reality is only those delusions that we have in common...

Saturday, March 6, 2010

week ending Mar 6

Fed Balance Sheet and MBS Purchases - Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights released today (as of last week): Graph Source: Altanta Fed. From the Atlanta Fed:  The balance sheet expanded $9.7 billion, to $2.3 trillion, for the week ended February 24. Holdings of agency debt and mortgage backed securities, which rose by $8 billion, accounted for the majority of the expansion of the balance sheet and continue to replace lending to nonbank credit markets and short-term lending to financials. The balance sheet is expected to peak during the first half of this year after the MBS purchase program is completed and purchases settle on the balance sheet. The second graph shows the cumulative MBS purchases by week.

Fed Watch: Is the Fed Eager to Dismiss Deflationary Pressures? - My attention this morning was drawn to the inflation numbers in the January Personal Income and Spending release, specifically the recent downward trend in core PCE inflation: Coupled with a sizable output gap that yields very high human cost in the form of high rates of labor underutilization - and forecasts that such underutilization will persist for years - would lead one to believe that policymakers still have work left ahead of them. Policymakers, however, do not appear to agree, and instead focus on the fact that output is growing again, even if the 5.9% pace in the final quarter of last year was inflated by inventory correction. Indeed, with the recovery taking hold, there is no imperative for more action. Fiscal policy looks hamstrung by deficit concerns, while monetary policy is poised to turn contractionary as asset purchase programs are wound down. To be sure, few expect the Fed to start raising the Federal Funds rate in the near term. But the Fed is throwing up its hands on unemployment, effectively saying they have done all they can do.

Fed policy: complicating an already complicated situation - From the FOMC's Jan. 26-27 minutes: Though participants agreed there was considerable slack in resource utilization, their judgments about the degree of slack varied. The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force. If that effect were large--some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during this recession--then the reported unemployment rate might be overstating the amount of slack in resource utilization relative to past periods of high unemployment.Why would extended unemployment benefits increase the unemployment rate? In order to claim unemployment benefits, one must be "in the labor force"; and that means looking for work. Therefore, some workers who would otherwise be classified as "not in the labor force" remain in the work force as "unemployed". Therefore, the current unemployment rate is elevated above the rate that would occur without the extended benefits. The Fed suggests this differential to be roughly 1% point.

Fed appointments hold key to exit strategy - FT - Ben Bernanke, Federal Reserve chairman, has spent a good part of the past month explaining what the central bank intends to do when the US economy is sufficiently strong to warrant tighter monetary policy. But the exact timing and details of the Fed’s “exit strategy” are likely to be heavily influenced by three officials who have yet to be named to the board of governors by the White House. This week Don Kohn, the 67-year-old vice-chairman, announced he would retire at the end of his term in June, leaving open a key position as Mr Bernanke’s right-hand man at the bank. The White House reacted to Mr Kohn’s resignation by saying it would move quickly to find suitable replacements for him and the two other board officials, unleashing a classic Washington guessing-game about potential candidates. Whoever is chosen, particularly for the vice-chairman position, will play a pivotal role in determining the Fed’s course as it moves to unwind the massive monetary and liquidity support for the US financial system that it put in place over the past two years to avert a worse recession.

Q&A: Philly Fed’s Plosser Takes On ‘Extended Period’ Language - The Federal Reserve needs to alter its communication strategy so it is less hamstrung by language it uses in its policy statement, says Charles Plosser, president of the Federal Reserve Bank of Philadelphia. The Fed has been saying since last year that short-term interest rates would remain exceptionally low for an “extended period,” meaning at least several more months. Mr. Plosser said in a wide-ranging interview with the Wall Street Journal that the words make it harder for the Fed to react to changes in the economy and that it should look for ways to remove that language from its regular policy statements. “I would rather have language that is more conditional on the state of the economy, and less upon some arbitrary time frame,” he said.

Fed Presidents Say Rates Need to Be Low Early in U.S. Recovery - (Bloomberg) -- Two regional Federal Reserve Bank presidents, speaking before today’s release of a February report on U.S. jobs, said they believe the central bank should keep rates low until the recovery picks up. Chicago Fed President Charles Evans told reporters in Chicago yesterday he needs to see signs of “highly sustainable” growth before supporting steps toward tighter monetary policy. St. Louis Fed President James Bullard said after a speech in St. Cloud, Minnesota that, with the economy at an early stage of renewal, policy makers want to remain “very accommodative.”  The district bank chiefs’ views echo the Federal Open Market Committee pledge to keep interest rates near zero for an “extended period.”

When will the Fed raise interest rates? - VoxEU - How long will US interest rates remain so low? This column argues that estimates using the 1993 Taylor rule are concentrating on the output gap, whereas in reality the Fed places much greater emphasis on output growth. Using an updated Taylor rule, this column favours the market view that rates will rise towards the end of 2010.

Shouldn't Taylor Rules include Fiscal Policy? The Fiscal exit strategy - Most economists believe that for a given path of nominal interest rates chosen by the central bank, a looser fiscal policy (higher deficits, through lower taxes and/or higher spending) will cause higher Aggregate Demand, and therefore higher real output and/or inflation. Therefore, if a central bank is choosing a path for nominal interest rates in order to target a particular path for AD, a looser fiscal policy should cause the central bank to set higher nominal interest rates than it otherwise would (unless of course it is already constrained by the zero lower bound).

Fed Balance Sheet and MBS Purchases - Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights: Graph Source: Altanta Fed.
From the Atlanta Fed:  The balance sheet expanded $20 billion, to $2.3 trillion, for the week ended February 17. Holdings of agency debt and mortgage backed securities increased $49 billion while short-term lending to financials, specifically the Term Auction Credit Facility, declined by $23 billion. The balance sheet is expected to peak during the first half of this year after the MBS purchase program is completed and purchases settle on the balance sheet Note that some of the MBS purchases have not "settled on the balance sheet" yet.The NY Fed has purchased $1.21 trillion net in agency MBS as of Feb 24th, but the Fed's balance sheet only shows $1.03 trillion in MBS assets. It takes some time for the purchases to settle, and this has confused some people. The NY Fed number is the one to follow - and no one should be surprised that the Fed's balance sheet continues to expand after the MBS purchase program ends on March 31st.

In the beginning, there was a lender of last resort - Atlanta Fed macroblog - The modern world began in 1935 with the statutory creation of the Federal Open Market Committee, which would eventually evolve, with its central bank brethren in the rest of the world, into the institution described by Pearlstein as being primarily focused on monetary policy... until Sept. 11, 2001. On an average day in the week ending Sept. 5 of that year, the Federal Reserve extended $21 million in discount loans to banks, a reasonably representative volume. On Sept. 12, discount loans amounted to over $45 billion. As a result, the U.S. financial system did not collapse....there is a case to be made for the proposition that the most important role of the central bank in the recent financial crisis was not in the realm of traditional monetary policy but in the exercise of variations on the lender-of-last-resort function. "… in a crisis environment, I suspect we shouldn't really focus on longer-term policy questions until we get beyond this immediate period of chaos." Which brings us to the question of the Fed's role in bank supervision.

Chiefs of Regional Feds Campaign for Central Bank - NYT - As Congress haggles over a broad overhaul of the nation’s financial regulations, officials at the Federal Reserve have mounted a highly public effort to maintain, and perhaps even expand, the central bank’s regulatory powers. The effort does not appear to have been coordinated by the Fed’s chairman, Ben S. Bernanke, or other members of the board of governors in Washington. Instead, presidents of the Fed’s 12 district banks have been at the forefront of what amounts to a public relations offensive.  In a speech Wednesday to the Council on Foreign Relations in Manhattan, Richard W. Fisher, president of the Federal Reserve Bank of Dallas, compared the financial crisis to a near-fatal heart attack.  He warned that stripping the Fed of its supervision powers “would be the equivalent of ripping out the patient’s heart.”

Plosser Says Removing Fed Regulatory Powers Would Be ‘Unwise’ - (Bloomberg) -- Federal Reserve Bank of Philadelphia President Charles Plosser said stripping the central bank of regulatory powers would be “unwise” and make another financial crisis more likely.  “The proposals for regulatory reshuffling, at best, miss the point of what is required for meaningful reform and, at worst, weaken the current regulatory framework,” Plosser said today in a speech in Philadelphia. Instead, he recommended Congress enact measures including a bankruptcy process for big financial firms.

The Train Robbers' Legacy - What do you think of this? I am truly swayed by many things in the course of my life, and David Altig provides such an astute rationale. I have always believed in Bank supervision, and have never thought much of Monetary policy. I have never considered the later a primary impulse for economic growth, thinking a real economic growth environment cannot be generated by what is basically an escape from the real Production Costs associated with the economy. I further hold the Thought that counter-cyclical economic factors negate any reduction of those Production Costs in the interim period. Most economic schools disagree with my assessment of course, but it does not lower the essence of my distrust of Monetary policy.

Board openings give Obama a rare chance to remake the Fed - - The No. 2 official on the Federal Reserve Board said Monday that he will retire, opening a third seat on what may be the world's most powerful economic body and giving President Obama a historic opportunity to reshape the central bank.  Fed Vice Chairman Donald L. Kohn announced his plans to step down in June as one of seven Fed governors who help to set U.S. monetary policy and oversee financial-system regulation. Two others already have been appointed by Obama, meaning that soon, five seats -- including the chairman's -- will have been filled by him.  The changes come at a time of epic transformation in, and intense scrutiny of, the Fed's mission. During the past two years, the Fed has taken extraordinary actions to contain a financial crisis and prop up the economy. Now the institution must decide how and when to wind down some of those emergency measures.

Geithner, Summers Leading Search for Successor to Fed’s Kohn - (Bloomberg) -- The search to fill vacancies at the Federal Reserve is being led by President Barack Obama’s Treasury secretary and chief economic adviser, indicating Chairman Ben S. Bernanke will get support for his policies as he tries to sustain growth while withdrawing monetary stimulus. Donald Kohn, 67, said yesterday he will leave when his four-year term as vice chairman ends in June. Timothy Geithner, a former New York Fed president, and Lawrence Summers, director of the National Economic Council, are conducting the search to replace him and fill two other vacancies on the Fed board, said an official familiar with the discussions who requested anonymity to talk about internal deliberations. Geithner, 48, has proposed expanding the Fed’s oversight of large financial firms in a regulatory overhaul, while Summers, 55, said in an interview last month that the Fed’s independence is “crucial” to keeping inflation low and maximizing job growth. Obama’s nominees are likely to back Bernanke, said former Fed governor Lyle Gramley.

In Search of an Economist for Fed Board: Prestige, Power… and a Pay Cut - The retirement of Federal Reserve Vice Chairman Don Kohn has the Obama administration searching for economists to fill one or more of the three openings of the seven-member Fed board. Among the possibilities for the vice chairman slot are a couple of alumni of the Greenspan Fed board: Janet Yellen, who has been president of the Federal Reserve Bank of San Francisco since 2004, and Laurence Meyer, a private, Washington-based Fed watcher. Among other names surfacing: Alan Krueger, a Princeton University labor economist who is now assistant Treasury secretary for economic policy, and Jeremy Stein, a Harvard University finance professor who did a brief turn in the Obama administration last year. Yellen and Krueger both did stints in the Clinton administration: Yellen as chair of the White House Council of Economic Advisers and Krueger as the chief Labor Department economist.

Diamond Said to Be Contacted for Fed Governor Job - BusinessWeek -- The White House has contacted Peter Diamond, an economics professor at the Massachusetts Institute of Technology, about joining the Federal Reserve’s board of governors, according to two people familiar with the discussion. Diamond, a specialist in taxation and behavioral economics, has written widely on overhauling entitlement programs. His 2003 book “Saving Social Security” was co-written with Peter Orszag, director of the Office of Management and Budget. A third vacancy on the seven-person board opened up yesterday when Vice Chairman Donald Kohn announced he will leave in June when his term as the No. 2 Fed official expires.

Bernanke (and others) One-Dimensional Thinking - Yet when you read through Bernanke's so-called "seminal" helicopter paper you find even more evidence of one-dimensional thinking.  For example, tidbits like this:Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value. The implication, of course, is that if one has inflation then the repayment of debts is "easier".  But as I will explore and explain here, that premise is dangerously false.

It's Called DEFLATION Folks -Never mind the man behind the curtain, who won't utter the word: The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of a 6.2 percent growth rate. Unit labor costs fell at a rate of 5.9 percent, a bigger drop than the 4.4 percent decline initially estimated. In the real world this means: Work harder and get more done. Get paid less. Suck it up, don't complain, or you're fired. That's all. And . I understand that everyone wants to avoid taking the pain.  I understand that everyone claims that "its not fair!" None of this changes the facts.  You cannot continually offshore your better-paying labor to China for the purpose of being able to have a $30 DVD player, destroying the $40/hour skilled job base and replacing it with $7/hour burger flippers and espresso-shot-pullers, and maintain the ability to commit compound annual growth rates of 5, 6, 7% or more to public-sector employees.  Doing so inevitably destroys the tax base necessary to meet those commitments, and once the destruction has occurred it cannot be un-done.You cannot falsely-report "growth" that is in fact no such thing, but rather is simply the addition of more debt, thereby creating false demand that never existed on an organic basis, and continue this process forever.

Disinflation in Recessions - Krugman - Tim Duy is right — the Fed, and equally importantly the ECB, is seriously underestimating the deflationary danger.  The basic rules haven’t changed: a slack economy puts downward pressure on inflation. Here’s one measure of core inflation, the Dallas Fed’s trimmed-mean personal consumption expenditures deflator, in two big recessions and aftermath, 1981-82 and 2007-2009: There’s a hint here in the data of stickiness as inflation gets close to zero. But zero isn’t a magic number: even falling inflation raises real interest rates when nominal rates can’t fall. And with no sign that we’re about to have morning in America, the deflationary trend seems set to continue. This is not good.

U.S. Dollar Money Supply Is Underreported - As the financial crisis has unfolded over the last two years, the Federal Reserve has been responding in a variety of unprecedented ways.  Therefore, it is logical to assume that these never-before-used actions have altered long-established ways of viewing things.  One area that has been impacted is the US dollar money supply. The quantity of dollars in circulation is being underreported by relying upon the traditional and now outdated definitions used to calculate M1 and M2.  These ‘Ms’ are calculated and reported by the Federal Reserve based on guidelines that identify the several different forms of dollar currency used in commerce: These esoteric definitions can be confusing, so let’s bring US dollar currency back to basics as the first step to explaining why these definitions are no longer adequate.

Why We Don't Have Hyperinflation Even Though The Fed Has Printed $1 Trillion - The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend.  An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?This week we look at some fundamentals of money supply and the economy. If you understand this, you won't get misled by people selling investments, telling you to buy this or that based on some chart that shows whatever they are selling to be what you absolutely have to have to protect your portfolio and/or make massive profits.

China Bank Chief Sees Low Global Inflation - From the WSJ’s China Real Time Report blog: China’s chief banking regulator sees little chance of high inflation world-wide, even as his country’s own policymakers are pulling back from stimulus policies to avoid a surge in domestic prices.Growth in the developed world remains weak and the recovery is likely to be slow, which will balance any pressure on global commodity prices from China’s own rapid growth, argues Liu Mingkang, the respected U.K.-educated chairman of the China Banking Regulatory Commission. He made the comments in an interview with Seeking Truth, a Communist Party magazine. (The full text of the interview is available in Chinese here)“The global economic recovery will be a slow, complex and winding process,” Liu said, ticking off a long list of problems: high unemployment in developed countries; an international financial system that is still decreasing leverage and disposing of bad assets, and an overhang of excess capacity. “Given this kind of background, global liquidity while relatively flush is not likely to generate significant global inflation,” Liu said.

Morgan Stanley – Global Economic Forum – Debating Debtflation - Recently, we have tried to put some numbers on the inflation risks inherent in the current and prospective US fiscal position (see The Return of Debtflation? February 10, 2010). We looked at a hypothetical scenario whereby policymakers attempt to stabilise debt to GDP at the current 60% level over the next ten years. The thought experiment assumes the debt is dealt with in exactly the same way now as in the post-war period (1946-2003). That is, if the same weight is given to inflation and real GDP growth as factors behind the erosion of the debt, we are able to back out the required inflation rates (for any given level of the deficit). We calculate that, over the next ten years, on average,     a 5% deficit would require 9% inflation   a 3% deficit would require 6% inflation  achievement of a 2% inflation target requires a 1% of GDP budget surplus. Scary stuff.

Our world balances on a sea of debt - Telegraph - The banks that control the world’s supply of money are no better than counterfeiters – and their system of juggling debt has left the global economy teetering on the brink of ruin. Convicted fraudster Darius Guppy offers a provocative personal view  In 1994, there resided in the cell next to mine a certain “Tommy”. He had been imprisoned for counterfeiting Dutch Guilders to such a high standard that he had fooled the banks themselves. As was customary among prisoners who became friends, Tommy allowed me to read his legal papers and I became fascinated by the judge’s sentencing speech, the gist of which was that his activities had been parasitical. By creating money out of thin air he had reduced the purchasing power of more deserving members of society. What would happen if everyone behaved like him?

Bernanke delivers blunt warning on U.S. debt - With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.  Recent events in Europe, where Greece and other nations with large, unsustainable deficits like the United States are having increasing trouble selling their debt to investors, show that the U.S. is vulnerable to a sudden reversal of fortunes that would force taxpayers to pay higher interest rates on the debt, Mr. Bernanke said. "It's not something that is 10 years away. It affects the markets currently," he told the House Financial Services Committee. "It is possible that bond markets will become worried about the sustainability [of yearly deficits over $1 trillion], and we may find ourselves facing higher interest rates even today."

Federal Reserve Chairman Ben Bernanke Warns Congress That The Federal Reserve Will Not “Print Money” To Pay For The Exploding U.S. National Debt - On Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to "print money" to help Congress finance the exploding U.S. national debt.  In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially.  This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by "buying" the majority of new U.S. government debt that has been issued.  But now the fat cats over at the Federal Reserve have apparently changed their minds.  Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is "not going to monetize the debt".

America's hidden debt bombs -- America's total debt load is on pace to top $13 trillion this year, and $22 trillion by 2020 -- and that's just the debt we're counting.  What's not being counted: potential debt bombs that don't get factored into most budget analysis. When anyone talks about U.S. debt, they typically refer to two numbers. The first is the debt held by the public. That's money owed to those who have bought U.S. Treasurys, most notably big bond mutual funds and foreign governments. Debt held by the public today is roughly $8 trillion and rising.The second number is the money the federal government owes to government trust funds, such as those for Medicare and Social Security. The government has used revenue collected for those programs to cover other outlays. Currently, the debt to the trust funds is approaching $5 trillion. The two combined is the total gross debt that's accounted for. But deficit hawks also worry about what's not on the books.

CLSA’s Slone Sees 40% Chance of Debt Crisis Ending Dollar Role (Bloomberg) -- Jonathan Slone, head of Hong Kong- based CLSA Asia-Pacific Markets, said he sees a 40 percent possibility of a systemic, public-sector debt crisis in the U.S. that will ultimately lead to the end of the dollar-peg standard. “I think people should take that seriously.” The U.S. government is facing a record deficit that’s projected to reach $1.6 trillion this year, or 10.6 percent of the economy. President Barack Obama signed an executive order last month creating an 18-member bipartisan panel that will suggest ways to reduce debt, underscoring the steps his administration is taking before lawmakers face voters in November midterm elections.

About the Fed and $187.53 Billion of Chinese-Owned Toxic Assets -- Two pieces of disturbing news on the wires this week: 1: The Chinese are NOT buying U.S. debt anymore.2: The Chinese ARE buying U.S. debt (except they are buying it through intermediaries). And then there is always the fear that China might dump $700 billion or so of U.S. Treasuries and so yields will go through the roof. If I had a dirty mind, (which of course I do not), I might have suggested China was gaming the system, pushing up the yield before the auctions, so they can buy cheap. Actually according to Simon Johnson, a former IMF chief economist, that $700 billion is more like $1.2 trillion; but a hundred billion here and a hundred billion there, who’s counting? And who’s counting how much of the Non-Government debt, much of which is now toxic, is owned by foreigners? Of course there is not much chance of anyone dumping that at the moment because no one is buying…apart from the Fed...

Why China may have slowed Treasury purchases - There has been a scattering of stories about how China has slowed or stopped buying U.S. Treasuries. This story offers a possible explanation LA Times: China's investments in U.S. up sharply - Beijing is using its accumulation of billions of American dollars to step up its investments around the globe. In the last year, Chinese acquisitions in the U.S. have ranged from a relatively obscure theater in Branson, Mo., to stakes in such famous brands as Coca-Cola and Johnson & Johnson. By recycling much of its dollar trove over the years back to the United States with the purchase of U.S. government debt, China has in effect helped Washington finance its deficits. Now, Beijing is branching out. The country's direct investments overseas rose 6.5% in 2009 to $43.3 billion -- despite a global slump in such investments -- and could jump to $60 billion this year, Chinese state media reported last week.

The illusory China-selling TIC data - Treasury market and China-watchers both will remember that the latest round of TIC data caused something of a stir in markets last month — with some commentators latching onto the data set as evidence of China beginning to exit from its dollar holdings. Much of that commentary was unfounded. The TIC data was for one month only (December), and it doesn’t show the purchases made by China out of London or Hong Kong intermediaries. By Standard Chartered’s reckoning about 90 per cent of net purchases of US Treasuries made by British institutions in 2009 were on behalf of SAFE, which manages the PRC’s foreign currency reserves. You can rather see the effect in Chart 5 below, showing net Treasury purchases by China, Hong Kong and London, plus China’s FX inflows — which it needs to offset.

CBO Estimates a $655 Billion Federal Budget Deficit for the First Five Months of 2010 - CBO estimates, in its latest Monthly Budget Review, that the federal government incurred a budget deficit of $655 billion in the first five months of fiscal year 2010, about $65 billion greater than the shortfall recorded in the same period last year. Although spending related to turmoil in the financial markets was much lower than that in the first five months of last year, the deficit is higher because tax receipts are also lower and spending on unemployment benefits, interest on the public debt, and a variety of other programs has increased.

See What $1.6 Trillion In Deficits Buys? - Real disposable income decreased 0.6 percent in January, in contrast to an increase of 0.2 percent in December.  Real PCE increased 0.3 percent, compared with an increase of 0.1 percent. The fun part of this, of course, is that the only thing that has held up the economy is that deficit spending.  But for it, as I noted in my missive of Feb 23, we've borrowed and spent 14% of GDP over the last 18 months - or roughly 10% annualized.The premise behind all of this is that if you can "prime the pump" it will lead to sustainable growth. The error in the premise is that borrowing has to pick up but we never destroyed the excessive debt leverage that was in the system originally.  As such there is no borrowing capacity - recall that one must have both a willing lender and a willing and able borrower.

The Pain Has To Go Somewhere, But Where? - Roughly three months later than originally scheduled, the fiscal year 2009 Financial Report of the United States Government came out.  I had predicted a few times (latest here) that the final total of debts and unfunded liabilities would be about 4x GDP.  Well, I was close:...the ratio is 402%...As I commented in my piece The Biggest, Baddest Bubble of Them All: This doesn’t take into account the value of land and certain less tangible assets that the U.S. Government has. It also does not take into account the considerable operating and capital lease liabilities, deferred maintenance, or liabilities for the GSEs, and other lending guarantee programs of the federal government

Speculative thoughts on shadow banking and the fiscal deficit - I've been thinking about my last Gary Gorton post and the use of Treasury securities as collateral for the shadow banking system.  You will read many arguments that we should restrict the shadow banking system and limit its leverage and it is easy to see where these views come from.  At the same time we observe that the U.S. federal government is on an unsustainable fiscal path, and yet able to sell its debt securities at very high prices. Might there be a connection here?  What is the actual trade-off?  If leverage and shadow banking were much smaller, and we had safe, itty-bitty Canadian-style banks, how much would the demand for Treasury securities go down? Just asking.  If China stopped manipulating its currency, how much would the demand for Treasury securities go down?  How much harder would it be to finance deficits? Why are these issues rarely discussed in terms of trade-offs?

In Defense of Deficits - James Galbraith - The Simpson-Bowles Commission, just established by the president, will no doubt deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction. (Back in his salad days, former Senator Alan Simpson was a regular schemer to cut Social Security.) The Obama spending freeze is another symbolic sacrifice to the deficit gods. Most observers believe neither will amount to much, and one can hope that they are right. But what would be the economic consequences if they did? The answer is that a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.

Web of Debt - IMF-STYLE AUSTERITY MEASURES COME TO AMERICA: WHAT “FISCAL RESPONSIBILITY” MEANS TO YOU - When billionaires pledge a billion dollars to educate people to the evils of something, it is always good to peer closely at what they are up to. Hedge fund magnate Peter G. Peterson was formerly Chairman of the Council on Foreign Relations and head of the New York Federal Reserve. He is now senior chairman of Blackstone Group, which is in charge of dispersing government funds in the controversial AIG bailout, widely criticized as a government giveaway to banks. Peterson is also founder of the Peter Peterson Foundation, which has adopted the cause of imposing “fiscal responsibility” on Congress. He hired David M. Walker, former head of the Government Accounting Office, to spearhead a massive campaign to reduce the runaway federal debt, which the Peterson/Walker team blames on reckless government and consumer spending. The Foundation funded the movie “I.O.U.S.A.” to amass popular support for their cause, which largely revolves around dismantling Social Security and Medicare benefits as a way to cut costs and return to “fiscal responsibility.”

Jonathan Rauch on the Ryan plan - Here is the article: Someone who at least tried [to cut spending] is Rep. Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee, who recently unveiled a new edition of what he calls a "Road Map for America's Future." Its willingness to reform entitlement programs is laudable. But it keeps taxes at 19 percent of gross domestic product while raising (repeat: raising) federal spending from 21.6 percent of GDP in 2012 to more than 24 percent in the 2030s. It balances the budget, all right -- in 2063.

Spending Cuts Aren’t the Only Way to Reduce the Deficit - But in much the same way that the phrase “death tax” is incorrect because the government doesn’t actually tax dying, insisting that the only way to reduce the deficit is to cut spending is also deceptive and insidious. If you suspend your ideology and personal preferences for a moment, it’s actually quite easy to see how wrong it is to say that the deficit is solely a spending problem. First, on a purely mathematical basis there are always two ways to reduce the deficit: by cutting spending and increasing revenues.  Both will get you where you want to go and the bottom line will be improved if either occurs. Second, proponents of the deficit-is-only-a-spending-problem tagline frequently cite the fact that federal revenues are projected to be at their historical average in the future but spending is estimated to be much higher than it ever has been before.  That proves, they say, that this is a spending problem only. Not really or, actually, not at all. 

The entitlements no one is talking about - Here is an article I just published in The Fiscal Times, prompted in part by Leonard Burman's work,  on the staggering size and automatic growth of "tax expenditures" -- tax breaks, for us non-budget mavens.    Everybody knows that tax breaks -- on everthing from mortgage interest to green-energy projects -- permeate American life and often amount to backdoor government spending.  Republicans love to promote tax cuts, because they seem to strike a blow against Big Government.    Democrats love them because many tax breaks are a way to fund favored social programs.   What you may not know -- I confess that I didn't -- is that the cost of existing tax breaks rivals the costs of Medicare and Social Security and is growing every bit as fast as the two giant entitlement programs.  In fact, the automatic escalation of tax breaks is very similar to that of entitlement programs.

A Great Failure - Krugman - Via Mark Thoma, the trillion-dollar gap... It’s crucial to realize that the trillion dollars’ worth of goods and services we could have produced this year, but won’t, is a loss we’ll never make up. And that doesn’t count the suffering and damage to our future inflicted by the non-monetary costs of mass long-term unemployment. And yet, the prevailing sentiment in Washington and other centers of power is that we’ve done enough, and that it’s time to start pulling back — to normalize monetary policy, tighten our fiscal belts. Policymakers are congratulating themselves for avoiding total collapse, when they should be berating themselves for failing to engineer recovery. It’s tragic.

The Fed Can Control Long-Term Interest Rates - The Washington Post had another piece pushing deficit scare stories. This time it tells readers that Greece's problems could spillover to the U.S. According to the piece, fears of a Greek default could lead investors to become more worried about a U.S. default, pushing up interest rates on U.S. government bonds. There are two logical problems with the assertions in the piece. If investors flee U.S. bonds because they fear default, where are they going to put their money? If the U.S. actually did default, then almost any other asset will also take a huge hit. This would in turn imply a general flight from dollar denominated assets, which in turn would lead to a plunge in the value of the dollar. A plunging dollar would in turn lead to soaring exports and a would cause the economy to boom rather than crash, as the article claims. The other logical problem is that, contrary to the assertion of the article, the Fed actually can control long-term interest rates. It can in principle buy as many Treasury bonds as it wants.

Paring the Deficit, by Selling Part of the Radio Spectrum - NYT - HERE’S a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit. Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone. And suppose that it would make everyone’s smartphone work better, too. (I’ll explain that benefit shortly.)  I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.

Fed’s Fisher Calls for Accord to Break Up Big Firms (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher called for an international pact to break up banks whose collapse would threaten the financial system, a position that goes beyond other Fed officials.“The disagreeable but sound thing to do” for firms regarded as “too big to fail” would be to “dismantle them over time into institutions that can be prudently managed and regulated across borders,” Fisher said in a speech at the Council on Foreign Relations in New York.The Obama administration has proposed limiting banks’ proprietary trading, while Fed Chairman Ben S. Bernanke is among officials who have called for a law to wind down failing financial firms. Such a move may still confer a “government- sponsored advantage” on the companies, Fisher said. “Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size,” said Fisher, 60. “If we have to do this unilaterally, we should.”

Dallas Fed President: Break Up Big Banks - We’ve cited Thomas Hoenig, president of the Kansas City Fed, a number of times on this blog for his calls to be tougher on rescued banks and to break up banks that are too big to fail. This has been a bit unfair to Richard Fisher, president of the Dallas Fed, who has been equally outspoken on the TBTF issue (although we do cite him a couple of times in our book). Bloomberg reports that Fisher recently called for an international agreement to break up banks that are too big to fail. Here are some quotations, taken from the Bloomberg article (the full speech is here):

A Question for the James Kwaks and Simon Johnsons of the World - Mark J. Perry has an interesting piece comparing the banking system in Canada with that of the United States. He notes that Canadian banking system has done much better than the U.S. one not only during this crisis but also during the Great Depression. He lists a number of reasons for the better Canadian performance during the recent crisis. Let me suggest another important difference: Canada had a better monetary policy during this time. Now of the reasons provided by Perry, I believe the most important one is the extensive branch banking in Canada...Other observers are against high concentration of asset ownership. Their argument is that having a few banks control most of a nation's assets makes for a too-big-to-fail moral hazard problem as well as making the banks too influential..So here is a question to the James Kwaks and Simon Johnsons of the world: how do you reconcile your view of banking with the banking experience in Canada?

Why Exactly Are Big Banks Bad? – Simon Johnson - We no longer fear individuals – it’s the organizations they run that can make us or break us. And, strangely, it is not the power of big finance to control everything that has us worried – other than in some movies.  Rather it’s the ability of major banks to generate the conditions that make major international financial crises possible – with the incentive to take risks that, when things go well, result in huge upside for bankers and, when things go badly, massive downside for the rest of us.  What hit us in 2008-09 was not a “once per century” event.  Rather it was the latest – and scariest – in a series of regular global crises that goes back to at least the 1970s.At the heart of this pattern of behavior is a perception of invincibility among the folks who run our biggest banks – and following our most recent crisis they act more assured than ever that the government will provide a backstop. At the same time, everyone agrees that such “too big to fail” arrangements cannot continue.  Even the Federal Reserve, which has fallen on hard and embarrassing times since it was captured by Big Finance during the 1990s, now has its leading officials give speeches to this effect.

Not till they’ve nothing left to lose? - Those calling for financial reform aren’t being upfront about its costs. This was again evident at the Roosevelt Institute’s otherwise very good conference at Time Warner Center yesterday. First the good. The purpose of the gathering was to galvanize support for deeper reforms than lawmakers have proposed. Roosevelt’s Chief Economist Rob Johnson and his murderer’s row of thinkers — including Simon Johnson, Elizabeth Warren, Frank Partnoy, Rick Carnell, Josh Rosner and others — presented a very good white paper outlining how best to clean up the financial system. Other attendees were George Soros, Brooksley Born, Jim Chanos, Joe Stiglitz. Even Eliot Spitzer showed up. When it comes to reform, they all argued, nibbling around the edges ain’t gonna cut it. Instituting any of them means less lending. A lot less lending. It means a deep and prolonged recession. Crucially, it means much higher unemployment.

Let Markets Be Markets - Roosevelt Institute - 146pp pdf - Presentations by Simon Johnson, Elizabeth Warren, Raj Date, Michael Konczal, Josh Rosner, Michael Greenberger, Frank Partnoy, Richard Carnell, and Rob Johnson, among others

Economists: Another Financial Crisis on the Way - Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis -- one that will be even worse than the current one -- is looming, according to a new report from a group of leading economists, financiers, and former federal regulators. In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.  The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management -- and when the risks go wrong, the banks receive taxpayer bailouts from the government. "Risk-taking at banks," the report cautions, "will soon be larger than ever."

Economic Report Warns New Financial Crisis Inevitable - A new report by a group of prominent economists this week warned that banks are still engaged in high-risk investing activity that is making another, potentially bigger financial crisis not only likely, but inevitable. The group includes Rob Johnson of the United Nations Commission of Experts on Finance, plus Elizabeth Warren, chair of the Congressional Oversight Panel to oversee the bank bailout. The report, commissioned by the Roosevelt Institute, points out how banks are using borrowed funds to take risks similar to the ones that crashed the economy in 2007 in order to continue to pay big dividends to share-holders and obscenely large bonuses to executives. The economists also urge the President and Congress to strengthen proposed financial regulations to stem the new crisis-in-making, and called out Federal Reserve Chair Ben Bernanke and Treasure Secretary Timothy Geithner for overseeing “policy as the bubble was inflating.” The report said, now “these same men now designing our ‘rescue.’” The report used unusually strong language to warn could happen if no action was taken: “What will happen when the next shock hits? We may be nearing the stage where the answer will be — just as it was in the Great Depression — a calamitous global collapse.”

More options if you understand the monetary system - Rolfe Winkler lays out a good, if often unspoken, reason for why the Obama has supported his predatory financial system instead of fixed it.  Throughout there was much indignation as to why such sensible reforms haven’t been enacted. Wall Street’s lobby machine got most of the blame, the rest went to “the people” for their perceived lack of outrage. But of course people are mad, and though the lobby machine is strong, it’s not the real obstacle to reform. We are. We don’t really want it. More to the point, people care more about their jobs than they do about reform. What the reforms all have in common is that they reduce the availability of debt finance. That’s smart because our chief economic problem is that we’ve too much of the stuff. But said another way, the reforms reduce credit. Like a lot. And that means deep and prolonged recession. Crucially, it means higher unemployment.

Toxic Finance - But there’s another point that Smith makes that I found particularly memorable. She tells the fictional story of XCrop, a new, bioengineered food that is nutritionally complete and cheap to produce — a solution to malnutrition and obesity all in one. But twenty years after becoming popular, and after having become the mainstay of the food system (replacing today’s current staples), XCrop is found to have serious harmful effects on human health. Shifting back to today’s foods would be healthier, but it would be difficult and expensive. Recent financial technology, Smith says, is like XCrop. The point she is making is that our policy objective should not be to get us back to the good old days of cheap mortgages and widespread securitization as quickly as possible so we can return to the outsized consumption of the past decade. We need to have a healthier financial system, and to get there we have to give up the wonder food that turned out to be so harmful to the economy. Instead, however, Smith argues that much of the government has been captured by the financial services industry — the inventors and manufacturers of XCrop.

Santelli on Predatory Lending: ‘You can’t cheat an honest man’ – Matt Taibbi –  Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means. My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain. While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says: Here’s my problem with this. It takes two to tango. You can’t cheat an honest man. You can’t cheat an honest man? What the fuck does that mean?

China better than Barack Obama in handling the global financial crisis, says George Soros | BILLIONAIRE investor George Soros, who helped Barack Obama raise money for his presidential campaign in 2008, says he isn't happy with the Presidents handling of the financial crisis. Mr Soros said the government should have taken over US banks instead of bailing them out, a move he suggested would have been more popular with Americans."The solution that he found to the financial crisis, which was to effectively bail out the banks and allow them to earn their way out of the hole, was, in my opinion, not the right solution," Mr Soros said in an interview aired on CNN."He should have compulsorily replaced the capital that was lost."

Size doesn’t matter, says white paper on systemic risk - The white paper, which was prepared for the Property Casualty Insurers Association of America, is being distributed to members of the Senate Committee on Banking, Housing and Urban Affairs this week. Democrats and Republicans on the committee are wrangling over proposals for financial regulatory reform. In December, the House Financial Services Committee passed measures requiring large financial firms to contribute to a fund that would be used in case systemically important firms collapse. Banks with assets of more than $50 billion and hedge funds with assets of more than $10 billion would be made to contribute to the so-called systemic dissolution fund. According to the white paper, "such a process is not only subject to gaming by firms, but is conceptually flawed”. Its application would result in a distortion of the market for financial services, increased costs for consumers, greater systemic risk and even job losses, it says.

White House Offers Bill to Restrict Big Banks’ Actions - NYT - The Obama administration put forward legislation on Wednesday to rein in the size and scope of the nation’s largest banks. But the proposal faces strong resistance in Congress, where lawmakers have shown little appetite for adding to the prolonged debate on overhauling financial regulations.  The legislation would ban banks that take federally insured deposits from investing in hedge funds or private equity funds and from making trades that are for the benefit of the banks, not their customers, a practice known as proprietary trading. Goldman Sachs and Morgan Stanley would probably be the Wall Street firms most affected by the ban, known informally as the Volcker Rule, but they might be able to shed their status as bank holding companies, to avoid some of the restrictions.

Why No Regulatory Action on Banksters’ “Destabilize the Markets” Threats? - Yves Smith - We have pointed out more than once that a major impediment to reform of the financial services industry is that a small number of firms control infrastructure crucial to modern capitalism: These firms are deeply enmeshed. If one goes, the others are at risk of failure, which will take down the entire debt markets apparatus. The banksters understand this situation full well, that they have a knife at the throat of the economy, and they will fiercely resist any efforts to disarm them. And note that the enmeshed-ness is one of the sources of their leverage (no pun intended). If single firms could be taken out and shot wound down, the firms collectively would have much less power. The interconnectedness of the players, via their credit exposures to each other (most importantly but not limited to the repo and credit default swaps markets) makes “reforms” like living wills of dubious value. Unless the tight coupling is substantially reduced, these living wills remain fig leaves for political and regulatory inaction.

Disastrous Performance By Treasury On Capitol Hill - The campaign to convince people that Treasury is serious about banking reform – led sometimes by President Obama - suffered a major blow today on Capitol Hill.  In testimony to the Congressional Oversight Panel, Assistant Secretary for Financial Stability “and Counselor to the Secretary” Herb Allison said, “There is no too big to fail guarantee on the part of the U.S. government.” This statement is so extraordinarily at odds with the facts that it takes your breath away.  Should we laugh at the barefaced misrepresentation of what this administration has done (and the Bush team did) – or just dig out “Too Big To Fail” by Andrew Ross Sorkin and go through all the gruesome details again?  Should we cry for what this implies about Secretary Geithner’s commitment to real reform – if there is no issue with “too big to fail”, then why do you need any new laws that try to address this issue (e.g., such as the Volcker Rules, sent to Congress this week)?

Text Of Volcker Rule Proposal - Banking firms would be banned from proprietary trading: We need to bolster existing restrictions on banking firms’ activities to make the system safer and protect the taxpayer and keep banking firms focused on serving their customers. The proposed legislation would ban banking firms from engaging in “purchasing or selling, or otherwise acquiring and disposing of, stocks, bonds, options, commodities, derivatives, or other financial instruments for the institution’s or company’s own trading book, and not on behalf of a customer, as part of market making activities, or otherwise in connection with or in facilitation of a customer relationship (including hedging activities related to the foregoing).” Banking firms would be banned from investing or sponsoring hedge funds and private equity funds:

Is the New Deal in banking a guide for today? - - VoxEU - Where do the real causes of the global financial crisis lie? This column argues that that a dispassionate examination is needed in order to properly reform the banking system. As the Glass-Steagall Act of 1933 illustrates, a mad dash for regulation where special interests can manipulate popular outrage is a recipe for cooking up the next financial disaster.

A Five-Step Guide To Real Financial Reform - The next big battle in Washington—one that will heat up fast if the health care tussle is ever resolved—will be fought over reform of the financial sector. In recent weeks, President Barack Obama has gone on the offensive, calling for new restraints on Wall Street wheeling and dealing and vowing to veto weak legislation. In December, the House passed a robust package of reforms. The action has now shifted to the Senate Banking Committee, and chairman Sen. Chris Dodd (D-Conn.) has pledged to push a comprehensive package over the finish line before he retires at the end of the year. But it won’t be easy. The big banks and their lobbyists are vigorously resisting a rewrite of their operating rules and working hard to insert loopholes and exclusions that would gut the legislation. Obama can prevent that from happening by spelling out the benchmarks the legislators must meet to avoid his veto pen. The details of financial reform can be complicated. But it’s not hard to come up with the must-have provisions. Here are five that the White House should insist upon to make sure we get financial reform that works, not just window dressing.

Regulation Is Risky, Says Group Appointed by Regulated Banks – WSJ - Last year, the Institute of International Finance, a trade association of global banks, put together an all-star group of bankers, hedge fund operators and former government officials to alert us all to “systemic risk” — the kinds of risk that can sink an economy. The banker-appointed group just released its latest warning — and found that new proposals to regulate banks should be one of the global economy’s biggest worries. “Uncertainties about the prospects for reform — which have been highlighted by the recent proliferation of national proposals — are thought by [the group’s] members to pose additional risks to economic recovery,” said the group headed by Jacques de Larosiere, a former managing director of the International Monetary Fund.

FOR bigger pies and shorter hours and AGAINST more or less everything else - The bank lending channel revisited. Yes thank you. No matter how many times we "revisit" this amazingly cut and dried question, the answer is going to be the same - Bernanke & Blinder (1988) are just wrong. Banks make loans and then work out how to fund them, they don't raise deposits and then work out how to lend them. Therefore there basically is no "credit channel" of monetary policy; bank lending is exogenous (or rather, it's exogenous to the monetary policy regime; it's determined to a significant extent by overall macroeconomic conditions but not in a straightforward or easily analysable way).The fact that banks post-fund rather than pre-funding in general, and that loan decisions are not made on the basis of the supply of deposits, has been available for years and years to anyone who cared to ask, but it's nice to see that you can establish it by econometrics too.

