From Page 2C of the Thursday April 24, 2008 issue of the St. Paul Pioneer Press, courtesy of the Associated Press.
The Federal Reserve said Wednesday it will auction an additional $75 billion in super-safe Treasury securities to big investment firms, part of an ongoing effort to help strained credit markets.
The auction - the fifth of its kind - will be held today.
In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments, including certain shunned mortgage-backed securities, as collateral.
In the four auctions held so far, the Fed has provided close to $158.95 billion worth of the Treasury securities to investment firms.
The auction program is intended to help financial institutions and the troubled mortgage market.
The goal is to make investment houses more inclined to lend to each other. It is also aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities had driven up mortgage rates, aggravating the housing slump.
The lending program is one of several unconventional steps the Fed has taken to deal with a credit crisis.
Thursday, April 24, 2008
Constitutional Amendment may be introduced
The following is being considered as a House Joint Resolution as a constitutional amendment related to Federal Government spending. To my knowledge, it has not been introduced as of yet.
IN THE HOUSE OF REPRESENTATIVES
Mr. CAMPBELL of California introduced the following joint resolution; which
was referred to the Committee on _______________
JOINT RESOLUTION
Proposing an amendment to the Constitution of the United
States to control spending.
1 Resolved by the Senate and House of Representatives
2 of the United States of America in Congress assembled
3 (two-thirds of each House concurring therein), That the fol4
lowing article is proposed as an amendment to the Con5
stitution of the United States, which shall be valid to all
6 intents and purposes as part of the Constitution when
7 ratified by the legislatures of three-fourths of the several
8 States within seven years after the date of its submission
9 for ratification:
1 ‘‘ARTICLE—
2 ‘‘SECTION 1. Total outlays for any fiscal year shall
3 not exceed an amount that would cause total outlays to
4 have increased by a rate that exceeds growth in the United
5 States economy over the period since 2007, unless two6
thirds of the whole number of each House of Congress
7 shall provide by law for a specific increase of outlays above
8 this amount by a roll call vote.
9 ‘‘SECTION 2. Prior to each fiscal year, the President
10 shall transmit to the Congress a proposed budget for the
11 United States Government for that fiscal year, and for all
12 other fiscal years covered by the President’s budget, in
13 which total outlays do not exceed the outlays from the pre14
vious year after taking into account an increase to reflect
15 the average growth in the United States economy over the
16 period since 2007.
17 ‘‘SECTION 3. The Congress may waive the provisions
18 of this article for any fiscal year in which a declaration
19 of war is in effect.
20 ‘‘SECTION 4. The Congress shall enforce and imple21
ment this article by appropriate legislation, which may rely
22 on estimates.
23 ‘‘SECTION 5. Total outlays shall include all outlays
24 of the United States Government, except for those for re25
payment of debt principal.
1 ‘‘SECTION 6. This article shall take effect beginning
2 the second fiscal year after its ratification.’’.
IN THE HOUSE OF REPRESENTATIVES
Mr. CAMPBELL of California introduced the following joint resolution; which
was referred to the Committee on _______________
JOINT RESOLUTION
Proposing an amendment to the Constitution of the United
States to control spending.
1 Resolved by the Senate and House of Representatives
2 of the United States of America in Congress assembled
3 (two-thirds of each House concurring therein), That the fol4
lowing article is proposed as an amendment to the Con5
stitution of the United States, which shall be valid to all
6 intents and purposes as part of the Constitution when
7 ratified by the legislatures of three-fourths of the several
8 States within seven years after the date of its submission
9 for ratification:
1 ‘‘ARTICLE—
2 ‘‘SECTION 1. Total outlays for any fiscal year shall
3 not exceed an amount that would cause total outlays to
4 have increased by a rate that exceeds growth in the United
5 States economy over the period since 2007, unless two6
thirds of the whole number of each House of Congress
7 shall provide by law for a specific increase of outlays above
8 this amount by a roll call vote.
9 ‘‘SECTION 2. Prior to each fiscal year, the President
10 shall transmit to the Congress a proposed budget for the
11 United States Government for that fiscal year, and for all
12 other fiscal years covered by the President’s budget, in
13 which total outlays do not exceed the outlays from the pre14
vious year after taking into account an increase to reflect
15 the average growth in the United States economy over the
16 period since 2007.
17 ‘‘SECTION 3. The Congress may waive the provisions
18 of this article for any fiscal year in which a declaration
19 of war is in effect.
20 ‘‘SECTION 4. The Congress shall enforce and imple21
ment this article by appropriate legislation, which may rely
22 on estimates.
23 ‘‘SECTION 5. Total outlays shall include all outlays
24 of the United States Government, except for those for re25
payment of debt principal.
1 ‘‘SECTION 6. This article shall take effect beginning
2 the second fiscal year after its ratification.’’.
Wednesday, April 23, 2008
AP: Existing home sales, median price fall in March
The following appeared in the Wednesday April 23, 2008 edition of the St. Paul Pioneer Press on Page 2C, courtesy of the Associated Press.
Sales of existing homes fell in March, the seventh drop in the past eight months, as the spring sales season got off to a rocky start.
The median price of a home was down compared with a year ago, and some economists predicted home prices could keep falling for months given all the troubles weighing on housing, from a severe credit crunch to a rising tide of foreclosures.
The National Association of Realtors reported Tuesday that sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.
The median price of a home sold last month was $200,700, a decline of 7.7 percent from a year ago and the seventh consecutive year-over-year price drop. It also was the second biggest decline following a record 8.4 percent drop in Fedruary. These records go back to 1999.
The median sales price in March was up from a February median of $195,600. Analysts said this was statistically meaningless because the monthly price changes are not adjusted for seasonal variations and prices always rise in March at the start of the spring sales season.
Sales of existing homes fell in March, the seventh drop in the past eight months, as the spring sales season got off to a rocky start.
The median price of a home was down compared with a year ago, and some economists predicted home prices could keep falling for months given all the troubles weighing on housing, from a severe credit crunch to a rising tide of foreclosures.
The National Association of Realtors reported Tuesday that sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.
The median price of a home sold last month was $200,700, a decline of 7.7 percent from a year ago and the seventh consecutive year-over-year price drop. It also was the second biggest decline following a record 8.4 percent drop in Fedruary. These records go back to 1999.
The median sales price in March was up from a February median of $195,600. Analysts said this was statistically meaningless because the monthly price changes are not adjusted for seasonal variations and prices always rise in March at the start of the spring sales season.
Banks hit up Fed for another $50 billion
The following appeared on page 2C of the St. Paul Pioneer Press Wednesday April 23, 2008 edition.
Battling to relieve stressed credit markets, the Federal Reserve has provided a total of $360 billion in short-term loans to squeezed banks since December to help them overcome credit problems. The central bank on Tuesday announced the results of its most recent auction - the 10th since the program started in December, where commercial banks bid to get a slice of another $50 billion in the short-term loans.
It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March with the sudden crash of Bear Sterns, the nation's fifth-largest investment house.
Battling to relieve stressed credit markets, the Federal Reserve has provided a total of $360 billion in short-term loans to squeezed banks since December to help them overcome credit problems. The central bank on Tuesday announced the results of its most recent auction - the 10th since the program started in December, where commercial banks bid to get a slice of another $50 billion in the short-term loans.
It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March with the sudden crash of Bear Sterns, the nation's fifth-largest investment house.
Tuesday, April 22, 2008
Piece of the Treasury for $100
The following appeared on page B2 in the April 12-13,2008 weekend edition of the Wall Street Journal.
Piece of the Treasury for $100
Bills, Notes, Bonds Easier to Get, But Do You Want Them?
By Chuck Jaffe
At a time when investors seem obsessed with safety and security, the Treasury Department in the past week instituted a major change in the way people can invest in Treasury bills, notes and bonds.
While many market observers question the value of buying Treasurys now – yields are so low that ordinary bank accounts can be a better value – the changes should cause a stir among small investors looking for safe havens.
On Monday, the Treasury started making all of its marketable securities available to the public in “minimum and multiple amounts of $100.” For roughly the last decade, the threshold has been $1,000.
The change is significant because it means consumers can buy Treasurys for a C-note, making these securities affordable for the masses. It also puts Treasurys on the level of savings bonds and gives consumers new and different low-cost options.
What’s more, it simplifies the process for anyone looking to buy Treasurys. In the past, an investor with $1,200 or $2,700 to put into bills or notes would only be able to invest to the nearest thousand dollars. That made mutual funds or bank deposits more attractive alternatives. Now, that barrier has been eliminated.
“The policy makers are just trying to open it up as widely as possible,” said Stephen Meyerhardt, a Treasury spokesman. “But in opening Treasurys up, I hope that people understand what they are getting and really make sure that they are getting the right investment for their needs.”
Treasury securities can be purchased noncompetitively directly from the Treasury. For this, you need to open an account through the TreasuryDirect program.
The TreasuryDirect program isn’t for traders, and knowing the rules is crucial. For many investors, savings bonds will continue to be the superior choice to Treasurys.
Savings bonds lock up your money for up to 30 years, but an investor can cash out after five years without penalty. Even if you sell after the first year, the penalty amounts to just three months’ worth of interest charges – not much considering that the current payout is fixed at 3%.
With marketable securities such as Treasurys, in contrast, you are locked in to a set term. While you can sell the security through TreasuryDirect before it reached maturity, market forces can rip into the bond’s value, plus you’ll be facing a $45 charge from TreasuryDirect for the privilege. That’s a steep fee on a small-dollar investor who was throwing a few hundred bucks into Tresaurys rather than bank deposits.
One place where the changed Treasury program will help investors is in creating laddered portfolios of securities, where you hold different maturities of bonds and each time one matures, you simply reinvest the proceeds into a new issue that is at the long end of the time spectrum. So an investor might buy one-year, two-year and three-year bonds, for example, and then buy a new three-year note every time one step of the ladder reaches maturity.
Another area where small investors might turn to Treasurys is in place of short-term government bond funds. The little secret that most fund firms don’t say is that most Treasury funds are largely unmanaged. Rather than trying to pick the perfect mix of short-term maturities, the fund manager simply pools the cash, buys a new issue meeting an appropriate time frame and repeats the process whenever there’s cash to invest.
Individual investors can do the same through TreasuryDirect and avoid bond-fund expenses.
Because of their simplicity, Treasurys are something of a commodity, and the changes allow investors to buy in for less money upfront.
“You certainly could replace a bond fund, assuming you have the time and energy to devote to doing it yourself,” said Jeff Tjornehoj, senior research analyst at fund-tracker Lipper Inc.
“You’re not getting a lot of professional management in most short-term bond funds,” he added, “so what you are really paying for is convenience. …But some people probably would feel better having their money with the government – and the full faith and credit of the United States Treasury – than with some fund company, given what we have seen happening in the financial-services business.”
For his part, Mr. Meyerhardt says investors need to be careful not to view Treasurys as a replacement for a bank account. “If what you want is a savings account, and you are below the FDIC insurance limits, you can trust that,” he said, “and not be putting just $100 or $200 into Treasurys.”
Piece of the Treasury for $100
Bills, Notes, Bonds Easier to Get, But Do You Want Them?
By Chuck Jaffe
At a time when investors seem obsessed with safety and security, the Treasury Department in the past week instituted a major change in the way people can invest in Treasury bills, notes and bonds.
While many market observers question the value of buying Treasurys now – yields are so low that ordinary bank accounts can be a better value – the changes should cause a stir among small investors looking for safe havens.
On Monday, the Treasury started making all of its marketable securities available to the public in “minimum and multiple amounts of $100.” For roughly the last decade, the threshold has been $1,000.
The change is significant because it means consumers can buy Treasurys for a C-note, making these securities affordable for the masses. It also puts Treasurys on the level of savings bonds and gives consumers new and different low-cost options.
What’s more, it simplifies the process for anyone looking to buy Treasurys. In the past, an investor with $1,200 or $2,700 to put into bills or notes would only be able to invest to the nearest thousand dollars. That made mutual funds or bank deposits more attractive alternatives. Now, that barrier has been eliminated.
“The policy makers are just trying to open it up as widely as possible,” said Stephen Meyerhardt, a Treasury spokesman. “But in opening Treasurys up, I hope that people understand what they are getting and really make sure that they are getting the right investment for their needs.”
Treasury securities can be purchased noncompetitively directly from the Treasury. For this, you need to open an account through the TreasuryDirect program.
The TreasuryDirect program isn’t for traders, and knowing the rules is crucial. For many investors, savings bonds will continue to be the superior choice to Treasurys.
Savings bonds lock up your money for up to 30 years, but an investor can cash out after five years without penalty. Even if you sell after the first year, the penalty amounts to just three months’ worth of interest charges – not much considering that the current payout is fixed at 3%.
With marketable securities such as Treasurys, in contrast, you are locked in to a set term. While you can sell the security through TreasuryDirect before it reached maturity, market forces can rip into the bond’s value, plus you’ll be facing a $45 charge from TreasuryDirect for the privilege. That’s a steep fee on a small-dollar investor who was throwing a few hundred bucks into Tresaurys rather than bank deposits.
One place where the changed Treasury program will help investors is in creating laddered portfolios of securities, where you hold different maturities of bonds and each time one matures, you simply reinvest the proceeds into a new issue that is at the long end of the time spectrum. So an investor might buy one-year, two-year and three-year bonds, for example, and then buy a new three-year note every time one step of the ladder reaches maturity.
Another area where small investors might turn to Treasurys is in place of short-term government bond funds. The little secret that most fund firms don’t say is that most Treasury funds are largely unmanaged. Rather than trying to pick the perfect mix of short-term maturities, the fund manager simply pools the cash, buys a new issue meeting an appropriate time frame and repeats the process whenever there’s cash to invest.
Individual investors can do the same through TreasuryDirect and avoid bond-fund expenses.
