USA > History > 2010 > Economy (V)

Matt Bors

Idiot Box

Cagle

20 December 2010

The Looming Crisis in the States

December 25, 2010
The New York Times

For most of this year, the state of Illinois has lacked the money to pay its bills. Some of its employees have been evicted from their offices for nonpayment of rent, social service groups have laid off hundreds of workers while waiting for checks, pharmacies have closed for lack of Medicaid payments. Faced with $4.5 billion in overdue payments, Illinois has proposed a precarious plan to sell its delinquent bills to Wall Street investors in exchange for cash, calculating that the interest it must pay the investors will be less than the late fees it owes.

It is no way to run the nation’s fifth largest state, and it is not even clear that investors will agree, but these kinds of shaky deals are likely to become increasingly common as the states try to cope with the greatest fiscal drought since the Great Depression. Starved for revenue and accustomed to decades of overspending, many states have been overwhelmed. They are facing shortfalls of $140 billion next year. Even before the downturn, states jeopardized their futures by accumulating trillions in debt that they swept into some far-off future.

But that future is not so distant, and the crushing debt has made recovery far more difficult to achieve. As The Times reported, Illinois, California and several other states are at increasing risk of being the first states to default since the 1930s. The city of Prichard, Ala., has stopped sending out its pension checks, breaking state law and shocking its employees.

A state or city unable to make its bond payments would send harmful ripples through the financial system that could cause damage even to healthier governments. But if states act quickly to deal with their revenue losses and address their debt — and receive sufficient aid from Washington — there is still time to avoid a crisis.

The most immediate cause of the states’ problems is the decline in tax revenue caused by the downturn, just as the demand for services has increased.

Over the last two years, combined sales, personal and corporate taxes have fallen by more than 10 percent. Although revenue is likely to tick up slightly in 2011, federal stimulus money — which has been keeping many states afloat — is largely scheduled to expire. Renewing a portion of that aid would be one of the most effective ways to assist the economy.

Many conservatives have said the revenue decline is a good incentive for states to cut their spending. That is precisely what almost all states have done, because they are legally barred from running deficits. State spending fell by 3.8 percent in the 2009 fiscal year and 7.3 percent more in the 2010 fiscal year, the only significant declines since at least the 1970s, even as the cost of education and health care rose.

School aid, Medicaid, transportation, employee salaries, social services, courts — whatever there was to cut, states have slashed it, often at ruinous costs to the most vulnerable: the poor, the sick and disabled, students, tens of thousands of laid-off workers.

But cutting spending will not affect the heaviest burden: the accumulated debt that comes from passing off the biggest problems to future generations. States and cities have nearly $3 trillion in outstanding bonds, and more than $3.5 trillion in shortfalls to pensions. Promised health benefits alone are more than $500 billion.

Some states have tried to pretend their pension obligations do not exist. New York is shortchanging its pension funds, and Gov. Chris Christie of New Jersey, who claims to be so financially responsible, is the latest in a line of governors who have simply refused to pay the billions the state owes to its employee pensions. (Instead, it has often spent that money on tax cuts.) Public employee unions will need to give ground on pensions and other benefits, but it will be hard to start productive discussions if Mr. Christie and other governors refuse to acknowledge their obligations and bargain in good faith.

During the last year, 23 states raised taxes and fees, but only eight increased personal income taxes. Ultimately, states are going to have to acknowledge that more effective, targeted tax increases are inevitable, and can be achieved if they are structured properly. Governors also must explain to voters that they have cut spending. The nation’s richest taxpayers just got a windfall in the federal tax deal extorted from President Obama by Republican senators. States should not shy away from asking for more help from those most able to pay.

Too many newly elected governors have vowed not to raise taxes — including, unfortunately, Andrew Cuomo of New York — fearing giving bad news to voters who have not yet been told how dire things really are. Dan Malloy, the incoming Democratic governor of Connecticut, is one of the few who have been honest with their constituents, saying neither cuts nor tax increases alone can deal with his state’s $3.5 billion shortfall, one of the largest, proportionally, in the nation. “This is a time when people have to be on notice that they’ll be requested to participate in shared sacrifice,” he said recently.

Many governors claim tax increases are ill-advised during a recession, but more experienced economists say it is better to raise taxes on the rich than to lay off workers and cut spending, in effect offsetting Washington’s attempts at stimulus. The federal government missed a chance to begin to act rationally about its long-term deficit by giving away the store to the rich in the tax deal. States should not make the same mistake.

The Looming Crisis in the States, NYT, 25.12.2010, http://www.nytimes.com/2010/12/26/opinion/26sun1.html

Online Sales Rose 15% This Holiday,

Beating In-Store Growth, Report Says

December 23, 2010
The New York Times
By TIMOTHY WILLIAMS

Online sales increased more than 15 percent this holiday season, according to data released Thursday, the latest confirmation of the growing importance of Internet commerce during retail’s most lucrative time of the year.

Retailers online took in $36.4 billion from Oct. 31 to Dec. 23, compared with $31.5 billion in the period a year ago, according to MasterCard Advisors SpendingPulse, which tracks all forms of payments for purchases, including cash and check.

The growth of online purchases is expected to surpass in-store sales this Christmas, though it still represents a small percentage of total sales. The National Retail Federation said last week that it expected sales in November and December to increase 3.3 percent this year, up from 2.3 percent a year ago, to $451.4 billion.

Much of the online increase came in apparel sales, SpendingPulse said, which took in $7.3 billion since Oct. 31, up 25.7 percent from a year ago.

Over all, apparel purchases online accounted for 18.9 percent of the total clothing sales this holiday, SpendingPulse said, up from 16.9 percent a year ago.

Cold, wet weather across much of the country in the last several weeks led consumers to stock up on warm clothing, which has been a boon to retailers, said Michael McNamara, vice president for research and analysis at SpendingPulse. The inclement weather has led many to shop at home.

“What is driving this is that apparel sales online are doing well in general, represented by a shift from brick-and-mortar stores,” Mr. McNamara said. “The cold weather has helped, too. Retailers are saying this is the season of the sweater.”

Department stores saw an 11 percent increase in online purchases. Sales of electronics goods increased 12.2 percent. Jewelry had a comparatively modest 4.5 percent increase online, according to SpendingPulse.

This year, six days surpassed the $1 billion mark, led by Nov. 30 and Dec. 1, which each had about $1.1 billion in sales.

One three-day period — Dec. 14, 15 and 16 — each had sales of more than $1 billion. Last year, only three days had $1 billion in sales or more.

On the Monday after Thanksgiving, which was Nov. 29 this year, many online retailers offered discounts and other deals to attract shoppers. The result was $99.3 million in sales — a 25.3 percent increase rate from a year ago. Online deals on the Friday after Thanksgiving spurred a 34.5 percent increase in online sales, to $597 million.

    Online Sales Rose 15% This Holiday, Beating In-Store Growth, Report Says, NYT, 23.12.2010, http://www.nytimes.com/2010/12/24/business/24retail.html

Economists See Signs of Stronger Recovery

December 23, 2010
The New York Times
By SEWELL CHAN

WASHINGTON — Eighteen months after the recession officially ended, the government’s latest measures to bolster the economy have led many forecasters and policy makers to express new optimism that the recovery will gain substantial momentum in 2011.

Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward.

Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week.

The Federal Reserve, which has kept short-term interest rates near zero since the end of 2008, has made clear it is sticking by its controversial decision to try to hold down mortgage and other long-term interest rates by buying government securities.

President Obama’s $858 billion tax-cut compromise with Congressional Republicans is putting more cash in the hands of consumers through a temporary payroll-tax cut and an extension of unemployment insurance for the long-term unemployed.

It is also trying to address one of the biggest impediments to the recovery — the reluctance of companies to invest their piles of cash in new plants and equipment — by granting tax incentives for business investment.

The measured optimism is reminiscent of the mood a year ago, when the economy seemed to be reviving, only to stall again in the spring amid widespread fears caused by the debt crisis in Greece and other European countries.

Even so, economists are increasingly upbeat about the outlook, saying that while the economy in 2011 will not be strong enough to drive unemployment down significantly, it should put the United States on its soundest footing since the financial crisis started an economic tailspin three years ago.

Phillip L. Swagel, who was the Treasury Department’s chief economist during the administration of George W. Bush and teaches at the University of Maryland, said, “The recovery in 2011 will be strong enough for us to see sustained job creation that will finally give Americans a tangible sense of an improving economy.”

A prominent forecaster, Mark Zandi of Moody’s Economy.com, predicted that the economy would be “off and running” next year. “The policy response, in its totality, has been very aggressive,” he said, “and I think ensures that the recovery will evolve into a self-sustaining expansion early in 2011.”

The recession officially ended in June 2009, when the economy started to grow again. Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of this year. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.

Jan Hatzius, the chief United States economist at Goldman Sachs, said the economy was likely to grow at an annualized rate of around 3 percent this quarter. Goldman projected last week that the growth rate would be 4 percent for most of 2011. Morgan Stanley, which raised its growth forecast for 2011 to 4 percent, is even more optimistic, forecasting a rate of 4.5 percent this quarter.

Administration officials, who have been burned by premature optimism in the past, were reluctant to make predictions for next year. But Austan D. Goolsbee, the chairman of the Council of Economic Advisers since September, said that a shift in sentiment quickly followed the news of the tax deal

“There aren’t many policies which, on the day Washington announces them, lead most private-sector forecasters to publicly and significantly revise their forecasts upward,” he said. “This one did.”

There are significant caveats to the more positive outlook. The housing market remains weak, and another sustained drop in prices could badly undercut the economy. Financial markets and the banking system remain vulnerable to a new round of jitters in Europe over the debt burdens of countries like Ireland and Spain. There is mounting concern about the tattered balance sheets of state and local governments.

While fiscal and monetary policy seems to be helping the economy in the short turn, the tax-cut compromise essentially deferred looming battles over how to cut federal spending and address the government’s huge debt burden.

The Fed’s bond-buying efforts have not prevented long-term interest rates from rising — a phenomenon that is interpreted by optimists as a reaction to higher growth and by pessimists as a demonstration of the ineffectiveness of the central bank’s efforts and the potential for inflation.

And for most of the roughly eight million Americans who have lost their jobs since the recession began in December 2007, it hardly feels like a recovery.

The unemployment rate remains at its highest level since the early 1980s; it rose to 9.8 percent this month and is likely to remain above 9 percent through all of next year, confirming the view that the United States is in another jobless recovery like the ones that followed the last two recessions, in 1990-91 and in 2001.

“Historically, unemployment rates come down slowly, so even with 4 percent growth, you would expect to see the unemployment rate come down maybe a percentage point a year, probably less,” said Alan B. Krueger, who was the Treasury Department’s top economist until last month when he returned to Princeton. “Given how high the unemployment rate is, that’s going to seem very slow.”

Robert J. Gordon, an economist at Northwestern University and a member of the committee that sets the start and end dates of business cycles, cautioned against excessive optimism, noting the huge burdens on state and local governments, rising costs of health care and other long-run fiscal challenges. “The rise of the stock market is mainly because there are no other good investments in sight, not because the stock market has some unique talent in predicting what’s wrong with the economy.”

N. Gregory Mankiw, a Harvard economist who was chairman of the White House Council of Economic Advisers under Mr. Bush, said that “anything that spooks consumers and businesses from spending” could threaten the recovery, including “a worsening of the fiscal crisis in Europe or the increased fear that a similar crisis will soon infect U.S. cities and states.”

The Fed is likely to end its $600 billion bond-buying program in mid-2011, meaning monetary policy might be providing less of a kick to the economy by the end of the year. Officials in the Obama administration also seem to agree that after the $787 billion stimulus last year and the $858 billion tax-cut compromise just approved by Congress, the government’s arsenal of fiscal tools has just about been used up.

“We went through a year and a half period, at least, with the private sector in free fall and government taking a much more significant role than anybody in normal times would want,” said Mr. Goolsbee. “And the president’s oft-repeated view is that we don’t want to be in that circumstance forever — the government should not be the primary driver of long-run growth in the country. We’ve got to have the private sector stand up.”

Representative Kevin Brady of Texas, the top Republican on the Joint Economic Committee of Congress, said he believed his party’s gains in the midterm elections had bolstered consumer and business confidence, arguing that Republicans have advocated fiscal discipline and opposed onerous regulations and tax increases.

“Consumer confidence seems to be on the upswing and business angst is dropping,” he said. “It hasn’t swung into the confidence column yet, but the negativity is lowering.”

    Economists See Signs of Stronger Recovery, NYT, 23.12.2010, http://www.nytimes.com/2010/12/24/business/economy/24forecast.html

U.S. Approved Business With Blacklisted Nations

December 23, 2010
The New York Times
By JO BECKER

Despite sanctions and trade embargoes, over the past decade the United States government has allowed American companies to do billions of dollars in business with Iran and other countries blacklisted as state sponsors of terrorism, an examination by The New York Times has found.

At the behest of a host of companies — from Kraft Food and Pepsi to some of the nation’s largest banks — a little-known office of the Treasury Department has granted nearly 10,000 licenses for deals involving countries that have been cast into economic purgatory, beyond the reach of American business.

Most of the licenses were approved under a decade-old law mandating that agricultural and medical humanitarian aid be exempted from sanctions. But the law, pushed by the farm lobby and other industry groups, was written so broadly that allowable humanitarian aid has included cigarettes, Wrigley’s gum, Louisiana hot sauce, weight-loss remedies, body-building supplements and sports rehabilitation equipment sold to the institute that trains Iran’s Olympic athletes.

Hundreds of other licenses were approved because they passed a litmus test: They were deemed to serve American foreign policy goals. And many clearly do, among them deals to provide famine relief in North Korea or to improve Internet connections — and nurture democracy — in Iran. But the examination also found cases in which the foreign-policy benefits were considerably less clear.

In one instance, an American company was permitted to bid on a pipeline job that would have helped Iran sell natural gas to Europe, even though the United States opposes such projects. Several other American businesses were permitted to deal with foreign companies believed to be involved in terrorism or weapons proliferation. In one such case, involving equipment bought by a medical waste disposal plant in Hawaii, the government was preparing to deny the license until an influential politician intervened.

In an interview, the Obama administration’s point man on sanctions, Stuart A. Levey, said that focusing on the exceptions “misses the forest for the trees.” Indeed, the exceptions represent only a small counterweight to the overall force of America’s trade sanctions, which are among the toughest in the world. Now they are particularly focused on Iran, where on top of a broad embargo that prohibits most trade, the United States and its allies this year adopted a new round of sanctions that have effectively shut Iran off from much of the international financial system.

“No one can doubt that we are serious about this,” Mr. Levey said.

But as the administration tries to press Iran even harder to abandon its nuclear program — officials this week announced several new sanctions measures — some diplomats and foreign affairs experts worry that by allowing the sale of even small-ticket items with no military application, the United States muddies its moral and diplomatic authority.

“It’s not a bad thing to grant exceptions if it represents a conscious policy decision to give countries an incentive,” said Stuart Eizenstat, who oversaw sanctions policy for the Clinton administration when the humanitarian-aid law was passed. “But when you create loopholes like this that you can drive a Mack truck through, you are giving countries something for nothing, and they just laugh in their teeth. I think there have been abuses.”

What’s more, in countries like Iran where elements of the government have assumed control over large portions of the economy, it is increasingly difficult to separate exceptions that help the people from those that enrich the state. Indeed, records show that the United States has approved the sale of luxury food items to chain stores owned by blacklisted banks, despite requirements that potential purchasers be scrutinized for just such connections.

Enforcement of America’s sanctions rests with Treasury’s Office of Foreign Assets Control, which can make exceptions with guidance from the State Department. The Treasury office resisted disclosing information about the licenses, but after The Times filed a federal Freedom of Information lawsuit, the government agreed to turn over a list of companies granted exceptions and, in a little more than 100 cases, underlying files explaining the nature and details of the deals. The process took three years, and the government heavily redacted many documents, saying they contained trade secrets and personal information. Still, the files offer a snapshot — albeit a piecemeal one — of a system that at times appears out of sync with its own licensing policies and America’s goals abroad.

In some cases, licensing rules failed to keep pace with changing diplomatic circumstances. For instance, American companies were able to import cheap blouses and raw material for steel from North Korea because restrictions loosened when that government promised to renounce its nuclear weapons program and were not recalibrated after the agreement fell apart.

Mr. Levey, a Treasury under secretary who held the same job in the Bush administration, pointed out that the United States did far less business with Iran than did China or Europe; in the first quarter of this year, 0.02 percent of American exports went to Iran. And while it is “a fair policy question” to ask whether Congress’s definition of humanitarian aid is overly broad, he said, the exception has helped the United States argue that it opposes Iran’s government, not its people. That, in turn, has helped build international support for the tightly focused financial sanctions.

Beyond that, he and the licensing office’s director, Adam Szubin, said the agency’s other, case-by-case, determinations often reflected a desire to balance sanctions policy against the realities of the business world, where companies may unwittingly find themselves in transactions involving blacklisted entities.

“I haven’t seen any licenses that I thought we should have done differently,” Mr. Szubin said.

Behind a 2000 Law

For all the speechifying about humanitarian aid that attended its passage, the 2000 law allowing agricultural and medical exceptions to sanctions was ultimately the product of economic stress and political pressure. American farmers, facing sharp declines in commodity prices and exports, hoped to offset their losses with sales to blacklisted countries.

The law defined allowable agricultural exports as any product on a list maintained by the Agriculture Department, which went beyond traditional humanitarian aid like seed and grain and included products like beer, soda, utility poles and more loosely defined categories of “food commodities” and “food additives.”

Even before the law’s final passage, companies and their lobbyists inundated the licensing office with claims that their products fit the bill.

Take, for instance, chewing gum, sold in a number of blacklisted countries by Mars Inc., which owns Wrigley’s. “We debated that one for a month. Was it food? Did it have nutritional value? We concluded it did,” Hal Eren, a former senior sanctions adviser at the licensing office, recalled before pausing and conceding, “We were probably rolled on that issue by outside forces.”

While Cuba was the primary focus of the initial legislative push, Iran, with its relative wealth and large population, was also a promising prospect. American exports, virtually nonexistent before the law’s passage, have totaled more than $1.7 billion since.

In response to questions for this article, companies argued that they were operating in full accordance with American law.

Henry Lapidos, export manager for the American Pop Corn Company, acknowledged that calling the Jolly Time popcorn he sold in Sudan and Iran a humanitarian good was “pushing the envelope,” though he did give it a try. “It depends on how you look at it — popcorn has fibers, which are helpful to the digestive system,” he explained, before switching to a different tack. “What’s the harm?” he asked, adding that he didn’t think Iranian soldiers “would be taking microwavable popcorn” to war.

Even the sale of benign goods can benefit bad actors, though, which is why the licensing office and State Department are required to check the purchasers of humanitarian aid products for links to terrorism. But that does not always happen.

In its application to sell salt substitutes, marinades, food colorings and cake sprinkles in Iran, McCormick & Co. listed a number of chain stores that planned to buy its products. A quick check of the Web site of one store, Refah, revealed that its major investors were banks on an American blacklist. The government of Tehran owns Shahrvand, another store listed in the license. A third chain store, Ghods, draws many top officials from the Islamic Revolutionary Guards Corps, which the United States considers a terrorist organization.

The licensing office’s director, Mr. Szubin, said that given his limited resources, they were better spent on stopping weapons technology from reaching Iran. Even if the connections in the McCormick case had come to light, he said, he still might have had to approve the license: the law requires him to do so unless he can prove that the investors engaged in terrorist activities own more than half of a company.

“Are we checking end users? Yes,” he said. “But are we doing corporate due diligence on every Iranian importer? No.”

A McCormick spokesman, Jim Lynn, said, “We were not aware of the information you shared with us and are looking into it.”

Political Influence

Beyond the humanitarian umbrella, the agency has wide discretion to make case-by-case exceptions. Sometimes, political influence plays a role in those deliberations, as in a case involving Senator Daniel Inouye of Hawaii and a medical-waste disposal plant in Honolulu.

On July 28, 2003, the plant’s owner, Samuel Liu, ordered 200 graphite electrodes from a Chinese government-owned company, China Precision Machinery Import Export Corporation. In an interview, Mr. Liu said he had chosen the company because the electrodes available in the United States were harder to find and more expensive. Two days later, the Bush administration barred American citizens from doing business with the Chinese company, which had already been penalized repeatedly for providing missile technology to Pakistan and Iran.

By the time Customs seized the electrodes on Nov. 5, waste was piling up in the sun. Nor did prospects look good for Mr. Liu’s application to the licensing office seeking to do an end run around the sanctions. On Nov. 21, a State Department official, Ralph Palmiero, recommended that the agency deny the request since the sanctions explicitly mandated the “termination of existing contracts” like Mr. Liu’s.

That is when Senator Inouye’s office stepped in. While his electrodes were at sea, Mr. Liu had made his first ever political contribution, giving the senator’s campaign $2,000. Mr. Liu says the timing was coincidental, that he was simply feeling more politically inclined. Records show that an Inouye aide called the licensing office on Mr. Liu’s behalf the same day that Mr. Palmiero recommended denying the application. The senator himself wrote two days later.

Mr. Inouye’s spokesman, Peter Boylan, said the contribution had “no impact whatsoever” on the senator’s actions, which he said were motivated solely by concern for the community’s health and welfare.

The pressure appears to have worked. The following day, the licensing office’s director at the time asked the State Department to reconsider in an e-mail that prominently noted the senator’s interest. A few days later, the State Department found that the purchase qualified for a special “medical and humanitarian” exception.

The license was issued Dec. 10. Two months later, Mr. Liu sent the senator another $2,000 contribution, the maximum allowable. Mr. Levey said he could not comment on the details of a decision predating his tenure. But he noted that sanctions against the Chinese company had since been toughened, and added, “Certainly this transaction wouldn’t be authorized today.”

Curious Exemptions

Mr. Liu’s license is hardly the only one to raise questions about how the government determines that a license serves American foreign policy.

There is also, for instance, the case of Irisl, an Iranian government-owned shipping line that the United States blacklisted in 2008, charging that because it routinely used front companies and misleading terms to shroud shipments of banned arms and other technology with military uses, it was impossible to tell whether its shipments were “licit or illicit.”

Less than nine months earlier, the licensing office had permitted a Japanese subsidiary of Citibank to carry out the very type of transaction it was now warning against. Records show that the bank had agreed to confirm a letter of credit guaranteeing payment to a Malaysian exporter upon delivery of what were described as split-system air-conditioners to a Turkish importer. Though the government had yet to blacklist Irisl, sanctions rules already prohibited dealings with Iranian companies. So when the bank learned that the goods were to be shipped aboard the Irisl-owned Iran Ilam, it sought a license.

The license was granted, even though the Treasury Department’s investigation of Irisl was well under way and the United States had reason to be suspicious of the Iran Ilam in particular; that summer, the ship had attracted the attention of the intelligence community when it delivered a lathe used to make nuclear centrifuge parts from China to Iran, according to government officials who requested anonymity to speak about a previously unpublicized intelligence matter.

Mr. Szubin said that since the blacklisting of Irisl, his agency had forced banks to extricate themselves from such transactions. But at the time the Citibank license was issued, his agency regularly issued licenses in cases like this one, where at the time of the transaction, the bank had no way of knowing that Irisl was involved and where the shipping line would be paid by a foreign third party anyway. To depart from the norm, he said, risked facing a lawsuit charging unfair treatment and tipping Irisl off that it was under investigation.

But if the government has sometimes been willing to grant American businesses a break, some companies have recently decided that the cost to their reputations outweighs the potential profit.

General Electric, which has been one of the leading recipients of licenses, says it has stopped all but humanitarian business in countries listed as sponsors of terrorism and has promised to donate its profits from Iran to charity.

As Joshua Kamens, the head of a company called Anndorll, put it, he knew from almost the minute he applied for a license to sell sugar in Iran that “it would come back to haunt me.” Although he received the go-ahead, he decided to back out of the deal.

