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Retailers Seduced Shoppers With Deals In December, In Spite Of Economy

by Alice Hines on January 5, 2012

Huffington Post…

Shoppers didn’t hold back this holiday season — at certain stores, that is. According to data released Thursday, luxury and mid-range retailers seduced customers in December, while discounters like Target missed sales estimates. The 3.4 percent increase in same-store sales reported by Thomson Reuters was better than expected — an optimistic sign in an ailing economy. Still, it’s unclear how often people will shop in the upcoming year, a factor that will depend more on whether they find jobs than on how much retailers innovate or drop prices. “Consumers were feeling better about loosening up purses this holiday season,” said Jharonne Martis, director of research for Thomson Reuters. In particular, big wins in the apparel and teen apparel sectors indicated that shoppers were willing to spend not only on necessities, but on discretionary items like new clothes and shoes, Martis said. Same-store sales, which measure changes in sales at stores open at least one year, are released at the start of each month by 25 of the largest U.S. retailers. Same-store sales of at least 3 percent indicate a healthy U.S. consumer, according to Martis. Nordstrom and Macy’s were among the biggest winners with 8.7 and 6.2 percent sales increases, respectively. Saks and Dillard’s also did well, with 5.8 and 4.0 percent increases. TJX Companies, owner of T.J. Maxx and Marshalls, saw its same-store sales increase by 8 percent. In overall apparel sales, Martis said this was able to counter the miss by Gap Inc., which saw sales decline by 4 percent in December. Victoria’s Secret, part of Limited Brands, also saw one of the largest successes with an 11 percent increase. Not that such successes came easily. It was a “very aggressive, promotional holiday environment,” as Amie Preston, chief investor relations officer of Limited Brands, said on the company’s December sales call. Other retailers, like TJX Companies, made similar comments about the importance of value to this round of holiday shoppers. Successful stores had no choice but to drop prices, extend hours and aggressively advertise to get people in the door — all of which made profits difficult. “It was one of the most promotional seasons we’ve seen in a long time, and very event driven,” said Ken Perkins, president of Retail Metrics, a retail research and consulting firm. “This puts a lot of pressure on margins.” Data showed that consumers held out from hitting stores until the very best deals were offered, or until the last minute before Christmas. According to ShopperTrak, which monitors retail foot traffic, sales jumped 37.8 percent in the last week before Christmas, a much larger increase in that period than in 2010 . Oddly, some of the big discount stores known for consistently low prices weren’t able to attract this year’s shoppers. Target missed estimates by 1.5 percent and Fred’s and Kohl’s actually saw same-store sales decline by 0.4 and 0.1 percent in December, respectively. But this doesn’t necessarily mean that people weren’t looking for discounts. Rather, more kinds of retailers are now competing for the same price-conscious shopper. In addition to traditionally mid-range department stores like Macy’s offering more deals, a growing crop of dollar stores have prices that can beat even those at Walmart. “Discounters, big names like Target and Walmart have lost a lot of market share to dollar stores,” said Martis of Target’s disappointing sales. Walmart, which doesn’t announce monthly results, will release holiday sales data in February with its latest earnings. On Tuesday, Dollar General announced that it will be opening 625 new stores in 2012. On Thursday evening, Family Dollar will announce its latest earnings, which are expected to include strong same-store sales of between 4 and 6 percent . Meanwhile, a struggling Sears Roebuck, once America’s most prominent middle-class retailer, announced last week that it will be closing 100 to 120 of its Sears and Kmart stores. Unfortunately for the economy, healthy December sales numbers don’t necessarily indicate a fertile retail landscape for 2012. With few big shopping holidays or sale days like Christmas or Black Friday in the near future, there’s a potential for retail sales to be soft, according to Perkins. Without the continued addition of jobs, the divide between retail winners and losers — as well as between luxury and middle class spending — is likely to become even sharper than it was in December. “I have deep concerns about the erosion of the middle class and their ability to spend so much,” Perkins said. “Much of the economy ultimately rests on their shoulders.”

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Retailers Seduced Shoppers With Deals In December, In Spite Of Economy

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Seriously? Verizon To Charge Fee For Paying Bill Online

by The Huffington Post on December 29, 2011

Huffington Post…

In a move that is sure to upset some customers, Verizon has announced on its website that it will start charging a $2 convenience fee “for customers who make single bill payments online or by telephone.” The $2 fee will apply to those who pay with credit or debit cards on a per-statement basis, either through the company’s website or by telephone, and the company says that the fee is designed to offset the cost that credit card companies charge Verizon for processing payments. On its website, Verizon is encouraging its customers to choose one of seven alternative payment options to avoid incurring the fee — those options include enrolling in an Auto-Pay system on the company’s website, paying via check or cash via mail, paying at a Verizon kiosk, or paying with a Verizon gift card. The new fee goes into effect on January 15. Here, from the Verizon website , is the complete list of your options to avoid the new $2 fee: Electronic check online (My Verizon Online, My Verizon Mobile/Handset). Fee waived. Electronic check via telephone. Fee waived. Enrollment in AutoPay using credit/debit/ATM card or electronic check; fee does not apply Online from the customer’s home-banking service provider website; fee does not apply. Credit/debit/ATM card, electronic check or cash at a Bill Payment Kiosk, Panel or with a representative at a Verizon Wireless Communications Store; fee does not apply. Use of a Verizon Wireless Gift Card or Verizon Wireless device Rebate Card to pay a bill in-store, online or by telephone; fee does not apply Paper check or money order mailed to the VZW remit address on customer’s bill; fee does not apply. Consumer advocacy blog Consumerist, meanwhile, offers an eighth option for avoiding the $2 fee: Switching to another wireless carrier. Public outrage over the new fee is mounting: A popular post in online message board Reddit’s “WTF” section has already attracted dozens of upset commenters , as have the comment sections on stories posted on CNet , Aol sister site Engadget and Geek.com . Typical of the frustration are calls to stop using Verizon , a proposed campaign to get everyone to send in paper checks and money in order to overwhelm Verizon’s billing department, and labeling the new fee as “another ridiculous cash grab.” Verizon customers can change their payment options on Verizon’s website .

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Seriously? Verizon To Charge Fee For Paying Bill Online

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Japanese Officials: Europe Should Boost Its Rescue Fund

December 26, 2011

TOKYO (Reuters) – Europe should boost the total firepower of its rescue fund and frontload its funding to send a positive signal to investors and international partners that it is determined to solve its debt crisis, Japanese officials said on Monday. Japan has repeatedly expressed its willingness to help Europe contain its debt crisis, but has also stressed it wanted to see a convincing action plan before making any firm commitments. “Japan like other non-euro countries is prepared to do something, but unless European countries take decisive action it is hard to make those steps effective,” a senior Japanese government official said. Lifting the combined size of the current bailout fund (EFSF) and the new permanent European Stability Mechanism (ESM) beyond the current 500 billion euros would be a major step and an encouraging signal. “We expect European countries will review the combined ceiling of 500 billion euro of EFSF (European Financial Stability Fund) and ESM in a very positive manner,” the official told Reuters. European leaders agreed in Brussels earlier this month to accelerate the launch of the ESM by a year to mid-2012 with an effective lending capacity of 500 billion euros ($650 billion), but questions have arisen about the size and timing of contributions. Japanese officials said that while bringing forward the launch of the fund was positive, a more ambitious ceiling might be needed given that Europe had little success in bringing in outside investors to boost the firepower of the EFSF fund. “The leveraging of EFSF money by investors’ money doesn’t look like materializing very well. That’s why they are frontloading the ESM and the review of the ceiling of 500 billion euro is very important,” said the official, who declined to be named. “European countries may think what they’ve already decided is a major step forward, but markets want Europe to act more decisively.” German Finance Minister Wolfgang Schaeuble signaled over the weekend that Europe’s biggest economy and its main paymaster could boost its contribution to the fund and support its swift launch, although any decisions would have to be made in January. Since the beginning of the crisis more than two years ago, European leaders have orchestrated bailouts of Greece, Ireland and Portugal, set up a euro zone rescue fund and earlier this month agreed to boost the International Monetary Fund’s resources by 150 billion euros. Still, throughout the crisis that has also shaken Italy and Spain, investors have repeatedly been left with the impression that whatever was agreed in Brussels was too little, too late. Japan, the United States, Canada and others have voiced their frustration with Europe’s piecemeal progress and repeatedly called for bold steps that would create effective “firewalls” around the euro zone’s weaker, heavily indebted economies. Another Japanese government official reiterated on Monday that Tokyo, which led an international effort to boost the IMF’s coffers after the Lehman crisis, was open to contributing more but that its decision depended on Europe’s actions. Officials in Tokyo said markets needed to see both effective defenses in the form of funds sufficient enough to cover the crisis-hit nations’ financing needs and commitments to fiscal discipline. “Fiscal discipline is very important. Even if we provide firewalls we need fiscal discipline,” the official said. While Tokyo has repeatedly voiced concern about developments in Europe, its plans to buy Chinese government debt did not reflect lack of confidence in the euro or U.S. dollar assets, another official said. He said the plans, discussed during Prime Minister Yoshihiko Noda’s visit to Beijing, aimed at strengthening economic ties between the two nations rather than diversifying Japan’s exchange reserves, mostly made up of dollar and euro assets. “The idea is not to depart from the dollar or U.S. government bonds or the euro, so it should not be interpreted as diversification of our portfolio,” the official said. “I don’t have any doubts about creditworthiness of the dollar or U.S. government bonds. The dollar will remain the most important currency for the foreseeable future.” Copyright 2011 Thomson Reuters. Click for Restrictions .

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Jason Alderman: Credit Card Stolen? Here’s What You Do

December 22, 2011

Despite high-profile media attention, the odds of having your credit or debit card number stolen by crooks remains at historically low levels. That said, it’s always good to know what to do in case lightening does strike and someone fraudulently uses your card. Left unchecked, they might try to run up bills, drain your checking account or worse — steal your identity. Here are actions to take if this happens to you, as well as preventive measures that can lessen your risk going forward: Call the card issuer. First, contact the bank or credit union that issued your card. You’ll find a toll-free number on the back of your card, on your billing statement or at the company’s website. The issuer will closely monitor your account for odd behavior and may either reissue a card with a new CVV (card verification code) number or issue an entirely new card number. Be sure to change any related passwords or PIN numbers and notify companies that have automatic payments tied to the account to make sure you don’t miss a payment. Also keep a log of all calls, letters and emails you have with your card issuer about the fraud — this will be helpful if you need to file a claim or police report. If thieves also gain access to additional sensitive personal information such as your Social Security number and address (for example if your entire wallet was stolen), you should escalate your fraud precautions, as follows: Contact credit bureaus. Contact one of the three major credit bureaus, Equifax (888-766-0008), Experian (888-397-3742) or TransUnion (800-680-7289), and place an Initial Fraud Alert on your credit file for 90 days if you suspect you have been, or are about to be, a victim of identity theft. Whichever bureau you contact will notify the other two to do the same. If you wish, you can renew these fraud alerts each quarter, free of charge. If you determine that you actually have suffered identity theft, you can also file an Extended Fraud Alert , which will stay on your reports for seven years. To do so, you’ll need to submit an Identity Theft Report , as outlined below. Placing a fraud alert entitles you to one free credit report from each bureau. Although the alert makes it harder for someone to open new credit accounts in your name, it won’t necessarily prevent them from using existing accounts. That’s why it’s important to close compromised accounts and to carefully review your credit reports for errors, fraudulent activity or suspicious credit inquiries from an unfamiliar source. Just be aware that posting a fraud alert could delay your own ability to obtain new credit. You might want to order new credit reports every month or two for the next year or so as a precaution. Also, remember that by law, you can order one free credit report a year from each bureau through the government-authorized AnnualCreditReport.com , whether or not you suspect fraud. File theft report . If you determine that someone has indeed stolen from your account or that you are otherwise the victim of identity theft (i.e., they used your information to open new accounts, etc.), you’ll need to file a detailed Identity Theft Report with the police. The Federal Trade Commission’s Recover From Identity Theft site contains step-by-step instructions for completing and filing the report with local, state and federal law-enforcement agencies. You’ll also need to send copies of the report — by certified mail, return requested — to the credit bureaus and companies whose accounts were impacted. They then have 15 days to request further information or documentation to help verify the theft. You can also file a complaint with the FTC, which will enter the information into a secure online database shared by thousands of civil and criminal law-enforcement authorities worldwide. Financial liability. Under federal law, your maximum liability for unauthorized use of a credit card is $50; if the charges were made after you report the card lost or stolen, you have no liability. In addition, many credit card networks provide “zero liability” protection if you promptly report the loss. Liability for debit card losses is slightly different. Debit card transactions that you signed for (called “offline” transactions) typically are protected by “zero liability” policies similar to those for credit cards. If you report the loss within two business days, your maximum liability is $50 — although most banks and credit unions will waive this fee. That limit rises to $500 after two days; and if you don’t notify your financial institution within 60 days of receiving a statement showing unauthorized transactions, you could be liable for the entire amount — although most financial institutions limit your liability to $50. Be aware that some types of PIN-based transactions, where you enter your PIN at the retailer’s kiosk or an ATM instead of signing a receipt, may be excluded from your card-issuer’s zero-liability coverage, depending on which PIN debit network is used to complete the transaction. Ask your bank or credit union about its policy for both types of debit card transactions. Preventive measures. Going forward, carefully monitor your monthly credit card and bank statements for fraudulent charges. In fact, get in the habit of checking your statements online every few days. Sometimes thieves who’ve gained access to account information will slip in a minor purchase to see if you’re paying attention. Other good habits include: Make sure your anti-virus and anti-spyware software is current and use only secure websites. Never provide personal information by mail, phone or email unless you initiated the communication. Create strong, randomly patterned passwords and change them regularly. Shield keypads from the eyes of “shoulder surfers” at stores and ATMs. Review receipts for accuracy before signing and retain them for your records. Shred paperwork and receipts containing personal or account information once they’re no longer needed. Lock up documents with sensitive information at home and work. See my previous blog, Make Sure You Are Cyber Secure for more tips. There are many great resources where you can learn how to protect your personal and account information and prevent fraud, including: StaySafeOnline.org , a website filled with tips for safe Internet use, created by the National Cyber Security Alliance. The FBI’s Be Crime Smart page, which highlights the latest scams and tells you how to report crime and fraud. My employer, Visa Inc., offers VisaSecuritySense.com , which contains tips on preventing fraud online, when traveling, at retail establishments and ATMs, deceptive marketing practices, and more. The Federal Trade Commission’s ID Theft, Privacy and Security page, which contains extensive information about identity theft, privacy and information security. Having your accounts stolen from can be a frightening and frustrating experience. Just make sure you act quickly to minimize the damage and prevent future violations. This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

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New York City Faces ‘Extreme Downside Risk’ From European Debt Crisis: Report

December 16, 2011

(Joan Gralla) – New York City’s economy faces an “extreme downside risk” from Europe’s debt crisis because its banks hold over $1 trillion of assets in the city, where they are active lenders, according to a new report released on Thursday. The city’s economy is intertwined with Europe’s because non-financial companies have significant ties to European companies while millions of tourists from this region visit the city every year, according to the report by City Comptroller John Liu. “In light of these widespread commercial interactions, adverse effects on the City’s economy from Europe’s debt crisis appear alarming and lend greater urgency to addressing existing budget issues,” Liu said in a statement. This potential problem could bedevil New York City’s finances, which already are being pressured by the job-cutting downturn of its prime industry: Wall Street. The Democratic comptroller warned that Mayor Michael Bloomberg might be underestimating some risks. The list includes the difficulty of negotiating labor contracts for teachers and supervisors with no wage increases for the past round of bargaining and the possibility that cash-poor New York state will cut $200 million in aid. A mayoral spokesman, saying Bloomberg had warned that New York City’s economic outlook was uncertain, added: “He has kept the city’s fiscal house in order while delivering services that continue to produce record results through two historic downturns.” The kinds of risks that Liu indentified could help widen the city’s budget gaps to $1.7 billion in the current accord, $3.2 billion in fiscal 2013, $4.4 billion in 2014 and $5 billion in 2015. The city’s current budget is balanced. Bloomberg, a political independent, has forecast smaller gaps of $2 billion in 2013, $3.8 billion in 2014 and $4.9 billion in 2015. On the positive side, the comptroller estimated that the city’s five pension funds will cost less than Bloomberg predicted, which could save more than $1 billion from the current fiscal year to 2015. Though New York City typically benefits when the stock market rises, as it sweeps in higher tax collections from profitable banks and brokerages and individuals with capital gains, there is a plus to the market’s current roller-coaster ride. “The Comptroller’s Office believes that continued stock market volatility and low interest rates will further encourage institutional investors to shift portfolios towards commercial real estate, especially in premium markets such as New York City, thereby stimulating transactions of commercial property,” the report said. (Reporting By Joan Gralla) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fitch Downgrades Five Major European Banks

December 14, 2011

NEW YORK – Fitch Ratings on Wednesday downgraded five major European banks, saying tighter capital markets and slower economic growth resulting from the region’s debt crisis should indirectly hurt their performance. Fitch cut the long-term issuer default rating of the following banks: – Banque Federative du Credit Mutuel (BFCM): to A-plus from AA-minus; – Credit Agricole: to A-plus from AA-minus; – Danske Bank: to A from A-plus; – OP Pohjola Group: to A-plus from AA-minus; – Rabobank Group: to AA from AA-plus. (Reporting By Walter Brandimarte) Copyright 2011 Thomson Reuters. Click for Restrictions .

