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!). Global Imbalances and the Triffin DilemmaInteresting piece from Reuters:January 13th, 2009 Global imbalances and the Triffin dilemma By: John Kemp John Kemp is a Reuters columnist. The opinions expressed are his own For the world monetary system, the financial crisis which erupted in the summer of 2007 is a cataclysmic shift that will prove every bit as significant as the outbreak of the First World War (which heralded sterling's demise as a reserve currency) and the suspension of gold convertibility in 1971 (which marked the end of bullion's monetary role). The crisis marks the passing of an era in which the U.S. dollar has been the world's undisputed reserve currency for making international payments and storing wealth. The dollar is not about to lose its reserve status completely. But it is set to become less "special". In future, it will increasingly have to share its reserve status with the euro, the yen and perhaps the currencies of the other advanced economies. In time, it may even have to share its status with China's yuan. In fact, the whole concept of a single reserve currency (the dollar) and a principal reserve asset (U.S. Treasury bonds) is set to undergo a profound shift. Policymakers, businesses and households will in future think about and hold a whole portfolio of competing reserve currencies and assets. Multipolarity in the world of security and economic relations is set to be matched by a world with multiple reserve currencies. Read the rest of the article Labels: financial crisis, Monetary Policy, trade policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Unrest in Eastern Europe GrowsFrom The Observer. The article notes that "Another problem in Romania, as elsewhere in the region, is that many new middle-class house owners have taken out mortgages in euros. With local currencies collapsing, repayment is becoming harder." Also note that German export recovery is highly dependent on Eastern European demand for its capital and consumer goods, and that the longer Germany stays in the doldrums, the more difficult global recovery will be to achieve.Eastern Europe braced for a violent 'spring of discontent' Riots and street battles are set to spread through Bulgaria, Romania and the Baltic states as inflation, unemployment and racism fuel tension, reports Jason Burke Jason Burke The Observer, Sunday 18 January 2009 Eastern Europe is heading for a violent "spring of discontent", according to experts in the region who fear that the global economic downturn is generating a dangerous popular backlash on the streets. Hit increasingly hard by the financial crisis, countries such as Bulgaria, Romania and the Baltic states face deep political destabilisation and social strife, as well as an increase in racial tension. Last week protesters were tear-gassed as they threw rocks at police outside parliament in Vilnius, capital of Lithuania, in a protest against an austerity package including tax rises and benefit cuts. In Sofia, Bulgaria, 150 people were arrested and at least 30 injured in widespread violence. More than 100 were detained after street battles between security forces and demonstrators in the Latvian capital, Riga. According to the most recent estimates, the economies of some eastern European countries, after posting double-digit growth for nearly a decade, will contract by up to 5% this year, with inflation peaking at more than 13%. Many fear Romania, which joined the European Union with Bulgaria in 2007, may be the next to suffer major breakdowns in public order. "In a few months there will be people in the streets, that much is certain," said Luca Niculescu, a media executive in Bucharest. "Every day we hear about another factory shutting or moving overseas. There is a new government that has not shown itself too effective. We have got used to very high growth rates. It's an explosive cocktail." Major Romanian companies threatening massive job cuts include low-cost car-maker Dacia, where up to 4,000 posts could go if sales do not recover. A spokeswoman for Renault, which owns Dacia, said such deep cuts would only be considered in a "catastrophic scenario", but production in Romania has already been halted for two months after local demand plunged by more than half. Other major companies have already announced plans to relocate, with one Japanese wire factory heading for Morocco. Read the rest of the article Labels: Eastern Europe, financial crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Firms Deepen Job, Wage CutsOne more shibboleth of conventional economics, that of the "stickiness of wages downwards," increasingly challenged by the terrible reality of the crisis. The article is subscriber-only accessible, but this excerpt gives a reasonable indication of what's there. From The Wall Street Journal:Big Firms Deepen Job, Wage Cuts Strapped U.S. companies, while continuing to slash their work forces, are deploying a once-rare tool to trim labor costs -- pay cuts. On Friday, microchip maker Advanced Micro Devices Inc. in Sunnyvale, Calif., said it would temporarily cut pay between 5% and 20% for workers and executives. The chip maker also said it would eliminate 1,100 positions. That news was part of yet another round of large job cuts by big-name businesses. Labels: financial crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A New US Option: An "Aggregator Bank"From The Wall Street Journal, a short excerpt from an interview with FDIC head Bair, and an excerpt and link to a longer Financial Times piece from yesterday on newer options being considered by policymakers, and the dire financial situation prompting such shifts.January 16, 2009, 6:05 pm WSJ Interview: FDIC's Bair Fleshes Out 'Aggregator Bank' Idea Federal Deposit Insurance Corp. Chairman Sheila Bair spoke with The Wall Street Journal's Damian Paletta about some of the options regulators are considering to target the assets weighing down banks. WSJ: There has been some discussion about the federal government creating an "aggregator bank," which would be a facility that could buy troubled assets from financial institutions. How would it work? Ms. Bair: The idea here is that the aggregator bank would buy the assets at fair value. Some are concerned that you'd have to mark the assets down to purchase them, but I think it could help provide some rational pricing, actually, for the market in some of these assets because we don't have really any rational pricing right now for some of these asset categories. The idea would be to set up a facility, it could be structured as a bank, to capitalize it with some portion of the TARP funds. Financial institutions that wanted to sell assets into the bank could also perhaps take part of their payment as an equity interest in the aggregator bank to provide an additional cushion. If you sold $1 of assets into the bank, you would get 80 cents in cash and you would get 20 cents in an equity interest in the bank. So that would be an additional cushion against loss. With a combination of private equity contributions plus tarp capital, I think you could leverage that into some fairly significant volume to purchase assets. WSJ: What would the aggregator bank do with the assets? Ms. Bair: The aggregator bank could use multiple tools. It might want to hold some of the assets. It might make sense to just hold them for a while. You might want to securitize some of them. You could do a covered bond issue. I think there are lot of different strategies that could be used to get these assets back into the market. WSJ: Why do regulators think it's important to do address the assets? Ms. Bair: I think everybody agrees it's important to provide some troubled asset relief, because I think it's key to getting private equity capital back into banks. They need to have some certainty about what the tail risk is on some of these assets. By doing the insurance wrap or providing a bank to just get them off the balance sheet complete, I think that would help us get some private capital back into banks. WSJ: What is the status of talks? Are they at a hypothetical stage? Ms. Bair: It's beyond hypothetical. I think all of the agencies are committed to coming up with a program for troubled asset relief. We're vetting the various different structures, the pros and cons of those. I think we would all like to have something in place in the not too distant future. I'm hoping the decision making on it would be fairly quick. It has been discussed for some time. So I think we are nearing the point to make a decision. But it's complicated. We want to make sure we get it right. from the Financial Times Governments eye new tools for credit crisis By Peter Thal Larsen Financial Times Published: January 16 2009 20:11 | Last updated: January 16 2009 20:11 When governments in Europe and the US unveiled co-ordinated bail-outs of their banking industries last October, politicians and regulators rightly believed they had narrowly avoided a collapse of confidence of the financial system. But this week it became clear governments will have to take on even more risk from the private sector if they are to restore the flow of credit to the economy. Citigroup's $8bn loss for the fourth quarter offers a vivid illustration of how the government bail-outs have failed to stabilise flailing markets and a deteriorating economy that continues to undermine the value of banks' assets. The US government's decision, finalised late on Thursday, to insure Bank of America against "unusually large losses" on $118bn (89bn euros, 80bn pounds) of loans on its balance sheet underscores the sheer scale of the commitments taxpayers are being forced to make to shore up confidence. If government intervention were limited to mopping up the residual mess left over from last year, this would represent little more than a minor headache. But the real problem facing policymakers is that, despite spending or committing hundreds of billions of dollars, the banking system is still not distributing credit to the economy. Consumers and companies are being starved of credit, raising the prospect of a continuing downward economic spiral. Read the rest of the article Labels: bailout, banking system, FDIC, financial crisis, Sheila Bair Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More on New UK Bank InitiativeFrom The Observer. An astonishing tidbit (of which there are several, including a proposal to concert Northern Rock from a "bad bank" to a "good bank") from the article:The priority now is tackling banks' toxic debts, after last week's rout in bank shares which wiped 27bn pounds off the value of Barclays in one hour's trading. Brown ready to risk billions on debt insurance In a critical bid to revive lending, Labour is to underwrite toxic assets and use Northern Rock to boost the mortgage market. Gaby Hinsliff, Ruth Sunderland and Jill Treanor report Gaby Hinsliff, Ruth Sunderland and Jill Treanor The Observer, Sunday 18 January 2009 Gordon Brown is preparing an unprecedented multi-billion pound plan to insure British banks against future losses from so-called toxic assets, creating a safety net under the financial system which could unblock lending to homeowners and businesses. The scheme would force out any bombshells still hidden in the system, but risks exposing taxpayers to huge losses if the bad loans decline more sharply than expected. However, ministers hope it could restore confidence by setting a floor beneath which banks know they will not fall, and could be less of a gamble than proposals to create a "bad bank" into which lenders simply dump unwanted debt. Ministers are also considering investing 10bn pounds in the state-owned Northern Rock, turning it into a "good bank" lending freely to plug current gaps in mortgages and commercial lending. Since it was nationalised, Northern Rock has wound down its lending, but MPs want the government to exploit its holding. The prime minister yesterday hinted at the plans, which will require lengthy negotiations but could be sketched out as soon as tomorrow, when he demanded banks disclose the true scale of losses they are harbouring. He told the Financial Times that "where we have got clearly bad assets, I expect them to be dealt with". Read the rest of the article Labels: bailout, banking system, financial crisis, Gordon Brown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Brown Orders UK Banks To Come CleanFrom The Financial Times. It's perhaps instructive to recall in this vein that it was Britain's shift to recapitalization in October, itself prompted by Ireland's guarantee of bank deposits, that forced Secretary Paulson to re-engineer the TARP.Brown orders Britain's banks to come clean By George Parker, Lionel Barber and Jean Eaglesham Financial Times Published: January 17 2009 00:05 | Last updated: January 17 2009 00:05 Gordon Brown told banks to come clean over the extent of their bad assets on Friday, admitting the scale of the banking crisis could threaten the global economy with a new phenomenon: "financial isolationism". With speculation growing that the government will be forced to stage another bank rescue, the prime minister told the Financial Times he had been urging the banks for almost a year to write down their bad assets. "One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," he said. Speaking amid mounting market concerns that banks face further heavy losses, Mr Brown said: "We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with." Mr Brown's team is looking at options to keep the banks afloat as new writedowns threaten to eat through the 50bn pounds in capital injected in October, of which 37bn pounds was provided by the taxpayer. Officials are working on plans possibly to underwrite the toxic assets or buy them outright and place them in a "bad bank". Read the rest of the article Labels: bailout, banking system, financia crisis, Gordon Brown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs (Jan. 11-17)From Mark Heshmeyer at CoStar Group.In this week's issue:
