Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. 2Q GDP Fall Less Than Expected...but consumption falls more. And 1Q revised downward. From Bloomberg:U.S. Economy: Contraction Eases as Recovery Beckons By Shobhana Chandra July 31 (Bloomberg) The worst U.S. economic slump since the Great Depression abated in the second quarter as government spending programs started to kick in, while the deepest retrenchment by consumers since 1980 augured a muted recovery. Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, Commerce Department figures showed today in Washington. A survey of purchasing managers showed separately that business contracted less than estimated this month. Stabilization in homebuilding and the liquidation of unsold goods sets the stage for gains in GDP starting this quarter, analysts said. At the same time, rising unemployment and weakening income growth threaten to erode household finances; the International Monetary Fund today said policy makers must be ready to employ further stimulus if needed. "We're heading to a sluggish recovery," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "We'll get more support from government programs in the second half, but if you want a strong recovery you need a strong consumer, and we are not seeing that." Stocks and Treasuries gained and the dollar remained lower against the euro after the report. The Standard & Poor's 500 Stock Index rose 0.1 percent to 987.48 in New York, the highest closing level since Nov. 4. Benchmark 10-year note yields fell to 3.48 percent at 4:33 p.m., from 3.61 percent late yesterday, and the dollar dropped 1.3 percent to $1.4257 per euro. Read the rest of the article Labels: bailout, economic indicators, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sarah Palin Capitalism (Naomi Klein)From Alternet: The following was adapted from a speech on May 2, 2009 at The Progressive's 100th anniversary conference and originally printed in The Progressive magazine, August 2009 issue:We are in a progressive moment, a moment when the ground is shifting beneath our feet, and anything is possible. What we considered unimaginable about what could be said and hoped for a year ago is now possible. At a time like this, it is absolutely critical that we be as clear as we possibly can be about what it is that we want because we might just get it. So the stakes are high. I usually talk about the bailout in speeches these days. We all need to understand it because it is a robbery in progress, the greatest heist in monetary history. But today I'd like to take a different approach: What if the bailout actually works, what if the financial sector is saved and the economy returns to the course it was on before the crisis struck? Is that what we want? And what would that world look like? The answer is that it would look like Sarah Palin. Hear me out, this is not a joke. I don't think we have given sufficient consideration to the meaning of the Palin moment. Think about it: Sarah Palin stepped onto the world stage as Vice Presidential candidate on August 29 at a McCain campaign rally, to much fanfare. Exactly two weeks later, on September 14, Lehman Brothers collapsed, triggering the global financial meltdown. So in a way, Palin was the last clear expression of capitalism-as-usual before everything went south. That's quite helpful because she showed us-in that plainspoken, down-homey way of hers-the trajectory the U.S. economy was on before its current meltdown. By offering us this glimpse of a future, one narrowly avoided, Palin provides us with an opportunity to ask a core question: Do we want to go there? Do we want to save that pre-crisis system, get it back to where it was last September? Or do we want to use this crisis, and the electoral mandate for serious change delivered by the last election, to radically transform that system? We need to get clear on our answer now because we haven't had the potent combination of a serious crisis and a clear progressive democratic mandate for change since the 1930s. We use this opportunity, or we lose it. So what was Sarah Palin telling us about capitalism-as-usual before she was so rudely interrupted by the meltdown? Let's first recall that before she came along, the U.S. public, at long last, was starting to come to grips with the urgency of the climate crisis, with the fact that our economic activity is at war with the planet, that radical change is needed immediately. We were actually having that conversation: Polar bears were on the cover of Newsweek magazine. And then in walked Sarah Palin. The core of her message was this: Those environmentalists, those liberals, those do-gooders are all wrong. You don't have to change anything. You don't have to rethink anything. Keep driving your gas-guzzling car, keep going to Wal-Mart and shop all you want. The reason for that is a magical place called Alaska. Just come up here and take all you want. "Americans," she said at the Republican National Convention, "we need to produce more of our own oil and gas. Take it from a gal who knows the North Slope of Alaska, we've got lots of both." And the crowd at the convention responded by chanting and chanting: "Drill, baby, drill." Watching that scene on television, with that weird creepy mixture of sex and oil and jingoism, I remember thinking: "Wow, the RNC has turned into a rally in favor of screwing Planet Earth." Literally. But what Palin was saying is what is built into the very DNA of capitalism: the idea that the world has no limits. She was saying that there is no such thing as consequences, or real-world deficits. Because there will always be another frontier, another Alaska, another bubble. Just move on and discover it. Tomorrow will never come. Read the rest of the article. Labels: capitalism, Naomi Klein, Sarah Palin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Crunching the numbers on health care reformThe latest from the Economic Policy Institute:During another week of intense debate over the affordability of health care reform, EPI economists analyzed original and publicly available data and found that the proposed House health reform bill would pay dividends for small business and other groups, and that costs incurred by the federal government would help reduce total health spending over time. In Health Care Reform: Big Benefits for Small Business, EPI's director of health policy research Elise Gould and economist Josh Bivens note that only 35% of businesses employing fewer than 10 workers offer health insurance, and those that do usually pass on a higher share of the cost to workers than do larger businesses. A key problem is that small businesses typically pay more for health insurance because of the way policies are sold. The authors conclude that reforms that would create more competition among insurers and reduce their administrative costs would significantly reduce the cost small businesses incur providing health insurance. An independent analysis by the Lewin Group of EPI's Health Care for America plan -- which closely resembles the House reform bill -- finds businesses with fewer than 10 employees that provide health insurance would save about $3,500 per worker. In a related piece, Small Business and Health Reform, Gould challenges the assumption that the proposed surcharge on high incomes contained in the House health reform bill would discourage entrepreneurial activity, and cites research from the Joint Tax Committee finding that nearly 96% of taxpayers who report business income would not be affected by the surcharge. And, in Seeing the Big Picture in Health Reform and Cost Containment, Bivens shows why a federal government investment in health care reform could produce big savings in total health costs over time. Cost analyses that focus strictly on the cost of health reform to the federal government, he argues, are misguided. "Fundamental health reform is worth doing even if it does not pay off in big federal budget savings," Bivens writes. "Health care is an area where the more costs are loaded up on the federal government, the more efficiently care tends to be delivered overall." Politico quoted Bivens explaining why the main focus of health reform needs to be on reducing total health spending over time, since health spending is currently rising faster than gross domestic product. Labels: Economic Policy Institute, health care reform, small businesses Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T. D.C.o.t.E (xiii): Flexibility FundamentalismThe Dull Compulsion of the Economic (xiii)A series of blog postings by D&S collective member Larry Peterson Flexibility Fundamentalism Recently The Financial Times featured an analysis of the US labor market entitled End of the Line. The piece was interesting inasmuch as it hinted that the fragility--to put it charitably, indeed--of the US social safety net may foster social tensions that could, in turn, have a negative impact on the flexibility of the US labor market (by leading to greater job protection, etc.). The unquestioned assumption throughout the piece, of course, was that the flexibility of the US labor market has been a good thing, or has had nothing much to do with the county's current economic and financial woes. In fact, the article refers to two prominent economists, Austan Goolsbee and Robert Reich, for tributes, of varying degrees of enthusiasm, to labor market flexibility. Goolsbee, now an adviser to President Obama, wrote in 2007 that "[W]e may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting. The world economy may be tough on your industry but look on the bright side: you could be French." And former Secretary of Labor Reich, who should know better, was quoted in the article as saying "The US labor market is extraordinarily flexible, [which] in normal times is a great asset." He then goes on to add the following caveat, though: "When you have an economic downdraft like this, that same flexibility can become a severe detriment." Goolsbee's crass triumphalism looks ludicrous now, as the FT points out. It notes that France and Germany now have lower unemployment rates than the US (though both started with higher rates before the crisis began). But what does Reich mean