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RAW VIDEO: Man Shot Outside Occupy Oakland Camp

by on November 11, 2011

Huffington Post…

A man was shot outside the Occupy encampment by Oakland City Hall Thursday evening, witnesses said. He did not survive. Sources on the scene said four to six shots were fired outside the 12th Street BART station at the intersection of 14th Street and Broadway by Frank Ogawa Plaza, which has served as the epicenter of Occupy Oakland since the group formed more than a month ago. The victim was given CPR by Oakland firefighters before an ambulance drove him away. (SCROLL DOWN FOR AFTERMATH VIDEO) Members of Occupy Oakland remained adamant that the incident was unrelated to their movement. “This was not an internal incident,” 35-year-old Shake Anderson told the San Francisco Chronicle . “What happened was the result of neighborhood violence. Don’t forget, we’re in downtown Oakland.” Interim Oakland Police Chief Howard Jordan confirmed the victim’s death during a press conference, explaining that the a fight transpired between two groups of African American males, during which one pulled out a gun and fired several rounds into the crowd. Protesters interrupted his speech several times, shouting, “Turn the lights on!” Occupy Oakland’s official Twitter account expressed condolences while also distancing itself from the shooting. “This was unrelated to the occupation. Please keep this man in your thoughts,” one tweet read . According to the Bay Citizen , ABC7 News cameraman Randy Davis sustained injuries during the chaotic aftermath, but remained on the scene to continue filming. Occupy protesters, meanwhile, stood in a line with locked arms so officials could address the situation. Some formed a candlelight vigil nearby, while others packed up and left for the night. SF Weekly reports that Occupy Oakland is planning a peace march for Friday and another vigil for 10pm Thursday evening. “This is what we are fighting against,” the occupiers said during Thursday’s General Assembly. As of Thursday evening, officers had not made any arrests, and the suspect remains on the loose. Take a look at aftermath video ( courtesy of NBC Bay Area ) below: View more videos at: http://nbcbayarea.com .

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RAW VIDEO: Man Shot Outside Occupy Oakland Camp

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SFOs planning to Increase AI allocations, says report – HedgeWeek

by admin on June 17, 2011

SFOs planning to Increase AI allocations, says report HedgeWeek Nearly 90 per cent of single family offices (SFO) are planning to place additional money in hedge funds this year, according to a new report published by The Rothstein Kass Family Office Group, a division of global professional services firm Rothstein … SFOs To Raise Hedge Fund, PE Exposure As Mean Assets Rise – Rothstein Kass Report Wealth Briefing (subscription) all 2 news articles »

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SFOs planning to Increase AI allocations, says report – HedgeWeek

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Members of Congress Get Abnormally High Returns From Their Stocks

May 24, 2011

Members of the House of Representatives considerably outperform the stock market in their personal investments, according to a new academic study. Four university researchers examined 16,000 common stock transactions made by approximately 300 House representatives from 1985 to 2001, and found what they call “significant positive abnormal returns,” with portfolios based on congressional trades beating the market by about 6 percent annually. What’s their secret? The report speculates, but does not conclude, it could have something to do with the ability members of Congress have to trade on non-public information or to vote their own pocketbooks — or both. A study of senators by the same team of researchers five years ago found members of the higher chamber even better at beating the market — outperforming it by about 10 percent, an amount the academics said was “both economically large and statistically significant.” “Being one of 435, as opposed to one of 100, is likely to result in a significant dilution of power relative to members of the Senate,” the researchers wrote. The researchers, Alan J. Ziobrowski of Georgia State University, James W. Boyd of Lindenwood University, Ping Cheng of Florida Atlantic University and Brigitte J. Ziobrowski of Augusta State University, noted that the circumstances are ripe for abuse. “In the course of performing their normal duties, members of Congress have access to non-public information that could have a substantial impact on certain businesses, industries or the economy as a whole. If used as the basis for common stock transactions, such information could yield significant personal trading profits,” they wrote. At the same time, House rules don’t require them to divest themselves of common stocks when they assume office, don’t prevent them from trading freely while in office — and don’t require them to recuse themselves from votes that could affect their own interests. The House ethics manual clearly states that “all Members, officers, and employees are prohibited from improperly using their official positions for personal gain” and members must disclose their holdings annually. But the House’s official position is that demanding that members either divest themselves of potential conflicts or recuse themselves when there is a conflict is “impractical or unreasonable” because it “could result in the disenfranchisement of a Member‘s entire constituency on particular issues.” Ever since 2006, a small coterie of Democrats has been trying to officially prohibit members of Congress and their staffs from using non-public information to enrich their personal portfolios. The Stop Trading on Congressional Knowledge (STOCK) Act was most recently re-introduced in March by Reps. Louise Slaughter (N.Y.) and Tim Walz (Minn.) . It has not been heard from since. The study found some significant difference based on party membership and seniority, with the Democratic sample beating the market by nearly 9% annually, versus only about 2% annually for the Republican sample. And representatives with the least seniority considerably outperformed those with more seniority. Why would that be? The researchers suspect need had something to do with it. “The financial condition of a freshman Congressman is far more precarious” than a senior member’s, they wrote. “House Members with the least seniority may have fewer opportunities to trade on privileged information, but they may be the most highly motivated to do so when the opportunities arise.” The report does not make any firm conclusions on causality, although the researchers explain that their kind of “event analysis” has become a common “method for analyzing whether actors have profited from confidential information in their possession.” * * * * * Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an email , bookmark his page ; subscribe to his RSS feed , follow him on Twitter , friend him on Facebook , and/or become a fan and get email alerts when he writes.

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Ray Brescia: When Cities Sue: Local Governments Take a Bank to Court

May 23, 2011

From the time of early English common law, the era of the colonial and early American courts and straight through to the present, state and local governments have used litigation to rein in harmful and abusive practices. Over the years, such government-led lawsuits have sought to punish a range of conduct, from driving horses unsafely on the roads to polluting streams and wells. Long before there were zoning or building codes, municipalities brought nuisance actions against harmful practices, like operating a slaughterhouse in a residential neighborhood or releasing too much smoke or dust from a factory. Today, cities are using the courts, sometimes successfully, sometimes not, to fight the proliferation of illegal handguns, climate change and even predatory lending. In recent weeks, and using fair lending laws, communities trying to fight back against what is alleged to have been discriminatory subprime lending during the height of the mortgage frenzy of the last decade have won significant victories in the courts, perhaps paving the way for more cities to follow suit. In these two cases — the first filed by the mayor and City Council of Baltimore, Maryland, and the second filed jointly by the City of Memphis and the surrounding Shelby County, Tennessee — these local governments have charged Wells Fargo bank with engaging in predatory bank practices that fall along racial lines. The plaintiffs accuse the bank of offering loans to borrowers of color on terms that were less beneficial than those offered white borrowers. This practice is known as “reverse redlining”: the targeting of communities of color for loans on unfair terms. This is often juxtaposed against the practice of “redlining”: when banks neglect to serve communities of color. And the two practices often follow each other. A community is redlined, and traditional banks fail to serve it. Then that same community is reverse redlined, with predatory lenders flourishing in that same market, facing few legitimate competitors. Subprime lending during the mortgage frenzy of the last decade had a particularly racial overtone. A national study ( PDF ), conducted by the Federal Reserve, of lending in 2006 shows that African-American borrowers were nearly three times as likely in that year to be saddled with subprime loans as their white counterparts. When controlling for many borrower characteristics, including income, the figure changes, but not by much: African-American borrowers were still twice as likely as whites to take out a subprime loan. And this phenomenon hit middle-income African Americans particularly hard. A study , by the New York Times , of lending in the New York City region showed that middle-income African-Americans were roughly five times as likely to take out a subprime loan as were whites of similar, or even lower, incomes. Furthermore, a recent study conducted by this author showed a connection between African-American median incomes and foreclosure rates. The higher a state’s median income for African-Americans within the state, along with several other factors including the size of the African-American population in that state, generally tended to correspond to higher foreclosure rates in that state. These findings suggest that predatory lending was more prevalent in states where the African-American middle class was stronger and larger, erasing decades of wealth gains made in these communities, particularly those made in the late 1990s. The Baltimore and Memphis lawsuits take aim at reverse redlining practices carried out in communities of color. The plaintiffs in each case plotted out the course of Wells Fargo’s lending in their communities to allege that the bank engaged in reverse redlining by lending on unfair terms in communities of color. Allegations by the plaintiffs also suggest that Wells Fargo was more likely to foreclose on mortgages found in predominantly African-American communities as compared to primarily white communities. Moreover, the plaintiffs have produced affidavits from former Wells employees that allege that bank staffers referred to subprime loans as “ghetto loans” and borrowers of color as “mud people.” In the Baltimore lawsuit, the judge handling the case has put the plaintiffs through their paces, having dismissed the complaint several times. But each time he has offered them a chance to refile their papers to sharpen their allegations and draw a closer connection between the bank’s lending, the wave of foreclosures that has hit the city and the costs the city claims to have experienced as a result of these practices. The plaintiffs allege that these foreclosures have dragged down property values in the city, forced the government to spend thousands of dollars on fire and police services and lowered the tax base. The bank counters that it is blameless for the general economic decline of the city, and the plaintiffs cannot draw a direct relationship between Wells Fargo’s practices and the particular damages the city claims it has suffered. The court has now said that the plaintiffs’ allegations identify specific properties where Wells made subprime loans to particular borrowers of color who would have qualified for prime loans. It is alleged that these subprime terms led first to default, then foreclosure. The Baltimore plaintiffs seek compensation from the bank for the drain on municipal coffers resulting from these practices. Weeks ago, the bank’s most recent motion to dismiss was denied , and the case permitted to proceed. In the case filed by the City of Memphis and Shelby County, the plaintiffs make similar arguments, tying bank practices to increased municipal and county expenditures. The judge there also recently denied the bank’s efforts to dismiss that lawsuit. The plaintiffs in these cases have now passed a critical hurdle in their attempt to hold at least one bank accountable for what the litigants allege were predatory practices that have cost local governments across the country dearly, saddling them with the job of cleaning up after the subprime debacle. These cases now move to the discovery phase of the litigation, where the plaintiffs will have a chance to demand internal bank documents and emails and conduct interviews with bank officials. This process may yield information about such practices, not just in these communities but also nationwide, and may give rise to claims by other jurisdictions. Local governments and state attorneys general should watch these cases closely to assess the viability of bringing similar actions in their own backyards.

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

May 9, 2011

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

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Washington Governor Vetoes Critical Parts Of Medical Marijuana Bill

April 30, 2011

WASHINGTON — In the wake of conflicting legal opinion, Washington Gov. Chris Gregoire (D) on Friday vetoed critical parts of a new medical marijuana bill, citing concerns that state workers could be prosecuted by federal authorities under the law. “We cannot presume to assure protections to one group of people — patients, providers and health care professionals — in a way that subjects another group, Department of Health and Department of Agriculture employees to federal arrest or criminal liability,” she said in prepared remarks in Olympia on Friday. “That is not acceptable to me; it is not workable.” The bill, which would legalize, regulate and tax medical marijuana dispensaries, has garnered the support of Seattle’s mayor and city councilmembers, even as the state’s two U.S. attorneys have warned that state regulators could be subject to criminal charges under the proposed legislation. In a letter to Gregoire earlier this month, U.S. Attorney Mike Ormsby of Spokane said the bill, if passed, would put state workers issuing licenses at risk of fine or criminal prosecution, but many have said such concerns are unwarranted. Hugh Spitzer, an associate professor at the University of Washington Law School, wrote in a letter to Gregoire on Thursday that Ormsby’s warning amounted to so much “federal bullying,” adding that he wasn’t aware of a single case in which the federal government had prosecuted a state worker for doing his or her job. Gregoire’s partial veto statement comes just one day after armed officials conducted federal raids on several dispensaries in Spokane. Washington voters first approved an initiative legalizing marijuana for medical use in 1998. It is one of 15 states where the substance is legal for medicinal purposes.

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Nicholas Carroll: Shifting the Focus From "Strategic Default" to "Prudent Walkaway"

March 25, 2011

A “strategic default” currently means walking away from an underwater home even though the owner could afford to pay the mortgage. However, this represents far less than half of walkaways. The vast majority of foreclosures happen to people who cannot afford to pay the mortgage. Portrayals of strategic default in 2009 were typically of homeowners who “used their home as an ATM,” or “deadbeats.” Even news stories describing the positive side of default didn’t entirely shake those images. One of the earliest semi-positive stories was in the Wall St. Journal , titled ” American Dream 2: Default, Then Rent .” This article described a couple who had defaulted, cut their housing costs from nearly $4,000/month to just over $2,000/month, and were living in a bigger house with “a swimming pool with three waterfalls.” Another strategic defaulter in the same article found the benefits of default-and-rent included the discretionary income to go out to dinner more often, and hang on to his series-6 BMW. These are not the people I meet in the course of interviewing and writing about surviving tough times. The people I meet are laid off, or from two incomes down to one, or on their way to medical bankruptcy. They cannot imagine a swimming pool, much less a waterfall — they just have bills they can’t pay, one of which is the mortgage. Some are slow in adjusting to the “new normal,” and still eat out regularly, but others have already cut back to eating out four times a year. Their home may be underwater — or they may have equity. Often it doesn’t matter, when the bottom line is that they have to choose between the mortgage and medical insurance — because losing medical insurance in America is potentially lethal. For this group, it is not a matter of cunningly defaulting to maintain a latte-sipping lifestyle. It is a matter of prudently walking away from the mortgage that is dragging their family and future under the waves. The benefit for people who act both prudently and decisively can be startling. Taking a fairly typical example from people I’ve interviewed, this is the family’s financial situation: Primary income of $3,000 net per month is gone, with one laid off. Secondary income of $2,000 net is still coming in. $40,000 in cash and savings, including the 401K. $20,000 in credit card debt. One car fully paid for. Second car — $10,000 owed. They have done a careful financial projection. The total monthly expenses are $5,000, right down to the last dime — which includes $2,500/month on mortgage and credit card bills. That says that if the main breadwinner is not fully employed in 14 months, they will lose the home — and of course take a dip in their credit rating. And if the job doesn’t come until the 13th month, it had better be at the same salary as the previous job, or they’ll lose the home anyway. Scenario A: Betting on a job, and continuing to pay the mortgage (a.k.a. “doing the right thing,” according to the moralists). They guess that they will be fully employed again in time to save the home. They continue paying mortgage, car payments, and minimum monthly credit card payments. If their bet is wrong, their trajectory is shown by the red line below. Scenario B: Prudently walking away . They decide that getting a job might require a career shift or relocation, with some time and money invested in re-education. They immediately stop paying the mortgage and credit card payments. In this scenario, they cut their expenses by $2,500/month (which rises to $3,500/month when they move out and start paying rent). If there is real equity in their financed car, they sell it and buy a used car to replace it. Worksheet online in MS Excel format or PDF The difference between A and B is incredible. If the family bets the primary bread-winner will be working within the year and is wrong, they could be leaving their home without enough money to rent a decent apartment in 14 months — exhausted, frightened, and possibly running on bald tires. (People who “do the right thing” tend to leave long before they actually get legal notice to move.) The family that bets the primary bread-winner will not find a job in 13 months and stops paying the debts will be leaving their home with $33,000 cash in hand, move to a rental (usually in the same school district, if need be), and will have three years for the primary bread-winner to find a job . And that’s their worst scenario — it’s quite likely they’ll be in the house for 18-24 months without making any mortgage payments. Conclusion: when the writing is on the wall, the best plan is often a prudent walkaway — an escape to the future, equipped with enough cash to get there.

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Eric J. Weiner: Gaddafi’s Long Reach

March 25, 2011

Regardless of how the Libyan revolt plays out, in the global economy the humanitarian crisis is just one deadly aspect of the fighting. Thousands have been killed and the fabric of society has been shredded in what has become a civil war. But to the nations of Europe that have come to rely on a steady flow of oil and petrodollars from Moammar Gaddafi’s nation, the destruction of what could be called Libya Inc. is likely to be the most painful blow. When the United Nations lifted sanctions on Libya in 2003, after Gaddafi’s regime accepted responsibility for the bombing of a Pan Am jet over Lockerbie, Scotland, many European countries rushed to do business with Gaddafi, despite his erratic history. Why? Because Libya was sitting on a deep, largely untapped reservoir of oil and a mountain of cash. It has more than 40 billion barrels of proven petroleum reserves , ninth most in the world, and its central bank holds $110 billion in foreign exchange reserves while its sovereign wealth fund, the Libyan Investment Authority, has $70 billion more to invest. Seeing the opportunity, Europe pounced. As a result, today just about all of Libya’s major trading partners are European. Take Italy, for example. Italy is by far Libya’s most active business partner, with more than $12 billion in two-way trade annually . Libya supplies almost a quarter of Italy’s oil, and Italy is the world’s largest importer of Libyan crude. Libya also owns 7.5% of the Italian bank UniCredit and has investments in Fiat, the defense conglomerate Finmeccanica, the energy company ENI, the soccer team Juventus and a variety of other Italian businesses. This financial backing helped Italy stave off the most damaging effects of the global recession that started in 2008. In response to international pressure, Italy has frozen some Libyan assets, but none belonging to the country’s central bank or the Libyan Investment Authority. However, Italy’s hardly the only cash-strapped European nation to forge significant economic ties with the Gaddafi regime. In 2009, the European Union’s two-way trading with Libya amounted to more than $37 billion , with Germany, France and Spain among its leading partners. Naturally, the bulk of this was petroleum because Libya supplies more than 10% of Europe’s oil. For a sense of just how much that is, consider that the United States, which had just $2.6 billion in two-way trade with Libya in 2009 and imports virtually no petroleum from the country, gets roughly 10% of its oil from Saudi Arabia. That’s what Europe is losing as Libya burns. In many ways, the nation with the most at stake economically is Britain. Although its annual trade with Libya amounts to less than $2.5 billion , Britain has recently emerged as a major target for Libyan investments. Libya has spent hundreds of millions of dollars on prime London commercial real estate. And last year, a senior executive with the Libyan Investment Authority announced that the fund had earmarked $8 billion exclusively for Britain . This pledge was welcome news for the British government, which has been trying to sell more than $40 billion in state-owned property to help address its yawning budget deficit. In short, it needs the money. Libya’s fascination with Britain stems from Gaddafi’s second-oldest son and presumed political heir, 38-year-old Saif al-Islam, who earned a doctorate from the London School of Economics, owns a $16-million mansion in London’s fashionable Hampstead Garden neighborhood and even opened the Libyan Investment Authority’s first foreign office in London. Over the years, the erudite younger Gaddafi charmed his way into British society, befriending Prince Andrew and visiting Buckingham Palace and Windsor Castle. Of course, now that he’s become a full-throated defender of his father’s savagery, Saif’s erstwhile friends are rushing to distance themselves. The London School of Economics, which has come under heavy criticism for accepting a $2.4-million donation from a Gaddafi charity, is looking into accusations that he plagiarized parts of his doctoral thesis. And his abandoned London home has been occupied by anti-Gaddafi protesters from throughout Britain. But none of these reprisals changes the cold reality that with Libya descending into chaos, Europe is losing a major partner just when its key economies are struggling to regain their footing. Though the timing may be terrible, the outcome shouldn’t be surprising. Europe’s leaders chose to look past the mercurial Gaddafi’s violent past, seeing only Libya’s fortune. And in a matter of weeks, Gaddafi has destroyed everything. As populist movements spread from North Africa to the Arabian Peninsula, where protests have erupted in Bahrain and Yemen, the U.S. will probably face similar issues over its troubling economic alliances, particularly with Saudi Arabia. So U.S. leaders would be wise to pay close attention to what happens with Libya and Europe. An entire continent is wondering: If not the Gaddafis, then who? And it probably won’t be long before America is asking the same questions about its friends as well. Originally published in the Los Angeles Times .

