No real mystery here, just fill in the blanks — greed, cupidity, avarice, no sense of community loyalty, quarterly profits, lack of strategic foresight, self-interest instead of the common good.
Christianity failed in the fourth century when beliefs became more important than behavior. The powerful in politics and the economic arena believe they can get away with it, treating fellow citizens as voting blocs or production units instead of persons with aspirations, families to feed and lives to lead.
Running in the red: How the U.S., on the road to surplus, detoured to massive debt
By Lori Montgomery, Published: April 30
The nation’s unnerving descent into debt began a decade ago with a choice, not a crisis.
In January 2001, with the budget balanced and clear sailing ahead, the Congressional Budget Office forecast ever-larger annual surpluses indefinitely. The outlook was so rosy, the CBO said, that Washington would have enough money by the end of the decade to pay off everything it owed.
Voices of caution were swept aside in the rush to take advantage of the apparent bounty. Political leaders chose to cut taxes, jack up spending and, for the first time in U.S. history, wage two wars solely with borrowed funds. “In the end, the floodgates opened,” said former senator Pete Domenici (R-N.M.), who chaired the Senate Budget Committee when the first tax-cut bill hit Capitol Hill in early 2001.
Now, instead of tending a nest egg of more than $2 trillion, the federal government expects to owe more than $10 trillion to outside investors by the end of this year. The national debt is larger, as a percentage of the economy, than at any time in U.S. history except for the period shortly after World War II.
Pollsshow that a large majority of Americans blame wasteful or unnecessary federal programs for the nation’s budget problems. But routine increases in defense and domestic spending account for only about 15 percent of the financial deterioration, according to a new analysis of CBO data.
The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue. That’s nearly half of the $12.7 trillion swing from projected surpluses to real debt. Federal tax collections now stand at their lowest level as a percentage of the economy in 60 years.
Big-ticket spending initiated by the Bush administration accounts for 12 percent of the shift. The Iraq and Afghanistan wars have added $1.3 trillion in new borrowing. A new prescription drug benefit for Medicare recipients contributed another $272 billion. The Troubled Assets Relief Program bank bailout, which infuriated voters and led to the defeat of several legislators in 2010, added just $16 billion — and TARP may eventually cost nothing as financial institutions repay the Treasury.
Obama’s 2009 economic stimulus, a favorite target of Republicans who blame Democrats for the mounting debt, has added $719 billion — 6 percent of the total shift, according to the new analysis of CBO data by the nonprofit Pew Fiscal Analysis Initiative. All told, Obama-era choices account for about $1.7 trillion in new debt, according to a separate Washington Post analysis of CBO data over the past decade. Bush-era policies, meanwhile, account for more than $7 trillion and are a major contributor to the trillion-dollar annual budget deficits that are dominating the political debate.
As Congress prepares this week to launch a high-stakes battle over whether to raise the legal limit on borrowing, the analyses offer a clearer view of the drivers of the debt — and of the difficulty of re-balancing the budget without new tax revenue.
Congress approved a $1.35 trillion tax cut in record time. A second package, worth $350 billion, followed in 2003. Together, they constituted one of the largest tax cuts since World War II, according to the conservative Tax Foundation…
…Bush’s first Treasury secretary, Paul O’Neill, resigned after the White House decided to pursue the 2003 measure. “I believed we needed the money to facilitate fundamental tax reform and begin working on unfunded liabilities for Social Security and Medicare,” O’Neill said in an interview. But the White House, he said, was focused on improving economic growth for the fourth quarter of 2004. “They wanted to make sure economic conditions were great going into the president’s reelection.”
Proponents of tax cuts argue that the legislation merely returned tax collections to their appropriate levels. They note that the CBO’s 2001 forecast assumed that tax collections would stay above 20 percent of the nation’s gross domestic product (defined as the total of all economic output) — well above the historic average of 18 percent of GDP.
“It’s not obvious that America was ready to have taxes at a level this high persistently,” said Donald Marron, a former CBO director who now heads the nonprofit Tax Policy Center. “Some degree of tax cutting was inevitable.”
But some key advocates of the tax cuts now say such a large reduction was probably ill-advised.
“Nobody would have thought that all these things would have happened after you cut taxes,” Domenici said. “That you’d have two wars and not pay for them. That you’d have another recession. A huge extravaganza of expenditures” for the military and homeland security after the Sept. 11, 2001, attacks. “You would pause before you did it, if you knew.”
