Thursday, July 31, 2008

Recession - Q4 07?

U.S. Recession May Have Begun in Last Quarter of 2007 (Update2)
By Timothy R. Homan

July 31 (Bloomberg) -- The U.S. economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures showed.

The world's largest economy contracted at a 0.2 percent annual pace in the fourth quarter of last year compared with a previously reported 0.6 percent gain, the Commerce Department said today in Washington. Growth for the period from 2005 through 2007 was also trimmed.
The revisions now reinforce measures such as employment and production that already signaled the economy was shrinking. The National Bureau of Economic Research, the Cambridge, Massachusetts-based arbiter of economic cycles, defines a recession as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in GDP, payrolls, production, sales and incomes.

``We're in a recession,'' Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``It's going to widen, it's going to deepen.''

The government also said incomes grew less than previously thought, raising the risk that consumer spending will again stumble after getting a temporary boost from the tax rebates last quarter.

Previous Contraction
The prior time the economy shrank was in the third quarter of 2001 during the last recession, when it contracted at a 1.4 percent pace. Growth from January through March was revised down to a 0.9 percent pace from 1 percent. Initial jobless claims increased by 44,000 to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said.
The revisions of growth are part of the government's annual adjustments to gross domestic product based on additional information from surveys and Internal Revenue Service data.
For 2005, growth was cut to 2.9 percent from 3.1 percent, and the rate of expansion for 2006 was reduced to 2.8 percent from 2.9 percent. The economy grew 2 percent last year, down from a previously reported 2.2 percent.

Nine of the 13 quarters under review were revised down, three increased and one was unchanged.

The largest downward revision was for the last three months of 2007, as the previously reported 2.3 percent gain in consumer spending was reduced by more than half, to 1 percent. Americans cut back on the use of electricity and gas as fuel bills soared.

Upward Swing
The largest upward swing, from 3.8 percent to 4.8 percent, was for the second quarter of last year.

The figures also showed the housing slide that began in 2006 was worse than previously thought. Residential investment fell 32 percent in the two years ended in December 2007, compared with a prior estimate of 29 percent.

The popular definition of a recession -- two consecutive quarters during which the economy shrinks -- isn't always fulfilled.

``While everyone focuses on GDP, keep in mind that it is not the only barometer of economic activity,'' David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York, said in a July 28 note to clients. Growth ``is subject to huge historical revisions.''

The four other factors that the NBER takes into account, Rosenberg said, peaked between October 2007 and February 2008. The NBER usually declares a recession has started between six to 18 months after it's begun, according to its Web site.

Less Income
American workers also earned less in the last two years than the government previously estimated. Employee compensation was reduced by $69 billion, or 0.9 percent, in 2007. Figures for wages and for benefits were reduced about equally. The reduction in benefits reflected smaller contributions by employers to health insurance plans.

The income reduction for last year was smaller than the drop in the spending estimate, leading to an increase in the savings rate to 0.6 percent from 0.5 percent.

In contrast, companies did better than previously thought for all three years. Corporate profits were boosted by $75 billion for 2005, by $115 billion for 2006, and by $47 billion last year.
There was little change on the inflation front. The price measure tied to consumer spending rose 3.5 percent in the fourth quarter of 2007 compared with the same period the prior year, up 0.1 percentage point from the prior estimate. Excluding food and fuel, the Federal Reserve's preferred measure, it rose 2.2 percent, also 0.1 percentage point higher.

To contact the reporter on this story: Timothy R. Homan in Washington at Last Updated: July 31, 2008 09:12 EDT

Wednesday, July 30, 2008

Then and now: 1971 and 2008


Popular Music: Brown Sugar (Rolling Stones), I feel the Earth Move & Its Too Late (Carole King), Joy to the World (Three Dog Night), Just My Imagination (The Temptations), Me and Bobby McGee (Janis Joplin), One Bad Apple (The Osmonds).

Best Movie: The French Connection
Best Actor: Gene Hackman
Best Actress: Jane Fonda (Klute)

Dow Jones: 890.2
Gallon of gas: 44c
Gallon of Milk: 1.32
Average Income: 9111.00

On my birthday (today and my first as a US Citizen), I got a interesting letter from Smith Barney highlighting the things that were happening in the year of my birth. I have always had a special fondness and affection for Janis Joplin (especially the song Me and Bobby McGee) and actor Gene Hackman.

Goldman to buy Retail Bank? Yes / No

Goldman `Highly Unlikely' to Buy Retail Bank, Whitney Says
By Christine Harper

July 30 (Bloomberg) -- Goldman Sachs Group Inc., the largest and most profitable U.S. securities firm, is ``highly unlikely'' to acquire a retail banking operation, Oppenheimer & Co. analyst Meredith Whitney said in a note to investors.

``While much speculation has been made about Goldman's interest in acquiring a retail bank, we believe the chances are less than slim,'' she wrote after a meeting yesterday with Goldman executives. ``Management stated frankly that it was highly unlikely given the current regulation.''

Whitney's note comes just days after Merrill Lynch & Co. analyst Guy Moszkowski told investors they shouldn't ``rule out'' a bank acquisition by Goldman. While Moszkowski said a transaction seemed unlikely if it forced the firm to exit businesses such as commodities, he noted JPMorgan Chase & Co., the biggest U.S. bank by market value, was allowed to keep commodity business it gained in acquiring Bear Stearns Cos.

Merrill's sale of collateralized debt obligations this week for $6.7 billion, or 22 percent of face value, may give Goldman an opportunity to buy similar assets, Whitney added in her note today. She met yesterday with Goldman Chief Financial Officer David Viniar, Co-President Jon Winkelried and Investment Banking Chief David Solomon.

``Last year, Goldman raised a several-billion dollar fund to buy distressed mortgage assets, yet to date has put little to use,'' Whitney wrote. After the sale by Merrill, ``it is likely in our opinion that more portfolios are put on the market.''

Goldman's executives said the current market creates ``strong headwinds to earnings growth,'' Whitney wrote. The company has cut the bottom 10 percent of its employees instead of the usual bottom 5 percent, she wrote.