“I’m an American,” he said. “Even though it’s legal to sell that type of product, I didn’t want to have any trade with a country like Iran.”

Ron Nixon contributed reporting from Washington, and William Yong from Tehran.

    U.S. Approved Business With Blacklisted Nations, NYT, 23.12.2010, http://www.nytimes.com/2010/12/24/world/24sanctions.html

In a Sign of Foreclosure Flaws, Suits Claim Break-Ins by Banks

December 21, 2010
The New York Times
By ANDREW MARTIN

TRUCKEE, Calif. — When Mimi Ash arrived at her mountain chalet here for a weekend ski trip, she discovered that someone had broken into the home and changed the locks.

When she finally got into the house, it was empty. All of her possessions were gone: furniture, her son’s ski medals, winter clothes and family photos. Also missing was a wooden box, its top inscribed with the words “Together Forever,” that contained the ashes of her late husband, Robert.

The culprit, Ms. Ash soon learned, was not a burglar but her bank. According to a federal lawsuit filed in October by Ms. Ash, Bank of America had wrongfully foreclosed on her house and thrown out her belongings, without alerting Ms. Ash beforehand.

In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed.

“Every day, smaller wrongs happen to people trying to save their homes: being charged the wrong amount of money, being wrongly denied a loan modification, being asked to hand over documents four or five times,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

Identifying the number of homeowners who were locked out illegally is difficult. But banks and their representatives insist that situations like Ms. Ash’s represent just a tiny percentage of foreclosures.

Many of the incidents that have become public appear to have been caused by confusion over whether a house is abandoned, in which case a bank may have the right to break in and make sure the property is secure.

Some of the cases appear to be mistakes involving homeowners who were up to date on their mortgage — or had paid off their home — but who still became targets of a bank.

In Texas, for example, Bank of America had the locks changed and the electricity shut off last year at Alan Schroit’s second home in Galveston, according to court papers. Mr. Schroit, who had paid off the house, had stored 75 pounds of salmon and halibut in his refrigerator and freezer, caught during a recent Alaskan fishing vacation.

“Lacking power, the freezer’s contents melted, spoiled and reeking melt water spread through the property and leaked through the flooring into joists and lower areas,” the lawsuit says. The case was settled for an undisclosed amount.

More common are cases like Ms. Ash’s, in which a homeowner was behind on payments, perhaps trying to work out a modification, when bank crews changed the locks.

In Florida, contractors working for Chase Bank used a screwdriver to enter Debra Fischer’s house in Punta Gorda and helped themselves to a laptop, an iPod, a cordless drill, six bottles of wine and a frosty beer, left half-empty on the counter, according to assertions in a lawsuit filed in August. Ms. Fisher was facing foreclosure, but Chase had not yet obtained a court order, her lawyer says.

The break-in was discovered when a Canadian couple renting the house returned from the beach.

Chase officials said such behavior by its contractors, if determined to be true, would be considered unacceptable and corrective action would be taken.

Banks and their contractors insist that the number of mistakes is minuscule given the hundreds of thousands of new foreclosure cases filed each month. Bank of America, for instance, says it works with third-party contractors to inspect and maintain more than one million properties each month and has enhanced its controls in the last year to prevent mistakes.

Alan Jaffa, chief executive of Safeguard Properties, which inspects and maintains foreclosed properties for mortgage servicers, acknowledged that a handful of mistakes had been made. In most instances, he said, his company provided a valuable service that protected properties and neighborhoods.

“There is a stigma that we go in, kick the door in and throw grandma out head first and board up the windows,” Mr. Jaffa said. “We are doing a lot of good out there.”

But Alan M. White, a consumer law expert at Valparaiso University in Indiana, says: “Volume is not an excuse for violating someone’s rights.”

A clause in most mortgages allows banks that service the loan to enter a home and secure it if it is in default, meaning if the mortgage payment is 45 to 60 days late, and if the house has been abandoned, authorities said.

Banks do so to protect the property from vandalism or damage for which the bank could be liable.

But determining when a house is abandoned is not always easy and is often left to inexperienced contractors, said Carlin Phillips, a Massachusetts lawyer who represents Ms. Ash, who is 45.

“It’s sometimes as little as someone looking through the windows, or knocking on the door of a neighbor and saying, “Where are they?’ ” Mr. Phillips said.

In Washington, Celeste Butler went to check on her father’s house after he spent months in the hospital and ultimately died.

“The house was ransacked,” Ms. Butler said, adding that it had been neatly maintained beforehand. “They had destroyed furniture, broken into china cabinet. They had looted jewelry.”

In her lawsuit, Ms. Butler is accusing Safeguard, a contractor for JP MorganChase, of breaking into her father’s house. Ms. Butler asserts that Chase failed to properly credit payments made when she switched to an automatic system in June 2009, but that she and the bank worked quickly to rectify the problem.

Officials at Chase said its contractors, dispatched to inspect the house when payments were late, found it in disarray. When no one responded to a letter asking if the property had been abandoned, Chase said, its crews went back in the house to put antifreeze in the pipes.

The clearing out of Ms. Ash’s Truckee home, on Ski Slope Way high above Lake Tahoe, came after several horrific years of personal and professional hardships.

During the California real estate boom, Ms. Ash and her husband, Robert, thrived. Mr. Ash bought the house in Truckee in 2003. Two years later, he was stabbed to death in a road-rage incident near Truckee. (The driver was convicted of second-degree murder and is in prison.)

From there, Ms. Ash’s troubles with the Truckee house became tangled in her worsening financial situation and, she claims, the bungling of the bank, originally Countrywide Financial, which was bought by Bank of America in 2008.

She intended to assume the mortgage on the house, which landed in probate court after her husband’s death. The bank required that she catch up on payments and taxes, so she sent a check for $15,000.

Hearing nothing from the bank for many months and not having ownership of the house, she made no more payments, she said. By the time Countrywide reached Ms. Ash, the real estate market was collapsing, so she sought a loan modification.

Months and years of frustration followed. The bank lost documents and rarely returned her e-mails and phone messages, she said.

When Countrywide issued a default notice in 2007, it went to the wrong address, her lawsuit says. Later, Ms. Ash said, the bank assured her it would not foreclose while she pursued the loan modification.

Even so, the bank conducted a foreclosure sale on the property in May 2008. Again, Ms. Ash said she had not been notified and learned of the sale during a summer visit. She said she had been told the sale would be rescinded.

Near Halloween 2008, work crews broke in and cleaned out the place, taking Persian rugs, china, furniture bought on a trip in Peru, skis, photos of her marriage and childhood in Iran. Her husband’s ashes were taken from the couple’s master bedroom.

A bank spokeswoman, Jumana Bauwens, said, “We take the allegations made by Ms. Ash very seriously and are thoroughly researching her claims. Bank of America will work with Ms. Ash and her counsel to determine the extent and cause of her claims and move toward an appropriate resolution of the case.”

Although the original foreclosure was rescinded, as promised, Ms. Ash, who discovered the break-in in January 2009, says it is hard for her to visit the house anymore and she will probably let it lapse into foreclosure. At this point, she said, it is just a “sad reminder that 22 years of my history vanished.”

“This is in essence a burglary,” said Ms. Ash, walking through the vacant home, with its four levels and commanding mountain views. “But when a burglar goes in, they don’t take your photos and your husband’s ashes.”

“This used to be my haven I’d run away to,” she said. “Now I run away from it.”

    In a Sign of Foreclosure Flaws, Suits Claim Break-Ins by Banks, NYT, 21.12.2010, http://www.nytimes.com/2010/12/22/business/22lockout.html

Weighing Costs, Companies Favor Temporary Help

December 19, 2010
The New York Times
By MOTOKO RICH

Temporary workers are starting to look, well, not so temporary.

Despite a surge this year in short-term hiring, many American businesses are still skittish about making those jobs permanent, raising concerns among workers and some labor experts that temporary employees will become a larger, more entrenched part of the work force.

This is bad news for the nation’s workers, who are already facing one of the bleakest labor markets in recent history. Temporary employees generally receive fewer benefits or none at all, and have virtually no job security. It is harder for them to save. And it is much more difficult for them to develop a career arc while hopping from boss to boss.

“We’re in a period where uncertainty seems to be going on forever,” said David Autor, an economist at the Massachusetts Institute of Technology. “So this period of temporary employment seems to be going on forever.”

This year, companies have hired temporary workers in significant numbers. In November, they accounted for 80 percent of the 50,000 jobs added by private sector employers, according to the Labor Department. Since the beginning of the year, employers have added a net 307,000 temporary workers, more than a quarter of the 1.17 million private sector jobs added in total.

One worker who has been forced to accept temporary jobs is Jeffrey Rodeo, 43, who was laid off 14 months ago from his job as an accounting manager at a produce company in Sacramento. He has applied for nearly 700 full-time positions since then, but has yet to receive an offer. Meanwhile, to stay afloat and keep his skills fresh, he has worked on short-term stints at four different employers.

Mr. Rodeo figures his peripatetic work life will last at least another year. “Companies are being more careful,” he said. “It just may take longer to secure a permanent position.”

To the more than 15 million people who are still out of work, those with temporary jobs are lucky. With concerns mounting that the long-term unemployed are becoming increasingly unemployable, those in temporary jobs are at least maintaining ties to the working world.

The competition for them can often be as fierce as for permanent openings, and there are still far too few of them to go around. Indeed, the relative strength in temporary hiring has done little to dent the stubbornly high unemployment rate, which rose to 9.8 percent in November.

“With business confidence, particularly in the small business sector, extremely low,” said Ian Shepherdson, chief United States economist at the High Frequency Economics research firm, “it’s not surprising that permanent hiring is lagging behind.”

The landscape two or three years from now might look quite different, of course. Many economists and executives at temporary agencies say there are signs that more robust permanent hiring is coming in the new year. Business confidence is up, and temporary agencies report that the percentage of interim workers who have been offered full-time jobs is also up from last year.

Nevertheless, there are signs that this time around, the economy could be moving toward a higher reliance on temporary workers over the long term.

This year, 26.2 percent of all jobs added by private sector employers were temporary positions. In the comparable period after the recession of the early 1990s, only 10.9 percent of the private sector jobs added were temporary, and after the downturn earlier this decade, just 7.1 percent were temporary.

Temporary employees still make up a small fraction of total employees, but that segment has been rising steeply over the past year. “It hints at a structural change,” said Allen L. Sinai, chief global economist at the consulting firm Decision Economics. Temp workers “are becoming an ever more important part of what is going on,” he said.

Several factors could be contributing to the trend. Many businesses now tend to organize around short- to medium-term projects that can be doled out to temporary or contract workers.

Donald Lane, chief executive of Makino, a manufacturer of machine tools near Cincinnati, said his company would increasingly outsource projects to contract firms that pull together temporary teams. When installing a large machine, for example, Mr. Lane said the company could appoint one full-time supervisor to oversee a number of less skilled short-term workers.

Mr. Lane said he hoped to raise Makino’s share of temporary employees from 10 to 15 percent now to about 25 percent in the future.

Flexibility is another factor. Corporate executives, stung by the depth of the recent downturn, are looking to make it easier to hire and fire workers. And with the cost of health and retirement benefits running high, many companies are looking to reduce that burden. In some cases, companies wrongly classify regular employees as temporary or contract workers in order to save on benefit costs and taxes.

Certainly, Americans who have never held anything but a full-time job have sought out temporary posts because they were the only jobs available. And even before the recession, workers were learning that lifelong employment was disappearing along with phone booths and Filofax organizers.

But people still tend to prefer jobs with some sense of permanence, and with full health benefits and some form of retirement contribution.

According to a survey by Staffing Industry Analysts, a Mountain View, Calif., research firm, 68 percent of all temporary workers are seeking permanent employment.

But the whole notion of what constitutes a permanent job may simply be changing. Workers “need to expect that their lives and jobs will change much more often than they have in the past,” said Jonas Prising, president of the Americas at Manpower.

Some people have discovered they prefer the freelance life. Antonia Musto lost her job as a staff accountant for a newspaper in Wilkes Barre, Pa., more than two years ago. She signed on with oDesk, a company that matches contract workers with employers online.

She has since worked for several different businesses and even turned down a full-time offer last November. “I just think I’ve gotten very accustomed to working very fast and working with many different people,” Ms. Musto, 38, said. She said she had fully replaced the income she was making at the newspaper and buys private health insurance.

Of course, businesses that can now hire talented workers for temporary jobs may find that when demand picks up, they will need to offer full-time positions with perks and benefits. But it could take a long time to reach that point.

That indefinite stretch worries workers who fear that future employers will look askance at a résumé filled with short-term engagements. Others worry that they will lose valuable years of saving for the future.

Mr. Rodeo, the Sacramento accounting manager, said he made anywhere from 10 to 50 percent less while working in temporary jobs than he did at the produce company. He has also been without health insurance all year. None of the interim employers or temporary agencies have contributed to a 401(k) plan, nor has he been able to save much on his own.

“That’s the scariest part,” said Mr. Rodeo.

He is confident he will eventually land a permanent post, but until then, he knows he is losing ground in planning for retirement. “Of course, for my generation, you can’t plan on Social Security,” he said. “Most likely, I will have to work longer.”

Others are starting to face the prospect that they could move among temporary assignments for the rest of their careers.

Jose Marin, 50, known as J. D., lost his technology job in Miami in February and moved to North Carolina to live with his sister. After months of looking for a permanent job, he signed on with Modis, a unit of Adecco, and in August began a temporary assignment for a financial services company in Cary, a town west of Raleigh.

While grateful for the job, he longs for a permanent position. “I’m still old-fashioned and I still want to work for a company where I make a difference and I’m going to be there to retire,” said Mr. Marin. “I know that’s wishful thinking.”

    Weighing Costs, Companies Favor Temporary Help, NYT, 19.12.2010, http://www.nytimes.com/2010/12/20/business/economy/20temp.html

Online Stores Start to Wean Shoppers Off Sales

December 19, 2010
The New York Times
By STEPHANIE CLIFFORD and CLAIRE CAIN MILLER

This holiday season, online sales are zooming, even as online retailers offer fewer discounts and turn picky about who shops at their sites.

After two years of relative malaise, online sales grew 12 percent in the first 47 days of the holiday season, according to comScore, to $27.5 billion. That significantly outpaces the growth rate of retail sales over all, which analysts expect to rise 3 to 4 percent this holiday season.

But online retailers are now protecting their margins with careful offers, dispensing with the promotions of the last two holiday seasons that were meant to drive sales and get rid of extra inventory. Gone are the coupons that give shoppers 40 percent off all purchases. Instead, offers go to selected customers, and are specialized: a discount on wool jackets, free hoop earrings when people spend $100, a “mystery” discount amount that is revealed only at checkout.

The promotions try to get customers to behave in a certain way. A coupon may seem straightforward, like Drugstore.com offering $5 off a $30 purchase. In fact, it is encouraging one-time customers to browse through several pages of a site and get to know what a retailer offers as they decide what to buy.

“The reason there’s these different promotions and not just the straight dollar-off or percent-off promotions all the time is there are different incentives,” said David Lonczak, chief marketing officer of Drugstore.com. “You may just need a sale, you may have a product you’re long on and you need to get rid of it, or you may be looking to acquire customers with a higher basket,” he said, referring to the transaction price. “You have to be thoughtful.”

Discounting has declined; in November, retailers’ e-commerce revenue from sales of full-price items rose 52 percent versus November 2009, according to MyBuys, which works on personalization offers for retailers.

But less discounting has not tamped down online sales. On Thanksgiving weekend, more than one-third of purchases were made online, versus about 28.5 percent last year, according to the National Retail Federation.

That is because even staunch in-store shoppers are now comfortable buying online, said Fiona Dias, executive vice president for strategy and marketing for GSI Commerce, which provides e-commerce technology to retailers like Toys “R” Us. And the high demand means that online retailers do not have to slash prices to get customers.

“If anything, we’re running tight on inventory because everyone has sold a lot more than they expected to,” Ms. Dias said of the sites she works with. “That’s why we’re not seeing 50-percent-off promotions.”

Given their strong position, retailers are trying to get customers out of the price-wars mind-set that they adopted during the recession.

“At some point, we have to stop and try to go back to where we were because if everyone continues to offer 20 percent, 50 percent off, it’s going to change the market on a long-term scale that it would be too hard to get back from,” said Melissa Joy Manning, who runs an online jewelry store bearing her name. She has stopped discounting, but is giving a pair of silver hoop earrings to customers who spend $100 or more. “We don’t have unlimited resources, so we do try to be as creative with them as we can,” she said.

Like Ms. Manning, other retailers are getting creative with unusually specific offers.

“It’s about margins,” said Andy Dunn, the chief executive and co-founder of Bonobos, a men’s clothing site. While last December, about a third of his revenue came from promotions, this year it’s down to about a quarter, even as he expects his revenue to nearly triple for the month. “There’s less of a need to be highly promotional,” he said. “At the same time, we feel we need to get better at the laser-beam promoting.”

So he is whittling down offers, sending, for instance, a 20 percent offer on suit elements to people who have bought wool pants but not a jacket.

“We don’t have to treat everyone the same,” he said.

Drugstore.com also changes its approach depending on the customer.

That offer for $5 off any purchase over $30 may prompt people to explore the site. “So if a new Drugstore.com customer doesn’t know I sell toys and games, would you think I’d sell a Razor scooter?” he said. “I have to incent you to shop around.”

He would use a percent-off coupon, he said, when he wants to drive overall sales. And he tends to avoid offers like “$10 off your purchase,” because “I would get a whole bunch of people coming in, they would find the product that was 10 dollars and one cent, they would get it and I would never see them again,” he said.

Other retailers are trying to stand out in crowded in-boxes. Bloomingdales.com had a “mystery savings” event last week, in which customers on its e-mail list were sent a code that called up discounts of between 10 and 40 percent at checkout.

“People are going, ‘Well, maybe I’m going to be the one who hits the jackpot,’ ” said Bruce Berman, president of Bloomingdales.com and chief financial officer of Bloomingdale’s. “So they open it at a higher rate.” The tactic helped the store stand out, he said. The day after the Bloomingdale’s e-mail went out, Saks Fifth Avenue also sent one promoting a “mystery sale” online. Saks declined to comment on the promotion.

For Bloomingdale’s, Mr. Berman said, “It worked out to our advantage because whoever shops both will say, ‘I already did that.’ ”

Sometimes, a retailer can be too successful with an online sale, and have to shift tactics on the fly to keep profit up.

At the Gap Inc. sites, which include Banana Republic and Old Navy, the plan was to do heavy discounts on the four days after Thanksgiving. But Friday sales “exceeded our forecast — it was too hot, it was too strong,” said Toby Lenk, the president of Gap Inc. Direct. “So we pulled back on our promotions for Cyber Monday.”

And other retailers have had to devise new tactics after vendors instructed them to stop offering discounts on their brands.

“With the discounting in the last years, the perception from our vendors is that we were discounting their products,” said Pete LaBore, director of customer retention at Backcountry.com.

So the company came up with a new offer — “on our dime,” Mr. LaBore said — that gave $20 off on the site. “It’s totally free money,” the offer said. But customers did not seem to believe it, and Backcountry.com sent another e-mail two days later with the subject line, “Seriously — It’s Free.”

The offer went only to people who had bought, in the past, certain brands or categories in which Backcountry.com now had too much stock, or to people who usually spent enough that “we weren’t just going to have somebody coming in buying a three-dollar pair of socks,” Mr. LaBore said.

It seemed a smart approach; so far, the offer has been profitable, with most people spending much more than $20, Mr. LaBore said.

“We’re trying to get away from the ‘sale, sale, sale’ message, and this is a different way to do that,” he said.

    Online Stores Start to Wean Shoppers Off Sales, NYT, 19.12.2010, http://www.nytimes.com/2010/12/20/business/20ecommerce.html

This Bonus Season on Wall Street, Many See Zeros

December 19, 2010
The New York Times
By NELSON D. SCHWARTZ and SUSANNE CRAIG

Bonus season is fast approaching on Wall Street, but this year the talk does not center just on multimillion-dollar paydays. It’s about a new club that no one wants to join: the Zeros.

Drawn from a broad swath of back-office employees and middle-level traders, bankers and brokers, the Zeros, as they have come to be called, are facing a once-unthinkable prospect: an annual bonus of ... nothing.

“It’s going to a cause a lot of panic on Wall Street,” said Richard Stein of Global Sage, an executive search firm. “Everybody is talking about it, but they’re actually concerned about it becoming public. I would not want to be head of compensation at a Wall Street firm right now.”

In some ways, a zero bonus should not come as a surprise to many bankers. As a result of the 2008 financial crisis, Wall Street firms like Goldman Sachs and banks like Citigroup raised base pay substantially in 2009 and 2010. They were seeking to placate regulators who had argued that bonuses based on performance encouraged excessive risk.

At Goldman, for instance, the base salary for managing directors rose to $500,000 from $300,000, while at Morgan Stanley and Credit Suisse it jumped to $400,000 from $200,000.

Even though employees will receive roughly the same amount of money, the psychological blow of not getting a bonus is substantial, especially in a Wall Street culture that has long equated success and prestige with bonus size. So there are sure to be plenty of long faces on employees across the financial sector who have come to expect a bonus on top of their base pay. Wall Streeters typically find out what their bonuses will be in January, with the payout coming in February.

One executive, whose firm prohibited discussing the topic with the news media, said the bump in base salaries had confused people, even though their overall compensation was the same. “People expect a big bonus,” this person said. “It is as if they don’t even see their base doubled last year.”

Dealing with the Zeros can be complicated. “It’s a real headache,” said another senior banker, who asked not to be identified because the topic is so volatile at his company. There has been so much grousing that in some cases, he said, “we’ll throw $20,000 or $25,000 at each of the Zeros so they’re not discouraged.”

“No matter what we pay people, it is never enough and they always find something to complain about,” this banker said.

While Zeros are turning up in the ranks of back-office employees and midtier bankers and traders who typically earn $250,000 to $500,000, their bosses way up the compensation ladder are still expected to notch handsome paydays in the millions.

In terms of overall profit, Wall Street is on track for one of its best years ever, although it will trail 2009, which was pumped up by federal bailout money and the rebound from the financial crisis.

In the first three quarters of the year, Wall Street earned $21.4 billion, putting it on track to easily outpace 2006, when the economy was booming, and well ahead of the New York City government’s initial estimate of $20.6 billion for profit in all of 2010.

This year, Wall Street’s five biggest firms have put aside nearly $90 billion for bonuses.

But bankers and compensation experts say that bonus payouts will vary widely this year, much more than in the past when a rising tide lifted all boats. And just as junior and senior bankers face varying fates, so some departments are expected to fare better than others.

At JPMorgan and Bank of America Merrill Lynch, for example, the leveraged finance group could receive a 10 to 20 percent bump from last year, because of record issuance of junk bonds. Equity traders, on the other hand, are looking at a 10 to 20 percent drop because stock trading tailed off during the second half of the year.

At Morgan Stanley, equity trading was stronger, but bond traders are most likely looking at smaller pay packages.

To be sure, the best performers on the most profitable desks will still receive substantial bonuses. At Bank of America, top directors might earn a $1 million bonus while top vice presidents could net $600,000, according to one banker there.

What’s more, echoing trends in the broader economy, Wall Street chief executives are almost certain to escape the fate of the Zeros, with bonuses climbing into the stratosphere as the shock of the financial crisis fades and pay for the top tier climbs back toward historical averages.

Morgan Stanley is perhaps feeling the most pressure. In 2009, it paid out a record 62 percent of its net revenue in compensation and benefits; its chief executive, James P. Gorman, vowed to bring that down to bolster profits. But early this year, the firm’s board decided to start hiring in an effort to rebuild businesses in the wake of the financial crisis.

Now, having added 2,000 people in 2010 yet lacking any growth in revenue, the firm has little choice but to scale back on bonuses. Compensation will be lowered across the board, but there will still be plenty of Zeros, said one person familiar with Morgan Stanley’s compensation process.

