Wednesday, December 31, 2008

HAPPY NEW YEAR - What's Bogus 2008

"Year-end Whoppers" FactCheck.org

This is just the Summary from their full article

We've often said that the spin never stops in Washington. And the weeks since Nov. 4 offer further evidence of that.

Consider some of the bogus claims we've debunked just since Election Day:
  • It's not true that unionized auto workers at Detroit's Big Three make more than $70 an hour, as claimed by some opponents of federal aid.

  • And no, 3 million workers won't be tossed out of work if aid is not forthcoming, as claimed by those favoring a taxpayer bailout.

  • President-elect Obama never promised to seek a ban on all semi-automatic weapons, as claimed by some fearful gun owners.

  • And no, Obama did not propose a Gestapo-like civilian security force as claimed by a Republican member of Congress from Georgia and any number of overwrought bloggers.

  • Democrats in Congress are not discussing any plan to confiscate the assets in 401(k) retirement accounts, another falsehood spread about by chain e-mails and Internet postings.

  • House Speaker Nancy Pelosi did not demand a 757-size personal jet, a false claim resurrected when Democrats criticized Big Three executives for flying to D.C. on their own private jets to beg for aid.

  • And Pelosi's husband doesn't own a $17 million stake in a food company that she may (or may not) have tried to help with an exemption from a new minimum wage law.

For details, plus bonus features including video of misleading TV spots by the United Auto Workers and by auto dealers, please read on to the Analysis section.

Watch our "Ask FactCheck" space for new items in the next few days. We'll post the truth about a claim that the Environmental Protection Agency is planning to levy a tax on farmers' cows and hogs. And we'll give you the real story behind a widely circulating (and false) claim that the murder rate in counties that voted for Obama is six times higher than in counties that supported McCain.

And if history is any guide, we'll have much more to debunk in the New Year, too.

Wednesday, December 17, 2008

POLITICS - Good Ole' Republican Welfare for the Rich

"Executive Pay Limits May Prove Toothless" by Amit R. Paley, Washington Post

Page 1 of 2:

Loophole in Bailout Provision Leaves Enforcement in Doubt

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

The modification reflects how the rapidly shifting nature of the crisis and the government's response to it have led to unexpected results that are just now beginning to be understood. The Government Accountability Office, the investigative arm of Congress, issued a critical report this month about the financial industry rescue package that said it was unclear how the Treasury would determine whether banks were following the executive-compensation rules.

Michele A. Davis, spokeswoman for the Treasury, said the agency is working to develop a policy for how it will enforce the executive-compensation rules. She would not say when the guidance would be issued or what penalties it might impose. But she said the companies promised to follow the rules in contracts with the department.

The final legislation contained unprecedented restrictions on executive compensation for firms accepting money from the bailout fund. The rules limited incentives that encourage top executives to take excessive risks, provided for the recovery of bonuses based on earnings that never materialize and prohibited "golden parachute" severance pay. But several analysts said that perhaps the most effective provision was the ban on companies deducting more than $500,000 a year from their taxable income for compensation paid to their top five executives.

That tax provision, which amended the Internal Revenue Code, was the only part of the law that contained an explicit enforcement mechanism. The provision means the IRS must review the pay of those executives as part of its normal review of tax filings. If a company does not comply, the IRS can impose a tax penalty. The law did not create an enforcement mechanism for reviewing the other restrictions on executive pay.

If a firm violates the executive-compensation limits, department officials said, the Treasury could seek damages, go to court to force compliance, or even rescind the contracts and recover the bailout money. "We therefore have all the remedies available to us for a breach of contract," Davis wrote in an e-mail.

Legal experts said those efforts could be complicated if the Treasury outlines the penalties after companies have received bailout money. David M. Lynn, former chief counsel of the Securities and Exchange Commission's division of corporation finance, said courts have sometimes placed limits on the government's ability to impose penalties if there was no fair warning.

Hay, come on people. Those "poor" CEOs may have to give up a mistress or two AND their Ferrari if their "compensation" is cut.

Thursday, December 04, 2008

POLITICS - Changes On the Way

Denise McCluggage (1927)
Change is the only constant. Hanging on is the only sin.


Richard Hooker (1554–1600)
Change is not made without inconvenience, even from worse to better.


The following are only excerpts from these articles, there's more.

"Obama Teams Are Scrutinizing Federal Agencies" by Shailagh Murray and Carol D. Leonnig, Washington Post

Wearing yellow badges and traveling in groups of 10 or more, agency review teams for President-elect Barack Obama have swarmed into dozens of government offices, from the Pentagon to the National Council on Disability.

With pointed questions and clear ground rules, they are dissecting agency initiatives, poring over budgets and unearthing documents that may prove crucial as a new Democratic president assumes control. Their job is to minimize the natural tension between incoming and outgoing administrations, but their work also is creating anxiety among some Bush administration officials as the teams rigorously examine programs and policies.

