The administration's plan to consolidate financial regulators seems OK as far as it goes. But it doesn't seem to go very far.

Business Week economist Michael Mandel:

Let’s see. In the middle of perhaps the greatest financial upheaval since the Great Depression, Treasury Secretary Hank Paulson is proposing a change in financial regulations which basically amounts to a big wink to Wall Street. His plan will go nowhere, both for political and practical reasons. In fact, it does not even meet the minimum standard of improving transparency, which would reduce the possibility of a similar crisis in the future.

The main point of the Paulson plan is to make regulation more efficient.

NYT columnist/economist Paul Krugman:

Anyone who has worked in a large organization — or, for that matter, reads the comic strip “Dilbert” — is familiar with the “org chart” strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom.You now understand the principle behind the Bush administration’s new proposal for financial reform, which will be formally announced today: it’s all about creating the appearance of responding to the current crisis, without actually doing anything substantive.

Dandelion Salad:

You can be sure that in order to justify their existence, the reorganized agencies, as well as such new ones as the MOC and OIO, will issue a plethora of new regulations that will have the net effect of constricting credit for the average person, because the underlying judgment of frowning officialdom is that the cause of the current housing crisis is how easy financiers made it for ordinary people who had the audacity to want to purchase homes. By contrast, the plan would assure that such “innovations” as those by which the lenders themselves have been famously packaging and re-selling mortgages and other debt instruments as investment securities will continue unimpeded.

Dealbreaker:

We’re going to have a lot to say about the costs of Treasury Secretary Hank Paulson’s Blueprint for a Modernized Financial Regulatory Structure. Before that, however, it’s worth noting that there is little to admire about our current financial regulatory structure. Largely a product of the financial crises of the past, the structure was unwieldy, arguably created a bureaucratic structure at odds with the constitutional framework of our Republic and tended to serve the interest of the very financial institutions it sought to regulate at the expense of individual investors and the broader public.

Robert Reich:

It’s being called the broadest overhaul of Wall Street regulation since the Great Depression. But look closely at the proposal announced this morning by Treasury chief Hank Paulson, and you’ll find a thin veneer of regulatory filagree -- designed to appease a public outraged by the mismanagement of its savings and the taxpayer-financed bailout of Wall Street’s well-padded executives, but also, sadly, designed to accomplish just about nothing.

Blogging Stocks:

This is only a first step in the process. Many government agencies will be merged to create even more powerful agencies. However, the key element that stands out in Secretary Paulson's proposal is the new role of the Federal Reserve as a regulatory "Supercop." In essence, the proposal makes the Fed formally responsible for the risk management of our financial system. This would be the third mandate for the Federal Reserve after price stability and full employment.

Posted by Jay Hancock at 2:08 PM | Permalink | Comments (0)
        

Professors at MIT and Stockholm University find that congressional districts with little press coverage tend to elect representatives who are less independent, less well-known to voters and less likely to bring home pork projects. Their paper is published by the National Bureau for Economic Research. Newspapers make democracy -- with its virtues and faults -- work.

Voters living in areas with less coverage of their U.S. House representative are less likely to recall their representative's name, and less able to describe and rate them. Congressmen who are less covered by the local press work less for their constituencies: they are less likely to stand witness before congressional hearings, to serve on constituency-oriented committees (perhaps), and to vote against the party line. Finally, this congressional behavior affects policy. Federal spending is lower in areas where there is less press coverage of the local members of congress.

Posted by Jay Hancock at 11:55 AM | Permalink | Comments (0)
        

Although online help-wanted ads fell nationally in March compared with those of March 2007, in Maryland the picture looks much better. Online Maryland employment ads rose 15 percent for the period, suggesting that local companies are willing to hire and that the state is avoiding recession. The figures are from the Conference Board.

Maryland's results contrast with those in states such as California (online help-wanted ads down 17 percent), Florida (down 10 percent) and Oregon (down 25 percent.) Maryland has the fifth-highest demand for labor in the United States, says the economic research organization. And because of its low unemployment rate, Maryland had the lowest imbalance in the country between available positions and the number of people seeking work.

Posted by Jay Hancock at 11:03 AM | Permalink | Comments (0)
        

The Conference Board says this morning that the number of online employment ads declined this month compared with the level in March 2007. That was the first year-over-year decline since the organization began tracking online ads in 2005. Online employment ads have grown like topsy in the last decade in The Sun, CareerBuilder and Monster. That they seem to be topping out says something about the maturity of the market. But it also says something about the economy. Employers who are laying off workers or hiring less buy fewer help-wanted ads.

“The softening in advertised vacancies evident over the last few months spread to more states in March and, for the first time, annual growth turned negative for the nation as a whole,” said Gad Levanon, Economist at The Conference Board. “It would not be surprising to see a third straight month of job losses when employment data are released later this week as well as continued weakness in the months ahead. The weak demand for labor and a soft employment market help explain the significant decline in the Consumer Confidence Index released last week, which dropped to 64.5, its lowest level since 2003.”

Posted by Jay Hancock at 10:36 AM | Permalink | Comments (0)
        

The fine print has been posted on the PSC's Web site.

One interesting detail. Page 5 days Constellation "will prioritize the development of a new nuclear plant at Calvert Cliffs over the development of a nuclear facility at any other site it controls, provided that all things are equal, including, but not limited to, regulatory approvals and acceptable financing."

All things are never equal.

Posted by Jay Hancock at 1:24 PM | Permalink | Comments (2)
        

This email from Environment Maryland's Brad Heavner a propos of Wednesday's column on the Sparows Point steel mill:

What I dispute in your recent column on the Sparrows Point steel mill is that the global warming legislation now being debated would lead to a carbon tax covering industrial sources. You leap straight to that assumption and base the whole argument on it, but it's really not the case to begin with.

The bill is fundamentally a planning process for clean energy policies.
These policies are all things we're talking about already -- green building standards; supporting small, local power generators; transit-oriented development; energy efficiency opportunities of all sorts; dozens of small initiatives to inject a low-carbon mentality into all of our public policy. The bill sets deadlines for making decisions and getting policies in place. It will make sure our transition to a clean energy economy is smooth.

The policies developed between now and 2012 will have to result in a projected reduction in pollution of 25% from the 2006 level by 2020.
This is the course we need to be on to address the potentially devastating impacts of global warming, and doing it in ten states will spur the federal government to match it.

Can we do that without taxing manufacturing? You bet. And, as you point out, we have to.

If we impose a tax on steel that drives Severstal out of Maryland, it would result in increased greenhouse gas emissions because more of our steel would be made in places without good environmental standards and would be transported over long distances. That would make no sense. I would be the first to object.

Fortunately, there are plenty of other strategies for reducing greenhouse gas emissions. Take a look at our report from last June that offers one scenario. The Maryland Commission on Climate Change is refining details on 53 policy recommendations, and a blanket carbon tax is not one of them. (Our report is at http://www.environmentmaryland.org/reports/global-warming/global-warming
-program-reports/a-blueprint-for-action-policy-options-to-reduce-marylan
ds-contribution-to-global-warming)

It would be a great benefit to Maryland's economy to be ahead of the curve in addressing global warming. Maryland stands to create an entirely new arm to its economy and infrastructure. As the transition to clean energy occurs, we want to be part of creating it and profiting from the opportunity. The entire world is looking for solutions that Maryland can play a big role in providing.

Posted by Jay Hancock at 12:05 PM | Permalink | Comments (2)
        

-- The direct amount -- over $500 million -- is enough to cause pain for Constellation and enough for O'Malley to claim he got significant $$$ for consumers.

-- O'Malley didn't have much ammo to work with. The 2006 law requiring the $386 million in credits was embarrassingly unconstitutional. Nor did the review of the 1999 stranded-cost settlement offer much ground for revisiting. Judges would have laughed efforts to regain stranded cost money out of court.

