business

U.S. Calls Big Swiss Bank A ‘Fugitive’

by AP on February 11, 2012

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NEW YORK — The U.S. Justice Department called Switzerland’s largest private bank a fugitive from justice on Friday after it didn’t send any representatives to a court hearing in New York, where it has been charged with conspired with American clients to hide $1.2 billion from the Internal Revenue Service. Wegelin & Co. is accused of helping at least 100 U.S. clients conceal huge sums of money from the IRS in overseas accounts. Federal prosecutors said the bank recruited American customers who were concerned about possible prosecution for tax violations at home, including some that had already pulled money out of other Swiss banks because of growing pressure from U.S. law enforcement. Three of the bank’s client advisers were indicted in January. The bank was added as a defendant in the case on Feb. 2 U.S. officials, however, have yet to find a way to move the case forward. The three Wegelin advisers charged in the case, Michael Berlinka, Urs Frei and Roger Keller, have not been arrested and the Justice Department has decided that any attempt to extradite them from Switzerland is unlikely to succeed. The bank was summoned to appear before a federal judge in New York on Friday at 3 p.m., but neither a bank officer nor a lawyer showed. In a statement issued in Switzerland after the court hearing, the bank said it had not been properly served with the criminal summons, and was therefore under no obligation to appear in court. As for the charges, the bank suggested that there was a conflict between US and Swiss law. “The circumstances create a clear dilemma for Wegelin & Co: If it were to adhere to current US legal practice aimed at Swiss banks, it would have to breach Swiss law,” the statement said. The bank added that it would “make every effort to resolve this matter within the boundaries of respectful cooperation.” It is unclear what prosecutors can do next. Wegelin doesn’t have an office in the U.S. Federal authorities have frozen $16 million that the bank had in a correspondent account in the U.S., but that amount is tiny compared to the large sums involved. U.S. District Judge Jed Rakoff, who is presiding over the case, asked prosecutors to make a proposal on how to move the prosecution forward, and suggested involving the State Department, but the hearing ended without any immediate resolution.

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U.S. Calls Big Swiss Bank A ‘Fugitive’

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Check Your Statement: Citibank Users Found iPad App Payments Made Twice

by Emily Cohn on February 10, 2012

Huffington Post…

Customers who use Citibank’s iPad bill-paying app might want to pay closer attention to their bank statements: A technological glitch recently caused the app to charge an undisclosed number of customers twice for bank payments. As early as last summer, Citibank received anonymous complaints, sent to the Apple App Store, about the double charges, according to Andrew Brent, a Citi spokesman. Months later, in late December, the bank detected that its app was to blame for problem. Since then Citibank has alerted affected users and reimbursed them for extra charges and any fees incurred. Brent attributed the lag between when the company first found out about the issue (in July) and when officials began alerting customers (in December) to the small number of complaints involved. One user had anonymously reported in July that a charge was duplicated as a result of double tapping the screen, according to Brent. He added that there was nothing to suggest that the incidents were linked to the iPad app itself. Citi later discovered that the app had been programmed to reattempt any transaction disrupted by a network error on the first try. The bank launched an update to its iPad app on Jan. 31. The glitch was first reported by The New York Times on Thursday. The issue affected less than 2 percent of transactions made via the iPad app, according to Brent. He declined to disclose the number of customers who use the bank’s iPad app and how many people were affected by the glitch. “We take seriously the functionality of our products and services as well as the satisfaction of our clients,” Brent stated in an email. “Upon discovering a technical bug in our Citibank for iPad app had caused a limited number of clients to encounter duplicate payments and/or transfers, we immediately fixed the technical issue. Even more important, we have reached out to clients who were impacted to ensure their individual situations are resolved completely.” Citigroup — which aims to be “the world’s digital bank,” according to Bloomberg — has encountered a series of tech glitches in recent years. Two-hundred thousand Citibank credit card holders fell victim to a hacker attack last June that exposed customers’ personal data. In 2010, Citigroup admitted that the bank’s iPhone app stored users’ confidential information on their phones, making the data vulnerable, according to the Wall Street Journal . The bank subsequently released an updated version of the app that it said patched up the glitch. According to American Banker , 25 percent of all mobile banking apps earned a “fail” rating as a result of security flaws.

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Check Your Statement: Citibank Users Found iPad App Payments Made Twice

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Some States Using Funds From Foreclosure Deal To Close Budget Gaps

February 10, 2012

Well, that was fast. Two states have already announced that they won’t be using all of their share of the $25 billion allocated in Thursday’s historic foreclosure settlement to pay its intended recepients — the homeowners and borrowers who saw the housing market collapse beneath their feet. Instead, in some areas, a share of those dollars is likely to be diverted to state budgets, in a bid to offset some of the massive deficits that states have been struggling with since the economic downturn , according to reports. In Wisconsin, Governor Scott Walker and state Attorney General J.B. Van Hollen have announced plans to use $25.6 million of the settlement money — about 18 percent of the $140 million Wisconsin will get in total — to plug holes in the state’s budget , according to the Milwaukee Journal Sentinel . As the MJS notes, this is a reversal of Walker’s previous opposition to using legal settlements to close budget gaps. Meanwhile, in Missouri, state Attorney General Chris Koster has said that he plans to put $40 million of Missouri’s settlement money — about 20 percent of the total $196 million — into the general state fund , apparently in response to Governor Jay Nixon’s call for a stronger college and university budget, Stateline reported. In the wake of Missouri and Wisconsin’s announcements to use the settlement funds for purposes other than directly assisting borrowers — and with similar announcements possibly forthcoming from other states — critics have begun comparing Thursday’s deal to the 1998 tobacco settlement that saw some of the country’s largest tobacco companies agree to pay $246 billion over the next 25 years to fund public-health initiatives. Much of that money has since been spent on other things, according to the Campaign for Tobacco-Free Kids, which estimates that states will receive $25.6 billion from the tobacco settlement this year, but only use 1.8 percent of it to combat tobacco use . If the news that some of the money from the foreclosure settlement won’t end up in borrowers’ hands is disappointing to some, it won’t be the first time this week that the deal has let someone down. While the settlement involves five of the country’s largest banks — Citigroup, JPMorgan Chase, Ally Financial, Wells Fargo and Bank of America — and an amount of money that has been called one of the largest mortgage settlements in history , many borrowers stand to realize practical benefits that are marginal at best. Some 1 million homeowners will receive material mortgage relief that may help them stave off a default, but another 775,000 borrowers who have lost their homes to foreclosure will receive payments of no more than $2,000 . And the settlement excludes mortgages owned by Fannie Mae and Freddie Mac, the massive mortgage agencies currently in government conservatorship, which means about half the country’s mortgages aren’t covered at all by the deal .

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Devon Swezey: Romer Misses the Mark on Manufacturing

February 10, 2012

A healthy manufacturing sector is essential to America’s economic prosperity in the 21st century. But you wouldn’t know that reading last Sunday’s New York Times , where former Obama Administration CEA Chair Christina Romer writes that there are no compelling reasons for U.S. manufacturing policy. According to Romer, the recent hubbub about manufacturing is due to the fact that people have a “feeling” that “making things” is important. In reality, she writes, consumers “value haircuts as much as hair dryers.” To be sure, all of us need haircuts, some of us more than others. But Romer ‘s argument that we should value all industries of the economy the same is just not true. It’s reminiscent of economist Michael Boskin, another former CEA chair, who said it doesn’t matter whether a country makes computer chips or potato chips. The fact is that some industries are characterized by high productivity and economies of scale that reduce costs and drive economic growth throughout the economy. As Clyde Prestowitz writes of Romer’s own example: Production of hair dryers can be done in large factories that produce economies of scale. Such scale economies lead to lower prices, lower inflation, higher productivity and thus higher wealth creation for the whole economy. In addition, producers of hair dryers invest in research and development to foster innovation of new, more efficient, less energy using, and easier to produce dryers. Investment in new product and process innovations is what drives economic growth over the long-term. And as we discuss in ” Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy ,” manufacturing is absolutely central to innovation, something that many economists like Romer and economic commentators like Matt Yglesias don’t seem to understand. The manufacturing sector comprises two-thirds of the nation’s industry investment in research and development (R&D) and employs nearly 64 percent of the country’s scientists and engineers. But Romer doesn’t mention manufacturing’s importance to innovation in her article. Instead, she prefers to argue with what she sees as the common rationales for manufacturing policy — market failures, jobs and inequality — none of which she finds “completely convincing.” On the first issue, she writes that market failures in manufacturing — where positive spillovers mean that some benefits of a new manufacturing plant go to other companies in the area, thus providing a rationale for government investment — are small, citing two academic studies on the subject. But many other studies have found that manufacturing is a central component of regional industrial ecosystems, and that being near manufacturing can accelerate innovation and strengthen regional competitiveness. As President Bush’s Council of Advisors on Science and Technology wrote in 2004 , “design, product development, and process evolution all benefit from proximity to manufacturing, so that new ideas can be tested and discussed with those ‘working on the ground.’” Indeed, recent research suggests that losing high-tech manufacturing can imperil a nation’s capacity for future innovation. Harvard’s Carl Pisano and Willy Shih write that America’s “industrial commons” — the collective engineering, R&D and manufacturing capabilities that sustain innovation — are being hollowed out and the United States can no longer produce many high-tech products. Moreover, research and design are starting to follow high-tech manufacturing abroad, imperiling America’s historic advantages in innovation. Next, Romer writes that the impact of manufacturing on jobs relative to the employment needs of the economy is small and that we should focus on boosting aggregate demand instead: Unemployment today is high, but not because of a decline in manufacturing. That decline has been going on for 30 years — and for most of the 1990s and 2000s, the unemployment rate was less than 6 percent. Put aside that this obscures the fact that manufacturing employment generally followed the business cycle with only modest declines until 2000 when it fell off a cliff — declining by 5.5 million jobs from 2000 to 2008, or 32 percent. Romer understates the impact of manufacturing on jobs for two key reasons. First, she ignores the fact that manufacturing facilities have extensive backward linkages, generating output and employment throughout the economy. Indeed, manufacturing’s “multiplier effect” in terms of both output and employment is larger than any other sector of the economy. Specifically, studies demonstrate that every dollar in final sales of manufactured products supports $1.40 in output from other sectors of the economy. And the average job in manufacturing produces two to three spinoff jobs elsewhere in the economy. Even if employment on the factory floor never reaches levels of previous decades, when these effects are taken into account, manufacturing’s employment footprint is quite substantial. Second, Romer completely misses the connection between America’s persistent, massive trade deficits and our employment situation. In 2010 the trade deficit stood at nearly $500 billion, down from a record of $760 billion in 2006. With such large deficits, it’s difficult to see how more fiscal stimulus to boost aggregate demand, which Romer favors, will fill the jobs hole in the economy. It would certainly create some jobs, but much of that demand would be filled by imports, which creates jobs in other countries. Rather, eliminating the trade deficit would create millions of jobs in the United States. And the best way to close the trade deficit is by expanding manufactured exports. This is because the large majority of U.S. trade — nearly 70 percent of exports and 83 percent of imports — is still in goods. Manufactured goods in particular comprise 57 percent of U.S. exports. Can exporting services help reduce the trade deficit? Absolutely, and the United States enjoyed a $149 billion surplus in services in 2010. But it took 11 years for service exports to double to its 2010 level of $543 billion. The simple arithmetic shows that the current positive balance in services would need to quadruple to eliminate the deficit in goods. This is implausible, to say the least. What about inequality? Romer writes correctly that while manufacturing pays higher-than-average wages, it is no longer a source of high-paying jobs for less educated workers. Manufacturing is a technologically sophisticated enterprise and today’s manufacturing workers must have a wide array of abilities, including the production skills to set up and operate processes, design and development skills to continuously improve those processes, as well as proficiency in maintenance, repair and supply chain logistics. But then the policy response should not be to ignore manufacturing but ensure that workers have the skills for advanced manufacturing industries. Romer ends by implying that manufacturing policy is driven by economic nostalgia for an earlier age, writing, “public policy needs to go beyond sentiment and history.” To be sure, policy must account for the ways in which manufacturing has changed over previous decades. Some labor-intensive industries are likely gone for good, while the increasing use of information technology, robotics, and high-precision tools means that today’s factory workers must have much greater skills than previous generations. Fortunately, advanced manufacturing policy need not be about sentimentality or history, but about creating the next generation of advanced technologies that spur innovation, drive productivity, and power economic growth in the 21st century. It is about strengthening a sector that is a key catalyst of employment and economic growth. And it’s about ensuring the international competitiveness of the U.S. economy, closing the trade deficit and out-competing other nations whose governments rightly view high-tech manufacturing as a strategic industry. The good news is that the Obama administration has recently recognized that advanced manufacturing is critical for the future prosperity of the U.S. economy, even if its former chief economist does not. For more on the importance of advanced manufacturing to the U.S. economy, see ” Manufacturing Growth, ” a joint report by the Breakthrough Institute and Third Way.

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Adele Scheele: Making Meetings Mean Something

February 10, 2012

For some companies, the usual Monday morning meeting is becoming unusual. It is revamping itself, becoming a stand-up, short-lived check-in. For those who still endure the old sit-down conference table version, the format is unbearably predictable: the boss unceremoniously starts the meeting by reading the agenda, reciting the latest sales report, warning of anticipated obstacles, and then spends the remainder of the time discussing the pet peeves and projects of the few most vocal employees excluding everyone else. Or else there are the endless arguments over old issues that never get resolved. For many of us, coping with meetings is more stressful than doing the actual work — it often feels like not much is accomplished. Sixty to ninety minutes of tortuous boredom leads to anger, which, in turn, leads to withdrawing to keep from exploding or else becoming a comedian to camouflage emotions. Most of us are stuck in a frustrating situation we feel unable to change. Maybe the only people who don’t bristle during routine, energy-sapping staff meetings are the managers who call them and those unlucky ones whose jobs are even more unbearable than the meetings. Instead of increasing your blood pressure or clenching your jaws, why not try to turn the situation around to our own advantage? Here are some tactics that can lead you to a more effective meeting outcome and better mood: 1. Start by changing your own role. Play host early and greet people by asking each about some recent good news. Share yours too. 2. During meetings, compliment any good idea out loud and suggest ways it might benefit your group. If two ideas offered are similar or complementary, suggest a way to incorporate both. 3. When factual disputes arise, suggest an immediate decision on principle, rather than fact. 4. When the old, unresolved issue rears its ugly head again, suggest a way towards resolution; perhaps a debate. Offer to find someone who can act as a debate coach, working with your group divided into opposing teams. In a short time, perhaps only two hours, a rational decision can be forged to everyone’s relief. 5. When you want to introduce an idea, be strategic. Don’t bring it up by the usual method — flinging it into the middle of the table and hoping that others will respond. Nobody does. Ideas, even good ones, usually fall flat. Instead, prior to the meeting, garner support from your leader and several members of the team so that you are backed up and can ensure better results. 6. Invent more roles to play during different meetings. Ask questions to elicit action or piggyback on a good idea or project. Just don’t play antagonist or devil’s advocate more than once. 7. Summarize what has already been agreed to; note new agenda items from stray conversations for subsequent meetings. 8. After a major project, suggest that each team member tell what he or she has contributed. Then go around again asking them to tell what they would do differently if the project were repeated. Record their remarks from what they’ve learned and see how you can use them next time. Don’t be deterred by flack by others who think you are overstepping; try to get them involved too. You might talk to your manager about how to gather what’s been learned to make the next projects more effective. 9. Of course, not every plan will work every time. But it’s worth a try. More than a try. Not only does trying keep your anger quotient and your blood pressure down, but it gives you a chance to realize what the rest of your group craves — someone willing to change things so that they will work better. Let that someone be you! Make your luck happen!