by "normal"? It is now clear that the labor flexibility characteristic of the last few years was, far from being the product of, or reflecting "normal" conditions, made possible by the fostering of not one, but several different anomalies or imbalances. As is well known, median real wages, which had begun to reverse a marked slowdown from the 1970s on by the late 'nineties, were vigorously clawed back after the .com crash, and languished well behind sterling productivity gains until the middle of the next century's first decade, when, again, they began to creep upwards--only to be stopped dead in their tracks by the onset of the financial crisis. The wage contribution to GDP fell sharply as well, and here, as is again well known, real wage gains were captured only by the very, very wealthy. Meanwhile, benefits were falling sharply, especially as healthcare costs (high due to the existence of the dysfunctional US healthcare system, which, while doing little where vital statistics are concerned, contributed to labor market flexibility by making workers more dependent on the boss for healthcare benefits) skyrocketed. The mortgage bubble was enabled by these shortfalls, as a substitute for falling incomes, and as a means to maintain consumption in the face of falling pay packets (not to mention savings). And the consumption surrounding the housing boom played no small role in ballooning current-account deficits. Investment followed this consumption overseas, with US foreign investment tending to trump domestic investment. And foreign investment in the US increasingly became the province of state investors (who tended to purchase US Treasury and agency--Fannie Mae, Freddie Mac, etc--debt) rather than private ones: by the latter part of the decade, the old adage that the US's current-account deficit was a sign of strength--that foreign investors were expressing thereby a vote of confidence in the competitiveness of the US economy, and of its famously flexible labor markets--was becoming something of a joke, though the fact that so many foreigners had invested instead in the US mortgage market revealed that the joke could well end up being on them. But, back to the original point, productive investment did not respond vigorously to productivity gains in the US in the first decade of the twenty-first century, even with the Bush tax cuts to encourage them, or given the vast amounts of cheap borrowed money that were made available to investors as the Fed put the economy on steroids post 9/11. Then there were all the wonderful financial innovations that "lowered the cost of capital" and made capital available to relatively untapped consumers for the first time. These put lots of dollars at consumers' disposal, and enabled consumption to top 70% of national product, even as wages were stagnant (or, for some, even fell) and benefits became more expensive, or disappeared (many companies began to cancel 401K and healthcare programs as the decade wore on) altogether, and workers increasingly had to shoulder simultaneous burdens of saving for retirement, financing children's education, and caring for elderly parents. The hugely inflated costs of the latter trio certainly whittled away at the cheapening effects of the dynamic duo of cheap foreign production and easy consumer financing. Needless to say, practices in the subprime mortgage market topped this distinguished list, but the essential point here is that just about all of these means of maintaining consumer spending were part and parcel of a larger debt bubble, in which financial firms were betting huge amounts of other people's money so they could increase returns on the much smaller sums they put forward (If I take a dollar of mine, and borrow nine of yours, and the investment appreciates by 50%, I get a $5 return, which is pretty good if I've only bet one dollar of my own money--even if I pay a generous rate of interest, or, more likely, high fees). But in reverse, this process becomes pernicious (if I lose 50%, I've lost much more than my $1; and if, being unregulated, I'm not required to hold any reserves, I can go bankrupt after losing my dollar, leaving my creditors holding the bag), and such deleveraging, as Julian Delasantellis has noted, probably has a long way to go before all the rot is purged from the system: "As opposed to today's total government and private-sector debt load of almost $53 trillion, the 20-year period average is down at $43 trillion--that implies another $10 trillion of debt somehow disappearing, being written off, or (the most unlikely case) paid off. In the case of the solely "households and non-profit organizations credit and equity market instruments liability", another $1.2 trillion, in addition to what has already been vaporized, has to be written off as well." So, getting back to the original point, it's hard to understand how Reich can classify the situation of US labor in the last decade (at least) as anything near "normal." As we have seen, not one, but several clearly unhealthy factors either enabled or redoubled an almost masochistic flexibility the core of which, anyway, Reich seems to want somehow to preserve. And we've only spoken here of aspects of flexibility that strictly concern pay and benefits: when one considers work practices, as well as things like public education policy, healthcare and all the other areas that can be collapsed under the umbrella of productivity-enhancers, I would venture that the cutbacks or simple nonperformance in all these areas, again all-to-often implemented or merely accepted in accordance with the gluttonous demands of flexibility, have become, in ever-expanding ways, seriously counterproductive, despite continuing gains to the bottom line (as we shall see in a moment). But the situation could get worse for labor, even if legislative or executive means to increase flexibility are avoided, as they most certainly will be, given the severity of the downturn: in the second quarter of 2009, companies were already cutting costs at furious rates to bleed the semblance of profit from the stone of labor cuts and tax breaks. This is reflected in some truly eye-opening productivity-related figures: for instance, as Goldman Sachs economist Andrew Tilton notes, total hours worked fell at about an 8 percent annual rate in the second quarter, Labor Department data shows. Meanwhile, Tilton thinks second-quarter gross domestic product fell at a more modest 1 percent rate. Tilton then goes on: "That's a 7-point gap, and there have only been a few instances in the last 50 years when it has been that wide. It's particularly unusual at a time when the economy is not growing." Reuters then adds: "Indeed, the gap appears to have widened last quarter. In the first quarter, when GDP fell at a 5.5 percent annual rate, the number of hours worked fell at a 9 percent pace." Indeed, the situation has got so bad that economists are beginning to mix their admiration for US flexibility with fears that it has finally turned overtly pathological (i.e. that it threatens a level of aggregate demand sufficient for any sort of recovery). David Rosenberg of Glushkin Sheff (formerly of Merrill Lynch) claims that there is no evidence that profitability can be maintained on basis of cost cuts alone, and fears that when multiple sectors cut costs, it creates a snowball effect that in turn hurts everyone: "It's one thing when one or two sectors are cutting costs. But when it happens in every sector, this ends up eating into aggregate demand." So far, the Obama administration has not done much to help workers affected by this sort of bloodletting, and with 1.5 million workers expected to exhaust their unemployment benefits by the end of 2009, one would think the situation could become truly explosive. One would hope that the left would be at the forefront of a vigorous effort to concentrate this casual attitude on the part of the administration; and an end to the mythology surrounding the endless benefits of flexible labor markets might constitute a small contribution to such an effort. Labels: Austan Goolsbee, financial crisis, Julian delasantellis, labor, labor law, Larry Peterson, Robert Reich, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bearish Roach Losing China Stimulus OptimismFrom The Financial Times:I've been an optimist on China. But I'm starting to worry Financial Times By Stephen Roach Published: July 29 2009 03:00 | Last updated: July 29 2009 03:00 On the surface, China appears to be leading the world from recession to recovery. After coming to a virtual standstill in late 2008, at least as measured quarter-to-quarter, economic growth accelerated sharply in spring 2009. A back-of-the envelope calculation suggests China may have accounted for as much as 2 percentage points of annualised growth in inflation-adjusted world output in the second quarter of 2009. With contractions moderating elsewhere, China's rebound may have been enough in and of itself to allow global gross domestic product to eke out a small positive gain for the first time since last summer. That's the good news. The bad news is that China's recent growth spurt comes at a steep price. Fearful that its recent economic short-fall would deepen, Chinese policymakers have opted for quantity over quality in setting macro-strategy, the centrepiece of which is an enormous surge in infrastructure spending funded by a burst of bank lending. Sure, developing nations always need more infrastructure. But China has taken this to extremes. Infrastructure expenditure (including Sichuan earthquake reconstruction) accounts for fully 72 per cent of China's recently enacted Rmb4,000bn ($585bn) stimulus. The government urged the banks to step up and fund the package. And they did. In the first six months of 2009, bank loans totalled Rmb7,400bn--three times the pace in the first half of 2008 and the strongest six-month lending surge on record. Read the rest of the article Labels: bailout, banking system, China, Emerging markets, financial crisis, infrastructure Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Case-Shiller Home Purchase Index UpFor the first time in almost three years. This may prompt more purchases in months ahead, as buyers seek to secure rock-bottom prices, and with the Federal $8,000 rebate set to expire in November. But delinquencies and foreclosures are still sky-high, as are unsold inventories, and job losses are expected by many to top 10% soon, and remain north of 8% through 2011. And the findings show important regional and price-level divergences. So, while relatively big news, the future is far from rosy, as even stockmarkets seem to have accepted (for the time being). From The Wall Street Journal:JULY 29, 2009 Wall Street Journal Home Prices Rise Across U.S. Bargain Hunting, Low Rates Drive First Gain in 3 Years; Double Dip Still Possible By NICK TIMIRAOS and KELLY EVANS Home prices in major U.S. cities registered the first monthly gain in nearly three years, according to a new report that provided fresh evidence that the severe U.S. housing downturn could be easing. Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan areas, rose 0.5% for the three-month period ending in May, compared with the three months ending in April. It marked the index's first increase after 34 straight months of decline, and came after a variety of housing indicators has shown glimmers of hope for the past several months. Home prices remained down about 17% from a year earlier, according to the index. According to S&P/Case-Schiller's seasonally adjusted numbers, which it began reporting only earlier this year, prices in May posted a 0.2% decline. But most Wall Street economists who discussed the survey focused on the April-to-May rise, saying it represents a significant change in direction. Home prices in 15 of the 20 areas in the survey rose or remained stable. The results were also consistent with other recent housing data, these economists said. Sales of new and existing homes rose for three consecutive months through June. Housing starts were up in June, and an index of builder sentiment rose in July, though both remained at low levels. May's uptick came in part as home prices in some areas fell enough for investors and first-time buyers to begin competing for bargains, helping to ease the backlog of unsold homes. Other likely sales spurs included mortgage rates that fell to 50-year lows, an $8,000 federal-tax credit for first-time homebuyers and the ability of buyers to secure mortgages from the Federal Housing Administration with as little as 3.5% down. The latest readings don't necessarily herald a full-blown recovery for the housing market or broader economy. Consumer confidence remains near record lows. The U.S. unemployment rate, at 9.5% in June, is expected to hit double digits before year end, making swift growth and an expanding labor force unlikely anytime soon. Read the rest of the article Labels: Case-Shiller Index, economic indicators, financial crisis, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CFTC Reversal on Commodities SpeculationFrom The Wall Street Journal, Courtesy of Marxmail:Wall Street Journal JULY 28, 2009 Traders Blamed for Oil Spike CFTC Will Pin '08 Price Surge on Speculators, in a Reversal From Bush By IANTHE JEANNE DUGAN and ALISTAIR MACDONALD The Commodity Futures Trading Commission plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices--a reversal of an earlier CFTC position that augurs intensifying scrutiny on investors. In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, said in an interview Monday. The CFTC's new review, due to be released in August, adds fuel to a growing debate over financial investors who bet on the direction of commodities prices by buying contracts tied to indexes. These speculators have invested hundreds of billions of dollars in contracts that were once dominated by producers and consumers who sought to hedge against oil-market volatility. (Daily change in the price of oil, in dollars per barrel) The review also reflects shifting political winds. Under Chairman Gary Gensler, appointed by President Barack Obama, the CFTC is departing from the more hands-off approach it took under its previous head, a George W. Bush appointee. The agency is widely expected to adopt new rules to limit the amount of investments in commodities by big institutions betting on their direction purely for financial gain. The agency didn't make available preliminary figures from the report and declined to discuss the previous data. Speculators have been a lightning rod of criticism from politicians world-wide, who worry that rising oil prices could damp the recovery potential of their recession-hit economies. Many lawmakers and regulators say they want to ensure that speculators don't make it more costly for consumers to access heating oil, food and other essentials. These decision makers don't present a united front. The U.K.'s Financial Services Authority has found no evidence that speculators are behind big oil-price swings, people familiar with the matter said Friday. This view, made by the overseer of one of the world's biggest financial markets, contrasts with an opinion piece published in The Wall Street Journal two weeks ago, by French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown, who said governments need to act to curb "dangerously volatile" oil prices. In the U.S., the CFTC begins public hearings Tuesday to determine whether to limit speculative investments in commodities. Congress also is weighing whether to give the CFTC the authority, under a broader proposal to revamp financial regulation, to regulate commodities investments that occur off traditional exchanges. Byron Dorgan, a North Dakota Democrat, has called on the CFTC to curb "oil speculators looking for a quick buck at the expense of American consumers." The debate over speculators underscores the shifting nature of commodities trading in recent years. Before the mid-1990s, these markets were dominated by entities that had physical dealings with the underlying commodity, and "speculators" who often took the opposite position, providing liquidity to markets. But a new group of investors has emerged in recent years. Those who want to bet on commodities prices have increasingly put their money in indexes that track the value of futures contracts, in which investors promise to pay a certain amount in the future for oil and other commodities. As of July 2008, financial investors had about $300 billion riding on these indexes, roughly four times the level in January 2006, according to the International Energy Agency, a Paris-based watchdog. Separately, these investors may buy derivatives, not directly traded on futures exchanges, that let them make contrary bets to offset their risks. Crude-oil prices surged in July 2008 to a record $145 a barrel, then dropped to about $33 in December. Oil now trades at around $68 a barrel. Proponents of index speculation say these parties have added liquidity to markets. They blame price gyrations on supply and demand and say attempts to regulate speculation are foolhardy and could drive investors to less-regulated venues. CME Group, the world's largest commodities exchange, said in a statement that it hasn't seen "any empirical evidence that index funds and speculators distort prices, as has been widely alleged." [Crude Measures] The exchange's chief executive, Craig Donohue, said: "We are deeply concerned that inappropriate regulation of these markets will cause market participants to move to dark pools and other unregulated markets, causing irrevocable harm to the entire U.S. economy." Dark pools are private markets where large orders are transacted. Last year, CFTC Chief Economist Jeffrey Harris told a House Agriculture subcommittee: "The economic data shows that overall commodity price levels, including agriculture commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand." Mr. Harris didn't return a call to comment. The acting CFTC chairman at the time, Bush-appointee Walter Lukken, told the House Agriculture committee that CFTC's economists "did not find direct evidence that speculation was driving up prices." Mr. Lukken, now an executive at the New York Stock Exchange, declined to comment. In preparing its 2008 report, the CFTC sought information from swaps dealers about their off-exchange derivatives transactions. CFTC commissioner Mr. Chilton -- who was appointed by Mr. Bush and now awaits confirmation of his reappointment under Mr. Obama -- said the data the agency gathered was incomplete, with some players providing partial or no information. Mr. Chilton dissented from the 2008 CFTC report, saying the agency's conclusions didn't go far enough. He expressed doubt about the amount and type of data received, which he called limited and unreliable. "We didn't have all the information we should have," he said. "And we gave it to Congress anyway, and we spun it." [U.S. supply of crude oil] The agency began shifting under Mr. Gensler, its new chairman. During his confirmation process earlier this year, Mr. Gensler said he believed speculation was partly behind the surge in commodity prices. Mr. Chilton said the new report will contain a more-thorough analysis of the investors in contracts tied to oil and other commodities, and reveal cases in which single traders hold massive market positions. "We now have multiple sources, and confidence from different sources," he says. He said he believes the data on trading outside exchanges is also more reliable. Meantime, the U.K.'s FSA has been examining whether speculation has driven big oil price swings in recent months. The FSA is leaning toward the conclusion that the moves have more to do with uncertainty over the direction of economic growth than speculation, according to the people familiar with the matter. The FSA has no jurisdiction over U.S. markets. But it oversees ICE Futures Europe, one of the largest global energy exchanges, which is based in London. The FSA doesn't believe that limiting the size of trading positions would be "beneficial" for the market. Still, it concedes it doesn't have a "full explanation" as to why it the market has moved as it has. Carolyn Cui and Kara Scannell contributed to this article. Labels: agribusiness, Commodity Futures Trading Commission, commodity prices, financial crisis, oil, precious metals Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). New