Recently, Mr. Gorman has been telling employees that the selective, short-term pain on compensation will give the firm credibility with shareholders and help Morgan Stanley over the long haul, calling 2010 “the year of differentiation,” several employees said.

Even if overall salaries for Wall Streeters remain generous, the new zero-bonus culture is likely to change spending habits, said Robert J. Gordon, a professor of economics at Northwestern. Bonuses are spent differently than more predictable income, he said, citing “impulsive purchases, like jewelry from Tiffany’s for a girlfriend.”

Zero bonuses are likely to have a bigger impact on New York’s economy, which has grown dependent on the largess of Wall Street firms. Whether it’s for jewelry, high-end clothing or apartments, bonus spending has long fed a postholiday boom in January and February, especially in Manhattan and expensive suburbs like Greenwich.

“I suspect there will be some pain in the short-term,” said Robert D. Yaro, president of the Regional Plan Association, an independent research group in Manhattan.

“We’ve all heard the stories of someone showing up in Greenwich to buy a $10 million house and paying cash on the spot,” he added. “But in the long term, this is probably healthier for Wall Street and the regional economy. Wall Street shouldn’t be a casino.”

    This Bonus Season on Wall Street, Many See Zeros, NYT, 19.11.2010, http://www.nytimes.com/2010/12/20/business/20bonus.html

When Zombies Win

December 19, 2010
The New York Times
By PAUL KRUGMAN

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?

The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?

For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.

Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.

It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.

The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.

And in his new position, he’s setting out to emulate the austerity policies Ireland implemented after its bubble burst. After all, conservatives on both sides of the Atlantic spent much of the past year hailing Irish austerity as a resounding success. “The Irish approach worked in 1987-89 — and it’s working now,” declared Alan Reynolds of the Cato Institute last June. Whoops, again.

But such failures don’t seem to matter. To borrow the title of a recent book by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?

Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.

People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.

President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.

None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?

Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.

    When Zombies Win, NYT, 19.12.2010, http://www.nytimes.com/2010/12/20/opinion/20krugman.html

With New Tax Bill, a Turning Point for the President

December 17, 2010
The New York Times
By PETER BAKER

WASHINGTON — With the stroke of a pen, President Obama on Friday enacted the largest tax cut in nearly a decade and, in the process, took a big step toward reinventing himself as a champion of compromise in a politically fractured capital.

When he first struck the deal two weeks ago, a sour Mr. Obama announced it by himself, lamented his own agreement and testily denounced his Republican partners as “hostage takers” and his liberal critics as “sanctimonious.” By the time he signed it into law on Friday, little more than six weeks after an electoral debacle for him and his party, he stood with the Senate Republican leader and celebrated the package as a hallmark of cooperation.

“The final product proves when we can put aside the partisanship and the political games, when we can put aside what’s good for some of us in favor of what’s good for all of us, we can get a lot done,” Mr. Obama said buoyantly at a bill-signing ceremony in the White House complex. “I’m also hopeful that we might refresh the American people’s faith in the capability of their leaders to govern in challenging times.”

One leader in particular. Mr. Obama’s embrace of compromise comes as he tries to find his footing after midterm elections that cost the Democratic Party control of the House and pared its majority in the Senate. As the weeks have passed, the president who has emerged appears increasingly more confident than chastened, eager to revive his campaign image as a postpartisan leader who can work across party lines even at the cost of alienating his own supporters.

Such an identity is hardly new to Mr. Obama, but it has largely eluded him in his first two years in office. As a candidate, he managed to come across as diametrically opposite to different supporters, the leader of a new progressive movement to some and a reasoned pragmatist who could bridge the divide in Washington to others. If the first identity dominated his opening two years, the second may come to the fore in his next two.

“These two aspects of his persona have existed side by side from the very beginning,” said Geoff Garin, a Democratic strategist who in 2008 worked for Mr. Obama’s opponent for the presidential nomination, Hillary Rodham Clinton. However imperfect, the tax deal “spoke to a deep feeling in the country about the need to work across party lines to get things done,” he said.

It remained unclear whether Mr. Obama can, or would want to, sustain such an approach. The tax deal may be a one-off situation where a looming end-of-the-year deadline forced action to avoid tax cuts expiring across the board. And in reality, of course, it is much easier for politicians to agree about cutting taxes and adding the bill to the national debt than, say, cutting spending or other much tougher choices to come.

“Sometimes the lessons take a while to sink in, particularly if you’re a person of great arrogance, as he is,” said Peter H. Wehner, who was a top White House aide to President George W. Bush and is now a senior fellow at the Ethics and Public Policy Center in Washington. “But he’s not suicidal, and it’s beginning to kick in.”

Still, Mr. Wehner said, “it may be seen as an anomaly rather than the beginning of a trend.”

Indeed, Mr. Obama has made it clear that he will press advantages where he sees them, and he has chosen an energetic agenda for a lame-duck session beyond taxes and other issues that had to be addressed because of deadlines.

He decided to wage a full-fledged fight to push his arms control treaty with Russia through the Senate before it returns next month with five more Republicans. And he has given no ground in the legislative battle to end the ban on gay men and lesbians serving openly in the military.

“His strong resolve was we were not going to meekly limp out of this year not having accomplished what he needed to accomplish,” David Axelrod, the president’s senior adviser, said in an interview.

But Friday’s tableau of the Democratic president flanked by Senator Mitch McConnell, the Republican leader and his prime nemesis on Capitol Hill, served as a portrait of the change in his presidency. While Ronald Reagan, Bill Clinton and both George Bushes advanced top priorities in tandem with the opposition party, this was the first time in Mr. Obama’s presidency that he forged a major bipartisan compromise on a signature issue — and it was Mr. McConnell’s first time at a major White House bill signing under this president.

The $858 billion package Mr. Obama signed extends Bush-era tax cuts for two years, pares back payroll taxes for a year, lowers the scheduled tax rate for the largest estates, extends jobless benefits for the long-term unemployed for 13 months and continues a series of other tax cuts benefiting businesses, parents and students.

The entire cost will be added to the federal debt, and arguably Mr. Obama has succeeded mainly in buying a temporary truce by delaying a final reckoning on the fundamental questions of who deserves to pay how much in taxes. But for the moment, the plan has polled well and the White House has fended off protests from Mr. Obama’s party.

Mr. Axelrod, who once referred to the parts of the tax plan benefiting the wealthiest Americans as “odious,” said this was not a day to focus on the negatives. “This is something to celebrate,” he said. “The fact that we got this done is something to celebrate.”

At the ceremony, Mr. Obama gave a nod to criticism from the left, noting that “there are some elements of this legislation that I don’t like.” But, he added, “that’s the nature of compromise,” and focused on what he considered the benefits of the accord, particularly the expectation that it will stimulate economic growth.

“It’s a good deal for the American people,” the president said. “This is progress. And that’s what they sent us here to achieve.”

He added, “There will be moments, I am certain, over the next couple of years in which the holiday spirit won’t be as abundant as it is today.” But, reviving a phrase used on the campaign trail, he said, “I don’t believe that either party has cornered the market on good ideas.”

    With New Tax Bill, a Turning Point for the President, NYT, 17.12.2010, http://www.nytimes.com/2010/12/18/us/politics/18obama.html

Two States Sue Bank of America Over Mortgages

December 17, 2010
The New York Times
By ANDREW MARTIN and MICHAEL POWELL

The attorneys general of Arizona and Nevada on Friday filed a lawsuit against Bank of America, accusing it of engaging in “widespread fraud” by misleading customers with “false promises” about their eligibility for modifications on their home mortgages.

In withering complaints filed in state courts in both states, the attorneys general accused Bank of America of assuring customers that they would not be foreclosed upon while they were seeking loan modifications, only to proceed with foreclosures anyway; of falsely telling customers that they must be in default to obtain a modification; of promising that the modifications would be made permanent if they completed a trial period, only to renege on the deal; and of conjuring up bogus reasons for denying modifications.

“Bank of America’s callous disregard for providing timely, correct information to people in their time of need is truly egregious,” Catherine Cortez Masto, the attorney general of Nevada said in a statement.

Many Nevada homeowners continued “to make mortgage payments they could not afford, running through their savings, their retirement funds or their children’s education funds.”

The lawsuit comes as top prosecutors nationwide are investigating whether the paperwork that banks used to support foreclosure cases often was egregiously sloppy, sometimes relying on robo-signers — employees who signed hundreds of documents a day — to sign sworn court documents.

Tom Miller, Iowa’s attorney general who is heading the multistate investigation into foreclosure fraud allegations, said the two states’ lawsuits would not dilute his inquiry. “It is clear that attorneys general in Arizona and Nevada believe that it is in their two states’ best interests to pursue coordinated civil cases against Bank of America,” he said in a statement.

A Bank of America spokesman, Dan Frahm, said bank officials were disappointed that the lawsuits were filed “at this time,” given the bank’s cooperation with the multistate investigation.

Mr. Frahm disputed the allegations in the lawsuit, saying the bank was committed to making sure no property was foreclosed until the customer had a chance to modify the loan or, if ineligible for a modification, to pursue another solution.

He said the attorneys general didn’t acknowledge the many improvements the bank had made, like providing a single point of contact for customers who have started the modification process and increasing staff to support “homeownership retention initiatives.”

Arizona and Nevada are among the states hardest hit by the housing downturn, and the state attorneys general said their lawsuits were prompted by hundreds of complaints by consumers who sought modifications of their mortgages.

The complaints in the lawsuit in many ways echoed problems encountered by homeowners nationwide who have tried with little luck to obtain mortgage modifications from banks, often through a federal program set up for that purpose. Thousands of homeowners complain that banks repeatedly lose their documents, fail to return calls or foreclose when a homeowner believes he or she is still negotiating a modification.

Indeed, according to the lawsuits, Bank of America’s efforts were the most anemic of the big banks and were not confined to the Western states but rather “reflect a pervasive nationwide pattern and practice of conduct.” The lawsuit noted that Bank of America ranked last in “virtually every homeowner experience metric” monitored in a monthly report on the federal home loan modification program.

Ms. Masto of Nevada said her office’s findings were confirmed by interviews with consumers, former employees, third parties and documents. Former employees said that Bank of America’s modification staff was “chaotic, understaffed and not oriented to customers,” according to a news release. One former employee said, “The main purpose of the training is to teach us how to get customers off the phone in less than 10 minutes.”

Another employee said, “When checking on a borrower’s status, I often found that the modification request had not been dealt with or was so old that the request had become inactive. Yet, I was instructed to inform borrowers that they were ‘active and in status.’ One time I complained to a supervisor that I felt I always was lying to borrowers.”

The Arizona complaint cites the case of an Apache Junction couple who faced foreclosure. When the wife called the bank, a representative told her ‘not to worry,’ there was a stop order on the foreclosure and the couple’s loan modification package would arrive the next day. The next day the homeowner learned that her house had already been sold, the suit says.

Terry Goddard, attorney general of Arizona, said the lawsuit was filed in part because the bank had violated the terms of a 2009 consent decree that Countrywide Home Loans — which Bank of America purchased in 2008 — had engaged in “widespread consumer fraud” in originating and marketing mortgages. As part of the judgment, Countrywide had agreed to create a loan modification program for some Arizona homeowners.

Mr. Goddard, a Democrat who lost a bid for governor, will leave office in January.

Two States Sue Bank of America Over Mortgages, NYT, 17.12.2010, http://www.nytimes.com/2010/12/18/business/18mortgage.html

Wall Street Whitewash

December 16, 2010
The New York Times
By PAUL KRUGMAN

When the financial crisis struck, many people — myself included — considered it a teachable moment. Above all, we expected the crisis to remind everyone why banks need to be effectively regulated.

How naïve we were. We should have realized that the modern Republican Party is utterly dedicated to the Reaganite slogan that government is always the problem, never the solution. And, therefore, we should have realized that party loyalists, confronted with facts that don’t fit the slogan, would adjust the facts.

Which brings me to the case of the collapsing crisis commission.

The bipartisan Financial Crisis Inquiry Commission was established by law to “examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The hope was that it would be a modern version of the Pecora investigation of the 1930s, which documented Wall Street abuses and helped pave the way for financial reform.

Instead, however, the commission has broken down along partisan lines, unable to agree on even the most basic points.

It’s not as if the story of the crisis is particularly obscure. First, there was a widely spread housing bubble, not just in the United States, but in Ireland, Spain, and other countries as well. This bubble was inflated by irresponsible lending, made possible both by bank deregulation and the failure to extend regulation to “shadow banks,” which weren’t covered by traditional regulation but nonetheless engaged in banking activities and created bank-type risks.

Then the bubble burst, with hugely disruptive consequences. It turned out that Wall Street had created a web of interconnection nobody understood, so that the failure of Lehman Brothers, a medium-size investment bank, could threaten to take down the whole world financial system.

It’s a straightforward story, but a story that the Republican members of the commission don’t want told. Literally.

Last week, reports Shahien Nasiripour of The Huffington Post, all four Republicans on the commission voted to exclude the following terms from the report: “deregulation,” “shadow banking,” “interconnection,” and, yes, “Wall Street.”

When Democratic members refused to go along with this insistence that the story of Hamlet be told without the prince, the Republicans went ahead and issued their own report, which did, indeed, avoid using any of the banned terms.

That report is all of nine pages long, with few facts and hardly any numbers. Beyond that, it tells a story that has been widely and repeatedly debunked — without responding at all to the debunkers.

In the world according to the G.O.P. commissioners, it’s all the fault of government do-gooders, who used various levers — especially Fannie Mae and Freddie Mac, the government-sponsored loan-guarantee agencies — to promote loans to low-income borrowers. Wall Street — I mean, the private sector — erred only to the extent that it got suckered into going along with this government-created bubble.

It’s hard to overstate how wrongheaded all of this is. For one thing, as I’ve already noted, the housing bubble was international — and Fannie and Freddie weren’t guaranteeing mortgages in Latvia. Nor were they guaranteeing loans in commercial real estate, which also experienced a huge bubble.

Beyond that, the timing shows that private players weren’t suckered into a government-created bubble. It was the other way around. During the peak years of housing inflation, Fannie and Freddie were pushed to the sidelines; they only got into dubious lending late in the game, as they tried to regain market share.

But the G.O.P. commissioners are just doing their job, which is to sustain the conservative narrative. And a narrative that absolves the banks of any wrongdoing, that places all the blame on meddling politicians, is especially important now that Republicans are about to take over the House.

Last week, Spencer Bachus, the incoming G.O.P. chairman of the House Financial Services Committee, told The Birmingham News that “in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”

He later tried to walk the remark back, but there’s no question that he and his colleagues will do everything they can to block effective regulation of the people and institutions responsible for the economic nightmare of recent years. So they need a cover story saying that it was all the government’s fault.

In the end, those of us who expected the crisis to provide a teachable moment were right, but not in the way we expected. Never mind relearning the case for bank regulation; what we learned, instead, is what happens when an ideology backed by vast wealth and immense power confronts inconvenient facts. And the answer is, the facts lose.

    Wall Street Whitewash, NYT, 16.12.2010, http://www.nytimes.com/2010/12/17/opinion/17krugman.html

Risky Borrowers Find Credit Available Again, at a Price

December 12, 2010
The New York Times
By ERIC DASH

Credit card offers are surging again after a three-year slowdown, as banks seek to revive a business that brought them huge profits before the financial crisis wrecked the credit scores of so many Americans.

The rise is striking because it includes offers to riskier borrowers who were shunned as recently as six months ago. But this time, in contrast to the boom years, when banks “preapproved” seemingly everyone, lenders are choosing their prospects more carefully and setting stricter terms to guard against another wave of losses.

For consumers, the resurgence of card offers, however cautious, provides an opportunity to repair damaged credit and regain the convenience of paying with plastic. But there is a catch: the new cards have higher interest rates and annual fees.

Lenders are “tiptoeing their way back into the higher-risk pool of customers,” said John Ulzheimer, president of consumer education at SmartCredit.com.

In extending credit again to riskier borrowers, lenders are looking beyond standard credit scores, on the theory that some people who may seem to be equivalent credit risks on the surface may show differences in spending or other behavior — like registering on a job Web site — that suggest variations in their ability to keep up with payments.

Industry consultants, in their attempt to feed the demand for finer classifications of borrowers, have coined new labels to describe different borrowers with similar credit scores.

One is “strategic defaulters,” whose credit scores were damaged because they walked away from a home when its value dropped below what was owed on the mortgage. These borrowers made a bad bet on real estate but may otherwise be prudent risks because they make a good living.

Similarly, “first-time defaulters” once had a strong credit record but ran into financial trouble during the recession. Typically, these borrowers fell behind on some sort of loan payment after losing a job, not from taking on too much debt.

By contrast, there are “sloppy payers,” who pay only some bills on time; “abusers,” who are defiant about paying; and “distressed borrowers,” who simply do not have the means to pay.

The goal is to weed out the latter groups to identify consumers whose credit scores are blemished but who still have the money to pay their bills.

“Lenders want to prove to themselves that it is worth taking a higher risk,” said Brad Jolson, an executive of the decision management company FICO, who has helped several card companies analyze their customer base.

This new approach to assessing default risk is emblematic of the challenge faced by the many banks that were hobbled by the financial crisis: They desperately want to grow again, but the memory of a near-death experience makes them wary about taking outsize risks.

Lenders have taken $189 billion in credit card losses since 2007, according to Oliver Wyman Group, a financial consultancy. That was a significant part of the $2 trillion or so that banks are estimated to have lost since the crisis began, and a contributor to the government bailout of the banking system.

To stem losses, lenders halted new card offers to all but their most affluent customers. At the same time, more than eight million consumers stopped using their credit cards, in a sign of the nationwide belt-tightening, according to TransUnion, the credit bureau. Millions more borrowers who still have cards have been compelled to pay down their balances, or are more often choosing to use cash.

That has had a big impact on lenders’ bottom lines. Credit cards once gave the banking industry as much as a quarter of its profits; today those profits have all but vanished and lenders are seeking ways to replace them.

Now that the losses have stabilized, lenders have set out to revive their card businesses, and mail offers to riskier borrowers are roaring back.

HSBC mailed more than 16 million card offers to this group in the third quarter of this year, Citigroup 14 million and Discover 10 million, all roughly tenfold increases over the same period last year, according to Synovate Mail Monitor, a market research firm. Capital One’s rate rose fiftyfold, to 22 million.

Many of the new lower-end cards start with high interest rates and annual fees, because new federal rules limit the ability of lenders to change the terms after payments are missed. Capital One, for example, is offering low-end cards that carry interest rates of 18 percent or higher and annual fees of up to $50.

In all, lenders will send about 2.5 billion credit card offers by the end of the year, Synovate estimates, compared with more than six billion in 2005, the peak year. The bulk of this year’s mailings are still going to affluent people, with just 17 percent going to borrowers with blemished credit. That compares with about 39 percent in 2007 and a low of 7 percent in late 2009.

The response to the card campaigns has been strong, with roughly 4 percent of these riskier borrowers submitting applications. That is about 10 times the typical response rate for the group, though that may be partly explained by the absence of offers over the last two years.

After racking up more than $17,000 in credit card charges, Sue Talkington, 69, a retired saw mill worker living in Modesto, Calif., started working with a credit counselor in September to start paying down her debt.

Then, last month, right after she had cut up three credit cards, she received an application for a new Capital One card, the second pre-approved mail offer she has received recently.

She says she was stunned. “I’m trying to get out of debt, so why would I want a credit card to get into more debt?” Ms. Talkington asked.

“It really shows me how much greed there is out there,” she added. Card issuers “aren’t interested in helping me get back on track with a credit card,” she said. “They just want my money.”

Since the mass marketing of credit cards began decades ago, lenders have waited for years to extend credit to borrowers like Ms. Talkington who have fallen on hard times — a process sometimes called “rehabilitating the customer.” But these days, rehab is happening faster because the lenders cannot afford to wait.

Citigroup is testing a credit card with training wheels, known as CitiMax, devised for customers whose credit was damaged by the recession. Borrowers are required to link their credit card account to a checking, savings or brokerage account so that Citi can withdraw money if a payment is missed.

Branch workers for Bank of America and Wells Fargo are steering more customers denied a traditional credit card toward “secured” cards, backed by a deposit that the owner is not permitted to touch.

Wells says that more than a third of secured cardholders receive a traditional credit card after 12 months.

“I graduated, as they call it, to the unsecured,” said Joshua Hoglan, 26, a college student from Las Vegas who says he became a more responsible borrower after making timely payments on a Wells secured credit card he applied for in early 2008. He called graduation “a great relief.”

    Risky Borrowers Find Credit Available Again, at a Price, NYT, 12.12.2010, http://www.nytimes.com/2010/12/13/business/13credit.html

Madoff Lawsuits Are Headed for Court

December 12, 2010
The New York Times
By GRAHAM BOWLEY and PETER LATTMAN

With the final deadline for litigation having passed at midnight on Saturday, at least 1,000 individual civil lawsuits will now go forward to try to recover more than $50 billion for the victims of the global Ponzi scheme orchestrated by Bernard L. Madoff.

David J. Sheehan, the counsel for Irving H. Picard, the trustee charged with recovering the assets, said on Sunday that he expected that “hundreds” of those suits — many against individuals, some of them prominent — were likely to be settled in negotiations before or soon after they reach court in coming months. But the remainder were likely to be contested and would proceed to trial, he said.

Mr. Sheehan said the death on Saturday of Mark Madoff, the older of Bernard Madoff’s two sons, would not affect the complaints against him, his brother, Andrew, and other relatives.

“We have to proceed with that and stay the course,” Mr. Sheehan said.

Mark Madoff, 46, was found dead Saturday morning in his Manhattan apartment, hanging from a dog leash while his 2-year-old son slept in an adjoining room.

The medical examiner’s office conducted an autopsy on Sunday and confirmed that the official cause of death was hanging, and labeled it a suicide.

As the shock of his death set in, people close to him continued to shed light on his emotional state, saying he had been increasingly upset in recent weeks by the extensive scrutiny the Ponzi scheme was receiving as the second anniversary of his father’s arrest approached.

He was particularly troubled by a series of lawsuits against him and his family as the bankruptcy trustee approached the Saturday deadline, and by the weight of media speculation about whether or not he played a role in his father’s fraud and whether he could be the subject of criminal charges, they said.

No immediate funeral arrangements were made public. But relatives have expressed the view that excessive media attention will make a funeral difficult to hold, according to two people close to the family, who insisted on anonymity because the family had not authorized them to speak on its behalf.

Another person close to the family said that Mark Madoff’s wife, Stephanie, had returned to New York from Florida, where she and her mother had taken the couple’s 4-year-old son to Disney World, leaving Mr. Madoff and their 2-year-old son in New York.

According to two of the people close to Mr. Madoff, in the days running up to his suicide he had been particularly anxious about an article that was due to run in The Wall Street Journal.

One of these close friends, who said he had spoken with Mr. Madoff frequently over the last two years, talked to him on Friday on his cellphone for 10 minutes.

There was nothing particularly foreboding about the conversation, this person said. He said Mr. Madoff told him that The Journal was running an article about him the next day, and even though he believed it would not contain new information, he expressed concern and frustration about the coverage.

This wasn’t unusual, the friend said. Mr. Madoff had always been acutely sensitive to media coverage connecting him to his father’s fraud.

A spokeswoman for The Journal declined to comment.

“Andy was always tougher than Mark,” said the friend, referring to Mr. Madoff’s younger brother. “Mark was much more sensitive and took all the press coverage very personally.”

“He loved his wife and his kids so much,” this friend added. “The only way to accept this is that he was in so much pain, and that pain outweighed the love he had for his wife and his kids. And I guess he thought this was the only way out.”

Mr. Madoff was hoping to get a job, and had looked for work over the last two years as a professional securities trader, talking to people in the industry, two of the people close to him said.

