unemployment

Major Retailer To Close At Least 100 Stores

December 27, 2011

NEW YORK — Sears Holdings Corp. plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers. The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores. In an internal memo Tuesday to employees, CEO and President Lou D’Ambrosio said that the retailer had not “generated the results we were seeking during the holiday.” The company has more than 4,000 stores in the U.S. and Canada. Its stock fell $7.88, or 17 percent, to $37.97 in premarket trading. The company’s revenue at stores open at least a year fell 5.2 percent to date for the quarter at both Sears and Kmart, the company said Tuesday. That includes the critical holiday shopping period. Sears Holdings said the declining sales, ongoing pressure on profit margins and rising expenses pulled its adjusted earnings lower. The company predicts fourth-quarter adjusted earnings will be less than half the $933 million it reporter for the same quarter last year. Sears Holdings also anticipates a non-cash charge of $1.6 billion to $1.8 billion in the quarter to write off the value of carried-over tax deductions it now doesn’t expect to be profitable enough to use. Sears said it will no longer prop up “marginally performing” stores in hopes of improving their performance and will now concentrate on cash-generating stores. “These actions will better enable us to focus our investments on serving our customers,” D’Ambrosio said. The weaker-than-expected performance reflect what analysts say is a deteriorating outlook for the retailer. The results point to “deepening problems at this struggling chain and renewed worries about Sears survivability,” said Gary Balter, an analyst at Credit Suisse. “The extent of the weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears’ reluctance to invest in stores and service.” The company has seen rival department stores like Macy’s Inc. and discounters like Target Corp. continue to steal customers. It’s also contending with a stronger Wal-Mart Stores Inc., the world’s largest retailer, which has hammered hard its low-price message and brought back services like layaway, which allows financially stressed shoppers to finance their holiday purchases by paying a little at a time. The tough economy hasn’t helped, either. Middle-income shoppers, the company’s core customers, have seen their wages fail to keep up with higher costs for household basics like food. But the big problem, analysts say, is Sears hasn’t invested in remodeling, leaving its stores uninviting. “There’s no reason to go to Sears,” said New York-based independent retail analyst Brian Sozzi, “It offers a depressing shopping experience and uncompetitive prices.” Sears Holdings Corp., based in Hoffman Estates, Ill., said that the store closings will generate $140 to $170 million in cash from inventory sales. The retailer expects the sale or sublease of real estate holdings to add more cash. Sears Holdings appeared to stumble early in the holiday season, as it opened its Sears, Roebuck and Co. stores at 4 a.m. on Black Friday, the day after Thanksgiving. Rivals including Best Buy Co., Wal-Mart Stores Inc. and Toys R Us opened as early as Thanksgiving night. Sears stores had opened on Thanksgiving Day in 2010. Kmart has been opening on Thanksgiving for years. A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co. locations would stay open until midnight through Dec. 23. Kmart’s 4.4 percent decline in revenue at stores open at least a year was blamed on diminished layaways and a drop in clothing and consumer electronics sales. Part of Kmart’s layaway softness likely stemmed from competitive pressure. Wal-Mart had said that its holiday layaway business had been popular. Toys R Us expanded its layaway services to include more items. Kmart’s grocery sales climbed during the period. Sears cited lackluster consumer electronics and home appliance sales for its 6 percent dropoff. Sears’ clothing sales were flat. Sales of Lands’ End products at Sears stores rose in the mid-single digits. Sears Holdings said it also plans to lower its fixed costs by $100 million to $200 million and trim its 2012 peak domestic inventory by $300 million from 2011′s $10.2 billion at the third quarter’s end. D’Ambrosio acknowledged in his internal memo that criticism over Sears Holdings’ performance was likely to come, but that the company was prepared for the days ahead. “We will bounce back and become stronger than ever,” he said.

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U.S. Companies Finding Opportunity In Europe’s Woes

December 26, 2011

As Europe struggles with its debt crisis, American businesses and financial firms are swooping in amid the distress, making loans and snapping up assets owned by banks there — from the mortgage on a luxury hotel in Miami Beach to the tallest office building in Dublin.

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China And Japan Agree To Start Talks On Free Trade Deal

December 25, 2011

BEIJING (Reuters) – Japan and China agreed to start formal talks early next year on a free trade pact that would also include South Korea, Japanese Prime Minister Yoshihiko Noda said on Sunday after talks that showed the deepening bonds between Asia’s two biggest economies. Japan also said it was looking to buy Chinese treasury debt, and the two governments agreed to enhance financial cooperation. “On a free trade agreement among Japan, China and South Korea, we’ve made a substantial progress for an early start of negotiations,” Noda told reporters after his meeting with Premier Wen Jiabao. China’s central bank, the People’s Bank of China, said on its website (www.pbc.gov.cn) that the two leaders agreed to strengthen bilateral financial market cooperation and “encourage the use of the renminbi and Japanese yen in international trade transactions between the two countries.” The renminbi is another name for China’s yuan currency. The trade talks announcement builds on an agreement between the three countries last month also to seek a trilateral investment treaty and finish studies on the proposed free trade agreement by the end of December so that they could start formal negotiations on the trade pact. “China is willing to closely coordinate with Japan to promote our two countries’ monetary and financial development, and to accelerate progress of the China-Japan-Republic of Korea free-trade zone and East Asian financial cooperation,” Wen told Noda at the meeting, according to Chinese Foreign Ministry’s official website (www.mfa.gov.cn). But the regional trade negotiations could also compete for attention with Washington’s push for a Trans-Pacific Partnership (TPP), after Japan said last month it wants to join in the talks over the U.S. proposal. CLOSER ECONOMIC TIES Despite sometimes rancorous political ties between the two neighbors, Japan’s economic fortunes are increasingly tied to China’s economic growth and consumer demand. China and Japan are also the world’s first and second-biggest holders of foreign reserves. Wen told Noda that closer economic ties were in both countries’ interests. “The deep-seated consequences of the current international financial crisis continue to spread, and the complexity and severity of global and world developments have exceeded our expectations,” Wen said. “China and Japan both have the need and conditions to join hands more closely to respond to challenges and deepen mutually beneficial strategic relations.” China has been Japan’s biggest trading partner since 2009. In 2010, trade between the two nations grew by 22.3 percent compared to levels in 2009, reaching 26.5 trillion yen ($339.3 billion), according to the Japan External Trade Organization. In a statement issued after the two leaders’ meeting, the Japanese government said it would seek to buy Chinese government bonds — a tentative step toward diversification of Tokyo’s large foreign exchange reserves that are believed to be mostly held in dollars. China central bank said the two governments agreed to support Japanese businesses issuing yuan bonds in Tokyo and other markets outside of China, and Japan Bank for International Cooperation would begin a pilot scheme for issuing yuan-denominated bonds in mainland China. The People’s Bank of China also said it will support Japan in using the yuan for direct investment in China. But Japanese officials have stressed that Japan’s trust in dollar assets remains unshaken, and the scale of the planned purchase of Chinese government bonds will be small. Wen and Noda also agreed to set up a framework to discuss maritime issues after diplomatic ties deteriorated sharply last year following Japan’s arrest of a Chinese fishing boat captain near disputed isles in the East China Sea. Bilateral meetings attended by vice ministers and senior officials from relevant ministries will be held periodically to exchange views, in an effort to prevent a similar row from happening. “On maritime matters, we have successfully set up a channel to solve problems through multi-layered dialogue,” Noda told reporters. (Additional reporting by Koh Gui Qing; Writing by Chris Buckley; Editing by Yoko Nishikawa) Copyright 2011 Thomson Reuters. Click for Restrictions .

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David Paul: Before They Left Town, Did House Republicans Change the Rules of the Tax-cutting Game?

December 24, 2011

House Republicans, just days after standing their ground, decided instead to head home for Christmas dinner. So much for the principles that brought them to power in 2010. So much for ending business as usual in the nation’s capital. But their language changed by the end. Gone was the moral outrage, the appeals to end the mindless spending that was bankrupting the nation. This week, the House Republican talking points led with the insistence that America’s working men and women deserved more than a two-month payroll tax holiday. Somehow, the Tea Party-spawned House Republicans had morphed into demagoguing Proletarian heroes. But this was an important moment. After all, when the current House majority seized the reins, they were clear that their mission was to curtail spending as the singular path to curbing massive fiscal deficits, while not impeding the morally righteous task of cutting taxes. Specifically, the House Republicans changed “Paygo” rules that had been in effect for many years — whereby tax and spending measures must be budget-neutral over a 10-year period, as scored by the Congressional Budget Office — to provide instead that such constraints should not apply to tax cuts. This perspective — that deficits are not a function of the mix of revenues and expenditures but rather a function of spending alone — is an odd vestige of the Reagan era, when cutting taxes emerged as the sine qua non of the modern Republican Party and liberated the GOP from its stodgy traditions of fiscal prudence and school marmishness. At the time of the Reagan revolution, when marginal tax rates were high, one could make a fairly reasoned argument of the supply-side premise, that cutting taxes would increase revenues. But that argument was bound up in the facts and economics of that era, and only attained that status of a moral imperative in the ensuing years. But in the debate regarding extending the payroll tax cut, for reasons that are unclear, the House Republicans did not merely forsake their rule that tax reductions are morally self-justifying, they went to the mattresses to demand that they be paid for like any other legislation of Democrat-inspired spending. Then, suddenly, they got up off the mattresses, changed their votes and went home. Fast forward to late next year and the implications of the House action looms large. At the end of 2012, the Bush-era tax cuts are set to expire just like the payroll tax cut that was just extended. Under the House Paygo rules, Republicans would have no problem demanding that such tax cuts remain permanent, despite the $4 trillion of projected costs over ten years. But the payroll tax debate should cast the stance of the House Republicans in a new light. This month, for the first time in recent memory, the Republicans took a stand against tax cuts because of the fiscal implications of those cuts. For the first time in recent memory, Milton Friedman and the Republican Party of my grandfather were redeemed. This was a significant point that should not be lost. Because the simple truth is that to extend the Bush tax cuts is wrong. Little, if anything, has been said in the public debate over those tax cuts to remind the public about why they had an expiration date to begin with. After all, changes in the tax code tend to be eternal, and ability to rely on the rules of the tax system is a bedrock principle of our economy. But the Bush-era tax cuts had to expire if they were going to comply with the fiscal rules in place when the cuts were enacted into law. To meet the ten-year Paygo scoring rules, the Bush-era tax cut legislation provided for rates to return to the levels in effect in 2001 after seven years in order to pay for the largesse that was bestowed upon taxpayers over the period the cuts were to be in effect. Oddly, in the debate over extending those tax cuts, up until now the Democrats and Republicans essentially had to act under different political rules. Democrats, because they are the party of wanton over-spending and fiscal profligacy, had to justify how extending the tax cuts would be somehow fiscally justifiable. Republicans, because their brand includes the long-defunct notion that they are the party of fiscal prudence, felt no such constraint, and they have felt free to argue that the cuts be made permanent, whatever the fiscal impact might be. The argument in Congress that the Bush-era tax cuts should be extended has given the lie to the notion that Congress is subject to any rules, even the ones it places on itself. The argument that tax rates should not be increased in the face of a recession is utterly disingenuous. Those arguing to gut the 2001 and 2003 tax bills now would be doing so regardless of our economic condition. Look back at the historical record. Even as the Bush-era tax cut legislation was being considered, Republican leaders assured their base that by 2010 those cuts would be made permanent, as the Republicans pledged from the outset to attack as taxers any who would let the cuts expired. That is to say, even at the moment of the original legislation, those who supported those tax cuts eschewed any intention of adhering to the fiscal rules that Congress had imposed on itself. At the time, the cynicism was breathtaking. But as political calculation, it was prescient. This month, House Republicans veered from the Republican orthodoxy on cutting taxes without offsets in favor of their Tea Party anti-deficit principles when they demanded spending cuts if the payroll tax cut was to be extended. For the first time in recent memory, Republicans returned to pre-Reagan principles and demanded that tax cuts be paid for. A cynic might argue that this was not a change from the Republican playbook. They might suggest instead that we have seen the emergence of a codicil to the principle that tax cuts are morally self-justifying that suggests that such cuts must be paid for if the benefit accrues to working class Americans. Or perhaps the House leadership simply got caught up in needing to oppose anything that Democrats supported and lost sight of the fact that they were in the odd position of opposing a tax cut. In acting to demand that the payroll tax cut extension be paid for, will the House Republicans apply the same rule to extending the Bush-era tax cuts? That would be a game changer. But it is more likely that the House Republicans will get their act together, and once again the $4 trillion cost — and profound hypocrisy — of extending the Bush-era tax cuts will be subordinate to the higher moral principle of cutting taxes — without regard to cost.

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

December 22, 2011

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

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Edward Flattau: It’s the Economy, Stupid

December 21, 2011

Recently, conservative radio talk show host Sean Hannity unwittingly promoted the idea of transforming our conspicuous consumption-oriented society into an environmentally sustainable one. Hannity would probably cringe at the thought, but if he had gone more than halfway during his broadcast, he would have ended up on the same wavelength with progressives, his arch ideological foes. In the midst of his daily monologue excoriating President Obama for the sluggish economy, Hannity paused long enough to commiserate with those who were too fiscally-strapped to buy the Christmas gifts they desired for their families. Don’t despair, he counseled, who needs all those expensive presents anyway? For gifts, he suggested that people write letters of endearment, compose poems, make something with a do-it-yourself kit, perform good deeds in behalf of loved ones, or set aside some quality time to spend together. These actions, he declared, would be much more appreciated and remembered in the long term than any acquisition of “stuff” during the holidays. Hannity’s recommendations for those down and out were on the mark as far as they went. He failed to close the circle as environmentalists have done by recognizing that this low impact consumptive pattern is desirable, and in the long term, ecologically imperative for all Americans, regardless of their financial status. Seventy percent of our current economy stems from our shopping for “stuff,” a ratio that makes the system environmentally unsustainable. Our materialistic addiction is depleting the planet’s finite raw materials at an alarming pace. Discarded items are filling our waste dumps instead of being recycled for repeated use. Renewable natural resources are being utilized at a faster rate than they can regenerate. If these trends continue unabated, future generations are in for a rough ride. To make matters worse, we are buying a lot of resource-intensive goods that we really don’t need, often can’t afford, and if we reflected at any length, actually don’t want. Our brief attention span with new products is cultivated by manufacturers who deliberately make the items short-lived (planned obsolescence) so that we are soon back in the hunt for another purchase. Does this mean we should forego gift giving? Shopping? Could a more environmentally sustainable economy replace the loss of conspicuous consumption revenue and just as importantly, give us a satisfying quality of life? The response to the first two questions is in the negative, to the third in the affirmative. We can’t suppress our acquisitive instinct. It is an elemental part of human nature. But it can be steered in an environmentally sustainable direction by tax incentives and disincentives, pricing items to reflect the cost of pollution damage incurred in their production, and employing education to inculcate the distinct advantages of qualitative over quantitative values. What would such a society look like? There would be a major shift away from consumer items built for one-time disposal. Goods would be manufactured for durability and eventual recycling, mimicking the basic modus operandi of nature. Whole new industries would open up to repair and reconstitute essential products The economy would rely more heavily on technological innovation as a catalyst. Expansion and maintenance of municipal and transportation infrastructures would be major sources of employment. Other sectors that would assume a larger role in the job creation picture would be agriculture and the labor intensive service and entertainment industries, ranging from education and health to arts and leisure. A cultural shift would gradually take place in which greater value would be attached to retention of knowledge and cultivation of high quality individual relationships than ownership of a closet full of designer clothes. Conservation would be embraced as a national status symbol, putting to rest any perception of it being a dressed-up version of deprivation. Poor Hannity never dreamed he was espousing the enemy camp’s framework for a restructured economy and cultural revolution. But no need to feel sorry for him. In the words of the 18th century bard Thomas Gray, “Ignorance is bliss.”

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Congress Moves Towards Standoff Over Expiring Provisions

December 20, 2011

WASHINGTON — Partisan to the core, Congress careened toward a holiday-season standoff Monday on legislation to prevent a Social Security payroll tax increase for 160 million workers on Jan. 1. “It’s time to stop the nonsense. We can resolve these differences and we can do it in a way that provides certainty for job creators and others,” said Speaker John Boehner, R-Ohio. A House vote was set for Tuesday to seek negotiations on a compromise to renew the cuts through 2012, a rejection of the bipartisan two-month extension that cleared the Senate over the weekend. In an acid response, Senate Majority Leader Harry Reid accused Boehner of risking a tax increase for millions “just because a few angry tea partyers raised their voices.” The Nevada Democrat ruled out new negotiations until the two-month measure is enacted. That left the two parties approaching Christmas-week gridlock over an effort to pass core elements of President Barack Obama’s jobs program – renewal of the tax cuts and long-term unemployment benefits – that Republican and Democratic leaders alike say they favored. It was the latest and likely the last such partisan confrontation in a year of divided government that brought the Treasury to the brink of a first-ever default last summer, and more than once pushed the vast federal establishment to the edge of a partial shutdown. This time, unlike the others, Republican divisions were prominently on display. The two-month measure that cleared the Senate, 89-10, on Saturday had the full support of the GOP leader, Sen. Mitch McConnell, who also told reporters he was optimistic the House would sign on. Senate negotiators had tried to agree on a compromise to cover a full year, but were unable to come up with enough savings to offset the cost and prevent deficits from rising. The two-month extension was a fallback, and officials say that when McConnell personally informed Boehner and House Majority Leader Eric Cantor of the deal at a private meeting, they said they would check with their rank and file. But on Saturday, restive House conservatives made clear during a telephone conference call that they were unhappy with the measure. “I’ve never seen us so unified,” Rep. Louie Gohmert, R-Texas, said as he left a two-hour, closed-door meeting Monday night where Republicans firmed up their plans. He said the payroll tax cut that has been in effect this year failed to create any jobs, but favored extending it for another 12 months because “it’s tough to raise taxes when you’re in a down economy.” But House Democratic leader Nancy Pelosi said Republicans were “walking away from a tax cut.” And Sen. Chuck Schumer of New York, a member of the party leadership, accused Boehner of “claiming to support something and then sending it to a legislative graveyard where it never sees the light of day.” Not surprisingly, the White House weighed in on the side of Obama’s Democratic allies. Spokesman Jay Carney said Boehner was for the two-month stopgap bill “before he was against it” – a claim that the House speaker flatly denied. Speaking to reporters at the White House, Carney added, `’It is not our job to negotiate between him and Senate Republicans.” “We are witnessing the concluding convulsion of confrontation and obstruction in the most unproductive, tea party-dominated partisan session of the Congress in which I have participated,” said Rep. Steny Hoyer of Maryland, second-ranking member of the Democratic leadership. Ironically, until the House rank and file revolted, it appeared that Republicans had outmaneuvered Obama on one point. The two-month measure that cleared the Senate required him to decide within 60 days to allow construction on a proposed oil pipeline that promises thousands of construction jobs. Obama had threatened to veto legislation that included the requirement, then did an about face. The president recently announced he was delaying a decision on the pipeline until after the 2012 elections, meaning that while seeking a new term, he would not have to choose between disappointing environmentalists who oppose the project and blue collar unions that support it. The provision relating to the Keystone XL pipeline first surfaced in the House, where Boehner and the leaders had used it as an incentive to persuade conservatives to approve an extension of the payroll tax cut that many claimed had failed to create jobs. Several Republican officials said that on the Saturday conference call, Boehner told members of the rank and file that if they wanted to approve the Senate measure, they could point to the Keystone provision as a victory. These officials added, though, that the speaker called the two-month measure poor policy, and refrained from recommending one course over another. The Senate-passed bill, as well as one that cleared the House last week, also would avert a threatened 27 percent cut in payments to doctors who treat Medicare patients. There was no controversy on that provision, or much of one on anything but the duration of an extension. Democrats gleefully distributed evidence of GOP disagreement, including comments from Sen. Scott Brown of Massachusetts, Richard Lugar of Indiana and others urging the House to approve the two-month measure. But first-term House Republicans were unmoved. “What they (the Senate) sent us over was an insult to the American people,” said Rep. Ann Marie Buerkle, R-N.Y. “I don’t care about political implications” of letting taxes go up Jan. 1 for 160 million Americans, said Rep. Tom Reed, R-N.Y. “We will stay here as long as it takes in order to do what’s right for the American people. That means working on Christmas, New Year’s and other days. It’s time to get the job done.” Professing a lack of concern about higher taxes was not a widely held position inside the party leadership, though. For both parties, the political implications seemed to matter hugely. The Democratic Congressional Campaign Committee announced it was sending automated phone calls into households in 20 targeted GOP-held districts demanding that lawmakers support the two-month extension, lest taxes go up. Not to be outdone, the National Republican Congressional Committee issued a statement headlined “Vacation, All House Dems Ever Wanted” and claiming that Democrats wanted to raise taxes on the middle class. It was unclear how much attention the political maneuvering would draw in a nation where consumers were in the final shopping countdown toward Christmas and the next national election was nearly a year away. ___ Associated Press writers Alan Fram and Laurie Kellman contributed to this report.