Bill Thomas, the former House Ways and Means Committee chairman who helped shepherd the tax cuts through Congress, defended the 2003 package as “fuel for the economy.” But he said in an interview that the 2001 measure was larded with “stuff that I was not all that wild about,” including bipartisan priorities such as a big increase in the child tax credit and a break for married couples — provisions Thomas believes did little to promote economic growth and amounted to “throwing money out the window.”
“I couldn’t do anything about it,” said Thomas, a California Republican who retired in 2006. “You’re the candy man when you advocate those kinds of tax cuts.”
In the end, Bush cut taxes and spent more money. Good times masked the impact, as surging tax revenues reduced the size of year-to-year deficits during the first three years of his second term. But after the economy collapsed during Bush’s final year in office, deficits — and therefore the debt — began to explode as Obama sought to revive economic activity with more tax cuts and federal spending.
Today, the CBO forecasts are unrelievedly gloomy, showing huge deficits essentially forever. As policymakers grapple with the legacy of the past decade, a demographic wave of senior citizens is crashing at their doorstep, driving up the cost of Medicare, Medicaid and Social Security.
William Hoagland, who was for years a top budget aide to Domenici and other GOP Senate leaders, said it is simplistic to think today’s fiscal problems began just 10 years ago. In 1976, as a young CBO analyst, Hoagland produced a long-term simulation that showed entitlement costs gradually overwhelming the rest of the federal budget.
“This situation really goes back to long before [the Bush administration], which is to say to old dead men that have long left the Congress,” he said.
Still, Hoagland said, the abandonment of fiscal discipline in the wake of the surpluses clearly didn’t help. “Nobody pushed for paying for this stuff,” he said. Not even after “it became very clear in the middle of 2003 that the line had turned on us. And the surpluses as far as the eye could see were no longer there.”
DE BORCHGRAVE: Geneva gnome’s global dread
Grotesque financial mismanagement could trigger unpredictable turmoil
…Bear Stearns got a triple-A rating shortly before it went under; ditto Fannie Mae. Lehman Brothers made double-A before the shipwreck. The subprime mortgage scandal had gone global in the fall of 2008 as the new chairman of the Federal Reserve said “the worst is now behind us.” Today, America’s credit cards are all maxed out.
“Governments, public corporations, financial institutions, consumers – everyone is over their head in debt,” Mr. Karlweis says. And “a huge part of the blame for the debacle of the past three years lies squarely with the U.S. By more or less shoving free trade down everyone’s throat, America paved the way for globalization. This is what has destroyed jobs and driven down wages in the developed countries, hobbling economic growth and gouging tax revenues.”
Mr. Karlweis argues that “it was a ridiculously low federal funds rate, reduced to 1 percent in the early 2000s by former Fed Chairman Alan Greenspan, that opened the floodgates for subprime mortgages and the worst financial disaster ever, in 2007-08.
In 2007, the face value of securities backed by subprime mortgages was estimated at about $1 trillion. Mr. Karlweis says the total collateralized debt obligation and mortgage obligations issued “exceeded $7 trillion, and the repercussions were devastating.”
“Like a disease overrunning a body’s already weakened defenses, subprime infected the entire global banking system. There were also many victims among small and medium-sized investors, even outside the United States,” Mr. Karlweis says he knows for certain.
“Creative types even invented synthetic versions of subprime, with no underlying portfolio of mortgages, that guaranteed the same yields as the original junk,” Mr. Karlweis‘s postmortem says. “These were earmarked for money managers who wanted to position themselves against subprime debt, namely by selling short to investors who were still lapping it up as a good bet,” and this then generated a double commission for the investment bankers.
Where were the risk committees, credit committees and others who should have taken the hour or two needed to read the prospectuses? “That and an ounce of common sense would have sufficed to see through Wall Street’s slicing and packaging antics,” he answers.
The bailout of Fannie Mae and Freddie Mac (also triple-A before disaster hit) had what Mr. Karlweis calls “awesome consequences for America in particular.” The national debt leapt by about 50 percent to more than $14 trillion (excluding the debts of other “government-sponsored enterprises”). Next to America’s net worth, estimated at $70 trillion, “that was an unsettling level,” he argues.
