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History > 2013 > USA > Economy (IV)



The Fear Economy


December 26, 2013
The New York Times


More than a million unemployed Americans are about to get the cruelest of Christmas “gifts.” They’re about to have their unemployment benefits cut off. You see, Republicans in Congress insist that if you haven’t found a job after months of searching, it must be because you aren’t trying hard enough. So you need an extra incentive in the form of sheer desperation.

As a result, the plight of the unemployed, already terrible, is about to get even worse. Obviously those who have jobs are much better off. Yet the continuing weakness of the labor market takes a toll on them, too. So let’s talk a bit about the plight of the employed.

Some people would have you believe that employment relations are just like any other market transaction; workers have something to sell, employers want to buy what they offer, and they simply make a deal. But anyone who has ever held a job in the real world — or, for that matter, seen a Dilbert cartoon — knows that it’s not like that.

The fact is that employment generally involves a power relationship: you have a boss, who tells you what to do, and if you refuse, you may be fired. This doesn’t have to be a bad thing. If employers value their workers, they won’t make unreasonable demands. But it’s not a simple transaction. There’s a country music classic titled “Take This Job and Shove It.” There isn’t and won’t be a song titled “Take This Consumer Durable and Shove It.”

So employment is a power relationship, and high unemployment has greatly weakened workers’ already weak position in that relationship.

We can actually quantify that weakness by looking at the quits rate — the percentage of workers voluntarily leaving their jobs (as opposed to being fired) each month. Obviously, there are many reasons a worker might want to leave his or her job. Quitting is, however, a risk; unless a worker already has a new job lined up, he or she doesn’t know how long it will take to find a new job, and how that job will compare with the old one.

And the risk of quitting is much greater when unemployment is high, and there are many more people seeking jobs than there are job openings. As a result, you would expect to see the quits rate rise during booms, fall during slumps — and, indeed, it does. Quits plunged during the 2007-9 recession, and they have only partially rebounded, reflecting the weakness and inadequacy of our economic recovery.

Now think about what this means for workers’ bargaining power. When the economy is strong, workers are empowered. They can leave if they’re unhappy with the way they’re being treated and know that they can quickly find a new job if they are let go. When the economy is weak, however, workers have a very weak hand, and employers are in a position to work them harder, pay them less, or both.

Is there any evidence that this is happening? And how. The economic recovery has, as I said, been weak and inadequate, but all the burden of that weakness is being borne by workers. Corporate profits plunged during the financial crisis, but quickly bounced back, and they continued to soar. Indeed, at this point, after-tax profits are more than 60 percent higher than they were in 2007, before the recession began. We don’t know how much of this profit surge can be explained by the fear factor — the ability to squeeze workers who know that they have no place to go. But it must be at least part of the explanation. In fact, it’s possible (although by no means certain) that corporate interests are actually doing better in a somewhat depressed economy than they would if we had full employment.

What’s more, I don’t think it’s too much of a stretch to suggest that this reality helps explain why our political system has turned its backs on the unemployed. No, I don’t believe that there’s a secret cabal of C.E.O.’s plotting to keep the economy weak. But I do think that a major reason why reducing unemployment isn’t a political priority is that the economy may be lousy for workers, but corporate America is doing just fine.

And once you understand this, you also understand why it’s so important to change those priorities.

There’s been a somewhat strange debate among progressives lately, with some arguing that populism and condemnations of inequality are a diversion, that full employment should instead be the top priority. As some leading progressive economists have pointed out, however, full employment is itself a populist issue: weak labor markets are a main reason workers are losing ground, and the excessive power of corporations and the wealthy is a main reason we aren’t doing anything about jobs.

Too many Americans currently live in a climate of economic fear. There are many steps that we can take to end that state of affairs, but the most important is to put jobs back on the agenda.

    The Fear Economy, NYT, 26.12.2013,






Good Poor, Bad Poor


December 19, 2013
The New York Times


On Sundays, this time of year, my parents would pack a gaggle of us kids into the station wagon for a tour of two Christmas worlds. First, we’d go to the wealthy neighborhoods on a hill — grand Tudor houses glowing with the seasonal incandescence of good fortune. Faces pressed against the car windows, we wondered why their Santa was a better toy-maker than ours.

Then, down to the valley, where sketchy-looking people lived in vans by the river, in plywood shacks with rusted appliances on the front lawn, their laundry frozen stiff on wire lines. The rich, my mother explained, were lucky. The poor were unfortunate.

Dissenting voices rose from the back seat. But didn’t the poor deserve their fate? Didn’t they make bad decisions? Weren’t some of them just moochers? And lazy? Well, yes, in many cases, my mother said, lighting one of her L&M cigarettes, which she bought by the carton at the Indian reservation. But neither rich nor poor had the moral high ground.

As the year ends, this argument is playing out in two of the most meanspirited actions left on the table by the least-productive Congress in modern history. The House, refuge of the shrunken-heart caucus, has passed a measure to eliminate food aid for four million Americans, starting next year. Many who would remain on the old food stamp program may have to pass a drug test to get their groceries. At the same time, Congress has let unemployment benefits expire for 1.3 million people, beginning just a few days after Christmas.

These actions have nothing to do with bringing federal spending into line, and everything to do with a view that poor people are morally inferior. Here’s a sample of this line of thought:

“The explosion of food stamps in this country is not just a fiscal issue for me,” said Representative Steve Southerland, Republican from Florida, chief crusader for cutting assistance to the poor. “This is a defining moral issue of our time.”

It would be a “disservice” to further extend unemployment assistance to those who’ve been out of work for some time, said Senator Rand Paul, Republican of Kentucky. It encourages them to sit at home and do nothing.

“People who are perfectly capable of working are buying things like beer,” said Senator James Inhofe, Republican of Oklahoma, on those getting food assistance in his state.

No doubt, poor people drink beer, watch too much television and have bad morals. But so do rich people. If you drug-tested members of Congress as a condition of their getting federal paychecks, you would have most likely caught Representative Trey Radel, Republican of Florida, who recently pleaded guilty to possession of cocaine. Would it be Grinch-like of me to point out that this same congressman voted for the bill that would force many hungry people to pee in a cup and pass a drug test before getting food? Should I also mention that the median net worth for new members of the current Congress is exactly $1 million more than that of the typical American household — and that may influence their view?

For the record, the baseline benefit for those getting help under the old food stamp program works out to $1.40 a meal. And the average check for those on emergency unemployment is $300 a week. If you cut them off cold, the argument goes, these desperate folks would soon find a job and put real food on the table. They are poor because they are weak.

I met a wheat farmer not long ago in Montana whose family operation was getting nearly $300,000 a year in federal subsidies. With his crop in, this wealthy farmer was looking forward to spending a month in Hawaii. No one suggested he pass a drug test to continue receiving his sizable handout, or that he be cut off cold, and encouraged to grow something that taxpayers wouldn’t have to subsidize.

One person deserves the handout, the other does not. But these distinctions are colored by your circumstances — where you stand depends on where you sit.

When a million Irish died during the Great Famine of the 1850s, many in the English aristocracy said the peasants deserved to starve because their families were too big and indolent. The British baronet overseeing food relief felt that the famine was God’s judgment, and an excellent way to get rid of surplus population. His argument on relief was the same one used by Rand Paul.

“The only way to prevent the people from becoming habitually dependent on government is to bring the operation to a close,” said Sir Charles Trevelyan about the relief plan at a time when 10,000 Irish a day were dropping dead from hunger.

This week, Mayor Mike Bloomberg tried not to sound like a plutocrat out of Dickens when asked about the homeless girl, Dasani, at the center of Andrea Elliott’s extraordinary series in The New York Times — a Dickensian tale for the modern age.

“The kid was dealt a bad hand,” said Bloomberg. “I don’t know why. That’s just the way God works. Sometimes some of us are lucky, and some of us are not.”

And in that, he echoed my mother at Christmas. Luck is the residue of design, as the saying has it. But the most careful lives can be derailed — by cancer, a huge medical bill, a freak slap of weather, a massive failure of the potato crop. Virtue cannot prevent a “bad hand” from being dealt. And making the poor out to be lazy, or dependent, or stupid, does not make them less poor. It only makes the person saying such a thing feel superior.

    Good Poor, Bad Poor, NYT, 19.12.2013,






Stumbling Toward the Next Crash


December 18, 2013
The New York Times


LONDON — In early October 2008, three weeks after the Lehman Brothers collapse, I met in Paris with leaders of the countries in the euro zone. Oblivious to the global dimension of the financial crisis, they took the view that if there was fallout for Europe, America would be to blame — so it would be for America to fix. I was unable to convince them that half of the bundled subprime-mortgage securities that were about to blow up had landed in Europe and that euro-area banks were, in fact, more highly leveraged than America’s.

Despite the subsequent decision of the Group of 20 in 2009 on the need for rules to supervise what is now a globally integrated financial system, world leaders have spent the last five years in retreat, resorting to unilateral actions that have made a mockery of global coordination. Already, we have forgotten the basic lesson of the crash: Global problems need global solutions. And because we failed to learn from the last crisis, the world’s bankers are carrying us toward the next one.

The economist David Miles, who sits on the monetary policy committee of the Bank of England, may exaggerate when he forecasts financial crises every seven years, but most of the problems that caused the 2008 crisis — excessive borrowing, shadow banking and reckless lending — have not gone away. Too-big-to-fail banks have not shrunk; they’ve grown bigger. Huge bonuses that encourage reckless risk-taking by bankers remain the norm. Meanwhile, shadow banking — investment and lending services by financial institutions that act like banks, but with less supervision — has expanded in value to $71 trillion, from $59 trillion in 2008.

Europe’s leaders aren’t the only ones with these blind spots. Emerging-market economies in Asia and Latin America have seen a 20 percent growth in their shadow-banking sectors. After 2009, Asian banks expanded their balance sheets three times faster than the largest global financial institutions, while adding only half as much capital.

In the patterns of borrowing today, we can already detect parallels with the pre-crisis credit boom. We’re seeing the same over-reliance on short-term capital markets that ultimately brought down Northern Rock, Iceland’s banks and Lehman Brothers.

While the internationalization of the renminbi is opening up new opportunities for global investment in China, it is also increasing the exposure of the global economy to any vulnerability in its banking sector. China’s total domestic credit has more than doubled to $23 trillion, from $9 trillion in 2008 — as big an increase as if it had added the entire United States commercial banking sector. Borrowing has risen as a share of China’s national income to more than 200 percent, from 135 percent in 2008. China’s growth of credit is now faster than Japan’s before 1990 and America’s before 2008, with half that growth in the shadow-banking sector. According to Morgan Stanley, corporate debt in China is now equal to the country’s annual income.

Although sizable foreign reserves make today’s Asia different from the Asia that experienced the 1997 crash in Indonesia, Thailand and South Korea, we are all implicated. If China’s economy were to slow, Asian countries would be doubly hit from the loss of exports and by higher prices. They would face downturns that would feel like depressions.

And China’s banking system may not be Asia’s most vulnerable. Thailand’s financial institutions, for example, appear overdependent on short-term foreign loans; and in India, where 10 percent of bank loans have gone bad or need restructuring, banks will need $19 billion in new capital by 2018.

If the emerging markets of Asia and Latin America are hit by financial turmoil in coming years, will we not turn to one another and ask why we did not act after the last crisis? Instead of retreating into our national silos, we should have seized the opportunity to fix global standards for how much capital banks must hold, how much they can lend against their equity, and how open they are about their liabilities.

The Volcker Rule, now approved by American regulators, illustrates the initial boldness and ultimate weakness of our post-2008 response. This element of the Dodd-Frank financial reform law of 2010 forbids deposit-taking banks in the United States from engaging in short-term, proprietary trading. But these practices are still allowed in Europe. Controls are even weaker in Latin America and Asia.

International rules are needed for international banks. Without them, as the International Monetary Fund has warned, global banks will evade regulation “by moving operations, changing corporate structures, and redesigning products.”

When I was chairman of the G-20 summit meeting here in April 2009, our first principle was that future financial crises that started in one continent would affect all continents. That was why we charged the new Global Financial Stability Board with setting global standards and rules.

Nearly five years on, its chairman, the Bank of England governor Mark Carney, has spoken of “uneven progress” in recapitalizing banks and making them disclose their risks. The G-20 plan for oversight of shadow banking is, as yet, only a plan. While the world’s $600 trillion derivatives market is being regulated with new minimum capital and reporting requirements, global financial regulators must “find a way to collaborate across borders,” Mr. Carney says.