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If Payroll Tax Cut And Unemployment Benefits Are Not Extended, Labor Market Could Take Big Hit

December 19, 2011

As Congress jockeys over emergency stimulus measures that are set to expire soon, economists warned Monday that congressional inaction could spell further woes for the already sputtering economy, making an stagnant labor market even worse. If Congress doesn’t continue a payroll tax break for working Americans and extended unemployment benefits for the country’s long-term jobless — the two key measures being debated in Washington — Americans could hold back on spending, crippling the consumer-driven economy. “It’s not just that Americans are going to have less funds available to spend, but people are also going to be more pessimistic,” said Bernard Baumohl, chief global economist at The Economic Outlook Group. He warned of a vicious cycle of pessimism, sparked by what he calls concern over the “brinkmanship” in Washington, driving the economy downward. “People are going to be more concerned about the economic outlook and likely cut back on spending even further,” he said. “They’ll see that the economy will be even closer to skirting recession.” If Congress doesn’t reach an accord, employed people will see a larger slice of their paychecks going to payroll taxes, leaving them less to spend with — the payroll tax break passed in late 2010 has meant savings of around $1,000 for those earning $50,000, according to estimates. And as many as 1.8 million long-term jobless will lose their unemployment assistance in January if no compromise is reached, according to worker advocacy group the National Employment Law Project. Since 2008 workers laid off through no fault of their own have been eligible for extended benefits funded by the federal government after using up the state benefits, which usually last 26 weeks. In an economy driven by consumer spending — losing those two stimulus measures could make employers even more reluctant to hire. “We’re just seeing this recovery drag on and on and on, and this is going to make it drag on that much longer,” said Dean Baker, co-director of the Center for Economic and Policy Research. Economists expect losing the stimulus measures could hit the economy hard; estimates range from a loss of 0.7 to 1.1 percentage points in expected-GDP growth. The economy grew at an annual rate of 2 percent in the third quarter, and dropping of a full percentage point would be a significant loss. Baker said he expected around 1.3 million jobs would be lost if both measures expire. The labor market is already lagging; 13.3 million Americans were officially unemployed last month, and millions more are either working part-time because they can’t find full-time work or have left the labor force, giving up the job search entirely. Economists reached by The Huffington Post asked the same question about Washington’s current impasse: With growth already so slow and the stimulus measures already modest, why is this debate happening at all? “Maybe we’ll keep growing in spite of the withdrawal of spending power, but we’re not growing very strongly as is,” said Gary Burtless, an economist at the Brookings Institute. “Why put the recovery in peril?” As Burtless sees it, the payroll tax cut extension is already an insufficient compromise. He, like many economists, says that there are more effective ways to stimulate the economy, such as a targeted tax cut that encourages employers to increase hiring or direct spending on public works projects. “There are millions of worthy public projects that are better done than left undone, and a lot of unused skills that could be immediately put to work,” he said, referencing the languishing construction industry, where employment levels still sit far below their pre-recession heights. “I’m more worried about the politics of what it takes to get those things done quickly.” The House is scheduled on Monday to take up the Senate bill, passed on Saturday, but House Speaker John Boehner (R-Ohio) said Monday he expects the House to reject the Senate-passed package.

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Republicans To The Unemployed: Pee In This Cup

December 16, 2011

WASHINGTON — During a debate on the floor of the House of Representatives this week, Rep. Tom Reed (R-N.Y.) suggested the unemployed can’t find jobs because of their own bad decisions. “I have been back in my district, and we do town halls all the time,” Reed said. “And what I’ve heard from small business owners across our district is that one of the main reasons that they cannot hire individuals is because they simply cannot pass a drug test.” This year more than ever, Republicans have brought up again and again the topic of unemployed people using drugs. Lawmakers in a dozen state legislatures pursued jobless drug testing bills in 2011, according to the National Association of State Workforce Agencies , in an unprecedented flurry of legislative activity on the issue. But a major obstacle to those proposals is that federal law does not allow states to deny unemployment benefits for reasons not related to the circumstances of a person’s unemployment — though 20 states do have laws disqualifying workers from receiving benefits if they’re fired for a drug-related reason. The legislation percolating through the states culminated in Congress, where Republicans in the House of Representatives passed a bill on Tuesday to allow states to do all the drug testing they want. NASWA director Rich Hobbie, who’s worked in the unemployment insurance field since 1975, said it’s the first time a bill to drug test the unemployed has made it so far. The fate of the provision is currently in the hands of Senate Majority Leader Harry Reid (D-Nev.), who has said he finds it ridiculous. The House legislation sends a message: Not all unemployed are created equal; some would rather smoke pot than work. Accordingly, a portion of the huge amount the government has spent on unemployment benefits — $160 billion in 2010 alone — has been a waste. What evidence do Republicans have that drug use is a problem among the unemployed? None that they’ve been willing to share. Ask a Republican politician’s staff for additional information on his or her anecdote about the stoned jobless, and they’ll tell you it’s just something they hear about all the time back in their districts, and you have to take their word for it. Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee — and the man most responsible for the House bill — acknowledged as much in an interview. In the spring, he said, his committee will hold a hearing on the topic to gather more information. In the meantime, he said, letting states require testing would be a good way to study the problem. “I think we do need to get more data. That’s why I think letting the states make this decision isn’t imposing a set of requirements on them. They’ll be able to examine their own policies, and it’s going to be different in every state,” Camp said. “What you don’t want to do is have somebody get to the final stages of applying for a job and then fail a drug test and then be denied their ability to work,” Camp continued. “So it’s really about making sure people are ready both for skill sets and available for the jobs that may come up. And states will be able to decide how to address that, whether it’s a screening, whether it’s assistance.” Several states have shown that they want screening. South Carolina Gov. Nikki Haley (R) said this year, “I so want drug testing. I so want it.” She claimed that of hundreds of people wanting work with a local employer, half flunked a drug test. “We don’t have an unemployment problem,” she said. “We have an education and poverty problem.” Upon investigation, however, the claim proved completely untrue . It turned out that less than 1 percent of the local employer’s hires tested positive. So last week, when Rep. Jack Kingston (R-Ga.) used a similar example and his office declined to provide any additional details, it seemed safe to disregard it as pure class warfare — even as Republican leaders made Kingston their spokesman on the issue. (His proposal is different from the one that passed the House in that it would require states to drug test the jobless, not just allow them to do so.) The Huffington Post reached out to businesses in Kington’s Georgia district, however, and connected with Trey Cook, owner of Savannah Tire, a tire and auto repair company with 125 employees and eight locations throughout the Savannah area. Cook said that on average, his company has received 15 to 20 job applications per month for the past four years. During that time, he said, 40 percent of applicants failed the drug test, though he did not have detailed data. “It is quite surprising to me,” he said. Cook said asking applicants to pass a drug test earns Savannah Tire a deal on workman’s compensation insurance. “Even more,” he said, “in our shop, they’re working with heavy equipment. Hurting themselves or others, we see that as a liability.” And Rep. Reed wasn’t just making stuff up when he said on the House floor that businesses in his New York district complained of job applicants failing drug tests. Though his office made no effort to prove it, the business community in his district insists it’s a problem. Dan Porter, director of Chemung Schuyler Steuben Workforce New York, a job training nonprofit, is not a fan of demagogic attacks on unemployed people. But he said that over the past three to five years, the hundreds of businesses he’s worked with have told him job applicants fail drug tests at a rate of 10 to 30 percent. Marijuana is the main culprit. “I can tell you there are individuals we have that were on unemployment for a significant period of time,” Porter said. “Additionally, while they were on that, they were receiving food stamps, and also during that time we would be training them to the tune of thousands of dollars. We get this all done, and then they go to the job and they fail the drug test and they can’t get hired. … It’s a huge drain.” Denise Ackley, director of the nearby Corning Area Chamber of Commerce, said employers make people pee in cups for legal reasons. “You would never want to be caught having an accident or a breach of security … and then find out there was a drug history and the employer was not testing,” Ackley said. “We are definitely in a sue-happy society.” Porter’s got informal anecdotes and no detailed data, but positive drug tests have become such a concern that in June, his agency launched an effort to get the word out. The “Think Again, Quit to Get Hired” public awareness campaign featured radio and TV ads during the summer, and it continues online at www.quit2gethired.org. The ads say that up to 50 percent of area workers can’t pass a pre-employment drug test (the higher rate, Porter said, reflects what has happened with a narrower set of employers). As far as Porter knows, his is the first workforce agency to publicize widely the issue of drug use and hiring, though he suspects it’s a national problem. According to the government’s National Survey on Drug Use and Health for 2010 , unemployed people were more than twice as likely to use drugs than people with full-time jobs. The rate of drug use among the fully employed was 8.4 percent, compared with 17.5 percent for the unemployed. It’s a striking statistic — even though not everyone looking for work is necessarily eligible for unemployment insurance; people who quit of their own accord, or who were fired, or who just entered the workforce, or who have been out of work for too long are ineligible for benefits. Anecdotal evidence supports both sides of the argument. Earlier this year in Florida, Republican Gov. Rick Scott championed a new law requiring every single welfare applicant to pass a drug test. Before a federal judge halted the policy for flagrant unconstitutionality, it revealed that welfare applicants used drugs at an even lower rate than the general population. While surveys put overall drug use at 8 percent, just 2.5 percent of Florida welfare applicants tested positive. Nevertheless, a right-wing think tank claimed huge savings from the law — in an analysis that a federal judge ridiculed as flawed — and statehouse Republicans across the country cited Scott’s bill when they proposed bills to drug test either welfare applicants or unemployment insurance claimants. The analysis wasn’t strong enough to dissuade the National Employment Law Project, a respected worker research and advocacy group, from using what happened in Florida to say drug testing the jobless is a waste of money. During a floor debate in Congress on Tuesday, Democrat after Democrat raged against the Republican bill in an effort to destroy the notion that a person can be laid off through no fault of his or her own. Rep. Rob Andrews (D-N.J.) said it sounded sensible to ask people not to be on drugs when they search for work, but that the measure sent a different message. “It isn’t sensible to say to someone, ‘If you’ve been looking for work day after day and week after week and trying your best to find your next job, it’s your fault if you didn’t find it,’” he said. “But that is essentially what this bill says: If you are unemployed, look in the mirror. It’s your fault.” Arthur Delaney is the author of ” A People’s History of the Great Recession ,” HuffPost’s first e-book.

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Dennis M. Kelleher: SEC Litigates With Judge, Lets Wall Street off the Hook

December 16, 2011

Last month, New York Federal District Judge Jed Rakoff rejected a sweetheart settlement that the SEC proposed with Citigroup, finding it deficient in many ways and calling the fine nothing more than ” pocket change .” In fact, the settlement was so weak it actually rewarded securities fraud and showed crime pays. But, the rejection was still huge news because judges just don’t say “no” to the SEC. Almost always, the SEC files papers in a court to settle a case and the judge always just signs them. It is rare for a judge to even ask a question before signing. Judge Rakoff is different. He takes his job as a judge seriously. He carefully reads the court filings and he asks questions to determine, as judges are supposed to, whether or not a proposed settlement is fair, adequate, reasonable and in the public interest. The SEC doesn’t like this. It expects judges to pull out their rubber stamp of approval and apply it quickly, without having the nerve to question them. That just isn’t Judge Rakoff. In September 2009, he rejected the SEC’s proposed $33 million settlement with Bank of America for failing to disclose that it was going to ladle out $5.8 billion in bonuses to Merrill Lynch executives. After that rejection, the SEC actually litigated with Bank of America and then went back to the court with a settlement for $150 million, which Judge Rakoff reluctantly approved in February 2011 because the law left him no choice. The SEC faced the same choice this time: litigate with Citigroup, the big, powerful, well-connected Wall Street bank, or litigate with a single Federal District Judge who can’t actually defend himself. No one should be surprised that the risk-adverse , Wall Street friendly SEC chose not to litigate against Citigroup for pocketing more than $600 million from its $1 billion fraudulent subprime mortgage scheme that cost its customers more than $700 million . Instead, the SEC decided to litigate against the one federal judge who had the audacity to scrutinize their proposed settlements. As the Wall Street Journal headline correctly captured it, “SEC Cops Want to Fight U.S. Judge.” Ironically, in the eyes of the SEC, Judge Rakoff is a repeat offender (first, Bank of American and now Citigroup!), but Citigroup is literally a repeat offender , having been toothlessly sanctioned by the SEC 5 times in the last 8 years for violations of the securities laws. Judge Rakoff had the nerve to ask the SEC what was the point of slapping their wrist one more time given that the prior five slaps appeared not to make much of an impression. (Such repeated toothless “sanctions” is common for the SEC.) Notably, the judge also rejected an argument of the SEC that was as novel as it was dangerous . The SEC argued that it could settle cases regardless of whether they were in the public interest or not. Incredulous, Judge Rakoff asked the SEC at oral argument if it was their position that he had to approve the settlement even if it was against the public interest. After several attempts to avoid answering, the SEC finally said that, yes, it could settle cases even if they were against the public interest and the judge had to approve those cases. The court rejected that argument and properly found that, when the SEC settled cases, the settlement had to be in the public interest, which this one was not. While the appeal will raise some serious issues with the basis for the Court’s opinion, it’s really arguing that this judge violated the law because he rigorously questioned the proposed settlement. There is a lot at stake in this appeal that has nothing to do with this judge or this case. The role of Federal Courts as an independent check on the parties, even when one party is a federal agency, is at stake. The rule of law being applied equally to everyone, even big, powerful, Wall Street banks, is at stake. And, maybe most important of all, whether the SEC has to determine that a settlement is in the public interest or not is at stake. Unfortunately, this case also highlights a serious flaw in the legal system. The entire structure of the trial system in the U.S. is based on the adversary system. The belief is that the best way for the truth to come out is for two opposing parties to battle it out, which is supposed to reveal all the important facts. That is what is supposed to provide a judge with enough confidence to conclude that he has all the information to fairly decide a case. That fundamental structure breaks down when there is a settlement. There are no adversaries at that point. All parties before the judge want the settlement they negotiated approved. They have no interest in bringing anything to the court’s attention that would cause him to reject their settlement. When it is private litigation, that may not matter so much. But, when one of the parties is a regulator like the SEC, that breakdown is of fundamental concern. In the Citigroup case, the result was that key information was not provided to Judge Rakoff and, if the SEC and Citigroup (again both on the same side, arguing for the same thing) succeed in getting the appeal court to overrule him, then no one will ever know all the facts. That too is what is at stake in the case and that is why Better Markets will seek to participate in the appeal to promote and protect the public interest.

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Family Living On $22,000 A Year Reflects New Low-Income Stats

December 16, 2011

When doctor’s bills started to mount after Joe Gallardo’s daughter was born prematurely in September, the father of three took on a second job — upping his work hours to about 15 a day. But even with the additional time he clocks at Fiesta Pizza, Gallardo, 28, is barely scraping by. He lives with his fiancé’s parents, a home he shares with 14 other family members. The Gallardos, who live on less than $22,00 a year, are just one of a record 10.2 million low-income working families — the highest number this country has seen in at least a decade — according to a new analysis by the Working Poor Families Project and the Population Reference Bureau, a nonprofit research group based in Washington. This new reality means that struggling parents, like Gallardo, are forced to sacrifice sleep, family time and their well-being in order to barely make enough money. The South Austin dad begins his workday at 3 a.m. at Getty’s Pizza, where he prepares pizza dough for about eight hours. He tries to catch a quick nap before he starts his second job at Fiesta Pizza at 3 p.m., but that’s not an easy feat for someone sharing a home with 14 others. He stocks shelves until 10:30 p.m. and takes one day off a week. “Basically, I had no choice,” Gallardo told The Huffington Post of his decision to work two jobs. “I have to do something to try and provide for my family.” Gallardo, who brings home about $1,800 a month, isn’t the anomaly when it comes to the face of struggling families, but he also has the added challenge of bearing a tarnished record. Since serving three years in prison for a burglary he committed in 2005, Gallardo said he’s committed to starting over, to dedicating himself to a crime-free life and providing the best he can for his family. But these days, such staunch determination isn’t always enough, especially in the West and the South, which have been hit the hardest, according to the Associated Press . Both Texas and California have the most low-income families, each with more than 1 million. “The reality is that prospects for the poor and the near poor are dismal,” Sheldon Danziger, a University of Michigan public policy professor who specializes in poverty, told the Associated Press. “If Congress and the states make further cuts, we can expect the number of poor and low-income families to rise for the next several years.” These economic woes have taken a visible toll on the Gallardo family. Though Gallardo carves out movie nights and family dinners for his one day off, he said it’s been about a year since he and his fiancé, Norma, 22, have spent any quality time alone. He said his kids, who are 6, 5 and 3 months, have been missing their dad since he started working around the clock in July. “The most difficult part is not spending as much time with my family as I would usually spend before I started working two jobs,” Gallardo said. “It gets kind of depressing sometimes.” While the Gallardo family has been able to seek help from Any Baby Can , an Austin nonprofit that serves the area’s poorest, sickest and youngest children and their families, the organization says it’s been inundated with requests from clients in need of its programs. While the organization is able to serve 6,000 clients a year, it has had to implement a waiting list, which has 104 people who are eagerly waiting the chance to get access to the therapy, financial and health programs Any Baby Can offers. “We are tightening our belts,” said Allison Daskam, communications manager. “They were already very tight.” Though Gallardo has had to squeeze his entire family into one of the four bedrooms in his fiancé’s parents’ house for more than a year, he hopes to start looking for a place to call his own after Christmas. “Sometimes I don’t have energy, but I just force myself to do it,” Gallardo said. “I just think about my kids and that’s just all the motivation I need.” Want to help Austin families in need like the Gallardos? Consider donating to Any Baby Can here.

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Lloyd Chapman: Betrayed: Federal Audit Criticizes Small Business Administration for Excluding Small Businesses

December 15, 2011

The Small Business Administration’s Office of the Inspector General (SBA-OIG) released an audit report this month, criticizing the SBA’s practice of misrepresenting the true percentage of federal small business contracts awarded. The SBA designates certain types of federal contracts as ineligible for small business when calculating the federal government’s dollar baseline, despite the fact that the Small Business Act mandates 23 percent of total federal prime contract dollars go to small businesses. For example, the total federal acquisitions budget was listed at $545 billion for 2010, yet small businesses were only eligible for $433 billion, due to SBA exclusions. This practice of excluding over $100 billion from the small business baseline allows the SBA to release a small business procurement report every year that makes the percentage of federal contract awards to small businesses appear higher than the actual amount . Ironically, the SBA promotes a misleading advertising campaign to prospective small business contractors, which suggests that small businesses are eligible to receive contracts from $500 billion worth of federal spending every year. The SBA-OIG is heavily critical of the SBA’s unwillingness to revise its Goaling Guidelines to no longer exclude certain kinds of contracts from the federal government’s dollar baseline when calculating small business goals, or in the alternative, offer an explanation for why certain types of contracts are excluded. The SBA-OIG’s greatest concern was that the SBA does not include contracts that are awarded and/or performed overseas in its goaling baseline. “Based on a study cited in the House of Representatives Report No. 110-111, Part 1 (2007), inclusion of foreign contract opportunities in the Federal prime contracts baseline would have reduced small business participation to 19.3 percent of all Federal contracts,” the SBA-OIG audit states. In the conclusion of the report, the SBA-OIG’s Assistant Inspector General for Auditing, John K. Needham, urged the SBA to complete its rationale on the legal basis for contract exclusions and revise the Goaling Guidelines to explain the rationale to the public. “SBA’s analyses on goaling guidance remain unclear and incomplete. Additionally, some procurement actions may be inappropriately excluded from the small business goaling calculation,” Needham wrote. “Incomplete data weakens the ability of Congress and other Federal policy makers to determine whether the Government is maximizing contracting opportunities for small businesses.” Of course, this isn’t the first time the SBA has exaggerated the percentage of federal contracts awarded to small businesses. A REVIEW OF THE SBA’S EFFECTIVENESS This audit is just one more drop in the bucket– as a federal agency with the sworn mandate to protect and foster the interest of small business concerns , the SBA has been doing an alarmingly inadequate job– not just this year, but for the past decade. Over the past decade, rampant federal contracting fraud has proliferated , amounting to hundreds of billions of dollars in federal small business contracts being illegally diverted to large corporations. Since 2003, more than 25 federal investigations by the General Accounting Office (GAO), the SBA Office of Inspector General (SBA-OIG) and Inspectors General for federal agencies like the U.S. Department of Interior (DOI) have all found a complete lack of oversight in SBA-administered small business programs. This year, the American Small Business League conducted a report of the Top 100 federal small business contractors for Fiscal Year (FY) 2010 : Of the 100 firms that received the highest total dollar amount in federal small business contracts, 60 were large corporations such as Lockheed Martin, Italian defense firm Finnmeccanica and Eyak Technologies. In October 2011 during a hearing of the House Small Business Subcommittee on Investigations, Oversight and Regulations , SBA-OIG Inspector General Peggy Gustafson named the diversion of federal small business contracts to large businesses as a top management challenge for the SBA, for the seventh consecutive year. “The bottom line is that there is a real societal cost when ineligible companies improperly profit from preferential contracting through fraud and illegal conduct,” SBA-OIG Inspector General Peggy Gustafson told the Senate in June. “This fraud thwarts congressional intent behind these programs and deprives legitimate small businesses of contracting opportunities.” In conclusion, by relying on flawed statistics, the SBA rendered small businesses ineligible to receive $112 billion dollars in federal contracts last year — simultaneously robbing small businesses of significant income and falsifying reports to appear as if the federal government is awarding more contracts to small businesses than they actually do.

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Peter Gardett: Energy Politics Supercycle Falters

December 15, 2011

Markets run in cycles; we are all at the mercy of ups and downs in the macro and micro. Commodities markets, including those for energy, are often held to the dictates of “supercycles.” Infrastructure for commodities is so expensive, development timelines are so lengthy and the underlying shifts in demand and supply occur over such long phases that energy prices and resulting investments rise and fall over decades, not months. The modern energy economy was born in one great supercycle around the middle of the 20th century, and we are still its heirs. In the wake of a privately sponsored boom in energy technology development and deployment in the 1920s, the U.S. government responded to the inequities of the Great Depression of the 1930s by investing in huge electrification projects, choosing technologies, firms and energy types by fiat as it went. World War II brought the federal government even further into the heart of the energy sector, a role it found nearly impossible to relinquish as the hot war ended and the Cold one began, making nuclear power development and energy security matters of national security. The U.S. federal government helped build today’s cheap energy overdraft, but the model by which regulators chose projects, technologies and fuels for favorable treatment to guarantee broadening access to power and transport is also reflected in today’s energy standoff, and contributes to a looming crisis in the sector . It is arguable that the upswing of the regulation-led supercycle began to end with the oil embargo of the 1970s. Nixon, Ford and Carter experimented with compelling both supply-side development and limiting growth in demand; their efforts met with mixed success at best. Reagan, Bush and Clinton tried selective deregulation to encourage investment, first in natural gas and oil, and then in electricity infrastructure. Americans under these administrations continued to enjoy the benefit of the huge availability of energy built up in preceding decades, and administrations tinkered around the edges, often extracting regulatory prices like tightened environmental standards in the same sectors where they walked back market and trading regulations. The inability to reconsider the energy market as a whole has hindered energy policy throughout its history in the U.S., but as the need for investment and modernization grows, pressing against the looming background of aging infrastructure, the chorus of industry complaint has grown into something like an emerging consensus. In recent weeks, AOL Energy reporters have again and again heard the phrase “the federal government should not pick winners and losers.” We have often heard it from the same executives and firms who have often benefited from a federal policy of picking favorites, and many of whose very business models have become dependent on wrinkles in regulatory decisions rather than addressing supply and demand issues with greater innovation. Arguments persist over the details, over the extent to which research and the early stages of commercialization should receive support financial or otherwise, but the range of players pressing for what they see as an equal playing field is impressive. For decades, the cost of regulatory selection was the price of hugely expanded access, and technological innovation built on the underlying pace of change. That model no longer works, and businesses operate in a world of constant fear that changes in Washington, D.C. may leave their investments unable to access markets, whether they are wind power projects unable to link to transmission or oil refinery owners who still do not know when they might be able to process Canadian crude brought through the proposed Keystone XL pipeline. Everyone, regardless of political conviction, benefits from intelligently and economically designed energy infrastructure. With business decisions increasingly being made in Washington hearing rooms rather than corporate board rooms, companies are regretting the deals they’ve made that fail to reflect economic realities and regulators are adrift, defined by process and an understandable predilection for established ways of doing things. Consensus is elusive and easily challenged, but heading into the 2012 presidential campaign with a clear-eyed vision for what the energy policy future should look like is the industry’s duty. Without gathering around principles that can guide future decisions based on market realities as well as the inevitable role played by political perception, energy companies will have no one to blame but themselves if the status-quo regulatory system keeps them hidebound in the operating structures of the past. This AOL Energy Comment reflects the observations of the editorial staff and the author, in this case Managing Editor Peter Gardett. All views and comments are entirely the author’s own. Join the AOL Energy discussion on these and other topics on our Discussions Tab .

