History > 2011 > USA > Economy (II)

Ed Stein

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13 April 2011

IMF says Strauss-Kahn

resigns as managing director

SINGAPORE | Thu May 19, 2011
12:23am EDT
Reuters

SINGAPORE (Reuters) - Dominique Strauss-Kahn resigned as head of the International Monetary Fund, the IMF said in a statement dated May 18, as he faces charges of sexual assault and attempted rape.

"I deny with the greatest possible firmness all of the allegations that have been made against me," Strauss-Kahn said in his letter of resignation, released by the IMF.

 

(Reporting by Emily Kaiser)

    IMF says Strauss-Kahn resigns as managing director, R, 19.5.2011,
    http://www.reuters.com/article/2011/05/19/us-strausskahn-arrest-idUSTRE74D29F20110519

I.M.F. Names New Leader

May 15, 2011
The New York Times
By AL BAKER and STEVEN ERLANGER

Hours after its chief, Dominique Strauss-Kahn, was arrested in connection with the alleged sexual attack of a maid at a Midtown Manhattan hotel, the International Monetary Fund on Sunday named John Lipsky as acting managing director.

Mr. Lipsky, the I.M.F.’s first deputy managing director, is a former U.S. Treasury executive and onetime banker at JP Morgan. William Murray, an I.M.F. spokesman, said that Mr. Lipsky, who has been overseeing the logistics of the bailout of the Greek economy, would meet with members of the I.M.F. board in Washington later in the day, according to Reuters.

“In line with standard I.M.F. procedures, John Lipsky, first deputy managing director, is acting managing director while the M.D. is not in D.C.,” Mr. Murray said in a statement. “Mr. Lipsky will chair the informal Board session today.”

Mr. Strauss-Kahn, 62, was awaiting arraignment on Sunday evening in Manhattan. The New York Police Department formally arrested him at 2:15 that morning “on charges of criminal sexual act, attempted rape, and an unlawful imprisonment in connection with a sexual assault on a 32-year-old chambermaid in the luxury suite of a Midtown Manhattan hotel yesterday” about 1 p.m., Deputy Commissioner Paul J. Browne, the department’s chief spokesman, said.

Meanwhile, the woman who told the police she was sexually attacked by Mr. Strauss-Kahn picked him out of a police lineup Sunday. After making the identification, she left in a police van amid a gaggle of reporters.

Reached by telephone, Benjamin Brafman, a lawyer, said he would be representing Mr. Strauss-Kahn with William Taylor, a lawyer in Washington.

Early Sunday morning, Mr. Brafman said that his client “will plead not guilty.”

Mr. Strauss-Kahn was widely expected to become the Socialist candidate for the French presidency, was apprehended by detectives of the Port Authority of New York and New Jersey in the first-class section of the jetliner, and immediately turned over to detectives from the Midtown South Precinct, officials said.

Mr. Strauss-Kahn, a former French finance minister, had been expected to declare his candidacy soon, after three and a half years as the leader of the fund, which is based in Washington. He was considered by many to have done a good job in a period of intense global economic strain, when the institution itself had become vital to the smooth running of the world and the European economy.

His apprehension came at about 4:40 p.m. at Kennedy Airport, when two detectives of the Port Authority suddenly boarded Air France Flight 23, as the plane idled at the departure gate, said John P. L. Kelly, a spokesman for the agency.

“It was 10 minutes before its scheduled departure,” Mr. Kelly said. “They were just about to close the doors.”

Mr. Kelly said that Mr. Strauss-Kahn was traveling alone and that he was not handcuffed during the apprehension.

“He complied with the detectives’ directions,” Mr. Kelly said.

The Port Authority officers were acting on information from the Police Department, whose detectives had been investigating the assault of a female employee of Sofitel New York, at 45 West 44th Street, near Times Square. Working quickly, the city detectives learned he had boarded a flight at Kennedy Airport to leave the country.

Though Mr. Strauss-Kahn received generally high marks for his stewardship of the fund, his reputation was tarnished in 2008 by an affair with a Hungarian economist who was a subordinate there. The fund decided to stand by him despite concluding that he had shown poor judgment in the affair. Mr. Strauss-Kahn issued an apology to I.M.F. employees and to his wife, Anne Sinclair, an American-born French journalist, who he married in 1991.

In his statement then, Mr. Strauss-Kahn said, “I am grateful that the board has confirmed that there was no abuse of authority on my part, but I accept that this incident represents a serious error of judgment.” The economist, Piroska Nagy, left the fund as part of a buyout of nearly 600 employees instituted by Mr. Strauss-Kahn to cut costs.

In the New York case, Mr. Browne said that it was about 1 p.m. on Saturday when the maid, a 32-year-old woman, entered Mr. Strauss-Kahn’s suite — Room 2806 — believing it was unoccupied. Mr. Browne said that the suite, which cost $3,000 a night, had a foyer, a conference room, a living room and a bedroom, and that Mr. Strauss-Khan had checked in on Friday.

As she was in the foyer, “he came out of the bathroom, fully naked, and attempted to sexually assault her,” Mr. Browne said, adding, “He grabs her, according to her account, and pulls her into the bedroom and onto the bed.” He locked the door to the suite, Mr. Browne said.

“She fights him off, and he then drags her down the hallway to the bathroom, where he sexually assaults her a second time,” Mr. Browne added.

At some point during the assault, the woman broke free, Mr. Browne said, and “she fled, reported it to other hotel personnel, who called 911.” He added, “When the police arrived, he was not there.” Mr. Browne said Mr. Strauss-Kahn appeared to have left in a hurry. In the room, investigators found his cellphone, which he had left behind, and one law enforcement official said that the investigation uncovered forensic evidence that would contain DNA.

Mr. Browne added, “We learned that he was on an Air France plane,” and the plane was held at the gate, where Mr. Strauss-Kahn was taken into custody. Later Saturday night, Mr. Browne said Mr. Strauss-Kahn was in a police holding cell.

Mr. Browne said the city’s Emergency Medical Service took the maid to Roosevelt Hospital for what Mr. Browne described as treatment for “minor injuries.”

No matter the outcome of Saturday’s episode, it will most likely throw the French political world into turmoil and the Socialist Party into an embarrassed confusion.

Mr. Strauss-Kahn, a leading member of the party, has been considered the front-runner for the next presidential election in France in May 2012. Opinion polls have shown him to be the Socialists’ most popular candidate and running well ahead of the incumbent, Nicolas Sarkozy, who leads the center-right party.

France has been waiting for Mr. Strauss-Kahn to decide whether to run for his party’s nomination in a series of primaries, which would mean giving up his post at the fund.

The view in France was that if Mr. Strauss-Kahn wanted to run, he would have to make his intentions clear early this summer, and most politicians and analysts have been predicting that he would not be able to resist the chance to run the country.

Mr. Strauss-Kahn contested for the nomination five years ago, losing to Ségolène Royal, who ultimately lost a second-round runoff to Mr. Sarkozy. Mr. Sarkozy then arranged for Mr. Strauss-Kahn to get the I.M.F. job, partly to remove a popular rival from France’s political landscape.

Mr. Strauss-Kahn was the French minister of economy under the Socialist prime minister Lionel Jospin, from 1997 to 1999, and he has also been a professor of economics at the Paris Institute of Political Studies.

In 1995, he was elected mayor of Sarcelles, a poor suburb of Paris.

The couple are known to enjoy the finer things in life, and Mr. Strauss-Kahn has sometimes been attacked for being a “caviar leftist.”

Recently Mr. Strauss-Kahn and his wife were photographed entering an expensive Porsche in Paris belonging to one of their friends. The image of a Socialist with Porsche tastes was quickly picked up by the news media, especially the newspapers that generally support Mr. Sarkozy.

William K. Rashbaum and Colin Moynihan contributed reporting.

This article has been revised to reflect the following correction:

Correction: May 15, 2011

An earlier version of this article misstated the year of Dominique Strauss-Kahn's marriage to Anne Sinclair. It is 1991, not 1995.

    I.M.F. Names New Leader, NYT, 15.5.2011,
    http://www.nytimes.com/2011/05/16/nyregion/imf-names-replacement-as-chief-awaits-arraignment.html

Murray Handwerker, 89, Dies; Made Nathan’s More Famous

May 15, 2011
The New York Times
By REED ABELSON

Murray Handwerker, who transformed his father’s Brooklyn hot dog business, Nathan’s Famous, into a celebrated national fast-food chain, died Saturday at his home in Palm Beach Gardens, Fla. He was 89.

His son William confirmed his death.

Nathan’s Famous, at Surf and Stillwell Avenues in Coney Island, was opened by Mr. Handwerker’s father and mother in 1916 and soon became an American legend, its name virtually synonymous with hot dogs. In 1939, President Franklin D. Roosevelt served Nathan’s hot dogs to the king and queen of England.

Mr. Handwerker spent his childhood at Nathan’s Famous. “I was raised behind the counter of the Coney store,” he told The New York Times in 1986. “My playpen was a 3-by-3 crate the hot dog rolls used to come in.”

His father, Nathan, a Jewish immigrant from Poland, and his mother, Ida, had opened the stand with $300 borrowed from the entertainers Jimmy Durante and Eddie Cantor, friends of his father’s who had yet to become stars. Nathan’s sold all-beef hot dogs at a nickel, half of what its Coney Island competitor was charging.

“We were the original fast-food operation,” Mr. Handwerker recalled in an oral history, “It Happened in Brooklyn,” by Myrna Katz Frommer and Harvey Frommer, rereleased in 2009 by SUNY Press. “We called it finger food; you didn’t need a knife and fork. But it was always quality. My father insisted on that.”

It was Murray Handwerker who turned the family business from a famous hot dog stand to a famous national chain, which went public in 1968. After returning from World War II Army service, Mr. Handwerker joined Nathan’s Famous in 1946 and, his son William said, “had many ideas of expanding.”

In “It Happened in Brooklyn,” Mr. Handwerker recalled returning home with other soldiers in the 1940s and wanting to add other foods to the Nathan’s Famous menu.

“I realized the American soldier had been exposed to French food, his tastes had become more sophisticated,” he said. Despite his father’s objections, Mr. Handwerker successfully introduced shrimp and clams to Nathan’s menu. He later added a delicatessen line.

There were other disagreements with his father, including one over whether to let restaurant managers have days off during the summer. At the time, Murray Handwerker said, the managers were working seven days a week, and he insisted they be given a day off. The first week, they all got terrible sunburns and could not come into work the next day. “My father gave me hell,” he recalled in “It Happened in Brooklyn.”

Mr. Handwerker was born in Brooklyn on July 25, 1921, and graduated from New York University in 1947 with a degree in French. “I loved languages,” he told The Times in 1986, “but the only time I used French was during the old World’s Fair when a lot of French people came to Coney Island for hot dogs.”

By the mid-1960s Nathan’s had three restaurants, and Mr. Handwerker, who became president of the company in 1968, oversaw its expansion over the next decade by adding dozens of company-owned restaurants and franchised units. He also published a cookbook featuring Nathan’s Famous recipes. He became chairman in 1971.

By the early 1980s, Nathan’s was struggling. Its stock, which had reached $42 in 1971, had fallen to $1 by 1981. Mr. Handwerker was forced to close some of the restaurants and abandon the idea of a franchise that would offer a more limited menu. “Nathan’s forte is supposed to be variety,” he said at the time. The company also ran into trouble with some of its franchisees.

The business survived, however, as Mr. Handwerker continued to emphasize its main menu item. “The hot dog,” his son said, “was the mainstay.”

Mr. Handwerker ran the business until the family sold its stake to the Equicor Group, a private investment company, in 1987. He then retired to Florida.

Mr. Handwerker’s wife, Dorothy, died in 2009. He is survived by his sons, Steven, Kenneth and William; his brother, Sol; and several grandchildren.

At the company’s 70th-anniversary celebration near the Times Square Nathan’s in 1986, Mr. Handwerker was being given a hard time by Mayor Edward I. Koch, who complained about the demise of the five-cent hot dog. Grabbing the microphone, Mr. Handwerker explained to the crowd that the five-cent frankfurter went out with the five-cent subway ride.

    Murray Handwerker, 89, Dies; Made Nathan’s More Famous, NYT, 15.5.2011,
    http://www.nytimes.com/2011/05/16/nyregion/murray-handwerker-who-made-nathans-more-famous-dies-at-89.html

Obama warns of worse crisis if no debt ceiling rise

WASHINGTON | Sun May 15, 2011
9:52am EDT
Reuters
By Jeff Mason

WASHINGTON (Reuters) - President Barack Obama warned Congress that failing to raise the debt limit could lead to a worse financial crisis and economic recession than 2008-09 if investors began doubting U.S. credit-worthiness.

In remarks recorded last week and broadcast by CBS News on Sunday, Obama repeated his stance that Republicans should not link the debt ceiling decision to spending cuts as part of deficit-reducing measures.

"If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system," Obama told a CBS News town-hall meeting.

"We could have a worse recession than we already had, a worse financial crisis than we already had."

The White House and congressional Republicans are locked in a debate over the deficit and the debt ceiling.

The Treasury Department is expected to hit its $14.3 trillion borrowing limit on Monday, making it unable to access bond markets again.

Republican leaders, who have said they agree the limit must be raised, say they will not approve a further increase in borrowing authority without steps to keep debt under control.

A deal may not emerge for several months.

The Treasury Department says it can stave off default until August 2 by drawing on other sources of money to pay its bills.

Obama said he was committed to deficit reduction but discouraged a link between that and the debt limit.

"Let's not have the kind of linkage where we're even talking about not raising the debt ceiling. That's going to get done," he said. "But let's get serious about deficit reduction."

A report from the think tank Third Way to be released on Monday supports Obama's warnings. It says the United States could plunge back into recession if inaction in Washington forced a debt default, with some 640,000 U.S. jobs vanishing, stocks falling and lending activity tightening.

Vice President Joe Biden is leading talks between the White House and lawmakers over how to reduce massive U.S. budget deficits and raise the credit limit. He told reporters on Thursday that progress was being made but it was too early to be optimistic about a deal.

 

(Additional reporting by Andy Sullivan; Editing by Peter Cooney)

    Obama warns of worse crisis if no debt ceiling rise, R, 15.5.2011,
    http://www.reuters.com/article/2011/05/15/us-obama-debt-idUSTRE74E1TN20110515

Factbox: Prison sentences in insider trading cases

NEW YORK | Wed May 11, 2011
2:22pm EDT
Reuters

NEW YORK (Reuters) - After a conviction on all counts, Raj Rajaratnam faces the next step: sentencing.

The Galleon Group founder could face up to 25 years in prison when he is sentenced in July, although prosecutors said on Wednesday that he could get 15-1/2 to 19-1/2 years in prison under federal sentencing guidelines.

Following is a list of punishments meted out to defendants in other high-profile insider trading cases:

IVAN BOESKY

--Boesky, the famed Wall Street stock speculator of the 1980s, was sentenced to three years in prison in 1987 after pleading guilty to a criminal charge related to insider trading. Boesky, who faced a maximum penalty of five years, cooperated with prosecutors in their probe of trading firms that resulted in charges against more than a dozen people.

MARK KURLAND, ROBERT MOFFAT AND ALI HARIRI

--All three pleaded guilty in the sweeping Galleon probe. Kurland, a former senior managing director at New Castle Funds LLC, was sentenced in May 2010 to two years and three months in prison. Kurland admitted to trading on information he got from Danielle Chiesi, also a former New Castle employee who became a central figure in the Galleon investigation. Chiesi has pleaded guilty and is awaiting sentencing.

Moffat, a former International Business Machines Corp executive, was sentenced to six months in prison for tipping Chiesi about an impending IBM deal with Advanced Micro Devices Inc. Hariri, a former executive at chipmaker Atheros Communications Inc. received an 18-month sentence in November for tipping a former Galleon employee.

SAM WAKSAL

--The founder of biotechnology company ImClone Systems Inc. was sentenced to seven years in prison after pleading guilty to insider trading in 2002. The scandal also ensnared Waksal's father as well as lifestyle entrepreneur Martha Stewart, who was convicted of lying to federal agents about her sale of ImClone stock. She served five months in prison.

JOSEPH NACCHIO

--Nacchio, the former CEO of Qwest Communications, was sentenced to six years in prison, later reduced by two months, after he was convicted in a 2007 trial of 19 counts of insider trading in selling $52 million in Qwest stock. A judge also ordered Nacchio to forfeit $44.6 million and pay a $19 million fine.

JOSEPH CONTORINIS

--Contorinis, a former hedge fund manager, received a 6-year sentence in December for his role in providing tips on impending mergers, such as the 2006 buyout of the supermarket chain Albertsons Inc.

HAFIZ NASEEM

--A judge sentenced Naseem, a former Credit Suisse Group investment banker, to 10 years in prison after he was found guilty in February 2008 of participating in a $7.5 million scheme to leak inside information about pending corporate deals.

RANDI AND CHRISTOPHER COLLOTTA

--Randi Collotta, a former Morgan Stanley lawyer, received a sentence of 60 days in prison on nights and weekends for passing along tips to her husband about impending merger deals. Her husband, Christopher, got a sentence of 6 months' home confinement.

(Reporting by Carlyn Kolker, editing by Dave Zimmerman)

    Factbox: Prison sentences in insider trading cases, R, 11.5.2011,
    http://www.reuters.com/article/2011/05/11/us-galleon-rajaratnam-insidercases-idUSTRE74A6A120110511

Rajaratnam guilty on all insider trading counts

NEW YORK | Wed May 11, 2011
1:29pm EDT
Reuters
By Grant McCool and Basil Katz

NEW YORK (Reuters) - Hedge fund founder Raj Rajaratnam was found guilty on all 14 counts in a sweeping insider trading verdict on Wednesday that vindicated the government's aggressive use of phone taps to prosecute Wall Street figures.

Rajaratnam, founder of the Galleon Group and the central figure in the broadest Wall Street insider trading probe in decades, will appeal the use of the secret recordings, tactics historically deployed in organized crime and drug trafficking cases, not white-collar probes.

One-time billionaire Rajaratnam, the richest Sri Lankan in the world, faces a minimum of 15-1/2 years in prison after the verdict in Manhattan federal court convicting him on all 14 counts of conspiracy and securities fraud. The jury's decision affirmed the prosecution case that Rajaratnam ran a web of highly-placed insiders from McKinsey & Co consultancy to Intel Corp to a former Goldman Sachs Group Inc board member to leak valuable corporate secrets to him.

Rajaratnam, 53, showed little emotion during the two month-long trial and sat expressionless between his lawyers as the verdict was read in a tense Manhattan federal courtroom.

"It's an historic verdict. It's a dramatic verdict," said Bill Singer, securities lawyer with Gusrae, Kaplan, Bruno & Nusbaum.

"It will likely set the stage for a dramatic change not only in the way that the Wall Street insider-trader activities are investigated and prosecuted, but most likely this will have a chilling effect on individuals and companies that trade."

The case was the first Wall Street insider trading trial to draw such public attention since the mid-1980s scandal involving speculator Ivan Boesky and junk bond financier Michael Milken.

The jurors filed into the tense courtroom in mid-morning and the verdict was read by the judge's deputy. The official read from the jury's completed verdict form, saying "guilty" for each of the five counts of conspiracy and nine counts of securities fraud. He then asked each individual juror whether that was their verdict.

After the jury was dismissed, Rajaratnam was released until his July 29 sentencing. He is free under a $100 million bail package that will now include an electronic monitoring device and house arrest in his Manhattan apartment.

His main lawyer, John Dowd, told dozens of reporters outside the courthouse that his client would keep fighting.

"We're gonna take an appeal for this conviction," Dowd said. "We started out with 37 stocks, we're down to 14 so the score I'd say is 23-14 in favor of the defense. We'll see you in the 2nd circuit" a reference to the appeals court in New York.

TWO MONTH-LONG TRIAL

The trial lasted two months and the verdict was read on the 12th day of jury deliberations in which jurors requested replays of several of the phone recordings at the heart of the government's case.

Litigation experts said the phone taps strengthened insider trading charges, which historically have been difficult to prove because they rely on circumstantial evidence.

Defense lawyers had stuck consistently to their main theme that Rajaratnam's trades were guided by a trove of research and public information, not secrets leaked by highly-placed corporate insiders.

Most litigation experts said the prosecution had a strong case using FBI phone taps and witness stand testimony of three former friends and associates of Rajaratnam -- former McKinsey & Co partner Anil Kumar, former Intel treasury group executive Rajiv Goel and former Galleon employee, Adam Smith.

All three pleaded guilty to criminal charges and agreed to cooperate with the government in the hopes of receiving lighter sentences.

Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large. A second trial of three former securities traders, one of them a former Galleon hedge fund employee, is scheduled to start on Monday with phone tap also key to the prosecution evidence.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

 

(Additional reporting by Jonathan Stempel, Dan Levine, Scot Paltrow),
editing by Dave Zimmerman)

    Rajaratnam guilty on all insider trading counts, R, 11.5.2011,
    http://www.reuters.com/article/2011/05/11/us-galleon-rajaratnam-idUSTRE74A3XM20110511

China pushes U.S. on debt ahead of high-level talks

BEIJING | Fri May 6, 2011
5:28am EDT
Reuters
By Chris Buckley

BEIJING (Reuters) - China, wielding its huge dollar holdings, on Friday pressed Washington to tackle its huge fiscal deficit and said it would raise the issue of discrimination against Chinese investors at high-level talks next week.

Senior Chinese officials also made clear that U.S. demands for Beijing to raise sharply the value of the yuan currency and to end a crackdown on dissent -- both irritants in ties between the world's two biggest economies -- would gain little ground at next week's Strategic and Economic Dialogue in Washington.

"We are paying a lot of attention to this (the fiscal deficit)," Chinese Vice Finance Minister Zhu Guangyao told reporters at a briefing about the talks.

The White House is in tense negotiations with Republican lawmakers over rival proposals to tackle the budget deficit, expected to reach $1.4 trillion this year and a serious worry for governments like China that buy heavily in U.S. Treasury bonds and other dollar assets.

China's has the world's biggest foreign exchange reserves, with about two-thirds estimated to be held in dollars, and any sign it was alarmed by policy uncertainty could ripple through global markets.

"We hope that the United States in its fiscal clean-up will be able to adopt effective measures based on President Obama's proposal," Zhu said, giving unusually forthright backing to the Obama plan.

"For the present stage, we believe that the most crucial thing is that the U.S. economy maintains a vigorous impetus toward recovery and that this developing trend is maintained," Zhu said.

Zhu and Chinese Vice Foreign Minister Cui Tiankai, speaking to reporters ahead of the start on Monday of the two-day talks, laid out Beijing's positions on other economic and foreign policy disputes, stressing their desire for cooperation.

That included the yuan exchange rate, which Washington has repeatedly said is held too low, making Chinese exports unfairly cheap and deterring bigger Chinese purchases of U.S. goods.

The two agree on the direction of yuan reform, but differ on the pace of appreciation, said Zhu.

"On these specific issues, I frankly acknowledge that China and the United States have different views. Therefore, we need to have discussion."

China loosened its currency from a nearly two-year peg to the dollar last June, and this year has guided the yuan to record highs. It has appreciated about 5 percent since June.

Zhu said Vice-Premier Wang Qishan told U.S. Treasury Secretary Timothy Geithner that yuan exchange rate reform was in China's interest.

Wang and Geithner will lead the economic side of the dialogue next week, while U.S. Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo, who advises top leaders on foreign policy, will lead the strategic discussions.

CHINA'S CONCERNS

Zhu said China had concerns of its own that would likely be aired in the discussions.

Beijing complains that Washington, while pushing for greater access for U.S. firms in the Chinese market, imposes unwarranted restrictions on Chinese investment in the United States, often citing national security concerns.

"We hope that the United States will provide a healthy legal and institutional setting for investment. In particular, we hope that the United States will not discriminate against Chinese state-owned companies." Zhu said.

The Obama administration has said it will use the strategic dialogue to press China about human rights -- a sensitive topic for Beijing, which fears potential unrest inspired by uprisings across the Arab world and which has taken an increasingly harsh line against dissidents in recent months.

China's response to questions about that on Friday suggested that it does not want a feud over the issue to spread.

Vice Foreign Minister Cui said that at the summit between President Obama and his Chinese counterpart Hu Jintao in January both sides had agreed to respect the paths of development that each country chooses, and that discussion of human rights would be "on a basis of equality and mutual respect."

"We hope that both sides will continue abiding by this spirit," Cui said.

"We hope that in observing the development of human rights in China, the outside world will stick to the facts, or to use a popular Chinese phrase, that it will adopt a sunnier disposition."

 

(Reporting by Chris Buckley, Writing by Sui-Lee Wee; Editing by Ken Wills)

    China pushes U.S. on debt ahead of high-level talks, R, 6.5.2011,
    http://www.reuters.com/article/2011/05/06/us-china-usa-trade-idUSTRE7450D620110506

Special report: Does corporate America kowtow to China?

SHEBOYGAN, Wisc. | Wed Apr 27, 2011
9:32am EDT
By Nick Carey and James B. Kelleher

SHEBOYGAN, Wisc. (Reuters) - China's rise as a manufacturing power has benefited American factory owners in at least one way.

The Middle Kingdom's insatiable appetite for second-hand machinery means that small U.S. businesses can make a quick buck by selling old equipment there.

For some American manufacturers, however, the idea of shipping even used stuff with no book value to their chief overseas rival is anathema.

Many of the machines at Bob Chesebro's factory in this Wisconsin city on the shores of Lake Michigan do something seemingly mundane: they sew the toes of the socks he makes closed. In China that is still often done by hand -- a labor-intensive task that other developing countries will eventually do more cheaply as Chinese wages rise.

Chesebro, chief executive and third-generation owner of Wigwam Mills Inc, one of America's few remaining sock makers, refuses to surrender his edge. His equipment ends its days as scrap metal in a dumpster behind his plant.

"We have taken the view that if we sell these machines we're just going to put them in the hands of people who will compete against us," he said.

In several ways, Wigwam defies the conventional wisdom of today's global market. It has managed to succeed making a relatively high-volume, low-cost commodity product, employing hundreds of workers right here in the United States. It has done so by boosting its productivity and developing niche products like hiking and medical socks in-house.

Given the savage nature of the competition you might expect Chesebro to vent mainly against Chinese-style capitalism. But like dozens of manufacturers and others across America interviewed for this story, his anger isn't directed at China, which he and others say is doing what it deems as necessary to boost its own people's prosperity. Instead, their ire is aimed at the U.S. government and American multinationals for not stepping up to the plate and defending long-term U.S. interests.

"I don't blame the Chinese, they're just pursuing their national interest," said Patrick Mulloy, a member of the Congressional U.S.-China Economic and Security Review Commission. "I blame us for not realizing what's happening to us and for doing nothing about it."

Prior to China's accession to the World Trade Organization almost a decade ago, free trade proponents argued that the move would create American jobs and eliminate the country's trade deficit. Neither prediction has proven accurate.

The U.S. trade shortfall with China hit a record high $273 billion last year and government data shows some 40 percent of factories with more than 250 employees closed down from 2001 to 2010.

While it can't all be laid at China's door, it is not a coincidence that after decades of more gradual decline, U.S. manufacturing took a nose dive after China's entry into the WTO.

Cheap labor is one huge advantage for China, of course. But numerous academics, former trade officials and labor union officials say predatory trade practices, subsidized exports and other controversial economic policies also make Chinese companies tough to compete against.

And they warn that unless the U.S. works out a way to bolster and promote the sector, future prosperity and America's superpower status will eventually be at risk. This is only underlined by the U.S. economy's fragile state, with the jobless rate at 8.8 percent, growth tepid, and a huge government budget deficit and debt burden.

Even China's rising production costs may present an increasing threat, they argue. It means that China will be less able to rely on being the cheap maker of textiles, toys, furniture and plastics to create jobs -- some of that production is increasingly going to go to places like Bangladesh and Vietnam.

Instead, Beijing is increasingly focused on moving up the chain to higher valued technology-based goods -- which puts it in direct competition with the remaining power base of the U.S. manufacturing sector. And the technology-transfer terms that many big American companies are agreeing to when they do deals in China, and the research centers they are opening up there, means they could in some cases be signing their own death warrants.

Peter Navarro, a professor of economics and public policy at the University of California, who correctly predicted the U.S. housing bust, predicts that the crash America faces if it neglects manufacturing for too long is "going to be far worse."

"Over time the problems Americans are seeing with their economy are only going to get worse as China rises," he said. "We're heading for a collision and the longer that collision is delayed the harder it's going to be."

 

CHINA INC VERSUS JAPAN INC

Still, free trade proponents have warned repeatedly that any protectionist measures would result in a costly trade war that neither side can win. They also argue that the United States has only itself to blame for its economic problems.

In an interview at the Hilton Chicago during Chinese President Hu Jintao's visit to the city earlier this year, Doug Oberhelman, CEO of heavy equipment maker Caterpillar Inc, which has 11 Caterpillar plants and R&D centers and some 15 percent of its workforce in China, acknowledged there would always be "frictions" between the two countries.

"But the fact is ... we need each other desperately," he said. "We need peace."

Local manufacturers, though, say the first shots have been fired, and they question whether the g multinationals are wrongly pursuing a policy of appeasement.

They complain that Chinese companies benefit from a raft of subsidies -- from what they see as an undervalued yuan currency, to artificially cheap or even free land in some cases, low-interest loans and even subsidized energy bills -- and the U.S. government and major companies say or do little in response.

"We're in the middle of an economic war with China," said Milton Magnus, president of Leeds, Alabama-based M&B Hangers, America's last maker of metal coat hangers, who also destroys his old machines, which are designed and built in-house. "The Chinese want what we have and we're just sitting back and giving it to them."

But it isn't just a war over cheaper products like coat hangers and socks.

Mounting evidence also suggests China is appropriating proprietary technology from Western firms and then using it to compete directly in ever more advanced fields.

The Chinese government has also been accused by foreign businessmen of changing the rules at home to favor local manufacturers for government contracts over foreign competitors.

Small manufacturers say they have increased productivity to compete. Wigwam's Chesebro says he has not replaced staff who retired or moved on over the years, reducing headcount to about 260 from 500 over the past two decades and his machines are now far more efficient. But small manufacturers insist labor costs are not relevant when in many cases heavily-subsidized goods from China have been sold in America for below what the local manufacturers pay for raw materials.

"Labor costs have nothing to do with it," said Bill Upton, president of Pelham, Alabama-based Vulcan Threaded Products Inc. Vulcan makes steel bars and rods for everything from air conditioning units to sprinkler systems, is the last American firm of its kind, and won a trade case against Chinese competitors in 2008.

"We have a lean, efficient operation and we can compete against anyone in the world on a level playing field. But there's no way we can compete against finished goods that cost less than the raw materials," Upton said.

Even when American manufacturers do successfully pursue cases alleging unfair competition they may not come out on top. A case can cost around $1 million in legal fees, and often takes more than a year plus a lot of management time that could be spent more productively. And they claim even after penalties have been imposed, Chinese competitors often merely circumvent customs duties and other barriers by trans-shipping goods through third countries.

Still, free trade proponents point to the example of "Japan Inc" in the 1980s -- when there were fears that Japan's rise as a manufacturer threatened future American prosperity -- as evidence that concerns over foreign competition can be overblown.

Yet a key difference between "Japan Inc" in the 1980s and "China Inc" is that Japan discouraged foreign investment, whereas China has embraced it.

Back then, some key U.S. multinationals made a great deal of noise in public, and in the U.S. Congress, about unfair Japanese trading practices. Their interests were aligned with the smaller domestic manufacturers.

But today, multinationals profit hugely from China and have less incentive to rock the boat. Only last week, Yum Brands Inc, the owner of the KFC, Pizza Hut and Taco Bell fast food restaurants, reported its operating profit was 75 percent greater in China than in the U.S. in the first quarter.

"The big difference is that no one made any money off Japan Inc," said Diane Swonk, chief economist at Mesirow Financial. "But some people are making a lot of money off China Inc."

 

SILENCE OF THE CEOS

Big American companies with investments in China are afraid to criticize Beijing because of the controls it has over just about any access to the Chinese market. They fear too strident a stance could mean they will lose contracts or even be ostracized as Google Inc was after a dispute with China over censorship and hacking.

"The Chinese government controls all the levers of the economy, from import and export licenses on up," said Victor Shih, an assistant professor of politics at Northwestern University. "There are so many ways for the Chinese government to retaliate it is no surprise businesses are so reluctant to criticize it."

But multinationals and their CEOs have a great deal of influence on debate in Washington and more widely in the country. They have often lobbied aggressively against any measures they deem protectionist, so their relative silence is seen by many smaller manufacturers and others as weakening the U.S. in its trade relationship with China.

"The issue today is that the firms hurting the most are not as politically connected as the firms that are benefiting the most," Mesirow's Swonk said.

There are no easy answers to America's predicament, for either the administration of U.S. President Barack Obama or the businesses that have bet heavily on China.

The WTO, for instance, ruled on March 11 that the United States could not levy extra duties on Chinese goods that the American government had described as subsidized and unfairly priced.

But such difficulties are not a reason for multinationals to roll over easily in the face of Chinese demands, say critics of their behavior.

Critics and academics warn that multinationals trading technology for market access have frequently found themselves a few years later losing out in export markets to Chinese competitors who were formerly their partners.

"The companies that hand over proprietary technology do so in the hope that they'll be the ones to get the better end of the bargain," said Eswar Prasad, a trade policy professor at Cornell University and a senior fellow at the Brookings Institution. "But so far the Chinese have come out ahead in most cases. Hope springs eternal, but it's a very dangerous bargain to make."

The handing over of proprietary technology also raises questions about the impact on U.S. national security, especially in trying to keep the Chinese military from being belligerent toward American allies in the Asia-Pacific region.

In a recent RAND Corp report "Ready for Takeoff: China's Advancing Aerospace Industry," the authors stated there is "no question... that foreign involvement in China's aviation manufacturing industry is contributing to the development of China's military aerospace capabilities."

This contribution, the report later states is "increasing China's ability and possibly its propensity to use force in ways that negatively affect U.S. interests and would increase the costs of resisting attempts to use such force."

Another risk to not talking more openly and directly about America's China problem is that it leaves the field open to extreme rhetoric and populist politics.

A solid majority of Americans in opinion polls say they view China as an economic threat and if America's dysfunctional relationship with the country is not addressed more openly, some fear it could prompt a marked protectionist swing in American politics.

"It would be better to deal with issues like the undervalued renminbi more directly and openly," said Menzie Chinn, a professor of public affairs and economics at the University of Wisconsin. "I am concerned that if these problems are allowed to fester for too long, voters will force Congress into an open trade war. And that would be bad for everybody."

For instance, real estate tycoon Donald Trump has been playing the China card as he considers whether to seek nomination as the 2012 Republican presidential candidate, and his support in polls has been rising.

In recent months the garrulous star of NBC's reality show "The Apprentice" has referred to the Chinese in various national television interviews as "enemies" and "abusers" and says that he "would love a trade war with China." He told Reuters he would put a 25 percent tax on all goods from China.

"Saying China is the enemy may sound like an extreme opinion, but it can become a mainstream opinion if uttered in public often enough," said Steven Schier, a politics professor at Carleton College in Minnesota.

 

GREAT EXPECTATIONS

It is all a far cry from where things were back in 2000. The debate in the U.S. Congress on normalizing trade relations with China -- a step that would help China join the WTO -- saw lawmakers, lobby groups and businesses line up to stress that increased trade with China would be a win-win situation for Americans.

"Opening China's markets to U.S. products and services... is the biggest single step we can take to reduce America's growing trade deficit with China," said Robert Kapp, then president of the U.S.-China Business Council and now a consultant for companies seeking to do business with China, at the time. "We're not talking about a 'gift' for China ... we're talking about bringing home the bacon."

The bacon may have arrived in the form of the profits American companies have been able to make in China but it certainly hasn't for the American workforce.

According to the U.S. Bureau of Labor Statistics (BLS), the number of U.S. manufacturing jobs fell by a third to 8.1 million from 12.2 million during the past decade -- more jobs lost than in the previous two decades combined. BLS data also show that from the first quarter of 2001 to the first quarter of 2010, a full 39 percent of U.S. manufacturing plants with more than 250 employees closed.

Chinese membership of the WTO has been a disaster for local manufacturers, says Charles Blum, president of trade consulting firm International Advisory Services Group Ltd and an official at the Office of the U.S. Trade Representative under President Ronald Reagan.

"It doesn't really matter how small your manufacturing operation is, the sector is systematically being hollowed out," he said. "We figured the global market would take care of itself and that as a result the United States would turn out to be the winner. But it hasn't quite worked out that way."

Small businesses have traditionally been the backbone of America's economy, providing at least half the jobs, hiring more quickly when a recovery begins after a recession, and accounting for many more patents per employee than large firms.

Henry "Hank" Nothhaft, a serial entrepreneur and currently CEO of Tessera Technologies Inc, which specializes in miniaturization technologies for electronic devices, says most innovation occurs on the factory floor, so he worries that American innovation will slide with the erosion of the country's manufacturing base.

"If the manufacturing ecosystem goes, then innovation and engineering go with it," he said. "This means that future innovation is going to occur over in China and not here in the United States."

 

CHINA CHANGES COURSE

Meanwhile, the Chinese, if anything, have been getting more demanding.

Some business leaders and academics have noticed that the Chinese government's industrial strategy became more aggressive from 2006 onwards.

New rules "seek to appropriate technology from foreign multinationals" in key industries like avionics, power generation and high-speed rail, according to a December 2010 article for the Harvard Business Review called "China vs the World," by academics Thomas Hout and Pankaj Ghemawat.

"These rules limit investment by foreign companies as well as their access to China's markets, stipulate a high degree of local content in equipment produced in the country, and force the transfer of proprietary technologies from foreign companies to their joint ventures with China's state-owned enterprises. The new regulations are complex and ever changing."

Distracted by the financial crisis in 2008 and 2009, governments and multinationals have only really become aware of this shift in Chinese policy over the past year or so, Hout, a former partner at the Boston Consulting Group, said in a telephone interview.

"The Chinese have managed to time this beautifully," he said. "Even people like myself who have really been paying attention were caught out and it's only been clear for the past year or so what's going on."

A growing number of Western firms who thought they were getting a good deal by trading technology for access to China's market have also belatedly found out that they were mistaken.

In 2004 and 2005, China set up partnerships with Kawasaki Heavy Industries, France's Alstom, Germany's Siemens and Canada's Bombardier to build high-speed trains for China.

At first Kawasaki exported finished trains, then the group of foreign companies subcontracted the production of basic components to Chinese train manufacturer Sifang and then assembled them in China.

Then in 2009 the government began requiring that prospective bidders for Chinese high-speed rail projects form minority joint ventures with state-run manufacturers and hand over their latest designs and that 70 percent of the equipment had to be produced locally.

While aware of the flow of technology to the Chinese side, Kawasaki saw its joint venture as an opportunity to gain access to China, which was rapidly expanding its high-speed rail network. China has been by a long way the world's largest market for new rail lines in recent years.

Now, Chinese companies build faster, cheaper trains than their former mentors make and compete against them in global markets. Kawasaki has complained that trains built by Sifang are based on its own technology. Similarly, Siemens was elbowed aside by its erstwhile partner, the China National Railway Signal and Communication Corp, when it came to constructing the high-profile Beijing-Shanghai high-speed link.

Other times, technology is pilfered. Glen Tellock, CEO of crane maker Manitowoc, says that while American companies find intellectual property theft a major problem, "the answer from the Chinese is always 'what's the harm?'"

In "China vs the World," Hout and Ghemawat write that Chinese firms have "come to dominate the global silicon-wafer-panel business, aided by low-cost financing and inexpensive land sales."

Local governments provide companies with land cheaply or even free. Chinese firms are provided land grants in excess of what they need, so they build apartment buildings on the land, which then pays for research costs and offsets start-up losses. State-owned banks provide Chinese firms with loans at below prevailing interest rates and sometimes local governments pay the interest on their behalf.

Hout and Ghemawat also examine the solar panel industry, an area that the Obama administration has championed as a way to create "green" jobs for the future.

But Chinese competition pushed solar panel prices down 50 percent in 2010 from 2009, hurting Western manufacturers. China now exports most of its solar panels and Chinese firms control half of the German market and a third of the U.S. market.

China's Suntech Power Holdings Co Ltd is the world's largest solar panel maker. while Yingli Green Energy and JA Solar Holdings Co Ltd are also major competitors in the industry.

Hout says China is now seeking to catch up with Western firms in the aviation and power generation industries.

 

"NOT NAIVE OR STUPID"

In January, General Electric Co. announced a joint venture with Aviation Industry Corporation of China (AVIC) to develop electronics for the C919, a single-aisle commercial jetliner. That raised concerns that GE runs the risk of creating Chinese competitors through the proprietary technology it will provide as part of that joint venture.

"Multinationals are a little too optimistic about how much they can control the technology transfer process," the Brookings Institution's Prasad said. "The Chinese are very keen to build up their aviation industry and they've made it very clear what they want from GE to make that happen."

In a January 19 interview with Reuters, CEO Jeff Immelt, who also heads Obama's jobs council, insisted the company was "not naive or stupid" about doing business in China. "We really do think a lot about it," he said. "There is a multitude of ways to succeed in China. It's going to be the biggest economy in the world. The only question is when."

This tone differed markedly from comments Immelt made in July last year at a private dinner in Rome -- remarks that caused him no little trouble. "I really worry about China," he told a group of executives, as reported by the Financial Times. "I am not sure that in the end they want any of us to win, or any of us to be successful."

GE initially contested the FT report then changed tack when a spokesman said Immelt's remarks "do not represent our views."

Behind the scenes there does appear to be mounting worry among U.S. multinationals over Chinese policy. A report commissioned by the U.S. Chamber of Commerce ("China's Drive for 'Indigenous Innovation': A Web of Industrial Policies") examines a Chinese plan for science and technology from 2006 to 2020 that is "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."

"Indigenous innovation" refers to a Chinese government policy designed, among other things, to favor Chinese firms for state contracts and require technology transfer if Western companies want to participate.

"With these indigenous innovation industrial policies, it is very clear that China has switched from defense to offense," the chamber report said.

During his state visit here in January, China's Hu said the country would ease up on the program. The U.S. government has since publicly stated China needs to make good on that promise, though so far it is not clear that anything has yet changed.

What has also not changed is how keen American multinationals are to get into China, even if there are long-term concerns over the conditions attached to doing business there. And their willingness to keep silent about things they do not like.

Ralph Gomory, a research professor at New York University's Stern School of Business who worked for IBM for three decades, said the problem for U.S. multinationals is that the focus on short-term profit easily outweighs long-term worries.

"The Chinese are exploiting our weaknesses," he said. "They see the strength of America as the strength of our corporations and that the driver is profit. So they have merely said bring your plant over here and we'll make sure you make a big profit."

It means that shareholders of the American multinationals like Caterpillar may be doing well in the short term -- after all its share price has doubled in less than a year largely on demand from China and other emerging markets. However, middle class Americans have not seen the benefits in terms of jobs created or wages increased.

When asked about GE's recently announced Chinese avionics joint venture and how he would look at it if he held GE shares, the Brookings Institution's Prasad said, "If I had GE shares in my 401(k) that I intended to hold for the next 20 years, I would be very worried," he said. "But if I was just holding them for short-term gain I wouldn't be concerned. And I suspect that's also how people inside GE look at it."

 

CHINESE EXCEPTIONALISM

For their part, the Chinese tend to view technology transfer as being fair trade for access to its growing manufacturing base and its potential as a consumer market of 1.3 billion people.

"The Chinese response is typically that multinationals have come to China because it has a huge market," Northwestern's Shih said. "The Chinese say that in doing so 'you have implicitly signed up for technology transfer as the price of entry to that market.'"

Criticism of subsidies also tends to fall flat as the Chinese point to subsidies for key industries and the farming sector in Europe and the U.S. as proof that they are not alone in supporting their own interests.