Mr. Karlweis laments that “after a career in finance, I look aghast on what has happened since the turn of the 21st century. The conclusion I have come to is that the present financial crisis was caused by, and is one of the most blatant manifestations of, widespread moral decline in our society.”
The gnome-turned-sage says that “devoid of all common sense and consumed by greed, the big all-service banks led by Wall Street contrived a financial system that was nothing but a house of cards while adopting lending criteria based on equally flimsy mathematical hypotheses. Not that they cared; they unloaded the junk from their balance sheets onto duller players who snapped it up as a cash-flow booster, only to see it all go up in smoke later on.”
At a minimum, Mr. Karlweis concludes that “we will need a full reinstatement of the Glass-Steagall Act [partially repealed in 1999], which made it impossible for a single legal entity to conduct or control all types of financial business.” This means institutions that receive deposits from the public must be clearly prohibited from speculating on their own behalf with the money of their depositors.
MAY 3, 2011, 8:50 PM LEGAL/REGULATORY
U.S. Regulators Face Budget Pinch as Mandates Widen
BY BEN PROTESS
Government regulators on the Wall Street beat have long been outnumbered and outspent by the companies they are supposed to police. But even after receiving budget increases from Congress last month, regulators are still falling behind.
The Securities and Exchange Commission and the Commodity Futures Trading Commission are struggling to fill crucial jobs, enforce new rules, upgrade market surveillance technology and pay for travel.
On a recent trip to New York to tour a trading floor, a group of employees from the commodities watchdog rode Mega Bus both ways, arriving late to their meeting despite a 5:30 a.m. departure. The bus, which cost $30 a person round trip, saved the agency roughly $1,000 over Amtrak.
“We spent hundreds of billions of dollars on a hideous bailout, and now we’re not going to fund reforms to prevent another one,” said Bart Chilton, a commissioner with the agency.
The money squeeze comes as Wall Street regulators take on added responsibilities in the wake of the financial crisis, including monitoring hedge funds, overseeing the $600 trillion derivatives market and other tasks mandated by the Dodd-Frank law.
Their budgets may soon be even tighter, with Republicans looking to cut the regulators’ spending beginning Oct. 1, the start of the government’s fiscal year. Gary Gensler, the chairman of the commodities agency, and Mary L. Schapiro, the head of the S.E.C., will discuss their budgets for the 2012 fiscal year before a Senate committee on Wednesday.
Current and former regulators warn that budgets cuts would prevent the agencies from enforcing hundreds of new rules enacted under Dodd-Frank, or worse, catching the next Bernard Madoff.
But critics contend that the agencies don’t deserve extra money, given that they missed warning signs and failed to catch serious wrongdoing in the years leading up to the crisis. The S.E.C., too, has been accused of mismanaging its finances. The Government Accountability Office has faulted the agency’s accounting almost every year since it began producing financial statements in 2004.
Some Republicans argue that the regulators’ cries of poverty are overblown. The S.E.C.’s budget this year is $1.18 billion, up 6 percent over 2010 — and nearly triple what it was a decade ago.
“A dramatic spending increase to fund the S.E.C. and C.F.T.C., as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation’s problems can be solved with more spending, not more efficiency,” Representative Scott Garrett, the New Jersey Republican who leads the House Financial Services Committee’s Capital Markets panel, said in a statement earlier this year.
While hiring bans and travel restrictions have been eased since the new budget, regulators say they are largely in a holding pattern as lawmakers debate the 2012 budget. Any further cuts, they say, could undermine their efforts to police Wall Street.
The commodities agency says the uncertainty has forced it to delay some investigations and forgo other potential cases altogether.
“We don’t have the sufficient number of bodies to pursue all relevant investigations and leads,” said Mr. Gensler, adding that his agency was short nearly 70 people in its enforcement division.
Robert S. Khuzami, the S.E.C.’s enforcement chief, has similar worries, noting that some Wall Street investigations have faced mounting delays. Recent departures of lawyers will only magnify the problem, he added.
Mr. Khuzami also said he faced a “significant backlog” of tips and referrals, including in the area of market manipulations and accounting irregularities. The tips, which come from whistle-blowers, law enforcement agencies and investors, often prompt S.E.C. Investigations.
“The biggest concern is we’re not going to get to fraud and wrongdoing as early as we should,” he said. And if the agency’s budget is not increased in 2012, the S.E.C.’s enforcement division “won’t cast as wide a net,” he added.
