Archive for the ‘Global Economic Meltdown’ Category

Congress – Least Productive Year

Tuesday, December 20th, 2011

Despite the lagging employment recovery of the recession, Congress has been less productive this year than any other according to Laura Litvan. It is “free market” politics. The internal contradictions that plague capitalism in no doubt find parallels in the Government which sets the legislation and power structure to maintain those contradictions.

Congress is ending what may be its least productive year on record after government shutdown threats, the collapse of debt-reduction talks and little action to fix the worst U.S. economy since the Great Depression.

Just 62 bills were signed into law through November this year, meaning that 2011 may fall short of the 88 laws enacted in 1995, the lowest number since the Congressional Record began keeping an annual tally in 1947. In 1995, as in this year, a new House Republican majority fought a Democratic president’s agenda.

This year’s partisan battles brought the U.S. to the brink of a government shutdown four times, caused a two-week furlough of Federal Aviation Administration workers and led Standard & Poor’s to lower the nation’s credit rating after it said lawmakers didn’t do enough to reduce the federal deficit.

“It’s been one of the worst Congresses in modern history,” said Representative Jim Cooper, a Tennessee Democrat. “We have failed to meet our minimum standards of competency and endangered America’s credit rating. We have failed to pass key legislation on time. And there is very little hope for improved behavior.”

Voter approval ratings for Congress are at record lows. Republicans, ranked lower than Democrats, insist both parties are to blame.

“People have a right to be frustrated and disappointed, so next year may be a good year for challengers,” said Senator Jon Kyl of Arizona, the No. 2 Senate Republican leader.

Risks to Economy

The inaction by Congress poses risks to the economy, said Ed Yardeni, president of Yardeni Research Inc. in New York. While the unemployment rate hovered around 9 percent most of the year, he said Congress did little to stimulate job growth. Lawmakers also were unwilling to make deep budget cuts or raise taxes to rein in the deficit.

“Usually gridlock is seen as a good thing from the stock market’s perspective, but clearly the out-of-control federal deficit needs to be addressed and there is no political will to do it,” Yardeni said.

S&P, in its ratings downgrade, said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied.

The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was 1.84 percent at 2:35 p.m. New York time today.

Voters Critical

The public is less sanguine. Seventy-six percent of registered voters in a Nov. 28-Dec. 1 Gallup Poll said most members of Congress don’t deserve to be re-elected, the highest percentage in the 19 years Gallup has asked that question.

A Dec. 7-11 Pew Research Center poll found 40 percent of adults blame Republican leaders for a “do-nothing” Congress, while 23 percent blame Democrats.

“It’s more likely that Republicans will be hit harder than Democrats,” said David Rohde, a political scientist at Duke University in Durham, North Carolina.

In a year dominated by budget clashes, Congress passed a few significant measures.

Congress approved free-trade agreements with South Korea, Colombia and Panama. The South Korea deal was the biggest since 1993’s North American Free-Trade Agreement.

Patent Overhaul

Congress overhauled the patent system, long sought by companies such as International Business Machines Corp. (IBM) and Microsoft Corp (MSFT), and extended the USA Patriot Act until 2015, providing law enforcement continued power to track suspected terrorists.

Such output pales compared with 2010, when Congress approved a health-care overhaul, the biggest rewrite of Wall Street rules since the Great Depression, a nuclear arms reduction treaty with Russia and ended a ban against openly gay men and women serving in the military.

This year’s trade and patent bills, while important, are sideshows in the broader economic context, said Ross Baker, a professor of political science at Rutgers University in New Brunswick, New Jersey.

“Those are not insignificant things, but none of them get to the meat of the economic crisis,” Baker said.

Most of President Barack Obama’s $447 billion job-creation agenda was opposed by Republicans and some Democrats who rejected his proposed new spending and tax increases on the wealthy to help pay for it.

Tax Credits

Congress approved tax credits for companies that hire unemployed veterans and canceled a requirement that federal, state and local governments begin withholding 3 percent of payments to contractors in 2013. This week, lawmakers are working to extend a payroll-tax cut for workers through 2012.

House Majority Leader Eric Cantor, a Virginia Republican, said a “fundamental divide” with Obama and a Democrat- controlled Senate stymied House Republicans, who sought to repeal the president’s health-care overhaul and create a Medicare voucher system.

House Speaker John Boehner of Ohio heralded a shift toward cutting the size of government after Republicans forced $38.5 billion in budget cuts this year and Congress agreed in August to reduce deficits by $2.4 trillion over a decade.

Social Security ‘Conversation’

“For the first time in my 21 years here there has been a serious conversation about dealing with the entitlement programs” such as Social Security and Medicare, Boehner said at a Dec. 14 breakfast sponsored by Politico.com, a political news web site. “We are talking about real change,” he said, adding that he wasn’t surprised the public has a low opinion of Congress.

Democratic leaders see it differently. House Minority Leader Nancy Pelosi, a California Democrat, told reporters today it was a “year of missed opportunities and made-up crises.”

The nation has “been engrossed in a year of manufactured crises, with multiple threats of a government shutdown and an increase of uncertainty for business and in our markets as a result of the debt ceiling being held hostage,” said Democratic Whip Steny Hoyer of Maryland.

Independent analysts say that on the matter that dominated — deficit reduction — the results are murky.

The nonpartisan Congressional Budget Office said the $38.5 billion in spending cuts in this year’s budget, agreed in April to avert a government shutdown, cuts the deficit by just $352 million this year, with most savings coming later. Some money cut from programs wouldn’t have been spent anyway, so it wouldn’t do as much to curb a $1.3 trillion deficit, the CBO said.

Automatic Spending Cuts

The debt-reduction measure adopted in August relies on automatic spending cuts for about half of its $2.4 trillion in savings over a decade. A congressional supercommittee’s inability to agree on at least $1.2 trillion in cuts kicks the debate over specifics into next year. To achieve the rest of the deficit reduction, lawmakers must stick with annual caps on spending for a decade.