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Awful Cover Letter To J.P. Morgan Laughing Stock Of Wall Street

February 10, 2012

It takes a lot to get noticed in this town, but there’s a right way and a wrong way to do it. An NYU undergraduate student named Mark has become the laughing stock of Wall Street after his awful cover letter to J.P Morgan made its rounds among NYU Stern alumni, the financial district, and then went viral online. A cover letter can make or break you in the job hunting game and Mark’s letter is a lesson in exactly what not to do. By boasting that he “managed to bench double [his] body weight and do 35 pull ups” while achieving a 3.93 GPA, young Mark invited the inevitable comparisons to the infamous Aleksey Vayner . There’s a fine line between convincing your potential employeer of why they need to hire you, and only you, and coming across as a pompous ass. There is no doubt Mark’s status as a triple major in Mathematics, Economics and Computer Science is impressive on its own, but throw in the fact that he held two part-time jobs, placed-out of two classes and managed to keep himself in top physical shape, and it’s safe to say he crossed the line. Mark’s cover letter also could have used an edit from an English major, who might have advised him to find a different way to express that he “can perform basic office functions with terrifying efficiency.” He ended the letter with a disclaimer asking J.P. Morgan to “Please realize that I am not a braggart or conceited, I just wanted to outline my usefulness. Egos can be a huge liability, and I try not to have one.” Nice. It’s a letter so obnoxious that it’s unclear if Mark sent it as a joke. According to Gawker, Mark is well aware bit of laughter he brought to the bankers on Wall Street. When asked if he’d gotten a job at J.P Morgan, he laughed, telling the website , “No, not at all. Didn’t you see my letter?” Joke or not, Mark is not alone when it comes to terrible cover letters. An applicant for a position as an API Engineer in New York City recently wrote : “I’m super awesome and have incredible experience compared to this — it includes the required experiences below plus I am trained in MMA fighting, am the mayor of multiple Chipotles, Starbucks, and locally famous restaurants in downtown NYC, and I type really fast.” And we can’t forget Roanald Dvorak’s cover letter for a office manager position, where he wrote : “Forget all the other candidates for Aviary, I am the BEST,” and listed his skills in bullet points: “Organizing shit? Check. Calling numbers and shit? Doublecheck. Customer support and shit? Mega-check. Faxing numbers and shit? MOTHERFLIPPING CHECK ALL OVER THAT.” At a time when even the most qualified applicants can’t find jobs , it’s questionable if sending over-the-top or ironic cover letters is a good idea — especially given the fact that there’s no expectation of privacy. Last year, Business Insider even posted 12 of the worst cover letters they received, redacting the names to provide some protection for those who made the list. READ THE COVER LETTER: 1/23/2012 J.P. Morgan Dear Sir or Madame: I am an ambitious undergraduate at NYU triple majoring in Mathematics, Economics, and Computer Science. I am a punctual, personable, and shrewd individual, yet I have a quality which I pride myself on more than any of these. I am unequivocally the most unflaggingly hard worker I know, and I love self-improvement. I have always felt that my time should be spent wisely, so I continuously challenge myself; I left Villanova because the work was too easy. Once I realized I could achieve a perfect GPA while holding a part-time job at NYU, I decided to redouble my effort by placing out of two classes, taking two honors classes, and holding two part-time jobs. That semester I achieved a 3.93, and in the same time I managed to bench double my bodyweight and do 35 pull-ups. I say these things only because solid evidence is more convincing than unverifiable statements, and I want to demonstrate that I am a hard worker. J.P. Morgan is a firm with a reputation that precedes itself and employees who represent only the best and rightest in finance. I know that the employees in this firm will push me to excellence, especially within the Investment Banking division. In fact, one of the supporting reasons I chose Investment Banking over any other division was that I know it is difficult. I hope to augment my character by diligently working for the professionals at Morgan Stanley, and I feel I have much to offer in return. I am proficient in several programming languages, and I can pick up a new one very quickly. For instance, I learned a years worth of Java from NYU in 27 days on my own; this is how I placed out of two including: Money and Banking, Analysis, Game Theory, Probability and Statistics. Even further, I am taking Machine Learning and Probabilistic Graphical Modeling currently, two programming courses offered by Stanford, so that I may truly offer the most if I am accepted. I am proficient with Bloomberg terminals, excellent with excel, and can perform basic office functions with terrifying efficiency. I have plenty of experience in the professional world through my internship at Merrill Lynch, and my research assistant position at NYU. In fact, my most recent employer has found me so useful that he promoted me to a Research Assistant and an official CTED intern. This role is usually reserved for Masters students, but my employer gave the title to me so that he could give me more work. Please realize that I am not a braggart or conceited, I just want to outline my usefulness. Egos can be a huge liability, and I try not to have one. Thank you so much for your time, and I look forward to hearing from you. Best, Mark

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Dennis M. Kelleher: First Bank Fraud, Now Political Fraud

February 10, 2012

First the banks committed massive fraud in originating and packaging mortgages, leaving the country littered with millions of little mortgage time bombs set to explode in the years after they lined their pockets and made their get-away. The poster child for this unconscionable conduct is Countrywide (now owned by Bank of America) and its CEO Angelo Mozilo, but they were just one of many, many culprits. Then when those mortgage time bombs exploded a few years later, those very same banks committed more massive fraud, this time by improperly charging homeowners fees and other costs, commencing unjustified foreclosures, and knowingly and intentionally filing false documents in court to foreclose on people when they never even bothered to check to see if they owned the mortgage they were trying to foreclose on. That is lying, cheating and stealing that would get anyone else in this country thrown in jail for many years. And, this was even worse than that because they filed falsely sworn documents in courts throughout the country as a routine practice. That is perjury (not that any of this is called criminal; no, these crimes are covered up with euphemisms ). This is very, very serious criminal conduct that was engaged in for years by the biggest banks in this country as a routine business practice. People go to prison for many, many years for crimes much less serious than that and these crimes merit long prison sentences and crippling fines. But, not if you’re a big bank. That is why people are so mad in this country. There is one standard for hard-working people and there is another standard for the wealthy, well connected, powerful, and, almost always, the big campaign contributors. The law gets applied to the former, often mercilessly and ruthlessly, but the law doesn’t apply to the latter, who get off time and again for nothing, next to nothing or by paying a window-dressing fine usually with other people’s money. As if that isn’t enough insult and injury to the American people, almost always you have politicians, prosecutors and sundry others racing to the microphones to claim a great victory for “punishing” those wealthy, well connected, powerful, and, almost always, the big campaign contributors. It is as if they think the country is populated by idiots who cannot see through the transparent PR political fraud that they spin to cover the fact that the big shots and their buddies are getting away with it again. Yesterday was no different as 49 state AGs, the U.S. AG and the White House all raced to the cameras to tout their claims that the mortgage settlement with 5 banks was a great victory for victimize homeowners. $26 billion, they all blared, coming to a neighborhood near you. Wahooo! Finally, relief, justice and help to beleaguered homeowners and other victims across the country. The problem is that the facts, the actual terms of the deal, as near as they can be determined from what little information was disclosed, suggest that this great victory isn’t going to help hardly anyone. True, it does appear to be better than nothing, but is that really the standard? And, none of those politicians said it was merely better than nothing. No, they claimed that this is going to help millions of homeowners across the country. First, only $5 billion of the settlement was cash (a mere $1 billion from each mega-bank, which is nothing to them) and the other $21 billion will come in the form of mortgage modifications, which isn’t anything like cash and will cost them almost certainly less than half of that cost. Second, as many have pointed out, $26 billion (even if it was real) isn’t much and won’t help much. For example, as a New York Times story today shows, even if all $26 billion was actually used as claimed, it will help, at most, 10 percent of the 20 percent of homeowners under water and even those homeowners aren’t likely to be helped much. Don’t miss the graph . Nothing beats seeing how little the help will be. There are approximately 11 million homes under water by an average of $50,000. The huge victory will help at most 1 million for an average amount of $20,000. So, nothing for 10 million and the 1 million will get to reduce the amount underwater on average to $30,000. It’s like saying rather than drowning in a lake 50 feet deep, you get to drown in a lake that is only 30 feet deep. And, people are taking victory laps? You don’t believe any of that and still think what the politicians said about punishing the banks was true? If this was a real punishment, then the stock of those banks would have taken a hit. They did not. The announcement had no effect. You could say that was because the settlement had been talked about for some time so the cost was already priced into the stock days before, but there wasn’t any hit during that time either. Thus, the markets confirm the facts of the settlement and rip the PR spin off the political fraud that compounds the banks’ fraud and, once again, victimizes the American people by falsely raising their hopes for relief and dashing — again — the claims that the criminals, liars, cheaters and scammers were finally going to be held accountable. Sadly, this is yet another example of the double standard that has been so painfully obvious to everyone in this country since the 2008 financial crisis: pain on Main Street, bonuses , bailouts , and arrogant whining on Wall Street, and nothing but PR spin from Washington, D.C. and elected officials.

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R. Paul Herman: Warren Buffett’s Billions at Risk; Berkshire Hathaway Is Lowest-Rated on Sustainability

February 10, 2012

Co-authored with analyst Maximilian Lichtenheld of HIP Investor. Warren Buffett is known as the “Oracle of Omaha,” but does his view towards sustainability warrant this title in the 21st century? Not according to the ” HIP 100 ” investment index and portfolio. Berkshire is rated dead last of the 100 largest companies in the U.S. based on low sustainability results and lack of information on its conglomerate’s actions and results. Why? Because Warren Buffett, vice chair Charlie Munger and the Board of Directors — including Bill Gates –have yet to embrace sustainability, the concept that human, environmental, social and governance factors can drive increased profitability and shareholder value. The shareholders and Board voted down a proposal at last year’s shareholder meeting in Omaha to quantify the risks related to pollution and carbon emissions, as well as rejecting the need for setting goals to reduce them. This is strange: because reducing waste and greenhouse gases leads to lower costs, fewer liabilities and reduced risk. At that shareholder meeting, Buffett stated that climate change is not a material risk to Berkshire. Yet $30.6 billion, or 29%, of Berkshire Hathaway’s operating company revenue is heavily contingent on the issues related to climate and energy. Berkshire’s earnings growth has not met analyst projections as the reinsurance businesses of BRK suffered heavy losses due to extreme weather. Moreover, the potential impact of climate change on BRK’s equity holdings (partial rather than full ownership, like Coca-Cola, Kraft and Wells Fargo) is even higher. Approximately 40 percent of revenues are facing increased risk, representing about 1 in 4 employees, according to our analysis at HIP Investor. An analysis of BRK’s operating companies resulted in a peculiar result as sustainable business practices are incorporated at home construction and manufacturing firms, yet two of the biggest insurers, GEICO and General Re, appear not to pursue any strategies considering environmental impacts on their business models. Including these factors could lead to more sustainable profits with a largely reduced exposure to high-impact risks. The industry finally has to recognize that “black swans” risk becoming the “new normal.” Another crucial aspect that might be detrimental to BRK’s performance is also rising prices of clean water. The Coca-Cola Company, in which BRK holds a major equity stake, uses 2.36 liters of water to produce 1 liter of soda — consider that next time you drink a soda. In India, the water-to-soda ratio amounts to 4:1, resulting in the waste of 75 per cent of water input. As water is the main ingredient for all beverages, even a slight increase in its price could lead to a fall of profits. An improvement in water efficiency might incur capital expenditures in the short run, but will reduce costs in the long run, serving as a competitive advantage. Some of Berkshire’s businesses are actively expanding in the alternative energy sector, such as Mid American Energy Holding’s acquisition of the Topaz project , one of the world’s largest photovoltaic power plants, for $2 billion. Imitating this strategic expansion across the conglomerate could be quite beneficial for BRK. For BRK’s last fiscal quarterly statement, ending October 2011, Berkshire said “profit from underwriting insurance fell 83 percent to $81 million amid the most costly hurricane season since the record storms of 2005.” As profits associated with the insurance subsidiaries fell by more than 77 percent on investments, it is time for Berkshire’s board — which includes Bill Gates — to accept the importance of climate for business. A study by the Intergovernmental Panel on Climate Change (IPCC) entitled ” Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation ” (SREX)’ supports the notion that extreme weather occurrences are going to increase in frequency, hugely affecting BRK’s potential for generating sustainable revenues in the insurance and re-insurance businesses. “Extreme events will have greater impacts on sectors with closer links to climate, such as water, agriculture and food security, forestry, health, and tourism,” requiring economies to adapt and not stick blindly to a status quo. If weather-related disasters increase in frequency, profits could quickly evaporate, unless the issue of climate change is actively included in company strategies. Other reinsurers, namely Swiss Re, do acknowledge the impact of climate change and estimate that the associated market accounts to $5 billion , which consists of various over the counter contract weather derivatives, as well as other insurable risks regarding renewable energies. However, the acceptance of the changed circumstances does not only create new markets, but allows to incorporate these changes into the risk models. Ignoring the tremendous risks of climate change can be lethal for a firm. If BRK would take steps to counter these challenges through systematic implementations of sustainable business practices across all operating companies, as well as pushing for sustainable changes at their equity stakes, then revenues could be more stable, avoiding losses and positively impacting society. Warren Buffett’s potential impact on sustainability would go far beyond BRK though, as typically his investments are widely followed and influence investors in their decisions. Once this self-reinforcing cycle is initiated, economies and firms could become more sustainable in performance, hence they could weather economic shocks better. Volumes on IBM trading doubled days after Buffett announced his investment in the company in 2011. Forging ahead on sustainable firms could thereby lead to a large multiplier effect for the entire industry. Will Buffett become more “HIP,” supporting the theme that solving human, social and environmental challenges can increase the potential for more profit? Will BRK survive without adapting to more sustainable business practices? That is up to Mr. Buffett, Charlie Munger and the Board — but it will determine whether BRK can continue its 20th century leadership into the 21st century. Co-author Maximilian Lichtenheld is an Analyst at HIP Investor Inc., an MBA candidate at London School of Economics (LSE), and the Founder and President of LSE’s M&A (Mergers&Acquisitions) Society, President of LSE’s Swiss Society and Vice-President of the Austrian Society. NOTE: This is not an offer of securities nor a solicitation. The information presented is for information and education purposes, and does NOT imply any investment recommendations. Past performance is not indicative of future results. All investing risks loss of principal. The authors, HIP Investor and HIP’s clients may invest in the securities mentioned above, including in the HIP 100 Index portfolio. Details and full disclosures are at www.HIPinvestor.com

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U.S. Clamps Down On ‘Sex In The City’ Counterfeit Perfumes

February 10, 2012

The ladies of “Sex and the City” are still cool enough for China’s massive counterfeit market. Counterfeit perfume seizures by the U.S. Customs and Border Protection surged in the United States last year, jumping 471 percent to a total value of $9.4 million. And of all perfumes seized, the one most often found was called “Sex in the City,” a counterfeit variation on the HBO trademark. The surge in fake fragrance raids was the result of new partnerships between U.S. Customs and Border Protection and American companies like HBO trying to protect their trademarks, the agency said in a report . “The collaborative effort that we’ve had with Customs have been incredibly effective and we’ve been happy with the results,” said HBO spokesman Jeff Cusson of the seizures. U.S. fragrance companies have turned to law enforcement for help in battling counterfeits after nearly a decade of weak sales, which dropped 20 percent between 2005 and 2010, according to Euromonitor International , a market research group. While the recession is partially responsible, the groups says, top-level brands may no longer hold the same weight over imitations that they once did. “Fragrances have lost their mystique and become less ‘special’ and commoditised,” Euromonitor wrote in a May 2011 report . “With over a hundred new fragrance launches a year, the glut of fragrances in the marketplace has also created consumer confusion.” Or perhaps Americans are simply no longer willing to pay $100 for designer fragrances when cheap versions abound. The “Sex in the City” fake, for example, is sold all over the Internet for less than $10. Versions like Lust, Kiss, Love and Dream are currently available on Amazon.com , Overstock.com and many other beauty sites. Three of the four countries most often responsible for counterfeit perfumes seized in 2011 are located in Asia — China, India and Hong Kong — but the perfumes also often originated from Germany, according to Customs seizure data. Most fans of the fragrance likely don’t know that the “Sex in the City” perfume is a fake at all, especially since the HBO-approved scent was only

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The States Where Companies Are Hiring

February 10, 2012

From 24/7 Wall St.: Companies across the country are hiring more workers, at least if you ask their employees. In 2011, 31 percent of U.S. workers reported that their employers were hiring, according to Gallup’s Job Creation Index . Only 18 percent said that their employers were laying workers off. Of course, residents of some states report much higher rates of job creation than others. 24/7 Wall St. reviewed the Gallup Index, as well as a number of other economic indicators, and identified the eight states where residents think companies are hiring most. Read The Eight States Where Companies Are Hiring To develop the Job Creation Index, Gallup asked those surveyed whether companies are hiring or letting employees go. While the national score reflects that most states believe employers are hiring, 24/7 Wall St.’s analysis suggests that self-reporting by workers may not perfectly align with reality. These states are not experiencing the greatest recoveries — including in employment — as they have little to recover from. The states’ strong economies may be affecting their residents’ perception of the economy. Five of the eight states on this list are among the top nine states on another recent Gallup poll ranking states’ confidence in the national economy. Those who live in states that are doing well see the entire country as doing well. The majority of states where high percentages of workers reported job creation also have extremely low unemployment rates to begin with. Six of the eight states have among the 10 lowest unemployment rates in the country. North Dakota, the state where the largest share of workers reported that their employers are hiring, has the lowest unemployment rate in the country. And while unemployment rates are low, the majority of these states have had relatively low unemployment rates for some time. Most did not have particularly impressive improvements in unemployment last year. Other than Utah and West Virginia — the only states with exceptionally large drops in unemployment — the rest have had low unemployment rates since 2006 and throughout the recession. Housing markets in most of the states where respondents believe jobs are plentiful also have been stable. Seven of the eight states on the list are among the 15 markets that suffered the least from the third quarter of 2006 to the third quarter of 2011. Five of the states actually experienced increases in home prices over this period. These are the eight states where workers say companies are hiring, according to 24/7 Wall St. :

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SEC May Target Big Banks In Lawsuit Over Mortgage-Backed Securities

February 9, 2012

Regulators may be preparing a lawsuit against some of the country’s largest banks in order to probe their role in the acceleration of the financial crisis. The Securities and Exchange Commission is planning to formally warn a number of firms that sold mortgage-backed securities in the years leading up to the meltdown of an impending enforcement action, the Wall Street Journal reports. At issue is whether banks knew at the time that the mortgages backing their securities were of poor quality — and whether the banks nevertheless presented a picture of the loans that was misleadingly reassuring. Mortgage-backed securities are generally believed to have played a central role in the near-meltdown of the national banking system a few years ago. The country’s largest financial firms repeatedly bundled subprime mortgages and used them to guarantee securities that were sold to investors. When those mortgages proved unsound, it triggered a series of financial failures that dealt a severe blow to the national economy. If such a lawsuit does come to pass, it would be part of a broader effort on the part of the federal government to assign responsibility for the financial crisis — and to better regulate hazardous trading practices and high-risk financial instruments in the hopes of preventing another one. At the same time, the SEC has been criticized for not doing more to stamp out misconduct. In 2009, one prominent whistleblower called the agency ” captive to the industry it regulates .” Multiple lawsuits and inquiries have already raised the issue of whether banks misrepresented the health of mortgage-backed securities during the housing boom. JPMorgan Chase faced one such suit last year, as did Washington Mutual and Bank of America’s Merrill Lynch division . Goldman Sachs is currently facing a potential class-action suit from investors over whether it purchased a number of mortgage-backed securities in 2005 without first examining their health. Goldman was also accused last year, by an investigatory Senate panel, of misleading Congress and investors as to the safety of the mortgage-backed securities it was selling. News of the possible suit comes at a moment when banks are already being called to account for their handling of another result of the collapsing housing market: the foreclosure crisis. On Thursday, the government announced that it had reached a $25 billion settlement with some of the country’s largest financial firms — among them Citigroup, Ally and BofA, all said to be targets of the SEC investigation — over charges that the banks engaged in systematic and widespread mortgage fraud. No major bank executives have yet to face prison over their role in the worse financial crisis since the Great Depression.

