There doesn't seem to be anything in his resume or job title that would indicate Edward Montgomery, President Obama's new director of recovery for auto communities and workers, will be dictating corporate policy for General Motors or other car companies. He's a "people" economist, not an industrial technocrat, focusing on workers, community economic development etc. From the Web site at the University of Maryland, where he is dean of the College of Behavioral and Social Sciences:

Dr. Montgomery has published numerous papers and articles on local economic development, youth unemployment, cross national comparisons of labor market performance, savings and pension policy, Medicaid and Social Security, labor unions and workplace smoking regulations.

Economist Peter Morici, Montgomery's colleague at Maryland, probably knows a lot more about the car business than he does. But that hasn't stopped people from predicting Montgomery will be calling the shots for GM. From Scott Calvert's story on Montgomery in today's Baltimore Sun:

As if his job description were not broad enough, some experts think Montgomery will get involved in trying to turn around GM and Chrysler, along with other members of the presidential task force on the auto industry.

"I think he's going to have to oversee some major plant closings and job losses," Chaison said. "And I think he's going to have to design a bankruptcy. My personal view is General Motors is heading toward a bankruptcy. Chrysler may well be."

Charles Craver, a labor relations expert at George Washington University, expects Montgomery to wield considerable influence. "I have the sense he's going to have to oversee the restructuring of the companies," Craver said.

Nothing was said about this yesterday. Obama said Montgomery would help "create new manufacturing jobs and new businesses where they're needed most - in your communities. And he will also lead an effort to identify new initiatives we may need to help support your communities going forward."

But everything is fluid in the administration's mighty morphin' bailout/stimulus plan. Not much more than a year ago Treasury Secretary Hank Paulson was saying no taxpayer money would be used to ameliorate the mortgage crisis. Now we're at -- what? -- trillions and counting. Montgomery may yet be the car czar.

Posted by Jay Hancock at 8:33 AM | Permalink | Comments (3)
        

General Motors has no employment contract with boss Rick Wagoner, who has been pushed out by the White House. At least there wasn't one as of the company's last proxy statement. Thus there appears to be no automatic pinata of goodies set to rain down as Wagoner leaves.

From GM's proxy statement:

We do not have any employment agreements with Messrs. Wagoner, Henderson, Cowger, or Stephens that provide them with special compensation arrangements.

In addition, GM does not maintain any plan providing benefits tied to a change-in-control of the Corporation, although each of our incentive plans does contain change-in-control provisions that provide for protection and acceleration of incentive payments under certain conditions as disclosed in the “Potential Payments Upon Termination or Change in Control” section beginning on page 47.

However, the board can still hand Wagoner a parting package. From its Executive Officer Severance Policy:

On the rare occasion when an executive officer is removed, the board exercises its business judgment in approving an appropriate separation arrangement, if any, in light of all relevant circumstances including, but not limited to, the individual's term of employment, past contributions and accomplishments, and reasons for separation from the company. The board, for example, might give particular consideration to a highly successful, long-serving executive who elected to separate for health or similarly compelling personal reasons.

But if it's especially big they have to ask shareholders for approval, which would be inconceivable in this environment. From the proxy:

Executive Officer Severance Policy

General Motors executive officers are generally at-will employees who serve at the discretion of the Board. In early 2005, GM adopted a policy applicable to executive officers requiring stockholder approval of any severance benefits if:

• The executive’s employment was terminated prior to retirement; and

• The present value of the proposed severance benefits would exceed 2.99 times the sum of the executive’s annual base salary and target annual incentive.

Posted by Jay Hancock at 11:45 AM | Permalink | Comments (2)
        

Jack's server sends Jay an email that says:

A new post, "Keep Up The Good Work," has been added to The AAO Weblog.

So Jay's server sends Jack an email that says:

I am out of the office until Monday March 30.

So Jack's server sends Jay an email that says:

I am out of the office until Monday, March 30.

I'll get back to you as soon as I can when I return.

So Jay's server replies to Jack's server:

I am out of the office until Monday March 30.

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

Out of town and no blogging for a few days. Meanwhile, people ask:

Q. If I switch away from BGE's standard electricity product, will I be kicked out of BGE's Peak Rewards club, which gives rebates for briefly cycling off my AC on hot summer days?
A. No. Peak Rewards is a BGE program. BGE is always your electric utility and your electric distributor. Switching to WGES or Clean Currents for juice won't affect Peak Rewards.

Q. Will BGE charge me a fee to switch to a different supplier?
A. No.

Q. Do I need to notify BGE if I switch to Clean Currents or WGES?
A. No. WGES or Clean Currents does that for you.

Q. I have time-of-use metering, in which I pay more for electricity used at peak times than for electricity used at offpeak times. Can I switch suppliers?
A. No. If you want time of use metering -- and the offpeak discounts look pretty lousy this summer -- you can't switch to WGES or anybody else. Eventually, as the grid gets smarter, this should change.

Posted by Jay Hancock at 8:47 AM | Permalink | Comments (2)
Categories: BGE/electricity
        

From today's column on natural gas shopping:

But natural gas prices have fallen, too, and the 1 million Maryland households that heat and cook with gas are also getting a break.

No matter what happens, families using natural gas will probably save hundreds of dollars next winter compared with this year's bills.

BGE Home and Washington Gas Energy Services, the two main alternatives to Baltimore Gas & Electric Co.'s standard gas product, are offering their best fixed-price gas deals in a while. (BGE Home is owned by BGE parent Constellation Energy, but it's a different company from BGE.)

WGES's gas-shopping Web site is here.

