congressional

US Jan budget deficit down to USD27b

by on February 9, 2012

menafn.com…

(MENAFN) The Congressional Budget Office (CBO) said that last month, the budget deficit contracted by around half to USD27 billion, from USD50 million in 2011′s same period, reported Khaleej …

Here is the original post:
US Jan budget deficit down to USD27b

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Moody’s: Small But Rising Risk Of Short-Lived U.S. Default

by on June 2, 2011

Huffington Post…

Moody’s Investors Service said on Thursday there is a very small but rising risk of a short-lived default by the United States if there is no increase in the statutory debt limit in coming weeks. In a statement, Moody’s said it would put the Aaa U.S. rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July. “Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely,” Moody’s said. The ratings agency, whose announcement follows a similar warning from Standard & Poor’s earlier this year, said if the debt limit is raised and default avoided, the Aaa rating will be maintained. Still, the rating outlook will depend on the outcome of debt talks in Washington, Moody’s said. “Moody’s downgrade adds pressure on Congressional leaders to work hard at reaching an agreement to increase the debt ceiling,” said Kathy Lien, director of currency research at GFT Forex in New York. If a downgrade were to occur, Moody’s said it would put the U.S. credit in the Aa range. Copyright 2011 Thomson Reuters. Click for Restrictions .

The rest is here:
Moody’s: Small But Rising Risk Of Short-Lived U.S. Default

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Scott Bittle: Fiscal Follies: The Debt Ceiling and the 48 Percent Solution

May 27, 2011

With the debate over the nation’s debt ceiling continuing to rage, research conducted by our organization, Public Agenda , shows a real chasm between Washington and the rest of the country. Two-thirds of Washington leaders say we need to raise the debt limit , while surveys of the public show that most Americans continue to oppose it. But there is a crucial detail in the public opinion polls that is not getting the attention it deserves. When the Washington Post and Pew Research Center surveyed Americans about raising the debt ceiling, nearly half of Americans (48 percent) admitted that they didn’t have a good understanding of what would happen if the government didn’t raise the debt limit. When that many citizens freely acknowledge that they don’t have a solid grasp of the risks to the country if the debt ceiling deal-making goes south, that’s a wake-up call for leadership. Real leadership, that is, that’s focused on the best interests of the country as opposed an obsession with elections and politics. There are times when elected officials should follow public opinion and pay careful attention to the public’s concerns and priorities. And there are times when elected officials need to lead — they need to be stewards for the country’s future. When public understanding is limited, when people don’t grasp the consequences of a major governmental decision, the time for genuine leadership has come. Technically, the United States passed the $14.3 trillion debt limit earlier in May, and now the federal government can’t borrow any more money until Congress raises the limit. Thanks to some clever accounting at the Treasury, the government can keep going until Aug 2, but at that point, the government wouldn’t have enough money to cover its bills. Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has a low-tech, but riveting 60-second version of what it would really mean up on YouTube. The country would have money coming in. After all, we’ll all still have taxes withheld from every paycheck. But what’s coming in would only cover about 60 percent of our expenses, which wouldn’t be enough to cover even what most Americans consider a very “small government.” We have to at least pay the interest on the debt, otherwise we’ll risk unleashing an unpredictable, perhaps uncontrollable meltdown in the international bond markets. (We may not be safe from financial disruptions even if we pay the interest.) Once we’ve done that, there’s simply not enough money to go around. We wouldn’t have enough money to cover all the bills for Social Security, Medicare and Medicaid, although surely we’d use what is left of the country’s revenues to pay a good chunk of each one. The real problem comes later; after paying for interest and entitlement spending, there won’t be any money left for anything else. As Holtz-Eakin puts it, “no money for the troops, no money for procurement or transportation of materials.” And the Defense Department is just the first casualty. There would be no federal money for public schools, college loans, highways, the Centers for Disease Control or just about anything else most of us expect from government. The truth is that most Americans just don’t realize what not raising the debt ceiling really means. Former President Bill Clinton may have hit on something when asked why polls showed opposition to raising the ceiling at the Fiscal Summit sponsored by the Peterson Foundation this week. “Because they’ve never lived through it,” he said. “No one knows what will happen.” It is true that another common element of leadership is to use a deadline and potential crisis to force a balky group of people to sit down and get a solid deal done. One reason why the debate in Congress is stalled is because many political leaders see the debt ceiling as an opportunity to force change in the federal budget — change that surely has to come. If we actually get sensible, practical change as a result, then we can give our leaders credit for doing their job. If they get an attack of bipartisanship and willingness to compromise, we might even be able to give them credit for a job well done. But if elected officials in Washington allow the United States to slide into a potential economic disaster by blindly following what they think the polls are telling them, then history will heap on them the censure and condemnation they will so richly deserve. Indeed, the American people themselves may take a different view once the results of the decision become evident. If they think that voters are going to reward them for putting the entire country through the wringer, they’re likely to be very disappointed.

Read the full article →

Robert Scheer: Access Journalism: The Movie

May 25, 2011

It is not true, as a Wall Street Journal reviewer claimed, that the HBO movie version of Andrew Sorkin’s book Too Big to Fail was “Too Boring to Watch.” On the contrary, the problem with the film, featuring excellent acting and taut direction, as with the richly anecdotal book, is that it is all too effectively misleading. Fortunately, if viewers have already watched Inside Job , the spot-on Academy Award winner, they will not be led too far astray by this film’s adulation of the likes of Henry Paulson and Timothy Geithner. Paulson is portrayed as an eminently decent man, troubled by the imperfections of the TARP bailout, and when he throws up off camera in one scene it is not at all suggested that perhaps he could be disgusted that the misery he brought to the world had left him a billionaire. When he resigned his position as head of Goldman Sachs to become treasury secretary, he cashed in $485 million in Goldman stock and was saved from a $100 million tax liability because he was entering government “service.” The film barely mentioned that Paulson was the head of Goldman Sachs when his company deceptively packaged and sold the collateralized debt obligations (CDOs) based on the subprime and Alt A mortgages that proved so toxic. As Paulson concedes in his memoir, after George W. Bush appointed him treasury secretary, the president asked plaintively as the economy was crumbling: “How did this happen?” In Sorkin’s book, it is stated that the treasurer “disregarded the question, knowing that the answer would be way too long.” But in his memoir, Paulson provides a clearer insight: “It was a humbling question for someone from the financial sector to be asked — after all, we were the ones responsible.” No such honesty has yet emerged from Geithner, who was an undersecretary of the treasury during the Clinton years, when he worked closely with his bosses, first Robert Rubin and then Lawrence Summers, to pass the radical deregulation hinted at but never fully explained in either the Sorkin book or the film. There is scant reference to the obliteration of the Glass-Steagall Act, a repeal that permitted the too-big-to-fail merger of companies such as Travelers and Citicorp, which became Citigroup — a company that had to be bailed out with $50 billion in taxpayer money. Nor is there any reference in the film to the fact that Rubin, mentor to both Summers and Geithner, went on to help run that new megabank at a salary of $15 million a year. Geithner, who later became head of the New York Fed, a job obtained with the effusive recommendations of both Rubin and Summers, worked to salvage Citigroup from the mess its packaging of toxic mortgages had created. Geithner is lionized in both Sorkin’s book and the film version. As Nancy deWolf Smith put it in the Wall Street Journal : “Some viewers who remember the book may be galled again by the portrayal of certain characters. For instance, Timothy Geithner (Billy Crudup), then president of the Federal Reserve Bank of New York, still comes across as a blameless saint and Wunderkind with a compassionate finger on the pulse of the victimized ordinary man.” The fawning in the book is embarrassing, as in the description of Summers and his treasury assistant in the Clinton years going off to tennis camp, with Sorkin noting, “Geithner, with his six-pack abs, had a game that matched his policy-making prowess.” Not to be overlooked is “his usual firm, athletic handshake.” That policy prowess must extend to the destructive CDO deregulation that Geithner and Summers pushed through Congress and that, in an image in the movie, we see Bill Clinton signing into law. That legislation, not specifically referenced in Sorkin’s book, was called the Commodity Futures Modernization Act (CFMA). It banned the application of any existing regulation or regulatory agency authority to the emerging market in CDOs that turned out to be disastrous. These were the same CDOs that AIG backed with phony insurance “swaps,” resulting in the Geithner-led $170 billion bailout of the company with the money passed through to Goldman and the other banks covered by AIG. Neither the CFMA nor the heroic and incredibly prescient Brooksley Born, then chief of the Commodity Futures Trading Commission, whose dire warnings about the new financial gimmicks were effectively silenced by the CFMA, are mentioned in the index of Sorkin’s book. At the end of HBO’s film about how skillfully Henry Paulson, Ben Bernanke and Timothy Geithner managed to force the top banks to accept $700 billion in bailout money, the question is posed as to whether the banks so saved would turn around and lend money to save the homes of ordinary folks. The outcome was quite the opposite. The economy remains in deep trouble thanks in considerable measure to the “bankers-first” priorities that Geithner and Summers brought with them to the Barack Obama presidency. The housing industry is deeply depressed, new home construction starts this year are expected to match the lowest point since records first were kept in 1963, housing values are predicted to decline at least 5 percent more this year, and without an improvement in housing there will be no significant increase in consumption or jobs. Further, on the day HBO premiered the film, the New York Times reported that the top banks now have an inventory of foreclosed homes that is twice as high as when the crisis began four years ago, and, “In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.” The film and the book, by centering on TARP, make that bailout the big deal, and when the bailout money was paid back to free the bankers’ bonuses from regulation, it was celebrated by Geithner as “the most effective government program in recent memory.” Rubbish! As Paul Atkins and two other members of the Congressional Oversight Panel on TARP wrote in a blistering WSJ column exposing the TARP settlement: “It hides the full story of the government’s financial crisis effort, of which TARP is but a minor part”; the major part being the $1.1 trillion in toxic mortgages that the Fed purchased from the banks, the $380 billion bailout of Fannie Mae and Freddy Mac, and the loan guarantees of “other Fed and FDIC programs [that] added another $2 trillion of taxpayer money at risk to the 19 stress tested banks alone.” And then there is the 50 percent run-up in the national debt, thanks to the banks’ savaging of the economy that will haunt us for decades to come. Perhaps the main value of the book and film is the instruction they provide on the limits of mainstream journalism in the decade that led up to the meltdown. Sorkin, who rose to be a business editor at the Times , covered Wall Street deal-making in exquisite detail, relying on an access journalism that has often proved deeply flawed in traditional business news coverage. What was largely ignored as it was unfolding was the story of the unbridled power of Wall Street financiers over the political process that caused this tragedy for so many tens of millions who have lost jobs and homes.

Read the full article →

Controversial GOP Medicare Plan Emerges Hot Topic In Special Election Race

May 23, 2011

BUFFALO, N.Y. — A special election for U.S. House seat in upstate New York is tightening up in a race that was supposed to be an easy win for Republicans. Instead, Tuesday’s election in the rural and suburban 26th Congressional District between Buffalo and Rochester has become a referendum on the GOP’s plan to transform Medicare, the government health plan for seniors. A Siena College poll published Saturday shows Democrat Kathy Hochul (HOH’-kuhl) with a slight lead over Republican Jane Corwin, 42-38 percent. The two are vying to succeed Republican Rep. Chris Lee, who resigned in February after shirtless photos he sent to a woman were published online. Wealthy tea party candidate Jack Davis had 12 percent support in the poll – far behind but still enough to affect a close race.

Read the full article →

Democrats Probe Koch’s Interest In Oil Sands Pipe

May 21, 2011

Democratic U.S. lawmakers have asked Congressional panels to look into whether Koch, an energy company led by brothers who are powerhouses in conservative politics, will benefit if the Obama administration approves a $7 billion pipeline to bring crude from Canada into the United States.

Read the full article →

Steve Cohen’s SAC Capital Investigated For Possible Insider Trading

May 21, 2011

(Reuters) – SAC Capital Advisors LLP is under investigation by a powerful Republican Senator for 20 possible instances of insider trading, the Wall Street Journal reported on Saturday, citing unnamed sources familiar with the situation. Charles Grassley, who heads the Senate Judiciary Committee, last month asked the Financial industry Regulatory Authority for details on any suspicious trading by Steven Cohen’s $13 billion hedge fund. Last week Finra provided Grassley with about 20 instances where SAC’s trades took place ahead of market-moving news or were otherwise suspicious enough to merit referral to the Securities and Exchange Commission’s enforcement staff, the Wall Street Journal said. It was not clear if the trades had been referred to the SEC, and authorities have not alleged wrongdoing by SAC or Cohen, the report said. SAC representatives and Congressional investigators met in Washington on May 10 to discuss the matter, the report said. At the meeting, SAC representatives suggested the investigators go easy on the hedge fund, saying it has internal procedures to track down and prevent illegal trading, according to the report. Also at the meeting, Washington-based SAC Capital in-house lobbyist Michael Sullivan cited Cohen’s “civic-minded interest” in purchasing a stake in the New York Mets baseball team. Spokesmen from SAC and Grassley’s office were not immediately available to comment to Reuters. (Reporting by Ann Saphir with reporting by Matt Goldstein) Copyright 2010 Thomson Reuters. Click for Restrictions .

Read the full article →

CHART: Oil Subsidies Repeal Blocked By Industry-Bankrolled Senators

May 19, 2011

WASHINGTON — An attempt to repeal some of the billion-dollar tax breaks enjoyed by the five biggest oil companies failed in the Senate Tuesday evening, as expected, when all but two Republicans and three Democrats voted to block its consideration. The final vote was 52 in favor, 48 against — eight votes shy of the filibuster-proof majority needed to bring the bill to the floor. All things considered, it was a fairly meek attack on the massive oil and gas subsidies that taxpayers are footing — even as consumers suffer from high gas prices and industry profits swell to near-record proportions . Tuesday’s Senate proposal was only to cut $2 billion worth of subsidies a year from the biggest five companies, and the proceeds would have gone to deficit reduction. By contrast, President Barack Obama called on Congress in January to eliminate some $4 billion a year in tax breaks to the entire industry, and put the proceeds into alternative energy investment. And the industry’s own lobbying juggernaut, the American Petroleum Institute, estimated that the total cost of all the tax and accounting changes proposed by Obama in his FY 2012 budget could have actually cost the oil and gas industry $90 billion over the next decade. Few if any of the president’s budget proposals have even made it onto the congressional agenda. In spite of a major Democratic push , the watered-down oil subsidies repeal couldn’t overcome the industry’s hold on Congress . Campaign donations from the industry are only part of the reason the bill was defeated. There’s also an army of lobbyists: The oil and gas companies have spent more than $1 billion on lobbying-related activities since 1998. But looking simply at the amount of money the industry has given senators over the years — either through political action committees or contributions by people associated with oil and gas companies — is still telling. The central dynamic of the vote was the nearly lockstep Republican opposition. While the industry has long favored Republicans with its campaign contributions, in the early ’90s it was by less than a 2 to 1 margin. Starting in the 1996 election cycle, the margin shot up to more than 3 to 1. This chart below, based on data from the Center for Responsive Politics , shows how much the industry has donated to each senator over the course of their careers. The Center for American Progress Action Fund totaled it all up and found that the 48 senators who voted with the industry received over $21 million in career oil contributions, while the other 52 senators received only $5.4 million. So each senator who opposed the subsidy repeal received on average five times as much oil money as those who voted for repeal. Oil & Gas Contributions Since 1989 For Senators Who Voted On S. 940 Powered by Tableau GRAPHIC BY JAKE BIALER OF THE HUFFINGTON POST

Read the full article →

Dean Baker: The Good News and the Bad News in the Social Security Trustees’ Report

May 16, 2011

There was both good news and bad news in the Social Security trustees’ report released last week. The bad news is that the program is projected to cost somewhat more in the latest report than in the 2010 report. As a result, its projected 75-year shortfall was increased by 0.3 percentage points of covered payroll from 1.92 percent to 2.22 percent. The year when it was first projected to face a shortfall was moved up a year from 2037 to 2036. This bad news about the program is also the good news. The main reason that the program’s finances deteriorated between the 2010 report and the 2011 report is that in the 2011 report the trustees assumed that we would enjoy substantially longer life expectancies than they did in the 2010 report. They increased their projected life expectancy for men turning age 65 in 2010 from 18.1 years to 18.6 years, a gain of 0.5 years. The trustees increased their projected life expectancy for women turning age 65 by 0.3 years. Remarkably, virtually no one in the deficit-obsessed media even noticed this projected increase in life expectancy, simply highlighting the bad news about Social Security’s finances. Of course the trustees likely anticipated how their report would be received. It is important to recognize that this is the report of the Social Security trustees, not the professional staff of the Social Security Administration (SSA). The six trustees include three Obama cabinet members, the head of the Social Security Administration, who is a holdover Bush appointee, and Charles Blahous, an independent trustee who was President Bush’s point man on his Social Security privatization drive. The professional staff of SSA does make recommendations to the trustees, but these recommendations are held as carefully guarded secrets, like battle plans in the war on terrorism. Even accepting the 2011 report at face value the picture is hardly as dire as many politicians in Washington are claiming. We have seen much worse before. For example in 1997, the trustees projected a shortfall that was equal to 2.23 percent of payroll . At that time, their projections showed the trust fund first being depleted in 2029. The 1997 report also assumed a slower rate of real wage growth than the 2011 report. A lower rate of real wage growth meant that any tax increase that might have been imposed to maintain long-term solvency would have taken up a larger share of the growth in the real wage of the average worker. Alternatively, any cut in benefits would have done more to slow the improvement in the living standards of retirees over time. There can be little doubt that the most recent projections show a much brighter picture of Social Security and the economy going forward than what was projected through most of the 1990s. It is also important to keep the Social Security numbers in context. Proponents of cuts to Social Security have spent fortunes on pollsters and focus groups trying to put the program’s finances in the most dire possible light. They are fond of reporting things like the program’s $17.9 trillion shortfall over the infinite horizon . The focus groups show that this one is really good for scaring people. After all, “trillion” is a really huge number and $17.9 trillion must be really really huge. Of course no one has any clue what “infinite horizon” means. So no one knows that this is a projection of what the program looks like in the 23rd, 24th, and 25th century and beyond, if we never change it in any way. The vast majority of this $17.9 trillion shortfall comes in years after 2200. Social Security does have a long planning period, but if anyone thinks that we are actually making policy for the 24th century then we should keep this person far removed from the levers of power. The best way to make the size of the projected Social Security shortfall understandable is to put it in context. Relative to the size of the economy, the projected Social Security shortfall is equal to 0.7 percent of GDP. By comparison, annual spending on the military increased by more than 1.6 percentage points of GDP between 2000 and 2011. So the burden imposed by the wars in Iraq and Afghanistan are almost 2.5 times larger than the money that would be needed to eliminate the Social Security shortfall. To take another point of reference, the Congressional Budget Office’s analysis of the Ryan Medicare privatization plan implied that it would increase the cost of buying Medicare-equivalent policies by more than $34 trillion , a sum that is almost five times as large as the projected Social Security shortfall. If the Social Security shortfall is a really big deal, then the additional costs attributable to the Ryan plan are five times a really big deal. Interestingly, almost no one in the media seems to be talking about that burden.

