy it for $220,000 last April.

"It was hell," said Chapman, who has two children. "Paying two mortgages is not easy, and it drained whatever savings we had."

Today, his retirement fund is pretty barren; he hasn't made a contribution since starting a digital marketing firm in 2007. Any extra money these days is in a cash account, including flexible CDs that don't charge withdrawal fees, a choice spurred by the hard lessons the 35-year-old has learned.

"I know things could go drastically wrong," Chapman said, "so I want to make sure I have income to tap into."

Spoto, director of accounting at Bain & Co., is known affectionately by his Bentley pals as "the slow and steady one." He has held the fewest jobs since graduating - just two - and is the only one whose income has increased consistently over the past decade.

Spoto, who studied accounting in college, is meticulous about paying off his credit card every month, maxing out on contributions to his retirement plan, and investing bonuses into mutual funds. So it's particularly painful for Spoto, 35, to watch his portfolio, including college savings for his two children, drop 55 percent in recent months.

Last year, Spoto and his wife put most of their bonuses into a renovation for their home in Sharon that cost roughly $50,000. Now they are afraid the value of their investment has decreased. But Spoto has sought the silver lining: He says at least he can enjoy the addition with French doors and surround sound every day instead of seeing the money evaporate in his brokerage account.

These days, he is keeping most of his extra money in high-interest savings accounts and CDs, and has grown his emergency fund from five to eight months worth of expenses. Last month, Spoto took his first dip back into the market, investing $2,000. Over the past week, the investment had already lost nearly 5 percent of the value.

"We are taking baby steps back into the market. You think how much further can it go, but we said that two months ago, and it's gone down since," Spoto said. "We're cautiously back in, and I am definitely being more conservative."

If Spoto was the steady one, Maynard has seen the wildest swings of this bunch. By age 27, he was making $320,000 at a reseller of Internet technologies and data communications. His total net worth hit $750,000, and $500 sushi dinners with colleagues were not a rare event.

"It was a fictitious time," Maynard said. "If you didn't realize it was a fictitious time, you got burned."

And it was a hard fall for Maynard after the tech bubble burst. He has had nine jobs over the past decade, with three bouts of unemployment. He has watched his retirement funds drop from $130,000 to $60,000, and his investments in mutual funds fall from $110,000 to $40,000.

After he lost his job in 2006, Maynard, who studied business communications, returned to Bentley (which has since become Bentley University), feeling dejected and looking for guidance. He met with the school's vice president.

"I asked him what do people like me, who are used to working 24-hour days and being successful, do?" Maynard said, "And he said, 'You work for me.' And he hired me to be a fund-raising salesman in the development office."

Now, Maynard, 35, is happy to finally have some stability for his wife and two children. Still, he is trying to refinance his home to pay off a home equity line, and get $10,000 in cash to provide a cushion in case things go terribly wrong.

"This is our 1929," Maynard said, referring to the stock crash that marked the start of the Great Depression. "But I have all the confidence in the world that if we can survive this, it'll go up from here. But right now, I just want to keep on doing what I'm doing."
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Jenn Abelson can be reached at abelson@globe.com.
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Bernard Madoff, at right, arrives at Manhattan federal court, Thursday, March 12, 2009, in New York. (AP Photo)
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"Bernard Madoff pleads guilty in multibillion-dollar fraud"
by The Springfield Republican Newsroom, Thursday March 12, 2009

NEW YORK (AP) - Saying he was "deeply sorry and ashamed," Bernard Madoff pleaded guilty Thursday to pulling off perhaps the biggest swindle in Wall Street history and was immediately led off to jail in handcuffs to the applause of his seething victims in the courtroom.

U.S. District Judge Denny Chin denied bail for Madoff, 70, and ordered him to jail, noting that he had the means to flee and an incentive to do so because of his age.

Madoff earlier spoke softly but firmly to the judge as he pleaded guilty to 11 charges in his first public comments about his crimes since the scandal broke in early December.

"I am actually grateful for this opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed," he said.

"As the years went by, I realized my risk and this day would inevitably come. I cannot adequately express how sorry I am for my crimes."

Madoff did not look at any of the three investors who spoke at the hearing, even when one turned in his direction and tried to address him.

The fraud, which prosecutors say may have totaled nearly $65 billion, turned a revered money man into an overnight global disgrace whose name became synonymous with the current economic meltdown.

Madoff described his crimes after he entered a guilty plea to all 11 counts he was charged with, including fraud, perjury, theft from an employee benefit plan, and two counts of international money laundering.

He told the judge that he believed the fraud would be short-term and that he could extricate himself.

Prosecutors say the disgraced financier, who has spent three months under house arrest in his $7 million in Manhattan penthouse, could face a maximum sentence of 150 years in prison at sentencing.

The plea came three months after the FBI claimed Madoff admitted to his sons that his once-revered investment fund was all a big lie - a Ponzi scheme that was in the billions of dollars. Since his arrest in December, the scandal has turned the 70-year-old former Nasdaq chairman into a pariah who has worn a bulletproof vest to court.

The scheme evaporated life fortunes, wiped out charities and apparently pushed at least two investors to commit suicide. Victims big and small were swindled by Madoff, from elderly Florida retirees to actors Kevin Bacon and Kyra Sedgwick and Nobel Peace Prize winner Elie Wiesel.

After arguments began on whether Madoff should remain free on bail, his lawyer Ira Sorkin described the bail conditions and how Madoff had, "at his wife's own expense," paid for private security at his $7 million penthouse.

Loud laughter erupted among some of the more than 100 spectators crammed into the large courtroom on the 24th floor of the federal courthouse in lower Manhattan. The judge warned the spectators to remain silent.

George Nierenberg, the first of the three investors to speak, approached the podium glaring at Madoff, then said in the financier's direction: "I don't know if you had a chance to turn around and look at the victims."

At the hint of a confrontation, a marshal sitting behind Madoff stood up, and the judge directed Nierenberg to speak directly to the bench.

The plea does not end the Madoff saga: Investigators are still undertaking the daunting task of unraveling how he pulled off the fraud for decades without being caught. They suspect that his family and top lieutenants who helped run his operation from its midtown Manhattan headquarters may have been involved.

Madoff's plea was absent a cooperation agreement that would have required him to name potential co-conspirators. But in court documents, prosecutors have indicated that low-level employees were in on the scam and may be cooperating.

Court papers say Madoff hired many people with little or no training or experience in the securities industry to serve as a secretive "back office" for his investment advisory business. He generated or had employees generate "tens of thousands of account statements and other documents through the U.S. Postal Service, operating a massive Ponzi scheme," prosecutors said.

The money was never invested, but was used by Madoff, his business and others, prosecutors said.

Authorities said he confessed to his family that he had carried out a $50 billion fraud. In court documents filed Tuesday, prosecutors raised the size of the fraud to $64.8 billion.

Experts say the actual loss was more likely much less and that higher numbers reflect false profits he promised investors. So far, authorities have located about $1 billion for jilted investors.

In addition to prison time, he said Madoff faces mandatory restitution to victims, forfeiture of ill-gotten gains and criminal fines.

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"Gates Loses $18B, Still World's Richest Man: The Number of Billionaires in the World Shrank Dramatically in the Last Year"
By LUISA KROLL, MATTHEW MILLER and TATIANA SERAFIN, Forbes.com, abcnews.go.com, March 11, 2009—

The world has become a wealth wasteland.

Like the rest of us, the richest people in the world have endured a financial disaster over the past year. Today there are 793 people on our list of the World's Billionaires, a 30-percent decline from a year ago.

Of the 1,125 billionaires who made last year's ranking, 373 fell off the list -- 355 from declining fortunes and 18 who died. There are 38 newcomers, plus three moguls who returned to the list after regaining their 10-figure fortunes. It is the first time since 2003 that the world has had a net loss in the number of billionaires.

The world's richest are also a lot poorer. Their collective net worth is $2.4 trillion, down $2 trillion from a year ago. Their average net worth fell 23 percent to $3 billion. The last time the average was that low was in 2003.

Bill Gates lost $18 billion but regained his title as the world's richest man. Warren Buffett, last year's number one, saw his fortune decline $25 billion as shares of Berkshire Hathaway fell nearly 50 percent in 12 months, but he still managed to slip just one spot to number two. Mexican telecom titan Carlos Slim Helú also lost $25 billion and dropped one spot to number three.

It was hard to avoid the carnage, whether you were in stocks, commodities, real estate or technology. Even people running profitable businesses were hammered by frozen credit markets, weak consumer spending or declining currencies.

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The Biggest Loser

The biggest loser in the world this year, by dollars, was last year's biggest gainer. India's Anil Ambani lost $32 billion -- 76 percent of his fortune--as shares of his Reliance Communications, Reliance Power and Reliance Capital all collapsed.
Ambani is one of 24 Indian billionaires, all but one of whom are poorer than a year ago. Another 29 Indians lost their billionaire status entirely as India's stock market tumbled 44 percent in the past year and the Indian rupee depreciated 18 percent against the dollar. It is no longer the top spot in Asia for billionaires, ceding that title to China, which has 28.

Russia became the epicenter of the world's commodities bust, dropping 55 billionaires -- two-thirds of its 2008 crop. Among them: Dmitry Pumpyansky, an industrialist from the resource-rich Ural mountain region, who lost $5 billion as shares of his pipe producer, TMK, sank 84 percent. Also gone is Vasily Anisimov, father of Moscow's Paris Hilton, Anna Anisimova, who lost $3.2 billion as the value of his Metalloinvest Holding, one of Russia's largest ore mining and processing firms, fell along with his real estate holdings.

Twelve months ago Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York's 71. Today there are 27 in Moscow and 55 in New York.

After slipping in recent years, the U.S. is regaining its dominance as a repository of wealth. Americans account for 44 percent of the money and 45 percent of the list's slots, up seven and three percentage points from last year, respectively. Still, it has 110 fewer billionaires than a year ago.

Those with ties to Wall Street were particularly hard hit. Former head of AIG Maurice (Hank) Greenberg saw his $1.9 billion fortune nearly wiped out after the insurance behemoth had to be bailed out by the U.S. government. Today Greenberg is worth less than $100 million. Former Citigroup Chairman Sandy Weill also falls from the ranks.

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Hedge Funds Suffer

Last year there were 39 American billionaire hedge fund managers; this year there are 28. Twelve American private equity tycoons dropped out of the billionaire ranks.

Blackstone Group's Stephen Schwarzman, who lost $4 billion, and Kohlberg Kravis & Roberts' Henry Kravis, who lost $2.5 billion, retain their billionaire status despite their weaker fortunes.

Worldwide, 80 of the 355 drop-offs from last year's list had fortunes derived from finance or investments.

While 656 billionaires lost money in the past year, 44 added to their fortunes. Those who made money did so by catering to budget-conscious consumers (discount retailer Uniqlo's Tadashi Yanai), predicting the crash (investor John Paulson) or cashing out in the nick of time (Cirque du Soleil's Guy Laliberte).

So is there anywhere one can still make a fortune these days? The 38 newcomers offer a few clues. Among the more notable new billionaires are Mexican Joaquín Guzmán Loera, one of the biggest suppliers of cocaine to the U.S.; Wang Chuanfu of China, whose BYD Co. began selling electric cars in December, and American John Paul Dejoria, who got the world clean with his Paul Mitchell shampoos and sloppy with his Patrón Tequila.

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Click here to view the top 50 billionaires at our partner site, Forbes.com.
www.forbes.com/2009/03/10/50-richest-people-billionaires-2009-billionaires-wealth_slide_2.html?thisSpeed=15000
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The Boston Globe
BUSINESS INTELLIGENCE
"What will business as usual look like?"
By Robert Weisman, Boston Globe Staff, March 15, 2009

Are you ready for the new normal?

Even as the casualties pile up, business leaders are sifting through the rubble of the current economic crisis for clues to what the postrecession business landscape might look like, what role their companies might play, and how to manage going forward.

"People are going to be in a rebuilding mode," said Alan Trefler, founder and chief executive of business software company Pegasystems Inc. in Cambridge, who predicted a swing back to business basics. "Both people and companies are going to spend the next couple of years looking at, and reinforcing, their core."

In an essay titled "The new normal" in McKinsey Quarterly, the online journal of strategy consulting firm McKinsey & Co., the firm's worldwide managing director Ian Davis suggested the coming era would be characterized by much less financial leverage, much more government regulation, a new wave of technological innovation, and a shift away from US consumption as the global growth engine.

"It is increasingly clear that the current downturn is fundamentally different from reces sions of recent decades," Davis contended. "We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order."

Other captains of commerce, whether focused on survival or positioning themselves for renewed expansion, have taken to calling the economic tumult a "reset." That was the word used by Steve Ballmer, chief executive of software giant Microsoft Corp. on a recent visit to the company's New England Research and Development Center in Cambridge. Ballmer, like Davis, said there will be substantially less debt in the economy when it finally snaps back to growth mode.

"I think everybody understands there was too much borrowing," Ballmer said in an interview. "That borrowing's going to come out of the economy. Debt as a percentage of GDP [gross domestic product] is coming down. I don't think anybody thinks that money's coming back into the economy. So we're going to reset, and then productivity and innovation will drive GDP off that new level."

The wringing of debt from the financial system will be a sobering change, especially for businesses - like banks and real estate - that ballooned with the credit bubble. But even more wrenching for many will be stepped-up regulation, especially of Wall Street investment firms and their portfolios of arcane financial instruments. Accounting reforms like the Sarbanes Oxley Act, passed in the aftermath of dotcom-era abuses, did little to shield investors from the packaged scourges of mortgage-backed securities and collateralized debt obligations.

"Asset-based securities turned out to be critical in increasing the velocity of lending," Harvard Business School professor William A. Sahlman told students during the school's first Research in Action Day, a series of informal faculty presentations earlier this month. "Through alchemy, basically, people were able to make a profit."

For regulators, the trick will be to rein in the excesses without smothering economic recovery. They'll need an overarching regulatory framework, and the help of managers and corporate boards who must patch up a business model that is badly broken, Sahlman maintained. That will mean more transparency and disclosure, along with better incentives and controls that align behavior with outcomes.

As debt deflates to healthier levels and regulators police financial transactions, it will be up to the innovators - the same folks who brought us personal computers and the Internet - to reignite the economy through new products, services, and efficiency advances. The breakthroughs this time could arise from emerging fields like genetics and alternative energy, as well as information technology.

Businesses will use technology to boost productivity and fuel their growth. "Organizations will figure out a way to squeeze out profit by increasing scale," said Trefler at Pegasystems. "We will see a return of entrepreneurs, but we will not again see the open checkbooks of the mega-venture funds. The new entrepreneurs will be scrappy and pragmatic about how they engage with customers."

They will also have to be global, because tapped-out US consumers will no longer be able to power world economic growth to the extent they have in the past. "Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors - such as the entry of women into the workforce, an increase in the number of college graduates - that have now played themselves out," Davis wrote in his McKinsey Quarterly essay.

American companies will need a rebound of economies in Asia and others regions, most of which have been brought low by the global slump, to drive their future expansion.

Depending on growth engines beyond our borders - like other aspects of the new normal - will take some getting used to. But business leaders understand that there will be no going back to the debt-fueled bubble economy.

"Things had been frothy for a while, frankly," Trefler said.
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Robert Weisman can be reached at weisman@globe.com.
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"Ready, aim ... fail: Why setting goals can backfire"
By Drake Bennett, The Boston Globe, IDEAS, March 15, 2009

IN THE EARLY years of this decade, General Motors had a goal, and it was 29. Determined to boost its flagging profits and reverse a long, steady fall from postwar dominance, the automotive giant did the natural thing: it set a goal. The company pledged to recapture 29 percent of the American market, the share it had ebbed past in 1999. The number 29 became a corporate mantra, and some GM executives took to wearing lapel pins with the number emblazoned on them.

It didn't work. GM never did regain 29 percent of the market, and today, facing the possibility of bankruptcy, it looks even less likely to do so. The lapel pins are gone, and that number isn't much heard from the company.

And while the causes of GM's woes are many - from poor design to high labor costs to a prostrate economy - industry analysts argue that one of the most damaging things the company did was to set that goal.

In clawing toward its number, GM offered deep discounts and no-interest car loans. The energy and time that might have been applied to the longer-term problem of designing better cars went instead toward selling more of its generally unloved vehicles. As a result, GM was less prepared for the future, and made less money on the cars it did sell. In other words, the world's largest car company - a title it lost to Toyota last year - fell victim to a goal.

It is a given in American life that goals are inseparable from accomplishment. President Kennedy's 1961 promise to put an American on the moon by the end of the decade is held up as an example of a world-changing goal, the kind of inspirational beacon needed to surmount immense societal challenges. Among psychologists, the link between setting goals and achievement is one of the clearest there is, with studies on everyone from woodworkers to CEOs showing that we concentrate better, work longer, and do more if we set specific, measurable goals for ourselves. Goal-setting is one of the seven habits of highly effective people, says self-help guru Stephen Covey, and even Henry David Thoreau, the philosopher of dropping out, celebrates the work of goal setting. "If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them," he writes in Walden.

But a few management scholars are now looking deeper into the effects of goals, and finding that goals have a dangerous side. Individuals, governments, and companies like GM show ample ability to hurt themselves by setting and blindly following goals, even those that seem to make sense at the time. These skeptics draw on a broad array of large-scale failures - the design of the Ford Pinto, the Enron collapse, the rash lending practices of Fannie Mae and Freddie Mac - as evidence of the pernicious effects of goals. Outside the workplace, these thinkers point to the unintended consequences of high-stakes testing in grade schools, and psychological literature showing that goals and other incentives can constrict our thinking. Even the scarcity of cabs on rainy days, some argue, illustrates the ways that goals can blind people to their own best interests.

The argument is not that goal setting doesn't work - it does, just not always in the way we intend. "It can focus attention too much, or on the wrong things; it can lead to crazy behaviors to get people to achieve them," says Adam Galinsky, a professor at Northwestern University's Kellogg School of Management, and coauthor of "Goals Gone Wild," a paper in the current issue of a leading management journal.

"Goal setting has been treated like an over-the-counter medication when it should really be treated with more care, as a prescription-strength medication," he says.

Taking on goals in this way has proven controversial, and Galinsky and his coauthors have earned a withering response from the prominent psychologists responsible for much of the literature on goal setting. But at a time when we're left to wonder how smart, seemingly responsible leaders in business and government could make decisions that helped destroy trillions of dollars in wealth, there's a new appetite for reexamining the things that motivate us - and how they can go awry.

Our faith in goals long predates the psychological research. "First, have a definite, clear, practical ideal - a goal, an objective," advised Aristotle. Generations of managers and motivators have repeated Abraham Lincoln's line that "A goal properly set is halfway reached."

It wasn't until the 1960s, though, that scholars of human behavior began to try to figure out how goals really worked. Two organizational psychologists, Gary Latham and Edwin Locke, created a theory of human motivation with goals at its center, drawing on their own extensive research and that of others. They found that goal setting had dramatic positive effects on success in just about any arena: work, school, the playing field, even the doctor's office (people took better care of their own health if they had a goal).

"When people are asked do their best, they don't," says Locke, now an emeritus professor at the University of Maryland's R.H. Smith School of Business. "It's too vague." Giving people ambitious and specific goals directs their attention, energizes them, and keeps them engaged longer.

Latham and Locke's theory quickly permeated executive suites and business school classrooms. The success of General Electric, for example, was described both by the company and its many admirers as a matter of having set the right goals and made sure people reached them. Southwest Airlines earned a place in the annals of management for its use of the so-called "stretch goal," a theatrically improbable aim announced to jolt employees to new heights of productivity and creativity. In Southwest's case it was a promise to reduce turnaround times at the gate for its planes to an unheard-of 10 minutes. Defying the doubts of the rest of the industry - and many of its own employees - the company pulled it off.

Despite these successes, a few management experts began to wonder what sort of price we pay for our goals. Goals, they feared, might actually be taking the place of independent thinking and personal initiative. Goals gave us GE and Southwest, but they also gave us GM and Enron.

Two of these skeptics, business professors Maurice Schweitzer of the University of Pennsylvania and Lisa Ordonez of the University of Arizona, co-wrote a 2004 paper on what people do when they fall just short of their goals. According to Ordonez and Schweitzer's experiment, in which subjects played a word game and then reported how well they did at it, what people do is lie to make up the difference.

Schweitzer and Ordonez are also two of the coauthors of the "Goals Gone Wild" paper, in Academy of Management Perspectives, which takes the concern about cheating and broadens it. The new paper isn't based on original research but instead juxtaposes findings from the psychology and economics literature with a sort of greatest hits of disasters in goal setting. It recounts the hostile, dysfunctional, and ultimately criminal atmosphere created at Enron by its practice of rewarding executives based on meeting specific revenue targets. It describes how Sears, Roebuck and Co. started setting sales goals for its auto repair staff in the early 1990s, only to find out that its mechanics were overcharging customers and making unnecessary repairs to hit their numbers.