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Dennis M. Kelleher: More Unconscionable Wall Street Whining

February 8, 2012

I can barely write this as tears for the poor, picked-on Wall Street bankers fill my eyes as they are comforted by Obama’s campaign manager, who reportedly met yesterday with his big donors on Wall Street. Until we fix the sickening campaign finance system, I don’t like, but I understand that all fundraising politicians have to raise money and meet with donors and I understand why the campaign manager did, but how anyone on Wall Street could feel picked-on by Obama is beyond reason. Every single Wall Street bank would have been bankrupt, broken up and/or liquidated in 2008-2009 due to their recklessness, greed, incompetence and arrogance. The only reason that didn’t happen is because the US government, with taxpayer dollars, bailed them all out and, indefensibly, did so with no strings attached so they quickly began stuffing their pockets with billions in bonuses in mere months. Most of these “demoralized” Wall Streeters would have lost everything: their bank accounts, their multiple homes at the world’s hottest locations, their many sports cars, Italian designed wardrobes, yachts, club memberships, jets, helicopters, cooks and legions of house help and personal assistants and everything else they purchased with the tens of billions of dollars they sucked out of the economy as they created the bubble of toxic, worthless assets in the years before the financial collapse that they caused. True, they didn’t create it alone, but, in the hierarchy of those who caused the financial crisis, any fair-minded, unbiased list would put them at the top. That is particularly true if one looked at who benefited the most from the bubble and who was treated the best once the bubble popped. No one was treated better before, during and after the crisis that Wall Street. The government didn’t open the treasury and taxpayer pockets with no strings attached for anyone other than the financial industry (compare the demands and concessions forced on the auto industry). Anyone not directly or indirectly on the payroll of Wall Street or their ideological fellow travelers (who are almost all coincidentally also on the payroll) sees this and understands this. They see that no accountability only applies on Wall Street. They see that no-strings bailouts only apply to the already-rich Wall Street bankers. They see the unlevel playing field created and sustained by a federal safety net that looks a lot like a hammock for the filthy rich. (The Wall Streeters and their allies like to say such criticism is an attack on wealth, entrepreneurs and capitalism itself. That baseless, self-serving attempt to distract and distort the debate is laughable. No one is attacking Silicon Valley, Bill Gates, Apple, Caterpillar, Procter and Gamble, Hewlett-Packard, AT&A, IBM or the rest of the Fortune 500 — or celebrities, athletes or other super-wealthy people. No — the criticism is focused on the biggest Wall Street banks and bankers that enriched and engorged themselves at the expense of the rest of the country, that caused the crisis, got bailout out by taxpayers and just can’t stop claiming they are picked on, and that still benefit from a taxpayer-funded federal safety net that subsidizes their current too-big-to-fail operations.) It is also obvious to see that Main Street, not Wall Street, has paid and is paying for the costs of the financial crisis . They see a hollowed-out middle class struggling just to get by, having lost most of their stock value, home value, savings and retirement funds. These are the people living paycheck to paycheck with gnawing insecurity that at any moment it can all disappear and they too could join the ranks of the unemployed and, even, the homeless. Food stamp use is at an all time high and, most tellingly, the ramp up in use is in what used to be solid middle class neighborhoods. The same is true for free and subsidized school lunches. The distinction between the poor and the middle class is evaporating in far too many communities in America. Sadly, hope and the American Dream are also slowly receding from the horizons of too many hard-working American families. And, yet, in the midst of all this pain, suffering and wreckage, Obama’s campaign manager has to go to the oh-so-exclusive “Core Club in Manhatten” to reassure the bonus-bloated bankers that “Obama won’t demonize Wall Street as he emphasizes populist appeals in his re-election campaign ….” As if that wasn’t enough, this was reported to be “the latest in a series of hand-holding sessions.” It was also reported that one anonymous banker stopped going to these meetings because “the actual White House message of locking up fat cat bankers and raising their taxes never actually changes.” Er, ok, could anyone, please, identify a fat cat banker that got locked up? Nooooooooooooooo. There have been none. Not one. THAT actually is part of the problem . They are almost all still right where they were when they were creating the bubble or have departed Wall Street to the comfort of their billions or millions. (And, their taxes remain historically low.) Every single sane employed person on Wall Street should be sending a check to Obama — they would all be an empty shell of themselves but for him and the actions his administration took to stop the collapse of the financial system and our economy. Yet, ignoring all evidence and facts, Wall Street is reported to be “an industry that the White House has thoroughly and repeatedly demonized and demoralized” — what? That’s so ludicrous that it could be a “Seriously” skit on Saturday Night Live . Or an Onion headline. But, no, Wall Street, its bankers and its allies everywhere, including in the media, actually think that Obama has “thoroughly and repeatedly demonized and demoralized” Wall Street. Can they really be that thin-skinned? Can they really be that out of touch with reality? Can they really be that narcissistic to not see their “plight” relative to what is happening to the rest of the country ? Sadly, the answer to all those questions is yes. Wall Street and those who make fact-free assertions from their mahogany-line corner offices, 30,000 square foot mansions and spacious limousines about their plight live in a parallel universe that begins and ends in the mirror they gaze in and apparently mistake for the entire world. Until they look beyond their reflection in the mirror and until one of the titans on Wall Street actually becomes a statesman , then Wall Street’s whining won’t end and no amount of “hand-holding” meetings will satisfy them.

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Is The Dow Jones Still Relevant?

February 8, 2012

One day in October 2006, my editor gave me the same assignment that hundreds of other editors were giving their business writers. He told me to go to a trading floor to witness the magical moment when the Dow Jones Industrial Average passed 12,000 points. He may have envisioned cheers, shouts, balloons, traders cutting one another’s ties and (this being 2006) dousing one another in Cristal. Instead, the traders obliviously entered orders into their computers while I stood around looking for the story. It got me thinking: Why do we still care so much about the Dow?

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Banks Paying Homeowners To Sell Houses, Avoid Foreclosure

February 7, 2012

Some struggling homeowners are getting paid by banks to sell their houses and stave off foreclosure. Many banks, including JPMorgan Chase, are offering delinquent borrowers as much as $35,000 to sell their houses for less than they owe on them, Bloomberg reports. Some banks are finding the transactions to be more cost-effective and efficient than the complex and multi-stage foreclosure process. The attempt to clear the deluge of delinquent properties awaiting foreclosure echos others, including so-called “cash for keys” programs in which banks pay homeowners and renters to vacate their homes without an eviction. Banks have had to get creative in dealing with a massive foreclosure pileup that confronts them. Overall, foreclosure filings fell dramatically last year in large part because banks were hesitant to rush the process , after investigations into robo-signing practices, which sped up foreclosures, indicated abuse. The foreclosure process now takes nearly triple the amount of time that it did in 2007 , according to LPS Applied Analytics. The extended time period for foreclosures means that millions of properties are sitting in the pipeline and weighing on home values. Homes that are in foreclosure drive down property values twice as much as vacant properties , according to an October study by the Cleveland Federal Reserve. The Justice Department lent support to another means of avoiding foreclosure last month. The agency argued that foreclosure mediation — or the process whereby struggling homeowners can negotiate with lenders so they don’t lose their homes — is worthy of a government boost in research and possibly funding . Ben Bernanke also lent his two cents on how best to fix the housing market last month, when he published a paper saying that relying heavily on foreclosures to deal with delinquent borrowers is “costly” and “inefficient” for the housing market. Foreclosures “can result in ‘deadweight losses,’ or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods,” the paper said . Bernanke also floated some alternatives including combing a deed-in-lieu — or a program where homeowners return their house to lenders without going into foreclosure — with a rent-back agreement. The Home Affordable Modification Program, an aim touted by the Obama Administration in February 2009 as having the ability to help 3 to 4 million homeowners modify their loans and avoid foreclosure, has only netted nearly 1.8 million trial modifications for homeowners so far, according to a recent government report.

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Chrysler Super Bowl Ad Raises Questions About Underlying Political Message

February 7, 2012

On Monday, responding to a barrage of criticism from conservative pundits and some football fans, Chrysler chief executive Sergio Marchionne denied there had been any political message in the company’s Super Bowl aired during Sunday’s night’s halftime show. “It had zero political content,” Marchionne told a Detroit radio station . “It was not meant to be any type of a political overture on our part; we are as apolitical as you can make us.” The two-minute commercial starring Clint Eastwood compared Detroit’s comeback to the ongoing recovery of the American economy. Many viewers came away from Sunday’s ad thinking the two-minute spot was a pro-Obama ad; others did not. Yet at the Detroit auto show last month, it was clear that Marchionne felt indebted to the president for Chrysler’s very survival. “I owe the president a lot,” Marchionne said then. “The reason we are here is because he gave us the [bailout] money, right?” Marchionne was talking with a small group of reporters about Chrysler’s bid for $3.5 billion in loans from the Department of Energy, as part of a program created by Congress in 2007 to help automakers retool old plants to make fuel-efficient vehicles. The loans still hadn’t come through, despite consistent negotiating between Chrysler and the government. Marchionne said he hoped the process wasn’t being delayed for political reasons. His comment about the president, though, came in response to a reporter’s question, “Doesn’t Obama owe you one?” Nonetheless, knowing how carefully automakers ponder, weigh and debate official communications, it’s hard to imagine Chrysler’s top brass did not consider that its Super Bowl ad could be interpreted as a pro-Obama spot. Typically auto executives are very careful to not pick sides in political battles, for fear of alienating customers on any given side. Although they often have their own political agendas, such battles are waged with lobbyists and campaign donations, not overtly in political ads. A spokesman for Chrysler declined to comment further on the company’s commercial or Marchionne’s earlier comments. “The ad pretty clearly invokes the comeback due to the bailout, without mentioning those controversial words,” said Ted Brader, a University of Michigan political science professor. “And given that message — we made the most of the bailout and it was a success — I did think, Huh, one could read that as a tribute to Obama’s decision to bail out GM and Chrysler.” Brader said Chrysler’s commercial is vaguely similar to a 1984 political ad for Ronald Reagan, “It’s Morning Again in America.” This year’s Chrysler ad, which aired just moments after Madonna finished her halftime show, started with Eastwood’s telling the audience that it’s halftime and the football teams are in their locker rooms figuring out how they can win. “It’s halftime in America, too,” Eastwood said, as an image showed the sun rising over a misty mountain range. The commercial continued with scenes of people waking up, getting ready for the day. “People are out of work, and they’re hurting, and they’re all wondering what they’re going to do to make a comeback.” The people of Detroit, he said, have already faced that fear. They almost lost everything. But the country pulled together and “after those trials, we all rallied around what was right and acted as one,” he said. And now Detroit is back, Eastwood said. Reagan’s earlier ad also started with a sunrise, except the opening scene included a boat in a bay. Various vignettes depicted people commuting to work, moving into new homes and getting married, while a narrator talked about how much better life was in 1984 compared with in 1980, before Reagan took office. “Under the leadership of President Reagan, our country is prouder, and stronger, and better,” the narrator said. “Why would we ever want to return to where we were?” The wounds of the automakers’ collapse and subsequent bailout are still fresh in Detroit, where bewildered citizens looked on as the rest of the nation debated whether it was worthwhile to help save the industry. Michigan slipped into a recession four months before the rest of the country and suffered the hardest. Unemployment there was the highest in the nation for all of 2009, and people left the state looking for jobs. Michigan was the only state to shrink in population size from 2000 to 2010, losing 54,000 people, according to Census counts. But now things are starting to turn around. Ford and Chrysler both posted profits for 2011, and GM is expected to do the same. That’s the message Eastwood said he was hoping to tap into with the commercial, in a bipartisan fashion: “I think ” all politicians will agree with it,” he told Fox News. “I thought the spirit was OK.” The commercial was vague enough to give Chrysler “plausible deniability about any political implication of the ad,” Brader said. Eastwood was a good choice (although, according to the Wall Street Journal , he may have been the second choice; Al Pacino also shot a version of the ad) because people connect him with hardscrabble Westerns and tough, flawed heroes. Eastwood’s background as a Republican who opposed the bailout (but favors gay marriage) makes the message even less clear. “So, all in all, the whole thing is rather nicely ambiguous,” Brader said. Watch Sunday’s Chrysler ad and the 1984 Reagan ad below:

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Consumer Borrowing Spree May Not Be Healthiest Economic Sign

February 7, 2012

Consumer credit posted a second straight eye-popping monthly gain in December, according to a new Fed report, which some are taking as a sign of a new surge in the economy. There are a couple of reasons to not get too excited just yet. First, the $19.3 billion jump in consumer credit in December was driven mainly by a $16.5 billion surge in “non-revolving” credit, which includes student and auto loans. “Revolving” credit, or credit cards, grew by a more modest $2.8 billion. To the extent that people are using credit cards and taking out auto loans more, that’s a positive sign for economic growth — although maybe not the healthiest growth. More on that later. But the biggest gain in “non-revolving” credit in December came from lending by the “federal government,” which is student lending. That grew by $8.8 billion. A surge in student lending is not always a wholly positive sign for the economy, warns IHS Global Insight U.S. economist Gregory Daco. “It may indicate people are finding it more difficult to finance their kids’ education,” Daco said in a phone interview. “That may not be such a good thing.” The number might also have been skewed by seasonal adjustment factors. December is not typically a big month for student lending, so some unusually large increase in borrowing in the month, for whatever reason, might have thrown the seasonal adjustment off and amplified the increase. These numbers are volatile and can be revised dramatically. Clearly, consumer credit is on the rebound. November posted another ridiculously huge jump in consumer credit — $20.4 billion. Together, November and December’s growth in credit was the biggest two-month increase since 2001. And November’s credit gain was more heavily weighted toward credit cards and auto loans, and so was a better sign of real consumer spending. Of course, we knew about that already, having seen a 2 percent gain in consumer spending in fourth-quarter GDP data released last month. Given the big skew toward student loans in December, it is still too early to declare that consumers are feeling so frisky about the recovery that they’re out racking up debt to finance spending sprees. It is also possible that they are using credit more because wages aren’t rising enough to allow them to pay for stuff they need without going into hock. In any event, we probably do not want another economic recovery driven by consumers going into hock. Given the lingering sting of the debt-fueled financial crisis, it seems unlikely we will get one soon. “Consumers are slowly returning to the use of credit, but it’s a very cautious return,” said Daco.

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Endeavour Press: Even in a Bear Market, You Can Still Get Rich

February 7, 2012

By John Carlucci, author of Ashes to Riches: How to Profit Spectacularly During the Economic Collapse of 2012 to 2022 . In 2008, the financial world was hit by its own version of the meteorite that killed off the dinosaurs. Huge investment banks disappeared into thin air, the stock market went into a terrifying plunge and shell-shocked politicians warned that the world economy was within days of imminent collapse. Millions of ordinary investors saw their world turned upside down as years of planning and saving, years of accumulated wealth were suddenly vaporized. But catastrophe clears the field for new opportunities and whoever can adapt to the new world thrives. To be a successful investor in our post-meteorite world, you need to embrace several key ideas. First, realize that much of what you are told by financial “experts” is deliberately incomplete and blatantly self-serving. The truth is, their primary interest is looking out for their income stream, not you. They make money kneading and rolling “Assets Under Management” – your dough. If your account does well, they make money on service fees. And if your account crashes, as in 2008, they’ll beg and plead that you stay in the market because they still collect fees servicing the little you have left. What they don’t make money on is you selling all your stocks and going to cash or other safe haven. With that unsettling thought in mind, their conventional “Buy and Hold” strategy has not just become obsolete, but absolutely lethal. That’s because in 2000, the market fundamentally transformed from a long term or “secular” bull to a secular bear. The steady upward trend in the market, averaging 18.6% per year from 1982 to 1999, suddenly flat-lined. Since 2000, the S&P has averaged a paltry 0.46% gain per year and there are strong indications we’re in for a downward trend that won’t be over for at least another decade. Not surprisingly, most financial “advisers” are still recommending the long term “Buy and Hold” zombie strategy because it guarantees their income as long as you stay invested. But to survive and thrive in a multi-decade-long bear market you must zero in on the short term ups and downs that last for only a few years at most. What are referred to as the “cyclical” bull and bear swings — within the larger long term secular bear period. Instead of buying and holding for decades on end, you buy at the bottom of a cyclical swing and sell at the top. It’s the only strategy with any hope of getting you through this secular bear intact. It isn’t good for your broker’s income, but you have to put your own interest first — just like he does. Likewise, learn how to protect yourself. No sane person would get onto an elevator that didn’t have an emergency brake. Likewise, no rational person should invest a dollar without attaching a “stop loss” order to it. What’s a “stop loss”? It’s a standing order that protects your investments just like an elevator emergency brake. If your stock price drops to a pre-determined level, either a percentage drop or a dollar amount drop that you choose in advance, the stop loss order automatically executes, selling your stock at the exact price you ordered or as close to it as possible. Your broker never told you about stop loss orders? You’re not alone. From the market peak in 2007 until it hit bottom in March 2009, investors lost approximately $11 trillion in asset value. The entire GDP of the United States in 2008 was $13 trillion. This occurred because very few average investors were protected by stop loss orders. They followed their financial advisers’ advice to hold and rode the catastrophe all the way to rock bottom. It was like holding tight to the walls of the elevator as it fell through space. It’s likely to get pretty rough over the next few years but if you keep these few simple ideas in mind at least you won’t be as surprised as you would have been, and as millions of others are going to be. In fact, there’s even a very good chance you’ll thrive in our brave new financial world. Ashes to Riches: How to Profit Spectacularly during the Economic Collapse of 2012 to 2022 , by John F. Carlucci, is published by Endeavour Press Ltd.