Based on experience, Congress won’t stick with the deficit- reduction deal for more than a few years, said Stan Collender, managing director of Qorvis Communications in Washington and a former House and Senate budget committee aide.

“Budget deals are always modified, seemingly in seconds after they’re enacted,” he said.

U.S. debt to exceed size of economy (Chicago Tribune)

Thursday, June 9th, 2011

The link
The country which wants to spread “freedom and capitalism” cannot manage its own finances!

A recent Treasury report noted that national debt will exceed the size of the economy this year — a first since World War II. A year ago, the Treasury had estimated that notorious record wouldn’t be hit until 2014.

Now the expectation is that total debt to GDP will top 102 percet this year, up from the earlier estimate of 96.4 percent.

Why the change?

Two factors are likely the biggest cause.

First, the White House’s 2011 GDP estimate is $219 billion lower today than it was a year ago. So debt as percentage of a lower number will always look higher.

Second, the debt grew larger because of a tax cut deal brokered by President Obama and Republicans last December. That deal will add an estimated $858 billion to the deficits over a decade — $410 billion of it in 2011 alone, according to the Congressional Budget Office.

The tax cut package extended all the 2001 and 2003 tax cuts for another two years, enacted a one-year Social Security tax holiday and reduced the estate tax.

Democrats and Republicans disagree on a lot, but both sides have indicated a desire to make the 2001 and 2003 tax cuts permanent for at least the majority of Americans — a costly proposition.

And the GOP publicly says it will not consider tax increases as part of any deal to raise the debt ceiling.

Republican Dave Camp, the lead tax writer in the House, said Monday that the latest Treasury numbers are a clear indication “why any increase in the debt limit must be paired with significant spending reductions and real entitlement reforms.“

But while Republicans criticize Obama for spending too much, in fact tax cuts would drive most of the debt under Obama’s 2012 budget proposal, according to CBO.

That’s why deficit hawks on the left and the right advocate letting the tax cuts expire or paying for any further extension. Better yet, replace them with something superior, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, who noted that this month marks the 10-year anniversary of the 2001 cuts.

“Given that our current tax code is so crummy and our fiscal situation so dire, on this 10-year anniversary, a perfect gift would be a plan to reform the tax code and bring down our debt,“ MacGuineas said.

At this point, the debt is so big, whether it is just below or just above GDP isn’t really a huge distinction.

After examining data from dozens of countries over two centuries, economists Ken Rogoff and Carmen Reinhart found that when a nation’s gross debt reaches 90 percent of its economy, it often loses about one percentage point of growth a year.

Another Damning Article on the Economy

Friday, July 9th, 2010

The link
There just isn’t much light at the end of the tunnel…

The Job Market is not steadily recovering

Monday, June 7th, 2010

This is a reminder of how bad things are. How hard it is. The challenge the workers face.
Link 1

WASHINGTON – If you lose your job these days, it’s worth scrambling to find a new one — fast. After six months of unemployment, your chances of landing work dwindle.

The proportion of people jobless for six months or more has accelerated in the past year and now makes up 46 percent of the unemployed. That’s the highest percentage on records dating to 1948. By late summer or early fall, they are expected to make up half of all jobless Americans.

Economists say those out of work for six months or more risk becoming less and less employable. Their skills can erode, their confidence falter, their contacts dry up. Their growing ranks also will keep pressure on Congress to keep extending jobless benefits, which now run for up to 99 weeks.

Overall, the economy has created a net 982,000 jobs this year. But for Jeff Martinez and the record 6.76 million others who have struck out for six months or more, their struggles are getting worse, not better.

Martinez, 40, a salesman in Washington, D.C., says he’s logged more than 200 interviews in the past three years. Decked out in a dark navy suit and Burberry tie, Martinez projects drive and a zest for deal-making. And yet the most urgent deal of his career — finding a job — eludes him.

“You have days where you feel motivated and hopeful and optimistic,” he says. “Then there are other days, you really lose the faith and think, `I’m never going to get another job. Ever.’”

What’s causing the rising ranks of the long-term jobless to exceed the pace of other recessions?

Mainly, it’s the depth and duration of the job-slashing this time. Since the recession began in December 2007 through May this year, a net 7.4 million jobs have vanished. The unemployment rate has surged nearly 5 percentage points: From 5 percent in December 2007 to 9.7 percent in May.

By contrast, in the last severe recession, the rate rose less sharply over a shorter period: From 7.2 percent in July 1981 to 10.8 percent at the end of 1982.

Lawrence Mishel, president of the Economic Policy Institute, points to the “sheer scale of the falloff in demand for workers” this time. It’s left more people out of work for longer stretches. And it’s intensified competition for each opening.

“It’s a cruel game of musical chairs,” Mishel says.

To lower the unemployment rate from the current 9.7 percent to a more normal 6 percent would require roughly a net 15 million new jobs by the end of 2016, estimates Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Few think that’s likely.

One factor behind the growing proportion of the long-term unemployed is the erosion of their workplace skills — or employers’ perception of it. It’s hard to find work in a tight job market when your skills are seen as stale.

For some occupations in particular, such as computer technicians or accountants, people jobless for many months can lose pace with technological changes or federal rules.

Among those who fear losing their edge is Stephan Azor, 30. He’s looking for information technology work, perhaps overseeing a company’s computer system. He was laid off eight months ago as a system administrator for a defense contractor.

“Technology changes every six months, so there are things I have to look up and learn,” says Azor, who lives in Washington.

Other reasons for the growing proportion of the long-term unemployed:

• Jobs wiped out by the Great Recession that aren’t coming back. In industries like home construction, manufacturing and retail, fewer workers will be needed even after the economy has fully recovered. One reason is higher productivity: Companies have managed to produce the same level of goods or services with fewer workers. Economist Marisa DiNatale of Moody’s Economy.com notes that people out of work in those industries may lack the skills for other jobs that are becoming available.