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‘If Taxes Don’t Pass, There Will Be A Hole That Will Trigger Further Cuts’

December 9, 2011

By JUDY LIN, Associated Press SACRAMENTO, Calif. (AP) — Gov. Jerry Brown on Thursday warned of additional automatic cuts if voters reject his tax initiative next fall, offering Californians a stark choice between higher taxes and deeper cuts to schools, universities and public safety. Brown’s spokesman, Gil Duran, posted on Twitter a quote from the governor that said, “If taxes don’t pass, there will be a hole that will trigger further cuts.” The Democratic governor and state lawmakers face a $13 billion projected shortfall over the next 18 months. Analysts have already predicted the state will have to make one round of required midyear reductions to schools, universities and social services. That decision is expected next week under pre-approved cuts authorized in the current budget. Brown wants to increase taxes on high-income earners and raise the state sales tax by half a cent, to 7.75 percent. The proposal would raise about $7 billion a year for five years. Brown filed the measure earlier this week with the state attorney general’s office. It would appear on the November 2012 ballot if supporters collect 807,615 valid voter signatures. If voters approve Brown’s plan, individuals earning from $250,000 to $300,000 would pay an additional 1 percent income tax, bringing their tax rate to 10.3 percent. Individuals earning more than $300,000 but not more than $500,000 would be taxed an additional 1.5 percent, bringing their tax rate to 10.8 percent. Individuals earning more than $500,000 would be taxed at 11.3 percent. The income amounts double in each category for joint filers. The income tax hike would be retroactive to January 2012 and last five years. The sales tax increase would start Jan. 1, 2013, and last four years. Brown indicated Thursday that he would include more automatic cuts in his new budget if voters don’t approve his tax measure. Democratic leaders applauded the plan, saying the tax initiative will offer voters a clear and realistic choice about the amount they are willing to pay and the services they demand. “It’s the only intellectually honest way to do it,” Assembly Speaker John Perez, D-Los Angeles, said in an interview Thursday. It’s not clear what those additional cuts might include. Brown is not expected to release his new budget until January. Last summer, Democratic lawmakers and Brown had hoped for a $4 billion increase in tax revenue through the current fiscal year when they passed the state budget. If the revenue doesn’t materialize, a pre-approved list of cuts will go into effect, starting Jan. 1. The state would give local school districts the option of slicing another seven days off the current 175-day school year, leading to concerns about the quality of education provided in the nation’s largest school system. Among other midyear cuts: Low-income seniors and the disabled would receive less in-home care, local libraries would not receive state aid, and health providers would be paid less under Medi-Cal, the state’s health care program for the poor. Already, a report from the nonpartisan legislative analyst predicts revenue — a majority which comes from income, sales and corporate taxes — will run $3.7 billion less than what the state assumed. The analyst’s report was one of two revenue projections called for in the state budget. The next will be released by Dec. 15 by the governor’s Department of Finance. The automatic spending cuts — referred to as trigger cuts in the Capitol — will be based on whichever report contains the higher revenue projections. While tax collections for the month of November came in 9 percent above projections, the state controller’s office said Thursday that tax collections remain $1 billion less than anticipated revenues for the year. The state is also spending $2 billion more than it anticipated for the year. “Regardless of whether midyear cuts are enacted next week, the Legislature faces a tremendous fiscal challenge when it returns to session next month,” Controller John Chiang said in a statement. Also Thursday, Brown directed California state government to change its budgeting process to spot savings and efficiencies. The governor issued an executive order saying he wants his finance department to use performance measures, strategic planning, cost-benefit analysis and a method called zero-based budgeting. That approach requires annual evaluations of all spending requests. He asked his finance director, Ana Matosantos, to work with agency secretaries and department directors and report back in 90 days with a plan to use in the new budget. Brown’s order said there should be transparency about program goals, outcomes and funding. Matosantos said in a statement that the state has saved $120 million in the Department of Mental Health by using zero-based budgeting and is expected to save $183 million next year. Brown said the goal was to “common sense program-evaluation methods into the budgeting process, in order to fund programs based on their necessity and effectiveness.” He said the current budgeting method focuses on incremental changes, “rather than a deeper review of a department or program.” ___ Associated Press writer Don Thompson contributed to this report.

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Consumers Upped Borrowing In October, Signaling A Boost In Confidence

December 7, 2011

WASHINGTON — Americans stepped up their borrowing in October to buy cars and attend college, and they also charged a little more to their credit cards. The second straight monthly gain in overall borrowing suggests consumers are growing more confident in the economy ahead of the crucial holiday buying season. Total consumer borrowing rose by $7.6 billion, the Federal Reserve said Wednesday. September and October’s gains reversed a steep drop in borrowing from August, when it fell by the most in 16 months. The October increase reflected a 5.3 percent increase in borrowing in the category that includes car and student loans, much of it federally funded. The category that covers credit card purchases rose 0.6 percent, which matched September’s gain after a revision. Borrowing has increased in 11 of the past 12 months. But credit card use has increased only six times in the past two years. It declined in both July and August, when many Americans were worried about the economy and more cautious about taking on high-interest debt. That may be changing. The economy grew at an annual rate of 2.5 percent in the July-September period, nearly three times the growth rate in the first six months of the year. Most economists expect similar growth in the final three months of the year. Consumers are spending more freely and their confidence is on the rise again. In November, the unemployment rate fell to 8.6 percent, the lowest point in two and a half years. The economy has generated 100,000 or more jobs five months in a row – the first time that has happened since April 2006. Still, economists worry that the spending gains may be temporary because wages are barely keeping pace with inflation. Some caution that borrowing may be rising because people are earning less. “Many Americans had to break out the plastic in the past couple of months since disposable income, adjusted for inflation, was in negative territory for each month in the third quarter,” said Chris Christopher, senior economist at IHS Global Insight. Without more jobs and higher pay, consumers may be forced to cut back on spending. That would slow growth. Consumer spending accounts for about 70 percent of economic activity. Economists also fear Europe’s debt crisis will lead the continent into a recession, which would also hamper U.S. growth. And if Congress doesn’t extend the Social Security tax cut and emergency unemployment benefits by the end of this month, $165 billion in potential spending could be sucked out of the economy next year. Households began borrowing less and saving more when the country fell into a recession and unemployment surged. While economists believe Americans will gradually increase borrowing in coming months, they do not expect consumers to load up on debt the way they did during the housing boom. Americans felt wealthier then and were more willing to take on added debt because of the soaring value of their homes. The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

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Consumer Bureau Developing Simpler Credit Card Form

December 7, 2011

Imagine a credit card agreement that’s short, to the point and easy to understand. If one federal agency gets its way, what you’re picturing could become a reality. The Consumer Financial Protection Bureau launched a campaign aimed at simplifying credit card agreements Wednesday. The agency is asking the public for feedback on a more transparent credit card form that is broken down into three sections — costs, changes and additional information — and features information high up on fees, interest rates and other information. The bureau will also be soliciting feedback through a pilot program that will offer the agreement to customers of the Pentagon Federal Credit Union. “When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works — it’s easy to get confused,” Raj Date, a special adviser to the Treasury said in a statement announcing the program. “With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them.” The announcement comes after a CFPB report analyzing more than 5,000 credit card complaints found that customers are confused by their credit card terms. The report also found that consumers are still complaining about interest rates, billing disputes and other issues, despite legislation passed in 2010 that aimed to make credit cards more transparent. The complaint system was the first of its kind for the CFPB, which launched in July. The agency plans to expand the complaint system to all financial products starting with mortgages. The bureau, which was created as part of the Dodd-Frank Financial Reform legislation, has been controversial since before its inception . Consumer advocates welcomed the agency as a necessary step towards preventing another financial fallout, while the financial industry and some lawmakers derided it as over-regulation. The new credit card form may be coming at just the right time. Credit card purchases climbed more than 10 percent last quarter after an 8.6 percent increase and a 9 percent boost in the first and second quarters respectively, according to statistics from First Data. The findings may indicate that credit card use is edging up after consumers cut back on debt immediately following the recession. Check out an early version of the CFPB’s simplified credit card form:

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German Chancellor Minimizes Possible S&P Downgrade

December 6, 2011

BERLIN — Chancellor Angela Merkel on Tuesday downplayed Standard & Poor’s warning that it might cut the credit rating of 15 eurozone countries, including Germany’s, because the region’s financial crisis is worsening without any imminent fix. The timing of the warning was noteworthy. It came just hours after Merkel and French President Nicolas Sarkozy urged changes to the European Union treaty that would centralize decision-making on spending and borrowing for the 17 countries that use the euro. Tighter political and economic coordination among euro countries is seen as a precursor to further financial aid from the European Central Bank, the International Monetary Fund, or some combination. The threat to cut Germany’s prized AAA rating was particularly surprising. Its bonds are considered among the safest in the world. A downgrade threatens to complicate the eurozone’s bailout mechanism, since the region’s rescue fund relies on AAA-rated bonds of Germany and France to cheaply raise money. Investors nevertheless seemed to take the S&P warning in stride on Tuesday. European stocks and bonds mostly held onto the gains they made Monday. “What a rating agency does is the responsibility of the rating agency,” Merkel told reporters in Berlin, refusing to elaborate further. She said, however, that she expected a meeting of European leaders later this week in Brussels would help restore markets’ confidence. “We will meet on Thursday and Friday as Europeans and take those decisions that we consider to be correct, and through them stabilize the eurozone and also regain confidence,” she said. She and Sarkozy on Monday outlined sweeping plans to change the EU treaty in an effort to keep tighter checks on overspending nations. The proposal is set to form the basis of discussions at an EU summit in Brussels on Friday. The financial markets of Italy and Spain rallied after Merkel and Sarkozy unveiled their proposals, suggesting investor are more confident Europe can survive the crisis. “I have always said this is a long process and an arduous one and it will continue, but we charted the course yesterday with the French president and we will continue to stay the course,” Merkel said. S&P said there was a 50 percent chance that the countries’ ratings it put on review would be downgraded. Late Monday night the euro fell from $1.3460 to $1.3330, unwinding much of the gains made after Merkel and Sarkozy’s proposals. By Tuesday, however, it was back up to $1.3420 – buoyed in part by a report showing a massive rebound in German industrial orders due to a double-digit increase in demand from eurozone countries. Stock and bond markets largely overlooked S&P’s threat, remaining stable on Tuesday. The bond yields for countries like Italy and Spain remained at the one-month lows they hit on Monday. “Although the S&P warning has not scared the markets as it was pretty much stating the obvious, it did color the market sentiment,” said Anita Paluch, a trader with Gekko Global Markets. Paluch said the warning does raise pressure on policymakers, however, to use the upcoming summit to produce a solution that will “put out the fire in the eurozone.” French Foreign Minister Alain Juppe said it appeared to him that S&P had made its decision before Merkel and Sarkozy released details of the new plan, so hadn’t been able to factor that into its considerations. The leaders’ proposal is “exactly the response to one of the major questions from the ratings agency, which talks about insufficient European economic governance,” Juppe said on RTL radio. Sarkozy and Merkel are proposing several broad changes for the EU treaty, including the introduction of a penalty for any government that allows its deficit to exceed 3 percent of gross domestic product. The penalty would be automatic – unless a majority of nations opposed it, a loophole that drew sharp criticism from analysts. Some analysts also feel the proposal, which demands strict austerity measures, misses the mark and will only worsen much-needed growth in already feeble economies. Investors are hoping that the summit of European leaders on Thursday and Friday will produce concrete measures to prevent a messy breakup of the euro. Markets have been jittery because of fears that the euro might disintegrate, causing a sharp recession in Europe that would spread through the world economy. EU spokesman Amadeu Altafaj Tardio said that the bloc needed to make “important decisions this week” but not because of any worries about the S&P ratings. “The job was already partially done in October” at the last summit, he said. “We now have to complete the job. It is not because we want to please the rating agencies or market forces, it is important because it is the best (way) to ensure the prosperity of our citizens.” The S&P warning left out only two of 17 countries that use the euro: Cyprus, whose bonds have near-junk status, and Greece, whose low ratings already suggest it is likely to default soon anyway. ___ Kirsten Grieshaber in Berlin, David Stringer in London, Raf Casert in Brussels, and Sarah DiLorenzo in Paris contributed to this story.

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Crisis Rolls On: Now Hungary Downgraded To Junk

November 25, 2011

Hungary must redouble efforts to obtain International Monetary Fund aid and the central bank should raise rates to ease financing risks after Moody’s Investors Service cut the country’s credit grade to junk, said fund managers from Budapest to London.

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Jeanne Kelly: 5 Credit Tips to Help First Time Homebuyers Get a Mortgage

November 17, 2011

Buying your first home is such an exciting experience! So I was pleased to work with a client recently who wanted to buy her first home but she knew that there was some work to do before she could qualify for a mortgage. She was working at a good job — a job that she had held for the past for four years — and she was earning a good income (thanks to the annual raises she received from positive yearly reviews). But she knew that not everything was perfect: She had slacked on paying some credit card payments on time, and she didn’t have a clue about credit reporting. Even with great income and job stability, her ability to qualify for a mortgage was at risk. We worked together and I helped her understand the importance of credit reporting and we cleaned up her credit that had some mistakes and then she focused on lowering her debt and paying all accounts on time. I’m happy to report that she just bought her first home! If you are thinking about buying your first home, your credit rating will play a critical role in helping a mortgage lender determine whether or not to lend to you. Here are five credit tips you can use to help you stack the odds in your favor: Make a plan. When you first start talking about buying a home, get copies of your credit report from all three credit reporting agencies — Experian, Equifax, and TransUnion. Use this as your personal “blueprint” to identify the ways you can improve your credit rating and increase the likelihood that you’ll get a mortgage. Start with the obvious mistakes. These companies process a lot of data every single day. Even though they do a pretty good job, mistakes will be made and someone else’s credit history could end up tacked on your report. Review your reports for errors. In particular, watch for previous addresses that aren’t yours and credit cards that don’t belong to you. Contact the companies immediately to correct the errors. Pay down your debt. Identify any credit cards that have an amount owing and pay them down as quickly as possible. Your credit reports consider how much available credit you are using, so a 5,000 credit limit with only 500.00 of available credit tells the bank that you’re using most of what you have. Look at your “trouble spots” and commit to fixing them. For many people, a trouble spot is paying off their debts on time. For others, a trouble spot is having too much owing at once. For others, it’s frequently applying for new credit (i.e. credit cards, loans, vehicle leases, etc… Anything that requires a credit check). Figure out where you tend to slip and make a plan to improve that aspect of your credit. Add time. Yes, you read that correctly: Figure out what you need to fix (from the above steps) and add time by doing it right for a while. Expect to spend a few months (or longer if you’ve struggled with your credit in the past) demonstrating your ability to maintain healthy credit. These steps won’t immediately result in perfect credit. It can take to time build up great credit scores. But they can improve your chances of going to a bank to get a mortgage… and getting a mortgage at a more attractive rate. As I like to say,” Time heals all wounds, just like on the credit report.” And here’s one other bonus, provided by Connecticut-based Mortgage Broker Denise Panza : “Instead of going to a bank for a mortgage, talk to your friendly neighborhood mortgage broker. Instead of putting all your eggs in one basket dealing with a bank, mortgage brokers can draw from a wider collection of lending institutions to help you find a great mortgage at a great rate to fit each individuals needs.” If you’re an aspiring first-time homebuyer, start working on improving your credit rating right now so that when it’s time for you to find a home, you’ll have no trouble finding a mortgage.

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Report: Greek Prime Minister Agrees To Step Down

November 3, 2011

ATHENS/CANNES, France (Reuters) – Intense European pressure forced debt-stricken Greece to seek political consensus on a new bailout plan instead of holding a referendum after EU leaders raised the prospect of a Greek exit from the euro to preserve the single currency. Fast-moving events in Athens overshadowed the first day of a summit of the Group of 20 major economies on the French Riviera on Thursday, with anxious world leaders urging Europe to act to stop contagion from its sovereign debt crisis. Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters. “He was told that he must leave calmly in order to save his (PASOK) party,” one source said on condition of anonymity. “He agreed to step down. It was very civilized, with no acrimony.” Papandreou, son and grandson of left-wing prime ministers, hinted he was ready to quit for the sake of national unity, telling parliament he was not wedded to his job. G20 leaders meeting in Cannes discussed increasing the International Monetary Fund’s resources and building a financial firewall to protect vulnerable euro zone economies Italy and Spain from a possible Greek default. Papandreou said his call this week for a referendum, which sparked panic on global financial markets and infuriated European partners, “was never a purpose in itself”, and he would be happy if the vote were not held. Papandreou told PASOK lawmakers he had agreed to talks with the center-right opposition on a transitional government to implement a new EU/IMF bailout program agreed last week, and pave the way for early elections. At a bruising meeting in Cannes on Wednesday night, French President Nicolas Sarkozy and German Chancellor Angela Merkel warned him that Athens would not receive a cent more in aid until it met its commitments to the euro zone. Greece was due to get a vital 8 billion euro installment this month and says it will run out of money in mid-December if it does not get the loan. Despite the turmoil in Athens and uncertainty over the euro zone, European stock markets and the euro rallied in volatile trading as the likelihood grew that Greece would not hold the highly risky referendum. The European Central Bank also provided a surprise boost by cutting interest rates by 25 points to 1.25 percent and saying its policy of buying euro zone government bonds would continue for now with limited scope to support its monetary policy. The leaders of China, Russia and the United States pressed the Europeans to move more swiftly to contain the debt crisis, with Washington urging Germany to relent and let the ECB play a greater role in financial firefighting, G20 sources said. “Europe should aid itself. The European Union has everything for that today — the political authority, the financial resources and the backing of many countries,” Russian President Dmitry Medvedev said. Canadian Prime Minister Stephen Harper said the leaders had discussed contingency plans if Greece were to leave the euro zone, “but my expectation is that cooler heads will prevail and the package will be accepted (by Greece)”. ITALY NEXT Italy was next in the euro zone firing line, facing fierce pressure to make good on long delayed economic reforms. European G20 leaders along with U.S. President Barack Obama, IMF Managing Director Christine Lagarde and new ECB President Mario Draghi met on the sidelines to press Italian Prime Minister Silvio Berlusconi for a timetable for key labor market, pension and privatization measures, EU sources said. Berlusconi failed to win agreement from his divided center-right cabinet for the reforms just before flying to Cannes. A draft plan agreed with the G20 on Thursday includes a commitment by Italy to get its budget deficit “near balance” by 2013 and to rapidly reduce its debt-to-GDP ratio, sources told Reuters. That is less ambitious than Italy’s promise only last month to balance its budget in 2013. EU leaders are concerned that if Italy cannot get its finances in order, the economy — the eurozone’s third largest — could go the way of Greece, Ireland and Portugal in needing a bailout from the EU. GREECE REVOLT In Athens, Finance Minister Evangelos Venizelos led the revolt against Papandreou, saying Greece’s euro membership was a historic achievement and “cannot depend on a referendum”. Dissident PASOK lawmakers called for a temporary national unity government, which some suggested could be led by former ECB vice-president Lucas Papademos. Signaling for the first time a will to compromise, opposition leader Antonis Samaras called for a transitional government to lead Greece to early elections within weeks and said parliament should first ratify last week’s 130 billion euro ($178 billion) bailout deal. European Union leaders have long called for national unity in support of painful austerity measures required to cut the country’s crippling debt, expected to reach 160 percent of gross domestic product this year. Sarkozy told a news conference the tough message delivered by France and Germany to Greece’s political class was starting to bear fruit. “Things are progressing,” he said, welcoming Samaras’ support for the bailout plan. Euro area leaders talked openly of a possible Greek exit from the 17-nation currency area, seeking to maximize pressure on Athens and preserve the euro in case of a “no” vote. Merkel repeated that the stability of the euro had priority for Germany over Greece’s euro membership, touching a popular nerve at home. Germany’s best selling Bild newspaper railed against Greece and demanded it be ejected from the euro. A telephone poll found 86 percent of Germans want Greece out of the currency. The chairman of euro zone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said policymakers were working on possible scenarios for a Greek exit. The specter of a possible hard Greek default and euro exit hung over the G20 summit, highlighting Europe’s frailty and divisions just when Sarkozy had hoped to showcase his leadership of the world’s major economies. The summit had been meant to focus on reforms of the global monetary system and steps to rein in speculative capital flows and regulate commodities markets, but the shockwaves from Greece upended the talks. Obama said Europe had taken some important steps toward a comprehensive solution to its debt crisis but now needed to flesh out and implement the plan quickly. A disorderly Greek default would reverberate across the euro zone, engulfing big economies like Italy and Spain, and potentially plunging the global economy into a recession. CREDIT LINES? Euro zone finance ministers are working to accelerate implementation of an anti-crisis package agreed on October 27. That plan, which includes debt relief for Greece, a recapitalization of European banks and a leveraging of the bloc’s rescue fund, was meant to stem the two-year old crisis before Papandreou’s referendum call cast the bloc into turmoil. Officials said the meeting focused on speeding up the creation of a firewall to protect other vulnerable euro zone states from the fallout from Greece. The risk premium on Italian bonds over safe-haven German Bunds has hit euro-lifetime highs this week, despite European Central Bank buying of its bonds. Spain had to pay its highest yield since 2008 at a bond auction on Thursday. The G20 is considering an IMF proposal to create a new short-term line of credit to help countries that are facing economic shocks beyond their control, a G20 official familiar with the talks said. British finance minister George Osborne said leaders discussed increasing the global lender’s resources, which China strongly backed, and he had heard no dissenting voices. (Additional reporting by Lefteris Papadimas in Athens, David Ljungren, Abhijit Neogy, Giselda Vagnoni, Catherine Bremer, Gernot Heller, Daniel Flynn, Luke Baker, Gui Qing Koh and Alexei Anischuk in Cannes; Writing by Paul Taylor; Editing by Janet McBride) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Americans Grossly Underestimate Their Own Credit Card Debt

