federal

Financial Reforms Could Be Stalled Big Leadership Vacuum

May 13, 2011

The Obama administration has not announced nominees for several positions that Congress created last summer, nor has it nominated new heads for three agencies, including for an imminent vacancy at the Federal Deposit Insurance Corporation. As a result, temporary leaders tapped by the president increasingly are responsible for the vast overhaul of financial regulations, raising concerns that their decisions will prove more vulnerable to political pressure than permanent leaders insulated by Senate confirmation to a fixed term.

Read the full article →

The Missing Energy Piece

May 13, 2011

Peering into the future, the federal Energy Information Administration recently released a kaleidoscopic collection of 57 computer-generated scenarios for how the nation might produce and consume energy over the next 25 years.

Read the full article →

In Mississippi Delta, Dreams Of Bountiful Harvest Wash Away With Flood

May 13, 2011

CARTER, MISS. — Where the rolling green hills of Mississippi give way to the fertile flatlands of the Delta, Bernie Jordan bounced down a dirt road in his white pickup truck, surveying thousands of acres of farmland that, until recently, looked to be a bumper crop. But thoughts of a bountiful September harvest are all but erased from his mind. Now he focuses on saving anything he can, as a historic plume of Mississippi River water courses through some of the Americaâs most productive natural farmland. In just the past day, Jordan’s soybean fields have transformed into lakes; his cornfields have been swallowed by nearby streams; weeds begin to choke his cotton fields, but he sees no reason to spend money to kill them. “I havenât hardly gotten any sleep in the past week,” said Jordan, 53, a fourth-generation Delta farmer. “And when I do, I wake up and say, ‘Is this bad dream over?’” Ironically, many of the Delta farmers most at risk are like Jordan, with land at least 30 miles from the Mississippi River. The backwater streams and tributaries are causing the biggest problems so far, particularly the Yazoo River, which snakes through many of the farmlands in the area. As the crest of the river makes its way farther south, its sheer force puts pressure on major tributaries, causing those rivers and streams to back up and overflow where no levees exist to hem in the waters. Jordan, like many in the flat lowland plains along the river, is fighting a battle on two fronts: work and home. He oversees a tractor planting cotton on the highest ground he has, a last-ditch effort to salvage a portion of this seasonâs crop. At the same time, he and his neighbors are building massive, makeshift dirt levees around their homes. “Once this is over and the water is gone, I hope I get to take a bulldozer and push ‘em down, and they donât get a drop of water,” Jordan reflected. “I donât want to be the fourth generation, only to lose it to something I canât control.” Like many who have lived in the historic floodplain of the Mississippi River, Jordan knows well the complicated relationship between man and nature. The river is the lifeblood of the region, depositing rich soils over the plains for thousands of years. But over time, settlers and eventually the federal government constructed more and more sophisticated levees to allow settlement and modern-day agriculture in the region. The 1927 flood devastated the Mississippi Delta and led to a major overhaul of the federal flood control system along the river. Yet this yearâs flooding threatens to be worse. In Vicksburg, Miss., one of the closest river towns to Jordanâs farm, the historic height was 56.2 feet, in 1927. He remembers the 1973 flood from when he was in high school, when his father lost nearly half his annual yield. The height then was 51.6 feet. The river at Vicksburg on Thursday already reached higher than that, at 54.8 feet, and next weekâs crest is estimated to be 57.5 feet, an all-time recorded high. âIâve been working 32 years trying to acquire things and accumulate something, and now itâs all in jeopardy,â Jordan said. In a cruel twist of fate, Jordan decided not to take out much in crop insurance this year for his cotton, because in previous years, after droughts he hadnât been deemed worthy of getting a claim. He hopes there may be some kind of amnesty. Just down the road from Jordan, third-generation farmer Rob Coker, 48, busily harvested winter wheat a full two weeks ahead of time. He wasnât actually sure if anyone would buy it. Typically, wheat needs to grow tall enough to dry out in the open air and winds. If itâs sold too young or too wet, it can easily rot and ruin. This season, Coker said he had no choice but to harvest what he could, when he could. âThis will all be under water next week,â Coker said over the rumble of his John Deere combine, a massive mower that separates the grain from the chaff. âItâs either that, or give up.â

Read the full article →

Breaking Up With T-Mobile May Cost AT&T $6 Billion

May 12, 2011

By Nadia Damouni and Paritosh Bansal NEW YORK (Reuters) – AT&T Inc (T.N) has promised to give Deutsche Telekom (DTEGn.DE) $6 billion in assets, services and cash as a break-up fee if U.S. regulators reject its proposed $39 billion purchase of the German company’s T-Mobile USA, according to sources familiar with the matter. The $6 billion would include $3 billion of cash, as AT&T has previously disclosed, and about $2 billion worth of spectrum and a roaming agreement valued at $1 billion, according two sources who asked not to be named as those details were not public. AT&T declined comment for the story. While the cash agreement is already unusually high at 7.7 percent of the total deal price, the addition of assets and services of a similar value would mean that the companies are breaking global records with a 15.4 percent break-up fee, according to Thomson Reuters Data. The high fee underscores AT&T’s confidence that it can convince regulators to approve the deal, which is already being heavily criticized by many consumers and AT&T rivals including No. 3 U.S. mobile service Sprint Nextel (S.N). The acquisition of T-Mobile USA, ranked No. 4, would enable AT&T, currently the No. 2 U.S. mobile service, to leapfrog the leader of the U.S. market, Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L). The deal needs approval from the U.S. telecommunications regulator, the Federal Communications Commission, and the Department of Justice, which examines antitrust issues around mergers. AT&T’s chief executive, Randall Stephenson, had to defend the deal at a hearing held by skeptical lawmakers in Capitol Hill on Wednesday. Based on valuations in past spectrum sales, $2 billion would pay for roughly 10 megahertz of spectrum, according to Fabricio Martinez, a UK-based consultant from Aircom International. This is the minimum necessarily to offer high-speed wireless services based on the emerging technology Long Term Evolution (LTE), according to analyst estimates. Martinez estimated that 10 megahertz would double T-Mobile USA’s current available spectrum for high-speed services. But he noted that “ideally a carrier would want 20 megahertz,” for LTE services to perform well. T-Mobile USA would be able to increase its current data speeds by only once and a half times using 10 megahertz for LTE, according to Martinez, who said that if it had 20 megahertz it could increase data speeds by four times. AT&T shares were up 37 cents, or 1 percent, at $31.75 in afternoon trade on the New York Stock Exchange. (Additional reporting by Sinead Carew; Editing by Steve Orlofsky) Copyright 2011 Thomson Reuters. Click for Restrictions WATCH:

Read the full article →

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

May 12, 2011

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

Read the full article →

Irene Aldridge: Is Quant Investing Taking Over Commodity Markets?

May 12, 2011

Last week, prices of several commodities declined abruptly: silver lost over a quarter of its value from April 29 to May 5, while oil plunged nearly 10% over the same period of time. The immediate question on the minds of many investors was whether the commodity run was over. And while the Federal Reserve has indicated that that they will deliver a soft landing to QE2, instead of an abrupt end that would have sparked inflation and sent commodities soaring, the signals of the Fed were by no means thought to have such profound impact on prices. Instead, as this note shows, the sudden drop in commodity prices is consistent with quantitative research and may show that commodities are now chiefly traded using quant analysis. Specifically, according to the quantitative factor analysis, many commodities tend to consistently outperform the S&P 500 in April, and underperform the index in May and June. Silver, in particular, tends to deliver high April returns in excess of S&P 500. Adjusted for macro risk, Silver averages 4.8% return in excess of S&P 500 in April with 96% statistical confidence. The risk-adjusted return of Silver then drops to statistically-insignificant -0.2% in May, followed by a -1.2% underperformance in June (the latter with just 68% probability). Similarly, Oil tends to deliver positive returns relative to the S&P 500 in April, but to underperform the index in May, and particularly in June. In fact, in average June, oil delivers 2.5% less than S&P 500 with 97% statistical confidence! Such expectations certainly reduce the outlook for Oil and could sufficient trigger for the drop in prices. In comparison, Gold, which like Silver significantly outperforms S&P 500 in April, keeps steady in May, on average earning a positive if statistically insignificant 0.3% over the S&P 500. Yet, like many other commodities Gold also tends to perform poorly in June, coming 2.2% shy of S&P 500 with 87% confidence, potentially explaining its performance. Other commodities, like Natural Gas, also follow a similar quantitative pattern. The bleak quantitative outlook for May and June may have prompted enough investors to sell off their silver holding at the end of April. The latest activity in the commodity space may just serve as an indication that quantitative trading may have taken over commodity investing and is now the dominant force behind the markets.

Read the full article →

Marshall Auerback: Revenue Sharing for the States: How It Works, Why We Need It, and Why Nixon Liked It

May 11, 2011

Cross-posted from New Deal 2.0 . Our policymakers continue to believe that they must first ‘get credit flowing again’ to restore output and employment. Unfortunately the reverse is the case: restoring output and employment will restore the flow of credit. Creditworthiness precedes credit. And yet, as we get closer and closer to D-Day on the debt ceiling limit, the negotiations continue to turn on how much income the government should drain from the economy, even as private sector activity continues to stagnate. All moves to date by the Treasury and Federal Reserve have only served to shift financial assets between the public and private sectors. And that includes quantitative easing . Nothing has directly added to aggregate demand (the overall demand for goods and services). The economy has therefore continued to deteriorate, with only the ‘automatic stabilizers’ like unemployment insurance slowly adding financial assets and income to the private sector as the counter-cyclical deficit rises. The rate of federal deficit spending now exceeds around 8% of GDP and seems to have begun moving the economy sideways, but has been insufficient to offset the impacts of the worst recession in over 70 years. Indeed, the combination of a tepid fiscal response — which appears to have been just enough to ward off a second Great Depression — and the premature fiscal withdrawal are largely to blame for the weak and teetering recovery. Worst of all, most of the fiscal packages have been spent. That suggests that in spite of all of the cheerleading by US officialdom and the beneficiaries of this Potemkin prosperity, we will not record significant gains in employment until real output of goods and services exceeds productivity growth. Withdrawal of yet more fiscal stimulus, as the mainstream “experts” (who completely missed the Great Recession of 2008!) continue their call for further cutbacks in government spending, risks a repeat of the error that FDR made when he listened to conservative economic advisers in 1937. He slashed the budget deficit during the Great Depression — causing a renewed surge in unemployment and the extension of the depression. The most immediate crisis, deserving attention before any other, is in the states and cities. Yet assistance to the states is being cut off at a time likely to forestall economic recovery. State and local budgets should not be cut. But how to prevent this? Here’s an idea: By recreating a revenue sharing program for the states, with a pass-through to cities, on a scale sufficient to plug the budget gaps. How much is needed? As James Galbraith has noted , the federal government’s fiscal aid to the states has hitherto only offset the job cuts imposed by falling revenues and balanced budget requirements. He therefore suggests a number of practical measures to enhance this revenue sharing: Federalizing Medicaid may be the most effective and practical way to achieve this. The alternative is open-ended general revenue sharing: on the condition that states neither raise nor lower their tax rates, the federal government should supply the funds required to close their budget gaps and to maintain public services at baseline levels, for the duration of the crisis. President Obama could well point out that revenue sharing has Republican lineage; it ought to be a bipartisan cause today. It was Richard Nixon who first introduced the concept. Nixon viewed the federal bureaucracy as a poor revenue manager and argued that much counter-cyclical spending should go to the states, as they are closer to people’s needs and more directly hurt by falling revenues. But instead of simply cutting taxes, as later conservatives would, he proposed a new system called revenue sharing, which redirected funds to states and municipalities. The federal government would collect taxes and local governments would spend the money. Passed after contentious debate, the State and Local Assistance Act of 1972 initially delivered $4 billion per year in matching funds to states and municipalities. The program, which distributed some $83 billion dollars before it was killed by Ronald Reagan in 1986, proved enormously popular. It is important to remember that a sovereign government with its own currency can always financially afford such a program. By virtue of its position as issuer of the currency, the US Federal government could promote employment, output, income, and private expenditure through the expedient of revenue sharing. By contrast, US states, as users of currency, are reliant on this counter-cyclical fiscal policy to mitigate the destructive effects of economic downturns — particularly unemployment and the suffering it causes. In the words of Erik Dean, the states “cannot run budget deficits without risking credit downgrades and insolvency. Recessions typically diminish revenues for these users of the currency at the very time that their expenditures are most needed.” As an example, consider Hurricane Katrina. True, the rescue package was marred by incompetence, but how was New Orleans able to rebuild, given the underlying financial condition of the state of Louisiana? Simple, as David McWilliams noted in today’s UK paper, “The Independent”: The United States cavalry rode in to save New Orleans and the State of Louisiana. The President declared a state of emergency, Treasury wrote the cheques and the Federal Reserve credited Louisiana’s accounts. They then spent those dollars on cleaning up the city. So the central bank credited the account of the State of Louisiana because emergency economic conditions meant the State needed it. The State issued no bonds; there were no IOUs, except that the deficit of the US rose. There was no effect on inflation. Yes, we have recovered from the worst of the crisis. But it is delusional to believe that economic recovery can really get underway until we have added something close to 10 million jobs. The current level of job growth will not see us get anywhere near that target for at least another 3-4 years. Indeed, in the absence of revenue sharing, we are likely to see more attacks on workers of the kind that has characterized recent budget battles in Wisconsin and Michigan. Wall Street crashed their pensions and created the fiscal crisis now afflicting the states. But this administration is still caught in the grips of that failed economic paradigm. If President Obama were to fight for revenue sharing, he would develop tens of thousands of local government allies. He would also have a very powerful issue with which to fight the next election, as well as a winning economic argument.