In short, precisely what world leaders sought to avoid — a global financial free-for-all, enabled by ad hoc, unilateral actions — is what has happened. Political expediency, a failure to think and act globally, and a lack of courage to take on vested interests are pushing us inexorably toward the next crash.


Gordon Brown, a Labour member of the British Parliament,

is a former chancellor of the Exchequer and prime minister.

    Stumbling Toward the Next Crash, NYT, 18.12.2013,






One Brother Reaches Out to Another

Across the Economic Divide


December 15, 2013
The New York Times


Sometimes, Mike Remboulis can almost forget. For an hour or so, in the crush of a crowded restaurant, he feels like any other guy with a beautiful girlfriend and a comfortable salary savoring the good life in Brooklyn.

Then the check slides across the table and he remembers. He just spent $36 on appetizers while his brother spent the day scouring local supermarkets for cheap ground beef. He was talking about his plans to fly to a family wedding, while his brother was calculating just how short he would fall on this month’s rent.

Mr. Remboulis hands the waiter his credit card, the swelling sadness invisible to those around him. Even amid lighthearted banter and savory plates, reality almost always comes rushing back: Beyond those restaurant doors, his big brother is teetering on the edge, barely hanging on.

Mr. Remboulis, 51, is an aerospace engineer with a graduate degree. His half-brother, Glenn Yuzzi, 59, is a carpenter with a high school diploma. They grew up in the same Queens apartment, but today they live on opposite sides of the economic divide.

It is a twist of fortune that haunts Mr. Remboulis.

“I don’t want him to scrape by,” he said. “I don’t want my brother to drown.”

Economists quantify the ebbs and flows of our economy with facts and figures: About 355,000 people in New York City are unemployed, labor statistics show, and those without a college degree are among the hardest hit, experts say.

But Mr. Remboulis knows that behind every number is a family and a story. His starts in Glen Oaks, Queens, where his mother raised six children on welfare. Back then, Mr. Remboulis thought his big brother was invincible.

Mr. Yuzzi took on the neighborhood bullies. He got hit by a car — broke both of his legs and his left arm — and survived. He started his own home-improvement business and hired his younger brother during the summers. He wasn’t rich — in good times he earned $600 a week — but he was self-sufficient with money to spare. He still remembers the time he landed a $20,000 contract to repair a roof for a wealthy client.

“I was blowing money,” Mr. Yuzzi recalled.

Their mother warned that he wasn’t saving, that he wasn’t thinking about the future. Mr. Yuzzi learned later that she was right. Battered by illness, bad luck and the downturn in the economy, he has struggled to get by.

The construction industry slumped. His business went under. And as he aged, he could no longer handle heavy physical labor, making it harder to find and hold on to steady work. He delivered newspapers for a while. He worked for an exterminating company until that became too hard on his health. His opportunities dwindled in the face of fierce competition. Over the past four years, he has not held a job for longer than six months.

New York can be an unforgiving place these days for a self-made man in his late 50s, particularly one who still struggles to use a computer. So Mr. Yuzzi turned to unemployment, to food stamps and to his little brother.

Mr. Remboulis, who analyzes the effects of stress on airplanes and helicopters, says he always wanted to succeed. He did well in school as a boy, and when he went to college, his world opened up wide. He is no millionaire. He is a contractor who earns a five-figure salary. He cannot transform his brother’s life. But in recent years, he has done everything he can to help.

In September, Mr. Remboulis found Mr. Yuzzi a basement apartment in Sunset Park, Brooklyn, and encouraged him to leave the Long Island rooming house where he had been living. Two weeks later, Mr. Yuzzi found a job driving a van for a plumbing company. He nets about $390 a week, not enough to pay all of his bills and the rent. Mr. Remboulis covers the rest.

Mr. Yuzzi says he is determined to reclaim his financial independence. He hunts for grocery store sales and hopes to move up in his new company. Maybe it’s not too late to become a plumber, he muses.

Mr. Remboulis, meanwhile, struggles to reconcile his brother’s plight with the city’s plenty.

It is a subject that the men do not discuss. When they call or text each other, Mr. Remboulis never says, “I feel bad about doing well when you’re really struggling.” Mr. Yuzzi rarely says, “I need your help.”

But they both know that’s the way it is. It is something that Mr. Remboulis finds hard to forget.

“The guilt,” he said. “It’s still there.”

    One Brother Reaches Out to Another Across the Economic Divide,
    NYT, 16.12.2013,






The President on Inequality


December 4, 2013
The New York Times


The issues that have obsessed Washington for the last few months — the government shutdown, the broken health care website, the unrelentingly bitter tone of a stalemated Congress — mean very little to most Americans. For a broad swath of the country, what matters hasn’t changed since the recession, and it is economic anxiety. Six in 10 workers in a Washington Post poll last week said they were worried about losing their jobs, the highest number in decades. Many of the millions who are unemployed have reached new depths of despair.

On Wednesday, in one of his strongest economic speeches, President Obama pushed past all the distractions of his opponents and addressed the core of those fears. He will spend the rest of his presidency, he said, on “the defining challenge of our time:” reducing economic inequality and improving upward mobility.

“I am convinced that the decisions we make on these issues over the next few years,” he said, “will determine whether or not our children will grow up in an America where opportunity is real.”

An American child born into the lowest 20 percent income level has a less than a 1-in-20 chance of making it to the top, as Mr. Obama pointed out. But one born in the top 20 percent has a 2-in-3 chance of staying there. And the top 10 percent now takes half of the national income, up from a third in 1979. That’s a level of inequality on par with Jamaica and Argentina, and such concentrated wealth leads to more frequent recessions, higher household debt and growing cynicism and despondency.

That cynicism is often expressed in a lack of faith in government’s ability to do anything about the problem. This view ignores how much inequality has been made worse in the past few decades by government decisions. The emphasis on cutting taxes and spending that began in the Reagan years is a direct cause of economic insecurity now. It has led, for example, to education cuts that have harmed children in low-income school districts. Reversing those decisions can still have an enormous impact.

Mr. Obama did not reveal a sheaf of new ideas in his speech. But he did remind listeners of the many good ideas he has proposed about inequality over the years, most of which have been blocked by Republican opposition. A higher minimum wage would have an immediate effect on the buying power of millions of workers, stimulating growth and employment. Greater spending on high-quality preschool, a new emphasis on career and technical education and affordable higher education would all help to lower the barriers to economic mobility. Stronger collective-bargaining laws and nondiscrimination protections would help restore a balance in workplaces now tilted strongly toward employers.

And the Affordable Care Act, as Mr. Obama said forcefully, has enhanced security for millions of people who were previously uninsured or who lived in fear of losing their policies because of illness. “This law is going to work,” he said, “and for the sake of our economic security, it needs to work.” It will reduce personal bankruptcies, he said, cut sick time and keep children healthier and performing better in school.

What he should have added was the need to raise tax revenue, which is crucial to making the kinds of investments big enough to have a real effect on growth. The tax code must be overhauled to eliminate the absurdly generous breaks given to those at the very top — an idea that Mr. Obama has campaigned on but rarely brings up, given the implacable Republican opposition. But the president did issue a clear challenge to his opponents. Where are the Republican ideas for reducing the income gap? Most in the party don’t even recognize it as a problem. “You owe it to the American people to tell us what you are for,” he said, “not just what you’re against.” The silence from Republicans explains why economic inequality is rising.

    The President on Inequality, NYT, 4.12.2013,






Gloomy Numbers for Holiday Shopping’s

Big Weekend


December 1, 2013
The New York Times


It was a cold, clear day in Leesburg, Va., and a security guard at an outlet mall there said the midmorning crowd was similar to that of a typical busy Saturday.

But an ordinary day it was not. It was Black Friday, traditionally the biggest shopping day of the year.

With the economy bumping along at a lackluster pace, and this year’s shorter-than-usual window between Thanksgiving and Christmas, sales and promotions began weeks before Thanksgiving Day, making this holiday shopping season more diffuse than ever. That left Black Friday weekend itself, the season’s customary kickoff, looking a bit gloomy.

Over the course of the weekend, consumers spent about $1.7 billion less on holiday shopping than they did the year before, according to the National Retail Federation, a retail trade organization.

“There are some economic challenges that many Americans still face,” said Matthew Shay, the chief executive of the retail federation. “So in general terms, many are intending to be a little bit more conservative with their budgets.”

More than 141 million people shopped online or in stores between Thursday and Sunday, according to a survey released Sunday afternoon by the retail federation, an increase of about 1 percent over last year. And the average amount each consumer spent, or planned to spend by the end of Sunday, went down, dropping to $407.02 from $423.55. Total spending for the weekend this year was expected to be $57.4 billion, a decrease of nearly 3 percent from last year’s $59.1 billion.

The holiday season generally accounts for 20 to 40 percent of a retailer’s annual sales, according to the federation, and Thanksgiving weekend alone typically represents about 10 to 15 percent of those holiday sales.

This year, in the scramble to get to shoppers early, retailers tempted buyers with pre-Thanksgiving deals, both in stores and online. On Walmart.com, for example, the holiday season started Nov. 1. And according to the retail federation, 53.8 percent of shoppers surveyed in the first week of November said they had already started their holiday shopping.

John D. Morris, an analyst at BMO Capital Markets, said that aggressive promotions the day before Thanksgiving may also have taken some sales from the Black Friday weekend.

“There were a lot of advertised sales that were bleeding into Wednesday this year,” Mr. Morris said. “Sales were being pulled forward.”

On Sunday, the retail federation pointed to the season’s early start, with holiday sales going as far back as October, and said it still expected that sales this holiday season would grow 3.9 percent over last year, despite the year-over-year decline of Black Friday weekend. They also said that altercations involving shoppers in stores on Black Friday seemed to decline this year, despite a number of videos of physical confrontations that attracted widespread attention online and in various news media reports.

Many retailers have been warning of a muted holiday shopping season. Walmart and Target both trimmed their yearly forecasts recently, citing economic factors like slow wage growth, unemployment and sliding consumer confidence. Executives at Best Buy cautioned that intense price competition on some items during the holidays was likely to affect their bottom line, despite its healthier performance recently.

Data from the research firm ShopperTrak, which collects data from more than 700 retailers, painted a more optimistic picture of Thanksgiving Day and Black Friday shopping in brick-and-mortar stores. (The data, released Saturday, did not include shopping online or any shopping done over the weekend.)

ShopperTrak found that sales were off 13.2 percent on Black Friday. But more stores were open on Thanksgiving this year, and for longer hours, and the combined sales on Thursday and Friday were actually up 2.3 percent over the same two days last year.

“The Thursday store openings did well,” said Bill Martin, ShopperTrak’s founder. “But a lot of it was at the expense of Black Friday.”

And while sales increased for the two-day period, he continued, there are additional costs associated with being open on Thanksgiving, like holiday pay for employees.

“Thursday is going to be a tough day to make any profit,” Mr. Martin said.

The retail federation’s survey found that Black Friday shopping grew a bit, rising to more than 92 million people this year from nearly 89 million people last year, including online and physical stores.

Online sales grew substantially on both Thanksgiving and Friday this year, up nearly 20 percent Thursday and almost 19 percent on Friday, according to IBM Digital Analytics Benchmark, which tracks about 800 retail websites in the United States. Mobile traffic was also up substantially, accounting for nearly 40 percent of all online activity on Friday, said Jay Henderson, the strategy director for IBM Smarter Commerce, which put out the online retail data. “That’s pretty staggering,” he said. “You hear a lot about the year of mobile, and this is probably the fifth annual year of mobile. But 40 percent of all traffic feels like a tipping point.”

Mobile sales accounted for about 26 percent of total online sales on Thursday and nearly 22 percent on Friday. On both days, IBM saw a late surge in online shopping, presumably as people finished spending time with their families and snuggled up on the couch with their credit cards.

Smartphones accounted for about 25 percent of traffic on Friday, in contrast to over 14 percent from tablets. But actual purchasing came predominantly from elsewhere. Tablets made up about 14 percent of online sales, compared with about 7 percent for smartphones.

“You tend to see that a lot of smartphone traffic is predominantly during the day,” Mr. Henderson said. “People are out and about in stores, comparing prices and looking for ratings and reviews. Tablets start to take hold late in the afternoon and in the evening.”