BGE Home's site is here.

Historical, month-by-month prices for BGE's standard natural gas service are here.

Posted by Jay Hancock at 8:26 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

It pays to subscribe to The Sun. A reader says via email:

Thank you very much for your column and suggestion regarding household energy savings. You have more than paid for my subscription to the Sun.

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (0)
        

Readers have asked: 1)Where can you go online to find out what BGE's prices will be after May 31? 2) Where can you go online to compare different electric offers?

1) BGE's prices for June through September are here. The summer generation rate is 12.242. Add .4 cents and change for transmission and you get close to 12.7 cents for the "price to compare" for summer. (Note -- this is different from the ANNUAL price to compare on your BGE bill, which smooths out seasonal differences.)

2) The best list of independent electricity vendors is put together by the Office of People's Counsel and can be found here.
Note that OPC's price to compare includes the ~.4 cent transmission charge. Its listed BGE price to compare is too low and probably based on dated data -- 11.82 cents. That's substantially less than the 12.7 cents that BGE's price will hit this summer.

Here is OPC's site for natural-gas shopping.

BGE's list of residential suppliers is here. But it doesn't include prices; you have to link or call to the vendors to get prices. And some of the Web-quoted prices look very old and high. BGE's site also doesn't include third parties reselling suppliers' products.

.

Posted by Jay Hancock at 1:13 PM | Permalink | Comments (6)
Categories: BGE/electricity
        

From Saturday's column:

Shopping for household energy has revived in Maryland, thanks to a drop in wholesale prices, frustration about BGE's winter heating bills and worries about even higher electricity prices to come.

Residential users who dump BGE's or Pepco's standard electricity package could save $20 a month this summer by buying energy instead from merchants such as Washington Gas Energy Services or a program being rolled out by several chambers of commerce. Natural gas prices have plunged, too. (I'll write more about them in Wednesday's paper.)

The electricity savings aren't huge, but there's no reason not to take them. Until policymakers fix flawed wholesale markets and increase Central Maryland's kilowatt supply, it's at least temporary self-help. There has also never been a better time to buy nonpolluting, wind-generated electricity, which has become cheaper than BGE's standard price for the first time.

BGE's standard price will be 12.7 cents/kilowatt-hour this summer. (Generation & cross-country transmission. Local distribution is extra.)

WGES is offering 10.8 cents for one to three years.

Dominion Retail is offering 10.75 cents to the end of this year.

Clean Currents is offering 100 percent clean wind energy for 11.5 cents for 1 year and 11.8 cents for two years.

Posted by Jay Hancock at 8:25 AM | Permalink | Comments (5)
Categories: BGE/electricity
        

This just in. The $32 million bonus pool that Constellation Energy executives extracted from Electricite de France last year will not be spent on executive pay, says CEG. (CEG called them retention incentives.)

UPDATE: The Sun's breaking story on the Constellation bonuses is here.

Constellation Energy (NYSE:CEG) today announced that it will not pay to any Constellation employee any payments it receives from EDF Development, Inc. (EDF) that were originally earmarked for potential payments to its employees under Constellation Energy's long-term incentive plans.

In December 2008, both Constellation Energy and EDF were concerned that the potential instability of the workforce could lead to retention issues among key managers in the company, particularly those highly skilled in the areas of safety and reliability. In response to these concerns, and in light of the fact the company had no existing retention program in place, a decision was made to use an existing long-term incentive plan as a potential retention vehicle. None of the senior officers of Constellation Energy, including the chief executive officer and members of the management committee, were guaranteed payments under the plan.

"In December 2008, Constellation Energy had an urgent need to stabilize the leadership of the company given the tumultuous state of the global markets and Constellation Energy's financial condition at the time," said Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy. "EDF demonstrated a full commitment to the company by agreeing to pay the compensation on two specific long-term plans, which in the aggregate amounted to less than 1 percent of the total annual employee compensation costs of the company.

"Since that time, there has been a tremendous amount of concern over employee compensation throughout the country, and this program has been misconstrued by some as a potential cost to our BGE customers, who we recognize are struggling with high energy bills. The funds for this program were coming entirely from EDF and would not have impacted BGE rates. Nonetheless, we have determined that this issue has become a significant distraction to the important long-term benefits for Maryland that our strategic partnership with EDF represents. Also, since December, the fundamental outlook for Constellation Energy has improved. As a consequence, we have decided to remove this compensation issue from the critically important review of our transaction with EDF."

Posted by Jay Hancock at 4:29 PM | Permalink | Comments (1)
Categories: BGE/electricity
        

Britain's Local Government Association has published a list of 200 words to be avoided if town bureaucracies would like to communicate effectively with their constituents. Words to be shunned include taxonomy, re-baselining, mainstreaming, synergies, enabler, functionality, fast-track as a verb, leverage, outsourced, proactive, promulgate, tranche and vision. ("Metric" is apparently OK.) These are words that "public sector bodies should avoid when talking to people about the work they do and the services they provide," the LGA says.

Is this a blow against liberty, as Tyler Cowen implies? Or a sensible prescription against cant and vagueness? Last fall some local British councils discouraged the use of Latin phrases such as vice versa and pro rata, on the same grounds. Cambridge classics donna Mary Beard called it "the linguistic equivalent of ethnic cleansing," according to the BBC.

Posted by Jay Hancock at 10:01 AM | Permalink | Comments (1)
        

The Public Service Commission just made a big bet on natural gas, overruling consumer advocates and its own staff, by ordering utilities to buy much of next winter’s gas at today’s cost rather than waiting for prices to possibly fall even further.