Read the full article →

Debate Begins In Earnest As U.S. Hits Debt Limit

May 15, 2011

WASHINGTON (Reuters) – The United States will reach the limits of its borrowing authority on Monday, but don’t expect to hear alarm bells in Washington or on Wall Street. Rather, that ringing sound you hear is the opening bell in a fight that’s likely to last a full 15 rounds. It’s a moment the Obama administration has warned about for months. Without congressional action, the Treasury Department will be shut out from the bond markets and the country could eventually default on its obligations, an event that would roil markets and economies across the globe. There will be little immediate financial impact when the United States reaches its existing $14.294 trillion debt ceiling, as the Treasury Department says it can stave off a default until early August. Observers don’t expect Congress to swing into action until the last possible minute. Bond markets have remained placid as traders calculate that despite the theatrics in Washington, the chances of default are extremely small. “I don’t think this is a big story yet,” said Dan Ripp, an analyst with Bradley Woods, a securities firm in New York. Budget experts say the debt limit provides an opportunity to address the country’s long-term fiscal problems before it courts a Greek-style debt crisis. “Nothing blows up next week, but the clock is ticking now. We need to get on top of this problem,” said Alice Rivlin of the Brookings Institution. Unlike nearly every other developed country, the United States can’t increase its borrowing authority without legislative action. This is a mixed blessing for Congress: The public is overwhelmingly opposed to a debt-limit increase, and the vote to raise the limit is always politically painful. But it gives lawmakers further leverage over federal spending. “The beauty of the debt ceiling issue is it gets results,” Senate Republican Leader Mitch McConnell said on Thursday. Lawmakers from both parties say they won’t back an increase without steps to ensure that debt remains manageable. Urged on by the conservative Tea Party activists who handed them control of the House of Representatives last fall, Republicans are calling for trillions of dollars in spending cuts. Democrats say tax hikes need to be part of the solution. As the two sides maneuver for advantage, the Treasury Department will have to dip into other pots of money, such as government employee pension funds, to pay the bills. The agency has plenty of experience in using what it calls “extraordinary measures” to keep the wolf from the door. According to the Congressional Research Service, Treasury has had to use alternate sources of funding six times since 1985. Treasury will run out of options eventually, as the government currently spends each month about $125 billion more than it takes in. According to CRS, the government would have to boost tax revenues by two-thirds or eliminate spending on the military, scientific research and all other discretionary programs to avoid a default. The other alternative — refusing repayment of its bonds — would likely destroy the country’s sterling credit reputation, push stocks down by at least 6 percent, for a start, and possibly lead to another recession, according to an analysis by the centrist think tank Third Way. TAKING A HARD LOOK The debt ceiling debate is forcing lawmakers to take a hard look at the country’s fiscal path, which has changed dramatically for the worse over the past decade. In January 2001, the non-partisan Congressional Budget Office projected the country would run a surplus of $5.6 trillion over the coming 10 years. Instead, debt more than doubled as President George W. Bush cut taxes, waged two wars and expanded health benefits. The 2008-2009 recession blew a deeper hole in the budget, pushing annual deficits to their highest levels relative to the economy since World War Two. By the end of the decade, CBO’s projected surplus was nowhere to be found and the country had instead racked up an additional $6.2 trillion in cumulative deficits. Experts say the United States will need to trim deficits by roughly $4 trillion over the coming 10 years to keep debt from rising to dangerous levels relative to the economy. Democrats and Republicans agree on some programs, like crop subsidies, which should come under the knife, but those are dwarfed in dollar terms by the areas in which the two sides disagree, such as healthcare programs and taxes. As the 2012 election cycle gets underway lawmakers will have more incentive to dial up the rhetoric. Markets may impose a discipline of their own. Standard & Poor’s warned last month that it might downgrade the United States’ top-notch debt rating if Washington doesn’t tackle its fiscal situation, and bond yields could rise if a substantial deal does not emerge from the debt ceiling talks. “That’s the kind of thing that could emerge over the long term,” Ripp said. (Editing by Philip Barbara) Copyright 2010 Thomson Reuters. Click for Restrictions .

Read the full article →

Video: Holder on Osama Bin Laden: Political Capital With Al Hunt

May 14, 2011

May 13 (Bloomberg) — U.S. Attorney General Eric Holder talks with Bloomberg’s Al Hunt about al-Qaeda leader Osama bin Laden’s desire to target senior U.S. officials before his death. Bloomberg’s Hans Nichols and Julie Davis discuss the congressional debate over the U.S. debt ceiling, and U.S. ties with Pakistan. Lara Setrakian talks about efforts to oust Libyan leader Muammar Qaddafi. Commentators Margaret Carlson and Kate O’Beirne discuss Indiana Governor Mitch Daniels’s possible run for the presidency in 2012 and President Barack Obama’s position on immigration. (This report is an excerpt. Source: Bloomberg)

Read the full article →

Patrick Sharma: Farm Subsidies: A Useful Sacrifice in the Budget Debate

May 12, 2011

Amid continuing debates over how to reduce the federal deficit, recent proposals to cut farm subsidies present an important opportunity to bridge partisan divides. By reforming our antiquated farm support system, Congress can exercise some much-needed fiscal discipline and give the country an agricultural policy for the 21st century. Doing so, however, will require putting the national good over the interests of a powerful few, as well as confronting some enduring myths about American farming. Farm subsidies have long been recognized as ineffective. Since being introduced to help small farmers cope with the Great Depression, the federal farm support program has devolved into a hodgepodge of price supports, direct payments, insurance programs, tax loopholes and low-interest loans that overwhelmingly benefit wealthy farmers and large agricultural businesses. According to data compiled by the Environmental Working Group and the U.S. Department of Agriculture, in recent years the largest 10 percent of American farms have received almost 75 percent of total agricultural subsidies, while a whopping two-thirds of farmers have obtained no government support at all. In addition to rewarding millionaires and agribusinesses rather than small farmers, farm subsidies have encouraged environmentally destructive agricultural practices. By promoting production in areas that would otherwise remain fallow, farm supports have led to habitat destruction and land degradation, as well as increased pesticide and fertilizer use. Subsidies have also had a devastating impact abroad: when shipped to developing nations, cheap American foodstuffs tend to glut local markets and put indigenous producers out of business. Indeed, U.S. agricultural subsidies have been a key factor in derailing the recent Doha round of international trade negotiations. In other words, farm subsidies are bad foreign and domestic policy. But because the program is relatively cheap (estimated to cost around $16 billion in 2011, according to the Congressional Budget Office) and its impacts felt indirectly, subsidies have been allowed to remain on the books. Five-year re-authorizations of the farm support program have historically been dominated by rural congressmen and the agribusiness lobby, and as a result we have a system that lacks oversight and focus. Although Congress made some important reforms in 1996, farm subsidies continue to be a drain on the nation’s coffers, diverting taxpayer dollars away from much-needed investments in education, infrastructure and other productive endeavors. Fortunately, the current preoccupation with the federal deficit has put farm subsidies on the chopping block. Eager to find savings wherever they can, members of both parties have proposed reexamining the way the nation supports agriculture. Republican Congressman Paul Ryan of Wisconsin has called for cutting direct payments to farmers by $30 billion over ten years, while Democratic Senators Dick Durbin of Illinois and Debbie Stabenow of Michigan have indicated their willingness to reform the nation’s farm support system. Importantly, these representatives all hail from agricultural states. Going forward, it is vital that Congress look to reform the farm support program in the most thoughtful way possible. At present, discussions over altering farm subsidies are focused almost entirely on curtailing direct payments to farmers, in which the government automatically pays farm owners a fixed amount of money per year regardless of whether or not their land is being cultivated. Yet direct payments represent just a fraction of total farm supports, and other subsidies, such as price supports, do more to distort the market. If Congress is truly interested in achieving budget savings and developing a modern agricultural policy, it should put all farm subsidies (including supports for ethanol) on the table. This would mean not only curtailing payments to wealthy farmers and agribusinesses but examining whether the government should be in the business of American farming in the first place. For while agriculture accounted for a significant percentage of the U.S. economy in the 1930s, today farming constitutes less than one percent of GDP, and the notion that government support helps struggling family farmers is little more than a myth. Of course, reforming the farm support program will not solve the nation’s fiscal problems. Even eliminating all agricultural subsidies would barely dent the deficit, where meaningful action will be confined to reforming taxes and entitlement spending. But the current budgetary environment does present a chance to rethink our agricultural policies and, in the process, discard a relic of the past.

Read the full article →

Poll Shows Where Americans Stand On Raising Taxes In Debt Fix

May 12, 2011

WASHINGTON (Reuters) – More than half of Americans say higher taxes should be part of a fix to tame the $14.3 trillion U.S. debt, a Reuters poll released on Wednesday found, signaling a disconnect with Republicans who reject any tax increases. Fifty-two percent of respondents in a Reuters/Ipsos poll said a combination of spending cuts and tax increases was the best strategy to reduce deficits, dovetailing with other recent surveys. Republicans have taken higher taxes off the table in negotiations to reduce soaring deficits, while President Barack Obama, a Democrat, favors raising taxes, but only for the wealthiest 2 percent of Americans. “We’re not going to raise taxes. That was decided in last November’s election,” Senate Republican leader Mitch McConnell said on Tuesday. “I think the American people pretty clearly believe that we have the deficit problem because we spend too much, not because we tax too little.” Tackling rising deficits to keep the economy competitive is seen as a key issue going into 2012 presidential and congressional elections. The polling results resonated with Neal Weber, who advises corporate clients at the McGladrey tax and accounting firm in Washington. “As I talk to my business clients … I believe that more than half of them share the same belief,” that taxes should be in the deficit-cutting mix, Weber said. Democratic Senate Budget Committee Chairman Kent Conrad noted on Monday that revenue is at its lowest share of the economy in decades, while spending is at its highest. “Clearly you’ve got to work both sides of the equation,” he said. But Republicans say raising taxes would stifle economic growth and say instead the focus must be cutting spending, including for the government pension and healthcare programs for the elderly. HARD REALITIES Some critics say Democrats are not calling for enough of a tax increase to raise more revenue. Although Obama wants to end tax breaks for the wealthiest, he favors extending the George W. Bush-era tax rates on middle incomes, at a cost of $2.9 trillion over a decade, according to White House estimates. “It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest two percent,” David Stockman, budget director under President Ronald Reagan, wrote in the New York Times recently. The May Reuters/Ipsos poll was conducted May 5-9, with a randomly selected sample of 1,029 adults interviewed by telephone, both landlines and cell phones. The results are considered accurate within 3 percentage points. Among independent voters, who were key to Obama’s 2008 presidential win, slightly more than half favored combining spending cuts and tax increases. Sixty-two percent of Democrats and 40 percent of Republicans favored the same. A separate Reuters poll of bond dealers and money managers released on Tuesday found a majority believe spending cuts alone cannot solve the nation’s fiscal woes and that tax increases must be part of the mix. RAISING REVENUE, CUTTING TAX BREAKS The president’s deficit commission proposed raising revenue with a tax code overhaul that trims tax breaks enjoyed mainly by those with middle and higher incomes, including the mortgage interest deduction, and health care benefits. Reagan, a hero of conservative Republicans, took office in 1981 ushering in $265 billion worth of tax cuts. But as deficits worsened and Social Security faced insolvency, he agreed to tax increases, which, according to government documents, ended up totaling $132 billion over his two terms in office. Many analysts believe decisions on taxes will be put off until after the elections. “We’re looking at the next election, and a huge fight over how much tax we should have in this country and who should pay it,” said Clint Stretch, a former legislative counsel at the congressional Joint Committee on Tax. (Editing by Vicki Allen) Copyright 2010 Thomson Reuters. Click for Restrictions .

Read the full article →

Merton and Joan Bernstein: Feldstein’s Folly

May 10, 2011

Professor Martin Feldstein’s recent Wall Street Journal article , “Private Accounts Can Save Social Security,” raises a false alarm. He declares: There are now three employees paying Social Security taxes to finance the benefits of each retiree. That number will fall over the next three decades to only two employees per retiree. That would require either a 50% rise in the Social Security tax to maintain the existing benefit rules or a one-third cut in projected benefits. Yes, those projected ratios of employees to beneficiary numbers are (very) roughly correct. The consequences he attributes to them are not. He reaches them by ignoring other crucial variables — notably marvelously improved employee productivity, which in turn generates higher pay, which translates into higher Social Security program revenue per employee. Professor Feldstein focuses solely on those remitting payroll taxes under the Federal Insurance Contributions Act (FICA), omitting to mention that Social Security has two other dedicated revenue streams: income tax on half the Social Security benefits of high earners and interest on the trillions the Social Security Trust fund lends to the U.S. Treasury. Those data are not hard to find; the Social Security trustees’ annual reports describe them under “Highlights.” To reach his conclusions, FICA contributions, which are determined as a specified percentage of each employee’s pay, would have to stall over the next three decade. But economic data show otherwise. Each successive wave of workers produces more and earns more per capita because employers constantly respond to pressure to provide improved technology, enabling employees to generate more goods and services and earn more. Just as one example, the non-stop computer revolutions (yes, plural) repeatedly multiply what the average employee produce and earns, generating larger and larger FICA contributions. As recently as May 4, Intel announced yet a new advance — chips that will be as much as 37 percent faster and require half the power. So future workers will generate more goods and services for all of us to share, more FICA per capita and at lower cost. The 2011 Statistical Abstract of the United States (Table 641) shows that between 1990 and 2000, non-farm employee output per hour increased by over 20 points (using 100 in the early 1990s as the base) and manufacturing per hour output expanded more than 45 points while real (adjusted for inflation) per hour compensation expanded by about 15 points. These crucial elements continued to expand until the 2008 onset of the recession. Even then hourly output in 2008 and 2009 was about double that in 1990. Bottom line: the 2009 employees generated almost 30% higher per capita income than their 1990 counterparts. But there’s more. Social Security FICA income has exceeded benefit payout since 1983 until this past year, building its reserves to about $2.4 trillion (and growing); trust fund resources enabled the payment of full benefits. Current actuarial projections indicate that trust fund reserves can make such contributions to benefits in the amounts needed until 2037. But the cap placed on earnings subject to FICA, in effect, exempts high income from FICA, putting a brake on more ample trust fund accumulations. Removing the cap and crediting the additional earnings for benefits would almost offset the entire projected funding shortfall. Even the co-chairs of the Fiscal Commission advocate raising the cap (although they would use a slower boat and not go as far). Alternatively, raising the FICA rate by one percentage point for both employees and employers would offset most of the shortfall by itself. Projected earnings would improve by a greater amount, making such an increase completely affordable. Much the same effect would be achieved by raising the employee and employer FICA rate by 1/20th of one percentage point cumulatively over twenty years. Both removing the cap and boosting the FICA rate as described would make possible benefit improvements — which are highly desirable given that other sources of retiree income have declined, proven unreliable and tend to shrink with age. Professor Feldstein makes it sound as if Social Security is doomed to failure by demographic changes. But that’s far from the case. Modest changes like those described, which have wide support, would assure Social Security’s future — without trimming benefits. Instead, he plumps for private accounts, omitting that they would incur substantial non-benefit costs. In a 2004 paper, Austan Goolsbee, then a University of Chicago economics professor, using analyses by the Congressional Budget Office and the Government Accountability Office, concluded that the George W. Bush version of private accounts “would lead to a massive increase in payments of financial fees to private financial management companies.” His estimate of the net present value of such payments — $940 billion. Dr. Feldstein asserts that the private accounts he advocates are like those proposed by President George W. Bush. Perhaps that’s all we need to know. But, as I heard one Republican U.S. Senator declare when he and I were on a public panel: “Social Security private accounts are like taking the mortgage money to bet on the races.” Not a great idea. In sum: Dr. Feldstein in Wall Street Journal – mode is no more reliable a guide to Social Security than Dick Cheney is a safe hunting companion.