But he had gradually become less and less optimistic about that possibility. In recent months, Mr. Madoff had been doing work for a friend who ran a business, the close friend said.

“He seemed to be looking to the future and trying to get his life together,” said the friend. “He was looking for ways to support himself and his family.”

Mr. Madoff had also been working on the publication of an online newsletter on the real estate industry. But he realized that whatever he distributed he would not be able to attach his name to it, the friend said.

The lawyer for Bernard Madoff, Ira Lee Sorkin, would not comment Sunday on whether Bernard Madoff, who is serving a 150-year sentence for his crimes at a North Carolina prison, had been told of his son’s suicide.

Mr. Madoff was found at his apartment at 158 Mercer Street, on the edge of the SoHo section of Manhattan. A law enforcement official confirmed that Mr. Madoff had sent two e-mails to his wife in Florida after 4 a.m. Saturday. He had asked her to get someone to check on their son, the police said earlier. The police have seized Mr. Madoff’s computer and were searching it for further information, the official said.

On Sunday, Pedro Romero, 39, a parking garage attendant where Mr. Madoff parked his two cars — a late model Chevrolet Suburban and a Land Rover — said he last saw Mr. Madoff on Friday night while Mr. Madoff was walking his dog.

“I said thank-you for the gift,” Mr. Romero recalled, referring to $400 that Mr. Madoff had given the garage’s half-dozen workers for Christmas. “He looked happy,” Mr. Romero said. “He didn’t look depressed.”

A friend at the building who said he knew Mr. Madoff fairly well said that recently Mr. Madoff had seemed to be coming out of his depression of the last two years and that he seemed fine as he was taking a walk Friday morning.

Mr. Picard issued a statement on Saturday extending sympathy to Mr. Madoff’s family, calling his death a “tragic development.”

Mr. Sheehan, counsel for Mr. Picard, said that most of the civil lawsuits had been filed in federal bankruptcy court in Manhattan in the last three weeks, and that he was now prepared for a barrage of legal challenges trying to stop the complaints over the coming six months. Mr. Picard has recently sued more than a dozen major banks.

There may be yet more lawsuits filed by the trustee, he said. Although the initial two-year deadline for litigation had passed, the trustee still has one more year to trace the money he is trying to recover from the current roster of defendants, and to file complaints against anyone else to whom those funds may have been transferred, he said.

The trustee has already reached deals with some major defendants, including a recent $500 million settlement with Union Bancaire Privée, and this month, Carl Shapiro, one of the early investors with the Madoff firm, agreed with Mr. Picard and federal prosecutors to forfeit $625 million that will go toward returning money to victims of the fraud.

That agreement also settled claims against many members of Mr. Shapiro’s family, including his son-in-law Robert Jaffe, whom the trustee has sued separately as an executive of Cohmad Securities, the small brokerage firm that shared space with Bernard Madoff in the Lipstick Building.

On Friday, Mr. Picard announced that he had reached settlement with a “number of charities and nonprofit organizations,” including a $45 million settlement with the American Jewish volunteer women’s organization, Hadassah.

Mr. Picard is also negotiating with business entities connected to Fred Wilpon, the owner of the New York Mets baseball team, and the estate of Jeffry Picower, a longtime Madoff investor who died last year.

Ron Stein, president of the Network for Investor Action and Protection, a group set up to assist victims, said many of the legal actions were aimed at people unfairly, because many of the so-called clawbacks were at the expense of smaller investors who had already suffered. “Why does he go after innocent victims,” Mr. Stein said.

Mr. Picard has said he will dismiss any cases filed against defendants who seek and qualify for “hardship” status because of their financial circumstances.

Diana B. Henriques, Al Baker, Tim Stelloh and Mosi Secret contributed reporting.

    Madoff Lawsuits Are Headed for Court, NYT, 12.12.2010, http://www.nytimes.com/2010/12/13/business/13madoff.html

Madoff’s Son Found Dead in Suicide

December 11, 2010
The New York Times
By DIANA B. HENRIQUES and AL BAKER

Mark Madoff, the older of Bernard L. Madoff’s two sons, hanged himself in his Manhattan apartment on Saturday, the second anniversary of his father’s arrest for running a gigantic Ponzi scheme that shattered thousands of lives around the world.

“Mark Madoff took his own life today,” Martin Flumenbaum, Mark Madoff’s lawyer, said in a statement. “This is a terrible and unnecessary tragedy.” He called his client “an innocent victim of his father’s monstrous crime who succumbed to two years of unrelenting pressure from false accusations and innuendo.”

According to Deputy Police Commissioner Paul J. Browne, officers responded to a 911 call made just before 7:30 Saturday morning from Mr. Madoff’s apartment building at 158 Mercer Street. Mr. Browne said Mr. Madoff’s body was found hanging from a black dog leash attached to a metal beam on the living room ceiling. He said there was no evidence of foul play.

Mr. Madoff’s 2-year-old son was asleep in an adjoining bedroom, Mr. Browne said.

Law enforcement officials said Mr. Madoff had sent e-mails to his wife in Florida sometime after 4 a.m. Saturday. “It was more than one,” said an official, who added: “He basically tells his wife he loves her and he wants someone to check on the child.”

Mr. Browne said the body was discovered by Martin London, a prominent New York lawyer who is the stepfather of Mark Madoff’s wife, Stephanie. Mr. London apparently had gone to the apartment in response to the message to check on the child. Reached by phone, Mr. London declined to comment.

A person in close contact with the family who had spoken with Mark Madoff frequently in the last few weeks said he had been in “an increasingly fragile state of mind” as the anniversary of his father’s arrest approached. The person said Mr. Madoff had expressed both continuing bitterness toward his father and anxiety about a series of lawsuits that were filed against him, his brother Andrew and other family members.

Just last week, Mr. Madoff, 46, was among the directors and officers of a Madoff affiliate in London who were sued by the trustee seeking assets for victims of the scheme.

It was the second lawsuit filed against him by the trustee, Irving H. Picard, who had initially sued him last year seeking to recover approximately $200 million that the family had received in salaries, bonuses, expense-account payments and gains in their own investment accounts at the Madoff firm.

Mr. Madoff was particularly upset that the trustee had named his young children as defendants in a lawsuit filed in late November seeking the recovery of money Bernard Madoff had paid out to his extended family over the years, according to the person who recently spoke with him, who insisted on anonymity because he was not authorized to speak on behalf of the family.

The person said Mr. Madoff had also been upset at some recent news coverage speculating that criminal charges against him and his brother were still likely.

Charges have not been filed against any of the immediate family members, and their lawyer has said publicly that neither Mark Madoff nor his brother has ever been notified by prosecutors that they were the subjects of a criminal investigation.

Nevertheless, there has been speculation that members of the Madoff family were vulnerable to being prosecuted for tax-law violations, given the variety of low-cost loans and generous expense-account payments that were part of the office culture at the Madoff brokerage firm.

The person who had recently spoken with Mr. Madoff said that there was also growing discouragement about finding a job. “He had concluded he was unemployable,” the person said.

Ira Lee Sorkin, a lawyer for Bernard Madoff, said he had not been able to contact his client at the North Carolina prison where he is serving a 150-year sentence for his crimes.

“But I’m very sure he has been informed,” Mr. Sorkin said, adding, “This is a great tragedy on many, many levels.”

A spokeswoman for the Federal Bureau of Prisons, Traci Billingsley, said, “Any time there is a death of a family member, and the agency is notified, we immediately notify the inmate.”

Inmates may request to attend funerals, she said, and those requests are considered case by case.

Peter Chavkin, a lawyer for Ruth Madoff, Mark’s mother, said simply: “Ruth is heartbroken.”

Mark Madoff had been a licensed broker at his father’s firm since June 1987. A number of Mark’s oldest childhood friends from Roslyn, N.Y., invested with the Madoff firm and lost their savings in the fraud, said another person who was close to the family. This destroyed those relationships and caused Mr. Madoff great pain, the person said..

And on the advice of his lawyer, Mark Madoff has had no contact with his parents since the day before his father’s arrest two years ago.

The steps that led to that arrest began when he and his brother, Andrew, confronted their father over his plans to distribute hundreds of millions of dollars in bonuses to employees months ahead of schedule.

According to documents filed by the F.B.I. at the time of the arrest, that meeting led to a private conversation on Dec. 10, 2008, in which Bernard Madoff told his sons that all the wealth and success the family seemed to possess were based on a lie — an immense Ponzi scheme that was crumbling under the pressures of the financial crisis.

Mark and his brother immediately consulted a lawyer and were advised they had to report their father’s confession to law enforcement. They did so, and the following morning their father was arrested at his Manhattan penthouse.

The public fury over the stunning crime — Bernard Madoff estimated the losses at $50 billion — was not limited to its mastermind. Mark Madoff, his mother and his brother were all the subject of constant media speculation. Many articles speculated that they had been involved in their father’s crime, or at least were aware of it.

The lawsuits that are pending against Mr. Madoff will not necessarily be derailed by his death. Typically, the litigation would continue against the estate of any deceased defendant.

The autopsy on Mr. Madoff is scheduled to be conducted on Sunday, said Ellen S. Borakove, a spokeswoman for the city’s chief medical examiner, Charles S. Hirsch. She said that the results should be available “by early afternoon” on Sunday.

Mr. Madoff’s body was removed on a stretcher from his building on the edge of SoHo shortly after noon Saturday. Police blocked off the street for a while as a crowd of reporters and camera crews mixed with a growing number of people stopping to watch. The building is also home to the performer Jon Bon Jovi.

Gregarious and handsome, Mark was the more outgoing of Mr. Madoff’s two sons. At the University of Michigan, his social circle included students largely from other well-to-do East Coast families.

He graduated in 1986 and moved to New York to join his father’s firm. Most of his friends rented crammed studios, but Mark lived in an apartment his father had bought for him in Sterling Plaza, a luxury high-rise on Manhattan’s East Side developed by Sterling Equities. Sterling is controlled by Fred Wilpon, the owner of the New York Mets, whose family was friendly with the Madoffs and whose businesses had invested hundreds of millions of dollars in the Ponzi scheme.

Mark Madoff married his college girlfriend, Susan, and moved to Greenwich, Conn., where they raised two children. They divorced in the 1990s and Mark eventually moved back to Manhattan. He was remarried, to Stephanie Mikesell, and had two more children with her.

His brother Andrew was considered more cerebral and reserved than Mark, and served as co-director of trading with his brother. He, too, joined his father’s firm after earning an undergraduate business degree from the Wharton School at the University of Pennsylvania.

The civil lawsuit Mr. Picard filed last year said Bernard Madoff’s firm “operated as if it were the family piggy bank.” It said Mark received at least $66.9 million of improper proceeds, including approximately $30 million in compensation since 2001, from his father’s firm.

Mark and his relatives were “completely derelict” in carrying out their roles at the firm, the suit said.

At the time, Mr. Flumenbaum, Mark’s lawyer, said in a statement that his client “strongly disagreed with the trustee’s baseless claims.”

Peter Lattman, Liz Robbins and Tim Stelloh contributed reporting.

    Madoff’s Son Found Dead in Suicide, NYT, 11.12.2010, http://www.nytimes.com/2010/12/12/business/12madoff.html

Making Disability Work

December 9, 2010
The New York Times
By PETER ORSZAG

I will begin a new job for Citigroup in January, so this is my last article as a contributing columnist for The Times. I hope to see you again from time to time on the Op-Ed page.

•

One of the gravest dangers posed by the weak economy is that the unemployed will become discouraged and give up looking for work, perhaps permanently as their skills atrophy. This would be harmful not only to the workers and their families, but also to the economy as a whole, as those people would no longer contribute to economic growth. The longer the labor market remains sluggish, the more pronounced this risk becomes.

Unfortunately, at this point more than six million people have been unemployed for six months or longer. More than one million have already given up looking for work because they believe no job is available. And a drastic rise in applications for disability insurance suggests we may be headed for more long-lasting trouble. The number of disability applications has reached more than 750,000 a quarter, according to the Social Security Administration, an increase of more than 50 percent from four years ago.

The disability insurance program provides crucial support for people who can no longer work because of a disability. But once someone begins receiving benefits, the likelihood that he will re-enter the work force is almost nonexistent; recipients become permanently dependent on the program.

The result is not only lost economic productivity, but also a fiscal burden for the federal government: disability benefits now cost more than $120 billion a year, and Medicare benefits for those on disability add $70 billion.

The spike in disability insurance applications (and awards) does not reflect a less healthy population. The fraction of working-age adults who report a disability, about one in 10, has remained roughly constant for the past 20 years. (Indeed, it would be surprising if the number of workers with disabilities had risen by 50 percent over the past four years.) Rather, the weak labor market has driven more people to apply for disability benefits that they qualify for but wouldn’t need if they could find work.

When Congress created the disability insurance program in 1956, it required that recipients be unable to “engage in substantial gainful activity in the U.S. economy.” In other words, they had to be unable to work. That was sensible at the time, when more jobs involved physical labor and technologies to assist people with disabilities were not widely available.

Today, however, many people with disabilities are able to engage in some form of work — even if they can’t admit that and still keep their insurance benefits. Cutting off access to the workplace in this way is both unfortunate and unnecessary — and reinforces the threat that the current downturn could cause a long-term reduction in the share of people who work.

So what should be done?

First, macroeconomic policy. We need more stimulus immediately, and more deficit reduction enacted now to take effect in two or three years. The plan just proposed by the White House in a compromise with Congressional Republicans is encouraging in that it includes a new payroll tax holiday, a helpful stimulus. It does not reduce future deficits, but at least it avoids making the Bush tax cuts permanent, reserving the flexibility to address medium-term deficits down the road.

Even if this plan goes ahead, however, the unemployment rate is likely to remain high for some time. For it to fall by even one percentage point (from 9.5 percent to 8.5 percent) the economy needs to grow by about 4.5 percent a year.

Second, unemployment insurance should be extended, as President Obama’s compromise plan also would do. Unemployment benefits are a form of stimulus: they spur spending and thereby help keep the economy afloat. Just as important, unemployment benefits keep many people from falling back on disability insurance — and unlike disability insurance, which effectively prohibits beneficiaries from seeking work, unemployment insurance requires recipients to keep looking for a job and thus remain connected to the work force.

Finally, the disability insurance program itself must be reformed. Program administrators understand the need to encourage beneficiaries to return to work, and they have experimented with various incentives. Such initiatives have generally been ineffective, though, because they reach beneficiaries too late, after they have already become dependent on the program and lost their attachment to the work force.

A better approach has been suggested by David Autor of M.I.T. and Mark Duggan of the University of Maryland. In a paper released last week from the Center for American Progress and the Hamilton Project, these economists argue that employers should be required to offer their workers private disability insurance. Such coverage would provide people who have a work-limiting disability with vocational assistance, workplace accommodation and limited wage replacement. All of these benefits would kick in within 90 days of the onset of disability, to avoid the problems with delayed assistance that have plagued efforts to reform public disability insurance. Private employers would have an incentive to prevent their workers from having to file disability applications, because their insurance premiums would rise in response to higher disability rates.

Disabled workers could remain on this privately financed insurance for two years, and then be eligible for the existing public program. The goal would be to minimize long-term dependency, and re-orient the federal disability insurance program toward assisting those who are truly unable to work.

One concern is that this approach would burden firms with additional human resource costs when we need to encourage hiring. But the costs are projected to be modest — roughly $250 per worker per year. And if they help to reduce the future payroll tax increases that would be needed to finance rapid growth in disability benefits, the pressure on overall labor costs would be even smaller.

Another concern is that private insurance firms would need to be given substantially expanded responsibility for evaluating workers’ disabilities. Mr. Autor and Mr. Duggan propose to mitigate this potential problem by suggesting that workers be allowed to appeal any such evaluations to state government agencies.

The Netherlands has adopted a program like this, and the results so far are promising. In 1994, the Dutch government required all firms to finance the first six weeks of disability benefits. That period was later extended to one year and then to two years. In 2002, the program was broadened to require back-to-work plans, developed cooperatively by the disabled worker, his employer and a consulting doctor. The number of disability recipients in the Netherlands has since declined significantly.

None of these policy changes would be easy. But failing to act would result in millions of Americans needlessly dropping out of the work force. In our precarious economy, neither progressives nor conservatives should be willing to watch passively as the disability insurance rolls grow, and beneficiaries are locked out of the labor market.

Peter Orszag, the director of the White House Office of Management and Budget from 2009 to July 2010, is a distinguished visiting fellow at the Council on Foreign Relations.

    Making Disability Work, NYT, 9.11.2010, http://www.nytimes.com/2010/12/10/opinion/10orszag.html

Voting for an Odious Tax Deal

December 7, 2010
The New York Times

Liberal Democrats are in revolt at the tax deal that President Obama struck with Republicans on Monday, and it is not hard to understand why. By temporarily extending income tax breaks for the richest Americans, and cutting estate taxes for the ultrawealthy, the deal will redistribute billions of dollars from job creation to people who do not need the money.

But the Democrats should vote for this deal, because it is the only one they are going to get. Mr. Obama made that case — strongly — on Tuesday, summoning an eloquence that is often elusive, as it was on Monday when he first announced the deal. Without this bargain, income taxes on the middle class would rise. Unemployment insurance for millions of Americans would expire. And many other important tax breaks for low- and middle-income workers — including a 2 percent payroll tax cut and college tuition credits — would not be possible.

If angry Democrats blow up the deal, they will be left vainly groping for something better in a new Congress where they will have far less influence than they have now. The middle class and the unemployed would be seriously hurt.

The president, and particularly Congressional Democrats, might not be in this bind if they had fought harder against the high-end tax cuts before the midterm elections. But that moment has passed. The real responsibility for what’s wrong with the tax deal lies with Republicans. They coldly insisted on the high-end tax cuts at all costs, no matter the pain they might inflict further down the income ladder or what staggering cost they might impose in years to come.

President Obama was right to use the metaphor of hostage-taking to describe the Republicans’ tactics. Using the parliamentary rules of the Senate, 42 Republican senators threatened to raise middle-class taxes if Democrats let tax cuts expire on the richest 2 percent of Americans. That left the White House and the Democrats little room to maneuver. “I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed,” Mr. Obama said at his news conference on Tuesday.

Some of the provisions won by the president could act as a new stimulus to the economy, particularly the extension of the unemployment benefits for 13 months and the cut to the payroll tax, though the full stimulative effect is uncertain. The cut only applies to wages and salaries up to $106,800 — people who really need it.

There remains much to dislike in the package, including the pressure that its deficit spending will create to cut important programs in the years to come. Mr. Obama was clearly not thrilled at the compromises he had to make, and neither are we. But at least he acted in what he believed are the best interests of the country.

When are the Republicans going to step up and do the same? There is no legitimate national interest in opposing the New Start nuclear arms treaty with the Russians, which most military and foreign leaders agree would make the world a safer place. There is no legitimate national interest in clinging to the discrimination against gay members of the military, which the Pentagon’s leaders want to end. There will be no sound economic reason to make the tax cuts for the top 2 percent of taxpayers permanent in two years.

The only reason for Republican recalcitrance on these issues is to deny the Democrats an accomplishment, to stymie Mr. Obama’s re-election and appeal to the most retrograde elements of the party’s base.

President Obama will face a liberal whirlwind for the compromise he made on taxes. It is time for Republicans to show that they are strong enough to take on their base for their country’s benefit.

    Voting for an Odious Tax Deal, NYT, 8.12.2010, http://www.nytimes.com/2010/12/08/opinion/08wed1.html

Disappointing Job Growth in U.S. as Jobless Rate Hits 9.8%

December 3, 2010
The New York Times
By MOTOKO RICH

In a jolting surprise to the economic recovery and market expectations, the United States economy added just 39,000 jobs in November, and the unemployment rate rose to 9.8 percent, according to the Department of Labor.

November’s numbers were far below the consensus forecast of close to 150,000 jobs added and an unchanged unemployment rate of 9.6 percent.

More than 15 million people remained out of work last month, and 6.3 million of them have been unemployed for six months or longer.

Private companies, which have been hiring since the beginning of the year, added 50,000 jobs in November. Most of those increases came in the form of temporary help, where 40,000 jobs were added, and in health care, with an additional 19,000 jobs.

Retail jobs declined by 28,000 in November, while manufacturing, which had showed some strength earlier in the year, lost 13,000 jobs. Government jobs dropped by 11,000 in the month.

Included in the latest report were revisions from previous months. The agency now says that the economy added 172,000 jobs in October, instead of the 151,000 jobs previously reported. September was revised to a loss of 24,000 jobs from a loss of 41,000.

The anemic net gain in jobs came as economists had been gradually showing more optimism. Weekly initial unemployment claims have recently been trending lower, pending home sales in October topped forecasts and November retail sales jumped by one of their highest increases in years.

“Obviously this is a disappointing report, to say the least,” said James O’Sullivan, chief economist at MF Global. But he said he did not believe the recovery was actually derailed. “Certainly the weight of evidence is that the economy is improving, and labor data can be unreliable.”

Many risks remain for the economy. The latest numbers included 14,000 local government job losses, which could accelerate if legislatures and city councils are forced to prune further to deal with shrinking budgets and larger deficits. With President Obama’s deficit commission examining long-term spending cuts, unemployment benefits expiring and a Congressional fight over taxes looming, consumer spending, which has recently shown signs of life, could come under pressure. That, in turn, could cause businesses to reconsider hiring plans.

Advocates for the unemployed were shocked by the number.

“I’m still trying to get my jaw off the floor,” said Andrew Stettner, deputy director of the National Employment Law Project. “What it does is it kills the story that maybe I thought we could start telling, which was steady improvement. If we had four months in a row of improving jobs numbers, we would still need a lot of work to get back to full employment, but now it’s not even moving in the right direction.”

Analysts generally estimate that the economy needs to add at least 100,000 to 125,000 jobs a month simply to keep up with new entrants to the labor force. So if employers keep hiring at the current pace, it will not help reduce the unemployment rate for some time.

For those who have been searching for work for more than six months, this is a discouraging prospect. “I have looked high and low,” said Melissa Barone, who was laid off from a job in technical support 14 months ago. “I have a college degree and a ton of technical skills, but I can’t find a job.” Ms. Barone, 42, lives in St. Clair Shores, Mich., near Detroit, a particularly hard hit area. She has applied for hundreds of jobs but has yet to receive an offer.

If the economy is improving, that is news to Ms. Barone. “It doesn’t seem that way here,” she said.

    Disappointing Job Growth in U.S. as Jobless Rate Hits 9.8%, NYT, 3.12.2010, http://www.nytimes.com/2010/12/04/business/economy/04jobs.html

Obama Seeking Aid for Jobless in Deal on Tax Cuts

December 2, 2010
The New York Times

By DAVID M. HERSZENHORN and JACKIE CALMES

WASHINGTON — The Obama administration is holding out for an extension of unemployment assistance and of a variety of expiring tax breaks for low-wage and middle-income workers as part of a deal with Congressional Republicans to extend all the Bush-era tax cuts.

But it is unclear how much leverage the White House has in the tax negotiations, given the drubbing Democrats took in the midterm elections, the tight Congressional calendar and a threat by Senate Republicans to block any legislation until the tax fight is resolved.

In a symbolic nod to President Obama’s pledge to let the tax cuts on upper-income brackets expire on Dec. 31, as scheduled by law, the House on Thursday approved a bill to continue the lower tax rates enacted during the Bush administration for Americans they described as “middle class.” The vote was 234 to 188, with three Republicans joining 231 Democrats in favor; 20 Democrats and 168 Republicans were opposed.

The bill, however, has no chance of passage in the Senate, where even some Democrats say the tax cuts should be extended for everyone, at least temporarily, given the continued weakness in the economy.

Senate Democratic leaders scheduled their own symbolic votes for Saturday, intending to demonstrate their desire to end the tax cuts for the rich.

Republicans, meanwhile, expressed dismay at the posturing by Democrats, which they said was delaying the inevitable and even getting in the way of a potential deal on aid for millions of unemployed Americans whose benefits have started to run out.