Was it a financial crisis or just a bursting bubble? - Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, today argued that the primary reason for financial market instability was a poorly defined government safety net for financial institutions. The bursting housing bubble, he said, caused pain for financial groups, but there was nothing fundamentally destabilising about it: institutions overvalued certain assets, and as the market corrected itself, people lost money. "The considerable downturn in housing market fundamentals alone would have led one to expect substantial movements in financial prices and quantities, with attendant strains for many institutions, even in a very well-functioning financial system." Interconnectedness isn’t inherently destabilising, he argues. Financial institutions have every reason to “neglect the implied exposure to their counterparties’ counterparties.” But, he says, the moral hazard created by the government’s implied guarantees to large interconnected institutions is destabilising.

Questions and Answers about the Financial Crisis:  All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprime- related bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short-term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the “shadow” or “parallel” banking system) – repo based on securitization – is a genuine banking system, as large as the traditional, regulated and banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system

Soros Criticizes Obama’s Bailout  - WSJ - Billionaire investor George Soros, who helped U.S. President Barack Obama raise money for his presidential campaign in 2008, said Sunday he wasn't happy with Mr. Obama's handling of the financial crisis.Mr. Soros said the government should have taken over U.S. banks instead of bailing them out, a move he suggested would have been more popular with Americans. "The solution that he found to the financial crisis, which was to effectively bail out the banks and allow them to earn their way out of the hole, was, in my opinion, not the right solution," Mr. Soros said in an interview with CNN. "He should have compulsorily replaced the capital that was lost." Mr. Soros said China took a better approach to dealing with the financial crisis by forcing its banks to increase their minimum capital requirements. He suggested that Beijing has in recent years been more successful in its handling of economic policy than the U.S.

Speculation and Finance: Good for you? (part III) - In a couple of prior postings (Part 1 and Part 2), I considered (1) Darrell Duffie's op-ed in the Wall St. Journal asserting that financial institution speculation in the markets is "good" for us and (2) the question of financial institution speculation in credit default swaps on Greek debt as a possible factor in the worsening of Greece's financial situation.Speculation seems to be on everybody's mind these days. The Economist, for example, is running a debate on the question of the value of financial innovation, here. Volcker famously has commented that about the only financial innovation of the last century that was really worth anything was the ATM, as the moderator noted in her opening remarks.

Financial Innovation, Again - I’ve had Robert Litan’s recent paper defending most financial innovation (the web page doesn’t tell you much; you need to grab the PDF) on my to-do list for a while now. I wasn’t looking forward to writing about it, since I’m a bit tired of the subject, and I don’t think I have much more to say. So thankfully Mike Konczal beat me to it, in a two-part series. Part I is really brilliant, and has not one but two insights. The first (to simplify) is that we generally think of innovation in products as making them simply better on all dimensions. We don’t realize that, with most new financial products, we are just getting to a new point on the risk-reward spectrum that wasn’t there before. Now, it might be good for the economy as a whole for that new point to exist. But as consumers, we don’t realize that the good properties of a new financial product are almost invariably counterbalanced by some bad properties.

The case against naked CDS - I generally do not like to propose bans. But I cannot understand why we are still allowing the trade in credit default swaps without ownership of the underlying securities. Especially in the eurozone, currently subject to a series of speculative attacks, a generalised ban on so-called naked CDSs should be a no-brainer. CDSs are over-the-counter contracts negotiated by two parties. They offer the buyer insurance on a bundle of underlying securities. A typical bundle would be €10m worth of Greek government bonds. To insure against default, the buyer of a CDS pays the seller a premium, whose value is denoted in basis points.  A naked CDS purchase means that you take out insurance on bonds without actually owning them. It is a purely speculative gamble. There is not one social or economic benefit. Even hardened speculators agree on this point. Especially because naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.  Economically, CDSs are insurance for the simple reason that they insure the buyer against the default of an underlying security. A universally accepted aspect of insurance regulation is that you can only insure what you actually own. Insurance is not meant as a gamble, but an instrument to allow the buyer to reduce incalculable risks. Not even the most libertarian extremist would accept that you could take out insurance on your neighbour’s house or the life of your boss.

Who Will Rein In Those Credit Default Swaps? - NYTimes - USING these instruments in a way that intentionally destabilizes a company or a country is — is counterproductive, and I’m sure the S.E.C. will be looking into that.”  That’s what Ben S. Bernanke, chairman of the Federal Reserve, said last week when lawmakers asked him about credit default swaps during his Congressional testimony. Concerns are growing about such swaps — securities that offer insurance-like protection and helped tip over the American International Group in 2008 when it couldn’t pay mounting claims on the contracts. Now, there are fears that the use of these swaps may also help propel entire countries — think Greece — to the precipice.  Mr. Bernanke is undoubtedly an intelligent man. But his view that it’s “counterproductive” to use credit default swaps to crash an institution or a nation exhibits a certain naïveté about how the titans of finance operate now.

So Why Hasn’t the Credit Default Swaps Casino Been Shut Down? - Yves Smith - Credit default swaps played a much more central role in the financial crisis than is widely understood, and they continue to get a free pass in financial reform proposals that they do not deserve. As we have discussed on this blog, and recount in more detail in the book ECONNED, central clearing and/or putting them on exchanges are inadequate remedies. Only a small subset of CDS contracts trade often enough for to be suitable for exchange trading. As for central clearing, the logic is that this would provide for consistent and sufficiently large margin to be posted (think of it as a reserve against the ultimate possible insurance payment required on the contract). But unlike real derivatives, CDS are subject to massive price moves (”jump to default’) when a reference entity (the entity on which the CDS is written) defaults or goes into bankruptcy. That large price movement, means that the margin already posted will be insufficient, and there is no guarantee that the counterparty will be able to pony up the amount now due. But perhaps more important, the idea that CDS have legitimate uses is questionable.

More on speculation: Banks, Credit Default Swaps, and Greece's Debt - Absorption of risk only works if there is a more or less even playing field, with some long and some short, but that adds little to information or price. If there is an abundance of information on price--because traders are shorting the stock or rushing for credit default swaps, then that information will tend to swing the price and make it much more difficult for speculators to absorb the risk, as the market teeters off balance on that item and pushes the item more and more to the cliff that the speculators have predicted. Whatever the underlying problem in Greece, financial speculation has been a factor in tilting the balance towards disaster. The price of credit default swaps has gone up, and each time that Greece tries to borrow to pay its debt, it has to pay more and the CDS cost goes up and Greece looks riskier in a vicious cycle threatening illiquidity. Thus, one commentator notes that "credit default swaps give the illusion of safety, but actually increase systemic risk.

CDS demonization watch, Morgenson/Münchau edition - Maybe the reason that politicians spout such nonsense on credit default swaps (CDS) and the like is that they read newspapers, and believe what they read. Two different high-profile newspaper columnists confused Greek credit swaps in 2010 with Greek currency swaps in 2001, for instance, on Sunday alone, and I’m not sure which was worse, although I’ll give the prize this time to the FT. First, though, the New York Times (NYT), where Gretchen Morgenson devoted an entire column to the evils of CDS, but threw in this confusing paragraph near the top of the piece: First, Greece employed swaps to mask its true debt picture, with the help of Wall Street bankers, of course. And now it appears that some traders are using swaps to bet that Greece won’t be able to meet its debt payments and will face a possible default. And Morgenson doesn’t stop there. She mangles OCC numbers to make CDS revenues seem higher than they are...

Sovereign CDS Q&A - Bond Vigilantes - The market in sovereign credit default swaps has sprung to life over the past year as worries about the health of nations, rather than corporates, have multiplied.  Problems in Dubai in December, and Greece right now, on top of a general deterioration of the developed economies' budgetary positions have seen sovereign CDS making headlines.  Here's a chart of some of the latest CDS spreads on the major economies showing that fear of sovereign defaults is growing.  This article is in the form of a Q&A and aims to answer some of the main questions that our clients are asking us about the sovereign CDS market.

Sovereign-crisis trades spark regulatory backlash – MarketWatch - Trades used to bet on or hedge against sovereign-debt risks have triggered a swift backlash from regulators in the wake of a 9% swoon by the euro in recent months.  The U.S. Justice Department recently asked hedge-fund firms Soros Fund Management, Paulson & Co., SAC Capital Advisors and Greenlight Capital to preserve documents related to trading in the euro, according to a person familiar with the situation.  In addition, U.K. regulator Adair Turner, chairman of the Financial Services Authority, said Tuesday that restrictions on the use of credit default swaps should be considered after these derivatives were used to bet against the debt of euro-zone countries, including Greece.

 What CDS Speculators? The Reason Why Greek Spreads Blew Up Is Because Of Bond Selling, Not CDS Buying- There is nothing quite as liberating as jumping on the bandwagon of scapegoating that which one does not understand. The idiocy of the chorus which blames CDS "speculators" for the mysterious kidnapping and rape of the Easter Bunny and Santa Claus' stomach stapling, not to mention the imminent Greek implosion (NOT as a function of a funding crisis, but due to the one soon to be unending strike, which will commence once Greeks realize their wages are about to be cut by 250% and the new retirement age will the same as that of Yoda), is just getting surreal. And if the cheap seats housing the portly derrieres of all those CDS "experts" need yet more proof just how full of excrement their pointless multi-syllabic exhortations are, we present Credit Trader's very diplomatic presentation (diplomatic, because our version would have included a preponderance of breathless f-bombs, which is why we wisely decided against writing one), which is sufficient and necessary to hopefully shut all these empty chatterboxes up for good.

Swap Vigilantes Take Heat for Euro Shortcomings: Mark Gilbert -(Bloomberg) -- Make way, bond vigilantes. A new posse is in town, using the credit-default swaps market to punish indebted governments for their deficit-swelling subterfuges. And, as usual, the first reaction of the guilty is to blame speculators, rather than their own shortcomings.  The European Commission is calling banks and regulators to a meeting this week to discuss sovereign-default swaps. The derivatives offer investors protection against a country failing to pay its debts, or depending where you stand, allow malicious hedge funds to trash a nation’s creditworthiness.  U.S. authorities, meantime, have asked hedge funds not to destroy records of trades they make involving the euro, according to a person with knowledge of the requests. The common currency has lost almost 5 percent of its value against the dollar this year as Greece’s economic woes undermined investor confidence in the European monetary union (or malevolent infidels savaged an innocent bystander, depending on your view).

The arguments for stronger derivatives reform - The NYT comes out swinging today, devoting a long editorial to the subject of derivatives reform, under the headline “A.I.G., Greece, and Who’s Next?”. The headline alone made me ill-disposed towards the editorial, even before I got to this: First came the news that Greece had entered into derivatives transactions with Goldman Sachs and other banks to hide its public debt. Then came reports that some of those same banks and various hedge funds were using credit default swaps — the type of derivative that kneecapped the American International Group — to bet on the likelihood of a Greek default and using derivatives to wager on a drop in the euro. What a mess. The news that Greece had entered into derivatives transactions with Goldman Sachs came in 2003, almost seven years ago. The reports about hedge funds using derivatives to bet against Greece and the euro have already been discredited. And AIG was not brought down because people were buying credit protection on it, it was brought down because it was selling credit protection on subprime mortgage bonds.

The silly Greek CDS investigations - When the US Justice Department and the European Commission both announce investigations into the dastardly ways of hedge funds making bets against the euro, less than a week after the meme broke, you can be sure that you’re looking at pure politics and zero substance. The closest thing to a smoking gun here is a dinner: Now in theory, it’s entirely possible that a bunch of hedge fund managers talked about the euro on February 8 and decided that they were going to conspire to short both the euro and Greek debt, in the theory that a panic in Greece would drive up the value of their shorts there, and also drive down the value of the euro. Except if that actually happened, they were spectacularly unsuccessful. Remember this chart?

The Rules, Part I - My best recent example of the rules not working was when the formulas of the quants were blowing up in August 2007.  There were too many quants following the same strategy, and they had overbid the stocks that their models loved, and oversold the ones that they hated.  For a while, the quant models were poison.  Every investment strategy has a limited carrying capacity, and those that exceed the strategy’s capacity are prone for a comeuppance. Here is today’s rule: There is no net hedging in the market.  At the end of the day, the world is 100% net long with itself.  Every asset is owned by someone, regardless of the synthetic exposures that are overlaid on the system. There are many people, particularly dumb politicians, who think that derivatives are magic.  To them, derivatives create something out of nothing, and that something is strong enough to smash innocent companies/governments that have been behaving themselves, but have somehow found themselves caught in the crossfire.

In Senate, a Renewed Effort to Reach a Consensus on Financial Regulation - Details of part of his plan became public in news reports on Friday. The most hotly disputed elements — the creation of a consumer protection agency to watch for deceptive and abusive terms on mortgages, credit cards, payday loans and other financial products — are a reminder of how intense lobbying and partisan gridlock threaten to significantly weaken what the Obama administration has called a top priority.“The financial services lobby and particularly the big banks are driving the agenda right now,” Travis B. Plunkett, legislative director of the Consumer Federation of America, said. “They are the ones gaining ground. Their strategy is clear: death by a thousand cuts.”

Dodd's proposed compromise - Senate Banking chairman Chris Dodd is circulating his new compromise plan for a consumer financial regulator.  The New York Times and Wall Street Journal both summarized the proposal last night, but here is a copy of Dodd's still-rough outline.  As compromises go, it could be worse.   It drops the idea of a stand-alone agency that would be devoted entirely to consumer financial regulation, a cornerstone of the White House financial overhaul and of the House-passed bill.  Instead, it would create a "Bureau of Financial Protection" within the Treasury.  Its director would be selected by the President, rather than the Treasury secretary, and it would have its own budget.  If the banks think this is worth a pitched battle, then you can bet this isn't about angels on the head of a pin.

Dodd Has Work Cut Out For Him Selling Fed Consumer Plan - Initial reaction from Democratic senators and the White House was mixed for a plan Senate Banking Committee Chairman Christopher Dodd (D., Conn.) is advancing to house a new consumer-protection division within the Federal Reserve. (Long and short of it: everyone wants more details.)The plan is a compromise between Mr. Dodd and Sen. Bob Corker (R., Tenn.), as Democrats and Republicans have long been at odds over how best to redraw consumer rules. Not only will Mr. Dodd need some Republican support, but he’ll also need Democrats to feel comfortable with the plan as well, and many Democrats are skeptical that the Fed will place enough emphasis on consumer protection.

Reports: Senate nears agreement on consumer financial protection - Binyamin Appelbaum, at the WaPo, reports that Senators Dodd and Corker (Tenn) are nearing a deal to give authority for financial consumer protection to the Federal Reserve.  Uh, wasn't the Fed already responsible for consumer financial protection? More from the WSJ: Senators Outline Plan to Create New Consumer-Protection Unit Within the Fed - The division would be led by a White House appointee, have the ability to write and enforce rules, and have a separate budget. It would also give the Fed a more direct mandate to focus on consumer-protection issues.This could dramatically reshape the focus of the Federal Reserve. For years, it has primarily been focused on monetary policy over bank supervision and often made consumer protection an afterthought.

CFPA I, Preemption, or What a Bad CFPA Would Look Like - So from Felix Salmon comes word that “an independent agency with its own source of funding would be established to regulate all federally chartered banks. The agency would have two divisions: one to conduct prudential regulation and one for consumer protection. The agency’s director would decide disputes between the divisions.” Kevin Drum and Matt Yglesias have more thoughts. I think it might be good to step back and remember why a consumer financial agency should be independent. I will consider a piece of a financial reform bill to be a failure if it somehow took the worst parts of the recent financial markets and codified it into law. And my worry for consumer financial regulation is that we end up with a permanent regime of Hawke-ian Office of the Comptroller of the Currency (OCC) running campaigns of preemption of state consumer finance laws. Preemption In order to get a sense of what that looks like, I want to walk through the OCC’s preemption of Georgia’s anti-predatory lending laws in 2003. This will involve some blockquotes, but it’s a fascinating story that is worth your time.

CFPA II, Some Additional Thoughts - Economics of Contempt has some thoughts on the CFPA momentum. From Part I: The OCC will, of course, continue to defend the right of national banks to be free from state efforts to regulate their business… They invoke this in the name of consumer protection. Repeat that statement, but with “The CFPA Division of the Systematic Regulator” replacing “The OCC.” This is a really bad outcome, and one that I imagine the lobbyists would be gunning for. If the CFPA is being watered down and placed within a banking regulator, then the preemption part of it is suddenly much more important, and it really has to have a strong formal mission within the regulator. Maybe it is my background, but I think it is important to “stress test” our new regulatory ideas. And one of the smartest tactics that the conservative movement has brought to discrediting government over the past 30 years is putting industry lobbyists in charge of running their own agencies. Thomas Frank, as always, is good here.

Dodd’s proposal, leaked. Ok, I actually wrote the last two CFPA/OCC posts Saturday morning and let them sit until this morning, so I didn’t see that the CFPA announcement had been leaked with my head being in this conference. Catching up now,  Edmund Andrews: Another bad sign is that Dodd’s proposal incorporates a big concession that House Democrats made to the banking industry. Specifically, the House bill would make it very hard for states to enforce tougher consumer protections than those imposed by the Feds. That’s a big deal. During the heyday of mortgage madness, states like New York and North Carolina fought to clamp down on predatory lending, only to be pre-empted by the Office of the Comptroller of the Currency when it came to nationally-chartered banks and their subs. Yup. Can there be an Olympic event for lobbying? If you haven’t seen it yet, Andrews and Felix Salmon give a good overview to this development. But will this bring anyone new on board?

Dodd to Defang Financial Reform? Senate Banking Committee Chairman Chris Dodd's effort to house a new Consumer Financial Protection Agency under the Federal Reserve is fatally flawed. For the past two decades, the Fed has aligned itself with any policy that boosts short-term profits for America's largest banks, regardless of the consequences for consumers or the broader economy. But even worse is Dodd's effort to block the new agency from enforcing the rules it writes, leaving enforcement up to the same regulators who ignored rampant predation and outright fraud throughout the housing bubble.

Banks could win, consumers could lose, thanks to Dodd - Banks may have successfully stopped efforts for an independent consumer finance agency, and we have Senator Chris Dodd (D-Conn.) to thank for their success. Based on news reports this morning, Dodd has worked out a compromise with Sen. Bob Corker, a Tennessee Republican, for a compromise that will kill the idea of an independent consumer finance agency and instead place it inside the Federal Reserve.  The same Federal Reserve that failed to protect consumers from abuses in credit cards and mortgages as the asset bubble inflated. That's a complete 180 degree turnaround from what he promised when he opened the committee markup of financial reform legislation in November 2009

Banksters Win Yet Again: Dodd Proposes Putting Consumer Protection Agency at the Fed - I felt certain when I read the Financial Times headline, “Proposal sees consumer watchdog role for Fed,” that I must have woken up in a bizarre parallel universe (but that is probably unfair to pretty much all universes parallel to ours: I imagine it would be very difficult to have one more perverse than ours). But no, sadly, this headline is for real; the only possible good news in this account it that this dreadful idea is far from a done deal. Putting the proposed consumer financial services watchdog in any existing agency, save perhaps the FDIC, no matter what the professed logic is, is really a plan to neuter it (ironically. Richard Shelby, who was the original moving force against having the proposed new agency be independent, wanted to house it at the FDIC; it is the Democrats who are now responsible for the further devolution of this plan). The Treasury, Fed, and Office of the Comptroller of the Currency are notoriously bank friendly. Think they are gonna do anything to seriously inconvenience their charges? Not on your life.

CFPA Out, Treasury "Bureau of Financial Protection" In - Chris Dodd has now formally dropped a free-standing Consumer Financial Protection Agency (CFPA), instead pushing for a new Treasury-housed "Bureau of Financial Protection." Per Bloomberg: Senate Banking Committee Chairman Christopher Dodd abandoned the Obama administration’s stand- alone consumer financial agency and is proposing a bureau in the Treasury Department, seeking to overcome Republican opposition to legislation overhauling Wall Street regulations. The Bureau of Financial Protection would be run by a director appointed by the president, have power to write rules for companies offering financial services and be funded mainly through industry fees, according to a two-page summary the Connecticut Democrat circulated this weekend. A free-standing CFPA never had a chance in hell of making it through the Senate (really, a 0% chance), so setting the CFPA up as a litmus test just guarantees that the left will end up angrily denouncing Senate Dems as sellouts.

Captain, We Cannot Withstand Another Attack - So now we have Senator Dodd saying: "I can't write regulations, this is way beyond the competency of Congress" Really Mr. Dodd? How about "Bankruptcy Reform"? How about the CARD act, which as you can see from my Ticker yesterday, was instantaneously circumvented by the banks.  Instead of "jacking interest rates" they simply put a CALL feature into their account disclosures, which now means you get raped by having the entire balance on your card due and payable literally on demand.  (As an aside, how hard would it have been to say "no adverse actions" as a consequence of universal default, instead of what  was actually done?  Oh, and did banking lobbying interests recommend the language you did adopt?)

The death of the CFPA - Edmund Andrews writes smartly about Chris Dodd’s CFPA compromise, but also posts the actual document. That’s more than the NYT, WSJ, or Bloomberg managed to do. It’s well worth reading, despite — or even because of — the fact that this olive branch has been roundly rejected by both Dick Shelby and Bob Corker, and has therefore not even managed to survive the weekend.The Bureau of Financial Protection proposed by Dodd was pretty toothless: its rules could be vetoed by the Systemic Risk Council, it would essentially be barred from enforcing its own rules on small institutions, let alone examining those institutions, and it would have to talk to bank regulators before enforcing any rules on bigger banks. Worst of all, Dodd’s compromise would “adopt the House-based preemption standard”, which is code for saying that individual states would be barred from stepping in to regulate consumer rip-offs if and when the BFP was asleep at the wheel.

CFPA Out, Treasury "Bureau of Financial Protection" In - Chris Dodd has now formally dropped a free-standing Consumer Financial Protection Agency (CFPA), instead pushing for a new Treasury-housed "Bureau of Financial Protection." Per Bloomberg: Senate Banking Committee Chairman Christopher Dodd abandoned the Obama administration’s stand- alone consumer financial agency and is proposing a bureau in the Treasury Department, seeking to overcome Republican opposition to legislation overhauling Wall Street regulations. The Bureau of Financial Protection would be run by a director appointed by the president, have power to write rules for companies offering financial services and be funded mainly through industry fees, according to a two-page summary the Connecticut Democrat circulated this weekend. A free-standing CFPA never had a chance in hell of making it through the Senate (really, a 0% chance), so setting the CFPA up as a litmus test just guarantees that the left will end up angrily denouncing Senate Dems as sellouts.

Treasury Issues Standards For Consumer Protection Rules - According to a Treasury spokesman, a new consumer protection regime must have:

  • 1) Real independence to make and carry out decisions.
  • 2) Independent leadership appointed by the President, confirmed by the Senate.
  • 3) Independent budget and administration.
  • 4) Independent ability to set clear rules for the consumer financial services marketplace and enforce them.

Do-Nothing Fed Regulator = Huge Bank Victory - I cannot figure out the thought process behind putting a consumer protection agency into the hands of the Fed. This is the same regulatory body that gave a total pass to the non-bank lenders at the heart of the sub-prime, APR, and exotic loan issues. Bloomberg sums it up perfectly with their headline: Consumer Agency Within Fed Seen as Victory for Banks.

Consumer Agency Within Fed Seen as Victory for Banking Industry - (Bloomberg) -- For consumer advocates, housing a new agency to protect Americans from financial-product abuse within the Federal Reserve would be a defeat after lobbying for an independent body. For banks, it would represent a victory.  Barney Frank, Chairman of the House Financial Services Committee, called a Senate plan to house the proposed Consumer Financial Protection Agency at the Fed “a joke.” Shielding consumers from harmful financial products is “the most conspicuous failure by the Fed,” Frank said in an interview yesterday.

Dodd's failed reform - In his third bid in as many days to win over a few token Republicans, the Senate Banking chairman is now proposing to create an enfeebled new consumer regulator inside the Federal Reserve. Say what????  This is the same Chris Dodd who, four months ago, accused the Fed of being “an abysmal failure” as a regulator and unveiled a bill that would have stripped it of virtually all its supervisory powers. "Over the last number of years when [the Fed] took on consumer-protection responsibility and regulation of bank holding companies, it was an abysmal failure," Dodd declared.  But now Dodd the Fed-basher is proposing to make the Fed  an even more important consumer regulator than before.

Why a prudential regulator can’t house the CFPA - Listening to Robert Johnson, a Roosevelt Institute fellow, talk at his institute’s conference this morning helped drive home to me exactly why it doesn’t make sense to house a Consumer Financial Protection Agency inside the Fed, or other bank regulators. And the reason is that those regulators are consumer financial protection agencies already: the banks are the customers of the Fed and of the other regulators, and it’s the regulators’ job to protect the finances of their customers the banks. Elizabeth Warren was at the conference too, and did a great job of explaining what she called “the bank industry’s complexity machine”. Regulators and regulation always evolve in the direction of complexity and away from the simplicity that real consumers — individuals with mortgages and credit cards — need. “The banks want to make reform very complicated, so that only the experts can understand it,” said Warren — and it’s inevitable that a CFPA housed at the Fed or at any existing institution would gravitate towards the kind of regulatory complexity which is a ubiquitous symptom of regulatory capture.

TARP Overseer: Consumer Financial Protection Still Not Strong Enough - As the debate on Capitol Hill on consumer financial reform comes to a head, a leading academic and chair of Congress's oversight panel for the Treasury's bank bailout program blasted the government for bowing to the whims of big banks.Elizabeth Warren, chair of the Congressional Oversight Panel of the Troubled Asset Relief Program and a law professor at Harvard University, said in a speech Wednesday that Congress needs to do more to protect families from complicated credit card contracts and confusing agreements that banks use to shield themselves at the risk of consumers.Of the many lessons learned from the financial crisis, Warren said at a conference hosted by the Roosevelt Institute in New York, "none is more important than the need to have more meaningful rules for the market."

Financial Reform Endgame - Krugman - We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable. A weak financial reform ... wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.

Krugman: No Bill Is Better Than a Weak Bill - Paul Krugman begins this morning’s column this way: “So here’s the situation. We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable.” Krugman says he would be satisfied with the House bill, but that the need to bring moderate Democrats and at least one Republican on board in the Senate could lead to a severely watered-down bill, in particular one without a Consumer Financial Protection Agency. Instead of accepting such a deal, he says: “In summary, then, it’s time to draw a line in the sand. No reform, coupled with a campaign to name and shame the people responsible, is better than a cosmetic reform that just covers up failure to act.”

Even more incentive for the banks to kill the CFPA - Stacy Kaper has a good story today explaining how the CFPA compromise that we seem to be moving towards — putting a toothless agency inside the Fed — is bad not only for consumers but also for banks: Though the details are in flux, the latest proposal would create a new division inside the Federal Reserve Board that would write new rules for all lenders but have little to no enforcement powers against nonbanks, including check cashers, payday lenders and title insurers… “We know that the banks will be regulated. If there isn’t effective regulation of the others, then it creates a competitive problem,” said . “They are instinctively looking for a relatively weak agency here, but if it ends up being a weak agency that allows a lot of nonbanks to compete through fraudulent or near-fraudulent behavior, that’s not good for the banking system.”

Chart of the day: Payday lenders’ lobbying expenditures - A picture tells, in this case, 2,833 words:   The meat of the story, though, from Keith Epstein of the Huffington Post Investigative Fund, is well worth reading: it shows an astonishingly effective lobbying organization which has persuaded lawmakers around the country that payday lenders are both popular in their local communities and not particularly profitable. One of the biggest payday-lender lobbyists calls itself the Community Financial Services Association; it increased its spending by 74 percent over the past year, to $2.56 million. That helps pay for people like Steven Schlein, who goes around saying things like “Who’s going to make that kind of credit available to working people besides us?”.

Secretary Geithner’s Got Some Explaining to Do - While everyone, including Congress, the media, and the public, have focused on AIG's $100-million bonus payments to key employees, and most recently on AIG's stealth payments to counterparties like Chase and the French giant Société Générale -- the latter made worse by the fact that it was the Federal Reserve (FED) that wanted to keep these payments hidden from public view -- the problem with the AIG bailout is much deeper and more fundamental.  Just about everyone has had something to say about this bailout -- mostly that it was an ugly but necessary step to stave off a domino effect that would have brought the world's financial system to its knees. But what we have not yet heard is just how Treasury Secretary Geithner, as then-head of the NY FED, got away with taking ownership of 77.9% of AIG's equity and voting rights in clear violation of the law. The question we are left with is: Why? What motivated this illegal grab of AIG's equity and voting rights? Was it desperation in the face of the largest potential collapse in the history of modern finance? Was it unbridled power combined with supreme hubris? Or was it just criminal? The answer to this query resides in the as-yet-hidden files of the Federal Reserve Bank of New York, now subject to a subpoena issued by my office in the federal lawsuit Murray v. Geithner, pending in the Eastern District of Michigan

Greek deal puts Goldman Sachs in the firing line – again - It is the most profitable investment bank on the planet, and is viewed as an awesome money-making machine that runs rings around its rivals and rewards its high fliers with jaw-dropping multibillion-pound bonuses. Welcome to the world of Goldman Sachs, which has a reputation for managing risk second to none and where savvy traders took huge bets against the overvalued American mortgage market months before the onset of the credit crunch three years ago.But Goldman's knack for making huge dollops of cash from the markets is matched by its tendency to attract controversy to a degree that separates it from competitors. The latest furore is over the role Goldman played in helping Greece conceal its debts, which enabled the country to join the European single currency in 2001. Although it acted entirely legally, critics have heaped opprobrium on the bank, claiming that Goldman sails close to the wind in its endless quest for power and money.

Probe: Did big U.S. banks contribute to the financial crisis in Greece? - The financial tumult now unsettling Europe came to Washington on Thursday, as Federal Reserve Chairman Ben S. Bernanke said that the federal government is looking into the role U.S. banks may have played in the Greek fiscal crisis. The Federal Reserve and Securities and Exchange Commission are seeking information about whether Goldman Sachs and other U.S. firms helped set up financial transactions over the past decade that effectively hid the amount of debt Greece was taking on. Another potential issue is whether banks and hedge funds, by taking big bets that Greece would default, are creating a self-fulfilling downward spiral for the Mediterranean nation. "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," Bernanke said, testifying before the Senate banking committee.

Goldman Lists New ‘Risk’: Bad Press - Wall Street Journal -  Yves: So get the logic: it isn’t engaging in bad conduct that is the problem. Heavens no. It is being found out and scolded in public for having behaved badly that is the problem. So clearly the solution (per above) is not to behave better BUT 1) engage in better cover-ups and 2) find ways to muzzle or co-opt the press so any reports of dubious conduct will be muted.

Goldman’s rehab: Cranks up p.r. engine to turn sinners into saints - Lloyd Blankfein is starting to worry about his legacy. The 55-year-old chief executive of Goldman Sachs -- three-plus years into his tenure -- recently turned to a Texas corporate p.r. firm to buff the image of the tarnished Wall Street powerhouse.  Turning to outside consultants to gauge a firm's "perception in the marketplace" is unusual for the 140-year-old firm. But that's what you do, even if you are Masters of the Universe, when the national and international media accuse you of engineering and profiting from a back-door rescue of AIG, of using cash from a taxpayer bailout and cheap Federal Reserve financing to help finance lavish bonuses, and taking down the entire Greek economy.

Goldman board rejects shareholder demands on pay  (Reuters) - Goldman Sachs Group Inc's (GS.N) board has rejected demands from shareholders that the firm investigate recent compensation awards, recoup excessive compensation and reform pay practices. Wall Street's dominant bank, criticized for paying billions of dollars in bonuses soon after the taxpayer bailout of the banking industry, reported the board's decision in a regulatory filing on Monday. Goldman reported the shareholder demands last year and said at the time that its board was considering them. The firm did not name the shareholders who made the demands. Goldman could not be immediately reached for comment.

Time for Goldman to Come Clean – NYTimes - Even mighty Goldman Sachs makes mistakes. The Wall Street bank’s decision to help Greece keep some of its debts hidden from public view in 2001 was one of them. The arrangement, which allowed the Greek government to present accounts that understated the state’s liabilities by 1.6 percent of its gross domestic product, wasn’t illegal or against any regulations, and it was approved by Europe’s statistical authorities. But helping a client reduce the transparency of its finances is ethically questionable. For its own sake, as well as that of its shareholders, it’s time for Goldman to admit that it compromised its principles.  At the time, it may have seemed that the deal’s goal, comforting Greece’s fellow members of the euro zone, justified the means. In retrospect, it’s hard to reconcile such financial alchemy with Goldman’s expectation that its people comply fully with the “letter and spirit of the laws, rules and ethical principles that govern us.”

Goldman Sachs faces Fed inquiry over Greek crisis; The investment bank's work with the Greek government in the early part of the decade is now under scrutiny as Athens struggles with huge debts - The contentious role played by Goldman Sachs in Greece's debt-saddled financial crisis is under scrutiny by financial regulators in the US, the chairman of the Federal Reserve, Ben Bernanke, revealed yesterday. Goldman has come under fire for helping the Greek government to structure complex derivatives deals early in the decade and "borrow" billions of dollars in exchange rate swaps, which did not officially count as debt under eurozone rules. Critics say such conduct contributed to unsustainable public finances which have destabilised the euro.

 Wall Street's financial aftershocks - Like earthquakes, Goldman Sachs can strike anytime. Its work can slumber undetected for years, only to erupt, unanticipated, with catastrophic consequences.  Consider: In 2001, Goldman set up some opaque financial transactions for the Greek government, the New York Times reported last month. Last year, when a new government took office, it found that Greece's debt was far greater than the old government had acknowledged, thanks to deals that allowed borrowing to be treated as currency swaps rather than as loans. It also turned out that Greece's deficit wasn't 3.7 percent of gross domestic product but 12.7 percent. The role of Goldman Sachs and other U.S. investment banks in helping the Greek government hide its debt is being investigated. But the results of these revelations were Earth-shaking. The Greek government is downsizing, which will deepen that nation's recession. The euro, the continental currency that Greece employs, has come under attack by currency traders. The other members of the European Union have been compelled to keep Greece from defaulting -- which has stirred up a backlash within affluent E.U. nations that threatens the entire project of a united Europe. All in a day's work on Wall Street..

Larry Fink's $12 Trillion Shadow Though few Americans know his name, Larry Fink may be the most powerful man in the post-bailout economy. His giant BlackRock money-management firm controls or monitors more than $12 trillion worldwide—including the balance sheets of Fannie Mae and Freddie Mac, and the toxic A.I.G. and Bear Stearns assets taken over by the U.S. government last year. How did Fink rebound from a humiliating failure to become the financial fulcrum of Washington and Wall Street? Through a series of interviews, the author probes his role in the crisis, his unique risk-assessment system, and the growing concern he inspires.

Big Banks Once Totaled 17% of GDP… By 2006, 55% … Now, 63% - You know the big banks have gotten bigger.As Rolfe Winkler noted last September: For the big have gotten even bigger since the start of the financial crisis. At the end of 2007, the Big Four banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — held 32 percent of all deposits in FDIC-insured institutions. As of June 30th, it was 39 percent.  But Simon Johnson gives an even broader perspective on how big the too big to fails have gotten: Fifteen years ago, the combined assets of our six biggest banks totaled 17 percent of our GDP. By 2006, that number was 55 percent. Right now, it stands at 63 percent. Johnson also points out that: The big four have half of the market for mortgages and two-thirds of the market for credit cards. Five banks have over 95 percent of the market for over-the-counter derivatives. Three U.S. banks have over 40 percent of the global market for stock underwriting.

FDIC’s Bair blasts Wall Street’s values on pay -  Reuters An outspoken U.S. bank regulator on Tuesday rebuked Wall Street firms for only paring huge bonuses after a public outcry, saying she wished they had a better "propriety compass." Sheila Bair, chairman of the Federal Deposit Insurance Corp, said executives and traders at big financial firms need to get a better sense of values and pride in their work."I just wish these institutions had a better, should I say, propriety compass," Bair said in an interview with Reuters."They should have some commitment to the corporation or the bank that they work for, and take some pride in whether they're doing a good job and making the money the right way. ... I would like to think those are the cultural values that go into why you wake up and go to work in the morning."Bair, an activist regulator who has blasted Wall Street excesses, animatedly criticized the mentality of making money for money's sake. She compared FDIC employees, who make a moderate government salary but get a lot of pride in their work stabilizing the banking industry, with bankers who made massive paychecks even as their firms were bleeding money.

Credit Union Pays Savers to Close Their Accounts; Deposit Insurance Makes Saving Accounts a Losing Proposition for Banks - Nevada Federal Credit Union has too much money and does not know what to do with it. Worse yet, sitting in cash is costing the credit union money. Insurance premiums are the culprit. On top of any deposit premium paid to customers, insurance runs .4%. Yet short term treasuries yield .25%. Nevada Federal sees no good lending opportunities so it is paying customers to close accounts.

Bankers Bonuses and Bank Reforms: why they are needed, what they might include, and are you angry yet? - A big title for a tiny little sketch of a post, I know. Not much time today folks, but if you can read only one blog posting, read the one at Naked Capitalism at the link provided at the end of this paragraph. Yves comments on the Independent's article on bankers' bonuses and the Wall Street firms' incredible egos and greed. See US Banks Reject Effort by UK Bank Execs to Reign In Pay, Naked Capitalism.  Beale here: As you all know, A Taxing Matter has been hitting that same nail with my tiny little hammer. I think the evidence suggests that we need to take some rather drastic actions, which might include any or even perhaps all of the following:

  • break up the investment banks;
  • regulate their leverage and their bonuses,
  • ban their flash trading
  • heavily regulate their involvement in speculative gambling with derivatives

Unions Plan Protests Against Big Banks -- NYTimes — In an action it hopes would create jobs and increase economic fairness, the A.F.L.-C.I.O. announced on Wednesday that it will sponsor two “Weeks of Action” against the nation’s major banks.The A.F.L.-C.I.O., the nation’s main federation of labor unions, said it would hold demonstrations from March 15 through March 30 at banks in 200 cities, with the slogan, “Good Jobs Now, Make Wall Street Pay.” Speaking at the federation’s winter meeting here, Denise Mitchell, the A.F.L.-C.I.O.’s communications director, said the dozens of demonstrations would have three goals: getting banks to pay their “fair share,” getting banks to stop fighting tougher new banking regulations and getting banks to lend more to “Main Street” and small businesses.The rallies and protests will take place at branches and office of Bank of America, Citibank, Goldman Sachs, JP Morgan Chase, Wells Fargo and other banks.

US Banks Reject Effort by UK Bank Execs to Rein in Pay - 02/28/2010 - Yves Smith - From the Independent: But the recommendations were met by stiff opposition from the US banks JP Morgan, Morgan Stanley and Goldman Sachs, according to one source. “Some of the US bankers were furious about attempts to reduce pay throughout the industry, arguing that any such move smacked of socialism and would be fiercely resisted,” the source said on Friday. “It’s not the way the Americans like to go about their business.” Yves here. The evidence that US capital markets firms are firmly in the hands of hopeless sociopaths continues to mount. The fact set is undeniable: the big firms in the industry engaged in a massive campaign of looting, of running enterprises in which the employees were consistently overpaid relative to the risks and true profits of the firms. The result was that they were overleveraged. The only reason the industry survived was due to massive public subsidies, from equity injections to special lending programs to super low rates to regulatory forebearance. By any right, the firms should have failed, and the bankruptcy course should have gone full bore after the pay earned in the bubble years as fraudulent conveyance.

The Market for Morals - Maxine Udall - Lately, I’ve been thinking about what we obtain from markets: obvious things like goods and services, wages and output, credit and interest. But we get much more than these. Markets are places of reciprocity, of fair exchange, of a sort of equalizing justice. Without money or markets, there would be “no exchange or association. The demand for services that are mutually beneficial is part of what holds society together. In Aristotle's time, markets drew people out of their homes and into the marketplace to interact with their neighbors and townsmen and women; to observe the behavior of merchants over time; to develop sympathy for the individuals that they traded with; and to become invested in the welfare of their community. Markets were the warp upon which was woven the social fabric that binds us into community. For a variety of reasons, the modern marketplace no longer promotes and reinforces moral behavior and moral sentiments as effectively as when firms were smaller, markets were local, most products were simple, and most transactions were transparent. Instead, complex and opaque financial “innovation” has allowed capital to be siphoned off into speculative and unproductive uses. The same “innovation” is now allowing bets to be made against troubled countries and currencies to the detriment of those countries. At the same time, taxpayers have been asked to finance bailouts for banks too large to fail and apparently also too large to be required or regulated to be competent or trustworthy while at the same time they are allowed to wield unfettered political power.

AIG was even sleazier than you thought - From the complaint: From July 2003 to May 2006 black borrowers nationwide were charged total broker fees 20 basis points higher! as a percentage of the loan amount, on average, than the total broker fees charged to white borrowers for WFI and AlG FSB’s loans. These disparities extended to at least the following 19 metropolitan areas in which AlG FSB and WFI made a substantial number of brokered-loans-to black-and white-borrowers: Atlanta, Baltimore, Birmingham, Cincinnati, Chicago, Cleveland, Detroit, Hartford, Kansas City, Las Vegas, Memphis, Nassau County, New York, Orlando, Philadelphia, Phoenix, Portland OR, St. Louis, and Tampa. In these MSAs black borrowers paid total broker fees ranging from 25 to 75 basis points higher, on average, than the total broker fees paid by white borrowers. All of these disparities are statistically significant.

Business interests and democracy - The central ideal of democracy is the notion that citizens can express their political and policy preferences through political institutions, and that the policies selected will reflect those preferences. We also expect that elected officials will act ethically in support of the best interests of the public. This is their public trust. The anti-democratic possibility is that popular debates and expressions of preference are only a sham, and that secretive, powerful actors are able to secure their will in most circumstances. And in contemporary circumstances, that sounds a lot like corporations and business lobbying organizations. (Here is an earlier post on a report about corrupt behavior at the Department of the Interior.) The January Supreme Court decision affirming the status of corporations as persons, and therefore entitled to unfettered rights of free speech, is the most extreme expression of the power of business, corporations, and money...

Reuters Summit-Debt mountain still looms for LBO debt -- Private equity firms face a mountain of debt to refinance from deals done as the industry boomed and the threat of rising interest rates will only exacerbate their problems, industry experts warn. Some $645 billion of leveraged loans, the majority of which funded leveraged buyouts, will fall due by the end of 2015 in the U.S.; and some $500 billion across Europe, Middle East and Africa, according to Thomson Reuters LPC data."We have all got the chart that shows it spiking in 2011, 2012 and 2013 and people are very worried when the bullet payments become due how they will get refinanced,"

Off the Charts – Ratio of Troubled Loans Means Banks Aren’t Out of the Woods – NYTimes - MORE than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled. The problems are greatest in construction loans for single-family homes, where nearly 40 percent of the loans either are delinquent or have been written off as uncollectible. But they are also high in mortgage loans for single-family homes, where $1 in every $8 of loans is troubled.The figures were released this week by the Federal Deposit Insurance Corporation, as it announced that the number of banks in trouble had risen sharply, and forecast that the rate of bank failures would increase. The report served as a stark reminder that the banking system remained in perilous health, despite large bailouts of major financial institutions. Many smaller banks are especially exposed to commercial real estate loans, where problems are growing.