-- However, as noted in today's column, he didn't deploy what potentially was his biggest gun: an investigation into the 2005-2006 electricity auction that led to the 70 percent BGE increase.

-- Constellation buys political peace with the settlement. Did they also forestall the auction inquiry? We'll find out next week.

-- O'Malley gets Constellation to stop threatening to put their next nuclear plant somewhere other than Maryland. He had two opposing goals: 1) Look as though he redeems his promise for rate relief by beating up Constellation and getting money. 2) Secure Maryland's energy future. No. 1 is important. No. 2 is more important.

Posted by Jay Hancock at 10:52 AM | Permalink | Comments (2)
        

Silver lining department: Gas is $3.20 a gallon. Milk is $4. Electricity has nearly doubled in recent years.

Is everything getting more expensive? No. Although inflation appears to be back in a big way, there are still significant deflationary forces in some parts of the economy. As long as overseas wages are lower than in the United States, as long as technology keeps improving electronic devices, and as long as open trade allows access to world markets, many prices will fail to keep up with those for food and energy.

A quick tour of the government’s price data shows numerous items failing to match February’s overall inflation rate of 4 percent.

Televisions continue to lead the deflation parade, plunging 19 percent in price from February 2007 to February 2008. Camera prices fell 13 percent. Watch prices fell 4 percent. Also in the technology category, cell-phone service was 1 percent less expensive in February than a year before.

The other deflationary nexus is clothing and household goods. On the whole apparel prices fell 1 percent. Women’s clothing, which had been getting costlier a year ago, fell 4 percent. Carpeting, bedroom furniture and tools all fell slightly. Dishes and flatware have been getting cheaper for years and rose less than one percent in February compared with February 2007.

True, you can’t eat rugs. TV won’t fuel your car. But your dollar goes a little farther at Best Buy and Sears than at Exxon.

Posted by Jay Hancock at 7:12 PM | Permalink | Comments (0)
        

A reader emails, in response to Wednesday's column on Sparrows Point steel mill:

My God!!! You do have a capitalistic bone in your body. Good article!

Actually, my fibia, tibia, humerus, vertebrae, cranium and fibula are all capitalistic. My patellae and clavicle are anarchist.

Posted by Jay Hancock at 12:18 PM | Permalink | Comments (0)
        

Here is this morning's statement from Constellation Energy, parent of BGE. Here is today's story in The Sun. O'Malley is giving a press conference at 4. Some details from the Constellation release:

-- Reaffirmation by the State of Maryland of the 1999 settlement and dismissal of all ongoing PSC proceedings related to the 1999 settlement and other investigations.

-- One-time bill credit to BGE residential customers ($170 per customer), totaling $187 million.

-- Elimination of BGE ratepayer liability for decommissioning Calvert Cliffs Nuclear Power Plant in Southern Maryland.

-- Restoration of 90 percent of Senate Bill 1 credits (enacted into law during the 2006 Special Session of the Maryland Legislature) and settlement of lawsuits related to the 1999 settlement agreement ($346 million of original $386 million).

-- All things being equal, Constellation Energy will work to develop a new nuclear power plant at its Calvert Cliffs site before development at any other site it controls.

-- Modernization of Maryland's laws (PUC, Sections 6-101, 6-105) governing investment in holding companies of gas and electric utilities.

-- Strengthened PSC oversight capability through codification of federal authority to examine the books and records of any Maryland electric utility and its affiliates.

-- Enhanced corporate governance of BGE through the addition of two independent directors to the BGE Board.

-- Phase-in of future BGE Electric Distribution Rate Changes and early implementation by BGE of accelerated depreciation accrual methodology as recommended by PSC Staff in case 9096.

The first item is especially important. This is essentially a global settlement. It would put all items of contention between Constellation and regulators into one pot and put a lid on it. The customer rebate isn't much ($170). The elimination of ratepayer liability for Calvert Cliffs is a big deal. Getting another nuclear plant for Maryland is important. But O'Malley might have gotten more. More in tomorrow's column.

Posted by Jay Hancock at 11:50 AM | Permalink | Comments (0)
        

This is from Keith Losoya, executive director if the Chesapeake Sustainable Business Alliance, in response to my Wednesday column on Sparrows Point.

I have to take issue with your your "Point's future is up to Annapolis" piece yesterday where you basically championed the singular opposition argument to the Global Warming Solutions Act and Energy Efficiency bills. In this column you joined the circle of wagons around one industry and one plant in the state of Maryland that may be negatively impacted by this bill. It's unfortunate to see that you are embracing this myopic view and ignoring the enormous economic promise that this legislation will tender.

*According to The International Center for Sustainable Development that was contracted by the Baltimore Development Corporation (BDC) with funding provided by DBED, MEA and the Abell Foundation, over the next 20 years, at the lowest level of effort (20% energy-efficiency improvement, 10% renewable-energy increase, and 10% ethanol production increase), 144,000 jobs will be created (67,000 in Baltimore), wages & salaries will go up by $5.7 billion ($2.4 billion in Baltimore); state & local tax revenues will increase by $973 million ($412 million in Baltimore); and gross state product (GSP) will increase by $16 billion ($7 billion in Baltimore).

While there are several analogies to draw from the first one that comes to mind is investing. Would you put all of your accumulated and potential earnings that are intended to sustain you and your family into one high risk venture today? I would hope not and would think that you would diversify your investments for your own fiscal security. What you are asking is for Maryland to risk it's future and diverse economic growth potential for one industry, one plant.

I represent hundreds of small businesses who have made the commitment to be more environmentally and socially responsible and welcome the opportunity to talk to you more about this issue on their behalf. I also offer the additional points below in the hope that they will provide some balance to your singular concern for Sparrows Point.

1/ The workers at Sparrows Point are understandably concerned
about their jobs, given the uncertainty around ownership of the plant.
We know that the steelworkers care about the environment and the
health of their families.

2/ The lack of certainty has minimized investment in the plant over
the past few years. This has made the Sparrows Point plant less competitive
under ArcelorMittal.

3/ Other steel producers around the world have been increasing
efficiency and improving environmental performance. They are
making these investments to reduce costs (for power).

4/ The purchase of the Sparrows Point plant by a company with
deep pockets and a commitment to invest in improved efficiency and
productivity should provide confidence to the steelworkers and
elected officials that there is a strong future for steel in Baltimore.
This is important for the environment, as shipping the steel we need
from plants across the globe is not sustainable.

5/ The federal government and top universities continue to work with
steel manufacturers to invest in research on how to make the steel
manufacturing process more efficient (by using less energy) and
more environmentally friendly.

6/ Companies like Baltimore based Ceratech, maker of environmentally
friendly and low-carbon cement products, prove that the construction
material industry can do business in a new way. Maryland leaders need
to take action to bring these forward thinking businesses like CeraTech
BP Solar, and SunEdison to our state.

7/ By passing the Global Warming Solutions Act (and energy efficiency
legislation) in Maryland, we send a strong signal to industry that we
are serious not only about protecting the environment, but also that
we want to protect and create jobs in the state and help rebuild the
City of Baltimore as Maryland takes a leadership role in the rapidly
growing clean energy economy.

8/ States such as Pennsylvania, Massachusetts, Wisconsin, California
and others are making investments in clean energy industry jobs.
Maryland must invest in these industries or other states will take
the jobs

My thoughts: I don't think Sparrows Point and other important business hurt by blanket carbon caps should have the effect of blocking all efforts to fight climate change. Focus climate-change efforts on the consumer and grandfather key businesses... I'm highly skeptical of studies showing that prospective growth in "green jobs" will replace jobs lost in dirty industries. No doubt there will be green jobs. No doubt the amount of jobs shown by these studies is exaggerated... Of course we should invest in these industries.