October 21, 2011

Americans grew wary of credit-card debt during the recession, a time when no one was eager to try to live beyond their means. But in the past two years, consumers have started to take some of that debt back on — and in a potentially worrying sign, many of them don’t seem to know exactly how much they have . A recent study from the Federal Reserve Bank of New York suggests that the consumers who hold credit cards and the lenders who issue them often have very different ideas about how much the cardholders owe . The average household believes they hold about $4,700 of credit card debt or 66 percent of the $7,134 lenders — the ones in a position to enforce — say households carry. The study’s authors note that they tried to account for the gap in various ways, but it remained sizable no matter how much they tweaked their research methods. They speculate that the discrepancy between borrowers’ perceptions and lenders’ data might be a result of “uninformedness” on the part of the borrowers — possibly because credit card charges and balances can be difficult to keep track of, or just because some people choose not to. The news suggests many Americans still have some progress to make in the area of financial literacy, a subject that rose to national prominence in the wake of the Great Recession. A measure in the Dodd-Frank financial reform act established an Office of Financial Education, and more public schools have begun adding a financial component to their curricula , according to USA Today . Still, the New York Fed’s report indicates that many consumers may still only have an incomplete understanding of their day-to-day financial activity. The findings are also disquieting in light of another recent study, which found that credit card debt has skyrocketed since 2009 . Consumers are borrowing more, and in a weak economy, with millions out of work and wages essentially flat, that may not necessarily be a good thing. Three years ago, out-of-control consumer debt played a major role in the escalation of the financial crisis into a full-on recession. High interest rates and easy access to loans left millions of Americans scrambling to pay off precipitously large debts when the economy took a downturn. In 2009, credit card default rates climbed to a 20-year high as unemployment rates soared. Today, more Americans are out of work, but credit card default rates are showing a steady decline . This may reflect tighter lending standards — credit is harder to get these days , with banks and other issuers taking greater pains to limit their cards to responsible borrowers — but it may also mean that most of the people at risk of defaulting have already done so , as The Fiscal Times notes.

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BofA Reports First Increase In Customer Late Payments In A Year

October 17, 2011

NEW YORK (AP) — Bank of America Corp. on Monday reported a small increase in customer late payments for September. It was the first increase Bank of America reported for delinquencies, as they are known in the industry, in a year, and echoed similar increases reported by other major card issuers. Delinquencies are an important indicator of future default. The credit card division of the Charlotte, N.C.-based bank said in a regulatory filing that the rate its customers’ payments were late by 30 days or more rose to 3.99 percent of balances on an annualized basis, from 3.96 percent in August. The bank also said in the filing with the Securities and Exchange Commission that the rate it wrote off credit card balances last month dropped to 5.99 percent of balances, annualized, from 6.79 percent in August. That was the first time the default rate dropped below 6 percent since before the 2008 financial crisis. Bank of America still has among the highest rate of default, or charge-offs, in the industry. But it is down substantially from the 14.53 percent the bank reported in August 2009. American Express Co. on Monday reported a slight increase in its late payment rate last month. But American Express’ late payments are still the lowest in the credit card industry. Credit card companies typically write off balances after they are 180 days past due, the point at which the companies assume they won’t be able to collect. Bank of America Corp. shares fell 16 cents, or 2.6 percent, to close at $6.03 on Monday. Markets were broadly lower, and the Dow Jones industrial average fell 2.1 percent.

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SEC Struggles Over Disclosing Which Companies Use ‘Conflict Minerals’

October 16, 2011

WASHINGTON (Sarah N. Lynch) – Securities regulators are struggling to craft a rule that sheds light on companies that use certain African “conflict minerals” but avoids a compliance nightmare that hurts manufacturers. The Securities and Exchange Commission is six months behind schedule in finalizing the rule that is required by last year’s Dodd-Frank financial oversight law. The rule, which was tucked into the legislation at the last minute, will require companies to disclose whether they use tantalum, tin, gold or tungsten from the war-torn Democratic Republic of the Congo. The agency is holding a roundtable discussion on Tuesday to hear from companies, human rights organizations and other stakeholders. The SEC has asked for help navigating the mine field of tricky issues such as tracking conflict minerals through the supply chain and “workable” due diligence. Corporations such as AT&T (T.N) have criticized the rule as overreaching. They say it could trip up companies who contract with manufacturers and have little, if any, control or knowledge about the origins of minor amounts of minerals that end up in their products. Fear about running afoul of the pending reporting rule has already prompted some companies such as Apple Inc (AAPL.O) and Hewlett-Packard Inc (HPQ.N) to stop sourcing from the region. “If you go from compliance on through, this starts to set up not only nightmare scenarios, but also costly scenarios that make it difficult for companies to ensure an adequate supply of raw materials,” said Tom Quaadman, the vice president of the Chamber of Commerce’s Center for Capital Markets Competitiveness. The SEC issued a draft proposal of the rule in December and hopes to finalize it by the end of the year, according to the agency’s website. The challenges of implementing the rule are many. For a start, companies will need to identify whether or not any of the four “conflict minerals” are contained in their products – something that is not always known. Then, if the mineral is present in the manufactured good, the company would have to exercise due diligence to determine where the metal came from. That could mean going through layers upon layers of suppliers, some of whom may be private companies located in third-world countries. And if the metal has been recycled, as gold often is, it could get even trickier to track. “What would be required here is the development of a global compliance infrastructure,” said Brian Cartwright, a senior adviser at Latham & Watkins and former general counsel for the SEC. “The notion is that any public company in the United States will have to file, in annual reports, as an exhibit, a conflict minerals report that has been subject to an independent private sector audit,” said Cartwright. Many companies, business groups and lawyers have urged the SEC to phase in the new rules over time to help make it easier to comply. They also want the SEC to narrow the scope of the rule so that companies are not forced to track trace amounts of minerals. But human rights groups are staunchly opposed to a phase-in period, saying the SEC needs to follow the Dodd-Frank mandate and implement the rule without delay. Because the conflict minerals rule is required by the law, the SEC has little wiggle room to stray from congressional intent. “Businesses should be held accountable for human rights issues, and investors find these concerns to be material in that they, at the end of the day, affect companies’ image and bottom line,” said Amol Mehra, the coordinator of the International Corporate Accountability Roundtable. “All companies need to do… is simply tell us what is in their products.” The SEC must also deal with potential legal challenges to the final rule. The Chamber of Commerce, which in July successfully convinced a federal court to overturn the SEC’s proxy access rule, has its sights on a possible challenge of the conflict minerals rule if the agency does not improve its cost estimates. The agency’s proposal had initially estimated the total paperwork burden of compliance would be $71 million. But the Chamber says that figure is woefully inadequate. The National Association of Manufacturers, a leading trade group fighting the proposal, has estimated the conflict minerals plan could cost industry between $9 to $16 billion to implement. (Reporting by Sarah N. Lynch; Editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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New York State Sues Bank Of New York Mellon For Defrauding Clients

October 4, 2011

NEW YORK – New York’s attorney general said on Tuesday he filed a lawsuit against Bank of New York Mellon for defrauding clients in foreign currency exchange transactions. New York Attorney General Eric Schneiderman said Bank of New York Mellon misrepresented to customers the rates for foreign currency transactions over a 10-year period. Schneiderman said he is seeking a recovery of nearly $2 billion. (Reporting by Andrew Longstreth; Editing by Phil Berlowitz) Copyright 2011 Thomson Reuters. Click for Restrictions .

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SEC Finds ‘Apparent Failures’ At 10 Credit Rating Agencies

September 30, 2011

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission staff found “apparent failures” at each of the 10 credit rating agencies it examined, including Standard & Poor’s and Moody’s, the agency said on Friday in its first annual report of credit raters. The SEC staff said concerns include failures to follow ratings methodologies, failures in making timely and accurate disclosures and failures to manage conflicts of interest. The SEC’s annual report was required by last year’s Dodd-Frank financial oversight law. The staff report did not single out by name any credit-rating agency for questionable actions. It also said the SEC has not determined that any of the report’s findings constituted a “material regulatory deficiency” but said it might do so in the future. “We expect the credit rating agencies to address the concerns we have raised in a timely and effective way, and we will be monitoring their progress as part of our ongoing annual examinations,” said Norm Champ, deputy director of the SEC’s Office of Compliance Inspections and Examinations. The SEC’s report covers 10 credit-rating firms including Moody’s Corp, McGraw-Hill Cos Inc’s Standard & Poor’s and Fimalac SA’s Fitch Ratings. Congress first empowered the SEC to closely regulate the firms in 2006, and Dodd-Frank gave the agency even greater powers over the industry. Credit raters have been widely criticized for fueling the financial crisis by giving inflated ratings to toxic subprime mortgage securities. On Monday McGraw-Hill disclosed that the agency might charge its Standard & Poor’s unit with breaking securities laws. SEC Enforcement Director Robert Khuzami told Reuters this week that the agency faces hurdles proving wrongdoing at credit-rating agencies, pointing to the complexity of the cases and the industry’s strong legal defenses. (Reporting by Andrea Shalal-Esa, Aruna Viswanatha, Karey Wutkowski, editing by Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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EU ministers see need for stronger bank sector

September 17, 2011

By Julien Toyer and Ilona Wissenbach WROCLAW, Poland (Reuters) – EU finance ministers agreed on Saturday that European banks must be strengthened in the follow-up to July stress tests as a report said a “systemic” crisis in sovereign debt now threatened a new credit crunch. “We reached the conclusion that we need to make our financial system more robust,” Spanish Economy Minister Elena Salgado told reporters after a meeting of EU finance ministers in the south-western Polish city of Wroclaw. “There is a consensus that it would be good for our financial institutions to strengthen their capital to comply with Basel III requirements and to face any eventuality of the moment,” she said. However, the agreement does not mean European banks are likely to get large, additional capital injections from public coffers — it is more an acknowledgement of the results of the European bank stress tests in July. The tests showed a financing gap for banks of only 6 billion euros ($8 billion) — a sum many investors believe could be much higher if the debt crisis worsens. European banks are therefore struggling to borrow amid growing alarm among U.S. money market funds, and other traditional dollar lenders, about the effect of a feared Greek debt default on European banks’ books. Persistent jitters over French banks’ exposure to Italy and Greece hammered the shares of BNP Paribas and Credit Agricole. On Wednesday, Moody’s Investors Service downgraded Credit Agricole and Societe Generale, citing increased concerns about their funding and liquidity profiles in light of worsening refinancing conditions. It left the ratings of the biggest French bank BNP on review for downgrade. “From our perspective, we see a clear need for bank recapitalisation,” Swedish Finance minister Anders Borg told reporters on leaving the meeting of finance ministers. “I think the IMF has spelled it out very clearly. The EU banking system needs better backstops and that’s basically a matter of capital,” he said. HIGHER CAPITAL NEEDED TO CALM MARKET DOUBTS A document prepared for the ministers’ meeting said banks should raise their capital. Guidelines for the stress tests stipulate banks should announce measures to boost capital, if needed, within 3 months of the results and carry out the increase, preferably financed by private investors, within 6 months. “Despite the increased resilience of European banks and the limited remaining refinancing needs for the rest of 2011, in view of a compelling market pressure for an increase in banking capital benchmarks and with the aim of dispelling any doubts on the intrinsic stability of most banks, a further reinforcement of bank resources is advisable at this juncture,” it said. “This is important for banks that have failed the stress test, but also for those that have passed the test but with capital level close to the relevant threshold, and particularly with sizeable exposures to sovereigns under stress,” it said. Central banks around the world announced on Thursday they would work together to offer extra loans in U.S. dollars to banks, a move designed to prevent money markets from freezing up in the wake of Europe’s sovereign debt crisis. “We noted the fact that unlimited liquidity windows are opened,” Salgado said. “(But) they’re short term and this situation is not optimal,” she said. Some ministers sought to play down the banks’ troubles. “The overall situation of European banks is stable,” said the head of the euro zone finance ministers’ group, Jean-Claude Juncker. “All the instruments are in place to make sure the financial system continues to work properly,” Luxembourg’s Finance Minister Luc Frieden said. The report for the meeting showed the sector could be facing a credit crunch. It said there could be “a dangerous negative loop between the financial and the real sectors (of the economy), whereby funding problems and increasing risk aversion of banks may lead to disruptive deleveraging by banks, thereby generating a credit crunch, in some Member States, with consequences for the economic recovery and the credit quality of banking assets.” “The risk of a vicious circle between sovereign debt, bank funding and negative growth developments is therefore apparent now, at a time where the margin for maneuver is considerably more limited than in 2008-2009,” the document said. EU DIVIDED OVER FINANCIAL TRANSACTION TAX Ministers also discussed a tax on financial transactions, such as a levy on trading shares, an idea championed by Germany, France and Austria, but the idea does not have broad support. “There is no common position on a financial transaction tax in Europe. We have only started the debate on that and there is no decision,” Internal Market Commissioner Michel Barnier said. The United States does not want to implement such a tax, making it difficult for Europe to go it alone for fear that it could push more trading to New York. Germany has said it may pursue a tax solely in the euro zone if countries like Britain refuse to support it but even here, some states such as Italy are skeptical. (Additional reporting by Robin Emmott, Francesca Landini, Annika Breidthardt, John O’Donnell, Jan Strupczewski, Julien Toyer and Ilona Wissenbach) (Writing by Jan Strupczewski; Editing by Ruth Pitchford)

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Unemployment Surpasses ‘The Economy’ As Country’s Biggest Concern: Gallup

September 15, 2011

It’s the unemployment, stupid, according to a Gallup poll released Thursday. Almost 40 percent of Americans said in September that unemployment or joblessness is the biggest issue facing the country, up from 29 percent in August, a Gallup Poll released Thursday shows. Americans now cite unemployment more than “the economy” as the nation’s most important problem, the report said. Not since last November has unemployment surpassed the economy as the top concern of Americans. U.S. employers added no new jobs in August as the unemployment rate held at 9.1 percent, the Labor Department reported earlier this month. And things aren’t poised to pick up any time soon, Douglas Elmendorf, director of the Congressional Budget Office told a congressional committee earlier this week . Elmendorf said his non-partisan agency predicts the unemployment rate will hover at 9 percent through the end of next year. Though the unemployment rate has been high for months, politicians may finally be coming to the realization that it’s a top concern for voters, especially President Barack Obama, who submitted his American Jobs Act to Congress earlier this week. The bills aims to use a combination of spending and tax cuts to spur job growth. President Obama’s re-election hopes might hinge on how quickly he can get the nation back to work. Ronald Reagan is the only president since World War II to win re-election with an unemployment rate above 6 percent, according to Bloomberg . The jobless rate stood at 7.2 percent on Election Day in 1984. For their part, some prominent economists in the Obama camp seem to agree with the American public that creating jobs is the key to turning the economy around. Larry Summers, the former director of the White House National Economic Council, wrote in an op-ed in the Financial Times in June that boosting spending, borrowing and lending would help to turn the economy around by increasing demand and creating jobs. While some other economists are doubting the effectiveness of Obama’s plan, many small business owners say that if passed, the proposal would encourage them to hire . Still, the Gallup poll found that the plan may not be enough to convince Americans that Obama can handle the issue most important to them. More respondents said Republicans are better suited to handle the nation’s biggest problem than said Democrats could deal with the issue effectively.

