From the Detroit Free Press:

WASHINGTON – President Barack Obama said today that Chrysler LLC will file a historic bankruptcy shortly, backed by up to $3.5 billion in new government aid designed to allow a Chrysler-Fiat partnership to emerge from court in 30 to 60 days.

The move also sends a strong signal to bondholders at General Motors Corp. that the Obama auto task force will act on its vow to take GM into a similar bankruptcy if they do not agree to swap their GM debt for shares in a reworked GM.

Under Chrysler's bankruptcy, to be filed in New York in a matter of hours, the two automakers along with the UAW, Fiat and a majority of lenders will ask a judge to force a swap of $6.9 billion in debt for $2 billion in cash. The number of Chrysler dealers, now about 3,200, will be reduced through bankruptcy, but the administration officials did not say how many would be eliminated.

Thirty to 60 days in and out of Chapter 11? What are the chances?

Posted by Jay Hancock at 12:14 PM | Permalink | Comments (0)
        

Medifast, the Owings Mills-based diet food company, reported higher sales and higher profits yesterday. Let's see if they can sustain growth this time. The stock is still way below levels of a few years ago.

OWINGS MILLS, Md., April 29 /PRNewswire-FirstCall/ -- Medifast, Inc. (NYSE: MED - News) announced today first quarter financial results for the period ended March 31, 2009.

First Quarter highlights included:

First quarter revenues increased 34% compared to 2008 to $33.7 million;
Diluted EPS for the quarter increased 70% to $0.17 versus $0.10 year-over-year;
Direct sales segment, Take Shape for Life, increased sales 92% year-over-year for the quarter;
Medifast Weight Control Centers quarterly revenues increased 72%;
Improvement achieved in direct response revenue-to-spend ratio;
Operating margins improve to 11.9% versus 8.2% in the comparable quarter

Posted by Jay Hancock at 11:59 AM | Permalink | Comments (0)
Categories: Health Care
        

Should we pay for expensive medical procedures for people who are really old or terminally ill? In an interview with David Leonhardt, Obama talked about his grandmother, Madelyn Dunham, who had terminal cancer but got a hip replacement anway, presumably paid for by Medicare.

“I don’t know how much that hip replacement cost,” Mr. Obama said in the interview with David Leonhardt of The Times. “I would have paid out of pocket for that hip replacement, just because she’s my grandmother. Whether, sort of in the aggregate, society making those decisions to give my grandmother, or everybody else’s aging grandparents or parents, a hip replacement when they’re terminally ill is a sustainable model is a very difficult question.”

He went on to say: “If somebody told me that my grandmother couldn’t have a hip replacement and she had to lie there in misery in the waning days of her life, that would be pretty upsetting.”

Posted by Jay Hancock at 11:48 AM | Permalink | Comments (4)
Categories: Health Care
        

From AP:

CHARLOTTE, N.C. (AP) — Bank of America Corp. has delayed the release of a shareholder vote on whether Chairman and CEO Ken Lewis can keep both his jobs.

At the company's annual meeting Wednesday, bank executives said they needed more time to tally the votes for the 11 proposals that were put to a shareholder vote. That includes the election of the Bank of America board as well as a shareholder proposal to strip Lewis of his chairman's title.

The company said it was aiming to release the votes later Wednesday. Big investors including California's employee pension fund have called for shareholders to oust Lewis and his fellow directors at the meeting

Posted by Jay Hancock at 1:42 PM | Permalink | Comments (1)
Categories: The Great Recession
        

Output and inventories are getting all the attention in this morning's GDP report, but consumer spending rose during January through March, reversing a plunge in the fourth quarter. That's good news. From the CSM:

Economic activity in America plunged again in the first quarter of the year, but positive signs in one key indicator – consumer spending – could foreshadow economic stability later this year.

Overall, the nation’s output of goods and services declined at an annual rate of 6.1 percent in the period of January to March, according to preliminary numbers released Wednesday by the Commerce Department. That was almost as bad as the fourth quarter of last year, but the report showed a crucial difference.

Where consumer spending tanked in the fourth quarter, it held up in the most recent period with a 2.2 percent annualized gain.

That sign of resilience was punctuated earlier this week, as a separate survey released Tuesday showed a solid rise in consumer confidence.

Posted by Jay Hancock at 1:34 PM | Permalink | Comments (2)
Categories: The Great Recession
        

The blog recommends dumping BGE's standard electricity product, which will hit 12.7 cents per kilowatt hour this summer, not counting delivery charges, for Washington Gas Energy Services' deal at 10.8 cents. Readers want to know: If I switch to WGES or another alternative supplier, will BGE kick me out of the Peak Rewards program, where I get savings for having a cutoff switch on my air conditioner?

The answer is no. If you're in Peak Rewards, it doesn't matter who your supplier is. Even if you switch to WGES or Commerce Energy or somebody else, Baltimore Gas and Electric will still be your electricity utility, delivering the juice. Peak Rewards is a BGE program.

Posted by Jay Hancock at 1:20 PM | Permalink | Comments (2)
Categories: BGE/electricity
        

This sounds like lots of fun. From thedeal.com:

Bank of America Corp.'s (NYSE:BAC) annual meeting is turning out to be a raucous affair as Ken Lewis and the board of directors are getting an earful from shareholders who are indulging in their opportunity to rail against the directors and management.

"I don't understand how you can stand up here and say that you should keep your job," one woman told Lewis, after reading him a sarcastic poem about his $50 million in compensation.

Numerous shareholders also accused Lewis of driving the bank into insolvency.

In an answer to one question, Lewis also said that management considered executing a MAC and killing the Merrill Lynch & Co. deal, but decided that it wasn't in the best interests of the shareholders, eliciting sighs from the audience.

Another shareholder vented about Treasury Secretary Tim Geithner and the stress tests, demanding that Lewis explain what the tests were and how the bank performed on them.

"Let's all be buddies here," he said. "Come clean; this is America, not a banana republic. We want to know if the preferred are going to become common."

Another shareholder began with the reading of Psalm 82 before attacking board members for being complicit with poor lending practices and credit default swaps and demanding corporate reform. "We demand that we have truly independent boards and fair compensation."

The 82nd Psalm says:

How long will you defend the unjust and show partiality to the wicked?

Posted by Jay Hancock at 12:59 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Today's column:

The liberal case for credit-card reform is well known: Greedy banks victimize card users with high interest rates and outrageous fees; Congress must crack down to make the system fair.

Here is the less-known, conservative argument: Credit card complexity prevents users from making rational decisions about borrowing and spending, thus hurting the economy; Congress must intervene to make the system understandable.

Unfortunately, Congress might not take either course. Bills in the House and Senate would end the worst abuses but do little to stop stalker lending or cut the fine print.

Credit card practices are so out of control that even legislation that consumer groups see as a huge step ("Great news on the credit card front!" says Consumers Union) would leave plenty of room for trouble.

Read the whole thing here.

Posted by Jay Hancock at 11:44 AM | Permalink | Comments (6)
Categories: Personal Finance
        

It's easier to write about downsizing and layoffs than to witness them.

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (4)
Categories: The Great Recession
        

In a story that could have been written the day the "stress tests" were announced, the WSJ says today:

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests of lenders, according to people familiar with the situation.

The capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said.

Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Sitting in my car in traffic on the way to work, I was wondering where the nation should spend some of the billions dedicated to infrastructure improvement. Then it hit me. 

Posted by Jay Hancock at 10:34 AM | Permalink | Comments (2)
        

Greg Mankiw points out that President Obama wants to hugely increase government spending on research and development while Obama advisor Austan Goolsbee has published a paper arguing that government R&D spending doesn't accomplish as much as people think. From Goolsbee's abstract:

The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers.

Fortunately, elsewhere on his blog Mankiw provides the solution to an inelastic R&D worker supply: more H-1B visas.

Posted by Jay Hancock at 10:22 AM | Permalink | Comments (3)
Categories: Government & Business
        

CQ Politics had reported that Fort Meade's National Security Agency had picked up Harman allegedly asking the Bush administration to go easy on former AIPAC employees. Blair says it wasn't NSA, according to AP. NSA isn't supposed to eavesdrop on Americans in America. And it never does, right?

COLLEGE PARK, Md. (AP) — The National Security Agency did not place a wiretap that reportedly intercepted phone conversations made by Rep. Jane Harman, D-Calif., the top U.S. intelligence official said Monday.

Dennis Blair, the national intelligence director, declined to say which agency requested the reported wiretap and oversaw the information gleaned from Harman's conversations. Blair was speaking at the dedication of a new intelligence research facility.