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GRAPHIC: The Last Days To Ship In Time For Christmas

December 15, 2011

The holiday season can be a stressful time, especially when it comes to making sure grandma’s gift gets in the mail on time. And while Cyber Monday may have broken records for single-day online shopping purchases, expect the usual last-minute mayhem so closely associated with carols and Santa. But now, thanks to this infographic from visual.ly , even the most chronic procrastinator has no excuse for not getting his or her orders to that far-off relative in a timely manner, as the shipping times are shown for a number of popular shippers and online retailers, making sure there won’t be any sad faces come Christmas morning (okay, maybe still a few). Indeed, the holiday time is a heavy-volume shipping period for companies like UPS and FedEx. During the week of Christmas, UPS delivers 300 packages per second, the Washington Post reports . This year it looks like things might be a little less last minute, however, with more than a third of consumers said to have finished their holiday shopping before December 5th . by visually via

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Leslie Hendry: Occupy Christmas

December 15, 2011

I love Christmas, but I don’t love shopping. I used to, but I grew out of it. I became less influenced by pressure and less insecure as a person. I don’t know how the change occurred, but I think traveling made a big difference. It takes time and money to travel and see the world, but it also takes time and money to be a consumer. A consumer-driven economy demands many roles and responsibilities from the consumer: make, buy, manage, update and dispose of the product, and put the economy back in gear. Wow, we consumers must be living in the North Pole with a lot of elves at our feet! But we’re not. We’re real people with families and jobs, hopes and desires. Which makes me wonder how it’s my responsibility, or within my power, as a consumer, to bump up the economy, like we’ve been told. We’ve been in an economic holding pattern. Corporations, banks and the 1 percent have treasure chests of cash not being pumped into the economy. Banks and corporations are waiting for consumers to open their wallets, or add to existing debt, before they hire or lend or do anything. The 1 percent give to charity and get tax breaks; how does this stimulate job growth or help small businesses? Around Christmas the pressure on the consumer is even greater. But this year, I am Occupying Christmas by not giving in to the pressures of purchase. I will voluntarily use my time doing something I value. I decided this when, over a course of three days, three scenarios presented themselves to me, and you know if things come in threes it means the universe is telling you something. First, my MacBook Pro’s battery charger stopped working after 18 months of use; second, I noticed cigarette burn-sized holes had appeared in the bum of three of my Hard Tail Forever yoga pants; and lastly, I discovered the certified pre-owned Audi I bought a year ago had the original 2007 tires when I thought the car was equipped with “certified” new(ish?) tires. The cherubic Genius I spoke with at the Apple store said it was “highly unusual” for the battery wires to fray in little over a year, but since I didn’t have Apple Care I would have to purchase a new battery suite for roughly $80. Companies increase their margins via overseas suppliers with cheaper products and then market product insurance because they’re on the hook when the supplier fails to perform. If you don’t take the insurance, they get another sale. It makes as much sense (and money) as the insurance sold in relation to the disastrous mortgage back securities , called credit default swaps . That scam made a slew of money for the insurer AIG (or, more specifically, for a small division of AIG) but led to a financial meltdown for the rest of us. After several calls and email discussions with Hard Tail Forever, the $70 plus yoga pants with holes in the bottoms have been sort of replaced and not without lingering feelings of self-consciousness, like I was scamming them out of new product. I simply thought the pants should live up to their price and tag line: Hard Tail Forever. My mother, who was raised on a farm, taught me to buy quality items to last. In fact, certain brands stick with me when remembering my mother: Clinique, Daniel Green slippers, Neiman Marcus. Now we have planned obsolescence or just crappy products at the same, or higher, prices. Not to mention products sold, which by corporate design, have so many corporate outs if they don’t work out. The balance of power is just, out of balance. Today I try to own less. I find the fewer things I own, the more time I have. I don’t have to clean, dust, update, fix, move, relocate, box, store, repair, finance, or think about things, when I own less. This is the way Gandhi lived, with little. This also conjures up loincloths and John Lennon glasses . When we think of our lives, few aspire to be so simple or take on such fashion. But many of us wish we had more time. The reason I want more time is not simply to lounge around watching TV. The less time I have, the less I know who I am. We identify ourselves by our job position, our role in society, our relationship to others, but when we’re encouraged to work harder, spend more, we think about less, and experience less, of the things that matter to us as individuals. Since corporations have a bottom line to serve, their ethos push individuals to act less as humans and more as strategic company soldiers. In professional settings, I oftentimes wondered who I’d become. We take on certain roles and act outside of what intuition tells us. I’m sure Danny Sparks , former head of the Mortgage desk at Goldman Sachs thought a number of times that the Mortgage Back Securities he sold on the street were strangely and absurdly lucrative, but closed off his intuition, and intelligence, that this might not be so good for homeowners at large. Back at Apple, something about the “system” wouldn’t allow the Genius to make any concessions for my defective battery and “a manager would only say the same thing.” I looked deep into the Genius’ eyes. He knew the battery should be replaced, but because this was a consumer to Genius conversation, the “system” overruled any logical outcome. The Audi dealership offered to pay 25 percent of the purchase of two new tires. That’s nice, but what about not selling me a certified pre-owned car with tires lasting only another 7k miles? All this consumerism wears a girl out. There’s so much more I could’ve done with the time I spent hustling these companies for answers, not to mention time spent buying the stuff — that’s another story. We hear so much about growth, economic growth, continued growth, forecasted growth. Apparently, we are supposed to never stop growing in a tangible way. Yet as I buy less, I suffer less economically, and I grow in other ways. I spend weekends putting energy into my environment, friends and family. Instead of digging the economy out of its hole via the old shopping paradigm (remember George W.?). In ” The Great Reset “, Richard Florida states the next economy will be based on experiential value, i.e. doing things instead of owning things. If companies continue to take more and more from the consumer in substandard products, ancillary insurance products, guilt trips and educational blind spots, then consumers will continue to be unhappy. I’m not advocating zero profits or dismantling capitalism. I do advocate a new hat for the consumer. Ho Ho Ho.

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Russia Makes Big Promise To Keep Euro From Collapsing

December 15, 2011

BRUSSELS — Russian officials indicated Thursday that their country may offer more than the $10 billion it already has promised the International Monetary Fund to help support the struggling euro currency. Speaking at a news conference with EU President Herman van Rompuy and European Commission head Jose Manuel Barroso, Russian President Dmitry Medvedev said: “We are ready to invest the necessary financial means to back the EU and the eurozone. We are ready to consider other measures of support.” He didn’t elaborate, but Russian officials have said their country would offer up to $10 billion to the IMF to help support the euro. And Arkady Dvorkovich, a Medvedev economic adviser, indicated Thursday the total may be greater because Russia has a big economic stake in the EU, where a debt crisis is dragging down economies and the 17-nation eurozone. “We are ready to contribute our part via the IMF. We are committed to do it. Ten billion dollars is the minimum commitment,” Dvorkovich told journalists reporting from the 28th EU-Russia summit in Brussels, where other major issues included visa liberalization and alleged fraud during Russia’s parliamentary election last week. Last week, EU governments said they would give the IMF euro200 million ($264 billion), which in turn could help out the eurozone. The fund also expects other nations to participate in the rescue fund. Medvedev said it is in Russia’s interest to assist its largest trade partner overcome the economic crisis. Russia exports more to the EU than to any other market, and Russia is the EU’s third-largest trading partner. Total trade amounts to euro245 billion ($318 billion). Russia also is the EU’s most important source of energy imports, accounting for nearly a quarter of its natural gas consumption and 30 percent of its oil. Medvedev said that 41 percent of his country’s foreign currency reserves are denominated in euros. “Russia is interested in the EU’s preservation as a powerful economic and political force,” Medvedev said. “We have advantageous ties, and for us united Europe is very important.” Van Rompuy, meanwhile, acknowledged that Russia and the EU “are strongly interdependent.” Van Rompuy was hosting Medvedev for the twice-yearly meeting. The summit came as the World Trade Organization was set to approve Russia’s long-delayed membership on Friday. Russia – the largest economy still outside the WTO – has been trying to join for 18 years. A Swiss-brokered deal with Georgia last month cleared the last major hurdle for Russia. Medvedev thanked the EU for its support of Russia’s candidacy, saying: “It will give a strong impulse to our cooperation.” Van Rompuy said: “Russian WTO accession is a major achievement (which) opens a myriad of possibilities for trade and growth.” Medvedev dismissed complaints about the conduct of Russia’s Dec. 4 legislative elections. On Wednesday, European Parliament speaker Jerzy Buzek called for new free-and-fair elections and a probe into reports of fraud and intimidation at Russian polling stations. “It means nothing to me,” Medvedev said. The EU has avoided overt criticism of the elections, which have sparked massive anti-government protests in Moscow and other Russian cities. After years of negotiations, the two sides also launched a set of joint steps that will lead to visa-free travel for Russian citizens – a long-standing goal in relations. The measures include the introduction of biometric passports, as well as improved border management to combat transnational crime, terrorism and corruption. Officials said Syria and Iran were also discussed. Russia has blocked a bid by the United States and EU nations to impose sanctions against Syria, where a government crackdown on dissidents has killed thousands of people. Russia opposes any further moves against Iran, whose nuclear program worries the West. ___ Slobodan Lekic can be reached on Twitter at http://twitter.com/slekich

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Dan Greenshields: Responsible Holiday Spending

December 14, 2011

The holiday shopping season is in full swing. Millions of Americans are searching for that perfect gift for that special someone. But in the rush to pass along some of that good cheer, remember: enjoying the holidays doesn’t require financial recklessness. While often that may be a lesson that goes unheeded, this year, according to a recent ING Direct survey, Americans seem to have learned the pitfalls of piling up credit card debt. About three-quarters say they plan on using cash or debit cards to pay for holiday gifts instead of using credit cards. So rather than breaking the bank and racking up credit card debt, the survey found that more than one-third of Americans say they are able to pay off holiday debt in one month or less, and just over one in 10 say it will take them more than two months to pay the holiday bills. With continued economic turmoil cutting heavily into the income of average Americans, 2011 is the holiday season to be a smart shopper and budget-conscious consumer. According to data from the Census Bureau, median household income in this country dropped 6.7 percent between June 2009 and June 2011 — from $53,518 to $49,909. A key to being a successful shopper with an eye on your bottom line is to recognize the value of long-lasting gifts instead of springing open the wallet on the latest holiday fad. In response to an increase in spending, businesses are gearing up for a major jump in demand. The National Retail Federation is estimating a stunning $465.6 billion in holiday sales this year — up 2.8 percent from 2010. Online retail sales alone are expected to jump 15 percent this winter over last and will total nearly $60 billion, according to Forrester Research. Most ING Direct survey respondents — 72 percent — say they plan to spend the same or more than they did in past years. With that in mind, don’t get swept up in the blind consumption. Be mindful of what you purchase and for what price. Being responsible doesn’t mean going without good holiday cheer — but it does take a little bit of planning. For starters, don’t rack up credit card debt. It is so tempting to put a big holiday purchase on plastic and promise to pay it off before the next billing cycle. Too often, that just doesn’t happen. Also, consider buying the gift of stock for your kids. It’s an excellent way to introduce them to the world of finance. Pick a stock in a company that your child is likely to have an emotional connection to. Then commit to following that stock’s performance over the course of 2012. No matter if the stock price drops or increases, the real value is in familiarizing a young mind with the nature of finance. They’re getting an early and fun opportunity to educate themselves in essential concepts like short-term vs. long-term gains, market volatility, etc. In the long run, that knowledge will be much more valuable than some plastic gizmo they get bored of within a week of ripping off the wrapping paper. The lack of financial literacy is a real problem among today’s young people. One analysis from the non-profit National Jump$tart Coalition found that less than half of high school seniors grasp even basic financial concepts. And young, financially illiterate kids tend to grow into financially reckless adults. No doubt one big contributor to the country’s huge debt problem today is that people weren’t getting the financial education they needed during their formative years. You can do your part to ensure that the children in your life don’t fall into the ranks of the financially illiterate. Buy them some stock this winter and kick-start a life-long commitment to financial education. Next, automate your investments and savings right now — before the real holiday spending surge. If you haven’t done so already, fill out the paperwork with your employer to have a preset slice of your salary diverted to your retirement and savings account every pay cycle Do your future self a favor. And any money you automatically invest could grow by this time next year. Over the long term, stocks will still be a good investment. Instead of racking up more disposable and instantly forgettable holiday treats, you’ll be building an asset that can provide financial security for you and your family for decades to come. You don’t need to be a scrooge to retain financial responsibility this holiday season. You can still buy gifts for those you love while making sure you’ll be in a strong shape money-wise come January. Dan Greenshields, CFA, is President of ING DIRECT Investing, a subsidiary of ING Bank, fsb.

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Fitch Downgrades Five Major European Banks

December 14, 2011

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

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Andrea Sittig-Rolf: Plan on Giving Your Clients a Holiday Gift?

December 14, 2011

Each year we’re presented with the opportunity to show our clients how much we appreciate their business, their loyalty and their referrals. However, with this opportunity comes many gift-giving-etiquette questions and like most business opportunities, you can easily look foolish if you’re not aware of the strategy involved. Read this first if you’re planning on giving your clients holiday gifts this year, it might save your business’ reputation! Many questions arise when it comes to business gift giving including, if you can’t afford to give gifts to all your clients, how do you decide which clients should receive one? How much should you spend? What type of gift is appropriate and what type is tacky? What if you have several contacts at one client’s office? What kind of gift should you give if you not only want to show your appreciation for your client’s business, but also want to continue to promote your business as well? Is it OK to give a gift that does both? Now, if you’re limited in funds and need to choose which clients should receive a gift, start by making a list, with the client who has made up the most of your revenue first. Then work your way down to the client who has made up the smallest amount of revenue for the year. Next, create groupings of clients by drawing a line after your top five, then the next five, and so on. By doing this, you can set up different price points for each grouping of clients. The amount you spend really depends on what you want to spend and what your budget will allow. You may choose to divide your budget for client gifts equally or, you may choose to spend a little more on your top five clients, and then divide what’s left among the rest. Now, you may also want to take the time to find out, subtly of course, whether your client is allowed to receive gifts from vendors, and if there is a maximum price point for which they can receive gifts. Some companies do not allow their employees to receive gifts of any kind from vendors; others will allow it with a price point of less than $50, for example. Still, other companies allow employees to receive gifts from vendors and don’t have a price limitation. Knowing where your client stands in this scenario will prevent you from buying an expensive gift for a client who is unable to receive it, which could be embarrassing for both parties involved. Depending on how well you know your clients, gifts pertaining to their personal interests are OK, but I don’t recommend giving alcohol or tobacco as a general rule. It’s always better to err on the safe side. Also, giving nuts or other items that people may be allergic to is always a little risky. If you have several contacts at one client’s office, giving a gift that the office can share is a good idea, such as a gift basket with various food items. Now, if you want to give something outside the box, giving an experience to those in your client’s office may be a fun and different idea. For example, you could offer to take the entire office out for a movie, concert, or other type of entertainment (just make sure whatever you choose takes place outside of office hours). Giving gifts during the holidays that also promote your business is OK, if the items are high quality. For example, I wouldn’t recommend giving a cheap pen that has your logo on it as a gift, but a high-quality pen is OK. If you give something cheap your company will look cheap too. For example, giving a vinyl portfolio may not be received as well as a leather portfolio, and so on. If you truly want to promote your business so that those other than your clients may inquire about what you have to offer, choose an item that your client will use every day and that will be seen by others. For example, the leather portfolio I mentioned above is something your client may use when attending meetings or networking events. If the portfolio is nice enough, others may ask about it, or about you, if your company logo is on the front of it. If you have clients you consider “ambassadors” or “champions,” in other words, they promote your business to others, you may want to consider putting the word “ambassador” behind or below your company logo to indicate your client is an ambassador of your products and services. By doing this, you invite others who may see your logo with “ambassador” written next to it to ask about your client and your company. So, beware of holiday gift giving rules and always go with something tasteful. Happy gift giving and enjoy the holidays!

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Paul J. Stockinger: How Did We Get Here?

December 14, 2011

The world witnessed uprisings last year in four Arab countries. The protesters were mad as hell, and wanted rid of the despots they blamed for their troubles. They had an agenda, and in two of those countries they managed to accomplish the goal of eliminating the scourge at the top. In America, another protest movement arose. They call themselves “Occupy Wall Street” an aptly named group, who, recognizing that the financial calamity experienced in 2008 was caused by greedy recklessness of those in power on Wall Street, aided and abetted by those in power in Washington. Billions were lost as the house of cards that is mortgage derivatives came tumbling down as a superheated housing market did what bubbles always do. It burst, bringing down the collateral value of mortgage-backed securities. How did this happen? What caused this giant Wall Street calamity? What can be done to put things right, so it doesn’t happen again? The seeds of this destruction began to be sown 26 years earlier, in 1982, when, under the aegis of an actor in the White House, the powers that be began the systematic dismantling of safeguards put in place following the last major economic collapse that was the Great Depression. It began with the relaxing of banking regulations covering the savings and loan industry, making it possible for marginal borrowers to “live the American dream.” Repeal of Glass-Steagall I remember in 1998 when talk of Glass-Steagall repeal was circulating Wall Street, my associates and I were very skeptical. “Wasn’t that law passed for a reason?” we asked. In the Great Depression of 1929-1932, Congress examined the mixing of the “commercial” and “investment” banking industries. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. The Glass-Steagall Act, then set up a formidable barrier to the mixing of these activities. In 1999, Wall Street convinced Congress and President Clinton to repeal this act so that the banking and insurance/brokerage giants could combine, merging the Citibank branch network with the Salomon Smith Barney brokerage and Travelers insurance. That was only the first of many, many similar combinations. With the banks once again in the securities business, the stage was set for a repeat of 1929. Mortgage-Backed Derivatives In the U.S. the most common securitization trusts (mortgage pools) are Fannie Mae and Freddie Mac, U.S. and Ginnie Mae, a U.S. government-sponsored enterprise. Private institutions, like Investment Banks, Real Estate Mortgage Conduits (REMIC) and Real Estate Investment Trusts (REIT), also securitize mortgages, known as “private-label” mortgage securities. Issuance of private-label mortgage-backed securities increased dramatically from 2001 to 2007, and is where most of the problem lies. Effect of Mortgage Backed Derivatives on the Mortgage Industry The increased use of mortgage-backed securities created a fundamental shift or new paradigm in the mortgage lending industry. Whereas traditional lending practices required prudence in lending only to credit-worthy borrowers, now the concern regarding repayment was removed, as the original lender as “off the hook” once his loan was packaged in a mortgage pool. Repayment became the pool buyer’s problem. The mortgage industry then grew like topsy, making loans to virtually all comers. “Interest only” mortgages mushroomed. Historically marginally or unqualified borrower’s loan could now become part of a “subprime” mortgage pool. Everyone concerned seem to ignore the fact that one day, the borrower was going to have to “pay the piper.” Making loans to unworthy or marginal borrowers had an effect on the real estate market, as the number of buyers grew dramatically, so did real estate values, far beyond where they would have gone otherwise. This set the stage for two things: When prices reversed course, the decline would be far more severe than otherwise, and the number of foreclosures would be at record levels. I predicted this in 2004 (October). Credit Default Swaps When I was in the banking industry in the early-to-late sixties, there was not such a thing as “Credit Default Swaps”(CDS). A credit default swap, similar to a traditional insurance policy, obliges the seller of the CDS to compensate the buyer in the event of default. In the event of default the buyer of the CDS receives money, and the seller of the CDS receives the defaulted loan. However, there is a significant difference between a traditional insurance policy and a CDS. Anyone can purchase a CDS, even buyers who do not hold the loan instrument and may have no direct interest in the loan. The buyer of the CDS makes payments to the seller and, in exchange, receives a payoff if the loan defaults. These are called “naked” CDS, and in fact are a “bet” on default. The European Parliament has approved a ban on this kind of CDS, starting December 1, 2011. Credit default swaps have existed since the early 1990s, and increased in use after 2003. Between the end of 2007 and mid-year 2010 the outstanding CDS amount fell from $62.2 to $26.3 trillion . Insurer AIG required more than one bailout because they were the prime CDS issuer, and unwisely invested heavily in the same instruments they were insuring, in effect compounding their losses. The U.S. government now owns a large stake in AIG. The Fundamental Error I am constantly amazed at man’s failure to learn the lessons of history. Contributing to the Great Depression was rampant speculation, which caused a severe imbalance as security values soared to unsustainable highs. A bubble, if you will. The dramatic gains set the stage for the decline that followed. Because the commercial banks and the investment banks were so closely linked, the failure of one lead to the failure of the other. So, why undo the safeguards designed to prevent a reoccurrence? In retrospect, that was asking for trouble. What about real estate values? History tells us that, as with anything valued in currency, the price has and will continue to fluctuate. If you study price fluctuations in real estate, you will see that real estate values have had a ten-year cycle, with some variations. For example, the 1986 peak was followed by the 1996 low, as prices in more volatile markets like California were halved. It seems that, in their greed-fueled frenzy for bonuses, mortgage lenders became myopic and forgetful.