Read the full article →

Heather McGhee: Who’s Budgeting for a Middle Class?

May 9, 2011

For the first time, the majority of Americans believe that their children won’t be better off than they are . If current trends continue — in just a few categories: wages, benefits, retirement income, personal debt, job creation, job quality, job security, and costs for education, child care and health care — they’re absolutely right. So as the lights are dimming on the American Dream, what are America’s political leaders doing? They’re tripping over one another to reach for the off switch. That’s exactly what the leading deficit reduction plans amount to, according to an analysis we conducted recently at Demos , a non-partisan policy center. In ” Budgeting for America’s Middle Class ,” we graded the various budget plans on their impact on working- and middle-class Americans and the result was disheartening. The only legislative budget to get above a “C” — that issued by the Congressional Progressive Caucus’ ” People’s Budget ” — only garnered 77 votes in the House and is unlikely to come to a vote in the Senate. Download the full Report Card (PDF) When today’s deficit hawks (including, however reluctantly, the president) debate how the nation should tax and invest over the coming decades, they seem to ignore that those priorities could make or break America’s future middle class. That’s because the middle class did not create itself in the mid-20th century. Along with strong labor institutions, robust public investments (which we made despite high deficits) made the financial success of ordinary families a national priority. We built the national highway system; put a generation to college on grants, not loans; and invested in public research that redounded to enormous private gain. The result was the greatest middle class the world has ever known. That all shifted in the mid-1970s as organized big business gained influence in Washington, the power of labor unions weakened, and a range of new policies undermined the living standards of working Americans. As a result, working- and middle-class families have been losing ground for the past 30 years . This reality compelled Demos to join with the Century Foundation and the Economic Policy Institute to create OurFiscalSecurity.org , a project with the goal of conducting regular reality checks on the fiscal policy debate. We relied on the principles that created a strong American middle class to craft our own model budget blueprint, ” Investing in America’s Economy .” The blueprint shows that we can tackle our long-term fiscal challenges while creating jobs, safeguarding Medicare and Social Security, and decreasing inequality. In Congress, the representatives in the CPC designed their “People’s Budget” with similar principles in mind and achieved comparable goals. Unfortunately, the new Demos report card shows that the budget proposals with the most political tailwinds — Bowles-Simpson , the President’s new deficit plan and Rep. Paul Ryan’s (R-WI) budget — fail to harness these proven methods. On the most urgent factor — job creation and an accelerated recovery — the president’s plan received a “C,” the Bowles-Simpson plan a “D-” and Rep. Ryan’s proposal failed. None of these plans included the additional public investment needed to make up for our $1 trillion shortfall in economic demand. All three ignored the lesson President Roosevelt learned in 1937 when he cut spending and the country fell back into Depression, or more recently, when Britain’s austerity measures zeroed-out GDP growth . While educating the next generation is seldom included in long-term fiscal policy debates, our children and grandchildren are constantly evoked as reasons to slash and cap spending now. We graded the plans for the investments they make in this generation through both early childhood care and higher education. The House Progressives, OurFiscalSecurity.org and President Obama all demonstrate that we can rein in the debt without leaving behind a disintegrating nation to a poorly educated generation. They also preserve our obligation to the elderly through strengthened Social Security and Medicare, showing one generation need not be pillaged for the well-being of another. There were some surprises. The Bowles-Simpson plan, for example, scored higher than the president’s for reducing our out-of-control defense budget. For all his deficit-cutting bluster, Rep. Ryan received an “incomplete” for long-term debt reduction, since the budget chairman has failed to give adequate details on the taxes he’ll need to raise to meet his target. He can’t seem to give up his raft of new tax cuts for the wealthy and their heirs — even at a time when taxes are lower than they’ve been since 1958 . Does Rep. Ryan really believe that Americans are willing to stomach the end of middle-class America? Until the political conversation takes note of the relationship between our fiscal choices and the future of the middle class, our leaders will continue to get away with touting policies that exacerbate its decline. The winning legislative plan in our report card — the CPC’s “People’s Budget” — demonstrates that we can achieve fiscal balance while preserving the America we all cherish.

Read the full article →

Scott Bittle: Fiscal Follies: No New Taxes? So Now What?

May 8, 2011

As of this weekend, it looks like Congress will hammer out some sort of deal to extend the federal debt ceiling and avoid pushing the country to the brink of default. The response from the Washington Post ‘s Ezra Klein is the best we’ve read so far. “Whew,” Klein wrote last week. As Klein tells it, both sides are softening their hard line positions out of a “healthy aversion to unimaginable consequences.” Whew indeed. But regardless of what kind of package Congress agrees on, this is just the beginning. We need to cut spending and raise revenue for years to get the country out of its fiscal mess. Unfortunately, a sizable contingent of Americans still believes we can solve our problems without tax increases — or at least not any that would affect “me.” More than half of Americans (53 percent) reject the idea of small tax increases and small cuts in Social Security and Medicare to “significantly” reduce the federal debt. Majorities oppose eliminating deductions for home mortgages, state and local taxes, and contributions to charities as “part of a plan to reduce the federal budget deficit.” By a margin of two-to-one, the public wants to balance the federal budget by cutting spending rather than raising taxes. And why wouldn’t they? Politicians have been telling the public for years that all we need to do is cut — even if they stop short of describing the details. So let’s take a look at what “no new taxes” really means if that’s the way we decide to go. Our trillion-dollar budget problems will be $3 trillion dollars worse. Since the Bush taxes cuts are set to expire in 2014, “no new taxes” means that Congress will need to extend them. According to the Congressional Budget Office, extending all of the existing cuts (both the Bush cuts and the expanded tax credits put in under President Obama) means government will have about $3.2 trillion dollars less to spend over the next decade . If we were at even-steven now, or even close, that would be one thing, but the United States is some $14 trillion in debt , and on track to have our national debt exceed the size of our entire economy in only 10 years or so. Plus, just about every budget out there, from the left, right, and the center (and including the Ryan plan ) has us adding to the red ink for decades. The cuts would have to be savage. Okay, for the sake of argument, let’s see what it would take to eliminate 2011′s $1.4 trillion deficit just by cutting spending. The total budget is about $3.8 trillion, so you have to cut about a third of what government now spends . That might not sound impossible, but once you take a look at the numbers, the task is daunting. To cut the deficit by one-third, you would need to eliminate everything government does except for defense, Social Security, Medicare, Medicaid, and paying interest on the debt. Losing that “non-security discretionary spending” would save $533 billion , but of course, you’ve also just wiped out the entire departments of agriculture, commerce, education, energy, and labor. We no longer have federal meat inspectors, the Centers of Disease Control, FEMA or Pell grants. Want to sink your teeth into defense spending? That’s fine, but to eliminate that $1.4 trillion deficit, entirely, you’d need to cut the entire national security budget: all $900 billion of it in 2011. People may end up paying more one way or the other, even if it’s not called a “tax.” The Republicans seem to be backing away from Rep. Paul Ryan’s controversial budget plan, which included turning Medicare into a voucher plan. It’s a “no new tax” plan, and whatever you think about it overall, it makes one tradeoff perfectly clear: the price for no new taxes is higher medical premiums for seniors . Under his plan, the CBO reported, by 2030 seniors would be paying double what they’re currently projected to pay for Medicare . In a philosophical sense, you may have strong feelings about paying higher premiums versus more taxes — but the cost to your bank account is the same either way. Taxing fat cats doesn’t help as much as you think. It is true that most Americans (although certainly not the purists) do back the idea of raising taxes on people who earn more than $250,000 a year . Unhappily, it doesn’t raise that much money. The CBO calculated that raising taxes by 1 percent on the top two income brackets (individuals earning about $175,000 and couples earning about $212,000) would only bring in about $84 billion dollars over the next decade. Unfortunately, our projected deficit for next year is about 10 times that. There certainly are other options — larger tax increases for wealthier Americans, higher corporate taxes, higher payroll taxes, modest tax increases on all of us, taxing fossil fuels, and so on. But the “no new taxes” mantra shuts down any reasonable conversation on how to cut spending and increase revenues in the fairest, least destructive way. The fact is that most government spending is on Social Security, Medicare, and Medicaid, programs the vast majority of Americans value, and there’s no way to protect them (even with tweaking) without raising taxes to cover what they cost. Perhaps the worst result for the country is when an immovable fixation against higher taxes on one side hits up against an immovable fixation on the other side that Social Security and Medicare are untouchable. At that point, the math is simply impossible. In the near-term, Congress may agree on some immediate spending cuts and make some promises about what they’ll do in the future. We’ll all feel better temporarily. But unless more Americans begin to grasp the facts of the budget, we’ll never get out of this. It’s easy to say “no new taxes,” but in real life, the results are almost unimaginable.

Read the full article →

Robert Auerbach: Bernanke’s Press Conferences Will Not Remedy the Fed’s Corrupt and Deceptive Public Records Policies

April 25, 2011

Chairman Ben Bernanke’s public press conferences are intended to open the nation’s central bank, the Federal Reserve, to needed public sunlight. Bernanke may well dodge any questions on Fed policies, the only policies the Fed has authority to alter. He will be eager to talk about fiscal and budget policy over which the Fed has no direct control except for Fed loans. Some of these loans were forced into public view by the recent Fed audit required under the 2010 Chris Dodd-Barney Frank Act. What is needed is a complete record of the discussions at the Fed meetings of the Federal Open Market Committee, FOMC (12 members), and its Board of Governors (7 governors when all seats are filled). These unelected officials determine the size of the nation’s money supply and the payment of billions of dollars of interest to private sector banks that currently (4/20/2011) hold $1.486 trillion in reserves at the Fed. Bernanke has said he may raise the rate of interest on these reserves, as he will be forced to do if market interest rates rise. The transcripts of the FOMC meetings should be published within six months, ending the practice of a five-year delay. The Fed should not destroy the original FOMC transcripts that were formerly sent to the National Archives and Records Administration after 30 years. The Fed does publish minutes of its FOMC meetings with about a month delay. The minutes are a poor and inaccurate substitute for transcripts. The minutes currently released were created by Fed Chairman Arthur Burns in 1976 as a substitute for the transcripts which the Fed publicly said would no longer be made. The 17-year lie ended in 1993. During a House Banking Committee Chairman Henry B. Gonzalez investigation the Fed was forced to show to me the 17 years of transcripts which they had kept secret, avoiding Freedom of Information requests. The transcripts were in an office around the corner from Greenspan’s office. Unlike the FOMC transcripts, the minutes contain no attributions of FOMC members’ views except on final recorded votes where all but an occasional few members display unanimity. The interpreters of the Fed’s minutes should read what Fed Chairman Burns said to his staff about padding the minutes and not giving the public too much information. Researching Burns’ papers at the Gerald R. Ford Presidential Library and Museum, I was able to obtain and include in my book his instructions to the Fed staff about the FOMC minutes. Bernanke’s press conferences will not replace the FOMC transcripts that establish individual accountability for the Fed officials who discuss and vote on important national policies. Bernanke may give some insight into his views but this can be misleading without the transcripts. There is a clear episode in the Greenspan Fed where public statements about monetary policy were completely different from what was said by the chairman at a number of the then secret FOMC meetings. As Bernanke surely knows, a Fed chairman can make a dangerous mistake at a press conference that dramatically affects equity markets and bank customers. This kind of information can be edited from the published FOMC transcripts in conjunction with professional archivists from the National Archives and Records Administration. When it came to public questioning of Fed chairmen, Greenspan was the master of garblements as I well learned from preparing questions for members of the Financial Services Committee to ask Fed Chairmen Arthur Burns, William Miller, Paul Volcker, and Alan Greenspan. Greenspan even told the FOMC (10/5/1993) members how to play the congressional committee members during the very month that the Fed officials were required to be witnesses at a Gonzalez hearing on Fed records: “… it would be quite easy to say: And by the way, this reminds me of an incident in 1936 in Sacramento or something like that.” Some members of the press may be reticent to ask pointed questions on Fed polices and operations because of the need for access to the Fed chairman and to avoid retaliation. The Fed has a history of retaliation to members of the press. My book includes a picture of an internal memo about the treatment of a member of the press, Nicholas von Hoffman who was a columnist at the Washington Post and had segments on 60 Minutes . A Fed official sent an internal memo (12/6/1974) to Fed Chairman Arthur Burns “concerning our conversation yesterday about Nicholas von Hoffman. Bart Rowen [Hobart Rowen, former financial writer at the Washington Post ] thinks it would be an excellent idea for you to discuss the matter with Katherine Graham [Katharine Graham]“, the owner of the Post, apparently to get Hoffman fired or warned. Although this memo may not have played a part in Hoffman leaving the Post , the following warning about the Post editor is an interesting tribute to free journalism. The Fed official warned Burns to be careful of the editor, Ben Bradlee: “Additionally, Ben Bradlee’s reaction to an approach of this nature might be: “Washington’s officialdom is squirming; keep up the good work.”

Read the full article →

Budget Deal Vote Thursday, Boehner Tries To Keep GOP Together

April 14, 2011

ANDREW TAYLOR, Associated Press WASHINGTON – The House and Senate are ready to vote on legislation cutting almost $40 billion from the budget for the current year, but President Barack Obama and his GOP rivals are both eager to move on to multiyear fiscal plans that cut trillions instead of billions. ( SCROLL DOWN FOR LIVE UPDATES ) Lawmakers were to vote Thursday on a long-overdue spending measure funding the day-to-day budgets of federal agencies through September. Later in the day, Republicans dominating the House will launch debate on a 2012-and-beyond plan that promises to cut the long-term budget blueprint Obama laid out in February by more than $6 trillion. The budget deal has drawn high-profile opposition from some in the GOP. The Washington Post reports : Thursday’s vote will be closely watched as an indicator of fissures between Boehner’s leadership team and the party’s tea party adherents, who had pushed aggressively for deeper spending cuts. “This is our day of reckoning,” said Rep. Ann Marie Buerkle (N.Y.), another swing-district freshman Republican. She, too, was undecided. Obama countered Wednesday with a new call to increase taxes on wealthier people and impose quicker cuts to Medicare, launching a roiling debate in Congress and the 2012 presidential campaign to come. Obama fired a broadside at the long-term GOP plan, which calls for transforming the Medicare health program for the aged into a voucher-like system for people under the age of 55 and imposing stringent cuts on Medicaid, which provides health care to the poor and disabled, including people in nursing homes. More immediate, however, is the 2011 spending measure. It combines more than $38 billion in cuts to domestic accounts with changes to benefit programs, like children’s health care, that Congress’ own economists say are illusory. Thursday’s measure is a compromise between Obama, GOP House Speaker John Boehner of Ohio and Democratic Senate Majority Leader Harry Reid of Nevada. As such, it’s a split-the-differences compromise that considerably smooths a much more stringent version that passed the House in February. Click here to continue reading The bill cuts $600 million from community health programs, $414 million from grants for state and local police departments, and $1.6 billion from the Environmental Protection Agency’s budget. Community development block grants, a favorite with mayors of both political parties, take a $950 million cut. And construction and repair projects for federal buildings would absorb an almost $1 billion cut. Obama, however, was able to ease cuts to favored programs like medical research, family planning programs and education, while largely ridding the bill of conservative policy initiatives to block last year’s health care law and new environmental regulations. But the measure would have little direct impact on the deficit through the Sept. 30 end of the fiscal year, according to the Congressional Budget Office, since about $8 billion in immediate domestic program cuts are more than outweighed by increases for the Pentagon and ongoing war costs. Later Thursday, the GOP-dominated House will kick off debate on its long-term budget plan, a measure promising stiff cuts to domestic agency budgets that total $1.8 trillion over 10 years. The GOP measure, a non-binding blueprint that sets a theoretical framework for future legislation, would also sharply cut Medicaid and transform it into a block grant program runs by the states. It doesn’t touch Social Security, however, or immediately cut Medicare. But the GOP plan calls for transforming Medicare in the future by replacing the current system, in which the government directly pays doctor and hospital bills, into a voucher-like program in which future retirees purchase private insurance plans. People 55 and over would stay in the current system but younger people would receive the insurance subsidies, which economists say would gradually lose value over time because they wouldn’t keep up with inflating costs of medical care. Obama and Democrats say the GOP Medicare plan, devised by Budget Committee Chairman Paul Ryan, R-Wis., would “end Medicare as we know it.” On Wednesday, Obama said spending cuts and higher taxes alike must be part of any deficit- reduction plan, including an end to Bush-era tax cuts for the wealthy. “We have to live within our means, reduce our deficit and get back on a path that will allow us to pay down our debt,” the president said in a speech at George Washington University, a few blocks from the White House. “And we have to do it in a way that protects the recovery, and protects the investments we need to grow, create jobs and win the future.” Obama’s speech was salted with calls for bipartisanship, but it also bristled with attacks on Republicans. “What we got was a speech that was excessively partisan, dramatically inaccurate and hopelessly inadequate to addressing our country’s pressing fiscal challenges,” Ryan said. “What we heard today was not fiscal leadership from our commander in chief. What we heard today was a political broadside from our campaigner in chief.” Obama’s plan relied on some of the same deficit-reduction measures proposed in December by a bipartisan fiscal commission he appointed. The president is scheduled to meet Thursday at the White House with the co-chairmen of the commission, Democrat Erskine Bowles and Republican Alan Simpson.

