crisis

Southerners Less Likely To Visit The Dentist, Gallup Finds

September 16, 2011

Residents of Southern states are less likely to visit the dentist, indicating that their household income may be lower, according to a Gallup poll released Thursday. Slightly more than 50 percent of people living in Louisiana and Mississippi got their teeth cleaned in the last 12 months, according to the Gallup study. Massachusetts and Connecticut led the states in dental visits with about 75 percent of residents in both states reporting that they visited the dentist in the last 12 months. The ranks of the American uninsured swelled to nearly 50 million in 2010, according to Census data released earlier this week , which could mean continued bad news for Americans’ dental hygiene, the Gallup poll found. More than 70 percent of residents of the top 10 states for dental visits have health insurance compared to an average insurance rate of 56 percent for the bottom 10 states. Lacking health insurance can often be an indicator of poverty, the Gallup report said. And many Americans aren’t willing to shell out for dental insurance even in good economic times. At least 100 million Americans lacked dental insurance before the recession, according to The Washington Post . Some dentists are finding creative ways to make sure the poor and uninsured have clean teeth. The Georgia Dental Association hosted a free clinic at a church in Woodstock, Georgia last month, according to The Atlanta Journal-Constitution . Four thousand people showed up and many slept outside to get free dental care, the paper reported. Nearly 60 percent of Georgia residents saw a dentist in the last year, putting the state in the “lower range” of the country for dental visits, according to Gallup. Free dental care also drew thousands to an outdoor health clinic in an Appalachian region of Virginia last summer, according to The Washington Post . Even with the country marred in an unemployment crisis, many are flocking back to the dentist, not because they’re in any better position to afford it, but because their teeth hurt too much, according The St. Petersburg Times . The result: Patients paying more for dental care because dentists have to perform more complex procedures after years of neglect. Here’s a list of the bottom 10 states for dental visits in the last year, according to Gallup: Mississippi: 51.9 percent of residents Louisiana: 54.8 percent of residents West Virginia: 55.4 percent of residents Texas: 56.1 percent of residents Alabama: 56.3 percent of residents Kentucky: 56.3 percent of residents Arkansas: 56.6 percent of residents Oklahoma: 56.8 percent of residents Tennessee: 57.9 percent of residents Missouri: 56.8 percent of residents

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European Debt Crisis Explained Using Legos, Buzz Lightyear

September 15, 2011

The European debt crisis appears to be so complicated that even financial wonks are resorting to toys to explain it. Felix Salmon of Reuters takes the latest stab at making sense of the crisis in a video featuring Jessie, the cowgirl from Toy Story , as International Monetary Fund Chair Christine Lagarde, and Buzz Lightyear as European Central Bank President Jean Claude Trichet. The idea of using toys to describe Europe’s complicated situation isn’t original to Salmon. Earlier this month, JPMorgan Chase’s Michael Cembalest first created a toy-based graphic to explain the interconnection s of a region brought together by the national debts of a handful of countries. Though Salmon employs a light tone in the video, his message is serious: European leaders won’t solve the region’s crisis unless all the different toys on the board can find some way to agree. See Salmon’s post on Reuter’s here.

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Japanese Minister Resigns

September 11, 2011

(MENAFN – Qatar News Agency) Japan’s Industry Minister Yoshio Hachiro has resigned from his post after making remarks that angered and displeased people affected by the crisis at the Fukushima …

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As Obama Prepares Jobs Speech, Low-Earning Americans Gloomy About Economy

September 8, 2011

With the economy slowing to a near-standstill this year, and the prospect of a turnaround appearing increasingly unlikely, Americans’ spirits — particularly among the country’s lowest earners — seem to be sinking to greater depths all the time. Recent polls show that confidence and happiness are falling, likely as a result of the enervated economy, which has barely grown this year and added no new jobs in the past month. The downturn in public opinion has occurred at about the same time that talk in Washington has increasingly focused on economic growth and job creation, suggesting that many Americans aren’t persuaded their leaders in the public sector have answers. A weekly consumer-sentiment survey from Bloomberg, published Thursday, found that confidence was at its second-lowest point for the year in the week ending September 4. It was especially down amongst Americans who earn less than $15,000 a year — that group reported feeling less confident than at any time since the mid-1990s. Separately, a Gallup poll published Thursday showed that Americans’ overall contentedness — as measured by responses to a survey that asked whether participants felt like they were “thriving,” “struggling” or “suffering” — fell in August to the lowest level since July 2009 , the tail end of the Great Recession. Gallup noted that anxiety brought on by the weak economy may be affecting Americans’ sense of satisfaction with their lives. In particular, an annual poll in August found that a near-record number of people were worried about losing their jobs . In response to the softening economy — which grew at an annualized rate of just 1 percent in the spring , well below what economists say is needed for a robust recovery — President Obama is expected to announce a jobs-creation plan during a special address to a joint session of Congress Thursday evening. The plan, said to be worth at least $300 billion , may include provisions for infrastructure spending, unemployment benefits and payroll tax cut extensions. Meanwhile, Republican presidential candidates Mitt Romney and Jon Huntsman have each publicized jobs-and-growth plans of their own. Huntsman’s plan includes a detailed road map for energy reform , while Romney’s calls for lower taxes, fewer regulations and measures to curtail the powers of labor unions . Federal Reserve Chairman Ben Bernanke, for his part, said that the Fed will “do all it can to help restore high rates of growth and employment” in remarks to the Economic Club of Minnesota on Thursday, though he did not elaborate on what the Fed might do. Still, despite the pledges of proactivity from government officials, Americans appear to recognize the magnitude of the challenges facing the economy. Most analysts predict that the economy will continue to crawl along at a weak rate of growth for at least another several months, which may bode ill for Obama’s re-election prospects.

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VIDEO: Illinois Home, Purchased For One Dollar, Now Faces Foreclosure

September 8, 2011

Amid a crisis that has affected millions, even homes that would seem to be the safest of bets can face foreclosure. Linda Hatchell of Glen Ellyn, Illinois, for example, now faces the prospect of foreclosure on a home she purchased more than twenty years ago for just one dollar, NBC Chicago reports . The foreclosure case is one of the few that’s caught the media’s attention without a lender to blame. Indeed, in a crisis with few success stories , Americans of all social statuses are confronting the threat of foreclosure. Some, like Hatchell, paid very little for their homes. But foreclosure also afflicts the wealthy, as when a Manhattan couple faced foreclosure in the “world’s richest apartment building.” Hatchell’s tale of misfortune, however, is much less glamourous, as she incurred hundreds of thousands in costs because the purchase reportedly came with the understanding that the entire home, then in disrepair, would be moved. The move ended up costing $50,000, and she spent considerably more on the subsequent restoration, requiring her to take on extra jobs and a mortgage. (h/t The Consumerist) After losing her job and then discovering she had cancer, Hatchell’s financial situation became untenable. She has been forced to put the home up for sale with just one year left on her mortgage. Hatchell notes that no one in particular should be blamed for her misfortune. That differs from many other foreclosure-related tales, in which automated bank errors and processing problems have led many to misfortune. In one case, for example, a couple faced foreclosure in part because they had made a mortgage payment too early . Another man received threats of seizure if he didn’t settle a mortage payment bill worth a full dollar less than Hatchell paid for her house: $0.00 . For Hatchell, however, losing her house is simply a case of bad luck. “It wasn’t that it was a mistake,” Hatchell tearfully told NBC Chicago. “It was just that my future wasn’t as bright.” Watch Linda Hatchell’s story on NBC Chicago here: View more videos at: http://nbcchicago.com .

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Gemma Godfrey: Banks Slash Jobs But Severe Headwinds Remain

September 2, 2011

As banks all over the world slash jobs, we ask ourselves — will this produce more streamline firms ready to generate significant profits, or is it a sign of the poor outlook for the sector? Unfortunately, stifling, repressive regulation and a false bubble has driven this move, and severe headwinds remain through exposure to struggling economies and substantial funding needs. The 50 largest banks around the world have announced almost 60,000 job cuts. UBS are laying off 5.3 percent of their workforce, blaming stricter capital requirements and slowdown in client trading activity; Credit Suisse cutting jobs by 4 percent to save SFr1bn and Lloyds a whopping 14 percent . Restrictive Regulation Makes Banks More Stable But Less Profitable Stricter capital requirements were just the type of new regulatory measures the Chief Executive of Standard Chartered feared at Davos back in January, would ” stifle growth .” At this time we saw banks such as Credit Suisse missing earnings targets and downgrade their expectations severely going forward (from above 18 percent return on equity to 15 percent , which turned out to still be too high ). UBS has seen costs in their investment banking division soar to 77 percent of income and net profit fall almost 50 percent from a year earlier. Stricter capital requirements mean banks have to hold a higher amount of capital in order to honour withdrawals if hit with operating losses. Furthermore, restrictions on bonuses led to increases in fixed salaries and an inflexible cost base . Backtracking on a False Bubble Job cuts should also be set within the context of occurring after a ‘false bubble.’ Post the 2008 financial crisis and bank bankruptcies and proprietary trading layoffs, the fixed income, currency and commodity business of the remaining players boomed as competition dropped. Banks began expanding. UBS’s proposed cuts of 3,500 jobs comes after an expansion of 1,700 to the workforce and incomparable to the 18,500 job losses experienced during the crisis. Exposure to Struggling Economies is a Key Threat These cuts do nothing to solve the biggest problem these banks are struggling with. They have substantial exposure to struggling EU economies. In Germany, bank exposure to the PIIGS (Portugal, Italy, Ireland and Spain) amounts to more than 18 percent of the countries GDP. Just last month Commerzbank suffered a €760m write-down from holding debt that is unlikely to be repaid, which all but wiped out their entire earnings for the second quarter of the year. Further fuelling fear of the spread of the crisis from periphery to core is that French banks are among the largest holders of Greek debt. Here in the UK we’re by no means immune. Our banks have £100bn connected to the fate of these periphery economies. RBS, 83 percent owned by the British taxpayer is so heavily exposed to Greek debt that it has written off £733m so far this year. Severe Funding Needs and Fear of Lending Exacerbate the Problem Ninety EU banks need to roll €5.4tn over the next 24 months . This will be funded at higher rates and with disappearing demand as investors become more wary , exacerbating the problem. In addition these banks need to raise an extra $100bn by the end of the year. An inability to borrow to satisfy current obligations, not withstanding any expansive moves, is a serious obstacle to profit generation. Moreover, job cuts do nothing to boost confidence to encourage banks to lend. Just two weeks ago, EU banks chose to deposit €107bn with the European Central Bank overnight rather than lend to each other. If banks are not even lending to each other, losing out on a valuable opportunity to make money, then how encouraged are we as investors to get involved?

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ECB’s Coene says crisis heading to 2008/9 level: report

September 2, 2011

BRUSSELS (Reuters) – The problems of liquidity and confidence in Europe are not as severe as during post-Lehman crash, but are heading in that direction, ECB Governing Council member Luc Coene said in an interview published on Friday. “The chief problem in Europe is that of liquidity,” Coene, who is governor of Belgium’s central bank, told French-language daily newspaper La Libre Belgique. “The banks have again lost confidence and so lend less to each other. The situation is not as bad as in 2008-2009, but you see that it is going little by little in this direction.” Coene said this concern stemmed from continued uncertainty regarding the bailout plans, particularly for Greece. “You have to say that the cacophony in terms of communication of public authorities is not of a nature to reassure the financial markets,” he told the newspaper. However, Coene said that one should not forget political engagement for the plans, which was “very firm.” The European Financial Stability Facility, he said, was an effective instrument to deal with the crisis, but was still in formation. Uncertainty remained over the issue of collateral, as demanded by Finland, and the participation of banks. “I hope for the return of calm to the markets after September when all the measures have been implemented and a program of austerity is operating in Greece. “Of course the less favorable economic prospects put in doubt budgetary reductions. But you should accept that deficits deteriorate a little due to cyclical movements and that you continue to have improvement on a structural basis. Coene said that the issuance of euro zone bonds, as some have demanded to ease the crisis, made sense, but only if there were far greater fiscal and economic convergence, and if there were automatic penalties for bloc members that do not obey the rules. Coene also told the newspaper that capital increases for banks did not make sense now as the only subscribers to such increases would be governments, which would lead to a deterioration of sovereign credit ratings and, in turn, to lower ratings for their banks. The Belgian central bank governor said that Belgium’s KBC and Franco-Belgian Dexia had reported decent underlying half-year results, but that both had further to go with their restructuring plans, something made more difficult by the current state of financial markets. Asked if he was concerned about the prospect of delays to this restructuring, Coene answered: “No. One simply needs to have increased vigilance because these banks are still vulnerable.” (Writing by Philip Blenkinsop, Editing by Ben Deighton)

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Many Big-Name Stocks Now Cheaper Than During Financial Crisis

August 31, 2011

NEW YORK (Rodrigo Campos) – One out of every 10 companies in the S&P 500 index — including stalwarts like Apple and JPMorgan Chase — is now cheaper than during the 2008-2009 market meltdown. Even as S&P 500 earnings soar past Wall Street estimates quarter after quarter, the lack of investor confidence has dropped the forward price-to-earnings ratio of at least 50 of the largest U.S. companies below their crisis lows, according to a screen of Thomson Reuters data. Investors are now willing to risk less cash for every $1 in earnings they expect to rake in for upcoming quarters than they were in 2008 or 2009. The companies in question are not exactly obscure. Besides Apple Inc and JPMorgan Chase & Co, others on the list include Microsoft Corp and Wal-Mart Stores Inc, illustrating the extent of investor pessimism. “Risk aversion is so great right now that high quality U.S. common stocks are on sale,” said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. Thomson Reuters data shows that 72 percent of the S&P 500 components beat earnings expectations in the second quarter. Estimates updated Tuesday show full-year earnings growth is seen at 14.1 percent for 2012 –just 0.2 percentage point less than the estimate on July 1, and still higher than the 13.6 percent estimate on April 1. By sector, technology, financials and consumer discretionary shares are trading at valuations not far from their 10-year lows. “It shows an incredible drop in overall confidence, not only in financial markets but in the political environment,” said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon. “Knowing we are going into a political election year (investors) haven’t embraced what we would consider a decent, steady flow of good earnings.” Apple shares are up 350 percent since the start of 2009, while the company’s forward P/E ratio has fallen to 12.29, down from 15.52 in late November 2008. Apple is one of those companies whose share price is not keeping up with its rapid growth in earnings. Other companies on the list are not growing as rapidly. Wal-Mart has seen same-store sales fall every quarter for two years now. Hewlett-Packard Co, another Dow component on the list, is divesting its personal computer unit amid struggles, as well. But some of the names are stronger: The second-biggest U.S. bank by assets, JPMorgan, with its stock up more than 19 percent since the start of 2009, has seen its forward P/E decline to 6.63 from 9.44 in January 2008. “You have a company with a $200 billion market cap like some of these are, and to make that go up you need a lot of capital inflows,” said Harbor Advisory’s De Gan. “We’ve seen the P/E on some of these stocks basically decline for 10 years; at some point it becomes ridiculous.” (Reporting by Rodrigo Campos; Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fed’s $1.2 Trillion In Loans ‘A Classic Case Of Moral Hazard’

August 23, 2011

During the 2008 financial crisis, when the nation’s banking system seemed on the verge of collapse, President George W. Bush authorized a $700 billion bailout of the financial industry. The U.S. Treasury implemented that program, known as TARP, in an effort to stave off economic catastrophe. At the same time, and in the years that followed, the Federal Reserve was undertaking its own rescue operation, in the form of private, previously undisclosed loans to banks and other institutions — lending as much as $1.2 trillion, nearly twice the amount of the Treasury bailout, according to a data analysis performed by Bloomberg News and published on Monday . The scope of the Fed’s private lending had previously only been guessed at, but figures obtained under the Freedom of Information Act by Bloomberg News show that the nation’s central banker issued loans to more than 300 institutions between August 2007 and April 2010, including over 100 loans of $1 billion or more. While the Fed’s loans likely helped to prevent a complete implosion of the global banking system, analysts say they fear the loans may have contributed to an atmosphere of complacency on Wall Street. Banks that received emergency cash infusions during the crisis may now believe the Fed will always be there to bail them out of trouble, the thinking goes. “It is a classic case of moral hazard,” Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College, told The Huffington Post. The Federal Reserve itself had argued that the details of its emergency loans should be kept out of the public eye, claiming that the reputations of the firms involved could suffer if they were seen to be taking money from the government in order to stay afloat. Many of the banks that borrowed from the Fed had previously appealed to the Supreme Court to keep those records secret. However, an invocation of the Freedom of Information Act forced the Fed to release more than 29,000 pages of documents, revealing the extent to which the financial sector relied on Federal Reserve dollars during the worst days of the crisis. Given the extraordinary size of the loans, the public has a right to know what happened, said David Jones, an executive professor at the Lutgert College of Business at Florida Gulf Coast University. “It’s completely valid at some point to say, ‘Who did the borrowing?’” Jones told The Huffington Post. “It was appropriate, under this special set of circumstances, to divulge the information.” Among the largest borrowers were Bank of America, which borrowed $91.4 billion; Goldman Sachs, which was in debt for $69 billion; JPMorgan Chase, which borrowed $68.6 billion; Citigroup, which borrowed $99.5 billion and Morgan Stanley, the biggest borrower of all, to which the Fed loaned $107 billion. In addition, the Fed issued sizable loans to a number of foreign banks, including the Royal Bank of Scotland, which borrowed $84.5 billion; Credit Suisse Group, which borrowed $60.8 billion and Germany’s Deutsche Bank, to which the Fed lent $66 billion. Nearly half of the 30 largest borrowers were European firms, according to Bloomberg News. While the amount of lending that took place is remarkable, some argue that the Fed’s error was not in issuing the loans, but rather in doing so without setting stronger policy reform conditions for the money. Dean Baker, co-director of the Center for Economic and Policy Research, told The Huffington Post that Federal Reserve Chairman Ben Bernanke could have attached a “quid pro quo” to the emergency loans — stipulating, for example, that the money would only come through if the banks agreed to do business in a less risky way going forward. “This is the moment all the banks were on their backs,” Baker said. “The Fed ran to the rescue and got nothing in return.” A previous disclosure in December found that the Fed issued $9 trillion in low-interest overnight loans to banks and other Wall Street companies during the crisis. The $1.2 trillion figure represents the peak amount of outstanding loans, which occurred on December 5, 2008, according to Bloomberg News. Some critics contend that while the Fed was right to support the financial sector, the government didn’t do enough to help ordinary citizens who were also seeing their wealth evaporate during the crisis. Papadimitriou told The Huffington Post that the Fed issued many of its biggest loans during the Bush administration, and that “they didn’t appear to have any difficulty supporting the financial sector, but very much difficulty supporting the real sector, households.” Consumer spending suffered and unemployment spiked in the wake of the financial crisis, and the economy remains weak today. Output is low, consumer confidence is down and millions are still out of work — factors that have some economists worried about the possibility of a double-dip recession . The TARP bailout, led by the Treasury, was the subject of much popular ire when it occurred, since it was seen as a case of the government throwing money at the financial sector at the expense of everyday Americans. Similarly, the Fed’s $1.2 trillion in emergency loans were primarily aimed at keeping major financial institutions on their feet. “One would assume banks are too interconnected, you have to help all of them,” Papadimitriou said. “But if you take households in total, they are also all interconnected. They are also too big to fail.”