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L. Randall Wray: Bernanke’s Obfuscation Continues: The Fed’s $29 Trillion Bail-Out Of Wall Street

December 14, 2011

Since the global financial crisis began in 2007, Chairman Bernanke has striven to save Wall Street’s biggest banks while concealing his actions from Congress by a thick veil of secrecy. It literally took an act of Congress plus a Freedom of Information Act lawsuit by Bloomberg to get him to finally release much of the information surrounding the Fed’s actions. Since that release, there have been several reports that tallied up the Fed’s largess. Most recently, Bloomberg provided an in-depth analysis of Fed lending to the biggest banks, reporting a sum of $7.77 trillion. On December 8, Bernanke struck back with a highly misleading and factually incorrect memo countering Bloomberg’s report. Bloomberg has largely vindicated its analysis. Any fair-minded reader would conclude that Bernanke’s memo to Senators Johnson and Shelby and Representatives Bachus and Frank is misleading. One could even conclude that it is not just a veil of secrecy, but rather a fog of deceit that the Fed is trying to throw over Congress. He argues that the sum total of the Fed’s lending was a mere $1.2 trillion, and that it was spread across financial and nonfinancial institutions of all sizes. Further, he asserts that the Fed never tried to hide the bail-outs from Congress. Both of these assertions fly in the face of the facts available (as the Bloomberg response makes clear). As Bernanke notes, analyses of the bail-out variously put the total at $7.77 trillion (Bloomberg) to $16 trillion (GAO) or even $24 trillion. He argues that these reports make “egregious errors,” in particular because they sum lending over-time. He also claims that these high figures likely include Fed facilities that were never utilized. Finally, he asserts that the Fed’s bail-out bears no relation to government spending, such as that undertaken by Treasury. All of these assertions are at best misleading. If he really believes the last claim, then he apparently does not understand the true risks to which he exposed the Treasury as the Fed made the commitments. There are a number of issues that must be understood. First, the Fed quibbles about the differences among lending, guarantees, and spending. For the purposes of this blog I will accept these differences and call the sum across the three “commitments.” In spite of what Bernanke claims, these do commit “Uncle Sam” since Fed losses will be absorbed by the Treasury. (The Fed pays profits to Treasury, so if its profits are hurt by losses, payments to Treasury are reduced. If the Fed should go insolvent, the Treasury will almost certainly be forced to recapitalize it.) I do, however, agree with the Chairman that a tally should not include facilities that were created but not utilized (there were several of them, and the tally I present below does not include any facilities that were not used, nor does it include “guarantees”). Second, there are (at least) three different ways to measure the Fed’s bail-out. One way would be to find the day on which the maximum outstanding Fed commitments was reached. According to the Fed, that appears to have been about $1.5 trillion sometime in December 2008. I’m willing to take Bernanke at his word. Fair enough, if we want a good measure of the maximum Fed exposure to credit risk, that is probably as good as we will find. Another way would be to take the total of commitments made over a short period of time — say, a week or a month. That would be a measure of systemic distress and would help to identify the worst periods of the GFC (global financial crisis). Obviously, this will be a bigger number and will depend on the rate of turn-over of Fed loans. For example, many of the loans were very short-term but were renewed. Bernanke argues that it is misleading to add up across revolving loans. Let us say that a bank borrows $1 million over night each day for a week. The total would be $7 million for the week. In a period of particular distress, the peak weekly or monthly lending would spike as many institutions would be forced to continually borrow from the Fed. Bernanke argues we should look only at the lending at a peak instant of time. While that measures the Fed’s risk, it does not tell us how much intervention was required. And that leads to the final way to measure the Fed’s commitments to propping up Wall Street: add up every single damned loan, guarantee and asset purchase the Fed made to benefit banks, banksters, real Housewives on Wall Street, fraudsters, and their cousins, aunts and uncles. This gives us the cumulative Fed commitments. The final important consideration is to separate “normal” Fed actions from the “extraordinary” or “emergency” interventions undertaken because of the crisis. That is easier than it sounds. After the crisis began, the Fed created a large alphabet soup of special facilities designed to deal with the crisis. We can thus take each facility and calculate the three measures of the Fed’s commitments for each, then sum up for all the special facilities. And that is precisely what Nicola Matthews and James Felkerson have done. They are PhD students at the University of Missouri-Kansas City, working on a Ford Foundation grant under my direction, titled “A Research And Policy Dialogue Project On Improving Governance Of The Government Safety Net In Financial Crisis.” To my knowledge it is the most complete and accurate accounting of the Fed’s bail-out. Their results will be reported in a series of Working Papers at the Levy Economics Institute ( www.levy.org ). The first one is titled “$29,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient.” Here’s the shocker. The Fed’s bail-out was not $1.2 trillion, $7.77 trillion, $16 trillion, or even $24 trillion. It was $29 trillion. That is, of course, the cumulative total. But even the peak outstanding numbers are bigger than previously reported. I do not want to take any of their fire away — interested readers must read the full account. However, I will use their study as the source for a brief summary of total Fed commitments. Here I am only going to focus on the final measure of the size of the bail-out: the cumulative total. This is not directly comparable to the Fed’s $1.2 trillion estimate, which is peak lending. I will post more on the important research done as part of this Ford Foundation grant; in coming blogs I will also explain why all Americans should be horrified at the Fed’s actions, and by Bernanke’s continued attempt to cover-up what the Fed has done. When all individual transactions are summed across all facilities created to deal with the crisis, the Fed committed a total of $29,616.4 billion dollars. This includes direct lending plus asset purchases. Three facilities — CBLS, PDCF, and TAF — overshadow all other facilities, and make up 71.1 percent ($22,826.8 billion) of all assistance. Totals (in billions) and percent of total, by facility are as follows. Any outstanding loans are in in parantheses. Term Auction Facility: $3,818.41, 12.89% Central Bank Liquidity Swaps:10,057.4 (1.96), 33.96% Single Tranche Open Market Operation: 855, 2.89% Terms Securities Lending Facility and Term Options Program: 2,005.7, 6.77% Bear Stearns Bridge Loan: 12.9, 0.04% Maiden Lane I: 28.82, (12.98) 0.10% Primary Dealer Credit Facility: 8,950.99, 30.22% Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility: 217.45, 0.73% Commercial Paper Funding Facility: 737.07, 2.49% Term Asset-Backed Securities Loan Facility: 71.09, (.794) 0.24% Agency Mortgage-Backed Security Purchase Program: 1,850.14, (849.26) 6.25% AIG Revolving Credit Facility: 140.316, 0.47% AIG Securities Borrowing Facility: 802.316, 2.71% Maiden Lane II: 9.5 (9.33) 0.07% Maiden Lane III: 24.3, (18.15) 0.08% AIA/ ALICO: 25, 0.08% Totals $29,616.4, 100.0% Source: “$29,000,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient” by James Felkerson, forthcoming, Levy Economics Institute, based on data analysis conducted with Nicola Matthews for the Ford Foundation project “A Research And Policy Dialogue Project On Improving Governance Of The Government Safety Net In Financial Crisis”.

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House Passes Payroll Tax Bill Packed With Poison Pills

December 13, 2011

WASHINGTON — A GOP plan to pay for a payroll tax cut by docking federal workers and cutting Medicare passed the House Tuesday, but appeared headed for quick failure in the Senate as both parties jockeyed for political advantage. The Republican-controlled House of Representatives voted 234 to 193 for the bill, in spite of a White House promise to veto it and a warning from Senate Majority Leader Harry Reid (D-Nev.) that it would never pass in his chamber. The plan would pay for the one-year, 2 percent payroll tax cut by means-testing Medicare so that recipients making $85,000 and above have to pay higher premiums — effectively raising $31 billion. Another $62 billion would come from freezing federal pay for a year and making federal retirees pay more for health care. It would raise yet another $38 billion by hiking fees on banks doing business with Fannie Mae and Freddie Mac. Besides the controversial methods of paying for the bill, it would also stop clean air regulations estimated to save 20,000 lives , circumvent an environmental review of the Canada-to-Texas Keystone XL oil pipeline, slash emergency unemployment benefits from 73 weeks to 33 weeks, and allow states to force the jobless to prove they’re not on drugs in order to get unemployment benefits. Earlier, Reid called the pipeline provision “ideological candy coating” and said the unemployment reforms were “on the wrong side of ridiculous.” Still, Republican leaders insisted it was a bipartisan plan that should be passed immediately. “This has been a very balanced package put together by the House, designed to appeal to both Republicans and Democrats,” said Senate Minority Leader Mitch McConnell (R-Ky.). “The way it is paid for — much of it has been recommended by the administration itself in various talks that we’ve had over the past year.” Democrats have proposed a larger payroll tax cut of 3.1 percent, paid for largely by levying a surtax on income about $1 million. At stake is a break worth about $1,000 to 160 million Americans, or $1,500 if the Democrats’ proposal passes. The cut expires Jan. 1 if the sides cannot agree. Democrats — and even some Republicans — feel like they have been winning the message battle over the issue, with Democrats pointing to the lengths Republicans are going to in order to preserve the rich from a tax hike. If Congress can’t strike some kind of deal before the end of the month, 1.8 million long-term jobless will miss expected benefits in January, according to the National Employment Law Project, a worker advocacy nonprofit. Congressional Democrats want to preserve the current regimen of extended federal benefits, which provide compensation for up to 73 weeks for laid-off workers who use up 26 weeks of state benefits. The White House has signaled it would be willing to forgo 20 weeks of federal assistance. But Republicans want to cut the federal portion by 40 weeks to 33 weeks max, and its bill gives states the option of trimming benefits further. It also lets states require the jobless to pass a drug test to be eligible for unemployment compensation. Rep. Sander Levin (D-Mich.), the top Democrat on the committee that oversees unemployment insurance, said Tuesday that 3.3 million jobless would miss weeks of checks next year under the GOP bill. Both Republicans and Democrats have insisted they will extend unemployment benefits and the payroll tax cut, but with agreement on only one part of the method for funding the tax cut — raising fees on Fannie and Freddie — it was unclear Tuesday how they would proceed. A Democratic source said Reid approached McConnell earlier Tuesday and offered to bring the GOP measure up for a vote immediately. Such a move requires unanimous consent in the Senate, but McConnell declined. “We need to begin real negotiations on how to prevent a $1,000 tax hike on American families,” Reid said after the House voted. “The sooner we get this vote over with, the sooner those negotiations can begin in earnest. I will speak with Sen. McConnell again tomorrow to determine how soon we can hold this vote.” Dozens of jobless have told HuffPost they’re anxiously watching Congress for a reauthorization of federal benefits. Susan Lundberg of Palm Springs, Calif., said she lost her waitress job one year ago. Now she’s worried that her unemployment benefits will run out before she finds a job. She said she’d worked at the same restaurant for longer than a decade. She has felt that her age, 60, has been a major obstacle to finding new work, and that she’ll be “screwed” if her benefits stop before she finds employment. “I was happy at my job and am sorry they closed,” Lundberg said in an email. “Due to things beyond my control I am now in this situation. Congress should assume at least some accountability for the current situation that they have put people in.” Having used up her 26 weeks of state benefits halfway through this year, Lundberg recently advanced to the second “tier” of federal Emergency Unemployment Compensation, which offers up to 14 weeks of checks. It’s unclear how Lundberg would be affected under the Republican plan, which would eliminate the second and fourth tiers of EUC and phase out the 20-week Extended Benefits program halfway through next year. The third tier of EUC, which Republicans would save, offers up to 13 weeks of benefits. Lundberg said she did not like the way things like unemployment insurance and the payroll tax cut got rolled up in a bill with the Keystone pipeline. “If they really thought it was a serious issue they wouldn’t put in all this other stuff,” she said. “They should vote on it separately. It just makes things not happen when you put all these things in the bundle.” As for drug testing, Lundberg said: “I think they should drug test Congress. They’ve been acting a little weird.” Nine Poison Pills In The GOP Payroll Tax Extension Bill:

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Occupy Wall Street Jobs Expo Has Many Problems, Few Available Jobs

December 13, 2011

NEW YORK — On a bright, cold winter Monday in Zuccotti Park, a couple dozen of diehard Occupiers were milling about when two men in suits walked in with a folding table, a small entourage and six cardboard boxes labeled “Administrative/Clerical,” “Arts and Entertainment,” “Health care,” “Medical,” “Legal” and “Finance.” The men were brothers, John and Derek Tabacco, aged 43 and 41, respectively, and their plan was to hold an informal jobs expo. Their stated aim: to help unemployed Americans find work and hasten the end of the anti-banks movement by employing one protester at a time. They were not warmly received. While a handful of people did show up with resumes — less than 10 in the first two hours, by The Huffington Post’s estimation — the “jobs expo” called Occupy A Desk appeared to be primarily a publicity stunt. The Tabacco brothers claimed on Monday that eight different businesses were represented at the event — and that many more who weren’t present were offering positions. However, at the peak of the action, only four businessmen appeared to be actively reviewing resumes; one from a company that is accused of “operating as a pyramid scheme.” Derek Tabacco, who counts himself among the so-called “53 percent,” a conservative meme for taxpaying Americans, insisted that the event was not a protest or self-promotion. He called the Occupiers “dirty hippies,” but said “we have a lot of the same views.” “We should all be working together, trying to stimulate the economy,” he said, looking out at the gathering crowd of Occupiers. The brothers first made their anti-Occupy Wall Street debut a few days after the park was cleared last month, when protesters attempted to shut down the New York Stock Exchange. While police barricaded the narrow streets around Wall Street, demanding identification from employees who needed to get to work, the Tabacco brothers marched down Broadway, wearing suits and holding matching florescent green signs: “Get a Job” and “Occupy A Desk!” The feedback they got that morning — repeated shouts from protesters saying they couldn’t find work — inspired the day’s events, Derek Tabacco explained on Monday. After that, the brothers — who both have a history with reality television (Derek was on ” Millionaire Matchmaker ,” described as “a bigger-than-life sports fanatic with a lot to learn about the ladies”; John, on VH1′s “My Coolest Years”) — were deemed the “Heroes of Wall Street” by BusinessInsider.com and the “faces of the anti-Occupy movement” by Mediaite.com . They have both been guests on Fox Business News to discuss their anti-Occupy Wall Street views. The brothers’ entourage on Monday included a painter, three musicians, a handful of businessmen in pinstripe suits and a camera crew. “There’s a violinist playing,” Derek said emphatically, when asked if the event was a counter-protest, and pointed a few feet away to where a violinist wearing a patterned, brown woolen coat was performing. The brothers invited her, along with a painter working on a piece of an American flag, and two musicians from the band Screaming Broccoli. “Did you ever hear a violinist at a job fair?” he asked. According to a press release, the expo was to take place between noon and 4 p.m., when human resource representatives and small business owners would review resumes of people who dropped by and try to match them with one of about 50 job openings the Tabacco brothers said they were trying to help fill. The response from businesses, Derek Tabacco said, was very strong: Since sending out the release, the number of open jobs had shot up from 50 to 400, he said. He declined to go into detail about where most of these jobs were, or how exactly he would be able to help expo attendees get them — “networking,” he said. But by 12:45 p.m., the number of available jobs or businesses represented in the park was nearly irrelevant. Forty-five minutes into the event, only one of the businessmen maintained his post at a table spread with informational packets — the rest of Tabacco’s crew was huddled in a group off to the side, while Derek Tabacco, dressed in a pin striped wool suit, stood in the middle of a ring of Occupiers who angrily chanted, “Whose park? Our park! Whose park? Our Park!” “I share it with you, I played chess here my whole life,” Tabacco shouted back. A man darted forward and poured birdseed by the cardboard boxes intended for resumes, still mostly empty, and a nearby flock of pigeons flew over. “Who did that?” Tabacco shouted. Onlookers shrugged. The one businessman who did maintain his post, chatting with anyone who walked by, was Al Peteroy, a senior consultant with Ambit Energy, a Texas-based energy company. Last May, the company was hit with a billion dollar lawsuit accusing it of federal racketeering, fraud and unfair business practices. The lawsuit describes Ambit as “operating as a pyramid scheme which makes false and misleading statements that constitute deceptive acts or practices.” A lawyer for the company told The Huffington Post that the claims had “no basis in law or fact.” Although the jobs expo was growing more chaotic, Peteroy said he planned to stay put, looking for new recruits. “I’m going to stay,” he said, adding that several people had taken cards and fliers, but that no one had signed up yet. Peteroy, broad shouldered, hails from Staten Island, N.Y., where the Tabacco brothers also grew up. He was disappointed, he said, by the size of the crowd — he was expecting more than 1,000 people. “I’m presenting an opportunity to earn an income,” he said. “But I don’t think that people are actually looking for a job, they’re looking for an argument.” According to a video on the company’s website, working for Ambit is not free: marketing consultants must pay an enrollment fee of $429 and monthly payments of $24.95. The more people Peteroy recruits, or “sponsors,” as marketing consultants, the more money he earns. By 1 p.m., the boxes had accumulated a few resumes. But fliers distributed by Occupiers — featuring the career highlights of John Tabacco — outnumbered the seemingly-legitimate resumes. “Would you hire this man?” the top of the flier read. In the event’s press release, Tabacco is described as “a predominant expert in Securities Lending” and the founder and chief executive of Locatestock.com — “one of the first electronic securities lending portal [sic] that has modernized and simplified the Securities Finance Industry,” according to the company’s site. But as the protesters’ fliers indicated, Tabacco worked as a broker in New York in the ’90s and was barred from the securities industry after being sanctioned for misconduct in 1996. In the case file , investigators concluded, “We find that Respondent Tabacco’s actions in this matter were completely outrageous and that his contradictory statements were utterly disgraceful.” Tabacco dismissed the flier as slanderous and added that, “Any time you engage in public events to bring some a positive message there’s always going to be haters.” Henry James Ferry, an Occupier who runs a recently launched media outlet, The Other 99, approached the table where Michael Muscarello, the director of talent acquisitions at the staffing firm Intermedia Group, stood reviewing resumes. “Do you know that 70 percent of the people protesting have jobs?” Ferry asked, citing a survey of Occupy Wall Street members conducted by Hector R. Cordero-Guzman, Ph.D, of the School of Public Affairs at New York’s Baruch College. “Why is it that you think that people in Zuccotti Park should just go get a job?” Muscarello, wearing a white scarf over his suit and sunglasses pushed back on his forehead, avoided the question. “If you’re looking for a job, if it’s in your interest to find one, you can find it,” he told Ferry. Ferry pointed to McDonald’s day of hiring last April, when it announced plans to hire 50,000 workers and more than a million applied. “There’s a job shortage out there,” he said. “I’m looking for a guy who can do this,” Muscarello countered, holding up a sample resume of a Java developer. “You show me a guy who can do this and I can get him a job tomorrow.” According to the most recent release from the government , there were more than four unemployed people for every job in October, the 34th straight month with a ratio above 4-1. Nearby, a 63-year-old woman named Monica Rows who said she had been unemployed since 2009, put her resume in the “Administrative/Clerical” resume box, and then, for good measure, the other five boxes as well. A friend told her about the expo, she said, and she was surprised to learn it was in Zuccotti Park, where the Occupy protests were held. “I can do all of these fields, clerical, arts, medical,” she said. “If I don’t get a job, I’ll be out on the streets.” Standing off to the side, an Occupier named Paul Spitzer said he had invited the brothers to sit down and talk things out, away from the chaos of the park. Derek Tabacco said he thought that was a good idea. “Maybe we can sit down without yelling and find some common ground,” Spitzer said. “We need these kinds of debates. But here in Zuccotti, there is a lot of angst and upset people and then a guy that looks like Frank Sinatra” — he gestured at the brothers — “wearing a suit comes down here and says that they should just get a job? The communication gap is just huge.” When the expo ended, the Tabacco brothers made their way over to Fox News, where they sat for an interview on “Your World w/ Cavuto.” Neil Cavuto agreed with Derek and John that the day had been positive — except for what they characterized as the disruptive and ungrateful Occupiers themselves. “It kind of shows that their argument is disingenuous,” John told Cavuto. “They’re [in Zuccotti] because they can’t find a job, now that we’ve brought over 400 job opportunities to the park, not one occupier handed in a resume.” While many in the Occupy Wall Street movement would likely agree that a lack of jobs in the U.S. economy is a significant problem, those in the park on Monday seemed to disagree with the Tabacco brothers’ basic premise. They were not in the park because they couldn’t get a job, but because they wanted to protest the corrupt global financial system. “There’s a sarcasm at the heart of this thing,” said Matt Sky, an Occupier standing by the resume boxes, holding a sign that read, “You Deserve Better: Occupy.” “The movement isn’t about people who are whining that they don’t have a job, it’s about fundamentally changing a broken system.”

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Jeanne Kelly: How to Repair Your Credit (Even if You’re Really Busy)

December 13, 2011

A busy life can be stressful enough, but when you factor in the psychological weight of bad credit, our anxiety shifts into overtime. Who has time to deal with bad credit when your day is already jam-packed? At the end of a busy day, who wants to sit down and tackle hours and hours of credit issues? Here’s some good news for busy people who are struggling under the burden of less-than-stellar credit: By fitting just a couple of extra minutes into your schedule each day, it adds up over the weeks and months and you CAN fix your credit… Probably faster than you realize! It’s all about your mindset: Don’t view credit repair as one big, overwhelming task. Think of it as several small tasks you can easily accomplish with just a few extra minutes each day. If you have an extra 15 minutes: • Pull your credit report. • Mark your calendar with bill due dates so you’re never late on a bill payment again. • Grab a stack of unfiled bills and papers and sort them. (Filing isn’t any fun but it needs to be done if you want to quickly and easily refer to previous bills. By filing for only 15 minutes a day, you’ll get through it faster than you realize without it becoming a hassle). If you have an extra 30 minutes: • Use a pink highlighter to review any balance, phone number, address, or account that does not belong to you. • Use a pink highlighter to review anything you feel is wrong. • Follow up on these disputes. • Choose one credit bureau (Experian, Equifax & Trans Union) at a time to dispute/correct the issues you’ve highlighted (above). • Sign up for MYFICO monitoring. If you have an extra hour: • Choose one issue (such as a collections notice or a judgment) and put together a plan to deal with it. Gather the dates and amounts, figure out what action you are going to take, and deal with any phone calls or paperwork necessary. • Plan a budget to pay down balances. I know how busy we all are. But if you can find just a few extra minutes each day, and you spend that time by using these quick credit-fixing tips, you’ll make significant progress very quickly and you’ll feel good about accomplishing these “little” tasks. Email me a credit questions Jeanne.Kelly@TheCreditOwl.com .