Despite all this growth, online purchases remain a very small portion of retail sales. Mr. Martin of ShopperTrak said that more than 90 percent of all United States retail commerce still takes place in physical stores.

While many people proved perfectly willing to head to the mall on Thanksgiving Day, for some, two days in a row of Black Friday-style shopping was just a bit too much.

Melvina Bolston, 48, ventured to a Walmart on Thanksgiving, waited 85 minutes in a checkout line, and was back in the fray on Friday at her sister’s behest, at an open-air shopping center in Norcross, Ga.

“You can pretty much put it in the books: I will never do it again,” Ms. Bolston said. “This is like torturing yourself on purpose.”

Perhaps next year, she will just shop online instead.


Alan Blinder and Ken Maguire contributed reporting.

    Gloomy Numbers for Holiday Shopping’s Big Weekend, NYT, 1.12.2013,






Shop First, and Eat Later


November 28, 2013
The New York Times


Before most Thanksgiving turkeys even approached the oven on Thursday, a small line of tents had formed in front of a Best Buy in Falls Church, Va., their inhabitants waiting for the holiday deals to begin. First in line was William Ignacio, who pitched his tent at 2 p.m. on Wednesday.

Traditionally, the holiday shopping season kicks off on Black Friday, the day after Thanksgiving. But every year, more stores are opening on the holiday itself and keeping their doors open longer, beginning in the predawn hours, and shoppers are taking advantage, whether before dinner or after.

“Thanksgiving dinner is over,” said Becky Solari, 18, standing in the Woodfield Mall in Schaumburg, Ill. “And there’s nothing else to do.”

In Annandale, Va., rock salt had been sprinkled on the parking lot in front of the Kmart that opened at 6 a.m. Though the temperature was just below freezing, a handful of shoppers were lured out of bed for discounted electronics or to browse in advance of Friday’s sales.

Under a “Mas Navidad” sign near the customer service desk, Cindy Kennedy, 39, said she did not see why people would object to Thanksgiving store hours and people working the holiday. Northern Virginia is home to many immigrants, like her husband, who is from El Salvador, she said.

“Not everybody celebrates Thanksgiving,” Mrs. Kennedy said. “It’s not a world holiday.”

More than 400 people were lined up in 28-degree weather outside a Target in Schaumburg, just before the store opened Thursday night at 8.

“My TV from last year is in beautiful, perfect condition, but this one is bigger and better,” said Ruben Calderon, an annual Black Friday shopper who planned to buy a 50-inch LED TV and some Xbox games at Target on Thursday. “In all my years of doing this, I have never seen a deal on a TV that’s this good.”

This is a critical time of year for retailers, given that holiday season shopping generally accounts for about 20 percent of the retail industry’s annual sales, according to the National Retail Federation. Last year, nearly 140 million people shopped through the Thanksgiving weekend, the federation said.

But with many Americans still struggling with stagnant wages, retail executives have warned of a lackluster holiday season. Anxiety about low traffic — in-store and online — coupled with tight budgets has spurred strenuous competition for the lowest possible price.

In a hurry to get to customers first, retailers introduced promotions not just a few hours early this year, but days and even weeks ahead. Walmart.com kicked off its holiday season on Nov. 1, for example.

According to the retail federation, 53.8 percent of shoppers surveyed during the first week of November said they had already started their holiday shopping.

“The early push is definitely noteworthy,” said Traci Gregorski, a vice president for marketing at Market Track, a retail promotion and pricing analysis firm. “There has been a lot of messaging around ‘Don’t wait until Black Friday.’ ”

And those who stayed home could easily browse the web. “Black Friday 2013 is here!” Amazon declared on Thursday. “Black Friday starts now online!” Walmart.com’s home page advertised. As of 9 p.m., online sales were up more than 11 percent over Thanksgiving Day last year, according to IBM Digital Analytics Benchmark. Mobile traffic increased even more sharply, up more than 31 percent. Smartphones accounted for 24 percent of all online traffic, IBM found.

Friday’s accompanying discounts, however, are still likely to draw out plenty of shoppers. According to a recent CBS News poll, Black Friday remains the most popular day to shop. A third of those surveyed said they planned to do some holiday shopping over Thanksgiving weekend.

“I’m about to get myself a MacBook,” Tony Portillo, 15, said, standing in front of the Best Buy overnight campsite in Falls Church, Va.

“You can’t afford one!” came a voice from inside the tent, which was intended to sleep five people but on this below-freezing night was home to eight teenagers.

“Next time we need a bigger tent,” said Mr. Portillo, who planned to wait until 6 p.m. for Best Buy to open.

“We didn’t sleep at all,” said Alex Ramos, 14. “It’s kind of fun.”

Some retail analysts and industry watchers have said that the extension of shopping hours further into Thanksgiving, as opposed to the overnight openings in recent years, means more teenagers are taking part in Black Friday weekend. Their curfews now permitted them to take part in sales, and perhaps, some allowed, the sales provided an excuse to escape an entire day trapped in the house with their parents. Others have been drawn by the deals, just like the grown-ups.

On Thursday evening, the Woodfield Mall in Schaumburg looked as it would on a regular Saturday night. Teenagers milled about, in pairs and in packs, and families with children walked the halls.

At the North Point Mall in Alpharetta, Ga., one of Atlanta’s northern suburbs, Yareli Marroquin, 15, wandered the corridors looking for deals on clothing.

“I just like to save my money and save it for today so I can spend it all now,” Ms. Marroquin said. “This is pretty much it.”

In addition to new shoppers, there have also been protests, as a holiday devoted to family and carbohydrates becomes increasingly about cheap televisions and half-price sweaters.

While labor advocates and some workers bemoan the expanded shopping hours (and three-fourths of Americans in the CBS News poll said they think stores should be closed on Thanksgiving), plenty of shoppers streamed into stores around the country.

Lines inside a Toys “R” Us in Falls Church, Va., shortly after the store opened at 5 p.m. on Thursday, looked like airport checkpoints. Shoppers, some tugging children, slowly pushed their carts through winding lanes divided by yellow caution tape. At an American Eagle Outfitters on 7th Avenue in Manhattan, the store was packed by 4 p.m.. And at the Best Buy in Alpharetta, hundreds of people lined up toward the end of what forecasters said was the area’s coldest Thanksgiving Day in more than a century. “This is nothing compared to what tomorrow’s going to be,” said Kathy Hernandez, an employee at a Kmart in Los Angeles.

That location was operating calmly on Thursday, employees said, with the exception of few incidents, which were, perhaps, a preview of what was to come.

“Someone was going to fight over Tupperware,“ Ms. Hernandez said. “It was only $1 off. I was holding it. I just put it there and I walked away. I don’t know who got it.”


Ken Maguire contributed reporting from Falls Church, Va.;

Kimiya Shokoohi from Los Angeles;

Alan Blinder from Alpharetta, Ga.;

Idalmya Carrera from Chicago;

and Jada F. Smith from Hyattsville, Md.

    Shop First, and Eat Later, NYT, 28.11.2013,






A Part of Utah Built on Coal

Wonders What Comes Next


November 27, 2013
The New York Times


PRICE, Utah — For generations, coal has been the lifeblood of this mineral-rich stretch of eastern Utah. Mining families proudly recall all the years they toiled underground. Supply companies line the town streets. Above the road that winds toward the mines, a soot-smudged miner peers out from a billboard with the slogan “Coal = Jobs.”

But recently, fear has settled in. The state’s oldest coal-fired power plant, tucked among the canyons near town, is set to close, a result of new, stricter federal pollution regulations.

As energy companies tack away from coal, toward cleaner, cheaper natural gas, people here have grown increasingly afraid that their community may soon slip away. Dozens of workers at the facility here, the Carbon Power Plant, have learned that they must retire early or seek other jobs. Local trucking and equipment outfits are preparing to take business elsewhere.

“There are a lot of people worried,” said Kyle Davis, who has been employed at the plant since he was 18.

Mr. Davis, 56, worked his way up from sweeping floors to managing operations at the plant, whose furnaces have been burning since 1954.

“I would have liked to be here for another five years,” he said. “I’m too young to retire.”

But Rocky Mountain Power, the utility that operates the plant, has determined that it would be too expensive to retrofit the aging plant to meet new federal standards on mercury emissions. The plant is scheduled to be shut by April 2015.

“We had been working for the better part of three years, testing compliance strategies,” said David Eskelsen, a spokesman for the utility. “None of the ones we investigated really would produce the results that would meet the requirements.”

For the last several years, coal plants have been shutting down across the country, driven by tougher environmental regulations, flattening electricity demand and a move by utilities toward natural gas.

This month, the board of directors of the Tennessee Valley Authority, the country’s largest public power utility, voted to shut eight coal-powered plants in Alabama and Kentucky and partly replace them with gas-fired power. Since 2010, more than 150 coal plants have been closed or scheduled for retirement.

The Environmental Protection Agency estimates that the stricter emissions regulations for the plants will result in billions of dollars in related health savings, and will have a sweeping impact on air quality.

In recent weeks, the agency held 11 “listening sessions” around the country in advance of proposing additional rules for carbon dioxide emissions.

“Coal plants are the single largest source of dangerous carbon pollution in the United States, and we have ready alternatives like wind and solar to replace them,” said Bruce Nilles, director of the Sierra Club’s Beyond Coal campaign, which wants to shut all of the nation’s coal plants.

“We have a choice,” he said, “which in most cases is cheaper and doesn’t have any of the pollution.”

Coal’s downward turn has hit Appalachia hardest, but the effects of the transition toward other energy sources has started to ripple westward.

Mr. Eskelsen said Rocky Mountain Power would place some of the 70 Carbon facility employees at its two other Utah coal plants. Other workers will take early retirement or look for different jobs.

Still, the notion that this pocket of Utah, where Greek, Italian and Mexican immigrants came to mine coal more than a century ago, could survive without it, is hard for people here to comprehend.

“The attack on coal is so broad-reaching in our little community,” said Casey Hopes, a Carbon County commissioner, whose grandfather was a coal miner. “The power plants, the mines — they support so many smaller businesses. We don’t have another industry.”

Like others in Price, Mr. Hopes voiced frustration with the Obama administration, saying it should be investing more in clean coal technology rather than discarding coal altogether.

Annual Utah coal production, though, has been slowly declining for a decade according to the federal Energy Information Administration.

Last year, mines here produced about 17 million tons of coal, the lowest level since 1987, though production has crept up this year.

“This is the worst we’ve seen it,” said David Palacios, who works for a trucking company that hauls coal to the power plants, and whose business will slow once the Carbon plant closes.

Mr. Palacios, president of the Southeastern Utah Energy Producers Association, noted that the demand for coal has always ebbed and flowed here.

“But this has been two to three years we’re struggling through,” he said.

Compounding the problem, according to some mining experts, is that until now, most of the state’s coal has been sold and used within the region, rather than being exported overseas. That has left the industry here more vulnerable to local plant closings.

Cindy Crane, chairwoman of the Utah Mining Association, said demand for Utah coal could eventually drop as much as 50 percent. “For most players in Utah coal, this a tough time,” said Ms. Crane, vice president of PacifiCorp, a Western utility and mining company that owns the Carbon plant.

Mr. Nilles of the Sierra Club acknowledged that the shift from coal would not be easy on communities like Carbon County. But employees could be retrained or compensated for lost jobs, he said, and new industries could be drawn to the region.

Washington State, for example, has worked with municipalities and utilities to ease the transition from coal plants while ensuring that workers are transferred to other energy jobs or paid, if nearing retirement, Mr. Nilles said.

“Coal has been good to Utah,” Mr. Nilles said, “but markets for coal are drying up. You need to get ahead of this and make sure the jobs don’t all leave.”

For many here, coal jobs are all they know. The industry united the area during hard times, too, especially during the dark days after nine men died in a 2007 mining accident some 35 miles down the highway. Virtually everyone around Price knew the men, six of whom remain entombed in the mountainside.

But there is quiet acknowledgment that Carbon County will have to change — if not now, soon.

David Palacios’s father, Pete, who worked in the mines for 43 years, has seen coal roar and fade here. Now 86, his eyes grew cloudy as he recalled his first mining job. He was 12, and earned $1 a day.

“I’m retired, so I’ll be fine. But these young guys?” Pete Palacios said, his voice trailing off.


Clifford Krauss contributed reporting from Houston.