Because of their simplicity, Treasurys are something of a commodity, and the changes allow investors to buy in for less money upfront.
“You certainly could replace a bond fund, assuming you have the time and energy to devote to doing it yourself,” said Jeff Tjornehoj, senior research analyst at fund-tracker Lipper Inc.
“You’re not getting a lot of professional management in most short-term bond funds,” he added, “so what you are really paying for is convenience. …But some people probably would feel better having their money with the government – and the full faith and credit of the United States Treasury – than with some fund company, given what we have seen happening in the financial-services business.”
For his part, Mr. Meyerhardt says investors need to be careful not to view Treasurys as a replacement for a bank account. “If what you want is a savings account, and you are below the FDIC insurance limits, you can trust that,” he said, “and not be putting just $100 or $200 into Treasurys.”
Monday, April 21, 2008
Jefferson County struggles against rising tide of debt
The following appeared in the Tuesday April 15 issue of the Financial Times on page 24. This is a warning to what will happen to the United States government if we do not get our borrowing and spending under control.
By Stacy-Marie Ishmael on why the municipality is facing the prospect of a major default
Alabama’s Jefferson County, one of the most indebted US municipalities, will today try to persuade creditors to extend the deadline for a $184m payment in its efforts to stave off default on its broader obligations.
Jefferson County has around $4.6bn in outstanding debt, and a default on that scale would dwarf 1994’s Orange County debacle, in which the California county defaulted on some $1.6bn in debt.
The country’s financial problems – it has already missed a series of payments to banks led by JPMorgan – are directly linked to the credit crisis that has rattled both Wall Street and Main Street.
Jefferson County has been hurt by soaring interest rates on the $3.2bn of debt it issued since 1997 to fund a sewer project. Investors started demanding higher interest rates in part because of problems facing the bond issuers that had guaranteed that debt, and partly as a result of a broader collapse in the auction-rate securities market, much used by municipal borrowers and where interest rates are set by auction every seven to 35 days.
County Commissioner Bettye Fine Collins said interest costs for the sewer project financing could reach $250m – almost twice the $138m in revenue the sewer system generates – if the county is unable to restructure the debt.
The county’s woes have been compounded by a series of complex agreements it entered into with Wall Street banks earlier this decade.
The agreements, known as interest rate swaps, were designed to reduce the risk and cost to the county of issuing variable-rate debt.
The swaps allowed Jefferson County to make fixed payments to investment banks including Lehman Brothers and Bank of America, and in return to receive floating payments linked to 3-month Libor.
But this strategy, which had been the favourite of municipalities across the nation, turned sour when the market for auction rate securities froze and three-month Libor started to fall. In other words, Jefferson County faced rising interest rate payments at a time when the swap contracts were paying out less than before.
Moreover, after the county skipped a $53m principal payment earlier this month, ratings agencies cut its credit ratings to the lower end of the investment grade spectrum. Those cuts triggered clauses in the swap agreements that allowed Jefferson’s creditors to demand $180m in additional collateral – money the county did not have.
Jefferson has already missed one such deadline, and a second one expires today. Unless it can persuade its banks to renegotiate the terms of the agreements, it may be pushed into bankruptcy, county officials said.
“If we don’t extend [the deadline], were basically calling in bankruptcy at that point in time,” county commissioner Jim Carns told the Birmingham News last week. But Alabama state officials are working to prevent such an outcome.
The state Senate has approved resolutions that would prevent the county from unilaterally declaring bankruptcy, for instance.
UPDATE:
The Wednesday April 16, 2008 issue of the Wall Street Journal gives an update on the Jefferson County story on page C2.
Alabama County Votes To Delay Debt Payment
Alabama’s Jefferson County Commission voted Tuesday afternoon to approve an agreement with banks that allows the county to further delay a $53 million payment on its municipal sewer debt.
This measure gives the county, which includes Birmingham, more time to negotiate a rescue plan necessary to avoid bankruptcy. Such a bankruptcy would represent the largest-ever municipal default, roughly double the size of the Orange County, Calif., debt default in 1994.
A representative for Jefferson County Commission President Bettye Fine Collins said the five-person commission voted unanimously to approve an extension of the county’s existing forbearance agreements with banks, bond insurers and swaps counterparties related to the county’s sewer debt.
The representative couldn’t confirm the length of the extension that was agreed upon, and referred queries to the office of the county attorney, who didn’t immediately return a phone call.
By Stacy-Marie Ishmael on why the municipality is facing the prospect of a major default
Alabama’s Jefferson County, one of the most indebted US municipalities, will today try to persuade creditors to extend the deadline for a $184m payment in its efforts to stave off default on its broader obligations.
Jefferson County has around $4.6bn in outstanding debt, and a default on that scale would dwarf 1994’s Orange County debacle, in which the California county defaulted on some $1.6bn in debt.
The country’s financial problems – it has already missed a series of payments to banks led by JPMorgan – are directly linked to the credit crisis that has rattled both Wall Street and Main Street.
Jefferson County has been hurt by soaring interest rates on the $3.2bn of debt it issued since 1997 to fund a sewer project. Investors started demanding higher interest rates in part because of problems facing the bond issuers that had guaranteed that debt, and partly as a result of a broader collapse in the auction-rate securities market, much used by municipal borrowers and where interest rates are set by auction every seven to 35 days.
County Commissioner Bettye Fine Collins said interest costs for the sewer project financing could reach $250m – almost twice the $138m in revenue the sewer system generates – if the county is unable to restructure the debt.
The county’s woes have been compounded by a series of complex agreements it entered into with Wall Street banks earlier this decade.
The agreements, known as interest rate swaps, were designed to reduce the risk and cost to the county of issuing variable-rate debt.
The swaps allowed Jefferson County to make fixed payments to investment banks including Lehman Brothers and Bank of America, and in return to receive floating payments linked to 3-month Libor.
But this strategy, which had been the favourite of municipalities across the nation, turned sour when the market for auction rate securities froze and three-month Libor started to fall. In other words, Jefferson County faced rising interest rate payments at a time when the swap contracts were paying out less than before.
Moreover, after the county skipped a $53m principal payment earlier this month, ratings agencies cut its credit ratings to the lower end of the investment grade spectrum. Those cuts triggered clauses in the swap agreements that allowed Jefferson’s creditors to demand $180m in additional collateral – money the county did not have.
Jefferson has already missed one such deadline, and a second one expires today. Unless it can persuade its banks to renegotiate the terms of the agreements, it may be pushed into bankruptcy, county officials said.
“If we don’t extend [the deadline], were basically calling in bankruptcy at that point in time,” county commissioner Jim Carns told the Birmingham News last week. But Alabama state officials are working to prevent such an outcome.
The state Senate has approved resolutions that would prevent the county from unilaterally declaring bankruptcy, for instance.
UPDATE:
The Wednesday April 16, 2008 issue of the Wall Street Journal gives an update on the Jefferson County story on page C2.
Alabama County Votes To Delay Debt Payment
Alabama’s Jefferson County Commission voted Tuesday afternoon to approve an agreement with banks that allows the county to further delay a $53 million payment on its municipal sewer debt.
This measure gives the county, which includes Birmingham, more time to negotiate a rescue plan necessary to avoid bankruptcy. Such a bankruptcy would represent the largest-ever municipal default, roughly double the size of the Orange County, Calif., debt default in 1994.
A representative for Jefferson County Commission President Bettye Fine Collins said the five-person commission voted unanimously to approve an extension of the county’s existing forbearance agreements with banks, bond insurers and swaps counterparties related to the county’s sewer debt.
The representative couldn’t confirm the length of the extension that was agreed upon, and referred queries to the office of the county attorney, who didn’t immediately return a phone call.
Sunday, April 20, 2008
Law of the Taxpayer
The following was sent to me by a dedicated reader of National Debtbusters:
I keep hearing (usually from liberals) "you can't legislate morality". Well, then, why do we have laws punishing those who (for example) lie [to the IRS] or steal [from their employer] ? It's because without a man-made law, that dishes out punishment in this world for transgressions, many people would pay no attention
to the ancient "religious" laws of civilisation.
My thought is, I want a law that requires the government -- my government -- to play fair. I'm giving up on the hope of a tax code that is fair or consistent or even understandable. But I know this: when Uncle Sam sends tax "refunds" or "rebates" to big corporations, BEFORE sending me my own little bitty refund, it doesn't really make all that much difference to the Big Guys -- but going without my little tax refund really does hurt me.
The Law of The Sea says the less maneuverale vessel has the right-of-way.
I propose a Law of The TaxPayer: the individuals with the smallest refunds due, get theirs first. Non-individuals (i.e. corporations) get theirs last.
The Democrats are in the majority. & they're always saying they fight for the little guy. Let me see it happen now.
Saturday, April 19, 2008
WSJ: The Loophole Factory
The following appeared on page A18 in the Tuesday April 15, 2008 issue of the Wall Street Journal.
“People say all the time: ‘We can’t pick winners and losers.’ Well then fine. Take every single dollar of subsidy out of the federal tax code. Get rid of it all…Let’s have a real level playing field where nobody gets a penny in subsidy.” – Hillary Clinton, quoted in USA Today, April 5, 2008
Now, there’s a capital idea – and just in time for April 15. The simplest, fairest and most economically efficient tax code would end all special interest tax advantages and flatten tax rates. Except Mrs. Clinton was ridiculing this idea. She went on to say, that if subsidies vanish from the tax code, we’d “hear the squeals of protest from Wall Street to Houston to Silicon Valley.”
Her philosophy certainly fits with that of the current Congress, which is becoming a tax loophole production factory for the powerful. Exhibit A is the “Foreclosure Prevention Act,” which passed the Senate last week and contains $25 billion in tax subsidies for home builders and industry interests hurt by the housing crunch. Builders will be able to offset current losses against taxes paid in the past three years, which will mean billions of dollars of tax rebate checks from Uncle Sam.
This giveaway came only a few weeks after the National Association of Home Builders threatened to suspend their PAC contributions to Congress “until further notice” – meaning until they saw more return on their political investments. Congratulations. That gambit paid off big time. Other winners include the large Wall Street banks that have lost money in the subprime mortgage meltdown, including Citigroup, Merrill Lynch, and Morgan Stanley, which also qualify for rebates to offset current losses.
Republican Johnny Isakson of Georgia won Senate passage of a $7,000 tax credit for those who buy foreclosed properties. This won’t prevent foreclosures or make these properties more affordable. Instead it will only prop up the sales price of the inventory of abandoned homes that the banks now own. Meanwhile, the House bill contains a $7,500 tax credit for first-time home buyers. The powerful Realtors’ lobby and mortgage banks that own foreclosed properties blazed the money trail across Capitol Hill to get that one passed.
Oh, and while they were at it, the Senators voted 88-8 to add $6 billion in tax deductions for renewable energy producers. (If you wonder what this has to do with the mortgage “crisis,” you just arrived off the turnip truck.) This industry is already teed up to get nearly $10 billion in tax breaks in the energy bill, including subsidies for wind and solar power producers, hybrid vehicles and biodiesel. Much of this social engineering comes from the same people on Capitol Hill who insist that taxes don’t change industry or personal behavior.
With this loophole factory open for business on Capitol Hill again, business lobbies are spending more money than ever to curry Congressional favor. The real-estate industry may be in dire financial straits, but housing industry PACs have already contributed $56 million to political campaigns this election cycle, according to the Center for Responsive Politics. Politico.com reported last week that 40 new business lobbying firms have registered since January to represent the likes of concrete makers, home builders, Freddie Mac and the Realtors. Wall Street investment banks are also pumping up the volume of campaign contributions as they seek financial relief from the subprime mess.
Congress is creating all of these new loopholes even as overall tax revenues are slowing and this year’s budget deficit could reach $450 billion to $500 billion. This will play nicely into the hands of Democrats who contend that the lower tax rates of 2001 and 2003 must expire to pay the government’s bills. So we could soon have the worst of all worlds: a leaky tax code full of exceptions for powerful interests, but with ever higher rates to make up for the loopholes, plus any extra revenue from the tax hike. The losers are taxpayers who aren’t powerful or rich enough to afford a tax lobbyist.
At least this exercise is making clear what Democrats really mean by tax “fairness.” It means raising tax rates so they can then sell tax breaks to the highest corporate bidder. We have certainly come a long way from 1986, when a Democratic Congress joined with Ronald Reagan to strip the tax code of most tax deductions and lower tax rates to a high of 28%. That reform spirit is dead on Capitol Hill.
Senators Clinton and Barack Obama are racing across the country promising Americans that they will clean up a process that “favors Wall Street over Main Street.” Fat chance. Their party and most Republicans just voted for a housing bill that is the biggest victory for corporate special interests in years – and there’s much more to follow. Happy Tax Day.
Pages in the federal tax code
1985 – 26,300
1995 – 40,500
2007 – 67,200
“People say all the time: ‘We can’t pick winners and losers.’ Well then fine. Take every single dollar of subsidy out of the federal tax code. Get rid of it all…Let’s have a real level playing field where nobody gets a penny in subsidy.” – Hillary Clinton, quoted in USA Today, April 5, 2008
Now, there’s a capital idea – and just in time for April 15. The simplest, fairest and most economically efficient tax code would end all special interest tax advantages and flatten tax rates. Except Mrs. Clinton was ridiculing this idea. She went on to say, that if subsidies vanish from the tax code, we’d “hear the squeals of protest from Wall Street to Houston to Silicon Valley.”
Her philosophy certainly fits with that of the current Congress, which is becoming a tax loophole production factory for the powerful. Exhibit A is the “Foreclosure Prevention Act,” which passed the Senate last week and contains $25 billion in tax subsidies for home builders and industry interests hurt by the housing crunch. Builders will be able to offset current losses against taxes paid in the past three years, which will mean billions of dollars of tax rebate checks from Uncle Sam.