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Employers Can’t Keep Momentum After Job Openings Hit Three-Year High

December 13, 2011

WASHINGTON — U.S. employers advertised slightly fewer jobs in October, a modest decline from a three-year high hit in the previous month. Companies and governments posted 3.3 million jobs in October, down from 3.4 million in September, the Labor Department said. October’s level was the second highest in the past three years. “Despite the retreat, the … report still indicates that the labor market is heading in the right direction,” Henry Mo, an economist at Credit Suisse, said in a note to clients. Even so, there is heavy competition for each job. Nearly 14 million people were unemployed in October, which means there was an average of 4.25 people out of work for each available opening. That’s worse than September’s ratio of 4.14. Job openings have rebounded from a decade low of 2.1 million in July 2009. But they are well below the 4.4 million advertised in December 2007, when the recession began. Nationwide, the job market improved in November. The unemployment rate fell to 8.6 percent from 9 percent, and employers added a net gain of 120,000 jobs. Still, half the drop in the unemployment rate occurred because many of those out of work stopped looking for jobs. When that happens, they are no longer counted in the unemployment rate. Layoffs also fell in October, the report showed, to the lowest level since January. More openings do not necessarily mean more jobs. Even though job openings rose 12 percent in the past year, hiring has increased only 4.5 percent, the Labor Department report shows. Some employers are likely pickier about who they hire than they have been in the past, economists say. They have more choices, since unemployment has been above 8 percent for nearly three years. In some high-skill industries, such as engineering or information technology, companies could be having trouble finding workers with the right skills. Some economists say companies aren’t offering high enough pay to attract workers they need or are unwilling to train applicants who aren’t a precise fit. Recent data shows the job market is improving a bit. In the past three months, job gains have averaged 143,000 per month. That’s an improvement compared to the average of 84,000 in the previous three months. And the number of people applying for unemployment benefits fell earlier this month to its lowest level in nine months, the Labor Department said last week. Firms are hiring more as the economy shows signs of improving. Factories are expanding, consumers are spending more and buying more cars, and Americans’ incomes rose by the most in October in seven months. Separately, the ManpowerGroup said Tuesday that more U.S. employers plan to hire in the first three months of 2012, according to its quarterly survey. Its net employment outlook rose to a seasonally adjusted 9 percent, from 7 percent in the current quarter. That’s the highest it’s been since 2008, when the recession took root. But that’s still far below the 20 percent that the index averaged from 2003 to 2007.

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Another Immelt? Obama’s Latest Appointments Questioned

December 12, 2011

WASHINGTON — President Obama on Monday charged two of his senior advisers with pursuing policies to strengthen the American manufacturing sector , a move progressives have long argued was overdue. But his two picks to run a White House Office of Manufacturing Policy — Commerce Secretary John Bryson and National Economic Council Director Gene Sperling — raised some of the same concerns that arose when Obama named General Electric CEO Jeffrey R. Immelt as his top adviser for job-creation efforts . Ron Bloom, a former senior official for the United Steelworkers who had also served as Obama’s “car czar,” stepped down from his job as assistant to the president for Manufacturing Policy in August. “It is gratifying to see, after such a long wait, replacements being named for Ron Bloom, who so honestly and well represented the manufacturing sector as the President’s Manufacturing Czar,” Leo Hindery, a former CEO who heads the US Economy/Smart Globalization Initiative at the New America Foundation , and is one of the foremost advocates of a U.S. industrial policy, said in an email. “However, it is disappointing that it couldn’t be people whose bona fides re: the manufacturing imperative are clearer and more established,” Hindery wrote. “How is this so much different than having Jeffrey Immelt of General Electric head the President’s Jobs Council when GE under Mr. Immelt’s stewardship has offshored many more American jobs than it has created?” Bryson previously led Southern California Edison, a massive utility company, and served as Boeing’s longest-serving director. Sperling, who has held a series of senior economic policy jobs in both the Clinton and Obama administrations, is a lawyer by training. In between the two Democratic administrations, he did lucrative consulting work that in 2008 alone netted him $2.2 million, including $887,727 from Goldman Sachs for a part-time job advising it on its charitable giving and $158,000 for speeches mostly to financial companies. Obama said in a statement on Monday: “At this make or break time for the middle class and our economy, we need a strong manufacturing sector that will put Americans back to work making products stamped with three proud words: Made in America.” These days, Buying American isn’t so easy . As Richard McCormack wrote in the American Prospect in 2009, over the previous decade or so, “Americans stopped making the products they continued to buy: clothing, computers, consumer electronics, flat-screen TVs, household items, and millions of automobiles.” Just last week, the Council on Competitiveness , a nonpartisan business and labor group, became the latest group to criticize the U.S. approach, concluding that “policy prescriptions for manufacturing are in disarray.” Indeed, the nation currently lacks any unified industrial policy, which could entail such things as a sustained program to encourage homegrown industry, a more assertive trade policy, the chartering of a national development bank, ending the favorable treatment of foreign investments, creating new tax credits for research and development, and actively discouraging offshoring. Bloom, reached by The Huffington Post on Monday, did not join the criticism of his successors. “Everybody brings a different set of skills to the party,” he said. “Obviously I had a bunch of background in labor.” “There are multiple good ways to attack this problem,” Bloom said. “I don’t know if this one is going to work. No one can know.” But he added: “I think this president has demonstrated more commitment and interest to manufacturing than any president has in a long time.” House Democratic Whip Steny H. Hoyer (Md.) responded enthusiastically to the news. “By appointing Commerce Secretary John Bryson and National Economic Council Director Gene Sperling to co-chair the White House Office of Manufacturing Policy, the President again demonstrates his commitment to expanding U.S. manufacturing,” he said in a statement . * * * * * 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 , subscribe to him on Facebook , and/or become a fan and get email alerts when he writes.

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‘Millionaire Job Creators Are Like Unicorns’

December 12, 2011

Senate Majority Leader Harry Reid (D-Nev.) compared millionaires who create jobs to unicorns Monday on the Senate floor. “Millionaire job creators are like unicorns,” he said, according to The Hill . “They are impossible to find and don’t exist.” Reid said that most of the “fictitious millionaire job creators” are “hedge fund managers or wealthy lawyers that don’t do much hiring.” The Senate has twice rejected paying for the extension of the one-year payroll tax cut with a surtax on millionaires. Republicans have said that the millionaire surtax would hurt job creation. “Well, over half of the people who would be taxed under this plan are, in fact, small businesspeople,” said House Speaker John Boehner (R-Ohio) in November. “And, as a result, you’re going to basically increase taxes on the very people that were hoping will reinvest in our economy and create jobs.” Sen. John Thune (R-S.D.) agreed. “If you’re somebody who’s in business and you get hit with a tax increase, it’s going to be that much harder, I think, to make investments that are going to lead to job creation,” he said . NPR asked numerous House and Senate Republican offices recently to find a millionaire job creator to interview that would be affected by the legislation, and they were unable to produce one. The Huffington Post’s Jason Linkins analyzed the Republican claim, and found that small-business owners were overwhelmingly concerned with demand, not tax policy. Linkins added on the NPR report: Thune responded by insisting that NPR found “exceptions to the rule.” But if the “rule” is correct, why wouldn’t a small-business owner want to talk to a reporter about an issue of paramount importance? Why couldn’t any of the congressional offices or lobbying outfits that consider this a matter of paramount importance proffer the contact information of anyone willing to offer a testimonial about the adverse conditions this surtax would impose? Politico recently reported that Senate Democrats are seriously weighing scrapping the surtax. Reid said that the Senate will not pass the House version of the payroll tax cut extension since it includes a provision requiring the Obama administration to make a decision in two months on the proposed Kesytone XL pipeline, which the administration has pushed back until 2013.

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Former Regulator May Be Tapped To Monitor Foreclosure Settlement

December 12, 2011

An outspoken critic of big banks and their mortgage practices leading up to the financial crisis may be tasked with making sure they comply with a long-awaited foreclosure settlement. Sheila Bair, the former chairman of the Federal Deposit Insurance Corporation, is a leading candidate to become a third-party monitor in a foreclosure settlement between five big banks and government officials, Bloomberg reports. Picking a monitor is reportedly one of the last issues to be worked out between banks and officials before the settlement becomes finalized. Bair, who led the FDIC from 2006 until earlier this year, was one of the biggest critics of Wall Street leading up to and during the financial crisis, often putting her at odds with other officials including then-president of the New York Federal Reserve Timothy Geithner. She warned of the dangers of subprime mortgage lending in 2001 , well before most began sounding the alarm, according to the Washington Post . And she continued her push when she took over the FDIC, arguing that the growth of subprime mortgages would cause homeowners to later default , wrecking neighborhoods and hurting the banking system, according to The New York Times — a sentiment that ultimately proved true with enormous consequence. When the fallout from the crisis started to become clear, Bair fought for an aggressive mortgage refinancing program to help homeowners, according to WaPo . In addition, she pushed to give her agency a seat at the table when officials were figuring out the best way to save the financial system in 2008, the NYT reports. The FDIC ultimately managed some failing institutions during the crisis, including Wachovia and Washington Mutual. Bair’s selection could be a boon for those who want to make sure lenders are held to their part of the settlement, as she continues to criticize too-big-to-fail institutions and regulator softness. Still Bair’s selection likely won’t mollify those who think the settlement doesn’t go far enough to punish lenders whose policies allegedly forced millions to lose their homes. If the deal between the five biggest mortgage lenders and the Obama administration and state officials gets pushed through, it would allow the lenders to settle without admitting wrongdoing. New York Attorney General Eric Schneiderman has been outspoken in his criticism of a deal that he says would wrongly release banks from future legal liability . California and Nevada attorneys general announced last week that they would join together to prosecute mortgage fraud , which could weaken the national settlement. In addition, Massachusetts Attorney General Martha Coakley signaled her departure from the national talks when she filed a suit against the five biggest lenders for deceptive foreclosure and mortgage modification practice s earlier this month.

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IMF: Eurozone Agrement Only Partial Solution To Debt Crisis

December 11, 2011

TEL AVIV (Tova Cohen and Ari Rabinovitch) – An agreement reached by European countries for deeper economic integration was a step in the right direction but not a complete solution for the euro zone’s debt crisis, International Monetary Fund (IMF) chief economist Olivier Blanchard said on Sunday. “I’m actually more optimistic than I was a month ago, I think there has been progress,” Blanchard told the Globes business conference in Tel Aviv. “What happened last week is important: it’s part of the solution, but it’s not the solution.” He did not say what further steps were needed. European leaders agreed in Brussels on Friday to draft a new treaty for deeper euro zone economic integration, although Britain, the region’s third-largest economy, refused to join the 17 euro states and nine other EU countries in the fiscal union. Asked whether diverse statements from policymakers in Europe were causing volatility in markets, Blanchard said: “A lot of the volatility is coming from statements from Europe, showing the range of opinions and inability to get to a logical decision process.” EU leaders also agreed euro zone states and others should provide up to 200 billion euros ($270 billion) in bilateral loans to the IMF to help tackle the crisis, with 150 billion euros coming from countries in the euro currency. “The commitment to give us 200 billion euros makes a major difference in the sense that we can now go out and talk to other countries and say, ‘the Europeans have given us money, can you help?,” Blanchard said. “Whether this gives us the whole bazooka or not, I hope so.” Asked by Reuters on the sidelines of the conference whether Britain’s decision to isolate itself was right for its economy, he said: “I think that’s an issue for the Europeans to decide.” Adding a tone of skepticism regarding the treaty’s chances of success, Jim O’Neill, chairman of Goldman Sachs Asset Management, said the most important thing that happened this week is not “this bungled European deal,” but the release of data that showed a slowing trend of growth in China, the world’s number two economy. “The problem in Europe, this isn’t really a debt crisis, it’s a crisis about the structure of leadership … Europe needs to organize itself properly and show proper leadership,” he said. “Everything around the world is being driven by some idiotic statement from some policymaker in the EU.” But he added that now might be the best time in 20 years to invest in Europe, saying, “Never let a good crisis go to waste.” O’Neill and Blanchard had diverging forecasts for growth in the United States next year. “I think 2012, in the end, will not be as good as 2011,” IMF’s Blanchard said. “Part of it is that 2011 came out a bit better than expected. I’m not sure this will be repeated.” O’Neill disagreed, saying he was optimistic on the U.S. economy and thinks growth will exceed 3 percent this quarter. “I think that corporate America is in an exceptionally competitive position,” he said. (Reporting by Tova Cohen and Ari Rabinovitch; Editing by David Hulmes) Copyright 2011 Thomson Reuters. Click for Restrictions .

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California, New York Target High-Wage Earners To Address Fiscal Crises

December 10, 2011

ALBANY, N.Y. — Hollywood moguls and Manhattan stock brokers are facing a slap by the Occupy Wall Street movement as California and New York again target high-wage earners to address a continued fiscal crisis in the states. On Wednesday, with the urging of Gov. Andrew Cuomo, New York raised its top tax rate on single filers making $1 million and joint filers making $2 million, a rate just slightly under the 2008 income tax surcharge that expires Dec. 31. Earlier this month in California, Gov. Jerry Brown said he, too, wants to avoid further cuts to education and social services by proposing a ballot initiative asking voters to increase taxes. That could hit Californians making over $250,000. “Occupy turned the political conversation on its head,” said Richard Brodsky, a senior fellow at the Wagner School at New York University. “Time was austerity and tax cuts were the only acceptable place to be. Now, income inequality and the 99 percent dominate practical politics. OWS paved the way; Cuomo and Brown seized the moment.” There’s no evidence of a national groundswell after more than a dozen states tapped their well-heeled residents for temporary income tax hikes from 2006-2009. But while most of those states let their temporary tax increases lapse as scheduled, New York and California this month went back to the well. Despite the political rhetoric, there’s less need in either state to act to make their tax brackets more fair. California and New York already have more progressive systems than most states, according to the nonpartisan Tax Foundation based in Washington, D.C. “California and New York are historically not going to be the most fiscally conservative states,” said Mark Robyn, an economist with the Tax Foundation. “To say they reflect the overall country’s attitude to taxing the wealthy at a disproportionate rate, that might be tenuous.” California and New York are also among only four states, with Washington and Missouri, to show deficits in a midyear survey by the National Conference of Legislatures, said the group’s Mandy Rafool. California faces a $3.7 billion shortfall for the current fiscal year and projected $12.8 billion deficit in 2013. New York learned of an unexpected $350 million deficit this year, and a higher projected deficit for the 2012-13 fiscal year of $3.5 billion. But Rafool said there’s no inkling more states will follow California and New York, although tax revenues are growing only slowly in most states. “It’s an election year and we’re seeing that revenues are recovering, spending is stable,” Rafool said. “This is better than in the last four years. It’s still not good, but it’s better.” She said she’d be surprised if other states follow New York and California. Instead, the common thread is that each state’s finances are worse than most other states, and their Democratic leadership has felt pressure from the Occupy Wall Street movement and other progressives. In New York, an Occupy Albany movement has camped outside the Capitol all fall. At first, Cuomo, a Democrat who ran as a fiscal conservative last year, tried to evict them, only to be stymied by local Democratic district attorney and mayor. Occupy Albany called Cuomo “Gov. 1 Percent” for opposing a millionaire tax and saying it would drive employers out of state. Meanwhile the Democratic Party that Cuomo heads and his progressive allies continued to push for a new millionaire tax to avoid more cuts to education and health care. In November, Cuomo made a hard left and pushed for the millionaire tax increase passed Wednesday that includes a modest, but rare middle class tax break. The package also provided more spending for jobs programs. “My job as governor is to make the best decision at the time to meet the needs of the state at the time,” Cuomo said Wednesday. “You’re seeing it play out on college campuses,” said the California state Senate’s Democratic leader, Darrell Steinberg of Sacramento. “You’re seeing it play out in different communities throughout California. There’s a real sense that the pendulum in terms of the way we’ve had to deal with these budget deficits, has gone too far.” But while there may be an immediate payoff in cash and politics, the long-term wisdom of soaking the rich has long been questioned. “As many states face increasingly large budget shortfalls that are often related to economic cycles, leaning on high-income earners and small businesses to pick up a disproportionate amount of the bill raises serious equity concerns and is bad for government revenue stability,” said Scott Drenkard, an analyst with the Tax Foundation. He notes many businesses, 94 percent of which file as individuals, and high-income earners have the most volatile income. If the economy continues to slip, they will have less revenue and that could further hurt businesses or prompt them to flee. New York and California already share another distinction: They have experienced some of the greatest flight of taxpayers from 1999 to 2009 and have tax structures considered among the least attractive to businesses, according to the Tax Foundation. “It reminds me of the Bob Dylan song, you don’t need a weatherman to know which way the wind is blowing,” said Doug Muzzio, a Baruch College politics professor in New York City. He said continuing fiscal crisis and the Occupy Wall Street could force the same consideration elsewhere. “Without any real evidence except for what I’ve seen here, I would think that the other states almost invariably will have to examine it,” he said. ___ Associated Press writer Judy Lin contributed to this report from Sacramento, and AP writer Michael Virtanen contributed from Albany.

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Mass Arrests As Police Evict Occupy Boston

December 10, 2011

BOSTON — Police officers swept through Dewey Square early Saturday, tearing down tents at the Occupy Boston encampment and arresting dozens of protesters, bringing a peaceful end to the 10-week demonstration. Officers began moving into the encampment at about 5 a.m. to “ensure compliance with the trespassing law,” police spokeswoman Elaine Driscoll said. The city had set a deadline for midnight Thursday for the protesters to abandon the site but police took no action until early Saturday, making Boston the latest city where officials moved to oust protesters demonstrating against what they call corporate greed and economic injustice. As police moved in, about two dozen demonstrators linked arms and sat down in nonviolent protest and officers soon began arresting them, according to the Boston Globe. The protesters were “very accommodating” to the officers, Driscoll said. Forty-six people were arrested on charges of trespassing and disorderly conduct, police said. No injuries were reported. The entire operation lasted less than an hour. Crews then entered the area to begin cleaning it. Protesters first erected the encampment on Sept. 30. Many pulled up stakes and left the encampment Thursday after learning of the midnight deadline Mayor Thomas Menino had set for them to leave the square, but others stayed, and some said they were prepared to be arrested. While Menino previously had said the city had no plans to forcibly remove the encampment, he appeared to become increasingly impatient with the protesters in recent days, saying the occupation had become a public health and safety hazard. He issued his ultimatum after a judge ruled on Wednesday that the protesters had no right to stay in Dewey Square. Protesters estimate that 100 to 150 activists lived in the Boston encampment. Demonstrators were forcibly removed from similar encampments in New York City, Los Angeles, Philadelphia and San Francisco.

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Obama: Economic Fix Could Take Years

December 10, 2011

Washington, December 9 (Reuters/Richard Cowan) – Despite some recent signs the sluggish U.S. economy might be improving, President Barack Obama warns it could be years before the country is on a sound footing. In excerpts from an interview with CBS’ “60 Minutes” program that will air on Sunday, Obama was asked whether he underestimated how difficult it would be to fix the U.S. economy when he became president in 2009. “I always believed that this was a long-term project,” the Democratic president told “60 Minutes.” He added it would “take time” to reverse “structural problems in our economy that have been building up for two decades.” Obama added in the excerpts, released on Friday, that he thought “it was going to take more than two years. It was going to take more than one term. Probably takes more than one president.” When asked whether he thought the U.S. jobless rate might drop to 8 percent by next November’s presidential and congressional elections, Obama said: “I think it’s possible. But … I’m not in the job of prognosticating on the economy.” Reducing unemployment is considered key to Obama’s re-election chances next year. The U.S. jobs picture has improved in recent weeks, with the national unemployment rate falling to 8.6 percent from 9 percent. The government also reported this week that the number of Americans filing new claims for unemployment benefits dropped to a nine-month low last week. But even an 8 percent unemployment rate is considered high – a 4 percent or 5 percent rate is seen as about normal – and if it stays high in coming months, it could complicate Obama’s hopes for re-election. Some independent economists have suggested the national jobless rate is likely to be in the range of 8 percent to 9 percent, leaving millions unemployed over the long run. A new CBS News poll has Obama’s approval rating at 44 percent, with 54 percent of respondents saying he did not deserve a second four-year term. Only 33 percent gave Obama good marks for his handling of the economy, the lowest of his presidency, according to the CBS poll released on Friday. Republicans are in the process of deciding their party’s presidential nominee to challenge Obama. Former Massachusetts Governor Mitt Romney and former House of Representatives Speaker Newt Gingrich are considered the front-runners. (Reporting by Richard Cowan; Editing by Peter Cooney) Copyright 2011 Thomson Reuters. Click for Restrictions .

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

December 9, 2011

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

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Stacy Mitchell: Another Shocking Fact About the Walmart Heirs

December 9, 2011

The Waltons currently own 49 percent of Walmart stock. That’s right. The six Waltons, heirs to Walmart founder Sam Walton, not only have a net worth equal to the combined wealth of the bottom 30 percent of Americans, as we learned this week from University of California economist Sylvia Allegretto , but they also own and control nearly half of Walmart, the world’s largest corporation. That’s an astounding fact. Last year, Walmart had sales of $422 billion and generated $16 billion in profits. That’s quite a cash stream for a single family to be able to dip into, year after year. While one could argue that other wealthy corporate founders made their money by producing something that benefited society as whole — the founders of Google, Apple, and Microsoft, for example, introduced products that fueled the creation of many new businesses and jobs — that’s not the case with the Waltons. Sure, Walmart built a more efficient system for distributing goods, but that accounts for only a small portion of its profits. The main way the Waltons got their wealth is by squeezing workers at every point along Walmart’s supply chain. The Waltons are a fitting face for the 1% (actually the 0.000006%), because Walmart has arguably done more than any other company to undermine the American middle class and force an ever-growing share of the population into working poverty. As Walmart has grown, it has eviscerated two key pillars of the middle class — small business owners, who have lost their livelihoods by the tens of thousands , and union-wage manufacturing workers, more than 3 million of whom have seen their jobs shipped to low-wage countries, thanks largely to pressure from Walmart and other big-box retailers. In exchange for all the family-supporting jobs Walmart has take away, all it has given us in return are very low-wage jobs working in its stores. The average Walmart worker makes just $8.81 an hour, data from IBISWorld show, and requires $943 a year in Medicaid and other public assistance , according to information from the state of Ohio. This is how the Waltons made their billions and, indeed, continue to profit every time someone shops at Walmart. __ Stacy Mitchell is the author of Big-Box Swindle and is a senior researcher with the Institute for Local Self-Reliance , where she directs initiatives on independent business and community banking . You can follow her on Twitter .