The American economy: Almost a lost decade - The Economist - For those of you who missed it: a piece in this week's issue looks at the performance of the American economy in the years 2000-2009 on several dimensions, and compares it to previous decades. It's built around the following charts, which, I think, more or less speak for themselves. Perhaps not quite a lost decade, but the worst, on these measures, since the 1930s (or the 1940s).

Weak Economic Reports Raise Specter of Double Dip Recession - NYT - We’re now in the midst of the worst run of economic news in almost a year. Home sales have dropped. So has consumer confidence. Stocks peaked on Jan. 19. This Friday may well bring the darkest piece of news yet, at least on the surface. Forecasters are predicting that the Labor Department will report that job losses accelerated in February, perhaps back above 100,000. The main reason will be the temporary hit from the big snowstorms last month. Yet there is reason to wonder if the economy also has bigger problems. The weekly data on jobless benefits are narrower and less consistent than the monthly jobs report, but they have the advantage of being more current. From early January to late February, the number of workers filing new claims for jobless benefits rose 15 percent. Over the previous nine months, this number was generally falling.

Economists Argue Small-Business Concerns Overblown - WSJ - Could worries about small business be overblown? Among the many worries of Federal Reserve officials, a big one is the extent to which tight bank credit will prevent hiring by small businesses, which tend to account for a disproportionate share of job growth in recoveries. Big companies, the logic goes, can borrow from bond markets, but smaller ones have nowhere to go if the bank says no. J.P. Morgan economists Bruce Kasman and Robert Mellman, though, believe the Fed’s concerns might be misdirected. Messrs. Kasman and Mellman note that in a study published this week by the National Federation of Independent Business, small business owners cited poor sales as their main problem. The business owners also said that getting a loan has become a lot harder, but only about one in ten cited that as their most important problem right now.

Elizabeth Warren on the Coming Commercial Real Estate Crisis; 3000 Community Banks at Risk - Mish - The following story headline masquerades as a local (D.C.) problem but the real story buried in the article is a few select quotes from Elizabeth Warren. Please consider In D.C., more evidence that commercial real estate headed for foreclosure crisis. "There's been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."Nearly 3,000 community banks -- 40 percent of the banking system -- have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week. "Every dollar they lose in commercial real estate is a dollar they can't use for small businesses," she said.

CMBS Delinquencies Hit New Record - Here are some charts and commentary from the Realpoint Research Monthly Delinquency Report for January 2010.  In January 2010, the delinquent unpaid balance for CMBS increased by another $4.3 billion, up to $45.94 billion from $41.64 billion a month prior. The overall delinquent unpaid balance is up 326% from one-year ago (when only $10.79 billion of delinquent unpaid balance was reported for January 2009), and is now over 20 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 25th straight month – up by $7.42 billion (28%) from the previous month and over $27.95 billion (508%) in the past year (up from only $5.51 billion in January 2009). This included a substantial jump in 90+-day delinquency in January 2010. click on any chart for sharper image

Commercial Real Estate Values Declining in Real Time- The Markit website gives current prices on CRE. A CMBX price chart shown here for AA.3 is representative of a broad range of pools of different quality. Clicking on the chart will enlarge it. Consistent with price and trend charts of Big Finance stocks, there was a surge off the bottom of a year ago, but poor price performance recently and from the peak about a year ago. What values are "in" the stock market is of limited concern to me. The bigger issue is that demand is obviously very weak. Nothing is ever clear, but given the rapid decline in such measures as ECRI's weekly leading indicator growth rate, the  continued poor velocity of money, it continues to strike EBR that too much of the positive economic statistics that show recovery from the worst of the depression is due only to Fed money/credit creation.

Off the Charts - Ratio of Troubled Loans Means Banks Aren’t Out of the Woods - NYTimes - MORE than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled. The problems are greatest in construction loans for single-family homes, where nearly 40 percent of the loans either are delinquent or have been written off as uncollectible. But they are also high in mortgage loans for single-family homes, where $1 in every $8 of loans is troubled. The figures were released this week by the Federal Deposit Insurance Corporation, as it announced that the number of banks in trouble had risen sharply, and forecast that the rate of bank failures would increase. The report served as a stark reminder that the banking system remained in perilous health, despite large bailouts of major financial institutions. Many smaller banks are especially exposed to commercial real estate loans, where problems are growing.

FDIC Auctions $610.5 Million in Loans From Failed U.S. Lenders (Bloomberg) -- The Federal Deposit Insurance Corp. is seeking bids for $610.5 million of unpaid loans it’s holding from failed U.S. lenders including IndyMac Bank, Silverton Bank and New Frontier Bank. The loans are backed in part by land, developed lots and condominium construction projects, said Peter Tobin, managing director of New York-based Mission Capital Advisors LLC, the FDIC’s marketing agent and financial adviser for the offering. Most of the properties are in Colorado, California, Utah and Idaho, and about 78 percent of the debt is 90 days or more past due, according to a description on Mission Capital’s Web site. The FDIC is disposing of real estate, soured mortgages and personal property ranging from tour buses to palm trees that once belonged to failed banks.

FDIC to grease mortgage market with $1.8 bln deal | Reuters  - The U.S. Federal Deposit Insurance Corp is planning to sell $1.8 billion of guaranteed asset-backed debt, according to IFR, in what may be a step toward restoring confidence in securities closely tied to the financial meltdown.The debt will be backed by residential mortgage assets of failed banks seized by the FDIC, market sources said. The two-part deal is expected to sell this week via Barclays Capital, said IFR, a Thomson Reuters service. The move has been anticipated by investors and dealers for months as the FDIC piles up loans from banks failing at an alarming rate. The plan calls up memories of the savings and loan crisis of the early 1990s when the federal government created the Resolution Trust Corp to dispose of assets.

Toxic Exploding Freddie Mortgage Factory To Close -Gee, what took you so long? – Freddie Mac announced today that on or about September 1, 2010, the company will cease purchasing and securitizing interest only mortgages, including Freddie Mac Initial InterestSM fixed-rate and adjustable-rate mortgages. Additional information will be provided to Freddie Mac Seller/Servicers in an upcoming Single-Family Seller/Servicer Guide bulletin.Interest only mortgages, including Freddie Mac Initial Interest mortgages, provide for interest-only payments for a specified period of time beginning with the first monthly payment after the note date, and principal and interest payments on a fully amortizing basis for the remainder of the mortgage term. These "vehicles" are an outright scam for 99% of all borrowers.  Their exclusive proper use is as a bridge loan. Let me explain.

Fannie to Buy up to 200,000 Delinquent Mortgages in March - Government-sponsored enterprise (GSE) Fannie Mae said Monday it expects to purchase from 150,000 to 200,000 delinquent loans out of single-family mortgage-backed security (MBS) trusts during March. The clarification of Fannie’s delinquent buyouts answered some industry questions about the time line of the buyouts and the scope of delinquencies among product time, according to analysis this week by Barclays Capital. This month will mark only the beginning of Fannie’s plan to buyout loans 120+ days delinquent. The GSE said in a press statement it expects to continue purchasing delinquent loans in subsequent months until the seriously delinquent loan population is “substantially reduced.” As of Dec. 31, 2009, the dollar volume of 120+ delinquencies in Fannie’s single-family MBS was about $127bn (download chart). Fannie also said it will include loans that since became 120+ days delinquent into the purchase population

Fannie, Freddie and FHA REO Inventory - This graph shows the REO inventory for Fannie, Freddie and FHA through Q4 2009. (REO: Real Estate Owned.) Even with all the delays in foreclosure, the REO inventory has increased sharply over the last two quarters, from 135,868 at the end of Q2 2009, to 153,007 in Q3 2009, and 172,357 at the end of Q4 2009. And here is the monthly Fannie Mae hockey stick graph ... (note that Fannie releases delinquency data with a one month lag to Freddie). The increase in delinquencies slowed in December ...Fannie Mae reported last week that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business increased to 5.38% at the end of December, up from 5.29% in November - and up from 2.42% in December 2008.

Fannie, Freddie May Ask Banks to Eat $21 Billion of Sour Loans (Bloomberg) -- Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.  That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.  The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

Fannie, Freddie Holders Shouldn’t Assume Guarantee  (Bloomberg) -- Fannie Mae and Freddie Macbondholders shouldn’t assume the government will make them whole on their investments as Congress retools the companies, House Financial Services Committee Chairman Barney Frank said. The public role of Fannie Mae and Freddie Mac, as well as the U.S. government’s implied backing of the companies’ $1.7 trillion in debt should be clarified by lawmakers to remove ambiguity, Frank told reporters “Please don’t think this is federally guaranteed, I don’t think it is, I don’t think it should be, I don’t feel any obligation to bail you out,” Frank said. Congress will “certainly not” extend any new protections to bond and mortgage-security investors beyond what exists, Frank said.

Kaaaaaaaa...... BOOM! (Fannie/Freddie) - Now this is interesting...March 5 (Bloomberg) -- Fannie Mae and Freddie Mac bondholders shouldn’t assume the government will make them whole on their investments as Congress retools the companies, Barney Frank said. Heh, who's the biggest individual bondholder? Mr. Bernanke, the bond market is on line #1! Frank continues:A “whole range” of options is being considered for investors in the two government-seized companies, “from paying nothing to a haircut to whatever,” said Frank, whose committee oversees Fannie Mae and Freddie Mac. Nothing?  You mean zero, zilch, bupkis?

Assuming Barney Frank Is Not Lying....... about fixing housing finance through a completely redesigned system instead of trying to "fix" Fannie and Freddie (I know, believing a politician is not lying is always dangerous) I offer up the following suggestions. 1 Put Fannie and Freddie into run-off via formal receivership.  Leave them outside of the government and withdraw all support.  Whatever the RMBS return, they do.  Whatever the bondholders get back, they do.  No support.  The face of the prospectus was clear and everyone, including Bernanke, knew it.  Honesty and fair dealing starts with telling the truth.   Leave the mortgage market alone for 90%+ of the transactions.  That is, no government involvement whatsoever.  With that said, there are two places I recognize a reasonable place for the government to get involved....

Frank: Fannie Freddie Investments not Risk Free, Treasury Clarifies - From the WaPo: Rep. Frank questions safety of Fannie Mae, Freddie Mac investments  "People who own Fannie and Freddie debt are not in the same legal position as [those who own] Treasury bonds and I don't want them to be,"...In restructuring the companies, Frank said he wants "to preserve the right to give people haircuts." He added, "I don't want to preclude that."  and from Reuters: U.S. Treasury says stands behind Fannie, Freddie "As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the statement from the Treasury said. I think Frank was referring to some future structure of Fannie and Freddie, but the market took his comments as suggesting that current bondholders might take a haircut.

Despite Bailouts, Fannie & Freddie Continue To Lose Billions - Hoping to keep the news low-keyed and under-reported, Fannie Mae announced late Friday afternoon after the markets closed that it had lost over $74 billion in 2009, bringing its 3-year loss totals to $137 billion. This is in addition to Freddie Mac's $80 billion loss during the same period. Fannie and Freddie have continued to squander taxpayer dollars even after the massive bailouts by the federal government.  In fact, the mortgage giants lost more money after the bailouts than they did before.

Notes and Comments - 1) After reading a piece on Falkenblog yesterday, I decided to add up all of the profits from Fannie and Freddie over the last 20 years.  Ready for how much they made?  Ta-da!  They lost $114 billion. When writing at RealMoney, I was always skeptical of the GSEs, and felt that they were too lightly reserved, because eventually they would run into a situation where real estate prices would fall. 2) Bruce Krasting comments on the solvency of the FHA.  I comment: “I’ve argued that FHA would go negative for some time. Even the FDIC is engaged in a bit of chicanery by fronting future premiums forward to avoid borrowing from the Treasury. We may avoid a banking crisis — at the cost of a sovereign crisis.” 3) I probably have a longer post coming on the paradox of thrift, that bogus concept that Keynes put forth.  But Paul Kedrosky crystallized it for me when he posted this. ...

Fannie Mae’s insatiable appetite for bailout cash - It is rare that FT Alphaville agrees with a Wall Street Journal op/ed. But in case of Fannie Mae, the WSJ’s characterisation of the government sponsored entity and its executives is spot on:It was another impressive three months at Fannie Mae, as Uncle Sam’s mortgage finance company reported a fourth quarter loss of $16.3 billion. That wasn’t quite as strong as the third quarter loss of $19.8 billion, but give Fannie’s managers credit for trying. It takes skill and determination to lose that much money, and Fannie seems up to the task.Late on Friday, Fannie Mae reported a net loss of $16bn for the fourth quarter of 2009, compared with $19bn in the previous quarter. That marks 10 consecutive quarterly losses.

Builders Get Work—if Not Loans—From Banks - - Lenders Seize Half-Built Subdivisions, Then Offer Contract Jobs to Finish Them - Home builders in some of the nation's hardest-hit housing markets are going to work directly for banks, in a little-used arrangement that is helping to ameliorate conditions in some battered local economies. The builders traditionally got loans from banks to build homes, but that credit has largely dried up. The contract work builders are getting is welcome as many of them struggle to stay afloat.

Construction Spending Declines in January - Private residential construction spending was up slightly in January, but is mostly moving sideways. I expect some growth in residential spending in 2010, but the increases will probably be sluggish until the large overhang of existing inventory is reduced.Non-residential spending decreased in January, and is now at the lowest level since November 2006. The collapse in non-residential construction spending continues...The first graph shows private residential and nonresidential construction spending since 1993.The second graph shows the year-over-year change for private residential and nonresidential construction spending. Nonresidential spending is off 19.9% on a year-over-year (YoY) basis.

Borrowers Miss Out on Billions in Savings - WSJ - The Federal Reserve has pushed mortgage rates to near half-century lows, but millions of U.S. homeowners haven't benefited from that because they can't—or won't—refinance. Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans.Around 37% of all borrowers with 30-year conforming fixed-rate mortgages—who collectively hold about $1.2 trillion of home loans—have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point,  But new refinance applications in January stood near their lowest levels in the past year.

Mortgage Crunch Coming — No, I'm not talking about defaults, although that is also a problem. I'm talking about new mortgages. The graph below shows the problem, courtesy of David Rosenberg, chief economist at Gluskin Sheff (Canada). The spread is now under 0.4% between the average 30-year mortgage rate and the 30-year Treasury bond. This is more than 1% less than the historical norm, which Rosenberg says is around 1.5%. That means that if the market returned to normal rates, a 30-year mortgage would come in around 6%. If the average 30-year mortgage rate rose to 6%, there would be a hit to housing sales and/or prices.

Buying and Selling a Home Does not Strengthen the Housing Market -  In a measure of ungodly stupidity Congress extended the first-time homebuyers' tax credit to existing homeowners. Somehow, it didn't occur to them that if someone sells their home to buy a new one it does not provide a net boost to the housing market. (One more home is purchased, one more home is put up for sale.) Somehow this simple logical point escaped the reporters who cover the issue as well, as they are still waiting for the credit to provide a lift to the housing market.

Not much impact from repeat buyer credit - It sounded like a great idea three months ago: Hand homeowners a $6,500 tax credit to find a new place to live, giving a thrust of energy to the housing market's recovery. So far, people are staying put. In November, the federal government extended a tax credit of up to $8,000 for people who hadn't owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring. But real estate agents around the country say the credit is doing little to elevate sales. Reasons vary. The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak. Droves of people who want to sell are stuck because their home is worth less than they paid for it. Harsh winter weather has Americans shoveling driveways instead of preparing their home for buyer visits.

Freddie Mac Home Price Index Declines 0.4% In Q4 Despite All-Time Low Mortgage Rates And Homebuyer Tax Credit - The latest from Government Sponsored Zombie #1: Freddie's Home Price Index declined by 0.4% year over year. Even the government, with all its subsidy bells and whistles, can merely drag the horse to the water, so to say. Sure enough, there is "spin out of the box" ready for this as well (read below to find out all about the shiny package this turd came delivered in). In the meantime, after going above 5% just once in the past 5 weeks, last week the Freddie 30 year Fixed Rate popped by 12 bps: the greatest weekly increase so far in 2010.

Home Affordability Index (20 year chart)

MBA: Mortgage Purchase Applications increase slightly - The MBA reports: Mortgage Refinance Applications Increase in Latest MBA Weekly Survey The Market Composite Index ... increased 14.6 percent on a seasonally adjusted basis from one week earlier. ... “Mortgage applications rebounded last week, particularly refis, as rates dropped back below 5 percent,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months.” The Refinance Index increased 17.2 percent from the previous week and the seasonally adjusted Purchase Index increased 9.0 percent from one week earlier. ...

Existing Home Pending Sales Index Declines 7.6% - From the NAR: Pending Home Sales Down; Severe Weather Impacting Market The Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.6 percent to 90.4 from an upwardly revised 97.8 in December ... “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June,” [Lawrence Yun, NAR chief economist] said. “The real question is what happens in the second half of the year." The Pending Home Sales Index isn't perfect, but this does generally lead existing home sales by about 45 days. The January index suggests sales in February and March will probably be lower than the 5.05 million SAAR in January

U.S. Economy: Pending Sales of Existing Homes Decline (Bloomberg) -- Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers. The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined. The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.

The Very Expensive Home Buyer Tax Credit - First a quote from a Bloomberg story: U.S. Economy: Pending Sales of Existing Homes Decline  “When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.” Just about every economist opposed the tax credit as expensive and ineffective. This is no surprise and suggests that the extension and expansion of the home buyer tax credit will probably cost taxpayers over $100,000 for each additional home sold.

Global banks warn on rates and house prices - FT - Mortgage rates will rise, home prices will fall and the supply of credit will diminish when the US Federal Reserve and other central banks wind down emergency programmes, a group of global banks warned on Wednesday.In a stark prediction for the fallout of the end to the Fed’s programme of purchasing mortgage-backed securities, the Institute of International Finance’s Market Monitoring Group cautioned that there would be “considerable repercussions for mortgage rates and home prices” The Fed is due to stop buying MBS this month and will eventually begin selling the securities to return its balance sheet to a more normal level as part of an end to the unconventional tools used to supplement a policy of near-zero interest rates and get credit flowing.

Mortgage delinquencies rise after Q4 plateau (Reuters) More homeowners are falling behind on their mortgages, jeopardizing the nascent housing recovery and raising the possibility that home prices have not found their bottom but could instead fall further. More than 8 percent of homeowners were behind 30 days or more on their mortgage loans, up 4.4 percent from December 2009 and 21 percent from last January, according to data that Equifax Inc (EFX.N), one of the largest U.S. credit bureaus, provided exclusively to Reuters. The data is based on Equifax's 200 million-plus files of U.S. consumers using credit. "This wasn't just a small uptick," said Dann Adams, president of Equifax' U.S. Consumer Information Solutions.

Accidental Landlords and the Shadow Inventory - From the NY Times: The Renter Roadblock (ht Brian)  Over the past year or two, many owners who couldn’t sell — or didn’t dare try — made a ... calculation [to rent]. Rather than accept an impossibly low offer (if they even had an offer), they decided to rent out their properties. The idea was to cover expenses while waiting for the market to right itself. But in recent months, a number of these accidental landlords have been surprised to find renewed buyer interest in their properties. The problem is, the renters are happily in place. These accidental landlords are part of the "shadow inventory".  My definition of "shadow inventory" are units that aren't currently listed on the market, but will probably be listed soon. This includes REOs (bank Real Estate Owned) that are not currently listed, foreclosures in process and seriously delinquent loans, unlisted new high rise condos and homeowners waiting for a better market.

Foreclosure Auctions are White Hot as They Sweep the Nation - Home foreclosure auction sales are white hot this year. Real Estate Disposition, LLC, (REDC), the nation's leading real estate auction company, is auctioning foreclosures at a record pace this year and is showing no signs of slowing down this year. The company has auctioned a U.S.-leading 5,700 properties so far this year for $322 million. The company is in the midst of conducting a record 125 auctions in a 71-day span. "2010 is The Year of The Foreclosure," REDC CEO Jeff Frieden says. "This market is sizzling hot. The demand is there along with the inventory."  This weekend, REDC has auctions in Atlanta and Phoenix, two of the nation's hardest-hit foreclosure cities. The company is also conducting a national online auction featuring foreclosures all over the U.S. More than 650 foreclosures will be auctioned this weekend by REDC.  To see all the properties up for auction, go to REDC's web site,

How To IPO Your House - Forbes - Are you scrounging for ways to cover your mortgage? Dining at home, dialing down the thermostat and visiting relatives on vacation will get you only so far. Maybe you should steal a play from Wall Street's book: Reduce your debt by raising equity from an outsider.You are a candidate for this kind of deal if your house is worth less than it was when you last refinanced, yet you still have a decent amount of equity left. For example, you have an $800,000 mortgage on a house that used to be worth $1.4 million but is now worth only $1 million. Your outside investor might put in $200,000 of cash in return for a 50% stake. You refinance, replacing the big mortgage with a new one for only $600,000, with more affordable payments. Your new co-owner will get half the take when the house is sold and the mortgage paid off.

Is Mortgage Refinancing a Loser's Game? - The Wall Street Journal ran a big story on Wednesday about how homeowners are missing out on big savings because people can't qualify for mortgage refinancings.  This sounds like a tragic twist in what has been a humdinger of a bear housing market. But the more you understand mortgages, the more this bad news looks to be a blessing in disguise.  To wit, the way fixed-rate mortgages are structured  the lion's share of your first decade's payments are for interest payments, not to build home equity. Each time you refinance you reset the clock to zero, starting the interest-heavy period all over again. With the average homeowner mortgage lasting well less than 10 years before it is refinanced or paid off, it's no wonder Americans are so lacking in home equity. I don't mean to be insensitive to financially troubled homeowners who desperately need a break in their monthly payments, I'm just pointing out that there's a big hidden cost to refinancing.

Detroit homes sell for $1 amid mortgage and car industry crisis -Houses on sale for a few dollars are something of an urban legend in the US on the back of the mortgage crisis that drove millions of people from their homes. But in Detroit it is no myth. One in five houses now stand empty in the city that launched the automobile age, forged America's middle-class and blessed the world with Motown. Detroit has been in decline for decades; its falling population is now well below a million – half of its 1950 peak. But the recent mortgage crisis and the fall of the big car makers into bankruptcy has pushed the town into a realm unique among big cities in America A third of the population are unemployed. Property prices have fallen 80% or more in large parts of Detroit over the last three years. The average price of a home sold in the city last year has been put at $7,500 (£4,900). Banks are selling off properties in the worst neighbourhoods, which are usually surrounded by empty and wrecked housing, for a few dollars each. But even better houses can be had at a fraction of their former value.

Santelli on Predatory Lending: ‘You can’t cheat an honest man’ – Matt Taibbi –  Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means. My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain. While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says: Here’s my problem with this. It takes two to tango. You can’t cheat an honest man. You can’t cheat an honest man? What the fuck does that mean?

Will Underwater Homeowners Make Waves? - NYTimes - Bankers call it “negative equity,” but we all call it being “underwater.” A rising tide of articles point out that a large percentage of American homeowners — perhaps as many as 25 percent — owe significantly more on their homes than current market value.If the difference between what they owe and what they could get if they sell is small, say less than 10 percent, homeowners may want to hold their breath and hope for the best. After all, home prices will probably rise eventually.But if the difference is much greater than 10 percent, some experts argue, individuals should just walk away and mail their keys to the bank.What would happen if all the homeowners in really deep water simply moved out and mailed their keys to the bank within the next six months? A widespread strategic default would look something like a wildcat strike. It would decisively increase the bargaining power of indebted homeowners, force changes in current federal policy and state regulation, and give individual debtors far more leverage in negotiating with creditors.

ROI: When It’s OK to Walk Away From Your Home – WSJ - Millions of Americans are now deeply underwater on their mortgage. If you're among them, you need to stop living in a dream world and give serious thought to walking away from the debt.No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family's finances first.How widespread is this? More than 11 million families are in "negative equity"—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That's a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That's true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?It's time for some tough talk. Stop trying to chase your lost equity. That money is gone. Don't think like the gambler who blows more and more cash trying to win back his losses. That's how a lot of people turn a small loss into a big one.

The Meaning of MERS - Although only bankers are aware of it, there is a second wave of economic disaster starting to build up that will make the earlier one pale into insignificance. Let us start out with MERS, shall we?  The MERS paperless system is the type of crooked rip-off scheme that is has been seen for generations past in the crooked financial world. In this present case, MERS was created in the boardrooms of the most powerful and controlling members of the American financial institutions. This gigantic scheme completely ignored long standing law of commerce relating to mortgage lending and did so for its own personal gain. That the inevitable collapse of the crooked mortgage swindles would lead to terrible national repercussions was a matter of little or no interest to the upper levels of America’s banking and financial world because the only interest of these entities was to grab the money of suckers, keep it in the form of ficticious bonuses, real estate and very large accounts in foreign banks. The effect of this system has led to catastrophic meltdown on both the American and global economy. MERS, as has clearly been proven in many civil cases, does not hold any promissory notes of any kind. A party must have possession of a promissory note in order to have standing to enforce and/or otherwise collect a debt that is owed to another party. Given this clear-cut legal definition,  MERS does not have legal standing to enforce or collect on the over 60 million mortgages it controls and no member of MERS has any standing in an American civil court.

Economy Watch: Three indicators spell trouble for the recovery - There is an old joke in journalism that if three of anything happens, you've got a trend story, no matter how vaguely tied together the three things may be. In economics, however, three data points can tell you something. Consider three events last week: -- On Wednesday, the Commerce Department reported that January new-home sales dropped 11.2 percent from December, plunging to their lowest level in nearly 50 years. -- On Tuesday, the Conference Board reported that February consumer confidence fell sharply from January, driven down by the survey's "present situation index" -- how confident consumers feel right now -- which hit its lowest mark since the 1983 recession. On Friday, the Reuters/University of Michigan consumer sentiment survey also showed a falloff from January to February.  -- On Thursday, the government's report on new jobless claims filed during the previous week shot up 22,000, which was exactly opposite of what economists predicted. Forecasters expected new jobless claims to drop by about 20,000.  Taken together, what do these reports tell us?

Housing markets: On the precipice | The Economist - TO SPEND just a bit more time exploring how persistent high unemployment could pose a threat to recovery consider this nice chart from Calculated Risk: ..What you've got here is a positive relationship between the unemployment rate and delinquencies and foreclosures. Causation runs both ways here—states with larger housing crashes will, other things equal, have higher rates of unemployment—but one part of the relationship is particularly clear. Homeowners with negative equity who find themselves out of a job are at a high risk of default, as they may no longer be able to pay the mortgage and can't sell their home for enough to cover their loan. And foreclosures create a raft of other economic troubles, from continued difficulties for banks to increased housing inventory for sale (which depresses prices and construction employment). Recoveries in different sectors are interdependent, but in all of them renewed health comes back to increased employment. The longer the economy expands without boosting payrolls, the less likely that expansion is to be sustained.

Good Grief! - Unless you’re an idiot — like me — if you own a home, you probably should have grieved your property taxes over the last couple of years, maybe even more than once. I speculated that grievances, and the reduced assessments that I figured went along with them, were going to be yet another problem for already-strapped municipalities and that, given the state of the real estate market, this would play out nationwide.  Looks like perhaps I was wrong:  I filed a Freedom of Information Act (FOIA) request.  Here are my three takeaways:

  • 1)  That even in 2009 only 10% of property owners grieved their assessments.  The other 90% are apparently idiots like me.
  • 2) That in 2008 only 28% of those who grieved got relief and,
  • 3) That in 2009 only 7.5% of those who grieved got relief.  What kind of sick joke is that?

The Ban on "Universal Default" -Did Congress' effort to protect you from your card company with the Credit CARD Act inspire you to pore over the new Cardmember "Agreement" that probably arrived in your mailbox this week? I actually read at least part of mine, looking in particular at the implementation of the Credit CARD Act. (I am apparently one of the "consumer advocates" that has the time to "scrutinize the agreements and bring attention to provisions sufficiently onerous that they would not bear public scrutiny.")  The first place I looked in the Cardmember Agreement was the paragraph labeled "Default/Collection."  I was looking for the much-touted restrictions on universal default. Here is what I read, to my initial surprise: "Your account may be in default if any of the following applies:  . . . we obtain information that causes us to believe that you may be unwilling or unable to pay your debts to us or to others on time."  Wait a minute? That sounds like my default (or purported default) on my debts to someone else is a default to JPMorgan Chase. Isn't that what "universal default" is?  Actually, no, at least not as defined in the legislation...

More Credit Card Company Chicanery: Ban on Universal Default Gutted - Yves Smith - In her presentation on the need for a consumer finance watchdog at the Roosevelt Institute session yesterday, Elizabeth Warren made the argument (not quite this crisply) that the complex agreements that financial firms foisted on consumers were not proper contracts, in that there was no way that most consumers could evaluate what they were agreeing to (this gets to the notion we’ve discussed earlier, of good faith and fair dealing. While the contracts may conform to the appearance of contracts, they violate these fundamental premises that undergird all agreements). And there is no reason these agreements need to be this complex. She noted that the Bank of America credit card agreement, when you include all the riders incorporated in the agreement, runs to 30 pages. In 1980, its credit card agreement was one page long.

An increasing percentage of Americans say they more enjoy saving than spending. - GAllup -The recession and financial crisis have resulted in a significant change in the way many Americans feel about spending and saving. Six in 10 Americans (62%) now say they more enjoy saving than spending -- while 35% say the reverse. This reflects a shift that began in December 2008 and a marked change from the first half of the decade, when Americans were about evenly split regarding whether they more enjoyed spending or saving. Men and women are about equally likely to say they more enjoy saving rather than spending, and preferences are also essentially the same across income levels and regions. However, those who are not married (39%) are more likely than those who are married (31%) to say they more enjoy spending. Americans aged 18 to 29 (43%) are likewise more likely than those 50 and older (29%) to enjoy spending, as are liberals (45%), compared to moderates (35%) and conservatives (32%).

An Update On Consumer Frugality: Americans Staying Home More, Reading Books - Today's Breakfast with Dave has an updated perspective on the contraction of the US consumer, after yesterday's income and spending update. And good news for Amazon: Americans are finally rememberizing how to read good. "While people did spend more on luxury items and things to help them improve their mood during these tumultuous times, there was still very much a frugal ‘stay at home’ cocooning theme in the spending report. For example, there was less spending activity on sports events (-0.7%), amusement parks (-0.3%) and movie theaters (-4.2%). Instead, people spent more money on books (+2.1%), cable (+0.9%) and television sets (+0.7%)."

The Debt of Strangers - Does this question make sense: "Is debt too high?"? It certainly makes sense for me to ask whether my debt is too high. Should I try to earn more income, reduce my consumption, or sell off some assets? And if a friend asks me whether his debt is too high, I could offer him advice in the same way I would advise myself. Would it be in his best interest to reduce his debt? I could think about government debt in a similar way. As a citizen, the government is my government, and as a taxpayer, the government debt is my debt. So government debt is my business in the same way that my debt is my business. Also, the government might ask for my advice. Or I might just offer it anyway, in the same way I would advise a friend. Would it be in the national interest for the nation's government to increase taxes, reduce spending, or sell off some assets? But can I talk about the debt of strangers in the same way? Is private debt too high?

ABI: Personal Bankruptcy Filings Up 14% from February 2009From the American Bankruptcy Institute: February Consumer Bankruptcy Filings up 14 Percent over Last Year  The 111,693 consumer bankruptcies filed in February represented a 14 percent increase nationwide over the 98,344 filings recorded in February 2009, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). NBKRC’s data also showed that the February 2010 consumer filings represented a 9 percent increase over the 102,254 consumer filings recorded in January 2010. This graph shows the non-business bankruptcy filings by quarter (Q1 2010 is estimated based on January and February data).

Real Personal Income less Transfer Payments - The National Bureau of Economic Research (NBER) uses several measures to determine if the economy is in recession. From the most recent NBER memo: Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity. The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. ...The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. ...Other series considered by the committee [include] real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household

Case-Shiller CPI Now Tracking CPI-U; Real Interest Rates Are Once Again Negative - Mish - It's been about 4-5 months since I last talked about Case-Shiller CPI (CS-CPI). Case-Shiller CPI is formulated by substituting the Case-Shiller housing index for Owner's Equivalent Rent (OER) in the CPI for all urban consumers (CPI-U) index, commonly shortened to CPI. For a complete description of the reasons and methodology for making this substitution, please see What's the Real CPI? With year-over-year home prices flattening, the effect of substituting the Case-Shiller housing index for Owners' Equivalent Rent in CPI calculations has worn off as the following charts show.

January Personal Income Flat, Spending Increases -  From the BEA: Personal Income and Outlays, January 2010 Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. ... Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent. ...Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in January, compared with an increase of 0.1 percent in December....Personal saving -- DPI less personal outlays -- was $367.2 billion in January, compared with $467.9 billion in December. This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the January Personal Income report. The saving rate fell to 3.3% in January.

The Consumer is Back; Should we be Worried - The US Department of Commerce is out today with monthly numbers on personal earnings, spending and saving. The good news is that spending, up 5%, rose much faster than income, up 1%. The bad news is the same: Spending grew much faster than income.Increases in spending, especially when they are rising much faster than income, show optimism on behalf of the consumer. And in an economy in the US that is 70% driven by consumer expenditures, we need a good deal of optimism to pull us out of a recession and keep the economy chugging along. But the rise in spending and sluggish growth in income also sent the savings rate down to 3.3%, its lowest level since October 2008 (chart ht Calculated Risk). And that is bad news. Here's why:The problem is something called the paradox of thrift. A former Curious Capitalist Justin Fox summarized the issue nicely in a column last year.

Don't Bet on a Recovery -- Seeking Alpha - It is astounding how many economists, government officials, and Wall Street strategists construe the current economic conditions as evidence of a bona fide recovery. The oracles who have described the nature of this imminent recovery do so based on their conviction that consumer spending is slowly returning to levels that existed prior to the recession. New data released Monday seems to support this view, with consumer spending up 0.5% in January.  However, missing from their analysis is any plausible explanation as to why consumers will be able to sustain such spending given the plunge in income and credit, and the lack of available savings. In fact, the same January spending report showed that personal income increased by only 0.1%, while the savings rate slowed to the smallest since 2008. I would challenge those who fantasize about a consumer-led recovery to describe where the spending money will come from.

Financial Armageddon: Stagflation Ahead? Repeating a familiar pattern, U.S. nonfarm productivity surged in the fourth quarter as unit labor costs fell, indicating that businesses are making the most of a weak jobs market and squeezing more profit out of each worker.Not surprisingly, many economists viewed the report as a positive sign. If companies keep earning more money, the logic goes, then the economy's return to growth won't be far behind. But is that the most likely outcome?  Interestingly enough, if you look back at the history of the relationship between productivity and labor costs, the last time we saw a gap between the two as wide as it is now was -- you guessed it -- in the 1970s, before the Great Stagflation.

Where has all the income gone? Look up. - The 400 American households with the highest incomes also have enjoyed a much faster pace of income growth than the vast majority.  And, because tax rates applied to their income have fallen by a third, their after-tax incomes grew substantially faster than their pre-tax incomes.  The figure looks at inflation-adjusted pre-tax and after-tax income growth for the 400 top-income families between 1992 and 2007, based on new data recently released by the Internal Revenue Service. It shows that while pre-tax income grew by a staggering 409% over that 15-year period, after-tax income increased even more, by 476%.

The reanimation of trickle down - Quiggin - The deadline for the manuscript of Zombie Economics is only a few weeks away, and the zombies are popping up faster than I can knock them down. I’m adding a section on reanimated zombies to each chapter. Over the fold is the social mobility defense of trickle down economics, as animated by Thomas Sowell. There’s still time for me to benefit from your comments. ... With the overwhelming evidence that social mobility in the US is both low by the standards of developed countries and decreasing steadily, the task of reanimating this zombie idea looks like a difficult one. But Thomas Sowell of the Hoover Institute is up to the job.  In his latest book, Intellectuals and Society, Sowell sweeps aside concerns about declining social mobility with the assertion that, ‘neighborhoods may remain the home of poor people for generations, no matter how many people from the neighborhoods move out to a better life as they move up from one income bracket to another.’ ...

Should have used the Seven Lean Cows Bit - I wondered What I would write today, then came across this Piece by John Quiggin. I cannot say much about his commentary except possibly to put it in context. The element I would advance is that social mobility means nothing at all if the Unemployment rate for February stands at 9.7%. I could discuss suppression of real Wages, over-taxation for Welfare programs which are still basically under-supplied in consideration of the Demand level, and the focus on destroying Savings of the Unemployed prior to engagement of such social welfare programs. The only real things that have trickled down have been the Costs of Living and bills of every kind and nature. What I dislike most about the modern economy as defined by Many consists of the creation of the Top-Ten-Percenter Lack of Suffering Recession, where the people who brought Us the Recession need not endure any duress; it seemed to means something more with a more general community spirit, when Everyone could curse because Times were bad!

Payday lenders giving advances on unemployment checks - The payday loan industry has found a new and lucrative source of business: the unemployed. Payday lenders, which typically provide workers with cash advances on their paychecks, are offering the same service to those covered by unemployment insurance. No job? No problem. A typical unemployed Californian receiving $300 a week in benefits can walk into one of hundreds of storefront operations statewide and walk out with $255 well before that government check arrives -- for a $45 fee. Annualized, that's an interest rate of 459%.

The Importance of Economic Equality - What if there was a way to raise a population's life expectancy and reduce its rates of crime, suicide, teenage pregnancy and mental illness, among other social problems? British epidemiologists Richard Wilkinson and Kate Pickett believe they have found one. In The Spirit Level: Why Greater Equality Makes Societies Stronger, published in the U.S. on Dec. 22, they present data suggesting that almost every indicator of social health in wealthy societies is related to its level of economic equality. (See the data here). Comparing statistics between developed economies and within the U.S., Wilkinson and Pickett argue GDP and overall wealth matter little to wealthy societies. Rather, it is the gap between the rich and poor that is telling. They spoke to TIME about what they believe are revolutionary findings.

Your Brain Wants You To Help The Poor. Are You Listening?-  In a paper in Nature; the authors Tricomi, Rangel, Camerer, and O’Doherty used fMRI experiments to reveal that the brain is wired for egalitarianism. 'Activity rose in rich people when their poor colleagues got money. In fact, it was greater in that case than when they got money themselves, which means the “rich” people’s neural activity was more egalitarian than their subjective ratings were. Whereas in “poor” people, the vmPFC and the ventral striatum only responded to getting money, not to seeing the rich getting even richer.' Neuroskeptic provides some perspective: 'Notice that this is essentially a claim about psychology, not neuroscience, even though the authors used neuroimaging in this study. They started out by assuming some neuroscience – in this case, that activity in the vmPFC and the ventral striatum indicates reward i.e. pleasure or liking – and then used this to investigate psychology

GOP senator blocks unemployment benefits extension: ‘Tough shit’ - Republican Sen. Jim Bunning (R-KY) on Thursday night expressed his opposition to renewing unemployment benefits on the Senate floor with an unusually harsh message for its backers: "Tough shit."Bunning repeatedly and single-handedly objected to an effort by Sen. Dick Durbin (D-IL) to attain unanimous consent among senators for extending COBRA and other benefits to out-of-work individuals across America."I don't think it's fair to do what you are proposing to do," he said to Durbin. "And I'll be here as long as you're here, and as long as all those other senators are here, and I'm going to object every time."As Politico reported: n a colloquy with Senate Majority Whip Dick Durbin (D-Ill.), Sen. Jeff Merkley, a freshman Democrat from Oregon, was pleading for Bunning to drop his objection, when the Kentucky Republican got fed up.  “Tough s—t,” Bunning said as he was seated in the back row, overheard by the floor staff and others in attendance

The White House Calls Out Senator Bunning - "But just when we thought we were seeing progress, we have been confronted with a disappointing return to tactics that could be harmful to the American people, with Senator Bunning (R-KY) blocking the extension of several critical priorities for middle-class families. If Senator Bunning gets his way, hundreds of thousands of people could be ineligible for COBRA tax credits for health coverage created by the Recovery Act; 400,000 individuals who cannot find work will lose their unemployment insurance; thousands of small businesses will lose access to credit; transportation projects and public safety programs across the country would be halted; critical transportation safety personnel will be furloughed at a time of increased concern about the safety of our roads and highways; and 600,000 doctors across the country who care for our seniors and veterans could be subject to a 20 % pay cut, including 8,105 in Senator Bunning’s home state of Kentucky."

Senator flips bird, ducks explanation, of unemployment filibuster (video) Senator Jim Bunning, the Kentucky Republican who single-handedly stopped passage of a bill to extend unemployment benefits, allegedly flipped an ABC News reporter the bird and refused to answer questions about why he had used Senate rules to block the measure. A film clip shows Bunning, a former major league baseball pitcher, refusing to answer questions outside an elevator, but does not show the middle finger he allegedly raised according to an ABC News blog entry about the incident.

This Is Getting Good, by Joe Klein: Jim Bunning is doing all of us a favor. As this comment from the Number 2 Senate Republican, Jon Kyl of Arizona, makes clear, the Republicans are turning toward a form of reactionary radicalism that is well to the right not only of traditional conservatism, but also of post-Victorian concepts of government and--not to put too fine a point on it--of common decency as well: Sen. Jon Kyl of Arizona, the Republican whip, argued that unemployment benefits dissuade people from job-hunting "because people are being paid even though they're not working." Unemployment insurance "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work," The idea that those who have lost their jobs in this Wall Street/mortgage-scam recession are simply deadbeats, choosing to stay on unemployment rather than look for work, seems more appropriate to Scrooge's London than the 21st century. But Kyl has spoken his version of the truth, and we should be grateful for that: this is what the Republican Party is now all about. ... Let's call the roll. Let's see how many allies Jim Bunning and Jon Kyl have.

1.2 Million to Lose Unemployment Benefits Today - The National Employment Law Project (NELP) released a report in early February showing: 1.2 million jobless workers will become ineligible for federal unemployment benefits in March unless Congress extends the unemployment safety net programs from the American Recovery and Reinvestment Act (ARRA). By June, this number will swell to nearly 5 million unemployed workers nationally who will be left without any jobless benefits....Currently, 5.6 million people are accessing one of the federal extensions (34-53 weeks of Emergency Unemployment Compensation; 13-20 weeks of Extended Benefits, a program normally funded 50 percent by the states).

GOP Sen. Kyl: Unemployment Benefits Make People Not Want To Get A Job - A debate on the Senate floor Monday over unemployment compensation crystallized, at least for a moment, the divide between the two parties in Washington.  Sen. Jon Kyl of Arizona, the Republican whip, argued that unemployment benefits dissuade people from job-hunting "because people are being paid even though they're not working." Unemployment insurance "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work," Kyl said during debate over whether unemployment insurance and other benefits that expired amid GOP objections Sunday should be extended.