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David Macaray: We Do the Work

September 7, 2011

Whenever Labor Day rolls around, I get filled with subversive thoughts about the unfairness of it all. Consider: while it’s the workers who keep the operation running smoothly, it’s management who gets the credit. It’s management who gets the credit, the glory, the promotions, and, ultimately, the compensation. Put another way: Management crawls up the corporate ladder on the backs of the workers. Admittedly, this economic arrangement has been in existence, more or less, since the pharaohs had the pyramids built, so we’re not trying to rediscover America here. Still, given how skewed and topsy-turvy and fundamentally unjust the arrangement is, it’s amazing that people continue to work so hard. We’re a country of workers. Instead of raising the black flag and setting out looking for throats to slit, people simply put their shoulders to the wheel and work all the harder. It’s astonishing. But when it comes time for contract negotiations, and the workers ask for a commensurate raise, management forgets all the hard work and loyalty and, instead, regards these people as greedy bastards. The less these managers pay their workers, the sooner they’ll earn that next promotion. The following anecdotes are true. They took place at the Kimberly-Clark paper mill in Fullerton, Calif. during the 1980s and 1990s. The hourly workers were affiliated with Local 672, AWPPW (Association of Western Pulp & Paper Workers). * * * * * Rotating shifts were arduous. You worked seven consecutive days of dayshift, then seven days of swingshift, then seven days of graveyard (then started all over again). And when you were on swingshift, and there were vacancies to fill, you got moved around a lot. Typically, this became your new week: two 12-hour dayshifts, followed by two days of straight swingshift, followed by two days of 12-hour graveyards, followed (eight hours later) by one last night of swingshift. Believe me, you didn’t know if you were coming or going. The crews drolly referred to this hellish configuration as the “terrible twos.” For spry young men in their 20s or 30s (especially single guys with no family obligations), the terrible twos were little more than an inconvenience, nothing they couldn’t handle. Their bodies recovered quickly and they bounced back. In truth, their main complaint was that this bizarre scheduling cut into their social lives. However, the terrible twos weren’t confined to young men. There were 61-year-old women, like Maria Gomez (a single woman with a disabled daughter living with her), who were hit with the same punishing schedule. And even though Maria wasn’t in the best physical shape, she never shirked, and you never heard her complain. She came in carrying her lunchbox, performed her job conscientiously, then returned home to grab a few hours sleep. A real trooper. And this was factory work we’re talking about, not some cushy job in an air-conditioned office where all you did was shuffle papers and try to look ironic. Yet the engineers — men who worked straight days and never knew what it meant to double back on four hours’ sleep, and were young enough to be Maria’s grandsons — complained about her. They grumbled behind Maria’s back about how “old ladies” like her were “dragging down the operation.” * * * * * There was an Asset Leader whom I’ll call Kevin, a manager right out of Hollywood Central Casting. The robo-executive. He was tall, well-built, good-looking, a former football player at Kent State University and, supposedly, an ex-Navy-SEAL. Kevin’s problem (besides being a world-class bullshitter) was that he not only knew nothing about working people, he held working people in contempt. It’s true. He had zero respect for workers. No matter how good the production numbers were, Kevin always had the nagging feeling that the crews were holding something back, that they were dogging it, that they were capable of working much harder, and that they were somehow faking their effort, which meant, in effect, that they were lying to him. And, as he continually reminded people, if there was anything he hated, it was a liar. A unitizer driver, Ted, asked Kevin for a day off without pay. He’d been trying to set up a dental appointment for two weeks, but because they kept changing his schedule, he had been unsuccessful. Every time he set up an appointment, either his shift was changed or he was forced to stay over to fill a vacancy. Ted had finally reached the point where he was willing to lose a day’s pay to see the dentist. With his sparkling attendance record, he could have just called in sick and been done with it, but he wanted to be up front about it and not have to lie. Ted was one of the most respected men on the floor. He never missed work, never dogged it, never played mind games. He had run for shop steward some years earlier and had been elected by a landslide. Naturally, Kevin assumed that Ted was lying to him and denied his request. When Ted reminded him that management guys were able to leave work whenever they wished — to run errands, get haircuts, fulfill dental appointments, etc. — Kevin bristled. He told him that what management did was none of his damn business. Then he said to Ted, “We went to college, and you didn’t.” The story had a happy ending. Kevin was later fired. Although the company rarely shared its reasons for terminating management employees, the Kevin episode was kept especially hush-hush. The union really had to dig to find out the reason. We eventually found out that Kevin was fired for lying to Human Resources about something important. The man who hated liars was fired for lying. * * * * * The first Fullerton crew to produce 200,000 Huggie disposable diapers during one shift was Crew 3. It happened on a graveyard shift. Machine #6, Crew #3. Hitting that 200K was a landmark achievement. Even though it all paid the same — good runs paid the same as bad runs — people were always trying to break production records. And that 200K, given the prevailing machine speeds, was the granddaddy of all records. Even without the hope of promotion or extra compensation, the crews were driven to excel. Whether it was pride, the joy of competition, whatever, these people wanted to show the bosses that they could hit big numbers. Of course, when production records were broken, the management team was absolutely thrilled because it meant recognition and promotions for them. Though they had little to do with it, they were the ones rewarded. The night of the record run started out like any other night. Then, at about 2:00 a.m., Brenda, the machine operator, casually checked the count and realized we had a realistic shot at hitting 200,000. For the remainder of the shift Brenda refused to take her regularly scheduled breaks. Charlie, her normally low-key Fluff Assistant, forfeited his break, as well, now consumed by production fever. Hitting 200K was their sole concern. Happily, the final count came in at a shade under 201,500 diapers. When the numbers were confirmed, management proudly announced that they would be making a plaque to commemorate the event, that this plaque would be hung on the wall of the main corridor, and that it would have the names of the five-person production crew, the shift mechanics, the shift electrician and the shift supervisor. That last item turned out to be the fly in the ointment. The supervisor, Neil, an ex-hourly worker and, God help us, ex-union officer, who’d been promoted to management, was petulant and child-like in his simplicity, driving people nuts. The way the machine crew saw it, the record run was achieved in spite of Neil, not because of him, and the thought of his name appearing on the plaque made them ill. In truth, Neil (cruelly nicknamed Rex the Wonder Dog by a mechanic) had no idea that we were even close to a big number until Brenda told him — 45 minutes before the shift ended. I was union president at the time. The crew asked if I would meet with the plant manager and formally request that the plaque not include Neil’s name. I knew that this would cause heartburn, but I reluctantly agreed. For one thing, the crew was dead serious in their request, and it was hard to turn them down; for another, I personally shared their low opinion of Neil, having had some previous run-ins with him. After hearing the request, the plant manager more or less pleaded with me to reconsider. While he acknowledged that Neil had contributed little or nothing, he made it clear that not including his name would be a terrible precedent, as well as an insult — an insult not only to Neil but to the supervisory staff as a whole. Privately, I agreed with him. While I’d been willing to pass on the request, I didn’t like the idea. Keeping Neil’s name off the plaque seemed like a waste of time, serving no real purpose other than, perhaps, further alienating Neil, who already felt persecuted. I went back to the crew and passed on what the plant manager had told me. After considering it, they graciously withdrew their objection. The plaque was made, hung on the wall, and Neil got credit for the record. I’m not exaggerating when I say that, years (years!) afterward, Neil’s name on that plaque still annoyed the hell out of some people. * * * * * David Macaray, a Los Angeles playwright and author (“It’s Never Been Easy: Essays on Modern Labor”), was a former union rep. He can be reached at dmacaray@earthlink.net .

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Tim Chen: 3 Credit Card Marketing Phrases That Don’t Mean Anything

September 2, 2011

It will surprise no one that advertising can be misleading. There’s lemonade with 0% fruit juice, pharmaceutical companies compare their drugs to placebos rather than what’s already on the market, and credit card issuers tout benefits that they’re federally mandated to provide. While reading credit card advertisements can certainly clue you in to exciting deals and promos, card issuers have a tendency to celebrate the bare minimum. Here are a few claims you should take with a large (read: mammoth) grain of salt. 1. $0 liability on unauthorized purchases It’s true: the credit card advertised will cover you in case of fraud. But it’s not necessarily out of the goodness of the issuers’ hearts. The Truth in Lending Act of 1968 limits your liability on unauthorized purchases to $50, and stipulates that you’re not on the hook for any charges that occur after you report your card lost or stolen. This means that if you call your credit card issuer as soon as you know the card’s missing, you probably won’t have to pay anything. Worst case scenario: you’re out $50. Sure, it’s not entirely enjoyable, but card issuers probably won’t be getting any medals for zero liability. 2. No co-signer required A number of college student credit cards will bill themselves as “no co-signer required.” Prevailing thought is that students must have someone else, usually a parent, sign on to the loan to guarantee the debt. A college kid could well think that the advertised card is special in allowing him to apply on his own. However, that card is in the same boat as every other credit card, student or otherwise. According to the Credit CARD Act , your credit limit will be determined by your individual income, not your household income. This means that a student can’t put down his parents’ income on his credit card application unless they co-sign. If he has an income, he can apply on his own; otherwise, it’s a co-signer or nothing. The Federal Reserve clarified earlier this year that this provision applies to everyone, from college kids to stay-at-home parents. Therefore, when a student credit card claims to not require a co-signer, it really means that if a student has an income, he will be considered for a credit card on his own. That’s a claim that any credit card, student or adult, can make. 3. No credit check This is a claim most often seen on prepaid debit cards (often erroneously called prepaid credit cards ). Unfortunately, it’s a lure that targets the unbanked, who tend to be less affluent, and less financially literate. Prepaid debit cards are just like debit cards: they don’t extend a line of credit. Why would you need to run a credit check on someone before allowing him to leave his money with you? A customer with limited or bad credit may quickly snap up a prepaid card rather than run the risk of being denied, leaving himself vulnerable to the hefty hidden fees that often accompany such cards. When you’re reading a credit card offer, do your research first. If a benefit is offered by every credit card in its genre, it’s probably nothing special. The best credit cards aren’t necessarily the ones that list the most perks. A few things that do distinguish credit cards are their rewards programs (do rewards expire, or are they subject to an annual limit?) the presence of fees (such as cash advance or late fees) and interest rates.

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Moody’s managers pressured analysts: ex-staffer

August 19, 2011

By Sarah N. Lynch WASHINGTON (Reuters) – An ex-Moody’s Corp derivatives analyst said the credit-rating agency intimidated and pressured analysts to issue glowing ratings of toxic complex, structured mortgage securities. In a 78-page letter to the Securities and Exchange Commission, William Harrington outlined how the committees that make the ratings decisions are not independent and how managers often intimidated analysts. “The management of Moody’s, the management of Moody’s Corporation and the board of Moody’s Corporation are squarely responsible for the poor quality of previous Moody’s opinions that ushered in the financial crisis,” he wrote. “The track record of management influence in committees speaks for itself — it produced hollowed-out (collateralized debt obligation) opinions that were at great odds with the private opinions of committees and which were not durable for even a short period after publication,” he added. Harrington’s August 8 letter, which was sent in response to a 517-page proposal by the SEC on credit-rating regulations, raises similar issues that are already at the heart of a Justice Department probe into McGraw-Hill’s Standard & Poor’s. “We cannot emphasize strongly enough the importance Moody’s places on the quality of our ratings and the integrity of our ratings process,” said Moody’s Corp spokesman Michael Adler. “For that very reason, we have robust protections in place to separate the commercial and analytical aspects of our business, and our ratings are assigned by a committee — not by any individual analyst.” The Justice Department has been looking into what S&P analysts wanted to do with ratings during the financial crisis, and what they were told to do, according to one source familiar with the matter. A second source has said the department also has been investigating Moody’s in connection with structured product ratings during the crisis, although the exact focus on that probe is unclear. Earlier this year, a U.S. Senate panel led by Michigan Democrat Carl Levin found that Moody’s and S&P helped trigger the financial crisis after the two rating agencies gave overly positive ratings to toxic mortgage-related products and then later downgraded those ratings en masse. Last year’s Dodd-Frank Wall Street overhaul law tightens regulations for raters, including improving the transparency of the methodology used and curbing potential conflicts of interest. The SEC in May issued a proposal seeking comments on many of the Dodd-Frank provisions on rating agencies. Harrington, who said he worked as an analyst in the derivatives group from 1999 until July 2010, said he thinks that if the SEC’s proposed rules had been in place in 2002, they would still not have gotten to the heart of the problems at Moody’s. “Many of the proposed rules still give more license to the management of Moody’s to step up its long-standing intimidation and harassment of analysts, to the detriment of opinion formation,” he said. (Additional reporting by Jeremy Pelofsky)

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Don McNay: How Do You Get Credit Cards Out Of Your Life?

August 19, 2011

In my structured settlement business, clients come to me with large lump sums, perhaps received from an inheritance or a settlement from a lawsuit. I tell the ones with credit card debt, “I don’t offer any products that will pay you as much in interest as you are paying the credit card companies.” I get people to pay off their debts, cut up their cards, and use the money they were paying to the credit card companies for savings or possible investments. But, most people don’t have piles of cash lying around and aren’t counting on a big lump sum. Getting out of credit card debt is a slow process where you need to have a long-term goal. Dave Ramsey and I disagree on several topics, but we agree on the goal of jettisoning credit card debt. I have attended Ramsey’s live seminars and watched him explain his “snowball theory” for eliminating credit card debt. It works as follows: Ramsey says you should pay off your smallest credit card first. Until the balance is eliminated, pay only minimums on other debt while focusing on the one credit card. This creates a momentum in your plan. To quote Ramsey: “The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20 percent head knowledge and 80 percent behavior. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.” I ran into a childhood friend at my mother’s funeral who later told me she was maxed out on several credit cards. She is a clerical worker who doesn’t make a lot of money. I told her about the snowball theory, and she followed it. She also cut back on impulse shopping. It took four years, but last year she e-mailed and told me she had paid off all the cards. Not only was it a great financial accomplishment, it dramatically boosted her self-esteem to know she could accomplish a seemingly impossible task. My friend faced up to her financial dilemma. A lot of people get overextended, fall behind on payments, and start getting calls from credit-card collection companies. If you have ever had a collection agency call you at work, or while a date is visiting your apartment (I’ve had both happen), it is a humbling and embarrassing experience. My credit card problems occurred before I had a mobile phone, but I would imagine getting a collection call on your cell phone with others around can’t be fun. People who are being hounded by collectors need to get familiar with the Fair Debt Collection Practices Act. It’s been around for a long time but is widely ignored by banks, collectors, and regulators. It provides consumers with real protections when used correctly. You can find a detailed booklet about the Fair Debt Collection Practices Act at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf Few people realize (and collectors will never tell you) that if they want no further contact with a collector, the Fair Debt Collection Practices Act gives them a way to make the calls and letters stop. Collectors cannot communicate with consumers in any way (other than litigation) if the consumer gives written notice that he wishes no further communication or refuses to pay the alleged debt. With or without written notice, collectors can only contact consumers by telephone between 8 a.m. and 9 p.m. local time. Collectors cannot call repeatedly or continuously. Consumers can prevent collectors from contacting them at work simply by telling them not to. The consumer does not have to send a letter. Collectors cannot contact consumers who are known to be represented by an attorney. Collectors can’t use deception, such as implying they are an attorney or law enforcement officer, to collect a debt. They can’t threaten arrest. They can’t threaten legal action if it is not actually contemplated and they can’t use abusive or profane language when speaking to a consumer. Collectors routinely ignore the Fair Debt Collection Practices Act. They realize that few consumers know the law and fewer will complain. They also realize that the Federal Trade Commission, especially in the years before the 2008 market crash, rarely enforced the law. I once had a collector (who was looking for a relative who had never lived in my city or household) violate almost every provision of the Fair Debt Collection Practices Act in a profane-laced rant. I documented the conversation in detail, filed a complaint with the Federal Trade Commission, and thought that such a clear-cut violation would get the agency’s attention. It didn’t. I got a form letter saying it would add my complaint to its files for statistical purposes. Despite my unhappiness with the enforcement of the law, knowing it and citing it to collectors can often blunt abusive collections practices. Ending a string of harassing phone calls gives consumers time to deal with debts in a rational and well-thought-out manner. After people get the creditors off their backs, they should sit down and devise a strategy for getting credit cards out of their lives. Don McNay, CLU, ChFC, MSFS, CSSC of Richmond Kentucky is an award-winning financial columnist. He is the author of the book, Wealth Without Wall Street: A Main Street Guide to Making Money, which will be released on September 20. McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. McNay has Master’s Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University. McNay is a Quarter Century member of the Million Dollar Round Table and has four professional designations in the financial services.

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Senator Welcomes News Of Apparent Standard & Poor’s Investigation

August 19, 2011

NEW YORK — As the financial world absorbs news that the federal government is apparently investigating potential misbehavior at Standard & Poor’s, the reported probe lends credence to findings of a Senate panel, which said the credit rating agency helped cause the financial crisis. The Department of Justice is looking into potential conflicts of interest at S&P, which gave top seals of approval to mortgage securities that later turned out to be toxic, the New York Times reported Thursday . S&P and its competitor Moody’s Investors Service provided “the most immediate trigger” to the financial crisis, said an April report from a Senate panel . News of this investigation is welcome, said Sen. Carl Levin, who chairs the Senate Permanent Subcommittee on Investigations, which issued the report. “The hearings held by the Permanent Subcommittee on Investigations and our subsequent report documented reckless actions and significant conflicts of interest on the part of the credit rating agencies that contributed to the financial crisis,” Levin said in a statement emailed by a spokesman. “It is totally appropriate for U.S. law enforcement agencies to review that sad record,” he added. The major credit rating agencies repeatedly sold their top ratings to investment bank clients in order to win favor with those clients and gain market share, the Senate panel alleged in April. These companies are paid by banks to rate the products the banks churn out. The Justice Department is looking at cases in which S&P analysts wanted to grant a low rating, but were overruled by others at the company, the New York Times reported. That idea is consistent with the Senate report, which said the rating process was tainted by conflicts of interest , alleging that rating companies provided rosy assessments in order to keep clients happy. Complicated products like collateralized debt obligations, or CDOs, got top-flight ratings that the agencies later slashed en masse as the housing market collapsed. A spokesman for S&P said at the time of the Senate report that the company has worked to improve the independence of its ratings since the financial crisis. The Senate panel offered email evidence to back up its allegations of conflicts of interest. “We are meeting with your group this week to discuss adjusting criteria for rating CDOs of real estate assets this week,” reads a 2004 email from an S&P manager, “because of the ongoing threat of losing deals.” “I would rather not drop S&P from the upcoming deal,” a Nomura investment banker warned in 2005, when it looked like the bank wouldn’t get the high rating it wanted. While Levin applauded the reported Department of Justice investigation, some analysts said it misses the point. These experts lamented on Thursday that the government wasn’t taking tougher action against other financial actors, which the Senate panel said worked with the rating agencies to inflate the housing bubble that ultimately ravaged the economy. “The rating agencies were the supporting actors. They weren’t the stars,” said Janet Tavakoli, president of the Chicago-based consulting firm Tavakoli Structured Finance. Tavakoli is a long-time critic of the rating agencies, and recently issued a report saying those companies did not deserve a designation bestowed by the government that gives their ratings special status. “If these people are used as scapegoats, then it becomes part of an ongoing cover-up,” she added. “The key drivers of this whole mess were the banks that supplied the money train to keep this going.” Ann Rutledge, founding principal of the structured credit consulting firm R&R Consulting, said the economy’s most fundamental problems have not been solved. “If we don’t have a system for channeling capital appropriately to productive uses,” she said, “then lawsuits don’t matter.”

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Otaviano Canuto: Credit Ratings Matter for Those Who Need Them Most

August 18, 2011

Debt and credit ratings keep making headlines. But for a moment, forget about their impact in the U.S. and Europe, where an abundant set of economic data exists both for international investors and bondholders. Instead, think of what would happen if you lived in one of the 58 developing countries that remain unrated by Standard & Poor’s, Moody’s and Fitch, the three international credit rating agencies. You would have very limited access to capital and investment, and the cost of borrowing would be significantly higher. Let me explain why. In the case of countries not routinely tracked by the majority of investors, the absence of information on creditworthiness — which is costly to acquire — is a disincentive for bond purchases. Sovereign ratings act as widely available and internationally comparable indicators of a coun¬try’s fiscal performance, collectively economizing on costs of information collecting and processing. Even if a government is not issuing bonds, the rating often fulfills a function as a “ceiling” for the private sector and its absence can negatively affect access to the international capital market. In addition, assessments of sovereign creditworthiness are also taken into account by donors providing official development aid. So if you are one of the 58 developing countries still not rated by the three international agencies, you remain pretty much cut off from the many potential bond holders. This is unfair because an unrated country is not necessarily at the bottom of credit worthiness. Contrary to popular perception, some of the non-rated countries would even deserve to be considered investment grade, as our latest World Bank research shows. According to the latest edition of our Economic Premise series, ” Shadow Sovereign Ratings ,” many unrated countries turn out to be doing quite well. Of the 47 unrated countries analyzed, 7 countries, mainly from the Caribbean and the South Pacific Ocean, are likely to be above investment grade (BBB- through AAA). Another 10 are likely to be in the BB category, equivalent to speculative grade; and 10 in the CCC or lower categories of high and very high default risk. This shadow rating model is no substitute for the broader, deeper analysis that experienced rating agencies are expected to provide, but it gives us an approximate idea of where countries stand and what they need to do to improve. There are numerous reasons for a country’s reluctance or inability to be “officially” rated — from the complexity of the process itself to some politician’s fear of losing control over the final outcome. To overcome these disincentives, the international community should play an important role in helping developing countries obtain ratings and even get upgraded. The benefits totally outweigh the risks. In the meantime, the next time you equate unrated with unworthy, please think twice. This blog was originally posted on the World Bank Institute Growth and Crisis website .