Whitney rates Goldman shares ``perform.''

Goldman Willing to Consider Buying a Bank, Merrill Analyst Says
By Christine Harper

July 28 (Bloomberg) -- Goldman Sachs Group Inc. may buy a bank to gain deposits to fund itself, although a deal won't happen if regulators force Goldman to exit a business such as commodities, Merrill Lynch & Co. wrote in a research report.

``Don't rule out a bank acquisition,'' Merrill Lynch analyst Guy Moszkowski wrote in a note to investors today after meeting Goldman executives including Chief Financial Officer David Viniar and Co-President Jon Winkelried.

Goldman, the biggest and most profitable of the U.S. securities firms, has ``done extensive analysis'' on the potential for funding its divisions with excess deposits from a bank, Moszkowski wrote, citing Viniar. Regulations that prevent bank holding companies from owning assets such as pipelines and power plants may present a hurdle, although JPMorgan Chase & Co. seems to have won approval from regulators, Moszkowski said.

Goldman management ``made it clear that such a deal was unlikely to be pursued if it meant that other traditional, attractive GS businesses could not be continued. Commodities being the obvious example that comes to mind,'' Moszkowski wrote. ``However, regulators appear to have OK'd JPM's participation in physical commodities via its acquisition of Bear Stearns.''

The biggest earnings opportunity that Goldman managers see is in buying and trading mortgages, the note added. Goldman hasn't yet raised a fund to invest in distressed mortgages and doesn't think all the assets have been marked down sufficiently yet, the note said.

``The gulf between what potential distressed-mortgage buyers are willing to pay, and where holders have marked the assets, remains too wide,'' Moszkowski wrote.

A ``private-market solution'' to the mortgage market turmoil is more likely than a government-sponsored type solution such as Resolution Trust Co. in the 1980s, Moszkowski wrote.

``Whenever this happens, GS will be ready to bid on significant portfolios, and when the scale of a package exceeds GS's comfort level, it expects to be able to round up co- investors quickly,'' he wrote.

Tuesday, July 29, 2008

Another Republican Senator in trouble

July 30, 2008
Alaska Senator Is Indicted on Corruption Charges

WASHINGTON — Senator Ted Stevens of Alaska, the longest-serving Republican senator in United States history and a figure of great influence in Washington as well as in his home state, has been indicted on federal corruption charges.

Mr. Stevens, 84, was indicted on seven counts of failing to report income. The charges are related to renovations on his home and to gifts he has received. They arise from an investigation that has been under way for more than a year, in connection with the senator’s relationship with a businessman who oversaw the home-remodeling project.

The indictment will surely reverberate through the November elections. Mr. Stevens, who has been in the Senate for 40 years, is up for re-election this year. Mark Begich, a popular Democratic mayor of Anchorage, hopes to supplant him.

The Justice Department announced the charges at a news conference Tuesday afternoon. The document says that, from the spring of 1999 through the late summer of 2007, Mr. Stevens failed to report “things of value” that he received in connection with his home in the ski resort city of Girdwood, about 40 miles south of Anchorage.

Prosecutors say Mr. Stevens, who referred to his home as “the chalet,” accepted goods and services worth hundreds of thousands of dollars, ranging from an outdoor grill to extensive home remodeling and architectural advice. Not only did Mr. Stevens fail to report the items on his Senate financial disclosure form, as required, but he took active steps to conceal the receipt of the goods and services, the indictment says.

All the charges are felonies. Justice Department officials declined to discuss how long a prison term a conviction on the charges might bring, noting that the maximum sentences allowed by law are rarely imposed. Mr. Stevens was in Washington on Tuesday, and was allowed to turn himself in for paperwork processing.

The business executive at the center of the affair is Bill J. Allen, a longtime friend of the senator’s and the founder of VECO, a company that builds pipelines and does other construction work for oil companies. Mr. Allen pleaded guilty in May 2007 to making $243,000 in illegal payments to a lawmaker, who was later identified as State Senator Ben Stevens, Ted Stevens’s son. Ben Stevens, who was once president of the Alaska State Senate, is one of a half-dozen lawmakers under scrutiny for their relationships with Mr. Allen and his company.

Republicans on Capitol Hill were already jittery over a lobbying and influence-peddling scandal related to the lobbyist Jack Abramoff, who is now in prison. Mr. Stevens’s troubles are not linked to that affair. Instead, they stem from his ties to an oil executive whose company won millions of dollars in federal contracts with the help of Mr. Stevens, whose home in Alaska was almost doubled in size in the renovation project.

Under Senate Republican party rules, an indictment on felony charges compels a member to temporarily give up his leadership posts, and Republican senators were told at their weekly luncheon on Tuesday that Mr. Stevens would do so. Mr. Stevens has been the ranking minority member on the Commerce, Science and Transportation Committee.

Mr. Stevens is a former chairman of the Senate Appropriations Committee, and he is still on the panel. As chairman, he wielded huge influence, and did not hesitate to use it to steer money and projects to his state.

“No other senator fills so central a place in his state’s public and economic life as Ted Stevens of Alaska,” the Almanac of American Politics says. “Quite possibly, no other senator ever has.”
Mr. Stevens, one of only a handful of World War II veterans left in the Senate, grew up in Indiana and California and moved to Alaska in 1950, before it was a state, according to the political almanac. He first ran for the Senate in 1962, losing to Ernest Gruening, a Democrat. He was appointed to fill a vacant seat in the Senate in 1968 by the governor at the time, Walter Hickel, and has been re-elected six times since then.

Word spread through the Capitol like an electric current, prompting whispers among senators and staff. The Democrats were gathering in a room near the Senate chamber for their weekly conference lunch. Republicans, meanwhile, moved their lunch to the headquarters of the Republican Senatorial Campaign Committee, a common change of venue when the primary topic of discussion is politics.

Mr. Stevens is seen as a legendary, even heroic, figure in Alaska, who played a crucial role in its achievement of statehood, which became official in 1959. According to Senate Republican rules, Mr. Stevens will have to give up his leadership positions, which include some hugely powerful posts, as the senior Republican on the Commerce, Science and Transportation Committee and the defense appropriations subcommittee.