Unemployment Compensation has Broad Based Benefits - Thoma - Senator Jim Bunning (R-KY) is blocking the extension of unemployment benefits and health benefits for the unemployed. I’ve already responded here in a long post on this, but I want to comment on a different aspect of the objection to extending benefits, something Senator Jon Kyl (R-AZ) said in support of Bunning’s position: Unemployment insurance “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work,” Kyl said  The claim that unemployment insurance cannot create jobs, or save them, is wrong. When people receive unemployment compensation, they spend the money at grocery stores, they buy clothing, they pay other bills, etc. The money spent at, say, grocery stores creates extra demand for food and other household items, demand that would not be there without the unemployment compensation payments. This increased demand for goods and services supports higher employment levels.

Supply and Demand (in that order): Supply Matters, Even During Deep Recessions - Professor Shimer kindly pointed me to an article about unemployment duration in Pittsburgh 1980-85. Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years. The chart below shows some of the results. It graphs weeks from unemployment benefit exhaustion against the fraction of unemployment people either finding a new job or being recalled to a previous job in that week. "Exhaustion" refers to the time when benefits cease being paid to the unemployed person, regardless of whether they have found a job.Almost no one started working during the 2-3 weeks prior to the exhaustion of their unemployment benefits (weeks "-3" and "-2" in the chart). Miraculously, more than one quarter started work a week later (19% started a new job, 10% returned to a previous job). Economists agree that a huge reason for this behavior is that people are more willing to remain unemployed when unemployment itself generates a paycheck. (The job they take may not be great, but the data show that often there is a job to take).

Senate Impasse Puts Federal Employees Out Of Work : NPR - Two thousand federal transportation workers were furloughed without pay on Monday, and the Obama administration said they have a Kentucky senator to blame for it. Federal reimbursements to states for highway programs will also be halted, the Transportation Department said in a statement late Sunday. The reimbursements amount to about $190 million a day, according to the House Transportation and Infrastructure Committee. The furloughs and freeze on payments were the result of a decision last week by Republican Sen. Jim Bunning to block passage of legislation that would have extended federal highway and transit programs, the department said. Those programs expired at midnight Sunday. The extension of transportation programs was part of a larger package of government programs that also expired Sunday, including unemployment benefits for about 400,000 Americans.

US Senate weighs tax, unemployment measures - The US Senate pressed ahead Monday with a 150-billion-dollar measure that extends tax cuts and unemployment benefits, part of a broad election-year push to keep the economic recovery on track. Lawmakers weighed the bill, which extends jobless aid and a stopgap health coverage plan to the end of 2010, after Republican Senator Jim Bunning short-circuited a short-term extension with a price tag of US$10 billion. Bunning used procedural tactics to stymie passage of the smaller, 30-day version, which had aimed to extend the benefits past Sunday, when they expired.  The new measure would retroactively extend the benefits.

Senate Ends Impasse Over Extending Jobless Benefits - NYTimes - The bipartisan 78 to 19 vote in favor of the extended compensation came after Senator Jim Bunning, Republican of Kentucky, dropped his objection to extending unemployment compensation in exchange for a largely symbolic vote on paying for the aid.  The measure, which now goes to President Obama, should also allow 2,000 federal workers furloughed from the Department of Transportation to return to work as early as Wednesday and construction to resume on dozens of highway projects. Senators now will begin debating in earnest a much broader bill that would extend the safety net programs through the end of the year.

Unemployment Benefits: One Month Extension of Final Date - Just an update: H.R. 4691: Temporary Extension Act of 2010 was signed into law last night.  Extends the final date for entering a federal-state agreement under the Emergency Unemployment Compensation (EUC) program through April 5, 2010. From the Christian Science Monitor: The extension means if an individual was about to exhaust their state benefits and about to exhaust a tier of emergency unemployment compensation, they are eligible to apply to move up to the next tier. However, if an individual is about to exhaust their final tier or extended benefits, this will not help them.  “This does not add more weeks of benefits, it just extends the deadline in which people can qualify for either Emergency Unemployment Compensation or extended benefits,”

New Claims for Unemployment Insurance Fall Slightly - Thoma: Looking at the numbers over the last several weeks in the graphs above, it’s evident that the labor market is moving sideways — there’s certainly no sign yet of an aggressive downward move. Thus, labor markets are stalled and continue to need all the help they can get. But so far, while the government has implemented some job creation programs, the programs have not been large enough to make a big dent in the unemployment problem. I don’t expect Congress to do much more to try to stimulate job markets beyond a few token bills legislators can point to when reelection rolls around. In fact, sentiment seems to be moving in the other direction.

Congress coughs up cash for SBA small business loans - Added incentives for banks to make Small Business Administration-backed loans will continue through the end of March, thanks to a fresh funding infusion authorized by Congress as part of Tuesday's bill extending unemployment benefits.Since early last year, the SBA has waived its fees and offered banks guarantees of up to 90% on the small business loans the agency backs. Created as part of the Recovery Act, the deal sweeteners helped SBA-backed lending rebound from its near collapse in late 2008, in the wake of the financial crisis.Congress initially authorized the incentives to continue through September of this year, but the measures proved so popular that their funding was quickly exhausted. The SBA has been relying since late November on temporary extensions to keep the incentives running.

States: Delinquent Mortgages vs. Unemployment Rate - The BLS released the annual average state unemployment rates today. Here is a scatter graph comparing the delinquency rate for mortgage loans (including all loans in foreclosure) vs. unemployment rate for all states as of Q4 2009. There definitely is a relationship between delinquency rates and the unemployment rate, although some states stand out (like Florida), because of state specific foreclosure laws. Arizona and Nevada also have higher than expected foreclosure rates - possibly because of high investor activity during the housing bubble.

Americans Aren't Working Because They Can't Move Anywhere -  In a whopping 80-page report from Morgan Stanley this morning, analyst Richard Berner takes on America's problems with unemployment head on, addressing both long-term and short-term solutions that could help get people back into work. Many points were made, but one that stuck out was the subject of "labor immobility resulting from the housing bust." Essentially, since people are stuck in their homes for one reason or another, it's becoming much harder for people to find work outside of their hometown since they can't sell their house. Morgan Stanley: America’s workers have always been footloose.  Even in the Great Depression , they looked for work wherever it was. Today, however, about one in four homeowners is trapped in their house because they owe more than the house is worth, so they can’t move to take another job — until they sell or walk away.  Unlike in the Depression, when homeownership was less prevalent, negative equity among a nation of homeowners leads to substantially lower mobility rates.  That is leading to a wave of “strategic defaults” in which borrowers who can otherwise afford to pay decide to walk away.  Whether through foreclosure or default, this process is undermining the economic and social fabric of communities and reducing job opportunities.  

What to Do About Long-Term Unemployment? - I agree with Kevin Drum when he says that "Mass, long-term unemployment is one of the most corrosive things any country can go through". But then he follows with "The fact that we're basically doing nothing about it is not just disgraceful, it's genuinely dangerous." This sounds great. But what, precisely, are we supposed to do? You see the same thing in every recession for the last twenty years, at least: as jobs get scarcer, employers get pickier about filling their positions. Programmer jobs that once demanded anyone with a pulse and a C++ manual now require that you also have at least three years of experience designing websites for a fast food multinational, speak fluent Tajik, and be proficient in hacky sack. So just as employees are flooding the market from industries that need to permanently downsize, it becomes harder to transition into a new industry or job description.

Nice work if you can share it: an unemployment solution - Unfortunately, economic policymaking is not like most jobs where workers get fired when they make serious mistakes. In economics, they just keep getting promoted. Therefore, the people who sank the economy are for the most part the same group of people still designing policy today. Now this group of incompetent economists is telling the rest of us that we are going to have to endure five more years of high unemployment. However, the rest of the country should not be forced to suffer even more just because those determining economic policy cannot do their jobs. We just have to spend money to eliminate mass unemployment. People work for money, if the government spends, people will work. It's pretty straightforward.But, the deficit hawks seems to have largely closed this route. Members of Congress somehow think that they are helping our children by putting their parents out of work. Fortunately, we can even find a way to create jobs that can keep the deficit hawks happy. It's called "work-sharing". The basic point is so simple that even an economist can understand it.

Census 2010: Impact on Employment -With all the talk about the impact of the February snow storms on employment, it is worth remembering that the temporary hiring for Census 2010 will also distort the payroll employment numbers.  Luckily the Census Bureau provides a monthly report on net hiring for the decennial census: Census 2010 temporary and intermittent workers During the previous two census years, there was a sharp increase in payroll employment in March and April, and a surge in May. And then almost all of the jobs were lost in the June through September period. We should expect a similar pattern this year. Note: there are reports that the Census Bureau will hire up to 1.4 million people, however that represents some contingency planning, and includes a number of people already hired temporarily in 2009.

Working the Refs - So there was this big snowstorm that hit the East Coast a couple of weeks ago. (Not the one this weekend, that dumped about 2' of snow on Upstate New York and a little more than a foot here in suburban New Jersey; the one that wiped out D.C. and gave the Party of No an excuse to do nothing.) Snow in February. What a surprise! Clearly, not something that happens every year. My high school classmates and others in the Midwest see the notice and say, "Yeah, gosh, sounds like January and February here." But This One is Different. Maybe because it gave the U.S. press an excuse to pay no attention to Haiti. Maybe because closing down D.C. meant that all the pundits got to whine and reveal their suffering. And, just maybe, because it has become the all-purpose excuse for the February Employment Report. Or any other hint that the world is not perfect, and those "green shoots" haven't been eaten by starving deer who were then shot by Big Bank Hunters. The Usual Suspects are already out in force.* And the hedging (not in the risk management sense) has begun

More Detail on Working the Refs - So there are several comments to my previous post. Ignoring the a good one from Dr. DeLong, several people are taking umbrage at my unsubtle suggestion that the effect on employment being suggested is, to be polite about it, rather creative. kharris begins, "So let me see if I have this right. If anybody tries to figure out what the impact of snow on economic data might be, they are big fat liars? But those who know that the economy is in bad shape, without reference to actual events, is a stand-up kind of hack?" Following is an expansion of my comment in that thread, with data: To the second question, well, I may be a hack, but my stand-up days are in the past. But given the choice between believing that the recovery is in full swing and that long-term unemployment is getting worse and jobs are not and will not be created, well, I'll take the CBO projection as the baseline:

Amid Snow, ADP and Challenger Reports May Provide Clearer Jobs Picture - Two jobs reports out today may give a better picture of the labor market than Friday’s official government numbers, which are expected to be skewed substantially by February snowstorms. The reports paint a picture of a labor market that continues to struggle, but is inching closer to job gains. Payroll giant Automatic Data Processing Inc. and consultancy firm Macroeconomic Advisers released data showing private payrolls fell by 20,000 in February. While the economy still isn’t adding jobs in the private sector, the decline is the smallest in two years. In another positive sign, medium-sized businesses and the services sector added jobs in February. ADP also doesn’t include the government, which has been adding census workers and is providing a source of new positions. Meanwhile, outplacement firm Challenger, Gray & Christmas reported that U.S. companies announced plans to cut 42,090 jobs in February, the lowest level since 2006. The measurement doesn’t include hirings, so lower reductions in payrolls could be offset by companies adding workers.

ADP: Private Employment Decreased 20,000 in February - ADP reports: Nonfarm private employment decreased 20,000 from January to February 2010 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from December 2009 to January 2010 was revised down, from a decline of 22,000 to a decline of 60,000. The February employment decline was the smallest since employment began falling in February of 2008.Two large blizzards smothered parts of the east coast during the reference period for the BLS establishment survey. The adverse weather had only a very small effect on today’s ADP Report due to the methodology used to construct it. However, the adverse weather is widely expected to depress the BLS estimate of the monthly change in employment for February, but boost it for March.

Employment Report: 36K Jobs Lost, 9.7% Unemployment Rate -From the BLS: Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures.  .. Major winter storms affected parts of the country during the February reference periods for the establishment and household surveys. This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Feb. unemployment rate remains unchanged at 9.7 percent -- Job losses were mild in February despite extreme snowstorms in much of the country, according to a government report released Friday, suggesting that while the labor market remains weak, it is no longer getting worse. Employers cut 36,000 net jobs, the Labor Department said, and the unemployment rate was unchanged at 9.7 percent. Economists had expected losses of 50,000 or more jobs and for the jobless rate to tick upward.

American joblessness: No growth - The Economist - THE Bureau of Labour Statistics just released its employment report for the month of February, and labour markets continue to hover in no-growth limbo. Non-farm payroll employment declined by 36,000 last month, slightly worse than January's revised loss of 26,000, and slightly worse than the February ADP report, which showed a decline in payrolls of 20,000. Nasty winter weather is assumed to have affected the data somewhat, but the BLS noted that "it is not possible to quantify precisely the net impact of the winter storms on these measures.". The bureau did point out that "workers who received pay for any part of the reference pay period, even one hour, are counted," and some snow-related job additions may have partially offset snow-related undercounting.

Broader U-6 Unemployment Rate Increases to 16.8% in February - The U.S. jobless rate was unchanged at 9.7% in February, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.3 percentage point to 16.8%. The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Though the rate is still 0.6 percentage point below its high of 17.4% in October, its continuing divergence from the official number (the “U-3″ unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers.

Comparing This Recession to Previous Ones: Job Losses -The economy lost 36,000 jobs in February, not quite as bad as most forecasters had expected. The consensus forecast on Thursday had been for a net loss of 68,000 jobs, largely because of the snowstorms that battered the East Coast in February. The chart above shows job losses in this recession compared to other recent ones; the blue line represents the current downturn. Since the recession began in December 2007, the economy has had a net loss of about 6.1 percent of its nonfarm payroll jobs. Many economists have concluded that the recession technically ended last summer even though the job market has not picked up since then. The unemployment rate (measured by a different government survey, and based on the number of people without jobs but looking for work) held steady at 9.7 percent.

U.S. Economy: Jobless Rate Holds at 9.7% in Face of Snowstorms -(Bloomberg) -- The U.S. unemployment rate held at 9.7 percent and payrolls fell less than forecast, indicating the labor market strengthened even as East Coast snowstorms forced some employers to temporarily close.  Payrolls dropped by 36,000 last month after a revised 26,000 decrease in January, a Labor Department report showed today in Washington. Manufacturers added workers for a second straight month, the first back-to-back gain since 2006, while construction companies fired workers.

The Weather Effect on Jobs - Last month’s blizzards clouded the February employment report, making it impossible to know how much payrolls would’ve changed without the snow that blanketed much of the country and shut down businesses. But several components likely would’ve been influenced by the weather. Among them: Payrolls: pay for any part of the reference period — even one hour — is counted as employed. By Industry: One might expect that outdoor industries would be hit harder by bad weather. Hours worked: The average workweek fell to 33.8 hours from 33.9 hours. The average factory workweek appears to have been hit particularly hard by weather, dropping to 39.5 hours from 39.9 in January. Total hours worked declined 0.3% from the prior month after a 0.3% gain in January.The unemployment rate was probably affected least by the snowstorm. The Labor Department said people who miss work due to weather-related events are counted as employed whether or not they’re paid for the time off. In prior snowstorms the unemployment rate barely moved even as payrolls showed large swings due to weather.

Nonfarm payrolls fall 36,000; jobless rate 9.7% -  U.S. nonfarm payrolls declined for the 25th time in the past 26 months, falling by 36,000 in February to 129.5 million, the Labor Department estimated Friday. Job losses were concentrated in construction, schools, retail and publishing. Manufacturing jobs rose by 1,000, the second increase in a row. The unemployment rate was steady at 9.7%. Severe snow storms during the survey week may have depressed the payroll count, but the Bureau of Labor Statistics said it could not quantify the impact. Total hours worked fell by 0.6%, likely due to weather-related shutdowns. The employment report was better than expected, as economists surveyed by MarketWatch were forecasting a drop of 90,000. They expected the unemployment rate to rise to 9.8%.

Is the Recovery Losing Steam? - How you view today’s jobs report depends on snow. Coming into today, many economists believed that last month’s storms on the East Coast — which occurred right before the Labor Department conducted its monthly jobs survey — would temporarily reduce employment by a significant amount. Macroeconomic Advisers, a well-regarded research firm in St. Louis, thought the effect would be between 150,000 and 220,000 jobs lost. Those jobs effectively would have disappeared in February and largely returned in March. If the storms indeed had a big effect — if they cut even 100,000 jobs from payrolls — then today’s report counts as very good news. The economy lost only 36,000 jobs last month, far fewer than forecasters expected. That number is based on the monthly survey of businesses. But that’s not the only plausible reading of the report. It’s also possible that economists vastly overestimated the snow effect. It’s even possible the snow effect was close to zero.

Employment Report - - Except for the drop in the workweek and aggregrate hours worked the February employment report was almost a duplicate of the January employment report. In both January and February the payroll survey reported a slight drop in employment and the household survey showed a modest increase in employment. Essentially both reports are showing changes so close to zero that they are well within one standard error of zero. Generally, the payroll report is considered the better report. But at cyclical turning points the household survey tends to lead the payroll survey. I think that is because the household survey does a superior job of capturing trends changes among small firms and small business tends to respond more quickly to cyclical changes than large firms.

1.031mm didn’t work b/c of the weather BUT… In order for severe weather conditions to reduce the est. of payroll employment, employees have to be off work for an entire pay period and not be paid for the time missed. About 1/2 of all workers in the payroll survey have a 2 wk, semimonthly, or monthly pay period. Workers who received pay for any part of the survey period, even ONE hour, are counted in the Feb payrolls. While some persons may have been off payrolls during the survey period, some industries such as those dealing with cleanup and repair activities, may have added workers. In the household survey, the survey period was the week of Feb 7-13. People who miss work for weather related events ARE counted as employed whether or not they are paid for the time off.

Real Unemployment Rises 0.3% To 16.8%, Non-Seasonally Adjusted Number Near All Time Highs - With economic optimism back over the U-3 data, which was "surprisingly" not impacted by mid-winter snow (but as Art Cashin says, a horrible number would have been seen as a buying catalyst due to the "non-recurring" nature of snow in February), many seem to have missed that real unemployment, or the BLS' U-6 series actually climbed by 0.3%, to 16.8% from 16.5% in January. Additionally, the Non-Seasonally Adjusted U-6 number was barely changed, and was flat at 17.9%, just a hair away from January's record 18%.

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks - Here are a few more graphs based on the employment report ...The Employment-Population ratio ticked up slightly to 58.5% in February, after plunging since the start of the recession. This is about the same level as in 1983. The Labor Force Participation Rate increased slightly to 64.8% (the percentage of the working age population in the labor force). This is at the level of the early 80s. The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) increased sharply to 8.8 million.  The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

For Older Workers, a Longer Job Search - Older workers are much less likely to be unemployed than younger workers. But when old people do lose their jobs, they’re likely to be out of work for much longer than their spring-chicken counterparts. We have written before about the extraordinarily high unemployment rates facing America’s teenagers. In February, for example, the jobless rate among 16- to 19-year-olds was a whopping 25 percent on a seasonally adjusted basis, whereas for workers over all it was 9.7 percent. For workers over age 55, it was just 7.1 percent. In February, the average unemployed worker had been searching for a job unsuccessfully for a whopping 29.7 weeks. That length of unemployment varied, however, depending on the jobless worker’s age. Here’s a chart showing the average duration of unemployment for jobless workers in seven different age groups. (Note: The Labor Department does not adjust these numbers for seasonality, so I’ve plotted a 12-month moving average for each age group.)

Creative Destruction and the Jobs of Yesteryear - An excellent slideshow from NPR highlights once jobs that were once ubiquitous but are now largely extinct. Some are the classic extinct jobs you would think of, like milkman and switchboard operator. Others, like lector and pinsetter are less obvious. There are many interesting facts, like New York City lamplighters were responsible for lighting 200-300 lamps and hour, and switchboard operators were initially teenage boys but they were replaced by woman for nearly a century because the boys were playing too many pranks. It makes you wonder, what jobs of today will be obsolete in 2100 and will the people of the future find curiously antiquated?

Simplistic WSJ minimum wage editorial - The quantitative masterminds at the Wall Street Journal editorial board are at it again.  Back in 2007, I showed how they cooked up a bogus graphic purporting to demonstrate that "Lower corporate tax rates with fewer loopholes can lead to more, not less, tax revenue from business": Today, the Journal denounces the 2007 law that has increased the minimum wage over the last three years, writing, "Rarely has a law hurt more vulnerable people more quickly."  While it's certainly plausible that the increases in the minimum wage over the last three years have worsened teen unemployment, correlation doesn't prove causation. Any variable that trended in one direction during the current economic downturn will be correlated with the unemployment rate among teens or any other group. More importantly, unemployment is rising across the board, which cuts against the WSJ's hypothesis that the minimum wage is having a particularly devastating effect on teens.

By How Much Does GDP Rise If the Government Buys More Output? - Abstract: During World War II and the Korean War, real GDP grew by about half the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0, a range generally supported by research based on vector autoregressions that control for other determinants, but higher values are not ruled out. New Keynesian macroeconomic models yield multipliers in that range as well. Neoclassical models produce much lower multipliers, because they predict that consumption falls when government purchases rise. Models that deliver higher multipliers feature a decline in the markup ratio of price over cost when output rises, and an elastic response of employment to increased demand. These characteristics are complementary to another Keynesian feature, the linkage of consumption to current income. The GDP multiplier is higher—perhaps around 1.7—when the nominal interest rate is at its lower bound of zero.

Inventories Don't Kill Growth — People Kill Growth - The most destructive ideas in academia are those that are technically defensible but nonetheless encourage erroneous intuitions. In economic science, a prime example of such a destructive idea is GDP accounting. As the recent punditry on the "inventory blip" of the fourth-quarter growth figures perfectly illustrates, the mainstream macro framework leads us into absolute absurdity. In previous articles, I have pointed out that the familiar GDP accounting tautology, Y = C + I + G + X, is technically correct, but leads many economists to abuse the equation and in the process make horrible policy recommendations.

Mankiw Flogging A Non-Existent Horse - Greg Mankiw often says this: A tax on height follows inexorably from the standard utilitarian approach to the optimal design of tax policy coupled with a well-established empirical regularity. Becuase this is part of his argument against income redistribution.  As I have said before (and see a nice comment there by Ilya) this is based on a misunderstanding of the theory of taxation.  It does not matter what the government’s underlying objective is, whether it is utilitarian or anything else.  If the government wants to raise money, for whatever purpose, say to provide education or pay the President’s economic advisors or fight wars, it wants to do so in the least distortionary way.

Mankiw at EEA - "Joe the Plumber", whom Meghan McCain called a "dumbass" was the inspiration for Mankiw's talk. To his credit, the talk was about the rising trend in inequality, but took the Goldin/Katz line that it's all about education and skill-biased technological change. I'd agree with him that, looking at recent US data, it looks pretty convincingly like we've had SBTC. But then, three other basic types of evidence completely contradict SBTC. One is the international evidence -- inequality trends in mainland europe, japan, and korea look nothing like the trends in Anglo-Saxon countries. Secondly, the long-run time series in America also shows that there are periods, which correspond closely to changes in institutions, when inequality ebbs and flows -- which suggests the more obvious conclusion that it's the institutional changes which are important. Thirdly, when we talk about the rise in inequality, we're mostly talking about just the top 1% of the population. And among the top 1%, we're mostly talking about the top .1%. So this has nothing to do with increasing returns to education generally, or any of that nonsense... Perhaps he critiqued the SBTC later in his talk, but I didn't stick around.

Double, double, toil and trouble - GAUTI EGGERTSON, an economist at the New York Fed, has an interesting recent paper called "The Paradox of Toil". The title refers to Keynes's famous paradox of thrift—an economy where everyone decided to save more would end up with lower aggregate savings in equilibrium. Similarly, Mr Eggertson shows, an economy where everyone decided to work more might end up with lower employment in equilibrium, if certain conditions are met. Those conditions (and this is why it's interesting beyond being a cute idea) are: a short-term nominal interest rate at the zero bound, and declining output and prices.

Incentives Matter: Unemployment Insurance and Job Search Edition - The abstract of a new paper from Alan Krueger and Andreas Muelller: This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The major findings are: 1) the average U.S. unemployed worker devotes about 41 min to job search on weekdays, which is substantially more than their European counterparts; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between −1.6 and −2.2; 4) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; and 5) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI.

Hypotheses about durable unemployment: just-in-time hiring - This is from The Economist: Recruiters are clearly becoming far more sophisticated, thanks to the new search tools that are available, says Aberdeen’s Mr Saba: “You’d think with 10% unemployment, jobs would be filled more quickly, but the focus on sourcing the right people, screening them and so on means that the time to fill has not fallen.” Mr Joerres believes that the increasing sophistication of recruiters means that firms will do less “anticipatory hiring” than in previous recoveries. Instead, firms will wait to get exactly the staff they need, when they need them.

US manufacturers face skills shortages - Manufacturing companies in the US are struggling to find workers with technical skills even though the sector has shed more than 2m jobs in the past two years. The shortage of skilled staff could restrict companies’ ability to step up production as the economic recovery gathers pace. In interviews with the Financial Times, groups ranging from Boeing – one of the US’s biggest manufacturers and exporters – to small companies also said they faced a wave of skilled workers reaching retirement age in the next few years, with a shortage of younger workers to replace them. “All large technical firms are facing similar issues, where a large part of the population is eligible to retire,” said Rick Stephens, senior vice-president of human resources at Boeing.  He said that by 2015, 40 per cent of the aircraft maker’s workers would be in that position. “That’s some 60,000 employees eligible to retire in five years. We just don’t see the [recruitment] pipeline meeting our needs.”

What bankers can learn from arc-welder manufacturers - The WSJ today gives a surprisingly favorable review to Spark, by Frank Koller, a book extolling the virtues of Cleveland manufacturer Lincoln Electric and its no-layoffs policy: Mr. Koller contends that layoffs deprive companies of profit-generating talent and leave the remaining employees distrustful of management—and often eager to find jobs elsewhere ahead of the next layoff round. He cites research showing that, on average, for every employee laid off from a company, five additional ones leave voluntarily within a year. He concludes that the cost of recruiting, hiring and training replacements, in most cases, far outweighs the savings that chief executives assume they’re getting when they initiate wholesale firings and plant closings. I’m not sure there’s enough here to discern a trend, but at the very least we’re seeing some signs of pushback, in the FT and WSJ, against the conventional wisdom of labor economics.

Fed's Beige Book: Continued expansion, but snowstorms held back activity - From the Fed: Beige Book  Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.

Stagflation Ahead? - Repeating a familiar pattern, U.S. nonfarm productivity surged in the fourth quarter as unit labor costs fell, indicating that businesses are making the most of a weak jobs market and squeezing more profit out of each worker. Not surprisingly, many economists viewed the report as a positive sign. If companies keep earning more money, the logic goes, then the economy's return to growth won't be far behind. But is that the most likely outcome?  Interestingly enough, if you look back at the history of the relationship between productivity and labor costs, the last time we saw a gap between the two as wide as it is now was -- you guessed it -- in the 1970s, before the Great Stagflation.

Explaining the Unemployment Gender Gap - The recession hit men harder than women. The key reasons, Federal Reserve researchers say in a study released Tuesday: Male-dominated industries took a bigger hit in the downturn, and a disproportionate share of men who reentered the labor market failed to find a job. The jobless rate was roughly the same for men and women — around 5% — when the recession started. By August 2009, however, the gap was almost three percentage points: 11% for men and 8.3% for women. That difference was the largest in the postwar era. Meanwhile, payroll employment declined 8.2% for men but only 3.9% for women from December 2007 to January 2010, “As a consequence, for the first time on record, the number of women on U.S. payrolls closely rivals the number of men,” they write. The authors trace the disparity to the the fact that job losses in the recession were concentrated in male-dominated, goods-producing industries such as construction and manufacturing.  Among the industries that fared better during the recession were health care and education, in which women have heavier representation than men.

Achieving equality through unemployment - - Much has been made recently of the gender gap in US unemployment, with good reason. Last August the unemployment rate for men hit 11 per cent, 2.7 percentage points above the rate for women, the largest difference in the post-war era. The Federal Reserve Bank of New York today released a paper looking into the reasons for the differences between the unemployment rates. The upshot of the paper is two-fold. One, we’re achieving greater workforce equality (because the job market for men is getting worse) and two, it’s going to take us a long time to recover jobs, because the employment changes are structural.It turns out that, perhaps not surprisingly, that after men and women are unemployed, they have almost as difficult a time getting a job. But men are becoming unemployed in larger numbers than women, both because they are losing their jobs in greater numbers and because a greater number of men who have left the labour force are reentering it.

Stealing From Your Boss - In 2008 alone, 447 House employees and 231 Senate workers didn't pay their taxes, according to figures from the IRS, Office of Personnel Management and Department of Defense."We have over 600 staffers on Capitol Hill not paying their taxes. That's just not acceptable," Chaffetz said in an interview with POLITICO. "It's disingenuous to take federal taxpayer dollars and not pay your full share of taxes. It's wrong." Federal employees in the U.S. House of Representatives owed more than $5.8 million in unpaid taxes in 2008. The Senate employees owe more than $2.46 million, according to figures.

Uncle Sam's Payrolls - Local government may be shedding workers, but the federal government is growing. The chart above shows federal, state and local employment relative to levels in December 2007, when the recession officially began. All three segments generally grew for the first year of the downturn. Since then, however, federal employment has shot up (thanks largely to hiring for the 2010 Census); state jobs have stayed relatively flat, with a few losses; and local governments, the biggest employer of public sector workers, have been laying off employees pretty steadily. Not everything is hunky-dory for federal workers, though. Since the recession started, the United States Postal Service has eliminated 114,300 jobs, or 14.6 percent of its payroll:

U.S. Postal Service Seeks to Raise Rates, End Saturday Delivery - The Postal Service has lost money each year since 2007, hit by the economy's downturn and the growing use of email and online bill payment. It expects a $7 billion shortfall this fiscal year and Mr. Potter said "the projections going forward are not bright." ....The Postal Service is seeking to save money by having Congress end a 2006 requirement to pre-fund retiree health benefits for postal employees, saving it upward of $5.5 billion a year. U.S. lawmakers provided temporary relief from the obligation last year and postal officials want Congress to lift the requirement altogether.

Postal Service Urged to Weigh Three-Days-a-Week Mail (Bloomberg) -- The U.S. Postal Service, facing a $238 billion budget deficit by 2020, should consider cutting delivery to as few as three days a week as the agency attempts to pare costs, a consulting firm said. Those cuts are among changes McKinsey & Co. presented in a report this week at a postal conference in Washington. Options also included expanding business lines and restructuring retiree health benefits.  The Postal Service, projecting mail volume will drop 15 percent in the next decade as consumers switch to electronic communications, is pressing Congress to change a law requiring delivery six days a week and limiting post-office closings. A request by the service to trim delivery by one day, to five days a week, has met resistance from lawmakers.

New York Again Has Highest Union Membership Rate in U.S - interactive - More than a quarter of New York’s wage and salary workers belonged to a union last year, according to a recent Labor Department report. That’s the highest rate of any state in the nation. In fact, New York has had the highest membership rate for 13 of the last 15 years, in part because of the many public-sector union members in New York City. Across the country, union membership has been rising among government workers and falling among private-sector workers.New York’s union membership rate was followed by those in Hawaii, Alaska and Washington State, which all had rates above 20 percent. Membership rates were lowest in Arkansas (3.1 percent). - Summer Associate Offers Hit 17-Year Low, Says NALP  - Third-year law students have been lamenting the unfortunate timing of their entry into the job market. Now they have some cold, hard numbers to quantify their woes. The median number of offers by U.S. law firms for 2010 summer associate positions was seven, according to statistics released Tuesday by the National Association for Law Placement. That was down from 10 offers in 2008 and 15 offers in 2007. In fact, the offer rate was the lowest NALP has reported since the organization began gathering offer statistics some 17 years ago.  Only 36 percent of interviews last year resulted in summer associate offers, compared to 47 percent in 2008 and 60 percent in 2007.

Temp Hiring No Longer Seen as Sign of Recovery - When employers hire temporary staff after a recession, it's long been seen as a sign they'll soon hire permanent workers. Not these days. Companies have hired more temps for four straight months. Yet they remain reluctant to make permanent hires because of doubts about the recovery's durability.Even companies that are boosting production seem inclined to get by with their existing workers, plus temporary staff if necessary."I think temporary hiring is less useful a signal than it used to be," says John Silvia, chief economist at Wells Fargo. "Companies aren't testing the waters by turning to temporary firms. They just want part-time workers."

Economists: Recovering 8.4 million lost jobs years away – The Denver Post - The U.S. recession that started at the end of 2007 lasted about 18 months, give or take a few months. Recovering the 8.4 million jobs lost in the downturn, however, could take the better part of a decade, some economists predict.The nation is closer to 11 million jobs in the red, accounting for the jobs needed to keep pace with the expanding population, estimates Heidi Shierholz, a labor economist with the Economic Policy Institute in Washington, D.C."The level of growth needed to get us out of the hole we are in is so enormous," she said.From the 1990s on, recoveries have become increasingly "jobless," with longer periods of time needed to recoup the previous highs in employment. The 2001 recession was comparatively mild, lasting eight months and with gross domestic product actually increasing a little. Despite that, the number of non-farm jobs fell 2 percent and the old high took four years to reach. Nearly a decade later, the U.S. unemployment rate still hasn't gotten back to the levels of below 4 percent seen in 2000.

Bring Back the Robber Barons - The Senate passed a $15 billion "jobs bill." Its proudest piece is a tax credit for employers who hire a person out of work at least 60 days. The employer won't have to pay the 6.2% Social Security payroll tax for what remains of this year. If the worker stays on the job at least a year, the government will give the employer $1,000.  Maybe there's a better way. ***Let's bring back the robber barons. "Robber baron" became a term of derision to generations of American students after many earnest teachers made them read Matthew Josephson's long tome of the same name about the men whose enterprise drove the American industrial age from 1861 to 1901....cast of pillaging villains was comprehensive: Rockefeller, Carnegie, Vanderbilt, Morgan, Astor, Jay Gould, James J. Hill. His table of contents alone shaped impressions of those times: "Carnegie as 'business pirate'.'' "Henry Frick, baron of coke." "Terrorism in Oil." "The sack of California."  I say, bring 'em back, and the sooner the better. What we need, a lot more than a $1,000 tax credit, are industries no one has thought of before. We need vision, vitality and commercial moxie. This government is draining it away.

Bring Back the Robber Barons? I Don't Think So  Maxine Udall -Before we take Daniel Henninger’s advice over at the WSJ and Bring Back the Robber Barons, let’s consider the proposition more fully by reflecting on an alternative view of corporate “entrepreneurship” offered by Barry C. Lynn and Phillip Longman at Washington Monthly. And while we're at it, let's perform this thought experiment: imagine all the entrepreneurship that is effectively squelched by locking potentially entrepreneurial people into corporate jobs in order to maintain health insurance cover for themselves and their families.Yeah...that's the ticket...robber barons.

Who Broke America’s Jobs Machine?- Why creeping consolidation is crushing American livelihoods - 1:28 webcast - If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.

Hitting the Target | The White House - This morning, economist Edward Glaeser wrote a blog post over at the NYT charging that Recovery Act spending isn’t going where it’s needed most.  Based on a subset of Recovery Act spending, he claims that per capita spending in a state is actually negatively correlated with the state’s unemployment rate – in other words, the higher the unemployment rate in the state, the less money it gets per person.He’s wrong about that.  Not only does he leave out a major chunk of Recovery Act spending, but the chunk he leaves out includes the programs that are targeted most directly at unemployment.   When you put those data back in, as we do below, you get a correct sense of the extent to which the Act is effectively targeting people and places that need help.

Obama’s fiscal stimulus will be felt, says Summers: The impact of Barack Obama’s roughly $800bn fiscal stimulus has been underestimated and will increasingly be felt over the coming months, says Lawrence Summers, the head of the White House National Economic Council. “It is an enormous achievement ... that with all the projects across the country – weatherisation, medical records, high-speed rail, what have you – that there have been essentially no reports, zero, of corruption, of abuse or of egregious delay,” Mr Summers told the Financial Times in a video interview for its View from DC series. Mr Summers argued that the effects of the stimulus had demonstrated the virtues of government in a rebuke to those denying the stimulus has helped stave off a Great Depression. In an interview with the FT last week, Judd Gregg, a senior Republican senator, denied the stimulus had had any positive effect. “For those who think the government can’t do anything right, $400bn of support has been provided [so far] in a remarkably efficient way,”

The Financial Times' Ed Luce interviews Larry Summers. ( video)

Senators Want ‘Buy American’ Rule in Stimulus - NYTimes - Four Democratic senators are calling on the Obama administration to halt spending on a renewable energy program in the economic stimulus package until rules are in place to assure that the projects use predominantly American labor and materials. The senators said that more than three-fourths of $2 billion spent on wind-energy projects supported by the stimulus package had gone to foreign companies. They said that effectively undercut the purpose of the stimulus program — formally known as the American Recovery and Reinvestment Act — which is to jump-start the American economy and create jobs here. “A critical Recovery Act priority is investment in the domestic renewable and clean energy industry, not investment in foreign manufacturers,” the senators wrote to Treasury Secretary Timothy F. Geithner on Tuesday. They asked Mr. Geithner to apply a buy-American provision to future energy projects funded under the act.

U.S. lawmakers launch push to repeal NAFTA (Reuters) - A small group of U.S. lawmakers unveiled legislation on Thursday to withdraw from the North American Free Trade Agreement in the latest sign of congressional disillusionment with free-trade deals. The bill spearheaded by Rep. Gene Taylor, a Mississippi Democrat, would require President Barack Obama to give Mexico and Canada six months notice that the United States will no longer be part of the 16-year-old trade pact. "At a time when 10 to 12 percent of the American people are unemployed, I think Congress has an obligation to put people back to work," Taylor said.He argued NAFTA has cost the United States millions of manufacturing jobs and hurt national security by encouraging companies to move production to Mexico.

The Case For More Infrastructure Spending - - In the current uncertain environment with plenty of unused capacity, private investment appears unlikely to grow fast enough to sustain a robust jobs recovery. If that’s the case, the logical solution is accelerated investment in productivity-enhancing infrastructure, which has seen underinvestment for years. But there are a few major obstacles to more infrastructure spending. The biggest is obviously money. Congress is already having trouble figuring out how to fund current levels of transportation spending. The Democrats’ idea for new funding is an accounting trick — transferring $20 billion in past foregone interest to the highway trust fund. Finding a way to pay for a substantial increase in infrastructure spending would require bipartisan agreement on how to offset the cost (through future cuts in spending or tax increases beyond those already scheduled to take effect). No such proposals appear to be circulating on Capitol Hill.

Wasted Stimulus - It is unsurprising that the Senate came up with a $32 billion increase in transportation budgetary authority, when much of that money will surely be spent building roads in the less dense areas of this country. Is that really the wisest way to combat the recession? It is impossible to create infrastructure quickly and wisely. Good planning takes years. Environmental reviews take many months. But stimulus spending must take place now, not years from now. The mismatch between the time required to rebuild America and the speed require to stimulate the economy suggests that transportation spending may not be the best form of anti-recessionary action.

Why the anti-urban bias? - THE BILLIONS of dollars being spent on infrastructure across the nation provide an opportunity to plan for a better America, but politics-as-usual favors sprawl over city. This anti-urban bias of national policies must end. Over the past 60 years, cities have been hit by a painful policy trifecta: subsidization of highways, subsidization of homeownership, and a school system that creates strong incentives for many parents to leave city borders. Nathaniel Baum-Snow, an economist at Brown University, has documented that each new federally-funded “highway passing through a central city reduces its population by about 18 percent.’’  Subsidizing transportation decreases the advantage of living close together in cities, which should make every urbanite worry about the Senate’s fondness for using highway spending to fight recession. The current Senate jobs bill calls for a more than $30 billion increase for transportation over the next two years.

Crist calls out hypocritical governors who condemned the stimulus but touted the funding projects - As ThinkProgress has documented, well over a hundred GOP lawmakers have voted against or condemned the American Recovery and Reinvestment Act, while later touted the funding or asked for more money. The latest person to point out this hypocritical behavior is Republican Gov. Charlie Crist (FL). Yesterday, while speaking at his last State of the State as governor, he called out governors who “may have rather loudly condemned the stimulus money” but who accepted it anyway: CRIST:  During these very difficult economic times, we do a disservice to the people who elected us., the people who are counting on us, to elevate ideology over problem solving. We are here to guide our ship through a storm. Watch it:

House Passes $15 Billion Jobs Bill - WSJ - Businesses Say Tax Breaks Are Welcome But They Won't Generally Lead to Hires Until Sales Improve - The House Thursday approved a $15 billion bill aimed at stimulating private-sector job creation, a day before what is expected to be another tough employment picture when official figures are released Friday. The House vote was 217-201, with few Republicans joining the Democratic majority in supporting the bill. While the legislation originated in the Senate, the House changed the bill, and so it must return to the Senate for lawmakers' final approval. 

Federal Pay Ahead Of Private Industry - Federal employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of federal data finds.  Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.  Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

The US fiscal stimulus: Less than what you might think - VoxEU - The crisis led to significant fiscal stimulus efforts by the US government to offset the downturn. But this column argues that, properly adjusted for the declining fiscal expenditure of the fifty states, the aggregate stimulus was close to zero in 2009. While a net decline was avoided, the stimulus did not raise aggregate expenditure above its predicted mean. This can explain the anaemic reaction of the US economy to the alleged “big federal fiscal stimulus”.

On the ease of overstating the fiscal stimulus in the US, 2008-9:  This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean. We discuss the implications of limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level. We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system, and ways to address these concerns.

California Job Losses Grow - California lost far more jobs last year than the state initially reported, according to a new report that provides an early glimpse into statewide employment trends. According to an estimate from the state Employment Development Department, California employers shed 871,000 jobs in 2009. If that estimate holds up when final revisions are released this month, California's job losses would be far more grim than first believed. The agency reported as recently as Jan. 22 that California employers chopped 579,000 jobs from payrolls in 2009.

Florida unemployment expected to rise - Florida's unemployment rate is expected to hit 12 percent, the highest ever recorded, with more than one million out of work in the state. The state's unemployment rate currently rests at 11.8 percent. Businesses, some of them facing 1,000 percent increases in unemployment taxes, are threatening layoffs. Crist and legislative leaders want to delay the pain, but experts say that increases are unavoidable. Their plan would raise the per-employee tax to $25.20 this year and $53.90 the next. But it would soar to $192.95 in 2012.

Nation's Unemployment Programs Running Out of Money - With the national jobless rate still near 10 percent, the recession grinding onward and benefits claims continuing to mount, the entire unemployment system is being stretched beyond capacity. Since the end of 2008, some 29 states, including California, have completely run out of funds to pay unemployment claims, and have resorted to borrowing federal money. It comes to about $33 billion, according to George Wentworth, a policy analyst with the New York-based National Employment Law Project. If jobless claims continue at current rates, the Federal Unemployment Account (FUA), part of the Unemployment Trust Fund (UTF), which is administered by the Department of Labor, could, by 2012, be facing billions in shortfalls.