Home Sales Rise Sharply in JuneFrom The Financial Times:New US home sales surge in June By Alan Rappeport in New York Financial Times Published: July 27 2009 15:57 | Last updated: July 27 2009 19:24 New house sales in the US jumped by 11 per cent in June, providing some of the strongest evidence yet that the market has bottomed out after being savaged for three years. There are increasing signs that the combined impact of falling prices and low mortgage rates, along with aggressive government incentives, is driving people back to the market and stirring sales. The monthly rise was the sharpest in nearly nine years, far exceeding economists' expectations, and followed a revised increase of 2.4 per cent in the previous month. House sales rose to an adjusted annual rate of 384,000, the department of commerce said. "[This is] more evidence that a bottom is forming in the housing market, with new home sales confirming the signal provided by other housing data," said Alan Ruskin, a strategist at RBS Greenwich Capital. Read the rest of the article Labels: economic indicators, financial crisis, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Looming Disaster of Credit Card DebtFrom The Financial Times:How the cards are cut By Patrick Jenkins,Francesco Guerrera and Saskia Scholtes Financial Times Published: July 27 2009 03:00 | Last updated: July 27 2009 03:00 Mick Longfellow is teetering on the edge of financial chaos. A dedicated teacher married to an equally hard-working nurse, living in a modest house in Newcastle in the north-east of England, the pair spent the past decade treating themselves to gadgets, gizmos and home upgrades. They put in new windows. They bought the biggest television and sound system their living room could accommodate. They changed their cars every year or two. With two children to spoil as well, they were living on credit - lots of it. There were store cards, car loans, personal loans and credit cards. Now, amid the recession, those lenders want their money back. "The bank just closed down our overdraft. That was the killer blow," says Mr Longfellow. But with the family's debts running to 30,000 pounds ($49,200, 34,600 euros), far more than their annual disposable income, repayment is going to take a very long time. It is a sad blow for the Longfellows. But multiply one family's debts by the millions of people across the world who are in an even worse state, losing jobs and homes, and the scale of the problem is clear. Estimates from the International Monetary Fund say that of US consumer debt totalling $1,914bn (1,166bn pounds, 1,346bn euros), 14 per cent will turn bad. For Europe, it expects 7 per cent of the $2,467bn of consumer debt will be lost, with much of that falling in the UK, the continent's biggest nation of borrowers. In the US, the carnage is well under way. For nearly two years, banks ranging from giants such as Citigroup to small community lenders have been bleeding as the economic downturn caused "maxed out" consumers to fall behind on their repayments of credit cards, automotive loans, student loans and other once-plentiful forms of credit. In recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind. "We are asking boards of financial institutions to sit down, think about plausible nightmare scenarios and then take measures to deal with them," says Peter Niculescu, a former executive at Fannie Mae, the US mortgage institution, who is now a partner at Capital Market Risk Advisors, a financial consultancy. Read the rest of the article Labels: baillout, banking crisis, banking industry, Credit card industry, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). AP: Senate To Drop Public OptionVia Huffington Post. Looks like the insurance lobby wins again.WASHINGTON After weeks of secretive talks, a bipartisan group in the Senate edged closer Monday to a health care compromise that omits a requirement for businesses to offer coverage to their workers and lacks a government insurance option that President Barack Obama favors, according to numerous officials. Like bills drafted by Democrats, the proposal under discussion by six members on the Senate Finance Committee would bar insurance companies from denying coverage to any applicant. Nor could insurers charge higher premiums on the basis of pre-existing medical conditions. But it jettisons other core Democratic provisions in a reach for bipartisanship on an issue that has so far produced little. The effort received a boost during the day from the U.S. Chamber of Commerce, normally a close ally of Republicans. In a letter to committee leaders, the business group called for the panel to "act promptly, preferably before" the Senate's scheduled vacation at the end of next week. In doing so, the business organization dealt a blow to the Senate Republican Leader Mitch McConnell of Kentucky and other GOP lawmakers who have called repeatedly for Democrats to slow down. Read the rest of the article Labels: Barack Obama, health care reform, insurance industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Are Average Taxpayers Freeloaders?From Sam Pizzigati, at the online weekly Too Much, which is well worth a visit.Have Average Taxpayers Become Freeloaders? Opponents of the proposal for a 5.4 percent health care reform surtax on America's wealthy are getting desperate. They've even turned their fire onto middle-income Americans. By Sam Pizzigati | July 27, 2009 Friends and fans of privilege have been striking their indignant pose the last two weeks. They're shocked, simply shocked, that House Democratic leaders would dare advance a health care reform plan that sets a 5.4 percent surtax on households making over $1 million a year. Affluent Americans, flacks for grand fortune are fuming, already pay the bulk of the nation’s income taxes. They'll pay virtually all of it, these critics charge, if the surtax becomes law and Congress lets the George W. Bush tax cuts for the comfortable expire, as scheduled, after 2010. Amid all this, the most indignant of fortune's defenders now seem to believe, average Americans have become irresponsible freeloaders, ever eager, as conservative columnist Caroline Baum puts it, to "encourage their elected representatives to vote 'yes' on every new benefit that comes down the pike." Fulminates David Harsanyi, a Denver Post columnist outraged by the health surtax notion: "President Barack Obama once promised to spread the wealth. How about spreading the responsibility, as well? Let the everyday citizen feel the cost of these gazillion-dollar legislative miracles." In reality, of course, everyday American citizens are pulling their weight and then some. They actually pay a higher share of their incomes in taxes—total taxes, not just federal income tax—than super rich Americans. Maverick billionaire investor Warren Buffett has been trying to make this point for some time now. He and his fellow billionaires, Buffett notes, pay taxes at a lower overall rate than their receptionists do. Two years ago, Buffett bet a million dollars to back up that proposition. He challenged any billionaire in the Forbes 400 to prove him wrong. So far not one has. Those Forbes 400 billionaires and their cheerleaders live in a fantasy land where average folk who work hard enough can always "succeed" and get rich. In our real world, here early in the 21st century, average people work hard and watch the rich get richer. The latest evidence of this dynamic comes from an enterprising Wall Street Journal analyst who just completed some fascinating crunching of payroll data from Social Security. "Executives and other highly compensated employees now receive more than one-third of all pay in the U.S.," the Journal's Ellen Schultz observed last week, and that's without counting billions in executive pay "that remains off federal radar screens that measure wages and salaries." Schultz defines as "highly compensated" any employed American who this year will take home over $106,800. That income figure represents the 2009 Social Security payroll tax ceiling. Any wage or salary income under that figure faces Social Security payroll tax. Any income above doesn't. Back in 2007, the payroll tax ceiling stood at $97,500. In that year, only 6 percent of Americans collected paychecks over the ceiling. But this affluent 6 percent took in 33 percent of America's total pay. Five years earlier, in 2002, Americans making more than the federal payroll tax ceiling collected only 28 percent of the nation's pay. Over the five years than ended in 2007, the Journal's Schultz goes on to add, earnings for the top 6 percent jumped up twice as fast as earnings for the bottom 94 percent. This growing inequality in the rewards from work has no legitimate justification. Absolutely no evidence exists to indicate that earners currently in the top 6 percent are working more productively than earners in the bottom 94 percent than they did five years ago, or 50 years ago for that matter. This growing inequality in the rewards from work, on the other hand, does have consequences. Here's one: In 2007, America's top 6 percent collected a whopping $1.1 trillion in earnings not subject to payroll tax. The payroll tax break for high-income earners, the new Wall Street Journal analysis estimates, is now costing the federal Treasury $115 billion a year. But the Journal's focus on the top 6 percent doesn't tell the full story. America's most affluent 6 percent haven't all been prospering at the same rate. In fact, most top 6 percent income-earners have more in common with those below them than those above. Between 2000 and 2006, data from economists Emmanuel Saez and Thomas Piketty document, America's top 1 percent saw their incomes increase eight times faster than the next most affluent 4 percent. These particular Saez-Piketty figures don't count income from capital gains, the profits from the buying and selling of stock and other assets. Capital gains income goes overwhelmingly to the richest Americans—and none of it faces Social Security payroll tax. Read the rest of the article. Labels: income inequality, income tax, Sam Pizzigati, wealth inequality Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Hondouras