USA > History > 2011 > Economy (V)

Dissenting, or Seeking Shelter?

Homeless Stake a Claim at Protests

October 31, 2011
The New York Times
By ADAM NAGOURNEY

LOS ANGELES — Robert Gaffney, who came here from Oklahoma 10 years ago, settled on a scrap of burlap the other day on a grassy hill outside City Hall, surveying the tents and crowd that make up Occupy Los Angeles. For many of his neighbors at City Hall Park, this is a center of protest and political grievance. For Mr. Gaffney, it is the latest piece of land that he calls home.

It is, he said, more comfortable than the sidewalk in Hollywood that he has been living on for the last few months. It is safer and less sketchy than Skid Row, the homeless colony a few blocks away.

“It’s different here,” said Mr. Gaffney, 31. “I find myself getting sleep. Interesting conversation.” He held up a pair of dirty socks. “But I haven’t figured out how to do laundry.”

Mr. Gaffney is hardly an unusual presence in the Occupy demonstrations across the country these days. From Los Angeles to Wall Street, from Denver to Boston, homeless men and women have joined the protesters in large numbers, or at least have settled in beside them for the night. While the economic deprivation they suffer might symbolize the grievance at the heart of this protest, they have come less for the cause than for what they almost invariably describe as an easier existence. There is food, as well as bathrooms, safety, company and lots of activity to allow them to pass away their days.

“When the tents went up, everybody moved in,” Douglas Marra, a homeless person in Denver, said. “They knew they could get stuff for free.”

But their presence is posing a mounting quandary for protesters and the authorities, and divisions have arisen among protesters across the country about how much, if at all, to embrace the interlopers. The rising number of homeless, many of them suffering from mental disorders, has made it easier for Occupy’s opponents to belittle the movement as vagrant and lawless and has raised the pressure on municipal authorities to crack down.

In Atlanta on Saturday, demonstrators who had been thrown out of Woodruff Park by the police moved into upper floors of the Peachtree-Pine homeless shelter in a full-scale embrace of the cause of the 600 residents who live below them. It gave the demonstration more of a political focus, and not incidentally expanded its size.

“The homeless bring numbers,” said Alex Smith Jr., 50, a former repairman who lives at the shelter and joined the protests. “They bring a voice.”

But in places like Nashville, New York, Los Angeles and Oakland, Calif., protesters talk about feeling unsafe because of the presence of homeless people.

“There are a lot of them here that have mental problems and that need help. They are in the wrong place,” said Jessica Anderson, 22, who is herself homeless, sitting with friends on a tarp at the Los Angeles site. “They have been creating more problems. There was one guy who showed up last night and he would not shut up: Saying all kinds of crazy stuff all night.”

In Nashville, organizers described the homeless as more of a detriment to the movement than an asset. “This is keeping people away: It distracts a lot of energy away from the issues we’re fighting for when we’re just managing life in the camp,” said Bob Titley 56, one of the participants in Occupy Nashville. “A lot of women felt unsafe camping out at night. It discourages a lot of people from participating.”

The influx of homeless has been continuing at a steady pace, even as the overall populations of some of the demonstrations have faded under the pressures of dropping temperatures, the passage of time and increasingly aggressive police tactics. Some organizers estimated that as many as 30 percent of the people camping out in some cities were chronically homeless, a figure that seems impossible to verify.

That said, in many encampments, the evidence of a homeless population was plentiful amid the more high-quality tents: blankets, shopping carts, piles of clothes, and people sleeping on the grass, a sheet pulled over their heads. Nan Roman, president of the National Alliance to End Homelessness, said the demonstrators and the homeless have some shared interests.

“Homeless people, I think, identify with Occupy because it’s about inequities,” she said. “And it’s another group that is trying to live outside. It’s not surprising that there’s a confluence here.”

Interviews across the country attest to the complexity of the situation.

At Zuccotti Park in Lower Manhattan, some homeless have integrated themselves into Occupy Wall Street, protesters said. But others, they said, appeared to be opportunists looking for free food and clothes, and were often disruptive. Hero Vincent, 21, said that he was a member of a security team that roamed the park and has several times broken up disputes involving people who appeared to be homeless.

“It’s bad for most of us who came here to build a movement,” he said. “We didn’t come here to start a recovery institution.”

In Chicago, where there has been a steady influx of homeless people, organizers said there were just occasional problems, involving drinking alcohol or provoking violence. “We just ask them to leave,” said Taylor Stekkinger, 18, a member the group’s organizational committee.

While some homeless people said they were appreciative of the protesters’ cause, other said they were more grateful for the amenities. Cameron Rose, 26, who spent the past two months sleeping in restrooms and under highways in Oakland, called it a welcome respite from a life of worry about food and safety.

“If I need clothes, someone donates clothes,” he said. “If I need to take a shower, someone helps me find a place to do that. If I need medical help, there are medics here. Everyone gets fed well, 24/7. I need medical marijuana but I have no money. Here, people give it to me.”

At a food tent here in Los Angeles, the homeless are often the first in line when a pot of stew comes out, many of them wandering over from Skid Row.

“If you are hungry and are in need of a meal, we will serve you as long as you do not disrupt the occupiers,” said Michele Watson, one of the managers of the food tent, on a soft and sunny day that was a reminder of why so many homeless people have settled in this city. “We don’t turn anyone away. I don’t care what your address is.”

 

Reporting was contributed by Jess Bidgood from Boston, Robbie Brown from Atlanta, Dan Frosch from Denver, Ian Lovett from Los Angeles, Colin Moynihan from New York, Malia Wollan from Oakland, Calif., and Steven Yaccino from Chicago.

    Dissenting, or Seeking Shelter? Homeless Stake a Claim at Protests, NYT, 31.10.2011,
    http://www.nytimes.com/2011/11/01/us/dissenting-or-seeking-shelter-homeless-stake-a-claim-at-protests.html

Some Cities Begin Cracking Down on ‘Occupy’ Protests

October 27, 2011
The New York Times
By JESSE McKINLEY and ABBY GOODNOUGH

OAKLAND, Calif. — After weeks of cautiously accepting the teeming round-the-clock protests spawned by Occupy Wall Street, several cities have come to the end of their patience and others appear to be not far behind.

Here in Oakland, in a scene reminiscent of the antiwar protests of the 1960s, the police filled downtown streets with tear gas late Tuesday to stop throngs of protesters from re-entering a City Hall plaza that had been cleared of their encampment earlier in the day. And those protests, which resulted in more than 100 arrests and at least one life-threatening injury, appeared ready to ignite again on Wednesday night as supporters of the Occupy movement promised to retake the square. Early Wednesday evening, city officials were trying to defuse the situation, opening streets around City Hall, though the encampment site was still fenced off.

But after about an hour of speeches, the crowd removed the fences. The number of protesters swelled to about 3,000 people, but the demonstration remained peaceful. Leaders led a series of call-and-response chants. “Now the whole world is watching Oakland,” was one phrase that was repeated as passing cars honked in approval. That police had gone, compared with a heavy presence the night before.

The official protest broke up around 10 p.m. local time, peacefully, with protesters dancing, carrying American flags and generally celebrating what seemed to be a well-attended demonstration of some 3,000 people.

Shortly after the end of that protest, however, hundreds of demonstrators began to wander down Broadway, Oakland’s central thoroughfare, in an unplanned march. The Oakland police, who had been noticeably absent during the protests at City Hall, began donning protective riot gear as demonstrators upped their rhetoric and attempted to board San Francisco Bay Area Rapid Transit trains. Several entrances to the BART system were closed, agitating protesters and adding to an increasingly tense atmosphere in Oakland, which had exploded in violence a mere 24 hours before.

The impromptu march continued west toward Oakland’s waterfront as it became more apparent that there was little central organizing structure as the night grew later.

About 10:25 p.m., a crowd of a thousand protesters arrived at Oakland’s police headquarters and began milling about in front. Some attempted to put garbage cans in the street, while others beseeched the crowd to remain peaceful. The Oakland police manned the front door of their headquarters and maintained a loose perimeter.

Across the bay, meanwhile, in the usually liberal environs of San Francisco, city officials there had also seemingly hit their breaking point, warning several hundred protesters that they were in violation of the law by camping at a downtown site after voicing concerns about unhealthy and often squalid conditions in the camp, including garbage, vermin and human waste.

In Atlanta, Mayor Kasim Reed ordered the police to arrest more than 50 protesters early Wednesday and remove their tents from a downtown park after deciding that the situation had become unsafe, despite originally issuing executive orders to let them camp there overnight.

And like many of his mayoral colleagues nationwide, Mr. Reed openly expressed frustration with the protesters’ methods.

“The attitude I have seen here is not consistent with any civil rights protests I have seen in Atlanta,” Mr. Reed said in an interview, “and certainly not consistent with the most respected forms of civil disobedience.”

Similar confrontations could soon come to pass in other cities, including Providence, R.I., where Mayor Angel Taveras has vowed to seek a court order to remove protesters from Burnside Park, which they have occupied since Oct. 15.

And while other, bigger cities, including New York, Boston and Philadelphia, have taken a more tolerant view of the protests — for now — officials are still grappling with growing concerns about crime, sanitation and homelessness at the encampments. Even in Los Angeles, where the City Council passed a resolution in support of the protesters, Mayor Antonio R. Villaraigosa warned Wednesday that they would not be allowed to remain outside City Hall indefinitely.

Dot Joyce, a spokeswoman for Mayor Thomas M. Menino of Boston, echoed that. “It’s a daily assessment for us,” she said.

More and more, mayors across the country say they have found themselves walking a complex and politically delicate line: simultaneously wanting to respect the right to free speech and assembly, but increasingly concerned that the protests cannot stay orderly and safe.

“We can do lots of different things to help them on our end,” said Mr. Taveras, who estimates that roughly 200 people have camped out in Providence despite a city rule forbidding such behavior. “But we cannot allow an indefinite stay there, and we can’t allow them to continue to violate the law.”

The protests showed little sign of slacking. In Chicago, for example, demonstrators gathered Wednesday outside the office of Mayor Rahm Emanuel requesting 24-hour access to Grant Park and demanding that charges be dropped against the more than 300 protesters arrested there in the past weeks.

“He’s denying us our constitutional right to not only free speech, but peaceful continual assembly,” said Andy Manos, 32, one of the protesters.

Even in Democratic Chicago, officials seemed to straining to allow for dissent, while maintaining order. “We’ve been working hard to strike a balance,” said Chris Mather, a spokeswoman for Mr. Emanuel. Ms. Mather added that the mayor’s office had tried to set up meetings with protesters, who themselves said they were trying to find a permanent home for their demonstrations.

Indeed, some city officials said the tensions surrounding the Occupy protests have been increased by the fact that many of the groups involved have few recognized leaders.

“It’s a significant challenge to deal with their decision-making process,” said Richard Negrin, the managing director of Philadelphia, where tents form a protest village outside City Hall.

In Oakland, where one protester — Scott Olsen, an Iraq war veteran — was in critical condition at a local hospital after being struck in the head with a projectile during the chaotic street battle on Tuesday, city officials defended their actions, saying the police used tear gas after being pelted with rocks. The police are investigating what happened to Mr. Olsen.

As the protests continued, worries about possible violence percolated.

In Atlanta, Mr. Reed said the last straw came Tuesday, when he said a man with an AK-47 assault rifle joined the protesters in Woodruff Park. On Wednesday, after all protesters who had been arrested were released on bond, some said the man with the assault rifle — who was carrying it legally under Georgia law — was not part of their group and should not have been a factor in shutting them down. “We don’t even know that guy,” said Candi Cunard, 26.

Protest organizers said many of the troublemakers in Oakland and elsewhere were not part of the Occupy movement, but rather were anarchists or others with simply with a taste for mayhem.

“The people throwing things at police and being violent are not part of our ‘99 Percent’ occupation,” said Momo Aleamotua, 19, a student from Oakland. “They’re not us, and they’re not welcome.”

Still, the scenes of tear gas in the streets and provocative graffiti — including one spray-painted message reading “Kill Pigs” in Oakland — have been seized on by some Republicans to try to make the protests a political liability for Democrats.

On Tuesday, for example, the National Republican Senatorial Committee circulated a report that two people living in the Occupy Boston tent with a young child had been arrested for selling heroin, and paired it with comments from Elizabeth Warren, a Democratic contender for Senate from Massachusetts, in which she said that her work as a consumer advocate had helped inspire the Occupy movement.

“She’s not only standing with those breaking the law and being arrested,” the committee’s release read, “She’s actually taking credit for them.”

The fear that the group’s political message was being lost also resonated with Maria Gastelumendi, who runs a sandwich shop in downtown Oakland.

As a small-business owner, Ms. Gastelumendi said she supported the protests — “There’s been no bailout for us” — but worried that things might end badly. “The occupiers were very organized and very committed,” she said. “But there’s other people who are just opportunists.”

 

Jesse McKinley reported from Oakland, and Abby Goodnough from Providence, R.I. Reporting was contributed by Malia Wollan from Oakland, Ian Lovett from Los Angeles, Jess Bidgood from Boston, Robbie Brown from Atlanta, Kate Zernike from New York, and Steven Yaccino from Chicago.

    Some Cities Begin Cracking Down on ‘Occupy’ Protests, NYT, 27.10.2011,
    http://www.nytimes.com/2011/10/28/us/oakland-and-other-cities-crack-down-on-occupy-protests.html

Crony Capitalism Comes Home

October 26, 2011
The New York Times
By NICHOLAS D. KRISTOF

Whenever I write about Occupy Wall Street, some readers ask me if the protesters really are half-naked Communists aiming to bring down the American economic system when they’re not doing drugs or having sex in public.

The answer is no. That alarmist view of the movement is a credit to the (prurient) imagination of its critics, and voyeurs of Occupy Wall Street will be disappointed. More important, while alarmists seem to think that the movement is a “mob” trying to overthrow capitalism, one can make a case that, on the contrary, it highlights the need to restore basic capitalist principles like accountability.

To put it another way, this is a chance to save capitalism from crony capitalists.

I’m as passionate a believer in capitalism as anyone. My Krzysztofowicz cousins (who didn’t shorten the family name) lived in Poland, and their experience with Communism taught me that the way to raise living standards is capitalism.

But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.

When I lived in Asia and covered the financial crisis there in the late 1990s, American government officials spoke scathingly about “crony capitalism” in the region. As Lawrence Summers, then a deputy Treasury secretary, put it in a speech in August 1998: “In Asia, the problems related to ‘crony capitalism’ are at the heart of this crisis, and that is why structural reforms must be a major part” of the International Monetary Fund’s solution.

The American critique of the Asian crisis was correct. The countries involved were nominally capitalist but needed major reforms to create accountability and competitive markets.

Something similar is true today of the United States.

So I’d like to invite the finance ministers of Thailand, South Korea and Indonesia — whom I and other Americans deemed emblems of crony capitalism in the 1990s — to stand up and denounce American crony capitalism today.

Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.

The upshot is that financial institutions boost leverage in search of supersize profits and bonuses. Banks pretend that risk is eliminated because it’s securitized. Rating agencies accept money to issue an imprimatur that turns out to be meaningless. The system teeters, and then the taxpayer rushes in to bail bankers out. Where’s the accountability?

It’s not just rabble-rousers at Occupy Wall Street who are seeking to put America’s capitalists on a more capitalist footing.

“Structural change is necessary,” Paul Volcker, the former chairman of the Federal Reserve, said in an important speech last month that discussed many of these themes. He called for more curbs on big banks, possibly including trimming their size, and he warned that otherwise we’re on a path of “increasingly frequent, complex and dangerous financial breakdowns.”

Likewise, Mohamed El-Erian, another pillar of the financial world who is the chief executive of Pimco, one of the world’s largest money managers, is sympathetic to aspects of the Occupy movement. He told me that the economic system needs to move toward “inclusive capitalism” and embrace broad-based job creation while curbing excessive inequality.

“You cannot be a good house in a rapidly deteriorating neighborhood,” he told me. “The credibility and the fair functioning of the neighborhood matter a great deal. Without that, the integrity of the capitalist system will weaken further.”

Lawrence Katz, a Harvard economist, adds that some inequality is necessary to create incentives in a capitalist economy but that “too much inequality can harm the efficient operation of the economy.” In particular, he says, excessive inequality can have two perverse consequences: first, the very wealthy lobby for favors, contracts and bailouts that distort markets; and, second, growing inequality undermines the ability of the poorest to invest in their own education.

“These factors mean that high inequality can generate further high inequality and eventually poor economic growth,” Professor Katz said.

Does that ring a bell?

So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.

It’s time to take the crony out of capitalism, right here at home.

    Crony Capitalism Comes Home, NYT, 26.10.2011,
    http://www.nytimes.com/2011/10/27/opinion/kristof-crony-capitalism-comes-homes.html

Facing Hardship, Jobless Still Say They Have Hope

October 26, 2011
The New York Times
By MICHAEL COOPER and ALLISON KOPICKI

The nation’s lingering unemployment crisis has forced many people without work to dip into their savings, borrow from relatives and do without necessities including health insurance, and most people who receive unemployment benefits said that the money was not enough to meet their basic needs, according to a New York Times/CBS News poll of jobless Americans.

Still, despite enduring hardships and being even more pessimistic about the nation’s economy than the general public, unemployed Americans remained optimistic about eventually landing jobs. A little more than half of those polled said they were either very or somewhat confident they would find long-term employment in the next year, and a majority said they expected that when they did find permanent work, it would be at a similar or higher salary than they had received in the past.

But the poll found deep unease about unemployment benefits. At a moment when several states have decided to pay fewer weeks of benefits to save money, and President Obama has been urging Republicans in Congress to renew a program — due to lapse at the end of the year — that pays federal jobless benefits to the long-term unemployed, 7 in 10 of those receiving unemployment benefits said that they feared their benefits would run out before they could find new jobs.

While jobless benefits have been criticized as unaffordable by some Republicans, particularly at the state level, three-quarters of the people receiving them said that they got “a lot less” than they used to earn at their jobs, and two-thirds said that the benefits were not enough to pay for basics like housing and food.

“I was earning $50,000 a year, and now I get $200 a week,” said Jan Thomas, 62, an unemployed marketing executive from Sarasota, Fla., who has been laid off from two jobs in the last three years. Ms. Thomas said in a follow-up interview to the poll that she recently dropped her health insurance “just hoping all will be well” and that she would soon lose her unemployment benefits, leading her to think about applying early for Social Security. “And I’m giving up my apartment and moving in with my mom because my unemployment will be running out,” she said.

The toll that unemployment is taking on families is not just financial, according to the telephone poll, which surveyed 445 unemployed adults from Oct. 19 to Oct. 25 and has a margin of sampling error of plus or minus five percentage points. More than half of those polled said that they had experienced emotional or mental health problems like anxiety or depression because of their lack of work, and nearly half said that they had felt embarrassed or ashamed not to have jobs. More than a third said that they had had more conflicts or arguments with family and friends because of being jobless. The top reason people cited for not getting work: Too many applicants.

Threats of foreclosure or eviction were reported by a fifth of the unemployed, and one in eight said that they had moved in with relatives or friends. More than half said that they lacked health insurance. A fifth said that they had received food from a nonprofit organization. And in a sign that the nation’s current economic woes could reverberate for years, nearly two-thirds said they would probably not have enough money to live comfortably during retirement. More than half said that they had taken money out of savings or retirement accounts.

But the unemployed continue to believe in the American dream. Two-thirds of those surveyed said that they still believed it was possible to start out poor in this country, work hard and become rich — only a little lower than the three-quarters of all Americans who said that they believed that, according to a New York Times/CBS News nationwide poll that was conducted at the same time as the poll of the unemployed adults.

Robert Roberson, 52, a licensed plumber from Corpus Christi, Tex., who has been out of work for a year, said that he hoped to get work soon when a delayed project to build a prison breaks ground. “I actually think the job market will get better because I think the recession will have a break and they’ll go back to building housing,” he said.

Unemployed people are now less likely to blame former President George W. Bush for the nation’s high unemployment rate than they were two years ago in the last Times/CBS News poll of the unemployed. But few blame Mr. Obama. Eight percent of the unemployed in the new survey said that Mr. Bush was most to blame, down from 26 percent two years ago. Five percent said that Mr. Obama was most to blame, almost the same as the 3 percent who said so two years ago. Nearly a fifth said “politicians” were most to blame.

There are currently 14 million Americans unemployed, and more underemployed, and the unemployment rate remained stubbornly high at 9.1 percent last month. Fierce debates over how to spur the economy, and how far to go in taking care of unemployed people, are consuming Washington and state capitals.

One of the most contentious policy questions is how long the government should continue to pay unemployment benefits. The length and depth of the downturn led many states to deplete the trust funds they use to pay such benefits, forcing them to borrow billions of dollars from the federal government and prompting some states to raise taxes on businesses to continue paying benefits. This year half a dozen states decided that they would no longer pay the 26 weeks of state benefits that has long been standard.

The federal government has been picking up the tab to pay extended benefits that allow some long-term unemployed people to collect checks for up to 99 weeks in states with the worst unemployment problems. If that program is not renewed at the end of the year, 1.8 million people could lose benefits in January, according to the National Employment Law Project, which advocates renewing the program.

Seven in 10 of the unemployed said that the government should pay benefits for 99 weeks or more. While a slight majority of Americans said that getting unemployment benefits makes people less motivated to seek work, only 40 percent of unemployed people said that it did, with half saying that it had no effect.