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Ben Bernanke: Long-Term Unemployment Crisis Altering Job Market For The Worse

February 7, 2012

Federal Reserve Chairman Ben Bernanke said Tuesday that record levels of long-term unemployment will alter the U.S. job market for the worse for the foreseeable future. Bernanke said at a Senate Budget Committee hearing that the natural rate of unemployment — or the level of unemployment that results when the economy is supporting as many jobs as it can — has risen from about four percent in the early 2000s to more than five percent because so many Americans have been out of work for so long. In the process, they have lost skills and have become less likely to return to work. “We are concerned that over the past few years that there has been some modest increase in the sustainable long-run rate of unemployment,” Bernanke said. “I hope Congress will consider ways to address that problem.” Though the unemployment rate fell to 8.3 percent in January, many Americans have stopped looking for work and have therefore been pushed out of the workforce, perhaps permanently. The labor force participation rate fell in January to 63.7 percent — its lowest level since January 1982. More than 40 percent of those currently unemployed have been without work for more than six months, Bernanke noted. That’s roughly double the share during the housing boom of the early and mid-2000s, he said. That adds up to 5.5 million Americans who have been out of work for six months or more, not to mention three to five million more people who have dropped out of the labor force because they have given up looking for work. Bernanke said that the Fed’s Federal Open Market Committee estimates that the natural rate of unemployment is now between 5.2 and 6.0 percent. The actual unemployment rate in 2006 was just 4.6 percent, and in 2000 it was even lower at 4.0 percent, according to the Bureau of Labor Statistics. The long-term unemployed are in more danger of experiencing years of unemployment because it becomes steadily harder for a job-seeker to find work the longer they’re unemployed. Many employers ask for their applicants to be currently employed , a stipulation President Barack Obama is trying to make illegal. Firms also are less prone to hire the long-term unemployed because of the perception that their skills and professional networks deteriorate while they are out of work. Bernanke has previously warned about the prolonged economic harm of long-term unemployment. In September the Fed chairman called long-term unemployment a “national crisis.” “This has never happened in the post-war period in the United States,” Bernanke said in September. “They are losing the skills they had, they are losing their connections, their attachment to the labor force.” Bernanke said on Tuesday that the Federal Reserve can do only so much to bring down unemployment. “We’re only saying that monetary policy really can’t do much to bring unemployment in a sustainable way below those levels,” Bernanke said of the natural rate. Bernanke said that in order to bring down the natural rate of unemployment further, the U.S. government needs to focus on projects that provide the country long-run value, especially those focusing on education, worker skills, and research and development. “We don’t want to build useless monuments,” Bernanke said. With many more people no longer considered part of the workforce, Bernanke said that January’s 8.3 percent unemployment rate “no doubt understates the weakness of the labor market in a broader sense.”

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Foreclosure Settlement’s Deadline Passes

February 7, 2012

* Dozens of states meet deadline to join mortgage deal * Many states won’t comment about their participation * Deal faces another setback after banks balk at NY suit * California angling for more control over relief By Aruna Viswanatha and Karen Freifeld Feb 6 (Reuters) – A proposed mortgage settlement in the works for more than a year will move forward with more than 40 states joining the deal before a Monday deadline, Iowa Attorney General Tom Miller said in a statement. States had been given two weeks to assess a proposed settlement, under which top U.S. banks would pay up to $25 billion in exchange for resolving civil government lawsuits about misconduct in servicing home loans and pursuing faulty foreclosures. “The sign-on deadline for the proposed joint state-federal mortgage servicing settlement passed Monday with more than 40 states signing on. This enables us to move forward into the very final stages of remaining work,” Miller said. “Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement,” Miller added. Officials had hoped to announce a final settlement as early as this week. It is unclear if the Obama administration and a group of states will move ahead with a smaller settlement if holdouts continue to drag their feet. Some states and activist groups have been concerned the proposed deal would release banks from too many claims and does not provide enough relief to homeowners. California Attorney General Kamala Harris, whose participation would grow the size of the settlement by some $6 billion to $8 billion, was not expected to issue any statement on Monday, a person familiar with the matter said. On Friday, Harris told Reuters she was “less concerned with the timeline than the details” of the settlement. A New York lawsuit filed on Friday against JPMorgan Chase , Bank of America and Wells Fargo has also become a stumbling block, according to a person briefed on the negotiations. This person said on Monday that the banks are balking at a lawsuit from New York Attorney General Eric Schneiderman that accuses them of fraud in their use of the electronic mortgage registry MERS. The lawsuit is based on claims that were expected to be resolved through the settlement. The multi-state settlement talks are focusing on the three banks named in Schneiderman’s suit, as well as Citigroup and Ally Financial. Schneiderman has been a key opponent of the proposed settlement. However, Schneiderman said Jan. 27 that the liability releases in the draft settlement had become narrow enough so that a full investigation by a new mortgage crisis unit that he will help lead could move forward. Jennifer Givner, press secretary for Schneiderman, declined to comment on Monday. HOLD OUTS Other states continued to weigh the details until the last minute. In a statement, Nevada Attorney General Catherine Masto said her office is continuing to review the settlement and is advocating for improvements to address Nevada-specific needs. Masto sued Bank of America last year and accused it of violating an earlier agreement meant to resolve mortgage-related claims from its Countrywide unit, and lawyers for the office are in discussions about what impact the settlement will have on the lawsuit, people familiar with the matter said. A spokeswoman for Attorney General Tom Horne of Arizona said on Monday afternoon that Horne was still evaluating the settlement and “may decide by the end of the day.” Even Florida Attorney General Pam Bondi who has been on the committee negotiating the deal has not publicly committed to the settlement. A spokeswoman said in a statement that Bondi “remains involved in the settlement discussions in order to reach the best resolution for Floridians and all Americans.” And a spokesman for the attorney general in Massachusetts, Martha Coakley, who has been a critic of the proposed settlement, said her office would not have a comment on Monday. Coakley separately sued the same banks in December and accused them of deceptive foreclosure practices, but she has not ruled out joining the multi-state settlement. Her office has been in discussions to carve out certain foreclosure issues specific to her state, people familiar with the matter have said. In particular, Coakley does not want the settlement to allow banks to avoid a look back at past foreclosures after Massachusetts’ highest court voided two home seizures saying the banks failed to show they held the mortgages at the time they foreclosed. California’s Harris, too, has expressed state-specific concerns that the relief provided in the settlement go to those “most distressed” in her state, and has pressed for some certainty that the relief is regionally proportionate, according to people familiar with California’s concerns. The state has faced some of the worst foreclosure rates in the country. One in every 31 housing units in California received at least one foreclosure filing last year, according to RealtyTrac. Meanwhile, U.S. Housing and Urban Development Secretary Shaun Donovan has been pushing hard in recent weeks to close and sell the deal. He spoke to left-leaning bloggers in a conference call over the weekend to convince them of the merits of the settlement. Representatives of several other state attorneys general either declined to comment or did not respond to requests for comment.

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Dead Man Found In Foreclosed Home Four Years Later

February 6, 2012

Abandoned homes have become an increasingly common sight amidst a national foreclosure crisis. Yet what may lurk forgotten behind closed doors may be much worse than nothing at all. A Milwaukee real estate agent entered one such house last month after it was repossessed due to tax foreclosure — the government can foreclose on a home if taxes and subsequent fees are not paid off within a designated time period — to find a sight he’s not likely to forget soon. The body of the owner David Carter was found on the stairs in a “nearly skeletonized” state after being left there undiscovered for what investigators believe to be up to four years, The Daily Mail reports . Carter, whose friends and acquaintances described as “smart and generous,” even “funny,” quit his job as a nuisance control officer for the City of Milwaukee in 2007, telling co-workers that he planned to move to New Mexico, according to the Milwaukee-Wisconsin Journal Sentinel . Instead, it appears that Carter committed suicide. He was found with a bullet wound through his head and a handgun on his chest the day that he would have turned 45 years old. Sadly, Carter’s isn’t the first body to be discovered after a seemingly unfathomable amount of time. In England, creditors looking for unpaid bills found the body of a 38-year-old London woman in her rented room in 2006 nearly three years after she’s believed to have died . The episode is the subject of a forthcoming film, Dreams of Life , the research for which revealed that the woman was acquaintances with many influential members of London’s 80s and 90s pop music scene. In addition, police last year found an elderly woman’s body in a home in Sydney, Australia after she was believed to have died sometime around 2003 . Though Carter and others were found in their homes years after their deaths, the opposite situation — declaring someone dead prematurely — has also occurred. A Florida woman is currently suing her lender, JPMorgan Chase, after the bank mistakenly declared her deceased in 2010 , which she claimed ruined her credit score. Similarly, a veteran has had to prove his existence four times over in the past two years after the U.S. Department of Veterans Affairs stopped paying him his pension benefits on the grounds that he’s no longer living . One in every 627 Wisconsin housing units received a foreclosure filing in December 2011, according to RealtyTrac. In total, the state had the tenth most foreclosure activity of any state.

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K. Sudhir: Firing Customers to Flatten the Whale

February 6, 2012

It’s called the whale curve — a schematic representation of profit, replicated below. It illustrates, among other things, how 200 percent of profit can come from only 10 percent of customers. Fifty percent of customers might account for 250 percent of profit. And the bottom half of customers can actually bleed the profits of the firm. Innovation in accounting, called activity based costing of individual customers, has led to this important insight. What should a manager do with this insight? The more a firm can flatten this hump, the more it will profit from customers who do not bleed the firm. So the question stands: when should a firm fire a customer? An undeniably strange question, but certain types of customers can prove costly enough that the relationship is worth terminating, as Sprint somewhat infamously demonstrated in 2007. For example, A Netflix customer with a 7.99 plan who turns around as many as 10 DVDs per month; A bank customer who insists on visiting the bank multiple times a month and never uses ATMs or online services; A retail customer who buys numerous items with the intent to return most of them; A business customer who exploits free delivery to order small quantities and minimize inventory costs. There are a variety of solutions available in each case above. Netflix, for example, could slow down its shipment rate; or banks could spend time educating customers about online resources. Generally, firms might raise prices to account for the increased cost of specific customers. But the essential riddle remains whether or not these actions make sense for profitability. To examine these tradeoffs, I worked with my colleagues at the Yale Center for Customer Insights , Jiwoong Shin and Dae-Hee Yoon, to develop an economic model based on game theory that clarified the relationships between a firm and its customers and aided understanding of how to improve profitability by flattening the whale curve. We discovered first that most business-to-consumer markets, like direct marketing and online retail, are structured such that every customer tends to be profitable. There is no need to fire any customers because a firm does not spend differentially to serve them; there are essentially no unprofitably high-maintenance shoppers, except those that have a chronic habit of returning items after trying them out. Zappos is famous for the ease with which it facilitates returns, but can be successful only if most of its customers don’t make a habit of it. But in many business-to-business markets, as well as those business-to-consumer markets that demonstrate differential customer costs (as in the examples above), it makes sense to selectively raise prices for high-cost customers, offer lower prices for low-cost customers, and fire the customers who cost more than they expend. Interestingly, firms can even benefit from selectively firing profitable customers if the cost to serve them is also high. A common fear of winnowing the customer base is that the average cost will rise for the remaining customers because much of the cost of doing business (e.g., the staff, the office, etc.) remains fixed over the short-term. We find that this is an unfounded fear. Rather, as long as new and profitable customers come in to replace the old, firms will not only be able to cover the cost of doing business, but find it more profitable. Our modeling approach shows the usefulness of looking at the whale curve from a dynamic perspective, though traditionally accountants look at this model in static terms. Common practice often strives to expand a consumer base, with the intuitive understanding that more customers equal more profit. Unfortunately, intuitive in this case is not also accurate, and selective customer management can flatten the whale curve over time and increase overall profitability. Not bad when things are lean. It might just be time to hand out a few pink hued receipts.

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Daniel Burrus: How to Save the Manufacturing Sector

February 6, 2012

Like most industries, the manufacturing sector is transforming rapidly. Because of recent technological advances and globalization, U.S. manufacturing is facing intense international competition, increasing market volatility and complexity, a declining workforce, and a host of other challenges. Yet we know that in order to have a strong economy, we need a strong manufacturing base. So what’s the answer? Today’s manufacturers must transform along with the rest of the world by adopting six advanced next generation manufacturing principles. They are: Anticipate customer needs: Look at your customers’ future and focus on what you DO know rather than what you don’t know. Ask, “What are the hard trends, the things that will happen, versus the things that might happen? What are the industries that are converging around our customers that our customers currently don’t see?” Then you can start seeing both needs and opportunities before they happen. Innovate around the core: What are your core competencies? Are you still using your core competencies? In the past, manufacturers could go decades between innovations. That strategy doesn’t work anymore. Today you cannot just innovate now and then: to survive and thrive in a time of vertical change, you have to be innovating around your core competencies continuously . So what is your core, and are you using it? Focus on collaboration: Collaboration is much different than cooperation. Cooperation is based on scarcity and it contains within it the assumption that your interests and mine are inherently in conflict; however, we will temporarily set aside those cross-purposes to find some cautious tactical common ground. In contrast, collaboration is when we co-create the future together. It’s about working with everyone else, even your competitors, to make a bigger pie for all. It’s based on abundance and requires working together under higher levels of trust and connectivity. Pre-solve problems: The best way to avoid problems is to predict and pre-solve them. How? Use hard trends to look into the visible future and ask, “What are the problems that we can see based on anticipating customer needs?” Get that down to a short list that’s aligned with your core competencies. Then that’s where you focus because you can see which problems are coming. Additionally, look at your own company in the same manner to determine the problems you’re about to face. Solve them before they happen so they don’t occur in the midst of rapid change and transformation. That’s the only way to stay ahead of the curve. Inform and communicate: Informing is one-way. It’s static and doesn’t always cause action. Communicating is two-way. It’s dynamic and usually causes action. Social media is a good example of engagement in communication, which is why it’s spreading so rapidly and becoming a business tool. Next generation manufacturers understand that you don’t just inform; you also communicate, develop that strategy, and move it out internally as well as externally. Do continuous de-commoditization: The minute you come up with something new, a competitor will copy it. As they do so, your innovative product or service slowly becomes a commodity. The margins get thinner as time goes on. But instead of letting the margins get thinner and riding them down, you can wrap a service around a product or wrap a service around a service to add new value. You can think creatively about your product or service so you can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again. When you do continuous de-commoditization, you’ll find yourself with good margins and a growing business. In a competitive global economy that is becoming more tightly connected every day, U.S. manufacturers can no longer do things the way they’ve always been done. Adopting these next generation manufacturing principles is the only way to obtain the talents, capabilities, and resources necessary to build a highly effective enterprise that thrives in a global marketplace.

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Former Bank Of America Employee Picks New Fight With Banking Giant

February 6, 2012

WASHINGTON — Jackie Ramos, whose 2009 video detailing her termination from Bank of America became a viral hit, is back on YouTube with another bone to pick with the banking giant. Ramos, 26, recently posted a video titled “Bank of America Stole My House!” In the video, she says she lost her home following the death of her four-year-old son’s father, Tim Woods, last April. While the foreclosure process was still underway in mid-December, Ramos said the bank put locks on the home. Unfortunately for Ramos, her name was not on the mortgage. Further muddying the picture, she had already moved out of the Fairburn, Ga., home at the time of Woods’ death. According to Ramos, Woods purchased the home in 2008 after receiving a fixed-rate mortgage from Bank of America. But by the end of 2009, Woods and Ramos began to notice increases in their monthly mortgage payments. Eventually, Ramos said, the bank explained that the extra charges were premiums for a mortgage life insurance policy. According to Ramos, Woods agreed to keep paying for the insurance with the understanding that the policy would cover the balance on his loan in case of death. Ramos said she was listed as the beneficiary on this policy. “I was there when he spoke with Bank of America,” she told the Huffington Post. “They said, ‘Okay, we’ll enter into the paperwork so if anything happens, [the house] will go to her.’” At the time of Woods’ death, Ramos had moved out of the home and begun dating another man. On the night Woods died, Ramos said, Woods confronted her and her boyfriend. “He found out I was dating someone new and he attempted to harm both me and my friend,” Ramos said. Fairburn police told the Atlanta Journal-Constitution that the shooting occurred during a scuffle over a gun. Authorities had attempted to subdue Woods with a Taser before the gun went off. Police later determined Woods’ death was not considered the result of a “police-involved shooting” because the officer involved in the scuffle did not have possession of the gun, but Ramos says Woods committed suicide. Ramos said the bank then denied the existence of the policy and refused to speak to her because she and Woods had not been married. Woods, Ramos said, had no will and did not designate an executor of his estate. She is not on good terms with his family, who say the house shouldn’t go to her no matter what. She and her son have since moved into a home she purchased in September. In a statement to the Huffington Post, Bank of America declined to comment on Ramos’ case as a matter of policy. “Due to Bank of America’s privacy policy, we have not discussed the Borrowers Protection Plan or the loan with Ms. Ramos, because she is not a borrower on the loan,” said Bank of America spokeswoman Jumana Bauwens. “The Georgia State Probate court has appointed an Administrator for Mr. Woods’ estate and Bank of America has communicated directly with that Administrator … [we] cannot discuss the specific details of our customers’ benefit requests.” According to Bank of America’s Borrowers Protection Plan , “Suicide or intentionally hurting yourself” are not protected causes of death, nor is “Death that occurred during or as a result of breaking the law.” A former employee of Bank of America, Ramos was fired after taking a stand against what she felt were unfair lending policies. The video she made detailing her experience led to a story on the Huffington Post and an appearance on “The Daily Show.” “You guys stole my home, you guys stole my memories and you guys stole something from my four-year-old,” she says in the new video. “You guys are a bunch of crooks, and I will let everyone know.” Watch the video: Arthur Delaney contributed reporting.