Imposes State of Siege in SouthA report from the Nicaragua/Honduras border, via Clifton Ross, an independent journalist who is friends with Margot Pepper, who has written recently for D&S:Honduras imposes state of siege in south Thousands of Zelaya supporters stranded en route to meet the president Honduran national police have clamped a state of siege on the southern department of El Paraiso and blocked roads from Tegucigalpa to the Nicaraguan border. Thousands of Hondurans who caravanned from the capital to the border yesterday to support the return of President Manuel Zelaya are stranded in trucks, cars and buses along the road. "People could be arrested, imprisoned or shot for being out of their houses, but we have no houses here to return to," said California-based journalist Clifton Ross, who accompanied the caravan and is stranded in El Paraiso. Honduran coup leader Roberto Micheletti imposed the state of siege on the evening of July 24. It is in effect round the clock in the department of El Paraiso, closest to the border. The rest of the country is under curfew from midnight to 4:00 a.m. Police shot three Zelaya supporters, ran over three more and tear-gassed the crowd several times yesterday, Ross said. They captured, torutured and murdered a 24-year-old from Tegucigalpa. Thousands of supporters had reached the border before the government set up roadblocks, detaining busloads of others who wanted to meet Zelaya. President Zelaya crossed the border yesterday unarmed and negotiated for a half-hour with an Honduran army colonel. Zelaya was denied entrance, the colonel was arrested for talking to him, and the coup government called the state of siege. "Nothing can get in or out of El Paraiso at this point," Ross said. Zelaya supporters slept in their cars, under trucks or on neighbors' porches as heavy rain fell on and off through the night. "People here have been fighting for Zelaya's return for a month now. They are incredibly committed and won't back down," he said. He urged people to call Congress and the White House and demand that the U.S. government pressure Micheletti to lift the siege. White House comment line: 202-456-1111 Congressional switchboard: 202-224-3121 Labels: Clifton Ross, Honduras, Margot Pepper, Rafael Zelaya Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Insurance Whistleblower Before CongressI am so tired of reading about the horrific details of our lousy healthcare system in the foreign press...From The Observer: Whistleblower tells of America's hidden nightmare for its sick poor When an insurance firm boss saw a field hospital for the poor in Virginia, he knew he had to speak out. Here, he tells Paul Harris of his fears for Obama's bid to bring about radical change The Observer, Sunday 26 July 2009 Paul Harris Wendell Potter can remember exactly when he took the first steps on his journey to becoming a whistleblower and turning against one of the most powerful industries in America. It was July 2007 and Potter, a senior executive at giant US healthcare firm Cigna, was visiting relatives in the poverty-ridden mountain districts of northeast Tennessee. He saw an advert in a local paper for a touring free medical clinic at a fairground just across the state border in Wise County, Virginia. Potter, who had worked at Cigna for 15 years, decided to check it out. What he saw appalled him. Hundreds of desperate people, most without any medical insurance, descended on the clinic from out of the hills. People queued in long lines to have the most basic medical procedures carried out free of charge. Some had driven more than 200 miles from Georgia. Many were treated in the open air. Potter took pictures of patients lying on trolleys on rain-soaked pavements. For Potter it was a dreadful realisation that healthcare in America had failed millions of poor, sick people and that he, and the industry he worked for, did not care about the human cost of their relentless search for profits. "It was over-powering. It was just more than I could possibly have imagined could be happening in America," he told the Observer Potter resigned shortly afterwards. Last month he testified in Congress, becoming one of the few industry executives to admit that what its critics say is true: healthcare insurance firms push up costs, buy politicians and refuse to pay out when many patients actually get sick. In chilling words he told a Senate committee: "I worked as a senior executive at health insurance companies and I saw how they confuse their customers and dump the sick: all so they can satisfy their Wall Street investors." Read the rest of the article Labels: health care, health care reform, insurance industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Not Everything Has to Make a Profit (Bill Maher)From HuffPo. My favorite quote: "If conservatives get to call universal health care 'socialized medicine,' I get to call private health care 'soulless vampires making money off human pain.' The problem with President Obama's health care plan isn't socialism, it's capitalism."New Rule: Not Everything in America Has to Make a Profit Bill Maher | Posted: July 23, 2009 11:56 PM How about this for a New Rule: Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Some things we just didn't do for money. The United States always defined capitalism, but it didn't used to define us. But now it's becoming all that we are. Did you know, for example, that there was a time when being called a "war profiteer" was a bad thing? But now our war zones are dominated by private contractors and mercenaries who work for corporations. There are more private contractors in Iraq than American troops, and we pay them generous salaries to do jobs the troops used to do for themselves -- like laundry. War is not supposed to turn a profit, but our wars have become boondoggles for weapons manufacturers and connected civilian contractors. Prisons used to be a non-profit business, too. And for good reason -- who the hell wants to own a prison? By definition you're going to have trouble with the tenants. But now prisons are big business. A company called the Corrections Corporation of America is on the New York Stock Exchange, which is convenient since that's where all the real crime is happening anyway. The CCA and similar corporations actually lobby Congress for stiffer sentencing laws so they can lock more people up and make more money. That's why America has the world;s largest prison population -- because actually rehabilitating people would have a negative impact on the bottom line. Television news is another area that used to be roped off from the profit motive. When Walter Cronkite died last week, it was odd to see news anchor after news anchor talking about how much better the news coverage was back in Cronkite's day. I thought, "Gee, if only you were in a position to do something about it." But maybe they aren't. Because unlike in Cronkite's day, today's news has to make a profit like all the other divisions in a media conglomerate. That's why it wasn't surprising to see the CBS Evening News broadcast live from the Staples Center for two nights this month, just in case Michael Jackson came back to life and sold Iran nuclear weapons. In Uncle Walter's time, the news division was a loss leader. Making money was the job of The Beverly Hillbillies. And now that we have reporters moving to Alaska to hang out with the Palin family, the news is The Beverly Hillbillies. And finally, there's health care. It wasn't that long ago that when a kid broke his leg playing stickball, his parents took him to the local Catholic hospital, the nun put a thermometer in his mouth, the doctor slapped some plaster on his ankle and you were done. The bill was $1.50, plus you got to keep the thermometer. But like everything else that's good and noble in life, some Wall Street wizard decided that hospitals could be big business, so now they're run by some bean counters in a corporate plaza in Charlotte. In the U.S. today, three giant for-profit conglomerates own close to 600 hospitals and other health care facilities. They're not hospitals anymore; they're Jiffy Lubes with bedpans. America's largest hospital chain, HCA, was founded by the family of Bill Frist, who perfectly represents the Republican attitude toward health care: it's not a right, it's a racket. The more people who get sick and need medicine, the higher their profit margins. Which is why they're always pushing the Jell-O. Because medicine is now for-profit we have things like "recision," where insurance companies hire people to figure out ways to deny you coverage when you get sick, even though you've been paying into your plan for years. When did the profit motive become the only reason to do anything? When did that become the new patriotism? Ask not what you could do for your country, ask what's in it for Blue Cross/Blue Shield. If conservatives get to call universal health care "socialized medicine," I get to call private health care "soulless vampires making money off human pain." The problem with President Obama's health care plan isn't socialism, it's capitalism. And if medicine is for profit, and war, and the news, and the penal system, my question is: what's wrong with firemen? Why don't they charge? They must be commies. Oh my God! That explains the red trucks! Bill Maher, host of HBO's Real Time with Bill Maher airs live tonight at 10pm Read the original article. Labels: Bill Maher, capitalism, health care, Huffington Post, privatization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More on Sales Lagging ProfitsFrom Bloomberg:Sales Fail to Keep Pace With Profits as Economy Stays Sluggish By Peter J. Brennan and Steve Matthews July 25 (Bloomberg) Sales growth lagged behind profits as companies in the Standard & Poors' 500 Index beat analysts' estimates this week, a signal that economic recovery may be slow. Second-quarter revenue at Caterpillar Inc. and Freeport- McMoRan Copper & Gold Inc. tumbled more than 30 percent from a year earlier, though earnings topped the average of analysts'predictions. Amazon.com Inc.s profit skidded and sales missed estimates. United Parcel Service Inc.'s sales slid 17 percent. Microsoft Corp. saw annual sales drop for the first time in 23 years as a public company. "The economy is coming back but it is not going to come roaring back," said Mark Zandi, chief economist at Moody's Economy.com. Companies "are going to be reluctant to add investment and jobs until they get better sales." Revenue at 143 companies in the S&P 500 reporting this week, many of them bellwethers for the American economy, fell on average 10 percent from a year ago, according to Bloomberg data. Seventy managed to top the analysts' consensus for sales, while 107 did so for earnings per share. The economy probably declined 1.5 percent in the three months ended June 30, marking the fourth straight drop and the longest such streak since quarterly records started in 1947, according to the median of 66 economists in a Bloomberg survey. 