Read the full report, but the "To the mat" section is worth posting here in full: To the Mat World Wrestling Entertainment in Stamford, CT, is throwing 10% its staff to the mat and counting to three. This reduction of about 57 employees will result in annual savings of about $8 million and doesn’t count any of its wrestlers, who are independent contractors. In addition to staffing, the company has completed a comprehensive evaluation of its operating and capital expenditures and has identified additional efficiencies, but did not go into detail. Labels: closures and layoffs, Mark Heschmeyer, recession, World Wrestling Entertainment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Labor to BoA: 'We See Your Greedy Side' From the excellent new Open Media Boston, which has more photos and video of this event: by Jesse Kirdahy-Scalia (Staff), Jan-15-09 BOSTON/Financial District - Members of local labor unions, labor justice and housing justice groups, SEIU and AFL-CIO spokespersons rallied today outside Bank of America's building on Federal Street as part of a national campaign to demand the company cease its attempts to defeat the passage of the Employee Free Choice Act and use Troubled Assets Relief Program funds to help Americans. Among the approximately 65 people who rallied outside Bank of America's building today in 15° weather were members from SEIU Locals 615, 509, 1199 and the SEIU Massachusetts State Council, AFL-CIO and its affiliates, Jobs with Justice, Massachusetts Interfaith Worker Justice, and City Life. Protesters held a banner which read, "It's time our economy worked for everyone: support Employee Free Choice" and signs depicting piles of money and corporate jets while they chanted, "Banks get bailed out, people get thrown out!" and "Bank of America, you can't hide! We can see your greedy side!" According to an action alert about today's rally sent through state and local listservs, Bank of America has joined other employers such as Wal-Mart, Home Depot and McDonald's in trying to defeat the Employee Free Choice Act. Harris Gruman, Massachusetts Political Director for the State Council of SEIU in Massachusetts, said Employee Free Choice, health care reform and a stimulus package for working Americans are all necessary for economic recovery. Gruman said Bank of America is not using TARP money to benefit working people and communities. "They're exhibiting all this corporate greed. They're not helping people facing foreclosures, not helping workers have a better life, they're not loaning money, even, to other business. They're sending the money overseas. It's not part of what we need for a real recovery here." Read the rest of the article. Labels: AFL-CIO, Bank of America, Open Media Boston, SEIU, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economists for Full EmploymentThe group Economists for Full Employment are circulating a petition to be given to Obama and Congress.If you are based in the U.S. and wish to sign the petition, please click here. To see a full list of U.S.-based signatories, please click here. Members and supporters of our network have drafted a petition to be sent to President-elect Obama. This petition will also be circulated to key policy makers and members of the U.S. House and Senate in early January 2009, urging them to ensure that the jobs created are accessible to women, minorities and the poor and that job creation initiatives include social services, alongside infrastructure development and "green jobs". The petition also urges the Administration and lawmakers to set up mechanisms for consulting civil society and employers' and workers' organizations, as well as for monitoring and evaluating employment-impacts. The petition: We the undersigned, Labels: Economists, full employment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Progressive Economists Take a StandHT to URPE. Economists should click here to sign on to this statement.Read the full-length statement here (pdf). Read a shorter version here (pdf). The Obama administration and the new Congress will soon be debating plans to revive the U.S. economy. To contribute to this debate, a group of progressive economists sponsored by PERI and the New School's Schwartz Center for Economic Policy Analysis have issued a statement of Principles for Economic Recovery and Financial Reconstruction from Progressive Economists, accompanied by a detailed Progressive Program for Economic Recovery and Financial Reconstruction. Labels: Economists, PERI, Statement of Principles Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Tax Havens For Bailout RecipientsA new Government Accountability Office (GAO) report shows that many of the largest companies receiving bailout billions have set up hundreds of off-shore tax shelters to avoid paying taxes. Major scofflaws include Citigroup, Morgan Stanley, AIG, and Bank of America.From the Washington Post: A majority of America's largest publicly traded companies and the U.S. government's largest federal contractors -- including some receiving millions in federal bailout money -- use multiple subsidiaries in offshore tax havens to conduct business and avoid paying U.S. taxes, a new report finds. The rest of the pitiful story is here. Labels: Bank of America, Citibank, Morgan Stanley, tax dodges Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Bailout Billions for ChryslerChrysler's lending unit just received an additional $1.5 billion loan from the Treasury Department.Chrysler has previously received emergency loans of $4 billion. Labels: auto industry, auto industry loans, Chrysler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Bailout Bucks for Bank of AmericaThe Reagan-era fairy tale about the "welfare queen in the Cadillac" has been firmly replaced by the very real welfare CEO in a stretch limo.Today's case exhibit is Bank of America. After doing who-know's-what with the last $25 billion dollars in government dough (according to press reports they used it to buy up Merrill Lynch and Countrywide, but there's still no official accounting of TARP handouts) B of A just received another $20 billion infusion to back up the bad debt on the company's books. The latest infusion of government cash (plus guarantees to absorb the bulk of future losses from bad debt) come after repeated public statements by CEO Kenneth D. Lewis that the company was in fine shape. The latest payout means that $380 billion of the $700 billion TARP funds will have been disbursed before Barack Obama takes office (as of today, anyway). Labels: bailout, Bank of America, financial crisis bailout, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Congress Moves on Stimulus and Bailout (NYT)Posted recently to the New York Times website:By DAVID M. HERSZENHORN Published: January 15, 2009 WASHINGTON—In two major advances for President-elect Barack Obama's economic agenda, House Democrats on Thursday unveiled an $825 billion fiscal recovery package, a combination of spending and tax cuts aimed at putting millions of unemployed Americans back to work, and the Senate voted to release the second half of the Treasury's $700 billion financial bailout fund, sparing the new administration a messy legislative fight. The recovery package, put together by Congressional Democrats in partnership with Mr. Obama, includes huge increases in federal spending on education, aid to states for Medicaid costs, temporary increases in unemployment benefits and a vast array of public works projects to create jobs. The Senate is developing its own version of the recovery package, and intense haggling and fierce lobbying are expected over the next few weeks, not just between Democrats and Republicans but also between the new administration and Congress, as lawmakers push to pass the stimulus bill by mid-February. A vote by the Senate to block the banking bailout money could have upended that aggressive timetable, ensnaring the new president in a contentious veto fight during his first days in office. Instead, 6 Republicans joined 46 Democrats in voting late Thursday afternoon to release the $350 billion in bailout money, giving Mr. Obama powerful ammunition to further stabilize the fragile financial sector. Because the release of the rest of the bailout money could have been blocked only by a vote of both chambers of Congress, the Senate's vote assures that the money will be released and means that no action by the House is necessary. Read the rest of the article. Labels: bailout, economic stimulus, financia crisis, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Privatization = DeathMore evidence for the Shock Doctrine files: researchers for the Lancet have concluded that mass privatizations after the fall of the Soviet Union lead to the deaths of 1 million men.From the BBC: The rapid mass privatisation which followed the break up of the Soviet Union fuelled an increase in death rates among men, research suggests. The UK study blames rapidly rising unemployment resulting from the break-neck speed of reform. The researchers said their findings should act as a warning to other nations that are beginning to embrace widespread market reform. The study features online in The Lancet medical journal. The researchers examined death rates among men of working age in the post-communist countries of eastern Europe and the former Soviet Union between 1989 and 2002. They conclude that as many as one million working-age men died due to the economic shock of mass privatisation policies. Rest of the story here. Labels: Naomi Klein, privatization, Shock Doctrine, shock therapy, Soviet Union Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Call-In For Single PayerHealthcare Now, an organization dedicated to promoting national health insurance, has dedicated today as a national call-in day for Single-Payer health insurance. Specifically, they are urging Congress to support HR676, John Conyers’ National Health Insurance Act.For more information, click here. Labels: HR676, national health insurance, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). At Least It's for a Good Cause...Just in from Reuters:U.S. close to giving BofA billions more aid: report Wed Jan 14, 2009 6:25pm EST NEW YORK (Reuters) - The U.S. government is close to pledging billions of dollars of additional aid to Bank of America Corp, the Wall Street Journal reported on Wednesday, making the bank the second to require a second round of emergency government assistance. Bank of America is struggling to digest its January 1 acquisition of Merrill Lynch & Co, the newspaper said, citing people familiar with the situation. The bank's shares dropped more than 5 percent after hours, reaching their lowest level since 1991. Merrill Lynch's losses in the fourth quarter were larger than expected, which spurred Bank of America to start talking to the U.S. Treasury in mid-December, the newspaper said. The terms of the government aid are still being finalized, and details are expected to be announced with Bank of America's fourth-quarter earnings, due out January 20. A possible deal would involve protecting Bank of America from Merrill's bad assets by capping the bank's potential losses from them. The talks were driven by Treasury Secretary Hank Paulson, who was concerned that Bank of America would be unable to close the deal, possibly leaving Merrill Lynch without a partner. Bank of America spokesman Scott Silvestri declined to comment. The White House declined comment on the report, as did the U.S. Treasury. Merrill Lynch CEO John Thain negotiated the sale of the brokerage, which had been rocked by billions of dollars in toxic assets, to Bank of America in mid-September on the same weekend that Lehman Brothers Holdings Inc filed for bankruptcy protection. Some analysts had seen the deal as a coup for Bank of America's CEO Kenneth Lewis, who also used the bank's relative strength to buy Countrywide Financial, formerly the nation's largest mortgage lender, but the bank's stock has since spiraled lower. Bank of America shares fell 5.9 percent to $9.60 in electronic after-hours trading on Wednesday, its lowest level since December 1991. The bank has not traded below $10 a share since January 1992. Bank of America and Merrill Lynch together received $25 billion from the Treasury's Troubled Asset Relief program in October. Citigroup received the same amount in October, and another $20 billion of capital in November. (Reporting by Dan Wilchins; Additional reporting by Matt Spetalnick in Washington; Editing by Gary Hill) Labels: bailout, Bank of America, financial crisis, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Turmoil Sinks Stocks (WSJ)Just posted to the WSJ website. Citigroup's troubles register in the Dow; plus it sounds like Deutsche Bank is having problems too.By GEOFFREY ROGOW, ROB CURRAN and PETER A. MCKAY Stocks tumbled as more losses and upheaval in the banking sector and poor trade and retail data hinted at an economy at risk of a deflationary spiral. The Dow Jones Industrial Average dropped 248.42 points, declining 3% to 8200.14, its sixth straight slide. The Standard & Poor's 500 fell 29.16, or 3.3%, to 842.63. All its sectors traded lower, led by a 5.8% drop in financials. As stocks declined Wednesday afternoon, volatility surged; the Chicago Board Options Exchange Volatility Index jumped 14%. Traders said that the sell-off confirmed many of their fears that the market would retest long-held support. Setting the tone for banks was a series of developments that underscored the feeling that the industry's woes aren't in the rearview mirror. Citigroup plunged 23% after moving toward a dismantling of the "financial supermarket" model that has long defined its business