Read the full article →

‘Tax Freedom Day’ May Overstate Middle-Class Tax Burden

April 12, 2011

One hundred and one days. That’s how long it will take Americans to earn enough income to pay off their total 2011 tax obligation to the U.S. government, according to the Tax Foundation, the fiscally conservative think tank that will celebrate April 12 as the day of completion, labeling it Tax Freedom Day. The Tax Foundation’s calculation, however, doesn’t account for America’s richest citizens paying taxes at significantly higher rates than middle- and low-income taxpayers. Instead, they simply divide total taxes collected ($3.628 trillion) by the net national product of the country ($13.107 trillion). But while this year’s tax revenue as a percentage of national income is higher than 2010 (26.9 percent) and 2009 (26.6 percent), it remains lower than any other year since 1966. This recent trend toward earlier Tax Freedom days largely results from declining tax revenues since the recession, the study’s author, economist Kail Padgitt, said in an interview. Tax Freedom Day has sparked debate over middle-class taxes, with the Center on Budget and Policy Priorities arguing , the Tax Foundation figures exaggerates the tax obligations of “typical middle-income workers. Only the richest 20 percent of Americans pay taxes at or above the level indicated by the Tax Foundation, CBPP notes, while the other 80 percent pay a considerably lower percentage, citing the most recent data available from the Congressional Budget Office: Still, the Tax Foundation says their Tax Freedom Day is a useful indication of the state of the country’s overall tax burden. The calculations, the foundation notes, don’t account for Americans’ estimated future obligations to the nation’s $14 trillion deficit . Here’s a Tax Foundation chart on the gap between the deficit and tax revenue. What Tax Freedom Day also doesn’t take into account, though, is that the U.S. has also seen a rapid rise in the amount of income that is exempted from taxation. Over the last 50 years, non-taxable annual U.S. income per capita has grown by 600 percent to $12,528 from $2,007. Taxable income has only doubled in that span — to $31,303 from $15,368 — placing an additional strain on the federal deficit. Some, including University of Maryland political science professor Robert Stoker, argue that the Tax Foundation’s indicator builds an unfair bias against progressive income taxes and other taxes that actually lift the tax burden off of middle-class households. “As [long as] income [becomes] more and more concentrated at the top, Tax Freedom Day will fall later and later in the year,” Stoker says. “That is, unless we shift the tax burden on to working Americans. Among the states, Connecticut (May 2) has this year’s latest Tax Freedom Day, while Mississippi (March 26) has the earliest. Of course, how states and cities obtain revenue for governments differs drastically by region. As explained in Taxing the Poor , a 2011 book by Katherine Newman and Rourke O’Brien, the South tend to rely on sales tax (a regressive tax) while the Northeast is dependent on revenue from income taxes (more often progressive): The largest percentage of income ever dedicated to taxes was 33.0 percent, recorded during the Clinton administration. President Bill Clinton, who benefited from a surging dot-com economy, balanced the budget from 1998-2001.

Read the full article →

Dean Baker: Paul Ryan in Your Pockets: Government by People Who Hate You

April 12, 2011

House Budget Committee Chairman Paul Ryan put out a budget proposal last week that will leave the vast majority of future retirees without decent health care by ending Medicare as we know it. According to the Congressional Budget Office (CBO) analysis, most middle-income retirees would have to pay almost half of their income to purchase a Medicare equivalent insurance package by 2030. They would be paying much more than half of their income in later years. This sort of broadside against the living standards of the middle class might have been expected to draw an outraged response in a nation that exalts the lifestyle and values of the middle class. Instead the punditry rallied around Mr. Ryan’s plan to deal with the problem of run-away entitlement spending, crediting it for being “serious” even if they did not embrace all the details. If there is any doubt that our political system is controlled by an elite who is completely removed from the bulk of the population, this response to the Ryan plan ended it. There is nothing at all serious about the Ryan plan. It is naked attempt to redistribute yet more money to the country’s rich at the expense of everyone else. The proposal to end Medicare relies on market efficiencies to get health care costs under control, as though we had not tried this before. Has Representative Ryan never heard of Medicare Advantage or Medicare Plus Choice? Doesn’t he know that we already have the opportunity to see the effectiveness of private insurers in containing health care costs in the vast non-Medicare insurance market? Based on this extensive experience, we know that the private insurance market does not control costs. This is why CBO calculated that Ryan’s plan would hugely raise the cost of health care for seniors. If every senior got a Medicare equivalent policy under Representative Ryan’s plan (which most will not be able to afford), the added cost of his system would be more than $20 trillion over the next 75 years. This comes to more than $60,000 for every man, woman and child in the country. That would be money out of the pocket of ordinary workers and retirees that will go to the insurance and pharmaceutical industries, highly paid medical specialists and other health care providers. When it comes to redistributing money upward, the bar for intellectual coherence is set very low. Pundits from across the political spectrum had a hard time containing their enthusiasm for Ryan’s plan even if few were willing to embrace it in its entirety. And, if there was not enough substance over which to get excited, then there were always the 37 footnotes which Washington Post columnist Charles Krauthammer trumpeted last week. In principle the country’s elite should be laying low right now. After all, their greed and ineptitude has given us the worst economic collapse since the Great Depression. But after getting the Wall Street banks back on their feet with trillions of dollars of government subsidized loans, the elite are once again making a full-frontal assault on the living standards of the middle-class. Last week it was Medicare, but they promise to be back to attack Social Security in the not-too distant future. The ostensible rationale for this attack is the country’s huge budget deficit. This is garbage. As all the pundits know, the country has a huge deficit today because the Wall Street boys drove the economy off a cliff. If the government deficit was not propping up the economy we would be looking at 11 or 12 percent unemployment, rather than 8.8 percent. Spending creates jobs and at this point it is not coming from private sector, so the government must fill the hole. Over the longer term the projections of huge deficits are driven by the projected explosion in health care costs. President Obama’s health care reform took steps toward constraining these costs, although probably not enough. Remarkably, Ryan’s plan abandons these cost-control measures, virtually guaranteeing that quality health care becomes unaffordable for all but a small elite. And the pundits call Ryan’s plan “serious.” Yes, it is very serious. It is a serious plan for taking tens of trillions of dollars from low-income and middle-income people and giving them away as tax breaks to the rich and to the health care industry. It is about as serious as a robber with a gun pointed at your head.

Read the full article →

Video: O’Neill Says Shutdown `Unlikely’ to Harm U.S. Economy

April 8, 2011

April 8 (Bloomberg) — June O’Neill, former director of the Congressional Budget Office, talks about the potential impact of a federal government shutdown on the U.S. economy and financial markets. O’Neill, now a professor at Baruch College, speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

Read the full article →

Dan Solin: Investing USA Style

March 30, 2011

Ninety percent of individual investors “invest” this way: Using the Internet, discount brokers or retail brokers, you try to guess the direction of the markets. You follow the financial news. You pick stocks or mutual funds you are told will outperform. You are filled with anxiety, confused, distressed and frustrated. The returns published by top performing mutual funds far exceed your returns. You wonder who is getting those returns. How did those investors know a particular fund was going to do so well? The predictions of the talking heads on the financial media are mesmerizing. They sound so knowledgeable and intelligent. But if they really have predictive powers, how did they miss the market crash in 2008 and the rapid recovery which continues to date? If you take the time to review the data, you are troubled to learn their track record is no better than the toss of the coin. Is this an intelligent way to plan for retirement? You don’t trust the securities industry. You can’t forget it was these “investment gurus” who brought us to the brink of a worldwide depression. If they can’t manage their own money, what qualifies them to manage yours? You read about the insider trading scandals and it confirms your suspicion that the playing field is not level. What chance do you have if these guys are on the other side of your trade? It’s not just the crooks like Madoff who make you nervous. You have the niggling feeling the entire system is one giant Ponzi scheme, which is simply a pretense for the transfer of your money to those who manage it. If you have a 401(k) plan, and your employer matches, you still get little comfort. The number of investment options is bewildering. You have no idea how to put together a globally diversified portfolio in an asset allocation appropriate for you. No one at your company can help you. The web site provided by the record keeper for the fund is helpful, but you don’t get any advice tailored for you. You keep reading about conflicts of interest and excessive fees in these plans. You know something is wrong, but you have no idea how to fix it. You have lost confidence in the SEC. It is under funded and under staffed. Most of its employees are just doing their time to build up their resume so they can jump to lucrative jobs with the same industry they are “regulating.” You can’t forget the sound byte provided by Harry Markopolos in his congressional testimony into the failure of the SEC to detect the Madoff fraud, even though he laid it out for them in agonizing detail: “If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn’t be able to find first base.” Can you depend on these lost souls to protect you from Wall Street? Welcome to what passes for investing in the USA. Following these simple steps would increase your returns significantly (based on historical data), eliminate your anxiety and put you in control of your finances: 1. Formulate an investing goal. Most investors don’t have one. If you don’t know how much you will need to accumulate in retirement assets so you (and your surviving spouse or partner) can maintain your quality of life and not die destitute and dependent on others, this would be a worthy goal. You can generate a very helpful report here . Full disclosure: I am affiliated with Index Funds Advisors, which created and administers this report. 2. Fire your “market beating” retail broker or advisor. They have no predictive powers. They can’t pick stocks or time the market. Most of them can’t even calculate the risk of your portfolio. Their primary goal is to generate fees or commissions, while purporting to have an expertise that doesn’t exist. 3. Determine your asset allocation . Invest in a globally diversified portfolio of low cost stock and bond index funds. 4. If you are not familiar with the research of Eugene Fama and Kenneth French, take the time to learn what the largest and most sophisticated investors in the world know about investing. You won’t find this information in the financial media or at the office of your retail broker. This is what investing should be about. It should be investor centric. At present, it’s broker centric. The securities industry is fighting hard to keep it that way. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

Read the full article →

Budget Impasse Increasing Risk Of Government Shutdown

March 26, 2011

With time running short and budget negotiations this week having reached an angry impasse, Congressional leaders are growing increasingly pessimistic about reaching a bipartisan deal that would avert a government shutdown in early April.

Read the full article →

Goldman Banker Behind ‘Smear Campaign’ Against Elizabeth Warren

March 18, 2011

WASHINGTON — A Wall Street Journal editorial writer who has been closely involved with the paper’s recent attacks on Elizabeth Warren is a former Goldman Sachs banker. The same editorial writer, Mary Kissel, is readying another piece critical of Warren and the new consumer agency, according to a source familiar with the coming article. Like most major newspapers, the Journal does not disclose the authors of its editorials. Kissel recently appeared on the John Batchelor radio show as a representative of the Journal ‘s editorial board do discuss Warren, and repeated the main arguments used in the editorials. The editorials paint both Warren and the new Consumer Financial Protection Bureau as an immensely powerful, unaccountable organization. The nascent agency is assuming the consumer protection duties currently exercised by regulators at the Federal Reserve and the Office of the Comptroller of the Currency. The author, Mary Kissel, worked for Goldman between 1999 and 2002 as a fixed income research and capital markets specialist . Kissel is listed on the Journal’s website as a member of the editorial staff and her bio includes her time at Goldman Sachs and notes that she worked for the company in both New York and London. On Wednesay, Warren testified before a House subcomittee , providing 34 pages of written answers while submitting to two-and-a-half hours of aggressive questioning from congressional Republicans, who deployed talking points similar to those used in the recent Journal editorials. “There has definitely been an uptick in attacks on her and on the agency over the past few weeks, it’s hard to imagine it hasn’t been well-coordinated by somebody,” said a source close to Warren. “The smear campaign by The Wall Street Journal ‘s editorial board this week includes the most unfactual and outrageous hit pieces on her yet. If it’s true that the author of the editorials and Goldman Sachs coordinated on them, they should both be exposed and called to account.” The headline of Thursday’s Journal editorial is “President Warren’s Empire,” which goes on to say, “The consumer bureau is essentially a bureaucratic rogue. We’d like to see Congress kill the agency entirely. But at the very least Congress should remove it from the Fed, make it part of the Treasury and subject it to annual appropriations.” Bank regulators are not subject to the Congressional appropriations process, because the budgeting game allows banks to lobby against the funding of their own regulator. The only financial regulator subject to this process was the agency charged with overseeing Fannie Mae and Freddie Mac during the housing bubble, which proved unable to rein in risk-taking at the mortgage giants as they poured lobbying cash into Congress. In a recent interview, Rep. Randy Neugebauer (R-Texas) acknowledged that the House GOP’s efforts to curtail funding for the CFPB were essentially an effort to prevent the agency from conducting consumer protection regulation. On Wednesday, the Journal accused Warren and the CFPB of “extorting billions of dollars from private mortgage servicers” in the agency’s role as an advisor in negotiations to settle allegations of widespread fraud in the foreclosure process. The editorial also argues that “Ms. Warren is already using the Consumer Financial Protection Bureau to tell banks how and to whom to lend money.” The foreclosure process is in disarray, and even Republican state Attorneys General say that banks have broken the law with improper foreclosures. Consumer advocates have accused banks of levying heavy, improper fees against borrowers, driving them into foreclosure, while other borrowers have been foreclosed on without missing any mortgage payments . Banks have also physically broken into the homes of borrowers in order to pursue foreclosures. Warren has publicly criticized Goldman in testimony before Congress and during on-air interviews with CNBC and Bloomberg. When Warren chaired the Congressional Oversight Panel for the Troubled Asset Relief Program, she told Sen. Chuck Grassley (R-Iowa) during a hearing that Goldman had not provided her panel with key documents pertaining to the bailout of AIG, from which Goldman reaped over $11 billion. She also said that the Wall Street giant should be investigated for wrongdoing pertaining to the sale of mortgage derivatives during the housing bubble. Goldman eventually settled with the SEC for $550 million over allegations that it defrauded investors. Kissel declined to comment for this article, and the Journal did not respond to an email requesting comment. Goldman Sachs did not return a call requesting comment.

Read the full article →

Jan Schakowsky Introduces Bill To Raise Taxes For Wealthiest Americans

March 16, 2011

WASHINGTON — Rep. Jan Schakowsky (D-Ill.) announced new legislation on Wednesday that would create new tax brackets for earners who make significantly more than the baseline for the current top income bracket. Currently, the top marginal tax rate of 35 percent applies to income starting at $373,650, and the tax code fails to distinguish between earners making a few hundred thousand dollars a year and those making a few hundred million dollars a year. “LeBron James and LeBron James’s dentist: same difference,” New Yorker financial columnist James Surowiecki quipped last year during early debate over the extension of the tax cuts enacted under former President George W. Bush. Meanwhile, income inequality continues to soar, as Schakowsky, one of the 18 members of President Barack Obama’s debt commission, noted on Wednesday. “In the United States today, the richest 1 percent owns 34 percent of our nation’s wealth — that’s more than the entire bottom 90 percent, who own just 29 percent of the country’s wealth,” she said during her prepared remarks at a press conference. “And the top one-hundredth of 1 percent now makes an average of $27 million per household per year. The average income for the bottom 90 percent of Americans? $31,244.” Schakowsky’s bill would create new tax brackets for earners making between $1 million and $1 billion annually, with tax rates starting at 45 percent with the millionth dollar and increasing on a sliding scale. The legislation would also tax capital gains and dividend income as ordinary income for those earning over $1 million in a given year. A full list of the new brackets appears below: $1-10 million: 45% $10-20 million: 46% $20-100 million: 47% $100 million to $1 billion: 48% $1 billion and over: 49% If enacted in 2011, Schakowsky’s Fairness in Taxation Act would raise an estimated $78.9 billion in its first year, according to Citizens for Tax Justice, a liberal lobbying group. CTJ was unable to provide further projections, however. Reps. Keith Ellison (D-Minn.) and Raul Grijalva (D-Ariz.), co-chairs of the Congressional Progressive Caucus, partnered with Democratic Reps. Jesse Jackson, Jr. (Ill.), Donna Edwards (Md.), Bob Filner (Calif.), Jerry Nadler (N.Y.), Steve Cohen (Tenn.), John Yarmuth (Ky.) and Peter DeFazio (Ore.) to cosponsor the bill. “The middle class is shrinking and deficits are rising because Republicans are giving a pass to special interests who aren’t paying their fair share,” Ellison said at the press conference. “This bill is part of a plan to level the playing field.” As the battle over the budget for the remainder of fiscal year 2011 continues to unfold on Capitol Hill, Schakowsky has been insisting that there are more progressive ways to reduce the country’s $13.7 trillion debt. She said she hopes her bill can broaden the focus of the debate, and Yarmuth offered similar sentiments in remarks to reporters Wednesday. “Yes, we have a spending problem,” said Yarmuth, “but we also have a revenue problem. We’re only asking that those of us who have done extremely well bear our fair share of the problem.” Yarmuth told reporters that a number of his Republican colleagues had told him in confidence that it would be difficult for them to vote against Schakowsky’s bill were it to come to a vote. “It will just be very interesting if we can get it up to a vote,” he said. A recent NBC News/ Wall Street Journal poll found that the most popular way to reduce the federal deficit was to place a surtax on federal income taxes for Americans making more than $1 million per year, with 81 percent of respondents agreeing with that statement. Katharine Myers, a Pennsylvania millionaire who made her fortune off the royalties from the Myers-Briggs personality test created by her mother-in-law, told reporters at Wednesday’s press conference that she believes the wealthy should pay substantially higher taxes — all of them. “Someone once said, ‘Why don’t you donate money to the government?’ Well that would be like putting a grain of sand in a beach,” Myers said. “It needs to apply to everybody.”

