Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. GDP Sees Biggest Drop in 27 YearsJust in from Reuters:By Lucia Mutikani |Fri Jan 30, 2009 10:33am EST WASHINGTON (Reuters) - The economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed on Friday, sinking deeper into recession as consumers and business cut spending. In a report that showed a broad-based contraction nearly across all sectors, the Commerce Department said gross domestic product, which measures total goods and services output within U.S. borders, plummeted at a 3.8 percent annual rate. That was the biggest drop since the first quarter of 1982, when output contracted 6.4 percent, and highlighted that the housing-led recession, which started in December 2007, was gathering momentum. These were the first consecutive declines in GDP since the fourth quarter of 1990 and the first three months of 1991. Read the rest of the article. Labels: financial crisis, GDP, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More AIG Bailout Bonus BonanzaBack in November we reported that AIG had decided to give a reported half billion dollars and change to its top executives to retain the services of the financial geniuses who drove the company to ruin and forced a $150 billion bailout.So today's news should come as little surprise. Bloomberg.com reports that the earlier bonus was more on the order of $619 million once you added in all the extras like life insurance and such. Now the word is that the company has approved an additional $450 million to "retain employees." Last I heard, most folks in the financial services industry didn't need $1+ billion in bailout money to convince them to stay in their jobs these days, especially if the best thing on their resume was that they helped manage one of the largest bankruptcies in global history. Labels: AIG, Corporate Fraud, Corporate Swindles, financial crisis bailout Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Airlines In TailspinFrom the Financial Times:
Rest of story here. Labels: Airline Industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CEOs Want To Use Bailout $$ To Bust UnionsGreat post from In One Ear and Out the Other:Regardless of how you feel about the Employee Free Choice Act, you should be outraged that recipients of the bail-out are using that money to lobby Congress against the measure. For the full Wikileaks transcript go here. Labels: bailout, Bank of America, Bernie Marcus, Employee Free Choice Act, Home Depot, Rick Berman, Wal Mart Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What's the Matter with Michigan?What's the Matter with Michigan? The Rise and Collapse of an Economic Wonder Mason Gaffney, Groundswell Nov-Dec 2008 (posted 1/29/09) During the Golden Age of Georgist Progressives, roughly 1890 to 1935, lower Michigan stands out as one of the great success stories. Detroit Mayor, then Governor, Hazen Pingree pushed single tax principles. He reformed assessments to emphasize land over improvements, and raised property taxes to provide services for working men and their families, notably mass transit. Pingree plugged for public ownership of city monopolies and for low fares, an attitude later to be rationalized by many academics as "marginal-cost pricing". Property taxes also paid for public education, public health, public parks, water, sanitation, welfare--all the public services that make a big city livable, and its small industries viable. Property tax rates of 2.5% were normal; there were no sales taxes, business taxes, or income taxes. Detroit's private sector was a big collection of small machine shops, little businesses and services providing a matrix for the famous innovators who were to spawn the auto industry. Jane Jacobs would have venerated it, as she did Tokyo and Birmingham. For some years, Pingree's successors followed his path. Detroit thrived and the auto industry boomed. But eventually Michigan's leaders forgot. 1995 witnessed the last straw: Over the opposition of local governments, and despite Georgist warnings, Michigan's Governor John Engler replaced local property taxes for school finance with state sales taxes. Today, famous firms are dying, industrial cities rotting, great universities shedding, public services declining, public schools starving, unemployment soaring, and youth fleeing. Michigan's number of apportioned U.S. Representatives has dropped from 19 in 1960 to 15 in 2000. The great University of Michigan now charges the highest tuition of any public university in the nation. Michigan's "Big 3" auto firms have crashed loudly and publicly, going to Washington to beg. Read the full story on Mason Gaffney's website: What's the Matter with Michigan? Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Kristof: Apologist for SweatshopsWhen I saw Nicholas Kristof's column on sweatshops last week (Where Sweatshops Are a Dream), I just rolled my eyes, since this is an argument that he has been making for years now.I was pleased to see that there were so many letters lambasting him a few days later. The one I liked best pointed out that Cambodia, the country Kristof focuses on in this latest column, doesn't exactly support his case: "Cambodian garment shops are among the best in Asia because of a deal done with the United States in a trade treaty signed in 1999." But Kristof's apologetics undermine the very labor agreements that would bring that about. D&S columnist John Miller wrote against Kristof on this topic a couple of years ago, in his article Nike to the Rescue?, back when the globe-trotting Kristof was praising sweatshops in Namibia. Here's what John had to say then: Nicholas Kristof has been beating the pro-sweatshop drum for quite a while. Shortly after the East Asian financial crisis of the late 1990s, Kristof, the Pulitzer Prize-winning journalist and now columnist for the New York Times, reported the story of an Indonesian recycler who, picking through the metal scraps of a garbage dump, dreamed that her son would grow up to be a sweatshop worker. Then, in 2000, Kristof and his wife, Times reporter Sheryl WuDunn, published "Two Cheers for Sweatshops" in the Times Magazine. In 2002, Kristof's column advised G-8 leaders to "start an international campaign to promote imports from sweatshops, perhaps with bold labels depicting an unrecognizable flag and the words 'Proudly Made in a Third World Sweatshop.'" Part of John's response: Kristof's argument is no excuse for sweatshop abuse: that conditions are worse elsewhere does nothing to alleviate the suffering of workers in export factories. They are often denied the right to organize, subjected to unsafe working conditions and to verbal, physical, and sexual abuse, forced to work overtime, coerced into pregnancy tests and even abortions, and paid less than a living wage. It remains useful and important to combat these conditions even if alternative jobs are worse yet. The whole article is worth a read, though it's dismaying that we still have to be making these arguments. Someone needs to take away Kristof's passport before he spreads his apologetics to even more corners of the earth. Labels: apologetics, Nicholas Kristof, sweatshops Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs: Jan 25-31From Mark Heschmeyer at CoStar.Caterpillar, Microsoft, Home Depot Layoff Tally Tops 32,000 A Weekly Report on Future Corporate Downsizings By Mark Heschmeyer | January 29, 2009 In this week's issue:
Read the rest of the report. Labels: closures and layoffs, Mark Heschmeyer, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). French Strike over Economic CrisisFrom Reuters, via TV New Zealand. Hat-tip to Bob F. No mention of Sarkozy getting bitten by his dog (did anyone else hear about that, or did I make it up?).Hundreds of thousands of French workers staged a nationwide strike to try to force President Nicolas Sarkozy and business leaders to do more to protect jobs and wages during the economic crisis. Public transport was snarled in many cities, scores of flights were cancelled, and schools, banks, hospitals, the post office, law courts and state broadcasters were also expected to be hit by the protest. The strike aims to highlight fears of growing unemployment, discontent over Sarkozy's reluctance to help consumers and resentment towards bankers blamed for the economic slump. "We need to sound a cry of anger," said Francois Chereque, head of the moderate CFDT union. In a rare show of unity, France's eight national unions have backed the strike call and drawn up a joint list of demands for the government and companies, which they accuse of trying to use the crisis as a pretext to lay off workers and cut costs. It is the first such protest linked to the economic crisis to hit a major industrialised nation and was backed by the majority of French voters, according to opinion polls. However, it was not expected to snowball or threaten government stability. Read the rest of the article. Labels: financial crisis, France, general strike, Nicholas Sarkozy, unemployment, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Jeff Sachs: But on the other hand...Yesterday we posted Jeffrey Sachs' op-ed in The Guardian (U.K.) congratulating Obama for his genius in using the current crisis as an opportunity to reshape U.S. capitalism toward public investment and a centrally planned transformation to new technologies.Thanks to Lynn Fries for pointing out that just one day earlier, Sachs had come down hard on Obama's immediate plans in an op-ed in the Financial Times titled "The stimulus is a fiscal straitjacket." The US debate over the fiscal stimulus is remarkable in its neglect of the medium term—that is, the budgetary challenges over a period of five to 10 years. Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package. ... Headspinning for sure. Read the entire piece here. Labels: Barack Obama, economic stimulus, Jeffrey Sachs Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Investors Can't Bank on CapitalInteresting commentary from Bloomberg; hat-tip to Larry P.Commentary by David Reilly (Bloomberg) Jan. 28—Sheila Bair shouldn't try to jawbone these markets. The head of the Federal Deposit Insurance Corp. declared during a television interview last week that "98 percent of all banks are well capitalized." Technically, she is right, since regulatory capital is different from shareholder equity. Still, that's a nuance lost on most of the public and one that doesn't adequately reflect just how bad things are at banks. Even as Bair was speaking, debate was brewing in government circles over the possibility of having to nationalize banks. It doesn't get much bleaker than that. Bair needed to reflect in her comments more of a sense that all isn't well, even if in language that didn't panic investors or cause a bank run. That may sound like semantics. It isn't. In July 2008, then-Treasury Secretary Henry Paulson and other government officials reassured the public that Fannie Mae and Freddie Mac had adequate regulatory capital. Plenty of mom-and-pop investors took those declarations to heart and held onto their stock in the mortgage giants. About six weeks later, those same investors got whacked when Paulson placed Fannie and Freddie under government control. Even if the outcome isn't as grim this time around, Bair's talk of banks being well-capitalized runs the risk of lulling investors. She may also have underscored what many investors consider to be the inadequacy of capital measures and the need for changes to these measures. Capital Overstatement Consider Tier 1 ratios, a key regulatory measure of a bank's financial strength that compares Tier 1 capital to so-called risk-weighted assets. Banks must have a Tier 1 ratio of 4 percent to be adequately capitalized and a ratio of 6 percent to be considered well-capitalized. At the end of last year, Citigroup Inc. had a Tier 1 ratio of 11.8 percent and Bank of America Corp.'s was 9.15 percent. Yet both have needed huge amounts of government support. Why doesn't this distress show up in the Tier 1 ratios? Because Tier 1 capital can contain what investors now consider fluff. "The definition of capital for the banking world has been confused over the last 20 years as the government regulatory bodies have counted various long-term funding sources as capital," Paul Miller, a bank analyst at Friedman, Billings, Ramsey & Co., wrote in a Dec. 3 research report. Debt in Disguise Preferred stock is an example. Normally preferred stock wouldn't be such a concern since it is typically only a small portion of a bank's total equity. At the end of 2007, for example, Citi didn't have any preferred stock outstanding. That's no longer the case. The government has taken $52 billion of preferred stock in Citigroup. This is more than two times the bank's tangible common equity and about three times its market capitalization. That is troubling because the government preferred, while offering a lifeline, isn't capital in the traditional sense. The dividend on the preferred increases after five years, meaning banks that received this assistance will eventually have to buy out the government. That makes the government preferred more akin to debt. "That's the problem. It's a loan and they're calling it Tier 1, but the market doesn't think it's Tier 1," said Chris Senyek, tax and accounting analyst at research firm ISI Group. "They couldn't issue five-year paper to private investors and get that to be counted as Tier 1 capital." Deferred Assets Besides preferred stock, banks also count in their Tier 1 capital certain hybrid securities that have equity-like characteristics but actually are debt. These accounted for $18.4 billion of BofA's $100.3 billion in Tier 1 capital at the end of the third quarter, the last period for which a detailed breakdown of regulatory capital is available. Losses on certain holdings, mostly mortgage-backed securities, that banks claim are temporary are excluded from Tier 1 capital. That has a flattering effect; Citigroup in the third quarter excluded $6.2 billion of such losses. Banks can also get credit in Tier 1 capital for a portion of what are called deferred-tax assets. These could one day be used as a tax offset. Their usefulness is far from certain, though, given banks' greatly reduced profitability. This makes these a pretty airy asset. All of this can leave Tier 1 measures looking fatter than metrics based on tangible common equity. No surprise, then, that investors are giving up on regulatory capital and turning to this measure, which takes common shareholder equity and subtracts goodwill and other intangible assets. Running Lean On that basis, many banks look a lot worse than their Tier 1 ratios suggest. According to an investment presentation made by Citi yesterday, a group of nine large banks (Citi included) had average tangible common equity ratios of 2.1 percent versus average Tier 1 ratios of 10.2 percent. Even worse, the 8.1 percentage-point difference between the two rates compares with a spread of just 5.3 percentage points in 2006, according to Citi. Those aren't the kind of figures that leave investors feeling warm and fuzzy about big banks, no matter what the FDIC's chairwoman says. (David Reilly is a Bloomberg News columnist. The opinions expressed are his own.) Labels: Bank of America, banking system, capitalization, Citigroup, FDIC, Sheila Bair Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Capitalism's 60 Year ItchThen again, many of these forecasters were probably saying, six months ago, that this would be a mild recession. From The Financial Times:Economic pain to be 'worst for 60 years' By Krishna Guha and Alan Beattie in Washington and Chris Giles in Davos Financial Times Published: January 28 2009 19:23 | Last updated: January 28 2009 20:48 The world economy will this year suffer its worst performance for more than 60 years with a serious risk that 50m people will lose their jobs, international organisations warned on Wednesday. The warnings came as the Federal Reserve expressed fresh concern about deflation, noting that the US economy had "weakened further" since its last policy meeting in December. The US central bank made no immediate move to purchase Treasury securities--disappointing some in the markets--and signalled that its preference is to expand targeted credit operations instead. The Fed said it would "assess whether expansions of or modifications to lending facilities would serve to further support credit markets". Read the rest of the article Labels: bailout, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Jeff Sachs: There Is No Alternative...?To a massive public stake in the economy? It sure seems like that's what the eminent free-marketeer of yore is saying. From The Guardian (the first paragraph excerpted):There is plenty of room for blunders, to be sure. Government activism can founder on the shoals of massive budget deficits, tax-cutting populism pushed by the right, politically motivated investments such as corn-based ethanol rather than science-based public investments, and more. Yet Obama is absolutely correct that we have no choice but to try. Rewriting the rulebook for 21st-century capitalism Technology is at the core of Obama's plans for a sustainable future. In this new era of public action, the US is back in the lead Jeffrey Sachs The Guardian, Wednesday 28 January 2009 One of President Barack Obama's historic contributions will be a grand act of policy jujitsu--turning the crushing economic crisis into the launch of a new age of sustainable development. His macroeconomic stimulus may or may not cushion the recession, and bitter partisan fights over priorities no doubt lie ahead. But Obama is already setting a new historic course by reorienting the economy from private consumption to public investments directed at the great challenges of energy, climate, food production, water and biodiversity. The new president has taken every opportunity to underscore that the economic crisis will not slow, but rather will accelerate, the much-needed economic transformation to sustainability. He made this clear again on Monday with new commitments on climate change. The fiscal stimulus, soon to go before Congress, will lay down the first steps of a massive generation-long technological overhaul--embracing the power sector, energy efficiency in buildings, public and private transportation, and much more. The US has lagged behind the world in such efforts for 30 years. Yet with America's technological prowess, and Obama's pivotal commitment, it is likely to jump to the lead. Obama has started with the most important first step: a team of scientific and technological advisers of stunning quality, including two Nobel laureates (Steven Chu and Harold Varmus), and longstanding leaders in climate, energy, ecology and cutting-edge technologies. He has also focused on two core truths of sustainable development: that technological overhaul lies at the core of the challenge, and that such an overhaul requires a public-private partnership for success. Taking shape, therefore, is nothing less than a new 21st-century model of capitalism itself, one which is committed to the dual objectives of economic development and sustainability, and is organised to steer core technologies to achieve these twin goals. Read the rest of the column