• The breadth of the recession, which struck every area of the country, makes it harder for job hunters to move to another region in expectation of finding a job. Complicating the matter, the housing bust made it difficult for people to sell their homes and move elsewhere to take a job, economists say.

A study by the National Employment Law Project found that older workers — those 45 and up — make up the largest slice of the long-term unemployed. African-Americans make up 20.8 percent. And men account for six out of 10.

Martinez was living in Los Angeles and pulling in $200,000 a year from a media sales job. Three years ago, he lost it.

Burning through cash, Martinez had to move back home with his parents in Sterling, Va., outside Washington. He landed another media sales job in the area in 2008, at the height of the financial crisis. But four weeks later, he was laid off.

By his count, Martinez has sent out 2,500 resumes in the past year. He’s researched would-be employers and written personalized cover letters. He hit a dry spell at the start of this year. Since then, Martinez says the job climate seems to have improved. He’s interviewing again. But it’s emotionally draining.

“It’s tough not to have an interview, and it’s just as tough to go on five or six or seven interviews and not get hired,” he says.

Link 2

The job market may be recovering, but some salary offers are still a few years behind.

Since the labor market began picking up steam, companies hiring for entry-level or administrative spots with pay that would normally range from $40,000 to $50,000 have been offering workers $28,000 to $38,000, says Randy Miller, founder and chief executive of ReadyMinds, a Lyndhurst, N.J., provider of online career counseling and coaching.

For workers further up the food chain, an offer that might have been $100,000 a few years ago is now coming in at $85,000 or $90,000, he says.

“Companies are more worried these days about margins, profitability, and they are cutting costs across the board. Even though [workers are] qualified and have prior experience, the hiring department has been told to set a budget at a lower range,” Mr. Miller says. “Everybody is more price-sensitive these days.”

As the labor market slowly heals, some hiring managers are offering salaries lower than what workers previously received. The question is: How low should workers go when it comes to accepting an offer?
Long-Term Effects

Some job hunters leap too soon at low-paying jobs, while others may be too optimistic about how their skills translate into a current wage and hold out for too long, experts say. While financial hardship is a strong motivator to take a low-paying gig, job seekers should also be mindful that such a position can stunt their future.

“Some people, because they are embarrassed to be unemployed or because of the financial hardship, do take a low-paying job, though the prospects aren’t that great, and they stick with that job for a long time,” says Gary Burtless, a labor economist at the nonprofit Brookings Institution.

Hannah Riley Bowles, an associate professor at Harvard Kennedy School who has studied the attainment of leadership positions, says lower pay has long-term effects. For one, raises are added to a lower base salary. “And think about putting aside some percentage of your savings. You are putting away a smaller [amount],” Ms. Riley Bowles says.

Experts say workers can ask about educational and training opportunities. If you do accept a low offer, make sure you’re gaining in other ways, such as valuable experience or access to a network that can advance your career.

“These may be things that companies are more willing to provide right now than salary,” Ms. Riley Bowles says. “That is the way to beat the sad story of: I started at a lower level and I am stuck at the lower level.”

Job seekers who receive a low offer should compare that offer to what they can get elsewhere in the current market, rather than what they could have received before the recession began, Ms. Riley Bowles says.

“It would probably be unwise to walk away from an offer if it’s competitive. They should keep focused on the current economy, and not be distracted by previous income,” she says. “But that is hard to do emotionally.”

Sometimes, job seekers misjudge their own value in the labor market. “People think that their qualifications and the state of the job market are such that they could get a much better job,” Mr. Burtless says.

The problem with making such a miscalculation is that the longer a worker remains jobless, the harder it is to impress companies, he says. “They look at you and see that you haven’t held a job for a year and a half…usually their interpretation is not very charitable if someone else is standing on line for a job and that person hasn’t been unemployed for as long.”

Job seekers who have been out of work for a long time should probably consider reasonable offers, and make the best of it, says Walter Akana, a career strategist in Decatur, Ga.

“You have lost your job, now is the first day of the rest of your career. You may have to work yourself back into a position of strength,” Mr. Akana says. “Having said that, if someone has the financial wherewithal to hold out then I think they ought to be doing a lot of networking and looking for exactly the right kind of opportunities.”

With lower salary offers, other types of compensation become more important, says ReadyMinds’ Mr. Miller. Workers should ask about all benefits — sick days, vacation days, professional training, health insurance, bonus structure — and other provisions such as relocation expenses. Also, workers should find out exactly how frequently they will be eligible for a promotion and raise.
Room for Negotiation

“It’s then up to the individual, once they receive their formal offer, [to] do their own industry research, negotiate and possibly counter offer as best they can, and then decide whether this is the best offer they are going to get,” Mr. Miller says.

Karen Chopra, a Washington-based career counselor working with higher-income clients, says workers can offer to take a low salary in exchange for working part time, say four days a week instead of five.

And there may be room to negotiate once an employer has made an offer, she says. “From the employer’s point of view, recruiting is painful. They have grown attached to their top candidate, started fantasizing about the person in the job,” Ms. Chopra says. “You have some leverage, they have invested in you. Many companies expect a negotiation.”

Link 3

U.S. stocks tumbled Friday, with the Dow Jones Industrial Average falling well below the 10,000 level, after a weaker-than-expected jobs report hit investors already on edge over the possibility that a sovereign-debt crisis was spreading across Europe.

Major stock indexes ended the first week of June solidly in the red, despite a big rally on Wednesday and slight gains on Thursday, the first two-day winning streak in more than a month. However, all those gains and then some disappeared on Friday.

The Dow Jones Industrial Average (DJI) fell 323 points, or 3.2%, to 9,931.97 as the government’s May nonfarm payrolls report showed only a puny rise in private sector jobs, quashing hope that a strong U.S. economy could help counter the pull of negative sentiment from Europe.