'Shrinking Your Way to Profitability' "The real theme is the divergence between earnings and revenues," said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. "We know companies are cutting costs at a record pace, and that is helping earnings. But you can't keep on shrinking your way to profitability. Eventually, you do damage to your end users. You have to get revenues up to have a sustainable upturn." Industrials led the sectors in earnings surprises, with 19 of 23 firms that reported during the week posting profit higher than analysts projected. Caterpillar, the world's largest maker of bulldozers, reported 72 cents in per-share earnings excluding some costs, more than triple the average estimate of 22 cents. It also raised its full-year forecast, saying stimulus programs are starting to support global demand. "We had a sharp decline and the recovery is likely to be gradual," said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc., which manages about $542 billion. "Because of rising unemployment and rising household savings rate, the rebound will be anemic or weak." Consumer Discretionary Surprises Consumer discretionary companies such as Black & Decker Corp., Ford Motor Co. and Whirlpool Corp. also surprised analysts as 16 out of 18 reported higher than expected EPS. The other sectors this week reporting a bigger increase in profit than analysts expected included health care, such as Boston Scientific Corp., on higher sales, and financials such as SLM Corp., also known as Sallie Mae. "Companies did good jobs of managing costs," said Pat Becker Jr., chief investment officer at Portland, Oregon-based Becker Capital Management Inc., which manages $1.8 billion in assets. "You can only pull that string for so long. You eventually need revenue growth." Sales declined in eight of the 10 S&P 500 sectors, led by a 65 percent fall at steelmakers Nucor Corp. and AK Steel Holding Corp. UPS, the world's largest package-delivery company, reported a second-quarter drop of 17 percent in sales to $10.8 billion, its biggest quarterly decline since the company went public in 1999. Chief Financial Officer Kurt Kuehn said UPS doesn't "have any confidence" in a near-term pickup in demand. 'Double Dip' Some economists fear a second economic contraction, what they call a "double dip." "Expectations of corporate earnings will have to be downgraded again," Nouriel Roubini, the New York University economist who predicted the credit crisis, said in a July 23 research note. "Demand will be weak, most prices will be falling, and companies will therefore have little pricing power and their profit margins will remain squeezed. The expectation that in these conditions profits will rebound strongly is quite far-fetched." Federal Reserve Chairman Ben S. Bernanke told Congress this week the economy is showing "tentative signs of stabilization," with consumer spending leveling out, though businesses have yet to increase investments. To contact the reporter on this story: Peter J. Brennan in Los Angeles at pbrennan3@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net Last Updated: July 25, 2009 00:01 EDT Labels: economic indicators, financial crisis, profits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Intel Says Its Human Rights Were ViolatedTaking the concept of corporate personhood to what might be considered its logical extreme, computer chip titan Intel is claiming that the EU has violated its human rights in a recent anti-trust case.Full story here. Labels: corporate personhood, human rights, intel Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Crisis Is Over: For the Wall Street BonusesIn the second quarter, Morgan Stanley lost $1.26 billion. However, it managed to set aside $3.9 billion for bonuses during that time. In fact, despite 3 straight quarters of losses, it has set aside over $6 billion for bonuses. Looks like they're going to need another bailout soon.From the Washington Post:
Rest of the story is here. Labels: Golden Parachutes, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Wall Stree bonuses Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Unrest in Disneyland From the Orange County Register: 800 demonstrators march on Disney over labor dispute July 14th, 2009, 6:02 pm posted by Adam Townsend, Staff Writer Roughly 800 Disney hotel workers, union organizers, outside demonstrators and members of the Episcopal clergy marched from the Convention Center, shutting down Harbor Boulevard to the Disneyland entrance Tuesday afternoon - another protest rally in the labor dispute between Disney and workers at the three Disneyland hotels that has simmered at a stalemate for a year and a half. Since the old contract expired Feb. 1, 2008, negotiations have stalled over healthcare issues, and the Orange County branch of the Unite Here hotel union representing the workers has fortified itself for a strike by merging with the Los Angeles chapter - that branch has a strike fund to pull money from if workers vote to stop work and picket the self-described "happiest place on Earth." Read the rest of the article and check out the slide show. (Hat tip to LaborNet). Labels: Disneyland, labor protest, Unite Here Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nice Analysis of Complexities of Online PiracyFrom The Financial Times:Pirates on parade By Salamander Davoudi and Tim Bradshaw Fiancial Times Published: July 22 2009 03:00 | Last updated: July 22 2009 03:00 In April, when a Swedish court sentenced the founders of Pirate Bay to one-year prison terms for promoting copyright infringement on the world's largest filesharing website, the music and film industries gave a standing ovation. But their triumph was short-lived. The four men, who "tweeted" vigorously on Twitter during their trial, may not be able to communicate so freely from their prison cells. But their struggle for internet freedoms has developed into a political issue: Sweden's Pirate party , dedicated to the legalisation of file-sharing, won a seat last month in the European parliament. The war being waged by the entertainment industry against online piracy was further weakened when its powerful ally and champion of internet policing, Nicolas Sarkozy, president of France, had his anti-piracy bill watered down by his country's highest court in April. Ten years after the launch of Napster, the first online file-sharing service, the music industry is no closer to solving the problems created by digital piracy. As advances in technology make television, film and video games companies more vulnerable to piracy, that decade-long failure to change consumer behaviour threatens to undermine business models across the media industry. Piracy has helped to create momentum around legal and intellectual challenges to copyright law. "Piracy has gone from being a simple argument about infringement or using something without permission to questioning the very basis of copyright," says Gregor Pryor, a digital media partner at Reed Smith, the international law firm. Read the rest of the article Labels: filesharing, intellectual property, internet piracy, media industry, technology Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Commercial Property Shoe To Drop?From The Financial Times:US banks warn on commercial property Financial Times By Francesco Guerrera and Greg Farrell in New York Published: July 22 2009 19:21 | Last updated: July 22 2009 19:21 Two of America's biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans. The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors' fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market. The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery. Read the rest of the article Labels: baillout, commercial property, derivatives, financial crisis, Morgan Stanley, mortgage meltdown, Wells Fargo Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 2Q Profits: Cost and Tax Cuts>Revenue LossFrom Reuters:Corporate cost-cuts: early gains soon turn to pain? Tue Jul 21, 2009 4:43pm EDT By Nick Carey - Analysis CHICAGO (Reuters) Much of Corporate America has slashed costs to stay in the black during the recession, but wielding the knife too heavily could also remove the ability to grow in a recovery. "If you cut into flesh long enough, eventually you find bone," said David Rosenberg, chief economist at Gluskin Sheff in Toronto. "Cost cutting is not a bottomless pit." Firing people, introducing hiring freezes, halting investments, trimming budgets or even skimping on office supplies are time-tested ways to prove the old adage that a penny saved is a penny earned. A slew of companies reported better-than-expected first-quarter results because aggressive budget slashing more than made up for falling sales. According to Rosenberg, 40 percent of companies missed their top line expectations in the first quarter. And as the bulk of results for the most recent quarter hits in the next two weeks, many U.S. companies are expected to do the same again. Some already have. Perhaps the biggest example so far has been General Electric Co (GE.N), which managed on Friday to report earnings that whizzed past expectations despite a drop in revenue that was more dramatic than Wall Street had predicted. The major reasons: cost cutting and a dip in its tax rate. Mind you, investors can be smart to the numbers game. They question the quality and sustainability of such results--and despite the earnings