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With Lockout Looming, NFL Owners Downplay Economic Benefits Of Football

March 1, 2011

WASHINGTON — In the past two decades, National Football League owners have received at least $5 billion from local governments to build and maintain football stadiums for their lucrative franchises. The argument was almost always the same: With a little taxpayer investment, the city would get a big boost in economic activity. With no investment, the team would up and leave. With three days until the owners lock out the players for refusing to give up their claims to $1 billion of the sport’s $9 billion in annual revenues, local officials and players are raising concerns that a canceled season could deprive cities of needed economic activity — as much as $160 million per city, according to the NFL Players Association — at the worst time possible. But now that the argument is working against it, the NFL calls such concerns “fairy tales.” Economists have debunked claims that a shutdown would devastate a stadium’s host city, or that a new stadium offers the kind of windfall that would justify significant public contributions. But NFL Commissioner Roger Goodell had a different take in 1997, when he was a league executive. “A new stadium provides more than just a new place to watch a game,” Goodell said at the time. “It can revitalize and stabilize both a team and a city.” “For them to be dismissive of the NFLPA’s claims now is sort of ironic,” said Dennis Howard, a business professor at the Lundquist College of Business in Oregon. “Many of them have used the economic benefit argument as a way of extracting significant public support for new stadiums.” Twenty-eight of the league’s 31 stadiums (the Jets and the Giants share the New Meadowlands Stadium) have been built with some amount of public financing, according to the National Sports Law Institute at Marquette University’s law school. Eleven have been 100 percent publicly financed. Taxpayers have put up more than $5 billion since 1990. In Indiana in 2004, the president of the Marion County Capital Improvement Board argued that a new publicly-funded multi-use venue would keep the NFL’s Indianapolis Colts from leaving town, which would “create 1,500 full- and part-time jobs and annually produce $104 million in economic benefit.” The $750 million Lucas Oil stadium went up in 2008, with the public bearing 50 percent of the cost. In Ohio in 1995, a Hamilton County commissioner argued that a study showed the Cincinnati Reds and Bengals were worth $160 million a year to the city’s economy, according to the Pittsburgh Post-Gazette, and that the town should pony up. Paul Brown Stadium was built in 2000 as a $453 million gift from taxpayers. The Maryland Stadium Authority, which successfully poached the Cleveland Browns and renamed them the Baltimore Ravens in the mid-1990s, estimated that a football stadium inhabited by Cleveland’s team would add 1,400 jobs and $123 million annually to the city’s economy. The state of Maryland coughed up $200 million for a stadium, built in 1998. The city of Cleveland, meanwhile, ponied up 76.5 percent of the $315 million used to build a new stadium for a new Browns team in 1999. Now, the NFL’s owners are threatening to scrap the coming season if the players, who currently receive 50 percent of the $9 billion revenue pie, don’t cede $1 billion of that revenue. The owners say they need the money for stadiums, but the players union is skeptical because the owners have refused to open their books to show how they spend the cut of revenue they already receive. Owners also want limits on rookie pay and two additional regular season games. The players, for their part, have been happy with the status quo, and say more regular season games will lead to more players with grievous injuries. The NFL owners’ threats of abandoning host cities or a whole season are probably more trustworthy than the economic arguments in favor of public financing for stadiums or the players’ claims of an economic calamity precipitated by a work stoppage, both of which have been deemed false by academics. Analyzing economic data from local Florida economies during professional sports strikes and lockouts — like the one that may be at hand for the NFL — economists Robert A. Baade, Robert Baumann and Victor A. Matheson concluded in a 2006 paper ( PDF ), that a team’s presence or absence does not have a measurable impact on the surrounding local economy, despite the estimates by “sports leagues, franchises, and civic boosters” using “league and industry-sponsored studies.” “An analysis of taxable sales in Florida cities demonstrates that none of the 6 new franchises or 8 new stadiums and arenas in the state since 1980 have resulted in a statistically significant increase in taxable sales in the host metropolitan area,” they wrote. “In addition, using the numerous work stoppages in professional sports as test cases, again no statistically significant effect on taxable sales is found from the sudden absence of professional sports due to strikes and lockouts.” Mark Rosentraub, a sports management professor at the University of Michigan, told HuffPost that the NFLPA overreached with its $160 million estimate of the economic impact of a lost season. “It fails to account for the fact that people spend money anyway,” Rosentraub said, noting that people will spend their disposable income at places like movies theaters and restaurants if not football stadiums. Rosentraub said, however, that while a canceled game won’t have a big effect on a region as a whole, it could have big effects within that region. And smaller cities would suffer more without a season, he said, than larger cities would. “It’s gonna matter a whole lot to the city of Cleveland,” he said. “It won’t even be perceivable in San Diego.” It could also matter a lot to some of the individual people who work at or near stadiums. John Marler is a beer vendor at professional hockey, baseball and football games, as well as special events, in Detroit. Marler, 25, told HuffPost that if there’s no football season, he’d lose about 15 percent of his income. “Basically, you’re just taking money, you’re taking revenue away from businesses that provide jobs,” said Marler, a member of the AFL-CIO-affiliated union Unite Here, which has partnered with the players’ union to fight the lockout. “The people that lose — it’s the businesses, it’s the people that work in casinos, the people that work in stadiums. Those are the people that lose out.” And Jerry Watson, owner of a bar near Lambeau Field in Green Bay, Wis., told HuffPost that without an NFL season, his business would lose a third of its income. “It’s going to hurt the state of Wisconsin,” he said. The Baltimore Business Journal estimated that the state of Maryland stands to lose $3.8 million in revenues just from ticket sales. When HuffPost first asked the NFL to respond to various mayors’ complaints that a lockout would hurt their cities, a league spokesman sent a link to a story in the Atlanta Journal-Constitution that rate the $160 million claim “false.” The story suggested Baade’s more modest estimate of a $16 million impact would be more accurate. Nevertheless, several experts seemed to find the NFL’s “fairy tales” position deeply ironic in light of the arguments used to win taxpayer dollars for new stadiums. “This is a classic case of the NFL talking out of both sides of its mouth,” Tim Chapin, an associate professor in the department of urban and regional planning at Florida State University, wrote in an email. “The economic benefits are HUGE when the NFL needs a stadium built, but the benefits are minuscule when the numbers don’t reflect well on the league. The truth is that the economic benefits are relatively small, but they are almost certainly in the millions.”

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Kelly Rigg: Your Tax Dollars at Work: Helping BP and Exxon Kill Clean Energy

February 9, 2011

President Obama’s call for a reduction in fossil fuel subsidies elicited predictable cries of outrage from the American Petroleum Institute and others who have a vested financial interest in feeding our addiction to fossil fuels. Let’s be clear, this addiction is killing us just as surely as tobacco causes cancer. And like the tobacco industry in decades past, the fossil fuel industry hopes you won’t notice until it’s too late. The current debate about energy subsidies brings to mind Catch-22 , Joseph Heller’s 1961 novel about World War II, and the challenge of living in an inescapable conundrum: …Orr would be crazy to fly more missions and sane if he didn’t, but if he were sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. Being concerned about the real and immediate dangers of climate change should most certainly qualify you as “sane.” CO2 and other greenhouse gases are warming the atmosphere, and the burning of fossil fuels is the primary source of increased CO2 in the atmosphere. It stands to reason we should be phasing out the use of fossil fuels. Not to mention the fact that our tax dollars are actually going to companies like ExxonMobil and BP to help keep the prices of oil, gas and coal artificially low. Sounds like “big government” to me. I wonder why the Tea Party isn’t shouting from the rooftops about that one. Here’s the energy Catch-22, and it’s just as warped and confusing as Joseph Heller’s version: Fossil fuels cause massive impacts on the environment and human health which leads to higher taxes and health care costs. Fossil fuels (and nuclear power for that matter) are artificially cheap because they enjoy billions of dollars of government subsidies, which also leads to higher taxes. Renewable energy receives a fraction of that amount in subsidies , and is creating new jobs which generate government income without having to raise taxes. The fossil fuel industry is employing fewer people as a result of technological advances ( PDF ), which means less government income and therefore higher taxes. Cheap fossil fuels reduce incentives to use energy more efficiently, which makes businesses less competitive, which in turn costs jobs, which costs taxpayers money. Fossil fuel lobbyists argue that renewables are too costly to compete with other energy sources. Catch-22, 1970 It is highly doubtful that Yossarian would have whistled respectfully about the Catch-22 of energy subsidies. It doesn’t take a genius to see that phasing out the subsidized use of fossil fuels is a no-brainer for economic reasons, let alone all of the other benefits it would have. And if some of the money going to the energy giants is used to alleviate the burden on the poorest people, it would create a win/win situation for everyone (well, almost everyone). President Obama is not the only leader calling for change. G20 leaders meeting in Pittsburgh in 2009 agreed: To phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest. Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change. Unfortunately, the G20 leaders still have a way to go before they fulfil this promise. Oil Change International recently conducted a review of G20 action to phase out fossil fuel subsidies. “The bottom line” according to the organization’s Director Steve Kretzmann, “is that no subsidies have been removed as a result of the G20 commitment.” The US has the opportunity to be the hero of this story, by leading the world in breaking the Catch-22 of fossil fuel subsidies. And if there’s one thing the climate needs right now it’s heroes. If nothing else, won’t you feel better knowing that your hard-earned money is not helping fuel the obscene profits of these corporate giants? How do we send a message that it’s time to end Big Oil and other fossil fuel subsidies so Clean Energy solutions can have a fighting chance?

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

January 13, 2011

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

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Unemployment, Housing Prices Forced More Families To ‘Double Up’ In 2009

January 13, 2011

After being laid off from his management job at a sailboat manufacturer in Marion, South Carolina, David Markham and his wife Cheryl lost their house, their car, and their health insurance. But what hurt them the most, Markham told HuffPost, was having to put all their belongings in storage, trek 900 miles across the country and move in with their adult son and daughter in East Lansing, Mich. “My kids are supposed to move in with me and depend on me — it’s not supposed to be the other way around,” said Markham, 50. “I feel like I have let my family down.” According to a report released Wednesday morning by the National Alliance to End Homelessness, a 3 percent uptick in homelessness and a 20 percent increase in foreclosures from 2008 to 2009 contributed to a 12 percent increase in the number of families who had to “double up” in the homes of their extended family and friends. “We are seeing that, with a large percentage of families that enter the homeless system, their last previous address was doubled up with another family,” said Nan Roman, president of the National Alliance to End Homelessness. “So this obviously can be a precursor to homelessness, and the fact that it went up 12 percent in 2009 is obviously really alarming.” The nation’s homeless population increased by about 20,000 people from 2008 to 2009, according to the NAEH report, and while 31 out of 50 states saw some increase in their homeless counts, the homeless population in Louisiana nearly doubled. About 4 in 10 homeless people were found to be living on the street, in a car, or in another place not intended for human habitation. Roman told HuffPost that up until 2009, the number of homeless and doubled-up families increased had been decreasing since 2005, due in large part to a big push to improve the U.S. homeless assistance system by moving it away from bandaid strategies, such as shelters and soup kitchens, and more toward lasting solutions. But even improvements in the system could not overcome the double whammy effect of lingering unemployment and high housing costs on the working poor. “The most surprising finding of this report was that the homelessness number didn’t go up more in 2009, given how bad the economy has been and housing costs,” she said. “I’m somewhat fearful for the 2010 numbers, because I’m afraid we might see them go up even more.” One major problem facing the growing population of “doubled-up” families is that they are currently ineligible for federal assistance through the primary homeless housing programs. The Homeless Children and Youth Act, introduced in Congress by Rep. Judy Biggert (R-Ill.) last week, would expand the Department of Housing and Urban Development’s definition of “homeless” so that more children living doubled up and in hotels could be eligible for its homeless assistance programs. “During the 2008-2009 school year, over 72 percent or approximately 956,914 children and youth who were identified as homeless by the Department of Education did not qualify for housing support under HUD’s current definition,” said Biggert’s office in a release . So far, federal assistance has been inadequate to meet the needs of homeless and doubled-up families, said Maria Foscarinis, executive director of the National Law Center on Homelessness and Poverty. “It is time for our lawmakers, and the public, to treat homelessness like the human rights crisis it is,” she said. “In the new Congress, rather than cutting safety net funds, we must focus on adding more funding for homelessness prevention and rapid re-housing.” Click HERE for a PDF of the report.

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Sen. Dick Lugar: Eliminating Earmarks Cuts No Spending

November 16, 2010

I made the following statement today regarding the Senate Republican Conference voluntary moratorium banning earmarks. I oppose the Senate Republican Conference voluntary moratorium on so-called “earmarks.” At a moment in which over-spending by the Federal government perpetuates annual deficits of over $1 trillion a year, the Congress is being asked to debate a Congressional earmark spending resolution which will save no money even while giving the impression that the Congress is attempting to meet the public demand to reduce spending. Instead of surrendering Constitutional authority to Washington bureaucrats and the Obama Administration, Congress should focus on reducing spending on both entitlement and discretionary spending programs. Providing the Obama Administration with greater authority to direct spending does not accomplish this goal, and eliminating earmarks does not reduce spending. The Constitution explicitly states that it is the responsibility of Congress to make decisions on the appropriation of federal taxpayer funds. Earmarks should be considered and treated like amendments to any underlying spending bill. Members should have the opportunity to offer earmarks, review them, and offer motions to strike or modify them. And each of these steps — from the committee process, to the floor, to the conference committee — should take place in an absolute transparent and deliberate manner and be publicly disclosed at each step along the way with a final public up or down vote. In 2008, I was asked by Republican Leader Mitch McConnell to serve as a chairman of a fiscal reform working group to find consensus on the issue of earmarks within the Republican Conference. Our working group unanimously supported efforts to reduce spending, but held strong and diverse views on the subject of earmarks. However, we were able to come to an agreement and issued a report (PDF). While this report was never enacted into law, the Senate Appropriations Committee has adopted many of the transparency suggestions. Since that time, I have abided by the framework of the report and have disclosed projects that I have requested on behalf of Indiana communities on my website. Our working group advocated that, “an open and accountable amendment process and absolute transparency on every Member request successfully inserted into legislation is essential to the integrity of federal spending. In addition, Members should also have assurance that when they vote for a specific bill or conference report that all earmarks are written in a clear and transparent manner.” Further, our working group noted that, “the practice of earmarking is not limited to Members of Congress but is also apparent in the President’s budget proposal. Likewise, these requests should be clear, transparent, and subject to amendment or deletion.” Congress should exercise, rather than abdicate, its Constitutional authority to cut spending and reduce the deficit.

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Treasury Department Says HAMP Doesn’t Put People Into Default

October 26, 2010

A federal watchdog reported Monday that the Obama administration’s signature anti-foreclosure program sometimes causes people to lose their homes to foreclosure — a conclusion that had already been reached by some homeowners and their advocates. The Treasury Department, which administers the Home Affordable Modification Program, did not respond to that claim in its answer to the watchdog’s report. But a Treasury official told HuffPost on Tuesday that no one who is current on their mortgage payments can become delinquent because of a HAMP modification. Consumer advocates heartily disagree. “Treasury’s wrong about that,” said Diane Thompson, a lawyer with the National Consumer Law Center. “Everybody comes out of the trial modification period owing more than they did when they went in, and everybody comes out with their credit worse.” Under HAMP, eligible borrowers apply for a modification that typically cuts monthly payments by $500. If they successfully make those payments during a three-month trial period, then their trial modification is supposed to become “permanent” for five years. Borrowers in HAMP modifications typically receive foreclosure notices during their trial periods. To the utter bafflement of struggling homeowners, mortgage servicers are allowed to proceed with the foreclosure process during HAMP trials, just not to actually foreclose (though consumer attorneys say that such bogus foreclosures do, in fact, happen). Bank of America staffers repeatedly told Troy Taliancich, for instance, that he he was seriously delinquent because of his reduced HAMP trial payments, but that he should continue to make the reduced payments anyway. Eventually, the bank stopped accepting his payments altogether because he was in foreclosure. Even as he was making the trial payments the bank told him to make, it turned out, the arrears and fees piled up. “I was only a payment behind when I first called,” he said. “I could overcome one payment amount if I had known.” Clarissa Gaff, a staff attorney with the Land of Lincoln Legal Assistance Foundation in Alton, Ill., told HuffPost that her clients, Allen and Mary Pierson, became delinquent on their mortgage because of an extended HAMP trial modification that started in the spring of 2009. “They were current when they started. They were just scraping by, but they were current, and the mod put them behind,” Gaff told HuffPost. “Admittedly, they were at imminent risk of default but I think they could have made it [without HAMP].” The Treasury official (who was willing to have his words paraphrased but not quoted) said that nobody who could possibly make a payment without HAMP is actually eligible for the program, and that documentation requirements tightened in June should prevent ineligible borrowers from getting trial mods. The Treasury official said that HAMP trial applicants were always told they’d be responsible for any unpaid amounts that accrued during the trial period. The Special Inspector General for the Troubled Asset Relief Program — the Wall Street bailout that also gave rise to HAMP — reported Monday that some HAMP applicants, “who may have somehow found ways to continue to make their mortgage payments, have been drawn into failed trial modifications that have left them with more principal outstanding on their loans, less home equity (or a position further ‘underwater’), and worse credit scores. “Perhaps worst of all,” SIGTARP’s report continued, “even in circumstances where they never missed a payment, they may face back payments, penalties, and even late fees that suddenly become due on their ‘modified’ mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent.” Since June, HAMP applicants have been required to provide solid documentation of their circumstances by coughing up pay stubs and tax forms. Previously, servicers would grant trial modifications over the phone, contributing to what Treasury and HAMP servicers both called an excess of ineligible people in trial mods. Borrowers who are at risk of “imminent default” are still eligible, however, and the hardship criteria are so broad as to include a “change in household financial circumstances” or an “increase in other expenses.” Alan White, a professor at Valparaiso University law school, pointed out that a common complaint from HAMP applicants is that their servicers tell them they can’t get help until they fall behind on payments. According to the Making Home Affordable call center report from February ( PDF ), 10.9 percent of all HAMP complaints arose from servicers telling borrowers they must be delinquent to be eligible for help. It’s the fourth-most common HAMP gripe. “Treasury is just wrong,” said White. “I really wish Treasury would stop defending the banks and start acknowledging that they are preventing HAMP from achieving its goals.”