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David Woolner: FDR Tackled a Jobs Crisis by Putting Americans to Work — Not Handing Out Pink Slips

August 15, 2011

“Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing great — greatly needed projects to stimulate and reorganize the use of our great natural resources.” ~Franklin D. Roosevelt, March 4, 1933 The economic news of the past few weeks — highlighted by the debt ceiling debacle; the downgrade of US credit worthiness; the wild gyrations in the stock market and the wholly inadequate growth in the US job market in June and July — all seem to point to one thing: the economic crisis that began in 2008 is far from over. Worse still, given the political gridlock in Washington and the inability and/or unwillingness of the leadership on both sides of the political aisle to face the real crisis we face today — the jobs crisis — the prospects for a meaningful recovery seem remote at best. Many economists predict that the US will slide back into a recession. This is bad news for the millions upon millions of Americans who are out of work; bad news as well for the millions of young people just entering the work force. For the first time since the Great Depression, we face the ugly prospect of the loss of skills that often comes with long term unemployment or the lack of meaningful career opportunities for our youth. One would think that in the face of such a calamity our government would do everything within its power to expand or at least maintain the workforce. But with the current administration having embraced the mantra of deficit reduction and budget slashing, and with one branch of Congress ideologically opposed to government intervention in the economy, government layoffs, especially at the state and local level, are actually pushing up the rate of unemployment. Over three quarters of a century ago, when faced with a similar jobs deficit, Franklin Roosevelt used the power of the federal government to do just the opposite — to put people to work. Under the auspices of such New Deal programs as the Civilian Conservation Corps (CCC) or the Works Progress Administration (WPA) millions of Americans found meaningful employment restoring our nation’s forests and watersheds and building the economic infrastructure we needed to grow the economy well into the future. Equally important, the skills required to build the 1000s of bridges, roads, schools, airports, dams and other key pieces of economic infrastructure necessary for a modern economy were not lost to that generation. FDR did this because — as he said in his first inaugural — the most immediate and primary tasked needed to meet the economic emergency was to put people to work. This not only led to a significant drop in the unemployment rate (by more than 10 percent in his first term), it also helped fuel a period of economic expansion that would average 14 percent per year for the next four years. Thanks to these efforts, the American people could look to the future with confidence rather than fear. Yes, times were hard. But under the leadership of the Roosevelt Administration, the federal government was engaged in an active effort to provide real jobs — not handouts — to millions and the industrial expertise we needed to meet the challenges of the Second World War were in place at the critical hour. The national unemployment rate has now been at roughly 9 percent for more than two years. By any measure such a statistic — which tells us little about the millions of under employed or those who have given up looking for work — constitutes a national crisis. Yet all we hear about these days in Washington is the need to cut government spending (including federal aid to states) and reduce the deficit. Following this false logic will lay off more workers in the midst of the worst economic crisis since the Great Depression. Given the dire state of affairs, the American people are right to fear the future. It appears that in addition to a jobs deficit, we now face a deficit of leadership at a time when we can least afford. Cross-posted from New Deal 2.0 .

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Bill George: The CEO Playbook for This Crisis

August 10, 2011

CEOs of multinational corporations are in a stronger position than three years ago. Balance sheets are strong, and productivity has increased. This crisis presents an opportunity to go on the offensive for CEOs who are in a position of strength. Here’s the playbook I’d run: Reassure everyone that your company is in great shape. CEOs needs to maximize their visibility to ensure employees, supplier, customers and community that their strategy is intact. Write an email, go on TV, post a series of Tweets and show up to let the troops know that the company’s strategy makes sense — particularly in this tumultuous economy. Buy your stock back. Your stock is likely cheaper than it has been all year. Buying back your stock puts excess cash on the balance sheet to work, it shows the market how you really feel about your growth prospects, and it oftentimes provides a floor for your stock. Expand in emerging markets. There is growth abroad — and not just in China. The current financial panic will likely accelerate the rise of new markets. Every CEO should be doing a quarterly global review of marketshare and growth. Now is the time to double down on bets that are playing out well in Asia, Latin America and the Middle East. Initiate cost savings and productivity improvements. The best CEOs are always looking for efficiency increases alongside revenue growth. Even if that means trimming up employment in the U.S., companies must be lean and agile to sail through roiling seas. Growth isn’t coming to the USA anytime soon, so CEOs must have an appropriate cost structure. Do cash acquisitions . This is an opportunity to put cash to work. As competitors’ stock prices decline, look for opportunities to acquires businesses or assets in cash. Inflation seems almost certain in mid-term. Your cash may be the most valuable in this window that it’s ever been. This is a great time to get out from behind the desk, get into the market — both telling your story and seeking new opportunities. Great leaders and great companies find opportunity in times of crisis.

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Ernan Roman: 4 Lessons About the Power of Twitter from the Debt Ceiling Drama

August 10, 2011

The Situation Twitter played an important role in helping move Congress to finally pass the debt ceiling legislation. The Marketing Takeaways At several points over the past few weeks, the president called a press conference to repeat points that he had already made many times before. Why did he bother? Because each of these press conferences included a direct appeal to voters to email, call and tweet at the members of Congress who represented them. Obama repeated those appeals on his Twitter account, which boasts 9 million followers. And each time he did that, Congressional offices were swamped with constituent communications in support of the president. Marketers should be curious about how the president pulled this off. Whether we agree with his handling of the debt ceiling standoff or not, we have to admit that Obama and his team know how to use Twitter. Multiple mainstream media sources (including Federal Computer Week and The Register ) have acknowledged the effectiveness of the White House’s use of this powerful medium, and a few (including Media Matters for America ) even seem to suggest that it might have been one of the turning points in resolving the crisis. Obama used Twitter to mobilize his base of contacts and issue calls to action that people quickly obeyed. Here are four best practices, straight from the Oval Office: Act like the relationship matters and keep people in the loop. The difference between treating people like a record on a database and treating them like valued customers or supporters lies in keeping them updated on the issues that affect them. Obama’s team did this, regularly keeping millions of followers up to date on the latest developments in the crisis, and explaining what needed to happen to resolve it. Engage using relevant content. The bigger the story got, the more interested Obama’s core base of Twitter followers became in updates and other messages from the White House. Obama’s team saw this need and positioned the White House as an alternate news stream on the story. Keep this in mind as you consider the power of relevant communications. Engage frequently. Twitter is all about speed and immediacy. If you are going to be effective in this space, you need to post new material regularly. Obama’s team certainly did this, offering dozens of posts a day. Is it wise for your organization to try to hit that level, no matter what? Probably not. But you should get Voice of Customer feedback regarding the frequency and content of the messages customers and followers want to receive from your organization. Say “thank you.” This is a huge part of good Twitter etiquette. In fact, it’s almost an end in itself. It was impossible not to notice how often the President used Twitter to thank his followers over the past few weeks. Here, he thanks them personally at the end of the crisis, via a special video link embedded in a tweet. Thank people for following you on Twitter. Thank them for mentioning you. Thank them for anything you can credibly thank them for. Big Lesson To support your brand and build an engaged base of motivated followers, do these four things on Twitter — whatever your politics happen to be.

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Peter S. Goodman: No Secrets In America’s Latest Economic Crisis: Weak Economies, Weak Leaders

August 9, 2011

Three years ago, the last time we experienced the stomach-churning spectacle of stock markets swiftly annihilating trillions of dollars in household wealth, the unknowns were at the center of the fear. Thanks to a lengthy experiment in radical deregulation, no one really knew the size of the wagers that Wall Street’s leading financial institutions had constructed out of home mortgages, or what would happen to their balance sheets as large numbers of homeowners fell into delinquency. But this time, as stock markets again lurch wildly and panic circumnavigates the globe, what we do know is at the center of our problems: The global economy is weak and still weakening, while policymakers seem unable or unwilling to marshal a reassuring response. From the United States to Europe to Japan, economies are stagnating, and governments are tightening the straits by cutting back on spending, urged on by the same credit ratings agencies that played leading roles in getting us here. Tuesday afternoon’s pledge by the Federal Reserve to keep interest rates low for at least another two years is merely an acknowledgement of this disheartening reality and does not alter it. The catalogue of knowns offers little in the way of comfort. The American economy appears increasingly vulnerable to falling into another recession, yet leaders in Washington are missing in action. The Republicans are content to watch fiscal and economic troubles of their own making burgeon into a conflagration, betting that an unsophisticated electorate will blame the current occupant of the White House come 2012. A President famous for his oratorical powers now seems like a mute caricature of his former self, recycling marginal policies while lamely insisting that forces beyond the government’s control are responsible for the storm. “There is something of a leadership failure,” Martin N. Baily, a former chairman of the Council of Economic Advisers in the Clinton administration, and now a senior fellow at the Brookings Institution in Washington, pronounced in an interview on Tuesday. “We need someone, whether like a Franklin Roosevelt or a Ronald Reagan, who can inspire confidence.” We know that another recession would hit at a time of 9 percent-plus unemployment, and with the social safety net ravaged by cuts. We know that the United States is effectively in a box following the downgrade of the federal government’s credit rating by Standard & Poor’s late last week. The government cannot spend money to stimulate the economy without increasing the likelihood of further credit downgrades, which would invite new destabilizing consequences. Yet without some form of government intervention, the markets are left to take in the unobstructed view of an economy lacking any momentum. We have hit a fork in the road, and both routes lead somewhere we do not wish to travel. The road we are on now — Austerity Avenue — heads out for many years to an unchanging scenery of high unemployment, slow growth, diminishing wealth and social strife. The other, Stimulation Lane, runs smack into Downgrade Ditch, a messy place from which escape is not certain, a place where interest rates could spike throughout the economy and we could quickly wind up back in recession. The ironies here run in the cruel variety: Standard & Poor’s and its credit rating brethren, Moody’s and Fitch, played starring roles in creating the last financial crisis. They advised investment banks on how to turn lousy mortgages into complex securities that could garner their top ratings, collecting handsome fees in the process. Now that Uncle Sam needs fresh credit to tend to the economic mess that has resulted, the ratings agencies have become sticklers for financial details. These are merely the unfortunate things we know here in the United States, yet we also know that financial strain is a global problem. European authorities have twice rescued Greece from the prospect of default on its outsized debts. And still no one seems to believe that the Greeks — forced to swallow sharp spending cuts as a condition of aid — can possibly grow enough to keep current on what they owe. We know that similar worries dog Spain and Italy, where interest rates have been soaring, prompting theEuropean Central Bank to step forward on Monday and start buying up their bonds in a campaign to instill confidence. That move sent interest rates down a tad, but not enough to dislodge the sense of crisis. Few expect the European Central Bank to play backstop for the duration. The bank has long expressed reluctance to step directly into the fray, preferring that the continent rely on a special bailout fund established to shore up the finances of flagging members. And the market grasps clearly that the fund is stocked with 440 billion Euros — a large amount of money, to be sure, yet not nearly enough to rescue Italy and Spain, were a default scenario to present itself. “We are skeptical that this intervention tactic can end well, or even last very long,” said Carl B. Weinberg, chief economist of High Frequency Economics, a research firm, in a note to clients Tuesday morning. As Weinberg quickly added, the arsenal available to the Europeans in event of a rescue is really just a sideshow. The thing the market sees most clearly is a simple story with no good ending in sight: lots of debt, no apparent path to economic growth and a tendency toward higher interest rates, which intensifies the pressure. “We see a broad credit crunch corseting many economies at once,” Weinberg said. “Central banks have been unable to make money or credit grow since 2008. To be sure, potentially catastrophic hits to the balance sheets of bond-holding Euroland banks will not encourage them to lend more. So maybe the global equity market slide is not without reason. For without money or credit, there can be no economic growth.” The same observation applies to the United States. Ever since the financial crisis arrived in 2008, the Fed has kept interest rates near zero, operating on the established theory that, when money is free, it is more likely to be lent and borrowed, boosting economic activity and job growth. Only this time, would-be employers are focused on another known: their would-be customers have lost spending power and appetite for risk, limiting sales. So the economy stagnates, unemployment remains high and the government declines to boost demand for goods and services with fresh spending, fearing the reprimand of the credit rating agencies. This is a state of play that could last a long while. “The tools of monetary policy and fiscal policy seem to be powerless,” said Baily, the Clinton administration economic adviser. The only thing lacking in the unraveling underway is a sense of mystery. That, and a sense of urgency from our elected leaders, for whom the unemployment epidemic has apparently become a known factor, already priced into their political calculations.

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Amid Crisis, Italy Seeks Budget-Balancing Constitutional Amendment

August 5, 2011

ROME — Italy pledged on Friday to work swiftly for a constitutional amendment requiring the government to balance its budget, as Rome feverishly tried to assure domestic and foreign investors its finances are sound and calm nervous markets in Europe. Premier Silvio Berlusconi told a hastily convened evening news conference the government will “speed up measures” in its budget law approved last month by Parliament, “with the possibility of reaching a balanced budget by 2013 instead of 2014″ as first planned. His conservative government, now more than three years into its five-year term, will also work to amend the Constitution to include a requirement for a balanced budget, Berlusconi said. Berlusconi, saying he conferred by phone with world leaders, announced that G-7 finance ministers will meet “within days” about the exploding financial crisis. Later, his spokesman clarified that convening an “extraordinary meeting” of the G-7 finance ministers was still “at the reflection stage” with no decision yet taken, although Italy favored one. Concern over the crisis was trans-Atlantic. U.S. President Barack Obama spoke separately by phone with French President Nicolas Sarkozy and German Chancellor Angela Merkel about the latest developments in Europe’s sovereign debt crisis, the White House said. Berlusconi, in turn, said at the news conference that he was set to speak to Obama later Friday. The uncertainty stemming from the 17-nation’s shared currency – used by some 330 million people across the continent – sent European shares plummetting this week, and was also seen as contributing to sending U.S. stock markets lower. Italisn Finance Minister Giulio Tremonti, who stood beside Berlusconi, said a balanced budget could be achieved by 2013 by speeding up reform of Italy’s extensive, and expensive, social welfare system, which includes national health care and generous retirement payments. Also key to this goal, Tremonti said, would be what he promised as the “mother of all liberalization,” especially in Italy’s highly regulated world of labor. “The principle that all will be allowed unless specifically forbidden” by labor laws will be the guiding principle of the government’s strategy, Berlusconi said, vowing that that, too, would be soon enshrined in Italy’s constitutional. Italy’s industrialists and mid-sized employers have complained for decades that Italy’s strict laws making firing workers almost impossible discourages them from hiring more employees in moments of need. Further strategy also includes privatization of sectors, which Tremonti didn’t specify, and what he said would be a “speeding up” of investment to improve and modernize infrastructure, as a way to wake up Italy’s slumbering economy. Italy’s Parliament went on vacation for a month earlier this week, but on Friday, responding to the quickly worsening economic nervousness, officials of the two chambers said key committees would keep working throughout August. And all the lawmakers were expected to be summoned back to work as soon as the reforms pushed by Berlusconi is ready for a full vote. Berlusconi’s coalition, despite setbacks this year in local elections, has a comfortable majority in parliament assuming his often fickle ally, the Northern League, closes ranks. The opposition center-left has been clamoring for Berlusconi to step down, insisting he has essentially done nothing in three years to create jobs or lower the tax burden on workers. Berlusconi’s pledges Friday night “are nothing new compared to the paucity of ideas shown by his government in recent months,” said Rosy Bindi, an opposition leader. Italy’s borrowing costs rose above Spain’s for the first time in more than a year, pushing European leaders to interrupt their vacations and look for a response to deepening fears about the health of the eurozone’s No. 3 economy. At the start of Europe’s debt crisis 21 months ago, Italy was rarely grouped with the weaker members of the single currency zone, such as Greece, Ireland and Portugal. Many in the markets thought Spain, with its 20 percent unemployment rate, was vulnerable. But the emergence of Italy as a potential victim over the past few weeks has highlighted just how vulnerable the eurozone is and how insufficient its anti-crisis measures are. The yield on Italy’s 10-year bond stands at 6.09 percent, ahead of Spain’s equivalent of 6.04 percent – though both are lower than the euro-era highs earlier in the week and markedly below where they were at the start of the day, they’re still not far from the levels that forced Greece, Ireland and Portugal to seek international financial help. Worries that Italy and Spain maybe next in line led Merkel, vacationing in the Italian Alps, and French President Nicolas Sarkozy, on the French Riviera, to take time from their holidays for a phone conference on the eurozone crisis. Spanish Prime Minister Jose Luis Rodriguez Zapatero spoke with Sarkozy and Berlusconi in separate phone conversations Friday. Merkel’s office said she spoke with Sarkozy, Berlusconi and British Prime Minister David Cameron. All agreed that “decisions made by the EU summit on July 21 should be implemented quickly,” Merkel’s office said in a statement. At last month’s huddle, eurozone leaders agreed to a sweeping deal that will grant Greece a new bailout – but likely make it the first euro country to default – and radically reshape the currency union’s rescue fund, allowing it to act pre-emptively when crises build up. But their options to what a leading EU policymaker described as “incomprehensible” movements in the markets appear limited. Even a better than expected U.S. jobs report Friday failed to ease the pessimism that has gripped investors over the past few weeks. It’s only been two weeks since eurozone leaders agreed to expand the powers of its euro440 billion ($623 billion) rescue fund that helped bail out Greece, Ireland and Portugal. The fund will be able to buy governments bonds and bail out banks, but the new powers will not be in place until parliaments approve the changes in September. Analysts also warn that the fund is currently not big enough to rescue Italy, whose debt amounts to 120 percent of economic output, around double that of Spain. Only Greece has a bigger proportion to service in the eurozone. Markets have put increasing pressure on Italy because of its chronically weak growth and a general lack of confidence in Berlusconi’s ability or willingness to push through politically difficult measures to make the economy more productive. ___ David McHugh in Frankfurt, Germany, Geir Moulson in Berlin, and Gabriele Steinhauser in Brussels contributed to this report.

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Robert Creamer: Reality is Calling… The Problem Isn’t Deficits It’s Jobs!