2009 Unemployment Rates, by State - Average unemployment rates soared to 10% or higher in 14 states and Washington, D.C. last year – above the 9.3% average for the nation – as the recession spurred layoffs and froze hiring, the Labor Department said Wednesday. Nine states tracked their highest annual unemployment rates ever and Michigan and Nevada experienced both the biggest year over year increases and the highest rates. No regions went unscathed: The unemployment rate rose in all 50 states. (table follows)

State to pay $540 million on interest in loans to keep unemployment benefits flowing - The decision was easy for Gov. Charlie Crist and legislative leaders as they watched the economy sputter and voters seethe in an election year. On the first day of session, the Legislature passed, and Crist signed, a bill that delays for two years a massive unemployment compensation tax hike for nearly a half-million Florida employers. But the relief is only temporary and it comes with a hefty price tag. The interest on federal loans to keep benefits flowing will cost $540 million by 2012.

Christie seeks U.S. aid to curb jobless costs - Gov. Chris Christie was told that he's unlikely to get an unemployment fund bailout from the federal government to blunt a steep tax increase on New Jersey businesses, but the state's representatives in Washington agreed Monday to lobby for other aid.Sen. Robert Menendez told Christie that a federal bailout of the 31 states that owe a combined $33 billion to the unemployment insurance fund was "unlikely." Menendez said it was more realistic for the congressional delegation to lobby to extend the states' time frame for repaying the money or getting the interest on the debt forgiven

Feds Won't Bail Out NJ Unemployment Fund - New Jersey shouldn’t expect much help from the federal government to bail out the state’s insolvent unemployment insurance fund, according to U.S. Sen. Robert Menendez (D-NJ). Gov. Chris Christie wants Washington to forgive the state’s $1.2 billion and growing debt, borrowed from the federal government to allow New Jersey to continue paying unemployment claims. That possibility is looking extremely unlikely. Twenty-seven states have borrowed about $30 billion to pay their unemployment claims, according to Menendez. He said it is “just not possible” to cover all of the costs “in this budget climate,” but added that he would work to extend New Jersey’s payments, or perhaps forgive the interest on the borrowed money, as a more “realistic” way of offering help. Interest payments of about $180 million on the state’s debt would be due in 2011.

The Zero-Sum Game - States Cannot Stimulate Their Economies by Cutting Taxes -Policymakers in a number of states are considering proposals to cut taxes and institute job-creation tax credits. While state policymakers are understandably eager to do something to improve their economies, such measures generally will not increase economic growth. State balanced-budget requirements prevent states from stimulating their economies by cutting taxes. If a state cuts a tax, it generally has to make an offsetting cut to expenditures for a program or service in order to maintain balance. This spending cut is likely to reduce demand in the state just as much as the reduction in taxes may stimulate demand.[1] It is at best a zero-sum game, where the gains in one area are offset by the losses in another.

Cash-Strapped States Delay Paying Income-Tax Refunds -This year, more Americans and businesses may be asking: Where's my tax refund? That's because cash-strapped states such as North Carolina, Alabama and Hawaii have been forced to slow down issuing income tax refunds to individuals and businesses because of a lack of funds in their budget. Kansas has hinted that a delay might be possible, and processing paper refunds in Iowa has slowed because the state doesn't haven't enough employees to get them processed faster. Another state, New York, is still considering whether they'll follow the likes of Hawaii and delay refund payments. "States typically do this when they are tight and they don't have a budget in place," Things are dire at many states: forty-one states are expected to have mid-year budget gaps totaling $37.7 billion, according to the Center on Budget and Policy Priorities.

State House Democrats detail $760 million tax plan - OLYMPIA — State House Democrats want to raise about $760 million in taxes by shrinking a long list of tax exemptions and collecting more money from smokers, lawyers, accountants and out-of-state businesses. The plan, announced Monday, is the latest of three proposals from state leaders as they seek to bridge a $2.8 billion budget deficit. Debate over the tax plans now heads into high-pressure negotiations with Democratic Gov. Chris Gregoire and the Senate's majority Democrats, with just 10 full days left in the 2010 legislative session.

New York State Forecasts Cash Squeeze Continuing Through August  (Bloomberg) -- New York State may have to take “extraordinary cash management actions” in the next six months because of weaker-than-expected tax collections and delayed revenue, according to the latest budget update. The March 2 statement said the state faces a cash squeeze through August, even if the budget is “enacted in its entirety.” Lawmakers have yet to approve the $135.2 billion budget and $5.5 billion of spending cuts proposed by Governor David Paterson for the year beginning April 1.

New York’s Budget Gap Grows 18% to as Much as $9.65 Billion (Bloomberg) -- New York state’s spending gap has grown 18 percent to as much as $9.65 billion as tax collections fall short of projections made last month, state officials said.  The $850 million reduction in tax revenue between now and the end of March 2011 comes as lawmakers grapple with an $8.2 billion deficit projection that the governor and comptroller said was too low because of unrealistic assumptions about other revenue sources. New York, the third-largest U.S. state by population, faces a cash shortage as taxes fell amid the worst economic slump since the 1930s.  What you are looking at is a deficit in the range of $8.5 billion to $9.65 billion

NY state faces five-year $60.8 bln deficit (Reuters) - New York state's five-year deficit is $60.8 billion, partly because of the soaring costs of repaying debt and paying for health and pension benefits for public employees, Governor David Paterson said on Monday. Each year, debt service costs will rise 17 percent while the tab for benefits and pensions will go up 11 percent But the "revenue generation," which broadly speaking is how much the state can spend, will only be about 37 percent of the increase in the state's bills during that period, said the Democrat at a New York Observer newspaper breakfast. The deficit for the new budget that starts April 1 has probably grown to about $9 billion from last month's $8.2 billion estimate because several expected payments will be late or not materialize, he said.

Sales tax collections worst in recent history -As if there wasn’t enough proof of an aching economy, the Office of the State Comptroller recently issued a report on the sales tax collection for all counties in New York state in 2009, providing even more evidence that the economy is struggling.The report released by State Comptroller Thomas P. DiNapoli compares 2009 to 2008 collections, and found a 5.9 decrease in collections statewide. Sales tax-declines were experienced by 53 of the 57 counties in the report. Only four counties experienced a growth in sales tax revenue, but the report attributes it to other factors other than economic growth, like late payments and other technical adjustments.“Unlike other recent downturns, 2009 was the first time in recent history that there was actually a decline in county sales tax revenue — a sign of the severity of the recent recession,” the report reads. “The sales tax decline in 2009 was one of the worst on record.”

Texas Sales Tax Collections - January 2010 State Sales Tax Collections To General Revenue
State sales tax net collections* deposited to general revenue totaled $1,655.3 million in January 2010. Compared with the $1,928.3 million collected in January 2009, this represents a decrease of 14.2 percent.
December 2009 State Sales Tax Collections To General Revenue
State sales tax net collections* deposited to general revenue totaled $1,653.1 million in December 2009. Compared with the $1,869.4 million collected in December 2008, this represents a decrease of 11.6 percent.
November 2009 State Sales Tax Collections To General Revenue
State sales tax net collections* deposited to general revenue totaled $1,696.9 million in November 2009. Compared with the $1,983.1 million collected in November 2008, this represents a decrease of 14.4 percent.

County officials taking 35 percent pay cuts on state-mandated duties - County coroners, treasurers and sheriffs across Illinois are getting unexpected pay cuts this year, and no one is happy about it. The state ordinarily pays each of those elected officials a $6,500 annual stipend to compensate for duties they perform for the state. Because of the state's budget crisis, those officials will receive a stipend of only $4,196 this year -- a cut of $2,304, or 35.4 percent, on this portion of their pay. The stipend is given on top of the officials' regular salaries, which are paid by the county they serve.

Loss of fed money adds to Illinois budget woes - Gov. Pat Quinn’s initial budget scenario revealed last week shows the potential for big cuts in school funding next year because federal stimulus money is drying up. With that lifeline from the federal government being pulled back, Illinois is among the states that already are struggling with their budgets. And some state officials already are asking for help from Washington again. Illinois is using $922 million in stimulus money to pay for schools this year, and unless Congress votes to send more, that amount could get cut next year. Whether the federal government should come to states’ rescue again depends on whom you ask. And the question of whether Congress will send more money to states remains unclear.

'Massive' state layoffs predicted - One leader in the Georgia legislature says "massive" layoffs of state employees are likely, as the state continues to struggle with its budget. As many as 8,000 state jobs may be on the line. That's according to Senate Majority Leader Chip Rogers, who spokes at a news conference Monday and said he really can't offer much comfort or solutions. Lawmakers are still working on the 2011 state budget

NM lawmakers to consider sales tax increase: New Mexico will pay higher taxes when they buy goods and services, including food, under a budget-balancing package proposed by Democratic legislative leaders. The House and Senate will consider the budget package, including more than $200 million in tax increases, during a special session that convenes Monday. Gov. Bill Richardson called lawmakers back to work after they failed to agree on a state budget during a 30-day legislative session that ended last month. ...Democratic leaders met last week and negotiated a budget-balancing package of tax increases and spending cuts. Persuading House and Senate rank-and-file members to back the proposals won't be easy, however.

Budget report ominous - With the February numbers being released by the Governor’s office, and the budget down nearly 14 percent from 2009, things look ominous for the State Government.And that that might mean wholesale changes in the way the state of Missouri governs itself.“Are there going to be some programs that aren’t here 24 months from now, there probably will be,” he said. “Can I tell you today, what they are? I sure can’t. But what I do know is this: assuming this trend continues, which there are no economic indicators to assume otherwise, the reality is the Missouri State Government will much different 24 months from now"

Kansas cancels big highway projects amid budget crisis - Kansas motorists will have to get used to more potholes and cracked highway pavement — they’re the latest price for patching the gaping holes in the state’s budget. Gov. Mark Parkinson on Friday canceled nearly all state highway repair projects for the next year, part of an $85 million plan to balance the current year’s budget. But he avoided any additional cutbacks for schools, social services and public safety programs, areas that Parkinson said can’t withstand further reductions.

Governor Christie: "Time to Hold Hands and Jump Off the Cliff" - Chris Christie For President? - Mish -- In an amazingly candid appraisal of the sorry state of affairs in New Jersey, Governor Chris Christie laid it on the line in a speech to about 200 mayors at the New Jersey League of Municipalities.The speech is 24 minutes long and well worth a listen because it is both an honest admission of the problem, and a refreshingly accurate appraisal of what the solutions are. He chastised the legislature, unions, municipalities, and affordable housing initiatives while promising to do something about all of those.  Unfortunately I cannot find a transcript, nor is there a YouTube video but you can Watch Chrstie's Speech To League of Municipalities on public television. It starts out with an ad you have to listen to, but it quickly picks up once Christie starts speaking. He starts off in fine fashion calling the legislature's budget "Alice In Wonderland Budgeting" (Partial Transcript)

The Virtue of a Big Bang - If you are in the leadership of a municipality, or even a state, I have some advice for you, and it is worth many times more than you will pay to get this advice.  This is no time for half measures.  If you are just shaving here and there, and looking for the magic bullet that offends no one, let me say, “Sorry, that won’t work.  Better you should try ‘Steady as she goes for another year, borrow more, and see if the economy turns around for you.’” But better still is to take charge, and deliver a Big Bang of pain everywhere.  If the pain hits everyone, and you put it in the language of shared sacrifice, where no one is really happy with the results, most of the electorate will respect it, and accept the reductions in services.  But make it deep, and challenge the municipal unions, whose pension plans have in the past gained exorbitant pension promises.  Don’t let anyone escape the cuts.  If everyone in the government is not hollering at you, you did not do it right. Case in point: New Jersey. Governor Chris Christie made draconian cuts to bring the budget into balance, and has gained respect for it.  Out of 378 possible reductions in the budget, he implemented 375 of them.  Everything got touched, and there was/is a lot of screaming.  Truth is, the government can work with fewer people, and with them paid less.  Services can be curtailed considerably.  Tell the schools they are getting less from the state/county/city.  Let them figure out what is least valuable in the system, and eliminate it.

The Logic of Shared Pain - While on the Ron Smith show today, one caller asked, “So, where would you cut spending?”  Given my recent piece, The Virtue of a Big Bang, I was ready.  My view is that in a crisis, pain should be shared as evenly and broadly as possible.  Thus when someone claims that the schools or hospitals must be exempt, you come back with “No one is exempt.  There are lower priority projects and functions everywhere inside government.” Earlier in my life, I have been on school boards...  But from my earlier work, and what I know from a basic understanding of the economics of public school systems, when counting in the fair value of pension accruals, teachers are very well paid.  We can freeze their pay, and freeze their benefits. And, that is true for all government programs.  Cut an even amount everywhere; freeze them in nominal dollars at least.  Yes, that’s painful.  Pain needs to be shared as we cut back after years of growth beyond our ability to sustain it without additional debt. Governors and mayors, ignore the screams.  People need to learn to make do with less.  If you lead, they will follow.  The Same Idea on the Federal Level

As Budget Cuts Free Prisoners, States Face a Backlash-  In the rush to save money in grim budgetary times, states nationwide have trimmed their prison populations by expanding parole programs and early releases. But the result — more convicted felons on the streets, not behind bars — has unleashed a backlash, and state officials now find themselves trying to maneuver between saving money and maintaining the public’s sense of safety. In February, lawmakers in Oregon temporarily suspended a program they had expanded last year to let prisoners, for good behavior, shorten their sentences (and to save $6 million) after an anticrime group aired radio advertisements portraying the outcomes in alarming tones. “A woman’s asleep in her own apartment,” a narrator said. “Suddenly, she’s attacked by a registered sex offender and convicted burglar.”

Don't go wobbly on us now, Ben Bernanke - Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," "We are next to bankruptcy. We have a $13bn hole in a $28bn budget." The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. "It's a catastrophe", said the Schools Superintedent. In Alexander County, the sheriff's patrol cars have been repossessed; three-quarters of his officers are laid off; the local prison has refused to take county inmates until debts are paid. Florida, Arizona, Michigan, New Jersey, Pennsylvania and New York are all facing crises. California has cut teachers salaries by 5pc, and imposed a 5pc levy on pension fees. This is not to pick on America. Belt-tightening is the oppressive fact of 2010-2012 for half the world. Hungary, Ukraine, the Baltics and the Balkans are already under the knife. Latvia's economy may contract by 30pc from peak to trough as it carries out an "internal devaluation", ie wage cuts, to hold its euro peg.

Can Vacant Schools be Turned into Homeless Shelters? (TV Video) Homeless students make up nearly 12 percent of the Kansas City Missouri School District's enrollment. It's a growing problem in Kansas City, that continues to get worse. Now, there's an idea on the table to turn some of those schools the district plans to close into shelters. As Kansas City's school board prepares to announce which school buildings will close, a discussion is opening over what to do with these buildings.

Tough audit needed of KC School District - The finances of the Kansas City School District have long been shrouded in mystery. Even school board members have had difficulty figuring out how much money the district receives and how it is spent. Missouri Auditor Susan Montee’s planned audit of the district is a welcome move, and it is getting under way at an optimum moment.The school board as early as March 10 will decide whether to close nearly half the district’s 60 schools and eliminate hundreds of jobs, all to save as much as $50 million a year. Superintendent John Covington said the district must take these unprecedented steps to keep from filing for bankruptcy in 2011.

State's $1B investment falls $250M in value - Two years after the auction-rate bond market froze, Hawai'i has lost about $250 million in market value on $1 billion in student-loan securities sold by a single Citigroup Inc. broker as a cash substitute that the state has had difficulty unloading. Hawai'i purchased half of the securities for its short-term treasury account from Honolulu broker Pete Thompson in the eight months before the market collapsed, according to Scott Kami, an administrator at the state finance department

Calif. Unions Step Up Opposition to Public Education Gutting - Students and workers in California’s public schools—K-12 and higher education—will protest against deep budget cuts on Thursday, March 4.  “We have never before witnessed this much participation and outrage about the dismal state of education on our state campuses and in our public schools,” says Lillian Taiz, president of the California Faculty Association (CFA), a labor union which represents a total of 23,000 tenured and tenure-track instructional faculty, lecturers, librarians, coaches and counselors in the 23-campus California State University. “The call for March 4 protests has hit a nerve. It’s an historic moment.”In California and across the U.S., tax revenues have slowed sharply after the housing market crash. K-12 spending cuts of $18 billion in the past two years have closed California schools and forced local districts to fire employees. With a $20 billion state budget deficit now, Governor Arnold Schwarzenegger is proposing education cuts of $2.5 billion, while vowing to protect California’s public school students.

Schwarzenegger seeks bolder action as state loses out on federal schools funds – Gov. Arnold Schwarzenegger said Thursday that California must be "more aggressive and bolder" in changing its education system after losing out in a highly competitive national contest for federal money.  Federal officials rejected California's application for a share of $4.35 billion in Race to the Top funding, part of President Barack Obama's effort to overhaul public schools. The news came in a letter to governors, in which U.S. Education Secretary Arne Duncan said that "only the very best proposals" would get money. Fifteen states and the District of Columbia were announced as finalists.  It's a setback for Schwarzenegger and the Legislature, which met in special session in January to change state education laws in an attempt to win the money.

Statewide Protest Against Education Cuts (video) Teachers, parents and students are all across California are coming together on Thursday to protest  against cutbacks in education.  The so-called "Day of Action" is in response to the 18,000 pink slips that are expected to go out statewide by March 15th.  The California Teachers Association set up the mass protest to tell California lawmakers to stop cutting money from the state's education system.

In California, a Day of Protests Over Education Budget Cuts - NYTimes - Angered by increases in tuition and cuts in state financing, thousands of students, parents and faculty members protested across California on Thursday at colleges, universities and even elementary schools to plead for help with the state’s education crisis.  Called a “strike and day of action to defend public education” by organizers, the demonstrations were boisterous and occasionally confrontational — campus and building entrances were blocked at several schools — but they were largely peaceful for most of the day. Late Thursday afternoon, however, more than 150 people were arrested after they stopped traffic along an interstate in Oakland, according to the California Highway Patrol. There was also one injury. Protesters in Davis, outside Sacramento, also tried to block an interstate but were rebuffed by the authorities using pepper spray. One student protester was arrested.

Here's What You Need To Know About The Greece-Like Riots Exploding In California - California has something new in common with Greece: citizens are taking to the streets to protest draconian budget cuts, which are the only thing keeping their government from default.  Governor Schwarzenegger imposed massive budget cuts last year to close a $60 billion deficit. But this year's budget already has a new, $20 billion gap. Arnold is playing hardball, hoping D.C. will cave and give him a bailout. In the meantime, the riots are turning hot and violent at UC Berkeley.

California’s Day of Action highlights need for fiscal relief to state and local governments  -Economic Policy Institute - Students, parents, teachers, and other concerned citizens throughout California turned out en masse on March 3 to protest teacher layoffs and other cutbacks, combined with sharp tuition increases for public universities. Similar cutbacks are being proposed and adopted around the country as state and local governments struggle to balance their budgets amid shrinking tax revenues. Yet state governments cannot on their own put a stop to the cuts. In his November 2009 Briefing Paper States in Stress, EPI Policy Analyst Ethan Pollack stressed that because states are unable to run budget deficits, even during severe economic downturns, they are in urgent need of fiscal relief from the federal government. EPI’s American Jobs Plan is recommending $150 billion of aid to state and local governments, which it says will create more than 1 million jobs.Late last year, EPI’s research showed that the $52.2 billion of the $144 billion in budget relief to states made under last year’s Recovery Act had provided a significant boost to the economy and created or saved between 360,000 and 500,000 jobs. But because of the long and deep jobs crisis, most state governments continue to face deep shortfalls.

The California Teachers Association Guide to Creating Tomorrow’s Union Sympathizers - What should students be taught about unions? The California Teachers Association offers an anecdotal lesson in how they think it should be done. We begin in a 12th grade charter school classroom.”What is a labor union?” the teacher asks... Next, the teacher asked the students what happens when you set market prices above equilibrium, “Surplus!” they all yelled out. “That’s right,” he beamed, “and what do you call a labor surplus?”. Having been taught the important of looking at both costs and benefits in whatever class this was where there is enough time to spend a whole lesson on unions, the students did not hesitate with an answer: “Unemployment!”. He then asked the students to interview someone who was currently unemployed because unionization in their industry prevented them from working for companies who would gladly hire them at competitive wages.

L.A. Unified to send 5,200 layoff notices - Los Angeles Unified’s board of education voted today to send 5,200 provisional layoff notices to district employees. About half of those notices will go to managers who hold teaching credentials. Most of the rest will go to elementary school teachers, nurses, librarians and counselors. The district’s proposed the cuts to close a $640 million funding deficit next year. Several board members suggested before the vote that the district’s labor unions hold the key to rescinding many of the Reduction In Force notices before they become permanent in the summer. `

Bernanke’s Low Yields Keep Los Angeles From Refunding Bonds (Bloomberg) -- Natalie Brill, chief of debt management for Los Angeles, would like to take advantage of record-low interest rates to save at least $4.55 million by refinancing bonds for the second-most populous U.S. city. Except Ben S. Bernanke’s monetary policy would wipe out much of the savings. Brill, 47, is caught in an unintended consequence of the Federal Reserve chairman holding overnight rates near zero to ease the worst recession since the 1930s. The city, facing a $212 million budget deficit for the current fiscal year, could sell tax-exempt obligations yielding less than 4 percent to retire 5 percent debt sold seven years ago. To do so, Brill would first have to park the proceeds of the new bonds in U.S. government securities that under Bernanke pay as little as 0.53 percent

California Lawmakers Pass Bill Swapping Gas Taxes (Bloomberg) -- California lawmakers passed a bill that replaces the state’s gasoline sales tax with an excise tax to redirect $1.1 billion toward shrinking a resurgent budget deficit. The bill, approved in both the Senate and Assembly today, eliminates the current 6 percent sales tax on gasoline and replaces it with a 17.3-cents-a-gallon excise tax. Democrats say it won’t raise costs for taxpayers or drivers. The plan will allow California to use gas taxes, which are now sent to local transit agencies, to pay interest on its general obligation bonds.

Actually, The US Is Massively Bailing Out California, And You Should Be Relieved About That - Last week we compared our situation in regards to states like California's to the EU's Greek situation, and grimly noted that the main difference seemed to be size: California is a much bigger deal to the US than Greece is to the EU. Other than that, there didn't seem to be much of a difference: Both systems have a common currency, while states are forced to manage their own budgets. However, this was not exactly correct, and it's worth clarifying. We do actually have a automatic mechanisms for bailing out the states. As George Soros noted today in a CNN interview, we do have various transfer/welfare mechanisms that are funded in part by the federal government. Unemployment benefits, for example, are coordinated at the state level, though the Federal Government replenishes these funds with loans. Federal health programs serve a similar effect. These aren't considered "bailouts" per se, but that's exactly what they are.

Colleges to release budget cut plans this week - Georgia’s 35 colleges and universities early this week will release their plans for how to make nearly $600 million in cuts for the coming fiscal year.  With state lawmakers facing a potential $1.1 billion budget hole for the fiscal year that begins July 1, the University System of Georgia is potentially facing the brunt of the cuts. At a joint House-Senate budget hearing Wednesday, Chancellor Erroll Davis said it would take a tuition increase of 77 percent for the colleges to meet a budget cut of $385 million that was being discussed. Those lawmakers will meet again this coming Wednesday to hear the colleges’ plans.

Your Taxes Support For-Profits as They Buy Colleges (Bloomberg) -- ITT Educational Services Inc. paid $20.8 million for debt-ridden Daniel Webster College in June. In return, the company obtained an academic credential that may generate a taxpayer-funded bonanza worth as much as $1 billion. ITT Educational, the U.S.’s third-biggest higher education company with a market value of $3.8 billion, may increase it by 26 percent, or $1 billion, within five years because of the purchase of 1,200-student Daniel Webster in Nashua, New Hampshire, according to Michael Clifford, an investor in Del Mar, California, who has participated in the acquisitions of four nonprofit colleges. At least 75 percent of new revenue would come from access to the more than $100 billion a year in financial aid the U.S. hands out to college students, he said.

Education cuts may never be healed after special session - History suggests that Nevada’s public schools may never recover from the budget cuts being required of them by legislators after this weekend.Consider what has happened since 2001, when the Clark County School District increased class sizes in grades 4 through 12 in order to save tens of millions of dollars. Larger classes meant fewer teachers to pay.“I thought we would work our way back out of that in a year or two,” said Superintendent Walt Rulffes, who as the chief financial officer at the time was responsible for signing off on the operating budget. “But it never happened. It just got worse.”

"This will allow us to exist" - The Nevada System of Higher Education may declare a state of financial emergency for the first time in its existence. The severity of pending budget cuts could force the drastic move to void staff contracts and lay off tenured faculty. Budget cuts on top of budget cuts could prove too much for the state's colleges and universities to meet their financial obligations, Regent Mark Alden said. He has proposed the system declare "financial exigency," which basically means the system cannot pay all its contractual obligations.

No way around CPS teacher pay freeze. Chicago Public Schools CEO Ron Huberman on Thursday painted the grimmest financial picture the Chicago schools have ever seen. The budget deficit could top $900 million, a hole so big that Huberman says he needs major concessions from teachers -- a move that could easily lead to a teachers' strike if the unions refuse to play ball. The best hope is for the Chicago teachers to accept a wage freeze. Huberman can't say that out loud. On Thursday, he simply laid out the sorry facts of the deficit, saying concessions are one piece of a multi-part solution. He's courting the unions now, giving them a chance to pick their poison, hoping they'll offer up cost-saving ideas. The Chicago Teachers Union contract locks in 4 percent raises through 2012 -- really about 5.5 percent with experience and higher degrees added in. Eliminating that raise in 2011 saves $135 million. It is nearly impossible to see a way out of this mess -- or a teachers' strike -- without a wage freeze. It's time for big concessions now -- rather than face massive disruption in the schools and an ugly and fruitless strike down the road.

Illinois school districts are preparing to lay off nearly 14,000 employees - Illinois school districts are preparing to lay off nearly 14,000 employees, based on a proposed spending plan that includes no new money for schools. State schools Superintendent Chris Koch told a Senate panel Thursday that the projections, if carried out, would be "devastating" to education in Illinois and could be even worse if state aid to schools is cut further. "We are anticipating unprecedented layoffs,"

On the BRINK: Decreasing revenue has county school districts scrambling for solutions - Threats of closing schools, teacher layoffs, privatizing services and requests for millages are becoming commonplace as money problems created by the deep recession affect even Oakland County’s highest performing and wealthiest school districts. The majority of Oakland County school systems, from Clarkston in the northern part of the county to Madison Heights in the southern part of the county, are unable to maintain  operations as usual because of cuts in state funding and loss of property tax revenue in local communities because of foreclosures and decreasing property values.To make matters worse, the majority of federal stimulus money sent to state coffers for schools already has been spent to avoid further reductions in school funding to local districts.

Detroit Public Schools gets $4 million for 11 properties- The Detroit Public Schools district has sold 11 school properties over the past year, bringing in about $4 million and allowing it to shed costs for maintenance, officials announced Tuesday. Five other sales are pending, and 36 buildings have been leased. The district is hoping to net $2.8 million on those sales, in addition to the $1.4 million a year charged for the leases. The 11 properties sold for between $10,000 and $1 million each and went to a variety of buyers, including the Boys & Girls Club, the city, churches and an independent movie theater operator.  DPS has 73 more empty buildings it is trying to sell.

Our Educational System's Primary Failure - To succeed a young person needs to be able to do three things - read, write, and understand mathematics.  The fourth ingredient is that the innate desire to learn must not be destroyed in their first few years of school. All children start life wanting to learn.  Ever watch a baby?  It's a curious being, is it not?  It reaches, it fondles, it touches, it experiments.  We put plastic caps in our electrical outlets because one of the experiments a significant number of babies and toddlers will perform is inserting a kitchen fork into said outlet, with bad results. So how do we go from that to a surly vegetative kid at the age of 9, 10 or 12?We do it by failing in the essential purpose of education - giving our children the foundational understanding they need, and then getting the hell out of their way!

New ghost towns: Industrial communities teeter on the edge - Ravenswood, with 4,000 people and one big factory, is like many towns in the USA where things still are made: caught in a winter between recession and recovery, hoping the latter will arrive before the former kills the last decent blue-collar job. Whether it's textiles in the Carolinas, paper in New England or steel in the Midwest, most industrial cities and mill towns "are on pins and needles," says Donald Schunk, an economist at Coastal Carolina University. "Day to day, week to week, any manufacturing facility seems vulnerable. People don't know if they'll be there.

City Budget Gaps Set the Stage for Deep Cuts - Cities will face budget deficits between $12 billion and $19 billion next year, a number that could rise by up to an additional $10 billion if state’s withhold money to cure their own woes, according to a report from the Drum Major Institute. The report notes that cities will get $2.8 billion in aid from the 2011 federal budget, hardly enough to fill the gaps and setting the stage for deeper budget cuts in the coming years. Both cities and states have seen their revenues wilt in the aftermath of the recession, but many mayors have long complained that money form the $787 billion stimulus package — about 1/3 of which was set aside for cities and state budgets — has been absorbed at the state level. Unlike the federal government, most cities have to balance their budgets, prompting deep budget cuts have already prompted some cities to redefine what services they provide and how they pay for them.

NYC budget faces political clouds, rising gaps: study (Reuters) - New York City faces a string of deficits that will top the mayor's forecasts while "political uncertainty" at the state and federal level will further cloud the outlook, a new report said on Thursday. Democratic City Comptroller John Liu in the report forecast that Mayor Michael Bloomberg's $64 billion plan for the budget that starts on July 1 could spring a $1.2 billion deficit.By law the mayor must submit a balanced budget.

15,000 S.F. workers face layoffs, shorter weeks - More than 15,000 San Francisco city workers across all departments will receive layoff notices Friday, and most of them will have the option of being rehired to work a shorter week, Mayor Gavin Newsom said Tuesday. Newsom's controversial plan to help reduce the city's $522 million budget deficit for the 2010-11 fiscal year would shift the majority of the city's 26,000 workers from a 40-hour week to 37 1/2 hours, cutting their paychecks by 6.25 percent

The Nation’s Largest Sugar Tax - In order to raise money and improve the city’s health the Mayor of Philadelphia is proposing what appears to be the country’s largest tax on sugary drinks. The tax will be 2 cents per ounce, which is double New York City’s soda tax, and over 32 times Pennsylvania’s beer tax. It will cover a wide range of sugary drinks including soda, iced tea, energy drinks and chocolate milk. Being careful not to leave any loopholes, the tax will also cover drink syrups and powders, but it does avoid taxing diet sodas and baby formula.

City pension-fund shortfall comes to $5B ... & counting - AFTER $1 BILLION in investment losses, Philadelphia's municipal pension fund has sunk into its biggest hole yet - about $5 billion short of the assets it should be holding to pay future retirement benefits to thousands of city employees. An actuarial report prepared for the city pension board says that the system's assets, valued at $4 billion in mid-2009, amounted to just 45 percent of its liabilities - significantly weaker than the pension funds in most of the nation's big cities.The deficit will force city taxpayers to come up with $1.7 billion for the pension system over the next three years - more than $1,000 for every man, woman and child in Philadelphia, according to projections that the city has put into its five-year financial plan. City Finance Director Rob Dubow describes the escalating pension costs as "perhaps the biggest financial challenge we face."

Lawmakers move to stop raids on NJ pension funds - New Jersey lawmakers want to reverse years of raids on state retirement funds by requiring the state to pay its annual share into the pension system. The Senate held a required public hearing Monday on a resolution that ultimately would be decided by voters because it changes the state constitution. The Senate is expected to vote on the resolution next week. The Assembly has yet to consider it. If voters are asked to approve a ballot question in November, they would decide whether to bind the state and other public employers to make at least one-seventh of their pension contribution the following fiscal year.

Calpers Confronts Cuts to Return Rate - Calpers is considering reducing the projected rate of return used by the giant pension fund to make investment decisions. A cut could force cash-strapped governments in California to pay millions more each year to cover their employee pension obligations. Since 2003, the California Public Employees' Retirement System has assumed that the value of its stocks, bonds and other holdings would increase by 7.75% a year. But the likelihood of an extended period of modest economic growth world-wide is fueling doubts inside Calpers that the pension fund can continue aiming so high.

CalSTRS funding gap may widen - The CalSTRS board may cut its investment earnings forecast, a small move that could add hundreds of millions of dollars to the current $4 billion annual shortfall needed for full funding. The nation’s second largest public pension fund, with assets valued at $131 billion at the end of January, began to consider the issue last month and may act in September or even sooner. Amid predictions of slower economic growth, several CalSTRS board members said they would support lowering the annual earnings forecast of 8 percent to 7.75 percent, the first change in 15 years

Editorial: California must rein in state pensions to avoid fiscal collapse - WHILE CALIFORNIA lawmakers again are struggling with yet another massive budget deficit with no solution is sight, the state faces a far worse economic disaster that is not receiving proper attention in Sacramento — unfunded pension liabilities.California has an unsustainable public employee pension system that will lead to fiscal collapse of the state unless major reforms are made soon. The rapidly rising cost of public pensions and retiree health care is taking an increasingly larger share of taxpayer dollars, and the situation grows worse every year. The total of California's budget-related debt service and state retiree pension and health care obligations amounts to at least $237 billion and could be, by some estimates, more than double that amount, according to a recent policy brief by the Stanford Institute for Economic Policy Research.

15 Public Pension Chiefs Whose Funds Are Zooming Towards Collapse (slide show) Worries over the solvency of state public pensions are not a new trend, but the fallout from the financial crisis is making them seem far more prescient. We've looked at the worst public pensions from state to state, judging by 2008 levels, and pointed out those with the highest unfunded liabilities. We've ranked them by their actuarial funding ratios, which is the percentage of assets on hand able to cover their liabilities

$1 billion taxpayer liability - .Mississippi taxpayers will have to come up with an additional $90 million during the next fiscal year to fund the state employee retirement program. In three years this shortfall may be as much as $350 million, in addition to the present $700 million taxpayer cost, according to The Clarion-Ledger.According to published reports, taxpayers will be paying $1 billion by 2013 -- almost a fifth of the state's total budget. Currently, according to, The Clarion-Ledger, state employees pay 7.5 percent toward retirement, while taxpayers (their employers) chip in 12 percent.

City must change pension approach - A sobering report released last week by the pension reform panel convened by Mayor Kasim Reed clearly laid out the city’s red-ink problem. In part, Atlanta’s payments toward pensions have risen 13 percent annually during the past decade. The city paid out $144 million for pensions last year, up 162 percent from 2001’s $55 million cost. Worse yet, the gap between the funded and unfunded portions of the pension plans has grown 21 percent a year since 2001. That means the plans are now barely more than halfway funded. In 2001, 83 percent was covered.For the sake of taxpayers, the city must choose quickly on how to climb out of its pension hole. Paying roughly 20 percent of the city’s general fund budget for pensions is simply not sustainable. Fixing the problem will require sacrifices from both the city and its public servants.

Residents sue Atlanta over "illegal" pension changes - A group of Atlanta homeowners has filed a class-action lawsuit against the city, charging its elected officials illegally increased pension benefits for its employees in 2001 and 2005, putting the city's finances at risk. The residents want the city to stop contributing into the three pension funds and instead put the money into a court registry for safekeeping. The city is expected to contribute about $125 million, more than one-fifth of its general fund budget, into the pension plans during the 12-month period that ends June 30. Atlanta has a pension fund for police officers, fire rescue workers and general employees. Unless Atlanta is stopped from making "illegal" contributions into those funds, the lawsuit says "the city will continue to face severe fiscal and financial crisis and could be forced into insolvency."

Experts warn pension reform politically toxic but necessary for Illinois' solvency - When Illinois Gov. Pat Quinn proposed a budget fix that included a tax increase and spending cuts, but no overhaul of the state’s massively underfunded pension plans, few could pretend to be surprised. It is, after all, an election year, and Gov. Quinn needs union votes. “In my estimation Quinn believes that pension reform is too hot a potato to handle at this time,” said David Mirza, economics professor at Loyola University Chicago.  “But the financial impact of state pension expenses will not go away.” The debt owed to the state’s public employees is roughly $80 billion.  Without reforms to fix the growing liability, the state faces significantly higher taxes and reduced spending on public services, a report by the Civic Committee of the Commercial Club of Chicago warns. 

Pension Debt Could “Squeeze Out” State Services - As Illinois lawmakers weigh how to fill in a budget deficit as deep as $12 billion, they may also consider changes to how retirement payments are made to state employees. For years the state has underfunded its public employee pension systems. Recent estimates have put the debt owed to the state’s public employees — both working and retired — at $80 billion . Administrators from the state’s retirement systems spoke to a legislative committee Tuesday evening on the importance of making consistent pension payments.

Aging baby-boomers at heart of the crisis - This is not the best of times, you might think, to start a career as a fund manager. Everything looks dodgy – bonds, equities, alternative investments, the lot. The temptation is to see this as a mere run of bad luck: first the banking crisis, then Greece and so forth. Arguably, though, these are not causes but results. Behind them lie deeper problems, one of which is the ageing of the baby-boomers.Barclays Capital has a chart showing that for the past half century, the earnings multiple on US equities has faithfully tracked the proportion of the population aged from the mid-thirties to mid-fifties. That proportion started falling sharply in 2002, round about when the equity market cracked. In Japan, the same phenomenon – and the market collapse – came a decade earlier.

More Than Seven-in-Ten Workers Age 60+ Are Putting Off Retirement Due to Financial Restraints, According to a New CareerBuilder Survey -- The economy continues to change the retirement timeline for many mature workers, leaving them with tough decisions about their futures.  More than seven-in-ten (72 percent) workers over the age of 60 who said they are putting off their retirement are doing so because they can't afford to retire financially, according to a new survey by CareerBuilder. When comparing genders, the survey found that three-quarters (76 percent) of female workers over the age of 60 who said they are putting off retirement are doing so because they can't afford it, while 68 percent of males said the same. The survey was conducted among more than 700 U.S. workers age 60+ between November 5 and November 23, 2009.

Social Security Surplus Vanishing - The once massive Social Security surplus is vanishing, a casualty of a severe recession that has driven down government payroll tax collections. The surplus has long been a boon to government budget planners and policymakers, offsetting a portion of the deficit and reducing the amount the federal government has had to borrow to operate by nearly $1.2 trillion over the past quarter century, according to government figures. But now that is all changing. The economic downturn cost millions of workers their jobs and caused payroll tax collections to fall modestly instead of rising significantly, as they had for many years. This funding reversal doesn’t pose an immediate threat to Social Security, according to experts, but it will likely add substantially to the government’s borrowing requirements in coming years.

Social Security Does Not Need a “Bailout” - In recent weeks, a few commentators have sounded an alarm about the recession’s impact on Social Security’s near-term prospects, which may lead some people to think that the program faces financial problems in the next several years. Fortunately, that is not the case. Social Security continues to run annual surpluses and remains capable of paying scheduled benefits in full for the next three decades or so. The deep recession has indisputably affected the Social Security system’s finances, and the next report of the Social Security Trustees — due this spring — is expected to show some deterioration in the program’s financial outlook. (Last year’s report estimated that starting in 2037, balances in the Social Security trust funds would be inadequate to pay full benefits promised under current law.) But Social Security faces no immediate threat.

How Women Saved Social Security - - NYTimes - One of the great advances of 20th century was increased life expectancy. This advance might have bankrupted Social Security, if it were not for women in the work force. When the Social Security program was created in the 1930s, life expectancy was 60 years, as compared to 75 years in the 1980s and 78 years today. With 1930s life expectancy, a great number of people were expected to pay Social Security taxes while they worked, but never live long enough to ever collect benefits. The early planners of the system understood that the prior contributions of the now-deceased were one way that a retiree could collect more in benefits than he paid in taxes. Although there are still some Americans who work, pay taxes, and then die before collecting Social Security benefits, this life cycle is much less common than it used to be. Thus you would think that Social Security would have had a huge deficit years ago.

Why Old People Should Love Immigrants - Earlier today Casey B. Mulligan wrote about how the entry of more women into the work force has helped sustain the solvency of Social Security, which has been otherwise stressed by the size of the retiring baby boom generation and longer life expectancies. But what happens now that the actual and relative size of entitlement-receiving elderly America continues to grow? Can we induce yet another untapped labor pool to enter the American job market and replenish their elders’ Social Security funding? We can. Indeed, to some extent, we already have. Part of what has saved the United States from some of the entitlement-funding problems plaguing our peers in Japan and Western Europe is immigration.

American reliance on government at all-time high - The so-called “Great Recession” has left Americans depending on the government dole like never before. Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of US households would have plunged by an astonishing $723bn — more than four times the record $167bn drop reported last month by the Commerce Department. Moreover, for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes.

Getting Old Is Expensive - The skyrocketing costs of health care aren’t just bad for Medicare’s solvency. They also spell trouble for the elderly themselves. While much of the debate over controlling health care costs has focused on elderly “entitlements,” in truth Medicare covers only a fraction of the cost of elderly Americans’ health care.A new study, from the Center for Retirement Research at Boston College, estimates that at age 65, the typical married couple should expect to spend $197,000 on uninsured health care costs over the rest of their lives. This total includes insurance premiums, out-of-pocket costs and home health care costs, but it does not include nursing home care. Including the cost of nursing home care, typical lifetime health care costs shoot up to $260,000.

Ageing populations and productivity - VoxEU - Ageing populations are a concern for many developed countries, with increasing dependence on the working population expected. Despite this, there is relatively little research on how productivity changes with age. This column argues that while older people do not run as fast, there is no evidence of a mental productivity decline and little evidence of an increasing pay-productivity gap. The negative effects of ageing on productivity should not be exaggerated.

Life Expectancy at Retirement - Graphic source: The Economist.  Americans, as well as citizens of many other advanced nations, now spend about twice as many years in retirement as they did a generation or two ago.  During that time, they expect the government to provide them with income support and healthcare.  Is it any wonder that we face serious fiscal problems? I hope the president's fiscal commission makes raising the age of eligibility for these programs one of its main recommendations.

Financial Armageddon: It Won't Be Long- Amid mounting concerns about the deteriorating state of public finances, a growing number of countries -- including Greece, Spain, the United Kingdom, France, Australia, and Lithuania -- are weighing increases in the retirement age. With that in mind, I reckon it won't be long before we see a chorus of politicians and policymakers joining the likes of former Federal Reserve Chairman Paul Volker, Deficit Reduction Commission Co-Chairmen Alan Simpson and Erskine Bowles, and Newsweek International editor Zareed Zakaria in pushing for a similar change in the United States.

Florida budget outlook grim - Florida legislators began the grim business of budget-cutting on multiple fronts Thursday, with the House leader issuing a spending outline and a grim outlook. "Our state is facing a significant budget shortfall of between $1.1 and $3.2 billion, depending on the level of funding determined necessary to continue the state's priorities," House Speaker Larry Cretul, R-Ocala, wrote in a memo accompanying his budget allocations to appropriations committees. Cretul said the biggest holes in Florida's revenue pot are $924 million in federal Medicaid money, $842 million needed to meet a "recession-driven increase" in enrollment for the medical program for the poor and a $778 million loss in property-tax revenues for education because of falling real estate values.