strategy. The Citi move is "a wake-up call for the financial industry. I think we're going to see more merging and merging and merging until a few very strong firms survive," said Joe Kinahan, chief derivatives strategist at thinkorswim. The Financial Select Sector SPDR Fund, a basket of brokers and lenders, fell 5.8%, with the sector also hit by a warning from Deutsche Bank that it would post a fourth-quarter loss of about $6.33 billion. Deutsche Bank's U.S. shares fell 9.2%. Traders also continued to fret over when the government will release the second phase of its promised $750 billion in aid to troubled banks and what conditions might be attached. "There's still a lot we don't know for sure at this point, but we know a few things that are likely: reduced dividends, lack of [mergers and acquisitions] and continued declines in earnings," said Peter McCorry of Keefe, Bruyette & Woods. "None of that is supportive of share prices." Economic signals were grim. The Federal Reserve's regional beige book survey found the economy continued to weaken as discounts failed to revive consumer spending. "Most districts reported that layoffs continued," the Fed said, adding that in New York "a substantial number of job reductions in the financial sector have yet to show up in payroll statistics." The Commerce Department said retail sales fell 2.7% in December and evidence of a slowdown in commercial activity showed up in trade numbers that revealed exports and imports in the U.S. slowing sharply from July to November. Among commodities and industrial stocks, aluminum maker Alcoa and General Electric fell more than 5% each. Commodity prices also fell, with energy and materials stocks declining broadly as a result. Crude oil settled 50 cents, or 1.3%, lower at $37.28. Treasury security prices climbed as investors sought safe havens. The two-year note was up 2/32 to yield 0.72%. The 10-year note climbed 28/32 to yield 2.20%. Labels: banking system, Citigroup, Deutsche Bank, Dow Jones Industrial Average, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Retail Sales Dive (Reuters, again)Another one from Reuters:By Lucia Mutikani | January 14, 11:01am WASHINGTON (Reuters) - Sales at retailers fell 2.7 percent in December, government data showed on Wednesday, as a deteriorating economic climate forced consumers to cut back on spending during the key holiday period. The Commerce Department said total retail sales fell to a seasonally adjusted $343.2 billion last month, taking sales for the whole of 2008 down 0.1 percent. The data was the latest in a series suggesting that the year-long recession was deepening and could be the longest since the 1981 contraction that lasted 16 months. December's drop was the biggest since October last year when sales fell 3.4 percent. Compared to the same period a year ago, sales plunged by a record 9.8 percent, beating an all-time 8.2 percent drop in November. "The economy is staring at a very steep, downward trajectory. This shows a very sharp falling in household wealth and job creation. This shows a shock in consumer confidence," said Jim Demasi, chief fixed-income strategist at Stifel Nicolaus & Co. Declining household wealth, rising unemployment, tight credit conditions and an unclear economic picture have forced consumers to cut back sharply on spending. Consumer spending accounts for about a third of economic activity. Excluding motor vehicles and parts, sales were down a record 3.1 percent after a revised 2.5 percent decline in November, previously reported as a 1.6 percent drop, the department said. Total sales, excluding autos, rose 3.0 percent in 2008. Analysts polled by Reuters had forecast December retail sales falling 1.2 percent. Excluding motor vehicles, sales had been predicted to drop 1.3 percent. Read the rest of thet article. Labels: recession, retail, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citi Breakup in Sight (Reuters)This just in from Reuters; Robert Rubin's departure from Citigroup appears to have been a prelude to this. The concept of a "bad bank" is intriguing—wouldn't that be a matter of interpretation, though?Reuters updated the article (and ratcheted up the worry) while I was working on this post; here are the first few paragraphs of the milder version, with the first few paragraphs of the more dire one "Worries Over Citi Mount") afterwards, with a link. By Dan Wilchins and Joseph A. Giannone Here's the scarier Reuters post, updated a few minutes ago to reflect Citi's tumbling stock prices today: Worries over Citigroup mount Read the rest of the article. Labels: bank failures, banking system, Citibank, Citigroup, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Delayed Report on ASSA (Arpita Banerjee)Here is another report on the Allied Social Sciences Association meetings, this one from D&S collective member and University of New Hampshire economist Arpita Banerjee.Another social science festival is over now. For four days, San Francisco downtown had been infested by Economists. It surely has given good businesses to the hotels, restaurants, and gift shops. The grandeur and the turnover were, as every year, unmatchable by any other economics conference. Did I say Economics? Well, it surely was the annual conference of the Allied Social Science Association, but other social science disciplines were easily overpowered by Economics. And I guess that too is an annual phenomenon. Apart from seminar sessions, the ASSA meet was, like all other years, the host of job interviews. Every now and then you would come across tense faces of interviewees which would light up in the sights of Maurice Obstfeld, Kenneth Rogoff, Jagdish Bhagwati or Joseph Stiglitz. It isn't often that someone would look at your face as (s)he is too busy reading the name-tag hanging from your neck. On the first day, on January 2nd, I attended the plenary session organized by Association for Social Economics (ASE) and ICAPE. Dierdre McCloskey talked about Ethics and Capitalism and Adam Smith's position on Ethics. Nancy Folbre and Herbert Gintis were the two discussants. It was very exciting to see such a great turnout at the session. Union for Radical Political Economics (URPE) and International Association For Feminist Economics (IAFFE) had organized various sessions, among which I attended the sessions "The Global Financial Crisis: Heterodox Perspectives", "Gender and Migration", "Women's Work at the ASSA Meetings" and "What Difference Does Gender Make for Economic Theory". All these sessions had a full room. Particularly, the first one on financial crisis had an overcrowded audience. I heard that other sessions on the financial crisis were similar full house. No surprise here, right? Frequent D&S contributor and collective member Ramaa Vasudevan was one of the presenters in the session on The Global Financial Crisis. She talked about the dollar, financialization and subprime market crisis, similar to her recent Monthly Review paper. [See also Ramaa's recent primer on financialization in D&S. —CS] I had to skip the discussion in the end to attend the session on "Microfinance, Poverty and Women's Empowerment" organized by the Association for Economic and Development Studies on Bangladesh (AEDSB). Anyone listening to the papers presented at this session would have to agree that earning money is the key to women's empowerment! So, does a woman working as an informal worker at a construction site and earning some bucks get to choose how many children she would bear? I don't think so. I was a discussant at the IAFFE organized session on "Gender and Migration". All the papers were dealing with migrant women workers, but I particularly liked the one by Alex Julca. He was asking a very broad question, does increasing remittance due to global migration of workers make any difference in income inequality? Perhaps it creates a new kind of inequality in the native places of the migrated workers. This session was quite well attended too. The ASSA people came to count heads twice during the session. Julie Nelson at the "Women's Work at the ASSA Meetings" talked about how cognitive gender plays a crucial role in determining women's participation in different social sciences. She showed two very interesting quotes from the back cover of Econometrica and a sociology journal. The descriptions of the "motto" of the two journals can quite easily be deconstructed using the modernist binary division between constructed genders. While Econometrica talks about rigorous, 'scientific' rational thinking, the Sociology journal seems to talk about a much more subjective approach. Robin Bartlett from Denison University, in her presentation, showed that ASSA meetings had a stark difference between male and female participation and between top and low ranked (or as Robin calls it, "unranked") places except for a brief period when Amartya Sen was president. Martha Starr from American University concentrated on women's work in the AER Papers and Proceedings and she too, showed the wide gender gap in the list of published papers. Another great session was "What Difference does Gender Make for Economic Theory", presided by Nancy Folbre. Dierdre McCloskey put a very interesting and arguable concept; that for men, conversation is often a competitive game, while it is a cooperative game for women. She also emphasized that we should not use the term "mainstream" for mainstream economics as that makes a lot of people who do not agree with the tenets, outside-mainstream. I do not see any disgrace in roaming around the periphery though! She says that we should use the term "Samuelsonian" instead of "mainstream". Well, not a big deal I guess. Ann Mari May from University of Nebraska-Lincoln showed the results of the survey she had conducted on how male and female economists think about methodology used in Economics, Several economic issues of recent times as well as issues about workplace. Surprisingly, though women economists seem to be pro-regulation and seem to agree upon gender differences in the workplace, they seem to not see any problem with the Economic methodology! It was puzzling to see that women seem to contribute to a consensus about "mainstream" (or Samuelsonian!) economics as science with a big S and its methodology, even after identifying the reasons behind current economic problems. The URPE reception room was jam-packed, much to the excitement of all the members present. The economics department of the University of Utah received special recognition for its contribution towards the aim of URPE and Minqui Li from Utah received the commemorative plaque. It was great to see so many URPE members together. The IAFFE member luncheon was similarly inspiring for a new member like me. Everybody got to know about everybody else during the 'introduce yourself' session. Susan Himmelweit of the Open University became the new president. Everyone is looking forward to the IAFFE annual meeting in Boston from June 26 to 28. On last note, it was quite an interesting four-day carnival in a great city. San Francisco is a nice city, not very organic though. Its Anarchist bookstores in the Mission area, easy reach to Berkeley area and diverse population makes it quite colorful. But, like a lot of other US cities, it takes only about a mile's walk to discover the dying economy of the neighborhoods. Labels: Arpita Banerjee, ASSA, Dierdre McClosky, gender, IAFFE, Ramaa Vasudevan, URPE Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Strapped States Rethink Prison PolicyFrom the Associated Press; hat-tip to Steven L. Robinson at lbo-talk. I have to say, we've heard this before; we had a two-part article in our July/August and Nov/Dec 2003 issues called "Fiscal Lockdown" (sorry--it is not available online) that assessed the claims back then that states' fiscal crises would halt or reverse the prison boom. The author, Julie Falk, didn't think it would happen, and it didn't. Maybe the crisis is bad enough this time, though?By DAVID CRARY, AP National Writer | Sat Jan 10, 12:33 pm ET NEW YORK—Their budgets in crisis, governors, legislators and prison officials across the nation are making or considering policy changes that will likely remove tens of thousands of offenders from prisons and parole supervision. Collectively, the pending and proposed initiatives could add up to one of biggest shifts ever in corrections policy, putting into place cost-saving reforms that have struggled to win political support in the tough-on-crime climate of recent decades. "Prior to this fiscal crisis, legislators could tinker around the edges—but we're now well past the tinkering stage," said Marc Mauer, executive director of the Sentencing Project, which advocates alternatives to incarceration. "Many political leaders who weren't comfortable enough, politically, to do it before can now—under the guise of fiscal responsibility—implement programs and policies that would be win/win situations, saving money and improving corrections," Mauer said In California, faced with a projected $42 billion deficit and prison overcrowding that has triggered a federal lawsuit, Gov. Arnold Schwarzenegger wants to eliminate parole for all offenders not convicted of violent or sex-related crimes, reducing the parole population by about 70,000. He also wants to divert more petty criminals to county jails and grant early release to more inmates—steps that could trim the prison population by 15,000 over the next 18 months. In Kentucky, where the inmate population had been soaring, even some murderers and other violent offenders are benefiting from a temporary cost-saving program that has granted early release to nearly 2,000 inmates. Virginia Gov. Tim Kaine is proposing early release of about 1,000 inmates. New York Gov. David Paterson wants early release for 1,600 inmates as well as an overhaul of the so-called Rockefeller Drug Laws that impose