Monday, June 20, 2011

AARP Says to Seniors: Let Them Eat Cat Food

In a 6/16/11 article in the Wall Street Journal, AARP puts its considerable clout and its 30 million members behind Social Security benefit cuts. It’s not enough that seniors are suffering through the disintegration of Medicare; now those making an average of $12,000 yearly on Social Security have the pleasure of wondering which things they can afford: food, shelter or medical care. Pretty soon no one will have to wonder how entitlements can be “affordable”. People trying to survive on them won’t be able to.

It’s funny how the government doesn’t think twice about creating money out of whole cloth to bail out insolvent or close to it banks (aka Goldman Sachs, Bank of America, Citigroup, Wells Fargo, JP Morgan Chase and Morgan Stanley). But never mind that. Let’s look at several points, listed as “objective” in the article, that are questionable:

1) Nothing can get done if an organization aligns itself with the left:

In an early sign of its new approach, AARP declined to join a coalition of about 300 unions, women’s groups and liberal advocacy organization created to fight Social Security benefit cuts. “The coalition’s role was to kind of anchor the left, and our role is going to be to actually get something done,” said Mr. [John] Rother, [AARP’s long-time policy chief and a prime mover behind its change of heart.]

It’s nice to know that decisionmakers think unions, women’s groups and liberal advocacy organizations stand in the way of decimating the ranks of the elderly and vulnerable. Of course, what can you expect when you have such empathetic individuals who probably don’t have to live on $12,000 a year as part of their board, speaking for its silent membership? Here is one board member talking about AARP’s treachery:

”There was good, healthy discussion,” said John Penn, chairman of Intek Plastics Inc., a member of AARP’s board. “Healthy tension usually results in better answers, but sometimes it’s painful in the process.”

2) Using reductive arithmetic and the supposed gravitas of “conventional wisdom" to justify political decisions:

The program’s actuaries say that by 2036, the program will have exhausted its reserves and will only be able to pay 77% of promised benefits. Between now and 2036, the government, which has spent the money held in reserve, will have to borrow to meet those obligations.

Try to wipe from your mind the billions paid out to the banksters by themselves in bonuses the last few years while your life has cratered. Check out the difference between Mr. Rother’s calculations and that of Thomas Geoghegan in an Op-Ed piece in today’s New York Times. They are both discussing the income cap on taxing Social Security benefits. In case you’re not aware of it, here’s some background: the Social Security coffers fill from taxes levied on earned income up to the level of $106,800 a year. In other words, someone making $106,800 per year pays as much in Social Security taxes as someone making $12 million and they both dip into the pool equally. Here is Rother’s take on raising the income cap:

Tax increases wouldn’t be enough to make the program solvent. The leading proposal for raising taxes—increasing the amount of income subject to payroll taxes, the central financing mechanism for the program—would fill less than half the hole.

Thomas Geoghegan, a well-known labor lawyer and author of “Which Side Are You On? Trying to Be for Labor When It’s Flat on Its Back”, has this to say:

If earnings above the cap were subject to the payroll tax with no increase in benefits to high earners, there would be no deficit in the Social Security trust fund in 2037, as projected.

AARP knows cutting Social Security benefits will not be popular with its members:

A February Wall Street Journal/NBC News poll found 85% of Americans age 65 and up opposed benefit cuts. Internal AARP polling shows similar resistance.

But have no fear, you silent and powerless 30 million AARP members, AARP is putting millions behind a push to convince you that cat food is porterhouse. They are sponsoring a roadshow that will allow you, the dues-payers, to offer suggestions on Social Security solvency:

AARP plans to hold hundreds of events for seniors, in every state. At town halls and listening sessions, AARP plans to explain the political and budgetary realities facing the program by playing a game in which participants try to make Social Security solvent.

Our government and private institutions may render unions, women’s groups and liberal advocacy organizations powerless (as long as they’re not the radical right [oops! I mean the Tea Party]), but the AARP is strong-arming its members as willfully as anyone ever suggested the late Jimmy Hoffa did.