Already, the S.E.C.’s enforcement division has adopted cutbacks. The division, for instance, has curbed its use of expert witnesses in some securities fraud trials, Mr. Khuzami said.
The division also started sending only one lawyer — sometimes a junior staff member — to conduct depositions and interview witnesses, according to defense lawyers and people close to the agency. Senior S.E.C. lawyers monitor the depositions via videoconference.
To avoid hotel costs, some S.E.C. investigators have shuttled between New York and Washington on Amtrak trains that leave around dawn and return the same day. The agency only recently started to again examine investment firms and public companies in some Southern states, after postponing reviews to avoid paying for plane fares.
Despite the recent budget increase, the S.E.C. “still must closely monitor expenses such as travel to make sure that each expense is truly mission-critical,” according to an internal agency memo dated April 14 that was provided to The New York Times. “It is not at all clear what fiscal year 2012 funding level will be approved by Congress,” said the memo, which was signed by Jeff Heslop, the S.E.C.’s chief operating officer.
While the S.E.C. offsets its budget with fees from Wall Street banks and other financial firms — and in recent years has even turned a profit for taxpayers — Congress sets the agency’s spending levels each year. Lawmakers in April raised the S.E.C.’s budget for the next few months by $74 million, to $1.18 billion. President Obama had requested $1.25 billion for the agency, and Dodd-Frank called for $1.3 billion.
The Commodity Futures Trading Commission received $202 million. Although that was a 20 percent increase over the previous year, the budget fell short of the $261 million the agency said it needed to enforce Dodd-Frank. The law requires the commission’s staff for the first time to oversee swaps, a type of derivative. The industry is seven times the size of the futures business now under its jurisdiction, Mr. Gensler said.
“With $202 million, we can grow moderately,” he said. But “we need more resources to protect the public and oversee the swaps market.”
After the budget increases, regulators ended a yearlong hiring freeze. But both agencies say they are reluctant to significantly increase staffing for fear of having their budgets cut in October.
“Please keep in mind that this round of hiring will focus on the agency’s very highest priorities, and many divisions/offices may receive approval for very few, if any, of their priorities at this time,” the internal S.E.C. memo said. The memo further instructed officials to compile a list of the “top 10 priorities for hiring,” which will then be reviewed on a “case-by-case basis.”
The agency said it had not been able to fill nearly 200 positions this year owing to budget constraints. The S.E.C. had five open spots for experts in complex trading and received about 1,000 applicants for the roles; it could afford to hire just one person.
The agency also lacks money to adequately train the enforcement lawyers already on staff, Mr. Khuzami said. Some lawyers who wanted to attain their brokerage licenses to better understand the industry had to put off prep classes.
“I don’t think people realize how serious the problem is and how serious the consequences are,” said Harvey Pitt, who was chairman of the S.E.C. from 2001 to 2003.
The regulators, for instance, have had to slow down the adoption of Dodd-Frank rules. The S.E.C. has put off creating several offices mandated by the law, including a bureau that will oversee the credit rating agencies and a special office of “women and minority inclusion.”
The commodities agency, which planned to complete its 50 new rules by July, is now hoping to finish by early fall. Once the rules are complete, the agency will not have the funds to enforce them, Mr. Gensler said. Some 200 firms registering with the commission as swaps dealers may have to wait months for the agency to process their applications — unless it can hire several new employees in the department.
Regulators fear that Congress will soon slash their budgets, which could send the agencies scrambling to cut costs again — much as they did in recent months amid the threat of a government shutdown.
Until recently, employees from the commission were instructed not to order certain office supplies — items like three-hole punches and heavy-duty staplers. The ban was lifted after the new budget was instituted.
Some regulators were also paying for their own travel. When Mr. Gensler, a former Goldman Sachs executive, headed to Brussels to help the European Parliament create new derivatives rules, he paid out of his own pocket.
Another commissioner from the commodities agency who attended a conference in Boca Raton, Fla., paid for a night at the Sheraton using his family’s promotional points. Mr. Gensler attended via a videoconference.
UBS bank admits cheating U.S. municipalities out of millions
As for the big fish, they’re all walking away unscathed. The Securities and Exchange Commission got a $67.5 million settlement out of Angelo Mozilo, the former chief executive of Countrywide. (Mozilo paid only $22.5 million; the rest was picked up by Countrywide’s owner, Bank of America.) But prosecutors on the West Coast dropped their criminal investigation.