    A Part of Utah Built on Coal Wonders What Comes Next, NYT, 27.11.2013,






The Transformation of Black Friday


November 23, 2013
The New York Times


The word “black” in front of a day of the week has almost never meant anything good.

Black Monday was the sell-off the day before the stock market crash of 1929, Black Tuesday. Black Wednesday was used to refer to a day of widespread air traffic snarls in 1954 as well as the day the British government was forced to withdraw a battered pound from the European Exchange Rate Mechanism in 1992. Black Thursday has variously been used for days of devastating brush fires, bombings and athletic defeats, among other unpleasantness.

So how is it that the term Black Friday has now come almost universally to denote joyous commercial excess, stupendous deals and big profits as the day when everyone heads out to shop for the holidays the day after Thanksgiving?

It wasn’t always this way. The New York Times first used the term Black Friday in an article in 1870 to refer to the day the gold market collapsed in September 1869.

Ben Zimmer, executive producer of Vocabulary.com, who has researched and written about the term, says its association with shopping the day after Thanksgiving began in Philadelphia in the 1960s — and even then the reference wasn’t positive. The local police took to calling the day after Thanksgiving Black Friday because they had to deal with bad traffic and other miseries connected to the throngs of shoppers heading for the stores that day.

Needless to say, that use didn’t sit well with local retailers. They tried, according to Mr. Zimmer, to give the day a more positive name: Big Friday. That did not take, but eventually retailers — in Philadelphia and beyond — managed to spin a new connotation: The day retailer’s books went from red ink to black.

Most consumers probably don’t know — and don’t care — about any of this. All they want are deals.

But the rebranding of Black Friday has been so successful that others have tried to spread the wealth across other days of the week as the holiday shopping season grows ever more competitive. In 2005, Cyber Monday was introduced as the day online retailers offered big savings to holiday shoppers. A few years ago, American Express came up with “Small Business Saturday” to encourage people to shop (presumably with their AmEx cards) at independent local businesses the day after Black Friday.

And as retailers begin their holiday promotions earlier and earlier, there have even been efforts to change the name of the day before Black Friday to Gray, Brown, even Black Thursday.

But for most people it will still forever be Thanksgiving.

    The Transformation of Black Friday, NYT, 23.11.2013,






JPMorgan Pays


November 20, 2013
The New York Times


The long-awaited $13 billion settlement with JPMorgan Chase over allegations of misrepresentation in the sale of mortgage securities is hardly a cure-all for the damage inflicted on homeowners, investors and the economy by fraud, predation and other wrongdoing during the bubble. It is, however, a likely precursor of similar payouts from other banks, and it provides at least some cash for investors and a measure of relief for struggling homeowners and communities. Where it falls short is in its failure to hold individuals accountable.

In an important step, JPMorgan acknowledged that its employees knowingly packaged toxic loans into mortgage-backed securities and sold them to unwitting investors. JPMorgan also acknowledged similar conduct by Bear Stearns and Washington Mutual, two banks it bought during the crisis.

These acknowledgments represent a level of accountability missing from other settlements. The settlement leaves open the possibility of future civil and criminal charges against individuals, as well as criminal charges against the bank. But the bank did not admit any violations of law and no individuals have been identified, except by titles like “executive director” and “managing directors.”

A good deal of credit for the settlement belongs to New York’s attorney general, Eric Schneiderman, without whom there may never have been a payout from JPMorgan at all. In 2012, Mr. Schneiderman refused to go along with a plan by federal and state authorities to draft one master settlement with several big banks, including JPMorgan Chase, for a wide range of mortgage violations.

With the support of other holdout state attorneys general, Mr. Schneiderman was able to focus the terms of the master settlement on foreclosure abuses, leaving government investigators free to look into violations related to mortgage securities. More important, his stance challenged a reluctant Obama administration to expand its moribund investigative efforts.

At $13 billion, the settlement is the largest ever between government officials and a single company, but it represents only about half of the bank’s profits in 2012 and much less than the additional revenue generated since its purchases of Bear Stearns and Washington Mutual. It is a black eye for the bank, but not particularly punitive. And it does not preclude JPMorgan from deducting most of the cash settlement from its taxes.

Of the total, JPMorgan will pay $9 billion to federal and state agencies and other investors who lost money on the securities in question, including a $2 billion fine for dubious securities sold by JPMorgan itself. New York’s share of the cash is $613 million, which Mr. Schneiderman has said will help pay for legal counseling for families facing foreclosure, restore blighted neighborhoods and assist in housing needs related to Hurricane Sandy.

The remaining $4 billion of the payout is not cash, but relief in that amount to homeowners and communities. It could be less than meets the eye because JPMorgan will get credit for relief it probably would have provided anyway. New York’s share of the relief will amount to $400 million, which, if properly administered, could help many families keep their homes.

In all, the settlement is surely more than JPMorgan ever wanted to pay. Just as surely, it puts other banks on notice.

    JPMorgan Pays, NYT, 20.11.2013,






A Permanent Slump?


November 17, 2013
The New York Times


Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” Most though not all such officials accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low. Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.

But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.

He then made a related point: Before the crisis we had a huge housing and debt bubble. Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.

Mr. Summers went on to draw a remarkable moral: We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

I’d weigh in with some further evidence. Look at household debt relative to income. That ratio was roughly stable from 1960 to 1985, but rose rapidly and inexorably from 1985 to 2007, when crisis struck. Yet even with households going ever deeper into debt, the economy’s performance over the period as a whole was mediocre at best, and demand showed no sign of running ahead of supply. Looking forward, we obviously can’t go back to the days of ever-rising debt. Yet that means weaker consumer demand — and without that demand, how are we supposed to return to full employment?

Again, the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.

Why might this be happening? One answer could be slowing population growth. A growing population creates a demand for new houses, new office buildings, and so on; when growth slows, that demand drops off. America’s working-age population rose rapidly in the 1960s and 1970s, as baby boomers grew up, and its work force rose even faster, as women moved into the labor market. That’s now all behind us. And you can see the effects: Even at the height of the housing bubble, we weren’t building nearly as many houses as in the 1970s.

Another important factor may be persistent trade deficits, which emerged in the 1980s and since then have fluctuated but never gone away.

Why does all of this matter? One answer is that central bankers need to stop talking about “exit strategies.” Easy money should, and probably will, be with us for a very long time. This, in turn, means we can forget all those scare stories about government debt, which run along the lines of “It may not be a problem now, but just wait until interest rates rise.”

More broadly, if our economy has a persistent tendency toward depression, we’re going to be living under the looking-glass rules of depression economics — in which virtue is vice and prudence is folly, in which attempts to save more (including attempts to reduce budget deficits) make everyone worse off — for a long time.

I know that many people just hate this kind of talk. It offends their sense of rightness, indeed their sense of morality. Economics is supposed to be about making hard choices (at other people’s expense, naturally). It’s not supposed to be about persuading people to spend more.

But as Mr. Summers said, the crisis “is not over until it is over” — and economic reality is what it is. And what that reality appears to be right now is one in which depression rules will apply for a very long time.

    A Permanent Slump?, NYT, 17.11.2013,






Caught in Unemployment’s Revolving Door


November 16, 2013
The New York Times


On a cold October morning, just after the federal government shutdown came to an end, Jenner Barrington-Ward headed into court in Boston to declare bankruptcy.

It took weeks to put the paperwork together, given that her papers and belongings were scattered across the country — there was a broken-down car and boxes of paperwork in Virginia Beach, clothes in Colorado and personal possessions at a friend’s house in Somerville, Mass. She managed to estimate her income — maybe $5,000 last year, but maybe half that this year — from odd jobs. Soon, she would officially have nothing.

It has been a painful slide. A five-year spell of unemployment has slowly scrubbed away nearly every vestige of Ms. Barrington-Ward’s middle-class life. She is a 53-year-old college graduate who worked steadily for three decades. She is now broke and homeless.

Ms. Barrington-Ward describes it as “my journey through hell.” She was laid off from an administrative position at the Massachusetts Institute of Technology in 2008; she had earned about $50,000 that year. With the recession spurring employers to dump hundreds of thousands of workers a month and the unemployment rate climbing to the double digits, she found that no matter the number of résumés she sent out — she stopped counting in the thousands — she could not find work.

“I’ve been turned down from McDonald’s because I was told I was too articulate,” she says. “I got denied a job scrubbing toilets because I didn’t speak Spanish and turned away from a laundromat because I was ‘too pretty.’ I’ve also been told point-blank to my face, ‘We don’t hire the unemployed.’ And the two times I got real interest from a prospective employer, the credit check ended it immediately.”

For Ms. Barrington-Ward, joblessness itself has become a trap, an impediment to finding a job. Economists see it the same way, concerned that joblessness lasting more than six months is a major factor preventing people from getting rehired, with potentially grave consequences for tens of millions of Americans.

The long-term jobless, after all, tend to be in poorer health, and to have higher rates of suicide and strained family relations. Even the children of the long-term unemployed see lower earnings down the road.

The consequences are grave for the country, too: lost production, increased social spending, decreased tax revenue and slower growth. Policy makers and academics are now asking whether an improving economy might absorb those workers in time to prevent long-term economic damage.

“I don’t think we know the answer,” said Jesse Rothstein, an economist at the University of California, Berkeley. “But right now, I think everybody’s worst fears are coming true, as far as we can tell.”

Soon after we first talked in October, Ms. Barrington-Ward left her sister’s house in Ohio, where she had crashed for six weeks, and went back to Boston and filed her bankruptcy paperwork. She contacted a headhunter. “I’ve got to get a job,” she said. “I just have to.” She had two job interviews lined up and her fingers crossed.

Long-term joblessness — the kind that Ms. Barrington-Ward and about four million others are experiencing — is now one of the defining realities of the American work force.

The unemployment rate has fallen to 7.3 percent, down from 10 percent four years ago. Private businesses have added about 7.6 million positions over the same period. But while recent numbers show that there are about as many people unemployed for short periods as in 2007 — before the crisis hit — they also show that long-term joblessness is up 213 percent.

In part, that’s because people don’t return to work in an orderly, first-fired, first-hired fashion. In any given month, a newly jobless worker has about a 20 to 30 percent chance of finding a new job. By the time he or she has been out of work for six months, though, the chance drops to one in 10, according to research by the Federal Reserve Bank of San Francisco.

Facing those kinds of odds, some of the long-term jobless have simply given up and dropped out of the labor force. So while official figures show that the number of long-term jobless has fallen steeply from its recessionary high of 6.7 million, many researchers fear that this number could mean as much bad news as good. Workers over 50 may be biding their time until they can start receiving Social Security. Younger workers may be going to school to avoid a tough job market. Others may be going on disability, helping to explain that program’s surging rolls.

Stan Hampton, 59, a veteran of the Iraq war, is now earning his associate degree. But he has not had a job since returning from active duty in 2007, and is now living in an apartment complex for veterans near Las Vegas.

“I’m just trying to hang on until my retirement kicks in,” he said, though he stressed that he would still look for a job. “I have not been in jail or prison, nor am I an alcoholic, drug addict or gambling addict. I am simply old, unemployed and out of money.”

To answer the question of whether the improving economy might help people like Mr. Hampton and Ms. Barrington-Ward, economists often phrase the question as “Is it structural or cyclical?” Cyclical unemployment is temporary, caused by a slack economy. Structural unemployment stems from a mismatch between what businesses want and what workers offer. You are a car mechanic, for example, but the economy needs programmers.

If long-term joblessness is cyclical, a growing economy should bring people back into the job market. But if structural factors are at play, the concern is dire for the whole economy, with a normal unemployment rate “significantly higher than what has been achieved in the past,” said Janet L. Yellen, the presumptive new Federal Reserve chairwoman, in a speech this year.

Right now, most economists argue that unemployment remains primarily cyclical. Ben S. Bernanke, the departing Fed chairman, made this point last summer, adding that an unemployment rate in the 5 percent range — an indication of a healthy economy — was still obtainable. Growth simply hasn’t proved strong enough to spur businesses to hire all the people who want jobs.

Economists come to this conclusion in part because there is no evidence that the long-term jobless are accumulating in any one industry, which would be a signal that the economy needs to move workers from, say, manufacturing into nursing. Long-term unemployment has hit workers young and old, of all industries, races and backgrounds. But the long-term jobless actually tend to be more educated. And long spells of joblessness have hit black workers especially hard, as well as single parents, the disabled and older workers.