Washington's State Employee Health Care System In Crisis - Washington's state-employee health insurance system is in crisis. It faces a significant cash shortfall over the next year-and-a-half. In fact, if it was a privately-run insurance plan, state regulators likely would have taken it over by now...The letter from Washington's Insurance Commissioner to Governor Chris Gregoire in December was stark. He wrote: "If [Washington's uniform medical and dental plans] were a domestic insurer, the program would be subject to receivership proceedings." In other words, the public employee health system is in a - quote - "financially-hazardous" condition. Steve Hill: "We're looking at a basically 200 to 220 million dollar shortfall in this biennium." Steve Hill runs Washington's Health Care Authority. He says state employees are the biggest cost driver.

Medicare Advantage Payments Illustrated - My post earlier today explained the difference between administrative and competitive pricing systems. The administrative pricing system I study (a lot) is that for Medicare Advantage (MA) plans. To present some of my work on such plans at seminars and conferences this year I cooked up some graphs (below) that illustrate the relationship between traditional Medicare costs and administratively set MA payments in a way I’ve not seen before. Those very familiar with the MA payment system can skip to the fourth paragraph (beginning with “Onward … “).

Medicare patients brace for doctor boycott - Mar. 1, 2010 -- As a 21% cut in Medicare payment rates to doctors took effect Monday, eight of the 15 patients on Dr. William Schreiber's schedule are on Medicare.  "I'm stuck," he said. "I have to see them. I don't have a choice" Shreiber's eight patients are lucky, for now. Many doctors around the country are either not accepting new Medicare patients or dropping their Medicare patients altogether. Physicians say they are shunning Medicare because they are tired of dealing with the yearly threat of a payment cut under federal law requiring that reimbursement rates be adjusted annually based on a formula tied to the health of the economy.

CMS Delays Physician Pay Cut in Hopes that Congress Will Resolve Issue - Lacking congressional action, the federal government has essentially halted a 21.2% Medicare pay cut for physicians that was to go into effect today.The Centers for Medicare and Medicaid Services has ordered contractors to hold claims for 10 days, which temporarily shelves the Medicare pay cut. CMS expects that provider cash flow will not be interrupted.The CMS took the action after the Senate failed to extend the pay cut plan and went home for the weekend on Friday, says CMS spokesman Peter Ashkenaz. Physician organizations are furious at the Senate for failure to vote to delay the pay cut and opting for adjournment instead. The Senate may attempt to take up the issue again on Tuesday, according to physician organizations. Last Thursday, The House passed a bill to delay the pay cut for 30 days.

The return of the wrong box: - Two law professors, Tom Baker of the University of Pennsylvania and Peter Siegelman of the University of Connecticut, have proposed a way to encourage adults between the ages of 19 and 29 to buy health insurance: bring back the tontine. Someone should tell them that tontines are a plot device masquerading as a financial instrument. This otherwise goofy proposal makes slightly more sense once you realize it was published under the auspices of the Cato Home for Strayed Objectivists Institute. Those guys are so kinky for “market solutions” that they’re still pushing for the privatization of Social Security, even after the financial crisis made it clear that their preferred solution would have been a catastrophe. The Invisible Hand of the Marketplace: guaranteed to give you hair on your palms.

Buffett: America Desperately Needs To Change Healthcare If It Wants To Be Economically Competitive - (video) Warren Buffett explains how America has to change its health care system and fast. He doesn't agree with everything the Obama administration is doing. For one thing, he believes it hasn't been focused enough on attacking costs. Yet the current system is a disaster according to Mr. Buffett.But he points out how under the current system, America has less doctors per thousand people, less nurses per thousand people, and less hospital beds per thousand people. Yet the U.S. pays far more on healthcare, as a percent of GDP, than all other countries. This makes the nation horribly uncompetitive.

Bad Job Numbers Make it More Important To Reform Health Care - Reich -With employers still shedding jobs and consumer confidence down, Americans are worried first and foremost about paying their bills. Because most people aren’t aware how much of their paychecks are being eaten up by rising health care costs but can easily be persuaded they’ll be paying more to cover those who don’t have health insurance under any new health plan, the continuing bad news on the jobs front makes it harder for the President to make his health-care sale.The bad news on jobs also allows economic illiterates (and scoundrels who know better) to continue to claim the stimulus is failing and what’s needed is less government rather than more, including not only a smaller “jobs bill” but less or no health care reform

The Cost of Doing Nothing on Health Care - NYTimes - Suppose Congress and President Obama fail to overhaul the system now, or just tinker around the edges, or start over, as the Republicans propose — despite the Democrats’ latest and possibly last big push that began last week at a marathon televised forum in Washington.  Then “my health care” stays the same, right?  Far from it, health policy analysts and economists of nearly every ideological persuasion agree. The unrelenting rise in medical costs is likely to wreak havoc within the system and beyond it, and pretty much everyone will be affected, directly or indirectly. “People think if we do nothing, we will have what we have now,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit health care research group in New York. “In fact, what we will have is a substantial deterioration in what we have.”

Back in the Old Days When the "Single Payer" Was the Patient, There Was "Self-Rationing"- "What is the biggest complaint about the current medical care situation? "It costs too much." Yet one looks in vain for anything in the pending legislation that will lower those costs. One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government (see chart above). What is the politicians' answer? To have more costs paid by insurance companies and the government. Back when the "single payer" was the patient, people were more selective in what they spent their own money on. You went to a doctor when you had a broken leg but not necessarily every time you had the sniffles or a skin rash. But when someone else is paying, that is when medical care gets over-used — and bureaucratic rationing is then imposed, to replace self-rationing.

Dept. of Unintended Consequences File: ObamaCare Will Hurt Poor Women with Kids - This is an argument about ObamaCare I hadn't seen.  A provision in the legislation penalizes firms who don't provide a level of insurance coverage comparable to the government-set "minimum essential coverage" IF at least one of their employees must use government subsidies to be able to afford the employer-provided coverage.  The idea, of course, is to force firms to provide the minimum coverage.  But, alas, the more likely response by firms is to not hire employees who are likely to need subsidies to cover their costs because that will mean the firm has to spend more on providing insurance to employees.  Who are those employees likely to be?  Lower-income folks and especially those who need more expensive family policies.  In fact, the penalties are higher if the subsidized worker has a family.  A prediction would be that more single moms will find themselves out of work.

The doughnut hole in the healthcare debate - It should be clear by now to anyone who has followed the healthcare debate in Washington that effective reform must include several basic elements: universal coverage to create as broad and diverse a pool of enrollees as possible; prohibition of pre-existing coverage exclusions to prevent insurers from cherry-picking only healthy customers; and mandates for minimum coverage of such services as maternity, mental health treatment, preventive care, and hospitalization to ensure that policies are broad, effective and non-discriminatory. As my Sunday column observes, the Republicans at Thursday's healthcare summit clung instead to the same tired nostrums: "tort reform," which will have a minimal effect on healthcare costs at best but will close the courthouse door to potentially millions of deserving, injured plaintiffs

Medicare in sick bay - Without action in Congress, Medicare reimbursement rates for physicians will be cut by 21 percent, a cut that is to go into effect Monday.The U.S. House of Representatives voted late last week to delay it until April 1, but the U.S. Senate broke early for the weekend Friday without acting on it. Senators may take it up again early this week. Those cuts, if they occur, would create even less incentive for doctors to take on new Medicare patients, as reimbursement rates for Medicare patients are at least 20 percent to 40 percent lower than private insurances. “We’re about to hit some real stormy times if we see a 21 percent cut,”

Price tags for health care: how we can make it happen - Two days ago I wrote a post about why I think price tags could save American health care. One of the great forces of the U.S. economy is the price-conscious consumer. Collectively we manage to drive down the cost of everything from bar soap to tax preparation. Such is the nature of a competitive marketplace with transparent prices. So why not unleash that dynamic on the health care industry? As it turns out, I'm not the first person to have this idea. In fact, there is currently a bill sitting in Congress that would do exactly what I'm proposing. On Feb. 25, Representative Steve Kagen—who happens to also be a doctor—introduced the "Transparency in All Health Care Pricing Act of 2010." The bill is 429 words (that's right—429 words, not pages) and already has 45 co-sponsors. I know a whole lot more about economics than I do about politics. Could someone out there please tell me how we can get this thing passed?Here, read how brilliant it is:

The Medical Debate - I obtained this link from Marginal Revolution, which actually puts my Thoughts on medicine into economic context. I have long considered the medical profession as being the ‘Putz’ controlled by the pharma industry. Doctors suffer from two primary disabilities which decidedly affect their performance. The first is their constant desire to achieve greater success rates in their treatment of Patients. The second disability is their desire to maintain a uniformity of treatment amongst themselves; primarily to avoid malicious charges of malpractice, but also to uphold a level or Standard on which they can be adjudged. Corporate Boardrooms quickly recognized that control of the flow of information between Doctors could be a Profits-Enhancing enterprise. Big Pharma immediately started measures to ensure control of such information read by the medical profession. Real Supporters of medical reform should acknowledge that there should be a federal Medical Board which should outline a program of minimum-cost medical treatments which Doctors could apply for the various medical conditions; it would help if the Doctors were granted freedom from malpractice liability if they maintained this level of medical treatment..

The Breakdown: How Would Healthcare Reform Affect the Economy? - With the recent bipartisan healthcare summit, the rebirth of the public option and yesterday's announced deadline for passing legislation, all anyone in Washington can talk about is the continued battle for healthcare reform. Yet, despite all the jabbering, or perhaps because of the endless spread of misinformation surrounding the debate, it is difficult to see how much the bill could affect our economy. On this week's The Breakdown, DC Editor Christopher Hayes brings in Washington Post columnist and resident wunderkind, Ezra Klein, to break down a few particularly pernicious claims being made about healthcare reform.

Mitt Romney’s health care hypocrisy - On Real Time With Bill Maher last night, Financial Times editor Chrystia Freeland made the point (I’m not getting this word for word) that Republicans have every right to declare they oppose any kind of comprehensive health care reform and declare they aren’t interested in covering the uninsured.Sure, of course they do. But then Freeland referenced Mitt Romney’s criticisms of Democratic health care reform at CPAC as legitimate and fair. Ahem.There’s just one problem: Governor Romney’s 2006 health care plan for Massachusetts comprised the exact three core components as the current private sector-oriented Democratic bill — insurance regulations, subsidies and an individual mandate. Don’t take my word for it. Here’s the conservative Wall Street Journal editorial board:

Obama-Romney Mix 'n' Match - Can you tell the president from his likeliest 2012 challenger when they talk about health care reform? President Barack Obama just gave a speech. Mitt Romney, his likeliest 2012 challenger, just published a book. The speech was about health care reform. So was a chapter in Romney's book. As Massachusetts governor, Romney led a 2006 reform of the state's health care system that provided the blueprint for President Obama's own health-reform plan. That's a source of tremendous discomfort to Romney, who, to judge from his unsuccessful 2008 nomination bid, intends to run not just as a Republican but as a conservative Republican. Romney confronts this political difficulty by punctuating his discussion of Massachusetts' health reforms with ritual denunciations of Washington's. He insists that Obamacare is qualitatively different from and vastly inferior to Romneycare. How so?

Obama Calls for ‘Up or Down Vote’ on Health Care Bill - NYTimes - President Obama, beginning his final push for a health care overhaul, called Wednesday for Congress to allow an “up or down vote” on the measure, and sketched out an ambitious — and, some Democrats said, unrealistic — timetable for his party to pass a bill on its own within weeks. “I believe the United States Congress owes the American people a final vote on health care reform,” Mr. Obama said during a 20-minute speech in the East Room of the White House. He said there was no point in starting over, as Republicans are demanding, and called on nervous Democrats to stick with him, declaring there was no reason “for those of us who were sent here to lead to just walk away.”

Round Two:  -In his speech today in the White House East Room, President Obama clearly indicated that he is going to press for a comprehensive, and not a piecemeal or “skinny,” health care reform bill. He also made it abundantly clear that he will accept, if necessary, a party-line simple majority vote in the House and the Senate in order to get the bill through. Reconciliation here we come. Obama’s speech represents a major departure from the politics of his presidential campaign and of his first year in office

One of the Strangest Op-Eds You May Ever Get To Read - -  I think this op-ed, "Reconciliation on health care would be an assault on the democratic process" by Orrin Hatch has appeared 30 days ahead of schedule.  Reconciliation is not the assault on democracy -- the Senate is the assault on democracy.  Senator Hatch may like the way the Senate requires supermajorities and other obstacles to the simplest version of majority rule that most of us think of when we hear the word "democracy," but he shouldn't go redefining words on his own. That's not what language is for. And the fun doesn't stop there.  Here are three more offenses against language that jump off the page:

Democrats will have votes for health bill, Obama aide says - Raising the prospect of a "simple up-or-down vote" on health-care reform, White House adviser Nancy-Ann DeParle said on Sunday she thinks Democrats will secure enough ayes on the measure and signaled that the administration could be moving toward trying to pass it along party lines. Increasingly, the White House appears to favor having the House pass a version of the measure that cleared the Senate with 60 votes in December. The Senate would then pass changes to the bill to satisfy some demands of House Democrats. That Senate vote would take place under a parliamentary procedure known as reconciliation, which requires 51 votes rather than 60.

Healthcare by Easter? - I have never seen conservatives and liberals so divided . . . in beliefs, not values.  On the one hand, there are people like the TNR crew, and Jonathan Bernstein, Andrew's guest-blogger, who seem to think that this it's the next best thing to a done deal.  Meanwhile, all the conservatives and libertarians I know think that it's pretty much hopeless, because Pelosi can't get it through an increasingly rebellious House.  The opinions on both sides seem so confident, and so incompatible, that one group of people is clearly borderline delusional. To our jaded eyes it looks as if everyone who can is looking for an excuse not to vote for a bill that is unpopular with their constituents.  

Snowmageddon Still Has Time to Kill Health Care Reform - Economix Blog – NYTimes -“If nothing comes of this we’re going to press forward,” The Times quoted Senator Richard J. Durbin of Illinois, the No. 2 Democrat, as saying. “We just can’t quit. This is a once-in-a-political-lifetime opportunity to deal with a health care system that is really unsustainable.” The implication is that Democrats regard the impasse as an extension; health care reform is, after all, a long-term question, and not one that had to be resolved by Thursday, per se. But how long will this “once-in-a-political-lifetime opportunity” to address the long-term issue last? My guess: The deadline is probably one week from today, when the February jobs report comes out. That report will probably be very, very ugly. I have seen some forecasters project job losses as high as 100,000. The main culprit behind the expected jobs plunge is the blizzard, which closed businesses and kept people from going to work or even seeking work for days and sometimes weeks. These work stoppages probably occurred precisely when the government was collecting data for its February jobs report.

The Disease that Always Disfigures, Often Socially Isolates and Possibly Kills - Readers of this blog know that I am skeptical of both of traditional anti-obesity methods and indeed, feel that prevention in general is oversold. Much of life expectancy is effectively luck, the genes you happen to be born with, the mutations you happen to acquire, the particular cerebral artery that clot happens to get stuck in, etc. You might think that I side with those who say that obesity is not a big deal. Nothing could be further from the truth. Obesity seems to related to life expectancy,However, this is not not the reason to that obesity is major concern,  a far greater concern than smoking in my opinion. Its a concern because people don’t want to be fat. Being fat makes them unhappy. Being fat changes the way that society relates to them. Being fat makes them less likely to find love and to make friends. Obesity produces a lower quality of life even if it has no health effects whatsoever. This matters. Indeed, it matters way more than health.

Cancer society casts more doubt on prostate tests AP) -- Months after experts discounted the importance of routine mammograms and Pap smears for many women, the American Cancer Society is warning more explicitly than ever that regular testing for prostate cancer is of questionable value, too, and can do men more harm than good. The cancer society has not recommended routine screening for most men since the mid-1990s, and that is not changing. But the organization is urging doctors to talk frankly with their patients about the risks and limitations of the PSA blood test when offering it. The widely used test often spots cancers too slow-growing to be deadly, and treatment can lead to incontinence and impotence. Two big studies last year suggested prostate cancer screening doesn't

Significant amount of inappropriate CT and MRI referrals from primary care physicians: study - A large academic medical center has found that a significant percentage of outpatient referrals they receive from primary care physicians for computed tomography (CT) and magnetic resonance imaging (MRI) studies are inappropriate (based upon evidence-based appropriateness criteria developed by a radiology benefits management company), according to a study in the March issue of the Journal of the American College of Radiology.  "Our study shows that CT and MRI examinations ordered in the outpatient primary care setting are frequently not appropriate based on the application of a national radiology benefit management company's evidence-based guidelines. A high percentage of examinations not meeting appropriateness criteria and subsequently yielding negative results suggest a need for tools to help primary care physicians improve the quality of their imaging decision requests," .

Markets in Everything: Bone Marrow. NOT. - Every year, 1,000 Americans die because they cannot find a matching bone marrow donor. Minorities are hit especially hard. Common sense suggests that offering modest incentives to attract more bone marrow donors would be worth pursuing, but federal law makes that a felony punishable by up to five years in prison. The National Organ Transplant Act (NOTA) of 1984 treats compensation for marrow donors as though it were black-market organ sales. Under NOTA, giving a college student a scholarship or a new homeowner a mortgage payment for donating marrow would land everyone—doctors, nurses, donors and patients—in federal prison for up to five years. NOTA's criminal ban violates equal protection because it arbitrarily treats renewable bone marrow like nonrenewable solid organs instead of like other renewable or inexhaustible cells—such as blood—for which compensated donation is legal. That makes no sense because bone marrow, unlike organs such as kidneys, replenishes itself in just a few weeks after it is donated, leaving the donor whole once again.

Newborns’ blood used to build secret DNA database - Texas health officials secretly transferred hundreds of newborn babies' blood samples to the federal government to build a DNA database, a newspaper investigation has revealed. According to The Texas Tribune, the Texas Department of State Health Services (DSHS) routinely collected blood samples from newborns to screen for a variety of health conditions, before throwing the samples out. But beginning in 2002, the DSHS contracted Texas A&M University to store blood samples for potential use in medical research. These accumulated at rate of 800,000 per year. The DSHS did not obtain permission from parents, who sued the DSHS, which settled in November 2009.  Now the Tribune reveals that wasn't the end of the matter. As it turns out, between 2003 and 2007, the DSHS also gave 800 anonymised blood samples to the Armed Forces DNA Identification Laboratory (AFDIL) to help create a national mitochondrial DNA database. This came to light after repeated open records requests filed by the Tribune turned up documents detailing the mtDNA programme. Apparently, these samples were part of a larger programme to build a national, perhaps international, DNA database that could be used to track down missing persons and solve cold cases. Jim Harrington, the civil rights attorney who filed the blood spot lawsuit (pdf) last year on behalf of five Texas parents and who directs the Texas Civil Rights Project, suggests to the Tribune that the DSHS settled with the parents to avoid risking a court case that might have revealed the DNA database. "This explains the mystery of why they gave up so fast," he says.

Dirty Air in California Causes Millions Worth of Medical Care Each Year, Study Finds - California's dirty air caused more than $193 million in hospital-based medical care from 2005 to 2007 as people sought help for problems such as asthma and pneumonia that are triggered by elevated pollution levels, according to a new RAND Corporation study. Researchers estimate that exposure to excessive levels of ozone and particulate pollution caused nearly 30,000 emergency room visits and hospital admissions over the study period. Public insurance programs were responsible for most of the costs, with Medicare and Medi-Cal covering more than two-thirds of the expenses, according to the report. "California's failure to meet air pollution standards causes a large amount of expensive hospital care," said John Romley, lead author of the study and an economist at RAND, a nonprofit research organization. "The result is that insurance programs -- both those run by the government and private payers -- face higher costs because of California's dirty air."

Food safety: Veterinarian to detail slaughterhouse breaches -  Department of Agriculture officials failed to act on reports of illegal and unsafe slaughterhouse practices, letting suspect operations continue despite public health risks, a USDA veterinarian alleges in testimony to be aired today at a congressional hearing. The charges by Dean Wyatt, a supervisory veterinarian at the USDA's Food Safety and Inspection Service, detail instances in which he and other inspectors were overruled when citing slaughterhouses for violations such as shocking and butchering days-old calves that were too weak or sick to stand. He also describes being threatened with transfer or demotion after citing a plant for butchering conscious pigs, despite rules that they first be stunned and unconscious. "When upper-level FSIS management looks the other way as food safety or humane slaughter laws are broken … then management is just as guilty for breaking those laws," Wyatt says in testimony sent to the House Oversight and Government Reform Committee. USA TODAY obtained a copy of the testimony in advance of today's hearing.

FDA's Warning to Food Manufacturers: Correct Your Labels - ABC News  The countdown is on for 17 food manufacturers to correct labels on popular food products that the U.S. Food and Drug Administration says misrepresents the products' health benefits -- or else.  The FDA said Wednesday that its commissioner, Dr. Margaret Hamburg, had sent letters to each company in question Feb. 22, along with an open letter to the food manufacturing industry demanding they take action against "false or misleading" labels.  Among the complaints is that "misleading 'healthy' claims continue to appear on foods that do not meet the long- and well-established definition for use of that term," Hamburg said in the letter. If companies such as Nestle and Beech-Nut do not comply, the FDA warned, the products could be removed from the shelves.

Sin Tax - Epstein and colleagues simulated a grocery store, "stocked" with images of everything from bananas and whole wheat bread to Dr. Pepper and nachos. A group of volunteers -- all mothers -- were given laboratory "money" to shop for a week's groceries for the family. Each food item was priced the same as groceries at a real grocery nearby, and each food came with basic nutritional information.The mother-volunteers went shopping several times in the simulated grocery. First they shopped with the regular prices, but afterward the researchers imposed either taxes or subsidies on the foods. That is, they either raised the prices of unhealthy foods by 12.5%, and then by 25%; or they discounted the price of healthy foods comparably. Then they watched what the mothers purchased. To define healthy and unhealthy foods, the scientists used a calorie-for-nutrition value, or CFN, which is the number of calories one must eat to get the same nutritional payoff. For example, nonfat cottage cheese has a very low CFN, because it is high on nutrition but not on calories; chocolate chip cookies have a much higher CFN. The researchers also measured the energy density- essentially calories- in every food.The results, just published in Psychological Science, a journal of the Association for Psychological Science, show that taxes were more effective in reducing calories purchased over subsides. Specifically, taxing unhealthy foods reduced overall calories purchased, while cutting the proportion of fat and carbohydrates and upping the proportion of protein in a typical week's groceries.

The Elitism and Racism of “Local Food” and the Edible Schoolyard - “Eat local” is the latest intellectual fad on the Left Coast. These “locavores,” as adherents like to call themselves, want you to eat only food grown near where you live — say, within 100 miles of your home. The goal, in theory, is to foster “sustainable agriculture,” to lower the carbon footprint of your food (which generally travels thousands of miles from farm to kitchen table), and consequently get that warm-and-fuzzy back-to-the-earth type feeling. Oh, did I mention that the locavore movement is most popular in California? This little detail is significant because California is just about the only state in the entire union that has the climate and the soil to grow such a wide variety of produce that it could even theoretically support its current population with “locally grown” food.

How monoculture is like triple-A CDOs - Tom Laskawy, of Beyond Green, writes asking for a bit more detail about this bit of my locavorism article: The point here is that a disease-resistant crop is a lot like a triple-A-rated structured bond: they’re both artificially engineered to be as safe as possible. That would be a wonderfully good thing if no one knew that they were so safe. But if you’re aware of a safety improvement, that often just has the effect of increasing the amount of risk you take: people drive faster when they’re wearing seatbelts, and they take on a lot more leverage when they’re buying AAA-rated bonds.

Evidence of Increasing Antibiotic Resistance in Soil Microbes - A team of scientists in the United Kingdom and the Netherlands are reporting disturbing evidence that soil microbes have become progressively more resistant to antibiotics over the last 60 years. Surprisingly, this trend continues despite apparent more stringent rules on use of antibiotics in medicine and agriculture, and improved sewage treatment technology that broadly improves water quality in surrounding environments.

Common Weed-Killer Chemically Castrates Frogs: Study - One of the most common weed killers in the world, atrazine, causes chemical castration in frogs and could be contributing to a worldwide decline in amphibian populations, a study published Monday showed. Researchers compared 40 male control frogs with 40 male frogs reared from hatchlings until full sexual maturity, in atrazine concentrations similar to those experienced year-round in areas where the chemical is found. Ninety percent of the male frogs exposed to atrazine had low testosterone levels, decreased breeding gland size, feminized laryngeal development, suppressed mating behavior, reduced sperm production and decreased fertility.

Agricultural Expertise Needed To Feed, Fuel World's Skyrocketing Demands For Food, Energy - The United States Department of Agriculture predicts 52,000 ag-related job openings for college graduates will be needed in 2010--even as the country finds its national unemployment rate hovering around 10 percent. Available jobs are expected in broad areas of food, animal and environmental science. Jobs such as animal geneticists, biochemists, botanists and food engineers will be needed.  World food demand is expected to increase 100 percent by 2050 due to a rapidly expanding population in countries such as China, India and the United States. And, yet 963 million people, 14 percent of the world's population, are already chronically hungry.

The Social Costs and Benefits of Biofuels - Abstract - The efficacy of alternative biofuel policies in achieving energy, environmental and agricultural policy goals is assessed using economic cost-benefit analysis. Government mandates are superior to consumption subsidies, especially with suboptimal fuel taxes and the higher costs involved with raising tax revenues. But subsidies with mandates cause adverse interaction effects; oil consumption is subsidized instead. This unique result also applies to renewable electricity that faces similar policy combinations. Ethanol policy can have a significant impact on corn prices; if not, inefficiency costs rise sharply. Ethanol policy can increase the inefficiency of farm subsidies and vice-versa. Policies that discriminate against trade, such as production subsidies and tariffs, can more than offset any benefits of a mandate. Sustainability standards are ineffective and illegal according to the WTO, and so should be re-designed.

Manure becomes pollutant as its volume grows unmanageable - Nearly 40 years after the first Earth Day, this is irony: The United States has reduced the manmade pollutants that left its waterways dead, discolored and occasionally flammable.  But now, it has managed to smother the same waters with the most natural stuff in the world.  Animal manure, a byproduct as old as agriculture, has become an unlikely modern pollution problem, scientists and environmentalists say. The country simply has more dung than it can handle: Crowded together at a new breed of megafarms, livestock produce three times as much waste as people, more than can be recycled as fertilizer for nearby fields. That excess manure gives off air pollutants, and it is the country's fastest-growing large source of methane, a greenhouse gas. And it washes down with the rain, helping to cause the 230 oxygen-deprived "dead zones" that have proliferated along the U.S. coast. In the Chesapeake Bay, about one-fourth of the pollution that leads to dead zones can be traced to the back ends of cows, pigs, chickens and turkeys.

State runs out of cash to clean up toxic sites - Orphan sites like Hoskins come in all forms: from an abandoned mine in southern Iron County, to a vacated finishing and stamping operation in Grand Rapids, to a gutted auto parts plant in northwest Detroit. And they present a host of problems that include tainted groundwater and air while becoming roadblocks to redevelopment.  Michigan has more than 4,000 such sites, and those are the ones the state's environmental officials know about. With the state's economic crunch and the flight of industry to other parts of the world, the number of orphan sites is growing, but the resources to deal with them are not. To address all of the sites completely -- including everything from remediation and long-term monitoring -- would cost the state at least $10 billion.  Michigan residents put more than $1.3 billion into the program through two bond issues, one in 1988 and another a decade later. This year, the last of that money will run out, and there is no move under way in Michigan to refill the coffers.

Supreme Court Rulings Restrict Clean Water Act, Hampering E.P.A. - NY Times - Companies that have spilled oil, carcinogens and dangerous bacteria into lakes, rivers and other waters are not being prosecuted, according to Environmental Protection Agency regulators working on those cases, who estimate that more than 1,500 major pollution investigations have been discontinued or shelved in the last four years.  The Clean Water Act was intended to end dangerous water pollution by regulating every major polluter. But today, regulators may be unable to prosecute as many as half of the nation’s largest known polluters because officials lack jurisdiction or because proving jurisdiction would be overwhelmingly difficult or time consuming, according to midlevel officials. “We are, in essence, shutting down our Clean Water programs in some states,” said Douglas F. Mundrick, an E.P.A. lawyer in Atlanta. “This is a huge step backward. When companies figure out the cops can’t operate, they start remembering how much cheaper it is to just dump stuff in a nearby creek.”

100 Percent of Fish in U.S. Streams Found Contaminated with Mercury - In a new study conducted by the U.S. Geological Survey (USGS), every single fish tested from 291 freshwater streams across the United States was found to be contaminated with mercury."This study shows just how widespread mercury pollution has become in our air, watersheds and many of our fish in freshwater streams," said Interior Secretary Ken Salazar. Mercury is a potent neurotoxin that builds up in the food chain at ever higher concentrations in predators such as large fish and humans. It is especially damaging to the developing nervous systems of fetuses and children, but can have severe effects on adults, as well. The pollutant enters the environment almost wholly as atmospheric emissions from industrial processes, primarily the burning of coal for electricity.

Mercurial Tuna: Study Explores Sources of Mercury to Ocean Fish - With concern over mercury contamination of tuna on the rise and growing information about the health effects of eating contaminated fish, scientists would like to know exactly where the pollutant is coming from and how it's getting into open-ocean fish species.  A new study published in the journal Environmental Science & Technology uses chemical signatures of nitrogen, carbon and mercury to get at the question. The work also paves the way to new means of tracking sources of mercury poisoning in people. The study  appears in the journal's March 1, 2010 issue.

Have We Reached Peak Tuna? - The bluefin is warm-blooded, voracious carnivore—the so-called “tiger of the sea”—and its fatty, deep red belly meat is highly prized by sushi chefs. A single piece of toro nigiri from the Atlantic bluefin can go for $20 in Japan. Much of the current obsession with fatty tuna began after the U.S. occupation of Japan, as the Japanese diet drew influences from the masculine, red meat culture of its occupiers. Consumption of bluefin has since accelerated and demand for this kind of sushi skyrocketed worldwide. Because the technology used to catch bluefin in the Mediterranean relies on rounding them up before they are old enough to breed, the method practically guarantees the destruction of a healthy breeding population in the wild.

The elasticity of natural disaster deaths with respect to income - Matt Kahn has a good paper (and here) on this topic: Using a new data set on annual deaths from disasters in 57 nations from 1980 to 2002, this paper tests several hypotheses concerning natural disaster mitigation. While richer nations do not experience fewer natural disaster events than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature’s shocks. Democracies and nations with higher quality institutions suffer less death from natural disaster. The results are relevant for judging the incidence of a Global Warming induced increase in the count of natural disaster shocks.

Dolphin cognitive abilities raise ethical questions, says Emory neuroscientist – Science Daily - "Many modern dolphin brains are significantly larger than our own and second in mass to the human brain when corrected for body size," Marino says. A leading expert in the neuroanatomy of dolphins and whales, Marino will appear as part of a panel discussing these findings and their ethical and policy implications.Some dolphin brains exhibit features correlated with complex intelligence, she says, including a large expanse of neocortical volume that is more convoluted than our own, extensive insular and cingulated regions, and highly differentiated cellular regions."Dolphins are sophisticated, self-aware, highly intelligent beings with individual personalities, autonomy and an inner life. They are vulnerable to tremendous suffering and psychological trauma," Marino says. The growing industry of capturing and confining dolphins to perform in marine parks or to swim with tourists at resorts needs to be reconsidered, she says.

Plastic rubbish blights Atlantic Ocean - Scientists have discovered an area of the North Atlantic Ocean where plastic debris accumulates.  The region is said to compare with the well-documented "great Pacific garbage patch".  Kara Lavender Law of the Sea Education Association told the BBC that the issue of plastics had been "largely ignored" in the Atlantic. She announced the findings of a two-decade-long study at the Ocean Sciences Meeting in Portland, Oregon, US. We found a region fairly far north in the Atlantic Ocean where this debris appears to be concentrated and remains over long periods of time," she explained.  "More than 80% of the plastic pieces we collected in the tows were found between 22 and 38 degrees north. So we have a latitude for [where this] rubbish seems to accumulate," she said. The maximum "plastic density" was 200,000 pieces of debris per square kilometer.

Murkowski to Senate: Drill the Arctic or my state gets it! - Opposes bipartisan energy and climate bill if no ANWR drilling; Lieberman says, "That's a deal-breaker."  - Senator Lisa Murkowski (R-AK) has decided to hold the fate of her state, nation, and world hostage to drilling in Arctic National Wildlife Refuge, as explained by guest blogger Daniel J. Weiss, CAPAF’s Director of Climate Strategy. Murkowski gave a long impassioned speech when she introduced her “Dirty Air Act” – a Congressional Review Act resolution that would overturn EPA’s scientific finding that carbon pollution threatens public health and the environment.  One of her complaints was that the threat of impending EPA Clean Air Act implementation would force the Senate into action without ample time for deliberation. Senator Murkowski’s aversion to threats, however, does not extend to threats that she makes.  She told E&E Daily (subscription required) that she would oppose a global warming bill unless it included oil drilling in the Arctic National Wildlife Refuge in Alaska: Methane release from the not-so-perma-frost is the most dangerous amplifying feedback in the entire carbon cycle.

North Pole's polar vortex virtually non-existent in February 2010 This is not something that we want to see occur very often: The daily geopotential height anomalies at 17 pressure levels are shown for the previous 120 days as indicated, and they are normalized by standard deviation using 1979-2000 base period. The anomalies are calculated by subtracting 1979-2000 daily climatology, and then averaged over the polar cap poleward of 65° N. The blue (red) colors represent a strong (weak) polar vortex. The black solid lines show the zero anomalies

Methane levels may see 'runaway' rise, scientists warn - Atmospheric levels of methane, the greenhouse gas which is much more powerful than carbon dioxide, have risen significantly for the last three years running, scientists will disclose today – leading to fears that a major global-warming "feedback" is beginning to kick in. For some time there has been concern that the vast amounts of methane, or "natural gas", locked up in the frozen tundra of the Arctic could be released as the permafrost is melted by global warming. This would give a huge further impetus to climate change, an effect sometimes referred to as "the methane time bomb". This is because methane (CH4) is even more effective at retaining the Sun's heat in the atmosphere than CO2, the main focus of international climate concern for the last two decades. Over a relatively short period, such as 20 years, CH4 has a global warming potential more than 60 times as powerful as CO2, although it decays more quickly.

Study Says Undersea Release of Methane Is Under Way - NYTimes - Climate scientists have long warned that global warming could unlock vast stores of the greenhouse gas methane that are frozen into the Arctic permafrost, setting off potentially significant increases in global warming.  Now researchers at the University of Alaska, Fairbanks, and elsewhere say this change is under way in a little-studied area under the sea, the East Siberian Arctic Shelf, west of the Bering Strait. Natalia Shakhova, a scientist at the university and a leader of the study, said it was too soon to say whether the findings suggest that a dangerous release of methane looms. In a telephone news conference, she said researchers were only beginning to track the movement of this methane into the atmosphere as the undersea permafrost that traps it degrades.  But climate experts familiar with the new research reported in Friday’s issue of the journal Science that even though it does not suggest imminent climate catastrophe, it is important because of methane’s role as a greenhouse gas. Although carbon dioxide is far more abundant and persistent in the atmosphere, ton for ton atmospheric methane traps at least 25 times as much heat.

Methane bubbles in Arctic seas stir warming fears - (Reuters) — Large amounts of a powerful greenhouse gas are bubbling up from a long-frozen seabed north of Siberia, raising fears of far bigger leaks that could stoke global warming, scientists said. It was unclear, however, if the Arctic emissions of methane gas were new or had been going on unnoticed for centuries -- since before the Industrial Revolution of the 18th century led to wide use of fossil fuels that are blamed for climate change. The study said about 8 million tonnes of methane a year, equivalent to the annual total previously estimated from all of the world's oceans, were seeping from vast stores long trapped under permafrost below the seabed north of Russia. "Subsea permafrost is losing its ability to be an impermeable cap," Natalia Shakhova, a scientist at the University of Fairbanks, Alaska, said in a statement. She co-led the study published in Friday's edition of the journal Science.

Natalia Shakhova, I. Semiletov, A. Salyuk, V. Yusupov, D. Kosmach & Ö. Gustafsson, Science, Extensive methane venting to the atmosphere from sediments of the East Siberian Arctic Shelf -- Abstract  - Remobilization to the atmosphere of only a small fraction of the methane held in East Siberian Arctic Shelf (ESAS) sediments could trigger abrupt climate warming, yet it is believed that sub-sea permafrost acts as a lid to keep this shallow methane reservoir in place. Here, we show that more than 5000 at-sea observations of dissolved methane demonstrates that greater than 80% of ESAS bottom waters and greater than 50% of surface waters are supersaturated with methane regarding to the atmosphere. The current atmospheric venting flux, which is composed of a diffusive component and a gradual ebullition component, is on par with previous estimates of methane venting from the entire World Ocean. Leakage of methane through shallow ESAS waters needs to be considered in interactions between the biogeosphere and a warming Arctic climate.

Natalia Shakhova, Igor Semiletov: Arctic seabed methane stores destabilizing, venting -- The research results, published in the March 5, 2010, edition of the journal Science, show that the permafrost under the East Siberian Arctic Shelf, long thought to be an impermeable barrier sealing in methane, is perforated and is leaking large amounts of methane into the atmosphere. Release of even a fraction of the methane stored in the shelf could trigger abrupt climate warming. “The amount of methane currently coming out of the East Siberian Arctic Shelf is comparable to the amount coming out of the entire world’s oceans,” said Shakhova, a researcher at UAF’s International Arctic Research Center. “Subsea permafrost is losing its ability to be an impermeable cap.” Methane is a greenhouse gas more than 30 times more potent than carbon dioxide. It is released from previously frozen soils in two ways. When the organic material—which contains carbon—stored in permafrost thaws, it begins to decompose and, under oxygen-free conditions, gradually release methane. Methane can also be stored in the seabed as methane gas or methane hydrates and then released as subsea permafrost thaws. These releases can be larger and more abrupt than those that result from decomposition.

Science stunner: Vast East Siberian Arctic Shelf methane stores destabilizing and venting - NSF issues world a wake-up call: "Release of even a fraction of the methane stored in the shelf could trigger abrupt climate warming.”  (with NSF diagrams & video) Research published in Friday’s journal Science finds a key “lid” on “the large sub-sea permafrost carbon reservoir” near Eastern Siberia “is clearly perforated, and sedimentary CH4 [methane] is escaping to the atmosphere.” Scientists learned last year that the permafrost permamelt contains a staggering “1.5 trillion tons of frozen carbon, about twice as much carbon as contained in the atmosphere,” much of which would be released as methane.  Methane is  is 25 times as potent a heat-trapping gas as CO2 over a 100 year time horizon, but 72 times as potent over 20 years! The carbon is locked in a freezer in the part of the planet warming up the fastest (see “Tundra 4: Permafrost loss linked to Arctic sea ice loss“).  Half the land-based permafrost would vanish by mid-century on our current emissions path (see “Tundra, Part 2: The point of no return” and below).  No climate model currently incorporates the amplifying feedback from methane released by a defrosting tundra.

Visual depictions of Sea Level Rise - Even many critics would agree that global sea levels are currently rising, regardless of recent scrutiny and revision of estimates of predicted sea level rise. As pointed out previously, predicting sea level rise is tough. The National Oceanic and Atmospheric Administration (NOAA) puts it neatly, “To make predictions, we need knowledge. To gain knowledge we need observations”. However a recent claim disputes that current sea levels are rising significantly. Is it possible to verify or falsify this statement by looking at observations and data from the scientific community concerned with measuring sea level? The answer is yes. Measuring sea level is now a multidisciplinary effort involving integration of observations from several global networks of hundreds of tidal stations, calibrated with vertical reference data from nearby GPS (Global Positioning System, which now use the American GPS, Russian GLONASS and European Galileo constellations of satellites) or DORIS (Doppler Orbitography Integrated by Satellite) stations, and data from several independent satellite based radar altimeters (recently Jason I, Jason II, and Envisat) which give complete global coverage...

We Can’t Wish Away Climate Change -Al Gore - It would be an enormous relief if the recent attacks on the science of global warming actually indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it. ... We would no longer have to worry that our grandchildren would one day look back on us as a criminal generation that had selfishly and blithely ignored clear warnings that their fate was in our hands. ... I, for one, genuinely wish that the climate crisis were an illusion. But unfortunately, the reality of the danger we are courting has not been changed... In fact, the crisis is still growing... even though climate deniers have speciously argued for several years that there has been no warming in the last decade, scientists confirmed last month that the last 10 years were the hottest decade since modern records have been kept.

January Was the Warmest Temperature in World History - The world is a big place, so despite unseasonable blizzards in the media/political center of the US Northeast on average the planet is still getting warmer: “January, according to satellite (data), was the hottest January we’ve ever seen,” said Nicholls of Monash University’s School of Geography and Environmental Science in Melbourne.“Last November was the hottest November we’ve ever seen, November-January as a whole is the hottest November-January the world has seen,” he said of the satellite data record since 1979.The World Meteorological Organization (WMO) said in December that 2000-2009 was the hottest decade since records began in 1850, and that 2009 would likely be the fifth warmest year on record. WMO data show that eight out of the 10 hottest years on record have all been since 2000. And yet, there’s still snow in my building courtyard. Obviously, Al Gore is a fool!

Coffee producers ‘getting hammered’ by global climate change - Coffee producers say they are getting hammered by global warming, with higher temperatures forcing growers to move to prized higher ground, putting the cash crop at risk. "There is already evidence of important changes" said Nestor Osorio, head of the International Coffee Organization (ICO), which represents 77 countries that export or import the beans. "In the last 25 years the temperature has risen half a degree in coffee producing countries, five times more than in the 25 years before," he said.Sipped by hundreds of millions of people worldwide, coffee is one of the globe's most important commodities, and a major mainstay of exports for countries from Brazil to Indonesia. But producers meeting in Guatemala this week are in a state of panic over the impact of warming on their livelihoods.

Massive Antarctic iceberg threatens ocean circulation - The calving of a massive iceberg off east Antarctica last week has prompted fears that the event could alter the salinity of the surrounding ocean, with damaging effects on marine life and global ocean currents. The 860-billion-tonne berg, with a surface area of about 2500 square kilometres, had formed 50 per cent of a 100-kilometre tongue poking out of the Mertz glacier. Major fractures had been developing for years, so the break was anticipated, say Rob Massom and Neal Young of the Antarctic Climate & Ecosystems Cooperative Research Centre in Australia. "It was hanging like a loose tooth," says Massom.