Read the full article →

Watchdog: TARP Helped Perpetuate A ‘Too Big To Fail’ System

March 16, 2011

WASHINGTON (Reuters) – The watchdog panel for the $700 billion bank bailout faulted the U.S. government for the last time on Wednesday, saying the program helped underpin the perception that federal authorities will always prevent troubled financial firms from failing. In its final report on the bank bailout, the panel attacked the government for not being transparent enough and not articulating clear goals for its foreclosure prevention program. It also said federal intervention transformed the notion of ‘too big to fail’ into a stark reality. “Very large financial institutions may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the loss,” said the report authored by the Congressional Oversight Panel. Stigmatized for bailing out Wall Street at the expense of ordinary Americans, the Troubled Asset Relief Program, known as TARP, used billions of dollars in taxpayer money to prop up major financial firms, including Citigroup and Bank of America. Timothy Massad, the Treasury official in charge of the bailout program, said it was “simply wrong” for companies to think that the government would provide assistance to bail them out in the future. The Dodd-Frank financial reform bill “makes it clear that we should not use taxpayer funds for that,” Massad told reporters. In recent months, TARP has enjoyed a renaissance of sorts, with some of its harshest critics admitting that the program helped save the financial system from collapsing. AUTO BAILOUT The watchdog panel concluded taxpayers would not likely recoup all of the $85 billion extended to the auto industry. Most of that went to restructure General Motors Co and Chrysler Group, now run by Italy’s Fiat SpA, in bankruptcy. The group found that government intervention in the automaker bankruptcies “raised questions about the long-term effects” of such action on credit markets, as well as sticky scenarios involving companies considered “too big to fail.” The report found that the Treasury failed to set clear goals, making it difficult to determine whether intervention in GM, Chrysler, suppliers and automaker financing arms was successful. It questioned whether the goal was only to save the auto industry from collapse or to extend rescue financing with the aim of recovering all of it when the industry got back on its feet? “It is difficult to say whether government intervention was the best option,” the report found. Congressional panel Chairman Ted Kaufman told reporters that he thought it was a good thing the government “went forward with funds” for the auto companies. MORE TRANSPARENCY NEEDED The panel admitted that TARP helped provide critical support to markets at “a moment of profound uncertainty” by showing that the country would take any action necessary to prevent the collapse of the U.S. financial system. The TARP’s final cost to taxpayers is estimated to be about $25 billion — an amount far below previous estimates of around $350 billion. Regardless, the panel chided the government for not using the full $50 billion that has been set aside to help keep distressed Americans in their homes. The Obama administration initially predicted that its Home Affordable Modification Program, or HAMP, would help up to 4 million at-risk homeowners avoid foreclosure by providing permanent loan modifications. So far, HAMP has provided loan modifications for about 600,000 homeowners, angering House Republicans, who are trying to kill the program. Congressional overseers expect the program to help up to 800,000 homeowners. The panel said the Treasury Department was not able to determine which TARP programs were succeeding because it never collected relevant data in the first place. “Without adequate data collection, Treasury has flown blind,” the report said. The panel reiterated criticisms that the Treasury has never formally announced a new target. “Absent meaningful goals, the public has no meaningful way to hold Treasury accountable, and Treasury has no clear target to strive toward in its own deliberations,” the report said. (Reporting by Rachelle Younglai and John Crawley; Editing by Dan Grebler) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

State GOP Lawmaker: Unemployed Should ‘Get Off Their Backsides’

March 3, 2011

Missouri state Senator Jim Lembke, a Republican who recently made headlines for taking issue with red light cameras , railed against unemployment benefits earlier this week during a debate about whether the state should accept additional federal funds in to extend the program. “Ninety-nine weeks is too long,” Lembke said, referring to the 99-week window during which the unemployed can receive jobless benefits. “People need to get off their backsides and get a job. Maybe they’ll have to get two jobs or three jobs to make ends meet, but they need to quit stealing from their neighbors.” Lembke’s comments appear to be part of a larger trend that has taken place across the country during heated debate about providing additional aid to the unemployed. Many legislators who have opposed the extension or reauthorization of benefits over the past months have expressed their belief that unemployment insurance either discourages recipients from seeking jobs, or simply rewards the “lazy.” HuffPost’s Arthur Delaney reported last year in the heat of the congressional standoff over unemployment benefits: Beneath the deficit concerns, however, there’s something else: the suspicion that the long-term unemployed are a bunch of lazy drug addicts. It’s not an opinion openly shared by most members of Congress, but a handful of senators and representatives from both parties have said this year that they suspect extended unemployment benefits actually discourage people from looking for work. While the one-year extension of funds for unemployment benefits ended up being a large selling point for President Obama’s tax cuts compromise in December, the House GOP recently blocked a proposal to include additional benefits to the long-term unemployed in legislation that would have funded the government through September.

Read the full article →

Laid Off And Left Out In Wisconsin

February 28, 2011

MADISON, Wis. — Kathy Truesdel has no love for Scott Walker. “He kiboshed the high-speed rail. It could have put me to work,” she said. “That’s my biggest gripe.” Walker, the new Republican governor of Wisconsin, nixed the Milwaukee-to-Madison project started under his predecessor, Jim Doyle (D), which had $810 million behind it from the 2009 stimulus bill. Walker cited the costs of continuing the project once the federal funds ran out, even though the project’s proponents said it would have supported 5,500 construction jobs in Wisconsin for the next three years. Truesdel, a laid-off forklift driver, thought some of that employment might have come her way. She told HuffPost she’s been jobless for two years after working steadily for the previous 20. “Nobody seems to want to hire me,” said Truesdel, 41. “I’ve never been in this position my whole life.” It’s not something she wanted to protest about. She said she wasn’t interested in joining the anti-Walker demonstrations raging at the state capitol building up the street, where tens of thousands of union workers have swarmed to protest Walker’s proposal to strip collective bargaining rights from most government employees. Too much of a crowd for Truesdel. On Wednesday night, she sat on a barstool three blocks away at a dark dive called Mackesey’s Irish Pub, wearing a black hoodie. No noisy protesters here, and not even any students at the moment, either. Just the Wisconsin-Michigan basketball game on TV and burgers for $4. Truesdel and another regular, Mary Baldassare, recognized this reporter as an out-of-towner. Baldassare immediately wanted to know how their visitor liked Madison. “I like to be friendly with people when I see they’re new,” she said. Baldassare, 59, said she’s also wary of the big crowds, though she supports the protesters and unions in general. “It’s the only way small people can have their voices heard,” she said. “In other regular jobs, if you complain, they get rid of you.” Baldassare said she works one day a week cooking at a sorority house but has been without steady employment since 2008. She met Truesdel here about a year ago. “It’s nice to go out once and a while and talk to people, commiserate,” she said. Despite her degree in culinary management, she’s only been able to find odd jobs cooking or cutting hair. She used to run a motel in Florida, and worked alternately as a hairdresser or a cook her whole adult life. Before her husband died in 1999, she said, they used to go out to dinner once or twice a week. She said not having the money to go out more often “makes me feel kind of worthless.” The average U.S. unemployment spell now lasts nearly 37 weeks. The longer a person is out of work, the less likely they are to find a job, regardless of background. While the overall unemployment rate for people with a college degree is 4.2 percent, compared with 14.2 percent for people who don’t have a high school diploma, high school dropouts and college grads are equally represented among the million-plus who’ve been out of work for at least 99 weeks, according to the Congressional Research Service . Truesdel said her unemployment benefits ran out a few weeks ago. She’s still filing claims, she said, so the government knows that the unemployment crisis isn’t over. “Maybe they’ll address it more,” she said. “I don’t hear about it so much in the news.” Baldassare said she’s got a few weeks of benefits left thanks to part-time work that interrupted her jobless spell. She said she’s applied for every job she can find, including cooking and bartending gigs. It seems to her that businesses in this town would rather hire college kids for the kind of work she can do. The experience of constantly applying for jobs and never even getting a response from employers makes her feel small. “I feel like I’m a little piece of lint on the earth. A little dust bunny,” she said. “I have so much to give.”

Read the full article →

Sheldon Filger: Obama Proposing Record Budget Deficits; Is America Doomed to Follow Greece?

February 14, 2011

As the United States national debt reaches parity with total annual GDP, President Barack Obama continues to preside over a record level of deficit spending by the federal government. He has just sent to Congress a proposed $3.73 trillion budget for FY 2012, while forecasting a record $1.65 trillion deficit for the current fiscal year. Earlier, the Congressional Budget Office projected that the current deficit would reach at least $1.5 trillion. These figures mean that America remains trapped with unsustainable structural mega-deficits, and that more than 40 percent of everything the U.S. federal government spends is financed with borrowed money. As I have commented on before, this level of government indebtedness just cannot be sustained, and will lead to catastrophic repercussions. While the politicians in Washington, particularly in the Obama administration, pay lip service to the need to “rein in” this profligate public spending, nobody believes that they are serious. The president’s claim that he “plans” to reduce the deficit cumulatively over ten year by just over a trillion dollars is an utter farce, since even by the most optimistic forecasts this would leave a combined deficit over the decade of more than ten trillion dollars. The problem, however, is not uniquely one of the Obama administration and the Democratic Party. The Republicans, who left for Obama as an inaugural present in 2009 a first-ever annual deficit to exceed a trillion dollars, are as intellectually bankrupt as are their adversaries on the other side of the aisle. The GOP is equally bereft of ideas on how to control this raging fiscal train wreck, offering little more than worn-out cliches such as reducing taxes, as though that would not further exacerbate the federal government’s structural mega-deficit. What we are witnessing is not only an economic and fiscal calamity in the making. It is as much a display of political dysfunctionality and moral cowardice as it is of inept fiscal policy. Which leads to the melancholy conclusion that it will not be the political echelon in Washington that ultimately imposes budgetary discipline on public spending. Increasingly likely is a doomsday scenario, in which the bond vigilantes, well practiced already with their punishing assaults on the credit ratings of Greece, Ireland and now Portugal, unleash the full fury of the market place on Uncle Sam. When that fiscally apocalyptic moment arrives, not even the impressive weight of political inertia that resides in Washington DC will be able to impede a sovereign debt crisis in the United States that will not only cripple the nation’s economy with devastating effect; it will likely dispossess the next generation of Americans of their future.

Read the full article →

Wendell Potter: The Insurers’ Real Agenda for Change

February 12, 2011

The media had lots of health care news to obsess about last week. A federal judge ruled the health care reform law unconstitutional, and Senate Republicans tried in vain to repeal the law. But most of the press paid virtually no attention to a potentially much more important development — a multi-pronged effort by five major insurers to strip from the law key regulations and consumer protections that aren’t to their liking. The insurers do not want the bill repealed or declared unconstitutional. Congress gave them exactly what they wanted by including in the legislation a requirement that all Americans not eligible for Medicare or Medicaid buy coverage from a private insurance company. That provision alone will result in hundreds of billions of dollars in revenue and profits the insurers otherwise would never see. Officially, the insurers are maintaining neutrality on the court challenges to the law and the repeal efforts. They understand that Republican attorneys general who filed the lawsuits and the Congressional Republicans who voted to repeal the law — most of whom received campaign contributions from the insurers’ political action committees — must go through the motions to satisfy “the base.” The court challenges and repeal efforts are, in reality, a useful smokescreen for the big insurers, whose real agenda is to gut the law while preserving the mandate. Expect a big lobbying and PR campaign — financed by our insurance premiums — to persuade us that the new regulations and consumer protections will make those premiums skyrocket. The story much of the press missed was the revelation that the CEOs and lobbyists for the five biggest for-profits — UnitedHealth, WellPoint, Aetna, CIGNA and Humana — have been meeting frequently to plot their attack on the law. Bloomberg’s Drew Armstrong reported that three committees formed by the group have been meeting almost weekly. While Armstrong didn’t indicate what those committees are doing, I can speculate from previous experience as an insurance company executive that the committees are developing strategies in these areas: lobbying, strategic communications the formation of alliances with other political and business groups and the creation of fake grassroots, or “Astroturf” organizations. Bloomberg and the the National Journal also reported that the for-profits have solicited proposals from three big PR firms that have done extensive work for the industry: APCO WorldWide, Weber Shandwick and Public Strategies. It sounds familiar. While I was serving as head of corporation communications at CIGNA, I hired APCO and Weber Shandwick to help direct similar efforts and to enhance CIGNA’s reputation. The for-profits reportedly formed the new coalition — as yet unnamed — because they were upset that America’s Health Insurance Plans (AHIP), their umbrella trade association, had been unsuccessful in keeping the new regulations and consumer protections out of the law in the first place. So they’re going back to a familiar and successful playbook. Over the past two decades, the big insurers have formed such coalitions to defeat reform initiatives or to persuade the public and lawmakers to see things their way. When the Clinton reform plan was being debated in 1993 and 1994, Aetna, CIGNA, Prudential and United formed the Alliance for Managed Care (AMC) to argue for a “market-based” solution — managed competition, as it came to be called — as an alternative to broader government involvement in health care. The AMC described itself as “a private-sector approach to health care system reform that uses the marketplace and the power of informed consumer choices to achieve better coverage, while improving quality and cutting costs.” The AMC later joined a broader coalition that included the U.S. Chamber of Commerce and the National Association of Manufacturers to defeat the Clinton plan. A few years later, within weeks of being named as defendants in two massive class-action lawsuits, the for-profits formed a new group, America’s Health Insurers (AHI), designed to redirect scrutiny away from them and toward the trial lawyers behind the suits. Attorney Richard “Dickie” Scruggs alone cost the companies billions of dollars in market capitalization when the Wall Street Journal reported on Sept. 31, 1999, that Scruggs was planning to file charges against the insurance firms. On that day, stock prices of Aetna and United alone had plunged nearly 20 percent by the time the closing bell rang at the New York Stock Exchange. I was CIGNA’s main representative to America’s Health Insurers. My counterparts from other big insurers and I met secretly in hotel conference rooms in Washington and elsewhere with APCO to plan the PR strategy. The idea was to “reframe the debate” — shift attention away from the reasons the insurers were being sued — onerous policies and cheating doctors out of payments — and toward those trial lawyers who were getting filthy rich filing “frivolous” lawsuits. The lawyers — not the insurers — were the real villains. APCO reactivated the front group it had created for the tobacco industry — the Coalition Against Lawsuit Abuse — to generate letters-to-the editor and op-ed pieces in cities where the lawsuits had been filed – particularly Miami, where suits were eventually consolidated. The intent was to influence both the federal judges and potential jurors. (The suits were ultimately settled, with the defendants agreeing to change many of their practices and to pay the plaintiffs hundreds of millions of dollars.) I was also CIGNA’s representative to yet another organization — the Coalition for Affordable Quality Healthcare (CAQH) — that the big insurers created later. We mounted a huge PR and advertising campaign designed to restore Americans’ faith in managed care, which had taken a beating in the press for such well-publicized practices as “drive-through mastectomies” and “drive-though deliveries.” So this new grouping is just the latest variant on an oft-used tactic to influence public opinion and public policy. This time, however, the stakes are even higher, for both the insurers and for consumers. What don’t the companies like? Well, for starters, the rules that now require insurance firms to devote at least 80 percent of what we pay in premiums for actual medical care. But their sights are also on other provisions of the law that might impair profits. AHIP spokesman Robert Zirklebach provided a glimpse of what insurers really want when he told a reporter last week that industry lobbyists have embarked on a campaign to “educate” members of Congress about ‘flaws’ in the law. For instance, the industry will be trying to persuade lawmakers that young people, many of whom are being charged too much already, will see their premiums go sky high. How do you fix that? The insurers, of course, have an answer: get rid of the requirement that insurers can only sell policies that meet minimum benefit requirements and jettison the prohibition against charging older Americans any more than three times as much as young people. They want to charge them five to ten times as much. If the latest coalition of big for-profit insurance firms meets its objectives, many of us will eventually be convinced — through sophisticated, behind-the-scenes PR campaigns — that those protections are not in our best interests after all. If those campaigns help the big insurers eliminate such protections, that would be ideal for their bottom lines — but devastating for consumers. This also appeared on the Center for Public Integrity ‘s website.