The selloff came on strong volume. New York Stock Exchange composite turnover hit 6.3 billion shares, the highest daily tally of the holiday-shortened week but still well below May’s average of nearly 7 billion shares.

Nonfarm payrolls rose by 431,000 last month, short of economists’ expectations for a rise of 515,000 jobs, and only 41,000 private-sector jobs were added. The unemployment rate slipped to 9.7% in May from 9.9% the previous month, in line with expectations.

“This employment number was definitely a disappointment,” said Terry Morris, co-portfolio manager of National Penn Investors Trust. “This really kind of puts the bulls back on their heels.”

The Dow’s move below 10000–its first time below that key number in a little over a week–came after the euro (CUR_EURUSD) fell below $1.20 on fresh worries about Hungary’s economy.

A leading official in the ruling Fidesz party said Thursday that Hungary faces a Greek-like sovereign-debt problem. Although Hungary is not part of the euro zone, its travails are fueling the perception of a broadening European banking crisis.

“Today you got a postcard from Hungary: All is not well, send money. It’s a reminder that the debt issues are still there and they’re serious and significant,” said Karl Mills, manager at Counterpoint Select Fund.

All 30 of the Dow’s components fell, including declines of more than 5% each in economically sensitive stocks Caterpillar (CAT) and American Express (AXP). General Electric (GE) was close behind, off 5.3%. The blue-chip average suffered its worst one-day drop since May 20 and ended the week down 2%.

The Nasdaq Composite (RIXF) tumbled 3.6% on Friday to end down 1.7% for the week. The Standard & Poor’s 500-stock index (SPX) dropped 3.4% to end with a weekly decline of 2.3%. All of its sectors ended lower on Friday, led by a 4.6% slide in industrials as the profitability of many companies in the sector depends on global growth. In addition, the international exposure of many industrials has put them at risk of being hurt by currency translations as the euro continues to weaken against the dollar.

Small-capitalization stocks, which are often perceived as riskier, were hit even harder than their large-cap counterparts. The Russell 2000 index of small-capitalization stocks slid 5%.

The U.S. Dollar Index (DXY), reflecting the U.S. currency against a basket of six others, jumped 1.3%. Other perceived havens also rose, with gold futures and Treasurys climbing, pushing the yield on the 10-year note (UST10Y) down to 3.197%. Crude-oil futures slid 4.2%, the worst one-day drop since Feb. 4. The commodity fell $2.46 to end at $71.51 a barrel, off 3.3% for the week.

Stu Schweitzer, a strategist with J.P. Morgan Private Bank, noted that Friday’s jobs report had investors questioning the recovery in the U.S. However, he believes there are still enough economic yardsticks moving in the right direction. He noted that this week’s reports on manufacturing activity, jobless claims and construction spending were all better than expected.

“Even with the disappointing jobs report today, it remains clear that the recovery here is continuing,” Schweitzer said. “There’s a question of sustainability, but for the short term, it’s very much in place.”

Consumers have changed their spending habits

Monday, May 3rd, 2010

The link
The recession has influenced people’s behavior. The recovery will be more difficult because even though people are starting to make more money, they do not wish to reinsert that money back into the economy. This whole meltdown has been a deeply harmful situation from the beginning.

Even as the economic recovery plods ahead, many American consumers are refusing to come along.

They’re not spending freely – and they have no plans to.

Many of them have steady income. They aren’t saddled by high debts. They don’t fear losing their jobs. Yet despite recent gains, they’ve lost so much household wealth that they’re far more cautious about spending than before the recession.

Their behavior suggests that the Great Recession may have bred a new frugality that will endure well into the recovery. And because consumers fuel about 70 percent of the economy, their tightfisted habits means the rebound could stay unusually sluggish.

That’s the picture that emerges from an Associated Press survey of leading economists and interviews with more than two dozen ordinary Americans. The new AP Economy Survey asked 44 leading economists whether the recession created a “new frugality” among consumers that will outlive the recession. Two-thirds said yes.

They had in mind people like Marjorie Feldman of suburban St. Louis, who retired three years ago as a systems analyst for a utility company. The stock investments in her retirement account have sunk 15 percent from 2007. The value of her home is down 20 percent.

“I had retired assuming I’d make money” off the investments, said Feldman, who’s in her early 60′s. “I just don’t feel as confident in the economy, and I never will again. I won’t spend money the way I used to.”

Feldman’s husband works full time in academia. She has a part time job preparing tax returns at H&R Block. But her prime earning years are behind her.

“I don’t think it will ever get back to where it was before,” she said of her nest egg. “I won’t spend money the way I used to.”

Scott Hoyt, senior director of consumer economics at Moody’s Economy.com, notes that baby boomers, in particular, enjoyed spending sprees for most of their adult lives as their assets steadily grow.

“But the recession changed that,” Hoyt said. “Many have retirement and children’s education looming. All of a sudden, they see their balance sheets decline in a way they’ve never seen before.”

To be sure, many shoppers, especially the wealthy, are buying into the recovery. Partly on the strength of consumer spending, the economy emerged from recession last year and has been growing steadily, if moderately, since. Major retailers logged solid sales in March. Employers have begun to add jobs, including a net increase of 162,000 in March. The stock market has risen 70 percent from its low in March 2009.

Yet many who became penny-pinchers during the recession are in no mood to start shopping again with abandon for clothes, cars and home additions. They’ve discovered the peace of mind that comes with rebuilding savings, shopping more prudently and learning to live with less.

At their nerve-racked peak last year, Americans socked away 6.4 percent of their disposable income. That compared with less than 1 percent hit at one point during the pre-recession boom. The savings rate has since dropped to 3.1 percent. Yet few expect it to approach the near-zero savings rate that would signal high-octane spending has roared back.