Posted by Jay Hancock at 9:54 AM | Permalink | Comments (1)
        

Raised from comments. Good point by Bill Goodman:

Jay, the Sun keeps saying that the Point employs 2500 people. That number is the number directly employed by Mittal. There are actually close to 6000 people employed at the point, which included a floating number of between 3000 & 3500 contractors, and roughly another 1000 - 1200 people who's business' only function is to support this massive plant's needs.

Posted by Jay Hancock at 10:38 AM | Permalink | Comments (0)
        

Read Kevin Drum at Washington Monthly.

In previous reports, the other-immigrant population was projected using assumed annual numbers of net other immigrants with a static age-sex distribution. For this year's report, the annual numbers of net other immigrants are projected by explicitly modeling other immigrants and other emigrants separately.

Translation: instead of just pulling a net number out of a hat, the [Social Security] trustees built a model that estimated the actual demographic characteristics of both immigrants and emigrants. And guess what?

Illegal immigrants tend to skew young. This benefits the system.

Young people have more children than older people. This benefits the system.

Some illegal immigrants pay taxes for a few years and then leave. This benefits the system.

Bottom line: "This year's report results in [...] a substantial increase in the number of working-age individuals contributing payroll taxes, but a relatively smaller increase in the number of retirement-age individuals receiving benefits in the latter half of the long-range period." Give or take a bit, it turns out that this shores up the Social Security system to the tune of around $13 billion per year. Thanks, illegal immigrants!

Posted by Jay Hancock at 10:10 AM | Permalink | Comments (5)
        

The global economy has done its part: Russia's SeverStal has agreed to buy the Sparrows Point steel mill and invest in badly needed upgrades.

Now Maryland politicians should do theirs. If they insist on steeply taxing Sparrows Point's steelmaking process -- the upshot of global warming legislation being debated in Annapolis -- all the rubles in the world won't let the Point thrive.

The governor and General Assembly seem to get how a 6 percent tax on computer services will transport Maryland jobs elsewhere. They don't get how what may be an even bigger tax will hurt a company that employs 2,500 Marylanders at good wages.

The rest is in Wednesday's paper.

Posted by Jay Hancock at 5:55 PM | Permalink | Comments (4)
        

I'll be on WYPR's midday show at 1 pm to talk about the economy, housing crisis etc.

Posted by Jay Hancock at 10:28 AM | Permalink | Comments (1)
        

Verizon's FiOS cable TV and Internet service, available to numerous suburbanites but few city dwellers, is entering Manhattan, says the AP. Last summer I asked Verizon when they would hook up the city of Baltimore. "Stay tuned," a company spokeswoman said. We're still waiting...
From AP's story:

Verizon’s fiber-optic service, so far mainly available to suburbanites, is making a big push into Manhattan with a deal to connect an 11,232-unit apartment complex.

Stuyvesant Town and Peter Cooper Village, an enclave of 110 buildings on Manhattan’s East Side, is the largest apartment complex in Manhattan and the largest to get FiOS service anywhere in Verizon’s 17-state fiber buildout area.

Verizon Communications Inc. announced the deal Monday, but seven buildings are already connected. It will take some months to connect the rest.

Single-family houses have been the low-hanging fruit for the company’s $23 billion project to replace its copper phone lines with fiber optics. Connecting apartments is technically more difficult and requires permission from landlords.

Posted by Jay Hancock at 6:36 PM | Permalink | Comments (2)
        

What I wrote five years ago in The Sun:

ON JAN. 17, 1968, President Lyndon B. Johnson told the American people that the Vietnam War was costing $25 billion annually - a great expense, he acknowledged, but necessary "until world conditions permit, and until peace is assured."

Twenty-five billion dollars was $10 billion a year more than Johnson had previously estimated, and it still wasn't accurate. Four months after his State of the Union address in January, Johnson asked Congress for an additional $4 billion for Vietnam, just for 1968.

A Texas congressman named George H.W. Bush seemed disturbed by the budgetary boundlessness.

"The nation faces - this year, just as it did last - a tremendous deficit in the federal budget, but in the president's message there was no sense of sacrifice on the part of the government, no assignment of priorities," Bush said in response to Johnson's speech.

Of course, even $29 billion a year turned out to be a mere down payment. The full financial cost of the Vietnam War would come to about $100 billion in 1968 dollars, or $430 per American, which would be worth $2,200 today.

Yesterday, President George W. Bush asked Congress for $74.7 billion for the war on Iraq - just for the next six months. (For comparison, $74.7 billion is about $14.3 billion in 1968 money.)

Senate Majority Leader Bill Frist of Tennessee told reporters that $74.7 billion was Bush's "best estimate" of the war's cost. But don't be surprised if the estimate is wrong.

Conservatives correctly observe that actions by government generally bring unintended consequences. The bigger the action, the bigger the surprising repercussions, and government programs seldom get bigger than war.

Often, one consequence of war is - more war. And more war expense.

U.S. leaders frequently misjudge the cost of hostilities, Yale economist William D. Nordhaus said in a paper published late last year.

The Civil War cost 13 times what President Abraham Lincoln's Treasury secretary had estimated, and "the costs of the Vietnam War were grossly underestimated even as the buildup occurred," Nordhaus reported, adding that "in assuming that the war would end by June 1967, the Pentagon underestimated the total cost of the war by around 90 percent."

Neither Nordhaus nor this column is arguing that the war on Iraq will turn into Vietnam-style quicksand, though that is not impossible. Wars, however, are major disturbances in the political/economic pond, often generating waves more powerful and far-reaching than anybody expects.

Nordhaus figured an Iraq war could cost between $120 billion and $1.6 trillion, with the higher figure resulting from an "unfavorable" outcome of prolonged conflict, high peacekeeping costs and a ravaged Iraqi oil industry. And Nordhaus talked only about direct expenses, debited to the U.S. Treasury. He didn't get into the interest cost on war loans or the opportunity cost of benefits that the money could have bought. He didn't mention higher interest rates, a weak dollar, a poor stock market or other possible secondary expenses.

Of course, wars often spur beneficial economic side effects, too - at least for countries that fight, as the United States usually does, in somebody else's back yard. Vietnam spending helped the U.S. gross domestic product rise by an average annual rate of 4.4 percent annually for the 10 years that ended in 1973.

But the Vietnam War also may have helped stoke the crippling inflation of the 1970s, although many economists instead blame weaker productivity gains and a Federal Reserve that tried to trade higher prices for lower unemployment.

Even so, the economic minuses of the war on Iraq may outweigh the pluses. Much of the risk involves budget deficits. The U.S. national debt is $6.1 trillion, and last year's deficit was $158 billion.

War spending will make both grow, especially with new tax cuts. If war borrowing starts to deter the foreign lenders who have enabled America's debt addiction for two decades, put down the strong dollar and low interest rates as collateral casualties.

This is an economics column, but let the record show that the biggest costs of war are human and moral. Human loss is grievous, but the moral and political expense of this war also seem very high. War is sometimes necessary, and the planet would be better with no Saddam Hussein. But sometimes the benefit of an end does not justify the price of the means.

Cost of the Tomahawk missiles launched at Iraq in the war's first week: more than $500 million. Cost of a powerful democracy attacking a country that posed no demonstrable, imminent threat to the democracy or its allies: priceless.

Posted by Jay Hancock at 2:59 PM | Permalink | Comments (2)
        

From Brad DeLong:

There is nothing more dangerous for America's future national security, nothing more destructive to America's future prosperity, than for Chinese schoolchildren to be taught in 2047 and 2071 and in the years after 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

Read the whole post here.

Posted by Jay Hancock at 12:17 PM | Permalink | Comments (0)
        

Returning from a few days off, I have stopped the automatic "out of office reply." Can you feel all the extra bandwidth?