This giveaway came only a few weeks after the National Association of Home Builders threatened to suspend their PAC contributions to Congress “until further notice” – meaning until they saw more return on their political investments. Congratulations. That gambit paid off big time. Other winners include the large Wall Street banks that have lost money in the subprime mortgage meltdown, including Citigroup, Merrill Lynch, and Morgan Stanley, which also qualify for rebates to offset current losses.
Republican Johnny Isakson of Georgia won Senate passage of a $7,000 tax credit for those who buy foreclosed properties. This won’t prevent foreclosures or make these properties more affordable. Instead it will only prop up the sales price of the inventory of abandoned homes that the banks now own. Meanwhile, the House bill contains a $7,500 tax credit for first-time home buyers. The powerful Realtors’ lobby and mortgage banks that own foreclosed properties blazed the money trail across Capitol Hill to get that one passed.
Oh, and while they were at it, the Senators voted 88-8 to add $6 billion in tax deductions for renewable energy producers. (If you wonder what this has to do with the mortgage “crisis,” you just arrived off the turnip truck.) This industry is already teed up to get nearly $10 billion in tax breaks in the energy bill, including subsidies for wind and solar power producers, hybrid vehicles and biodiesel. Much of this social engineering comes from the same people on Capitol Hill who insist that taxes don’t change industry or personal behavior.
With this loophole factory open for business on Capitol Hill again, business lobbies are spending more money than ever to curry Congressional favor. The real-estate industry may be in dire financial straits, but housing industry PACs have already contributed $56 million to political campaigns this election cycle, according to the Center for Responsive Politics. Politico.com reported last week that 40 new business lobbying firms have registered since January to represent the likes of concrete makers, home builders, Freddie Mac and the Realtors. Wall Street investment banks are also pumping up the volume of campaign contributions as they seek financial relief from the subprime mess.
Congress is creating all of these new loopholes even as overall tax revenues are slowing and this year’s budget deficit could reach $450 billion to $500 billion. This will play nicely into the hands of Democrats who contend that the lower tax rates of 2001 and 2003 must expire to pay the government’s bills. So we could soon have the worst of all worlds: a leaky tax code full of exceptions for powerful interests, but with ever higher rates to make up for the loopholes, plus any extra revenue from the tax hike. The losers are taxpayers who aren’t powerful or rich enough to afford a tax lobbyist.
At least this exercise is making clear what Democrats really mean by tax “fairness.” It means raising tax rates so they can then sell tax breaks to the highest corporate bidder. We have certainly come a long way from 1986, when a Democratic Congress joined with Ronald Reagan to strip the tax code of most tax deductions and lower tax rates to a high of 28%. That reform spirit is dead on Capitol Hill.
Senators Clinton and Barack Obama are racing across the country promising Americans that they will clean up a process that “favors Wall Street over Main Street.” Fat chance. Their party and most Republicans just voted for a housing bill that is the biggest victory for corporate special interests in years – and there’s much more to follow. Happy Tax Day.
Pages in the federal tax code
1985 – 26,300
1995 – 40,500
2007 – 67,200
Economist Kaufman says Fed failed as regulator
The following appeared on page 20 in the Monday April 14, 2008 issue of the Financial Times.
By Aline van Duyn in New York
Henry Kaufman, the distinguished Wall Street economist, has added his voice to the debate about the Federal Reserve’s role in the credit crisis, saying the central bank failed to give enough importance to its role as a regulator.
In a video interview with the Financial Times, Mr Kaufman criticized the Fed’s monetary policy. He said it allowed too much credit expansion over the past 15 years and that this contributed to the market turmoil.
“Certainly the Federal Reserve should shoulder a substantial part of this responsibility…it allowed the expansion of credit in huge magnitudes,” Mr Kaufman said.
“Besides its monetary policy approach, [the Fed] really indicated very clearly that it was performing its role as a supervisor…in a minute fashion, not in an encompassing fashion. Monetary policy had a high priority, supervision and regulation within the Fed had a smaller policy.
Mr Kaufman, who is on the board at Lehman Brothers, has long advocated tougher regulation of the biggest financial firms, arguing that they need to be made “too good to fail”, rather than remain “too large to fail”.
The near-collapse of Bear Stearns last month, and the Fed’s intervention which resulted in a purchase of the Wall Street firm by JPMorgan Chase, has triggered a renewed debate about whether banks can regulate themselves, or whether regulators need to impose tougher rules.
The credit crisis, which stems from losses on securities backed by risky mortgages made during the height of the housing bubble, could lead to total writedowns of nearly $1,000bn for banks and investors around the world, according to the International Monetary Fund.
Mr Kaufman said a distinctive feature of the financial crisis was “much greater lapses in official supervision and regulation than in earlier periods”.
He said there should be a new federal regulator appointed who would work with the Federal Reserve but who would have responsibility for “intensively” regulating the 30 or 40 biggest financial firms. Failure to do so could lead to a “crisis that’s bigger than the one which we have today”.
“The supervision of major financial institutions requires deep skills in credit, deep skills in risk analysis techniques and it requires within that organization, very skilled, trained professional people,” Mr Kaufman said. “That is lacking in the supervisory area in the United States.”
He added that recent proposals from Hank Paulson, secretary of the US Treasury, to overhaul US regulation “lack focus”.
By Aline van Duyn in New York
Henry Kaufman, the distinguished Wall Street economist, has added his voice to the debate about the Federal Reserve’s role in the credit crisis, saying the central bank failed to give enough importance to its role as a regulator.
In a video interview with the Financial Times, Mr Kaufman criticized the Fed’s monetary policy. He said it allowed too much credit expansion over the past 15 years and that this contributed to the market turmoil.
“Certainly the Federal Reserve should shoulder a substantial part of this responsibility…it allowed the expansion of credit in huge magnitudes,” Mr Kaufman said.
“Besides its monetary policy approach, [the Fed] really indicated very clearly that it was performing its role as a supervisor…in a minute fashion, not in an encompassing fashion. Monetary policy had a high priority, supervision and regulation within the Fed had a smaller policy.
Mr Kaufman, who is on the board at Lehman Brothers, has long advocated tougher regulation of the biggest financial firms, arguing that they need to be made “too good to fail”, rather than remain “too large to fail”.
The near-collapse of Bear Stearns last month, and the Fed’s intervention which resulted in a purchase of the Wall Street firm by JPMorgan Chase, has triggered a renewed debate about whether banks can regulate themselves, or whether regulators need to impose tougher rules.
The credit crisis, which stems from losses on securities backed by risky mortgages made during the height of the housing bubble, could lead to total writedowns of nearly $1,000bn for banks and investors around the world, according to the International Monetary Fund.
Mr Kaufman said a distinctive feature of the financial crisis was “much greater lapses in official supervision and regulation than in earlier periods”.
He said there should be a new federal regulator appointed who would work with the Federal Reserve but who would have responsibility for “intensively” regulating the 30 or 40 biggest financial firms. Failure to do so could lead to a “crisis that’s bigger than the one which we have today”.
“The supervision of major financial institutions requires deep skills in credit, deep skills in risk analysis techniques and it requires within that organization, very skilled, trained professional people,” Mr Kaufman said. “That is lacking in the supervisory area in the United States.”
He added that recent proposals from Hank Paulson, secretary of the US Treasury, to overhaul US regulation “lack focus”.
Friday, April 18, 2008
Lure of Stimulus Payments May Produce Record Filings
The following article appeared in the April 12-13, 2008 (Weekend Edition) of the Wall Street Journal, Page A2.
It’s crunch time for millions of procrastinators.
With Tuesday’s federal-income-tax deadline drawing near, many Americans will spend much of this weekend calculator in hand, tax software loaded, searching for last-minute deductions or credits, sifting through investment documents and trying to decipher Internal Revenue Service instructions.
Thanks in-part to the lure of economic-stimulus payments, record numbers of returns are being filed this year. Through April 4, the IRS says it had received about 96.8 million returns, up 9.3% from a year earlier.
Uncle Sam is promising these special payments as part of an economic-stimulus package passed by Congress, and the payout requires a tax return to be filed. These payments typically will be as much as $600 for an individual or $1,200 for married couples filing jointly, plus $300 for each child under 17. Not everyone is eligible; the payments begin to phase out once income exceeds a certain level.
The payments will begin flowing to about 130 million households next month in an effort to juice consumer spending and mitigate the economic slowdown.
As usual, most filers so far this year are getting refunds, which also could bolster consumer spending, unless those dollars are simply eaten up by higher gas costs and mortgage debt. The IRS approved about 75.1 million refunds through April 4, up 2.1% from a year earlier. The dollar amount of refunds rose 5.1% to $183.04 billion. The average refund: $2,436, up about 3%.
Many taxpayers think of refunds as a convenient form of forced savings. But the Treasury doesn’t pay interest on refunds. Thus, those people effectively are giving interest-free loans to Uncle Sam.
The Treasury Department reported Thursday that individual income-tax revenues for the six months through March rose to $503.6 billion from $479.2 billion in the same six-month period a year earlier. For the full fiscal year, the government’s budget estimate calls for individual income-tax revenues of more than $1.2 trillion. (The government’s fiscal year ends Sept. 30.)
As for the dreaded audits, the IRS has audited only about 1% of all individual-income-tax returns in each of the past few years. Still, the number of individual-income-tax audits reached a 10-year high in 2007, and the IRS plans to increase the number of audits this year, with an eye on high-income taxpayers. This year, the IRS reported that audits of taxpayers making $100,000 or more rose 14% in 2007 from 2006, while audits for people making $200,000 or more rose 29%. They surged 84% for those with incomes of $1 million or more.
Amid the current mortgage crisis, there are a few new related tax-list twists to watch out for this year. Among them is a deduction for private-mortgage insurance premiums. There’s also a provision that will provide relief in certain cases where a lender forgave a debt on a taxpayer’s home.
Also, there are new record-keeping requirements for cash contributions: You can’t deduct any of your monetary donations, no matter how tiny, unless you have proof, such as a cancelled check or a receipt from the charity.
As for taxpayers who can’t finish their returns in the next few days, the IRS says the agency expects to receive a record 10.3 million extension requests, up from 10 million last year. Extensions automatically give the filer until Oct. 15, although it doesn’t give any additional time to pay whatever is owed.
It’s crunch time for millions of procrastinators.
With Tuesday’s federal-income-tax deadline drawing near, many Americans will spend much of this weekend calculator in hand, tax software loaded, searching for last-minute deductions or credits, sifting through investment documents and trying to decipher Internal Revenue Service instructions.
Thanks in-part to the lure of economic-stimulus payments, record numbers of returns are being filed this year. Through April 4, the IRS says it had received about 96.8 million returns, up 9.3% from a year earlier.
Uncle Sam is promising these special payments as part of an economic-stimulus package passed by Congress, and the payout requires a tax return to be filed. These payments typically will be as much as $600 for an individual or $1,200 for married couples filing jointly, plus $300 for each child under 17. Not everyone is eligible; the payments begin to phase out once income exceeds a certain level.
The payments will begin flowing to about 130 million households next month in an effort to juice consumer spending and mitigate the economic slowdown.
As usual, most filers so far this year are getting refunds, which also could bolster consumer spending, unless those dollars are simply eaten up by higher gas costs and mortgage debt. The IRS approved about 75.1 million refunds through April 4, up 2.1% from a year earlier. The dollar amount of refunds rose 5.1% to $183.04 billion. The average refund: $2,436, up about 3%.
Many taxpayers think of refunds as a convenient form of forced savings. But the Treasury doesn’t pay interest on refunds. Thus, those people effectively are giving interest-free loans to Uncle Sam.
The Treasury Department reported Thursday that individual income-tax revenues for the six months through March rose to $503.6 billion from $479.2 billion in the same six-month period a year earlier. For the full fiscal year, the government’s budget estimate calls for individual income-tax revenues of more than $1.2 trillion. (The government’s fiscal year ends Sept. 30.)
As for the dreaded audits, the IRS has audited only about 1% of all individual-income-tax returns in each of the past few years. Still, the number of individual-income-tax audits reached a 10-year high in 2007, and the IRS plans to increase the number of audits this year, with an eye on high-income taxpayers. This year, the IRS reported that audits of taxpayers making $100,000 or more rose 14% in 2007 from 2006, while audits for people making $200,000 or more rose 29%. They surged 84% for those with incomes of $1 million or more.
Amid the current mortgage crisis, there are a few new related tax-list twists to watch out for this year. Among them is a deduction for private-mortgage insurance premiums. There’s also a provision that will provide relief in certain cases where a lender forgave a debt on a taxpayer’s home.
Also, there are new record-keeping requirements for cash contributions: You can’t deduct any of your monetary donations, no matter how tiny, unless you have proof, such as a cancelled check or a receipt from the charity.
As for taxpayers who can’t finish their returns in the next few days, the IRS says the agency expects to receive a record 10.3 million extension requests, up from 10 million last year. Extensions automatically give the filer until Oct. 15, although it doesn’t give any additional time to pay whatever is owed.
Ramsey: Recession-proof yourself
From Dave Ramsey's April 2008 newsletter.
“The sky is falling! The sky is falling!” That sounds just like what all the media people are telling us these days. “Recession! Recession!” Calm down, Chicken Little! The sky is NOT falling, and we are not in a recession.
By definition, a recession doesn’t happen until the Gross Domestic Product (GDP) numbers - how you measure the number of goods made and sold in the USA - goes down for 6 consecutive months. That has not happened yet; therefore our country is not currently in a recession. However, the economy has slowed. We could be at the edge of a recession. But it’s no reason to completely freak out and think the world is going to collapse. Don’t let the talking heads on the nightly news make you emotional and cause you to freak out about the economy. If you let your emotions dictate your actions, you’re going to be broke your whole life.