Three-quarters of the unemployed said that they were qualified, or overqualified, for the jobs that they were seeking. Four in 10 said that they would consider moving elsewhere to get jobs, but only 15 percent said that they had applied for jobs elsewhere. More than a third said that they had taken classes or trained for new jobs while unemployed.

One was Bobby Austin, 25, from Valdosta, Ga., who lost his job as a truck driver two years ago and whose benefits will run out soon. “Now I’m back in school to study nursing,” he said, “and I’m confident I will find a job when I finish next year.”

 

Marina Stefan contributed reporting.

    Facing Hardship, Jobless Still Say They Have Hope, NYT, 26.10.2011,
    http://www.nytimes.com/2011/10/27/us/jobless-go-without-but-stay-hopeful-poll-finds.html

Top Earners Doubled Share of Nation’s Income, Study Finds

October 25, 2011
The New York Times
By ROBERT PEAR

WASHINGTON — The top 1 percent of earners more than doubled their share of the nation’s income over the last three decades, the Congressional Budget Office said Tuesday, in a new report likely to figure prominently in the escalating political fight over how to revive the economy, create jobs and lower the federal debt.

In addition, the report said, government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

“The equalizing effect of federal taxes was smaller” in 2007 than in 1979, as “the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,” the budget office said.

Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income.

The report, requested several years ago, was issued as lawmakers tussle over how to reduce unemployment, a joint committee of Congress weighs changes in the tax code and protesters around the country rail against disparities in income between rich and poor.

In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

And for the three-fifths of people in the middle of the income scale, the growth in such household income was just under 40 percent.

The findings, based on a rigorous analysis of data from the Internal Revenue Service and the Census Bureau, are generally consistent with studies by some private researchers and academic economists. But because they carry the imprimatur of the nonpartisan budget office, they are likely to have a major impact on the debate in Congress over the fairness of federal tax and spending policies.

Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation; high salaries for some “superstars” in sports and the arts; the increasing size of the financial services industry; and the growing role of capital gains, which go disproportionately to higher-income households.

The report found that higher-income households got a larger share of the pie, while other households got smaller shares.

Specifically the report made these points:

¶ The share of after-tax household income for the top 1 percent of the population more than doubled, climbing to 17 percent in 2007 from nearly 8 percent in 1979.

¶ The most affluent fifth of the population received 53 percent of after-tax household income in 2007, up from 43 percent in 1979. In other words, the after-tax income of the most affluent fifth exceeded the income of the other four-fifths of the population.

¶ People in the lowest fifth of the population received about 5 percent of after-tax household income in 2007, down from 7 percent in 1979.

¶ People in the middle three-fifths of the population saw their shares of after-tax income decline by 2 to 3 percentage points from 1979 to 2007.

The study was requested by Senators Max Baucus, Democrat of Montana and chairman of the Finance Committee, and Charles E. Grassley of Iowa, when he was the senior Republican on the panel.

Representative Sander M. Levin of Michigan, the senior Democrat on the Ways and Means Committee, said the report was “the latest evidence of the alarming rise in income inequality.”

House Republicans pushed back Tuesday against President Obama’s complaint that they were blocking bills to create jobs. Speaker John A. Boehner said he agreed with Mr. Obama’s new slogan, “we can’t wait,” and he said that 15 House-passed bills were “sitting over in the Senate, waiting for action.”

On Tuesday, the White House endorsed another bill, which is likely to be passed by the House this week with bipartisan support. The bill would repeal a requirement for federal, state and local government agencies to withhold 3 percent of certain payments to suppliers of goods and services and to deposit the money with the Internal Revenue Service.

This requirement was originally adopted as a tax-compliance measure, and the Congressional Budget Office said its repeal would reduce federal revenues by $11 billion over 10 years.

House Republicans would offset the cost with a bill that reduces federal spending on Medicaid under the 2010 health care law. The White House said it supported the bill, intended to fix an apparent error in the law, under which hundreds of thousands of middle-income early retirees can get Medicaid coverage meant for the poor.

The joint Congressional committee on deficit reduction is considering changes in a wide range of benefit programs.

Representative Steny H. Hoyer of Maryland, the No. 2 House Democrat, said Tuesday that he was hopeful but not entirely confident that the panel would succeed in reaching a bipartisan agreement to reduce federal deficits by $1.2 trillion over 10 years.

“Hopeful is not confident,” Mr. Hoyer said.

    Top Earners Doubled Share of Nation’s Income, Study Finds, NYT, 25.10.2011,
    http://www.nytimes.com/2011/10/26/us/politics/top-earners-doubled-share-of-nations-income-cbo-says.html

I.B.M. Names Virginia Rometty as New Chief Executive

October 25, 2011
The New York Times
By STEVE LOHR

Virginia M. Rometty, a senior vice president at I.B.M., will be the company’s next chief executive, the directors announced on Tuesday. She will succeed Samuel J. Palmisano, 60, who will remain as chairman, at the start of next year.

Ms. Rometty, 54, is well known within the technology industry, but not widely beyond. She has led strategically important divisions of the company as it has shifted to services and products with high profit margins, like software that mines vast troves of corporate and online data for sales and cost-saving opportunities.

The directors’ choice of Ms. Rometty, who managed a crucial merger as well as sales in fast-growing new markets, ends a competition that has been under way for years. The leading candidates were always from within the company’s executive ranks.

A leading rival to succeed Mr. Palmisano, analysts say, was Steven A. Mills, the senior vice president who led I.B.M.’s highly profitable and growing software division. But his age, analysts note, was probably an obstacle. Mr. Mills has just turned 60, the traditional retirement age for I.B.M. chief executives.

Mr. Palmisano, in an interview Tuesday, singled out Mr. Mills for praise, saying “he’s done a phenomenal job.”

The selection of Ms. Rometty for the top job at I.B.M. will make her one of the most prominent women executives in corporate America, joining a small group of chiefs that includes Ursula Burns of Xerox, Indra Nooyi of PepsiCo, Ellen J. Kullman of DuPont and Meg Whitman of Hewlett-Packard. Gender, according to Mr. Palmisano, did not figure into Ms. Rometty’s selection.

“Ginni got it because she deserved it,” Mr. Palmisano said, using the informal first name by which she is known to friends and colleagues. “It’s got zero to do with progressive social policies,” Mr. Palmisano added.

Ms. Rometty has led the growth and development of I.B.M.’s huge services business for more than a decade. The services strategy, analysts say, is partly a marketing tactic. But, they add, it also represents a different approach to the technology business, with less emphasis on selling hardware and software products. Instead, I.B.M. puts together bundles of technology to help business streamline operations, find customers and develop new products.

“I.B.M. is selling business solutions, not just products,” said Frank Gens, chief analyst for the technology market research firm IDC. “Rometty has been at the forefront of that effort.”

Ms. Rometty, who graduated from Northwestern University with an undergraduate degree in computer science, joined I.B.M. in 1981 as a systems engineer. She quickly moved up to a series of management jobs, working with clients in industries including banking, insurance, telecommunications, manufacturing and health care.

In 2002, Ms. Rometty championed the purchase of the big business consulting firm, PricewaterhouseCoopers Consulting, for $3.5 billion.

The deal was made shortly after Mr. Palmisano became chief executive and it was seen as a big risk. The PricewaterhouseCoopers consultants were used to operating fairly independently, in a very different culture from the more regimented I.B.M. style of the time. The danger, analysts say, was that the business consultants would flee in droves, leaving the business a shell.

Ms. Rometty was put in charge of coordinating the work of the acquired firm’s consultants with I.B.M.’s technologists, to tailor services and software offering for specific industries. Ms. Rometty, analysts say, worked tirelessly and effectively to win over the consultants. “She did the deal, and she made it work,” Mr. Palmisano said.

“Ginni Rometty combines performance and charisma,” said George F. Colony, chairman of Forrester Research. “She orchestrated a massive charm campaign to bring the PricewaterhouseCoopers people into the fold. That was the trial by fire for her.”

In 2009, Ms. Rometty became senior vice president and group executive for sales, marketing and strategy. Part of the job is leading the I.B.M. drive to sharply increase its business in overseas growth markets, like China, India, Brazil and dozens of emerging markets, including several African nations. Such markets now account for 23 percent of I.B.M.’s revenue, up from 20 percent when she took over. It should reach 30 percent by 2015, the company projects.

The top marketing job also includes spotting opportunities to use the science coming out of I.B.M.’s labs in new products and services. In that perch, Ms. Rometty has pushed to expand the company’s fast-growing analytics unit, which blends data-mining software with services expertise. “It’s not about capturing markets, it’s about making new markets,” Ms. Rometty said in a brief interview after the announcement.

Mr. Palmisano succeeded Louis V. Gerstner Jr., an outsider who became chief executive in 1993, and led a historic turnaround of I.B.M., an endangered corporate icon. Mr. Palmisano inherited a company that had returned to health, but he set about transforming it once again. Under Mr. Palmisano, I.B.M. sold its personal computer and some other hardware lines, and focused increasingly on services and software. I.B.M. sells mainly to business and governments, leaving consumer technology to others.

His strategy for driving the company behind big services projects to use technology to tackle big business and societal challenges, like energy, traffic and water management, had a catchy title, “Smarter Planet.” But such grand themes were initially met with skepticism on Wall Street. “The challenge is that you have to bring investors with you,” Mr. Palmisano explained.

That led to the development of a “financial roadmap,” setting out five-year plans for its growth initiatives and profit targets for the company as a whole. This year, I.B.M. is completing the first five-year roadmap, with the numbers running ahead of the plan, despite the 2007-2009 recession.

I.B.M.’s profits have increased sharply since Mr. Palmisano took over, and its stock price climbed. Earlier this year, I.B.M. passed Microsoft to become the second most valuable technology company, measured by market capitalization, trailing only Apple, the consumer technology powerhouse.

I.B.M. must steadily evolve, Ms. Rometty said, but she does not anticipate changing course abruptly. “What you’ll see is an unfolding of the strategy we have in place,” Ms. Rometty said, noting that she had a hand in creating it.

    I.B.M. Names Virginia Rometty as New Chief Executive, NYT, 25.10.2011,
    http://www.nytimes.com/2011/10/26/technology/ibm-names-a-new-chief.html

President to Ease Student Loan Burden

for Low-Income Graduates

October 25, 2011
The New York Times
By TAMAR LEWIN

President Obama will announce new programs Wednesday to lower monthly loan payments for some students graduating next year and thereafter and to let borrowers who have a mix of direct federal loans and loans under the old Federal Family Education Loan Program consolidate them at a slightly lower interest rate.

At a press briefing Tuesday afternoon, Melody Barnes, director of the Domestic Policy Council, said the president would use his executive authority to expand the existing income-based repayment program with a “Pay as You Earn” option that would allow graduates to pay 10 percent of their discretionary income for 20 years and have the rest of their federal student loan debt forgiven. That plan would start next year.

Most of the 450,000 low-income student-loan borrowers currently enrolled in income-based payment must pay 15 percent of their discretionary income for 25 years before having their debt forgiven, although terms are easier for those in public service.

The lower caps of the new program were scheduled to go into effect for new borrowers in 2014, but, Ms. Barnes said, “because we know the frustration of crushing loan burdens, we have to act now.”

Ms. Barnes noted that over the last month, more than 30,000 people had signed a petition on the We the People platform at whitehouse.gov, asking for relief on student debt.

“It’s a message heard loud and clear,” she said.

The high cost of college and the growing debt burden of student loans have become increasingly potent political issues in recent years, high on the agenda of Occupy Wall Street and related protests across the country.

And the annual College Board reports on college prices and student aid, to be released Wednesday, make it clear that with the weak economy, the college affordability problem is getting worse.

At public universities and community colleges, costs for the current academic year increased more than 8 percent, lifted in part by steep tuition increases in California, according to the “Trends in College Pricing 2011” report.

While California’s whopping increases — 21 percent at the four-year universities and 37 percent at the community colleges — were extreme, declining state support for higher education has brought hefty tuition increases at many public universities nationwide. Arizona and Washington, for example, increased their in-state tuition and fees by 17 percent and 16 percent.

This is the fifth consecutive year in which the public universities that serve most students raised their tuition at a faster rate than the far more expensive private universities. And over the last three decades, the report found, the average tuition at four-year state universities almost quadrupled.

“It is not surprising, but we do have issues we have to face,” said Sandy Baum, the economist who is co-author of the report. “Families are struggling because their incomes are not increasing, but states are struggling too.”

Adjusted for inflation, state appropriations per full-time student are about 23 percent lower than they were a decade ago.

“Families and students are paying more but they’re getting less,” said Jane Wellman, executive director of the Delta Cost Project, “because what we’re willing to invest in this generation is less than what we were willing to invest in my generation.”

At Tuesday’s press briefing, Secretary of Education Arne Duncan estimated that the debt-consolidation program could help 6 million borrowers who carry both direct federal loans and loans made under the Federal Family Education Loan program, which ended last year. Under that program, private lenders received federal subsidies to make federally guaranteed loans to students; despite lobbying by the banking industry, the Obama Administration killed the program, redirecting billions of dollars of subsidies into expanded Pell grants for low-income students.

Between January and June, Mr. Duncan said, borrowers making payments on both kinds of loans can consolidate them and get a half-percent interest-rate cut. The savings to pay for the lower loan rate, he said, would come from the lower cost of administering the combined loan.

Further information on the new programs will be available at 1-800-4fedaid (1-800-433-3243) or studentaid.ed.gov.

The Obama administration has taken other steps toward college affordability. The American Opportunity Tax Credit, introduced in 2009, expanded the tax benefits for college costs. According to the College Board’s new “Trends in Student Aid 2011,” report, higher education tax credits and deductions grew to $14.7 billion in 2009, from $6.6 billion in 2008. People with adjusted gross incomes of $100,000 to $180,000 got 26 percent of those tax savings, compared with 18 percent a year earlier. At the other end of the spectrum, the credits are available even to those who owe no taxes.

According to the College Board, average in-state tuition at public universities this year is $8,244, up from $7,613 last year; with room and board, the average total charge is $17,131, up from $16,162 last year. But the averages mask enormous variation from state to state: the University of New Hampshire’s tuition is more than $13,500, compared with $2,600 in Puerto Rico and $4,100 in Wyoming.

At private nonprofit four-year colleges, the average tuition is $28,500 this year, a 4.5 percent increase on last year’s $27,265. With room and board, the average total charges are $38,589, up from $36,971 last year. And at community colleges, the average tuition and fees are $2,963, up 8.7 percent from last year’s $2,727.

Only about a third of full-time students pay for college without some grant aid, whether in the form of a federal Pell grant, a state scholarship or aid from the college itself.

Net tuition —the amount a student actually pays, after grants and tax savings— is often sharply lower than the published price. In fact, the College Board report said, net tuition at community colleges was low enough that, when grants and tax savings are taken into account, the average student can pay nothing out of pocket and have $810 left over for books and living expenses.

This year, the report said, full-time students at state universities receive an average of about $5,750 in grants and tax benefits, while students at private nonprofit colleges get about $15,530 and those at community colleges about $3,770.

    President to Ease Student Loan Burden for Low-Income Graduates, NYT, 25.10.2011,
    http://www.nytimes.com/2011/10/26/education/26debt.html

More Jobs Predicted for Machines, Not People

October 23, 2011
The New York Times
By STEVE LOHR

A faltering economy explains much of the job shortage in America, but advancing technology has sharply magnified the effect, more so than is generally understood, according to two researchers at the Massachusetts Institute of Technology.

The automation of more and more work once done by humans is the central theme of “Race Against the Machine,” an e-book to be published on Monday.

“Many workers, in short, are losing the race against the machine,” the authors write.

Erik Brynjolfsson, an economist and director of the M.I.T. Center for Digital Business, and Andrew P. McAfee, associate director and principal research scientist at the center, are two of the nation’s leading experts on technology and productivity. The tone of alarm in their book is a departure for the pair, whose previous research has focused mainly on the benefits of advancing technology.

Indeed, they were originally going to write a book titled, “The Digital Frontier,” about the “cornucopia of innovation that is going on,” Mr. McAfee said. Yet as the employment picture failed to brighten in the last two years, the two changed course to examine technology’s role in the jobless recovery.

The authors are not the only ones recently to point to the job fallout from technology. In the current issue of the McKinsey Quarterly, W. Brian Arthur, an external professor at the Santa Fe Institute, warns that technology is quickly taking over service jobs, following the waves of automation of farm and factory work. “This last repository of jobs is shrinking — fewer of us in the future may have white-collar business process jobs — and we have a problem,” Mr. Arthur writes.

The M.I.T. authors’ claim that automation is accelerating is not shared by some economists. Prominent among them are Robert J. Gordon of Northwestern and Tyler Cowen of George Mason University, who contend that productivity improvement owing to technological innovation rose from 1995 to 2004, but has trailed off since. Mr. Cowen emphasized that point in an e-book, “The Great Stagnation,” published this year.

Technology has always displaced some work and jobs. Over the years, many experts have warned — mistakenly — that machines were gaining the upper hand. In 1930, the economist John Maynard Keynes warned of a “new disease” that he termed “technological unemployment,” the inability of the economy to create new jobs faster than jobs were lost to automation.

But Mr. Brynjolfsson and Mr. McAfee argue that the pace of automation has picked up in recent years because of a combination of technologies including robotics, numerically controlled machines, computerized inventory control, voice recognition and online commerce.

Faster, cheaper computers and increasingly clever software, the authors say, are giving machines capabilities that were once thought to be distinctively human, like understanding speech, translating from one language to another and recognizing patterns. So automation is rapidly moving beyond factories to jobs in call centers, marketing and sales — parts of the services sector, which provides most jobs in the economy.

During the last recession, the authors write, one in 12 people in sales lost their jobs, for example. And the downturn prompted many businesses to look harder at substituting technology for people, if possible. Since the end of the recession in June 2009, they note, corporate spending on equipment and software has increased by 26 percent, while payrolls have been flat.

Corporations are doing fine. The companies in the Standard & Poor’s 500-stock index are expected to report record profits this year, a total $927 billion, estimates FactSet Research. And the authors point out that corporate profit as a share of the economy is at a 50-year high.

Productivity growth in the last decade, at more than 2.5 percent, they observe, is higher than the 1970s, 1980s and even edges out the 1990s. Still the economy, they write, did not add to its total job count, the first time that has happened over a decade since the Depression.

The skills of machines, the authors write, will only improve. In 2004, two leading economists, Frank Levy and Richard J. Murnane, published “The New Division of Labor,” which analyzed the capabilities of computers and human workers. Truck driving was cited as an example of the kind of work computers could not handle, recognizing and reacting to moving objects in real time.

But last fall, Google announced that its robot-driven cars had logged thousands of miles on American roads with only an occasional assist from human back-seat drivers. The Google cars, Mr. Brynjolfsson said, are but one sign of the times.

As others have, he pointed to I.B.M.’s “Jeopardy”-playing computer, Watson, which in February beat a pair of human “Jeopardy” champions; and Apple’s new personal assistant software, Siri, which responds to voice commands.

“This technology can do things now that only a few years ago were thought to be beyond the reach of computers,” Mr. Brynjolfsson said.

Yet computers, the authors say, tend to be narrow and literal-minded, good at assigned tasks but at a loss when a solution requires intuition and creativity — human traits. A partnership, they assert, is the path to job creation in the future.

“In medicine, law, finance, retailing, manufacturing and even scientific discovery,” they write, “the key to winning the race is not to compete against machines but to compete with machines.”

    More Jobs Predicted for Machines, Not People, NYT, 23.10.2011,
    http://www.nytimes.com/2011/10/24/technology/economists-see-more-jobs-for-machines-not-people.html

Administration Proposes

Changes to Mortgage Refinancing Program

October 24, 2011
The New York Times
By BINYAMIN APPELBAUM

WASHINGTON — The federal government said on Monday that it would overhaul a program that lets homeowners refinance mortgage loans at lower interest rates to address problems that have limited participation to less than a million borrowers, far below the lofty estimates when the program started in 2009.

The White House described the changes as part of a broader plan to boost the economy through measures that do not require legislative action, reflecting a pragmatic recognition that Congress is deadlocked on economic issues, and a political effort to blame Republicans for the standoff.

“We have far too many Americans who have paid their bills and done everything right on their mortgages and yet they’re still stuck with interest rates of 6 or 7 percent,” said Shaun Donovan, the secretary of Housing and Urban Development. The existing program, he said, “has not reached the scale that we had hoped and the scale that it needs to reach.”

The broader refinancing program, which will still take months to implement, will let people qualify for new loans no matter how far the value of their homes have declined, and without regard to their financial situations so long as they have made at least six consecutive monthly mortgage payments. The plan also will reduce the fees that borrowers must pay, for example by dispensing with the need for an appraisal in many cases and by automatically transferring mortgage insurance to the new loan.

The plan also seeks to encourage banks and mortgage companies to participate by eliminating their legal responsibility for problems with the original loan, a significant financial benefit in many cases.

But the government maintained the narrow focus of the original program, significantly limiting the potential impact of the changes. The refinancing offer only applies to loans in the portfolios of the government-owned mortgage finance companies Fannie Mae and Freddie Mac. It only applies to loans that they acquired before May 31, 2009. And it only applies to loans worth more than 80 percent of the value of the home. In other words, it does not matter how deeply a homeowner is underwater — the loan can be worth twice the value of the home — but owners with more equity are not eligible.

The government estimates the revised program will allow perhaps 1 million homeowners to refinance — less than it once projected would benefit from the original program.