Read the full article →

Robert Reich: The State of the Union and the Federal Budget: Investing in America’s Future

January 24, 2011

Word has it that the president will be emphasizing “improving American competitiveness” in his State of the Union Address Tuesday night. As I’ve noted , the term is meaningless — but it’s politically useful. CEOs and many conservatives think it means improving the profitability of American companies. Liberals and labor unions think it means increasing export jobs. Neither touches at the heart of the matter. Hopefully, the president will. Over the long term, the only way to improve the living standards of most Americans is to invest in our people — especially their educations, skills, and the communications and transportation systems linking them together and with the rest of the world (infrastructure). In the global economy, the only “asset” that’s unique to any nation — and that determines its living standard — is the people who comprise it. Almost everything else moves across global boundaries at the speed of an electronic impulse. (Money is available to any major business from anywhere around the world. Any entrepreneur can rent or purchase additional office or factory capacity, and the most up-to-date machinery, instantly from anywhere. Commodities, supplies, and components can be summoned almost as quickly from anywhere.) That’s why spending on education, infrastructure, and basic R&D (which educates our people in the technologies and processes of the future) is fundamentally different from other categories of government spending. These outlays are really investments in the future productivity of our people. Here’s where the debate over the deficit comes in. If the federal budget were organized sanely, it would be divided into three parts: (1) Past obligations, (2) Current needs, (3) Future investments. Past obligations reflect payments Americans have made over the course of their lives in the expectation of receiving social insurance (mostly Social Security and Medicare) when they retire. These past obligations need to be honored because they’re based on implicit contracts between the public and the government. If such contracts are to be altered, they should be altered only for future generations who haven’t yet entered into them. Current needs reflect everything we want today in order to remain safe and healthy (from national defense through Medicaid). The current needs budget should be balanced each year. It’s appropriate that we pay for all our current needs through our current taxes. But future investments are qualitatively different. There’s no problem with borrowing in order to finance such investments. While it might be irresponsible for a family to go into debt in order to finance a worldwide cruise, it could be equally irresponsible for the same family not to borrow money in order to help finance their kids’ college. In fact, borrowing in order to increase future productivity is sensible — up to the point where the return on the investment is no longer higher than the cost (principal plus interest) of the loan. Ideally, the federal budget would be divided along these lines — past, present, and future. And the future, or “capital,” budget (containing spending on education, infrastructure, and basic R&D) would be separated from the rest, with its own system for “scoring” — that is, evaluating — whether the likely return is worth the cost. It won’t be an easy call in every case, of course, but the Congressional Budget Office and the OMB take on much harder ones. Who knows? The president may even propose something like this tomorrow night. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

Read the full article →

Lloyd Chapman: FDIC Forum Ignores #1 Challenge for Small Businesses

January 13, 2011

On Thursday, January 13, the Federal Deposit Insurance Corporation (FDIC) will host an Obama Administration forum on “Overcoming Obstacles to Small Business Lending.” The American Small Business League (ASBL) believes the event will fail to address the #1 job killing issue facing small businesses: the diversion of small business contracts to corporate giants. For the last five consecutive years, the Small Business Administration (SBA) Office of Inspector General has named the issue as the agency’s #1 challenge . The ASBL has estimated that every year more than $100 billion in federal small business contracts are diverted to some of the largest corporations on earth. In February of 2008, President Barack Obama promised to end the abuse . Despite, thousands of business closures and countless lost jobs, the Obama Administration has failed to honor its promise, and end the diversion of federal small business contracts to corporate giants. The most recent information released by the Obama Administration shows large recipients of small business contracts such as Boeing, Lockheed Martin, Northrop Grumman, Raytheon, Dell Computer, Xerox, SAIC, General Dynamics, Bechtel and John Deere. In addition to the concerns about billions of dollars in federal contracting abuse, the ASBL does not believe the Obama Administration’s forum on lending is likely to create new jobs or stimulate the economy. The National Federation of Independent Businesses (NFIB) and the Congressional Oversight Panel have separately concluded that small businesses are in desperate need of demand, not loans. ( http://www.nfib.com/Portals/0/PDF/sbet/SBET201006.pdf ; http://www.huffingtonpost.com/2010/05/13/federal-oversight-panel-s_n_574781.html ) In December of 2009, the Obama Administration held its first forum on obstacles to small business lending. At the time, U-6 unemployment was 17.1 percent, according to the U.S. Bureau of Labor Statistics . More than a year later, U-6 unemployment has remained near 17 percent. We’ve spent trillions of dollars and focused small business assistance on lending, yet unemployment remains unreasonably high. Let’s just try something crazy like not giving federal small business contracts to some of the biggest companies in the world, and instead direct those dollars to the nation’s 27 million small businesses. Ending the diversion of small business contracts to corporate giants would put more money into the middle class economy, and create more jobs, than anything the Obama Administration has proposed to date.

Read the full article →

David Isenberg: Outsourcing War and Peace: Part 4

January 13, 2011

This is the fourth of five excerpts from law professor Laura Dickinson’s book, Outsourcing War and Peace: Preserving Public Values in a World of Privatized Foreign Affairs . . Find previous parts in the archive here . Private military contactors and their advocates generally say they are all for transparency and willingly comply with all government requirements dealing with that. Many of them say this with an utterly straight face and, in fact, at least some of them are genuinely sincere about it. But is just an undeniable fact that for the average member of the public, when it comes to getting information about a private sector company, their task just became orders of magnitude more difficult. Bear in mind that while companies frequently, if not routinely, use the “confidential business information” as a dodge there are cases when they would be willing to release the information but their client, the taxpayer supported federal government, will assert the excuse, even when the company wouldn’t, simply because the government doesn’t want the information made public. And woe betides the rare PMC employee who sees something going wrong and out of conscience goes public with it. Usually that ends up being an example of no good deed goes unpunished. Here we find that the work of contractors performing foreign affairs functions for the U.S. government is far more opaque, and employees of contract firms have far fewer protections if they decide to come forward with information about abuse. The result is that citizens are far more likely to hear about, and be aware of, the acts of governmental entities abroad than they will be about similar acts performed by private contractors. Indeed, even the public research entity that provides information to Congress, the Congressional Research Service, reports that “the lack of public information on the terms of the contracts, including their costs and the standards governing hiring and performance, make evaluating their efficiency difficult.” Weaknesses in the sunshine laws, as they apply to contractors, are part of the problem. While FOIA does give individuals the right to request information about the activities of foreign affairs contractors, its reach over the contractors is more limited than its reach over government actors. First, FOIA confers a right to view only government materials and not private business documents. Thus, in any case involving a contractor, there is a threshold question as to whether the documents even qualify as government documents. Second, in addition to any national security restrictions on government materials related to contractor activities, the statute grants an additional exception for “confidential business information.” Thus, any government documents that might involve “trade secrets and commercial or financial information obtained from a person and privileged or confidential” are exempt. As a result, any contract terms that could qualify as “confidential business” matters would not be open to public scrutiny. Accordingly, although citizens and organizations have used FOIA to obtain information about foreign affairs contractors, the information available is more limited than is information about agency conduct. Indeed, even members of Congress have complained about the difficulty of obtaining information about contractors. Representative Jan Schakowsky of Illinois, for example, has said that she was repeatedly thwarted in efforts to review State Department audit reports of DynCorp contracts because the department was bent on protecting DynCorp’s commercial secrets. According to a DynCorp spokesperson, releasing government audit reports would make public cost-per-employee figures that could help competitors undercut DynCorp in future bids. Yet, as Schachowsky notes, the result is that “there seems to be no real interest in overseeing or reporting or holding accountable any of these contractors. And we’re talking about billions of dollars of taxpayer money.” Whistleblower statutes also provide weaker protections for contract employees than they do for government employees. For example, although federal law does prohibit reprisals against contractor employees who speak up about misconduct, the information disclosed must “relate[] to a substantial violation of law related to a contract.” Federal employees, by contrast, are protected when they speak up about violations of rules as well as laws, and even when they complain about gross misconduct that does not rise to the level of lawbreaking. In addition, federal employees may disclose the information in question to the general public, while contractor employees are protected only if they limit their disclosures to members of Congress, authorized agency officials, or the Department of Justice. Finally, contractors have weaker options for enforcing their rights. If they believe they have suffered retaliation, they may complain to the inspector general of the contracting agency, but it is up to the agency head to decide whether to pursue a remedy against the contractors. Federal employees, by contrast, may complain before administrative tribunals and seek judicial review of those decisions. And although contractor employees may bring suits under the False Claims Act, just as federal employees may, these suits are limited to cases of fraud and do not include other types of misconduct.

Read the full article →

Bruce Bartlett: Time to Reform the Budget Process

December 31, 2010

ne consequence of the Senate’s irresponsible delay in confirming Jacob Lew as director of the Office of Management and Budget is that Congress will have less time to finish its work on the budget next year. This week, the White House announced that the president’s budget won’t be sent to Capitol Hill until mid-February, a week later than usual. It probably won’t make much difference. For decades, the president’s budget has been dead on arrival in Congress. This wasn’t always the case. Before creation of the Congressional Budget Office in 1974, the White House had a virtual monopoly on budget numbers. Congress, therefore, had little choice but to work from the president’s baseline and accept his underlying assumptions, which meant that appropriations bills tended to adhere closely to presidential priorities.

Read the full article →

Max Fraad Wolff: Sell Local?

December 28, 2010

Local and state finances receive very little national attention. Across the most recent economic crisis local government finances have taken an epic battering. The situation in California has received some attention, less than it deserves. The terrible toll of past policy and present economic weakness has not been drawn out into the light of debate. This short article seeks to start the conversation for three reasons. First, the financial condition in our 50 states, 3000 counties and 36,000 municipalities is severe. Second, state and local governments employ almost 10% of the US population and have been firing folks at a brisk clip. Thirdly, contraction in state and local government hiring, spending and service provision threatens to lower economic growth, reduce quality of life and increase inequality of income and opportunity. We are early into a decentralized, local austerity program similar to events in the Euro Zone. How bad is it? Bad. The states are in serious difficulty. As the recession began in late 2007 states were already spending at a fairly high clip and taxing at relatively low rate levels. As recession took hold demands for state services — direct and through aid to localities — increased sharply. States rely heavily on income and sales taxes. Consumption fell, employment fell and wages were stagnant to down. This reduced all the major sources of revenue. US states continue to face record demands for services, pension costs and health care costs. States have unfunded health and pension liability claims that run many hundreds of billions of dollars. Revenues are significantly down from 2007 levels. From 2003-2007 states were beneficiaries of revenues from booming construction, housing markets and retail spending. Housing has been in the worst recession in living memory and the average house price is off more than 25% since 2006. Declining personal income tax receipts, falling corporate income tax receipts and declines in sales tax have created one of the largest declines in income to US states in modern history. 2010 is shaping up to be a better revenue year than 2009. However, there will be widespread and long term deficits in most states. States face over $110 billion in budget shortfall in 2011. Many states have been getting by through a combination of federal assistance and issuing federally subsidized bonds — Build America Bonds. These two short term measures will be trailing off across 2011. Localities relay on state assistance for nearly $1 in every $3 that they spend. Localities depend heavily on property taxes for the balance of their income — in some cases sales taxes. The massive decline in property values in the US over the last few years will begin to put pressure on already stretched local and municipal budgets. It takes several years for falling property prices to show up in declining revenue to localities. Property is reassessed only every few years. State aid will be in decline as federal stimulus to states will trail off this year and states are in dire financial health. Local areas spend more than half their budgets on education and social services. These budgets are under significant and growing pressures. Like states, most municipalities have a fiscal year that ends in June and begins in July. Look for battles over wages, benefits and employment levels to heat up this spring. Massive pressure to lower costs and employment at the state and local level are here and are likely to grow more intense soon. According to research from the Congressional Budget Office (CBO) local governments have cut their spending by 2% and reduced their workforces by 241,000 since the start of this recession. Bureau of Labor Statistics (BLS) data shows that states have reduced their payrolls by 166,000 between November of 2009 and November 2010. There is every indication that these trends, state and local, will continue and are likely to become more dramatic. As payrolls are cut we should expect less service provision despite the continued high demand for services. This is a recipe for stresses for public educational institutions, law enforcement, colleges, universities, infrastructure and many other services. The reductions in spending and employment at the state and local levels will reduce economic growth. Reduced growth is likely to acutely affect lower income populations. Cuts in progressive and graduate federal income tax, estate taxes and capital gains taxes reduce the tax burden on the most affluent. Rising local property taxes, rising sales taxes and declining services at the state and local level are regressive. Taxes that land hard on lower and middle income households will rise and services to these households will fall. Headwinds The most recent tax bill reduces the income tax levels on more affluent Americans. This is likely to hurt localities. How? Municipal bond markets are how localities and local authorities — schools, utilities, water facilities — raise money for projects. They sell bonds — called municipal securities — to raise money. The income from these bonds is usually tax exempt. The higher the investor’s tax rate, the more appealing municipal bonds usually are. Cutting the tax rate on higher income earners lowers the appeal of municipal bonds. Additionally, there is growing worry that we are likely to see rising defaults or attempts to renegotiating debts from municipalities over the next 6 to 12 months. Thus, our recent tax cut will further complicate the present difficulties in the municipal bond market. A federal program — part of the stimulus — has been subsidizing the interest cost of local bond issuers. This is set to expire after 2011. There is every reason to believe that states and localities will continue to reduce spending and employment. This will mean fewer and more stressed budgets and personnel dealing with historically high levels of need. Education and basic social services are likely to suffer the lion’s share of pain. This bodes very poorly for equality of opportunity. At risk communities are already suffering from weak labor markets, low wages and the end of unemployment benefits. To this we will add a shrinking pool of opportunity for secure jobs with high benefits in state and local employment. We are likely to see public sector unions weakened. There is a great coming fight about public sector pension benefits. Beginning in February and March there will be several rounds of contentious and dramatic suggestions of social spending cuts as Congress is required to debate and vote on raising the national debt ceiling. We now run the risk that 2010 closes with tax cuts heavily beneficial to the most affluent Americans and 2011 begins with service, education and employment cuts that will fall hard on the least affluent.

Read the full article →

GSE Slowed PrivateLabel MBS Rebound Says CBO

December 25, 2010

The Congressional Budget Office claims that overreaching by Fannie Mae and Freddie Mac has slowed the recovery of the privatelabel mortgagebacked securities market reports Housing Wire

Read the full article →

New GOP Wave Pushes Business Lobbyist’s Wish List

December 24, 2010

JEFFERSON CITY, Mo. — Having won big in the fall elections, Republicans preparing to take over statehouses around the country are proposing to cut corporate taxes, weaken union clout and rewrite laws on discrimination, whistle-blowers and injured workers to the benefit of employers. In short, they intend to push through a business lobbyist’s wish list. And they plan to press ahead even though some of their ideas could, at least in the short term, cost their states desperately needed tax revenue. “It’s going to be a good year for businesses,” said Missouri Sen. Brad Lager, the commerce committee chairman in a state where Republicans won historic legislative majorities. When a new wave of politicians takes office in January, Republicans will hold a majority of governorships and their greatest number of state legislative seats since 1928 – giving them the muscle to enact the pro-business agenda they promised to voters concerned about high unemployment and an economy that has yet to make its big rebound following the Great Recession. But those pro-business policies are in some cases theories – not yet clearly proven to create jobs. And if they do work, they could take some time to produce the kind of growth that results in higher tax revenue for cash-strapped states. In the meantime, each new business tax break enacted could add to what the National Conference of State Legislatures forecasts to be an $83 billion shortfall for the upcoming budget year in about two-thirds of the states. Advocates for education and social services fear that will only deepen the short-term spending cuts coming their way. “We question if that pool of proposals are really business-friendly or not,” said Amy Blouin, executive director of the Missouri Budget Project, a nonprofit group that analyzes how fiscal policies affect low- and middle-income families. “We’re at the point where the result would actually be reductions in education, and businesses tend to care at least as much about the quality of education and communities and services as they do about the tax structure.” One of the first places to test the new pro-business push will be Wisconsin, where Republican Gov.-elect Scott Walker has promised to call the new GOP-led Legislature into an emergency session on his first day in office Jan. 3. Walker wants to lower taxes on businesses with fewer than 50 employees, impose new business-friendly limits on liability lawsuits and transform the state Commerce Department into a public-private partnership to lure companies to the state. “I think it’s basically put-up-or-shut-up time,” Walker said after his November election. “We have a mandate from the voters of the state, and it’s one we don’t take lightly.” In Michigan, voters elected the former chief operating officer of computer manufacturer Gateway Inc. to turn around a state that has consistently had one of the highest unemployment rates in the nation. Republican Gov.-elect Rick Snyder immediately chose the former president of the Michigan Economic Development Corp. to lead his transition team. “The business people we represent across the state are very excited about this change of leadership,” said Rich Studley, president and CEO of the Michigan Chamber of Commerce. Snyder wants to eliminate the Michigan Business Tax, which generates about $2.2 billion annually, and replace it with a lower corporate income tax projected to produce about $700 million for the state. Advocates for social services fear that could nearly double Michigan’s projected budget shortfall to more than $3 billion in the 2012 fiscal year. “Without any additional revenues, it’s hard to imagine filling that gap and not having just a devastating effect on social services and human services,” said Karen Holcomb-Merrill, the state fiscal policy director for the Michigan League for Human Services. In Iowa, Republican Gov.-elect Terry Branstad has said his plan to cut commercial property tax rates could cost the state up to $500 million over four years. The theory behind cutting corporate tax rates is that businesses will be more likely to locate or expand in a state if they can keep more of their profits. But the Congressional Budget Office has cast doubt on how much corporate tax cuts actually help stimulate the economy. A January 2008 report by the office said “increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more,” because decisions on whether to increase production depends on their ability to sell the product. Such cuts haven’t helped yet in California, where outgoing GOP Gov. Arnold Schwarzenegger forced Democrats two years ago to accept corporate tax cuts that cost the state an estimated $2.5 billion a year in revenue. So far, there is little evidence the cuts created jobs – unemployment has remained a steady 12 percent since the summer of 2009 – or boosted revenue: The state’s lawmakers will again wrestle with a huge budget gap in 2011. The pro-business efforts extend beyond policies that will affect a state’s budget. In Oklahoma, where Republicans seized the governor’s office and increased their legislative majorities, incoming leaders such as Gov.-elect Mary Fallin want to lower workers’ compensation costs for businesses and overhaul the civil justice system to reduce liability insurance costs for doctors and businesses. In Missouri, GOP legislative leaders – who must work with a Democratic governor – want to rewrite laws governing lawsuits by alleged whistle-blowers and victims of discrimination and workplace injuries. They contend the current laws are unfair to businesses. And Missouri Sen. Rob Mayer – the likely next Senate leader – wants a “right to work” law that would prohibit union membership and fees from being a condition of employment. ___ Associated Press writers Scott Bauer in Madison, Wis., Kathy Barks Hoffman in Lansing, Mich., and Sean Murphy in Oklahoma City contributed to this report.