What Can I Do About It?
Regardless of the condition of the national economy, it’s a MUST that you take a look at your own personal economy. Do you have your $1,000 emergency fund saved? Are you tackling your debt snowball like crazy? If you follow my Baby Steps in order, you’ll be able to prepare for yourself and your family so that you’ll hardly notice when the national economy or your household economy faces potential setbacks:
Baby Step 1: $1,000 Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They’re going to happen. It’s just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. This beginning emergency fund will keep life’s little Murphies from turning into new debt while you work off the old debt. Continue
Baby Step 2: The Debt Snowball
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan. Continue
Baby Step 3: Fully Funded Emergency Fund
Ask yourself, “Self, what would it take for you to live for 3 to 6 months if you lost your income?” Your answer to that question is how much you should save. Remember, this stash of money is NOT an investment; it is insurance you’re paying to yourself, a buffer between you and life. Continue
Most importantly, remember one last thing. Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won’t feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? YOU are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.
There’s no time like the present to get started and recession-proof yourself! I promise… it’s a plan that works EVERY time!
The media has correctly predicted 36 of the last 2 recessions.– Zig Ziglar
“The sky is falling! The sky is falling!” That sounds just like what all the media people are telling us these days. “Recession! Recession!” Calm down, Chicken Little! The sky is NOT falling, and we are not in a recession.
By definition, a recession doesn’t happen until the Gross Domestic Product (GDP) numbers - how you measure the number of goods made and sold in the USA - goes down for 6 consecutive months. That has not happened yet; therefore our country is not currently in a recession. However, the economy has slowed. We could be at the edge of a recession. But it’s no reason to completely freak out and think the world is going to collapse. Don’t let the talking heads on the nightly news make you emotional and cause you to freak out about the economy. If you let your emotions dictate your actions, you’re going to be broke your whole life.
What Can I Do About It?
Regardless of the condition of the national economy, it’s a MUST that you take a look at your own personal economy. Do you have your $1,000 emergency fund saved? Are you tackling your debt snowball like crazy? If you follow my Baby Steps in order, you’ll be able to prepare for yourself and your family so that you’ll hardly notice when the national economy or your household economy faces potential setbacks:
Baby Step 1: $1,000 Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They’re going to happen. It’s just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. This beginning emergency fund will keep life’s little Murphies from turning into new debt while you work off the old debt. Continue
Baby Step 2: The Debt Snowball
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan. Continue
Baby Step 3: Fully Funded Emergency Fund
Ask yourself, “Self, what would it take for you to live for 3 to 6 months if you lost your income?” Your answer to that question is how much you should save. Remember, this stash of money is NOT an investment; it is insurance you’re paying to yourself, a buffer between you and life. Continue
Most importantly, remember one last thing. Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won’t feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? YOU are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.
There’s no time like the present to get started and recession-proof yourself! I promise… it’s a plan that works EVERY time!
FT: A towering disciplinarian
The frugal former Fed chief blames the current crisis on lack of restraint, says Chrystia Freeland.
This article appeared in the April 12-13, 2008 weekend edition of the Financial Times on page 7.
In an age when Manhattan financiers own helicopters to escape the traffic on their weekend treks to the Hamptons, Paul Volcker embodies the customs of another time. The 80-year old former chairman of the US Federal Reserve astonishes his hosts at New York dinner parties by asking where the nearest subway stop is; and, according to William Neikirk, one of his biographers, when he was running the world's most important central bank Mr Volcker ferried his dirty washing from his modest Washington crash pad to his daughter's home in Virginia to save on laundry costs.
But "Tall Paul", as the shy, cigar-chomping 6ft 7in banker was nicknamed by reporters, represents bygone days in more than the penny-pinching habits of a Depression-era child. Henry Kaufman, legendary Wall Street economist, describes his friend of 50 years as "a classical person. I'm not saying that he studies philosophy, but he has deep feelings about responsibilities". Another friend, hedge fund manager and philanthropist George Soros, calls him "the exemplary public servant - he embodies that old idea of civic virtue".
This reputation, and Mr Volcker's defining achievement as the banker who slayed the double-digit inflation of hte late 1970s, lent a special weight to the speech he delivered this week about the country's economic crisis. "The bright new financial system - for all its talented participants, for all its rich rewards - has failed the test of the marketplace," he told the Economic Club of New York. Despite all the noise of the volatile markets, the world listened.
"He is a towering figure," says Roger Altman, the boutique investment banker who served in the Carter administration when Mr Volcker was at the Fed. "Almost no one can speak with the authority with which he does. That authority comes from his own remarkably successful tenure at the Fed and his own integrity and his reputation for straight talk."
It is the fate of central bankers, even those who left the job more than two decades ago, to have their words parsed for hidden meanings. Some analysts saw his remarks as an attack on Ben Bernanke, the Fed's current chairman. Others contrasted Mr Volcker's critique of the new financial paradigm with the latest comments of his successor, Alan Greenspan, in defence of his own laisser-fair tenure.
Mr Volcker - reputedly not a natural politician - told a person he is close to that these perceived internecine quarrels are a mis-representation of his views. Like a good central banker, he plans to resume a gnomic silence and allow his comments to "sit out there and settle" until their meaning becomes more apparent. Some of what he said, however, is pretty clear already.
He had harsh words for private sector bankers, whose compensation practices were "most invidious of all" in the loosening of the nation's financial discipline: "the mantra of aligning incentives seems to be lost in the failure to impose symmetrical losses - or frequently any loss at all - when failures ensue". He cautioned that "it is the United States as a whole that became addicted to spending and consuming beyond its capacity to produce". Foreign money and homegrown "financial legerdemain" disguised the problem for awhile, but the man who administered the most bitter monetary medicine the country has swallowed since the second world war warned that it is again time for "painful but necessary adjustments."
Perhaps most pointedly, Mr Volcker asked why government-sponsored lenders such as Fannie Mae and Freddie Mac were not doing more to restore confidence in the mortgage market. And he reminded his listeners that the Fed's main job is not to "take many billions of uncertain assets on to its balance sheets", but rather, as "custodian of the nation's money", to "protect its value and resist chronic pressures towards inflation".
For Mr Volcker, delivering bad news is practically a professional calling. Bob Karesh, who was a graduate student at Harvard with Mr Volcker, recalls a 1979 diner they shared after a meeting between Mr Volcker and President Jimmy Carter. The conversation had been a job interview of sorts and Mr Volcker told his old classmate he feared he had flunked it by warning that "the next Fed chairman might really have to tighten up".
Mr Carter appointed him anyway. But while Mr Volcker survived the public's fury at his punishing interest rates and the subsequent recession, the presient did not. Ronald Reagan, elected in part thanks to that dismal economic mood, appointed Mr Volcker to a second term, but then replaced him with the more expansionist Alan Greenspan.
Mr Volcker, who had divided his earlier career between government and the private sector, went back to Wall Street. Even someone as frugal as he was, he told friends, needed to make a little money. Yet before long, he was back to his true love - public service - doing everything from chairing an effort to develop international accounting standards to investigating the UN's troubled Oil for Food programme to helping police the World Bank.
"He has tackled one difficult subject after another," says Gerald Corrigan, former head of the New York Fed.
Mr Volcker's oldest confreres trace his civic commitment to his father, the city manager for their town of Teaneck, New Jersey. "Paul is not an intimate person," says Mr Kaufman, but he is known for his care for his family. All his friends mention his devotion to his late wife Barbara, who suffered debilitating rheumatoid arthritis, and whom Mr Volcker was often seen wheeling along 79th Street, near their Upper East Side home, or to private dinners.
His greatest private pleasure is fly-fishing - Mr Karesh says a whole room in his apartment given over to paraphernalia. Mr Kaufman says his old friend finally decided to initiate him into the sport about 10 years ago. The pair spent two days in the waters of the Beaverkill, New York, yielding just one small fish, which Mr Kaufman landed in the first hour. Yet Mr Kaufman recalls the experience with relish: "It was amazing how patient he was in teaching me."
Pete Peterson, the private equity billionaire, describes his long-time friend as a "lovable curmudgeon". He says Mr Volcker enjoys the fact that his colleagues "are never sure where he is going to come out" on an issue - as with his recent endorsement of Barack Obama's campaign for president. Mr Soros sums up his fellow "old fogey" thus: "He has no great ambition to wealth - he gets a lot of satisfaction from the respect he has earned."
This article appeared in the April 12-13, 2008 weekend edition of the Financial Times on page 7.
In an age when Manhattan financiers own helicopters to escape the traffic on their weekend treks to the Hamptons, Paul Volcker embodies the customs of another time. The 80-year old former chairman of the US Federal Reserve astonishes his hosts at New York dinner parties by asking where the nearest subway stop is; and, according to William Neikirk, one of his biographers, when he was running the world's most important central bank Mr Volcker ferried his dirty washing from his modest Washington crash pad to his daughter's home in Virginia to save on laundry costs.
But "Tall Paul", as the shy, cigar-chomping 6ft 7in banker was nicknamed by reporters, represents bygone days in more than the penny-pinching habits of a Depression-era child. Henry Kaufman, legendary Wall Street economist, describes his friend of 50 years as "a classical person. I'm not saying that he studies philosophy, but he has deep feelings about responsibilities". Another friend, hedge fund manager and philanthropist George Soros, calls him "the exemplary public servant - he embodies that old idea of civic virtue".
This reputation, and Mr Volcker's defining achievement as the banker who slayed the double-digit inflation of hte late 1970s, lent a special weight to the speech he delivered this week about the country's economic crisis. "The bright new financial system - for all its talented participants, for all its rich rewards - has failed the test of the marketplace," he told the Economic Club of New York. Despite all the noise of the volatile markets, the world listened.
"He is a towering figure," says Roger Altman, the boutique investment banker who served in the Carter administration when Mr Volcker was at the Fed. "Almost no one can speak with the authority with which he does. That authority comes from his own remarkably successful tenure at the Fed and his own integrity and his reputation for straight talk."
It is the fate of central bankers, even those who left the job more than two decades ago, to have their words parsed for hidden meanings. Some analysts saw his remarks as an attack on Ben Bernanke, the Fed's current chairman. Others contrasted Mr Volcker's critique of the new financial paradigm with the latest comments of his successor, Alan Greenspan, in defence of his own laisser-fair tenure.
Mr Volcker - reputedly not a natural politician - told a person he is close to that these perceived internecine quarrels are a mis-representation of his views. Like a good central banker, he plans to resume a gnomic silence and allow his comments to "sit out there and settle" until their meaning becomes more apparent. Some of what he said, however, is pretty clear already.
He had harsh words for private sector bankers, whose compensation practices were "most invidious of all" in the loosening of the nation's financial discipline: "the mantra of aligning incentives seems to be lost in the failure to impose symmetrical losses - or frequently any loss at all - when failures ensue". He cautioned that "it is the United States as a whole that became addicted to spending and consuming beyond its capacity to produce". Foreign money and homegrown "financial legerdemain" disguised the problem for awhile, but the man who administered the most bitter monetary medicine the country has swallowed since the second world war warned that it is again time for "painful but necessary adjustments."
Perhaps most pointedly, Mr Volcker asked why government-sponsored lenders such as Fannie Mae and Freddie Mac were not doing more to restore confidence in the mortgage market. And he reminded his listeners that the Fed's main job is not to "take many billions of uncertain assets on to its balance sheets", but rather, as "custodian of the nation's money", to "protect its value and resist chronic pressures towards inflation".
For Mr Volcker, delivering bad news is practically a professional calling. Bob Karesh, who was a graduate student at Harvard with Mr Volcker, recalls a 1979 diner they shared after a meeting between Mr Volcker and President Jimmy Carter. The conversation had been a job interview of sorts and Mr Volcker told his old classmate he feared he had flunked it by warning that "the next Fed chairman might really have to tighten up".
Mr Carter appointed him anyway. But while Mr Volcker survived the public's fury at his punishing interest rates and the subsequent recession, the presient did not. Ronald Reagan, elected in part thanks to that dismal economic mood, appointed Mr Volcker to a second term, but then replaced him with the more expansionist Alan Greenspan.
Mr Volcker, who had divided his earlier career between government and the private sector, went back to Wall Street. Even someone as frugal as he was, he told friends, needed to make a little money. Yet before long, he was back to his true love - public service - doing everything from chairing an effort to develop international accounting standards to investigating the UN's troubled Oil for Food programme to helping police the World Bank.
"He has tackled one difficult subject after another," says Gerald Corrigan, former head of the New York Fed.
Mr Volcker's oldest confreres trace his civic commitment to his father, the city manager for their town of Teaneck, New Jersey. "Paul is not an intimate person," says Mr Kaufman, but he is known for his care for his family. All his friends mention his devotion to his late wife Barbara, who suffered debilitating rheumatoid arthritis, and whom Mr Volcker was often seen wheeling along 79th Street, near their Upper East Side home, or to private dinners.
His greatest private pleasure is fly-fishing - Mr Karesh says a whole room in his apartment given over to paraphernalia. Mr Kaufman says his old friend finally decided to initiate him into the sport about 10 years ago. The pair spent two days in the waters of the Beaverkill, New York, yielding just one small fish, which Mr Kaufman landed in the first hour. Yet Mr Kaufman recalls the experience with relish: "It was amazing how patient he was in teaching me."
Pete Peterson, the private equity billionaire, describes his long-time friend as a "lovable curmudgeon". He says Mr Volcker enjoys the fact that his colleagues "are never sure where he is going to come out" on an issue - as with his recent endorsement of Barack Obama's campaign for president. Mr Soros sums up his fellow "old fogey" thus: "He has no great ambition to wealth - he gets a lot of satisfaction from the respect he has earned."
LTTE: Why are we pawning our offspring's future?
The following letter to the editor appeared in the April 12-13, 2008 weekend edition of the Financial Times on page 6.