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‘Foreclosure Mill’ Employees Got Gifts For Altering Documents, Witness Says

October 18, 2010

At a large Florida “foreclosure mill,” a manager signed up to 1,000 documents a day without reading them and employees were given gifts to speed up foreclosure paperwork, according to depositions released today by the Florida Attorney General’s Office. The news, also reported by Tampa Online , comes as Bank of America, the nation’s largest bank by assets, announcement that it would resume more than 100,000 foreclosures in 23 states after an internal investigation of its practices. Florida authorities are investigating the law offices of David J. Stern over how it handled foreclosure paperwork. As the AP notes, Cheryl Salmons , an office manager at the law offices of David Stern, “would sign 500 files in the morning and another 500 files in the afternoon without reviewing them and with no witnesses,” according to Kelly Scott, a former assistant at the firm. The perks for good performance were considerable, according to Scott’s statement. Tampa Online notes office employees were lavished with gifts: “As a perk of Samons’ [ sic .] job, Stern’s office would routinely pay her personal mortgage, a car payment, her electric bills and her cell phone bill, according to Scott, who told investigators Stern also bought Samons [ sic .] a new BMW sport utility vehicle every year and gave her and other employees jewelry. Additionally, Stern purchased employee David Vargas a house, a car and a cell phone, Scott claims in her statement.” According to Kelly Scott’s statement, Cheryl Ramos’s marathon document signing sessions took place in an office conference room and would leave her wearied. From Scott’s deposition: They would [be] stacked amongst each other, side by side, and Cheryl would come twice a day, in the morning and mid-afternoon, around two or three o’clock and she would sign all of them, every single one of them… Cheryl would give certain paralegals rights to sign her name, because most of the time she was very tired exhausted from signing her name numerous times per day. You had to understand it was more than five hundred files that she’s signing morning and afternoon. David Stern had an especially close relationship with the mortgage giants Fannie Mae and Freddie Mac, Scott said in her statement. The lenders were “considered his babies,” Scott said and employees would change codes to hide files when their representatives visited the office. View PDF’s of the new statements here .

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Two-Thirds Of Americans Support Raising Minimum Wage: Poll

October 6, 2010

Two-thirds of Americans support raising the minimum wage to at least $10 an hour, according to a new poll. The federal minimum wage rose in 2009 to $7.25, which amounts to about $15,000 a year. “This poll is yet another affirmation that maintaining a strong minimum wage is a core American value,” said National Employment Law Project director Christine Owens in a statement. “Americans overwhelmingly support a minimum wage rate that will help working families make ends meet and provide the boost the economy needs for full recovery.” The survey, conducted by the Public Religion Research Institute to plumb American attitudes on religion, values, and politics, found that 67 percent of respondents favor hiking the minimum wage to $10 an hour. Even a majority of Republicans — 51 percent — favor the higher minimum wage. But among people who identified themselves as belonging to the Tea Party, 50 percent oppose raising the minimum wage and only 47 percent favor doing so. The minimum wage, first instituted in the 1930s, would be above $10 today already if it had kept pace with inflation, according to NELP. A handful of Republican candidates in recent weeks have suggested the minimum wage needs another look. It’s an issue Democrats would be more than happy to fight about . “When you talk about taking a run at the minimum wage, it seriously undermines any efforts that we want to have to address or redress our disparities,” said House Speaker Nancy Pelosi (D-Calif.) in an interview with HuffPost on Tuesday. “And it’s a challenge to our sense of community that people could think it would be okay to start going backward. These were fights of 100 years ago.” Just 980,000 U.S. workers earn exactly the minimum wage, and 2.6 million earn less, according to the Labor Department. Those groups make up just 4.9 percent of hourly-paid workers. The progressive Economic Policy Institute estimated ( PDF ) that an additional 1.6 million workers making slightly more than the minimum would benefit from the 2009 increase due to “spillover effects” that preserve the wage structure in a firm.

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Andrew Winston: China Leads the Clean Economy Race

September 30, 2010

Creating a clean economy will not be easy. It will require sustained, consistent, and large-scale investment across many sectors, including transportation, building systems and appliances, energy generation, and of course the electric grid itself. We will need new, more intelligent software and hardware to manage the new demands on the grid. We’ll need a smarter grid , one that will both communicate in real time with customers’ devices to help manage peak demand and manage the inflows of renewable energy and plugged-in electric cars. But this is not a single pursuit; it’s the connective tissue in a network of new technologies and energy systems. These are multi-trillion-dollar markets, so the opportunities for the countries and companies that lead the charge will be vast. And some governments, especially in China and Germany, are taking this challenge much more seriously than others. At the country level, I see two core indications of leadership and commitment to the clean energy economy: The amount of capital invested by both the private and public sectors. The implementation of an aggressive policy framework that supports the economy-wide shift. On both fronts, a few countries, but China in particular, are going for the gold. According to a pithy report from Deutsche Bank titled “The Green Economy: The Race is On” , in the years 2000 to 2009, the U.S. invested (public and private) about $67 billion in clean technology. Similarly China spent $72 billion and Germany $38 billion. However, as a percentage of GDP, China, Germany, and even Brazil are investing at a rate three times greater than the U.S. On the specific issue of smart grid investment, another report estimates that the U.S. and China far outpace the rest of the world with an estimated $7 billion each in spending in 2010 alone (PDF). Companies like IBM , Siemens, GE, Cisco, and HP have noticed this investment — and plan to get a piece of the business. The U.S. economic stimulus package, technically the American Recovery and Reinvestment Act (ARRA), is really kicking in now. ARRA provides tens of billions of dollars for energy efficiency, R&D investment, and new transmission and smart grid investments. According to a recent report in Time Magazine , the Obama administration has turned the Department of Energy into “the world’s largest venture capital fund.” This level of investment should not be taken lightly, but the stimulus is short-term. China is doing things differently, making longer-term, sustained commitments that are much larger. The country is already in the process of building 16,000 miles of high-speed rail (that’s roughly, oh, 16,000 more than the U.S.). And China is bringing together 16 state-run companies to put one million electric cars on the road within a few years. But it was the country’s ten-year plan that made some jaws drop. Between now and 2020, the country will invest 5 trillion yuan in the clean economy. That works out to about $75 to $100 billion per year for 10 years running (smart grid investment alone is estimated at $60 to $100 billion over the next decade). Imagine the U.S. Congress passing the equivalent of the highly controversial stimulus package 10 times over (not likely). Since the $100 billion in stimulus spending is significant, it’s hard to argue that the U.S. is not investing in the future. It’s the second aspect of green economic leadership — building a strong climate and carbon policy framework that supports the economy-wide shift — where the U.S. falls short. Deutsche Bank’s report suggests that countries need a policy regime that provides “transparency, longevity, and certainty” to increase investment and get private money off the sidelines. The report lists eight national policy elements that it deems critical, including having a concrete emissions target and a renewable electricity standard, among others. Only Germany and China have put all eight policies in place, while the U.S. has only implemented one in the form of some tax benefits. Unsurprisingly, Deutsche Bank concludes that, “the US is falling behind in the race to develop new technologies, industries, and jobs as the global economy moves towards a low carbon future.” Finally, as an indication of how serious China really is, the country has built the largest solar and wind production industries in the world in just a few years. The government is supporting its renewable energy industries so aggressively and lowering their cost of business so much, that it’s likely the country is breaking World Trade Organization rules on fair play. Even if that’s true, you have to admit that China is in the clean economy race to win it. Is the U.S.? This post first appeared in a series on the smart grid at Harvard Business Online .

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Pay Gap Persists For Women In Management

September 28, 2010

The pay gap for women in management has narrowed slightly over the past decade and women remain underrepresented in management positions, according to a report from the Government Accountability Office. In 2007, even though they made up 47 percent of the U.S. workforce, women filled 40 percent of management positions — an increase of one percent since 2000. Female managers earned 81 cents for every dollar earned by male managers in 2007, up from 79 cents in 2000. That’s an average salary of $52,000 for women and $75,000 for men. Compared with their male counterparts, “female managers in 2007 had less education, were younger on average, were more likely to work part-time, and were less likely to be married or have children,” the GAO reported. But women in the workforce have made strides in terms of education. Fifty-one percent of women managers had a college education, compared with 56 percent for men. The proportion of women managers with a college degree has tripled since 1970, according to GAO. “Women are closing the education gap, but as this report underscores that hasn’t translated into closing the pay gap,” said Rep. Carolyn Maloney D-N.Y.), chairwoman of the Joint Economic Committee, which is holding a hearing on the report on Tuesday. “It is disappointing that management moms earn 79 cents for every dollar management dads earn and that number hasn’t budged since 2000.” The pay gaps varied across industries, from 78 to 87 cents compared with male managers, and in the construction and transportation industries, women were more than proportionately represented in management positions. “The persistence of pay gaps between men and women managers in the same industries underscores the urgent need for Congress to act on the Paycheck Fairness Act, to strengthen Equal Pay protections and help erase wage discrimination from the workplace,” said Christine Owens, director of the National Employment Law Project. “The GAO report also underscores how much more needs to be done to make sure our public policies and private employment practices support working families and provide them the flexibility they need to achieve and advance in the workplace while also caring appropriately for their families.” The GAO cautioned that the report did not prove discrimination against women: “Our analysis neither confirms nor refutes the presence of discriminatory practices. Some of the unexplained differences in pay seen here could be explained by factors for which we lacked data or are difficult to measure, such as level of managerial responsibility, field of study, years of experience, or discriminatory practices, all of which can be found in the research literature as affecting earnings.” Mothers made up 14 percent of managers, a figure little changed in seven years. “When working women have kids, they know it will change their lives, but are surprised to learn it also changes their paychecks,” said Maloney. “At a time when families are increasingly relying on the wages of working moms, paycheck fairness is one sure way to boost family incomes and improve kitchen table budgets all across America.” Click HERE to download a PDF of the GAO’s report.

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Lloyd Chapman: Jobs Bill May Be Harmful For America’s 27 Million Small Businesses

September 23, 2010

Today, the U.S. House of Representatives passed “jobs legislation” that could be devastating for the nation’s small businesses. H.R. 5297, the Small Business Jobs Act contains a loophole that may allow large businesses to fraudulently masquerade as small businesses without fear of prosecution. I strongly believe that the net effect of this bill will be harmful to job growth, and the potential for harm greatly outweighs any potential for benefit. The American Small Business League (ASBL) and I are concerned about the following: 1. The tax provisions of H.R. 5297 are not likely to create jobs. Research by the Economic Policy Institute , and Princeton University’s Center for Economic Policy Studies indicates that tax cuts do not effectively create jobs or stimulate the economy. The tax cuts are so narrowly focused that they are unlikely to provide a significant benefit to most small businesses. A more effective way would be to give any firm with less than 100 employees a 5 percent cut in their federal taxes. 2. The lending provisions of H.R. 5297 are not likely to create jobs. Recently, the Congressional Oversight Panel , and the National Federation of Independent Businesses (NFIB) released highly critical reports regarding the Obama Administration’s efforts to further bolster community bank lending to small businesses. Both reports indicated that small businesses across the country are in need of business opportunities and increased demand for their products and services as opposed to increased access to capital. 3. Language in H.R 5297 gives the SBA the ability to change size standards for small businesses. This language will almost certainly lead to an increase in the volume of contracts that are awarded to large businesses, and a decrease in the volume of federal contracts awarded to small businesses. New York venture capitalist Karen Mills is almost certain to change size standards in such a way that it will divert federal small business contracts to firms owned and controlled by some of the nation’s wealthiest venture capitalists. 4. H.R. 5297 contains an exemption from capital gains tax on investment in small businesses. This language was unquestionably a political payback to the venture capitalists that backed President Obama’s run for the White House. 5. The bill fails to stop the diversion of federal small business contracts to corporate giants. The most straight forward, cost effective, efficient, and deficit neutral way to create jobs and stimulate the national economy is to stop the diversion of more than $100 billion a year in federal small business contracts to corporate giants and redirect those funds to small businesses. Anyone that knows anything about me, knows that I am a small business advocate through-and-through. I hate this bill, and I think it is going to hurt small businesses. I know that the Small Business Administration (SBA) is going to abuse the language in this bill to divert government small business contracts to large corporations and firms owned by venture capitalists. I am 100 percent sure that it is going to hurt small businesses.

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300 Economists Warn Congress: Don’t Kill Growth And Jobs In The Name Of Deficit Reduction

September 16, 2010

A small army of economists warned Congress on Thursday not to focus on deficit reduction instead of job creation or else risk a 1937-style double-dip recession. “History suggests that a tenuous recovery is no time to practice austerity,” says a statement signed by more than 300 economists and policy experts. “In the Great Depression, Franklin Roosevelt’s New Deal generated growth and reduced the unemployment rate from 25 percent in 1932 to less than 10 percent in 1937. However, the deficit hawks of that era persuaded President Roosevelt to reverse course prematurely and move toward budget balance. The result was a severe recession that caused the economy to contract sharply and sent the unemployment rate soaring.” Democrats in Congress have had 1937 in mind since March 2009. “We’re not going to let it happen again,” vowed House Speaker Nancy Pelosi (D-Calif.) at the time. Nevertheless, deficit hawks dominated the debate in Congress this summer as Democratic leaders struggled to reauthorize a series of programs created by the 2009 stimulus bill. Pelosi and her counterparts in the Senate have had seemingly little choice other than to sacrifice things like COBRA health insurance subsidies and enhanced unemployment benefits to win the support of deficit-hawkish Democrats and moderate Republicans. “This is about a high road to recovery versus a low road to fiscal balance,” said Bob Kuttner of the American Prospect and co-author of the statement, along with the Center for Economic and Policy Research’s Dean Baker and the Robert Borosage and Roger Hickey from the Institute for America’s Future. “The proper sequencing is: You get the recovery first, that requires increased public investment. And then the road to fiscal balance is much less arduous because people are working, businesses are investing, and tax revenues go up because you’re back in recovery. “There is also a low road to fiscal balance, where you have austerity and you get the budget balanced at the cost of whacking the real economy.” Click HERE to download a PDF of the report.

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Poverty Rate Rises To 14.3 Percent In 2009

September 16, 2010

The poverty rate rose to 14.3 percent during 2009 from 13.2 percent the previous year as household income stayed flat and the number of people without health insurance reached its highest level since such data has been collected, the government announced Thursday. The first year of Barack Obama’s presidency started with 700,000 people losing their jobs each month and sensational reports of formerly middle-class families crowding tent cities across the country. The tent cities, it turned out, were there before the recession started , but the rise in poverty was real: For working age people between 18 and 64, 2009 saw the highest poverty rate — 12.9 percent — since 1965. The overall rate is the highest since 1994. Some poverty watchers had expected the poverty rate to jump as high as 15 percent. “Today’s news is sobering, showing that 2009 was a year with increased poverty and rising numbers of uninsured Americans,” said Rebecca Blank, the Commerce Department’s undersecretary for economic affairs. “There is one primary reason for the fact that poverty did not rise and median income did not fall as much as the rise in the unemployment rate would suggest: government assistance that moderated the effect of the recession on American families. Among the elderly, poverty actually fell, largely because of increased Social Security payments. Among working adults, expanded receipt of unemployment insurance helped cushion the affects of lost hours and jobs.” Without the stimulus bill, says Blank, the poverty rate would have been 14.5 percent. In 2009, 43.6 million people lived in poverty, up from 39.8 million in 2008, according to to the Census Bureau’s annual Income, Poverty and Health Insurance Coverage report. The poverty threshold for a family of four is an annual household income of $21,954. Household incomes, surprisingly, did not see a statistically significant change last year, but have declined 4.2 percent since the start of the recession. Government safety net programs prevented more people from falling into poverty. Social Security kept 14 million people afloat, and unemployment insurance did the same for more than two million people, according to the report. Government health insurance programs like Medicaid and Medicare covered more people than ever before, but the increase was not enough to pick up the slack from the crumbling employment-based and private insurance markets. About 16.7 percent of Americans were uninsured — 50.7 million people — in 2009, the highest number of uninsured since the Census started collected the data in 1987. “The steady erosion of employer-sponsored insurance in the 2000s became a landslide in 2009 when the unemployment rate took its largest one-year jump on record,” said Elise Gould, an economist with the progressive Economic Policy Institute, in a statement. “6.6 million fewer Americans had job-based health insurance last year than in 2008. Public insurance and critical provisions in the Recovery Act mitigated the damage, to an extent — the number of uninsured Americans rose by only about two thirds that amount, or 4.3 million.” In 2008, the poverty rate climbed from 12.5 to 13.2 percent, median household income fell 3.6 percent and the number of uninsured grew from 45.7 to 46.3 million. On Wednesday, congressional Democrats, facing losses in November because of the dismal economic situation, launched a preemptive strike calling the new poverty numbers “fresh evidence of the human cost of the Bush economic policies.” “Democrats have controlled both chambers of Congress for four years and Obama has been in the White House almost two,” countered Doug Heye from the Republican National Committee. “At some point, Democrats need to acknowledge that they are in control because their Bart Simpson-esque ‘I didn’t do it’ claims don’t hold water with voters.” Click HERE to download a PDF of the report.

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Martin Ford: Robots Stealing Healthcare Jobs?