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Amanda Feinberg: From EA to Anywhere: How to Get Promoted From Assistant-Level

February 6, 2012

We all dream of snagging a glamorous, high-paying job right out of college — not necessarily answering phones or scheduling meetings all day. But many of us do start our careers at the assistant-level, and if you think it’s a job that’s going nowhere, think again. I’ve found that starting your career as an executive assistant can be a great way to make connections, gain experience, and get promoted. All it takes is a little time, hard work, and willingness to step out of the box. Here’s how to make the most of your job as an assistant — and use it to get wherever it is you really want to be. See the Bigger Picture Your position as an assistant allows you to see an industry and a company at a higher level than many people in entry-level jobs get to. Use this to your advantage: Treat everything that comes across your desk as a learning experience. Take time to thoughtfully read the reports, projects, and memos that you handle. When you work with people from different departments, ask questions about what they do and what they’re working on. Think about career paths within the company you’d be interested in, and use your role to find out as much about them as you can. Be the Girl Everyone Wants to Know Depending on who you’re supporting, the exposure you get to people, places, and knowledge can be tremendous, and you can quickly become the person to know in the office. You have the authority to schedule meetings and make exceptions. You ultimately are the one who decides who gets face-time with the boss and who can wait in line. Use your power as the gatekeeper wisely. If you’re the reliable, responsive, and competent assistant everyone wishes they had, others will want to know you (or even poach you!). The more good contacts you can make, the better off you’ll be when you want to look for that next step. Prove Your Worth Chances are, your role will require you to frequently interact with a variety of people. Leverage this and offer to take on tasks outside your role to test the waters on different aspects of the industry or company. Ask to help with a project in an area that’s understaffed or to take the lead on a task no one else is keen on. Use your exposure to other teams as a key opportunity to augment your resume and to show your current boss and potential employers what you’re capable of. Become a Trusted Confidante Bottom line: Be the best employee you can be to your boss. You will likely be trusted with confidential projects or information — don’t betray that trust. Also, your role may occasionally blur the line between personal and professional — for example, selecting gifts for a spouse or family member, or helping out with a personal real estate acquisition. But instead of getting frustrated, look at it as an opportunity to become close with your boss — an opportunity that most people won’t get. If you think your boss is taking advantage and using you more as a personal assistant, then by all means, sound the alarm. But, start with the mentality that no task is too small or too big, and you’ll be seen as a team player. Working as an executive assistant can get you unique exposure to an industry and can be a great way to help set your career in motion. Think broadly, learn as much as you can, and establish a good relationship with your boss. The experience you gain can catapult you toward your dream job — or one you hadn’t even known about. This post was originally featured on The Daily Muse .

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Radcliffe: The Rich Should Subsidize Poorer People ‘Who Work Just As Hard’

February 6, 2012

Daniel Radcliffe has already defeated Voldemort. Now he’s moving on to the tax rates of one percenters like himself. The actor, best known for his starring role as Harry Potter and worth an estimated $47,448,000, said he’s dropping his support for the U.K.’s Liberal Democratic party in large part because of their stance on taxes , according to an interview with Attitude Magazine slated to be published this week, cited by the Guardian . “I think, if you make a lot more money than most people — like I do — you should pay more tax and subsidise people who work just as hard as you, but don’t earn as much,” Radcliffe said . Radcliffe joins some of his super-wealthy counterparts in the U.S. who are advocating for a tax boost on the wealthy, an issue that has become central to the presidential campaign. Warren Buffett first highlighted the issue in an August op-ed in The New York Times , where he argued that the super-rich should be taxed at a rate that is at least the same or higher as that of the middle class. Buffett’s proposal inspired President Obama to create the “Buffett Rule” and touted it as part of his American Jobs Act, as well as during his State of the Union address last month. Meanwhile, Republican front runner Mitt Romney fueled the debate over taxing the wealthy, when he revealed his 2010 tax returns after mounting pressure from opponents. Though Romney and his wife make hundreds of millions combined, they paid a tax rate that is the same as that of many middle class households. Many prominent super-rich Americans are taking up Buffett’s cause and arguing that tax breaks for the wealthy are unfair. Comedian Chris Rock said in an interview earlier this month that he’d be willing to pay higher taxes , while billionaire Microsoft co-founder Bill Gates said late last year that he’s “generally in favor of the idea that the rich should pay somewhat more” in taxes than everyone else. Other notable people to support higher taxes for the rich include former Federal Reserve chairman Alan Greenspan and the American people themselves. More than half of Americans say capital gains — or profits from investments and property — should be taxed at the same rate as work , according to a recent CBS/ NYT poll. The wealthy typically benefit most from capital gains.

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David Paul: Back to the Drachma: Time to Let Greece Be Greece

February 6, 2012

“The pace and composition of the deleveraging process needs to be consistent with the macroeconomic scenario of the adjustment program and should not jeopardize the provision of adequate levels of credit to the economy.” Thus spoke one European finance official this weekend, as one more confab of ministers from the eurohood gathered to assure the world that all is proceeding apace toward “a more balanced monetary union governance model and effective firewalls.” The tendency to speak in finance jargon–one is reminded of the incomprehensible utterances of Alan Greenspan–may suggest to some that they have the problem under control. However, the lack of frank discussion of the underlying issues suggests instead that they have a tiger by the tail and are making it up as they go along. Each week now brings new assurances that a deal is imminent, and yet as the weeks go by it is becoming harder and harder to imagine that after all of the complex negotiations, the end will not be more straightforward: Greece defaults and exits the eurozone. It may be inevitable, and it may be for the best. Maybe not for Germany, maybe not for the banks, but for Greece. The United States began as poorly structured fiscal union. The debts of the nation and the debts of the states were comingled and the boundaries of responsibility poorly defined. Like Europe, the United States is a federation with a single currency and centralized monetary policy, but with fiscal authority retained at the state level. And early on, there were periods of fiscal crisis that were first resolved with the federal government assuming the debts of the states. But it was only after state defaults on their own debts that long-term stability was achieved, as new working rules–established under state constitutions–were established that clearly delineated the responsibilities of the states and of the central government. Europe–or more precisely the eurozone–was created with similar failures to define boundaries of responsibility. It is not surprising that nations bound together with a common currency, but each retaining spending authority, would find themselves subject to fiscal pressure. This problem was exacerbated by the implied debt guarantees that allowed each state to borrow freely, while giving the banks and other investors little incentive to make credit decisions reflective of each country’s management of its fiscal affairs. The European experience mirrors the experience of nations that have pegged their currency to the dollar. There are benefits of maintaining a common currency, but the peg cannot be sustained if a nation fails to manage their affairs–such as was the case of Argentina–or if they outperform the nation to which they have pegged their currency–such as Taiwan and Singapore. In either cases, market forces will exert pressure over time to move away from the peg and allow their currency to depreciate or appreciate until a new balance is achieved. Greece is the Argentina of Europe, and enjoyed the benefits that access to a common currency offered, until it was no longer able to pay its bills. Argentina finally defaulted a decade ago, but not before its families of means squirreled their pesos away in dollars stashed in foreign banks–much as Greeks are doing today. There was no impediment to Argentina’s ultimate default. The currency market did for Argentina all of those things that are being demanded of Greece today. Everything was adjusted downward in real terms. Salaries and pensions–public sector and private alike–funding public services. The population became poorer, their futures cast into doubt, but unlike Greece, no public official had to cast a ballot. Each week, the Germans–along with their junior partners in France–are putting the hammer to the Greeks. Cut public sector spending. Cut worker salaries. Cut pensions. Sell the airports and trains. And this week demands to cut private sector salaries by 25%. Now, German ministers have taken the final, inevitable step and suggested that Greece must have a fiscal overlord to set budgets and spending levels. While the world has focused on Greece’s failures–with the implication that it was German beneficence that allowed Greek participation in the euro in the first place–it is easy to lose sight of the fact that Germany has been the greatest beneficiary of the creation of the eurozone. The advent of the common currency eurozone with 330 million people created a massive, captive market for the German export machine. After China and ahead of the United States, Germany is the second largest exporting nation on earth, and the bulk of what it sells is to other European countries. There are no innocents in this morality tale. All those Greek bonds and Italian bonds and Spanish bonds and other bonds that are now at risk were issued to sustain an economic bubble of consumerism from which German exporters were among the largest beneficiaries. If Greece lied on its application for admission, the Germans had good reason to look the other way. Those who have benefited from the euro want it to survive this crisis. Failure is not an option –insisted European Central Bank member this weekend. It is not an option for Germany, whose currency would skyrocket if the eurozone nations went their separate ways, punishing its export-dependent economy. It is not an option for France, for whom the euro is the key both to containing the German colossus with which it has fought several wars and to creating a counterweight to U.S. global power and prestige. It is not an option for China, that badly needs an alternative currency to the dollar for its massive foreign currency holdings. And then there are the financial imperatives of achieving an orderly unwinding of the exposure of the European banks to Greek default risk. Each week, we are assured, a deal to restructure Greek debt–theoretically averting a default–is almost done. The parameters of such a deal are not in question. The banks holding Greek bonds would write off more than half of the value of their bonds against their fictitious capital reserves–fictitious because those reserves have been invested in sovereign euro-denominated bonds, among which are these very same Greek bonds. Hedge funds will be strong-armed into accepting the same deal, though their write-offs will be against their own–rather than other people’s–money. But essential to the suggested resolution would be the forbearance by the ISDA–the International Swap Dealers Association–in pronouncing that no “credit event” has taken place, such that those same banks will not have to pay out on credit event losses as the sellers of credit default swaps against those same Greek bonds. Such an outcome would seem to be unlikely based on the merits, but in a world that has dangerously comingled the financial and the political, anything is possible. For all of this–to sustain the illusions that are Europe and the stability of its banks–all that is asked of Greece is that it voluntary cede its powers of democracy and self-determination. Yes, Greeks can still elect their leaders, but those leaders will no longer control the destiny of the nation. But even if a default by Greece on its March 20th bond payment is diverted, nothing will actually have been solved. At best, a new package of loans will be arranged, and the default will be delayed until some later date. This solution is backwards. Instead of affirming Greece’s responsibility for its own choices, it will have been stripped of its sovereignty. Instead of having to face up to the challenge of building its own future with real rules–as ultimately each nation must–it will move forward instead as a vassal state to its Franco-German overlords. Perhaps it is time to gather those ministers and elected leaders into a room and tell them to go home. For all of their sakes, perhaps it is time that they open their eyes and let Greece be Greece. Better now than later, because all is not proceeding according to plan. Because there is no plan. They are just making it up as they go along.

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Connie Dieken: Influencer of the Week: Cancer-Conquering Super Bowl Linebacker

February 5, 2012

The All American linebacker with the crazy face paint — that’s how Mark Herzlich was defined during his stellar football career at Boston College. Then came cancer . Doctors hoped to redefine the 2008 Atlantic Coast Conference Defensive Player of the Year as Mark Herzlich, cancer survivor. Finished with football, yet alive and well. But Mark disagreed. He had a goal. Always ambitious, he was still determined to become Mark Herzlich, NFL linebacker. Cancer be damned. He’s my Influencer of the Week because he inspires and models this mindset: A goal is a dream with a deadline. After his devastating diagnosis of Ewing’s Sarcoma, Herzlich set a deadline: September 4, 2010. That’s the date when he would beat his rare form of bone cancer. That’s the date when he’d get back on the field at Boston College. Not only did he accomplish that goal, but he set and reached another goal, and another. That’s why he’s now Mark Herzlich, New York Giants linebacker. Mark Herzlich, Super Bowl player. Turns out, the former face paint fanatic was not so crazy, after all. A goal is a dream with a deadline. Have you set a deadline to make your dreams come true?

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Super Bowl: Microbrews Make A Run At Big-Time Beer Makers

February 5, 2012

By David K. Randall Feb 3 (Reuters) – Beer and football: it’s one of those perfect combinations, like peanut butter and chocolate. Super Bowl Sunday is the eighth-largest day for beer sales in the United States, according to the Nielsen Co. Most of the estimated 49.3 million cases sold will be consumed at home or a living room party, not at a bar. That large in-home audience for American football’s annual championship game this Sunday is part of the reason the broadcast has long been prime real estate for beer commercials featuring everything from talking frogs to glass bottles playing quarterback. But investors shouldn’t be fooled by the clever advertising from big-time beer makers touting brands like Coors Light and Budweiser. Those names might be dominant on the airwaves, but space in the refrigerator is increasingly going to specialty beers. The U.S. beer market is in the midst of a transition. Smaller, craft brewers are taking market share from global giants like Anheuser Busch InBev, which has a 47 percent share of the U.S. beer market. These smaller companies target discerning, and often affluent, customers who are the foodies of the beer world. The message is resonating. While sales of traditional names have fallen by as much as 2 percent since 2009, revenue in the craft brew segment has grown by double-digits, according to Beer Marketer’s Insights, a trade publication. How to play a shifting beer market. GO SMALL, BUT HEDGE Craft brewers are a concentrated bet on higher-end U.S. consumers. The majority of their sales come from the domestic market. Typical buyers of craft beers are frequently Whole Foods customers. Concerned more with quality than convenience, they are willing to pay more for what they believe is a superior product. They tend to be older than 30, employed as professionals and earn higher-than-average salaries. The core audience for traditional products distributed by global beer companies, meanwhile, is 21 to 30 year old men, a demographic that has been hit harder by unemployment since the recession ended in 2009. Though prices differ by region, craft brews tend to be more expensive than bigger brands. A six-pack of Coors Light bottles goes for just under $7 in the New York area; a similar pack of seasonal Sam Adams for about $9. Boston Beer Company, the brewer behind Sam Adams, is the most efficient option for tapping into the craft brewery trend. It is the biggest small company in the marketplace, with a share of about 1 percent of the total U.S. beer market. Analysts like Boston Beer in part because it is small, but growing at a time that customer tastes are changing. “Consumers have been willing to try and embrace new and interesting beverages and change long-held daily habits,” noted Marc Riddick, an analyst at Williams Capital Group, in a Jan. 30 report. Riddick rates the company an outperform. Still, it is more expensive than the average stock, trading at 23 times earnings. The broad Standard & Poor’s 500 index trades at about 13 times earnings. And shares are down about 5 percent since the start of the year, on investor concern about the effect of high commodity costs on the company’s margins. Barley cost pressures are estimated to add more than $8 million in incremental cost, according to the company. Investors can hedge a bet on Boston Beer by picking up a commodity-focused fund that would benefit from a jump in barley prices. The $427 million Elements Rodgers International Commodity Agriculture ETN (RJA), for instance, holds futures contracts for some 22 products, including wheat, barley and oats. The fund charges 75 cents per every $100 invested. The Craft Brew Alliance, a smaller brewing company in the Pacific Northwest, is another bet. It has less than 0.6 of the total beer market, analysts said, but could be a takeover target for a larger company looking to expand its reach. PLAYING DEFENSE Global brewers are also taking steps to go smaller. Anheuser Busch InBev, for instance, purchased Chicago’s Fulton Street Brewery last year for $38 million and will continue to distribute its popular 312 Urban Wheat Ale. Molson Coors Brewing and SABMiller, meanwhile, signed a joint venture in 2007 called MillerCoors. One of its divisions, called Tenth and Blake, markets and sells craft brands. Tenth and Blake’s sales increased by 17.2 percent in its last quarter, driven by increased sales of Blue Moon and Leinenkugel’s. “These mega beer companies really depend on the success of their brands like Coors Light and Bud Light,” said Thomas Mullarkey, an analyst at Morningstar who covers the beer industry. “But they want success at the craft level too. By buying small, they can put their tremendous distribution networks to work and add to their competitive advantage.” Larger brewers also offer another benefit: dividends. Anheuser Busch InBev, trades at a P/E of 20 and has a dividend yield of 1.7 percent. SABMiller trades at a P/E of 23, with a dividend yield of 2.4 percent. Diageo, parent of Guinness and several liquor brands, has a 3.14 percent dividend yield. Only a few funds offer specialized bets on the beer market. The $82 million Vice Fund offers perhaps the best alternative, though it comes with a hefty price tag of $1.81 per every $100 invested. The fund concentrates its bets on so-called sinful markets of alcohol, tobacco, gambling and weapons manufacturers. Diageo, SABMiller and Carlsberg are among its top holdings. The fund is up an annualized 0.5 percent over the five years, slightly more than the 0.1 percent return of the S&P 500 over the same time. (Reporting By David Randall; Editing by Jennifer Merritt and Steve Orlofsky) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Car Prices Expected To Go Up If Economy Improves

February 5, 2012

LAS VEGAS — Car buyers will likely pay more for new and used cars this year as the economy improves. That’s according to the National Automobile Dealers Association, which predicts the average price of a new car will rise 6 percent to $30,000. Used prices will jump as much as 8 percent for pickups and SUVs. The average price of a used small car, like the Honda Civic, will increase 1 percent to $9,475. More people are expected to splurge on new luxury cars as the economy improves. By contrast, used cars are in tight supply because so few people bought cars during the recession. NADA chief economist Paul Taylor expects U.S. vehicle sales to rise 9 percent to 13.9 million this year. New products and low interest rates should help boost sales.