lengthy mandatory sentences on many nonviolent drug offenders. Read the rest of the article. Labels: prison crisis, prisons, recession, states' fiscal crises Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More GM Loan Fine Print: UAW Can't StrikeYesterday we reported that newly disclosed details of the Bush emergency loan to GM included clauses forcing the automaker to seek massive concessions from their main union, the UAW, including pegging wages and working conditions to those at non-union U.S. plants.One major clause that we didn't mention, however, was that the UAW and its affiliated locals are prohibited from engaging in any strike or work stoppage. If the unions take either type of action, the government can recall the loans and force the company into bankruptcy. The terms of the government loans extends through December 29, 2011. The UAW has a "no-strike" clause in its current contract that extends though September 2011. However, local unions have different timetables for negotiating their contracts. If the UAW was forced to reopen its contract to make concessions, the no-strike clause could be set aside. The union is reportedly pushing its allies in Congress to reopen the terms of the loan agreement once the Obama administration takes office. Labels: auto industry, auto industry loans, bailout, GM, labor organizing, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Where the Money Is (Baker via Herbert)Bob Herbert's column today is on the financial transaction tax proposed by Dean Baker, among others. You can find a piece by Baker on this here. How about a Tobin Tax as well?By BOB HERBERT | January 12, 2009 A trillion here, a trillion there ... President-elect Barack Obama is warning us to expect trillion-dollar budget deficits "for years to come." The economy is in a precipitous downturn and no one, on the left or right, is advocating tax increases that would jeopardize a recovery. In the meantime, we're spending money as fast as we can: the Troubled Asset Relief Program ($700 billion and counting); Mr. Obama's proposed stimulus program ($800 billion and counting); and important initiatives still to come, like an overhaul of the way we pay for health care. China, which has purchased more than $1 trillion of American debt, is getting antsy. As Keith Bradsher of The Times has reported, the global downturn has prompted Beijing "to keep more of its money at home, a move that could have painful effects for U.S. borrowers." Mr. Obama has tried to assure the public that his administration will be as careful as possible with its monumental spending, promising to invest wisely and manage the expenditures well. And he has made it clear that he is aware of the minefields that accompany mammoth long-term deficits. At some point, however, someone is going to have to talk about raising revenue. The dreaded T-word is going to come up: taxes. Well, there's a good idea floating around that takes its cue from the legendary Willie Sutton. Why not go where the money is? The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee—ranging up to, say, 0.25 percent—on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately. According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually—money that the government sorely needs. But there's another intriguing element to the proposal. While the fees would be a trivial expense for what the general public tends to think of as ordinary traders—people investing in stocks, bonds or other assets for some reasonable period of time—they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino. "It raises money in a way that comes primarily at the expense of speculation," said Mr. Baker. "The fees would be a considerable expense for someone who is buying futures, or a stock, or any asset at 2 o'clock and then selling it at 3. The more you trade, the more you pay. "For the typical person holding stock, who is planning to hold it for a long period of time, paying the quarter of one percent on a trade is just not that big a deal." The fees, though small, could amount to a big deal for speculators because in addition to the volume of their trades they often make their money on very small margins. Someone who buys an asset and then sells it an hour later at a one percent appreciation might feel quite pleased. He or she would be less pleased at having to pay a quarter-percent fee to purchase the asset in the first place and then another quarter percent to sell it. This, according to Mr. Baker, is part of the beauty of the transfer tax; it tends to curb at least some speculation. "It's a very progressive tax," he said, "that discourages nonproductive activity." A hallmark of the Bush years has been the rampant irresponsibility—by the White House, Congress and the general public—when it comes to matters of finance. The costs of the wars in Iraq and Afghanistan were placed on credit cards and off the books. Their ultimate overall costs will be in the trillions. Incredibly, President Bush and Congress cut taxes in wartime, which is insane. Budget deficits and the national debt are streaking toward the moon. And the only remedy anyone has come up with for fending off Great Depression II has been deficit spending on a scale reminiscent of World War II. Excuse me, but did somebody say the baby boomers are about to start retiring? Maybe the piper will never have to be paid. Maybe the deficits will someday magically right themselves. Maybe some prosperous future generation will be more than happy to clean up the mess we left behind. If none of that is true, we should start looking now for some real money somewhere. A stock transfer tax is not a bad place to start. Labels: Bob Herbert, Dean Baker, financial crisis, transactions tax Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). How the Madoff Mess Hits Women (Salon.com)Interesting piece from Nancy Goldstein at Salon; hat-tip to Lois Ahrens of the Real Cost of Prisons Project.The first sentence of this piece struck me—I guess "ink" doesn't include the airwaves, because right-wing radio folks have definitely been talking about this phenomenon as an upside of the Madoff mess (I remember one ranter mentioning JEHT in particular). Nancy Goldstein must not listen to right-wing radio. (Wait a minute—did I just admit publicly that I do?) How the Madoff mess hits women With two progressive organizations forced to shutter, it isn't just wealthy individuals being affected by the investment scandal. Salon.com | Nancy Goldstein | Jan. 07, 2009 For all the ink that's been spilled on the Madoff investment scandal, I've read nothing about its impact on funding for progressive women's causes -- which is considerable. Simply put, only a small pool of foundations are funding litigation and advocacy work related to criminal justice or constitutional rights; the pool that supports related programs targeted to women is smaller still. With the recent shuttering of two of Madoff's clients, the Picower Foundation and the JEHT Foundation, that pool has shrunk to a puddle. Picower was one of a handful of foundations willing to stick their necks out and significantly fund the three organizations that handle virtually all major reproductive rights-related litigation and legal advocacy in the United States. Now the Center for Reproductive Rights needs to make up a $600,000 shortage in 2009; Planned Parenthood is out $484,000; the ACLU's Reproductive Freedom Project is off $200,000. The economic crisis makes it particularly difficult to replace that kind of money. Meanwhile, there's a backlog of bad new laws that need to be contested. It's likely to grow this year with the popularity of mandatory ultrasound laws for abortion patients, one of the favorite new litigation strategies of antiabortion activists. (Seventeen states considered more than 30 ultrasound bills in 2007 alone.) Consequently, there's a lot riding on the Center for Reproductive Rights' recent challenge to Oklahoma's law, the harshest in the country. It compels physicians one hour prior to performing an abortion to do an ultrasound on the patient and point out various features, while -- per CRR's press release -- "preventing a woman from suing her doctor if he or she intentionally withholds other information about the fetus, such as a severe developmental defect." (Translation: information that might influence a woman to terminate a risky pregnancy.) But who's going to fund this very expensive suit? Or the challenges to similar laws that will pass while this case is in court? Women also stand to lose ground with the closing of the JEHT Foundation, one of the country's premier funders of criminal justice reform initiatives, including drug policy reform. Both issues have particular resonance for women. Thanks to stringent mandatory sentences for even first-time, nonviolent drug offenders, women's rate of incarceration grew by 757 percent between 1977 and 2006 -- nearly twice the rate for men. Women of color, who are scrutinized, prosecuted and punished more harshly for drug-related offenses than their white counterparts, bear the brunt of these policies. JEHT, like Picower, was a rare grant maker in an already select field. It funded initiatives aimed at ameliorating the hardships women face as a consequence of their involvement with the criminal system, including grants to the Corporation for Supportive Housing and the Stop Prisoner Rape Project. Additionally, Sarah From, director of public policy and communications for the Women's Prison Association, lauds JEHT for "being one of the few foundations to fund criminal justice policy reform." (JEHT provided WPA with seed money to start its national Institute on Women and Criminal Justice.) "They addressed a real need in the field," says From. "Now there will be fewer resources for this work overall, and we'll have to work harder to convince new funders to take a look at our issues for the first time." Vivian Lindermayer, CRR's director of development, sounds uncannily similar talking about Picower. "They understood the critical role litigation and legal advocacy play in securing women's equal access to quality reproductive healthcare. Picower's closing will have a major impact on CRR and organizations like us." The media's obsession with wealthy individuals who have been ruined by Madoff and feel betrayed is understandable. But when that story wears thin, let's hope the cameras will document the effect of the $42 million shortfall that progressive nonprofits will face in 2009 without funding from JEHT and Picower. We've only just begun to understand the implications of that loss for women's health and human rights. -- Nancy Goldstein Labels: Bernard Madoff, financial crisis, gender, JEHT, women Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Borrows, UAW PaysGM CEO Rick Wagoner says that the $13.4 billion in U.S. government loans it has received should get the company through the end of March, but it may be back asking for additional help after that.Under the terms of the Bush-approved bailout, the automaker can only receive additional funds if it has shown that it can get tough concessions from bondholders and the United Auto Workers (UAW). The union made major concessions in 2007, however the Bush loan deal requires GM to get the union to agree to renegotiate a promised $21 billion company contribution to a retiree trust fund that will be the UAW, and also to force the union to agree to accept wage and work conditions equal to those at non-union plants. The union has raised loud objections to the terms of the loan, and a bill being pushed by Democrats in the House would strip the loan of these forced concessions. Labels: auto industry, auto industry loans, GM, labor organizing, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank earnings may be 'frightful' (Reuters)Informative article just posted to the Reuters website; hat-tip to Larry P.By Jonathan Stempel | Mon Jan 12, 2009 6:22am EST NEW YORK (Reuters)—Government efforts to prop up U.S. banks and savings institutions have only partly cushioned the blow from what may have been the industry's worst three-month period since 1990. "Credit trends are going to be bad," said Gary Townsend, co-founder of Hill-Townsend Capital in Chevy Chase, Maryland. "No one is immune. If you are a bank, and have loans, you will suffer your share." Rising credit losses, poor economic conditions including a surge in unemployment, tighter lending margins and the cost of luring deposits are likely to dampen results at most of the nation's biggest lenders for the just-ended quarter. Dismal bottom-line results, however, will quickly fade into the rear-view mirror as investors focus on how much lenders plan to boost reserves for soured loans, take new steps to preserve capital, or eliminate more jobs. Earnings season is set to kick off Thursday when Wisconsin's Marshall & Ilsley Corp is scheduled to report. The largest lenders—Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co—report later in the month. Results may be "frightful," Sanford C. Bernstein & Co analyst John McDonald wrote. While credit and capital will be critical, he said falling margins will weigh on net interest income, while fee income may be "under siege" because of volatile capital markets and lower spending by customers. Most of the largest lenders are expected to report lower earnings per share than a year earlier, according to analyst forecasts compiled by Reuters Estimates. Citigroup and Alabama's Regions Financial Corp may post losses, while Ohio lenders Fifth Third Bancorp and KeyCorp may come close to breaking even, analysts on average predicted. Read the rest of the article. Labels: bailout, banking system, financial crisis, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Why So Little Self-Recrimination? (Yves Smith)This is from Yves Smith at Naked Capitalism. It's a long post, worth quoting in full. She