Labels: bailout, Barack Obama, financial crisis, Jeffrey Sachs Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bonuses--Not Wages--Sticky Downwards?From The Times:The Times January 29, 2009 Wall Street bankers keep two-thirds of bonuses Christine Seib in New York Bankers in America's financial heart saw their bonuses fall by only a third last year, despite the financial devastation wreaked on Wall Street, it emerged yesterday. Thomas DiNapoli, the New York State Comptroller, said that Wall Street's bonus pool fell by 44 per cent to $18.4 billion (12.9 billion pounds) last year, the biggest percentage fall in 30 years. However, because 19,200 people were sacked from their financial services jobs in 2008, there were fewer people to share in the pool. This meant that the average bonus was down 36.7 per cent, at $112,000. Mr DiNapoli forecast a tough 2009 for the street's workers. "The industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will be another difficult year." Richard Lipstein, managing director at Boyden Global Executive Search, said that many of Wall Street's redundant employees had left the financial sector altogether. "Lots of people are making mid-career changes," he said. Bank of America (BoA) is expected to tell its bankers today that their bonuses will be deferred for at least a year. The new policy, likely to be announced when BoA informs employees of their 2008 bonuses, will mean that payments of $50,000 or more will be held back until 2010. The bank is at the centre of a row over bonuses, after John Thain, the ousted Merrill Lynch chief executive, rushed through up to $4 billion worth of incentives for staff in the weeks before the bank’s takeover by BoA. Andrew Cuomo, the New York attorney-general, has subpoenaed Mr Thain as part of his inquiry into bonus payments by banks that have received US government bailouts. BoA's board last night expressed its support for Kenneth Lewis, the bank's chief executive, who has been under fire for his handling of the Merrill acquisition. Read the rest of the article Labels: bailout, executive pay, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Capital Theory (Sans Capital?)This piece from the Financial Times reveals the intricate contortions economic journalists are facing in a world of overwhelming state presence in the basic functioning of the system, and as government indebtedness replaces private debt that was enabled by government neglect in the first place. Some gems:This is the biggest conundrum for regulators and government: allow support for tier one and it arguably is not capital after all--but let it fail and see another potential avenue for future bank capital raising close down. Eventually, enough bank rescues will lead to a point where a government faces a choice between the survival of its country's banks and its own ability to borrow. Investors in tier one issues face pain By Paul J Davies Financial Times Published: January 27 2009 20:26 | Last updated: January 27 2009 20:26 The fate of hundreds of billions of pounds, dollars and euros of bank capital presents a tricky flashpoint for pension and insurance funds, for banks themselves and for governments. The big question for investors is: where exactly does government support stop when it comes to the liabilities of a failing bank? For governments and banks: How much pain can pension funds and insurers take and how might they protest against it? The answers to these questions affect not only banks' stability and access to capital, but also as some would have it the ability of credit markets to recover and banks and companies to fund themselves. The fear of losses is real: late last week, insurance stocks globallly were hit hard by the potential for losses on bank capital. In the UK, these questions are especially important, which is why there have been meetings involving all three interest groups, although these have failed to reach any definite answers. The 15-20 biggest institutional investors who would get burnt by losses on bank capital instruments are the very same audience that the banks hope will buy large chunks of their senior bonds – and that the government hopes will help support its heavy gilt issuance. Read the rest of the article Labels: bailout, banking system, Basle standards, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's FOMC StatementVoilà—today's statement from the Federal Open Market Committee. The Fed will use "all available tools." Yawn... But there was one dissenter, Jeffrey M. Lacker, "who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs."The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. Labels: Federal Open Market Committee, Federal Reserve Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wage Theft in America We just posted two excerpts from Kim Bobo's excellent new book Wage Theft in America: Why Millions of Working Americans Are Not Getting Paid—And What We Can Do About It. The shorter excerpt (previously published online by In These Times) gives background information about the concept of wage theft. The longer excerpt (advertised on our home page) is from the final chapter of the book, which gives detailed recommendations about how the U.S. Department of Labor could address wage theft. Kim will be speaking Thursday night, Jan. 29th in Jamaica Plain (a hip neighborhood in the southwest part of Boston). Here is the event announcement from the Jamaica Plain Forum: The Jamaica Plain Forum (click here for directions) We hope to see some Boston-area D&S subscribers and blog readers there. There will be a D&S table where you can meet John Miller, D&S columnist ("Up Against the Wall Street Journal") and James McBride, stalwart collective member (and both are JP residents). You'll also be able to purchase D&S books and copies of the brand-spanking-new January/February 2009 issue of the magazine, complete with a snazzy redesign. Labels: Jamaica Plain Forum, Kim Bobo, wage theft, wages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Union Membership Rises Again in 2008 (BLS)Just in from the Bureau of Labor Statistics. Hat-tip to Doug Henwood at lbo-talk. As Doug pointed out, two years in a row of increases (after years and years of decline) is pretty impressive, especially under a Republican administration.UNION MEMBERS IN 2008 In 2008, union members accounted for 12.4 percent of employed wage and salary workers, up from 12.1 percent a year earlier, the U.S. Department of Labor's Bureau of Labor Statistics reported today. The number of workers belonging to a union rose by 428,000 to 16.1 million. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent, and there were 17.7 million union workers. The data on union membership were collected as part of the Current Population Survey (CPS). The CPS is a monthly survey of about 60,000 households that obtains information on employment and unemployment among the nation's civilian noninstitutional population age 16 and over. Some highlights from the 2008 data are:
Read the whole report. Labels: Bureau of Labor Statistics, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). ILO: World Economy May Lose 51 Million JobsFrom Reuters; hat-tip to LP:By Laura MacInnis |Wed Jan 28, 2009 9:06am EST GENEVA (Reuters) - Up to 51 million jobs worldwide could disappear by the end of this year as a result of the economic slowdown that has turned into a global employment crisis, a United Nations agency said on Wednesday. The International Labor Organization (ILO) said that under its most optimistic scenario, this year would finish with 18 million more unemployed people than at the end of 2007, with a global unemployment rate of 6.1. More realistically, it said 30 million more people could lose their jobs if financial turmoil persists through 2009, pushing up the world's unemployment to 6.5 percent, compared to 6.0 percent in 2008 and 5.7 percent in 2007. In the worst-case economic scenario, the Global Employment Trends report said 51 million more jobs could be lost by the end of this year, creating a 7.1 percent global unemployment rate. Read the rest of the article. Labels: International Labor Organization, jobs, recession, unemployment, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Geithner and the Nanny TaxTimothy Geithner was confirmed as Treasury Secretary yesterday, despite his tax problems. The tax problem that got the most press was his failure to pay "self-employment taxes" when he worked at the International Monetary Fund. ("Self-employment taxes" is just payroll taxes for 1099 income; at least one member of the D&S staff--ahem--has made the same mistake Geithner made, but I don't remember the IRS being as generous about waiving fees.) I kept hearing that he owed $34,000; the number struck me because that is very close to the median personal income in the United States--and our new Treasury Secretary owed that in taxes. I guess it's nice to have someone who has seen income inequality up close be in our top economic position. (Do you follow that logic? Me neither.)The other tax problem he had was in not paying his "nanny tax"--Geithner apparently failed to pay taxes properly for his housekeeper. An interesting piece in the business section of last Friday's New York Times addressed the nanny tax. This was in the Times's "Your Money" column, though as usual for (much of) the Times, the intended audience (the "you" of "Your") skewed to the higher tax brackets. (For what percentage of the population is properly paying your taxes for servants a big tax quandry?) The Times gets credit, I guess, for advising relatively well-off people to Do The Right Thing and pay into Social Security, Medicare, disability, and