Susan Wilson, 55, a freelance PR specialist in Scottsdale, Ariz., says her business is picking up. But her spending isn’t. Wilson still feels burned by the recession, when she lost her home to foreclosure.

“Shame on me,” she said. “I wasn’t paying enough attention to my financial health. That will never happen again.”

Wilson is renting now. She traded in her leased car for a used car she could buy outright. She’s started growing her own vegetables and air-drying her laundry to save money and stay out of debt. She’s looking to buy a home, but not one with an outsize mortgage.

“I’m looking for pretty much the smallest house I can live in,” she said.

Interviews with ordinary Americans suggest a new frugality endures even though consumer spending has risen for five straight months and retail sales for three.

In the AP’s new quarterly survey, a majority of economists agreed that a new frugality will persist even as the recovery gains firmer footing.

“I would call it a ‘mini age of austerity,’” said Sean Snaith, an economics professor at the University of Central Florida.

“Consumers will not run up multiple credit cards to their limits, and when buying a house the objective will not be to get the maximum square footage for which they can afford the payment. A higher savings rate will be in place for several years.”

Jeff Thredgold, an economist at Thredgold Economic Associates, predicts “less impress-my-neighbor-type spending” in coming years.

Count Keith Flowers of Manassas, Va., in that category. He’s decided that the hit he took in the housing slump requires him to continue to rein in spending. He’s cut off his landline phone and has become a regular at discount retailer Costco.

He isn’t worried about losing his job in business development at an information technology company. What’s led him to cut back spending is the sunken value of his condominium. He bought it in 2005 for about $270,000.

“I doubt right now it’s cracking $100,000,” Flowers said.

Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center, says: “I think the chances of us being big spenders in the next 10 years are pretty low.”

So much household wealth was inflated by the housing boom, Dhawan said, that the real estate bust spooked consumers. States hardest hit by the bust – California, Nevada, Florida and Arizona – together account for about 30 percent of national economic activity, he noted.

Household net worth – the value of assets like homes, checking accounts and investments minus debts like mortgages and credit cards – has risen for three straight quarters. But economists say consumers would need a stronger and prolonged increase in wealth to lead them to ratchet up spending. Net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion.

Some economists put their hopes for the economy in the rich, who are spending more freely than the rest of the population. They hold out hope that this will encourage more hiring and stimulate spending by the less wealthy. More spending could increase companies’ revenue, which allow them to boost hiring and pay. And that would lead their employees to spend more.

Royal Caribbean Cruises Ltd. returned to a first-quarter profit as more travelers vacationed on its ships and spent more money on board. And makers of luxury goods are benefiting from a release of pent-up demand for jewelry, watches and high-end furnishings.

High-end retailers have reported blowout results. Nordstrom’s revenue in stores open at least one year jumped 16.8 percent last month. Saks’ surged 12.7 percent.

McClaren Automotive has announced it will debut a $200,000 sports car in the U.S. next year. And business is picking up faster at high-end hotels than at mid-priced and budget hotels.

Whether spending by the wealthy will cause the less-well-off to spend freely, too, remains unclear. For now, though, many people have embraced a more frugal approach to spending.

Or maybe they’ve just learned to go without.

Jan Iris Smith, 57, and her husband of Cabin John, Md., put off furniture and clothing purchases after the stock market’s collapse in early 2009.

“We were counting on our income from our investments,” said Smith, a psychotherapist whose husband is retired. “We just stopped pretending everything was going to be OK anytime soon.”

Well Economy Crashed, SEC Staffers Viewed Pornographic Images

Sunday, April 25th, 2010

The link
It makes me very angry that people who are so incompetent have high level jobs, whereas people who could potentially be more productive cannot even find steady work. It is largely this nepotism which ruined it for everyone.

WASHINGTON — Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.

The SEC’s inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.

The memo says 31 of those probes occurred in the 2 1/2 years since the financial system teetered and nearly crashed.

The staffers’ behavior violated government-wide ethics rules, it says.

It was written by SEC Inspector General David Kotz in response to a request from Sen. Charles Grassley, R-Iowa.

The memo was first reported Thursday evening by ABC News. It summarizes past inspector general probes and reports some shocking findings:

– A senior attorney at the SEC’s Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.

– An accountant was blocked more than 16,000 times in a month from visiting websites classified as “Sex” or “Pornography.” Yet he still managed to amass a collection of “very graphic” material on his hard drive by using Google images to bypass the SEC’s internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.

– Seventeen of the employees were “at a senior level,” earning salaries of up to $222,418.

– The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

California Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, said it was “disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation’s economy on the brink of collapse.”

He said in a statement that SEC officials “were preoccupied with other distractions” when they should have been overseeing the growing problems in the financial system.

An SEC spokesman declined to comment Thursday night.

About 16 percent of men with Internet access at work admit to looking at online porn while at the office, according to a 2006 survey by Websense Inc.

Former SEC spokesman Michael Robinson said he shares the public’s outrage about SEC staffers who enjoyed porn on the taxpayer dime when they were supposed to be keeping the markets safe.

“That kind of behavior is just intolerable and atrocious,” said Robinson, now with Levick Strategic Communications. He said he expects SEC Chairman Mary Schapiro and her team are “very focused on” the issue.

Schapiro has had other worries in recent days. She has been parrying Republican attacks after announcing civil fraud charges Friday against Wall Street powerhouse Goldman Sachs Group Inc.

Agency officials had hoped the charges would mark a new era of tougher oversight of Wall Street. They followed high-profile embarrassments including the failure to catch Ponzi kings Bernard Madoff and R. Allen Stanford.

But soon after Goldman charges were filed, Republicans began questioning the timing of the announcement. The news came as the Senate prepared to take up a sweeping overhaul of the rules governing banks and other financial companies.

Republican lawmakers also accused the SEC of being influenced by politics. The SEC’s commissioners approved the Goldman charges on a rare 3-2 vote. The two who objected were Republicans.