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IRS Offering Free Tax Help For Modest-Income Earners

February 5, 2012

— Tax laws are so complex many taxpayers don’t feel comfortable filing out their own returns, but getting professional help can be expensive. Believe it or not, the Internal Revenue Service wants to help. In addition to its online Free File service, which offers name-brand software at no cost for taxpayers with adjusted gross income of $57,000 or less, the IRS sponsors programs that bring together trained tax preparers and those who need help with their returns. The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs both operate in conjunction with local governments and social service agencies, libraries and other community organizations to make the help easy to access. _ The VITA program VITA features IRS-certified volunteers who provide free basic income tax return preparation to qualified individuals, mainly those who earn $50,000 or less. The volunteers can help make sure taxpayers don’t overlook special credits, such as the earned income tax credit, child tax credit, and credit for the elderly or the disabled. Most VITA program sites offer free electronic filing, which helps speed up the refund process. _ The TCE program TCE offers free tax help for everyone, but its main focus is people over 60. The volunteers specialize in questions about pensions and retirement issues unique to seniors. IRS-certified volunteers who provide tax counseling are often retired individuals associated with non-profit organizations like AARP, which receive grants to offer the service. For both programs, taxpayers must bring the following to get their returns prepared: _ A picture ID _ Social Security card or individual taxpayer identification numbers for the filer, spouse and all dependents _ Wage and earning statement(s) Form W-2, W-2G, 1099-R and 1099-Misc from all employers _ Interest and dividend statements from banks (Forms 1099) _ A copy of last year’s federal and state tax returns, if available _ Proof of bank account routing numbers and account numbers for direct deposit, such as a blank check _ Total paid for daycare and the daycare provider’s tax identifying number, if appropriate _ If a couple wants to file electronically as married-filing-jointly, both spouses must be present to sign the required forms. SELF-ASSISTANCE Some of the VITA and TCE program locations may also offer guides to help taxpayers use the self-assistance services, which are provided for those who need only a little help or simply need access to a computer. IRS-certified volunteers are on hand to answer questions that arise as the individual is preparing their own returns. NON-IRS SERVICES Local banks and tax-prep companies may also provide free help. KeyBank, for example, is offering free tax prep on Saturday in 16 cities to taxpayers who qualify for the earned income tax credit. To qualify, earned income must be less than $43,998 with three or more children (or $49,078 for married couples filing jointly). Parents of two children must have earned $40,954 or less ($46,044, married, filing jointly). With one child, the threshold drops to $36,052 ($41,132, married, filing jointly). The bank requires the same paperwork and forms as the IRS programs. KeyBank is offering the service in: Denver; Indianapolis; Portland, Maine; Albany, Buffalo, and Syracuse, N.Y.; Akron, Canton, Cleveland, Dayton and Toledo, Ohio; Beaverton, Portland and Salem, Ore. and Seattle and Tacoma, Wash. Free preparation of simple returns is also available at Walmart stores nationwide. H&R Block is also offering free simple return prep at its storefronts through the end of February.

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Goldman Sachs CEO Nets Smaller Bonus Than Last Year

February 4, 2012

Feb 3 (Reuters) – Goldman Sachs Group Inc awarded Chairman and Chief Executive Lloyd Blankfein a $7 million restricted stock bonus as part of his 2011 compensation package, according to a regulatory filing on Friday. The payout is less than the $12.6 million restricted stock award Blankfein received last year. Goldman’s earnings declined 67 percent and its stock declined 46 percent during 2011. Blankfein also received a base salary of $2 million during the year, bringing his total pay to at least $9 million. Four other top executives including Chief Operating Officer Gary Cohn, Chief Financial Officer David Viniar and Vice Chairmen Michael Evans and John Weinberg received the same restricted stock bonus as Blankfein, according to Form 4 filings with the U.S. Securities and Exchange Commission. Altogether, Goldman awarded seven senior executives and nine board members $40.5 million for their work in 2011. The bonuses came in the form of 356,685 restricted stock units on Wednesday, when the closing price was $113.45. Since then, Goldman shares have risen 3.6 percent to close at $117.53 on Friday. The restricted stock units will convert into common Goldman shares in three equal installments through 2015, but cannot be sold for five years.

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In Wake Of Blocked Deal, NYSE CEO Says ‘Mega-Mergers’ Unlikely In Near Future

February 4, 2012

* Says exchanges likely to return more capital to holders * Does not think CME Group would try to acquire NYSE * NYSE Euronext likely to make more technology acquisitions By John McCrank ORLANDO, Feb 3 (Reuters) – NYSE Euronext plans to focus on smaller deals and returning capital to its shareholders after its failed $7.4 billion merger with Deutsche Boerse, the company’s chief executive said on Friday. “I would not expect us, nor anyone else in the industry, to do a mega-merger any time soon,” said Duncan Niederauer, chief executive of NYSE Euronext. “I think everyone is going to kind of take a pause and reassess the landscape. European anti-trust authorities on Wednesday blocked the merger, which would have created the world’s biggest stock exchange operator, making it the fourth among a series of large exchange deals to be blocked over the last year. The European Commission blocked the deal, which had already been approved by U.S. regulators, saying that the combined entity’s “near-monopoly” would make it hard for new players to compete. “This (merger) was a game changer,” Niederauer said at TD Ameritrade Institutional’s national conference in Orlando. “It made a lot of sense. It didn’t happen. Now, I don’t think the next thing I should be going to shareholders with is another great cross-border mega-merger.” He also said he does not think CME Group, the biggest U.S. futures exchange operator, would make an attempt to try to acquire NYSE Euronext or Deutsche Boerse, as it is unlikely those deals would get consummated. CME on Thursday surprised investors with a sharp increase in its dividend, as well as an annual payout. Niederauer called the move “really interesting” and said that other exchanges would likely follow suit. “I think everyone is going to say, ‘maybe we should just distribute more of the money to shareholders and run kind of a slightly lower-growth, more utility-like model.’” Niederauer said that five of NYSE Euronext’s past six acquisitions were technology assets and that he expects the company will do more such deals as it continues to diversify its asset base. The parent of the Big Board reports its quarterly results next Friday, and Niederauer said he would address three issues on the conference call to discuss the results: The company’s cash management strategy – it recently said it would proceed with $550 million of share buybacks that had been on hold during the merger talks; the running of the business and the expense base of the core company; and NYSE Euronext’s post-trade business in Europe and other new initiatives. “I expect to be held accountable for all of that in the conference call next Friday,” he said.

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The Stock Rally That Nobody Believes Hits New Highs

February 3, 2012

The stock market’s recent wild run is like one of those mass UFO sightings: Everybody sees it, but nobody believes it. The Dow Jones industrial average closed Friday at 12,862.23, jumping 156.82 points to its highest close since May 2008, back when Lehman Brothers was still a going concern. The Nasdaq composite index jumped 1.65 percent to 2905.66, its highest close since December 2000 — that’s almost within shouting distance of the peak of the tech-stock bubble. The broader S&P 500 index, which probably makes up the biggest chunk of the average person’s 401(k), jumped 1.5 percent to 1,344.90, but has no sexy historical comparison to brag about. It’s still a little lower than it was last July. Nevertheless, this is a big rally, resulting a 16 percent rise of the S&P since Thanksgiving, and it has been driven largely by better-than-expected economic data, the biggest of which was this morning’s jobs report for January. We at The Huffington Post did as much context-placing as we possibly could with that report, reminding people of the millions still out of work and the depths from which the economy still has to climb . But as single economic reports go, it was a good report. Some on Wall Street even think it’s a game changer, the signal of a new phase in the recovery. Of course, head fakes have appeared before: Eonomic data improved dramatically early in 2011, too, before Japan’s earthquake and Europe’s debt-quake brought the recovery to a screeching halt. Meanwhile, corporate profits in the fourth quarter have not been the strongest , particularly if Apple’s surprisingly strong results are excluded. And Europe still has the potential to disrupt everything. Greece still hasn’t reached agreement with its private creditors, and Portugal’s sovereign debt is increasingly under pressure. Such concerns have kept many Wall Street analysts from believing in the rally, trading volumes light and many retail investors from throwing cash at the rising market. Mutual fund investors have tiptoed back in the past three weeks, putting more than $2.1 billion into equity mutual funds during that time, according to the Investment Company Institute. But that follows two weeks with investors yanking nearly $14 billion out of stock funds. That has been the pattern for much of the past three years: Stocks have had hair-melting rallies, and mutual-fund investors have been reluctantly dragged back into the market. Will mom-and-pop investors be a little more willing to believe this time?

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Tim Geithner: ‘No Credible Evidence’ Dodd-Frank Act Hurting Economy

February 3, 2012

In many ways, it’s too early to pass many judgments on Dodd-Frank. U.S. financial regulators said in a report released on Thursday that it is still “too early to determine” whether differences in financial rules across borders will pose a threat to economic stability. The report, written by the Securities and Exchange Commission and the Commodities Futures Trading Commission, noted nonetheless that the two agencies are working “to analyze requirements and to coordinate regulatory proposals to the greatest extent possible.” Some investors have threatened to move to countries with the most flexible rules, similar to the race to the bottom often seen among corporations looking to pay both workers and governments less, according to the Financial Times . On the same day, Treasury Secretary Timothy Geithner argued it’s too early to tell if Dodd-Frank financial reform, a punching bag for Republican presidential candidates and financial industry advocates alike, has hurt the economy. “There is no credible evidence to support the argument that these reforms are having a material negative effect on the ability of the economy to recover and grow,” Geithner said, according to Politico . “In fact, the evidence is overwhelmingly the opposite.” Geithner then turned the criticism around at Dodd-Frank critics, arguing they themselves are increasing financial uncertainty. “Those who are working to slow the pace of reform will only increase uncertainty, and they will damage our efforts to try to get the rest of the world to adopt a level playing field,” Geithner said, according to Bloomberg News . The financial industry has spent large sums of money to try to water down the implementation of the Dodd-Frank Act. Many major banks, including Goldman Sachs, JPMorgan Chase, and Bank of America, have lobbied Congress to grant exceptions to trading derivatives abroad. Financial institutions spent more than $150 million on lobbying for the second year in a row in 2011, as their focus shifted from Congress to the regulators themselves. Republican presidential candidates have almost unanimously supported the repeal of Dodd-Frank. Mitt Romney on his website called it a “burden” on the economy, and Newt Gingrich labeled the bill “a regulatory Tower of Babel that is paralyzing the American economy.” Wall Street is bracing for a leaner new era, partly because of oncoming regulations. Altogether, the global financial services industry slashed more than 200,000 jobs last year, according to Bloomberg News. And Citigroup, for one, is shutting down its proprietary trading desk as it anticipates the implementation of the Volcker rule, a regulation meant to curtail banks’ ability to make risky bets with their own money. Most major banks — including Goldman Sachs, Citigroup, Morgan Stanley, and Bank of America — have handed out more modest bonuses for 2011 as they anticipate lower profits, partly as a result of new financial regulations.

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Robert F. Brands: Top Ten Tips for Selling Your Idea to Executives

February 3, 2012

Besides possessing creativity and resilience, the best innovators are the ones who can effectively communicate and “sell” their ideas to upper management. Innovators often have to get executive approval for support on a new product or venture. No matter how good an idea is, it will not sell itself. The most important aspect of communication is to know your audience. In the case of an organization, know the structure, who the decision maker is, and who their influencers are. An innovator must speak the “executive language” to effectively communicate with the high-ups. This entails knowing and understanding what is important to them — what is the ROI (Return on Investment) and the goal to be achieved? By highlighting how your goals are aligned with that of the organization’s, you are much more likely to receive favorable results. Here are top tips for communicating and “selling” your idea to executives. 1. Do your homework. Gather as much information as possible beforehand to have full command of the facts and be able to answer questions with authority. Know the interests of those you are speaking to, and cater the message to them. 2. Open with your conclusions . This is a brief summary of your idea. Let your senior level audience know upfront why you are there. Don’t keep them guessing on your intentions. 3. Define the need. Identify that your innovation meets a need in the marketplace — that it will solve an existing problem. 4. Describe the benefits of your innovation. Make these benefits clear and obtainable. 5. Describe the costs, but frame them in a positive light. If possible, show how alternative methods will cost even more. 6. Request a commitment. Make it clear what next steps you are asking top management to take. This may include funding, hiring new staff, capital or providing necessary facilities to support your innovation process. 7. Be specific. List concrete recommendations that focus on ROI. 8. Look everyone in the eye when you talk. You will be more influential and believable – you must refrain from reading! 9. Be brief . Time is valuable, so make your point persuasive and concise. 10. Show that you can deliver. Prove that your idea will be a winner by providing any evidence in the beginning. Later you will show this by meeting deadlines and sharing small successes along the way with senior management as well as the rest of the organization. Each discipline has its own vernacular, and by now you may have realized that top management speaks a different language. It only takes two levels up to speak a different language. By speaking the right “executive language” and communicating your objectives persuasively and concisely, you’ll be much more likely to gain support for your innovative ideas. For more information, ” Robert’s Rules of Innovation ” offers real life examples of successfully bringing innovation to market, improving product development processes, and engaging the needed culture to sustain Innovation. Or visit www.innovationcoach.com

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Corporate Taxes As Percentage Of Profits Now Lowest In Decades

February 3, 2012

As a percentage of ever-growing profits, corporations are paying less in taxes than they have in decades. Thanks in part to federal tax breaks, corporations paid out just 12.1 percent of their 2011 profits in taxes, according to the Congressional Budget Office. That’s well below the country’s top marginal corporate tax rate of 35 percent — and as The Wall Street Journal notes, it’s the lowest percentage corporations have paid since 1972 . During the two previous decades, a period that included the economic prosperity of the 1990s and the housing boom of the George W. Bush administration, corporations were paying an average percentage almost twice as high. The CBO’s numbers undercut a popular conservative claim — that the United States places a higher tax burden on its corporations than almost any other first-world nation — and arrive at a time when national politicians are engaged in a fierce rhetorical battle over how much wealthy institutions and individuals should pay to the government. Corporations reported a combined $1.97 trillion in profits in the third quarter of 2011. As recently as June, they were also believed to be sitting on more than $2 trillion in cash hoardings . Most of that money has not been touched by taxation, even though the federal government has experienced budget shortfalls of more than $1 trillion for each of the past four years, and is scrambling to cut back on staff and services as a result. Meanwhile, the money isn’t going to employees either, as real wages for most Americans declined in 2011 in spite of strong corporate balance sheets. There are any number of methods available to a firm looking to avoid paying the full tax rate. Companies can take advantage of industry subsidies, restructure their operations so as to sidestep certain taxes, and offer workers payment in the form of stock options, which then allows the company to claim a greater deduction. Many companies also move assets overseas where they can’t be taxed. In 2008, 2009 and 2010, thirty major U.S. corporations, including General Electric, Boeing, Verizon and Wells Fargo, used so many tax-avoidance techniques that they ended up paying no income taxes at all , according to a report last year from Citizens for Tax Justice. President Obama has denounced low corporate taxes in specific instances while at the same time downplaying the importance of raising the corporate tax rate itself . The president is said to be planning a major revision of the corporate tax code sometime in February. Meanwhile, much of the country continues to struggle financially, with nearly 13 million people looking for work , 49 million people officially in poverty , and almost half of households lacking the kind of savings they would need in an emergency .

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MF Global’s Regulator Says Oversight Was ‘Flawless’

February 3, 2012

The hubris of financial industry titans truly knows no bounds. The chairman of the derivatives exchange that had oversight of bankrupt hedge fund MF Global raised some eyebrows on Thursday morning when he told analysts on a conference call that self-regulation worked “flawlessly” in that case . When Matthew S. Heinz, an analyst with Stifel, Nicolaus & Co., asked CME Group chairman Terry Duffy and CEO Craig Steven Donohue a standard question about whether they had learned any lessons from the MF Global debacle, the executives got defensive. Duffy claimed that CME’s self-regulation “worked flawlessly,” adding that “we did the right things and the answers for the Congress, where others we’re seeing they don’t know what happened to the money.” In the wake of MF Global’s collapse, regulators have questioned whether CME Group could have done more to safeguard over $600 million in missing customer money. The Commodity Futures Trading Commission does not police futures commission merchants like MF Global and has to rely on self-regulatory organizations (SRO) like CME for oversight. CFTC chairman Gary Gensler is skeptical of the SRO system and has ordered a review of how futures brokerages are regulated, Reuters reported Wednesday. Duffy has vigorously defended CME’s role, saying that his examiners noticed problems with MF Global’s segregated customer account days before the bankruptcy — though it failed to report those concerns immediately to the CFTC. The CME boss seems to have a fondness for certain adverbs — in a video last year , Duffy said that the futures and options markets “function flawlessly” for their customers coping with the financial crisis. Obviously not so flawlessly, since CME Group announced on Thursday that it would establish an insurance plan to cover up to $100 million in losses suffered by farmers and ranchers in the wake of another bankruptcy. But, as The New York Times ‘ Ben Protess noted , the plan is “largely symbolic,” since farmers and ranchers represent a tiny slice of the futures market and the fund will not cover losses related to MF Global’s implosion. Will the SEC Friend Facebook’s IPO? Regulators won’t friend the Facebook IPO until they ensure that the social networking giant is making all of the proper disclosures of material information to potential investors. Securities and Exchange Commission staffers will be poring over the company’s S-1 filing in the next few weeks and months to see how it makes its billions. The three top areas of concern, Santa Clara University law professor Stephen Diamond tells Corporate Counsel , are “(1) whether or not the company’s financial records are presented accurately; (2) the presentation of risk factors, such as the capital structure of the business; and (3) the description of the business.” Could Wall Street Criminals Face Longer Prison Sentences? A little-noticed proposal based upon a requirement buried deep in the Dodd-Frank Act could lead to stiffer sentences for financial fraudsters, financialfraudlaw.com reports . On Jan. 19, the U.S. Sentencing Commission proposed changes to current guidelines for financial fraud, insider trading and securities fraud that could lead to more time behind bars — for “sophisticated insider trading,” two points will be added to the “base offense level” (the starting point for establishing criminal sentences), and four points for top-level executives such as officers or directors who engage in such fraud. Bill Kelleher, a lawyer at Robinson & Cole, told the site: If adopted, these changes may dramatically increase sentences for the specific defendants to which they apply and continue the recent trend of stiff sentences in significant cases of securities fraud, insider trading and financial institution fraud. The changes will also likely give federal prosecutors more leverage to obtain guilty pleas and to foster cooperation from other defendants, which assistance is often key in making these types of charges stick due to the nature of the conduct. Quick Hits * Wall Street Wins Again: The Securities and Exchange Commission routinely lets the biggest firms on Wall Street avoid sanctions that apply in fraud cases, according to an analysis of agency documents by The New York Times . * The former global head of Credit Suisse’s CDO unit charged with fraud by federal prosecutors — Kareem Serageldin — has actually been cooperating with the feds and regulators in the UK for four years, his lawyer says . * Former federal air marshal Robert MacLean was fired for blowing the whistle on the Transportation Security Administration’s plan to cut costs by removing air marshals from flights. Even though many lawmakers praised him and the agency fixed the problem, the U.S. Merit Systems Protection Board sided with his retaliators. He has one last appeal — to sign a petition urging members of Congress to defend MacLean, click here . * Linguists hired by the Dallas field office of the Drug Enforcement Administration were not properly certified, according to the Justice Department’s Inspector General.