Rejection of Chinese bids for a number of American companies on national security grounds, including California oil company Unocal, have also allowed Beijing to allege that Washington has protectionist policies. (For a special report on a U.S.-China M&A Cold War, click here: link.reuters.com/tub98r )

Certainly there is a sense that after many years of humiliation at the hands of foreign nations -- in particular in the 19th century when China was forced, in the words of the late British economist Angus Maddison, to cede a "welter of colonial enclaves" -- that the Chinese are merely returning to their place as a top power.

Just as many in the United States believe in "American exceptionalism," or the idea that the country is inherently superior to the rest of the world, the Chinese see a return to the top as their destiny.

"The Chinese feel they are returning to the level they were at 500 years ago and that it's where they belong," said Eamonn Fingleton, a writer who has been following China since the 1980s. "China sees no reason why it should not be the world's number one power."

And there are those in the United States who say that rather than fear competition from China, America should embrace and welcome it because the country's rise has been accompanied by cheap consumer goods that have kept a lid on inflation.

"The Chinese are going to move up the supply chain but they are not a threat to us," said Dan Griswold, who specializes in trade at the Cato Institute, a conservative think tank. "China merely wants to regain its rightful place among the leading economies of the world."

 

FEW EASY PATHS

But there are a growing number of groups that seek to address what they say is America's China problem, and they are bringing together manufacturers, agricultural groups, labor unions and even the occasional local chamber of commerce.

"We believe in free but fair trade," said Tony Paglia, vice president for government affairs at the Youngstown/Warren Regional Chamber of Commerce in northeastern Ohio, of the chamber's backing for proposed legislation that would impose duties on goods from countries that manipulated their currencies. "All we want is a level playing field for our members."

As well as handing over technology, multinationals like GE and Caterpillar have increasingly moved research and development to China, and experts like Hout worry that will cause America to lose its innovative edge.

"I'm afraid that they've managed to lure us into a bit of a trap," Hout said. "The Chinese are merely using a much older playbook and are holding our multinationals hostage."

Although American spending on R&D ($402 billion in 2010) is quadruple China's ($103 billion), Hout and Ghemawat estimate that at current growth levels China will catch up with U.S. spending by 2020. Factoring in what they estimate could be a 40 percent undervaluation for the yuan, they estimate that spending parity will come by 2016.

The real problem for America is that it has few easy alternatives when it comes to solving its Chinese puzzle and leveling that field.

Pressuring the Chinese government to allow the yuan to revalue seems a straightforward solution, for example, and is one that U.S. administrations have been suggesting for some time. Economists say a substantial revaluation would make a sizable dent in the U.S. trade and current account deficits.

But there would be a downside as well as positive consequences for Corporate America.

The large number of U.S. multinationals producing goods in China for export means that any significant appreciation would hurt their profits, said Sunil Chopra, a professor at Northwestern University's Kellogg School of Management.

One politically sensitive consequence of an appreciation of the yuan could also come in the form of higher prices for consumers at retail stores, which would hurt poorer people hardest. "We get a major rise in import prices from China, who does it hurt the most?" Mesirow's Swonk asked. "People who shop at Walmart and Target."

Hout said that although the Obama administration has been more vocal about problem issues with China than his predecessor George W. Bush, America needs to take far bolder action.

"The United States is so wedded to the multinational processes of the WTO, which take forever and provide only rifle shot results," he said. "We've got all this stuff fleeing the United States and we've been very inactive when it comes to playing hardball."

"The obvious reaction would be to rely on reciprocity," he added. "If the Chinese insist that American firms have to form joint ventures in China and have to adhere to local content requirements, then the U.S. government should enact requirements for Chinese firms wishing to ship goods here that they must do likewise. But we've seen nothing from the U.S. government."

 

GETTING TOUGH

Others recommend getting tougher with China in the same way President Reagan got tough with Japan at times, by being willing to impose more customs duties or file more cases through bodies like the WTO.

Reagan, with the backing of his Commerce Secretary Malcolm Baldrige and a number of CEOs angry over Japanese trade policy, was unafraid to impose duties on Japanese goods. Reagan also brokered a semiconductor trade agreement with Japan that prevented the dumping of Japanese semiconductors on the U.S. market.

"They (Reagan and Baldrige) were the most activist leaders for a long time in defending U.S. manufacturing and took action necessary to do so," said Gil Kaplan, an international trade lawyer who worked in the Reagan administration. "They realized that we need a manufacturing sector in the United States."

Kaplan said that although proponents of free trade fear a trade war with China would be inevitable if the U.S. government took a tougher line on unfair subsidies, "we need to demonstrate that we are not afraid to take action."

"We do have to act now," he said. "At some point in time we're going to reach a tipping point where we won't be able to come back. In some industries so much of the supply chain has gone that it's going to be difficult to come back."

Kaplan and others say the government's actions do not necessarily have to be limited to taking action against the Chinese, but could take the form of greater support for American manufacturers.

A common practice in developed nations, for instance, is to have a Value Added Tax that provides manufacturers with tax rebates as an added incentive to export goods.

"We don't just have to focus on the negative," said Tessera's Nothhaft. "We can find ways to support our own companies and make the playing field a little more level."

For many local manufacturers, the lack of a real public debate is discouraging to say the least. They feel disenfranchised, outgunned and outmaneuvered by the influential U.S. multinationals who argue for more free trade while small manufacturers want fair trade as well.

"The politicians in Washington don't represent you and me, they represent the special interests who pay their bills," said Richard Gill, president of Polyfab Corp, a plastic molding company in Sheboygan County, Wisconsin. "Our decline is not inevitable. We can still turn this around. But things are going to get a lot worse if we don't do the right things to stop it."

Carleton College's Schier said "increased middle-class radicalism" shown by the power of the conservative Tea Party movement will likely be followed by increased radicalism in general as more voters are hurt by the decline of manufacturing and the lack of jobs more than two years after the height of the financial crisis.

"America's political elite would rather not give the debate much oxygen because they haven't come up with any real solutions," Schier said. "But the majority of the public has a sense there's something very wrong with our relations with China."

"It's a prescription for chronic instability," he said. "You can't build a long-term working majority in a situation like this. Voters are going to zig and zag and we'll likely see backlash after backlash."

(Additional reporting by Terril Jones in Beijing; Editing by Jim Impoco, Martin Howell and Claudia Parsons)

    Special report: Does corporate America kowtow to China?, R, 27.4.2011,
    http://www.reuters.com/article/2011/04/27/us-special-report-china-idUSTRE73Q10X20110427

Obama sees no magic bullet to push down gas prices

WASHINGTON | Sat Apr 23, 2011
6:10am EDT
Reuters
By Steve Holland

WASHINGTON (Reuters) - Barack Obama told Americans on Saturday there is no "magic bullet" to bring down high gasoline prices and said he wants to end what he called $4 billion in taxpayer subsidies to oil and gas companies.

Obama is feeling the heat from gasoline prices that are about $4 a gallon and may surge higher. A New York Times-CBS News poll found that 70 percent of Americans believe the country is on the wrong track and analysts believe gas prices are a main reason.

The president devoted his weekly radio and Internet address to outlining his views on the U.S. energy predicament, saying clean energy is ultimately the way forward for a country long addicted to gas-guzzling vehicles.

"Now, whenever gas prices shoot up, like clockwork, you see politicians racing to the cameras, waving three-point plans for $2 gas. You see people trying to grab headlines or score a few points. The truth is, there's no silver bullet that can bring down gas prices right away," he said.

Obama, in the early stages of his 2012 re-election campaign, has been seeing steady improvement in the U.S. economy. But rising gasoline prices are forcing Americans to pay more out of their income, which some fear could harm the fragile economic recovery.

Obama said it is time to eliminate what he called $4 billion in annual "taxpayer subsidies" to oil and gas companies.

"That's $4 billion of your money going to these companies when they're making record profits and you're paying near record prices at the pump. It has to stop," he said.

The Obama administration on Thursday unveiled a working group of federal agencies to probe potential fraud in the energy markets that affects pump prices, including actions by speculators.

RENEWABLE ENERGY

Obama accused Republicans of seeking to cut 70 percent in government spending to encourage development of clean energy projects.

"Instead of subsidizing yesterday's energy sources, we need to invest in tomorrow's. We need to invest in clean, renewable energy," he said.

"Yes, we have to get rid of wasteful spending -- and make no mistake, we're going through every line of the budget scouring for savings. But we can do that without sacrificing our future," he added.

Senate Republican leader Mitch McConnell said in response to the president that the Obama administration over the past two years has "declared what can only be described as a war on American energy."

"It's canceled dozens of drilling leases, imposed a moratorium on drilling off the Gulf Coast and increased permit fees. It's done just about everything it can to keep our own energy sector from growing," McConnell said.

McConnell said more must be done to increase domestic oil production.

The comments by Obama and McConnell came three days after the anniversary of the giant BP Plc oil spill off the coast of Louisiana that caused economic and environmental harm to the U.S. Gulf Coast.

(Editing by Will Dunham)

    Obama sees no magic bullet to push down gas prices, R, 23.4.2011,
    http://www.reuters.com/article/2011/04/23/us-obama-energy-idUSTRE73M10820110423

FACTBOX-Key points of friction in U.S.-China trade

Thu May 5, 2011
3:42pm EDT
Reuters

May 5 (Reuters) - Senior U.S. and Chinese officials will grapple with the vast and sometimes contentious relationship between the world's two biggest economies in two days of talks in Washington on Monday and Tuesday.

Here is an explanation of the issues that may be discussed at the latest annual Strategic and Economic Dialogue.

 

U.S. TRADE DEFICIT, CHINA'S SURPLUS

A key cause of trade friction between Beijing and Washington is the U.S. trade deficit with China. Despite a pledge by both countries to work together on overcoming global imbalances, the U.S. trade deficit with China in 2010 rose to $273.1 billion, a 20.4 percent increase from the shortfall in 2009. That surpassed the record of $268 billion set in 2008, illustrating how heavily China still relies on exports to the United States to fuel economic growth. China's own figures showed its overall trade surplus narrowed in 2010 for the second straight year. The 2010 surplus was $183.1 billion, down from $196.1 billion in 2009 and nearly $300 billion in 2008.

 

CURRENCY

China's currency policies have been a major irritant in ties for several years and a focus of U.S. congressional anger at China since at least 2005. Contention over the yuan exchange rate has cooled a bit this year, but remains strong. Many U.S. lawmakers believe the yuan is undervalued by 15 percent to 40 percent, giving Chinese companies an unfair price advantage in international trade.

China loosened its currency from a nearly two-year peg to the dollar in June, and this year the People's Bank of China has guided the yuan to record highs. It has now appreciated about 5 percent since June 2010.

Policymakers in Beijing have made it clear they will deploy the currency as a weapon to fight inflation, which hit a 32-month high of 5.4 percent in March. With prices moving up much more rapidly in China than the United States, the yuan's real exchange rate has risen about 10 percent since last June. U.S. Treasury Secretary Timothy Geithner said on May 3 that China would be better off allowing for a faster nominal appreciation that would help temper inflation.

The U.S. Treasury was scheduled to issue a semi-annual report on April 15 on the currency practices of U.S. trade partners that, in theory, could have labeled China a foreign exchange manipulator. That report has been delayed indefinitely and it is likely the Obama administration will opt for continued behind-the-scenes persuasion rather than roiling the diplomatic waters by calling Beijing a manipulator looking for a trade edge.

The Obama administration faces continued calls from Congress to do more to pressure China. The U.S. House of Representatives approved a bill last September pushing the Commerce Department to treat currency undervaluation as a subsidy under U.S. trade law. That would allow U.S companies, on a case-by-case basis, to ask for steeper countervailing duties against Chinese imports than they currently can. The bill died when the Senate did not hold a vote before its term expired at year end.

After a trip to China in late April, however, Senator Charles Schumer, a prominent Democrat from New York, said he was "more convinced than ever" of the need to pass legislation to force China to raise the value of the yuan. However, Republican leaders in the control of the House have said they have other priorities.

 

U.S. DEBT LEVELS

China has the world's biggest foreign exchange reserves. They rose by nearly $200 billion in the first quarter to $3.05 trillion, with about two-thirds estimated to be invested in dollars.

Beijing has a big interest in protecting the value of those dollar-denominated assets and has repeatedly nudged Washington to give public assurances about government debt levels and the strength of the dollar.

After ratings agency Standard & Poor's slapped a negative outlook on the United States' top-notch AAA credit rating in April, China urged Washington to protect investors in its debt. But China has little choice but to keep its dollar-denominated debt for now, and that deters the government from voicing any worries about U.S. fiscal policy more loudly.

China has repeatedly warned that loose U.S. monetary policy risks undercutting the dollar, but it has continued to accumulate dollar assets. It bought about $260 billion of U.S. Treasury securities last year, according to U.S. data. With the Chinese government determined to limit yuan strength, it must buy a large amount of the dollars streaming into the country from its trade surplus, and it recycles those into U.S. investments.

The state of talks in Washington over cutting the U.S. budget deficit, on course to hit $1.4 trillion this year, will no doubt be a subject of discussion, as will the Obama administration's related effort to convince lawmakers to raise the $14.294 trillion limit on the U.S. government's debt.

Geithner has said China has confidence Congress would ultimately vote to raise the debt ceiling. If it fails to, it would ultimately lead to a first-ever U.S. debt default.

 

PIRACY AND COUNTERFEITING

China has long faced American companies' ire about widespread unauthorized copying of software, music, films and other products -- from luxury goods to industrial machinery. The International Intellectual Property Alliance, which represents U.S. copyright industry groups, has estimated U.S. trade losses in China due to piracy at $3.5 billion in 2009. Meanwhile, U.S. customs officials say 80 percent of the fake tennis shoes, clothing, luxury bags and other goods they seize each year at the border come from China.

China says it is making progress against intellectual property piracy and launched many enforcement campaigns to stamp out bootlegged books, music, DVDs and software. Still, all are still openly available in Chinese shops and street stalls. China remains on the U.S. "priority watch list" of countries deemed to have serious copyright and trademark theft.

Microsoft (MSFT.O: Quote, Profile, Research, Stock Buzz) and other members of the Business Software Alliance in the United States complain nearly 80 percent of the software installed on personal computers in China is pirated. They have called for a "results-based" deal to boost U.S. software sales and exports to China by 50 percent in two years. China has said it is making progress in its campaign to ensure government offices do not use pirated software. Two-fifths of central government offices were using legal software and another two fifths were buying it, an official from China's National Copyright Administration said.

INDIGENOUS INNOVATION, STATE-OWNED ENTERPRISES

Big U.S. companies like General Electric (GE.N: Quote, Profile, Research, Stock Buzz) are worried that China's industry-supporting "indigenous innovation" policies could make it more difficult for them to compete in China. The "indigenous innovation" regulations are intended to promote innovation within China and reduce its dependence on foreign technology and companies.

U.S. industry fears China is using discriminatory policies in areas from government procurement to technical standards and tax policy to promote its state-owned enterprises at the expense of foreign firms.

U.S. companies are also worried that under indigenous innovation, they may be forced to transfer development and ownership of intellectual property to China to participate in the country's huge government procurement market.

President Hu Jintao and other Chinese leaders have indicated goods produced by Chinese affiliates of U.S. and other foreign firms would be considered indigenous innovation products. But the Obama administration and U.S. businesses have said they want stronger follow-up from Beijing to ensure that commitment is kept.

U.S. companies also complain that state-owned enterprises receive many other unfair advantages from the Chinese government. U.S. officials have said they would push in various forums for rules to establish a "competitively neutral environment" for state-owned enterprises.

RARE EARTHS

China, which controls 97 percent of available global rare earth supplies, has alarmed its trading partners by restricting exports of the minerals which are used in a variety of clean energy and high-industry technologies. The U.S. Chamber of Commerce has pressed the United States to secure a commitment from China to remove rare earth export taxes and quotas, and the United Steelworkers union also raised concern about the issue in a petition to the U.S. Trade Representative.

China has defended its restrictions as measures to manage supplies and control pollution associated with rare earth production. USTR officials have said they are looking at what action they can take, and note they have challenged other Chinese export restrictions at the World Trade Organization.

U.S. EXPORT CONTROLS AND INVESTMENT BARRIERS

Beijing complains that Washington, while pushing for greater access for U.S. firms in the Chinese market, imposes unwarranted restrictions on Chinese investment in the United States, often citing national security concerns. China says it wants a level playing field for its investment into the United States, saying that its intentions are benign and will benefit the U.S. economy and create jobs.

A new report this week estimates that China's outward investment in new greenfield projects or mergers and acquisitions could increase sharply by 2020 to an estimated $1 trillion to $2 trillion. The United States says it is open to Chinese investment in all but a few cases, but accuses China of blocking investment completely in some industries or imposing onerous conditions on foreign companies.

China says it would also buy more from the United States if not for overly restrictive U.S. controls on high-technology goods. The United States says China's argument is overstated, but it is in the process of reforming its export control system, which could lead to increased sales of some less-sensitive items.

Experts say better Chinese protection of U.S. intellectual property is a prerequisite for any major easing of export controls. Without that, say analysts, U.S. tech exports will taper off as Chinese firms copy the products.

(Reporting by Chris Buckley and Doug Palmer; Editing by Chizu Nomiyama)

    FACTBOX-Key points of friction in U.S.-China trade, R, 5.5.2011,
    http://www.reuters.com/article/2011/05/05/usa-china-idUSN0527192220110505

As its power declines, the U.S. pays the price

Apr 21, 2011
18:11 EDT
Reuters
Chrystia Freeland

Economic policy isn’t just a domestic issue anymore. That is the conclusion we should draw from the market volatility this week, including the shift by Standard & Poor’s to a negative outlook for U.S. government debt, and the meeting last weekend of the International Monetary Fund and World Bank.

This is a familiar fact for smaller countries. The emerging market nations have long understood that judgments made on Wall Street or at the IMF headquarters in Washington often had more power to shape their economic policy than the proposals of their own ministers of finance and central bankers. More recently, that is a lesson that fiscally weak Western countries like Greece, Ireland and Portugal have been learning, too.

Now, as the relative power of the United States in the global economy declines, it is a fact of life that Americans need to get used to, too. That is one of the important messages of the S&P decision at the beginning of this week to put the United States on a negative outlook – essentially a warning that the ratings agency is no longer certain the United States will maintain its AAA rating.

There are a lot of reasons the S&P call should be taken with a grain of salt. For one thing, the ratings agencies hardly covered themselves with glory in the run-up to the financial crisis, and surely no longer deserve oracular status – if they ever did.

For another, the S&P warning wasn’t new news. With a 10.6 percent budget deficit last year and with gross national debt at 91.6 percent of gross domestic product, it has been obvious for some time that the United States’ public finances are a mess. Nor has that concern been limited to the wonks. The debt and deficit have become a Main Street issue – witness the rise of the Tea Party movement – and have dominated the political debate in Washington for the past six months.
But there is one good reason the S&P’s negative outlook attracted so many headlines. It was a reminder that U.S. economic policy was no longer just about debates in Washington or what plays in the Iowa caucuses. U.S. economic policy needs to pass muster with global markets and with foreign lenders, too.

That is an old story for every other country in the world. But the United States has been accustomed to being the world’s dominant economy and to owning the printing press of its reserve currency. Both are still true, but less so than before. Moreover, for all its size, the United States’ massive debt means it is already dependent on the confidence of foreign buyers of U.S. Treasury securities, including governments running massive surpluses, like China.

That means national economic decisions, like the level of government spending, or the rate of taxation, aren’t purely national issues any more. In the proud days of the so-called Washington Consensus after the collapse of the Berlin Wall and the triumph of Western capitalism, U.S. pundits and policy-makers got used to issuing edicts from Washington about how emerging markets should run their economies. The reverse is not yet true, but the S&P move is a sign that the United States will need to start thinking about how its economic policy moves play in Beijing and Dubai, as well as in the Beltway and New Hampshire.

It is not just the debt and deficit that are making economic policy a matter of international concern. As the IMF and World Bank meetings revealed, one of the consequences of globalization has been to give national economic decisions a more powerful international wallop.

This isn’t an entirely novel notion for the United States. U.S. complaints about China’s exchange-rate policy and its strategy of export-driven growth are a vivid example of the public’s conviction that one country’s domestic economic strategy is a legitimate – indeed central – issue for international debate.

Now the rest of the world is starting to take the same view of the United States. In Washington last week, the Brazilian finance minister, Guido Mantega, complained that the policies of the Federal Reserve, designed to help the United States recover from the gravest financial crisis since the Great Depression, were having unintended and malign consequences in other parts of the world.

Low interest rates in countries like the United States, Mr. Mantega warned, were the “primary trigger of many of today’s economic woes.”

“Domestic political constraints have been too easily invoked by reserve currency-issuing countries as a reason for adopting ultra-expansionary monetary policies,” he said in a statement to the IMF’s policy steering committee. “But this does not change the fact that these policies generate spillovers that have made life difficult for other countries.”

Mr. Mantega isn’t the only one who is worried. In a panel discussion at Bretton Woods I moderated a few weeks ago, Andres Velasco, the former finance minister of Chile, warned: “So, if you are Brazil today or if you are many of these countries in the rest of the world, you look out the window and what you see is a tremendous tsunami of wealth coming your way. And this, which once upon a time might have been welcomed, I view and many of the people in these countries view as a terrifying sight indeed. Why? Because this tsunami is going to make your politics very difficult, your life if you are a minister very unpleasant and your macro trade-offs very sharp indeed.”

When we think about the thorny questions in foreign policy, we think first about the rocky intervention in Libya or the agonizing war in Afghanistan. But the really big challenge in managing relations between nations is the problem pointed to by Mr. Velasco, Mr. Mantega and S.&P.: managing a world in which my domestic economic policy solution is your foreign economic tsunami.

    As its power declines, the U.S. pays the price, R, 21.4.2011,
    http://blogs.reuters.com/chrystia-freeland/2011/04/21/as-its-power-declines-the-u-s-pays-the-price/

McDonald's warns of higher food inflation

LOS ANGELES/NEW YORK | Thu Apr 21, 2011
1:28pm EDT
By Lisa Baertlein and Phil Wahba

LOS ANGELES/NEW YORK (Reuters) - McDonald's Corp (MCD.N: Quote, Profile, Research, Stock Buzz) forecast higher prices for beef, dairy and other items and said it would cautiously raise prices to keep attracting diners, who are grappling with higher grocery and gas bills.

Shares fell 1.5 percent after the world's biggest hamburger chain said it planned to offset some, but not all, of its higher food costs, with small price increases throughout the year.

McDonald's results landed a day after rival Yum Brands Inc (YUM.N: Quote, Profile, Research, Stock Buzz) reported strong China results that masked rising food and labor costs. Chipotle Mexican Grill (CMG.N: Quote, Profile, Research, Stock Buzz), which has nearly all of its 1,100 restaurants in the United States, saw higher food costs eat into margins.

McDonald's and other restaurant operators are getting squeezed by accelerating food costs and must figure out how to raise prices without scaring away already skittish diners.

"It's very hard to pass through price increase right now," said Stifel Nicolaus analyst Steve West.

McDonald's Chief Executive Jim Skinner said customers are getting "pinched everywhere. They should not suffer the same fate at McDonald's."

Chief Financial Officer Pete Bensen said the company would sacrifice some short-term margin to protect long-term growth. He added that McDonald's has experience finding the right recipe for price increases in fragile economic times.

McDonald's now expects food costs to rise between 4 percent and 4.5 percent in the United States and Europe this year. That is up from its prior call for a rise of 2 percent to 2.5 percent in the United States and an increase of 3.5 percent to 4.5 percent in Europe.

McDonald's in March put through a 1 percent menu price rise in the United States, where it plans additional increases. Prices in Europe are up by the same amount and the company plans to raise prices in China.

When it comes to raising prices, West said McDonald's has an edge because it attracts a higher-income diner than other fast-food chains. It could have the best luck raising prices on things like premium burgers and McCafe drinks that appeal to those customers, he said.

STEALING SHARE

After struggling during the recession, McDonald's has outperformed its fast-food peers by updating its menu to broaden its appeal beyond the young males that account for the biggest share of sales at most other fast-food chains.

"The bottom line is they're still doing a great job of growing revenue," said Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

Analysts remain worried that high gas prices could force fast-food restaurant patrons to cut back. But Jankovskis said McDonald's was better equipped than others to cope.

McDonald's has roughly 32,700 restaurants around the world. The United States alone has 14,000 units, which means customers do not have to travel far to get to one.

"The big test will come in the summer months with gasoline remaining in the neighborhood of $4.00 (a gallon) -- that's when the strength of McDonald's will come through," he said.

March sales at restaurants open at least 13 months were up 3 percent in the United States, up 4.9 percent in Europe and gained 0.5 percent in McDonald's Asia/Pacific, Middle East and Africa unit. Asia results were adversely affected by the earthquake and tsunami in Japan, but that the impact on overall income was "minor," Skinner said.

First-quarter net income rose 10.9 percent to $1.21 billion, or $1.15 per share, topping analysts' profit view by a penny, according to Thomson Reuters I/B/E/S.

Total first-quarter revenue at the Golden Arches rose 9 percent to $6.1 billion, with sales in Europe leading the way.

Still, operating margin fell to 17.7 percent from 18.2 percent as costs for food and paper rose. Food and paper costs were 33.6 percent of sales in the quarter, compared with 32.9 percent a year earlier.

McDonald's shares fell 1.5 percent, or $1.17, to $76.23 in midday trading on the New York Stock Exchange.

(Editing by Maureen Bavdek and Gunna Dickson)

    McDonald's warns of higher food inflation, R, 21.4.2011,
    http://www.reuters.com/article/2011/04/21/us-mcdonalds-idUSTRE73K0U820110421

U.S. sues over treatment of workers from Asia

LOS ANGELES | Thu Apr 21, 2011
12:54am EDT
By Alex Dobuzinskis

LOS ANGELES (Reuters) - A U.S. federal agency has sued over unequal treatment of more than 500 workers from India recruited to work at shipyards in Mississippi and Texas and over 200 Thai farm laborers brought to Hawaii and Washington state, officials said on Wednesday.

The U.S. Equal Employment Opportunity Commission said the workers were forced to live in substandard housing and exploited with fees, so that some had net earnings of nearly nothing.

The EEOC said the treatment of the Thai and Indian workers amounted to human trafficking, even though they were brought to the country with work visas.

"Foreign workers should be treated as equals when working in the United States, not as second-class citizens," said Olophius Perry, Los Angeles district director for the EEOC.

Last year Mordechai Orian, the head of the labor firm that recruited the Thai farm workers, was arrested and charged in federal court with forced labor conspiracy.

The EEOC said in lawsuits filed on Tuesday that Orian's Beverly Hills-based Global Horizons Inc recruited the Thai laborers to work on six farms in Hawaii and two in Washington state between 2003 and 2007.

The workers earned about $8.50 to $9.50 an hour to harvest crops, but many of them were forced to pay recruitment fees of between $12,000 and $25,000, EEOC officials said.

Some of the workers had to take out high interest loans and were charged for lodging and food, officials said.

But Michael Green, a Hawaii-based attorney for Orian, disputed the claims.

"The conditions were fine and Orian would never allow anything different," Green said. "The people who came here were paid, they were not living in squalor or bad conditions, they were paid more money than they ever were in Thailand, and they enjoyed their work."

Orian, an Israeli national, is under electronic monitoring as the federal criminal case against him progresses.

"They were nickeled and dimed to the point where they really didn't have any pay," said Anna Park, regional attorney for the EEOC Los Angeles office.

Some of them were forced to live in crowded conditions amid rats and insects, according to the EEOC. Workers of other nationalities on the same farms were not subject to the same kind of treatment, Park said.

Also, workers had their passports taken and were threatened with deportation if they complained, officials said.

EEOC officials said some of the Thai workers have returned to their home country, and that the total number of workers affected could number 400. Some of the workers were given visas for victims of human trafficking, but EEOC officials would not say how many won that designation.

In the case of the 500 Indian workers, the EEOC alleged in a lawsuit in Mississippi that Gulf Coast marine services company Signal International LLC subjected them to segregated facilities and discriminatory treatment.

The Indian men paid recruiters up to $20,000 to come to the United States. When they arrived they were forced to pay rent for crowded housing in fenced camps, according to the EEOC.

(Editing by Greg McCune)

    U.S. sues over treatment of workers from Asia, R, 21.4.2011,
    http://www.reuters.com/article/2011/04/21/us-usa-labor-trafficking-idUSTRE73K0PV20110421

G.O.P.-Led House Votes to Cut Trillions Over 10 Years

April 15, 2011
The New York Times
By CARL HULSE

WASHINGTON — House Republicans on Friday muscled through a budget plan that pares federal spending by an estimated $5.8 trillion over the next decade while reshaping Medicare in a proposal that immediately touched off a fierce clash with Democrats.

Just one day after Congress concluded its fight over this year’s spending, the House voted 235 to 193 to approve the fiscal blueprint for 2012 drafted by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the Budget Committee. Besides reconfiguring the Medicare program that now serves those 65 and older, the proposal would cut the top corporate and personal income tax rates while also overhauling the Medicaid health program for the poor.

The vote represents the most ambitious effort yet by the new Republican majority in the House to demonstrate that it intends to aggressively rein in spending and shrink government. It doubles as a challenge to President Obama over which party is more determined to force a sharp shift in the handling of federal dollars.

“The spending spree is over,” Mr. Ryan said. “We cannot keep spending money we don’t have.”

Almost as soon as the budget was approved, Senator Harry Reid, Democrat of Nevada and the majority leader, vowed that the plan would never pass the Senate, setting up another tense showdown with House Republicans over spending as well as over an administration request to raise the federal debt limit.

Not a single Democrat voted for the proposal, which will effectively serve as the House Republican bargaining position in talks with the White House and the Democratic Senate over how to reduce annual federal deficits and the accumulated national debt. Four Republicans also voted against it.

Within minutes of the vote, Democrats began attacking Republican lawmakers for supporting the plan.

“Unbelievable! Dean Heller Votes to End Medicare,” the Democratic Senatorial Campaign Committee headlined an e-mail broadside against Representative Dean Heller, a Republican running for an open Senate seat in Nevada.

On the House floor, Democrats ridiculed the notion that Mr. Ryan’s $3.5 trillion plan for next year was somehow bold for zeroing in on health programs despite political risks. They accused Republicans of promoting a morally skewed vision of America by taking savings out of medical care for older Americans and the poor while supporting tax breaks for corporate America and the affluent. The budget proposal would maintain the tax rates enacted during George W. Bush’s presidency and extended last year.

“It is not courageous to provide additional tax breaks for millionaires while ending the Medicare guarantee for seniors and sticking seniors with the cost of rising health care,” said Representative Chris Van Hollen of Maryland, the senior Democrat on the Budget Committee.

Congressional Republicans were eager to take up the budget after Thursday’s approval of legislation that financed the government through Sept. 30. The legislation imposed $38 billion in spending cuts, well short of the $61 billion sought by House Republicans. And the immediate impact of those reductions on the deficit was modest, leading 59 Republicans to oppose the deal struck by Speaker John A. Boehner.

In contrast, the Ryan budget would significantly scale back federal domestic programs and impose the kind of sweeping budget cuts that members of the Republican majority say they came to Washington to pursue.

“Yesterday we cut billions,” said Representative Kevin McCarthy of California, the No. 3 House Republican, who called Friday’s budget vote historic. “Today we cut trillions.”

The most politically charged element of the budget plan is a proposal to convert Medicare from a program where the federal government serves as the health insurer for Americans 65 and older to one where older Americans join private health plans that are subsidized by the government.

Republicans defended their proposal as the best way to guarantee the future of a program headed toward insolvency and noted that Americans who are now 55 and older would still be able to participate in the current Medicare program. They accused Democrats of distorting the Medicare proposal while employing scare tactics to stir anti-Republican sentiment among older voters. Mr. Ryan said such political machinations had in the past prevented Congress from taking the difficult steps needed to get the deficit under control.

“We have too many people worried about the next election and not worried about the next generation,” he said.

Acknowledging the political hazards of proposing fundamental changes in a program so popular with the crucial senior voting bloc, Representative Eric Cantor, the Virginia Republican and majority leader, said Republicans saw no choice but to move forward.

“We cannot afford to ignore this coming fiscal train wreck any longer,” Mr. Cantor said. “Complacency is not an option.”

Republicans also said that giving future retirees access to private health plans would provide them with more choices. A Congressional Budget Office review of the Ryan proposal predicted that retirees would pay more for their health care under it than they would under traditional Medicare. The agency also said the Ryan plan to convert federal Medicaid spending into block grants for states would most likely end up reducing benefits for those enrolled in the program.

Democrats promised to press Republicans hard on the budget vote, starting in the two-week Congressional recess that began Friday and continuing through the 2012 elections.

“This is a defining moment, and we will go district by district to hold Republicans accountable for ending Medicare,” said Representative Steve Israel of New York, chairman of the Democratic Congressional Campaign Committee.

Some Republican House members said they had already been contacted by alarmed constituents, and the party leadership urged lawmakers to be prepared to explain their votes over the spring break.

“I think it’s important for our members to go home and talk about the crisis that we face,” Mr. Boehner said. “These are important programs for tens of millions of Americans. And transforming them so they’ll be around for our kids and grandkids is as important as anything that we can do around here.”

Other Republicans said they believed the public was ready for a serious attempt to cut spending — a mood that could blunt the political impact of the House budget.

“The majority of Americans believe the country is headed down the wrong track,” said Representative Cynthia M. Lummis, Republican of Wyoming. “They understand the consequences Washington’s irresponsible culture of spending has for our country’s future.”

But Democrats said that Republicans had committed a political and policy blunder.

“The Republicans have made a major mistake in turning a debate over the budget into a debate over whether to keep or eliminate Medicare,” said Senator Charles E. Schumer of New York, the No. 3 Senate Democrat. “The House Republicans have let Tea Party zeal get the better of them, and this vote will reverberate for a long time.”

    G.O.P.-Led House Votes to Cut Trillions Over 10 Years, RNYT, 15.4.2011,
    http://www.nytimes.com/2011/04/16/us/politics/16congress.html

With Lubrizol, Buffett a chemical industry baron

NEW YORK | Fri Apr 15, 2011
8:58am EDT
Reuters
By Ernest Scheyder

NEW YORK (Reuters) - Here's something you may have missed amid all the hoopla about Warren Buffett's Lubrizol buyout: the "Oracle of Omaha" is now a baron of the global chemical industry.

With Lubrizol and a large stake in Dow Chemical, Buffett's Berkshire Hathaway will wield enormous influence over a chemical empire that sells materials for Apple's iPad, lubricants for truck engines, Styrofoam for home construction, and thousands of other products.

And he already owns the popular Benjamin Moore paint brand.

Buffett's acquisition of Lubrizol is set to close in the third quarter, even as legal experts say Buffett's one-time heir apparent David Sokol is in danger of being slapped with insider trading charges for his role in the deal.

Buffett is already the second-largest shareholder in Dow Chemical via a series of preferred shares that he bought in 2008 when the company desperately needed cash.

And Buffett might not be done in the sector, as there are plenty of small- to mid-size chemical firms that match his investment thesis, including prodigious cash generation.

Specialty chemicals makers Solutia and Methanex are extremely attractive, industry analysts say.

"It's still a very fragmented market," said Hassan Ahmed, an analyst with Alembic Global Advisors. "Clearly consolidation needs to happen. If Buffett's going in and investing in these names and still thinking there's still value, it just signals that there is much more upside in most chemical names."

Earlier this year Buffett famously compared his desire for possible acquisitions to big-game hunting, saying his trigger finger was itchy.

Even after the Lubrizol deal closes, Berkshire likely will have more than $50 billion in cash ready to deploy by the end of this year.

To that stable he might want to add Solutia's insoluble sulfur for tires, which keeps them from disintegrating and brings in margins of about 40 percent. Solutia dominates the market for the product.

Solutia also recently signed a contract to supply heat transfer fluid to an Arizona solar power plant. That project alone could boost the company's earnings by as much as 11 cents a share by 2013, Jefferies & Co analyst Laurence Alexander said.

Methanex's methanol technology may also interest Buffett. Methanol is similar to ethanol but does not require food crops or government subsidies to produce. Just as ethanol is blended with gasoline in the United States, methanol is blended with gasoline in China, fueling a surge in demand.

Methanex is the top producer in the methanol industry.

"I think it would be a great strategic fit" for Buffett, said Raymond James analyst Steve Hansen. "It's got a very strong competitive moat and tremendous free cash flow generation.

"They're very good stewards of capital, which Buffett is a big fan of, and have bought back roughly half their shares in the past decade," Hansen said. "And we think the methanol markets are really set up for a big run here."

Berkshire Hathaway did not respond to a request for comment.

Buffett "is attracted to any operation that in his view he can understand, is predictable, has a good outlook for continued demand and growth in the future, which will in turn generate more cash," said Jerry Bruni of portfolio manager J.V. Bruni & Co, which owns Berkshire Hathaway shares.

Would that include other chemical makers?

"Given his comments about the itchy trigger finger," Bruni said, "I would be surprised if Lubrizol were the last of his proposed acquisitions."

(Reporting by Ernest Scheyder, editing by Dave Zimmerman)

    With Lubrizol, Buffett a chemical industry baron, R, 15.4.2011,
http://www.reuters.com/article/2011/04/15/us-buffett-chemicals-idUSTRE73E3B220110415

A Boon for Nannies, if Only They Knew

April 14, 2011
The New York Times
By KIRK SEMPLE

Patricia Francois prowled the American Museum of Natural History on a recent afternoon, looking for nannies. She spotted two, with their charges, sitting in the inky gloaming beneath the famous blue whale, and zeroed in.

Ms. Francois, an organizer for the advocacy group Domestic Workers United, asked the women if they were familiar with the state’s new Domestic Workers’ Bill of Rights, better known as the “nanny law.” The two nannies, both from the West Indies, shook their heads.

“We have to stick together,” urged Ms. Francois, a Trinidadian, handing them pamphlets describing the measure. “What we have is people power.”

More than seven months after the bill was signed into law with some fanfare, most domestic workers and their employers seem unaware of it, and its impact on the often-fluid business arrangements between the two groups appears to have been negligible, say nannies, labor advocates, state officials and others.

The law is the only one in the nation to offer specific protections for domestic workers, including nannies, housekeepers and caregivers for the elderly. The result of years of ardent advocacy and political wrangling, it allows temporary disability benefits for full-time home workers, and provides redress for workplace sexual harassment and discrimination. It requires employers to pay time-and-a-half for overtime work and to provide at least three vacation days a year, and it enshrines a legal workday of eight hours and a workweek of 40 hours, or 44 for live-in workers.

Proponents hoped the law would quickly lend some clarity to a murky relationship that workers and employees have had to negotiate without a defined sense of what is fair. And they did not expect change to come easily: Many domestic workers are illegal immigrants and may be afraid to speak up, and many employers pay workers under the table and may not be inclined to negotiate new terms that could cost more.

But Keith L. T. Wright, the state assemblyman who sponsored the bill, said he had no sense of how the law was being received in homes, or whether news of the measure had even gotten there.

“It comes down to marketing,” he said. “Maybe we should put a Domestic Workers’ Bill of Rights on each and every refrigerator door just to let people know.”

So Ms. Francois and other volunteers for Domestic Workers United have been combing the New York region — playgrounds, subway stations, churches and immigrant neighborhoods — finding and educating members of what has largely been an underground economy.

The group’s director, Priscilla González, said that since the bill passed last summer, her organization had fielded a sharp increase in calls about the law from employers and employees. And since the statute went into effect in November, workers have filed five complaints under the law with the State Department of Labor, an agency spokesman said.

But Ms. González and other labor advocates acknowledged that it was difficult getting the word out to a domestic work force that the Labor Department estimates at 120,000 to 240,000 statewide. “The fact that there have been no standards in this sector has set the tone,” Ms. González said.

The Labor Department has begun disseminating information about the law using the Web, foreign consulates and community groups, said Leo Rosales, a department spokesman. Domestic Workers United, its lead partner in the effort, will soon start workshops “about how to achieve agreements that work for both parties,” Ms. González said, adding that the events will be aimed as much toward employers as employees.

Indeed, most employers interviewed for this article said they knew little or nothing about the legislation. The city’s parenting blogs and their lively discussion threads have barely touched the subject.

“It’s been amazingly quiet,” said Susan Fox, founder of Park Slope Parents, a Web site based in Brooklyn. “I think in general people feel like they are doing more than this legislation requires.”

Dr. Fox said the biggest hurdle in the law for many parents was the overtime provision. “I don’t think that people are really taking it to heart,” she said.

“Many nannies are paid weekly, and the perception of employers is that it’s like being on salary,” she added. “Perhaps one week the nanny works 35 hours, the next week 45 hours, but the employer pays for 40 hours weekly and may think that it all evens out in the end.”

Many domestic workers said that while they were paid well above the federal minimum wage of $7.25 an hour, the looseness of the arrangements sometimes made them resentful.

Marlyn, a West Indian immigrant who is a nanny for a child in New York, said she worked a 50-hour week, Monday to Friday, and was paid $700. If she works longer, her employers sometimes give her extra cash, though they may instead give her compensatory time, which she said was “wrong.”

While the lack of consistency in the compensation bothers her, she said she was unlikely to voice those concerns. “To raise these kinds of issues can be very uncomfortable,” she said, asking that her surname not be published because she did not want to anger her employers.

Tamara Mose Brown, author of “Raising Brooklyn,” a book about Caribbean child care workers published this year, said those conversations might become more common, but only if the law is well publicized and enforced. “If domestic workers aren’t seeing the accountability and don’t see any publicity of these cases, they won’t know,” said Ms. Mose Brown, an assistant professor of sociology at Brooklyn College.

Mr. Rosales, the Labor Department spokesman, said enforcement of the law would largely rely on complaints from workers and advocates.

He said four of the five complaints filed so far were still pending, preventing him from discussing them. The fifth involved $2,551 in overtime pay owed to a New York City housekeeper, he said. The Labor Department forced the employer to pay the sum, and to pay the state $2,000 in penalties.

    A Boon for Nannies, if Only They Knew, NYT, 14.4.2011,
    http://www.nytimes.com/2011/04/15/nyregion/few-domestic-workers-know-about-law-protecting-them.html

Senate panel slams Goldman in scathing crisis report

WASHINGTON | Wed Apr 13, 2011
8:49pm EDT
Reuters
By Kevin Drawbaugh

WASHINGTON (Reuters) - In the most damning official U.S. report yet produced on Wall Street's role in the financial crisis, a Senate panel accused powerhouse Goldman Sachs of misleading clients and manipulating markets, while also condemning greed, weak regulation and conflicts of interest throughout the financial system.

Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, one of Capitol Hill's most feared panels, has a history with Goldman Sachs.

He clashed publicly with its Chief Executive Lloyd Blankfein a year ago at a hearing on the crisis.

The Democratic lawmaker again tore into Goldman at a press briefing on his panel's 639-page report, which is based on a review of tens of millions of documents over two years.

Levin accused Goldman of profiting at clients' expense as the mortgage market crashed in 2007. "In my judgment, Goldman clearly misled their clients and they misled Congress," he said, reading glasses perched as ever on the tip of his nose.

A Goldman Sachs spokesman said, "While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee."

The panel's report is harder hitting than one issued in January by the government-appointed Financial Crisis Inquiry Commission, which "didn't report anything of significance," Republican Senator Tom Coburn said at the briefing.

More than two years since the crisis peaked, denunciations of Wall Street misconduct are less often heard on Capitol Hill, with lawmakers focused on fiscal issues. But Coburn joined Levin at Wednesday's bipartisan briefing, firing his own sharp attacks on the financial industry.

"Blame for this mess lies everywhere -- from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight," said Coburn, the subcommittee's top Republican.

"It shows without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers," he said.