With time, however, even people with desired skills can become “structurally” unemployed. Longer spells of unemployment become harder to explain away. Jobless workers’ skills can atrophy. Job seekers find it harder to appear eager. Wounds become scars.

After she lost her job, Ms. Barrington-Ward lived off her 99 weeks of unemployment benefits. Two years ago, she had to give up the house she shared with friends outside Boston. She cannot get Medicaid because she does not have a fixed address. She has no car to get around. She does freelance “intuitive” readings, similar to psychic readings, and web production work. A jobless friend committed suicide.

She tries not to let those strains show, but she describes the experience as wearying. “After working since I was 15, I have nothing to show for it,” she said.

“She’s brilliant,” said Allyson Hartzell, a longtime friend with whom Ms. Barrington-Ward is currently staying. “She gets up in the morning. She has her tasks. She’s always working on her personal projects, trying to generate money. She goes to job interviews. She keeps herself in shape.”

Ms. Hartzell continued: “I think it’s emotionally difficult to handle so much rejection, and I think others sometimes feel she needs to justify why she’s in the position she’s in.”

Economists have long thought that the strain of unemployment, plus the erosion of skills and loss of contacts that naturally occur, helps explain the “structural” unemployed in a nation’s work force. But new evidence shows that bias plays a much larger role than previously thought. Some of the long-term unemployed might never find work because businesses simply refuse to hire them.

In a recent study, Rand Ghayad a Ph.D. candidate at Northeastern University, sent out 4,800 dummy résumés to job postings. Those résumés that were supposedly from recently unemployed applicants with no relevant experience were more likely to elicit a call for an interview than those supposedly from experienced workers out of a job for more than six months. Indeed, the callback rate for the long-term jobless ranged from just 1 to 3 percent, versus 9 to 16 percent for newly unemployed workers.

Unemployment becomes a “sorting criterion,” in the words of a separate study with similar findings. It found that being out of a job for more than nine months decreased interview requests by 20 percent among people applying to low- or medium-skilled jobs.

In dozens of interviews, the long-term unemployed described discrimination as being foremost in their minds, though at the same time they said the experience of joblessness had changed them.

Robin Hastey, 53, who lives in Cornwall, N.Y., lost her job in 2009 and has not found steady work since. Her husband went through a spell of unemployment, but eventually found a job that paid half of what he made in the 1990s. They are deeply in debt, she said, estimating that they have about $100 in their bank account.

“We look older,” she said. “I’m not as cute. People aren’t as forgiving. When I was young, you could ask stupid questions and people would hire you anyhow. Now, you’re just a crazy old lady. There’s a lot less forgiveness in the marketplace.”

Still, the slack economy remains the primary culprit behind all the pain in the labor market, economists say. “We’ve got to be doing everything we can,” said Professor Rothstein at Berkeley. “That means direct hiring”— with the government providing jobs — “employment tax credits, just about anything you could think of.”

But the government is now doing the opposite. The mandatory federal budget cuts known as sequestration took as much as 60 percent out of unemployment checks this summer and fall. And, as of this winter, the federal emergency program that extends the maximum number of weeks of jobless payments will end, though the White House is pushing to extend it again.

Some fear that it may already be too late to prevent long-term joblessness from permanently scarring the American work force and broader economy. International Monetary Fund researchers estimate that the level of structural unemployment has increased significantly since the recession. And striking new Federal Reserve research shows that the scars from the recession have knocked the economy off its long-term growth trend.

For the long-term jobless, there is little to do but hope and wait. When I visited Ms. Barrington-Ward in November, she was planning to produce a show for Somerville Community Access Television. Unemployment itself consumes a lot of time. “I’ve been in seven states over the last five years, living with friends and family,” she said. “I usually stay somewhere for three weeks maximum. People want me to leave but don’t want to ask me to leave.”

She never got a second interview for one of the two positions for which she applied. She wrote a detailed plan for and had phone conversations about the other job, this one at a web start-up. She offered to work on a consulting basis. The company told her that it would go with a temp.

On a cold evening in Somerville, she sipped a mocha she had bought with a coupon. She had not given up — not quite. But she was disappointed that jobs hadn’t panned out. Again.

“I just know I’m not going to get another full-time job again,” she said. “It’s just so hard.” She had to leave her friend’s house soon. She did not know where she would go.

    Caught in Unemployment’s Revolving Door, NYT, 16.11.2013,






$10 Minimum Wage Proposal

Has Growing Support From White House


November 7, 2013
The New York Times


The White House has thrown its weight behind a proposal to raise the federal minimum wage to at least $10 an hour.

“The president has long supported raising the minimum wage so hard-working Americans can have a decent wage for a day’s work to support their families and make ends meet,” a White House official said.

President Obama, the official continued, supports the Harkin-Miller bill, also known as the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 an hour, from its current $7.25.

The legislation is sponsored in the Senate by Tom Harkin of Iowa and in the House by George Miller of California, both Democrats. It would raise the minimum wage — in three steps of 95 cents each, taking place over two years — to $10.10, and then index it to inflation. The legislation will probably be coupled with some tax sweeteners for small businesses, traditionally the loudest opponents of increases to the minimum wage.

“The combination of an increase to $10.10 and some breaks for small business on expensing unite virtually the whole Democratic caucus, and we are prepared to move forward shortly,” said Senator Charles E. Schumer of New York, the Senate’s third-ranking Democrat.

Jason Furman, the chairman of the president’s Council of Economic Advisers, attended a Senate luncheon on Thursday with a focus on raising the minimum wage. One official at the luncheon said that some Democratic senators from more conservative states favored an increase to $9 an hour, but including the expensing provision was enough of a sweetener to bring them behind the $10.10 proposal.

Under that provision, small businesses would be able to deduct the total cost of investments in equipment or expansions, up to a maximum of $500,000 in the first year. Including such a provision helped persuade the Senate to vote overwhelmingly in favor of the last two minimum wage increases.

Democratic strategists say they are backing a higher minimum wage to help lift millions of low-wage workers at a time of increasing income inequality. Some also acknowledge that pushing a higher minimum wage is a way to put Republicans on the spot — caught between a business lobby and many conservatives who oppose an increased minimum wage and a public that strongly supports a higher minimum.

In his State of the Union speech in February, Mr. Obama called for a federal minimum wage of $9 an hour. But there has been little movement in Washington on that front, despite action at the state level. Some states set their minimum wage above the federal minimum, and in September, California passed a law that will steadily raise its minimum wage to $10 an hour by 2016.

Washington State currently has the highest state minimum wage at $9.19 an hour, a level indexed to inflation. Some cities have higher wages, including San Francisco, where the wage minimum is $10.55. On Tuesday, New Jersey voters approved a constitutional amendment, by a margin of 61 percent to 39 percent, that will raise the minimum wage to $8.25 an hour on Jan. 1, from $7.25. That measure includes annual increases based on inflation.

On March 15, the House voted 233 to 184 against a proposal to raise the minimum wage to $10.10 by 2015. The proposal came as an amendment to a job-training bill, and all 227 Republican members voted against the increase.

In July, on the fourth anniversary of the most recent minimum wage increase, Mr. Harkin and Mr. Miller stepped up their effort, citing a poll by Hart Research that found that 80 percent of Americans support increasing the minimum to $10.10. The Hart poll found that 92 percent of Democrats, 80 percent of independents and 62 percent of Republicans backed their proposal.

Mr. Miller said that he was confident that the House would vote to approve a higher minimum wage next summer because he thought several dozen Republicans would back the measure for fear of angering moderate-income voters as the Congressional elections approach.

Economists are somewhat more divided than the public about the effects of a minimum-wage increase, with conservatives concerned that raising the cost of labor could reduce the total number of low-wage workers employed.

But at least one well-regarded study found that raising the minimum wage increased employment of low-wage workers.

    $10 Minimum Wage Proposal Has Growing Support From White House,
    NYT, 7.11.2013,






The Mutilated Economy


November 7, 2013
The New York Times


Five years and eleven months have now passed since the U.S. economy entered recession. Officially, that recession ended in the middle of 2009, but nobody would argue that we’ve had anything like a full recovery. Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment — the number of people who have been out of work for six months or more — is four times what it was before the recession.

These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future!

The bitter irony, then, is that it turns out that by failing to address unemployment, we have, in fact, been sacrificing the future, too. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come. Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them.

I’m actually writing this from the big research conference held each year by the International Monetary Fund. The theme of this year’s shindig is the causes and consequences of economic crises, and the presentations range in subject from the good (Latin America’s surprising stability in recent years) to the bad (the ongoing crisis in Europe). It’s pretty clear, however, that the blockbuster paper of the conference will be one that focuses on the truly ugly: the evidence that by tolerating high unemployment we have inflicted huge damage on our long-run prospects.

How so? According to the paper (with the unassuming title “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy”), our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.

What’s more, the authors — one of whom is the Federal Reserve Board’s director of research and statistics, so we’re not talking about obscure academics — put a number to these effects, and it’s terrifying. They suggest that economic weakness has already reduced America’s economic potential by around 7 percent, which means that it makes us poorer to the tune of more than $1 trillion a year. And we’re not talking about just one year’s losses, we’re talking about long-term damage: $1 trillion a year for multiple years.

That estimate is the end product of some complex data-crunching, and you can quibble with the details. Hey, maybe we’re only losing $800 billion a year. But the evidence is overwhelming that by failing to respond effectively to mass unemployment — by not even making unemployment a major policy priority — we’ve done ourselves immense long-term damage.

And it is, as I said, a bitter irony, because one main reason we’ve done so little about unemployment is the preaching of deficit scolds, who have wrapped themselves in the mantle of long-run responsibility — which they have managed to get identified in the public mind almost entirely with holding down government debt.

This never made sense even in its own terms. As some of us have tried to explain, debt, while it can pose problems, doesn’t make the nation poorer, because it’s money we owe to ourselves. Anyone who talks about how we’re borrowing from our children just hasn’t done the math.

True, debt can indirectly make us poorer if deficits drive up interest rates and thereby discourage productive investment. But that hasn’t been happening. Instead, investment is low because of the economy’s weakness. And one of the main things keeping the economy weak is the depressing effect of cutbacks in public spending — especially, by the way, cuts in public investment — all justified in the name of protecting the future from the wildly exaggerated threat of excessive debt.

Is there any chance of reversing this damage? The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.

It’s really a terrible story: a tale of self-inflicted harm, made all the worse because it was done in the name of responsibility. And the damage continues as we speak.

    The Mutilated Economy, NYT, 7.11.2013,






Budget Grief for the Poor and Jobless


November 1, 2013
The New York Times


More than four years into an economic recovery, poverty and unemployment remain elevated, while the income gains from economic growth have flowed almost exclusively to the top 1 percent of earners. Those are not the hallmarks of a healthy economy, let alone a just society or a stable democracy.

Yet the pressure for reductions to programs for low-income groups has not subsided, with possible cuts to food stamps and federal unemployment benefits moving to the top of Congress’s agenda. The danger, as always, is that Republicans will pull Democrats in their slipstream, winning their agreement to cuts that are deemed acceptable simply because they are not as harsh as Republicans demanded. Lost in the debate is that big cuts already have occurred in both food stamps and federal jobless benefits. Further cuts will only make things worse.

Case in point: House Republicans have proposed $40 billion in food stamp cuts over 10 years in the pending farm bill; the Senate has proposed a tamer $4 billion reduction. The cuts, whatever they turn out to be, will come on top of significant cuts to food stamps that kicked in on Friday, when increases enacted in the 2009 stimulus law expired. That expiration affects all of the nearly 48 million food stamp recipients and, according to the Center on Budget and Policy Priorities, works out to about 16 fewer meals a month for a family of three.

Meanwhile, the program for federal unemployment benefits will expire at the end of 2013, unless Congress renews it. Designed to address long-term unemployment, federal benefits begin when state benefits end, usually after 26 weeks, and typically provide an additional 14 to 37 weeks of aid. The current program, begun in 2008, has been renewed many times, though in recent renewals benefits have been cut far more deeply than is warranted by continued high unemployment.

As a result, the program is doing less and less to combat poverty. The Center on Budget and Policy Priorities recently reported that one million jobless workers who fell into poverty in 2012 would have escaped that fate if benefits simply had kept pace with the need.

Even more harm will be done if those benefits, which average $260 a week, are cut again or stopped outright at year-end. Nearly 37 percent of the nation’s 11.3 million jobless workers have been out of work for more than six months, still higher by far than at any time before the Great Recession, in records going back to 1948.