unemployment for their servants. Most of the article is about how labyrinthine the process of complying with the law is, but the article does include this as a reason for bothering: [C]onsider the human side of this. Household employees who spend their working years laboring for employers who don't pay Social Security or Medicare taxes won't be eligible for those benefits come retirement time. Is that any way to repay someone for years of service, especially if you're not paying them enough to put away much money on their own? I wonder whether Geithner used his $34,000 to pay his housekeeper (though I'd bet that would be on the generous end for domestics, judging from recent union activity among domestic workers in the New York area). Here's the rest of the article, in case you're an Obama cabinet appointee and want to put your house in order. Labels: nanny tax, payroll taxes, taxes, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Auto Parts Suppliers In TroubleCompared to service sector businesses, manufacturing creates more jobs both directly and indirectly. It also works the other way. When car makers go out of business, the repercussions are felt far and wide. The first of what will surely be many more such stories to come.From the Washington Post: Struggling Auto Parts Suppliers Prepare to Seek Federal Aid Read the rest of the story here. Labels: auto industry, bailout, economic meltdown, financial crisis bailout Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). This Just In....For what it's worth...From Reuters:Geithner wins OK for Treasury, vows quick action Mon Jan 26, 2009 9:07pm EST By David Lawder and Glenn Somerville WASHINGTON (Reuters) Timothy Geithner won confirmation as U.S. Treasury secretary on Monday and vowed to act quickly to protect the U.S. economy from the worst financial crisis since the Great Depression. "We are at a moment of maximum challenge for our economy and our country," Geithner said as he was sworn into office shortly after the Senate approved him on a 60-34 vote. Faced with a full-blown crisis, senators largely set aside misgivings about Geithner's failure to pay some taxes earlier this decade in light of his experience in battling the financial storm as head of the New York Federal Reserve Bank, a post he relinquished on Monday. Read the rest of the article Labels: bailout, financial crisis, Timothy Geither, Treasury Department Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Don't See Evil?From Sunday's Observer:Google plans to make PCs history Industry critics warn of danger in giving internet leader more power The Observer, Sunday 25 January 2009 David Smith, technology correspondent Google is to launch a service that would enable users to access their personal computer from any internet connection, according to industry reports. But campaigners warn that it would give the online behemoth unprecedented control over individuals' personal data. The Google Drive, or "GDrive", could kill off the desktop computer, which relies on a powerful hard drive. Instead a user's personal files and operating system could be stored on Google's own servers and accessed via the internet. The long-rumoured GDrive is expected to be launched this year, according to the technology news website TG Daily, which described it as "the most anticipated Google product so far". It is seen as a paradigm shift away from Microsoft's Windows operating system, which runs inside most of the world's computers, in favour of "cloud computing", where the processing and storage is done thousands of miles away in remote data centres. Read the rest of the article Labels: Google, industry concentration, Information Technology Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Monbiot on Government CorruptionAs President Obama promises to crack down on lobbyists and their ilk, it's perhaps instructive to read what George Monbiot has to say about a government that came to power making similar promises. From his regular Tuesday (it's still Monday here in Boston) Guardian column:This lobbying scandal confirms it. The dying days of Labour are upon us A party elected to stamp out collusion has abjectly failed. Now, expect it to be mired in sleaze claims, as the Tories were in 1997 George Monbiot The Guardian, Tuesday 27 January 2009 So the circle is closed. The government that won a landslide in 1997 after Tory MPs were revealed to have taken cash for parliamentary questions now faces far graver allegations: cash for laws. Along the way, almost every policy that distinguished it from John Major's corrupt and pointless regime has been abandoned. The difference between these two moments is that now there is nowhere to turn. There are the minor parties, but they have been systematically excluded by another broken promise: the failure to reform the electoral system. New Labour has engineered the worst of all worlds; it has sustained a system that ensures only one of two parties has a chance of power, and it has rooted out the policies that made a choice between the two worthwhile. At least when the Tories were in government we could dream of something better. It is fitting and unsurprising that the scene of the new scandal is the unelected second chamber, whose proper reform Blair and Brown have spent 12 years avoiding. The deregulation of the banks, the love affair with the neocons, the failure to tax the rich, Peter Mandelson ... is there any slithering cop-out that has not now returned to haunt this government? The premise of Robert Harris's novel The Ghost--that Blair's premiership was the creation of a foreign intelligence service--is correct in spirit if not in substance. For 12 years the British government has acted as an agent of other powers: the US; big business; big money; anything except the electorate. It is hard now to believe that it was elected in a frenzy of hope very much like the excitement surrounding Barack Obama. Tomorrow, with impeccable timing, the Alliance for Lobbying Transparency launches its campaign in parliament for public scrutiny of the contacts between legislators and professional hustlers. There's a major lobbying scandal about once a month, and no one who is aware of the government's failure to regulate this industry should be surprised. It was elected to stamp out sleaze, but since 1997 has done almost nothing. So do our noble lords, unmolested by the law, routinely put the interests of business above those of the people who didn't elect them? As SpinWatch records, in 2007 some were selling parliamentary passes to lobbyists for defence, transport, freight and legal companies. That October the Labour peer Lord Hoyle admitted being paid by an arms company rep to introduce him to the minister for defence procurement, Lord Drayson, although Lord Hoyle was subsequently cleared by a House of Lords committee in May 2008. Last year, Lady Harris gave a researcher's pass to Robin Ashby, whose company lobbies ministers on behalf of BAE Systems and other arms manufacturers. Lady Harris is paid by Mr Ashby as an adviser to another company he runs. Read the rest of the column Labels: Corruption, George Monbiot, Labour Party, lobbyists, Tony Blair Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Food Crisis: Credit-Starved Turn To BarterFrom The Financial Times:Nations turn to barter deals to secure food By Javier Blas in London Published: January 26 2009 23:32 | Last updated: January 26 2009 23:32 Countries struggling to secure credit have resorted to barter and secretive government-to-government deals to buy food, with some contracts worth hundreds of millions of dollars. In a striking example of how the global financial crisis and high food prices have strained the finances of poor and middle-income nations, countries including Russia, Malaysia, Vietnam and Morocco say they have signed or are discussing inter-government and barter deals to import commodities from rice to vegetable oil. Labels: financial crisis, food crisis, food security Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 70,000 Jobs Lost Worldwide TodayFrom Reuters:Caterpillar, others unveil massive job cuts Mon Jan 26, 2009 1:48pm EST By Brian Moss NEW YORK (Reuters) A tidal wave of layoffs washed across the world on Monday, sending tens of thousands of workers into joblessness as the pain of the global recession worsened. Amid reports of tumbling corporate profits, dire outlooks and a lowered global growth forecast from the International Monetary Fund, companies in Europe and the United States announced they would cut employees in a dramatic effort to reduce costs and keep their businesses afloat. Despite the corporate gloom, markets rallied on some of Monday's other news: No. 1 drugmaker Pfizer Inc said it would buy rival Wyeth for $68 billion, Barclays said it had no need to raise capital and sales of existing U.S. homes unexpectedly rose 6.5 percent. Read the rest of the article Labels: financia crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economists For the StimulusThe Center for American Progress Action Fund and the Center for Economic and Policy Research are promoting a sign-on letter for economists in support of the proposed stimulus bill (the "Economic Recovery and Reinvestment Act").We the undersigned encourage Congress to quickly pass the Economic Recovery and Reinvestment Act and stem the tide of rising joblessness. To sign-on (economists only) or view a complete list of signatories, click here. Labels: Center for American Progress, Center for Economic and Policy Research, economic stimulus Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Banks That Got TARP $ Reduced LendingFrom Yves Smith at