Read the full article →

The Biggest Census Winners And Losers

December 21, 2010

The census data released today showed some of the slowest growth in American history. However, some states still showed enormous growth, while others couldn’t keep up despite the slowing growth. As of April 1, the country’s population was 308,745,538, up from 281.4 million a decade ago. That’s a growth rate of 9.7, 3.5 percent lower than the difference between 1990 and 2000, according to the AP . However, there were some really big winners, namely Texas, who showed growth in the millions. The Lone Star state gained over 4 million new residents in the past decade, and will claim 4 more Congressional seats in Congress. Among the losers, Michigan saw the worst growth, actually losing residents. It was the only state that saw a negative population change. For the full list of winners and losers after the census, check out the photos below.

Read the full article →

In Obama Anti-Foreclosure Program, Thousands Of Homeowners Strung Along For A Year

December 21, 2010

More than 29,000 troubled American homeowners have been stuck in mortgage modification purgatory for at least a year, with no end in sight, under the Obama administration’s anti-foreclosure program, according to a recently released report from a watchdog panel appointed by Congress. These homeowners were supposed to receive lower payments on a trial basis lasting three months and then gain so-called permanent mortgage modifications–lowered payments lasting five years. But more than a year after beginning their trial phase, they have yet to be granted the permanent relief, leaving them unsure about their ability to hang on to their homes. Meanwhile their lenders continue to report them to credit bureaus as delinquent, impairing their ability to borrow in the future. The new data, disclosed last week in a report from the Congressional Oversight Panel, added the latest sign of trouble to an anti-foreclosure program that was once supposed to help 3 to 4 million hang on to their homes. It is now on track to aid less than one-fourth that number. The homeowners stuck waiting for permanent relief now contend with a higher cost of living thanks to lower credit scores and higher mortgage debt. They’re also prevented from moving on as they try to keep a mortgage teetering on the verge of foreclosure. “It’s horrifying, but it’s not surprising,” said Diane E. Thompson, counsel to the National Consumer Law Center. “I hear about this everyday from people. When I go out to do trainings, I have people put their hands up in the room and I try to think of prizes for the person who has the oldest trial mod, and they’re routinely 18 months old.” Twenty-eight homeowners who entered the program in March 2009, or more than a year-and-a-half ago, remain in the trial phase. Some 475 have been in trial limbo for 18 months. More than 29,100 borrowers have been stuck in the trial phase for at least a year, data through October show. “After promises of hope, the fact that so many families remain in financial limbo goes to the heart of our biggest concern: some mortgage servicers on their own simply seem not to be up to the task of effective, widespread mortgage modification,” said Richard H. Neiman, New York’s top bank regulator and a member of the oversight panel. Neiman added that “Treasury has not been able to hold them fully accountable.” While the Treasury Department discloses the number of homeowners who have been in the trial program for at least six months, Treasury has never revealed the number of borrowers who have been in the trial phase for at least a year. Bank of America, the nation’s largest bank by assets, accounted for nearly half of all the aged trials, according to Treasury’s latest publicly-released scorecard. Thompson said the number of homeowners stuck in limbo is likely much higher as mortgage firms self-report their data to Treasury, and are likely to skew the numbers in their favor. The modification initiative, known as HAMP, long ago was dismissed by housing experts as a failure. More homeowners have been bounced from the program than have received permanent relief. The average borrower lucky enough to get into a five-year plan ends up owing more on their mortgage than they did prior to entering the program. Research shows that homeowners in this state, known as being underwater, are less likely to move–such as in pursuit of a job–and more likely to default. And more than a third of those in so-called permanent mortgages spend more than 80 percent of their monthly income servicing debt, raising questions about the long-term sustainability of the modifications. The oversight panel said HAMP would prevent less than 800,000 foreclosure, at a cost of about $4 billion. The administration originally allocated $50 billion in bailout funds to help homeowners. Last week, the Treasury Department official overseeing its bailout programs admitted for the first time that the mortgage modification initiative will not meet the goal laid out by President Obama when he announced the program in February 2009. Then, Obama said it would enable “as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.” “I think it’s apparent from our numbers that we will not have 3 to 4 million” permanent modifications, said Tim Massad, Treasury’s acting assistant secretary for financial stability. More than 2.8 homes received foreclosure notices last year, according to real estate data provider RealtyTrac. The Federal Reserve expects 7.4 million homes to enter foreclosure this year through 2012. It recently revised its projection up from 6.5 million as the crisis has worsened. Treasury officials say the program’s shortcomings are due to mortgage firms’ inability to handle the huge influx of distressed borrowers that flooded the system when the housing market soured; the changing nature of the housing crisis, which was once dominated by subprime mortgages and now remains depressed due to a lingering high unemployment rate; and borrowers’ lack of maintaining proper documentation describing their circumstances, like monthly income. To deal with the borrower issue, Treasury redesigned the program to require documentation in order to enter the trial phase, rather than the previous practice of rushing to get homeowners enrolled in the program and asking for their paperwork later. Treasury maintains that this has led to better results. But according to the oversight panel’s data, nearly 30 percent of borrowers who made their first trial payment in June–and made their payments on time in July, August and September–remain in the trial phase. A little more than half actually converted into a permanent modification, making it the only month dating to March 2009 in which the conversion rate eclipsed 50 percent, data show. Andrea Risotto, a Treasury Department spokeswoman, cautioned that there is some lag between when a decision on a permanent modification is reached and when that is entered into the system. Still, Treasury officials argue that even with homeowners remaining in limbo, they’re still benefitting from the program as they’re able to continue living in their homes, at a reduced rate, and without cost to taxpayers (the initiative only pays for permanent modifications). “The trial period provides immediate relief to struggling homeowners at no expense to taxpayers,” Risotto wrote in an e-mail. She added that Treasury data show that a majority of borrowers rejected during the trial phase end up in alternative foreclosure-prevention programs. Thompson, who works with homeowners and their advocates, completely disagreed. “The big overarching thing is, nobody wants to be in a trial mod. Everyone wants resolution in their lives,” she said. “Everyone in foreclosure is desperate to get out of foreclosure. It’s incredibly stressful, it’s humiliating, and shameful. Nobody feels good about it. People want it done, they want it over with, they want to be able to move on.” Also, even though the homeowners are making their payments, they’re still being reported as delinquent to the major credit reporting bureaus, Thompson said. “So think about what that does when they go to apply for a car, or what it does to their credit card rates, or if they’re applying for a job, or want to move, or even want to rent a place,” she said. “It affects their cost of living and their ability to manage their life in all sorts of ways. Credit is a huge issue.” Finally, when homeowners are in the trial phase their mortgage company tacks on to their mortgage principal the difference between their old monthly payment and the reduced amount. The longer the trial, the more gets added. Thompson said that for some of these homeowners, that tacked-on amount is enough to tip the scales against a permanent modification when their mortgage company finally decides to run the formula that determines whether they keep their home, or are forced out. A bigger debt load works against homeowners, she added. “This is not a good deal for homeowners.” ************************* Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Read the full article →

TeleCommunication Systems Executive Elected as Vice Chairman of the E9-1-1 Institute Board of Directors

December 3, 2010

ANNAPOLIS, MD–(Marketwire – December 3, 2010) – TeleCommunication Systems, Inc. (TCS) ( NASDAQ : TSYS ), a world leader in highly reliable and secure mobile communication technology, today announced that Senior Vice President and Chief Marketing Officer, Tim Lorello, has been re-elected to the E9-1-1 Institute Board of Directors and was further elected to the position of Vice Chairman. With more than 1,500 members across the country, the Institute works in conjunction with the Congressional E9-1-1 Caucus to promote public education on E9-1-1 and emergency communications issues. 

Read the full article →

Gretchen Morgenson: Banks Bad Mortgage Paperwork Isn’t Blowing Away

November 21, 2010

KUDOS to the Congressional Oversight Panel for publishing a thoughtful and thorough report last week on the mortgage documentation mess. It argued that, yes, in fact, these paperwork problems may have significant implications for banks, investors and the stability of the financial system.

Read the full article →

Congress Got Richer During Recession

November 18, 2010

WASHINGTON — Members of Congress are enjoying their own financial stimulus. Despite a stubbornly sour national economy congressional members’ personal wealth collectively increased by more than 16 percent between 2008 and 2009, according to a new study by the Center for Responsive Politics of federal financial disclosures released earlier this year. And while some members’ financial portfolios lost value, no need to bemoan most lawmakers’ financial lot: Nearly half of them — 261 — are millionaires, a slight increase from the previous year, the Center’s study finds. That compares to about 1 percent of Americans who lay claim to the same lofty fiscal status.

Read the full article →

Congress Got Richer During Recession

November 18, 2010

WASHINGTON — Members of Congress are enjoying their own financial stimulus. Despite a stubbornly sour national economy congressional members’ personal wealth collectively increased by more than 16 percent between 2008 and 2009, according to a new study by the Center for Responsive Politics of federal financial disclosures released earlier this year. And while some members’ financial portfolios lost value, no need to bemoan most lawmakers’ financial lot: Nearly half of them — 261 — are millionaires, a slight increase from the previous year, the Center’s study finds. That compares to about 1 percent of Americans who lay claim to the same lofty fiscal status.

Read the full article →

The 14th Banker: Unsafe at Any Speed

November 17, 2010

When I first became aware of Ralph Nader , he was already considered a flake by the New Economic consensus that would shortly sweep Ronald Reagan into office. I would have laughed out loud if you had told me that 30 years later I would quote him. In the preface to his book, Unsafe At Any Speed , he says the following: This country has not been entirely laggard in defining values relevant to new contexts of a technology laden with risks. The post-war years have witnessed a historic broadening, at least in the courts, of the procedural and substantive rights of the injured and the duties of manufacturers to produce a safe product. Judicial decisions throughout the fifty states have given living meaning to Walt Whitman’s dictum, “If anything is sacred, the human body is sacred.” Mr. Justice Jackson in 1953 defined the duty of the manufacturers by saying, “Where experiment or research is necessary to determine the presence or the degree of danger, the product must not be tried out on the public, nor must the public be expected to possess the facilities or the technical knowledge to learn for itself of inherent but latent dangers. The claim that a hazard was not foreseen is not available to one who did not use foresight appropriate to his enterprise.” These words speak of legal and social developments in materials manufacturing going on 50 years ago. Yet it is striking that we have not achieved these most foundational values when it comes to another kind of manufacturing, the manufacture of financial products. The clock has completed its cycle on the day in which the Congressional Oversight Panel released its report on Mortgage Irregularities and the consequences for financial stability. In addition to documentation concerns, another problem has arisen with securitized mortgage loans that could also threaten financial stability. Investors in mortgage-backed securities typically demanded certain assurances about the quality of the loans they purchased: for instance, that the borrowers had certain minimum credit ratings and income, or that their homes had appraised for at least a minimum value. Allegations have surfaced that banks may have misrepresented the quality of many loans sold for securitization. Banks found to have provided misrepresentations could be required to repurchase any affected mortgages. Because millions of these mortgages are in default or foreclosure, the result could be extensive capital losses if such repurchase risk is not adequately reserved. The dawn will soon break in Europe, where volcanoes erupt with regularity. Today’s volcano is the Irish Debt Crisis and an apparent impending bailout or series of bailouts, this time more painful. I give you this link , not to endorse it’s assessment because frankly I don’t know. But the very fact that such extremity can be considered plausible and be posted to a highly reputable blog (not mine, Calculated Risk’s) paints the picture rather well does it not? So back to the quote from Ralph Nader’s preface. ”Where experiment or research is necessary to determine the presence or the degree of danger, the product must not be tried out on the public, nor must the public be expected to possess the facilities or the technical knowledge to learn for itself of inherent but latent dangers. The claim that a hazard was not foreseen is not available to one who did not use foresight appropriate to his enterprise.” I heard a commenter recently say that in financial services, “complexity is fraud”.  I am becoming inclined to believe him. Products have been introduced into the system which simply cannot be modeled by experiment or research. Yet they continue to be introduced, promoted, and defended by their issuers as well as those in government who have sold out to the industry. It is time for that to end.

Read the full article →

Man Makes Ridiculously Complicated Chart To Find Out Who Owns His Mortgage

November 16, 2010

We all know the mortgage securitization process is complicated. But just how complicated? This chart from Zero Hedge shows the convoluted journey a mortgage takes as it morphs into a security. Dan Edstrom, of DTC Systems, who performs securitization audits, and who is giving a seminar in California next month, spent a year putting together a diagram that traces the path of his own house’s mortgage. “Just When You Thought You Knew Something About Mortgage Securitizations,” says Zero Hedge, you are presented with this almost hilariously complicated chart. A controversy of allegedly shoddy paperwork has raised doubts about the legitimacy of foreclosures nationwide, eliciting complaints from homeowners and investors alike. The Congressional Oversight Panel, a bailout watchdog, released a statement Tuesday that says the scandal over alleged “robo-signers,” foreclosure processors who approve documents without reading them, “may have concealed much deeper problems” in the mortgage industry, HuffPost’s Shahien Nasiripour reports. Regulators will have their hands full. “[D]ecide how long you think it will take for Barney Frank and Eric Holder to sort everything out,” Zero Hedge says.

Read the full article →

Chicago Cubs Owners Rail Against Gov’t Spending While Asking Taxpayers For $300 Million To Renovate Wrigley Field

November 16, 2010

WASHINGTON — Wealthy businessman Joe Ricketts’s mission to rid the country of earmarks and government waste has run into a hurdle: the request by his son, Chicago Cubs Chairman Tom Ricketts, for $300 million in taxpayer money to help renovate Wrigley Field. The elder Ricketts, founder of TD Ameritrade, recently started the nonprofit Taxpayers Against Earmarks (TAE), with the self-described mission of “educating and engaging American taxpayers about wasteful government spending and the misguided practice of earmarks.” As The Huffington Post previously reported, Ricketts also has an affiliated political group called the Ending Spending Fund, which spent a large amount of money in the Nevada Senate race against Majority Leader Harry Reid (D). As Windy City Watch notes , in September, Ricketts recorded and posted a YouTube video of himself talking about wasteful spending, specifically mentioning loans that future generations will have to pay for: I think it’s a crime for our elected officials to borrow money today, to spend money today and push the repayment of that loan out into the future on people who are not even born yet. WATCH: The Ricketts family owns the Chicago Cubs, and Tom — Joe’s son — is the chairman of the franchise. Tom is asking the state of Illinois to put up $300 million in bonds to help renovate Wrigley Field, but so far both Mayor Richard Daley (D) and Gov. Pat Quinn (D) are resisting — for the very reason that the elder Ricketts cites in his video. “That would deny the next mayor — if I sign the agreement and say, ‘Go ahead’ — of the revenue they need to balance the budget,” Daley said. “And government needs money in order to balance budgets .” “These are private owners of a baseball team,” added Quinn. “They spent almost $1 billion buying it. They knew what they were buying. To be coming to the people of Illinois for assistance now after an election isn’t a top priority. … If they wanted this to happen, they should have talked about it before the election — not after.” TAE President Brian Baker said in a statement that federal and state spending are two completely different issues. “Taxpayers Against Earmarks is concerned with the issue of waste, fraud and abuse in federal spending decisions — and advocates for changes in the broken Congressional budget and appropriations process,” said Baker. “We have advocated for transparency in the federal government and an end to the earmarking process. There are two very different ideas between fighting Congressional earmarks at the federal level and state-level spending decisions. Questions about state and local level spending decisions are best left to state and local officials and the voters.” A spokesperson for the Ricketts family did not return an inquiry from The Huffington Post about whether Joe agrees with his son’s request for taxpayer money.