Friday, June 17, 2011

Wall Street Vultures Mop Up Athen's Blood

So Goldman Sachs sells their built-to-fail CDOs as wonderful investments to its clients, which include state pension funds. Now, as states are failing due to lack of tax revenue (unemployment, foreclosures) and the mandate to balance their budgets, Goldman swoops in like a vulture to pick off jewels (like toll bridges) for bargain-basement prices (Indiana). Wall Street never loses. They pick the politicians, they write the legislation, and they hire the government toadies as their lobbyists when they leave government.

Greece has to pay 29% on its bond issues and nobody’s buying. S&P threatens to downgrade 3 French banks and they don’t even have great exposure. If Greece goes, who’s next? Ireland, Portugal, even Spain? How far does the damage go? Who is holding CDSs on the losing side? How much bloodletting is there?

The banksters grin as they watch Athens burn and bet short on European banks.

Geithner, Bernarke and Obama are very silent about the tentacles of their machinations in the Eurozone creditor bailout. Make no mistake, it's either them or us, and it's always THEM.

Tim Geithner, the U.S. Treasury Secretary, insisted that an Irish bailout go to creditors and the taxpayers should take the fall, just as he did with AIG. You may not recall, but Geithner authorized that AIG pay (which means the government paid, which means the U.S. taxpayers took the fall) Goldman Sachs, the biggest credit default swap player insured by AIG, 100 cents on the dollar. He could have negotiated for a lesser deal. God knows (Goldman knows, not the same thing) that those structured financial vehicles built on subprime mortgage sand and bet upon weren’t worth half that. In Edward Harrison’s website
Credit Writedowns
, he details Geithner’s involvement with the indebted Eurozone:

UCD economics professor, Morgan Kelly’s article in the Irish Times last month appeared to reveal for the first time that a hitherto unknown player in Irish economic affairs, US Treasury Secretary Timothy Geithner had played a pivotal role in the IMF/EU bailout negotiations last November 2010.

According to Morgan Kelly “The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are”.

This came as a major revelation. And since the publication of that article, Taoiseach Enda Kenny came under pressure to discuss the matter with President Obama on his whistle-stop visit later in May, and yesterday Tanaiste Eamon Gilmore who is in Tanzania and met there with US Secretary of State, Hilary Clinton, was asked if he had brought up the “matter” with her.

But what “matter”? I suppose we want to know why someone from the US would interfere in a bailout for Ireland. If that is what we want to know then Wikileaks has already provided the answer apparently. In their release of US State Department cables, there is one which reportedly seems to explain exactly why the US had a keen interest in bondholders in Irish banks being repaid: Secretary Geithner was concerned that if Ireland refused to repay bank bondholders then, in the words of Britain’s Telegraph “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn”. Wikileaks appears not to have published any cables beyond February 2010 on its website, and presumably this cable from Secretary Geithner is dated towards the end of the 2010, so an attempt will be made with the Telegraph to get the source cable and this post will be updated with any response).

As we watch the Eurozone disaster unfold, it is again the people who are taking the fall. Only in the cradle of democracy they’re not so polite. They don’t understand why the banksters, who caused all this mess (one day check out what the Greek government swapped for its airports; if you said, “Magic beans,” you would be too generous) are getting paid while the rest of the population suffers huge cuts in pay, major layoffs, huge tax increases and other austerity measures. These measures are so onerous they are toppling governments. Not in the Arab Spring, but in Europe. In Rachel Donadio’s article in The New York Times, people are questioning the choices of their governments and wondering if the fabric of society will remain intact:

>“A year ago it was bad, but not like now,” said Irene Anastasiou, 22, a quiet marketing student who has been taking part in a peaceful sit-in in Athens’s central Syntagma Square for the past three weeks. “I am a young Greek girl. I have dreams, and they destroyed them,” she said of the government.