naked capitalism; hat-tip to LP. I just realized that the name of the blog may be a reference to that famous quote from Warren Buffet about how you can't tell who's naked until the tide goes out (or however he phrased it). Is Yves suggesting that all the capitalists are naked? Or the whole system? No arguments here.Quelle Surprise! Big Banks Who Got TARP Funding Reduced Lending Monday, January 26, 2009 Before we get to the particulars of tonight's Wall Street Journal story, we need to step back a second. Just like the war in Iraq, which had a ton of justifications served up by the Bush Administration, none of which added up (and the most obvious one, that the Bushies wanted to control the second biggest oil reserves on the planet, somehow never gets mentioned in polite company in the US), we've also had too many rationales offered for the TARP in its very short life. The one that has stuck with Congress and in the public's mind is that it was meant to get banks lending again. And the Journal tells us that measured against that benchmark, it hasn't worked. Like the war in Iraq, it's a given that the stated rationales for the TARP were not the real one. Cynics see it as a plutocratic transfer, son of the grossly inflated outsourcing contracts to Halliburton and friends in the Middle East, a last opportunistic looting of the Treasury (literally, in this case). But this may instead have been the a recycling of Paulson's bazooka notion. Remember when he asked for and secured authority to increase Fannie's and Freddie's credit lines with the Treasury and buy equity: If you've got a squirt gun in your pocket, you probably will have to take it out. If you have a bazooka in your pocket and people know it, you probably won't have to take it out. That, as we now know, proved to be patently untrue, as the markets called the Treasury Secretary's bluff. But Paulson is a very stubborn man and also seems to have remarkably few ideas (his initial plan for the TARP funding was a rejiggered version of his failed "rescue the SIVs" MLEC plan of the previous fall). Recall also that Paulson is a deal guy out of Goldman. Anyone who has been in the deal business knows that the verbal representations are meaningless, and what counts is what is in the contract, or in his Treasury role, in the legislation. And Congress approved a huge blank check. Thus I suspect the real rationale behind the TARP was that Paulson would have so much money at his disposal that he could credibly rescue the banking system, and in Bazooka version 2.0, he would not need to use it in a major way (although he would need to be perceived to have ready access to it, hence his protests over having only $350 billion for his immediate use). The existence of the funding capability would (presumably) restore confidence in the banks. That theory would be consistent with the shifting rationales and plans. Paulson saw this as emergency authority to be used as needed and figured with that much money, he could punch above his weight (recall that $700 billion seemed simply enormous back in October, we've now become inured). But anyone who was up on the work from Bridgewater Associates, or connected the dots from what bank analyst Meredith Whitney was saying, or took Nouriel Roubini seriously (to name just a few) would know that $700 billion wasn't sufficient to plug the leaks the banking system had ALREADY sprung. But that aside, why should we expect that the TARP would lead to more lending? First, there should be less lending, independent of the economic contraction. We know now that TONS of credit was extended to people who shouldn't have gotten it at all or should have been granted much less than they got. Those balances NEED to shrink, ideally by paying them down, although a fair bit will be via defaults and writedowns. Second, in case you somehow missed it, the economy stinks. Even among the solvent, far fewer businesses and consumers are keen to borrow than in "normal" times. Thus, as bankers know well, those who want more credit now are likely to have a higher level of adverse selection than you'd see most of the time. Now offsetting that to a fair degree is that a lot of businesses are dragging out payments, which puts financial stress on their vendors. They could really use more financing now, if you assume that the business itself is viable and the customers won't default on their obligations. But banks aren't set up to do that level of credit investigation. If you fit in the right box on their grid, great, otherwise, you are toast. That is a long-winded way of saying it's no surprise the banks aren't lending. If their assets were valued realistically, most doubtless need even more equity than the TARP provided. Shrinking their balance sheets is part of their effort to get their equity back to healthy levels (memo to regulators: why isn't there more in the way of formal regulatory forbearance right now? It's standard bank recession practice to let banks officially run with lower equity levels as they try to get themselves back on their feet. It's better to admit banks are undercapitalized and give them a temporary waiver than play blind with balance sheet games than undermine investor confidence). Read the rest of the post, which is a discussion of the WSJ piece she mentions at the top. Labels: Henry Paulson, Naked Capitalism, TARP program, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Current Recession vs. 1982 (M. Yates)Excerpt from an interesting post from Michael Yates's blog, Cheap Motels and a Hotplate: An Economist's Travelogue. I had seen the article by David Leonhardt claiming that the current recession is not (yet) as bad as the 1982 recession. I wondered whether he was off the mark, and Mike gives us a nice answer to that question.In an interesting article in the Business Section of the New York Times for January 21, 2009, David Leonhardt says that "It's Bad But 1982 Was Worse." He uses the labor market statistics just discussed to argue that the downturn of 1982 was worse than the current recession. 1982 was bad. I lived in Johnstown, Pennsylvania then, and I remember that the state's Department of Labor estimated that the unemployment rate in the two-county area surrounding Johnstown (Cambria and Somerset counties) hit 26%. The state doesn't use the same method to estimate unemployment that the Bureau of Labor Statistics employs, but even if there is a larger margin of error in local unemployment rate estimates, 26% unemployment is evidence of economic catastrophe. We don't know how many hidden unemployed there were in the Johnstown area, but there must have been quite a few, implying that the expanded rate must have been well over 30%. Nationally in 1982, the unemployment rate hit double digits during some months. For the entire year, the official unemployment rate was a whopping 9.7%. We'll have to see considerably more job loss in 2009 for the yearly rate to hit this level. In 1982 the expanded unemployment rate peaked at 16.3%, again much higher than today's 13%. In 1982, like today, home sales plummeted, even more than now. I suppose that Leonhardt wrote his column to put our current economic mess into perspective, maybe to remind us (many of us weren't alive in 1982 or too young to remember) that yes, things are bad but they have been worse. So don't despair. He does tell us that worse things might well happen and the economy might continue to deteriorate, but the overall thrust of the article is optimistic. There are serious problems with Leonhardt's comparison of 1982 and today. Then the Federal Reserve was in the process of ridding the economy of inflation, which had burgeoned in the late 1970s. Inflation benefits debtors—who are more likely to be in the working class—because they get to pay back loans with depreciated dollars. It therefore harms creditors, like banks, and these and their owners have always been prime concerns of the Fed. Federal Reserve chairman Paul Volcker (name sound familiar? He is on Obama's economic team) pushed interest rates into the stratosphere. I had cash in a money market fund that was paying more than 15% interest. As the Fed tightened, less money was availalble to banks to lend out, and they responded by increasing their rates to prospective borrowers. Business firms couldn't secure short-term loans, and this wreaked havoc on some industries, notably the steel companies, which began to downsize and shed workers. By the end of the 1980s, Johnstown had lost thousands of high-paying mill jobs, as had other steel towns, like Pittsburgh and Gary. This was when, as Leonhardt points out, the term "rust belt" became part of the language. One of the outcomes of the de-industrialization, helped along by the high interest rates, was a gravely weakened labor movement (President Reagan helped here too with his historic firing of the striking Air Traffic Controllers). The economic bleeding and the consequent arrow to the heart of organized labor set the stage for the implementation of the regime of deregulation, cuts in social programs, and privatization known as neoliberalism. All of this is to say that the recession of 1982 served a political purpose—to squeeze workers and help employers gain the upper hand vis-a-vis unions, while laying the groundwork for the freedom of movement of capital that characterizes the world economy today. Read the whole post, which includes some other nice bits about growth, GDP, and inequality. Labels: 1982 recession, David Leonhardt, Michael Yates, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Towns Sad to See Prisons Go (WSJ)From today's WSJ. In an earlier post we reported some people's