dollars4dullards

It's All About Moving the Middle

2011-01-22T11:23:00.000-08:00

There are an awful lot of Americans who view themselves as "middle of the road" folks, the kind of "ordinary people" who operate as much on a "gut feeling" of what's "common sense" as they do on a careful, time consuming analysis of details.

And, in my experience, these people don't tend to have a concrete viewpoint. They listen to what they consider to be "all sides of an issue" and then...split the difference. They have an unstated assumption that "the truth" or "reality" is necessarily 50% of the way between the most extreme views that they hear.

That approach has the advantage of being easy--no need for lots of thought, no need to change your mind once it's made up, no need to spend a whole lot of time reading, discussing, arguing. One side says 20, the other says 44, so it's "reasonable" that the answer should be 32. But if one extreme becomes even more extreme, so does the position of the middle of the roader. Change the competing positions to 20 and 80 and, just like that, the middle of the roader thinks that 50 is a nice, moderate choice. Even though that "moderate" choice is now more extreme than the number, 44, which used to be the extreme.

And these people tend to view themselves as "independents" who "think for themselves." Of course, these independents are the swing vote. Ask any political consultant worth a contract which group is most likely to decide a public election. The independent folks, those common sense-loving, complexity-fearing middle of the roaders.

And guess what? The people who want to manipulate public opinion know that this is how the middle of the roaders think. Which means that the smartest tactic for any group which is outnumbered among the electorate--as the super-rich and mega-corporations always are and always will be--is to move the middle much closer to the extreme end that they favor.

That's really what Fox, the Koch brothers, and others of that ilk have been up to for these past several decades: injecting ever more extreme positions into the public debate, so that the "middle," as computed by the independents, moves ever closer to the extreme positions advocated by the Murdoch, the Kochs, and the billionaires you don't even know.

If the extremes of the debate are that Social Security should be expanded and the benefits increased, at one end, and that Social Security has gone far enough and should be left alone, at the other end, the "split the difference" thinker is likely to decide that Social Security is pretty good, and we could reasonably expand it, but let's not raise the benefits. Change the extreme opposition view, however, to a claim that Social Security is a Communistic device doomed to failure and likely to play a role in the subjugation of the citizenry by a power-mad government, and where is the "middle of the roader" likely to end up?

That's where Fox news has really changed the game far more than most Americans recognize. That is where the mouthpieces--ranging from the rabid like Glenn Beck and Rush Limbaugh, to the pseudo-rational like Neil Cavuto--have really earned their propagandist stripes.

And that's where today's "mainstream" media play into the hands of the monied few and their highly compensated mouthpieces. The knee jerk approach of reporting all claims as plausible means that there is no one in the media, no one in a position of power, to point out that the claims at one extreme are, in fact, not only super extreme, but demonstrably untrue.

It does not matter that income tax rates during the heyday of America's success during the 20th century were far higher than they are today. What matters is that Fox and frauds present the current rates as "Socialistic" or even "communistic." The choice then is between whether we should raise the rates a little bit for people at the top end of the income scale, or whether we should cut the rates considerably for everybody, especially the super-rich. Split the difference and you get....

It's the mindless middle-of-the roader who is going to do us in if something doesn't change, and change quickly.

Ignorance Will Do Us In For Sure

2011-01-15T08:05:00.000-08:00

What passes for public debate in America right now is a joke.

What passes for media coverage in America right now is a joke.

What passes for an economy in America right now is a joke.

The common cause of these wonderful facts is ignorance.

You can't, for example, have a serious public debate when a significant chunk of the debaters think the president is a Communistic Muslim who was born in Africa and hates freedom.

You can't, for example, have serious media coverage when the media is owned by commercial interests which are ignorant of the long term need for real information in order to maintain a country where freedom can flourish.

You can't, for example, have a serious economy when the voting public is completely ignorant of the real state of the economy, completely ignorant of the reasons why the economy is in that state, and completely ignorant of the available alternative approaches to "fixing it."

So let's all wring our hands about "the state of things," let's all sorrowfully hope that we can "learn a lesson" from the shootings in Tucson, let's all lament the rhetoric of violence and treason from the right, let's all hope that civility can prevail, let's all hope that things get better.

I'm pretty sure that all this hoping, hand wringing and lamenting served as the sound track for the downward spiral of many, many civilizations before this one.

Home values down, consumer credit up...WAY up

2007-08-11T17:24:00.000-07:00

According to a report in Business Week, consumer credit debt--especially revolving credit such as credit card debt--is mushrooming:

Consumers boosted their borrowing more than expected in June, reflecting another hefty jump in credit card debt.
The Federal Reserve reported Tuesday that consumer credit rose at an annual rate of 6.5 percent in June. It marked the second straight sizable gain. Consumer credit rose by an even larger 7.9 percent in May.

The increase was led by an 8.4 percent rate of increase for revolving credit, the category that includes credit card debt. The category that includes auto loans rose at a 5.3 percent rate, the same as in May.

Total consumer credit rose by $13.2 billion in June to a record $2.459 trillion. The increase was double what economists had been expecting.

Consumer credit as measured by the Fed does not include mortgage debt. Analysts said the big rise in consumer credit reflects the slumping housing market and growing troubles in mortgage markets.
...
Homeowners are unable to borrow against their homes so they are turning back to their credit cards," said Mark Zandi, chief economist at Moody's Economy.com.

Zandi predicted this trend would continue for the next year or so until the housing market stabilizes and home prices start rising again.

If the credit card debt continues to rise at anything near these percentages, get ready for a wave of consumer bankruptcies within a year.

Not that this would put a dent in credit card debt, given the recent report that bankrupt consumers still get flooded with offers of more credit:

Credit-card companies target people fresh out of bankruptcy with credit offers, according to a study that found that nearly 100 percent of more than 300 families surveyed had been offered new credit cards within a year after completing Chapter 7 bankruptcy proceedings.

The findings show "how the credit industry seeks to profit from financial distress," said the study's author.

Can David Brooks be Reality-Based?

2007-08-06T14:50:00.000-07:00

David Brooks is one of the few people in the world who has the New York Times editorial page for a platform. Why he has it is anybody's guess, but it probably isn't because of his economic acumen, honesty or openness, judging from his latest column A Reality-Based Economy.

Brooks is beating his usual drum here: things are soooo much better than us gloomy naysayers say. In this case, he's nominally taking to task the Democratic presidential candidates:

If you’ve paid attention to the presidential campaign, you’ve heard the neopopulist story line. C.E.O.’s are seeing their incomes skyrocket while the middle class gets squeezed. The tides of globalization work against average Americans while most of the benefits go to the top 1 percent.
This story is not entirely wrong, but it is incredibly simple-minded. To believe it, you have to suppress a whole string of complicating facts.

Not "entirely wrong." That's an understatement if I ever heard one. What complicating "facts" do I have to suppress in order to think that CEO's are seeing their incomes skyrocket while the middle class gets squeezed? These, essentially:

After a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years

Earnings for the poorest fifth of Americans are also on the increase

Despite years of scare stories, income volatility is probably not trending upward

Recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work

Companies are getting more efficient at singling out and rewarding productive workers

Another reason for rising inequality is that upper income workers are putting in more hours, while lower income workers are putting in less

It’s "not at all clear that the big winners in this economy are self-dealing corporate greedheads who are bilking shareholders" (he cites a study showing that “the top 25 hedge fund managers combined appear to have earned more than all 500 S.&P. 500 C.E.O.’s combined.”)

To the extent that C.E.O. pay packets have thickened (and they have), there may be good economic reasons (the bigger a company gets, the more a talented C.E.O. can do to increase earnings)

We’re in the middle of one of the greatest economic eras ever: global poverty has declined at astounding rates; globalization boosts each American household’s income by about $10,000 a year; thanks to all the growth, tax revenues are at 18.8 percent of G.D.P., higher than the historical average and the deficit is down to about 1.5 percent of G.D.P., below the historical average)

You know, if all that's true....but then how in the world would Brooks or anyone else know that "globalization boosts each American household’s income by about $10,000 a year?" And what do a lot of those things have to do with whether the top is getting rich and the middle is getting squeezed? Does it really matter, for example, whether the people getting the richest the fastest are hedge fund managers or CEOs?

Income volatility is probably not trending upward--meaning it could be, and what the hell is his source?

Then there's the sly little attempt to make you think that real wages are going great guns. I took the time and effort to check that one out, and if that claim is representative of how he arrived at his other "inconvenient facts," then he deliberately misrepresenting at worst and grossly incompetent at best.

Here's the story on real wages. He's right about the 2+ % rise in 2006. But there's a reason he chose 2006, leaving out the several years before it and the performance so far in 2007.

All the following figures are from the BLS Archived News Releases r.e. Real Earnings.

Monthly 2007 changes in real earnings show a significant net loss of purchasing power so far this year:

Jan...............-.3
Feb..............-.3

Mar.............+.1

Apr............. -.5

May.............-.4

June.............+.5

And here are the year-end statements as to changes in real earnings for 1995 through 2006:
Average weekly earnings rose by 4.5 percent, seasonally adjusted, from December 2005 to December 2006. After deflation by the CPI-W, average weekly earnings increased by 2.1 percent.
Average weekly earnings rose by 3.1 percent, seasonally adjusted, from December 2004 to December 2005. After deflation by the CPI-W, average weekly earnings decreased by 0.4 percent.

Average weekly earnings rose by 3.3 percent, seasonally adjusted, from December 2003 to December 2004. After deflation by the CPI-W, average weekly earnings decreased by 0.2 percent.

Average weekly earnings rose by 1.7 percent, seasonally adjusted, from December 2002 to December 2003. After deflation by the CPI-W, average weekly earnings were unchanged.

Average weekly earnings rose by 3.0 percent, seasonally adjusted, from December 2001 to December 2002. After deflation by the CPI-W, average weekly earnings rose by 0.5 percent.

Average weekly earnings rose 4.1 percent, seasonally adjusted, from December 2000 to December 2001. After deflation by the CPI-W, average weekly earnings rose 2.9 percent.

Average weekly earnings rose by 3.0 percent, seasonally adjusted, from December 1999 to December 2000. After deflation by the CPI-W, average weekly earnings fell by 0.4 percent.

Average weekly earnings rose by 3.4 percent, seasonally adjusted, between December of 1998 and 1999. After adjustment for inflation, average weekly earnings grew by 0.6 percent.

Average weekly earnings rose by 3.4 percent between December of 1997 and 1998 as a result of a 3.7 percent increase in average hourly earnings which was partially offset by a 0.3 percent decline in average weekly hours. After adjustment for a 1.6 percent increase in the CPI-W over the same period, real average weekly earnings grew by 1.8 percent.

Real average weekly earnings decreased by 0.6 percent from November to December after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S.Department of Labor. This loss was due to a 0.6 percent drop in average weekly hours and a 0.1 percent rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The decline was partly offset by a 0.1 percent increase in average hourly earnings.

Before seasonal adjustment, average weekly earnings increased by 3.4 percent between December of 1996 and 1997 as a result of a 3.7 percent increase in average hourly earnings and a 0.3 percent loss in average weekly hours. After adjustment for a 1.5 percent gain in the CPI-W over the same period, real average weekly earnings grew by 1.9 percent.

Before seasonal adjustment, average weekly earnings increased by 5.2 percent between December of 1995 and 1996 as a result of a 4.0 percent increase in average hourly earnings and a 1.2 percent increase in average weekly hours. After adjustment for a 3.3 percent gain in the CPI-W over the same period, real average weekly earnings grew by 1.8 percent.

We can compare this to several sources on executive pay. This, for example, from Forbes in:
1. April of 2005: "The heads of America's 500 biggest companies received an aggregate 54% pay raise last year. As a group, their total compensation amounted to $5.1 billion, versus $3.3 billion in fiscal 2003."

2. May of 2007: "The chief executives of America's 500 biggest companies got a collective 38% pay raise last year, to $7.5 billion. That's an average $15.2 million apiece."

Or this, from Lab Manager magazine in April of 2007: "While the median change in CEO total direct compensation (salary, bonus and long-term incentives) was 8.9 percent, corporate net income increased by 14.4 percent, up from 13 percent in 2005, and total shareholder return was 15.1 percent, more than double the 6.8 percent return in 2005."

Then there is this long term chart from Mercer Human Resource Consulting on the year to year percentage change in CEO compensation, exempt employee compensation, corporate profits, and the Consumer Price Index (CPI) covering 1996 to 2005:

Year.............CEO*...........Exempt.employees*.......Corporate.profits........Annual CPI

1996.............5.2%....................4.0%...............................11.0%.......................3.0%

1997............11.7%...................4.2%..............................8.9%.........................2.3%

1998.............5.2%....................4.2%................................5.0%.........................1.6%

1999............11.0%...................4.2%...............................15.1%........................2.2%

2000............10.0%....................4.2%................................8.9%........................3.4%

2001.......minus2.8%.....................4.4%.........................minus17.8% ......................2.8%

2002.............10.0%....................3.8%...............................14.8%.......................1.6%

2003...............7.2%....................3.6% ..............................19.2%........................2.3%

2004..............14.5%...................3.4%...............................23.0%........................2.7%

2005...............7.1%....................3.6%...............................13.0%........................3.4%

(1) Annual compensation comprised of salary + bonus

Brooks closes his column with the statement that "Whoever gets globalization right will have a bright future, and in the long run, the facts matter." The facts matter, alright. It's too bad he gets so many wrong, so many irrelevant, and so many from undisclosed sources.

Nor is this the first time Brooks has published really questionable stats that make economists scratch their heads (and wonder why he, of all people, merits space on the Times editorial page). Check out this on AlterNet and this on Brad DeLong's blog.

That White House love of the four Ss: science, spin, and spinning science

2007-08-06T14:34:00.000-07:00

July 11, 2007
Surgeon General Sees 4-Year Term as Compromised
By GARDINER HARRIS
WASHINGTON, July 10 — Former Surgeon General Richard H. Carmona told a Congressional panel Tuesday that top Bush administration officials repeatedly tried to weaken or suppress important public health reports because of political considerations.

The administration, Dr. Carmona said, would not allow him to speak or issue reports about stem cells, emergency contraception, sex education, or prison, mental and global health issues. Top officials delayed for years and tried to “water down” a landmark report on secondhand smoke, he said. Released last year, the report concluded that even brief exposure to cigarette smoke could cause immediate harm.

Dr. Carmona said he was ordered to mention President Bush three times on every page of his speeches. He also said he was asked to make speeches to support Republican political candidates and to attend political briefings.

And administration officials even discouraged him from attending the Special Olympics because, he said, of that charitable organization’s longtime ties to a “prominent family” that he refused to name.
...
Dr. Carmona refused to name specific people in the administration who had instructed him to put political considerations over scientific ones. He said, however, that they included assistant secretaries of health and human services as well as top political appointees outside the department of health.

Dr. Carmona did offer to provide the names to the committee in a private meeting.
...
He described attending a meeting of top officials in which the subject of global warming was discussed. The officials concluded that global warming was a liberal cause and dismissed it, he said.

If that doesn't make you sick enough, try this: a White House spokeswoman tried to spin it that Carmona was at fault for not resisting the pressure from...the White House:

Emily Lawrimore, a White House spokeswoman, said the surgeon general “is the leading voice for the health of all Americans.”

“It’s disappointing to us,” Ms. Lawrimore said, “if he failed to use this position to the fullest extent in advocating for policies he thought were in the best interests of the nation.”

Internal Displacement of Iraqis said to be 'Human Tragedy Unprecedented in Iraq's History'

2007-08-06T14:28:00.000-07:00

According to the blog Iraq Slogger, a recent report from the Iraqi Red Cresent calls the displacement of Iraqis within the country a "Human Tragedy Unprecedented in Iraq's History."

According to the blog:

the number of internally displaced people (IDP's) in Iraq has quadrupled since January and is up eight times from a year ago.

many IDP's take refuge in the house of extended family or a friend, while others squat illegally in abandoned houses, live on the streets or in makeshift mud huts and tin shacks; tens of thousands of others live in tent cities.

the province with the greatest number of IDP's is Ninevah (Mosul area), with 239,547, followed by Baghdad, with 196,227.

The full report isn't readily available, but can be ordered through the blog.

An apparently different report from Oxfam duscussed on the Associated Content web site adds more grim info:

1 in 3 Iraqis are in a desperate humanitarian situation, having trouble meeting their basic humanitarian needs for water, food, sanitation, or shelter

4 million Iraqis (15% of the population) regularly can not buy enough to eat

70% of Iraqis do not have adequate water supplies

more than 2 million people have been displaced inside Iraq

an additional 2 million Iraqis have become refugees predominantly in Syria and Jordan

The full version of that report is available, here

God, secular schools, and religiosity, then and now

2007-08-06T14:24:00.000-07:00

A few quotes from recent days and a few from the glory days of Fascism:

1. Evils of public, secular schools:

"Secular schools can never be tolerated because such a school has no religious instruction and a general moral instruction without a religious foundation is built on air; consequently, all character training and religion must be derived from faith.... We need believing people."
-- Adolf Hitler, April 26, 1933

"I hope I live to see the day when, as in the early days of our country, we won’t have any public schools. The churches will have taken them over again and Christians will be running them. What a happy day that will be!"
-- Jerry Falwell

___________________
2. Good guys doing God's work:

“Hence today I believe that I am acting in accordance with the will of the Almighty Creator: - by defending myself against the Jew, I am fighting for the work of the Lord” — Adolph Hitler

"We were convinced that the people needs and requires this faith. We have therefore undertaken the fight against the atheistic movement, and that not merely with a few theoretical declarations: we have stamped it out."
-- Adolf Hitler

"We want to fill our culture again with the Christian spirit … We want to burn out all the recent immoral developments in literature, in the theater, and in the press. . .we want to burn out the poison of immorality which has entered into our whole life and culture as a result of liberal excess."
-- Adolf Hitler

"Get the few liberals out. If you don’t do it, it ain’t gonna be done. You will be doing the Lord’s work, and he will richly bless you for it."–Sen. James Inhofe, R-Oklahoma, describing the goals of the 2004 elections at the Christian Coalition’s Road to Victory Conference, 2002, Washington D.C.