Sir, I am living a rather ordinary sort of life. But when I read the April 10 edition of the FT I felt transported to Wonderland. On the first page, I read that the bankers are claiming an epiphany. They will be good boys from now on, holding to higher standards of lending probity and reasonable pay.
Further down the page a headline claimed higher oil prices seemed likely to induce the Federal Reserve to cut rates. No inflation-fighting here. Rather, Ben Bernanke, the Fed chairman, wants to promote more borrowing and spending to keep the decrepit US economy out of the grave. Never mind that it is excess household debt that has helped propel us into today's perilous position.
And, by the way, more debt means less savings, less investment and less economic growth. Does Mr Bernanke think about the effects of all this on his grandchildren? Do we consider what the effect will be on our grandchildren? What kind of society pawns the future of its offspring?
Turning to page two, I read that a panel of banking regulators has endorsed a $300bn-$400bn federal guarantee of refinanced mortgages.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, considers this will "avoid more dire consequences for all Americans". What dire consequences does she mean? Are they worse than increasing the national debt by more than $300bn? Are the consequences more dire for me who saves in order to weather rainy days such as we are having now courtesy of incompetent regulators who let the credit mess develop under their noses?
- Channing Wagg
Boxborough, MA 01719 US
Sir, I am living a rather ordinary sort of life. But when I read the April 10 edition of the FT I felt transported to Wonderland. On the first page, I read that the bankers are claiming an epiphany. They will be good boys from now on, holding to higher standards of lending probity and reasonable pay.
Further down the page a headline claimed higher oil prices seemed likely to induce the Federal Reserve to cut rates. No inflation-fighting here. Rather, Ben Bernanke, the Fed chairman, wants to promote more borrowing and spending to keep the decrepit US economy out of the grave. Never mind that it is excess household debt that has helped propel us into today's perilous position.
And, by the way, more debt means less savings, less investment and less economic growth. Does Mr Bernanke think about the effects of all this on his grandchildren? Do we consider what the effect will be on our grandchildren? What kind of society pawns the future of its offspring?
Turning to page two, I read that a panel of banking regulators has endorsed a $300bn-$400bn federal guarantee of refinanced mortgages.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, considers this will "avoid more dire consequences for all Americans". What dire consequences does she mean? Are they worse than increasing the national debt by more than $300bn? Are the consequences more dire for me who saves in order to weather rainy days such as we are having now courtesy of incompetent regulators who let the credit mess develop under their noses?
- Channing Wagg
Boxborough, MA 01719 US
Thursday, April 17, 2008
Financial Times - Iceland interest rates rise to record 15.5%
This article appeared on page 2 of the Friday April 11, 2008 issue of the Financial Times.
By David Ibison
in Stockholm
Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it storve to restore confidence in its struggling currency and quench fears of a banking crisis.
The move puts the tiny North Atlantic nation above Turkey's rate of 15.25 per cent and comes just two weeks after it imposed an emergency 1.25 percentage point rise to 15 per cent, underscoring the depth of its problems.
On top of the aggressive action taken by the central bank, the authorieis are also considering further moves to ease investors' fears, such as co-ordinated action by Nordic central banks to provide additional liquidity, if needed.
There was disappointment that this proposed action plan was not unveiled yesterday.
"A sluggish reaction will hurt the financial system, financial stability and the authorities' credibility," said Glitnir Research, the research arm of the Icelandic bank, in a report. "Moreover, non-action will also play a large role in the credit rating of Iceland's sovereign debt, which is on negative outlook at all three major rating agencies, Moody's, Fitch and S&P."
But the central bank did make clear it was prepared to bolster Iceland's foreign exchange reserves in the near future.
"A policy rate increase in and of itself does not solve the problems that have developed in the FX swap market," it said. "Increased issuance of risk-free bonds that are accessible to foreign investors should open up other channels for currency inflow."
Confidence in the krona, Iceland's currency, has been damaged this year because of economic imbalances in the economy and fears over the viability of the banking sector. The krona has weakened by some 25 per cent against the euro this year.
The inflation rate was 8.7 per cent in March, well above the government's target of 2.5 per cent, and the central bank said yesterday it expected inflation to peak at 11 per cent by the third quarter of this year, pushing interest rates up further.
"Persistent inflation will be most damaging to indebted businesses and households and can undermine financial stability for the long term," it said. "It is therefore of paramount importance that inflation be brought under control."
Iceland's economic weaknesses have been exacerbated by the deterioration in global financial markets, which have led to a drastic reassessment of risk and undermined confidence in its highly leveraged banks.
On top of these macro-economic pressures, the authorities in Iceland also believe the country's financial markets may have been weakened via a speculative attack by international hedge funds.
By David Ibison
in Stockholm
Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it storve to restore confidence in its struggling currency and quench fears of a banking crisis.
The move puts the tiny North Atlantic nation above Turkey's rate of 15.25 per cent and comes just two weeks after it imposed an emergency 1.25 percentage point rise to 15 per cent, underscoring the depth of its problems.
On top of the aggressive action taken by the central bank, the authorieis are also considering further moves to ease investors' fears, such as co-ordinated action by Nordic central banks to provide additional liquidity, if needed.
There was disappointment that this proposed action plan was not unveiled yesterday.
"A sluggish reaction will hurt the financial system, financial stability and the authorities' credibility," said Glitnir Research, the research arm of the Icelandic bank, in a report. "Moreover, non-action will also play a large role in the credit rating of Iceland's sovereign debt, which is on negative outlook at all three major rating agencies, Moody's, Fitch and S&P."
But the central bank did make clear it was prepared to bolster Iceland's foreign exchange reserves in the near future.
"A policy rate increase in and of itself does not solve the problems that have developed in the FX swap market," it said. "Increased issuance of risk-free bonds that are accessible to foreign investors should open up other channels for currency inflow."
Confidence in the krona, Iceland's currency, has been damaged this year because of economic imbalances in the economy and fears over the viability of the banking sector. The krona has weakened by some 25 per cent against the euro this year.
The inflation rate was 8.7 per cent in March, well above the government's target of 2.5 per cent, and the central bank said yesterday it expected inflation to peak at 11 per cent by the third quarter of this year, pushing interest rates up further.
"Persistent inflation will be most damaging to indebted businesses and households and can undermine financial stability for the long term," it said. "It is therefore of paramount importance that inflation be brought under control."
Iceland's economic weaknesses have been exacerbated by the deterioration in global financial markets, which have led to a drastic reassessment of risk and undermined confidence in its highly leveraged banks.
On top of these macro-economic pressures, the authorities in Iceland also believe the country's financial markets may have been weakened via a speculative attack by international hedge funds.
Tuesday, April 15, 2008
Happy Tax Day
Happy Tax Day everybody! Once again, the Federal government will collect more revenue than it knows what to do with, but not enough to make up for frivolous spending.
As of yesterday (per TreasuryDirect), the public portion of debt stands at: $5,349,210,909,674.63
Intragovernmental holdings are: $4,095,188,999,068.57
Giving us a Tax Day 2008 bill of: $9,444,399,908,743.20
Good luck in making it through the next year financially.
As of yesterday (per TreasuryDirect), the public portion of debt stands at: $5,349,210,909,674.63
Intragovernmental holdings are: $4,095,188,999,068.57
Giving us a Tax Day 2008 bill of: $9,444,399,908,743.20
Good luck in making it through the next year financially.
Friday, April 11, 2008
WSJ: The Tax Me More Act
From the Friday April 11, 2008 Wall Street Journal opinion page (A16).
We recently suggested that if Bill and Hillary Clinton are eager to pay more taxes, they should write a personal check to the U.S. Treasury to compensate for the lower tax rates they so frequently decry. And lo, here comes legislation to make it easier for the former first lady and other pseudo-populists to do just that.
California Republican John Campbell yesterday introduced in the House his "Put Your Money Where Your Mouth Is Act," which would amend the tax code to allow individuals to make voluntary donations to the federal government above their normal tax liability. The bill would place a new line on IRS tax forms to make this easy.
Mr. Campbell says he has heard the "cries" of those wealthy Americans - Mrs. Clinton, Warren Buffett, Barbra Streisand- who reject the lower tax rates passed in 2001 and 2003 and complain that they and their fellow rich don't pay enough. "It's a great injustice that citizens wishing to fulfill their dream of paying more taxes cannot simply check a box on their 1040 form to make a donation," he says. His bill would give liberals a chance to salve their consciences without having to raise taxes on millions of Americans who already feel overtaxed as it is.
Still, don't expect many to take Mr. Campbell up on his offer. The Treasury already accepts voluntary donations to decrease the nation's debt; last year it received all of $2.6 million. Apparently even most liberals would rather keep their money, or bequeath their estates to charity rather than to the IRS.
We recently suggested that if Bill and Hillary Clinton are eager to pay more taxes, they should write a personal check to the U.S. Treasury to compensate for the lower tax rates they so frequently decry. And lo, here comes legislation to make it easier for the former first lady and other pseudo-populists to do just that.
California Republican John Campbell yesterday introduced in the House his "Put Your Money Where Your Mouth Is Act," which would amend the tax code to allow individuals to make voluntary donations to the federal government above their normal tax liability. The bill would place a new line on IRS tax forms to make this easy.
Mr. Campbell says he has heard the "cries" of those wealthy Americans - Mrs. Clinton, Warren Buffett, Barbra Streisand- who reject the lower tax rates passed in 2001 and 2003 and complain that they and their fellow rich don't pay enough. "It's a great injustice that citizens wishing to fulfill their dream of paying more taxes cannot simply check a box on their 1040 form to make a donation," he says. His bill would give liberals a chance to salve their consciences without having to raise taxes on millions of Americans who already feel overtaxed as it is.
Still, don't expect many to take Mr. Campbell up on his offer. The Treasury already accepts voluntary donations to decrease the nation's debt; last year it received all of $2.6 million. Apparently even most liberals would rather keep their money, or bequeath their estates to charity rather than to the IRS.
WSJ: U.S. Deficit Hits Record As Corporate Profits Fall
From the Friday April 11, 2008 issue of the Wall Street Journal (page A12)
By Michael M. Phillips
The foreclosure crisis and the turmoil on Wall Street appear to be putting a squeeze on the federal budget, leaving record deficits in their wake as corporate-income-tax revenues fall.
The Treasury Department reported Thursday that receipts from corporate income taxes fell 16% to $129 billion in the first half of fiscal 2008, which began Oct. 1. The federal deficit during the period hit an all-time high of $311 billion, and was up 20% from a year earlier.
"Corporate tax revenues are declining significantly," Peter Orszag, head of the nonpartisan Congressional Budget Office, said in an interview. "We're experiencing a period in which corporate tax revenues grew extremely rapidly for several years, and now that's being reversed to some degree."
While government data don't identify revenue sources by industry, analysts looking at corporate profitibability say that the biggest revenue declines probably are due to the setbacks to banks, investment banks and other financial institutions arising from the collapse of the subprime-mortgage market.
"It's partly an economic slowdown, but it's much more focused than that," said J.D. Foster, a former chief economist at the White House Office of Management and Budget and now a senior fellow at the conserative Heritage Foundation. "In recent years we have gotten an inordinate proportion of our corporate tax receipts from the financial sector. And who's getting hammered [now]?"
The wave of home-loan defaults sweeping the nation has sent shocks through banks and Wall Street firms that invested heavily in risky securities backed by those mortgages. The International Monetary Fund forecast this week that, over two years, the crisis will saddle financial institutions world-wide with $945 billion in losses.
In part because of rising revenues from taxes on individuals' incomes, federal receipts overall hit a record in the first half of the fiscal year, reaching $1.15 trillion, an increase of 2% from a year earlier. Individual-income-tax receipts accounted for $504 billion, up from $479 billion in the first half of fiscal 2007. The periods ended before the height of the tax-filing season in early April.
Nonetheless, the reduction in corporate tax revenues combined with a 6% jump in federal spending to $1.46 trillion to create the record budget shortfall.
By Michael M. Phillips
The foreclosure crisis and the turmoil on Wall Street appear to be putting a squeeze on the federal budget, leaving record deficits in their wake as corporate-income-tax revenues fall.
The Treasury Department reported Thursday that receipts from corporate income taxes fell 16% to $129 billion in the first half of fiscal 2008, which began Oct. 1. The federal deficit during the period hit an all-time high of $311 billion, and was up 20% from a year earlier.
"Corporate tax revenues are declining significantly," Peter Orszag, head of the nonpartisan Congressional Budget Office, said in an interview. "We're experiencing a period in which corporate tax revenues grew extremely rapidly for several years, and now that's being reversed to some degree."
While government data don't identify revenue sources by industry, analysts looking at corporate profitibability say that the biggest revenue declines probably are due to the setbacks to banks, investment banks and other financial institutions arising from the collapse of the subprime-mortgage market.
"It's partly an economic slowdown, but it's much more focused than that," said J.D. Foster, a former chief economist at the White House Office of Management and Budget and now a senior fellow at the conserative Heritage Foundation. "In recent years we have gotten an inordinate proportion of our corporate tax receipts from the financial sector. And who's getting hammered [now]?"
The wave of home-loan defaults sweeping the nation has sent shocks through banks and Wall Street firms that invested heavily in risky securities backed by those mortgages. The International Monetary Fund forecast this week that, over two years, the crisis will saddle financial institutions world-wide with $945 billion in losses.
In part because of rising revenues from taxes on individuals' incomes, federal receipts overall hit a record in the first half of the fiscal year, reaching $1.15 trillion, an increase of 2% from a year earlier. Individual-income-tax receipts accounted for $504 billion, up from $479 billion in the first half of fiscal 2007. The periods ended before the height of the tax-filing season in early April.
Nonetheless, the reduction in corporate tax revenues combined with a 6% jump in federal spending to $1.46 trillion to create the record budget shortfall.