The only other agency that has authority to place wiretaps on calls inside the United States is the Justice Department. It requires court approval.

Posted by Jay Hancock at 6:00 PM | Permalink | Comments (0)
        

A helpful story from CNN Money:

A quick and extensive swine flu epidemic could derail a global economic recovery, and even prolong and deepen the worldwide recession, economists said Monday.

"We're not there right now. This has to first become a large-scale pandemic," said James Auger, senior analyst, North America, with IHS Global Insight, a global economic research and forecasting firm.

But if the outbreak does grow into a large-scale pandemic, Auger said global trade could be disrupted through export restrictions.

"It could lead to travel restrictions for goods and people through major control over ports and airports," he said.

Posted by Jay Hancock at 3:05 PM | Permalink | Comments (0)
        

The incentives in potential-pandemic leadership are misaligned. Even if there's only a one in 100 chance of disaster, no authority figure wants to be the one who was seen to fiddle while pandemic struck. Even if it's illogical and harmful, people seldom lose their jobs by panicking and overreacting. They do lose their jobs if the worst happens and they were perceived to be passive. So closing schools, setting up quarantines, advising against travel etc. are forms of career insurance. There's also lots of context behavior going on. Leaders see other leaders overreacting, so they decide that's the appropriate thing to do.

From the Guardian:

The European Union advised against nonessential travel to the United States and Mexico, China, Taiwan and Russia considered quarantines and several Asian countries scrutinized visitors arriving at their airports.

In the United States, a private school in South Carolina was closed Monday because of fears that young people returning from Mexico might have been infected.

Posted by Jay Hancock at 12:52 PM | Permalink | Comments (5)
        

Cornell economist Robert Frank (The Winner-Take-All Society) has a piece in NYT saying the tea party protesters don't know how good they've got it.

... For example, as a Peace Corps volunteer in Nepal long ago, I hired a cook who had no formal education but was spectacularly intelligent and resourceful. Beyond preparing excellent meals, he could butcher a goat, thatch a roof, plaster walls, resole shoes and fix broken alarm clocks. He was also an able tinsmith and a skilled carpenter. Yet his total lifetime earnings were less than even a very lazy, untalented American might earn in a single year. Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success...

Financially successful tax protesters seem blissfully unaware of how incredibly fortunate they are. To borrow from the late Ann Richards and her description of the first President Bush, they were born on third base and thought they’d hit a triple.

Posted by Jay Hancock at 12:04 PM | Permalink | Comments (6)
Categories: Taxes
        

A few dozen people have died in Mexico from swine flu. (Was The Sun the only paper that didn't have a story on Page 1 today?) Swine flu probably won't become a global pandemic, but so far it has been blamed for:

-- An increase in the dollar.

-- A decline in the stock market. (Oops. That was before stocks decided to go up, ruining yet another thesis by the wire services on market cause and effect.)

-- A widening of credit-default swap spreads.

-- A frenzy of Googling.

-- An outbreak of marijuana-pill marketing.

-- A potential backlash against pork and bacon.

-- Lots of "No Problem in Peoria" stories.

Posted by Jay Hancock at 11:46 AM | Permalink | Comments (2)
        

Long piece on Treasury Secretary Tim Geithner's ties to Wall Street in the NYT. Reporters Jo Becker and Gretchen Morgenson obtained Geithner's daily appointment book for when he was president of the New York Fed, showing tennis games, daily limo rides from his house in Westchester County and Four Seasons meals with Wall Street bigwigs. The schedule chronicles Geithner's meetings with Citigroup's Sandy Weill in late 2007 to see if Geithner wanted to replace Chuck Prince as Citigroup's CEO.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Readers want to know: Now that regulators say BGE’s standard household electricity price will be lower for the 2009/2010 winter than it was for the 2008/2009 winter, does it still make sense to switch to a competing offer from Washington Gas Energy Services?

Yes. Last winter’s default BGE price (about 12 cents per kilowatt hour, not counting delivery) was the highest ever for that season, so being slightly lower for next winter is no big deal. WGES (888-884-9437cq) will sell you juice for up to three years at 10.8 cents, so it’s still the superior offer at least for the next 12 months.

Baltimore Gas and Electric bought its last allotment of electricity for October through May a few days ago. So far neither BGE nor the Public Service Commission will say exactly what the price will be for that period. But they do say the average residential price for the whole 12 months – including summertime rates – will be slightly higher than in the previous 12 months.

That’s really all you need to know. Prices for this summer will be 12.7 cents; paying WGES 10.8 cents instead will save more than $30 a month for a typical house for June through September. The WGES savings starting in October will be less, but they still should be decent.

Posted by Jay Hancock at 11:16 AM | Permalink | Comments (7)
Categories: BGE/electricity
        

When workers at Electricite de France, the big French power company, want to protest management actions they sometimes sabotage their own company and cause blackouts for thousands of their own customers. BGE owner Constellation Energy has agreed to expand its partnership with EDF in nuclear-powered electricity. BGE employees don't seem to be quite as radical. From The Times:

It was the second time in a week that blackouts had hit the Paris region as striking gas and electricity workers adopted radical tactics to support their call for a 10 per cent pay rise and an end to outsourcing of jobs.

They are denounced as industrial saboteurs by the Government and face disciplinary action and prosecution, but say they are determined to press ahead with what they portray as a struggle against free-market forces.

The movement got off to a slow start. “We’ve been on strike for three weeks but at first no one paid any attention at all,” he said. “It was only when some of the guys started cutting the electricity and gas that things got moving.”

The militants armed with a map showing the substations and keys to the locks can shut down power to thousands of homes in a few minutes.

Last Thursday 66,500 EdF customers lost their electricity supply, some for several hours. In Douai, northern France, two patients in intensive care had to be moved when a hospital lost power for 40 minutes.

Earlier this week the activists sought to win public support by switching 350,000 customers from peak to off-peak tariffs — a 50 per cent saving. They also restored power to hundreds of households that were cut off by EdF because they had failed to pay their bills.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

New York Attorney General Andrew Cuomo has confirmed this morning's Wall Street Journal story saying Bernanke and Paulson urged Bank of America not to immediately reveal to shareholders the size of losses at Merrill Lynch, the investment banking company BOA had agreed to buy. The letter also shows that BOA, alarmed at the flood of red ink, wanted to back out of the Merrill deal but relented after Treasury threatened to fire BOA boss Ken Lewis and his team.

There seems to be a stunning lack of disclosure all around the Treasury's Troubled Asset Relief Program. Let the lawyers sharpen their pencils. BOA's shares were around $14 in mid-Decmeber, the time of the events described below. Now they're less than $9.

From Cuomo's letter to Congress:

The week after the shareholder vote -and days after Merrill Lynch set its bonuses Merrill Lynch quickly and quietly booked billions of dollars of additional losses. Merrill Lynch's fourth quarter 2008 losses turned out to be $7 billion worse than it had projected prior to the merger vote and finalizing its bonuses. These additional losses, some of which had become known to Bank of America executives prior to the merger vote, were not disclosed to shareholders until mid-January 2009, two weeks after the merger had closed on January 1,2009.

Immediately after learning on December 14,2008 of what Lewis described as the "staggering amount of deterioration" at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. After a series of internal consultations and consultations with counsel, on December 17,2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter.

At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Lewis, Bank of America's CFO, and other officials discussed the issues surrounding invocation of the MAC clause by Bank of America. The Federal officials asked Bank of America not to invoke the MAC until there was further consultation. There were follow-up calls with various Treasury and Federal Reserve officials, including with Treasury Secretary Paulson and Chairman Bernanke. During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege.

Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced:

[W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' --as I recall him saying "the government," but that may or may not be the case -"does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," --I can't recall ifhe said "we would remove the board and management if you called it" or ifhe said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was of" That threat, okay, do it. That would be systemic risk."

In an interview with this Office, Secretary Paulson largely corroborated Lewis's account.

On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. Secretary Paulson told Lewis a series of concerns, including that Bank of America's invocation of the MAC would create systemic risk and that Bank of America did not have a legal basis to invoke the MAC (though Secretary Paulson's basis for the opinion was e,ntirely based on what he was told by Federal Reserve officials).

Secretary Paulson's threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, "that makes it simple. Let's deescalate." Lewis admits that Secretary Paulson's threat changed his mind about invoking that MAC clause and terminating the deal.