The Levin-Coburn report criticized not only Goldman, but Deutsche Bank, the former Washington Mutual Bank, the U.S. Office of Thrift Supervision and credit rating agencies Moody's and Standard & Poor's.

"We will be referring this matter to the Justice Department and to the SEC," Levin said at the briefing, though he did not elaborate. A spokesman later said, "The subcommittee does not intend to reveal the specifics of any referral."

The report offered 19 recommendations for reform going beyond changes already enacted after the crisis in 2010's Dodd-Frank Wall Street and banking regulation overhaul.

Case studies from the go-go years of the real estate bubble formed the bulk of the report, which said a runaway mortgage securitization machine churned out abusive loans, toxic securities, and big fees for lenders and Wall Street.

It cited internal emails by Wall Street executives that described mortgage-backed securities underlying many collateralized debt obligations, or CDOs, as "crap" and "pigs."

It said Washington Mutual -- which became the largest failed bank in U.S. history in 2008 -- embraced a high-risk home loan strategy in 2005 while its own top executives were warning of a bubble that "will come back to haunt us."

The U.S. Office of Thrift Supervision -- which will be shut down and merged into another agency under 2010's Dodd-Frank regulatory overhaul -- logged 500 serious deficiencies at Washington Mutual from 2003-2008, but no crackdown followed, the report said.

Mass downgrades of mortgage-related investments in July 2007 by Moody's and Standard & Poor's constituted "the most immediate cause of the financial crisis," it said.

Investment banks, it said, charged $1 million to $8 million in fees to construct, underwrite and sell a mortgage-backed security in the bubble, and $5 million to $10 million per CDO.

As for Goldman, the subcommittee said, the firm "used net short positions to benefit from the downturn in the mortgage market." It said Goldman designed, marketed, and sold CDOs in ways that created conflicts of interest with clients, while also at times providing the bank with profits "from the same products that caused substantial losses for its clients."

(Additional reporting by Lauren LaCapra and Kim Dixon; Editing Steve Orlofsky)

    Senate panel slams Goldman in scathing crisis report, R, 13.4.2011,
    http://www.reuters.com/article/2011/04/14/us-financial-regulation-report-idUSTRE73C8JR20110414

JPMorgan profit up 67 percent; shares rise

NEW YORK | Wed Apr 13, 2011
8:04am EDT
Reuters

NEW YORK (Reuters) - JPMorgan Chase & Co posted a 67 percent increase in first-quarter earnings, topping Wall Street expectations, as it set aside less money to cover bad loans.

But the news was not all positive for the second-largest U.S. bank. It said it was still suffering from high mortgage losses. The bank's book of consumer loans shrank by 10 percent in the quarter, and loans to companies did not rise enough to offset that.

But the results were good enough to lift JPMorgan shares 1.2 percent in premarket trading. JPMorgan is the first of the big banks to post quarterly results, and its earnings often give investors a hint of what to expect from other financial companies.

"These were good numbers. They beat estimates, but not massively. I think the financial sector generally is holding up but is not performing quite as well as we would like to see," said Peter Dixon, an economist at Commerzbank in London.

JPMorgan said it earned $5.56 billion, or $1.28 a share, up from $3.33 billion, or 74 cents a share, in the same quarter last year.

Wall Street analysts, on average, had expected $1.16 per share.

The bank set aside just $1.17 billion to cover bad loans, down from $7.01 billion a year earlier.

Chief Executive Jamie Dimon is often credited with skillfully piloting his bank through the financial crisis, but many investors are now looking for signs of revenue growth.

In recent quarters, the bank has boosted profit mainly by setting aside less money to cover credit losses, rather than by generating more money from new customers.

Pre-provision profit, a measure of how much money the bank earns before accounting for credit losses, fell 20 percent to $9.23 billion. Loans on the bank's books fell 4 percent to $686 billion, indicating demand for loans is tepid compared with how quickly existing loans are being repaid.

"The key is loan growth," said Adrian Cronje, chief investment officer at wealth management firm Balentine in Atlanta. "That's what will ultimately turn this recovery into a durable expansion, but it seems like that's not yet happening."

JPMorgan's investment banking profits fell to $2.37 billion from $2.47 billion a year earlier.

(Reporting by Clare Baldwin; editing by John Wallace)

    JPMorgan profit up 67 percent; shares rise, R, 13.4.2011,
    http://www.reuters.com/article/2011/04/13/us-jpmorgan-idUSTRE73C0LU20110413

Age wars in the era of austerity

WASHINGTON | Fri Apr 8, 2011
11:50am EDT
Reuters
By Emily Kaiser

WASHINGTON (Reuters) - Rob Dugger sees the U.S. budget battle as a civil conflict as monumental as the Revolutionary and Civil wars.

Instead of colonists against the British, or the North against the South, this fight will pit old versus young, rich versus poor.

"Budgets express commitments citizens have made to each other over many decades -- who gets what, and who pays for it, covering everything from safe milk to national defense," said Dugger, the founder of Hanover Investment Group.

"There's injustice in deficits, which enable some families to live well now, but which impose burdens on other families and on children and future Americans," said the former policy director for the American Bankers Association.

This year's congressional tussle over how to trim the 2011 budget is just the opening act in what could be years of fiscal fighting as the United States struggles to stop spending beyond its means.

The numbers are well known. The 76 million baby boomers born after World War Two are hitting retirement age and claiming healthcare and pension entitlements that will swamp an already overburdened federal budget.

The latest recession pushed the government deeper into debt and provided a bitter taste of what is to come when lawmakers must choose between keeping promises to the old or the young.

The International Monetary Fund has described the U.S. fiscal structure as "severely inequitable across generations," saddling those yet to be born with an unfair share of today's financial burden.

"Future generations are expected to subsidize the entirety of current generations' huge fiscal shortfall," IMF researchers concluded in a working paper.

 

COMPETING WITH ADULTS

The recent financial crisis exposed some of those generational strains. Lost housing and stock market wealth forced many older workers to rethink their financial security. Some delayed retirement or accepted entry-level jobs usually taken by young people.

The 15 percent unemployment rate for 20- to 24-year-olds in March was more than double the rate for those over age 55, according to Labor Department data.

Kerry Owings knows those numbers well. He runs the Westside Youth Opportunity Community Center in inner-city Baltimore, which helps young people find work.

"When you look at some of jobs that our kids would normally enter the labor market in -- McDonald's, Home Depot, Wal-Mart

-- they're competing with adults," he said.

When the paying jobs dry up, Owings turns to internships. His agency pays the first three months of wages and hopes employers will offer full-time jobs after that. Sometimes they do; sometimes they don't.

Among the luckier ones is Brian Goode. He has been interning at Baltimore's Department of Transportation, repairing small motors. The 21-year-old wants to be a chiropractor but doesn't yet have the education.

Samira Gardner, a 20-year-old intern who handles invoices and billing at the DOT, dreams of becoming a nurse and maybe living in Paris one day.

What weighs on Owings are the hundreds of young people he had to turn away when his agency's funding was cut last year.

The money comes from the city, not the federal government, but it is an example of the sorts of choices the United States must make. How do you divide a finite number of dollars without jeopardizing the health and well-being of older retirees or denying the dreams of the young?

 

NEVER WORKING AGAIN

Older workers fared better in the latest recession, but those who lost their jobs faced lengthy unemployment. Fewer than one in four workers aged 50 or older who lost their jobs during the worst of the downturn found work within 12 months. That was much worse than the re-employment rate for younger workers, according to the Urban Institute.

"Those who lose their jobs in their late 50s and beyond face the real prospect of never working again," said Richard Johnson, who directs the Urban Institute's program on retirement policy.

That adds to the long-term strain on budgets. Social Security paid out more than it collected in taxes last year, in part because more workers were forced into retirement earlier than they had planned.

In addition, older unemployed people who lose healthcare coverage may put off preventive care or delay costly surgery until they are old enough for Medicare, straining its resources.

Susan Sipprelle has spent the past year chronicling how unemployment affects those in their 50s and beyond.

Sipprelle, 52, started a video project after seeing how the recession affected fellow baby boomers who thought their retirement was secure. (You can see her interviews here: www.overfiftyandoutofwork.com/)

"We were really amazed to see how many people thought they were set for life," she said. "I can't tell you how many times that phrase comes up in an interview, 'I thought I was set for life.'"

 

MENU OF PAIN

A survey by the Employee Benefit Research Institute found 27 percent of Americans were not at all confident they would have enough money for a comfortable retirement, the highest share in the survey's 21-year history.

That's not an ideal backdrop for a U.S. budget battle centered on retiree benefits.

Two proposals from Congress, one from President Barack Obama's deficit commission and the other from Republicans, call for raising eligibility ages for full benefits.

Both envision phasing in changes over many years so workers have time to prepare, but regardless of how the changes are structured, there will be winners and losers.

The IMF working paper on U.S. fiscal strains offered a "menu of pain" on how to close the fiscal gap.

The government could immediately restore fiscal balance by raising all taxes and cutting all benefits by 35 percent in both cases, immediately and for the indefinite future, it said. That is a drastic move that no elected leader is likely to countenance.

Were the United States to repeal the tax cuts implemented under President George W. Bush and curb healthcare spending as envisioned under Obama's healthcare reform, it would still have to raise taxes and cut spending by 26 percent.

If nothing happens, future Americans will face net tax rates that are about 21.5 percentage points higher than those for newborns now, the paper concluded.

 

JUST RAISE RETIREMENT AGE?

Even the seemingly easy budget fixes will be hard.

On paper, raising the retirement age looks like a no-brainer. Americans are living longer, so staying in the workforce a couple more years would ease the fiscal strain.

That may not be much of a burden for white-collar workers, but what about those with physically demanding jobs? Should they be exempted, and where do you draw the line? Coal miners? Factory workers? Bricklayers?

"According to my Social Security statement, they want me to work until 72 and a half," said Joe Price, 51, a third-generation West Virginia steel worker interviewed by Sipprelle.

"I'm not working a day past 62. I don't know if I'm going to live two years from now, (after) what I've been though. I want to enjoy life a little bit."

(Editing by Dan Grebler)

    Age wars in the era of austerity, R, 8.4.2011,
    http://www.reuters.com/article/2011/04/08/us-aging-conflict-idUSTRE7374KO20110408

Deal at Last Minute Averts Shutdown;

$38 Billion in Cuts to Spending This Year

April 8, 2011
The New York Times
By CARL HULSE

WASHINGTON — Congressional leaders and President Obama headed off a shutdown of the government with less than two hours to spare Friday night under a tentative budget deal that would cut $38 billion from federal spending this year.

After days of tense negotiations and partisan quarrelling, House Republicans came to preliminary terms with the White House and Senate Democrats over financing the government for the next six months, resolving a stubborn impasse that had threatened to disrupt federal operations across the country and around the globe.

Speaker John A. Boehner, who had pressed Democrats for cuts sought by members of the conservative new House majority, presented the package of widespread spending reductions and policy provisions and won a positive response from his rank and file shortly before 11 p.m.

Both Democrats and Republicans proclaimed they had reached a deal and would begin the necessary steps to pass the bill and send it to Mr. Obama next week.

Democrats said that under the agreement, the budget measure would not include provisions sought by Republicans to limit environmental regulations and to restrict financing for Planned Parenthood and other groups that provide abortions. But Mr. Boehner said in a statement that the agreement included a restriction on abortion financing in Washington.

“This has been a lot of discussion and a long fight,” Mr. Boehner said as he left the party meeting. “But we fought to keep government spending down because it really will in fact help create a better environment for job creators in our country.”

Speaking from the White House after the Republican meeting ended, Mr. Obama said that both sides gave ground in reaching the bargain and that some of the cuts accepted by Democrats “will be painful.”

“Programs people rely on will be cut back,” said Mr. Obama, who said Americans had to begin to live within their means. “Needed infrastructure projects will be delayed.”

The announcements capped a day of drama as lawmakers and members of the federal work force waited anxiously to see whether money for government agencies would run out at midnight.

“We didn’t do it at this late hour for drama,” Senator Harry Reid, the Democratic majority leader, said. “We did it because it has been hard to arrive at this point.”

In the closed-door Republican session, according to people present in the room, Mr. Boehner described the plan as the best deal he could wring from Democrats and said the cuts — an estimated $38 billion in reductions — represented the “largest real dollar spending cut in American history.”

Although both sides compromised, Republicans were able to force significant spending concessions from Democrats in exchange for putting to rest some of the vexing social policy fights that had held up the agreement.

Because of the need to put the compromise into legislative form, Congressional leaders said the House and Senate would vote overnight to pass a stopgap measure financing the government through Thursday to prevent any break in the flow of federal dollars. The actual budget compromise would be considered sometime next week.

The Senate approved the stopgap measure by 11:20 p.m. and the House approved it after midnight. The Office of Management and Budget issued a memo saying normal government operations were back on track.

The developments came after Republicans and Democrats spent the day blaming each other for what could have been the first lapse in government services brought on by Congress in 15 years.

As the midnight deadline approached, efforts to finish a deal intensified, and Mr. Obama and Mr. Boehner spoke by telephone to try to find an agreement.

“Both sides are working hard to reach the kind of resolution Americans desire,” said Senator Mitch McConnell of Kentucky, the Senate Republican leader, who had consulted closely with Mr. Boehner on strategy during the fractious talks. “A resolution is actually within reach. The contours of a final agreement are coming into focus.”

Mr. McConnell’s optimism could not disguise the fact that time was steadily slipping away, and testy leaders of the two parties were pushing hard to shape public perceptions of who was responsible for an impasse that threatened to have serious political repercussions — and to presage even more consequential fiscal showdowns in the months ahead. Democrats said Republicans were insisting on overreaching policy provisions; Republicans said it remained about money.

After nightlong negotiations that ended before dawn on Friday yielded no agreement, Senator Reid went on the offensive. He told reporters and said on the Senate floor that Mr. Boehner, the Senate Democrats and Mr. Obama had essentially settled on $38 billion in cuts from current spending, a figure that represented a substantial concession for Democrats.

But he said that Republicans were refusing to abandon a policy provision that would withhold federal financing for family planning and other health services for poor women from Planned Parenthood and other providers.

“This is indefensible, and everyone should be outraged,” Mr. Reid said on the Senate floor. “The Republican House leadership have only a couple of hours to look in the mirror, snap out of it and realize how truly shameful they have been.”

In a terse statement of his own to reporters, Mr. Boehner said there was “only one reason we do not have an agreement yet, and that is spending.” He asked, “When will the White House and when will Senate Democrats get serious about cutting spending?”

As the day went on, aides reported progress in attempts to reach an accommodation on the family planning provision. Even veteran anti-abortion Republicans, like Senator Tom Coburn of Oklahoma, indicated a willingness to compromise, not wanting the party to be accused of shutting down the government over divisive social policy and diluting its new emphasis on cutting spending. Other Republicans, in interviews and statements, indicated that it was time to end the stalemate.

The dueling characterizations of the negotiations added to the frustration, extending far beyond the nation’s capital, among federal employees and the people who rely on their services, as they waited to find out whether serious disruptions were imminent, and how long they might last.

Despite the disagreement over what still divided the two parties, it was clear the dollar difference had been reduced considerably, to about $1 billion or $2 billion. That amount left some lawmakers and their constituents grappling to understand how the federal government could be shut down over such a relatively small sum. Senator Mark Warner, Democrat of Virginia, said he was embarrassed. “People across Virginia cannot understand why we can’t get this done,” he said.

Allies of Mr. Boehner, the veteran lawmaker in his first months as speaker, said he seemed to be pursuing a strategy of pushing the negotiations to the last possible tick of the clock to appease rank-and-file conservatives, who have been very reluctant to give an inch from the $61 billion in cuts approved by the House.

In a private party meeting Friday afternoon, Mr. Boehner told Republican lawmakers that he was fighting for all the cuts he could get, and regaled them with reports of how angry Mr. Obama was with him for the hard line he has taken in the talks — news that elated his membership.

Emerging from the meeting, Mr. Boehner called the negotiations “respectful,” but added: “We’re not going to roll over and sell out the American people like has been done time and time again in Washington.”

In the absence of a deal, Mr. Boehner again urged the Senate to pass a temporary House budget resolution that would finance the military for the balance of the fiscal year, cut $12 billion in spending from the current year’s budget and keep the rest of the government operating for another week, as Republicans in the House had voted to do.

“This is the responsible thing to do,” he told reporters.

Senate Democrats rejected that approach as a gimmick, and Mr. Obama said he would veto the resolution.

Mr. Reid, who at one news conference was surrounded by about three dozen Democratic senators in an unusual tableau, told reporters that the Senate would explore the possibility of a stopgap bill that would keep the government open for another week. But it was unlikely to clear procedural barriers.

It was an unusual Friday on Capitol Hill, a day when corridors are often empty of lawmakers who have left for the weekend. Instead, they milled about, and took the Senate floor to expound, as they nervously awaited news of an agreement or braced for the expiration of government financing. It was frustrating to some because most lawmakers were not privy to the high-level talks.

“I hope that negotiations are continuing by someone somewhere,” Senator Pat Roberts, Republican of Kansas, said as he spoke about six hours before funding would run out.

Lawmakers said they realized that the outcome of the negotiations would have implications not only for them, but also for the federal work force, the public, the economy and the nation’s image.

“We know the whole world is watching us today,” Mr. Reid said.


Michael D. Shear contributed reporting.

    Deal at Last Minute Averts Shutdown; $38 Billion in Cuts to Spending This Year, R, 8.4.2011,
http://www.nytimes.com/2011/04/09/us/politics/09fiscal.html

Americans to Fed: prices are too high

NEW YORK | Thu Apr 7, 2011
6:38pm EDT
Reuters
By Daniel Trotta

NEW YORK (Reuters) - On the streets of America, the debate over inflation is over. Prices are too high and rising too fast, many people say.

"The government says inflation is low, but that's not what I'm seeing at the grocery story," Jorge Alberto, an 88-year-old retiree in Miami, said walking out of a supermarket. "My pension is being put to the test."

Policy-makers at the U.S. Federal Reserve largely agree that promoting economic growth is still more urgent that constraining a nascent pick-up in consumer prices.

They look beyond the volatile fuel and food prices that have pushed up inflation and focus instead on data showing little if any upward rise in wages, something they would see as the seed of a sustained and broad-based rise in prices.

"I don't think the Federal Reserve has a clue about us little people," said J. McKeever, an instructor at the Montessori Institute of Milwaukee.

"I am very frugal, so I watch what I spend. And what I have noticed in recent months is that I have less money before than I used to, while making the same amount of money and having to pay for health care," she said.

Across the country, Americans tell of a disconnect between the real economy they live in and the macroeconomic picture as described by economic indicators.

Consumer prices rose 0.5 percent in February from January, and 2.1 percent over the previous year but the rates were half that when stripping out food and energy.

"There are no salary increases and you know you have the pressure at work to cut, but on a personal level everything else keeps going up. You never seem to be able to catch up," said Paty Peterson, 50, of suburban San Francisco.

Policy-makers at the Fed must weigh how much the perception of inflation might trigger actual price increases. The worry would be if businesses pushed up prices to cover their rising costs and workers in turn demanded higher wages to cover theirs -- which could spark a self-feeding cycle.

Consumers' inflation expectations rose briskly in March, according to the Thomson Reuters-University of Michigan survey.

U.S. households are facing higher prices for staple products such as Tide laundry detergent and Hershey chocolate bars as cocoa, sugar, oil, wheat, corn and other commodity prices climb.

Major consumer products makers have said in recent weeks that they will be raising prices including Procter & Gamble Co (PG.N: Quote, Profile, Research, Stock Buzz), which said it would raise laundry detergent prices 4.5 percent in June. Kimberly-Clark Corp (KMB.N: Quote, Profile, Research, Stock Buzz) is raising prices on diapers, baby wipes and toilet paper as much as 7 percent.

"My grocery bill is up 30 percent over last year," said Cheryl Holbrook, 47, who educates her seven children at home in Mobile, Alabama. "We have to pinch every little penny and make it squeak."

The Fed's hawks, who stress the risks of inflation, have stepped up their argument that it may be time to wind down the central bank's $2.3 trillion securities-buying program to stimulate the economy. So far, they have been out-argued by those who see recovery from the Great Recession as fragile and still in need of a boost.

The European Central Bank, by contrast, on Thursday raised interest rates for the first time since 2008 to contain rising prices.

If underlying prices rise, or an inflationary psychology starts to take hold, the Fed could change course.

A recent Reuters poll found long-term expectations for the food and fuel prices that have pushed inflation higher in recent month are on the rise.

Consumers meanwhile complain that food and gasoline consume too much of their income, forcing difficult decisions to stay within budgets.

Eileen Reilly, 72, a retired resident of the Chicago suburb of Geneva, said higher gasoline and food prices have forced her to drive less, buy a cheaper food for her dog Lucky, and stop taking pills for a liver condition she declined to identify.

"My doctor said I could die if I don't take them," Reilly said, rolling her eyes. "I told him that I'm 72 and I'll be dead soon as it is. Besides, it was either the pills or the car and the dog. And I need the car and I love the dog."

(Reporting by Kevin Gray in Miami, Mark Felsenthal in Washington, Verna Gates in Birmingham, Alabama, Nick Carey in Chicago, Brad Dorfman in Chicago, John Rondy in Waukesha, Wisconsin, Peter Henderson in San Francisco)

(Writing by Daniel Trotta)

    Americans to Fed: prices are too high, R, 7.4.2011,
http://www.reuters.com/article/2011/04/07/us-usa-economy-inflation-idUSTRE7367BZ20110407

Obama: Jobs data shows economy stronger

Fri, Apr 1 2011
LANDOVER, Maryland | Fri Apr 1, 2011
12:56pm EDT
Reuters

LANDOVER, Maryland (Reuters) - President Barack Obama said on Friday the U.S. economy is showing real strength after a positive jobs report for March that he said was good news.

Speaking at a UPS shipping facility, Obama said much work remains to get millions of Americans back to work, after the Labor Department reported a drop in the jobless rate to 8.8 percent, a two-year low.

"Our economy is showing signs of real strength," Obama said.

    Obama: Jobs data shows economy stronger, R, 1.4.2011,
http://www.reuters.com/article/2011/04/01/us-usa-economy-obama-idUSTRE73054V20110401

Employment seen solid in March, jobless rate steady

WASHINGTON | Fri Apr 1, 2011
7:12am EDT
Reuters
By Lucia Mutikani

WASHINGTON (Reuters) - Employment likely posted a second straight month of solid gains in March, marking a decisive shift in the labor market that should help to underpin the economic recovery.

Nonfarm payrolls rose 190,000 last month, according to a Reuters survey, after increasing 192,000 in February. The anticipated job gains come amid indications the economy suffered a minor setback early in the year as bad weather and rising energy prices dampened activity.

"All the evidence is pointing to a strengthening labor market," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

The Labor Department will release the closely watched employment report at 08:30 a.m. on Friday.

While the report will indicate sufficient underlying strength in the economy to cushion it against the impact of high energy prices, it will not be strong enough to discourage the Federal Reserve from its ultra-easy monetary policies.

Policymakers at the U.S. central bank are, however, debating whether they should start considering withdrawing some of their massive economic stimulus.

The government will revise January and February employment figures with the March report. The recent trend has been for payrolls to be adjusted upward.

The private sector will account for all the new jobs in March, with an expected 200,000 positions. Although rising energy prices -- boosted by unrest in the Middle East and North Africa -- are eroding consumer confidence, economists do not expect businesses to put the brakes on hiring just yet.

"Employment gains have been modest in recent months, so in that sense I think businesses that were initially very wary of taking on permanent full-time employees are feeling very confident now than was case some months ago," said Richard DeKaser, an economist at Parthenon Group in Boston.

"As a result they are more willing to make those kinds of long-term commitments."

STEADY UNEMPLOYMENT RATE

The strengthening labor market tenor will also be underscored by the unemployment rate, which is expected to hold steady at a near two-year low of 8.9 percent.

The jobless rate, which is derived from a survey of households, has dropped 0.9 of a percentage point since November, mostly reflecting employment gains rather than a rise in the number of discouraged job-seekers.

It could start rising as the improving employment picture coaxes those who have given up the search for work to re-enter the labor market. Some economists believe the unemployment rate could have edged down in March.

"It is always possible that as the job market improves, people will start looking again and the unemployment rate could go up," said John Hancock's Cheney. "But the normal pattern is once it starts coming down as rapidly as it has over the last few months, it keeps on going down."

The jobless rate is one of the factors that could determine the timing of the Fed's first interest rate hike since it cut overnight lending rates to near zero in December 2008.

The central bank last month described the labor market as improving gradually and dropped a reference it had used in a statement in January to employers remaining reluctant to add to payrolls.

The economy has recovered a fraction of the more than 8 million jobs lost in the recession. Economists say job growth of between 250,000 and 300,000 a month is needed to have a sizable impact on the pool of 13.7 million unemployed Americans.

That will probably keep the Fed sidelined for a while.

"Even if we have an acceleration in the pace of job growth, there still remains significant slack in the labor market," said Millan Mulraine, senior macro strategist at TD Securities in New York.

"Given the high levels of unemployment and the fact that the duration of unemployment is still unacceptably high, the Fed will remain on the sidelines at least for the next year before they start contemplating tightening monetary policy explicitly."

The Fed is expected to complete its $600 billion government bond-buying program, which ends in June.

Employment in March will be concentrated in the private services sector. Payrolls in the goods-producing industries should see further gains, driven by manufacturing.

The construction industry probably saw a second straight month of gains, but below February's, as it continues to suffer a weak housing market.

The employment report is also expected to show the average work week edging up to 34.3 hours and hourly earnings rising 0.2 percent after being flat in February.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)

    Employment seen solid in March, jobless rate steady, R, 1.4.2011,
http://www.reuters.com/article/2011/04/01/us-usa-economy-idUSN3027570820110401

The Jobless See a Lifeline at Risk

March 31, 2011
the New York Times
By LIZETTE ALVAREZ

PALM COAST, Fla. — With his worn black canvas briefcase at his feet, Richard Dudenhoeffer, a cabinet maker, stood at a computer at the one-stop employment center and scrolled through Florida’s employment listings before settling on three applications: Custodian for the Flagler County School Board. City meter reader. Assistant manager at a tractor supply company.

In the year he has been collecting unemployment checks in Flagler County, where joblessness remains stubbornly high, Mr. Dudenhoeffer, 61, has not even gotten his foot in the door, despite his almost daily efforts to find a job, any job. No interviews. No phone calls. No e-mails. No flicker of hope.

Without charity and his $247 weekly unemployment check, he would lose it all, he said, starting with his mobile home and his car, a lifeline in a county with no public transportation.

“I sold my 9-millimeter gun,” Mr. Dudenhoeffer said offhandedly, after rattling off the possessions — coin collection, gold jewelry — he had sold to stay afloat. “It was too tempting to blow my brains out.” He added, “I am just so depressed.”

For the jobless like Mr. Dudenhoeffer, the outlook does not look immediately brighter.

The Florida House of Representatives approved a bill in March that would establish the deepest and most far-reaching cuts in unemployment benefits in the nation. Like the law signed in Michigan on Monday, the measure would reduce the number of weeks the unemployed could collect benefits from the standard 26 weeks to 20.

But the House proposal in Florida — in a high-unemployment state that already has some of the lowest benefits — takes it one step further by tying benefits to the unemployment rate. If the rate falls, so do the number of weeks of benefits. If the rate dips below 5 percent, the jobless would collect only 12 weeks of benefits, the lowest level.

This has workers worried in Florida, where the unemployment rate, while continuing to inch down, is 11.5 percent, considerably higher than the nation’s rate of 8.9 percent. Michigan’s rate is 10.4 percent.

The Senate is taking a less stringent approach in its bill, choosing not to reduce the number of weeks or tie benefits to the unemployment rate. The two chambers are expected to resolve their differences within the next few weeks.

The House version, which would take effect Aug. 1 if signed into law and affect people who apply after that date, would also make it easier for businesses to fire employees, who would then not be eligible for unemployment benefits.

The bill’s sponsor, Representative Doug Holder, a Sarasota Republican, said creating jobs is pivotal to keeping Floridians off the unemployment rolls. Businesses need the state’s help in doing that, Mr. Holder said. The average number of weeks people remain on unemployment compensation is 17.7 weeks, he added, and that means most people would be unaffected, at least in terms of how long they would collect benefits. More than 535,000 Floridians were receiving benefits as of March 26.

“Florida is positioning itself to be the most business-friendly state in the country,” said Representative Holder, whose bill would also help weed out those who do not have legitimate claims. “Our unemployment compensation trust fund has gone broke. We have to replenish it. The best way to do that and to right a capsized economy is to provide more jobs.”

Others disagree.

“To talk about cutting the maximum number of weeks down to as low as 12 is basically accepting as a certainty that lots more people will run out of benefits before they find employment and that they will go many weeks without any income,” said George Wentworth, senior staff attorney for the National Employment Law Project, which advocates for workers. “It’s cruel as a matter of public policy, and it’s really kind of wrongheaded in terms of the local economy.”

But the business community, led by the Florida Chamber of Commerce, has made passing the House version of the bill a priority, contending that businesses would benefit greatly from relief from the escalating tax to pay for jobless compensation. This year the tax on business owners jumped to $72.10 a year for each employee from $25.20, still relatively low, but it is expected to climb steeply because Florida’s unemployment fund is running a $2.1 billion deficit. Thirty other states are facing deficits in their unemployment programs.

“This is our thorniest problem this year,” said Bill Herrle, Florida executive director of the National Federation of Independent Business. “There is no happy solution. It’s intractable. We have an enormous problem. Our take is that big problems require solutions from all the participants.”

Gov. Rick Scott, a Republican who has made job creation a cornerstone of his tenure, supports the House approach.

But to some here in Flagler County, where the economy rose higher but fell harder than in any other in Florida in the past decade, the idea of creating jobs by taking away meager benefits from people whose lives have been upended does not seem just. From 2000 to 2010, this slice of Florida, just north of Daytona Beach, had the highest population growth in the state, spurred by construction as houses multiplied along vast stretches of open land. The collapse here was equally drastic. Construction jobs disappeared practically overnight, and the county now has the state’s highest unemployment rate, 14.9 percent.

Jobs make news here. A few weeks ago word spread that new Red Lobster and Olive Garden restaurants in town were ready to hire. Hundreds lined up in the sun to file their applications. Only a few dozen were accepted.

Standing outside the employment center here, Leslie Stultz, a trim 62-year-old man with a Jamaican lilt, said politicians were too quick to dismiss how difficult it was for some people to find jobs in this region of Florida, particularly for workers in their 50s and 60s. Relocating is out of the question when there is no money in the bank, Mr. Stultz said.

He said he recently lost his temporary job performing quality control for a company that manufactures sunscreen. It was his second layoff in two years, he said. His wife, a home health care worker, has seen her income drop sharply. Now he is fighting with the bank to arrange affordable payments so he can keep his tidy white stucco house, decorated with Egyptian artwork and mirrors and with a pool out back, in one of Palm Coast’s many walled-off developments.

“People aren’t sitting back relaxing and collecting $275 a week,” Mr. Stultz said. “There are no jobs here, and there are so many unemployed people.”

Mr. Dudenhoeffer, whose kind eyes grow weary as he retells his journey from small-business owner to perpetual job seeker, said he could hear the clock ticking. He explained that he had exhausted his state benefits and was now collecting emergency federal benefits. He said he tried to be optimistic. And despite his grim situation, there are occasional moments of happiness. On his birthday recently, friends collected money to buy him a gift card for Red Lobster.

Still, watching his online job applications simply fall into a void again and again, Mr. Dudenhoeffer said he could not help growing despondent.

“When the benefits run out,” he said, “I’ll just give up.”

    The Jobless See a Lifeline at Risk, NYT, 31.3.2011, http://www.nytimes.com/2011/04/01/us/01florida.html

House votes to kill main Obama foreclosure aid

WASHINGTON | Wed Mar 30, 2011
9:44am EDT
Reuters
By Corbett B. Daly

WASHINGTON (Reuters) - The House of Representatives on Tuesday voted to kill President Barack Obama's signature program to help struggling homeowners avoid foreclosure.

A bill to terminate the program was approved on a 252-170 vote. But the bill is unlikely to clear the Senate.

It was the last in series of four measures brought forward by newly empowered House Republicans to end government assistance for homeowners hurt by the housing crisis.

Republicans argued the foreclosure prevention plan, known as the Home Affordable Modification Program, is ineffective and not worthy of taxpayer support amid soaring budget deficits. The vote broke largely along party lines.

The program, which offers incentives for lenders to modify loans, was launched to great fanfare in the spring of 2009. The Obama administration had hoped it would permanently lower mortgage payments for 3 million to 4 million homeowners.

But fewer than 600,000 borrowers have received permanent loan modifications, and the program has been widely criticized as ineffective from critics on both the left and the right.

"The HAMP program is a failure," said Representative Patrick McHenry, the North Carolina Republican who sponsored the bill. "If we can't eliminate this failed program, what program can we eliminate?"

Analysts see the votes as an effort by Republicans, who last seized control of the House in an election in November with an anti-bailout, anti-spending message, to score points with their political base.

The White House has already threatened to veto the measure. However, it is unlikely to come to that since Democrats, who retained control of the Senate, largely opposed the measure. Both the House and Senate would have to approve the bill for it to reach the president's desk.

About $30 billion has been set aside for the program from the government's $700 billion financial rescue fund, but only about $1 billion of that has been spent so far.

Democrats argued the program should be fixed, not killed.

"The absence of any program leaves people worse off," said Representative Barney Frank, the top Democrat on the House Financial Services Committee.

Even as the Obama administration argues for keeping HAMP in place, it is pressing forward on a separate track that could result in much larger aid for struggling homeowners.

Big U.S. banks are meeting with federal officials and state attorneys general at the Justice Department on Wednesday as they negotiate what could turn into a multi-billion dollar settlement over alleged abuses by the companies that collect mortgage payments.

The banks and authorities are expected to discuss a settlement proposal that the state officials sent out earlier this month, which called on banks to treat borrowers better and to reduce loan balances for some struggling homeowners.

A group of 50 state attorneys general and about a dozen federal agencies are probing bank mortgage practices that came to light last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.

On March 3, state attorneys general leading the probe sent banks the outline of a proposed settlement endorsed by some federal agencies, including the Justice Department, the Housing and Urban Development Department and Treasury staff setting up the Consumer Financial Protection Bureau.

The banks that received the proposal and that will have representatives at Wednesday's meeting are Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Wells Fargo & Co and Ally Financial, according to sources briefed on the meeting.

(Additional reporting by Dave Clarke; Editing by Carol Bishopric)

    House votes to kill main Obama foreclosure aid, R, 30.3.2011, http://www.reuters.com/article/2011/03/30/us-usa-housing-congress-idUSTRE72S7R720110330

Foreclosure Aid Fell Short, and Is Fading

March 29, 2011
The New York Times
By MICHAEL POWELL and ANDREW MARTIN

Last summer, as President Obama’s premier plan to save millions of Americans from foreclosure foundered, the administration tossed a new life preserver to homeowners.

Officials unveiled a $1 billion program to offer loans to help the jobless pay their mortgages until they could find work again. It was supposed to take effect before the end of the year, but as of today, the program has yet to accept any applications.

“We wait and wait, and they keep saying it’s coming,” said James Tyson, 50, a Philadelphia homeowner who lost his job a year ago.

That could be an epitaph for the administration’s broader foreclosure prevention effort, as tens of billions of dollars remain unspent and hundreds of thousands of homeowners have been rejected. Now the existence of the main program, the Home Assistance Modification Program, is in doubt.

Saying it is a waste of money, the Republican-controlled House voted on Tuesday night to kill the foreclosure relief program. The Senate, which the Democrats control, will pursue a rescue. But Democrats, too, consider the program badly flawed.

The effort has failed to stanch a wave of foreclosures and a decline in home prices, which have fallen for six consecutive months and are now just barely above their recession low, according to a key index updated on Tuesday. All of this threatens the fragile economy, which is also being buffeted by foreign crises.

“The banking industry fought us tooth and nail, and we ended up with a program that is failing homeowners,” said Representative Zoe Lofgren, a Democrat from California. “The administration doesn’t give us real enforcement or answers; we just get the old yokey-doke.”

Yet the need remains great. There were 225,000 foreclosure filings in February, according to RealtyTrac. About 145,000 homeowners are in trial modifications under the Obama program. An examination of federal documents and lawsuits, and interviews with legislators, state attorneys general, housing counselors, homeowners and regulators, reveal a federal mortgage modification program crippled by weak oversight, conflicts of interest, mind-numbing complexity and poor performance by many participating banks.

For example:

¶Congress set aside $50 billion for foreclosure prevention, amid administration projections that three million to four million homeowners would benefit from modifications. So far, the Treasury Department, which oversees the program, has spent slightly more than $1 billion, and just 607,000 homeowners have received permanent loan modifications (of those, 11 percent have defaulted).

¶The companies that service mortgages, typically large banks, continually lose homeowner paperwork and incorrectly tell homeowners that they must be delinquent to qualify.

¶Treasury officials have not fined any servicers, and the government-controlled company hired by the Treasury to oversee the program has expressed reluctance to crack down on banks.

Interviews with a dozen homeowner applicants in four states reveal a familiar pattern: Banks deny many who, by income and credit scores, appear to qualify. And homeowners end up weighed down by legal fees and facing foreclosure.

“I call constantly, they lose all my paperwork, and the same guy never gets on the phone,” said Ada Caceres, 53, who owns a modest home in Staten Island.

Ms. Caceres has struggled to make mortgage payments since her hours as a bartender were cut. She applied for relief, and her bank, JPMorgan Chase, twice granted temporary modifications. She made every payment.

Last August, Chase promised a permanent modification. Then it rescinded the offer, documents show.

“I love my house,” said Ms. Caceres, who is still negotiating. “It’s a good neighborhood. But oh my God, you want to just give up.”

Homeowners can appeal denials, but the odds are not in their favor, says the program’s inspector general. A first step is a hot line providing counseling, from an agency created by mortgage servicers.

Treasury officials argue that the mortgage program has kept more than half a million American homeowners out of foreclosure and has pressured banks to offer in-house modifications. These private modifications, however, typically offer terms significantly less favorable to homeowners than what the government program offers.

Michael S. Barr, who was a top Treasury official involved with the program, says the Obama administration sought to help homeowners and encourage banks even as it protected taxpayers.

“We tried to bring some order out of the chaos,” said Mr. Barr, now a University of Michigan law professor. “Taxpayer money was only used for successful modifications. I think that was directionally the right thing to do.”

Trouble at the Start

In the winter of 2009, the Obama administration’s urgency to address foreclosures was palpable. Hundreds of thousands of families had lost homes, and in towns from Florida to California to Nevada, foreclosure slums took root, marked by boarded-up homes and uncut grass.

Treasury officials invited Neil M. Barofsky, the special inspector general for the bank bailout, to discuss a rescue plan. They told him details of the plan were still weeks away. “That night, I was driving home and I heard on the radio that the president was going to announce it next Wednesday,” Mr. Barofsky recalled. “It was a ‘ready, fire, aim’ approach.”

Ready or not, President Obama announced the housing assistance program on Feb. 18, 2009. Banks and mortgage brokers could extend mortgages, or cut the amount of the loan or the interest rate. A monthly payment could not exceed 31 percent of gross income.

In return, the administration offered payments to banks and servicers.

“It will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama said. “By bringing down the foreclosure rate, it will help shore up housing prices for everyone.”

None of those hopes came to pass.

In fairness, Mr. Obama confronted a daunting challenge: a foreclosure crisis without precedent since the Great Depression. The Bush administration already had tried several weak foreclosure relief programs.

In October 2008, as financial calamity loomed, President Bush signed the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP. At the insistence of Congressional Democrats, he agreed to plow billions of dollars into foreclosure prevention.

When the newly elected Obama administration drew up program guidelines, officials concluded they could neither force servicers to participate nor fine them for poor performance.

This, critics say, was a mistake.

“The banks were so despised, and TARP was so front and center, you could have actually done something,” said Katherine M. Porter, a visiting law professor at Harvard. “In the midst of real boldness in bailing out the banks, we get this timid, soft, voluntary conditional program.”

Treasury officials say this is an unfair accounting. In those harried days in early 2009, no one knew how much stress near-insolvent banks could withstand. And officials tried to fine-tune the mortgage program, adding elements and redirecting unused billions of dollars into the most distressed regions.

Each new version, however, added layers of complication.

Administration officials also cite unrealistic expectations, saying they underestimated the complexity of modifying millions of troubled loans. “I wish the three to four million had never been uttered,” said Peter Swire, a former special assistant to Mr. Obama for economic policy.

Critics wave off such arguments. The Obama administration, they say, could have flexed its muscles.

The president could publicly challenge bank officials. Treasury officials could withhold payments. The administration could buy troubled mortgages at a discount and modify loans on its own.

“We needed to go out and fine the five worst offenders,” said a former administration official familiar with internal discussions, who was not allowed to talk publicly given his current position. “In hindsight, I’m almost certain we would have been well served by taking the risk and being challenged in court.”

Dysfunctional System

To listen to a handful of Bank of America employees speak candidly about the mortgage program is to hear deep frustration with their bank’s performance. Their accounts, offered on the condition of anonymity as they are not allowed to talk to the press, dovetail with lawsuits filed by state attorneys general in Nevada and Arizona. (A coalition of state attorneys general is pushing an expanded foreclosure rescue plan that would impose fines on recalcitrant banks.)

Bank of America, these employees say, routinely loses documents. One department does not talk to another. Applications drag on for more than a year. Sometimes the bank forecloses while homeowners are paying modified loans. And homeowners who are denied face an imposing bundle of late fees and back-payments.

A bank employee says she often advises homeowners not to apply, given the slim chances for success.

“Many of these people are losing their homes,” she said. “The paperwork that sets them up is not detailed enough. It does not tell the customer the consequences of going forward with this.”

Dan B. Frahm, a Bank of America spokesman, acknowledged that the bank had made its share of mistakes, including losing too many documents. But it faced a narrow window to carry out a complex and ever-changing program, he said.

“We have completed more modification under HAMP (106,000) than any other participating servicer, and have more active modifications than other participants as well,” Mr. Frahm wrote in an e-mail, using the program’s shorthand name. “We continue to improve performance.”

For years, loan servicing departments acted as money machines for banks. They collected payments and foreclosed on the occasional delinquent homeowner.

But a foreclosure flood rolled in by 2007, and servicers all but drowned. The government’s program added to the problem. At first, Treasury allowed homeowners to apply without proof of income, figuring that quick relief might save homes. It later demanded income verification, loosing another flood, as homeowners sent in piles of documents by fax.

Federal regulators added their own confusion of overlapping authority and conflicts of interest.

Treasury hired Fannie Mae and Freddie Mac, two government-controlled mortgage finance giants, to oversee the program. This decision was problematic. As the Congressional Oversight Panel noted, these agencies “are highly conflicted because they hold the credit risk on most mortgages in the United States and have their own operational concerns.”

As if to underscore that point, Freddie Mac filed documents with the Securities and Exchange Commission noting that imposing penalties on banks could “negatively impact our relationships with these sellers/servicers, some of which are among our largest sources of mortgage loans.”

Treasury has paid the agencies a combined $212 million to administer the program.

The Treasury Department, too, was a reluctant enforcer, declining to impose fines or demand repayments. “This was structured as a voluntary program,” said Timothy Massad, acting assistant secretary. “We do not have the power to impose fines.”

Mr. Barofsky, the special inspector general, waves off protestations of powerlessness. How, he asked, could Treasury sign agreements to pay billions to banks without penalties for failure to comply?

“Treasury wasn’t willing to kick them in the only place that matters: in the pocketbook,” he said.

Mortgage Problems

In private conversations, senior Treasury officials offer an often-heard critique: Homeowners failed the program. That is, Americans were in far worse shape — jobless, underwater on mortgages and with terrible credit — than anyone realized in 2009.