The Justice Department spent several years trying to build a case against Joe Cassano, the former head of A.I.G.’s Financial Products division. It gave up. Richard Fuld, the former chief executive of Lehman Brothers, approved a bookkeeping scam that hid billions of dollars of Lehman’s debt from investors. Recent reports suggest that not only will he not be charged with a crime, he isn’t even likely to face civil charges.
BUT NOBODY PAYS THAT
U.S. Business Has High Tax Rates but Pays Less
By DAVID KOCIENIEWSKI
Published: May 2, 2011
The United States may soon wind up with a distinction that makes business leaders cringe — the highest corporate tax rate in the world.
Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.
But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.
The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance,” according to Edward D. Kleinbard, a professor at the University of Southern California who was head of the Congressional joint committee on taxes. This has profound implications for businesses, the economy and the federal budget.
As Congress wrestles with how to get the deficit under control, one big point of contention is whether spending cuts will need to be accompanied by an increase in taxes on some individuals or businesses. Facing a full-court press from business leaders who say the tax system is outdated and onerous, President Obama, Congress and business leaders have been warily negotiating various proposals, though mostly about whether to cut the top corporate rate and to tighten tax laws and not about whether to increase revenue.
The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore, says David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York.
Honeywell International, the New Jersey company that makes things as diverse as aerospace components and First Alert smoke detectors, reported in regulatory filings that in the last five years, it paid cash income taxes in the United States and abroad equal to 15 percent of its profits. On Friday, a Honeywell spokeswoman pointed out that the company had since made a large pension contribution, which effectively cut its profits and made its tax rate closer to 22 percent.
In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. At $191 billion, they were equal to 1.3 percent of the nation’s gross domestic product. Most industrial countries collect more from companies, about 2.5 percent of output. Only a portion of that disparity can be explained by the many types of businesses in the United States that elect to be taxed at an individual rate.
“Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor who says the country needs to completely revamp the way it taxes corporations.
Not all American companies are willing or able to reduce their taxes drastically. Taxes vary more by industry here than abroad, according to a study released in February by Kevin S. Markle of Dartmouth and Douglas A. Shackelford of the University of North Carolina. At the high end, American retailers paid 31 percent in total income taxes, construction 30 percent and manufacturers 26 percent. Financial services companies paid an average of 20 percent, real estate 19 percent and mining 6 percent.
(Measuring taxes paid by companies is imprecise because tax filings remain private. In many cases, the estimates reported in a company’s financial filings with regulators overstate taxes paid in a year because they include deferred taxes. Nonetheless, academics, economists and elected officials use the estimates for comparative purposes.)
Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts.
Assorted proposals being discussed in Washington call for the rate to be lowered officially to about 25 percent and some tax breaks to be eliminated so that revenue remains unchanged.
But some prominent business leaders, including the chief executive of Procter & Gamble, are pushing for the rate to be reduced without reining in tax shelters. That would make the United States virtually the only country to change corporate taxes in recent years in a way that ended up adding to its deficit.
“One fact we know is that in all of the countries that have lowered their corporate rates in recent years, they still collected the same amount in revenues or more,” said Reuven S. Avi-Yonah, an international tax lawyer who teaches at the University of Michigan. “This means that they were broadening the base of the profits that corporations were actually taxed on.”
Procter & Gamble, whose products include Tide detergent and Crest toothpaste, paid an average of 24 percent of its profits in worldwide income taxes over the last three years, according to regulatory filings. That is nearly the same rate reported by two big European rivals, Unilever and Henkel.
Yet Robert A. McDonald, P.& G.’s top executive, testified before a Congressional committee this year about the need to cut the United States tax rate without ending tax breaks and shelters. “We need a tax system that addresses today’s hyper-competitive global marketplace,” Mr. McDonald said, arguing that the playing field was tilted away from American businesses.
Many liberal groups counter that ending the breaks, subsidies and shelters in the corporate tax code could provide enough money to lower the rate several percentage points and still increase revenue.
Furthermore, some business owners complain that the American system unfairly rewards disingenuous bookkeeping rather than innovation. It forces companies to compete “based not on product quality and services, but on accounting gymnastics,” said Paul Egerman, former chairman and chief executive of eScription, a medical transcription service in Boston.
No one is certain how much creative accounting costs the federal government in lost revenue, but most estimates say it easily exceeds $50 billion a year. Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.