The long-running federal corruption investigation in Alaska has been hanging over Mr. Stevens as he faces his toughest re-election contest in many years. Mr. Begich was expected to mount a strong challenge even before word of the indictment spread.

Alaska, which last elected a Democratic senator in 1974, is one of several seemingly unlikely states where Democrats believe they have a strong chance of pulling off upset victories in the November elections.

The indictment comes nearly a year after federal agents raided Mr. Stevens’s home as part of a continuing investigation into corruption that had already ensnared the senator’s son.
Though lawmakers have been aware of the Justice Department inquiry for some time, the news of an indictment still came as something of a shock this week, as both houses of Congress are trying to wrap up legislative business before the monthlong August recess.

Senator Daniel Inouye, Democrat of Hawaii, who is the chairman of the defense appropriations subcommittee and a friend of Mr. Stevens, said Mr. Stevens should be presumed innocent unless and until he is proven guilty.Mr. Inouye said he did not expect that the indictment would interfere with Senator Stevens’s ability to work in the Senate.

Other lawmakers, including Senator Barbara Boxer, Democrat of California, the chairwoman of the ethics committee, said they needed to know more about the indictment before commenting.


A good friend of mine - Vinnie (thanks!) send me this link. You have to check it out. Turn of the HD if it doesnt load fast.

"Where in the hell is Matt?" by Matthew Harding

Enjoy! I certainly did.

Monday, July 28, 2008

Record deficit expected in 2009
By Richard Wolf, USA TODAY

WASHINGTON — The White House has increased its estimate for next year's deficit to nearly $490 billion, a record figure that will saddle the next president with deepening budget problems in his first year in office, a report due out Monday shows.

The projected deficit for the fiscal year that begins Oct. 1 is being driven higher by the continuing economic slowdown and larger-than-anticipated costs of the two-year, $168 billion fiscal stimulus package passed by Congress, said two senior administration officials with direct knowledge of the report. In February, President Bush predicted the 2009 deficit would be $407 billion.

The budget update shows this year's deficit headed under $400 billion, at least $10 billion less than projected, according to the two officials. That's partly because tax revenue held up reasonably well despite the weaker economy.

The rising deficit for 2009 marks a sharp turnaround for Bush's fiscal legacy. He inherited a $128 billion surplus when he came into office in 2001. It soon turned to red ink because of a recession, the Sept. 11 attacks and the war on terrorism.

Curbing the deficit will fall to Bush's successor and the next Congress following a time when taxes were cut and major spending initiatives were undertaken, including the wars in Iraq and Afghanistan, transportation projects, farm subsidies, Medicare prescription drug coverage and a recently passed expansion of veterans' education benefits.

The actual 2009 deficit could climb still higher because the new projection does not reflect full funding for the wars. In addition, a worsening economy could add to the red ink by reducing tax revenue and increasing safety-net payments, such as jobless benefits and food stamps.
Both presidential candidates have proposed tax cuts that could further swell the deficit. The non-partisan Tax Policy Center estimates that Republican John McCain's cuts would cost $4.2 trillion and Democrat Barack Obama's $2.8 trillion over 10 years. Neither candidate has specified major spending cuts he would make to reduce the deficit.

"The picture's looking pretty dark out there," said Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee. He credited Bush's tax cuts with creating six years of economic growth but "on the spending side, their record is not good."

White House budget director Jim Nussle said that despite the surplus Bush started with, he faced a deficit in defense, intelligence and homeland security that had to be bolstered after 9/11.
"This is not just a mathematical exercise," he said in an interview with USA TODAY. Nussle said an economic recovery and a renewed effort by Congress to control spending could rein in the deficit.

Bush proposed in recent years to slow the growth of spending in programs such as Social Security, Medicare and Medicaid. Those efforts were ignored by Congress — most recently last week, when the House voted to sidestep a provision of the 2003 Medicare prescription drug law that would have required lower Medicare spending.

The biggest budget deficit recorded to date was $413 billion in 2004. In today's dollars, that would be about $478 billion. As a share of the economy, the 2009 deficit would be 3% to 4%, below the post-World War II record of 6% set in 1983.

and from

First, this is the Unified Budget deficit. By these projections, the General Fund deficit (the President's responsibility) will be around $600 billion this year, and $700 billion next year. Second, these projections are probably optimistic.

The costs of bailing out F&F are not included in these projections.

Thursday, July 24, 2008


July 24, 2008
Obama’s Speech in Berlin
The following is the prepared text of Senator Barack Obama in Berlin, Germany, as provided by his presidential campaign.

SENATOR BARACK OBAMA: Thank you to the citizens of Berlin and to the people of Germany. Let me thank Chancellor Merkel and Foreign Minister Steinmeier for welcoming me earlier today. Thank you Mayor Wowereit, the Berlin Senate, the police, and most of all thank you for this welcome.

I come to Berlin as so many of my countrymen have come before. Tonight, I speak to you not as a candidate for President, but as a citizen – a proud citizen of the United States, and a fellow citizen of the world.

I know that I don’t look like the Americans who’ve previously spoken in this great city. The journey that led me here is improbable. My mother was born in the heartland of America, but my father grew up herding goats in Kenya. His father – my grandfather – was a cook, a domestic servant to the British.

At the height of the Cold War, my father decided, like so many others in the forgotten corners of the world, that his yearning – his dream – required the freedom and opportunity promised by the West. And so he wrote letter after letter to universities all across America until somebody, somewhere answered his prayer for a better life.

That is why I’m here. And you are here because you too know that yearning. This city, of all cities, knows the dream of freedom. And you know that the only reason we stand here tonight is because men and women from both of our nations came together to work, and struggle, and sacrifice for that better life.

Ours is a partnership that truly began sixty years ago this summer, on the day when the first American plane touched down at Templehof.