speculation that state and local fiscal problems will lead to a decline in the prison population. We're not so sure; people have made similar claims in earlier downturns, but the prison boom keeps on booming. What's stunning about this article is how open people are about taking advantage of forced labor. Not that we are against prison labor—prisoners ought to be able to work (and indeed, get paid, and form unions, like other workers). But keeping a prison open so that towns can continue to use prison labor? These towns are sad. And the original headline of the article ("Towns Are Sad to See Their Prisons Leaving the Scene of the Grime") deserves its own separate groan.By JENNIFER LEVITZ | JANUARY 26, 2009 CHARLESTON, Maine—One morning recently at the town hall here, Selectwoman Terri-Lynn Hall set out some fresh coffee, crackers and dip for the cleaning crew. "I also make 'em turkeys, bake 'em hams, and serve spaghetti," she said—"with homemade sauce." One of the crew, Rex Call, put down his mop and helped himself to a piping hot mug of joe. "I'd rather be working here than sitting in the cell all day," said Mr. Call, who—when he's not out on work-release—is serving two years in state prison for car theft. Although many people fight fiercely to block prisons from coming to town, Charleston and other communities are feeling an opposite impulse these days. They are fighting to keep their prisons from going away. Many states, including Maine, Ohio, Washington and New York, want to close or consolidate prisons to save money. Here in Maine, Gov. John Baldacci wants to mothball part of Charleston Correctional Facility and relocate nearly 40% of the inmates, which would cut work-release crews. But this farming town of 1,500 wants its criminal element to stick around. Town leaders say they don't know what they will do without the free or ultra-cheap labor the jailbirds provide. "Oh my goodness, gracious, they are such an asset -- they are our public-works department," said Ms. Hall. Last year, Charleston's prisoners did 39,337 hours of community work, prison officials say, roughly the equivalent of 19 full-timers. Inmates maintain the five local cemeteries, set up election booths and hang Veteran's Day flags. They built the log-cabin "snack shack" at a local park, and helped bust up beaver dams in a stream that runs along Bacon Road. When a minimum-security prison was built in downtown Wooster, Ohio, a decade ago, "we took a lot of heat" from people who didn't want it, says Capt. Charlie Hardman of the sheriff's department there. But now that budget cuts could close the facility, he says, "People are concerned. Who is going to pick up the litter?" Read the rest of the article. Labels: prison labor, prisons, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Plans To Tighten Financial RulesFrom The New York Times:January 25, 2009 Obama Plans Fast Action to Tighten Financial Rules By STEPHEN LABATON WASHINGTON The Obama administration plans to move quickly to tighten the nation's financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis. Broad new outlines of the administration's agenda have begun to emerge in recent interviews with officials, in confirmation proceedings of senior appointees and in a recent report by an international committee led by Paul A. Volcker, a senior member of President Obama's economic team. A theme of that report, that many major companies and financial instruments now mostly unsupervised must be swept back under a larger regulatory umbrella, has been embraced as a guiding principle by the administration, officials said. Some of these actions will require legislation, while others should be achievable through regulations adopted by several federal agencies. Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade. "Until we deal with the compensation model, we're not going to deal with the conflict of interest, and people are not going to have confidence that the ratings are worth relying on, worth the paper they're printed on," Mary L. Schapiro said in testimony earlier this month before being confirmed by the Senate to head the Securities and Exchange Commission. Timothy F. Geithner, the nominee for Treasury secretary, made similar comments in written and oral testimony before the Senate Finance Committee. Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages. The administration is also preparing to require that derivatives like credit default swaps, a type of insurance against loan defaults that were at the center of the financial meltdown last year, be traded through a central clearinghouse and possibly on one or more exchanges. That would make it significantly easier for regulators to supervise their use. Read the rest of the article Labels: bailout, banking regulation, Barack Obama, derivatives, financial crisis, financial regulation, hedge funds, Ratings agencies Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Britain Is Facing Return of Three-Day WeekAnother from the Independent:Britain is facing return of three-day week Shorter hours would be preferable to mass unemployment, say government sources By Jane Merrick, Brian Brady and Cole Moreton Sunday, 25 January 2009 The prospect of the three-day week returned to haunt Britain yesterday as it emerged that ministers are considering paying firms to cut hours in order to survive the recession. Tens of thousands of businesses are already planning to scale back working hours this year in an effort to stay afloat. But as the country comes to terms with the reality of a recession, it emerged that the Government is looking at compensating employees, through their firms--thereby drawing comparisons with the shutdowns of the 1970s. While the move would safeguard jobs, it would mean that the financial crisis is on a much larger scale, further undermining confidence in the economy with the suggestion of Britain grinding to a halt. Major firms such as JCB have already downed tools for one day a week and are considering moving to a three-day week, with state help, if the recession gets worse. The firm's chief executive, Matthew Taylor, said that he is pressing Lord Mandelson, the Secretary of State for Business, to introduce compensation for workers if their hours are reduced. Some of the jobs earmarked for redundancy, he said, could be saved if the move is introduced by April. Read the rest of the article Labels: Britain, financial crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Meanwhile, in China...From The Observer:China fears riots will spread as boom goes sour Today millions will leave the cities to return to their rural family homes for the new year celebrations. But this year Beijing hopes the newly jobless revellers will stay there - to prevent a fresh wave of unrest in the cities Tania Branigan in Dongguan The Observer, Sunday 25 January 2009 They surged into the grimy streets around the factory: first scores, then hundreds, then more than a thousand, as word spread and tension loaded the stale, grey air. The boldest overturned a police van and smashed up motorcycles, then tore through the building destroying computers and equipment. The mood was exhilarated, angry and frightened. "It happened so quickly ... There were maybe 500 involved and another 1,000 watching them. People were yelling: 'It's good to smash'," said a witness. But the riot late last year at the Kai Da factory in Dongguan, amid the grim industrial sprawl of the Pearl River Delta, was not an isolated incident. It was one of tens of thousands of protests, many erupting from the same mixture of economic grievances, resentment of police and swirling rumour. The numbers have been climbing steadily for years. But as the Chinese New Year dawns and the global economic crisis deepens, the government fears that mass unrest could challenge its control of the country, threatening a communist regime that has embraced capitalism with spectacular results. Today should be the highlight of the year for migrant workers in the country's southern manufacturing hub, but the hundreds of millions who have travelled home for their annual family reunion have little to celebrate. This is the year of the ox in the Chinese zodiac; a symbol of hard work and tenacity. But no one feels bullish as exports plummet and factories shut their doors. Read the rest of the article Labels: China, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Icelanders Force ChangeOf regime, anyway. But it's a hopeful sign that more people even in developed, consumerist societies aren't just going to sit back and suffer from the crisis. From The Independent (UK).Iceland PM is first global political casualty of the crunch Prime Minister resigns after week of violent protest By Sophie Morris in Reykjavik Saturday, 24 January 2009 Iceland's embattled Prime Minister Geir Haarde may have become the first political casualty of the global credit crisis, announcing his resignation yesterday, and clearing the way for elections in May. Illness was the official reason for Mr Haarde's decision to quit, but few in the capital Reykjavik were in any doubt that his departure was linked to a week of intense and violent public protests at once prosperous Iceland's economic implosion. Since October's financial earthquake Icelanders have vented their frustration, anger and despair in peaceful weekly protests. But demonstrations turned violent on Thursday, leading to 22 arrests and the worst civilian unrest since Iceland joined Nato in 1949. The tensions prompted the government's first admission since October that Iceland needs a change of leadership if it is to rebuild its fractured economy and overhaul its discredited political