Narrow corporate goals can keep employees from asking important questions that they otherwise might. Take the notoriously combustible Ford Pinto. In the late 1960s, Ford CEO Lee Iacocca, determined to take back the market share the company was losing to smaller imports, announced a crash program to create a new car that would be under 2,000 pounds, under $2,000, and would go on sale in 1970. Desperate to meet the conditions and the deadline, company executives ignored and then played down questions about the safety of the car's design. As a result, the Pinto, with a fuel tank just behind the rear axle, was uniquely prone to igniting upon impact, and 53 people died in such fires.

The vaunted "stretch goals," meanwhile, come with their own red flags. Sim Sitkin, a business school professor at Duke University, has found in reviewing the management literature that stretch goals are most likely to be pursued by desperate, embattled companies - the sort least equipped to deal with the costs of ambitious failures.

These findings will come as happy reassurance to workers who have chafed, Dilbert-like, at the imposition of companywide goals that they found a nuisance and a distraction from the real job at hand. But we often embrace goals voluntarily, too, and even outside the business world there's evidence that goals can have strong and often negative effects on how well we perform basic tasks. In a famous 1999 study by the psychologists Daniel Simons and Christopher Chabris, subjects watching a video clip were told to count the number of times people in a group pass a basketball among themselves. Most concentrate so hard on the goal that they become blind to other information, utterly failing to notice when a woman in a gorilla suit walks through the middle of the group.

Other work suggests that goals with rewards, if not carefully calibrated, can short-circuit our intrinsic enthusiasm for a task - or even interrupt our learning process. Barry Schwartz, a social psychologist at Swarthmore College who has studied decision making, found that subjects paid money to complete a slightly confusing task were significantly worse at figuring out the rules, even after completing it, than those who had received no reward.

One seminal economics study even argued that the difficulty of finding a cab on a rainy day can be blamed on the personal goals of cabbies. The 1997 paper found that cab drivers tend to have a set amount of money they aim to make every day. When it's raining they hit that target faster, since more people want cabs, so the cabbies quit earlier in the day. This narrow focus on a goal hurts everybody in the system - it shrinks the taxi supply just when demand is highest, leaving more people standing on the curb getting wet, and it hurts the cabbies themselves, who miss a chance to maximize their income on their most lucrative days.

The new criticism of goals has elicited a spirited defense from several scholars of human motivation. Latham and Locke, among others, see the newfound skepticism about goals as an overreaction. Though their own work acknowledges that goals come with risks, they dismiss the Ordonez paper as an inflammatory hodgepodge of cherry-picked anecdotes. The other work, as they see it, doesn't indict all goals, just bad ones. The problem, Latham and Locke argue, is that ultimately goals can't protect us from ourselves.

"You know how Shakespeare wrote that the fault is not in our stars but in ourselves?" asks Latham, a professor at the University of Toronto. "Well, the fault is not in our goals but in our values."

Even the most vehement critics admit that sometimes nothing works like a goal. But ensuring that it doesn't backfire requires care.

Although simple numerical goals can lead to bursts of intense effort in the short term, they can also subvert the longer-term interests of a person or a company - whether it's a pharmaceutical firm that overlooks safety in the rush to get a drug approved, or a dieter who resumes smoking to help lose 20 pounds. In work requiring a certain amount of creativity and judgment, the greatest risk appears to lie in overly simplified goals. Reducing complex activities to a bundle of numbers can end up rewarding the wrong behavior - with engineers concentrating on less promising but more straightforward research, for example, to rack up more patents.

If you are GM, argues Schweitzer, "You clearly don't want 29 percent market share, you want something much more complicated than that."

To combat this, Latham, among others, argues that what's often required is a "learning goal" - one where someone pledges to come up with, for example, five approaches to a thorny problem - rather than a performance goal that assumes that the problem will automatically be solved.

And whatever they are, goals need to be flexible when circumstances change. Francis Flynn, an organizational psychologist at Stanford, says he always tells his students that "the best goal you can have is to reevaluate your goals, semi-annually or annually, to make sure they remain rational."

Rather than reflexively relying on goals, argues Max Bazerman, a Harvard Business School professor and the fourth coauthor of "Goals Gone Wild," we might also be better off creating workplaces and schools that foster our own inherent interest in the work. "There are lots of organizations where people want to do well, and they don't need those goals," he says. Bazerman and others hold up Google as an example of a company that manages to do this, in part by explicitly setting aside time for employees to pursue their own projects and interests.

Today, as the economic situation upends millions of lives, it is also forcing the reexamination of millions of goals - not only the revenue targets of battered firms, but the career aims of workers and students, and even the ambitions of the newly installed administration. And while it never feels good to give up on a goal, it may be a good time to ask which of the goals we had set for ourselves were things we really needed to achieve, and which were things we only thought we should - and what the difference has been costing us.
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Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.
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"President sets guidelines for stimulus spending: Cautions states against waste, limits lobbyists"
By Liz Sidoti, Associated Press, March 21, 2009

WASHINGTON - With states eager to spend their share of the $787 billion in economic stimulus cash, President Obama announced guidelines yesterday aimed at preventing waste and fraud and limiting the influence of lobbyists.

"This plan cannot and will not be an excuse for waste and abuse," Obama declared.

To make his point, the guidelines specify that stimulus funds can't be used on projects such as aquariums, zoos, golf courses, swimming pools, dog parks, or casinos.

The rules, he said, "will help ensure that we are proving ourselves worthy of the great trust the American people have placed in us." Obama also told state legislators gathered at the White House that decisions about how money will be spent will be based on the merits of creating the most jobs and helping reverse the recession.

"They will not be made as a way of doing favors for lobbyists," he said.

To help ensure that special interests don't stymie stimulus efforts, Obama said his administration would post on the Internet all requests by lobbyists who want to talk to any member of his administration about particular projects that would involve using the money from the Economic Recovery Act. All requests must be in writing, and details from meetings between Obama's administration and lobbyists about stimulus projects also will be posted online, the president said.

Obama said the administration will give priority to projects that create numerous jobs "so we can get the most bang out of every single taxpayer buck."

Telling lawmakers he's trying to lead by example, Obama said he nixed a request to update electrical and heating systems in the East Wing of the White House, the first family's residence, because it won't create many jobs or hasten the economic turnaround. Still, Obama lobbied for money in a future bill, saying: "This is a much-needed project. It is long overdue, and I hope Congress funds it in the future."

The stimulus measure says states will lose the cash if they miss a deadline or don't spend the money fast enough. But state officials across the country have had trouble keeping track of the application deadlines and requirements in the 400-page law. For weeks the administration had failed to disclose what the rules were, even though governors are required to sign pledges saying they'll spend the money appropriately.

"The American people are watching what we do," Obama told the National Conference of State Legislatures. "They need this plan to work. And they expect to see their hard-earned money spent efficiently."

Later yesterday, Obama discussed spending on the nation's infrastructure with Governor Ed Rendell, Democrat of Pennsylvania, Governor Arnold Schwarzenegger, Governor of California, and Mayor Michael Bloomberg of New York, an independent.

Rendell said the group talked about creating an "infrastructure bank," an idea Obama endorsed as a presidential candidate. Such a bank would raise money for major national projects by issuing bonds that could be leveraged into even greater funding.
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www.boston.com/news/nation/washington/articles/2009/03/21/president_sets_guidelines_for_stimulus_spending/
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Political Notebook

"Dodd says he didn't know bill revision would allow for AIG bonuses"
The Boston Globe, March 21, 2009

Under fire for his role in allowing the AIG bonuses, Senator Chris Dodd mounted a vigorous self-defense yesterday, telling home-state constituents that he had no idea that a change in language in an executive pay provision would permit them.

"No one is angrier than I am," he said in Enfield, Conn.

Dodd said that during the drafting of the final version of the $787 billion stimulus bill last month, he led the charge on including "strong language" to limit executive compensation. Then, he said, Treasury Department officials asked him to revise the provision, to protect some already-contracted bonuses, because they were concerned about legal issues. "It seemed rather technical and innocuous at the time," said Dodd, chairman of the Senate Banking Committee.

He said if he had known the change would allow the $165 million in AIG bonuses, "I would have rejected it out of hand."

Dodd, who faces reelection next year, said he was "disturbed" that those who sought the change didn't stand up and take the blame as soon as the controversy emerged earlier this week.

Treasury Secretary Timothy Geithner, who is on the hot seat himself over the bonuses, said Thursday that his staff did talk to Dodd about their concerns and he accepted at least part of the responsibility.

BOSTON GLOBE STAFF

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"Tougher financial rules to be a focus of summit: But banks oppose global regulation"
By Bloomberg News, March 30, 2009

PARIS - Leaders of advanced and emerging economies are closing ranks behind plans for tougher rules on financial markets to prevent another collapse like the one that wiped out much of Wall Street.

A global approach to regulation has been gaining momentum ahead of the Group of 20 summit Thursday in London. President Obama, UK Prime Minister Gordon Brown, and their G-20 counterparts aim to merge their national blueprints for strengthened regulation into a united front to rein in hedge funds, derivatives trading, executive pay, and excessive risk-taking by financial firms.

"There is reason for optimism that progress toward stronger global regulation has begun," says Daniel Price, who was President George W. Bush's G-20 negotiator.

Agreement would provide the summit with a measure of success even as leaders remain at odds over trade policy, fiscal stimulus, and the dollar's status. A joint regulatory approach is crucial to prevent investors from seeking out markets with the most permissive rules, setting off a race to the bottom as countries vie to attract capital.

The call for greater regulation unites China, possessor of the most vibrant economy in the developing world, and the United States, which has the world's largest economy. China's central bank governor, Zhou Xiaochuan, challenged the West to fix flaws in financial supervision on March 26, the same day US Treasury Secretary Timothy Geithner outlined a broad initiative designed to do just that.

"Having the US and Chinese on board makes it a whole lot more likely" that an international framework will eventually emerge, said Harvard University's Kenneth Rogoff, former chief economist of the International Monetary Fund.

Rogoff said "it seems virtually certain that four to five years from now, the world will have either a global financial regulator or, more likely, a treaty on global financial regulation with a secretariat, akin to the World Trade Organization." Yet "nothing is going to happen quickly."

John Taylor, a former US Treasury official now at Stanford University, said the process is "going to be drawn out." That will give financial firms the opportunity to seek changes that dilute new restrictions, said Richard Portes, of the London Business School. "Banks are lobbying ferociously against anything that will undermine their businesses and pay," he said.

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"Treasury, Switzerland in talks"
By Associated Press, April 7, 2009

WASHINGTON - The Treasury Department this month will begin revising a tax treaty with Switzerland, which has pledged to increase transparency and help crack down on tax evaders with money in Swiss banks.

The Swiss government opened the door for the talks last month after agreeing to cooperate with international tax investigations of wealthy foreigners accused of hiding billions of dollars in banks there. The move broke with a long-standing tradition of strict Swiss protections for individuals who use its banking system.

"We welcome moves by Switzerland to implement international standards by agreeing to revise the US-Switzerland tax treaty," Treasury Secretary Timothy Geithner said yesterday. "I look forward to swift conclusion of an agreement . . . and I will continue to demand transparency from countries on behalf of American taxpayers."

The Treasury Department said negotiations between the two nations will begin April 28 in Berne, Switzerland.

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"Dow plunges 290 as investors worry about banks"
By TIM PARADIS, AP writer, April 20, 2009

NEW YORK (AP) -- Investors are back to worrying about banks. Long-present unease about soured loans bubbled over on Monday after Bank of America Corp. said it set aside $13.4 billion to cover lending losses even as it posted earnings that beat expectations. Other big banks have also increased loss provisions in the past two weeks.

Financial stocks suffered some of the day's worst declines and major market indicators tumbled more than 3 percent, including the Dow Jones industrial average, which fell 290 points.

Bank of America plunged 24.3 percent and Citigroup fell 19 percent as investors became worried that cleaning up bad loans from banks' balance sheets may have farther to go than many had anticipated.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said traders are now viewing bank earnings with more skepticism and believe that the better-than-expected profit reports may be disguising problems.

"They're looking at bank numbers and are saying they are not that great," Saluzzi said.

Even without growing anxiety about financial stocks, traders had been looking for some pullback after the Dow jumped 24 percent from 12-year lows in early March.

The renewed worries about banks' debt problems were aggravated by news reports that their lending remains tight and that the government may swap its debt in banks for ownership stakes as its $700 billion bailout fund runs down.

Because of the central role lending plays in keeping businesses of all kinds going, investors have been hunting for signs of a recovery in banks before they get more optimistic about the broader economy.

The market has been encouraged by early indications that a government drive for lower interest rates has been helping banks step up lending, but investors are still sensitive to any signs of trouble.

Now they're on high alert about what the government will say in two weeks when it reports results of in-depth examinations to see which banks might need more help to stay afloat if the economy gets even worse.

Energy and materials companies also fell along with the prices of key commodities they rely on such as crude oil.

The market declines were broad and deep, outweighing what would otherwise be positive news about a step-up in deal activity. After a deal with IBM Corp. didn't work out, troubled technology company Sun Microsystems found a buyer in Oracle, a leading maker of business software, while PepsiCo Inc. said it would bid $6 billion to buy its two biggest bottlers.

According to preliminary calculations, the Dow fell 289.60, or 3.6 percent, to 7,841.73.

Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 37.20, or 4.3 percent, to 832.40, and the Nasdaq composite index fell 64.86, or 3.9 percent, to 1,608.21.

About 10 stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.8 billion shares.

Concerns about the sustainability of bank earnings weighed on financial stocks. Citigroup Inc. lost 19.5 percent, JPMorgan Chase & Co. fell 10.7 percent and American Express Co. fell 13 percent.

Jeffrey Frankel, president of Stuart Frankel & Co. in New York, said the retreat in financial stocks is welcome after their massive gains from early March - he said too sharp a rise could endanger a long-term advance. Many bank stocks have doubled in only weeks.

"These banks have had a tremendous run," Frankel said. "Now you're hearing the bearish camp speak up a little bit."

Investors are also cautious about financials after The New York Times reported that the government might be forced to find ways to stretch the $700 billion allocated for the government's bank rescue fund by converting the government's loans into common stock. Such a move would give the government a controlling stake in banks and hurt existing shareholders by reducing the value of their shares.

Separately, The Wall Street Journal reported that banks receiving government bailout money are having a hard time making loans.

Wall Street was more upbeat about the Oracle deal, which carries a 42 percent premium to Sun's Friday closing stock price of $6.69. Sun jumped 36.8 percent, while Oracle slipped 1.3 percent.

Beverage and snack maker PepsiCo offered to acquire Pepsi Bottling Group and PepsiAmericas in a move to cut costs. Pepsi lost 4.4 percent, while Pepsi Bottling jumped 22 percent and PepsiAmericas surged 26 percent.

In earnings news, drug maker Eli Lilly & Co.'s first-quarter earnings rose 24 percent on higher sales of the antidepressant Cymbalta and as costs for Humalog, a form of insulin Lilly makes, remained flat. Shares slipped 2.3 percent.

Light, sweet crude fell $4.45 to $45.88 a barrel on the New York Mercantile Exchange.

Occidental Petroleum Corp. lost 6.3 percent, while Dow Chemical Co. fell 9.1 percent.

In other market moves, the Russell 2000 index of smaller companies fell 26.88, or 5.6 percent, to 452.49.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.85 percent from 2.95 percent late Friday. The yield on the three-month T-bill was unchanged at 0.13 percent.

The dollar was mostly higher against other major currencies. Gold prices rose.

Overseas, Japan's Nikkei stock average rose 0.19 percent. Britain's FTSE 100 fell 2.5 percent, Germany's DAX index fell 4.1 percent, and France's CAC-40 fell 4 percent.

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"Profit Up, Bank of America Chief Cites Acquisitions"
By LOUISE STORY, The NY Times (Online), April 21, 2009

Bank of America reported first-quarter earnings of $4.2 billion on Monday, and the bank said those earnings were bolstered by two controversial acquisitions.

The bank has faced immense criticism for buying the mortgage giant Countrywide Financial and the troubled investment bank Merrill Lynch. Some shareholders say they believe that Bank of America overpaid for both companies.

Financial shares, however, slid sharply Monday because of investor concerns that much of the profit reported by the banks was from one-time gains or accounting adjustments. Bank of America was down 15.5 percent, while Citigroup was down 14.7 percent. But bank executives emphasized on Monday that their strategy for integrating those companies was on track and providing profits.

“The results this quarter are a testament to the value and breadth of the franchise,” Kenneth D. Lewis, the bank’s chief executive, said in an earnings call. “The additions of Countrywide and Merrill Lynch have clearly been accretive to earnings as these market-sensitive businesses offer diversification.”

The bank’s profit was up significantly from the first quarter a year ago, when it earned $1.2 billion. Revenue was $36 billion. The earnings of 44 cents a share beat analysts’ expectations of 4 cents a share. The bank added $6.4 billion to its loan-loss reserves, which Mr. Lewis called an “extraordinary reserve build” in anticipation of further fall-out in consumer and corporate loans.

Bank of America’s earnings follow positive earnings reports last week from rivals JPMorgan Chase and Citigroup.

But Bank of America’s results were helped by some one-time items that analysts said pushed results into positive territory from break-even. Those included a $1.9 billion pretax gain on the sale of shares in China Construction Bank shares, in which the bank continues to hold about a 17 percent stake. Bank of America also benefited from changed valuations of some investments. In particular, it gained $2.2 billion from an adjustment to the value of structured notes at Merrill, and a benefit of about $1.5 billion in its trading books.

“The stock is down because it was a break-even quarter if you back out all these gains,” Jason Goldberg, an analyst at Barclays Capital, said, referring to the one-time items.

Mr. Goldberg also said investors are concerned because nonperforming assets increased 40 percent, the result of problems with consumer mortgages and commercial real estate.

One key question is whether the bank needs more capital. The bank said its tier 1 capital ratio, a measure of financial strength, was 10.09 percent, up from 9.15 percent at the end of 2008.

“We absolutely don’t think we need additional capital,” Mr. Lewis said.

Regulators are currently evaluating the “stress tests” of Bank of America and other banks.

When asked about the conversion of preferred shares in the bank to common stock, Mr. Lewis said: “We think we’re fine, but again this is in the hands of the regulators at the moment.”

Though the bank said its integration with Merrill was on track, the news might not assuage all of its shareholders, many of whom want the company to reshuffle its board and possibly its management. One of the most vocal shareholder groups is the Finger family, based in Texas. They have set up a Web site campaign at bacproxyvote.com, and have broadcast television commercials urging shareholders to vote against Mr. Lewis. The family sold its Houston-based bank, Charter Bancshares, to Bank of America’s predecessor in 1996, and say they control about 1.1 million shares.

The bank has tried to engage the Fingers, sending executives and a board member by corporate jet to visit the family three times in Texas.

The Fingers’ story line is familiar to others who became part of the Bank of America family tree. In the last few decades, the bank was cobbled together out of more than 50 financial companies, mostly local banks. The oldest was Massachusetts Bank, founded in 1784, which was absorbed through the company’s acquisition of FleetBoston Financial.

Many shareholders stuck with the company for decades. The Eliasberg family, for instance, has held their stock for more than 70 years. Richard Eliasberg’s father helped found Baltimore National Bank in 1933, and that bank grew up to become part of what is now Bank of America.

But in an interview before the release of the quarterly report, Mr. Eliasberg said he was losing faith in Bank of America, and in Mr. Lewis.

“For the first time, I’m disappointed,” said Mr. Eliasberg, who owns a substantial number of shares for an individual, though he has sold a third of his stock in the last year.

Of particular concern is Mr. Lewis’s latest conquest, Merrill. Bank of America shareholders signed off on the acquisition in early December, only to discover that gaping losses at Merrill would force Bank of America to seek assistance from the government for a second time. Some investors are suing, claiming that Mr. Lewis failed to fully disclose the risks of the deal.

Bank of America said Monday that “the Merrill Lynch integration is on track and expected to meet targeted cost savings” and that Merrill had contributed $3 billion to its net income. It also said the integration of Countrywide Financial, the mortgage lender it bought last year, “is on track.”

On Friday, two investor advisory firms issued reports recommending that shareholders vote to remove Mr. Lewis from the board. The bank’s proxy is in circulation in anticipation of what is likely to be a contentious annual meeting on April 29 in Charlotte, N.C., where Bank of America is based.