Despite the fact that Bank of America had determined that Merrill Lynch's financial condition was so grave that it justified termination of the deal pursuant to the MAC clause, Bank of America did not publicly disclose Merrill Lynch's devastating losses or the impact it would have on the merger. Nor did Bank of America disclose that it had been prepared to invoke the MAC clause and would have done so but for the intervention of the Treasury Department and the Federal Reserve.

Lewis testified that the question of disclosure was not up to him and that his decision not to disclose was based on direction from Paulson and Bernanke: "I was instructed that 'We do not want a public disclosure. '"

Posted by Jay Hancock at 12:45 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Johns Hopkins economics prof Steve Hanke, libertarian, hard-money advocate and sworn enemy if the International Monetary Fund, is dismayed that the IMF and every other form of big government is making a comeback, ratcheting up from the plateaux they reached during the previous crises. This is from his latest column for GlobeAsia magazine.

As Robert Higgs verified in his 1987 classic, Crisis and Leviathan, crises act as a ratchet, shifting the trend line of government’s size and scope up to a higher level. History provides many illustrations of how damaging this fallout can be.

Take the Great Depression. At that time, the organized farm lobbies, having sought subsidies for decades, took advantage of the crisis to pass a sweeping rescue package, the Agricultural Adjustment Act, whose title declared it to be “an act to relieve the existing national economic emergency.” Seventy-six years later, the farmers are still sucking money from the rest of society and agricultural policy has been enlarged to satisfy a variety of other interest groups, including conservationists, nutritionists and friends of the third world. Indeed, even though agricultural prices hit record highs last year, the river of government farm subsidies kept flowing.

Here is the whole thing:

The panic of 2008 has sent the political classes into fits of hyperactivity. Their favorite ploy has been to scare the public into supporting gigantic interventionist policies designed to inflate government budgets and re-regulate economic activity. These scare tactics were on display as world leaders prepared for the London meeting of the Group of 20 on April 2. The countries represented in this grouping account for two-thirds of the world’s population and 90% of its gross national product. After failing to predict a slow-down, let alone a panic, the International Monetary Fund finally issued a scary forecast on March 19—just in time for the G-20 meeting.

This forecast allowed the IMF to peddle its prescriptions. Once the G-20’s communiqué was released, doom and gloom were temporarily swept aside. The political classes had just struck a mother lode. The G-20 winner was the IMF. The IMF’s managing director Dominique Strauss-Kahn—a seasoned French socialist politician— could hardly believe the IMF’s good fortune. At a press conference on April 2, Strauss-Kahn had this to say: “Maybe some of you were in the IMF press conference at the end of the Annual Meeting last October. And if some of you were there, then you may remember that what I said at that time is that IMF is back. Today you get the proof when you read the communiqué, each paragraph, or almost each paragraph-- let’s say the important ones—are in one way or another related to IMF work.” If the G-20 summiteers come through with their pledges, the IMF’s resources will be increased by over $750 billion (USD). To put that in perspective, consider that the IMF’s credits and loans outstanding at the end of 2008 were only $27 billion. As politicians confront a new crisis, the opportunists are playing the system and exploiting it for their own ends. Much of the growth of government in the US and elsewhere occurs as a direct or indirect result of national emergencies such as wars and economic slumps. Laws are enacted, bureaux are created and budgets are enlarged. In many cases these changes turn out to be permanent. As Robert Higgs verified in his 1987 classic, Crisis and Leviathan, crises act as a ratchet, shifting the trend line of government’s size and scope up to a higher level. History provides many illustrations of how damaging this fallout can be.

Take the Great Depression. At that time, the organized farm
lobbies, having sought subsidies for decades, took advantage of
the crisis to pass a sweeping rescue package, the Agricultural Adjustment
Act, whose title declared it to be “an act to relieve the
existing national economic emergency.”
Seventy-six years later, the farmers are still sucking money
from the rest of society and agricultural policy has been enlarged
to satisfy a variety of other interest groups, including conservationists,
nutritionists and friends of the third world. Indeed, even
though agricultural prices hit record highs last year, the river of
government farm subsidies kept flowing.
Then, during the second world war, when government ac-counted for nearly half the US’s gross domestic product, virtually
every interest group tried to tap into the vastly enlarged government
budget.
Even bureaux seemingly remote from the war effort claimed
to be performing “essential war work” and to be entitled to bigger
budgets and more personnel.
Even smaller crises have sent the opportunists into feeding
frenzies. Let us return to the classic case of ever-opportunistic
IMF. Established as part of the 1944 Bretton Woods agreement,
the IMF was primarily responsible for extending short-term, subsidised
credits to countries experiencing balance-of-payments
problems under the postwar pegged-exchange rate system.
In 1971, however, Richard Nixon, then US president, closed
the gold window, signalling the collapse of the Bretton Woods
agreement and, presumably, the demise of the IMF’s original
purpose. But since then the IMF has used every so-called crisis
to expand its scope and scale (see the accompanying chart).
The oil crises of the 1970s allowed the institution to reinvent
itself. Those shocks required more IMF lending to facilitate, yes,
balance-of- payments adjustments. And more lending there was:
in the 1970-1980 period, IMF lending increased by 123%.
With the election of Ronald Reagan as US president in 1980, it
seemed the IMF’s crisis-driven opportunism might be reined in.
Yet with the onset of the Mexican debt crisis, more IMF lending
was “required” to prevent future debt crises and bank failures.
That rationale was used by none other than President Ronald
Reagan, who personally lobbied 400 out of 435 congressmen to
obtain approval for a US quota increase for the IMF. IMF lending
ratcheted up again, increasing
108% in real terms during
Reagan’s first term in office.
With the fall of the Soviet
Union in 1991, the IMF reinvented
itself again. Accordingto the IMF, a temporary
lending facility was needed
“to facilitate the integration of
the formerly centrally planned
economies into the world market
system.”
The 1990s ended with the
Asian Financial crisis (among
others)—one that was misdiagnosed
and made worse by
the IMF’s medicine. Never
mind. The Asian crisis was yet
another justification for more
funding. During the 1990-
1999 period, IMF lending increased
by 99% in real terms.
Not surprisingly, the events
of September 11, 2001 did not
catch the IMF flat-footed. On
September 18, Paul O’Neill, the then US Treasury Secretary, had
breakfast with Horst Kohler, the then IMF’s managing director,
to discuss the financial needs of coalition partners.
The IMF received a bit of a post-September 11 bounce. Then
the IMF experienced a free fall, when the Federal Reserve (along
with other central banks) pushed interest rates to record lows.
The flood of new global credit was drowning the IMF until the
credit bubble burst. That is when the IMF seized its opportunity.
The ratchet, of course, has many deleterious dimensions that
reach well beyond public budgets. For example, on the same day
the G-20 met in London, the US Financial Accounting Standards
Board caved in to pressure exerted by the US Congress and
altered the accounting rules for banks and other financial
institutions.
Instead of valuing assets at prices they can fetch in the market(mark-to-market), banks will be allowed to use their own valuation
models to value assets.
This accounting change brings to mind the fallout from another
panic—the US panic of 1873. It was then that the publication
of bank statements was suspended on the hope that “what
you don’t know won’t hurt you.”
Let’s hope the current tidal wave of interventionism fades
and a modicum of reason kicks in.

Steve H. Hanke is a Professor of Applied Economics at The Johns
Hopkins University in Baltimore and a Senior Fellow at the Cato
Institute in Washington, D.C.

Posted by Jay Hancock at 10:14 AM | Permalink | Comments (0)
Categories: Government & Business
        

Buried deep (page 8) in a letter from Federal Housing Finance Agency James Lockhart to Sen. Chris Dodd is this unsettling piece of data: The number of prime mortgages with payments 60 or more days late soared from 497,131 in December to 743,686 in January -- a 50 percent increase. HT Calculated Risk.

The Daily Record's Robbie Whelan has a related story:

For most of the recent housing crisis, subprime mortgages have been in the spotlight. The coming year will be different, according to one Federal Reserve official.

“Across the board … we’re seeing an increase in delinquencies,” said R. Andrew Bauer, regional economist with the Federal Reserve Bank of Richmond. “What we’re going to be talking about in 2009 is the prime market.”

Posted by Jay Hancock at 12:22 PM | Permalink | Comments (0)
Categories: The Great Recession
        

The Tax Foundation's Bill Ahern writes apropos of my Saturday column on tea parties, taxes etc., in which I criticized the Obama administration's proposal to reduce the charitable deduction for those in high-income brackets. Sez Bill:

Don't be so hard on Obama's suggestion to limit the charitable deduction. We do want the rich to give away their money, but we don't need to pay them for it. Let's say they actually reduced their giving by the amount of the reduced deduction (which probably wouldn't happen, but it's hard to prove either way from the history of the deduction because tax law is such a muck.) Yes, there'd be less money in the hands of charities (many of whom don't deserve their tax status), but the money they'd be missing is the amount that the government is pitching in from other taxpayers.