quotes from a post by Jeff Madrick (editor of Challenge) at The Daily Beast. I was asking myself the same question at the ASSA. Hat-tip to D&S collective member Ben Collins. —CSWhy So Little Self-Recrimination Among Economists? Why is it that economics is a Teflon discipline, seemingly unable to admit or recognize its errors? Economic policies in the US and most advanced economies are to a significant degree devised by economists. They also serve as policy advocates, and are regularly quoted in the business and political media and contribute regularly to op-ed pages. We have just witnessed them make a massive failure in diagnosis. Despite the fact that there was rampant evidence of trouble on various fronts—a housing bubble in many countries (the Economist had a major story on it in June 2005 and as readers well know, prices rose at an accelerating pace), rising levels of consumer debt, stagnant average worker wages, lack of corporate investment, a gaping US trade deficit, insanely low spreads for risky credits – the authorities took the "everything is for the best in this best of all possible worlds" posture until the wheels started coming off. And even when they did, the vast majority were constitutionally unable to call its trajectory. Now of course, a lonely few did sound alarms. Nouriel Roubini and Robert Shiller both saw the danger of the housing/asset bubble; Jim Hamilton at the 2007 Jackson Hole conference said that the markets would test the implicit government guarantee of Fannie and Freddie; Henry Kaufman warned how consumer and companies were confusing access to credit (which could be cut off) with liquidity, and about how technology would amplify a financial crisis. Other names no doubt belong on this list, but the bigger point is that these warnings were often ignored. Shiller has offered a not-very-convincing defense, claiming that economists were subject to "groupthink" and no one wanted to stick his neck out. That seems peculiar given that many prominent policy influencers are tenured. They would seem to have greater freedom than people in any other field to speak their mind. And one would imagine that being early to identify new developments or structural shifts would enhance one's professional standing. But if a doctor repeatedly deemed patients to be healthy that were soon found to have Stage Four cancer that was at least six years in the making, the doctor would be a likely candidate for a malpractice suit. Yet we have heard nary a peep about the almost willful blindiness of economists to the crisis-in-its-making, with the result that their central role in policy development remains beyond question. Perhaps the conundrum results from the very fact that they are too close to the seat of power. Messengers that bear unpleasant news are generally not well received. And a government that wanted to engage in wishful, risky policies would want a document trail that said these moves were reasonable. "Whocouldanode" becomes a defense. But how economists may be compromised by their policy role is way beyond the scope of a post. To return to the matter at hand: there appears to be an extraordinary lack of introspection within the discipline despite having presided over a Katrina-like failure. Jeff Madrik tells us: At the annual meeting of American Economists, most everyone refused to admit their failures to prepare or warn about the second worst crisis of the century. Madrik goes on in the balance of his piece to offer a list of things economists got wrong. Unfortunately, it's off the mark in that he contends that economists (in effect) had unified beliefs on a lot of fronts. It's a bit more accurate to say that there was a policy consensus, and anyone who deviated from the major elements had a bloody hard time getting a hearing (Dean Baker regularly points out that the New York Times and Washington Post still keep quoting economists who got the crisis wrong). The particulars on his list need some work too, but at least it's a start (reader comments and improvements on it would be very much appreciated). But Madrik does seem spot on about the lack of needed navel-gazing. I looked at the AEA schedule and did not see anything that questioned existing paradigms. And one paper that did was released recently, "The Crisis of 2008: Structural Lessons for and from Economics," fell so far short of asking tough questions that it proves Madrik's point. The analysis is shallow and profession serving. And that is not to say the author, Daron Acemoglu, is writing in bad faith, but to indicate how deeply inculcated economists are. For instance, one of the three (only three?) ways in which he says economists took too much comfort in the Great Moderation; The seeds of the crisis were sown in the Great Moderation... Everyone who patted themselves or others on the back during that time was really missing the point... The same interconnections that reduced the effects of small shocks created vulnerability to massive system-wide domino effects. No one saw this clearly. Huh? The problems with the Great Moderation were far more deeply rooted than this depiction suggests. Acemoglu's take is that the economy became more susceptible to shocks (that is, absent the bad luck of a shock, things could have continued merrily along). Thomas Palley argues, persuasively, that it was destined to come a cropper: The raised standing of central bankers rests on a phenomenon that economists have termed the “Great Moderation.” This phenomenon refers to the smoothing of the business cycle over the last two decades, during which expansions have become longer, recessions shorter, and inflation has fallen. Palley wrote this in April 2008, although he had touched on some of these issues earlier. Did this view reach a wide audience? No. Understanding why might help us understand better why the economics profession went astray. Acemoglu's paper had a couple of other eye-popping items: Even though he gives lip service to the idea that the economics was unduly infused with ideas from Ayn Rand, he then backtracks: On the contrary, the recognition that markets live on foundations laid by institutions— that free markets are not the same as unregulated markets— enriches both theory and its practice. "Free markets" is Newspeak, and the sooner we collectively start to object to the use of that phrase, the better. Because it is imprecise and undefined, advocates can use it to mean different things in different contexts. I cannot take any economist seriously who uses "free markets" in anything more rigorous than a newspaper column (and even there it would annoy me). It has NO place in an academic paper (save perhaps on the evolution of the concept). We also have this:
This reveals that Acemoglu has been corrupted by Rand more than he seems willing to recognize. No one would have dared write anything like that even as recently as ten years ago. Let us consider the definition of greed, from Merriam Webster: a selfish and excessive desire for more of something (as money) than is needed Greed is different than, say, ambition. "Greed is good" was famously attributed to criminal Ivan Boesky, and later film felon Gordon Gekko. Put more bluntly, greed is the id without restraint. Psychiatrists, social workers, policemen, and parents all know that unchecked, conscienceless desire is not a good thing. Acemoglu calls for external checks ("the right incentive and reward structures"), when the record of the last 20 years is that a neutral to positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior. Like it or not, there is a role for social values, as nineteenth century that may sound. The costs of providing a sufficiently elaborate superstructure of rules and restrictions is far more costly than having a solid baseline of social norms. But our collective standards have fallen so far I am not sure we can reach a better equilibrium there. Labels: ASSA, economics, financial crisis, Naked Capitalism, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Middle-Class Policy MyopiaWith all the talk about support for the middle class in this country, it's instructive to remember that according to many counts, the US middle-class is both smaller and less accessible to those climbing up from the bottom than is the case in other developed economies. Still, concern about the worsening plight of the working and lower classes is much more pronounced in places like the UK, as this Observer opinion piece evidences:Middle-class grip on professions 'must end' Too few working-class students become doctors and lawyers, according to Downing Street, which wants to consign the old-boy network to history Gaby Hinsliff, political editor The Observer, Sunday 11 January 2009 Article history She was doubtless just as nervous as any other student on work experience, but the sober-suited blonde spotted walking through Lincoln's Inn Fields, headquarters of the British legal establishment, just before Christmas was not just any old intern. And the role taken by Chelsy Davy, Prince Harry's girlfriend, at Farrer & Co --solicitors to the Queen--was not just any old placement. The next day's newspapers pondered uncharitably how many Leeds University students would have got the same break. Davy might well, of course, have owed her luck purely to her legal skills, but the cosy networks helping many children of the professional middle classes into successful careers - the summer job in the City, the internship that is never openly advertised, the unpaid gofer job in the theatre eased by parental subsidy--are now coming under scrutiny. A review of barriers to working-class entry to the professions, led by former cabinet minister Alan Milburn, will investigate not just visible causes of social inequality--children from the highest socio-economic group are nearly three times more likely than those from the lowest to get good GCSEs, and six times more likely to go to university--but more insidious factors. Its conclusions will feed into a white paper on social mobility being launched this week by Cabinet Office minister Liam Byrne. Its timing during a recession is provocative, but senior Labour figures have long wrestled with this dilemma. Last summer the then arts minister Margaret Hodge began privately arguing for government assistance for poorer children breaking into the arts, amid fears that creative careers were too often reserved for those whose families could support them while they worked unpaid. Read the rest of the article Labels: Class, The Observer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CBPP on Homeless FamiliesNUMBER OF HOMELESS FAMILIES CLIMBING DUE TO RECESSION: Recovery Package Should Include New Housing Vouchers and Other Measures to Prevent Homelessnessby Barbara Sard Executive Summary New data indicate that the number of homeless families with children has climbed in recent months and continues to mount. Although the recovery package that Congress will consider in coming weeks is expected to include measures to restore several million jobs, an unusually large number of people are still likely to fall into severe poverty and to be at risk of homelessness, due to the depth of the recession. As a result, it is important that the package include funding for effective homelessness prevention strategies. Such measures could be included for a cost equal to just one-half of one percent of the cost of the overall package. Goldman Sachs projects that the unemployment rate will rise to 9 percent by the fourth quarter of 2009 and continue rising into 2010. If unemployment reaches 9 percent and the increase in poverty, relative to the increase in the unemployment rate, is within the range that occurred in the last three recessions, the number of poor Americans will rise by 7.5 – 10.3 million. Moreover, the number of people in "deep poverty"--with incomes below half of the poverty line--will rise by an estimated 4.5--6.3 million if unemployment reaches 9 percent. This would represent an increase of about 900,000--1.1 million families with children that fall into deep poverty and thus are at risk of housing instability and homelessness.