Many tax analysts are skeptical that Congress, business leaders and the Obama administration will be able to reach a deal before the 2012 election.
“It’s human nature that people are going to fight harder to preserve a benefit they already have than to get some new benefit,” said Clint Stretch, a principal at Deloitte Tax and a former counsel to the Congressional Joint Committee on Taxation. “The only way tax reform makes everyone happy is if everyone wins. And with the federal budget where it is today, that’s not possible.”
Concern About Jobs Report Weighs on Wall Street
By THE ASSOCIATED PRESS
Published: May 5, 2011
Renewed worries about the health of the job market weighed on stocks Thursday after the government reported an unexpected jump in unemployment claims. Oil prices closed just below $100 a barrel.
The Labor Department said that first-time claims for unemployment benefits jumped unexpectedly to 474,000 last week, the highest level in eight months. Economists had expected claims would drop to 410,000.
Applications for unemployment benefits have increased in three of the previous four weeks.
In afternoon trading, the Dow Jones industrial average was down 45.94 points, or 0.36 percent. The Standard & Poor’s 500-stock index lost 2.29 points or 0.17 percent, while the technology heavy Nasdaq gained 12.24 points, or 0.43 percent.
The weekly look at jobless claims raised concerns about what the government’s monthly jobs report for April will reveal on Friday. Economists forecast that employers added 185,000 workers in April. The unemployment rate is expected to remain unchanged at 8.8 percent. If the numbers fall short, markets could fall further.
In the oil markets in New York, crude declined 9 percent after the government released the unemployment claims numbers. Demand for oil would slow if companies are scaling back their hiring. Benchmark crude dropped 8.7 percent to $99.72 a barrel.
Retailers on Thursday reported strong April sales that were helped by a late Easter, but some stores are starting to warn that shoppers are facing increasing pressure from high gasoline prices. Several merchants topped Wall Street expectations, including the Costco Wholesale; the Buckle; and Limited Brands, the parent company of Victoria’s Secret.
Among the companies reporting quarterly results, General Motors said its earnings more than tripled on stronger sales in the United States, while Estée Lauder said earnings doubled on rising sales and deeper cost-cutting. Despite the results, GM fell nearly 3 percent in trading. Estée Lauder was up 1.5 percent.
Despite losses over the last two days, the broader markets are up — the S.&P., for one, is up 19 percent — from one year ago when the “flash crash” led many investors to flee the market. Friday marks the one-year anniversary of the stock market’s “flash crash” when the Dow sank nearly 1,000 points in less than a half hour. Some stocks lost a third of their value in four minutes.
The market regained most of its losses by the end of the day, but the wild ride left a mark. Fund managers say the “flash crash” made everyday investors, still wary after the financial crisis, more reluctant to trust their savings to the stock market. They began pulling cash out of mutual funds that invest in stocks and favoring bond funds instead.
In Europe, the FTSE 100 in London was down 1.1 percent, while the CAC 40 in Paris fell 0.95 percent. In Frankfurt, the DAX gained less than 0.1 percent.
Investors had been expecting Mr. Trichet to say the bank was practicing “strong vigilance” over inflation, which in the past has been a key phrase to flag a rate increase the following month.
Instead, he said the bank held its main interest rate at 1.25 percent that the bank would “monitor very closely” the risk of higher inflation before deciding another increase. Traders interpret that formulation of words to mean no increase before July at the earliest.
With expectations of a June rate increase diminished,the euro slid more than 1 percent, to $1.4670.
“The Trichet comments have provided the all clear for the market to sell the euro,” an analyst at Deutsche Bank, Alan Ruskin, said.
Last month, the bank raised rates for the first time in nearly three years and the markets are expecting more hikes over the coming months. The euro has gained strongly in recent months against the dollar as investors priced in the growing likelihood of interest rate increases.
Earlier in Asia, inflation worries remained a dominant theme in the region in a week that has already seen India’s central bank lift interest rates and the People’s Bank of China hint that it may do so again soon.
However, mainland Chinese shares edged higher as investors snapped up bargains following the Shanghai benchmark’s biggest loss in more than 2 months the day before.
The benchmark Shanghai Composite Index gained 0.2 percent, and the Shenzhen Composite Index gained 0.3 percent. Hong Kong’s Hang Seng index dropped 0.2 percent.