The reports, issued by the RiskMetrics Group and Glass, Lewis & Company, carry weight because some institutional shareholders follow the groups’ recommendations without exception.

A Bank of America spokesman said Friday that the company was disappointed with the conclusions of the reports, including an initiative to strip Mr. Lewis of his chairmanship and another that would unseat him altogether. The spokesman also said that the bank believed that it had acted appropriately in its disclosures about the merger with Merrill.

Inside Bank of America, there is resentment over the Merrill acquisition. Bank employees are also among the largest voices among individual stockholders.

Some people, of course, support Mr. Lewis. The CtW Investment Group, which represents pension funds, is leading a campaign against Mr. Lewis, but the organization has received e-mail messages from people who believe the management is good, according to a spokesman for the group.

“Please give Ken Lewis a chance,” wrote Luis F. Valenzuela, a shareholder who supported the bank in one of the e-mail messages provided by CtW to The New York Times. “He will prove you guys wrong. Don’t make the mistake of looking dumb.”

Mr. Valenzuela said in an e-mail message that he was a student in Arizona and that the bank’s past dividend helped him afford his education.

The acquisitions were not only on the Bank of America side. Many of the companies that the bank acquired had built themselves up over the years in a similar fashion. Tom Sharkey Jr., for instance, owns shares of the bank because his family sold its 100-year-old insurance business to FleetBoston in 2001, and then Fleet was acquired by Bank of America in 2004. Now, Mr. Sharkey says, he and several members of his family in New Jersey have lost significant wealth because of the bank’s “catastrophically bad mistakes.”

Charles Elson, a professor at the University of Delaware, was given most of his tens of thousands of Bank of America shares by his father more than 30 years ago. Back then, the stock he owned was in Citizens & Southern Bank of Georgia, based in Atlanta, where he grew up.

“It was always a strong bank and a strong investment — something we’d never sell,” said Mr. Elson, whose father was on the board of the Atlanta bank before it was taken over in 1991 by a predecessor of Bank of America.

Mr. Elson, who teaches courses on corporate governance, has been concerned about the structure of Bank of America’s board since the late 1990s. He said he had once contacted the company about his concerns — to no avail.

“I knew it was there, the problems with corporate governance,” Mr. Elson said. “The biggest mistake I made was I did not sell. Put it this way: had I known this 40 years ago, I would have invested in something else.”
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David Jolly and Graham Bowley contributed reporting.
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From: "Matt Holland, TrueMajority"
To: jonathan_a_melle@yahoo.com
Date: Monday, April 20, 2009
Subject: Your Bank of America stock

We didn't cause this economic crisis-but we sure are paying the price for the banks' mistakes. The biggest and baddest bank is Ken Lewis' Bank of America. With loans, credit cards and other products to almost half of all Americans, they played a central role in creating this recession - but have come out smelling like a rose.

B-of-A has survived because they took $45 billion in taxpayer bailouts, making us the single largest shareholders of the bank - and that gives us a chance to change their ways. So Service Employees International Union (SEIU), a big national union, and other progressive groups are forming a huge coalition to take down Ken Lewis.

We're not alone in calling for a new direction for the Bank of America: two big investment firms, major unions and others all want him fired. And the reason is simple: Lewis oversaw some of the worst decisions on wall street including billions in bonuses for top executives, huge layoffs for employees, and a $35 million salary for Ken Lewis himself - despite having run his company into the ground.

President Obama's team was on television this weekend talking about how to use the money we've invested in failing banks to build a new foundation for our economy. But that action could take years. We need to send a clear message of change right to the banks' governing boards.

If we can convince Bank of America to fire Lewis and change it's ways, it will send a powerful message to the rest of Wall Street that with taxpayer bailouts comes accountability.

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"Global economy may shrink for 1st time in 60 years"
By Jeannine Aversa, Ap Economics Writer, April 22, 2009

WASHINGTON – The world economy is likely to shrink this year for the first time in six decades.

The International Monetary Fund projected the 1.3 percent drop in a dour forecast released Wednesday. That could leave at least 10 million more people around the world jobless, some private economists said.

"By any measure, this downturn represents by far the deepest global recession since the Great Depression," the IMF said in its latest World Economic Outlook. "All corners of the globe are being affected."

The new forecast of a decline in global economic activity for 2009 is much weaker than the 0.5 percent growth the IMF had estimated in January.

Big factors in the gloomier outlook: It's expected to take longer than previously thought to stabilize world financial markets and get credit flowing freely again to consumers and businesses. Doing so will be necessary to lift the U.S., and the global economy, out of recession.

The report comes in advance of Friday's meetings between the United States and other major economic powers, and weekend sessions of the IMF and World Bank. The talks will seek to flesh out the commitments made at a G-20 leaders summit in London last month, when President Barack Obama and the others pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.

The IMF's outlook for the U.S. is bleaker than for the world as a whole: It predicts the U.S. economy will shrink 2.8 percent this year. That would mark the biggest such decline since 1946.

Among the major industrialized nations studied, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent.

Global powerhouse China, meanwhile, is expected to see its growth slow to 6.5 percent this year. India's growth is likely to slow to 4.5 percent.

All told, the lost output could be as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated.

Besides trillions in lost business, a sinking world economy means fewer trade opportunities and higher unemployment. It raises the odds more people will fall into poverty, go hungry or lose their homes. And while keeping a lid on interest rates and consumer prices, the global recession increases the risk of deflation, which would drag down prices and wages, making it harder for people to make payments on their debt.

The jobless rate in the United States is expected to average 8.9 percent this year and climb to 10.1 percent next year, the IMF said.

In Germany, the jobless rate is expected to average 9 percent this year and 10.8 percent next year. Britain's unemployment rate is projected to rise to 7.4 percent this year and to 9.2 percent next year.

Brian Bethune, economist at IHS Global Insight, estimates that at least 10 million jobs could be lost this year, mostly in the United States and Europe, because of sinking global economic activity.

He and other economists said the 1.3 percent projected decline would be the first in roughly 60 years. In a report issued in mid-March, the IMF predicted global activity would contract this year "for the first time in 60 years," though it didn't offer a precise estimate then.

Next year, the IMF predicts the world economy will grow again — but just 1.9 percent. It said this would be consistent with its findings that economic recoveries after financial crises "are significantly slower" than ordinary recoveries typically are.

All those factors tend to weigh against prospects "for a speedy turnaround," the IMF said.

In 2010, the IMF predicts the U.S. economy will be flat, neither shrinking nor growing. Germany's and Britain's economies, meanwhile, will shrink less — by 1 percent and 0.4 percent respectively — it estimates.

Others countries, such as Japan, Russia, Canada and Mexico are projected to grow again. And China and India should pick up speed.

The financial crisis erupted in the United States in August 2007 and spread around the globe. The crisis entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the IMF estimated in a separate report Tuesday.

The crisis has led to bank failures, wiped out Lehman Brothers and forced other big institutions, like insurance giant American International Group, to be bailed out by U.S. taxpayers.

And it's triggered radical government interventions — such as the United States' $700 billion financial bailout program and the Federal Reserve's $1.2 trillion effort to lower interest rates and spur spending.

Actions by the United States and government in other countries have helped ease the crisis in some ways. But markets are still not operating normally.

The 185-nation IMF, headquartered in Washington, is the globe's economic rescue squad, providing emergency loans to countries facing financial troubles. It has urged countries to take bolder actions to bolster banks.

The IMF also has pushed countries to work more closely together. It favors coordinating fiscal stimulus efforts through tax reductions or greater government spending to stimulate the appetites of consumers and businesses. And it warned countries to resist the temptation of enacting protectionist trade measures.

"Fiscal policies had made a gigantic difference," said IMF Chief Economist Olivier Blanchard. Without them, the hit to the global economy would have been much greater and pushed it perilously close to "a depression," he added.

Because the world economy won't be back to normal next year or perhaps even in 2011, Blanchard urged countries to spend money on big public works projects — something the Obama administration is doing — to bolster activity.

Bold policy actions could set off a mutually reinforcing "relief rally" in financial markets and a revival in consumer and business confidence, the IMF said in its report. But it remains concerned that these policies won't be enough to break the vicious cycle whereby deteriorating financial institutions feed, in turn, weaker economic conditions.

"The problem is that the longer the downturn continues to deepen, the slimmer the chances that such a strong rebound will occur, as pessimism about the outlook becomes entrenched and balance sheets are damaged further," the IMF said in the report Wednesday.

With the global economy stuck in a recession, the risks of a dangerous bout of deflation — a prolonged decline in prices that can worsen the economy — has risen. The IMF cited a "moderate" risk of deflation in the United States and in the 16 countries that use the euro. It saw a "significant likelihood of deeper price deflation" in Japan.

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"Banks in Europe Lag in Recovery: Huge Capital Infusions Needed, IMF Says"
By Anthony Faiola, Washington Post Staff Writer, Wednesday, April 22, 2009

European banks are far behind those in the United States in clearing bad loans off their books and may need additional capital injections of up to $1.2 trillion, according to a major International Monetary Fund report released yesterday.

The IMF's global financial stability report -- seen as a key measure of the financial crisis -- suggests that while the downturn may have started in the United States, it could take longer to run its course in Europe and ultimately prove more costly for Europeans to fix.

Overall, the report said, financial institutions and investors worldwide stand to lose $4 trillion from bad debt and toxic assets, their biggest hit since the Great Depression. The single biggest sting is to banks, which are set to absorb about two-thirds of all losses.

The fund also warned of growing credit woes in emerging markets. Addressing that concern, the World Bank said yesterday it would triple its spending to help developing countries withstand the crisis, allocating $12 billion in loans over the next two years for food, health and education programs. The bank spent $4 billion on such social programs in the past two years.

"Most attention in the current crisis has been focused on developed countries where people face the loss of homes, assets and jobs," World Bank president Robert B. Zoellick said. "People in developing countries have much less cushion: no savings, no insurance, no unemployment benefits and often no food."

The IMF sought to quantify the scope of the crisis, saying the weak financial sectors in the United States and Europe are likely to need billions of dollars more in cash injections and signaling that Europe in particular needed to boost its efforts to prop up ailing banks. U.S. banks have written about half the estimated $1.1 trillion in troubled loans and toxic assets off their books, the IMF noted. But European banks have moved much slower, so far writing down less than 25 percent of the $1.4 trillion in bad debts.

Although the financial crisis originated largely with the subprime mortgage bubble in the United States, the global pool of bad assets has been augmented by a surge in troubled loans in Europe stemming from a string of corporate failures and depressed housing and commercial real estate markets. The report raised its estimate of troubled assets originating in the United States to $2.7 billion, up from $2.2 billion in January. For the first time, it also measured the size of troubled loans and assets overseas, placing them at about $1.3 billion.

"Europe may be in as bad shape, if not in worse shape," said Martin Baily, senior fellow at the Washington-based Brookings Institution, and former chairman of the Council of Economic Advisers under former president Bill Clinton. "They are holding quite a lot U.S. troubled assets, but they are also getting defaults themselves as their own economies turn down sharply. In terms of the housing market, with the exception of Germany, their bubble was in many cases bigger than the United States."

The delayed response in Europe, officials note, is tied to the fact that the crisis began in the United States, giving U.S. financial institutions more time to identify and deal with its scope.

The report indicates global lending may not fully recover until 2011. Although lending may have bounced back some in recent months, the credit crunch continues to make it harder and more expensive for businesses worldwide to obtain financing, the report said. The credit crunch has been particularly pronounced and worrisome in the developing world.

In addition, the report notes that taxpayers in many nations are growing weary of bailout efforts when more may be needed for a sustained global recovery.

"The political support for such action is waning as the public is becoming disillusioned by what it perceives as abuses of taxpayer funds in some headline cases," the report said. "There is a real risk that governments will be reluctant to allocate enough resources to solve the problem."

The IMF nevertheless advised governments to "take bolder steps" to reinforce the fragile financial system through bailouts, even if it means nationalization of specific banks. It urged, however, that such steps be temporary and that banks be strengthened and returned to the private sector ownership as soon as possible.

Many nations, including the United States, have poured billions of dollars into financial institutions, though mostly avoiding full nationalization.

In London this month, the group of 20 industrialized and developing nations agreed in principle to combat the financial crisis in part by beefing up resources at the IMF and World Bank by more than $1 trillion -- though they have not yet agreed where all of that money will come from.

That will be one of the chief topics discussed over the next several days during a number of major meetings in Washington. Finance ministers from the Group of Seven industrialized nations, as well as from the larger G20, will meet Friday. The World Bank and IMF will host their annual spring meetings Saturday and Sunday.

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Joseph Sassi, 39 (left), waits in line to talk to a job counselor at a Nevada Jobconnect Career Center in Las Vegas yesterday. (Jae C. Hong/Associated Press)
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"Jobs, housing data hamper recovery"
By Associated Press, April 24, 2009

WASHINGTON - Worse-than-expected news on unemployment and home sales yesterday dampened optimism that a broad economic recovery might be near.

Many analysts don't expect the housing slide to show signs of stabilizing until the second half of this year. They said layoffs may be at their high point, but that the jobless rate, already at a 25-year high, will keep rising until the middle of 2010.

The Labor Department reported initial claims for unemployment compensation rose to a seasonally adjusted 640,000 last week, up from a revised 613,000 the previous week. That was slightly more than analysts' expectations of 635,000.

Meanwhile, the National Association of Realtors said sales of existing homes fell 3 percent in March to a seasonally adjusted annual rate of 4.57 million units, with February revised down to 4.71 million units. Sales had been expected to fall to an annual rate of 4.7 million units, according to Thomson Reuters.

The best reading of the new data is that late last year's alarming free fall is coming to an end, analysts said. "We are still falling, but we are no longer crashing," said Mark Zandi, chief economist at Moody's Economy.com.

On the housing front, IHS Global Insight economist Patrick Newport is still forecasting further declines in construction, sales, and prices.

He expects existing home sales will bottom out in the second half of this year, partly reflecting a significant improvement in affordability.

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"Analysis: IMF relevant again, will big plans work?"
By Martin Crutsinger, Associated Press, April 25, 2009

WASHINGTON – Not long ago the International Monetary Fund seemed headed for relic status. Now it's once more flying high, rolling out ambitious plans to blanket an economically distressed world in dollars. Even grander designs are on the drawing board.

Yet the money might not cover the job and those lofty plans might never get approved.

Failure would carry a heavy political price because the Group of 20 countries have made the lending agency the linchpin in their efforts to combat the worst economic downturn since the Great Depression.

Finance ministers from those nations met on Friday to hammer out details of the $1.1 trillion plan that President Barack Obama and his G-20 counterparts announced at their recent summit in London.

Some parts are proving elusive.

Major developing nations — Brazil, Russia, India and China, for example — are balking at providing their contributions to a $500 billion IMF emergency loan program under the original proposal outlined by the United States and Europe.

World finance officials meeting through the weekend near the White House hoped for a resolution soon. An approach pushed by China and gaining momentum calls for the IMF to sell bonds that developing nations would buy, rather than go the traditional loan route.

Even with a deal, however, it's not clear that the IMF's pool will have enough to jump-start the economy.

The IMF estimates that before the downturn bottoms out, the agency could provide around $187 billion to recession-battered nations. That would dwarf the $86 billion during the 1997-98 Asian crisis, which leveled countries from Thailand to Russia and Argentina.

The projected lending spree is quite a change from a year ago, when the IMF appeared headed to irrelevance. The long global boom meant countries were coming much less often, hat in hand, seeking assistance.

The IMF was scrambling to pay its bills and trim down. Its major source of income, loan repayments, had fallen sharply.

Today the agency is expanding again, approving loans to a string of countries. It's not clear whether the boost in resources will be enough.

The key is whether the broken banking systems in the United States and elsewhere can be repaired quickly enough so normal lending can resume to consumers and businesses. This lending is needed to spur an economic rebound in industrial countries, which leads to increased demand for developing nations' exports.

On Friday, regulators summoned executives from the 19 largest U.S. banks and told them what government tests showed about shortfalls in their institutions' capital reserves.

Despite the $700 billion bank bailout, credit flows in the United States have not reached the level to get a sustained recovery going.

More problems lie ahead. Banks are struggling not only with billions of dollars in losses on mortgage loans, but also rising bad debt in commercial real estate and consumer credit cards.

"We would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy early last fall," Treasury Secretary Timothy Geithner said somberly at weekend meetings of the IMF and World Bank.

One of the Obama administration's main worries is that other countries will not be bold enough in their stimulus efforts or in fixing their own banking systems as loan losses mount.

An IMF study estimate losses on U.S. loans and securities at $2.7 trillion through 2010, double the estimate of six months ago; g1obal losses were put at $4.1 trillion.

The agency also faces questions about how it should change to better cope with the problems of a global economy vastly different from what existed when the institution was created in the 1940s.

Some suggest ideas that would transform the agency into a kind of U.N. Security Council for economic matters, with the power to blow the whistle when economic practices in any country threaten the global economy.

But the IMF has trouble exercising the limited monitoring powers it now has. Rich and poor nations alike bristle at even the mild suggestions contained in the IMF's annual performance reviews.

Major developing countries such as China, Brazil and India are pushing to obtain greater voting powers at the IMF in line with their growing roles in the world economy. This dispute is threatening to derail the efforts to boost IMF resources.

The battle over tiny changes in voting shares is evidence of the many hurdles to overcome before the IMF can increase its powers as the globe's economic traffic cop.
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EDITOR'S NOTE — Martin Crutsinger has covered economics for The Associated Press for 25 years.
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"Regulators shutter 5 more banks, bringing total to 45"
By Stephen Bernard and Marcy Gordon, Associated Press, June 28, 2009

NEW YORK - Regulators on Friday shut down five small banks, boosting to 45 the number of failures this year of federally insured banks. More are expected to succumb in the prolonged recession.

The Federal Deposit Insurance Corp. was appointed receiver of the failed banks: Community Bank of West Georgia, based in Villa Rica, Ga.; Neighborhood Community Bank, located in Newnan, Ga.; Horizon Bank in Pine City, Minn.; MetroPacific Bank in Irvine, Calif.; and Mirae Bank in Los Angeles.

Community Bank of West Georgia had $199.4 million in assets and $182.5 million in deposits as of May 15. Neighborhood Community Bank had $221.6 million in assets and $191.3 million in deposits as of March 31. Horizon Bank had $87.6 million in assets and $69.4 million in deposits as of March 31. MetroPacific Bank had $80 million in assets and deposits of $73 million as of June 8. Mirae Bank had $456 million in assets and $362 million in deposits as of May 29.

The two closures in Georgia brought to 14 the number of banks in Georgia that have failed since the beginning of last year, more than in any other state, as the collapse of the Atlanta real estate market has brought economic dislocation.

The 45 banks closed nationwide this year compare with 25 in all of 2008 and three in 2007.

The FDIC estimates that the cost to the deposit insurance fund from the failure of Community Bank of West Georgia will be $85 million. CharterBank’s failure will cost the fund $66.7 million. The failure of Horizon Bank is expected to cost the fund $33.5 million, while the closure of MetroPacific Bank will cost the fund about $29 million. Mirae Bank’s failure will cost the fund $50 million.

As the economy has soured, bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level since 1993, $13 billion as of the first quarter.

While the pounding from losses on home mortgages may be nearing an end, delinquencies on commercial real estate loans remain a hot spot of potential trouble, FDIC officials say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks hold large numbers of them.

The number of banks on the FDIC’s list of problem institutions leaped to 305 in the first quarter - the highest number since 1994.

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"Economist: ‘Recovery’ may be short-lived"
By Jay Fitzgerald, Wednesday, July 22, 2009, www.bostonherald.com - Business & Markets

Harvard economist Martin Feldstein yesterday warned of a possible “double-dip” recession that could hit the economy later this year.

Feldstein, the former head of the Cambridge group that officially declares when recessions start and finish, said the economy may now be about to “flatten out” and “even be positive” after a brutal 10 months of layoffs and financial turmoil.

But Feldstein told Bloomberg Television yesterday that the economy is still fragile and could turn south again late this year.

“There is a real danger this is going to be a double dip (recession) and that after six months or so we’ll have some more bad news,” said Feldstein, former chairman of the National Bureau of Economic Policy and Reagan administration adviser.

Other economists weren’t as pessimistic yesterday.

“It’s a very low probability,” Bob MacIntosh, economist at Boston’s Eaton Vance Management, said of a second contraction occurring soon. He predicted the economy will begin to grow “very slowly.”

Some economists said there’s no way to predict what will happen next.

“Any economic configuration is possible at this point - a double-dip or triple-dip recession,” said Nick Perna, an economist with Perna Associates.

Perna said he thinks Feldstein’s double-dip warning is “really premature.”

In Washington yesterday, Federal Reserve Bank chairman Ben Bernanke expressed guarded optimism that the nation’s economy is stabilizing.