New evidence on Antarctic warming - The continent of Antarctica is warming up in step with the rest of the world, according to a new analysis.  Scientists say data from satellites and weather stations indicate a warming of about 0.6C over the last 50 years.  Writing in the journal Nature, they say the trend is "difficult to explain" without the effect of rising greenhouse gas levels in the atmosphere.  Meanwhile, scientists in Antarctica say a major ice shelf is about to break away from the continent.  The Wilkins Ice Shelf is said to be "hanging by a thread" from the Antarctic Peninsula, the strip of land pointing from the white continent towards the southern tip of South America.

Shell’s Voser: Climate Bill ‘Needs More Time’ - Dispatch - WSJ - Despite recent defections of two other oil majors, Royal Dutch Shell PLC has opted to stay in an influential lobbying group that has focused on shaping climate-change legislation, Chief Executive Officer Peter Voser said. “We feel we can actually do more being inside USCAP to achieve the right outcome,” Mr. Voser said. But Mr. Voser agreed with a growing number of skeptics who don’t believe a climate change bill will be passed on Capital Hill this year. Asked how much money he would put betting on such an outcome, the CEO smiled wanly and said: “I think I can spend my money somewhere else.

South Dakota legislature declares that astrology can explain global warming « Forbes Science Business - Here in the U.S. we have a never-ending competition among the states to see which one can enact the dumbest laws. This past week, the South Dakota House of Representatives passed a law that tells schoolteachers how to present the evidence for global warming. The lawmakers who wrote the bill clearly don’t believe that global warming is a reality, so they simply created a law to promote their version of reality. Interestingly, they used the same strategy used by creationists in their efforts to ban the teaching of evolution: the “teach the controversy” approach, where you claim you simply want children to hear both sides of the issue. But the part that really got my attention was the law’s claim that “astrological dynamics” are one of the driving forces behind global climate change. The South Dakota bill, which was passed 36-30 (not all the legislators are idiots; here’s the roll call vote), includes a number of delightful errors, which are worth examining one by one. Let’s start with the most entertaining claim:

Darwin Foes Add Warming to Targets - NYTimes - Critics of the teaching of evolution in the nation’s classrooms are gaining ground in some states by linking the issue to global warming, arguing that dissenting views on both scientific subjects should be taught in public schools. The linkage of evolution and global warming is partly a legal strategy: courts have found that singling out evolution for criticism in public schools is a violation of the separation of church and state. By insisting that global warming also be debated, deniers of evolution can argue that they are simply championing academic freedom in general.

Graham says GOP should stop demonizing climate change: You’re risking ‘your party’s future with younger people.’Last week, Sen. Lindsey Graham (R-SC) spoke with New York Times columnist Thomas Friedman to discuss clean energy legislation. During the interview, Graham warned his party that it will fall into irrelevancy if it continues to embrace climate change deniersI have been to enough college campuses to know if you are 30 or younger this climate issue is not a debate. It’s a value. These young people grew up with recycling and a sensitivity to the environment — and the world will be better off for it. They are not brainwashed...

Scientists Taking Steps to Defend Work on Climate - NYTimes - Climate scientists have been shaken by the criticism and are beginning to look for ways to recover their reputation. They are learning a little humility and trying to make sure they avoid crossing a line into policy advocacy. “It’s clear that the climate science community was just not prepared for the scale and ferocity of the attacks and they simply have not responded swiftly and appropriately,” said Peter C. Frumhoff, an ecologist and chief scientist at the Union of Concerned Scientists. “We need to acknowledge the errors and help turn attention from what’s happening in the blogosphere to what’s happening in the atmosphere.” A number of institutions are beginning efforts to improve the quality of their science and to make their work more transparent. The official British climate agency is undertaking a complete review of its temperature data and will make its records and analysis fully public for the first time, allowing outside scrutiny of methods and conclusions. The United Nations panel on climate change will accept external oversight of its research practices, also for the first time.

There's no war to fight over global warming - Do climate scientists have a cause, or a battle to win, as some of our critics seem to imply? I don't think so. I am not an environmentalist but rather an environmental scientist. The distinction is crucial: science is about the accumulation of knowledge, not fighting causes. Journalists often say that scientists should go on the offensive to win the battle on climate change, but I disagree. The only battle that scientists should try to win is for airtime, to be able to present and debate our knowledge with society at large. We must ensure that this knowledge is available for others - policy-makers and the public - to decide what actions to take, but it is not the climate scientists' role to comment on what policy decisions should be taken.

Freakout-nomics  - Krugman - If you think conservatives are freaking out over the growing prospects that health care reform will, in fact, happen, wait until you see the freakout over climate change. You see, a snowy winter in the northeast United States was supposed to have proved the climate skeptics right, after all. But a funny thing happened while they were celebrating: globally, this is shaping up as the warmest winter on record:  Now, short-term weather fluctuations don’t prove much — but that’s the point the climate scientists have been trying to make; it’s the skeptics who point to an unusually warm year in the recent past and declare “See, the planet is cooling, not warming”. So what are they gong to do? Not change their minds, of course — what I’ve learned from a decade of punditing is that nobody ever admits they were wrong about anything. No. they’re going to switch arguments completely — before, a cold day meant global warming was a hoax, now a warm year means nothing — hey, weather fluctuates! It’s already happening. Grab some popcorn.

Very Scary Things - Krugman - So I’m working on a climate-related project, and reading Marty Weitzman on extreme uncertainty (pdf). Weitzman directs us to the example of the Paleocene–Eocene Thermal Maximum, when temperatures rose about 6 degrees C over 20,000 years, and there were mass extinctions. Meanwhile, I know from Joe Romm that serious climate modelers have marked up their estimates lately, and are predicting a rise of more than 5 degrees under business as usual. Yikes.

On Krugman's toy climate model - Today paul Krugman posted a 5-page snippet about a toy climate model. I have no problems with Krugman's little model and I expect few will--this is just a classic investment model applied to climate change.  Putting a price a carbon amounts to investing in carbon abatement.  The optimal policy maximizes the returns on that investment. So, what's the optimal policy?  Should price start low and steadily increase or start high? That's hard to tell.  The big pieces, not so surprisingly, are a) What are the potential returns on the investment of curbing carbon emissions? b) How should those returns be discounted to the present?

Climate Change and The Economy: Expected Impacts and Their Implications - Climate change and its impacts are becoming apparent now throughout the United States and are projected to increase in the future. This report, which contains a compilation of seven research studies by major state universities around the country finds that nine states across the U.S. are facing growing economic harm from climate change impacts.  The studies, which examine projected economic impacts on specific local economic sectors, show that climate change is expected to prove disruptive to a broad cross section of the economy in all regions of the country. Researchers investigated climate change implications on water, coasts, and forests and detailed the implications of these impacts on agriculture, real estate, public infrastructure, and tourism. Climate Change and The Economy:Expected Impacts and Their Implications (3.90MB PDF)

France to renew calls for EU carbon tariff - EU ministers are set to give renewed consideration to French calls for a "carbon inclusion mechanism" in an attempt to curb unfair competition from countries like China, which have weaker climate protection laws. But opinion is still divided on the issue of carbon tariffs at the EU's borders.  EU ministers in charge of competitiveness are meeting in Brussels today (1 March) to adopt conclusions on a "new industrial policy". "The discussion is expected to concentrate on key objectives for establishing the principles that should be included into a fresh and integrated approach to keep EU industry competitive," In the aftermath of the UN climate conference in Copenhagen, EU ministers will debate ways of protecting industrial competitiveness from the risk of 'carbon leakage', meaning the relocation of factories, jobs and carbon dioxide emissions to countries with less stringent environment laws.

China Stepping Up for Arctic Influence: Report - China is stepping up efforts to secure a role in deciding the future of Arctic issues such as shipping and energy extraction, as melting ice raises hopes of a shorter shipping route to the Atlantic, a report said on Monday.Beijing is putting more resources into researching the high north, although officials are pushing for a cautious policy approach to avoiding causing alarm among Arctic states, the Stockholm International Peace Research Institute (SIPRI) said."China is aware that its size and rise to major power status evoke jitters but at the same time it is striving to position itself so that it will not be excluded from access to the arctic," the report said. The export-dependent structure of China's economy means shorter routes to Europe and North America could have a massive impact, the report said, citing estimates that nearly half of gross domestic product could be reliant on shipping.

Social and Individual Breakdown Pent up toward Collapse - The U.S. appears to be breaking down on all levels, probably taking the rest of the modern world with it. Noticing this helps us understand the hopelessness of our intrinsically flawed system. Also, recognizing breakdown is helpful for seeing impending collapse in a new light. Breakdown should be seen in such a way to realize that order is becoming an illusion. Breakdown is preceding and adding to future collapse. Simultaneously there are myriad magnificent yet small-scale efforts to improve people's lives and the health of our Earth. Overall, however, I detect a quickened intensity of breakdown across the board that cannot be cured under current conditions. It is manifested in many areas, such as minimal civic involvement in one's own life-and-death interest. Those of us who are keeping to a routine, and have things relatively under control, are nevertheless unstable because of what's going on all around us. Many in the U.S. still deny that their empire and general economy are heading toward thorough collapse.

Nuclear projects face financial obstacles - - Hopes for a nuclear revival, fanned by fears of global warming and a changing political climate in Washington, are running into new obstacles over a key element -- money.  A new approach for easing the cost of new multibillion-dollar reactors, which can take years to complete, has provoked a backlash from big-business customers unwilling to go along.  Financing has always been one of the biggest obstacles to a renaissance of nuclear power. The plants are expensive, and construction tends to run late and over budget. The projected cost for a pair of proposed Georgia plants would be $14 billion; the Obama administration last month pledged to provide them with $8.3 billion in federal loan guarantees.

Department of Energy’s Loan Guarantees for Nuclear Power Plants - CBO blog - Recently the Department of Energy (DOE) announced that, subject to certain conditions being met, it would guarantee $8.3 billion in loans for the construction of two nuclear reactors in Georgia.  Those guarantees would be made under title 17 of the Energy Policy Act of 2005. As with any loan guarantee, the government would run the risk of losing money if the borrowers were to default on those loans. In 2003, CBO prepared a cost estimate for legislation (S. 14) that would have established a similar loan guarantee program. The Congress subsequently enacted a loan guarantee program for advanced nuclear energy facilities and other innovative energy technologies in title 17 of the Energy Policy Act of 2005. Since that time, CBO has estimated the cost of appropriation acts and two other pieces of legislation—S. 1321 and S. 1462—related to DOE’s title 17 loan guarantee program.  A number of people have inquired as to whether the information in those estimates is relevant to estimates of the credit risk of the announced loan guarantees.  The short answer is: not necessarily.

NRC confirms 2005 tritium leak at Vermont Yankee plant - The Vermont Yankee nuclear plant had a radioactive leak years before the one found last month, confirming a disclosure last week by a consultant to the Legislature that a plant employee told him of a previous leak at the reactor, federal officials say.  Donald Jackson, a Nuclear Regulatory Commission section chief, confirmed in a conference call between NRC officials and reporters Monday that the 2005 leak occurred in the same pipe system that is the focus of the search for the source of the current leak. “In 2005, within the confines of this pipe tunnel, there was a problem with one of the pipes,’’ he said. Plant officials admitted last month that they had misled state officials, sometimes under oath, by saying the plant did not have the sort of underground pipes that could carry tritium. Federal officials said Entergy , the plant’s parent company, confirmed the 2005 leak to the NRC Monday.

Proposed power line would run from New England through New York - An Ontario-based company has announced plans for a major $3.8 billion, 355-mile transmission line that would link New York City and southern New England with Canadian hydroelectric and wind power sources. The line would be installed mostly under major bodies of water, including Lake Champlain, the Hudson River and Long Island Sound, terminating in Bridgeport.  TDI said that the 2,000-megawatt line would be less than 6 inches in diameter. One megawatt can supply about 1,000 homes with electricity, so this line could, in theory, could supply about 2 million homes. There are about 1.5 million homes in Connecticut, according to the U.S. Census Bureau. Unlike most high-voltage transmission lines, it would use direct current instead of alternating current, so as not to generate possibly harmful electromagnetic fields, often referred to as EMF radiation.

Environmentalists question coal's place in Obama policy — President Barack Obama, a longtime believer in "clean coal," is launching an ambitious and expensive plan to help the energy industry lock climate-changing gases from coal-fired power plants deep underground. On the face of it, making the nation's abundant supply of coal less polluting is alluring. Keeping coal in the energy equation preserves jobs, and a way of life.However, some scientists, clean-energy advocates and electricity producers are questioning Obama's approach. Instead, some argue, the world should phase out coal, use natural gas more efficiently and put more emphasis on renewable energy. Critics of the administration's coal strategy also say it will be too expensive to retrofit existing plants with new technology, capture the carbon dioxide, compress it and pipe it to underground storage. More coal also would be needed to run the capture equipment.

The Dirty Truth Behind Clean Coal - If you've tuned in to the Winter Olympics this past week, you likely sat through repeated showings of a multimillion-dollar public relations campaign paid for by Big Coal regarding the potential laurels of "clean-coal" technology. The premise of the 30-second spot is simple: Coal can be clean and America needs to wean itself off of foreign crude and create jobs back home by tapping our nation's vast coal reserves. Indeed, the effort to paint coal as environmentally friendly is not an easy endeavor, especially when the climate movement has picked up speed and lambasted the industry for contributing more than its fair share to the global warming dilemma. "NASA climate scientist James Hansen ... has demonstrated two things in recent papers," writes environmental author and activist Bill McKibben about the need to axe coal. "One, that any concentration of carbon dioxide greater than 350 parts per million in the atmosphere is not compatible with the 'planet on which civilization developed and to which life on earth is adapted.' And two, that the world as a whole must stop burning coal by 2030 - and the developed world well before that - if we are to have any hope of ever getting the planet back down below that 350 number."

Texas-based refiners pledge to fund fight against California's global warming law - latimes - Two Texas-based refinery giants have pledged as much as $2 million to fund signature gathering for a ballot initiative to suspend California's landmark global warming law, according to Sacramento sources. The companies, Valero Energy Corp. and Tesoro Corp., own refineries in California that would be forced under the law to slash emissions of heat-trapping greenhouse gases. Campaign workers began collecting signatures Tuesday for the initiative, which would delay regulations to implement the nation's most comprehensive climate legislation until California's unemployment level drops to 5.5% for at least a year. The current jobless rate is over 12%.

Shell Abandons Colorado Water Rights Bid, Placing Regional Oil Shale Development On Hold - Shell Oil Co. said Tuesday it is abandoning its quest for water rights from a northwest Colorado river to develop oil shale production, citing delays in the project due to the global economic downturn. Colorado, Wyoming and Utah are thought to hold 800 billion barrels of recoverable oil in shale. But critics of a federal management plan for developing oil shale on public lands say the process would use too much of the region's scarce water. Shell was hoping to obtain water rights from the Yampa River.

At Risk: The Sustainability of Oil and Gas (PDF presentation) - Presentation from the GASAON Annual Energy Insurance Symposium on January 14, 2010.

Shell CEO: Costly Oil Here To Stay-- Royal Dutch Shell's chief executive sought to manage expectations for new, alternative energy sources on Thursday, predicting that oil will remain the dominant energy source for decades -- not to mention one that will become more difficult to obtain, and hence more expensive. CEO Peter Voser, addressing an audience at The Wall Street Journal's ECO:nomics conference in Santa Barbara, Calif., also deflected criticism that the Dutch oil major seems to have pulled back on alternative energy-related projects, saying instead that it has simply sought to narrow its focus on particular technologies -- such as biofuels -- since he stepped in as CEO last year.

Saudi Aramco Loses Count, Drills Too Many Wells In Ghawar - The Haradh III development at the southern tip of the Ghawar oil field in Saudi Arabia, completed in 2006, has been portrayed by the national oil company Saudi Aramco as the turning point in the battle between geological adversity and engineering prowess. The poorest reservoir rock in Ghawar has succumbed to the latest in well and drilling technology. ... Funny thing, though. When you look at a satellite photo and count the number of producer wells they ended up drilling, it adds up to quite a few more than they have been claiming -- about 60% more.

Saudi Arabia Raises Most April Oil Prices to U.S.  (Bloomberg) -- Saudi Aramco, the world’s largest state-owned oil company, raised official selling prices for all crude grades, except heavy, for customers in the U.S. for April and lowered prices on all grades to Europe and most for Asia. The company increased the formula price of its Arab Light crude to the U.S. the most, raising it by 15 cents a barrel, or 20 percent, to a 60-cent discount off the benchmark Argus Sour Crude Index, Aramco said today in an e-mailed statement. It boosted the premium for Extra Light crude to 95 cents above the benchmark, also a 15-cent change.  April marks the fourth month Aramco is pricing crude for the U.S. against the ASCI marker, an index of high-sulfur oil produced in the Gulf of Mexico.

Saudi Crude Output Still Down From 2008 (Reuters) - Saudi Arabia's oil production is still down compared with 2008, having fallen in 2009, state oil company Saudi Aramco's chief executive was reported as saying on Tuesday. Oil drilling for production has declined, although exploration activities are increasing, Khalid al-Falih was also quoted as saying in the Asharq al-Awsat newspaper. The top oil exporter and OPEC's most influential member pumped 8.22 million barrels per day (bpd) in February, a Reuters survey showed.  In February 2009, Saudi Arabia pumped 7.9 million bpd, Conrad Gerber of Geneva-based Petrologistics told Reuters last year. The kingdom's oil production in 2008 averaged 8.9 million bpd, according to Aramco's 2008 annual report.

North Sea oil 'viable for 30 more years' - THE North Sea has a viable future for the next 30 years, or beyond, provided oil heads above $200 a barrel, an industry expert has forecast. Matt Simmons, the founder and chairman emeritus of energy investment specialist Simmons & Company International, said there was a bright future for the UK sector of the North Sea "if we come up with attractive investment opportunities". Simmons described even the near-$150 level as "dirt cheap". Asked if $200 was a more realistic price to sustain investment in oil and gas assets, the industry veteran replied: "I'm not sure that's high enough."

Gulf countries 'should abandon dollar peg and float currencies' - Dubai: Gulf countries should drop their peg to the US dollar to avoid unnecessary risk, John Taylor, chairman of FX Concepts, the world's largest currency hedge fund based in New York, said in Dubai on Monday."Any fixed exchange rate makes countries vulnerable to activity that has nothing to do with their economy," he said at Hedge Funds World Middle East 2011 conference, referring to fiscal policies in the US. The dollar until recently was declining due to the country's severe fiscal deficit. The deficit rose by $40.2 billion (Dh147.85 billion) in December, the biggest in 12 months, the Commerce Department said.

Details Emerges for Greece Plan - WSJ - A plan to bail out Greece that could total as much as €30 billion is now being considered by German and French officials, according to a person familiar with the situation. The plan would call for the sale of debt to French and German entities, likely state-owned banks, as well as the public markets, this person said.  The sale roughly would be split between the states and debt investors.  The timing of any sale is unclear and is pending approval by German and French officials. While officials in those countries may want time to deliberate, there is an increasing sense that the financial markets want to see a resolution. That could increase pressure on government officials to sign off on the debt sale before problems extend to other European countries.

If This Guy Is The Source Of Greek Bailout Reports, You Should Be Very Skeptical - Jorgo Chatzimarkakis, a German member of the European Parliament, announced in a TV interview Saturday night that France, Germany, and the Netherlands would snap up Greek bonds in an effort to bail the country out, according to Reuters. But who is Jorgo Chatzimarkakis? He's a low-level, 43-year old politician of Greek descent, and even Reuters is forced to wonder how he would possibly be aware of such a plan. We're not sure if this is connected to the forthcoming Greek bailout that the WSJ just announced, if so we'd remain highly dubious

Germans and Greeks get nasty over debt - Europe’s struggle to solve the Greek debt crisis and protect the euro is being threatened by an increasingly bitter war of words between Germany and Greece. Old stereotypes and grievances between the two countries are resurfacing, and this could stiffen resistance in the Greek public to drastic government spending cuts and tax rises needed to ward off a debt default that may trigger the collapse of Europe’s 11-year-old monetary union.Passions are running high, partly because the crisis has touched raw nerves in both companies. For the Greeks, the radical austerity measures being imposed by the EU are a reminder of their painful history of domination by foreign powers for much of the last 2,000 years. For the Germans, the prospect of currency turmoil is anathema after the hyperinflation and economic collapse of the 20th century.

Germany leans against giving aid to Greece - It looks as though Germany is hardening its position. Over the weekend, Angela Merkel told German TV that the best help Germany could offer to Greece is to insist that Greece does its homework. FT Deutschland reports that the Greek government spokesman Giorgos Petalotis said during a visit to Germany that the country was suffering badly from the speculative attacks, as a result of which it has to pay interest payments that are three times as high as those of Germany. Merkel is due to meet Papandreou on Friday. Kathimerini also leads with the story, interpreting Merkel’s interview as a decision not to give money. She was also quoted as firmly denying reports that a rescue package has already been drawn up, waiting to be agreed on politically.  Der Spiegel has an interview with an influential German constitutional lawyer, who says the planned aid to Greece is almost certainly unconstitutional under German law. 

Rehn Urges Greece to Take New Steps to Cut Budget Gap (Bloomberg) -- European Union Monetary Affairs Commissioner Olli Rehn urged Greece to quickly outline new ways to cut the region’s largest budget deficit as governments craft a possible rescue package for the cash-strapped nation.  “I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou. “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.”  European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou’s government can’t finance its debt.

Greece risks 'bankruptcy' without radical action: PM - Greece risks bankruptcy if it does not take radical extra measures to fix its finances, Prime Minister George Papandreou warned on Tuesday, saying the country was in a "wartime situation." Greece must avoid "a nightmare of bankruptcy in which the state would not be able to pay salaries or pensions," Papandreou told lawmakers in Athens, adding: "Yes, we have to take additional measures."We find ourselves today in a wartime situation faced with the negative scenarios affecting our country," he said as he prepared for the announcement on Wednesday of further measures to tackle a massive public deficit and debt.

Greek PM says sacrifices vital to avert bankruptcy (Reuters) - Greek Prime Minister George Papandreou said on Tuesday his country was fighting for survival against bankruptcy and urged civil servants and pensioners to accept sacrifices to save the debt-burdened nation. In a dramatic speech to his Socialist PASOK party on the eve of a cabinet meeting expected to approve new austerity measures, Papandreou said: "I will fight to save the fatherland from whatever the nightmare possibility of bankruptcy might entail."Under pressure to meet European Union demands to find up to 4.8 billion euros ($6.5 billion) in additional savings before he visits Germany on Friday, he played up the risk of default, saying speculators had made borrowing costs prohibitive.

Greece Set to Outline New Austerity Measures - WSJ - The Greek government is expected to outline Wednesday a new austerity package of about €4 billion ($5.42 billion) in an effort to cut its huge budget deficit by four percentage points this year, government officials said Tuesday.  "The new package will most likely be announced on Wednesday. First there will be a cabinet meeting to seal the measures and an announcement will follow," one official said. Another official said Greece's debt management agency is preparing a 10-year bond hoping to raise between €3 billion and €5 billion, taking advantage of the expected positive market reaction after the measures are announced.

Papandreou to outline the mother of all austerity programmes - Today, George Papandreou will try to persuade his cabinet, and later in the day, or tomorrow morning, the wider Greek public of his latest austerity plan, which according to Kathimerini will include cuts in civil servants pay, including a reduction in the 14 month salary – a privilege enjoyed by the Greek public sector. The paper also reports that the Greek government has already decided to freeze pension payouts in those pension funds, over which it has direct control. The FT writes that measures are expected to include VAT rises, special duties on fuel, tobacco and cigarettes. Commissioner Olli Rehn said Greece must reveal new austerity measures in the coming days. Bloomberg reports says: “Angela Merkel and other EU leaders want Greece to do more so they can justify any aid package to taxpayers and political opponents who say that it shouldn’t be bailed out after living beyond its means. Failure to satisfy Rehn’s demand before the Berlin talks may dash hopes of a German-led lifeline, spurring investors to reverse yesterday’s rally in Greek bonds.” Prime minister George Papandreou is to meet Angela Merkel on March 5.

Greek unions call new strikes against deficit-cutting measures - Greece's largest public sector union called a 24- hour strike for March 16 to protest a wave of new austerity measures planned the government in a bid to solve the country's debt crisis. The new government measures, which are expected to be announced on Wednesday, follow the visit of EU Economic Affiars Commissioner Olli Rehn who called on Greece to do more to reign in a budget deficit that has skaken the confidence in the eurozone.  "It is now up to the government what additional measures it will take," Rehn said during his Monday visit to Athens. "I trust that the additional measures will meet the deficit targets in order to regain credibility." Unions said they will hold a 24-hour strike on March 16 and a four-hour work stoppage March 8. The strike announcement came as taxi drivers abandoned their vehicles Tuesday against new tax measures

European Union Moves Toward a Bailout of Greece - Greece, in the midst of a financial crisis, is planning a bond deal this week that depends on a lot of things going right. For one, other members of the European Union — much as they would prefer not to — are discussing ways to show that they will stand behind Greece. In recent days, the outlines of a rescue plan have started to come together, probably involving loan guarantees from the German and French governments to encourage their banks to buy Greek debt. But even as the negotiations continue, the bloc insists that Athens impose further austerity measures, in part to overcome political opposition in Germany to providing aid to what it sees as the spendthrift Greeks.

Greece Unveils Plan to Save €4.8 Billion - The Greek government took new steps to try to resolve its debt crisis Wednesday, announcing a new range of budget cuts and tax increases intended to chop €4.8 billion ($6.53 billion) off its ballooning budget deficit.  The government may soon face a key test of its credibility if it decides that the response of investors to the austerity package has been positive enough to launch an offering of 10-year bonds. If it can sell those bonds without paying a big premium, it may be able to raise the €54 billion in financing it needs this year without paying so much interest that it can't meet its deficit reduction targets.

An Underfunded Program For Greece - The EU, led by France and Germany, appears to have some sort of financing package in the works for Greece (probably still without a major role for the IMF).  But the main goal seems to be to buy time – hoping for better global outcomes – rather than dealing with the issues at any more fundamental level. Greece needs 30-35bn euros to cover its funding needs for the rest of this year.  But under their current fiscal plan, we are looking at something like 60bn euros in refinancing per year over the next several years – taking their debt level to 150 percent of GDP; hardly a sustainable medium-term fiscal framework. A fully credible package would need around 200bn euros, to cover three years.  But the moral hazard involved in such a deal would be immense – there is no way the German government can sell that to voters (or find that much money through an off-government balance sheet operation).

Germany And France Secretly Planning A New Europe-Wide Federal Government After Greece Is Bailed Out - Europe is set to become more federal under secret plans being drawn up in the capital of Brussels, according to Der Spiegel. The German paper reports that an economic government for the Euro zone is being designed and will be implemented as part of a post-Greece overhaul of the continent's government. The plan, developed by the German and French, is designed to sort out the problems of troubled states before they grow to large, and will target all Euro zone members and states which peg their currencies to the Euro, according to Der Spiegel. There is the possibility that economic sanctions for financial profligacy will be included in the legislation, which will also seek to bring in order Euro zone economic discrepancies.

Spiegel Online International: German Banks Turn Their Backs on Greek Bonds - The deadline facing Athens is an ominous one. By April and May, Greece must refinance €20 billion in sovereign debt, the first chunk of the €53 billion the country will need to refinance by the end of the year. But as winter turns to spring, it's growing apparent that Greek efforts to raise money face big challenges. On Friday, at the end of a week full of setbacks, the Financial Times Deutschland reported that major German banks have no intention of investing in new Greek bond issues. Both Eurohypo and Hypo Real Estate, which have invested heavily in Greek bonds in the past, have said they will skip the next bond issue, the paper wrote. Deutsche Postbank is likewise not interested. Together, the three banks hold €14.4 billion of Greek debt. Two-thirds of it belong to Hypo Real Estate.

Greek Corruption Booming, Says Transparency International - The Greeks paid an average of €1,355 ($1,830) in bribes last year for public services such as speeding up the issue of driver's licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, according to a new study by Transparency International, the Berlin-based global corruption watchdog. In 2008, average bribes were even higher, at €1,374, the study said, according to a report in the German daily Die Welt on Tuesday.  Bribes paid for private sector services such as lawyers, doctors or banks were even higher, rising to €1,671 on average in 2009 from €1,575 in 2008, the study said. It is based on a survey by polling institute Public Issue among 6,122 Greek adults, of whom 13.4 percent stated that they had been asked to pay bribes.

Let the Greeks ruin themselves; Germany has Europe’s deepest pockets, but it does not want to pay to save troubled euro-zone economies - The Economist - LESS than a year before the euro became the currency of 11 European countries in January 1999, a declaration signed by 155 German-speaking economists called for an “orderly”—ie, long—delay. The prospective euro members, they said, had not yet reduced their debt and deficits to suit a workable monetary union; some were using “creative accounting” to get there, and a casual attitude towards deficits would undermine confidence in the euro’s stability. Now the prediction is coming true...

The NYT Interupts the Europe Bashing to Complain that Germany is Too Competitive - There is an ongoing refrain in economic reporting that the European welfare state is an outmoded relic that is dragging Europe into an economic abyss. It's a very compelling tune, since it gets repeated endlessly by "experts" who pretend to know what they are talking about.  The only problem is that there isn't really any evidence to support the story. By most standard economic measures Europe is doing about as well as the United States. On the most basic measure of economic prowess, productivity, Western Europe is pretty comparable to the United States with some countries, like France, actually reporting somewhat higher levels of productivity.

Spanish jobless rate soars -  Spain's jobless rate soared to almost 19 percent in the fourth quarter, official data showed Friday, as Europe's fifth-largest economy struggles to escape from the deepest recession in years. The rate of 18.83 percent is one of the highest in the 27-nation European Union and far above the average of 10 percent for the 16 countries that share the eurozone which managed to return to growth in the third quarter last year. The jobless rate is up from 17.92 percent in the third quarter, or a further 203,200 people, and from 13.91 percent at the end of 2008, when Spain plunged into the recession from which it has failed to recover.

Eurozone unemployment rate stays at worrying 9.9% - Unemployment in the 16-nation eurozone remained at 9.9 percent in January, providing more evidence that Europe's recovery from the worst recession in decades is a largely jobless one.The crumb of comfort, for European statisticians if not for the unemployed, was that December's first estimate of a double-digit unemployment rate was revised back to 9.9 percent, as the EU's official Eurostat data agenda released the new figures. What remains unchanged is that unemployment figures are at their highest since the euro currency was launched a decade ago and that Europe's fragile post-recession economic growth is not yet producing jobs.

PIIGS Come To Market: Greece With €5 Billion In Ten Year Notes, Spain With €4.5 Billion Five Year Bond - Greece has finally come to market with a 10 year bond, catching the very end of the offering window, through a €5 billion bond issue, which according to Petros Christodoulou-spread rumors, is nearly 3 times oversubscribed. Underwriters are alleged to have collected nearly €14.5 billion in bids. We wonder how much of that is merely basis trades being fillled on the cash side. "We are very happy with the bid because the re-entry into the market is always challenging. It went very well," Petros told Dow Jones Newswires.  Pricing is expected later today. Assuming this bond offering closes successfully, Greece will have enough money to last it for at least 30 days, joining such other illustrious countries as the United States, in living bond auction to bond auction.

Oops: Moody's Puts National Bank Of Greece (And Four Other Banks) On Downgrade Review - The only thing worse than a no news day, is a day like today, when every piece of news/rumor contradicts the prior one. An hour ago Moody's was praising new Greek initiatives to increase the retirement age to 100, decrease wages by 100% and mortgage the Acropolis. This was promptly followed up by the just released announcement, in which Moody's said it has put five Greek banks, most notably among them the National Bank of Greece. Should the NBG's, which currently has an A2 sub debt rating, be notched lower, we expect some interesting collateral calls to occur in the very near future. Of course, we are not sure how an independent downgrade of the NBG would occur without Greece itself being downgraded in tandem.

Moody's Blues: Euro-Zone Governments Want to Curb Power of Rating Agencies - SPIEGEL  -Greece's financial fate is partly in the hands of a single credit rating agency. If Moody's downgrades its rating of the country, it will no longer be able to borrow money from the European Central Bank.  Now European Union governments are planning to take measures to break the dominance of the main rating agencies, according to a report in the Wednesday edition of the German business daily Handelsblatt. The newspaper reports that euro-zone finance ministers are pushing the European Central Bank (ECB) to set up its own sovereign rating scheme for the 16 members of the euro zone so that it no longer has to rely on private rating agencies, such as Moody's.

If Greece falls, euro is pointless: Sarkozy (Reuters) - France will support Greece following its efforts to reduce its deficit and has no intention of seeing the country fall by the wayside, French President Nicolas Sarkozy said on Saturday. If we created the euro, we cannot let a country fall that is in the euro zone. Otherwise, there was no point in creating the euro," Sarkozy said during a meeting with farmers. "We (must) support Greece because they are making an effort, or else there will be no more euro," he added. Greek Prime Minister George Papandreou is due in Paris on Sunday to meet Sarkozy as part of a tour of capitals seeking backing for his debt-riddled nation. He received political support, but no promise of financial aid, at talks in Berlin with Chancellor Angela Merkel on Friday.

Hedge funds step up their bets against the euro - The FT leads the paper with a story that hedge funds are raising their bets against the euro amid growing fears of a regulatory backlash against their trading positions on the specific sovereign debt of Greece and other weak eurozone economies. Many of the world’s biggest hedge funds have become increasingly concerned about fierce criticism by European politicians that their country bets have heightened the crisis of confidence in some markets. Lord Turner, the chairman of the Financial Services Authority, the UK market regulator, on Tuesday became the latest heavyweight figure to add his support to an investigation into speculative positions in financial instruments that gain from a fall in prices of sovereign and corporate debt. Hedge funds have concluded that the political and regulatory risks associated with positions against individual countries in the currency bloc were now too unpalatable. There was more pressure, now coming from the EU. Commissioner Michael Barnier told the press that the European Commission is investigating trading in sovereign credit default swaps.

Banks Summoned by EU to Discuss Sovereign CDS Market -  Banks and regulators across Europe were summoned by the European Commission to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis. The European Union’s executive agency will hold a meeting in Brussels “shortly,” Chantal Hughes, a commission spokeswoman, said in an e-mailed statement today. The talks, which will take place as soon as March 5, will cover CDS pricing and links to the sovereign bond market, according to three people familiar with the discussions.  Speculation using naked CDS, where investors take out insurance on bonds they don’t own, may “be very destabilizing,” with “costs much greater than the benefits,” Nobel laureate Joseph Stiglitz said in an interview with Bloomberg Television today.

Sovereign CDSs not to blame for fiscal woes, say dealers - Sovereign credit default swaps (CDSs) are not to blame for the budget woes of European governments, say market participants, despite calls from politicians and regulators to ban the instruments. The sovereign CDS market has attracted increasing attention over recent months, highlighted by the fiscal problems faced by countries such as Greece. Five-year sovereign CDSs referencing Greece were trading at 340.1 basis points on March 1, according to London-based data vendor Markit. Politicians have lashed out at the market as a result, with French finance minister Christine Lagarde and others calling for curbs or an outright ban on sovereign CDSs.

Greece reaps the benefit of its CDS market - Great news from Greece: its brand-new €5 billion, 10-year bond issue was three times oversubscribed and is already rising in the secondary market, after pricing at a spread of 300bp over the mid-swap rate. Greece is paying a 6.4% yield on the issue, which is pretty affordable in the grand scheme of things,One of the big problems with debt markets is that, especially during times of stress, they become very illiquid. Many bankers have spent many hours trying to explain to emerging-market finance ministers that just because their bonds are trading at a certain level in the secondary market, that doesn’t mean they can issue new bonds at that level, or even at all. But it turns out that a liquid CDS market is a great way of enabling countries to access the primary markets even when the secondary markets are full of uncertainty and turmoil. Which is yet another reason to laud the notorious buyers of naked CDS protection, rather than demonizing them.

“Greek crisis over” – Our ability to delude ourselves has reached the next level - We get the sense that the EU wants to declare the Greek crisis as over, game, set and match. No aid needed. Greece has helped itself. Or as Jean-Claude Trichet said yesterday: the austerity is proof that the institutions of the euro area are functioning. We are not convinced. The Greek debt agency is no doubt nifty, and the austerity package is indeed very austere. But unfortunately, this may not be enough to do the trick. Here is the news: Greece won a crucial vote of confidence from financial markets when investors snapped up a government bond issue on Thursday, reports the FT. Athens sold €5bn in 10-year bonds and received orders for three times that amount. However, the interest rate the country has been forced to pay to attract investors is 6.25%, 2 pp more than Portugal and one of the highest since Greece joined the euro in 2001. Currency strategists said such punitive rates were not sustainable.

Greece Aid Plea Snubbed by Germany in ‘Historic Moment’ for EU (Bloomberg) -- Greece’s pledge to deepen planned budget-deficit cuts failed to yield an offer of assistance from Germany, Europe’s biggest economy, as protesters in Athens seized the finance ministry building and blocked roads in the city center.  GermanChancellor Angela Merkel said a meeting tomorrow with Greek Prime Minister George Papandreou won’t be “about aid commitments.” Her finance minister, Wolfgang Schaeuble, said the third round of deficit-reduction measures this year were probably enough to convince investors to buy Greek debt. While Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies even consider providing aid, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece.

Greece Cuts, Germany says "no aid", IMF Next? - From the Financial Times: Greece prepared to turn to IMF - Mr Papandreou said that the latest austerity package ... fulfilled Greece’s commitment to its eurozone partners ... “We are waiting for European support – the other side of the agreement,” Mr Papandreou said ... he told ministers that Greece could turn to the IMF for an emergency loan if its EU partners were unable to deliver adequate assistance ... And from Bloomberg: Greece Aid Plea Snubbed by Germany in ‘Historic Moment’ for EUWe have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript. “It is a historic moment for the European Union.”

Greece is now putting pressure on the eurozone – if you don’t help, we will turn to the IMF - This is now the most interesting, and potentially dangerous moment of the Greek crisis. After George Panpandreou effectively did everything the ECB and the European Commission have told him, the ball has left Athens, and is now in the court of the euro area. And it has to be played very quickly, for otherwise Papandreou will turn to the IMF, as he already indicated. His travel schedule leaves no doubt about the time. Tomorrow in Berlin and Paris, on Wednesday in Washington.  Bloomberg has a story that Germany remains unwilling to promise aid. It cites Angela Merkel’s cool reaction to Papandreou’s plans, including the announcement that tomorrow’s meeting will not even address the issue of aid and financial commitments. It quoted German sources as saying that Germany can, and will not, commit. (We disagree: German can and will. This is just the attempt to emit two conflicting message, one to the outside world, one for domestic consumption)

Bankruptcy looms, Greek PM warns – Greek Prime Minister George Papandreou said Tuesday his country was fighting for survival against bankruptcy and urged civil servants and pensioners to accept sacrifices to save the debt-burdened nation. In a dramatic speech to his Socialist PASOK party on the eve of a cabinet meeting expected to approve new austerity measures, Mr. Papandreou said: “I will fight to save the fatherland from whatever the nightmare possibility of bankruptcy might entail.” Under pressure to meet European Union demands to find up to €4.8-billion euros in additional savings before he visits Germany Friday, he played up the risk of default, saying speculators had made borrowing costs prohibitive. “If anyone thinks that this is a remote nightmare scenario, they don't realize what the situation is,” he said. “Each day we discover new holes, new landmines, in the budget deficit.”

German MPs suggest cash-strapped Greece should sell islands - Greece should sell some of its uninhabited islands to raise cash to avoid bankruptcy, two German parliamentarians from Chancellor Angela Merkel's centre-right coalition suggested on Thursday. "The Greek state must sell stakes in companies and also assets such as, for example, unpopulated islands," Frank Schäffler, a member of parliament for the pro-business Free Democrats, told the Bild daily. Marco Wanderwitz, an MP for Merkel's own conservative Christian Democrats, said Athens should provide collateral for any money it receives from the European Union to help it out of its debt crisis. "In this case, certain Greek islands also come into question," added Wanderwitz.

EU Said to Develop Contingency Plans for Greek Rescue (Bloomberg) -- European Union nations are working on a contingency rescue plan for Greece to be funded by its member governments, according to two people briefed yesterday in Berlin by an EU official. The briefing, coming the day Greece sold 5 billion euros ($6.8 billion) of bonds, underscores the balancing act facing European officials as they prod Greek Prime Minister George Papandreou to cut the biggest EU budget deficit without their committing funds. Papandreou, who today began meetings in Luxembourg, Berlin, Paris and Washington, has to contend with protests at home against his tax increases and spending cuts.

Portugal Debt Chief: We Are Not Greece - As Greece’s budgetary woes are played out on the front pages on a day-to-day basis, other highly indebted European countries face a continuing challenge: how to prove to investors that they are different. With a budget deficit that hit 9.3% of gross domestic product in 2009, Portugal knows that only too well.But the head of its debt agency is determined to make investors maintain their confidence in Portugal by making them aware of the facts. In a written response to a question from Dow Jones Newswires, Alberto Soares said the Portuguese authorities were doing their utmost to provide as much information as possible about the country’s macroeconomic and fiscal conditions, and its plans for budgetary consolidation.Portugal’s government in January presented a plan that would lower its deficit to 8.3% of GDP in 2010, mainly through cost-control measures such as a public-sector wage freeze and a reduction of public-sector payrolls.

French debt coming under investor scrutiny - The French deficit is set to climb to 8.2 percent of gross domestic product this year, the highest for at least half a century. Its debt is projected to jump to 83.2 percent of GDP -- up 20 percentage points in just two years. "France has been lumped as a core euro zone economy. To our mind the budgetary situation is not as good as the pricing suggests," said Richard Batty, an investment director at Britain's Standard Life Investments."It is being priced as though there isn't a budget problem,"

Germany passes budget with record deficitGermany is set for a record deficit of €80.2 billion after Chancellor Angela Merkel’s centre-right coalition agreed on its first budget early on Friday morning.  The parliamentary budgetary committee debated the final plan for 14 hours, finally deciding on new debt for 2010 that was €5.6 billion less than that proposed by Finance Minister Wolfgang Schäuble. Total government spending is set to reach €319.5 billion, while the government expects to collect only €211.9 billion in tax revenue.

Eurozone crises: the bigger picture - Charles Forelle and Stephen Fidler have a really good front-page overview of the eurozone’s fiscal situation in the WSJ today. There’s not a lot of new news here, but as a lucid explanation of how we got to our present sorry state (and possible future even sorrier state), it’s vastly superior to sensationalist conspiracy theories about euro-shorting hedge funds. So in the wake of the latest announcements from Greece promising fiscal rectitude in present and future — announcements which the market seems to like quite a lot — it’s worth bearing in mind two questions. The first, on which the market is currently fixated, is whether Greece can roll over its maturities in the next three months or so, tapping some combination of public bond markets, state-owned European banks, and EU loan guarantees.