Daily encounters in county courthouses suggest this is overstated. Homeowners bring in foot-high piles of paper documenting income, credit reports and loan payments. Some missed a payment or two, but many are not deadbeats.

Yet they cannot obtain a modification.

In Staten Island, The New York Times examined eight cases where homeowners seemed to possess the income and credit scores to qualify for the program. Yet after months of trying, even with the help of Staten Island Legal Services, not one has obtained a permanent modification.

Any single case speaks as eloquently as another.

Eric and Annette Padilla bought their home in 2003. Then Mr. Padilla fell ill and Ms. Padilla quit her job to care for him, and the couple fell behind on their mortgage in 2009. (Their income dropped to less than $60,000, from $96,000.)

They applied for the program through their bank, HSBC, and received a three-month modification. They made the payments on time. In August 2009, they requested a permanent modification.

The Padillas called the bank every week. One representative said their file was incomplete, another asked for more documents, a third said the documents were there all along.

In September, the bank said their documents had “become stale” and told them to resubmit. Eventually, they were given a new temporary modification. Once again they made every payment on time.

In January 2010, they sought another permanent modification. Then they heard back from HSBC: denied. The reason? The couple had overpaid one month.

Last summer, HSBC filed papers to foreclose against the Padillas. For Mr. Padilla, 41, the house was his step out of the housing projects; he has no intention of surrendering.

“I ask myself sometimes, why is this happening?” he says. “Wasn’t this program set up for hard-working people like us?”

    Foreclosure Aid Fell Short, and Is Fading, NYT, 29.3.2011, http://www.nytimes.com/2011/03/30/business/30foreclose.html

Obama vows U.S. forces won't get bogged down in Libya

WASHINGTON | Tue Mar 29, 2011
6:30pm EDT
By Matt Spetalnick and Patricia Zengerle

WASHINGTON (Reuters) - President Barack Obama told Americans on Monday that U.S. forces would not get bogged down trying to topple Muammar Gaddafi but stopped short of spelling out how the military campaign in Libya would end.

In a nationally televised address, Obama -- accused by many lawmakers of failing to explain the U.S. role in the Western air assault on Gaddafi's loyalists -- said he had no choice but to act to avoid "violence on a horrific scale" against the Libyan people.

"We had a unique ability to stop that violence, an international mandate for action, a broad coalition prepared to join us," he said in his fullest defense of his strategy since air strikes began 10 days ago. "We also had the ability to stop Gaddafi's forces in their tracks."

But Obama set strict limits on his willingness to apply U.S. military might, making clear Washington would not act as the world's policeman "wherever repression occurs," a sign he would avoid armed entanglement in other Middle East hotspots.

He pledged the United States would scale back its involvement to a "supporting role," with NATO taking over full command from American forces on Wednesday, but offered no prediction of when -- or how -- the mission would end.

Obama vowed to work with allies to hasten the day when Gaddafi leaves power but said he would not use force to remove him -- as former President George W. Bush did in ousting Saddam Hussein in the 2003 U.S.-led invasion of Iraq. Obama, elected in 2008, had strongly opposed the Iraq war.

"We went down that road in Iraq," Obama told military officers at the National Defense University in Washington. "That is not something we can afford to repeat in Libya."

He spoke on the eve of a 35-nation conference in London to tackle the crisis in the North African oil-exporting country and weigh political options for ending Gaddafi's 41-year rule.

COUNTERING CRITICISM

Obama sought to counter criticism at home that he lacked clear objectives or an exit strategy in launching the Libya mission, but he left unanswered the question of how long U.S. forces would be involved and how they would eventually leave.

Obama's challenge was to define the limited purpose and scope of the U.S. mission in Libya for Americans preoccupied with domestic economic concerns and weary of costly wars in two other Muslim countries, Iraq and Afghanistan.

"We will deny the regime arms, cut off its supply of cash, assist the opposition and work with other nations to hasten the day when Gaddafi leaves power," Obama said.

But he acknowledged "it may not happen overnight" and said Gaddafi may be able to cling to power. "Broadening our military mission to include regime change would be a mistake," he said.

Experts say failure to dislodge Gaddafi could lead to a bloody stalemate and require prolonged Western-led military action to protect civilians.

But Steven Cook of the Council on Foreign Relations think tank said coalition forces were trying to create an opportunity where Libyan rebels, who have made recent gains on the battlefield, "have at least a fighting chance to engage in their own regime change."

Obama's words were not enough to mollify Republican opponents who accuse him of failing to lead in global crises ranging from Middle East unrest to Japan's nuclear emergency.

"Americans still have no answer to the fundamental question: what does success in Libya look like?" said Brendan Buck, spokesman for House of Representatives Speaker John Boehner.

Obama is struggling to balance foreign policy challenges like Libya with his domestic priorities of jobs and the economy, considered crucial to his 2012 re-election chances.

Obama's prime-time speech came a day after NATO agreed to assume full responsibility for military operations in Libya,

The alliance's decision gave a boost to Obama's effort to show Americans he was making good on his commitment to limit U.S. military involvement. NATO will take charge of air strikes that have targeted Gaddafi's military infrastructure as well as a no-fly zone and an arms embargo.

Most polls show Americans divided over the Libya mission and believe on balance that the Obama administration and its allies do not have a clear goal in taking military action.

(Additional reporting by Alister Bull, Steve Holland, Arshad Mohammed and Susan Cornwell; Editing by David Storey and Todd Eastham)

    Obama vows U.S. forces won't get bogged down in Libya, R, 29.3.2011,
http://www.reuters.com/article/2011/03/29/us-libya-usa-idUSTRE72A6EC20110329

G.E.’s Strategies Let It Avoid Taxes Altogether

March 24, 2011
The New York Times
By DAVID KOCIENIEWSKI

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.

In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.

“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.

A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”

The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.

“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”

The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.

The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.

That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.

The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.

G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.

Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.

Defying Reagan’s Legacy

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.

“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.

That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.

Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.

G.E. subsequently ramped up its lending business.

As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.

Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”

G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.

“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”

The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.

“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”

A Full-Court Press

Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.

At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”

Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.

G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.

Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.

G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.

But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.

G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”

In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.

Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”

Value to Americans?

While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.

“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”

As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.

“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”

    G.E.’s Strategies Let It Avoid Taxes Altogether, NYT, 28.3.2011, http://www.nytimes.com/2011/03/25/business/economy/25tax.html

Food Inflation Kept Hidden in Tinier Bags

March 28, 2011
The New York Times
By STEPHANIE CLIFFORD and CATHERINE RAMPELL

Chips are disappearing from bags, candy from boxes and vegetables from cans.

As an expected increase in the cost of raw materials looms for late summer, consumers are beginning to encounter shrinking food packages.

With unemployment still high, companies in recent months have tried to camouflage price increases by selling their products in tiny and tinier packages. So far, the changes are most visible at the grocery store, where shoppers are paying the same amount, but getting less.

For Lisa Stauber, stretching her budget to feed her nine children in Houston often requires careful monitoring at the store. Recently, when she cooked her usual three boxes of pasta for a big family dinner, she was surprised by a smaller yield, and she began to suspect something was up.

“Whole wheat pasta had gone from 16 ounces to 13.25 ounces,” she said. “I bought three boxes and it wasn’t enough — that was a little embarrassing. I bought the same amount I always buy, I just didn’t realize it, because who reads the sizes all the time?”

Ms. Stauber, 33, said she began inspecting her other purchases, aisle by aisle. Many canned vegetables dropped to 13 or 14 ounces from 16; boxes of baby wipes went to 72 from 80; and sugar was stacked in 4-pound, not 5-pound, bags, she said.

Five or so years ago, Ms. Stauber bought 16-ounce cans of corn. Then they were 15.5 ounces, then 14.5 ounces, and the size is still dropping. “The first time I’ve ever seen an 11-ounce can of corn at the store was about three weeks ago, and I was just floored,” she said. “It’s sneaky, because they figure people won’t know.”

In every economic downturn in the last few decades, companies have reduced the size of some products, disguising price increases and avoiding comparisons on same-size packages, before and after an increase. Each time, the marketing campaigns are coy; this time, the smaller versions are “greener” (packages good for the environment) or more “portable” (little carry bags for the takeout lifestyle) or “healthier” (fewer calories).

Where companies cannot change sizes — as in clothing or appliances — they have warned that prices will be going up, as the costs of cotton, energy, grain and other raw materials are rising.

“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, said. “And companies try to do it in such a way that you don’t notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size.”

Thomas J. Alexander, a finance professor at Northwood University, said that businesses had little choice these days when faced with increases in the costs of their raw goods. “Companies only have pricing power when wages are also increasing, and we’re not seeing that right now because of the high unemployment,” he said.

Most companies reduce products quietly, hoping consumers are not reading labels too closely.

But the downsizing keeps occurring. A can of Chicken of the Sea albacore tuna is now packed at 5 ounces, instead of the 6-ounce version still on some shelves, and in some cases, the 5-ounce can costs more than the larger one. Bags of Doritos, Tostitos and Fritos now hold 20 percent fewer chips than in 2009, though a spokesman said those extra chips were just a “limited time” offer.

Trying to keep customers from feeling cheated, some companies are introducing new containers that, they say, have terrific advantages — and just happen to contain less product.

Kraft is introducing “Fresh Stacks” packages for its Nabisco Premium saltines and Honey Maid graham crackers. Each has about 15 percent fewer crackers than the standard boxes, but the price has not changed. Kraft says that because the Fresh Stacks include more sleeves of crackers, they are more portable and “the packaging format offers the benefit of added freshness,” said Basil T. Maglaris, a Kraft spokesman, in an e-mail.

And Procter & Gamble is expanding its “Future Friendly” products, which it promotes as using at least 15 percent less energy, water or packaging than the standard ones.

“They are more environmentally friendly, that’s true — but they’re also smaller,” said Paula Rosenblum, managing partner for retail systems research at Focus.com, an online specialist network. “They announce it as great new packaging, and in fact what it is is smaller packaging, smaller amounts of the product,” she said.

Or marketers design a new shape and size altogether, complicating any effort to comparison shop. The unwrapped Reese’s Minis, which were introduced in February, are smaller than the foil-wrapped Miniatures. They are also more expensive — $0.57 an ounce at FreshDirect, versus $0.37 an ounce for the individually wrapped.

At H. J. Heinz, prices on ketchup, condiments, sauces and Ore-Ida products have already gone up, and the company is selling smaller-than-usual versions of condiments, like 5-ounce bottles of items like Heinz 57 Sauce sold at places like Dollar General.

“I have never regretted raising prices in the face of significant cost pressures, since we can always course-correct if the outcome is not as we expected,” Heinz’s chairman and chief executive, William R. Johnson, said last month.

While companies have long adjusted package sizes to appeal to changing tastes, from supersizes to 100-calorie packs, the recession drove a lot of corporations to think small. The standard size for Edy’s ice cream went from 2 liters to 1.5 in 2008. And Tropicana shifted to a 59-ounce carton rather than a 64-ounce one last year, after the cost of oranges rose.

With prices for energy and for raw materials like corn, cotton and sugar creeping up and expected to surge later this year, companies are barely bothering to cover up the shrinking packs.

“Typically, the product manufacturers are doing this slightly ahead of the perceived inflationary issues,” Ms. Rosenblum said. “Lately, it hasn’t been subtle — I mean, they’ve been shrinking by noticeable amounts.”

That can work to a company’s benefit. In the culture of thinness, smaller may be a selling point. It lets retailers honestly claim, for example, that a snack package contains fewer calories — without having to change the ingredients a smidge.

“For indulgences like ice cream, chocolate and potato chips, consumers may say ‘I don’t mind getting a little bit less because I shouldn’t be consuming so much anyway,’ ” said Professor Gourville. “That’s a harder argument to make with something like diapers or orange juice.”

But even while companies blame the recession for smaller packages, they rarely increase sizes in good times, he said.

He traced the shrinking package trends to the late 1980s, when companies like Chock full o’ Nuts downsized the one-pound tin of ground coffee to 13 ounces. That shocked consumers, for whom a pound of coffee had been as standard a purchase unit as a dozen eggs or a six-pack of beer, he said.

Once the economy rebounds, he said, a new “jumbo” size product typically emerges, at an even higher cost per ounce. Then the gradual shrinking process of all package sizes begins anew, he said.

“It’s a continuous cycle, where at some point the smallest package offered becomes so small that perhaps they’re phased out and replaced by the medium-size package, which has been shrunk down,” he said.

    Food Inflation Kept Hidden in Tinier Bags, NYT, 28.3.2011, http://www.nytimes.com/2011/03/29/business/29shrink.html

Michigan Cuts Jobless Benefit by Six Weeks

March 28, 2011
The New York Times
By MICHAEL COOPER

Michigan, whose unemployment rate has topped 10 percent longer than that of any other state, is about to set another record: its new Republican governor, Rick Snyder, signed a law Monday that will lead the state to pay fewer weeks of unemployment benefits next year than any other state.

Democrats and advocates for the unemployed expressed outrage that a such a hard-hit state will become the most miserly when it comes to how long it pays benefits to those who have lost their jobs. All states currently pay 26 weeks of unemployment benefits, before extended benefits paid by the federal government kick in. Michigan’s new law means that starting next year, when the federal benefits are now set to end, the state will stop paying benefits to the jobless after just 20 weeks. The shape of future extensions is unclear.

The measure, passed by a Republican-led Legislature, took advocates for the unemployed by surprise: the language cutting benefits next year was slipped quietly into a bill that was originally sold as way to preserve unemployment benefits this year.

The original bill was aimed at reducing unemployment fraud and making a technical change so the state’s current long-term unemployed could continue receiving extended unemployment benefits from the federal government for up to 99 weeks — benefits that would have been phased out next week without a change in the state law to make the unemployed in the state eligible to continue receiving benefits. Republican lawmakers amended it to cut the length of benefits starting in January.

“It turns the clock back 50 years at a time when unemployment is at historic highs since the Depression,” Representative Sander M. Levin, Democrat of Michigan, said in an interview, adding that he worried that the state would set a precedent that would be followed by other states, including Florida, that are thinking of curtailing their unemployment programs. “I think that Michigan should not be to unemployment insurance what Wisconsin has become to collective bargaining.”

But Republicans and business groups said that cutting benefits was necessary, because the unemployment trust fund, which was ill-prepared to cope with the recession, is insolvent. The state owes the federal government $4 billion that it borrowed to keep its program afloat, and unemployment taxes on businesses have already been raised, and will need to be raised more, to repay the money. The Michigan Chamber of Commerce called the new law “a huge win for job providers,” and said it could save up to $300 million a year.

Mr. Snyder issued a statement after signing the bill trumpeting the fact that it would preserve the extended benefits this year — and making no mention of the fact that it would cut state benefits beginning next year. “Snyder Signs Bill to Protect Unemployed,” was the headline of the news release that his office sent out. “Now that we have continued this safety net, we must renew our focus on improving Michigan’s economic climate,” he said in the statement.

Sara Wurfel, a spokeswoman for Mr. Snyder, said in an e-mail that he signed the bill because 35,000 Michiganders would have lost their extended benefits this week, and an additional 150,000 would have lost them by year’s end, if the state’s law had not been altered. She said that about 250,000 people collected more than 20 weeks of benefits in 2010.

Advocates for the unemployed called it a bad trade. “We have a temporary change to help some jobless workers that is imposing an indefinite or permanent cost on future jobless workers,” said Rick McHugh, a staff lawyer for the National Employment Law Project, which opposed the law. “And that does seem doubly unfair when the temporary help for current jobless workers is almost totally paid for by the federal government.”

But business groups saw the state’s need to change its unemployment law as an opportunity to make the cuts to benefits that they have long sought.

“The business community, the chamber included, were opposed to a one-sided benefits increase,” said Wendy Block, the Michigan Chamber of Commerce’s lobbyist responsible for health policy and human resources initiatives, and unemployment insurance. She said that while the extended benefits were currently paid for by the federal government, the money comes from a fund that is financed by federal unemployment taxes on employers. “Employers will ultimately see higher federal unemployment taxes to pay for this,” Ms. Block said.

More than half the states together owe the federal government more than $46 billion that they borrowed to pay for their unemployment programs during the downturn. Many states had salted away too little money in their unemployment trust funds during good times — often because they cut taxes on employers — and saw their funds depleted by the length and depth of the recession, and the slow pace at which businesses have begun hiring again. Now some other states are thinking about reducing unemployment benefits.

In Florida, where the unemployment rate hovers at 11.5 percent, even higher than Michigan’s current rate of 10.4 percent, lawmakers are zeroing in on a similar bill. The Florida House also approved a bill this month to reduce the number of weeks unemployed workers could receive benefits to 20 weeks, from 26, and make it easier for businesses to deny benefits to applicants. A Senate bill takes a less stringent approach and does not cut the number of weeks workers can receive benefits. (It is unclear how the differences will be resolved.) Doing so would undo a consensus that emerged in the years after World War II that states should pay up to 26 weeks of unemployment benefits. And it would come as the average length of unemployment has risen.

Richard A. Hobbie, the executive director of the National Association of State Workforce Agencies, said “at a time when long-term unemployment is worse than ever, it doesn’t match up well with the trends in the labor market.”

One of the unemployed Michiganders who was warned that her extended benefits could run out next week without action was Melissa Barone, 42, who lost her job with a software company in August 2009, and has been collecting unemployment since then. She has gone back to school to train to be a nurse.

“Maybe what they need to do is look at giving businesses more incentives,” Ms. Barone said, “rather than taking from the guy that is unemployed and needs those funds.”


Lizette Alvarez contributed reporting from Miami.

    Michigan Cuts Jobless Benefit by Six Weeks, NYT, 28.3.2011, http://www.nytimes.com/2011/03/29/us/politics/29michigan.html

Losing Our Way

March 25, 2011
The New York Times
By BOB HERBERT

So here we are pouring shiploads of cash into yet another war, this time in Libya, while simultaneously demolishing school budgets, closing libraries, laying off teachers and police officers, and generally letting the bottom fall out of the quality of life here at home.

Welcome to America in the second decade of the 21st century. An army of long-term unemployed workers is spread across the land, the human fallout from the Great Recession and long years of misguided economic policies. Optimism is in short supply. The few jobs now being created too often pay a pittance, not nearly enough to pry open the doors to a middle-class standard of living.

Arthur Miller, echoing the poet Archibald MacLeish, liked to say that the essence of America was its promises. That was a long time ago. Limitless greed, unrestrained corporate power and a ferocious addiction to foreign oil have led us to an era of perpetual war and economic decline. Young people today are staring at a future in which they will be less well off than their elders, a reversal of fortune that should send a shudder through everyone.

The U.S. has not just misplaced its priorities. When the most powerful country ever to inhabit the earth finds it so easy to plunge into the horror of warfare but almost impossible to find adequate work for its people or to properly educate its young, it has lost its way entirely.

Nearly 14 million Americans are jobless and the outlook for many of them is grim. Since there is just one job available for every five individuals looking for work, four of the five are out of luck. Instead of a land of opportunity, the U.S. is increasingly becoming a place of limited expectations. A college professor in Washington told me this week that graduates from his program were finding jobs, but they were not making very much money, certainly not enough to think about raising a family.

There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion.

Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be. Through much of the post-World War II era, income distribution was far more equitable, with the top 10 percent of families accounting for just a third of average income growth, and the bottom 90 percent receiving two-thirds. That seems like ancient history now.

The current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation’s wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent.

This inequality, in which an enormous segment of the population struggles while the fortunate few ride the gravy train, is a world-class recipe for social unrest. Downward mobility is an ever-shortening fuse leading to profound consequences.

A stark example of the fundamental unfairness that is now so widespread was in The New York Times on Friday under the headline: “G.E.’s Strategies Let It Avoid Taxes Altogether.” Despite profits of $14.2 billion — $5.1 billion from its operations in the United States — General Electric did not have to pay any U.S. taxes last year.

As The Times’s David Kocieniewski reported, “Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.”

G.E. is the nation’s largest corporation. Its chief executive, Jeffrey Immelt, is the leader of President Obama’s Council on Jobs and Competitiveness. You can understand how ordinary workers might look at this cozy corporate-government arrangement and conclude that it is not fully committed to the best interests of working people.

Overwhelming imbalances in wealth and income inevitably result in enormous imbalances of political power. So the corporations and the very wealthy continue to do well. The employment crisis never gets addressed. The wars never end. And nation-building never gets a foothold here at home.

New ideas and new leadership have seldom been more urgently needed.



•



This is my last column for The New York Times after an exhilarating, nearly 18-year run. I’m off to write a book and expand my efforts on behalf of working people, the poor and others who are struggling in our society. My thanks to all the readers who have been so kind to me over the years. I can be reached going forward at bobherbert88@gmail.com .

    Losing Our Way, NYT, 25.3.2011? http://www.nytimes.com/2011/03/26/opinion/26herbert.html

Educated, Unemployed and Frustrated

March 20, 2011
The New York Times
By MATTHEW C. KLEIN

WE all enjoy speculating about which Arab regime will be toppled next, but maybe we should be looking closer to home. High unemployment? Check. Out-of-touch elites? Check. Frustrated young people? As a 24-year-old American, I can testify that this rich democracy has plenty of those too.

About one-fourth of Egyptian workers under 25 are unemployed, a statistic that is often cited as a reason for the revolution there. In the United States, the Bureau of Labor Statistics reported in January an official unemployment rate of 21 percent for workers ages 16 to 24.

My generation was taught that all we needed to succeed was an education and hard work. Tell that to my friend from high school who studied Chinese and international relations at a top-tier college. He had the misfortune to graduate in the class of 2009, and could find paid work only as a lifeguard and a personal trainer. Unpaid internships at research institutes led to nothing. After more than a year he moved back in with his parents.

Millions of college graduates in rich nations could tell similar stories. In Italy, Portugal and Spain, about one-fourth of college graduates under the age of 25 are unemployed. In the United States, the official unemployment rate for this group is 11.2 percent, but for college graduates 25 and over it is only 4.5 percent.

The true unemployment rate for young graduates is most likely even higher because it fails to account for those who went to graduate school in an attempt to ride out the economic storm or fled the country to teach English overseas. It would be higher still if it accounted for all of those young graduates who have given up looking for full-time work, and are working part time for lack of any alternative.

The cost of youth unemployment is not only financial, but also emotional. Having a job is supposed to be the reward for hours of SAT prep, evenings spent on homework instead of with friends and countless all-nighters writing papers. The millions of young people who cannot get jobs or who take work that does not require a college education are in danger of losing their faith in the future. They are indefinitely postponing the life they wanted and prepared for; all that matters is finding rent money. Even if the job market becomes as robust as it was in 2007 — something economists say could take more than a decade — my generation will have lost years of career-building experience.

It was simple to blame Hosni Mubarak for the frustrations of Egypt’s young people — he had been in power longer than they had been alive. Barack Obama is not such an easy target; besides his democratic legitimacy, he is far from the only one responsible for the weakness of the recovery. In the absence of someone specific to blame, the frustration simply builds.

As governments across the developed world balance their budgets, I fear that the young will bear the brunt of the pain: taxes on workers will be raised and spending on education will be cut while mortgage subsidies and entitlements for the elderly are untouchable. At least the Saudis and Kuwaitis are trying to bribe their younger subjects.

The uprisings in the Middle East and North Africa are a warning for the developed world. Even if an Egyptian-style revolution breaking out in a rich democracy is unthinkable, it is easy to recognize the frustration of a generation that lacks opportunity. Indeed, the “desperate generation” in Portugal got tens of thousands of people to participate in nationwide protests on March 12. How much longer until the rest of the rich world follows their lead?

Matthew C. Klein is a research associate at the Council on Foreign Relations.

    Educated, Unemployed and Frustrated, NYT, 20.3.2011, http://www.nytimes.com/2011/03/21/opinion/21klein.html

Settling Foreclosure Abuses

March 18, 2011
The New York Times

State attorneys general are the traditional defenders of consumers. So when all 50 of them announced an investigation last fall into foreclosure practices at the nation’s big banks, there was hope for an unsparing inquiry and a meaningful settlement. Most of all, we hoped that banks would be compelled, at long last, to aggressively modify millions of additional loans.

Unfortunately, a draft settlement recently presented to the nation’s biggest banks is unclear on how to achieve that goal. And even before the terms have been clarified, House and Senate Republicans are attacking the proposal. They are arguing, in effect, that banks should not be held accountable for their misdeeds.

The proposal would impose sound reforms, like requiring banks to halt a foreclosure while a loan modification is pending and to streamline the modification process. But there is no mention of how much money banks would have to put toward reworking bad loans or a target number of new loan modifications. It is also impossible to know the extent to which banks would be shielded from future lawsuits in exchange for settling. Without those details, it is all too easy to envision a settlement in which homeowners receive little and banks win broad release from legal liability for unspecified abuses.

Our doubts about the outcome are worsened by the dissension among government officials about what a settlement should achieve. The Federal Reserve and the Office of the Comptroller of the Currency — the banks’ staunchest defenders — have argued for minimal fines. State officials, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau want the broader redress that would come with more loan modifications. Since the aim is for state and federal agencies to join in one global settlement with the banks, differences among people who should be on the same side do not bode well.

Into that mix, The Times’s Gretchen Morgenson reported this week that before the release of the draft settlement, the attorneys general did not conduct a full inquiry with subpoenaed documents and sworn depositions. A spokesman for Tom Miller, the Iowa attorney general, who leads the group, defended the investigation. He said the state attorneys, long steeped in foreclosure issues, had extensive knowledge of the problems and needed solutions.

Of course, knowledge is good, but in settlement talks, leverage is better. Banks are vulnerable to prosecution because of robo-signing, as the practice, exposed last year, of filing false court documents in an effort to speed foreclosures is known. But will their feet be held to the fire over other damaging practices? A brief sampling of violations — aired in court cases, Congressional testimony and academic research — include excessive fees, improper denial of loan modifications, irregularities in the packaging of mortgages and conflicts of interest that lead banks to favor foreclosures over modifications.

Unless an inquiry uncovers the extent of those and other violations, it will be impossible to gauge if a settlement is fair. Even the seemingly large settlement sum of $20 billion that has been floated would be a small price for banks to pay if the quid pro quo is to sweep potentially widespread abuses under the rug.

For too long, bank misbehavior has been indulged by lawmakers, regulators, Obama officials and Bush officials before them. As a result, foreclosures have proliferated and loan workouts have lagged, devastating homeowners and the housing market, and Americans’ trust in political and financial institutions.

A powerful settlement could begin to repair all that. If it is not forthcoming, state attorneys general should keep open their options to pursue the banks in courts across the land.

    Settling Foreclosure Abuses, NYT, 18.3.2011, http://www.nytimes.com/2011/03/19/opinion/19sat1.html

Debit Card Fees Prompt a Push Near Deadline

March 7, 2011
The New York Times
By EDWARD WYATT

WASHINGTON — It seemed a good idea last year, when the financial crisis had turned banks into Public Enemy No. 1 and lawmakers were looking for ways to reward consumers still bitter about billion-dollar bailouts and executive bonuses.

Without much warning or debate, the Senate passed an amendment directing the Federal Reserve to reduce the hidden “swipe fees” that banks collect from retailers each time a customer makes a purchase with a debit card.

Merchants, who had complained that the $20.5 billion in annual fees were biting into their profits, were elated. Banks were stunned. Their lobbyists tried to reverse the move, but when the overhaul of the nation’s financial regulation was passed by Congress last July, the debit card cut survived.

Now, as the Fed faces a deadline in April to write the rules for the lower fees, banks and debit card companies are engaged in an all-out assault on Capitol Hill, enlisting a growing cadre of lawmakers and lobbyists to push for changes, delay or outright repeal. Banks contend the proposed cut in fees — to 12 cents per transaction from an average of 44 cents — will leave many of them unable to afford to issue debit cards to customers or will force them to raise other consumer banking charges to cover the costs. They also claim retailers will reap unfair profits.

A coalition of banks and card companies have plastered subway cars and Internet sites with ads warning, “Bureaucrats want to take away your debit card!”

“I am appalled that our members will shoulder tremendous financial burden and still be on the hook for fraud loss while large retailers receive a giant windfall at the hands of the government,” John P. Buckley Jr., the president of Gerber Federal Credit Union of Fremont, Mich., told a House of Representatives subcommittee last week.

This week, a trade group of convenience store owners will storm Capitol Hill with their side of the story.

“These fees are stunting business growth and hurting efforts to hire more workers and expand operations,” Douglas Kantor, a lobbyist for the Merchants Payments Coalition, a retailer trade group, said recently.

The lobbying has been intense over the last year with the card companies and banks hiring, among others, Sam Geduldig, a former adviser to Representative John A. Boehner, Republican of Ohio and the House speaker, and Regina Mahony, formerly a senior adviser to Representative Steny H. Hoyer, Democrat of Maryland, according to OpenSecrets.org, which tracks lobbyists.

Representatives of the retailers include the former Republican Senator Don Nickles of Oklahoma, and Sheryl Cohen, a former chief of staff for Christopher J. Dodd of Connecticut, the Democratic senator who sponsored the financial regulation bill and is now retired.

This debate is but one area where the consequences — intended and not — of the sprawling Dodd-Frank financial regulation law are coming to light. In an interview with CNBC on Friday, Alan Greenspan, the former Fed chairman, predicted that portions of the law would have to be reversed. “And that’s going to create very high degrees of uncertainty,” Mr. Greenspan said, something the markets hate.

Lawmakers tried to soften the blow by exempting smaller banks from the fee cap. But now even those institutions with less than $10 billion in assets oppose the law. They say that if they continue to levy the current, higher fees, their debit cards will not be able to compete against the big banks, which will charge lower fees because they have no choice. They gained a significant ally when Ben S. Bernanke, the Fed chairman, told a Senate panel last month that he thought a two-tier fee system would not work.

Several lawmakers who supported the debit card amendment or the broader financial regulation bill as a whole are now reversing course, as the antibank climate here softens. “I believe the Fed was given too narrow of set of rules” with which to draft the regulation, said Representative Barney Frank, the Massachusetts Democrat who sponsored Dodd-Frank in the House, which never voted separately on the debit-fee amendment. “Now there is genuine political pressure to do something. It’s very much in play.”

At least two Republican senators who voted for the debit card amendment last year — David Vitter of Louisiana and Michael D. Crapo of Idaho — have expressed reservations, urging the Fed to consider “all costs to the issuers,” including the cost of protecting themselves against fraudulent use of debit cards, which totaled $1.4 billion in 2009, according to the banks.

The law requires the Fed to limit debit fees to the “reasonable and proportional” cost of each transaction, and the Fed proposed a rule that did not yet include the cost of fraud protection.

Banks encourage consumers to use debit cards by signing for their purchases, rather than entering a personal identification number at the cash register. Card companies and banks earn higher fees on signature-debit transactions, but they also incur higher rates of fraud.

The fee cap still has some powerful backers, who say it should it take effect in July as scheduled. They are led by the amendment’s original sponsor, Senator Richard J. Durbin, Democrat of Illinois.

Mr. Durbin accused the debit card companies of employing “scare tactics” by saying the government wants to take away cards, or that merchants might no longer accept them.

The banks are already trying to make up for the lost revenue, with lenders like Bank of America, JPMorgan Chase and U.S. Bancorp charging fees for things that once were free, like paper statements or online banking. TCF Financial, a Minnesota regional bank that relies heavily on revenue from debit card fees, has sued the Federal Reserve board to block the enactment of the Durbin amendment.

Banks and credit card companies contend that the fee cap will create a windfall for giant retailers like Home Depot and Wal-Mart, which they say generate the bulk of debit card transactions, while doing little for small retailers.

Banking lobbyists eagerly point to a conference call in which a Home Depot executive told financial analysts the proposed rule would lower its debit fees by about $35 million a year.

Small-business owners, for their part, cite what they say is the devastating impact of rising debit card fees. Small banks and credit unions say they depend on debit fees to allow them to offer other services, like free checking. “Under the current proposal,” Frank Michael, president of Allied Credit Union of Stockton, Calif., told the subcommittee, “we are going to lose money on every transaction.”

Eric Dash contributed reporting.

    Debit Card Fees Prompt a Push Near Deadline, 7.3.2011, http://www.nytimes.com/2011/03/08/business/08debit.html

Gold rises to record above $1,440 on Mideast unrest

NEW YORK/LONDON | Wed Mar 2, 2011
12:58pm EST
By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold rose to a record high for a second straight day on Wednesday, breaching $1,440 an ounce as political unrest in Libya and surging oil prices prompted investors to pile in.

Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading to Libya, Bahrain, Yemen, Oman and Iran, fueled safe-haven buying on fears that tensions could flare across the entire region.

"You have political problems all over the world, a Federal Reserve bank that still erred on the side of easing rather than tightening, rising commodities prices in general, and growing disdain for fiat currencies generally," said Dennis Gartman, author of the Gartman Letter, an daily investment newsletter.

"It will be illogical for gold not to be going higher," he said.

Two U.S. warships were passing through the Suez Canal on Wednesday, heading for the waters off Libya to pressure that country's ruler, Muammar Gaddafi, to step down. Gaddafi launched a land and air offensive to retake territory from rebels in Libya's eastern region.

At a meeting of Arab foreign ministers in Cairo on Wednesday, Iraqi Foreign Minister Hoshiyar Zebari said the Libya crisis is an internal Arab affair and foreign powers should refrain from any intervention.

RECORD TERRITORY

Spot gold rose 0.4 percent to $1,439.19 an ounce by 12:00 p.m. EST, after peaking at an all-time high of $1,440.10. The metal fixed at $1,435.50 an ounce in London.

U.S. gold futures for April delivery rose $7.90 to $1,439.10.

Gold is building on a 6 percent rise in February, its biggest one-month climb since August.

World stocks declined as unrest in the Middle East and North Africa drove up oil prices and pushed investors into safer assets.

Rising oil prices will support gold's status as an inflation hedge, analysts said, if they appear to curb global growth. "They could very well impact (growth in) Europe, the United States as well, and indeed China," said VM Group analyst Carl Firman.

"That will give rise to uncertainty, it will lower demand predictions for, for instance, copper, and where it knocks industrial metals and equities, gold will probably benefit," he said.

U.S. crude futures rose above $101 a barrel as escalating violence in Libya threatened the OPEC nation's oil infrastructure and markets braced for a potentially prolonged disruption.

Federal Reserve Chairman Ben Bernanke said on Tuesday the surge in oil prices is unlikely to hurt the U.S. economy, boosting gold as he offered no hint that the U.S. central bank was considering winding down its loose monetary policy.

RISK APPETITE WANES

Violence in the region cooled appetite for higher-risk assets such as stocks and boosted so-called safe havens like German government bonds, the Swiss franc and gold.

Silver rose to a peak of $34.96 an ounce, its strongest level since early 1980. It later rose 0.4 percent to $34.79 an ounce.

Holdings in the world's largest silver exchange-traded fund, the iShares Silver Trust, rose to 10,693.68 tones on March 1, their highest since January 14.

The trust reported a slight recovery in its holdings last month after they posted their biggest ever one-month fall in January.

Platinum gained 0.9 percent to $1,855.49 an ounce and palladium climbed 0.4 percent to $817.47.

Prices at 12:13 p.m. EST.

(Reporting by Frank Tang and Jan Harvey; editing by Jim Marshall)

    Gold rises to record above $1,440 on Mideast unrest, R, 2.3.2011, http://www.reuters.com/article/2011/03/02/us-markets-precious-idUSTRE71G2KM20110302

Largest crowds since Vietnam War march in Wisconsin

MADISON, Wisconsin | Sun Feb 27, 2011
12:03am EST
Reuters
By James Kelleher and David Bailey

MADISON, Wisconsin (Reuters) - A crowd estimated at more than 70,000 people on Saturday waved American flags, sang the national anthem and called for the defeat of a Wisconsin plan to curb public sector unions that has galvanized opposition from the American labor movement.

In one of the biggest rallies at the state Capitol since the Vietnam War, union members and their supporters braved frigid temperatures and a light snowfall to show their displeasure.

The mood was upbeat despite the setback their cause suffered earlier this week when the state Assembly approved the Republican-backed restrictions on union collective bargaining rights over fierce Democratic objections.

"I'm deeply honored to be here with you," said Peter Yarrow, a veteran of many social protests during his 50-year folk music career and a founding member of the group Peter, Paul and Mary. "If you persist, you will prevail."

What began two weeks ago as a Republican effort in one small U.S. state to balance the budget has turned into a confrontation with unions that could be the biggest since then President Ronald Reagan fired striking air traffic controllers nearly 30 years ago.

Republicans still must push the measure through the state Senate, which has been unable to muster a quorum for a vote because of a Democratic boycott.

If the plan is approved in Wisconsin, a number of other states where Republicans swept to victory in the 2010 elections could follow. Already, other legislatures including Ohio, Indiana, Iowa, Idaho, Tennessee, and Kansas are working on union curbs.

Unlike previous protests, the rally on Saturday brought out thousands of union workers not directly affected by the bill, including the state's firefighters, exempted along with police from the Republican proposal. Dozens of private sector unions were represented as well at the event.

No "Tea Party" supporters of the proposal championed by Republican Gov. Scott Walker were spotted on Saturday. They staged a smaller rally of their own in Madison a week ago.

PARTY ATMOSPHERE

The rally felt more like a party than a protest.

"This is one of the largest sustained protests we have seen in Madison since the Vietnam War. And to my knowledge there were absolutely no problems," Madison Police spokesman Joel DeSpain said.

Scott Sumer, a teacher from Rockford, Illinois, just south of the Wisconsin state line, said he hoped the sustained and broad-based opposition to the Wisconsin bill would discourage lawmakers in other states from considering similar measures.

"Other governors are going to see this and think, 'I don't want to go there.'" Sumer said. "The tenacity of this movement and civility here are impressive."

Demonstrators chanted "Hey hey, ho ho, Scott Walker has got to go," as they stood directly under the office window of the state's new governor, who introduced the controversial measure as part of a budget deficit cutting bill that is moving in the Wisconsin legislature.

The stakes are high for labor because more than a third of U.S. public employees such as teachers, police and civil service workers belong to unions while only 6.9 percent of private sector workers are unionized. Unions are the biggest single source of funding for the Democratic party.

Some of the demonstrators carried signs, others pushed baby carriages, and others walked with their dogs by their sides.

The overwhelming anti-Walker sentiment of the demonstration was telegraphed in many ways, including a sign that read: "Scott Walker for President ... of Libya."

U.S. labor groups also staged rallies across the country to show solidarity with Wisconsin in fighting the proposal they see as trying to break the union movement.

BETTER WEATHER

Wearing thick outerwear and her 10-month-old son strapped to her belly, Tamarine Cornelius, 36, carried a sign that read "If Wisconsin is gonna become Mississippi than I am gonna want better weather."

"I understand that there are tough times ahead, things are going to be difficult no matter what. I think most people understand that," said Cornelius, who works for the non-profit Wisconsin Council on Children and Families.

People in the state capital of Madison, which is home to unionized state government agencies and the University of Wisconsin, are overwhelmingly opposed to the governor's plan. But Republicans said they believe there is a silent majority who voted Walker into office, and support the efforts.

Republicans appeared defiant in the face of the union protests. In Phoenix, potential Republican presidential candidate Tim Pawlenty, a former governor of Minnesota, a neighbor of Wisconsin, drew applause from "Tea Party" activists when he blasted President Barack Obama for supporting the Wisconsin unions.

"It says in the Constitution: 'In order to form a more perfect Union.' ... Mr. President, that does not mean coddling out of control public employee unions," he told some 2,000 partisans gathered for a conference.

The Wisconsin changes sought by Walker would make state workers contribute more to health insurance and pensions, end government collection of union dues, let workers opt out of unions and require unions to hold recertification votes every year. Collective bargaining would be allowed only on wage increases up to the rate of inflation.

(Reporting by James Kelleher, David Bailey and Stefanie Carano in Madison; Additional reporting by Tim Gaynor in Phoenix; Editing by Greg McCune)

    Largest crowds since Vietnam War march in Wisconsin, R, 27.2.2011, http://www.reuters.com/article/2011/02/27/us-wisconsin-protests-idUSTRE71O4F420110227

The Budget Fight Continues

February 26, 2011
The New York Times

In defense of their bill to slash federal spending by $61 billion over the next seven months, House Republicans claim they are trying to make the economy grow and create jobs. In truth, such deep and sudden cuts could derail the recovery, without ever addressing the real sources of budget deficits — mainly explosive health care costs and incessant high-end tax cuts.

The question is whether the Obama administration and the Senate can prevail against the false rhetoric. Facts, analysis and the moral high ground all favor opponents of the measure. The aim is not to avoid difficult budget decisions, but to block the Republicans’ heedless effort while starting a reasoned budget debate.

In a recent report, economists at Goldman Sachs estimated that the House cuts would reduce economic growth by 1.5 percentage points to 2 percentage points in the second and third quarters of 2011. That would devastate employment. As a rule of thumb, each percentage point drop in growth means a loss of 1.2 million jobs.

The cuts also would be off point. All of them come from discretionary spending, a sliver of the budget that excludes the government’s biggest and fastest-growing outlays, chiefly Medicare and Medicaid. Over the past decade, Pentagon spending has accounted for almost all of the increase in discretionary outlays, with much of the rest going to homeland security, veterans benefits and the No Child Left Behind education initiative. Aside from defense, there is not a lot to cut prudently.

Which leads to the strongest argument of all against the House Republican bill — most of the cuts would be counterproductive. Annual spending on education through high school is cut by 12 percent, or nearly $6 billion (since the cuts would be squeezed into the rest of the current budget year, they are even deeper on an annualized basis).

Those cuts include reductions to Head Start that would remove 218,000 children from the program and cuts to elementary education that would hit 2,400 schools and nearly one million students. Pell Grants for college would also be cut by nearly $6 billion. Transportation investments would be cut by 9 percent, or $8.1 billion, including $2.7 billion from rail, $1 billion from highway spending and $675 million from public transit. Americorps and other community-service programs would be eliminated, although their benefit to society surely exceeds their $1.2 billion cost. Since national service programs are matched by $800 million from foundations and other sources, that would be lost, too.

The list goes on. Small businesses would be hit by a 9 percent cut, or $84 million, to the Small Business Administration. Homeowners facing foreclosure and other Americans with legal problems would be hurt by a $70 million cut to legal aid. Financial regulators would endure deep cuts that would cripple their ability to carry out the Dodd-Frank financial reform law. That’s asking for another financial crisis.

Given the need to placate House Republicans, some cuts are inevitable. Senators can turn to President Obama’s budget for 2012 as a template for cutting while preserving priorities. It’s time for leadership.

•

In coming days, at the bottom of this page, we will further explore individual penny-and-pound-foolish cuts the House Republicans want to impose, their lack of impact on the deficit and their real-world impact, often on the most vulnerable Americans.

    The Budget Fight Continues, NYT, 26.2.2011, http://www.nytimes.com/2011/02/27/opinion/27sun1.html

Absorbing the Pain

February 25, 2011
The New York Times
By BOB HERBERT

Philadelphia

Lynda Hiller teared up. “We’re struggling real bad,” she said, “and it’s getting harder every day.”

A handful of people were sitting around a dining room table in a row house in North Philadelphia on Wednesday, talking about the problems facing working people in America. The setting outside the house on West Harold Street was grim. The remnants of a snowstorm lined the curbs and a number of people, obviously down on their luck, were moving about the struggling neighborhood. Some were panhandling.

The small gathering had been arranged by a group called Working America, which is affiliated with the A.F.L.-C.I.O., but the people at the meeting did not belong to unions. They were just there to talk in an atmosphere of mutual support.

What struck me about the conversation was the way people talked in normal tones about the equivalent of a hurricane ripping through their lives, leaving little but destruction in its wake.