He said that the economic decline “appears to have slowed significantly” and that there are “notable improvements” in financial conditions.

In a new report, the Fed is now predicitng a possible rebound in the economy next year.

Bernanke once again called for strong Federal Reserve oversight of the financial system moving forward, despite calls from some Democrats to clip the authority of the Fed.

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"Fed OK’s plan for simplified loans"
By Jeannine Aversa, Associated Press, July 24, 2009

WASHINGTON - The Federal Reserve approved proposals yesterday designed to make it easier for Americans with mortgages, or shopping for them, to understand how the loans work.

“Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances,’’ said Fed chairman Ben Bernanke.

Among the changes, mortgage lenders would need to explain potentially risky features, such as prepayment penalties, of a mortgage in a one-page “plain-English’’ question-and-answer format before a consumer applies for a loan. Improved disclosure of the annual percentage rate, or APR, to capture most fees and settlement costs paid by the borrower also would be required.

For customers with adjustable-rate mortgages, lenders would be required to show consumers how their payment might change. For instance, by disclosing the highest monthly amount the borrower might pay during the life of the loan. Lenders also would have to notify customers 60 days in advance - versus the current 25 - of a change in their monthly payment.

Lenders would have to provide a monthly statement of payment options for customers with payments that do not cover the loan interest.

The proposal would ban certain payments to mortgage brokers and loan officers that are based on the loan’s terms or conditions, and would prohibit steering consumers to transactions that aren’t in their interest but would lead to increased compensation to the brokers and officers.

Michael Calhoun, president of the Center for Responsible Lending, a nonprofit that fights abusive financial practices, praised the Fed’s proposal, saying it holds “great promise for eliminating abusive and unfair practices.’’

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"Mortgages: Attack of the killer fees"
SHORT FUSE - A BOSTON GLOBE EDITORIAL - August 2, 2009

Raw numbers suggest that financial institutions should be modifying more loans for delinquent homebuyers rather than foreclosing. Foreclosure proceedings are expensive and time-consuming, and they only add to the downward pressure on housing values generally. But the problem isn’t just that lenders are pig-headed. As The New York Times reported last week, third-party mortgage servicers earn significant fees when these loans go delinquent. The servicers resemble credit card companies that thrive on late fees: In both cases, companies make the most money when borrowers run up debts, pay bills late, and end up just shy of bankruptcy. As the Obama administration pushes an overhaul of financial regulation, it should also try to reorient the rules of consumer lending so that profits are greatest when borrowers pay their loans on time.

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With interest rates near zero, you have to weigh risk and return.
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8/2/2009
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Several factors are driving down savings interest rates.

In an effort to stimulate the economy by making it easier to borrow money, the Federal Reserve has slashed the interest rates it controls to nearly zero.

Meanwhile many investors are skittish after last year’s stock market collapse, so they are flocking to safe investments like US Treasury bonds. The higher demand has pushed down the rates lenders have to pay on these investments.

I-Savings are paying zero interest through at least Oct. 31, 2009.

You are required to hold savings bonds for at least a year. And you forfeit three months interest if you sell the bonds in less than five years. Learn more at treasurydirect.gov

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Stock of the parent company of Pizza Hut, Taco Bell and the KFC fast-food chains, Yum Brands Inc. fell Tuesday after an analyst at UBS lowered his rating on the company because of concerns about sales. (File photo by Paul Sakuma / Associated Press)
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"Stocks fall for 2nd day as traders await Federal Reserve's evaluation of economy"
By The Republican Newsroom & By TIM PARADIS, Associated Press, Tuesday August 11, 2009

NEW YORK - A recurrence of investors' anxiety about the economy gave Wall Street its biggest loss in five weeks.

The major indexes fell 1 percent Tuesday as investors worried that the market's steep gains in the past month could unravel if the economy doesn't show more signs of strengthening. Warnings about the health of banks and uneasiness ahead of the Federal Reserve's economic statement Wednesday led investors to dump financial stocks and wade into defensive areas like consumer staples companies and government debt.

Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy is likely to be gradual.

But many analysts said investors weren't panicking Tuesday. They were taking a much-needed pause following a rally that seemed to be going at breakneck speed. The Standard & Poor's 500 index had reached at its highest level since last fall, rising 15 percent in just four weeks and 49 percent from a 12-year low in early March.

"This sort of give-and-take is quite healthy," said Erik Davidson, managing director of investments at Wells Fargo Bank in Carmel, Calif. "You're up 50 percent in five months. That's 10 percent a month. In quote-unquote normal markets that's five years worth of returns."

Moreover, traders often become jittery when the Fed policymakers meet to discuss interest rates. It is widely expected that the central bank will hold interest rates at their historic low of essentially zero, but investors are waiting to see what the Fed has to say about the economy when the meeting concludes Wednesday.

"It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.

There were some troubling developments during the day, however. Downbeat comments from analysts about banks weighed on the market. Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.

"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.

With many traders on vacation, volume was light, which tends to skew price moves.

According to preliminary calculations, the Dow Jones industrial average fell 96.50, or 1 percent, to 9,241.45. It had been down as much as 121 points. It was the biggest drop since July 7, when the index lost 161 points. The Dow slipped 32 points Monday.

The broader S&P 500 index also had its worst day since July 7, falling 12.75, or 1.3 percent, to 994.35.

The Nasdaq composite index fell 22.51, or 1.1 percent, to 1,969.73, while the Russell 2000 index of smaller companies fell 9.75, or 1.7 percent, to 562.12.

About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded Monday.

The Chicago Board Options Exchange's Volatility Index spiked in a sign of investors' nervousness. The VIX, also known as the market's fear index, rose 4.1 percent to 26.01, its highest level in a month. It is down 35 percent in 2009 and its historical average is 18-20. It reached a record 89.5 in October at the height of the financial crisis.

Bond prices jumped as stocks retreated. The gains followed a solid showing at the first of the week's three auctions for a record $75 billion in debt. Prices often fall when the government introduces supply to the market. The sale Tuesday was for $37 billion in three-year notes and the government will auction $23 billion in 10-year notes Wednesday.

Investors watching for a drop in buyers because that could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.

The yield on the three-year note, which moves opposite its price, fell to 1.72 percent from 1.78 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.78 percent.

Among banks, Citigroup Inc. fell 25 cents, or 6.4 percent, to $3.69. Wells Fargo & Co. slid $1.75, or 6.1 percent, to $26.89.

The KBW Bank Index, which tracks 24 of the nation's largest banks, fell 4.4 percent.

Analyst downgrades made traders cautious about the overall economy.

Bond insurer MBIA Inc. tumbled 78 cents, or 12.6 percent, to $5.39 after J.P. Morgan Securities cut its rating on the stock over concerns the company could face steep losses from bad debt.

Yum Brands Inc. fell after an analyst at UBS lowered his rating on the company because of concerns about sales. The parent of the Pizza Hut, Taco Bell and KFC fast-food chains fell $1.40, or 3.8 percent, to $35.13.

The day's economic readings were mixed. The Commerce Department said businesses cut inventories at the wholesale level for a record 10th consecutive month in June. The drop has contributed to the recession. In one bright spot, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.

The Labor Department said productivity - which measures the amount of output per hour of work - grew 6.4 percent during the second quarter. Economists polled by Thomson Reuters were expecting growth of 5.3 percent.

In other trading, crude oil fell $1.15 to settle at $69.45 a barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies, while gold prices fell.

Overseas, Britain's FTSE 100 fell 1.1 percent, Germany's DAX index tumbled 2.4 percent, and France's CAC-40 dropped 1.4 percent. Japan's Nikkei stock average rose 0.6 percent.

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"Fed says economy leveling out; rates stay at lows"
By Jeannine Aversa, Ap Economics Writer, August 12, 2009

WASHINGTON – The Federal Reserve delivered a vote of confidence in the economy Wednesday, saying it would slow the pace of an emergency rescue program and indicating the recession appears to be ending.

The central bank also held interest rates steady at record lows, with a closely watched bank lending rate near zero, and again pledged to keep them there for "an extended period" to nurture an anticipated recovery.

Fed Chairman Ben Bernanke and his colleagues said the economy appeared to be "leveling out" — a considerable upgrade from their last meeting in June, when the Fed observed only that the economy's contraction was slowing.

"We're no longer at DEFCON 1," said Richard Yamarone, economist at Argus Research, referring to the defense term used to indicate being under siege. "The Fed is pulling in some of its life preservers now that the economy is no longer sinking."

The more optimistic tone lifted Wall Street. The Dow Jones industrials gained about 120 points, or 1.3 percent, to close above 9,360 — near their highest level since the market bottomed out in early March.

The Fed said it would gradually slow the pace of its program to buy $300 billion worth of Treasury securities and shut it down at the end of October, a month later than previously scheduled.

It has bought $253 billion of the securities so far. The program is designed to force interest rates down for mortgages and other consumer debt and spur Americans to spend more money.

"I think the Fed is feeling increasingly comfortable about where the economy is going," said Mark Zandi, chief economist at Moody's Economy.com. "For the first time in two years, the Fed is taking one step — a baby step — toward unwinding the massive stimulus."

The Treasury-buying program's effectiveness has been questioned on both Wall Street and Capitol Hill, with critics saying it looks like the Fed is printing money to pay for Uncle Sam's spending binge.

As the Fed winds down the program, rates on government debt might edge higher, economists said. But the Fed appeared to feel sufficiently secure that higher rates would not jeopardize a recovery, they said.

Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi, viewed it as a "vote of confidence that credit markets and the economic outlook has improved and will show even further improvement down the road."

The Fed left unchanged another program that aims to push down mortgage rates. In that venture, the Fed is on track to buy $1.25 trillion worth of securities issued by mortgage finance companies Fannie Mae and Freddie Mac by the end of the year.

The central bank's recent purchases have totaled about $543 billion, suggesting the Fed still has firepower in its arsenal.

The Fed left the target range for its bank lending rate at zero to 0.25 percent. And economists think it will stay there through the rest of this year. The rationale: Super-cheap lending will lead Americans to spend more, which will support the economy.

If the Fed holds rates steady, commercial banks' prime lending rate, used as a peg for rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.

The Fed gave its assessment after its first meeting since the economy began flashing significant signs of turning a corner. They include fewer job losses in July, slower economic contraction and stabilizing consumer spending. But dangers still lurk.

Further job losses, sluggish income growth, hits to wealth from tanking home values and still-hard-to-get credit could make Americans cautious in the months ahead, the Fed said.

The Fed expressed confidence that low rates and other aggressive action will gradually bolster the economy. Even so, economic activity probably will "remain weak for a time," the Fed warned.

Against that backdrop, the Fed said inflation is likely to stay "subdued." Fed policymakers predicted that idle factories and the weak employment market will make it hard for companies to jack up prices.

While unemployment dipped to 9.4 percent in July, the Fed says it's likely to top 10 percent this year because companies are in no rush to hire.

The Fed offered no hints about the fate of another program intended to spark more lending to individuals and businesses at lower rates.

The Term Asset-Backed Securities Loan Facility, which had gotten off to a slow start in March, is slated to shut down at the end of December. And people are having trouble getting loans anyway, analysts say. More recently, the program was expanded to provide relief to the commercial real-estate market.

The Fed has been weighing whether it should end some of its economic revival programs now that signs are growing that the worst recession to hit the country since World War II is drawing to a close.

Many analysts believe the economy — which logged a mild contraction in the second quarter after a dizzying fall in the prior six months — is growing now.

"A paradigm shift is occurring at policy deliberations of the Federal Reserve," said Sung Won Sohn, an economist at California State University, Channel Islands. "The officials are no longer worried about a severe retrenchment as they were late last year. Now, they are trying to sustain the economic recovery in motion."

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"Wall St. rewards"
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My Daily Work - Posted by Dan Wasserman - Boston Globe Online - August 18, 2009
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"Fed's rate path, inflation aims may clash-paper"
By Mark Felsenthal, August 22, 2009

JACKSON HOLE, Wyoming (Reuters) - The U.S. Federal Reserve's stated intention to keep interest rates exceptionally low for "an extended period" may conflict with its desire to avoid inflation, an academic economist told central bankers on Saturday.

"The point of keeping interest rates low in the future is to promote economic activity today, but the price is a future rise in inflation," Carl Walsh of the University of California, Santa Cruz, wrote in a paper presented at the Kansas City Federal Reserve's annual Jackson Hole conference.

"It is not clear how one has one without the other."

Walsh's audience includes Fed Chairman Ben Bernanke, European Central Bank President Jean-Claude Trichet and other central bankers from around the world gathered here in the shadow of the towering Grand Teton mountain range.

The U.S. central bank chopped its benchmark interbank lending rate target to near zero at the end of last year and has pledged to keep it low for a long time to revive the economy. It restated that expectation as recently as Aug. 12, when it wrapped up its last policy meeting.

Near-zero interest rates and the Fed's aggressive efforts to pump of money into financial markets have raised concerns about sparking inflation.

The Fed has steadily sought to calm those fears by arguing it can keep inflation at bay by paying interest on the reserves banks hold at the Fed. By making it attractive for banks to keep their reserves out of play, the Fed would prevent that money from circulating and causing the economy to overheat.

The strategy of raising the interest rate the Fed pays to banks to pull money back from the system as the economy picks up may have pitfalls, Walsh wrote.

"The perception that borrowing costs for households and firms are going up while the Federal Reserve is rewarding banks with higher interest on reserves may be less politically supportable," he said.

Central banks may need to keep their massive infusions of cash in place just beyond the point when economic activity begins to take off, but once they decide it is time to hike benchmark rates, they must act quickly and aggressively, Walsh said.

Following the crisis, central bankers may need to revisit some widely held beliefs, Walsh wrote.

One is the belief that a central should not "lean against" a growing asset bubble by raising borrowing costs out of concern interest rate hikes are too blunt an instrument that could damage the entire economy, he said.

"There seems little doubt that the consequences of allowing the bubble in housing prices to continue was a serious policy mistake in the U.S. and many countries," Walsh wrote. (Reporting by Mark Felsenthal; Editing by Neil Stempleman)

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UNEXPECTED RESIGNATION: Former U.S. Sen. John E. Sununu resigned unexpectedly last week from the board that oversees the bank bailout program known as TARP (Troubled Asset Relief Program). We couldn't reach Sununu last week on why he left. His father said he was surprised by the timing. He thought the resignation would not come until the end of September.

Sununu had been criticized last spring for sitting on the board of company tied to Bank of New York Mellon, which received $3 billion in bailout funds and a custodial role in TARP administration.
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Source: "State House Dome: Lottery panel faces angry allegations" (By TOM FAHEY, NH State House Bureau Chief, NH Union Leader, August 23, 2009)
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"New Rules for Private Equity"
The New York Times, Editorial, August 31, 2009

When a bank fails, the preferred course of action by the Federal Deposit Insurance Corporation is to sell it, quickly, to a healthy bank. That protects the insurance fund and, by extension, taxpayers, because a sale is considerably less costly than liquidation. But with several hundred banks poised for failure in the months to come, there may not be enough ready buyers to clear out the anticipated inventory.

This is the crunch moment for which private equity firms have been waiting. The firms have long styled themselves as saviors, able and willing to spend billions of dollars to buy failed banks. The problem is, they are not banks and their partners don’t act or think like traditional bankers; they have thin track records running banks, and they do not want to be regulated as banks.

They are private firms, whose partners and investors have thrived on high-flying and highly leveraged deal-making. Many have amassed great wealth, but too often, they have reaped big gains while saddling their acquisitions with debilitating debt. Normally, private equity firms would not be anyone’s first choice to run a bank. But they have a lot of money and the government is going to have a lot of banks to sell.

Last week, the F.D.I.C. ably navigated that problem with new rules that seek to safeguard the insurance fund — and taxpayers — while inviting in fresh capital. Under the rules, private-equity-run banks would be required to maintain substantially larger capital cushions than traditional banks, and would be barred from selling an acquired bank for three years. That helps to compensate for private equity’s scant banking track record and to ensure that buying a bank is not just another get-rich-quick proposition. The rules bar the acquired bank from lending to companies affiliated with the new owner.

The F.D.I.C. also wisely encouraged private equity firms to pair with traditional bank buyers, by agreeing to exempt them from the higher capital standards if they work in partnership with a bank.

The F.D.I.C. could have gone further. It dropped a proposed rule that private equity firms serve as a so-called “source of strength” for the acquired bank, which would have required the firm to put up more money in the event of an emergency. But given the other safeguards, dropping that particular proposal was within the realm of reasonable negotiating. The F.D.I.C. has also said that it will review the rules in six months.

Private equity firms should view the requirements as an opportunity to show that they can be responsible bankers. If they don’t bid for failed banks because the rules don’t suit them, the F.D.I.C. must not take that as a sign to loosen the rules further. Rather, it would signal that private equity firms are indeed unsuited for banking — a business that has a public purpose and regulatory obligations, along with the potential for profits.

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"Meltdown 101: Unemployment by the numbers"
By Christopher Leonard, AP Business Writer, September 4, 2009

New unemployment data show why it will take years for the labor market to recover from one of its fastest and deepest declines since World War II, even if an economic recovery is around the corner.

The Department of Labor report released Friday showed job cuts in August were lower than they've been in recent months. But a deeper look at the data shows why it will take millions of new jobs to dig American workers out of this recession's deep pit.

Unemployment for teenagers stands at nearly 26 percent. More than 758,000 workers are so discouraged they quit looking for jobs altogether, near the biggest such number since the Department of Labor started tracking it in 1994. Damage continues to mount in the manufacturing, financial and construction sectors.

In all, some 14.9 million people are out of work and looking for a job.

This means it will take several quarters of economic growth to put the unemployed back to work. About 125,000 jobs need to be created each month just to keep up with the natural increase in the number of job seekers from immigration and population growth. Even if that number is surpassed in coming months, it will take a very long time to make up all the lost ground.

The data show that unemployment is deep, widespread and lasting longer than usual. Here are some details, by the numbers.

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WORST DOWNTURN IN DECADES

9.7 percent: The current unemployment rate, up from 4.7 percent before the recession began in December 2007.

10 percent: The rate expected to be hit by the end of this year.

2014: The year Moody's Economy.com predicts the unemployment rate will finally dip toward 5 percent, considered to be the "normal" level.

7.4 million: The increase in unemployed people since the recession started.

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A BROADER PROBLEM

24.9 weeks: The average duration that unemployed workers are out of a job, near the highest level since the Department of Labor started tracking the figure in 1948.

4.98 million: The number of people unemployed longer than 27 weeks, also the highest level since World War II, although the growth in the size of the labor market over time contributes to that.

9 million: The number of workers forced to take part-time jobs who would rather work more hours.

33.1: Average hours in the workweek, near this summer's record low of 33 hours.

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DIFFERENT GROUPS, DIFFERENT FORTUNES

25.5 percent: The unemployment rate among teenagers, the highest level on record since 1948, breaking the previous high of 24.1 set in 1982.

10.1 percent: The unemployment rate for men over age 20.

7.6 percent: The unemployment rate for women over age 20.

8.9 percent: The unemployment rate for white workers over 16 years old, short of the record 9.7 percent from 1982.

15.1 percent: The unemployment rate for black workers over 16 years old, far short of the record 21.2 percent from 1983.

13 percent: The unemployment rate for Latino workers over 16 years old, short of the record 15.7 hit in 1982.

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AFTER THE BUBBLE

1.4 million: The number of construction jobs lost since December 2007 as the housing crisis intensified.

65,000: The number of construction jobs lost in August, mostly in nonresidential and heavy construction.

537,000: The number of financial sector jobs lost since the recession began, including 28,000 shed in August.

829,000: The number of retail jobs lost since the recession started and consumers pulled back spending, including 10,000 lost in August.

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SILVER LINING

544,000: The net increase in health care jobs since the recession began, with 28,000 being added in August.

2.6 percent: The rise in average hourly earnings over the last year, with a boost of 6 cents in August bringing the average to $18.65.

0.8 percent: The smaller increase in overall weekly earnings over the last year, which was held back by workers getting fewer hours.

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Source: U.S. Bureau of Labor Statistics, unless otherwise noted.

(This version corrects that number of discouraged workers and average number of weeks unemployed were not records. Also corrects month when unemployment hit 4.7 percent, and that 7.4 million is the increase in unemployed people, not jobs lost.)

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(Getty/Superstock)
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"Why capitalism fails: The man who saw the meltdown coming had another troubling insight: it will happen again"
By Stephen Mihm, Boston Globe Correspondent, September 13, 2009

Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own. Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a “Minsky moment,” and a growing number of insiders began to warn of a coming “Minsky meltdown.”