culture, viewed by many Icelanders as corrupt and nepotistic. Read the rest of the article Labels: financial crisis, Iceland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). EFCA: Missing the Forest for the Trees?Interesting Washington Monthly piece, courtesy again of LBO Talk. Here's the conclusion (one that reinforces much of what we said in a September, 2007 piece "A Lazy Man's Labor Policy" in the print edition of D&S, concerning the notorious lack of enforcement of labor law and the onerous burdens it placed on strictly legal union organizing), but the whole article is well worth reading (especially its portrayal of the typically tortuous Rite Aid unionization drive):The Little Unions That Couldn't Card check is worth fighting for--except for the "card check" part. By T. A. Frank The question, then, is how much of a fight the card check provision merits. And the answer is probably a little, but not a lot. What most undermines the secret-ballot process is that employers can violate the law in numerous ways without consequences. Under EFCA, however, every illegal action has the potential to be costly, so firings, spying, threats, or other forms of intimidation would be less likely. Also, there is an alternative way to preserve the secret ballot while guarding against company malfeasance: expedited elections. Under current law, months can go by between when NLRB announces the results of a card check vote and when a secret-ballot election is held. If, however, this campaign window were reduced to just a few days, employers would have less opportunity to intimidate union supporters into changing their minds. Workers I spoke to in Lancaster seemed content with this alternative. And some savvy people in the labor movement I spoke to feel the same way--provided that employers either refrain from captive-audience campaigning or else grant union members equal access to the workplace during a campaign. Given that card check is substantively minor, why has it come to define the entire debate about EFCA in Washington? Because it is the one element of the bill that its opponents can object to and still seem principled--it's easier to stand up for "democracy" than for the right of companies to break labor laws without consequence. And all of this factors into the gamesmanship that's likely to take place on Capitol Hill over EFCA. Commentators like Marc Ambinder have called the fight "a quandary" for Democrats, one that carries a risk of disastrous failure. But must it come to that? Deploying political capital wisely means fighting over what matters most, not what matters least. Perhaps the bill's proponents in Congress intend to stand firm in their defense of the card check provision of EFCA. But if they strategically retreat, at just the right moment, like a matador lifting his red cape, will liberals accuse Democrats of selling out labor? Or will they realize that, with or without card check, EFCA will still accomplish what's most needed--finally, at long last, restoring the rights of workers who seek to organize? Read the rest of the article Labels: Employee Free Choice Act, labor law, LBO Talk, T.A. Frank, Washinton Monthly Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bankers Try To Quote MarxAnd are as inept at that as they have been in analyzing Collateralized Debt Obligations. A post from Doug Henwood's LBO Talk:[lbo-talk] bankers quoting Marx! A friend who works at a hedge fund forwarded me this "quote of the day" from a friend of his who works at a bank. Amazing how some people have great long range forecasts that are on the ball !! "Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and State will have to take the road which will eventually lead to communism." -- Karl Marx, 1867 I don't think Marx actually said this, but still... Labels: bailout, Doug Henwood, financial crisis, Karl Marx, LBO Talk Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bankruptcy Doesn't Mean No BonusMerrill Lynch is under NY Attorney General Andrew Cuomo's spotlight after doling out billions in year-end bonuses just days before the bankrupt company was taken over by Bank of America (a company that has received $25 billion in direct bailout funds, then just got another $20 billion plus another $100 billion in guarantees for bad debt).How much were the bonuses? $15 billion. Who is going to pay for these bonuses given by a company with no money? The one that bought it--Bank of America. What money are they going to use? Seventy-five percent of the latest $20 billion they got in taxpayer bailout money. Before all that, Merrill Lynch also spent over a million dollars refurbishing the CEO's office last year while the company was going down the tubes, as we reported yesterday. Now these and other shenanigans are attracting the attention of the Obama administration and members of Congress who are vowing to put restrictions on corporate windfalls for companies that are receiving future bailout money. No word yet and getting money back from the folks who absconded with the first batch. Labels: Corporate Swindles, Merrill Lynch, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). California Unemployment SpikesIf California were a country, it's GDP would place it among the 10 largest nation's in the world. So it's a big deal when the state's official unemployment rate hits 9.3 percent, as it did in December. This is up from 8.4 percent in November, and 5.9 percent in December 2007.Labels: California Nurses Association, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Merrill CEO Shopped While Company BurnedFrom the Daily Beast:In early 2008, just as Merrill Lynch CEO John Thain was preparing to slash expenses, cut thousands of jobs and exit businesses to fix the ailing securities firm, he was also spending company money on himself, senior people at the firm say. According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000. For more about the $87,000 rug, the pair of chairs for another $87,000, the area rug for $44,000, etc. read on. Labels: John Thain, Merrill Lynch Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Thanks for Nothing....From Bloomberg:RBS Taxes, Hailed as Contribution to Society, Erased by Rescue By Simon Clark Jan. 23 (Bloomberg) -- Fred Goodwin, Royal Bank of Scotland Group Plc's former chief executive officer, once said that taxes were part of his bank's contribution to society. "The benefits of our success stretch far outside the company," Goodwin, 50, wrote in RBS’s 2006 corporate responsibility report. "We continued to be the largest corporate taxpayer in the U.K.," he wrote. That helped in "supporting the government in the provision of public services such as schools, hospitals and state pensions." As Goodwin's RBS contract expires next week, after more than a decade at the bank, the 20 billion-pound ($28 billion) cost of bailing out the bank surpasses the corporate taxes paid by the Edinburgh-based lender during his tenure. The shortfall shows how Goodwin's ambitions for RBS spiraled as he expanded the lender's balance sheet more than 20 times in a decade to 1.73 trillion pounds, making it bigger than the U.K. economy. Read the rest of the article Labels: bailout, financial crisis, Royal Bank of Scotland, Sir Fred Goodwin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs: Jan 18-24The latest from Mark Heschmeyer of CoStar.Closures & Layoffs (Jan. 18-24); After Holiday Retail Layoffs Begin A Weekly Report on Future Corporate Downsizings In this week's issue:
Read the full report. Labels: closures and layoffs, Mark Heschmeyer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). States Need Bailouts TooFrom the Economic Policy Institute:Economic Snapshot for January 21, 2009 In recessions, federal grants are key to recovery for states by Kathryn Edwards Virtually all states are required by law to have a balanced budget, meaning that each year a state can only spend as much as it receives in taxes. Because of the current recession, revenue from taxes is very low and most states now face troubling budget shortfalls. The chart shows how badly state budgets were affected by the 2001 recession, clearly illustrating how, after the nation slides into recession, it can take years to climb out of the deep fiscal hole. Such recessionary shortfalls force states to either raise taxes (to increase revenue) or cut expenditures, usually by eliminating or gutting valuable public services in areas like health care or education. But cutting expenses and raising taxes only exacerbate the recession's effect because both further reduce demand in the state’s already weakened economy. That is why federal grants to the states are so crucial: they help states maintain needed public service levels, combat the recession, and provide a fighting chance at eventually building up reserves to weather the next downturn. Labels: Economic Policy Institute, EPI, states' fiscal crises Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Single-Payer Job Recovery (Cal Nurses)What looks to be an impressive study from the California Nurses Association. Hat-tip to Dr. Christine Adams of Health Care for All Texas.First-of-Its Kind Study: Medicare for All (Single-Payer) Reform Would Be Major Stimulus for Economy with 2.6 Million New Jobs, $317 Billion in Business Revenue, $100 Billion in Wages Establishing a national single-payer style healthcare reform system would provide a major stimulus for the U.S. economy by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the U.S. economy, according to the findings of a groundbreaking study released today. It may be viewed at www.CalNurses.org. The number of jobs created by a single-payer system, expanding and upgrading Medicare to cover everyone, parallels almost exactly the total job loss in 2008.  