Schapiro is a registered independent who has been appointed by presidents of both parties.

Goldman Sachs Accused of Fraud by US Government

Saturday, April 17th, 2010

The Link
One who is concerned with populist issues in the United States of America must applaud the Government for what it has done. Granted, the entire system has not realized itself to be fraudulent, but it is a step away from denial. The Government is solving a major problem here.

WASHINGTON (AP) — The government on Friday accused Wall Street’s most powerful firm of fraud, saying Goldman Sachs & Co. sold mortgage investments without telling the buyers that the securities were crafted with input from a client who was betting on them to fail.

And fail they did. The securities cost investors close to $1 billion while helping Goldman client Paulson & Co., a hedge fund, capitalize on the housing bust. The Goldman executive accused of shepherding the deal allegedly boasted about the “exotic trades” he created “without necessarily understanding all of the implications of those monstrosities!!!”

The civil charges filed by the Securities and Exchange Commission are the government’s most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.

The news sent Goldman Sachs shares and the stock market reeling as the SEC said other financial deals related to the meltdown continue to be investigated. It was a blow to the reputation of a financial giant that had emerged relatively unscathed from the economic crisis.

Goldman Sachs denied the allegations. In a statement, it called the SEC’s charges “completely unfounded in law and fact” and said it will contest them.

The SEC is seeking to recoup the money lost by investors and impose unspecified civil fines against Goldman Sachs and the executive, Fabrice Tourre. The SEC could enter into settlement negotiations over the amount if Goldman changed its stance and decided not to fight the charges in a trial.

The SEC said Paulson paid Goldman roughly $15 million in 2007 to devise an investment tied to mortgage-related securities that the hedge fund viewed as likely to decline in value. Separately, Paulson took out a form of insurance that allowed it to make a huge profit when those securities’ value plunged.

The fraud allegations focus on how Goldman sold the securities. Goldman told investors that a third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create the securities. The securities are known as synthetic collateralized debt obligations.

The SEC alleges that Goldman misled investors by failing to disclose that Paulson & Co. also played a role in selecting the mortgage pools and stood to profit from their decline in value. Two European banks that bought the securities lost nearly $1 billion, the SEC said.

“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” SEC Enforcement Director Robert Khuzami said in a statement.

But Goldman said in a statement that it never mischaracterized Paulson’s strategy in the transaction. It added that it wasn’t obliged to “disclose the identities of a buyer to a seller and vice versa.”

The charges name only Goldman Sachs and Tourre, who was a vice president in his late 20s when the alleged fraud was orchestrated in 2007. Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unraveling in early 2007.

In an e-mail to the friend, he described himself as “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

Tourre, 31, has since been promoted to executive director of Goldman Sachs International in London.

Stanford University spokeswoman Elaine Ray said a student by the name of Fabrice Tourre received a master’s degree in management science and engineering from the school in 2001.

A call to a lawyer for Tourre, Pamela Chepiga at Allen & Overy LLP, wasn’t returned.

Asked why the SEC did not also pursue a case against Paulson, Khuzami said: “It was Goldman that made the representations to investors. Paulson did not.”

Paulson & Co. is run by John Paulson, who reaped billions by betting against subprime mortgage securities. He is not related to former Treasury Secretary Henry Paulson, a former Goldman CEO.

John Paulson was among the first on Wall Street to bet heavily against subprime mortgages. His firm earned more than $15 billion in 2007, and he pocketed $3.7 billion. He has since earned billions more, largely by betting against bank stocks and then buying them back after their shares plunged.

In a statement, Paulson & Co. said: “As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges.”

Goldman, founded more than 140 years ago, built a reputation as a trusted adviser to investment banking clients and for sending top executives into presidential Cabinet posts.

In recent years, it shifted toward taking more risks with its clients’ money and its own. Goldman’s trading allowed the firm to weather the financial crisis better than most other big banks. It earned a record $4.79 billion in the last quarter of 2009.

The complaint filed in federal court in Manhattan “undermines their brand,” said Simon Johnson, a professor at the Massachusetts Institute of Technology and a Goldman critic. “It undermines their political clout. I don’t think anybody really values being connected to Goldman at this point.”

He continued: “There are many people who — until this morning — thought Goldman Sachs was well-run.”

The SEC’s enforcement chief said the agency is investigating a wide range of practices related to the crisis. The prospect of possible legal jeopardy for other major financial players roiled the stock market.

Goldman Sachs shares fell more than 12 percent Goldman and lost $14.2 billion in market capitalization. The Dow Jones industrial average finished down more than 125 points.

The SEC appears to be taking a particularly aggressive approach with Goldman. Typically, cases are resolved by firms agreeing to a settlement before the charges are made public, said John Coffee, a securities law professor at Columbia University.

“The SEC has changed its style,” Coffee said. “They wanted to tell the world what they thought Goldman had done wrong.”

The charges come as lawmakers seek to crack down on Wall Street practices that helped cause the financial crisis. Congress is considering tougher rules for complex investments like those involved in the alleged Goldman fraud.

President Barack Obama vowed Friday to veto a financial overhaul bill that doesn’t regulate mortgage-backed securities and other so-called derivatives. Legislation in Congress would for the first time regulate derivatives, whose value depends on an underlying asset, such as mortgages or stocks. Senate Republicans oppose the bill.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is “pleased that the SEC is departing from the lax enforcement of the Bush administration and is returning to the SEC’s proper role of protecting investors in the marketplace,” spokesman Steven Adamske said.

The biggest loser in the alleged fraud was ABN Amro, a major Dutch bank, and the Royal Bank of Scotland, which acquired major portions of it in 2007. The SEC said the Royal Bank of Scotland paid Goldman $841 million to unwind ABN transactions.

IKB Deutsche Industriebank AG, a German commercial bank, lost nearly all its $150 million investment, the agency said. Most of the money the banks lost went to Paulson in a series of transactions between Goldman and the hedge fund, the SEC said.