Read the full article →

Digital Reasoning Introduces Federal Advisory Board

May 10, 2011

Military and Intelligence Leaders to Provide Guidance in Federal Market

Read the full article →

State Lawmakers Revisit Expired Unemployment Benefits

May 9, 2011

State lawmakers in Tennessee and North Carolina want a legislative do-over after their states became ineligible for 20 weeks of federally-funded unemployment insurance last month. Democrats in the Tennessee, where the unemployment rate is 9.5 percent, are trying to revive the Extended Benefits program. They didn’t learn of the program’s untimely death until constituents reported that their checks had stopped after April 16. The U.S. Congress had previously reauthorized the EB program through the end of the year for states with persistent high unemployment. “We were pretty surprised to learn it had happened and there werenât other efforts to get it remedied,” said Sen. Lowe Finney (D), who introduced legislation last Thursday to restore the federal EB program. “Iâve been hearing from constituents for a few weeks.” Rep. Craig Fitzhugh (D), who introduced the same bill in the state House of Representatives, also said constituents brought the lapsed benefits to his attention. “It’s certainly something, in my opinion, we should move forward on,” Fitzhugh said. In North Carolina, Democratic Gov. Bev Perdue vetoed a bill saving the benefits because Republican lawmakers attached big budget cuts to the legislation. But now Democrats and Republicans in the North Carolina General Assembly have said they want to cut a new deal to reinstate the benefits, according to the Charlotte Observer . The federal Extended Benefits program provides the final 20 weeks of checks for the long-term jobless who have exhausted up to 73 weeks of state and federal benefits without finding work. (That full complement of 99 weeks of benefits is available in only 25 states .) States are eligible for the EB program if they’ve got unemployment above 8 percent and if the rate is 110 percent of what it was two years ago. Since unemployment rates have been flat since then, Congress told states in December that they could amend their EB laws to look back three years instead of two. But several states haven’t bothered , and others have done so only after coupling the benefits with cuts . Some 28,000 Tennesseans missed out on checks last month as EB expired with little or no public debate , even though the federal government put states on notice about how the program might lapse and what lawmakers could do about it. Sen. Finney said that the bill, if passed, would pay benefits retroactively for anyone who has missed checks since April. Republican leaders in the Tennessee General Assembly did not immediately respond to requests for comment. A potential obstacle to the bill’s passage is its cost: While the federal government would pay $57.7 million, the state would be on the hook for $396,000, according to the legislature’s fiscal review committee. That’s because states cover the cost of layoff claims from state, local and tribal governments, which the National Employment Law Project estimates amount to 2 percent of all claims. Finney said he didn’t know if the legislation will be taken up by the assembly before it adjourns for the year this month. “When weâre this late in the legislative session itâs difficult to get bills heard, and some committees have already shut down for the year,” Finney said.

Read the full article →

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

May 8, 2011

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

Read the full article →

Official: Fed Prepared To Fight Inflation, Just Not Yet

May 5, 2011

LAS CRUCES, New Mexico (Pedro Nicolaci da Costa) – Inflation remains well under control, despite the spike in oil prices, but the Federal Reserve stands ready to raise interest rates if price pressures appear to be getting out of hand, top Fed officials said on Wednesday. John Williams, in his first speech as president of the San Francisco Fed, argued that the recent spike in commodity costs will likely be transitory. “The economy today faces many pitfalls, but I don’t believe that runaway inflation is one of them,” Williams said, adding that he would not prejudge a possible need for additional bond purchases in the future. In response to evidence of economic weakness last summer, the U.S. central bank in November announced it would buy some $600 billion in Treasury bonds in an effort to keep long-term borrowing costs low and support the recovery. In some of the first public speeches by Fed officials since a policy meeting April 26-27 at which the central bank said it would complete those purchases on schedule by the end of June, policy makers who spoke on Wednesday explained why they are in no rush to pull back ultra-loose monetary policy soon. Eric Rosengren, the dovish president of the Boston Fed, who is a voter this year on the policy-setting Federal Open Market Committee, struck much the same note as Williams, saying a return to 1970s-style inflation was not likely. He said tame wage growth and high unemployment are helping cushion some of the inflationary impact of higher food and energy costs, by keeping consumer inflation expectations under control. A rise in inflation expectations can be self-fulfilling if it leads workers to demand higher wages. But with high unemployment, workers have little power to demand higher wages because they can easily be replaced. JOB MARKET HEALING SLOWLY Another U.S. central bank official, Atlanta Fed President Dennis Lockhart, saw steady but modest job growth of about 200,000 jobs per month through the rest of this year after a slow spell. “It may take three years before the size of the nation’s work force reaches prerecessionary levels,” he said in a speech in Atlanta. The U.S. Labor Department will report figures for April nonfarm payrolls on Friday. Economists expect that 186,000 jobs were added in April, according to a Reuters poll. Rosengren said increases in overall U.S. inflation due to supply shocks since the mid-1980s have generally been temporary, a pattern that should play out again. “We should expect the impact on inflation to be transitory — and that total inflation will converge back to core inflation, which remains well below 2 percent,” he said. The U.S. consumer price index jumped 2.7 percent in the year to March. But so-called core CPI, which excludes more volatile food and energy costs and is a gauge of underlying price trends, climbed just 1.2 percent. The Fed’s informal target is 2 percent. Not all Fed officials are equally sanguine about inflation. Richard Fisher, the Dallas Fed’s hawkish president and also an FOMC voter this year, cited worries about rising prices. “The headline (inflation) numbers have gotten a little stout,” he told reporters after a speech. “We have to carefully monitor” how inflation expectations evolve. Still, he stopped well short of calling for near-term interest rate hikes. And Lockhart, of the Atlanta Fed, said no tightening of monetary policy is imminent. “It’s a bit premature now to anticipate it’s going to happen right away,” he said. The sequence and pace of steps that the Fed takes when it is time to reverse its easy money policy will depend on economic conditions at the time, Lockhart added. READY TO FIGHT INFLATION If inflation does begin to act up, officials said the Fed has both the tools and the will to attack price threats by bringing up interest rates quickly. “I am committed to responding decisively, and as forcefully as necessary,” the Boston Fed’s Rosengren said, “to ensure that long-term inflation expectations remain stable and that food and energy prices are not passing through to other prices.” In response to the worst recession in generations, the Fed slashed official borrowing costs to effectively zero and implemented an array of unorthodox lending facilities to heal frozen credit markets. Many of those measures have been shuttered as market conditions improved, but the controversial buying of assets to keep down long-term rates has continued. “Should it prove necessary to counter inflationary pressures, I will be among the first to advocate the unwinding of some of the stimulus we have provided,” Fisher said. Fisher cited a rebound in manufacturing and capital goods orders as not only a positive short-term indicator of economic momentum but also potentially a sign that the U.S. economy was finally moving away from an overreliance on consumer spending. “They are harbingers of needed rebalancing,” he said. (Additional reporting by Ros Krasny in Boston, Ann Saphir in Los Angeles, and Joe Rauch in Atlanta; additional writing by Mark Felsenthal; Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

GSA Embarks on Comprehensive Reinvention of Leasing

May 5, 2011

Looking to bring its leasing procedures more in line with market conditions and correct inconsistencies with market practices, the U.S. General Services Administration just released its final Lease Reform Implementation Report. According the GSA, the process of offering to lease space to the federal government differs so much from the process in the private commercial real estate sector that it discourages many building owners or developers from…

Read the full article →

Blake Fleetwood: Frequent-Flyer Programs Are Convoluted, Mysterious, and a Maddening Fraud

May 4, 2011

Thirty years ago in May 1981, American Airlines started its successful Frequent Flyer program in secret on May 2, 1981. They didn’t advertise and the plan’s author admitted “we didn’t want the great unwashed to be a part of it.” They deliberately cobbled together a complicated new class system to pay off 150,000 of its favored customers. This ingenious loyalty scheme succeeded beyond the airline’s wildest dreams. Frequent-flyer programs — which now enroll nearly 200 million customers — are the largest, and most brazen, commercial bribery systems ever –rewarding the deep-pocket elite and neglecting, overcharging, and abusing most everyone else. Ironically, the elite, who benefit the most, are also being defrauded by the airlines by a convoluted “bait and switch” scheme, which effectively devalues the frequent-flyer currency. Instead of being able to redeem flights for the normal points (25,000 – 30,000 miles), airlines are forcing frequent-flyers to pay double points (50,000 – 60,000) for almost all flights, unless you can book 330 days in advance. Today, more miles are earned from non-flight activity than from flying. In 2010 American issued more than 185 billion miles to credit cards, and other partners — 62 percent, raising the price of everything we buy by 1 or 2 percent. There are more than 17 trillion miles (and points) in circulation according to Conde Nast Traveler , and at a rough exchange rate of one penny and a half a mile, this is the equivalent to $255 billion. All the airlines combined are not worth that much. The admitted goal is to build loyalty among customers in a business where the products are almost indistinguishable. The hidden agenda is to pay off the business traveler personally into spending the boss’s money with one airline rather than with another. Industry analysts estimate that about a million trips are taken each year just to add miles to one’s account. If the purchasing agent of a firm were to accept a free vacation in return for selecting a certain vendor for a large purchase, he would go to jail for commercial bribery. But ethical niceties don’t apply when 200 million people are on the take. More than 40 million frequent- flyer tickets were issued last year. We have become a nation of frequent-flyer junkies. Nearly 50 percent of households participate in one or more of these loyalty programs and no one wants to give up even one frequent-flyer mile. People choose their breakfast cereal based on what miles they can earn. There is no underestimating the power of human greed. The programs are ingeniously designed to prevent companies from claiming these payoffs from employees. The airlines zealously hide frequent-flyer records from the very corporations that pay for the tickets. But some companies, including Abbott Laboratories, Chrysler, General Motors, Kmart, Wendy’s, and Nordstrom, have tried to get employees to turn over awards to be used for future company travel. In an ironic twist, employees of the Federal government were, in the past, required to turn over their awards earned on business travel to the agency that paid for the travel, but Senators and Congressmen specifically passed a law exempting them from this regulation. In 2002 all employees were allowed to keep their miles. What is wrong with these most successful programs? Plenty. For starters, a kickback is built into the price of each and every ticket or credit card purchase. Everyone pays more. But while that once-a-year vacation traveler never earns enough points to get a free trip and thus loses the benefit, the elite flyers always end up winning. 39 billion miles expire annually never to be used. Second, frequent-flyer programs cost companies $7 billion per year in fraud and unnecessary travel. Corporate travel managers are driven crazy when their negotiated lower fares are ignored by business travelers who refuse to go along because they won’t earn the right type of frequent-flyer miles. Employees are often more loyal to their frequent-flyer program than to their employer. The airline loyalty programs persuade travelers to make “irrational” higher priced decisions. One survey of frequent-flyers on Flyer Talk revealed that 24 percent admitted taking unnecessary trips to get extra miles. Estimates of waste caused by abuses come to 8 percent of annual travel expenses. Third , these programs cost the U.S. Treasury more than billions of dollars per year in unpaid taxes from the wealthiest people in our country. The Internal Revenue Service had been considering regulations to treat frequent-flyer benefits as taxable income. But so far, even as we drown in record deficits, politicians have not had the guts, or political clout, to levy a tax on such a widespread entitlement. Such a tax is only fair, since most middle class Americans pay taxes on all other dividends and bonuses, while affluent elite flies for free. Even frequent-flyers themselves recognize ethical dilemmas. Frequent Flyer Magazine polled readers, and 35 percent of the respondents — the obvious beneficiaries — saw the programs as unethical. Another third said they would gladly trade points for better service and cuts in airfare. In this new class system, VIP flyers are rewarded with special favors and treatment including: free flights, expensive vacations, upgrades to First and Business Class, distinctive ‘select’ check-in lines, priority seating on sold-out flights, early boarding, special seats, and other goodies that the rest of us can only dream about. It starts when they want to book a flight. There are secret phone numbers for “Gold” and “Platinum” and “Infinite Elite” members. They are blessed. The rest of us have to deal with constant busy signals, impersonal computer voices telling us to punch an endless series of different buttons, one after another, only to be left on infinite hold or, worse, looped back to where we started. Elite members, on the other hand, get their calls answered right away by human beings. For the blessed, flights are never sold out. These upper castes always get their reservations booked; even if more seats are sold than exist on the plane. Somebody else can get bumped. They never get squeezed into a middle seat. American, for example, saves 10-20 aisle seats per flight for its premium flyers and, on many flights, upgrades them to First Class for a nominal fee or for free. Continental and other airlines send upgrades to all their frequent flyers and many airlines block off adjoining seats so that the elite are not forced to rub shoulders with the masses. At any gate or check-in line, frequent flyers wave around their platinum, gold or premier cards that distinguish them from the hoi polloi. If flights are cancelled or delayed, as is happening more and more, the airline gods — sophisticated mainframe computers — identify the “chosen people” according to carefully calibrated mileage totals. Road warriors always get first crack on the next available flight. Everyone else has to wait.

Read the full article →

Property Line News & Blog: CRE Loans Held by Banks Growing?