It is useful to recall that premature cuts to food stamps and federal unemployment benefits hurt everyone because they reduce consumer spending and, with it, economic growth. There are, in fact, no good reasons at this time for cutting either program, but there are plenty of bad ones.

    Budget Grief for the Poor and Jobless, NYT, 1.11.2013,






Reparations From Banks


October 25, 2013
The New York Times


The government’s attempts to hold banks accountable for their mortgage practices may finally be paying off. On Friday, JPMorgan Chase agreed to pay $5.1 billion to the regulator of Fannie Mae and Freddie Mac to resolve charges related to toxic mortgage securities sold before the financial crisis. That amount had been negotiated as part of a broader $13 billion settlement — yet to be finalized — between the bank and state and federal officials over the bank’s mortgage practices.

Earlier in the week, a federal jury found Bank of America liable for mortgage fraud before the financial crisis. The jury also found a former manager specifically responsible for some of the wrongdoing. Prosecutors have asked the judge to impose a fine of $848 million on the bank.

These developments have come late in the game, more than five years after the start of the mortgage crisis from which the economy and millions of homeowners have yet to recover. And it may be too late for the government to pursue trials against other banks for similar misconduct, because of statutes of limitations.

A broad settlement with JPMorgan, however, could well be a template for other settlements in the near future. As the final pieces of the deal are put in place, it is crucial for the government to secure adequate redress for wrongdoing and clear accountability up the chain of command. (The bank manager in the Bank of America trial was small fry, relatively speaking.)

Of the $13 billion total settlement with JPMorgan — which would be the largest ever paid to the government by a single corporation — most would go to the housing regulator and to other investors who sustained losses on securities sold by JPMorgan and by two banks it bought during the financial crisis, Bear Stearns and Washington Mutual. Another $4 billion reportedly is earmarked for mortgage relief for homeowners. The only penalty would be $2 billion to $3 billion for the dubious securities sold by JPMorgan itself.

This hardly seems punitive; indeed, even with the settlement payments, JPMorgan is likely to come out way ahead, given the income and market clout that Bear Stearns and Washington Mutual have contributed to the bank since the end of 2008.

The real losers in the deal would be homeowners, because the $4 billion in relief does not appear to add to existing aid; rather, it is almost surely relief the bank would have provided anyway. JPMorgan also will be able to deduct most of the settlement from its taxes — for a tax savings of roughly $4 billion — unless the settlement forbids the write-off. (Memo to Justice Department: Forbid the write-off.)

Another problem is that the deal appears oddly short on accountability. Negotiators reportedly have not yet decided how much wrongdoing, if any, the bank will admit. If there is no admission of fault, that would imply the claims are meritless, though it is unfathomable that the bank would pay $13 billion if it had done nothing wrong.

Banks, however, are loath to admit wrongdoing in government settlements because they fear subsequent shareholder lawsuits. If the government accepts no admission, or an admission that is broad and nonspecific, it would be shielding JPMorgan — on the theory, presumably, that private lawsuits would imperil the bank and endanger the economy. But if the settlement, in effect, precludes private litigation, then $13 billion is not enough. The government has to require either a bigger settlement, which seems unlikely, or a clear and comprehensive admission of wrongdoing.

The settlement reportedly does not include a promise by the government to give up a federal criminal investigation currently under way into the bank’s mortgage practices. That is as it should be, but it is worth recalling that past indictments for banks’ violations have focused on lower-level bank employees or distant subsidiaries, while higher-level executives have remained immune.

The Bank of America trial, over actions taken at Countrywide Financial, the mortgage company that the bank bought in early 2008, shows what might have been possible if the government had taken action in a more timely way. Done right, the JPMorgan settlement and others patterned on it may be the last hope for some justice for the fraud and other wrongdoing that fueled the financial crisis.

    Reparations From Banks, NYT, 25.10.2013,






The United States, Falling Behind


October 22, 2013
The New York Times


Researchers have been warning for more than a decade that the United States was losing ground to its economic competitors abroad and would eventually fall behind them unless it provided more of its citizens with the high-level math, science and literacy skills necessary for the new economy.

Naysayers dismissed this as alarmist. But recent data showing American students and adults lagging behind their peers abroad in terms of important skills suggest that the long-predicted peril has arrived.

A particularly alarming report on working-age adults was published earlier this month by the Organization for Economic Cooperation and Development, a coalition of mainly developed nations. The research focused on people ages 16 to 65 in 24 countries. It dealt with three crucial areas: literacy — the ability to understand and respond to written material; numeracy — the ability to use numerical and mathematical concepts; and problem solving — the ability to interpret and analyze information using computers.

Americans were comparatively weak-to-poor in all three areas. In literacy, for example, about 12 percent of American adults scored at the highest levels, a smaller proportion than in Finland and Japan (about 22 percent). In addition, one in six Americans scored near the bottom in literacy, compared with 1 in 20 adults who scored at that level in Japan.

American numeracy skills were termed “very poor.” The United States outperformed only two comparison countries: Italy and Spain. Nearly one in three Americans scored near the bottom in numeracy. That Americans were slightly below average in problem solving using computers was especially discouraging.

Some countries are making progress from generation to generation. But in the United States, as in Britain, the literacy and numeracy skills of young people coming into the labor market are no better than those who are about to retire. Americans who are 55 to 65 perform about average in literacy skills, but young Americans rank the lowest among their peers in the countries surveyed. The problem is not so much that the United States has gotten worse, but that it stood still on indicators like high school graduation rates while its foreign competitors rushed forward. Beginning in the 1970s, other developed nations recognized that the new economy would produce few jobs for workers with mediocre skills.

Those countries, most notably Finland, broadened access to education, improved teacher training and took other steps as well. Other countries take these international comparisons very seriously; some use the O.E.C.D. data to set policy goals and to gauge the pace of educational progress. The United States, by contrast, has yet to take on a sense of urgency about this issue. If that does not happen soon, the country will pay a long-term price.

    The United States, Falling Behind, NYT, 22.10.2013,






When Wealth Disappears


October 6, 2013
The New York Times


LONDON — AS bad as things in Washington are — the federal government shutdown since Tuesday, the slim but real potential for a debt default, a political system that seems increasingly ungovernable — they are going to get much worse, for the United States and other advanced economies, in the years ahead.

From the end of World War II to the brief interlude of prosperity after the cold war, politicians could console themselves with the thought that rapid economic growth would eventually rescue them from short-term fiscal transgressions. The miracle of rising living standards encouraged rich countries increasingly to live beyond their means, happy in the belief that healthy returns on their real estate and investment portfolios would let them pay off debts, educate their children and pay for their medical care and retirement. This was, it seemed, the postwar generations’ collective destiny.

But the numbers no longer add up. Even before the Great Recession, rich countries were seeing their tax revenues weaken, social expenditures rise, government debts accumulate and creditors fret thanks to lower economic growth rates.

We are reaching end times for Western affluence. Between 2000 and 2007, ahead of the Great Recession, the United States economy grew at a meager average of about 2.4 percent a year — a full percentage point below the 3.4 percent average of the 1980s and 1990s. From 2007 to 2012, annual growth amounted to just 0.8 percent. In Europe, as is well known, the situation is even worse. Both sides of the North Atlantic have already succumbed to a Japan-style “lost decade.”

Surely this is only an extended cyclical dip, some policy makers say. Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.

Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire.

The White House and Congress, unable to reach agreement in the face of a fiscal black hole, have turned over the economic repair job to the Federal Reserve, which has bought trillions of dollars in securities to keep interest rates low. That has propped up the stock market but left many working Americans no better off. Growth remains lackluster.

The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance. The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.

First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.

Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.

Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.

Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.

Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits.

These five factors induced, if not complacency, an assumption that economies could expand forever.

Adam Smith discerned this back in 1776 in his “Wealth of Nations”: “It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”

The decades before the French Revolution saw an extraordinary increase in living standards (alongside a huge increase in government debt). But in the late 1780s, bad weather led to failed harvests and much higher food prices. Rising expectations could no longer be met. We all know what happened next.

When the money runs out, a rising state, which Smith described as “cheerful,” gives way to a declining, “melancholy” one: promises can no longer be met, mistrust spreads and markets malfunction. Today, that’s particularly true for societies where income inequality is high and where the current generation has, in effect, borrowed from future ones.

In the face of stagnation, reform is essential. The euro zone is unlikely to survive without the creation of a legitimate fiscal and banking union to match the growing political union. But even if that happens, Southern Europe’s sky-high debts will be largely indigestible. Will Angela Merkel’s Germany accept a one-off debt restructuring that would impose losses on Northern European creditors and taxpayers but preserve the euro zone? The alternatives — disorderly defaults, higher inflation, a breakup of the common currency, the dismantling of the postwar political project — seem worse.

In the United States, which ostensibly has the right institutions (if not the political will) to deal with its economic problems, a potentially explosive fiscal situation could be resolved through scurrilous means, but only by threatening global financial and economic instability. Interest rates can be held lower than the inflation rate, as the Fed has done. Or the government could devalue the dollar, thereby hitting Asian and Arab creditors. Such “default by stealth,” however, might threaten a crisis of confidence in the dollar, wiping away the purchasing-power benefits Americans get from the dollar’s status as the world’s reserve currency.

Not knowing who, ultimately, will lose as a consequence of our past excesses helps explain America’s current strife. This is not an argument for immediate and painful austerity, which isn’t working in Europe. It is, instead, a plea for economic honesty, to recognize that promises made during good times can no longer be easily kept.

That means a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn’t cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction.

In his “Future of an Illusion,” Sigmund Freud argued that the faithful clung to God’s existence in the absence of evidence because the alternative — an empty void — was so much worse. Modern beliefs about economic prospects are not so different. Policy makers simply pray for a strong recovery. They opt for the illusion because the reality is too bleak to bear. But as the current fiscal crisis demonstrates, facing the pain will not be easy. And the waking up from our collective illusions has barely begun.


Stephen D. King, chief economist at HSBC,

is the author of “When the Money Runs Out:

The End of Western Affluence.”

    The New York Times, NYT, 6.10.2013,






Why Judges Are Scowling at Banks


September 28, 2013
The New York Times


LAST week, for the first time since the financial crisis, the government faced off in court against a major bank over lending practices during the mortgage mania. Lawyers for the Justice Department contend that Countrywide Financial, a unit of Bank of America, misrepresented the quality of mortgages it sold to Fannie Mae and Freddie Mac, the taxpayer-owned mortgage finance giants, starting in 2007. Fannie and Freddie incurred gross losses of $850 million on the defective loans and net losses of $131 million, the government said.

Bank of America disagrees. Its lawyers say that Countrywide did not defraud Fannie or Freddie.

This case is undoubtedly big, but it is only one of many mortgage-related matters inching through the judicial system. And what is notable about some of the lower-profile matters is the tone and tack that federal judges are taking in their rulings. District court judges are not generally known as flamethrowers, but some seem to be losing patience with the banks.

For decades leading up to the foreclosure debacle, plaintiffs’ lawyers say, judges generally took the side of lenders when borrowers came to court complaining of problematic lending or predatory loan servicing. Many judges still do. But some are getting tough, perhaps having seen too many examples of dubious bank behavior.

“Maybe the judges are tired of the diet of baloney sandwiches the banks have been feeding them,” said April Charney, a foreclosure defense lawyer who for years represented troubled borrowers at Jacksonville Area Legal Aid in Florida. She is now in private practice.

Two recent rulings — one in New York involving Bank of America and one in Massachusetts involving Wells Fargo — serve as examples. In the Wells Fargo case, a ruling on Sept. 17 by Judge William G. Young of Federal District Court was especially stinging. In it, he required Wells Fargo to provide him with a corporate resolution signed by its president and a majority of its board stating that they stand behind the conduct of the bank’s lawyers in the case.

The case involved a borrower named Joseph Henning who fell behind on his mortgage, which he received from Wachovia, an entity later absorbed by Wells Fargo. In a suit filed against Wells Fargo in May 2009, Mr. Henning contended that the loan was predatory.

Judge Young agreed with the bank’s argument that federal laws pre-empted the state-law remedies Mr. Henning was seeking. But he did so reluctantly, calling it a win based “on a technicality.”

Then he chastised the bank. “The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme,” the judge wrote. “A quick visit to Wells Fargo’s Web site confirms that it vigorously promotes itself as consumer-friendly,” he continued, “a far cry from the hard-nosed win-at-any-cost stance it has adopted here.”