September 14, 2010

A leading technology blog, SingularityHub, recently reported that a Silicon Valley area hospital is announcing layoffs at the same time it begins to employ robots: El Camino Hospital in Silicon Valley is looking to cut expenses, so they’ve invested in 19 Aethon TUG robots . These smart carts can haul supplies around the hospital, making deliveries and pickups at a fraction of the costs of human workers. El Camino recently announced that it would further be cutting costs by firing up to 140 workers from its two facilities in Los Gatos and Mountain View. It should be noted that most of the layoffs are probably not directly related to the decision to use robots. Nonetheless, I think this shows that even healthcare–the one field on which nearly everyone pins hopes for significant job growth–is not immune to automation. It also demonstrates that the economic tradeoff between robots and even relatively low wage/low skill jobs is beginning to tip in favor of the machines. Economists often speak of “polarization” in the job market. The belief is that technology has primarily impacted middle skill jobs, leaving plenty of high wage opportunities for the well-educated as well as lots of low skill service jobs with very low wages. As I’ve been arguing here , I think this is what has been happening so far –but it will not continue to be true indefinitely. Automation will push up into the high wage areas via technologies like specialized artificial intelligence/expert systems, while it penetrates lower skill job sectors with more affordable robotic technologies. In general, I think economists have a serious problem with analyzing past data, determining a trend, and then assuming it will continue basically forever. Technologies change rapidly. In spite of this news, I think that healthcare will certainly remain one of the most promising areas for future employment. However, the same cannot be said for other lower skill jobs in the commercial arena. While delivering medical supplies in a hospital may not be an especially high-skill job, it is certainly not an unimportant job. If robots can be trusted to autonomously navigate crowded hospital corridors to deliver medical supplies in a timely fashion, then they can and will be used in other commercial settings like warehouses and retail stores. In fact, CNET News reported that Wal-Mart was already looking into the use of inventory robots back in 2005. These robots would have prowled the aisles at night taking complete store inventories–a job that is, of course, currently done by workers. One has to wonder how long it will be until Wal-Mart and its competitors begin to look seriously at robots in a number of work areas. Jobs involving shelf-stocking, inventory control, and materials moving are all likely to be susceptible at some point. The scary thing is that for many workers these are really the jobs of last resort. This is where people who lose good jobs in manufacturing or other areas often end up. What options will these people have if even these jobs are someday much less plentiful? Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a FREE PDF download ) and has a blog at econfuture.wordpress.com .

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Christine Pelosi: Deadly Priorities: Why Did PG&E Spend Millions on Politics not Pipelines?

September 12, 2010

As the San Bruno community struggles to recover from the deadly PG&E pipeline blast and fire, many are asking why the California utility spent tens of millions of dollars on politics before they repaired pipelines that their own surveys said were crumbling beneath their customers’ feet? I drove to San Bruno yesterday with my baby daughter (our 9/11 service activity was to donate clothes to the fire victims). We visited with first responders, volunteers, and community residents putting their lives back together. The spirit in San Bruno was cooperation and concern – people are still looking for loved ones and survivors are in shock. There was also a growing concern for the next one: just as earthquake victims wonder about aftershocks, the PG&E blast victims wonder what other pipelines lie crumbling beneath their feet. This is a terrible tragedy — and it didn’t have to happen. Even before the deadly PG&E pipeline blast ripped through the San Bruno community, killing at least 6 people, destroying dozens of homes, and rendering hundreds homeless, the utility knew that they had a potential problem because their own survey listed the San Francisco peninsula pipelines as “high risk” (PDF). As the investigations begin, the prevailing question is why? Why did the pipeline burst? Why didn’t the utility spend ratepayer money on fixing the high risk problem? Why did management decide to spend ratepayer dollars on political campaigns instead of pipeline repairs? Why set these deadly priorities? If the two decisions were not related — why weren’t they? And what will we do to make it right? Here’s what we know so far: residents reported smelling odors in the San Bruno community in the days before the blast. They called PG&E but nothing was detected. No one took the customer complaints up the chain of command to the bosses who had a report listing the San Francisco peninsula pipelines as “high risk.” After the deadly blast, there was some denial by PG&E that the pipeline was even theirs; then denial that the pipeline was the one in the survey, but federal investigators (who released PG&E’s survey) said the pipeline was PG&E’s. We know the utility had the money — our money — to fix the pipelines because public filings show that just last spring, PG&E chose to spend $45 million in ratepayer dollars in a failed bid to block public power. These are funds that could have been used to repair what the utility’s own survey said was a high risk pipeline on the SF peninsula. So why make the decision for politics not pipelines? If the spending decisions were not related, why not? At the very least, PG&E should have a moratorium on political spending until they compensate the San Bruno victims and fix the pipelines. Who knows what crumbling infrastructure lies beneath our sleeping children? Actually, many people do — they pay surveyors to take a look. We actually know that our crumbling pipelines, roads, and bridges are ticking time bombs. That is why President Obama and Congressional Democrats have pushed to fund jobs that repair our roads, runways, and railways — we can’t have first rate American communities with third world American infrastructure. Will we take this occasion to invest in rebuilding and to insist on ratepayer say on utility pay? Or will we continue with the status quo until the next explosion? The San Bruno tragedy is a clarion call to rebuild America and insist on ratepayer say on utility pay. I think most taxpayers would reject deadly priorities that put politics over pipelines and choose repairs to the ground literally crumbling beneath our feet, and most ratepayers would choose crumbling infrastructure repairs over political campaigns. Wouldn’t you?

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Lloyd Chapman: New Obama Economic Policies Will Ignore Simple Solution to Stimulus

September 7, 2010

President Barack Obama is set to roll out a new economic plan on Wednesday. The American Small Business League (ASBL) predicts that the plan will completely ignore the simplest, most logical and effective means of creating jobs and stimulating the nation’s failing economy; bringing an end to the diversion of federal small business contracts to corporate giants. Small businesses are the backbone of America’s economy, and a major engine for job creation. According to the U.S. Census Bureau, small businesses are responsible for more than 90 percent of all net new jobs in America , over 50 percent of the gross domestic product (GDP), and over 90 percent of all U.S. exports and innovations. Congress established small businesses as the economic engine of the nation with the passage of the Small Business Act of 1953. Today federal law requires a minimum of 23 percent of all federal contracts to be awarded to small businesses. ( PDF ) With the annual federal acquisition budget for foreign, domestic, classified and unclassified acquisitions hovering around $1 trillion, small businesses should be receiving roughly $230 billion a year in federal contracts. On August 27, the Obama Administration announced that it missed its 23 percent goal, awarding 21.89 percent to small businesses. The ASBL has estimated that as a result of the diversion of federal small business contracts to corporate giants, the government actually awarded less than 5 percent of its purchases to small businesses . To further compound the issue, since 2003 over a dozen federal investigations have found most federal small business contracts actually go to Fortune 500 firms and corporate giants around the world. President Obama realized the magnitude of this problem during his campaign when he released the statement, “It is time to end the diversion of federal small business contracts to corporate giants.” To date President Obama has failed to honor that promise. “If President Obama really wants to create jobs in the most cost effective and efficient way, he should direct the Small Business Administration to end policies that divert billions of dollars a month in federal small business contracts to corporate giants,” ASBL President Lloyd Chapman said. “This will create more jobs than anything else, and he could do it without congressional approval.”

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Martin Ford: Will Google Destroy Itself?

August 31, 2010

Google recently announced a new machine learning engine that it will make available to software developers. Machine learning is a form of artificial intelligence (AI) in which an application can learn from processing real data and become more proficient over time. By making the tool available, Google will enable businesses and entrepreneurs to use AI in wide range of new applications. In the coming years, artificial intelligence is going start showing up in more and more places. AI will be incorporated into productivity applications and into the enterprise software used by large companies. I’m not talking about science-fiction level general artificial intelligence (“Open the pod bay doors, HAL”), but rather specialized or narrow forms of AI. Narrow AI applications can already land jet aircraft and beat virtually any human being in a game of chess. In the near future, they will be able to do far more. Google’s new AI tool is being offered as part of the company’s cloud computing strategy. Cloud computing is a new model in which computer hardware resources as well as application software are made available on an as-needed basis, in much the same way that utilities like electric power are provided. The thing you should know about cloud computing is that it tends to concentrate information, power and income. The information technology resources of thousands of businesses and organizations will increasingly “migrate into the cloud.” One immediate result of this is increased concentration and automation of jobs. Information technology workers are already seeing significant job losses as a result of the move toward cloud computing. Once artificial intelligence becomes integrated into the cloud, the effect will quickly be felt by far more than just IT professionals. Anyone with a knowledge-based job will be highly susceptible. Organizations will get flatter as more middle managers are eliminated. It’s also quite possible that AI tools will be used to amplify the capabilities of low wage off-shore workers–allowing them to move up the value chain and compete directly with professionals who have high skill and experience levels. And AI-enabled cloud computing isn’t just about direct job automation: it will also allow larger organizations to leverage economies of scale, perhaps as never before. Companies like Wal-Mart and the big box retailers will gain, while smaller businesses continue to lose. Sophisticated applications will make it easier to run larger, more complex organizations with fewer people, and that will be an important enabler of corporate consolidations. Low interest rates are already driving a new wave of merger activity on Wall Street, and you can be sure that mass layoffs will follow. The point here is that technologies like cloud computing and narrow AI are going to result in less opportunity for most workers–while concentrating income and power in the hands of the few (as if that is a new story). Corporations will need fewer managers and knowledge workers, while at the same time many of the small business opportunities that have traditionally led to middle class, or even upper middle class, success will continue to evaporate. The demise of the blue-collar middle class is already pretty much a done deal. College educated white-collar workers–even those with relatively high incomes–are next in line. The broader trends that are driving income concentration and the destruction of the middle class–globalization, advancing technology, supply side economics–are of, course, not Google’s fault. However, within the IT field Google is becoming a poster child for the concentration of wealth and power: and it is making important contributions that will accelerate the process. But here’s the rub: Google’s current business model is almost entirely dependent on a world in which income–and therefore purchasing power–is at least somewhat reasonably distributed. Google’s revenue comes primarily from its AdWords program, which allows businesses of all sizes to place highly targeted online advertisements. AdWords is an enormously successful money machine, and it works because businesses know that among Google’s huge number of users there will be a significant slice of traffic with a high interest in a particular product or service. Here’s the thing though: AdWords advertisers aren’t interested in reaching web surfers. They want customers–customers with discretionary income. In the long run, as income becomes more and more concentrated–as more average people in the population find themselves unemployed or forced to take lower wage jobs–the businesses that advertise on Google are inevitably going to see more surfers and fewer paying customers. As that happens, they will drop out of the program entirely, or they will be willing to pay less for the ads, and Google’s revenue will have to decline. If the economy continues on its seemingly relentless path toward increased concentration of income and consumption, then at some point, Google’s advertising model will no longer be an especially effective way to reach the few people who still have money to spend. Of course, if the entire economy continues on that path, then the viability of Google’s business model may be the least or our worries. We already have BMW owners sleeping in their cars , and upper crust New Yorkers worrying about civil unrest or even revolution . Watch out. Note : For more on AI, unemployment, the concentration of income, and the impact on Google’s business model, see the free PDF of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (pages 67-73, 81-84, and 180-183). ——- Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a FREE PDF download ) and has a blog at econfuture.wordpress.com .

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David Isenberg: GAO PSC Interview Transcripts Online

August 25, 2010

Thanks to the Federation of American Scientists Project on Government Secrecy the transcripts of twenty three interviews done by the Government Accountability Office, prepared pursuant to its July 2005 report ” Rebuilding Iraq: Actions Needed To Improve Use of Private Security Providers ,” are now online in a single, searchable document. These are the same transcripts I posted and blogged about previously, one by one, between June 12 and July 30. But back then I typed them in. Here they have been scanned in so you can see them in their original formatting. The transcripts are in chronological order from earliest to latest. They are in one PDF file, 106 pages, (nearly 8 MB ) which can be downloaded here . The Project also OCR’d the transcripts so the PDF is word-searchable. It is possible that one or more pages of the original did not get reproduced correctly. So, for example, the very last page of the document seems to be cut off abruptly. But most of it, by far, is there.

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State, Local Governments To Fire 481,000 Workers: Report

July 27, 2010

To cover for lost tax revenues, local governments will fire nearly 500,000 workers in the coming year, according to a national survey of counties and cities released Tuesday. The National League of Cities, the National Association of Counties, and the U.S. Conference of Mayors found that 270 local governments planned to collectively lay off 8.6 percent of their workforce from the previous fiscal year to the next one. That percentage of all local public sector workers across the country amounts to 481,000 people. The report’s authors expect local governments to make even more spending cuts in the near future. “Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” the report notes. “Over the next two years, local tax bases will likely suffer from depressed property values, hard-hit household incomes and declining consumer spending.” The cuts are deep: 63 percent of cities and 39 percent of counties reported cutting public safety personnel like firefighters and police officers. Fresno, Calif., submitted a 2010 budget with 220 layoffs, according to the report. Flint, Mich. laid off 23 of 88 firefighters. In Brevard County, Fla., 38 Sheriff’s deputy positions are on the chopping block. The city of Dallas, Texas is set to fire 500, mostly people in the library system. And Portland, Ore. is firing 120 teachers. The local municipality associations recommend a House jobs bill that would send $75 billion to states over two years. The bill faces long odds in the Senate. The Center on Budget and Policy Priorities reported Monday that the Senate’s failure to reauthorize extra funds for the Temporary Assistance for Needy Families program (formerly known as welfare), would jeopardize some 240,000 jobs in 37 states. Despite the pleas of both Democratic and Republican governors, Congress already missed the Jul 1. deadline to provide $24 billion in aid to states via FMAP (Federal Medicaid Assistant Percentages). Conservative Democrats in the House demanded party leadership strip the FMAP money to reduce the deficit impact of a broader jobs bill. In the Senate Democrats failed to defeat a Republican filibuster. Click HERE to download a PDF of the report.

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Seinfeld ‘Sponge-Worthiness’ Explained In Economic Terms (VIDEO)

July 21, 2010

There are markets in everything — even, it turns, out in the contraceptive decisions of “Seinfeld” characters. Examining the show’s relation to “option pricing techniques,” Princeton economics professor Avinash Dixit authored the paper “An Option Value Problem From Seinfeld.” (Hat tip the Wall Street Journal’s Real Time Economics .) The crucial economic decision behind Dixit’s paper was Elaine Benes’s dilemma over deciding which of her boyfriends was, in fact, ” spongeworthy .” Faced with a dwindling amount of her favorite Today’s Sponge contraceptive Elaine had to carefully screen potential boyfriends. The paper itself is highly technical, but here are a few snippets: “If sponges were freely available for purchase at a constant price (which is small in relation to the potential value so I will ignore it), then Elaine’s decision would be yes for any quality greater than zero. But when she has a finite stock and cannot buy any more, her optimal decision will be based on a “spongeworthiness threshold” of quality…The threshold depends on the number m of sponges she has: the fewer sponges left, the higher the threshold needed to justify using up one of them. ” Dixit also assigns a measure of Elane’s assessment of each man’s “quality” (the variable Q), and takes a perhaps unintentional shot at Elaine’s, well, “expertise”: Each day she observes the Q of that day’s date. Actually this is only her estimate formed from observing and closely questioning the man (which is what she does in the episode), not the ex post facto outcome. But I assume that she has sufficient experience and expertise to make a very accurate estimate. WATCH a clip from the episode: Download a PDF of professor Dixit’s paper here .

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Economic Rebound in U.S. Seen Slowing Most Since 2002 on Europe Debt Woes