Administration officials said no deal was at hand, and negotiators from the administration and the two parties in Congress met only briefly on Thursday. It is possible that the parties will be unable to reach a compromise, in which case tax rates will revert at the end of this year to their pre-2001 levels, meaning an across the board tax increase. However, the Treasury could be directed to keep the current rates while negotiations continue.

But the sense within both parties was that Democrats were essentially negotiating the terms of their major retreat on an issue that they once considered a slam-dunk on both substantive and political levels.

Senior Senate Republican aides said that an extension of all the income tax cuts was a foregone conclusion, but that a deal on jobless aid was possible if Democrats agreed to cover the cost. Democrats expressed indignation that Republicans were insisting on finding spending cuts to offset the unemployment benefits while being perfectly willing to add to the national debt the $700 billion cost of continuing the tax cuts on the highest incomes for the next decade.

“This is so grossly unfair,” the House speaker, Nancy Pelosi, said in a floor speech urging passage of the so-called middle-class tax package.

While the House bill has no chance of becoming law, it holds enormous symbolism for Democrats, who used the debate to accuse Republicans of standing for the rich. In an indication of the tensions between the parties on the issue, the House Republican leader and soon-to-be speaker, John A. Boehner of Ohio, derided the Democratic maneuver to force a vote on the bill as “chicken crap.”

Even as lawmakers were debating the bill on the House floor, negotiators, including the Treasury secretary, Timothy F. Geithner, were meeting in talks that all sides expected to end in a temporary extension of the tax rates for all income levels, perhaps for two or three years.

At the White House, administration officials outlined a list of their demands for an extension of expiring tax breaks, including the $800-per-couple “Making Work Pay” tax credit for about 110 million households, a tuition tax credit for 8 million college students, and the earned-income tax credit and child tax credit for 15 million low-income families. They also listed expiring tax breaks for small businesses. They said those tax credits would have a greater impact on the economy than continuing the Bush tax cuts on upper income levels.

And with federal unemployment aid having expired on Tuesday for two million Americans, Mr. Obama is seeking a one-year extension. Senate Republicans on Wednesday blocked an effort by Democrats to take up a bill extending the benefits.

More Americans have been out of work beyond the 26-week period typically covered by state unemployment assistance than at any time in the decades since the government began keeping records. The unemployment assistance at issue is federal emergency aid for people who are unemployed beyond six months.

About 6.2 million Americans have been out of work for 27 weeks or more, according to the federal Bureau of Labor Statistics.

Mr. Obama’s Council on Economic Advisers reported on Thursday that nearly seven million Americans could lose benefits through next November as more people remained out of work for long periods.

Talks at the Capitol involving senior lawmakers from both parties, Mr. Geithner and the White House budget director, Jacob Lew, are expected to continue into next week.

But in the meantime, the majority leader, Harry Reid of Nevada, said he would bring the House bill to the Senate floor on Saturday and would hold votes on that measure, as well as on an alternative Democratic proposal to raise the threshold at which the lower rates expire to $1 million.

Democrats had hoped to hold those votes on Friday, as well as votes on two Republican proposals for extending the tax breaks, but late Thursday a single Republican senator registered an objection stopping those votes.

That prompted Mr. Reid to note that even after agreeing to take up the tax issue before anything else, he was encountering Republican obstruction.

“I think everybody remembers that famous letter that was written to me saying until we get tax cuts resolved, funding the government, we’re not going to let you do anything legislatively,” he said at a news conference late Thursday. “We’re at a new one tonight. They are not going to let us do anything with tax cuts or funding the government.”

The Republican alternatives include one from the Senate Republican leader, Mitch McConnell of Kentucky, that would indefinitely extend all of the Bush-era income tax cuts. None of the measures is expected to win the 60 votes needed to advance.

Congressional Democrats expressed deepening frustration with the White House, which they said had made numerous missteps that gave Republicans the upper hand. Some Democratic aides said that Vice President Joseph R. Biden Jr. had been asked to attend a caucus meeting to defend the White House negotiating stance. A spokesman said Mr. Biden had a previous commitment.

Congressional Democrats also voiced worries that the administration was ready to give in quickly to Republican demands, in a bid to preserve time on the Senate calendar for ratification of an arms control treaty with Russia known as New Start.

Separately, the Senate approved a 15-day extension of the temporary spending measure that has financed the federal government since Oct. 1 and was set to run out on Friday.

    Obama Seeking Aid for Jobless in Deal on Tax Cuts, NYT, 2.12.2010, http://www.nytimes.com/2010/12/03/us/03cong.html

Unemployed, and Likely to Stay That Way

December 2, 2010
The New York Times
By CATHERINE RAMPELL

The longer people stay out of work, the more trouble they have finding new work.

That is a fact of life that much of Europe, with its underclass of permanently idle workers, knows all too well. But it is a lesson that the United States seems to be just learning.

This country has some of the highest levels of long-term unemployment — out of work longer than six months — it has ever recorded. Meanwhile, job growth has been, and looks to remain, disappointingly slow, indicating that those out of work for a while are likely to remain so for the foreseeable future. Even if the government report on Friday shows the expected improvement in hiring by business, it will not be enough to make a real dent in those totals.

So the legions of long-term unemployed will probably be idle for significantly longer than their counterparts in past recessions, reducing their chances of eventually finding a job even when the economy becomes more robust.

“I am so worried somebody will look at me and say, ‘Oh, he’s probably lost his edge,’ ” said Tim Smyth, 51, a New York television producer who has been unable to find work since 2008, despite having two decades of experience at places like Nickelodeon and the Food Network. “I mean, I know it’s not true, but I’m afraid I might say the same thing if I were interviewing someone I didn’t know very well who’s been out of work this long.”

Mr. Smyth’s anxieties are not unfounded. New data from the Labor Department, provided to The New York Times, shows that people out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.

Likewise, previous economic studies, many based on Europe’s job market struggles, have shown that people who become disconnected from the work force have more trouble getting hired, probably because of some combination of stigma, discouragement and deterioration of their skills.

This is one of the biggest challenges facing policy makers in the United States as they seek to address unemployment. Its underlying tenet — that time exacerbates the problem — means that the longer Congress squabbles about how to increase job growth, the more intractable the situation becomes. This, in turn, means Washington would need to pursue more aggressive (and, perversely, more politically difficult) job-creating policies in order to succeed. Even reaching an agreement over whether to extend benefits yet again has proved contentious.

Several factors lead to this downward spiral of the unemployed.

In some cases, the long-term unemployed were poor performers in their previous positions and among the first to be terminated when the recession began. These people are weak job candidates with less impressive résumés and references.

In other instances, those who lost jobs may have been good workers but were laid off from occupations or industries that are in permanent decline, like manufacturing.

But economists have tried to control for these selection issues, and studies comparing the fates of similar workers have also shown that the experience of unemployment itself damages job prospects.

If jobless workers had been in sales, for instance, their customers might have moved on. Or perhaps the list of contacts they could turn to for leads is obsolete. Mr. Smyth, for example, says that so many of his former co-workers have been displaced that he is no longer sure whom to call on about openings.

In particularly dynamic industries, like software engineering, unemployed workers might also miss out on new developments and fail to develop the skills required.

Still, this explanation probably applies to only a small slice of the country’s 6.2 million long-term unemployed.

“I can’t imagine very many occupations and industries are of the type that if you’re out for nine months, the world passes you by,” said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal research organization. “I think this erosion-of-skills idea is way overplayed. It’s probably much more about marketability.”

Many unemployed workers fret about how to explain the yawning gaps on their résumés. Some are calling themselves independent “consultants” or “entrepreneurs.”

Mr. Smyth has been working on his own documentary film and trying to develop ideas for new TV shows with a friend. But with financing for such projects scarce, he says he is still looking for a full-time job.

Employers are reluctant to acknowledge any bias against the jobless, and many say they try to take broader economic circumstances into consideration.

“Generally speaking, when the economy’s good and someone’s been out of work for a year, you might look at them funny,” said Jay Goltz, who owns five small businesses in Chicago. “These days I don’t know if you can hold it against somebody.”

Even so, old habits die hard, especially because unemployment has been unusually concentrated among a smaller group of workers in this recent recession than in previous ones, meaning that fewer workers bear the scarlet “U” of unemployment.

“From what I’ve seen, employers do tend to get suspicious when there’s a long-term gap in people’s résumés,” said James Whelly, deputy director of work force development at the San Francisco Human Services Agency. “Even though everyone on an intellectual level knows that this is a unique time in the economy, those old habits are hard to break with hiring managers and H.R. departments who are doing the screening.”

It does not help when job seekers are repeatedly rejected — or worse, ignored. Constant rejection not only discourages workers from job-hunting as intensively, but also makes people less confident when they do land interviews. A Pew Social Trends report found that the long-term unemployed were significantly more likely to say they had lost some of their self-respect than their counterparts with shorter spells of joblessness.

“People don’t have money to keep up appearances important for job hunting,” said Katherine S. Newman, a sociology professor at Princeton. “They can’t go to the dentist. They can’t get new clothes. They gain weight and look out of shape, since unemployment is such a stressful experience. All that is held against them when there is such an enormous range of workers to choose from.”

Though economists generally agree that getting the long-term unemployed back to work quickly is necessary to keep people from becoming unemployable, the mechanism to do so is unclear.

Most forms of stimulus try to create business conditions that foster the nation’s output growth, which encourages companies to hire. Output has been growing slowly, however, and has not stoked much job creation. There have also been other indirect incentives, like a small tax break for hiring unemployed workers, but as yet their effectiveness is unknown.

Direct employment programs — like the public works projects of the New Deal and World War II — may be the fastest way to put people back to work, economists say. But those raise concerns of crowding out businesses and displacing other workers. Also the approach, which smacks of socialism to some, seems politically untenable at the moment.

One possible compromise might be broader-scale retraining and apprenticeship programs, suggests Lawrence Katz, a labor economist at Harvard.

“That’s better than having more people just go on disability as a last resort, and then basically never return to work in their life, which many will do,” he said. The Obama administration has recently thrown its support behind an effort to overhaul community college retraining programs.

“One of the reasons to focus on training for workers, even if you’re not training workers for new jobs, is that when you have workers who have not been in a job for a long time, you need to do all you can to get them to look and feel job-ready when the openings do eventually come back,” said Betsey Stevenson, the Labor Department’s chief economist.

The real threat, economists say, is that America, like some of its Old World peers, may simply become accustomed to a large class of idled workers.

“After a while, a lot of European countries just got used to having 8 or 9 percent unemployment, where they just said, ‘Hey, that’s about good enough,’ ” said Gary Burtless, a senior fellow at the Brookings Institution. “If the unemployment rates here stay high but remain relatively stable, people may not worry so much that that’ll be their fate this month or next year. And all these unemployed people will fall from the front of their mind, and that’s it for them.”

    Unemployed, and Likely to Stay That Way, NYT, 2.11.2010, http://www.nytimes.com/2010/12/03/business/economy/03unemployed.html

The Unemployed Held Hostage, Again

November 27, 2010
The New York Times

It is hard to believe, as the holidays approach yet again amid economic hard times, but Congress looks as if it may let federal unemployment benefits lapse for the fourth time this year.

Lame duck lawmakers will have only one day when they return to work on Monday to renew the expiring benefits. If they don’t, two million people will be cut off in December alone. This lack of regard for working Americans is shocking. Last summer, benefits were blocked for 51 days, as senators in both parties focused on preserving tax breaks for wealthy money managers and other affluent constituents.

This time, tax cuts for the rich are bound to drive and distort the debate again. Republicans and Democrats will almost certainly link the renewal of jobless benefits to an extension of the high-end Bush-era tax cuts. That would be a travesty. There is no good argument for letting jobless benefits expire, or for extending those cuts.

The recession that began in 2007 has led to the worst unemployment in nearly 30 years. We have record levels of long-term unemployment. The jobless rate, 9.6 percent, has been essentially unchanged since May, and nearly 42 percent of the 14.8 million jobless workers have been sidelined for six months or more.

Some opponents of unemployment benefits — mostly Republicans but a few Democrats as well — would have you believe those figures are evidence of laziness, enabled by generous benefits. They conveniently ignore three facts. One, there are five unemployed people for every job opening — a profound scarcity of jobs. Two, federal benefits average $290 a week, about half of what the typical family spends on basics and hardly enough to dissuade someone from working. Three, as unemployment has deepened, benefits have become less generous. Earlier this year, lawmakers ended a subsidy to help unemployed workers pay for health insurance and dropped an extra $25 a week that had been added to benefits by last year’s stimulus law.

Other opponents would have you believe that the nation cannot afford to keep paying unemployment benefits: a yearlong extension would cost about $60 billion. The truth is, we cannot afford not to. The nation has never ended federal benefits when unemployment is as high as it is now, and for good reason: Without jobs, there is inadequate spending, and that means ever fewer jobs. A wide range of private and government studies show that unemployment benefits combat that vicious cycle by ensuring that families can buy the basics.

Nor do jobless benefits bust the budget. Just the opposite. They do not add to dangerous long-term deficits because the spending is temporary. And because they support spending and jobs, they contribute powerfully to the economic growth that is vital for a healthy budget. Extending the Bush high-end tax cuts would be budget busting, because they are likely to endure, adding $700 billion to the deficit over 10 years. Tax cuts for the rich provide virtually no economic stimulus, because affluent people tend to save their bounty.

Ignoring facts and logic, several Republicans have said that any benefit extension must be paid for with spending cuts elsewhere. That would, in effect, be giving with one hand while taking away with the other. It is not only cruel, but foolish, because it would reduce the economic boost that benefits would provide.

President Obama should pound the table for a clean, yearlong extension of unemployment benefits, and should excoriate phony deficit hawks — in both parties — who say that jobless benefits are too costly, even as they pass vastly more expensive tax cuts for the rich.

    The Unemployed Held Hostage, Again, NYT, 27.11.2010, http://www.nytimes.com/2010/11/28/opinion/28sun1.html

Family’s Fall From Affluence Is Swift and Hard

November 25, 2010
The New York Times
By GERALDINE FABRIKANT

WAMEGO, Kan. — Grateful to have found work in this tough economy, Nick Martin teaches grape growing and winemaking each Saturday to a class of seven students in a simple metal building here at a satellite campus of Highland Community College.

Then he drives 14 miles in an 11-year-old Ford Explorer to a sparsely furnished tract house that he rents for $900 a month on a dead-end street in McFarland, a smaller town. Just across the backyard is a shed that a neighbor uses to make cartridges for shooting the prairie dogs that infest the adjacent fields.

It is a far cry from the life that Mr. Martin and his family enjoyed until recently at their Adirondacks waterfront camp at Tupper Lake, N.Y. Their garage held three stylish cars, including a yellow Aston Martin; they owned three horses, one that cost $173,000; and Mr. Martin treated his wife, Kate, to a birthday weekend at the Waldorf-Astoria, with dinner at the “21” Club and a $7,000 mink coat.

That luxurious world was fueled by a check Mr. Martin received in 1998 for $14 million, his share of the $600 million sale of Martin Media, an outdoor advertising business begun by his father in California in the 1950s. After taxes, he kept about $10 million.

But as so often happens to those lucky enough to realize the American dream of sudden riches, the money slipped through the Martins’ fingers faster than they ever imagined.

They faced temptations to indulge, with the complexities and pressures of new wealth. And a pounding recession pummeled the value of their real estate and new financial investments, rendering their properties unaffordable.

The fortune evaporated in little more than a decade.

While many millions of Americans have suffered through this recession with only unemployment benefits to sustain them, Mr. Martin has reason to give thanks — he has landed a job at 59, however far away. He also had assets to sell to help tide his family over.

Still, Mr. Martin, a strapping man with a disarming bluntness, seemed dazed by it all. “We are basically broke,” he said.

Though he faulted the conventional wisdom of investing in stocks and real estate for some of his woes, along with poor financial advice, he accepted much of the blame himself.

“We spent too much,” he conceded. “I have a fourth grader, an eighth grader and a girl who just finished high school. I should have kept working and put the money in bonds.”

Mrs. Martin recalled the summer night in 1998 when the family was having a spaghetti dinner at home in Paso Robles, in central California, and a bank representative called to ask where to wire the money. “It seemed like an unbelievable amount,” she said regretfully.

Soon after the money arrived, the family decided to leave Paso Robles, amid some lingering tensions that Mr. Martin felt with his brother and brother-in law, who had run the business. Mr. Martin had never been in management at the billboard company, though he had been on the board and worked at Martin Brothers Winery, another family business.

First, the Martins bought a house in Somerset, England, near the home of Mrs. Martin’s parents, and he decided to write a novel. At about the same time, they spent $250,000 on the 3.5-acre camp with four structures on Tupper Lake, deep in the Adirondacks, as a summer home. They began extensive renovations at the lake, adding a stunning three-story boathouse and two other buildings.

Clouds gathered quickly. Life in England turned sour when Mr. Martin’s novel, “Anthony: Conniver’s Lament,” did not sell, and the family’s living costs — school fees, taxes and even advice for filing tax returns — swelled. In 2002, fed up with England, the Martins chose a new base, Vermont, and plunked down about $650,000 for a home there, as renovations continued on the Tupper Lake property.

By March 2007, the Martins were determined to move to the lake full time.

They managed their expenses for a while, but the costs mounted and mounted some more as they worked at refurbishing the Adirondack property — eventually totaling a staggering $5.3 million, Mr. Martin said. He poured another $600,000 into the Vermont property, he said.

He vacillates between blaming the builders and blaming himself for letting costs get out of hand. “We should have built something quite modest,” he conceded.

Tensions rose in 2007 as summer came without any offers for the Vermont home.

“I thought that housing was going into a tailspin,” he said. “I had the feeling that something bad was happening.”

So “we started selling cars, shotguns, antique furniture, whatever,” Mr. Martin said. The Aston Martin fetched $395,000. With a big gap in his employment history, he found a job teaching English at Paul Smith’s College near his home in Tupper Lake for $14,000 a year. For an additional $7,000, he coached the school’s cross-country runners.

Then came the financial crisis. The markets plunged, as did the value of the Martins’ trust. By fall 2008, with much of the family’s net worth tied up in housing, Mr. Martin faced a series of margin calls. He needed more cash in his brokerage accounts because he had been tapping into a credit line with his investments as collateral. In January 2009, he cashed in a retirement account worth roughly $91,000.

The houses could not be sold quickly. Though if they had been, some of the pressure would have lifted. “To maintain those things, you have to have a pretty good cash flow,” Mr. Martin said.

The family ultimately put the Adirondacks property on the market for $4.9 million, then quickly slashed the price by half. Last month, the Martins got an offer for just half of the latest $2.5 million asking price.

They have stopped making payments on their $1.1 million mortgage and their $53,000 in annual property taxes in the Adirondacks as well as the mortgage and taxes on their Vermont home. They cannot afford those obligations on Mr. Martin’s current salary of $51,000. Their household income is down from $250,000 four years ago.

At the moment, they are working with a loan modification unit at their bank. The lender proposed a new payment of $3,550 a month, reduced from $7,400. Given his current status, Mr. Martin argued, that it does not make much sense. He predicts that the house will ultimately be sold or taken over by the bank. Meanwhile, for the Christmas holidays and some of next summer, the family has found renters for the main house to help cover some of the costs.

Over lunch recently at Barleycorn’s Downtown Bar and Deli in Wamego, Mr. Martin said he believed “the worst is behind us.”

Perhaps. But a forced restructuring can be difficult for children and spouses even in longstanding marriages.

Sometimes he and his wife took it out on each other, he said. “She bought a bunch of horses. I blamed her for the horses. I bought cars. She blamed me for the cars — and the house being too big. We had a rough time,” he acknowledged. “But I think we have gotten over that.”

Until Christmas, when she plans to join him, Mrs. Martin continues to work as a substitute teacher with autistic children at an Adirondacks elementary school: a $12,000-a-year job she loves in a place she says she is hesitant to leave. With their younger daughter, she has moved into a smaller building on their big property.

A lively woman who loves bike riding and horses, she has built a close network of friends. “What is the place in Kansas like?” she asked a reporter with some trepidation before her first visit at Thanksgiving.

Mr. Martin, who moved to Kansas last April, brought the couple’s 13-year-old son, Edward, to join him in the fall. He has been counting the days until his wife and Sophia, 9, come permanently. The older daughter, Mrs. Martin’s from a previous marriage, has found work in Florida after finishing high school.

In the meantime, Mr. Martin is also overseeing a one-acre vineyard beside the Oregon Trail Road, drawing on his knowledge of the wine industry from his California days.

He does what he can to lessen the family strains.

“I have a temper. I have to control my temper,” he said. “I could drink like a fish, but if you have problems in your life, drinking does not help.”

And he recites a quotation he holds dear : “The measure of a man is not whether he falls down, but whether he gets up again.” Still, Mr. Martin is prone to ruminate over the loss of so much money. He is furious at the banks and the bankers, who he thinks gave him bad advice, and he still sounds angry at his brother and others who decided to sell the company and who he says gave him little voice. Some of them got more than $100 million each, he said, while he got $14 million, as did his father and his sister Ann, because they were all minority shareholders.

His brother-in-law David Weyrich said that if Mr. Martin had objections to the sale, he did not voice them.

Mrs. Martin says she believes the move from California was motivated in part because he resented his brother and brother-in-law’s bigger role in the community.

She also speculates that the Adirondacks estate was alluring partly as a way of keeping up. “I think he wanted to show his brother and brother-in-law that he had a big home, too,” she said over dinner recently in Saratoga Springs, N.Y.

Mr. Martin disagreed. “We are Irish Catholics, and we thought it would be a compound for our family over generations,” he said. After the cramped rooms at their house in England, he liked the big rooms, he said. “Sometimes, things don’t work out.”

    Family’s Fall From Affluence Is Swift and Hard, NYT, 25.11.2010, http://www.nytimes.com/2010/11/26/business/26fall.html

Black Friday Brings Out the Competitors

November 26, 2010
The New York Times
By STEPHANIE CLIFFORD

Retailers kicked off Black Friday long before dawn and with bad weather in parts of the country as stores waited to see if consumers would return after two years of tepid sales.

Earlier in the week, shoppers like Melissa Guzman of Visalia, Calif., had already planned their strategies to take advantage of specials that have moved up ever earlier over the years. A door-buster deal at Staples for laptops had caught her attention. “This year, since I don’t have to work the day after Thanksgiving, I’ll get up at 4 in the morning,” said Ms. Guzman, who works as a cashier at a convenience store.

Brad Wilson, who runs the online deal site BlackFriday2010.com, said that this year’s Black Friday deals seemed even better than last, and analysts said there would be aggressive promotions in almost every sector.

Weather forecasts had retailers across the country worried. In October, stores like J. C. Penney blamed warm weather for slow sales of winter goods — now, they have a similar problem.

A Rocky Mountain snowstorm early in the week had resulted in closed highways and white-out conditions in Washington, Idaho, Wyoming, Utah, New Mexico and Arizona, as officials advised against travel.

The storm was expected to move to the Midwest by Thursday, and to New England by Friday morning.

In Chicago, where a big storm was expected, a couple was overheard detailing plans to ride a snowmobile to Best Buy to get in line for the plasma television door-buster offer there.

In New York City, where heavy rain can slow down subways and even the hardiest of shoppers, expected rainstorms had stores worrying about whether shoppers would venture out. The rains were expected to also hit Philadelphia and farther south.

Stores planned promotions and giveaways to lure customers. Wal-Mart opened at midnight, and promised breakfast bars, donut holes, gum and chocolates to shoppers there. It also had a bigger incentive: price matching on even competitors’ door-buster ads.

Its Sam’s Club warehouse unit was also luring shoppers with sustenance, giving hot egg sandwiches, fruit and yogurt to members starting at 5 a.m. on Friday.

Getting in on the holiday shopping, Burger King said it would offer free coffee during breakfast hours on Friday.