On that day, much of this continent still lay in ruin. The rubble of this city had yet to be built into a wall. The Soviet shadow had swept across Eastern Europe, while in the West, America, Britain, and France took stock of their losses, and pondered how the world might be remade.
This is where the two sides met. And on the twenty-fourth of June, 1948, the Communists chose to blockade the western part of the city. They cut off food and supplies to more than two million Germans in an effort to extinguish the last flame of freedom in Berlin.

The size of our forces was no match for the much larger Soviet Army. And yet retreat would have allowed Communism to march across Europe. Where the last war had ended, another World War could have easily begun. All that stood in the way was Berlin.

And that’s when the airlift began – when the largest and most unlikely rescue in history brought food and hope to the people of this city.

The odds were stacked against success. In the winter, a heavy fog filled the sky above, and many planes were forced to turn back without dropping off the needed supplies. The streets where we stand were filled with hungry families who had no comfort from the cold.

But in the darkest hours, the people of Berlin kept the flame of hope burning. The people of Berlin refused to give up. And on one fall day, hundreds of thousands of Berliners came here, to the Tiergarten, and heard the city’s mayor implore the world not to give up on freedom. “There is only one possibility,” he said. “For us to stand together united until this battle is won…The people of Berlin have spoken. We have done our duty, and we will keep on doing our duty. People of the world: now do your duty…People of the world, look at Berlin!”
People of the world – look at Berlin!

Look at Berlin, where Germans and Americans learned to work together and trust each other less than three years after facing each other on the field of battle.

Look at Berlin, where the determination of a people met the generosity of the Marshall Plan and created a German miracle; where a victory over tyranny gave rise to NATO, the greatest alliance ever formed to defend our common security.

Look at Berlin, where the bullet holes in the buildings and the somber stones and pillars near the Brandenburg Gate insist that we never forget our common humanity.

People of the world – look at Berlin, where a wall came down, a continent came together, and history proved that there is no challenge too great for a world that stands as one.

Sixty years after the airlift, we are called upon again. History has led us to a new crossroad, with new promise and new peril. When you, the German people, tore down that wall – a wall that divided East and West; freedom and tyranny; fear and hope – walls came tumbling down around the world. From Kiev to Cape Town, prison camps were closed, and the doors of democracy were opened. Markets opened too, and the spread of information and technology reduced barriers to opportunity and prosperity. While the 20th century taught us that we share a common destiny, the 21st has revealed a world more intertwined than at any time in human history.
The fall of the Berlin Wall brought new hope. But that very closeness has given rise to new dangers – dangers that cannot be contained within the borders of a country or by the distance of an ocean.

The terrorists of September 11th plotted in Hamburg and trained in Kandahar and Karachi before killing thousands from all over the globe on American soil.
As we speak, cars in Boston and factories in Beijing are melting the ice caps in the Arctic, shrinking coastlines in the Atlantic, and bringing drought to farms from Kansas to Kenya.
Poorly secured nuclear material in the former Soviet Union, or secrets from a scientist in Pakistan could help build a bomb that detonates in Paris. The poppies in Afghanistan become the heroin in Berlin. The poverty and violence in Somalia breeds the terror of tomorrow. The genocide in Darfur shames the conscience of us all.

In this new world, such dangerous currents have swept along faster than our efforts to contain them. That is why we cannot afford to be divided. No one nation, no matter how large or powerful, can defeat such challenges alone. None of us can deny these threats, or escape responsibility in meeting them. Yet, in the absence of Soviet tanks and a terrible wall, it has become easy to forget this truth. And if we’re honest with each other, we know that sometimes, on both sides of the Atlantic, we have drifted apart, and forgotten our shared destiny.
In Europe, the view that America is part of what has gone wrong in our world, rather than a force to help make it right, has become all too common. In America, there are voices that deride and deny the importance of Europe’s role in our security and our future. Both views miss the truth – that Europeans today are bearing new burdens and taking more responsibility in critical parts of the world; and that just as American bases built in the last century still help to defend the security of this continent, so does our country still sacrifice greatly for freedom around the globe.

Yes, there have been differences between America and Europe. No doubt, there will be differences in the future. But the burdens of global citizenship continue to bind us together. A change of leadership in Washington will not lift this burden. In this new century, Americans and Europeans alike will be required to do more – not less. Partnership and cooperation among nations is not a choice; it is the one way, the only way, to protect our common security and advance our common humanity.

That is why the greatest danger of all is to allow new walls to divide us from one another.
The walls between old allies on either side of the Atlantic cannot stand. The walls between the countries with the most and those with the least cannot stand. The walls between races and tribes; natives and immigrants; Christian and Muslim and Jew cannot stand. These now are the walls we must tear down.

We know they have fallen before. After centuries of strife, the people of Europe have formed a Union of promise and prosperity. Here, at the base of a column built to mark victory in war, we meet in the center of a Europe at peace. Not only have walls come down in Berlin, but they have come down in Belfast, where Protestant and Catholic found a way to live together; in the Balkans, where our Atlantic alliance ended wars and brought savage war criminals to justice; and in South Africa, where the struggle of a courageous people defeated apartheid.

So history reminds us that walls can be torn down. But the task is never easy. True partnership and true progress requires constant work and sustained sacrifice. They require sharing the burdens of development and diplomacy; of progress and peace. They require allies who will listen to each other, learn from each other and, most of all, trust each other.

That is why America cannot turn inward. That is why Europe cannot turn inward. America has no better partner than Europe. Now is the time to build new bridges across the globe as strong as the one that bound us across the Atlantic. Now is the time to join together, through constant cooperation, strong institutions, shared sacrifice, and a global commitment to progress, to meet the challenges of the 21st century. It was this spirit that led airlift planes to appear in the sky above our heads, and people to assemble where we stand today. And this is the moment when our nations – and all nations – must summon that spirit anew.

This is the moment when we must defeat terror and dry up the well of extremism that supports it. This threat is real and we cannot shrink from our responsibility to combat it. If we could create NATO to face down the Soviet Union, we can join in a new and global partnership to dismantle the networks that have struck in Madrid and Amman; in London and Bali; in Washington and New York. If we could win a battle of ideas against the communists, we can stand with the vast majority of Muslims who reject the extremism that leads to hate instead of hope.