Monday, April 7, 2008
Monthly National Debt Statement for March 2008
The newest figures are available at www.TreasuryDirect.gov for the month of March 2008.
As for April 4, 2008, the national debt is: $9,438,509,689,837.02
Public component: $5,346,703,634,865.43
Intragovernmental: $4,091,806,054,971.59
Interest payments:
March 2008 - $23,023,540,357.53
Fiscal Year- $221,541,307,516.69
Public Contributions:
February 2008 - $359,697.45
FY 2008-to-date - $887,459.53
There are six months remaining in Fiscal Year 2008.
With April 15 coming, "Happy Tax Season"
As for April 4, 2008, the national debt is: $9,438,509,689,837.02
Public component: $5,346,703,634,865.43
Intragovernmental: $4,091,806,054,971.59
Interest payments:
March 2008 - $23,023,540,357.53
Fiscal Year- $221,541,307,516.69
Public Contributions:
February 2008 - $359,697.45
FY 2008-to-date - $887,459.53
There are six months remaining in Fiscal Year 2008.
With April 15 coming, "Happy Tax Season"
Friday, March 28, 2008
Reuters: U.S. Seeks enhanced financial authority for Fed
By John Poirier and Glenn Somerville
(Reuters) The U.S. Treasury Department will propose on Monday that the Federal Reserve be given sweeping new powers that would make it chief regulator with authority to take actions to ensure market stability.
An executive summary of the proposals published by the New York Times, which Treasury Secretary Henry Paulson will make public on Monday when he unveils a blueprint for regulatory overhaul, says it is vital to fix "regulatory gaps and redundancies" exposed by an ongoing subprime mortgage crisis.
Lax regulation has been widely blamed for permitting a flood of inadequately documented loans to be made during the boom years of a U.S. housing market that has since soured and now threatens to drag the economy into a deep recession.
The proposals say a "market stability regulator" is needed and the Fed best fits that role, suggesting the central bank could use its control over interest rates as well as its ability to provide market liquidity to fulfill its functions.
It proposes that the Fed be given broad authority to require information from all participants in financial markets and a right to collaborate with other regulators in writing the rules that companies and institutions must follow.
NEW FED POWERS
If the Fed finds that the actions of some market participants pose risks for the overall financial system or the economy, "the Federal Reserve should have authority to require corrective action to address current risks or to constrain future risk-taking," the summary said.
Among other recommendations, Treasury suggests merging the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission that oversees the activities of the futures market.
It also recommends getting rid of a Depression-era charter for thrifts that was intended to make it easier to obtain mortgage loans, saying it is no longer necessary. That would mean closing up the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency that oversees national banks.
Treasury officials refused on Friday to reveal details of the proposals but numerous trade groups had been invited to a speech by Paulson on Monday at Treasury and speculation quickly swelled that its long-awaited prescription for streamlining regulation was at hand.
Treasury said it has been working on its proposals since March last year, well before calls for an overhaul began to intensify in the wake of the subprime mortgage crisis that began to wreak havoc last summer on financial markets.
Paulson had signaled some of the direction the proposals would take earlier this week when he said that since the Fed had taken the exceptional step of permitting investment banks access to its discount window for loans -- the first time it has done so for any financial entities besides commercial banks since the 1930s -- it should have some authority over the investment banks.
ACCESS BRINGS RULES
"Certainly any regular access to the discount window should involve the same type of regulation and supervision," he said in a speech to the U.S. Chamber of Commerce.
Another proposal would provide an option for insurance companies to obtain a charter to do business under federal regulation, though it says the current state-based system would continue for any that did not get a federal charter.
Most of the financial services industry in the United States is regulated by federal authorities except insurance, which the states supervise. For years, big insurance companies, however, have been calling for an optional federal charter.
The chairman of the House Financial Services Committee, Democratic Rep. Barney Frank, last week said Congress should seriously consider giving a federal agency the power to monitor all risk in the financial system and act when necessary, regardless of its corporate form.
Frank suggested one possibility would be to empower the fed as "Financial Services Risk Regulator," an idea that Treasury's proposals appear to broadly embrace.
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House.
(Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
(Reuters) The U.S. Treasury Department will propose on Monday that the Federal Reserve be given sweeping new powers that would make it chief regulator with authority to take actions to ensure market stability.
An executive summary of the proposals published by the New York Times, which Treasury Secretary Henry Paulson will make public on Monday when he unveils a blueprint for regulatory overhaul, says it is vital to fix "regulatory gaps and redundancies" exposed by an ongoing subprime mortgage crisis.
Lax regulation has been widely blamed for permitting a flood of inadequately documented loans to be made during the boom years of a U.S. housing market that has since soured and now threatens to drag the economy into a deep recession.
The proposals say a "market stability regulator" is needed and the Fed best fits that role, suggesting the central bank could use its control over interest rates as well as its ability to provide market liquidity to fulfill its functions.
It proposes that the Fed be given broad authority to require information from all participants in financial markets and a right to collaborate with other regulators in writing the rules that companies and institutions must follow.
NEW FED POWERS
If the Fed finds that the actions of some market participants pose risks for the overall financial system or the economy, "the Federal Reserve should have authority to require corrective action to address current risks or to constrain future risk-taking," the summary said.
Among other recommendations, Treasury suggests merging the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission that oversees the activities of the futures market.
It also recommends getting rid of a Depression-era charter for thrifts that was intended to make it easier to obtain mortgage loans, saying it is no longer necessary. That would mean closing up the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency that oversees national banks.
Treasury officials refused on Friday to reveal details of the proposals but numerous trade groups had been invited to a speech by Paulson on Monday at Treasury and speculation quickly swelled that its long-awaited prescription for streamlining regulation was at hand.
Treasury said it has been working on its proposals since March last year, well before calls for an overhaul began to intensify in the wake of the subprime mortgage crisis that began to wreak havoc last summer on financial markets.
Paulson had signaled some of the direction the proposals would take earlier this week when he said that since the Fed had taken the exceptional step of permitting investment banks access to its discount window for loans -- the first time it has done so for any financial entities besides commercial banks since the 1930s -- it should have some authority over the investment banks.
ACCESS BRINGS RULES
"Certainly any regular access to the discount window should involve the same type of regulation and supervision," he said in a speech to the U.S. Chamber of Commerce.
Another proposal would provide an option for insurance companies to obtain a charter to do business under federal regulation, though it says the current state-based system would continue for any that did not get a federal charter.
Most of the financial services industry in the United States is regulated by federal authorities except insurance, which the states supervise. For years, big insurance companies, however, have been calling for an optional federal charter.
The chairman of the House Financial Services Committee, Democratic Rep. Barney Frank, last week said Congress should seriously consider giving a federal agency the power to monitor all risk in the financial system and act when necessary, regardless of its corporate form.
Frank suggested one possibility would be to empower the fed as "Financial Services Risk Regulator," an idea that Treasury's proposals appear to broadly embrace.
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House.
(Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
Monday, March 24, 2008
WSJ: In Debt Crisis, Uncle Sam Is Piling It On
From the 3/24/2008 issue of the Wall Street Journal comes this story written by Mark Gongloff.
While everybody else is running headlong from the burning building of debt, Uncle Sam looks like he is rushing in the other direction.
As the credit crisis deepens, there's every reason to expect old-fashioned Keynesianism to become de rigueur, with the government blowing out the budget to make the downturn less painful.
It started with the recently passed $152 billion stimulus package, and it probably doesn't end there. The government is also building massive backstops for the financial system and the housing market, agreeing to hold or guarantee trillions of dollars in mortgage and other private loans through the Federal Reserve, and, less directly, through federal home loan banks, Fannie Mae and Freddie Mac.
The next steps could be more stimulus, direct bank bailouts and government purchases of mortgage securities, easily dwarfing the $125 billion or so the government spent to fix the savings and loan debacle. The alternative could be a far more devastating economic downturn now.
Is the government in any position to take on this burden? At the moment, the federal budget seems to have wiggle room. The deficit shrank last year to 1.2% of gross domestic product, the lowest since the budget was in surplus in 2001. And the Congressional Budget Office projects surpluses will reappear in 2012.
But the CBO estimates aren't very realistic. They don't take into account the stimulus package, spending on wars in Iraq and Afghanistan wars (sic) or patches for the alternative minimum tax. Nor do they account for an economic slowdown that is already having an impact on federal tax receipts. Both corporate and personal non-withheld receipts turned negative on a year-over-year basis in the fourth quarter, according to Goldman Sachs analysts, who estimate the deficit will jump to 3% of GDP this year and in 2009 - double the CBO's forecast.
Meanwhile, presidential candidates of both parties are making promises that will cost trillions of dollars more if they keep them, either in expanded health-care coverage or making the 2001 and 2003 tax cuts permanent. More ominously, all of this comes as millions of baby boomers are on the threshold of retirement, which will lead to an explosion of Medicare and Social Security spending in the years ahead.
In theory, deficits push interest rates higher as government debt competes with private debt for investors' attention. A 2003 Fed study estimated that every time the budget deficit rises by one percentage point of gross domestic product, it adds one quarter of a percentage point to what long-term rates would otherwise be.
The budget has been in deficit for most of the past two decades with little noticeable impact on borrowing costs. This is largely because foreign investors, mainly central banks, have been happy to finance the profligate spending of U.S. consumers, lawmakers and presidents by snatching up Treasury bonds, keeping the rates low.
As long as they're willing to keep buying U.S. assets, this happy symbiosis can last. At some point, they might start to worry about America's ability to pay its growing debts.
Then Uncle Sam will ahve to start deleveraging, too.
Email mark.gongloff@wsj.com
While everybody else is running headlong from the burning building of debt, Uncle Sam looks like he is rushing in the other direction.
As the credit crisis deepens, there's every reason to expect old-fashioned Keynesianism to become de rigueur, with the government blowing out the budget to make the downturn less painful.
It started with the recently passed $152 billion stimulus package, and it probably doesn't end there. The government is also building massive backstops for the financial system and the housing market, agreeing to hold or guarantee trillions of dollars in mortgage and other private loans through the Federal Reserve, and, less directly, through federal home loan banks, Fannie Mae and Freddie Mac.
The next steps could be more stimulus, direct bank bailouts and government purchases of mortgage securities, easily dwarfing the $125 billion or so the government spent to fix the savings and loan debacle. The alternative could be a far more devastating economic downturn now.
Is the government in any position to take on this burden? At the moment, the federal budget seems to have wiggle room. The deficit shrank last year to 1.2% of gross domestic product, the lowest since the budget was in surplus in 2001. And the Congressional Budget Office projects surpluses will reappear in 2012.
But the CBO estimates aren't very realistic. They don't take into account the stimulus package, spending on wars in Iraq and Afghanistan wars (sic) or patches for the alternative minimum tax. Nor do they account for an economic slowdown that is already having an impact on federal tax receipts. Both corporate and personal non-withheld receipts turned negative on a year-over-year basis in the fourth quarter, according to Goldman Sachs analysts, who estimate the deficit will jump to 3% of GDP this year and in 2009 - double the CBO's forecast.
Meanwhile, presidential candidates of both parties are making promises that will cost trillions of dollars more if they keep them, either in expanded health-care coverage or making the 2001 and 2003 tax cuts permanent. More ominously, all of this comes as millions of baby boomers are on the threshold of retirement, which will lead to an explosion of Medicare and Social Security spending in the years ahead.
In theory, deficits push interest rates higher as government debt competes with private debt for investors' attention. A 2003 Fed study estimated that every time the budget deficit rises by one percentage point of gross domestic product, it adds one quarter of a percentage point to what long-term rates would otherwise be.
The budget has been in deficit for most of the past two decades with little noticeable impact on borrowing costs. This is largely because foreign investors, mainly central banks, have been happy to finance the profligate spending of U.S. consumers, lawmakers and presidents by snatching up Treasury bonds, keeping the rates low.
As long as they're willing to keep buying U.S. assets, this happy symbiosis can last. At some point, they might start to worry about America's ability to pay its growing debts.
Then Uncle Sam will ahve to start deleveraging, too.
Email mark.gongloff@wsj.com
Saturday, March 22, 2008
IRS Publication - Gift To Reduce Debt Held by the Public
Good information if you want to help reduce the National Debt. Gifts to Reduce the Debt Held by the Public ARE tax deductible. A contribution in 2008 will be tax deductible in 2009. See instructions below:
From IRS Publication 17 (2007 Tax Year)
Gift To Reduce Debt Held by the Public
You can make a contribution (gift) to reduce debt held by the public. If you wish to do so, make a separate check payable to “Bureau of the Public Debt.” Send your check to:
Bureau of the Public Debt
Department G
P.O. Box 2188
Parkersburg, WV 26106-2188.
Or, enclose your separate check in the envelope with your income tax return. Do not add this gift to any tax you owe.
You can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A (Form 1040).
From IRS Publication 17 (2007 Tax Year)
Gift To Reduce Debt Held by the Public
You can make a contribution (gift) to reduce debt held by the public. If you wish to do so, make a separate check payable to “Bureau of the Public Debt.” Send your check to:
Bureau of the Public Debt
Department G
P.O. Box 2188
Parkersburg, WV 26106-2188.
Or, enclose your separate check in the envelope with your income tax return. Do not add this gift to any tax you owe.
You can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A (Form 1040).
AP: Treasury cuts minimum bill from $1,000 to $100
The following appeared on page 2C of the March 22, 2008 edition of the St. Paul Pioneer Press.
The Treasury Department deals in millions and billions and even trillions of dollars, but it can think small, too.
Officials announced Friday that starting next month, individuals will be able to buy Treasury securities in amounts as small as $100, down from the current minimum of $1,000.
The chane will take effect for the weekly auction of three-month and six-month Treasury bills that will be held on April 7.