In Greece, “clearly there is a sense that this society is reaching the breaking point,” said Jens Bastian, an economist at the Hellenic Foundation for European and Foreign Policy in Athens. People are asking: “ ‘Where is this going to lead? Why are we making these cuts? Why do I have to accept that I have less income? What’s the larger purpose of this?’ ”

Wednesday, June 15, 2011

Cybersecurity Laughably Easy to Penetrate

The New York Times has been doing a bang-up job reporting on security breaches not only in financial institutions but against governments and the possibility of undermining financial markets and cyberwarfare. (Many believe that North Korea and Russia have attacked the cyberpinnings of the South Korean and Georgian governments, respectively, temporarily paralyzing their responsiveness.)

Nelson D. Schwartz and Eric Dash's article shows how criminally easy it was for sophisticated hackers to enter the Citigroup website to steal names, account numbers, email addresses and transaction histories of more than 200,000 Citi credit card holders.

The hackers responsible for the most comprehensive identity theft seem to be from Eastern Europe:

Many of these attacks have their origins in Eastern Europe, including Russia, Belarus, Ukraine and Romania. In fact, the security expert familiar with the Citi breach said it originated in the region, though he would not specify the country.

They didn't even have to exercise their prodigious skills. All they had to do was log on to the site reserved for Citi credit card customers. Once they were inside they dragged the names and other data into a strip of code located in the URL field and set it up automatically to vacuum up information on a massive scale.

Hacking is not an activity simply confined to a bunch of mischievous 20-somethings with a laptop. The big money is in selling the credit card or other financial personal data in online forums where, as personal information gets more detailed and individualized, prices are rising:

[D]emand for the data is on the rise. In 2008, the underground market for the data was flooded with more than 360 million stolen personal records, most of them credit and debit files.

[P]rices for basic credit card information could rise to several dollars from their current level of only pennies.

It's an established industry, sort of a "dark web" that operates under the superficial skin that we all see:

[S]ome hackers specialize in prying out customer names, account numbers and other confidential information, Mr. Martinez [deputy special agent in charge of the Secret Service's criminal investigation division] said. Brokers then sell that information in the Internet bazaars. Criminals use it to impersonate customers and buy merchandise. Finally, "money mules" wire home the profits through outlets like Western Union or MoneyGram.

People suspend their disbelief when they sit down at the keyboard. It's laughable to think that the Internet offers any privacy or security, even with all the anti-virus, anti-spyware you can pile on. Now you have to be sure that your financial assets are safe. What's going to happen when all personal assets (I include data in that term) exist solely in cyberspace, prey to hackers working at warp speed?

Saturday, June 11, 2011

"Desperate Writers": How to Make It in Hollywood by Thinking Out of the Box

"Desperate Writers", a great gem-sized play at the Union Square Theater in NYC, is a hilarious and lamentable story of a couple who've been writing screenplays together for ten years without selling a single script. Ashley (Maddie Corman) and David (Jim Stanek) are a highly sympathetic duo. They are the desperate two of the title, but their desperation is a crack at the edge of their hopeful, cheery demeanor as they navigate their way through broken promises in Hollywood.

Ashley works in catering (her expertise at cooking is a key plot point in the 2nd act) and David is a pet photographer as their day jobs. There is an undercurrent of time pressure. He's got to "get his ducks in a row" before Ashley's biological clock stops ticking.

We sympathize with their plight as they wait patiently for hours to see a producer who keeps them at bay as he wields a golf club making restaurant and tee-off appointments. There is a surreal moment when they finally meet two Miramax executives who laugh like hyenas as they assure them that they "love love love!" their script but Ed has to read it first. "Who's Ed?" wonders David.