[1] Read the rest of the summary (with link to report) Labels: financial crisis, homelessness Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A 'Kinder, Gentler' Ruling Class? NOT!At least if this Nation article is any indication, crisis or no. Tidbits:"I get the sense that this is more important to them than even taxes or regulation," says the AFL-CIO's director of government affairs, Bill Samuels. "This is about power. And the business community is not going to give up power willingly." Wal-Mart CEO Lee Scott said as much to a meeting with analysts in October. "We like driving the car," he told them, "and we're not going to give the steering wheel to anybody but us." In the lead-up to the election, the co-founder of Home Depot, Bernie Marcus, called Employee Free Choice "the demise of civilization." But the business lobby Obama once railed against is now giving him a taste of its wares. The Chamber denounced the bill in op-eds as "payback" to "union bosses" that would signal the end of "workplace democracy" and the advent of "Soviet-style thuggery." All the big industry associations called press conferences to declare war. "This will be Armageddon," one top Chamber official said of the battle ahead. Can Labor Revive the American Dream? By Esther Kaplan This article appeared in the January 26, 2009 edition of The Nation. January 7, 2009 The financial markets are in tatters, consumer spending is anemic and the recession continues to deepen, but corporate America is keeping its eyes on the prize: crushing organized labor. The Center for Union Facts, a business front group, has taken out full-page ads in newspapers linking SEIU president Andy Stern to the Rod Blagojevich scandal. The Chamber of Commerce is capitalizing on the debate over the Big Three bailout to claim that "unions drove the auto companies off the cliff," while minority leader Mitch McConnell and other Republican senators insist on steep wage cuts. A December 10 Republican strategy memo revealed their central obsession: "Republicans should stand firm and take their first shot against organized labor," the memo read. "This is a precursor to card check"--a clear reference to the Employee Free Choice Act. This simple amendment to federal labor law, which would, among other things, allow workers to unionize when a majority sign cards rather than requiring a bruising election, has galvanized the business community in a way even the $700 billion bailout couldn't. "I get the sense that this is more important to them than even taxes or regulation," says the AFL-CIO's director of government affairs, Bill Samuels. "This is about power. And the business community is not going to give up power willingly." Wal-Mart CEO Lee Scott said as much to a meeting with analysts in October. "We like driving the car," he told them, "and we're not going to give the steering wheel to anybody but us." Read the rest of the article Labels: Employee Free Choice Act, labor, labor law Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Roubini's 'Triple Whammy'Originally published in Foreign Policy, Nouriel Roubini concisely states his grounds for severe pessimism regarding a quick potential recovery. The chief reason concerns what he calls a "triple whammy of a liquidity trap, a deflation trap and debt deflation. It's a short piece, so I'll reproduce it in full, as it appears on his website:Latest Roubini Article for Foreign Policy: "Warning: More Doom Ahead" |Jan 7, 2009 From Foreign Policy: "Because the United States is such a huge part of the global economy, there's real reason to worry that an American financial virus could mark the beginning of a global economic contagion." Nouriel Roubini, March 2008 Last year's worst-case scenarios came true. The global financial pandemic that I and others had warned about is now upon us. But we are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst. The prevailing conventional wisdom holds that prices of many risky financial assets have fallen so much that we are at the bottom. Although it's true that these assets have fallen sharply from their peaks of late 2007, they will likely fall further still. In the next few months, the macroeconomic news in the United States and around the world will be much worse than most expect. Corporate earnings reports will shock any equity analysts who are still deluding themselves that the economic contraction will be mild and short. Severe vulnerabilities remain in financial markets: a credit crunch that will get worse before it gets any better; deleveraging that continues as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus leading to cascading falls in asset prices, margin calls, and further deleveraging; other financial institutions going bust; a few emerging-market economies entering a full-blown financial crisis, and some at risk of defaulting on their sovereign debt. Certainly, the United States will experience its worst recession in decades. The formerly mainstream notion that the U.S. contraction would be short and shallow--a V-shaped recession with a quick recovery like the ones in 1990–91 and 2001--is out the window. Instead, the U.S. contraction will be U-shaped: long, deep, and lasting about 24 months. It could end up being even longer, an L-shaped, multiyear stagnation, like the one Japan suffered in the 1990s. As the U.S. economy shrinks, the entire global economy will go into recession. In Europe, Canada, Japan, and the other advanced economies, it will be severe. Nor will emerging-market economies—linked to the developed world by trade in goods, finance, and currency--escape real pain. What constitutes a "recession" will depend on the country in question. For China, a hard landing would mean annual growth falls from 12 to 6 percent. China must grow by 10 percent or more each year to bring 12 to 15 million poor rural farmers into the modern world. For other emerging markets, such as Brazil or South Korea, growth below 3 percent would represent a hard landing. The most vulnerable countries, such as Ecuador, Hungary, Latvia, Pakistan, or Ukraine may experience an outright financial crisis and will require massive external financing to avoid a meltdown. For the wealthiest countries, a debilitating combination of economic stagnation and deflation might happen as markets for goods go slack because aggregate demand falls. Given how sharply production capacity has risen due to overinvestment in China and other emerging markets, this drop in demand would likely lead to lower inflation. Meanwhile, job losses would mount and unemployment rates would rise, putting downward pressure on wages. Weakening commodity markets--where prices have already fallen sharply since their summer peak and will fall further in a global recession--would lead to still lower inflation. Indeed, by early 2009, inflation in the advanced economies could fall toward the 1 percent level, too close to deflation for comfort. This scenario is dangerous for many reasons. A number of central banks will be close enough to setting interest rates of zero that their economies fall into a triple whammy: a liquidity trap, a deflation trap, and debt deflation. In a liquidity trap, the banks lose their ability to stimulate the economy because they cannot set nominal interest rates below zero. In a deflation trap, falling prices mean that real interest rates are relatively high, choking off consumption and investment. This leads to a vicious circle wherein incomes and jobs are falling, with demand dropping still further. Finally, in debt deflation, the real value of nominal debts rises as prices fall--bad news for countries such as the United States and Japan that have high ratios of debt to GDP. As orthodox monetary tools become ineffective, policymakers will turn to unorthodox approaches. We'll see traditional fiscal policy, in the form of tax cuts and spending increases, but also worldwide bailouts of lenders, investors, and financial institutions, as well as borrowers. Central banks will inject massive amounts of cash into financial systems to unclog the liquidity crunch. More radical actions, such as outright purchases of corporate and government bonds or subsidization of mortgage rates, might also be necessary to get credit markets functioning properly again. This crisis is not merely the result of the U.S. housing bubble's bursting or the collapse of the United States' subprime mortgage sector. The credit excesses that created this disaster were global. There were many bubbles, and they extended beyond housing in many countries to commercial real estate mortgages and loans, to credit cards, auto loans, and student loans. There were bubbles for the securitized products that converted these loans and mortgages into complex, toxic, and destructive financial instruments. And there were still more bubbles for local government borrowing, leveraged buyouts, hedge funds, commercial and industrial loans, corporate bonds, commodities, and credit-default swaps—a dangerous unregulated market wherein up to $60 trillion of nominal protection was sold against an outstanding stock of corporate bonds of just $6 trillion. Taken together, these amounted to the biggest asset and credit bubble in human history; as it goes bust, the overall credit losses could reach as high as $2 trillion. Unless governments move with more alacrity to recapitalize banks and other financial institutions, the credit crunch will become even more severe. Losses will mount faster than companies can replenish their balance sheets. Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be. Labels: bailout, financial crisis, Foreign Policy, Nouriel Roubini Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Black Male Jobless Rate In Dec. 2008: 13.4%From Bob Feldman; this repeats some of what we reported a couple of days ago, but it bears repeating...The "seasonally adjusted" official unemployment rate for Black male workers in the United States over the age of 20 jumped from 12.1% to 13.4% between November and December 2008, according to the latest Bureau of Labor Statistics data. In addition, the official jobless rate for Black youth between 16 and 19 years old in the United States increased from 32.2% to 33.7%, while the unemployment rate for white youth increased from 18.4% to 18.7%. The official jobless rate for Hispanic or Latino workers in the United States also increased from 8.6% to 9.2% between November and December 2008. The Bureau of Labor Statistics also summarized the December 2008 employment situation in the United States for all U.S. workers in the following way in its January 9, 2009 press release: Nonfarm payroll employment declined sharply in December, and the unemployment--b.f. Labels: Black jobless rate, Bob Feldman, Bureau of Labor Statistics, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wedgwood and MarxYou may have heard that Waterford Wedgwood (the Irish crystal maker bought the British ceramics company in 1986) is in receivership, aka bankrupt. The New York Times's Jan. 5th news report on the company's problems cited several possible reasons for the company's troubles: "Some analysts attribute Waterford's losses to management's reluctance to move manufacturing jobs to countries with lower labor costs, like Indonesia. The combination of high manufacturing costs, declining demand for luxury goods and a weak dollar last year overstretched the company's finances."But today's Times includes an op-ed by Judith Flanders (author of Inside the Victorian Home) chiding the company for departing from Josiah Wedgwood's tradition of innovation in marketing: The company is in trouble because it has long forgotten the lessons of one of its founders: Josiah Wedgwood, among the greatest and most innovative retailers the world has ever seen. If the modern operators of Wedgwood, which was merged with Waterford Glass in 1986, had shown a tenth of Josiah's intuitive grasp, his flair, his zest for selling, it would not now be dying. ... I'm not so sure we should be grateful for direct mail catalogs, but luckily the company has a much more worthwhile legacy. What Flanders fails to mention is the role of Josiah Wedgwood & Sons in bringing about protective labor legislation, e.g. reducing the working hours for children. Marx mentions it in a footnote in Capital, in section 5 of Chapter 10 (the chapter on the working day). In the passage that is footnoted, Marx is explaining why social regulation is required to improve working conditions, since individual capitalists in the midst of intense competition are not going to unilaterally improve their workers' conditions. But protective legislation may nevertheless be in their collective interest: Capital that has such good reasons for denying the sufferings of the legions of workers that surround it, is in practice moved as much and as little by the sight of the coming degradation and final depopulation of the human race, as by the probable fall of the earth into the sun. In every stockjobbing swindle every one knows that some time or other the crash must come, but every one hopes that it may fall on the head of his neighbour, after he himself has caught the shower of gold and placed it in safety. Après moi le déluge! is the watchword of every capitalist and of every capitalist nation. Hence Capital is reckless of the health or length of life of the labourer, unless under compulsion from society. To the out-cry as to the physical and mental degradation, the premature death, the torture of over-work, it answers: Ought these to trouble us since they increase our profits? But looking at things as a whole, all this does not, indeed, depend on the good or ill will of the individual capitalist. Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist. Here's the footnote that mentions Josiah Wedgwood: We, therefore, find, e.g., that in the beginning of 1863, 26 firms owning extensive potteries in Staffordshire, amongst others, Josiah Wedgwood, & Sons, petition in a memorial for "some legislative enactment." Competition with other capitalists permits them no voluntary limitation of working-time for children, &c. "Much as we deplore the evils before mentioned, it would not be possible to prevent them by any scheme of agreement between the manufacturers. ... Taking all these points into consideration, we have come to the conviction that some legislative enactment is wanted." ("Children's Employment Comm." Rep. I, 1863, p. 322.) So, pace Flanders, Waterford Wedgwood may have been following the company's best traditions after all—in its reluctance to move manufacturing to lower-wage countries like Indonesia, i.e. its reluctance to take part in the "race to the bottom." If the analysts the Times mentions are right that this contributed to the company's downfall, it's more a measure of how rapacious contemporary globalized neoliberalism than a failing of Waterford Wedgwood. Labels: bankruptcy, child labor, Karl Marx, Waterford Wedgwood Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Investment Tax Cuts Help Mostly the RichThis piece from the NYT business section does a great job of explaining why cuts to the capital gains tax have been so regressive. There's a nice chart with the original article, too.By FLOYD NORRIS Published: January 10, 2009 MORE Americans than ever before have learned firsthand the perils of investing in the stock market, as the value of retirement accounts like 401(k) plans plummeted over the last year. Never before has the pain of a bear market in stocks been spread as broadly in the United States as this one has, a fact that has intensified the economic impact of the collapse in share prices that began in late 2007. But while the pain of the bear market has been spread widely, the tax benefits of stock ownership have become more concentrated among the wealthy. That seeming paradox stems from the differing treatment of profits on capital gains, depending on whether the stock or other asset is held in a taxable account or a retirement account. Most Americans hold stocks, and stock mutual funds, in their retirement accounts, principally in 401(k) accounts. Those accounts are not taxed until the money is taken out, usually after retirement. But then, the money is fully taxed at ordinary income tax rates, regardless of whether or not it came from capital gains. As a result, the reduction of the tax rate on long-term capital gains to 15 percent in 2003, and the accompanying reduction of the tax on most dividends to the same amount, provided no additional benefits to most Americans. But it produced substantial benefits for those who owned stocks in taxable accounts. Read the full article. Labels: capital gains tax, dividend tax, regressive taxation, tax policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Massive Anti-Trust Scam Ripped Off TaxpayersSeveral federal agencies and several state attorneys general are alleging that banks and other companies that facilitate the $400 billion a year municipal bond market have colluded for years in an illegal price-fixing scheme that has netted them massive fees.From the NY Times E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up. The rest of the story is here. Labels: anti trust, bond market, Corporate Fraud, Corporate Swindles, price fixing Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Job Loss (at Citi) We Don't MindJust posted at Reuters. Hat-tip, again, to Larry P.Robert Rubin quits Citigroup; Citi's shares drop NEW YORK (Reuters) - Robert Rubin, the former U.S. Treasury Secretary, has resigned from Citigroup Inc, following months of criticism of his performance at the bank. Rubin, 70, is stepping down immediately as senior counselor at New York-based Citigroup. He will remain a director until Citigroup's annual meeting later this year. Rubin joined the bank in 1999. In a letter to Chief Executive Vikram Pandit, Rubin praised management for making the "tough decisions" to restore Citigroup to health. But he admitted to not having seen the recent deterioration in markets. "My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today," Rubin wrote. Read the rest of the article. Labels: Citigroup, financial crisis, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dec. Job #s: Even Worse than They LookBad as the December unemployment numbers are, if you include temporary workers and discouraged workers, the situation is far worse. Hat-tip to Larry Peterson for the links that follow the WSJ excerpt.Jobless Rate Surges to 7.2% in DecemberRead the rest of the article. From Across the Curve: HSBC on the Labor Report And this from Brad DeLong: And U-6--unemployed plus discouraged workers plus unable to fond a full-time job--is now at 13.5% of the labor force--and BLS "discouraged workers" are a big undercount of the concept... Labels: Across the Curve, Brad DeLong, Larry Peterson, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Criticism of TARP (WSJ)From today's WSJ:Panel Steps Up Criticism of Treasury Over TARP By MICHAEL R. CRITTENDEN | January 9, 2009 WASHINGTON -- The U.S. Treasury has failed to reveal its strategy for stabilizing the financial system, not answered questions asked by a government watchdog, and has done nothing to help struggling homeowners, a report being released Friday charges. In the most scathing criticism yet of Treasury's implementation of the $700 billion financial-rescue package, a draft report being issued by the five-member congressional oversight panel said there appear to be "significant gaps" in Treasury's ability to track hundreds of billions of dollars of taxpayer money. "The panel's initial concerns about the [Troubled Asset Relief Program] have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury," said the draft report, which found that the department has "not yet explained its strategy" for stabilizing the financial markets. The report faults Treasury on a variety of fronts: having no ability to ensure banks lend the money they have received from the government; having no standards for measuring the success of the program; and for ignoring or offering incomplete answers to panel questions. The bipartisan panel, headed by Harvard Law School professor Elizabeth Warren, reserved its most strident criticism for Treasury's approach to dealing with the foreclosure crisis at the root of the economic turmoil. The draft report noted that Treasury hasn't used any of TARP's $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to. "Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what 'help' means," the draft report said. Read the rest of the article. Labels: bailout, Elizabeth Warren, financial crisis, TARP program, Treasury Department Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Just What We Need: Another Mega-ScandalThis time in India's Vaunted IT Outsourcing Industry, which has contracted with much of the Fortune 500, as well as the World Bank, and in which an even greater premium is put on trust than is the case with most other industries. From the Financial Times:Satyam lifts the lid on Indian corporate fraud By John Elliott Financial Times Published: January 8 2009 10:43 | Last updated: January 8 2009 10:43 I have often mentioned to businessmen visiting India how remarkable it is that many of the appalling business practices of the country's traditional old family-controlled companies do not seem to have spread to the booming software sector--and then add that I wonder whether there are some skeletons in unopened IT cupboards. If I am talking very privately, I have mentioned Satyam, rated till today as India's fourth biggest software and outsourcing company, as one whose governance has been frequently questioned. This week's resignation and confession of fraud--vastly inflating company results for "several years"--by Ramalinga Raju, Satyam's founder and chairman, means the company can now be openly named for dubious business practices that have concerned (some) investors in the past. (It also means that Satyam is presumably not India's fourth largest IT company and should not have been rated along with the other market leaders Infosys, Wipro and TCS.) Raju has admitted inflating the figures--for example by well over $1bn in September --and has admitted that his attempt to merge the family's Maytas construction companies into Satyam last month "was the last attempt to fill the fictitious assets with real ones". (The Maytas attempted merger, aborted after about ten hours triggered a series of events that culminated in today's news). Read the rest of the article Labels: financial crisis, India, Information Technology, Ramalinga Raju, Satyam Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Porno Industry Begs for ItWell, at least two of its luminaries are doing that, tongue in cheek (no pun intended),according to a report from Vienna's Die Presse (in German). Larry Flynt of Hustler and Joe Francis of the firm "Girls Go Wild" want Congress to provide the industry with a cool $5 billion. In an interview with CNN, Flynt promises a kind of hedonic multiplier effect in return, something even many academic economists who enthuse about 'happiness economics' have been so far reluctant to endorse in the present crisis: "It is time for Congress to reinvigorate America's sexual appetite, and the only way to do that is by supporting the pornography industry: and there's no time to lose!" Gives a whole new meaning to the phrase "stimulus package."Labels: bailout, die Presse, financial crisis, Joe Francis, Larry Flynt, publishing industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Holes For 401k and Pension FundsPrivate sector pensions of the S&P's index of the 1,500 largest private companies are underfunded by over $400 billion. The deficits have resulted entirely during the financial crisis of 2008, according to an analysis in the Washington Post.According to the Post
In a related item, the Wall Street Journal reports that 401(k)'s have taken a massive hit just as Baby Boomers are gearing up to retire: About 50 million Americans have 401(k) plans, which have $2.5 trillion in total assets, estimates the Employee Benefit Research Institute in Washington. In the 12 months following the stock market's peak in October 2007, more than $1 trillion worth of stock value held in 401(k)s and other "defined-contribution" plans was wiped out, according to the Boston College research center. If individual retirement accounts, which consist largely of money rolled over from 401(k)s, are taken into account, about $2 trillion of stock value evaporated. Full WSJ article here. Labels: 401(k), pensions, retirement Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What Should Be Done (James K. Galbraith)James K. Galbraith, who teaches economics at the UT-Austin, stopped by the Dollars & Sense booth at the ASSA (see recent posts). He also sent along a link to an audio recording of his panel discussion with former labor secretary Robert Reich and New York Times economics reporter David Cay Johnston. I was sorry to have missed the panel—there was a bit of a buzz about it at the conference (at least among the sorts of people who visited the D&S booth).Here is what he said about it: This link will take you to an audio file of my remarks to a panel on what should be done in the crisis, delivered on Saturday to a packed room at the Allied Social Science Association meetings in San Francisco. The session was sponsored by the Association for Evolutionary Economics and chaired by Mat Forstater of UMKC. Bob Reich and David Cay Johnston were among the other participants. Labels: ASSA, David Cay Johnston, James K. Galbraith, Robert Reich Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). NYT on ASSAFrom the business section of today's New York Times. Louis Uchitelle drew about the same conclusion I did in my post a couple of days ago, on the basis of that panel with Marty Feldstein and the SF Fed head. Click here for the full article —CJSEconomists Warm to Government Spending but Debate Its Form Labels: ASSA, economic stimulus, fiscal policy, Martin Feldstein, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Outsourcing Corporate Crime To IndiaThe CEO of one of India's largest outsourcing companies, Satyam (Irony alert: the word means "truth" in Sanskrit), has resigned in what may be the country's largest case of corporate fraud. Analysts are likening it to the Enron scandal. The New York Stock Exchange halted trading on the stock after the news broke.Ramalinga Raju, company founder and now ex-CEO, announced in a statement that about $1 billion (or 94%) in cash on the company's book was fictitious. The company's auditors, US-based PricewaterhouseCoopers, said they are "looking into the matter." The World Bank, one of the firm's major clients, recently cut off business relations citing "improper benefits" given to Bank officials. The company was recently recognized with a "Golden Peacock" award for corporate governance by an Indian business association. Early reports indicate that the accounting scandal could spread quickly to other firms and imperil India's huge outsourcing industry. A full report from Reuters is here. Labels: Corporate Fraud, Corporate Swindles, India, outsourcing Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Starbucks Faces Worker Rights ChargesFrom the Starbucks Workers Union/Industrial Workers of the World:Starbucks' Legal Troubles Deepen as Union Files Charges with National Labor Relations Board on nearly 30 Rights' Violations Twin Cities Baristas to Illustrate Impact of Union-busting with Big "Performance Review" of Starbucks Management (Minneapolis) On the heels of a landmark decision finding Starbucks guilty of almost 30 labor violations in New York City, the IWW Starbucks Workers Union has slapped the embattled coffee giant with nearly 30 additional counts of illegal union-busting in Minneapolis/St. Paul. The union alleges that Starbucks broke federal law repeatedly by interrogating workers about union sympathies, instructing supervisors to spy on the union, and disciplining workers for participating in the union. Union baristas plan to illustrate their disgust by delivering an oversized six-month "Performance Review" of Starbucks to regional management at an 11am press conference at the Franklin and Nicollet store on Thursday. Union barista Erik Forman said, "After the guilty verdict in New York City and settlements in the Twin Cities and Grand Rapids, we had hoped that Starbucks would have learned its lesson, but unfortunately, the company has chosen to continue the pattern of illegal union-busting they have established across the US. We will not stand for this, Starbucks must respect our right to organize." In late December, a federal ruling against Starbucks concluded a two-year legal battle between Starbucks and baristas represented by the Industrial Workers of the World labor union in New York City, ordering the reinstatement of three baristas fired for union activity. The ruling parallels recent events in Grand Rapid, MI and the Twin Cities where Starbucks settled two similar Unfair Labor Practice charges. Background Since the launch of the IWW campaign at Starbucks on May 17, 2004, the company has been cited multiple times for illegal union-busting by the National Labor Relations Board. The company settled two complaints against it and was recently found guilty by a federal judge in New York of nearly 30 rights' violations. Starbucks' large anti-union operation is carried out in conjunction with the Akin Gump law firm and the Edelman public relations