June 7, 2010

By Rich Miller June 7 (Bloomberg) — The U.S. economy may be headed for a slowdown reminiscent of the one it suffered in 2002 as the sovereign-debt crisis in Europe, fading government support and persistently high joblessness weigh on expansion in the second half of the year. Economists have begun to lower their forecasts for the first time since the recovery began in the middle of 2009. Allen Sinai , chief global economist at Decision Economics, and Michael Moran , chief economist at Daiwa Capital Markets America in New York, said they now see annualized growth of 2.25 percent to 2.5 percent in July-December, down from around 3 percent previously. “The risks to the recovery are growing,” the New York- based Sinai said. “We’ve raised the odds of a double-dip recession to one in four from one in 20.” The economy expanded at a 3.6 percent pace in the nine months through the first quarter, the latest data available from the government. Growth in the second quarter may be even faster, at 4.1 percent, according to St. Louis-based Macroeconomic Advisers. As the economy has advanced, the more than 50 economists surveyed by Bloomberg News each month have raised their forecasts for 2010, to 3.2 percent in May from 1.8 percent in June 2009. While there have been “good signs” in the last four months, “I still think there’s some fragility,” said Bill Gates , chairman of Redmond, Washington-based Microsoft Corp., the world’s largest software maker. He singled out Europe’s debt problems and U.S. state-government budget cuts as among the forces restraining growth and endangering the economic rebound. ‘Puncture the Mood’ “You see things that are still headwinds, and if those puncture the mood, you could actually stop the recovery,” he said in an interview aired May 30 on CNN’s “Fareed Zakaria GPS” television program. Former Federal Reserve Chairman Alan Greenspan used the phrase “soft patch” to describe the economy in late 2002, when growth came to a virtual halt ahead of the U.S.-led invasion of Iraq in 2003. Gross domestic product expanded 0.1 percent in the 2002 fourth quarter a year into the recovery from the 2001 recession. The same could happen again if equity markets skid lower, according to Greenspan. “The economy is going to be very soft if the stock market turns back down,” he said in an interview. Just as in 2002 though, he doesn’t see such a slowdown leading to a “cumulative downturn.” Stock prices have slumped during the last month as European nations struggle to contain the crisis with measures that include a 750 billion euro ($913.4 billion) rescue plan. The Standard & Poor’s 500 Index has fallen 10.3 percent since April 30 to close at 1,064.88 on June 4. ‘V-Shaped Rebound’ “Markets had excessively bought into the possibility of a V-shaped rebound driven by a self-sustaining private-sector recovery,” Mohamed El-Erian , chief executive officer of Newport Beach, California-based Pacific Investment Management Co., manager of the world’s largest bond fund, said in an e-mail. That view “is starting to be visibly and increasingly challenged by the multiplying facts and realities on the ground.” The latest came on June 4, when the Labor Department reported that private-sector employers added 41,000 jobs to their payrolls in May, down from 218,000 in April and well below the 180,000 median forecast by 35 economists in a Bloomberg News survey. While the unemployment rate fell to 9.7 percent from 9.9 percent, it’s remained above 9 percent since May 2009. Weaker Growth The jobs data “call into question how strong things were looking at the start of the year,” Ethan Harris , head of North America economics at BofA Merrill Lynch Global Research in New York, said in a June 4 interview on Bloomberg Television’s “InBusiness With Margaret Brennan.” The S&P 500 Index will trade in a range of 1,040 to 1,200 during the next few months as the economy slows down and investors wait for Europe to resolve its problems, said Michael Jones , chief investment officer at Richmond, Virginia-based Riverfront Investment Group. “We’re going up in quality” by buying dividend-oriented exchange-traded funds, said Jones, whose firm manages about $1.8 billion. “In an environment balanced between fear and opportunity, names like McDonald’s and Clorox look good.” The Oak Brook, Illinois-based restaurant chain has risen 6.8 percent to $66.70, and the Oakland, California-based maker of bleach is up 3.4 percent to $63.07 so far this year. The increasing risks to growth have prompted economists to shift further out into the future their calls for the Fed’s first interest-rate increase in this economic cycle. Changing Forecasts Joseph LaVorgna , chief U.S. economist at Deutsche Bank Securities in New York, now sees the Fed beginning to raise the rate on overnight loans among banks during the fourth quarter rather than the third. Harris changed his forecast to August of next year from March. Harris has also altered his bond-market outlook and now says the yield on the Treasury’s 10-year note will rise to 3.75 percent in the fourth quarter instead of 4.25 percent. The yield ended at 3.2 percent on June 4, down 19.7 percent from this year’s high of 3.99 percent set on April 5. The minuses for the U.S. economy from the Europe debt crisis outweigh the pluses, according to David Resler , chief economist at Nomura Securities International in New York, who said he’s considering lowering his growth forecasts after regularly raising them during the last year. Slowing Demand On the plus side: U.S. interest rates have fallen as investors put more money into Treasury securities, and oil prices have dropped about 18 percent since April 6 on expectations of slowing demand in Europe. On the minus side are the weaker stock market and reduced demand for U.S. exports. Resler estimates GDP will climb at a 2.75 percent clip in the second half of this year, adding that the European crisis may reduce the expansion by about a half percentage point. “We’re just about to see growth throttling back,” said Lakshman Achuthan , managing director of the Economic Cycle Research Institute in New York. The institute’s leading economic index fell to a 43-week low of 124.1 in the week ending May 28. A cadre of economists, including El-Erian and New York University professor Nouriel Roubini , have argued for months that growth would slow to about 2 percent in the second half as government stimulus dwindled and the structural forces holding back the economy reasserted themselves. Those headwinds include retrenchment by consumers and re-regulation of financial markets, according to El-Erian. Budget Cuts The impact of the federal government’s $787 billion stimulus package on GDP peaked in the second quarter, the Congressional Budget Office said in a report last month. State governments, meanwhile, planned to cut general expenditures by 6.8 percent in fiscal 2010, according to a June report by the National Governors Association and the National Association of State Budget Officers , both based in Washington. The housing market also looks set to subside after being pumped up by a homebuyer tax credit that expired on April 30, according to Thomas Lawler , a former economist with Washington- based mortgage company Fannie Mae who now is a consultant in Leesburg, Virginia. “If we don’t get a build-up in the jobs market and household formation, there’s a serious risk of a double-dip” in housing, he said. Previously owned homes sold at an annual rate of 5.8 million in April, the highest level in five months, the Chicago- based National Association of Realtors said May 24. The median price increased 4 percent from a year earlier. Remote Odds The odds of a double-dip recession are remote, Richard Berner , co-head of global economics for Morgan Stanley in New York, and his colleagues wrote in a note to clients. “In sharp contrast with market fears that the U.S. economy is headed for significantly slower growth, or even a double-dip recession, we see the pace of activity quickening somewhat in coming months,” they said. Even so, some economists who are more optimistic about the outlook than El-Erian have begun to shave their forecasts. Macroeconomic Advisers lowered its prediction for growth next year to 3.7 percent from 3.9 percent and said in a report to clients last week that the economy could slow by a percentage point more if Europe fails to stop its crisis from spreading. BofA Merrill Lynch’s Harris reduced his forecast for second-half growth to 3.4 percent from 3.6 percent while increasing his odds of a double-dip recession to 15 percent from 10 percent. “There is a legitimate increase in concern,” he said. To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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European Producer-Price Inflation Accelerates to Fastest in Almost a Year

June 2, 2010

By Simone Meier June 2 (Bloomberg) — European producer-price inflation accelerated to the fastest pace in more than a year in April as a weaker euro made imports more expensive and energy costs rose. Factory-gate prices in the euro region rose 2.8 percent from a year earlier after increasing 0.9 percent in March, the European Union’s statistics office in Luxembourg said today. That’s the fastest pace since November 2008. Economists forecast prices would gain 2.6 percent, the median of 17 estimates in a Bloomberg News survey showed. Prices rose 0.9 percent from March, when they increased 0.6 percent. The euro has lost 14.6 percent against the dollar this year just as rising energy prices sap companies’ purchasing power. While Michelin & Cie. , the world’s second-largest tiremaker, said last month that it plans to raise prices, companies may struggle to pass on higher costs after European unemployment climbed to the highest in almost 12 years in April and consumer confidence worsened last month. Energy prices at the producer level rose 7.7 percent from a year earlier in April, while intermediate goods were 2.7 percent more expensive, today’s report showed. Excluding construction and energy, prices increased 1 percent from a year earlier. To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

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Martin Ford: The Coming Structural Unemployment Crisis

May 24, 2010

Previously, I’ve argued here that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software, and that, as a result, we may end up with severe structural unemployment. The latest weekly report shows an increase of 25,000 in new unemployment claims –instead of the decrease expected by economists. Clearly, the economy continues to struggle with job creation, and I think that automation is playing a significant role. Catherine Rampell recently wrote an article in the New York Times that delves into the impact this issue is having in the lives of typical workers. As the article points out: For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade. Rampell’s piece does an especially good job of capturing the denial that is likely to continue to be associated with this issue: Ms. Norton is reluctant to believe that her three decades of experience and her typing talents, up to 120 words a minute, are now obsolete. So she looks for other explanations….The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says. “You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.” The fact is that there will very soon be machines and software algorithms that can very effectively anticipate needs and perform increasingly complex (and high-paying) jobs that require higher and higher skill levels. The unwillingness to acknowledge this reality and confront its implications extends not just to impacted workers, but also to economists and policy makers–virtually all of whom are either in denial or oblivious to this issue. Many mainstream economists are projecting that unemployment will remain high for years to come–but there is a near universal expectation that eventually, the problem will correct itself and we will gravitate back to something close to full employment. The problem with this assumption is that technology is not going to stop advancing while we are all waiting for the job market to recover. In my book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (now available as a free PDF eBook ), I argue that automation technology is likely to continue advancing relentlessly and result in significant and continuously increasing structural unemployment within the next 10 to 20 years. Most economists are likely to dismiss this prediction. Many will suggest that new technology will result in the creation of new industries and new employment sectors. The problem with that assumption is that the new industries created tend to nearly always be very capital-intensive and employ relatively few workers–while at the same time making available technologies that are highly disruptive to more traditional labor intensive sectors that employ millions of people. The worker that Rampell interviewed for her article has ended up taking what is often the job of last resort: a part-time position at Wal-Mart. But what will happen when Wal-Mart begins to employ significant automation? Is that really unthinkable? In fact, Wal-mart management was already starting to think about it back in 2005 . To see the difference in employment between a traditional industry and a new technology industry, compare Wal-Mart (over 2 million employees and revenue of about $180,000 per worker) with Google (20 thousand employees and over a million dollars per worker). In time, Wal-Mart will begin to look more like Google and new industries that spring up will employ fewer and fewer workers. A similar story can be seen by in the DVD rental industry. How many workers are (or have been) employed by Blockbuster in its thousands of retail locations, as compared with Netflix in a few highly automated distribution centers? The inevitable migration from delivering DVDs though the mail toward to instantly available streaming video can only accelerate that trend. The fact is that structural unemployment is here to stay. It will very likely get worse, and it will increasingly impact workers with college educations and high skill levels. Those with few skills and little education have been the first to feel the brunt, but machines are getting better and smarter. The rest of us are next. ——- Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a free PDF download) and has a blog at econfuture.wordpress.com .

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Long-Unemployed Texas Man Scores Job, Dodges Eviction

April 30, 2010

Ricky Macoy swore that if his landlord evicted him from the trailer where he’d been living with his son and ex-wife, he’d camp out on his congressman’s lawn. “I would show up there with my car full of bedding and my kid and a tent and start to set up,” he told HuffPost in October. “I’m just about crazy enough to do it. At least I’d go to jail and have a place to stay.” Never mind about that. Macoy, a 52-year-old electrician in Quinland, Texas, told HuffPost on Friday that he finally landed a job after more than a year of unemployment. Starting Monday he’ll be working as an electrician for a company that remodels Walmarts. “It feels like a thousand pounds been lifted off my back,” he said with a giddy voice. “It’s so good to get back into construction stuff.” The National Employment Law Project featured Macoy in a release ( PDF ) pressing Congress to give the long-term unemployed additional weeks of unemployment benefits back in October. Macoy, who’d just exhausted his benefits, said that if Republicans in the Senate blocked additional weeks of unemployment, he’d take it out on the party by pitching a tent in front of the office of Rep. Ralph Hall, his Republican congressman (a former Democrat). The GOP eventually folded in that fight , winning Macoy an additional 13 weeks of benefits, which he said expired in February. He insisted Friday, again, that he would have camped on Hall’s lawn if he’d been evicted. “If we had gotten evicted, I was going to give it a shot,” Macoy said on Friday. It didn’t happen. “I don’t know if you’re a religious man,” said Macoy, adding that he himself is not a holy roller. “Prayer works. Prayer and hard work works.” That may be cold comfort for the hundreds of thousands of people set to run out of unemployment benefits in the coming months. Read Poverty in America’s interview with Macoy here .

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Chase’s Overdraft Opt-Out: Deliberately Confusing?

April 8, 2010

Credit card reform requires banks by July to get permission before providing “overdraft protection,” which hits customers with fees of $30 or more to cover any debit card transactions that exceed the balance in a checking account. Consumer advocates have long maintained that consumers ought to be allowed to decide whether they want to pay more than $30 for a cup of coffee, no matter the indignity of being declined at the register. JPMorgan Chase is playing by the new rule already, but it’s not clear the bank is making much of an effort. The online consumer advocacy powerhouse Consumerist posted a screenshot of Chase’s “opt-in” page for overdraft protection and posed this question: “Is Chase’s Overdraft Fee ‘Opt-In’ Purposefully Confusing?” Have a look: The screen describes some of the benefits of overdraft protection. At the top, bright red letters indicate that signing up for overdraft protection “Allows you to use your debit card” — surely nobody would assume that means you couldn’t use your card without opting in. And, as Consumerist’s tipster complained, there are two yes/no questions to answer. The first is whether you have read “important legal disclosures.” The second is the important one — if you don’t want overdraft protection, disregard that bit to the left that says “FREE EXTRA CKING” and click the “no” button. “I wouldn’t be surprised if Chase had hired confusion consultants to write this,” wrote Ed Mierzwinski, a lobbyist for the U.S. Public Interest Research Group, in an email to HuffPost. Chase seemed confused by Mierzwinski’s confusion. “It is unfortunate that Mr. Mierzwinski found the overdraft option screen unclear,” wrote a spokeswoman. “The goal of our overdraft coverage material is to educate our customers about the topic and their options, so they can make an informed choice. As a Chase customer, Mr. Mierzwinski can always call a telephone banker 24 hours a day or visit one of our 5,100 branches to get clarification on the subject.” Mierzwinski told HuffPost that he is not, in fact, a Chase customer. (“I am just a consumer advocate.”) He said the confusing screen illustrates the need for a Consumer Financial Protection Agency. “One reason Chase CEO Jamie Dimon is telling Congress ‘No CFPA’ is because he knows a CFPA would crack down on this sort of purposely unintelligible gobblygook designed to trick consumers into paying fees,” Mierzwinski wrote. “Chase is chasing fee income that smells so bad even Bank of America is running the other way.” Compare Chase’s opt-in screen to the Federal Reserve’s “model form” for banks ( PDF ).

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Most Americans Say They Missed 73% Rise in S&P 500 With Rebounding Economy

March 23, 2010

By Mike Dorning March 24 (Bloomberg) — Americans are down on the economy and the markets even as stocks and growth indicators are up. By an almost 2-to-1 margin Americans believe the economy has worsened rather than improved during the past year, according to a Bloomberg National Poll conducted March 19-22. Among those who own stocks , bonds or mutual funds, only three of 10 people say the value of their portfolio has risen since a year ago. During that period, a bull market has driven up the benchmark Standard & Poor’s 500 Index more than 73 percent since its low on March 9, 2009. The economy grew at a 5.9 percent annual pace during last year’s fourth quarter. “It’s very difficult to turn perceptions around once you’ve been through the proverbial economic wringer,” says Mark Zandi , chief economist for Moody’s Economy.com . “Everything is colored by the fact that unemployment is near 10 percent. It doesn’t really matter what you ask, you’re going to get the same answer.” Zandi says the poor performance people report on their investments “is very telling. It’s just a fact that everyone’s stock portfolio is up, or nearly everyone’s.” Even among investors with annual incomes exceeding $100,000, and who might be expected to follow their financial holdings’ performance, more say they have lost money compared with a year ago than say they have made money. J. Ann Selzer , president of Selzer & Co. , a Des Moines, Iowa-based company that conducted the survey, says the disconnect is typical of the way Americans think about the economy. ‘Everyday Life’ Indicators “Economists look at their indicators and the American people see indicators in their everyday life,” she says. “It is hard to argue with what people observe in their own communities.” The poll also finds that Americans remain skeptical about the health-care overhaul even after the U.S. House passed the legislation March 21, with fewer than 40 percent of respondents saying they favor the plan. While most say the government should play a role in ensuring everyone has access to affordable care, a majority say health care is a private matter and consider the new rules approved by Congress to be a government takeover. Wrong Track A sense of despair pervades perceptions of the economy and nation. Barely one-in-three Americans say the country is on the right track. Fewer than one in 10 say they believe the economy will be strong again within a year. Just 4 percent of Americans who cut back on spending during the recession now say they are confident enough to open their wallets, according to the poll, which has a margin of error of plus or minus 3.1 percentage points. Poll respondent Lynn Heath, 31, a Belleville, Illinois, stay-at-home mom with four children whose husband lost his job 18 months ago and since has only been able to find part-time work, says her family has nearly depleted its savings. “We don’t have cable. We don’t have internet. I just learned how to make laundry soap. For $4, I can make two-and- half gallons,” Heath says. The Obama Administration has made no progress over the past three months convincing the public that the $787 billion stimulus package passed last year either helped the economy or prevented greater deterioration. Only 37 percent of the public say they see positive effects, the same portion who said so in a December poll. Economic Deterioration Asked about a range of economic measures, people say they have seen deterioration over the past year: 54 percent say the condition of businesses in their community has worsened and 56 percent say the value of homes in their community dropped during the period. Poll respondent Jim Buyer, 47, an electric utility lineman from Syracuse, Indiana, says that his impression of a worsening economy comes from cutbacks in overtime on his job and his observations as he drives to and from work along an industrial road that services home suppliers, toolmakers and recreational- vehicle manufacturers. Media reporting on the economy may be “slanted,” he says, and what he sees has greater credibility. “We see the traffic in front of where we work,” Buyer says. “A couple of years ago it was hard to pull out at quitting time. Now you almost don’t even have to look because the traffic is so slim.” Most Important Issue Half of Americans say they believe the economy or unemployment is the most important issue facing the country. Health care was cited by 22 percent, followed by 20 percent who cite the federal deficit and government spending. Just 5 percent say the war in Afghanistan. Unemployment in February was 9.7 percent. Payrolls in the U.S. have dropped every month except one since December 2007. Economists expect job growth to turn around in March, with a median forecast that payrolls will rise by 192,000. Poll respondents rate persistently high unemployment the greatest threat to the economy over the next two years, with 75 percent calling it a high threat. Chronically high budget deficits are cited as a high threat by 70 percent, followed by homeowners who can’t pay their mortgages, which is cited by 58 percent. Higher taxes are deemed a high threat by 57 percent. Nine of 10 Americans believe that cutting the deficit, which is projected to reach a record $1.5 trillion this year, will require sacrifices from middle-class Americans. Still, when asked about a range of potential tax increases and spending cuts to address the problem, the large majorities of Americans favor tax increases that only affect the wealthy. More than three of four Americans say deficit-cutters should consider removing the cap on earnings covered by the Social Security tax, currently set at just under $107,000. More than two-thirds say repealing the tax cuts for wealthy Americans enacted by President George W. Bush should be considered. Soda Tax Smaller majorities favor considering three other options: a reduction in annual cost of living increases for Social Security recipients, which 52 percent say should be considered; cuts in spending on public works, which 54 percent say should be considered; and a penny-an-ounce tax on sugar-sweetened drinks amounting to 12 cents on a 12-ounce can of soda, which 57 percent say should be considered. Majorities say other options shouldn’t even be on the table. Among them are higher out-of-pocket payments for Medicare services beyond basic care, an increase in the eligibility age for Medicare, a 2 percent increase in income-tax rates on middle-class Americans, and elimination of the home-mortgage interest deduction. To see methodology and exact question wording, click on the attachment tab at the top of the story. To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net .

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Less Than Half Of Americans Consider Themselves Middle Class: Poll

March 15, 2010

Slightly less than half of Americans consider themselves middle class, according to a new survey by ABC News, and four in ten people who think they’ve achieved middle class status say they’re struggling to keep it. Fourteen percent of the 1,005 survey respondents say they consider themselves “upper-middle class,” 39 percent working class and 45 percent middle class. The average income for poll respondents who consider themselves middle class is about $55,000 a year. Self-described working class folks earn roughly $35,000, and those who think they’re well-off earn $95,000. “But income is far from the sole determinant of self-defined middle class status, likely because family size, expenses, local costs of living and other circumstances also come into it,” the poll notes. “Even among people with incomes under $25,000 a year, 41 percent describe themselves as middle class. So do 38 percent of those with household incomes over $100,000.” (There are plenty of people who do not think that a household income of $250,000 makes for a rich household, as we are reminded whenever the subject of taxes comes up. It’s a state of mind .) The Commerce Department produced a report in January for the Vice President’s Middle Class Task Force that objectively measured obstacles to attaining the middle class lifestyle. That report found that it’s more difficult to do than it used to be: “While incomes for married-couple and single-parent families with two children have increased significantly, much of this rise occurred in the 1990s. In part, these increases occurred because parents are working more hours in order to maintain higher income levels,” the report said. “Unfortunately, while incomes have risen, the prices for three large components of middle class expenses have increased faster than income: the cost of college, the cost of health care and the cost of a house. Thus, we conclude that it is harder to attain a middle class lifestyle now than it was in the recent past.” For most people, homeownership is the benchmark for middle class membership, with 80 percent of poll respondents saying that owning a home is a “necessary element” of middle class life. Part of the survey reveals how the recession disproportionately hurts the less well-off. “Underscoring the depths of the economic crisis, 28 percent of middle-income Americans say someone in their household has been laid off or lost a job in the last year,” the poll says. “That jumps even higher, to 39 percent, among lower-income Americans, and drops considerably to 16 percent of those with $100,000-plus incomes. There’s a difference in impact at the low end: Less well-off people are much more apt than those who are better off to say the layoff caused them serious financial hardship.” Click here for a PDF of ABC’s poll results. Click here for a PDF of the Commerce Department’s report.