Ms. Hiller had come in from Allentown. She’s 63 years old and still undergoing treatment for breast cancer. Her husband, Howard, who was not at the meeting, had been a long-distance truck driver for 35 years before losing his job in 2007, the same year Ms. Hiller received her diagnosis. Mr. Hiller thought at the time that with all of his experience he would find another job pretty quickly. He was mistaken.

“He looked for two years,” Ms. Hiller said. “He applied every place he could, sometimes four or five times at the same company. He went everywhere, to every job fair you can think of, to every place where there was even a mention of an opening. But for every job that came available, there were 20 people or more who showed up for it.”

Last fall, Mr. Hiller took a part-time job as a dishwasher at a Red Lobster restaurant. “It’s a job,” Ms. Hiller said. “It’s not fancy. It’s not truck driving.”

And it was not enough for them to keep their home. Ms. Hiller lost her job at a bank when she became ill. With both paychecks gone, meeting the mortgage became impossible. The Hillers lost their home and are now living day to day. “If my husband can get 30 hours of work in a week, then maybe we can pay some bills,” Ms. Hiller said. “If he can’t, we can’t. We’ve downsized our lives so much.”

The meeting was in the home of Elizabeth Lassiter, a certified nursing assistant whose job is in Hatfield, Pa., about 45 minutes north of Philadelphia. She doesn’t earn a lot or get benefits, but it’s a big step up from last year when she was working part time in Warminster and for a while had to sleep in her car.

“Back then I was working for a nursing agency and they kept saying they didn’t have full-time work,” she said. Until she could raise enough money for an apartment, the car was her only option. “I needed someplace to lay my head,” she said. “It was very hard.”

These are the kinds of stories you might expect from a country staggering through a depression, not the richest and supposedly most advanced society on earth. If these were exceptional stories, there would be less reason for concern. But they are in no way extraordinary. Similar stories abound throughout the United States.

Among the many heartening things about the workers fighting back in Wisconsin, Ohio and elsewhere is the spotlight that is being thrown on the contemptuous attitude of the corporate elite and their handmaidens in government toward ordinary working Americans: police officers and firefighters, teachers, truck drivers, janitors, health care aides, and so on. These are the people who do the daily grunt work of America. How dare we treat them with contempt.

It would be a mistake to think that this fight is solely about the right of public employees to collectively bargain. As important as that issue is, it’s just one skirmish in what’s shaping up as a long, bitter campaign to keep ordinary workers, whether union members or not, from being completely overwhelmed by the forces of unrestrained greed in this society.

The predators at the top, billionaires and millionaires, are pitting ordinary workers against one another. So we’re left with the bizarre situation of unionized workers with a pension being resented by nonunion workers without one. The swells are in the background, having a good laugh.

I asked Lynda Hiller if she felt generally optimistic or pessimistic. She was quiet for a moment, then said: “I don’t think things are going to get any better. I think we’re going to hit rock bottom. The big shots are in charge, and they just don’t give a darn about the little person.”

    Absorbing the Pain, NYT, 25.2.2011, http://www.nytimes.com/2011/02/26/opinion/26herbert.html

Helping the Casualties of the Economy

February 25, 2011
The New York Times

To the Editor:

Bob Herbert’s Feb. 22 column, “At Grave Risk,” was the most insightful and courageous article I have read in a long while.

I, too, am one of the millions who have suffered in this continuous economic downturn. I have gotten myself and my family back on solid ground in spite of the predatory, unscrupulous dealings of banks, mortgage companies, the government and every other concern that is interested only in its own excessive behavior and profit.

There is no American dream. We are just a country of pawns who are at the mercy of a ruling elite. If things don’t change quickly, America will become no better than a third-world country.

Rich Becker
East Brunswick, N.J., Feb. 23, 2011

•

To the Editor:

Bob Herbert argues that the great recession has left many Americans feeling betrayed by the promise of the American dream. Now employment and productivity are “at grave risk.”

More than the economic ruin caused by unemployment in America, there are also the psychological effects it causes. It ultimately unfavorably balances our social order and throws a wrench into our ethic of morality revolving around work.

In short, lack of work breeds depression and affects not only the individual but also the community and the greater world at large.

This is a problem with many facets and must be approached by psychologists as well as potential employers in the marketplace.

The growing trend among employers to discriminate against those who are unemployed is disgraceful. The government must research and devote full energy to this serious problem affecting the life of every American.

Norman Singer
Cary, N.C., Feb. 22, 2011

•

To the Editor:

I was deeply saddened and angry at the report from the National Employment Law Project mentioned in Bob Herbert’s column that sheds light on a new trend of employers to employ only people who currently have a job. Not only is this despicable behavior, but it is also highly unethical.

It would seem that there are those in the business world who believe that those who are unemployed are losers, or should not be hired because they are depressed. Yet it is because of their own business practices that look only at the bottom line, and greed at the top, that many of these people are out of a job.

I certainly hope that the National Employment Law Project will find a way to publish the names of these employers who are doing everything to keep the money flowing up the ladder instead of down to the workers.

We need to know who is following this trend so that we can let them know what we think of their hiring practices.

Thomas T. Peters
Stirling, N.J., Feb. 22, 2011

•

To the Editor:

Bob Herbert’s Feb. 20 column, “The Human Cost of Budget Cutting,” should sound an alarm for all who care about our nation’s poor and most vulnerable.

No one understands better the tradeoffs that must be made to balance a budget than our nation’s low-income families. In their effort to cut spending, our leaders could learn something from these families about priorities.

Just one example: The House has approved cutting $20 million in financing to the Commodity Supplemental Food Program, which provides boxes of nutritious food to about 600,000 people, most of whom are the low-income elderly. The elderly who qualify can have incomes of no more than about $14,000 a year. The cut means that about 80,000 people will be eliminated from this program, many of them our nation’s most at-risk population, the impoverished elderly.

Eliminating a single box of food each month may not seem like a significant loss, but not if you are one of the elderly who rely on that box of food to make the difference between eating three square meals a day or going hungry.

Vicki Escarra
Chicago, Feb. 22, 2011

The writer is president and chief executive of Feeding America, a network of 200 food banks that serve 37 million Americans a year.

•

To the Editor:

In addition to the human costs of budget cutting cited by Bob Herbert is another tragic result of a nation “ill clad, ill housed and ill nourished,” as Franklin D. Roosevelt defined it during the Great Depression.

That result is a continuation of generations of children ill prepared for school and for acquiring the learning skills essential in this century. Community action agencies are frequently the only force holding families together, a critical element in fostering school readiness.

Not only will our poor children suffer outwardly, but their inner means of expression will also be further diminished, causing our failing schools to become so much the poorer.

Jerrold Ross
Dean, School of Education
St. John’s University
Jamaica, Queens, Feb. 20, 2011

    Helping the Casualties of the Economy, NYT, 25.2.2011, http://www.nytimes.com/2011/02/26/opinion/l26herbert.html

Rising Oil Prices Pose New Threat to U.S. Economy

February 24, 2011
The New York Times
By MOTOKO RICH, CATHERINE RAMPELL and DAVID STREITFELD

This article is by Motoko Rich, Catherine Rampell and David Streitfeld.

The American economy just can’t catch a break.

Last year, as things started looking up, the European debt crisis flustered the fragile recovery. Now, under similar economic circumstances, comes the turmoil in the Middle East.

Energy prices have surged in recent days, as a result of the political violence in Libya that has disrupted oil production there. Prices are also climbing because of fears the unrest may continue to spread to other oil-producing countries.

If the recent rise in oil prices sticks, it will most likely slow a growth rate that is already too sluggish to produce many jobs in this country. Some economists are predicting that oil prices, just above $97 a barrel on Thursday, could be sustained well above $100 a barrel, a benchmark.

Even if energy costs don’t rise higher, lingering uncertainty over the stability of the Middle East could drag down growth, not just in the United States but around the world.

“We’ve gone beyond responding to the sort of brutal Technicolor of the crisis in Libya,” said Daniel H. Yergin, the oil historian and chairman of IHS Cambridge Energy Research Associates. “There’s also a strong element of fear of what’s next, and what’s next after next.”

Before the outbreak of violence in Libya, the Federal Reserve had raised its forecast for United States growth in 2011, and a stronger stock market had helped consumers be more confident about the future and more willing to spend.

But other sources of economic uncertainty besides oil prices have come into sharper focus in recent days. After a few false starts, housing prices have slid further. New-home sales dropped sharply in January, as did sales of big-ticket items like appliances, the government reported Thursday.

Though the initial panic from last year has faded, Europe’s deep debt problems remain, creating another wild card for the global economy. Protests turned violent in Greece this week in response to new austerity measures.

Budget and debt problems at all levels of American government also threaten to crimp the domestic recovery. Struggling state and local governments may dismiss more workers this year as many face their deepest shortfalls since the economic downturn began, and a Congressional stalemate over the country’s budget could even lead to a federal government shutdown.

“The irony is that we just barely got ourselves up and off the ground from the devastating financial crisis,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, who had been optimistic about the country’s prospects. “The recovery itself is less than two years in, and we haven’t yet seen jobs make a decent comeback. Now we’re being hit with this new, very ominous event, so the timing couldn’t be worse.”

Most economists are not yet talking about the United States dipping back into recession, and it is too soon to tell how far the pro-democracy protests that have roiled Egypt, Bahrain and Libya will spread. For now, most analysts are not predicting that Iran and Saudi Arabia, repressive governments that also happen to be two of the world’s biggest oil producers, will catch the revolutionary fever.

“But revolutions are notoriously difficult to forecast,” said Chris Lafakas, an economist at Moody’s Analytics who focuses on energy. Disruptions of oil supplies in Saudi Arabia and Iran in particular, he said, “would be catastrophic for prices. Saudi Arabia alone could cause maybe a 20 to 25 percent increase in oil prices overnight.”

In the last week, oil prices have risen more than 10 percent and even breached $100 a barrel. A sustained $10 increase in oil prices would shave about two-tenths of a percentage point off economic growth, according to Dean Maki, chief United States economist at Barclays Capital. The Federal Reserve had forecast last week that the United States economy would grow by 3.4 to 3.9 percent in 2011, up from 2.9 percent last year.

Higher oil prices restrain growth because they translate to higher fuel prices for consumers and businesses. Mr. Lafakas estimates that oil prices are on track to average $90 a barrel in 2011, from $80 in 2010, an increase that would offset nearly a quarter of the $120 billion payroll tax cut that Congress had intended to stimulate the economy this year.

Rising gasoline prices have already led Jayme Webb, an office manager at a recycling center in Sioux City, Iowa, and her husband, Ken, who works at Wal-Mart, to cut back on spending.

In the last month, they have canceled their satellite television subscription and their Internet service. They have also stopped driving from their home in rural Moville to Sioux City on weekends to see Ms. Webb’s parents.

Along with making their commutes to work more expensive, rising oil prices have driven up the cost of food for animals and people. So the couple have stopped buying feed for their dozen sheep and goats and six chickens and instead asked neighboring farmers to let them use scraps from their corn fields.

“It’s a struggle,” said Ms. Webb, 49. “We have to watch every little penny.”

A cutback in consumer spending reverberates through the economy by crimping businesses, making it less likely that employers will commit to the additional hiring needed to lower the 9 percent unemployment rate.

“Revenue is down, costs are up, and you can’t make any money,” said R. Jerol Kivett, the owner of Kivett’s Inc., a company that manufactures pews and other church furniture in Clinton, N.C. “You’re just trying to meet payroll and keep people working, hoping the economy will turn. But it just seems like setback after setback after setback.”

And the money that consumers and businesses spend on oil often does not stay within the American economy. Nor do the expanded coffers in oil-producing countries raise demand for American exports, because they often bank it as reserves.

“The countries that are getting this bonus basically get an enormous benefit,” said Raghuram G. Rajan, an economics professor at the University of Chicago. “But if they can’t spend it quickly, it doesn’t add to aggregate demand.”

The rise in oil prices could also create a vicious cycle, as higher energy costs propel already rising food prices, which in turn can lead to more political unrest and more global uncertainty.

Even without the Middle East, the domestic economy has a number of weaknesses that have proved hard to overcome. The recession was provoked by housing and worsened by housing, and housing is likely to remain frail in parts of the country until the end of the decade.

After a couple of brief growth spurts, home prices have started declining again in earnest.

This week, the Yale economist Robert Shiller speculated about another drop as large as 25 percent. Anything close to that would push millions more households to the point where they owe more on their houses than the houses are worth, generating a lot of sour moods — which can depress consumer spending — more foreclosures and potential job losses.

Even absent such a decline, lenders remain cautious, punishing those who never indulged during the boom.

Maria Schneider and Roger Westerman have plenty of equity in their Brooklyn home, and a 17-year record of paying on time. Last fall, the couple tried to capitalize on historically low mortgage rates and refinance.

They estimated they would save $360 a month. But their lender said they were a bad credit risk. The couple, both 48, are self-employed.

“We could be sending all three of our kids to camp this summer instead of just one,” Mrs. Schneider said.

There are some signs that the economy could weather this latest round of buffeting. Revenue at many companies is back to prerecession levels, said Scott Bohannon, a general manager at the Corporate Executive Board, a research and advisory firm. That suggests companies may start adding equipment, factories and, eventually, workers.

“Of course, if a war breaks out in a significant way or something like that happens,” he said, “then I would give you a different answer. Then you’re talking about huge shocks to the system.”

    Rising Oil Prices Pose New Threat to U.S. Economy, NYT, 24.2.2011, http://www.nytimes.com/2011/02/25/business/economy/25econ.html

Analysis: Oil prices could be game-changer for world economy

LONDON | Thu Feb 24, 2011
8:11am EST
Reuters
By Jeremy Gaunt

LONDON (Reuters) - Soaring oil prices are reaching levels that could threaten to brake improving but tentative global economic recovery, with an outside chance of a new recession or that most destructive of conditions, stagflation.

If the price spike is sustained, it will soon add pressure on central banks already worried about food prices to tighten monetary policy, a move that would mop up some of the liquidity that fostered recovery in the first place.

It will also hit different regions and countries differently, depending on their underlying economic strength and whether they are oil producers or importers.

Few policymakers or analysts are panicking yet. The spiking price of oil is related to the turmoil in Libya and fears of a more widespread supply disruption. It has nothing to do with wider economic fundamentals.

But the numbers are getting high enough to at least raise the prospect of big trouble for the global economy.

Brent oil was around $115 a barrel on Thursday, hitting its highest level since August 2008, and U.S. crude was above $100. They were driven by concern the bloody unrest that has cut more than a quarter of OPEC-member Libya's output could spread to other producers including Saudi Arabia.

The Brent contract flirted with $120 a barrel in earlier trading, a level Deutsche Bank says could be an inflection point for global economic growth.

"$120/barrel is the level that oil as a share of global GDP starts to move above 5.5 percent of GDP, which has historically been an environment where global growth has come under pressure," the bank's analysts said in a note.

Technical analyses indicated that oil prices could smash through their 2008 highs to just below $160 a barrel this year, according to Reuters analyst Wang Tao.

HOW LONG, HOW FAR

An oft-cited rule of thumb is that a $10 per barrel increase in the price of oil knocks half a percentage point from global GDP growth.

By this standard, an oil-induced double-dip recession is a long way off. Brent would have to reach around $190 a barrel for a return to negative growth from current levels.

The rule is questionable -- the world economy boomed in the mid-noughties while oil soared. The key is really the sustainability of a high price.

Charles Robertson, chief economist at Renaissance Capital, for example, reckons that an average annual price of more than $150 a barrel would be akin to the oil-price shock that hit after the Iranian revolution of 1979.

That pushed oil up to nearly 8 percent of GDP, way above the level at which it starts battering global growth.

Robertson, however, says the world can handle short-lived spikes that only lift the GDP impact to 5 percent.

Macquarie economists, meanwhile, calculate that oil needs to be sustainably above $120, closer to $140, before it starts having a major global impact.

For that to occur it would probably take more than just Libyan revolt. The fear at the back of many investors' and economists' minds is an even wider breakdown in stability across the Arab world, particularly if Saudi Arabia was dragged in.

The latest spike in prices, for example, was partly prompted by Goldman Sachs saying that the market was reacting to fears of contagion to other producing nations after Libya and that another disruption could create severe oil shortages and require demand rationing.

All bets would be off if Saudi Arabia succumbed to serious popular revolt. The top OPEC producer holds more than a fifth of world oil reserves.

Saudi King Abdullah returned home on Wednesday after a three-month medical absence and unveiled benefits for Saudis worth some $37 billion in an apparent bid to insulate the world's top oil exporter from an Arab protest wave.

INFLATION

Even if the price is relatively contained, however, any form of sustained rise will feed into already rising inflationary pressures, threatening monetary tightening and causing problems of different sorts across the world.

Fast-growing Asian economies such as China's are already struggling to deal with higher food prices and to keep their economies from over-heating.

Deng Yusong, an economist at China's Development Research Center, a government think tank, told the hexun.com financial news website that a higher oil price is not a particular problem for Chinese consumer inflation.

But, looking closer at the heart of the Chinese economic dragon, he added: "The impact of oil prices on the producer price index may be quite deep."

Elsewhere, higher oil prices are threatening to unwind some of the recovery plays being carefully crafted by western officials.

Calls are already being heard for the British government to hold off on new petrol taxes, an income stream that is part of a broader plan to kill off a burgeoning fiscal deficit.

European Central Bank officials have also become increasingly hawkish about inflation, despite weak growth in a number of non-core euro zone economies.

Higher prices, meanwhile, are unlikely to do anything positive for U.S. employment, which continues to lag economic recovery elsewhere and directly impacts all-important consumer sentiment.

It is the United States that may bear the heaviest inflationary brunt from an oil shock in the developed world, according to analysis by at Fathom Consulting.

It calculates that oil at $120 would add about 0.5 percentage points to UK and European inflation but more than 1.5 points to U.S. inflation because of greater American consumption of oil and its lower energy taxes.

"An increase in oil prices then might still be a problem for all, but it is a particular problem for the Fed, especially at this point in the 'recovery'," said Fathom's Andrew Clare.

A repeat of the '70s oil crises, which saw prices spike, global economic growth dampen and stagflation remains an extreme scenario. But it is not as obscure a prospect as it was a few weeks ago

(Additional reporting by Mike Peacock and Don Durfee)

    Analysis: Oil prices could be game-changer for world economy, R, 24.2.2011, http://www.reuters.com/article/2011/02/24/businesspro-us-economy-oil-idUSTRE71N2SB20110224

Bank Closings Tilt Toward Poor Areas

February 22, 2011
The New York Times
By NELSON D. SCHWARTZ

Until it closed its doors in December, the Ohio Savings Bank branch on North Moreland Boulevard was a neighborhood anchor in Cleveland, midway between the mansions of Shaker Heights and the ramshackle bungalows of the city’s east side. Now it sits boarded up, a victim not only of Cleveland’s economic troubles but also of a broader trend of bank branch closings that is falling more heavily on low- and moderate-income neighborhoods across the country.

In 2010, for the first time in 15 years, more bank branches closed than opened across the United States. An analysis of government data shows, however, that even as banks shut branches in poorer areas, they continued to expand in wealthier ones, despite decades of government regulations requiring financial institutions to meet the credit needs of poor and middle-class neighborhoods.

The number of bank branches fell to 98,517 in 2010, from 99,550 the previous year, a loss of nearly 1,000 locations, according to data compiled by the Federal Deposit Insurance Corporation.

Banks are expected to keep closing branches in the coming years, partly because of new technology and automation and partly because of the mortgage bust and the financial crisis of 2008. New regulations will also cut deeply into revenue, including restrictions on fees for overdraft protection — a major moneymaker on accounts aimed at lower-income customers. Yet the local branch remains a crucial part of the nation’s financial infrastructure, banking analysts say, even as more customers manage their accounts via the Internet and mobile phones.

“In a competitive environment, banks are cutting costs and closing branches, but there are social costs to that decision,” said Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve. “When a branch gets pulled out of a low- or moderate-income neighborhood, it’s not as if those needs go away.”

Mr. Williams and other observers express concern that the vacuum will be filled by so-called predatory lenders, including check-cashing centers, payday loan providers and pawnshops. The F.D.I.C. estimates that roughly 30 million American households either have no bank account or rely on these more expensive alternatives to traditional banking.

The most recent wave of closures gathered steam after the financial crisis in 2008, as banks of all sizes staggered under the weight of bad home loans. In some cases, banks with heavy exposure to risky mortgage debt simply cut branches as part of a broader restructuring. In other cases, banking companies merged and closed branches to consolidate.

Whatever the cause, there were sharp disparities in how the closures played out from 2008 to 2010, according to a detailed analysis by The New York Times of data from SNL Financial, an information provider for the banking industry. Using data culled from the Federal Deposit Insurance Corporation and ESRI, a private geographic information firm, SNL matched up the location of closed branches with census data from the surrounding neighborhood.

In low-income areas, where the median household income was below $25,000, and in moderate-income areas, where the medium household income was between $25,000 and $50,000, the number of branches declined by 396 between 2008 and 2010. In neighborhoods where household income was above $100,000, by contrast, 82 branches were added during the same period.

“You don’t have to be a statistician to see that there’s a dual financial system in America, one for essentially middle- and high-income consumers, and another one for the people that can least afford it,” said John Taylor, president of the National Community Reinvestment Coalition, a group that advocates for expanding financial services in underserved communities.

“In those neighborhoods, you won’t see bank branches,” he added. “You’ll see buildings that used to be banks, surrounded by payday lenders and check cashers that cropped up.”

Wayne A. Abernathy, an executive vice president of the American Bankers Association, disputed Mr. Taylor’s conclusion, as well as the significance of the data.

“You need to look at the context,” he said. “We’re looking at a pool of more than 95,000 branches, and we’ve had several hundred banks fail, so what would be surprising is if no branches had closed.”

The Community Reinvestment Act, signed into law more than three decades ago in an effort to combat discrimination and encourage banks to serve local communities, requires financial institutions to notify federal regulators of branch closings. But legal experts say the federal watchdogs that are supposed to enforce the law have been timid.

“The C.R.A. has been a financial Maginot Line — weakly defended and quickly overrun,” said Raymond H. Brescia, a professor at Albany Law School. What’s more, Mr. Brescia said, while closing branches violates the spirit of the law, if not the letter, he could not recall a single example in which a bank was cited by regulators under the C.R.A. for branch closures in recent years. “The C.R.A leaves banks a lot of leeway,” he said, “and regulators have not wielded their power with much force.”

Even as more customers turn to online banking, said Kathleen Engel, a law professor at Suffolk University in Boston, the presence of brick-and-mortar branches encourages “a culture of savings,” beginning with passbook accounts for children and visits to the local bank. “If we lose branch banking in low- and moderate-income neighborhoods, banks stop being central to the culture in those communities,” said Ms. Engel, author of a new book, “The Subprime Virus: Reckless Credit, Regulatory Failure and Next Steps.”

Among individual financial institutions, especially those hit hard by the mortgage mess, the differences between rich and poor communities were especially marked.

Regions Financial, based in Birmingham, Ala., had 107 fewer branches serving low- and moderate-income neighborhoods in 2010 than it did in 2008. The company, which has yet to repay $3.5 billion in federal bailout money, shuttered just one branch in a high-income neighborhood, according to SNL Financial.

At Zions Bancorporation, a Utah lender battered by losses on commercial real estate loans, branches in low- and moderate-income neighborhoods dropped by 24, compared with a decrease of just one branch in an upper-income area. It still owes the federal government $1.4 billion in bailout money. A spokesman for Zions said the branch closings reflected a strategic move to exit all supermarket locations as well as merger-related consolidation, rather than a withdrawal from particular neighborhoods.

A similar trend is evident at some larger institutions. Bank of America closed 25 branches in moderate-income areas and opened 14 in the richest areas, according to the SNL data. Citigroup, whose branch network is smaller than Bank of America’s, closed two branches in the poorest areas and opened three in the wealthiest.

The head of Citigroup’s global consumer business, Manuel Medina-Mora, made no secret of his bank’s intention to focus on the wealthy in the country, telling a Wall Street investor conference in November that “in retail banking, we will focus our growth in the emergent affluent and affluent segments in major cities — exactly in line with our global consumer banking strategy.”

Comparisons for two other giants, Wells Fargo and JPMorgan Chase, are more difficult because of the addition of thousands of branches in all categories in 2008 as they absorbed Wachovia and Washington Mutual, both of which were pushed to the brink by mortgage losses. From 2009 to 2010, however, Wells closed 57 branches in low- and moderate-income neighborhoods, and shut 20 in upper-income census tracts.

JPMorgan Chase, which emerged from the turmoil of 2008 as the healthiest of the big banks, actually opened 11 branches in low- and moderate neighborhoods, while it closed one in the $100,000-plus communities.

A spokeswoman for Bank of America, Anne Pace, defended her company’s record, noting that more than one-third of its new branch openings in 2011 would be in low- and moderate-income communities.

Citigroup, Wells Fargo and Regions Financial disputed the statistics provided by SNL, arguing that the number of branches closed in low- and moderate-income neighborhoods was overstated. The three banks insisted they are committed to serving all customers and communities, regardless of the income level.

In Cleveland, the closing of the Ohio Savings branch in December was one more bit of fallout from the financial crisis, according to Chris Warren, the city’s chief of regional development.

A year earlier, New York Community Bancorp took over the assets of AmTrust Bank, now operating as Ohio Savings Bank in Ohio, after it was shut by the federal Office of Thrift Supervision. The F.D.I.C.’s deposit insurance fund took a $2 billion loss as a result of the closing. The North Moreland branch was the only one of Ohio Savings’ 29 branches in the state to close.

“This was their introduction of their approach to community investment in this city,” Mr. Warren said. “They closed down the only branch Ohio Savings had in a low-to-moderate-income, African-American neighborhood.”

A spokeswoman for New York Community Bank said the branch was closed only because the bank was unable to reach a new agreement on a lease. She said customers could choose other branches nearby, including an Ohio Savings branch 2.4 miles way.

That is little comfort to customers like Lucretia Clay, who manages a store nearby and lives within walking distance of the now-shuttered branch. “I’ve given that bank a lot of money over the years,” she said. “So they should be here in the community. I shouldn’t have to drive forever to go find them.”


Christopher Maag contributed reporting.

    Bank Closings Tilt Toward Poor Areas, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/business/23banks.html

Union Leader Minces No Words When Labor Issues Are at Stake

The New York Times
February 22, 2011
By STEVEN GREENHOUSE

MADISON, Wis. — As executive director of the main union of Wisconsin state employees, Marty Beil is at the vortex of the hurricane here — and that makes some union members gulp.

A bear of a man, Mr. Beil has been known to use razor-clawed insults to maul government officials who anger him. When a former Democratic state senator took a job in the administration of Wisconsin’s new Republican governor, Scott Walker, Mr. Beil said he was engaging in “the world’s oldest profession” — prostitution.

And when the State Senate president, a Democrat whom unions had often endorsed, provided a pivotal vote in December to torpedo a contract Mr. Beil had negotiated with the departing Democratic governor, Mr. Beil called the man “a whore.”

Now, as Mr. Walker pushes a budget bill that would force most public employees to pay more toward health care and retirement benefits and largely eliminate their collective bargaining rights, many eyes are on Mr. Beil (pronounced beel) to see whether his combative style can win over a skeptical public and achieve results with a governor who is hardly a shrinking violet himself.

Despite — or perhaps because of — his abrasive language, Mr. Beil, executive director of the Wisconsin State Employees Union, can certainly be effective in stirring labor’s troops. His behind-the-scenes work and organizing skills have helped transform Madison into a national battleground over labor rights as tens of thousands of union members and supporters have demonstrated at the Capitol. These protests, which many other unions have helped organize, have come to resemble a labor version of Woodstock.

“It’s absolutely clear that the governor’s budget bill is all about taking away our right to bargain collectively and organize into unions,” said Mr. Beil, 64, who first took a job with the state of Wisconsin in 1969, as a probation officer. “It’s difficult for us to understand how stripping people of their collective bargaining rights will help close a hole in this fiscal year’s budget.”

His battle with Mr. Walker is the toughest fight of Mr. Beil’s career. Already, the union has agreed to Mr. Walker’s demands to have public employees pay more toward their pensions and health coverage, translating into a 7 percent cut in pay.

Those concessions drew a moment of gloating from Mr. Walker at a Monday news conference. “That’s an interesting development, because a week ago they said that’s not acceptable,” he said.

Mr. Walker says passing his “budget repair” bill will give the state, cities and school districts the flexibility they need to cut costs while minimizing layoffs, not just this year, but in future ones, too.

“It sets the table to make sure we can balance the $3.6 billion budget we face,” he said Monday. “On top of that, we need to make sure that we are giving local governments the tools they need to balance their budgets.”

Mr. Walker has made no secret that he believes Mr. Beil and his parent union, the American Federation of State, County and Municipal Employees, which has 68,000 members in Wisconsin, are obstacles to necessary change.

Back in December, before taking office, Mr. Walker lobbied hard to persuade the Legislature to vote down a tentative contract that Mr. Beil had negotiated, saying it did not save enough money despite its two-year wage freeze.

Mr. Beil hung tough at the time, likening Mr. Walker to “the plantation owner talking to the slaves.”

Speaking of Mr. Beil’s stance then, William Powell Jones, a labor historian at the University of Wisconsin, said: “My sense is his position was, ‘We’re in a position of power. We don’t negotiate.’ It’s certainly not the kind of thing to make an anti-union public sympathetic to the union movement.”

With the nation watching, Mr. Beil reversed course last week and accepted Mr. Walker’s demand that public employees pay 5.8 percent of their salaries toward their pensions and double their contributions toward health coverage. Union leaders said that since they had now met the governor halfway, he should compromise by dropping his plan to curb bargaining rights.

But Mr. Walker has held firm. For his part, Mr. Beil said his union would never agree to the bargaining limits.

“It’s all about taking our rights away,” he said. “Whether you’re a teacher, a state employee, a municipal employee, under his bill, your rights are gone to sit down as an equal at the bargaining table to work out issues like work schedules or how to transfer to another job or where do you work. All that would be gone.”

A key Walker ally in the Legislature, Speaker Jeff Fitzgerald, a Republican, called Mr. Beil “very combative” and added: I think Marty has unfortunately been out of touch for a while. He has probably led his members in the wrong direction.”

Last month, Mr. Beil called Mr. Fitzgerald and his brother, Scott, the new Senate president, “lightweights” as well as “crybabies and whiners.”

Such comments anger not just legislators, but also members of the public. A recent letter to The Wisconsin State Journal, a Madison daily, began, “Memo to Marty Beil: Take a vacation — a long one — and quit your never-ending sniping at Gov. Scott Walker and anyone else who disagrees with you.”

Mr. Beil acknowledged, “I can be a lightning rod.” He said he upset many rank-and-file workers in the 1990s when he twice endorsed Tommy Thompson, a Republican, for re-election as governor.

“I will support Republicans or Democrats, whoever is good for us,” he said.

Mr. Beil says he just tells it like it is. His role is to fight for labor, he said, and he seems stunned that much of the public has turned so suddenly against public-employee unions.

“The average working person is under a lot of pressure from the economic downturn,” he said. “There’s a lot of anger out there, a lot of fear, and that was played by the right wing against us.”

“We’re as much a victim as anybody else,” he continued. “Public employees did not create the recession and the deficit here in Wisconsin. It was Wall Street.”

Ever since Mr. Walker announced his plan to curb bargaining rights, Mr. Beil has worked closely with other Wisconsin labor leaders. Every day, he confers with Phil Neuenfeldt, president of the Wisconsin State A.F.L.-C.I.O., and Mary Bell, president of the Wisconsin Education Association Council, which represents 98,000 school employees, to strategize on how best to mobilize support, often by using phone banks, e-mail blasts and Facebook.

“Marty is very passionate and cares deeply about what happens to his members,” Mr. Neuenfeldt said.

Asked whether Mr. Beil sometimes goes too far, unnecessarily alienating people, Mr. Neuenfeldt answered, “As I said, he’s very passionate.”

    Union Leader Minces No Words When Labor Issues Are at Stake, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/us/23beil.html

Thousands March on Capitols as Union Turmoil Spreads

Published: February 22, 2011
The New York Times
By SABRINA TAVERNISE and A. G. SULZBERGER

COLUMBUS, Ohio — First Wisconsin. Now Ohio and Indiana.

Battles with public employees’ unions spread on Tuesday, with Republican-dominated Legislatures pressing bills that would weaken collective bargaining and thousands of pro-union protesters marching on Capitol buildings in Columbus and Indianapolis.

After a week of upheaval in Madison, Wis., where the thumping din of protesters has turned almost celebratory, the battle moved to Ohio, where the Legislature held hearings on a bill that would effectively end collective bargaining for state workers and drastically reduce it for local government employees like police officers and firefighters.

Several thousand pro-union protesters filled a main hall of the state courthouse in Columbus and gathered in a large crowd outside, chanting “Kill the bill,” waving signs and playing drums and bagpipes. There were no official estimates, but the numbers appeared to be smaller than those in Madison last week. One Democratic state legislator put the figure at 15,000.

In Indiana, nearly all of the Democratic members of the state’s House of Representatives stayed away from a legislative session on Tuesday in an effort to stymie a bill that they say would weaken collective bargaining. By late Tuesday, they seemed to have succeeded in running down a clock on the bill, which was to expire at midnight. Representative Brian Bosma, the speaker of the Indiana House, said the bill would die when the deadline passed.

Fleeing was not an option for Ohio Democrats because the Republicans had enough members on their side for a quorum. Republicans have a 23-to-10 majority in the Ohio Senate, and the bill needs 17 votes to pass. It was not clear when it would be voted on.

The bills have amounted to the largest assault on collective bargaining in recent memory, labor experts said, striking at the heart of an American labor movement that is already atrophied.

“I think we are looking at the future of the labor movement being defined in rotundas in several states,” said Harley Shaiken, a professor at University of California, Berkeley, specializing in labor issues. “This is a structural change with profound repercussions.”

The Ohio bill was introduced this month by a Republican senator, Shannon Jones, who said it was intended to give state and local governments more control over their finances in hard economic times. But opponents say the bill is about politics, calling it a direct attack on the unions, which have long been reliable Democratic supporters.

“They’re using a fiscal challenge as an excuse to consolidate political power,” said former Gov. Ted Strickland, a Democrat, who was in the crowd of protesters in Columbus.

Rob Nichols, a spokesman for Gov. John R. Kasich, a Republican, strongly denied that characterization.

“This is nothing more than an effort to reduce the cost of governance so we can start to create jobs,” he said by telephone. “This is an effort to save the state, no agendas.”

Ohio is facing an $8 billion budget deficit, about 15 percent of its two-year budget, far less than states like California, Illinois and New Jersey, but still significant, and Mr. Kasich says drastic steps are required to plug the gap.

“The state is at a point of no return,” said Chris Kershner, a Dayton Area Chamber of Commerce vice president, who testified last week before the Senate committee overseeing the bill. “Change must happen now if Ohio emerges solvent from the current fiscal situation.”

Some in the Columbus crowd compared themselves to protesters in Egypt: a growing movement of people who will not take it anymore. But labor experts and political analysts were skeptical.

Unionized workers represented just 6.9 percent of all workers in the private sector in 2010, according to the Bureau of Labor Statistics down from about 36 percent in 1955. The number of unionized workers in the public sector has held steady at about 35 percent since the late ’70s.

“Seven percent in the United States makes them a very rare breed,” said Richard Freeman, an economist at Harvard. “I don’t think there’s a high probability that this will be an explosive event where the average American says, ‘Wait, this is what’s left of the middle class — what are you doing?’ ”

In Wisconsin, Senate Democrats remained in hiding across the state line, depriving the chamber the quorum needed to take up the budget repair bill, which includes provisions they view as an attack on public sector unions.

Meanwhile, Gov. Scott Walker, who introduced the legislation, warned that if the bill was not passed, layoff notices could be sent to state workers as early as next week.

Seeking to increase pressure on Mr. Walker to compromise, the South Central Wisconsin Federation of Labor announced on Tuesday that it had endorsed a rare labor action — a general strike that would begin if he signed the bill that would curb collective bargaining rights.

The federation, which represents 45,000 unionized workers in the Madison area, said it was not a formal call for a general strike, but the first step toward preparing for an eventual strike. .

The Ohio bill, if passed, would do away with the legal protections passed in 1983 governing collective bargaining for state workers, including prohibitions on hiring alternate workers during a strike. Bargaining power would be weakened for local workers, doing away with binding arbitration, an option favored by police officers and firefighters, who are not allowed to strike.

It would also slice into public-worker benefits by taking health insurance off the bargaining table and requiring government workers to pay at least 20 percent of the cost. It would strip automatic pay increases and mandatory sick days for teachers.

The bill could have political repercussions for Ohio Republicans, who draw some of their votes from union members. Jeremy Mendenhall, president of the Ohio Troopers Association, who is an active duty sergeant and a registered Republican, said he was angry with his party for pushing it.

“People won’t forget this in 2012,” he said.

But Republicans could also gain, said Gene Beaupre, a political science professor at Xavier University in Cincinnati. Taking a cost-cutting position against unions is part of the mantra for far-right groups like the Tea Party, and not necessarily unpopular.

“There is a strong sentiment against pension benefits and all that has accrued over the years as a result of organized public labor,” Mr. Beaupre said.

For the working class in Ohio, government jobs are highly desirable, with the median salary about 20 percent more than in the private sector, according to 2009 data from the Census Bureau. This is partly because employees tend to be more skilled: more than half of state and local workers have college degrees, far more than in the private sector. But among college graduates, public workers make less than those in the private sector.

Public employees say they have sacrificed. The Ohio Civil Service Employees Association said they had taken five pay cuts in nine years with a savings to the most recent budget of about $250 million.

Monty Blanton, 50, who worked for 31 years as a food service worker and an electrician in a state facility for mentally retarded people, made a gross salary of $44,000 before retirement. His pension, he said, stands at $19,500, barely enough to live on.

“We’re barely making a living wage,” he said. “I don’t think they understand how hard it is in southeastern Ohio.”


Sabrina Tavernise reported from Columbus, and A. G. Sulzberger from Madison, Wis. Reporting was contributed by Bob Driehaus from Cincinnati, Steven Greenhouse from Madison and Robert Gebeloff, Sarah Wheaton and Timothy Williams from New York.

    Thousands March on Capitols as Union Turmoil Spreads, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/us/23ohio.html

Factbox: U.S. oil companies' interests in Libya

Tue, Feb 22 2011
Reuters

(Reuters) - A burgeoning revolt in Libya led to a call from U.S. Senator John Kerry, who is chairman of the Senate Foreign Relations Committee, for all oil companies to cease operations in the country immediately.

Many U.S. oil companies have interests in Libya. The following are details of their exposure, based on their latest annual reports:

CONOCOPHILLIPS

ConocoPhillips, the third-largest U.S. oil company, holds a 16.3 percent interest in Libya's Waha concessions, which encompass nearly 13 million gross acres. Net oil production from Libya averaged 45,000 barrels per day in 2009 -- or 2 percent of worldwide output -- down from 47,000 bpd in 2008.

MARATHON OIL CORP

Marathon has a 16 percent interest in the outside-operated Waha concessions in the Sirte Basin. Its 2009 exploration program included the drilling of four wells, along with five development wells. Net liquid hydrocarbon sales from Libya were 46,000 bpd in 2009, or 19 percent of its total. Marathon said on Tuesday its Waha production was normal.

HESS CORP

In 2009, Hess produced 22,000 bpd of crude from Libya, or 8 percent of its crude output. At the end of 2009, 23 percent of its proved reserves were in Africa, with Libya making up 11 percent of that. Along with its Oasis Group partners, Hess has operations in Waha, with an interest of 8 percent. Hess also owns all of Area 54 offshore, where it drilled an exploration well in 2008, followed in 2009 by a down-dip appraisal well.

OCCIDENTAL PETROLEUM CORP

Occidental, the fourth-largest U.S. oil company, earned $243 million in net sales from Libya in 2009, or less than 2 percent of its total. Production increased in 2010, and Oxy has plans to double its output from Libya by 2014.

(Compiled by Braden Reddall in San Francisco, with reporting by Anna Driver in Houston; Editing by Lisa Von Ahn)

    Factbox: U.S. oil companies' interests in Libya, R, 22.2.2011, http://www.reuters.com/article/2011/02/22/us-libya-usa-oilcompanies-idUSTRE71L5VI20110222

Oil Soars as Libyan Furor Shakes Markets

February 22, 2011
The New York Times
By CLIFFORD KRAUSS and CHRISTINE HAUSER

HOUSTON — The political turmoil sweeping the Arab world drove oil prices sharply higher and stocks much lower on Tuesday despite efforts by Saudi Arabia to calm turbulent markets.

The unrest that has spread from Tunisia to Libya pushed oil prices to a two-year high and has spurred an increase in gasoline prices. The specter of rising energy costs and accelerating inflation in turn unsettled investors.

Oil is now at a price not seen since the recession began, and it is more than $20 above goals set in recent months by Saudi officials as strong enough to satisfy the top producers but not so strong they might suffocate the global economic recovery.

Although there are still plentiful supplies of oil and gasoline in the United States and in much of the world, American consumers are now paying an average of $3.17 a gallon for regular gasoline, a steep rise of 6 cents a gallon over the last week, according to the AAA daily fuel gauge report. With consumers paying roughly 50 cents more a gallon than a year ago, analysts are warning that prices could easily top $3.50 by the summer driving season.

“Higher energy prices act like a tax on consumers, reducing the amount of discretionary purchasing power that they have,” said Lawrence R. Creatura, a portfolio manager at Federated Investors. “It represents an additional, potential headwind for retailers.”

Those concerns helped send the Dow Jones industrial average down 178.46 points, or 1.44 percent, to 12,212.79. The broader Standard & Poor’s 500-stock index declined 27.57 points, or 2.05 percent, to 1,315.44, while the Nasdaq composite index lost 77.53 points, or 2.74 percent, to 2,756.42. Markets in Asia and Europe were also lower. Treasury prices rose in the United States.

Saudi Arabia’s oil minister sought to reassure the markets on Tuesday, saying that OPEC was ready to pump more oil to compensate for any decline. At least 50,000 barrels a day of output has already been halted in Libya. That is only a fraction of the country’s production, but with foreign oil companies beginning to shut down operations and evacuate workers and with local ports closing, more output could be lost.

“OPEC is ready to meet any shortage in supply when it happens,” the Saudi oil minister, Ali al-Naimi, said at a news conference after a meeting of ministers of oil producing and consuming nations in Riyadh, Saudi Arabia. “There is concern and fear, but there is no shortage.”

Europe appears most immediately vulnerable to the strife in Libya, which produces almost 2 percent of the world’s oil. More than 85 percent of its exports go to Europe; more than a third goes to Italy alone. Libya sends only a small fraction of its oil to the United States, but because oil is a world commodity, Americans are not immune to the price shock waves.

In New York, crude oil for March delivery gained $7.37, or 8.6 percent, to $93.57 a barrel, while oil for April delivery rose 6.4 percent, to $95.42 a barrel. Brent crude, a European benchmark traded in London, rose 4 cents, to $105.78. Refineries on the East and West Coasts also depend on Brent crude, meaning that the higher prices paid by Europeans are also pushing up gasoline and heating oil prices paid by many New Yorkers, New Englanders and other Americans.

Tom Kloza, the chief oil analyst at the Oil Price Information Service, estimated that the Saudis could pump an additional 1 million to 1.5 million barrels in a matter of days. As the largest producer, Saudi Arabia is by far the most influential member of the Organization of the Petroleum Exporting Countries, with a reserve capacity to deliver an additional four million to five million barrels to the world markets after several weeks of preparation. That is more than twice the oil that world markets would lose if production were halted completely by unrest in Libya.

“Unless this unrest spreads to the streets of Jeddah and Riyadh,” Mr. Kloza said, “I think it’s a very manageable situation and prices are closer to cresting than they are to exploding higher.”