“Minsky” was shorthand for Hyman Minsky, a hitherto obscure macroeconomist who died over a decade ago. Many economists had never heard of him when the crisis struck, and he remains a shadowy figure in the profession. But lately he has begun emerging as perhaps the most prescient big-picture thinker about what, exactly, we are going through. A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy.

In recent months Minsky’s star has only risen. Nobel Prize-winning economists talk about incorporating his insights, and copies of his books are back in print and selling well. He’s gone from being a nearly forgotten figure to a key player in the debate over how to fix the financial system.

But if Minsky was as right as he seems to have been, the news is not exactly encouraging. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he

argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

In an ideal world, a profession dedicated to the study of capitalism would be as freewheeling and innovative as its ostensible subject. But economics has often been subject to powerful orthodoxies, and never more so than when Minsky arrived on the scene.

That orthodoxy, born in the years after World War II, was known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”
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Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007).
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CORPORATIONS’ MEGAPHONES: "Free speech precedent in 19th-century Supreme Court ruling"
The Boston Globe, Letters, September 19, 2009

THE HEADLINE of Jim Sleeper’s op-ed, “Corporate free speech? Since when?’’, asks a question but doesn’t give the answer. “Since when’’ would be since 1886 and the Supreme Court case of Santa Clara County v. Southern Pacific Railroad, which established the precedent of treating corporations as individuals. In particular, this case gave them the protection of the 14th Amendment. While due process protection was reasonable enough, doing it in this way was not.

Building on Santa Clara (and some previous decisions of the Marshall Court), corporate entities have acquired protections that actual people have under our Bill of Rights, including free speech. It is this artificial notion of corporations that has produced the recent split among progressives over the corporate-sponsored swift-boating of Hillary Clinton in the case of “Hillary: The Movie.’’ On one side are constitutional rights advocates such as the American Civil Liberties Union and on the other reformers decrying the excessive influence of powerful businesses on the political process.

What is lost is the significance of the Santa Clara decision. Despite the fact that our Founding Fathers never imagined corporations as citizens, generations of so-called conservatives have embraced this egregious example of judicial activism - mostly to fight regulation of abuses.

The solution for progressives is to make Congress give corporations the protections they need by legislation, and to explicitly reject the Santa Clara decision that made them the legal equivalent of flesh-and-blood people.

Mark Bridger
Newton, Massachusetts

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"Pay, benefits rise at slowest pace since 1982"
By Christopher S. Rugaber, AP Economics Writer, October 30, 2009

WASHINGTON --Wages and benefits rose by the smallest amount on record in the 12 months ending in September, as high unemployment limits the income growth of workers still receiving paychecks.

With employers cutting costs to maintain profits, they are sharply reducing the rate of growth in total compensation, economists said.

The average cost of wages, health care and other benefits increased 1.5 percent in the year ending in September, the smallest gain since records began in June 1982, the Labor Department said Friday.

Annual increases in the department's Employment Cost Index have been more than cut in half since December 2007, when the recession began. That month, the index grew 3.3 percent over the previous year.

Wages and benefits rose a seasonally adjusted 0.4 percent in the July-September quarter, the same as the second quarter and matching analysts' expectations. That narrowly beat the 0.3 percent rise in the first quarter, the smallest on record.

The index tracks the average cost to employers of each hour worked, so it doesn't reflect layoffs and other changes in the size of a company's work force.

Rising unemployment means employers can keep workers without having to offer higher salaries, while also making it difficult for people with jobs to demand higher compensation.

Wages and salaries, which make up about 70 percent of the index, also rose only 1.5 percent in the past year, down from a 3.4 percent pace in the year ending December 2007.

Benefits, meanwhile, increased 1.6 percent, down from 3.1 percent growth in the year ending in December 2007.

Benefits include vacations, holidays, overtime pay, some bonuses, and health and life insurance.

Jennifer Lee, an economist at BMO Capital Markets, wrote in a note to clients that benefits were rising at a 7 percent clip as recently as 2004, nearly five times the current level.

"This is the new norm," she wrote.

IBM, for example, said Thursday it is eliminating co-pays and deductibles for its U.S. employees when they visit family doctors and other general practitioners. While that's an added benefit, its intended effect is to encourage more preventive care and restrain rising health care costs, the company said.

Economists also monitor the index for signs that rising wages could push up inflation, but few analysts see any sign of that happening. Many believe the Federal Reserve will not begin worrying about inflation and the need to boost interest rates until the unemployment rate begins to drop.

The Commerce Department said Thursday that the economy grew at a 3.5 percent pace in the third quarter, snapping a record streak of four straight quarterly declines.

But the economy isn't growing quickly enough to spur much hiring. The unemployment rate reached 9.8 percent in September, a 26-year high, and many economists expect it to peak above 10 percent early next year.

The Employment Cost Index report showed that health care costs for private-sector employers are still rising. The cost of health benefits increased 4.7 percent in the 12-month period ending in September, up from 3.9 percent a year earlier.

Health care benefits comprise only about a quarter of all benefits, and a Labor Department analyst said the figure should be used with caution, because many companies that respond to its surveys don't provide that information.

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"In fight over credit rules, she wields a plan"
By Michael Kranish, Boston Globe Staff, November 3, 2009

CAMBRIDGE - Her critics portray her as an ivory tower elitist intent on disrupting the American Dream. But to her legions of fans in the Democratic Party, Harvard law professor Elizabeth Warren is the nation’s leading economic David, fighting to protect middle-class families from corporate Goliaths.

Her critique of the lending practices of big banks and mortgage companies is drawing plenty of attention, airing on everything from CNN to “The Daily Show’’ and Dr. Phil, even winning a cameo in Michael Moore’s latest movie, “Capitalism: A Love Story.’’

And she is chief architect of a new government agency to protect consumers from predatory lenders, a central element of President Obama’s efforts to avoid another economic meltdown. That makes her a big target.

“I have dubbed it the ‘Restrict the American Dream and Job Destruction Act,’ ’’ Representative Tom Price of Georgia, chairman of the Republican Study Committee, a group of 110 GOP House members, said in an interview about Warren’s proposed Consumer Financial Protection Agency. “I have no doubt that as a Northeast elite academic it is difficult for Ms. Warren to appreciate that, but that’s exactly what it will do.’’

Another critic, George Mason University law professor Todd Zywicki, said, “Bluntly put, she hates banks.’’

Warren, whose beliefs stem in part from her upbringing in a financially pressed Oklahoma family, counters: “That is just wrong. What I hate are banks that cheat people.’’

Warren, 60, has researched the issue of risky credit practices and bankruptcy for years, as she worked her way to Harvard Law School through a handful of university teaching jobs. Deceptive lending practices, she said, were at the root of the 2008 financial meltdown and have devastated the middle class.

While business groups are opposed to the consumer agency, they are even more worried about the possibility that, if it is created, Warren will be put in charge.

“We believe the most effective director would be one with real-world experience,’’ said Scott Talbott, senior vice president of the Financial Services Roundtable, which represents many large banks. Warren said it is premature to discuss whether she wants to head an agency that doesn’t yet exist.

Warren’s proposal still faces major hurdles. Having passed through the House Financial Services Committee, led by US Representative Barney Frank of Massachusetts, a Warren friend, it must now pass the full House and then the Senate, where Republicans have threatened to filibuster against it.

The US Chamber of Commerce has launched an intensive campaign to kill the idea, using the theme: “Stop the Consumer Financial Protection Agency.’’

Warren’s route to the center of the nation’s debate over financial regulation has taken a more complicated path than many of her backers and critics may realize.

She was once a registered Republican who believed that most families who filed for bankruptcy or had their homes foreclosed were irresponsible. It was only after years of study, she said, that she determined that many families were not primarily at fault.

The youngest of four children, Warren grew up at the edge of a wheat field in what she called a “cheap little crackerbox on the end of town’’ in Norman, Okla. Her father had a series of financial reversals and became an apartment maintenance worker; her mother took telephone orders for Sears to bring in much-needed funds.

Living with three older brothers, she developed an assertive manner that led her to join her high school’s debate team, which in turn led to her winning the Oklahoma debating championship and a college scholarship. Married at 19, she had a young daughter by the time she entered law school and was pregnant with a second child when she earned her degree. A stint as a work-from-home lawyer was followed by teaching positions at Rutgers School of Law, University of Texas School of Law, University of Houston Law Center, University of Michigan, and University of Pennsylvania School of Law, leading in 1992 to her initial arrival at Harvard.

But Warren left Harvard after a year, due in part to what she called a “hostile environment’’ for women. Three years later, convinced that the environment had improved and desiring a bigger platform for her ideas, she returned to Harvard and has been there since.

She became a student favorite, relying on a rapid-fire version of Socratic teaching and a flair for the dramatic. In one recent class, she used some biting humor to chide a student who failed to respond correctly to her query. Casting herself as Vanna White, she pretended her blackboard was the Wheel of Fortune, twirled her arm in the air, and asked: “Do you want to buy a vowel?’’ Her students appreciate the tough-love approach; one class gave her a poster that shows a comic book version of a Wonder Woman-type character who says, “If I want your opinion, I’ll beat it out of you.’’

Warren says she never envisioned herself as someone who would become a nemesis of corporate America. But after working on several bankruptcy studies, she concluded that most people who declare bankruptcy are undone by a combination of questionable banking practices and outsize medical expenses. She coauthored a book with her daughter, Amelia, called “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,’’ which countered the belief that many families were squandering their money on unnecessary luxuries. She argued that many such families were going bankrupt and losing their homes to foreclosure because the cost of necessities had skyrocketed to unsustainable levels even when both parents worked.

But it wasn’t just statistics that shaped her view. For years, she pondered why her parents had gone from a seemingly secure middle-class existence to more difficult circumstances.

“It is a story like my own family’s story, of people who had the aspirations of the middle class, who often had ‘made it,’ had gotten a decent education, married, had kids, gotten good jobs, but something had gone wrong, and they were now on the economic down slope,’’ Warren said. As she described her parent’s financial difficulties, she said, “This comes from my heart.’’

By the time Warren returned to Harvard in 1995, she had switched her political affiliation to the Democratic Party because she was convinced that “the Republican Party had left me’’ and left behind the middle class. At the same time, she became an academic adviser to a congressional panel that was studying bankruptcy law. To her dismay, Congress in 1997 voted for a law that made it harder for families to declare bankruptcy. Determined to stop the measure, she met then-first lady Hillary Rodham Clinton. Using charts and forceful language, Warren won over Clinton, who got her husband to veto the bill.

But in 2005, Congress once again approved the measure, with support from many moderate Democrats, and President Bush signed the law. In Warren’s view, the imposition of tougher bankruptcy laws made it more difficult for many people to forestall foreclosure on their home loans and played a role in the subsequent financial meltdown.

Warren met Obama at a fund-raiser for the future president’s campaign for US Senate in Illinois. Obama had heard about Warren and approached her, greeting her with the phrase: “Predatory lending.’’

Obama then spoke at length about why he wanted to go to Washington to stop financial institutions from cheating consumers. Warren sought to reassure the future president that he didn’t need to convince her.

“You had me at ‘predatory lending,’ ’’ she said.

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A BOSTON GLOBE EDITORIAL
"Congress should rein in spiraling credit card rates"
November 21, 2009

WHEN ORGANIZED crime charged double-digit rates for credit, it was called loan-sharking, and polite society frowned on it. Today some of the nation’s biggest banks are imposing interest rates on credit cards that would turn Tony Soprano green with envy. And Congress has been looking the other way.

The current unconscionable rates reflect the political clout exercised by some of the same financial companies that received billions of bailout dollars from the taxpayers. That influence was on display when the Senate rejected legislation introduced last spring by Vermont Senator Bernie Sanders to cap credit card rates at 15 percent.

The banks have jacked up interest rates to as much as 30 percent, apparently to preempt a new rule that comes into force in February, requiring that consumers receive notification 45 days before a new rate hike. The CEO of Citigroup, Vikram Pandit, told Globe writers and editors this week that his bank had tried to set a 10 percent rate that would become the industry’s best practice, but other banks raised their rates much higher, with the result that consumers paid off the cards with the highest rates first. Pandit said the industry “needs clear rules of the road - whatever they are.’’

Putting some fair ceiling on rates would provide that guidance. Such a policy would affect banks’ willingness to issue consumer credit. The lower the top rate, the fewer credit cards. But if last year’s meltdown showed anything, it’s that an excess of unsustainable debt can bring down an economy.

Members of Congress need to extricate themselves from the python-like embrace of the financial sector and establish a regulatory framework for determining fair and reasonable credit card rates. This would be a true service to their constituents, and a boon to an economy that badly needs to free up credit for small businesses and consumers alike.

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"...the damage from the record $17.5 trillion plunge in household net worth since the recession started at the end of 2007 through last year’s first quarter."

SOURCE: "Economists predict leading indicators rose" Bloomberg News, 1/18/2010
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"Markets Fall Sharply Amid Fears on Debt and Jobs"
By JAVIER C. HERNANDEZ, NY Times, February 5, 2010

In the end, the Dow Jones industrial average managed to close above 10,000 on Thursday, but not by much.

All three major indexes lost at least 2.6 percent on a day when two of Wall Street’s biggest fears re-emerged — a deteriorating jobs market and the debt woes facing foreign governments — feeding anxiety about the health of the global recovery.

The Dow fell below 10,000 before the close, but managed to finish just ahead of that mark as trading shook out.

At the close, it was down 2.6 percent, or 268.37 points, at 10,002.18, and the Standard & Poor’s 500-stock index had declined 3.1 percent, or 34.17 points, at 1,063.11. The technology-dominated Nasdaq composite index was off 3 percent, or 65.48 points, at 2,125.43.

Thursday’s trading brought hefty losses to all corners, with a possible crisis in the European financial system overshadowing news of robust earnings for technology companies.

Within minutes, the Dow Jones industrial average had sustained triple-point losses; the broader Standard & Poor’s 500-stock index dropped more than 2 percent and stayed there for much of the day. The major indexes were on track to reach lows for the year.

The focus was on three countries: Greece, Portugal and Spain. The cost of insuring debt in those countries rose sharply on Thursday because swelling deficits could put them at risk for default. One barometer of sovereign risk, compiled by Credit Derivatives Research, rose to levels not seen since last spring; it has jumped 12 percent this week alone.

Greece’s budget woes are considered the most grave. On Wednesday, European Union officials endorsed the country’s plan to reduce its deficit through a wage freeze and fuel-tax increase. But officials cautioned that Greece might have to take more extreme measures if the country’s financial situation worsens.

Investors have generally considered Greece’s problems an isolated case. But new alarms were triggered on Thursday after Spain said its deficit might be worse than previously thought and officials in Portugal reported difficulty in selling treasury bills.

“The question now is, ‘How big is this fire going to be?’ ” said Uri D. Landesman, head of global growth at ING. “What is panic, and what is legitimate, we don’t know at this point. These things tend to turn on a dime.”

Douglas M. Peta, an independent market strategist, said investors were concerned by the lack of a firm plan to prevent defaults in Europe.

“There is a sense that markets are waiting for a responsible adult to come onto the scene and demonstrate that they can make the children behave,” Mr. Peta said. He said that if the European Central Bank pledged to prevent defaults in weaker euro-zone economies, “that would stop any market panic.”

The bank’s president, Jean-Claude Trichet, expressed optimism on Thursday that Greece could stabilize its finances. But he cautioned that large deficits could become a problem for other euro-zone countries, unsettling investors. The euro, which had been sliding down through the day, reached a seven-month low after his remarks, slipping below $1.38 against the dollar.

Crude oil futures in New York fell more than 5 percent, the biggest one-day drop in more than six months. Investors were concerned that Europe’s debt troubles might translate into slower-than-expected economic growth and a dip in oil consumption.

European markets were heavily shaken by the debt concerns, tumbling even more after markets in the United States began to sink. The FTSE 100 in London ended the day 2.17 percent lower, the CAC-40 in Paris declined 2.75 percent, and the DAX in Frankfurt shed 2.45 percent.

Overnight, Asian markets were down modestly. The Nikkei index in Japan fell 0.46 percent, and the Hang Seng in Hong Kong declined 1.84 percent.

As stocks fell, the dollar strengthened against most world currencies. Gold dropped more than 4 percent, hitting $1,063.20 an ounce.

Adding to the anxiety was a bleaker-than-expected report on the United States labor market. The Labor Department said the number of people filing first-time claims for unemployment increased by 8,000 to 480,000 last week, far above Wall Street’s estimates of 455,000.

The data rattled investor confidence on the eve of the release of the monthly employment report. Analysts expect January’s jobless rate to remain at 10 percent, with an increase of 15,000 in payrolls.

All eyes are on the labor market as investors try to gauge whether the recovery will gain steam in the months ahead, or whether renewal will be severely constrained by tepid consumer spending.

“You could make a case that all the good numbers up to this point have been an effect from stimulus money, not the real economy,” said C. Brett D’Arcy, chief investment officer for CBIZ Wealth Management. “Until we see job creation, nobody’s going to give this recovery an endorsement.”

The anxiety over overseas debt and the labor market eclipsed encouraging data from the technology sector, which might have swayed markets on a normal day. On Wednesday, Cisco Systems reported a 23 percent increase in profit in the fourth quarter, in part because its revenue grew 8 percent.

Despite the sell-off, Cisco’s stock rose slightly on Thursday, but its fourth-quarter results were so far above expectations that analysts were expecting a larger rally for the technology sector.

Bank of America fell 5 percent after the bank reached a deal with the Securities and Exchange Commission to pay a $150 million fine to settle a regulatory complaint. Adding to investor concerns, New York’s attorney general, Andrew M. Cuomo, filed a lawsuit on Thursday accusing the bank of securities fraud.

MasterCard fell more than 10 percent after it reported fourth-quarter results that fell short of expectations.

Toyota continued to slide, with its shares declining more than 2 percent, amid new concerns about the safety of its Prius models.

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"Jobless rate hits 5-month low but payrolls fall"
By Lucia Mutikani, Reuters, February 5, 2010

WASHINGTON (Reuters) – The U.S. unemployment rate surprisingly fell to a five-month low of 9.7 percent in January and factory payrolls grew for the first time since 2007, hinting at a labor market recovery even though the economy lost 20,000 jobs.

President Barack Obama cautiously welcomed the figures but said more needed to be done to put people back to work. Obama and fellow Democrats fear voters could punish them in November congressional elections if no headway is made in tackling unemployment as the United States emerges from recession.

The decline in payrolls reported by the Labor Department on Friday was far smaller than the 150,000 drop posted in December. November's data from the survey of employers was revised sharply higher to a gain of 64,000, up from 4,000.

The jobless rate of 9.7 percent, based on a separate household survey, was lower than the 10 percent in December. That survey found employment rising, with the size of the labor force roughly flat.

Analysts had expected payrolls to rise by 5,000 and the unemployment rate to edge up to 10.1 percent.

"The wheels of the economy are turning. The improvement in the employment data does match the increase in GDP the last two quarters so it's not a fluke," said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, referring to growth data for the fourth quarter of 2009.

"The economic recovery looks much more sustainable today."

Details of the report were relatively upbeat. The length of the average workweek hit its highest in a year and overtime paid in manufacturing was the most since September 2008, suggesting growing pressure to add to payrolls.

But some analysts were skeptical of the drop in the jobless rate and believed it would head higher again. The pickup in factory employment helped to lift U.S. stocks, despite lingering worries about European fiscal problems.

U.S. government debt prices rose and the U.S. dollar hit an 8-1/2 month high versus the euro, tapping flight-to-quality trades from the troubles in Europe.

Treasury Secretary Tim Geithner downplayed the possibility of a double-dip recession.

"We have much, much lower risk of that today than at any time over the last 12 months or so," Geithner said in excerpts from an interview with ABC's Sunday morning news program "This Week."

"We are in an economy that was growing at the rate of almost 6 percent of GDP in the fourth quarter of last year, the most rapid rate in six years. So we are beginning the process of healing."

JOB POLITICS

Annual revisions to the payrolls data showed job losses since the recession began were much deeper than originally thought. The economy has lost 8.4 million jobs since December 2007, compared with 7.2 million before the revisions.

In January, the number of "discouraged job seekers" stood at 1.1 million, up from 734,000 a year ago. Last month, 6.3 million people had been out of work of more than 27 weeks.

With Americans increasingly anxious about persistently high unemployment, Obama has declared that job creation will be his top priority in 2010. Announcing plans on Friday to expand credit for small businesses, Obama said the employment report was cause for hope but not celebration.

"Understanding that these numbers will continue to fluctuate for months to come, these are welcome, if modest signs of progress along the road to recovery," Obama said.

Financial markets have grown nervous about the prospect of unemployment in the United States remaining high for a long time. The economy resumed growth in the second half of 2009 but a labor market recovery has yet to materialize.