Some economists would say that even aside from the issue of undeserving charities (heavily endowed universities and "nonprofit" hospitals get the lion's share), we're completely misunderstanding the nature of charitable giving, and if we understood it properly, we would repeal the deduction entirely.

He directs us to a Tax Foundation's blog entry on charitable deductions, which makes these excellent points:

While subsidizing charities with tax preferences might make sense in theory, in practice the charitable deduction does of terrible job of it.

For one, its benefits are shockingly regressive. More than 75 percent of tax benefits from the charitable deduction went to the 12 percent of taxpayers with incomes over $100,000 on 2004. Taxpayers would never stand for that distribution of burdens for a direct spending program.

Second, many charities subsidized by the deduction are charitable in name only. Many look a lot like for-profit firms. Ms. magazine, Harper’s, Mother Jones and many other publications are subsidized as "charitable providers of educational materials.” The National Geographic Society sells videos and maps in direct competition with for-profit companies. The YMCA operates fee-for-service gyms. It's hard to see how these groups deserve a subsidy at taxpayer expense.

Finally, by shifting part of the cost of private giving onto others, it forces some to subsidize gifts to nonprofits with goals opposite their deeply held beliefs—for example, gifts to pro-choice groups end up being subsidized by taxpayers with pro-life views, and vice versa. How is that good policy in a free society?

Posted by Jay Hancock at 11:20 AM | Permalink | Comments (1)
Categories: Taxes
        

Here's a good story from AP:

The government's "stress tests" of 19 large banks take a harsher view of loans than of other troubled assets, according to a Federal Reserve document obtained by the Associated Press. That approach favors a few Wall Street banks while potentially threatening major regional players. Regulators will use the tests to determine which banks are healthy, which need more capital and which might fail if the recession worsened.

The regulators' focus could spell trouble for big regional banks undergoing the tests. Their portfolios have more individual loans and fewer of the big pools of securitized loans that Wall Street giants specialize in.

Some analysts said regulators are favoring the largest banks because if even one failed that would pose a severe economic risk. Banks that deal in securities are more interconnected to other corners of the global financial system.

Posted by Jay Hancock at 6:05 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Tyler Cowen is a great blogger in part because he understands nuance. A libertarian, he nevertheless has no detectable partisanship bias. He constantly tests his own assumptions. He rarely gets angry. He is happy to acknowledge good points by his opponents. But every now and then, equanimity and magnanimity must step aside for spleen and pique. Cowen trashes Phillipe Diaz's The End of Poverty. If Cowen's description is accurate, the film richly deserves it.

Blowhards everywhere take note: The critique is all the more powerful coming from someone who is not a chronic screamer. Some excerpts from his review:

If you ever thought that [Ayn] Rand’s [clueless lefty] nemeses were pure caricature, this film will show you that they are not (if the stalking presence of Naomi Klein has not already done so). If you are looking to benchmark this judgment, consider this: I would not say anything similar even about the movies of Michael Moore....

In this movie, the causes of poverty are oppression and oppression alone. There is no recognition that poverty is the natural or default state of mankind and that a special set of conditions must come together for wealth to be produced. There is no discussion of what this formula for wealth might be. There is no recognition that the wealth of the West lies upon any foundations other than those of theft, exploitation and the oppression of literal or virtual colonies....

Diaz and company also fail when it comes to simple fact-checking. At about the one-hour twenty-three minute mark we are told that an expenditure of $20 billion would cut global poverty in half; this sum is then compared to the much larger U.S. military budget and the suggestion is that Americans are being greedy. You don’t need much calculation to see that this is nonsense. Under any plausible assumptions, this sum is less than $10 per poor person in the world....

In this light it is entirely appropriate that the producer of The End of Poverty, Beth Portello, previously worked for Nike and Adidas. I see nothing wrong with her having done so, but one would think Diaz and company would, given these companies’ well-known reputations for running sweatshops in poorer countries. I’m willing to state that those sweatshop jobs are better than the “natural economy” jobs they displaced, but are Diaz or Sheen? The Cinema Libre website tells us that Portello is “making amends” for her past, but in reality she is repeating it—except that now she is no longer giving poor people stable jobs at higher wages than they had before.

Posted by Jay Hancock at 11:31 AM | Permalink | Comments (6)
Categories: Poverty & Wealth
        

The International Monetary Fund just bumped its estimate of U.S. losses on bad mortgages and other defaulted debt to an amazing $2.7 trillion, up from a $2.2 trillion estimate in January. Worldwide losses could hit $4 trillion, the fund says. These results were leaked to The Times a couple weeks ago and referenced in this Hancock column. Now it's official. The only reason Citigroup is selling for close to $3 a share is the dubious hope that Washington will bail it out again and again.

Without a thorough cleansing of banks’ balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalization, risks remain that banks’ problems will continue to exert downward pressure on economic activity. Though subject to a number of assumptions, our best estimate of writedowns on U.S.-originated assets to be suffered by all holders since the outbreak of the crisis until 2010 has increased from $2.2 trillion in the January 2009 Global Financial Stability Report (GFSR) Update to $2.7 trillion, largely as a result of the worsening base-case scenario for economic growth.

In this GFSR, estimates for writedowns have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest writedowns could reach a total of around $4 trillion, about two-thirds of which would be incurred by banks.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (1)
Categories: The Great Recession
        

The headline for Saturday's column was: "Let's cut spending and raise taxes," which captured what it had to say pretty well. It began:

Thoughts on taxes, tea parties and Washington's looming fiscal disaster.

Call me conservative, but I believe parents who toil and save and accumulate a modest fortune ought to be able to pass it on to their children and grandchildren.

Vanishing savings largely caused this financial crisis. We save so little we need the Chinese to finance our deficits. Let's not discourage Americans from saving by seizing big chunks of their nest eggs when they die.

A Republican proposal to exempt estates worth less than $10 million for couples and $5 million for individuals sounds about right.

Call me liberal, but I believe high earners should pay a bigger portion of their income in taxes than everybody else.

Taxes are user fees for The System - the laws and safeguards that keep the country running. Nobody benefits from The System as much as high earners and the wealthy.

Read the whole thing here.

I expected more critical comments, given that even discussions of raising taxes often prompt allergic breakouts. But I was happily surprised. Here is a sampling of my email inbox this morning.

Thank you for the column you wrote on Sat., 4/18/09. Since I no longer know where I stand on the political spectrum, and get very discouraged by the left vs right dialogue, your sentiments hit home for me, and I'm sure those of many other people.

AND:

I rarely respond to any opinions but felt compelled to in this instance because I agreed with almost all you wrote. But to say only the wealthy are the benefit of the taxpayer bailout of Citicorp etc is just not right. We all may or may not benefit if the Chrysler bailout of 20+ years ago is any historical precedent this so called bailout will cost the taxpayers nothing. But whatever happens we all will either benefit or be hurt. It is just not right to put it on the so called wealthy as the only beneficiaries of this.

AND:

This morning’s work is exceptionally well done. I enjoyed reading it. Thanks for the logical analysis. It is refreshing.

AND:

First let me say, I appreciate the fact that you addressed the subjects today. That is a great start. Where we depart is that some people should pay more and others should pay less. Who gets that power? That’s why this country started by resisting the few that held all the power with no say whatsoever.

Everyone should pay the same percentage. Period. If you make $10,000 or $10,000,000,000. It’s the only fair way to assess people equally. Is that so hard for everyone to understand?

So simple. But our politicians want everyone to be jealous and confused and angry so that we don’t see all the other things they do that really screw us up. But I’m sure you know that already.

AND:

I agree with your column today, although I pretty much tend to agree with you all the time, so maybe it doesn't count. I worked for state and local government for 30 years and I don't think you can balance the budget by cutting programs. Having been on the inside, I know there are a 101 ways to protect your employees from getting laid off, even if they contribute nothing. There are a lot of offices that could be run with 1/2 or even 1/3 the staff and the program still survive. However, as you can see this would take a mammoth spy operation to know where to make the cuts.

AND:

Read your article this morning "Let's cut spending and raise taxes". I do not agree with the idea of rasing taxes but I do agree that government spending has to be reduced. Good article enjoyed reading it

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (1)
Categories: Taxes
        

Did this headline really appear in the Providence Journal?