If Wells Fargo does not supply the corporate resolution within 30 days of the ruling, the case will go to a jury trial, the judge said.

Mary Eshet, a spokeswoman for Wells Fargo, called the judge’s remarks in the ruling “inflammatory and unsubstantiated,” and added: “We believe Judge Young should follow the law which he recognizes and finalize his own judgment in this case.” The bank is asking an appellate court to require the judge to enter his dismissal order without the corporate resolution.

Valeriano Diviacchi, the lawyer for the borrower, said he had never seen a ruling requiring a corporate resolution as Judge Young’s did. Mr. Diviacchi said that he didn’t know why the judge made the ruling but that the judge appeared to want the case to be heard by a jury of Mr. Henning’s peers, people who may have had their own experiences with questionable bank practices.

“Judge Young is one of the few judges who will refer matters to juries — even when a cause of action does not entitle a party to a jury right — because he believes in it as a foundation of the justice system and a democratic society,” Mr. Diviacchi said.

The second case arose after Edwin Ramos and Michelle Ava Stouber-Ramos filed for bankruptcy and had the first and second mortgage on their Tampa, Fla., condominium discharged by the court. That kind of discharge protects a borrower from any attempts to collect the debts as a personal liability.

Bank of America received notice of the discharge in September 2010. But in spring 2012, the bank began sending letters to the Ramoses, saying their $26,991 second mortgage was “seriously delinquent” and demanding that they pay the amount owed immediately. Otherwise, the bank said, it would proceed with “collection action.”

According to Michael H. Schwartz, a lawyer in White Plains who represented the borrowers, Mr. Ramos started getting three phone calls a day from the bank, demanding repayment. When Mr. Ramos advised the bank’s representatives that the debt had been expunged in a bankruptcy proceeding, he was told “too bad,” according to a court filing.

The phone calls and letters continued even after Mr. Schwartz went back to court to ask that Bank of America be sanctioned for illegal attempts to collect the debt. During this time, Bank of America sold the servicing rights on the first mortgage to another company, which soon began sending its own demand letters to the Ramoses.

This month, the matter came before Robert D. Drain, a federal bankruptcy judge in New York. Judge Drain found Bank of America in contempt of the debt discharge order protecting the Ramoses and required the bank to pay Mr. Schwartz’s legal bills in the case. The judge also ordered the bank to pay $10,000 a month in sanctions to the Ramoses until it stopped making the repayment demands.

Judge Drain acknowledged that it wasn’t a lot of money to Bank of America. But, he said, he hoped that its lawyers would get the message. “This is not just a stupid mistake” by the bank, the judge said. “This is a policy.”

A Bank of America spokeswoman said the bank was working to resolve the court’s issues and “researching and investigating what transpired.”

But Mr. Schwartz said the Ramos case was just one of several in which he represented homeowners who were pursued by Bank of America over discharged debts. In another of his cases, court filings show that a homeowner received 105 phone calls and four threatening letters from the bank. “I believe the bank has made a conscious decision that it is less expensive to pay sanctions than to change its internal processes,” he said. “This problem is nationwide.”

Judges who take a more aggressive stance against the banks in such cases are doing what they can to hold these institutions accountable. It may not seem like a lot, but it is progress.

    Why Judges Are Scowling at Banks, NYT, 28.9.2013,






In Surprise, Fed Decides

to Maintain Pace of Stimulus


September 18, 2013
The New York Times


WASHINGTON — It turns out that the Federal Reserve is not quite ready to let go of its extra efforts to help the economy grow.

All summer, Federal Reserve officials said flattering things about the economy’s performance: how strong it looked, how well it was recovering, how eager they were to step back and watch it walk on its own.

But, in a reversal that stunned economists and investors on Wall Street, the Fed said on Wednesday that it would postpone any retreat from its monetary stimulus campaign for at least another month and quite possibly until next year. The Fed’s chairman, Ben S. Bernanke, emphasized that economic conditions were improving. But he said that the Fed still feared a turn for the worse.

He noted that Congressional Republicans and the White House were hurtling toward an impasse over government spending. That was reinforced on Wednesday, when House leaders said they would seek to pass a federal budget stripping all financing for President Obama’s signature health care law, increasing the chances of a government shutdown.

And the Fed undermined its own efforts when it declared in June that it intended to begin a retreat by the end of the year, causing investors to immediately begin to demand higher interest rates on mortgage loans and other financial products, a trend that the Fed said Wednesday was threatening to slow the economy.

“We have been overoptimistic,” Mr. Bernanke said at a news conference Wednesday. The Fed, he said, is “avoiding a tightening until we can be comfortable that the economy is in fact growing the way that we want it to be growing.”

Investors cheered the Fed’s hesitation. The Standard & Poor’s 500 stock-index rose 1.22 percent, to close at a record high, in nominal terms. Interest rates also fell; the yield on the benchmark 10-year Treasury reversed some of its recent rise.

Some analysts, however, warned that the unexpected announcement was likely to worsen confusion about the Fed’s plans, increasing the volatility of the markets in the coming months as investors sort through the Fed’s mixed messages about how much longer it plans to continue its bond-buying campaign. The delay also means that the decision to retreat may ultimately be made by the next Fed chairman, after Mr. Bernanke steps down at the end of January. President Obama has said that he plans to nominate a replacement as soon as next week. Janet L. Yellen, the Fed’s vice chairman, is the leading candidate.

“The cost of not setting out on a default gradual glide path for completing QE3 today is that this issue is now likely to be front and center in the nomination and confirmation process for the new Fed chair,” wrote Krishna Guha, head of central bank strategy at the financial services firm International Strategy & Investment, referring to the Fed’s asset purchases of quantitative easing.

The Fed unrolled an aggressive combination of new policies last year in an effort to encourage a housing recovery and increase the pace of job creation. It started adding $85 billion a month to its holdings of Treasury securities and mortgage-backed securities, to help keep long-term borrowing costs down and said it planned to keep buying until the outlook for the labor market improved substantially. The Fed also said it would keep short-term rates near zero for even longer — at least as long as the unemployment rate remained above 6.5 percent.

Half a year later, in June, Mr. Bernanke surprised many investors by announcing that the Fed intended to start cutting back on those asset purchases by the end of 2013. Fed officials reiterated that intention in July, and several officials had since suggested that the Fed might begin to pull back at the September meeting. It is also scheduled to meet next month and in mid-December.

Some critics question the Fed’s assessment of the economy, in particular its claim that a declining unemployment rate is a sign of progress. They note that unemployment is falling in part because fewer people are looking for work, and therefore are no longer officially counted as unemployed.

The Fed now appears to be giving that argument greater credence, and on Wednesday Mr. Bernanke played down the Fed’s earlier use of unemployment rate thresholds to describe the goals for its policies. He refused to repeat a comment he had made in June that the Fed planned to keep buying bonds until the unemployment rate reached roughly 7 percent. He also emphasized that the Fed was likely to keep short-term rates near zero well after unemployment fell below 6.5 percent, the threshold the Fed had established last year.

The Fed’s concern, he suggested, is that things could get worse, either because of new cuts in federal spending, a political impasse in Washington over fiscal matters that threatened to undermine the economy, or because the Fed pulled back prematurely.

Fiscal policy “is restraining economic growth,” the Fed said in a statement after a regular two-day meeting of the Federal Open Market Committee. It added, “The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and the labor market.”

Mr. Bernanke sought to explain the Fed’s hesitation in more detail. He said the Fed wanted to see three things: Evidence that the drag from fiscal policy is diminishing, that inflation is returning to a healthy level, and that job growth is sustainable.

“If it does,” he said, “we’ll take the first step at some point, possibly later this year.”

The decision was supported by nine of the 10 voting members of the Federal Open Market Committee. Esther George, president of the Federal Reserve Bank of Kansas City, dissented as she has at each previous meeting this year, citing concerns about inflation and financial stability. The committee was short two members, because of the retirement of former governor Elizabeth A. Duke and the recusal of governor Sarah Bloom Raskin, nominated to be deputy Treasury secretary.

In their economic forecasts, also published Wednesday, Fed officials retreated from overly optimistic predictions about the pace of growth over the next several years, as they have done repeatedly since the end of the recession. The aggregation of forecasts showed that Fed officials now expect growth to remain sluggish for years to come, with persistent unemployment and little inflation.

The middle of the forecast range for economic growth this year was 2 to 2.3 percent, down from June predictions of growth of 2.3 to 2.6 percent. For 2013, Fed officials forecast growth of 2.9 to 3.1 percent, down from a range of 3 to 3.5 percent.

While the Fed postponed its retreat, interest rates remained higher than before it started talking about tapering, in the United States, Europe and emerging markets. The Fed statements then “effectively brought monetary tightening forward in time,” the Bank for International Settlements in Basel, Switzerland, a clearinghouse for central banks worldwide, said in its quarterly report this week.

Investors who put their money into countries like China or Brazil in search of higher returns have been withdrawing it as investment opportunities improve in the United States. That outflow of wealth is also bad for export-driven economies like Germany. Foreign orders for German machinery fell 9 percent in July from a year earlier, according to the German Engineering Federation, an industry group.

In an attempt to soften the market reaction, the European Central Bank has promised to keep its benchmark interest rate at a record low indefinitely. But analysts say it is unlikely that words alone will be enough to keep rates low.

“The world has become more interdependent,” Norbert Reithofer, chief executive of the German automaker BMW, told reporters at the Frankfurt motor show last week. “When Ben Bernanke makes a statement, it has an effect on the Indian rupee, it has an effect on the Turkish lira, it has an effect on the South African rand.”

“We are going to be confronted with this situation more and more often,” Mr. Reithofer said.


Jack Ewing contributed reporting from Frankfurt.

    In Surprise, Fed Decides to Maintain Pace of Stimulus, NYT, 18.9.2013,






Deceptive Practices in Foreclosures


September 13, 2013
The New York Times


In early 2012 when five big banks settled with state and federal officials over widespread foreclosure abuses, flagrant violations — including the seizure of homes without due process — were supposed to end.

But abuses keep coming to light. Despite happy talk about a housing rebound, nearly three million homeowners are in or near foreclosure, and many continue to be victimized by improper and possibly illegal practices.

A lawsuit filed this week by the attorney general of Illinois, Lisa Madigan, and a report by The Times’s Jessica Silver-Greenberg have detailed one such abuse.

It starts out innocently enough. The banks hire property management companies to determine whether homeowners who are behind on their mortgage payments have abandoned their homes and, if so, to secure the vacant property.

It doesn’t always go that way. The Illinois suit accuses the largest company in the industry, Safeguard, of breaking into homes despite evidence of occupancy, damaging and removing personal property, changing locks, cutting off utilities, and bullying occupants into leaving their homes when they have the legal right to stay. In several other states, private lawsuits and complaints to legal aid lawyers have alleged similar abuses.

Under the foreclosure settlement, banks are responsible for vetting, supervising and auditing contractors, a category that clearly includes property management companies. Profit and expediency, however, seem to have trumped due process yet again. Property companies and their subcontractors make more money on vacant homes than on occupied ones, because abandoned property requires more work, including changing locks, boarding up doorways and removing trash. And banks get some or all of the proceeds from the sale of vacant homes.

In the past, banks have downplayed foreclosure abuses by noting that affected homeowners were, after all, late on their payments, as if that justifies harassment and worse. The Illinois suit makes clear that eviction is permissible only after a legal process is concluded. In addition, state laws to protect homeowners are consistent with federal policies — weak as they are — to promote loan modifications. Both state and federal laws are intended to ensure fairness in the brutal foreclosure process.

Safeguard has said its work meets “the highest standards in the industry.” The banks have said they carefully monitor the property management companies. That is hard to square with allegations in the Illinois suit, including the claim that Safeguard deemed homes vacant when the foreclosure process was not under way or when homeowners were negotiating loan modifications with the bank.

Illinois prosecutors have correctly referred the Safeguard case to the monitor of the foreclosure settlement, who must decide whether banks have breached the settlement terms. State and federal officials should start their own investigations.

The failure of federal policy to ensure adequate mortgage relief to borrowers, even as the banks were bailed out, remains an injustice and a drag on the economy. Foreclosure abuses add inexcusable insult to injury.