Labor market weakness is causing households to remain wary of taking on new debt, with total consumer credit declining by $1.73 billion in December, a Federal Reserve report showed.

While the U.S. economy is growing, recovery hopes in Germany were dealt a set back by a sharp drop in industrial output in December.

A survey of banks that do business with the Federal Reserve predicted the U.S. central bank will start raising interest rates in the fourth quarter of this year as the labor market mends.

Analysts expect U.S. payrolls to start growing in February as the government steps up temporary hiring for the 2010 census.

"This hiring will continue to push the unemployment rate lower and then once the need for these workers is finished they will be fired and the unemployment rate will drift back up to the 10 percent area," said Brian Fabbri, chief North America economist at BNP Paribas in New York.

Last month, the services sector added 40,000 jobs after shedding 96,000 positions in December. The figure included a rise in federal government employment, partly a result of early hiring for the census.

In another positive trend, temporary help employment rose again last month, while manufacturing payrolls increased 11,000, the first gain since January 2007. Manufacturing employment had dropped 23,000 in December.

But the construction sector continued to struggle, losing 75,000 jobs, likely because of unusually cold weather. Construction payrolls fell 32,000 in December.

In another sign of labor market improvement, the average workweek unexpectedly edged up to 33.3 hours, the highest in a year, from 33.2 hours in December, while manufacturing overtime rose to 3.5 hours, the highest since September 2008.

"This suggests that firms are straining to keep up with rising demand without hiring," said Stephen Stanley, chief economist at RBS in Stamford, Connecticut.

"We believe that as long as orders keep streaming in, at some point soon firms are going to have to give in and add workers."
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(Additional reporting by the White House team; Editing by John O'Callaghan)
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"Super rich see federal taxes drop dramatically"
By Stephen Ohlemacher, Associated Press, April 18, 2011

WASHINGTON – Still scrambling to file your taxes? You'll probably take little consolation in hearing that the super rich pay a lot less taxes than they did a couple of decades ago. And nearly half of U.S. households pay no income taxes at all.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

"It's the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes," said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes.

The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama's proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate.

In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.

Rep. John Tierney, D-Mass., has introduced a bill to eliminate about $60 billion in tax breaks, mostly for businesses. The bill would require a regular review of all tax breaks to see if they still serve their original purpose.

"Right how they don't even come into the conversation," Tierney said. "We need to get them into the conversation and have the information on which to make a good solid decision."

More than half of the nation's tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.

Obama wants the wealthy to pay so "the amount of taxes you pay isn't determined by what kind of accountant you can afford."

Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called Responsible Wealth, which is project of the group, United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.

Schoenberg, who now teaches a business class at Columbia University, said his income is usually "north of half a million a year." But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.

"I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?'" Schoenberg said.

Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There's nothing stopping you.

"There's still time before the filing deadline for them to give Uncle Sam some more money," Hatch said.

Schoenberg said Hatch's suggestion misses the point.

"This voluntary idea clearly represents a mindset that basically pretends there's no such things as collective goods that we produce," Schoenberg said. "Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?"

The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch.

The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.

The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said.

In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income.

About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed.

"As a matter of policy, there would be a lot of ways to save money and actually make these things work better," said Leonard Burman, a public affairs professor at Syracuse University. "As a matter of politics, it's really, really difficult."

Online:

Tax Policy Center: http://www.taxpolicycenter.org

National Taxpayer Advocate: http://www.irs.gov/advocate

United for a Fair Economy: http://www.faireconomy.org

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"Bernanke near inflation target prize, but jobs a concern"
By Mark Felsenthal | Reuters – January 22, 2012

WASHINGTON (Reuters) - The Federal Reserve could take the historic step this week of announcing an explicit target for inflation, a move that would fulfill a multi-year quest of the central bank's chairman, Ben Bernanke.

An inflation target would be the capstone of Bernanke's crusade to improve the Fed's communications, an initiative aimed at making the central bank more effective at controlling growth and inflation. It would, at long last, bring the Fed into line with a policy framework used by most other major central banks.

Bernanke has made clearer communications a hallmark of his leadership, and bit by bit, he has worked to cast light on what for years had been purposefully opaque and secretive deliberations.

He has even given the campaign a personal stamp, contrasting his plainspoken and unaffected persona with that of his predecessor, Alan Greenspan, whose ruminations were notoriously oblique and who was associated with an aloof cadre of policy mandarins.

While Bernanke has touted a numerical inflation goal as a cornerstone of central bank best practices for years, the idea has become timely because it could help quell nagging doubts that the Fed's unprecedented easy money policies are setting the stage for a nasty bout of inflation.

The U.S. economy strengthened toward the end of last year, with job growth accelerating and the unemployment rate dropping to a near three-year low of 8.5 percent.

But the recovery is not expected to retain the momentum.

By announcing a target, the Fed could smooth the path to another round of bond buying should the recovery falter.

"It's a good idea whose time has come," said Marvin Goodfriend, a professor at the Tepper School of Business at Carnegie Mellon University in Pittsburgh and a former senior Fed policy adviser.

In the eyes of Goodfriend and some policymakers, laying out an agreed inflation goal would squelch the idea that the Fed might allow for a faster pace of price gains as it tries to drive unemployment lower.

It would also put the brakes on any notion that the central bank could resort to quicker inflation to ease debt burdens, as some academic economists have suggested as the needed salve for the painfully slow U.S. recovery.

"One of the reasons to announce a formal inflation objective is to indicate that the Fed does not believe it needs to stimulate inflation in order to stimulate the economy," Goodfriend said.

ACADEMICS AND POLITICIANS

Some question whether the change would be little more than an academic exercise, since the central bank already publishes quarterly forecasts that show most officials believe consumer prices should rise between 1.7 percent and 2 percent a year.

This long-term forecast is viewed as an ersatz target, and the Fed seems likely to simply formally enshrine it or a similar formulation.

While food and energy costs drove consumer prices well above the central bank's desired levels last year, inflation is receding quickly and "core" prices and financial market expectations of future inflation have been largely contained.

The Fed's preferred core price gauge was up just 1.7 percent in the 12 months through November, while bond markets see inflation of just 2.1 percent 10 years out.

Explicit targeting has eluded U.S. proponents in part because skeptics, particularly among congressional Democrats, worried it would relegate the Fed's other congressionally set mandate - full employment - to the back burner.

"Discussions of inflation targeting in the American media remind me of the way some Americans deal with the metric system - they don't really know what it is, but they think of it as foreign, impenetrable, and possibly slightly subversive," Bernanke said in 2003.

However, the political climate has shifted. The Fed has drawn fire from Republican lawmakers and presidential hopefuls for risking inflation with its efforts to spur stronger job growth.

The central bank cut interest rates to near zero more than three years ago and has vacuumed up $2.3 trillion worth of bonds to pump cash into the financial system and energize growth.

Still, the Fed will need to tread carefully and accompany any inflation target with a description of what it views as constituting full employment.

Officials say that while monetary policy ultimately determines the rate of inflation, labor markets are often affected by structural issues beyond the central bank's control. Because of that, they are hesitant to put a fixed number on the level of unemployment that can be achieved without generating a self-defeating inflation.

As part of a communications review, officials in December debated a draft statement on their longer-run goals and policy strategy. Policymakers are set to discuss a refined draft at a policy meeting on Tuesday and Wednesday. It is this statement that is widely expected to include an explicit inflation target.

"We are very close to having inflation targeting in the U.S.," James Bullard, president of the St. Louis Federal Reserve Bank, told Bloomberg Radio in an interview on January 5.

Although there is no guarantee the Fed will announce a target this week, the communications review has already led to another innovation. For the first time ever, the Fed on Wednesday will release forecasts for the path of interest rates.

CENTRAL BANKING 101

Officials argue an explicit target would be an improvement on the longer-run inflation forecasts they now provide because it would strengthen the central bank's commitment to low inflation, even as it casts about for ways to coax the economy into a higher gear.

Also, the long-range forecasts are simply an amalgamation of the individual views of all 17 Fed policymakers. An explicit target would be an agreed-upon common goal that could help bolster the central bank's already high anti-inflation credibility in financial markets.

It could also help the Fed politically and strategically.

The central bank has taken lumps, mostly from congressional Republicans, who saw its second round of bond buying as an egregious episode of big government overreach.

The concerns of these Republican lawmakers, some of whom have broached the idea of narrowing the Fed's mandate to only price stability, might be mollified, potentially offering some political cover to an institution that has had few friends in the public arena since the financial crisis and recession of 2007-2009.

A target could also help Bernanke keep a critical mass of support behind his policy decisions within the central bank, where at any given time, three or four of the current roster of policymakers are known to object to the Fed's ultra-easy stance.

"Having an inflation target is central banking 101," said Philadelphia Fed President Charles Plosser, one of the Fed's top inflation hawks. "It's what most major central banks do."

(Reporting By Mark Felsenthal; Editing by Tim Ahmann and Jan Paschal)

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"For the middle class, expenses grow faster than paychecks"
By Tami Luhby | CNNMoney.com – Tuesday, March 5, 2013

When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.

Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband's 112-mile daily round-trip commute to his job as a pharmacist.

Bruister, a mother of four, received a $1,160 raise this school year at her job as an eighth-grade computer teacher. The extra cash -- about $97 a month, before taxes and other deductions -- isn't enough for her and her husband to keep up with their rising costs, especially after the elimination of the payroll tax break. Its loss shrunk their paychecks by more than $270 a month.

"If you look at how much prices are going up, you get in the hole really quick," Bruister said. "It's a constant squeeze."

In the wake of the Great Recession, millions of middle-class people are being pinched by stagnating incomes and the increased cost of living. America's median household income has dropped by more than $4,000 since 2000, after adjusting for inflation, and the typical trappings of middle-class life are slipping out of financial reach for many families.

Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college. Those nearing retirement are scrambling to sock away funds so they don't have to work forever. A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.

Economists say it boils down to two core problems: jobs and wages. The traditional "middle-class job" is disappearing.

Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand, soared 58%.

Uncertainty and insecurity are weighing down the middle class, even those who haven't had a break in employment. More than 40% of those surveyed in a recent Rutgers University study said they were "very concerned" about job security.

They're also not very optimistic about the near future. Fewer than one-third believe that economic conditions will improve next year, and an equal number think they will get worse, according to the Rutgers survey, conducted by the university's Heldrich Center for Workforce Development. Only 19% believe that job, career and employment opportunities will be better for the next generation.

The survey's title sums it up: "Diminished Lives and Futures: A Portrait of America in the Great-Recession Era."

Dan Heiden of Eagan, Minn., embodies that life. Before 2007, the union supermarket worker owned an apartment and socked away funds in the bank and in a retirement account.

Then the store cut his hours.

"The economy tanked," said Heiden, who now works no more than 30 hours a week. "They aren't hiring full-time any more because they can pay less."

The 37-year-old had to sell his apartment and move into his parents' basement. He has also curtailed his social life, eating out less and hanging out with friends at their homes instead of going to bars. He's depending more on credit cards and is no longer able to save much for retirement.

"Luckily, I don't have a family, because then it would be a tighter squeeze," Heiden said. "I just pray and hope the economy turns around."

Full-time employment is one casualty of the recession. The number of people working part-time for economic reasons -- meaning that they would like longer hours but can't find work -- has soared to nearly 8 million, up from 4.8 million five years ago.

Those with full-time jobs are also feeling the pressure.

Take Lois Karhinen, 55, who has been working since she was a teen. A state employee in New York, she's worried she and her husband won't have enough money saved by the time she wants to retire in 11 years.

Her husband is a government contract worker, and they fear his job could disappear any day. Their income has taken a hit because she has been furloughed several days since 2011. At the same time, her health insurance payments, union dues and other expenses have gone up.

The couple is no longer able to cover all of their monthly expenses -- including the mortgage, car loans, home repair loans and student debt -- with their paychecks alone.

"I watch every month our savings deplete," said Karhinen, who lives in Queensbury, N.Y. "I'm realizing we're not young enough to save a lot."

The downturn in the housing market also hurts. The couple bought their house in 2006, hoping it would serve as an investment and help support their retirement. But now, they would only break even if they sold it, she says -- if they were lucky.

The mortgage crisis "hollowed out" the middle class, said Tamara Draut, vice president of policy and research at Demos, a public policy research organization. Much of their wealth is tied into home values, but national home prices are still 29% below their mid-2006 high, according to S&P Case-Shiller.

That means some folks have lost all their home equity and may never get it back. Others can't take out loans to finance repairs, college for the kids and other expenses.

There's one more big squeeze hitting households: health care. Since 2002, insurance premiums have increased 97%, rising three times as fast as wages, according to Kaiser Family Foundation/Health Research & Educational Trust.

In Mississippi, Bruister now has an $1,800 deductible, compared to $500 a few years ago. When she goes to the doctor, the bill typically tops $100 -- so she tries to avoid going.

"Health care for me has turned into more of a luxury item," said Bruister, 52. "I go every year for the checkups my insurance pays, but after that you just tough out the other illnesses."

Economists say they don't expect much improvement for the middle class any time soon. The recession is officially over, but the recovery is fragile, and its gains aren't evenly spread. Between 1993 and 2011, the top 1% of America's earners saw their income soar by 58%, while everyone else only got a 6% bump.

That's making it even harder for most households to get ahead.

"The middle class was always synonymous with economic security and stability," Draut said. "Now it's synonymous with economic anxiety."

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"A Tax System Stacked Against the 99 Percent"
By JOSEPH E. STIGLITZ, NY Times, April 16, 2013

LEONA HELMSLEY, the hotel chain executive who was convicted of federal tax evasion in 1989, was notorious for, among other things, reportedly having said that “only the little people pay taxes.”

As a statement of principle, the quotation may well have earned Mrs. Helmsley, who died in 2007, the title Queen of Mean. But as a prediction about the fairness of American tax policy, Mrs. Helmsley’s remark might actually have been prescient.

Today, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes.

Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.

What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s.

Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 — about the same as the share of income they took home, an outcome that is not progressive at all.

With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.

If these numbers still don’t impress you as being unfair, consider them in comparison with other wealthy countries.

The United States stands out among the countries of the Organization for Economic Cooperation and Development, the world’s club of rich nations, for its low top marginal income tax rate. These low rates are not essential for growth — consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America’s by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn’t kick in until individual income reaches $400,000 (or $450,000 for a couple). Only three O.E.C.D. countries — South Korea, Canada and Spain — have higher thresholds.

Most of the Western world has experienced an increase in inequality in recent decades, though not as much as the United States has. But among most economists there is a general understanding that a country with excessive inequality can’t function well; many countries have used their tax codes to help “correct” the market’s distribution of wealth and income. The United States hasn’t — or at least not very much. Indeed, the low rates at the top serve to exacerbate and perpetuate the inequality — so much so that among the advanced industrial countries, America now has the highest income inequality and the least equality of opportunity. This is a gross inversion of America’s traditional meritocratic ideals — ideals that our leaders, across the spectrum, continue to profess.

Over the years, some of the wealthy have been enormously successful in getting special treatment, shifting an ever greater share of the burden of financing the country’s expenditures — defense, education, social programs — onto others. Ironically, this is especially true of some of our multinational corporations, which call on the federal government to negotiate favorable trade treaties that allow them easy entry into foreign markets and to defend their commercial interests around the world, but then use these foreign bases to avoid paying taxes.

General Electric has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes — its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012 — just as Mitt Romney, the Republican presidential nominee last year, became the symbol for the wealthy who don’t pay their fair share when he admitted that he paid only 14 percent of his income in taxes in 2011, even as he notoriously complained that 47 percent of Americans were freeloaders. Neither G.E. nor Mr. Romney has, to my knowledge, broken any tax laws, but the sparse taxes they’ve paid violate most Americans’ basic sense of fairness.

In looking at such statistics, one has to be careful: they typically reflect taxes as a percentage of reported income. And the tax laws don’t require the reporting of all kinds of income. For the rich, hiding such assets has become an elite sport. Many avail themselves of the Cayman Islands or other offshore tax shelters to avoid taxes (and not, you can safely assume, because of the sunny weather). They don’t have to report income until it is brought back (“repatriated”) to the United States. So, too, capital gains have to be reported as income only when they are realized.

And if the assets are passed on to one’s children or grandchildren at death, no taxes are ever paid, in a peculiar loophole called the “step-up in cost basis at death.” Yes, the tax privileges of being rich in America extend into the afterlife.

As Americans look at some of the special provisions in the tax code — for vacation homes, racetracks, beer breweries, oil refineries, hedge funds and movie studios, among many other favored assets or industries — it is no wonder that they feel disillusioned with a tax system that is so riddled with special rewards. Most of these tax-code loopholes and giveaways did not materialize from thin air, of course — usually, they were enacted in pursuit of, or at least in response to, campaign contributions from influential donors. It is estimated that these kinds of special tax provisions amount to some $123 billion a year, and that the price tag for offshore tax loopholes is not far behind. Eliminating these provisions alone would go a long way toward meeting deficit-reduction targets called for by fiscal conservatives who worry about the size of the public debt.

Yet another source of unfairness is the tax treatment on so-called carried interest. Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to “save” on labor costs, often by moving jobs abroad.

Economists often eschew the word “fair” — fairness, like beauty, is in the eye of the beholder. But the unfairness of the American tax system has gotten so great that it’s dishonest to apply any other label to it.

Traditionally, economists have focused less on issues of equality than on the more mundane issues of growth and efficiency. But here again, our tax system comes in with low marks. Our growth was higher in the era of high top marginal tax rates than it has been since 1980. Economists — even at traditional, conservative international institutions like the International Monetary Fund — have come to realize that excessive inequality is bad for growth and stability. The tax system can play an important role in moderating the degree of inequality. Ours, however, does remarkably little about it.

One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.

Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.

Aside from the evidence, there is a strong intuitive case to be made for the idea that tax rates have encouraged rent-seeking at the expense of wealth creation. There is an intrinsic satisfaction in creating a new business, in expanding the horizons of our knowledge, and in helping others. By contrast, it is unpleasant to spend one’s days fine-tuning dishonest and deceptive practices that siphon money off the poor, as was common in the financial sector before the 2007-8 financial crisis. I believe that a vast majority of Americans would, all things being equal, choose the former over the latter. But our tax system tilts the field. It increases the net returns from engaging in some of these intrinsically distasteful activities, and it has helped us become a rent-seeking society.

It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.

The consequences of our broken tax system are not just economic. Our tax system relies heavily on voluntary compliance. But if citizens believe that the tax system is unfair, this voluntary compliance will not be forthcoming. More broadly, government plays an important role not just in social protection, but in making investments in infrastructure, technology, education and health. Without such investments, our economy will be weaker, and our economic growth slower.

Society can’t function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair — that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent — then faith in our democracy will surely perish.

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Usual weekly earnings, full-time wage and salary workers
Source: Bureau of Labor Statistics
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http://www.economist.com/blogs/graphicdetail/2014/11/daily-chart-2?fsrc=scn/fb/te/bl/ed/somearemoreequalthanothers
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"Economists’ long-held beliefs make income inequality worse"
By Jonathan Schlefer, The Boston Sunday Globe, Opinion, October 12, 2014

Though many economists today are sounding the alarm over rising income inequality, one culprit somehow has been overlooked: their own wage theory.

Wage theory — one of the sacred truths of modern economics — suggests that competitive labor markets are self-regulating. Each worker is paid his or her productive worth. Unions, minimum wages, or any other interference — all just cause unemployment. Nearly all contemporary public policy is dictated by some version of this theory, but it simply no longer holds up.

Adam Smith, often called the father of classical economics, told a very different story. Smith believed that each society sets a living wage to cover “whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.” His successor David Ricardo similarly saw the “habits and customs of the people” as determining how to divide income between profits and wages. Marx’s class struggle was just a more confrontational version of the idea.

Around the turn of the 20th century, economists grew dissatisfied with this squishy sociologist’s answer, and some found it morally problematic. “The indictment that hangs over society is that of ‘exploiting labor,’” conceded John Bates Clark, a founder of the American Economic Association. He set out to disprove it.

Clark and other colleagues posited that firms shop for the best deal among “factors of production” — labor and capital — just as smart consumers shop for the best deal at the supermarket. Automakers, for example, could build cars by employing more workers and less machinery, or vice versa. By seeking the least expensive combination, the firms will pay only wages equal to a worker’s “marginal productivity” — the gain in output added when he or she was hired.

In this best of all possible worlds, output is maximized, and no willing worker is unemployed. How? Suppose workers want a job. If they offer to work for a bit less than the going wage — and if no unions or minimum wage law stop them from doing so — firms find it cost-effective to hire them.