beat GE's shares dropped more than 5 percent on Friday. Read the rest of the article Labels: economic indicators, financial crisis, profits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Key US Companies Report Strong 2Q ProfitsFrom The Financial Times, again:Profits boost for US industry Financial Times By Hal Weitzman in Chicago and Michael Mackenzie and Francesco Guerrera in New York Published: July 21 2009 19:22 | Last updated: July 21 2009 19:22 Corporate America took another step along its long road to recovery on Tuesday as companies from the industrial heartland of Peoria to the technology hubs of Silicon Valley reported stronger-than-expected profits and bullish outlooks. The wave of positive second-quarter results from Caterpillar, DuPont and Apple, which came a week after several banks beat analysts’ expectations, fuelled investors' hopes for a rebound in the US economy. Shares in Caterpillar rose nearly 8 per cent on Tuesday after the world's biggest maker of construction equipment un-veiled profits far ahead of Wall Street’s expectations and issued a more optimistic outlook. Its upbeat comments fuelled hopes that the global industrial economy was recovering. The manufacturer is a bellwether of the US economy but also heavily relies on overseas markets. Read the rest of the article Labels: Apple, Caterpillar, DuPont, economic indicators, profits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China To Use Forex Reserves for M and AFrom The Financial Times:China to deploy forex reserves By Jamil Anderlini in Beijing Financial Times Published: July 21 2009 19:09 | Last updated: July 21 2009 19:09 Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country's premier, said in comments published on Tuesday. "We should hasten the implementation of our 'going out' strategy and combine the utilisation of foreign exchange reserves with the 'going out' of our enterprises," he told Chinese diplomats late on Monday. Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports. The "going out" strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China. Qu Hongbin, chief China economist at HSBC, said: "This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets." Read the rest of the article Labels: China, financial crisis, foreign exchange, Mergers, Monetary Policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What's Your IQ?Inequality Quotient, that is.Cornell University's Center for the Study of Inequality is offering an online quiz to test your knowledge of current data on wealth, income, and racial inequities in the U.S. When you’re done with their 12 questions, you get a histogram that shows how you fared relative to other quiz-takers. (Hat tip to Too Much Weekly, a very informative and well-written project of the Council on International and Public Affairs, edited by labor journalist Sam Pizzigati.) Labels: Center for the Study of Inequality, Inequality, Too Much Weekly Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Recession BusterMark Mueller's motto is "God, Guns, Guts, and American Pick-Up Trucks." The owner of Max Motors in Butler, Missouri used to give away handguns with every car purchase, but times are tough for car dealers and he's had to upgrade his promotion. So he's giving away a voucher for an AK-47 to go with your new truck.If you think this promotion is amazing, you haven't been paying enough attention to the right wing in this country, including the cable news networks. CNN did one of the less reactionary interviews with Mueller, who was so annoyed by the interviewer's "left-wing bias" that he had to ask her: "You don't have a problem with God, do ya? ... You don't think God wants us to defend ourselves?" She was so flustered, she almost said "WWJC" (what would Jesus carry?), before agreeing that God was too powerful to need a gun himself. Despite the "bias," Mueller says on his website: Media coverage at Max Motors has been fantastic. We want to thank everyone who has emailed us and commented about our latest promotion. We also want to thank everyone that [sic] has come down to the dealership. With the dealer's website dominated by coverage of their media coverage, you can almost lose track of their normal sales pitch: "Guaranteed Lowest Price in the Nation!" And in an even bigger font and capital letters: "BIG CITY CAR DEALERS ARE CLOSING THEIR DOORS, BECAUSE EVERYONE IS LINING UP AT OURS!" You can see all the positive media spin at Max Motors' website, along with enlightening comments from lovers of GGG&AP-UT's ... and find out how to subscribe to their Twitter feed. Labels: AK-47, guns, right-wing gun nuts, right-wing media Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Revisiting Bretton Woods (Literally!)Want to taste the same four-course meal that John Maynard Keynes enjoyed?You can mark the 65th anniversary of the Bretton Woods International Monetary Conference at the place where it all began, as The Mount Washington Resort is celebrating its own place in history next weekend. The upscale hotel in the White Mountains of New Hampshire will "celebrate the historic occasion by offering guests interested in exploring our world economic history [sic]." Sponsored by New Hampshire's statewide Chamber of Commerce, the weekend is aptly titled "The Gold Standard Package." Rates start at $194.40 per person, double occupancy. Guests will spend Saturday, July 25, listening to the sober analyses of mainstream economists, including the official historian of the IMF. The festivities begin on Saturday morning with a treasure hunt, called the Gold Rush (no, we're not making this up). Here's their description: On Saturday night, you can enjoy a "commemorative dinner ... based on the original menu served at the farewell dinner on July 22, 1944." But be warned: No lobster or escargot -- it was wartime, after all. All the details are here. Labels: Bretton Woods agreement, IMF, Mount Washington Hotel, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Jon Stewart on Goldman SachsI can't figure out how to embed it here, but the folks at Seeking Alpha did--a great segment from Jon Stewart taking on Goldman Sachs, in the vein of Matt Taibbi (whose Rolling Stone article about Goldman Sachs we've reported here). Watch the video here.Speaking of Matt Taibbi, he was interviewed last week on Here and Now, a program on Boston's WBUR. Right after that was an interview with TARP-watchdog, Harvard Law professor, and bankruptcy expert Elizabeth Warren. Both were great interviews; listen to them here. Robert Zevin made similar points about Goldman in the talk he wrote for a D&S house party back in May: All that Glitters Is Goldman Sachs. Labels: Daily Show, Elizabeth Warren, Goldman Sachs, Jon Stewart, Matt Taibbi, Robert Zevin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What Kind of Reporting Do We Deserve?A nice plug for D&S over at Counter Economics blog, where the main blogger is an e-subscriber to D&S. He singled out for praise Jerry Friedman's article Bernanke's Bad Teachers, which we just posted to the website.What Kind of Financial and Economics Reporting Do We Deserve? The differences between conventional media and the publication Dollars and Sense on the topic of economics and the present economic crisis is stark. From the conventional media the topic of the biases and corruption of our policy shapers such as Bernanke, Geithner and Summers is never brought up. According to the conventional media they are simply "public servants"; Alan Greenspan was one of the top economists when selected to head the Fed (which he never was), and Bernanke is a deep thinking scholar of the depression, who is providing the best lessons from that crisis to this one. What we are not supposed to notice is that all of these economists belong to a country club of the elite and are part of interlocking directorates. The only thing deep about them is the deep corporate welfare and consistently pro-financial industry approach to every single policy decision. As Larry Summers is paid $5 million a year to do a few hours a week of influence peddling for a hedge fund, and the other decision makers are similarly on the take, their first question is always the following: "How can we further enrich investment banks in particular and the financial industry generally. Secondly, how can we spin it so it sounds good to the average person" Every article and television debate is centered around the same philosophy. In order for the country to do well, Citibank absolutely must be able to charge 20% interest. Any deviation from this is simply the first step on the "road to socialism." The bias is so deep that during discussions of unfair credit card practices, the typical show moderator will offer "If we restrict what credit cards can charge, then people won't be able to get credit." Are we the only one's who are insulted by the fact that the moderators on these shows seem to work for Citibank? One's financial well being as well as sanity is almost predicated upon not watching and reading the conventional media as it has a perverting effect both on one's knowledge level and values. If Business Week or Fortune Magazine ever had a thought opinion or glancing emotion that was not pro corporate and completely anti worker, environment and sustainability, we would like to know what it was. The financial media landscape is abysmal, but we have an antidote. Dollars and Sense (D&S) writes from the perspective of a heretical concept in our time; that the economy should actually benefit the people that work in it. D&S actually questions the official story and provides financial and economics reporting within a context of values. Not mindless repetition of catch phrases regarding "free markets," to paper over free rides for the ultra wealthy, but actual values. For most Americans, values are taught to be important, but only in certain settings. There are the values for "us," but then the values for GM, Monsanto and Goldman Sachs, and because they are businesses and must make a profit, they can do things no one would tolerate from us personally. How this double standard of values was developed is the topic of a different article, but Dollars and Sense does not accept the double