August 5, 2011

The only surprise is that it happened so fast. The cacophony of right-wing talk about how we need to “cut spending” to create jobs reached a fever pitch in the debate over the deficit ceiling that culminated just days ago. Now the world economy is sending a stark message that makes such talk sound stupider and stupider by the minute. The “conventional wisdom” is getting whiplash. As markets tumble and job reports show no growth, it is crystal clear to anyone with even a passing acquaintance with economics that Republican budget cutters are completely, utterly wrong. In fact they are 180 degrees off course. They are trying to do exactly the opposite of what the economy needs in order to grow and create jobs. History will remember them the same way it views their ideological progenitors that in 1937 decided Roosevelt’s New Deal had gone too far and needed “fiscal discipline.” That led to a sharp end of the economic recovery and a renewed downward plunge into joblessness. We’ve seen this movie. It’s a disaster film. Beohner, Cantor and Ryan and the whole gang are like a group of Medieval doctors who think that the way to treat disease is by “bleeding” patients. It may have made sense to the Medieval mind, but it was dead wrong. It should shock no one that when they ran out of money, state and local governments laid off hundreds of thousands of workers who would no longer be able to buy products and services. In fact the loss of half a million public sector jobs this year has almost completely offset private sector job growth. The workforce lost 37,000 more government workers in July. That is one of the reasons why the economy generated only 117,000 jobs in July, below the 150,000 needed to keep up with population growth. But instead of providing more funds to state and local governments to maintain schools and other public services, the Republican answer is that we must cut further and faster — meaning that there are fewer jobs, fewer consumers, less economic growth and a deepening cycle of economic stagnation. The problem with the economy is not “confidence” — it’s consumers. Businesses aren’t sitting on almost two trillion in cash because they are timid. They don’t invest in hiring new workers, or building new plants and buying equipment because they don’t see any new consumers to buy the products or services they would produce. The only way to break this dangerous cycle of economic stagnation is for all of us together — through our government — to band together and put people who can’t find jobs back to work producing things that we all need. That jumpstarts the economy by putting paychecks in people’s pockets so they will buy products. All of those businesses will see customers out there again and will hire new workers, build new plants and buy equipment. This should not be a hard concept to grasp, but Republicans like to cover their eyes and ears and hum as if that will make the truth about what is necessary to restart the economy go away. Virtually every economist in America agrees that the Obama stimulus package created millions of jobs. The problem wasn’t that it didn’t work to create jobs. The problem was that it wasn’t big enough to create enough jobs. And now the economic data indicates that Bush’s Great Recession was even more severe than we knew at the time, and there is little question that the proper response would have been much greater levels of economic stimulus than Congress ultimately passed — not less. America was perilously close to a new Great Depression. The Stimulus Bill stopped that — but it was far too small. Our problem was not “runaway government spending” over the last several years — it was too little government spending. As for the deficit, increasing taxes on the wealthy would have done little to slow economic demand. Rich people demand all the goods and services they need with or without tax breaks. Increasing tax rate on the rich would have taken a bunch of that cash that got hoarded by the wealthy and put it instead into pay checks that would have turned into the tonic the economy really needed: more economic demand. And it would have addressed problem of the long-term budget deficit at the same time. The Republicans incessantly argue that we can’t tax “job creators.” Job creators are not the rich that hoard their money. They are the everyday Americans who need money in their pockets to demand the products that will give businesses a reason to hire and invest. Some of the “mainstream” media has been complicit in this misdirection of the American political dialogue. The Washington Post’s editorial page is obsessed with the need for more “fiscal discipline.” Yes, we need to reduce the long-term deficit, the same way we did in the ’90s, by demanding the wealthy and big corporations pay their fair share — and by generating economic growth. But the most important part of that formula is the economic growth. Many of the talking heads go on endlessly about how there are only three factors that affect the deficit: revenue, spending and the cost of government borrowing. But that’s wrong. The fourth factor — and the most important factor — is the level of economic growth. The level of economic growth actually has more impact on the overall deficit than any other factor. And to have economic growth in the future, we need government action to put people to work now. Now the worst enemy of our economy is the notion that there is “nothing we can do.” All sorts of “serious” writers say, well, the Fed has lowered interest rates as far as they can go, and the stimulus is winding down — as if the stimulus “winding down” is an act of God. Of course there is something we can do. We can actually create jobs. Putting people to work is not an intractable problem that is mysterious. For about $220 billion you could put over two million Americans to work for two years — and massively lower the unemployment rate. I’m not talking about “incentivizing” companies, or cutting tax rates, or providing “stimulus.” I’m talking about funding specific job slots at state and local governments and the National Parks. I’m talking about hiring people directly, the way Roosevelt did it during the last great American jobs emergency. You’d fund specific jobs — the same way that Clinton did for the 100,000 cops in the COPS program in the ’90s. You’d have a teacher corps, a school improvement corps, a parks improvement corps. You’d fund slots for fire fighters and home health care workers. You would create jobs by actually creating jobs. And you could fund it by raising the tax rates on millionaires and billionaires. Time for us to snap out of our deficit fixation-induced stupor and realize that unless we act, the American economy is indeed headed over the cliff as a result of Congress’ unwillingness to act to pass a real emergency jobs bill. Call Congress. Tell them one simple message: America’s problem isn’t deficits. It’s jobs. Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com . He is a partner in Democracy Partners . Follow him on Twitter @rbcreamer.

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Discounts, Warm Weather Help Drive People TO Shop

August 1, 2011

(Dhanya Skariachan) – Retailers are poised to report higher sales for July, a discount-driven month that may do little to lift their margins. July sales figures will give investors an early read on demand in the consumer-driven U.S. economy at the start of the back-to-school season, the second-biggest selling period of the year after Christmas. Retail chains ranging from Target Corp to Saks Inc will report closely watched sales at stores open at least year on Wednesday and Thursday. (For a related graphic, click r.reuters.com/ryz82s ) Analysts are expecting same-store sales to show a 4.3 percent rise for July, compared with a year-earlier increase of 2.8 percent, according to Thomson Reuters data. “The hot weather has certainly helped drive people into malls and helped clear out summer seasonal merchandise,” said Ken Perkins, president of research firm Retail Metrics Inc. At issue, he added, is whether retailers will be able to sell their wares at full price in the back-to-school season. It is not uncommon for retailers to offer discounts in July as they try to clear store shelves for back-to-school merchandise. Some investors worry that the discounting may have been deeper than usual and could weigh on margins. “There was a lot of clearance merchandise,” said Trutina Financial Chief Investment Officer Patricia Edwards. “While the sales may be there, the margins may not.” The back-to-school selling season has important implications as consumer spending accounts for about 70 percent of the U.S. economy, which barely grew in the first half of 2011. Retail stocks have fallen in the past month. The Standard & Poor’s Retail Index is down 4.2 percent since retailers reported June sales, although the broad Standard & Poor’s 500 Index fell more steeply at 5 percent. NO STOMACH FOR FULL-PRICE GOODS Analysts expect warehouse club operators such as Costco Wholesale Corp and BJ’s Wholesale Club Inc to post some of the largest sales gains in July. Warehouse clubs, which charge customers an annual fee to shop in their stores, have won shoppers seeking low prices on necessities such as groceries or toiletries. Analysts also expect healthy sales gains at dollar stores and off-price retailers TJX Cos Inc and Ross Stores Inc. Off-price chains sell sharply discounted designer merchandise often returned to vendors by department stores. “I just don’t think that the consumer has the stomach right now to really pay full price, even for new … back-to-school merchandise,” Perkins said. “Consumer confidence is not particularly strong right now.” U.S. consumer sentiment fell in July to its lowest point in more than two years as anxieties over stagnant wages and unemployment deepened, a survey showed. Rhonda Douma, who was shopping for her 3-year-old daughter at American Girl in a mall in Hollywood, California, said she planned to spend the same amount this back-to-school season as she did last year. Her top destinations for the season highlight the price sensitivity of the post-recession American shopper. “Usually it’s Walmart and Target and Marshalls,” said Douma, 42. “We just found out about this store, and they have a lot of cute, fun stuff — and brand names for cheaper prices. Analysts also expect a strong July for luxury chains such as Saks and Nordstrom Inc because of the purchasing power of higher-income shoppers. One underperformer of the month could be clothing retailer Gap Inc. Same-store sales at the parent of the Gap, Old Navy and Banana Republic chains are expected to range between staying flat and falling as much as 3 percent, according to Thomson Reuters data. Same-store sales reports capture only part of the retail economy. Industry leader Wal-Mart Stores Inc and other major retailers such as Best Buy Co Inc and Amazon.com do not report monthly sales. (Additional reporting by Alexandra Alper in New York and Mary Slosson in Los Angeles; Editing by Lisa Von Ahn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Tom Silva: The Other Debt Crisis

August 1, 2011

As the August 2nd deadline to raise the U.S. debt ceiling looms and much of the media attention turns towards prospects of a U.S. default on paying its bills, it may be worth remembering the debt problem that no one is talking about — one that may have even more direct implications on unemployment, consumer spending and even the next election — our educational debt crisis. Make no mistake — it’s a crisis. Student loan debt has surpassed total credit card debt in the U.S. This year’s graduating class of college seniors had the highest average debt to date, projected to reach more than $1 trillion later this year. Since 1982, the average cost of attaining a college degree has increased by 439 percent, while the typical family’s income increased by only 147 percent. The average cumulative debt incurred by a 4-year college student is $27,803. As an example of the inordinate hikes that students are seeing, University of California regents approved a 9.6 percent tuition increase on top of an already approved 8 percent tuition increase starting in the fall after a cut of $650 million in the California State University budget. Additionally, studies show the increase in the cost of 4-year institutions has been attended by a decrease in percentage of actual graduates (even factoring in 2 additional years). All of this would be tenable if four-year universities produced students that entered the market labor-ready. But According to the Clinton Global Initiative , there are three million jobs right now which have no takers because applicants lack the skills. If those positions were filled, it would cut the unemployment rate in half. But job openings, according to Bill Clinton, are being filled at half the pace of previous recessions. Clearly, we have a higher ed sector that isn’t aligned with the needs of our struggling economy. At the same time, vocational training continues to be stigmatized as an ignominious substratum, a place to consign unpromising students. The way ahead is clear: There must be a rethinking of what jobs require a traditional four year degree, and which are better served by a lower cost, expeditious option more aligned with the demands of our economy. Let us start by saying that this is not an attack on the university. We honor the original purpose, which was to foster the spirit of the Renaissance and the Enlightenment as a beacon of learning, a rejoinder to the obscurantism of the Dark Ages. The first ever university in Europe, the University of Bologna, promoted the notion of academic freedom in its charter, and we are all beneficiaries of the sciences and arts which emerged from that grand enterprise. Those institutions need to be preserved and defended against summary budget cuts. But one would be hard pressed to show how a degree in Professional Golf Management accords with the spirit of Francis Bacon or Erasmus. It proves even more difficult to explain why it is priced at six-figures when it might be more appropriately offered as a certificate course or on-the-job training. For many, the dream of earning a college degree (and the social acceptance that comes with that accomplishment) trumps a more analytical, cost-benefits approach. Simply put, strict adherence to an illusory intellectual caste system is an indulgence our nation can no longer afford. Before we continue to accept a four-year college degree as the gold standard, regardless of one’s aspirations, consider these facts: According to the Bureau of Labor Statistics, a two-year associates degree, or a certificate in a particular trade might be the smarter bet to financial stability. In their recent survey , nearly 30% of associate’s holders achieved greater income than their traditional four-year counterparts. Furthermore, more than one-quarter of those holding an industry specific certificate surpassed earnings of either counterpart. “A four-year degree in business — what’s that get you?” asked Karl Christopher, a placement counselor at the Columbia Area Career Center vocational program. “A shift supervisor position at a store in the mall.” Other countries seem less alarmed by the dichotomy between a college degree and skills training. A study in Germany found that of those who passed the Abitur, the exam that allows some Germans to attend college for almost no tuition, 40% chose to go into apprenticeships in trades, accounting, sales management, and computers . “Some of the people coming out of those apprenticeships are in more demand than college graduates because they’ve actually managed things in the workplace,” says Robert I. Lerman, Professor of Economics at American University. So, how can we keep successive generations from being burdened with a Sisyphean debt load without a guarantee of recompense? First, let’s look seriously at online universities where students are relieved of travel, lodging, even textbook expenses, and where participation has risen on average 17-19% per year since 2005 . This year, over one million adults are taking degree or certificate programs delivered 100% online in the U.S., according to Eduventures . Employers are increasingly accepting of OU applicants, but admit a bias towards traditional brick and mortar institutional graduates . Given two equal applicants, they will choose the traditional student. It is anticipated that as the current workforce “greys out”, and more hiring managers come from OU backgrounds themselves, the perception of OU inferiority will change accordingly. The other avenue is certificates. According to the Center of Education and the Workforce at Georgetown University, a post-secondary certificate adds almost $117,000 in lifetime earnings over a high school diploma or those with no other degrees. Take the curious case of Anne-Diandra Louarn, a 23-year-old native of Paris who graduated from N.Y.U.’s journalism certificate program in 2009. She claims it secured her post at France’s Tiffany newspaper, Le Figaro, where she reports for the Web site and manages the newspaper’s Facebook and Twitter pages. She had no journalism experience, other than an internship at a small social media company in New York and a two-year degree in communications from Paris Descartes University. At N.Y.U., she took seven classes, over two semesters, paying about $3,000 to complete her certificate. When applying for jobs, she says, the pedigree carried clout. “Because N.Y.U. is a very well-known university,” Ms. Louarn says, “I know it helped me.” Martin Scaglione, president and CEO of work force development for ACT advocates “certification as the new education currency – documentation of skills as opposed to mastering curriculum.” Little more than half of all certificates are awarded by public sector institutions, mostly community colleges, while only four in ten are granted by for-profit institutions. Certificates have also become a source of upward mobility for lower-income groups and minorities: Women account for close to two-thirds of certificate-holders. Black and Hispanic students earn about one-third of all certificates issued, compared to just 20 % of all bachelor’s degrees. Then, there’s the good old-fashioned trade school. Noted New York Times reporter Louis Uchitelle wrote about the kinds of jobs in demand back in June 2009 , saying: “…unnoticed in the government’s standard employment data, employers are begging for qualified applicants for certain occupations, even in hard times. Most of the jobs involve skills that take years to attain. Welder is one…Electrical lineman is yet another, particularly those skilled in stringing high-voltage wires across the landscape.” For those with visions of Victorian smokestacks, it is important to know that the new manufacturing job isn’t about pulling levers but, because of automation, increasingly involves computers, math, writing, and communicating . Over the next decade, the 20 occupations in the manufacturing industry that are expected to need the greatest number of workers will require at least some post-secondary education, according to the Manufacturing Institute, (part of the National Association of Manufacturers). Those 20 occupations, according to data from Chmura Economics & Analytics and the U.S. Department of Labor, will provide more than 1 million jobs over the decade – more than half of which will be in high-tech industries. Such jobs pay higher average wages than all others excluding health care and social assistance. Managers can earn an average annual wage of $107,970 and industrial engineers an average of $75,740. Hardly the dungeon of the educational system that it’s portrayed to be, vocational training delivers far better return on investment than most traditional universities. The key to effective vocational training is the community college system. More than 30 states, with the backing of industry and the federal government, are introducing a new national credentialing system for community college students and employers across manufacturing sectors. It has won the support of President Obama, who, earlier this month, said he would back an effort to help 500,000 community college students obtain industry-recognized credentials . The White House has also proposed a program to train 10,000 engineering students a year. “We need to triple and quadruple what we’re doing at community colleges with retraining to really start moving the unemployment numbers,” says William J. Holstein, author of the recently published book, The Next American Economy . “We need to think big, not incrementally.” Lastly, we need to promote employer-sponsored, on-the-job training. In today’s world, work and learning are becoming parallel as opposed to sequential events. The timeframe for employees to apply new and synthesized knowledge is being compressed. The only way to remain competitive as a nation is to allow working adults to keep one foot in the classroom throughout their careers. The University of Phoenix reports that its average student is now 34 years of age, which supports the modern day profile of the “Working Learner” . The same surveys found an average of 40% of postsecondary graduates deficient in these skill areas. Both increasing the number of workers with postsecondary credentials and enhancing their skill mix so they are ready for the innovation economy will require a much closer alignment of the nation’s worker-training programs and our traditional higher education system. Worker-training programs must expand public investments through the federal Workforce Investment Act and a variety of state-level initiatives as well as those programs funded by employers and through joint-management labor partnerships. Most of the elements needed for the postsecondary education system we outline already exist, but they operate according to policies that are still aligned with the mass-production economy in which technical knowledge and workplace savvy could be developed separately rather than the innovation economy that requires that they be developed simultaneously. We need our leaders in business, education and legislation to embrace smart, focused programs that drive Americans where they long to be: Back to work. Special thanks to the researcher and co-author of this article, Heather M. Carper . Heather was an honor student, whose attempt at Higher Learning at an elite college ended in nearly $40,000 debt and no degree. After over a decade in the workforce, she is currently in an accredited certificate program, and has recently applied to a state college.