firm. The IWW Starbucks Workers Union is a grassroots organization of over 200 current and former employees at the world's largest coffee chain united for secure work hours and a living wage. The union has members throughout the United States fighting for systemic change at the company and remedying individual grievances with management. The SWU has been especially active in New York City, Chicago, Grand Rapids, and Minneapolis. Related: New York Times- Starbucks Loses Round in Battle over Union Labels: Starbucks, Starbucks Union Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Home Sales At 7-Year LowThe latest numbers show that home sales are still in the tank throughout the country, despite mortgage rates that are at near 50-year lows.From Reuters: Pending sales of existing U.S. homes dropped to a seven-year low in November, data showed on Tuesday, as rising job losses and a deepening economic recession kept potential house buyers on the sidelines. Read the rest of the story here. Labels: housing market, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Report from the ASSAA quick report from the 2009 meetings of the Allied Social Sciences Association (as the economists grandiosely call their meetings) in San Francisco. This will have to be short, since I am on the clock at an Internet café one block from the San Francisco Hilton at Union Square, not having brought my laptop with me on the trip. Plus I have to get back to our booth at the book exhibit to haggle with someone from the company that runs the book exhibit about the fact that two of our boxes never arrived at the booth, even though we shipped them at great expense via UPS. Ah, professional meetings!My panel went well on Saturday. It was sponsored by the Union for Radical Political Economics (URPE), and the title of the panel was Using Economics for Social Change: Five Organizations Report. The other panelists were Heidi Hartmann of the Institute for Women's Policy Research, Larry Mishel of the Economic Policy Institute, Kevin Danaher of Global Exchange, and David Barkin of Universidad Autonoma Metropolitana-Xochimilco in Mexico. The panel was officiated and organized by Lane Vanderslice of World Hunger Education Service. It was quite well attended--I'd say around 50 people were there, including several familiar faces, including Randy Albelda of UMass-Boston (and a D&S associate) and Pat Duffy, URPE staffperson. A short but lively discussion period followed. I enjoyed all the talks, but I was particularly excited about David Barkin's reports about solidarity economics activity among indigenous people in rural areas of Mexico. The only other panel I've had time to visit was another URPE-sponsored panel, on minimum wages. I had hoped to catch the talk by Jeannette Wicks-Lim of the Political Economics Research Institute (she's working on an article for D&S on a related topic) comparing Earned Income Tax Credits vs. minimum wage increases as ways of improving poor people's living standards. I got there too late, but caught an interesting paper by Manuel Pastor of USC profiling immigrant communities in LA. Our friend Arlene Geiger, econ prof at John Jay College, stopped by the book exhibit booth and reported that she'd gone to some mainstream panels to see what the mood of the profession is about the recession and financial crisis. She reported that one extremely well-attended panel on the financial crisis seemed to indicate that no one in the room thought that the recession would be anything but long and deep. Another packed panel entitled "The Revival of Fiscal Policy" revealed disagreements between Marty Feldstein of Harvard and John Taylor of Stanford about the value of fiscal policy. Janet Yellin of the SF Fed was a discussant (I'm missing a panel on the subprime crisis that she's presiding over right now). I will press Arlene for a fuller report, but the impression she seemed to get was that mainstream economists still have their heads in the sand on the issue of whether government has a role in guiding the economy (even if they can't help but recognize the need for government action in the current crisis). Frequent D&S blogger Polly Cleveland, of Columbia U., also stopped by the booth. She'd been focusing on sessions on the history of economics, including one on the history of the Chicago School. She promised a full report for the blog. I'm almost out of time, so I will wrap this up; I promise more coverage soon. --Chris Sturr, D&S co-editor Labels: ASSA, fiscal policy, John Taylor, Marty Feldstein, solidarity economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Too Much Office Space Spells Big TroubleThe next big financial time bomb could well be commercial real estate. Vacancy rates have skyrocketed across the country, rental income is down, and many commercial investors will need to refinance massive loans in the still frozen credit markets.From the NY Times: Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders. Labels: credit crisis, economic crisis, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stock Market's Loss Means Higher Wages?Dean Baker has put forth a provocative claim on his blog:The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us. Labels: Dean Baker, deflation, Inflation, stock market, wages, Washington Post Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Steel Industry Looking For $1 TrillionThe next contender in the category of "too big to fail" appears to be Big Steel. Through the first three quarters of 2008, the steel industry was going gangbusters. By late December, however, weekly production had fallen by more than 50% from August levels. Prices have fallen like lead. Tens of thousands of workers, mostly unionized, have been temporarily laid off, with future prospects exceedingly grim. Now industry execs are praying for an Obama miracle of government investment and subsidies.From the New York Times: The steel industry, having entered the recession in the best of health, is emerging as a leading indicator of what lies ahead. As steel production goes - and it is now in collapse - so will go the national economy. The rest of the article is here. Labels: New York Times, Steel industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Manufacturing Lowest In 28 YearsFrom the Washington PostU.S. manufacturing fell sharply in December and reports from abroad showed the same for plants in Europe and Asia, as businesses cut production and slashed product orders in response to the global recession. Rest of article. Labels: manufacturing Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nasa Scientist: Cap & Trade Not SufficientFrom The Guardian. N.B: Hansen lambasts the current international approach of setting targets to be met through "cap and trade" schemes as not up to the task. "This approach is ineffectual and not commensurate with the climate threat. It could waste another decade, locking in disastrous consequences for our planet and humanity," the Hansens wrote.Climate change policies failing, Nasa scientist warns Obama Award-winning researcher James Hansen says new president's rhetoric must be backed by action James Randerson, science correspondent guardian.co.uk, Thursday 1 January 2009 15.23 GMT Current approaches to deal with climate change are ineffectual, one of the world's top climate scientists said today in a personal new year appeal to Barack Obama and his wife Michelle on the urgent need to tackle global warming. With less than three weeks to go until Obama's inauguration, Prof James Hansen, head of Nasa's Goddard Institute for Space Studies, asked the recently appointed White House science adviser Prof John Holdren to pass the missive directly to the president-elect. Obama spoke repeatedly during his campaign about the need to tackle climate change, and environmentalists fervently hope he will live up to his promises to pursue green policies. The letter, from Hansen and his wife Anniek, is a personal plea to the first couple. It begins: "We write to you as fellow parents concerned about the Earth that will be inherited by our children, grandchildren, and those yet to be born...Jim has advised governments previously through regular channels. But urgency now dictates a personal appeal." In a covering letter to Holdren, Hansen explains that he wrote the letter a few weeks ago while in London. His wife had suffered a heart attack ("fortunately we were near a very good hospital") and while they waited for doctors to give the go-ahead to fly back to the US he decided to compose his petition to the new first family. Hansen has been one of the most prominent advocates of action to tackle climate change since he first spoke on the issue at congressional hearings in the 1980s. His testimony to the senate featured in Al Gore's film An Inconvenient Truth and he has received numerous honours for his work on the issue, including the WWF's top conservation award. Hansen wrote that there is a "profound disconnect" between public policy on climate change and the magnitude of the problem as described by the science. He praised Obama's campaign rhetoric about "a planet in peril", but said that how the new president responds in office will be crucial. The letter contains a wish list of three policy measures to tackle global warming. 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!). Trade: Throwing Oil on the FireFrom The International Herald Tribune. Particularly noteworthy (i.e. scary):"China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries," Li Yizhong, the minister of industry and information technology, said at a conference Dec. 19. Increased export incentives by China have the potential to create a trade issue for the incoming U.S. administration of Barack Obama, particularly regarding textiles. China's measures to help exporters are starting to cause concern in other Asian countries that compete with it, and raise the risk of a protectionist reaction against China. Indonesia, one of the largest Asian markets, imposed a series of administrative measures Thursday that were meant to reduce smuggling but will have the practical effect of making it harder to import Chinese goods. Looks more and more like the crash precipitated in no small part due to reliance on the export model and credit is to be combated by redoubling of key policies of the export model; and this without the credit! Rising desperation as China's exports drop International Herald Tribune By Keith Bradsher Thursday, January 1, 2009 HONG KONG: At the docks here, the stacks of shipping containers that used to loom above the highway overpass are gone. Logistics managers say they negotiate deeper discounts every week on ships that are leaving half empty. In nearby Guangdong Province, so many factories are closing without paying employees that some workers are resigning pre-emptively and demanding immediate pay before their employers go bankrupt. In Sichuan and other interior provinces, municipal officials are desperately searching for ways to provide jobs for millions of out-of-work migrant laborers whose families no longer need them for farming. Those are the effects of millions of Americans' cutting their spending. American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping, in contrast to the usual 30 to 45 days, requiring their suppliers to try to borrow more money to cover the difference. Some Chinese suppliers who cannot raise the money - many already operate on thin margins - are going out of business. At the same time, retailers are demanding that exporters show that they have strong balance sheets and will not go bankrupt before completing orders. Exporters, worried the retailers will fail before paying for their purchases, are reluctant to let goods be loaded onto ships. And banks, for the same reason, have cut back on guaranteeing retailers' payments to exporters. Read the rest of the article Labels: bailout, China, financial crisis, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Treasury To Aid Array of Firms, IndustriesFrom Bloomberg (hat tip to Yves Smith)Treasury Opens Door to Aid for Broad Array of Firms, Industries By Rebecca Christie Jan. 1 (Bloomberg) The U.S. Treasury threw the door open to taxpayer financing for a widening array of companies and industries by drafting broad guidelines on aid to the auto industry. The Treasury's guidelines, published yesterday, would let officials provide funds to any company they deem important to making or financing cars. That leaves room for the government to provide money from the Troubled Asset Relief Program beyond loans already committed to General Motors Corp., GMAC LLC and Chrysler LLC. "There are going to be other industries that are going to have just as good a case," as the auto companies, former St. Louis Federal Reserve Bank President William Poole said in an interview on Bloomberg Television. "We don't know what those other industries are going to be. Where does this process stop?" Shares of auto suppliers including American Axle & Manufacturing Holdings Inc. and Lear Corp. jumped yesterday after Treasury announced the guidelines. The Motor & Equipment Manufacturers Association has been lobbying for the use of federal funds as a backstop in case parts makers can’t collect money the auto manufacturers owe them. Analysts have speculated that companies such as GM's bankrupt former parts unit Delphi Corp., might be eligible for assistance. The Treasury guidelines may encourage more guessing on what companies and industries are next, said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington. 'Constructively Ambiguous' Treasury officials "much prefer discretion, and so they would view the statement as being constructively ambiguous," Reinhart said. Read the rest of the article Labels: auto industry, bailout, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
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