While Libya has been the immediate cause for the spike in oil prices recently, oil experts said traders were driving up prices because of concerns that a long period of instability in the Middle East was just beginning. They identified the protests in Bahrain in particular as a disturbing sign that neighboring Saudi Arabia might not be immune to the spreading political contagion.

Bahrain produces little oil, but it is connected to the oil-rich eastern region of Saudi Arabia by a 15-mile causeway. The island nation has a majority Shiite population with cultural and religious ties to the Saudi Shiite minority that lives close to some of the richest Saudi oil fields.

Saudi rulers have long feared that its regional rival, Iran, could try to destabilize Bahrain as a way to cause trouble for the Saudi royal family. Iran’s intentions became all the more worrisome to the Saudis when it decided this month to send two warships through the Suez Canal for the first time in more than 30 years.

“No one knows where this ends,” said Helima L. Croft, a director and senior geopolitical strategist at Barclays Capital. “A couple of weeks ago it was Tunisia and Egypt, and it was thought this can be contained to North Africa and the resource-poor Middle East countries. But now with protests in Bahrain, that’s the heart of the gulf, and it’s adding to anxieties.”

Middle Eastern oil fields are generally well defended and far from population centers, but energy analysts say the continuing turbulence potentially threatens supply lines and foreign investment that producers like Libya and Algeria depend on to increase production.

World oil prices started rising sharply when demonstrators overwhelmed downtown Cairo earlier in the month because of concerns that unrest could block the Suez Canal and Sumed pipeline through which three million barrels of crude pass daily. Labor unrest continues to roil the canal, though shipments have continued without incident.

Unrest in Yemen potentially threatens the 18-mile-wide Strait of Bab el-Mandeb, a shipping lane between the Horn of Africa and the Middle East that serves as a strategic link between the Indian Ocean and Mediterranean through which nearly four million barrels of oil pass daily. Security for tanker traffic in the area became a concern after terrorists attacked a French tanker off the coast of Yemen in 2002.


Clifford Krauss reported from Houston and Christine Hauser from New York.

    Oil Soars as Libyan Furor Shakes Markets, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/business/global/23oil.html

Saudis, Trying to Calm Markets, Say OPEC Is Ready to Pump More Oil

February 22, 2011
The New York Times
By CLIFFORD KRAUSS

HOUSTON — Trying to calm turbulent oil markets, Saudi Arabia’s oil minister said on Tuesday that the OPEC cartel was ready to pump more oil to compensate for any dropoff caused by unrest in the Middle East.

“OPEC is ready to meet any shortage in supply when it happens,” the Saudi oil minister, Ali al-Naimi, said at a news conference after a meeting of ministers of oil producing and consuming nations in Riyadh, Saudi Arabia. “There is concern and fear, but there is no shortage.”

American consumers are now paying an average of $3.17 a gallon for regular gasoline, a steep rise of 6 cents a gallon in the last week. With consumers paying roughly 50 cents more a gallon than a year ago, oil analysts are warning that prices could easily top $3.50 by the summer driving season.

The intensifying turmoil in Libya drove oil prices sharply higher again on Tuesday, in part because at least 50,000 barrels a day of output had already been suspended. That is only a fraction of what Libya produces, but with foreign oil companies beginning to shut down operations and evacuate workers, the price of Brent crude, a benchmark traded in London, rose to more than $106 a barrel on Tuesday.

The price for light sweet crude that Americans usually use as a reference for oil prices remains more than $10 lower than Brent, rising $4.91 a barrel on Tuesday to $94.62 in New York trading.

Europe appears most immediately vulnerable to the strife in Libya, which pumps about 1.6 million barrels a day, or roughly 1.7 percent of world production. Over 85 percent of its exports go to Europe, more than a third to Italy alone. Libya sends only a small fraction of its oil to the United States, but since oil is a world commodity, Americans are not immune to the price shock waves.

Refineries on the East and West Coasts, for example, depend on Brent crude, meaning that the higher prices paid by Europeans are also pushing up gasoline and heating oil prices paid by many New Yorkers, New Englanders and other Americans.

Energy specialists said, however, that some relief might be on the way. Tom Kloza, the chief oil analyst at the Oil Price Information Service, estimated that the Saudis could pump an additional million to million and half barrels of oil in a matter of days. As the largest producer, Saudi Arabia is by far the most influential member of the Organization of the Petroleum Exporting Countries, with a reserve capacity to deliver an additional five million barrels to the world markets after several weeks of preparation. That is roughly three times more oil than world markets would lose if production were halted completely by unrest in Libya.

“Unless this unrest spreads to the streets of Jeddah and Riyadh,” Mr. Kloza said, “I think it’s a very manageable situation and prices are closer to cresting than they are to exploding higher.”

The Saudis have been satisfied with moderately high but stable oil prices over the last two years that have been supported by tighter OPEC production quotas set when prices collapsed three years ago. But prices began rising at the end of last year because of rebounding demand, particularly in China and other emerging markets, and they have spiked sharply this month because of the instability in the Middle East.

While Libya has been the immediate cause for the spike in oil prices in recent days, oil experts said traders were driving up prices because of concerns that a long period of instability in the Middle East was just beginning. They identified the protests in Bahrain in particular as a disturbing sign that neighboring Saudi Arabia might not be immune to the spreading political contagion.

Bahrain produces little oil but it is connected to the oil-rich eastern region of Saudi Arabia by a 15-mile-long causeway. The island nation has a majority Shiite population with cultural and religious ties to the Saudi Shiite minority that lives close to some of the richest Saudi oil fields.

Saudi rulers have long feared that its main regional rival, Iran, could try to destabilize Bahrain as a way to cause trouble for the Saudi royal family. Iran’s intentions became all the more worrisome to the Saudis when it decided this month to send two warships through the Suez Canal for the first time in more than 30 years.

“No one knows where this ends,” said Helima L. Croft, a director and senior geopolitical strategist at Barclays Capital. “A couple of weeks ago it was Tunisia and Egypt and it was thought this can be contained to North Africa and the resource-poor Middle East countries. But now with protests in Bahrain, that’s the heart of the Gulf, and its adding to anxieties.”

Middle Eastern oil fields are generally well defended and far from population centers, but energy analysts say the continuing turbulence potentially threatens supply lines and foreign investment that producers like Libya and Algeria depend on to increase production.

Egypt is not an oil exporter but world oil prices started rising when demonstrations overwhelmed downtown Cairo earlier in the month because of concerns that unrest could block the Suez Canal and Sumed pipeline through which three million barrels of crude pass daily. Labor unrest continues to roil the canal, though shipments have continued without incident.

Unrest in Yemen potentially threatens the 18-mile-wide Strait of Bab el-Mandab, a shipping lane between the Horn of Africa and the Middle East that serves as a strategic link between the Indian Ocean and Mediterranean through which nearly four million barrels of oil passes daily. Security for tanker traffic in the area became a concern after terrorists attacked a French tanker off the coast of Yemen in 2002.

    Saudis, Trying to Calm Markets, Say OPEC Is Ready to Pump More Oil, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/business/global/23oil.html

Oil rises as Libyan unrest disrupts supplies

NEW YORK | Tue Feb 22, 2011
12:29pm EST
Reuters

NEW YORK (Reuters) - Brent crude rose and U.S. oil hit a 2-1/2 year high on Tuesday as the revolt in Libya disrupted the OPEC nation's supplies and raised concern unrest could spread to other oil producing countries in the region.

More than 8 percent of Libya's 1.6 million barrels per day (bpd) of oil production has been shut down by the political violence, with Italian ENI (ENI.MI: Quote, Profile, Research, Stock Buzz) and Spain's Repsol shutting in output.

Trade sources said the country's marine oil terminals were disrupted by a lack of communications as rebel soldiers said the eastern region of the country had broken free from Muammar Gaddafi. Libya also declared force majeure on all oil product exports, traders said.

Oil gave up some early gains after Saudi Arabian Oil Minister Ali al-Naimi said that the Organization of the Petroleum Exporting Countries would be ready to meet any shortage from a supply disruption.

Brent crude traded up 76 cents to $106.50 a barrel at 11:44 a.m. EST, off earlier highs of $108.57 a barrel. Brent hit a 2-1/2 year high of $108.70 a barrel on Monday.

U.S. crude for March delivery, which expires at the end of the session, rose $5.65 to $91.85 a barrel, after touching $94.49 a barrel, which was the highest level since October 2008. The more actively traded April contract gained $5.15 to trade at $94.86 a barrel.

The stronger gains in U.S. crude was partly explained by the fact that while the contract was active in electronic trading on Monday, there was no settlement as the exchange in New York was closed for the Presidents Day holiday.

"Geopolitical events have sparked a move higher as oil prices have rocketed on the headlines out of Libya," said Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire.

Saudi Arabia's Naimi, speaking on the sidelines of the International Energy Forum in Riyadh, said worldwide oil spare oil capacity was between 5-6 million bpd.

(Reporting by Matthew Robinson, Gene Ramos, David Sheppard in New York; Claire Milhench in London and Francis Kan in Singapore; Editing by David Gregorio)

    Oil rises as Libyan unrest disrupts supplies, NYT, 22.2.2011, http://www.reuters.com/article/2011/02/22/us-markets-oil-idUSTRE71192R20110222

Consumer Confidence Index Rises to a 3-Year High

February 22, 2011
The New York Times
By THE ASSOCIATED PRESS

The Consumer Confidence Index rose in February to its highest point in three years as consumers felt more positive about their income prospects and the direction the economy was headed.

The Conference Board says its Consumer Confidence Index climbed to 70.4 this month, up from a revised 64.8 in January, hitting its highest level since February 2008. It was the index’s fifth consecutive monthly increase and topped expectations of a reading of 65.0 among economists, according to FactSet.

The reading is better than economists had expected but still below the 90-plus readings that signal a stable economy.

The strength of the stock market and falling unemployment are lifting Americans’ spirits in spite of rising gasoline and food prices and a still-weak housing sector. In addition, Americans started seeing more money in their paychecks after a cut to the payroll tax, which could translate into stronger spending.

“Since November there has been a gradual improvement in the consumer mood, but it’s not happy days are here again,” says Chris Christopher, an economist with IHS Global Insight. “Household net worth is still about $10 trillion below its peak, and with what’s going on in the housing market now, it doesn’t look like that’s going to improve anytime soon.”

The S&P/Case-Shiller index of home values in 20 cities fell2.4 percent last year, the group said Tuesday, and economists predict foreclosures will increase this year. The Conference Board found that the number of families who plan on buying a home in the next six months fell to 4.4 percent in February from 5.2 percent in January.

While consumer confidence is rising, continued troubles in the housing market and other lingering effects of the recession are keeping the index well below the 90-plus readings that signal a stable economy. Confidence fell after the housing bubble burst and the financial crisis took hold in 2007.

While confidence and spending have been inching back up as business conditions improve, Americans are still feeling cautious, especially when it comes to the job market.

Unemployment fell 0.4 percentage points in January after dropping the same amount in December, but the rate remains at 9 percent, a historically high level. That may be one reason consumers’ assessment of present-day business and employment conditions improved only moderately in February.

Those saying jobs are “plentiful” edged up to 4.9 percent from 4.6 percent in January, while those stating that business conditions are “good” rose to 12.4 percent from 11.3 percent. However, the number of respondents who said they expected more jobs to be created in the months ahead slipped to 19.8 percent, from 20.8 percent.

While Americans’ assessment of current business conditions “remains rather weak,” the Consumer Confidence Index is at a three-year high “due to growing optimism about the short-term future,” says Lynn Franco, director of the Conference Board Consumer Research Center.

    Consumer Confidence Index Rises to a 3-Year High, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/business/economy/23econ.html

Home Prices Slid in December in Most U.S. Cities

February 22, 2011
The New York Times
By DAVID STREITFELD

Real estate prices slid again in December, pushing a leading price index within a whisper of its lowest level since the housing crash began, data released Tuesday showed.

The Standard & Poor’s/Case-Shiller Home Price Index of 20 large metropolitan areas fell 1 percent in December from November, although the drop shrank to 0.4 percent when the data was adjusted for seasonal variations. The only city in the index that posted a monthly gain on an unadjusted basis was Washington.

Robert Shiller and Karl Case, the economists who developed the index, said in a conference call that they held different opinions about where the market was headed.

Mr. Case said he thought the housing market was at “a rocky bottom with a down trend.” That made him the optimistic one.

Mr. Shiller, noting the unrest in the Middle East, a large backlog of foreclosed houses, the uncertain future of the mortgage holding companies Fannie Mae and Freddie Mac and proposals to reduce the mortgage tax deduction, saw “a substantial risk” of declines of “15 percent, 20 percent, 25 percent.”

The 20-city composite is currently off 31.2 percent from its peak. Many economists expect the market to fall another 5 to 10 percent in the next few months.

One data point that favored Mr. Case’s optimism was that the adjusted declines in December and November were about half the drops in the previous two months, indicating the slide might be slowing.

Still, the combined plunge is taking a toll. Eleven cities in the index posted their lowest levels in December since home prices peaked in 2006 and 2007, up from nine cities in November. Phoenix and New York joined a list that includes Atlanta, Chicago and Seattle.

Also released Tuesday was the Case-Shiller quarterly index that covers all homes in the country. It showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010.

The Case-Shiller index is a three-month moving average. It is now less than 3 percent above the low recorded in the spring of 2009, when there was widespread hope that the market was starting to recovery.

To accelerate the process, the Obama administration offered a carrot for new buyers: a tax credit. The credit did its job, causing hundreds of thousands of buyers to accelerate their purchases in the fall of 2009 and the spring of 2010. But the credit did not lay the groundwork for a permanent rebound.

“Every place is pretty much getting hit a second time for essentially the same reasons,” said Andrew LePage, an analyst with DataQuick Information Systems. “Slow economic recovery, little job growth, still-tight credit, no more government stimulus, a pervasive and gnawing sense that prices could fall more, too few people getting jobs and too many worrying about losing the one they have.”

Cleveland and Las Vegas joined perennially troubled Detroit in December in having home prices that fell below the level of January 2000. Both Cleveland and Las Vegas were areas overflowing with bad and fraudulent loans during the boom.

    Home Prices Slid in December in Most U.S. Cities, NYT, 22.2.2011, http://www.nytimes.com/2011/02/23/business/economy/23housing.html

At Grave Risk

February 21, 2011
The New York Times
By BOB HERBERT

Buried deep beneath the stories about executive bonuses, the stock market surge and the economy’s agonizingly slow road to recovery is the all-but-silent suffering of the many millions of Americans who, economically, are going down for the count.

A 46-year-old teacher in Charlotte, Vt., who has been unable to find a full-time job and is weighed down with debt, wrote to his U.S. senator, Bernie Sanders:

“I am financially ruined. I find myself depressed and demoralized and my confidence is shattered. Worst of all, as I hear more and more talk about deficit reduction and further layoffs, I have the agonizing feeling that the worst may not be behind us.”

Similar stories of hardship and desolation can be found throughout Vermont and the rest of the nation. The true extent of the economic devastation, and the enormous size of that portion of the population that is being left behind, has not yet been properly acknowledged. What is being allowed to happen to those being pushed out or left out of the American mainstream is the most important and potentially most dangerous issue facing the country.

Senator Sanders is a Vermont independent who caucuses with the Democrats. He asked his constituents to write to him about their experiences coping with the recession and its aftermath. Hundreds responded, including several from outside Vermont. A 69-year-old woman from northeastern Vermont wrote plaintively:

“We are the first generation to leave our kids worse off than we were. How did this happen? Why is there such a wide distance between the rich and the middle class and the poor? What happened to the middle class? We did not buy boats or fancy cars or diamonds. Why was it possible to change the economy from one that was based on what we made and grew and serviced to a paper economy that disappeared?”

A woman with two teenagers told the senator about her husband, a building contractor for many years, who has been unable to find work in the downturn:

“I see my husband, capable and experienced, now really struggling with depression and trying to reinvent his profession at age 51. I feel this recession is leaving us, once perhaps a middle-class couple, now suddenly thrust into the lower-middle-class world without loads of options except to try and find more and more smaller jobs to fill in some of the financial gaps we feel day to day.

“All we want to do is work hard and pay our bills. We’re just not sure even that part of the American Dream is still possible anymore.”

One of the things I noticed reading through the letters was the pervasive sense of loss, not just of employment, but of faith in the soundness and possibilities of America. For centuries, Americans have been nothing if not optimistic. But now there is a terrible sense that so much that was taken for granted during the past six or seven decades is being dismantled or destroyed.

A 26-year-old man who emerged from college with big dreams wrote: “I had hoped to be able to support not just myself by this point, but to be able to think about settling down and starting a family. My family always told me that an education was the ticket to success, but all my education seems to have done in this landscape is make it impossible to pull myself out of debt and begin a successful career.”

How bad have things become? According to the National Employment Law Project, a trend is growing among employers to not even consider the applications of the unemployed for jobs that become available. Among examples offered by the project were a phone manufacturer that posted a job announcement with the message: “No Unemployed Candidate Will Be Considered At All,” and a Texas electronics company that announced online that it would “not consider/review anyone NOT currently employed regardless of the reason.”

This is the environment that is giving rise to the worker protests in Wisconsin, Ohio and elsewhere. The ferment is not just about public employees and their unions. Researchers at Rutgers University found last year that more than 70 percent of respondents to a national survey had either lost a job, or had a relative or close friend who had lost a job. That is beyond ominous. The great promise of the United States, its primary offering to its citizens and the world, is at grave risk.

A couple facing foreclosure in Barre, Mass., wrote to Senator Sanders: “We are now at our wits end and in dire straits. Our parents have since left this world and with no place to go, what are we to do and where are we to go?” They pray to God, they said, that they will not end up living in their car in the cold.

    At Grave Risk, NYT, 21.2.2011, http://www.nytimes.com/2011/02/22/opinion/22herbert.html

One More Job Lost in the Recession: The Mayor’s

February 21, 2011
The New York Times
By ABBY GOODNOUGH

CENTRAL FALLS, R.I. — These are trying times for the people of Central Falls, a city so close to fiscal collapse that the state seized control of City Hall last summer. Taxes have risen nearly 20 percent to help solve the immediate crisis, unions have agreed to givebacks and the city of 19,000 — all 1.29 square miles of it — seems tinged with defeat.

But to hear Mayor Charles D. Moreau tell it, his suffering may be worst of all.

Mr. Moreau, a Democrat serving his fourth term, has not set foot in City Hall since July 19, the day that a state-appointed receiver took control. The state police knocked on his door that morning, he said, demanded his city-owned car and cellphone and keys to City Hall and handed him a letter announcing that his salary of $71,736 was being cut to $26,000. His role was now advisory, he was informed.

“I was told they’d call if they needed me,” Mr. Moreau said recently in a rare interview. “They haven’t called since.”

Across the nation, cities and states are trying myriad ways of righting their fiscal ships as the recession plods on. But locking the mayor out of City Hall is generally not one of them.

A number of local governments are so financially distressed that states have assumed an oversight role. Several cities in Michigan have emergency financial managers appointed by the state, for example, and in New York, a state board seized control of Nassau County’s finances last month. But in those cases and others, local elected officials have retained some role.

“The circumstances that have led to the difficulties in Central Falls may actually be widespread,” said Christopher W. Hoene, director of research for the National League of Cities. “But not very many cities are in that dire straits.”

Mr. Moreau, 47, is suing the state, asserting that the law allowing the takeover of financially troubled cities violates his constitutional right to due process, among other things. He appealed to the Rhode Island Supreme Court after losing the first round and is awaiting a ruling. Meanwhile, the blunt-talking mayor is working at his brother’s real estate office, down the street from City Hall, and stewing about the situation he finds himself in. He has rebuffed calls to step down and, in fact, said he was already planning his 2013 re-election campaign.

“My bumper stickers are ready to be printed,” he said. “I’d win re-election with 90 percent of the vote if the election was today.”

His confidence seemed striking, in part because Mr. Moreau is the subject of a state and federal corruption inquiry involving his hiring of a friend to board up dozens of abandoned buildings in town for about $2 million. The friend, a contractor, also installed a new furnace in the mayor’s house in 2009, according to The Providence Journal, possibly charging less than it was worth.

Mr. Moreau, a factory worker’s son and former restaurant owner known around town as Chuckie, would not discuss the investigation except to call it “all political” and “all nonsense.” He said he had done nothing wrong.

Mr. Moreau’s administration took the state by surprise by declaring fiscal insolvency last May. The city became the first in Rhode Island history to seek state bankruptcy protection, citing a deficit and retiree benefit obligations so profound as to seem insurmountable.

That alarmed the state, which feared that other beleaguered cities would follow suit, and bond rating agencies, which downgraded Central Falls’s debt to junk status. So the legislature swiftly enacted a law allowing indefinite state oversight, a measure Mr. Moreau initially supported.

The receiver, Mark A. Pfeiffer, a retired state judge, did not move into Mr. Moreau’s office when he arrived on the job, laying claim to a conference room instead. The office remains locked, a curtain over the door.

Mr. Pfeiffer said he saw no choice but to demote Mr. Moreau to advisory status.

“You couldn’t have somebody come in and perform the duties of the mayor and have somebody else being the mayor,” he said. “It doesn’t work very well, and particularly it doesn’t work well in a distressed community.”

Mr. Pfeiffer tried to build a relationship with the City Council, but within months it deteriorated and he reduced its members to advisory status. He went to court in September to stop the mayor and the Council from making new appointments, and soon after, Mr. Moreau sued. He said he had hired lawyers with his own money; Mr. Pfeiffer said he had refused to authorize city funds.

The suit calls the receivership law “undemocratic,” saying it violates the separation of powers doctrine by giving Mr. Pfeiffer executive and legislative powers.

“Obviously here the people have been completely disenfranchised,” said Michael Kelly, Mr. Moreau’s lawyer. “We have what I would suggest is a form of dictatorship.”

A Superior Court judge upheld the law as constitutional in October, partly because the receivership was temporary, although without a specific term. The law is not without precedent — Massachusetts put the city of Chelsea under receivership in 1991, removing the elected mayor and reducing other officials to advisers.

At oral arguments before the Supreme Court this month, some justices appeared skeptical of Mr. Kelly’s reasoning, with one saying of Mr. Moreau and the City Council, “Those were the people in charge when the ship hit the shoals.”

Yet the justices also questioned the state’s lawyer aggressively, asking what was to stop Mr. Pfeiffer from unilaterally changing city policies, like zoning, that had nothing to do with finance. They also questioned whether anyone would run for office if the city remained under receivership, with Justice Francis X. Flaherty, a former mayor himself, asking, “What do you run for? Advisory mayor?”

His status notwithstanding, Mr. Moreau said he still talked to the city’s police chief and public works director daily, met with constituents and pursued economic development projects. Asked whether other city officials and residents still addressed him as mayor, he cracked, “They’d better.”

Mr. Moreau is known around town as a bare-knuckled politician who rewards allies — often, critics say, with city jobs — and punishes enemies. Early in his tenure, he made waves by ordering a search of computers at the city library for campaign materials that favored a political opponent. Later, he championed the expansion of a detention center, cracked down on street violence and easily won re-election.

Mr. Moreau said he had not bothered reading a lengthy report that Mr. Pfeiffer submitted to the state in December with recommendations for averting fiscal collapse, including the possibility of merging the city with neighboring Pawtucket. The report said the city’s problems were rooted in more than a decade of elected leaders’ approving generous union contracts without figuring out how to pay for them.

The troubles worsened because of state aid reductions and inaccurate budget assumptions. For example, the city anticipated $1.2 million in revenue from the detention center in 2009-10 and got none. The city has started paying its bills again, but Mr. Pfeiffer warned that Central Falls, with an annual budget of about $18 million, faced annual deficits of $5 million and combined pension and retiree health benefit obligations of about $80 million.

“I think it’s all nonsense,” Mr. Moreau said of Mr. Pfeiffer’s recommendations.

Mr. Moreau also said he was galled by Mr. Pfeiffer’s salary of $200 an hour, and while at one point he said his court battle was “not about the money,” he also lamented that his wife had been forced to return to work and his youngest child to enter day care.

“This was not my family plan,” he said.

Some residents clearly share the mayor’s outrage, while others are hopeful about the receivership or indifferent. Sparky Chippis, a restaurant owner and Moreau ally who has known the mayor since childhood, described Mr. Moreau’s situation as “an injustice.”

“The guy was elected by people,” Mr. Chippis said. “He had the trust of the people to be in the office over there.”

But James Diossa, the only Council member who did not join Mr. Moreau’s lawsuit, said many residents appreciated the change. “The prior administration didn’t do a great job as far as keeping the community informed, and the community really lost faith,” said Mr. Diossa, who heads an advisory council to the receiver.

Mr. Pfeiffer said few citizens had complained to him, but Mr. Moreau said that was because people were afraid. “They should be marching in the streets as to what’s been done to me,” he said.

Mr. Pfeiffer stepped down earlier this month; his term was up and the new governor, Lincoln D. Chafee, an independent, wanted to appoint “a trusted adviser,” a spokesman said. With the pick, Robert G. Flanders Jr., a former State Supreme Court justice, in charge, Mr. Moreau said he was hoping to get a call.

“I will send him a letter and be very frank with him that I’m here to help,” he said.

Jen McCaffery contributed reporting.

    One More Job Lost in the Recession: The Mayor’s, NYT, 21.2.2011, http://www.nytimes.com/2011/02/22/us/22mayor.html

Stocks Fall and Oil Spikes as Libya Grabs Attention

February 21, 2011
The New York Times
By BEN PROTESS

The rising political turmoil in Libya sent jitters through global financial markets, with European shares falling on Monday and Asian markets starting out sharply lower on Tuesday.

While investors in the United States have so far ridden out the tumult in the Middle East, analysts said that they would have a harder time shrugging off the upheaval as it spread throughout the Middle East and North Africa. A spike in oil prices on Monday was particularly worrisome, they said, because it could snuff out the nascent worldwide economic recovery.

That was the main reason European stocks dropped more than a percentage point on Monday. At midday on Tuesday, the Nikkei 225 was down 2 percent and the Hang Seng in Hong Kong also fell 2 percent. Markets in the United States were closed Monday for Presidents’ Day.

“Over the past few weeks, we had a domino effect, and the concern is that anything can happen,” said Justin Urquhart Stewart, co-founder of Seven Investment Management in London. “At the moment the ripple is very small, but it has the potential to turn into something bigger quickly.”

Other analysts said the unrest had not yet unnerved American investors. Crucial United States stock indexes have steadily risen in 2011 to levels not seen since the financial crisis started, and those gains could continue this week, analysts said.

Still, the problems abroad are becoming harder to overlook. After the toppling of leaders in Egypt and Tunisia, antigovernment protesters in Yemen and Libya are seeking to oust their leaders. Col. Muammar el-Qaddafi’s government in Libya on Monday struck back at dissenters, using warplanes and militiamen to fire on protesters.

Market stability in the United States and abroad depends on the price of oil leveling off, which seems unlikely given all the turmoil.

Western countries fear being cut off from the oil supply in Libya, which exports about 1.5 million barrels of oil a day, making it one of Africa’s largest holders of crude oil reserves. There was ample reason for concern, as oil companies — including Eni of Italy, the largest energy producer in Libya — began to evacuate employees.

In turn, oil prices soared. Brent crude, a global benchmark for oil that trades in London, jumped more than 2 percent to above $105 a barrel. The price was almost a three-year high. As the crisis in Egypt dragged on in late January, the benchmark rose above $100 a barrel for the first time since 2008.

If the world is, in fact, cut off from Libyan oil, prices are likely to rise even higher. The problem could ultimately hit American consumers at the gas pump.

“The U.S. is not immune from this,” Mr. Urquhart Stewart said. “If you see a significant rise in the oil price for a long period, that could easily choke off any U.S. recovery that is still weak.”

Yet even if Libyan oil exports were shut down, larger oil producers like Saudi Arabia have enough spare capacity to keep prices from skyrocketing.

In hopes of finding a solution to price fluctuations, Saudi Arabia is holding a meeting on Tuesday for energy officials from more than 90 nations, including the United States.

“History shows that political turmoil in a country does not necessarily mean that the flow of oil will be impacted,” said a research note published by JPMorgan Chase on Monday.

Analysts also said that American investors did not panic when Egypt was on the brink of collapse for several days.

In the United States, light sweet crude oil futures rose more than 5 percent, to $91.42 a barrel. Another important American benchmark, West Texas Intermediate, closed at $86.20 a barrel on Friday. Gold prices rose above $1,400 an ounce, also as a result of the unrest.

“There’s reason to get spooked on oil, and U.S. investors aren’t doing it yet,” said Howard Silverblatt, a senior index analyst at Standard & Poor’s. Instead, he said, American investors have been focusing on strong earnings reports and encouraging sales figures from retailers and other major companies in the United States. “We’ve done well and it looks like that’s going to continue,” he said.

European investors, on the other hand, showed signs of impatience on Monday. Shares of European companies dropped, amid the turmoil in the Middle East and some disappointing earnings reports from European companies.

The DAX, a German stock market index, closed down 1.44 percent, at 7,321.81. The FTSE Eurofirst 300, an index that includes some of Europe’s largest companies, slid 1.32 percent to 1,171.41. On Tuesday, markets in Australia, Taiwan, Singapore and mainland China also retreated.

Thomas Lee, chief United States equity strategist at JPMorgan, remained optimistic that American investors would not panic. “U.S equity markets have taken this in stride,” he said. “It’s not going to be that bad.”

Julia Werdigier contributed reporting from London.

    Stocks Fall and Oil Spikes as Libya Grabs Attention, NYT, 21.2.2011, http://www.nytimes.com/2011/02/22/business/global/22markets.html

Oil Flows, but High Prices Jangle Nerves

February 19, 2011
The New York Times
By STEVEN ERLANGER

PARIS — The turmoil in North Africa and the Middle East has helped drive oil prices up to more than $102 a barrel for an important benchmark crude, Brent, although so far there have been no significant disruptions in production or supply, according to experts at the International Energy Agency here.

While Egypt and Tunisia have little oil, Libya is one of Africa’s largest holders of crude oil reserves, Algeria and Iran are major suppliers and Bahrain and Yemen both border Saudi Arabia on the peninsula that produces much of the world’s oil. Together, Libya, Algeria, Yemen, Bahrain and Iran represent about 10 percent of global oil production.

Oil markets are famously skittish, especially when there is even the possibility of disruptions in the Middle East and North Africa, which account for some 35 percent of the world’s oil production and a greater percentage of the world’s known reserves.

That nervousness is likely to spread elsewhere, with so many economies still fragile in the wake of the worldwide economic downturn and with the possibility that higher crude prices could lead to further increases in food prices. The high cost of food has already led to unrest in several countries, even before political revolts began in the Middle East.

The increased price of energy is a “burden that can be a detriment to the global economic recovery,” said Nobuo Tanaka, the executive director of the International Energy Agency.

Brent is a global benchmark crude oil that is produced in the North Sea and traded in London. It is typically the benchmark that is used to set the price for most of the oil from the Middle East. Another benchmark crude, West Texas Intermediate, closed at $86.20 a barrel on Friday. Each benchmark has an impact on gasoline prices in the United States, with the East Coast more affected by the Brent prices than other regions.

The reserves in the Middle East and North Africa (known as the MENA countries), while long important, have grown even more critical as demand for oil increases. Prices have risen about 30 percent since September, reaching their highest level since September 2008.

Those who track oil prices are especially worried about the renewed turmoil in Iran and the possibility of unrest spreading from Bahrain to Saudi Arabia, which could have a major impact on oil’s price and its availability.

Richard H. Jones, the energy agency’s deputy executive director and a former American diplomat in the Middle East, said that about 17 million barrels of oil passed through the Persian Gulf and the Strait of Hormuz every day. “So if that shuts down, we’re in big trouble,” he said.

But so far, Mr. Jones said, the effects of the regional turmoil have been small. Egyptian production and transportation of natural gas have continued despite an explosion at a pipeline in the Sinai as the demonstrations against President Hosni Mubarak were under way. (An Egyptian investigator said four gunmen bombed the pipeline.) Although there have been labor protests among workers at the Suez Canal, so far analysts have said there is no danger of the vital waterway being affected by the country’s political upheaval.

The unrest in Libya, while serious, has not disrupted its production of oil. Mr. Jones and Didier Houssin, who runs the directorate for energy markets and security at the International Energy Agency, said that Libya was not a major producer, selling “only a little over one million barrels a day” and representing about 2 percent of world production. If there were to be a disruption of supplies from Libya, “We can cope,” Mr. Jones said.

Still, a Deutsche Bank commodities analyst, Soozhana Choi, said, “As antigovernment protests have spread from Tunisia and Egypt to the streets of Bahrain, Yemen and OPEC member countries Algeria, Libya and Iran, concerns about geopolitical risk and the potential for supply disruptions have returned aggressively” to the oil market.

The International Energy Agency monitors strategic oil reserves that total about 1.6 billion barrels, Mr. Tanaka said. The agency has sometimes released reserves to smooth out global oil prices, including in the aftermath of the Persian Gulf war of 1991 and Hurricane Katrina in 2005.

The agency’s chief economist, Fatih Birol, said that with Brent crude over $100 a barrel, “we are entering a danger zone,” he said, with oil prices “creating inflationary pressures and risk for economic recovery.”

For now, although oil stocks are declining with increased consumption, “there is still plenty of spare production capacity, especially in OPEC countries,” Mr. Tanaka said.

Robert B. Zoellick, president of the World Bank, speaking on Saturday at a Group of 20 meeting, said that the Saudis in particular had indicated that they had significant spare capacity, which may help to keep markets calm.

But over the past two years, Mr. Zoellick said, “There is a much closer connection between food and energy prices.” Part of the reason is biofuels, he said, but oil is also vital for fertilizers, transportation and agricultural equipment, especially in the developing world, where demand is increasing.

While the world is moving toward more renewable energy sources and re-examining nuclear power, it will be dependent on fossil fuels for years to come, Mr. Birol said. For the future, “90 percent of growth in oil production will have to be met by MENA countries,” he said. “If not, we’re in trouble.”


Jad Mouawad contributed reporting from New York and Clifford Krauss from Houston.

    Oil Flows, but High Prices Jangle Nerves, NYT, 19.2.2011, http://www.nytimes.com/2011/02/20/world/20oil.html

U.S. Producer Prices Rise on Higher Energy Costs

February 16, 2011
The New York Times
By REUTERS

Producer prices in the United States rose 0.8 percent in January in line with expectations because of higher energy and pharmaceutical prices, a Labor Department report showed Wednesday.

Producer prices rose 3.6 percent over the last 12 months, slightly more than the 3.5 percent gain expected by analysts polled by Reuters.

The core index, which excludes food and energy prices, rose a larger-than-expected 0.5 percent on a jump in pharmaceutical preparations and plastic products. Analysts had forecast a 0.2 percent gain.

In another report, housing starts rose more than expected in January to their highest rate in four months but permits for home construction dropped sharply after hefty gains the previous month, according to a government report on Wednesday that showed the housing market still bouncing along the bottom.

The Commerce Department said housing starts jumped 14.6 percent to a seasonally adjusted annual rate of 596,000 units, the highest since September. December’s starts were revised down to a 520,000-unit pace from the previously reported rate of 530,000 units.

Economists polled by Reuters had forecast housing starts edging up to a 554,000-unit rate. Compared to January last year, residential construction was down 2.6 percent.

Groundbreaking last month for single-family homes fell 1 percent.

The housing market recovery is being hobbled by an over-supply of homes that is depressing prices. A high unemployment rate also means the sector, which was at the heart of the worst recession since the 1930s, will struggle to recover even as the broader economy gains momentum.

New building permits dropped 10.4 percent to a 562,000-unit pace last month, partially reversing December’s 15.3 percent surge that came ahead of changes in building codes in three states. Permits were pulled down last month by a 23.8 percent plunge in the multi-family segment. Single-family unit permits fell 4.8 percent. Analysts had expected overall building permits to fall to a 560,000-unit pace in January.

New home completions fell 9.5 percent to a record low 512,000 units in January.

And in a third report, the Federal Reserve said Wednesday that industrial output unexpectedly fell in January as a return to normal winter temperatures caused a sharp fall in utility output, while production from mines also fell.

Industrial production fell 0.1 percent in January after an upwardly revised 1.2 percent jump in December, which had been driven by unseasonably cold weather that spiked heating demand.

The drop was the first decline in output since June 2009 and was well below the median forecast for a 0.5 percent increase in a Reuters poll of economists after December’s originally reported 0.8 percent gain.

Utility output fell by 1.6 percent in January after a 4.1 percent leap in December, while mining output fell 0.7 percent. Manufacturing output in January grew just 0.3 percent after an upwardly revised 0.9 percent gain in December.

Capacity use, a measure of how fully firms are using their resources, dipped to 76.1 percent from an upwardly revised 76.2 percent. Economists polled by Reuters had predicted a 76.3 percent capacity use rate.

Officials at the Fed tend to look at utilization measures as a signal of how much “slack” remains in the economy — how far growth has room to run before it becomes inflationary.

    U.S. Producer Prices Rise on Higher Energy Costs, NYT, 16.2.2011, http://www.nytimes.com/2011/02/17/business/economy/17econ.html

From Prison, Madoff Says Banks ‘Had to Know’ of Fraud

February 15, 2011
The New York Times
By DIANA B. HENRIQUES

BUTNER, N.C. — Bernard L. Madoff said he never thought the collapse of his Ponzi scheme would cause the sort of destruction that has befallen his family.

In his first interview for publication since his arrest in December 2008, Mr. Madoff — looking noticeably thinner and rumpled in khaki prison garb — maintained that family members knew nothing about his crimes.

But during a private two-hour interview in a visitor room here on Tuesday, and in earlier e-mail exchanges, he asserted that unidentified banks and hedge funds were somehow “complicit” in his elaborate fraud, an about-face from earlier claims that he was the only person involved.

Mr. Madoff, who is serving a 150-year sentence, seemed frail and a bit agitated compared with the stoic calm he maintained before his incarceration in 2009, perhaps burdened by sadness over the suicide of his son Mark in December.

Besides that loss, his family also has faced stacks of lawsuits, the potential forfeiture of most of their assets, and relentless public suspicion and enmity that cut Mr. Madoff and his wife Ruth off from their children.

In many ways, however, Mr. Madoff seemed unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds, pointing to their “willful blindness” and their failure to examine discrepancies between his regulatory filings and other information available to them.

“They had to know,” Mr. Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ”

While he acknowledged his guilt in the interview and said nothing could excuse his crimes, he focused his comments laserlike on the big investors and giant institutions he dealt with, not on the financial pain he caused thousands of his more modest investors. In an e-mail written on Jan. 13, he observed that many long-term clients made more in legitimate profits from him in the years before the fraud than they could have elsewhere. “I would have loved for them to not lose anything, but that was a risk they were well aware of by investing in the market,” he wrote.

Mr. Madoff said he was startled to learn about some of the e-mails and messages raising doubts about his results — now emerging in lawsuits — that bankers were passing around before his scheme collapsed.

“I’m reading more now about how suspicious they were than I ever realized at the time,” he said with a faint smile.

He did not assert that any specific bank or fund knew about or was an accomplice in his Ponzi scheme, which lasted at least 16 years and consumed about $20 billion in lost cash and almost $65 billion in paper wealth. Rather, he cited a failure to conduct normal scrutiny.

Both the interview and the e-mail correspondence were conducted as part of this reporter’s research for a coming book on the Madoff scandal, “The Wizard of Lies: Bernie Madoff and the Death of Trust,” for publication this spring by Times Books, a division of Henry Holt & Company.

In the interview and e-mails, he also claimed he had been helping the court-appointed trustee who is seeking to recover lost billions on behalf of his swindled clients. In e-mails, Mr. Madoff said repeatedly that he provided useful information to Irving H. Picard, the trustee trying to recover assets for the fraud victims. He met with Mr. Picard’s team over four days last summer, he said. The e-mails were written in December and January, but he only recently agreed that they could be made public.

In prison, Mr. Madoff’s access to the outside world is both limited and monitored. All visitors must be approved by prison authorities, who also screen his limited collect calls and his incoming and outgoing e-mails and letters, though interviews with lawyers like Mr. Picard and his colleagues are less restricted and can be conducted in private.

Asked about his cell, he described a room about 12 feet square with a big window looking out on the grounds; he said he had a roommate, the second since he arrived at the prison.

It was clear from the e-mails and interview here that Mr. Madoff closely followed news related to his case in December, the second anniversary of his arrest. He lashed out at what he called some of the “disgraceful” coverage of the suicide of his son Mark on Dec. 11.

Disputing reports that he refused to attend any funeral services for Mark, he said the prison informed him it would not approve a request for him to attend a service because of “the public safety issue” and the limited time available to make arrangements. He concluded any funeral he attended “would be a media circus” and that it “would be cruel to my family” to put them through that, he wrote on Dec. 29.

Regarding his meetings with Mr. Picard’s legal team, Mr. Madoff asserted in an e-mail written on Dec. 19 that he had given Mr. Picard’s legal team “information I knew would be instrumental in recovering assets from those people complicit in the mess I put myself into.”

In a message 10 days later, he was even more explicit about what he told the trustee: “I am saying that the banks and funds were complicit in one form or another and my information to Picard when he was here established this.”

Mr. Madoff’s claims must be weighed against his tenuous credibility. After deceiving federal regulators and supposedly sophisticated investors for at least 16 years, he would certainly be branded as a liar by defense lawyers if he appeared as a witness against any defendant in a courtroom — a fact he acknowledged somewhat ruefully during the interview on Tuesday.

Despite his many references to the complicity of others, he acknowledged in the Dec. 19 e-mail that he had not shared his information with the federal prosecutors working on criminal cases related to his fraud — although the trustee most likely would have done so, if Mr. Madoff’s information was relevant to the investigation.

Mr. Madoff wrote in an e-mail that while he was willing “from the beginning” to give prosecutors information “to help recover assets only, I refused to help provide them with criminal evidence.” In the interview he declined to discuss any of the criminal cases under investigation.

In the months after the Picard team’s prison interviews, the trustee’s law firm, Baker & Hostetler, filed hundreds of civil lawsuits seeking approximately $90 billion in damages and fictional profits withdrawn from Mr. Madoff’s scheme over the years. The defendants in those cases included the Wilpon family, the owners of the New York Mets; JPMorgan Chase, which served for decades as Mr. Madoff’s primary banker; and Sonja Kohn, the Viennese financier at the hub of a network of hedge funds that invested heavily with Mr. Madoff.

Mr. Madoff said about Fred Wilpon and Saul Katz, Mr. Wilpon’s brother-in-law and business partner: “They knew nothing. They knew nothing.”

There was no obvious sign that any of those lawsuits were based on evidence or guidance from Mr. Madoff. All the defendants have said they had no knowledge of the fraud and have denied the trustee’s claims that, as financially sophisticated investors, they should have been suspicious from the beginning.

Mr. Picard declined to comment on whether his team had interviewed Mr. Madoff and would not say whether information from him had contributed to the vast body of litigation filed since last summer.

In some e-mails, Mr. Madoff conceded that Mr. Picard’s team conducted its own investigation into the withdrawals made by some big clients, in the years before the Ponzi scheme collapsed, to determine who might have known what and when. Such withdrawals could indicate that investors could have been aware of the fraud, which could increase their liability.

However, Mr. Madoff added, “the facts are that I alone was present at certain meetings with these clients.”

To date, none of the major banks or hedge funds that did business with Mr. Madoff have been accused by federal prosecutors of knowingly investing in his Ponzi scheme. However, Mr. Picard in civil lawsuits has asserted that executives at some banks expressed suspicions for years, yet continued to do business with Mr. Madoff and steer their clients’ money into his hands.

All the financial entities facing civil lawsuits by Madoff victims and Mr. Picard have denied they had any knowledge of the fraud.

In a related e-mail on Jan. 12, Mr. Madoff cited out-of-court settlements that some banks and funds had negotiated with private Madoff investors over the last two years and claimed some settlements were made “to keep me quiet” about the role the institutions played in “creating my situation” and about the identity of the beneficial owners of some of their private accounts.