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Why We’re More Unequal Than You Think

February 3, 2012

Imagine a giant vacuum cleaner looming over America’s economy, drawing dollars from its bottom to its upper tiers. Using US Census reports, I estimate that since 1985, the lower 60 percent of households have lost $4 trillion, most of which has ascended to the top 5 percent, including a growing tier now taking in $1 million or more each year.1 Some of our founders foresaw this happening. “Society naturally divides itself,” Alexander Hamilton wrote in The Federalist, “into the very few and the many.” His coauthor, James Madison, identified the cause. “Unequal faculties of acquiring property,” he said, inhere in every human grouping. If affluence results from inner aptitudes, it might seem futile to try reining in the rich.

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The Problem With The Profit Motive

February 3, 2012

The Financial Services Roundtable, the lobbying group for the biggest financial companies in the U.S., has a new “white paper” out with the rah rah title, “Financial Services: Safer & Stronger in 2012.” A few of the bullet points:

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If You Lose Your Job, A College Degree May Not Protect You

February 2, 2012

College graduates and advanced degree holders, once they are unemployed, are as vulnerable as high school dropouts to long-term joblessness, a new study has found. Thirty five percent of unemployed college graduates and those with advanced degrees have been without a job for more than a year, the same rate as unemployed high school dropouts, according to a Pew Research Center study published Wednesday. In fact, the long-term unemployment rate, for those 25 and older without a job, is nearly the same across all levels of educational attainment, the report says. “A slowly rising number of job vacancies…hurts people regardless of their educational attainment,” said Gary Burtless, labor economist at the liberal think tank Brookings Institution. Nonetheless, he added: “Relatively speaking, there’s still a payoff to going to college. The college degree still has some vaccination effects against becoming a long-term unemployed person.” Indeed, getting a college degree is a good bet for avoiding unemployment in the first place. The unemployment rate of college graduates who are at least 25 years old is just 4.1 percent, according to the Bureau of Labor Statistics. In contrast, 13.8 percent of high school dropouts, 8.7 percent of high school graduates, and 7.7 percent of college dropouts are unemployed. The percentage of the labor force that faces long-term unemployment is at a record high of 2.8 percent, according to the Pew report. Thirteen million Americans are unemployed, 4 million (or 31 percent) of whom have been unemployed for more than a year. Republicans and Democrats have clashed frequently over federal unemployment insurance ever since the unemployed first became eligible for 99 weeks of benefits at the end of 2009. Once Americans are out of work for more than a year, they face a slew of challenges. Even in the most generous states, unemployment insurance benefits do not last longer than 99 weeks . When the long-term unemployed lose government benefits, the anxiety can be crushing . The long-term unemployed also often face job discrimination, as many employers prefer to hire workers with fresh experience. A number of employers require job applicants to be “currently employed” in order to be considered for a position .

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Ramon Nuez: Using YouTube Interactive Videos to Drive Customer Engagement

February 2, 2012

When Chad Hurley, Steve Chen, and Jawed Karim founded YouTube back in 2005 — the trio simply wanted to create a better way of sharing videos. So from its inception, YouTube, has been a social tool. A tool that not only allows for the sharing of cat videos but allows businesses to market their latest products. Over the past 7 years, YouTube has evolved exponentially. I remember the very first video shared by Jawed Karim — Me at the Zoo. It was uploaded at 8:27p.m. on Saturday April 23rd, 2005. It’s a typical YouTube video which runs for 19 seconds. Now while you might find that the average YouTube video to be similar to Me at the Zoo , there has been a fundamental shift in the who, what, where, when, why and how  of YouTube videos. We are seeing that more and more outlets, bloggers and companies are taking to YouTube. Why, well let me list a few stats : 48 hours of video are uploaded every minute Over 3 billion videos are viewed a day YouTube’s demographic is broad: 18-54 years old 800M unique users visit YouTube each month The stats are impressive to say the least. And for any one outlet, blogger or company to ignore the YouTube “laws of attraction” is just being foolish. YouTube is a tool that must be used in any marketing campaign. But questions of “how” is this medium used effectively are still a mystery to most. One very clever use of YouTube was done by Immunoprecipitation. These folks created an interactive video “guide to help find the optimal product for your specific experiment.” This is a very smart use of interactive videos. This clearly works well for choosing products. But I am also thinking of how customer service can use this technique or even technical support. Let me know what you are thinking. —- Post image credit: engadget

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Bruce Judson: Seven Questions Begging to Be Answered Before a Foreclosure Settlement Is Reached

February 2, 2012

Tomorrow is the deadline for state attorneys general to sign on to a joint federal and multi-state $25 billion settlement of the robo-mortgage scandal. The settlement will involve Ally Financial Inc. (formerly GMAC), Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. The details of the proposed settlement have not been released. However, one thing is clear: This settlement puts the nation at further risk of another systematic financial crisis and runs counter to any notion that the actions of the Obama administration will reflect the president’s newly energized populist rhetoric. As a nation, we need to ask several questions. As a participatory democracy, we also have the right to the answers before any settlement is inked: 1. In his State of the Union Address, President Obama announced a new financial crimes taskforce , yet the administration is rushing to finalize this settlement before the taskforce begins its work. Why? 2. What is the public interest in releasing banks that have openly admitted they broke the law by signing false affidavits in tens of thousands of separate instances from liability? 3. The bank narrative has been that the robo-mortgage scandal reflected technical issues which harmed no one . Recently, new allegations have emerged that suggest these activities were actually the back-end of even greater malfeasance involving tax evasion, the failure to comply with basic rules in securitizing mortgages, and an attempt to avoid high liabilities on the part of the banks to the purchasers of the mortgage bonds. These allegations operate as follows. First, as Yves Smith at Naked Capitalism explains, it appears the specific mortgages which were the assets comprising the securitized bonds were never actually transferred to the bonds, within the required time period (90 days under New York law). By way of background: remember that the big concern about the release was that it would go beyond robosigning and waive other types of liability. The ones observers were most concerned about were what we called chain of title issues, namely that the parties that had put mortgage securitizations together had failed on a widespread basis to take the steps stipulated in their own contracts to transfer the notes (and in lien theory states, to assign the lien) properly. The securitization agreements were rigid, requiring that the transfers through multiple parties be completed by a date certain, typically 90 days after the closing of the trust. Most deals elected New York law as the governing law for the trusts, and New York law allows them to operate only as stipulated. Since the notes were supposed to be transferred in by a particular date, trying to move them in later is a “void act” having no legal effect. That makes attempts to make transfers legally at this juncture a non-starter. Having realized somewhat late in the game that their failure to do what they promised could interfere with trusts’ ability to foreclose and create tons of liability, servicers and their various agents have relied on not just robosiging, but widespread document fabrication and forgeries to fix their transfer problem when judges have taken notice. Anyone who has been on this beat knows of numerous cases where foreclosure documents are challenged, say for being too late, not having the right transfers, etc, that new versions of supposedly original documents that tell the right story miraculously show up in court. Second, Ellen Brown, the President of The Public Banking Institute, explains the implications of this failure to abide by the 90 day deadline: Since 1986, mortgage-backed securities have been issued to investors through SPVs [Special Purpose Vehicles] called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid. Yet the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust’s closing date. Third, as Brown also notes, the liabilities associated with a failure to transfer the documents on time came to head when : Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP–a government loan modification program designed to help at-risk homeowners meet their mortgage payments–the servicers would have to produce the paperwork showing the loan had been assigned to the trust. Brown believes that, as a result, The hasty solution was a rash of assignments signed by an army of “robosigners,” to be filed in the public records This explains why, as noted by Brown above, “the newly filed robo-signed documents” are “almost always executed long after the trusts closing date.” All of this is undoubtedly highly complex. And, I am not in a position to investigate whether it is true. However, the implications of these assertions are grave. If the mortgages were knowingly assigned to the REMICS after the closing date, then the tax benefits of the REMICS appear to be invalid. If so, these transfers appear to represent tax evasion by the banks. As part of an ongoing scheme, they also constitute, in all likelihood, conspiracy and fraud on the bond purchasers. With regard to the bond purchasers, as Yves Smith notes above, the failure to adequately establish the trusts created “tons of liability” for the banks to these purchasers; since the banks then effectively misrepresented the nature of the bonds they were selling. At the moment, the important question here is not whether these allegations are true. What’s important is that their appears to be enough evidence to warrant at least a minimal investigation of these astounding assertions–which suggests that a large part of the robo-mortgage scandal was the back-end of potentially serious criminal activities and an attempt to evade enormous liabilities. In all likelihood, tomorrow’s settlement means these serious questions will never be answered. If we are a nation where justice is blind, should we not investigate the full truth before we give the offending financial institutions another free pass? 4. Why are the terms of this settlement secret? Prosecutorial negotiations are normally secret in order to prevent the disclosure of evidence that might or might not be relevant to a later trial if the negotiations collapse. This concern does not apply here. 5. This settlement has far more of the characteristics of legislation than of prosecutorial activities. The offending banks have destroyed the wealth, livelihood, and dreams of millions of Americans. Shouldn’t the public at least have two weeks to view the proposed terms of the settlement and make their views known to their state’s attorney general? And at a time when trust in government is at historic lows, isn’t secrecy for this type of activity the wrong way to build the much-needed confidence of the American people? 6. The press also has a constitutionally guaranteed role in our system of governance. In these unusual circumstances, isn’t this precisely the type of situation where the nation would benefit from careful scrutiny of the intended settlement by the press? 7. Officials have indicated that the settlement will require banks to write down the principal on homeowner loans. Unfortunately, a portion of the $25 billion allocated for this purpose is far too little, spread across a large number of homeowners, for any write-downs to make an effective difference. So either these statements are effectively meaningless, or the settlement is based on promises of future activities by banks. To date, the nation has witnessed repeated and egregious failures by the banks to live up to promises of future behavior, with no subsequent penalties for such failures. For any release from liabilities to be effective, shouldn’t it be contingent on the banks actually delivering on these promises? Since the start of the economic crisis, none of the administration’s housing policies have succeeded. Each policy initiative has been fatally flawed. As a consequence, there’s no reason to believe that the policy pursued in the current settlement will aid, rather than hurt, the housing market. Meanwhile, the secrecy surrounding this policy initiative makes its potential positive contribution to the crisis even more suspect. A month ago, I wrote that we were a nation in denial with regard to housing prices and the impact of ongoing foreclosures. Despite a favorable rent to buy ratio , ultra-low interest rates and an “all time low cost of owning a home,” housing prices are continuing downward . There is a simple explanation. With foreclosures and the so-called shadow inventory of homes, our housing supply will overshadow demand for many years to come. With 29 percent of homeowners already underwater, this creates a massive risk for the economy. Some analysts predict that home prices will drop another 10 to 20 percent, which will put many borrowers deeply underwater. With additional price declines, underwater homeowners may start to simply walk away in droves. This will create havoc for our economy, the mortgage securities markets, and it will destroy solvency of the banks as they are forced to write-down their portfolios. The nation will be plunged into another economic crisis. Unfortunately, all indications over the past several weeks are that this risk is continuing to grow. Indeed, the most recent reports on housing prices showed larger than expected declines in November. This reflected the third month in a row of declines. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand,” said David M. Blitzer , chairman of the S&P’s home price index committee. In his State of the Union speech, President Obama stressed assistance for “responsible homeowners.” Yet the current definition of a responsible homeowner is someone with a job. (Although yesterday the president did say , “We’re working to make sure people don’t lose their homes just because they lost their job.” ) So, at least for the moment, continued unemployment woes will keep this vicious cycle going. Here’s how this relates to the proposed settlement: All of the activities covered by the settlement took place after the crisis began. They were not unforeseen effects of once-in-a-lifetime systematic risk. They reflected willful and knowing disrespect for the rule of law. To date, documents provided by the banks to the Courts, as well as accompanying testimony, demonstrate that laws were broken on a massive scale. The essence of capitalism is responsibility and accountability. The settlement ignores both. (See the letter below from a Michigan County official asking the Michigan Attorney General to “refuse” to join the settlement) In 2010, Richard Cordray, then Ohio Attorney General, sued GMAC seeking a $25,000 fine for each false affidavit filed. Now, the open question is what is the potential liability of the banks, absent a settlement, for the robo-mortgage activities. The banks desire to settle at $25 billion is one indicator that their actual liability is probably far higher. My suspicion is that the total liability, including all punitive damages for criminal and civil malfeasance, would be sufficient to make the banks insolvent. This means that, because of the banks’ malfeasance and greed, the nation has the leverage to bargain for a massive write-down of mortgages — thereby preventing an economic catastrophe. I am not advocating this option, nor am I saying it is good policy. But I do believe it would be a scandal to limit whatever leverage we have to save our economy by once again permitting gross malfeasance. In late May, my eldest daughter will graduate from college and join the labor force. Will there be jobs for her and her classmates? Will she come of age in a decade of limited employment opportunities , the collapse of the middle class , and unequal justice while a privileged few live lives of abundance because they have corrupted our democracy? As someone who reveres our system of justice, what is the advice I should give her about working hard and playing by the rules? There is still a chance that we can turn all of this around. But rushing to settle with law-breaking banks is certainly not the way to solve the issue of inequality — which President Obama called the defining issue of our time . It is also the antithesis of capitalism, which is based on adherence to law, a fair bargain, and accountability. This article originally appeared as part of the Restoring Capitalism series, of the New Deal 2.0 blog, a project of the Roosevelt Institute.

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Trisha Ocona Francis: An Open Letter to America

February 2, 2012

Please be advised that after reviewing my American Dream it has come to my attention that you and my mortgage bank have erroneously reported the existence of a negative rating against me, after believing that I was worthy of a loan for the most expensive item I will ever own. It seems like only yesterday that I was sitting at a table with people I paid and trusted and had the same thought about me, signing what seemed like endless documents that signified a monumental moment for my children and my life as a new homeowner. My destiny, like that of so many Americans — to get a piece of the American dream — came alive. However, years later I found myself in the most dreadful state of mind often leaving me feeling breathless, confused and weak, wondering how I was going to cover the next mortgage payment and the one after that. I began selling my valuables like my car, which I needed for work. Next, I parted with the family’s sentimental jewelry. After dipping into my savings, investments, and retirement funds, which diminished so quickly, I knew that it was time to search for personal loans. As a result of my mortgage interest rate going up, I had to unfortunately increase my tenant’s rent. Looking to my left and right at work, down my block, in the supermarket, and at my children’s schools, I realized there were many other Americans living just like me and were sinking in the same sorrow. This empathy enabled me to find the strength to put my pride aside and seek assistance. I talked with a representative that sounded sympathetic and eager to help me, yet there was no resolution. Sadly, opportunists were also waiting on the sideline at the right time to scam me. Due to desperation and vulnerability, I thought someone could really turn this poor situation upside down and had the key to resolve this crisis. The Oscars around the corner lost their beautiful home to foreclosure after owning it for 30 years, due to a defaulted $400,000 refinance loan. Then to make matters worse, an investor who never planned to live in that home or even in our neighborhood bought it two months later for a deal, NO — a steal, at a whopping $250,000 in what is called a “short sale.” No assistance ever reached their path or mine and it feels so wrong. The thought of how the American Dream I so longed to achieve, the America I so loved could bring me so much misery and sleepless nights, was troubling. Why did the banks get billions of dollars in a bailout when many failed, but as a working, tax-paying citizen, my cries were left on deaf ears? How do I get out and become free again? I know everything is a risk including homeownership, and it comes with a lot of sacrifice. However, I felt deceived and taken advantage of. What now? I remember as a child growing up in a six-member household, surviving with a father who earned his living as a local truck driver and a mother who was a housewife, we always knew that the first bill to ever get paid was the mortgage. There would be no new shoes, food to eat or utilities paid until my parents put together enough funds to make sure we were secure with a roof over our head. But once our housing was paid along with other bills, we were then able to go shopping for whatever else we needed and maybe sometimes even desired things. Once when I went to purchase a gallon of milk, I inquired about Jamie the friendly store clerk. I was sadly told that she was no longer around. I stood there dumbfounded as I witnessed another worker in tears asking for an opportunity to stay so that he could continue to support his family, but was told “Sorry, the sun just wasn’t shining in the store like it once did.” One day with “extra money,” I walked in the store again and I recognized the “For Hire” sign was displayed in the front window and months later the same employees hired were still there. The next day, I woke up and looked for my father. My mother told me, he was working today because his boss called him and said that the stores requested more deliveries to stock their shelves. Later that night, he told us that the factory where he picks up the items plans to open up a couple more days a week to meet the demand of the stores. My Aunt Lisa, who had held her job as the assistant to the VP for more than 25 years, no longer had to “retire early” as proposed by her boss weeks before should business have failed to pick up. Now years later, sitting at the dinner table, with a family of my own I thought if this cycle started with my parents, myself, and so many other Americans struggling to pay their housing bills, why isn’t the economic focus on that alone? Then the light came shining through; a plan, a real design for me, my son, my daughter, my parents, for the family members that sleep under my roof at night. The Blueprint! In 2008, the house of cards collapsed. Mortgages were sold to people who couldn’t afford or understand them. Banks made huge bets and bonuses with other people’s money. It was a crisis that cost us more than eight million jobs and plunged our economy and the world into a crisis from which we are still fighting to recover. — President Barack Obama, BluePrint So let me get this straight! Millions of Americans like myself will get the chance to come in from the rain. There will be a chance to receive a loan modification offering interest deductions, lower monthly payments or a principle deduction — refinancing for my fellow homeowners who are currently struggling and in much need of a lower rate. Principal deduction across the ball, bringing home values to their current and actual value is the only real modification that can work, since the prices of mortgages are severely detrimental to values and ever increasing naturally again. If the banks are neither incentivized or mandated to modify loans, the poor statistics of this success will occur again. There would be an emergency home loan program available should I fall behind and a forbearance program if my spouse or I were to become unemployed. In addition, there must be foreclosure prevention counseling from reliable free HUD-approved agencies to help me see to it that I never sink again into this cycle. My hope is that the vacant, foreclosed and abandoned homes like the two crack houses down the block will finally be bought, redeveloped, and employ local contractors. Furthermore, they could be sold or rented affordably to a new set of neighbors with kids for my children to play with in the summer would dissipate. With this venture, new homeowners would not fall into the same mess that I did. Thanks to assistance from homebuying tax credits, low interest rates and more clear disclosures, banks will be prevented from deliberately setting me up for fraud. It is crucial though that there be an establishment of a real watchdog for regulatory and enforcing our rights. Mandatory homeownership training for all seeking to get a mortgage will ensure everyone understands where things can go wrong and have a better understanding of how not to repeat the same errors. Your expeditious attention to this matter shall be greatly appreciated. Signed, American Homeowners