"He [God] is using me, all the time, everywhere, to stand up for a biblical worldview in everything that I do and everywhere I am."
-- House Majority Leader Tom DeLay
________________________
3. Our heaven-sent leaders:

"God gave the savior to the German people. We have faith, deep and unshakeable faith, that he was sent to us by God to save Germany."
--Hermann Goering, speaking of Hitler

"Why is this man in the White House? The majority of Americans did not vote for him. Why is he there? And I tell you this morning that he's in the White House because God put him there for a time such as this."
--Lt Gen William Boykin, speaking of G. W. Bush, New York Times, 17 October 2003

"He [Rumsfeld] leads in a way that the Good Lord tells him is best for our country."
-- Marine General Peter Pace, chairman of the Joint Chiefs of Staff
_________________
4. Bonus quote from the one and only James (Has Anyone Seen My Mind?) Inhofe, in his 1999 official statement on the impeachment of Clinton (his closed-door impeachment statement that was released into the Congressional Record on February 12, 1999):

"I sometimes say one of the few qualifications I have for the U.S. Senate is I am not a lawyer. So that when I read the Constitution, I know what it says; when I read the oath of office, I know what it says; when I read the law, I know what it says. I don't have to clutter up my mind with what the definition of 'is' is. So it makes it a little easier for me.

...
"as a non-attorney, I have a hard time reconciling the idea that there might be certain permissible exceptions to telling the truth under oath. Maybe you who are attorneys, and have a different background than mine, see it differently. But how can you reconcile this idea that under some conditions--if the subject matter is sex or something else--you can lie under oath? I really have a hard time with this.
.....
"Sometimes when I am not really sure I am right, I consult my best friend. His name is Jesus. And I asked that question. Now I will quote to you the response that is found in Luke: 'From one who has been entrusted with more, much more will be asked.'

"Mr. Chief Justice, I think Jesus is right."

What Consumers See Versus What Wall Street Sees

2007-06-19T15:41:00.000-07:00

The Bureau of Labor Statistics recently released their reports on inflation and real wages for May, along with the usual recap of recent trends for those figures.

Real earnings dropped again for May:

Real average weekly earnings fell by 0.2 percent from April to May after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent increase in both average weekly hours and average hourly earnings was more than offset by a 0.8 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
...
Average weekly earnings rose by 4.1 percent, seasonally adjusted, from May 2006 to May 2007. After deflation by the CPI-W, average weekly earnings increased by 1.4 percent.

So why did real wages go down? Because the cost of energy, especially gasoline, and the cost of food, were up significantly according to the Consumer Price Index release:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in May, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The May level of 207.949 (1982-84=100) was 2.7 percent higher than in May 2006.

...
During the first five months of 2007, the CPI-U rose at a 5.5 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5 percent for all of 2006. The acceleration thus far this year was due to larger increases in the energy and food components. The index for energy advanced at a 36.0 percent
SAAR in the first five months of 2007 compared with 2.9 percent in 2006. Petroleum-based energy costs increased at a 63.9 percent annual rate and charges for energy services rose at a 6.8 percent annual rate. The food index has increased at a 6.2 percent SAAR thus far this year, following a 2.1 percent rise for all of 2006.
Excluding food and energy, the CPI-U advanced at a 2.1 percent SAAR in the first five months, following a 2.6
percent rise for all of 2006.

A more specific breakdown of inflation over the past three months can help pinpoint the areas really seeing high inflation:

Compound annual 3-month rate of change, ending May:

Energy-------------------70.0
Food and beverages----4.2
Housing------------------2.5
Apparel------------------(-)6.6
Transportation----------30.6
Medical care------------3.3
Recreation----------------.9
Education and
communication---------5.3
Other goods and
services------------------3.0

Special Indexes
Energy-----------------71.0
Food-------------------4.2
All Items less
food and energy------1.6

So the highest rate of cost increase is in energy, followed by education/communication, food, and medical care. Try avoiding those goods and services. In contrast, apparel (a relatively avoidable cost if you're really strapped for cash) is down 6.6%, and discretionary recreation rose less than 1%. Does that make you feel good?

Probably not, and for much the same reason that the NY Times reported on Saturday that:

A closely watched survey by the University of Michigan released yesterday found that consumer confidence this month dropped to the lowest level in 10 months. Americans also now expect significantly higher inflation than they expected a few months ago, the survey said.

Wall Street had a very different reaction, according to the NY Times:

Wall Street barreled higher again yesterday after the week’s most anticipated economic reading indicated that inflation excluding the price of gasoline remained tepid last month, easing some concerns that have jolted stock and bond markets in recent sessions.
...
The three major stock indexes finished the week higher, even as yesterday’s Consumer Price Index showed prices rose at the fastest pace in 20 months in May as the cost of gas jumped. Investors were enthusiastic that the core index, which excludes food and energy prices, rose 0.1 percent. The figure, which the inflation-wary Federal Reserve watches closely, was below the 0.2 percent increase Wall Street expected.

I don't know if the difference between the consumer response and the investor response represents a true disconnect or just a disagreement over the likely future rate of inflation. But as I've said in another post, the rising cost of food--which seems much steeper to me than the official figure from the BLS--is actually changing grocery shopping habits in the area where I live, to the benefit of Aldi's, a discount, bring-your-own-bags German grocery.

I don't think inflation of the essentials of food, medical care, and education will be moderating any time soon. I have real doubts that gas prices will moderate in the long term, and I don't think most Americans have any real alternatives to buying gas, given that most public transportation has been dismantled, and almost all retail shopping of any significance is now unreachable on foot.

Where Did All Those Trumpeted New Jobs Go?

2007-06-19T15:38:00.000-07:00

According to the monthly reports from the Bureau of Labor Statistics (BLS), the US economy gained a net of almost half a million jobs in the third quarter of 2006. Then BLS issued its aggregate quarterly report earlier this month, titled "BUSINESS EMPLOYMENT DYNAMICS: THIRD QUARTER 2006."

Like magic, most of the new jobs announced in the monthly reports disappeared. Instead of a net gain of almost half a million, BLS says the net gain was 19,000. That's not a type--nineteen thousand. Somewhere around 4% of the previously announced total.

Possibly worse is that the total number of private sector firms dwindled by some 8,000 in the third quarter of 2006--8,000 more businesses dies than were born.

An excerpt of relevant material from the quarterly summary:

Private Sector Establishment-Level Gross Job Gains and Job Losses
Opening and expanding private sector business establishments gained 7.4 million jobs in the third quarter of 2006, a decrease of 397,000 from the previous quarter. Over the third quarter, expanding establishments added 6.0 million jobs, while opening establishments added 1.4 million jobs.

Gross job losses totaled 7.3 million, an increase of 50,000 from the previous quarter. During the quarter, contracting establishments lost 6.0 million jobs, while closing establishments lost 1.3 million jobs. (See tables A, 1, and 3.)

The difference between the number of gross jobs gained and the number of gross jobs lost yielded a net change of 19,000 jobs in the private sector for third quarter 2006.

From June 2006 to September 2006, gross job gains represented 6.5 percent of private sector employment, while gross job losses represented 6.5 percent of private sector employment. (See tables A and 2.) These gross job gain and loss statistics demonstrate that a sizable number of jobs appear and disappear in the relatively short time frame of one quarter.

Number of Establishments Gaining and Losing Employment

Another way to look at the dynamics of business activities is to monitor the number and proportion of business units that are growing and declining. The third quarter of 2006 represented the first quarter where the number of contracting establishments exceeded the number of expanding establishments since the second quarter of 2003. Out of 6.9 million active private-sector establishments, a total of 1,865,000 establishments gained jobs from June 2006 to September 2006. (See table C.) Of these, 1,524,000 were expanding establishments and 341,000 were opening establishments. During the quarter, 1,542,000 establishments contracted and 349,000 establishments closed, resulting in 1,891,000 establishments losing jobs.

Overall, the number of active private sector establishments decreased by 8,000 during the quarter. This change is the difference between the number of opening establishments and the number of closing establishments.

What in the world could cause such a discrepancy between the monthly and quarterly figures? The report in the NY Times notes:

The figures do not cover exactly the same things, as a small proportion of employers — notably railroads and religious organizations — are not covered by unemployment insurance. And Kirk Mueller, a branch chief in the section of the bureau that deals with current employment statistics, said differing seasonal adjustment factors could affect the results.

Nonetheless, the Times piece also states that "Eventually, the monthly numbers will be revised to reflect the results of the quarterly survey." In other words, the quarterly figures will be treated as the final figures.
Nineteen thousand jobs over three months. Around 4% of the previously announced net gain.

Eight thousand more private sector employers going out of business than entering business.

Anyone want to reconsider the state of the economy?

Economic Mobility Report from Pew

2007-05-25T18:17:00.000-07:00

Following up on the earlier post on whether rags to riches tales in America are just myths, note that the Pew Trusts have issued a short report on economic mobility.

Relevant excerpts on the background issues of American attitudes and statistics on the American distribution of wealth:

As the data in Figure 2 indicate, the Congressional Budget Office finds that between 1979 and 2004, the real after-tax income of the poorest one-fifth of Americans rose by 9 percent, that of the richest one-fifth by 69 percent, and that of the top 1 percent by 176 percent. Focusing on the familiar story of rising inequalities between CEOs and their employees yields figures that are perhaps even more striking. Between 1978 and 2005, CEO pay increased from 35 times to nearly 262 times the average worker’s pay.4 Said another way, by 2005, the typical CEO made more in an hour than a minimum-wage worker made in a month.
...
Perhaps driven by widening inequality and a concern about the fairness of the game, there is a tangible and growing sense of pessimism among the American public. In exit polls after the 2006 election, less than one- third of the voters said that they thought life would be better for the next generation.5 In another poll, over half of Americans surveyed thought that the American Dream is no longer attainable for the majority of their fellow citizens.6 Other polls suggest that Americans are increasingly worried that they will be able to maintain the standard of living they currently enjoy.7
...
In a March 2007 Pew Research Center poll, 73 percent of respondents — an 8 percentage increase since 2002 — agreed with the statement, “Today it’s really true that the rich just get richer while the poor just get poorer.”9
...
One thing is clear. A society with little or no absolute mobility is one in which for every winner there is a loser. It’s a zero sum game. And a society with little or no relative mobility is one in which class, family background or inherited wealth loom large. Equal opportunity is a mirage. Recalling the three hypothetical societies, it is easy to envision why, for these reasons, high levels of both absolute and relative mobility are desirable. Society should strive for both. But rates of growth in mature economies are often slower than they are in societies that are still developing, and this fact makes a focus on relative mobility of increasing importance.

The report also includes a graph which compares "The U.S. versus the world." Here are the percentages of people agreeing with statements that:

1. “People get rewarded for intelligence and skill”
US------------------------------------69%

Median response from
25 other countries-----------------39%

2. "People get rewarded for their efforts”

US------------------------------------61%

Median response from
25 other countries-----------------36%

3. Coming from a wealthy family is ‘essential’ or ‘very important’ to getting ahead”

US------------------------------------19%

Median response from
25 other countries-----------------28%

4. “Income differences in this [country] are too large”

US------------------------------------62%

Median response from
25 other countries-----------------85%

5. “It is the responsibility of government to reduce differences in income”

US------------------------------------33%

Median response from
25 other countries-----------------69%

Note however that presenting the "median" from the other countries can be misleading. Looking at the above, you could easily assume that the US opinion was drastically different than ALL the other 25 countries, when in reality some of the 25 countries expressed more extreme views than the US. The ranges of responses from individual countries, for example, ranged from 5%–69% on question 1. On question 2 the range was 5 to 64; on question 3 it was 10 to 61; on question 4 it was 62 to 98; and on question 5 it was 33 to 89.

The Wealth of Nations Revisited; Awareness as the Key

2007-05-20T08:40:00.000-07:00

Adam Smith's famous "invisible hand" purportedly led all individuals to follow their own self interest in a way that produced the greatest good for all. Just reading that idea leaves me shocked--shocked that such a counterintuitive idea has come to be so thoroughly accepted by really smart people with really good educations.

On the micro level, the idea doesn't hold up at all. Just imagine living in a relationship with other human beings in one family household. If the husband always acts only for his own self interest, how exactly will that serve the interests of the family? How does the family benefit if dad spends the entire month's food budget on a trip to Las Vegas? The same analysis holds for the wife, and the same holds for each child.

The one way in which Smith's theory might apply to a family is if each member of the family recognizes that part of his/her self interest is the health and survival of the family unit. If Dad recognizes that going to Las Vegas will cause the family hardship, and is sufficiently committed to the family that he views family hardship as contrary to his self interest, he won't take the trip.

It seems to me that need to recognize that the health of the larger unit is part of the self interest of the individual is the key to Smith's theory. Without that recognition, I think Smith's theory turns out to be false in many circumstances. With that recognition, however, Smith's theory holds up much more frequently. But it still suffers from failure to recognize that individuals do not, in fact, follow what is in their self interest, they only follow what they perceive to be in their self interest. If their perception is wrong, if they stink at understanding their own self interest, they will not produce what is good for all of us.

So how in the hell does Adam Smith manage to hold the allegiance of so many smart, educated people? Easy. There are two parts to that answer:

1. Smith's Followers Are Among Those Who Misperceive Their Own Self Interest

Many Smith followers are the very people who cannot understand how their own interests are affected by the interests of others. They are the ones that cannot see how a massive increase in poverty in their own country will be bad for them, even though they have millions upon millions of dollars. They are the ones who think that self interest is measured only in the short term, and only in terms of $$ and power.

2. Smith's Followers Frequently Don't Understand Smith

As JK Galbraith could have told you, many Smith lovers simply find his theory a convenient cover for being as selfishly greedy as they feel like being. They are uninterested in what Smith actually thought, only in how they can act as selfishly as possible and still claim to be doing good for the rest of us.

Smith did not write in a vacuum of time, and Smith did not speak as unqualifiedly as he is portrayed as having spoken.

Here, for example, is one author's summary of the explicit and implicit limits on Smith's theory:

Classical free market economic theory originated with Adam Smith and David Ricardo in the early days of the Industrial Revolution (late 1700s, early 1800s). It was intended to apply under certain conditions and certain conditions only, namely:

(1) All business was small-to-medium sized and entrepreneurial (not corporate). Mostly the people who ran the business owned the business, and financed it with their own capital, or capital raised in partnership with others (1). There were stock exchanges, but corporations (joint stock companies) were rare and required a special act of parliament, so there were few of them listed (2).

(2) The free market was defined as a market of potentially unlimited numbers of these small/medium sized businesses, competing on a more or less equal footing, in a market which newcomers could freely enter, and in which none could control prices.

(3) The economy was national; capital must not flow freely across national borders or the theory did not hold (Ricardo)(5).

(4) The market had to be supervised by a sovereign government which (a) protected the public interest (b) made sure all businesses played by the rules (c) provided a stable currency, and (d) ran public utilities, which were regarded as not profitable for private enterprise.

Here's a concrete example of limitations in Smith's The Wealth of Nations (emphasis added):

...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

How many people leave out that FREQUENTLY qualifier? How many people leave out the fact that he talked about ANNUAL REVENUE as an equivalent of the greater good? How many people are aware of Smith's assumption that people prefer support of domestic industry to that of foreign industry?

Probably just as important, how many people realize:

--Smith was deeply religious, and believed that God Himself had endowed human beings with such character that they would produce good simply by following their self interest?

--Smith described a world in which most business, especially domestic business, was not corporate, but sole proprietors, with no distance between ownership and management, and no means of limiting the personal liability of the owner?

--Smith described a world in which it was quite difficult for capital to travel from one nation to another, and barriers of physical distance virtually precluded the import of goods and services which were already available locally?

JK Galbraith realized those things. Milton Friedman....probably not.

Proof of citizenship requirements takes its toll on Oregon health care

2007-05-15T18:04:00.000-07:00

The federal mania for ID requirements, manifest as a requirement that you prove US citizenship in order to get state health benefits to which the feds contribute, has apparently taken a bite out of the butt of the group most sane people predicted would be hurt by the new requirement: legal citizens fully eligible for the benefits.

From Oregon Live:

PORTLAND, Ore. (AP) — According to a state report, more than 1,000 Oregonians have been denied access to health services under a new federal law that requires them to prove they are citizens.