Mr. Picard has already recovered roughly $10 billion through asset sales and settlements with several foreign banks and a few significant Madoff clients, including the estate of a private investor, Jeffry Picower, and the family of Carl Shapiro, a philanthropist in Palm Beach, Fla.

While the Picower settlement had been under negotiation since at least the fall of 2009, the settlements with the Shapiro family and a Swiss bank, Union Bancaire Privée, both came after Mr. Picard’s trip to the prison here in Butner. But because both settlements came before Mr. Picard had filed any public claims in court, it is unclear whether information from Mr. Madoff was a factor in those settlement talks.

Neither Mr. Shapiro nor the Swiss bank has been accused of any complicity in Mr. Madoff’s crimes, and Mr. Picard has publicly acknowledged their good-faith cooperation with his inquiries when he announced the settlement agreements, which totaled more than $1 billion.

The only people formally charged with complicity in Mr. Madoff’s crime are his former auditor and members of his own staff.

Although Mr. Madoff swore in court that he had carried out his elaborate fraud on his own, his accountant, David H. Friehling, and Mr. Madoff’s senior lieutenant, Frank DiPascali, have pleaded guilty and are cooperating with prosecutors. Five other former Madoff employees have been indicted; they have asserted their innocence and are awaiting trial.

While Mr. Madoff said he was determined to aid the trustee’s efforts to recover assets, he was also critical of the trustee’s reach, claiming that Mr. Picard was seeking far more money than was needed to resolve valid investor claims.

In addition to the customer claims for the cash losses and the paper wealth that vanished, the Madoff estate also faces claims by general creditors, like unpaid vendors and landlords, who cannot recover until all the valid customer claims are paid.

Mr. Madoff argued in several e-mails that Mr. Picard’s responsibility was to return only the $20 billion in out-of-pocket cash that investors lost in his scheme.

Given that Mr. Picard has already recovered roughly $10 billion, Mr. Madoff calculated that the lawsuits against major banks and hedge funds would produce more than enough to cover the rest of the cash losses without Mr. Picard having to pursue “clawback” litigation against some longtime investors who withdrew more from their accounts than they put.

    From Prison, Madoff Says Banks ‘Had to Know’ of Fraud, NYT, 15.2.2011, http://www.nytimes.com/2011/02/16/business/madoff-prison-interview.html

Obama, Conceding Budget’s Limitations, Seeks Consensus

February 15, 2011
The New York Times
By JACKIE CALMES

WASHINGTON — President Obama conceded on Tuesday that his new budget does not do enough to resolve the nation’s long-term fiscal problems, but he counseled patience, suggesting that he would eventually come together with Republicans on a broad deal.

But, Mr. Obama said at a news conference, any such compromise to address Medicare, Medicaid, Social Security and the tax system is months away and will first require an effort to build bipartisan trust — even as Democrats and Republicans battle intensely over how much to cut from the current year’s domestic spending.

The president spoke as Republicans on Capitol Hill accused him of a lack of leadership for not proposing a bolder budget for the fiscal year that starts Oct. 1. Yet behind the scenes are signs that both parties, for all their public crossfire, are reassessing the politics of deficits.

The debt crises last year in Greece and other European countries served as a warning about the economic perils of chronic budget imbalances, and the rise of the Tea Party movement reflected a broader concern among Americans about the nation’s rapidly mounting debt.

Now some Democrats and Republicans are re-examining whether the political risks of raising revenues and curbing the most popular social programs might be outweighed by the urgency of addressing the looming budget impact of an aging population and rapidly rising medical costs.

“The feeling to do genuine deficit reduction is greater on both sides of the aisle than I’ve ever seen it,” said Senator Charles E. Schumer, Democrat of New York. “The question is meeting in the middle and throwing away the ideological baggage.”

The White House has already opened back-channel conversations to test Republicans’ willingness to negotiate about the soaring costs of Medicare and Medicaid, Social Security’s long-range solvency and an income-tax code riddled with more than $1 trillion a year worth of loopholes and tax breaks.

The Senate Republican leader, Mitch McConnell, all but invited Mr. Obama on Tuesday to start huddling about the issues, and a bipartisan group of senators held a third meeting to write debt-reduction legislation based on the recommendations in December of the majority of a bipartisan fiscal commission established by the president.

“If you look at the history of how these deals get done, typically it’s not because there’s an ‘Obama Plan’ out there,” Mr. Obama said, citing deal-making precedents under Presidents Ronald Reagan and Bill Clinton, and his own tax cuts deal with Congressional Republicans in December. “It’s because Democrats and Republicans are both committed to tackling this issue in a serious way.”

While no budget summit is imminent, Mr. Obama said he and Republican leaders are “going to be in discussions over the next several months.” He said moving forward required “a spirit of cooperation between Democrats and Republicans. And I think that’s possible.”

Yet it seems clear that the parties are not at that point, and the hurdles, in any case, are huge. The House began a bitter three-day debate about Republican leaders’ proposals to slash far more deeply into domestic programs than Mr. Obama or Senate Republicans are willing to accept.

Both parties are simultaneously positioning themselves for the 2012 elections, and many people on both sides are reluctant to cede political talking points — whether it is Democrats claiming Republicans want to privatize Social Security or Republicans insisting Democrats want only to raise taxes.

After much internal debate about the political risks, House Republican leaders announced that their own budget for fiscal year 2012, which begins Oct. 1, “will lead where the president has failed and include real entitlement reforms” in Medicare, Medicaid and Social Security.

But in the Senate, Mr. McConnell signaled a different approach. He indicated he is ready to negotiate now with Mr. Obama to curb entitlement program costs, which, along with military spending and interest on the national debt, are driving projections of unsustainable debt in coming decades.

“It doesn’t have to be in public,” he said. “We all understand there are some limitations to negotiating significant agreements in public. But we’re still waiting for the president to lead.”

Republicans have been especially critical of Mr. Obama because his budget did not propose the sort of comprehensive and specific changes supported by the majority on his own fiscal commission, including for entitlement programs and overhauling the tax code.

Mr. Obama, on the defensive at his news conference, said it was wrong to say the fiscal commission’s majority report “has been shelved” and said “it still provides a framework for a conversation” between the parties.

But Mr. Obama also noted that while the commission majority was bipartisan, the dissenters included all three House Republican leaders who were members of the panel, including the new chairman of the House Budget Committee, Representative Paul D. Ryan of Wisconsin.

“He’s got a little bit of juice when it comes to trying to get an eventual budget done,” Mr. Obama said of Mr. Ryan. “So,” he added, “I’m going to have to have a conversation with him — what would he like to see happen?”

Mr. Ryan in past years has proposed a fiscal plan that in the long-term would privatize Social Security and Medicare and reduce income taxes. But he never got much support from wary Republican colleagues and acknowledged in an interview this week that, as budget chairman, he is not likely to press his own plan.

Administration officials, in December, generally interpreted the opposition of Mr. Ryan and his two House Republican colleagues on the fiscal commission as evidence that their new House majority would be unwilling to compromise this year on a comprehensive deal that included new revenues and cuts to military spending.

But a few in the White House said Mr. Obama could try to exploit the apparent breach between the House and Senate Republicans — all three senators on the commission backed the majority plan.

Of the three Senate Republicans on the commission, two remain in office and both — Tom Coburn of Oklahoma and Michael D. Crapo of Idaho — have continued to work with several Senate Democrats on a plan based on the commission report.

Their group of six senators met for a third time on Tuesday morning, for two hours, to try to translate the recommendations into legislation. The group includes the organizers — Senator Mark Warner, Democrat of Virginia, and Saxby Chambliss, a Republican of Georgia — and four former commission members: Mr. Coburn and Mr. Crapo, and the Democratic Senators Richard J. Durbin of Illinois and Kent Conrad of North Dakota, the chairman of the Senate Budget Committee.

“I think it’s going to take a number more meetings,” Mr. Crapo said afterward. “We do have a number of differences. But I think that we are actually making progress.”

Mr. Crapo said 25 to 30 senators, from both parties, were on the sidelines waiting to see if the six could reach agreement. To that end, both he and Mr. Coburn expressed disappointment that Mr. Obama had not laid down more cards with his budget.

But Mr. Warner said: “I think the president has taken the right first step and he has to let the Congressional process work. This is going to be a long process, and I know by the end of this debate the administration is going to be an active player.”

    Obama, Conceding Budget’s Limitations, Seeks Consensus, NYT, 15.2.2011, http://www.nytimes.com/2011/02/16/us/politics/16obama.html

The Obama Budget

February 14, 2011
The New York Times

On paper, President Obama’s new $3.7 trillion budget is encouraging. It makes a number of tough choices to cut the deficit by a projected $1.1 trillion over 10 years, which is enough to prevent an uncontrolled explosion of debt in the next decade and, as a result, reduce the risk of a fiscal crisis.

The questions are whether its tough choices are also wise choices and whether it stands a chance in a Congress in which Republicans, who now dominate the House, are obsessed with making indiscriminate short-term cuts in programs they never liked anyway. The Republican cuts would eviscerate vital government functions while not having any lasting impact on the deficit.

What Mr. Obama’s budget is most definitely not is a blueprint for dealing with the real long-term problems that feed the budget deficit: rising health care costs, an aging population and a refusal by lawmakers to face the inescapable need to raise taxes at some point. Rather, it defers those critical issues, in hopes, we assume, that both the economy and the political environment will improve in the future.

For the most part, Mr. Obama has managed to cut spending while preserving important government duties. That approach is in stark contrast to Congressional Republicans, who are determined to cut spending deeply, no matter the consequences.

A case in point: the Obama budget’s main cut — $400 billion over 10 years — is the result of a five-year freeze in nonsecurity discretionary programs, a slice of the budget that contains programs that are central to the quality of American lives, including education, environment and financial regulation.

But the cuts are not haphazard. The budget boosts education spending by 11 percent over one year and retains the current maximum level of college Pell grants — up to $5,500 a year. To offset some of the costs, the budget would eliminate Pell grants for summer school and let interest accrue during school on federal loans for graduate students, rather than starting the interest meter after graduation.

Those are tough cutbacks, but, over all, the Pell grant program would continue to help close to nine million students. The Republican proposal would cut the Pell grant program by 15 percent this year and nearly half over the next two years.

The Obama budget also calls for spending on green energy programs — to be paid for, in part, by eliminating $46 billion in tax breaks for oil, gas and coal companies over the next decade. Republicans are determined not to raise any taxes, even though investing for the future and taming the deficit are impossible without more money.

The budget would also increase transportation spending by $242 billion over 10 years. It does not specifically call for an increased gas tax to cover the new costs, though it calls on Congress to come up with new revenues to offset the new spending. Republicans want to eliminate forward-looking programs like high-speed rail.

The budget is responsible in other ways. It would cap the value of itemized deductions for high-income taxpayers and use the savings to extend relief from the alternative minimum tax for three years so that the tax does not ensnare millions of middle- and upper-middle-income taxpayers for whom it was never intended. For nearly a decade, Congress has granted alternative minimum tax relief without paying for it.

House Republicans want to leave military spending out of their budget-cutting entirely, but Mr. Obama’s budget reduces projected Pentagon spending by $78 billion over five years. If anything, Mr. Obama could safely have proposed cutting deeper, as suggested by his own bipartisan deficit panel.

The bill for the military is way too high, above cold-war peak levels, when this country had a superpower adversary. There’s a point where the next military spending dollar does not make our society more secure, and it’s a point we long ago passed.

Mr. Obama’s budget also includes a responsible way to head off steep cuts in what Medicare pays doctors. It would postpone the cuts for two years and offset that added cost with $62 billion in other health care savings, like expanding the use of cheaper generic drugs.

But not all of Mr. Obama’s cuts are acceptable. The president is proposing a reduction by nearly half in the program that provides assistance to low-income families to pay for home heating bills. Shared sacrifice need not involve the very neediest.

Ideally, budget cuts would not start until the economic recovery is more firmly entrenched. But the deficit is a pressing political problem. The Obama budget is balanced enough to start the process of deficit reduction, but not so draconian that it would derail the recovery.

The same cannot be said for the plan put forward by Republicans last week. It would amputate some of government’s most vital functions for the next seven months of fiscal year 2011. (They haven’t even gotten to next year yet, never mind the more distant future.)

Real deficit reduction will require grappling with rising health care costs and an aging population, which means reforms in Medicare, Medicaid and Social Security, as well as tax increases to bring revenues in line with obligations.

Mr. Obama’s budget does not directly address those big issues, but doing so would require a negotiating partner, and Mr. Obama, at present, does not have one among the Republican leaders in Congress. His latest budget is a good starting point for a discussion — and a budget deal — but only if Republicans are willing participants in the process.

    The Obama Budget, NYT, 14.2.2011, http://www.nytimes.com/2011/02/15/opinion/15tue1.html

Companies Raise Prices as Commodity Costs Jump

February 14, 2011
The New York Times
By STEPHANIE CLIFFORD, MOTOKO RICH and WILLIAM NEUMAN

This article is by Stephanie Clifford, Motoko Rich and William Neuman.

A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine.

By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products.

Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running.

“There are cost pressures from virtually everywhere,” said Wesley R. Card, the chief executive of the Jones Group, whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

When commodity prices started to rise last summer, many manufacturers and retailers absorbed the costs, worried that shoppers would not pay higher prices during the competitive holiday season or while the economy was still fragile.

Many big companies, including Kraft, Polo Ralph Lauren and Hanes, say they cannot hold off any longer and must raise prices to protect some profits.

Whether shoppers will pay is unclear. “Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask,’ ” said Joshua Shapiro, chief United States economist at MFR Inc. “There’s going to be pushback.”

Economists say the increases may eventually show up as inflation, though they are not yet projecting rates that would set off alarms. Despite some fears, inflation has been extremely low, at a rate of just 1.4 percent annually in December. Data for January will be released Thursday, but economists expect inflation will run about 2.5 percent this year.

Some do see the creeping signs of higher inflation, and warn that the Federal Reserve will need to raise interest rates or at least stop pumping more money into the economy. Others argue that such moves would choke off economic growth sorely needed to get companies hiring again.

For consumers, higher prices in stores means there will be a little less extra cash to spend. For companies, profits may be squeezed, making them a little less likely to invest in equipment or to hire aggressively.

“One has to think about these higher prices not as a reason for economic activity to get derailed,” said John Ryding, chief economist at RDQ Economics, “but as a reason why the recovery is slower than might otherwise be the case.”

Given that the price of a gallon of gas is now well over $3 on average, Americans may feel that they are already dealing with higher prices.

Adding to the cost of food won’t greatly distort most household budgets. Food, gas, clothing, personal care products and cleaning and laundry supplies make up less than a quarter of household spending in the United States, according to government data.

People at the bottom of the income scale struggle more as these prices rise, of course, because a larger share of their spending is on such essentials.

To some, the prospect of modestly higher prices is no reason to worry. In fact, rising prices can indicate improving economic conditions. Greater demand from fast-growing countries like China has helped push up the costs of many raw materials — though officials there are worried about inflationary pressures, as are some officials in Europe.

In the United States, the willingness of companies to raise prices shows they are feeling better about the domestic recovery.

The sharp rise in commodity prices since last year has not translated into all new records. Food commodity prices are about 8 percent below the high in the summer of 2008, while energy prices are less than half their zenith. Prices of a basket of other commodities are about 4 percent below the heights of mid-2008.

The cost of raw materials accounts for a small portion of the cost of most consumer goods, as labor, processing and packaging tend to make up a larger share of the price at the cash register. Foods like coffee, meat and milk, which are closer to raw materials, will probably show some of the biggest price jumps.

Companies that try to pass on all their costs could meet resistance. Although consumer spending has risen, unemployment remains at 9 percent, and average hourly earnings are up less than 2 percent over the last year.

“These companies are constantly walking a tightrope on how far do I go,” said Jack Russo, a consumer goods analyst at Edward Jones. “Do I offset with price or other cost cuts, or do I just take it and have it eat into my profit margins?”

Already, rising raw material costs have cut into corporate profits. Kimberly-Clark, which makes Kleenex tissues and Huggies diapers, said fiber- and oil-based products had contributed to a small dip last quarter. Procter & Gamble said earnings fell slightly in the division that makes Crest toothpaste, as well as in its household brands unit, which makes Tide and Cascade.

Plenty of companies are indicating they will push up retail prices. Kraft, the largest United States food manufacturer with brands like Oscar Mayer, Velveeta and Ritz crackers, said it would raise prices on many products this year without saying which ones or how much.

Soaring prices for coffee have pushed up costs at the coffee shop. Starbucks said last fall that it would raise some prices. Sara Lee, which sells Hillshire Farms meat and Senseo coffee, said that it would, too, on many items.

Restaurants, which resisted raising prices to keep customers coming through the doors last year, are also fretting. They may take other steps too, like lowering thermostats, shrinking packaging or reducing portion sizes to minimize the sticker shock.

Meat prices have surged because of the cost of feed, a decision by farmers to raise fewer cattle and pigs, and strong demand worldwide as living standards rise. An epidemic of foot-and-mouth disease that devastated South Korean hog farms has led to a recent surge in orders for American pork.

This year, “you’re going to have to raise prices to stay in business,” said Len M. Steiner, owner of the Steiner Consulting Group, which works with restaurant companies on ingredient purchasing.

Whirlpool says consumers can expect to pay 8 to 10 percent more for its products starting April 1. Apparel companies like Polo Ralph Lauren and Brooks Brothers said they would raise prices this year. Hanes Brands, which has already done so, said prices on cotton-heavy products would rise again at the end of summer. If cotton costs stay high, Hanes products could have a cumulative 30 percent increase.

Some companies don’t think they can get away with charging more. PepsiCo, which makes soft drinks and snacks, like Fritos, said it would be cautious.

Victoria’s Secret is nudging prices ever so slightly, with panties rising from five for $25 to five for $25.50.

John D. Morris, an analyst with BMO Capital Markets, said retailers would probably try to manage costs in myriad ways.

Prices rose significantly in the apparel sector from 1972 to 1974, driven by labor costs and commodity prices, he said.

“The retailers went on to have a pretty good year in ’73,” Mr. Morris said. “Sales were up, gross margins were flat, and profit margins were up a little bit. Retailers found a way.”

    Companies Raise Prices as Commodity Costs Jump, NYT, 14.2.2011, http://www.nytimes.com/2011/02/15/business/15prices.html

G.M. Workers to Get $189 Million in Profit Sharing

February 14, 2011
The New York Times
By NICK BUNKLEY

DETROIT — General Motors said on Monday that it would pay the largest profit-sharing checks in its history to 45,000 hourly workers in the United States.

The checks will be worth “upwards of $4,000,” a G.M. spokeswoman, Sherrie Childers-Arb, said. That is more than double the company’s previous record of $1,775, paid in 2000.

About 3,000 G.M. workers at four plants in New York, Michigan and Indiana that were formerly part of the Delphi Corporation will receive about $3,000 each.

In all, G.M. will give at least $189 million of its profit back to plant workers.

The exact amounts will be disclosed when G.M. reports its fourth-quarter and full-year 2010 earnings in the coming weeks. G.M., which had lost money every year from 2005 through 2009, when it filed for bankruptcy protection, earned $4.2 billion from January through September 2010.

Workers will receive the money on March 25. The amount is determined by a formula in G.M.’s contract with the United Automobile Workers union.

G.M. is not adding a bonus to the checks, as the Ford Motor Company is in giving its hourly workers checks averaging $5,000 each, Ms. Childers-Arb said. Chrysler is voluntarily paying its workers $750, even though it lost money in 2010.

“It’s strictly what it would have generated under the agreement,” Ms. Childers-Arb said.

G.M. last week said 26,000 salaried workers in the United States would receive bonuses, generally ranging from 4 percent to 16 percent of their pay but that several hundred employees would receive bonuses of more than 50 percent of their pay.

The U.A.W. profit-sharing formula is calculated from G.M.’s profits only in the United States. In the first three quarters of 2010, G.M. earned $4.9 billion in North America. (Its overall profit was less because European operations lost money.)

“Just the fact that we’re seeing a profit-sharing check, that’s great stuff,” Dana Rouse, shop chairman at G.M.’s assembly plant in Flint, Mich., with U.A.W. Local 598, said recently.

Even though the checks will be much larger this year, G.M. paid out $84 million more in profit sharing in 2000 because its hourly workforce at that time was more than triple the size it is today.

Profit sharing began at the Detroit automakers in 1982. The practice has historically led to G.M. workers getting much smaller checks than their counterparts at Ford and Chrysler. The checks paid in 2000 were the only ones before this year that exceeded $1,000.

Compensation for workers as G.M., Ford and Chrysler improve financially is expected to be a major point in contract negotiations with the U.A.W. this fall. G.M. executives last month suggested that hourly workers should have more of their pay tied to vehicle quality and overall company performance.

    G.M. Workers to Get $189 Million in Profit Sharing, NYT, 14.2.2011, http://www.nytimes.com/2011/02/15/business/15auto.html

Obama Budget Pivots From Stimulus to Deficit Cuts

February 14, 2011
The New York Times
By JACKIE CALMES

WASHINGTON – President Obama, pivoting at midterm from costly economic stimulus measures to deficit reduction, on Monday released a fiscal year 2012 budget that projects an annual deficit of more than $1 trillion before government shortfalls decline to “sustainable” levels for the rest of the decade.

Still, annual deficits through fiscal year 2021 will add a combined $7.2 trillion to the federal debt, Mr. Obama’s budget shows – after allowing for $1.1 trillion in deficit-reducing spending cuts and tax increases that the president proposes over the 10-year period. As he acknowledges, after 2021, an aging population and rising medical costs will drive deficits again to unsustainable heights.

The budget reflects Mr. Obama’s cut-and-invest agenda: It creates winners and big losers as he proposes to slash spending in some domestic programs to both reduce deficits and make room for increases in education, infrastructure, clean energy, innovation and research to promote long-term economic growth and global competitiveness.

The president is unveiling his budget to emphasize one of the winners: He will do so on Monday morning during a visit to a middle school and technology center in Baltimore.

Among the losers are programs that Mr. Obama has supported, even expanded, in the past: Popular programs for home-heating aid to poor families and for community services block grants would be cut in half, and a multi-state Great Lakes cleanup project would lose a quarter of its money compared to 2010.

Pell grants for needy college students would be eliminated for summer classes, and graduate students would start accruing interest immediately on federal loans, though they would not have to pay until after they graduate; both changes are intended to help save $100 billion over 10 years to offset the costs of maintaining Pell grants for 9 million students, according to administration officials.

Officials contrast the administration’s budgetary approach with that of House Republicans, who are voting this week to slash the current year’s spending by much larger amounts, sparing few programs from cuts and increasing spending on none.

“The debate in Washington is not whether to cut or to spend,” said a senior administration official on Sunday, speaking on condition of anonymity to brief reporters on the budget in advance of Mr. Obama’s Monday announcement of the spending plan. “We both agree we should cut. The question is how we cut and what we cut.”

For the administration’s part, the official said, “It requires cutting programs that in a different environment we would not want to cut.”

For the current fiscal year 2011, which ends Sept. 30, the Obama budget projects a deficit of more than $1.6 trillion, a level equal to nearly 11 percent of the gross domestic product, making it the largest shortfall since the end of World War II. That projection has swelled recently mostly due to the big tax cut deal that Mr. Obama and Congressional Republican leaders agreed to in December to spur the still-fragile economic recovery. It included a payroll tax cut this year for all Americans.

The deficit for fiscal year 2012 is projected to be more than $500 billion less, $1.1 trillion, due largely to the end of some of those tax cuts and of the two-year stimulus package that Mr. Obama signed into law soon after taking office. Economic growth and deficit-reduction measures account for a lesser share of the expected improvement.

The 2012 deficit will be the fourth and final year it is projected to exceed $1 trillion.When Mr. Obama took office in January 2009, the deficit for that year was projected to be – and ultimately was -- $1.3 trillion. A similarly large shortfall followed for 2010. After this year’s spike to $1.6 trillion, the president’s budget charts a decline from the trillion-dollar level after 2012 -- to a low of $607 billion in fiscal year 2015 -- before the annual deficits, in dollars, start inching up again.

Compared to the size of the economy, as economists prefer to measure, the annual deficits would decline from a projected 10.9 percent of gross domestic product this year to 7 percent in 2012. By 2015, Mr. Obama projects, the deficit would be just above his target of 3 percent – the level that many economists consider sustainable because it means deficits are not growing any faster than a healthy economy.

Of the $1.1 trillion in net deficit reduction that Mr. Obama claims over the next decade with his budget, two-thirds would be from cuts in spending and a third from higher revenues.

The lower spending mostly would derive from Mr. Obama’s proposed five-year freeze of the same narrow category of so-called non-security discretionary spending that Republicans are cutting. His freeze would save an estimated $400 billion through 2021.

Mr. Obama also would reduce the Pentagon’s five-year spending plans by $78 billion, reflecting savings recommended by his Defense secretary, Robert Gates. Separately, war costs are declining, administration officials said, largely due to the withdrawal of troops from Iraq.

Neither Mr. Obama nor Republicans are tackling the large entitlement programs – Medicare, Medicaid and, to a lesser extent, Social Security -- whose growing costs are driving projections of unsustainable long-term debt. But Mr. Obama does propose to save $62 billion from Medicare and Medicaid by squeezing care-providers’ reimbursements and expanding federal health programs’ use of generic drugs.

But those savings, by the administration’s accounting, would offset for two years the costs of preventing a scheduled big reduction in payments to physicians who treat Medicare patients. Typically Congress just blocks the mandated pay cuts for doctors and simply adds the expense to the deficit.

Similarly, Mr. Obama proposes to stop another favorite Washington budget gimmick: Adding to the deficit the recurring costs of preventing the alternative minimum tax, which is intended for affluent taxpayers, from hitting middle-class households. He would offset the roughly $300 billion revenue loss from fixing the tax for three years, raising a like amount over 10 years by limiting deductions for upper-income people in the top two tax brackets.

That tax increase for affluent Americans would account for the bulk of the revenues that Mr. Obama counts in his $1.1 trillion of net deficit reduction. The rest includes $46 billion over 10 years from eliminating a dozen tax breaks for oil, gas and coal companies to offset the costs of clean-energy initiatives.

    Obama Budget Pivots From Stimulus to Deficit Cuts, NYT, 14.2.2011, http://www.nytimes.com/2011/02/15/us/politics/15obama.html

Wall Street’s Dead End

February 13, 2011
The New York Times
By FELIX SALMON

THE stock market has been big news in recent days. Last week’s report that Deutsche Börse, a giant German exchange, intends to buy the New York Stock Exchange, creating a company worth some $24 billion, arrived shortly after the Dow broke the 12,000-point barrier for the first time since before the financial crisis.

These developments drew headlines because they seemed to exemplify significant trends in the American economy. But look at America’s stock exchanges more closely, and there’s less to them than meets the eye. In truth, the stock market is becoming increasingly irrelevant — a trend that threatens the core principles of American capitalism.

These days a healthy stock market doesn’t mean a healthy economy, as a glance at the high unemployment rate or the low labor-market participation rate will show. The Tea Party is right about one thing: What’s good for Wall Street isn’t necessarily good for Main Street. And the Germans aren’t buying the New York Stock Exchange for its commoditized, highly competitive and ultra-low-margin stock business, but rather for its lucrative derivatives operations.

The stock market is still huge, of course: the companies listed on American exchanges are valued at more than $17 trillion, and they’re not going to disappear in the foreseeable future.

But the glory days of publicly traded companies dominating the American business landscape may be over. The number of companies listed on the major domestic exchanges peaked in 1997 at more than 7,000, and it has been falling ever since. It’s now down to about 4,000 companies, and given its steep downward trend will surely continue to shrink.

Nor are the remaining stocks an obvious proxy for the health of the American economy. Innovative American companies like Apple and Google may be worth hundreds of billions of dollars, but most of them don’t pay dividends or employ many Americans, and their shares are essentially speculative investments for people making a bet on how we’re going to live in the future.

Put another way, as the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.

What the market is not doing so well is its core public function: allocating capital efficiently. Apple, for instance, is hugely profitable and sits on an enormous pile of cash; it is thus very unlikely to use its highly rated stock to pay for any acquisitions. It hasn’t used the stock market to raise money since 1981, and there’s a good bet it never will again.

Meanwhile, the companies in which people most want to invest, technology stars like Facebook and Twitter, are managing to avoid the public markets entirely by raising hundreds of millions or even billions of dollars privately. You and I can’t buy into these companies; only very select institutions and well-connected individuals can. And companies prefer it that way.

A private company’s stock isn’t affected by the unpredictable waves of the stock market as a whole. Its chief executive can concentrate on running the company rather than answering endless questions from investors, analysts and the press.

There’s much less pressure to meet quarterly earnings targets. When the stock does trade, the deals can be negotiated quietly, in private markets, rather than fall victim to short-term speculation from the high-frequency traders who populate public markets. And companies love how private markets allow them to avoid much of the regulatory burden of being public.

That burden comes largely from the Securities and Exchange Commission, which was created in the wake of the 1929 stock-market crash to protect small investors. But if the move to private markets continues, small investors aren’t going to need much protection any more: they’ll be able to invest in only a relative handful of companies anyway.

Only the biggest and oldest companies are happy being listed on public markets today. As a result, the stock market as a whole increasingly fails to reflect the vibrancy and heterogeneity of the broader economy. To invest in younger, smaller companies, you increasingly need to be a member of the ultra-rich elite.

At risk, then, is the shareholder democracy that America forged, slowly, over the past 50 years. Civilians, rather than plutocrats, controlled corporate America, and that relationship improved standards of living and usually kept the worst of corporate abuses in check. With America Inc. owned by its citizens, the success of American business translated into large gains in the stock portfolios of anybody who put his savings in the market over most of the postwar period.

Today, however, stock markets, once the bedrock of American capitalism, are slowly becoming a noisy sideshow that churns out increasingly meager returns. The show still gets lots of attention, but the real business of the global economy is inexorably leaving the stock market — and the vast majority of us — behind.


Felix Salmon is the finance blogger at Reuters.

    Wall Street’s Dead End, NYT, 13.2.2011, http://www.nytimes.com/2011/02/14/opinion/14Salmon.html

Housing Crash Is Hitting Cities Once Thought to Be Stable

February 13, 2011
The New York Times
By DAVID STREITFELD

SEATTLE — Few believed the housing market here would ever collapse. Now they wonder if it will ever stop slumping.

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

“When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12 percent correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.”

Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Mr. Humphries estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.

“We went into 2010 feeling gangbusters, thanks to Uncle Sam,” Mr. Humphries said. “We ended it feeling penniless, with home values tanking.”

The fact that even a fairly prosperous area like Seattle was ensnared in the downturn shows just how much of a national phenomenon the crash has been. The slump began when the low-quality loans that drove the latter stage of the boom began to go bad, but the resulting recession greatly enlarged the crisis. Many people could not get a mortgage, and others simply gave up the hunt.

Now, though the overall economy seems to be mending, housing remains stubbornly weak. That presents a vexing problem for the Obama administration, which has introduced several initiatives intended to help homeowners, with mixed success.

CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.

It has been a long, painful slide. At the peak, a downturn in real estate in Seattle was nearly unthinkable. In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.

Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.” A risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.

These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off.

Those who must sell close their eyes and hope for the best. Those who hope to buy see lower prices but often have lighter wallets, removing any sense of urgency.

Arne Klubberud and Melissa Lee-Klubberud paid $358,000 for a new, 960-square-foot townhouse on trendy Capitol Hill a few weeks after that Seattle Times article was published. Now, with one child and with hopes for more, they need more space. They just put the townhouse on the market for $300,000.

“Obviously, this is not the ideal situation,” said Ms. Lee-Klubberud, a 32-year-old lawyer. They are hoping to take advantage of the sour market to buy at a good price, but first, they must sell for an amount that is acceptable. “Everyone has their limits,” she said. “We have ours.”

On a dark, dank Sunday, a handful of people came to look at the three-level unit. One of them was Katherine Davis, who had just sold her house in the far eastern suburbs. It took 14 months, during which she had to drop the price several times. The equity she had accumulated over the decades disappeared quickly.

“At first, I thought it would be nice to come out of this with $200,000, but I adjusted my expectations,” Ms. Davis said. She ended up with less than half of that. Her goal is to buy a small place in the city, but not yet. “Selfishly, I’m hoping the market continues to drop,” she said.

Increasing numbers of sellers are simply surrendering.

Megan and Ryan Dortch tried to sell their one-bedroom Eastlake condo for $325,000 two years ago. They rejected an offer of $295,000 as inadequate. A year later, they relisted it for $289,000, then $279,000, which was less than they paid. Without a sale at that price, they could not afford to buy a place big enough for them and their new baby.

They have given up on real estate. They are renting out their old apartment at a small loss every month, and living in a rented house. “I don’t expect the market to get better,” said Ms. Dortch, 31, a customer service consultant.

Neither does Gene Burrus, another frustrated seller who became a landlord. “Rent is so cheap it doesn’t make sense to buy now,” he said. He might reconsider if 10 or 15 percent more comes out of the market.

Redfin, a real estate brokerage firm based in Seattle, says foot traffic began picking up in the last several weeks. Mortgage rates are rising, which could nudge those who need to buy to make a deal now for fear rates will rise even more.

But whenever the market finally does pick up, all those accidental landlords will want to unload, putting another burden on the market. “So many sellers are waiting in the shadows,” said Redfin’s chief executive, Glenn Kelman. “The inventory is going to expand and expand and expand. I don’t see any basis for significant price increases.”

While almost every economist is expecting another round of price declines for the next few months, many see a leveling off in the second half of the year. Fiserv, the company that produces the monthly Case-Shiller Home Price Indexes, analyzed prices in 375 communities. About three-quarters of them will be stable by December, Fiserv calculates.

“We’re at a period near the bottom but with more volatility than we normally see at this point,” said David Stiff, Fiserv’s chief economist. “This sort of double dip is unprecedented for housing.”

Maybe that is why belief in a bottom is as elusive now as fears of a top were in 2006.

“We would love to have a house,” said Dan Cunningham, a 41-year-old renter. “I have more than enough for a down payment. I’m preapproved for a loan. But I have to have confidence it’s not going to lose another 20 percent.” He plans to wait until he sees prices rising before making any offers.

    Housing Crash Is Hitting Cities Once Thought to Be Stable, NYT, 13.2.2011, http://www.nytimes.com/2011/02/14/business/economy/14dip.html

U.S. Spends Millions to Support Exports

February 12, 2011
The New York Times
By RON NIXON

WASHINGTON — In India, one of the most-talked-about television programs is the reality show “Let’s Design.”

Aspiring designers create fashionable outfits using cotton, and this year India’s leading fashion house will showcase the winner’s clothing in its store; the winner will also be profiled in the fashion magazine Verve and win a trip to Paris to meet international designers.

And the American taxpayer helps foot the bill.

The show, now in its third season, is the creation of the Cotton Council International, a trade association representing the United States cotton industry. The council received $20.3 million in matching funds last year under a United States Agriculture Department program to promote and advertise products abroad.

The money given out under the Market Access Program is used by agricultural trade associations like the cotton council to pay for advertising, consumer promotions, market research, technical assistance and travel.

“This program plays a role in keeping the demand for cotton strong,” said Allen A. Terhaar, executive director of the council.

Over the last decade, the program has provided nearly $2 billion in taxpayer money to agriculture trade associations and farmer cooperatives. The promotions are as varied as a manual for pet owners in Japan and a class at a Mexican culinary school to teach aspiring chefs how to cook rice for Mexican consumers. Money also went to large farmer-owned cooperatives like Sunkist, Welch’s and Blue Diamond, which grows and sells almonds. Combined, the three companies had over $2 billion in sales in 2009.

But as the country wrestles with a still-shaky economy and a rising deficit, the program faces new calls for its demise. It has long been a target of criticism from both sides of the political spectrum, including liberal groups like the U.S. Public Interest Research Group and the conservative National Taxpayers Union.

The Republican Study Committee, a conservative bloc of House lawmakers, also identified the program as one of 100 that should be eliminated to help reduce the deficit. And even the Obama administration, which generally supports the program, wants to reduce it by 20 percent, saying it “overlaps with other Department of Agriculture trade promotion programs, and its economic impact is unclear.”

Supporters say the program has helped American farmers and growers expand or create markets for their products around the world.

“We think it’s well justified,” said Jay Howell, a lobbyist who coordinates the Coalition to Promote U.S. Agricultural Exports, the industry’s effort to keep the program financed. “It has helped lots of people around the country in small towns and rural communities.”

Mr. Howell and other supporters point to a 2010 study by the Agriculture Department showing that for every dollar that government and industry spend on promotion, agricultural exports increase by $35

Supporters say the program has been changed from earlier incarnations that allowed billion-dollar companies like McDonald’s, Tyson Foods and Seagram to get money to advertise abroad. Now the money can go only to a trade association or a nonprofit cooperative, rather than directly to big companies.

“The issues that most critics have with the program relates to what happened in the ’80s and early ’90s, and those issues have largely been resolved,” said Michael Wootton, senior vice president for corporate relations at Sunkist.

That argument has not convinced people like Ryan Alexander, president of Taxpayers for Common Sense, a Washington budget watchdog group.

“If you want to compete overseas, you should produce excellent products, not ads,” Ms. Alexander said. “Besides, companies like Sunkist have enough to do their own advertising.”

The Obama administration says it wants to revise the program so it focuses more on small businesses and generic products and not name brands like Sunkist. It also wants to make sure big companies do not indirectly benefit as members of trade associations.

Although companies like Cargill, Tyson Foods, Archer Daniels Midland and Monsanto cannot directly receive money, they do benefit from advertising and promotions as members of trade associations.

Sunkist, Welch’s and Blue Diamond are cooperatives owned by farmers and are eligible for government funds for their promotions abroad. The companies received more than $6 million last year, with about $4 million going to Sunkist alone.

But promotions like the “Let’s Design” show have drawn the most ire.

India is the second-largest cotton producer in the world, behind China; last year it produced nearly twice as much cotton as the United States. India is also the No. 2 exporter of cotton, behind the United States. The Cotton Council International says the “Let’s Design” show was created to promote the use of cotton in general, not necessarily cotton from the United States.

So why spend money promoting cotton in a country where production of the crop consistently outpaces domestic demand?

One reason, according to Mr. Terhaar of the Cotton Council, is to help keep the price of cotton high and to promote cotton over synthetic materials. The second reason is to create a future market for American exports.

“Right now, India produces enough cotton for its domestic consumption,” Mr. Terhaar said. “But as the textile industry there grows and as the middle class expands, there’s going to be a demand for more cotton, and it will be more than they are able to produce. We want to keep cotton in front of the India consumers, and the Market Access Program helps us do that.”

So far, arguments like that have won over a number of lawmakers from both parties, including Representative Doc Hastings, Republican of Washington. Last year, Mr. Hastings, an outspoken critic of wasteful government spending, was one of 65 legislators who signed a letter to the Department of Agriculture urging it to keep the program. In 2001, he sponsored legislation that increased the annual financing for the Market Access Program to $200 million from $90 million.

Mr. Hastings’s chief of staff, Jessica Gleason, said: “In Washington State, trade equals economic growth and jobs. Representative Hastings totally supports the Market Access Program.”

The industry is counting on such support. The trade associations that received money from the Market Access Program spent nearly $100 million lobbying the federal government over the last 10 years, records show. The trade associations and their members gave $84 million in campaign contributions over the same time, mostly to Republicans.

Repeatedly, the Market Access Program has defied presidential and Congressional budget-cutting efforts as the industry has rallied lawmakers from agricultural states.

Still, budget hawks like Citizens Against Government Waste are cautiously optimistic that the new crop of anti-spending Republicans in Congress will be less supportive of projects like the Market Access Program.

“Most of these people were elected by promising to cut wasteful spending,” said Leslie Paige, a spokeswoman for Citizens Against Government Waste. “It’s going to be really hard for them to go back home to people who’ve lost their jobs or have had a reduction in pay and tell them that they should be paying for the advertising of some of the largest companies in the country.”


Barclay Walsh contributed reporting from Washington, and Vikas Bajaj from Mumbai, India.

    U.S. Spends Millions to Support Exports, NYT, 12.2.2011, http://www.nytimes.com/2011/02/13/us/politics/13agriculture.html

Administration Calls for Cutting Aid to Home Buyers

February 11, 2011
The New York Times
By BINYAMIN APPELBAUM

WASHINGTON — The Obama administration’s much-anticipated report on redesigning the government’s role in housing finance, published Friday, is not solely a proposal to dissolve the unpopular finance companies Fannie Mae and Freddie Mac.

It is also a more audacious call for the federal government to cut back its broadly popular, long-running campaign to help Americans own homes. The three ideas that the report outlines for replacing Fannie and Freddie all would raise the cost of mortgage loans and push homeownership beyond the reach of some families.

That fact is already generating opposition in Congress and among groups like community banks and consumer advocates.

But administration officials said they had concluded the country could no longer afford to sustain its commitment to minting homeowners. Better to help some people rent.

Federal programs subsidized nine in 10 mortgage loans made last year. If the Obama administration succeeds, that could plummet to a mere one in 10 loans by the end of the decade.

The government “must help to ensure that all Americans have access to quality housing that they can afford,” the report said. “This does not mean our goal is for all Americans to be homeowners.”

In announcing its blueprint, the administration offered a series of options for lawmakers to consider. But as a starting point its ideas pleased and surprised business interests and advocates of smaller government that have long opposed the government’s presence in the mortgage market.

“I’m encouraged to see the administration included a number of reform ideas that track closely with my own,” said Representative Scott Garrett, the New Jersey Republican who heads the subcommittee that oversees Fannie and Freddie.

Some of the White House’s usual allies, meanwhile, reacted with anger. “Gutting Fannie and Freddie is the most irresponsible housing proposal yet from this administration,” said Representative Dennis Cardoza, a Democrat from the Central Valley in California. “How is Joe Six-Pack ever going to be able to afford a home?”

The government built Fannie and Freddie as giant magnets to gather money for mortgage loans, part of an effort that dates to the Great Depression to foster homeownership.

The companies attract investors by promising repayment, even if borrowers default. In exchange, investors accept relatively low interest rates. That lets Fannie and Freddie provide money to mortgage lenders at relatively low cost, which lets borrowers pay relatively low interest rates.

A long line of presidents have celebrated the success of the two companies in increasing the share of American families that own their homes.

But the system works only because taxpayers ultimately are liable. In 2008, the government seized the companies. It has since spent more than $135 billion honoring their guarantees.

The Obama administration plans to put the companies out of business by gradually reducing the value of loans they can guarantee and raising the prices they charge lenders. It also plans to require larger down payments from borrowers.

The Treasury secretary, Timothy F. Geithner, said Friday at the Brookings Institution that the health of the housing market would dictate the rate of the agencies’ closing. He estimated the process could take five to seven years.

“We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market,” he said in a separate statement.

If the companies disappear, investors will demand that borrowers pay higher interest rates. But there is wide-ranging disagreement about how much higher. Estimates range from less than half a percentage point to several percentage points.

Investors also may be reluctant to provide money for 30-year fixed-rate mortgages, a product that has never existed without government support.

The effect on borrowers depends in part on what the government does instead.

The report sketches three options without offering specifics or picking a favorite. The administration took a similar approach to health care legislation, adopting the role of moderator as Congress worked out the particulars.

The first option would eliminate any government guarantee for middle-class mortgages.

Under the second option, the government would offer guarantees to investors mostly in times of financial distress, preserving a steady supply of loans but not reducing interest rates in good times.

The third option comes nearest to the current system. The government still would guarantee a broad range of mortgages, but only if lenders first purchased a guarantee from a private insurer. That would limit the government’s exposure — but also the effect on interest rates.