The Treasury Department said the reduction in minimum bid amounts is being made possible by an improved processing system for government debt auctions. The hoe is that the reduction will attract smaller investors.
"U.S. Treasury securities, the world's safest, most liquid investments, should be accessible to the broadest universe of investors - large and small," said Anthony Ryan, assistant Treasury secretary for financial markets. "Being able to buy securities in $100 increments adds a new degree of flexibility for all market participants."
The reduction in the minimum sales amount is the first to occur since 1998, when the pruchase amount was cut to $1,000. Prior to that time, the minimum purcashe amount had been $10,000 for Treasury bills, which are securities with a maturity of one year or less, and $5,000 for Treasury notes witha maturity of up to four years.
Individuals can purchase Treasury securities directly from the Treasury Department by going to treasurydirect.gov to open an online account. - Associated Press
The Treasury Department deals in millions and billions and even trillions of dollars, but it can think small, too.
Officials announced Friday that starting next month, individuals will be able to buy Treasury securities in amounts as small as $100, down from the current minimum of $1,000.
The chane will take effect for the weekly auction of three-month and six-month Treasury bills that will be held on April 7.
The Treasury Department said the reduction in minimum bid amounts is being made possible by an improved processing system for government debt auctions. The hoe is that the reduction will attract smaller investors.
"U.S. Treasury securities, the world's safest, most liquid investments, should be accessible to the broadest universe of investors - large and small," said Anthony Ryan, assistant Treasury secretary for financial markets. "Being able to buy securities in $100 increments adds a new degree of flexibility for all market participants."
The reduction in the minimum sales amount is the first to occur since 1998, when the pruchase amount was cut to $1,000. Prior to that time, the minimum purcashe amount had been $10,000 for Treasury bills, which are securities with a maturity of one year or less, and $5,000 for Treasury notes witha maturity of up to four years.
Individuals can purchase Treasury securities directly from the Treasury Department by going to treasurydirect.gov to open an online account. - Associated Press
Thursday, March 6, 2008
Newest National Debt Statistics posted - Feb 08
The newest Monthly Statement of the Public Debt is now available at www.treasurydirect.gov
As of March 5, 2008, the National Debt is as follows:
Held by Public: $5,288,773,781,817.85
Intragovernmental Holdings: $4,091,652,694,295.38
Total size as of 3/5/08: $9,380,426,476,113.23
Interest payment - February 2008: $20,037,492,573.51
Interest payment - Fiscal Year: $198,517,767,159.16
The Fiscal Year payments reflect interest payments made as of October 2007.
Gifts to reduce the public debt: Jan 08 - $197,155.19
Gifts to reduce the public debt: FY 2008- $527,772.08
Gifts to reduce the public debt: FY07 $2,624,862.42
As of March 5, 2008, the National Debt is as follows:
Held by Public: $5,288,773,781,817.85
Intragovernmental Holdings: $4,091,652,694,295.38
Total size as of 3/5/08: $9,380,426,476,113.23
Interest payment - February 2008: $20,037,492,573.51
Interest payment - Fiscal Year: $198,517,767,159.16
The Fiscal Year payments reflect interest payments made as of October 2007.
Gifts to reduce the public debt: Jan 08 - $197,155.19
Gifts to reduce the public debt: FY 2008- $527,772.08
Gifts to reduce the public debt: FY07 $2,624,862.42
Friday, February 29, 2008
Democrat's Bill Sets Up Credit-Card Showdown
by Damian Paletta
Wall Street Journal
Thursday February 7, 2008 Pg D3
Democrats in Congress are pushing for new restrictions on credit-card companies in what could become a hot election-year issue.
Credit cards are a big concern in Washington because constituents often complain to lawmakers about confusing credit-card terms. The amount of credit-card debt is rising as the economy worsens, which will likely increase the volume of complaints.
The banking industry, for its part, is warning that legislative interference could make it even harder for consumers to access credit amid an overall tightening of credit markets.
Rep. Carolyn Maloney (D., N.Y.) could introduce a bill as soon as today that would require card companies to notify customers at least 45 days before increasing rates and prohibit companies from "arbitrarily" changing contract terms. It would require companies to mail credit-card tatements at least 25 days before payments are due, giving customers more room to avoid late fees.
"One of the things consumers are very disturbed about it when they have a contract on a card and their rates go up and the terms change," said Rep. Maloney, who chairs the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.
Her bill has the backing of House Financial Services Committee Chairman Barney Frank (D., Mass.), and several senators also have vowed to take up the matter. The push would broaden the Democrats' consumer-protection agenda beyond the mortgage industry, where much of their energy was focused last year.
A 2006 U.S. Government Accountability Office study said there were nearly 700 million outstanding credit cards, with U.S. consumers charging $1.8 trillion on their cards in 2005.
The banking industry is already girding for a fight over possible legislation. "It impacts our ability to price our products, manage risk, and ultimately our ability to offer low-rate competitive products for consumers," said Kenneth Clayton, managing director of the American Bankers Association's Card Policy Council.
Rep. Maloney said the banking industry is exaggerating her bill's impact. "What the bill fosters is fair competition and the values of a free market," she said. "It includes no price controls, no rate caps, no fee setting, and it doesn't dictate any business models to companies."
Last year, Democrats tried to persuade bank regulators into doing more to curb credit-card industry practices, and Rep. Maloney has been working on the legislation for close to a year. Separately, the Federal Reserve has been working on new policies that would attempt to improve the disclosures card companies are required to give customers.
Borrowing from cards and other unsecured lines of credit rose an annualized 11.3% in November to $937.5 billion, according to the Fed.
Wall Street Journal
Thursday February 7, 2008 Pg D3
Democrats in Congress are pushing for new restrictions on credit-card companies in what could become a hot election-year issue.
Credit cards are a big concern in Washington because constituents often complain to lawmakers about confusing credit-card terms. The amount of credit-card debt is rising as the economy worsens, which will likely increase the volume of complaints.
The banking industry, for its part, is warning that legislative interference could make it even harder for consumers to access credit amid an overall tightening of credit markets.
Rep. Carolyn Maloney (D., N.Y.) could introduce a bill as soon as today that would require card companies to notify customers at least 45 days before increasing rates and prohibit companies from "arbitrarily" changing contract terms. It would require companies to mail credit-card tatements at least 25 days before payments are due, giving customers more room to avoid late fees.
"One of the things consumers are very disturbed about it when they have a contract on a card and their rates go up and the terms change," said Rep. Maloney, who chairs the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.
Her bill has the backing of House Financial Services Committee Chairman Barney Frank (D., Mass.), and several senators also have vowed to take up the matter. The push would broaden the Democrats' consumer-protection agenda beyond the mortgage industry, where much of their energy was focused last year.
A 2006 U.S. Government Accountability Office study said there were nearly 700 million outstanding credit cards, with U.S. consumers charging $1.8 trillion on their cards in 2005.
The banking industry is already girding for a fight over possible legislation. "It impacts our ability to price our products, manage risk, and ultimately our ability to offer low-rate competitive products for consumers," said Kenneth Clayton, managing director of the American Bankers Association's Card Policy Council.
Rep. Maloney said the banking industry is exaggerating her bill's impact. "What the bill fosters is fair competition and the values of a free market," she said. "It includes no price controls, no rate caps, no fee setting, and it doesn't dictate any business models to companies."
Last year, Democrats tried to persuade bank regulators into doing more to curb credit-card industry practices, and Rep. Maloney has been working on the legislation for close to a year. Separately, the Federal Reserve has been working on new policies that would attempt to improve the disclosures card companies are required to give customers.
Borrowing from cards and other unsecured lines of credit rose an annualized 11.3% in November to $937.5 billion, according to the Fed.
Homes in foreclosure soar 79% in '07
St. Paul Pioneer Press
Wednesday January 30, 2008 Pg 2C
The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year. About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine, Calif.-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million. More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said. Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.
Wednesday January 30, 2008 Pg 2C
The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year. About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine, Calif.-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million. More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said. Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.
Those Pell Vouchers
Wall Street Journal
Wednesday January 30, 2008 Pg A16
If unrestricted federal education grants are kosher for college students, why not for grades K-12 too? That's the question President Bush is asking with his cheeky proposal Monday to create Pell Grants for Kids, a program to offer $300 million in scholarships that low-income students could use to attend the school of their choice.
Pell grants for college are among the most popular ways to spend money in Washington. Over the past seven years, Members from both sides of the aisle have lined up to expand the number and size of these grants that students can use to attend the college or university of their choice, public or private. Last year, 5.3 million students received a total of $14 billion in Pell grants, up from 4.3 million students receiving $8.8 billion at the start of the Bush Presidency. However, what no one wants to admit is that Pell grants are essentially "vouchers," with the decision about where to spend the money in the hands of parents and students.
Mr. Bush's proposal would give Pell grants to students stuck in public secondary and elementary schools that have failed to meet federal testing benchmarks for five years running or that suffer high drop out rates. The bulk of that money would go to inner-city students who otherwise have little chance of going to college or even finishing high school. In the same way, the D.C. Opportunity Scholarship program has given 2,600 of the poorest students in Washington a better chance at a good education.
Neither of these programs is getting anywhere in the current Congress, however, and the new Pell grant proposal was immediately denounced by Democrats. The reason, as ever, is because K-12 education is dominated by a union monopoly that can't abide parental choice. Lucky for students the same unions don't yet run American universities.
Wednesday January 30, 2008 Pg A16
If unrestricted federal education grants are kosher for college students, why not for grades K-12 too? That's the question President Bush is asking with his cheeky proposal Monday to create Pell Grants for Kids, a program to offer $300 million in scholarships that low-income students could use to attend the school of their choice.
Pell grants for college are among the most popular ways to spend money in Washington. Over the past seven years, Members from both sides of the aisle have lined up to expand the number and size of these grants that students can use to attend the college or university of their choice, public or private. Last year, 5.3 million students received a total of $14 billion in Pell grants, up from 4.3 million students receiving $8.8 billion at the start of the Bush Presidency. However, what no one wants to admit is that Pell grants are essentially "vouchers," with the decision about where to spend the money in the hands of parents and students.
Mr. Bush's proposal would give Pell grants to students stuck in public secondary and elementary schools that have failed to meet federal testing benchmarks for five years running or that suffer high drop out rates. The bulk of that money would go to inner-city students who otherwise have little chance of going to college or even finishing high school. In the same way, the D.C. Opportunity Scholarship program has given 2,600 of the poorest students in Washington a better chance at a good education.
Neither of these programs is getting anywhere in the current Congress, however, and the new Pell grant proposal was immediately denounced by Democrats. The reason, as ever, is because K-12 education is dominated by a union monopoly that can't abide parental choice. Lucky for students the same unions don't yet run American universities.
US state finances
Financial Times
Thursday January 29, 2008 Pg 14
The most painful time to tighten your belt is just after gorging. US state and local government expenditure - 12 percent of gross domestic product - expanded by almost 8 per cent in the third quarter of 2007, year-on-year. Now governors across the country are proposing big budget cuts. New York City lasat week said it would cut spending on a range of services, from schools to sanitation, to offset slowing tax revenues - partly because of Wall Street's woes.
It is not merely the prospect of a recession that is forcing a rethink on spending, but the nature of the potential slowdown. State and local taxes, excluding transfers, split about 60-40 in favour of states. Typically state coffers are filled by taxes on sales, personal income and corporate profits. Local taxation, meanwhile, is overwhelmingly based on property - 72 per cent of total revenues, according to Moody's.
In 2001, the primary impact of the slowdown was on personal income tax. However, consumers kept spending and house prices kept climbing, underpinning sales and property taxes. The threat this time is spread further across the tax base, primarily because of the housing downturn - California, Florida and New York are among the largest states facing deficits. Although local officials may not be in such a rush to reassess home values now that they are falling, the secondary effects on sales and income taxes would bite earlier.
Moody's believes that states are better prepared this time round. However, the uncertain environment means local officials may have to react quickly - and with unpopular measures - if big gaps open up on their ledgers. It is worth remembering that state and local spending has increased by about $100bn a year over the past three years. If expenditure now stays flat, that will dampen a signficant portion of the $150bn federal stimulus package now being finalised in Washington.
Thursday January 29, 2008 Pg 14
The most painful time to tighten your belt is just after gorging. US state and local government expenditure - 12 percent of gross domestic product - expanded by almost 8 per cent in the third quarter of 2007, year-on-year. Now governors across the country are proposing big budget cuts. New York City lasat week said it would cut spending on a range of services, from schools to sanitation, to offset slowing tax revenues - partly because of Wall Street's woes.
It is not merely the prospect of a recession that is forcing a rethink on spending, but the nature of the potential slowdown. State and local taxes, excluding transfers, split about 60-40 in favour of states. Typically state coffers are filled by taxes on sales, personal income and corporate profits. Local taxation, meanwhile, is overwhelmingly based on property - 72 per cent of total revenues, according to Moody's.
In 2001, the primary impact of the slowdown was on personal income tax. However, consumers kept spending and house prices kept climbing, underpinning sales and property taxes. The threat this time is spread further across the tax base, primarily because of the housing downturn - California, Florida and New York are among the largest states facing deficits. Although local officials may not be in such a rush to reassess home values now that they are falling, the secondary effects on sales and income taxes would bite earlier.
Moody's believes that states are better prepared this time round. However, the uncertain environment means local officials may have to react quickly - and with unpopular measures - if big gaps open up on their ledgers. It is worth remembering that state and local spending has increased by about $100bn a year over the past three years. If expenditure now stays flat, that will dampen a signficant portion of the $150bn federal stimulus package now being finalised in Washington.
Stimulus package seen worth the extra red ink
by Martin Crutsinger
Associated Press
St. Paul Pioneer Press
Tuesday January 29, 2008 Pg 3C
A proposed economic stimulus plan could boost this year's deficit by $100 billion, but political leaders believe the flood of red ink is worth the cost if it keeps the country from falling into a prolonged recession.