Dollar diplomacy: Public policy calls for ‘strong’ currency, but strategy may not
By Neil Irwin, Published: May 5
When Treasury Secretary Timothy F. Geithner was asked last week whether the dollar’s speedy decline in recent months reflected a deliberate government strategy, he answered with the kind of language used by a generation of Treasury secretaries.
“Our policy has been and always will be, as long as at least I’m in this job, that a strong dollar is in our interest as a country,” Geithner said in a forum at the Council on Foreign Relations. “We will never embrace a strategy of trying to weaken our currency to try to gain economic advantage.”
Flash forward. Geithner will meet Monday with Chinese officials in Washington and try to persuade them to let the value of their currency rise relative to the dollar in part as a way of lifting U.S. trade. That would, by the simple math of foreign exchange markets, weaken the dollar — in pursuit of economic advantage.
This contrast reflects a fundamental contradiction in the U.S. approach toward the dollar. The government has put in place a range of policies that make the dollar likely to decline in value over time. But no one in a position of authority can really admit it, because of politics and the possibility of a bad reaction in financial markets.
In a volatile day on global financial markets Thursday, the dollar rose against the euro but fell against the yen, and prices for oil and other commodities had their steepest one-day drop in two years.
For the U.S. economy, a declining dollar creates winners and losers. A falling dollar makes U.S. manufacturers and farmers more competitive on global markets, which can help create jobs. But it also makes imported goods, such as oil, more expensive, causing consumers pain when buying gasoline or foreign-made clothing, computers and automobiles.
Ten reasons for thinking the world economy is turning soft
Executives pile up salaries, bonuses, stock as profits soar
Sunday, May 8, 2011 03:14 AM
BY RACHEL BECK
NEW YORK – In the boardroom, it’s as if the Great Recession never happened.
CEOs at the nation’s largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today.
The typical pay package for the head of a company in the Standard & Poor’s 500 was $9million in 2010, according to an analysis by the Associated Press using data provided by Equilar, an executive-compensation research firm. That was 24percent higher than a year earlier, reversing two years of declines.
Executives were showered with more pay of all types: salaries, bonuses, stock, options and perks. The biggest gains came in cash bonuses: Two-thirds of executives got a bigger one than they had in 2009, some more than three times as big.
CEOs were rewarded because corporate profits soared in 2010 as the economy gradually got stronger and companies continued to cut costs. Profit for the companies in the AP analysis rose 41percent last year….
…The bigger profits helped push up the typical cash bonus given to a CEO by 39percent in 2010, to $2million, according to Equilar. Some companies, including Ford and JPMorgan Chase, didn’t grant bonuses in 2009 but paid big sums last year as business rebounded from the recession.
Meanwhile, pay for workers grew 3 percent in 2010, to an average of about $40,500. The percentage increase was twice the rate of inflation, but the average wage was less than one-half of 1 percent of what the typical CEO in the AP analysis made.
Old college try not enough for many recent graduates
Sunday, May 8, 2011 03:14 AM
BY ALEJANDRA CANCINO
CHICAGO – Tiffany Groene is waiting tables.
Erin Crites is making lattes and iced coffees.
And Anna Holcombe is buying and selling gold.
These three Chicago women share more than just scraping by with low-paying jobs: They all have master’s degrees and are unable to find work in their specialty areas.
There’s even a name for their situation. They are referred to as mal-employed, a term coined in the ’70s for college graduates who could not find jobs that require a degree. Instead, they settle for low-skilled jobs.
Even in rosier economic times, people with college degrees sometimes can’t find jobs in their fields. But their numbers and the trend show no sign of easing during the slow and bumpy recovery from the recession.
Nationwide, about 1.94 million graduates younger than 30 were mal-employed between September and January, according to data compiled by Andrew Sum, director of the Center for Labor Market Studies at Northeastern University in Boston. Sum said mal-employment has significantly increased in the past decade, making it the biggest challenge facing college graduates today. In 2000, Sum said, about 75 percent of college graduates held a job that required a college degree. Today, that’s closer to 60 percent…
…”The value of the degree is still there; it is just not returning as much in investment as it would a few years ago,” said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers University.
In fact, those who land a job in their field do well, but those who are mal-employed earn just slightly more than high-school graduates, according to Sum’s research. For example, the mean wage for those mal-employed is $476 a week, while those with a job that requires a degree earn $761. By comparison, a high-school graduate earns $433.