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (0)
        

Probably won't be posting until Monday, March 24.

Posted by Jay Hancock at 6:27 PM | Permalink | Comments (0)
        

Mortgage rates show signs of getting back to normal, which is a reassuring sign that this week's extraordinary action by the Federal Reserve is having its intended effect. Normally the yield on long-term Treasury debt is a good indicator of where mortgage rates will head. But lately the relationship has broken down. Treasury yields fell while mortgage rates rose.

The difference between the 10-year Treasury yield and the 30-year fixed mortgage rate was about 1.5 percentage points early this year. But in late February the gap started getting wider and eventually yawned far past 2 percentage points. Investors were selling increasingly unpopular mortgage bonds, which makes their yield increase, and buying super-safe Treasury paper. This was frustrating to regulators who hoped lower short-term interest rates would translate into lower mortgage rates. Instead, while the 10-year Treasury fell to a four-year low of 3.36 percent, the 30-year mortgage rose past 6.1 percent.

Now things look better. Today the 30-year mortgage is back to 5.74 percent, according to Bankrate.com. And investors dumped Treasuries today, sending the 10-year yield up toward 3.5 percent. The spread is still wider than historic readings and wider than policymakers would probably like to see. That represents continuing leeriness about holding mortgage paper. But at least it's moving in the right direction.

Posted by Jay Hancock at 6:27 PM | Permalink | Comments (2)
        

Today's column is about the regulatory failure leading up to the mortgage crisis, thanks to the Bush administration's promotion of free markets and similar attitudes at the Federal Reserve. Of course this is an implicit plea for more and better regulation. Government intrusion into markets always comes with costs as well as benefits -- including the taxpayer cost to set up agencies and pay the regulators. But in this case, the agencies were already there. Taxpayers were already financing mortgage regulators to the tune of millions. They just didn't do anything.

After the intial bailout, fixing the mortgage problem shouldn't require fiscal sacrifice. Make existing regulators do their jobs. Combine and rationalize the alphabet soup of agencies overseeing banking and lending -- FDIC, Office of the Comptroller of the Currency etc. -- and you'll get better regulation and save money.

Posted by Jay Hancock at 10:27 AM | Permalink | Comments (0)
        

JPMorgan Chase stock is up 10 percent as of this writing. And why not? It got exclusive negotiating rights to buy Bear Stearns, struck a deal at a rock-bottom price and got the government to limit any downside. Usually shares in acquiring companies sink. But this isn't business as usual.

Posted by Jay Hancock at 10:54 AM | Permalink | Comments (0)
        

Legg Mason is one of Bear Stearns' biggest shareholders, and the investment bank's collapse is another black eye for Legg money jockeys such as Bill Miller and Bruce Sherman. But Bear seems to be a relatively minor part of Legg's retail flagship mutual fund, the Legg Mason Value Trust. As of the latest filings, Value Trust owned Bear Stearns stock worth $200 million. That represented 1.2 percent of the portfolio. That's a significant amount, to be sure, and its virtual vaporization will be factored into Value Trust's net asset value when it gets marked at the close of today's trading. But that's nowhere near the size of Value Trust's exposure to, say, Amazon -- 7 percent.

Posted by Jay Hancock at 10:46 AM | Permalink | Comments (2)
        

Dow was down only 100 at 10 a.m. Teetering between relief that Bear Stearns can still honor its obligations (thanks to the Fed bailout) and shock that Wall Street's (formerly) fifth-largest investment bank is worth $2 a share.

Posted by Jay Hancock at 10:00 AM | Permalink | Comments (0)
        

Market purists gasped when the British government nationalized mortgage lender Northern Rock last month. But how would you describe tonight's Bear Stearns bailout? It wears the costume of a market transaction. JP Morgan is "buying" Bear for $2 a share. But the Federal Reserve is taking the unprecedented step of seizing control of Bear's investment portfolio. And it is giving JP Morgan Chase a $30 billion loan to take Bear over. So the Fed is simultaneously financing the deal and managing the workout. Why not end the charade and hand Ben Bernanke the keys?

The central bank has already agreed to loan Treasury bonds in exchange for mortgage bonds. Now that it is plunging even deeper into the mortgage business, can calls from Congress to forgive Fed-controlled delinquent mortgages be far behind?

Posted by Jay Hancock at 10:46 PM | Permalink | Comments (2)
        

Martin Feldstein knows recessions. He founded the National Bureau of Economic Research's Business Cycle Dating Committee in 1978. The committee is the official arbiter of when recessions start and stop. (Fed chief Ben Bernanke used to be on the committee.) Feldstein has studied recessions for decades and written numerous papers on them. This is what he said today, according to Bloomberg:

Harvard University economist Martin Feldstein, a member of the group that dates business cycles in the U.S., said the nation has entered a recession that could be the worst since World War II.

``I believe the U.S. economy is now in recession,'' Feldstein, president of the National Bureau of Economic Research, told the Futures Industry Association conference in Boca Raton, Florida. ``Could this become the worst recession we have seen in the post-war period? I think the answer is yes. I would emphasize the word `could.' ''

Feldstein's remarks represent the first time that a member of the NBER's business-cycle dating committee has publicly described the current downturn as a recession. The economy may not respond quickly to Federal Reserve interest-rate cuts, and a package of tax rebates and investment incentives will offer only a temporary boost, he said.

Posted by Jay Hancock at 4:28 PM | Permalink | Comments (2)
        

Again Wall Street is bidding up Treasury prices, which makes their interest yield go down. This morning the yield on the 10-year note dropped to 3.36 percent -- a level it hadn't hit since 2003. Normally that's good news for borrowers. Mortgage lenders like to say that the 10-year sets the pace for mortgage rates. Not this time! With people dumping mortgage bonds like hot potatoes, mortgage rates haven't dropped as much. The 30-year fixed isn't much below 6 percent today. The last time the 10-year Treasury yield was this low, in 2003, 30-year mortgage rates were less than 5 percent. This is why Ben Bernanke and the Fed have their work cut out for them. The usual remedies aren't working.

 Yahool graph:

Posted by Jay Hancock at 2:24 PM | Permalink | Comments (0)
        

Makes no mention of Bear Stearns or monetary policy, according to AP:

WASHINGTON - Fighting to stem a dangerous wave of home foreclosures, Federal Reserve Chairman Ben Bernanke pledged Friday to do all that is possible to help struggling homeowners.

The Fed is "strongly committed to fully employing our authority, expertise and resources to help alleviate their distress," Bernanke said in a speech to the National Community Reinvestment Coalition's annual meeting here.

Record-high foreclosures are aggravating problems in the housing market and for the national economy, which many fear is on the verge of a recession or in one already.

Bernanke didn't offer new recommendations -- as he did earlier this month -- but rather spoke of the various steps the Fed already is taking to address current problems and to prevent another crisis of this sort.

Posted by Jay Hancock at 1:18 PM | Permalink | Comments (0)
        

People are wondering about the mechanics of the bailout. The AP's Martin Crutsinger has some of the details.

The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.

Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.

This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.

Posted by Jay Hancock at 12:42 PM | Permalink | Comments (0)
        

Here's an antidote to the Bear Stearns disaster. It's from a paper by Robert Milnamow, chief investment officer of Legg Mason's Barrett Associates. He wrote this late last month, but that doesn't make it less valuable.

It is important to remind ourselves that these financial maladies are always remedied -- it is only a question of time. In most circumstances we have found ourselves back on track within a year, though sometimes it takes longer. We are confident that housing prices will decline to a level that will induce buyers with solid credit and sufficient equity to reduce the inventory overhanging the market. Mortgage delinquencies and defaults will eventually peak and the securities that have afflicted Wall Street and their humbled investors will stop having to be marked down. Balance sheets will slowly improve and lending will pick up again.