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Jim Luce: Zombie Banks: A New York Story in Three Parts

December 9, 2011

Scene One: I meet an interesting Turkish-American professional at my college alumni reception and we chat about my foundation’s interest in opening a Turkish Fund for women and children’s social issues in Turkey. He volunteers to advise me — great! Scene Two: I notice an intelligent New Yorker on the subway reading a book, which always catches my attention. I note the title: Zombie Banks . Odd, I think. Scene Three: I meet the man, a writer for Bloomberg News, for drinks at 8:30 to discuss Turkey and he presents me with his new book just published last month: Zombie Banks . My fellow alum Yalman Onaran, writer for the Bloomberg News. Photo: Daniel Acker for Bloomberg. I know of banks that are about to collapse, having begun my career in New York as an assistant Euro-bond portfolio manager for Daiwa Bank of Osaka. This bank disappeared in 1995, a decade after I left, following its loss of $1.1 billion from speculation in the bond market. Yalman Onaran knows of putrid financial institutions as well, having written about them in his native Turkey so successfully he brought down a few in Istanbul in the late ’90′s, leading to his career with Bloomberg and his move to New York where he covered the even larger collapse of Lehman Brothers and Bear Stearns. In fact, it is Bloomberg that has published Zombie Banks . Lehman Brothers C.E.O. Dick Fuld testifying to Congress. Photo: Bloomberg. I spoke to Yalman about his insightful Zombie Banks. Everyone is afraid that the world economy is about to go into a second recession, I asked him. Why are we heading in that direction? He told me: That’s because we haven’t fixed the problems that had caused the one in 2008. Leaders in the U.S. and Europe patched up the troubled spots, printed lots of money and avoided the underlying issues. Especially the banking system, which blew up to bring the world economy down a few years ago, is still fragile, too wounded to support a recovery and filled with even more risk. That’s why I call the banks zombies. They will make the next blowup more spectacular. This raised further questions: Why are the shares of European banks falling so much? What are investors worried about? French and German banks are more exposed to the troubled economies of the region than others. During the boom times — when Irish housing prices quadrupled, Greek civil servants were allowed to retire at the age 53 — French and German banks fueled the boom in those countries. Now that the bubble has burst, those same banks face huge losses. There’s too much debt in Greece, Ireland, Portugal, Italy and Spain. When the debt isn’t paid — and most of it can’t be — then lots of European banks will go bust. The giant Bear Stearns is one of the collapsed banks Yalman used to write about before penning his book on Zombie Banks. Photo: Bloomberg. What about the stress tests? The Europeans have carried out three of those in the last three years? Why haven’t those helped? The first three tests failed miserably because their assumptions were too optimistic. For example, the banks’ holdings of Greek government bonds were discounted by 20 percent. But Greek debt was already trading at 40 percent of their face value. Finally, in October 2011, the E.U. took a step toward a more realistic test, assuming bigger losses on sovereign debt holdings and asking the region’s banks to raise some €20 billion in the next nine months. But once again, the figure is too small and zombies are being propped up — governments will inject capital if banks cannot raise it in markets — instead of being wound down. U.S. bank stocks have also taken a beating in the second half of 2011. Are they also exposed to Greece or other E.U. countries? Our banks didn’t lend to Greece, Ireland or Portugal that much but they have other exposures to them — derivatives backing their debt, loan guarantees, etc. So U.S. banks could suffer substantial losses in case of a string of E.U. defaults. On top of that is the added concern that the U.S. economy is sliding back into recession. We have our share of zombie banks who’ve managed to stay alive with temporary patches. They’re too weak to survive a second downturn. Has the Wall Street bull been tarnished by zombie banking? Photo: Bloomberg. Why are Bank of America shares dropping more than its peers? BofA has the largest portfolio of mortgages which are souring and faces the biggest lawsuits due to home loans packaged into tricky securities that blew up in 2008. It needs more capital to cope with mounting losses, but its leadership has been refusing to raise any serious amounts. Market forces push zombie banks into a corner that’s very hard to come out of. The longer BofA waits, the lower its share prices get, making a capital increase more costly and less effective. More questions: What’s the solution? What do we need to do? How do we avert another crisis? Both Europe and U.S. need serious debt restructuring. Here mortgages need to be written down to diminished house values, in Europe sovereign bonds to levels that will allow countries to resume growth. The write-offs will cause losses on banks’ books in both sides of the Atlantic. Unlike 2008, we should let the weakest fall this time, shut them down, sell off their good assets and let the surviving healthy banks pick up their market share. That way the financial sector can resume supporting economy recovery and consumers, companies return to consumption and investment. My new friend Yalman intrigues me for another reason: he is the only single man I know attempting to father a child through surrogacy. He certainly breaks a lot of stereotypes about Muslim men in America. He is a most intriguing and eligible bachelor for the right man. Yalman Onaran, author of the newly-released Zombie Banks, is a senior writer at Bloomberg. Photo: Yalman Onaran. Yalman feels strongly that the world is one, that borders and races and religions have become increasingly irrelevant in this modern age. What distinguishes humanity at this age of our evolution is not race or creed, but honesty and integrity. He fervently hopes that our global financial institutions as well as the government that support them push to become increasingly honest and trustworthy. He stands ready to expose them if they don’t — making the world a better place. Purchase Zombie Banks here . Author’s note: Working in Haiti for more than a decade in the fields of orphan care and higher education, I am cognisant that Vodou is a religion and as such deserves respect. The book references the Reagonomic term “Vodou Economics,” and not meant in any disparaging way to my many friends who practice this religion. The term ‘zombie bank’ was first used in 1987 to refer to the savings and loans institutions in the U.S. that were insolvent but allowed to stay among the living by their regulators turning a blind eye to their losses. See Stories by Jim Luce on: Corporate America & CSR | Gay & Lesbian Issues | Islam and Islamic Issues | Media | New York | Social Responsibility | Turkey and Turkish-Americans The James Jay Dudley Luce Foundation ( www.lucefoundation.org ) is the umbrella organization under which The International University Center Haiti ( Uni Haiti ) and Orphans International Worldwide ( OIWW ) are organized. If supporting young global leadership is important to you, subscribe to J. Luce Foundation updates here . Follow Jim Luce on Twitter and Facebook .

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Report Highlights Legality Of Lehman Brothers ‘Gut Feeling’ Business

December 9, 2011

In the years leading up to its collapse, Lehman Brothers nearly doubled its risk and took a scattershot approach to valuing its assets, according to an oversight report released Thursday . The investment bank didn’t break the law by doing any of this. And there’s no reason to think it couldn’t happen again somewhere else. The report, issued by the Center for Policy and Research at Seton Hall University Law School, is at once an indictment of Lehman Brothers’ business practices in the period immediately preceding the financial crisis and an examination of a system that could find no legal reason to charge Lehman with misconduct, despite the bank’s key role in precipitating a global economic meltdown. Lehman Brothers, at the time the country’s fourth-largest investment bank, collapsed in September 2008 with $613 billion in debt. It was the biggest bankruptcy filing in history and one of the most dramatic moments in a crowded month that saw the sale, seizure or federal takeover of some of America’s largest financial institutions. The Seton Hall report appears just as the dust from Lehman’s bankruptcy case is finally beginning to settle. This week, some three years after the initial filing, Lehman received court approval for the final stage of its bankruptcy plan . It will begin paying out $65 billion to creditors in early 2012, and the sale of its assets will likely continue for years after that. However, the Seton Hall report suggests that none of this is really over. In addition to spotlighting many questionable choices made by Lehman higher-ups in the past half decade, the Seton Hall report warns that “the legal system that allowed Lehman’s failure will permit similar failures in the future because, for the most part, Lehman’s actions did not violate the law .” The report combs through a nine-volume account published last year by Anton Valukas, an examiner appointed by the U.S. Bankruptcy Court to probe the collapse of Lehman Brothers. Valukas’ report, which he delivered in March 2010, made headlines at the time for its exploration of Lehman’s “Repo 105″ rule — an accounting technique that allowed the bank to move billions of dollars off its balance sheets so that the company would appear to be in better financial condition than it actually was. There were other tidbits buried in Valukas’ 2,200-page report, but not everyone had the time to go digging for them. Now, the Seton Hall document — compiled after a “careful review” of Valukas’ report — brings to the fore other Valukas findings that have more or less gone unnoticed, according to the Seton Hall researchers. “What we have here is a story that’s important because no one of the examples leaps out as a great dramatic headline,” Mark Denbeaux, a law professor at Seton Hall and the lead author of the report, told The Huffington Post. “The significance is only in the accumulation.” Denbeaux and his co-authors identify two major patterns in Lehman’s business conduct — a steady ratcheting up of risk and a consistent misvaluing of assets on the balance sheet — that the report says worked together to undermine the security of the bank. For example, Lehman Brothers nearly doubled its degree of risk between December 2006 and January 2008, from $2.3 billion to $4 billion over a series of incremental increases. The Seton Hall report notes that Lehman took on this additional risk — a 74 percent rise in the space of 13 months — even while the market was declining and in violation of its own self-imposed risk limits. The report also finds that Lehman had no consistent method for determining the value of its assets, which ended up increasing the precariousness of the company’s position. Some real estate investments, according to a Lehman vice president quoted in Valukas’ report, were valued based on a combination of financial projections and “gut feeling.” Another set of assets, known as collateralized debt obligations — which played a major role in the acceleration of the financial meltdown — had their values checked by Lehman’s Product Control Group, an internal committee that, according to Valukas, lacked the resources to properly perform its job. One out of every five of the collateralized debt obligations never got price-checked at all. Some assets were left out of routine stress-test calculations, a decision that the Seton Hall report implies had the effect of increasing Lehman’s vulnerability — because without running these scenarios, the company couldn’t know how much money it was actually in a position to lose. Of these excluded assets, some were stress-tested after they were already on the books and were found to represent as much as $10.9 billion in potential losses — findings that “were never shared with Lehman’s senior management,” according to Valukas’ report. For all these irregularities, the Seton Hall report places the most emphasis on the fact that none of Lehman’s practices were found illegal in Valukas’ assessment, which Denbeaux said sets a disquieting precedent. “There’s no reason to believe he’s wrong on the facts,” Denbeaux told HuffPost, referring to Valukas. “We don’t dispute his factual conclusions.” The concern, Denbeaux added, is that, however ill-advised Lehman’s habits of pushing up its risk limits and carelessly valuing its assets, Valukas’ report found them to be acceptable from a legal standpoint, meaning they have been effectively legitimized. “My assumption is that anyone looking at this … should say something has to be done and the law has to be changed, or we have to be prepared to accept this happening over and over and over again,” Denbeaux said. “Either it’s allowed to happen and will continue to happen as lawful conduct,” he added, “or we’re going to have to change something.”

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Warren Mosler: Why the EU Won’t Fix Anything This Weekend

December 9, 2011

Yes, the Germans are concerned that ECB bond buying and direct funding might be inflationary, but there is something even more fundamental supporting their objection to ECB support. The problem is, the EU leaders believe the high rates, failed auctions, and related funding and liquidity issues are caused by the national government budget deficits being too high. And therefore the fundamental solution is deficit reduction. That is, only by reducing deficits, will the ability to independently fund return to where it was before the 2008 financial crisis hit. So while they recognize that ECB funding can keep them muddling through, though with some perceived inflation risk, they firmly believe it is deficit reduction that will allow them to return to pre 2008 funding dynamics, where each member nation could independently fund itself in the market place at reasonable rates. Unfortunately, that’s a bit like saying that by adjusting his financial ratios, Bernie Madoff’s fund could return to pre-crisis business as usual. Bernie Madoff’s fund could return to pre-crisis business as usual. And just like Bernie could only be back in business if somehow he got the Fed to guarantee his investors against loss, the way I see it (but, unfortunately, not the way they see it), the euro member nations now require ECB backing, directly or indirectly, to be back in business. As previously discussed, spending and deficits for currency issuers like the U.S., Japan, UK, and the euro members when they had their own currencies are not constrained by income or market forces. Observed debt to GDP levels for currency issuers can be anywhere from 50 percent to maybe 200 percent, as they serve to provide the net financial assets demanded by the various institutional structures of those nations. And regardless of debt ratios, interest rates are necessarily set by the Central Banks, and not market forces. Spending and deficits for currency users, including the U.S. states, businesses, households, and the euro member nations since adopting the euro, are, however, necessarily constrained by income and market forces. That’s why observed deficits for currency users are far lower than currency issuers. California, for example, has seen its financing difficulties even though it’s debt to GDP ratio is under 5 percent. Luxembourg’s debt to GDP ratio of about 15 percent when it adopted the euro was by far the lowest of the euro member nations. And that’s because Luxembourg never did have its own currency. It was always a currency user, and so market forces never let its debt get any higher than that. That’s because Luxembourg never did have it’s own currency. It was always a currency user, and so market forces never let it’s debt get any higher than that. Even with the current financial crisis, Luxembourg’s debt is only about 20 percent of GDP. So what happened about 13 lucky years ago is that the currency issuers of mainland Europe decided to turn themselves into currency users. And at the same time, now as currency users rather than currency issuers, simply waltz into the euro zone with their suddenly/absurdly too high existing debt ratios they incurred as currency issuers. The ‘right’ way to do it back then would have been to have the ECB guarantee their debt from the inception of the euro, and use the Growth and Stability Pact to avoid moral hazard issues and enforce compliance. But that would not have worked politically. The only way they would all come together is the way they did all come together. The priorities were union first, and work out subsequent problems as needed. So now they have two problems: A solvency problem where they can’t fund themselves without ECB support, and A bad economy, now further deteriorating as evidenced by negative growth and rising unemployment. And while the Germans aren’t entirely wrong in their belief that lower deficits would restore funding capacity, I don’t think they recognize that as currency users debt to GDP ratios may need to be under 30 percent to get to that point. Nor do they recognize that given current private sector credit conditions, deficits and debt ratios need to be higher to offset the demand leakages (unspent income) inherent in their institutional structures. These include pension contributions, insurance reserves, corporate reserves, individual retirement plans, and the demand for actual cash in circulation. This means that what they call austerity — proactive tax increases and spending cuts — will slow the economy and therefore cause tax revenue to fall and transfer payments to rise to the point where deficits increase rather than decrease. The only remaining hope for growth is exports, but with the entire world doing much the same that channel is not currently open. So back to the present. (And yes, without the 2008 financial crisis all of this may not yet have happened. But it all did happen, and here we are.) The firm belief is that deficit reduction is what is needed to return to independent funding. And while funding by the ECB can allow things to muddle through, and hopefully not prove inflationary, there is no exit from ECB funding and the inherent inflation risk it carries apart from deficit reduction. Therefore I expect the upcoming discussions to focus entirely around deficit reduction, with little if any discussion of funding. As is currently the case, funding assistance will only come conditionally with accelerated austerity. That is, all options on the table will only cause a bad economy to get worse. And all options on the table will tend to drive deficits higher, which both makes matters worse, and, as recent history has shown, triggers demands for more austerity. The chart below shows how the financial crisis of 2008 caused what seemed to be working just fine on the way up to come apart when private sector credit expansion faltered, and the economy took a dive, driving up national government debt to GDP ratios, and causing it all to go bad in typical Ponzi fashion.

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Liz Ryan: Welcome to the Antique Shop Part Two: Is Crowdsourced Work Evil?

December 9, 2011

I talked with a woman from a huge retailer who inspects factories in India. The stories she shared with me are harrowing — little children standing at machines, and mothers standing at assembly lines with babies strapped to their backs and not having the opportunity to nurse their babies when they got hungry. I’d love for everyone in the United States to have a Prius and premium cable, but I’d vote for clean water and enough to eat for people in any country, first. So it’s hard for me to get too worked up about jobs leaving the U.S. via outsourcing, and even harder for me to think that granular work like the type that lends itself to crowdsourcing is a bad thing. In the previous story about the crowdsourcing of work, I talked about my friend, a photographer who saw her business dwindle as digital photos hit the scene a few years ago. My photographer friend (who feared she’d lose her business five years ago) is back in action. She only shoots weddings and portraits now, on weekends, but she’s filled in the rest of her time with other projects. “People still really care about the quality of their wedding and special-event photos,” she says. Digital cameras and phones have killed the rest of her business, but that is giving her a chance to figure out what else she has to sell — and to explore creatively. Throughout our lifetimes, we’ve seen business models shift in surprising ways. As a little kid, I was shocked when Life magazine folded. I had had the idea that it was an edifice like the Empire State Building. My husband is a Buddhist now, and he says “Change is good.” I lead an online community where we talk about business and life and jobs, and over the years we’ve had a lot of posts from graphic designers and other content people decrying the state of things in the content realm. I’ve moderated tons of posts that talked about the evil that is done to experienced web designers and artists by new entrants into their fields who are willing to work for peanuts. I’ve tended to post these messages without comment, but sometimes I’ve chimed in to say “Once we’ve developed a marketable skill set, is the ethical thing to bar the door and keep other people out?” I remember when one photography magazine got slammed for accepting photographs without paying for them, the idea being that they were encouraging hobbyist photographers and hurting professional ones. I don’t see it that way. My dad was a magazine publisher (we didn’t use the word ‘print’ back then; it went without saying) and I’m sure glad that things were as good in the magazine business as they were, back then; it’s a much harder row to hoe, these days. At the same time, I earn a big chunk of my income through writing, and so I struggle a bit with the typical writer’s wheeze “No one values content anymore.” My editors do. Why? The stuff I write evidently speaks to the audience the magazine or website I’m writing for wants to attract. I write exactly what I think, so it’s not like I’m pandering to earn a buck. There are folks who hate my stuff and don’t hesitate to write and tell me about it. That is fine. That’s branding! It’s a wonderful thing. I tell clients, “You want to pull in the people you should be pulling in, and push the rest away.” “Push?” they ask. “That’s emphatic.” “More than push,” I say. “Violently push — repel. Like the wrong end of a magnet.” If my antique shop has only Beaux Arts pieces in it and you like mid-century modern, I wish you the best, but I don’t have time to talk to you. I don’t worry about crowdsourcing for graphic designers and other content people because I believe and I’ve experienced that the good stuff will rise to the top. People will pay for it if the artist him- or herself knows the value of what he or she is creating, and will stand for that value. Outsourcing was a huge shift in American business, but outsourcing shipped off a bunch of traditional units, or what HR weenies like me call FTEs (full-time equivalents). My clients tell me how it goes down: “They called us into a room. We all got laid off. They’re shipping our jobs to India.” Sometimes, they hire some of the American folks to go to India and train the newbies, and when they’ve come back, they’re strangely uplifted. “It’s weird,” these returning trainers tell me. “The folks in Bangalore are great, and we sort of bonded. But the gulf is huge. They’re not going to be able to do it.” A lot of times, they can’t, and the work comes back. I have one headhunter friend who specializes in filling IT slots when American employers realize that the outsourcing solution isn’t working out the way they thought it would. The cultural stuff, the frenetic American business style, the crisis orientation we’ve got going in American business, the jargon — that stuff is huge. It’s not simple to make those translations. Employers are going to continue to try to save big bucks by outsourcing work, but I think the bigger change in the workplace — really, the big story that will shift employment as we’ve known it into a whole new sphere — is the rise of crowdsourcing for non-creative work, which is going to have impact on pretty much everybody. This is the second in a series of three articles on the topic of crowdsourced work.

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The Labor Market Recovery That Never Came

December 9, 2011

In the first full year of the U.S. recovery, of those Americans who worked, more held down full-time, year-round jobs — but fewer Americans worked at all, according to new data from the government . Additionally, in 2010, more Americans spent all year looking for work than they did in 2009, and found nothing. This may explain, in part, why fewer Americans worked or looked for work in 2010 than 2009 — a year when the economy continued to hemorrhage jobs. Although the recession was declared done, the labor market never really recovered, and many people simply gave up looking. In 2010, 6.6 million Americans looked for a job but didn’t find work at all, an increase of 715,000 from the year before, according to a new report from the Bureau of Labor Statistics that provides a broad picture of the labor market in the first full year since the the recession officially ended in June 2009. Meanwhile, the number of working Americans shrank by 1.6 million, and the percent of the population who worked or looked for work — the labor force — declined to 66.5 percent from 67.4 percent. The shrinking labor force, economists say, is one of the most troubling and enduring features of the post-recession years. Troubling, but not surprising. “People’s discouragement in the job market is part psychological, but it’s also very much reality-based,” said Carl E. Van Horn, a labor economist at Rutgers University who studies the effects of long-term joblessness. His research has shown that, he said, “People are diligent job seekers. But when they are rejected repeatedly, what is the rational response? One is: I can’t get a job so I’m going to stop looking.” In a recent working paper examining the impact of the recession on the unemployed, Van Horn found that as of August 2011, only 7 percent of those who lost jobs during the recession “made it back” to where they were, before job loss. Meanwhile, 36 percent said they were either “devastated,” or “totally wrecked” by the recession. And it is not only the unemployed who reported major losses. “You can be employed and be in really bad shape, as we know,” Van Horn added. “They’re the working poor.” Van Horn’s research fits in with the picture painted in Thursday’s report: while some working Americans have recovered, many — both those employed and those out of work — have not. When the labor market is this weak, workers have less bargaining power, and wages stagnate. And most economists don’t see this picture changing. The trend continues to be reflected in monthly unemployment reports. Last month, the economy added 120,000 jobs and the unemployment rate dipped to 8.8 percent from 9 — but over half of that drop came from more labor force dropouts. “I see more clouds than I see sunlight,” Van Horn said.