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QE3 Not Guaranteed To Happen, And Not Guaranteed To Help If It Does

August 13, 2011

With the economy growing at a snail’s pace and the job market still disconcertingly weak , economists are wondering whether the Federal Reserve will undertake a new round of stimulus efforts to keep the country from slipping into a double-dip recession. Even if the Fed goes that route, however, it may not have much of an effect. Such a program would be known as QE3 — a third session of quantitative easing, which the Fed has done twice before. “Quantitative easing” refers to the Fed buying up assets, particularly longer-term Treasury bonds, as a way of pumping more money into the economy and stimulating investment. Both rounds of quantitative easing have occurred during the current economic crisis, with the previous round, known as QE2, lasting from November 2010 to June of this year. Economists gave it decidedly mixed reviews. At the end of QE2, unemployment was still high, GDP growth was discouragingly slow and consumer spending was on the way down . Critics of quantitative easing say that not only was the second round ineffective, but the influx of new money put the country at greater risk of inflation. Nevertheless, stimulus advocates are keeping a close eye on the Fed , looking for signs that QE3 is on the way. Not everyone believes that it is. “The hurdles facing QE3 are very high,” said David Jones, an executive professor of economics at Florida Gulf Coast University’s Lutgert College of Business. “It’s not off the table completely, because if we do have a double-dip, anything is on the table. But it’s off the table for now.” Jones told The Huffington Post that QE2′s opponents criticized the program so ardently — both in the U.S., where analysts worried about inflation, and overseas, where the flood of new dollars was seen as tipping the international trade balance unfairly in America’s favor — that it’s unlikely Federal Reserve Chairman Ben Bernanke will try a new round of bond-buying unless it’s the only way to stave off disaster. “The Fed is much better at pulling us back from the abyss — like it did in the credit crisis of 2007-2008 — than it is at trying to boost growth in a recovery,” said Jones. Even so, many economists believe QE3 is coming sooner or later. In a recent CNBC poll , 46 percent of economists surveyed said they expected the Fed to undertake a new round of easing, compared with just 37 percent who said it would not. Earlier this week, Goldman Sachs researchers published a note saying that there is “no question” Bernanke will have enough votes on the Federal Open Market Committee to implement QE3, and that they “fully expect him to use these votes … if he views it as necessary.” Analysts from Harvard , Credit Suisse , Standard Life and a number of other institutions have also said that QE3 seems like a distinct possibility. For its part, the Fed has said only that it plans to keep interest rates near zero through the middle of 2013, as a way to encourage corporate borrowing and investing. On Tuesday, a day after the Dow plunged more than 600 points in a single session , Bernanke said the Fed had “discussed the range of policy tools available to promote a stronger economic recovery” — a phrase that many market participants have taken as a veiled reference to a new round of bond-buying coming up. Drew Matus, a senior economist at UBS, says it would be a mistake to jump to that conclusion. “In the context of a market that had been down very sharply the day before, that was them reassuring people that they still have ammunition,” Matus told The Huffington Post. The markets did seem placated after Bernanke’s remarks, rallying to finish up more than 400 points on the day . But while Bernanke may have the power to move markets in the short term, there are doubts as to whether new easing efforts would even have the desired expansionary effect. Jones told The Huffington Post that the country is reaching a point of “diminishing returns” with its asset-purchasing programs, and inflation hawks have argued that QE3 would drive up the price of commodities like gas and oil, leaving consumers unable to spend money on anything but necessities. QE3 speculation could rise to a fever pitch in the next couple of weeks, as many believe the Fed will save any major statements for its August 26 conference in Jackson Hole, Wyo. It was at this conference last year that Bernanke indicated that QE2 was on the way. Matus, for one, doesn’t expect a similar announcement this time. “UBS’s view is that [QE3] is not going to happen,” he said. “In my mind, Bernanke hasn’t got as much flexibility as a lot of people think he does.”

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France’s Economic Growth Grinds To Halt, Reinforcing Recession Risks

August 12, 2011

PARIS — The French government was put under further pressure to cut deeper into spending after figures Friday showed growth in Europe’s second biggest economy ground to a halt in the spring, in another sign that the global economy is facing rising recessionary threats. With the worse-than-expected French growth figures suggesting a possible budget shortfall this year, government ministers may have to find additional savings ahead of a key meeting with President Nicolas Sarkozy on Aug. 24. The flat growth reported in the second quarter of the year was attributable to a slump in consumer spending and exports, and came as policymakers scramble to soothe investor concerns that the country could be the next major economy to lose its coveted triple-A credit rating. A move Friday by stock market regulators in France and elsewhere across Europe to ban short selling – a form of stock market speculation that some are blaming for the turbulent trading in recent days – looked to be having some impact. But economists stressed that any rebound was very fragile, and some derided the ban as misguided and ineffective. French bank shares were performing solidly in Paris, with Societe Generale up nearly 3 percent and Credit Agricole up over 1 percent. Over the past couple of days, French bank stocks, and Societe Generale in particular, have been hugely volatile amid rumours of their financial health. The European Union’s markets supervisor, the ESMA, announced the short selling ban late Thursday night after boosting surveillance of stormy markets earlier in the day. In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share. Regulators in France, Italy, Spain and Belgium are each implementing the bans, whose details vary from country to country. Several countries banned short selling during the financial crisis of 2008 to try to tame volatility. But some experts said the bans actually contributed to a feeling of uncertainty. “The decision (of short-selling ban) is more psychological as it seems to strengthen the position of the regulators compared to the speculators,” said Dominique Dequidt, a fund manager at KBL Richelieu trading house in Paris. “But the speculators have found ways to by-pass this shorting ban for the last two years, when it was in place in the past so this measure seems more like a complete waste of effort towards the speculators.” News that French economic growth sputtered to a halt in the second quarter may raise concerns that the European economy is being impacted by the debt crisis that has afflicted a number of countries and has fueled the turmoil in the markets. Separate figures from Eurostat, the EU’s statistics office, showing that industrial production across the 17-country eurozone fell by 0.7 percent are likely to add to market concerns over the pace of the economic recovery in Europe. The French economy posted zero growth in the second quarter, national statistics agency INSEE said. Government economists had forecast growth of around 0.2 percent in the period. Consumer spending slumped 0.7 percent and exports stagnated during the second quarter. Growth in the first quarter was nearly 1 percent. Views on the weak performance were mixed, with warnings that a stagnant economy will make it harder to reduce the deficit. “As for France itself, Q2′s 0.7 percent drop in consumer spending was the sharpest in nearly 15 years, suggesting that the household sector can no longer be relied upon to support the economy,” said Jennifer McKeown, an economist at Capital Economics in London. However, Laurence Boone of Bank of America Merrill Lynch remained “positive on France overall” based on its careful handling of debt in the past. “Gradual reforms should bear fruit in coming years, but more needs to be done,” Boone said. France’s finance minister took to the airwaves again Friday in a bid to put a positive spin on the weak second-quarter numbers. “It’s not a surprise that the second quarter is worse than the first, we anticipated this,” Francois Baroin said on French radio station RTL. He said the government is sticking with its deficit reduction targets despite the lower growth. Baroin also pledged France would still achieve its target of 2 percent growth this year, which many economists are skeptical about. Flagging growth may mean France has to come up with new budget cuts if it is to bring its deficit down to 5.7 percent this year as planned. In Greece, where Europe’s debt crisis began, statistics released Friday show the country is mired in a deep economic recession, contracting by 6.9 percent in the second quarter compared to the same period last year, on lower consumer spending. And in Italy, Premier Silvio Berlusconi’s government is holding an emergency meeting Friday to approve new measures to balance the budget by 2013 and calm market concerns over Italy’s public finances.

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European Shares Recover As Investors Asses Short-Selling Ban

August 12, 2011

BRUSSELS — Bank stocks jumped after several eurozone countries banned short selling, helping European markets push higher Friday ahead of an expected further rise on Wall Street. The advance in Europe follows big gains in the United States on Thursday, which helped support most stocks in Asia. However, wild swings over recent days, with shares often changing direction every few hours, highlight how volatile trading is at the moment amid concerns over the global economy and the levels of debt in both the U.S. and Europe. In Europe, London’s FTSE 100 rose 1.4 percent to 5,234 points, while Germany’s DAX was 2.3 percent higher at 5,933. The CAC-40 in France gained 2.3 percent to 3,154, even after data showed the French economy did not grow in the second quarter. Wall Street also was poised for a higher open after Thursday’s big gains. Dow futures were up 0.6 percent at 11,147m while futures for the broader Standard & Poor’s 500 index rose 0.7 percent to 1,176. The gains in Europe came after regulators in France, Italy, Spain and Belgium imposed temporary bans on short-selling of financial shares late Thursday, following sharp selloffs and temporary gains in French bank shares in particular that were blamed on false rumors. The share prices of French banks, which fluctuated sharply in recent days, appeared to stabilize Friday, with Societe General up 3 percent and Credit Agricole up 1.3 percent. Belgium’s Dexia was doing particularly well, trading 14 percent higher. However, analysts question whether the short-selling ban would be successful in the long run, since many experts claim that a similar move in 2008 actually contributed to investor uncertainty. Short selling is a way for an investors to bet a stock will go down. It is done by selling borrowed shares in hopes of buying them back at a lower price and pocketing the difference. The practice has not been banned in Britain or Germany. “With deteriorating investor confidence in eurozone debt likely to continue driving reduced investor confidence in European banks’ ability to withstand the fallout from the euro-zone debt crisis, we doubt that downward pressure on European financials will now dissipate,” said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ. The gains in Europe came despite figures showing France’s economy unexpectedly ground to a halt in the second quarter on the back of a sudden reversal in consumer spending and stagnation by the country’s exporters. The halt in the French economy is set to exacerbate concerns over the eurozone in general, where the three bailout countries of Greece, Ireland and Portugal are in recession and Italy and Spain are struggling with lackluster growth. Data also showed that Greece’s economy shrank 6.9 percent in the second quarter from the year before. France is already facing speculation that it may soon lose its AAA rating due to its high debt load. “With the economy stagnating and elections coming up next spring, it will be extremely difficult to implement the aggressive austerity measures that are needed to convince markets that the government finances are on a stable footing,” said Jennifer McKeown, senior European economist at Capital Economics. The euro also was seemingly unaffected by the French and Greek data, trading 0.3 percent higher at $1.425. Earlier in Asia, the session was far less volatile than of late. Hong Kong’s Hang Seng added 0.1 percent to 19,620.01. Australia’s S&P/ASX 200 gained 0.8 percent to 4,237.90, while benchmarks in New Zealand and Singapore also rose. But Japan’s Nikkei 225 stock average was lower – closing down 0.2 percent to 8,963.72 after spending the morning in positive territory. A stronger yen, which reduces the value of profits earned overseas, pummeled export shares. The dollar is trading around the 76.50 yen mark, which is not far off the levels that prompted the Bank of Japan to intervene directly in the markets to stem the export-sapping appreciation of the yen. Mainland Chinese shares, however, traded higher for a fourth day, with the absence of bad news helping boost sentiment, traders said. The Shanghai Composite Index gained 0.5 percent to 2,593.17 while the Shenzhen Composite Index gained 1 percent to 1,158.96. In the oil markets, prices fell as traders booked some profits garnered over the previous session, when crude rose 3.4 percent. Benchmark oil for September delivery was down 16 cents at $85.56 a barrel in electronic trading on the New York Mercantile Exchange. _____ Pamela Sampson in Bangkok contributed to this story.

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JPMorgan CEO: S&P Downgrade ‘Just An Opinion’

August 10, 2011

Amidst downgrades, debt crises and declining stocks, one of Wall Street’s biggest names is keeping it cool. On Wednesday, Jamie Dimon, CEO of JPMorgan Chase, told CNBC Tuesday that despite the current state of the economy, it’s been “business as usual” at JPMorgan. And while Standard and Poor’s credit downgrade of the U.S. cause an onslaught of emotional reactions , and preceded the sixth-worst point loss in Dow Jones history, Dimon isn’t so concerned. He says S&P ratings don’t carry quite the weight that many assume. “I think people have their right to their opinions and S&P is just an opinion,” Dimon said, referring to the downgrade. “Most people I speak to in the marketplace, the big participants, they don’t rely on S&P ratings.” As for the European debt crisis, Dimon gave no indication JPMorgan would be running for the hills. “We have manageable exposure to all of the [European] banks,” he said. “We won’t cut and run.” To Dimon, the show must go on, despite the recently winding ways of the market. “Markets are volatile, probably for pretty good reasons,” Dimon explained. “[There's] a lot of uncertainty in the world out there, but we will still open branchs tomorrow and hire bankers tomorrow and create clients tomorrow.” Watch Jamie Dimon’s appearance on CNBC here:

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Robert Zevin: Deja Vu All Over Again

August 9, 2011

Many people are worried about the recent sharp declines in stock markets around the world along with increasing turmoil in other markets and ominous indications of increased violence and political malice. This is indeed a proper time to be worried. Reductions have barely begun in the debt issued during the global credit boom that crashed in 2008. As long as massive debt burdens remain, governments and households will limit their spending in an effort to retire debt. But if everyone tries to save more, the result is that everyone spends less and everyone else has less income out of which to save anything. This is the box in which the economies of the world’s richest countries have been stuck since 2008. Indeed, government debt has dramatically increased, partly because of reduced tax revenues out of reduced economic activity, partly because of bailouts and guarantees to banks and other financial institutions and partly because of all-too-modest efforts to stimulate the economy with more spending or tax cuts. The sovereign debt crisis that is now unfolding has been a frequent second act in many previous financial crashes. Eventually, government debts, financial sector debts and household debts will have to be reduced to a large extent by failure to pay some or all of the amounts due. So far this has only happened in the U.S. home mortgage market through a large number of defaults, foreclosures and occasional restructurings. It remains anathema to the still incredibly strong banking and investment industries to contemplate similar defaults by European governments or by anyone else the banks have lent money to, or by the banks themselves. At the same time it is clear to almost everyone else that the quickest way to end the European sovereign debt crisis would have been to allow Greece to exchange a much reduced amount of new debt for its probably unredeemable existing debt; and to allow Portugal and Ireland to implement similar solutions. Instead European governments and multi-national institutions continue to pursue bailouts for bondholders and more drastic punishment for ordinary workers. The anger and frustration that this foments erodes social cohesion, generates violence and further paralyzes the political process. Thus, the Tea Party gains strength even if it is a source of the problem and neo-fascist parties across Europe continue to enlarge their political base and violent presence on the street, making it more possible that they might take power in several countries. Meanwhile postponement has led to debt crises for Italy and Spain, each larger and with more solid government finances than the original victims. Today the European Central Bank is purchasing the bonds of these two governments and the Eurozone governments have pledged to do the same as soon as their legislatures approve. Followed to its logical conclusion this endless use of the best credit available to bailout bankrupt banks and governments, will lead to a sovereign debt crisis for Germany itself. In the United States, the recent debt ceiling cliff hanger was a repeat of the theatrical illusion performed in the budget debate earlier this year. Then, Obama, the Tea Party and every politician in between agreed that they had cut $39 billion out of this year’s federal government outlays. The Congressional Budget office concluded that the cuts were really a little over $300 million or less than one percent of the amount claimed. Now, the two sides have solemnly passed a bill to cut about $900 billion out of spending over the next ten years, most of it not until six or more years in the future and none of it specified as to which expenditures will be cut. In addition they have agreed to appoint a bipartisan committee to propose additional cuts (or in theory tax increases) amounting to another $1.2 trillion. In short they have not cut one penny from the amount to be spent over the next ten years, although they certainly will get around to some of it before the end of the year. No cuts in spending are certainly less bad than real cuts for the current weak economy; but the absence of clear engagement with reality and a functioning government process are close to the true heart of our current problems. It is this political make-believe and paralysis that prompted Standard and Poor’s to slightly lower its rating of US government debt. And it is proof of their correct analysis that Obama, Secretary of the Treasury, Geithner, and other members of the President’s economic team have been pointing their fingers at the rating agency, claiming it made a two-trillion-dollar error that the White House corrected, but still went ahead with its downgrade. This was not an error of “arithmetic” as the White House claims, but an exercise of good judgment in selecting which of a vast array of “baseline” deficit projections to use to calculate the possible savings from the new legislation. Choosing and fudging baselines is the heart of the Washington shell game. For example, if you assume that the wars in Iraq and Afghanistan will go on forever in your baseline, and then you assume that they will end in your legislation, you can fill your deficit reduction piggy bank with hundreds of billions of dollars. S&P chose the baseline that most people outside of Washington think is realistic rather than the “official” baseline. So, they subtracted the new “savings” from a projection that was two trillion dollars higher than Obama’s. But the foundation for the ratings downgrade was the doubtfulness of the process as illustrated by the baseline game, rather than the size of projected future deficits, which have been rendered quite unpredictable by the same political process.

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Brett Caine: The Modern Meeting — Not a Place We Go, But a Thing We Do

August 9, 2011

I recently had the honor of writing the foreword for a new book, Read This Before Our Next Meeting , by Al Pittampalli, who offers a very interesting perspective on meeting culture in today’s workplace. Throughout the book, Pittampalli suggests that many of the meetings we attend throughout the day are a waste of time and prevent us from doing the real work at hand. To solve this problem, Pittampalli proposes the “Modern Meeting,” with seven principles to serve as a guideline for today’s workers. According to the author, the Modern Meeting: 1. Supports a decision that has already been made. 2. Moves fast and ends on schedule. 3. Limits the number of attendees. 4. Rejects the unprepared. 5. Produces committed action plans. 6. Refuses to be informational — reading memos beforehand is mandatory. 7. Works only alongside a culture of brainstorming. Part of our business at Citrix is making meetings as easy and accessible as possible for workers around the world. But I agree that it’s time to reassess the status quo, and a big part of that is challenging the idea that employees must be in the office in order for a productive meeting to take place. The workplace is not the same as it was ten or even five years ago, and we are not the same employees. Sure, we’re still hard-working, creative and passionate, but our lives move faster, we’re spread out across the globe, and we’re more concerned than ever with striking the right work/life balance. So I would propose an eighth principle: the Modern Meeting can be accessed from anywhere, at any time from any device (desktop, laptop, smartphone or tablet). Let’s use today’s technology to help create a better kind of meeting — one that is collaborative, productive, efficient and includes all the right decision makers, even if they can’t be there in person. Some companies have tried video teleconferencing. While at times it isn’t as productive as face-to-face meetings, video conferencing is catching on like wildfire for both consumers and businesses, and will change that perception for good. There are a number of good group video conferencing services available and I’d encourage you to learn more about how it can change your business for the better. For every remote worker who ever felt disconnected from colleagues over the phone, or that their ideas were not truly being heard — new high definition group video conferencing offers them a telepresence-like experience ensuring that they have a face in every meeting — it’s the next best thing to being there in person. It also enables better participation. For every worker who has ever tuned out during a teleconference to focus on something else (you know who you are) — well, those days are over. And that’s a good thing. If the topic at hand is important enough to schedule a meeting, then it’s important enough to make sure everyone is paying attention and contributing their best thoughts. I think most people will agree that meetings need to be brought into the modern era, and there are many good thoughts on how to make it happen. But modernizing meetings doesn’t mean a complete reset — as long as we’re focused on being efficient, productive and using the best technology for the job, we can be sure that we’re involving the right people at the right times, and enabling a true valuable experience for everyone involved.