Lisa Brown, who served as counsel to Vice President Al Gore and is helping manage the reviews, said typical questions include: "Which is the division that has really run amok? Or that has run out of money? If someone is confirmed, what's going to be on their desk from Day One? What are the main things that need to happen, vis-a-vis Obama's priorities?"

Every presidential changeover includes some type of review of the federal landscape, but some have succeeded more than others, experts say. Obama's teams -- 135 people divided into 10 groups, along with a list of other advisers -- started earlier than most, gearing up months before Election Day with preliminary planning, and will work until mid-December preparing reports to guide the White House, Cabinet members and other senior officials.

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"Gates: Military looking at quicker Iraq withdrawal" by Lolita C. Baldor, Boston Globe

Defense Secretary Robert Gates signaled a willingness yesterday to forge ahead with two key priorities for the incoming Obama administration: accelerating the US withdrawal from Iraq and shutting down the Guantanamo Bay detention center.

As the only Republican Cabinet member asked to stay on by President-elect Barack Obama, Gates told reporters that military commanders are looking at ways to more quickly pull troops out of Iraq in light of the 16-month timetable that was a centerpiece of the Democrat's campaign.

He also said it will be a high priority to work with the new Congress on legislation that will enable the United States to close the detention center at the US naval base in Cuba, where about 250 terrorism suspects are still being held.

In a blunt and occasionally personal briefing, Gates acknowledged his unique position in the new Democratic administration.

"I guess I would say that I was engaged in my own form of strategic deterrence," said Gates, who for two years has talked of his desire to return home to Washington state. "It was my hope that if I made enough noise about how much I did not want to stay here and how much I wanted to go back to the Northwest that I wouldn't have to worry about the question ever being asked."

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"Generals to urge quick action on torture by Obama" by Randall Mikkelsen, Reuters

Barack Obama should act from the moment of his inauguration to restore a U.S. image battered by allegations of torturing terrorism suspects, said a group of retired military leaders planning to press their case with the president-elect's transition team on Wednesday.

"We need to remove the stain, and the stain is on us, as well as on our reputation overseas," said retired Vice Adm. Lee Gunn, former Navy inspector general.

Gunn and about a dozen other retired generals and admirals, who are scheduled to meet Obama's team in Washington, said they plan to offer a list of anti-torture principles, including some that could be implemented immediately.

They include making the Army Field Manual the single standard for all U.S. interrogators. The manual requires humane treatment and forbids practices such as waterboarding -- a form of simulated drowning widely condemned as torture.

Other immediate steps Obama could take are revoking presidential orders allowing the CIA to use harsh treatment, giving the International Red Cross access to all prisoners held by intelligence agencies and declaring a moratorium on taking prisoners to a third country for harsh interrogations.

Wednesday, December 03, 2008

ECONOMY - The Keystone Cops

Should the recession persist for another five months, consistent with Fed and private forecasts, it would become the longest since the Great Depression.

At 12 months, the current contraction is already the longest since the 16-month slump that ended in November 1982, and exceeds the postwar average of 10 months.

The contraction is the second under President George W. Bush’s watch, making him the first U.S. leader since Richard Nixon to preside over two recessions.

"AP IMPACT: They warned us, but US eased loan rules" by Matt Apuzzo, AP

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.
The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.

"We're going to be feeling the effects of the regulators' failure to address these mortgages for the next several years," said Kevin Stein of the California Reinvestment Coalition, who warned regulators to tighten lending rules before it was too late.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

  • Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

  • Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

  • Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

  • Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

  • Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Federal regulators were especially concerned about mortgages known as "option ARMs," which allow borrowers to make payments so low that mortgage debt actually increases every month. But banking executives accused the government of overreacting.

Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

"An open market will mean that different institutions will develop different methodologies for achieving this goal," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

Countrywide Financial Corp., at the time the nation's largest mortgage lender, agreed. The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes. Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they shouldn't have to double-check the brokers.

"It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac's 2005 mortgage portfolio. This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don't lose their deposits.

Last week, Downey Savings joined the growing list of failed banks. The problem: About 52 percent of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe — maybe even safer than traditional 30-year mortgages.

"To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products," said Lillian Gavin, the bank's chief credit officer.

At least some regulators didn't buy it. The comptroller of the currency, John C. Dugan, was among the first to sound the alarm in mid-2005. Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn't even be able to sell their way out of the mess.

It sounded simple, but "people kind of looked at us regulators as old-fashioned," said Brown, the agency's former deputy comptroller.

Diane Casey-Landry, of the American Bankers Association, said the industry feared a two-tiered system in which banks had to follow rules that mortgage brokers did not. She said opposition was based on the banks' best information.

"You're looking at a decline in real estate values that was never contemplated," she said.

Some saw problems coming. Community groups and even some in the mortgage business, like Welch, warned regulators not to ease their rules.

"We expect to see a huge increase in defaults, delinquencies and foreclosures as a result of the over selling of these products," Stein, the associate director of the California Reinvestment Coalition, wrote to regulators in 2006. The group advocates on housing and banking issues for low-income and minority residents.