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HSBC Heads For $11 Billion Profit As Revamp Takes Shape

July 31, 2011

LONDON (Steve Slater) – HSBC Holdings Plc (HSBA.L: Quote, Profile, Research, Stock Buzz) should unveil a half-year profit of near $11 billion on Monday, flat from a year earlier as weak investment bank trading and wobbly U.S. and European economies offset growth in Asia. New HSBC CEO Stuart Gulliver is overhauling Europe’s biggest bank by slashing costs by up to $3.5 billion, selling its U.S. credit card arm and other assets, and retreating from countries where it is sub-scale. The aim is to sharpen the focus on Asia and investors want to see progress made on that plan. HSBC is the first of Britain’s big banks to report and should show a pretax profit for the six months to the end of June of $10.9 billion, compared with $11.1 billion a year earlier, according to the average of forecasts from 12 banks and brokerages polled by Reuters. Earnings will be hurt by a slump in fixed income trading in the second quarter, which has hit rivals including Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) particularly hard. Revenue from HSBC’s global banking and markets unit is likely to fall 8 percent on the year to $10 billion, analysts at Citi forecast. A stuttering U.S. economy could also slow the improvement in bad debts at HSBC’s U.S. consumer loans portfolio, which it is running down, analysts said. Gulliver unveiled his far-reaching plan in May to slash costs and cut back in retail banking to revive flagging profits and returns. Gulliver intends to sell HSBC’s U.S. credit card portfolio, which has more than $30 billion in assets, a move which would free up capital. Capital One Financial Corp (COF.N: Quote, Profile, Research, Stock Buzz) and Wells Fargo (WFC.N: Quote, Profile, Research, Stock Buzz) are among the bidders, sources have said. Another suitor could be Barclays (BARC.L: Quote, Profile, Research, Stock Buzz). HSBC is also looking to sell upstate New York branches as it shrinks its network of 475 U.S. branches. Altogether it is looking to sell, shut or slim down retail banking in 39 countries. So far, it has said it will exit Russia and Poland. The bank is likely to axe thousands of jobs as part of the overhaul, but it is probably too early to see an improvement in the cost line, analysts said. Pretax profit will include a negative adjustment on the value of debt the bank carries, expected to be around $600 million. Underlying profit of $11.5 billion would be up almost a fifth from a year ago. (Editing by David Holmes) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Geoffrey R. Stone: The Debt Ceiling Crisis: Approaching the Witching Hour

July 30, 2011

As the clock runs down toward the witching hour on August 2, I see three possible solutions to the crisis. First, the Republicans and Democrats in Congress can agree on a compromise plan that raises the debt ceiling for a reasonable period of time and deals with at least some of the issues of spending cuts and new revenues that have thus far so furiously divided the parties. I suppose this is still possible, but it seems unlikely. Second, the Republicans and Democrats in Congress can agree to increase the debt ceiling for a reasonable period of time without addressing any of the bitterly divisive spending and revenue issues . This is pretty much what has always happened in the past. Congress has separated the debt ceiling issue from the more difficult and more contentious issues of taxing and spending. At this point, that might be the best solution, but it too seems unlikely because of Republican intransigence. Third, Congress can remain paralyzed and simply do nothing. If they follow that approach, which now seems likely, the current debt ceiling will remain in place and as of August 2 the government will not be able to borrow any more money and thus will no longer be able to pay its bills — for the first time in American history. What happens then? The most obvious outcome is that for as long as that state of affairs exists, the president will have to decide which bills to pay and which to ignore. In other words, the president would have to decide whether to suspend Medicare payments, cancel Social Security payments, withhold the salaries of government employees (including the military), default on our debt obligations, etc. With each passing day, the spending cuts would need to be deeper and deeper. Some people have argued that, even if Congress does not raise the debt ceiling, these cuts and non-payments don’t have to happen, because the president can ignore Congress’ action and just keep on borrowing to pay the nation’s bills. Some have argued that a little-noticed provision in section 4 of the Fourteenth Amendment authorizes precisely this course of action. This provision states : “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” This provision of the Fourteenth Amendment, which was enacted shortly after the Civil War, was intended, in part, to prevent the former Confederate states, when they resumed their positions in Congress, from attempting to cause the federal government to renege on the debts the Union incurred to put down the “rebellion.” A careful reading of the text, however, reveals that the provision goes well beyond that. It does not say that the validity of the public debt incurred to put down the rebellion “shall not be questioned,” but that the public debt more generally “shall not be questioned,” citing the Civil War issue as merely an illustration. So, what is the relevance of section 4 to the current crisis? What it seems to say is that the government must honor all public debt “authorized by law.” This suggests that non-payment of our existing debt is not a constitutionally-permissible option for the president. As a result, in making spending cuts beginning on August 2, the President apparently cannot constitutionally decide not to pay our outstanding debt. Rather, all of the cuts must come from ongoing expenditures. This would, of course, dramatically magnify the impact of the crisis on government programs, services and operations. Faced with this dilemma, what is the president to do? There are those who argue that this entire controversy is much ado about nothing, because the President can simply “raise the debt ceiling on his own.” They argue that, in light of “the president’s role as the ultimate guardian of the constitutional order,” President Obama should disregard Congress’ failure to authorize additional debt and assume the authority to do the “right thing” for the nation. As Justice Robert Jackson observed more than half a century ago, “the Constitution is not a suicide pact.” This is a dangerous argument. Its proponents point to the one dramatic instance in American history in which a president openly exercised this extraconstitutional authority. (President Bush II, by the way, attempted to exercise this authority secretly when he authorized the use of torture and the NSA surveillance program in violation of federal law.) But that earlier instance, involving President Abraham Lincoln, was quite a different situation. It arose at the very outset of the Civil War, when Union troops needed to get to the nation’s capital to protect it from possible Confederate attack. Confederate sympathizers in Maryland were tearing up the railroad tracks in order to prevent the Union troops from moving south to the capital. Because the local authorities, who were sympathetic to the Confederates, did nothing to prevent this interference, the only way to end the obstruction was for Lincoln to suspend the writ of habeas corpus and authorize the military to arrest and detain those who were preventing the army from reaching Washington. The problem was that the Constitution authorizes only Congress to suspend the writ of habeas corpus. But Congress was not in session, and in 1861 it could not be convened quickly. Faced with this crisis, historians and legal scholars agree that Lincoln was justified in doing what he did, even though it was not expressly authorized by the Constitution. Even if one thinks that the danger to the national interest today is comparable to that facing Lincoln in 1861, the situations are importantly different. Today, Congress is in session and is refusing the raise the debt ceiling, even though it could easily do so. Because the Republicans in Congress refuse to do this, President Obama (unlike Lincoln) is faced with a “decision” by Congress. It may be a reckless and irresponsible decision, but it is a decision and it is much harder to justify ignoring a decision than to act in a situation where no congressional action was possible. Having said this, I think the president is likely to (and should) take control of the situation and do the “right thing” for the nation, even though he has no express constitutional authority to do so. But to suggest that this crisis is much ado about nothing because the president can avoid a calamity by extra-constitutional means, and by doing something that no other president in American history has been called upon to do, is absolutely no excuse for the conduct of the Republicans in bringing us to this point. Moreover, even if the president does this, there may be serious repercussions. First, the Republicans in the House may well attempt to impeach the president for acting “unconstitutionally.” Even though this would go nowhere in the Senate, the very act of impeachment would exacerbate the dire state of politics in the United States today. Second, there will almost inevitably be litigation challenging the constitutionality of the president’s action. (Note that in 1861, Chief Justice Taney held Lincoln’s suspension of the writ of habeas corpus in Maryland unconstitutional and ordered him to lift the suspension. Lincoln ignored the Taney’s ruling.). Is that a crisis we want to repeat? The plain and simple reality is that unless the Republicans agree to raise the debt ceiling in the next two days, they will throw the nation into a constitutional and economic nightmare. If nothing else, they should have enough sense and self-discipline to know that they will pay dearly for this with the American people.

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Obama: Republicans Wasted ‘Precious Days’ On Boehner Debt Ceiling Plan

July 30, 2011

WASHINGTON (AP/The Huffington Post) — Claiming that the two parties aren’t that far apart, President Barack Obama is urging Democratic and Republican lawmakers to reach a deal quickly to keep the government from defaulting on payments to veterans, Social Security recipients and others. “Republicans in the House of Representatives just spent precious days trying to pass a plan that a majority of Republicans and Democrats in the Senate had already said they wouldn’t vote for,” he said Saturday in his weekly radio and Internet address. Now, he said, “there is very little time” The Republican-controlled House on Friday passed a bill aimed at avoiding a debt default, voting 218-210 almost entirely along party lines. It pairs an immediate $900 billion increase in U.S. borrowing authority, needed for the government to keep paying all its bills, with $917 billion in federal spending cuts. But Democrats strongly oppose a provision that says Congress must approve a balanced-budget amendment to the Constitution and send it to the states for ratification before any additional increases in borrowing authority are granted. In the Republican radio address, Arizona Sen. Jon Kyl said it’s important for the country to avoid debt default, but said Democrats need to work more closely with Republicans. “Republicans have tried to work with Democrats to avoid this result and put our country on a better path, but we need them to work with us,” Kyl said. “Unfortunately, after weeks of negotiations, it became clear that Democrats in Washington did not view this crisis as an opportunity to rein in spending,” he said. “Instead, they saw it as an opportunity to impose huge tax increases on American families and small businesses.” Obama insists that borrowing authority extend through 2013, beyond next year’s presidential campaign. The Democratic-controlled Senate, with help from some Republicans, quickly rejected the House bill on Friday. Majority Leader Harry Reid, D-Nev., had an alternative measure to cut spending by $2.4 trillion and raise the debt limit by an equal amount, enough to meet Obama’s demand that there not be another vote on government borrowing next year. That defeat could set the stage for weekend negotiations on a compromise measure suitable to both houses of Congress. Obama said that compromise is needed by a Tuesday deadline – or else the government will begin running out of money. “Look, the parties are not that far apart here,” Obama said Saturday, claiming “rough agreement” between them on spending cuts and a process for overhauling the tax code and costly federal benefit programs. “There are plenty ways out of this mess. But there is very little time.” “We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, bills like Social Security checks, veterans’ benefits and contracts we’ve signed with thousands of American businesses,” Obama said. The president also offered praise for congressional Democrats and some Senate Republicans who “have been listening and have shown themselves willing to make compromises to solve this crisis.” He singled out House Republicans in calling on all lawmakers to show “the same kind of responsibility that the American people show every day” by paying their bills and keeping their houses in order. “The time for putting party first is over,” Obama said. “The time for compromise on behalf of the American people is now.

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Andrew Fieldhouse: It’s Still the Economy, Congress, Not the Concocted Debt Ceiling Crisis

July 29, 2011

Today we learned that the U.S. economic downturn has been much more severe than previously understood and the economy is growing much too slowly to keep unemployment from rising. The economic downturn was 24% deeper than previously assumed, and actual economic output currently stands a staggering $882 billion (5.6%) below potential. The anemic recovery has been losing steam for months, explaining the sharp deceleration in employment growth in May and June. As the U.S. Congress frantically debates an eleventh hour resolution to an artificial crisis of epic proportions, the real crisis in the labor market goes tragically ignored — and it is about to be amplified by bad policy choices. Unfortunately, the only conceivable debt ceiling compromises will further slow economic growth and exacerbate the unyielding crisis in the labor market. Today’s depressing GDP numbers should serve as a clarion call to refocus Washington’s attention to jobs and the economy. A month ago, it seemed possible, albeit unlikely, that a little more incremental economic support might be included to grease the wheels of a deficit reduction package, which has been forced onto the traditionally pro forma vote to increase the debt ceiling. Last December’s tax cut and unemployment extension compromise had even set a precedent for such an outcome: the deal reduced payroll tax rates by two percentage points on the employee side and continued emergency unemployment insurance through 2011 in exchange for extending the Bush-era tax cuts for the top 2% of earners. Despite clear warning signs that the recovery is faltering and job gains are decelerating, no stimulus has been enacted since. In a primetime speech on the debt ceiling impasse on July 25, President Obama explicitly endorsed extending the payroll tax cut for working families — the only extra economic support seriously discussed this Congress. The president and Congress should seek more support for the economy, but the payroll tax cut is an inefficient and inequitable means to this end. A better way to create jobs would be to replace the payroll tax cut with a targeted tax rebate , similar to the one signed into law by President Bush in 2008. (Back then, the unemployment rate rising to 5.0% was enough to prompt $115 billion in tax stimulus.) Targeted tax rebates would do more to alleviate poverty than a payroll tax cut extension and end Social Security’s politically risky dependence on general revenue, but it would also generate roughly 12% more economic activity and jobs per dollar. At first blush this may seem trivial, but look at it this way: If Congress had passed the more efficient, targeted tax rebate instead of the payroll tax cut, we would be seeing roughly an additional 10,000 job gains a month — a 55% increase relative to the dismal 18,000 jobs created in June. A targeted tax rebate is far too small to abate the unemployment crisis, but this would be a step in the right direction — the first since December despite a steady stream of alarming economic data. Squeezing any additional economic support out of the federal budget — the most direct policy lever for increasing employment — has become a grueling exercise for those of us still fixated on the real economic challenge. While deficit-financed direct infrastructure investment and more state fiscal relief would certainly be far superior job creation policies to be complemented with additional tax stimulus, the national political conversation has strayed depressingly far from rational policymaking. Why? Washington is instead focused on reducing government spending. And let’s be clear, this partisan stalemate is not about the deficit — if it were, House Republican leaders would not have walked away from negotiations — not once, but three times — over drawing slightly more tax revenue out of our antiquated system of deductions and preferences. This is about an ideological war on government’s expenditure and role in society. To that end, conservatives have argued that spending cuts will actually help the economic recovery — an assertion that private-sector forecasters find laughable . Between high unemployment and historically low interest rates (the result of anemic private-sector demand and Federal Reserve policy actions), there is zero scope for expansionary fiscal contraction. Indeed, the deep, near-term discretionary spending cuts in both the House and Senate debt ceiling plans will further undermine the faltering economic recovery. Even if this were about the deficit, there is only one mechanism by which long-term deficit reduction will help the economic recovery: lower interest rates, thereby crowding-in private-sector investment. (As Paul Krugman repeatedly points out, there is no confidence fairy to magically lead our way onward to recovery.) There is no evidence of government crowding out private-sector borrowing, which makes sense because our economic woes stem from inadequate demand and abundance of unemployed labor and unused industrial capacity. If this charade was meant to lower interest rates and convince the bond market that Washington’s leaders are truly serious about addressing long-term fiscal imbalances, things could hardly have gone worse. Writing in yesterday’s Washington Post , Mohamed El-Erian, CEO of PIMCO, warned that any benefits from long-term deficit reduction would be completely offset by how it was achieved, even if the United States avoids both a default and a credit rating downgrade. (Of course, the House Republican debt ceiling plan reportedly still risks a credit downgrade because it forces a repeat of this brinksmanship half a year from now.) So what will Congress have accomplished through this debacle? Higher interest rates, a credit rating on review, lower employment, and public furor. Best case scenario: we will avoid an unnecessary credit downgrade, default, and financial crisis. Our national politics have become mind-bogglingly asinine; almost as insulting has been the deliberate effort to unlearn every Keynesian lesson from the Great Depression. It’s still the economy, Congress — not the concocted, phony debt crisis. Boosting the economy is not at odds with responsible long-term deficit reduction; indeed deficit reduction of any sort will be immensely difficult if economic output remains nearly a trillion dollars below potential and the recovery continues decelerating. We have the policy tools to restore full employment; we have the ability to service our debts and meet our obligations; we just lack the political will to prioritize policies for economic recovery and instead hope the economy somehow magically recovers all by itself.

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American Children Receiving Less Money From Tooth Fairy: Report

July 28, 2011

It looks like American businesses aren’t the only ones hoarding cash these days. According to a survey recently released by Visa , so is the fabled Tooth Fairy. Last year, children who left teeth under their pillow received an average of $3 per tooth, according to the report. This year, in comparison, that amount plunged to $2.60. The total number of kids getting swindled by the winged home invader has also drastically increased. This year, 5 in 50 received no compensation for their missing teeth. Compare that to last year, when only 2 in 50 were passed over. The Tooth Fairy also seems to handing out varying amounts according to region. The further west one goes, the higher the rate of return kids are receiving for their dentures, with Northeast kids getting, on average, $2.10 a tooth, while their West and Midwestern counterparts are receiving $2.80. Melissa Hourigan of Denver didn’t know what to do for her 9-year-old when the Tooth Fairy failed to show, the Denver Post reports . Instead, she and her husband purchased a target card for their daughter “because we felt bad and wanted to do something,” Hourigan said. The below video shows how some parents justify ripping off their kids:

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Breakup Of Mega-Banks May Now Be A Feasible Option

July 27, 2011

What was made can be unmade. JPMorgan Chase and Wells Fargo may have venerable names, but they and the pseudo-venerable Citigroup and Bank of America are all products of countless mergers and agglomerations. There is no rule of markets that requires a financial system dominated by four cobbled-together, lumbering behemoths.

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State Borrowing Billions To Stave Off Debt Crisis

July 26, 2011

SACRAMENTO, Calif. — California borrowed $5.4 billion from private investors Tuesday as a hedge against a possible default by the federal government. State Treasurer Bill Lockyer secured the package of short-term loans from a group of banks, credit unions and investment funds so the state can avoid a potential cash shortage if the federal government fails to extend its debt ceiling. If that happens, the government could shortchange states on health care and education funding. The treasurer said he took the step as a precaution if the federal government can’t meet all its obligations. “California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse by the Aug. 2 deadline,” Lockyer, a Democrat, said in a statement. “I’m hopeful Congress and the president will do the responsible thing, solve the problem before it’s too late, and not risk pushing the country into a financial and economic abyss.” California typically borrows money in the late summer to pay operating expenses until most income tax receipts arrive in the spring. Lockyer secured the so-called bridge loan because it’s unclear whether California would be able to borrow that much money if the credit markets are thrown into turmoil. Democrats and Republicans in Washington are clashing over plans to slash spending and raise the debt ceiling ahead of the Aug. 2 deadline – the day the White House said the federal government will exhaust its ability to borrow and meet all its obligations. That could force the federal government to default on loan obligations or prioritize payments to conserve cash and avoid a default. Payments could be halted to states for Medicare, Medicaid and some public school programs. Medicaid, the federal-state health program for low-income families, is known in California as Medi-Cal. Medicare is the health insurance program for seniors and the disabled. California received loans from eight banks and private investment firms. Goldman Sachs and Wells Fargo & Co. provided the largest amounts, at more than $1.4 billion each. The state, which currently has the lowest credit rating among the 50 states at A-, plans to repay the loans later this summer through routine borrowing notes to be issued in late August. Lockyer appeared to obtain a good interest rate based on the state changing the way it calculates how much money it has in reserve this year. The treasurer’s office said the yield on the notes is 0.237 percent, compared with 1.4 percent the state paid for short-term borrowing in 2010. The latest notes mature on Nov. 22, but the state could pay them off ahead of time. The treasurer also warned that a default would trigger a downgrade of the federal government’s triple-A bond rating. It would not only raise interest rates but negatively affect state and local government borrowing costs because some states’ rates are linked to Treasury rates. “The ripple effects on state and local finance for the whole country are very substantial,” Lockyer said earlier this month.

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Intra-GOP Wars Obstruct Path To Solution in Contentious Debate

July 22, 2011

WASHINGTON — What if they yield, even a little? Call it GOP Primary Fear. A major hurdle to breaking the federal debt-ceiling impasse is the worry by House Republicans that they will invite primary election challenges from the right if they give ground to Democrats on the issue of higher tax revenues. There’s even a verb for it: being “primaried.” The challenger would not be a Democrat. It would be a fellow Republican, in a spring or summer primary that most voters would ignore. That could leave the field mainly to ideological die-hards, often with tea party ties and little appetite for compromise. It’s the atmosphere that many House freshmen rode to victory last year, and that cost two GOP senators their party’s nomination. “They talk about it all the time,” said Mike McKenna, a Republican lobbyist who closely follows the House and politics. If the House cuts a deficit-reduction deal with President Barack Obama, he said, “you’re probably going to see a lot of leadership guys get primaried,” along with rank-and-file Republicans. “It could be an all-time high.” Such worries are a key reason the GOP-controlled House has refused so far to accept Obama’s debt-and-deficit overture, even though it includes concessions that many people never expected from a Democrat. It would cut spending by $3 trillion over 10 years, and slowly start to trim Social Security and Medicare benefits. But to get a package through the Democratic-controlled Senate, the deal also must include some version of revenue hikes, aimed mainly at the wealthy and generating up to $1 trillion over a decade. That’s the needle House Speaker John Boehner is trying to thread. He must persuade enough fellow Republicans to give just enough on higher revenues, or “tax hikes” – there will be a fierce fight, too, over definitions – to keep Senate Democrats from filibustering the bill to death. He also must reassure colleagues that they could survive primary challenges. Obama confronted the issue Friday, at a forum in Maryland. Many House districts, he said, are drawn to be “so solidly Republican or so solidly Democrat that a lot of Republicans in the House of Representatives, they’re not worried about losing to a Democrat. They’re worried about somebody on the right running against them because they compromised. So even if their instinct is to compromise, their instinct of self-preservation is stronger. And they say to themselves, `I don’t want a primary challenge.’ So that leads them to dig in.” Nearly all of Congress’ Republicans have pledged not to raise taxes, although lawmakers quibble about what that means. Many tea partyers say it bars any action that would lead directly to a net increase in tax revenues. The Senate is almost certain to reject that definition. Tea party activist Lee Bellinger recently urged colleagues to put lawmakers on notice “before the disease of Republican compromise infects Washington once again.” As early as mid-April, Tea Party Patriots co-founder Mark Meckler told The Hill newspaper he was “getting emails by the hour from people talking about primary challenges” to Republicans who seek budget deals with Democrats. Rutgers University political scientist Ross Baker said Republican primaries are dominated by “the most ideological voters.” These party members, he said, “track votes and are unforgiving.” GOP pollster and consultant Wes Anderson said, “If we pass some deal that includes some form of tax increases_ even if we try really hard to couch it in `tax reform, closing loopholes,’ etc. – there are going to be a number of our folks, especially freshmen, who will face primaries. It’s just going to happen.” Anderson said Boehner’s top staffer is counting votes every day, asking “what kind of deal can we get without losing too many?” For Boehner, it’s not a question of reaching the minimum 218 votes needed to pass a bill in the House (or 217, given the two current vacant seats). If Obama endorses a compromise, it probably will draw scores of House Democrats’ votes. That would allow Boehner to lose 100 or so of his 240 Republicans, and still pass the measure. But if Boehner wants to remain speaker, he can hardly afford a bigger defection than that. He needs to find the political sweet spot, a compromise that can win the votes of 140 or so House Republicans and most of the Senate’s Democrats. McKenna estimates that about 40 pro-Boehner House Republicans are politically safe enough to vote for a compromise with no worries. Beyond that, he said, “80, 90, 100 are probably going to vote `yes’ on whatever comes out. And they will be exposed.” ___ Associated Press writer Jim Kuhnhenn contributed to this report.