    Deceptive Practices in Foreclosures, NYT, 23.9.2013,






What Really Ails Detroit


August 15, 2013
The New York Times


IS Detroit’s collapse the story of one American city gone awry? Or is it indicative of a more profound nationwide problem? The facts point to the latter.

Though Detroit’s bankruptcy is exceptional in many ways — notably, its size and its disproportionate impact on African-Americans — the overall decline of America’s manufacturing centers is evident in the deterioration of many smaller cities and towns throughout the Midwest and Northeast.

What accounts for this sad turn of events?

The traditional narrative holds that globalization, outsourcing and, after 2007, the recession have been responsible for devastating American manufacturing by moving jobs out of the country in enormous numbers. But at best, that is a convenient half-truth.

American manufacturing has been in trouble even since its heyday, in the 1950s and 1960s, when the United States was the global economic powerhouse and American assembly-line workers earned very decent middle-class wages.

That era of prosperity was not, as is so often claimed, the manifestation of the American dream. Rather, it was, or should have been, a warning sign that America was riding a fleeting wave of progress. Almost nobody was looking hard enough to the future and asking what it would take to sustain success.

The reason so many manufacturing-sector workers in the United States received such high pay at that time was not that they had exceptional skills or had received superior training; it was that the corporations for which they worked were unsurpassed in their dominance and generated huge revenues.

But that dominance was, to a considerable degree, a momentary quirk of history: the absence, in the wake of World War II, of any real competition from other nations. Once foreign competition was re-established, in Europe and Asia, only the superior skills of a nation’s workers and a focus on long-term workers’ training would allow a country to stay ahead.

For the United States, the day of reckoning came as other nations recovered from the war. In the 1970s, for example, American car manufacturers began facing competition on their home soil for the first time. Belittling the Japanese and their funny little cars was not an effective competitive response, though not for want of trying.

In that moment, American companies, communities and employees should have started taking the competition seriously. That did not happen. Companies like General Motors continued to shower blue-collar workers with handsome pay and benefits.

Who was to blame for this? Not the unions. They did what they were supposed to do: ask for higher pay and more benefits. No, the fault lay with the top corporate managers: it was their job, as capitalists, to deny such increases if they were not justified by productivity trends.

But with a fatal arrogance, executives at American manufacturing companies did allow those increases, in part to maintain a society of contented, trouble-free workers, though executives would also use those increases as cover for their own rapidly swelling compensation. In the 1960s, the average compensation of an American C.E.O. was about 25 times the average compensation of a production worker. That ratio rose to about 70 times by the end of the 1980s, and to around 250 times these days.

It is tragic to hear voices from Detroit declaring themselves ready for a resuscitation of the city. Revival is a question not just of will but also of the available skills base, which unfortunately has deteriorated as a result of a failure to invest in training.

That skills deteriorated is, to a considerable extent, the fault of the unions. Unfortunately, they shared the management class’s shortsighted focus on extracting the maximum amount of compensation from companies, even in the face of the underlying businesses’ failing strength.

Developing the necessary skills base is not a short-term project. It requires decades of concerted effort on many fronts, by many national, regional and local actors, including collaboration among companies, government, trade associations, schools, colleges and universities.

This kind of common purpose, however, is not something that American society, with its ethos of individualism and personal independence, seems capable of undertaking. Doing the right thing for the long haul is typically put off for a later time, if it ever happens.

That such a “strategy” is self-defeating ought to be obvious. Sadly, it is not — not in an instant-gratification world.

Globalization, in many ways, serves as an early warning system for the changes required in a domestic society. No society should have been better prepared to utilize this tool than the United States, given its traditional — but at least for now largely lost — proclivity to embrace change. That it didn’t work out that way is a tragedy of the nation’s own making.


Stephan Richter is publisher of The Globalist,

an online magazine.

    What Really Ails Detroit, NYT, 15.8.2013,






The Government

as a Low-Wage Employer


August 12, 2013
The New York Times


In 1965, in a nation torn by racial strife, President Johnson signed an executive order mandating nondiscrimination in employment by government contractors. Now, as President Obama has observed, the nation is divided by a different threat: widening income inequality. He could respond much as Mr. Johnson did — with an executive order aimed, this time, at raising the pay of millions of poorly paid employees of government contractors.

Recent studies have shown how hundreds of billions of dollars in federal contracts, grants, loans, concessions and property leases currently flow to companies that pay low wages and provide few if any benefits, even as executive pay among federal contractors has risen. In effect, tax dollars are being used to fuel the low-wage economy and, in the process, worsen inequality.

This research has been underscored by a recent complaint filed with the Labor Department by Good Jobs Nation, a group representing low-wage workers employed under federal concession agreements. The complaint alleges that food franchises operating at federal buildings in the District of Columbia have ignored minimum-wage and overtime laws. The group has also organized walkouts by low-wage workers of vendors licensed to operate at Smithsonian museums, actions that have dovetailed with recent walkouts by fast-food workers around the nation.

Many laws and executive actions, mostly from the 1930s and 1960s, require fair pay for employees of federal contractors. But over time, those protections have been eroded by special-interest exemptions, complex contracting processes and lax enforcement. A new executive order could ensure that the awarding of contracts is based on the quality of jobs created, challenging the notion that the best contractor is the one with the lowest labor costs.

Mr. Obama also could tell federal agencies to conduct reviews of contracts to see if the work should be done in-house. There is compelling evidence that using private-sector contractors is often costlier than using government employees, even when contractors pay workers little.

Nearly 50 years after one executive order helped to end discrimination in government contracting, another one is needed to help ensure fair pay in that same sector.

    The Government as a Low-Wage Employer, NYT, 12.8.2013,






Fast-Food Fight


August 7, 2013
The New York Times


The fast-food workers who have been walking off their jobs illustrate a central fact of contemporary work life in America: As lower-wage occupations have proliferated in the past several years, Americans are increasingly unable to make a living at their jobs. They work harder and are paid less than workers in other advanced countries. And their wages have stagnated even as executive pay has soared.

As measured by the federal minimum wage, currently $7.25 an hour, low-paid work in America is lower paid today than at any time in modern memory. If the minimum wage had kept pace with inflation or average wages over the past nearly 50 years, it would be about $10 an hour; if it had kept pace with the growth in average labor productivity, it would be about $17 an hour.

In contrast, the median hourly pay of fast-food workers — most of whom are in their 20s or older and many of whom are parents — is less than $9 for front-line workers and just above $9 when shift supervisors are included. Not surprising, the strikers demanded better pay — $15 an hour — and the right to organize without retaliation.

Also not surprising, they have been motivated to act by the inaction of the nation’s leaders. Republicans are against a higher minimum wage, and Democrats are too timid. Legislation proposed by Congressional Democrats would raise the hourly minimum to $10.10 over nearly two-and-a-half years from the date of enactment. President Obama has proposed a similarly gradual increase to $9 an hour. Congress and the White House also squandered a chance to try to improve workers’ earnings prospects when they let right-to-organize legislation die years ago.

Activism among fast-food workers is almost certain to continue and is likely to spread to other underpaid workers. Most of the jobs lost during the recession were midwage jobs, while most of the new jobs have been lower paying. In addition to food-service jobs, big growth areas today include home care and retail sales, with median hourly wages of roughly $10 and $11, respectively. According to the Labor Department, six of the 10 occupations that are projected to add the most jobs by 2020 pay wages at the lower end of the scale.

At some point, as strikes continue, well-paid executives in low-wage industries will have to confront the fact that low worker pay is at odds with their companies’ upbeat corporate images and their self-images as top executives. (The chief executives of McDonald’s and Yum Brands, which owns Taco Bell, Pizza Hut and KFC, are among the nation’s highest-paid corporate leaders.)

Political leaders will likewise have to confront their own failures. The strikers did not ask for Washington’s help, but there is a lot that Congress and the Obama administration could do. In addition to raising the minimum wage, there needs to be more enforcement of fair labor laws, including crackdowns on employers that misclassify employees as salaried workers, independent contractors or interns in order to deny them overtime, benefits or other pay. It would help, too, for Congress to end the foot-dragging around implementation of a law passed years ago requiring disclosure of the ratio of chief executive pay to that of a company’s work force.

The Great Recession and the slow recovery have reinforced trends toward inequality and inadequate pay that were evident even before the last downturn. Fast-food workers are fighting back, in just cause.

    Fast-Food Fight, NYT, 7.8.2013,






Obama Outlines Plans

for Fannie Mae and Freddie Mac


August 6, 2013
The New York Times


PHOENIX — President Obama hailed both this city’s and the country’s comeback from the housing bust on Tuesday, and said it was now time to reduce the federal role and risk in the mortgage market “to make sure the kind of crisis we went through never happens again.”

He proposed to “wind down” Fannie Mae and Freddie Mac, for the first time outlining his approach to overhauling the two giant mortgage-finance companies that were taken over by the government when they failed nearly five years ago. The companies, which Mr. Obama described in an appearance here as “not really government, but not really private sector,” recently began to repay taxpayers.

“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag,” the president said. “It was ‘heads we win, tails you lose.’ ”

Since early 2011, the administration has voiced support for overhauling Fannie Mae and Freddie Mac, which long benefited from an implicit government guarantee. Years ago the companies came to symbolize a self-dealing Washington culture beneficial to both parties, and especially Democrats, but Mr. Obama’s remarks on what comes next were his most specific. For several years, the administration held back from revamping the mortgage-finance system for fear of rattling a weakened market.

Mr. Obama on Tuesday endorsed the thrust of bipartisan legislation from a Senate group that would “end Fannie and Freddie as we know them.” The so-called government-sponsored enterprises for decades bought and sold mortgages from financial institutions to provide money for the banks to keep lending to home buyers.

Under Mr. Obama’s principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.

“First, private capital should take a bigger role in the mortgage markets. I know that sounds confusing to folks who call me a socialist,” Mr. Obama said, drawing laughs and applause. “I believe that our housing system should operate where there’s a limited government role,” he added, “and private lending should be the backbone of the housing market.”

The president said that any measure he signed into law “should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.”

“That’s something families should be able to rely on when they’re making the most important purchase of their lives,” he said.

Senator Mark Warner, Democrat of Virginia who is part of the bipartisan effort on the Senate banking committee, welcomed the president’s endorsement. “It’s good to see additional momentum,” he said in a statement.

Brian Gardner, a senior vice president in Washington at Keefe, Bruyette & Woods, wrote to clients that Mr. Obama’s address on mortgage finance was “important because the administration has not discussed it in some time.” Despite the presidential push, he said, Congress is not likely to approve a bill before 2015.

Separate legislation in the Republican-controlled House would remove the government from the mortgage market, including from the decision whether to keep providing the 30-year mortgage. But Mr. Gardner wrote that even “many free market proponents acknowledge that the government will play some backstop role in a future system” and be compensated for it.

After years in which the formerly formidable Fannie Mae and Freddie Mac and their Congressional allies blocked proposals requiring some kind of fees or risk premiums, Mr. Obama is calling for an assessment to be paid to the government on the value of mortgage-backed securities.

Under his proposals, the revenue from an assessment would help finance aid for borrowers and the construction of houses and rental properties that lower-income Americans could afford.

Mr. Obama’s focus was homeownership. But he emphasized the need for more affordable rental housing more than he had before. Advocates have called for a “rebalance” of government subsidies, which they say have too long been skewed toward homeownership and mostly benefit the affluent.

“In the run-up to the crisis, banks and the government too often made everyone feel like they had to own a home, even if they weren’t ready and didn’t have the payment,” Mr. Obama said. “That’s a mistake we shouldn’t repeat,” he said. “Instead, let’s invest in affordable rental housing.”

Mr. Obama purposely spoke in Phoenix, where weeks after taking office he first announced his ideas for providing relief to homeowners and stemming foreclosures. Here, as in much of the nation, home values and sales are up, and foreclosures are down. Before arriving at a high school gym packed with an enthusiastic crowd, he visited a housing construction company that has quintupled its work force since the bust.

But as he often does, Mr. Obama tempered his celebration of better times, and his administration’s role in helping to reach them, with acknowledgment that the recovery was not complete.

“The truth is, it’s been a long, slow process,” he conceded. “But during that time we’ve helped millions of Americans save an average of $3,000 each year by refinancing at lower rates. We’ve helped millions of responsible homeowners stay in their homes, which was good for their neighbors because you don’t want a bunch of foreclosure signs in your neighborhood.”

    Obama Outlines Plans for Fannie Mae and Freddie Mac, NYT, 6.8.2013,




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