State officials say they think almost all of the people affected are citizens. But they, or their parents, were unable or unwilling to round up all the required documents, according to a the recent report from the Oregon Department of Human Services.

The report looked at the experience of nearly 200,000 people in 125,000 Oregon families who had to prove their citizenship to get or retain state health services during the first six months the law was in effect — September 2006 through February 2007.

It found that 99 percent of them eventually were able to qualify, but that 1,011 Oregonians were cut out of state programs. Many of the people cut were children.

The law was designed to save money by ensuring that illegal immigrants do not get free health care on the government's tab. But an earlier Oregon study found that few noncitizens were receiving government-paid health care, and officials say few of the people denied coverage in Oregon under the new law are noncitizens.

Of those turned down for lack of proof, 91 percent came from English-speaking households, the report says. Only three Spanish-speaking adults were unable to document their citizenship.

The state tried to help people by checking Oregon birth certificates via computer for free. It also devoted thousands of hours to retraining employees and spent $44,000 buying certified copies of birth certificates and other documents from other states for applicants who could not afford them.

Do you mean to tell me that the federal lawmakers were unaware that a big chunk of US citizens does not run around with their certified birth certificates, and pretty much lacks the money and the knowledge to go about acquiring those birth certificates?

"Real earnings" fall again

2007-05-15T17:59:00.000-07:00

From today's Bureau of Economic Analysis reports on real earnings and on inflation:

[real earnings]
Real average weekly earnings fell by 0.5 percent from March to April after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.2 percent rise in average hourly earnings.
...

Average weekly earnings rose by 3.4 percent, seasonally adjusted, from April 2006 to April 2007. After deflation by the CPI-W, average weekly earnings increased by 0.9 percent. Before adjustment for seasonal change and inflation, average weekly earnings were $589.90 in April 2007, compared with $566.81 a year earlier.

[inflation]
During the first four months of 2007, the CPI-U rose at a 4.8 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5 percent for all of 2006. The acceleration thus far this year was due to larger increases in the energy and food components. The index for energy advanced at a 25.3 percent SAAR in the first four months of 2007 compared with 2.9 percent in 2006. Petroleum-based energy costs increased at a 40.0 percent annual rate and charges for energy services rose at a 9.4 percent annual rate. The food index has increased at a 6.7 percent SAAR thus far this year, following a 2.1 percent rise for all of 2006. Excluding food and energy, the CPI-U advanced at a 2.2 percent SAAR in the first four months, following a 2.6 percent rise for all of 2006.
....
Medical care costs rose 0.4 percent in April and are 4.0 percent higher than a year ago. The index for medical care commodities-- prescription drugs, nonprescription drugs, and medical supplies--increased 0.4 percent, as did the index for medical care services . Within the later group, the index for professional services was virtually unchanged, while the index for hospital and related services increased 0.8 percent.

Try paying college tuition on those wages. Or going on any kind of vacation. OR keeping your health insurance. Or....

Are the rags to riches tales really just myths?

2007-05-06T17:28:00.000-07:00

An enduring belief of most Americans is that we have greater mobility than folks in other countries: poor boy makes good, every kid can grow up to be president.......

But a piece in June's The Atlantic magazine, titled "Rags to Rags, Riches to Riches," by Senior Editor Clive Crook (page 23), casts some serious doubt on whether that belief is based on reality. According to him:

Most researchers now give America much lower marks than they used to for intergenerational economic mobility.
...
America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all the Scandinavian countries, and possibly even Germany and Britain (the data are imperfect, and different studies give slightly different results).
...
Strikingly, the research suggests that mobility within America's middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom.

Crook doesn't cite the data he's talking about, but I found a study by Tom Hertz, of American University, which he conducted for the Center for American Progress. Dated April 26, 2006, this is the study's Summary:

Summary
This report discusses two aspects of economic mobility in the United States. The first is the question of intergenerational mobility, or the degree to which the economic success of children is independent of the economic status of their parents. A higher level of intergenerational mobility is often interpreted as a sign of greater fairness, or equality of opportunity, in a society.

The second aspect is the short-term question of the amount by which family incomes change from year to year. By studying short-term mobility we can determine whether incomes are rising or falling for families at different points in the income distribution. We can also determine whether the size of these income variations, or the level of annual income volatility, is changing over time. Increased volatility is undesirable to the extent that it represents an increase in economic insecurity.

The key findings relating to intergenerational mobility include the following:

Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.

Children born to the middle quintile of parental family income ($42,000 to $54,300) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent). Their chances of attaining the top five percentiles of the income distribution were just 1.8 percent.

Education, race, health and state of residence are four key channels by which economic status is transmitted from parent to child.

African American children who are born in the bottom quartile are nearly twice as likely to remain there as adults than are white children whose parents had identical incomes, and are four times less likely to attain the top quartile.

The difference in mobility for blacks and whites persists even after controlling for a host of parental background factors, children’s education and health, as well as whether the household was female-headed or receiving public assistance.

After controlling for a host of parental background variables, upward mobility varied by region of origin, and is highest (in percentage terms) for those who grew up in the South Atlantic and East South Central regions, and lowest for those raised in the West South Central and Mountain regions.

By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.

Key findings relating to short-run, year-to-year income movements include the following:

The overall volatility of household income increased significantly between 1990-91 and 1997-98 and again in 2003-04.

Since 1990-91, there has been an increase in the share of households who experienced significant downward short-term mobility. The share that saw their incomes decline by $20,000 or more (in real terms) rose from 13.0 percent in 1990-91 to 14.8 percent in 1997-98 to 16.6 percent in 2003-04.

The middle class is experiencing more insecurity of income, while the top decile is experiencing less. From 1997-98 to 2003-04, the increase in downward short-term mobility was driven by the experiences of middle-class households (those earning between $34,510 and $89,300 in 2004 dollars). Households in the top quintile saw no increase in downward short-term mobility, and households in the top decile ($122,880 and up) saw a reduction in the frequency of large negative income shocks.

For the middle class, an increase in income volatility has led to an increase in the frequency of large negative income shocks, which may be expected to translate to an increase in financial distress.

The median household was no more upwardly mobile in 2003-04, a year when GDP grew strongly, than it was it was during the recession of 1990-91.

Upward short-term mobility for those in the bottom quintile has improved since 1990-91, with no significant offsetting increase in downward short-term mobility.

Households whose adult members all worked more than 40 hours per week for two years in a row were more upwardly mobile in 1990-91 and 1997-98 than households who worked fewer hours. Yet this was not true in 2003-04, suggesting that people who work long hours on a consistent basis no longer appear to be able to generate much upward mobility for their families.

Those year-to-year income movements findings are as grim as the intergenerational findings; "overall volatility of household income increased significantly between 1990-91 and 1997-98 and again in 2003-04" indeed.

It's unfortunately difficult to make these mobility measurements with any precision, of course, and there are many different aspects of "income mobility" that could be measured. A study titled "The Many Facets of Economic Mobility," by Gary S. Fields of Cornell University, published in July, 2005 is a good source for anyone wanting to get into more detail. But Crook's article and the Center for American Progress study don't bode well for our self image as Americans.

Now the Pew Trusts is investing more than $2 million, to fund a joint study of the ability of Americans to improve their economic status both during their lifetimes, and from generation to generation. The study is to be performed by four Washington think tanks: The American Enterprise Institute, The Brookings Institution, The Heritage Foundation and The Urban Institute.

On the Pew web site, the project is described as follows:

For the first time, data related to economic mobility in the United States will be consolidated and presented in terms the American public and policymakers can understand, debate and discuss. How do my children’s opportunities for economic advancement compare to mine, to those of my parents? Is mobility thriving in other countries while waning here in the U.S.? How much economic mobility is there for people in poverty? To what extent is mobility affected by inherited wealth? How is mobility impacted by gender, race, and level of education?

Sounds like it will be worth reading. Assuming that representatives of those four think tanks can actually agree on the state of things, which is asking a lot given today's state of partisan warfare, how inflammatory the study would be if it confirms Crook's feeling that mobility is greatly exaggerated, and the types of folks who fund the two conservative think shops.

Tax rebels insist it's freedom or body bags

2007-04-29T17:29:00.000-07:00

In New Hampshire, there is a a virtual standoff now between the federal government and a NH couple in their 60s who have been convicted of tax evasion and sentenced to to serve 63-month federal prison terms.

The Manchester Union Leader reports that:

Elaine Brown and her husband, Edward, have said they will remain in their hilltop home and will resist any attempt to arrest them with force.

"It's good against evil and we're standing with God and we know, no matter what happens, that we are righteous," Elaine Brown told "Your Turn" host Terri Dudley of WTSL 1400 AM in Hanover. "We have committed absolutely no crime."

A dentist, Elaine Brown graduated from Tufts University Dental School in Boston and ran a private dental practice in Lebanon.

A jury found them guilty of plotting to avoid paying taxes on the $1.9 million that Elaine Brown earned from 1996 through 2003.

It seems the pair are religious fundamentalists (quoted as saying "The only law book we now recognize is the Bible. The only way we're coming out of our home is either as free man and free woman or in body bags").

It also appears they are believers of the theory that the US income tax is unconstitutional. An earlier Union Leader story story reported that the couple "assert that there is no law that requires citizens of the United States of America to pay a direct tax on their wages." This theory has been advocated by a series of tax protesters, and is the basis for a movie, America: From Freedom to Fascism, currently being shown around the country by various tax protester and other civic groups. According to Wikipedia, the movie:

covers many subjects regarding tax protester arguments including: the Internal Revenue Service (IRS), income tax, the Federal Reserve System, national ID cards (REAL ID Act), human-implanted RFID tags (Spychips), Diebold electronic voting machines,[2] globalization, the possibility of America becoming a police state, Big Brother, and the alleged use of terrorism by government as a means to diminish the citizens' rights.

Some of the premises of the film include:

Federal income taxes are unconstitutional or otherwise legally invalid.

The Federal Reserve banking system is unconstitutional and has maxed out the national debt and bankrupted the United States government.

Federal income taxes were imposed in response to, or as part of, the plan implementing the Federal Reserve System.

To my mind, the NH couple, the relative popularity of the movie, and the far right political attack on both income and estate taxes are all signs of the disintegration of the national fabric. Whether the enemy be viewed as the government as a whole, the IRS, the Alcohol, Tobacco and Firearms Bureau, "tax and spend" Democrats, or the "lazy" poor, there is now a sizable segment of the population that fears government and taxes more than they fear the incredibly wealthy and powerful.

Not good. Especially given the tendency of this group to resort to violence to preserve what they perceive as "freedom."

Consumer spending and the housing market

2007-04-29T17:12:00.000-07:00

Recent days have produced a flurry of info on the housing market's effect on the overall economy, and, most importantly, on consumer spending.

The Federal reserve web site posted a research paper by Alan Greenspan and James Kennedy on the effect that cashouts, refinancings, etc. of home equity have had on consumer spending. It is a very dense paper, but the highlights as reported by Bloomberg are that extraction of home equity financed 2.9% of overall consumer spending from 2001-05 compared with 1.1% from 1991-2000.

Already there is talk by industry types that the current housing weakness is having an impact on spending in the economy of both the U.S. and foreign countries where remittences from the U.S. play a big economic role (like Mexico).

To give you an idea of how much spending has been financed by home equity, consider that consumer spending was pegged at $7,057.60 (in billions) for Q3 of 2001 by the Bureau of Economic Analysis. 3% of that would b more than $220 billion.

And keep in mind that home equity can also indirectly finance consumer spending. While some homeowners may draw down their equity to get cash, other simply run up credit cards or other debt, knowing they have their home equity in reserve to help pay off the bill.

Existing homes sales report "was very disappointing"

2007-04-25T18:34:00.000-07:00

USA Today's piece on March, 2007 sales of existing homes being down 8.4% from February was described by the chief economist for the National Association of Realtors, David Lereah, as being "very disappointing." Lereah revised his previous estimate that the housing market had bottomed out last September--he now thinks that the market won't recover until the third quarter of 2007.

But the paper also points out that others are "less optimistic," including Patrick Newport, chief U.S. economist for Global Insight, who thinks it will be the first half of 2008 before the housing market "recovers."

Of course, you have to put some thought into what "recovers" actually means. Not to mention the need to be very precise about what it is that is recovering. Are we talking about prices? Units? Both? Would you consider it a recovery if sales picked back up a bit, but the backlog of homes for sale remained high?

The ultimate reality is that the many measures of health in the housing market pretty much all look bad right now. And that's without taking into account the fiasco in the subprime mortgage industry where, by the way, the extent of the losses incurred by investors is still unknown. The company's that bought mortgage-backed securities simply don't have to write down the face value of the investment as long as they keep the investment on the books.

All pretty bad news for an economy that most economists recognize has been propped up for some time by rising housing values.

Want to See What Privatization Means? Check Florida and Jeb Bush

2007-04-24T18:00:00.000-07:00

Privatization appears to follow governing members of the Bush family around like a low level infection. Texas has had its share of governing fiascoes that can be traced to privatization of functions that have historically been performed by government, but Florida may surpass even Texas.

Take for example Florida's efforts to privatize both prisons and care of juvenile offenders/delinquents and the like. The Palm Beach Post has done several pieces on the problems (as have other Florida papers), recently focusing on the juvenile justice aspect. Check out this quote from a couple of weeks ago:

When the state shut down its failed prison for teenage girls in suburban West Palm Beach, it moved inmates to a new program that soon had many of the same problems....The state shut that program down, too, only 17 months after opening it.
...
The 18 state-run residential programs, which pay youth-care workers thousands more a year on average than private companies, were less likely to be cited for incidents such as abuse and excessive force, according to rankings in the Department of Juvenile Justice's 2006 Residential Program Report Cards.

Among the many problems, apart physical abuse of the adults and children held in custody by order of the state, is the fact that the private prisons and youth facilities sign contracts specifying how many employees the private firms will maintain to do their jobs. They are paid based on the expectation that they will, in fact, hire those people.

You saw this one coming, right? Why hire all those people when you can skimp by with fewer workers and make more money (while doing a less than stellar job).

The source linked above also offers up this:

Florida Department of Juvenile Justice inspectors also found that the academy's for-profit management company, Diversified Behavioral Health Solutions Inc., had failed to fill dozens of positions required in its $5.4 million annual contract.
...
A monitor calculated in March 2006 that the state was paying at least $689,761 a year for positions the company had not filled.

Not all under staffing is deliberate--the for-profit facilities simply have a hell of a turnover problem and you don't have to be a genius to figure out why:

In 2005, private for-profit programs paid workers a median wage of $17,906 a year, compared with $19,881 at programs for teens managed by nonprofit contractors, the study found. State workers in comparable state-run residential programs made a median of $22,762 that year.

I'm guessing that benefits, including retirement, would also we way better for the state employees.

In another piece a week later, the same newspaper explicitly urged Make public the ripoffs from taking state private. That piece revealed that the state's contracts with private firms for such services as running prisons were so poorly written that the state often has no recourse when the private firm fails to live up to its obligations.

Did I mention that the privatization efforts have been undertaken largely under Jeb Bush's reign as Florida's Governor? Did I mention that?

The March Grim Reaper--Mass Layoffs

2007-04-21T17:41:00.000-07:00

Yesterday, the Bureau of Labor Statistics published its Mass Layoff report for March, 2007. Amid all the media happiness about our supposed low unemployment rate, here are the highlights of what the BLS had to say:

MASS LAYOFFS IN MARCH 2007
In March, employers took 1,276 mass layoff actions, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Each action involved at least 50 persons from a single establishment; the number of workers involved totaled 130,687, on a seasonally adjusted basis. The number of mass layoff events decreased by 4 from the prior month, and the number of associated initial claims fell by 13,290. During March, 420 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 54,441 initial claims. Compared with the prior month, mass layoff events in manufacturing remained about the same and initial claims decreased by 9,631. (See table 1.)
....
The 10 industries reporting the highest number of mass layoff initial claims, not seasonally adjusted, accounted for 36 percent of the total initial claims in March. The industry with the highest number of initial claims was temporary help services with 9,217, followed by food service contractors with 7,636, and automobile manufacturing with 5,746. Together, these three industries accounted for 18 percent of all initial claims due to mass layoffs during the month.
...
The manufacturing sector accounted for 34 percent of all mass layoff events and 40 percent of all related initial claims filed in March; a year earlier, manufacturing made up 31 percent of events and 40 percent of initial claims. In March 2007, the number of manufacturing claimants was highest in transportation equipment manufacturing (19,397, largely automobile manufacturing), followed by food manufacturing (6,087) and wood product manufacturing (2,674).
....
On a not seasonally adjusted basis, the number of mass layoff events in March at 1,082, was up by 161 from a year earlier, and the number of associated initial claims increased by 12,136 to 123,974.

Consumer debt still piling up...and up

2007-04-18T17:11:00.000-07:00

The Federal Reserve issued its G.19 release a week or so ago, detailing the state of consumer debt in the U.S.:

G.19 CONSUMER CREDIT For release at 3 p.m. (Eastern Time)
February 2007 April 6, 2007

Consumer credit increased at an annual rate of 1-1/2 percent in February. Revolving credit rose at an annual rate of 3-1/2 percent, and nonrevolving credit rose at an annual rate of 1/2 percent.