The changes announced Monday address a series of problems that lenders and outside experts warned from the outset would undermine the original program. In particular, the high cost of refinancing proved a formidable barrier to many homeowners struggling to pay their bills. So did the strict income requirements, which in many cases created the odd situation that a person who had never fallen behind on their mortgage payments was unable to qualify for a loan with a lower monthly payment.

The terms of the program are set by the Federal Housing Finance Agency, an independent agency that administers Fannie Mae and Freddie Mac, and that had resisted calls to broaden the program because it said its primary responsibility was to staunch the losses at the two companies. The agency said Monday that it had agreed to make the changes because doing so would contribute to that goal.

“Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets,” said the agency’s acting director, Edward J. DeMarco.

Some of the most important changes concern technical issues deep inside the machinery of the mortgage process. For example, borrowers who took two mortgage loans, and cannot afford to repay the second loan, cannot refinance the first loan without the permission of the second lender. The government has now negotiated a blanket grant of permission from many lenders.

Gene Sperling, director of the president’s National Economic Council, said the mortgage industry had shown a new willingness to facilitate refinancing, making the broader program possible.

“What has changed and made this more viable and led the president to push all of us even harder was that there was a growing awareness among all the stakeholders” that this problem needed to be addressed, Mr. Sperling said on a conference call Monday to discuss the announcement from the federal housing agency.

    Administration Proposes Changes to Mortgage Refinancing Program, NYT, 24.10.2011,
    http://www.nytimes.com/2011/10/25/us/politics/administration-proposes-changes-to-mortgage-refinancing-program.html

G.E. Profit Up Despite ‘Volatile’ Economy

October 21, 2011
The New York Times
By CHRISTINE HAUSER

General Electric, the nation’s largest industrial company, on Friday reported net earnings for the third quarter of $3.2 billion, up 57 percent from the same period in 2010 despite what the chief executive called a “volatile” economic environment.

The company said it had operating earnings per share of 31 cents, exactly in line with expectations of analysts surveyed by Thomson Reuters. That excluded the $0.08 per share impact of its redemption of Berkshire Hathaway shares, which it subsequently redeemed this month for $3.3 billion. But the company said it expected that retiring the stock would improve annualized earnings per share by $0.03 in future quarters.

Revenue for the period from July through September, 2011, was $35.4 billion, which the company described as flat when compared with the third quarter of 2010. When the impact of the sale of NBC Universal to Comcast was excluded, the revenue for the quarter was up 12 percent.

Analysts had forecast $34.93 billion in revenue, according to a survey compiled by Thomson Reuters.

Jeffrey R. Immelt, G.E.’s chief executive, said that the company was pleased with the results, the sixth consecutive quarter of double digit growth in operating earnings, in what he called a "volatile macro environment."

"We ended the quarter with a record high order backlog of $191 billion and we remain confident in our full-year 2011 operating framework," he said in a statement.

The earnings report also provided another glimpse into the company’s progress in overhauling its business, which has a diverse range of products from jet engines to medical imaging machines. With its global reach, it also gives a snapshot into how business is faring not only in the United States but around the world.

The strongest industrial growth for large American manufacturers has recently come from abroad, accounting for more than half of industrial business in some cases. The outlook for industrial companies has been gradually improving, but in the past month the debt crisis in Europe has caused some concern about economic prospects.

“Up until September it was improving but now we have hit this bump in the road,” said Daniel J. Meckstroth, the chief economist for the Manufacturers Alliance /MAPI, an economics and policy research organization in Arlington, Va. He was speaking in general about the outlook for the economy, not specific companies.

Other markets could pick up the slack to some extent. Asia was decelerating but continuing to do well, with Japan rebounding after the devastation of the earthquake and tsunami, he noted. Companies could also look for more opportunity in Latin America.

“It is really a mixed outlook in terms of industrial production worldwide,” said Mr. Meckstroth.

As the reporting season gets under way, other industrial companies are weighing in.

United Technologies Corp. this week said its earnings per share for the third quarter were $1.47, up 13 percent compared with the same quarter in 2010. The company raised its full year earnings per share outlook compared with 2010, to $5.47 and said it expected its sales to rise nearly 7 percent to $58 billion for the year.

Honeywell International Inc. is also announcing its third quarter earnings on Friday. Caterpillar Inc. will report on Monday and Goodrich Corp. reports third quarter results on Thursday.

G.E. has been expecting its business for power generation equipment, which involves gas, steam and wind turbines, to improve this year. Profits in that component of its business were down 19 percent in the second quarter.

The company has invested heavily to expand its industrial divisions, including acquisitions related to oil and gas equipment. Its industrial orders for equipment and services have grown.

G.E. said that in the third quarter, its industrial segments had $23.4 billion in revenues, up 19 percent. International revenues were up by 25 percent, driven by strong growth in Brazil, Russia, China, India, Canada, Mexico and the Middle East.

But it has been gradually paring back its finance business, called GE Capital, as part of a long-term strategy to rely more on its core industrial units — even though GE Capital accounted for much of the profit improvement in the previous quarter.

GE Capital has been weathering the wake of the financial turmoil unleashed in late 2008.

In the third quarter of the year, GE Capital showed a 1 percent rise in revenue to $12 billion. It had a 1 percent decline in revenue in the second quarter, to $11.63 billion, when commercial real estate problems showed losses. GE Capital earned about $1.5 billion, up 79 percent, in the third quarter, the company said.

After the outbreak of the financial crisis, G.E. cut its dividend in 2009, the first time it did so since the Great Depression.

Since then, it has raised its dividend three times, to 60 cents a share.

    G.E. Profit Up Despite ‘Volatile’ Economy, NYT, 21.10.2011,
    http://www.nytimes.com/2011/10/22/business/ge-profit-up-despite-volatile-economy.html

Imagined in America

October 18, 2011
The New York Times
By THOMAS L. FRIEDMAN

Hong Kong

After spending last week talking with Hong Kong entrepreneurs about a bill, just passed by the U.S. Senate, to clear the way for tariffs on Chinese exports to America if China doesn’t revalue its currency, there are three things I have to say. One, I really hope the people pushing this bill do not give up. Two, I really hope the people pushing this bill do not succeed. And, three, I really hope no one thinks this legislation will make any sustainable dent in our unemployment problem, which requires much more radical rethinking.

I support this legislation in theory because China needs a wake-up call. I know, China never responds to in-your-face pressure — not immediately. But it began revaluing its currency upward in 2005, the last time the Senate brandished a big stick. The fact is, China’s strategy of using low wages and a cheap currency to build up an enormous export-led growth engine — while using its huge market to lure and compel companies to transfer their next-generation technology to China as well — is now hurting both sides.

China is spending tons of money manipulating its currency downward and, in the process, creating domestic inflation and a real estate bubble, which is weakening its competiveness. Meanwhile, it is hair-raising to hear stories in Hong Kong about the number of American companies feeling the need to transfer advanced technology to China under pressure from Beijing officials — and being afraid to complain to Washington about unfair trade practices. Yes, China’s leaders, fearing unemployment, will revalue their currency at their own pace. But if pushing this bill even marginally slows the pace of American firms shifting operations here, and gives others more time to adapt, it will be worth it.

But, Lord in heaven, do not let the House pass this bill. That would trigger a trade war in the middle of our Great Recession. We tried that in 1930. It didn’t end well. Worse, today it would distract us from thinking about the real issue: How do we adjust our labor market to the simultaneous intensification of globalization and the I.T. revolution, the biggest thing happening in the world today? The intensification of globalization means more parts of any product or service can be produced anywhere, and the intensification of the I.T. revolution means more parts of any product or service can be created by machines and software.

I am typing this column on a Dell laptop that says “Made in China” on the bottom. In fact, it was assembled in China — but the design, memory board, screen, casing and dozens of other parts were all made in other countries. And while the machine says “Made in China,” the lion’s share of its value and profit goes to the firm that conceived the idea and orchestrated that supply chain — Dell Inc. in Texas.

We are never going to get those labor-intensive assembly jobs back from China — the wage differentials are far too great, no matter how much China revalues its currency. We need to focus on multiplying more people at the high-value ideation and orchestration end of the supply chain, and in the manufacturing processes where one person can be highly productive, and well paid, by operating multiple machines. We need to focus on “Imagined in America” and “Orchestrated From America” and “Made in America by a smart worker using a phalanx of smarter robots.” In total value terms, America still manufactures almost as much as China. We just do it with far fewer people, which is why we need more start-ups.

But we also need to stop thinking that a middle class can be sustained only by factory jobs. Thirty years ago, Hong Kong was a manufacturing center. Now its economy is 97 percent services. It has adjusted so well that this year the Hong Kong government is giving a bonus of $775 to each of its residents. One reason is that Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors — 23 million from China. Their hotel stays, dining and jewelry purchases are driving prosperity here. The U.S. Commerce Department says 801,000 Mainland Chinese visited the U.S. last year, adding $5 billion to the U.S. economy. More Chinese want to come, but, for security reasons, visas are hard to obtain. If we let in as many Chinese tourists as Hong Kong, it would inject more than $115 billion into what is a highly unionized U.S. hotel, restaurant, gaming and tourism industry.

Another idea officials here offer is that the United States invites Chinese firms to invest in toll bridges, toll roads, and rail systems across the United States, in partnership with American companies. They could build them, and operate them for a set number of years, until their investment pays out, and then transfer them to full U.S. ownership. It may be the only way we can rebuild our infrastructure.

Yes, China manipulates its currency and market access. But the reason we are so vulnerable is that we have no leverage. We don’t save; we overconsume; we don’t plan; and we have not invested enough in infrastructure and education. Dealing with a superpower like China without leverage? Let me know how that works out for you.

    Imagined in America, NYT, 18.10.2011,
    http://www.nytimes.com/2011/10/19/opinion/imagined-in-america.html

Carl H. Lindner Jr., Founder of American Financial, Dies at 92

October 18, 2011
The New York Times
By THE ASSOCIATED PRESS

Carl H. Lindner Jr., a billionaire who took over the Cincinnati Reds from Marge Schott, did junk-bond deals with Michael R. Milken and used his experience running the family dairy store to build a business empire, died on Monday in Cincinnati. He was 92.

His death was announced on the Web site of his company, the American Financial Group.

Mr. Lindner, who never finished high school, was chairman of American Financial, a Cincinnati-based financial holding company that had more than $17 billion in assets. In 2009, Forbes magazine estimated his personal wealth at $1.75 billion.

He also made a name for himself by becoming one of Mr. Milken’s earliest junk-bond players. But he showed his investment savvy by correctly predicting a decline in the junk-bond market in the late 1980s.

Mr. Lindner ruled over a maze of corporations with nearly 70,000 employees worldwide. American Financial owned, or held substantial investments in, Chiquita Brands International, one of the world’s largest food producers; the Charter Company, marketer of fuel to electric utilities; and the Great American Insurance Group.

Mr. Lindner became controlling partner and chief executive of the Cincinnati Reds in a 1999 deal that ended Ms. Schott’s rocky 15-year rule as owner. In contrast to her highly public style, Mr. Lindner stayed mostly in the background, though in 2000 he picked up Ken Griffey Jr. at the airport in his Rolls-Royce after a blockbuster trade had brought him to the Reds. Mr. Lindner sold his controlling share in the team in 2005.

Some critics considered him a ruthless takeover artist. He made millions in the 1970s and 1980s by investing in companies and then retreating from them. A reported attempt by Mr. Lindner to take over the Gannett Company prompted its former chairman, Al Neuharth, to call him a “shark in sheep’s clothing.”

Though publicity-shy, he held a fund-raiser in his home for the presidential candidate George H. W. Bush in 1988. He also played host to Mr. Bush, then vice president, and President François Mitterrand of France at his vacation home in Ocean Reef, Fla., later that month.

Mr. Lindner paid his staff handsomely and threw lavish annual parties for them. At his 70th birthday party, Frank Sinatra entertained.

His fortunes began to slide in the late 1980s with the acquisition of Taft Broadcasting, a Cincinnati television and radio company. The $1.5 billion takeover left the new company, Great American Communications, mired in debt. It was forced to sell several major assets, including the cartoon creator Hanna-Barbera Productions.

In 1992, Mr. Lindner suffered losses of $560 million at Great American and $284 million at Chiquita, leading to a $77 million loss at American Financial. In 1993, he filed for bankruptcy to restructure Great American’s debts.

Carl Henry Lindner Jr. was born April 22, 1919, in Dayton and spent much of his youth in Norwood, a blue-collar suburb of Cincinnati.

Along with his brothers Robert and Richard and his sister Dorothy, Mr. Lindner, without graduating from high school, helped his parents in a succession of dairy businesses, including what became the United Dairy Farmers convenience-store chain.

During World War II, with his father’s health failing and his brothers in the military, Mr. Lindner began to direct the chain. By the mid-1960s, when he left it to his brother Robert’s direction, it had more than 100 stores. The number has since more than doubled.

Mr. Lindner founded the cornerstone of his financial empire, the American Financial Corporation (later American Financial Group), in 1959. From 1961 until the company went private in 1980, American Financial’s portfolio made more than 60 times its original investment as Mr. Lindner diversified into banks, insurance and assorted industries.

He is survived by his wife, the former Edyth Bailey; his sons, Carl III, Craig and Keith; 12 grandchildren; and 5 great-grandchildren.

    Carl H. Lindner Jr., Founder of American Financial, Dies at 92, NYT, 18.10.2011,
    http://www.nytimes.com/2011/10/19/business/carl-h-lindner-jr-founder-of-american-financial-dies-at-92.html

Chasing Opportunity in an Age of Upheaval

October 18, 2011
The New York Times
By PAUL SULLIVAN

Nicolas Berggruen is passionate about investing. A compact, handsome billionaire, Mr. Berggruen is often talked about for his eccentricities — he does not own a home, preferring to jet around the world and live out of hotels — but his ability to find, invest in and turn around neglected companies points to a hardened and savvy approach.

And while a series of extreme events in global financial markets this year have shaken investors’ confidence, he maintains his strategy of investing in undervalued companies. In fact, the general sense that things are bad and could get worse seem to have little effect on him.

“I continue to do the same thing,” said Mr. Berggruen, who would not disclose his net worth beyond saying it was more than the $2.2 billion estimated by Forbes. “I buy businesses that deserve to exist but have been mismanaged. I feel there are more opportunities now.”

His focus is retailing, media and real estate. He picks companies in these areas, he said, that have lost a lot of their value because of macroeconomic events beyond their control, and he expects them to rebound, eventually.

“I’m not optimistic in the short term,” Mr. Berggruen said. “I just think that if some businesses are going to survive it’s worth investing now as long as it’s a real business, and as long as you don’t have to sell the stock to make a mortgage payment or eat next week.”

Concerns about the ability to cover basic expenses and a fear of losing more money after the losses in the 2008 crisis are keeping most people on the sidelines. They have plenty of reasons to be there. Stock markets rise and fall like a stomach-churning roller coaster ride. European leaders have been slow to devise a resolution for the debt crisis in Greece, which has rippled through the European banking system and into other European countries.

While Mr. Berggruen has a front-row seat on the political problems in the United States through his nonprofit policy foundation, the Nicolas Berggruen Institute, he doesn’t necessarily like what he sees. So he is looking long term.

In his belief that various assets are undervalued, he represents people who see opportunities and are moving their money from cash into investments. These investors are not looking for the hottest new investment but searching for companies that are strong and have continued to perform, regardless of what their stock prices say.

“Real big fortunes have been made in times of hardship,” said Karl Wellner, chief executive of Papamarkou Wellner, an advisory firm that works with wealthy families and has $3 billion under management. “These people are looking at it from a different perspective.”

While these investors are contemplating the perils of the market and how to safeguard and build their wealth, President Obama and others, including the billionaire investor Warren E. Buffett, have called for increased taxes on the wealthy. These proposals come in different forms, and how they may apply to the investors described in this article is not clear — nor are the prospects that any such proposal will be enacted.

The Senate majority leader, Harry Reid, for example, recently proposed a 5 percent surtax on all income over $1 million, including capital gains and dividends.

Many of these investors have enough wealth to buy millions of dollars of some asset and the time to wait to see what happens. If that investment appreciates wildly, they have increased their fortune; if it goes to zero their standard of living will not change.

But even with the luxury of time and wealth, some of them can find ample reasons not to invest right now.

“Why should I plow money into the market because it has dropped, when it can drop some more?” said Fred Branovan, the president and chief operating officer for FFC Capital Management, which is the family office for Milton Fine, who sold his hotel company to Wyndham Resorts in 1998 for $2.1 billion. “This family is into wealth preservation. They got rich; now they want to stay rich.”

While Mr. Berggruen is confident about the long term, he acknowledged that the next few years could be bleak. “I’m scared like everyone else is because the world is scary,” he said. “I just don’t think the world will disappear.”

The amount of money it takes for even wealthy investors to feel comfortable with risk is staggering. Todd M. Morgan, senior managing director at Bel Air Investment Advisors, which manages money for high net-worth investors including Hollywood celebrities, said he had clients who were worth $25 million to $30 million and remained entirely in bonds.

Those who are worth more than $100 million are comfortable taking some risk but rarely with more than 20 percent of their assets — and many of them define risky as being in blue-chip stocks.

“In a perfect world you should be selling some bonds and buying some high-quality stocks,” Mr. Morgan said. “But the stock market is the only place in the world where if there’s a big sale no one comes out and buys.”

Those who are investing now fall into three distinct approaches: the bargain hunters, the natural resource crowd and the bettors.

Bargains are everywhere right now, and those looking for them do not have to go into the riskiest assets.

Ron Carson, the founder of the Carson Wealth Management Group in Omaha, which manages $2.6 billion, said his firm focused on an “advance and protect” strategy, with the emphasis these days on protect. He has investments in dividend-paying stocks like Johnson & Johnson, Microsoft, Verizon, ConocoPhillips and Abbott Laboratories.

“We’ve done the research and think they’re cheap,” said Mr. Carson, who has $68 million of his own money invested in this strategy. “They all pay really good dividends. But if you look at what they could pay versus what they do pay, they could pay substantially more, so the dividend is safe.”

While this strategy has produced a gain of less than 1 percent this year, Mr. Carson said he was more concerned with positioning the portfolio for the time a rebound occurs.

Others share his view. “You don’t have to be in a particularly esoteric strategy right now,” Mr. Wellner said. “You can make money in plain vanilla.”

He said several of his clients were putting more money into an equity fund run by Fayez Sarofim, a billionaire investment adviser in Houston. Clients seem to appreciate that Mr. Sarofim is invested in blue-chip securities that they can understand.

Mr. Berggruen said he, too, favored simple investments like dividend-paying stocks as “something I’d recommend to my mother.” He mentioned multinational corporations with large cash flows and dividends, like Nestlé or Anheuser-Busch InBev, because they spread their risks around in many different markets, so currency or economic crises in a few countries will not damage them. “If I had to put all of my money away and come back in five years, this is what I would do,” he said.

Natural resources have drawn many wealthy investors because they think that whatever happens in the global economy, demand for these resources will continue.

How they invest in this area is more intriguing. Some hear the siren song of alternative energy; others focus on companies that provide traditional sources of energy.

Steve Smiley, who made his money in banking and private equity, said he had been increasing his personal investments in oil and natural gas projects in the United States. His primary concern in choosing investments, he said, is in evaluating the management teams of the companies rather than the price of the commodities or any sentiment surrounding them.

“At some point we’ll start building houses again, and the consumer will go back to the store and buy what he needs,” Mr. Smiley said. “That’s going to create a demand for energy.”

Nicholas Butta, whose family’s wealth came from interests in coal mines, said he had put a substantial portion of the equity allocation of his family’s money into mining companies. He said he had little interest in what the price of commodities was today or tomorrow.

“Trying to guess in the short term what will happen to commodity prices is a mug’s game,” said Mr. Butta, who lives in Australia. “Medium to long term, I can give a view on commodities. In the short term, it’s futile.”

He said he focused on the costs and production levels of mines, then decided whether the companies that own them were undervalued. “I’m never buying anything with the expectation that someone is going to buy something from me at a higher price,” he said. “I’m looking for strong cash flows.”

That is an advantage of wealthier investors: they can buy and hold indefinitely, and if the dividends are reasonable, they can be content with a steady, predictable return for years. When it comes to alternative energy sources, however, the view needs to be very long indeed.

Michael Steinrueck, 55, who managed money for institutions for 30 years before retiring, said he had about a third of his money in alternative energy. “I believe it will be the next mini-industrial revolution,” he said. And China will drive that with its push to build up its infrastructure.

He would have pushed as high as 40 percent if his adviser hadn’t discouraged the idea. His adviser, Iain Silverthorne, a partner at Evercore Wealth Management in San Francisco, said Mr. Steinrueck was one of his few clients whom he has had to persuade not to invest right now.

Preferring not to choose among wind, solar or other alternative energies, Mr. Steinrueck has focused on energy storage. “You just don’t know what part of the sector is going to be the decisive one,” he said. “But energy storage is so underdeveloped.”

Most investors in the third category are more willing to speculate, but they also believe that the best future returns may come from nontraditional assets. Ward McNally, whose wealth derives from the Rand-McNally mapmaking fortune, said he was plowing his money into his firm, McNally Capital, which advises other wealthy families on private equity investments.

He said one deal his firm both advised on and invested in was a fund that lent money to companies that could no longer borrow from banks. The returns on these loans are 8 to 12 percent, and if the companies were to default, provisions in the loans would allow the fund to take over.