Read the whole report. Labels: California Nurses Association, Christine Adams, Health Care for All Texas, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Still Making SenseWe have been negligent today posting to the blog, partly from watching the inauguration. We've also been busy putting together a full update of the website for the January/February issue of the magazine and to tweak the site somewhat to match the magazine's new design.In lieu of our regular volume of posts, here is the editorial note from the Jan/Feb issue. When we came up with the headline for the note, we noticed the allusion to the Talking Heads, and Wikipedia told us that the band was founded in 1974—just like Dollars & Sense. Was that a good year, or what? Just a few months ago, we worried on this page that the $700 billion bailout of the financial services industry Congress enacted last September would suck up so much money—and increase the federal deficit so much—that it would be impossible to pass the massive public investment program that would be necessary to keep the recession from turning into a depression. It appears we were wrong. Congress and the Obama administration are working on a stimulus package whose size may range upwards of $1 trillion. The shift to a "deficits be damned" view across much of the political spectrum reflects just how rapidly the economy has deteriorated since the fall. The pace of events is dizzying; the economist-pundits often seem to be just as much at a loss as their non-economist counterparts when it comes to understanding what is happening, let alone making accurate forecasts. This is a key moment to broaden a critical understanding of how the economy works. It's good to know what a collateralized debt obligation is, but it's much more important to recognize how three decades of stagnating real wages for a majority of U.S. households contributed to the explosion in debt that is now sending shrapnel around the globe. If this sounds like a pitch for the importance of Dollars & Sense—well, it is. And there's a reason we're making that pitch now: D&S turns 35 this year! Thirty-five years ago, a small group of young economists founded a magazine to challenge both mainstream coverage of the economy and the orthodoxy of academic economics. They wanted to provide activists (as many of them were) with information about the economic underpinnings of a wide range of political and cultural issues. Dollars & Sense has changed in many ways since then, but it's still making economic facts and analysis accessible to the people. In addition to the magazine, D&S textbooks and classroom anthologies are now educating thousands of college students—and even some high-schoolers. And the website receives tens of thousands of unique visitors every month. In 2009, collectively organized, non-profit, progressive publishing companies are hard to find. As D&S celebrates the first 35 years, we need to shore up its foundation so it can continue growing and making a difference for the next 35. So D&S is announcing a one-year "Anti-Capital Campaign" to reduce our debt and secure the future. If you'd like to learn more about how you can help, call development director Linda Pinkow at (617) 447-2177 x204. Labels: Dollars and Sense, Talking Heads Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Hansen: President Has 4 Years To Save EarthA few weeks ago ("Nasa Scientist: Cap & Trade Not Sufficient," Jan 1st) we posted an item featuring the thoughts of climate scientist James Hansen criticizing elements of Obama's likely climate change strategy. Now, in another Observer piece, he gives the administration a mere four years to take action concerning this problem, four years which are likely to be best with a whole host of other catastrophes vying for his attention and, potentially, increasingly limited political, financial and other means:President 'has four years to save Earth' US must take the lead to avert eco-disaster Read the full interview with James Hansen here Robin McKie in New York The Observer, Sunday 18 January 2009 Barack Obama has only four years to save the world. That is the stark assessment of Nasa scientist and leading climate expert Jim Hansen who last week warned only urgent action by the new president could halt the devastating climate change that now threatens Earth. Crucially, that action will have to be taken within Obama's first administration, he added. Soaring carbon emissions are already causing ice-cap melting and threaten to trigger global flooding, widespread species loss and major disruptions of weather patterns in the near future. "We cannot afford to put off change any longer," said Hansen. "We have to get on a new path within this new administration. We have only four years left for Obama to set an example to the rest of the world. America must take the lead." Hansen said current carbon levels in the atmosphere were already too high to prevent runaway greenhouse warming. Yet the levels are still rising despite all the efforts of politicians and scientists Read the rest of the article Labels: Barack Obama, climate change, James Hansen Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Krugman on Resistance to NationalizationPretty good summary of the situation many banks find themselves in, and an interesting conclusion regarding resistance to full nationalization by the Nobel prize-winner in today's New York Times:January 19, 2009 Op-Ed Columnist Wall Street Voodoo By PAUL KRUGMAN New York Times Old-fashioned voodoo economics--the belief in tax-cut magic--has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans. But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking. To explain the issue, let me describe the position of a hypothetical bank that I'll call Gothamgroup, or Gotham for short. On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets--say, $400 billion worth--are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion. So Gotham is a zombie bank: it's still operating, but the reality is that it has already gone bust. Its stock isn't totally worthless--it still has a market capitalization of $20 billion--but that value is entirely based on the hope that shareholders will be rescued by a government bailout. Read the rest of the piece Labels: bailout, banking system, credit crisis, financia crisis, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Corporate Bond Conundrum?Highly-rated corporate bonds have been a hot item lately (which creates problems for the Fed and Treasury, as they serve as an alternative to the massive amounts of low-or-no yielding Treasury debt), but this International Herald Tribune article reminds us of the staggering amount of corporate debt coming due this year, especially with the rapidly deteriorating profit outlook sure to dampen possibility of rollover:U.S. credit markets tight as corporate bills come due International Herald Tribune By Jack Healy and Vikas Bajaj Monday, January 19, 2009 Like consumers and homeowners, American corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap. This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor's. That is the size of the federal bailout of the financial sector. Many companies were counting on being able to borrow more money to meet those obligations and kick their debt further down the road. But with the credit markets still tight, corporations are being forced to pay much higher interest rates than they did a few years ago, putting more strain on balance sheets already hammered by falling profits and a grinding recession. It is a lesson the discount carrier Southwest Airlines learned firsthand in December, when it went to the bond markets to raise $400 million, in part to cover its losses from betting that fuel costs would remain high. Southwest, the only domestic airline with an investment-grade credit rating, put up 17 of its Boeing jets as collateral and agreed to pay interest of 10.5 percent, nearly double the rate it had paid in 2004 to raise $350 million. The company chafed at the costs, but it paid them because it needed cash and did not know what credit markets would look like in six months or a year. "That's the market now," said Laura Wright, the airline's chief financial officer. "There is not money available at the rates we were able to get a year ago." Read the rest of the article Labels: bailout, corporate bond market, credit crisis, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Year of Living in DenialExactly one year ago, central banks and finance ministries spent the US Martin Luther King, Jr. holiday weekend cobbling together a response to a run on markets prompted by the woeful condition of the monoline insurers. The fact that a year's worth of ever-more desperate measures has yielded insufficient results is reflected in these stories. The first, from the Financial Times, covers the incoming Obama administration's measures to get banks lending again:Read the story The second and third deal with the UK's new package, and the negative response from markets to it thus far, perhaps due to the astonishing losses (up to 28 billion pounds--that's US$40 billion--for 2008, the largest corporate loss in British history) suffered by Royal Bank of Scotland, which investors may feel evidences still greater losses (and more state aid) ahead. The first article is from the Financial Times again, and the second from the Guardian: Read the first story Read the second Labels: bailout, banking system, Barack Obama, financial crisis, Gordon Brown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