The 2002 through Feb of 2007 stats on outstanding consumer credit, Seasonally adjusted, in billions of dollars:

2002----------------1,984.1
2003----------------2,087.8
2004----------------2,201.8
2005----------------2,295.0
2006----------------2,400.1
2007 (Feb)----------2,409.7

In other words, consumer debt outstanding increased more than 20% from 2002 through Feb. of 2007, a bit over 4 years. That's a rate of increase that puts the real earnings numbers in the prior post to shame...unfortunately.

Real Earnings Stats Continue to be Depressing

2007-04-17T18:20:00.000-07:00

In recent times, the powers that be have floated the idea that worker earnings are "beginning to catch up" with corporate profits, it's hard to find any real evidence of real progress in real earnings. [And that ignores the fact that corporate profits themselves seem to have stalled]

The Bureau of Labor Statistics (BLS) just released the Real Earnings report for March of 2007:

Real average weekly earnings fell by 0.1 percent from February to March after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent rise in both average weekly hours and average hourly earnings was more than offset by a 0.8 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
...
Average weekly earnings rose by 4.4 percent, seasonally adjusted, from March 2006 to March 2007. After deflation by the CPI-W, average weekly earnings increased by 1.6 percent. Before adjustment for seasonal change and inflation, average weekly earnings were $580.31 in March 2007, compared with $556.42 a year earlier.

Down for the month, up a puny 1.6% over 12 months. Not exactly a raise to write home about.

And that continues a lengthy series of BLS reports in a similar vein:

Real average weekly earnings fell by 0.3 percent from January 2007 to February 2007 after seasonal adjustment.

Real average weekly earnings fell by 0.3 percent from December 2006 to January 2007 after seasonal adjustment.

After deflation by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), average weekly earnings increased by 2.1 percent from December 2005 to December 2006.

After deflation by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), average weekly earnings decreased by 0.4 percent from December 2004 to December 2005.

So the reports of rising earnings come from where exactly?

Health insurance stat to remember

2007-04-16T17:50:00.000-07:00

From the abstract to Summary health statistics for the U.S. population: National Health Interview Survey, 2005 (Vital Health Stat 10. 2007 Jan;(233):1-104):

Among persons under age 65 years, about 42 million (17%) did not have any health insurance coverage. The most common reason for lacking health insurance was cost, followed by a change in employment.

Poverty, violence, and you

2007-04-16T17:40:00.000-07:00

If you listen to the conservatives who constantly whine about any and all social programs, you'd get the idea that "poverty" was some abstract philosophical state that matters only in the context of a partisan discussion of economic and social policy. But poverty occurs in the real world, to real people. And violence tends to be pretty strongly associated with poverty, with the violence also also occurring in the real world to real people.

Not surprisingly, given the recent turn of "advanced" societies toward the right, with the obligatory blind eye toward poverty, there seems to be renewed medical interest in exploring the effect that poverty has on the health of the poor.

Here's a short review of what some recent studies have reported (an abstract of the study, if one exists, can be found on the National Library of Medicine web site's "PubMed" database.

In a study of New York City residents that began in 2002, the authors of Urban neighborhood poverty and the incidence of depression in a population-based cohort study, published in the Annals of Epidemiology (vol 17, No. 3, page 171) report that they found an independent association between socioeconomic status (SES) of a person's neighborhood and the likelihood of developing depression.

Another team of researchers undertook a study of 100 African American neonates whose families resided in low-income environments. In Parsing the relations between SES and stress reactivity: examining individual differences in neonatal stress response, published in the journal Infant Behavior & Development (vol 30, No. 1, page 134), the authors report that they found associations between infant behavior, measured by physiologic and behavioral response to being pricked in the heel, and the infant's score on the Neonatal Behavioral Assessment Scale, and "three domains of perinatal risk: socio-demographic, obstetrical complications, and maternal psychological factors during the perinatal period." They report that "Greater magnitude of perinatal risk was associated with both higher and lower than average neonatal stress reactivity."

Switching to an analysis of what relationship might exist between rates of childhood asthma and rates of violent assault in the community, the authors of The association between childhood asthma and community violence, Los Angeles County, 2000 , published in the journal Public Health Reports (vol 121, No. 6, page 720) found a statistically significant correlation between hospitalization rates for childhood asthma and community violence as measured by the rate of hospitalization for assault.

Finally, the article Social capital, socio-economic status and psychological distress among Australian adults, published in the journal Social Science & Medicine (vol 63, No. 10, page 2546), reports that "having trust in people, feeling safe in the community and having social reciprocity are associated with lower risk of mental health distress."

Poverty and violence are not, it seems, merely some abstract philosophical states that matter only in the context of some partisan discussion of economic and social policy (nor are poverty and violence unrelated to each other).

If both poverty and violence affect the physical and mental health of those who experience them, is there any doubt that the rest of society is affected in various adverse ways by this impact on the poor and violence-exposed?

Equally important, if poverty and violence beget physical and mental health problems, and those problems in turn beget more poverty and violence, how many generations of this spiral do you think it takes before a country ceases to even be "advanced?"

Do uncollected taxes grow as IRS employees dwindle?

2007-04-10T17:28:00.000-07:00

That's the question raised by both the National Treasury Employees Union and Citizens for Tax Justice, according to an article in Federal Times.

Yesterday, the heads of those two organizations told reporters that:

understaffing in many areas leaves the IRS unable to dent the $345 billion annual “tax gap” between owed and collected taxes/li>
the proposed 2008 IRS budget of $11.1 billion is actually $546 million less than what was recommended by an independent IRS Oversight Board

the IRS is failing to seek vast amounts of money in offshore tax havens

the IRS policy now encourages agents to quickly close audits of large corporations.

According to the head of the Employees Union:

Short-changing this agency leads to out-of-whack enforcement. When the IRS doesn’t even ask for enough resources, it fails to direct resources toward the most complex cases and high-income taxpayers.

All of which goes to show that, while there's more than one way to skin a fat cat, there's also more than one way to save that fat cat's skin.

Quote of the day

2007-04-10T17:26:00.000-07:00

If you want to know what God thinks of money, look at the people he gives it to.

-- Old Irish Saying, according to Philip Greenspun.

Anatomy of an obfuscation--Biomet, Inc.

2007-04-09T17:21:00.000-07:00

If your corporation had committed serious financial fraud on its shareholders, for a full eleven years, and you had to make a public announcement of that fact, what would you do?

I can tell you what Biomet, Inc. did. It issued an incredibly dense press release, as stiffly and redundantly worded as it could manage, and tucked the details of the fraud way down deep into the body of the release--a full 776 words deep.

Like far too many other corporations over the last decade or so, the company played "dating games" with its stock options, pretty much guaranteeing that its executives would make the maximum amount of money when they exercised those options. Of course, the shares that the execs bought cheap could have been sold at full market value, so the corporation and its owners were the primary victims of this chicanery.

And the press release does, eventually, tell you what happened:

the Company's administration of its various stock option plans disregarded the terms of those option plans

most of the options issued during the 11-year period from 1996 through 2006 were not priced at the fair market value on the date of their respective grants;

there was opportunistic misdating and mispricing of options in order to take advantage of lower exercise prices;

the Company failed to maintain adequate books and records concerning its stock option grants;

there were inadequate internal controls over the issuance and accounting for stock option grants;

the relevant accounting and legal rules regarding option plans and their administration were not followed;

Biomet failed to adequately staff and devote appropriate resources to the administration of its stock option plans; and

as a result of these deficiencies, Biomet's public filings with regard to stock options were inaccurate.

Now Biomet damn well knew that this is what the public wanted to know. So how did they manage to stick 776 other words in front of the nuts & bolts? Like any college student short on words for a paper due in the morning, they padded it. Padded the hell out of it.

First they gave a lengthy statement of personnel changes (gee, I wonder what prompted those?), complete with pablum quotes from the changing personnel.

Then they gave a stultifying "Review of Historical Stock Option Granting Practices." And I mean stultifying. Here's an example:

On March 30, 2007, Biomet announced an updated report from the Special Committee presented by counsel to the Special Committee and the independent accountants retained by counsel to the Special Committee. Based upon an analysis of this updated report and relevant accounting literature, including Staff Accounting Bulletin No. 99, the Audit Committee determined on March 30, 2007 that the Company should amend its Annual Report on Form 10-K for the fiscal year ended May 31, 2006 and Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2006 to reflect the restatement of the consolidated financial statements and related disclosures reflected therein. In light of the Special Committee's preliminary report discussed below, the Company's previously issued financial statements and any related reports of its independent registered public accounting firm should not be relied upon. The Company believes, based upon the Special Committee's preliminary report, that the impact of the restatement will not be quantitatively material to any prior period financial statements.

Very few non-lawyers could make it through that without drifting off into a reverie about open spaces, the ocean, etc.

So exactly what do you call a company that commits linguistic fraud in the course of admitting that it committed financial fraud?

And by the way, you'll be happy to know that:

..all current members of the Board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after January 1, 1996 which had not yet been exercised, the exercise price of such unexercised stock option awards would be increased to the fair market value of the Company's common shares on the measurement date applicable to such award. In addition, the current members of the Board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after January 1, 1996 which had previously been exercised, such directors would at a future date remit to the Company an amount equal to the excess, if any, of the fair market value of the Company's common shares on the measurement date for such award over the exercise price of such award.

As the old saying said: the best place to hide something is in plain sight.

The Wonderful World of Fox Presents: The Beauty of the CEO

2007-04-06T15:06:00.000-07:00

Notwithstanding the fact that U.S. corporate profits fell in the 4th Quarter of 2006, or that many financial experts view that fall as the beginning of a broader economic downturn, our beloved Fox News happily reports the results of a corporate survey by Watson Wyatt Worldwide Inc:

CEO Salaries, Bonuses Rise in 2006 on Strong Profits

The survey results read something like an old Disney fantasy for the rich and famous:

The CEOs saw annual bonuses increase 13 percent and the value of their equity-based compensation holdings grow nearly 50 percent last year, according to a study by financial management consultants Watson Wyatt Worldwide Inc.
...
The analysis is based on proxy statements of 92 large companies whose CEOs remained in their positions in 2005 and 2006.

Median annual bonuses for chief executives increased to $2.2 million last year. At the same companies, the median growth in earnings per share was 14 percent.

The median value of CEOs' equity compensation, which includes in-the-money stock options and restricted stock awards, increased to $30.2 million last year.

Base salaries grew 4 percent to a median $1.1 million, according to the study.

Remember that the next time you're sitting at the kitchen table at 3am. trying to figure out whether eating or medical care is a higher priority given your inadequate income. And while you sit there in the middle of the night with shivers and dread, also contemplate this statement from a Market Watch piece on the falling 4th Quarter profits:

While profits are up 130% since the recession ended, industrial capacity in the United States has grown 4%, investments in equipment and software are up 22%, and employment is up 5%.

Sounds fair to me. After all, you could look at this as meaning "everything is up." Right? Huh?

In case you didn't know it, "The superrich are doing you a favor"

2007-04-03T17:32:00.000-07:00

Continuing a growing trend to idolize the rich as truly special folks who make life itself possible for the rest of us unrich clowns, Jon Markman at MSN offers up a piece titled The superrich are doing you a favor.

I can't quite decide if the title and piece are tongue-in-cheek or if Markman feels at least a bit of genuine awe and idolatry when viewing the megarich. Witness this:

In fact, the superrich spend so much more of their mountains of money, according to a new line of thinking among academics, that they may provide a public service by smoothing out the little dents and valleys in the global economy. As scads of Russians, Chinese, Indians and South Americans have joined the billionaires club due to the rise of emerging markets' industrial might, worldwide recessions have become much fewer in number and far slighter in severity than in past decades.

This makes sense, even if it doesn't make you feel better. For just when many average people in the United States or Europe are slowing down their consumption of goods and services due to the loss of a job or pending home foreclosure, there are an increasing number of superrich worldwide to fill in the spending gap. It's sort of a perverse fulfillment of the trickle-down theory.

In any case, the piece offers up a bowl full of interesting facts on the super rich, including:

The wealthiest 1 million people in the world account for as much spending as 60 million other households

Russian natural resources has helped create at least two dozen Russian billionaires and thousands more multimillionaires

China is now home to 500,000 millionaires

BusinessWeek reports 83,000 millionaires in India

Man, just reading about all this wealth, all this vibrant and humming economic activity in so many places around the globe just makes me want to....

Jordan's drug prices soar--can you say "free trade?"

2007-04-03T17:24:00.000-07:00

A report by Oxfam indicates that another nation has begun to feel those masochistic benefits of "free trade."

Strong intellectual property protections in U.S. free trade deals have hurt developing countries, pushing up drug prices in Jordan by 20 percent, an aid advocacy group said in a report released on Tuesday.

Beefed-up property rights for drug makers, which have been built into U.S. free trade deals like the one with Jordan, "will make it harder and harder to sustain public health systems," said Rohit Malpani, a trade analyst with the advocacy group Oxfam in Washington.

U.S. trade officials disputed the report's findings, saying the trade agreements fairly balanced intellectual property protections and health care needs.

The Oxfam report found that drug prices in Jordan have increased by 20 percent since 2001, when the bilateral deal with the United States was implemented, and are up to six times higher than comparable drug prices in Egypt.

Oxfam said a big driver of higher drug prices is a rule that guards, for a time, against sharing of clinical trial information that can be used to make generic drugs.

"In developing countries ... public health systems are very fragile and only a small percentage of the population has health insurance," so higher drug prices can have serious health consequences, Malpani said.

Strong stuff. But is the U.S. worried that our free trade mania is having adverse consequences? I'm sure you knew this before I told you---Nope.

But a U.S. trade official, who requested anonymity, said: "We strongly disagree with Oxfam's contention that intellectual property protection is at odds with an effective response to global health crises.

"We believe that our (trade agreements) represent an appropriate means of advancing high standards of IP protection, while safeguarding the ability of trading partners to respond to legitimate public health needs," the official added.

The big test is how strongly the Democrats in congress feel about the issue, and that remains to be seen, although the battle lines are being tested:

Malpani believes support is gathering among some Democratic lawmakers for loosening those rules for developing countries.

Democrats on the House of Representatives Ways and Means Committee, which oversees trade, recently released their own vision for trade including a goal to "reestablish a fair balance" in setting IP rules for medicine with developing countries.

Last month, a group of lawmakers sent a letter to U.S. Trade Representative Susan Schwab saying that trade deals "appear to undermine" a pledge from all World Trade Organization members to give poorer countries flexibility in protecting public health.

Some Democrats are also calling for stronger protection for workers and the environment to be woven into pending deals.

India knows gloablization...and someone has figured out why not to like it

2007-03-31T18:12:00.000-07:00

Here's a pretty succinct, eloquent lament from India on what globalization will ultimately mean for that country (not to mention all the rest of us):

Globalization - Plunder Fueled by Greed?
by Aarcee

March 30, 2007

Globalization is touted by some as a win-win arrangement for every country that participates in it and opens it markets. A sweet poison tastes sweet first and kills you later. So, the first taste of Globalization that India had was incredibly sweet. When everyone was so inebriated by the sudden glut of consumer items that had been forbidden in a closed economy, any hint that this glut was going to be harbinger of economic shackles was unwelcome. However, reality has now begun to sink in. I was very delighted to read an article by a reader lamenting the erosion of India’s manufacturing capability by under-priced Chinese imports. I see him as an individual who is among the first few to open his eyes and realize that this sweet potion of Globalization actually does considerable harm!

Yes, now apples from New Zealand, America, Australia and China are available in India. Everyone has a Korean cell phone now. That is the visible carrot. Let’s see where the looming invisible stick is. With the Corporations invading India, the small entrepreneurs is becoming history. Small retailers can not compete with Wal Marts and Reliance Marts. You will see them going out of business one by one. They are screaming, but their cries are being drowned by the cheers of those who are still gloating on the carrots of globalization. Now the fruit seller and vegetable seller goes door to door selling his ware. The huge Marts will in near future buy the produce straight from the farms. So now, the hundreds of small business owners will be replaced by one obscenely wealthy individual who will employ the small farmers as farm workers and pay them ridiculously low wages.

Globalization brings in its wake a perverted kind of capitalism. Capitalism is good when it encourages small entrepreneurs to set up shop and earn a buck. In this 21st century perverted kind of Capitalism, the wealth gets siphoned off to a few ridiculously rich individuals who use privileged accounts in market trading, IPO grabbing and, at worst, Enroning the savings of the middle class.

Fourth quarter corporate profits headed south, like the mortgage market

2007-03-31T17:59:00.000-07:00

Although you probably didn't hear this unless you really pay close attention to the financial news, the Commerce Department deported that corporate profits in the fourth quarter of 2006 kind of went south. Except for Wall Street. And domestic corporation operations abroad. Doesn't that sound optimistic?