The report rejects calls from some conservatives to eliminate federal programs that guarantee mortgages for lower-income families, veterans and farmers. However, it said it would like those programs — the largest of which is the Federal Housing Administration — to guarantee no more than 15 percent of mortgages, down from a current level of about 30 percent.

“We do take the view that it would be fundamentally untenable for the country to adopt a model where the government plays no role,” Mr. Geithner said.

The report, prepared by Treasury and the Department of Housing and Urban Development, also notes that policies like allowing homeowners to deduct mortgage interest payments from taxable income — an expensive pillar of the government’s housing campaign — encourage people to invest in housing rather than other parts of the economy, and deserve to be reconsidered.

The role that federal home ownership policies played in the housing crisis, and particularly the role of Fannie and Freddie, is deeply controversial.

Some conservative scholars say that the companies fueled the crisis by financing vast numbers of unaffordable loans. A larger number of scholars say that Fannie and Freddie chased after the bad behavior of other lenders to reclaim market share, and that their acquisition of bad loans — while saddling taxpayers with huge losses — was not a primary cause of the crisis.

Many advocates for affordable housing say they cannot understand why the administration has concluded that those errors in judgment are more important than the long-term success of the two companies in making homeownership more affordable.

“Instead of cleaning up where Fannie and Freddie went wrong, we’re eradicating a proven system that worked very well for most of its history,” said John Taylor, president of the National Community Reinvestment Coalition. “For those who are working their way up the economic ladder, there is going to be a narrower opportunity for them to enter homeownership.”


Sewell Chan contributed reporting.

    Administration Calls for Cutting Aid to Home Buyers, NYT, 11.2.2011, http://www.nytimes.com/2011/02/12/business/12housing.html

Relief for States and Businesses

February 9, 2011
The New York Times

So many people now receive jobless benefits that 30 states have run out of their unemployment trust funds and are borrowing $42 billion from the federal government. Three of the hardest-hit states — Michigan, Indiana and South Carolina — have borrowed so much that they triggered automatic unemployment tax increases on employers, and the same thing is likely to happen to 20 more states this year.

The crisis could prove to be a point of friction between Republican governors and members of Congress. On Tuesday, the Obama administration unveiled a smart proposal to delay those tax increases and provide some relief to both employers and state governments. Congressional Republicans reflexively objected to the idea, which could produce higher taxes in three years, but this plan provides relief that might stimulate hiring now when it is most needed. Republican governors in desperate states like Michigan and Indiana are likely to find that more attractive than party members in Washington do.

Under the plan, which is subject to Congressional approval, there would be a two-year moratorium on the increased taxes that employers would otherwise have to pay to support the unemployment insurance system, which could save businesses as much as $7 billion. During those same two years, states would be forgiven from paying the $1.3 billion in interest they owe Washington on the money they have borrowed. The stimulus bill provided a grace period, but it expired last year.

In 2014, when the economy will presumably have recovered somewhat, employers will have to make up for the moratorium by paying higher unemployment taxes to the states. Specifically, they will have to pay taxes on the first $15,000 of an employee’s income, instead of the current $7,000. But, even then, unemployment taxes will be at the same level, adjusted for inflation, as they were in 1983, when President Ronald Reagan raised them.

The administration is proposing to cut the federal unemployment tax rate in 2014 so that employers would pay the same amount to Washington as they do now. States, if they choose to do so, could collect more from each employer to repay the federal government and restock their own unemployment trust funds.

Republicans immediately derided the proposal as an irresponsible tax increase. On his blog, Representative Eric Cantor, the House majority leader, criticized the higher taxes in 2014, but he did not mention the two-year moratorium on the automatic tax increases in 20 vulnerable states.

The proposal is not a bailout for the states or employers but rather a recognition that the automatic tax increases built into the benefits system could put a brake on hiring — and in precisely the states where employers need the most incentive to bring people back to work.

Over the next decade, as more people return to work and the states repay their debt more quickly, the proposal is expected to bring more dollars back to the federal government than the temporary moratorium will cost, so the long-term effect on the deficit should be positive. The full details of the plan’s costs and benefits will be available when President Obama submits his 2012 budget to Congress next week. When he does, both parties should take a close look at the numbers and seize the opportunity to keep this fundamental safety net solvent.

    Relief for States and Businesses, NYT, 9.2.2011, http://www.nytimes.com/2011/02/10/opinion/10thu1.html

Obama Presses Business Leaders to Hire and Invest

February 7, 2011
The New York Times
By MICHAEL D. SHEAR

WASHINGTON — President Obama urged American businesses on Monday to “get in the game” by letting loose trillions of dollars that they are holding in reserve, saying that they can help create a “virtuous cycle” of more sales, higher demand and greater profits that will put people back to work.

“If there is a reason you don’t believe that this is the time to get off the sidelines — to hire and invest — I want to know about it. I want to fix it,” Mr. Obama said in a speech to business leaders at the U.S. Chamber of Commerce.

In the speech, Mr. Obama pledged to eliminate unneeded regulations and simplify the tax code, but said companies had responsibilities to help the economy recover.

“Ultimately, winning the future is not just about what the government can do to help you succeed,” he said. “It’s about what you can do to help America succeed.”

The president’s comments came as he sought to reassure members of the business community that he was not their adversary and to mend fences with their forceful lobbying advocate in Washington.

“I’m here in the interest of being more neighborly,” Mr. Obama said, alluding to the contentious relationship he has had with the Chamber of Commerce over the past two years. “I strolled over from across the street, and, look, maybe if we had brought over a fruitcake when I first moved in, we would have gotten off to a better start. But I’m going to make up for it.”

The chamber has fiercely opposed most of Mr. Obama’s health care and banking agenda and spent more than $50 million during last year’s midterm elections to cast the president and his party as anti-business and a threat to capitalism.

But the chamber, too, is eager to tone down the rhetoric, according to senior officials there. At the height of the high-profile fight with the White House, several big-name companies left its board, citing concern about the chamber’s opposition to the administration’s efforts.

Thomas J. Donohue, the Chamber of Commerce’s president, has in the past warned of a “regulatory tsunami” that will result from Mr. Obama’s policies. In particular, he told reporters after the November elections last year that the health care law would produce hundreds of new burdens on American businesses.

But in introducing Mr. Obama, Mr. Donohue emphasized his group’s desire to work with the administration in areas where they might agree. Those include increasing free trade and exports, investing in technology and infrastructure and reducing the nation’s debt.

“I reaffirm the American business community’s absolute commitment to working with you and your administration to advancing our shared priorities,” Mr. Donohue said.

Mr. Obama’s remarks reflected the careful effort of a White House eager to seem more pro-business but anxious about the accusations of betrayal by some of the Democratic president’s most liberal allies.

The president’s basic message to the business community — “I get it,” he said of the profit-making imperative — was joined with an admonition that corporate America must feel some sense of duty as well. That effort to walk a political line appeared to please neither side completely on Monday.

Mr. Obama’s suggestion that businesses can help the economy recover by spending their reserves was met with skepticism by some in the audience. Harold Jackson, a executive at Buffalo Supply Inc., a medical supply company, called it naïve.

“Any business person has to look at the demand to their company for their product and services, and make hiring decisions,” Mr. Jackson said. “I think it’s a little outside the bounds to suggest that if we hire people we don’t need, there will be more demand.”

Senator Mitch McConnell of Kentucky, the Republican leader in the Senate, said in remarks Monday that “we’ll just have to wait and see whether the administration’s actions support its rhetoric.” Mr. McConnell urged Mr. Obama to prove his intentions to help the business community by doing more to push free trade agreements with Colombia and Panama.

At the same time, Mr. Obama’s decision to address the chamber in the first place has upset liberal groups, who say the president is consorting with the very forces they believe have worked to undercut his policies.

Public Citizen, a liberal group in Washington, issued a statement condemning the president’s comment that he would “go anywhere” in the world to promote trade, a line that prompted one of the few moments of applause from the crowd of business leaders.

“It’s unclear what is more mortifying: President Barack Obama choosing the club of America’s notorious job-offshorers to talk about the importance of creating American jobs, or his rallying of his fiercest political opponents to help him overcome the majority of Americans who oppose more-of-the-same job-killing trade agreements,” said Lori Wallach, the director of Public Citizen’s Global Trade Watch.

Erica Payne, the founder of the Agenda Project, a liberal organization in New York, said: “Two weeks ago, the president promised that he would work to rebuild people’s faith in government. Meeting with the biggest lobbyists in the country is hardly a step in the right direction.”

In an interview after Mr. Obama’s speech, Ms. Payne said the president’s speech had “many words, little content.”

    Obama Presses Business Leaders to Hire and Invest, NYT, 7.2.2011, http://www.nytimes.com/2011/02/08/us/politics/08obama.html

Obama Wants Jobless Aid Help for States

February 7, 2011
Filed at 8:56 p.m. EST
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) — The Obama administration is proposing short-term relief to states saddled with unemployment insurance debt, coupled with a delayed increase in the income level used to tax employers for the aid to the jobless.

The administration plans to include the proposal in its budget plan next week. The plan was described late Monday by a person familiar with the discussions on the condition of anonymity because the budget plan is still being completed.

Rising unemployment has placed such a burden on states that 30 of them owe the federal government $42 billion in money borrowed to meet their unemployment insurance obligations. Three states already have had to raise taxes to begin paying back the money they owe. More than 20 other states likely would have to raise taxes to cover their unemployment insurance debts. Under federal law, such tax increases are automatic once the money owed reaches a certain level.

Under the proposal, the administration would impose a moratorium in 2011 and 2012 on state tax increases and on state interest payments on the debt.

In 2014, however, the administration proposes to increase the taxable income level for unemployment insurance from $7,000 to $15,000. Under the proposal, the federal unemployment insurance rate would be adjusted so that the new higher income level would not result in a federal tax increase, the person familiar with the plan said.

States, however, could retain their current rates, meaning employers could face higher unemployment insurance taxes beginning in 2014.

Though the administration could face criticism for enabling states to increase taxes, the thrust of the administration's argument is that federal taxes would not increase and that the move is fiscally prudent because the federal government ultimately would be repaid at a faster rate than if it did nothing.

The person who described the plan said only 13 of the 30 states that owe the $42 billion would be expected to repay their share of the money in the next nine years under current conditions. The administration's proposal would allow 15 more states to repay the money, this person said.

    Obama Wants Jobless Aid Help for States, NYT, 7.2.2011, http://www.nytimes.com/aponline/2011/02/07/business/AP-US-Obama-Unemployment-Insurance.html

A Terrible Divide

February 7, 2011
The New York Times
By BOB HERBERT

The Ronald Reagan crowd loved to talk about morning in America. For millions of individuals and families, perhaps the majority, it’s more like twilight — with nighttime coming on fast.

Look out the window. More and more Americans are being left behind in an economy that is being divided ever more starkly between the haves and the have-nots. Not only are millions of people jobless and millions more underemployed, but more and more of the so-called fringe benefits and public services that help make life livable, or even bearable, in a modern society are being put to the torch.

Employer-based pensions, paid vacations, health benefits and the like are going the way of phone booths and VCRs. As poverty increases and reliable employment becomes less and less the norm, the dwindling number of workers with any sort of job security or guaranteed pensions (think teachers and other modestly compensated public employees) are being viewed with increasing contempt. How dare they enjoy a modicum of economic comfort?

It turns out that a lot of those jobs were never so secure, after all. As the Center on Budget and Policy Priorities tells us:

“At least 44 states and the District of Columbia have reduced overall wages paid to state workers by laying off workers, requiring them to take unpaid leave (furloughs), freezing hew hires, or similar actions. State and local governments have eliminated 407,000 jobs since August 2008, federal data show.”

We have not faced up to the scale of the economic crisis that still confronts the United States.

Standards of living for the people on the wrong side of the economic divide are being ratcheted lower and will remain that way for many years to come. Forget the fairy tales being spun by politicians in both parties — that somehow they can impose service cuts that are drastic enough to bring federal and local budgets into balance while at the same time developing economic growth strong enough to support a robust middle class. It would take a Bernie Madoff to do that.

In the real world, schools and libraries are being closed and other educational services are being curtailed. Police officers are being fired. Access to health services for poor families is being restricted. “At least 29 states and the District of Columbia,” according to the budget center, “are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or are significantly increasing the cost of these services.”

For a variety of reasons, there are not enough tax revenues being generated to pay for the basic public services that one would expect in an advanced country like the United States. The rich are not shouldering their fair share of the tax burden. The wars in Afghanistan and Iraq continue to consume an insane amount of revenue. And there are not enough jobs available at decent enough pay to ease some of the demand for public services while at the same time increasing the amount of taxes paid by ordinary workers.

The U.S. cannot cut its way out of this crisis. Instead of trying to figure out how to keep 4-year-olds out of pre-kindergarten classes, or how to withhold life-saving treatments from Medicaid recipients, or how to cheat the elderly out of their Social Security, the nation’s leaders should be trying seriously to figure out what to do about the future of the American work force.

Enormous numbers of workers are in grave danger of being left behind permanently. Businesses have figured out how to prosper without putting the unemployed back to work in jobs that pay well and offer decent benefits.

Corporate profits and the stock markets are way up. Businesses are sitting atop mountains of cash. Put people back to work? Forget about it. Has anyone bothered to notice that much of those profits are the result of aggressive payroll-cutting — companies making do with fewer, less well-paid and harder-working employees?

For American corporations, the action is increasingly elsewhere. Their interests are not the same as those of workers, or the country as a whole. As Harold Meyerson put it in The American Prospect: “Our corporations don’t need us anymore. Half their revenues come from abroad. Their products, increasingly, come from abroad as well.”

American workers are in a world of hurt. Anyone who thinks that politicians can improve this sorry state of affairs by hacking away at Social Security, Medicare and the public schools are great candidates for involuntary commitment.

New ideas on a grand scale are needed. The United States can’t thrive with so many of its citizens condemned to shrunken standards of living because they can’t find adequate employment. Long-term joblessness is a recipe for societal destabilization. It should not be tolerated in a country with as much wealth as the United States. It’s destructive, and it’s wrong.

    A Terrible Divide, NYT, 7.2.2011, http://www.nytimes.com/2011/02/08/opinion/08herbert.html

Helping Veterans Trade Their Swords for Plows

February 5, 2011
The New York Times
By PATRICIA LEIGH BROWN

VALLEY CENTER, Calif. — On an organic farm here in avocado country, a group of young Marines, veterans and Army reservists listened intently to an old hand from the front lines.

“Think of it in military terms,” he told the young recruits, some just back from Iraq or Afghanistan. “It’s a matter of survival, an uphill battle. You have to think everything is against you and hope to stay alive.”

The battle in question was not the typical ground assault, but organic farming — how to identify beneficial insects, for instance, or to prevent stray frogs from clogging an irrigation system. It was Day 2 of a novel boot camp for veterans and active-duty military personnel, including Marines from nearby Camp Pendleton, who might be interested in new careers as farmers.

“In the military, grunts are the guys who get dirty, do the work and are generally underappreciated,” said Colin Archipley, a decorated Marine Corps infantry sergeant turned organic farmer, who developed the program with his wife, Karen, after his three tours in Iraq. “I think farmers are the same.”

At their farm, called Archi’s Acres, the sound of crickets and croaking frogs communes with the drone of choppers. The syllabus, approved by Camp Pendleton’s transition assistance program, includes hands-on planting and irrigating, lectures about “high-value niche markets” and production of a business plan that is assessed by food professionals and business professors.

Along with Combat Boots to Cowboy Boots, a new program for veterans at the University of Nebraska’s College of Technical Agriculture, and farming fellowships for wounded soldiers, the six-week course offered here is part of a nascent “veteran-centric” farming movement. Its goal is to bring the energy of young soldiers re-entering civilian life to the aging farm population of rural America. Half of all farmers are likely to retire in the next decade, according to the Agriculture Department.

“The military is not for the faint of heart, and farming isn’t either,” said Michael O’Gorman, an organic farmer who founded the nonprofit Farmer-Veteran Coalition, which supports sustainable-agriculture training. “There are eight times as many farmers over age 65 as under. There is a tremendous need for young farmers, and a big wave of young people inspired to go into the service who are coming home.”

About 45 percent of the military comes from rural communities, compared with one-sixth of the total population, according to the Carsey Institute at the University of New Hampshire. In 2009, the Agriculture Department began offering low-interest loans in its campaign to add 100,000 farmers to the nation’s ranks each year.

Among them will probably be Sgt. Matt Holzmann, 33, a Marine at Camp Pendleton who spent seven months in Afghanistan. He did counterinsurgency work and tried to introduce aquaponics, a self-replenishing agricultural system, to rural villages.

His zeal for aquaponics led him to the farming class. “It’s a national security issue,” he said the other day outside a garage-turned-classroom filled with boxes of Dr. Earth Kelp Meal. “The more responsibly we use water and energy, the greater it is for our country.”

Mr. O’Gorman, a pacifist and a pioneer of the baby-lettuce business, started the coalition after his son joined the Coast Guard. The group recently received a grant from the Bob Woodruff Foundation, co-founded by the ABC News journalist who was wounded in Iraq, to provide farming fellowships for wounded young veterans.

“Beginning farming has become the cause du jour among young people with college degrees and trust funds,” Mr. O’Gorman said at the farm, where there were stacks of Mother Earth News magazines in the bathroom and a batch of fresh kale in the sink. “My gut sense is a lot of them won’t be farming five years from now. But these vets will.”

Mr. Archipley’s own journey into organic farming was somewhat serendipitous. He joined the Marines in response to the Sept. 11 terrorist attacks and married between his second and third tours in Iraq. The couple bought three acres of avocado orchards north of San Diego.

Mr. Archipley, whose looks bring to mind a surfer dude, found pleasure tending his grove after leaving the Marines and eventually secured a loan from the Agriculture Department to build a greenhouse. His farm now sells organic produce to Whole Foods Markets in San Diego and Los Angeles.

In 2007, the couple started training veterans informally, financing the effort themselves. The new course, administered through MiraCosta College, costs $4,500, with Camp Pendleton offering assistance for active-duty Marines.

Farming offers veterans a chance to decompress, Mr. Archipley said, but, more important, provides a sense of purpose. “It allows them to be physically active, be part of a unit,” he said. “It gives them a mission statement — a responsibility to the consumer eating their food.”

Even in this idyllic setting, it can be a challenging process. Mike Nelson Hanes, now 34, enlisted in the Marines at 18. In 1994, six days into his basic training in South Carolina, his drill instructor committed suicide with an M-16 rifle in front of 59 recruits.

“He blew his head off,” Mr. Hanes said. “That was right from the get-go, at age 18.”

In Baghdad, Mr. Hanes served as a .50-caliber machine gunner atop a Humvee. “I was the one they were trying to kill,” he said. He returned home with post-traumatic stress disorder, depression and a traumatic brain injury. He was homeless for over a year, managing nevertheless to get a degree in environmental social services.

“Being outside was my comfort zone — still is,” he said. Two years ago, he stumbled upon the Archipleys’ “Veterans for Sustainable Agriculture” booth at an Earth Day festival in Balboa Park in San Diego. Mr. Hanes still struggles but is gaining ground.

“One thing I’ve noticed about agriculture is that you become a creator rather than a destroyer,” he said amid ornamental eucalyptus shrubs.

John Maki, Camp Pendleton’s transition assistance program specialist, said the life experiences of young veterans equip them for demanding work. “For a comparable age, you won’t find people who have had as much responsibility,” he said. “They’ve been tasked with making life-and-death decisions.”

Weldon Sleight, dean of the University of Nebraska’s College of Technical Agriculture, which has six enrolled veterans, said discipline — a mainstay of the armed forces — was critically important in agriculture. “A lot of these rural vets have this wonderful knowledge base about agriculture,” he added. “But we’ve told them for years there’s no future in it.”

In Central Florida, Adam Burke, who left farming to join the military, came full circle, designing a wheelchair-accessible farm in which his signature “red, white and blueberries” grow in containers on elevated beds.

Mr. Burke, a Purple Heart recipient who suffered a traumatic brain injury in Iraq, recently opened a second farm. “Squeezing a ball in physical therapy gets monotonous,” he said. “And you don’t get the mist from the sprinklers or a cool breeze in a psychologist’s office.”

Matthew McCue, 29, formerly Sergeant McCue, runs Shooting Star CSA outside San Francisco with his partner, Lily Schneider, delivering boxes of organic produce directly to consumers.

He recalled how orchard farmers in Iraq pridefully shared their pomegranates, tomatoes and melons.

“You learn how to face death,” he said of his service in Iraq. But in farming, he learned, “There was life all around.”

    Helping Veterans Trade Their Swords for Plows, NYT, 5.2.2011, http://www.nytimes.com/2011/02/06/us/06vets.html

In a Graying Population, Business Opportunity

February 5, 2011
The New York Times
By NATASHA SINGER

CAMBRIDGE, Mass.

IT’S not easy being gray.

For the first time ever, getting out of a car is no picnic. My back is hunched. And I’m holding on to handrails as I lurch upstairs.

I’m 45. But I feel decades older because I’m wearing an Age Gain Now Empathy System, developed by researchers at the Massachusetts Institute of Technology. Agnes, they call it.

At first glance, it may look like a mere souped-up jumpsuit. A helmet, attached by cords to a pelvic harness, cramps my neck and spine. Yellow-paned goggles muddy my vision. Plastic bands, running from the harness to each arm, clip my wingspan. Compression knee bands discourage bending. Plastic shoes, with uneven Styrofoam pads for soles, throw off my center of gravity. Layers of surgical gloves make me all thumbs.

The age-empathy suit comes from the M.I.T. AgeLab, where researchers designed Agnes to help product designers and marketers better understand older adults and create innovative products for them. Many industries have traditionally shied away from openly marketing to people 65 and older, viewing them as an unfashionable demographic group that might doom their product with young and hip spenders. But now that Americans are living longer and more actively, a number of companies are recognizing the staying power of the mature market.

“Aging is a multidisciplinary phenomenon, and it requires new tools to look at,” Joseph F. Coughlin, director of AgeLab, tells me, encumbered and fatigued after trying to conduct a round of interviews while wearing Agnes. Viewed through yellow goggles, the bright colors of Professor Coughlin’s bow tie appear dim. “Agnes is one of those tools,” he says.

AgeLab, like a handful of other research centers at universities and companies around the country, develops technologies to help older adults maintain their health, independence and quality of life. Companies come here to understand their target audience or to have their products, policies and services studied.

Often, visitors learn hard truths at AgeLab: many older adults don’t like products, like big-button phones, that telegraph agedness. “The reality is such that you can’t build an old man’s product, because a young man won’t buy it and an old man won’t buy it,” Professor Coughlin says.

The idea is to help companies design and sell age-friendly products — with customizable font size, say, or sound speed — much the way they did with environmentally friendly products. That means offering enticing features and packaging to appeal to a certain demographic without alienating other consumer groups. Baked potato chips are just one example of products that appeal to everybody but skew toward older people. Toothpastes that promise whitening or gum health are another.

Researchers at AgeLab are studying the stress levels of older adults who operate a hands-free parallel-parking system developed by Ford Motor. Although this ultrasonic-assisted system may make backing up easier for older adults who can’t turn their necks to the same degree they once did, the car’s features — like blind-spot detection and a voice-activated audio system — are intended to appeal to all drivers who enjoy smart technology.

“With any luck, if I am successful,” Professor Coughlin says, “retailers won’t know they are putting things on the shelves for older adults.”

THE first of about 76 million baby boomers in the United States turned 65 in January. They are looking forward to a life expectancy that is higher than that of any previous generation.

The number of people 65 and older is expected to more than double worldwide, to about 1.5 billion by 2050 from 523 million last year, according to estimates from the United Nations. That means people 65 and over will soon outnumber children under 5 for the first time ever. As a consequence, many people may have to defer their retirement — or never entirely retire — in order to maintain sustainable incomes.

Many economists view such an exploding population of seventy- and eighty-somethings not as an asset, but as a looming budget crisis. After all, by one estimate, treating dementia worldwide already costs more than $600 billion annually.

“No other force is likely to shape the future of national economic health, public finances and policy making,” analysts at Standard & Poor’s wrote in a recent report, “as the irreversible rate at which the world’s population is aging.”

The S.&P. analysis, called “Global Aging 2010,” warns that many countries are not prepared to cover the pension and health care costs of so many additional retirees; if those governments do not radically alter their age-related spending policies in the next few decades, the report said, national debts will grow to rival — or even more than double — gross domestic product.

But longevity-focused researchers including Professor Coughlin, whose blog is called Disruptive Demographics, are betting that baby boomers, unlike generations past, will not go gentle into the good night of long-term care. In fact, a few research groups at institutions like Oregon Health & Science University, M.I.T. and Stanford, along with foundations and the private sector, are devising policies and systems for an alternate scenario: older adults living independently at home for longer periods, whether that home is a private residence or a senior community.

Devices for I’ve-fallen-and-I-can’t-get-up catastrophes, they say, represent the old business of old age. The new business of old age involves technologies and services that promote wellness, mobility, autonomy and social connectivity. These include wireless pillboxes that transmit information about patients’ medication use, as well as new financial services, like “Second Acts” from Bank of America Merrill Lynch, that help people plan for longer lives and second careers.

Together, those kinds of products and services are already a multibillion-dollar market, industry analysts say. And if such innovations prove to promote health and independence, delaying entry into long-term care, the potential savings to the health care system could be even greater.

That’s the upbeat message that Eric Dishman, the global director of health innovation at Intel, has been trying to get across to policy makers and industry executives for more than a decade. A charismatic health policy wonk, Mr. Dishman has held audiences at TedMed conferences spellbound with his lecture on the subject, in which he carts around an old-school rotary telephone, a prop dramatizing the need to connect older adults and technology.

In his office in Beaverton, Ore., he demonstrates some prototypes, like a social networking system for senior housing centers, that older Americans are already testing. Often, he says, field studies of his gadgets result in “success catastrophes” — the devices prove so popular that testers and their families are loath to return them. The people testing the social network devices, for example, asked for extra models for off-campus friends.

“There is an enormous market opportunity to deliver technology and services that allow for wellness and prevention and lifestyle enhancement,” he says. “Whichever countries or companies are at the forefront of that are going to own the category.”

Industry is beginning to hear his message. Last month, a group including Bank of America Merrill Lynch, Pfizer, Johnson & Johnson and Aegon said it had formed the Global Coalition on Aging, to help governments and industries better handle the age boom. “Companies are starting to think about how they can be age friendly much the same way they have been thinking about how they could be environmentally friendly over the last couple of decades,” says Andy Sieg, the head of retirement services at Bank of America.

THE Mirabella, a new $130 million high-rise in the South Waterfront section of Portland, Ore., may be the greenest luxury retirement community in the nation.

The building has solar-heated hot water, a garage where valets stack cars in racks atop one another, sensors that turn off the lights when stairways are empty and platinum certification from Leadership in Energy and Environmental Design, or LEED, the group that sets national benchmarks for sustainable building.

But never mind the free loaner Priuses in the garage. The Mirabella also aspires to be the grayest — by providing an opportunity to develop and test the latest home-health technology and design concepts for older adults.

The building’s architects, Ankrom Moisan Associated Architects, turned on its head the idea of putting retirees out to pasture. This urban high-rise, conveniently located next to Oregon Health and Science University, enables residents to stay as healthy, engaged and socially connected as possible, says Jeff Los, a principal in the firm.

“Historically, upscale senior housing has been a rural three-story entity spread over 30 acres,” he says. “This is a 30-story building on one acre with a streetcar stop at the front door.”

The developers, Pacific Retirement Services, bought land from the university with the idea of encouraging research next door, at the school’s Oregon Center for Aging & Technology, also known as Orcatech. As part of that project, the company spent nearly a half-million dollars to install fiber optic cables so that Mirabella residents could be encouraged to volunteer for a “living laboratory” program in which wireless motion sensors, installed in their apartments, track their mobility and, by extension, their health status in real time.

Older adults in other parts of the city are already participating in the program; researchers hope to prove that continually monitoring them can help predict and prevent problems like falls, or even social withdrawal, says Dr. Jeffrey Kaye, a neurology professor who directs Orcatech.

And some residents may eventually want to modify the monitoring system so that they can download and make use of their own health data, Mr. Los says.

In fact, even before Mirabella opened last fall, residents asked for adjustments to the building. They demanded space in the garage for their kayaks, recalls Mr. Dishman, who serves on the building’s steering committee.

“Baby boomers are going to be very different seniors,” he says.

ABOUT 30 older adults in the greater Portland area have volunteered to participate in the Orcatech living laboratory program.

Dorothy Rutherford, 86, a petite redhead with a deadpan wit, is one of them. And she is a model for the kind of independent aging, abetted by technology, that the researchers hope to encourage.

Her bone-colored earrings — a gift from a dentist who made them from denture material — dangle as she gives me a tour of the equipment that researchers have installed in her apartment. Sensors that monitor the speed and frequency of her activity dot the ceilings and cling to furniture, appliances and doors.

“I have no worries about privacy whatsoever,” she declares, waving at the ceiling. “They are just sensors, not video cameras.”

A wireless smart pillbox reminds her to take her daily vitamins. A computer on which she plays specific word and number games tracks her daily scores.

But her favorite experiment so far involved an anthropomorphic robot from Vgo Communications, nicknamed Celia, that was equipped with a video screen. Mrs. Rutherford’s granddaughter and great-granddaughter in Wyoming could remotely operate Celia any time they wanted to follow her around for a video chat.

Mrs. Rutherford, a retired waitress, already uses Skype to talk to family members. But Skype is stationary, she says, while the robot conveniently wheels itself from room to room.

“When I saw Celia the robot, I thought there are all kinds of possibilities to get you set up at home,” she says. “Why would somebody go to a retirement community if they can figure out a way to keep people home longer?”

Even so, the pilot program is not inexpensive: it costs about $1,000 to set up each participant with a computer and $6 sensors, plus $2,600 a year for technical support, Internet access and home visits from researchers. Monitoring costs vary. (The robot, which is not a regular feature of the program and which participants tried for about a week each, costs $6,000 plus a monthly $100 service fee.)

The continuous monitoring of people like Mrs. Rutherford may point the way to more preventive health care — an alternative to the pattern of doctors seeing elderly patients on an infrequent basis, often treating them only after they have developed acute illnesses or had accidents. “What if there were thousands of homes around America that had these simple systems in place?” Dr. Kaye of Orcatech says about the monitoring system.

The idea is to determine whether changes in daily habits — like walking speed, posture, sleep, pill taking, computer game scores — can accurately predict things like cognitive decline or balance problems, allowing doctors to intervene before someone falls and, say, breaks a hip.

Intel and General Electric recently started a joint venture, Intel-GE Care Innovations, to develop technologies that help older adults stay independent. They are already marketing the Intel Health Guide, a home monitoring system that helps doctors remotely manage patients’ care.

There’s just one obstacle: the marketplace for age independence technology is in its infancy. Because of ageism, Mr. Dishman says, many retailers aren’t ready to make space for such products and many companies don’t even want to develop them.

“Life enhancement technology for boomers is a chicken-and-egg problem,” he says. Is “the market going to take the first plunge, or are companies going to create technologies without knowing whether we can sell it?”

He has been on a mission, he says, to have Congress put the issue on the national agenda; he’d also like to see the White House establish a commission on aging. The European Union, he points out, has already committed more than one billion euros to study technology and aging.

But so far, the officials he has met with have not taken up the cause, he says. In the laundry list of initiatives in his State of the Union address last month, President Obama pushed clean energy, not gray tech.

Mr. Dishman asks: “What do we need to do for aging and gray technology to have the same urgency and investment that global warming” and green technology have?

GRAMPA. Golden ager. Elderly person. Senior citizen.

Americans have come to associate agedness with frailty and disability rather than with institutional memory and expertise.

“People somehow assume that when we are young, we are vital,” says Ken Dychtwald, the C.E.O. of AgeWave, a research and consulting organization that focuses on population aging. “Then, when we pass 40, we are on a downward slope to death.”

For more than a quarter-century, Mr. Dychtwald, 60 and thus himself a baby boomer, has been trying to rebrand aging as a positive phenomenon. He’s coined a word — “middlescence” — to convey later life as a transformative stage, like adolescence, in which people have free time and an increased interest in trying new experiences. He also came up with an antidote to retirement: “rehirement.”

Now that the oldest baby boomers are turning 65, he says, their sheer numbers may attract industries that had earlier shied away. “If you are a Fortune 100 company, or an inventor in a garage, where are you going to find another demographic that is that large, that robust in spending power, that open to new possibilities, and that underserved?” he asks. “There’s nothing to rival it.”

In 2009, for example, baby-boomer households in the United States spent about $2.6 trillion, according to estimates from AgeWave based on a consumer expenditure survey by the Bureau of Labor Statistics.

But so far, he says, very few companies have applied creative intelligence to understanding older adults and developing game-changing technologies, services, experiences and even new careers for them.

Imagine a new real estate sector, he says, that caters to the former hippies among baby boomers who want to form retirement communities with friends by buying six-bedroom communal penthouses in Chicago or farms in Vermont. Or Internet cemeteries, he says, that would preserve video libraries of people’s lives for their descendants to enjoy.

“Rather than viewing maturity as an opportunity to sell people a golf membership or an arthritis medicine,” he says, “since a person who turns 60 has another 20 years, why not create educational programs whereby people can be motivated to go out, learn new skills and have an encore?”

AGNES, the age empathy suit developed by the M.I.T. AgeLab, is calibrated to simulate the dexterity, mobility, strength and balance of a 74-year-old. My empathy has clearly deepened after a few hours of road-testing it. But, sheepishly, I still want to shed the suit and its instant add-on decades.

Professor Coughlin started AgeLab in 1999 to address what he calls “the longevity paradox” — the idea that, while people in many developed countries now live several decades longer than those born a century ago, very few policy makers, institutions and industries are dedicated to helping people make those extra decades healthy and productive.

More than a decade later, with boomers starting to turn 65, experts like Professor Coughlin hope to make gray the new green. Their job would be easier if it were fun to wear Agnes.

    In a Graying Population, Business Opportunity, NYT, 5.2.2011, http://www.nytimes.com/2011/02/06/business/06aging.html

Food Prices Worldwide Hit Record Levels, Fueled by Uncertainty, U.N. Says

February 3, 2011
The New York Times
By NEIL MacFARQUHAR

UNITED NATIONS — Global food prices are moving ever higher, hitting record levels last month as a jittery market reacted to unpredictable weather and tight supplies, according to a United Nations report released Thursday.

It was the seventh month in a row of food price increases, according to the United Nations Food and Agriculture Organization, which put out the report. And with some basic food stocks low, prices will probably continue reaching new heights, at least until the results of the harvest next summer are known, analysts said.

“Uncertainty itself is a new factor in the market that pushes up prices and will not push them down,” said Abdolreza Abbassian, an economist and the grain expert at F.A.O. “People don’t trust anyone to tell them about the harvest and the weather, so it has to await harvest time.”

Scattered bright spots in the report led experts to suggest that a repeat of the 2008 food riots stemming from similar sharp price increases might not be imminent. Rice was slightly cheaper and meat prices stable, they noted. But the overall uncertainty and inflation could eventually make the situation worse than three years ago, they said.

Riots and demonstrations erupting across the Middle East are not directly inspired by rising food prices alone, experts noted, but that is one factor fueling the anger directed toward governments in the region. Egypt was among more than a dozen countries that experienced food riots in 2008.

The F.A.O. price index, which tracks 55 food commodities for export, rose 3.4 percent in January, hitting its highest level since tracking began in 1990, the report said. Countries not dependent on food imports are less affected by global volatility. Still, food prices are expected to rise 2 percent to 3 percent in the United States this year.

Four main factors are seen as driving prices higher: weather, higher demand, smaller yields and crops diverted to biofuels. Volatile weather patterns often attributed to climate change are wreaking havoc with some harvests. Heavy rains in Australia damaged wheat to the extent that much of its usually high-quality crop has been downgraded to feed, experts noted.

This has pushed the demand and prices for American wheat much higher, with the best grades selling at 100 percent more than they were a year ago, Mr. Abbassian said. The autumn soybean harvest in the United States was poor, so strong demand means stocks are at their lowest level in 50 years, he said.

Brokers are waiting to see how acreage in the United States will be divided between soybeans, corn and cotton, with cotton fetching record prices, Mr. Abbassian said.

Sugar prices are also at a 30-year high, he said. Prices for cereals are rising but still below their April 2008 peak. Oils and fats are up and close to their 2008 level, and dairy is higher but still below its 2007 peak, the report said. Even positive news, like good rains in Argentina and a strong harvest in Africa, has failed to keep prices from rising.

“Food prices are not only rising, but they are also volatile and will continue this way into the future,” said Ngozi Okonjo-Iweala, the World Bank managing director.

Changing diets around the world stemming from higher incomes, especially in places like China and India, mean a greater demand for meat and better grains. Although it takes time for that to translate into higher prices globally, it does buoy demand, the experts said.

In 2009, the richest nations pledged more than $20 billion to aid agriculture in developing countries, including $6 billion for a food security fund housed at the World Bank. Just $925 million of those pledges has been paid, Ms. Okonjo-Iweala noted, because of financial problems in the donor countries. That will bring consequences, she said, as one billion people already go without sufficient food daily.

Derek Headey, an economist with the International Food Policy Research Institute, noted that in 2007 and 2008 many African countries were hit hard by soaring import bills, as were nations spread across the world, like Afghanistan, Pakistan and Ecuador.

But some of the world’s largest and poorest countries experienced rapid economic growth and only modest food inflation, so the number of people facing food insecurity in nations like China, India, Indonesia and Vietnam actually went down at that time, he said.

“This time around there is still strong economic growth in these countries, but inflation is much more of a problem,” he said. “So it is possible that the impact could be worse in 2011, especially if food prices stay high.”

It will take some months for those figures to emerge, he added.

    Food Prices Worldwide Hit Record Levels, Fueled by Uncertainty, U.N. Says, NYT, 3.2.2011, http://www.nytimes.com/2011/02/04/world/04food.html

Foreclosed Homeowners Go to Court on Their Own

February 2, 2011
The New York Times
By DAVID STREITFELD

ALBUQUERQUE — Saving your home from foreclosure is increasingly a do-it-yourself project.

Lawyers are scarce and free legal assistance is overwhelmed in New Mexico, so a community center here is offering an hourlong class in how to download the correct forms, decipher the lingo and mount a defense, however tentative and primitive, against a multibillion-dollar bank.

“I don’t see success for someone like me who doesn’t understand the law,” said Skylar Perea, a senior care aide who fell behind on her payments during the eight months she was out of a job. “But it’s better than nothing.”

In New Mexico, New York, Florida and the 20 other states where foreclosures require a judge’s approval, homeowners in default have traditionally surrendered their homes without ever coming to court to defend themselves. (In the 27 other states, including California, Nevada and Arizona, homeowners have a much harder time contesting a foreclosure even if they want to.)

That passivity has begun to recede. While many foreclosures are still unopposed, courts are seeing a sharp rise in cases where defendants show up representing themselves.

One factor driving the increase is the changing nature of foreclosure.

When people went into default in 2008, it was generally because of the exploding cost of a subprime loan. Unable or unwilling to handle sharply higher payments, the homeowner walked away with little protest.

Now many defaults are prompted by stretches of unemployment like Ms. Perea’s. These owners do not have the resources to come up with all their missed payments at once. But if they can persuade their lender to restructure the loan instead of seizing the house, they have a chance of staying put.

In New Mexico, this is where the hourlong workshops come in. “When you cannot pay, this is called ‘a breach of contract,’ ” Angelica Anaya Allen, director of the nonprofit Fair Lending Center, explained to a small but diverse group one recent morning.

Young and old, solo and in couples, the homeowners in Ms. Anaya Allen’s class were all in breach, clutching special-delivery packages from their lenders announcing that the machinery was now engaged to evict them. They took notes, asked questions — is the courthouse the building on Fourth Street with the blue roof? — and were resolute if not quite eager for battle.

“I’m not sure where I stand, but I just don’t want to let the house go,” said Ms. Perea.

The legal challenges that she and the other students will make are slowing the foreclosure process. Over the last year, the average delinquency for a foreclosed loan rose to 499 days from 406 days, according to the data firm LPS Applied Analytics. But they are also straining the courts and often encouraging unreal expectations.

Louis McDonald, the chief judge for New Mexico’s 13th Judicial District, welcomes the influx of homeowners defending themselves, known as pro se defendants.

“They really want to stay in their houses,” he said. “Some of them have fairly legitimate defenses.”

But the law grows more complex as the cases proceed, and foreclosure still looms for those who do not grasp its intricacies. “The system is failing those who can’t afford representation,” Mr. McDonald said.

The 13th District surrounds Albuquerque on three sides and includes Sandoval County, which has the highest foreclosure rate in the state. Nearly half of the 100 new foreclosure defendants flooding the court every month are there on their own. There are so many of these defendants, and they need so much help understanding the law in a small, overburdened court, that last year Mr. McDonald instituted regular meetings overseen by himself and the district’s two other judges. Volunteer lawyers were on hand to advise the defendants, and the bank lawyers were required to attend.

It was, in effect, a court within the court. But the program used a lot of resources for an uncertain result, so it is being replaced by a less comprehensive clinic. The real solution, Mr. McDonald said, would be “more legal aid.”

That is a common refrain in court systems that have been successful in reaching out to the foreclosed. Before 2008 in New York, for instance, about 90 percent of foreclosure defendants never appeared before a judge. It was, a recent report by the court system said, a “paper process” and not a people process.

Then the state legislature directed that the court system hold mandatory settlement conferences to encourage the bank and the homeowner to reach a resolution. More than three-quarters of defendants now come to court, about 32,000 in the first 10 months of last year. But only 12,000 had a lawyer. The rest were in charge of their own fate.

“We’re getting the people in here, getting them to the table with the bank, but I don’t know what happens to these cases long term,” said Paul Lewis, chief of staff to New York’s chief administrative judge. “Many of the homeowners would do much better with an attorney.”

The courts would be better off as well. In Suffolk County, foreclosure cases are 40 percent of the civil caseload. Upstate, in Schenectady and Wyoming counties, they are about half. The New York State Unified Court System is asking for an additional $25 million a year to pay for lawyers to represent the poor in civil cases, including foreclosure. The legislature has yet to approve the request.

In Albuquerque, the three lawyers for the Fair Lending Center — a legal aid group that is paid for by the state — would be happy to see their financing merely remain the same. But even if it does, they will not be able to handle all the demand.

Ms. Anaya Allen started offering the foreclosure workshops last spring, at a point when she and her colleagues simply could not take on any new cases.

“It was the only alternative: give people the tools to help themselves,” she said.

Other legal aid groups across the country have been forced to consider do-it-yourself classes. For the Legal Aid Society of Southwest Ohio, demand for foreclosure help rose 51 percent between May and November last year. “People realized they could fight back,” said Mark Lawson, a senior lawyer with the nonprofit.

Financing has not kept pace. At any moment, Mr. Lawson has a dozen or so files on his desk — people who qualify for help but will not get it from him. When he calls and says his lawyers are too busy to take on another case, some homeowners get angry. Others are grateful that at least someone cared.

Mr. Lawson is skeptical that self-help clinics are a solution. “We have overwhelmed judges and impossible lenders,” he said. “It’s hard enough for lawyers to deal with them.”

In the Albuquerque class, Ms. Anaya Allen does not promise a happy ending. “At the end of the day, unless you have major defenses, it’s likely the court will make a finding of foreclosure,” she said.

Norma Canales and her boyfriend, Saul Valdez, were merely hoping for a little leverage against their lender. They fell into default when Ms. Canales got divorced and her husband stopped making house payments.

“We were working with the bank, trying to work something out, and now suddenly we’re in foreclosure,” said Mr. Valdez, 39. The couple never realized they could represent themselves in court. “It gives you,” he said, “some sort of hope.”

    Foreclosed Homeowners Go to Court on Their Own, NYT, 2.2.2011,
    http://www.nytimes.com/2011/02/03/business/economy/03class.html