standard. This is one reason why their coverage and writing is so clean. Read the rest of the post. Labels: Ben Bernanke, Counter Economics, Gerald Friedman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UN Calls for Overthrow of Free Market IdeologyFrom yesterday's Telegraph..The United Nations has called for a return to state-led "industrial policy" for poorer countries in what amounts to a rejection of the free-market thinking that has dominated global institutions for the last 30 years. By Ambrose Evans-Pritchard Published: 8:04PM BST 16 Jul 2009 Supachai Panitchpakdi, head of the UN Conference on Trade and Development (UNCTAD), said the financial crisis had exposed the deep failings of growth models adopted in Africa, the Pacific, and parts of Asia, usually under pressure from the West. "Some advanced countries may be seeing an end to the crisis but it's still darkness at the end of tunnel for the least developed, and many of them are going backwards. We're talking about a billion malnourished people," he said in London. Capital flows to poorer states and export earnings have together collapsed by $2 trillion (£1.22 trillion) since the credit crunch began. "This is an alarming trend, and it's not a result of their own doing," he said. Mr Supachai said the world had spent some $5 trillion on financial support since the crisis began but almost nothing has reached the most vulnerable countries. "There is very little trickle down," he said. While Eastern Europe has been rescued by the International Monetary Fund, the world's 49 "least developed countries' (LDCs) are too poor to meet the loan conditions. UNCTAD said market ideology has distorted the structure of farming in many of these countries over the years and prevented them creating light industries and processing needed to move up the manufacturing ladder. "The market-led reforms since the early 1980s have, to a large extent, failed to correct this deep-seated weakness," said the agency's annual report. Decrying a "false dichotomy" between the virtues of the free market and the alleged vice of state dirigisme, it said there is much to learn from the calibrated "industrial policies" of Malaysia, Sweden, Taiwan, and Finland. "Not all decisions made by governments are always rational. Governments are subject to capture by special interests. The same criticisms, however, apply equally to the market," it said. UNCTAD said the commodity boom of recent few years masked the underlying problems, as well as leaving countries exposed to sudden shocks and debt crises. The claim may raise eyebrows among those in the City who think that a "commodity supercycle" driven by China has transformed the prospects of mineral-rich states, despite the price correction over the last year. The UN's tilt towards "smart dirigisme" would have caused apoplexy in Washington under the Bush Administration, and will remind some critics of development orthodoxies in the 1960s. It may receive a less chilly reception from President Barack Obama and his Democratic Congress. As global leadership shifts ineluctably from West to East it is no longer possible in any case to ignore the success of Asia's state-led systems. The ideological baton is passing. Read the original article. Labels: economic crisis, Free Market, industrial policy, recession, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economy Is Even Worse Than You Think (WSJ)From Tuesday's WSJ:The average length of unemployment is higher than it's been since government began tracking the data in 1948. By MORTIMER ZUCKERMAN | July 14, 2009 The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad. The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion. Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates: [Commentary] David Klein —June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse. —More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll. —No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey. —The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million. —The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration). —The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high. —The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour. —The goods producing sector is losing the most jobs -—223,000 in the last report alone. —The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance. Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period. Read the rest of the article. Labels: economic crisis, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Foreclosures Up 15% In 2009This is hardly surprising. One out of every five homeowners owe more than their houses are worth. The real unemployment rate is over 16% and climbing. And banks are refusing to refinance sour loans, even with $50 billion from the Obama Administration. You can't unpop a bubble.From the wires: The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills. --d.f. Labels: Daniel Fireside, foreclosures, homeownership, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What's the Meanest City?Los Angeles is #1, according to The National Law Center on Homelessness & Poverty (NLCHP) and the National Coalition for the Homeless (NCH) -- #1 in criminalizing the homeless. The two organizations released a report on Monday analyzing how cities target homeless people, such as laws against sleeping, eating, or sitting in public spaces.The report, titled "Homes Not Handcuffs," includes information about 273 U.S. cities. It also ranks the top 10 U.S. cities with the worst practices of criminalizing homelessness. Top 10 lists are always easier for the mainstream media to comprehend, so that's been the story for the few media outlets that have covered the report (Reuters reporter Steve Gorman's article is the best we've seen so far; it's also republished on Common Dreams). The full report explains how the growing numbers of urban homeless have been targeted for criminalization, how their civil rights have been violated in some cases, and detailed summaries of legal cases against some of the most abusive anti-homeless laws. And in case you want to know, the "Top Ten Meanest Cities" are: 1. Los Angeles, CA 2. St. Petersburg, FL 3. Orlando, FL 4. Atlanta, GA 5. Gainesville, FL 6. Kalamazoo, MI 7. San Francisco, CA 8. Honolulu, HI 9. Bradenton, FL 10. Berkeley, CA Berkeley??? On June 12, 2007, Berkeley's City Council unanimously passed the "Public Commons for Everyone" initiative to "clear the streets of aggressive and disruptive behavior." This law targets a wide range of behavior, including lying on or blocking the sidewalk, smoking near doorways, having a shopping cart, tying animals to fixed objects, littering, drinking in public, public urination and defecation and shouting in public. ... Osha Neumann, an attorney who defends homeless individuals, told Indybay.org that homeless people are frightened by these measures and many are thinking about leaving town. He also indicated that funding for meals and other services for homeless people have been reduced, and there are not enough shelter beds. Read the full report. Labels: homelessness, Homes Not Handcuffs, meanest cities Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Beyond the Official Unemployment RateToday's NY Times has a good article about the real level of unemployment. Although the headline, "Part-Time Workers Mask Unemployment Woes," sounds like it could be a story about undiagnosed depression (psychological, not economic), it actually gives a pretty good explanation of why the official unemployment rate doesn't tell the real story.You can read a much better article about "The Real Unemployment Rate" in the current issue of Dollars & Sense. Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What Are You Drinking?There's a new brand of bottled water, and unlike the others, it's 100% politically correct. But you wouldn't want to drink it. "B'eau-Pal Bottled Water" was launched yesterday in London. In beautifully designed bottles, it is authentic water from Bhopal, India.B'eau-Pal is the inspired concoction of The Yes Men, a group of culture-jammers who define their work as "Identity Correction -- Impersonating big-time criminals in order to publicly humiliate them. Targets are leaders and big corporations who put profits ahead of everything else." Here's how The Yes Men describe their new brew: "The unique qualities of our water come from 25 years of slow-leaching toxins at the site of the world's largest industrial accident. To this day, Dow Chemical (who bought Union Carbide) has refused to clean up, and whole new generations have been poisoned." The Yes Men brought their new product to Dow's UK headquarters yesterday -- but no one was home. It seems Dow's corporate honchos got (toxic) wind of The Yes Men's impending visit, according to their press release: Twenty Bhopal activists, including Sathyu Sarangi of the Sambhavna Clinic in Bhopal, showed up at Dow headquarters near London to find that the entire building had been vacated.Guess they all went out for drinks? Almost 25 years after the Bhopal catastrophe, a new report by the Sambhavna Trust shows that local groundwater, vegetables, and breast milk are contaminated by toxic quantities of nickel, chromium, mercury, lead, and volatile organic compounds. Read more facts about Bhopal's poisoned water from the Bhopal Medical Appeal, or get some quick facts from B'eau-Pal's label. And check out The Yes Men's new movie, for more confrontations with scary corporate criminals. Labels: B'eau-Pal, Bhopal, Dow Chemical, The Yes Men, Union Carbide Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Blacks See Wages ShrinkAnother very troubling report from the Economic Policy Institute (EPI). In their latest weekly economic snapshot they show that African Americans are the only group of workers who have seen their wages go down during the recession. As noted in our last post (see point 3), the official unemployment rate for African Americans is more than 50 percent higher than the national average (14.7% vs. 9.5%). From EPI: African Americans see weekly wage decline Labels: Black jobless rate, Black wages, Economic Policy Institute, EPI, wage gap Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