Well, Paul Kasriel of the Northern Trust Company offers up both the bad news and probably as optimistic a view as you could find from this info:

The fourth-quarter contraction in corporate profits would have been worse had it not been for Wall Street's profits and profits of U.S. corporations earned abroad. Profits of domestic nonfinancial corporations declined 6.63% in the fourth quarter while profits of domestic financial corporations and profits earned from abroad increased 4.32% and 15.90%, respectively. The creation of mortgage-related financial instruments has been a money machine for Wall Street in this expansion. Now that mortgage credit growth is in a steep decline, Wall Street will have to find another money machine. I have complete confidence it will.

Pay particular attention to that "profits earned from abroad increased...15.90%. What do you think happens when the profit center of a corporation moves from the U.S. to its overseas operations? And why do you think such a thing would happen?

And do you share Kasriel's confidence that Wall Street will find another "money machine?" Especially when you realize that much of the previous money machine--mortgage-related financial instruments--is now credited with creating the mortgage default crisis that we now "enjoy?"

We seem to be approaching the end of stage one of globalization. Bet you can't wait to see how good stage two is.

A home is a home is a home; so let's buy the cheaper one

2007-03-26T16:07:00.000-07:00

This is probably one result of the foreclosure crisis in sub-prime mortgages, and it sure is interesting: Sales of newly built homes fell by the same exact percentage (3.9%) as sales of existing homes rose, according to Forbes Magazine.

The explanation (a.k.a. "let's take a stab at it"):

David Lereah, the head economist for the National Association of Realtors, said the landscape for the resale market is very different from new-home sales. “There is a recovery in existing home sales, but for new home builders, the market will be very bumpy going forward,” he said. “New-home sales are still in recession, and increased foreclosures and subprime problems will make the next two years difficult.”

New foreclosures and tightening credit standards will lead to a glut in housing and limit potential buyers. According to the report, the number of unsold homes rose to its highest level in 16 years, indicating that prices for new homes will continue to fall as competition tightens.

At the end of February, there were 546,000 houses on the market, translating to an 8.1 months supply— the highest backlog since January 1991.

Calling the subprime crunch “a real negative,” Lereah said from 10% to 25% of subprime borrowers, about 100,000 to 250,000 potential home buyers, will no longer be able to qualify for loans. This is bound to affect prime borrowers, who may postpone purchases because of tighter lending practices, he said. However, the ongoing price correction and low mortgage rates should continue to lure new home buyers and the long-term fundamentals remain solid, Lereah said.

In short, sales of existing homes don't help the construction industry, but sales of new homes do.

Blue Cross of California finds a sly way to profit

2007-03-26T15:57:00.000-07:00

What better way to make a profit than to not spend money while collecting money from your customers? Apparently that thought occurred to Blue Cross of California, according to an investigation by the California Department of Managed Health Care

DMHC officials on Thursday informed Blue Cross of their intent to file an accusation against the company and issue a $1 million fine in the case. Under California law, health insurers must prove that members intentionally misrepresented their medical histories on policy applications to cancel policies. State investigators reviewed 90 cases from 2004 to 2006 in which Blue Cross canceled individual health insurance policies and found the company had violated the law in each case. According to state investigators, Blue Cross used computer programs and maintained a department to review the policies of members with chronic illnesses and women who became pregnant to consider cancellation. Blue Cross cancels about 1,000 policies annually in California. WellPoint, the parent company of Blue Cross, cited "factual errors" in the investigation and said the "vast majority" of policies canceled by the company are proper.

The BLS monthly grim reaper report for February

2007-03-23T17:04:00.000-07:00

From yesterday's Bureau of Labor Statistics (BLS) report on February's mass layoffs:

In February, employers took 1,280 mass layoff actions, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Each action involved at least 50 persons from a single establishment; the number of workers involved totaled 143,977, on a seasonally adjusted basis. The number of mass layoff events increased by 43 from January, and the number of associated initial claims rose by 17,609. During February, 419 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 64,072 initial claims. Compared with the prior month, mass layoff activity in manufacturing increased by 30 events and by 12,931 initial claims.
...
The industry with the highest number of initial claims was temporary help services (with 5,581), followed by automobile manufacturing (5,561), and motorcycle, bicycle, and parts manufacturing (3,043). Together, these three industries accounted for 16 percent of all initial claims due to mass layoffs during the month.
...
Construction accounted for 22 percent of mass layoff events and 15 percent of initial claims in February, largely from specialty trade contractors. Administrative and waste services comprised 12 percent of events and 11 percent of initial claims filed over the month, with the majority of layoffs in temporary help services. Eight percent of all mass layoff events and 7 percent of related initial claims filed were from retail trade, primarily from general merchandise stores. Transportation and warehousing made up 4 percent of events and 5 percent of associated initial claims, primarily from the school and employee bus transportation industry.
...
Among the states, California recorded the highest number of initial claims filed due to mass layoff events in February (19,809), followed by Pennsylvania (10,928), Michigan (6,507), Wisconsin (6,035), and Illinois (4,684). These five states accounted for 58 percent of all mass layoff events and 55 percent of all associated initial claims for unemployment insurance.

In short: another 143,977 jobs waving bye-bye.

Wish someone in America would say this out loud (in public)

2007-03-22T14:40:00.000-07:00

The statement:

People in the middle class have long been said to be a robust pillar supporting the socio-economic stability of a country. So, the bigger the middle class, the better our society is. However, the number of those in the middle class here was learned to have declined substantially while those in the upper and lower classes has increased in the last 10 years, according to a report released recently...It makes one wonder whether or not a chronic social state making the rich richer and the poor poorer is being revived. The crumbling of the middle class means nothing other than those in a state of economic hopelessness are increasing. Those driven out of the middle class are set to be deprived of their courage and hope that they would be better off if they work harder.

Who said it?
No, it wasn't a Democratic legislator, or an academic with a conscience, or even an American labor leader. It's an unbylined editorial in the Korea Times newspaper from South Korea.
Other excerpts:

According to the report, the middle class, which accounted for 55 percent of the total population in 1996, fell to 43 percent last year while those in upper and lower classes that stood at 20 percent and 11 percent, respectively, increased to 25 percent and 20 percent in the same period.
...

Particularly worrisome is the fact that those in the lower class have doubled in the last 10 years. Those driven out of their jobs or the selfemployed suffering from a long business recession are deemed to have fallen out of the middle class. The statistics testify to the worsening income polarization of our society, a phenomenon the current regime has vowed but failed to correct.
...

The recent spiraling of apartment and other real estate prices makes it extremely hard for middle or low-income people to secure their own housing. That has made a growing number of people who can't afford to buy homes regard themselves as economic "losers."
It is simply intolerable for the government to simply let the gap between haves and have-nots continue to grow---even psychologically---because it signifies social injustice in itself and threatens to destabilize society. The only plausible means to redress the situation is to vitalize business activities. A policy putting more emphasis on economic growth than on distribution should be pursued.

The government should realize that supporting the waning middle class is their foremost task because the decline of the middle class is not merely a sign of economic difficulty, but an indication that society's existence might be in danger.

Still waiting for an American paper or other media source to be that direct and honest about the situation.
And, by the way, do you still think that "globalization" is innocuous, that it's effects on America are isolated, that it's anything but a looming threat to what the developed world has long considered to be a healthy society?

Study expects another 1.1 million foreclosures as adjustable rates rise

2007-03-20T16:59:00.000-07:00

The $2.2 trillion in adjustable mortgage rate loans issued from 2004 through 2006 will lead, according to a study from First American CoreLogic, which analyzes mortgage risk for the financial services industry, to another 1.1 million mortgage foreclosures as the loan rates rise.

And that may be the good news; as noted in another D4D post, an earlier study predicted 1.5 million foreclosures. But it may also be the bad news; this study doesn't find the problem to be limited to the subprime market.

Excerpts from the story on the prediction of 1.1 million foreclosures:

Recent home buyers, many seduced by too-low-to-last teaser loan rates, are finding that all good things must end. For more than a million, they could end in foreclosure, according to a study released Monday.

Americans borrowed $2.2 trillion from 2004 through 2006 in the form of adjustable loans, which start with low monthly payments that reset to higher rates. As those loans reset, 1.11 million people will lose their homes, according the study by First American CoreLogic, a firm that tracks mortgage risk for the financial services industry.

The figure is significantly less than a widely published number from the Center for Responsible Lending.

As prices appreciated rapidly, buyers turned to adjustable-rate loans that made it easier to afford high-priced homes, at least initially. But a slowdown in the housing market means that buyers who took out the loans as the boom was coming to an end made little or no money off their investments. It's those borrowers who are most likely to wind up in default because they won't be able refinance or sell their homes at a profit to cope with higher monthly payments, the report found.

Unlike a lot of other research about mortgage risk that has roiled Wall Street during the past couple of weeks, the First American report didn't find the problems with risky loans to be limited to subprime borrowers, or people with poor or little credit.

The largest group of loans likely to go into default are those that started with extremely low teaser rates regardless of whether borrowers had high or low credit scores, the report finds.

"This isn't just subprime," said Christopher Thornberg, an economist with the consulting firm Beacon Economics in Los Angeles. "This problem is starting to occur in most of the adjustable- rate mortgages. Even for prime borrowers, we're seeing a big spike in delinquencies among adjustable-rate mortgages."

If you think I'm pessimistic about the mortgage crisis....

2007-03-20T16:51:00.000-07:00

I can't hold a candle to Jim Rogers, George Soros's former partner, who now manages commodities funds. According to a Reuters report datelined tomorrow from Moscow:

“You can’t believe how bad it’s going to get before it gets any better,” the prominent U.S. fund manager told Reuters by telephone from New York.

“It’s going to be a disaster for many people who don’t have a clue about what happens when a real estate bubble pops.

“It is going to be a huge mess,” said Rogers, who has put his $15 million belle epoque mansion on Manhattan’s Upper West Side on the market and is planning to move to Asia.
...
Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

“Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it’ll be worse because we haven’t had this kind of speculative buying in U.S. history,” Rogers said.

“When markets turn from bubble to reality, a lot of people get burned.”

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

“When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess,” he said.

“Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

“I’ve sold out of emerging markets except for China,” said Rogers, long a prominent China bull.
...
“This is the end of the liquidity party,” said Rogers. “Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse.”

Your guess is as good as mine whether things will come to that dire an end. But it ain't looking good.

And on it goes...real earnings down

2007-03-16T17:17:00.000-07:00

If life feels like it's getting harder, it is...for most of us. From the current BLS release on real earnings:

REAL EARNINGS IN FEBRUARY 2007
Real average weekly earnings fell by 0.3 percent from January to February after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.4 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset
by a 0.4 percent rise in average hourly earnings.

That mortgage default story is looking a whole lot like a snowball

2007-03-13T17:39:00.000-07:00

The mortgage default story (see here and here for past D4D stories) gets bigger by the hour. The way the stories keep coming, and spreading from one issue to another, looks a lot like the early part of a snowball rolling quickly down a steep hill.

This afternoon's news included the most recent quarterly survey from the Mortgage Bankers Association which shows:

A record number of homeowners entered foreclosure at the end of last year and more are making late mortgage payments, especially those with high-risk, sub-prime and government-financed loans...

...4.95% of average mortgage loans had late payments, compared to 4.67% the previous quarter and 4.7% a year before. It was the worst showing since spring 2003.

The fraction of mortgages entering foreclosure during the fourth quarter of 2006 climbed to 0.54%, the highest since the association started reporting in 1972. The previous high of 0.50% occurred in the second quarter of 2002 as the country was recovering from a recession....
...Late payments for FHA loans reached a historical high of 13.46% during the fourth quarter last year, up from 12.8% the previous quarter and 13.18% a year before.

And things continue to unravel in the "sub prime" market. In one report:

A board member at battered subprime lender New Century Financial Corp. (NEWC.PK: Quote, Profile , Research) last month sold $2.75 million worth of stock amid a 36 percent plunge in the company's share price, U.S. regulatory filings show.

The director, Michael Sachs, said he was not aware the shares were being sold until after the Feb. 8 transaction was completed, according to a filing with the Securities and Exchange Commission. Since then, lenders have stopped providing funding to New Century, pushing the company toward bankruptcy.

The Feb. 8 sale of 140,000 New Century shares on Sachs' behalf happened on the day after the subprime lender said it found accounting problems and would restate financial results....
The New York Stock Exchange on Monday suspended trading in New Century shares.

Another mortgage lender also publicly announced its troubles, . Accredited Home Lenders, "once considered by analysts as one of the strongest of the sub-prime lenders," now needs to raise serious cash to satisfy

its Wall Street partners [who] have required it to supply $190 million in new capital this year in return for continuing to provide funds for it to lend.

Accredited said it no longer meets the net income requirement its lenders have demanded and can offer no assurance that they will continue to support it. The firm has been struggling to digest its purchase last year of Los Angeles-based sub-prime lender Aames Investment Corp. and has said it may need to record some unexpected expenses as a result of that deal.

Yesterday, Bloomberg reported that:

Mortgage defaults may climb to $225 billion over the next two years compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc.

Another Bloomberg report offered up the troubling possibility that:

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.
...
Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year.
...
New Century Financial Corp., the second-largest subprime lender, said today it ran out of cash to pay back creditors who are demanding their money now. The Irvine, California-based company has lost 90 percent of its market value this year and stopped making new subprime loans, prompting speculation it will seek bankruptcy protection. New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive.
...
Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year.
...
Job Cuts

By the end of this year, job cuts at companies including Benton Harbor, Michigan-based Whirlpool Corp., Masco Corp. of Taylor, Michigan, and St. Louis-based Emerson Electric Co. may exceed the fallout from the 1991 housing slump, said Paul Puryear, managing director at St. Petersburg, Florida-based Raymond James & Associates. The Bureau of Labor Statistics doesn't give data for housing-related job losses.
...
Fraud `Pervasive and Growing'

The Federal Bureau of Investigation says mortgage fraud is "pervasive and growing" and the incidence of such fraud has almost doubled in the past three years.

Last in this parade of actual and potential miseries, three days ago the NY Times reported in a large headline that "Troubles Hit Real Estate at High End." The NYT story includes the info that:

Until now, deep-pocketed Wall Street tycoons and foreign investors benefiting from a weak dollar seemed to be holding up the luxury real estate market even as the low-end fractured. But there are signs that some high-end real estate developers are also being hit by the slowdown.

How's that for bad, worse, and worst news?

Bureau of Labor Statistics Feb. report on jobs & unemployment--what it says and what it ignores

2007-03-10T16:09:00.000-08:00

The Bureau of Labor Statistics (BLS) is the agency that issues the monthly reports on jobs, employment & unemployment, wages, and a host of other information on our collective economic health.

In keeping with the cheerleader mentality that views public confidence as more important than the reality on which the confidence is based, the BLS issued its report on February employment, and mainstream publications like the NY Times published stories based on various pieces of that report.

From the report itself (reformatted):

Month to month change for Jan '07 to Feb '07 for:

Civilian Labor force...............-190,000

Employment..........................-38,000

Unemployment.......................-152,000

Not in labor force.................+374,000

So almost 400,000 additional people moved to the category of not in the labor force, while almost 200,000 left the category of in the Civilian Labor Force. Those two numbers alone would indicate that the reported "drop" in unemployment % (from 4.6 to 4.6) is likely to be misleading. Unemployment % is calculated as number of unemployed divided by number in the labor force. Absent the 374,000 who left the labor force, the denominator of the unemployment % calculation would have been larger.

Is it large enough to account for the entire .1% drop in unemployment rate? I'm not sure, but I do know how to use a calculator to see how these civilian labor force changes change some things.

In Feb, there were 6,685,000 unemployed, from a civilian labor force of 153,784,000, or 4.347%

Add back in the 374,000 who left the labor force, and would presumably be unemployed (add the 374,000 to both the number of unemployed and the civilian labor force) and the numbers are:

7,059,000 unemployed out of 154,158,000, or 4.579%.

4.579 minus 4.347 is a reduction of .232%.

Another way of looking at this is that the January figure of not in the labor force of 77,676,000 increased by .481% to get to the Feb total of 78,050,000. That's an increase of almost half of one percent.

None of this is even mentioned in the analytical text accompanying the tables. Not even mentioned.

Compounding the problem, the NY Times report headline emphasizes three things:

1. More finding work in U.S.

2. Jobless rate off (down).

3. 97,000 added to payrolls

An accompanying chart is captioned "Job Growth Remained Healthy in the United States."

The rather odd reporting continues in the Times, which pairs the U.S. economic story with one on Europe, headlined "Jobs Go Begging in Europe.", This is accompanied by a chart which is captioned "Even in Europe, Skilled Labor is Hard to Find" but the chart of the % of European companies estimating that labor availability is limiting their production does not really show any such increase in labor scarcity. It shows the % of companies reporting labor shortages to be roughly the same as in the beginning of 2000 and the end of 2001. Only when compared to 2002-2005 is there an increase in labor scarcity, a fact explained by the drop in labor scarcity from 2002-2005.

The statement of the BLS Deputy Commissioner, which is issued at the same time as the Feb stats, also contributes to the "good news" spin. It says:

"Payroll employment was up by 97,000 over the month, following gains of 226,000 in December and 146,000 in January, as revised." So we've got a "new jobs" 3-month trend line of 226,000 dropping to 146,000 dropping to 97,000. Yet the NYT says "More finding work" and "Job Growth Remained Healthy."

So, unless I'm really missing something here, could someone from the mainstream business press explain to me exactly where the good news was in this monthly report?