This is the moment when we must renew our resolve to rout the terrorists who threaten our security in Afghanistan, and the traffickers who sell drugs on your streets. No one welcomes war. I recognize the enormous difficulties in Afghanistan. But my country and yours have a stake in seeing that NATO’s first mission beyond Europe’s borders is a success. For the people of Afghanistan, and for our shared security, the work must be done. America cannot do this alone. The Afghan people need our troops and your troops; our support and your support to defeat the Taliban and al Qaeda, to develop their economy, and to help them rebuild their nation. We have too much at stake to turn back now.

This is the moment when we must renew the goal of a world without nuclear weapons. The two superpowers that faced each other across the wall of this city came too close too often to destroying all we have built and all that we love. With that wall gone, we need not stand idly by and watch the further spread of the deadly atom. It is time to secure all loose nuclear materials; to stop the spread of nuclear weapons; and to reduce the arsenals from another era. This is the moment to begin the work of seeking the peace of a world without nuclear weapons.
This is the moment when every nation in Europe must have the chance to choose its own tomorrow free from the shadows of yesterday. In this century, we need a strong European Union that deepens the security and prosperity of this continent, while extending a hand abroad. In this century – in this city of all cities – we must reject the Cold War mind-set of the past, and resolve to work with Russia when we can, to stand up for our values when we must, and to seek a partnership that extends across this entire continent.

This is the moment when we must build on the wealth that open markets have created, and share its benefits more equitably. Trade has been a cornerstone of our growth and global development. But we will not be able to sustain this growth if it favors the few, and not the many. Together, we must forge trade that truly rewards the work that creates wealth, with meaningful protections for our people and our planet. This is the moment for trade that is free and fair for all.

This is the moment we must help answer the call for a new dawn in the Middle East. My country must stand with yours and with Europe in sending a direct message to Iran that it must abandon its nuclear ambitions. We must support the Lebanese who have marched and bled for democracy, and the Israelis and Palestinians who seek a secure and lasting peace. And despite past differences, this is the moment when the world should support the millions of Iraqis who seek to rebuild their lives, even as we pass responsibility to the Iraqi government and finally bring this war to a close.

This is the moment when we must come together to save this planet. Let us resolve that we will not leave our children a world where the oceans rise and famine spreads and terrible storms devastate our lands. Let us resolve that all nations – including my own – will act with the same seriousness of purpose as has your nation, and reduce the carbon we send into our atmosphere. This is the moment to give our children back their future. This is the moment to stand as one.
And this is the moment when we must give hope to those left behind in a globalized world. We must remember that the Cold War born in this city was not a battle for land or treasure. Sixty years ago, the planes that flew over Berlin did not drop bombs; instead they delivered food, and coal, and candy to grateful children. And in that show of solidarity, those pilots won more than a military victory. They won hearts and minds; love and loyalty and trust – not just from the people in this city, but from all those who heard the story of what they did here.

Now the world will watch and remember what we do here – what we do with this moment. Will we extend our hand to the people in the forgotten corners of this world who yearn for lives marked by dignity and opportunity; by security and justice? Will we lift the child in Bangladesh from poverty, shelter the refugee in Chad, and banish the scourge of AIDS in our time?
Will we stand for the human rights of the dissident in Burma, the blogger in Iran, or the voter in Zimbabwe? Will we give meaning to the words “never again” in Darfur?

Will we acknowledge that there is no more powerful example than the one each of our nations projects to the world? Will we reject torture and stand for the rule of law? Will we welcome immigrants from different lands, and shun discrimination against those who don’t look like us or worship like we do, and keep the promise of equality and opportunity for all of our people?
People of Berlin – people of the world – this is our moment. This is our time.

I know my country has not perfected itself. At times, we’ve struggled to keep the promise of liberty and equality for all of our people. We’ve made our share of mistakes, and there are times when our actions around the world have not lived up to our best intentions.

But I also know how much I love America. I know that for more than two centuries, we have strived – at great cost and great sacrifice – to form a more perfect union; to seek, with other nations, a more hopeful world. Our allegiance has never been to any particular tribe or kingdom – indeed, every language is spoken in our country; every culture has left its imprint on ours; every point of view is expressed in our public squares. What has always united us – what has always driven our people; what drew my father to America’s shores – is a set of ideals that speak to aspirations shared by all people: that we can live free from fear and free from want; that we can speak our minds and assemble with whomever we choose and worship as we please.
These are the aspirations that joined the fates of all nations in this city. These aspirations are bigger than anything that drives us apart. It is because of these aspirations that the airlift began. It is because of these aspirations that all free people – everywhere – became citizens of Berlin. It is in pursuit of these aspirations that a new generation – our generation – must make our mark on the world.

People of Berlin – and people of the world – the scale of our challenge is great. The road ahead will be long. But I come before you to say that we are heirs to a struggle for freedom. We are a people of improbable hope. With an eye toward the future, with resolve in our hearts, let us remember this history, and answer our destiny, and remake the world once again.

The Darjeeling Limited

Film Review

Published: September 28, 2007
To call “The Darjeeling Limited” precious is less a critical judgment than a simple statement of fact, equivalent to saying that the movie is in color, that it’s set in India or that it’s 91 minutes long. It’s synonymous with saying the movie was directed by Wes Anderson. By now — “The Darjeeling Limited” is his fifth feature film — Mr. Anderson’s methods and preoccupations are as familiar as the arguments for and against them. (See an essay in the current issue of The Atlantic Monthly for the prosecution and a profile in this week’s New York magazine for the defense.) His frames are, once again, stuffed with carefully placed curiosities, both human and inanimate; his story wanders from whimsy to melancholy; his taste in music, clothes, cars and accessories remains eccentric and impeccable.

pic by James Hamilton

And like his other recent films, “The Royal Tenenbaums” and “The Life Aquatic With Steve Zissou,” this new one celebrates a sensibility at once cliquish and inclusive. It reflects the aesthetic obsessions of a tiny coterie that anyone with the price of a ticket is free to join. (Charter members include Owen Wilson, one of the film’s three leading men, and his co-star Jason Schwartzman, who wrote the script with Mr. Anderson and Roman Coppola.)