No doubt some will predict a much longer timeframe -- until 2010 -- before we see a resolution; others will worry about additional shocks to the system. We are not sure how long it will take. Our perspective is that US stocks will withstand the current crisis and are outstanding values. We have seen this before, or at least a close duplicate.

Posted by Jay Hancock at 12:13 PM | Permalink | Comments (0)
        

Bear Stearns CEO Alan Schwartz, Monday: "Bear Stearns' balance sheet, liquidity and capital remain strong."

Alan Schwartz, Wednesday (on CNBC): "Our balance sheet has not weakened at all. We don't see any pressure on our liquidity."

Alan Schwartz, Friday: "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."

(This morning JP Morgan Chase and the Fed announced they are coordinating an emergency loan for Bear. Bear's stock has plunged from $70 to $35 in a week. Good call by Punk Ziegel analyst Richard Bove, who saw this coming.) (But who also may have helped bring it about by pushing people to flee Bear.) Bear Stearns has been hurt in part by its role as a lender to Carlyle Capital Corp., which is defaulting on margin calls on mortgage investments. The avalanche continues.

Posted by Jay Hancock at 11:35 AM | Permalink | Comments (0)
        

January was the first time in a decade that average Baltimore-Washington electricity prices exceeded those of the nation, says a new government report. Blame deregulation and a shortage of generation in central Maryland.

A kilowatt-hour for Baltimore-Washington consumers cost 12.3 cents in January, 6 percent higher than the national average, said the Bureau of Labor Statistics. (Baltimore Gas and Electric residential customers paid half a cent more.) Price caps kept electricity artificially cheap for the area in the early 2000s, but those have expired. Now BGE and other utilities must bid on the open market for juice, whose price has been elevated by high fuel costs and charges to import it from other regions.

Baltimore-Washington customers also pay more than the nation as a whole for natural gas, but that gap has narrowed, the report said. The region paid 15 percent more for gas than the country did in January — the smallest premium in 10 years. Last year we paid 21 percent more than the nation; in 2006, 24 percent more.

Local natural gas prices depend on inventories and weather. Apparently a relative glut of supply and lack of demand kept local prices more in line with national ones. Increasing pipelines and regional liquefied natural gas ports could shrink this difference even more.

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (1)
        

He is probably pleading with Citigroup, Deutsche Bank and other creditors seizing Carlyle Capital Group's mortgage bonds not to dump them on the market. This is turning into an avalanche that nobody can stop. Hedge funds and mortgage REITS have bought mortgage bonds by employing enormous leverage -- meaning they borrowed most of the money to make the purchases. It works fine as long as the market value of the bonds is at least equal to the amount of borrowed money. But when the value declines, lenders make "margin calls" demanding new collateral. Margin calls prompt fire sales of bonds so investors can raise cash collateral. That makes bond prices plunge, which prompts new margin calls, which prompts more sales... This even though these are Fannie Mae and Freddie Mac bonds, implicitly backed by the federal government.

Usually when creditors seize securities in margin accounts they dump them immediately. Bernanke is wishing, hoping and probably pleading for this not to happen.

Posted by Jay Hancock at 11:07 AM | Permalink | Comments (0)
        

Star Sun food blogger Elizabeth Large blogs on this note from Kiko's Cucina Mexicana restaurant in Perry Hall:

Dear Loyal Customers,

There have been many rumors that we are closing down Kiko's or that we are selling Kiko's.

We have the sad news that these rumors are true, and we can blame it on the economy. When there is uncertainty about the future, large increases in gasoline prices, the failure to regulate residential and commercial energy prices, and many other factors. consumers cut back on eating out. Customers used to eat at Kiko's twice a month now they only come once a month. This represents a 50% reduction in sales.

...We know here at Kiko's that we did the best that we could to serve you delicious high quality food at a fair price, and we thank you for your patronage!! ...

Marco & Petra Pineyro

Restaurants are a good economic indicator. When times are good they tend do even better than the economy as a whole. And when times are bad... According to the Bureau of Labor Statistics, Maryland's restaurant and bar employment was still growing nicely as recently as January -- up 3,000 jobs compared with the level in January 2007. Metro Baltimore had 1,000 more restaurant and bar jobs in January than it did a year before. Let's hope this holds up.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
        

From today's Sun:

A dive in municipal bond prices prompted troubled Municipal Mortgage and Equity to unload $148 million in bonds at a loss and grant collateral interest in an affiliate to Merrill Lynch, the Columbia company disclosed late yesterday. The moves were prompted by a need to increase liquidity and avoid putting up additional cash collateral for trading accounts, the company said. Besides selling the bonds earlier this month, the company also unloaded $50 million in hedge positions for a total loss of about $20 million.

The stock, which has already gotten the bejesus beaten out of it, is doing OK this morning. The fact that Merrill Lynch is confident enough in at least part of the portfolio to take it in lieu of cash security in a margin account is, I suppose, a silver lining. And it suggests that the company known as Muni Mae won't immediately have to sell more bonds at a loss to meet margin calls.

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (0)
        

I'm researching a column for Friday's paper on how the national recession will affect Maryland. (I'm assuming the country is in a recession. Whether Maryland goes into recession is another question.) Maryland's best year of growth since the government began measuring was 1941, when the state added an amazing 92,000 jobs -- employment growth of 17 percent in one year. Of course employment was growing from a very low base -- 10 years of Depression. And the country was about to enter World War II, which proved to be an enormous stimulus. Quite interesting that Pearl Harbor wasn't until December of 1941, but the state appears to have been gearing up for war all year. In 1942 Maryland added another 90,000 jobs.

Posted by Jay Hancock at 1:19 PM | Permalink | Comments (0)
        

I'll be on WBAL with Ron Smith at 3:25 to talk about today's column on Eliot Spitzer.

Posted by Jay Hancock at 12:41 PM | Permalink | Comments (0)
        

The dollar lost more ground to the Euro this morning, as might have been expected. The only way the Federal Reserve can address the mortgage meltdown is to flood the world with dollars. You remember what they taught you: value falls when supply rises relative to demand. There is little demand for dollars. This from the AP:

LONDON - The U.S. dollar was lower against other major currencies in European trading Wednesday morning. Gold edged higher.

The euro traded at $1.5455, up from $1.5319 late Tuesday in New York.

Posted by Jay Hancock at 12:05 PM | Permalink | Comments (0)
        

Nice piece on Marlin, which has a thriving business in manufacturing-process baskets for car companies and health-care outfits. From Popular Mechanics:

Its Baltimore plant is running at capacity, and its biggest challenge is hiring enough skilled workers. The trick was finding the right niche. The company still makes wire baskets, along with other products, but now they are custom-built to hold expensive, delicate components of cars and jet engines that companies like Toyota and General Electric need to send through parts washers.

Last year I wrote about Marlin's Reggie Priester, whose math skills got him a good job at Marlin with no college degree.

Posted by Jay Hancock at 11:39 AM | Permalink | Comments (0)
        

Remember Wilbur Ross? He bought the Sparrows Point steel mill and other Bethlehem Steel assets out of bankruptcy and then sold them. Lately he's been injecting capital into traumatized financial markets. Financial chaos is his metier, and he says we're going to have a lot more of it. Here he is talking to the Wall Street Journal. Some excerpts:

On bank failures and workouts:

"I think there will be a lot of them. Remember the last time we had a big real estate crisis, a thousand depository institutions failed. We really haven’t had that this time. But I believe there are a number of the regional and medium-sized banks that are going to have a very, very difficult time getting through this process."

"Things are still very tight. And this is borrowed reserves, not equity."

On the credit crunch:

"Normally when money is cheap, it's also very plentiful. But now it's cheap except you can't get it, so its not plentiful at all. And it makes very little difference. If you're turned down for a loan at 6 percent or 5 -- turned down is turned down."