Letting Tax Lawyers Write the Tax Rules is Like....Business as Usual for This Crowd

2007-03-09T17:48:00.000-08:00

I really thought this might be a joke internet story, until I bought today's NY Times and discovered this piece:

I.R.S. Letting Tax Lawyers Write Rules
By DAVID CAY JOHNSTON
The Internal Revenue Service is asking tax lawyers and accountants who create tax shelters and exploit loopholes to take the lead in writing some of its new tax rules.

The pilot project represents a further expansion of the increasingly common federal government practice of asking outsiders to do more of its work, prompting academics and other critics to complain that the government is going too far.

They worry that having private lawyers and accountants draft tax rules could allow them to subtly skew them in favor of their clients.

“It’s not the fox guarding the hen house; it’s the fox designing the hen house,” said Paul C. Light, a professor of political science at New York University, who studies the federal work force.

Donald L. Korb, the I.R.S. general counsel, defended the plan, saying in an interview that he believed that the pilot project was “not changing this process one iota.”

“We are still getting comments; we are still having hearings,” he said, and I.R.S. lawyers will still review any new rules before they are final.

I love the idiotic "I.R.S. lawyers will still review any new rules before they are final." Yes, I'm sure they will make an effort to do that. But they will be reviewing complicated rules, each of which will affect multiple other rules, and they will be at one hell of a disadvantage in finding any potential disasters tucked away in this mass of barely readable stuff.

Which is a far cry from having the IRS guys write the original proposal, giving them a much firmer grip on what the rules intend to do, and letting the tax shelter guys poke around and criticize. And if you don't think that's a hell of a big difference, just wait until the tax lawyers have written a few new rules and see what the consequences are to the wealthier end of the American spectrum (not to mention the consequences to the public treasury).

But what the hell, this is Bushland Uber Alles, and business as usual, all in one. This is no worse than letting Securities firms write SEC rules, or having student loan companies write new student loan rules, or having energy companies write new energy and pollution rules, and so on. Which has been going on some time now.

And look at how well that has gone.

Mortgage and consumer debt totals; the numbers boggle the brain

2007-03-09T17:33:00.000-08:00

Just so you know, here are some figures from the Feb., 2007 Statistical Supplement to the Federal Reserve Bulletin:

1. Total U.S. Mortgage Debt Outstanding (Table 1.54), in millions of dollars

2002-------8,367,310
2003-------9,374,889
2004------10,680,490
2005------12,148,740
2006**----13,033,520
**--Third Quarter

Now remember, those figures are in millions. So the 2006 figure is 13.033 trillion dollars. And the 2006 figure is a full 55.77% higher than the 2002 figure.

2. Total Outstanding Consumer Credit (Table 1.55)

2003-----2,087,784,000,000
2004-----2,202,425,000,000
2005-----2,295,558,000,000
2006**---2,380,924,000,000
**End of October

That's an increase of almost $300 billion from 2003 to Oct. of 2006. And the total in Oct. of 2006, $2.382 trillion, works out to $7,936 for every single one of the U.S.'s estimated 300,000,000 citizens.

Credit card companies squirming before Congress

2007-03-07T17:03:00.000-08:00

Another tangible benefit of Congress being in Democratic hands: the Senate Homeland Security and Governmental Affairs' investigative subcommittee spent part of today making the heads of three huge credit card companies squirm with stories and questions about how they operate.

For some reason, they "operate" in a way that makes most consumers squirm and poor. It's nice to see the tables turned if only for a little, public, while. From an AP story in the Raleigh News & Observer:

Executives of three major banks defended their credit card practices as responsible and responsive to consumers' needs in testimony at the hearing of the Senate Homeland Security and Governmental Affairs' investigative subcommittee. Those from Citigroup Inc. and Chase Bank USA said their companies were eliminating some practices - including the one that hit Wesley Wannemacher of Lima, Ohio, with over-limit fees on his Chase card account 47 times although he went over his credit limit only three times.

The interest charges and fees on Wannemacher's account more than tripled his debt despite his having made payments averaging $1,000 a year over six years, noted Sen. Carl Levin, D-Mich., the subcommittee's chairman.
...
Wannemacher used a new Chase card in 2001 and 2002 to pay for expenses mostly related to his wedding. He had $3,200 in purchases, interest charges of $4,900, 47 over-limit charges totaling $1,500, late fees of $1,100, for total charges of $10,700 as of February. He paid $6,300, leaving a $4,400 balance - which Chase agreed to waive after he contacted the subcommittee staff.

"Debt seems to invoke a feeling of hopelessness unlike any other problem I've encountered," Wannemacher testified at the hearing. "When a debtor calls you on the phone and you make a minimum payment, you know that you've made no real progress and that in a month, they will be calling again."

Sen. Norm Coleman of Minnesota, the panel's senior Republican, said high interest rates on credit cards, "hefty fees and crippling penalties impede more and more hard-working families from pursuing their American dream."

The problem is worsened by the "impenetrable" language of credit card disclosures provided to consumers, he said.

While the credit card practices in question are legal, Levin is threatening possible legislation to outlaw them as a spur to the banking industry for voluntary changes.

Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd, D-Conn., said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted.
...
Citigroup, the nation's largest financial institution, announced last week that it was eliminating the practice of so-called universal default - raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would eliminate some types of interest rate increases that have been criticized.

Isn't it odd how the Republicans, loudly proclaiming their "family values," managed to ignore this credit card insanity, and the Democrats, reviled by conservatives for their lack of family values, are actually trying to make it a little bit easier for families to survive economically?

Guess it's the difference between viewing "family values" as an abstract philosophical and political issue related to maintaining the place of nuclear family units in the social structure of the world, and viewing "family values" as those real world values that help real world families survive in the real world, regardless of their nuclearity (if it ain't a word, it should be).
.

Another heart warming story of jobs going to India

2007-03-07T16:43:00.000-08:00

The official line from the US government and the vast majority of American Business leaders is "outsourcing is good for America." The number of games played to provide evidentiary support for such a notion is truly mind boggling (a subject for another post), but reality keeps raising its ugly little head and whispering "psst, buddy, there go some more jobs."

What's really fascinating is how the business press does back flips to spin a story of jobs going to India rather than the US into a classic feelgood story. Kafka and Orwell could not do a better job of absurdity reported via new speak.

Take this little gem from the Chicago Tribune on how using Indian labor to start a new Information Technology (IT) venture just made the whole startup even more special, spiced up with a few other heartwarming anecdotes about how other white collar jobs, including legal research and basic legal services, are now drifting India-ward (emphasis added):

For starters, firms turn to India
Companies find edge by using full-time outsourced workers

By Ann Meyer
Special to the Tribune
Published March 5, 2007

Entrepreneur Bill Lederer is no stranger to dot-coms, but his latest venture has taken him to a new place--India.

Lederer, the founder of Art.com a decade ago and an investor in several other early dot-coms, is rolling out CompleteLandlord.com and RentSlicer.com, two niche sites that aim to deliver comprehensive listings, legal forms and other information for landlords, property investors and renters. Both are part of Lederer's Socrates Media, financed by Lederer and other local investors.

But this time Lederer is relying on a wholly owned subsidiary in India to keep costs low and service high. The strategy will help make the company profitable sooner, he said.

"If we had gone to do this in only Chicago, it would have cost us considerably more," Lederer said. "We are able to do it faster, cheaper, better."
...
The company's subsidiary in Hyderabad is doing more than IT work. It's involved in accounting, marketing support, editorial, creative services and a customer call center, Lederer said.

"Everything we do in Chicago, they do in India," he said, though strategic decisions and new-product development are concentrated in Chicago.

Lederer started Socrates after acquiring a paper-legal-forms company, Made E-Z, in 2003. He brought it online in 2005 in a brick-to-click model, where landlords' in-store purchases of legal forms were supplemented with services from Socrates.

In December, CompleteLandlord.com launched as a separate Web site. And Lederer is taking a similar approach with RentSlicer.com, which will offer comprehensive listings and information for renters when it is launched next month.
...
Socrates employs 50 workers in India and 15 in Chicago. It started setting up its India team by hiring managers with experience working with American companies, said Bruce Masterson, Socrates' chief operating officer, who formerly ran Reuters North America.
...
CVM Solutions, an Oakbrook Terrace-based provider of supplier diversity data and technology, first outsourced its IT work to a provider in India but later formed a wholly owned subsidiary as its needs grew, said Rajesh Voddiraju, president, technology solutions. Now the company employs 36 people in India, while 46 work in Oakbrook Terrace, he said.

"Having a low-cost arm has helped us grow," he said, noting that the company saves about 70 percent in costs from the India operation.

Legal-services firm Mindcrest, with a headquarters of four in Chicago, wouldn't be in business without a wholly owned subsidiary operating in Mumbai and Pune, India, which employs about 150 Indian workers, most of them lawyers with knowledge of American law, said Ganesh Natarajan, the Chicago attorney who founded the company six years ago with three partners.

Natarajan, who is from Mumbai, saw legal services in India as a natural fit because India is a common-law country and its lawyers are used to researching case law, he said.
...
Mindcrest does not give legal advice but provides basic legal services, such as reviewing documents, drafting contracts and doing research, at savings of 50 percent to 90 percent from U.S. rates, Natarajan said. Most of the firm's clients are law firms, consulting firms and corporations with their own in-house counsel who use Mindcrest to save time and money, he said.

A positive experience using a similar legal services firm, QuisLex, based in New York but with 100 employees in India, gave Socrates the confidence to pursue Indian labor for other aspects of the start-up, Masterson said.

I think we have seen the future, and it doesn't work if you live in America.

And ask yourself, would the trusty old US government bother tracking down these jobs which originated in India, but clearly would have been in the US in decades past, and include them in its very suspect analysis of jobs lost to outsourcing?

I think not. I really, really think not.

Contradictory economic indicators reconciled in the direction of bad

2007-03-06T17:18:00.000-08:00

If you remember back to the beginning of the year, there was a lot of ballyhoo about how fast the GDP grew in the 4th Quarter of 2006. Cheerleaders for the business sector used that great news to pooh-pooh the set of troubling indicators announced around the same time, such as falling housing prices.

Well, a few days ago the conflict in indicators sort of got reconciled, and it looks a lot like the falling housing market was closer to reality than the wildly rising GDP, according to this NY Times story from March 1:

The paradox has been solved: the economy was not bounding. The Commerce Department reported yesterday that economic growth inched ahead by 2.2 percent in the fourth quarter of last year, only slightly faster than the 2 percent growth recorded in the third quarter and substantially below the economy’s long-term trend rate of growth

The downward revision, by 1.3 percentage points, in the preliminary estimate of gross domestic product was almost three times the average adjustment since the early 1980s, which is 0.5 percentage point.

Coupled with a 17 percent decline in new-home sales in January and a 7.8 percent drop last month in orders of durable goods like computers and washing machines, the new data indicated the economy was much weaker than it seemed.

“I think we are going to discover that the economy is softer than the Fed thinks,” said Robert Barbera, chief economist at ITG Hoenig.

Mortgage defaults again (and again, and...)

2007-03-06T16:10:00.000-08:00

The economic fallout from the wave of mortgage defaults continues to settle over the financial markets.

As the AP reported today:

Banks, Sub-Prime Mortgage Firms Hurt After Disclosure Of Probe At New Century
March 6, 2007

By JOE BEL BRUNO, Associated Press NEW YORK -- Mounting concerns on Wall Street that mortgage lenders might be hurt by increasing defaults and delinquencies sent investors fleeing Monday from some of the biggest names in the industry.

The meltdown among lenders that specialize in home loans to people with weak credit, known in the industry as sub-prime lenders, again ravaged stock prices. Financial institutions ranging from Britain's HSBC Holdings PLC to sub-prime leader Countrywide Financial Corp. sank amid reports of strained portfolios as loans went bad.

The latest to rattle the markets was New Century Financial Corp., the nation's second-largest sub-prime lender. The Irvine, Calif.-based company disclosed a criminal probe into the trading of its securities, and into the lender's accounting procedures.

Already beleaguered investors were swift to react. New Century's shares lost 60 percent on Monday - wiping $532 million from its market value. Wall Street, still wobbly after last week's huge plunge, also punished the rest of an industry blamed for loosening lending standards amid an eroding housing market.

In Connecticut, Middletown-based Mortgage Lenders Network filed for bankruptcy protection last month when its sources of funding disappeared.

"We see increasing evidence that this industry is now in a downward spiral whereby each negative development fuels additional deterioration in key fundamentals, including origination volume, pricing, credit, and most importantly, funding," Stifel Nicolaus analyst Christopher Brendler said.

And that ain't all, folks. The sub-prime market re-contracts its obligations to major commercial lending entities, so if the sub-prime market really goes sour, look forward to a domino effect...which appears to have already begun as the story linked above reports:

Concerns about a meltdown at New Century include the possibility it will not be able to meet covenants with major financial backers, the company said. Sub-prime lenders enter into agreements with big banks to finance their operations. These backers require sub-prime lenders to meet minimum financial targets or face breaching loan agreements that would force banks to pull out of the deals.

This dragged down shares of some of the top U.S. banks and investment banks.

Morgan Stanley Inc., which had a 5.5 percent stake in New Century as of Dec. 31, dropped $1.33, or 2 percent, to $72.03. State Street Corp., with a 3.8 percent stake, shed 12 cents, to $64.96. Citigroup Inc., with 3.5 percent stake, traded as low as $49.56 before recovering to post a 27-cent gain, at $50.24.

Other sub-prime lenders also tumbled. Countrywide Financial fell $1.03, or 2.8 percent, to $35.99, and it is down about 14 percent since January. Novastar Financial Inc. shares plunged $2.17, or 30 percent, to $5.07, and are down about 40 percent this year.

Higher U.S. interest rates and a stagnant housing market began to take their toll on borrowers who had been relying on the rising value of real estate markets to help them refinance mortgages.

Last year, 13.5 percent of mortgages originated in the U.S. were sub-prime, according to the Mortgage Bankers Association. This is up from 2.6 percent in 2000. The subprime market accounted for about 20 percent, or $600 billion, of the $3 trillion mortgage market.

The stock market drop last week may or may not turn out to be the beginning of a huge slide--it's hard to tell in an arena that is so cyclical and in which so many factors can produce a given downturn. But the mortgage default phenomenon and its consequences, that's pretty much sure to be a problem. With a capital P.

Those great business ethics on display again

2007-03-04T17:38:00.000-08:00

Wall Street Journal and CNBC types love to pretend that private sector ethics are far better than government ethics. If you've been alive and conscious over the last decade, you know that isn't true (they're equally corrupt, and generally run by the same kinds of folks).

Two more examples just hit the fan:

1. Huge insider trading ring broken up:

It started in 2001 with two old friends meeting at the Oyster Bar in the basement of Grand Central Terminal in Manhattan, discussing a $25,000 debt.

It ended yesterday with federal authorities saying that they had exposed one of the most far-reaching insider trading schemes on Wall Street in decades, involving four investment banks and a web of hedge funds, day traders, lawyers and even a few supervisors, who upon discovering evidence of insider trading, blackmailed the traders to keep quiet about it.

Thirteen people were accused yesterday of taking part in the trading ring, including a former Morgan Stanley compliance official, a senior UBS research executive, three employees from Bear Stearns and a Bank of America employee.

Linda C. Thomsen, chief of enforcement at the Securities and Exchange Commission, described the scheme as one of the most “pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine.”

Nine of the defendants have been arrested, and four have pleaded guilty to charges ranging from securities fraud, conspiracy to commit securities fraud and bribery. The investigation, conducted by the S.E.C., the Federal Bureau of Investigation, and the office of the United States attorney in Manhattan, has been under way for more than a year and is continuing.

The schemes described by federal authorities were unusual for their breadth and the seniority of the executives involved.

The tactics, however, were all too familiar: Wall Street executives tipping hedge fund traders about potential upgrades or downgrades of stocks, information sure to move a stock’s price; leaking information about pending mergers and acquisitions, and taking kickbacks to get access to hot deals. In the middle, authorities say, was a hedge fund manager looking for an edge.

2. Largest subprime mortgage lender under fed investigation:

Federal prosecutors and securities regulators are investigating stock sales and accounting errors at the New Century Financial Corporation, the biggest mortgage company that specializes in lending to people with weak, or subprime, credit, the company disclosed in a corporate filing yesterday.

The company also warned that a delay in filing its financials may put vital financing into jeopardy.

The troubles at New Century are the latest sign of the deterioration in subprime lending — until recently the fastest-growing segment of the mortgage business. The market has been struggling to contain the fallout from rising default rates and weakening home prices. Late last year, some smaller lenders started going out of business and last month several bigger companies, including New Century, started reporting problems.

Another large lender, the Fremont General Corporation, said yesterday that it planned to sell its subprime mortgage business after reaching an agreement with the Federal Deposit Insurance Corporation to restrict its activities in that area. As part of the agreement, Fremont will be able to continue taking deposits.

The investigations into New Century, which is based in Irvine, Calif., and wrote $33.9 billion in mortgages last year, started after the company said on Feb. 7 that it would restate earnings for three quarters, which sparked a huge sell-off in its shares. Yesterday, it said its problems had prevented it from filing its annual report, which was to be released Thursday. The board is conducting an investigation of the accounting problems.