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Kevin L. Petrasic: CFPB Ratchets Up Consumer Complaint Surveillance

December 8, 2011

As the CFPB continues the process of ramping up its supervisory operations and consumer protection programs, emerging is a unique brand of consumer complaint supervision highlighting the special emphasis and approach in how the CFPB is pursuing its consumer financial protection mission. This was recently highlighted in separate initiatives of the new agency’s Consumer Response complaint system addressing two of the areas in which the agency is expected to be the most active. The first involves the agency’s announcement that it is beginning to process mortgage-related complaints through the Consumer Response system. The second relates to an interim report issued by the CFPB on its first three months of activity collecting data on consumer credit card complaints. These two areas of emphasis of the Consumer Response system are likely to attract considerable consumer attention and a significant portion of the consumer complaints that come into the system. Both areas have generated significant legislative and regulatory attention in recent years, and the expectations are high that the CFPB may be relatively aggressive if not activist in addressing many of the issues that have been the subject of recent lawmaking activities. Add into the mix a close working relationship between the CFPB and the various State Attorneys General, it is not difficult to foresee enforcement responses in areas in which consumer complaints highlight what the CFPB views as the most egregious anti-consumer behavior. Certainly, consumer input has been important in framing legislation and regulations tailored to address anti-consumer behavior in the financial sector, and consumer complaints are a factor in the supervisory and examination oversight activities of depository institutions by the federal banking agencies. However, the CFPB’s Consumer Response system promises to go further by using consumer complaints as a direct mechanism in analyzing potential anti-consumer behavior, which can then be used to direct supervisory activities, pursue potential enforcement actions, and formulate policy responses. While some will argue that the federal banking agencies have been doing this for many years, there is a distinct difference to how the CFPB is ratcheting up its Consumer Response system to support its supervisory mission. For one, the CFPB has consumer financial protection as its primary and only mission. In contrast, the federal banking agencies have a number of important missions — protecting the safety and soundness of the institutions they regulate, minimizing risks to the Federal Deposit Insurance system, overseeing and ensuring the integrity of the payments systems (not to mention monitoring monetary and fiscal policy, in the case of the Federal Reserve), promoting policies to ensure credit availability, as well as ensuring and promoting consumer protection. In many instances, these various missions are not always in sync and, at times, circumstances may favor ensuring safety and soundness and other important considerations over consumer protection, at least from a supervisory (if not a policy) perspective. More fundamentally, the CFPB is currently in the process of building a Consumer Response system and database that it will be able to model and draw from in pursuing its consumer financial protection mission. With respect to the agency’s announcement that it is now starting to process mortgage-related complaints, we should expect a number of things to come from this initiative. First, and most obviously, there is the possibility that particular activities or players in the mortgage space could become subject to significant CFPB scrutiny. In this regard, the CFPB highlights in its Supervision and Examination Manual that it intends to conduct both target (one entity) and horizontal (one product across multiple entities) reviews as part of its examination program. Clearly, consumer complaint information gathered from the agency’s Consumer Response system would be available to support both purposes in connection with the agency’s oversight and supervision of mortgage products, practices and industry participants. Perhaps more important is the availability of consumer complaint information to support the agency’s regulatory policy and rulemaking function, which includes the possibility of upcoming reviews of important mortgage-related regulations in areas such as the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, SAFE Mortgage Licensing Act, Truth in Lending Act, as well as the Fair Credit Reporting Act. The area in which the Consumer Response system already has a track record is with respect to consumer credit card complaint data. Again, there are various uses for this information, not the least of which is providing an opportunity for consumer redress, as well as laying a foundation for a supervisory, regulatory or a potential enforcement response to address consumer issues arising with a particular entity or with respect to a particular credit card product or feature. Interestingly, the interim data collected by the CFPB Consumer Response system includes information on the 5,074 credit card complaints filed with the agency for the three-moth period from July 21, 2011 through October 21, 2011 . Highlighting a very proactive feature of the system, the agency notes that about 84% of all complaints were forwarded to credit card issuers, with approximately three-quarters of forwarded complaints being fully or partially resolved. Perhaps the most telling “preliminary” conclusion of the CFPB interim credit card report was the information drawn on another important area that falls squarely within the CFPB’s mission — and which offers significant opportunities for the agency to work with the industry to improve — consumer education. As noted in the report, “many complaints show consumers struggling to understand the terms of credit cards and associated products like debt protection services.” The other important finding highlighted by the agency, again which should be deemed preliminary given the relatively small number of complaints reflected in the interim report, is the extent of fraudulent charges to consumers’ credit cards made by third parties. According to the report, “the complaint system has identified recurring scams and helped to obtain redress for defrauded consumers.” Again, this is an area that offers considerable opportunities for the agency to work with the credit card industry to address. Thus, in addition to being used as being available as a supervisory and enforcement tool, and in formulating regulatory policy, the CFPB’s Consumer Response system may identify areas and opportunities for agency-industry cooperation that may serve to further the best interests of the consumer, the industry and the agency in pursuing its consumer protection mission. The challenge, of course, will be for the agency to determine how best to work with various industries to realize the potential benefits of identifying ways to improve consumer financial education, reduce fraud, and pursue other mutually beneficial areas that may be identified by the CFPB’s Consumer Response system database. Most critical in all of this is the consumers’ role in providing factual and accurate information to the agency, as well as assuming responsibility for educating themselves about the consumer financial services and products they use, and continually monitoring financial account activity and usage to be able to identify issues and potential risks.

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Michael Farr: The Core of the Economic Debate

December 8, 2011

In Europe and the United States, debates over deficits, austerity, and intervention are being conducted in several languages, but they share the same essential elements. Moreover, the debates all pose fundamental questions that cut to the core of government’s role in any society. What is a government’s responsibility for the economy? What are the limits of a central bank? How much influence should a government have over its central bank? And how do those limits (such as they are) affect the currency and price levels across the economy? It may seem that these questions are as simple as ‘Am I my brother’s keeper?’ But the consequences of these largely notional arguments will determine the course of generational financial stability and direction. John Mauldin shares the following excerpt in this week’s missive. These are the essential debate points. (I am a faithful reader of Mauldin and commend his complimentary weekly analysis to you. Here is a link: www.JohnMauldin.com ). “If we apply this distinction to what money is, those who believe that money is a tool which belongs to the political sphere and can be manipulated to meet political goals, justify their destruction of money by an ethic of responsibility (fighting unemployment, creating economic growth, etc). For what it is worth, let’s call them Keynesians. On the ethic of conviction, we have the Bundesbank and the German population (but not so much the German political system) who say that money is a common good which does not belong to the state, and that the economy has to adapt to this reality, and not the other way around. Let us call them the Austrians.” The lines of debate are drawn clearly around the world. Regretably these discussions grow more heated at times of crisis, and decision makers risk impulsive reactions. So will the Keynesians or Austrians prevail? In many ways we feel this is a bit moot in many countries where the enormity of the debt, and therefore the debt service, precludes any solution that is not in part monetization. That is to say that some destruction of currency will occur. Monetization of debt is another way to suggest inflation. The idea is that if my debt represents 20% of my outstanding currency, I can reduce my debt to 10% by doubling the amount of my currency. Twice as much currency available to purchase the same amount of goods and services will drive up the prices for those goods and services. Linear reactions don’t really happen in economics, but for the purposes of discussion, imagine that you are an investor in the bonds of a country that doubles it currency. While the amount of principal and interest you ultimately receive will remain unchanged, the prices of bread and milk have doubled and therefore your purchasing power is eviscerated. You lose out because the payments you receive are not adjusted higher for inflation. Finally, there is the issue of moral hazard. Countries like Greece, which have borrowed and contracted to repay, are being excused from billions of dollars of obligations. They are being supported by the good standing of other European nations that may have to bear the burden of Greece’s responsibilities. This sort of thing has happened many times in recent years. Culpability has yet again been separated from consequence, and it strikes us as the vilest virulence. The world has gone through times like this before and lived to tell the tale. It will again this time. Some companies are positioned strongly to both endure and thrive through this storm. We have many of them in our portfolios and firmly believe they will leave us in good stead. No matter how these global debates and questions are resolved, market winds have been ferocious, and we don’t see that abating anytime soon. Hang in there, Peace, Michael

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The Next Bank Bailouts

December 8, 2011

The bank bailouts of 2008 created a firestorm of public anger in the United States. Now European leaders are trying to avoid the same fate. It’s not looking good. European Central Bank President Mario Draghi on Thursday denied the possibility that the ECB would bail out European banks by buying large amounts of troubled government bonds. Yet many economists and observers believe the central bank ultimately will have to give in. For a while it seemed like Europe was going to take a hard line against banks. In November 2010, at Germany’s urging, European leaders agreed that they would pursue “haircuts” instead of bank bailouts, essentially forcing the banks holding troubled government debt to take a loss. This past October government leaders forced banks to swallow a 50 percent cut on the value of their Greek government bonds. European leaders agreed to force a haircut on Greek government debt because it had become simply unsustainable, and some sort of partial default was necessary, said Michiel Bijlsma, program leader of financial markets at the CPB Netherlands Bureau for Economic Policy Analysis. The move was a last-resort effort to rescue the Greek government from default, but it was also a victory for Germany. German Chancellor Angela Merkel had been insisting that banks take part of the loss. “Have politicians got the courage to make those who earn money share in the risk as well?” Merkel said in November 2010 , according to Reuters. Merkel’s tough talk played well at home, particularly as the foil to the United States’ bank bailouts. Many in the U.S. believe banks got off easy and blame the government for bailing them out. “There’s an electoral price to be paid for bailing out banks,” said Bo Becker, assistant finance professor at Harvard Business School. “Merkel and her party have ridden somewhat high in the last few years on the claim that German responsibility and so on is better than the United States’ easygoing financial system. So she especially has a lot to lose.” But recently Germany has been forced to change its stance. The country agreed earlier this week to eliminate the possibility of any more haircuts on government debt. European leaders are hesitant to force more haircuts since banks are now in a weak position, and more haircuts could trigger a collapse of the the European banking system, some economists say. Back in 2008, when the United States banking system was similarly on the brink of collapse, the Treasury Department and Federal Reserve acted quickly and decisively. The federal government took ownership stakes in banks and the Fed loaned money to them. Meanwhile, the Fed also bought large amounts of mortgage-backed securities when no other investors would touch them. “Americans are more pragmatic and less ideological when it comes to emergency action,” said Harvard economist Richard Cooper. Though part of the eurozone’s slow response to the crisis can be attributed to Europe’s “exceptionally clumsy” decision-making apparatus, he said, the delay can be in part attributed to the German perception that they should cast blame for the crisis as it is being solved. In contrast, he said, “Americans say, ‘Let’s get the problem behind us, and we’ll decide who goes to jail later.’ ” A full U.S.-style bailout isn’t necessarily an option for Europe, however. The European Central Bank can’t buy government bonds directly, as the Fed does routinely. Since the European Central Bank legally cannot bail out governments, bailing out private banks seems less justifiable, Paris-based economist Gael Giraud said. “That’s why the banks were partially convinced to accept to pay something,” he said of the Greek haircut. But more haircuts would not by themselves dig Europe out of this hole. Because if over-leveraged banks are forced to reduce the value of their assets, en masse, they could fail. That could either blow up the economy or force European countries to do what the United States did three years ago: Bail out their banks. It’s just taking longer. “Unless the Europeans can solve the sovereign debt crisis,” Cooper said, “there will certainly have to be some form of support for the European banks.”

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Pablo Eisenberg: The Death Of A Flamboyant Charity Wrongdoer Sends A Reminder To Regulators

December 8, 2011

The death this month of William Aramony, who spent six years in jail for misusing more than $1-million in United Way of America money when he served as its chief executive, is a reminder of the time when nonprofit miscreants were larger than life, their careers marked by tremendous energy and panache compared with the current crop of unexciting executive frauds. Mr. Aramony got into nonprofit work in 1954 as an earnest and creative local United Way administrator in South Bend, Ind., where he was a much admired figure, and then moved on to executive posts in Columbia, S.C., and Miami. Flamboyant and hard-driving, he quickly established a reputation as an outstanding fund raiser and ardent spokesman for local charities. His skills did not go unnoticed at the national level. In 1970, he was appointed chief executive of the United Community Funds and Council of America, an organization he quickly renamed United Way of America. His drive, ambition, and organizational moxie enabled him to establish a strong national network of more than 2,100 independent units supporting some 47,000 charities, including the American Red Cross, Salvation Army, and a host of social-service organizations, with a total annual budget of more than $3-billion at the height of his leadership. To assure his power and influence over the network, he handpicked the people nominated to head many of the largest 50 affiliates. He forged strong ties to the National Football League, thereby enhancing the prestige and fund-raising capacity of United Way’s headquarters and affiliates. Few people in the nonprofit world were willing to challenge the United Way’s policies and practices. When they did, he was not above using a little intimidation and muscle. In the early 1980s, when the newly formed National Committee for Responsive Philanthropy, of which I was a founder and chair, started an attack on the United Way’s monopoly of workplace-giving campaigns, he summoned me to his office to warn the committee and me to back off our position. Two of his muscular henchmen–aides he called them–stood menacingly in the room as he made his demands, which the committee ignored. Yet under his direction, the national network expanded rapidly. The national headquarters provided the local affiliates with management advice and training as well as solid help on fund-raising strategies. His public-relations efforts put United Ways on the map and made them the darlings of the philanthropic world. As his reputation and influence grew, so did his salary and benefits. In the years before the scandal broke, his official compensation exceeded $460,000, a princely sum for a nonprofit executive at the time. And that amount did not include all the other funds he illegally extracted from United Way pots to underwrite his lavish way of life. Armed with a pliant board, largely full of corporate chief executives with whom he socialized, Mr. Aramony strode across the nonprofit stage flaunting his authority, influence, and arrogance like few others before him. He didn’t try very hard to hide his numerous mistresses, his luxury-laden trips both in the United States and abroad, and his disdain for responding to his critics and inquisitive reporters. Many members of his staff were aware of his peccadilloes, opulent tastes, and excessive expenditures, but few, if any, complained. For them, he was “the man.” But he had a lot of company in the rogues’ gallery of “nonprofiteers” at the time. John G. Bennett, a businessman from the Philadelphia area, created in 1989 one of the largest nonprofit Ponzi schemes on record, embezzling more than $135 million from some 1,100 donors including nonprofit organizations. His New Era Philanthropy solicited donations ostensibly for charity from friends, promising enormous returns to them, funds he told them would come from secret investors matching their money. After the scheme imploded, an investigation revealed that Mr. Bennett had pocketed at least $8 million for himself. Mr. Bennett received a jail sentence of 12 years. Benjamin Chavis, the flashy executive director of the NAACP, was fired in 1994 after a year on the job when he used a large amount of the organization’s money to settle a sex-discrimination lawsuit against himself. NAACP leaders also accused him of mismanaging NAACP funds and creating the organization’s deficit of $3.8 million. Frank L. Williams, the charismatic head of the American Parkinson’s Disease Association, embezzled more than $1 million over seven years in the ’80s and ’90s because he said that his salary of $109,000 a year was not comparable to that of other charity colleagues. The trustees of the Bishop Estate in Hawaii, created to provide for the education of Hawaiian children, were accused by the state’s attorney general of gross corruption, diverting $350 million from the principal purpose of the estate, accepting excessive compensation for their services, mismanaging the estate, and receiving kickbacks from real-estate transactions. A judge removed four trustees from the board, and the estate had to pay the Internal Revenue Service $9 million to retain its tax-exempt charitable status. Today’s nonprofit scandals don’t match up to any of those. In the case of Mr. Aramony, his lavish expenditures included gambling trips to Las Vegas, the purchase of an expensive apartment in New York City and a condominium in Miami, Concorde flights to Europe, and extravagant expenses for a 17-year old mistress. He also received personal payments from spin-off companies he created as his personal cash cows. Thanks to the combined investigative work of both Regardie’s magazine and The Washington Post, his profligate days came to an end. Investigations by the FBI, Internal Revenue Service, and Postal Service revealed the extensive range of his corruption. The lesson of the Aramony scandal was that the United Way board shared responsibility for what happened. Board members never exercised their authority to oversee the affairs of the organization or its CEO, preferring instead to treat Mr. Aramony as one of their golfing partners. They, too, should have been punished and dismissed. Board laxity was a factor in most of the nonprofit scandals that occurred during those times, as was the reluctance and tardiness of the IRS to conduct oversight activities. A lack of oversight by federal and state regulators, as well as nonprofit boards of directors, continues to undermine the integrity of nonprofit organizations. The fact that today’s nonprofit scoundrels are much less conspicuous and flamboyant than their past colleagues means that many of them are flying under the public’s radar screen and that of the regulators. They are much less interesting and exciting than past rogues and thus perhaps less worthy of attention. For all his accomplishments and gross misdeeds, William Aramony provided us with a flair and élan that is lacking today. He and his old colleagues were the Jesse Jameses of nonprofit America: never dull, always exciting. In an odd way, we shall miss him. Pablo Eisenberg, a regular Chronicle contributor, is a senior fellow at the Georgetown Public Policy Institute. This post first appeared in The Chronicle of Philanthropy .

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Dan Solin: My Headline: Headline Risk Is a Lame Excuse for Active Managers

December 7, 2011

A recent blog on CNBC almost made you feel sorry for active managers It referenced a study by Bank of America Merrill Lynch which found that active managers were having “a rough year.” Only 23 percent of large-cap managers beat the S&P 500 index and only 27 percent topped the performance of the Russell 1000. There is a certain irony in the fact that Bank of America Merrill Lynch is the source of this information. The merger of these two mega active managers was triggered by what the New York Times characterized as Merrill’s “billions of dollars in mortgage-related mistakes.” Merrill’s active management of its own portfolio did little to inspire confidence in its investment expertise. But I digress. Active managers were quick to explain their underperformance. Mark Lamkin, the CEO and “chief investment strategist” at Lamkin Wealth Management, blamed his underperformance on “headline risk,” noting: “Nine of the last 11 years my active strategies have beaten the market, and I’m underperforming this market. It’s all headline risk.” “Headline risk” is the possibility that a negative news story will adversely affect the price of a stock. I tried to verify Mr. Lamkin’s claim that his active strategies have “beaten the market” in nine of the last eleven years and was unable to do so. His firm does not publish the results of its portfolios on its web page. I called his office and asked for additional information but received no response. Analyzing the significance of claims that a fund manager or advisor “beat the markets” is not uncomplicated. You need to understand how much risk the manager took and whether the benchmark used for comparison is an appropriate benchmark, comprised of a proportionately weighted mix of stocks and bonds. Mr. Lamkin’s lament about “headline risk” is troublesome. Unexpected news is a reason for under performance by active managers, but it is not an excuse that active managers should use to explain their inability to “beat the markets.” Tomorrow’s news drives stock prices. Active managers don’t know tomorrow’s news. They can’t anticipate what they don’t know. “Headline risk” is one of many reasons why active managers historically have underperformed the markets and are likely to continue to do so in the future. According to a mid-year 2011 study by Standard and Poors , Over the past three years, 63.96% of actively managed large-cap funds were outperformed by the S&P 500, 75.07% of mid-cap funds were outperformed by the S&P MidCap 400 and 63.08% of the small-cap funds were outperformed by the S&P SmallCap 600. Passive management trumped actively managed in nearly all major domestic and international stock categories. The results for this year, while worse than in previous years, are not unexpected. The skill of active managers is not in “beating the markets.” It’s convincing you they are likely to do so in the future, and coming up with lame explanations for why they have not done so in the past. That’s my headline. Dan Solin is a Senior Vice-President of Index Funds Advisors (ifa.com). He is the author of the New York Times best sellers The Smartest Investment Book You’ll Ever Read, The Smartest 401(k) Book You’ll Ever Read, and The Smartest Retirement Book You’ll Ever Read. His new book, The Smartest Portfolio You’ll Ever Own, was released in September, 2011.The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Jeanne Kelly: Make a List, Check It Twice and Have a Debt-Free Christmas

December 7, 2011

With the holiday season just around the corner, it’s that time of year when your credit cards come out of hibernation and play “Santa’s Elves” to make sure that everyone in your family gets what they asked for. It’s easy to spend and spend (and spend!) during this season. While generosity is a good thing, going into unmanageable debt is not. It’s like coal in your stocking and it will be an unpleasant “gift” if you’re still paying it off months from now. Here are 5 ways to add a dash of organization to your holiday shopping to help you avoid the credit agencies’ “Naughty” list. Don’t just go to the store and look for inspiration! Get your family to make a list of what they want for Christmas. This will keep you focused and help you to avoid impulse shopping on other peoples’ behalf! Sit down with those lists and do some comparison shopping online. Sure, there might be Christmas sales at stores but you might find the same stuff cheaper if you buy it altogether online (like at Amazon.com for example). End result? You save money plus you avoid the shopping mall headaches and hassles. For the stuff you can’t get online, organize your shopping trip(s) to the mall. Minimize the trips (to avoid excess fuel and eating-out costs). Know what you want to buy and where it’s available and how much it should cost. (A chart would help but that sounds like it will suck all the fun out of Christmas. Believe me when I tell you: it may make Christmas seem less festive but it will keep you merry through the spring when you don’t have as much debt to pay off.) Create a payment plan! This is something that almost no one does but it will help you. Decide up-front how much you can spend (based on what you want to get people) and how you will pay for it. For most people, paying for Christmas is a mix of cash and credit. (More cash than credit is better but I’m also realistic enough to know that this is improbable.) Keep all your receipts. This is critical for two reasons. First, if that sweater you bought your husband doesn’t quite fit, it’s easy to bring back for a refund or exchange. Second, when your credit card bill arrives in January, you can pull out your receipts and confirm the amount. There won’t be any surprises and you might catch any problems (such as overcharging or even credit theft). Meryl Starr ( http://www.merystarr.com ) a personal organizer, offered these tips: Keep it simple! Give out gift cards. If you know someone likes a certain magazine, give them a subscription. Save on wrapping and look for old fabric napkins you have and wrap up a gift. This season of the year is always chaotic — the kids have school plays, you’ve got holiday parties to attend, there are family dinners and extended family dinners and who-are-these-people dinners you have to go to. But when the tree comes down and the giftwrap is cleaned up, you’ll enjoy your spring a lot more because you rose above the chaos with a little organized Christmas debt-management. Please let me know any holiday credit questions you may have: Jeanne.Kelly@TheCreditOwl.com

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Jon Kyl Raises Prospect Of Tax Hostage-Taking Again

December 6, 2011

WASHINGTON — Sen. Jon Kyl announced Monday what it will really take to extend a payroll tax holiday for the middle class: an extension of tax breaks for the wealthy. The Arizona Republican, taking to the Senate floor after Democrats proposed a 1.9 percent surtax on income above $1 million to pay for the payroll tax break, argued that the tax cut didn’t work. But, he said, he’d still support its extension if the wealthy keep their breaks, too. “There’s no evidence this temporary tax cut has produced any new jobs,” Kyl argued, adding that he believes extending it would hurt Social Security, which is funded by the 6.2 percent payroll tax. “This is what pays for Social Security benefits. It’s bad economic policy, it’s bad tax policy, and certainly the surtax that would fund this is something that would very much hurt small business and job creation,” Kyl said, equating small businesses with the million-dollar-plus earners who would pay the surtax. Yet he would maintain the payroll tax cut if Congress also extends the Bush-era income tax cuts, including those for the top brackets. Democrats have long favored keeping the lower Bush rates for most taxpayers, but not for the wealthiest. “We should therefore only do it in circumstances that, in effect, override these objections — one of which would be to extend all of the taxes that expire at the end of next year,” Kyl said. Kyl, the No. 2 Republican in the Senate, appears to be the first GOP leader to raise the prospect of repeating last year’s hostage-taking, when Democrats caved in to GOP demands to extend the Bush-era and estate tax cuts for the rich in return for the payroll tax break, extended unemployment benefits and other breaks. “As I said a year ago, I was willing to support the extension of it because we extended the other tax rates as well,” Kyl said. “[If] we do that again, obviously it’s something that I would be supportive of.” The Democrats’ proposal to extend the payroll tax holiday, which includes the 1.9 percent surtax on incomes above $1 million to help pay for the $185 billion cost, would be deficit-neutral. Kyl’s solution of extending all tax breaks would wipe out the pay-for and would cost at least an additional $70 billion or so a year, based on the price tag for last year’s deal . Kyl also said he’d be open to other ways to pay for a payroll tax extension, but it was unclear what those methods would be, since he voted against Senate Minority Leader Mitch McConnell’s plan last week.