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Treasuries Supplanting Munis as Brown Brothers Says Two-Year Notes Ascend

March 7, 2010

By Cordell Eddings March 8 (Bloomberg) — Municipal bond investors are piling into Treasuries as state and local government finances worsen and the yield advantage for tax-exempt securities evaporates. Local government bonds due in three years with AAA ratings yielded 66 percent of similar maturity Treasuries last month, about the lowest level since Bloomberg began compiling the data in 2001. If the ratio moves closer to 60 percent, investors in the 38.3 percent federal tax bracket would lose all the benefits of sheltering income that comes from municipal debt. Muni bonds are losing favor as state and local governments raise taxes to fund the record $18.5 billion in budget gaps estimated in a National Governor’s Association survey . Increased buying by tax-exempt investors would sustain a rally in short-term Treasuries, already benefiting from demand for a refuge from sovereign credit concerns and rising purchases by banks. “Treasuries are safer and more liquid investments, especially given the quality issues with many municipalities of late,” said Jeffrey Schoenfeld , partner and chief investment officer in New York at Brown Brothers Harriman & Co., which manages $33 billion in assets. “In this low-rate environment Treasuries can be huge pickup and very good value on an after- tax basis in the shorter-end.” The Build America Bond program, an Obama Administration plan that subsidizes 35 percent of interest expense for state and local issuers when they sell taxable debt, is also making municipal securities less attractive relative to Treasuries. Build America Bonds Almost $80 billion in Build America Bonds have been sold since the program began in April 2009, and taxable bond sales totaled $97 billion, or about 28 percent of long-term, fixed- rate municipal issuance during the last 11 months, data compiled by Bloomberg show. During the six years through 2008, taxable sales made up an average 5 percent of issuance. More tax-exempt bonds may be replaced with Build America debt, because the federal budget for the fiscal year starting in October calls for an expansion of the program to allow refunding. It also calls for making the stimulus initiative permanent with a lower interest subsidy of 28 percent for new issues beginning Jan. 1, 2011. Treasuries due in one to three years have returned 0.78 percent since December, after gaining 0.79 percent in 2009, according to Bank of America Merrill Lynch index data. Similar maturity state and local securities returned 0.57 percent this year, extending 2009’s 4.2 percent gain. Relative Returns Government securities fell last week after a Labor Department report showed payrolls dropped by a less-than- forecast 36,000 in February. Two-year note yields increased eight basis points to 0.90 percent, according to BGCantor Market Data. The yield climbed to 0.91 percent today as of 12:17 p.m. in Tokyo. Municipal debt became more expensive as investors bought longer-maturity debt with money stored in short-term tax free money market accounts that yielded as little as 0.02 percent. Assets in the funds dropped by $148.76 billion from the record $528.36 billion in August 2008, according to iMoneyNet of Westborough, Massachusetts. “Demand for munis is mostly coming from retail investors who have been sitting on a mountain of cash and wondering what to do with it,” said Christine Todd , a managing director and head of the group that oversees $26 billion in tax-sensitive fixed-income portfolios at Standish Mellon Asset Management Co. in Boston. “AAA munis are rich versus Treasuries.” ‘Great Opportunity’ Baltimore County, Maryland’s AAA rated general obligation bond due in three years yielded as little as 58 percent of comparable Treasuries last week, according to Bloomberg data. The ratio of AAA rated Arlington County, Virginia, debt due in three years dipped as low as 50.7 percent last week, according to Bloomberg data. That means that buyers would be better off buying Treasuries even if they’re in the highest tax bracket. “Most people with wealthy clients think about taxes first, and that usually means munis, even when munis are overvalued,” said Jonathan Lewis , founding principal of New York-based Samson Capital Advisors LLC, which manages more than $4 billion. “Right now there is a great opportunity to go up in quality and increase liquidity by building allocation in Treasuries.” Municipal bonds may get even more expensive with a proposal in Congress by Oregon Democrat Ron Wyden and New Hampshire Republican Judd Gregg seeking to replace the tax exemption for state and local bonds with a more limited tax credit. Economic Outlook “Supply concerns will continue to be the major issue, even as quality concerns are not emerging to be real issues,” said George Friedlander , municipal strategist for Morgan Stanley Smith Barney in New York. “Add to that the prospect of the possibility for Congress ending tax exemption and it points to more demand for munis going forward. There is still room for munis to get richer.” Even if municipal yields fall, investors can still benefit by switching into U.S. government debt given the relative low level of interest rates and slow economic recovery, said Gary Pollack , who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth management unit in New York. Federal Reserve Chairman Ben S. Bernanke , who slashed the central bank’s target rate for overnight loans between banks to a range of zero to 0.25 percent in December 2008, has flooded the economy with more than $1 trillion in the largest monetary expansion in U.S. history. In his semi-annual testimony to Congress last month, Bernanke reiterated that rates will remain low for “an extended period” because the economy’s “nascent” recovery isn’t strong enough to bear higher borrowing costs. Market Performance Shorter-maturity Treasures are outperforming longer-dated debt with the Fed in no hurry to raise rates and investors’ concern increasing that inflation will accelerate because of the record borrowing and stimulus measures. Yields on 10-year notes rose to a record 2.94 percentage points more than two- year notes on Feb. 18, and were 2.79 percentage points higher on March 5. For all the concern about a record federal budget deficit and the rising supply of Treasury debt, U.S. bonds are the place to be so far in 2010, with returns topping equities and commodities. Bank of America Merrill Lynch’s U.S. Treasury Master Index has increased 1.56 percent, compared with a gain of 0.17 percent for the MSCI World Index of stocks and a 0.33 percent increase in the Standard & Poor’s GSCI Index of 24 raw materials. “Smart investors are doing the math by buying short-term Treasuries, which are giving more after tax returns and adding quality and liquidity to their portfolio,” said Deutsche Bank’s Pollack. “A combination of extremely low rates, lack of muni supply and the prospect of higher income taxes are making munis look extremely rich. If ratios go lower the after tax return will still be there.” To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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Yields on Tax-Exempt U.S. Bonds Drop to the Lowest Level in Three Months

March 5, 2010

By Catarina Saraiva March 5 (Bloomberg) — Yields on local and state government tax-exempt bonds fell to a three-month low as supply shrank to the smallest amount in four weeks. Yields on top-rated general obligations due in 10 years fell to 3 percent, the lowest since Dec. 10, a daily survey by Municipal Market Advisors shows. Tax-exempt sales totaled $3.6 billion this week, dropping to less than $4 billion for the first time since the five-day period ended Feb. 5. Issuers led by Georgia’s Municipal Electric Authority sold $2 billion in taxable Build America Bonds, which provide a 35 percent subsidy on interest costs from the federal government. The Georgia utility plans to sell an additional $920 million of such debt today. “There is a lot of interest out there in pure tax-exempt bonds,” said Anthony Shields , a principal in the public finance department at Williams Capital Group in New York. “Build America Bonds are sucking out some of the issuance, so that there’s less and less pure tax-exempts coming to market.” The New York Dormitory Authority , the second-biggest municipal issuer after California last year, sold $590.8 million secured by personal income tax revenue, including $365.7 million of tax-exempt debt. After getting more than $200 million in orders from individual buyers, the agency finished the pricing ahead of schedule, Shields said. Benchmark borrowing costs for state and local government selling 30-year revenue bonds fell to a seven-week low of 4.93 percent, according to the weekly Bond Buyer 25 index. Securities in the gauge have an average Moody’s Investors Service rating of A1, the fifth highest. “The demand component is going up just as the supply component is going down,” said Mike Pietronico , chief executive officer of Miller Tabak Asset Management in New York. “That has all the makings of a bull market. It’s like the perfect storm.” Following are descriptions of pending sales of municipal debt in the U.S. ASCENSION HEALTH, the largest nonprofit health-care system in the U.S., plans to sell about $1.35 billion in tax-exempt revenue bonds beginning next week. About $745 million will be used to refinance current debt and $600 million will help fund new construction and expansion at five health-care centers, said Stephen Gilmore, director of capital finance for St. Louis-based Ascension. Morgan Stanley will market a $670.5 million fixed- rate sale on March 10 and a $675.4 variable-rate issue later in the month. Ascension is rated Aa1 by Moody’s, AA by Standard & Poor’s and AA+ by Fitch Ratings. (Added March 5) MASSACHUSETTS , the second most-indebted state per capita after Connecticut, plans to sell $538.9 million of floating-rate general obligations as early as next week. The date of the sale will be determined by market conditions, according to the state treasurer’s Web site. Revenue from the sale will help refinance outstanding variable-rate demand bonds supported by an agreement from Citibank that expires later this month, according to Moody’s. Underwriters led by Morgan Stanley will market the issue. The state’s general obligations are rated Aa2 by Moody’s, while Fitch and S&P rate them AA, the third-highest of 10 investment grades. (Updated March 5) GUILFORD COUNTY , North Carolina, plans to sell $298.4 million of general obligations next week. The sale includes $82.5 million of tax-exempt debt and the same amount of taxable Build America Bonds to fund public improvements. The remainder, also tax exempt, will be used to refinance existing debt. The county, which includes Greensboro, has a top rating from S&P. Moody’s and Fitch grade it one level lower. (Updated March 5) CALIFORNIA , the lowest-rated U.S. state, intends to raise as much as $5 billion from investors this month with its first debt sales since November, according to Treasurer Bill Lockyer . JPMorgan Chase & Co. and Morgan Stanley were selected to manage a tax-exempt deal of as much as $2 billion on March 11, and Citigroup Inc. and Bank of America Merrill Lynch will handle a taxable offering later in the month, according to the state treasurer’s Web site. California is rated A- by S&P, Baa1 by Moody’s and BBB by Fitch. (Updated March 2) DETROIT, the largest U.S. city whose general obligation debt is rated below investment grade, plans to borrow $250 million as early as next week by issuing municipal securities to help fill a budget deficit, Moody’s said in a report. State aid derived from a Michigan-wide sales tax as well as the city’s full faith and credit secure the bonds, rated A1 by Moody’s and AA- by S&P. Without aid from Michigan, the ratings would be B1 from Moody’s and BB by S&P. (Updated March 2) NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY, which helps raise capital funding for a system that serves 9 million people, plans to sell $400 million in fixed-rate taxable Build America Bonds on March 9, the second such deal in less than two months. Proceeds from the sale will be used for capital improvements of the city’s water and sewer system, city finance officials said in a statement last week. The securities are rated AA+ by S&P, Aa3 by Moody’s and AA by Fitch. A group of underwriters led by Jefferies Group Inc. will market the securities to investors. (Added March 2) ILLINOIS, the second-lowest-rated U.S. state after California, will take bids on March 11 from banks seeking to underwrite $300 million of Build America Bonds and $56 million of non-subsidized taxable notes. The deal will finance school construction, according to John Sinsheimer , director of capital markets for Illinois. The state, which last sold BABs in a $1 billion deal on Jan. 28, is rated A2 by Moody’s, A+ by S&P and A by Fitch. A statutory requirement calls for 25 percent of all state debt to be bid competitively, Sinsheimer said. Banks led by William Blair & Co. will negotiate the sale of an additional $700 million in Build America securities in mid-March, he said. (Added March 2) DISTRICT OF COLUMBIA, the U.S. capital, plans to sell $715 million of tax-exempts backed by income tax revenue as soon as next week. The deal will replace a mixture of fixed- and variable-rate general obligation bonds, which have lower ratings, and reduce the district’s amount of adjustable-rate debt, Fitch said in a release March 3. Underwriters led by Goldman Sachs Group Inc. will handle the deal. The debt is rated AAA by S&P, AA by Fitch and Aa2 by Moody’s. (Updated March 4) To contact the reporter on this story: Catarina Saraiva in New York at asaraiva@bloomberg.net .

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Bond Vigilantes Say EU Needs Better Plan to Control Greece Budget Deficit

February 17, 2010

By Matthew Brown and Anchalee Worrachate Feb. 18 (Bloomberg) — European Union leaders are failing to persuade bond investors that Greece can fix its budget. The yield on Greece two-year notes have remained above 5 percent, the highest in the euro zone, even after officials urged the nation this week to reduce its deficit. The premium investors demand to hold the notes instead of benchmark German securities has held above 4 percentage points, the most since the Mediterranean nation joined the euro and more than 10 times its 35 basis point average the past decade. After driving yields to the highest in 10 years, bond investors are keeping up the pressure on the EU to support Greece. Concern that the nation’s inability to narrow a deficit that is more than four times the EU limit will be replicated in countries such as Portugal and Spain prompted Societe Generale SA’s top-ranked strategist Albert Edwards to predict Feb. 12 that the euro region was poised to break up. “The market has replaced the EU as the chief enforcer of fiscal discipline, and the movement in spreads is testament to that,” said Charles Diebel , senior interest-rate strategist at Nomura International Plc in London. “What the bond markets have done to Greece could be the salvation of Europe.” The euro weakened 0.3 percent to $1.3567 against the dollar, bringing its three-month decline to 9 percent. No Specific Measures Investors who push up debt yields in an effort to alter government policy are known as vigilantes, a term coined in 1984 by economist Edward Yardeni , president of Yardeni Investments Inc. in New York. They were credited with forcing Bill Clinton to cut the U.S. deficit after he came into office in 1993, helping drive 10-year Treasury yields down to about 4 percent by November 1998 from above 8 percent in 1994. “Fiscal rules are only as good as the political will to enforce them, and there hasn’t been much of that, especially during the good times,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. Greek two-year yields rose the most in almost three weeks on Feb. 16, when euro-region finance ministers stopped short of announcing specific measures to help the country. EU Economic and Monetary Affairs Commissioner Olli Rehn said after their meeting in Brussels that the bloc has “ways and means” to safeguard stability in the euro area. Greece said last year that the deficit would be 12.7 percent of gross domestic product, compared with the EU ceiling of 3 percent. Prime Minister George Papandreou ’s Dec. 14 pledge to take “radical” action failed to stop Moody’s Investors Service and Standard & Poor’s from cutting the country’s credit ratings. Shrugging of Panandreou Yields rose even after Papandreou announced a plan on Jan. 14 to cut the deficit by 10 billion euros ($13.7 billion), forcing further concessions two weeks later when he promised to boost the retirement age and freeze public sector pay. That reversed a pledge he made in last year’s election. While the vigilantes are punishing fiscal transgressors in Europe today, they were largely silent for much of the past decade as governments flouted the EU’s rules. The spread between Greek and German 10-year yields averaged 19 basis points in 2004 even as the Mediterranean nation’s budget deficit was 7.5 percent of GDP, the biggest in the region. “The experience of the past 10 years shows that markets can be ignoring these issues totally until they suddenly wake up and turn violently against fiscal offenders,” said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc in London. “Market discipline is important and necessary, but sudden shifts in sentiment in the bond market can be equally devastating.” Limits Exceeded Euro-region nations have exceeded the 3 percent limit on their budget deficits 44 times since the currency was introduced in 1999. Greece has been the biggest offender , as its deficit rose above the ceiling in eight of the nine years since it joined the euro in 2001. Italy broke the rule six times. Portugal, France and Germany flouted it five times. All 16 countries that use the euro will post budget deficits above 3 percent for 2009. Ireland will have a 12.5 percent shortfall, and Spain will have an 11.2 percent gap, according to European Commission estimates. Greek “yields seem fair to me,” said Bob Treue , founder of New Jersey-based Barnegat Fund, ranked among the top three hedge-fund performers in fixed income last year with a 132.7 percent return, according to Bloomberg calculations. “We don’t have a position in Greece, long or short.” Rules ‘Appropriate’ Current rules and instruments are “appropriate,” EU Economic and Monetary Affairs spokesman Amadeu Altafaj said in response to questions from Bloomberg News. “The issue at stake is not the rules and the instruments but the non-compliance to these rules.” If the EU fails to convince markets that it can solve Greece’s difficulties, investors may turn their attention to its neighbors, according to Mark Schofield , head of interest-rate strategy at Citigroup Inc. “Spain, Portugal, Italy and Ireland might not be a problem now, but if the market starts pushing their spreads wider, and put them in the situation where they are forced to fund their deficits at much more onerous levels, then you will see a lot more pressure for a pan-European solution to the problem,” he said. Yields on the debt of other peripheral euro-region countries also rose in recent months as investors bet the budget crisis wasn’t limited to Greece. Portuguese two-year yields touched 2.72 percent on Feb. 4, 1.65 percentage points above Germany’s level and an almost 13-year high. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net ; Anchalee Worrachate in London at aworrachate@bloomberg.net

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Japan Government-Backed Fund Eyes Investing in Auto, Technology Companies

February 12, 2010

By Mariko Yasu Feb. 12 (Bloomberg) — Innovation Network Corporation of Japan , the government-backed investment fund started in July, is looking at the nation’s automotive industry and technology companies for its first investment, an executive said. More than 200 companies including Toshiba Corp. and Alps Electric Co. have sought investment from the fund and some negotiations are close to a conclusion, Haruyasu Asakura, chief operating officer of the Tokyo-based fund, said in a Feb. 10 interview. “We plan to prioritize products or technologies that have global competitiveness and a bigger impact on Japanese enterprise.” INCJ has almost 900 billion yen ($10 billion) of financial support from the government and 19 private corporations including Panasonic Corp. and Toshiba, according to the fund’s statements . It aims to spur growth of Japan’s economy by promoting consolidation and nurturing new businesses, according to the fund’s Web site. “The expertise of carmakers, electronics makers and companies that are supporting them, such as manufacturers of measuring instruments, are important,” the 48 year-old former Carlyle Group managing director said. The fund is also looking at companies that can expand in the water-infrastructure business, renewable energy devices and smart-grid systems, Asakura said. INCJ, which has hired about 40 employees so far, will likely make its first investment this year, he said, In November, the fund partnered with Toshiba, Japan’s biggest chipmaker, to offer for the power-grid unit of Areva SA , the world’s largest builder of nuclear reactors. Areva said Nov. 30 it awarded exclusive negotiating rights to Alstom SA and Schneider Electric SA, which bid 4.09 billion euros ($5.6 billion) for the business. Alps, a Tokyo-based auto electronics maker, agreed with INCJ to jointly investigate the commercial viability of components that can improve the power efficiency of electronic products, the company said Dec. 1. To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net .