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Simon Dixon: U.S. Credit Rating Downgrades Are a Surprise? Forget AA+

August 8, 2011

When did a credit rating stop becoming a credit rating? So the world and our politicians seem to be surprised with the announcement that Standard and Poor’s have downgraded the U.S. credit rating from AAA to AA+. I am sorry, but since when did credit ratings become open to negotiation? I am more amazed by the debate that came before the downgrade, where politicians were trying to prevent it. Credit ratings are pretty simple. If you can afford to repay, you don’t speculate too much with your money and you have more income than your outgoings, you are a good credit risk. If you can’t afford to repay, you speculate heavily with your money and you spend more than you bring in, you don’t deserve a good credit rating. So lets look at the government. They have given the power to create money to banks through debt; therefore, when consumers and companies cannot take on more debt, governments have to. If the government ever tried to repay our debt, we are in a dire depression. Do you think they can afford to repay? They speculate by offering guarantees on bank deposits far in excess of what they can afford. They speculate on workers being able to afford to pay for pensioners. They speculate on bankers’ ability to run our country by giving them their license to create our money. They speculate full stop. They consistently spend more than they bring in — a lot more. Nothing more to be said on point 3. And we give them a AAA credit rating? If we rated our borrowers in BankToTheFuture.com with the same methods used to rate our governments, we would go bankrupt overnight. If I ran any of my business like the government and they gave me a AAA rating, they would be accused of fraud. If I said I could buy my customers all the things that the government promises to us, I would be bankrupt tomorrow and face lawsuits of mis-selling. And yet the market was still surprised that the government got downgraded. The big surprise to me is why people still think that government debt is worth anything. If there is one blessing in disguise from this turmoil, it’s that at least banking reform will happen sooner. When the government no longer has the credit rating to bail out the banks during the upcoming crash, like I have been saying all along, their only choice is banking reform. Bring it on. The world will be a great place. I will tell you why in future blogs. I’d love to hear your thoughts…

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Workers Put Verizon On Hold: Portray Strike As Defense Of Middle Class Jobs

August 7, 2011

NEW YORK — Outside Verizon corporate headquarters in downtown Manhattan, a group of more than 40 union employees gathered wearing red shirts and placards proclaiming “CWA on Strike For Middle Class Jobs.” Over 45,000 Verizon workers — 35,000 represented by the union Communications Workers of America, 10,000 by the International Brotherhood of Electrical Workers — went on strike early Sunday morning when contract negotiations between the unions and Verizon broke down. The workers are striking, they say, because the company wouldn’t budge on the nearly 100 concessions headquarters has asked employees to make on a set of broad-ranging issues. At the top of the list: wide spread wage cuts, increased employee contributions to health care plans and pensions — which the company has proposed to freeze for current employees and eliminate for new hires. The contract expired Saturday at midnight and covered the heavily unionized East Coast wireline devision of the company, including FiOS, Verizon’s television and Internet service. Verizon’s wireless devision is not, and never has been, unionized. Those gathered cast their fight as larger than just one union fighting management for a bigger piece of the corporate profits. More broadly, the workers manning the picket line on Sunday afternoon perceived their struggle as being against a national effort to role back union power and increase the gap between executive compensation and rank and file earnings — a gap that has widened in the last thirty years as union power has waned. The workers outside headquarters found a rallying cry in the attack on collective bargaining rights last winter in Wisconsin. In front of headquarters, an employee on a bullhorn shouted: “We ain’t going back on our knees! This isn’t Wisconsin, this isn’t Ohio. The line stops here.” The crowd erupted in cheers. “It’s mind-boggling: These are things we won in the past,” said Greg Albi, a Verizon field technician with the company for thirty years. Albi has been outside Verizon headquarters since 7:00 a.m. Sunday morning. “They want to take fifty years of our contract and just throw it away like it never existed,” adds Al Russo, a Verizon employee for 11 years and a chief steward at CWA local 1101. Russo has been out since 10 p.m. Saturday night. He is losing his voice and looks exhausted but he insists he isn’t tired. He says his son, age 8, just texted him “keep it up Daddy.” While talks are officially on hold at the moment, both sides say that they are ready to continue negotiating — but with caveats. “We are willing to negotiate and we are ready and waiting for the unions to sit down and continue these discussions,” says Richard Young, a company spokesman. “That said, we expect the union to come with an open mind.” The crowd marched in a loop in front of the building shouting traditional labor slogans: “What’s disgusting? Union Busting!” “Who has the power? You have the Power,” and “No contact: no work.” At frequent intervals, a Verizon employee or two would walk in or out of the building — staring straight ahead — and shouts of “scab!” and booing would erupt from the crowd. “What are we going to do?” Albi asks. “We live in a progressive world. Things should get better, not worse.” Like many workers interviewed on the picket line, Albi sees the strike in a context larger than his own benefits, but he has personal concerns too. He worries that if the union gives in, he won’t be able to help his two children finish college. “It’s hard enough,” he said. “I already have loans for them — if I get stuck for money they will get stuck with the debt. The next generation will get screwed, too.” This is the fourth strike Albi has participated in, but, he says, “This is the first time they’ve asked for so many givebacks. They’re trying to break the union. And we’re here to say ‘no.’” The union is accusing the company of making extreme demands which will dramatically erode the middle class life union employees have fought for over the past half-century. Verizon, meanwhile, claims that the concessions are necessary for their wireline devision to stay competitive. While the company has earned around $3 billion in the first six months of this year, according to a company spokesman, they say that the wireless devision is the real profit earner and that the wireline business has been declining for the past decade. “The cost structure of this business was set in place many decades ago at a time when Verizon was the dominant phone provider,” says Young. He denies that they are trying to break the union: “This has nothing to do with breaking the union. It has everything to do with coming to the realization that we’re operating with cost restraints that are out of touch with today’s marketplace.” Union employees say they are outraged that the company is asking for major concessions while they are profitable. Former Verizon Chief Executive Officer Ivan Seidenberg (who stepped down on Aug. 1, 2011) is ranked 10th on the Forbes list of Executive Pay in 2011. At stake, say labor experts, are the future of the union in the industry, and the ability of workers in the field to earn a solid living wage. Union employees earn on average between approximately $60,000 and $80,000 a year. “I think it’s really a question of [whether] union standards are going to be higher than nonunion standards in the industry,” says Jeffrey H. Keefe, an associate professor at Rutgers Univeristy School of Management and Labor Relations. “It’s a question of: will they continue to have bargaining power, going forward?” The strike, he says, is a “declaration that this going to be a very tough-fought battle.”

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Timothy Geithner Informs Obama He Will Stay As Treasury Secretary

August 7, 2011

WASHINGTON — Timothy Geithner has told President Barack Obama that he will remain on the job as Treasury secretary, ending speculation he would leave the administration. The Treasury Department released a statement Sunday saying Geithner had informed the president of his decision to remain in the administration. Geithner is the only remaining top official on Obama’s original economics team. In late June, people close to Geithner said he was considering leaving after the debt limit was raised in August. They said he was tired of commuting to New York, where his son will be finishing up his last year in high school. However, various administration officials including White House chief of staff William Daley had been lobbying Geithner to stay. Geithner has enjoyed a close working relationship with Obama. “The president asked Secretary Geithner to stay on at Treasury and welcomes his decision,” White House spokeman Jay Carney said in a statement. Geithner informed the president Friday morning that he had decided to remain in the Cabinet. That discussion took place before credit rating agency Standard & Poor’s informed Treasury officials Friday afternoon that they planned to downgrade the government’s credit rating from AAA to AA-plus. Investors are watching nervously to see how financial markets react to that announcement which came late Friday after markets had closed. In addition, Geithner and other finance ministers from the world’s largest economies have been discussing what actions need to be taken to stabilize markets following renewed worries about Europe’s debt problems. A series of Obama’s economic advisors have departed including Lawrence Summers, the first head of the president’s National Economic Council, and two of the president’s chief economic advisers, first Christina Romer and then Austan Goolsbee, who left this past week. Obama has also had to replace his first budget director, Peter Orszag. Before joining Obama’s administration, Geithner served as president of the Federal Reserve Bank of New York, a job that put him on the front lines of the central bank’s efforts to battle the financial crisis and to get credit flowing more freely. He has a close working relationship with Federal Reserve Chairman Ben Bernanke. During the Clinton administration, Geithner held top positions at the Treasury Department dealing with international financial crises that occurred during that administration.

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Top S&P Official: U.S. Has 1 In 3 Chance Of Another Downgrade

August 7, 2011

WASHINGTON — A Standard & Poor’s official says there is a 1 in 3 chance that the U.S. credit rating could be downgraded another notch if conditions erode over the next six to 24 months. The credit rating agency’s managing director, John Chambers, tells ABC’s “This Week” that if the fiscal position of the U.S. deteriorates further, or if political gridlock tightens even more, a further downgrade is possible. Chambers also said Sunday that it would take “stabilization and eventual decline” of the federal debt as a share of the economy as well as more consensus in Washington for the U.S. to win back a top rating. S&P downgraded the U.S. rating Friday, from AAA to AA+, for the first time.

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S.&P. Warns More Downgrades May Come

August 7, 2011

A day after Standard & Poor’s took the unprecedented step of downgrading the creditworthiness of the United States government, the ratings agency offered a full-throated defense of its decision, calling the bitter stand-off between President Obama and Congress over raising the debt ceiling a “debacle,” and warning that further downgrades may lie ahead.

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Jonathan Miller: Credit Downgrade for Dummies

August 6, 2011

In my column a few weeks ago, Debt Ceiling for Dummies , I discussed how a Congressional failure to raise the national debt ceiling could lead to financial calamity. The ceiling, of course, was raised; but the fiscally timid and wildly unpopular Congressional deal prompted the credit rating agency Standard & Poor’s to downgrade the nation’s credit Friday night. Such as with the debt ceiling debate, much of the financial jargon used to explain credit downgrade is confusing, esoteric and sometimes downright yawn-inducing. So, drawing on my more than a decade’s experience working with these issues as Kentucky’s elected State Treasurer and then its CFO, and now as the lead correspondent at The Recovering Politician , I offer the following straightforward, plain-English summary to, hopefully, help better explain the real-life impact of credit downgrade: Who are the credit rating agencies and what did they just do? There are three primary national credit rating agencies:  Fitch, Moody’s Investors Service (“Moody’s”), and Standard and Poor’s (“S&P”). These agencies rate the creditworthiness of governments, companies and individual securities, allowing investors to better understand the risk of their investments. The higher the rating, the more creditworthy — or, alternatively, the less risky — the investment. Our federal government is one of the many entities these agencies rate. The U.S. borrows money — by issuing bonds and Treasury bills to governments, corporations and individual investors — in order to operate all of its essential functions. The outstanding current federal debt currently exceeds $14.5 trillion. Since the credit rating agencies were established, U.S. Treasuries have always enjoyed a triple A rating, the very highest: indicating to global financial markets that they are among the safest investment instruments in the world. Friday night, however — for the first time in the nation’s history — S&P downgraded the rating of the nation’s long-term debt to AA+, one notch below AAA, meaning that the U.S. has been removed from its list of risk-free borrowers. Earlier in the week, Moody’s and Fitch both declined to downgrade the country’s credit rating. Moody’s, however, changed its “outlook” on U.S. debt to “negative,” meaning that there is a risk of a future downgrade. Fitch stated it would determine whether to lower its own outlook by the end of the month. Both have urged Congress to make more progress in debt reduction in order to avoid a potential full downgrade. Why should we listen to the credit agencies — aren’t they part of the problem? There is broad consensus that credit rating agency action — or often times, inaction — was a significant contributor to the 2008 financial collapse. This April, a U.S. Senate investigations panel declared that Moody’s and S&P triggered the financial crisis when they were forced to downgrade their ratings on the very complex and controversial mortgage-backed securities that were at the heart of the collapse that almost brought our entire financial system to its knees. Had the ratings agencies been exercising more diligence, many experts argue, they would have alerted investors of the riskiness of these controversial financial instruments long before they became a problem. However, while the credit ratings agencies do not enter the discussion with entirely clean hands, their decisions are extraordinary significant. Their role is written into the statutes and regulations that govern the financial system. Think of it this way: Even though progressives may decry the partisanship on the U.S. Supreme Court, and thoroughly detest some of its recent 5-4 decisions, we must abide by them. What is the impact of this credit downgrade? Thanks to those awful free credit report commercials , most of us understand that having a low credit rating is a bad thing: Low credit scores for individuals could mean the denial of credit for the purchase of cars, homes and other items. For the nation, a credit downgrade informs investors that U.S. Treasuries are a riskier proposition. This means that in order for the nation to borrow funds to pay for essential services, Treasury might have to provide investors with a higher interest rate to compensate for the additional risk they would be taking. Once those interest rates begin to climb, the U.S. would have to spend billions more on interest payments, further increasing the national debt. Moreover, many individual states may experience their own credit rating downgrades, depleting their already-bleak coffers further by higher interest payments, potentially requiring state tax hikes and/or cuts in education, health care and law enforcement. These interest rate hikes would not be limited to our governments’ borrowing. They would translate to higher interest rates on our credit cards and mortgages, directly reducing the incomes of regular Americans. Finally, many institutions that by law or policy invest only in risk-free, triple-A rated bonds — such as many pension funds and investment trusts — would be forced to dump their U.S. holdings. This would shift financial transactions away from the U.S., potentially resulting in the dollar losing its status as the world’s reserve currency, a major blow to American global financial leadership. But wait: Only one of the three agencies downgraded U.S. credit? Is that significant? Yes, the split verdict among the credit agencies provides a measure of hope for the economy. U.S. debt is still deemed risk-free by two out of the three credit rating agencies; and most of the time, interest rate hikes and/or the mandatory dumping of riskier holdings by some investors are triggered only when a majority (i.e., two) of the credit rating agencies issue a downgrade. That’s why many analysts suggest that the impact of the S&P decision could be modest. Moreover, the Federal Reserve immediately issued a statement that the creditworthiness of U.S. securities has not changed. However, with Moody’s lowering its outlook to negative, and Fitch considering the same, a potential downgrade by a second agency — or even all three — is certainly a real possibility in the short-term. Moreover, Friday night’s first-in-history U.S. credit downgrade alone will undoubtedly rattle many investors, shaking their confidence, causing some to demand higher interest rates and others to flee U.S. Treasuries. In short, we have not reached financial Armageddon. But unless Congress immediately begins to address our financial debt in a meaningful, bipartisan way — including both tax and entitlement reform — our economy will suffer a devastating blow. What can I do? The credit agencies have given Congress clear marching orders: Come together in a bipartisan way and start making the tough choices necessary to restore fiscal sanity. It is up to the rest of us to enforce them. We are at the brink of economic disaster because the loudest voices that our elected representatives are hearing come from the extremes of our political system, particularly Tea Partiers who are unwilling to accept the real-life economic impact of their ideology and who threaten to punish those representatives who are willing to forge bipartisan compromise for the good of the nation. If the rest of us make ourselves heard — and polls continue show that a clear majority of Americans support  bipartisan compromise — Congress will listen. So please contact your congressmen today, using all of the technologies our new media and social networks offer. Share your message with your friends and neighbors, at church or synagogue, when you drop your kids off at school or when you attend the next sporting event. And if you are looking to participate in bipartisan, grassroots activism, join us at  No Labels , a new national movement of Democrats, Republicans and Independents, all of whom agree that we must put aside our labels on occasion to work in the country’s best interests. Our message is simple: In order to solve the debt crisis, everything needs to be on the table, and everyone needs to be at the table.  Click here  to identify 12 things you can do today stand with No Labels in demanding a bipartisan solution to the debt crisis. While the Tea Party has been the most significant recent contributor to our nation’s hyper-partisan paralysis, the debt crisis is a bipartisan problem that requires a bipartisan solution. It’s up to all of us to pitch in to fix it.

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G7 To Discuss Central Banks’ Action

August 6, 2011

PRESS ASSOCIATION — Financial officials from the Group of Seven industrialised nations will discuss how to coordinate action between their countries’ central banks, a source says. The move follows several days of market panic and a downgrade of the US credit rating. The person spoke on condition of anonymity because the level and timing of the contacts had yet to be confirmed. French Finance Minister Francois Baroin, whose country currently holds the G7 presidency, said he had been in close contact with his G7 counterparts “throughout the previous days and also this very morning”. “We’ll be carefully watching the evolution of what might happen on Monday,” Mr Baroin told France’s RTL radio, without providing details on the contacts. The G7 members are Britain, Canada, France, Germany, Italy, Japan and the US. Standard & Poor’s downgrade of the US credit rating yesterday added to growing fears over debt levels and economic growth in the world’s biggest economy and in large European nations, like Italy and Spain. The European Central Bank has so far been reluctant to intervene in the large Italian and Spanish debt markets in an attempt to stabilise plummeting bond prices, as it has previously done for Greece, Ireland and Portugal, the three eurozone countries that have already been bailed out. But Luc Coene, the head of Belgian’s central bank and a member of the ECB’s decision-making board, said yesterday that the ECB may be prepared to help Italy and Spain once the two countries have taken more concrete steps to get their public finances under control. Many investors have also been calling on the US Federal Reserve to start pumping money into the US economy again, as it has done through two large-scale bond buying programmes since the 2007 financial crisis, to help underpin the nation’s slowing economic recovery. Italian Premier Silvio Berlusconi and EU Monetary Affairs Commissioner Olli Rehn yesterday called for coordination between G7 countries. The downgrade of the US credit rating is also bad for Europe, whose economy is closely linked to the US and whose weak members depend on a healthy global economy.