The government's banking agencies spent nearly a year debating the rules, which required unanimous agreement among the OCC, Federal Deposit Insurance Corp., Federal Reserve, and the Office of Thrift Supervision — agencies that sometimes don't agree.

The Fed, for instance, was reluctant under Alan Greenspan to heavily regulate lending. Similarly, the Office of Thrift Supervision, an arm of the Treasury Department that regulated many in the subprime mortgage market, worried that restricting certain mortgages would hurt banks and consumers.

Grovetta Gardineer, OTS managing director for corporate and international activities, said the 2005 proposal "attempted to send an alarm bell that these products are bad." After hearing from banks, she said, regulators were persuaded that the loans themselves were not problematic as long as banks managed the risk. She disputes the notion that the rules were weakened.

Marc Savitt, president of the National Association of Mortgage Brokers, said regulators were afraid of stopping a good thing.

"If it seems to be working, if it's not broken don't fix it, if everybody's making money, then the good times are rolling and nobody wants to be the one guy to put the brakes on," he said.

In the past year, with Congress scrambling to stanch the bleeding in the financial industry, regulators have tightened rules on risky mortgages.

Congress is considering further tightening, including some of the same proposals abandoned years ago.


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"U.S. Recession Started in 2007, Longest Since 1980s" by Timothy R. Homan and Steve Matthews, Bloomberg

The U.S. economy entered a recession a year ago this month, the panel that dates American business cycles said today, making this contraction already the longest since 1982.

The declaration was made by a committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

Federal Reserve Chairman Ben S. Bernanke today said the economy “will probably remain weak for a time” and the Fed may use unconventional methods, such as buying Treasury securities, to spur growth. Should the recession persist for another five months, consistent with Fed and private forecasts, it would become the longest since the Great Depression.

“It is clearly not going to end in a few months,” Jeffrey Frankel, a member of the NBER committee and a professor at Harvard University, said in an interview. “We would be lucky to get done with it in the middle of next year.”

Separate reports today showed the recession has deepened. U.S. manufacturing contracted in November at the fastest rate in 26 years, according to the Institute for Supply Management, based in Tempe, Arizona. The Commerce Department said construction spending fell more than forecast in October as a slump in homebuilding spread to non-residential projects.

Stocks Slump

Stocks worldwide tumbled and yields on U.S. Treasury securities fell to the lowest ever on concern a lack of financing will stunt consumer and business spending.

The NBER designation means the U.S. was the first country to have slipped into a contraction. While definitions differ, the economies of both the euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

The loss of 1.2 million jobs so far this year was the biggest factor in determining the starting point of the U.S. recession, the NBER said. By that measure, the contraction probably deepened last month.

Payroll employment probably fell by 325,000 in November, the most since the last recession, according to the median forecast of economists surveyed by Bloomberg News ahead of a Labor Department report due Dec. 5. The jobless rate is projected to increase to 6.8 percent, the highest level since 1993.

Payrolls Drop

U.S. employers cut 240,000 jobs in October, a 10th consecutive decline. The unemployment rate rose to 6.5 percent, the highest level in 14 years, according to Labor Department statistics.

At 12 months, the current contraction is already the longest since the 16-month slump that ended in November 1982, and exceeds the postwar average of 10 months.

The contraction is the second under President George W. Bush’s watch, making him the first U.S. leader since Richard Nixon to preside over two recessions.

“The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that’s where we’ll continue to focus,” White House Deputy Press Secretary Tony Fratto, said in an e-mailed statement. “Addressing these areas will do the most right now to return the economy to growth and job creation.”

Summers, More Action

Lawrence Summers, President-elect Barack Obama’s pick for White House economic adviser, said the economy is getting worse and requires more legislative action.

“Recent economic evidence suggests that the pace of this downturn is accelerating,” Summers said in a statement. He said Obama wants to enact a recovery package “soon after taking office.”

The likely length of this downturn may cast doubt on economists’ view that the business cycle was moderating in recent decades.

“Everyone had thought long, deep recessions were a thing of the past,” Frankel said. “There was a lot of talk of the new economy.”

Although a recession is conventionally defined as two quarters of successive contraction in gross domestic product, the private committee doesn’t require supporting GDP data to make a recession call. Its members focus on month-to-month changes in the economy.

The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes.

Getting Worse

The U.S. economy shrank at a 0.5 percent pace in the third quarter after expanding 2.8 percent in the previous three months. Economists at Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace this quarter.
Members of the committee are Frankel; Stanford University professor Robert Hall; Martin Feldstein of Harvard University; Northwestern University economics professor Robert Gordon; NBER president James Poterba; David Romer of the University of California at Berkeley; and Conference Board economist Victor Zarnowitz.

Do you hear the GOP mantra in the background? NO Regulation, No Regulation, No Regulation. We feel your pain.