May 3, 2011

In the week ending April 20, according to data from the Federal Reserve, banks showed a seasonally adjusted increase of $979 million in commercial real estate loans on their books, to $1.458 trillion. …

Read the full article →

Fed Survey: Banks Taking Bigger Risks

May 2, 2011

Gains in loan demand were more pronounced from big firms than at smaller ones in the first three months of 2011, the Federal Reserve said on Monday, in a report showing headwinds to the economic recovery. The Fed’s quarterly Senior Loan Officers Opinion Survey showed that in general bank lending standards had eased in first three months of the year, a sign that financial institutions are willing to take greater risks to expand credit. “Some banks that had eased standards and terms … pointed to a more favorable or less uncertain economic outlook,” the Fed said. While demand for commercial loans increased from large and middle-sized firms, gains in credit demand from smaller firms were more modest, the Fed said. Analysts had been hoping to see a pickup in demand among small firms, which tend to create more jobs than big firms and whose demand for bank credit is more indicative of business health because larger firms are able to get funding from a range of sources. (Reporting by Mark Felsenthal; Editing by Neil Stempleman) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Mayors To Washington: ‘We Need Money’

April 30, 2011

CHICAGO — Near the end of a two-day summit here that brought together mayors and federal officials to talk about city design, the mood turned confrontational. It started when Philadelphia Mayor Michael Nutter , in the middle of a Friday discussion on the federal government’s role in city development, turned toward the Washington officials who were sitting with him on stage and expressed his disappointment. “Mayors could never get away with the kind of nonsense that goes on in Washington,” he said. “In our world, you either picked up the trash or you didnât. You either moved an abandoned car or you didnât. You either filled a pothole or you didnât. Thatâs what we do every day. And we know how to get this stuff done.â That evidently hit a nerve, as cheers erupted through the Grand Ballroom of the Hilton hotel, where many in the audience were mayors. Manny Diaz, former mayor of Miami, who sat on stage with Nutter, gave an impromptu speech criticizing Washington lawmakers. Other mayors stood up and took the microphone during the question and answer session — not to ask questions, but to get things off their chests. The event, co-sponsored by the National Endowment for the Arts, the American Architectural Foundation and the U.S. Conference of Mayors, became, for a few minutes, a forum for mayors to express a difficult truth: Two-and-a-half years after the worst financial crisis since the Great Depression, the nation’s cities still struggle with chronic budget gaps that can’t easily be filled. Tax revenue has plunged as property values have fallen and payrolls have shrunk. Local governments, many of which are legally required to balance their budgets, have made cuts that a few years ago would have been unthinkable. Municipal budget woes stem partially from crises on the state level, which in turn aren’t helped by a lack of federal assistance. Federal dollars from the American Recovery and Reinvestment Act covered less than half of states’ combined budget shortfall during this fiscal year, according to a recent report from the nonpartisan Center for Budget and Policy Priorities . Come next fiscal year, which for many states begins this July, states’ combined shortfall will exceed $110 billion, with only $6 billion in federal aid available, according to the report. That leaves cities out in the cold, as states focus on solving their own problems. In Newark , aid from the state of New Jersey fell by 40 percent between 2008 and 2010, contributing to a budget crisis that eventually prompted the city, one of the country’s most dangerous according to FBI data, to lay off 13 percent of its police force late last year. In Milwaukee County , a community that has contended with a decade-long erosion of bus service, a transit cut in the coming state budget could deal a critical blow to the region’s public transportation. “We get the brunt of what the recession really entails. We’re also the last to come out of that,” Ed Pawlowski, the mayor of Allentown, Pennsylvania, said in an interview after the panel discussion. “While the economy is getting slowly better, cities are still struggling in a significant way.” Mayors want federal money. They say they can put it to quick and efficient use, creating jobs and helping improve the economy from the bottom up. Nutter gave an example: He closed Philadelphia’s crumbling South Street Bridge in 2008, initiating a two-year repair project that was completed on budget and a month early last fall, he said. But federal funds are running dry, as Washington lawmakers have become seemingly obsessed with a desire to cut the federal deficit. In April, lawmakers almost shut down the federal government as they argued over a few billion dollars in spending cuts. Now, some are saying they will not vote to increase the debt ceiling, and risk leading the nation into default, just to enforce budget austerity. The four federal officials who sat on stage during the discussion — Derek Douglas, special assistant to the president on the White House Domestic Policy Council; Roy Kienitz, under secretary for policy at the Department of Transportation; Salin Geevarghese, senior advisor at the Department of Housing and Urban Development; and Rocco Landesman, chairman of the National Endowment for the Arts — became punching bags. “You guys need to keep your day jobs. You’d make lousy mayors,” said Jennifer Hosterman, mayor of Pleasanton, California, addressing the federal officials as she stood on the ballroom floor. “To hear from the four of you all of your gyrations and concerns and discussion about how we communicate with local government — we at local government just have to make it happen.” The moderator, Carol Coletta, the former executive director of the NEA initiative the Mayors’ Institute on City Design, tried to ease the tension. “What are you asking them to do?” she said. “I mean, what is it that they’re keeping you from doing?” Hosterman talked about her efforts to come into compliance with California’s Global Warming Solutions Act. She described months of intense, focused efforts to make her city more efficient. She has specific goals in mind, she said, but she needs more resources. “Love the dialogue — thank you very much for that,” she said. “But we need money.” The audience laughed in assent, clapping loudly. The federal officials on stage were speaking in broad, theoretical terms. But the mayors wouldn’t stand for that. They knew what needed to get done, they said. What they wanted from Washington was the dollars to do it. “We should not be expecting or depending on top-down permission from the White House or Washington to have us advocate for this stuff,” said R. T. Rybak, mayor of Minneapolis, who stood up and addressed the other mayors. Earlier, Mayor Nutter had complained about the seeming hypocrisy of federal lawmakers who go to ribbon-cuttings and ground-breakings, even if they never supported the legislation for those projects. Rybak heartily commiserated. “I’ve seen those guys at the ribbon cuttings. And it pisses me off,” he said. “But I go out and organize at election time and tell people exactly who delivered and who did not.” Douglas, of the White House Domestic Policy Council, said federal officials are doing what they can to help. But political gridlock can muck up the process. “We do hear you,” he said. “If you look at the president’s budget proposal for FY12 and you go look at the transportation section that he proposed — this is what he’s asking for — the stuff you’re talking about is in there. That’s what he requested. Is he going to get what he requested?” “We can ask for everything under the sun,” Douglas added. “But just because we ask for it doesn’t necessarily make it so.” But the mayors were not satisfied. Diaz, the former mayor of Miami, said that the conversation in Washington is the opposite of what it should be. Instead of cutting spending, he said, lawmakers should be finding ways to support job-creation and help the economy grow. It’s the mayors, he said, who create jobs. But the mayors aren’t getting the federal support they need. “Weâve got to figure it out. All of us have very, very difficult budget times right now. But notwithstanding that, we have to figure out how to do it,” he said. “As a matter of fact, thereâs a greater argument to move the country forward now, because weâre in the dumps, than when things were hopping five, 10 years ago.â Kienitz, of the Department of Transportation, suggested that Diaz run for U.S. Congress. “You could provide that leadership that we need,” Kienitz said. “Thanks,” Diaz replied, “but I donât want a job in Washington.â

Read the full article →

Treasury Blocks Regulation Of Market That Sparked $5.4 Trillion Fed Bailout

April 29, 2011

The Treasury Department plans to exempt foreign exchange derivatives from new Wall Street reform regulations, a Treasury official said Friday, dismissing concerns about a market that prompted $5.4 trillion of emergency support from the Federal Reserve in late 2008. Assistant Secretary for Financial Markets Mary Miller told reporters on Friday that the foreign exchange market already functions effectively and would not benefit from new rules. Subjecting the market to new rules, she claimed, would introduce a new and unnecessary âprocessâ into âa very well-functioning market.â But a 2009 study by Naohiko Baba and Frank Packer of the Bank for International Settlements concluded that there were major “dislocationsâ in the foreign exchange market in the aftermath of the Lehman Brothers bankruptcy — problems that were only resolved after the Fed pumped money into foreign central banks in order to ensure that global banks had access to dollars. âAfter the bankruptcy of Lehman Brothers, the turmoil in many markets became much more pronounced,â wrote Baba and Packer. âIn FX and money markets, what had principally been a dollar liquidity problem for European financial institutions deepened into a phenomenon of global dollar shortage.â Last yearâs Wall Street reform bill required derivatives to be centrally cleared, a safety measure which helps ensure that the overall market does not falter if a bank or hedge fund cannot make good on its trade. But the law gave the Treasury Secretary Timothy Geithner the authority to exempt foreign exchange derivatives if they did not pose a threat to the financial system. The market Treasury hope to shield from regulation totals roughly $30 trillion, according to the Treasury, and is the dominant means for trading currency in global financial markets. Treasury is not exempting a broader class of more complex currency derivatives from the new rules– only the market for FX “swaps and forwards” would be effected. Foreign exchange derivatives, also known as the FX or ForEx market, are among the most profitable trading operations on Wall Street. âIf the too-big-to-fail banks gave out academy awards, Geithner would be best supporting regulator year in and year out,â said Michael Greenberger, a former top official at the Commodity Futures Trading Commission, noting that Goldman Sachs scored $2.2 billion in trading revenue on FX in a single quarter last year. Financial reform advocates argue that the FX derivatives Treasury wants to shield from regulation would have cratered if the Fed had not established emergency lending facilities with central banks in other countries. As foreign banks clamored for dollars in the aftermath of the Lehman Brothers bankruptcy, the Fed pumped $5.4 trillion into those programs, based on calculations by the financial reform group Better Markets, using data from the December Fed audit. âOnly massive, emergency and unlimited Fed intervention in the foreign exchange markets prevented a collapse,â wrote Dennis Kelleher, CEO of the financial reform group Better Markets, in a February letter to Miller. â[Treasuryâs] principal justification is that this market never had problems,â Greenberger said. âAnd yet some very smart people have reviewed the data and concluded that it would have collapsed without a Fed rescue.â Miller insisted on Friday that the central bankâs actions in 2008 were not an emergency response to save a faltering FX market. âThe Fed actually did not intervene in this market,â Assistant Secretary for Financial Markets Mary Miller told reporters on Friday. âI think some people confuse the extension of the Federal Reserveâs swap lines to central banks globally to provide dollar liquidity which was in high demand in the financial crisis, with the ForEx swaps and forwards market.â Kelleher previously addressed this argument in a March 23 letter to Miller. âWhile it is true that the Fed only lent via swap lines to foreign central banks and did not lend directly to the ForEx market, it nonetheless did so in part because the FX market was not providing sufficient dollars to foreign financial institutions,â Kelleher wrote. On Friday, Miller also argued that because foreign exchange derivatives are typically very short-term contracts, the risk of problems arising are very low. But problems in another short-term market, the ârepoâ market, sparked the Lehman Brothers bankruptcy. âWell, the repo market is an overnight market and it collapsed,â said Michael Greenberger. âThe whole purpose of the clearing requirement is to have a guarantor there when your counterparty collapses.â During last year’s financial reform bill debate. CFTC Chairman Gary Gensler warned that exempting FX derivatives would allow firms to disguise other trades as FX, enabling large portions of the broader $600 trillion derivatives market to evade regulation. The Treasury will accept public comments on its plan to exempt FX derivatives from new regulations, and make a final determination afterwards.

Read the full article →

Video: Hegarty Says Fed Shifting Focus to Inflation From Jobs

April 29, 2011

April 29 (Bloomberg) — Martin Hegarty, co-head of global inflation-linked portfolios at BlackRock Inc., talks about the outlook for Federal Reserve monetary policy. Hegarty also discusses BlackRock’s investment strategy for U.S. Treasuries. He speaks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Read the full article →

Video: Zandi Sees `Reasonably Graceful Resolution’ to Deficit

April 29, 2011

April 29 (Bloomberg) — Mark Zandi, chief economist at Moody’s Analytics, discusses the federal budget deficit and the dollar. Zandi speaks with Erik Schatzker and Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Read the full article →

Video: Bernanke Offers Reasons for Slow Recovery From Crises: Video

April 29, 2011

April 29 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke, in response to a question from Bloomberg’s Michael McKee at the Fed’s first post-FOMC news conference on April 27, in Washington, discusses the reasons why recovery from financial crises are historically slow. (Source: Bloomberg)

Read the full article →

The U.S. Banking Industry Is Shrinking: Who Benefits?