The Great Depression did not look like the best of all possible worlds to the British economist John Maynard Keynes. He developed a second, rather nuanced theory that said capitalism only works well if entrepreneurs’ “animal spirits” for investing (that is, spending on production) are sustained alongside workers’ earnings and demand for goods.

After World War II, the American economy was managed according to Keynes’s ideas. General Motors and the United Automobile Workers would strike a bargain to raise wages in line with productivity gains. Other unionized firms would follow suit and raise their own wages — and so would non-unionized firms such as IBM in order to fend off organizing. Meanwhile, labor lobbied Congress for comparable minimum wage increases. The whole wage structure rose, sustaining consumer demand and assuring firms that if they invested in workers, they could sell their products.

There remained a little academic problem. The influence of both Clark’s and Keynes’s theories persisted, but they had nothing to do with each other. Then, in the 1970s, Robert Lucas of the University of Chicago brilliantly tore into at least American academia’s interpretation of Keynes and, with Clark as its basis, invented a whole new theory of booms and busts.

The specter of stagflation in the 1970s helped Lucas’s attack on Keynes. Inflation and unemployment rose, profits sank. Certain firms simply broke the law to stop unionization. After 18 labor proceedings against the Southern textile manufacturer J.P. Stevens, a US Court of Appeals ruled against the employer, blasting its violations as “flagrantly contemptuous.”

Unions sought legislation to make existing labor law more costly to violate, but even Democratic President Jimmy Carter gave the effort only lukewarm support, letting the bill languish in the Senate in 1978 until a filibuster killed it.

Amid this environment, policy makers looked back to the old J.B. Clark story. Carter launched deregulation, appointing the economist Alfred E. Kahn as his czar to run it. Kahn targeted airlines and said, in explicit reference to the Clark parable, “I really don’t know one plane from the other. To me, they’re all marginal costs with wings.”

The Reagan Revolution, further weakening unions and driving down minimum wages, brought surging income inequality.

Democratic economists — such as Paul Samuelson, also of MIT — gradually also turned against unions. In the 1976 edition of “Economics,” his seminal text, Samuelson concludes his discussion of them with a quote on their beneficial effects in establishing a “more orderly and defensible” wage structure. By the 1985 edition, he insists that if unions raise money wages, “the main impact is to begin an inflationary wage-price spiral,” and raising the real wage just “freezes workers into unemployment.” With enemies like this, how could Reagan fail?

Economists by the 1990s had discovered income inequality but, the Journal of Economic Perspectives noted, reached “virtually unanimous agreement” that technology was to blame. Advanced technology raised the marginal productivity of more skilled workers, so they earned more, and lowered the productivity of less skilled workers, so they earned less. The solution was more education, but since even a college education was doing little good, it was a throwaway. The women’s movement was making a difference, but it was about equity, not marginal productivity.

Clark’s theory is so well drummed into economists that they seem not to notice a fundamental problem. Firms do not have a significant choice among factors of production the way shoppers have a choice among foods at the grocery store. For example, in 2006, when Ford opened an auto plant in Chongqing, China, a spokesman said it was “practically identical to one of its most advanced factories” in Germany. Since Chinese wages were a faction of German wages, why not use more labor and less automation? Obviously, Ford had no idea how to. What would a crowd of extra workers actually do?

An old union joke puts the same point the other way around: “What’s the marginal productivity of an auto worker?” Answer: “It’s the steering wheel.” A firm can no more subtract a significant number of workers than it can add them. Economists who study the matter, such as Paul David of Stanford, conclude that production methods are essentially fixed. Innovation might find alternative methods. Then again, it might not. Either way, it is a profoundly uncertain exploration — not a market choice like smart shopping.

With an entire organization cooperating to produce goods or services, and no individual contributing any ascertainable productivity, we are back to Smith, Ricardo, and Marx. The habits and customs of the people or class struggle, call it what you will, determine the wage structure. Of course, there are limits. The sum of the slices of the pie — the profits and wages paid to different workers — cannot be bigger than the pie. But how to slice the pie is a fundamentally social decision.

In the 1970s, unions obtained real raises (despite inflation) that undermined profits. Such a situation hobbles capitalism. Business struck back, knocking most people’s wages down. Now pay has fallen too long and too far. The resulting chasm today equally hobbles capitalism. We as a society must solve the matter because markets will not.

Jonathan Schlefer, a researcher at the Harvard Business School, is the author of “The Assumptions Economists Make.”

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"The Triggers of Economic Inequality"
By Troy Oxford and Lauren Feeney, BillMoyers.com - January 15, 2012

In recent years, the rich have seen their wealth grow dramatically while the poor and middle class have basically flatlined. It’s no accident, argue Jacob Hacker and Paul Pierson in their book Winner-Take-All Politics. The infographic below, which draws from Hacker and Pierson’s book, explains how our politicians — on both sides of the aisle — fell under the spell of corporate dollars and re-engineered our economic system to favor the wealthy. The dark green line shows the income trajectory for the top 1 percent since 1970, while the light green line shows the bottom 90 percent. Click the orange triangles to learn about critical turning points that helped create the skewed system we have today.

August 1971: A Lesson for the Business Community

After a decade of increasing regulations on industry, Lewis Powell, a corporate lawyer who represented cigarette companies and served on the board of tobacco-giant Philip Morris, penned a memo titled “Attack on American Free Enterprise System,” which rallied the business community to fight back through organized political activism. “No thoughtful person can question that the American economic system is under broad attack,” Powell’s memo began. “Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assiduously (sic) cultivated; and that when necessary, it must be used aggressively and with determination...”. Powell went on to become a Supreme Court justice; his memo is widely credited with ushering in an era of growing corporate influence in government.

Link: http://law.wlu.edu/deptimages/Powell%20Archives/PowellMemorandumPrinted.pdf

1972: CEOs of the World, Unite!

Galvanized to action, top corporate CEOs came together to form the Business Roundtable, an organization that would lobby on behalf of the shared interests of the most powerful companies. By 1977, CEOs from 113 of the top Fortune 200 companies had joined, representing nearly half the nation’s economy.

January 1978: Tax Cuts Under a Democratic Trifecta

Jimmy Carter had campaigned on promises of a simpler and more progressive tax code. But after the administration presented a (surprisingly modest) tax bill to Congress in January 1978, business coalitions lobbied sympathetic members of both parties and were able to add an amendment to the House bill that cut the capital gains tax almost in half. The final bill — which passed a Democratic House and Senate and was signed by a Democratic president — included a reduction of the top capital gains rate from 48 to 28 percent.

1978: Labor Fights Back — And Loses

Emboldened by newly-won Democratic control of both houses of Congress and the presidency, labor unions fought for a major reform bill that would have increased penalties for companies violating labor laws — had it passed. But Business Roundtable, the Chamber of Commerce and other business organizations joined forces in opposition, outspending labor 3-1 in their lobbying efforts. After five weeks of filibuster in the Senate, the bill was sent back to committee, never to return — an unexpected defeat for labor and a major victory for big business.

July 1978: Class Warfare

A few weeks after the death of the labor reform bill, Douglas Fraser, the longtime head of United Auto Workers, resigned from President Carter’s Labor-Management Group, an organization meant to cultivate good relations between labor and business. In his resignation letter, he wrote: “I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war... against working people... and even many in the middle class of our society.”

Link: http://www.historyisaweapon.org/defcon1/fraserresign.html

August 1981

PATCO Strikers Fired: On Aug. 3, the Professional Air Traffic Controllers Organization declared a strike. Calling the strike illegal and a “peril to national safety,” President Ronald Reagan threatened to fire the nearly 13,000 air traffic controllers unless they returned to work within 48 hours. Then, in a move that was previously considered unimaginable, he did.

Supply-Side Economics: On Aug. 13, President Ronald Reagan aimed to put his theory of supply-side economics to the test with the 1981 tax bill. Supported by Republicans and conservative Democrats alike, the bill included sharp reductions for businesses and across-the-board individual rate cuts, with the top tax rate falling from 70 to 50 percent. Most tax rates were indexed to inflation, leading to “bracket creep" — meaning that taxpayers would now move into higher tax brackets as their incomes rose to keep up with inflation, despite their real purchasing power staying the same.

October 1986: The Showdown at Gucci Gulch

The Tax Reform Act of 1986 cleaned up the tax code, consolidating the bracket structure and reducing tax breaks for big corporations. Dubbed “the showdown at Gucci Gulch” after the corridor in the federal office building where lobbyists clad in expensive suits await decisions on legislation, the law’s passage was seen as an unlikely triumph of bipartisanship, with voters winning out over the monied lobbyists. But the voters and the press, feeling victorious, turned their attention elsewhere, while the lobbyists in Gucci Gulch went right back to work.

1993: Stock Options Go Unregulated

During the dot-com bubble, stock options became a popular way to beef up compensation packages for executives; by 1991, stock options accounted for roughly half the earnings of the average CEO. But the cost of these options was hidden — they weren’t subtracted from profits because no money exchanged hands (though, curiously, companies were allowed to deduct the cost of stock options from their income taxes). In 1993, the FASB (Financial Accounting Standards Board), an independent watchdog sanctioned by the FEC, proposed a new rule that would force companies to reveal the cost of stock options. But CEOs took their opposition to the regulation to Congress, and, led by Senators Joe Leiberman and Barbara Boxer (both Democrats), the Senate passed a resolution expressing its disapproval. The regulation never went into effect.

1998: Warning About Derivatives Goes Unheeded

By the late '90s, concern was growing over the use of increasingly complex derivatives such as credit default swaps. Foreseeing the financial catastrophe that eventually came to pass, Brooksley Born, chair of the somewhat obscure Commodity Futures Trading Commission (CFTC) struggled to introduce regulation into this market, but was fought at every turn. Rebuffed by the likes of Alan Greenspan, Robert Rubin and Larry Summers, Born’s warning went unheeded, and in 2000, Congress, led by Senator Phil Gramm, passed the Commodity Futures Modernization Act, which ensured that derivatives would not be regulated.

Derivatives link: http://topics.nytimes.com/top/reference/timestopics/subjects/d/derivatives/index.html?scp=1-spot&sq=derivatives&st=cse

Interview with Brooksley Born link: http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html

Nov. 1999: Repeal of Glass-Steagall

The Glass-Steagall Act (formally the Banking Act of 1933), was a depression-era law that separated commercial and investment banking in order to protect people’s bank accounts from risky investments. In 1999, culminating a decade of deregulation of the financial industry, this wall was essentially torn down by the Financial Services Modernization Act of 1999, also known as the Gramm–Leach–Bliley Act. One of the lone objectors to the legislation, Sen. Byron Dorgan, D-North Dakota, famously remarked, “I think we will look back in 10 years time and say ‘we should not have done this.’” A decade later, the repeal of Glass-Steagall was widely cited as a major cause of the financial crisis of 2008.

Byron Dorgan on YouTube link: http://www.youtube.com/watch?v=w2nZbo8SKbg

2001: The Bush Tax Cuts

Feeling betrayed by tax hikes under President George H.W. Bush (despite his promise: “Read my lips, no new taxes”), anti-tax Republicans emerged from the Clinton years insisting that tax reductions, particularly for the rich, were a top priority. In 2001, the new Bush administration passed sweeping tax cuts, more than a third of which went to the richest one percent of Americans, who saved an average of $38,500 per household. The bottom 80 percent saved an average of $600. Follow-up tax cuts in 2003 had an estimated cost of $1 trillion over 10 years.

2008: The $700 Billion Bank Bailout

In September 2008, the financial system built up over the previous three decades fell like a house of cards as some of Wall Street’s biggest players collapsed — Lehman Brothers (at the time the fourth largest investment bank in the world) went bankrupt, while Bear Stearns, on the brink of bankruptcy, was rescued by a deal orchestrated by the Federal Reserve; the Fed also took control of Fannie Mae and Freddie Mac, the world’s largest mortgage lenders, and took an 80 percent ownership stake in insurance giant AIG in exchange for an $85 billion loan. With the economy in freefall, Congress authorized the Treasury to spend up to $700 billion to bail out failing banks through the Troubled Asset Relief Program, or TARP.

July 2010: Dodd-Frank

In the wake of the financial crisis, Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act, which expanded the federal government's role in financial markets. The legislation was intended as a major overhaul of the laws governing the nation’s financial industry, an attempt to prevent another financial meltdown. But industry vowed to overturn the legislation, and with the help of Republicans in Congress, has managed to water down key sections and hold up enforcement of others.

Summary of Dodd-Frank link: http://www.banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf

2010: Citizens United

In 2008, a conservative non-profit organization called Citizens United produced an activist video,“Hillary: The Movie,” — which was scheduled to air on cable TV during the democratic primaries — was banned on account of the McCain-Feingold Act, which barred political advertising paid for by either unions or and corporations in the final 30 days of election campaigns. The case made it all the way to the Supreme Court. In a landmark 5-4 decision, the court ruled that the First Amendment prohibits government from limiting corporate political spending, overturning parts of the McCain-Feingold Act and paving the way for unrestricted corporate spending on elections.

NOTE: I was unable to copy the interactive chart to my blog page.

The web-link is: http://billmoyers.com/content/the-triggers-of-economic-inequality/

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"Key Inequality Measure The Highest Since The Great Depression"
By Mark Gongloff, By Mark Gongloff, 10/14/2014

You know inequality is getting bad when it's making a Swiss bank uncomfortable.

The ratio of wealth to household income in the U.S., a measure of inequality, is the highest it has been since just before the Great Depression, Credit Suisse noted in a 64-page report on global wealth released on Monday. The bank also warned that this was not good news for the health of the economy:

"This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past," the bank wrote.

Meanwhile, the richest 1 percent in the world own 48 percent of all the world's wealth, according to Credit Suisse -- a worrying signal for the global economy.

Here's a chart from the Credit Suisse report, of wealth-to-income ratios going back to 1900:


Because wealth is a big pile of money that has been built up over the years, and income is a much smaller annual flow of new money, this ratio is always pretty high: Going back to 1900, wealth has always been at least four times as high as disposable income.

But sometimes the country's wealth stockpile surges to even greater heights. Right before the Great Depression, there was seven times as much wealth in the country as disposable income. Right before the dot-com and housing bubbles burst, there was six times as much wealth as income.

See a pattern there? This ratio tends to get out of whack when bubbles of one sort or another have been built up, This typically ends badly, very badly.

Today the ratio is higher than at the peak of the dot-com and housing bubbles. So, yikes.

This time could always be different, of course. You could argue that there's no bubble today that's nearly as ridiculous and dire as the dot-com or housing bubbles. Most of the wealth build-up of recent years has been due to the stock market soaring to record highs. There is at least some justification for record-high stock prices, given that corporate profits are at record highs, too.

Then again, the stock market that has been inflated at least partly by historic levels of Federal Reserve stimulus. And corporate profits are at record highs at least partly because companies are being so stingy with workers: Wages have been flat throughout the recovery and for the past few decades, really, when you adjust for inflation.

Whether we get a recession this time or not, this news is at least a sign that French economist Thomas Piketty is on to something when he warns that wealth tends to grow more quickly than income, leading to dangerous imbalances.

Link: www.huffingtonpost.com/2014/10/14/inequality-recession-credit-suisse-wealth-report_n_5982748.html

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Wonkblog


"Poor kids who do everything right don’t do better than rich kids who do everything wrong"
By Matt O'Brien, The Washington Post, October 18, 2014

America is the land of opportunity, just for some more than others.

That's because, in large part, inequality starts in the crib. Rich parents can afford to spend more time and money on their kids, and that gap has only grown the past few decades. Indeed, economists Greg Duncan and Richard Murnane calculate that, between 1972 and 2006, high-income parents increased their spending on "enrichment activities" for their children by 151 percent in inflation-adjusted terms, compared to 57 percent for low-income parents.

But, of course, it's not just a matter of dollars and cents. It's also a matter of letters and words. Affluent parents talk to their kids three more hours a week on average than poor parents, which is critical during a child's formative early years. That's why, as Stanford professor Sean Reardon explains, "rich students are increasingly entering kindergarten much better prepared to succeed in school than middle-class students," and they're staying that way.

It's an educational arms race that's leaving many kids far, far behind.

It's depressing, but not nearly so much as this:

Even poor kids who do everything right don't do much better than rich kids who do everything wrong. Advantages and disadvantages, in other words, tend to perpetuate themselves. You can see that in the above chart, based on a new paper from Richard Reeves and Isabel Sawhill, presented at the Federal Reserve Bank of Boston's annual conference, which is underway.

Specifically, rich high school dropouts remain in the top about as much as poor college grads stay stuck in the bottom — 14 versus 16 percent, respectively. Not only that, but these low-income strivers are just as likely to end up in the bottom as these wealthy ne'er-do-wells. Some meritocracy.

What's going on? Well, it's all about glass floors and glass ceilings. Rich kids who can go work for the family business — and, in Canada at least, 70 percent of the sons of the top 1 percent do just that — or inherit the family estate don't need a high school diploma to get ahead. It's an extreme example of what economists call "opportunity hoarding." That includes everything from legacy college admissions to unpaid internships that let affluent parents rig the game a little more in their children's favor.

But even if they didn't, low-income kids would still have a hard time getting ahead. That's, in part, because they're targets for diploma mills that load them up with debt, but not a lot of prospects. And even if they do get a good degree, at least when it comes to black families, they're more likely to still live in impoverished neighborhoods that keep them disconnected from opportunities.

It's not quite a heads-I-win, tails-you-lose game where rich kids get better educations, yet still get ahead even if they don't—but it's close enough. And if it keeps up, the American Dream will be just that.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.

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Jeffrey R. Immelt, right, at the announcement in 2000 that he would succeed Jack Welch as G.E.'s chief executive. Credit Nicole Bengiveno/The New York Times

"Jeffrey Immelt Is Putting His Own Stamp on Jack Welch’s G.E."
By Steve Lohr, N.Y. Times, April 13, 2015

Jeffrey R. Immelt, chief executive of General Electric, was speaking at Stanford Business School a few years ago when a student asked him pointedly: How tough was it to be the next act at G.E. after the celebrated two-decade tenure of Jack Welch?

It is a subject Mr. Immelt mostly avoids, and at first he deflected the question with a joke, advising the students to plan their careers so that their predecessors are failures. But after a pause, he offered his real answer.

“The trick, if you follow someone famous, is that you’ve got to drive change every day without ever pretending anything was ever wrong,” Mr. Immelt said. “It takes confidence and it takes time.”

It has taken a long time indeed for Mr. Immelt, who succeeded Mr. Welch as chairman and chief executive in 2001. But G.E.’s announcement on Friday that it plans to sell off most of its big finance unit, GE Capital, punctuates the transformation of the company under Mr. Immelt. It has been a lengthy and often humbling corporate journey animated by the recognition that G.E.’s real strength lies in industrial engineering rather than financial engineering.

The move will also dismantle one of the major strategic initiatives of the Welch years, the creation of a sprawling financial institution inside a corporate industrial icon.

“Jeff Immelt will have totally remade G.E.,” said Vijay Govindarajan, a professor at the Tuck School of Business at Dartmouth College, who has studied G.E. and consulted for it. “It’s a different company for a different time.”

In style and temperament, Mr. Immelt and Mr. Welch are remarkable contrasts. Mr. Immelt, a 6-foot-4 former football lineman at Dartmouth, is an informal man whose outward manner is easygoing. Mr. Welch, a 5-foot-7 dynamo, is a coiled spring given to rapid-fire speech. “There could not be two more different people,” Mr. Govindarajan noted.

Mr. Welch presided over a 20-year span of business deregulation, rising global competition in manufacturing, and the ascent of the Wall Street-led finance economy. He moved quickly, before G.E. was really threatened. His tactics were widely copied, and he delivered an extraordinary run of profit growth, making him one of the most admired corporate executives of his generation. (His pop-culture profile was heightened when he was held up as a role model by the fictional network executive Jack Donaghy on “30 Rock,” on which Mr. Welch made a cameo appearance.)

Mr. Immelt has not had that kind of tenure. He took over G.E. just a few days before the Sept. 11 terrorist attacks, and the economic aftershock hit G.E.’s aviation, power generation and reinsurance businesses hard. Later, the financial crisis proved an even greater long-term setback.

“What Welch was able to do was quickly put his stamp on the company, but Immelt inherited a tougher problem,” said David B. Yoffie, a professor at the Harvard Business School. “It’s been a slow, long slog.”

Under Mr. Welch, and even afterward, the finance business was a money spinner, accounting for half of G.E.’s profits in some years.

But since the financial crisis hit in 2008, G.E. has been steadily paring back its finance arm, whose portfolio had swelled to include ventures like owning office buildings in suburban Chicago and consumer lending in Japan.