Natural gas prices have plunged along with all energy costs. PSC staff, the Office of People’s Counsel and Maryland utilities all wanted to buy gas as usual, filling pipes month by month between now and October and paying the spot price each time. Locking in now, they argued, would prevent utilities "from buying at even lower prices in the months to come," according to a PSC order filed Tuesday.

But the commissioners, having witnessed last summer’s natural-gas spike, ordered Baltimore Gas and Electric and other utilities to lock in prices for 40 percent of next winter’s needs at today’s price. Consumers will still save a ton compared with this winter’s cost, they said, and they’ll be partly protected if another hurricane disrupts supplies this summer and fall.

It may backfire on consumers. Wholesale gas prices have already plunged 60 percent from last summer and are 15 percent under their average for the last five years. But if the recession deepens they’ll have even further to fall.

UPDATE: Energy consultant Robert McCullough, on the PSC's decision to seize on today's prices, via email:

"I think they got it right. Natural gas tends to follow oil which as, very strangely, started to increase in price after an announcement from OPEC last weekend that they are maintaining output against a market with falling demand."

Posted by Jay Hancock at 8:41 AM | Permalink | Comments (10)
Categories: BGE/electricity
        

Yesterday the Fed announced it would inject more than $1 trillion in the economy by buying longer-term Treasuries and mortgages. As Yves Smith notes, even the $300 billion the Fed pledged for Treasuries may not have much effect, given the huge supply of bonds the government needs to sell to finance the ballooning deficit. Gold is soaring, presumably on the expectation that the Fed's move will undermine the dollar and stoke long-term inflation. It's up $60 this morning. Has there ever been a bigger intraday or daily increase?

Posted by Jay Hancock at 10:17 AM | Permalink | Comments (0)
        

BGE parent Constellation Energy is not getting bailed out by taxpayers. That's a key difference between the payments it negotiated for its managers and the bonuses being handed out to execs at AIG, Fannie Mae etc. Nevertheless, the timing is not good in light of complaints over high BGE bills, Constellation's poor performance, its big payment to Warren Buffett, unhappiness over executive pay generally and deliberations in Annapolis about whether to re-regulate Maryland electricity.

The matter grew from Constellation's shotgun agreement to be bought by Buffett's MidAmerican Energy Holdings. As is typical these days, the takeover would have triggered a shower of "change in control" payments. The dubious rationale is to enrich management so they don't oppose or undermine takeovers that benefit shareholders. Completion of the Buffett deal would have triggered early payment of long-term incentive bonuses at a high level, regardless of corporate performance.

But of course the MidAmerican deal didn't happen. Constellation agreed to an investment by Electricite de France, which was not a takeover and did not trigger the incentive bonus. Today's story shows that Constellation executives preserved at least some of those payments despite the fact that the Buffett deal didn't happen. They got EDF to agree to pay for the difference between what 135 Constellation employees would have gotten under normal circumstances -- gauging performance and paying rewards accordingly -- and would they would have gotten under a Buffett buyout.

The second amount is certainly larger than the first amount. The only difference is that the employees will have to wait until next year and 2011 to get it, instead of collecting it when the Buffett buyout would have closed. Constellation has advertised it as a retention payment and promised the extra money to 120 people. Fifteen other very-top execs, including Mayo Shattuck, also would have gotten the dough under a Buffett buyout scenario. But Constellation, probably recognizing the terrible PR that would have resulted, so far has not guaranteed that they'll get the extra EDF money. But the board still has "discretion" to make the awards.

Posted by Jay Hancock at 8:16 AM | Permalink | Comments (8)
        

Not surprisingly, currency markets beat up the dollar after the Federal Reserve, steward and issuer of the dollar, announced its latest plans to wreck its balance sheet. From Reuters:

NEW YORK (Reuters) -- The U.S. dollar fell broadly Wednesday and traded at its lowest level in nearly two months versus the euro after the Federal Reserve announced that it would take further measures to stimulate the economy, diminishing the appeal of the greenback as a safe-haven.

Demand for the euro also rose earlier in the session as investors bought the currency after a grim British jobs report. Gains accelerated once the euro broke through $1.31, a key technical level.

The Fed said today it will buy $1 trillion in mortgage and Treasury securities to keep interest rates down and stimulate the economy.

Posted by Jay Hancock at 4:01 PM | Permalink | Comments (0)
        

(Washington, DC) – Congressman C.A. Dutch Ruppersberger (D-MD) co-sponsored legislation today that will tax the bonuses given to AIG executives at 100%. AIG awarded $160 million in bonuses just months after receiving $173 billion in taxpayer funds to save the company from the brink of collapse. AIG says it was contractually obligated to grant these bonuses. AIG Chief Executive Edward Liddy is expected to testify today on Capitol Hill.

 "Using taxpayer funds to pay out multi-million dollar bonuses to AIG executives who drove the company into the ground is absolutely outrageous. It is immoral, fiscally irresponsible, and downright greedy. This legislation will ensure all of the money is returned to the taxpayers. This situation is also a massive distraction from our efforts to get our economy back on track," said Congressman C.A. Dutch Ruppersberger.

Posted by Jay Hancock at 2:17 PM | Permalink | Comments (0)
        

This guy David Friehling is facing jail for allegedly enabling the $50 billion Madoff fraud. If that's what he was doing, he certainly wasn't charging a rate commensurate with the value of his services! From AP:

He had served as Madoff's auditor from 1991 through 2008 while he worked as the sole practitioner at Friehling & Horowitz. He was paid a tidy sum by Madoff: Prosecutors said he made between $12,000 and $14,500 a month from 2004 to 2007. That works out to $144,000 to $174,000 a year.