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Michael Pento: Gold Is the True Reserve Currency

August 5, 2011

The reliance upon the U.S. dollar as the world’s reserve currency and “safe haven” asset has created a perverse, but deeply entrenched, mindset among global investors. In fact, many believe the major financial players have no alternatives to owning U.S. debt and dollars. They argue that the market for U.S. dollars and Treasuries is the only financial pool large enough to handle the massive liquidity that sloshes around the globe on a daily basis. This idea makes a mass exodus from U.S. debt holdings seem impossible. This provides a nice explanation why the U.S. Treasury bonds can rally even while the government openly flirts with default and ratings agencies issue downgrades. But just because an illogical event occurs habitually does not mean it is logical or tenable. The sophomoric reasoning behind the dollar “exceptionalism” argument is like assuming a stock can never fall unless a significant portion of shareholders decide to sell. In reality, a buyers strike is all that is needed to puncture a market. If the U.S. experienced just one disastrous Treasury auction, prices could nose-dive and yields could skyrocket across the board on all U.S. debt. But the problem doesn’t just lie with the United States. Investors around the world are finally beginning to understand that central bank’s thirst for creating inflation, in order to keep their banks and governments solvent, will never be quenched. This week, the Swiss government took action to weaken the surging franc by lowering interest rates and printing currency. The franc was pushed down briefly, but then snapped back. It’s hard to keep a good currency down. Similarly, the Bank of Japan announced that it won’t stand for Yen appreciation much longer and would likely soon intervene to buy dollars and weaken the Yen. Meanwhile, problems at the overly indebted countries just get worse. Italian and Spanish debt yields are now following the upward spiral of Greek bonds (and hitting multi year highs). Italian ten-year notes have surged from just above 3% in late 2010 to well over 6% today. For a country whose debt to GDP ratio is currently over 120%, a doubling of interest rate expenses spells disaster. Enter Jean Claude Trichet who will certainly use his printing press to buy much of the weakening Italian debt that is now festering on the balance sheets of the biggest European banks. But the size of the bailouts needed to deal with Italian and Spanish debts will be several orders of magnitude greater than those needed for Ireland or Greece. Anticipating a massive increase in the Euro money supply, investors are flocking to gold to protect themselves from currency debasement. Adding fuel to the gold fire is the recent debt deal reached in Washington. The disgusting agreement virtually assures that over the next decade the U.S. will add an additional $8 trillion in public debt, an increase of nearly 80% in ten years! The back-end-loaded deal will cause the amount of deficit reduction to be just $21 billion in 2012 and $42 billion in 2013. But even this modest debt reduction depends on rosy assumptions from Washington that are always wrong. For example, the Obama administration predicts GDP growth will average well over 3% for the coming decade. But the annualized GDP growth in the first half of 2011 was just 0.9%. That means the actual deficit and debt figures will be far greater than the projections. Given the immediate increase in borrowing needs, and the obvious slowing of the tepid “recovery,” there can be little doubt that the next round of quantitative easing will be launched sooner rather than later. The incompetency of U.S. credit rating agencies has long been suspected. But their actions in the wake of the debt ceiling agreement now confirm them as liars. After threatening to downgrade U.S. credit if Washington failed to cut $4 trillion in spending, neither Moody’s, Fitch nor S&P had the courage to carry through, despite the fact that the total cuts would amount to only half their requirements. But a credit rating downgrade on Treasuries did come–from China. The Dagong Global Credit Rating agency cut the credit rating on U.S. sovereign debt to A from A+, 5 notches below AAA. And since the Chinese are the biggest foreign buyer of Treasuries, their opinion counts. This week, more evidence of U.S. stagflation emerged. The ISM manufacturing and non-manufacturing reports showed a slowdown in new orders and employment and the ADP report showed that the U.S. lost 7,000 goods-producing jobs in July. Other data releases showed that layoffs surged 60% last month to a 16-month high. Meanwhile, YOY consumer prices are up 3.6% and M2 money supply is up 7.5% YOY and rising at a 14.6% annual rate in the last quarter. As the problem with stagflation becomes worse, international investors will avoid the U.S. dollar and U.S. debt at an ever increasing rate. With soaring debt-to-GDP ratios in Japan, Western Europe and America, the desirability of owning precious metals will grow as investors realize the fiat currency system’s days are numbered. Those holding U.S. dollars and U.S. debt will feel the biggest brunt of the change. But it is always darkest before the dawn. As a result of the carnage the re-establishment of gold as the world’s reserve currency is, hopefully, only a few years away. Michael Pento is the Senior Economist for Euro Pacific Capital

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Curtis Arnold: Best Credit Cards for Back-to-School Expenses

August 2, 2011

With nearly 20 million American students heading for college and another 55 million kids in K-12 schools, parents often have to scramble for the extra cash necessary to buy books, clothing, backpacks, shoes, and everything else today’s students need to succeed in the classroom. According to the U.S. Census Bureau, American shoppers spent $7.4 billion in family clothing stores to get ready for the 2010 back-to-school season. Families spent another $2.2 billion in bookstores during the same period. What back to school really costs American Express breaks down the real costs of going to school in the latest edition of its nationwide Spending & Saving Tracker study. Over two-thirds of parents surveyed told researchers that they planned to purchase name-brand sneakers and jeans for their children before the first school bell rings this fall. A quarter of parents said they planned to outfit students with new portable computers before sending them off to campus, while two in five respondents revealed a desire to get their kids a good haircut at the end of the summer. In total, the average American family of four will spend about $800 to get their kids ready for a new semester, according to American Express. Today’s best credit card deals can help you recapture some of that household budget for yourself, or spread out part of those costs over the next few months. Best credit cards for back-to-school shopping Blue Cash Everyday Card from American Express The Blue Cash Everyday Card offers an exceptional set of year-round rebates that can help you save money during back-to-school season. If you plan on making a few road trips back and forth between home and campus, this card’s 3 percent rebate on “pay at the pump” gasoline purchases will come in handy. You may earn even bigger savings in dollar terms by using Blue Cash Everyday for its 2 percent rebate in department stores. Every purchase you make with the Blue Cash Everyday Card earns you at least 1 percent back in the form of Reward Dollars. While you can always redeem your Reward Dollars for cash back, you can also take advantage of American Express’s network of travel and merchandise partners. Redeeming your Reward Dollars for gift cards or exclusive merchandise deals can stretch your rewards further. For example, you can save money when treating your student to a meal at one of the restaurants participating in the Blue Savings Program. Chase Freedom Visa Wanna make some fast cash on back-to-school travel and lodging? This card offers cash rebates of up to 5 percent on eligible travel-related costs (gas, hotels and airlines) during July, August and September. Sign up for this category during the time window and you can earn up to $75 more in rewards during your campus move. Chase has been offering a series of special sign-up bonuses to attract new cardholders. At the moment, Chase Freedom Visa offers a $200 reward for new customers who spend $500 within 90 days. That’s like getting a 40 percent discount! This is on top of the card’s everyday rebate of 1 percent on all purchases. The American Express Premier Rewards Gold Card OK, this might sound like an unconventional pick for back-to-school shopping, since it’s usually the card of choice for plane-hopping business travelers. Despite its $175 annual fee, this charge card can save you money if you’re sending a child off to a faraway college. When you use this AmEx Gold Card to book airline tickets, you’ll earn three Membership Rewards points for every dollar in airfare. At the moment, American Express offers new cardmembers 15,000 bonus Membership Rewards points after spending $1,000 on the card within 90 days. If you spend a total of $30,000 or more on this card in a calendar year, you’ll earn an additional 15,000 American Express Membership Rewards points. You can convert your point balance to miles in your favorite frequent flier program or use your points to pay for a discount airfare through AmEx’s travel rewards website. High-flying college students can rack up miles and rewards quickly, especially during semester breaks and holiday visits. Citi Dividend World MasterCard Got a few kids in school? Need to spread the spending hit over a few months or even the whole school year? The Citi Dividend World MasterCard can help you pay off this season’s back-to-school shopping over the next 15 months with a zero-percent introductory offer. New cardholders earn an extra $100 after spending $500 or more during their first 90 days with the card. Enroll in this season’s special promotion, and your Citi Dividend World MasterCard will pay you back with a 5 percent bonus rebate on airfares, hotel bills, and car rentals through the end of September. You can also earn up to $300 in cash-back rewards with a 1 percent rebate offer on your first $30,000 in other purchases. How to find the best credit card Here are a few tips for choosing the best credit card deal: Compare credit cards based on their annual fees, their reward structures, and their partner relationships to learn which lender has the best deal for your family. Because opening a new credit card account can impact your FICO score, look beyond any short-term bonuses and think about how a card can get you the best long-term rewards. Remember to consider whether issuing an extra card to your college student can help them learn to manage cash responsibly while preparing them for emergencies. If you partner with your student to handle routine expenses through a single rewards credit card, you can maximize your rewards while eliminating late-night cash transfers. As with all credit cards , protect your credit history by using them responsibly, reading the agreement carefully before signing up, planning your purchases to maximize any rewards and sign-up bonuses, and setting a budget and payment schedule that you can handle. Important Note! The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we can not guarantee the accuracy of the information in this article. Please verify all terms and conditions of any credit card prior to applying. The original article can be found at CardRatings.com: ” Best credit cards for back-to-school expenses ”

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Moody’s: U.S. Should Retain Top Credit Rating If Bondholders Get Paid

July 29, 2011

WASHINGTON — Moody’s Investors Service said late Friday that the United States should be able to keep its triple-A credit rating as long as Washington works out a deal that lets it continue to pay bondholders. The credit rating agency said it thinks that even if the nation’s $14.3 trillion borrowing limit isn’t raised by Tuesday’s deadline, the government would give priority to making interest payments on its debt and thereby avoid a default. Moody’s had warned July 13 that the country’s credit rating was in danger of being downgraded because of the stalemate in Congress over raising the debt limit. In its statement Friday, however, Moody’s said that based on its current review it would likely rate the U.S. debt as triple-A but with a negative outlook. That would mean that there is a possibility of a downgrade in the future. “If there were a default on a Treasury debt obligation, a downgrade would likely follow, even if the default were swiftly cured and investors suffered no permanent losses,” Moody’s said in its new report. Credit rating agencies assess the riskiness of debt issued by companies and governments. The three major agencies – Moody’s, Standard & Poor’s and Fitch Ratings – have all raised warnings in recent months that they might downgrade the U.S. government’s triple-A rating. Such a downgrade would send shockwaves through the financial system. The government has had the highest credit rating for nearly a century. That rating has allowed the United States to pay the lowest interest rates possible to finance Treasury debt. Sherry Cooper, chief economist at BMO Financial Group, said the decision by Moody’s to back away from its threatened downgrade was “great news” and would probably make a potential downgrade by S&P less of a threat as well. “What is really important is that the likelihood of a Treasury default has fallen sharply as the prospects of a debt-ceiling hike in the next few days has increased,” Cooper said. “The U.S. is now more likely to retain its Moody’s triple-A rating as long as it does not default.” In its new report, Moody’s said that it would consider the government in default only if it missed an interest or principal payment on its debt, not if the government had to delay payments in such areas as federal employee salaries, Social Security or bills from vendors. “If the debt limit is not raised before Aug. 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential default for a number of days,” Moody’s said. “Revenues would be more than adequate for some period of time to meet those payments, although other outlays would be severely reduced as a result.” Some private economists have estimated that the government could keep operating without defaulting on its debt payments perhaps as long as Aug. 15. The announcement by Moody’s on Friday followed favorable comments Wednesday by Deven Sharma, the president of Standard & Poor’s. He told a congressional committee that some of the deficit-cutting plans Congress is considering would lower the U.S. debt burden enough to allow the country to retain its triple-A rating. However, Sharma said that S&P would not make a final determination until it had a much clearer view of what package of deficit-cutting proposals Congress would be adopting as part of a deal to raise the debt limit. However, he said that previous reports indicating that Congress would need to make $4 trillion in deficit cuts over 10 years to retain a triple-A rating were not accurate. He declined during his testimony to be specific about the threshold, although he said the plan would have to make a credible attack on the U.S. deficit problems.

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Robert Steven Kaplan: The Damage Has Been Done

July 29, 2011

For those who are fretting that the budget negotiations will “break down” and real damage will be done to our country, they can stop worrying. Whatever happens between now and the August 2 deadline, much of the damage from the debt ceiling debate has already been done, and we are already experiencing the ramifications. The U.S. credit rating will very likely be downgraded. Any deal is likely to be small enough as to be relatively immaterial to rating agency assessments of our credit worthiness. Rating agencies have focused as much on the dysfunction of this process as the outcome. As in business, leadership dysfunction eventually catches up with a company and is sufficient reason for investors to be increasingly cautious. Observers believed the U.S. budget process would be labored and unpleasant, but I don’t think, until now, they fully realized the inability of legislators and the executive branch to reach a compromise. In this situation (as in the private sector), leadership process can matter as much as actual results. Rating agencies and international observers are taking note. The uncertainty is already distracting business. Look at the time wasted by businesses that are managing their liquidity and operations for a potential “tail” event. These actions include not only capital management but also slowing down or freezing potential hiring plans in the U.S. Consumer sentiment is dampened by this current uncertainty as well as the spectacle of the process. It undermines confidence in the government and makes consumers think twice before spending. The upshot is that this is likely to slow GNP and raise unemployment at a time when we desperately need growth and confidence. The “grand bargain” would have been painful in many ways. Clearly budget cuts and tax revenue proposals would likely have had some dampening impact on economic growth. Beyond that, however, I believe the positive psychological impact would have been quite substantial in showing businesses and consumers that the U.S. government is able to make tough decisions and reach compromise for the good of the country. This is a huge lost opportunity. While damage is being done, I believe we can also learn from what is happening. In the private sector, leadership is not about having all the answers; instead, it is about asking the right questions, adapting to reality and making tough decisions. Apple is an extraordinary success because it has re-invented itself a number of times and been continuously willing to ask itself the right questions in the effort to achieve its vision of superbly serving its customers. No private sector business or non-profit leader would last very long if he or she were unalterably pledged to specific tactics and strategies regardless of the facts. Successful CEOs and other private sector leaders passionately commit to achieve a vision but remain flexible as to how to accomplish it based on the facts. Why would we not expect the same high standards of our political leaders? If in advance of taking office, a politician wants to “pledge” to take an unalterable position on taxes, spending or entitlements in hopes of getting elected or pleasing a specific interest group, voters should run the other way! A pledge like this is a pledge to ignore reality, avoid real debate and reject compromises that could lead to solving the tough problems facing this nation. We should ask that our politicians pledge to serve the long-term interests of our country. Commitments to specific tactics or constituencies are not in the spirit of what has made this a great nation. Voters in both parties have the power to drive home this message so that we can build our country and achieve our great potential. Robert Steven Kaplan is a Professor of Management Practice at Harvard Business School and co-chairman of Draper, Richards and Kaplan, a global venture philanthropy firm. He is the author of “What to Ask the Person in the Mirror: Critical Questions for Becoming a More Effective Leader and Reaching Your Potential” (Harvard Business Review Press).

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Who Put Them In Charge?

July 28, 2011

WASHINGTON — The chances that credit-ratings agencies will downgrade U.S. debt have been exaggerated, a senior analyst for an investment bank wrote in a research note Thursday. Ratings giant Standard & Poor’s has threatened to lower the U.S.’s AAA bond rating not only if Congress fails to increase the debt ceiling, but also if an agreement on a substantial and credible deficit-reduction deal isn’t reached. Moody’s has similarly warned of a possible downgrade. S&P has repeatedly said the deal needs to reduce the deficit by about $4 trillion over the next decade. That’s not only an enormous amount, it’s also considerably more than either of the major debt-and-deficit plans currently in contention could achieve. But Brian Gardner of boutique investment bank Keefe, Bruyette and Woods wrote on Thursday that as long as the debt ceiling is raised and there are “enforceable cuts” like a cap on spending, the agencies won’t go through with a downgrade. “While many think a downgrade of US debt is likely, we take a more sanguine view,” he wrote. The idea that the agencies’ threats could be empty ones is just the latest of many criticisms over their intervention into domestic politics. By warning of a possible downgrade, S&P and Moody’s have played a major role in transforming the manufactured political crisis over raising the nation’s debt ceiling into a full-blown debate about the deficit and austerity. Those actions go well beyond the agencies’ traditional purview, which is to rate the chance that a creditor, in this case the United States, won’t have the ability to pay back its debts. When pressed, agency officials insist their rating threat has nothing to do with politics, just risk. “The long-range issue is stabilizing the debt,” Standard & Poor’s spokesman John Piecuch told The Huffington Post on Tuesday. S&P president Deven Sharma reaffirmed at a House Financial Services subcommittee hearing on Wednesday that a $4 trillion dollar deal on deficit reduction would bring the nation’s debt threshold to “within the range” to avoid a downgrade. Rep. Francisco Canseco (R-Texas) posed the most fundamental question, asking Sharma: “Do you honestly believe that the U.S. could default on the debt?” “Our analysts don’t believe they would,” Sharma replied. Changing the rating “means that the risk levels have gone up, it doesn’t mean they’re going to default,” he said. Should the GOP temporarily balk at raising the debt ceiling, the possibility of a significant and dangerous default hiccup becomes more likely. But the idea that the U.S. government would actually refuse or be unable to pay back its debt is the stuff of conspiracy theories. With no risk of actual default, the rating agencies have no business inserting themselves into this debate, said Dean Baker, co-director of the liberal Center for Economic and Policy Research. “I think it’s really been outrageous,” he said. “Where the hell does that come from? It’s just their politics.” In June, Moody’s warned that the lack of a “credible agreement on substantial deficit reduction” could prompt a change in its outlook on the U.S. credit rating. Back in April, S&P declared that there was “at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years” based on “the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.” Then on July 14, the company dramatically lowered the odds and moved up the timeline , declaring that “owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days.” It threatened to lower the long-term rating on the U.S. “by one or more notches into the ‘AA’ category.” A few days later, the urgency was ratcheted up yet again . Without a grand bargain in the neighborhood of a $4 trillion deficit reduction, S&P said it “might lower the U.S. sovereign rating to ‘AA+/A-1+’ with a negative outlook within three months and as soon as early August.” Some observers of the economic scene were outraged by the agencies’ threats. Jared Bernstein, a former top White House economic adviser, wrote in a blog post : Lemme get this straight: if these credit raters, whose razor-sharp assessments graded toxic mortgage-backed securities as triple-A, don’t think the deficit-reduction plan goes far enough, they’re going to take us down a notch!? That’s nuts. Even amidst the turmoil of the last few months, markets are still treating US debt as the safest investment out there. And the debt ceiling is a totally manufactured crisis. Once we get it behind us, no one should have any doubt that the US will back its obligations as reliably as it has for hundreds of years. David Dayen wrote on the progressive Firedoglake blog : “The rating agencies, which played a major role in the financial meltdown, ha[ve] just up and put a gun to the head of the country and demanded austerity in the middle of a jobs crisis. Are you kidding me?” And former Clinton labor secretary Robert Reich wrote on Wednesday: “With Republicans in the majority in the House, there’s no way to lop $4 trillion of the budget without harming Social Security, Medicare, and Medicaid, as well as education, Pell grants, healthcare, highways and bridges, and everything else the middle class and poor rely on.” As Bernstein noted, just four years ago, the nation’s big ratings agencies were giving AAA ratings to toxic mortgage-backed securities to keep their Wall Street clients happy. An April report from the Senate’s permanent subcommittee on investigations determined that Moody’s and S&P set off the financial collapse when they were forced to downgrade the ratings they had knowingly inflated. Over 90 percent of the securities backed by subprime mortgages that got AAA ratings were eventually downgraded to junk status. Despite all the dire predictions about deficits, there has been no sign of a potential loss of demand for U.S. debt — until now. Longterm Treasury bills continue to be snapped up by buyers around the globe though they only pay 3 percent or less in interest . Their resilience, in fact, has been a powerful argument against austerity and deficit reduction: With interest rates so low, the argument goes, now looks like a great time to borrow and stimulate demand, create jobs and grow the economy. By contrast, abruptly lowering the U.S.’s credit rating would likely create a sell-off and drive interest rates up — while at the same time doing incalculable damage not just to the U.S. government but to a global financial system that uses U.S. Treasuries to establish a benchmark for no-risk investments. Although the ratings agencies’ assertiveness paints both political parties into a corner, neither Democrats nor Republicans are pushing back. Instead, they have been using the threat of a downgrade to bolster their arguments in favor of their preferred debt plans and to beat up their opponents. On Tuesday, Senate Majority Leader Harry Reid (D-Nev.) bragged that the “rating agencies have said as late as last night that the plan I have introduced will not cause a downgrading of our credit.” The smaller plan offered by House Speaker John Boehner, by contrast, “gives the credit agencies no choice but to downgrade U.S. debt,” Reid said. Baker, the liberal economist, said many Washington politicians aren’t even upset by the ratings agencies pronouncement — far from it. “From the point of view of Republicans and much of the Democratic leadership, they’re delighted,” Baker said. “This gives them more leverage in saying we have to do things that are incredibly unpopular, such as cutting Medicare and Social Security.” The downgrade threats do hamstring some progressives, however, who are worried that disputing the authority of the ratings agencies will look like arguing with the umpire, Baker said. “But these guys aren’t the umpire,” he said. “They’re on the make. We know. We just saw it.”