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Yale Beats Harvard Selling Bonds in Rush for Scarce Connecticut Muni Debt

February 10, 2010

By Jeremy R. Cooke and Michael McDonald Feb. 10 (Bloomberg) — Yale University, the top-rated Ivy League school founded in 1701, won lower 15-year tax-exempt yields than Harvard University, also ranked AAA, thanks in part to demand from its home state of Connecticut. New Haven-based Yale, whose endowment ranks second only to Harvard in the U.S., sold bonds due in July 2025 at a price to yield 3.35 percent yesterday while the University of Michigan in Ann Arbor, also rated AAA, drew 3.59 percent on similar debt. Harvard, based in Cambridge, Massachusetts, got 3.46 percent last month on securities that last traded on Feb. 4 at 3.41 percent. All of the debt can be bought back in eight to 10 years. Connecticut is wealthier per capita than Massachusetts and Michigan and its higher income tax rates help boost demand for tax-free municipal bonds in a state where supply has been relatively sparse, according to Fred Yosca , head of fixed-income trading at BNY Mellon Capital Markets LLC in New York. “Not only is it an Ivy League credit, it is Connecticut tax-exempt,” Yosca said. “There’s never any Connecticut paper around anymore.” Fixed-rate municipal sales by Connecticut issuers fell 24 percent to $352 million this year through last week, while offerings in Massachusetts rose 70 percent to $1.28 billion in the same period, according to data compiled by Bloomberg. Michigan muni deals fell 45 percent to $332 million during the first five weeks of 2010, the data show. Income, Taxes Connecticut has the highest personal income per capita at $54,117, based on 2007 data from the U.S. Census Bureau, and a top income tax rate of 6.5 percent, compared with 5.3 percent in Massachusetts and 4.35 percent in Michigan. Yale, which cut capital spending 60 percent after endowment losses, sold $530.2 million of tax-exempt bonds and wrapped up the offering a day sooner than planned. Underwriters led by Barclays Plc handled the deal, which was issued through Connecticut’s Health and Educational Facilities Authority. The private nonprofit university found enough demand to raise the price and cut the yield on the $80 million in 15-year bonds by four basis points from 3.39 percent. Yale also sold $150 million of 30-year bonds priced to yield 4.24 percent. The balance of the transaction was 39-year bonds with so- called mandatory tender provisions that allow Yale to buy them back and change the rates. Investors in $150 million were offered a 1.05 percent yield through 2013, and buyers of another $150 million get 1.77 percent through 2015. Big Endowments “Universities with big endowments have been trading very well,” Yosca said. “They’re still perceived to be blue-chip credits.” Michigan, the state’s oldest university, sold $184.2 million of AAA tax-exempt bonds yesterday through a round of competitive bidding among investment banks won by Bank of America Merrill Lynch . Ten-year bonds had a yield of 3.01 percent. Yale is using most of the proceeds from its deal to finish campus construction projects as part of a $600 million capital program for the year ending June 30, a record level of spending. The university will cut its capital program to $250 million next year. The school’s endowment fell to $16.3 billion from $22.9 billion in the 12 months ended June 30. Yale will delay as much as $2 billion in capital projects over the next five years, university President Richard Levin said in a letter a year ago. Tom Conroy , a Yale spokesman, confirmed the capital spending cuts this week and declined further comment. Suspended Work Harvard suspended work early this year on a $1 billion science center after the value of its endowment fell to about $26 billion in the 12 months ended June 30, from a peak of $36.9 billion in 2008. The university may cut its annual capital spending in half to $500 million, according to a 2009 report from Moody’s Investors Service. Higher-education endowments lost on average 18.7 percent in the year ended June 30, according to the National Association of College and University Business Officers . The losses are forcing the institutions to rein in building programs after boosting long-term debt by 54 percent in fiscal 2009, according to a survey of 842 of the institutions released Jan. 28. The highest rated tax-exempt university bonds are sometimes so popular they come to market at yields less than those on some top-rated state and local debt. Georgia bonds rated AAA, due in March 2025 and callable in 2019, traded yesterday at a price to yield 3.47 percent, Municipal Securities Rulemaking Board data show. Slower Pace Yale may also have benefited from expectations for a slower pace of bond sales in coming weeks than when Harvard borrowed, said Dexter Torres , head trader at fixed-income manager Samson Capital Advisors in New York. The Bloomberg Municipal 30-Day Visible Supply Index fell to $8.6 billion from $14.1 billion Jan. 13. “There was a heavier supply calendar the week that the Harvard deal came, so that deal had more competition,” Ashton Goodfield , head of muni trading at DWS Investments in Boston, said in an e-mail. “With Yale, the 15-year term sold at narrower spreads than the 30-year term. This reflects the strong interest for high-quality names in the intermediate part of the curve, from both retail and institutional buyers.” Following are descriptions of pending sales of municipal debt in the U.S. VIRGINIA PUBLIC BUILDING AUTHORITY plans to sell $317.2 million in revenue bonds through competitive bidding as soon as today to help finance repair, renovation and construction projects at state agencies. Securities due through 2015 will be tax-exempt and those due from 2016 through 2030 will be taxable Build America Bonds. The debt is rated AA+ by Fitch and S&P, the second-highest of 10 investment grades. (Updated Feb. 10) CALIFORNIA’S EAST BAY MUNICIPAL UTILITY DISTRICT, which provides water to 1.3 million customers in an area around Berkeley and Oakland east of San Francisco Bay, intends to market $400 million of taxable, federally subsidized Build America Bonds through Morgan Stanley as soon as this week to fund construction projects. The district’s water system subordinated revenue bonds are rated AA by Fitch, Aa2 by Moody’s and AAA by S&P. (Updated Feb. 10) LOS ANGELES UNIFIED SCHOOL DISTRICT , the second largest in the U.S. after New York City, plans to sell about $1.75 billion of voter-approved general obligation bonds on Feb. 17 and 18. The offering will comprise a mix of tax-exempt and taxable securities, some of which will be designated Build America Bonds and eligible for 35 percent federal interest subsidies. The money raised will help fund the nation’s largest school-building program and refinance debt. Banks led by Citigroup Inc., Barclays Plc, Goldman Sachs Group Inc. and Morgan Stanley will underwrite the deal. The bonds, backed by property taxes collected by Los Angeles County, are rated Aa3 by Moody’s and AA- by S&P. (Updated Feb. 10) UNIVERSITY OF PITTSBURGH MEDICAL CENTER, the largest employer in western Pennsylvania, intends to offer $720 million of fixed-rate bonds next week as part of a $1.1 billion plan to reduce the amount of its debt with variable interest to 20 percent from 30 percent. Underwriters led by Bank of America Merrill Lynch and Allegheny County’s Hospital Development Authority will market a $400 million UPMC issue, and PNC Financial Services Group Inc. and Pennsylvania’s Higher Educational Facilities Authority will handle $320 million. S&P rates the Pittsburgh-based medical center A+ and Fitch assigned it AA-. (Added Feb. 10) KENTUCKY’S OWENSBORO MEDICAL HEALTH SYSTEM, the largest employer in Daviess County, plans to sell about $545 million of tax-exempt bonds through underwriters led by Bank of America Merrill Lynch as soon as this month. The money raised will finance a 447-bed replacement hospital and refinance existing obligations. (Updated Feb. 9) NORTH CAROLINA BAPTIST HOSPITAL, the academic medical center for Wake Forest University in Winston-Salem, plans to refinance all of its debt by selling $330 million of fixed-rate, tax-exempt bonds next week. Underwriters led by Morgan Stanley and the North Carolina Medical Care Commission are arranging the deal, which will redeem variable-rate demand obligations issued in 1992, 1996, 2000 and 2009. Moody’s rates the bonds Aa3, and S&P assigns its AA-. (Added Feb. 10) To contact the reporters on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net ; Michael McDonald in Boston at mmcdonald10@bloomberg.net .

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`Blind Pools’ Lose Appeal as Ziman, Callahan Plan Real Estate IPO Comeback

February 9, 2010

By Dan Levy and Brian Louis Feb. 9 (Bloomberg) — Richard Ziman and Timothy Callahan want to raise money in the equity market after selling their real estate companies for a combined $12 billion before the property crash. Investors may balk at bankrolling their return. Ziman, former chairman of Arden Realty Inc., and Callahan, who ran Trizec Properties Inc., have each filed to offer shares in so-called blind-pool companies, which seek to raise money before owning any assets. They plan to use proceeds from the deals to acquire discounted office properties , hoping their talent and track records will lure investors. Their timing may be wrong. Recent blind-pool stock sales have been cut in size or canceled, or the shares are treading water, amid a slump in demand for initial public offerings. Meanwhile, real estate owners are trying to hold onto distressed or defaulted properties rather than unload them at fire-sale prices, leaving few buying opportunities. “Blind pools have huge negatives and only make sense if they have the perfect management and the perfect opportunity,” Mike Kirby , chairman of Newport Beach, California-based Green Street Advisors Inc., a research firm focused on real estate investment trusts, said in an interview. Almost $1 billion of commercial real estate-related IPOs registered as blind pools have been withdrawn or postponed in the past year, according to data compiled by Bloomberg. An additional $3.9 billion of deals are in the pipeline. Five of the seven blind pools that raised about $2 billion did so before October, the data show. Terreno Flops Terreno Realty Corp., a San Francisco-based fund formed to buy industrial properties, postponed a $200 million sale Jan. 25 after reducing it by a third, and cut it again yesterday by 13 percent. The company is set to price the offering today, according to Bloomberg data. Fairfield, New Jersey-based Chesapeake Lodging Trust raised 40 percent less than it sought, and the stock’s total return including reinvested dividends is down 5.5 percent after its Jan. 22 debut. Pebblebrook Hotel Trust , based in Bethesda, Maryland, is up 0.45 percent since going public Dec. 8. Blind pools are risky because “the commercial market is in abysmal shape” and investors are worried the economic recovery will sputter amid high unemployment, said Robert Edelstein , a professor specializing in real estate at the University of California at Berkeley’s Haas School of Business. The U.S. employment picture showed signs of improvement in January, with the jobless rate unexpectedly falling to 9.7 percent from 10 percent the previous month, the Commerce Department said Feb. 5. Unemployment touched a 26-year high of 10.1 percent in October. Commercial real estate transactions declined 64 percent last year to $52 billion, data from researcher Real Capital Analytics Inc. show. Distressed ‘Overhang’ Sales of commercial mortgage-backed securities, or CMBS, fell to $12.2 billion in 2009 from a record $237 billion in 2007, removing a major source of financing for building owners, according to JPMorgan Chase & Co. in New York, the second- largest U.S. bank. Delinquencies for loans packaged into CMBS rose to a record 6.5 percent in January from 1.5 percent a year earlier, Trepp LLC, a New York-based research firm, said Feb. 1. Only 14 percent of an estimated $150 billion in distressed U.S. commercial real estate has been taken back by lenders, according to Jessica Ruderman , director of research services at New York-based Real Capital. “There’s an overhang of real estate that no one is quite sure what will happen with,” Edelstein said. “The market is starting to recognize the complexities of owning troubled real estate.” Ziman and Callahan sold their companies a year before the collapse of subprime residential mortgages led to the worst financial crisis since the 1930s and a more than 40 percent decline in commercial property values from their 2007 peak. Beating REIT Index Ziman, 67, was chairman of Arden Realty when Fairfield, Connecticut-based General Electric Co. agreed to buy it for $3.2 billion in December 2005. Arden, which Ziman founded in 1990, had 116 office properties with 18.5 million square feet in Southern California. The Los Angeles-based company went public in October 1996 and returned 326 percent to shareholders, including dividends, through the announcement of the GE deal, according to a Dec. 18 IPO prospectus filed by Ziman’s new company, Halvern Realty Inc. That compares with a 237 percent return by the MSCI US REIT Index . Halvern, based in Los Angeles, is seeking to raise as much as $400 million, according to its filing with the U.S. Securities and Exchange Commission. The company intends to buy and manage Southern California office properties and will be organized as a real estate investment trust. REITs must distribute at least 90 percent of their taxable income to shareholders, and don’t pay corporate taxes on that amount. Zell’s CEO Callahan, 59, was chief executive officer of Chicago-based Trizec Properties from 2002 until it was bought for about $9 billion by New York-based Brookfield Properties Corp. and Blackstone Group LP of New York in October 2006. He was CEO of billionaire Sam Zell’s Equity Office Properties Trust, also in Chicago, from 1997 to 2002. Under Callahan, Trizec returned 189 percent, compared with a 125 percent gain by the REIT Index, according to a Dec. 11 prospectus by his new company, Callahan Capital Properties Inc. Equity Office returned 89 percent while he was in charge, twice the rate of the index. Callahan’s REIT plans to buy prime office properties initially in Boston, Los Angeles, New York, San Francisco, Seattle and Washington, according to its filing. The Chicago- based company may raise as much as $500 million in the IPO. Ziman declined to comment, citing the so-called quiet period required before an IPO. Callahan didn’t return calls seeking comment. IPO Slump The IPO market is slumping after the largest stock-market rally since the 1930s revived deals in the last four months of 2009 from a record slowdown that followed the credit crisis. This year, Boca Raton, Florida-based FriendFinder Networks Inc.’s $240 million initial offer and Los Angeles-based Imperial Capital Group Inc.’s $113 million sale were pulled; Cambridge, Massachusetts-based Ironwood Pharmaceuticals Inc. cut its share price by 30 percent; and Fort Lauderdale, Florida-based Patriot Risk Management Inc. delayed a $204 million deal. The Standard & Poor’s 500 Index has lost 5.1 percent in 2010, including dividends. U.S. IPOs will triple in 2010 to $50 billion, according to an estimate by Barclays Plc, the second-largest U.K. bank. Even with a projected rise, real estate investors may favor trusts that already own buildings rather than blind pools, said Craig Guttenplan , a New York-based REIT analyst for CreditSights Inc. “People are really wary of those,” Guttenplan said. REIT Appeal The load, or commission, for blind pools can reach 14 percent and covers underwriting and legal fees and general costs, according to Green Street Advisors’ Kirby. Terreno had a 10 percent load, one reason the IPO didn’t pass an “economic merit” test, he said. U.S. office REIT share prices are trading at 7 percent above the underlying value of their real estate and are a safer investment than blind pools, Kirby said. Blind pools face competition from other investors. Private- equity managers raised $21.4 billion for 50 North America real estate funds last year, according to data compiled by Preqin Ltd., a London-based research firm. Barry Sternlicht’s Starwood Capital Group LLC in Greenwich, Connecticut, has $900 million in a hotel fund, managing director Marc Perrin said Nov. 6 at a real estate industry meeting. Capital Raises The REIT boom that began two decades ago raised almost $27 billion in initial share sales from 1993 through 1998, according to the National Association of Real Estate Investment Trusts in Washington. More than 150 real estate companies went public in that period, and “few” of them were blind pools, said Michael Grupe , executive vice president for research. Last year, facing tight credit markets and needing to pay down debt, almost 90 existing REITs raised more than $21 billion in secondary share offerings, the most since 1997, NAREIT data show. Companies also raised more than $10 billion in unsecured debt. Still, buildings aren’t changing hands, and even established REITs can’t find deals because owners expect values to rise following the government’s massive support of capital markets, according to Dan Fasulo , managing director of Real Capital. “I don’t think we’re going to see the wave of distressed opportunities that everyone thinks is out there,” Fasulo said. “Lenders aren’t in a forced position at all. They’re not giving the good stuff away.” To contact the reporters on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net ; Brian Louis in Chicago at blouis1@bloomberg.net .

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Airport Body Scans Increase Radiation Exposure Risk, Safety Committee Says

February 5, 2010

By Jonathan Tirone Feb. 5 (Bloomberg) — Air passengers should be made aware of the health risks of airport body screenings and governments must explain any decision to expose the public to higher levels of cancer-causing radiation, an inter-agency report said. Pregnant women and children should not be subject to scanning, even though the radiation dose from body scanners is “extremely small,” said the Inter-Agency Committee on Radiation Safety report, which is restricted to the agencies concerned and not meant for public circulation. The group includes the European Commission, International Atomic Energy Agency , Nuclear Energy Agency and the World Health Organization . A more accurate assessment about the health risks of the screening won’t be possible until governments decide whether all passengers will be systematically scanned or randomly selected, the report said. Governments must justify the additional risk posed to passengers, and should consider “other techniques to achieve the same end without the use of ionizing radiation.” President Barack Obama has pledged $734 million to deploy airport scanners that use x-rays and other technology to detect explosives, guns and other contraband. The U.S. and European countries including the U.K. have been deploying more scanners at airports after the attempted bombing on Christmas Day of a Detroit-bound Northwest airline flight. “There is little doubt that the doses from the backscatter x-ray systems being proposed for airport security purposes are very low,” Health Protection Agency doctor Michael Clark said by phone from Didcot, England. “The issue raised by the report is that even though doses from the systems are very low, they feel there is still a need for countries to justify exposures.” 3-D Imaging A backscatter x-ray is a machine that can render a three- dimensional image of people by scanning them for as long as 8 seconds, the report says. The technology has also raised privacy issues in countries including Germany because it yields images of the naked body. The Committee cited the IAEA’s 1996 Basic Safety Standards agreement, drafted over three decades, that protects people from radiation. Frequent exposure to low doses of radiation can lead to cancer and birth defects, according to the U.S. Environmental Protection Agency . Most of the scanners deliver less radiation than a passenger is likely to receive from cosmic rays while airborne, the report said. Scanned passengers may absorb from 0.1 to 5 microsieverts of radiation compared with 5 microsieverts on a flight from Dublin to Paris and 30 microsieverts between Frankfurt and Bangkok, the report said. A sievert is a unit of measure for radiation. European Union regulators plan to finish a study in April on the effects of scanning technology on travelers’ privacy and health. Amsterdam, Heathrow and Manchester are among European airports that have installed the devices or plan to do so. The U.S. Transportation Security Administration has said that it ordered 150 scanners from OSI Systems Inc. ’s Rapiscan unit and will buy an additional 300 imaging devices this year. The agency currently uses 40 machines, which cost $130,000 to $170,000 each, produced by L-3 Communications Holdings Inc. at 19 airports including San Francisco, Atlanta and Washington D.C. To contact the reporter on this story: Jonathan Tirone at jtirone@bloomberg.net

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The Handbook of Commercial Real Estate Investing

January 18, 2010

Publisher McGraw Hill X PDF mb The Handbook of Commercial Real Estate Investing delivers an authoritative &ldquo best practices&rdquo approach to the three major areas of the industry 172134.