Recently Mr. McNally said his firm had put together a syndicate of 12 families with a collective net worth of $30 billion to invest in clean technology companies,. He said the Cleantech Syndicate, as it is called, includes Dick DeVos, a son of the founder of Amway, and David Nazarian, a co-founder of Qualcomm.

“For some it’s a financial hedge on what they already have,” Mr. McNally said. “To others, like a family in the real estate business, investing in early-stage lighting technology could reduce their real estate expenses.”

Mr. Branovan said the Fine family was increasingly invested in farmland, an asset based as much on stability as demand. “It doesn’t look to have a tremendous amount of downside, and it has a lot of upside,” he said.

Dennis Jones, who sold his company, Jones Pharma, in 2000 for $3.4 billion, said he had decided to bet on zero-coupon municipal bonds, which are bought at a discount and grow to their face value over a set time, usually decades. He sees them as a good way to leave something to dozens of relatives.

He and his wife recently bought $26,000 of zero-coupon municipals bonds for a niece that will be worth $156,000 upon maturity in 20 years. “The Napa school district is going to survive,” he said of the California municipality that issued the bonds. “Worse comes to worse, you end up owning a building.”

    Chasing Opportunity in an Age of Upheaval, NYT, 18.10.2011,
    http://www.nytimes.com/2011/10/19/business/opportunities-abound-even-for-the-risk-averse.html

United Auto Workers

Approve a New Four-Year Contract With Ford Motor

October 18, 2011
The New York Times
By BLOOMBERG NEWS

The United Auto Workers has ratified its proposed contract with the Ford Motor Company after union members at two assembly plants in Kentucky approved the accord.

Local 600 in Dearborn, Mich., the largest local for the union, disclosed the development Tuesday on its Facebook page, citing national union officials. U.A.W. Local 862 in Louisville, Ky., said its members at two plants voted 53.3 percent in favor of the four-year agreement. The Louisville plants build pickups and sport-utility vehicles and employ 5,397 workers. Ford’s 40,600 American hourly workers were to conclude voting Tuesday.

Michele Martin, a spokesman for the union, did not immediately answer a voice message and an e-mail seeking comment.

U.A.W. members at Ford shifted from voting 53 percent against the contract last Friday to 63.2 percent in favor as of Tuesday morning. Ford is offering 12,000 new jobs, $6.2 billion in factory upgrades and bonus and profit-sharing payments per worker this year that total as much as $10,000. A lack of a wage increase was responsible for much of the initial opposition.

“People are saying there is room for improvement, but they’ll vote in favor of this contract because it means jobs,” said Jerome Williams, president of U.A.W. Local 2000, which represents 1,880 workers voting today at Ford’s Ohio van plant. “A few people are saying we gave up monetary concessions and other things that they’d like to see come back, and rightfully so. But the economic situation isn’t the best right now.”

The U.A.W. negotiated contracts for 113,000 workers for the first time since General Motors and Chrysler went bankrupt in 2009. G.M. workers endorsed a new deal last month and workers at Chrysler begin voting this week. Only workers at Ford, which avoided Chapter 11, could strike in these contract talks because G.M. and Chrysler employees agreed not to walk out as part of their government-backed rescues.

Ford has promised investments totaling $1.26 billion at the two Kentucky assembly plants.

    United Auto Workers Approve a New Four-Year Contract With Ford Motor, NYT, 18.10.2011,
    http://www.nytimes.com/2011/10/19/business/ford-contract-with-union-is-ratified.html

Trying to Lift the Gloom Over Housing

October 17, 2011
The New York Times

To the Editor:

Re “How to Stop the Drop in Home Values,” by Martin S. Feldstein (Op-Ed, Oct. 13):

House prices are falling not primarily because homeowners are defaulting on their mortgages, as Mr. Feldstein writes, but because homeowners paid too much for their houses and banks lent too much money to buyers who couldn’t repay. The housing debt problem lies between those buyers and lenders; they need to negotiate a solution.

It may be that the continued expectation of more bailout money is keeping buyers and lenders from seriously dealing with their issue. More bailout money only supports earlier bad decisions and unsustainable prices.

In essence, why should the rest of us “buy the bubble”?

KEN SENIOR
Islesboro, Me., Oct. 14, 2011


To the Editor:

Martin S. Feldstein is correct that reinvigorating the housing market is crucial for the economy, but his solution is costly and unfair. Spending up to $350 billion to subsidize homeowners who owe more than their home’s value unfairly treats taxpayers who avoided mortgages they could not afford.

A far less expensive strategy to boost demand for owner-occupied dwellings and help the neediest families is to create one to two million homeownership vouchers patterned after the rent voucher system.

Recipients would pay 30 percent of their income in return for a homeownership voucher. The voucher’s value would be the carrying costs (mortgage, taxes and insurance) of homes at the 25th percentile of area home prices. In nearly all localities, current rent vouchers are worth more than these homeownership costs.

Most of the costs could be offset by phasing out the Low-Income Housing Tax Credit, an inefficient subsidy to expand housing supply at a time when demand is the problem.

ROBERT I. LERMAN
Washington, Oct. 14, 2011

The writer is an institute fellow at the Urban Institute and a professor of economics at American University.


To the Editor:

Martin S. Feldstein suggests that the decline in home values could be stopped if the federal government agreed to write down the principal that homeowners owe on their mortgage. Mr. Feldstein’s suggestion is not without precedent in American history.

In 1933, the Home Owners’ Loan Corporation solved a similar crisis by refinancing one million mortgages, about 20 percent of owner-occupied residences in the United States. The H.O.L.C. also took over the servicing responsibilities, enabling the agency to cut out the middleman and work with homeowners to stay in their homes during difficult economic times.

The H.O.L.C. and its refinancing policy stabilized home prices, encouraged homeowners to stay in their homes and earned the federal government a small profit.

MARK CASSELL
Kent, Ohio, Oct. 13, 2011

The writer is an associate professor at Kent State University and co-author of the report “Managing a $700 Billion Bailout: Lessons From the Home Owners’ Loan Corporation and the Resolution Trust Corporation.”


To the Editor:

What part of “moral hazard” does the good professor not understand?

My wife and I did not buy a home at the top of the market during Boston’s huge and irrational real estate boom. In fact, we have been renting for years.

If the goal is to help those “underwater,” then we have student loan debt that, given the current job market, we are underwater on. Can we get a check, too?

M. ADRIAN MATTOCKS
Worcester, Mass., Oct. 13, 2011

    Trying to Lift the Gloom Over Housing, NYT, 17.10.2011,
    http://www.nytimes.com/2011/10/18/opinion/trying-to-lift-the-gloom-over-housing.html

Protesters Debate What Demands, if Any, to Make

October 16, 2011
The New York Times
By MEREDITH HOFFMAN

In a quiet corner across the street from Zuccotti Park, a cluster of 25 solemn-faced protesters struggled one night to give Occupy Wall Street what critics have found to be most lacking.

“We absolutely need demands,” said Shawn Redden, 35, an earnest history teacher in the group. “Like Frederick Douglass said, ‘Power concedes nothing without a demand.’ ”

The influence and staying power of Occupy Wall Street are undeniable: similar movements have sprouted around the world, as the original group enters its fifth week in the financial district. Yet a frequent criticism of the protesters has been the absence of specific policy demands.

Mr. Redden and other demonstrators formed the Demands Working Group about a week and a half ago, hoping to identify specific actions they would formally ask local and federal governments to adopt. But the very nature of Occupy Wall Street has made that task difficult, in New York and elsewhere.

Although Occupy Seattle has a running tally of votes on its Web site — 395 votes to “nationalize the Federal Reserve,” 138 for “universal education” and 245 to “end corporate personhood,” for example — Mike Hines, a member of the group, said the list would soon be removed because the provisions had not been clearly explained and because some people were not capable of voting online.

“It feels like we’re all in a similar boat,” Mr. Hines said of other Occupy movements. “We all want to include as many voices as possible.”

In New York, the demands committee held a two-hour open forum last Monday, coming up with two major categories: jobs for all and civil rights. The team will continue to meet twice a week to develop a list of specific proposals, which it will then discuss with protesters and eventually take to the General Assembly, a nightly gathering of the hundreds of protesters in the park.

A two-thirds majority would have to approve each proposal, and any passionate opponent could call for the entire vote to be delayed.

The General Assembly has already adopted a “Declaration of the Occupation of New York City,” which includes a list of grievances against corporations and a call for others to join the group in peaceful assembly. To many protesters, that general statement is enough, and the open democracy of Zuccotti Park is the point of the movement.

“Demands are disempowering since they require someone else to respond,” said Gabriel Willow, a protester strolling past a sleeping-bag pod of young adults in the park last Monday. “It’s not like we couldn’t come up with any, but I don’t think people would vote for them.”

Although Monday’s open forum was meagerly attended, politically active members like Cecily McMillan and David Haack, who first proposed formulating demands in a pre-campout planning meeting in August, said they were ready to take action. Mr. Haack, who in 2009 tried to run for the White Plains City Council, admitted feeling disillusioned after the group struck down their proposal in August, but now he feels inspired by the movement’s “true democratic process,” even if it means slower progress going forward.

“Let’s give ourselves two weeks,” Ms. McMillan said about presenting provisions to the General Assembly. Ms. McMillan, 23, a New School graduate student, feels such dedication to the cause that she has contemplated taking a sabbatical from her studies — but she has begun to worry that the movement could become “a joke” without specific goals. Still, with the right demands, she said, more union members and diverse contingencies could join.

In Austin, Tex., participants agreed on four demands, including an end to corporate personhood and tax reform. One Austin activist, Lauren Walker, linked the movement’s goals directly to government officials.

“This is our time because we’re coming up to the 2012 elections,” she said, suggesting that protesters saw the presidential election as a “deadline” to draft revolutionary policy suggestions.

Elsewhere, Occupy Boston, Occupy D.C. and Occupy Philadelphia were among the many groups in the movement slowly formulating demands, though in each city, opposition has arisen from skeptical demonstrators.

In Boston, Meghann Sheridan wrote on the group’s Facebook page, “The process is the message.” In Baltimore, Cullen Nawalkowsky, a protester, said by phone that the point was a “public sphere not moderated by commodities or mainstream political discourse.” An Occupy Cleveland participant, Harrison Kalodimos, is even writing a statement about why demands are not the answer.

Joseph Schwartz, a political science professor and an Occupy Philadelphia participant, said he thought the movement’s “anarchist strain” discouraged a demand-making environment.

Whatever it is, New York’s small group of focused activists said they would not yield.

“If we don’t make demands, the political parties will make them for us,” a longtime protester, Eric Lerner, 64, said from his spot in the cluster last Monday. “We have to get it right this time.”

    Protesters Debate What Demands, if Any, to Make, NYT, 16.10.2011,
    http://www.nytimes.com/2011/10/17/nyregion/occupy-wall-street-trying-to-settle-on-demands.html

Losing Their Immunity

October 16, 2011
The New York Times
By PAUL KRUGMAN

As the Occupy Wall Street movement continues to grow, the response from the movement’s targets has gradually changed: contemptuous dismissal has been replaced by whining. (A reader of my blog suggests that we start calling our ruling class the “kvetchocracy.”) The modern lords of finance look at the protesters and ask, Don’t they understand what we’ve done for the U.S. economy?

The answer is: yes, many of the protesters do understand what Wall Street and more generally the nation’s economic elite have done for us. And that’s why they’re protesting.

On Saturday The Times reported what people in the financial industry are saying privately about the protests. My favorite quote came from an unnamed money manager who declared, “Financial services are one of the last things we do in this country and do it well. Let’s embrace it.”

This is deeply unfair to American workers, who are good at lots of things, and could be even better if we made adequate investments in education and infrastructure. But to the extent that America has lagged in everything except financial services, shouldn’t the question be why, and whether it’s a trend we want to continue?

For the financialization of America wasn’t dictated by the invisible hand of the market. What caused the financial industry to grow much faster than the rest of the economy starting around 1980 was a series of deliberate policy choices, in particular a process of deregulation that continued right up to the eve of the 2008 crisis.

Not coincidentally, the era of an ever-growing financial industry was also an era of ever-growing inequality of income and wealth. Wall Street made a large direct contribution to economic polarization, because soaring incomes in finance accounted for a significant fraction of the rising share of the top 1 percent (and the top 0.1 percent, which accounts for most of the top 1 percent’s gains) in the nation’s income. More broadly, the same political forces that promoted financial deregulation fostered overall inequality in a variety of ways, undermining organized labor, doing away with the “outrage constraint” that used to limit executive paychecks, and more.

Oh, and taxes on the wealthy were, of course, sharply reduced.

All of this was supposed to be justified by results: the paychecks of the wizards of Wall Street were appropriate, we were told, because of the wonderful things they did. Somehow, however, that wonderfulness failed to trickle down to the rest of the nation — and that was true even before the crisis. Median family income, adjusted for inflation, grew only about a fifth as much between 1980 and 2007 as it did in the generation following World War II, even though the postwar economy was marked both by strict financial regulation and by much higher tax rates on the wealthy than anything currently under political discussion.

Then came the crisis, which proved that all those claims about how modern finance had reduced risk and made the system more stable were utter nonsense. Government bailouts were all that saved us from a financial meltdown as bad as or worse than the one that caused the Great Depression.

And what about the current situation? Wall Street pay has rebounded even as ordinary workers continue to suffer from high unemployment and falling real wages. Yet it’s harder than ever to see what, if anything, financiers are doing to earn that money.

Why, then, does Wall Street expect anyone to take its whining seriously? That money manager claiming that finance is the only thing America does well also complained that New York’s two Democratic senators aren’t on his side, declaring that “They need to understand who their constituency is.” Actually, they surely know very well who their constituency is — and even in New York, 16 out of 17 workers are employed by nonfinancial industries.

But he wasn’t really talking about voters, of course. He was talking about the one thing Wall Street still has plenty of thanks to those bailouts, despite its total loss of credibility: money.

Money talks in American politics, and what the financial industry’s money has been saying lately is that it will punish any politician who dares to criticize that industry’s behavior, no matter how gently — as evidenced by the way Wall Street money has now abandoned President Obama in favor of Mitt Romney. And this explains the industry’s shock over recent events.

You see, until a few weeks ago it seemed as if Wall Street had effectively bribed and bullied our political system into forgetting about that whole drawing lavish paychecks while destroying the world economy thing. Then, all of a sudden, some people insisted on bringing the subject up again.

And their outrage has found resonance with millions of Americans. No wonder Wall Street is whining.

    Losing Their Immunity, NYT, 16.10.2011,
    http://www.nytimes.com/2011/10/17/opinion/krugman-wall-street-loses-its-immunity.html

The Banks Falter

October 13, 2011
The New York Times

As the first of the major banks to report its earnings each quarter, JPMorgan Chase is a barometer of conditions in the financial industry. The mercury is falling.

JPMorgan reported on Thursday that its third-quarter revenue had dropped by 11 percent from the second quarter; its profit fell by 4 percent from a year earlier. And since JPMorgan is arguably one of the nation’s healthier banks, results for firms like Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are likely to be considerably worse.

These declines are worrisome in the sense that they reflect the weakness of the broader economy. Joblessness, damaged credit and falling home values have left people unable to borrow or to repay debt and businesses reluctant to hire and invest. But the results also reflect how the banks built profits abusing their customers.

Long overdue federal restrictions on hidden overdraft charges and excessive debit card fees have begun to take a bite out of bank profits, and that should be happening. But the banks and their investors tend to see any rules and regulations that slow revenue growth as undue and overly burdensome, and they are pushing back. The question is whether lawmakers and regulators will stand up for the new fee restrictions and other rules as banks resist.

Banks, habituated to gouging their customers, are already trying to recoup lost revenue with dubious new charges, like Bank of America’s $5 monthly fee for using a debit card. The move has infuriated customers and led President Obama to rightly warn against mistreatment of customers in the pursuit of profit. But Bank of America has yet to relent — a stubbornness that may be from of a belief that aggrieved customers won’t do better elsewhere. On Thursday, five Democratic congressmen led by Peter Welch of Vermont asked the Justice Department to investigate whether the big banks were engaging in “price signaling,” a form of collusion in the setting of prices.

The big banks are also resisting proposed regulations on capital levels, derivatives and investing practices. If successfully implemented, the new rules will help to curb the kind of reckless trading and irresponsible lending that caused the crash and recession. That will slow revenue growth, but it is the price of a more stable system.

The banks also have gotten themselves into a legal mess for which they have no one to blame but themselves. JPMorgan had to set aside another $1 billion last quarter to prepare for legal claims from investors who want to recoup their loss from mortgage bonds backed by bad loans.

The banks face legal challenges from federal and state governments over foreclosure abuses and other mortgage-related issues. In all, analysts say mortgage problems could cost JPMorgan up to $9 billion. Bank of America, the most exposed of the big banks to mortgage-related litigation, is potentially on the hook for far more.

Investors, meanwhile, are pricing banks’ stocks below the banks’ book value — a sign that they don’t believe the banks are worth what the banks say they are. The questions generally involve whether banks are properly valuing their loans and investments and the extent of their exposure to shaky European debt. Banks could fix this with increased and detailed disclosure. Government officials and regulators could compel that disclosure. The general failure on this front feeds the air of skepticism.

One of the lessons from the financial crash is that there is no substitute for transparency. In the new earnings season, investors are still in the dark.

    The Banks Falter, NYT, 13.10.2011,
    http://www.nytimes.com/2011/10/14/opinion/the-big-banks-falter.html

Rabbit-Hole Economics

The New York Times
October 13, 2011
By PAUL KRUGMAN

Reading the transcript of Tuesday’s Republican debate on the economy is, for anyone who has actually been following economic events these past few years, like falling down a rabbit hole. Suddenly, you find yourself in a fantasy world where nothing looks or behaves the way it does in real life.

And since economic policy has to deal with the world we live in, not the fantasy world of the G.O.P.’s imagination, the prospect that one of these people may well be our next president is, frankly, terrifying.

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking.

No, in the universe of the Republican Party we found ourselves in a crisis because Representative Barney Frank forced helpless bankers to lend money to the undeserving poor.

O.K., I’m exaggerating a bit — but not much. Mr. Frank’s name did come up repeatedly as a villain in the crisis, and not just in the context of the Dodd-Frank financial reform bill, which Republicans want to repeal. You have to marvel at his alleged influence given the fact that he’s a Democrat and the vast bulk of the bad loans now afflicting our economy were made while George W. Bush was president and Republicans controlled the House with an iron grip. But he’s their preferred villain all the same.

The demonization of Mr. Frank aside, it’s now obviously orthodoxy on the Republican side that government caused the whole problem. So what you need to know is that this orthodoxy has hardened even as the supposed evidence for government as a major villain in the crisis has been discredited. The fact is that government rules didn’t force banks to make bad loans, and that government-sponsored lenders, while they behaved badly in many ways, accounted for few of the truly high-risk loans that fueled the housing bubble.

But that’s history. What do the Republicans want to do now? In particular, what do they want to do about unemployment?

Well, they want to fire Ben Bernanke, the chairman of the Federal Reserve — not for doing too little, which is a case one can make, but for doing too much. So they’re obviously not proposing any job-creation action via monetary policy.

Incidentally, during Tuesday’s debate, Mitt Romney named Harvard’s N. Gregory Mankiw as one of his advisers. How many Republicans know that Mr. Mankiw at least used to advocate — correctly, in my view — deliberate inflation by the Fed to solve our economic woes?

So, no monetary relief. What else? Well, the Cheshire Cat-like Rick Perry — he seems to be fading out, bit by bit, until only the hair remains — claimed, implausibly, that he could create 1.2 million jobs in the energy sector. Mr. Romney, meanwhile, called for permanent tax cuts — basically, let’s replay the Bush years! And Herman Cain? Oh, never mind.

By the way, has anyone else noticed the disappearance of budget deficits as a major concern for Republicans once they start talking about tax cuts for corporations and the wealthy?

It’s all pretty funny. But it’s also, as I said, terrifying.

The Great Recession should have been a huge wake-up call. Nothing like this was supposed to be possible in the modern world. Everyone, and I mean everyone, should be engaged in serious soul-searching, asking how much of what he or she thought was true actually isn’t.

But the G.O.P. has responded to the crisis not by rethinking its dogma but by adopting an even cruder version of that dogma, becoming a caricature of itself. During the debate, the hosts played a clip of Ronald Reagan calling for increased revenue; today, no politician hoping to get anywhere in Reagan’s party would dare say such a thing.

It’s a terrible thing when an individual loses his or her grip on reality. But it’s much worse when the same thing happens to a whole political party, one that already has the power to block anything the president proposes — and which may soon control the whole government.

    Rabbit-Hole Economics, NYT, 13.10.2011,
    http://www.nytimes.com/2011/10/14/opinion/rabbit-hole-economics.html

How to Stop the Drop in Home Values

October 12, 2011
The New York Times
By MARTIN S. FELDSTEIN

Cambridge, Mass.

HOMES are the primary form of wealth for most Americans. Since the housing bubble burst in 2006, the wealth of American homeowners has fallen by some $9 trillion, or nearly 40 percent. In the 12 months ending in June, house values fell by more than $1 trillion, or 8 percent. That sharp fall in wealth means less consumer spending, leading to less business production and fewer jobs.

But for political reasons, both the Obama administration and Republican leaders in Congress have resisted the only real solution: permanently reducing the mortgage debt hanging over America. The resistance is understandable. Voters don’t want their tax dollars used to help some homeowners who could afford to pay their mortgages but choose not to because they can default instead, and simply walk away. And voters don’t want to provide any more help to the banks that made loans that have gone sour.