Toys “R” Us opened at 10 p.m. on Thursday, with about 150 door-buster deals, and put another 50 deals on sale at 5 a.m. on Friday. It was handing out free Crayola crayon packs and coloring books with all purchases.

Sears and K-mart stores were also open on Thanksgiving Day, as were many Gap and Old Navy stores.

Kohl’s opened at 3 a.m. Friday, followed by many other department stores, like J. C. Penney, Macy’s, Sears and Target, at 4 a.m.

Though many retailers were pushing Thanksgiving Day online bargains that extended into Black Friday, they said they still expected lines outside.

“There’s still a whole bunch of people who love the thrill of the hunt, coming in at 4 or 5 a.m., it’s a very social thing,” said Martine Reardon, executive vice president of marketing for Macy’s.

“There’s a segment of customers for who Black Friday is all about the deal and the bargain,” said Barbara Schrantz, executive vice president for marketing and sales promotion at Bon-Ton Stores, which opened at 3 a.m. “There’s kind of a game to it, and a family tradition.”

    Black Friday Brings Out the Competitors, NYT, 26.11.2010, http://www.nytimes.com/2010/11/27/business/27shop.html

Stocks Drop, Unsettled by Korea and Ireland

November 23, 2010
The New York Times
By CHRISTINE HAUSER

Shares on Wall Street fell on Tuesday as heightened uncertainty over conflict in Asia and the debt crisis in Europe continued to put investors on edge.

Traders were confronted with tensions on two continents. In Asia, the South Korean military went to “crisis status” and threatened strikes against the North after the North fired shells at a South Korean island.

In Europe, the fallout from the sovereign debt crisis continued. The Irish government faced imminent collapseafter signing off on a $100 billion bailout set the stage for a new election. And Greece’s international lenders cleared the way Tuesday for Athens to receive another installment of its bailout package, saying the government had made progress in reducing the budget deficit. But they warned that “extra effort” would be needed to meet next year’s goals.

A Commerce Department report that revised growth higher in third quarter did little to stir traders.

And the Federal Bureau of Investigation agents raided the offices of three hedge funds on Monday in the government’s latest action in an investigation into insider trading on Wall Street.

Gordon Charlop, a managing director at Rosenblatt Securities Inc., said the markets were skittish because of the events unfolding in Asia and Europe, and to a lesser extent perhaps in reaction to the government inquiry.

“There is not a lot of good stuff to hang your hat on,” Mr. Charlop said.

In addition, analysts said the markets were poised for retreat after recent gains, and that traders were likely to adjust portfolios in low volumes in a shorter trading week because of the Thanksgiving holiday on Thursday.

“People are trying to position themselves because of a shorter week and cut exposure before what is effectively a four-day weekend,” Mr. Charlop said.

In mid-morning trading, the Dow Jones industrial average fell 125.94 points, or 1.13 percent. The broader Standard & Poor’s 500-stock index was down 13.78 points, or 1.15 percent, while the Nasdaq composite index fell 28.87 points, or 1.14 percent.

The stock market had ended mixed on Monday amid concerns over the European financial crisis and the inquiry on Wall Street. As they did on Monday after news of the inquiry spread, financial sector shares slumped by more than 1 percent on Tuesday. Energy and materials stocks fell by more than 2 percent.

As risk concerns were heightened, the dollar rose on its weighted index against a range of currencies. The euro declined by about 1.4 percent to $1.3429 and gold prices firmed as investors sought safe havens.

“The minute you had geopolitical tension, the Swiss franc and the dollar got stronger,” said Quincy Krosby, the market strategist for Prudential Financial. “That said geopolitical uncertainty has the ability to get worse.”

“Then again we had a market that moved up significantly and it was a market that was poised to consolidate,” Ms. Krosby said. “And all of these events have given the market a very good reason to pull back.”

In London, the FTSE 100 index was down 62.38 points, or 1.1 percent, while the DAX in Frankfurt fell 89.40 points, or 1.3 percent. The CAC 40 in Paris was 60.82 points, or 1.5 percent, lower.

Some analysts said that the uncertainty related to the European debt crisis, which has been escalating for weeks over Irish banks, has been mostly priced into the market.

But on Tuesday, events in Asia escalated and unnerved the markets. Ten-year Treasury yields fell to 2.73 percent from 2.8 percent late Monday.

“Until a resolution is reached, expect Treasuries to take on greater appeal, especially this week, when liquidity will probably be tough to come by if it’s needed,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company, in a market commentary.

“In other news, a handful of economic numbers come in this morning, but they appear to be taking a backseat to the news out of Korea.”

The Commerce Department reported on Tuesday that the nation’s output grew at a rate of 2.5 percent a year in inflation-adjusted terms, higher than the initial estimate of 2 percent.

While economists said the rate is still far too slow to significantly reduce the unemployment rate, some of the components of the report showed improvement in revisions, such as a decline in inventories and a rise in consumer spending.

Anthony Chan, the chief economist at J. P. Morgan Private Wealth Management, said they signaled a “fighting chance” for improvement in future economic growth.

    Stocks Drop, Unsettled by Korea and Ireland, NYT, 23.11.2010, http://www.nytimes.com/2010/11/24/business/24markets.html

U.S. Home Sales Fell Sharply in October

November 23, 2010
The New York Times
By DAVID STREITFELD

Housing sales plunged again in October, dropping 26 percent from the month a year ago, the National Association of Realtors reported Tuesday

While severe, the decline was anticipated. Buyers rushed beginning last fall to conclude deals so they could qualify for an $8,000 tax credit and that pulled sales forward from the winter.

This fall had no such incentive, and despite the lowest interest rates in decades, buyers shunned the market, agents and analysts said.

“Nothing’s selling,” said Mark Fleming, an analyst with the data firm, CoreLogic. “People aren’t buying houses. Period.”

October sales dropped 2.2 percent from September.

One factor apparently weighing on some buyers was the uproar surrounding foreclosures. Several major banks suspended the processing of foreclosures under pressure during October. In some cases, buyers for foreclosed homes were told they had to postpone their deals.

That helped reduce the sales of foreclosed homes, which have been declining anyway.

About 4.43 million homes were sold on a seasonally adjusted annual basis in October, compared with nearly 6 million in October 2009. The tax credit was extended late last year through the spring, which saw another burst of activity.

Then came July and a sharp drop. Sales fell 26 percent from July 2009 to an annualized rate of 3.84 million, the lowest level in 14 years.

The Midwest was the region hit the hardest in October, falling nearly a third below the level of a year ago. The West fared best, dropping 21 percent.

It would take 10.5 months to sell all the homes on the market now, down from 10.6 months in September, the Realtor’s group said. A normal house market has about half that level of inventory.

    U.S. Home Sales Fell Sharply in October, NYT, 23.11.2010, http://www.nytimes.com/2010/11/24/business/economy/24foreclosure.html

Corporate Profits Were the Highest on Record Last Quarter

November 23, 2010
The New York Times
By CATHERINE RAMPELL

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses earned profits at an annual rate of $1.66 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.

Tuesday’s Commerce Department report also showed that the nation’s output grew at a slightly faster pace than originally estimated last quarter. Its growth rate, of 2.5 percent a year in inflation-adjusted terms, is higher than the initial estimate of 2 percent. The economy grew at 1.7 percent annual rate in the second quarter.

Still, most economists say the current growth rate is far too slow to recover the considerable ground lost during the recession.

“The economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation,” Paul Dales, a United States economist for Capital Economics, wrote in a note to clients. “This is unlikely to change in 2011 or 2012.”

The increase in output in the third quarter was driven primarily by stronger consumer spending. Wages and salaries also rose in the third quarter, which might help bolster holiday spending in the final months of 2010.

Private inventory investment, nonresidential fixed investment, exports and federal government also contributed to higher output. These sources of growth were partially offset by a rise in imports, which are subtracted from the total output numbers the government calculates, and a decline in housing and other residential fixed investments.

    Corporate Profits Were the Highest on Record Last Quarter, NYT, 23.11.2010, http://www.nytimes.com/2010/11/24/business/economy/24econ.html

Fewer Fall Delinquent in Paying Mortgages

November 18, 2010
The New York Times
By DAVID STREITFELD

Even as the fight over foreclosures continues, the high tide of delinquency among homeowners has begun to recede.

Households that are behind in their mortgage payments fell during the third quarter to 13.52 percent, from 14.42 percent in the second quarter, the Mortgage Bankers Association reported on Thursday.

It was the lowest delinquency rate since the beginning of 2009, just as the financial crisis began hitting home. The new data come amid stepped-up scrutiny of foreclosures by state and federal authorities, prompted by revelations that the banks have been pursuing them in ways that could violate the law.

Delinquencies during the summer months declined for two reasons. Bankers reduced the pool of the seriously delinquent by offering loan modifications to some and evicting others. Seriously delinquent mortgages — those that are three months overdue or more — fell during the third quarter to 8.70 percent of all loans, from 9.11 percent in the second quarter, the bankers’ group said.

An economy that stopped deteriorating also had a positive effect. The percentage of borrowers that missed their first mortgage payment dropped in the third quarter, both from the second quarter and from the third quarter of 2009.

Just as the third quarter was ending in September, however, an uproar over foreclosure documentation began. Under pressure, several lenders suspended foreclosures so they could review their procedures.

Until those reviews are completed, analysts said, the number of households in the latter stages of delinquency is likely to swell again, meaning it is too early to know whether the third-quarter data signals a longer-term trend.

The report “is clearly good news, but perhaps we should wait” another quarter before concluding that the delinquency decline is permanent, said Jennifer H. Lee of BMO Capital Markets.

Lender Processing Services, a mortgage data company, also suggested caution in a separate report this week, saying the number of properties in delinquency and the number in foreclosure edged up in October from September.

Even with the third-quarter drop, delinquencies and foreclosures are above normal. They are closely tied to the employment situation, which is no longer worsening but not getting much better, either.

The delinquency survey on Thursday came out during a second day of Congressional hearings this week on foreclosures, with five major banks testifying. The banks tried to emphasize they were changing their ways, statements that were met with some skepticism.

“There is significant evidence to suggest that the speed-driven, corner-cutting operations endemic in the mortgage servicing industry have produced systemic and damaging consequences for the nation’s homeowners and for our housing and financial markets,” said Representative Maxine Waters, the California Democrat who is chairwoman of the House Subcommittee on Housing and Community Opportunity.

Elizabeth A. Duke, a Federal Reserve Board governor, said in her testimony that the central bank expected about 2.25 million foreclosure filings this year and in 2011, and two million more in 2012.

“They will remain extremely high by historical standards,” Ms. Duke said in her prepared testimony. In 2006, before the collapse, there were about one million foreclosures a year.

It is evident from the third-quarter data that foreclosures are no longer being caused by bad loans, which was the case for much of the recession. Now most foreclosures occur with prime loans, which are harder for banks to modify than subprime.

Prime fixed-rate loans, the safest kind of loans, represented 36 percent of all new foreclosures in the third quarter, up from 30 percent in the third quarter of 2009. Meanwhile, the percentage of new foreclosures generated by the worst kind of loans, adjustable subprime, fell sharply.

The Treasury Department also released its most recent loan modification figures on Thursday, showing that only 24,000 households had gotten permanent new loans during October. It was the lowest number since the government’s Making Home Affordable Program was getting started last year.

About 483,000 homeowners have gotten permanent new loans through the program; 719,000 enrolled in a trial but were either foreclosed or got a modification without government oversight.

Bank of America said that it modified 25,000 loans in October, up from 16,500 in September. Relatively few were done through the government program.

Michael Fratantoni, vice president of research for the mortgage bankers, said, “The modification effort has certainly benefited a number of homeowners.” But he noted that the re-default rate of modified loans can be as high as 50 percent after the first year, another reason foreclosures are unlikely to decline significantly.

    Fewer Fall Delinquent in Paying Mortgages, NYT, 18.11.2010, http://www.nytimes.com/2010/11/19/business/19delinquent.html

Pretty Good for Government Work

November 16, 2010
The New York Times
By WARREN E. BUFFETT

Omaha

DEAR Uncle Sam,

My mother told me to send thank-you notes promptly. I’ve been remiss.

Let me remind you why I’m writing. Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world’s most famous insurer, was at death’s door.

Many of our largest industrial companies, dependent on commercial paper financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, Berkshire Hathaway, might have been the last to fall, but that distinction provided little solace.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, 401(k)’s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

When the crisis struck, I felt you would understand the role you had to play. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled.

You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.

That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world.

So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.

Your grateful nephew,

Warren

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

    Pretty Good for Government Work, NYT, 16.11.2010, http://www.nytimes.com/2010/11/17/opinion/17buffett.html

One Way to Trim Deficit: Cultivate Growth

November 16, 2010
The New York Times
By DAVID LEONHARDT

We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody.

As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.

What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.

Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn’t get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.

But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.

Today’s looming deficits are almost surely too large to be closed exclusively with growth. The baby boom generation is too big, and the rise in Medicare costs continues to be too steep. Yet growth could still make an enormous difference.

If the economy grew one half of a percentage point faster than forecast each year over the next two decades — no easy feat, to be fair — the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears, based on my reading of budget data from the economists Alan Auerbach and William Gale.

To get a concrete sense for what this would mean, you can play around with the The Times’s online deficit puzzle. It asks you to find almost $1.4 trillion in annual spending cuts and tax increases by the year 2030. If growth were a half point faster than expected, the needed savings would instead drop to less than $700 billion. That would mean many fewer painful choices, be they tax increases or Medicare cuts.

So arguably the single best way to cut the deficit is to make sure that any deficit-cutting plan does not also cut economic growth. Ideally, it will lift growth.

There are two main ways to do so. First, we shouldn’t plunge ourselves back into another economic slump by raising taxes and cutting spending too quickly. President Franklin Roosevelt made that mistake in 1937, and this time (one hopes) the country won’t be able to rely on war mobilization spending to undo the error.

In the short term, we should actually spend more. “Some politicians and economists present a false choice: reduce unemployment or stabilize the debt,” argues a new bipartisan deficit plan that will be released Wednesday, the second such plan to come out in the last week. As Alice Rivlin, a Democrat who oversaw the writing of the plan with Pete Domenici, a Republican, put it: “We can do both. We can put money in people’s pockets in the short run and trim government spending in the long run.” .

The plan calls for a one-year payroll tax holiday for employers and workers, costing $650 billion. But remember that’s a one-time sum, while the needed deficit cuts will be hundreds of billions of dollars a year. Relative to those cuts, a payroll tax holiday — or more spending on roads and bridges, as President Obama favors — is a rounding error. And, of course, putting people back to work has its own benefits.

Even more important than the next couple of years is the second part of a pro-growth strategy: the long term. A good deficit plan doesn’t simply make across-the-board cuts for years on end. It cuts funding for programs that do not spur economic growth and increases funding for those relatively few that do. Likewise, it raises tax rates that do not have a clear record of promoting growth and cuts those that do.

This task is not an easy one, because advocates and lobbyists inevitably claim that their idea, whatever it is, will help the larger economy. Just look at farm subsidies, a form of welfare for agribusiness that is supposedly crucial to the American economy. Or look at President George W. Bush’s tax cuts, which, after being sold as an economic elixir, were followed by the slowest decade of growth since before World War II.

The two bipartisan deficit proposals that have come out over the last week each do a pretty good job, but not quite good enough, of focusing on economic growth. The most pro-growth part of both proposals — the Domenici-Rivlin plan and the one from Erskine Bowles and Alan Simpson — is their emphasis on tax reform.

Today’s tax code is a thicket of deductions, credits and loopholes that force people to change their behavior and waste time trying to avoid too large of a tax bill. A tax code with fewer deductions and lower rates — which, to be clear, is not the same thing as a tax cut — would instead let businesses and households focus on being as productive as possible. The potential to make good money would drive more decisions, and the ability to qualify for a tax break would drive fewer.

Beyond tax reform, both deficit plans mention the importance of making investments that will lead to future growth. In particular, the Bowles-Simpson plan calls for a gradual 15-cents-a-gallon increase in the federal gasoline tax to pay for highways, mass transit and other projects. The plans also urge the government to prioritize education and science.

These are clearly among the best ways to promote growth. The United States created the world’s most prosperous economy last century in large measure because it was the world’s most educated country. It no longer is. Federal science dollars, meanwhile, led to the creation of the intercontinental railroad, the airline industry, the microchip, the personal computer, the Internet and numerous medical breakthroughs. Yet science funding is scheduled to decline as stimulus money runs out.

Unfortunately, the plans don’t get more specific than saying that education and science are important. The only dedicated money for specific investments in either plan is the infrastructure fund financed by the gas tax. And, realistically, exhorting a future Congress to avoid wasteful spending and prioritize growth has about as much chance of success as exhorting it to find the political will to revamp Medicare.

The two bipartisan deficit groups deserve a lot of credit for starting to move the debate beyond vagaries. There is one more step they can take, though: making sure we remember that cutting the deficit is not only about making cuts.

    One Way to Trim Deficit: Cultivate Growth, NYT, 16.11.2010, http://www.nytimes.com/2010/11/17/business/economy/17leonhardt.html

U.S. Retail Sales Post Biggest Gain in 7 Months

November 15, 2010
The New York Times
By CHRISTINE HAUSER

Sales at the nation’s retailers and food service establishments rose in October compared with the previous month, according to government figures released on Monday, providing a glimmer of hope that consumer spending was set to improve in the fourth quarter.

The Commerce Department statistics, which also showed an improvement over October 2009, sales, were better than what economists had forecast, and were based on upward revisions in similar sales in September and August. Economists hope they indicate that consumer spending is gaining strength, although many households are still de-leveraging and dealing with uncertainties in employment.

With an expected slow recovery in the job market and therefore small gains in wages, growth in consumer spending will be “modest at best,” said Joshua Shapiro, the chief United States economist for MFR Inc.

The Commerce Department said retail sales in October were up 1.2 percent from September, a jump from economists’ predictions of 0.7 percent. The October sales were also 7.3 percent higher compared with October last year. The seasonally adjusted figure represents $373.1 billion in sales.

The rise in the October numbers was primarily attributed to a 14 percent gain in motor vehicles and parts sales, and in sales at gasoline stations. Still, the statistics, which were adjusted for seasonal and holiday variations, show that when those components are removed the retail sales were also better than expected, registering a 0.4 percent rise.

“With autos showing life in September and October, the consumer is doing somewhat better than we would have expected,” said Mr. Shapiro in a research note.

Clothing sales were up and building materials sales were also stronger, the Commerce Department said.

Consumer spending accounts for about 70 percent of the gross domestic product but a considerable portion of that spending is related to housing, medical care and food necessities.

There were declines in sales of furniture, appliances and department store sales, suggesting that some consumers were still hesitating before buying discretionary items. The figures are advance estimates, and subject to revisions.

The lower electronics sales could reflect a decline in prices as stores try to attract consumers with discounts early in the holiday season, said Yelena Shulyatyeva, a United States economist with BNP Paribas.

Dan Greenhaus, the chief economic strategist for Miller Tabak & Co., said that based on the figures, it was likely that consumption in the fourth quarter could be revised upward, with an estimated 2.5 percent fourth quarter GDP. But that is still well below the GDP needed to bring down the unemployment rate of 9.6 percent.

“Generally speaking the report is quite good,” Mr. Greenaus said. “It is coincident with stable levels of spending, although levels that remain well below that which would be needed to drive significant GDP growth.”

Consumer spending and employment are two of the closely watched sectors that economists use to gauge the pace of the economic recovery. Manufacturing has also been one of the key sectors of the economy, and generally thought to be a bright spot in hiring.

On Monday, the Federal Reserve provided a snapshot of regional New York manufacturing that showed November was considerable weaker than expected, with a decline of 11.14 compared with an expected reading of 15. New orders fell by over 37 points and the numbers of employees also fell, the survey said.

    U.S. Retail Sales Post Biggest Gain in 7 Months, NYT, 15.11.2010, http://www.nytimes.com/2010/11/16/business/economy/16econ.html

Safer Social Security

November 14, 2010
The New York Times
By PETER ORSZAG

Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they’re projected to rise to about 6 percent. Over the same period, federal health care costs will increase six times as much.

Nevertheless, Social Security does face an actuarial deficit. Current projections suggest that, after 2037, benefits would need to be reduced by more than 20 percent to match revenue. Measured over the next 75 years, the deficit in Social Security is expected to amount to 0.7 percent of the economy — not a huge amount, but a deficit nonetheless.

So it would be desirable to put the system on sounder financial footing. And that is precisely what the co-chairmen of President Obama’s bipartisan commission on reducing the national debt have bravely proposed to do. It’s too bad their proposal has been greeted with so much criticism, especially from progressives — who really should look at it as an opportunity to fix Social Security without privatizing it. Although the plan leans too much on future benefit reductions and not enough on revenue increases, it still offers a good starting point for reform.

The proposal put forward last week by Alan Simpson, the former Senate Republican leader, and Erskine Bowles, who was a White House chief of staff under President Bill Clinton, has four main elements.

First, it would make the payroll tax more progressive by increasing the maximum earnings level to which it applies. Over the past several decades, as higher earners have enjoyed particularly rapid wage gains, a growing share of their wages has escaped the tax because they have been above the maximum taxable level. Today, about 15 percent of total wages are not taxed. The chairmen recommend gradually raising the maximum threshold so that, by 2050, only 10 percent of total wages wouldn’t be taxed — decreasing the 75-year Social Security deficit by more than a third.

Second, Mr. Simpson and Mr. Bowles recommend indexing the age at which full Social Security benefits can be received to increases in life expectancy. This age is already increasing to 67, and under the proposal the gradual rise would continue, to 68 by 2050. A better approach would be to leave the full benefit age alone and instead directly reduce the monthly benefits as life expectancy rises, to keep average lifetime benefits roughly constant. But the chairmen’s approach would by itself narrow the Social Security gap by about a fifth.

The third suggested change is to make the formula for determining Social Security benefits more progressive, by reducing future payments to high earners while increasing them for people at the bottom. These adjustments would close at least another third of the projected deficit. And they would also help offset a little-noticed trend: affluent Americans are increasingly living longer than others. This pushes the Social Security system toward being less progressive, as higher earners collect benefits for more years.

Finally, Mr. Bowles and Mr. Simpson would have Congress adjust the cost-of-living index that’s used to determine annual increases in Social Security benefits so that it would measure inflation more accurately. Making this switch would fill in more than a quarter of the long-term deficit, because the new index would grow more slowly.

If Congress were to take all four of these recommended steps, it could not only eliminate the long-term deficit in Social Security but also make the system much more progressive. Even compared with the benefits promised by the current system, the recommended benefits for the poorest 20 percent of recipients would increase by about 5 percent, while those for the wealthiest retirees would fall by almost 20 percent.

Furthermore, the plan would not create private accounts within Social Security — the most controversial issue that came up when reform was last debated in 2005. Why not lock in a reform when private accounts are off the table? (Note to progressives: the Social Security plan put forward by Paul Ryan of Wisconsin, the expected new chairman of the House Budget Committee, does include private accounts.)

The main flaw in the proposed Social Security plan is that it relies too little on revenue increases and too much on future benefit reductions. A reasonable objective would be a 50-50 balance between changes in benefits and changes in revenues. But the way to bring reform into better proportion is to adjust the components of this proposal, not to fundamentally remodel it.

Finally, even though Social Security is not a major contributor to our long-term deficits, reforming it could help the federal government establish much-needed credibility on solving out-year fiscal problems — which in turn could improve the political prospects for providing additional short-term stimulus for the economy. All of which suggests that Democrats in Congress should support the basic construct of the Bowles-Simpson proposal, while arguing for some changes to improve it. That has not, however, been their reaction thus far.

It is therefore crucial that the Obama administration recognize the opportunity and respond to it more positively. The White House has been handed a highly progressive reform plan for Social Security that could attract Republican support as well.