Precious, in any case, is a word with two meanings, which both might apply to “The Darjeeling Limited.” This shaggy-dog road trip, in which three semi-estranged brothers travel by rail across India, is unstintingly fussy, vain and self-regarding. But it is also a treasure: an odd, flawed, but nonetheless beautifully handmade object as apt to win affection as to provoke annoyance. You might say that it has sentimental value.

Whether sentimental value can be willed into being and marketed with movie studio money is an interesting question. What is beyond doubt is that Mr. Anderson’s main characters and creative collaborators share with him a passion for collecting rare objects and unusual experiences, all of which they handle with exquisite, jealous care.

The fraternal trio in “The Darjeeling Limited” — Francis, Jack and Peter Whitman — express, and perhaps construct, their personalities largely through their attachment to things. Francis (Mr. Wilson) has an expensive leather belt, which he tentatively offers as a gift to Peter (Adrien Brody), who cherishes a pair of sunglasses that once belonged to their father. The third brother, Jack (Mr. Schwartzman), is a bit less of a commodity fetishist, though he does have a thing for the savory snacks served on Indian trains (and for the women who serve them).

Francis, Peter and Jack share a huge set of luggage, like those sunglasses a legacy of the father whose death hangs over their journey like a mournful mist. All those grips and valises, piled onto railways cars, buses, donkey carts and other conveyances, can be taken as a metaphor, a kind of visual pun on the emotional baggage these brothers are clearly carrying around. (By the way, this matched, monogrammed set of symbols, we learn in the credits, was designed by Marc Jacobs for Louis Vuitton, with “suitcase wildlife drawings” by Eric Anderson.)

The trip has been planned by Francis, with compulsive attention to detail (perhaps a bit of self-satire on the director’s part) and with an explicit therapeutic purpose. He wants them all to bond, to be “brothers like we used to be,” to “say yes to everything.”

Mostly he expects Peter and Jack to assent to his control-freak instructions, and the friction that arises from their resistance gives “The Darjeeling Limited” its off-kilter comic texture. The movie may be designed within an inch of its life, but there is life in it all the same, an open, relaxed narrative rhythm that cuts against the tight visual arrangements.

Part of the pleasure of watching it comes from never knowing quite what will happen next. Not that everything that happens is pleasant. Wes Anderson’s world may be a place of wonder and caprice, but it is also a realm of melancholy and frustration, as if all the cool, exotic bric-a-brac had been amassed to compensate for a persistent feeling of emptiness. The Whitman boys may seem happy-go-lucky, but on closer inspection they don’t look very happy at all.

And even when we learn bits and pieces of their history — their father is dead; their mother (Anjelica Huston) ran off to become a nun; they have been variously disappointed in love and friendship — the sorrow is never traced to its source. Nor is it ever entirely banished. (Some of that sadness drifts in from beyond the screen; it is hard to look at Mr. Wilson’s bruised, bandaged face and weary eyes without being reminded of his recent suicide attempt.)

Mr. Anderson is clumsiest when he tries to confront intense emotion directly. The death of an Indian child, for instance, is less a dramatic crisis than an aesthetic opportunity, a chance for the brothers (and the filmmakers) to explore another aspect of the beauty and mystery of India.
“The Darjeeling Limited” amounts finally to a high-end, high-toned tourist adventure. I don’t mean this dismissively; it would be hypocritical of me to deny the delights of luxury travel to faraway lands. And Mr. Anderson’s eye for local color — the red-orange-yellow end of the spectrum in particular — is meticulous and admiring.

But humanism lies either beyond his grasp or outside the range of his interests. His stated debt to “The River,” Jean Renoir’s film about Indian village life, and his use of music from the films of Satyajit Ray represent both an earnest tribute to those filmmakers and an admission of his own limitations. They were great directors because they extended the capacity of the art form to comprehend the world that exists. He is an intriguing and amusing director because he tirelessly elaborates on a world of his own making.

It is certainly a world worth visiting, though a short stay may be preferable to an extended sojourn. At the New York Film Festival — where it will be shown as the opening-night selection this evening — “The Darjeeling Limited” will be preceded by a short, written and directed by Mr. Anderson, called “Hotel Chevalier.”

That film, which visits Jack Whitman (Natalie Portman visits him too) at some point before the events chronicled in the feature, will accompany “Darjeeling” on DVD, but not when it opens in New York theaters tomorrow. It is worth seeking out, not only because it fleshes out part of the story of the Whitman brothers but also because, on its own, it is an almost perfect distillation of Mr. Anderson’s vexing and intriguing talents, enigmatic, affecting and wry. “The Darjeeling Limited” is an overstuffed suitcase. “Hotel Chevalier” is a small gem.
“The Darjeeling Limited” is rated R (Under 17 requires accompanying parent or adult guardian) for sex, drug use and profanity.

Directed by Wes Anderson; written by Mr. Anderson, Roman Coppola and Jason Schwartzman; director of photography, Robert Yeoman; edited by Andrew Weisblum; music from the films of Satyajit Ray and Merchant Ivory; production designer, Mark Friedberg; produced by Mr. Anderson, Scott Rudin, Mr. Coppola and Lydia Dean Pilcher; released by Fox Searchlight Pictures. Running time: 91 minutes.
WITH: Owen Wilson (Francis), Adrien Brody (Peter), Jason Schwartzman (Jack), Anjelica Huston (Patricia), Amara Karan (Rita), Camilla Rutherford (Alice) and Irrfan Khan (Village Father).

I thought this movie was fantastic. It was 3 white guys, brothers, on a trip through rural India. It was "Sideways" with culture shock. It was hilarious, tragic and ultimately uplifting. Themes were: Humor, Delicious Cinematography, Acting, Agoraphobia, Claustrophobia, Abusive relationships, Trust, Baggage - expensive baggage at that - both metaphorically and physically, Sibling love and rivalry, Spirituality, Emptiness, Abandonment, Joy, Freedom, Birth, Death, Cultures, Customs, Acting. Wow. Wes Anderson is very talented and most movie critics tend to write poor reviews of this work - not sure why.