Here is the whole, 5-minute interview.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (3)
        

From an AP story this morning:

The U.S. economy will suffer as the slumping housing market eats away at job creation and consumer spending, but the nation should avoid slipping into a recession this year, according to a new economic report.

A recession could still happen though, if the credit crisis that has stifled the housing market deepens, preventing consumers from buying big-ticket items like cars and businesses from spending on equipment, according to the quarterly Anderson Forecast by the University of California at Los Angeles.

"We don't see that happening," said Edward Leamer, director and co-author of the forecast released Tuesday. "This is a tough call, but I will be very surprised if this thing actually precipitates into recession."

The forecast anticipates job growth remaining sluggish in 2008, with the U.S. unemployment rate rising to 5.5 percent by the end of the year. The February rate was 4.8 percent. The forecast expects the economy to post gross domestic product growth of about 1.5 percent this year, rising to about 3 percent growth in 2009. GDP grew 2.2 percent in 2007, the weakest showing in five years.

Posted by Jay Hancock at 11:17 AM | Permalink | Comments (0)
        

Every year the National Venture Capital Association reports growth in number of firms and investments for different parts of the country. This year their theme is that "nontraditional" venture regions are increasing venture action at a faster pace than stalwarts such as Silicon Valley and Boston. Of course, when you start from a base of near-zero, growing faster than the leaders is not difficult. New Mexico was the fastest grower from 1997-2007, but it started with only three companies and investment of $27 million. Baltimore-Washington grew from 105 companies to 180 companies and investment in the region went from $558 million to $1.28 billion, making it the No. 5 fastest grower. Here is the press release.

Posted by Jay Hancock at 11:11 AM | Permalink | Comments (0)
        

Outsource your child care to India. HT Greg Mankiw's blog.
Report: Many U.S. Parents Outsourcing Child Care Overseas

Posted by Jay Hancock at 3:01 PM | Permalink | Comments (0)
        

Ever since the Public Utility Holding Company Act of 1935 disappeared, people have worried that the safeguards keeping utility ratepayers from subsidizing unrealated businesses were inadequate. Now the Government Accountability Office has confirmed such fears. Says the GAO:

FERC [Federal Energy Regulatory Commission] has made few substantive changes to either its merger review process or its postmerger oversight since [PUHCA was repealed] and, as a result, does not have a strong basis for ensuring that harmful cross-subsidization does not occur. FERC officials told us that they plan to require merging companies to disclose existing or planned cross-subsidization and to certify in writing that they will not engage in cross-subsidization, but do not plan to independently verify such information."

Cross-subsidization occurs when utilities transfer money to affiliates that have nothing to do with providing services to the regulated rate base. The best known potential example in Maryland was when BGE owner Constellation Energy was going to merge with FPL Group. People worried that BGE customers would end up paying to repair hurricane damage for FPL's Florida operation, Florida Power & Light. (The merger didn't go through)... FERC attempted to blunt the report's impact last week by saying it would crack down on cross-subsidization. But the changes come nowhere near what GAO wants.

Posted by Jay Hancock at 12:34 PM | Permalink | Comments (0)
        

... according to Fortune, just out with its most-admired companies list. Nationally, Apple, Berkshire Hathaway and GE top the list. In Maryland, most admired are Legg Mason, Marriott International, Host Hotels and Resorts and Black & Decker. To be "most admired" within a state, a company had to rank in the top half of firms within its industry.

T. Rowe Price, perhaps Maryland's most admirable company, wasn't on the list, I assume because it's not quite big enough to be included.

Posted by Jay Hancock at 11:00 AM | Permalink | Comments (1)
        

A reader asks:

Do you have information on Pepco and BGE electricity prices and the changes in the last 10 years (or so)? My understanding is that Pepco prices have risen about the same amount, but over a bit longer time period - so the shock was not as great. I also want to understand why everyone (including the governor) are not concerned about the Pepco price increases.

My answer:

I'm pretty sure the increases over time are about the same. Here are the reasons everybody's mad at BGE: BGE transferred its power plants to parent Constellation at book value (for free) and then got the state to force ratepayers to pay another $1 billion for taking the plants off BGE's hands. These plants, especially the Calvert Cliffs nuclear plants, produce low-cost electricity, and under regulation BGE once passed the low price on to customers. Now, with deregulation, parent Constellation can charge whatever the market bears and is making enormous profits. So BGE customers have lost the plants, paid Constellation $1 billion for taking them and now are paying even more in big markups that never would have been allowed under regulation.

Pepco, on the other hand, sold its plants on the open market in 2001 or so and rebated the proceeds to ratepayers. And it didn't own any nuclear plants, to my knowledge. That's what makes the BGE situation different. In one case ratepayers got paid for the plants; in the other, they didn't.

I should add that Constellation offered to let regulators appraise the plants over time so that BGE ratepayers could collect rebates if the plants rose in value (as they did). But the state rejected that deal. It's also true that Constellation has invested lots in capital improvements in its generation plants. But that investment doesn't come close to the profits and capital gain Constellation has made on the facilities.

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

Lenders are dumping Carlyle Capital's mortgage securities because the fund (associated with Washington-based Carlyle Group) won't/can't put up any more capital. This is roiling the markets. Carlyle invests in "agency-backed" mortgage bonds, guaranteed by Fannie and Freddie. Until this week these bonds were doing OK. Now massive selling has caused their prices, too, to erode. Stock of Annaly Mortgage Management, a real estate investment trust that buys agency bonds and only agency bonds, has fallen by a fourth this week.

Posted by Jay Hancock at 2:57 PM | Permalink | Comments (0)
        

Investors in municipal-bond mutual funds got a shock if they looked at prices last weekend. Thanks to a large supply of new muni issues, worries about credit insurers and general deterioration in the debt markets, munis plunged the last week in February, culminating in a dive off the cliff on Leap Day, Feb. 29. Such turmoil in securities long regarded as conservative and safe illustrates how unsettled the market is.

T. Rowe Price's Tax-Free Income Fund (PRTAX) was typical. From late January to Leap Day it suffered it suffered its second-worst drop in net asset value this decade, falling by 5.9 percent. (For those of you used to stock gyrations, a 5.9 percent move is huge for a bond mutual fund.)

Munis got hammered so hard that on Monday many were selling for prices that put their interest yields higher than those for similar Treasury issues. Some highly rated issues were yielding more than 5 percent, Bloomberg reported. And of course municipal-bond income is free from federal tax, and Treasury-bond income isn't. That made the price discrepancy even crazier. And these weren't junk bonds, either. Many were "pre-refunded," meaning they were fully backed by Treasuries in escrow -- the closest thing to risk free.

Bond pros pounced early in the week. First news emerged that bond god Bill Gross, of PIMCO, was snapping up munis. Gross usually deals in taxable bonds, so for him to jump into munis the value must have been extraordinary. He bought $1.5 billion worth. Then it became known that Wilbur Ross, the "vulture" investor who purchased the assets of Bethlehem Steel out of bankruptcy, was also buying. At the close of business yesterday T. Rowe Price's Tax-Free Income Fund had risen from its Feb. 29 low of $9.44 per share to $9.69 -- recovering about half its February loss.

Posted by Jay Hancock at 1:42 PM | Permalink | Comments (0)
        

To keep you at the very tip of market-moving developments, I have to pass along news that two British traders have heard that there is possible word of a new credit-insurance bailout rumor today. Via Big Picture, this is very funny.

Rumour of second bail out rumour coming in Ambac.

Word is that CNBC have heard from a source close to the fire escape that the Monolines are worried that there will be no new rumours about possible rescues around until the recent rescues are proved to have failed.

That means that there'll be no Friday evening prop for the stock markets.