Reed portends danger in Pakistan

01:00 AM EDT on Sunday, April 19, 2009

BY JOHN E. MULLIGAN

Journal Washington Bureau

It may be true, but not in the sense that Mulligan or the headline writer meant.

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

The National Association of Business Economists reports that job losses, pessimism continue to grow, but at a slower rate. The whole summary is here.

“NABE’s April 2009 Industry Survey provides fresh evidence that the U.S. economy’s recession is abating,” said Sara Johnson, IHS Global Insight. “Key indicators—industry demand, employment, capital spending, and profitability—are still declining, but the breadth of decline is narrowing. Declines still outnumber gains, but fewer firms are reporting declines and more are reporting gains. This suggests that the economy is at an inflection point but has not yet reached a turning point. In January, our survey’s barometers for industry demand and capital spending hit their lowest levels in the history of the survey, dating back to 1982. The April survey showed better (less negative) results for industry demand, profit margins, employment, capital spending, and credit conditions.

Posted by Jay Hancock at 10:24 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Everybody wants a bailout. The University of Southern California says:

Why has the Obama administration given so much to the money-losing financial and auto industries, and so little to the profitable business of creating art? Elizabeth Currid of the USC School of Policy, Planning, and Development breaks down the stimulus plan’s $50 million allotment to the NEA.

USC professor Currid says:

Maybe it’s just the skeptic in me, but I don’t think anyone on Capitol Hill deserves a pat on the back for throwing artists a few free paintbrushes. The amount reserved for the arts is less than .00000000005 percent of the total package. I don’t mean to be ungrateful, especially after Robert Redford himself had to place a call to Speaker of the House Nancy Pelosi to get her to fight for the funding, but let’s consider some past contributions to and from the art world.

Another special interest trying to climb into the tub of butter that is the stimulus. This is not something that should keep you up at night. Arts and culture are great, but they are products of prosperity and economic growth; they do not create them. Let's first worry about restoring aggregate demand and function to the financial system.

UPDATE: Commenter Harry says:

Less than .00000000005 percent?

I'm not an art professor, or anything, but by my math, the number is more like .006 %.

I think she took artistic license. How creative!

Posted by Jay Hancock at 10:00 AM | Permalink | Comments (3)
Categories: The Great Recession
        

The bill for General Growth Properties' unsustainable purchase of the Columbia-based Rouse Co. came due this morning as General Growth sought protection from creditors in bankruptcy court. The retail downturn is an accompanying factor. The credit crunch is the proximate cause. General Growth was unable to roll over maturing debt. The Rouse purchase, which is behind more than a third of General Growth's liabilities, set the stage.

Chapter 11 is a way for companies to pare their debts in an organized way while they continue operating their businesses. That's the idea, anyway. In practice operating units fare inconsistently under Chapter 11. But in this case customers of General Growth malls in Columbia, Towson, Owings Mills, Harborplace, White Marsh and elsewhere should be hard pressed to see any difference, whether those malls are part of the filing or not. It's in everybody's interest -- management, shareholders, creditors -- to keep the properties running as well as possible.

Yes, I said shareholders. Usually shareholders are wiped out in bankruptcy court, but General Growth is trading for $1 this morning, which suggests that investors think not all might be lost. (UPDATE: Reader Ryan points out that GGP trading has been halted. $1 is yesterday's price.)  When companies repudiate their debts in bankruptcy, creditors get compensated instead with shares of stock. They get new shares, which generally shove aside all the old shares. In this case I don't think shareholders should hold out much hope. Their best scenario is a quick and surprising turnaround in the economy, consumer spending and commercial real estate generally. That is almost certainly not in the cards.

What's worse, the complexity of General Growth's structure will cause the case to drag on for a long, long time, draining resources, distracting managers etc. For David Cordish or anybody else hoping to quickly grab Harborplace or some other property, that chance just vanished. Get ready for an endless legal journey. As usual the big winners will be the lawyers. (Check out today's Wall Street Journal story on the Lehman Brothers bankruptcy, in which one firm just billed $55 million for three months' work.)

Posted by Jay Hancock at 10:28 AM | Permalink | Comments (2)
        

For the second time in a row, the Federal Reserve's "Beige Book" reports that employes are cutting salaries and wages, not just laying people off and reducing work hours.

Continuing layoffs, furloughs and hiring freezes kept wage pressures minimal. Contacts from a broad range of industries reported pay freezes, with some noting salary reductions. The Minneapolis District reported that unionized faculty at Minnesota's technical and community colleges had tentatively accepted a two-year pay freeze. Contacts in the Boston, Philadelphia, Richmond, Chicago, and San Francisco Districts reported cuts in certain non-wage employment benefits, including cuts in bonuses, elimination or suspension of employer contributions to employee retirement programs, and increases in copayments on employer sponsored healthcare plans.

Here is a recent column on the reports of wage and salary reductions that characterize this recession.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
Categories: The Great Recession
        

With a contribution today, one of these exclusive prizes could be yours:

• Spend a day with President Clinton. Head to New York City to attend several interesting events with President Clinton followed by your own special New York City weekend.

• Attend the American Idol season finale. You and a guest will watch live as the American Idol judges make their final comments and decisions on this year's most anticipated season finale!

• Want to talk politics with me? How about a spending a weekend in DC. You will have lunch with me and my great friend Paul Begala. We will talk about politics, you will get to tour all the amazing sites DC has to offer and who knows what else could happen!

Posted by Jay Hancock at 1:57 PM | Permalink | Comments (2)
        

Harvard economist and former George W. Bush economics advisor Greg Mankiw has quit Facebook after instituting an extremely liberal friending policy but then exceeding Facebook's friend capacity limits. The Facebook Greg Mankiw Fan Club, however, remains.

Posted by Jay Hancock at 11:56 AM | Permalink | Comments (0)
        

The consumer price stats came out from the Labor Department, showing a slight (0.1) percent decrease from February's levels. Overall prices have been flatlining or declining since last fall, when the bottom fell out of the economy. Much of the decline has been driven by energy, which we all know about. Gas is $2 a gallon; last summer it was $4.

But food prices have also been falling, as can be seen in numerous deals at the grocery store. Food prices dipped 0.1 percent in March for the second month in a row. The last time food prices fell in two consecutive months was in 1992, as the economy recovered from a recession.

As with most economic changes, lower food prices are good news and bad news. They'll help families with squeezed incomes. But they'll probably mean lower profits for farmers and grocery stores, and falling prices signal overall economic weakness.

Posted by Jay Hancock at 11:18 AM | Permalink | Comments (0)
Categories: Inflation/Deflation
        

From the NYT:

The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

Posted by Jay Hancock at 8:18 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Who knew? I had him pegged for a Yankees fan. Fits the type. From Reuters:

NEW YORK (Reuters) - Bernard Madoff's New York Mets baseball season tickets may be sold in an online auction, a judge ruled on Tuesday, allowing the proceeds to go toward reimbursing the jailed swindler's defrauded customers.

A lawyer for the court-appointed trustee liquidating Madoff's business told the judge in U.S. Bankruptcy Court in Manhattan that the tickets needed to be sold as quickly as possible because the Mets' played their first home regular season game at the new Citi Field stadium on Monday.

In a light-hearted exchange, Judge Burton Lifland told lawyer Amy Vanderwal: "The market is at the bottom ... might it be best to speculatively hold on to see how well the Mets do?"

But Vanderwal replied, "there is also the possibility they could do worse."

Madoff's tickets were for two seats in the second row behind home plate in the Delta Club Platinum section at the new Citi Field. They had a face value of about $80,191, or $295 to $695 per single ticket.

Posted by Jay Hancock at 2:06 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Libertarian and George Mason University Professor Don Boudreaux sends this sensible letter to the New York Times:

While in Mexico, Secretary of State Hillary Clinton will pledge U.S. help in the fight against violent Mexican drug suppliers ("Clinton Says U.S. Feeds Mexico Drug Trade," March 26).

It's interesting to reflect that when Mrs. Clinton visits France she need not pledge U.S. help in the fight against violent French wine suppliers. Or that when she visits Belgium she need not pledge help against violent Belgian chocolate suppliers. Or that when she visits Colombia she need not pledge help against violent Colombian coffee suppliers. Or that when she visits Japan she need not pledge help against violent Japanese automobile suppliers.

I detect a pattern! When goods and services can be produced, sold, and consumed legally, suppliers of these goods and services are peaceful and not violent.