Why Europe should reject a new Glass-Steagall Act - VoxEU - A return of the Glass-Steagall Act has been suggested by US policymakers and commentators as a way to reduce risk in financial markets. This column argues that the legacy of separate commercial and investment banks actually made the crisis worse. Europe should not follow these proposals but should instead concentrate on strengthening the capital reserves of its banks.

Maybe the Euro was not such a bad idea - Their logic of those who believe that the Euro was a bad idea is the following: if today countries such as Spain, Greece or Portugal (or Italy) had their currency, they could have devalued it (or depreciated it) and this would have helped them to get out of the crisis because of the positive effect on exports. They point out to the fact that in recent years some of these countries have lost competitiveness through high inflation and this could be easily corrected with a devaluation while the alternative of deflation (or lower inflation) is more painful. Their argument is a standard textbook analysis of the costs and benefits of keeping your own currency (where we are looking at just the benefits).  However, one needs to go beyond the theory and what is difficult is to assess whether the logic applies to this case and indeed these benefits outweigh the costs of having your own currency and exchange rate.

Euro 'may not survive' deficit crisis, Soros says - The euro is being "severely tested" and "may not survive" the Greek deficit crisis, billionaire investor George Soros said. The European currency's construction is "flawed" because there is "a common central bank, but you don't have a common treasury," Soros said on CNN's "Fareed Zacharia GPS" program. "The exchange rate is fixed. If a country gets into difficulty, it can't depreciate its currency, which would be the normal way," Soros said. "And it's not getting the kind of transfer payments that American states get if they happen to be doing worse than other states."

U.K. Teeters on the Brink of Its Own Greek Debt Tragedy - The fiscal crisis in Greece and a growing worry that the coming elections here could result in a hung Parliament, with no political party strong enough to push through unpopular deficit-cutting measures, have sparked fears that Britain will experience its own sovereign-debt meltdown. In such an event, foreign investors would sharply cut back on their purchases of British government bonds, leading to an interest-rate spike and a potential double dip-recession, if not worse. “If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

We're All PIGS Now - But we needn’t look across the Atlantic to see a debt crisis in the making. The U.S. economy is sporting a record one-and-a-half trillion dollar budget deficit, and even Canada, after running a decade of budget surpluses, is posting its own largest deficit ever. The fact of the matter is, wherever you go in the OECD, we’re all PIGS now. That’s because we mistook an energy shock for a financial crisis and bailed out everyone under the sun. But we are soon going to find out that today’s bailouts are tomorrow’s spending cuts.

Greed & Fear by Christopher Wood (6 minutes), CNBC

Chris Wood (CLSA) Latest Thoughts On PIIGS, Europe And China - The past week has made it clear that German public opinion, and therefore the German political process, will not tolerate a crude bailout of Greece; even if it is via “subtle” off balance sheet guarantees and the like. For example, why should Germans agree to a bailout of Greece with its statutory pension age of 61 when Germans do not receive pensions until the age of 67? Meanwhile, the level of fiscal austerity being demanded of Greece, namely a decline in the projected fiscal deficit from 12.7% of GDP in 2009 to 2.8% of GDP in 2012, is in GREED & fear’s view wholly incompatible with the reality of Greek democracy. In this respect the charge by the Greek Prime Minister George Papandreou over the weekend that the country was being treated as a “laboratory animal” by the European Commission is a reflection of the prevailing “Club Med” mentality.

Iceland is voting on referendum that will shape future - Iceland is holding a referendum on plans to repay the UK and the Netherlands debts owed from the collapse of Icesave bank. But whatever the outcome the country faces years of financial pain. Iceland's 320,000 citizens are voting on whether their government should repay Britain and the Netherlands more than 3.8bn euros (£3.4bn) - equivalent to each person contributing 99 euros a month for eight years. Britain and the Netherlands say they are due the money following Iceland's financial meltdown in 2008. But Icelanders say the terms of the repayment are too onerous and look set to reject the package in its current form.

Greece Now, U.K. Next as Scots Investors Ready for Pound Plunge (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.  Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Concern that Greece won’t be able to cut its budget deficit helped send the euro 5 percent lower against the dollar this year.  “Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” The U.K. is in a similar predicament. It could be hit very hard.”  Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.

RBS paid £1.3bn bonuses on profit of just £1bn - The state-backed lender's results show that £4.7bn of the investment bank's worst losses were hived off to the "non-core" division being wound down. Although the bank's split into "core" and "non-core" units has been well explained, the separation generously flattered the investment bank's numbers and allowed management to present it as a record year for the division.  Stephen Hester, chief executive, used the performance to justify the £1.3bn bonuses paid to investment bankers, at least 100 of which received more than £1m.

Bailout 'Would Spark Revolution'- A revolution will erupt if billions of euro more in taxpayers' money is handed over to Anglo Irish Bank, Enda Kenny has warned. The Fine Gael leader said people can no longer tolerate massive public funding of the nationalised bank as it stands. Expected record losses at the bank, to be announced later this month, have fuelled speculation it will seek another six billion euro from the Government, on top of the four billion it has already pumped in.   Mr Kenny told Taoiseach Brian Cowen there will be a popular uprising if any such request is given the go-ahead.  "There'll be revolution on the streets if you do that," he insisted.

FSA chairman to urge tighter controls on banks - The head of Britain's financial watchdog will urge MPs to impose tighter controls on Britain's biggest banks when he appears at parliament today. Lord Adair Turner, chairman of the Financial Services Authority, is giving evidence to the Treasury select committee from 9.30am as part of its "Financial institutions – too important to fail?" inquiry. Turner, who last year dismissed the City as "socially useless", will tell the committee how the banking sector should be shaken up to avoid a repeat of the economic crisis. Turner believes that regulators such as the FSA should force new, higher, capital and liquidity ratios on the world's largest banks, especially those with large exposure to risky "casino banking" activities. In October he argued that this would help avoid a repeat of the events of 2008, when Lehman Brothers collapsed and nearly took the rest of the sector with it. Last month Turner questioned whether the growth of "sophisticated" financial products had really benefited the wider economy.

Pound under attack as debt worries grow - THE pound faces a rough week with uncertainty over the outcome of the general election and concerns over the public finances threatening to trigger a new wave of selling.  A dwindling Conservative poll lead is heightening fears of a hung parliament. Fears over Greek debt, which were undermining the euro, have begun to hit sterling, as concerns have grown that worries over sovereign debt could spread. The MPC, which meets this week, is set to leave Bank rate unchanged at 0.5% and stick with the existing £200 billion of quantitative easing, despite hints from some members that more could be done. The “shadow” MPC, which meets under the auspices of the Institute of Economic Affairs, has voted 6-3 to keep Bank rate on hold, with three members urging an immediate half-point rate rise. Several shadow MPC members said the Bank should be ready to announce further easing, with one, Peter Warburton, advocating an extra £25 billion immediately.

Hyperbole and outright lies - While we all think of Harvard University as some high quality ivy league sort of a place up there Cambridge, MA its economists are among those leading the charge in the mis-information stakes. I feel sorry for their students who get such a warped idea of how the economy works. Over the weekend I read that Harvard’s Rogoff Sees Sovereign Defaults, ‘Painful’ Austerity. That sounds bad. I wondered which countries he is talking about. At the outset this is a case of someone who has conned a publisher into supporting the publication of a book that is timely – that is, will sell heaps to the growing deficit-terrorism market – but, which is highly misleading in several ways that are not necessarily apparent to the untrained reader. And the more I read about the adventures of Rogoff and his co-auther Reinhart out into the popular media and the derivative articles that reference them the more I realise that the general public doesn’t really know what is in the book and the authors use the book in ways that cannot be justified by its content and analysis.

Maybe debt doesn’t matter after all | The Undercover Economist | - On Saturday I wrote about the paper by Carmen Reinhart and Ken Rogoff about the chilling effect high levels of debt seem to have on economic growth. Now I’m not so sure. David Hendry, the Oxford econometrician who, for his sins, taught me econometrics (actually, he mostly taught me to spot bad econometrics), writes to point out that:The UK became a dominant world power with [debt/GNP] ratios between 1 and 2; and the UK grew at its fastest when its debt/GNP ratio was highest, not that any causality can be ascribed to that. But essentially there is almost no relationship I can find, having tried over many years, between debt/GNP (or changes etc.) and growth, unemployment, or inflation over 1860-2000. (Well, this is beyond my pay grade. I’d back Ken Rogoff in a chess match against Hendry any day, but not so sure about the econometrics. One possible objection is that the definition of “high debt” used by Reinhart and Rogoff (90 per cent of GDP) looks a bit arbitrary. Hendry has numerous more technical concerns.

US and UK can handle decades of debt - FT - One way the financial crisis of 2007-08 will have a lasting impact on the economy is that government debt will remain high for decades. Short-term forecasts suggest UK gross government debt will double from 47 per cent of gross domestic product in 2007 to 94 per cent by 2011, while US debt will rise from 62 per cent to 96 per cent. The rapidity of this increase, the high levels of debt and the fact that fiscal deficits in the UK and US are expected to still be around 13 per cent and 10 per cent of GDP respectively in 2011 have led to financial and political pressure for urgent fiscal adjustment. High debt is seen as a serious problem – as Adam Smith warned more than two centuries ago: “The practice of funding has gradually enfeebled any state which has adopted it”. The difficulty with this alarmist view is that economics does not tell us what is a “high” level of debt. Without such knowledge, it is impossible to say that debt is too high or to announce that debt reduction should be an urgent short-term priority. It is true that such huge increases in government debt reflect serious economic problems. But, given the enormous financial shock the economy has experienced, we may be better off with high debt for a long period of time. In fact, although economics is quiet on the issue of what it means for debt to be too high it does tell us that in the face of large temporary shocks the optimal response is for debt to show large and long-lasting swings. Debt should act as a buffer to help the government respond to shocks.The logic is simple. The UK and US governments have the ability to borrow long term and the option to roll over their borrowing. Rather than abruptly raising taxation and cutting government expenditure, they should adjust fiscal policy over the long term. Fiscal adjustment in the short run is not enough to produce a surplus, so debt must rise for a significant period.

A society sustained by debt: why the economic crisis is only beginning - In Canada we have been shielded from the worst of the world's economic woes. We are not aware of true disaster occurring in the USA as the media and governments around the world have been trying to cheer-lead a "recovery." To this end they have not reported the true situation, cheering non-existent improvements in unemployment numbers and ignoring the homeless and the bulldozing of neighbourhoods in cities like Flint and Cleveland. Governments and mass media have been captured by financial interests and no longer protect the public good but only that of their benefactors.   The present financial mess is due to Ponzi creations such as derivatives hiding "liar loans" thrust upon eager greedy home buyers. To cover this rotten mess, trillions of dollars of "bailout" taxpayers' money has been poured into bankrupt banks that should have been allowed to collapse.

McKinsey & Company - Report Debt and deleveraging: The global credit bubble and its economic consequences The recent bursting of the great global credit bubble not only led to the first worldwide recession since the 1930s but also left an enormous burden of debt that now weighs on the prospects for recovery. Today, government and business leaders are facing the twin questions of how to prevent similar crises in the future and how to guide their economies through the looming and lengthy process of debt reduction, or deleveraging.To help address these questions, the McKinsey Global Institute launched a research effort to understand the growth of debt and leverage before the crisis in different countries, the economic consequences of deleveraging, and the practical implications for policy makers, financial regulators, and business executives. In the course of the research, MGI created an extensive fact base on debt and leverage in each sector of ten mature economies and four emerging economies. In addition, MGI analyzed 45 historic episodes of deleveraging, in which an economy significantly reduced its total debt-to-GDP ratio, that have occurred since 1930. This analysis adds new details to the picture of how leverage grew around the world before the crisis and how the process of reducing it could unfold.

Bank for International Settlements reports further £235bn slide in global lending - Telegraph Global bank lending contracted by a further $360bn (£235bn) in the third quarter of last year and issuance of debt securities tumbled yet again, almost entirely due to economic and credit strains in Europe. The Bank for International Settlements $BIS$ reports that cross-border loans have fallen sharply for the fourth quarter in a row, albeit at a slower pace. A tenth of global credit has evaporated in a year, cutting lending by $3 trillion. The recovery in debt securities ran out of steam in the last three months of 2009. Volume fell by 10pc to $1,778bn. Net issuance dropped by a third to $303bn.

What Will We Know And When Will We Know It? - The Penn Tables are based on collecting detailed price information – what it actually costs to buy all kinds of things in different places.  But the basic problem is that the people running the Tables do not have access to such data for all years and all countries – so they have to make a number of moderately heroic assumptions.In “Is Newer Better?”(pdf), we show that a particular technical issue – the extrapolation of estimated price levels backwards and forwards in time – has a big impact on estimated GDP.  This in turn changes, dramatically in some cases, the calculated growth rates for particular countries; and these changes can be huge for smaller countries with less good data, particularly when the year in question is quite far from the moment when prices were actually “benchmarked” though direct observation.

Japan lower house passes record budget - Japan's lower house Tuesday passed a record trillion-dollar budget that will add to an already bulging public debt mountain as Tokyo tries to stimulate a recovery in the world's second biggest economy. The 92.3 trillion yen (S$1.4 trillion) budget includes new child-care allowances, free public high school tuition and other measures promised by the centre-left government that took power in September.To finance it, the government will issue a record 44.3 trillion yen in new bonds.

Japan Scrambles to Avoid Being the Next Greece - Will global markets start to treat Japan as the next Greece? Bond traders up to now have been relatively sanguine about Tokyo's massive pile of government debt. But that attitude could be tested over the next three months, as Japan's new center-left government nears a self-imposed June deadline for crafting a plan to get its fiscal house in order. Out-of-control sovereign debt is what plunged Greece into crisis. The main tool being considered to address Japan's debt problem is an increase in the nation's sales tax, which at 5% is currently among the lowest in the industrialized world. In Europe, such taxes run closer to 20%. But members of Prime Minister Yukio Hatoyama's cabinet also worry that a tax increase could hammer consumer spending and push the country back into recession.  Japan has to do something. Government debt in the world's second-largest economy has swollen to more than twice the size of its annual gross domestic product, and some analysts question how long Japan can keep borrowing without causing a spike in borrowing costs, or, in a worst case scenario, a default.

Japan’s Slow-Motion Crisis - If you listen to American, European, or even Chinese leaders, Japan is the economic future no one wants. In selling massive stimulus packages and bank bailouts, Western leaders told their people, “We must do this or we will end up like Japan, mired in recession and deflation for a decade or more.” Chinese leaders love pointing to Japan as the prime reason not to allow any significant appreciation of their conspicuously undervalued currency. “Western leaders forced Japan to let its currency rise in the second half of the 1980’s, and look at the disaster that followed.”  And yet, visitors to Tokyo today see prosperity everywhere. The shops and office buildings are bustling with activity. Restaurants are packed with people, dressed in better clothing that one typically sees in New York or Paris. After all, even after nearly two decades of “recession,” per-capita income in Japan is more than $40,000 ( Its unemployment rate remained low during most of its “lost decade,” and, although it has shot up more recently, it is still only 5%. So what gives?

Stuck in neutral – what Japan’s rebalancing can teach us – Michael Pettis -  Household consumption, according to the article, nonetheless failed to grow meaningfully – in the past two decades it only grew by 1-2% annually – and this is much lower, presumably, than consumption growth in the 1980s.But it was nonetheless higher than GDP growth, and that is exactly the point: consumption growth may have been low, but it exceeded GDP growth.  Rebalancing in the context of Japan (and China) does not mean that consumption growth must surge.  It just means that consumption must grow faster than the economy so as to become a bigger share of GDP and a bigger driver of total growth.  Put another way, it means that the savings rate must decline.  If this is what actually happened, then in fact Japan did partly rebalance.But, mysteriously, in spite of the fact that Japan may have experienced real rebalancing and a real growth in the relative share of household consumption, the Japanese economy stagnated during the past two decades.  If you had predicted in 1990 that Japanese household and national savings would have declined so sharply as a share of GDP, and that consumption would have risen, you probably also would have predicted that Japan, after a couple of tough years, would resume rapid growth (or at least growth more in line with other rich economies) as surging private consumption pulled Japanese growth forward and away from its over-reliance on net exports. But you would have been wrong on two counts.

Is China the new IMF? - The International Monetary Fund has never been all that popular with developing nations. Sure, the IMF loans countries money when they most need it, but it comes with nasty strings attached. In return for cash, the IMF demands reforms – market liberalization, financial restructuring, budget cuts -- many of which are politically unpalatable. But in the past, governments running a bit short had no other option, so they had to swallow their IMF-prescribed medicine (and often their pride). Those who dared to defy the IMF have been treated as international pariahs. But now those down-and-almost-out countries might have somewhere else to turn: China. According to a report in The Wall Street Journal, Venezuela has benefited from an oil-for-credit deal with China. Venezuela, it turns out, has gotten $8 billion in loans from China, which the Latin American nation used for infrastructure projects that helped its sagging economy during the global recession. It looks like Venezuela is asking for more, perhaps near $20 billion

A necessary try for IMF The appointment of Zhu Min, deputy governor of the Chinese central bank, as a special adviser to the head of the International Monetary Fund (IMF), highlights China's increasing influence in the global financial system. With the Chinese economy taking the lead in helping lift the world out of the worst global recession in decades, it would seem natural for Chinese to give more advice to more ears from the international community. In fact, the selection in 2008 of Justin Yifu Lin, a leading Chinese academic, as vice- president and chief economist of the World Bank, had started the export of Chinese wisdom that more and more global institutions seek. Now, Zhu will become the second Chinese to take on a senior management position in a top international financial organization. However, this appointment is more than simply a validation of China's greater sway in the global financial system.

Should We Fear China? - There is a perception that China’s large dollar holdings confer upon that country some economic or political power vis-à-vis the United States and, in particular, that Chinese reserves prevent us from putting pressure on that country’s authorities to revalue (i.e., appreciate) the renminbi.  This view is incorrect and completely misunderstands the situation.It is in the interests of both the United States and global economic prosperity that China discontinues its massive intervention in the market for renminbi.  This intervention is a breach of China’s international commitments (as a member of the International Monetary Fund) and constitutes a form of unfair trade practice. If China were to end its intervention, the renminbi would appreciate substantially – likely in the region of 20-40 percent.  China would also stop accumulating dollars (and other foreign assets).   The primary effect would therefore be an effective depreciation of the US dollar against the Chinese renminbi – and against all other countries’ currencies that are implicitly pegged to the renminbi (more precisely, to the dollar rate with an eye on China’s competitiveness).  On a trade-weighted basis – and in real effective terms (despite the fact that the currencies of our other major trading partners float freely) – the dollar would also likely fall in value.

Should China Fear Us? - Writing partly in response to “Should We Fear China?“, Robert Salomon of NYU makes some good points – about how rapid appreciation of the renminbi could hurt China and argues: Although I agree that it is in the best long-term interest of the U.S. and other countries throughout the globe for China to revalue its currency, it isn’t entirely clear to me that such a maneuver is in the near-term interests of China, …or maybe even the global economy. Robert’s concerns are focused on the effects of a sudden revaluation – a movement in the exchange rate that would be disruptive to Chinese production and plunge that country into recession.  But that scenario hardly seems likely.Even if the US decides to press China hard on the exchange rate issue, we currently lack instruments to make this pressure effective.  Working through the IMF is not appealing – because it just won’t work – and the World Trade Organization (WTO) does not have sufficient jurisdiction on exchange rate issues (if pushed today, it would bring in the IMF to determine the extent of exchange rate undervaluation; again, we’re back to the IMF impasse).

A Failed System: The World Crisis of Capitalist Globalization and its Impact on China - As the foregoing indicates, the world is currently facing the threat of a new world deflation-depression, worse than anything seen since the 1930s. The ecological problem has reached a level that the entire planet as we know it is now threatened. Neoliberal capitalism appears to be at an end, along with what some have called  “neoliberalism ‘with Chinese characteristics.’”54 Declining U.S. hegemony, coupled with current U.S. attempts militarily to restore its global hegemony through the so-called War on Terror, threaten wider wars and nuclear holocausts. The one common denominator accounting for all of these crises is the current phase of global monopoly-finance capital. The fault lines are most obvious in terms of the peril to the planet. As Evo Morales, president of Bolivia, has recently stated: “Under capitalism we are not human beings but consumers. Under capitalism mother earth does not exist, instead there are raw materials.” In reality, “the earth is much more important than [the] stock exchanges of Wall Street and the world. [Yet,] while the United States and the European Union allocate 4,100 billion dollars to save the bankers from a financial crisis that they themselves have caused, programs on climate change get 313 times less, that is to say, only 13 billion dollars.”55

Global Capitalism Theory and the Emergence of Transnational Elites - The class and social structure of developing nations has undergone profound transformation in recent decades as each nation has incorporated into an increasingly integrated global production and financial system. National elites have experienced a new fractionation. Emergent transnationally-oriented elites grounded in globalized circuits of accumulation compete with older nationally-oriented elites grounded in more protected and often state-guided national and regional circuits. This essay focuses on structural analysis of the distinction between these two fractions of the elite and the implications for development. I suggest that nationally-oriented elites are often dependent on the social reproduction of at least a portion of the popular and working classes for the reproduction of their own status, and therefore on local development processes however so defined whereas transnationally-oriented elites are less dependent on such local social reproduction. The shift in dominant power relations from nationally- to transnationally-oriented elites is reflected in a concomitant shift to a discourse from one that defines development as national industrialization and expanded consumption to one that defines it in terms of global market integration.

China Regulator Highlights Global Sovereign Debt Risks - China's banking regulator warned of persistent risks in international financial markets, including rising levels of sovereign debt around the world and the difficulty of exiting stimulus measures."This financial crisis is not yet over," Liu said, adding Europe's sovereign debt crisis is likely to persist for some time yet. Earlier use of fiscal policy to shore up financial institutions has weakened the financial position of governments, leading to the current turmoil in sovereign debt markets, he said. "In the U.S., the E.U., Japan, and other developed economies, government deficits and national debt levels are currently all very near or even far past the warning line,"

Zhou Signals Yuan Policy Shift --Central bank Gov. Zhou Xiaochuan said China will eventually move away from its current exchange-rate policies, which he described as a temporary response to the global financial crisis, but downplayed the idea that a move could come in the near future. Mr. Zhou's comments Saturday at a press conference were the most direct suggestion to date by a Chinese official that the yuan's current de-facto peg to the dollar will not be maintained indefinitely. Previously, government officials have stressed currency stability without much qualification, and rejected foreign pressure to allow the yuan to strengthen. "We don't rule out that during some special periods--such as the Asian Financial crisis and the global financial crisis this time--we adopted special policies, including a special exchange rate mechanism,"  "Sooner or later, we will exit the policies," he said

Days of "special" yuan policy numbered-China c.banker (Reuters) - China flagged on Saturday it will let the yuan resume its rise at some point as it unwinds the super-loose policies it has been pursuing to prop up the world's third-largest economy. China is under intense pressure from the United States and Europe to abandon the exchange rate peg it instituted of around 6.83 yuan per dollar since mid-2008 to preserve the competitiveness of its exporters during the international financial crisis.Speaking during the annual session of China's parliament, central bank governor Zhou Xiaochuan said Beijing would eventually have to drop this "special" yuan policy, one of a range of emergency measures taken to cushion the blow to growth.

Zhou Says China Should Be ‘Very Cautious’ in Crisis Exit (Bloomberg) -- Chinese central bank governor Zhou Xiaochuan said the nation should be careful in exiting anti-crisis policies, suggesting that the government may not let the yuan appreciate soon against the dollar.  “We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” Zhou said at a press briefing in Beijing today, using another term for the Chinese currency. A global recovery “isn’t solid,” he said.  Premier Wen Jiabao yesterday pledged a moderately loose monetary stance and a ‘basically stable’’ yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand.

Senators Push For Higher Tariffs On Chinese Goods - In a letter to Commerce Secretary Gary Locke, group of 15 U.S. Senators led by Charles Schumer (D-NY) have urged regulators to impose higher tariffs on exporters of Chinese goods, according to Bloomberg. The Senators claimed that the undervalued yuan gives exporters in China an unfair advantage in the U.S., citing a report from NewPage. The letter argued that, “There can be no doubt that China’s policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports.” White House administration officials have not announced whether they will launch an investigation, with a spokesman simply stating that, “We share the senators’ commitment to the continued rigorous enforcement of U.S. trade laws.”

Consumer reactions to exchange rate and trade price shifts: New evidence from online book retailing - VoxEU - How much of a change in exchange rates is required to redress global imbalances? This column presents new evidence from online bookstores suggesting that neither shoppers nor retailers react to price differences across borders. This implies that realignment of cross-country consumption levels may require large and persistent exchange rate changes.

Will China's Economy Collapse? -  Investors have recently focused on some of the problems potentially facing the Chinese economy, and they're getting worried. The concerns are that China might be facing a destabilizing property price bubble and rising bad loans at its banks due to last year's recession-busting credit boom. I've offered a word of caution myself. The message from Jing Ulrich, chairman of China equities and commodities at JPMorgan, however, is: China won't collapse.. Here's what she said: The worst-case fears concerning China's property market are based upon a layer of truth and we ourselves have highlighted the untenable nature of price increases in some big Chinese cities…However, there are crucial differences between China's real estate markets and those of the U.S. (and indeed Dubai), which require that we view the apparent building bubble through the lens of China's unique circumstances.

China: A New Economic Model? - A few days ago on Curious Capitalist, I asked whether China was headed for trouble due to the potential damage done to its banking system by the government's giant stimulus program. One of our readers, identified as tanboontee, was kind enough to write a very interesting comment. Here's an excerpt: Excessive debts in the west support lavish lifestyles, not necessarily so in China. Do not forget that capitalism is already malfunctioning. What's wrong with introducing a new paradigm? This has become a common view, not just out here in Asia, but around the world. Many observers believe China has developed a “new paradigm,” a superior economic model that challenges the dominance of Western ideas about economies. But I have a question for tanboontee, and for anyone else who wants to jump in on this discussion – what exactly is this “new paradigm?” From what I can tell, China is employing economic tools that many other countries have tried in the past, with both good and bad results.

China’s Hidden Debt Risks 2012 Crisis, Northwestern’s Shih Says - (Bloomberg) -- China’s hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world’s third-biggest economy, Professor Victor Shih said.  “The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer,” the author of the book “Factions and Finance in China” said in a phone interview March 1.

Two warnings that the Chinese economy will probably slow --China’s will plunge to as low as 2 percent following the collapse of a “debt- fueled bubble” within 10 years, sparking a regional recession, according to Harvard University Professor Kenneth Rogoff.  “You’re not going to go a decade without having a bump in the business cycle,” Rogoff, former chief economist at the International Monetary Fund, said in an interview in Tokyo yesterday. “We would learn just how important China is when that happens. It would cause a recession everywhere surrounding” the country, including Japan and South Korea, and be “horrible” for Latin American commodity exporters, he said.  Roubini, ety al..Still, we expect the gradual tightening of monetary policy will continue in the coming weeks and months. Rising inflationary pressures are likely to push China's policymakers to tighten monetary conditions in Q2.

China exceeds US as world's largest property investment market - China has exceeded the US to become the world's largest property investment market in 2009 and will probably maintain its leading position this year due to its rapid economic growth and lower debt reliance, according to a report released Wednesday by Cushman & Wakefield LLP, a New York-based real estate adviser. According to the report, driven by the stimulus package the Chinese government launched and low interest rate policies, in 2009, the total amount of money in property investment in China reached $156.2 billion, more than double that of a year earlier. However, due to the plunge in housing prices, the US property market saw a year-on-year slump of 64 percent to reach $38.3 billion."

China risks property bubble as prices rise 20pc a month – Telegraph - The Asian superpower is in the midst of such a vast property boom, with prices leaping 20pc a month in some regions, that developments are taking on fairy-tale dimensions. Given that property and its ancillary industries account for up to 17pc of Chinese GDP and 25pc of investment in China it is clear that a crash in China's property market would have disastrous consequences – in China and beyond. On the face of it, the numbers do appear to be running hot. Chinese house prices spiked by 24pc in 2009 and sales of residential space rose by more than 80pc in some major cities like Beijing.

China to ‘Resolutely’ Curb Rises in Housing Prices, Wen Says - Bloomberg .-- China will “resolutely” curb rises in housing prices, according to a copy of a speech to be given by Premier Wen Jiabao at the National People’s Congress in Beijing today. The Asian nation plans to allocate 63.2 billion yuan for low-cost housing and increase land availability for low, medium- cost housing, the speech said.

Wen Warns of Bank Risks, Pledges Property Crackdown (Bloomberg) -- Premier Wen Jiabao warned of “latent risk” in China’s banks and pledged to crack down on property speculation as the government faces the consequences of flooding the economy with money to drive growth.  “The domestic economy still faces some prominent problems,” Wen, 67, said in a speech in Beijing to the National People’s Congress, similar to the U.S. State of the Union address. He also cited excess capacity in manufacturing and weak support for rural-income growth.  Wen’s comments reinforce concern that loans made in last year’s record 9.59 trillion yuan ($1.4 trillion) credit boom may go bad. Harvard University Professor Kenneth Rogoff has said growth could slide to 2 percent from Wen’s 8 percent target within a decade as a debt-fueled bubble collapses, and Victor Shih of Northwestern University sees risk of a crisis in 2012.

China to invest 818.3b yuan in agriculture in 2010 - China will further increase investment in the agricultural sector with 818.3 billion ($119.84 billion) yuan in 2010, up 93 billion yuan compared with last year, according to Premier Wen Jiabao during his government work report at the Third Session of the 11th National People's Congress Friday.China would further improve farming infrastructure in rural areas, develop agricultural science and technology, and encourage modern farming techniques, Wen said. According to Wen, local governments' investment in the agricultural sector also needs to be enhanced. The premier also promised a continuous increase in rural incomes."We must give top priority in in solving the problems faced by the farming sector, rural areas, and farmers," said Wen.

In China, Wal-Mart presses suppliers on labor, environmental standards: Wal-Mart has more than 10,000 suppliers in China. In addition, about a million farmers supply produce to the company's 281 stores in China. If Wal-Mart were a sovereign nation, it would be China's fifth- or sixth-largest export market. So the company hopes that small measures taken by all suppliers start to add up. Its 200 biggest suppliers in China have already trimmed 5 percent of their energy use.  In the past, environmental concerns have taken a back seat to growth in China and to costs for Wal-Mart. And China and Wal-Mart have come under sharp criticism for conditions in factories. Yet pollution now threatens China's growth; as a result, awareness of climate change and energy security has spread in China. Likewise, as consumers grow more environmentally aware, Wal-Mart's executives have responded. On Thursday, the company pledged to reduce its greenhouse gas emissions by 2015.

China May Start Its First City-Wide Carbon Cap-and-Trade System - (Bloomberg) -- China may start its first city-wide carbon cap-and-trade system by June as the world’s biggest polluter seeks to rein in emissions, a project adviser said. The northeast port city of Tianjin plans to impose a mandatory limit on energy used to heat buildings in the first half of this year, John Shi, chief executive officer of the carbon credit trader Arreon Carbon U.K. Ltd., said in an interview. Property managers able to reduce energy use to below the limit will earn credits they can then sell, he said. “Pursuing energy efficiency has truly risen to the top of the agenda for local governments,” Shi said yesterday from his office in Beijing. The Tianjin plan is “a way to mobilize capital and mobilize technology.” China has pledged to reduce its carbon-dioxide output per unit of gross domestic product by 40 percent to 45 percent by 2020 compared with 2005 levels. Premier Wen Jiabao in January called pollution in the nation “grim” and said the government will strictly limit emissions from coal-powered generators, cement and steel producers.

China $125 Billion Health Spending Spurs GE, Philips Sales Boon - Bloomberg -- Wang Huijuan and her husband braved an overnight train ride to Beijing from Anhui province to see a doctor about her ailing intestines. The clinic back home could only take her temperature and blood pressure.  “They don’t have the equipment or expertise to treat more serious illnesses,” said Wang, who shivered in the cold as she waited in vain last week to see a physician at Beijing Xiehe Hospital. “We’ll come back at 4 a.m. tomorrow.”  The 10,000 yuan ($1,460) in life savings the couple brought to pay their costs may become an expense of the past after the Chinese government spends $125 billion to start a national health insurance system. The benefits will be felt beyond the sick as General Electric Co. and Philips Electronics NV compete to sell imaging equipment and household savings are freed up to buy clothes and cars.

The Washington Post Invents a Chinese Demographic Crisis - The Washington Post (a.k.a. Fox on 15th Street) is once again touting the "demographic crisis" shtick, this time in reference to China. The Post tells readers that China faces a "looming demographic crisis" that: "it is going to be the first nation in the world to grow old before it gets rich. By the middle of this century the percentage of its population above age 60 will be higher than in the United States, and more than 100 million Chinese will be older than 80."Fans of arithmetic are no doubt saying "huh?" Since we use arithmetic at Beat the Press, even if it is shunned at the Post, let's look at this one a bit more closely. In China, per capita income has been growing at a 9.0 percent annual rate over the last decade. Let's say that this extraordinary growth rate slows to an average of 5.0 percent annually over the next three decades. This means that per capita income in China will be on average 4.3 times as high as it is today. Let's assume that wage growth increases in step with per capita income so that before tax wages in 30 years are 4.3 times what they are today. Suppose that China will have two workers for every retiree in 30 years (the ratio that the U.S. is expected to reach around 2030). If each worker is taxed at a 30 percent rate to support retirees, then workers will enjoy an after-tax wage that is more than three times higher than the wage they receive today. Retirees will receive a retirement benefit that is more than two and half times as high as their wage today.

Consumerism "Doomed", Investment Forum Told - Western governments may not realise it yet, but consumerism as we know it is doomed and resource war with China inevitable, the world’s biggest fund managers were told yesterday. The unsettling message, which focuses on the potentially destabilising shortfall of the rare “technology metals” used in everything from mobile phones to guided missiles, was issued in Tokyo yesterday at the close of one of Asia’s largest annual investment forums.  Jack Lifton, an expert in rare earth metals, said that many of the green ambitions of governments around the world — particularly ones involving wind farms and other high-tech responses to climate change — would be thwarted by upstream supply issues.  Particularly troubling, he said, is an impending inflection point that may arrive within the next couple of years when China becomes a net importer of rare earth ores.

China and Australia resume trade talks* Negotiators from China and Australia resumed talks in Canberra, Australia on Wednesday, Feb. aimed at negotiating a free trade agreement (FTA) between the two countries. The talks were to continue through Friday. Estimates suggest that a free trade agreement between the Asian giant and Australia could boost two way trade to $100 billion (A$) a year.The two agreed to negotiate a FTA in 2005. They have since conducted 14 rounds of negotiations with agriculture a major sticking point. Talks broke down in December 2008.

Bubbles down under - Bond Vigilantes - On my first night out in Sydney I was fortunate enough to get chatting to a couple of the locals who were out celebrating, one of them having just completed the purchase of her second property. The other, who already has two, thought it totally normal that two girls in their mid 20’s - one an interior designer, the other a shop assistant - should be able to do this. A couple of mornings later, I was reminded of this conversation whilst reading an article that I felt I had seen many times before. The journalist was bemoaning the state of the market – house prices ballooning, first time buyers unable to get on the ladder, demand outstripping supply…..sound familiar?

Natural resources and development strategy after the crisis - - VoxEU - How important are primary commodities for economic development? This column suggests that primary commodity prices are likely to ease over the next five years. Nevertheless, commodity revenues will remain high, raising challenges that, if not addressed, can harm long-run development. With good governance, however, such revenues can also be a valuable resource to help accelerate overall development.

China's 2009 oversupply stainless steel will affect nickel demand - According to data, in 2009, China's stainless steel production increased by 26.8% to 8.8mln tons. In contrast, China's stainless steel apparent consumption rose by 32% to 8.22mln tons. The oversupply was 600,000 tons, which will affect the nickel demand in short-term. Additionally, in 2009, the production and net imports of China's nickel including low-grade nickel climbed by 66% to 430,000 tons, which means that there are a large amount of nickel inventories in the market. However, it is expected that China's stainless steel production in 2010 will increase by 20% to 10.5mln tons, in the first half of 2010, a large number of nickel stockpile will be cleared up. And therein China's nickel market will become prosperous.

Melt value of nickels passes 5.5 cents

The business of storage just got more competitive  - If you don’t have access to storage in physical commodities trading, you’re nobody. For banks trading physical commodities it’s a particular problem and one they’re keenly working to resolve. The FT’s commodities correspondent Javier Blas, for example, reported on Wednesday how two top commodity banks, Goldman Sachs and JP Morgan, recently entered the metal warehousing business: As piles of base metals from aluminium to nickel build up due to poor demand, Goldman Sachs and JPMorgan have entered the little known but very profitable business of metal warehousing. With inventories like this, you can see why they’d be interested:

Chile Earthquake Effect On Copper Industry  - Chile accounts for 30% of the world's reserves.  Its share of global production is even higher, at 35%.  17% of the countrys' exports go to China. The US, France, and South Korea account for another 30%. Copper accounts for 40% of the nation's exports. Now, here's some of what's known right now, courtesy of Reuters: About one-fifth of the country's production has already been suspended. The mines closest to the epicenter of the quake are Anglo-American's Los Bronces and El Soldado. They produce 280,000 tons per year. The main state-owned firm Codelco is only expected to be closed for two days. (Wikipedia: Codelco). Bloomberg also has an assessment and notes that most mining is done well to the north of the quake, and that so far, miners are saying they're largely unscathed. Rio Tinto says its prize Escondido copper mine (the world's biggest) is not affected.

M1 growth in charts: the Majors vs. the BIICs - This is expansionary monetary policy... ... this is expansionary monetary policy on drugs. Any questions? I know, kind of corny; and& I did grapple over which set of economies should be labeled "on drugs", the BIICs or the Majors. And BIICs is NOT a typo. I'm going with BIICs now - Brazil, Indonesia, India, and China. This is a modified version of Jim O'Neill's famous cohort, the BRICs (Brazil, Russia, India, and China), whose economies in $ terms are expected to jointly transcend the G6 by 2050. Russia's been ousted for reasons that I will discuss at a later time.

Should BRICs Become BRIICs? - Over in Europe, the PIGS have expanded into the PIIGS, but not for the best of reasons. Perhaps we should add an “I” to the BRICs, for reasons much more positive for the global economy.The extra “I” would stand for Indonesia, a country that often gets forgotten amid all of the attention lavished on China and India. I've been wondering for some time if Indonesia deserves to graduate into BRIC-dom. With nearly 230 million people, Indonesia is the world's fourth-most populous nation, and it shares the same great potential as Brazil, Russia, India and China...

Russia on the rebound - Two interesting facts: 1) After sharply negative growth last year, Russia’s growth is predicted to exceed 6% this year. Okay, that’s just clawing back what they lost. But it’s still better than almost anywhere else in Eastern Europe. 2) For the first time in many, many years Russia’s population grew slightly: by a little over 20,000 people in 2009. This growth is a combination of a slight downturn in the death rate, a noticeable uptick in the birth rate, and a sharp rise in immigration — it hit a ten year high, with about 240,000 people moving into Russia.So: short-term blip, or sustainable?The economy, I have no idea. Even Russia specialists get that stuff wrong, and I’m not a Russia specialist. (Or an economist.) I will say, I see no compelling reason for Russia’s growth to stall out in the next couple of years . The demographics, well. That gets interesting.First, take a few minutes and go over to Sublime Oblivion and read this post. That sets out the “pro” view pretty clearly — and, yes, knocks some myths on the head. More generally, I think Anatoly does a pretty good job of debunking the more apocalyptic scenarios that have been advanced.

Russia May Scrap Ruble for New Customs Union Currency  (Bloomberg) -- Russia may scrap the ruble and introduce a common currency with Belarus and Kazakhstan as the nations broaden their alliance and seek to reduce reliance on the dollar, First Deputy Prime Minister Igor Shuvalov said.  “I won’t exclude a transition to a common currency union with these countries in the future,” Igor Shuvalov said at a Moscow conference today. The currency alliance will be modeled on the European Union, which created a new unit rather than using an existing one, he said, though no talks have been held. Russia and two former Soviet neighbors plan to create a single economic market by 2012 after their customs union took effect on Jan. 1. A new currency is “the next logical step” after economic union, Shuvalov said without giving a timeframe.

Brazil Still on the Fast Track for Growth - A new study indicates that Brazil has the historic opportunity to eradicate extreme poverty by 2016 and achieve the lowest rate of income inequality since the Brazilian Institute of Geography and Statistics (IBGE) began tracking such data in 1960. To achieve these results, the country needs to maintain the pace of social development achieved in the last five years, according to a study carried out by the Institute of Applied Economic Research (IPEA), released Tuesday, January 12, 2010 in São Paulo. The IPEA document, entitled Poverty, inequality, and public policy (Portuguese only), shows that from 2003-2008 the national rate of extreme poverty (defined by IPEA as the proportion of the population earning one-quarter of the minimum wage or less) fell an average of 2.1% each year. Absolute poverty (the proportion of the population earning one-half of the minimum wage or less) fell an average of 3.1% each year. If the rates of decline for the period 2003-2008 are projected forward, Brazil will reach 2016 – the year that Rio de Janeiro will host the summer Olympic Games – with social indicators close to those of developed countries, according to the IPEA President’s Communiqué.

Fantasies of the Chicago Boys - Ah, Chile. Remember how, during the Social Security debate, Chile’s retirement system was held up as an ideal — except it turned out that it actually yielded very poor results for many people, and the Chileans themselves hated it? Now we have the usual suspects claiming that Chile’s relatively low death toll in the quake proves that — you guessed it — Milton Friedman was right. You see, the Chicago Boys made Chile rich, and that’s what did it. As a number of people have pointed out, there’s this little matter of building codes. Friedman wasn’t exactly fond of such codes — see this interview in which he calls such codes a form of government spending, because they “impose costs that you might not privately want to engage in”.  But there’s another point: the economics of Chile under Pinochet are a lot more ambiguous than legend has it.

Milton Friedman did not save Chile - Ever since deregulation caused a worldwide economic meltdown in September '08 and everyone became a Keynesian again, it hasn't been easy to be a fanatical follower of the late economist Milton Friedman. So widely discredited is his brand of free-market fundamentalism that his admirers have become increasingly desperate to claim ideological victories, however far fetched.A particularly distasteful case in point. Just two days after Chile was struck by a devastating earthquake, Wall Street Journal columnist Bret Stephens informed his readers that Milton Friedman's "spirit was surely hovering protectively over Chile" According to Stephens, the radical free-market policies prescribed to Chilean dictator Augusto Pinochet by Milton Friedman and his infamous "Chicago Boys" are the reason Chile is a prosperous nation with "some of the world's strictest building codes." There is one rather large problem with this theory: Chile's modern seismic building code, drafted to resist earthquakes, was adopted in 1972.


TomCat said...

RJ, I just installed a new blogroll at PP that reads feeds. According to your feed, you were last updated 186 days ago.

rjs said...

i know; i suspect the quantity of links has something to do with it...i looked around for a solution, but no one at google help could solve it; thats why i put up a dummy notification post every weekend, because that dummy does hit followers dashboards...