Friehling faces up to 105 years in prison if he is convicted. He is charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the U.S. Securities and Exchange Commission.

Posted by Jay Hancock at 11:58 AM | Permalink | Comments (0)
        

WASHINGTON – U.S. Senator Benjamin L. Cardin (D-MD), today expressed outrage over the $165 million in bonus payments to American International Group (AIG) and has written to President Obama applauding his directive to Treasury Secretary Timothy Geithner to pursue “every single legal avenue” to rescind the bonuses.

Washington, DC—Senate Democrats sent a letter to the CEO of AIG today, warning executives to give up their bonuses or prepare for Congress to subject these excessive payments to severe tax penalties. “For a company that would not exist anymore but for a $170 billion taxpayer funded rescue, it is simply morally unacceptable to spend $165 million on bonus payments…” the Senators wrote.

"How can these executives take these bonuses? Have they no shame? Have they no sense of responsibility to the taxpayers of America who have agreed to help them? Have they no sense of decency as it relates to what is happening to literally millions of people around this country who have lost their jobs, lost their homes, have their homes at risk, lost their health insurance?"

WASHINGTON, D.C. – U.S. Senator Barbara A. Mikulski (D-Md.), outraged over $165 million in bonuses paid out by American International Group (AIG) to its executives, made the following statement about steps she is taking in the Senate to recoup taxpayer funds. Senator Mikulski’s statement, and the text of a letter to AIG Chairman and Chief Executive Officer Edward Liddy follow:

“AIG executives, in a monument to greed, just paid themselves $165 million in bonuses. I think it’s absolutely outrageous that the very people at AIG who got us into this mess in the first place are now giving themselves bonuses saying they need to be paid to get us out of it,” Senator Mikulski said. “We need drastic action.”

Washington, D.C.—Today, Congressman Elijah E. Cummings (D-Md.), a senior member of the House Committee on Oversight and Government Reform and member of the Joint Economic Committee, released the following statement in response to renewed reports about AIG’s decision to move forward with the payment of an installment of its $400 million retention payment plan to the Financial Products (FP) unit:

“For months, I have been calling on Edward Liddy to step down from his position leading AIG, and I loudly and clearly renew that call today. Mr. Liddy has repeatedly taken billions of hard-earned tax dollars from the American people—many of whom have lost their homes, their savings, and their jobs—and then slapped those people in the face with that very money. Mr. Liddy continues to display reckless and irresponsible behavior at the helm of this company, and we simply cannot afford to accept it any longer."

Posted by Jay Hancock at 10:34 AM | Permalink | Comments (4)
        

Jay Leno apparently has objected to an unemployed Detroiter trying to sell a (free) ticket to Leno's Detroit show on Ebay. Greg Mankiw objects to Leno's objection.

If a person down on his luck prefers the cash to the opportunity to watch Leno live, why would Leno object? Is it altruism that is really motivating Leno here? Is he really sure that the unemployed person in Detroit would be better off with an evening of laughs than $800 in his pocket? Or does Leno want to play to a live audience of unemployed workers so he will seem altruistic to his television audience?

Next, a person claiming to be the would-be scalper emails Mankiw, saying, 'You're right!'

While searching the internet I came across your article on the Leno-Palace tickets on ebay. Yes, I was the seller. While I never thought it would get to the point of what it's become, you are right. Being unemployed I would rather have the money from the tickets sold to help me. I do feel if Mr.Leno wanted to help the ones down on their luck, he shouldn't object to someone trying to help me. I just wanted to comment on your article, this whole situation just makes me chuckle.

Posted by Jay Hancock at 9:30 AM | Permalink | Comments (4)
        

From Reuters:

NEW YORK (Reuters) - U.S. credit card defaults rose in February to their highest level in at least 20 years, with losses particularly severe at American Express Co (AXP.N) and Citigroup (C.N) amid a deepening recession.

AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate -- debts companies believe they will never be able to collect -- rose to 8.70 percent in February from 8.30 percent in January.

In addition, Citigroup Inc (C.N) -- one of the largest issuers of MasterCard cards -- disappointed analysts as its default rate soared to 9.33 percent in February, from 6.95 percent a month earlier, according to a report based on trusts representing a portion of securitized credit card debt.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (0)
        

Not only are Bernard Madoff's victims out tons of money; they paid taxes for years or decades on the income Madoff pretended to make for them. IRS boss Douglas Shulman says victims can take theft-loss deductions that are not subject to the limits on capital-loss deductions. That's because there were no capital losses -- Madoff apparently never invested the money.

IRS Commissioner Douglas Shulman said the agency is issuing guidelines for taxpayers who are victims of losses from Ponzi investment schemes such as the massive Madoff swindle.

Investors in some of these cases are entitled to a "theft loss" deduction, not subject to the limits on normal capital losses from investments, according to the IRS guidelines, Shulman testified at a Senate Finance Committee hearing.

The theft loss deduction can be taken in the year a fraud is discovered, except to the extent an investor has a reasonable prospect of recovery of the lost money, Shulman said.

Great. But two problems. 1) Elderly victims who lost millions won't have enough income to generate enough tax to deduct all their losses. 2) What about the back taxes on fake income?

"Some taxpayers have argued that they should be permitted to amend tax returns for years prior to the discovery of the theft to exclude the phantom income and receive a refund of tax in those years," Shulman testified. The new IRS guidelines do not address that argument, he said.