Sincerely,
Donald J. Boudreaux

Imagine the overnight plunge in killings, government expense and support for terrorism -- from Baltimore to Bogota to Kabul -- if cocaine, heroin etc. were legalized and carefully regulated.

Posted by Jay Hancock at 11:20 AM | Permalink | Comments (4)
Categories: War on Drugs
        

As Europe gradually switched from the Julian to the Gregorian calendar, days and sometimes entire weeks would suddenly get passed by. One day it would be Oct. 4. The next day it was Oct. 15.

Goldman Sachs has pulled a similar stunt, switching the end of its fiscal year from Nov. 30 to Dec. 31. U.S. corporations report profits (or the lack) in quarterly chunks. So Goldman's fourth quarter was August through November. The first quarter, under the new calendar, was January through March, for which the firm reported a very nice profit of $1.8 billion. But what about December? Lacking a quarter to call home, December "will largely be ignored," reports the NYT's Floyd Norris. But it shouldn't be: Goldman stashed $1.3 billion of pretax losses in December.

Sez Floyd:

Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.

How did it do that? One way was to hide a lot of losses in not-so-plain sight.

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
Categories: The Great Recession
        

I keep mentioning "100 percent" wind energy available in Maryland for the lowest cost ever. I chose to go with cheaper, conventional electricity offered by Washington Gas Energy Services, pledging to put the savings into weatherization and cutting energy use of all kinds.

Commenter Andrew says: "Sorry, but if you care about other people in the world, the wind power would have been better."

In the San Jose Mercury News, UC Santa Cruz professor Daniel Press argues that wind-power certificates of the type that back green-electricity contracts in Maryland are being peddled by "green-energy scammers."

Are wind-energy contracts a scam? Or will they save the world?

Neither, actually. I would describe the deals being offered by Clean Currents and other purveyors of wind energy in Maryland as environmentally friendly and supportive of alternative energy -- just not necessarily in Maryland. 100-percent Wind energy deals in Maryland come with two parts: 1) traditional energy off the grid, generated by the usual suspects, coal and nuclear fission; and 2) Renewable energy certificates, sold by wind-power companies, pledging that somewhere wind energy was used to generate kilowatts equal to the amount your home consumed.

There's no reason why you can't buy RECs directly from various purveyors instead of bundled with your residential electricity bill. (It looks like they cost about 2 cents/kwh these days.) However purchased, RECs direct additional resources to wind-power farms and, at the margin, provide incentives to build new wind-generation capacity. And the planet doesn't care where carbon emissions are produced. If wind farms in Texas or Western Maryland mean the system has to build fewer coal plants, that's a good thing. So is cutting energy use from any source.

Press, however, says:

Wind farms in California and Texas sell electricity on the wholesale market, with a significant boost from federal production tax credits for renewable energy. But prices for renewable-energy certificates, as negotiated by brokers and power producers, are very low — 10 percent of the difference between the cost of producing nonrenewable and renewable energy, and far too little to actually spur production.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (10)
Categories: BGE/electricity
        

Ken Solow and I will be discussing whether the nascent economic turnaround is real with Dan Rodricks on MidDay today at 1, FM 88.1.

Posted by Jay Hancock at 12:33 PM | Permalink | Comments (2)
        

Government already guarantees student loans made by banks. As in so much else these days, government bears the risk and the private sector reaps the profits. That's why it makes sense for the Department of Education to cut out the middleman and just loan to students directly, at probably far less cost. There could be one clearinghouse for students and their families to go to for loans, instead of a confusing menu of banks. You'd cut out huge, duplicative administrative costs at the private lenders, not to mention big profits, kickbacks to college employees etc.

Is this a recipe for socialism? Only if you think government-supported educational lending is socialism from the getgo, in which even Citigroup-mediated student loans would be something Norman Thomas could cheer. If you're going to have a government program, have a government program and don't twist yourself in pretzels trying to make it look like the private sector. Maybe both Republicans and Democrats can agree there has been too much mingling of the private and public spheres. Reinstating a healthy separation should involve taking some activities away from business as well as removing some functions from government and giving them to private enterprise.

Posted by Jay Hancock at 10:44 AM | Permalink | Comments (2)
        

Gov. O'Malley's proposal to "re-regulate" electricity, which would have required new electric generation plants in Maryland to be owned by BGE and other utilities, failed in the House. That seems to be the sensible decision. The only reason to rush into re-regulation would have been a maxed-out grid and the need for new, regulated generation pronto. The recession and accompanying decline in the use of energy has pushed back the day when we need to start building. Now policymakers can seek reform on the federal level, monitor the economy, energy prices and grid capacity and figure out what to do at some leisure.

Electricity companies lobbied like heck to keep this bill from being passed. It'll be back next year, but there is one thing the industry could do to stop it in its tracks: build a dang generation plant. Maryland has seen no significant new generation since the 1990s. Deregulation was supposed to bring new, privately sponsored plants, along with the competition and lower prices they imply. It never did. This is industry's last chance to get a non-regulated, moderately sized natural-gas generator in Maryland and deliver on the promise of dereg. If it doesn't, next year the Assembly or the Public Service Commission really will order BGE to build a regulated one instead.

Posted by Jay Hancock at 5:00 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

When you go to his blog using Internet Explorer, the blog comes up for a nanosecond and then the whole browser and all its tabs close down.

Posted by Jay Hancock at 4:50 PM | Permalink | Comments (0)
        

Holy Toledo, smallcap stocks were up 6.1 percent on Thursday. That's equal to a nearly 500-point increase in the Dow. In Barron's recently, Pinnacle Value Fund's John E. Deysher explains what might be going on.

Going into recession, small-caps lag because customers and vendors concentrate their business on larger firms that are more likely to survive. Going into recovery, however, small-caps generally do better than big-caps because customers and vendors feel they might get a better deal with more companies in the mix. Depending on the strength of their conviction that the recovery is real, stock prices can pop almost immediately. Any whiff of good news could trigger a rally.

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

After waffling between “100-percent wind” electricity and a cheaper deal for dirty kilowatts from Washington Gas Energy Services, the Hancock household signed up for the WGES package – 10.8 cents per kilowatt hour for three years.

In doing so we’ll save about $30 a month this summer, compared with the standard Baltimore Gas & Electric summertime price (12.7 cents) (clicking on this BGE rate sheet will show a generation price of 12.242 cents; add another .4 cent and change in transmission cost for a price to compare of 12.7) and lesser amounts in ensuing months. We’ll be protected if wholesale electricity prices spike back up before 2012.

In rejecting the wind deal, we took the advice of environmental groups saying your first move to go green should be reducing energy use, not burning energy as usual and switching sources. We’ll take the savings from the WGES deal – and then some – and invest in insulation and other upgrades to cut consumption, getting big tax credits in the bargain.

Wind-energy deals support the generation of wind kilowatts somewhere, but not necessarily in Maryland. And they don’t necessarily cause overall carbon emissions to go down, says the Environmental Defense Fund. The only way to do that is to cut consumption or buy offsets, which effectively pay somebody else for cutting his/her emissions.

Posted by Jay Hancock at 5:00 AM | Permalink | Comments (7)
Categories: BGE/electricity
        

Yesterday, in a column on tax incentives and other help to reduce energy use and make your house weathertight, I noted that the Department of Housing and Community Development is handling weatherization grants for low-income households. They've gotten swamped with calls are are referring people to county- and city-level agencies, which take applications and determine eligibility. Here are the local contacts. Don't call DHCD; call your local county or city, as listed below.