April 28, 2011

By Knowledge@Wharton Though the U.S. banking sector was in recovery mode in 2010, it still managed to reach some highs and lows. There were 157 bank failures in the country last year, the most since 1992, according to the Federal Deposit Insurance Corporation (FDIC). And the number of new bank charters was at an historic low — 11, compared with 181 three years earlier. With so many banks leaving the sector and so few entering it, a long-anticipated consolidation process is now under way. The U.S. is expected to end up with no less than 6,529 commercial banks and 1,128 savings institutions by the end of this year. That is a 4.4% decline from the previous year, and it leaves the country with nearly half as many institutions as it had 20 years ago, according to the FDIC. What does this consolidation mean for the banking sector’s next 20 years? Should consumers be concerned about the shrinking number of banks? Many experts expect consolidation to continue, and predict that the trend will leave the banking system better off in the long run. “We don’t really need as many banks as we used to,” says Jack Guttentag , a finance emeritus professor at Wharton and former economist at the Federal Reserve Bank of New York. “Banks now have the power to [set up branches] wherever they want to, so what really matters is how many options a customer has in a certain market.” Therein lies the challenge, according to Kenneth H. Thomas, a Wharton lecturer of finance. As he sees it, not all customers will benefit from greater consolidation. A market, such as the one in the U.S., that is “over-banked,” with a supply of banking services exceeding demand, “is generally good for consumers and businesses because it results in lower prices — i.e., lower loan rates, loan/deposit fees and higher deposit rates — and higher output [in terms of] more varied and innovative products,” he notes. “Some may argue that ‘over-competition’ [or over-banking] could drive weaker banks out of business” — as happened to Washington Mutual, the savings institution that collapsed in 2008 — “but then someone else comes in and replaces them, yet may reduce the number of offices and amount of services.” History Lessons It is no accident that the U.S. has had such a large number of banks. Rather than setting up one, large national bank as other countries do, the U.S. federal government rolled out various laws in 1784 to encourage multiple banks in individual states. In 1863, a new banking act introduced a national charter that encouraged the establishment of more financial institutions even as it taxed banks with state charters. Nearly 70 years later, with the dawn of the Great Depression, the country had more than 30,000 banks. But the stock market collapse took its toll. In 1933 alone, about 4,000 commercial banks and 1,700 savings and loans institutions failed. The next wave of consolidation occurred in 1994 with the arrival of the Riegle-Neal Interstate Banking and Branching Efficiency Act. That made interstate expansion easier, whether it occurred through M&A activity or organically. The number of banks began shrinking annually by about 4.5% before another period of expansion in the late 1990s, according to the FDIC. With another swing of the pendulum last year, consolidation returned to 1994 levels. But in contrast to previous times, much of the consolidation has been due to failures rather than through M&A. Shuttered banks have ranged from American National Bank of Ohio, a small institution with assets of $70 million that had struggled for years to turn a profit and was under regulatory pressure until it was closed in March, to $25 billion Colonial BancGroup of Alabama, which closed its doors in the summer of 2009, a few days after regulators started an investigation into accounting irregularities. As the third largest failure in U.S. history, all of Colonial’s deposits were sold to BB&T, turning it into the ninth-biggest U.S. bank by assets, according to Bloomberg. As for M&A, there were 197 deals last year, a 20-year low. Loretta J. Mester, a Wharton adjunct professor of finance and director of research at the Federal Reserve Bank of Philadelphia, expects consolidation to continue over the next few years. “In the short term, I think consolidation will pick up as weaker banks go through mergers and acquisitions, and stronger banks take time to get their capital shored up” in their pursuit of greater efficiency and economies of scale, she notes. The Little Guy The institutions that will likely be hardest hit by all this activity will be the community banks. Most of these small, locally owned banks have less than $1 billion of assets, but account for 92% of all banks and savings institutions, says the FDIC. For many of them, the arrival of the recent Dodd-Frank Wall Street Reform and Consumer Protection Act was a death knell.Tougher controls involving capital, liquidity and leverage, and a surge in regulatory red tape, have left such banks struggling, particularly those with less than $500 million of assets. “Many small banks feel that they are being pushed out of existence by new regulations,” Thomas states. Their plight hasn’t been lost on the FDIC, which has launched various initiatives to give community banks some relief. A few weeks ago, for example, it released guidelines that lighten requirements for how these banks manage customers whose accounts are consistently overdrawn. The FDIC has also been encouraging entrepreneurs to buy troubled banks. According to Thomas, this trend started two years ago, when new charters were hard to come by. A case in point: BankUnited, a 70-branch Miami Lakes, Fla.-based financial institution, was taken public earlier this year after the FDIC sold it in 2009 to a bevy of private equity investors led by John Kanas — the former chief executive of a Long Island regional bank sold a few years ago to Capital One. Todd A. Gormley , a Wharton finance professor, says community banks play an important role in local economies. They typically have close relationships with individual customers, while, for example, making loan decisions based more on personalized information than the credit scores and other hard data used by large banks. “Smaller firms and local individuals trying to get loans from larger banks could be a subset of the population that is worse off because of consolidation,” Gormley suggests. There is also something to be said for the often underrated efficiency of smaller lenders that rely on personal relationships as a guarantee against loan defaults. In a study published last year, Stephanie Moulton, a professor of public affairs at Ohio State University, found that borrowers with low incomes or bad credit are significantly less likely to default on loans if they borrow from a local bank than if they receive a loan from a distant bank or mortgage company. Personal relationships, she concluded, are an important factor in the reciprocal relationship between lender and borrower, resulting in both sides offering critical information, such as repayment schedules. Easy Come, Easy Go According to Guttentag, consolidation also leaves a handful of banks controlling the majority of certain types of products. Four “mega banks” — Wells Fargo, Bank of America, JPMorgan Chase and Citigroup — now hold three-fifths of the home mortgage market, which limits consumers’ choice of products and their ability to shop around for competitive pricing. “It’s a textbook issue of a concentration of power,” Guttentag says. “A limited number of firms control the market, and they will engage in implicit collusion.” Thomas, meanwhile, is concerned about the concentration in geographic markets as a result of ongoing consolidation. While there are more than enough banks in the entire country, some cities, states and regions have just one dominant bank. “There are a few markets in danger of becoming a one-bank or two-bank town,” he says. For example, in the Pittsburgh metropolitan area, PNC Bank has 47% of the deposit share, according to the FDIC. The second-largest bank in the area is Citizens Bank of Pennsylvania, which has 8.5% of the deposit share. “We need competition because competition lowers prices,” Thomas states. While there are no limits on deposit shares in certain markets, 1994′s Riegle-Neal Act imposes a 10% cap on nationwide deposits for a single bank. That has since been interpreted as a cap on growth that occurs through mergers rather than organically. The Treasury Department is now looking into modifying the cap to include all consolidated liabilities. But Mester says consumers need not worry. “When there is consolidation, there are not necessarily fewer outlets for banking services,” she notes. While the total number of banks may be declining, the number of branches isn’t. Additionally, no matter where they are, consumers have access to a growing number of Internet banking options. In the last 10 years, the number of bank branches nationwide has increased 15%, although that expansion has primarily involved banks with $500 million or more in assets. The number of branches dropped slightly for the first time in a decade in 2010. As for the future, Guttentag predicts that the number of banks will continue to shrink, but he doubts the U.S. will ever look like, say, Canada — which has just 22 banks. Indeed, if consolidation continues as it has over the past 20 years at the average annual rate of 3.3%, it would take 60 years for the total number to fall below 1,000 banks and nearly 130 years to get below 100. “Even if the number of banks shrinks from 6,000 to 100, if those 100 are operating in all market segments and if consumers have many options, there is no reason for concern,” Guttentag says. Additional reading from Knowledge@Wharton: The Dodd-Frank Financial Regulatory Law: Long-Awaited Cure — or Cause for ‘Wild-Eyed Alarm’? ‘A Major Transformation’: The Pros and Cons of the Dodd-Frank Act The Coming Meta-Boom and Meta-Bust — One Economist’s View

Read the full article →

Simon Johnson: Why The FDIC Couldn’t Have Saved Lehman

April 28, 2011

Under the Dodd-Frank financial regulation legislation (in Title II of that act), the Federal Deposit Insurance Corporation is granted expanded powers to intervene and manage the closure of any failing bank or other financial institution. There are two strongly held views of this legal authority: that it substantially solves the problem of how to handle failing megabanks and therefore serves as an effective constraint on their future behavior, and that it is largely irrelevant.

Read the full article →

Multifamily Mortgage Debt Contracts for First Time in 17 Years

April 28, 2011

Despite renewed interest in multifamily mortgages, total outstanding multifamily mortgage debt declined last year, falling by 0.9% from 2009, according to analysis of new Federal Reserve data by Kim Betancourt, Fannie Mae’s director of multifamily economics and market research. Total multifamily mortgage debt outstanding (MDO) decreased to $841.2 billion in 2010 – that’s the lowest level of multifamily MDO since fourth quarter 2008. The last time…

Read the full article →

Recovery Slows As Inflation Arrives

April 27, 2011

The Federal Reserve said growth will lag this year as the central bank finally acknowledged Wednesday what most Americans have long since realized: âInflation has picked up.â The Fedâs statement, a customary event at the conclusion of every policy meeting, is the status update traders, bankers, businessmen and policy makers use to gauge the health of the U.S. economy. The Fed’s recognition of rising inflation did not affect its easy-money policy, though. The main interest rate will remain anchored near zero percent. Its asset-purchase program will also continue and run through its scheduled completion in June. It will be another “couple of meetings before action,” Fed Chairman Ben Bernanke said during a news conference. There are five more meetings scheduled this year. The Fed’s preferred measure of inflation guides its policy decisions. That index, which is about a full percentage point lower than what consumers experience at the pump or when buying food at the register, strips out volatile prices that are not always representative of the broader price of goods. By the Fed’s measure, inflation is not yet a worry. The recovery is âproceeding at a moderate pace,â the Federal Open Market Committee, the Fedâs main policy making body, said in its statement. Last month, the recovery was simply âon a firmer footing.â The Fed lowered its estimates for growth by about half a percentage point. In January, the central bank forecast U.S. gross domestic product to rise about 3.4 to 3.9 percent in 2011 during the final three months of the year. It now forecasts GDP to increase by about 3.1 to 3.3 percent. Even though growth is expected to be lower, the Fed predicted reduced unemployment compared to its earlier estimate as well — even though the measures typically move in opposite directions. Policy makers are more confident in the strength of the labor market, which they said is finally improving, albeit âgradually.â Last month, the Fed would only say that it appeared to be getting better. The unemployment rate stood at 8.8 percent at the end of March, according to the Labor Department. The central bank forecasts unemployment to average 8.4 to 8.7 percent during the last three months of the year, a slight improvement from January’s forecast of 8.8 to 9.0 percent. But the part of the Fedâs statement that will likely be parsed by traders on Wall Street is the realization that âinflation has picked up in recent months,â which the Fed attributes to rising energy and commodity prices. Most Americans began recognizing this a few months ago. Last month, prices including food and energy rose 2.7 percent on an annual basis, Labor Department data show. Bernanke said the rate is “noticeably higher” than normal. The price of food eaten at home has risen 3.6 percent. Meats, poultry, fish and egg prices are up 7.9 percent. The average price for unleaded gasoline stands at $3.88 per gallon, according to the American Automobile Association. A year ago today, fuel cost $2.86 per gallon. Itâs risen 36 percent, a development Bernanke acknowledged is causing pain for working families. Prices have increased so much so fast that itâs eating into incomes and purchasing power. Hourly earnings are up only 1.7 percent over the past year, according to the Labor Department. But, when factoring inflation, wages are down 1 percent . That statistic is part of the reason why the Fed has been so aggressive in keeping interest rates as low as possible, a policy it reaffirmed Wednesday. Low interest rates spur borrowing, which should lead to spending, investing and, theoretically, hiring and higher wages. The Fed will keep the main interest rate anchored at 0 percent and will continue its asset-purchase program through completion in June, it said. The central bank has about $2.7 trillion in Treasuries and mortgage-linked securities. Another reason behind the Fedâs continued aggressiveness in the face of rising consumer prices — firms like Nike and Wal-Mart say theyâre passing on commodity price increases to customers — is the central bankâs preference for an alternative measure of inflation. The Fed looks at so-called core inflation , a measure that strips out food and energy prices, when gauging the inflation rate that will guide its policy decisions. By that measure, prices are up only 0.9 percent in the year ending in February, according to the Commerce Department. The Fed aims to maintain the rate at about 2 percent. âMeasures of underlying inflation are still subdued,â the Fed said Wednesday. The inflationary effect of higher commodity prices will be “transitory.” But the central bank’s inflation forecasts surged. In January, the Fed estimated that prices will rise at an annual rate of 1.3 to 1.7 percent during the final three months of the year. It now projects prices to rise 2.1 to 2.8 percent, about a full percentage point higher. Bernanke faces a dilemma, reckoned Bernard Baumohl, chief economist of the Economic Outlook Group. “There is no greater curse on Fed policymakers than the combination of a slowing economy and accelerating inflation, especially when both are largely the result of events taking place outside the U.S.,” Baumohl wrote in a note to clients. “In this instance, it is the robust demand for food and fuel coming form fast-growing emerging countries and the geopolitical turmoil that has spread across the oil-rich regions of North Africa and the Middle East. And neither of these foreign dynamics show signs of de-escalating.”

Read the full article →

As Other States Cut Back, Oregon Gives More

April 27, 2011

While some states have been cutting unemployment insurance for the long-term unemployed, Oregon has made its benefits more generous. People laid off through no fault of their own are eligible for up to 99 weeks of aid in 25 states . But last month, Oregon lawmakers gave the long-term unemployed an additional six weeks of benefits. That means that in Oregon, where the unemployment rate stands tall at 10 percent, so-called “99ers” — people who’ve burned through all 99 weeks without finding work — can now theoretically become “105ers.” Last week was the first payable week of the brand-new Oregon Emergency Benefits program . Portland resident Harold Treinen told HuffPost he’d started receiving the benefits last week after joining the ranks of the 99ers about a month ago. “Itâs saving me, is what itâs doing,” said Treinen of the new program. Treinen, a 57-year-old financial analyst, said he was laid off in in March 2009 and had relied on unemployment insurance during his fruitless job search. When his benefits stopped last month, he found himself in survival mode. “I had like a two or three week gap. You just have to shut everything down. You have to say, ‘I canât do anything.’” The Congressional Research Service estimated that as of last October, 1.4 million Americans had been out of work for 99 weeks or longer. For those who receive maximum aid, the benefits cycle like this: The state initially provides up to 26 weeks and the federal government provides the rest through two programs. The first is Emergency Unemployment Compensation, which provides up to 53 weeks of benefits broken into four “tiers,” and the other is the Extended Benefits program, which provides the final 20 weeks. (Recent efforts to provide more weeks of federal benefits have stalled.) The programs can combine to provide fewer than 99 weeks depending on a state’s unemployment rate. The Oregon Employment Department expects 17,000 Oregonians to qualify for the Oregon Emergency Benefits program, which is funded with $30 million from the state’s unemployment trust fund, according to spokesman Craig Spivey. The program will last until July 2 or whenever the money runs out. The extra benefits in place today actually represent the third time Oregon lawmakers have given an extra boost to the super-jobless, with previous programs in 2010 providing up to 6 or 13 weeks of aid. At the same time Oregon is taking steps to increase aid, other states are effectively cutting it. Several are allowing the federal Extended Benefits program to expire by choosing not to update the arcane “trigger” used to determine a state’s EB eligibility. A high unemployment rate is one condition; the other is that the rate must be 10 percent higher than in either of the two previous years. When it reauthorized the federal unemployment benefit programs in December, Congress invited states to modify their triggers to encompass an additional previous year, since unemployment rates in most states have risen dramatically from what they were three years ago but have held relatively steady over the past two years. North Carolina, Tennessee, and Wisconsin let the program die on April 16, and the Arizona State Legislature has adjourned for the year without taking up the issue. Arizona, Pennsylvania, and Washington, D.C. are expected to “trigger off” EB come May. Lawmakers in Michigan and Missouri acted to preserve EB, but at the same time they cut state benefits to 20 weeks, making them the only states that provide fewer than 26 weeks for newly unemployed people. Twenty weeks will be all that remain once the federal programs expire in January, unless Congress decides to reauthorize them, which is an open question. Treinen, for his part, said he’s been participating in monthly networking sessions with other unemployed workers organized by Working America, an affiliate of the AFL-CIO , where he’s had some interview coaching and a chance to polish his resume. He suspects his age is a significant barrier to finding a new job. “Because Iâm middle aged — you canât prove it, but thereâs definitely a bias there, even though you would think experience would carry some weight,” he said. “Thereâs no way to prove it. Itâs sad for a lot of reasons. Iâm a team player.”