A source close to the industry said that a consortium is "being put in place to work on new rumours but we can't be sure that these rumours will actually be ready for another five business days."

News of the rumoured rumour of salvation sent MBIA and AMBAC up .01% in pre-market trading. Hank Paulson was rumoured to be delighted with the patriotic rumours, a source close to him on his lifeboat off the coast of Hawaii said Thursday. Ben Bernake has placed pencils in his ears and is wearing his favourite underpants on his head.

-David McCreadie and Dan Davies

Posted by Jay Hancock at 11:43 AM | Permalink | Comments (0)
        

A dream team of former CEOs who lost billions on bad mortgages is sitting before Henry Waxman's committee this morning: Countrywide's Angelo Mozilo, Citigroup's Charles Prince and Merrill Lynch's Stanley O'Neal. Mozilo, for his part, says he'll give up $36 million of his golden parachute of Countrywide's sale to Bank of America goes through.

"It seems that CEOs hit the lottery when their companies collapse," House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said at the opening of the hearing. "Any reasonable relation between their compensation and the interests of their shareholders appears to have broken down."

Waxman noted that Mozilo received more than $120 million in compensation and sales of Countrywide stock last year while that company recorded losses of $1.6 billion. Merrill Lynch lost $10 billion in 2007, but O'Neal got a $161 million retirement package.

Posted by Jay Hancock at 11:33 AM | Permalink | Comments (0)
        

The country shed 63,000 jobs in February, the Labor Department said this morning. That comes on top of a 22,000-job loss for January and barely any growth since October. The official unemployment rate was basically unchanged, but that result comes from a different survey that many economists consider to be less reliable than the job count.

Posted by Jay Hancock at 9:32 AM | Permalink | Comments (0)
        

The March 7 hearing provides Committee members the opportunity to examine three case studies in CEO compensation. A common element in the case studies is that each of the CEOs presided over multi-billion dollar losses in the mortgage market. Collectively, the companies run by Mr. Mozilo, Mr. O’Neal, and Mr. Prince lost more than $20 billion in the last two quarters of 2007 alone as a result of investments in subprime and other risky mortgages.

While Countrywide, Merrill Lynch, and Citigroup prospered, Mr. Mozilo, Mr. O’Neal, and Mr. Prince received lucrative pay packages. During the five-year period from January 2002 through December 2006, the stock of Countrywide, Merrill Lynch, and Citigroup appreciated, and the three CEOs collectively received more than $460 million in compensation.

Any alignment between the compensation of the CEOs and their shareholders’ interests appears to breakdown in 2007, however. Despite steep declines in the performance and stock price of the three companies resulting from the mortgage crisis, Mr. Mozilo, Mr. O’Neal, and Mr. Prince continued to be well rewarded: Mr. Mozilo received over $120 million in compensation and sales of Countrywide stock; Mr. O’Neal was allowed to leave Merrill Lynch with a $161 million retirement package; and Mr. Prince was awarded a $10 million bonus, $28 million in unvested stock and options, and $1.5 million in annual perquisites upon his departure from Citigroup.

Posted by Jay Hancock at 4:13 PM | Permalink | Comments (0)
        

Tomorrow Countrywide CEO Angelo Mozilo gets grilled before Rep. Henry Waxman's House Oversight and Government Reform Committee. The theater has started today, as the Muckraked blog has obtained the commitee's report on the millions reaped by Mozilo and other financial titans who lost shareholders billions through bad mortgages. (Muckraked appears to be overwhelmed with traffic. Here is a good summary on Salon. AP has also obtained the report. )

Last year Mozilo got $120 million in compensation and sold stock in buckets while Countrywide deteriorated, the report says. Here is an especially touching detail from a note Mozilo wrote to a compensation consultant concerning his pay. The biggest fools are the ones who believe their own BS.

I appreciate your input but at this stage in my life at Countrywide this process is no longer about money but more about respect and acknowledgement of my accomplishments. ... Boards have been placed under enormous pressure by the left wing anti business press and the envious leaders of unions and other so called "CEO Comp Watchers" and therefore Boards are being forced to protect themselves irrespective of the potential negative long term impact on public companies. I strongly believe that a decade from now there will be a recognition that entrepreneurship has been driven out of the public sector resulting in underperforming companies and a willingness on the part of Boards to pay for performance.

Posted by Jay Hancock at 3:56 PM | Permalink | Comments (0)
        

Standard & Poor's has downgraded Washington Mutual and stated that the housing situation is worse than it believed at the beginning of the year (when it believed the housing situation was pretty bad). S&P sez, according to AP:

“We now believe that the severity of losses on all residential mortgages will be higher than we had thought and that the weak housing market will now be a longer cycle,” S&P analyst Victoria Wagner said in a news release. “This adds to the time frame to resolve foreclosed properties and the cost to carry these non-performing assets.”

Posted by Jay Hancock at 3:29 PM | Permalink | Comments (0)
        

The Government Accountability Office took the unusual step this morning of blaring alarms about the Census two years before it takes place.

GAO added the upcoming census to the high-risk list due to a combination of long-standing deficiencies and emerging challenges, including shortcomings in the Census Bureau's management of information technology, weak performances by technology that the Bureau plans to use for data collection, uncertainty of cost estimates, and the elimination of several dress rehearsal activities.

David M. Walker, Comptroller General of the United States, announced the addition, saying, "Our objective for the high-risk list is to bring attention and persuade policymakers of the need for action sooner rather than later. In the case of the decennial census, proactive measures now, well in advance of the actual census, can do much to ensure accurate and reliable outcomes in 2010."

Posted by Jay Hancock at 2:17 PM | Permalink | Comments (4)
        

My favorite blogger, Tyler Cowen of Marginal Revolution, is a thoughtful, intelligent libertarian. (No, those words don't always go together.) Today he demolishes the oft-expressed or implied (opposing) views that 1) all taxation in evil or that 2) no taxation or limits to freedom are too high if they create good. A snippet:

1. A doctor is not required to devote his entire life, or even a part of it, to helping poor kids in Africa, even if he could create greater good by doing so. Personal autonomy matters.

2. The right to keep the product of your labor -- money! -- is a big part of autonomy, even though it is not always recognized as such.

3. Barring end-of-the-civilized-world exigencies, no one should be forced to part with more than a certain percentage of his or her income, even when valuable public goods are at stake. There is, after all, no end to good ideas for redistribution, not the least of which is the helicopter drop to Malawi. We all draw the line somewhere, so it's not enough to cite benevolence to defeat the claims of property rights and the demand for low taxes.

4. Adhering to such a percentage rule will have desirable consequentialist properties, given the public choice problems with government behavior. Thus a kind of consilience supports this moral view.

That all said, I do not believe we have a very clear or very scientific answer as to what the right percentage is. Furthermore "the proper percentage" is likely contingent upon historical circumstances. I take that as representing a partial -- but only partial -- endorsement of Nozick's Wilt Chamberlain argument and of course I reject the deontological ("just don't!") nature of Nozick's approach altogether.

Warning to extreme libertarians: Don't even try to argue that zero is the maximum permissible rate of taxation. Would you abolish all taxation today, immediately, if it meant a rapid collapse into social chaos?

Warning to social democrats: You are used to citing beneficience arguments to argue for raising taxes. But you reject beneficence arguments yourself, when you refuse to step into the shoes of Peter Singer and call for even more redistribution. I want to make you feel guilty about this tension. What you'd like to do is dismiss Singer with a separate argument and then turn your fire to the anti-tax types and feel that beneficence is always on your side. It isn't.

Cowen is an economics professor at libertarian bastion George Mason University. Read the whole post here.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (0)
        

From yesterday's Beige Book from the Fed, which gives descriptive reports on regional economic activity.