MARYLAND LOCAL WEATHERIZATION PROGRAM AGENCIES

Ms. Susan Malone
Allegany County Human Resources Development Commission, Inc
19 Frederick Street
Cumberland, Maryland 21502
301-777-5970 ext 135
smalone@allconet.org
Serves: Allegany County

Ms. Cherlyn Mitchell
Department of Housing and
Community Development
City of Baltimore
2700 N. Charles Street
Baltimore, Maryland 21218
410 396-3584
cherlyn.mitchell@baltimorecity.gov
Serves: City of Baltimore

Mr. Tony Coffield
Community Assistance Network, Inc
7701 Dunmanway
Baltimore, Maryland 21222
410 285-4674
acoffield@canconnects.org
Serves: Baltimore County

Rita Zimmerman
Carroll County Dept of Citizen Services
10 Distillery Drive, 1st Floor
Westminster, Maryland 21157
410-386-3600
rzimmerman@ccg.carr.org
Serves: Carroll County

Mr. David Mahaney
Cecil County Housing
200 Chesapeake BLVD, Suite 1800
Elkton, Maryland 21921
410-996-5245
dmahaney@ccgov.org
Serves: Cecil County

Ms. Nancy Shockley
Dorchester County
Local Management Board
P.O. Box 26
Cambridge, Maryland 21613
410-228-0281
nshockley@docogonet.com
Serves: Dorchester County

Mr. Mark Colie
Frederick Community Action Agency
100 South Market Street
Frederick, Maryland 21701
301-600-3974
Mcolie@cityoffrederick.com
Serves: Frederick County

Ms. Brenda Roszell
Garrett County Community Action Committee, Inc
104 East Center Street
Oakland, Maryland 21550
broszell@cac.co.garrett.md.us
301-334-9431 ext 147
Serves: Garrett County

Ms. Bita Dayhoff
Community Action Council of Howard County
6751 Columbia Gateway Drive, 2nd Fl
Columbia, Maryland 21046
410-313-6479
Lhunthunt@netscape.net
Serves: Howard County

Mr. Thomas Kenny, Director
Maryland Energy Conservation, Inc
1809 Abelia Road
Fallston, Maryland 21047
Cell 410 608-1205
410-879-2283
mecinc@verizon.net
Serves: Harford, Anne Arundel and Baltimore Counties

Mr. Alan Hepler
Montgomery County
Department of Housing and
Community Affairs
100 Maryland Avenue, 4th Floor
Rockville, Maryland 20850
240-777-3689
alan.hepler@montgomerycountymd.gov
Serves: Montgomery County

Mr. McKinley Tull
Shore Up, Inc
520 Snow Hill Road
P.O. Box 430
Salisbury, Maryland 21801
410-749-1142 ext 301
mtull@shoreup.org
Serves: Somerset, Wicomico and Worcester Counties

Ms. Tracy Dyson
Southern Maryland Tri-County
Community Action Committee, Inc
P.O. Box 280
Hughesville, Maryland 20637
301-274-4474 ext 205
Tdyson@smtccac.org
Serves: Calvert, Charles and St. Mary’s Counties

Mr. Gary Gunther
Upper Shore Aging
100 Shauber Road
Chestertown, Maryland 21620
410-778-1799
ggunther@uppershoreaging.org
Serves: Caroline, Kent, Queen Anne’s and Talbot Counties

Mr. David Jordan
Washington County Community
Action Council, Inc.
100 Summit Avenue
Hagerstown, Maryland 21740
301-797-4161
djordan@wccac.org
Serves: Washington County

Mr. Tim Kenny, Director
C&O Conservation, Inc.
14547 Big Bend Way
Williamsport, Maryland 21795
(240) 313-9337
timkenny@housewarmers.org
Serves: Prince George’s and Washington Counties

Mr. Ronald Jackson
Weatherization Program Manager
Diversified Housing Development, Inc.
8311 Liberty Road
Windsor Mill, Maryland 21244
410 496-1214
jack2021@aol.com
Serves: Prince George’s County

Posted by Jay Hancock at 3:39 PM | Permalink | Comments (1)
Categories: BGE/electricity
        

The Dow is up 200 points on Wells Fargo's report that it "earned" $3 billion in the first quarter. Some of the profit was real. Net interest margin (gap between cost of deposits and other fund and interest charged on performing debt) was a monster 4.1 percent, thanks to ZIRP, Ben Bernanke's Zero Interest Rate Policy.

Writedowns for bad mortgages and other toxic debt plunged from $6.6 billion to $3.3 billion. How much of that improvement was due to changes in mark-to-market accounting rules? We won't know for many weeks.

Posted by Jay Hancock at 10:47 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Wednesday's column was on all the people who want to subsidize green energy choices, from the state of Maryland to the IRS to Baltimore Gas & Electric. The piece generated numerous reader questions.

Q. Are you sure I can swtich my electricity purchases to Clean Currents or Washington Gas Energy Services and stay in BGE's PeakRewards club, which gives discounts for putting a cutoff switch on my air conditioner unit? BGE's customer service reps said if I join Clean Currents I can't be in PeakRewards.
A. The customer service reps are misinformed, if in fact that's what they said. The whole point of PeakRewards is to cut electricity demand for all users, no matter whom they buy juice from.

Q. It's a 30 percent tax credit for qualified spending on weatherization, appliances etc. Does that include the labor to install the insulation, furnace or whatever it is?
A. The legislation doesn't say. In the past the IRS has said: materials only; you can't get credited for the cost of labor on these kinds of things. Perhaps they'll issue a clarification.

Q. I installed insulation and new windows in 2008. Can I take the stimulus tax credit?
A. No. The stimulus package didn't pass until February. The stuff has to be put in this year or next year.

Q. It's a $1,500 tax credit for buying qualified appliances or weatherization. Can I take a $1,500 credit once in 2009 and again in 2010 for a different project?
A. No. It's a one-time deal.

Q. How do I know if my insulation/fridge/siding/door/etc. qualifies for the tax credit?
A. Ask the contractor of the manufacturer. Manufacturers are supposed to certify that their products are eligible.

Q. Your column used the examples of spending $1,000 on insulation and taking a $300 credit. Do I have to spend at least $1,000?
A. No. It's 30 percent of any qualified expense, up until you use up the $1,500 credit (which would represent total qualified weatherization and appliance purchases of $5,000).

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (8)
Categories: BGE/electricity
        

In electricity/heating posts, dedicated guerrilla markets keep trying to promote the (name deleted) infrared space heater with links, fake praise etc. in the comments. But the Jay Hancock blog counterinsurgency battalion sleeps not.

Posted by Jay Hancock at 3:30 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

Here is the start of today's column. I'll have more on the blog later on details I didn't have room for in the column, and answers to reader questions.

Two-thirds of Americans think the environment is getting worse, but most haven't made major changes to help the air, soil and water, according to recent Gallup polls.

If you're one of the procrastinators, your number of excuses just got smaller. Thanks to the recently passed federal stimulus bill, Maryland energy grants and a maturation of the alternative energy industry, the incentives to go green in big ways and small are higher than they've ever been.

Wind-generated electricity is the cheapest in history. Government and utilities will pay for huge portions of insulation upgrades, efficient appliances and solar installations. And anybody can shave $100 off his or her electric bill this summer by letting Baltimore Gas & Electric briefly shut off their air conditioning on the hottest days.

Posted by Jay Hancock at 10:12 AM | Permalink | Comments (4)
Categories: BGE/electricity
        

One of the keys to solving the executive pay mess is to make CEOs hang onto their stake in the company for a long time -- even after they retire. That way they can't gin up the risk, loot the place while the getting's still good and then ride off into the sunset before things collapse. Check our yesterday's speech from Lloyd Blankfein, boss of Goldman Sachs.

As I mentioned earlier, an individual's performance should be evaluated over time so as to avoid excessive risk taking and allow for a "clawback" effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period. And, senior executive officers should be required to retain the bulk of the equity they receive until they retire. In addition, equity delivery schedules should continue to apply after the individual has left the firm.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (2)
Categories: Executive Pay
        

From the Maryland Comptroller:

Are you ready for April 15th?

No? You're not alone. Thousands of Marylanders are in the same boat. That's why I'm inviting you to join me for an online chat.

Visit my official Comptroller's website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

I will be available to answer any questions from last minute filers and to make sure that you don't fall victim to any last minute tax scams. Come, ask your questions and make sure that you don't miss out on your refund!

If you have any tax questions, have any problems with the process or have any questions for me, please visit my official website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

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

So the Obama administration is killing the F-22 fighter, which probably should never have been allowed to see daylight. From Greg Schneider's prescient story in The Sun 10 years ago:

Now the program has put the Pentagon in a predicament. Even if the Air Force can overcome the past and keep the F-22 program perfect from here on out, affording it is going to be a major challenge for a military swamped with other needs -- including two other types of fighters, a new generation of ships and costly missile defense systems.

"Looking at current defense budgets, the money will not be there around 2006 or 2008 when you have the cost," said Rep. Saxby Chambliss, a Georgia Republican who won an award last year from the aerospace industry for advocating the F-22 and other warplanes in Congress.

The looming defense budget problem is a "train wreck" waiting to happen, Chambliss said. "There's no answer yet. One answer is to put more money in it. ... I don't know where it's going to come from, but we've simply got to put more money into defense."

Even President Clinton's plan to add $112 billion to defense spending over the next six years would not crack the problem of affording all the weapons the Pentagon has on order. And despite the promised "peace dividend" of the post-Cold War era, the nation already spends as much each year on the military as it did throughout the Cold War -- adjusted for inflation -- except for the peaks of Vietnam and the Reagan buildup.