At one of Ashley's catering gigs, we meet three Hollywood producers of varying Goldilocks temperature: two very hot, one warm. They are saved from sterotype by breaking the fourth wall and telling the audience about their pressures: Jessica (Catherine Schreiber) bemoans the trap of the few women executives in Hollywood. A strong woman is a bitch, but you have to be strong to get anyone to do what you say. Burke (Christopher Durham) is a formerly hot producer who passed on Titanic and laments the loss of his nose for hits. Goldberg (Stephen Berger), the older producer whose been around, knows the score and suffers from Hollywood excess (hypertension, ulcers, etc.) sprinkles his language liberally with choice Yiddishisms.

At her wit's end, Ashley, the sensible one, takes a leap over the yawning abyss between "We love it!" and "Sorry, pass" from the exact same people and she drags David down with her. Or is it up with her?

Suffice it to say, there are actually two scripts involved: the play we're watching unfold and the one David acts out in a dazzling performance complete with a Sean Connery accent. His script involves God and Jose Reyes (not the same thing). The two stories dance around each other until they tie together with an embrace that makes you swoon.

Go see "Desperate Writers" if you want a lot of laughs and a blueprint about how to break into Hollywood after 10 years of following protocol.

Friday, June 10, 2011

Only Terminators Need Apply

Catherine Rampell’s article in today’s New York Times makes it clear what’s important to U.S. businesses: investing in equipment rather than hiring human beings:

Since the “recovery” [quotes are mine] began, businesses’ spending on employees has grown 2% as equipment and software spending has swelled 26%, according to the Commerce Department.

The article also makes it clear that American workers aren’t competing with workers from developed nations (whose economies have a strong public/private sector alliance); they are competing with workers from developing nations such as China:

”I want to have as few people touching our products as possible,” said Dan Mishek, managing director of Vista Technologies in Vadnais Heights, Minn. “Everything should be as automated as it can be. We just can’t afford to compete with countries like China on labor costs, especially when workers are getting even more expensive.”

In the U.S. corporate mindset, capital expenditure on equipment is equivalent to hiring workers. Managers bemoan the problems that extend from humans rather than machines:

”I dread the process we have to go through when we want to bring someone on,” [said Mr. Mishek]. “When we have a job posting these days, we get a flurry of resumes from people who aren’t qualified at all: people with misspellings on their resumes, who have never been in the industry and want a career move from real estate or something. It’s a huge distraction to sort through all those.”…”You don’t have to train machines.”

There are tax subsidies to offset costs when a company buys equipment, but none to mitigate the cost of hiring an employee, which includes training and testing (although anecdotally I know recent hires that had to pay out of pocket for testing after they were hired):

Some economists support policies that might shift the balance away from capital spending. Andrew Sum, an economist at Northeastern University, advocates tax incentives for hiring that mirror those for capital investment. Congress passed a hiring tax credit along these lines last year, but it was not well publicized, and some said it was poorly devised.

American companies are not experiencing the recession that’s affecting the labor force. Even if someone has a job, they may not keep it if a machine can replace them. Technology is moving at warp speed compared to the learning curve of human beings, so watch out:

”If you’re doing something that can be written down in a programmatic, algorithmic manner, you’re going to be substituted for quickly,” said Claudia Goldin, an economist at Harvard.

Although pundits rightfully bemoan workers’ lack of mathematical and scientific learning, as far as I can tell, a “programmatic, algorithmic manner” requires mathematical, scientific abilities.

The only way corporations will use the huge pile of cash they’re sitting on to hire is if human beings and machines (such as computers) are combined. According to Sue Halpern’s article in the New York Review of Books, that is precisely what is happening. It seems that if human workers are to survive, they must accept computer chip implants or EEG force field invasion of their thoughts.

I take it back. We’re not competing with developing nations on labor costs, we’re competing with machines. Unfortunately, this is not science fiction, it’s science fact.

Thursday, June 9, 2011

U.S. War on the Middle Class: What the German Example Can Teach Us

Joe Nocera’s article in the 6/8/11 New York Times print edition (B1) about the German economic model was illuminating and vital. I hope some policy makers will stop navel-gazing and institute the sort of changes that’s kept German unemployment at 6.1% versus the U.S. 9.1%. The German economy has grown faster than ours since the middle of the last decade and the growth hasn’t been confined to a tiny slice of the most affluent as it has in the U.S.