By 2018, G.E. plans to get less than 10 percent of its profit from GE Capital, and more than 90 percent of earnings from its industrial products and services. And G.E.’s finance business will be mainly confined to lending to G.E. customers who are buying its industrial machinery like jet engines, power generators, medical imaging machines and oil field equipment.

“Where G.E. is going to end up is back to the future,” said Noel M. Tichy, a professor at the Ross School of Business at the University of Michigan, referring to the origins of the company’s finance arm, which offered credit to buy G.E. products, including household appliances in the Depression.

Mr. Tichy, who once headed G.E.’s management training center in Crotonville, N.Y., said Mr. Immelt’s strategy was the latest version of a historical pattern for the company. “G.E. has morphed its corporate portfolio to the environment, and generally successfully,” he said. “That’s a key reason it has survived and thrived over the years, when other industrial companies have not.”

G.E. is returning to its roots with a vengeance, and what had been a steady retreat from the finance business is becoming a sprint within a few years. Mr. Immelt and his team explained on Friday that they saw a “window of opportunity” with financial buyers with deep pockets, like private equity firms, lining up.

Mr. Immelt said “the timing is really right to do this” and called it a “seller’s market.” Presumably, the potential buyers think otherwise and believe their asset purchases from GE Capital will prove handsomely profitable.

Yet G.E. is motivated more by strategy than by trying to fine-tune the timing of individual asset sales. The company, Mr. Immelt observed last week, had ridden GE Capital both up and down over the years. But the current move, he said, is about investing the company’s management and financial resources in “our leading high-tech industrial businesses.”

The management team’s goal, Mr. Immelt said, is to have investors and others “see G.E. as an industrial company” and one with “more growth, more focus and less risk.”

G.E.’s corporate resilience, management experts say, owes a lot to its capability to train executive talent. “Markets shift all the time, but G.E.’s leadership engine is strong, and it has picked successors pretty well — and not necessarily predictable choices,” said Michael Useem, director of the Center for Leadership and Change Management at the Wharton School of the University of Pennsylvania.

Mr. Welch himself was a striking departure from his predecessor, Reginald H. Jones, who ran G.E. from 1972 to 1981. Mr. Jones was a dapper industrial statesman, mending and forging ties with government. He was a champion of strategic planning, building up that capability at corporate headquarters to guide investment decisions and to control G.E.’s diverse industrial businesses worldwide.

Mr. Welch dismantled the planning department of his predecessor, eliminated layers of corporate hierarchy and shed thousands of workers, earning him the nickname Neutron Jack.

For Mr. Welch, the tough action was done in pursuit of improved corporate performance and to fend off the challenge of Asian rivals, mainly from Japan in the 1980s. His diversification moves into finance and broadcasting with NBC were partly to give G.E. ballast, adding businesses that faced little, if any, foreign competition.

Speaking at Stanford in 2010, Mr. Immelt reflected on the different circumstances that he and Mr. Welch faced and the limits of the past as a guide to the future in management. “I learned a lot from Jack, and I think Jack was a great C.E.O.,” Mr. Immelt said.

But he went on to say that the present was as different from 1997, toward the end of Mr. Welch’s tenure, as the present was from 1927. “There’s no comparison to the worlds we’re in,” Mr. Immelt said. “You do it your way, you keep your mouth shut, and you let your own pathway work.”

Shrinking Giant: General Electric reached its peak size by 1999, but a growing reliance on profits from its financial division was a drag on the company.

IMMELT AT THE HELM OF G.E.

In style and temperament, Jack Welch and Jeffrey R. Immelt are remarkable contrasts.

As G.E.’s chief, Mr. Welch, a coiled spring given to rapid-fire speech, shed thousands of workers and eliminated layers of corporate hierarchy, earning him the nickname Neutron Jack. Mr. Immelt, an informal man whose outward manner is easygoing, has tried to steer the company on a lengthy and often humbling corporate journey back to its industrial roots.

Below, a brief history.

Mr. Immelt is chosen to succeed Mr. Welch. (Nov. 28, 2000)

As he takes charge at the “House That Jack Built,” Mr. Immelt faces skeptics and a wary Wall Street. (Sept. 6, 2001)

G.E. becomes a general store for developing countries. (July 16, 2005)

Is G.E. too big for its own good? Mr. Immelt addresses concerns as the stock price stagnates. (July 22, 2007)

Mr. Immelt faces credibility issues as G.E. earnings fall far short of Wall Street estimates and its stock tumbles. (April 17, 2008)

After secret meetings, G.E. agrees to sell NBC to Comcast. (Dec. 2, 2009)

Mr. Immelt is leading a shift toward G.E.'s manufacturing roots. (Dec. 4, 2010)

Ending its do-it-all era, G.E. will sell off most of GE Capital. (April 10, 2015)

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“Nine New Findings About Inequality in the United States”
By Jeremy Ashkenas, The New York Times, December 16, 2016

In a paper published last week, Thomas Piketty, Emmanuel Saez and Gabriel Zucman expand their earlier work, examining how taxes and government spending affect income inequality.

One.

The bottom half of the country has been shut out from income growth for 40 years.

The average pretax earnings of an American in the bottom 50 percent by income was $16,197 in 2014, a nearly invisible 2.6 percent gain over 40 years. Over the same period, the top 10 percent of Americans saw their pretax incomes grow by 231 percent.

Two.

Government spending has helped lift lower incomes, but only a little.
The study subtracts taxes, and then adds back the benefits of both direct (Medicare, Medicaid, food stamps) and indirect (infrastructure, defense, education) government spending to arrive at an after-tax measure of income.

By comparing pretax income to income after accounting for taxes and government spending, we can see a clearer picture of how government policy has affected income inequality in the United States.

Bottom 50% pre-tax income: $16,197

Bottom 50% after-tax income: $25,045 (Benefits)

Three.

Increased health care spending on the elderly consumes most of the gains.
The effects of government assistance vary widely with age, especially within the lower half of incomes. Younger adults between 20 and 45 years old have seen their after-tax incomes flatline.

But over the same period, seniors in the bottom half have seen their after-tax incomes grow by over 70 percent. The bulk of that gain represents increased health care spending through Medicare.

Income for Bottom 50%:

Age 20-45 pre-tax: $12,857

Age 20-45 after-tax: $20,729

Age 65+ pre-tax: $16,655

Age 65+ after-tax: $32,135

Four.

The top 1% and the bottom 50% have swapped their relative shares of the national income.

Forty years ago, the top 1 percent of earners took home 10.5 percent of the total national income, and the bottom half earned 20 percent of it. By 2014, those percentages effectively flipped, with the top 1 percent earning a 20 percent share and the bottom half dropping to 12.5 percent.

Five.

Taxes in the United States are much less progressive than they used to be.

Between the end of World War II and the 1980s, the gap between effective tax rates on the rich and the poor narrowed as a result of reductions in corporate and estate taxes on the upper class, and increases in payroll taxes on the working class.

In 2013, the Obama administration sharply reversed the trend of declining top tax rates by allowing the 2001 Bush tax cuts to expire and introducing new surtaxes to fund the Affordable Care Act.

2016 Top 1% tax rate: 36%

2016 Overall tax rate: 31%

2016 Bottom 50% tax rate: 24%

Six.

More women in the work force also helped mitigate rising inequality.

Since the 1960s, more American women have joined the work force and their pay has increased, counteracting measures of inequality. In 1964, women made up only 38 percent of the work force; they are now nearly half of it.

2016 Men median labor income: $35,800

2016 Women median labor income: $21,400

Seven.

But there’s still a spectacular glass ceiling.

Despite these gains, as you look farther up the income ladder, you find fewer and fewer women.

Women are 48 percent of the American work force, but only one in 10 of the top 0.1 percent of earners.

Eight.

Since 1999, any upper-middle-class income growth has been after-tax.

Even for the upper-middle-class group, which the authors define as adults with incomes between the bottom half and the top 10 percent of Americans, pretax incomes haven’t grown over the past 15 years. Only rising public spending on benefits like health care has allowed upper-middle-class incomes to grow.

Nine.

Taxes and spending helped blunt the effects of inequality and income stagnation.

Over the past 50 years, the total share of national income that flows back to individuals through the government has grown. And that income has increasingly been transferred to the bottom 90 percent of Americans, helping to slightly slow the rapidly growing income inequality in the United States.

Percentage of income transferred to upper-middle 40%: 14%

Transferred to bottom 50%: 10%

Transferred to top 10%: 7%

Despite this, the study argues that more redistribution won’t fix the problem.
Because the labor income of the bottom 50 percent of Americans has weakened so drastically, Mr. Piketty, Mr. Saez and Mr. Zucman write, “there are clear limits to what redistributive policies can achieve.”

They argue that future policy should focus more on raising the primary income of the American working class. Possibilities include improving education and job training, equalizing distribution of human and financial capital, and increasing labor bargaining power, combined with a return to steeply progressive taxation.

http://equitablegrowth.org/working-papers/distributional-national-accounts/

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Katherine Taylor for The Boston Globe

“On the Hudson River: GE’s secret corporate weapon”
By Jon Chesto, Boston Globe Staff, February 14, 2017

OSSINING, N.Y. — To fully understand General Electric’s corporate culture, drive past Westchester County’s deep-blue reservoirs and meandering stone walls, almost to the Hudson River.

There, you’ll find a hilltop campus that’s one-half convention center, one-half mountain resort, and 100 percent GE.

Staffed by professional educators, the center is a place where executives can escape for a week to one of the 248 guest rooms and hone their management skills in between guitar jam sessions and cocktail contests.

If GE’s new Boston headquarters is the brains of its 330,000-person global operation, then Crotonville is its heart.

GE spends more than $1 billion annually on employee development around the world, and this training center is the focal point. Every year, as many as 12,000 employees trek to the Westchester woods to visit.

“We develop leaders [here],” said vice president of executive development Jack Ryan, who divides his time between Crotonville and Boston. “We help them discover their leadership style. We try to inspire them to go out and lead.”

As a giant conglomerate, GE is not without its critics. But controversy doesn’t seem to touch Crotonville, an idyllic retreat with many of the corporate perks and little of the strife.

Formally known as the John F. Welch Leadership Development Center, the campus is affectionately known as Crotonville, a reference to the section of Ossining where it’s located.

Yet there’s more to it than a generic training center. You see the difference in the ways the campus is designed for mingling: the dance floor on the upper level in a barn, the coffee shop with 20-foot-high ceilings in the old farmhouse, the cache of frozen grapes made for sharing.

And it’s visible in the areas geared more for solitude: the 3-kilometer jogging track through the trees, or the reflection spots scattered throughout the buildings, including one with thank-you notes devoted to “Gratitude.”

Does all that attention to detail make the coaching that happens at Crotonville somehow more successful?

Absent any empirical evidence, it’s hard to know. Academics point to the place as a standard-setter in the world of corporate training, though.

And employees rave about the opportunities they get to network and to learn from the company’s top executives. But that affection may have as much to do with the chance to get away from the daily grind on the company’s dime.

What is clear is that GE’s ethos is easily disseminated here. This is a company that places a high value on learning, where employees fight to be chosen for leadership training tracks. And Crotonville is an essential rung on that ladder.

Under former chief executive Jack Welch, that culture focused on the “Six Sigma” approach, the methodical pursuit of perfection. The emphasis has shifted under CEO Jeff Immelt, as he seeks to remake GE into a “digital industrial” giant. He’s more focused on inspiration through collaboration, emphasizing agility and what he calls a “startup-like mentality.”

Employees who visit Crotonville are encouraged to shut off their phones and focus on learning, not on their day jobs. This kind of immersion can make it ripe for satire. The NBC sitcom “30 Rock” devoted an episode, titled “Retreat to Move Forward,” to a fictionalized version of the place in which hijinks ensue after Tina Fey’s Liz Lemon character joins Alex Baldwin’s Jack Donaghy for a sojourn to “Croton-on-Hudson.”

For GE, moving forward meant relocating its corporate offices last year to Boston from Fairfield, Conn.

With Crotonville, however, the company maintains an important point of continuity. As GE executives weighed headquarters options in 2015, one of Boston’s selling points was its proximity to the New York campus: It’s less than an hour’s flight away by helicopter.

Ann Klee, the vice president who oversaw the headquarters search, said GE didn’t rule out locations in the West, Midwest, and South. But being far from Crotonville was a major strike against them.

“When we started out with the search team, we drew circles on a map,” Klee said. “The two centers were Crotonville, and New York City [where board and investor meetings are held]. . . . Those were two immutable points.”

Klee first came in 2008 to huddle with other GE up-and-comers to brainstorm ways to better partner with clients.

After formulating a strategy, they fanned out over the globe to meet with customers. (Klee ended up in India.)

She subsequently returned to brainstorm with executives about how to identify “black swans,” business-speak for potentially catastrophic risks.

And she has participated in team-building exercises there.

“You don’t just come here once,” said Klee, who has been to Crotonville more than 20 times. “You come here multiple points in your career. It’s that continuous learning.”

The training center’s origins can be traced back to an island near the edge of Lake Ontario, a place called Association Island, because it was owned by the National Electric Lamp Association and used for management camps. GE acquired the business in 1911 and continued the camps.

(The company and the island retreats served as inspiration for former GE publicist Kurt Vonnegut’s first novel.)

The focus shifted down-state in the 1950s, when the Hopf Institute of Management became available in Ossining. GE bought the Hopf estate in 1954 and opened its Crotonville training center there roughly two years later. GE added land and buildings over time, bringing it to 59 acres.

The campus isn’t just for training. A year ago, managers went to Crotonville to brainstorm how to approach the move to Boston, huddling in a space called “the Living Room,” where “Scrabble” and “Risk” boards are tacked to the wall.

A transition team handling the upcoming Baker Hughes merger, a deal that’s combining GE’s oil and gas business with the oil-industry giant, converged recently in Crotonville to sweat out the details.

GE employees aren’t the only ones who make the trip; the campus has become the centerpiece for an increasing number of “leadership experiences” that the company offers to key customers.

Richard Miller, chief executive of the Virtua hospital group in New Jersey and a GE client, said he has visited Crotonville at least seven times, usually for a leadership retreat or management training. He said he has been struck by the accessibility: GE makes its top health care executives available, and Immelt, the CEO, has occasionally visited Virtua’s sessions. (Immelt, who is typically in Crotonville several days every month, says he tries to devote a third of his time to leadership development.)

“It wasn’t just: We went there, GE dropped us in there, and we left,” Miller said.

Other big companies have their own training centers, although there are fewer now than in the 1980s, according to Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship. Aulet said Crotonville has long been considered among the most effective.

The educators develop their expertise through the volume of classes they teach, Aulet said. Plus, there’s the secluded nature of the campus.

“People don’t learn as well when the class will be held down the hall from your office,” Aulet said. “When you went to Crotonville, you went into a different world.”

The corporate headquarters is now much farther from the retreat center. On a good day, GE executives could make the drive from Fairfield in under an hour. Now, they need a helicopter to get there in the same time from Boston. Overnights are more likely to be the norm for many top executives, instead of day trips.

But Boston employees won’t need to travel to get a taste of Crotonville. Executives say they want to replicate some of its elements as they build a new headquarters in Boston’s Fort Point section. Klee said the company is using the collaborative emphasis in Crotonville as a model, to design areas where employees can easily run into each other to exchange ideas or work together.

“We want to create a variety of spaces that are comfortable and encourage innovative thinking,” Klee said. “Crotonville is a great model for that.”

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.

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February 24, 2019

I believe the economic system - capitalism, socialism, communism - is secondary to the "Iron Rule of Oligarchy". This political rule states that whatever organizational system is in place, there will be rulers or "haves" versus the ruled or "have-nots". In capitalism, the oligarchs hold political power through their wealth. In socialism, the oligarchs hold political power through a combination of business and government. In communism, the oligarchs hold political power through the government. To be clear, no matter what economic system is used by the respective state entities, the oligarchs hold all of the power. The greed factor is more about power than money.

The political science story about the grasshopper and the ant. All summer long, the ant worked to store food and make shelter for the winter. Meanwhile, the grasshopper didn't bother to prepare for winter. During the winter, the ant was strong with food and shelter, and the ant told the hungry grasshopper that he should have worked instead of enjoyed the summertime. The hungry grasshopper looked at the ant, and then the grasshopper ate the ant.

That is the allegory of politics. No matter how much the ruled, have-nots, powerless try to prepare for their economic security, their rulers, haves, and powerful can take from them for their benefit. That is the "Iron Rule of Oligarchy"!

Just look at the 2008 financial collapse on Wall Street. The masses were used as an insurance policy to be cashed in to save the Haves!

- Jonathan Melle

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February 26, 2020

Re: Capitalism's old and new evils

Capitalism has winners and losers, but the problem is that the same people or interests always win, while most of the people, such as the huge underclass, always lose. If your family lives in a wealthy zip code, then your children will receive a great education, but if you live on the wrong side of the train tracks, your kids don't have much of a chance to get out of a lifetime of poverty. In graduate school, I learned that the financial interests on Wall Street run the government, especially Capitol Hill in Washington, D.C. The real theory of government is not Jeffersonian Democracy, but rather the Iron Rule of Oligarchy, which means that in any political system there are few wolves (the Haves or ruling class) and sheep (the Have Nots or masses). Some governments in history have used military force, while others used economic systems. In the Communist system of government, it has always been an authoritarian regime that uses the force of the police state to tell people how to live together in a collective economy. But that is not how Communism started with Karl Marx. When the Industrial Revolution began, poor children as young as toddlers were forced to work in factories and never went to school. The underclass was brutally exploited by the capitalist system. Working children were only given one meal a day along with beer for carbs, and they worked 16 hour workdays. They were no safety standards, and the working children were even sexually exploited. Meanwhile, the rich children went to private schools, never worked, and assumed positions of privilege in business and government. Many people believed capitalism was evil at the time of Karl Marx. Named after the famous author Charles Dickens, the plight of the poor is still called "Dickensian". The original theory of Communism was that if people lived in communities where the workers owned the system of production, then the evils of capitalism would come to an end. However, it did not work out that way. But, one thing Communism did do is bring needed social reforms to the Capitalist system. We now have labor unions, workplace safety laws, public schools, welfare assistance programs, Veterans programs, and the like. Capitalism means the system of production in ran by private industry by rich owners and working class workers. The problems of modern capitalism are two major issues that negatively impact government and society. The economic and financial problematic issue is the excess of capitalism. Most of the wealth is our country’s economic system goes to the very wealthy, while the working class gets the crumbs. In Economics 101, students are taught that the financial system should be both efficient and equitable. The latter part of our economy is no longer true. The working class is either staying the same or falling behind over the past couple of decades, while the ruling class is exponentially growing their wealth. If this trend continues over the next couple of decades, then there we will no longer have a strong middle class or “the American Dream” of socioeconomic mobility for the working class. That is an inequitable economic system that in antithetical to capitalism! The capitalist system needs new social reforms, such as better public schools, living wage jobs, affordable housing, universal healthcare insurance, and savings and retirement accounts for the “Have Nots”. The problematic social issue is our nation’s huge underclass. If you are a child born in a poor zip code, you don't have a fair shot at a middle class life. What is worse is that the cycle of poverty goes on for generations. The billionaire class knows full well that they need the underclass to be desperate enough to work for low wages and lousy benefits, which is why they resist new social reforms to capitalism. To me, that is the new evil of capitalism, which is setting up an inequitable capitalist economic system that by design keeps innocent children in the underclass so the billionaires can profit off of them. What is really frustrating to me is that having an equitable capitalist economic system is well understood by business and government. All we have to do is put families in affordable housing units, have safe street where children can go to good public schools, have solvent hospitals and universal healthcare insurance coverage programs, provide workers with living wage jobs with union membership, and ensure working people have savings and retirement accounts for their financial security. In closing, Communism is a failed economic system, but it did bring needed social reforms to Capitalism. The capitalist economic system works, but it needs new social reforms for it to work for the “Have Nots”.

- Jonathan Melle

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28-February-2020

I like the wine glass global theory of Capitalism. The richest 20% get 82.7% of the wealth. The second richest 20% get 11.7% of the wealth. The middle 20% get 2.3% of the wealth. The second poorest 20% get 1.9% of the wealth. The bottom poorest 20% get 1.4% of the wealth. The distribution of wealth is shaped like a wine glass. That is how prosperity trickles down. In order to have an equitable economic system, there needs to be redistributions of wealth from the Haves to the Have Nots. But, the opposite is happening. The Have Nots are redistributing their wealth to the Haves under the global Capitalist system. There is also record amount of debt in global Capitalism in 2020. Many people believe the Capitalist system is rigged for predetermined outcomes that favor the corporate and ruling elites. In closing, Mary Jane and Joe Kapanski always gets screwed over by Wall Street.

- Jonathan Melle

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