But failure to act means that further declines in home prices will continue, preventing the rise in consumer spending needed for recovery. As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession.

House prices are falling because millions of homeowners are defaulting on their mortgages, and the sale of their foreclosed properties is driving down the prices of all homes. Nearly 15 million homeowners owe more than their homes are worth; in this group, about half the mortgages exceed the home value by more than 30 percent.

Most residential mortgages are effectively nonrecourse loans, meaning creditors can eventually take the house if the homeowner defaults, but cannot take other assets or earnings. Individuals with substantial excess mortgage debt therefore have a strong incentive to stop paying; they can often stay in their homes for a year or more before the property is foreclosed and they are forced to move.

The overhang of mortgage debt prevents homeowners from moving to areas where there are better job prospects and from using home equity to finance small business start-ups and expansions. And because their current mortgages exceed the value of their homes, they cannot free up cash by refinancing at low interest rates.

The Obama administration has tried a variety of programs to reduce monthly interest payments. Those programs failed because they didn’t address the real problem: the size of the mortgage exceeds the value of the home.

To halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are “underwater” are in this category. If everyone eligible participated, the one-time cost would be under $350 billion. Here’s how such a policy might work:

If the bank or other mortgage holder agrees, the value of the mortgage would be reduced to 110 percent of the home value, with the government absorbing half of the cost of the reduction and the bank absorbing the other half. For the millions of underwater mortgages that are held by Fannie Mae and Freddie Mac, the government would just be paying itself. And in exchange for this reduction in principal, the borrower would have to accept that the new mortgage had full recourse — in other words, the government could go after the borrower’s other assets if he defaulted on the home. This would all be voluntary.

This plan is fair because both borrowers and creditors would make sacrifices. The bank would accept the cost of the principal write-down because the resulting loan — with its lower loan-to-value ratio and its full recourse feature — would be much less likely to result in default. The borrowers would accept full recourse to get the mortgage reduction.

Without a program to stop mortgage defaults, there is no way to know how much further house prices might fall. Although house prices in some areas are already very low, potential buyers continue to wait because they anticipate even lower prices in the future.

Before the housing bubble burst in 2006, the level of house prices had risen nearly 60 percent above the long-term price path. So there is no knowing how far prices may fall below the long-term path before they begin to recover.

I cannot agree with those who say we should just let house prices continue to fall until they stop by themselves. Although some forest fires are allowed to burn out naturally, no one lets those fires continue to burn when they threaten residential neighborhoods. The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater. We all have a stake in preventing that.

 

Martin S. Feldstein, a professor of economics at Harvard, was the chairman of the Council of Economic Advisers from 1982 to 1984 under President Ronald Reagan.

    How to Stop the Drop in Home Values, NYT, 12.10.2011,
    http://www.nytimes.com/2011/10/13/opinion/how-to-stop-the-drop-in-home-values.html

Chrysler Is Last to Reach Deal With Union

October 12, 2011
The New York Times
By NICK BUNKLEY

DETROIT — Chrysler and the United Automobile Workers union reached a tentative agreement early Wednesday on a new four-year labor contract that calls for 2,100 additional jobs in the United States, the union said.

The union said Chrysler, which went through bankruptcy protection in 2009, also committed to investing $4.5 billion to retool plants for new models. It planned to lay out more details of the proposed contract, which covers 26,000 workers, at a news conference later Wednesday.

“This agreement is the latest in a remarkable turnaround for Chrysler,” General Holiefield, the U.A.W. vice president in charge of negotiations with Chrysler, said in a statement. “Chrysler has turned the corner and with this agreement will continue to move forward. It’s a new day at Chrysler.”

Chrysler, the smallest of the three Detroit automakers, was the last to reach a deal with the U.A.W. Negotiations there were the most difficult, as Chrysler executives took a hard line against any increase in labor costs.

The union last month ratified a new contract with General Motors that creates or retains 6,400 jobs. Workers at the Ford Motor Company began voting this week on a tentative agreement, reached Oct. 4, that adds 12,000 jobs. Both deals follow the same basic framework, giving workers signing bonuses of at least $5,000, raising entry-level wages and moving work from other countries, including Mexico, to American plants.

“Together with the jobs created in suppliers and other businesses supported by auto manufacturing, a total of 180,000 jobs will be added to the country’s battered economy” if the Ford and Chrysler agreements are approved, U.A.W. President Bob King said in the statement. The 180,000 includes the new G.M. jobs.

G.M. has said its new contract increases labor costs by just 1 percent annually, an amount that prompted Standard & Poor’s to upgrade G.M.’s credit rating. Ford and Chrysler were waiting until their deals are ratified before discussing them in more detail.

Chrysler’s chief executive, Sergio Marchionne, last week described the G.M. and Ford deals as “overly generous.” Chrysler was the only one of the Detroit companies to lose money in 2010 — $652 million — but it has since repaid $7.5 billion in high-interest government loans that were its largest hindrance to profitability.

Ford workers were scheduled to finish voting on their contract next week. The first big plant to vote, a compact-car assembly plant in suburban Detroit, narrowly rejected the deal Tuesday. Some Ford workers have complained that they deserved larger bonuses or a pay raise, which they have not received since 2003.

“I have no doubt in my mind that the agreement will pass,” Jimmy Settles, the U.A.W. vice president in charge of negotiations with Ford, said in an interview Saturday.

    Chrysler Is Last to Reach Deal With Union, NYT, 12.10.2011,
    http://www.nytimes.com/2011/10/13/business/chrysler-is-last-to-reach-deal-with-union.html

Messages of the Wall St. Demonstration

October 11, 2011
The New York Times

To the Editor:

In “The Milquetoast Radicals” (column, Oct. 11), David Brooks suggests that by focusing on the 1 percent of wealthiest Americans, Occupy Wall Street fails to credibly address our key challenges. In doing so, he ignores a central thesis of the demonstrators: Our political system is neither responsive to the middle class nor capable of rational action because it serves — almost exclusively — the interests of those who finance political campaigns.

This influence, by the so-called 1 percent, is not only unjust, but also distorts our free market and rewards those with access to power rather than those who create jobs and wealth. The near collapse of our banking system is only the most visible example of how such influence threatens our economic security and our democracy.

Occupy Wall Street’s first purpose, then, must be to ensure that our government can hear our voices and promote our interests. That would be sufficiently radical.

MICHAEL FARZAN
Brookline, Mass., Oct. 11, 2011

To the Editor:

David Brooks’s get-off-my-lawn dismissal of Occupy Wall Street misses the point. Wall Street tycoons made a civilization-jeopardizing mess requiring extensive government bailouts and were never brought to justice. Incredibly, most did not miss a bonus payment, while millions of middle-class folks face stagnating wages at best and unemployment at worst.

This travesty follows decades of ill-conceived policies and court decisions concentrating wealth and power in the hands of the few at the expense of the many. If Mr. Brooks cannot hear these sentiments from Occupy Wall Street, he’s not listening.

BRUCE TORFF
Locust Valley, N.Y., Oct. 11, 2011

To the Editor:

In the angry worldview of the Occupy Wall Street protesters, there are no gray areas, no such thing as multiple causes for difficult conditions or any possibility that actions may be well intended and then fail. It is the uncomplicated view of a child. There is one category of bad guy and everything is his fault.

Donors to their cause should send them a selection of the excellent books written on the subject of the 2008 collapse so they can read up on the perfect storm that left us where we find ourselves today.

Policy makers, legislators, civil servants, bankers, consumers — all these groups shared responsibility for how things have turned out. The vast majority were going about their business and intended no harm.

But that story won’t keep the anger alive, and the message doesn’t fit on a sign. The truth rarely does.

MARGARET McGIRR
Greenwich, Conn., Oct. 11, 2011

To the Editor:

I think that David Brooks misunderstands the message being sent by the Occupy Wall Street protesters. It is not that the top 1 percent are villainous while the bottom 99 percent are virtuous. Rather, their message is that the system that creates and sustains our extraordinary degree of income inequality is damaging to the country as a whole and must be dramatically reformed.

DANIEL HERMAN
Katonah, N.Y., Oct. 11, 2011

To the Editor:

Re “Confronting the Malefactors” (column, Oct. 7):

Paul Krugman says of Occupy Wall Street, “A better critique of the protests is the absence of specific policy demands.” Though initially the absence of specific demands caused many to write off this movement, the vagueness of their goals has actually helped the protesters.

Occupy Wall Street has absorbed the causes of hippies, unions and frustrated Americans alike. The bigger the tent, the greater the number of people who can fit underneath.

KATHLEEN SULLIVAN
Ossining, N.Y., Oct. 7, 2011

    Messages of the Wall St. Demonstration, NYT, 11.10.2011,
    http://www.nytimes.com/2011/10/12/opinion/messages-of-the-wall-st-demonstration.html

Laid Flat by Layaway

October 11, 2011
The New York Times
By LOUIS HYMAN

Ithaca, N.Y.

IN another sign that the national economy is suffering through a rerun of the 1970s, Wal-Mart recently announced that it was bringing back its Christmas layaway program. Beginning on Oct. 17, shoppers who buy at least $50 worth of goods, put 10 percent down and pay a $5 fee will be able to pay for their purchases slowly over the next two months, all for the ostensible purpose of avoiding debt.

Wal-Mart’s press releases suggest that the restoration of the layaway program, which was discontinued in 2006, is meant to help its customers “budget” so that Christmas can be “worry-free.” The company is partly playing on the economic insecurity of its customers, and partly on the national nostalgia for the days before credit-card debt. But the truth is, the program is a bad deal for everyone — except Wal-Mart.

Wal-Mart is not alone in the return to layaway; Sears and Toys “R” Us also have revived their programs. The plans first became common in the 1930s. Stores that catered to the well-to-do, like department stores, offered no-interest credit to be paid off at the end of the month. But store owners feared extending such offers to lower-income shoppers, believing they were likely to be slow to repay, or even default on their debt, which would tie up the store’s working capital.

Stores didn’t want to turn away lower-income customers, though — hence layaway. It allowed them to impulse shop and take advantage of sales, but it also protected the store’s capital. And if shoppers couldn’t pay the layaway, the store could resell the goods.

But layaway fell out of favor during the last decade as lower-income Americans gained access to credit. It was better for stores, too, since credit cards are easier to administer — most of the work is handled by the card company, not the store. Most stores, except for a few holdouts like Kmart, eliminated their programs.

At first glance, the return of layaway makes sense. Fewer lower-income shoppers have access to the sort of credit they once did, and many can’t afford big purchases outright. And there is a moral appeal as well: customers paying layaway are effectively saving toward something, a reward they will receive only if they meet their goal, rather than paying off the debt on a purchase they have already made.

Nevertheless, as a financing option, layaway is decidedly worse than most credit cards. Imagine a mother going to Wal-Mart on Oct. 17 and buying $100 worth of Christmas toys. She makes a down payment of $10 and pays a $5 service fee. Over the next two months she pays off the rest. In effect, she is paying $5 in interest for a $90 loan for two months: the equivalent of a credit card with a 44 percent annual percentage rate, a level most of us would consider predatory.

In comparison, even a card with an 18 percent A.P.R. would charge only half as much interest — and she could take those presents home the same day.

Then consider what would happen if she couldn’t finish all the payments. Wal-Mart would give her the money back, less $10. If she borrowed that $90 and paid $15 in interest for two months, she would have the equivalent of a jaw-dropping interest rate of 131 percent.

These numbers assume she borrowed for the maximum amount of time, two months, and put double the minimum required amount on layaway. But if that period were shortened or the shopper put the minimum amount on layaway, those rates would go up proportionately.

With rates like that, why would anyone participate in layaway? Retailers talk about the plans as a way to give consumers more choice, but in fact it’s the result of the opposite: the desperation arising from many Americans’ inability to borrow, save and, most important, earn.

Credit, after all, is a great deal, giving us the use of something today that we pay for tomorrow. One could also put the money that would go to layaway into a savings account, where it would earn some interest. But non-predatory credit is hard to come by these days, even for middle-class shoppers, and, according to the 2007 Survey of Consumer Finance, even before the crisis 25 percent of lower-income Americans had no bank account at all.

Indeed, rather than reminding us of the morally upright, pre-credit days we left behind, the return of layaway should remind us that in many ways we’re still stuck in that decade: since the early 1970s, the median male wage has declined. Any rise in household earnings has come from more women entering the marketplace, not from higher wages.

It didn’t feel that way, of course, because the expansion of credit to moderate- and lower-income Americans made us all believe we were getting richer. And, not surprisingly, as better options emerged, people dumped layaway plans. The programs’ return, then, isn’t a signal that consumers have more choice. It’s a signal that in today’s cruel economy, there’s no choice left.

 

Louis Hyman is an assistant professor of history at Cornell

and the author of “Debtor Nation: A History of America in Red Ink.”

    Laid Flat by Layaway, NYT, 11.10.2011,
    http://www.nytimes.com/2011/10/12/opinion/wal-marts-layaway-plan.html

The Milquetoast Radicals

October 10, 2011
The New York Times
By DAVID BROOKS

The U.S. economy is probably going to stink for a few more years. It is beset by short-term problems (low consumer demand, uncertain housing prices, too much debt) and long-term problems (wage stagnation, rising health care costs, eroding human capital).

Realistically, not much is going to be done to address the short-term problems, but we can at least use this winter of recuperation to address the country’s underlying structural ones. Do tax reform, fiscal reform, education reform and political reform so that when the economy finally does recover the prosperity is deep, broad and strong.

Unfortunately, the country has been wasting this winter of recuperation. Nothing of consequence has been achieved over the past two years. Instead, there have been a series of trivial sideshows. It’s as if people can’t keep their minds focused on the big things. They get diverted by scuffles that are small, contentious and symbolic.

Take the Occupy Wall Street movement. This uprising was sparked by the magazine Adbusters, previously best known for the 2004 essay, “Why Won’t Anyone Say They Are Jewish?” — an investigative report that identified some of the most influential Jews in America and their nefarious grip on policy.

If there is a core theme to the Occupy Wall Street movement, it is that the virtuous 99 percent of society is being cheated by the richest and greediest 1 percent.

This is a theme that allows the people in the 99 percent to think very highly of themselves. All their problems are caused by the nefarious elite.

Unfortunately, almost no problem can be productively conceived in this way. A group that divides the world between the pure 99 percent and the evil 1 percent will have nothing to say about education reform, Medicare reform, tax reform, wage stagnation or polarization. They will have nothing to say about the way Americans have overconsumed and overborrowed. These are problems that implicate a much broader swath of society than the top 1 percent.

They will have no realistic proposal to reduce the debt or sustain the welfare state. Even if you tax away 50 percent of the income of those making between $1 million and $10 million, you only reduce the national debt by 1 percent, according to the Tax Foundation. If you confiscate all the income of those making more than $10 million, you reduce the debt by 2 percent. You would still be nibbling only meekly around the edges.

The 99-versus-1 frame is also extremely self-limiting. If you think all problems flow from a small sliver of American society, then all your solutions are going to be small, too. The policy proposals that have been floating around the Occupy Wall Street movement — a financial transfer tax, forgiveness for student loans — are marginal.

The Occupy Wall Street movement may look radical, but its members’ ideas are less radical than those you might hear at your average Rotary Club. Its members may hate capitalism. A third believe the U.S. is no better than Al Qaeda, according to a New York magazine survey, but since the left no longer believes in the nationalization of industry, these “radicals” really have no systemic reforms to fall back on.

They are not the only small thinkers. President Obama promises not to raise taxes on the bottom 98 percent. The Occupy-types celebrate the bottom 99 percent. Republicans promise not to raise taxes on the bottom 100 percent. Through these and other pledges, leaders of all three movements are hedging themselves in. They are severely limiting the scope of their proposed solutions.

The thing about the current moment is that the moderates in suits are much more radical than the pierced anarchists camping out on Wall Street or the Tea Party-types.

Look, for example, at a piece Matt Miller wrote for The Washington Post called “The Third Party Stump Speech We Need.” Miller is a former McKinsey consultant and Clinton staffer. But his ideas are much bigger than anything you hear from the protesters: slash corporate taxes and raise energy taxes, aggressively use market forces and public provisions to bring down health care costs; raise capital requirements for banks; require national service; balance the budget by 2018.

Other economists, for example, have revived the USA Tax, first introduced in 1995 by Senators Sam Nunn and Pete Domenici. This would replace the personal income and business tax regime with a code that allows unlimited deduction for personal savings and business investment. It’s a consumption tax through the back door, which would clean out loopholes and weaken lobbyists.

Don’t be fooled by the clichés of protest movements past. The most radical people today are the ones that look the most boring. It’s not about declaring war on some nefarious elite. It’s about changing behavior from top to bottom. Let’s occupy ourselves.

    The Milquetoast Radicals, NYT, 10.10.2011,
    http://www.nytimes.com/2011/10/11/opinion/the-milquetoast-radicals.html

Protests Offer Help, and Risk, for Democrats

October 10, 2011
The New York Times
By ERIC LICHTBLAU

WASHINGTON — Leading Democratic figures, including party fund-raisers and a top ally of President Obama, are embracing the spread of the anti-Wall Street protests in a clear sign that members of the Democratic establishment see the movement as a way to align disenchanted Americans with their party.

The Democratic Congressional Campaign Committee, the party’s powerful House fund-raising arm, is circulating a petition seeking 100,000 party supporters to declare that “I stand with the Occupy Wall Street protests.”

The Center for American Progress, a liberal organization run by John D. Podesta, who helped lead Mr. Obama’s 2008 transition, credits the protests with tapping into pent-up anger over a political system that it says rewards the rich over the working class — a populist theme now being emphasized by the White House and the party. The center has encouraged and sought to help coordinate protests in different cities.

Judd Legum, a spokesman for the center, said that its direct contacts with the protests have been limited, but that “we’ve definitely been publicizing it and supporting it.”

He said Democrats are already looking for ways to mobilize protesters in get-out-the-vote drives for 2012. “What attracts an organization like CAP to this movement is the idea that our country’s economic policies have been focused on the very top and not on the bulk of America,” Mr. Legum added. “That’s a message we certainly agree with.”

But while some Democrats see the movement as providing a political boost, the party’s alignment with the eclectic mix of protesters makes others nervous. They see the prospect of the protesters’ pushing the party dangerously to the left — just as the Tea Party has often pushed Republicans farther to the right and made for intraparty run-ins.

Mr. Obama has spoken sympathetically of the Wall Street protests, saying they reflect “the frustration” that many struggling Americans are feeling. Vice President Joseph R. Biden Jr. and Representative Nancy Pelosi, the House Democratic leader, have sounded similar themes.

The role of groups like the Democratic campaign committee and Mr. Podesta’s group, sometimes working in recent weeks with labor unions, moves support from talking points to the realm of organizational guidance.

It is not at all clear whether the leaders of the amorphous movement actually want the support of the Democratic establishment, given that some of the protesters’ complaints are directed at the Obama administration. Among their grievances, the protesters say they want to see steps taken to ensure that the rich pay a fairer share of their income in taxes, that banks are held accountable for reckless practices and that more attention is paid to finding jobs for the unemployed.

The movement has chosen not to have a spokesman and did not offer official comment on the Democrats’ attentions. But whether sought or not, the blessing of senior Democrats holds the potential to give the movement added heft in the same way that the role of senior Republicans like the former House leader Dick Armey did for the Tea Party as it grew from an offshoot movement to a much more organized and potent force.

The protests also provide yet another bright dividing line between Democrats and Republicans in Washington — one that seems likely to help shape the competing themes of the 2012 presidential election.

Democrats and Republicans were already largely divided over the Dodd-Frank legislation, which set out hundreds of new restrictions governing the way financial institutions operate and are regulated. But while the regulations were dense and difficult for many Americans to understand, much less seen as a rallying point, the widespread images of the sprawling protests have offered both parties a colorful and powerful symbol around which to frame their perspectives.

Leading Republicans have grown increasingly critical of the protests. Eric Cantor, the House majority leader, called the protesters “a growing mob,” and Herman Cain, a Republican presidential candidate, said the protests are the work of “jealous” anti-capitalists.

The Republican National Committee is also eager to use the protests against Mr. Obama.

“The protests began with anger aimed at Wall Street, but the anger is also directed at the failure of leadership in Washington and that starts with the president,” Kristen Kukowski, a spokeswoman for the committee, said Monday.

The protesters “realize that if they want change, the one person most responsible for the status quo and for making change is President Obama,” she said.

While many Democrats have praised the protesters, some officials in the party remain wary of their potential impact — especially if the protests were to turn more disruptive or even violent.

“That’s the danger with something like this — that you go from peaceful protests to throwing trash cans,” said a senior House Democratic official, who spoke on condition of anonymity.

“Sure, there’s been some crazy anarchy stuff, but over all, the Democrats like their message about Wall Street and accountability,” the official said. “It overlaps with our own message.”

Matt Bennett, vice president for Third Way, a Democratic policy institute in Washington that favors a more centrist approach, said he believes the angry and sometimes radical tone of the protests may turn off moderate swing voters who will be critical in the 2012 elections, just as many moderates are put off by the rhetoric of the Tea Party on the right.

Embracing the protests may prove a mistake for Democrats, Mr. Bennett said. “There’s not much upside,” he said, “and there’s a lot of downside.”

Robert Reich, the former labor secretary under President Bill Clinton, wrote in a blog posting Friday that the protesters’ demands on taxes dovetail with Democrats’ themes, but he said the protests should still make the party wary — in part because Democrats rely on Wall Street for significant campaign contributions.