The markets for office and retail space showed signs of a slowdown in several Districts. Office vacancies were reported up, and leasing volumes down, in Manhattan, Baltimore, Washington, D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas.

Posted by Jay Hancock at 9:48 AM | Permalink | Comments (0)
        

Washington Mutual has been among the companies hit hardest by irresponsible mortgage lending. Now it says it may not count mortgage losses when calculating bonuses for the executives in charge when they occurred. Unbelievable. From Bloomberg:

March 5 (Bloomberg) -- Washington Mutual Inc., the largest U.S. savings and loan, said 2008 bonuses for Chief Executive Officer Kerry Killinger and other top executives may be shielded from the company's mortgage losses.

Bonus calculations will exclude the effect on profit of loan loss provisions except those taken for credit cards, the Seattle- based company said in a regulatory filing earlier this week. The bank said in January it expects to set aside $1.8 billion to $2 billion to cover bad loans in the first quarter.

Washington Mutual, whose shares are down 69 percent in the past year, reported its first loss since 1997 in the fourth quarter after writing down the value of its home-mortgage unit by $1.6 billion and setting aside $1.5 billion to cover bad loans. Killinger, who took no cash bonus for 2007, is eligible this year for an award of as much as 365 times his base salary.

``The success with which credit costs are managed will unequivocally continue to be a major part of the board's final deliberations,'' spokeswoman Libby Hutchinson said today in an e- mailed statement.

Killinger's salary for 2006 was $1 million and his total compensation was $14.2 million. Total pay for 2007 hasn't been disclosed. The 58-year-old CEO is eligible to receive 3.2 million stock options in 2008, a 15 percent increase over 2007.

Posted by Jay Hancock at 5:12 PM | Permalink | Comments (0)
        

A slight drop in U.S. crude oil stockpiles is getting all the attention today. According to the Energy Department, the country had 20.9 days of crude in the hopper last week, vs. 21.2 days' supply the week before. But inventories of refined gas haven't changed from six-year highs -- 25.8 day's worth. Today's column is about how gas prices can be so high when supplies are so plentiful.

Posted by Jay Hancock at 3:03 PM | Permalink | Comments (0)
        

Economist Jeff Thredgold lists dozens of reasons to be happy about today's economy and society. Here are the first few. Read the whole list here.

-- U.S. exports to the world of goods and services are at record levels

-- A year-end 2007 Gallup Poll noted that “more than 8 in 10 Americans say they are satisfied with their personal lives at this time, including a solid majority who say they are ‘very satisfied.’”

-- During the early 1960s, the five-year survival rate from cancer for Americans was one in three. Today it is two in three…continuing to climb…and the highest in the world

-- For every dollar of U.S. economic output generated today, we burn less than half as much oil as 30 years ago

-- Today’s moms and dads, whether working or at home, are spending four to six hours more per week with their kids than did the previous generation

-- Alcohol-related traffic fatalities in the most recently reported year dropped by more than half versus 20 years ago

Posted by Jay Hancock at 2:12 PM | Permalink | Comments (0)
        

Warren Buffett's annual letter to Berkshire Hathaway shareholders is out. Many have already written about it. You can read the whole thing here. He goes on at some length about how corporate America is puffing earnings with optimistic assumptions about pension-fund returns, but he also has this dire aside on pensions for government employees.

Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that the problems will only become apparent long after these officials have departed. Promises involving very early retirement -- sometimes to those in their low 40s -- and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.

Posted by Jay Hancock at 11:49 AM | Permalink | Comments (0)
        

Minnesota, which has required automotive fuel to contain 20 percent ethanol by 2013 (pending EPA approval), is out with a study purporting to show that such a high ethanol content will provide power similar to that of gasoline and won't hurt your car.

Be very, very skeptical. Ethanol contains much less energy than gas. E20 would cause a 3.5 percent loss of engine energy compared with that of E10, the blend sold in many gas stations now, a Minnesota State University prof has calculated. And in USA Today, car companies say using E20 might damage vehicles and void warranties:

Automakers also have doubts that it is as benign as E10. They are running trials, but they say they do not have enough data on how risky E20 is to components and whether it would change emissions in unwanted ways.

"Our vehicles are able to handle E10, but to move to E20 there are technical issues. It's not that simple," says Ford Motor (F) spokeswoman Kristen Kinley.

General Motors (GM) spokesman Alan Adler says that in E20 tests in Australia, "40% of the vehicles sustained (catalytic converter) damage, which allowed essentially unchecked tailpipe emissions."

"We believe there's not data sufficient to prove that all vehicles will function OK with E20," says Reg Modlin, director of environmental affairs for Chrysler. "It's not a legal fuel, and it would void the warranty."

From the Minnesota propaganda:

Increasing the amount of renewable ethanol blended into gasoline from 10 percent to 20 percent does not present problems for current vehicles or fuel dispensing equipment and provides similar power and performance, according to a new study released Wednesday by the State of Minnesota.

Using 40 pairs of vehicles commonly found on American roads, a year-long research effort found that increasing ethanol blends from 10 percent (E10) to 20 percent (E20) in a gallon of gasoline provided an effective fuel across a range of tests focusing on drivability and materials compatibility.

Posted by Jay Hancock at 11:14 AM | Permalink | Comments (2)
        

In the 1970s, Saudi Arabia began to heavily subsidize wheat production in an effort to diversify its economy. Now, it is reported, the nation has decided to get out of the wheat business. When oil is $100 a barrel, who needs to grow grains? From the Financial Times:

Saudi Arabia plans to halt wheat production by 2016 because of concerns about the desert kingdom's scarce water resources, according to a US government agency.

The Saudi Arabian government has not publicly given details of the move, which comes as global cereal prices surge, driven by strong demand and lagging supply. Top-quality wheat prices for baking bread hit a high this week of $25 a bushel and have more than doubled since January.

The US report said that "the main reason for change in the local wheat production policy was concern over the depletion of fossil water since the crop is grown on 100 per cent central pivot irrigation".

Posted by Jay Hancock at 10:48 AM | Permalink | Comments (0)
        

This is quite extraordinary. The head of the U.S. central bank is asking mortgage lenders to reduce the principal amount owed on delinquent mortgages. Implicitly, he is asking lenders to take a 20 percent to 30 percent haircut on huge portions of their mortgage portfolios. That's how far below the mortgage value many home values have fallen. What other choice does he have? In many markets mortgage banking companies are likely to take at least a 20 to 30 percent hit if they don't alter the terms and foreclose. And foreclosure will throw homes back on the market, which will drive prices down even further. From today's AP story:

One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said.

With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less financial incentive to try to remain in the home, he said.

Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said.

Still, Bernanke suggested such longer-term permanent solutions may work better than shorter-term and temporary ones, where the distressed homeowner could find himself in trouble again. "When the mortgage is `under water' a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure," he said.

Posted by Jay Hancock at 10:36 AM | Permalink | Comments (1)
        

Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet.

Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.

The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.

"I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC.

Read the whole AP story here.

Posted by Jay Hancock at 3:13 PM | Permalink | Comments (1)
        

Perpetual optimist Ed Yardeni, a well-known economist and investment strategist, has thrown in the towel. Here is an excerpt from his message to clients this morning, entitled Recession Now; Godot Has Arrived:

I think we are falling into a consumer-led recession. I’ve been fighting recession and mid-cycle slowdown scenarios for the US since 2003. I’ve been saying don’t bet against American consumers so long as employment is growing. I’ve argued that financial crises tend to be buying opportunities if the Fed responds by easing aggressively and averts a recession. Now, I think that the latest business cycle peak probably occurred in January. February was probably the first month of the recession. Real GDP is likely to be down during Q1 and Q2 by 1%-2%, rather than up by 1%-2%, as I previously predicted. I think the economy will recover during the second half of the year, assuming another 100bps cut in the federal funds rate soon.

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (0)