Read the full article →

US Federal Open Market Committee Leaves Rates Unchanged, Sinks US Dollar

April 27, 2011

US Federal Open Market Committee Leaves Rates Unchanged, Sinks US Dollar

Read the full article →

Wall Street Likely Profited Off Federal Reserve

April 26, 2011

A newly-released study from the Congressional Research Service bolsters claims that the nation’s largest banks profited off the Federal Reserve’s financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates. The report reinforces long-held beliefs that the banking system in essence engaged in taxpayer-financed arbitrage: They got money for free, then lent it back to Uncle Sam while collecting juicy returns. Left out of the equation are the millions of everyday borrowers, like households and small businesses, who were unable to secure loans needed to tide them over until the crisis ended. The Fed released records under pressure in December and March that showed the extent of its largesse. The CRS study shows for the first time how some of the most sophisticated financial firms could have taken the Fed’s money and flipped easy profits simply by lending it back to another arm of the government. The report was requested by Sen. Bernie Sanders (I-Vt.), who likened the crisis-era emergency loans to “direct corporate welfare to big banks,” in a statement. The cash likely was lent back to Uncle Sam in the form of Treasuries and other debt “instead of using the Fed loans to reinvest in the economy,” Sanders added. In all, more than $3 trillion was lent to financial institutions from the Fed, and terms were generous. Junk-rated securities were pledged as collateral for taxpayer-backed loans. The Fed did not provide conditions for how the money was to be used. As part of one Fed program, on 33 separate occasions, nine firms were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities for four-week intervals, paying one-time fees that amounted to the minuscule rate of 0.0078 percent. In another, financial firms pledged more than $1.3 trillion in junk-rated securities to the Fed for cheap overnight loans. The rates were as low as 0.5 percent. During one three-month period in 2009, Bank of America borrowed more than $48 billion at rates ranging from 0.25 to 0.5 percent. Meanwhile, the largest U.S. lender tripled its holdings of Treasuries and other taxpayer-backed debt to about $15 billion — securities that yielded 3.5 percent. During the third quarter of 2009, the bank borrowed $2.9 billion from the Fed through a program that charged 0.25 percent interest. In that same period, Bank of America increased its holdings of taxpayer-backed federal debt by $12 billion, according to the Congressional Research Service. Those securities yielded an average of 3.2 percent. “Bank of America provided vital support to the economy throughout the financial crisis and we continue to support businesses and individuals today through our lending and capital raising activities,” spokesman Jerry Dubrowski said in an email. In another period, JPMorgan Chase, the second-largest bank, swelled its holdings of taxpayer-backed federal debt by $20 billion, which yielded 2.1 percent, while at the same time borrowing $29 billion from the Fed at a rate of 0.3 percent. JPMorgan did not respond to a request for comment. In contrast, during the first year of the Obama administration, small businesses shuttered due to lackluster sales and a lack of credit, foreclosures surged, and credit contracted at one of the quickest rates on record. “Why wasn’t the Fed providing these same sweetheart deals to the American people?” asked Warren Gunnels, senior policy adviser to Sanders. “The Fed was practicing socialism for the rich, powerful and the connected, while the federal government was promoting rugged individualism to everyone else.” At the time, Fed officials said its bailout programs were necessary to restart the flow of credit. If money couldn’t flow to lenders, households and businesses would be next. Even more layoffs and foreclosures could have ensued, officials argued. Lending, however, decreased, according to Fed and Federal Deposit Insurance Corporation data. Mortgage rates dropped, but mortgages were harder to come by. Credit card lines were slashed. Loans were called in. New financing plunged. In 2009, outstanding credit to U.S. households declined by $234.5 billion. For non-corporate businesses, credit plunged $296.1 billion, Fed data show. Sanders said the spread between firms’ borrowing rates and their lending rates to Uncle Sam amounted to “free money.” For Bank of America during the third quarter of 2009, the spread was nearly 3 percent. Dubrowski countered by pointing out that Bank of America “extended $184 billion in credit to individuals and businesses” during that time. The author of the CRS report, Marc Labonte, cautioned that “correlation does not prove causation.” “There is no information available on how banks used specific funds borrowed from the Federal Reserve,” he wrote. The Federal Reserve declined to comment. CRS on the Federal Reserve’s Bailout

Read the full article →

Georges Ugeux: Has Wall Street Lost It’s Way?

April 26, 2011

“Markets are always right.” This assertion loved by market analysts is increasingly losing its relevance. In recent years, we have seen that Wall Street was able to be heavily mistaken. The Dow Jones gained 30% since the lowest level of last year, July 6th. What concerns me most is the evolution since the beginning of this year. The Dow Jones has risen approximately 9%. On an annual basis, this would be somewhere above 30%. However, since the beginning of the year, we had a string of bad news. â¢ Popular uprisings across the Middle East â¢ A tsunami followed by a nuclear crisis that seriously weakens the Japanese economy â¢ A rise of 40% of the yield 10-year US Treasury bonds, from 2.5% to 3.5%, over the last six months â¢ A doubling of the yields of the obligations of countries in difficulty – with Greece’s 2-year bonds yielding almost 24% â¢ A negative outlook on the United States AAA rating by Standard & Poor’s â¢ Mediocre corporate results for the first quarter of 2011 in the USA â¢ A 20% increase in food prices worldwide â¢ A nearly 20% increase in the price of gasoline worldwide â¢ A weakening US dollar against all key currencies Inflation is at our doors, we are going through democratic crises, Europe and the United States have become vulnerable, and interest rates are rising. Each of these factors alone would negatively influence the investment climate and lead Wall Street to decline. All of them combined have the potential to provoke a market collapse. This collective denial, which is reminiscent of 2007, gives the distinct impression that stock markets have lost all reason. Time has come to protect capital. We know what kind of crises Wall Street denials can provoke. Large financial institutions are now in a position to send a signal to sell shares, without being accused of lack of civic-mindedness, sense of responsibility, or both. This is the extent of the independence of financial advice that they publish. Today Equilar , a compensation analyst, reported that the S&P American CEO’s bonus increased 43% between 2009 and 2010, and that their average salary ($ 9 million) increased by 28%. The first press conference on Wednesday, of the President of the Federal Reserve, will most likely tell us nothing more than what we already know. It is good news for the “core inflation” level, namely the Consumer Price Index, without taking into account the price of energy or food ! This betrays the actual purchasing power of the consumers. Bernanke’s optimism will not reassure us: he has a track record for not seeing a crisis coming even if it’s the size of an iceberg. The current euphoria on Wall Street is definitely one of the most compelling signs of a selling opportunity in a long time.

Read the full article →

Minimum Wage Boost Wouldnât Hurt Job Growth: Study

April 25, 2011

Raising the minimum wage wouldnât cripple job growth and hurt businesses like some conservative groups have argued , according to a new study . To the contrary, it could pump money into the economy and reduce turnover in low-wage positions, the researchers found. The current federal minimum wage is $7.25, or about $15,000 a year for a full-time job. Until 2007, the minimum wage had been set at $5.15 for over 10 years. Seventeen states currently have a minimum wage set higher than the federal standard, and a number of states are considering giving their standards another boost. The food and retail industries often fight such hikes, arguing that higher wages discourage growth, particularly in down economies. Sylvia Allegretto , an economist at the University of California-Berkeley and the studyâs lead author, believes those concerns are unfounded. âA lot of people say we canât increase the minimum wage during recessions because itâll have this big negative effect,â said Allegretto, whose study was published in the journal Industrial Relations . âWe didnât find that — in general, or when there were recessions.â Researchers, who focused specifically on teen employment, looked at every federal and state minimum-wage raise over the last twenty years, including during the recession from 2007 to 2009, and found that the effects of wage raises on job growth and unemployment didnât change with the business cycle. Allegretto said a lot of the benefits of higher minimum wages tend to be overlooked — like higher morale and productivity, and less time spent searching for workers and training them. Advocates of a minimum-wage boost often argue that the extra income for workers functions a lot like unemployment benefits or food stamps, in that itâs money pumped immediately back into local businesses. Jen Kern, who runs the minimum wage campaign at the National Employment Law Project, says a wage hike âcould provide a boost to families and the economy, putting money into the hands of people who have no choice but to spend it.â According to the Bureau of Labor Statistics , 1.8 million of the countryâs 73 million hourly-paid workers were earning the federal minimum wage during 2010, with another 2.5 million earning even less than that. Minimum-wage earners tend to skew young, with workers under age 25 accounting for roughly half of those making the minimum wage or less. Kern says if the minimum wage had kept pace with inflation since itâs peak in the 1970âs it would now be over $10. A survey conducted last year by the Public Religion Research Institute found that roughly two-thirds of Americans supported raising the federal minimum wage to at least $10 per hour.

Read the full article →

Wall Street Stocks Slip On Fears Of Inflation’s Effect Taking Place

April 25, 2011

U.S. stocks fell on Monday on signs some corporate outlooks were being strained by concerns over higher raw material costs, including consumer products maker Kimberly-Clark Corp. The market’s decline in a low-volume session followed some strong earnings last week, which helped pushed the Dow to a closing high for the year. The S&P 500 has moved to the top end of its recent trading range where it is facing resistance. Kimberly-Clark (KMB.N) sank 2.9 percent to $64.13 and was one of the S&P 500′s top percentage decliners after it cut the low end of its full-year outlook, saying the cost of pulp and other goods were rising more than twice as much as it had expected. The Kleenex tissue maker is one of the companies most exposed to rising commodity costs because its products contain oil-based materials and paper. Johnson Controls Inc (JCI.N) fell 3.3 percent to $39.38 after the company, one of the world’s largest auto suppliers, said its fiscal third-quarter results would be hit by a drop in car production following the earthquake in Japan. “There are some legitimate inflation concerns among investors related to raw material prices, which could put pressure on margins later in the year,” said John Carey, portfolio manager of Pioneer Investment Management in Boston, which has about $260 billion in assets under management. Of S&P 500 companies that have reported results so far, 75 percent beat analysts’ expectations. That is just above the average over the past four quarters but well above the average of 62 percent since 1994, according to Thomson Reuters data. Helping the Nasdaq, SanDisk Corp (SNDK.O) rose 1.6 percent to $49.81 after raising its 2011 margin outlook late on Thursday. The Dow Jones industrial average .DJI was down 34.40 points, or 0.28 percent, at 12,471.59. The Standard & Poor’s 500 Index .SPX was down 2.89 points, or 0.22 percent, at 1,334.49. The Nasdaq Composite Index .IXIC was up just 0.10 of a point, or unchanged on a percentage basis, at 2,820.26. Energy and materials companies’ shares ranked among the weakest of the session, with the S&P Energy Index .GSPE down 0.7 percent and the S&P Materials Index down 0.6 percent. Crude oil futures prices fell after hitting their highest level since September 2008 earlier in the session, while silver reversed course after a sharp rally. The CBOE Volatility Index .VIX, known as the VIX, rose 7.8 percent after falling last week to its lowest level since 2007. This week is another hectic one for earnings with 180 S&P 500 companies set to report, including Amazon.com (AMZN.O), Coca-Cola Co (KO.N), Microsoft Corp (MSFT.O) and Exxon Mobil Corp (XOM.N). The week’s agenda includes a two-day meeting of the U.S. Federal Reserve’s policymaking committee on Tuesday and Wednesday. Fed Chairman Ben Bernanke will hold the first of four annual press conferences on Wednesday after the Federal Open Market Committee’s meeting ends. Investors will look for clues about the direction of monetary policy when the Fed’s bond buying program ends in June. Traders noted that activity would likely be subdued as many major European markets remain closed over the long Easter weekend. About 2.92 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq as of midday, below average for this point in the session. (Reporting by Ryan Vlastelica; Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Eric Schoenberg: How I Paid Only 1% of My Income in Federal Income Tax

April 25, 2011

In 2009, the median U.S. family had an income of just under $50,000, on which they would have paid roughly $2,761 (or about 5.5%) in federal income tax. I, by contrast, enjoyed an income of $207,415 in 2009, but paid only $2,173 (or 1.0%) in income tax. In a recent newspaper interview, I mentioned my absurdly low tax rate to illustrate the extent to which the tax system is biased in favor of the wealthy (my income varies widely from year to year, but is typically north of half a million dollars). My point was that with our country facing frightening budget deficits amid an ever-widening income gap between the rich and everybody else, I consider it both unwise and unfair that a former investment banker like myself pays less in taxes than working Americans with far lower incomes. Among the dozens of emails I received in response were many from people who assumed that rich people avoid taxes through complicated strategies devised by an army of expensive advisors (many correspondents asked for the name of my accountant). But under our current tax system, the rich don’t need high-priced lawyers who exploit obscure loopholes; I wasn’t even trying to minimize my taxes (and, in fact, could have paid zero tax if I was). Warren Buffett has observed that if there’s class warfare in this country, the rich are winning. I offer my 2009 tax return, then, as a flare to illuminate the battlefield. Americans are understandably angry over the government’s multi-billion-dollar bailouts of reckless bankers. But low tax rates on investment income have put far more money into Wall Street’s pockets than the TARP bill did. Even President Obama’s proposal to let the Bush tax cuts lapse for the richest Americans would leave a top marginal rate on capital gains and qualified dividends of just 20% — half the proposed rate on labor income. This difference creates a loophole you can drive a Rolls Royce through. Having left Wall Street in 2002, I now earn far more money from my financial portfolio than from my job as an Adjunct Professor, and as a result I consistently pay under 15% of my income to the IRS. Still, I was astonished when my accountant told me that my tax rate for 2009 was a mere 1%. I knew my deductions were an unusually large percentage of my income that year due to three items: $46,000 in charitable gifts, $56,000 in state and local taxes (mostly related to 2008, when my income was much higher) and $45,000 in investment expenses (basically fees paid to various money managers). Personally, I think there are reasonable arguments to be made for keeping each of these types of deduction, but the numerous “tax expenditures” that litter the tax code mean that citizens with similar incomes can end up paying wildly different amounts in tax. Even after deductions and exemptions, however, I still had taxable income of $37,349, putting me in the 15% bracket (higher than the average rate I’ve paid in years past with income twenty times as large). If I’d been an ordinary worker, my tax bill would have been $4,764. But wait! Under the Bush tax cuts, if one’s income from other sources is low enough (which mine was after deductions), certain types of investment income are subject to zero — yes, zero — tax. In my case, the qualified dividends I received in 2009 would have escaped taxation altogether if not for the Alternative Minimum Tax. Even under the AMT, however, I paid less than half the income tax paid by a wage-earner with the same taxable income (and less than a third of the tax burden when including social security taxes, which are not due on investment income). Does that seem fair to you? Advocates of lower taxes on investment income argue that they increase the incentives for folks like me to create jobs. As a long time investor, I’m skeptical. After all, job growth was much higher in the years following the Clinton tax hike in 1993 than it has been over the last decade as investment tax rates were repeatedly slashed. And lower rates on investment income also reward financial speculators, whose actions in recent years haven’t exactly promoted increased employment. Middle class anger in the Tea Party era, meanwhile, has been directed primarily at government spending. Arguing that government will simply waste whatever money it receives, Tea Party supporters oppose higher taxes on anybody (which explains why this is one populist movement which many billionaires are happy to support). But by focusing attention solely on whether government costs too much, the Tea Party ignores the completely separate question of who pays those costs. Last year, the answer was: not me. And I’m not happy about it. Some Tea Party types have observed that I am welcome to pay more voluntarily to the federal government if I want, but this entirely misses the point. Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. “Taxes are the price we pay for civilization,” and since we all share in that benefit, we should all pay our fair share of the cost. While the Republicans talk about the “shared sacrifices” necessary to close our government’s budget deficit, their plan imposes pain mostly on the sick, the elderly, and the poor. Asking the rich to sacrifice by paying higher tax rates surely pales in comparison. I believe that having wealthy investors pay taxes at the same rate as middle-class workers would be an important step towards making sure that we all contribute to putting our fiscal house in order.