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Harlan Green: Corporate Austerity Not the Answer in 2012

February 2, 2012

Why so much doom and gloom about U.S. economic growth when all the indicators are looking up for 2012? For instance, the Conference Board’s Index of Leading Economic Indicators again showed positive growth ahead. It rose 0.4 percent with seven of its 10 indicators positive. Graph: Econoday And the Q4 ‘advance’ estimate of GDP growth was 2.8 percent, almost double Q3. Equipment and software, which includes autos and exports, was the largest component. Growth would be even higher, if corporations would begin to invest more of their cash hoard in job creation, rather than in speculative investments and excessive CEO compensation. Graph: Econoday The euro’s problems shouldn’t be much of a threat to U.S. growth. “This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam,” said Ken Goldstein, a Conference Board economist. “Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.” But JP Morgan’s President Jamie Dimon said even the damage from a default of Greek debt would be “negligible,” in a CNBC interview at the Davos, Switzerland economic summit. So what’s the problem? The austerity (meaning deficit) hawks have their hands around the throats of European commerce. Why? They have the mistaken belief that more stimulus spending will increase debt without actually causing enough growth to pay for it. Professor Robert Shiller, co-author of Animal Spirits with Nobelist George Akerlof, calls it debt delusion. When the private sector, including households, becomes over indebted, they begin to save more and spend less. But if governments do it at the same time, it causes a downward spiral towards deflation and recession — even depression. This comes from the belief of fiscal conservatives that public borrowing takes money away from private users. That, however, isn’t the case, because the private business sector has plenty of funds, but is hoarding them (more than $2 trillion cash holdings), rather than creating more jobs. So if governments are also hoarding their monies — in the form of trade or currency surpluses, excess bank reserves and the like as is happening in most of Europe today, then the bottom falls out of the economy; i.e., if no one is buying and everyone is saving, then no business gets done. This should be self-evident, because such a truth has been known since the Great Depression and New Deal that established our modern safety net, and ultimately put so many people back to work. What underlies that truth is that Great Depressions and Great Recessions only happen when there is a wrenching transformation of whole economies. It was transformation of a mostly rural economy to manufacturing in the 1920s that brought on the Great Depression, and now it is wholesale migration of manufacturing jobs overseas and transformation to the Information Age, when little needs to be manufactured in the U.S. Rutgers Econ Professor Richard Livingston has explained this transformation best in recent papers and articles. The great wealth shift away from wage earners-consumers to corporate profits began in the 1920s, according to Livingston: The underlying cause of that economic disaster (the Great Depression of 1929-33, 1937-38) was a fundamental shift of income shares away from wages/consumption to corporate profits that produced a tidal wave of surplus capital that could not be profitably invested in goods production–and, in fact, was not invested in good production…and that, on the other hand, produced the tidal wave of surplus capital which produced the stock market bubble of the late-1920s. And in a recent New York Times op-ed, ” It’s Consumer Spending, Stupid “, Livingston expands on the reasons for our current prolonged malaise: As an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth. This, to put it mildly, explodes that rationale used by Wall Street and corporations to justify not passing on more of their profits to consumers — 80 percent of which are wage and salary earners. The reasoning being that it is their profits that drive growth. Professor Livingston says: Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth… … But history shows that this is wrong. Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor. In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.” Much has been written already about the record profits of both financial and non-financial corporations that have drained consumption, and that is the main reason why average real household incomes have actually declined over the past 30 years. In fact, corporate profits today are highest in history as a percentage of GDP. Graph: Trading Economics And this could be actually endangering economic growth by causing rampant market speculation, rather than productive investments, say many pundits, including Professor Livingston: So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble. How to cure the record income inequality that has resulted from so much power going to Wall Street and the corporations? At least, let us return to the income tax brackets that brought so much prosperity to the middle class during the 1960s and 1970s. What were they? The maximum bracket has fluctuated from 91 percent for those earning more than $400,000 in 1960, to the current low of 35 percent for those earning more than $379,150 today. And this has coincided with the astronomical increase in both household and government debt. It should be a no-brainer, if we want to see American growth restored to historical levels. Higher taxes have meant more growth, because public revenues are invested in growth-inducing infrastructure, better public safety, and upward mobility inducing education, for starters. Whereas lower taxes mean higher debts, with less growth and more speculative risk-taking to show for it. Why is that so hard to understand should be the question, or maybe even more apropos is why do so many chose to remain stuck in the last century?

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Seven Ways To Ensure Our Economy Survives

February 1, 2012

Looking forward, if things remain as they are it’s difficult to see anything but struggles for the working class. We have rising inequality, stagnant or even falling incomes for most households, and declining “good job” opportunities due to offshoring and technological advances, particularly for those with just a high school education. The result is a “dangerous” decline of the middle class. I am often asked how to restore jobs that provide hope and opportunity, and like most economists, I mutter something about better education and hope for the best. But the truth is that economists do not have good answers to this problem.

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After Oakland Street Battle, Occupy Movement Split Over Confrontational Tactics

February 1, 2012

By Laird Harrison OAKLAND, Calif., Feb 1 (Reuters) – When anti-Wall Street protesters set out to take over Oakland’s shuttered convention center on Saturday, they left no doubt about the reception they expected. Scores concealed their faces with bandanas, and dozens carried shields, some painted with anarchist symbols. What happened next — a 10-hour street battle in which demonstrators and police pelted each other with tear gas canisters, smoke grenades and other projectiles — has intensified a debate within the Occupy Wall Street movement over what forms of confrontation it should embrace. Activists calling for greater equality in income and tighter regulation of financial institutions have clashed with police across the country since September, usually while advocating non-violence. But a series of conflicts with police in Oakland have stood out as the most violent, with one activist, Iraq war veteran Scott Olsen, suffering a brain injury on Oct. 25. Protesters on Saturday said they were trying to establish a new headquarters and community center to take the place of the tent camp police dismantled at Frank Ogawa Plaza in front of City Hall last fall. Police lined up on street corners and in front of the convention center to thwart the would-be occupiers. Objects began flying through the air as soon as demonstrators tore down a section of chain-link fence in front of the building. “Of all the (anti-Wall Street) marches and rallies in the city of Oakland, this has been the most violent and hostile to the police,” said Oakland Police Department spokeswoman Johnna Watson. Some 400 protesters were arrested, and several police officers and demonstrators were injured. “While we respect every citizen’s right to protest peacefully, we will not tolerate individuals who come to Oakland with an organized strategy to riot, clash with police officers, vandalize property and wreak havoc upon the city,” Alameda County District Attorney Nancy O’Malley said in a statement. Demonstrators accused the police of beating them with batons and of trapping them between police lines, then arresting them for supposedly disobeying orders to disperse. People in the San Francisco Bay Area appeared to be turned off by Occupy’s tactics on Saturday, according to an opinion poll by SurveyUSA. Of 500 people surveyed on Sunday, 26 percent said they had once supported the Occupy movement and now do not. Added to 31 percent who said they always opposed the movement, the poll suggests a majority of public opinion opposes the group. Some leaders within the movement were distancing themselves from tactics employed by fellow occupiers on Saturday. “A lot of conversation is coming out of that, a lot of self-reflection,” said Nichola Torbett, a self-described devout Christian who took part in the first Occupy Oakland organizing meetings in September. Torbett said she has participated in nearly every major Occupy Oakland event and was arrested when police cleared out a protest encampment on Nov. 15. But she stayed away from the march on Saturday. “It was organized by a very militant anarchist segment of the movement,” she said. “I support the idea of taking a building, especially for housing those who don’t have housing. But I don’t support it with the kind of triumphal attitude I saw expressed.” In November, following a day of mostly peaceful Occupy Oakland rallies that gave way to a night of unrest and over 100 arrests, some activists joined city officials in blaming small bands of agitators who they said provoked police. Mike King, an organizer of the movement’s effort to shut down West Coast ports on Dec. 12, stayed away on Saturday because of “personal obligations.” He defended the demonstrators’ attempt to take over a building but said he prefers to devote his energy to building relationships with labor leaders. Without condemning the attempt to occupy the convention center, labor leaders kept a low profile during the demonstration and its aftermath. Representatives for the Service Employees International Union, which helped organize Occupy rallies in a number of cities, did not return repeated calls seeking comment, nor did the Alameda Labor Council nor the California Teachers Association. The California Nurses Association, which has staffed medical stations during previous Occupy Oakland marches, had no official presence at the demonstration Saturday, said spokesman Chuck Idelson. “We don’t support violence no matter who is doing it,” he said. Still, many occupiers defend Saturday’s action. Shake Anderson, who took part in the march, acknowledged, “it could have been better organized” but insisted the goal was worthy. City officials are unable or unwilling to help the homeless, hungry and unemployed, he said. Occupy Oakland was meeting those needs in its camp at Frank Ogawa Plaza until it was evicted by the police, he said. “We need a space so we can feed each other and educate each other,” he said. “Let us have our big house and leave us alone.” (Editing by Steve Gorman and Daniel Trotta)

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Ex-Credit Suisse Trader Pleads Guilty To Misleading Investors During Financial Crisis

February 1, 2012

NEW YORK — A former London-based Credit Suisse managing director pleaded guilty Wednesday and agreed to cooperate in a federal probe of trading of sub-prime mortgage securities, admitting that he falsified the books to enhance his standing in his company and his year-end bonus as the housing market collapsed. David Higgs pleaded guilty in Manhattan to a charge of conspiracy to falsify books and records and commit wire fraud, which carries a potential maximum sentence of five years in prison. “Today is a terribly difficult day for me and my family. I am truly sorry for what I’ve done,” Higgs said. The defendant said he falsified records to enhance his job performance, which resulted in higher bonuses. Others expected to be charged in the probe – which focuses on activities in 2007 and 2008 – have not been identified publicly. Authorities said another person was in custody Wednesday, facing the same charge. The probe centers on exaggerations brokers made about the value of subprime mortgage securities. Authorities say brokers enticed investors to pour money into the securities market for sub-prime mortgages by making the market sound healthy. Higgs said his crime began in 2007, when the real estate market began to deteriorate in the United States and the valuations of mortgage-backed securities faced significant reductions. The ensuing sub-prime mortgage crisis fueled the financial meltdown in the fall of 2008 that pushed the U.S. into the most severe recession since the Great Depression of the 1930s. Higgs said a rising rate of mortgage delinquencies meant that the value of the securities backed by the mortgages decreased. “Rather than mark these securities down to market as we were required to do,” he said, Higgs and others manipulated and inflated the cash bond position markings of a trading book to hide losses in the book and meet monthly profit-and-loss objectives. He said the manipulations led senior management at Credit Suisse to get the false impression that the securities were profitable and caused the investment firm to report false year-end numbers for 2007 in their books and records. “I did this because I wanted to remain in good favor with my boss … and enhance my job performance,” Higgs said. Questioned by Judge Alison Nathan, Higgs said enhanced job performance would result in higher year-end bonuses. Higgs will remain free on $500,000 bail and will be permitted to remain in England while he cooperates with prosecutors. His lawyer, John L. Brownlee, declined to comment. Federal regulators have brought civil charges against several big Wall Street firms accused of misleading investors about securities linked to risky mortgages in the years leading up to the financial crisis. The biggest settlement of the Securities and Exchange Commission’s charges was with Goldman Sachs in July 2010. The firm agreed to pay $550 million.

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Matt Browne: A Resurgent Middle Class Versus Government of the CEO

January 24, 2012

As the State of the Union approaches, Americans are being confronted by two competing visions of their economic future. A progressive vision, where a resurgent middle class will drive economic growth; and a conservative vision, in which greater corporate freedom will hopefully create wealth that might one day trickle down. In recent weeks, Mitt Romney’s record as a business leader has come under increased scrutiny. His opponents in the Republican primary have tended to focus their attacks on his dubious record as a job creator, characterizing him instead as a corporate raider . More troubling, however, is his vision of what is good for business and what that would mean for the American economy and society. Earlier this month, Romney gave a revealing interview to Fortune , during which he indicated that Sarbannes-Oxley is high on the list of meddlesome government intrusions he would like to repeal. While Sarbannes-Oxley is an imperfect piece of legislation — as George W. Bush stated post-Enron — it was designed to ensure, “No boardroom in America is above or beyond the law.” It needs reforming, or perfecting, not repealing. Romney also argued for slashing legislation, taxes, and social and environmental standards in order to attract new investment and avoid off-shoring of current jobs. Just as “water finds the lowest point,” he stated, so “businesses find the most attractive place.” In Romney’s eyes, then, the United States, American businesses, and the American worker are trapped in a global race to the bottom. Romney’s solution is informed by the story he tells himself — and Americans — about Bain Capital: namely that the firm invested in and turned around failing companies. His conclusion is that a CEO who knows what he is doing can make any business succeed, and as such, should be given greater freedom to act. What Romney is promising, then, is government of the CEO, by the CEO, for the CEO. Unfortunately, in the grand scheme of things, management is one, albeit potentially significant factor, in what determines business success and economic growth. After all, some of Bain’s investments failed. Presumably, Romney hired good people to run those companies too (unless of course he instructed them to simply strip assets). So what does drive investment, job creation, economic growth and business success? In 2011, Forbes ranked America a dismal 10th on its top 10 list of the best places in the world to invest and do business . Australia, Canada, New Zealand, Norway, Sweden, Denmark, Germany, Singapore, and South Korea all placed higher. Interestingly, all have tighter financial and corporate regulation, and each of these governments spends a much larger percentage of GDP on education, skills, research and development and infrastructure programs. According to Romney, these are policies that reduce competitiveness. So why is the United States lagging behind? What Forbes and the World Economic Forum understand, but Romney has failed to grasp, is that countries and regions with modern infrastructure, a well-educated and healthy workforce, tolerant, diverse and creative societies, and good public services, are both better places to live in and better places to invest in (the two are related, these countries attract more highly skilled labor, while their egalitarian approach also strengthens domestic demand for goods and services . America needs to be engaged in a race to the top, one in which the ambition is to be a world leader, not the “lowest point” of the global production chain. This is what President Obama referred to in last year’s State of the Union as winning the future. The challenge this week is to build on that vision, presenting a progressive pro-business agenda, one in which a resurgent middle class helps support the creation of high quality jobs , and where investment in people, technology and infrastructure supports today’s business as well as the industries of the future.

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Protesters To Demonstrate Outside Courthouses

January 20, 2012

NEW YORK — Protesters plan to “occupy” courthouses in more than 100 cities across the U.S. on Friday to protest a landmark U.S. Supreme Court decision that removed most limits on corporate and labor spending in federal elections. The grassroots coalition, called Move to Amend, said the protest will kick off petition drives to gain support for a constitutional amendment that would overturn Citizens United v. FEC, a 2010 court ruling that allowed private groups to spend huge amounts on political campaigns with few restrictions. Occupy Wall Street activists are joining the protest. “The courts created the idea that the corporation is a person with constitutional rights,” said David Cobb, an Occupy the Courts organizer. “It’s the justification for the whole corporate takeover of our government.” A last-minute court dispute left the status of the protest in New York City unclear. A judge on Thursday ruled that demonstrators do not have a First Amendment right to protest in front of a Manhattan federal courthouse. Protesters had filed a lawsuit asking the judge to overturn the government’s rejection of their permit application. The permit had been denied on grounds that the courthouse poses unique security concerns. In light of the ruling, protesters did not announce whether the event would be moved to another location.

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VIDEO: Mitt Romney Defends Bain Capital Tenure, Tries Out ‘Crony Capitalism’ Charge

January 20, 2012

Mitt Romney gave a sneak preview of a defense he plans to use against President Obama when it comes to the former governor’s tenure at Bain Capital, a “vulture capitalist” firm. Pressed by Newt Gingrich on his time as a private equity executive, Romney turned the question to Obama. “He’s been practicing crony capitalism,” Romney said of the president. “You’ve got to stop the spread of crony capitalism.” Crony capitalism isn’t a new charge to throw around, though using it to neutralize Bain is. Romney’s list of particulars included the auto bailout, Solyndra, appointments to the National Labor Relations Board and the Keystone XL pipeline. Only Solyndra could plausibly be considered crony capitalism, if the charge that the administration sent a $5 million loan guarantee to the solar panel company to take care of campaign contributors is accurate. The auto bailout and the NLRB examples, even in Romney’s own formulation, are at worst favors done for Big Labor, not crony capitalists. The pipeline, meanwhile, is backed by large elements of labor, while opposed by environmentalists, so it’s difficult to include it under a crony capitalism umbrella. Debates are a good place to work out messaging, and Romney appears to be trying out crony capitalism.

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