“If Occupy Wall Street coalesces into something like a real movement, the Democratic Party may have more difficulty digesting it than the G.O.P. has had with the Tea Party,” Mr. Reich wrote.

Some Tea Party leaders are already using the headlines generated by the Wall Street protesters to try to appeal for financial help for a national advertising campaign of their own.

In an e-mail sent over the weekend, Todd Cefaratti, representing TeaParty.net, explained the goal of the first television advertisement would be to introduce the face of the Tea Party movement as a “diverse group of everyday Americans who are only special in that they are patriots who want to put our country back on the right track!” He included a link to the ad that is posted on YouTube and already had more than 37,000 views by Monday night.

Mr. Cefaratti dismissed comparisons that some people have been making about the Tea Party movement and the Occupy Wall Street group.

 

Jennifer Preston contributed reporting from New York.

    Protests Offer Help, and Risk, for Democrats, NYT, 10.10.2011,
    http://www.nytimes.com/2011/10/11/us/politics/wall-street-protests-gain-support-from-leading-democrats.html

American Economists Share Nobel Prize

October 10, 2011
The New York Times
By CATHERINE RAMPELL

The Nobel in economic science was awarded Monday to Thomas J. Sargent at New York University and Christopher A. Sims at Princeton University for their research on the cause and effect of government policies on the broader economy, a major concern of countries still struggling to address the aftermath of the recent financial crisis.

Back in the 1970s, Dr. Sargent and Dr. Sims were interested in figuring out how a new policy, like a tax cut or an interest rate hike, might affect the economy. But economists cannot run controlled experiments in real life to see what happens when a policy is executed and compare the results to when it is not. Instead, they have to study whatever history is available to them, with all the complicated conditions that happened to coincide with the policy change.

Dr. Sargent and Dr. Sims developed statistical methods to organize historical data and disentangle these many variables.

Their new methodologies are used to figure out whether a policy change that happened in the past affected the economy or whether it was made in anticipation of events that policymakers thought would happen later. The methods also help decipher how regular people’s expectations for government policies can affect their behavior.

“For both Sims and Sargent, their research is fundamental,” said Mark Watson, an economics professor at Princeton. “They figured out what it is you need to know to answer this cause and effect question, and then they developed methods for actually measuring the effects of causes.”

Dr. Sims said that his research was relevant for helping countries decide how to respond to the economic stagnation and decimated budgets left by the financial crisis.

“The methods that I’ve used and that Tom has developed are central for finding our way out of this mess,” he said. But asked for specific policy conclusions of his research, he responded, “If I had a simple answer, I would have been spreading it around the world.”

Dr. Sims, 68, who is president-elect of the American Economic Association, has primarily looked at temporary policy changes, such as a surprise in government finances or a change in interest rates. For example, his methods have been used to determine whether a central bank’s decision to raise rates affected inflation, or whether bank officials raised the interest rate precisely because they expected that inflation change later on.

His research that was honored on Monday developed a systematic method for distinguishing between unexpected shocks to the economy, such as a change in oil prices or government finances, and expected changes, the prize committee of the Royal Swedish Academy of Sciences said in a statement.

His methodology, developed in the 1970s, has been influential in subsequent decades among all flavors of economists. Research using his methodology, for example, has helped lend credence to New Keynesianism, the theory that says that an economy can go into recession because there is not enough demand.

“The idea that there could be an aggregate demand failure is a very old idea, but it had been completely banished in the ‘70s, ‘80s and ‘90s,” said Lawrence Christiano, a professor at Northwestern University. “Really the center of gravity of macro was very much in places like Chicago and Minneapolis. That was bumped away in part by results of applying this new methodology, and Sims is the one who originated that.”

Dr. Sims’s work has also been the basis of important papers by Ben S. Bernanke, the Federal Reserve chairman, and Olivier Blanchard, the chief economist at the International Monetary Fund.

Dr. Sargent, on the other hand, focused on longer-run structural changes in the economy, such as setting a new inflation target. His research has analyzed historical data to better understand how these types of policy changes affect the economy over time. He has also conducted experiments in a sort of laboratory setting to examine how new policies might affect the economy.

Dr. Sargent’s body of work is somewhat eclectic. For example, he spent the early part of his career building up the “rational expectations theory” — the idea that people make choices based on what they rationally expect to happen, and so expectations can affect outcomes — and then spent subsequent decades critiquing it.

“He’s an amazing character in that sense,” said Dr. Christiano, who wrote his dissertation under Dr. Sargent. “He contributed a revolution, and then tried to develop a revolution against that one.”

While the prize committee chiefly cited Dr. Sargent’s contributions to modeling and methodology, he has also done a number of influential empirical studies. He has studied historical episodes of hyperinflation, for example, and helped show how expectations for monetary policy can affect price changes.

“He looked at countries that were having inflation of hundreds of percent for months, like the European countries after world wars,” said Robert Lucas, a Nobel laureate and economics professor at the University of Chicago. “He wanted to know how you get out of inflation like that without causing a big recession. It’s a mix of economics and historical analysis.”

A more controversial line of Dr. Sargent’s research has examined how the generous welfare state in many European countries might be causing higher unemployment rates.

The two economists were awarded for work that they did independently of each other but that the prize committee said was complementary. They did collaborate once, in 1977, when they were colleagues at the University of Minnesota.

Their academic pedigrees have other similarities: Both received their Ph.D.s from Harvard University in 1968, and both spent time studying at the University of California at Berkeley before receiving their doctorates. Dr. Sargent received his bachelor’s from Berkeley, and Dr. Sims did post-graduate work at Berkeley after receiving a bachelor’s from Harvard College.

Coincidentally, the two winners are jointly teaching a graduate course in macroeconomics at Princeton this semester.

The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is not one of the original Nobel prizes. It was created in 1968 and is awarded annually “according to the same principles as for the Nobel Prizes,” first begun in 1901.

    American Economists Share Nobel Prize, NYT, 10.10.2011,
    http://www.nytimes.com/2011/10/11/business/american-economists-share-nobel-prize.html

Panic of the Plutocrats

October 9, 2011
The New York Times
By PAUL KRUGMAN

It remains to be seen whether the Occupy Wall Street protests will change America’s direction. Yet the protests have already elicited a remarkably hysterical reaction from Wall Street, the super-rich in general, and politicians and pundits who reliably serve the interests of the wealthiest hundredth of a percent.

And this reaction tells you something important — namely, that the extremists threatening American values are what F.D.R. called “economic royalists,” not the people camping in Zuccotti Park.

Consider first how Republican politicians have portrayed the modest-sized if growing demonstrations, which have involved some confrontations with the police — confrontations that seem to have involved a lot of police overreaction — but nothing one could call a riot. And there has in fact been nothing so far to match the behavior of Tea Party crowds in the summer of 2009.

Nonetheless, Eric Cantor, the House majority leader, has denounced “mobs” and “the pitting of Americans against Americans.” The G.O.P. presidential candidates have weighed in, with Mitt Romney accusing the protesters of waging “class warfare,” while Herman Cain calls them “anti-American.” My favorite, however, is Senator Rand Paul, who for some reason worries that the protesters will start seizing iPads, because they believe rich people don’t deserve to have them.

Michael Bloomberg, New York’s mayor and a financial-industry titan in his own right, was a bit more moderate, but still accused the protesters of trying to “take the jobs away from people working in this city,” a statement that bears no resemblance to the movement’s actual goals.

And if you were listening to talking heads on CNBC, you learned that the protesters “let their freak flags fly,” and are “aligned with Lenin.”

The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.

Last year, you may recall, a number of financial-industry barons went wild over very mild criticism from President Obama. They denounced Mr. Obama as being almost a socialist for endorsing the so-called Volcker rule, which would simply prohibit banks backed by federal guarantees from engaging in risky speculation. And as for their reaction to proposals to close a loophole that lets some of them pay remarkably low taxes — well, Stephen Schwarzman, chairman of the Blackstone Group, compared it to Hitler’s invasion of Poland.

And then there’s the campaign of character assassination against Elizabeth Warren, the financial reformer now running for the Senate in Massachusetts. Not long ago a YouTube video of Ms. Warren making an eloquent, down-to-earth case for taxes on the rich went viral. Nothing about what she said was radical — it was no more than a modern riff on Oliver Wendell Holmes’s famous dictum that “Taxes are what we pay for civilized society.”

But listening to the reliable defenders of the wealthy, you’d think that Ms. Warren was the second coming of Leon Trotsky. George Will declared that she has a “collectivist agenda,” that she believes that “individualism is a chimera.” And Rush Limbaugh called her “a parasite who hates her host. Willing to destroy the host while she sucks the life out of it.”

What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

This special treatment can’t bear close scrutiny — and therefore, as they see it, there must be no close scrutiny. Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized, hence the frantic sliming of Elizabeth Warren.

So who’s really being un-American here? Not the protesters, who are simply trying to get their voices heard. No, the real extremists here are America’s oligarchs, who want to suppress any criticism of the sources of their wealth.

    Panic of the Plutocrats, NYT, 9.10.2011,
    http://www.nytimes.com/2011/10/10/opinion/panic-of-the-plutocrats.html

Recession Officially Over, U.S. Incomes Kept Falling

October 9, 2011
The New York Times
By ROBERT PEAR

WASHINGTON — In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

The finding helps explain why Americans’ attitudes toward the economy, the country’s direction and its political leaders have continued to sour even as the economy has been growing. Unhappiness and anger have come to dominate the political scene, including the early stages of the 2012 presidential campaign.

President Obama recently called the economic situation “an emergency,” and over the weekend he assailed Congressional Republicans for opposing his jobs bill, which includes tax cuts that would raise take-home pay. Republicans blame Mr. Obama for the slump, saying he has issued a blizzard of regulations and promised future tax increases that have hurt business and consumer confidence.

Those arguments may be heard repeatedly this week, as the Senate begins debating the jobs bill. The full bill — a mix of tax cuts, public works, unemployment benefits and other items, costing $447 billion — is unlikely to pass, but individual parts seem to have a significant chance.

The full 9.8 percent drop in income from the start of the recession to this June — the most recent month in the study — appears to be the largest in several decades, according to other Census Bureau data. Gordon W. Green Jr., who wrote the report with John F. Coder, called the decline “a significant reduction in the American standard of living.”

That reduction occurred even though the unemployment rate fell slightly, to 9.2 percent in June compared with 9.5 percent two years earlier. Two main forces appear to have held down pay: the number of people outside the labor force — neither working nor looking for work — has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

During the recession itself, by contrast, wage gains outpaced inflation.

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

“As a labor economist, I do not think the recession has ended,” Mr. Farber said. “Job losers are having more trouble than ever before finding full-time jobs.”

Mr. Farber added that this downturn was “fundamentally different” from most previous ones. Historically, other economists say, financial crises and debt-caused bubbles have led to deeper, more protracted downturns.

Mr. Green and Mr. Coder said the persistently high rate of unemployment and the long duration of unemployment helped explain the decline in income during the recovery.

In the recession, the average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

The new study by Mr. Green and Mr. Coder is based on monthly census surveys, rather than the annual data that appeared in last month’s census report on income. The monthly figures allow researchers to measure income changes more precisely during a recession or a recovery and provide more current information. The annual report is based on surveys conducted early in the following year, and people sometimes confuse how much money they are making at the time of the survey with how much they made the previous year. Additionally, recessions usually do not line up with a calendar year.

A committee of academic economists at the National Bureau of Economic Research, a private group widely considered the arbiter of the business cycle, judged that the most recent recession began in December 2007. The bureau defines a recession as a significant, broad-based decline in economic activity.

The economists said the recession ended in June 2009. In every quarter since then, the economy has grown.

Some economists see signs that the United States may be in or about to enter another recession, though the evidence is mixed.

In their new study, Mr. Green and Mr. Coder found that income dropped more, in percentage terms, for some groups already making less, a factor that they say may have contributed to rising income inequality.

From June 2007 to June of this year, they said, median annual household income declined by 7.8 percent for non-Hispanic whites, to $56,320, and by 6.8 percent for Hispanics, to $39,901. For blacks, household income declined 9.2 percent, to $31,784.

Mr. Green and Mr. Coder, who both worked at the Census Bureau for more than 25 years, found other income changes over the four-year period examined.

For example, income, after adjustment for inflation, declined fairly substantially for households headed by people under age 62, but it rose 4.7 percent for those headed by people 65 to 74, many of whom are not in the labor force. The change was negligible for those 62 to 64.

The type of employment also made a difference. Real median annual income declined to a similar degree for households headed by private-sector wage workers (4.3 percent) and government-sector workers (3.9 percent), but fell much more for the self-employed (12.3 percent).

Family households generally had larger declines in real income than other households. Men living alone showed a bigger decline than women living alone.

Education levels were also a factor. Median annual income declined most for households headed by someone with an associate’s degree, dropping 14 percent, to $53,195, in the four-year period that ended in June 2011, the report said.

For households headed by people who had not completed high school, median income declined by 7.9 percent, to $25,157. For those with a bachelor’s degree or more, income declined by 6.8 percent, to $82,846.

    Recession Officially Over, U.S. Incomes Kept Falling, NYT, 9.10.2011,
    http://www.nytimes.com/2011/10/10/us/recession-officially-over-us-incomes-kept-falling.html

Protesters Against Wall Street

October 8, 2011
The New York Times

As the Occupy Wall Street protests spread from Lower Manhattan to Washington and other cities, the chattering classes keep complaining that the marchers lack a clear message and specific policy prescriptions. The message — and the solutions — should be obvious to anyone who has been paying attention since the economy went into a recession that continues to sock the middle class while the rich have recovered and prospered. The problem is that no one in Washington has been listening.

At this point, protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity.

The jobless rate for college graduates under age 25 has averaged 9.6 percent over the past year; for young high school graduates, the average is 21.6 percent. Those figures do not reflect graduates who are working but in low-paying jobs that do not even require diplomas. Such poor prospects in the early years of a career portend a lifetime of diminished prospects and lower earnings — the very definition of downward mobility.

The protests, though, are more than a youth uprising. The protesters’ own problems are only one illustration of the ways in which the economy is not working for most Americans. They are exactly right when they say that the financial sector, with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity. As the bad times have endured, Americans have also lost their belief in redress and recovery.

The initial outrage has been compounded by bailouts and by elected officials’ hunger for campaign cash from Wall Street, a toxic combination that has reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer.

Extreme inequality is the hallmark of a dysfunctional economy, dominated by a financial sector that is driven as much by speculation, gouging and government backing as by productive investment.

When the protesters say they represent 99 percent of Americans, they are referring to the concentration of income in today’s deeply unequal society. Before the recession, the share of income held by those in the top 1 percent of households was 23.5 percent, the highest since 1928 and more than double the 10 percent level of the late 1970s.

That share declined slightly as financial markets tanked in 2008, and updated data is not yet available, but inequality has almost certainly resurged. In the last few years, for instance, corporate profits (which flow largely to the wealthy) have reached their highest level as a share of the economy since 1950, while worker pay as a share of the economy is at its lowest point since the mid-1950s.

Income gains at the top would not be as worrisome as they are if the middle class and the poor were also gaining. But working-age households saw their real income decline in the first decade of this century. The recession and its aftermath have only accelerated the decline.

Research shows that such extreme inequality correlates to a host of ills, including lower levels of educational attainment, poorer health and less public investment. It also skews political power, because policy almost invariably reflects the views of upper-income Americans versus those of lower-income Americans.

No wonder then that Occupy Wall Street has become a magnet for discontent. There are plenty of policy goals to address the grievances of the protesters — including lasting foreclosure relief, a financial transactions tax, greater legal protection for workers’ rights, and more progressive taxation. The country needs a shift in the emphasis of public policy from protecting the banks to fostering full employment, including public spending for job creation and development of a strong, long-term strategy to increase domestic manufacturing.

It is not the job of the protesters to draft legislation. That’s the job of the nation’s leaders, and if they had been doing it all along there might not be a need for these marches and rallies. Because they have not, the public airing of grievances is a legitimate and important end in itself. It is also the first line of defense against a return to the Wall Street ways that plunged the nation into an economic crisis from which it has yet to emerge.

    Protesters Against Wall Street, NYT, 8.10.2011,
    http://www.nytimes.com/2011/10/09/opinion/sunday/protesters-against-wall-street.html

Redefining the Meaning of No. 1

October 8, 2011
The New York Times
By DAVID J. ROTHKOPF

David J. Rothkopf is the author of the forthcoming “Power, Inc.: The Epic Rivalry Between Big Business and Government — and the Reckoning that Lies Ahead.”

HERE in America, we seem to be more interested in finishing first than we are in figuring out what race we ought to be in.

The refrain is insistent, from President Obama on down. He, like others in both parties, urges us on — to build or educate or invest or cut the deficit — so that “America can be No. 1 again.”

We want to be No. 1 — but why, and at what?

The size of our economy is one measure of success, but it’s not the only measure.

Isn’t the important question not how we remain No. 1 but rather, what we want to be best at — and even, whether we want to lead at all?

But we are Americans and we seem to think the rest of the world looks best when framed in our rear-view mirror.

We outstrip the world by many measures but lag, sometimes shockingly, in many others. The metrics by which we choose to measure our success determine our priorities. Yet, some of the metrics we rate as most important, like G.D.P., stock indices or trade data, are so deeply flawed as to be irrelevant or worse, dangerous distractions. And at the same time, countries that could hardly hope to outperform the world in any category are far ahead of us when it comes to things that matter more to people. Choosing metrics to measure our society is not a value-free process. As a country we have consistently relied on indicators that keep us focused on the interests of business, financial institutions or the defense industry whereas equity, quality of life and even social mobility metrics are played down.

Calculating national income is a relatively new concept. Previously, countries measured their economic well-being by tallying land holdings or counting railroad boxcars. But in the midst of the Great Depression, Congress, showing a great deal more intellectual curiosity than it does today, commissioned a group of economists led by a future Nobel Prize winner named Simon Kuznets to better measure economic activity.

Although Kuznets and his team fulfilled their mission, they released their results with considerable unease. Not only were they aware that the statistic they devised ignored many types of economic activity — from the work of housewives to illegal enterprises — they also knew their number did not assess the social benefits of what they were tracking.

Kuznets warned of this: “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income” like the one they created. That hasn’t stopped us from making this misleading number perhaps the most influential statistic in the world.

Americans use G.D.P. in discussions about how well we are doing. It’s at the heart of discussions of whether we are in a recession or not, ahead or falling behind.

Yet, when China “passes” us, it will remain for the most part a very poor country racked with social problems. And as we have seen, though the past decade was marked mostly by United States “growth,” recent Census data shows that since 1999, median American incomes have fallen more than 7 percent while the top 1 percent showed gains. Almost one in four American children live in poverty. We have a high level of unemployment compared to many of our peers.

THE G.D.P. number is not the only culprit, of course. Listening to the news, you might be forgiven if you thought that stock market performance was linked to reality. But markets are oceans of teeming emotions that make the average hormone-infused high school look calmly rational, and much of the “data” that moves markets is just bunk. Trade deficit numbers may be scary but they are also frighteningly flawed, doing a terrible job of accounting for trade in services, trade via the Internet, and inter-company trade, to pick just three among many problem areas.

Worse than the shortcomings of these statistics are the consequences of our over-dependence on them as measures of the success of our society. A country, for example, that overemphasizes G.D.P. growth and market performance is likely to focus policies on the big drivers of those — corporations and financial institutions — even when, as during the recent past, there has been little correlation between the performance of big businesses or elites and that of most people.

Furthermore, of course, the purpose of a society is not merely the creation of wealth, especially if most of it goes to the few. Even John Locke, who famously enumerated our fundamental rights as being to life, liberty and property, qualified this by asserting that people should appropriate only what they could use, leaving “enough and as good” for others. Thomas Jefferson later consciously replaced the right to property with a right to “the pursuit of happiness.” And happiness has become the watchword for those seeking different measures that might better guide governments.

According to the economist Carol Graham, the author of a recent book called “The Pursuit of Happiness: An Economy of Well-Being,” “happiness is, in the end, a much more complicated concept than income. Yet it is also a laudable and much more ambitious policy objective.” While she notes distinctions between approaches to happiness — with some societies more focused on goals like contentment and others on the creation of equal opportunities — she joins a growing chorus of leading thinkers who suggest the time has come to rethink how we measure our performance and how we set our goals.

This diverse group has included thinkers and public figures like President Nicolas Sarkozy of France, who established a commission in 2008 to address the issue that was co-led by the Nobel Prize-winning economist Joseph E. Stiglitz; the Columbia economist Jeffrey D. Sachs; the British prime minister, David Cameron; and the trail-blazing people of Bhutan, who since 1972 have set a goal of raising their gross national happiness.

Dr. Graham admits that it’s a challenge to set criteria for measuring happiness. However, in a conversation, she told me she did not see it as an insurmountable one: “It doesn’t have to be perfect; after all, it took us decades to agree upon what to include in G.D.P. and it is still far from a perfect metric.”

But for Americans, beyond choosing the right goals, there remains the issue of being No. 1. Many of us have lived our lives in a country that has thought itself the world’s most powerful and successful. But with the United States economy in a frustrating stall as China rises, it seems that period is coming to an end. We are suffering a national identity crisis, and politicians are competing with one another to win favor by assuring a return to old familiar ways.

This approach, too, is problematic. We, as a developed nation, are unlikely to grow at the rapid pace of emerging powers (the United States is currently ranked 127th in real G.D.P. growth rate). Europe and Japan, too, are grappling with the realities of being maturing societies.