Read the full article →

When Is Tracking Too Much?

April 24, 2011

SAN FRANCISCO — If you’re worried about privacy, you can turn off the function on your smartphone that tracks where you go. But that means giving up the services that probably made you want a smartphone in the first place. After all, how smart is an iPhone or an Android if you can’t use it to map your car trip or scan reviews of nearby restaurants? The debate over digital privacy flamed higher this week with news that Apple Inc.’s popular iPhones and iPads store users’ GPS coordinates for a year or more. Phones that run Google Inc.’s Android software also store users’ location data. And not only is the data stored – allowing anyone who can get their hands on the device to piece together a chillingly accurate profile of where you’ve been – but it’s also transmitted back to the companies to use for their own research. Now, cellphone service providers have had customers’ location data for almost as long as there have been cellphones. That’s how they make sure to route calls and Internet traffic to the right place. Law enforcement analyzes location data on iPhones for criminal evidence – a practice that Alex Levinson, technical lead for firm Katana Forensics, said has helped lead to convictions. And both Apple and Google have said that the location data that they collect from the phones is anonymous and not able to be tied back to specific users. But lawmakers and many users say storing the data creates an opportunity for one’s private information to be misused. Levinson, who raised the iPhone tracking issue last year, agrees that people should start thinking about location data as just as valuable and worth protecting as a wallet or bank account number. “We don’t know what they’re going to do with that information,” said Dawn Anderson, a creative director and Web developer in Glen Mills, Pa., who turned off the GPS feature on her Android-based phone even before the latest debate about location data. She said she doesn’t miss any of the location-based services in the phone. She uses the GPS unit in her car instead. “With any technology, there are security risks and breaches,” she added. “How do we know that it can’t be compromised in some way and used for criminal things?” Privacy watchdogs note that location data opens a big window into very private details of a person’s life, including the doctors they see, the friends they have and the places where they like to spend their time. Besides hackers, databases filled with such information could become inviting targets for stalkers, even divorce lawyers. Do you sync your iPhone to your computer? Well, all it would take to find out where you’ve been is simple, free software that pulls information from the computer. Voila! Your comings and goings, clandestine or otherwise, helpfully pinpointed on a map. One could make the case that privacy isn’t all that prized these days. People knowingly trade it away each day, checking in to restaurants and stores via social media sites like Foursquare, uploading party photos to Facebook to be seen by friends of friends of friends, and freely tweeting the minutiae of their lives on Twitter. More than 500 million people have shared their personal information with Facebook to connect with friends on the social networking service. Billions of people search Google and Yahoo each month, accepting their tracking “cookies” in exchange for access to the world’s digital information. And with about 5 billion people now using cellphones, a person’s location has become just another data point to be used for marketing, the same way that advertisers now use records of Web searches to show you online ads tailored to your interest in the Red Sox, or dancing, or certain stores. Autumn Bradfish, a sophomore at the University of Iowa, said she doesn’t see a problem with phone companies using her location to produce targeted ads, as long as they deliver relevant offers to her. She said she would not disable the tracking feature on her iPhone because she enjoys using a mapping app that helps her find new restaurants. “I’m terrible with maps,” she said. The very fact that your location is a moving target makes it that much more alluring for advertisers. Every new place you go represents a new selling opportunity. In that sense, smartphone technology is the ultimate matchmaker for marketers looking to assemble profiles on prospective customers. That profiling is what makes some users uneasy. At a technology conference in San Francisco this past week, security researchers disclosed that iPhones and iPads keep a small file of location data on their users. That file – which is not encrypted and thus vulnerable to hacking – is transferred when you sync your phone to your computer to back up information. Security firm F-Secure Corp. said the iPhone sends users’ location data to Apple twice a day to improve its database of known Wi-Fi networks. The data that is available goes back to last year’s launch of Apple’s new iOS 4 operating software. Researchers say the tracking was going on before that, though the file was in a different format and wasn’t easy to find until the new system came out. In June, Apple added a section to its privacy policy to note that it would collect some real-time location data from iPhone users in order to improve its features. While Apple has been silent about the latest findings, it has noted that its practice is clearly spelled out in user agreements. Other phone makers say the same. Google acknowledged this past week that it does store some location data directly on phones for a short time from users who have chosen to use GPS services, “in order to provide a better mobile experience on Android devices.” It too stressed that any location sharing on Android is done with the user’s permission. But consumer advocates warn that too many people click right through privacy notifications and breeze over or ignore such legalese. Case in point _some iPhone users who found about this past week about the data storage say they didn’t know anything about Apple’s tracking. “It’s like being stalked by a secret organization. Outrageous!” said Jill Kuraitis, 54, a freelance journalist in Boise, Idaho. “To be actively tracking millions of people without notification? It’s beyond unacceptable.” It’s easy to tell smartphone users that turning off tracking is as easy as finding their way to the settings menu. But to opt out of GPS service means preventing the software on your phone from using any information about where you are. That means cutting yourself off from the vast array of mobile apps that offer discounts and ads, allow you to connect more easily with friends who use social media, and simplify your life with map directions. Not a great trade-off. And if you thought there were laws that curbed tracking, think again. The government prohibits telephone companies from sharing customer data, including location information, with outside parties without first getting the customer’s consent. But those rules don’t apply to Apple and other phone makers. Nor do they apply to the new ecosystem of mobile services offered through those apps made by third-party developers. What’s more, because those rules were written for old-fashioned telephone service, it’s unclear whether they apply to mobile broadband service at all – even for wireless carriers that are also traditional phone companies, like AT&T Inc. and Verizon. Both the Federal Communications Commission and the Federal Trade Commission have said they are looking into the issue. But for now, it’s up to smartphone users to decide: Is it privacy they are most concerned about, or convenience? ___ AP writers Ryan J. Foley in Iowa City, Iowa, Kathy Matheson in Philadelphia and AP Technology Writers Joelle Tessler in Washington and Peter Svensson in New York contributed to this report.

Read the full article →

Obama’s Oil Market Fraud Squad May Miss Wall Street Abuses

April 22, 2011

WASHINGTON — On Thursday, President Obama unveiled a new working group to combat any fraud or manipulation in the oil and energy markets that may be contributing to near-record gas prices. But some economists and market experts worry that by focusing on criminal activity, Obama is shrugging off a much bigger problem: rampant Wall Street speculation in commodities markets that has helped drive up food and energy prices in the past. “If prices start moving quickly up, you can get a side effect … that people might try to play [fraudulent] games of one sort or another,” said Massachusetts Institute of Technology economist John Parsons. âBut it wouldn’t be central to the price movementâ currently being seen in the market, he said. Gas prices are approaching record levels set in 2008, when prices at the pump eclipsed $5 a gallon. While unrest in the Middle East is almost certainly playing a major role in boosting current prices, increased speculation in commodities markets is likely contributing to the near record prices. The number of speculative bets being placed on oil and gas now far exceeds that of the 2008 price swing , which many economists believe was driven by excess speculation. Moreover, on March 21, Goldman Sachs analyst David Greely advanced the argument that Wall Street speculation was helping drive up oil prices in a memo sent to the bankâs clients. But, if speculative excess is contributing to current sky-high gas prices, such activity may not be illegal, in part because the Commodities Futures Trading Commission has not yet issued key regulations intended to rein in Wall Street gambling on food and energy prices. Congress ordered the agency to crack down on excessive speculation with last year’s financial reform bill, but the CFTC has been slow to implement new rules in the face of intense lobbying from Wall Street bankers. Financiers are quick to note that commodities markets need speculation — a raw bet that the price of oil or food will move up or down — in order to function. But economists say that too much speculation can distort the market, leading to wild price swings. Even if so-called “fundamental” factors are driving prices, heavy speculation can cause prices to swing further than normal supply and demand forces would dictate. In January, the CFTC announced it would push back implementing âposition limitsâ, a key regulatory tool that restricts the size of the bets investors can make on commodities, in order to collect more data. But many reform advocates and CFTC Commissioner Bart Chilton say that there is plenty of data available to implement new rules now. “What the administration and others should do, which they have the power to do quickly, is impose position limits, which would stop excessive speculation now,” said Dennis Kelleher, a former securities lawyer with Skadden, Arps, Slate, Meagher & Flom who now heads the financial reform advocacy group Better Markets. “An investigation into criminal acts is not likely to lead to much.” Attorney General Eric Holder, who is in charge of the new inter-agency taskforce, specifically instructed members of the new taskforce in a Thursday memo to look into “the role of speculators and index traders in oil futures markets” — something the CFTC is already required to do. Officials from the CFTC, the Federal Reserve, the Federal Trade Commission, the Department of Agriculture, the Deparment of Energy and state attorneys general will be part of the group. But Chilton, the CFTCâs strongest proponent of reining in commodity speculation, says that the task force may well do some good. “Seventy-five percent of the cases we send to the Justice Department for criminal prosecution are rejected,” Chilton told The Huffington Post. “But if we can work more closely with the DOJ folks, we may be able to put more people in jail.” Nevertheless, Chilton said the CFTC should be taking steps independent of the task force: “That doesn’t mean that the working group is a panacea for actions that can be taken by regulators right now. The position limits are something we can do right now. I don’t need a task force to tell me to do that.” Unlike the stock market and other capital markets, commodities markets are not designed to function as a forum for investment vehicles. Instead, commodity markets are supposed to allow farmers, manufacturers and other producers to hedge the risks of doing business. By taking out a futures contract, or similar bet in the derivatives markets, farmers can lock in a price for their crops, protecting themselves from price changes. Producers need someone to take the other side of their price bets, whether it be another producer or, as it more frequently is, a Wall Street trader. Commodities markets work well when around 30 percent of the market is dedicated to speculation, According to Kelleher. But since the mid-2000s, the share of speculators in commodity market activity has increased to about 70 percent, Kelleher says, in part driven by new commodities “index funds,” which allow investors to bet on the price of several commodities at once.The size of those funds expanded from about $15 billion in 2003 to $200 billion in 2008 , and are currently valued at over $400 billion , according to Barclays Capital. The explosion in the over-the-counter derivatives market has also contributed significantly to oil price increases, according to Kelleher, by allowing investors to place huge bets on commodities without either regulatory oversight or market scrutiny. The derivatives market for commodities grew from about $674 billion in 2001 to $13.2 trillion by June 2008 , according to the Bank for International Settlements. Last year’s financial overhaul gave the CFTC authority over that entire derivatives market — one vastly larger than the $5 trillion futures market that the agency had previously policed in isolation. Whatever new rules the CFTC writes, they will need funding additional funding to enforce them. “The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded mission,” CFTC Chairman Gary Gensler warned in April 12 testimony before the Senate Banking Committee . But Obama was willing to negotiate away additional funding for the agency during negotiations over the budget for the rest of 2011. Under the budget deal Obama struck with congressional Republicans earlier this month, the CFTC will receive a $34 million boost in funding for the remainder of the year. But, even with that additional cash, the agency will receive about $60 million less this year than the amount Obama requested for the agency under his 2011 budget. Calls to the White House were not returned. The Department of Justice declined to comment. Elise Foley contributed to this report.