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

Sez the Big Picture:

The Treasury will use a $30 billion infusion into AIG to force the company to repay all of the bonuses promised to employees of its Financial Products group, a White House official said.

My suggestion: PAY THESE BONUSES WITH AIG STOCK.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (0)
        

Sen. Edward J. Kasemeyer is making another try to reduce Maryland's extortionate 13 percent interest rate on back taxes. The bill is SB 745. The hearing is on Wednesday, says Miles & Stockbridge's Steve Gevarter, who has been pushing for reform. Here is last year's Hancock column on the issue:

Now that Maryland has turned up its tax rates a couple more watts, big and bright as neon, is it too much to ask the state to stop taking even more of our money under cover of darkness?

We pay Maryland in multiple ways beyond the sticker price. One of the biggest offenders will be on display today before the Senate Budget and Taxation Committee - the extortionate interest the state collects on late taxes.You might think a legislature with a history of outrage over private-sector usury would be embarrassed by its own resemblance to Tony Soprano.

Alas, Maryland's 13 percent rate on late tax payments - mostly income taxes but others as well - is on its third governor and going strong. That's far above the real cost of money, way over what the federal government charges and the sixth-highest rate for delinquent state taxes in the country, according to data from the 2007 State Tax Handbook.

"It's incredibly unfair and unjust," says Sen. Edward J. Kasemeyer, the suburban-Baltimore Democrat and Senate majority leader who has sponsored a bill to cut the rate.

It's also incredibly lucrative for the state treasury. In fiscal 2007 Maryland collected $118 million in interest on delinquent taxes, according to Comptroller Peter Franchot's office. That's more than proceeds from the state's alcohol and admissions taxes combined.

Not just corporations and crooks pay up. Most of the money - $73 million - came from people who owed individual income tax, says Franchot spokeswoman Caron A. Brace.

Anybody can get dinged.

If you obtain a filing extension and don't pay income tax until late in the year, you're charged a 13 percent annual rate starting April 15.

"A lot of people are not aware of that," says Baltimore tax lawyer Caroline Ciraolo, who backs Kasemeyer's bill. "They think when they get an extension to file it's an extension to pay, too."

If you make a good-faith error on your return and correct it a couple of years later, you'll encounter the state's inner loan shark. Ditto if your tax pro messes up, or a medical emergency temporarily keeps you from paying what you owe.

Since many underpayments aren't discovered until years later, interest charges are frequently higher than whatever tax is owed, lawyers say.

"I don't think people realize how much it hits low- and middle-income taxpayers," says Steven M. Gevarter, a Columbia lawyer who has pushed Kasemeyer and other legislators to consider a change.

Everybody agrees tax scofflaws should pay stiff penalties. Franchot's office collects plenty of them, too. But the 13 percent interest gets piled atop the penalties to create a scrumptious, double-scoop revenue cone that Maryland can't seem to give up.

A bill to reduce the rate failed last year after budget analysts calculated it would cost the state $54 million over five years.

The fact that credit card companies often charge more than 13 percent is no defense. Credit cards are private services used voluntarily. High rates cover the risk of extending zero-collateral loans. The state, on the other hand, bears little risk because not paying taxes is not an option.

In 2006, Pennsylvania charged only 7 percent on tax underpayments, according to the State Tax Handbook. Virginia charged 9 percent; West Virginia, 9.5 percent, and Delaware 12 percent. Some states charge the prime rate - now 6 percent. The Internal Revenue Service's floating rate for delinquent taxes is 7 percent - much closer to the genuine cost of borrowed money, which is really all a late tax payment is.

Maryland employs other sneaky revenue grabs.

There is the "6 percent" sales tax that's really more than 6 percent, which I blogged about a couple of weeks ago. (If tax owed is even slightly more than 6 percent, it gets rounded up to the next penny - which nets Maryland an extra $18 million a year.)

There is the new measure to limit property-tax increases only for people who request the limitation, which will cause unjustified trouble unless Kasemeyer gets it repealed.

There is Baltimore's little proposal to reduce the property tax rate - to make taxes seem more affordable - while lifting the ceiling on assessed value so the city rakes in the same amount of revenue.

Kasemeyer is not optimistic about his bill to get Maryland out of the usury business. But a state with taxes this high can afford the integrity of erasing the fine print and ditching the subterfuge.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (0)
        

Joe Nocera's NYT column this weekend chided Madoff investors. The headline: Madoff Had Accomplices: His Victims

I suppose you could argue that most of Mr. Madoff’s direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn’t have mattered. Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? Even if you think your money manager is “God”? Diversification has many virtues; one of them is that you won’t lose everything if one of your money managers turns out to be a crook.

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

Good points, but let's note one thing, pointed out to me 10 days ago by Robert Ferber, a very sophisticated Baltimore investor who lost a big chunk to Madoff. I profiled Ferber in a column. Madoff's operation gave the semblance of diversification because he purported to buy numerous stocks each month with his hedging strategy. Remember: Madoff was not a hedge fund. He was a registered broker-dealer, like Merrill Lynch or A.G. Edwards. Investors got statements listing all the stocks they were supposed to own -- Merck, Pepsi, Microsoft etc -- just as they would with a regular broker. How many people diversify not just in their stocks but in their brokers? Not many.

That said, Madoff's promise -- risk-free returns of 1 percent a month -- violated the very first rule of investing. If it sounds to good to be true...