Wednesday, July 23, 2008

Cognitive Dissonance

Who is Right: Professionals or the Populace ?
Monday, June 30, 2008 09:00 AM
in Economy Employment Energy Psychology/Sentiment

Portfolio has an interesting discussion on what they term the "He-Said-She-Said" economy:
"Inflation, energy, home prices, and tax rebates. Ordinary Americans and Wall Street professionals are at odds on issues like these and others at the center of the current economic malaise, according to the CNBC/Portfolio Wealth in America survey. And these differences have implications for both the Federal Reserve and this year's congressional and presidential candidates.

For example, while Wall Street forecasters predict inflation will be fairly tame in the next year, at about 2.5 percent, 71 percent of the report’s respondents think prices will rise by at least 4 percent, and 50 percent expect inflation to run at or above 6 percent.
In the past month, the Federal Reserve has been trying to put a lid on inflation expectations, culminating last week with what was seen as a benign outlook for price pressures in the statement following its monetary policy meeting. Still, Americans don't seem to be hearing that message."

I heard Steve Liesman discuss this poll on CNBC. Steve, like so many other economists, is having a hard time with this conflict. Many of the dismal scientists believe in the wisdom of crowds, but they also are somewhat compelled by training to buy into the methodologies of their profession.
When the two schools of thought are directly opposite, you end up with a form of cognitive dissonance. This has accelerated as prices continued to go higher, even with relatively modest core inflation.

I have been surprised by how many reality-based economists -- including those on the left like Professor Brad DeLong and NYT columnist Paul Krugman -- were so reluctant to embrace elevated inflation as a genuine threat. There was a bit of a circle-the-wagons mentality about economics as a discipline. That seems to have faded in the face of elevated food prices and $143 Crude Oil.

Here's a suggestion: If the professional economists' data states that inflation is contained and unemployment modest, and at the same time the population sentiment is screaming as if neither were the case, perhaps its time we consider that it might be the data, and not the population, that is the source of our dispute.

Sentiment is now at levels last seen during deep ugly recessions. Perhaps the fault lies not with us American whiners -- but with the way the data is gathered, massaged and reported.
Something else to mullover: We have "enjoyed" practically full employment (i.e., very low unemployment levels) for several years now -- but wage pressure has been non-existent. That seems to be unusual to say the least.

As someone who has been skeptical about the artificially low inflation and unemployment rates for quite sometime now, the public's reaction makes a whole lot of sense. If we believe the negative sentiment of the American people, then its likely that Inflation has been much more pervasive than reported by either the top line or the core. And the same thinking likely applies to the low unemployment rate. If we judge by sentiment, perhaps its not as low as advertised. Ignoring widespread distress in the population is a recipe for major electoral changes.
Regardless of who wins in November, its time for a major rethink of the methodology behind BEA/BLS data . . .

I too have been suspect for a while now of unemployment and inflation data. For people who are interested what they are not telling you check out

Mortgage Rates rise

Mortgage Rates Near a Year High
By RUTH SIMON and JAMES R. HAGERTYJuly 23, 2008; Page C14

Home-mortgage rates are nearing their highest levels in a year, adding to pressures on the already weak housing market.

Rates on conforming 30-year fixed-rate mortgages rose by nearly 0.40 percentage point in the past week to an average of 6.71%, according to HSH Associates in Pompton Plains, N.J. Rates on jumbo loans, which are too big to be eligible for purchase by Fannie Mae or Freddie Mac, currently average 7.84%.

The higher rates are making it more difficult for borrowers to refinance and putting another crimp on weak home sales. "It's a tough market and rates going up isn't helping it," said Steve Walsh, a mortgage broker in Scottsdale, Ariz.

Mortgage rates typically move in line with rates on 10-year Treasurys. Treasury rates have risen, but so has the spread between rates on 30-year mortgages and 10-year Treasurys, said Nicholas Strand, a mortgage strategist at Barclays Capital.

Banks set their interest rates on mortgages based on demand for those loans from investors, including Fannie Mae and Freddie Mac. When demand is weaker, they must offer investors a higher interest rate.

Walter Schmidt, a senior vice president at FTN Financial Capital Markets in Chicago, said the latest increase largely reflects fears that Fannie Mae and Freddie Mac wouldn't be able to buy as many mortgages in the months ahead as they have recently. The two companies are the biggest buyers of mortgages and related securities. Both are facing heavy losses on defaults, and investors believe they probably will have to raise large amounts of capital to cope with those losses.

Freddie added to jitters last week by saying it might sell some mortgage securities to reduce capital needs. And some smaller Asian banks have been selling mortgage securities, said Arthur Frank, a director at Deutsche Bank Securities in New York.

Can you say credit crunch?

Tuesday, July 22, 2008

F&F Mess: Cost of Bailout


July 23, 2008
Cost of Loan Bailout, if Needed, Could Be $25 Billion

WASHINGTON — The proposed government rescue of the nation’s two mortgage finance giants will appear on the federal budget as a $25 billion cost to taxpayers, the independent Congressional Budget Office said on Tuesday even though officials conceded that there was no way of really knowing what, if anything, a bailout would cost.

The budget office said there was a better than even chance that the rescue package would not be needed before the end of 2009 and would not cost taxpayers any money. But the office also estimated a 5 percent chance that the mortgage companies, Fannie Mae and Freddie Mac, could lose $100 billion, which would cost taxpayers far more than $25 billion.

The House is expected to act this week on housing legislation that includes the proposed rescue plan. Legislative language has not been finalized, but the Congressional Budget Office said its estimates were based on the plan by the Treasury Department and that it did not expect significant changes in the final bill.

According to the estimate, which was delivered in the form of a letter to the House Budget Committee chairman, Representative John M. Spratt Jr., Democrat of South Carolina, the director of the budget office, Peter R. Orszag, predicted that “a significant chance, probably better than 50 percent, that the proposed new Treasury authority would not be used before it expired at the end of December 2009.”