Worries that any recession could be a severe one, far surpassing the last two mild, brief downturns in 1990-91 and 2001, have captured the attention of President Bush and other politicans, especially with the White House up for grabs.
Bush and House leaders reached a deal in record time lsat week that would provide $150 billion in economic stimulus through tax rebates that will go to 117 million families, and temporary tax breaks for businesses.
The House is rushing the proposal to a vote this week and Senate Majority Leader Harry Reid, D-Nev., said he hopes to have the package approved by the senate and on the president's desk by Feb. 15.
Concerns have mounted with a cascade of bad news on the economy, from multibillion-dollar losses at some of the nation's biggest banks and investment houses to soaring mortgage defaults and a continued plunge in housing.
The rescue effort will not be without its own cost. Economists estimated the deficit for this year will be between $100 billion and $120 billion higher because of the stimulus package, primarily from the cost of the tax refund checks. Business tax breaks will reduce government revenue by a smaller amount this year; other costs from the business relief will take effect next year.
Economists at Global Insight, a private forecasting firm in Lexington, Mass., are projecting that this year's deficit, with the stimulus package included, will hit $400 billion. That would be the second highest imbalance on record in dollar terms, surpassed only by the all-time high of $413 billion in 2004.
Even without the stimulus package, the Congressional Budget Office is forecasting the deficit for 2008 will jump to $219 billion, up from last year's $163 billion. And CBO said its new estimate did not include still unapproved outlays for the wars in Iraq and Afghanistan, which probably will push the deficit to around $250 billion.
Adding a stimulus package will make that imbalance go even higher, but was seen by many economists as critical insurance against a severe downturn.
"Doing nothing and running the risk that the economy will slide away into a deep recession would cost the Treasury even more in lost tax revenues and increased spending," said Mark Zandi, chief economist at Moody's Economy.com.
Zandi said he believed the stimulus package that House negotiators have approved will be enough to boost economic growth by 1.5 percentage points in the second half of this year and by about 0.5 percentage point in the first half of 2009. That should translate into an additional 700,000 jobs over what the economy would have created during that period, Zandi said. The unemployment rate will still rise from teh current 5 percent to around 6 percent, but not the 6.5 percent it would hit without the stimulus package, Zandi said.
Other analysts are forecasting a boost in growth and jobs from the package, because of increased consumer spending - which accounts for two-thirds of the economy - and increased business investment to expand and modernize in response to the tax incentives.
Douglas Elmendorf, a senior fellow at the Brookings Institution and formerly an economist at the Federal Reserve, said he believed economic growth this year will be about 0.7 percentage point higher than it would be without the stimulus, although he said that may not be enough to keep the country out of a recession.
While this is the first stimulus package being put forward, it may not be the last if the slowdown becomes more severe.
"You can construct some very dark scenarios given all the uncertainty that exists over just how big the problems in the financial system might turn out to be," Zandi said.
Associated Press
St. Paul Pioneer Press
Tuesday January 29, 2008 Pg 3C
A proposed economic stimulus plan could boost this year's deficit by $100 billion, but political leaders believe the flood of red ink is worth the cost if it keeps the country from falling into a prolonged recession.
Worries that any recession could be a severe one, far surpassing the last two mild, brief downturns in 1990-91 and 2001, have captured the attention of President Bush and other politicans, especially with the White House up for grabs.
Bush and House leaders reached a deal in record time lsat week that would provide $150 billion in economic stimulus through tax rebates that will go to 117 million families, and temporary tax breaks for businesses.
The House is rushing the proposal to a vote this week and Senate Majority Leader Harry Reid, D-Nev., said he hopes to have the package approved by the senate and on the president's desk by Feb. 15.
Concerns have mounted with a cascade of bad news on the economy, from multibillion-dollar losses at some of the nation's biggest banks and investment houses to soaring mortgage defaults and a continued plunge in housing.
The rescue effort will not be without its own cost. Economists estimated the deficit for this year will be between $100 billion and $120 billion higher because of the stimulus package, primarily from the cost of the tax refund checks. Business tax breaks will reduce government revenue by a smaller amount this year; other costs from the business relief will take effect next year.
Economists at Global Insight, a private forecasting firm in Lexington, Mass., are projecting that this year's deficit, with the stimulus package included, will hit $400 billion. That would be the second highest imbalance on record in dollar terms, surpassed only by the all-time high of $413 billion in 2004.
Even without the stimulus package, the Congressional Budget Office is forecasting the deficit for 2008 will jump to $219 billion, up from last year's $163 billion. And CBO said its new estimate did not include still unapproved outlays for the wars in Iraq and Afghanistan, which probably will push the deficit to around $250 billion.
Adding a stimulus package will make that imbalance go even higher, but was seen by many economists as critical insurance against a severe downturn.
"Doing nothing and running the risk that the economy will slide away into a deep recession would cost the Treasury even more in lost tax revenues and increased spending," said Mark Zandi, chief economist at Moody's Economy.com.
Zandi said he believed the stimulus package that House negotiators have approved will be enough to boost economic growth by 1.5 percentage points in the second half of this year and by about 0.5 percentage point in the first half of 2009. That should translate into an additional 700,000 jobs over what the economy would have created during that period, Zandi said. The unemployment rate will still rise from teh current 5 percent to around 6 percent, but not the 6.5 percent it would hit without the stimulus package, Zandi said.
Other analysts are forecasting a boost in growth and jobs from the package, because of increased consumer spending - which accounts for two-thirds of the economy - and increased business investment to expand and modernize in response to the tax incentives.
Douglas Elmendorf, a senior fellow at the Brookings Institution and formerly an economist at the Federal Reserve, said he believed economic growth this year will be about 0.7 percentage point higher than it would be without the stimulus, although he said that may not be enough to keep the country out of a recession.
While this is the first stimulus package being put forward, it may not be the last if the slowdown becomes more severe.
"You can construct some very dark scenarios given all the uncertainty that exists over just how big the problems in the financial system might turn out to be," Zandi said.
Tuesday, February 26, 2008
Bernanke Revisits 'Financial Accelerator'
Wall Street Journal
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
12-Step Earmark Withdrawal
Wall Street Journal
Monday January 28, 2008 Pg A14
As every reformed addict knows, the road to recovery is long and hard. So it is for Republicans who became addicted to spending "earmarks" while running Congress, lost their majority in large part because of it, and are now struggling with mixed results to dry out.
Their latest halting effort in what appears to be at least a 12-step recovery plan will come tonight, when President Bush uses his State of the Union address to lay down his toughest anti-earmakring pledge to date. We're told he will tell Congress that he will veto any fiscal 2009 spending bills that doesn't cut earmarks in half from 2008 levels. He will also report that he is issuing a Presidential order informing executive departments that from now on they should refuse to fund earmarks that aren't explicitly mentioned in statutory language.
This is progress, though frankly less than we had hoped because Mr. Bush's executive order will not aply to the fiscal 2008 spending bills that passed late last yaer. Congress endorsed 11,735 special-interest earmarks worth $16.9 billion in fiscal 2008, yet thousands of these weren't even written into the actual budget bills. Instead, they were "air-dropped" at the last minute into non-binding conference reports that serve as advice to federal departments about where to allocate funds. This ruse means that earmarks are able to avoid scrutiny from spending hawks on the House and Senate floor.
We argued in December that Mr. Bush had the legal authority to refuse to fund those this year as well. But in the end we hear he acceded to the argument from Capitol Hill that because he hadn't made a specific earmark veto pledge last year, he would be sandbagging Congress after the fact and courting its wrath.
The President had, however, said the following last year: "even worse, over 90% of earmarks never make it to the floor of the House and Senate - they are dropped into committee reports taht are not even part of the bill that arrives on my desk. You didn't vote them into law. I didn't sign them into law. Yet they're treated as if they have the force of law. The time has come to end this practice." Members in both parties whooped and hollered in approval, even as they could barely contain their self-knowing grins.
Senate Republicans in particular lobbied hard to stop Presidential action against their 2008 earmarks, in the strange belief that they will help incumbent Members in close races this fall, including Minority Leader Mitch McConnell of Kentucky. This shows that Senate Republicans haven't even taken the first essential step of admitting their addiction.
They also don't understand that pork is overrated as incumbent protection, as ex-Congresswoman Anne Northup of Kentucky found out last year. She received five times as much pork as the average House Member, but still lost her Louisville district. Conrad Burns delivered $2 billion in earmarks for Montana - about $5,000 for every voter - but he lost too. Five pork-barrelling Republicans on the Appropriations Committee in the House and Senate were defeated in 2006. The pork could well boomerang again this year if certain GOP incumbents under investigation for earmark favoritism for political allies are indicted before Election Day.
House Republicans at least made some progress at their annual retreat late last week, offering a one-year moratorium on earmarks if Democrats go along. That probably won't happen, however. So the GOP leadership could help itself with voters by endorsing Arizona Representative Jeff Flake's request to join the Appropriations Committee, where he could serve as a taxpayer watchdog. Imagine how he could torment such all-world earmarkers as Pennsylvania Democrat Jack Murtha?
Mr. Bush's strategy of drawing a harder line on the fiscal 2009 budget might at least force an anti-earmark showdown this autumn. An an executive order will set a precedent for the next President, who would pay a political price to repeal it. But Republicans are still missing a major opportunity this year to restore their fiscal credibility by swearing off earmarking altogether. You can't claim to have kicked the habit if you keep hitting the vodka bottle in your desk drawer.
Monday January 28, 2008 Pg A14
As every reformed addict knows, the road to recovery is long and hard. So it is for Republicans who became addicted to spending "earmarks" while running Congress, lost their majority in large part because of it, and are now struggling with mixed results to dry out.
Their latest halting effort in what appears to be at least a 12-step recovery plan will come tonight, when President Bush uses his State of the Union address to lay down his toughest anti-earmakring pledge to date. We're told he will tell Congress that he will veto any fiscal 2009 spending bills that doesn't cut earmarks in half from 2008 levels. He will also report that he is issuing a Presidential order informing executive departments that from now on they should refuse to fund earmarks that aren't explicitly mentioned in statutory language.
This is progress, though frankly less than we had hoped because Mr. Bush's executive order will not aply to the fiscal 2008 spending bills that passed late last yaer. Congress endorsed 11,735 special-interest earmarks worth $16.9 billion in fiscal 2008, yet thousands of these weren't even written into the actual budget bills. Instead, they were "air-dropped" at the last minute into non-binding conference reports that serve as advice to federal departments about where to allocate funds. This ruse means that earmarks are able to avoid scrutiny from spending hawks on the House and Senate floor.
We argued in December that Mr. Bush had the legal authority to refuse to fund those this year as well. But in the end we hear he acceded to the argument from Capitol Hill that because he hadn't made a specific earmark veto pledge last year, he would be sandbagging Congress after the fact and courting its wrath.
The President had, however, said the following last year: "even worse, over 90% of earmarks never make it to the floor of the House and Senate - they are dropped into committee reports taht are not even part of the bill that arrives on my desk. You didn't vote them into law. I didn't sign them into law. Yet they're treated as if they have the force of law. The time has come to end this practice." Members in both parties whooped and hollered in approval, even as they could barely contain their self-knowing grins.
Senate Republicans in particular lobbied hard to stop Presidential action against their 2008 earmarks, in the strange belief that they will help incumbent Members in close races this fall, including Minority Leader Mitch McConnell of Kentucky. This shows that Senate Republicans haven't even taken the first essential step of admitting their addiction.
They also don't understand that pork is overrated as incumbent protection, as ex-Congresswoman Anne Northup of Kentucky found out last year. She received five times as much pork as the average House Member, but still lost her Louisville district. Conrad Burns delivered $2 billion in earmarks for Montana - about $5,000 for every voter - but he lost too. Five pork-barrelling Republicans on the Appropriations Committee in the House and Senate were defeated in 2006. The pork could well boomerang again this year if certain GOP incumbents under investigation for earmark favoritism for political allies are indicted before Election Day.
House Republicans at least made some progress at their annual retreat late last week, offering a one-year moratorium on earmarks if Democrats go along. That probably won't happen, however. So the GOP leadership could help itself with voters by endorsing Arizona Representative Jeff Flake's request to join the Appropriations Committee, where he could serve as a taxpayer watchdog. Imagine how he could torment such all-world earmarkers as Pennsylvania Democrat Jack Murtha?
Mr. Bush's strategy of drawing a harder line on the fiscal 2009 budget might at least force an anti-earmark showdown this autumn. An an executive order will set a precedent for the next President, who would pay a political price to repeal it. But Republicans are still missing a major opportunity this year to restore their fiscal credibility by swearing off earmarking altogether. You can't claim to have kicked the habit if you keep hitting the vodka bottle in your desk drawer.
Economic jitters reach younger workers
by Gita Sitaramiah
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
Monday, February 25, 2008
Auditors Recoup Millions For Medicare but Assailed
By Theo Francis
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
U.S. deficit looms over stimulus talks
Yes, I know it's old news by now, just trying to get through the backlog of information I've needed to post for quite awhile now.
U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion
By Kevin G. Hall
McClatchy Newspapers
St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A
As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.
Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.
Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.
Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.
If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.
The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.
"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."
Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.
The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.
That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.
Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.
The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.
Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.
"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.
While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.
"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.
U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion
By Kevin G. Hall
McClatchy Newspapers
St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A
As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.
Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.
Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.
Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.
If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.
The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.
"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."
Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.
The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.
That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.
Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.
The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.
Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.
"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.
While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.
"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.
Sunday, February 24, 2008
Washington warned on health costs
by Jeremy Grant
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
Cure the Disease, Not Just the Symptoms
by Ed Lotterman
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
Did you say deficit?
Wall Street Journal
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
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