Peter Orszag, the director of the White House Office of Management and Budget from 2009 to 2010 and a distinguished visiting fellow at the Council on Foreign Relations, is a contributing columnist for The Times.

    Safer Social Security, NYT, 14.11.2010, http://www.nytimes.com/2010/11/15/opinion/15orszag.html

Wal-Mart Says ‘Try This On’: Free Shipping

November 11, 2010
The New York Times
By STEPHANIE CLIFFORD and CLAIRE CAIN MILLER

For years, Wal-Mart has used its clout as the nation’s largest retailer to squeeze competitors with rock-bottom prices in its stores. Now it is trying to throw a holiday knockout punch online.

Starting Thursday, Wal-Mart Stores plans to offer free shipping on its Web site, with no minimum purchase, on almost 60,000 gift items, including many toys and electronics. The offer will run through Dec. 20, when Wal-Mart said it might consider other free-shipping deals.

“Everyone’s trying to figure out how we can serve a customer that’s trying to save every penny they can,” said Steve Nave, senior vice president and general manager of Walmart.com. “It’s the most competitive offer out there, and we’re pretty excited about it.”

Even before Wal-Mart’s surprise move, shipping prices were this holiday season’s predicament for online retailers. In a bid for cost-conscious consumers, Target and J. C. Penney introduced their most aggressive free-shipping programs ever, and Sears, Toys “R” Us, Williams-Sonoma and others were trying to match the success of Amazon’s shipping program, offering unlimited two-day shipping for an annual fee.

But given Wal-Mart’s scale and influence in the marketplace, its free pass for shipping sets a new high — or low — in e-commerce. And it may create an expectation among consumers — free shipping, no minimum, always — that would make it harder for smaller e-commerce sites to survive.

Wal-Mart says it will not raise prices to offset shipping and will not press shippers, like UPS and FedEx, to absorb the costs. But Wal-Mart and other big retailers already have low-price contracts with shippers, and the stores maintain distribution centers nationwide that reduce shipping distances and costs.

For smaller retailers and Web sites, which pay regular mail rates and may ship from only one location, free shipping is not nearly as affordable and often must be added into prices.

“You’re trying to compete with the Amazons and the Zappos, who have so many different warehouses that they can significantly reduce transport costs,” said Gary Schwake, director of business development at the Distribution Management Group, a consulting firm that advises retailers like Eddie Bauer.

Retailers say that shoppers have already started to revolt against shipping fees. While consumers are sensitive to what an item costs online, shipping costs can have even more influence, according to market research.

When e-commerce took off a decade ago, free shipping was a rare perk. Now, 55 percent of consumers are at least somewhat likely to abandon their purchase if they do not get free shipping, according to comScore, the online-research firm, and about 41 percent of transactions online now include free shipping (usually with a minimum purchase).

Wal-Mart is throwing itself into the holiday season shipping fray as it tries to revive sales. Even as other retailers’ sales have recovered, sales at Wal-Mart’s stores in the United States open more than a year have fallen for five consecutive quarters. Recently, it has been adding to the merchandise it carries, offering products for under $1 and undercutting Target on toy prices.

The Wal-Mart shipping offer has no minimum. Mr. Nave said an important factor was that an item was likely to be given as a gift. “We looked at the areas we felt were going to be popular in gift-giving this holiday, and went from there,” he said.

Even after the holidays, “I would expect to see us continue to have offerings similar to this in the future in some way, shape or form,” he said.

The Wal-Mart announcement was not public until Thursday, but retailers had already been escalating their shipping programs since last year, when mobile comparison-shopping apps helped make free shipping popular.

Amazon.com has one successful model. Year-round, it offers free shipping on orders over $25. And its Amazon Prime program, in which members pay $79 a year for unlimited two-day shipping on almost all purchases, could account for as much as a third of sales, said Jordan Rohan, an analyst with Stifel Nicolaus.

“It is making other retailers scramble,” he said.

To fight off Amazon Prime, a month ago GSI Commerce started ShopRunner, a service that bands together e-commerce sites including eBags and the Web site of Toys “R” Us. Shoppers pay $79 a year for unlimited two-day shipping from any of the members. This fall, Williams-Sonoma started a service like that for $30 a year, and Sears and Kmart, which introduced a similar program three years ago, are pushing it heavily this season.

Beginning in October, J.C. Penney started offering free shipping year-round, with a minimum purchase of $69 for most of the year. Target is offering free shipping on purchases of $50 and up, on 800,000 items. And in August L.L. Bean began offering free shipping with no minimum, through Dec. 20.

Bigger companies have a big advantage in the battle over free shipping: volume.

According to the Distribution Management Group, air shipping prices for big retailers are about 70 percent less than for a small company. Shipping at Amazon costs about 4 percent of sales, and Amazon loses money on it because it offers marketing benefits, said Aaron Kessler, an e-commerce analyst at the research firm ThinkEquity. But shipping at small sites usually costs about 35 percent of sales, said Mr. Schwake, the retail adviser.

Despite the costs, smaller retailers say they have little choice but to offer free shipping, in some form, these days.

“Everyone does it,” said Michael Mente, the co-founder of Revolve Clothing, a Los Angeles-based women’s clothing site. Asked if he received discounts from the shippers, he said, “Unfortunately not.” At the start-up site ModCloth, which sells women’s clothes, the co-founder Susan Gregg Koger said she couldn’t afford free shipping year round, but she decided to do it for the holiday season. It is a risk, she said.

“That’s really hard to offer and then roll back,” she said.

While Wal-Mart may continue with some free shipping offers after the holidays, even other big retailers like L.L. Bean say they just cannot afford it after Christmas is over.

“We’d love to be able to offer free shipping, but free shipping isn’t free,” said Laurie Brooks, an L.L. Bean spokeswoman. “It does cost a company money."

There are potential downsides, even for Wal-Mart. Physical stores with Web sites run a risk in promoting free shipping, Mr. Rohan said. “They’d much rather you buy that same item in the store for $50 and pick up a hundred dollars of other stuff you wouldn’t even think about,” he said.

    Wal-Mart Says ‘Try This On’: Free Shipping, NYT, 11.11.2010, http://www.nytimes.com/2010/11/11/business/11shipping.html

Obama Nears a Deal to Reduce Trade Imbalance

November 10, 2010
The New York Times
By SEWELL CHAN and SHERYL GAY STOLBERG

SEOUL, South Korea — Obama administration officials said Thursday that they were close to securing a compromise agreement to help reduce vast trade imbalances, a step that could ease conflict among the major world economies over commerce, currency and monetary policies.

Treasury Secretary Timothy F. Geithner said he believed that the world’s leading economies, which will meet in Seoul on Friday, would agree that they should monitor and seek to reduce acute trade surpluses or deficits that threaten economic and financial stability.

China and Germany, among others, sharply criticized an earlier American proposal to set numerical limits to such imbalances. The new compromise appears devised to eke out a modest agreement on principles that each country would adhere to voluntarily.

While the agreement is unlikely to lead to bold new steps by individual countries, Obama administration officials say an accord on broad goals may help calm fears that a flurry of recriminations over who is responsible for trade imbalances could lead to a competitive devaluations or trade war.

“I think it overstates the level of disagreement about the challenges we have ahead,” Mr. Geithner told reporters on the way from Singapore to Seoul for the Group of 20 summit meeting. “We expect we’ll see broad support for the type of cooperative framework the ministers of finance first introduced two weeks ago.”

A senior Obama administration official, speaking in Seoul, said the advance draft of a joint communiqué under consideration by the member nations would adopt a set of “indicative guidelines” that set common standards for assessing trade balances and prompting diplomatic discussions about them when they grow too large.

As with all Group of 20 communiqués, this one relies on peer pressure and the perception of shared long-term interests; it is not legally binding. But the group plans to ratify calls for the International Monetary Fund to a play a stronger and more prominent role in monitoring the trade imbalances and, when necessary, publicizing them, a process that still must be worked out.

Word of the possible compromise came as American officials scrambled to cool tensions that had flared over the United States Federal Reserve’s decision to pump $600 billion into the economy to stimulate growth, which China, Germany, Brazil and other major exporters fear is intended to push down the value of the dollar and give the United States an advantage in global trade.

President Obama, in a letter to the Group of 20 released Wednesday, appealed for calm, while also imploring other world leaders to shift global economic demand away from its historical reliance on American consumption and borrowing.

“We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing,” Mr. Obama wrote. “Yet no one country can achieve our joint objective of a strong, sustainable and balanced recovery on its own.”

In an opinion article for the Asian edition of The Wall Street Journal, Mr. Geithner, joined Tharman Shanmugaratnam, the finance minister of Singapore, and Wayne Swan, the treasurer of Australia, in warning that a “two-track recovery will dominate the global economy for a long time to come” and would require new forms of cooperation.

Together, Mr. Obama’s letter and Mr. Geithner’s article laid out a strategy that combined an appeal to reason, an avoidance of confrontation and more than a little humility. The benefit of their approach, they said, would be higher overall growth in the long term.

It remained to be seen how a vague commitment to reduce imbalances would affect China and Germany, which have the world’s two most powerful surplus economies. Both countries rely on exports for much of their growth and have relatively low rates of consumption, while the United States has high consumption and runs a large trade deficit.

Mr. Obama’s letter indirectly defended the Fed’s move to try to stimulate more growth by injecting fresh monetary stimulus into the economy. The president said the world needed a robust United States recovery even though it should no longer depend on the American consumer to serve as the mainstay of demand.

“A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery,” Mr. Obama wrote in the letter. “The dollar’s strength ultimately rests on the fundamental strength of the U.S. economy.”

A few hours after Mr. Obama’s letter was released, the Commerce Department reported that American exports grew 0.3 percent in September while imports fell 1 percent. Exports through the first nine months of the year are up nearly 18 percent from the same period a year ago.

“Our renewed focus on trade promotion is helping to grow exports, which are critical to our continued economic growth,” the commerce secretary, Gary Locke, said in a statement from Yokohama, Japan, where Mr. Obama is to travel on Friday evening for meetings of the Asia-Pacific Economic Cooperation forum.

In his article with Mr. Tharman and Mr. Swan, Mr. Geithner said trade and currency adjustments now required broad collective action.

“Currency issues were once left to the United States, Europe and Japan, but that will no longer work in the new world economy,” they wrote, acknowledging that the days in which American officials could more or less dictate global monetary policy had ended.

The three men wrote that “the currencies of the major advanced economies are roughly in alignment with each other today” and that the major nations should avoid currency volatility, but they added that “emerging economies need to allow their exchange rates to reflect the substantial growth they have achieved in their economies over the last decade.”

The pair of new American statements also acknowledged the anxiety felt by fast-growing emerging markets like South Korea, the host of this year’s Group of 20 meeting, over the surge of capital flows that have been entering their economies, driving up currencies, interest rates and inflation and raising the risk of unsustainable asset bubbles.

Despite the more conciliatory tone, many analysts argue that the struggle over monetary policy is unlikely to be resolved quickly.

Uri Dadush, who directs the international economics program at the Carnegie Endowment for International Peace, said the system of flexible exchange rates that had existed since 1971 was at risk of breaking down.

“At the heart of the problem is the unwillingness of the big players — and here I would single out the United States, Germany and China — to deal with their own domestic problem,” Mr. Dadush said.

He said that the United States needed to stimulate demand in the short run but curb its addiction to borrowing in the long run; that China needed to reduce its reliance on exports and allow its consumers to buy more and save less; and that Germany needed to wean itself off the fixation on frugality and productivity that helped it through reunification in 1990 but that now posed a threat to the economic integration of Europe.

Mr. Dadush’s view is the mainstream one, and one shared by the United States. As Mr. Obama put it, “Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand.”

    Obama Nears a Deal to Reduce Trade Imbalance, NYT, 10.11.2010, http://www.nytimes.com/2010/11/11/business/global/11group.html

In These Lean Days, Even Stores Shrink

November 9, 2010
The New York Times
By STEPHANIE CLIFFORD

SANTA ANA, Calif. — A temporary wall slices the Anchor Blue store here in half. On one side are abandoned dressing rooms, a few mannequins and no customers. On the other are racks jammed with clothing and accessories — and more customers than ever coming into the store.

Tom Shaw, the head of Anchor Blue, a clothing chain for teenagers, looked with approval at the 2,500 square feet of empty space that his company still rents. Foot traffic is up more than 7 percent, the chain says, and sales have increased nearly 23 percent since the trial remodeling last year.

“We don’t want a department-store feel,” Mr. Shaw said. “With that much product in that much space you can get lost, not know where to go.”

Anchor Blue is among a growing number of retailers thinking small — chopping off big chunks of stores or moving to more efficient spaces. The change reflects two trends in the retail world: Chains looking for new ways to cut costs in the sour economy, and consumers demanding a less sprawling shopping experience as they spend with greater purpose.

“The customer walks in the door, and often sees a huge selection of stuff in a multibrand store, and can’t figure out what to buy and ends up buying nothing,” said Paco Underhill, founder and chief executive of Envirosell, a Manhattan-based company that advises stores on shoppers’ behavior. “We have reached the apogee of the big box, meaning that we can’t grow the store or the shopping mall any bigger, or get any more time or money out of somebody’s pockets.”

Big chains like Bloomingdale’s and Nike are trying smaller stores, as are specialty retailers like Charlotte Russe. Mr. Underhill said most of his clients are exploring the idea, which can require creative thinking.

The new Bloomingdale’s in Santa Monica, Calif., for example, saves space with dressing rooms that retract into the ceiling. Charlotte Russe uses free-standing glass walls that can be rearranged. At Nike, the cash registers are wired into movable counters.

The smaller stores help clean retailers’ balance sheets. Rents drop, and smaller amounts of inventory cost less. Retailers can also reduce payroll costs because fewer employees are needed. At the Anchor Blue store here in Santa Ana, three employees now work on the floor instead of four.

Retail chains “saw their lives flash before their eyes in the financial crisis downturn,” said John D. Morris, an analyst with BMO Capital Markets, a financial services provider. “When you’re looking at such a severe slowdown as they were in consumption, you worry about the commitment in real estate.”

Mr. Shaw said he reduced the amount of clothing in the Santa Ana store by about 15 percent, removing many slower-moving items like unpopular sizes — and increasing profitability. As leases expire on its 118 stores, Anchor Blue is moving into spaces about half their size .

“You’re placing a sizable bet when you’re buying a lot of inventory and filling up a 6,000-square-foot box,” he said.

The financial success of many smaller stores is simple, retail analysts and the stores say: Smaller spaces are cheaper, and can be easily changed to carry the most profitable, fastest-selling inventory. The stepped-up foot traffic at the Anchor Blue store in Santa Ana, and the sales increase, for example, are both above the chain’s averages.

“It certainly enhances the productivity,” Mr. Morris said of the smaller spaces.

Bloomingdale’s store in Santa Monica, which opened this summer, is about 105,000 square feet on two floors, less than one-eighth the size of the chain’s Manhattan flagship store. The developer packaged in the third floor, but Bloomingdale’s declined the extra room, said Michael Gould, chairman and chief executive of Bloomingdale’s.

Mr. Gould said he wanted a smaller store to move through inventory faster. The Santa Monica store dropped two slower-moving categories, home and children’s, that are often found in other Bloomingdale’s stores. It has also saved space with innovations like a mobile rack, that resembles those dry cleaners use, on the second floor ceiling that moves mannequins and clothes.

“You have a store that’s turning very quickly,” he said.

In addition, Mr. Gould said, many shoppers have responded to a more focused retail experience — stores that have been stripped of the distractions and temptations of unwanted merchandise — as the success of Bloomingdale’s smaller Manhattan store in SoHo, opened in 2004, has demonstrated.

“We can be very specific to a customer and to a marketplace, and that’s what we need to do,” he said.

Nike is also looking at flexible layouts as it experiments with smaller stores. The typical Niketown store is more than 50,000 square feet, while its prototype “brand experience” store, opened in Santa Monica in August, is just 22,000 square feet. Nike has no plans to open more Niketowns, opting instead for smaller options like the “brand experience” store.

The driving force was to make shopping simple, said Tim Hershey, Nike’s vice president and general manager of North American retail. “Customers are always asking us to make it easy,” he said.

Almost all the elements of the new Nike store can be rearranged at a moment’s notice. Each wall contains horizontal slats about six inches apart, and almost every piece of hardware — the circle of metal that holds a soccer ball, the wire cages that contain socks — can be hooked into the wall slats. Freestanding tables and locker-compartmentlike display cases are on wheels. A big orange station where the cash registers are housed looks like the only permanent fixture in the store — but it is not.

“It’s wired to be relocated in multiple places,” Mr. Hershey said. “We like where it’s at but we haven’t been through a holiday. Live and learn.”

Charlotte Russe, which has more than 500 outlets nationally, is also experimenting with a new concept store in Santa Monica that is about 25 percent smaller than the norm.

Jenny Ming, the chief executive, ordered freestanding glass walls to distinguish between types of clothes. “It just makes it more shoppable,” she said. “So many stores now, it’s just big, you throw everything in there,” Ms. Ming said.

For maximum versatility and efficiency, each fixture has been designed for multiple purposes. A metal rod that lies perpendicular to the wall can hold shoes on plastic hooks, underwear looped through a leg hole or hangers.

Ms. Ming tried stacking shoe boxes on the selling floor so customers could select their sizes without waiting for a clerk. But that backfired, she said, as boxes were scattered, requiring extra staff (and money) for cleanup.

The boxes are back in the storage area, the experience pointing to an axiom of the new smaller-is-better movement. “It’s building in as much flexibility as possible,” Ms. Ming said.

    In These Lean Days, Even Stores Shrink, NYT, 9.11.2010, http://www.nytimes.com/2010/11/10/business/10small.html

Exporting Our Way to Stability

November 5, 2010
The New York Times
By BARACK OBAMA

AS the United States recovers from this recession, the biggest mistake we could make would be to rebuild our economy on the same pile of debt or the paper profits of financial speculation. We need to rebuild on a new, stronger foundation for economic growth. And part of that foundation involves doing what Americans have always done best: discovering, creating and building products that are sold all over the world.

We want to be known not just for what we consume, but for what we produce. And the more we export abroad, the more jobs we create in America. In fact, every $1 billion we export supports more than 5,000 jobs at home.

It is for this reason that I set a goal of doubling America’s exports in the next five years. To do that, we need to find new customers in new markets for American-made goods. And some of the fastest-growing markets in the world are in Asia, where I’m traveling this week.

It is hard to overstate the importance of Asia to our economic future. Asia is home to three of the world’s five largest economies, as well as a rapidly expanding middle class with rising incomes. My trip will therefore take me to four Asian democracies — India, Indonesia, South Korea and Japan — each of which is an important partner for the United States. I will also participate in two summit meetings — the Group of 20 industrialized nations and Asia-Pacific Economic Cooperation — that will focus on economic growth.

During my first visit to India, I will be joined by hundreds of American business leaders and their Indian counterparts to announce concrete progress toward our export goal — billions of dollars in contracts that will support tens of thousands of American jobs. We will also explore ways to reduce barriers to United States exports and increase access to the Indian market.

Indonesia is a member of the G-20. Next year, it will assume the chairmanship of the Association of Southeast Asian Nations — a group whose members make up a market of more than 600 million people that is increasingly integrating into a free trade area, and to which the United States exports $80 billion in goods and services each year. My administration has deepened our engagement with Asean, and for the first eight months of 2010, exports of American goods to Indonesia increased by 47 percent from the same period in 2009. This is momentum that we will build on as we pursue a new comprehensive partnership between the United States and Indonesia.

In South Korea, President Lee Myung-bak and I will work to complete a trade pact that could be worth tens of billions of dollars in increased exports and thousands of jobs for American workers. Other nations like Canada and members of the European Union are pursuing trade pacts with South Korea, and American businesses are losing opportunities to sell their products in this growing market. We used to be the top exporter to South Korea; now we are in fourth place and have seen our share of Korea’s imports drop in half over the last decade.

But any agreement must come with the right terms. That’s why we’ll be looking to resolve outstanding issues on behalf of American exporters — including American automakers and workers. If we can, we’ll be able to complete an agreement that supports jobs and prosperity in America.

South Korea is also the host of the G-20 economic forum, the organization that we have made the focal point for international economic cooperation. Last year, the nations of the G-20 worked together to halt the spread of the worst economic crisis since the 1930s. This year, our top priority is achieving strong, sustainable and balanced growth. This will require cooperation and responsibility from all nations — those with emerging economies and those with advanced economies; those running a deficit and those running a surplus.

Finally, at the Asia-Pacific Economic Cooperation meeting in Japan, I will continue seeking new markets in Asia for American exports. We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we’re not ceding markets, exports and the jobs they support to other nations. We will also lay the groundwork for hosting the 2011 APEC meeting in Hawaii, the first such gathering on American soil since 1993.

The great challenge of our time is to make sure that America is ready to compete for the jobs and industries of the future. It can be tempting, in times of economic difficulty, to turn inward, away from trade and commerce with other nations. But in our interconnected world, that is not a path to growth, and that is not a path to jobs. We cannot be shut out of these markets. Our government, together with American businesses and workers, must take steps to promote and sell our goods and services abroad — particularly in Asia. That’s how we’ll create jobs, prosperity and an economy that’s built on a stronger foundation.

Barack Obama is the president of the United States.

    Exporting Our Way to Stability, NYT, 5.11.2010, http://www.nytimes.com/2010/11/06/opinion/06obama.html

Working With India

November 5, 2010
The New York Times

President Obama will spend three days in India beginning on Saturday — the longest foreign stay of his presidency. Indians are still feeling anxious and insufficiently loved. But the trip is a clear a sign of the importance that Mr. Obama places on the relationship. As he should.

The Clinton and Bush administrations talked that way, too. President George W. Bush was so eager to woo New Delhi that he gave away the store in a 2006 nuclear energy deal. It is up to Mr. Obama and Prime Minister Manmohan Singh to take this complex relationship to a more sustainable level. Ahead of the trip, much of the focus has been on defense and trade deals that will produce jobs. Those are undeniably important. But the trip will be a failure if it does not also deal with strategic issues.

India is anxious about America’s plans for Afghanistan and Washington’s close ties with Pakistan — base for insurgencies that threaten all three countries. The Indian-Pakistan nuclear rivalry remains dangerous. And so long as Pakistan’s army sees India as its main threat, it will never fully take on the Taliban.

India would gain credibility and make the world safer if it worked harder to reduce tensions with Pakistan.

The Indians have made clear that they don’t want Washington as a mediator. Mr. Obama still needs to nudge India to resume serious talks with Pakistan over Kashmir and take other steps to help calm Pakistan’s fears including pursuing a trade agreement.

Mr. Obama also needs to press Pakistan a lot harder to bring the Mumbai bombers to justice.

New Delhi did not retaliate after the 2008 attack — a testimony to Mr. Singh’s wise leadership. We hope that the president’s top aides have a plan for how they would tamp things down if Pakistani-based terrorists strike India again. There are many other challenges, including managing the rise of China, that can be dealt with more effectively if Washington and New Delhi work together.

The Indians seem conflicted. In recent news reports, some complained that Mr. Obama has not shown India enough attention. Others worried about getting overly entangled with Washington.

There are many positive trends. Military and counterterrorism cooperation are substantial. India holds more defense exercises with the United States than any other country. And it will soon purchase $5.8 billion worth of American-made C-17 military transport planes and more sales are expected.

There are also real differences that need to be addressed. Mr. Obama is pushing New Delhi to lift a cap on foreign investment in the defense sector. India wants more visas so high-tech workers can move to the United States. The two countries need to find ways to cooperate on trade liberalization and climate change.

The Bush administration overturned 30 years of nonproliferation policy when it signed the deal to sell nuclear fuel and reactors to India. A promised benefit — nuclear contracts for American companies that would create jobs at home — never materialized after India adopted a liability law that American firms say exceeds international standards and leaves them too exposed.