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EU Leaders Seek Agreement On Rescue Plan With Euro’s Future At Stake

December 4, 2011

PARIS (Paul Taylor) – The euro faces a decisive week as European Union leaders, urged on anxiously by the United States, seek agreement on a convincing rescue plan that has eluded them for two years. Despite short-term market optimism about a possible deal to tackle Europe’s sovereign debt crisis and underpin the survival of the single currency, the outcome is far from certain as the EU gears up for a summit in Brussels on Thursday and Friday. “This week, the stable future of the euro and thus the economic recovery in Europe and employment are at stake,” EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters. “This calls for a convincing package of measures from the European Council (summit).” Portuguese Prime Minister Pedro Passos Coelho went further. “We have to find a response” to the crisis, he told the daily Publico. “If we don’t, clearly that could represent the end of the European Union.” If all goes according to plans being hatched in Berlin and Paris, the EU will have taken a step towards fiscal union by Friday night, agreeing on a treaty change to anchor coercive budget discipline for the 17-nation currency area. The European Central Bank will have cut interest rates on Thursday to counter a looming recession and taken new measures to provide longer-term funding for Europe’s teetering banks. And new prime ministers in Italy, Greece and Spain will have demonstrated their commitment to tough austerity measures and structural economic reforms to tackle their debt problems and restore investor confidence. World financial markets rallied last week on the prospect of such a masterplan after ECB chief Mario Draghi signalled that in response to a new “fiscal compact” in the euro zone, the central bank could act more decisively to fight the crisis. A convincing show of political determination to stand behind the euro and surmount the crisis through closer euro zone integration could prompt the ECB to do more to support Italian and Spanish bonds, cementing that reversal of market sentiment. “It all comes down to what the ECB does, and whether political leaders produce a sufficiently convincing plan to give the ECB a basis to intervene,” a senior EU government source said, speaking on condition of anonymity to respect the independence of the central bank. However, if the 27-nation EU is unable to agree, or settles for another half-measure after months of dithering, the flight from euro zone bond markets may accelerate, confidence may ebb further and the crisis could become acute in January, when Italy has to start a massive refinancing campaign. The chief executives of leading Dutch multinationals published a joint newspaper ad warning it was now “one minute to midnight” for the euro zone. “There is almost 1,000 billion euros in refinancing that needs to be done next year, while the risk premium on interest rates is increasing strongly. That means that it will be almost impossible for many countries to refinance. That indicates how urgent it is to take measures now,” Frans van Houten, CEO of electronics giant Philips told TV programme Buitenhof. MERKEL PERMISSIVE? Underlining Washington’s vital interest in averting a euro zone meltdown, U.S. Treasury Secretary Timothy Geithner will visit Frankfurt, Berlin, Paris, Marseille and Milan from Tuesday — his fourth trip to Europe since early September — to urge key European officials to take decisive action. Sources close to German Chancellor Angela Merkel say she is prepared, despite hostility from the German Bundesbank, to see the ECB step up buying of troubled states’ bonds as a short-term bridging measure until stricter budget controls take hold. But things may not go entirely according to plan. Merkel visits French President Nicolas Sarkozy in Paris on Monday to outline joint proposals on economic governance, but Berlin and Paris still have significant differences about how the euro zone would control national budgets. Merkel wants to empower the executive European Commission to veto national budget plans that breach EU limits before they go to parliament, with automatic sanctions for deficit sinners and the possibility to take serial offenders to the European Court of Justice for punishment. Sarkozy, struggling to win re-election next May, wants euro zone leaders to have the final say, with no new supranational powers for EU institutions. Several other governments, notably Britain, Ireland and the Netherlands, do not want treaty change at all because of the domestic political risks. Some fear it would be hard if they have to win public backing in referendums. European Council President Herman Van Rompuy, who chairs the crucial end-of-week summit in Brussels, will present options for stricter budget control without touching the treaty, as well as steps that would require amendments, aides said. European Parliament President Jerzy Buzek warned last Friday that treaty change could be divisive and “dangerous.” But diplomats say it is a political must for Merkel. Veteran former German Chancellor Helmut Schmidt, 92, urged Germans on Sunday to soothe growing fears of German dominance in Europe and help rescue debt-stricken euro zone partners, warning that Berlin faced isolation otherwise. For British Prime Minister David Cameron, the choice is between enraging eurosceptics at home by letting treaty change go ahead without winning a return of key powers to London, or seeing the 17 euro zone states reach a separate agreement outside the treaty that could cement a two-speed Europe. SHORT-CIRCUIT Germany and France want to short-circuit the complex treaty amendment procedure by wrapping the new budget procedures into a single amended protocol 14 on the euro zone. They hope to avoid a parliamentary convention and spare most, if not all, countries the need for a referendum on ratification. That has outraged some lawmakers who say the EU’s major powers are sidelining national parliamentary budget sovereignty without any democratic accountability. In their defence, Paris and Berlin argue the debt crisis is an emergency that requires swift executive action to avert disaster, and that member states already signed up to the budget rules in the 1992 Maastricht Treaty. New Prime Minister Mario Monti brought forward to Sunday a cabinet meeting to approve rigorous austerity measures and economic reforms designed to save Rome from requiring the next international bailout. And bailed-out Ireland will be presenting an eye-watering 2012 austerity budget. Italy has become the centre of the debt crisis since yields on its 10-year bonds shot up above 7 percent, levels at which Greece, Ireland and Portugal were forced to seek EU/IMF help. Government sources say Monti’s mix of cuts and tax rises will total some 20 billion euros ($27 billion) over two years. About half will go to reduce the deficit and balance the budget by 2013 despite an economic downturn and rising borrowing costs. The rest will free up resources to try to regenerate Italy’s recession-bound economy. On Tuesday, the Greek parliament is due to give final approval to a draconian 2012 austerity budget that is a condition for a second bailout package still under negotiation with private creditors, euro zone governments and the IMF. On Wednesday and Thursday, centre-right leaders who control most EU governments meet in Marseille, France. That will provide the platform for incoming Spanish Prime Minister Mariano Rajoy to outline his commitment to radical budget cuts and economic reforms to restore Madrid’s parlous public finances. It will also give “Merkozy” — as the Franco-German leadership team has become known — a last chance to lobby reticent partners, with Geithner in the wings, to accept treaty change as a crucial part of the long-term plan to secure the euro before the summit starts with a dinner on Thursday evening. (Additional reporting by Madeline Chambers and Andreas Rinke in Berlin, Catherine Hornby in Rome and Gilbert Kreijger in the Netherlands; Writing by Paul Taylor, Editing by Mark Trevelyan) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Bishop Pierre Whalon: Is Capitalism Moral? Part Three

December 2, 2011

This is the third of four posts arguing that capitalism has an intrinsic morality. The first post disputed those who think that capitalism cannot have a moral dimension. Part two establishes that there is a moral context in which business is done. Part three (this one) reckons that this context means that ethics in business are essential to capitalism in a democratic society. Part four moves to an even more basic level, pointing out that macroeconomic theory is insufficiently scientific, and proposes a new theory that can satisfy the needs of business and political leaders, as well as all the actors in the economy of a democracy. Is Capitalism Moral? Wrong question, Part Three In the January Harvard Business Review , Michael Porter and Mark Kramer argue that companies need to “create shared value .” By this they mean “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.” The authors insist this is not moral reasoning. However, since moral norms shape decisions, choosing these policies and practices must have a moral dimension. First, concluding that the firm must embrace “shared value” because of its impact upon its market, as well as the social and environmental context it operates in, is a choice for the common good. Porter and Kramer’s pitch is that choosing this path affects positively the bottom line. Second, what policies and practices the firm chooses to institute in order to influence its profitability will also have inevitable consequences. Some of these will be unintended, of course, and are therefore not part of the calculus the firm’s officers engage in. For an action to be deemed moral or immoral requires decision. One cannot be held responsible for deciding something that ended up having bad consequences no one could have foreseen. (Not that it won’t get you fired… ) If you know that embarking on a course of action will have evil consequences, and you go ahead anyway, you are morally responsible. On the other hand, you may make a decision that is immoral but if you do not have the means to put it into action, you cannot be held responsible. Of course, becoming someone who routinely makes immoral decisions will eventually end up destroying you. The law may or may not be applicable: a lot of laws are not about moral matters. Something illegal may not be immoral or something immoral may not be illegal (this latter is more likely). Where Porter and Kramer are right concerns the focus on profits. Neither the lone entrepreneur nor Apple, Inc., should spend the firm’s capital on things that do not contribute to its business, i.e., its profit-making enterprise. There is nothing wrong with paying attention to the bottom line! Where theorists of the Milton Freidman variety go astray, however, is that they do not sufficiently appreciate that market capitalism is a human activity and therefore has an inevitable moral dimension. ( Friedman himself dismissively called it “ethical customs.”) For the lone entrepreneur to use time, energy and resources targeted for the growth of her business on activities that do not contribute directly or indirectly to the overall health of the enterprise, or for a large corporation to do the same, is itself immoral. Similarly, not to attend to the ripple effects of a firm’s activity is not only to court illegal and immoral actions with attendant personal consequences, it is also deleterious to the firm’s overall profitability, even existence, in the long run. Think Enron… There is another side of the morality of capitalism, and that is the government’s moral or immoral decision-making that affects how business gets done. Who can buy and sell, what kind of products can be manufactured and services provided, what commercial practices are allowed or not, these are imposed upon the firm. Taxes are necessary to finance the infrastructure on which commercial activity belongs. Regulations that control markets and the financing of business are crucial. From ancient times, societies have set up rules, regulations and laws that optimally should help commerce flourish. Standardized weights and measures, transportation systems, currency and banks, law courts and police forces, these have developed along with civilization itself. Indeed, they are a basic mark of it. Therefore, underlying the interlinked activities of business and government is a moral dimension, and it cannot be dismissed as irrelevant or merely of secondary interest to the practical day-to-day work of running a business. On the other hand, whose morality are we talking about? And therein lies the rub. There are rival schools of thought, whose approach and conclusions differ widely, so much as to be considered incommensurate. But there is also a paucity of economic and political thought on the topic as well, since these disciplines must be involved in the question of which moral course to set. Now there are plenty of voices trying to inform the businessperson, usually focusing on the bottom line. There are the pressures of business itself, for the market is a miscellany of forces resulting from millions of decisions, and the proper course of action is not usually crystal clear. Not to mention unforeseen physical events like tsunamis. In fact the right thing to do seldom is obvious — intuition and instinct honed by experience and intelligence are the qualities boards look for in a chief executive officer. And there are all the complications arising from public ownership. For a multinational like the firm on which I have been picking, Apple, there are also the problems arising from working across national lines. Finally, the massive volumes of data instantly accessible and instantly changing, including news and opinion, through the Internet, make doing business today compared with yesteryear seem like putting up a World War I Sopwith Camel against an F-35 warplane. Both planes fly and the pilot is human. Otherwise… There are a few clear observations that one can make despite all this. The first is that, as I have argued, there is a moral dimension to the practice of capitalism. Furthermore, if being an effective business leader is learned first by imitating, doing, and evaluating, addressing the moral dimension of doing business is not learned in school, conferences, or from consulting experts. Moreover, it isn’t a matter of following a set of rules, even those Ten Big Ones. Rules need applying and the application of moral rules is learned in the doing. This is part and parcel of being not only an effective leader, but also becoming a good person in the moral sense. The second observation is even more basic. Moral decisions flow for better and for worse from an underlying belief in the way the world is. This is as true for the non-religious as it is for religious people. The problem facing us today is first of all an inadequate grasp of economic realities, which brings some to think that capitalism has no moral dimension at all. Worse (if possible), this leads to wrong economic decisions. An economy and the politics of the country(ies) governing it are interlinked in a way that is not yet sufficiently understood. Lobbyists and their corporations, labor unions, and NGOs that employ them are acutely aware that there is a connection between the two, of course. But neither the economic actors nor the politicians have much help in terms of macroeconomic theory that helps to understand how democracy and capitalism need each other. The heart of the matter is, therefore, that the major macroeconomic theories do not provide enough predictive power. There is one that might, however, and that is the stuff of the fourth and final part of Is Capitalism Moral? Wrong question.

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Paula Goldman: Don’t Be Redundant

November 30, 2011

This is not an invitation to a picnic. So warns the preface of Antony Bugg-Levine and Jed Emerson’s book Impact Investing: Transforming How We Make Money While Making A Difference . If you haven’t heard of impact investing — the practice of investing money for both financial return and social good — it’s worth tuning into the buzz. MBA students around the country are enrolling in courses on the topic with the hopes of finding a job in the industry after graduating. JP Morgan has predicted that the market for impact investments could grow to up to a trillion dollars in the next decade. Impressively, for all this hype, Bugg-Levine and Emerson do not shy away from the hard questions. It’s fun to think we can snap our fingers and find profitable companies that also transform the lives of the disadvantaged. But many challenges remain unresolved. Possibly the most important question: why do we actually need impact investors? What can impact investors do that philanthropists, the government, and the commercial sector cannot? The world of international development is the perfect cauldron in which to test these questions. Decades ago, the developing world was full of dedicated idealists who started non-profits to help the poor. They built latrines and schools. They distributed bed nets. And they often found ready funding for their efforts. Today, as government dollars have dried up, there’s been a decided shift towards market-based strategies as an additional way to finance social change projects. As a complement to making grants to non-profits, a key trend is to invest in for-profit companies that can give poor villagers access to needed services — while still earning revenue to stay afloat. But where is this really necessary? When I chatted with Bugg-Levine, he pointed me to a recent New York Times article noting that even the most traditional Wall Street investors are rushing “to the ends of the earth” trying to find opportunities in the riskiest developing markets. Do we really need do-gooder investors running around in such places if the markets they’re investing in would grow with or without them? The short answer? Yes. But it’s often a tricky calculus to determine exactly when and where their money can be put to best use. In the book, Bugg-Levine and Emerson point to the example of International Finance Corporation (IFC). For decades, the IFC had had tended to concentrate its investments in the middle-income countries rather than the poorer ones — despite its mandate to help the most disadvantaged. It’s certainly easier to find investment opportunities in places where good infrastructure already exists, but these are not always the places where such funds are most needed. As one step towards resolving this quandary, the IFC recently recalibrated their distribution of investments. They shifted a small portion of their funds away from richer markets such as Eastern Europe and to higher-risk markets in places like Bangladesh, Sierra Leone, and the Central African Republic. The authors also examine a related controversy that came up in the field of microfinance. No doubt you’ve heard the inspirational stories of women who use a loan to start a corner store — and then use the profits to send their daughters to school. In the beginning, the microfinance industry was primarily capitalized by organizations that kept the social mission of microfinance front and center. The idea that poor people could repay loans was seen as laughable by most mainstream investors. But in the 1990s, as the industry matured and the business case was proven, Wall Street took notice. Lots of large banks began knocking down the doors to start getting a piece of the action. In 2007, the non-profit organization MicroRate issued a controversial paper arguing that it was time for some of the early socially motivated investors to move out of the way; their presence was now not only superfluous, but actually preventing commercial capital from funding the industry. Why would this matter? It’s great for a few million people to have access to microloans — but when there are billions of people living under two dollars a day, you need all the scale you can get in the microfinance industry. It’s likely impossible to serve that many people without access to the sums of money that can only be found in the commercial sector. Refreshingly, Bugg-Levine and Emerson steer clear of dogmatic responses to these debates. Instead, they offer us a simple call to action: don’t be redundant. Arguably the highest value add of impact investors is to catalyze new markets to serve the disadvantaged. Medical technology for the poor who don’t live within driving distance to a hospital and often die from diseases that have easy cures. Financial services for people who don’t make enough money to be deemed worthwhile by bigger banks, and are often forced to take payday loans at exorbitant rates. Some impact investors will get involved in very early days, providing risk capital before commercial markets are convinced of the viability of a new product or idea. Some of these investments will fail, but some will succeed spectacularly; the learning from both will make an enormous contribution to the growth of the sector. Others will choose to invest later, when proof points are more plentiful and more commercial capital is flowing. Here, impact investors can make a difference by ensuring that the markets continue to focus on underserved segments, or that these industries can keep growing to serve new geographies. But they also must be careful to ensure that any investments made on concessional terms don’t prevent mainstream investors from placing their own money towards these same goals. In short, impact investors need to get very clear on issues of staging and sequencing in their investment strategies. And there’s a tremendous amount at stake in taking this task seriously. There’s not enough philanthropic or government money in the world to solve the problems we need solved. If impact investors do their job well, they can tap into new forms of capital we can use to help solve the world’s burning issues. If they do their job poorly, they risk simply redistributing philanthropic funds from one bucket to another — or worse, using them to support outcomes that the commercial sector would achieve with or without them. Thankfully, there are industry leaders like Bugg-Levine and Emerson who will not let their colleagues be contented by simple catchphrases about “doing good while doing well” or “marrying profit and purpose.” Impact investors can indeed change the world. But much of the difference between their success and their failure will be about asking the right questions.

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Republican Leaders Quietly Support Unemployment Reauthorization

November 30, 2011

WASHINGTON — For the second year in a row, Congress must decide during the holiday season whether to renew federal jobless benefits for people out of work six months or longer. While Democrats have been making a huge fuss, with a press conference Wednesday featuring hundreds of unemployed workers, Republicans have been relatively quiet — but that doesn’t mean they’re against reauthorizing the benefits. Republican leaders in both Houses of Congress have expressed support for continuing the benefits, saying the holdup is just a matter of how the legislation is put together. “We’re going to be discussing between the House and Senate ways to deal with both continuation of the payroll tax reduction and unemployment insurance extension before the end of the year,” Sen. Mitch McConnell (R-Ky.) said Tuesday. “And in the end, it will have to be worked out in a joint negotiation between a Democratic Senate and a Republican House.” If the benefits are not reauthorized, 1.8 million jobless will stop receiving checks over the course of January, according to worker advocacy group the National Employment Law Project. The federal benefits kick in for laid off workers who use up to six months of state-funded compensation without finding work. Congress routinely provides extensions during recessions and hasn’t dropped extended benefits with the national unemployment rate above 7.2 percent. Yet the need to reauthorize benefits has been overshadowed by the looming expiration of a payroll tax cut put in place last December, which would result in a tax hike on every working American — an average hike of $1,000 — a scenario Republicans would like to avoid. And Congress also needs to pass a so-called “doc fix” by the end of the year to prevent a 27 percent cut in pay for doctors who see Medicare patients. “Nobody is coming out with any definitive statements on [unemployment insurance]. Last year they were happy to,” Judy Conti, a lobbyist for NELP, told HuffPost. “I think it’s indicative of the fact that on a bipartisan basis people understand that workers families and the economy need these programs to continue.” The sticking point over renewing the benefits through next year will be their roughly $50 billion cost. Republicans typically insist that the aid must be “paid for,” but that calculation may not apply if the benefits can be attached to something attractive like a tax cut. Republicans blocked renewed unemployment aid last year until President Obama agreed to extend the Bush-era tax cuts for two more years — at a cost much greater than unemployment. Earlier this year President Obama pressed Congress to pass a jobs package that included many items Republicans favored — for instance a “Bridge to Work” training program — but so far congressional Democrats have not signaled support for those programs. Many members of Congress expected the deficit reduction super committee to craft a deal that included the benefits, but the committee turned out to be less super than advertised . “Any kind of grand deal that we’ve been after has eluded us,” House Speaker John Boehner (R-Ohio) said Tuesday, referring to the failed broader talks on the budget and debt. “So let’s try and work incrementally towards a conclusion this session that can benefit all Americans. Because we Republicans do care about people that out — that are out of work. We don’t want to raise taxes on anybody. We want to provide the help to the physicians and the providers in the health care arena in this country, and we want to make sure this country has a sound national defense policy.” Even Sen. Orrin Hatch (R-Utah), who suggested during an standoff on jobless benefits last summer that unemployed people blow the money on drugs, sounded sympathetic to jobseekers on Wednesday. “Nobody really has a real quick answer. We’re studying it, looking at it. We’re clearly going to have to do something — nobody wants to see people suffer,” Hatch told reporters outside the Senate floor on Tuesday. “There’s a huge underemployment rate as you know, of 16, 18 percent, somewhere in that area. People don’t even want to look for jobs anymore. There oughta be some incentives to find jobs, to get to work. It’s easier said than done. I think there’s a general consensus that we need to help people.”

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