Chambliss hasn't changed his support for the F-22, but he seems to be a lot less worried about budget deficits. Sez Chambliss:

“I am extremely disappointed in this decision by the Obama administration. America has maintained air dominance in every conflict since the Korean War, and now this administration is giving that advantage up and is willing to sacrifice the lives of American military men and women for the sake of domestic programs favored by President Obama,” said Chambliss, a member of the Senate Armed Services Committee.

"This is purely a budget-driven decision. When this administration is spending trillions of taxpayer dollars on everything from bailing out a failing auto industry to policymakers’ pet projects at the expense of protecting our military men and women, its priorities are apparent. This decision will likely have long-term repercussions, as we don’t know who our next enemy will be."

Posted by Jay Hancock at 10:05 AM | Permalink | Comments (4)
        

very nicely. The change by the Financial Accounting Standards Board in how banks can value illiquid securities is basically a back-door way of relaxing capital requirements. Sez Megan:

A perfect regulator in an ideal market would relax capital requirements in bad times, and raise them in good times. The actual regulators we have, however, are terrified of spooking the markets if they do so--and more importantly, terrified of the all-out political war that would follow. So we lower capital requirements in good times, when all that capital seems like an untouched gold mine, and leave them stat, or raise them, when everything's going to hell. FASB, which is pretty insulated from political pressure, is doing what it can to correct that problem.

Posted by Jay Hancock at 5:26 PM | Permalink | Comments (2)
Categories: Stock Market
        

Two weeks ago I wrote:

But prices might go lower. For now in the Hancock household, we're sticking with BGE's standard commodity price [for natural gas], which has fallen to 84.6 cents for March from $1.05 in December. Based on what the futures market is saying, I'll be shocked if BGE's April price isn't in the 70s and if we don't hit the 60s at some point.

Wrong again! BGE just posted its commodity gas price for April -- 57.92 cents per therm -- a huge drop from December and down 63 percent from last summer's high of $1.5763. Energy prices have popped up again in recent weeks, so it may not be quite that low next month. But certainly there is no reason to take the fixed-price offer from BGE Home (a separate company owned by BGE parent Constellation energy) of 99 cents.

And unless you expect a Gulf Coast hurricane or a stunning economic revival, the WGES fixed-price offer of 72 cents per therm doesn't seem too competitive, either. It makes sense to stay with BGE's standard gas price, which floats from month to month. Wait until October, when it's very possible the fixed-price offers from alternative vendors could be much better. (The gas commodity price is what you pay for the evaporated hydrocarbons piped into your house. You pay extra for delivery etc.)

Posted by Jay Hancock at 10:20 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

From the Wall Street Journal:

Ticketmaster has received subpoenas on ticket-reseller agreements from DOJ, FTC, others.

I assume that means the Department of Justice and the Federal Trade Commission will look at the relationship between Ticketmaster, Ticketmaster's TicketsNow scalper site and the resellers who use TicketsNow. Owning a primary ticket sales site and a scalper site is a big conflict of interest for one company.

Posted by Jay Hancock at 5:02 PM | Permalink | Comments (3)
Categories: Ticketmaster
        

Another fantastic graph from Calculated Risk. Shows all postwar U.S. recessions in terms of percentage of jobs lost according to Labor Department payroll counts, based on unemployment insurance returns. The X axis is the number of months after job losses begin. Today's announced job-loss numbers are incorporated. As you can see this recession is now the third-wost in amplitude, surpassing the (purple) 1981 recession.

But it's really even worse than that. The 1948 recession, which looks worse on the graph, was all about returning to a normal economy after the war. It wasn't pathological in the way this recession is. Rosie the Riveter and hundreds of thousands of other women were leaving the work force to go home and assume traditional female roles. The economy was running at full capacity and then some -- an unsustainable pace. When the war ended it reverted to normal.

Posted by Jay Hancock at 11:25 AM | Permalink | Comments (1)
        

Sure, Howard Countians, you knew to call 410-313-2911 instead of 911 when your heart attack struck this morning, or robbers broke into your house. Right? Verizon often gets blamed for cutting off individual households from 911 and every other call, through its poor customer service. But it's building a reputation for cutting off entire neighborhoods and counties from 911. Howard County officials blame a "Verizon technical problem" on a countywide outage this morning.

A quick Web search shows Verizon/911 problems in Virginia in January, in Montgomery County in 2008, in Ohio last month and in Texas in 2007.

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

I called my mortgage company Thursday to ask about a refinancing rate and closing costs. The electronic message said I might have to hold for an hour. I hung up. The Obama administration’s gargantuan guarantees and monetary injections into the mortgage market are bearing fruit, even if the system is temporarily clogged.

Now we need the same kind of action in car finance. Maryland new-car sales fell 37 percent for the first two months of this year vs. the same period in 2008, and 2008 sales were down from 2007. Dealers say they’re turning away otherwise qualified buyers who can’t get loans.

The administration’s Term Asset Loan Facility is supposed to jump-start car sales by buying asset-backed paper including auto loans. TALF is early days – only a few billion dollars (only!) have been lent so far. So it probably won’t make a difference for March or April car sales. But we need a car financing boom similar to the mortgage refinancing craze now going on. Maybe the federal stimulus, which has started showing up in people’s paychecks in the form of less tax withheld, will help, too.

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

From the Guardian. Electricite de France, Constellation Energy's nuclear partner, is accused of hacking into Greenpeace's computers in France.

A senior executive of the French state energy giant EDF, which now owns the main UK nuclear power operator British Energy, has been charged on suspicion of spying on the environmental group Greenpeace.

The case has sparked outrage among anti-nuclear campaigners in France whose secret services were behind the bombing of the Greenpeace flagship Rainbow Warrior 24 years ago.

An EDF security executive, who previously worked as a police commander, is being investigated for conspiring to hack into Greenpeace France's computer system. Judges are investigating whether state-owned EDF, the world's biggest nuclear-reactor operator, hired a private detective agency run by a former member of the French secret services to illegally spy on environmentalists and infiltrate their ranks.

Posted by Jay Hancock at 2:31 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

I'm astonished at the breathless media commentary on the Group of 20 meeting in London. Cracking down on tax havens, regulating hedge funds and stricter capital ratios are not the End Of Capitalism As We Know It. The real news is what's going on in the streets.

Posted by Jay Hancock at 9:54 AM | Permalink | Comments (0)
        

In October I doubled my biweekly 401(k) contribution and put 100 percent of new contributions into foreign and U.S. stocks. I can't count the number of intelligent people who have told me that, because stocks have crashed, this is crazy and scary. My friend Walter Updegrave of Money mag tells why it's not:

Question: I've lost a lot of money during this financial mess and I'm wondering when I should go back to putting 15% of my salary into my 401(K)? --Michelle Bonds, Rocky Mount, N.C.

Answer: Uh, how about like, right now.

I'm serious. I know that some people have reacted to this financial crisis by eliminating or scaling back their 401(k) contributions. A recent survey of plan participants by Spectrem Group found that 20% have cut the percentage of pay they contribute, while another 5% say they plan to do so over the next 12 months.

Think of it this way. When stocks were booming in the late 90s or, for that matter, when they were at their highs in October of 2007, I got no emails from people saying they were thinking of stopping their 401(k) contributions. No, people are quite comfortable plowing money into their 401(k)s when stock prices are marching to new highs.

Fact is, though, the long-term return you'll likely earn on the money you invest after stocks have been on a long run or are at or near a peak is much lower than the return you'll likely get when you buy after stocks have been seriously hammered, as they've been over the past year.

Which brings us to one of the great ironies of investing in stocks. People are least comfortable investing in them when their future long-term return prospects are strongest and most comfortable buying when the outlook for future returns isn't as strong.

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

From the Orlando Sentinel:

Milwaukee-based Metavante Technologies Inc., which employs hundreds in Central Florida, is being acquired by Fidelity National Information Services Inc. in an all stock-deal valued at nearly $3 billion, the companies said Wednesday.

Jacksonville-based Fidelity National said it will offer Metavante shareholders a 23 percent premium based on Metavante's closing price of $19.96 on Tuesday. Fidelity National's stock closed at $18.20 a share yesterday.

Metavante sells software and hardware to financial companies -- to improve Internet banking, for example, or set up automated payment systems. Fidelity National must have some confidence that there will actually BE financial companies to sell stuff to.

Posted by Jay Hancock at 11:24 AM | Permalink | Comments (1)