Read the full article →

Video: Kaufman Says Foreclosure Document Crisis Threatens Banks

November 16, 2010

Nov. 16 (Bloomberg) — Edward Kaufman, former Democratic Senator from Delaware who chairs the Congressional Oversight Panel for the Troubled Asset Relief Program, discusses the panel’s examination of the foreclosure document crisis, which the panel concludes could have serious consequences for housing and the economy. Kaufman speaks with Carol Massar on Bloomberg Television’s “In the Loop With Betty Liu.” (Source: Bloomberg)

Read the full article →

Carlo Cottarelli: How to Bake a (Cr)edible Medium-Term Fiscal Pie

November 4, 2010

How can governments have their cake and eat it too? How can fiscal policy provide sufficient support to economic activity, and reassure markets that fiscal solvency is not at risk? The poor state of fiscal accounts of most advanced countries calls for austere fiscal policies, before the confidence crisis that is now hitting a few small advanced economies spreads to the larger ones. But not right now: a frontloaded adjustment–that is a tightening that is not gradual but falls disproportionately early in the adjustment phase–could destabilize the recovery. But can countries limit frontloading and still achieve credibility? Yes, but baking the right fiscal pie is likely to require a number of ingredients. While the exact recipe depends on country circumstances, here are our suggested ingredients. 1. Fiscal rules For starters, countries can adopt rules to constrain their future behavior, with strong legislative backing and appropriately tough penalties in case of misbehavior. The truth however is that rules will help, but they are unlikely to be enough. For one thing, a fiscal rule that is appropriate for the long run–say, a structural balanced budget rule–cannot be immediately enforced when the starting point is, in many cases, a deficit close to double digits. A convergence period will be needed–as in the case of the Germany’s new fiscal rules, which targets a balanced structural balance only by 2016. And, to make that convergence credible, other ingredients are needed. 2. Multi-year spending limits Second, reasonable multi-year spending ceilings, endorsed not just by the government but also by parliament, will be crucial. In countries where spending ratios are high, a large part of the adjustment will have to come from spending restraint. This has been a feature of successful fiscal exits, such as in Sweden and Canada in the 1990s. It is missing in a number of countries, including the largest world economy. Here the difficulty is to reconcile the need for hard ceilings, which can not be easily revised, with a modicum of flexibility in case the recovery falters. This means that some items should be exempt from the ceilings, particularly expenditures that are cyclical like unemployment benefits, non-discretionary like interest payments, or fiscally neutral like EU-funded projects. It also requires ensuring that the legislative process for revising the ceilings (often annual and likely to be unavoidable at least for some spending items) does not turn into a free-for-all fiscal party. 3. Open and accountable budgeting This takes us to the third ingredient, fiscal transparency. Countries need to be transparent in formulating budgets and presenting them to the public. Markets and the public must be confident that medium-term plans, or changes to them, are justified by overriding macroeconomic considerations, and not, for example, by short-term political goals. They should also be confident that revenue projections–and the underlying growth assumptions–are not the result of wishful thinking. The best way to achieve this is to establish a politically-independent fiscal agent to monitor fiscal policy making. The United States has one, the Congressional Budget Office. Many European countries do not, although some, like Germany and the United Kingdom, have recently introduced them, following positive experiences in Nordic countries. For these newcomers, the test will be to show genuine independence. For the others (the two advanced countries with the largest debt-to-GDP ratios–Japan and Italy–do not have them yet) early action in this direction is urgently needed. Transparency also means providing the public with comprehensive information on the state of public finances. Surely advanced countries already do this, right? Not so. Of the nine advanced countries in the G-20, how many produce fiscal statistics covering the whole public sector–including the central bank, state mortgage guarantee institutions, and other publicly-owned corporations? Only three. How many of them publish alternative fiscal scenarios; that is, information not only about the fiscal baseline, but also on what happens if shocks (say, higher interest rates), materialize? Only five. How many publish adequate statements of tax expenditures (the revenue loss related to special tax treatment of certain sectors and activities)? Only four. (And what is the point of spending ceilings if they can be circumvented by granting tax deductions?) How many countries do all of the above? Only Canada. 4. Disciplined budget preparation and execution Next, countries need more disciplined budget preparation and execution processes. Budget preparation should be driven by the overall medium-term deficit and spending ceilings. That is, it must be “top down.” Budget execution should be underpinned by processes that minimize the risk of slippages. Here advanced countries fare relatively well. And yet, some further progress is needed, including in some European economies. The recipe. Just mix-and-bake? Finally, we come to the most difficult part: countries need some frontloaded measures to give some filling to the pie. Hang on! Did we not say that front-loading is wrong (except when failure to do so would make things even worse)? Here we need to distinguish between approval of the measures and their implementation. Frontloaded implementation would not be appropriate in most cases. But frontloading legislative decisions on measures that will take effect at a later date, or that will affect the economy gradually over time is definitely appropriate. For example, a partial or total freeze of turnover of retiring public employees falls in that category. Simple, isn’t it? Of course not, as otherwise it would have already been done. But it is easier than dealing with the consequences of living without a credible medium-term fiscal plan. A post-scriptum: All of the above is just to whet your appetite. What is just as interesting is to see how the medium-term fiscal adjustment plans announced over the last few months by major economies stack up against the above recipe. If you want to know more about this we suggest you savor our newly released Fiscal Monitor . The proof will be in the eating. From iMFdirect blog.

Read the full article →

Bailout Oversight Panel Slams Obama Administration Over Foreclosure Crisis

October 27, 2010

WASHINGTON — A key government panel keeping tabs on the bailout strongly criticized the Obama administration Wednesday for its apparent failure on a variety of housing-related fronts, from its ineffective foreclosure-prevention initiatives to its refusal to acknowledge the growing crisis sparked by widespread evidence that mortgage companies frequently take their customers’ homes via fraud. Faced with increasingly heated criticism from the Congressional Oversight Panel, the administration’s representative — the Treasury Department’s housing rescue chief, Phyllis Caldwell — hunkered down, refusing to answer basic questions. It was a familiar scene. As the housing market continues to flirt with the risk of falling into a double dip — prices are already heading downward, and the Federal Housing Finance Agency forecasts prices to return to their June 30, 2010 level in the fourth quarter of 2013 — the Obama administration continues to face assaults on its attempts to fix the crisis threatening Americans’ most valuable asset. Some independent experts, while critical overall, praise the administration for its role in spacing out the negative shocks from the record home repossessions taking place, lessening the chances of the economy suffering a fatal blow. Others say the administration’s efforts have simply prolonged the crisis and delayed the recovery. Either way, the consensus is that the administration hasn’t pursued the right policies to jumpstart the recovery. During Wednesday’s hearing, members of the Congressional Oversight Panel said Treasury’s foreclosure-prevention programs “failed to provide meaningful relief,” generated “false expectations,” and have been a “major disappointment.” COP is an independent, nonpartisan commission created by Congress. More than 20 months after President Barack Obama announced a plan to “enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure,” just 640,300 homeowners remain in the program. Nearly 729,000 struggling homeowners have been kicked out. “We are faced with a choice here,” said Damon Silvers, a member of the panel who also works as director of policy and special counsel at the AFL-CIO. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks. We can’t do both.” The commissioners were just as critical when it came to assessing Treasury’s response to the growing crisis emanating from mortgage companies’ use of fraudulent paperwork to foreclose on homeowners. That consequences of that, though, may pale in comparison to the risk faced by the nation’s biggest banks when it comes to demands for them to buy back the faulty home mortgages that they bundled and sold to investors as securities. Estimates from Wall Street analysts range well into the hundreds of billions of dollars. The Federal Reserve Bank of New York is part of a group of investors that sent a letter demanding Bank of America buy back some $47 billion in dodgy mortgages. The New York Fed owns the mortgage debt as a result of its 2008 bailout of Bear Stearns, the fallen global investment bank. The administration and financial regulators are conducting a review, though it’s unclear how comprehensive it is or how many people have been devoted to it. Administration officials say that thus far “there is no evidence of systemic risk.” Not taking that for an answer, Silvers bore into Caldwell. “I’m concerned about Treasury making representations categorically that you don’t see a systemic risk,” Silvers told Treasury’s chief homeownership officer. “And let me walk you through exactly why.” “That letter asks for $47 billion of mortgages — of mortgage- backed securities to be repurchased at par,” Silvers went on. “Do you know what those mortgages are currently carried at … the market value of those bonds today?” Caldwell declined to comment. Silvers continued: “OK, fine. Let me tell you what the Fed says they’re worth. The Fed tells us they’re worth 50 cents on the dollar. So if the Fed’s request to Bank of America is honored, right, Bank of America, assuming they are carrying these bonds, assuming when they buy them back they mark them to market, Bank of America will take a $23 billion loss. “The Federal Reserve further informs us that there is nothing particularly unique about that particular set of mortgage-backed securities — meaning they have not been chosen…because they’re particularly bad. They believe they are of a common quality with the rest of Bank of America’s underwritten mortgage-backed securities. There are $2 trillion [worth] of Bank of America’s underwritten mortgage-backed securities. “Five such deals — five such requests, if honored to Bank of America…will amount to more than the current market capitalization of Bank of America, which is $115 billion. “Now do you wish to retract your statement that there is no systemic risk in this situation? And the word is ‘risk’ — not ‘certainty’ — but ‘risk’? And I would urge you to do so, because these things can be embarrassing later.” Caldwell repeated her earlier claim that it was still early in the review. She added that Treasury is working “very closely” with “11 regulatory and federal agencies,” and that the administration is “watching this every day. “And that at this stage there appears to be no evidence of a systemic risk — but again it is early and it is something we are monitoring daily,” Caldwell said. Silvers questioned her again. “Let me suggest to you that the ‘it is still early’ is a perfectly acceptable position. … Is it your position that Bank of America honoring five of these things would not present a systemic risk? … Is Bank of America not systemically significant?” Caldwell responded that she and Treasury “didn’t say there was no risk. We said there didn’t appear to be evidence of a major systemic risk.” “I hope that … if the Treasury comes back to us and is discussing whether or not we need to deploy further public funds to rescue Bank of America, or such other institutions as might be affected by these events, that we get a similar kind of indifference to their fate after it’s too late,” Silvers shot back. “Because it strikes me that in light of the mathematics I’ve gone through with you, it is not a plausible position that there is no systemic risk here.” Silvers is a Democrat, but the panel’s concerns were bipartisan. Republican panelist J. Mark McWatters, a high-powered corporate tax lawyer and CPA, similarly peppered Caldwell with questions. After asking whether “Treasury [was] concerned that any of the large, too-big-to-fail financial institutions may experience a solvency or liquidity or capital crisis over the next few years” due to investor demands that it buy back faulty mortgages, and being told that Treasury had to find evidence of “systemic risk,” McWatters continued to press Caldwell. Citing the roughly $2.3 trillion of non-government-backed mortgage securities held by investors at the height of the housing bubble, McWatters said that “even if a relatively small percentage of those are put back and the banks have to buy them back at face [value], this could be a substantial problem. “Also, considering that this is not just a one-shot deal. I mean, when a mortgage is originated and put in a [mortgage-backed security], it may be multiplied through synthetic CDOs. So you may have the synthetic CDO problems also going back to the banks,” he added. CDOs, or collateralized debt obligations, are securities based on the value of other securities, like home mortgage bonds. Synthetic CDOs are essentially side bets on those securities. “So, I mean, it sounds like Treasury as of today has not done even a back-of-the-envelope sketch as to what the potential put-back rights could be to the TARP financial institutions,” McWatters said, referring to the risk big banks face from investors forcing them to buy back dicey mortgages. Caldwell repeated that Treasury is “monitoring this situation daily.” She declined to offer specifics, though at one point she did say that the administration was “monitoring litigation risk.” Despite the many questions, and various hypothetical scenarios, Caldwell declined to give any more details on the foreclosure paperwork crisis than had already been disclosed by other members of the administration. The panel was forced to make due with open questions and a lack of details on what, exactly, the administration was looking at, how hard it was looking, and whether they are considering or planning for worst-case scenarios. McWatters likely summed up the feelings of the entire panel when he said, “It’s a little bit frightening.” ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Read the full article →

Michael Pento: Bernanke Has Buried the Buck

October 25, 2010

It wasn’t too long ago that the parity pontificators were out in full force claiming that the European currency would trade one-to-one with the U.S. dollar. On June 7th 2010 the Euro hit a low of $1.1917. Since then, the Euro has risen over 17% against the US dollar, hitting $1.3961 as of today. That recent move, engendered courtesy of the Fed, has at least temporarily silenced the critics who questioned the viability of the European Union and its currency, while also serving to impugn the notion of the U.S. dollar’s permanent position as the world’s reserve currency. To be clear, there has never been any question in my mind that the euro is just another flawed fiat currency. However, it has since its inception deserved to maintain its status as an excellent diversification-currency for those who hold excess dollars. Now we find the question being correctly asked today more than ever before if the USD can act as a safe haven from the troubles found in international currencies. The answer to that question can be found in the data and from the lips of our Federal Reserve Chairman. The 27 countries comprising the European Union’s economy is the largest in the world. It’s GDP on a purchasing power parity basis was $16.5 trillion in 2009, which is greater than the $14.2 trillion US economy. The economies of the 16 countries in the Euro zone that use the Euro currency produced GDP of about $10.5 trillion on a PPP basis according to the CIA 2009 world fact book. That is equivalent to 74% of US total output. Therefore, the economies of the EU (27) or Euro Zone (16) are similar in size and scope to those of the US and should be viewed with the same gravitas. The size of the European economy had never been an issue. But according to the IMF, the US dollar accounts for 62% of global central bank reserves even though it represents less than 25% of global GDP. In comparison, the Euro currency represents just 26% of FX reserves. Why is it that the U.S. economy deserves to represent such a tremendous over-weighting of central bank reserves? Since their currency holdings are so vastly concentrated, it places global central banks in a tenuous and vulnerable position. Should they ever need to reduce their dollar holdings–especially in concert–it would place tremendous downward pressure on the US currency. But unlike the greenback no such over-owned condition along with its concomitant pent-up selling pressure exists for any other currency. Currently the gross national debt of the U.S. stands at 93% of GDP. The European Commission projects that their gross national debt will reach 84% of output this year and 88.2% in 2011. And In contrast, the Congressional Budget Office projects our national debt to reach over 100% of GDP in 2012, whereas the national debt of the EU will not reach 100% of output until 2014, according to the European Commission. Finally, U.S. interest rates are much lower as compared to those of the European Union. Therefore, the Euro should never have been viewed as a currency that is inferior to the USD. But What Happens the Next Time Down Investors the world over have traditionally flocked to the USD for safety. This past credit crisis caused the greenback to surge 27% on the DXY and crushed most commodity prices including gold. How do we know the next international crisis won’t cause the same global flight into the “safety” of U.S. debt and dollars and out of other currencies like the Euro? The answer can be found in our central bank’s reaction to that same crisis. Ben Bernanke’s initial response to the credit crisis was fairly muted. It may surprise investors to be reminded that the Fed left interest rates unchanged throughout the entire period from April 30th thru October 8th 2008, despite the fact that the S&P500 dropped from 1,413 to 899. And Bernanke only slightly increased the monetary base by $160 billion to just over $1 trillion during that drubbing in equities. During that time of relative inaction, global investors flocked to the dollar as they have done in Pavlovian fashion since the Bretton Woods agreement was signed. But after that, Ben sent out a fleet of helicopters to demonstrate to the world that he would not tolerate the appreciation of the USD or allow the rate of inflation to contract. Our central bank has now clearly inculcated to global investors that they will severely be punished if seeking shelter in our currency and bond market. The monetary base has now reached $2.0 trillion and the announcement of another dramatic increase is expected once again at the conclusion of the next FOMC meeting on November 3rd. The Fed has engineered robust growth rates in all the monetary aggregates and is also now on record for the first time in its history saying that the rate of inflation is too low. All this has resulted in the U.S. dollar losing nearly 13% of its value since June. I’m went on record last summer saying that selling Euros (or most any other currency) to buy dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. A viable solution cannot be to sell one sinking currency and jump on another one that is drowning as well. The only safe forms of money are those that can act as a store of wealth, that cannot be diluted by fiat and whose purchasing power cannot be corrupted by a government. The Fed has put the world on notice that the USD can no longer be viewed as a safe haven currency. During the next crisis, investors should seek the safer harbor that is derived from owning commodities and precious metals, rather than to believe the USD will once again offer them any real protection. Precisely because the position of the U.S. buck as the world’s reserve currency has been burned and buried by Ben Bernanke. Michael Pento is the Senior Economist for Euro Pacific Capital

Read the full article →

← Previous Entries