Read the full article →

U.S. ‘Strong Dollar’ Rhetoric Fades As Currency’s Value Declines

April 22, 2011

WASHINGTON (Glenn Somerville and Tim Reid) – For years, Treasury secretaries parroted a line that the U.S. was committed to a strong dollar policy. But as the greenback slides close to all-time lows, President Barack Obama’s administration has been noticeably quiet. Treasury Secretary Tim Geithner last used “strong dollar” language in November, and a glance through his speeches and news databases shows he has had almost nothing to say on the matter since. Meanwhile, record low interest rates, the Federal Reserve’s bond buying program, staggering budget deficits and the White House’s export-driven jobs policy all have contributed to the dollar’s decline. All this has a growing number of investors and currency experts thinking Washington is passively accepting a gradual decline in the currency, hoping it helps engineer a vigorous enough recovery to get a battered economy in order. “There is no obvious evidence of that in official rhetoric or in the commentary of key officials, but de facto the United States is permitting if not aiding a deliberate dollar decline,” said Allen Sinai, chief global economist for Decision Economics Inc. in Boston. “The heart of the dollar decline,” he added, stems from the super-loose monetary policy run by the Federal Reserve for more than two years as opposed to fiscal or tax policy. “Markets aren’t going to buy the dollar when you offer zero interest rates and have an economy that is growing at roughly one-third the rate of China’s — that’s an easy choice for investors.” On Thursday, the dollar index, a gauge of the U.S. currency against six advanced country currencies, fell to 73.735, its lowest level since August 2008, setting up a possible run toward its record low of 70.698 touched in March 2008. The euro soared to a 16-month high above $1.46. Geithner last year flatly denied he is pursuing a policy aimed at cheapening the dollar. “We will never use our currency as a tool to gain competitive advantage,” he told reporters last November after a meeting in Kyoto, Japan, of finance ministers from the Asia-Pacific Economic Cooperation group. “I’m happy to reaffirm again that a strong dollar’s in our interest as a country.” Undeniably, though, financial markets see the dollar on a slide against other currencies that is likely to continue, in no small part because current trade policy seems to demand it. “It’s implicit in the administration’s call for a doubling of exports, that can’t happen without the dollar falling,” said David Gilmore, a partner at FX Analytics in Essex, Connecticut. The U.S. government’s consistent pressure for a revaluation of the currency of its major trading partner, China, only underline these perceptions. Much of the argument for the dollar’s decline — down 6.2 percent this year against that basket of six major currencies — comes back to the Fed’s policy of keeping interest rates low to spur a fledgling recovery from the 2007-2009 financial crisis. It’s a policy that’s drawn criticism from the world’s new economic powerhouses in Latin America and Asia, who say U.S. monetary policy is fueling global inflation and hurting efforts to balance the global economy. “I’ve noticed there’s a strategy by the United States and advanced countries to increase exports and reduce their imbalances at the cost of emerging markets,” Brazilian Finance Minister Guido Mantega, a former economics professor, said last year. Strong corporate earnings reports this week showed the declining dollar has helped U.S. companies sell drugs, chemicals and food in foreign markets. A former White House economist in the Obama administration, who requested anonymity, summed it up: “I don’t believe the U.S. is actively pushing a weak dollar policy — but I would say this: the fact that interest rates are low and the U.S. is aggressively pushing monetary stimulus, that has the effect of depreciating the dollar,” the former official said. “That is certainly a mechanism which would result in a de facto weak dollar policy.” PLAYING WITH FIRE? There are major dangers with such a strategy, not least of which are the inflationary risks it creates. The Fed’s buying up of U.S. government debt, also known as quantitative easing, is to many the equivalent of cranking up the dollar printing presses at the central bank, devaluing the value of the currency in the process. “When you print money or create money…it weakens the value of the dollar” and stokes potential inflation, said Representative Steve Stivers, a freshman Republican from Ohio. The same sentiment was expressed by Republican Senator Jim DeMint, who told the Senate Banking Committee last month, “The quantitative easing, monetizing of debt, or however we term that, has caused some concern about…the long-term value of our currency.” Indeed, with U.S. gasoline pump prices soaring partly because investors have been able to borrow money cheaply in the U.S. and invest it in crude oil and other commodities, Obama has been lashing out. On Thursday, he announced that a group of federal agencies were being asked to probe fraud in the energy markets. Of course, no Obama administration official is ever likely to officially endorse a declining dollar. There is no political upside to being a “weak dollar” president. But analysts say allowing a slow decline in the dollar isn’t a policy to be feared unless the fall turns into a rout. “It’s a necessary part of both global rebalancing and domestic rebalancing, given that the U.S. has agreed that it needs to rely less on debt-financed consumer spending and more on export-driven growth,” said C. Fred Bergsten, director of the Peterson Institute think-tank in Washington. Bergsten, a noted commentator on exchange-rate policy, noted there has been essentially a nine-year “bear market” in the dollar since 2002, aside from brief upward spurts in value when the global financial crisis struck in 2008 and again last year when Europe’s debt crisis was acute. That means a substantial amount of foreign exchange rate rebalancing has taken place, aside from a continuing disconnect between the value of fast-growing China’s yuan and the dollar. Bergsten estimated the yuan remains undervalued by around 20 percent. In financial markets, major players anticipate a continuing decline for the dollar, partly connected to skepticism that the Obama administration and opposition Republicans are anywhere near agreement on how to tame towering deficits. “Absent problems elsewhere in the world, history and economics suggest that America’s current fiscal and monetary policy stance will put continued pressures on the dollar,” said Mohamed El-Erian, co-chief investment officer of top bond manager PIMCO, which has $1.2 trillion in assets under management and is betting against U.S. treasuries. And influential investor Jim Rogers warns that investors will stop buying increasingly risky U.S. government assets even if the returns go up from current levels. “At some point along the line, people are going to realize it’s absurd to lend money to the United States government at 30 years in U.S. dollars at 3 or 4 or 5 or 6 percent interest,” he told Reuters Insider. (Additional reporting by Donna Smith, Thomas Ferraro, Mark Felsenthal and Jennifer Ablan in New York, editing by Kristin Roberts and Martin Howell) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Video: Smith Says Risk Is Now `Back in Vogue’ With Investors

April 22, 2011

April 21 (Bloomberg) — Henley Smith, chief investment officer at Commonwealth Asset Management, and Peter Andersen, portfolio manager at Congress Asset Mangement, talk about the U.S. economy and prospects for additional quantitative easing by the Federal Reserve, the outlook for the financial markets and investment strategy. They speak with Pimm Fox on Bloomberg’s “Taking Stock.” (Source: Bloomberg)

Read the full article →

Video: Scott Minerd Likes U.S. Over Europe, Emerging Markets

April 21, 2011

April 21 (Bloomberg) — Scott Minerd, chief investment officer at Guggenheim Partners LLC, talks about his preference for investing in the U.S. over Europe and emerging markets. Minerd also says the Federal Reserve is at least a year away from raising interest rates. He speaks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Read the full article →

Bank Of America Makes Easy Profits Off Fed While Depositors Get Shortchanged

April 21, 2011

Households are earning so little from their bank accounts that Bank of America, the largest U.S. lender, has pocketed about twice as much cash this year parking money at the Federal Reserve than it has paid to savings-account holders. The North Carolina-based bank paid U.S. depositors a 0.43 percent interest rate last quarter, according to earnings documents the company released last week. Savings-account holders took home even less, with total interest on their accounts reaching just $32 million for the three-month period ending in March. Meanwhile, Bank of America raked in $63 million simply by stashing cash at the Fed. The nation’s central bank only recently began compensating commercial banks for storing their money at the Fed as part of its response to the financial crisis. Thanks to Fed policy and banking industry consolidation, the largest banks are booking easy profits as households and businesses plow record amounts of cash to lenders despite a record-low rate of return. Rather than lending that cheap money out to consumers or small businesses, banks are either investing it or hoarding it at other institutions, where they earn a much higher rate than what they pay their own customers. Bank of America’s $1 trillion in deposits worldwide cost the firm just 0.33 percent last quarter, down from 0.46 last year, including non-interest bearing accounts. Americans stored about $713 billion at JPMorgan Chase as of March 31, but the second-largest U.S. bank only paid a 0.53 percent rate on interest-bearing deposits, a figure that shrinks to about 0.3 percent when all deposits are considered. Citigroup, the third-largest bank, continued to reduce the rate it paid its depositors even though the yield it earned from its own deposits continue to rise, while Wells Fargo, ranked fourth in total assets, lowered the amount it paid depositors to just $615 million, a figure eclipsed by the $1 billion in service fees it charged those very same customers. All the while, deposits at these four firms continue to increase as consumers “hoard powder for a rainy day,” said Greg McBride, senior financial analyst at Bankrate.com. Analysts at Barclays Capital call it “lazy” money, according to an April 8 research note for clients. Charles H. Noski, chief financial officer at Bank of America, told analysts last week that the lender’s commercial customers “continued to prefer to hold rather than invest cash.” The amount of readily deployable cash sitting idle in U.S. accounts reached a record $5.9 trillion in March, according to Market Rates Insight, a California-based data provider. That cash, which doesnât include certificates of deposit, was earning an average of less than 0.5 percent interest, the research firm said. Asked last week how his bank funded an increasing amount of investments in various securities, which led to increased earnings, JPMorgan Chase chief executive Jamie Dimon pointed to rising deposits. Dimonâs firm saw the rate it earned from other banks for deposits nearly double to 1.11 percent over the past year, company records show. During the first quarter of 2010, the rate it earned versus the rate it paid its own depositors differed by just 0.09 percent. In a year, that spread increased six-fold. Record deposits have enabled banks to reduce their costs to record lows. Deposits now make up about 80 percent of the industry’s liabilities, up from 72 percent in 2007, according to Market Rates Insight. For the first time since 1962, banks last year paid less than 1 percent annually for their funds, Federal Deposit Insurance Corporation data show. In 2007, banks paid 2.76 percent. The biggest banks paid even less. Lenders with at least $10 billion in assets paid just 0.77 percent for their funds during the three-month period ending in December, nearly half a percentage point less than banks with fewer than $1 billion in assets, according to the FDIC. Experts point to increased consolidation in the banking industry and the rise of so-called Too Big to Fail banks. As of Dec. 31, the nation’s four largest banks held 48 percent of the industry’s assets, Federal Reserve data show. In 2001, it took 16 banks to achieve such a grip over the industry. Today, banks boast about their low cost of funds. Bank of America said its “solid deposit growth” coupled with what it termed “disciplined pricing” enabled it to bring down its overall deposit rates to 0.33 percent, a point it highlighted in a presentation to analysts. Wells Fargo told analysts about its “continued strength in attracting low-cost deposits,” which has enabled the nation’s largest home-loan lender to bring down its overall cost of deposits to just 0.30 percent interest. “The deposit growth continues to be beyond our expectations and we’re really, really pleased with that growth,” said Timothy J. Sloan, Wells Fargo’s chief financial officer. Deposits averaged about $841 billion last quarter, up 4.6 percent since the same period last year. For Wells Fargo, that increased cheap funding has resulted in higher returns. About 60 percent of the lender’s $1.1 trillion in interest-earning assets is funded by interest-bearing deposits that yield just 0.38 percent. Those assets include credit card accounts that yield 13.2 percent, mortgage-backed securities that yield 9.7 percent, and municipal obligations that generate about 5.5 percent in interest. At Bank of America, surging deposits enabled the lender to earn $88 million in interest last quarter for the cash it parked at other banks. While depositors at the lender have seen their rates slide, BofA has been earning more for its own deposits at other institutions. Last quarter, BofA earned 1.14 percent on its own cash at other banks, up from 0.89 percent during the same period last year.

Read the full article →

Video: Perli Says Fed May Increase Rates in June 2012

April 21, 2011

April 21 (Bloomberg) — Roberto Perli, managing director at International Strategy & Investment Group, discusses the outlook for Federal Reserve monetary policy. Perli speaks from Washington with Julie Hyman on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Read the full article →

Video: Perli Says Fed May Increase Rates in June 2012

April 21, 2011

April 21 (Bloomberg) — Roberto Perli, managing director at International Strategy & Investment Group, discusses the outlook for Federal Reserve monetary policy. Perli speaks from Washington with Julie Hyman on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Read the full article →

Video: Holland Sees Opportunities in Growth Stocks, Utilities

April 21, 2011

April 21 (Bloomberg) — Michael Holland, chairman of Holland & Co., talks about the equity market, Federal Reserve monetary policy and investment strategy. He speaks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

Read the full article →

Massey Blames Regulators For Losses, Gives Ex-CEO Lavish Retirement Package

April 21, 2011

Welcome to “The Watchdog,” which will keep a close eye on regulatory agencies and how their actions impact the lives of everyday Americans. Though the rules and regulations they write — from determining how much arsenic is allowable in your drinking water to whether your favorite TV show can drop the F-bomb in primetime — affect all of us, their deliberations and the way that lobbyists influence their decisions receive very little coverage. To make sense of these debates, follow the implementation of health care and financial reform and decipher the minutia of the Federal Register, “The Watchdog” is on the case. If you have any tips, send them to marcus@huffingtonpost.com .

Read the full article →

Video: Miller Says FBR Likes Fifth Third, Zions, PNC Financial

April 21, 2011

April 21 (Bloomberg) — Paul Miller, a bank analyst at FBR Capital Markets and a former examiner for the Federal Reserve Bank of Philadelphia, talks about the outlook for U.S. banking stocks. He speaks with Carol Massar, Dominic Chu and Jon Erlichman on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

Read the full article →

Air Force Looks to China When American Manufacturing Falls Short

April 20, 2011

Michael Mandel , the chief economist for BusinessWeek, was recently doing some research for a textbook heâs revising when he stumbled upon a surprising entry in the Federal Registry. On March 21, the U.S. Air Force waived the âBuy Americanâ provision of the American Recovery and Reinvestment Act of 2009 for a construction project at Eielson Air Force Base in Alaska. As workers tried to build a few stimulus-backed housing units, it became apparent that a number of simple domestic items couldnât be procured from American manufacturers â namely, ceiling fans, shower rods, towel racks, toilet-paper holders, and all manner of screws and fixtures. According to the registry entry, a contracting official has determined that the above items of manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality. The domestic nonavailability determination for these products is based on extensive market research and thorough investigation of the domestic manufacturing landscape. This research identified that these products are manufactured almost exclusively in China. In fiscal year 2009, more than 44,000 waivers of federal âBuy Americanâ provisions were granted, worth nearly $14 billion. On his blog, Mandel writes that the Air Force waiver in particular âcertifies the weakness of domestic manufacturing in America,â though he also questions whether all the household items listed are actually unavailable in the U.S., given that, according to him, the American production of nuts and bolts has been climbing in recent years. Similarly, the Alliance for American Manufacturing (AAM) wonders whether there isnât a âsingle American manufacturerâ producing the screws required for the Eielson project. âThereâs a great deal of evidence that many agencies, including the Department of Defense, donât look very wide or deep for procurement,â AAMâs Executive Director, Scott Paul, told HuffPost. âSome agencies are much more aggressive about enforcing it than others.â But in this case, it seems the collated screws in question are certifiably unavailable in the States. Jennifer Baker Reid of the Industrial Fasteners Institute, a trade group for nuts-and-bolts manufacturers, says such screws are âlargely, if not entirely, importsâ from China nowadays. The waiver, Reid says, âappears to have been issued appropriately based on market research.â Thatâs not to say Reidâs group hasnât had other bones to pick with federal agencies over the stimulus packageâs âBuy Americanâ stipulation. Her group complained to the Environmental Protection Agency over some 2009 waivers granted for fasteners for stimulus-funded wastewater treatment upgrades. In that case, Reid says her group had two U.S. manufacturers who could have supplied the necessary fasteners. âThese waivers have come out fast and furious without checking to see if a U.S. supplier is available,â she says. In the case of the Eielson project, it may be more troubling that the Air Force did its due diligence and still couldnât find a supplier. âItâs not like China has a competitive advantage in making screws,â says Paul. âShame on us if we canât make them.â

Read the full article →

Treasury Strikes Back At Wall Street Lobbyists, GOP Critics

April 19, 2011

Welcome to “The Watchdog,” which will keep a close eye on regulatory agencies and how their actions impact the lives of everyday Americans. Though the rules and regulations they write — from determining how much arsenic is allowable in your drinking water to whether your favorite TV show can drop the F-bomb in primetime — affect all of us, their deliberations and the way that lobbyists influence their decisions receive very little coverage. To make sense of these debates, follow the implementation of health care and financial reform and decipher the minutia of the Federal Register, “The Watchdog” is on the case. If you have any tips, send them to marcus@huffingtonpost.com .