Posted by Jay Hancock at 9:30 AM | Permalink | Comments (4)
        

The Web is somewhat abuzz that PIMCO bond guru Bill Gross told the Washington Post he is out of stocks entirely. You might get the notion to dump all stocks now. Two thoughts. 1) Gross ALWAYS promotes what he owns in PIMCO's funds, which are bonds. 2) Read what he said:

About a year ago, I gave up on the stock market altogether. I don't own any stocks in my retirement portfolio. I'd say they made up about 40 percent. My money's in municipal bonds and stable corporate bonds.

I made an early mistake in buying bank stocks, thinking they were cheap. Twelve months ago, I saw the light and sold them all. I'm happy about that.

He sold a year ago, when the Dow was 12,000. That's not a recommendation to sell now, when it's 7,200.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
        

From the Towson-based toolmaker, this terse SEC filing. Cutting executive base pay by 10 percent, non-union pay for exempt employees by 5 percent and union pay by non-exempt employees by 2.5 percent. We'll see what the unions have to say about that; it has to be negotiated. Also suspending company match on 401(k) contributions.

Update from BDK spokesman Roger Young: The unions aren't part of this deal. The company has only 270 unionized workers across the country. No hourly plant workers are having their pay cut.

With the current unprecedented challenges of the global economy and its effect on the Corporation’s worldwide revenues, the Corporation will implement the following cost reduction actions for its U.S. employees effective the first pay period in April 2009:

· The base salaries of executive officers will be reduced by 10%. · The base salaries of exempt employees will be reduced by 5%.

· The base salaries of non-exempt employees will be reduced by 2.5%.

· The Corporation’s match on employee contributions to the Retirement Savings Plan and Supplemental Retirement Savings Plan will be suspended.

The Corporation intends to implement similar cost-cutting actions wherever possible throughout its world-wide business. All of these reductions will be implemented to the extent permitted by applicable laws and contractual obligations.

Posted by Jay Hancock at 10:55 AM | Permalink | Comments (1)
        

In boasting a few days ago about Citigroup’s $19 billion operating profit for January and February, CEO Vikram Pandit rattled off some of the cash cows, including “credit to consumer and corporate customers.”

That means you, credit card users. The good news is that Citi and other banks plastered by bad mortgage loans are partly rebuilding their capital with huge spreads between what they pay to get money and what they charge to lend it. The bad news: That means continued high interest rates on credit cards – despite the government’s bringing short-term rates to historically low levels and despite the billions in taxpayer bailouts that Citi and some other card banks are getting.

“Credit card issuers are jacking up rates and fees,” American Banker, a daily trade newspaper, reported a few days ago. American Express raised rates between 2 percent and 3 percent on more than half its card business, the company’s chief financial officer, Daniel Henry, told analysts last month.

To fight back, shop around. Discover’s More card is offering 0 percent introductory interest on purchases for six months and on transferred balances for 12 months, with 10.99 percent after that, says LowCards.com. To qualify you need a good credit rating. For other offers, check www.lowcards.com.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
        

Maryland's economy did substantially worse last year than previously thought, updated figures from the Labor Department show. Previous reports had shown the state adding jobs more or less through November, with a downturn in December. New data, based on a better tally of companies' payrolls, show that Maryland's economy turned downward starting last spring.

This often happens to job counters when recessions hit. Built into their models are "assumed" jobs created by new companies that aren't yet in the data system. But there aren't as many new companies during downturns, causing statisticians to overestimate job growth. See Labor Deptartment tables below with the new figures. See Lorraine Mirabella's story on the same information.

YEAR OVER YEAR CHANGE, THOUSANDS OF MARYLAND JOBS: 

MONTH TO MONTH CHANGE, THOUSANDS OF MARYLAND JOBS, SEASONALLY ADJUSTED:

Posted by Jay Hancock at 7:01 AM | Permalink | Comments (0)
Categories: Maryland Economy
        

Today's column is on proposed Maryland electricity re-regulation.

Maryland is doing it again: rushing into politically fashionable energy legislation that could end up generating a nasty shock.

Policymakers are talking about canceling kilowatt shopping even for commercial and industrial customers. They're setting up everybody to pay for expensive, new generation plants.

What, exactly, is the hurry, except to appear to be doing "something" about high electricity prices?

One reason I'm uncomfortable with trashing the potential ability of consumers to choose their electricity vendor is that it could harm some of the most promising initiatives to conserve energy. We are wasting energy now not only because our homes are underinsulated but also because our electric meters are too dumb to know not to buy the most expensive kilowatts. Smart meters, effective time-of-day pricing (nighttime juice should cost much less for households than it does now) and other measures could dramatically cut down on kilowatt use, pollution and the need for new generation.

Conserving the most electricity with smart meters needs each user, including most/many households, to make their own decisions about usage and to see the savings in their bills that result from those decisions. If BGE buys kilowatts in bulk and charges everybody the same price, this won't happen. Yes, there are complications. Numerous households won't want to deal with programming thermostats and picking vendors. You need to worry about low-income buyers. But if we're serious about conserving, smart meters and smart grids are something to think about.

Blogger Lynn Kiesling gives a taste of what might happen:

Say, for example, you are on the train to work, and you get a SMS notification that due to unexpected weather, there will be a higher-than-normal electricity price in the 9:00-10:00 hour. You may have already programmed your devices to respond to price signals, but what if the price is high enough that you want to change your settings? You can log in to your HAN from your mobile device, or from your computer at work, and change the device settings in the home through the web portal.

There is much more on her blog, Knowledge Problem.

Posted by Jay Hancock at 11:44 AM | Permalink | Comments (6)
Categories: BGE/electricity
        

Barry Ritholtz says: "There's a big bear market rally coming" and "It's too late to sell."