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Debt Ceiling Crisis Threatens States

July 22, 2011

ANNAPOLIS, Md. — Virginia’s governor is livid that his famously tight-fisted state could face higher borrowing costs to build roads and schools. Maryland has put off a $718 million bond sale for three days because of the current financial uncertainty. And California plans to borrow about $5 billion from private investors next week to ensure it can cover day-to-day operating expenses should the federal government default on its debt. As President Barack Obama and congressional leaders struggle to reach a debt-limit deal, state government leaders are bracing for the impact on their budgets and economies of a threatened Aug. 2 federal government default. This week, Moody’s Investors Service warned that it probably will lower the credit rating on five states if it downgrades the U.S. government’s credit rating. The firm concluded that Maryland, Virginia, South Carolina, Tennessee and New Mexico would be most at risk. “I’m very unhappy. In fact, we’re furious,” said Virginia Gov. Bob McDonnell. The Republican pointed out that the state’s triple-A credit rating has been in place since 1938, and that it potentially could be lowered through no fault of the state’s. While state officials said the actual cost of a downgrade won’t break the bank, they’re not happy about the possibility of paying higher borrowing costs after years of budget cuts. They also worry about the economic impact of federal employees potentially not getting paid, or the government not going ahead with contracts or being able to make Medicaid payments. “The problem is because it hasn’t happened before, it’s very hard to get a handle on what exactly the impact will be, and that lack of experience and clarity itself is very disturbing,” Maryland Treasurer Nancy Kopp said. Local officials are concerned too, and the looming crisis will be high on the list of topics when dozens of mayors meet in Los Angeles on Friday at the U.S. Conference of Mayors. “We just feel like we’re doing everything we can to get our financial house in order and yet macro forces in Washington primarily are causing us to basically spin our wheels, because even our best efforts are being undermined by indecision and uncertainty,” said Mayor Scott Smith, of Mesa, Ariz. Moody’s has said there is a small but rising risk that the federal government will default on its debt, prompting the firm to place the U.S. government’s triple-A credit rating under review. A U.S. rating downgrade would have a ripple effect on states. Moody’s said any action on the states’ ratings would come within 10 days. Virginia’s and Maryland’s top credit ratings are at risk because they are home to large numbers of federal employees and their economies are tied to a lot of government contracts. The other states were placed under review for one or two of these factors, as well as high Medicaid spending and debt tied to variable interest rates. Tennessee Gov. Bill Haslam, a Republican, said he wasn’t too worried because he believes his state is in strong shape financially. “But that impact on our debt would cause some increased interest costs,” he added. “So we’re concerned about it, but not overly because of the financial condition we’re in.” Other governors expressed outrage this week at the failure to reach a compromise in Washington. Talks are focused on a deal to allow the Treasury department to raise the debt ceiling in exchange for spending cuts and possibly tax increases. “The bigger truth here is that no state is an island,” Maryland Gov. Martin O’Malley, who is chairman of the Democratic Governors Association, said in a recent interview. “We’re all part of the same country, and if we allow extremists in the Republican Party to drive the wealthiest country on the planet into a default on debt that’s already incurred, then shame on us. There’s no reason for this, and there’s no state that will be shielded from this effect.” South Carolina Gov. Nikki Haley, a Republican, blamed the president. “President Obama needs to lead – it’s time for him to work with Congress to pass real, long-term spending cuts, and let our economy get moving,” Haley said Wednesday. Top ratings are gold standards for states when they issue bonds for everything from building roads and schools to, in South Carolina’s case, industrial facilities such as the one Boeing Co. is using to assemble jets. That top rating saves South Carolina some money when it borrows, but the number is not huge. The difference between the cost to borrow money for a top-rated state and one a notch below is small – about 0.15 percent now. That would add about $75,000 to the annual interest payment tab on $50 million in bonds, or slightly more than $1 million over 15 years. Moody’s biggest concern in South Carolina was federal Medicaid payments. A reduction in those payments would blow a hole in South Carolina’s budget. The state had a 10 percent unemployment rate in May, and has a poverty rate of 17 percent. The combination means about one in five South Carolina residents gets Medicaid benefits. Linda Robinson, a 55-year-old health care worker in Columbia, S.C., worries that her patients will lose Medicaid benefits. “They won’t get proper care, that’s my concern,” she said at a local Medicaid office Thursday. “Then they’ll be shutting us down and health care workers will be out of work themselves.” In Virginia, a downgrade from the triple-A rating would be more a blow to the state’s proud reputation for sound fiscal management than to its actual finances, said Manju Ganeriwala, the state treasurer. “We’ve cut and we’ve budgeted conservatively, and to possibly have our bond rating downgraded for the first time?” she said. Still, Ganeriwala said a downgrade would have little effect on the state’s borrowing capacity or even the cost of borrowing given low interest rates. In New Mexico, a downgrade by Moody’s should have no immediate effect, according to finance officials there. New Mexico, like Maryland, only uses general obligation bonds to finance certain capital projects, and it doesn’t use bonds to pay for any government operations. Maryland’s Kopp said it’s hard to say how much a downgrade would cost Maryland in savings from getting the best possible borrowing rates, because it depends on how tight the market is. O’Malley said that if governments have to undertake fewer important projects, “it’s a real blow to the jobs recovery.” But state officials are mindful of other potential impacts, too. Kopp wonders how default would affect federal funding for Medicaid, the state-federal program that provides health insurance for the poorest Americans. “What happens when the hospitals don’t get all of their funds to them? So there’s that aspect of it, too,” Kopp said. Federal workers can also expect to feel a pinch. “If there is a default or they don’t reach an agreement, we’re in jeopardy of not being paid,” said John Gage, president of the American Federation of Government Employees. “If they do reach an agreement, we are going to take some very substantial hits to our pay, our retirement and possibly even our health benefits, and it is a morale disaster, I think, for federal workers and government workers all across the country.” Also sweating the outcome are states that borrow to pay operating costs. In California, the state typically borrows money in late summer to pay operating expenses until most income tax receipts arrive in the spring. But State Treasurer Bill Lockyer said Thursday he is seeking bids next week on $5 billion in private loans to help the state avoid a cash shortage in case the impasse in Washington isn’t broken. The treasurer’s office is taking the precaution because it’s unclear whether California would be able to borrow that much money if global credit markets are thrown into turmoil. ___ Contributing to this report were Associated Press writers Bob Lewis in Richmond, Va.; Jim Davenport in Columbia, S.C.; Barry Massey in Santa Fe, N.M.; Lucas L. Johnson in Franklin, Tenn.; and Judy Lin in Sacramento, Calif.

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Robert Kuttner: The End Game: Saving Obama From Himself

July 18, 2011

As the debt doomsday of August 2 draws closer, what sort of end-game can we imagine? The worst scenario would be for an outbreak of common sense and self-interest to overtake the extremism of the House Republican caucus. If the Republicans were to accept Obama’s proffered deal, they would weaken Security and Medicare — and put the Democrats’ fingerprints on the deed — depriving Democrats of their traditional defense of America’s best loved social programs. They would also get a ten-year deficit-reduction agreement that is mostly program cuts. And they would get an austerity package that guarantees high unemployment as Obama heads into a difficult re-election. And a Democratic president is offering this deal! The Republicans would also get to savor the spectacle of a badly divided Democratic Party, as the White House twists arms of unwilling House and Senate Democrats to vote for a right-wing package. It’s quite a drama. Who will save us from a perverse approach to deficit reduction that is bad economics and worse politics — the unreality of the Republicans, or the principled resistance of rank and file Democrats? Obama and his advisers, weirdly, believe that his stance as “the only grownup in the room” who forces his own party to abandon its core principles for the sake of an austerity program will somehow win the gratitude of voters struggling with declining incomes and rising joblessness. The unemployment may be stuck near ten percent, but good old Obama brokered a deal to balance the budget in 2021. So re-elect this man. On which planet is this? A better scenario would be for Sen. Mitch McConnell to prevail among Republicans, with his idea to allow Obama to raise the debt ceiling unilaterally and then to keep negotiating a long-term budget deal along a parallel track. That would spare the country both a default on the debt and an awful ten-year budget agreement. But this offer seemed almost too good to be true, and it is. There are a few mickeys in the deal now being negotiated by McConnell and Senate Democratic leader Harry Reid. In one version, Obama would have to keep coming back to Congress to get approval to increase the debt, a little bit at a time between now and the end of his presidential term. And Obama would have to match debt increases with $1.7 trillion in budget cuts. In another variation, the deal would create a deficit-reduction commission that could send a budget-cut plan straight to the House and Senate floor for an up or down vote. In the game of chicken that the Republicans are playing with Obama, the president has a couple of big things going for him. One is reality. There actually will be dire consequences if the United States defaults on its debt. It is one thing for right-wing Republicans to deny Darwin, or sexual orientation, or even climate change, where the consequences can be fuzzed up via junk science and the impact of science-denial is diffused or delayed. It is quite another to deny the reality of an event scheduled to happen in a couple of weeks. That actually might backfire on you politically. A second presidential advantage is that the nation’s most powerful corporate executives, normally the allies of Republicans, have been imploring the GOP to stop playing these games. McConnell blinked first after dozens of CEO’s emerged from a White House session to meet with Republican leaders and request them to stop fooling around with the nation’s solvency, and nearly 500 signed a letter demanding action. But the big disadvantage is the president’s own penchant to be the Conciliator-in-Chief. When the opposition party has lost all sense of reason, a leader has a duty to say so, and not to keep splitting the difference. The stakes are so high that Obama can probably win this one without giving away the store. As the deadline comes closer, the Republicans will have to shift ground. The question is whether he will needlessly give up much of Social Security, Medicare, and the resources he needs to pull the country out of recession, along the way. As often has been the case, Obama’s lack of spine puts his own party in a difficult spot. So far, the Democrats’ Congressional leadership, from Reid and Pelosi on down, have done a courageous job of saying to Obama: No Social Security and Medicare cuts, no way. But if the Republicans suddenly agree to a deal and Obama tells the Democrats that his presidency and the country’s solvency are on the line, what will they do then? If 2012 is not to be a blowout, Congressional Democrats and base progressive organizations will need to be even firmer with their president. At times, the labor leadership has warned the White House that failure to deliver a jobs program and a cave-in on Social Security and Medicare will mean rank and file activists campaigning for Democratic House and Senate candidates but not going all out for Obama. That message — from all of the progressive forces that helped elect Obama — needs to be even more pointed. We need to get this budget fight behind us, so that the President and other Democrats can begin talking seriously about jobs, economic recovery, and saving the middle class. The more fiscal resources Obama gives away as part of a budget deal, the harder that shift will be. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His most recent book is A Presidency in Peril.

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iPhone Customers Gear Up For Class Action Suit Against Apple

July 16, 2011

SEOUL, South Korea — A South Korean lawyer who is an avid user of the iPhone is waging a privacy battle against Apple Inc. over the device’s tracking capabilities. Kim Hyeong-seok said Friday he has gotten at least 16,000 people in South Korea to join him in a class-action lawsuit he plans to file against the company in a Seoul court in early August. The 36-year-old international trade and business attorney has already gotten Apple’s Korean unit to pay him 1 million won ($945) over a lawsuit he took to a regional South Korean court in April. His complaint was that the iPhone’s tracking of users’ locations violated South Korea’s constitutional right to privacy and also caused him “mental stress.” That hasn’t stopped him from continuing to use his iPhone 4 as well as an iPad. “I like Apple,” Kim said in a phone interview from his office in the city of Changwon, located about 240 miles (380 kilometers) southeast of Seoul. In fact, Kim says he is afflicted with “Apple mania.” But he adds his legal fight is about “right or wrong.” Apple spokesman Steve Park in Seoul could not immediately be reached for comment. Kim said that he plans to file the class-action lawsuit in Seoul sometime during the first three days of August and that the targets will be both Apple Korea as well as Cupertino, California-based Apple Inc. The suit will seek 1 million won in damages for each participant, he said. Kim’s fight comes as the iPhone has shaken up the South Korean mobile phone market since it went on sale in November 2009. The phone has unleashed a smartphone war and prompted local companies Samsung Electronics Co. and LG Electronics Inc. to raise their games. Samsung has challenged the iPhone with its Galaxy line of Android-based smartphones while LG has been pushing its Optimus line. Kim began his legal fight in April after reading that iPhones could store data which could potentially be used to track the movements of users. He filed a lawsuit in the local Changwon District Court seeking damages. Kim said the court ruled in his favor in May and awarded him the monetary damage he sought. The company did not contest the ruling and Apple Korea paid the money on June 27, Kim said. A Changwon District Court spokesman confirmed the ruling and payment. Kim said he believes the payment was the first Apple has made anywhere in the world regarding the tracking issue, which surfaced in April. South Korea’s Yonhap news agency reported it was the first in South Korea. Apple admitted that iPhones were storing the locations of nearby cellphone towers and Wi-Fi hot spots for up to a year. Such data can be used to create a rough map of the device owner’s movements. Apple also faces another legal challenge in South Korea. A total of 29 iPhone users filed a class-action lawsuit over the tracking issue in late April, Yonhap news agency reported. __ Associated Press writer May Cho contributed to this report.

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Illegal Cash-Back Deals Worsened The Housing Bubble: Report

July 15, 2011

It’s a tactic that’s been in use for years : Sell a house to someone at an inflated price, but offer the buyer an incentive to take it — like a few thousand dollars in cash back. This maneuver puts extra money in the homeowner’s pocket. But it can make her more likely to experience foreclosure down the line, according to a new report. And because it involves buyers and sellers transferring money without informing the lender — and exposing the lender to risk they don’t know about — it’s also a form of mortgage fraud, and therefore illegal. In a study recently published in American Economic Journal: Applied Economics , Itzhak Ben-David, an assistant professor of finance at Ohio State University’s Fisher College of Business, offers a thorough look at how inflated housing prices and cash-back incentives took a toll on homeowners in Illinois’s Cook County, which includes Chicago. Ben-David examined more than 700,000 home sales in Cook County, spanning January 1995 to April 2008. He zeroed in on suggestive language in the real estate listings — like “Let’s talk about cash back at closing!!!”; “$10,000 back with full price”; and “Free car with full price” — that indicated price inflation was taking place. What he found was that these deals represented between 2.9 and 4.4 percent of all the transactions in that 13-year period — although in the years between 2005 and 2008, they might have accounted for as many as 6.1 percent. Residents of Arizona, Florida, and California, where cash-back deals were common during the height of the housing bubble, might not be surprised to learn how prevalent this practice was in Cook County. In 2007, a broker at a Phoenix realty company predicted to The Arizona Republic that cash-back deals “will hurt everyone in the industry and the housing market.” The same year, San Diego Magazine reported on the increasing incidence of cash-back deals in California — and in the country at large. And a few months later, The Palm Beach Post reported that so-called “cash back at closing” deals were “going on in every neighborhood in Palm Beach County,” in the words of one local detective . In Cook County, the deals didn’t work out so well for homeowners. Ben-David found that among highly leveraged borrowers — those who’d borrowed more than 80 percent of the home price — foreclosure rates were between 0.6 and 3.9 percent higher during the first year for borrowers who’d agreed to an inflated price. Such transactions may have had a ripple effect into other home sales. A report from the Government Accountability Office, released Wednesday, noted that one of the most common methods home appraisers use to determine the value of a house — the so-called “sales comparison approach,” in which a value is set based on the prices that other, similar properties have recently sold for — is sometimes susceptible to a feedback effect. The GAO report states : One criticism of the sales comparison approach is that it may perpetuate price trends in overheated (or depressed) markets. For example, the use of comparable sales with inflated sales prices (driven up by factors that increase consumer demand, such as expanded credit availability) can lead to progressively higher market valuations for other properties, which in turn become comparables for future sales transactions. This echoes a point Ben-David made about the collateral effects of cash-back deals in a press release accompanying his study. “These inflated price transactions increased the general level of prices in the neighborhood,” Ben-David said, “so that, after the boom, when houses returned to their original values, the crash was more severe.”