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Illinois Leads $9.8 Billion of Municipal Bond Sales Planned for Early 2010

December 30, 2009

By Jeremy R. Cooke Dec. 30 (Bloomberg) — Illinois will lead states and municipalities bringing to market at least $9.8 billion of fixed-rate bonds in the opening weeks of 2010, after a lull in sales to close out this year, data compiled by Bloomberg show. Illinois, the second-lowest rated U.S. state after California, will offer $3.47 billion of taxable notes to be repaid over five years to contribute to public employee pension funds for the fiscal year that ends June 30. Moody’s Investors Service and Standard & Poor’s cut Illinois’ credit ratings this month as it resorts to such borrowing to help bridge a budget gap of almost $12 billion. Next week’s sale will be Illinois’ first issue of “medium- term notes for its pension system,” Governor Pat Quinn ’s budget office said in a Dec. 16 statement. Preliminary sale documents will be available as soon as today, Kelly Kraft, a spokeswoman for the office, said in a Dec. 23 e-mail. The state borrowed $10 billion in June 2003 with the largest single sale of taxable municipal bonds, to mature through 2033. The need to close its budget deficit at the time and pay money owed to workers’ retirement systems also prompted that sale. Illinois taxable general obligation bonds due in June 2015 from the deal traded on Dec. 28 at prices set to produce an average 3.9 percent yield, about 130 basis points more than comparable-maturity Treasuries, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. The state’s so-called spread at issue six years ago was 75 basis points more than 10-year benchmark U.S. notes. Tax-Exempt Yields Yields on tax-exempt bonds with top ratings due in 10 years held at a four-week high of 3.05 percent yesterday, according to a daily survey by Municipal Market Advisors of Concord, Massachusetts. Moody’s, which rated Illinois Aa3 in June 2003, ranks the state two levels lower at A2. S&P and Fitch Ratings each ranked the state AA six years ago. Today, Illinois has S&P’s A+ and Fitch’s A, two and three ratings lower than before. Underwriters led by JPMorgan Chase & Co., Goldman Sachs Group Inc. and Loop Capital Markets LLC will market Illinois’ new debt to investors. Bear Stearns Cos., which JPMorgan took over in 2008, handled the earlier $10 billion deal. Taxable sales grew this year to make up 21 percent of fixed-rate municipal issuance because of the federally subsidized Build America Bond program, from 9 percent the year of Illinois’ record pension deal, Bloomberg data show. The federal government rebates 35 percent of the interest on the bonds. Build America Bonds Among issuers planning to sell Build America Bonds beginning next week are Miami-Dade County’s Aviation Department, New Jersey’s Transportation Trust Fund Authority and New York’s Metropolitan Transportation Authority. The Illinois offering is taxable since federal rules preclude proceeds from tax-exempt borrowings from going into funds that invest in potentially higher-yielding investments such as stocks. The Build America initiative subsidizes capital for government projects that would otherwise be tax-exempt such as schools, roads, and transit lines. A lesser share of tax-free issues in the municipal market has helped to drive performance in mutual funds at a time when record amounts of cash are seeking a shelter from federal income taxes that may rise after Bush administration cuts expire in 2011. Investors injected $67.9 billion in new cash into municipal bond mutual funds this year through Dec. 16, according to preliminary data compiled by the Washington-based Investment Company Institute. The previous record year was 1993, when net new cash flow for munis totaled $38.3 billion. Open-End Funds Open-end funds have returned an average 14.8 percent this year and exchange-traded funds have gained 10.6 percent, according to Bloomberg data. Closed-end funds, which don’t continually issue new shares, have rallied 47 percent, on average, the data show. The BofA Merrill Lynch Municipal Master Index, which climbed 14.4 percent this year through Dec. 28, is headed for its best performance since 2000, when the increase was 17.2 percent. The total return for the decade ending tomorrow is 88 percent, or an annualized 6.5 percent. Following are descriptions of additional pending sales of municipal bonds in the U.S. NEW JERSEY TRANSPORTATION TRUST FUND AUTHORITY plans to borrow about $850 million next month to finance road, bridge, rail and bus projects in the most densely populated state. The offering, through banks led by Barclays Plc, will include a mix of zero-coupon, tax-exempt securities and taxable Build America Bonds, according to Moody’s Investors Service. The debt, backed by state appropriations, is rated A1 by Moody’s, A+ by Fitch and AA- by S&P. (Updated Dec. 30) MIAMI-DADE COUNTY, the most populous county in the U.S. Southeast, will sell $600 million of bonds backed by revenue from Miami International Airport, the largest U.S. gateway to Latin America, the week of Jan. 11. As much as 30 percent of the issue will be taxable Build America Bonds. Sales to individual investors will occur Jan. 12, with sales to institutions the following day. Proceeds will be used to repay $375 million of commercial paper, with the rest used on the airport’s $6 billion expansion. Underwriting will be led by Citigroup Inc. S&P rates the bonds A-. (Added Dec. 17) LOWER COLORADO RIVER AUTHORITY, which manages electricity generation and water use in the region around Texas’s Colorado River, intends to offer about $426 million of tax-exempt bonds as soon as next week through Barclays to refinance debt. They will mature from 2010 through 2020, according to preliminary offering documents. The bonds are rated A+ by Fitch, A1 by Moody’s and A by S&P. (Updated Dec. 30) NEW YORK’S METROPOLITAN TRANSPORTATION AUTHORITY, the largest U.S. mass-transit agency, plans to sell $350 million of taxable, federally subsidized Build America Bonds the week of Jan. 4 through banks led by JPMorgan Chase & Co. The debt is backed by revenue from the MTA’s bus, subway and commuter-rail networks, state and local government subsidies, dedicated taxes and operating surpluses from the agency’s toll bridges and tunnels. Proceeds from the bonds, rated A2 by Moody’s and A by S&P and Fitch, will fund projects to repair and improve the MTA’s transit and commuter systems in and around New York City. (Added Dec. 22) NEW JERSEY’S HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY plans to sell $338 million of fixed-rate, tax-exempt bonds backed by student loan revenue the week of Jan. 11. The proceeds will allow the authority to buy back and retire auction-rate securities and to fund loans that allow education borrowers to consolidate multiple borrowings into one regular payment. Banks led by Merrill Lynch will handle the offering. Ratings on the deal are AA from S&P and Aa2 from Moody’s, and maturities will range from 2011 through 2037. (Updated Dec. 18) PORT OF HOUSTON AUTHORITY , overseer of the busiest shipping port in the U.S. by foreign tonnage, plans to sell as much as $327.2 million of tax-exempt bonds backed by property taxes collected in Harris County, Texas. Underwriters led by Bank of America Corp.’s Merrill Lynch & Co. will handle the deal as soon as next month. The transaction will refinance debt that the port can buy back, either through call options or investor tenders. Interest on all except $40.5 million of the bonds can be excluded from calculations of the federal alternative minimum tax. The debt that may be refinanced was issued in 1997, 1998, 2001, 2002, 2005, 2006 and 2008, preliminary bond sale documents show. (Added Dec. 18) OHIO, the seventh most-populous state, intends to offer $271 million of tax-exempt general-obligation bonds in a refinancing to provide savings for the current two-year budget. Bank of America Corp.’s Merrill Lynch & Co. leads underwriters and will set prices and rates on the debt in the week of Jan. 4. The latest issue is part of a plan to shift $736 million in debt payments to future fiscal years from the biennium ending June 30, 2011, without extending final maturities, according to Standard & Poor’s. The debt to be refunded originally paid for higher education, common schools and infrastructure improvement. The state is rated AA+ by S&P, Aa2 by Moody’s and AA by Fitch. (Added Dec. 24) MARYLAND ECONOMIC DEVELOPMENT CORP., which issues tax- exempt bonds to encourage business in the state, plans to sell almost $260 million in debt as soon as next month as part of a marine-terminal concession with Ports America Chesapeake. The money raised will fund state transportation projects and an expansion of Seagirt Marine Terminal to make it big enough to handle some of the world’s largest cargo vessels. The Port of Baltimore’s container facility will be leased for 50 years to Ports America, controlled by Highstar Capital, a New York-based private-equity firm. The debt, secured by terminal revenue, received a provisional Baa3 rating from Moody’s. A group of underwriters led by Goldman Sachs will market the debt to investors. (Added Dec. 22) To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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EFG Hermes: EFG-Hermes Saudi Arabia Equity Fund Fact Sheet (Nov-09)

December 29, 2009

This is a PDF report.

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Christopher Brauchli: Bank Presidents and the U.S. President

December 28, 2009

Surfeit begets insolence, when prosperity comes to a bad man. Theognis, c. 545b.c. I hope the President didn’t take it personally. I’m sure no offense was intended. Even though bank presidents have shown they can single handedly almost sink the economy, they can’t control the weather that prevented their making it to the meeting. Of course some people might wonder why they didn’t leave a day earlier. A lot of people who have a morning meeting scheduled with the President of the United States would be very anxious to make sure they were in town the night before so as not to miss the meeting. Such a meeting is heady stuff even for a bank president. My guess is that the men all had good reasons for not arriving in Washington D.C. the night before the meeting and it was not, as some might think, a lack of respect for the President of the United States. A number of factors explain their actions. One is that it was the middle of the holiday season and a Sunday night two weeks before Christmas is a time when there are lots of holiday parties. It is important for bank presidents to be in attendance to show that even though 12 months ago they were being bailed out by, among others, the people at the parties as well as lots of other people their cheerful demeanors prove that they are not the least bit nervous about the economy or the state of their banks. Another reason they may have waited until Monday to travel to see the President (if they were not partying) was to give them additional time to work for the benefit of customers, employees and shareholders. Lloyd Blankfein, president of Goldman Sachs (who missed the meeting), was very likely spending the evening doing rough calculations as to how to divide up $16 billion in bonuses among his thousands of employees. That is a complicated calculation. He may also have been working on the speech he would give to his employees to explain why some of them would get bonuses in stock instead of cash. Citigroup’s Vikram Pandit missed the meeting because Citigroup had a $17 billion stock offering on the same day as the meeting with the President took place. Mr. Pandit spent the day convincing investors they should buy some of the stock that was being offered. Thanks to those efforts Citigroup received $425 million in fees from the offering. In Mr. Pandit’s place Citigroup’s chairman, Richard Parsons was to attend, but having better things to do on Sunday night than spend the night in the capitol he waited until Monday morning to travel and because of weather had to miss the meeting. He may have spent some time Sunday night working on helping those struggling to pay their mortgages who were hoping to qualify under the “Making Home Affordable Program.” In November 2008 Citigroup said its intention was to reach out to 500,000 borrowers who needed help to avoid foreclosure. It said its program might result in $20 billion of mortgage refinancings. As of November 2009 it had fallen a bit shy of its goal. Of all mortgagees who were eligible for modification it had only entered into trial modifications with 100,126 homeowners instead of 500,000 homeowners and had only made permanent modifications with 271 borrowers out of the 231,000 who were estimated to be eligible. John Mack of Morgan Stanley was probably also spending Sunday night trying to figure out how to help those threatened with foreclosure who were in distress. Morgan Stanley’s subsidiary, Saxon Mortgage Services, Inc. had an estimated 80,000 eligible loans and had 35,565 trial modifications going on but as of the end of November had only made 42 of the loan modifications permanent. The rest were still awaiting approval. Of course he might have been toasting the fact that although those numbers are not impressive, when its permanent loans modifications are added to its trial modifications it turns out that 44% of its loans have been modified or are in the trial stage and that, percentage wise, places it at the top of all the Servicers in the program. The “Making Home Affordable Program” has been in place for slightly over a year. The Treasury Department estimates there are 3,299,780 people eligible to participate in the program. As of the end of November only 31,382 have received permanent modifications. The three bank presidents who missed the meeting are probably keenly ware of the failure of their institutions to do more for those in trouble. They may even feel a bit of guilt about it. Not enough, however, to have made sure they’d get to the meeting with the President on time. And not enough to cause them to forego their large bonuses. Christopher Brauchli can be e-mailed at brauchli.56@post.harvard.edu. For political commentary see his web page at http://humanraceandothersports.com

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Securitization Is Back! Investor-Owned Mortgages Have High Re-Default Rates, Says Report

December 21, 2009

The securitization of mortgage loans has been blamed for helping cause the financial crisis — and now it seems to be complicating recovery efforts. About half of all modified investor-owned mortgages, undertaken to help troubled borrowers and investors looking to cut losses, re-default within six months, according to a new quarterly report by federal bank regulators. These are loans that are sliced and diced and sold to investors in the form of securities. That compares with a 25 percent re-default rate for modified loans held in-house at banks, according to data as of Sept. 30. The high re-default rates for investor-owned mortgages underscore the difficulties faced by the Obama administration in trying to stem the growing foreclosure crisis. Through the end of November, 2 million 3.6 million homes have entered foreclosure this year, according to a spokeswoman for RealtyTrac. The administration’s nine-month-old $75 billion program, Making Home Affordable , aims to help three to four million distressed homeowners avoid foreclosure by modifying their mortgages to a more affordable monthly payment. Of the nearly 760,000 modifications that have been enrolled in three-month trial plans, less than 32,000 have transitioned into permanent relief for homeowners. Nearly 87 percent of the modifications under the administration’s program are for investor-owned mortgages. The administration’s program largely does not address what many experts believe to be the root cause of foreclosures — homeowners owing more on their mortgages than their homes are worth. Being “underwater,” or having negative equity, “is the most important predictor of default,” argued Laurie S. Goodman, senior managing director at Amherst Securities, during a Congressional hearing earlier this month . Speaking on behalf of her firm, she said: “We are concerned that if policies continue to kick the can down the road — working with a modification problem that does not address negative equity — delinquencies will continue to spiral with no end in sight.” The data released Monday largely confirm her argument. More than 99 percent of mortgage modifications that include cutting principal are for those mortgages owned outright by a bank, meaning they are held in the bank’s portfolio. Nearly 37 percent of portfolio loans involve cutting principal. Modified portfolio loans also have the lowest re-default rates: Just 25 percent of them re-default within six months, versus about half of investor-owned mortgages. Investor-owned mortgages include those held by government-owned mortgage finance giants Fannie Mae and Freddie Mac. Of the 17,412 mortgage modifications last quarter that included principal cuts, 80 were for Fannie Mae-owned mortgages; 54 for Freddie Mac. “This difference may be attributable to differences in modification programs and the servicers’ flexibility to modify loan terms to achieve greater affordability and sustainability,” notes Monday’s report. Forty-four percent of Fannie Mae’s modified loans re-default within six months; the rate is 47.4 percent for Freddie Mac. Which raises the question: why isn’t the administration pressuring Fannie and Freddie to cut principal? Monday’s report on loan modifications does not include data on the performance of the government’s modification program. But it does look at loan modifications undertaken by the banks themselves. Prepared by national bank regulator the Office of the Comptroller of the Currency and national thrift regulator the Office of Thrift Supervision, the report covers nearly two-thirds of the nation’s home mortgages. READ the report below: OCC and OTS Mortgage Metrics Report, Third Quarter 2009 –

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Securitization Is Back! Investor-Owned Mortgages Have High Re-Default Rates, Says Report

December 21, 2009

The securitization of mortgage loans has been blamed for helping cause the financial crisis — and now it seems to be complicating recovery efforts. About half of all modified investor-owned mortgages, undertaken to help troubled borrowers and investors looking to cut losses, re-default within six months, according to a new quarterly report by federal bank regulators. These are loans that are sliced and diced and sold to investors in the form of securities. That compares with a 25 percent re-default rate for modified loans held in-house at banks, according to data as of Sept. 30. The high re-default rates for investor-owned mortgages underscore the difficulties faced by the Obama administration in trying to stem the growing foreclosure crisis. Through the end of November, 2 million 3.6 million homes have entered foreclosure this year, according to a spokeswoman for RealtyTrac. The administration’s nine-month-old $75 billion program, Making Home Affordable , aims to help three to four million distressed homeowners avoid foreclosure by modifying their mortgages to a more affordable monthly payment. Of the nearly 760,000 modifications that have been enrolled in three-month trial plans, less than 32,000 have transitioned into permanent relief for homeowners. Nearly 87 percent of the modifications under the administration’s program are for investor-owned mortgages. The administration’s program largely does not address what many experts believe to be the root cause of foreclosures — homeowners owing more on their mortgages than their homes are worth. Being “underwater,” or having negative equity, “is the most important predictor of default,” argued Laurie S. Goodman, senior managing director at Amherst Securities, during a Congressional hearing earlier this month . Speaking on behalf of her firm, she said: “We are concerned that if policies continue to kick the can down the road — working with a modification problem that does not address negative equity — delinquencies will continue to spiral with no end in sight.” The data released Monday largely confirm her argument. More than 99 percent of mortgage modifications that include cutting principal are for those mortgages owned outright by a bank, meaning they are held in the bank’s portfolio. Nearly 37 percent of portfolio loans involve cutting principal. Modified portfolio loans also have the lowest re-default rates: Just 25 percent of them re-default within six months, versus about half of investor-owned mortgages. Investor-owned mortgages include those held by government-owned mortgage finance giants Fannie Mae and Freddie Mac. Of the 17,412 mortgage modifications last quarter that included principal cuts, 80 were for Fannie Mae-owned mortgages; 54 for Freddie Mac. “This difference may be attributable to differences in modification programs and the servicers’ flexibility to modify loan terms to achieve greater affordability and sustainability,” notes Monday’s report. Forty-four percent of Fannie Mae’s modified loans re-default within six months; the rate is 47.4 percent for Freddie Mac. Which raises the question: why isn’t the administration pressuring Fannie and Freddie to cut principal? Monday’s report on loan modifications does not include data on the performance of the government’s modification program. But it does look at loan modifications undertaken by the banks themselves. Prepared by national bank regulator the Office of the Comptroller of the Currency and national thrift regulator the Office of Thrift Supervision, the report covers nearly two-thirds of the nation’s home mortgages. READ the report below: OCC and OTS Mortgage Metrics Report, Third Quarter 2009 –

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