Marc Faber says that: “Equities could rally between here and the end of April" and that investing in stocks now will be profitable over the next decade.

Doug Kass is "espousing a more bullish opinion on the U.S. stock market" and suggesting stocks hit a bottom last week.

Steve Leuthold, who runs the bearish Grizzly fund, says: “I personally would not have an investment in the Grizzly fund because I think we’re so close to a major market bottom. “Every investor ought to be considering putting money into equities.”

Bill Fleckenstein is "starting to build a shopping list" of stocks like Microsoft, Pepsi, Cisco and Johnson & Johnson that he might buy.

All these guys have been very, very bearish. But they also know stocks can't go to zero.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (0)
Categories: Stock Market
        

Nice job by Agilog arguing for a return to public humiliation as a punishment for Bernard Madoff and his ilk. Complete with illustration.

Sez Agilog:

Public humiliation should be part of the penalty for some criminals. Embarrassing the few might solidify everyone else's commitment to the law. Might be healthy for victims to participate in their perpetrator's punishment and when people commit crimes, our entire culture is hurt by it.

Bring back the Stockade!

Posted by Jay Hancock at 12:21 PM | Permalink | Comments (0)
        

Business Week's Michael Mandel, who long has traced the oversized contribution of health care to the national economy, strikes again. If you take away jobs in health care, government and education, he says, there have been no new net jobs created in the United States since 1998.

In February 2009, there were 92,047[,000] jobs outside of health, education, and government. That's just where we were in September 1998.

Over the same period, health, education, and government added 7.2 million jobs (about 1 million of that total were non-education government jobs).

You (yes, you out there) may think that health and education are the least productive sectors of the economy. You may think that they are a drag on the private sector. You may think that the failure and cost of health and education are a cause of the problem, and not a solution.

But the rest of the economy is *not* creating jobs. Not, not, not. And no magic fairy dust can make U.S. corporations create jobs in the short run. It isn't going to happen.

On the other hand, the American people are willing to pay for access to healthcare and education, even today. And arguably, improving these sectors can pay off with enormous benefits.

This is our economic policy, folks, for better or for worse. More jobs and more spending in health and education. The health-education fiscal policy lever is the way to go.

Maryland specializes in -- guess what? -- health care, education and government. Hence our outperformance over the last decade and our (very relative) shield against terrible downturn now. Maryland's economy is in recession -- make no mistake. We started losing jobs late last year and will probably lose jobs all this year. But the state is still in better shape than the country as a whole.

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

The greatest dangers of recession and depression are not unemployment and foreclosure. The greatest dangers of recession are strife, killing and war. World War II was a direct result of the Great Depression. People with jobs and a future are less likely to want to kill other people. Compelling evidence comes from Northern Ireland, whose booming economy of the last decade has supported, finally, a diminishing of the Troubles. Now we hear this, from the NYT:

BELFAST (Reuters) - Political leaders and former foes said on Sunday the killing of two British soldiers by gunmen in Northern Ireland would not be allowed to throw the province back into a new cycle of violence.

Gunmen shot the soldiers as they picked up pizzas at the gates of an army base near Antrim on Saturday night. No one has claimed responsibility for the attack but it was widely suspected to be the work of a republican splinter group.

Which may be related to this, from Bloomberg:

Unemployment in Northern Ireland is rising at the fastest pace in 38 years as house prices plunged 34 percent last year. The downturn that began with the end of a property boom has been amplified by cooling demand for exports.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (1)
        

You would think that, after 26 years and a dozen different versions, Microsoft would have polished Word to a fine, steel edge. They have not. A colleague just installed Word 2007. Today is the second day I have used it. I created a new page. I produced a horizontal rule at the top of the page. Now every time I paste to the page, I get a new rule that goes along with the paste. I do not want this to happen.

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (1)
        

Now we know the recession is serious. Eight percent unemployment? Millions of workers laid off? Pffft. Rolls Royce and Ferrari sales are off!! From Bloomberg. HT Barry Ritholtz.

March 5 (Bloomberg) -- Rolls-Royce, Lamborghini and rival luxury carmakers that just five months ago said they’d buck the recession are finding they’re not immune.

The new millionaires of Asia and the Middle East have curbed spending, executives from companies including Rolls and Ferrari said in interviews at the Geneva Motor Show this week, torpedoing a market they’d counted on to spur growth after the banking crisis eroded orders in Europe and the U.S.

“Conventional wisdom has it that premium manufacturers do better in a downturn because people with more money can weather the storm,” said Michael Tyndall, an automotive specialist with Nomura in London. “This time it’s different.”

With demand from traditional buyers tumbling after the financial crisis cost 280,000 banking jobs, carmakers are responding with more modest models. Rolls, whose flagship Phantom starts at 300,000 euros ($380,000), will start making the 200,000-euro RR4 in 2009. Porsche SE, maker of the iconic 911, added the cheaper Boxster and Cayman in recent years and will offer the family-size four-door Panamera from September.

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

For a moment, forget the TARP, the TALF, mortgage assistance and Detroit bailouts. If the U.S. economy is to recover for the long term, we need an eventual return to the healthy productivity growth the occurred from about 1996 to 2007 or so. Productivity growth is how living standards rise. The more a worker can produce per hour of labor, the more he or she earns over the long term. Productivity growth results from technology, of course. Cell phones, the Internet, SAP software and computers generally enabled huge U.S. productivity growth starting in the mid 1990s. Many of the gains weren't reaped for the corporate bottom line until the 2000s, which is why corporate profits boomed in the years after 9/11 even though overall growth was mediocre.