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Italy Crisis, Ireland Downgrade Intensify Euro Nightmare

July 12, 2011

The European debt crisis is escalating. Investors’ fears that financial strain in Greece might spread to other nations garnered potent confirmation Monday and Tuesday, as interest rates on Italian government debt skyrocketed and bank stocks in Italy plunged. The loci of concern span the continent, from Greece, Spain and Portugal to Ireland , whose debt was downgraded to junk status Tuesday by Moody’s Investors Service, calling into question that nation’s ability to financially survive on its own. A crisis that began in the Mediterranean has become Europe’s problem, and it risks becoming the world’s. Markets the world over are riveted by developments among the countries that share the euro, which appear only to be weakening. Policymakers are scrambling to craft a fix, but financial players and economists fear governments will not be able to do enough to stem the contagion. While it remains a remote prospect in the estimation of economists, the probability of an Italian default is nonetheless growing as mounting anxiety in markets translates into steep borrowing costs for Italy’s government. The euro zone’s third largest economy, Italy is potentially too large to be rescued with the European Union’s current arsenal of tools, Reuters reports . In the absence of a definite policy response, concerns are intensifying that the euro zone crisis could send punishing shockwaves throughout the world’s financial system. “We’ve moved to a much more systemic situation where Italy is now the big elephant in the room,” said Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Group in London. “Given the size of the market, the policy response that is in place is not sufficient at all to address concern that may arise about the solvency of the country.” Italy’s fresh woes are driven by market forces, said International Monetary Fund head Christine Lagarde during a press briefing this week. Interest rates in 10-year Italian government debt shot above 5.5 percent Monday, and the difference between those rates and the yields on German government bonds widened to 3 percentage points, according to Bloomberg data . That spread, which indicates that Italian debt is seen as especially risky, was the largest in the history of the euro . Stock markets around the world fell Monday, and lost more ground Tuesday. The Standard & Poor’s 500 index dropped 1 percent at Monday’s open and kept falling, closing Monday at 1.8 percent below Friday’s close. The index fell further Tuesday, to close 2.2 percent below Friday’s closing value. Before news of Ireland’s downgrade came across the wires, it looked as if stocks might enjoy a small recovery. The MSCI All-Country World Index climbed slightly on Tuesday, after earlier falling as much as 1.4 percent, Bloomberg News reports . Mounting anxiety about the euro nations poses further challenges for European leaders, who are still in the process of crafting a rescue plan for Greece. That nation has staved off default thanks to continuing life support from its stronger peers, and European officials are planning further steps to help the country manage its crippling burden of debt. But the longer action is delayed, experts say, the worse the crisis could become. Ireland’s downgrade comes on the heels of last week’s announcement that Moody’s docked Portugal to junk status. Greece last month received the lowest credit rating in the world from Standard & Poor’s. If the IMF and the nations that share the euro do not craft a rescue plan for Greece in the coming days, financial markets risk “spinning out of control,” the bank lobbyist group Institute of International Finance said in a paper, according to Reuters . A firm plan for Greece could shield Italy and avert a broad disaster, experts say. But a Greek default in some form may be inevitable — and might be the only way to relieve Greece’s debt burden, European finance ministers said Tuesday, according to Reuters . Any plan involving default could spark unforeseen consequences, as the rating of Greek debt, which many European banks hold on their balance sheets, would likely be downgraded even further. Italy, with Europe’s largest bond market, is a potentially much larger domino than Greece. Its outstanding debt reached 1.8 trillion euros at the end of December, Bloomberg News notes. Greece, for its part, has about 340 euros of debt outstanding, according to Reuters . The debts of both nations run well above the levels of their economies’ respective outputs. The fallout from a sovereign default could touch the world’s strongest economies. The United Kingdom’s central bank released a report last month quantifying the indirect vulnerability of British banks to various European economies, arguing that the risks stemmed not merely from direct exposure to a defaulting nation’s debt, but also from exposure to other banks and financial institutions that hold that debt. Mervyn King, governor of the Bank of England, said the scale of this risk cannot be measured, calling it an “infinite regress.” A crisis could be worsened, moreover, by a panic that would affect a range of assets, economists said. The IMF’s Lagarde called for Italy to ramp up its program of fiscal austerity as borrowing costs rose, but some experts say a domestic Italian policy response won’t be enough to stem the crisis. “The way the debate is being conducted domestically is clearly not up to the challenges that the market situation is currently imposing,” said Peruzzo, the RBS economist, who himself is Italian. A sustainable solution, he added, might require some euro zone countries to give up some of their fiscal sovereignty. “When the market action binds and pushes policy makers to the wall, they will take actions,” he said. “The only way out is probably converging towards more fiscal integration.”

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Gordon Brown: Why Europe Slept

July 12, 2011

When the history of the 21st century is written, people will rightly ask why it was that Europe was found wanting during its most intractable economic crisis. They will ask why Europe slept as an undercapitalized banking system floundered, unemployment remained unacceptably high, and the continent’s growth and competitiveness plummeted. Worse still, if a reconstruction plan does not come soon, Europe’s leaders will be charged with “the decline of the West” and then face accusations for being, in the words of Churchill about the 1930s, “resolved to be irresolute, adamant for drift, solid for fluidity and all-powerful for impotence.” There is, of course, no shortage of European meetings. Hardly a day goes by without a summit of European leaders discussing the latest crisis facing a member state. But each time they talk as though they are dealing with a calamity confined to the nation in the headlines — the Greek problem, or the Irish problem, sometimes the Portuguese or the Spanish problem — without an agreement on the true nature of the emergency, which is pan-European. By wrongly analyzing Europe’s woes, they end up implementing the wrong remedies too. For Europe’s deficit crisis is a real concern but just one of its concerns. Europe has in fact three deep-rooted problems, each of which is entwined with the other, and each of which reaches systemically into every corner of the continent. Alongside the deficit problem is also a banking problem — not confined to a handful of banks or countries — and a chronic growth problem. First, banks: I was present in Paris in October 2008 at the first meeting ever held of the euro zone heads of government. The diagnosis of the banks I presented was of problems of liquidity but also of structure. But most in Europe at the time believed they were dealing only with the indirect consequences, the fallout, from an Anglo-Saxon financial crisis, and of course thought that a wayward Britain had allowed itself to be locked into the American financial boom. They did not then know that HALF the sub-prime assets had been bought by banks across Europe. No one had yet fully appreciated the depth of the entanglements between European banks and other global financial institutions, or how big the banks’ exposure to falling property markets was. I remember the shocked looks which passed along the table when I argued that European banks were even more vulnerable than American banks because they were far more highly leveraged — and indeed still are. And even now a fundamental truth about the current state of European banks remains unspoken: that German, French, Italian and British banks who have lent recklessly to the periphery are owed billions not just by the Greeks but by the Irish, Portuguese and Spanish, and have losses still to take from toxic assets and the real estate collapse. And when, years from now, people explain why Europe slept, they will also explain how, out of short-sighted self-interest, we treated the Greeks’ problems as if they were ones of liquidity (addressed by giving loans), not solvency, and how by short-term maneuvers to delay the necessary denouement, we maximized the risk of a disorderly end-game. Indeed, with interest rates on the rise, capital outflows from all the periphery countries to the core are already making funding more difficult in each troubled country, dragging us into even higher interest rates, longer recessions and, possibly, higher deficits. The third side of the triangle is, of course, low growth itself, which threatens to condemn the whole continent to a decade of high unemployment. The deficit reduction and bank stabilization we need to see cannot become entrenched without economies which generate trade, jobs and growth. Yet, suffering from anemic levels of growth, Europe is slipping further and further down the world league — not acutely but chronically, which is more serious and much harder to reverse. Today European unemployment is stuck around 10 percent with youth unemployment rising above 20 percent and as high as 40 percent in Spain. And it cannot come down fast. Europe now has a trend rate of growth which is almost one-half that of the USA and one-quarter that of China and India. Once, Europe represented half the output of the world. By 1980 this had fallen to one-quarter. Now it is less than one-fifth — just 19 percent. Soon it will be little more than a tenth — 11 percent by 2030 — and then it will fall to 7 percent. By 2050 — less than four decades from now — the European economy could be smaller than that of Latin America. If European growth continues to run so far behind its competitors, then by mid-century it may be as small as Africa’s. Yet Europe is only half as well equipped as America to export our way to growth. Despite Germany’s success in China, only 8 percent of our exports (in contrast to America’s 15 percent) go to the eight fastest-emerging market economies, what are now called the growth generators, who will account for the majority of future growth. It is clear that each of these three concerns — deficits, banking instability and low growth — is interwoven with the other in a way that makes policies designed to focus on only one issue much less effective than a comprehensive strategy aimed at simultaneously resolving all three. And a pan-European strategy is all the more necessary because the euro was constructed without any mechanisms for averting or resolving crises — and with no agreement on who is ultimately responsible for financing crisis costs. While a strong and passionate pro-European, I stood out from conventional economic opinion in doubting whether Britain’s best interests lay in joining the euro. The UK Shadow Chancellor Ed Balls led 19 separate assessments of the euro. Our major finding was that inside the euro there was insufficient flexibility to achieve sustainable and durable convergence between nations. But we also demonstrated that the euro had no crisis prevention or crisis resolution plan in the event of convergence not being achieved. For under a single currency no nation — even one completely uncompetitive with the rest of the euro zone — can adjust its exchange rate, or benefit from an interest rate tailored to their specific needs. But nor had Europe adopted the U.S. crisis-prevention model for damping down disparities in a single currency area — by labor mobility and wage adjustments, or by transfers to areas of need. So, if I am right, we must now exchange panic-driven responses for a long-term reconstruction, or we will face a lost decade of high unemployment with social discontent, anti-immigrant feeling and secessionist movements. We must now achieve for Europe the same “moment of truth” that the world found with the pivotal G20 summit in 2009. As happened with the G20, Europe’s politicians should lead market sentiment by boldly and simultaneously agreeing to a Brady-bond-style solution for Greece and a European bank recapitalization; a new Euro area debt facility (responsible for, say, the first 60 percent of each country’s debt) as part of a coordinated fiscal and monetary policy that permits, like the U.S., fiscal transfers; and, above all, a pro-growth, pro-enterprise strategy I call GLOBAL EUROPE: Europe’s energies redirected outwards to exporting to the emerging economies, and re-equipping ourselves to do so with a clear timetable for — and inbuilt incentives and penalties to guarantee — labor, capital and financial market flexibilities. Why would Germany support this? Because far from being against their interests, they now have a European reason to restructure their banks; can set tough terms on economic reform; and, by acting now, they avoid far bigger costs later. Indeed, I would argue that without my concurrent plan to restructure Europe’s banks and insurance companies and to go for growth, the status quo or even a Brady plan for Greece still risk Europe-wide financial contagion. History books about the “decline of the West” are not inevitable. But only a reconstruction that attacks deficits, banking liabilities and low growth together will avoid the deadening grip of an inward-looking protectionism — and barren but avoidable years of unemployment and wasted lives. © 2011 GLOBAL VIEWPOINT NETWORK; DISTRIBUTED BY TRIBUNE MEDIA SERVICES

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Tim Geithner: We Want Debt Deal By Next Week

July 12, 2011

WASHINGTON (David Lawder) – Treasury Secretary Timothy Geithner on Tuesday said that time is running out for a deal to raise the debt limit, and wants a broad agreement with Congress in place by the end of next week at the latest. Speaking at a finance symposium at the Treasury Department, Geithner vowed that Congress would raise the debt limit ahead of an August 2 deadline when the government will risk default, adding, “Failure is not an option.” He said President Barack Obama will keep meeting with congressional leaders until a deal to raise the debt limit and slash future deficits is reached. “We know we don’t have a lot of time,” Geithner said. “I think the leaders understand we don’t have a lot of time, and we want to wrap up the broad outlines of an agreement by the end of this week — certainly by the end of next week — so that we have time to legislate it and put it in place.” He told the Women in Finance Investment — a group whose members manage some $700 billion in U.S. savings assets — that it was important for investors to know that “the U.S. will act in advance of the limit that we face when our borrowing runs out on August 2.” Thus far, Treasury yields have reflected little concern about default among investors and have benefited from safe-haven capital flows amid continuing financial turmoil in Europe and weak economic data. The benchmark 10-year Treasury note yield was well below 3 percent, dipping to its lowest point since early December early on Tuesday. That could change as the August 2 deadline approaches if no deal is in place. Geithner also said that any deal to cut deficits would have to be good for U.S. economic growth and would have to include some increased tax burden for the wealthy. He said Obama has shown willingness to make some responsible cuts to entitlements and wants Republicans “to do some difficult things too.” “The president has proposed some very sensible tax reforms that would eliminate loopholes and ask the wealthiest Americans to pay a modest additional share of the burden,” Geithner said. (Editing by Theodore d’Afflisio) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Debt Ceiling Debate Continues As Deadline Looms

July 11, 2011

WASHINGTON — With the United States government set to begin defaulting on its loans on Aug. 2, the White House is working with lawmakers on a deal to raise its borrowing limit in exchange for major spending cuts and, potentially, revenue increases to shrink the debt. Leaders from both chambers and parties are meeting with the administration nearly every day to work out a deal, after meetings on July 10 bore no agreements on whether to raise revenues as part of a debt-reduction plan. President Barack Obama gave lawmakers 10 days to come to an agreement, insisting he will call daily meetings until a deal is reached to raise the debt ceiling. The Treasury hit its debt limit — most recently set by Congress at $14.29 trillion — on May 16, but is using “extraordinary measures” to avoid a U.S. default for now.Treasury Secretary Timothy Geithner warned that failing to raise the debt ceiling would be disastrous to the economy, telling Sen. Michael Bennet (D-Colo.) in a May 13 letter that rapidly reducing federal outlays in the event of default “would likely push us into a double dip recession.” Although lawmakers could vote to raise the debt ceiling without preconditions, many members of Congress have said they will not approve an increase to the federal borrowing limit unless there is a longterm plan to deal with the debt. Lawmakers are currently looking to build off of bipartisan talks led by Vice President Joe Biden, which fell apart in June over the issue of tax increases in a final deal. Those talks had reached agreement on about $2.4 trillion in cuts, which House Republicans have said they would now be willing to accept rather than a “grand bargain” that saves about $4 trillion. In addition to major spending cuts, the House GOP has also pushed for major changes to Medicare — including those laid out in Rep. Paul Ryan’s (R-Wis.) 2012 budget proposal — to be as part of a final debt ceiling deal. Although Senate Majority Leader Harry Reid (D-Nev.) said in June that Medicare cuts are off the table, Democrats have since signaled they would allow for some changes to the retirement insurance program, provided they be on the delivery-side as opposed to the beneficiary side. House Speaker John Boehner (R-Ohio) has said the lower chamber will not approve a bill that includes tax increases, a option that Democrats have insisted should be on the table. Democratic leadership is pushing for an end to subsidies and tax preferences for major oil and gas companies and individuals that make more than $500,000 per year. Check back here for the latest developments. What happens if the U.S. defaults? See the slideshow below.

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Eurozone Seeks To Prevent Spillover Of Greek Debt Crisis

July 11, 2011

(AP) BRUSSELS — European officials are trying to work out a strategy Monday to prevent the eurozone’s debt crisis from spilling over into bigger economies such as Italy and Spain, as they discuss details of a second bailout for Greece. Intense debate over how, and how much, banks and other private investors can contribute to a new rescue package for Greece has unsettled financial markets in the currency union, most dramatically in Italy, as rating agencies warn that even a voluntary involvement will likely be seen as a partial default of Greece on its massive debts. Though the proposals currently doing the rounds may be less severe that a Greek payment halt, for example, Moody’s said in a note Monday that the “prospect of any form of private sector participation in debt relief is obviously negative for holders of distressed sovereign debt.” Moody’s warning follows a report last week from Standard & Poor’s that said that even a relatively market-friendly French proposal on a voluntary rollover of Greek debt would likely trigger a “selective default” rating. Investors are concerned that the debt crisis, which has so far been contained to the small economies of Greece, Ireland, and Portugal, could soon drag down bigger countries like highly indebted Italy and unemployment-ridden Spain. The mere size of their economies could easily overwhelm the rescue capacity of the rest of the eurozone. The yield, or interest rate, on Spanish and Italian government bonds shot up Monday morning, in contrast to other big economies, while the euro dropped 0.6 percent to $1.412. Yields on Spanish 10-year bonds rose from 5.7 percent at the start of trading to 5.8 percent, while the yield on Italian 10-year bonds meanwhile increased to 5.4 percent from 5.3 percent, following sharp rises on Thursday and Friday. “The fact that contagion is spreading marks the failure of politicians to draw a line under the Euro-crisis to date,” Rabobank analyst Jane Foley said. “As yields rise and debt financing costs become even more exaggerated the difficulties of containing the crisis become even bigger.” The threat of contagion and the wider financial market jitters are set to feature prominently in a meeting of eurozone finance ministers in Brussels Monday afternoon. The ministers will debate whether a substantial contribution from banks to a second bailout is worth letting the country temporarily slip into default. However, senior eurozone officials warned that no decisions are expected Monday, with talks likely to drag into September. To stay afloat until mid-2014, Greece will need an extra euro115 billion ($164 billion)_ on top of the euro110 billion ($157 billion) it was granted last year – according to the European Commission, although some of the money will come from privatizations. Frustrated with the slow progress on Greece, European Union President Herman Van Rompuy, usually in charge of the summits of EU leaders, called in top officials – including European Central Bank President Jean-Claude Trichet, the EU’s Monetary Affairs Commissioner Olli Rehn and European Commission President Jose Manuel Barroso – for an unscheduled get-together ahead of the finance ministers meeting. Trichet in particular has stressed the potential negative consequences of a default rating, even a temporary one.

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JPMorgan Chase Gets Dismissal Of Madoff Conspiracy Lawsuit

July 7, 2011

NEW YORK (Jonathan Stempel) – A federal appeals court threw out a lawsuit accusing JPMorgan Chase & Co of violating U.S. racketeering law by conspiring with Bernard Madoff to further his Ponzi scheme. Thursday’s decision, in a case brought by a Florida partnership that invested with Madoff, came less than two weeks after the trustee seeking money for Madoff victims separately filed an amended $19.9 billion lawsuit against JPMorgan, accusing it of enabling Madoff’s fraud and ignoring red flags. The trustee, Irving Picard, is trying to use the same racketeering law to recover as much as $58.8 billion from dozens of European defendants in his largest Madoff lawsuit. In Thursday’s decision, the 2nd U.S. Circuit Court of Appeals of New York rejected an allegation by MLSMK Investment Co that JPMorgan violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by conspiring with Madoff to “fleece” customers, and failing to freeze his accounts. MLSMK, based in Palm Beach, Florida, said it lost its $12.8 million investment with Bernard L. Madoff Investment Securities LLC when Madoff was arrested on December 11, 2008. It sought to hold JPMorgan liable for conspiracy under RICO, which allows treble damages, by aiding and abetting Madoff’s fraud. But Judge Robert Sack, writing for a three-judge panel, said a federal ban on civil RICO claims based on securities fraud also covers aiding and abetting claims. “As the plaintiff concedes,” he wrote, “the purpose of the bar was to prevent litigants from using artful pleading to bootstrap securities fraud cases into RICO cases, with their threat of treble damages.” District Judge Barbara Jones had dismissed MLSMK’s RICO claim on different grounds. The 2nd Circuit had on June 6 also upheld her dismissal of four New York state law claims. APPEAL POSSIBLE “The circuit essentially said aiders and abetters of securities fraud have a free pass, because plaintiffs cannot sue them for securities fraud or RICO,” Howard Kleinhendler, a partner at Wachtel & Masyr representing MLSMK, said in an interview. “I don’t think that’s a correct result, or what Congress intended.” He said his client may appeal to the U.S. Supreme Court. Patricia Hynes, a partner at Allen & Overy representing JPMorgan, called the decision “a very important ruling.” She said it resolved a split of opinion among judges in the 2nd Circuit, and makes clear that plaintiffs cannot do an “end run” around laws barring RICO claims based on securities fraud by presenting their claims differently. Picard filed his $58.8 billion lawsuit against dozens of defendants including Austria’s Bank Medici AG, its founder, Sonja Kohn, and Italy’s UniCredit SpA. He alleged $19.6 billion of damages, which could be tripled under RICO. Thursday’s decision “could be problematic for the trustee” in that case, Kleinhendler said. A spokeswoman for Picard had no immediate comment. A UniCredit lawyer declined to comment. Picard has filed roughly 1,050 lawsuits on behalf of Madoff victims to recover more than $103 billion. Madoff, 73, is serving a 150-year prison sentence. The case is MLSMK Investment Co v. JPMorgan Chase & Co et al, 2nd U.S. Circuit Court of Appeals, No. 10-3040. (Editing by Steve Orlofsky) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Lucy P. Marcus: Boards in Times of Crisis

July 7, 2011

What role does the board play in times when a company is involved in a crisis that has an impact on the community? I don’t mean “brand management” or “reputation management.” I mean cases like the one we are seeing now with the News of the World hacking scandal in the UK, or last year with the BP oil spill , where real people are harmed and whole communities are affected. News International decided to close the News of the World . It is a bold gesture, but it does not negate the need for a larger look at the way the company runs and the way the board operates. This issue was left to fester for too long. It escalated to the point that a dramatic choice had to be made. The board needs to take a long hard look at itself. As independent directors on the boards of companies, our job is to help the companies navigate and be successful. Part of that is calling the company to task if something it is doing is harming the long term stability of the company, and, I would argue, is beyond ethically acceptable business practice. We should not simply be automatons with only dollar, pound, euro or yen signs. If an organization is caught up in a spiral of bad or unethical behaviour we as directors need to be people who step up and challenge the manner in which a company is doing business. I realize that News International’s board is perhaps not the best demonstration of good corporate governance, with so many inside executive directors in the balance, not a lot of diversity (there is only one woman), and the independent directors including amongst their ranks an opera singer and Marc Hurd formerly of HP. I would ask the board of News International, and particularly the independent members: what are you doing about the News of the World hacking scandal? I’d genuinely like to know.