Neither one rises to the level of Enron or Global Crossing fraud, but, come on, business ethics in America in the 21st century? An absolute oxymoron.

Classless society indeed

2007-03-03T18:09:00.000-08:00

Remember how America was always portrayed as a classless society? How proud we were that we didn't stratify ourselves by class the way those silly Europeans did?

Well, how does that old concept fit with this, from the Federal Reserve Bank of St. Louis?

Residential neighborhoods throughout the nation's metropolitan areas have become increasingly divided into high-
and low-unemployment sections, and an analysis by an economist with the Federal Reserve Bank of St. Louis suggests that people may be "sorting" themselves by both income and education.
The analysis was conducted by Christopher H. Wheeler, writing in the March/April issue of Review, the Reserve Bank's bimonthly journal of economic and business issues.
...
The rate of unemployment is one of the most basic indicators used to gauge the economy's health. As the economy fluctuates between periods of expansion and recession, corresponding changes in the rate of unemployment are observed.
Between 1980 and 2000, the aggregate national unemployment rate fell from 6.3 percent to 3.9 percent, suggesting that workers in the United States faced better unemployment prospects in 2000 than in 1980.
"Yet, underlying these figures," said Wheeler, "is a trend that is not widely known: Unemployed workers became increasingly concentrated in certain neighborhoods within the nation's metropolitan areas. That is, neighborhoods in the United States became increasingly polarized into two groups: those with high rates of unemployment and those with low rates."

Tell me that this doesn't sound like a damn good beginning toward the stratification of America by class.

Mortgage defaults: "don't worry, be happy" doesn't go very deep

2007-03-03T18:03:00.000-08:00

A few weeks ago, the news briefly touched on the rising rate of mortgage defaults in the U.S. (roughly one of every 92 households in America during 2206). Since then, the official government experts and economic gurus have been busy pooh-poohing the significance of this phenomenon--the usual "don't worry, be happy." But if you keep following the story and the comments by these guys when they speak away from the general public eye, you start to see that the pooh-poohing is mostly for consumption by the masses. In front of an audience of other experts you get:

1. This, from a story about a Ben Bernanke speech before the Stanford Institute for Economic Policy Research:

In response to a question after the speech, Bernanke reiterated that the central bank sees no ``spillover'' from rising delinquencies in subprime mortgages. ``We're obviously going to watch it very carefully,'' he added.

2. This, from the Chicago Tribune:

Home loan rules studied

Stricter guidelines may cut default rate

...

As more Americans default on home loans, federal regulators and members of Congress are looking to place new restrictions on mortgages for people with shaky credit, a move that could make it harder for many people to buy homes or refinance their mortgages.

Government officials on Friday issued for public comment proposals to address problems that have rattled the mortgage-lending industry and left growing numbers of people in homes they cannot afford.

These measures call on lenders to exercise caution in making such loans and to closely evaluate borrowers' ability to repay them. Other proposals include requiring that such loans be granted only to those who have the ability to make payments for the entire mortgage, rather than just an initial period with a "teaser" rate that later shoots up, typically adding hundreds of dollars to the monthly payment.

Another proposal would ensure that consumers receive enhanced disclosures about their loans, so that fees and rate hikes do not catch them by surprise.

--------------------

Tell me again why the default rate isn't a problem---but the Fed is going to keep a damn close eye on the rate and its consequences, and the federal government itself is getting involved to see what it can do to calm the default rate down. Nothing like a good fairy tale to get you to sleep so the parade of nightmares can begin.

Now that's a robust economy (isn't it?)

2007-03-01T12:56:00.000-08:00

While the media tend to publish the government's own "good news" statistics on the economy without any critical analysis at all, and to reprint verbatim the press releases of the various government officials assigned to the task of keeping Americans' eyes averted from the deteriorating economic structure around them, every once in a while we get a bit of underreported honesty. This is from Investment News:

One in 10 Americans fear losing their job

February 26, 2007
About 10% of Americans responding to a recent public-opinion study feared losing their job in the next year, though most said that they were keeping up financially, according to a report released Friday by the American Enterprise Institute for Public Policy Research in Washington.
But only about half said they thought they had enough money to live comfortably when they retired, according to the report, which was compiled from a variety of public-opinion polls done over the past year.

Health care is the issue Americans are most anxious about, the report found. The report found that 54% of respondents said they were worried that they wouldn’t be able to pay their medical costs if they had a serious illness.

In addition, 20% of people cited in one of the studies said they’d had problems paying medical bills in the previous 12 months.

Since it seems to be mandatory to try to spin all economic news, let me try this:

If you worry that you wouldn't be able to pay your medical bills if you had a serious illness, Good News! You're now part of a solid American mainstream majority. Here's to your health, you're going to need it.

Foreclosures in Massachusetts skyrocket

2007-02-27T18:13:00.001-08:00

No comment required on this Boston Globe story:

Tuesday, February 27, 2007
Mass. foreclosure filings smash record
January had the highest number of monthly Massachusetts foreclosure filings in at least two decades as local consumers struggled to hang onto their homes, according to a new report.

Last month, 2,207 foreclosure filings - or 110 every business day - were submitted in Massachusetts, more than double the number of a year ago; filings in January 2007 were up 105 percent from 1,076 filings in January 2006, according to ForeclosuresMass.com, a Framingham firm that provides online Massachusetts foreclosure data to investors, real estate agents, and lenders.

"The flood of foreclosures in Massachusetts is not only continuing; it has reached a new high," company president Jeremy Shapiro said in a statement. "The fact we are starting the year with the highest number of foreclosures we've ever recorded for a single month is more than significant - it's ominous."

Using both its own sources and court data, ForeclosuresMass.com has detailed information on foreclosure filings going back to 1986, a company spokesman said; no month since 1986 has had more filings than January 2007.

Over the past 12 months, 20,618 foreclosures were initiated, up 77 percent from 11,650, for the comparable 12-month period a year ago, the firm said.

A foreclosure filing doesn't necessarily mean that borrowers lose their homes.

Lenders file a notice of intent to foreclose in Land Court when borrowers are at least 30 days behind on a mortgage payment.

In many cases, borrowers can negotiate with the lender to catch up on payments or sell the house to pay off the loan; generally, two-thirds of consumers who receive notices are never actually foreclosed upon.

Earlier this month, ForeclosuresMass.com released year-end statistics for 2006 that showed that more local homeowners were in danger of losing their homes than at any time since the real estate recession of the 1990s.
(By Chris Reidy, Globe staff)

At last, true growth in America: severe poverty

2007-02-27T18:06:00.000-08:00

The American Enterprise Institute, The Heritage Foundation, the Hoover Institution, and John Stossel all notwithstanding, it appears that maybe poverty in America just might be a (severe) problem after all. The McClatchey Newspapers report that:

The percentage of poor Americans who are living in severe poverty has reached a 32-year high, millions of working Americans are falling closer to the poverty line and the gulf between the nation's "haves" and "have-nots" continues to widen.

A McClatchy Newspapers analysis of 2005 census figures, the latest available, found that nearly 16 million Americans are living in deep or severe poverty. A family of four with two children and an annual income of less than $9,903 - half the federal poverty line - was considered severely poor in 2005. So were individuals who made less than $5,080 a year.

The McClatchy analysis found that the number of severely poor Americans grew by 26 percent from 2000 to 2005. That's 56 percent faster than the overall poverty population grew in the same period. McClatchy's review also found statistically significant increases in the percentage of the population in severe poverty in 65 of 215 large U.S. counties, and similar increases in 28 states. The review also suggested that the rise in severely poor residents isn't confined to large urban counties but extends to suburban and rural areas.

The plight of the severely poor is a distressing sidebar to an unusual economic expansion. Worker productivity has increased dramatically since the brief recession of 2001, but wages and job growth have lagged behind. At the same time, the share of national income going to corporate profits has dwarfed the amount going to wages and salaries. That helps explain why the median household income of working-age families, adjusted for inflation, has fallen for five straight years.

These and other factors have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate since at least 1975.

The share of poor Americans in deep poverty has climbed slowly but steadily over the last three decades. But since 2000, the number of severely poor has grown "more than any other segment of the population," according to a recent study in the American Journal of Preventive Medicine.

Okay, time for the right wing thinkers to spend another $100 million trying to spin this report away. I'm beginning to think that the money spend to distort the state of economic decay in the US may be the last thing keeping the whole damn structure from collapsing.

Ignoring our way into third world status

2007-02-25T18:00:00.000-08:00

If you were ever tempted to believe the globalization propagandists that globalization (1) creates more jobs than it takes away from the U.S., and/or (2) doesn't really affect that many jobs, check out this, from PAUL CRAIG ROBERTS:

American employees have been abandoned by American corporations and by their representatives in Congress. America remains a land of opportunity ? but for foreigners ? not for the native born. A country whose work force is concentrated in domestic nontradable services has no need for scientists and engineers and no need for universities. Even the projected jobs in nursing and school teaching can be filled by foreigners on H-1B visas.

...
The myth has been firmly established here that the jobs the U.S. is outsourcing offshore are being replaced with better jobs. There is no sign of these jobs in the payroll jobs data or in the occupational employment statistics. When a country loses entry-level jobs, it has no one to promote to senior level jobs. When manufacturing leaves, so does engineering, design, research and development, and innovation itself.

Matthew J. Slaughter, a Dartmouth economics professor rewarded for his service to offshoring with appointment to President Bush's Council of Economic Advisers, suffered no harm to his reputation when he wrote, "For every one job that U.S. multinationals created abroad in their foreign affiliates, they created nearly two U.S. jobs in their parent operations." In other words, Slaughter claims that offshoring is creating more American jobs than foreign ones.

How did Slaughter arrive at this conclusion? Not by consulting the BLS payroll jobs data or the BLS Occupational Employment Statistics. Instead, Slaughter measured the growth of U.S. multinational employment and failed to take into account the two reasons for the increase in multinational employment: (1) Multinationals acquired many existing smaller firms, thus raising multinational employment but not overall employment, and (2) many U.S. firms established foreign operations for the first time and thereby became multinationals, thus adding their existing employment to Slaughter's number for multinational employment.

ABC News' John Stossel, a libertarian hero, recently made a similar error. In debunking Lou Dobbs' concern with U.S. jobs lost to offshore outsourcing, Stossel invoked the California-based company, Collabnet. He quotes the CEO's claim that outsourcing saves his company money and lets him hire more Americans. Turning to Collabnet's webpage, it is very instructive to see the employment opportunities that the company posts for the United States and for India.

In India, Collabnet has openings (at time of writing) for eight engineers, a sales engineer, a technical writer, and a telemarketing representative. In the U.S. Collabnet has openings for one engineer, a receptionist/office assistant, and positions in marketing, sales, services and operations. Collabnet is a perfect example of what Lou Dobbs and I report: the engineering and design jobs move abroad, and Americans are employed to sell and market the foreign-made products.

Other forms of deception are widely practiced. For example, Matthew Spiegleman, a Conference Board economist, claims that manufacturing jobs are only slightly higher paid than domestic service jobs, so there is no meaningful loss in income to Americans from offshoring. He reaches this conclusion by comparing only hourly pay and leaving out the longer manufacturing workweek and the associated benefits, such as health care and pensions.

Occasionally, however, real information escapes the spin machine. In February 2006 the National Association of Manufacturers, one of offshoring's greatest boosters, released a report, "U.S. Manufacturing Innovation at Risk," by economists Joel Popkin and Kathryn Kobe.16 The economists find that U.S. industry's investment in research and development is not languishing after all. It just appears to be languishing, because it is rapidly being shifted overseas: "Funds provided for foreign-performed R&D have grown by almost 73 per cent between 1999 and 2003, with a 36 per cent increase in the number of firms funding foreign R&D."

U.S. industry is still investing in R&D after all; it is just not hiring Americans to do the research and development. U.S. manufacturers still make things, only less and less in America with American labor. U.S. manufacturers still hire engineers, only they are foreign ones, not American ones.

Danger: Evangelical Economist at Work

2007-02-21T16:33:00.000-08:00

You may have noticed that there is a connection between evangelical Christian beliefs and the belief that all people should be left to the mercy of the "market" rather than aided by government intervention. This phenomenon goes back at least to the Congressional debate over whether to enact the Social Security Act, when good, god-fearing men who ran the industries and financial centers of the day sat before Congress and warned in deep, somber voices that the program would destroy the moral fiber of the nation (poverty wouldn't affect morals, mind you, but government efforts to reduce poverty would). British evangelicals played a part in creating the horrible workhouses of 19th century England, and, from what I understand, in preventing the British government from alleviating the consequences of the Irish potato famine.

Now why do you suppose that is?

Before getting into that, here's an example of what I'm talking about. James Sherk is an economist with the Heritage Foundation. James Sherk is also the lead economics editor for a group called evangelsociety.org.

Mr. Sherk writes stuff like this for Heritage:

Who Earns the Minimum Wage? Suburban Teenagers, Not Single Parents

Union Members, Not Minimum-Wage Earners, Benefit When the Minimum Wage Rises

As I said, Mr. Sherk is also on board at evangelsociety, which describes itself thus:

Evangel Society Mission Statement

Established 2002

In order to love the Lord our God with all of our minds, The Evangel Society of Thought exists for the purpose of examining the world around us. From the foundation of a Christian worldview and a passion for the Good News, the Evangel, we will explore issues ranging from politics and economics to religion and popular culture.

The Evangel Society believes that

We are able to go up and take the country,
To possess the land from Jordan to the Sea.
'Though the giants may be there, our way to hinder,
Our God has given us the victory.
~ Paraphrase of Numbers 14

We will take every thought captive to Christ. Our vision is that the Lord will use us to equip believers with reasoned analysis of the critical issues of the day. There are "giants in the land," ideas and institutions that stand opposed to the Gospel of Christ, but we are confident that the Bible, as the inspired word of God, shall prevail over all of its challengers. We will contend for its primacy in the arena of ideas.

Now it seemed off to me, when I first thought about it, that people dedicated to a Christian life would also be so dedicated to combating government attempts to alleviate poverty and other human misery. But then, so many people who are passionate about their Christianity, who mold every moment of their lives to that belief, are, well, harsh. Really, really harsh. Unforgiving of what they perceive to be the sins of others.

So here's what I came up with on why evangelical Christians are so often aligned with the conservative business community when it comes to employment, wages, and worker rights:

1. They equate economic success with God's love; hence the poor are viewed as less loved by God than are the rich.

2. Their focus is ultimately on the afterlife, rather than the corporeal life on earth, and have a strong belief that human suffering is part of God's plan to reward the worthy after they are dead.

3. They are indoctrinated with the idea that life is a battle between good and evil, and that sloth and sexual sinning are evil, and see the poor as likely to commit the sins of both sloth and sexuality.

4. They are indoctrinated with the idea that obedience to government is itself a dangerous, perhaps sinful thing in itself, since all obedience should be to God and/or Jesus.

So am I right on this? Who knows. I do know that there have been far too many times that I read some analysis of economic issues that struck me as patently askew, to a degree that makes me suspect deliberate fraud, only to discover that the author is a devout Christian of the evangelical stripe.

What we need is a standard warning for these tracts on the evils of government intervention to protect the people. Maybe a nice bright white sign, with graphics of flames licking at the edges, with the following in large, fancy, gold letters:

Danger: Evangelical Economist at Work

You are what you buy?

2007-02-20T17:30:00.000-08:00

Check out this summary of a 1-28-07 World Economic Forum discussion panel titled "Brands: Today's Gods?" (emphasis added).

Reno Sami, Manager, School Uniform Project, Plusminus Basel, Switzerland, observed that consumers often spend too much money on branded goods: according to surveys, he said, "70% of consumers said they would become indebted in order to follow fashion". The big brands, he stated, make false promises and behave irresponsibly.

Sir Martin Sorrell, Group Chief Executive, WPP, United Kingdom, disagreed, arguing that the choice of a brand is up to consumers and is an expression not only of what they like, but of who they are. "It isn’t just copying fashion," he said, "it is an emotional experience to choose a brand. I have no problem with that." However, Sorrell agreed that corporations should be careful not to seek to indebt consumers in order to increase sales. "The responsible companies should not do that," he said. "And the trend is for companies to take corporate social responsibility increasingly seriously. You can’t find a CEO today who would say that the environment isn’t his concern or that corruption isn’t important."

On a deeper level, Sorrell commented that with the evolution of information technologies, consumers are enjoying rapidly growing power regarding the choices they make. "There are blogs, citizen newspapers and even homemade films," he explained. "They go over the Internet and consumers react to them – immediately." It would be a great mistake to underestimate the critical intelligence of consumers, he observed. Their choices, based on such information, will vastly enhance the efficiency and the effectiveness of the free market – "one of the most powerful mechanisms created". Corporations, he remarked, are taking notice. "This is a really great thing," he concluded.

Sami argued that consumers need to be educated about their credit habits, which the public sector has rarely proven capable of doing. He said that some regulation might be required to protect certain consumers from false-advertising claims. This is particularly true for children and adolescents, who are less informed and more vulnerable to peer pressure.