IKB was an early casualty of the financial crisis. It issued a profit warning in 2007 saying it had been hurt by U.S. subprime mortgage investments. IKB was sold in 2008 to Dallas-based Lone Star Funds.

Ed Trissel, a spokesman for Lone Star Funds, declined to comment on the case.

The SEC charges come after Goldman Sachs denied last week it that bet against clients by selling them mortgage-backed securities while reducing its own exposure to them.

In an annual letter to shareholders, Goldman said it began reducing its exposure to the U.S. mortgage market in late 2006.

AP Business Writers Alan Zibel in Washington, Stevenson Jacobs in New York and Ashley M. Heher in Chicago contributed to this report.

Bob Herbert on the Recession

Wednesday, April 14th, 2010

The link
This article contains some facts and figures that I have not yet seen elsewhere. I figured it is worth a read for the average guest who reads this website.

Nancy Pelosi, at lunch, was making the point that this latest recession was not a typical cyclical downturn.

“This is a different creature,” she said, “and it demands that we see it in a different way.”

The evidence is stark. More than 44 percent of unemployed Americans have been out of work for six months or longer, the highest rate since World War II. Perhaps more chilling is a new analysis by the Pew Economic Policy Group that found that nearly a quarter of the nation’s 15 million unemployed workers have been jobless for a year or more.

Everything in Washington is a heavy lift. The successful struggle to pass last year’s stimulus package fended off an even worse economic disaster, and the Democrats have managed to enact their health care initiative. But the biggest threat to the health of the economy — corrosive, intractable, demoralizing unemployment — is still with us. And the deficit zealots, growing in strength, would do nothing to counter this scourge.

Ms. Pelosi acknowledged that “there is always a calibration” between concerns about deficit reduction and the spending that is necessary to substantially reduce unemployment. But she believes there are several fronts on which Congress and the Obama administration can — in fact, must — still move forward: on infrastructure and green energy initiatives, for example, and assistance to states hobbled with fiscal crises of their own.

The crippling nature of the joblessness that has moved through the society like a devastating virus has gotten neither the attention nor the response that it warrants. One of the more striking findings of the Pew study was that a college education has not been much of a defense against long-term unemployment.

“Twenty-one percent of unemployed workers with a bachelor’s degree have been without work for a year or longer,” the report found, “compared to 27 percent of unemployed high school graduates and 23 percent of unemployed high school dropouts.”

Whole segments of the U.S. population are being left behind, even as economists are touting modest improvements in some categories of economic data, like the creation of 162,000 jobs in March. Jobless workers who are 55 or older are having a brutal time of it. Thirty percent have been jobless for a year or more.

Blue-collar workers are suffering through a crisis characterized as a “depression” by the Center for Labor Market Studies at Northeastern University in Boston. Blue-collar job losses during the so-called Great Recession surpassed 5.5 million, and many of those jobs will never be seen again. This disastrous situation will not be corrected, as analysts at the center have noted, “by a modest recovery of the U.S. economy over the next few years.”

We need to pay less attention to the Tea Party yahoos and more attention to the very real suffering of individuals and families trapped in an employment crisis that is unprecedented in the post-Depression era. I’ve been in inner-city neighborhoods where residents will tell you that hardly anyone at all is working at a regular job.

The recession only worsened an employment picture that was already bleak. In a speech at the Harvard Kennedy School last week, the A.F.L.-C.I.O. President Richard Trumka spoke movingly about Americans “trying to hold on to a good job in a grim game of musical chairs where every time the music stopped, there were fewer good jobs and more people trying to get and keep one.”

More than eight million jobs vanished during the recession, a period during which three million new jobs would have been needed to keep up with the growth of the population. “That’s 11 million missing jobs,” said Mr. Trumka.

Right now there is no plan that can even remotely be expected to result in job creation strong enough to rescue the hard-core groups being left behind. These include: long-term unemployed workers who are older; blue-collar workers of all ages; and younger people in the big cities, in the rust belt and in rural areas who are jobless and not well educated.

It is not possible to put together a thriving, self-sustaining economy while so many are being left out. As Mr. Trumka noted, “President Obama’s economic recovery program has done a lot of good for working people — creating or saving more than two million jobs. But the reality is that two million jobs is just 18 percent of the hole in our labor market.”

Ms. Pelosi spoke about “jobs creation” with a tone of urgency and commitment and seemed undeterred by the fact that a big new jobs bill seems hardly feasible in the current political environment.

“You can do smaller pieces,” she said. “You can break the task up into segments, into discrete pieces of legislation. If size is a problem, we should not let it be an obstacle.”

The State of the Freelance Worker

Sunday, April 11th, 2010

the link
Millions of workers, unable to find full time employment, are instead finding freelance projects as a result of the bad economy. This article explains some of the troubles they go through in day to day life.

The latest report from the government shows that employers are starting to put more people on the payroll again. But millions of Americans who are earning an income are doing so without the benefits or security that once came standard with most jobs.

Lance Anderson, 58, is one of them. Since losing his job as a graphic designer three years ago, he’s been making a living as a freelancer.

At first, Anderson enjoyed the freedom of working from the studio in the back of his Bay Area home. But as more designers were laid off and competed for freelance jobs, work became tougher to find. He’s getting by, because his wife is employed, but health insurance costs $355 a month and some days sitting alone in his studio, he feels like he’s going mad.

“It’s tougher than it used to be,” he said. “But it’s way easier to find freelance work than it is to find a job.”

Deprived of steady work, more people are becoming independent contractors, or freelancers, giving up the benefits of being a full-time employee for the chance to at least earn a paycheck.

In 2005, the federal government estimated there were more than 10 million independent contract workers, or 7.4% of the workforce. That number has almost certainly risen during the economic downturn, experts say, as companies shifted some work from employees to contractors to cut benefits costs and make it easier to jettison staff when business slowed.