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UK Vulnerable To Greece Debt Crisis

July 6, 2011

As financial markets brace for the possibility of a Greek debt default, economic officials here are sketching out doomsday scenarios in a grim acknowledgment that even the world’s strongest economies are vulnerable. With Greece shelling out record interest rates, and with some frustrated investors pushing for a default , economists fear that the collateral damage from a credit event could reach these shores. By virtue of our connections to institutions throughout Europe and our reliance on credit, British banks bear heavy indirect exposure to Greece, setting them up for significant losses if the currently perilous Greek debt situation were to evolve into a full-blown crisis, the UK central bank said in a news conference late last month. No one, in other words, is immune. “It’s this issue of interconnectedness in the financial system that policymakers are so worried about,” said Richard Barwell, a London-based economist at Royal Bank of Scotland. “It’s difficult for anyone to be convinced their balance sheet is secure unless they know that the people they’ve lent to, and the people that they’ve lent to, all their sheets are secure, too.” “At the end of the day,” he added, “that’s how you can get those cascades of defaults.” After European finance ministers approved the latest installment of Greece’s bailout package Saturday, concerns remained about the troubled nation’s ability to repay its mounting debt, which is projected to total 160 percent of the country’s economic output this year. For many investors and economists, the question isn’t whether Greece will default, but when. The emergency aid extended to Greece is widely seen as a time-buying measure, and not a long-term solution. Greece likely cannot service its debt on its own, with its 10-year paper yielding nearly 16.5 percent, and its two-year debt throwing off more than 26 percent, according to Bloomberg data. But efforts to hammer out a longer-term fix have been stymied. French President Nicolas Sarkozy outlined a plan last week for banks to stretch their short-term Greek debt into long-term bonds, offering Greece some interest-rate relief. But such a plan would impose losses on creditors and would constitute a default, the ratings agency Standard & Poor’s said Monday. If a default were to spark a broader crisis, weaknesses among Greece’s immediate creditors could quickly spread. “If UK banks are exposed to banks in France which are themselves exposed to a bank in Germany, which is then exposed to Greece, that’s another indirect exposure,” said Mervyn King , governor of the Bank of England, during the news conference. “There’s an infinite regress here.” The direct exposure of UK banks to Greece was relatively small at the end of 2010, at about £12 billion at the time, according to the latest figures from the Bank for International Settlements . But indirect exposure potentially dwarfs that figure. If significant damage were to spread other countries’ private sectors, UK banks could face severe strains, suggests a June report from the Bank of England. The banking sector’s claims on the non-bank private sectors of Spain and Ireland combined constitute about half of those banks’ so-called Tier 1 capital, the money banks set aside to cushion against losses, according to the report. As for UK banks’ claims on France and Germany, those together represent about 130 percent of Tier 1 capital, the report says. “You just don’t know all the interbank connections,” said John Whittaker, an economist at Lancaster University Management School. “It’s like when Lehman went down. Nobody knew who was indebted by how much to who else.” The years after the financial crisis have seen a host of weak European banks become even weaker. Now, the credit ratings on Europe’s 100 largest banks span the widest range in 30 years, according to S&P, the Bank of England said. Calculating the total magnitude of the UK’s exposure to a broader meltdown is impossible, King said. Moreover, any crisis would likely be worsened by a broader loss of confidence, affecting a range of institutions, he added. Creditors would flee and markets would likely freeze, heaping pain on beleaguered governments. “There’s a risk that if something went wrong, you may get a drying of liquidity more generally,” said Simon Hayes, chief economist at Barclays Capital. Or put another way, creditors might decide they “simply don’t understand the complexity of the interconnectiveness of these exposures, and just won’t take the risk of lending,” King said at the June 24 news conference. Such a panic would likely affect the world’s strongest economies. If the crisis spreads here, it would likely also touch the United States, said Barwell, the RBS economist. “The price of a whole range of risk assets would fall,” he said. “There are these huge channels that certainly come into play, which won’t get captured by the simple numbers.”

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Stocks Fall On Concerns Over Greece

June 24, 2011

NEW YORK (Edward Krudy) – Stocks headed for three days of losses on Friday on worries about the Italian banking sector and Greece’s austerity plan, but the S&P 500 managed to hold its 200-day moving average in a sign of market strength. Italian banks UniCredit SpA (Milan:CRDI.MI – News) and Intesa Sanpaolo (Milan:ISP.MI – News) fell sharply on concerns about their capital positions alongside uncertainty about the euro-zone crisis. Trading in the banks’ shares was briefly suspended. Greece’s government faced an electorate vehemently opposed to austerity measures that must be passed in parliament next week to avert default. But progress is being made in persuading banks to take part in a second bailout. “They (politicians) may not believe that financial markets are as sensitive to their decisions as they actually are, and there is a worry that somewhere along the line, some political vote goes against the market,” said Nicholas Colas, chief market strategist of the ConvergEx Group in New York. The S&P 500 remained within striking distance of its 200-day moving average — a line that has been tested twice in recent trading and has so far acted as a springboard for stocks. The level was at 1,263.49. “Every time you test a resistance or support level, you make it weaker,” Colas said. “It’s almost like a piece of metal. Every time you hit it, it grows more fragile and that’s why people are really worried the third or fourth time.” The Dow Jones industrial average (DJI:^DJI – News) dropped 82.04 points, or 0.68 percent, to 11,967.96. The Standard & Poor’s 500 Index (^SPX – News) fell 10.82 points, or 0.84 percent, to 1,272.68. The Nasdaq Composite Index (Nasdaq:^IXIC – News) lost 26.51 points, or 0.99 percent, to 2,660.24. The KBW Banks Index (Philadelphia:^BKX – News) lost 0.8 percent and the S&P Financial Sector Index (^GSPF – News) shed 0.7 percent. On Thursday, the market welcomed Greece’s agreement to a five-year austerity plan. The euro declined against the dollar for a third straight session on worries Greece’s parliament might not pass austerity measures needed for the country to secure more bailout funds. In the latest economic data, new orders for long-lasting U.S. manufactured products, known as durable goods, increased 1.9 percent in May after dropping 2.7 percent in April as bookings for transportation equipment rebounded strongly. Oracle Corp (NasdaqGS:ORCL – News), off 3.9 percent at $31.21, was the biggest drag on both the S&P 500 and Nasdaq 100 indexes (Nasdaq:^NDX – News) a day after the world’s No. 3 software maker posted disappointing results, especially in hardware sales. Oracle’s results sparked concerns about a bigger slowdown in technology spending. Micron Technology Inc (NasdaqGS:MU – News) tumbled 13.8 percent to $7.27 after the memory chipmaker recorded results below expectations late Thursday. (Reporting by Edward Krudy; Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Standard & Poor’s: California Credit Rating At ‘Crossroad’

June 21, 2011

SAN FRANCISCO – California’s credit rating is at a “crossroad,” Standard & Poor’s Ratings Services said on Tuesday, noting concerns about the state’s cash and budget politics as the new fiscal year approaches. The rating agency is particularly concerned about how the state’s testy budget politics could impede its ability to issue short-term debt. S&P said in a report that it sees California’s ‘A-/Negative’ rating at a “crossroad … In our view, the budget process is significant in California’s credit profile because if a budget is not adopted in time for the state to issue its revenue anticipation notes (RANs) before its cash runs low, the state’s basic operating liquidity can become inadequate.” S&P added that “beyond near-term financial liquidity, we believe budget politics in California already impede the state’s long-term credit quality as well.” The course of California’s budget politics are uncertain as the fiscal year beginning on July looms. Democrats who control California’s legislature last Wednesday approved a budget to close a deficit of about $10 billion on their own. The next day Governor Jerry Brown, a Democrat, vetoed it, criticizing its “legally questionable maneuvers, costly borrowing and unrealistic savings.” S&P said in its report that it favors Brown’s budget proposal, although it has concerns about his plan for a statewide vote on extending temporary tax increases, which he first wants lawmakers to approve. S&P said that “enactment of a budget with structural attributes similar to those in the governor’s revised budget proposal could lead us to revise the state’s rating outlook to stable from negative. Moreover, it could potentially lead us to raise the rating depending upon how much we viewed such a budget as improving the state’s fiscal structure.” The rating agency said it would consider revising its outlook for California to stable from negative if state leaders agree to one-time solutions “to the extent it allows the state to proceed with its regularly planned cash flow borrowing.” “We would be more likely to revise the state’s rating outlook to stable if the state enacted the budget expeditiously and avoided entering a deficient cash situation,” S&P said. “By relying heavily on one-time measures, this budget path would be unlikely to benefit the state’s long-term credit quality, in our view.” If there is a protracted budget battle, which has been routine in recent years, California may need to take “extraordinary cash management measures,” S&P noted. California temporarily issued IOUs when it was running low on cash during a budget stalemate in 2009. The move allowed the state to maintain cash for its priorities payments, including payments to it bondholders. A lengthy budget impasse extending into the new year may result in a “patchwork” budget similar to one Brown vetoed, which “may lead us to lower the state’s long-term rating depending upon the severity and duration of the cash crisis that we believe could precede it.” (Editing by James Dalgleish) Copyright 2011 Thomson Reuters. Click for Restrictions .

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High Stakes: Confidence Vote In Greece (LIVEBLOG, UPDATES)

June 21, 2011

Greece’s Parliament is expected to take a confidence vote on the country’s political leadership at around 5 p.m. EDT Tuesday. The vote will not only decide the fate of Greek Prime Minister George Papandreou; it will influence the fate of the European Union and the U.S. economic recovery . If Papandreou gets voted out of office, Greece will be significantly less likely to implement the austerity measures that European financial ministers are demanding by July 3. If Greece does not authorize the required budget cuts, it could fail to secure bailout funding from Europe and face default. A default by Greece has the potential to trigger a chain reaction of European bank failures and government defaults, which would pose a threat to American banks’ willingness to lend. It seems more likely that Greece will be able to force through budget cuts in time to receive new bailout funding from Europe if Papandreou is able to stay in office. His new financial minister recently has taken a harder line on the budget to demonstrate the country’s determination to meet Europe’s demands. Check back here for further updates on the situation in Greece.

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Sheldon Filger: Greek Debt Crisis Worsens: Prime Minister George Papandreou Admits Another €110 Billion Needed To Prevent Default

June 21, 2011

I was not alone in being skeptical as the first European/IMF bailout package was cobbled together last year when the Greek sovereign debt crisis first exploded. At that time, the European politicians assured their constituents that the 110 billion euro bailout for Greece would absolutely stabilize the situation for Athens, and prevent a sovereign debt contagion metastasizing throughout the rest of Europe, especially to the so-called PIIGS on the southern periphery of Europe (Italy, Spain and Portugal as well as Greece) and Ireland. Now, after Portugal and Ireland have joined Greece in begging for a bailout from European taxpayers and the IMF, Greece is back with its cup in hand. After a year of crippling austerity measures that have thrown the Greek economy into recession, Prime Minister Papandreou has told the Greek parliament that even more severe stringent cutbacks and tax increases are required . The reason; last year’s bailout was insufficient to enable Greece to continue to pay creditors for her massive (and until the crisis surfaced, largely hidden) public debt. The news from Papandreou is dire; another massive injection of European and IMF loans are needed, equaling the already staggering previous bailout package of 110 billion euros (approximately $150 billion in U.S. currency), or else Athens will default on its sovereign debt. It must be pointed out that the second bailout package, as with the first, will necessitate other European nations themselves going further into debt to provide Greece with the bailout, including countries such as Spain and Italy, which are considered only slightly less vulnerable to a sovereign debt implosion than Greece, Ireland and Portugal. Anyone who though that the global economic and financial crisis that began in 2008 ended due to the “brilliant” expansion of public debt engineered by the policymakers is now getting their wake up call. As I predicted in my book, Global Economic Forecast 2010-2015: Recession Into Depression , a global sovereign debt crisis will precipitate a worsening of the global economic crisis. Furthermore, solving a debt crisis with more debt, tied to fiscal policies that retard economic growth, is not a solution but rather an exhibition of economic and financial insanity. With policymaking of this “quality,” it bewilders the human intellect that anyone still thinks an economic recovery is just around the corner. There is in fact something just ahead for the global economy, but it won’t be pretty.

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José Viñals: Tough Political Decisions Needed to Fix the Financial System

June 20, 2011

It was fitting that I should present our latest assessment of global financial stability in Sao Paulo, the financial center of one of the leading emerging economies. In common with many of its peers in Latin America, Brazil is recovering strongly from the crisis. But new financial stability challenges are emerging in this, and other fast-growing regions. Let me start with three key messages: First, financial risks have increased since April Second, as a result, policymakers in both advanced and emerging economies need to step up their efforts to preserve financial stability and safeguard the recovery. And third, we have entered into a new phase of the crisis — a political phase — when tough political decisions will need to be made, because the window for substantial policy action is closing. Time is of the essence. Let me delve into the details of the increased financial stability risks, which have kept policymakers and investors on the edge of their seats. First, a string of negative surprises in recent economic data is prompting investors to reassess the sustainability of the economic recovery. While a global recovery remains the most likely scenario, downside risks to this forecast have increased. Any weakening in the economic outlook will threaten to stall — and possibly reverse — improvements in the balance sheets of banks and households. Second, there are increasing concerns about the political resolve to support the adjustment efforts in Europe. The lack of a comprehensive solution to this problem has led to increased financial market pressures on some European governments, and has rekindled worries about potential contagion within and beyond Europe. In the United States, there are increased financial market concerns, due to the continuing political stalemate over the debt ceiling and the longer-term fiscal path. And Japan’s medium-term fiscal adjustment targets may have become even more challenging because of the impact of the recent earthquake and tsunami. And third, we are concerned about the effects of a prolonged period of low interest rates. Accommodative monetary policies remain necessary in advanced economies, partly because of the limited progress in resolving structural problems. But a prolonged period of low interest rates may lead investors to underestimate risk in their search for yield. This could promote the buildup of financial imbalances. We have noticed two trends: The declining cost of debt is prompting some companies and investors to rediscover their appetite for financial leverage. There is evidence of such re-leveraging in the market for corporate high-yield bonds and leveraged loans Investors’ search for yield has also spurred strong capital inflows into some key emerging markets, although such flows have recently eased. For example, buoyant foreign demand has led to a recent surge in international corporate bond issuance, notably from Latin America, and a decline in corporate bond yields. Policy priorities Given these risks, policymakers need to increase their efforts to tackle longstanding financial challenges once and for all. In Europe, there is a need to finally cut the Gordian knot of mutually reinforcing financial exposures between banks and governments, which has fueled worries about potential contagion. To reduce the contagion risk, policymakers need to follow a two-pronged approach — (i) push for a comprehensive plan to repair the financial system and (ii) reduce sovereign risk through credible medium-term fiscal consolidation. Financial System. So far, there has been insufficient progress in strengthening bank funding and capital positions in some European Union countries. The forthcoming stress tests by the European Banking Authority will be a decisive opportunity to enhance transparency and address the weak tail of undercapitalized banks. Governments. Political resolve is required to address medium-term fiscal adjustment needs in several advanced countries, including the United States and Japan, which have yet to take decisive action in this area. In short, when it comes to financial systems and governments, advanced economies need an orderly de-leveraging, which means they would cut back on the amount they borrow. By contrast, emerging economies need to focus on orderly re-leveraging. They should do so by guarding against overheating and the buildup of financial imbalances — with strong credit growth, rising inflation, and surging capital inflows. Corporate leverage is also rising, and weaker firms are now accessing international capital markets. This could make corporate balance sheets more vulnerable to external shocks. With strong domestic demand pressures — especially in emerging Asia and Latin America — macroeconomic measures are needed to avoid overheating, accumulating financial risks, and undermining policy credibility. Macroprudential tools, such as higher reserve requirements, and, in some cases, a limited use of capital controls, can play a supportive role in managing capital flows and their effects. However, they cannot substitute for appropriate macroeconomic policies. Policymakers continue to face potentially large future shocks to the financial system, at a time when its resilience is not yet assured. And there is less room for maneuver to counter these shocks through traditional fiscal and monetary policies. Moreover, in increasingly gridlocked political systems, policymakers may find it progressively harder to take substantial policy action to address sovereign and financial risks. We are now in a new phase of the crisis — the political phase — and tough political decisions need to be made. Time is of the essence. From iMFdirect blog

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Bill Clinton: 14 Ways To Fix The Job Crisis

June 20, 2011

Next week in Chicago, the Clinton Global Initiative will focus on America for the first time, inviting business and political leaders to make specific commitments in support of the former president’s jobs blueprint, which he details below.