The question now is whether the productivity boom is over. Previous technology leaps -- electricity, in the early 20th century, for example -- took decades to get incorporated into the economy. Some analysts think computer-assisted productivity growth has not run its course. But everything is sped up now. The technological gains we are all celebrating -- faster communication, better information etc. -- are also ensuring that new technologies are adopted much faster than they used to be. Thus the information out of Washington is not encouraging. From AP:

The government says the deepening recession caused worker productivity to slide by a worse-than-expected amount in the fourth quarter while wage pressures shot up at the fastest clip in two years.

The Labor Department said Thursday productivity, the amount of output per hour of work, fell at an annual rate of 0.4 percent in the October-December period. At the same time, unit labor costs were surging by 5.7 percent.

While the combination of falling productivity and rising wage pressures would normally raise alarm bells about inflation, the threat of any resurgence of price pressures is seen as remote given the severity of the current recession.

The fourth quarter, as everybody knows, was extraordinary. Productivity plunged because companies couldn't downsize fast enough to keep up with falling output. The productivity conundrum is the same kind of bad news/good news scenario facing many other aspects of the economy. Plunging home construction causes unemployment and bankruptcies, but it is necessary to build fewer houses so we can work through the excess inventory. Corporate layoffs raise unemployment, reduce demand and worsen the recession, but at some point companies have to tune their production forces in harmony with demand. Over the long term, falling productivity is not healthy.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (0)
        

Like a broken record, the CNBC sages are still telling young people to buy stocks because if you have a long time horizon, you don’t have to worry about these market fluctuations. While this sounds like a reasonable theory, it’s wrong even if you’re young. The so-called experts fail to account for the potential severity of the underperformance when stocks fall...

 If you followed my columns in 2008, you would have bought gold and inflation-indexed Treasurys. I’m not veering from this advice. Forget conventional wisdom and ignore play-by-play economic commentators. Buy federally guaranteed, inflation- protected TIPS and sleep soundly.

Posted by Jay Hancock at 11:25 AM | Permalink | Comments (2)
        

The default BGE natural gas price has dropped again, falling to 84.6 cents per therm for the month of March. That's the lowest since it was 87 cents in late 2006 84.12 cents in October 2007. Note I said the default BGE price -- the one that everybody pays unless they sign a fixed-price contract with BGE Home, Washington Gas Energy Services or others. Those folks are paying much more and ought to consider dumping those deals -- even if it involves paying a termination fee -- and going back to the standard, floating, monthly BGE rate.

Last fall BGE Home signed thousands of households up for a fixed-price, year-long deal of $1.599 per therm -- nearly twice what BGE's floating price is now. Some of the sticker shock over this year's BGE bills is surely from folks who locked into these terrible fixed-price deals. I keep hearing from readers who don't understand that their fixed-price contract is with BGE Home, not BGE, and that they have an option to go with the regular, floating rate. The recession is causing energy prices to plunge. Natural gas futures for next winter are below 70 cents per therm. Unless somebody can lock you up at THAT price for a year or two, I see little reason to not to go with BGE's floating rate.

Posted by Jay Hancock at 8:27 AM | Permalink | Comments (7)
Categories: BGE/electricity
        

It has been clear for several years that Maryland would need to build new, regulated power plants at some point if private investors didn't do it first. Gov. O'Malley's proposed legislation merely formalizes the option. More significant is what he did not embrace: Seizing the former BGE and Pepco generation plants through eminent domain, compensating their present owners (Constellation Energy and Mirant) and billing electric customers for the cost.

That would have driven bills even higher than they are now, put customers on the hook for expensive environmental upgrades, killed Constellation's plan to add a third nuclear unit at Calvert Cliffs and forced customers to pay for dismantling the first two units when they get decommissioned in a couple decades. Seizing valuable assets owned by large corporate citizens would also have sent a troubling signal about Maryland's respect for property rights.

Terrible as it was, electricity deregulation was a deal made by the state, codified in law and confimed under the settlement O'Malley made with Constellation. If you sell your car for a lousy price in the real world, you can't just call the repo man when you change your mind.

O'Malley's plan is re-regulation in the sense that it might bring back one or two regulated generation plants to Maryland. It would not re-regulate existing plants. And there is still a chance for private projects other than the Calvert Cliffs project. Nothing in his plan would preclude that.

Posted by Jay Hancock at 10:04 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

Magna Entertainment, owner of Pimlico Race Course and Laurel Park, got out the Stradivarius Friday for Maryland officials by announcing it had defaulted on a loan secured by the racetracks. That Magna Entertainment is near bankruptcy is not news. That it announced its loan defaults to PNC Bank only a day after it pleaded in Anne Arundel County Circuit Court that its hilariously botched slots bid for Laurel be revived was no accident.

In more than an hour of impassioned monologue yesterday in Anne Arundel Circuit Court, [Magna lawyer Alan] Rifkin narrated a wide-ranging argument that suggested Maryland bureaucrats might be committing a "felony" if they were to refund fees, and he implored Judge William C. Mulford II to prevent "enormous harm" to Maryland horse racing by preserving Laurel's chances for slots.

Rifkin's rif was the overture. Magna's default announcement was the first movement. This symphony has a long way to go. Nothing any judge or slots commission can do can match the enormous harm already done to Maryland horse racing by Magna. Just file for Chapter 11, sell yourself to Churchill Downs and get it over with.

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (6)
Categories: Slots