But maturing societies can offer many benefits to their citizens that are unavailable to most in the rapidly growing world — the products of rich educational and cultural resources, capable institutions, stability and prosperity.

AS a consequence, countries that at different times in history were among the world’s great powers, such as Sweden, the Netherlands, France, Britain and Germany, have gradually shifted their sights, either in the wake of defeat or after protracted periods of grappling with decline, from winning the great power sweepstakes to topping lists of nations offering the best quality of life.

When Newsweek ranked the “world’s best countries” based on measures of health, education and politics, the United States ranked 11th. In the 2011 Quality of Life Index by Nation Ranking, the United States was 31st. Similarly, in recent rankings of the world’s most livable cities, the Economist Intelligence Unit has the top American entry at No. 29, Mercer’s Quality of Living Survey has the first United States entry at No. 31 and Monocle magazine showed only 3 United States cities in the top 25.

On each of these lists, the top performers were heavily concentrated in Northern Europe, Australia and Canada with strong showings in East Asian countries from Japan to Singapore. It is no accident that there is a heavy overlap between the top performing countries and those that also outperform the United States in terms of educational performance — acknowledging, of course, the mistake it would be to overemphasize any one factor in contributing to something as complex as overall quality of life. Nearly all the world’s quality-of-life leaders are also countries that spend more on infrastructure than the United States does. In addition, almost all are more environmentally conscious and offer more comprehensive social safety nets and national health care to their citizens.

That virtually all of the top performers place a much greater emphasis on government’s role in ensuring social well-being is also undeniable. But the politics of such distinctions aside, the focus of those governments on social outcomes — on policies that enhance contentment and security as well as enriching both human capabilities and opportunities — may be seen as yet another sign of maturity.

It is also worth noting that providing the basics to ensure a high quality of life is not a formula for excess or the kind of economic calamities befalling parts of Europe today. For example, many of the countries that top quality-of-life lists, like Sweden, Luxembourg, Denmark, the Netherlands and Norway, all rank high in lists of fiscally responsible nations — well ahead of the United States, which ranks 28th on the Sovereign Fiscal Responsibility Index.

What these societies have in common is that rather than striving to be the biggest they instead aspire to be constantly better. Which, in the end, offers an important antidote to both the rhetoric of decline and mindless boosterism: the recognition that whether we are falling behind or achieving new heights is greatly determined both by what goals we set and how we measure our performance.

    Redefining the Meaning of No. 1, NYT, 8.11.2011,
    http://www.nytimes.com/2011/10/09/opinion/sunday/gdp-doesnt-measure-happiness.html

The Depression: If Only Things Were That Good

October 8, 2011
The New York Times
By DAVID LEONHARDT

David Leonhardt is The New York Times Washington bureau chief.

UNDERNEATH the misery of the Great Depression, the United States economy was quietly making enormous strides during the 1930s. Television and nylon stockings were invented. Refrigerators and washing machines turned into mass-market products. Railroads became faster and roads smoother and wider. As the economic historian Alexander J. Field has said, the 1930s constituted “the most technologically progressive decade of the century.”

Economists often distinguish between cyclical trends and secular trends — which is to say, between short-term fluctuations and long-term changes in the basic structure of the economy. No decade points to the difference quite like the 1930s: cyclically, the worst decade of the 20th century, and yet, secularly, one of the best.

It would clearly be nice if we could take some comfort from this bit of history. If anything, though, the lesson of the 1930s may be the opposite one. The most worrisome aspect about our current slump is that it combines obvious short-term problems — from the financial crisis — with less obvious long-term problems. Those long-term problems include a decade-long slowdown in new-business formation, the stagnation of educational gains and the rapid growth of industries with mixed blessings, including finance and health care.

Together, these problems raise the possibility that the United States is not merely suffering through a normal, if severe, downturn. Instead, it may have entered a phase in which high unemployment is the norm.

On Friday, the Labor Department reported that job growth was mediocre in September and that unemployment remained at 9.1 percent. In a recent survey by the Federal Reserve Bank of Philadelphia, forecasters said the rate was not likely to fall below 7 percent until at least 2015. After that, they predicted, it would rarely fall below 6 percent, even in good times.

Not so long ago, 6 percent was considered a disappointingly high unemployment rate. From 1995 to 2007, the jobless rate exceeded 6 percent for only a single five-month period in 2003 — and it never topped 7 percent.

“We’ve got a double-whammy effect,” says John C. Haltiwanger, an economics professor at the University of Maryland. The cyclical crisis has come on top of the secular one, and the two are now feeding off each other.

In the most likely case, the United States has fallen into a period somewhat similar to the one that Europe has endured for parts of the last generation; it is rich but struggling. A high unemployment rate will feed fears of national decline. The political scene may be tumultuous, as it already is. Many people will find themselves shut out of the work force.

Almost 6.5 million people have been officially unemployed for at least six months, and another few million have dropped out of the labor force — that is, they are no longer looking for work — since 2008. These hard-core unemployed highlight the nexus between long-term and short-term economic problems. Most lost their jobs because of the recession. But many will remain without work long after the economy begins growing again.

Indeed, they will themselves become a force weighing on the economy. Fairly or not, employers will be reluctant to hire them. Many with borderline health problems will end up in the federal disability program, which has become a shadow welfare program that most beneficiaries never leave.

For now, the main cause of the economic funk remains the financial crisis. The bursting of a generation-long, debt-enabled consumer bubble has left households rebuilding their balance sheets and businesses wary of hiring until they are confident that consumer spending will pick up. Even now, sales of many big-ticket items — houses, cars, appliances, many services — remain far below their pre-crisis peaks.

Although the details of every financial crisis differ, the broad patterns are similar. The typical crisis leads to almost a decade of elevated unemployment, according to oft-cited academic research by Carmen M. Reinhart and Kenneth S. Rogoff. Ms. Reinhart and Mr. Rogoff date the recent crisis from the summer of 2007, which would mean our economy was not even halfway through its decade of high unemployment.

Of course, making dark forecasts about the American economy, especially after a recession, can be dangerous. In just the last 50 years, doomsayers claimed that the United States was falling behind the Soviet Union, Japan and Germany, only to be proved wrong each time.

This country continues to have advantages that no other country, including China, does: the world’s best venture-capital network, a well-established rule of law, a culture that celebrates risk taking, an unmatched appeal to immigrants. These strengths often give rise to the next great industry, even when the strengths are less salient than the country’s problems.

THAT’S part of what happened in the 1930s. It’s also happened in the 1990s, when many people were worrying about a jobless recovery and economic decline. At a 1992 conference Bill Clinton convened shortly after his election to talk about the economy, participants recall, no one mentioned the Internet.

Still, the reasons for concern today are serious. Even before the financial crisis began, the American economy was not healthy. Job growth was so weak during the economic expansion from 2001 to 2007 that employment failed to keep pace with the growing population, and the share of working adults declined. For the average person with a job, income growth barely exceeded inflation.

The closest thing to a unified explanation for these problems is a mirror image of what made the 1930s so important. Then, the United States was vastly increasing its productive capacity, as Mr. Field argued in his recent book, “A Great Leap Forward.” Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

In recent years, on the other hand, the economy has not done an especially good job of building its productive capacity. Yes, innovations like the iPad and Twitter have altered daily life. And, yes, companies have figured out how to produce just as many goods and services with fewer workers. But the country has not developed any major new industries that employ large and growing numbers of workers.

There is no contemporary version of the 1870s railroads, the 1920s auto industry or even the 1990s Internet sector. Total economic output over the last decade, as measured by the gross domestic product, has grown more slowly than in any 10-year period during the 1950s, ’60s, ’70s, ’80s or ’90s.

Perhaps the most important reason, beyond the financial crisis, is the overall skill level of the work force. The United States is the only rich country in the world that has not substantially increased the share of young adults with the equivalent of a bachelor’s degree over the past three decades. Some less technical measures of human capital, like the percentage of children living with two parents, have deteriorated. The country has also chosen not to welcome many scientists and entrepreneurs who would like to move here.

The relationship between skills and economic success is not an exact one, yet it is certainly strong enough to notice, and not just in the reams of peer-reviewed studies on the subject. Australia, New Zealand, Canada and much of Northern Europe have made considerable educational progress since the 1980s, for instance. Their unemployment rates, which were once higher than ours, are now lower. Within this country, the 50 most educated metropolitan areas have an average jobless rate of 7.3 percent, according to Moody’s Analytics; in the 50 least educated, the average rate is 11.4 percent.

Despite the media’s focus on those college graduates who are struggling, it’s not much of an exaggeration to say that people with a four-year degree — who have an unemployment rate of just 4.3 percent — are barely experiencing an economic downturn.

Economic downturns do often send people streaming back to school, and this one is no exception. So there is a chance that it will lead to a surge in skill formation. Yet it seems unlikely to do nearly as much on that score as the Great Depression, which helped make high school universal. High school, of course, is free. Today’s educational frontier, college, is not. In fact, it has become more expensive lately, as state cutbacks have led to tuition increases.

Beyond education, the American economy seems to be suffering from a misallocation of resources. Some of this is beyond our control. China’s artificially low currency has nudged us toward consuming too much and producing too little. But much of the misallocation is homegrown.

In particular, three giant industries — finance, health care and housing — now include large amounts of unproductive capacity. Housing may have shrunk, but it is still a bigger, more subsidized sector in this country than in many others.

Health care is far larger, with the United States spending at least 50 percent more per person on medical care than any other country, without getting vastly better results. (Some aspects of our care, like certain cancer treatments, are better, while others, like medical error rates, are worse.) The contrast suggests that a significant portion of medical spending is wasted, be it on approaches that do not make people healthier or on insurance-company bureaucracy.

In finance, trading volumes have boomed in recent decades, yet it is unclear how much all the activity has lifted living standards. Paul A. Volcker, the former Fed chairman, has mischievously said that the only useful recent financial innovation was the automated teller machine. Critics like Mr. Volcker argue that much of modern finance amounts to arbitrage, in which technology and globalization have allowed traders to profit from being the first to notice small price differences.

IN the process, Wall Street has captured a growing share of the world’s economic pie — thereby increasing inequality — without doing much to expand the pie. It may even have shrunk the pie, given that a new International Monetary Fund analysis found that higher inequality leads to slower economic growth.

The common question with these industries is whether they are using resources that could do more economic good elsewhere. “The health care problem is very similar to the finance problem,” says Lawrence F. Katz, a Harvard economist, “in that incredibly talented people are wasting their talent on something that is essentially a zero-sum game.”

In the short term, finance, health care and housing provide jobs, as their lobbyists are quick to point out. But it is hard to see how the jobs of the future will spring from unnecessary back surgery and garden-variety arbitrage. They differ from the growth engines of the past, which delivered fundamental value — faster transportation or new knowledge — and let other industries then build off those advances.

The United States has long overcome its less dynamic industries by replacing them with more dynamic ones. The decline of the horse and buggy, difficult as it may have been for people in the business, created no macroeconomic problems. The trouble today is that those new industries don’t seem to be arriving very quickly.

The rate at which new companies are created has been falling for most of the last decade. So has the pace at which existing companies add positions. “The current problem is not that we have tons of layoffs,” Mr. Katz says. “It’s that we don’t have much hiring.”

If history repeats itself, this situation will eventually turn around. Maybe some American scientist in a laboratory somewhere is about to make a breakthrough. Maybe an entrepreneur is on the verge of creating a great new product. Maybe the recent health care and financial-regulation laws will squeeze the bloat.

For now, the evidence for such optimism remains scant. And the economy remains millions of jobs away from being even moderately healthy.

    The Depression: If Only Things Were That Good, NYT, 8.10.2011,
    http://www.nytimes.com/2011/10/09/sunday-review/the-depression-if-only-things-were-that-good.html

Clamping Down on High-Speed Stock Trades

October 8, 2011
The New York Times
By GRAHAM BOWLEY

Regulators in the United States and overseas are cracking down on computerized high-speed trading that crowds today’s stock exchanges, worried that as it spreads around the globe it is making market swings worse.

The cost of these high-frequency traders, critics say, is the confidence of ordinary investors in the markets, and ultimately their belief in the fairness of the financial system.

“There is something unholy about them,” said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. “That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading.”

Regulators are playing catch-up. In the United States and Europe, they have recently fined traders for using computers to gain advantage over slower investors by illegally manipulating prices, and they suspect other market abuse could be going on. Regulators are also weighing new rules for high-speed trading, with an international regulatory body to make recommendations in coming weeks.

In addition, officials in Europe, Canada and the United States are considering imposing fees aimed at limiting trading volume or paying for the cost of greater oversight.

Perhaps regulators’ biggest worry is over the unknown dynamics of the computerized stock market world that the firms are part of — and the risk that at any moment it could spin out of control. Some regulators fear that the sudden market dive on May 6, 2010, when prices dropped by 700 points in minutes and recovered just as abruptly, was a warning of the potential problems to come. Just last week, the broader market fell throughout Tuesday’s session before shooting up 4 percent in the last hour, raising questions on what was really behind it.

“The flash crash was a wake-up call for the market,” said Andrew Haldane, executive director of the Bank of England responsible for financial stability. “There are many questions begging.”

The industry and others say that the vast majority of trading is legitimate and that its presence means many extra buyers and sellers in the markets, drastically reducing trading costs for ordinary investors.

James Overdahl, an adviser to the firms’ trade group, said that they favor policing the market to stamp out manipulation and that they support efforts to improve market stability. The traders, he said, “are as much interested in improving the quality of markets as anyone else.”

Some academic studies show that high-frequency trading tends to reduce price volatility on normal trading days.

And while a recent analysis by The New York Times of price changes in the Standard & Poor’s 500-stock index over the past five decades showed that big price swings are more common than they used to be, analysts ascribe this to a variety of causes — including high-speed electronic trading but also high anxiety about the European crisis and the United States economy.

“We are just beginning to catch up to the reality of, ‘Hey, we are in an electronic market, what does that mean?’ ” said Adam Sussman, director of research at the Tabb Group, a markets specialist.

High-frequency trading took off in the middle of the last decade when regulatory reforms encouraged exchanges to switch from floor-based trading to electronic. As computers took over, daily turnover of stocks rose to 8 billion shares in the United States from about 6 billion in 2007, according to BATS Global Markets.

The trading, done by independent firms or on special desks inside big Wall Street banks, now accounts for two of every three stock market trades in America.

Such trading has expanded into other markets, including futures markets in the United States. It has also spread to stock markets around the world where for-profit exchanges are taking steps to attract their business.

When British regulators noticed strange price movements in a range of shares on the London Stock Exchange, they tracked them to a Canadian firm issuing thousands of computerized orders allegedly designed to mislead other investors.

In August, regulators fined the firm, Swift Trade, £8 million, or $13.1 million, for a technique called layering, which involves issuing and then canceling orders they never meant to carry out. The action was challenged by Swift Trade, which was dissolved last year.

Susanne Bergsträsser, a German regulator leading a review of high-speed trading for the International Organization of Securities Commissions, said authorities have to be alert for “market abuse that may arise as a result of technological development.”

The organization will present its recommendations to G-20 finance ministers this month.

In the United States, the Financial Industry Regulatory Authority last year fined Trillium Brokerage Services, a New York firm, and some of its employees $2.3 million for layering.

Even the traders’ authorized activities are coming under fire, especially their tendency to shoot off thousands of orders a second and suddenly cancel many. Long-term investors like pension funds complain that the practice makes their trading harder.

Global regulators are considering penalizing traders if they issue but then cancel a high degree of orders, or even making them keep open their orders for a minimum time before they can cancel. Long-term investors worry that some traders may be using their superior technology to detect when others are buying and selling and rush in ahead of them to take advantage of price moves. This is driving some investors who buy and sell in large blocks to move to new so-called dark pools — venues away from public exchanges. As more trading takes place in these venues, prices on exchanges have less meaning, critics say.

In the United States, the Securities and Exchange Commission has been looking into the new market structure for almost two years. In July, it approved a “large trader” rule, requiring firms that do a lot of business, including high-speed traders, to offer more information about their activities in case regulators need to trace their trades.

After the flash crash, exchanges introduced circuit breakers to halt trading after violent moves. Bart Chilton, a commissioner at the Commodity Futures Trading Commission, called for regulators to go further. He wants compulsory registration of high-frequency firms and pre-trade testing of their algorithms.

One of the most controversial actions has been the European Commission’s recent proposal for a financial transaction tax on speculators, which would hit high-frequency firms and curtail volumes. The proposed tax would apply to all trades in stocks, bonds and derivatives, and may face stiff opposition from European governments. Many such firms are based in Britain or the Netherlands, and authorities fear a loss of business.

In Canada, a top regulator is proposing higher fees on the biggest players. Last year, the country put in place a monitoring system to track the 200 million to 250 million orders its exchanges receive daily — up from 70 million a year and a half ago.

And the S.E.C. last year proposed what would be an even more high-powered monitoring system called a consolidated audit trail that would gather data on trades in real time from all United States exchanges, and be a powerful tool in helping regulators piece together events in case of another flash crash.

The monitoring “will provide regulators a critical new tool to surveil the securities markets and pursue wrongdoers, in a much more efficient and effective way than we can today,” said David Shillman, associate director of the S.E.C.’s trading and markets unit.

    Clamping Down on High-Speed Stock Trades, NYT, 8.10.2011,
    http://www.nytimes.com/2011/10/09/business/clamping-down-on-rapid-trades-in-stock-market.html

Confronting the Malefactors

October 6, 2011
The New York Times
By PAUL KRUGMAN

There’s something happening here. What it is ain’t exactly clear, but we may, at long last, be seeing the rise of a popular movement that, unlike the Tea Party, is angry at the right people.

When the Occupy Wall Street protests began three weeks ago, most news organizations were derisive if they deigned to mention the events at all. For example, nine days into the protests, National Public Radio had provided no coverage whatsoever.

It is, therefore, a testament to the passion of those involved that the protests not only continued but grew, eventually becoming too big to ignore. With unions and a growing number of Democrats now expressing at least qualified support for the protesters, Occupy Wall Street is starting to look like an important event that might even eventually be seen as a turning point.

What can we say about the protests? First things first: The protesters’ indictment of Wall Street as a destructive force, economically and politically, is completely right.

A weary cynicism, a belief that justice will never get served, has taken over much of our political debate — and, yes, I myself have sometimes succumbed. In the process, it has been easy to forget just how outrageous the story of our economic woes really is. So, in case you’ve forgotten, it was a play in three acts.

In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst — but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers’ sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support — and the wealth they still possessed thanks to the bailouts — behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis.

Given this history, how can you not applaud the protesters for finally taking a stand?

Now, it’s true that some of the protesters are oddly dressed or have silly-sounding slogans, which is inevitable given the open character of the events. But so what? I, at least, am a lot more offended by the sight of exquisitely tailored plutocrats, who owe their continued wealth to government guarantees, whining that President Obama has said mean things about them than I am by the sight of ragtag young people denouncing consumerism.

Bear in mind, too, that experience has made it painfully clear that men in suits not only don’t have any monopoly on wisdom, they have very little wisdom to offer. When talking heads on, say, CNBC mock the protesters as unserious, remember how many serious people assured us that there was no housing bubble, that Alan Greenspan was an oracle and that budget deficits would send interest rates soaring.

A better critique of the protests is the absence of specific policy demands. It would probably be helpful if protesters could agree on at least a few main policy changes they would like to see enacted. But we shouldn’t make too much of the lack of specifics. It’s clear what kinds of things the Occupy Wall Street demonstrators want, and it’s really the job of policy intellectuals and politicians to fill in the details.

Rich Yeselson, a veteran organizer and historian of social movements, has suggested that debt relief for working Americans become a central plank of the protests. I’ll second that, because such relief, in addition to serving economic justice, could do a lot to help the economy recover. I’d suggest that protesters also demand infrastructure investment — not more tax cuts — to help create jobs. Neither proposal is going to become law in the current political climate, but the whole point of the protests is to change that political climate.

And there are real political opportunities here. Not, of course, for today’s Republicans, who instinctively side with those Theodore Roosevelt-dubbed “malefactors of great wealth.” Mitt Romney, for example — who, by the way, probably pays less of his income in taxes than many middle-class Americans — was quick to condemn the protests as “class warfare.”

But Democrats are being given what amounts to a second chance. The Obama administration squandered a lot of potential good will early on by adopting banker-friendly policies that failed to deliver economic recovery even as bankers repaid the favor by turning on the president. Now, however, Mr. Obama’s party has a chance for a do-over. All it has to do is take these protests as seriously as they deserve to be taken.

And if the protests goad some politicians into doing what they should have been doing all along, Occupy Wall Street will have been a smashing success.

    Confronting the Malefactors, NYT, 6.10.2011,
    http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html

Where’s the Jobs Bill?

October 5, 2011
The New York Times

When Eric Cantor, the House Republican leader, predictably said that President Obama’s jobs bill was dead on arrival in his chamber, and would not even be debated, the president — in a break from his usual forbearance — lashed right back at him. “Does he not believe in rebuilding America’s roads and bridges?” Mr. Obama asked on Tuesday. Does Mr. Cantor oppose rehiring teachers or construction workers, he continued, or giving tax breaks to businesses that hire?

It was the kind of strong, personal rejoinder to Republican obstructionism that Mr. Obama needs to make. Unfortunately, he has not been as forceful in pressing the other lawmakers holding up his bill: Senate Democrats.