Workers may not like it, but at a time of high unemployment — in California, the jobless rate is 12.5% — many have no choice but to take whatever work they can get, even if that means paying for their own health insurance and forgoing a 401(k) and life insurance plan.

Labor advocates are concerned that the trend, if unchecked, will lead to a widespread retreat in the benefits American workers have come to expect, including paid vacations, employer-paid health insurance and money for retirement.

Companies that hire independent contractors are not required to pay them a minimum wage or overtime pay. The companies don’t pay or withhold payroll taxes, so it is more difficult for the IRS to collect taxes from the workers, which deprives Medicare and Social Security of needed funds. And a retirement plan or health insurance? Forget about it.

“What they’re doing is tearing at the fabric of the New Deal protections that have been in place for decades to protect workers,” said Shannon Liss-Riordan, a partner at Lichten & Liss-Riordan, a Boston firm that’s sued businesses including strip clubs, cleaning franchises and trucking companies on behalf of independent contractors.

Labor laws prevent companies from classifying workers as independent contractors if the freelancers have the same responsibilities as current employees and aren’t allowed to take other jobs.

Authorities are starting to crack down on companies that violate these laws. President Obama’s budget for fiscal 2011 earmarks $25 million for divisions in the Department of Labor, including the Wage and Hour Division and Occupational Safety and Health Administration, to investigate businesses that misclassify workers as independent contractors.

Two separate bills in Congress also seek to punish companies that misclassify workers. And the Internal Revenue Service said it would audit 6,000 random employers this year to calculate how many companies overall might be misclassifying independent contractors.

The government is now paying close attention because “this is worth billions of dollars in lost payroll cost, and everyone’s looking for ways to raise money,” said Catherine Ruckelshaus, legal co-director at the National Employment Law Project, a nonprofit organization that advocates for low-wage workers.

Ruckelshaus estimates that the number of freelance workers has risen to at least 13 million. The actual number is difficult for the government to track, said David West, director of the Center for a Changing Workforce, a Seattle nonprofit that monitors employment trends.

The 2005 estimate of 10.3 million contract workers was made by a Bureau of Labor statistics survey of contingent workers. That was an increase from the bureau’s previous estimate of 8.6 million contractors in 2001.

Responding to the trend, the Freelancers Union in New York is advocating for freelancer-friendly policies across the nation, such as abolishing taxes on unincorporated businesses (many freelancers operate this way) and cracking down on employers that don’t pay contractors what they’re owed.

“We have to recognize this is a trend, just as it was a trend when people were leaving the family farm in the 1800s,” said founder Sara Horowitz, who said membership had swelled 40% in the last year, to 130,000.

The shift toward independent contractors began in the 1970s, when companies hired temporary office support workers, said Alec Levenson, a research scientist at the Center for Effective Organizations at USC.

As the temp industry became more efficient, companies also began hiring people with certain skill sets for short-term projects.

“Companies have been on a long-run trajectory of trying to move to labor on demand as much as possible,” he said.

Still, the economy has made freelancing tough. Surveys of members indicate that about 60% of independent contractors are having a hard time making a living, with about 12% of freelancers taking government assistance because they aren’t making enough money. A majority of contractors say they would still prefer to have full-time jobs, said West of the Center for a Changing Workforce.

Then, too, there are people who prefer the independent life. Sherie Farah, a freelance chef in Santa Monica, said that 2009 was her best year ever. The onetime executive chef moved to Southern California four years ago after tiring of the stress of working in high-end restaurants.Now she makes a living cooking private dinners, catering and helping clients plan nutritional meals.

“I think my quality of life is better,” she said. “But it does take a little bit of time to get established.”

It hasn’t been easy for Marta Victoria, a freelance graphic designer. The Internet has made her job harder: Clients can contract work from China on the cheap, or buy art from stock photo sites that don’t charge much. At the same time, her costs are rising.

“My healthcare is going through the roof, I don’t have life insurance, I don’t have an IRA,” she said.

She pushes herself to work longer hours to make up for the lack of benefits, but there’s a lot of competition out there with so many people unemployed, she said.

“I work harder, but everyone’s working harder,” she said. “I don’t know what I’m going to do.”

53% Disapprove of Obama’s Handling of the Economy

Friday, April 9th, 2010

The link
Obama changed very little. To the extent there have been small improvements, they are not a direct result of Obama’s action.

More Americans disapprove (53 percent) than approve (42 percent) of the way President Obama is handling the economy
, a new Fox News poll finds.

Voters are particularly unhappy with how the president is handling the federal deficit: 31 percent approve and 62 percent disapprove.

Click here for full poll results.

The president rates somewhat higher on job creation, though his numbers here are still negative: 40 percent approve, 54 percent disapprove.

His highest approval ratings are on his handling of terrorism (50 percent) and Afghanistan (49 percent).

The national telephone poll was conducted for Fox News by Opinion Dynamics Corp. among 900 registered voters from April 6 to April 7. For the total sample, the poll has a margin of sampling error of plus or minus 3 percentage points.

The new poll also finds that almost equal numbers of voters think things in the country would be better today (28 percent) as think they would be worse (27 percent) if Republicans John McCain and Sarah Palin had won the 2008 presidential election. The largest number though — 41 percent — thinks things would be the same as they are today.

Almost all American voters consider the following situations a crisis: unemployment (86 percent), the size of the federal deficit (82 percent), and economic conditions in general (81 percent).

Half — 50 percent — consider the country’s current energy situation a crisis, while 42 percent say it isn’t.

Among the poll’s other findings:

– Slightly more people think unemployment will be lower (by a 6 percentage point margin), and there will be fewer home foreclosures (by 5 points) a year from now.

– On a less positive note, by 46-29 percent, more people think the average salary of working Americans will be lower rather than higher this time next year.

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