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GOP Sen. Bob Corker Disses Boehner, Praises Reid On Debt

July 28, 2011

WASHINGTON — Conservative Sen. Bob Corker (R-Tenn.) sounded Wednesday like he prefers the looks of the Democratic budget-cutting plan better than House Speaker John Boehner’s –- and sounded awfully close to embracing the Obama administration’s desire for grand bargain to hike the debt ceiling. Taking to the Senate floor, Corker argued that Senate Majority Leader Harry Reid’s (D-Nev.) $2.2 trillion cut plan was a good effort, except that it needs to be more like $4 trillion — as that’s the magnitude Corker thinks it will take to convince ratings agencies not to downgrade the United States’ prized AAA score. “I may catch some grief back home for saying this, but I think Sen. Reid has actually tried to put something forth to help solve this problem,” Corker said, while noting that House Speaker John Boehner’s (R-Ohio) short-term plan to cut $850 billion had ” issues .” In particular, Corker warned that extending the debt ceiling for only six months, as Boehner has proposed, would still risk the nation’s credit rating, and leave lawmakers facing another ugly half a year. “I know the president has been concerned, candidly, about a short-term extension,” Corker said. “In fairness, I think the business community around our country would be concerned about a long short-term extension.” Other Republicans, including Senate Minority Leader Mitch McConnell (R-Ky.), have accused Obama of seeking a longer deal because it was convenient for his reelection campaign. While Reid’s proposal is short of the $4 trillion Corker wants, at least it lasts until 2013. “To even set up a process that’s short of that doesn’t make any sense to me,” Corker said, referring to the size and duration of a deal. “It’s kind of like you’ve got to be kidding me. We’ve got to go through the aggravation of the next six months working towards an aspirational goal that we all know doesn’t solve the credit rating issue.” Boehner’s longer-term proposal — which includes a second vote after six months — is similar in overall size to Reid’s, although it also adds a balanced budget amendment. Corker was not alone in suggesting his party wasn’t pursuing the best course. Sen. John McCain (R-Ariz.) blasted some on his side for trying to insist on the constitutional amendment, which he called “bizarro.” He also slammed right-wing conservatives for “deceiving many of our constituents.” Corker’s reasoning sounds remarkably like the position of Obama, who has been seeking a deal that cuts $4 trillion or more, and lasts into 2013. Where they would part ways is over the issue of taxes, because Obama has insisted that some revenue needs to be brought in to hit the target. But in the broad outlines, the Tennessean may actually be closer to the White House than to his colleagues in Congress. Corker made clear later that his $4 trillion worth of deficit cutting was not necessarily the same as Obama’s, and that he picked the number because that’s what bankers have been telling him it will take to preserve the U.S. credit rating. “It’s just become part of the mantra. It’s not the president,” he said. “We never knew what the details of that were. All we have are sort of talking points on each side. Who knows? I don’t know what that was.” Corker spokesman Chuck Harper said that Corker’s words were not a pan of Boehner’s plan, and noted that Corker praised the speaker for moving the debate in the right direction, which Corker felt was an optimistic sign. This piece has been updated to include later comments from Sen. Corker.

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Poll Shows Where Voters Stand On Debt Ceiling Dispute

July 25, 2011

WASHINGTON — Just last fall, Americans were feeling better about their personal finances. Now they’re starting to worry more about how they’ll pay off debts as they feel the nation’s economic recovery wobbling. With Congress deadlocked over how to deal with the national debt, household debt is causing stress for nearly half the country, according to a new Associated Press-GfK poll. One in five adults worries about debt most or all of the time. If they bought something on a credit card in the past month, more than a third say they won’t pay it off when the bill comes. The increased stress represents a reversal from last fall’s AP-GfK poll, which found increasing confidence about personal finances. Debt-related stress is up 17 percent from that November survey, bumping such worries back up to levels seen in 2009 and in the spring of last year. “It’s not that our debt is huge. It’s just hard to make it, month to month,” said Theresa Telford, 45, a teacher’s aide raising four kids with her husband, a sheriff’s deputy. “It seems like everything is going up, but wages aren’t going up.” Telford is also nervous because she’s watched so many people lose their jobs in her small town of Davenport, Wash., and some of her friends still can’t find work. Although the recession officially ended in June 2009, Americans display little faith in a recovery hobbled by grinding unemployment, slow economic growth, volatile gasoline and food prices and political feuding over how to stem the skyrocketing national debt. Consumer confidence fell to a seven-month low in June in the Conference Board’s survey. “We’re starting to be fearful again that things may fall apart,” said Paul J. Lavrakas, a research psychologist and AP consultant who analyzed the survey. Lavrakas and other researchers have found that debt can be bad for the health as well as the wallet. Those suffering the most anxiety over their debt are at risk for stress-related illnesses, such as ulcers, depression or heart attacks. The poll found that households earning more than $75,000 had the biggest increase in debt-related stress since November. But stress levels continue to be highest within the most vulnerable groups: households that have lost jobs, people with family incomes below $20,000, single parents, and adults without high school diplomas. Married moms and adults under 30 years old showed significantly more anxiety than in the fall. In all, more than 40 million Americans are feeling serious stress over the money they owe, whether it’s for credit cards, mortgages, car loans or other debts, the poll indicates. It’s a tough period for high school dance instructor James J. Moran of Shelton, Conn. He doesn’t get paid during summer break, except for the occasional dancing or acting jobs he lands. “For three months I scrape by and I can only afford to make the minimum payments on my credit cards,” said Moran, who owes more than $5,000 on his cards and about $14,000 in student loans. “I put more toward the debts when I can, but when I can’t that’s when I really worry.” The news isn’t all bleak. Although it ticked upward, the Debt Stress Index based on the AP-GfK poll came in at 29.2, still within the range considered moderately low. Most people say they are handling their credit cards well in lean times. Nine out of 10 people with credit cards say they trust themselves to handle debt. Most say they use credit cards because they’re more convenient than cash. About half say they charge only what they can afford to pay for at the end of the month. “Am I going off and buying things right now? No,” said Donald Doane, 53, of Duluth, Minn. Doane said he carries “a little debt but nothing I can’t handle” on a low-interest credit card that he reserves for emergencies and big purchases. A salesman for Savories Catering in Duluth, Minn., Doane tracks the economy by how much his customers spend on wedding receptions and office parties. “People are spending,” he said, “it’s just that they’re being more frugal.” Americans have been borrowing less and saving more in response to the Great Recession and its aftermath. Credit card borrowing increased in May, only the second monthly gain since August 2008, according to the Federal Reserve’s latest figures. The total is still down 18.5 percent from its peak in August 2008. The AP-GfK poll put median credit card debt in June at $800, the same as in November. Average debt was down slightly from November at $3,200. About four in 10 people surveyed owe more than $1,000 in credit card debt. One in every 10 owes $10,000 or more. Lavrakas said the poll provides a snapshot of the typical American who’s seriously stressed by debt: a working parent, in his or her 30s or early 40s, who doesn’t have a high school diploma and is raising a family on household income of less than $20,000. Those reporting the highest stress levels were more likely than others to say they had debt due to medical bills, that their financial situation was “very poor,” that they charge things they know they cannot pay off when the bill comes and that they don’t trust themselves to manage their credit cards. They are pessimistic about the future, both because of their personal finances and the nation’s. “The most stressed people are at the lower financial tiers, and that’s just the reality of their life,” Lavrakas said. “The optimism that some of them may have had last fall didn’t pan out. They’ve sunk into being pessimistic and they have good reason to be.” Troy Clawson, a disabled former construction worker in Felsenthal, Ark., said he has been worrying more about his debts – his mortgage and car payments, medical bills for himself and his wife, and store credit cards at Wal-Mart and an auto repair shop. So Clawson, 60, is trying to be more cautious and avoid pulling out his credit cards. “I don’t really like to,” he said, “but sometimes it’s necessary when you’re in a bind.” The AP-GfK poll was conducted June 16-20 by GfK Roper Public Affairs and Corporate Communications. It involved landline and cell phone interviews with 1,001 adults nationwide, including 715 who have credit cards. Results for the full sample have a margin of sampling error of plus or minus 4.1 percentage points. ___ Associated Press writer Stacy Anderson, Polling Director Trevor Tompson, Deputy Polling Director Jennifer Agiesta and News Survey Specialist Dennis Junius contributed to this report. Online: Poll results: http://www.ap-gfkpoll.com

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Tim Geithner Mum On How U.S. Is Preparing For Default

July 24, 2011

WASHINGTON — Treasury Secretary Tim Geithner said in three talk show appearances Sunday he was still confident Congress and the administration would come to an agreement on raising the debt limit before time runs out, and he refused to reveal details of how the administration is planning to deal with a possible default if no such bargain is struck. “It’s unthinkable that this country will not meet its obligations on time. It’s just unthinkable we’d ever do that. It’s not going to happen,” Geithner said on CNN’s “State of the Union.” But the unthinkable is clearly being thought about. On Friday, Geithner met with Federal Reserve Chairman Ben Bernanke and Federal Reserve Bank of New York President William Dudley to discuss “the implications for the U.S. economy if Congress fails to act.” On “Fox News Sunday,” Geithner refused to give any specifics about the United States’ contingency plans, even when pressed repeatedly on the matter by host Chris Wallace. “Our plan is to get Congress to raise the debt ceiling raised on time … We do not have the ability, Chris, to protect the American people from the consequences of Congress not taking that action,” said Geithner, dodging Wallace’s question several times. Throughout his Sunday morning appearances, Geithner stressed that he believes some sort of grand bargain can still be reached before the country hits its $14.3 trillion limit on borrowing on Aug. 2, and he reiterated the administration’s opposition to a short-term plan. “The most important thing is that we remove this threat of default from the country for the next 18 months,” Geithner said on CNN, pushing the next time the debt ceiling would need to be raised beyond the 2012 elections. On Fox, he blamed politics for getting in the way of Congress taking action. “We are running out of runway,” said Geithner. “I never thought they would take it this close to the edge and let politics get in the way of demonstrating the will of paying our bills on time.” But later on Fox, House Speaker John Boehner (R-Ohio) accused President Obama of worrying about reelection as one of the reasons he’s passing up a short-term deal. “I know the president is worried about the next election. But my god, shouldn’t we be worried about the country?” asked Boehner. Boehner said Friday that one of the reasons talks had broken down was that Obama “moved the goal post” on tax revenue. He said the original agreement was for $800 billion , but Democrats then wanted another $400 billion on top of that. But on ABC’s “This Week,” Geithner disputed that claim, denying that Democrats and Republicans had ever agreed on an $800 billion deal. “No, we did not. And the president and the speaker got very close. But there was a whole range of things yet to be resolved at that point when the speaker pulled out on Friday,” he said. “At that point, the Republicans were still asking for deeper cuts in Medicare and Medicaid than we thought was acceptable,” he continued. “Our position was — as you heard the president say — is we want to make sure the deal is balanced so that we’re not putting too much of the burden of getting our fiscal house in order on the backs of elderly Americans and the most vulnerable. And so at that point, we were very close, but we were not there yet.” On “Fox News Sunday,” Boehner said his offer of $800 billion in new revenue is still out there. “It may be pretty hard to put Humpty Dumpty back together again, but my last offer is still out there,” said Boehner. “I’ve never taken my last offer off the table.”

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Bishop Pierre Whalon: Is Capitalism Moral? Wrong Question…

July 22, 2011

André Comte-Sponville is a popular French philosopher. When I say “popular” I mean that his writing sells books. One of his bestsellers is entitled Is Capitalism Moral? In a nutshell, he says that capitalism cannot be an activity constrained by anything other than the laws of the market, which are not moral but technical. Not your stereotypical French leftie spouting warmed-over Marxism, certainly, but much too glib nevertheless. Michael Moore, in his film Capitalism: A Love Story , posits that Americans have been sold a bill of goods — so to speak — concerning capitalism, uncritically accepting that market forces dictate life and if you play along, sooner or later you’ll get rich. Too bad that Mr. Moore makes his point with heavy-handed theatrics, in effect creating propaganda. As we contemplate the inability of the American economy to lift itself out of the depression that has devastated our common life, there is a temptation to say that capitalism is all wrong, immoral. However, alternatives were tried in the twentieth century, and they failed. The bloodbaths that drowned communist and national-socialist economies ended them (hard to remember that the Nazis were economically at least socialistic…) Or else to insist that the market will make all things right again, if only we lower taxes , get rid of government regulations, red tape, blah-blah-blah. Reaganomics ending up requiring the largest peacetime tax increases in history in order to avoid bankrupting the country. Now we’re almost there again… Complex economies are, well, complex, with all kinds of actors, including government, finance, manufacturers, service providers, and of course, millions of consumers. And it seems to be a tried-and-true fact that across all sorts of human differences, the best way to distribute goods and services is market capitalism. So is capitalism going to come to the rescue? No. Because what we are living under is not market capitalism, but something else. Market capitalism does work according to the laws of supply and demand, and markets need to be regulated to the extent that they remain open to all. The stock markets should be sources of capital, investors willing to place their surplus money (capital) into ventures that will have a reasonable chance of returning a profit. Those markets need regulation as well, since boom-bust cycles result from unbridled speculation. Of course, anyone investing in a business, whether directly or through stock ownership, is taking a risk — speculating. But there is a second level in which the instruments of speculation — stocks and bonds — become themselves marketed commodities. Mutual funds, which hedge risks by owning a spread of different financial instruments, are perhaps the simplest example of these. Those companies that go to the capital markets for investments become responsible to their shareholders. Being publicly traded means that corporate managers need to keep the stock value and dividends in mind as they make decisions in their particular markets. Now it used to be that if you wanted to get into the stock market, you would go to an investment counselor, a broker who had trading rights in the stock market, and after selecting what you wanted, you became part of a partnership of brokers all of whom had their own money invested as well. Things changed in the 80s, as brokerages became more and more aggressive and finally became publicly-traded themselves. For more, read Michael Lewis’ Liar’s Poker and his much more recent The Big Short . The minute a company is publicly traded, it loses some control, because it becomes responsible not only to its clients — who are the true source of corporate profits — but also to its shareholders, who deserve a return on their investments that underwrite the company’s expansions. Nothing wrong with that, or is there? Not if you are Alcoa or Pepsico. However, if a brokerage firm, whose clients are investors, is itself owned by investors, which investors should the firm favor? In the normal course of things, traders want to limit risk and maximize profits for their clients. I have mentioned the mutual fund, for example. The markets become themselves sources of profits. Commissions aren’t enough for your shareholders, however, because the richer you can make them the more likely they are going to keep you and pay you well. Options and futures aren’t profitable enough, we need other instruments to trade, other markets to create. The firm becomes not a partner with its clients but something else entirely. There is a straight line from this development to Goldman Sachs and other investment banks selling financial instruments to their clients while themselves betting that these instruments would lose money . They sold their own clients short, figuratively and literally. And don’t get me started on the credit rating agencies … Is this capitalism moral? Wrong question, because this ain’t capitalism. This is oligarchy, a few very rich and powerful firms not only selling for their clients but also buying for themselves in the financial markets. And that IS immoral. It excludes most of us, until we end up having to inject our tax dollars — or more exactly, until we borrow those dollars — in order to avoid a complete financial collapse. You and I can’t play their game, but we must certainly keep the people who cause the disaster in business so as to avoid abject poverty, roughly on the order of the Bronze Age. That is profoundly immoral. It is time to get real. In fact, it’s long past time. America needs to create new capital to invest in productive enterprises that will employ people, growing food, inventing new commodities and services, and improving the classic ones. We are not going to do that by selling each other our houses, or opening more fast-food outlets. We need a diversified economy based on market capitalism, not on oligarchs enriching themselves in gigantic shell games played with trillions of dollars. We need to rebuild the intellectual and physical infrastructures that undergird such an economy. That requires taxation. And it also requires regulation of markets. Any politician who will not level with the people about this daunting task has to be voted out. Bring capitalism back! should be our slogan. That is a tall order, because the so-called Masters of the Universe can threaten to destroy the banking system the world depends upon if we touch the source of their strength, namely, the so-called shadow banking system. If you remember Frank Herbert’s novel Dune , you will recall its salient point: the ability to destroy something is in fact to control it. The mountain of money spent to influence governments around the world, starting with the United States, is also a giant obstacle. If we continue down the primrose path of tax reduction, deficit increases, and oligarchical manipulation of capital markets, there will be a much greater depression . The Arab Spring should be teaching a lesson: “tipping points” happen, and suddenly the game changes, taking everyone by surprise. The scales will fall from the people’s eyes. A strongman will arise to “save” us, at the cost of our republic. History does repeat itself — Ave Caesar, Heil Hitler, Stalin Save Us … sound familiar? Finally, we need an economy that allows each person to be not only a consumer but an actor in it. The source of America’s wealth has never been finance, but in those goods and services that entrepreneurs make available to the widest possible audience, er, market. Anyone remember Charles Ives? Yes, the Charles Ives, considered to be America’s greatest composer of music. What does he have to do with this? In his lifetime, Ives was known not for his music but for his knack for taking something and making a lot of people wealthy by making it available to the masses. Life insurance for everyone was one of his dreams. If you have such a policy, it is because Ives felt that they were not just for rich people. When President Wilson wanted to raise money for World War I, he asked Ives to take it on. Ives promptly created bonds denominated so that the most ordinary patriot — economically speaking — could own at least one. It was a howling success. There have been huge numbers of examples since. There can be plenty more. But only if we break up the oligarchies and start practicing real capitalism again. A place to start: if you want to buy a stock, make sure your broker doesn’t have shareholders to answer to. Better yet, make sure she’s invested too. This didn’t answer the question I started with, I know. I think a morality of capitalism can be defined and defended, and that capitalist immorality therefore can be described in principle. It has to do with the notion of the common good. But that is for another day. Meanwhile, bring back capitalism!

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Google To Offer Its Own Credit Card–With A Catch

July 20, 2011

Google Inc is introducing a credit card for its advertising customers, offering its clients a credit line to try and drum up business as competition in the online ad market heats up.

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On Debt, Obama Team Pleaded With Credit Rating Firms Before Downgrade Warnings

July 16, 2011

The Obama administration has mounted an intense behind-the-scenes campaign to keep the nation’s major credit rating companies from issuing threats that they might downgrade the United States over the swelling size of the federal debt.

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