Read the full article →

Video: Romer Says S&P’s Revised U.S. Outlook Is `Puzzling’

April 18, 2011

April 18 (Bloomberg) — Christina Romer, former head of President Barack Obama’s Council of Economic Advisers, talks about the decision by Standard & Poor’s to revise its outlook for the long-term U.S. credit rating to “negative,” negotiations over the federal budget deficit and the Federal Reserve’s policy of quantitative easing. Romer speaks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

Read the full article →

Video: Herrmann Sees `Modest, Moderate’ Core Inflation Ahead

April 15, 2011

April 15 (Bloomberg) — John Herrmann, a senior fixed-income strategist at State Street Global Markets, talks about the U.S. consumer-price index for March and the outlook for the U.S. economy. Price gains for U.S. goods and services other than food and fuel unexpectedly cooled in March, supporting Federal Reserve Chairman Ben S. Bernanke’s view that the surge in commodity costs will not cause inflation to flare. Herrmann speaks with Melissa Long on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Read the full article →

Video: UBS’s Harris Says Fed Should Start `Unwinding’ Easing

April 15, 2011

April 15 (Bloomberg) — Maury Harris, chief economist at UBS Securities, talks about U.S. consumer prices in March and Federal Reserve monetary policy. The consumer price index excluding volatile food and energy charges rose 0.1 percent, according to the Labor Department. Harris speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

Read the full article →

Soaring Prices Still Don’t Indicate Real Inflation, Economists Say

April 15, 2011

Despite American consumers being hard hit by rising gas and grocery prices, federal regulators continue to insist the country need not fear inflation. Gas prices, which rose nearly 6 percent in March alone, are now almost 28 percent higher than they were a year ago, according to figures from the Bureau of Labor Statistics released Friday. Overall, the Consumer Price Index, a closely-watched measure of inflation, rose 0.5 percent in March, the Labor Department reported. The Consumer Price Index tracks changes in the cost of a virtual basket of goods for consumers in cities across the country. Rising food and gas prices accounted for almost three quarters of the March CPI increase. Those findings are in line with economists’ expectations . Still, the Federal Reserve has no plans to combat inflation by raising interest rates ; many economists argue that higher food and energy prices do not necessarily trigger overall price increases for goods and services. “Prices for energy are certainly putting pressure on headline CPI,” said Constance Hunter, Chief Economist at investment banking firm Aladdin Capital. “We saw this in the summer in 2008, when due to oil prices, the CPI got up 5.53 percent. But the point is it didn’t stay there because we had demand destruction.” As gas prices spiked in summer 2008, Hunter noted, many Americans changed their driving habits, opting to take more public transport and start carpooling rather than pay higher prices. That caused oil demand to fall, and prices followed. Now again, there is some indication Americans are already cutting back on driving . The strongest evidence counteracting inflationary fears, however, lies in the core inflation level, which does not include volatile food and energy prices and is widely considered to be a more accurate inflationary predictor. According to that BLS measurement, inflation only inched up 0.1 percent in March — the smallest increase this year — suggesting core inflation is on track to rise 1.2 percent overall in 2011. Inflation below 2 percent normally doesn’t trigger alarm at the Federal Reserve. “The Fed tends to see through temporary increases in headline inflation that are driven by rising fuel and food costs,” said Sal Guatieri, senior economist at financial services provider BMO Capital Markets. “Because the view is those costs cannot rise infinitely.” What is clear, though, is that many Americans are feeling the pinch of those rising costs anyway. “People are still spending very cautiously,” Guatieri noted. Higher gas prices buoyed just a 0.4 percent jump in retail sales in March, according to figures released by the Commerce Department on Wednesday. Consumer spending, which makes up 70 percent of U.S. spending, has risen for nine consecutive months, jumping over 7 percent since March 2010. Sales at gas stations accounted for almost 11 percent of overall retail sales in March — a sign March’s spending increase was more a result of rising costs than increasing optimism.

Read the full article →

Schaum Named New Market Manager at TopLine Federal Credit Union’s Brooklyn Park Location

April 15, 2011

MAPLE GROVE, MN–(Marketwire – April 15, 2011) – Kelly Schaum has joined TopLine Federal Credit Union as the market manager for TopLine’s Brooklyn Park branch location at 9790 Schreiber Terrace North. She joins TopLine from Anoka Hennepin Credit Union in Coon Rapids, Minn. where she managed three branch locations.

Read the full article →

The Center for Public Integrity: Oil Companies May Have Avoided Paying Billions To Government

April 15, 2011

The Huffington Post is a sponsor of the Center for Public Integrity iWatch News by Aaron Mehta Even as leaders grapple with the nation’s fiscal troubles and urge expanded drilling for natural resources, their failure to remedy decades-old systemic shortcomings at the Interior Department may have allowed billions of dollars in royalties from oil and natural gas companies to slip away, increasing the burden on taxpayers. By law, energy companies must pay one-sixth to one-eighth of the value of oil and gas obtained on public lands and in federal waters off the nation’s coasts. In practice, government auditors and Interior’s inspector general believe the industry is paying less than it legally should. Exactly how much less is anybody’s guess, but it is believed to be at least hundreds of millions — and possibly tens of billions of dollars. So flawed and complicated are Interior Department operations and records that even auditors from the Government Accountability Office, the watchdog arm of Congress, have been unable to figure out exactly how much has been lost to taxpayers. “This is something that is a struggle for us,” Franklin Rusco, the director of the GAO’s team of natural resources and environment investigators, told iWatch News . This much is clear, added Rusco: “Interior can’t provide reasonable assurance that it is collecting all the royalties that it should.” The government’s failures are all the more striking against the backdrop of heightened attention and political showdowns over government spending and taxes. “It’s outrageous that even during a fiscal crisis, Interior fails to pursue taxpayers’ fair share of royalties,” said Mandy Smithberger, an investigator for the Project on Government Oversight , a Washington-based government watchdog group that has examined other issues involving the royalty system. Despite at least three decades of demands for improvement from Congress and the GAO, the Interior Department repeatedly has failed to heed basic recommendations for fixing the complicated and ill-funded process, which largely relies on companies to volunteer pricing information on which royalty payments are based, according to recent audits and the testimony of Interior Department officials reviewed by iWatch News . Those reports and interviews show that the federal government is hampered by staffing and technology inadequate to track and confirm what the companies disclose, as well as antiquated royalty collection laws and poor communication within the federal bureaucracy. One Interior Department agency, for instance, lacks any way of keeping up to date on the activity of wells and the amount of energy produced in the Gulf of Mexico, where the government grants companies the lucrative privilege of exploring and drilling. Lack of such real-time data is critical because royalties are based in part on current oil and gas prices. Without information on industry revenue, the Interior Department has no way of knowing whether oil and gas companies are paying their fair share. It also can’t tell which producers may be underpaying the most, and thus warrant scrutiny. And only half of the money paid to the government during each of the past three years has been audited by the department for accuracy. The Obama administration acknowledges some of the failures but says it is working on remedies. Interior spokeswoman Kendra Barkoff said that an “aggressive” reorganization of Interior precipitated by the BP oil spill one year ago already has increased oversight of the gas and oil industry in the past nine months. That includes oversight of royalty collections by the Office of Natural Resources Revenue. Even so, the government insists significant underpayments are eventually detected due to a “sophisticated accounting and detection system,” Barkoff said in a written response to questions from iWatch News. “The department does not believe that material amounts of royalties are ultimately uncollected.” The oil and gas industry, while acknowledging weaknesses in the royalty collection system, says that it is paying its fair share. The American Petroleum Institute, the leading trade association for the oil and gas industry, says in a statement on its website that it is “committed to working with all parties to improve any perceived inadequacies in the system.” Industry groups did not respond to multiple iWatch News requests for comment. Royalty payments from companies that drill on public lands and waters account for the federal government’s second-largest source of income; only taxes generate more revenue for Uncle Sam. In 2009, the energy industry paid an estimated $9 billion in royalties on sales of oil and gas obtained from federal lands and waters. If taxpayers are missing just 3 percent of royalties — a conservative estimate from sources contacted by iWatch News — the missing amount would be into the hundreds of millions of dollars annually. “These are publically owned resources and we should be getting a fair value for them,” said Autumn Hanna, who analyzes environmental spending for Taxpayers for Common Sense, an independent policy group in Washington. “These are things the federal government owns that we have a right to — and that corporations are making billions of dollars off of.” Oil companies treated ‘like royalty’ Politicians in both parties acknowledged concerns about the royalty program’s shortcomings in statements to iWatch. “It is important that the government collect what is fairly owed and that the necessary systems are in place to collect these funds as stipulated by the contractual terms in all federal oil and gas leases,” said Thad Cochran of Mississippi, a Republican member of a Senate appropriations subcommittee overseeing the Interior Department. Cochran is among a number of Republicans and Democrats seeking to expand drilling on the nation’s public lands and along its coastlines. Cochran said he is urging colleagues to “embrace policies to maximize royalties paid to the U.S. Treasury, not only by ensuring that royalties due under existing leases are paid in full but also by increasing all domestic energy production consistent with environmental laws.” Massachusetts Democrat Ed Markey, a member of House energy and natural resources committees, argues for a royalty crackdown on oil and gas companies — especially when the nation faces a budget deficit. “We need to reclaim the tens of billions of dollars in royalties from oil companies drilling for free on public land,” he said, “and use those funds to reduce the deficit.” Added Markey: “Our government should be extracting all the royalties rightfully owed to the American people, not expressing fealty to the oil companies and treating them like they are royalty.” Some lay blame for the persistent shortcomings in royalty collections on the influence of the energy industry. In 2010 alone, the oil and gas industry reported spending more than $146 million to lobby the federal government. During the 2009-2010 election cycle, it donated close to $28 million to federal campaigns, data compiled by the Center for Responsive Politics show. While the money has gone mostly to Republicans, cash has also flowed to the Democratic party of President Barack Obama, whose administration backs a limited expansion of drilling in the Gulf of Mexico. Dave Alberswerth , a former senior advisor at the Interior Department during the Clinton administration, said the industry has a key role in maintaining a broken system. He calls the influence of the oil and gas industry “enormous.” “They have so much influence it’s just scandalous,” said Alberswerth, now a policy advisor at the Wilderness Society, an environmental advocacy organization. “It’s impossible to dislodge them.” Both Albersworth and the GAO’s Rusco cite a lack of staffing as a major issue with the royalties system. “Part of the reality is that [Interior] simply does not have enough people going around to do enforcement and inspections” said Albersworth, whose organization supports a proposal in the department’s fiscal 2012 budget request that would impose a small fee on oil and gas companies to pay for more inspectors. A history of problems Interior Department Inspector General Mary Kendall warned in an April 2010 report to Congress that the government has “failed to carry out effective oversight and management to ensure all royalty income is collected.” And in February 2011, the GAO identified the troubles as serious enough to put it on the watchdog’s bi-annual “High Risk” report; it warned that the department’s royalty collection shortcomings placed it among programs at a “high risk for waste, fraud, abuse mismanagement or in need of broad reform.” Like many breakdowns in government, this one has been brewing for years. In January 1982, a federal commission investigating alleged royalties fraud and theft of oil from public lands criticized the government for not “fulfilling a public trust.” The study, ” Fiscal Accountability of the Nation’s Energy Resources ” — commonly known as the Linowes report for its economist-chairman, David F. Linowes — began pointedly: “Management of royalties for the Nation’s energy resources has been a failure for more than 20 years.” The report went on to cite “disarray” in recordkeeping and “serious inadequacies” in how the government managed the royalty program. “The Nation can no longer afford mismanagement of royalties for its energy resources,” it warned. “The stakes are too high.” Even then it was unclear how much was being lost. The 1982 report estimated “about one hundred million to several hundred million dollars a year,” but acknowledged that was only a guess. “The exact amount of money the Federal government, the States and the [Indian tribes] lose each year is unknown.” More recently, the government decided to shut down a program that allowed oil and gas companies to make “in-kind” royalty payments. Companies had been allowed to pay in oil or gas, which the government could resell or stash away in the federal Strategic Petroleum Reserve. But in 2008 the Interior Department’s inspector general documented a “culture of ethical failure” that described how government staff running the in-kind program socialized with oil and gas industry employees, routinely accepting gifts from them and even engaging in drug use and sexual relations with them. A spokesman for the in-kind program told iWatch News that Interior Department employees are still tying up loose ends, such as unresolved royalty imbalances. Vietnam, New Guinea have better collection systems A series of GAO reports over the past decade detail the Interior Department’s struggles with royalty collection, including one in 2008 where the GAO reported that a study of 104 royalty collection systems globally found that the U.S. federal royalty program brought in less revenue than all but 11. Among countries with more effective systems: Papua New Guinea, Vietnam and Norway. The problems have their roots in the process itself. Each company is responsible for keeping track of the amount produced each month from federal lands or waters, then reporting that production to Interior, along with a total for how much the company owes in royalties. The assessment is based on the total value of that month’s production, including the price — a number that fluctuates daily, making it hard to lock down a figure. Interior auditors check the information but only a fraction of reports are subjected to a rigorous audit in which the company’s production and revenue reports are compared against information from other sources. There is no blanket oversight of production facilities, and surprise inspections are rare. While testifying on the department’s fiscal 2012 budget request before a House appropriations subcommittee on March 17, officials from Interior acknowledged GAO’s concerns. The department’s requested budget addresses them by calling for, among other items, more staff and technology, said Greg Gould, director of the natural resources revenue office. The planned enhancements — additional “production meter” inspectors and a feasibility study on the use of automated production metering systems — could go a long way in detecting underpayments, the GAO’s Rusco told iWatch News. At the appropriations hearing, Gould was repeatedly asked how much the government is losing in royalty revenues. He never answered the question. But he did acknowledge that the government has identified at least some of the money it was owed. “Over the last 5 years our audit and compliance program has detected and collected more than half a billion dollars in companies’ initial underpayments” Gould testified. He also indicated that when it comes to collecting oil revenues, a little addition to the federal budget can go a long way. For every dollar spent on audits, he said, four came back to the government.

Read the full article →

← Previous Entries

Next Entries →

FREE LOAN CONSULTATION
Bryan Shaffer \| 310-867-2906
(bshaffer@gspartners.com)	Loan Consultation Form
Commercial Real Estate & Multi-Family Loans - Both Debt & Equity - California & Nationwide
Retail - Office - Industrial - Hotels - Multi-Family - Student Housing - Single Tenant SBA Loans
Distressed REO Properties - Whole Loans
www.gspartners.com
California Real Estate Brokers License: 01073455

Disclaimer: This website is a information source only. We do not provide investment advice. Any information obtained, should be viewed as the opinions of the Author/Presenter

and it is always recommended to perform independent due diligence before making any investments or using any strategy. The Various trademarks held by their respective owners.

Bryan Shaffer - All Rights Reserved: © 2005-2011 - Terms & Conditions - Privacy Policy

For More Information about Banks, FDIC, TARP and US Government Distressed Asset Programs go to www.FDIC.gov

If you are a home owner who needs foreclosure help, go to www.makinghomeaffordable.gov