Sorrell again disagreed, stating that consumers have to exercise their choice, which is their personal and social responsibility. "It should begin in the home," he said. Kathleen Ix, Student at the International School of Geneva, stated that as a student she does not feel compelled to buy brands. "My parents brought me up to think about how I spend money," she said, "so I am very conscious about what I think is a good purchase." Her experience delighted Sorrell, who said that Ix’s family is a great example of informed consumers exercising their power.

The debate concluded with a description by Sami of the experimental programme he ran to get students to accept school uniforms. The students considered uniforms created by four young designers. Once they picked the prototype, they helped to design the final choice. "For the programme to work," Sami explained, "the students have to engage in a real debate on what a brand is, but also on their identity and what it means to them."

Don't know about you, but I don't give a Reebok's damn about brands. Wouldn't let that affect my personal ego-buying decision for all the MP3s in the universe.

John Kenneth Galbraith knew the truth about conservatives

2007-02-20T16:58:00.000-08:00

A quote attributed to John Kenneth Galbraith, who passed away last April, on the motivation of modern conservatives:

The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for superior moral justification for selfishness.

Really couldn't be truer. They don't want to do away with taxes on the rich because the rich are greedy; perish the thought! They want to do away with those taxes because in some insane, convoluted manner, doing away with those taxes is necessary to help the poor.

Every time you hear a conservative say something that sounds ridiculous on its face--like "the best way to help the poor is to give more money to the rich"--think about Galbraith and that quote.

Blue Shield of California's unique way of "managing" claims

2007-02-19T18:00:00.000-08:00

What's a poor insurance company to do when one of it's policyholders has the audacity to file a claim? Well, they certainly don't want to encourage that kind of behavior, so....

A new lawsuit accuses Blue Shield of California of looking for reasons to cancel the policies of people who file claims:

...the lawsuit, filed on Thursday, is "unusual" because "it seeks to force Blue Shield to stop the practice, rather than demand compensation for a policyholder who lost coverage." The lawsuit might "have a wide effect if it succeeds because Blue Shield alone has acknowledged canceling about 300 policies in the last two years," and the "outcome also could influence other insurers that collectively have revoked thousands of policies in recent years," the [Los Angeles] Times reports.

How do the insurers do it? Simple....if they can find a misstatement, or an omission of fact, anywhere in your application for the policy, they claim the right to rescind the contract for fraud in the inception. Now most people applying for a policy, or anything else that has an application as long as the ones for insurance, involving questions about health and lifestyle going back to your damn birth, are likely to make some mistakes. So the insurers can, in effect, cancel your policy any time they want, at least if the law allows cancellation for all omissions and errors. They can just collect your premiums as long as they find that profitable, then spring the old fraud claim anytime you become unprofitable, undesirable, etc.

So the lawsuit is likely to center on whether the law allows these bastions of free marketeerism to cancel for any mistake or omission, even unintentional ones.

California's insurance Commissioner appears to have taken the side of policyholders on this one. According to one report, state Insurance Commissioner Steve Poizner said:

I am very concerned about the practice of post-claims underwriting...The law does not permit a health insurer to agree to provide coverage and then wait until a claim comes in to decide whether to pay for the medical care a policyholder needs. Specifically, I am concerned about insurers rescinding coverage for small, inadvertent and innocent omissions on applications for coverage.

You and all the rest of us "lucky" enough to be insured, Mr. Poizner.

And yes, I am involved in attempting to get coverage of a medical claim as I write. Or at least to get a comprehensible explanation of what the coverage is, or why there is none. The last time I went through this, I spent about 8 hours dealing with Blue Cross (God knows how long Blue Cross spent) getting a $28 reimbursement for two trusses while I waited for hernia surgery.

And just think, this is the kind of "free market solution" the Republicans keep pushing for the health care crisis in America.

Corproate stock option scandals may bear legal fruit

2007-02-18T17:22:00.000-08:00

The corporate stock option scandal continues to grow. Hundreds of companies have been accused of issuing stock options to execs and backdating them to a time when the stock price was lower than it is at the time they actually were issued. Automatically, the options are valuable--the execs can't lose.

And there's another form of option fraud brewing on the back burner for the moment: "spring loading" options," which means deliberately issuing the options to the execs a day or two before the company announces some real good news that makes the stock price go up. Again, the execs can't lose.

But there was a very important legal ruling made in a Delaware Chancery Court recently, that may signal the start of a real legal remedy for stockholders of the companies that played these games.

DIRECTORS of US companies involved in the options backdating scandal could be vulnerable to lawsuits and damages claims from disgruntled shareholders following two decisions by an influential Delaware court.

The recent rulings by the Chancery Court of Delaware, the state where most US companies are registered, are likely to make it easier for investors to press forward with cases alleging that directors' approval of backdated stock options breached their fiduciary duty towards shareholders.

The options scandal already has engulfed 200 companies and several executives, including former Monster Worldwide general counsel Myron Olesnyckyj, who pleaded guilty to securities fraud and conspiracy in federal court in New York on Thursday.

In a Delaware case involving Californian chip maker Maxim Integrated Products, Judge William Chandler ruled that former chairman and chief executive John Gifford and six past directors must face a "derivative lawsuit" filed by shareholders.
...
In a separate case, against Tyson Foods, the court raised the possibility that directors who received "spring-loaded" grants - options awarded just before positive news announcements - could face damages claims.

Judge Chandler's decision to allow the Maxim derivative lawsuit to go forward puts additional pressure on directors at other companies where options backdating occurred.

The best news is that the Chancellor indicated that "spring loading" is also illegal. Up to now, the SEC has shown absolutely no desire to even investigate spring loading, and, according to Floyd Norris in a piece for the NY Times titled Option Lies May Be Costly For Directors on Feb. 16, one SEC commissioner has "suggested" that spring loading is "just fine with him."

What really burns my butt here is that "cut labor costs" has long been a mantra in business, on Wall Street, and in Business schools across the country. CEO careers have been made on reducing a company's work force to a fraction of what it used to be.

But the last I looked, corporate executive salaries were also a form of labor costs, even though they get hidden from view by burying them in overhead, rather than assigning them to a direct cost of producing the company's product. So cut--cut--cut when it's the people who actually produce something, but fraud--fraud--fraud to reward the people who....do the cut--cut--cutting.

Slime. Absolute slime. And kudos to Chancellor Chandler for his wisdom and courage in making the ruling that has undoubtedly scared the bejesus out of thousands of CEOs and Directors.

The "Blame the Unions" con

2007-02-18T17:08:00.000-08:00

I've now had at least ten members of the public tell me that the reason that blue collar jobs got shipped overseas is that the unions created outrageous wage and benefit structures. "If only the unions hadn't gotten greedy," these gullible folks insist, "the jobs would still be here."

This is always followed by some variation on this line of thought: "Why should the companies pay union members $17 an hour, when they can get the same work done for less overseas?"

I guess that makes superficial sense if you don't know any details about the wages being paid in the countries to which these jobs were shipped. But if you actually think, rather than parroting what Rush Limppaw, or Shill O'Reilly, or Sean Vannity say...

The illogic of this theory can be demonstrated by asking a simply and very obvious question: If union wages caused jobs to be shipped overseas to cheaper labor, how low would wages have to be in the U.S. to convince employers to keep the jobs here?

The people who spout this theory to me seem to assume that if only the unions would have accepted a "more reasonable" wage like $10 an hour, the jobs would still be here. Which is, of course, nonsense.

If the overseas labor cost is $.50 an hour, it wouldn't take a genius employer long to realize that this is only 1/20 of a $10 per hour rate here. Even if you lowered wages to $5 per hour here, that would still be ten times higher than they would have to pay overseas.

The whole theory is crap. If employers can get their labor overseas for $.50 an hour, American workers would have to accept something very close to that...say $.75 per hour...to prevent the jobs from fleeing overseas.

And I wonder how many of my misinformed friends have tried living in the U.S. on $.75 per hour. Let's see, $.75 per hour, times 40 hours, equals $30 per week. Yeah, that could work if you walked everywhere, went naked, lived in a cardboard box on public land, never, ever got sick.....

What the hell does "dollars4dullards" mean?

2007-02-16T16:37:00.000-08:00

dollars4dullards refers to a couple of things:

(1) there is a large segment of American society that views the pursuit of money as the only activity worth pursuing. I guarantee yo that this does, indeed, make for dullards.

(2) the affluent, powerful people in America have now organized themselves, and funded themselves, into a tremendous number of "think tanks" and other organizations all geared to persuading the rest of us to become dullards in the pursuit of dollars.

In fact, one of the most ironic facts in modern America is that wealthy conservatives now spend millions upon millions of dollars to fund "thinkers" who twist facts and language in order to produce "analysis" proving, for example, that people really aren't poor in America.

Really, they spend multiple millions, annually, to produce political and social cover for policies that increase and entrench poverty! Check out some of the crazier papers from the Heritage Foundation and the Hoover Institution.

Who are these less-than-honorable tanks of thought? These are the major ones that propagandize on economics, poverty, employment, etc., all described in detail on the People for the American Way site:

American Enterprise Institute

Americans for Tax Reform

Cato Institute

Club for Growth

Federalist Society for Law and Public Policy Studies

Free Congress Research and Education Foundation

Heritage Foundation

Hoover Institution on War, Revolution, and Peace

Leadership Institute

National Center for Policy Analysis

National Taxpayers Union

There are also hundreds, literally hundreds of smaller think tanks that do similar things. Add in the fact that such entrenched groups as the Chamber of Commerce and various "Clubs" serve the same purpose, and it's pretty clear that America is, by an large, subjected to pro-business, pro-capitalism, pro-free market/free trade propaganda to an amazing degree. And the American brand of these philosophies requires that we minimize, or outright deny, the adverse consequences that the policies have on individual citizens. No legitimacy to government for us, no way a tax can serve a useful purpose, no way that a "social" program could be anything but a miserable, preordained failure which uses funds stolen from the rich.

And what do we have in opposition? Not much. A stray centrist or leftist think tank, a few economists with consciences, a few commentators whose vision has survived the propaganda blitz. Reaganism has indeed triumphed so far.

dollars4dullards would like to play some small role in explaining/exposing the economic propaganda. It would really like to. But that's a serious sea of shit we're fighting folks, a serious, serious sea of shit.

And we/I can use all the help we/I can get. So feel free to join in, either on d4d, or in the larger fight. Drop a comment when the spirit moves you, start your own site, write to the local paper, leave a comment on the web site for one of our esteemed mainstream media outlets....do something.

After all, a thought is a horrible thing to waste on a tank, especially when the tank is in the tank for the status quo, and the status being quo'd is what you now see when you look around at America.

Jobless claims rise...because of bad weather?

2007-02-15T17:53:00.000-08:00

The indisputable fact: last week, jobless claims rose by 44,000 to a seasonally-adjusted 357,000

A very disputed claim: why this happened.

A Labor Department official explained that "Much of that rise came from winter storms in the Midwest and Northeast that put more workers in unemployment lines."

That sort of makes inherent sense, given that some parts of the country have seen just ridiculous amounts of snow, and other parts have seen tornadoes and such. But...the number is already seasonally adjusted. And, even more importantly, another version of the same news story explicitly states that:

The largest increases in new claims last week were in Virginia, Michigan, and Kentucky, while claims were down in Missouri, South Carolina, and Pennsylvania...

Odd, but I don't really recall Virginia, Michigan, and Kentucky standing out as places that had horrendous weather in the last week or two. Do you?

John Boehner on the tax cuts: a little lying goes a long way

2007-02-15T17:09:00.000-08:00

Congressman John Boehner is a lot like a cupcake made with rice instead of flour and salt instead of sugar: it looks like you expect it to look, but only if you don't look real close.

Here's Big John ranting in an editorial about how incredibly important Bush's tax cuts are to a healthy economy, with my piddly concerns about his analysis and/or veracity in boldfaced brackets:

...The key to balancing the budget is keeping our economy strong and promoting fiscal responsibility.

We need to oppose tax hikes, hold the line on spending, reduce earmarks, and pass line-item veto to crack down on worthless pork.

Pro-growth policies that create jobs and let Americans keep more of their own money, coupled with a real effort to put a lid on federal spending, will shrink the budget deficit and force the tax-and-spenders in Washington to do what every American has to do: live within their means.

American families have an important stake in this debate. Many Democrats are likely to argue in favor of tax hikes, most likely on businesses and others who help create new jobs and keep our economy moving. We shouldn't fall for this ruse.

A tax hike on anybody is a hidden tax on everybody. When Congress raises taxes, those costs are passed on to consumers in one form or another [but gosh Mr. Boehner, isn't that true of other costs, as well. You know, corporate profits, CEO and other major exec salaries, and so on?] and have devastating consequences on our entire economy. [so, Boehner old Bunny, if taxes were any higher than they are now, the economy would collapse, huh? How then do you explain the mysterious but undeniable fact that the American economy's most "robust" period ever--through the late forties and fifties, occurred when taxes were MUCH higher than they are now?]

Raising taxes would only increase the family tax burden and make American products more expensive when compared to cheaper foreign goods. It won't help balance the budget - it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government.

A recent report by the Congressional Budget Office (CBO) confirmed the tax cuts of 2003 have helped boost federal revenues by 68 percent. And the Wall Street Journal recently reported that "U.S. exports are booming, as growth elsewhere accelerates. Exports rose 10 percent in the quarter and a very robust 9.2 percent for the year." [So how come we just had ANOTHER all-time record trade deficit, Johnny Boy?]

Thanks to Republican pro-growth policies, U.S. businesses are finding new markets for American goods and services, creating new jobs here at home. [That's too ridiculous to even bother refuting and sourcing]

In fact, according to a report released by the Department of Labor (DOL), our economy created an average of 187,000 new jobs each month last year.

It's no accident - job creation is driven by a strong economy, and the U.S. economy is growing at a brisk 3.5 percent rate. More Americans are working now than at any point in our nation's history, and that's good news for families, small businesses, and local communities across the country.

A strong economy keeps inflation in check and interest rates low, which has helped more Americans purchase their first home.[And what is it that is causing the incredible number of mortgage defaults?]

More working families are benefiting from the fastest wage growth in more than five years, which makes everything from catching a movie on Friday night to paying your child's college bill a little easier. And the surging stock market is increasing the value of Americans' pensions and retirement savings plans each and every day.[at least it's increasing the value of the pensions held by fewer and fewer Americans, and, of course, America now has an overall negative savings rate]

Boehner: proof that laziness and ignorance of the public are the best friends the right ever had.

Why the growing income/wage gap? It's you, you uneducated fool!

2007-02-14T15:20:00.000-08:00

Concerned about the growing divide between the rich and poor, between the well-paid and poorly-paid? Well, Fed chief Ben Bernanke has the solution: go get yourself a better education, you fool!

Speaking to the Omaha, Nebraska Chamber of Commerce, Bernanke said, according to Market Watch(emphasis added):

Education, not protectionism, is the best weapon in the fight against rising income-inequality...If we do not place some limits on the downside risks to individuals affected by economic change, the public at large might become less willing to accept the dynamism that is so essential to economic progress...The gap rose particularly rapidly through most of the 1980s, although it has continued to trend higher...I read the available evidence as favoring the view that the influence of globalization on inequality has been moderate and almost surely less important than the effects of skill-based technological change...As a result, erecting trade barriers to trade and investment would not be helpful, he said.
Bernanke made no conclusion on the issue of soaring CEO compensation, beyond noting that some economists tie it to the increased complexity of corporations, while others see it as a result of CEOs being in charge of their own pay.

Now isn't that really cute? The gap rose "particulalry rapidly" through the 1980s. So I guess we can spell the origin of "the gap" R E A G A N. Like so many other despicable traits of 21st century America.

But don't worry, that's the message Big Ben is trying to send here. It isn't that big bad globalization you've been hearing about from those nasty, pessimistic sources (like this one); it's just a little asymmetry between education and skills that are in demand. We'll solve it. Go back to sleep. A deep sleep. Count backward with me, from 100: 100...99...98...97...Reagan is a hero...96...95...gloablaization is good...94...93...your eyes are getting....blind.

David Brooks Strikes Again

2007-02-13T16:59:00.000-08:00

The NY Times's David Brooks strikes again in his column for today: Who's Afraid of the New Economy. Touting a new report by Third Way, Brooks tries to convince readers (& himself?) that the economic future is rosy. And rosiest of all for the U.S.

First thing he doesn't tell you is that Third Way is an organ of the Democratic Leadership Council, which is firmly pro-globalization. Then he tries once again to pooh-pooh the bad economic signs for America:

1. We don't need to worry about high consumer debt because "household assets have risen faster than debts." That's only true, of course, if you look at the aggregate for all Americans. For individuals at the bottom or lower middle--not true at all. Why do you think there have been so many people filing bankruptcy, and so many mortgage loan defaults that they're starting to affect stock prices of mortgage lenders?

2. The "vast majority of job losses are caused by technological change, not outsourcing."

But: (a) he has no way of knowing that, and (b) he seems to once again be playing the semantic game of talking about jobs that are "lost," defined as jobs that once existed here and have now been shipped overseas, leaving out the many "new" jobs that were created overseas that would have been created here absent globalization.

David Brooks: my nominee for dishonest globalization cheerleader of the decade.