Nearly a month after the president proposed his jobs bill, it has not yet been taken up in the chamber controlled by his party. “We’ll get to that,” Senator Harry Reid, the majority leader, said last month, after taking up a misguided bill to punish China for currency manipulation. The truth is that Mr. Reid has not had enough Democratic votes to even claim a Senate majority. That is because so many members of his caucus do not have the political courage to stand up for aggressive government action to revive the economy, or to admit that both higher taxes on the wealthy and an end to corporate tax breaks are necessary to pay for it and to start wrestling down the deficit.

The Republicans have used that cowardice to embarrass Mr. Reid, his party and Mr. Obama. On Tuesday, when the Senate Republican leader, Mitch McConnell, prankishly offered to bring up the jobs bill, Mr. Reid was forced to object, leading to all sorts of merry, if hollow, taunts from the Republican side.

The Republicans’ willingness to play political games while millions are out of work is inexcusable, but the eagerness of some Democratic senators to protect big business and big contributors is no less frustrating.

Oil state Democrats, like Mark Begich of Alaska and Mary Landrieu of Louisiana, are resisting ending tax breaks for energy conglomerates. Ben Nelson of Nebraska and Bill Nelson of Florida have objected to broad tax revenue increases. Even Charles Schumer of New York objected to increases on families making more than $250,000, claiming— no more convincingly than Republicans do — that many are struggling small businesses.

To reassemble his coalition, Mr. Reid on Wednesday proposed scrapping the president’s plan to pay for his bill, and substituting a new 5 percent surtax on incomes of more than $1 million. That would increase the progressivity of the tax code, and White House officials said they could accept it. But their original idea was much better.

Ultimately, families making $250,000, and even those making less, will have to give back some of the tax benefits they got from the Bush administration if the budget is to return to long-term health. Beginning that tax-reform process now makes more sense than confining the new tax to millionaires, whatever its populist satisfactions.

In the end, it may be a political exercise anyway, since Mr. McConnell’s Republicans will filibuster any jobs bill, and Mr. Cantor’s will reject most of it. But the sharp contrast with the Republican plan to do nothing can only be made if Democrats are clearly united behind a plan to invigorate the economy. Mr. Reid insists the millionaire’s tax will unite Democrats and produce a vote on the jobs plan in the next few days. It cannot come soon enough.

    Where’s the Jobs Bill?, NYT, 5.10.2011,
    http://www.nytimes.com/2011/10/06/opinion/wheres-the-jobs-bill.html

Seeking Energy, Unions Join Protest Against Wall Street

October 5, 2011
The New York Times
By STEVEN GREENHOUSE and CARA BUCKLEY

Stuart Appelbaum, an influential union leader in New York City, was in Tunisia last month, advising the fledgling labor movement there, when he received a flurry of phone calls and e-mails alerting him to the rumblings of something back home. Protesters united under a provocative name, Occupy Wall Street, were gathering in a Lower Manhattan park and raising issues long dear to organized labor.

And gaining attention for it.

Mr. Appelbaum recalled asking a colleague over the phone to find out who was behind Occupy Wall Street — a bunch of hippies or perhaps troublemakers? — and whether the movement might quickly fade.

So far, at least, it has not, and on Wednesday, several prominent unions, struggling to gain traction on their own, made their first effort to join forces with Occupy Wall Street. Thousands of union members marched with the protesters from Foley Square to their encampment in nearby Zuccotti Park.

“The labor movement needs to tap into the energy and learn from them,” Mr. Appelbaum, president of the Retail, Wholesale and Department Store Union, said. “They are reaching a lot of people and exciting a lot of people that the labor movement has been struggling to reach for years.”

In fact, the unexpected success of Occupy Wall Street in leveling criticism of corporate America has stirred some soul-searching among labor leaders. They have noted with envy that the new movement has done a far better job, not only of capturing interest, but also of attracting young people. Protests have spread to dozens of cities, including Boston, Chicago and Los Angeles.

Several union leaders complained that their own protests over the past two years had received little attention, though they had put far more people on the streets than Occupy Wall Street has. A labor rally in Washington last October drew more than 100,000 people, with little news media coverage.

Behind the scenes in recent days, union leaders have debated how to respond to Occupy Wall Street. In internal discussions, some voiced worries that if labor were perceived as trying to co-opt the movement, it might alienate the protesters and touch off a backlash.

Others said they were wary of being embarrassed by the far-left activists in the group who have repeatedly denounced the United States government.

Those concerns may be renewed after a disturbance about 8 p.m. Wednesday as the march was breaking up. The police said they arrested eight protesters around the intersection of Broadway and Wall Street, after people rushed barriers and began spilling into the street. While a couple of witnesses said that officers used pepper spray to clear the streets, Paul J. Browne, the Police Department’s chief spokesman, said that one officer “possibly” used it. Several protesters were also arrested at State and Bridge Streets at 9:30 p.m.; the police said one protester was charged with assault after an officer was knocked off his scooter.

Despite questions about the protesters’ hostility to the authorities, many union leaders have decided to embrace Occupy Wall Street. On Wednesday, for example, members of the A.F.L.-C.I.O.’s executive council had a conference call in which they expressed unanimous support for the protest. One A.F.L.-C.I.O. official said leaders had heard from local union members wondering why organized labor was absent.

The two movements may be markedly different, but union leaders maintain that they can help each other — the weakened labor movement can tap into Occupy Wall Street’s vitality, while the protesters can benefit from labor’s money, its millions of members and its stature.

The labor leaders said they hoped Occupy Wall Street would serve as a counterweight to the Tea Party and help pressure President Obama and Congress to focus on job creation and other concerns important to unions.

“This is very much a crystallizing moment,” said Denise Mitchell, the A.F.L.-C.I.O.’s communications director. “We have to look for sparks wherever they are. It could be an opportunity to talk about what’s wrong with the system and how to make it better.”

Still, it may not be easy for organized labor to mesh with this new movement. Labor unions generally represent older workers, while the Occupy Wall Street protesters are younger. Unions are hierarchical, while the Occupy Wall Street protesters are more loosely knit and like to see themselves as highly democratic.

Unions invariably have a long and specific list of demands, while Occupy Wall Street has not articulated formal ones. Union leaders often like the limelight, while Occupy Wall Street is largely leaderless.

“Labor’s needed a way to excite younger people with their message,” Michael Kazin, a historian at Georgetown University, said. “And to the extent that Occupy Wall Street’s ‘99 percent versus 1 percent’ theme goes along with what labor has been saying for a while, it’s a natural fit.”

“But obviously,” said Professor Kazin, who has written several books on populist and progressive movements, “demographically, there may be some problems here. The protests haven’t gotten much institutional presence, and if labor can help give them institutional presence, that can really help them.”

Several major labor groups — including the Transport Workers Union, the Service Employees International Union, the United Federation of Teachers and the United Auto Workers — took part in the march on Wednesday. Some more traditionally conservative ones, like those in the construction trades, stayed away.

George White, 60, a retired union member who lives in Marine Park, Brooklyn, said it was up to the young protesters to champion bread-and-butter issues in the future. “Unions are on the way out,” he said. “These are the children of mothers and fathers who have worked hard all their lives and now can’t put food on the tables. These are the children who can’t pay off their loans, who have nowhere to go and no opportunities.”

Julie Fry, 32, a lawyer who is a member of the union at the Legal Aid Society, said labor’s backing of the protest was momentous, and born out of frustration.

“We’re so fed up and getting nowhere through the old political structures that there needs to be old-fashioned rage in the streets,” she said.

Before the march, protesters at the Occupy Wall Street encampment’s welcome table said that while the unions were welcome, they would be only one more base of support.

“The idea that the unions will take over the crowd, that’s not going to happen,” said Jeff Smith, 41, a freelancer in advertising who has been on the welcome committee since the protests began. “We are not a group looking for a leader.”

Others expressed frustration with the unions. Chris Cicala, 26, from Staten Island, said his father, a union painter, had been laid off, leaving his family without health insurance. “I don’t get where the unions have been for the past 10 years,” Mr. Cicala said.

 

Reporting was contributed by Al Baker, Joseph Goldstein, Rob Harris

and Colin Moynihan.

    Seeking Energy, Unions Join Protest Against Wall Street, NYT, 5.10.2011,
    http://www.nytimes.com/2011/10/06/nyregion/major-unions-join-occupy-wall-street-protest.html

The Wrong Way to Deal With China

October 4, 2011
The New York Times

China is undeniably manipulating its currency. Countries around the world, including the United States, are losing jobs because their manufacturing industries cannot compete with artificially cheap Chinese goods. For the good of the world economy, and its own long-term economic development, China should stop.

Still, a Senate bill, with strong bipartisan support, to punish countries that manipulate their currencies is a bad idea. It could do even more damage to the American economy if — as is all too likely — China decides to retaliate.

Senator Charles Schumer, a Democrat of New York, declared that the legislation “is a clear, unwavering message from both parties to China’s leaders — the jig is up; it’s time to stop gaming the system or face severe consequences.” Talk of payback is playing well with his colleagues. On Monday, 79 senators — 47 Democrats, 31 Republicans and 1 independent — voted to initiate debate.

Growing trade with China over the past two decades has been one of the leading causes of the decline of manufacturing employment. The United States would likely add jobs over time if the renminbi was allowed to rise more significantly. Some high-technology industries, like the nascent American solar-panel business, would be a lot more competitive against their Chinese rivals. But many of the low-wage businesses lost to Chinese competition — like toys and textiles — will never come back.

Stiff retaliatory tariffs or other punishments are also very unlikely to persuade Beijing to swiftly abandon a policy that has been at the core of its economic strategy for two decades. Instead, it could add an explosive new conflict to an already heavy list of bilateral frictions.

The Senate bill is intended to limit the executive branch’s discretion. It would require the Treasury Department to identify countries whose currencies were grossly misaligned — with China everyone’s favorite culprit. If Beijing persisted, Washington would be required — with a delimited presidential waiver — to stop spending federal dollars on Chinese goods, and consider the renminbi’s undervaluation in antidumping cases against Chinese imports. The Treasury Department would also be required to ask the Federal Reserve to consider acting in currency markets to counteract the undervaluation of China’s currency. And the bill would increase the pressure on the Commerce Department to impose tariffs on undervalued Chinese products.

Given Beijing’s history of meeting fire with fire, many experts fear that China would retaliate on other fronts, like dragging its feet on customs inspections of American imports, opening new antidumping investigations against American goods or slowing its promised efforts to halt the stealing of American intellectual property. Beijing might even slow the renminbi’s current rise against the dollar, which translates into an appreciation rate of some 10 percent per year, after taking Chinese inflation into account.

The Obama administration has been pressing Beijing on the broad range of economic relations. It has won some important cases at the World Trade Organization. But it could do more to challenge other illegal policies, like China’s ban on the export of rare earth materials used in high-tech industries.

It could more explicitly link China’s bid for a bilateral investment agreement with the United States and a designation as a “market economy” at the W.T.O. to improvements in Chinese policies. It should press the European Union, Brazil and others to increase the rhetorical heat. China’s undervalued currency hurts them, too.

Beijing is not immune to pressure. But the Senate bill is too blunt an instrument.

    The Wrong Way to Deal With China, NYT, 4.10.2011,
    http://www.nytimes.com/2011/10/05/opinion/the-wrong-way-to-deal-with-china.html

Fed Chief Raises Doubts on Recovery

October 4, 2011
The New York Times
By BINYAMIN APPELBAUM

WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, offered a grim assessment of the nation’s economic health Tuesday, telling a Congressional committee that “the recovery is close to faltering.”

Mr. Bernanke said that the Federal Reserve has acted forcefully to support growth and that it stood ready to do more. But he emphasized that the rest of the government also needs to act on problems including the federal debt, unemployment, housing, trade, taxation and regulation.

“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy,” Mr. Bernanke said. “Fostering healthy growth and job creation is a shared responsibility of all economic policy makers.”

Mr. Bernanke began his testimony Tuesday by repeating his basic assessment that the economy has grown more slowly than expected, because of unexpected setbacks like the Japanese earthquake and the European debt crisis and because of domestic problems like the ongoing housing crisis.

“The recovery from the crisis has been much less robust than we hoped,” he said, although he also reiterated that the Fed expects faster growth going forward.

The Fed’s primary policy focus is on the pace of price increases, or inflation, which it seeks to maintain at a steady annual rate of about 2 percent. Prices have increased more quickly over the last year, but the Fed has predicted that the increases will abate, and Mr. Bernanke reiterated that forecast Monday.

But Mr. Bernanke’s description of the economic outlook sounded slightly more worried. He has previously said that the economy would recover so long as the government did nothing to interfere, for example through severe short-term spending cuts. On Tuesday, he seemed to suggest that the government needed to act to preserve the recovery.

“We need to make sure that the recovery continues and doesn’t drop back,” Mr. Bernanke told the Joint Economic Committee.

Mr. Bernanke said that the Fed has not exhausted its options.

The central bank, he said, “is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability.”

But his emphasis once again was on the need for the rest of the government to act.

He said that the government should keep four goals in mind: reducing debts to a level that was sustainable in the long term; avoiding short-term reductions that could impede recovery; adjusting spending and tax policies to support growth; and improving the government’s decision-making process.

“There is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy,” Mr. Bernanke said.

    Fed Chief Raises Doubts on Recovery, NYT, 4.9.2011,
    http://www.nytimes.com/2011/10/05/business/economy/fed-chief-raises-doubts-on-recovery.html

Fannie Mae Knew Early of Abuses, Report Says

October 3, 2011
The New York Times
By GRETCHEN MORGENSON

Fannie Mae, the mortgage finance giant, learned as early as 2003 of extensive foreclosure abuses among the law firms it had hired to remove troubled borrowers from their homes. But the company did little to correct the firms’ practices, according to a report issued Tuesday.

Only after news reports in mid-2010 began to describe the dubious practices, like the routine filing of false pleadings in bankruptcy courts, did Fannie Mae’s overseer start to scrutinize the conduct. The report was critical of that overseer, the Federal Housing Finance Agency, and was prepared by the agency’s inspector general.

In one notable lapse, even after the agency reported problems to Fannie Mae in late 2010 about some of the approved law firms, it did not request a response from the company, the report said.

“American homeowners have been struggling with the effects of the housing finance crisis for several years, and they shouldn’t have to worry whether they will be victims of foreclosure abuse,” said Steve Linick, inspector general of the finance agency. “Increased oversight by F.H.F.A. could help to prevent these abuses.”

The report is the second in two weeks in which the inspector general has outlined lapses at both the Federal Housing Finance Agency and the companies it oversees — Fannie Mae and Freddie Mac. The agency has acted as conservator for the companies since they were taken over by the government in 2008. Its duty is to ensure that their operations do not pose additional risk to the taxpayers who now own them. The companies have tapped the taxpayers to cover mortgage losses totaling about $160 billion.

Elijah E. Cummings, the Maryland Democrat who is the ranking member of the House Committee on Oversight and Government Reform and who requested the inspector general’s report, said in a statement, “As a member of Congress and an attorney, I find the systemic failures by F.H.F.A. and Fannie Mae to adequately oversee these foreclosure law firms to be a breach of the public trust and an assault on the integrity of our justice system.”

The new report from the inspector general tracks Fannie Mae’s dealings with the law firms handling its foreclosures from 1997, when the company created its so-called retained attorney network. At the time, Fannie Mae was a highly profitable and powerful institution, and it devised the legal network to ensure that borrower defaults would be resolved with efficiency and speed.

The law firms in the network agreed to a flat-rate fee structure and pricing model based on the volume of foreclosures they completed. The companies that serviced the loans for Fannie Mae, were supposed to monitor the law firms’ performance and practices, the report noted

After receiving information from a shareholder in 2003 about foreclosure abuses by its law firms, Fannie Mae assigned its outside counsel to investigate, according to the report. That law firm concluded in a 2006 analysis that “foreclosure attorneys in Florida are routinely filing false pleadings and affidavits,” and that the practice could be occurring elsewhere. “It is axiomatic that the practice is improper and should be stopped,” the law firm said.

The inspector general’s report said that it could not be determined whether Fannie Mae had alerted its regulator, then the Office of Federal Housing Enterprise Oversight, to the legal improprieties identified by its internal investigation.

Amy Bonitatibus, a Fannie Mae spokeswoman, declined to comment on the inspector general’s report, but said that the 2006 legal analysis identified a specific issue with the practice of filing lost-note affidavits, which the company immediately addressed.

The inspector general said that both Fannie Mae and its regulator appear to have ignored other signs of problems in their foreclosure operations. For example, the Federal Housing Finance Agency did not respond to borrower complaints about improper actions taken by law firms in foreclosures received as early as August 2009, even though foreclosure abuse poses operational and financial risks to Fannie Mae.

The report cited a media report from early 2008 detailing foreclosure abuses by law firms doing work for Fannie Mae.

Nevertheless, a few months later and just before its takeover by the government, Fannie Mae began requiring the banks that serviced its loans to use only those law firms that were in its network. By then, 140 law firms in 31 jurisdictions were in the group. Among the largest firms in the network was the David J. Stern firm in Plantation, Fla., which was handling more than 75,000 foreclosure actions a year before Fannie Mae terminated it because of vast problems with its legal work.

Finally last fall, after an outcry over apparently forged foreclosure documents and other improprieties, the Federal Housing Finance Agency began investigating the company’s process. In a report issued early this year, it determined that Fannie Mae’s management of its network of lawyers did not meet safety and soundness standards. Among the reasons: the company’s controls to prevent or detect foreclosure abuses were inadequate, as was the company’s monitoring of the law firms. “If a law firm self-reported no issues as it processed cases,” the inspector general said, “then Fannie Mae presumed the firm was doing a good job.”

The agency is still deciding how to handle the lawyer network, the inspector general said.

Mr. Cummings has asked the federal housing agency to consider terminating the program.

Officials at the housing agency agreed, however, with the recommendations in the inspector general’s report. Corinne Russell, a spokeswoman for F.H.F.A. said the agency was concluding its supervisory work in this area and would direct Fannie Mae to take necessary action when the work was completed.

In a response, the agency said that by Sept. 29, 2012, it would review its existing supervisory practices and act to resolve “deficiencies in the management of risks associated with default-related legal services vendors.”

    Fannie Mae Knew Early of Abuses, Report Says, NYT, 3.10.2011,
    http://www.nytimes.com/2011/10/04/business/fannie-mae-ignored-foreclosure-misdeeds-report-says.html

The Supercommittee’s Stark Choice

October 1, 2011
The New York Times

In August, Congressional Republicans tried to box in Democrats and the White House by demanding huge deficit cuts in exchange for preventing a government default. Then they joined in the creation of a “supercommittee” on deficit reduction that they hoped would take taxes off the table and focus entirely on cuts in spending.

But that supposed victory has forced many Republicans into an equally tight corner. They are starting to realize that if they remain adamant, the resulting across-the-board cuts will disproportionately affect programs they support, starting with military spending.

The joint committee created by the debt-ceiling agreement is desperately groping behind closed doors for ways to cut at least $1.2 trillion from the federal deficit. Republican leaders want it all to come from spending cuts; Democratic leaders want a mix of cuts and revenue increases. If the two sides cannot agree, there will be automatic cuts, which largely spare social-welfare programs but would severely reduce military and security spending.

Senator Jon Kyl of Arizona, who is happy to cut virtually anything else, says military cuts could lead to job losses. Representative Howard McKeon of California, the Armed Services Committee chairman, is so rattled by the law that he used an old scare tactic, saying the cuts could produce a new military draft. “It is my suspicion that the White House and Congressional Democrats insisted on that defense number for one purpose: to force Republicans to choose between raising taxes or gutting defense,” Mr. McKeon said.

That is exactly the choice, and Republicans brought it on themselves by turning the routine debt-ceiling vote into a life-or-death struggle over the unrelated issue of taxes and spending. They have a way out, however. President Obama has given the supercommittee a clear blueprint for $3.6 trillion in deficit reduction through a mix of spending cuts and tax increases on the rich. If the committee followed even half of that program, it could exceed its original mandate, wrap up its work quickly and accomplish a great deal.

Mr. McKeon is a rare Republican who says he would prefer the tax increases to military spending cuts. But the White House proposal, like virtually every good idea that has come up, has been removed from the table by Republican leaders, who have resisted even Democratic demands to allow the panel to add job creation to its mandate.

The committee has only one option, Speaker John Boehner said a few days ago: cutting domestic spending and social-insurance programs, including Medicare and Social Security. Representative Jeb Hensarling of Texas, the co-chairman of the committee, said the president’s plan was “undermining the work” of the group.

The opposite is true. Mr. Obama identified $570 billion in detailed cuts to mandatory spending programs over 10 years. If committee members actually looked at the plan, instead of dismissing it, they would find scores of useful proposals for savings: $31 billion in agriculture subsidies; $18.6 billion in Postal Service reform, including ending Saturday delivery; $27.5 billion in increased fees charged to lenders by Fannie Mae and Freddie Mac; $42.5 billion in higher health premiums and pension contributions for federal and military workers; $135 billion in less generous Medicare payments to drug makers.

Most important, Mr. Obama would cut the deficit by $1.57 trillion with new tax revenue. It is a good bet the Republican side of the panel will reject it. Republicans want to preserve the programs they care about, at the expense of programs for the elderly, the middle class and the poor. But the president’s strong defense of his plan should at least stiffen the spines of the six Democrats on the panel to refuse any plan that relies entirely on cuts.

    The Supercommittee’s Stark Choice, NYT, 1.10.2011,
    http://www.nytimes.com/2011/10/02/opinion/sunday/the-supercommittees-stark-choice.html