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In Greece, American Economic Recovery Is At Stake

June 18, 2011

Once again, the global economy seems vulnerable to a crisis brewing in a single country, as the turmoil in Greece and the risk of a government default raise the prospect of losses rippling out across Europe and to the United States. In recent months, Americans have been buffeted by a series of unseen challenges that have repeatedly dashed hopes for a sustained economic recovery and the resumption of hiring, from the tsunami in Japan to rising oil prices. Now, with unemployment high and anxieties growing, a new economic threat has taken shape, raising fears of potentially enormous financial losses. Though those fears eased somewhat on Friday as European bankers and the International Monetary Fund inched closer to an agreement that would avert a Greek default , grim calculations occupied financial capitals around the globe, as investors estimated the consequences of an effective bankruptcy. They considered a scenario much like the one that followed the collapse of major financial institutions in the fall of 2008, with the crisis potentially spreading throughout Europe, causing banks and governments to fail and freezing lending in major economies. Most suggested that such an event remained unlikely, but the risks were nonetheless significant — and maddeningly difficult to quantify, given the complexities of an interconnected and global financial system. For large American banks, immediate exposure to Greece appeared to pose only modest dangers. Some $41.5 billion in large American bank assets were vulnerable in the event of a default, according to a recent accounting by the Bank of International Settlements , with another $32.7 billion on the line in the form of insurance . That amounts to $74 billion, much less than the nearly $1 trillion in mortgage-backed securities that were at the center of the financial crisis that nearly brought down the American economy in 2008. But even as economists expressed confidence that American banks would remain solvent in the face of a Greek default, they said financial institutions could seize with fear and slow their lending, removing fuel from the American economy just as concerns mount that the recovery is slowing. “If Greece is just unable to pay its debts, we are going to see finance suddenly freeze up,” said Gus Faucher, an economist at Moody’s Analytics, a research firm. “We are going to see huge drops in stock prices. Firms are going to get very cautious, very anxious again. They’re going to lay people off. It’s going to be very similar to what we saw in late 2008, early 2009, on top of what we already had. So it would be really disastrous for the American economy.” A Greek default threatens the prospect of European bank failures, which would crimp international trade by depriving exporters of a source of credit to finance their transactions, said Brookings Institution economist Gary Burtless. If Europeans lose spending power, that would limit their demand for imported goods, further slowing trade. “If major European banks fail, there would almost definitely be a repetition of what we saw in 2008 and early 2009, when there was an immense drop in international trade,” Burtless said. “You need to have credit to pay for the cost of this, and those arrangements quickly got disrupted, and trade fell right away, and it was very, very quick.” Scott MacDonald, head of research at Aladdin Capital LLC in Stamford, Conn., compared credit — or lending and borrowing — to oil enabling the engine of the American economy to run smoothly. “Once you’ve pulled the oil out of the engine, eventually you end up with friction,” he said, “and eventually, the engine comes to a halt.” A default big enough to trigger large European banking failures could significantly exacerbate unemployment in the United States, lifting it perhaps as high as 14 percent, up from its current level of 9.1 percent, and almost certainly causing a double-dip recession, said Jay Bryson, an economist at Wells Fargo. The dynamic is now so fraught that the mere fear of a Greek default risks becoming a self-fulfilling prophecy, Bryson added, as investors demand higher interest rates on loans to Greece, tightening the pressure. And as pressure builds in Greece, that feeds anxiety in other parts of the global economy. As the risks mount, investors raise the cost of borrowing money, effectively increasing the debt burdens of troubled governments. This dynamic now menaces Portugal, Spain, Italy, and Ireland — all heavily indebted and grappling with concerns that they, too, will not be able to repay their loans. If Greece defaults, lifting interest rates for all, that increases the likelihood that these countries also could default. The mere increase in the perceived risk of such an outcome feeds on itself and amplifies the actual risk. As concerns about these countries grow, alarm would almost certainly spread to still other European countries holding their debts. Investments by French banks have left 30 percent of the French national output exposed to Greece, Portugal, Ireland, Spain and Italy, Bryson said. As the interconnected nature of the risks emerge, raising the possibility of bank failures, investors could pull their funds out of any institutions deemed to be on the edge, unleashing another self-fulfilling prophecy, as other banks fail in turn. Stock prices would plunge as people sell their shares in a panicked effort to gain cash to cover their losses. European companies that rely on borrowing from banks would start to run out of the cash they need to run daily operations. European businesses would abandon plans to grow and start to lay off workers, who would then have less money to spend on goods and services, perpetuating the cycle of layoffs and lower spending. Such a disastrous scenario appeared unlikely late Friday, yet still possible. MacDonald put the odds at between 10 and 20 percent. A catastrophic recession in Europe would likely scare American banks and make them reluctant to lend, grinding the economic recovery to a halt. Among economists, these dire concerns underscored what they portrayed as the necessity for some form of agreement that would put off a day of reckoning in Greece, lest the consequences spread and another global contagion take hold. “It’s in everyone’s interest to at least kick the can down the road,” said Faucher, the Moody’s Analytics economist. “Whether that’s going to happen or not is still up in the air because it’s going to require concessions from everybody.”

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Chinese Foreign Minister: European Recovery Of ‘Crucial Importance For China’

June 17, 2011

BEIJING — China registered new concern Friday over the fate of its top trading partner, the embattled eurozone, saying the ability of stricken countries to overcome their financial woes is of “crucial importance.” China’s support in terms of buying European debt and promoting imports is beneficial to both sides, Vice Foreign Minister Fu Ying told reporters at a briefing ahead of Premier Wen Jiabao’s visit next week to Hungary, Britain and Germany. But she expressed some anxiety over the fate of the eurozone. Greece is at risk of defaulting on its debt even after a massive bailout, and European leaders fear the country’s problems could hurt other struggling economies that use the euro, including bailed-out Ireland and Portugal. “Whether some European countries can overcome their difficulties and recover from the crisis is of crucial importance for China,” Fu said. “Therefore since the advent of the financial crisis, China has on one hand been trying to stimulate our economy and overcome the impact of the crisis, while on the other hand provided support to European countries in their efforts to overcome the financial crisis,” she said. China has supported highly indebted European countries, offering last year to buy Greece’s debt and reportedly pledging to buy $4 billion in Portuguese government debt. While China has been quiet on how much money it will actually invest, the pledges from Beijing have temporarily taken some pressure off European debt markets. No agenda has been announced for Wen’s visit, although the European debt crisis is expected to be a major topic of discussion. Top on the list could be Greece, where rioters have clashed with police in Athens over proposed austerity measures and coalition talks between Greece’s government and opposition parties have collapsed, renewing fears of a government debt default.

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Otaviano Canuto: A Marriage of Convenience

June 15, 2011

The world of presumed stable monetary and financial conditions was severely shaken by the recent global financial crisis. And with that, the separation in some quarters of financial supervision and monetary policy that reigned supreme over the past decades might also be coming to the end. Before the crisis, the policy paradigm used to look like this: central banks around the world would focus on inflation-targeting and on setting interest rates, while financial regulation would be left to specialized, ad hoc agencies. Central banks’ primary role would be enough to maintain price stability and economic growth. On their side, financial regulators, through so-called “microprudential” rules, would ensure the soundness of financial institutions and protect depositors. We all know what happened to this picture. The crisis tested the limits of both financial regulation and monetary policy acting individually. The existing regulations were insufficient to contain the spillover effects of the collapse of financial institutions to the rest of the economy. Now, in the wake of the Great Recession, there’s an increasing recognition of the need for macroprudential regulation to ensure the stability of the financial system as a whole and to mitigate risks to the real economy. In fact, prudential regulation and monetary policy are complementary. Neither one can replace the other on its own. The combined use of both tends to be more effective than a standalone implementation of either. After all, financial risks are now seen as important enough for macroeconomic management to deserve a stronger regulation going beyond that of specialized agencies. As I argue in a recent note, a pragmatic approach that combines elements of both monetary policy and prudential regulation is ideal. In particular, both policies can work in tandem to: Monitor the local market characteristics of financial stability and the various indicators that can be associated with it, such as rapid credit growth beyond past historical trends. Identify precisely the dynamics and determinants of permanent structural changes in credit markets. Look for ad hoc special shocks that might be contributing further to the observed credit and asset price booms. Identify other forms of balance sheet mismatches arising from booms. Assess the maturity structure of credit extension and its usage, discerning whether it is of a more long-term nature (and thus supposedly favoring investment) or of a more short-term nature. As in other aspects of life, being alone is better than having bad company. But in this case, two together are better than each alone. Sometimes, a marriage of convenience does work. For more details on the topic, take a look at ” How Complementary Are Prudential Regulation and Monetary Policy ,” the most recent note in the World Bank’s Economic Premise series. This blog was originally posted on the World Bank Institute Growth and Crisis website .

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Euro Rally on Delayed Greece Crisis May Last if Risk Holds Off

June 4, 2011

Euro Rally on Delayed Greece Crisis May Last if Risk Holds Off

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Chriss Street: Is America on the Verge of Another Credit Crisis?

June 3, 2011

Late yesterday afternoon the highly respected credit rating firm, Moody’s Investor Services, officially warned that if there is no imminent progress in Congress on the debt ceiling fight, the United States of America’s Aaa credit rating would be cut. Understanding that such a draconian event as a U.S. credit downgrade would infuriate voters, it should not come as any surprise that the media was distracted today over news that The Manhattan Attorney’s office happened to issue a subpoena to Goldman Sachs in regards to its role in the financial crisis. Goldman Sachs is the perfect scapegoat to blame for America’s credit woes. The firm is the largest investment bank in the world and its history of ethics violations are legendary. Goldman agreed to pay $550 million to settle Federal claims that it misled investors in a subprime mortgage product just as the housing market began to collapse. It was alleged that the company recommended to its individual, hedge funds, banks, and money manager clients that they make investments in sub-prime mortgages loans Goldman Sachs was betting were already failing. The settlement was among the largest in the 76-year history of the Securities and Exchange Commission, but it represented only a small financial hiccup for Goldman, which reported a profit of $13.39 billion for 2009, the worst period of the credit crisis. As the charts here show, Goldman Sachs has shown its appreciation to each of America’s political parties by donating handsomely to their elections success. As a show of appreciation, U.S. taxpayers have been very good to Goldman Sachs. When the credit crisis broke out in September 2008, the firm was allowed to borrow 84 times and at an interest rate of one hundredth of one percent for a total of over $18 billion dollars from the U.S. Federal Reserve in the first month of the crisis. Over the 18 months of crisis, Goldman Sachs was able to borrow an astounding total of $590 billion . Friends in high places are usually good to have, but with America’s credit rating going over the falls, operatives in both of our political parties are now busy tearing up Goldman business cards and will be soon returning some of those political contributions. Moody’s was very emphatic today that only a credible agreement on a substantial deficit reduction would support the United States maintaining the premier credit rating in the world. Although Moody’s stated that they had fully expected political wrangling prior to an increase in the statutory debt limit, “the degree of entrenchment into conflicting positions has exceeded expectations.” They went on to say that the “heightened polarization over the debt limit has increased the odds of a short-lived default.” Moody’s had previously indicated that its stable outlook on the triple A rating was based on the assumption that meaningful progress would be made within the next eighteen months in adopting measures to reverse the U.S. upward debt trajectory. Moody’s had assumed that the likelihood that significant progress would be achieved prior to the start of the 2012 election cycle. Moody’s is now unsure that “significant progress is possible in today’s political environment. The credit crisis of 2008 became visible with the bankruptcy filing of Lehman Brothers, but the mentality of crony companies being able to take outrageous risk with the confidence their friends in government will bail them out is a sad story that has been repeated for centuries. The problem is that eventually too much risk is taken and the taxpayers end up suffering extreme pain. Hopefully America will listen to Moody’s and make meaningful changes before having to suffer meaningful pain.

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Bill Lichtenstein: Obama’s Wall Street Turnaround Good for Nonprofits

June 2, 2011

After getting off to a rocky start at the beginning of President Obama’s term, the stock market has grown steadily. Consider the Dow Jones, which went up 128 points on Wednesday alone. Even if you don’t have a stock portfolio overflowing with GOOG and AAPL, and especially if you’re involved with a nonprofit or charity, here’s another reason to be thankful for the Obama administration’s success in turning the stock markets around: Commonfund, the 40-year-old Connecticut-based financial advisor to educational and nonprofit endowments, has just released two companion studies of 175 foundations, including 135 private/public foundations and 40 community foundations and operating charities, with a combined total of $108.2 billion in assets. The Commonfund studies found that investment returns of the foundations were in the range of 12 percent in FY2010. This is critical, as it’s the interest or returns on investments that is disbursed by most foundations and charities. Commonfund notes that while the 12 percent returns in FY 2010 were well below the 21 percent range posted in the Obama recovery year of FY2009, these two consecutive years of double-digit returns served as a welcome offset to the 26 percent portfolio decline experienced by these organizations in FY2008, during the final year of the Bush administration. In fact, the average investment returns in 2010 were the fourth highest in the nine years that the foundation study has been conducted and the third highest in the seven years of the operating charities study. According to Commonfund’s executive director John Griswold, foundation funds are still tight, but the situation appears to be less than the crisis that has been feared in the non-profit sector: “Two consecutive years of good performance is a great relief for foundations and operating charities participating in the two Studies after the serious erosion in asset values experienced in FY2008. While three-year returns are just about flat, five- and 10-year returns are edging back into the range of 5 percent, which is an encouraging sign although it still falls short of covering these nonprofit organizations’ spending, inflation and costs.” The same is true with regard to the levels of giving: Among operating charities, giving was stronger in FY2010, but far from robust. Among responding institutions, 17 percent reported decreased giving in FY2010, a marked improvement over the 38 percent that reported decreased giving in FY2009. Finally, the study found that levels of giving by foundations are inching up, with the largest foundations, not surprisingly, leading the way, with community foundations, perhaps hedging their bets about the recovery, giving away the least to nonprofits and charities. Given the “pipeline” effect, resulting from the time delay for foundations and charities to pass along the available funds resulting from their investment returns, nonprofits over the past year or two may have been feeling the lingering results of the poor stock market under the final year of the Bush administration, whereas the revenue from the past year or two may just, in many cases, be starting to flow. If so, that is certainly welcome news to nonprofits. At the same time, this all represents another example of the inextricable ties between “too big to fail” Wall Street and the rest of the nation.

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Lynn Parramore: Conversation with Jeff Madrick, Author of Age of Greed (Part Two)

June 1, 2011

Cross-posted from New Deal 2.0 . In the second part of his interview with ND20 Editor Lynn Parramore, Roosevelt Institute Senior Fellow Jeff Madrick talks about the core message of his new book,  Age of Greed , and what happens now that our economic myths have been shattered. If you’re in the New York City area, you can catch Jeff’s author’s talk tomorrow night at Cooper Union.  Click here for more information on the event. Lynn Parramore : If the recent financial crisis disproved the dominant free market/efficient market economic models of the Age of Greed and exposed rampant fraud, deceit, and risky behavior, why are we still so firmly in the grip of faulty economic thinking? Jeff Madrick : I think we’re still in the grips of it for a couple of reasons. One is the extraordinary power of Wall Street and monied interests and the power of money in campaigns. This is a very serious sphere in the heart of democracy in America. Number two: the reformers, the good guys, are basically only looking to stop the next crisis. In fact, they should be looking to make the financial system work properly again. It didn’t fail only in 2007 and 2008. It failed time and again since the 1970s. Reform has to be directed at that. That’s a much harder issue. LP : What areas of the financial system are most in need of new policies and practices? JM : It’s not about Too Big to Fail. It’s about restraining crazy levels of speculation. It’s about seriously restraining compensation that’s based not on productive investments but on shuffling paper. It’s about making individual executives responsible for what they do and subject to losses. Now they are not subject to losses because the shareholders bear the loss. One of the remarkable things about the Age of Greed — and why I call it that — is that not only did people make enormous money and were able to pursue their self-interest unchecked, but they reversed the history of American reforms. We learned how to deal with this in the 1930s. We learned the problems. We developed regulations. And not only were some of those regulations reversed in letter, they were basically reversed in spirit. LP : What lessons of the 1930s did we unlearn in the Age of Greed? JM : FDIC insurance was the most successful program of the 1930s. But when money-market funds came around, and you and I put our money there without thinking about it. Nobody thought, my God! We better ensure that these money-market funds are okay — they’re not insured! Well, sure enough, in 2007-8 there was a run on money-market funds. The SEC was created to make sure investment banks, when they raised money through stocks and other relevant securities, disclosed all relevant information. In the 1990s and 2000s, federal regulators stopped forcing disclosure. No one even knew what was in a collaterized debt obligation any longer. In fact, I think you aren’t even allowed to know what was in it unless you were an investor. The SEC was created to make sure that pricing was transparent. Then we had the development of over-the-counter derivative markets where pricing was totally secret, totally subject to the whim of a particular investment bank — Morgan Stanley, Goldman Sachs, and so forth. Things became obscure, which was the opposite of the spirit of the SEC. So America reversed history in this period. LP : To get the fundamental restructuring that’s necessary to put us on more sound economic footing, what’s most vitally important for financial regulators do to? JM : To concentrate on capital requirements, which is no small thing in a global world. To raise capital requirements significantly in order to restrain speculation. The same with leverage requirements. I believe what would help is a financial transactions tax to diminish over-speculation. But I think what regulators have to begin to come terms with – and it’s not even in the air, certainly not a serious consideration – is to understand that Wall Street is a monopoly. Almost like an electric utility used to be a monopoly. Why is Linked In trading so high? Because Wall Street makes an enormous of money on an Initial Public Offering–5, 6, 7% of that offering. That’s what drove the crazy high-tech fantasies of the late 1990s. Wall Street made absurd levels of compensation. That’s what drove Walter Wriston’s loans to South America. It wasn’t the interest rate spread – you know, “we’ll charge you a certain interest rate and we’re paying a slightly lower interest rate”. It’s that they made 2% of the face amount. 1-2% for every loan they made, which went right to the bottom line. This is monopoly stuff and it violates good economics and it’s justification for the federal government to come in and begin to control the compensation. Now that, in the current environment, is considered radical. And it should not be considered radical. LP : Some point to the current weak economy and high unemployment rates as evidence that the Keynesian economic model, which favors government intervention, doesn’t work. The argument that things could have been much worse without the stimulus, for example, is easy to dismiss and attack. Are you optimistic about a revival of Keynsianism under these circumstances? Who are its most effective proponents? JM : The issue is – as is often the case – that the president has not reminded people how effective the stimulus was. Now most economists know this. The right wing denies it. Alan Greenspan continues to do damage by claiming a “lack of confidence” and uncertainty and saying that it’s the budget that has kept people from investing. It is utter nonsense. And it has to be combated at the very top. I’ve heard Geithner combat it. I don’t think he’s a very effective guy, but at least he tried to combat that and show that those policies work. Unemployment would have gone to 12 and 13% if there had not been these Keynesian policies. The loudest credible voices are obvious. It’s Joe Stiglitz and Paul Krugman. How effective they are, I’m not so sure. But they are right. And right is all you can be, in some senses. LP : What would you say is the main message of your book? JM : I hope that the main message of my book is that individuals created this crisis. It was not an act of nature. It was not inevitable. People say, what are you getting so angry about? Just roll with the punches. But this is not just ‘how it is.’ Sure, there’s going to be overspeculation in a free market system occasionally, and some kinds of market contractions, but they don’t have to be catastrophic. There is no inevitability unless government abandons its responsibility.

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