The top 1% of German households earn about 11% of all income, virtually unchanged relative to 1970, according to recent estimates. In the U.S., the top 1% makes more than 20% of all income, up from 9% in 1970.

In Germany, the public and private sector worked in tandem to keep the country strong. Instead of regulators who collaborated with the banks to fleece the American homeowner, German regulators refused to allow underwriting loan standards to deteriorate. Many subprime mortgages didn’t require a downpayment during the go-go years of the 00s. “German banks often required a down payment of 40%”.

In any case, the U.S. unemployment rate of 9.1% is woefully inaccurate in painting the picture of what’s going on in the lower 99%. It does not include the long-term unemployed such those who have given up looking for work because of lack of opportunities and the underemployed, those who are working part-time who need full-time work. According to Market Oracle, U.S. underemployment is closer to 19.9%.

The German government focused two-fold on the serious dilemmas of the long-term unemployed and the idea that unemployment benefits discourage work by matching their skills with open positions:

The able and healthy were matched with potential employers. If they took a low-paying job, they would still receive a small portion of their benefits for a time. If they refused to work, their benefits were reduced anyway.

“The incentives to take up work were strengthened,” says Felix Hufner of the Organization for Economic Co-operation and Development, “and also the sanctions were strengthened.” Sure enough, the reforms have nudged more people back into the labor force—and work tends to beget more work, as people develop skills and have more money to spend.

The German public sector works with the German private sector to stave off the decimation of the middle class. A huge difference is that German labor unions are still powerful. Their notion of austerity is not to cut all spending for domestic programs targeted for the poor, working and middle class; they cut spending but also increased taxes 40%. This is anathema to the Republicans who seem to run things in Washington despite the fact that Democrats outnumber them in the Senate and there is a Democrat in the White House:

Most Republicans refuse to consider returning tax rates even to their 1990s levels. Republican leaders also want to make deep cuts in the sort of anti-poverty programs that have helped Germany withstand the recession even in the absence of big new stimulus legislation.

The lower 99% are suffering through increasing prices, high unemployment rates across the board and the crushing burden of underwater mortgages. Foreclosure rates are increasing rather than decreasing. Talk of cutting the deficit without mitigating the pain inflicted on the middle class will only destroy us further. There aren’t any policy makers in Washington carrying our water. Make no mistake about it: this is a War on The Middle Class.

Wednesday, June 1, 2011

So You Think U.S. Workers Earn More Than Chinese Workers?

According to the Financial Times, the most expensive apartment in China is ready for occupancy. It costs approximately 300 million renminbi, the currency unit in China. As of yesterday, that's $46.2 million USD.

The following is a chart illustrating the conversion of renminbi to the dollar, including the average wage of a Target store employee:

As of 5/31/11
$300+ million renminbi= $46.2 million USD
1 renminbi = 0.15 USD (approx)
6.5 renminbi = $1.00 USD (approx)

Average Chinese Urban Wage 2009
Rmb 57,800
USD $8,670.00

Target Stores Average Wage = $11,700

U.S. corporations are raking in healthy profits. Many are sitting on piles of cash choosing not to invest in hiring in the U.S. Why should they? The U.S. is headed into another recession as housing prices keep descending. The U.S. consumer is spending less. This is not true in China, where the economy is growing and the Chinese consumer's wages are increasing to such an extent that U.S.-based companies are looking elsewhere to outsource their jobs.

In the U.S., people are lining up to earn wages close to what is earned in major cities in China. They are unaware that they are not competing with developed nations. They are competing with developing nations, like China.

FT Robert Reich article 6/1/11 “Back towards a U.S. Double-Dip”
“Average hourly wage of production and non-supervisory positions (80% of U.S. workers) = $8.76”