It is a grim irony that the nuclear deal, which was sold as essential to removing a serious irritant in Indian-American relations, is now causing new tensions. The two sides must find a way to resolve them.

    Working With India, NYT, 5.11.2010, http://www.nytimes.com/2010/11/06/opinion/06sat1.html

U.S. Added Jobs Last Month for First Time Since May

November 5, 2010
The New York Times
By CATHERINE RAMPELL

The United States economy added 151,000 jobs in October, a welcome change after four months of job losses but still not enough to make a dent in unemployment.

Private companies have been expanding their payrolls throughout 2010, according to a Labor Department report released Friday. Private job growth had been overwhelmed by the elimination of temporary decennial Census jobs and layoffs by state and local government during the summer and early fall — until October.

On many levels, the October report was much stronger than expected. Forecasters had been expecting a gain of only 60,000 jobs. The report also revised the numbers for August and September, showing 110,000 fewer jobs losses than previously estimated. Hourly wages were slightly higher, too.

“The big picture from this report and some of the others recently all points to a pickup in growth in the beginning of the fourth quarter,” said John Ryding, chief economist at RDQ Economics. “The notion that the economy might be double-dipping can now be safely tossed out.”

Still, the economy has a long way to go before the world brightens for many Americans. Nearly 15 million people are out of work and actively looking, and the unemployment rate, which remained steady at 9.6 percent, has been relatively flat since May.

A broader measure of unemployment, which includes people who are working part-time because they cannot find full-time jobs and people who have given up looking for work, ticked down slightly to 17 percent from 17.1 percent in September.

Coming just days after voters handed his party a “shellacking” at least in part out of frustration with the economy, President Obama seized on the report as a glimmer of hope in a bleak week. He called it “encouraging news” and pointed out twice that it meant the private sector had added more than 1 million jobs since the beginning of the year, although he acknowledged “that’s not good enough.”

“The fact is an encouraging jobs report doesn’t make a difference if you’re still one of the millions of people who are looking for work,” he told reporters before departing for a 10-day trip to Asia. “And I won’t be satisfied until everybody who is looking for a job can find one.”

He reached out to Republicans who have just won control of the House and picked up six seats in the Senate, pledging to work together on job growth. “I am open to any idea, any proposal, any way we can get the economy growing faster so that people who need work can find it faster,” he said, ticking off ideas like more infrastructure spending and tax breaks for businesses.

Companies added 159,000 jobs last month, after a gain of 107,000 jobs in September. Governments cut 8,000 jobs after losses of 148,000 positions in September. The economy last added jobs in May, when more than 400,000 workers were hired by the federal government to help with the Census.

Among the private industries with the strongest growth were education and health services, which added 53,000 jobs; retail, which added 28,000; and temporary help services, which expanded by 34,900 jobs. Another encouraging statistic was the lengthening private sector workweek, which rose by one-tenth of an hour, to 34.3 hours. Like the hiring of temp workers, an expanding workweek typically is seen as a harbinger of more permanent hiring.

Besides, the combination of longer hours and slightly higher hourly wages may help propel consumer spending, which could in turn lead retailers to do more hiring.

“For the fourth quarter, things may not be quite blockbuster, but it does look like we’re picking up a little momentum as we’re going into the holiday season,” Nigel Gault, chief United States economist at IHS Global Insight, said. “That’s certainly good news.”

Citing concerns about “disappointingly slow” growth, the Federal Reserve announced on Wednesday that it would engage in more aggressive monetary policy to try and grease the wheels of growth. The Fed chairman, Ben S. Bernanke, has hinted — and other economists have more openly advocated — that more active help from Capitol Hill on the jobs and output front would also be welcome.

But the midterm elections this week, which divided control of Washington between the major parties, have raised concerns that political gridlock may prevent Congress from doing much, if anything.

In addition to the weak demand companies are generally facing, this resulting uncertainty about the fate of measures like the Bush tax cuts, which are set to expire next year, has left many businesses hesitant to commit to hiring more workers.

“When we don’t have a clue what two of our largest budget items are, taxes and health care, we’ve got to keep all the money we possibly have,” said Patricia Felder, an owner and secretary-treasurer of Felder’s Collision Parts, a small company in Baton Rouge, La., that sells automotive parts to dealerships and body shops.

“We may need it for taxes since we have no idea what we’re looking at next year,” Ms. Felder said. “And we may need it to provide the same level of health care for employees that they got used to having.”

In the absence of Congressional action, the extensions of unemployment benefits are scheduled to expire soon. With little prospect of employment in the near future, many of the nation’s long-term unemployed, whose numbers hover around record highs, have become increasingly desperate.

“I hope that Congress can become human and forget about being Democrats or Republicans and just be human beings to see what it’s like for us,” said Annette Tornberg, 50, of Sacramento. She was laid off from her job at a printing company in 2009 and has been unable to find work despite sending out over 1,000 résumés. “We’re human beings, and all we want is for you to help us out.”

Economists have expressed muted optimism about the prospects for job growth next year.

“Our expectation is we are going to get a positive number on a sustained basis for the next year or two,” John E. Silvia, chief economist at Wells Fargo, said.

He said the economy was at a point where businesses trying to increase output must add workers, not just make them more productive or add hours. “That is the phase of the business cycle we are in now,” Mr. Silvia said.

While net hiring is obviously desirable, he said he expected to see only about 100,000 to 150,000 private payroll jobs added on average per month in the first half of the year. That would just barely enough to keep up with new people entering the labor force.

And even if the economy adds jobs at a pace that is twice as fast as that, it would still take about 12 years to fully close the gap between the growing number of people available to work and the total number of American jobs available, according to a recent analysis from the Brookings Institution’s Hamilton Project.

Christine Hauser and Peter Baker contributed reporting.

    U.S. Added Jobs Last Month for First Time Since May, 5.11.2010, NYT, http://www.nytimes.com/2010/11/06/business/economy/06jobs.html

Fed Will Buy $600 Billion in Debt, Hoping to Spur Growth

November 3, 2010
The New York Times
By SEWELL CHAN and DAVID E. SANGER

WASHINGTON — The Federal Reserve, concerned about the slow recovery, announced a second, large purchase of Treasury bonds on Wednesday, an effort to spur economic growth by lowering long-term interest rates.

The Fed said it would buy an additional $600 billion in long-term Treasury securities by the end of June 2011, somewhat more than the $300 billion to $500 billion that many in the markets had expected.

The central bank said it would also continue its program, announced in August, of reinvesting proceeds from its mortgage-related holdings to buy Treasury debt. The Fed now expects to reinvest $250 billion to $300 billion under that program by the end of June, making the total asset purchases in the range of $850 billion to $900 billion.

That would just about double the $800 billion or so in Treasury debt currently on the Fed’s balance sheet.

While the Fed has been signaling that it would act to bolster the economy, the announcement was the first major policy move since the midterm elections, which gave Republicans control of the House and heightened the potential for gridlock on fiscal policy including tax cuts and spending to encourage job creation and growth.

In justifying its decision, the Fed noted that unemployment was high and inflation low, and judged that the recovery “has been disappointingly slow.”

The Federal Open Market Committee, which ended a two-day meeting on Wednesday, also left open the possibility of additional purchases.

“The committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability,” the committee said.

As expected, the Fed left the benchmark short-term interest rate — the federal funds rate, at which banks lend to each other overnight — at nearly zero, where it has been since December 2008. The committee’s vote was 9 to 1.

Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented, as he has at every meeting this year. Mr. Hoenig “was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,” the Fed said in a statement.

Economists disagree about how much the new round of debt purchases — a reprise of an initial, $1.7 trillion round that ended in March — will have on spurring consumer and corporate demand.

Lower long-term interest rates in theory should ripple through the markets, affecting other rates, like those of 30-year, fixed-rate mortgages. That could encourage homeowners to refinance into cheaper mortgages, though it would not help the millions of Americans facing foreclosure.

But there are several significant risks. The new actions are likely to further drive down the value of the dollar, which as fallen about 7.5 percent since June against the currencies of major trading partners. That could exacerbate the trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.

Moreover, the Fed is exposing itself to the risk that the assets it has purchased, like the $1 trillion in mortgage-related securities on its balance sheets, could shrivel in value as interest rates rise. That could reduce the amount of money the central banks turns over to the Treasury each year, and expose the Fed — which has been attacked for failing to prevent the 2008 financial crisis — to further criticism.

And then there is a risk that the Fed’s action could be neutralized by a new Congress that has vowed to contract government spending, a core argument that led to the overwhelming Republican victory on Tuesday.

Mr. Obama, at a news conference on Wednesday, talked of compromise with the new Republican majority in the House. But he also cited China’s new high-speed trains and its advances in supercomputing to make the case that there are some areas where the United States needs to make investments, and insisted that the country would not shy away from those. “They are making investments, because they know those investments will pay off in the long term,” he said of the Chinese, seeming to suggest that the United States needs to do the same.

At the same moment, he reiterated that he would support continuing the Bush era tax cuts only for families earning less than $250,000 a year. “It is very important we’re not taking money out of the system from people who are most likely to spend that money,” Mr. Obama said at the news conference.

But he hinted at flexibility, saying he expected to sit down with the new Republican leadership to see “where we can move forward first of all in ways that can do no harm.”

Asked if he was willing to negotiate, he said, “Absolutely.”

Laurence H. Meyer, a former Fed governor who closely monitors the central bank, said the prospect of sustained fiscal gridlock had already pushed Mr. Bernanke to move.

“Bernanke has said that fiscal stimulus, accommodated by the Fed, is the single most powerful action the government can take for lowering the unemployment rate ,when short-term rates are already at zero,” Mr. Meyer said. “He has nearly pleaded with Congress for fiscal stimulus, but he can’t count on it. So he has to act as if that’s not going to happen. “

Mr. Meyer predicted: “The political drama is just beginning.”

Leonard J. Santow, an economic consultant, said he feared that the Fed was reacting to one mistake — the failure of fiscal policy — by adding another.

“Monetary policy is already unsustainably easy, and adding to the Fed’s generosity through more quantitative easing will do little to stimulate the economy,” Mr. Santow said. “The main problem is on the fiscal side and there is nothing wrong with the Fed chairman making budget recommendations and admitting there is not a great deal left for monetary policy to achieve when it comes to stimulating the economy.”

The Fed lowered short-term interest rates to nearly zero in December 2008, and subsequently bought $1.7 trillion in mortgage-backed securities and government securities, a program that was phased out last March.

Only months ago, the Fed was talking about returning to normal monetary policy and discussing the timetable for eventually raising interest rates and tightening the supply of credit, as it would normally do after a recession has ended.

But this recession and its painful aftermath have been anything but normal. Global financial markets were set back in the spring by the European debt crisis in Europe, and over several months, Fed officials gradually became convinced that their only option was to step back in again.

    Fed Will Buy $600 Billion in Debt, Hoping to Spur Growth, NYT, 3.11.2010, http://www.nytimes.com/2010/11/04/business/economy/04fomc.html

How Obama Saved Capitalism and Lost the Midterms

November 2, 2010
11:59 pm
The New York Times
By TIMOTHY EGAN

Timothy Egan on American politics and life, as seen from the West.

If I were one of the big corporate donors who bankrolled the Republican tide that carried into office more than 50 new Republicans in the House, I would be wary of what you just bought.

For no matter your view of President Obama, he effectively saved capitalism. And for that, he paid a terrible political price.

Suppose you had $100,000 to invest on the day Barack Obama was inaugurated. Why bet on a liberal Democrat? Here’s why: the presidency of George W. Bush produced the worst stock market decline of any president in history. The net worth of American households collapsed as Bush slipped away. And if you needed a loan to buy a house or stay in business, private sector borrowing was dead when he handed over power.

As of election day, Nov. 2, 2010, your $100,000 was worth about $177,000 if invested strictly in the NASDAQ average for the entirety of the Obama administration, and $148,000 if bet on the Standard & Poors 500 major companies. This works out to returns of 77 percent and 48 percent.

But markets, though forward-looking, are not considered accurate measurements of the economy, and the Great Recession skewed the Bush numbers. O.K. How about looking at the big financial institutions that keep the motors of capitalism running — banks and auto companies?

The banking system was resuscitated by $700 billion in bailouts started by Bush (a fact unknown by a majority of Americans), and finished by Obama, with help from the Federal Reserve. It worked. The government is expected to break even on a risky bet to stabilize the global free market system. Had Obama followed the populist instincts of many in his party, the underpinnings of big capitalism could have collapsed. He did this without nationalizing banks, as other Democrats had urged.

Saving the American auto industry, which has been a huge drag on Obama’s political capital, is a monumental achievement that few appreciate, unless you live in Michigan. After getting their taxpayer lifeline from Obama, both General Motors and Chrysler are now making money by making cars. New plants are even scheduled to open. More than 1 million jobs would have disappeared had the domestic auto sector been liquidated.

“An apology is due Barack Obama,” wrote The Economist, which had opposed the $86 billion auto bailout. As for Government Motors: after emerging from bankruptcy, it will go public with a new stock offering in just a few weeks, and the United States government, with its 60 percent share of common stock, stands to make a profit. Yes, an industry was saved, and the government will probably make money on the deal — one of Obama’s signature economic successes.

Interest rates are at record lows. Corporate profits are lighting up boardrooms; it is one of the best years for earnings in a decade.

All of the above is good for capitalism, and should end any serious-minded discussion about Obama the socialist. But more than anything, the fact that the president took on the structural flaws of a broken free enterprise system instead of focusing on things that the average voter could understand explains why his party was routed on Tuesday. Obama got on the wrong side of voter anxiety in a decade of diminished fortunes.

“We have done things that people don’t even know about,” Obama told Jon Stewart. Certainly. The three signature accomplishments of his first two years — a health care law that will make life easier for millions of people, financial reform that attempts to level the playing field with Wall Street, and the $814 billion stimulus package — have all been recast as big government blunders, rejected by the emerging majority.

But each of them, in its way, should strengthen the system. The health law will hold costs down, while giving millions the chance at getting care, according to the nonpartisan Congressional Budget Office. Financial reform seeks to prevent the kind of meltdown that caused the global economic collapse. And the stimulus, though it drastically raised the deficit, saved about 3 million jobs, again according to the CBO. It also gave a majority of taxpayers a one-time cut — even if 90 percent of Americans don’t know that, either.

Of course, nobody gets credit for preventing a plane crash. “It could have been much worse!” is not a rallying cry. And, more telling, despite a meager uptick in job growth this year, the unemployment rate rose from 7.6 percent in the month Obama took office to 9.6 today.

Billions of profits, windfalls in the stock market, a stable banking system — but no jobs.

Of course, the big money interests who benefited from Obama’s initiatives have shown no appreciation. Obama, as a senator, voted against the initial bailout of AIG, the reckless insurance giant. As president, he extended them treasury loans at a time when economists said he must — or risk further meltdown. Their response was to give themselves $165 million in executive bonuses, and funnel money to Republicans this year.

Money flows one way, to power, now held by the party that promises tax cuts and deregulation — which should please big business even more.

President Franklin Roosevelt also saved capitalism, in part by a bank “holiday” in 1933, at a time when the free enterprise system had failed. Unlike Obama, he was rewarded with midterm gains for his own party because a majority liked where he was taking the country. The bank holiday was incidental to a larger public works campaign.

Obama can recast himself as the consumer’s best friend, and welcome the animus of Wall Street. He should hector the companies sitting on piles of cash but not hiring new workers. For those who do hire, and create new jobs, he can offer tax incentives. He should finger the financial giants for refusing to clean up their own mess in the foreclosure crisis. He should point to the long overdue protections for credit card holders that came with reform.

And he should veto, veto, veto any bill that attempts to roll back some of the basic protections for people against the institutions that have so much control over their lives – insurance companies, Wall Street and big oil.

They will whine a fierce storm, the manipulators of great wealth. A war on business, they will claim. Not even close. Obama saved them, and the biggest cost was to him.

    How Obama Saved Capitalism and Lost the Midterms, NYT, 2.11.2010, http://opinionator.blogs.nytimes.com/2010/11/02/how-obama-saved-capitalism-and-lost-the-midterms/

Fast Track to Inequality

November 1, 2010
The New York Times
By BOB HERBERT

The clearest explanation yet of the forces that converged over the past three decades or so to undermine the economic well-being of ordinary Americans is contained in the new book, “Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class.”

The authors, political scientists Jacob Hacker of Yale and Paul Pierson of the University of California, Berkeley, argue persuasively that the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich.

Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits.

“Over the last generation,” the authors write, “more and more of the rewards of growth have gone to the rich and supperrich. The rest of America, from the poor through the upper middle class, has fallen further and further behind.”

As if to underscore this theme, it was revealed last week (by David Cay Johnston, a Pulitzer Prize-winning former reporter for The New York Times), that the incomes of the very highest earners in the United States, a small group of individuals hauling in more than $50 million annually (sometimes much more), increased fivefold from 2008 to 2009, even as the nation was being rocked by the worst economic downturn since the Great Depression.

Last year was a terrific year for those at the very top. Professors Hacker and Pierson note in their book that investors and executives at the nation’s 38 largest companies earned a stunning total of $140 billion — a record. The investment firm Goldman Sachs paid bonuses to its employees that averaged nearly $600,000 per person, its best year since it was founded in 1869.

Something has gone seriously haywire in the distribution of the fruits of the American economy.

This unfortunate shift away from a long period of more widely shared prosperity unfolded steadily, year after year since the late-’70s, whether Democrats or Republicans controlled the levers of power in Washington. “Winner-Take-All Politics” explores the vexing question of how this could have happened in a democracy in which — in theory, at least — the enormous number of voters who are not rich would serve as a check on policies that curtailed their own economic opportunities while at the same time supercharging the benefits of the runaway rich.

The answer becomes clearer when one recognizes, as the book stresses, that politics is largely about organized combat. It’s a form of warfare. “It’s a contest,” said Professor Pierson, “between those who are organized, who can really monitor what government is doing in a very complicated world and bring pressure effectively to bear on politicians. Voters in that kind of system are at a disadvantage when there aren’t reliable, organized groups representing them that have clout and can effectively communicate to them what is going on.”

The book describes an “organizational revolution” that took place over the past three decades in which big business mobilized on an enormous scale to become much more active in Washington, cultivating politicians in both parties and fighting fiercely to achieve shared political goals. This occurred at the same time that organized labor, the most effective force fighting on behalf of the middle class and other working Americans, was caught in a devastating spiral of decline.

Thus, the counterweight of labor to the ever-increasing political clout of big business was effectively lost.

“We’re not arguing that globalization and technological change don’t matter,” said Professor Hacker. “But they aren’t by any means a sufficient explanation for this massive change in the distribution of wealth and income in the U.S. Much more important are the ways in which government has shaped the economy over this period through deregulation, through changes in industrial relations policies affecting labor unions, through corporate governance policies that have allowed C.E.O.’s to basically set their own pay, and so on.”

This hyperconcentration of wealth and income, and the overwhelming political clout it has put into the hands of the monied interests, has drastically eroded the capacity of government to respond to the needs of the middle class and others of modest income.

Nothing better illustrates the enormous power that has accrued to this tiny sliver of the population than its continued ability to thrive and prosper despite the Great Recession that was largely the result of their winner-take-all policies, and that has had such a disastrous effect on so many other Americans.

    Fast Track to Inequality, NYT, 1.11.2010, http://www.nytimes.com/2010/11/02/opinion/02herbert.html

From Farm to Fridge to Garbage Can

November 1, 2010
5:27 pm
The New York Times
By TARA PARKER-POPE

How much food does your family waste?

A lot, if you are typical. By most estimates, a quarter to half of all food produced in the United States goes uneaten — left in fields, spoiled in transport, thrown out at the grocery store, scraped into the garbage or forgotten until it spoils.

A study in Tompkins County, N.Y., showed that 40 percent of food waste occurred in the home. Another study, by the Cornell University Food and Brand Lab, found that 93 percent of respondents acknowledged buying foods they never used.

And worries about food safety prompt many of us to throw away perfectly good food. In a study at Oregon State University, consumers were shown three samples of iceberg lettuce, two of them with varying degrees of light brown on the edges and at the base. Although all three were edible, and the brown edges easily cut away, 40 percent of respondents said they would serve only the pristine lettuce.

In his new book “American Wasteland: How America Throws Away Nearly Half of Its Food” (Da Capo Press), Jonathan Bloom makes the case that curbing food waste isn’t just about cleaning your plate.

“The bad news is that we’re extremely wasteful,” Mr. Bloom said in an interview. “The positive side of it is that we have a real role to play here, and we can effect change. If we all reduce food waste in our homes, we’ll have a significant impact.”

Why should we care about food waste? For starters, it’s expensive. Citing various studies, including one at the University of Arizona called the Garbage Project that tracked home food waste for three decades, Mr. Bloom estimates that as much as 25 percent of the food we bring into our homes is wasted. So a family of four that spends $175 a week on groceries squanders more than $40 worth of food each week and $2,275 a year.

And from a health standpoint, allowing fresh fruits, vegetables and meats to spoil in our refrigerators increases the likelihood that we will turn to less healthful processed foods or restaurant meals. Wasted food also takes an environmental toll. Food scraps make up about 19 percent of the waste dumped in landfills, where it ends up rotting and producing methane, a greenhouse gas.

A major culprit, Mr. Bloom says, is refrigerator clutter. Fresh foods and leftovers languish on crowded shelves and eventually go bad. Mr. Bloom tells the story of discovering basil, mint and a red onion hiding in the fridge of a friend who had just bought all three, forgetting he already had them.

“It gets frustrating when you forget about something and discover it two weeks later,” Mr. Bloom said. “So many people these days have these massive refrigerators, and there is this sense that we need to keep them well stocked. But there’s no way you can eat all that food before it goes bad.”

Then there are chilling and food-storage problems. The ideal refrigerator temperature is 37 degrees Fahrenheit, and the freezer should be zero degrees, says Mark Connelly, deputy technical director for Consumer Reports, which recently conducted extensive testing on a variety of refrigerators. The magazine found that most but not all newer models had good temperature control, although models with digital temperature settings typically were the best.

Vegetables keep best in crisper drawers with separate humidity controls.

If food seems to be spoiling quickly in your refrigerator, check to make sure you’re following the manufacturer’s care instructions. Look behind the fridge to see if coils have become caked with dust, dirt or pet hair, which can interfere with performance.

“One of the pieces of advice we give is to go to a hardware store and buy a relatively inexpensive thermometer,” Mr. Connelly said. “Put it in the refrigerator to check the temperature to make sure it’s cold enough.”

There’s an even easier way: check the ice cream. If it feels soft, that means the temperature is at least 8 degrees Fahrenheit and you need to lower the setting. And if you’re investing in a new model, don’t just think about space and style, but focus on the refrigerator that has the best sight lines, so you can see what you’re storing. Bottom-freezer units put fresh foods at eye level, lowering the chance that they will be forgotten and left to spoil.

Mr. Bloom also suggests “making friends with your freezer,” using it to store fresh foods that would otherwise spoil before you have time to eat them.

Or invest in special produce containers with top vents and bottom strainers to keep food fresh. Buy whole heads of lettuce, which stay fresher longer, or add a paper towel to the bottom of bagged lettuce and vegetables to absorb liquids. Finally, plan out meals and create detailed shopping lists so you don’t buy more food than you can eat.

Don’t be afraid of brown spots or mushy parts that can easily be cut away.

“Consumers want perfect foods,” said Shirley Van Garde, the now-retired co-author of the Oregon State study. “They have real difficulty trying to tell the difference in quality changes and safety spoilage. With lettuce, take off a couple of leaves, you can do some cutting and the rest of it is still usable.”

And if you do decide to throw away food, give it a second look, Mr. Bloom advises. “The common attitude is ‘when in doubt, throw it out,’” he said. “But I try to give the food the benefit of the doubt.”

    From Farm to Fridge to Garbage Can, NYT, 1.11.2010, http://well.blogs.nytimes.com/2010/11/01/from-farm-to-fridge-to-garbage-can/