Mr. Orszag, at a briefing with reporters, acknowledged that pinpointing the eventual cost of the package was impossible. “There is very significant uncertainty involved here,” he said.
The uncertainty runs in both directions, with some government officials and market analysts suggesting that Fannie Mae and Freddie Mac are fundamentally sound and will perform well over the long-term. Others, including some private equity managers, are pessimistic and predict heavy losses.

The rescue plan, put forward last week by the Treasury secretary, Henry M. Paulson Jr., would allow the Treasury Department to spend hundreds of billions of dollars to shore up the mortgage companies should they be at risk of collapse, either by extending credit or by purchasing equity in the companies, which are publicly traded.

Mr. Orszag said that the analysis by his office did not distinguish between the different forms of aid that might be offered — a credit line or a stock purchase — and that the analysis showed no short-term potential financial benefit for taxpayers even if Fannie Mae and Freddie Mac perform well.

But he said the analysis found substantial risk for taxpayers if the companies had steep losses and would not say if his office had analyzed the implications of a full government takeover of the companies.

How much the government will end up spending on a rescue, if one is needed, would depend on many factors, he said, including sentiment on Wall Street. “A key question becomes how does the market view the entities?” he said.

Fannie Mae and Freddie Mac are commonly referred to as government-sponsored entities, because of the long implicit guarantee that the federal government would step in to save them if they were ever in danger of collapse.

One thing that is certain as a result of the rescue proposal is that the guarantee of government aid is now much more explicit, and Mr. Orszag said that the government’s assurance that it would not let the companies fail would have to be included in any analysis of their long-term financial prospects.

Most immediately, the $25 billion cost estimate provides a precise amount that Congress will have to offset with spending cuts or tax increases if lawmakers intend to comply with “pay as you go” budget rules in the House. Lawmakers could also decide that the $25 billion should be viewed as emergency spending and simply added to the national debt.
There was little immediate reaction to the projections on Capitol Hill as lawmakers and staff members reviewed the complicated calculations and the various assumptions they were based on.

Mr. Spratt, the chairman of the Budget Committee, issued a statement praising the Congressional Budget Office for moving quickly to produce its analysis. “Estimating the fiscal impact of this proposal is complex and involves considerable uncertainty,” Mr. Spratt said. “And not everyone will necessarily agree with every aspect of C.B.O.’s analysis.”
But he added: “C.B.O. is performing its important institutional role by providing in a timely manner its best professional and independent assessment.”

The analysis by the Congressional Budget Office also offered a sobering assessment of the mortgage giants based on several different metrics.

Under generally accepted accounting principles, Mr. Orszag said that the net worth of the mortgage giants at the end of the first quarter of 2008 was about $55 billion. He also said that the companies held more than $80 billion in capital at the end of March and for regulatory purposes were considered to be "adequately capitalized" by the Department of Housing and Urban Development.

But on a fair value basis, the value of the mortgage companies’ assets exceeded their liabilities at the end of March by just $7 billion, a thin cushion considering liabilities at the time of $1.6 trillion, and an indication of why there have been numerous calls for the companies to raise additional capital. Mr. Orszag also noted that on July 11, before the Bush administration proposed its rescue plan, the total value of shares in Fannie Mae and Freddie Mac had fallen to a low of $11 billion. Shares in the companies are now worth about $20 billion.

The House is expected to vote on the larger package of housing legislation, including the rescue plan for the mortgage companies, as early as Wednesday, and the Senate is expected to quickly follow and send the bill to President Bush.

Among the issues that lawmakers have been debating is whether to exempt from the federal debt limit any expenditure that the Treasury Department makes on behalf of the mortgage companies. The current debt limit is $9.815 trillion and outstanding federal debt is roughly $9.5 trillion, leaving a cushion of $310 billion.

Congressional Democrats have expressed opposition to exempting the rescue plan from the debt limit, saying administration officials should come back to Congress for emergency authorization if additional spending is needed. Officials said it was probable that a compromise would be reached and the debt limit would still apply.

The housing legislation also includes the creation of a regulator for the mortgage companies, an agency apart from the Department of Housing and Urban Development, which oversees the mortgage giants.

Some critics have questioned whether the new regulator would have sufficient authority to swiftly increase capital requirements — the amount of cash that the mortgage companies need to maintain to protect against losses.

In his letter to Mr. Spratt, Mr. Orszag suggested that simply enacting the proposed rescue plan could bolster the confidence of Wall Street in Fannie Mae and Freddie Mac.

“Private markets might be sufficiently reassured to provide the GSE’s with adequate capital to continue operations without any infusion of funds from the Treasury,” he wrote. “during that time, it is possible that expectations about the duration and depth of the housing market downturn may brighten.”

But Mr. Orszag said his office had also consulted with market investors with a different outlook. “Many analysis and traders believe there is a significant likelihood that conditions in the housing and financial markets could deteriorate more than already reflected on the GSEs’ balance sheets,” he wrote, “and such continuing problems would increase the probability that this new authority would have to be used.”

Taking into account all of the different possibilities and sentiments, and measuring them against the budget “scorekeeping” rules, Mr. Orszag said his office had concluded “that the expected value of the federal budgetary cost from enacting this proposal would be $25 billion over fiscal years 2009 and 2010.”

25 bil huh? Try 10x that number....

Cost of College


July 21, 2008
With No Frills or Tuition, a College Draws Notice

BEREA, Ky. — Berea College, founded 150 years ago to educate freed slaves and “poor white mountaineers,” accepts only applicants from low-income families, and it charges no tuition.
“You can literally come to Berea with nothing but what you can carry, and graduate debt free,” said Joseph P. Bagnoli Jr., the associate provost for enrollment management. “We call it the best education money can’t buy.”

Actually, what buys that education is Berea’s $1.1 billion endowment, which puts the college among the nation’s wealthiest. But unlike most well-endowed colleges, Berea has no football team, coed dorms, hot tubs or climbing walls. Instead, it has a no-frills budget, with food from the college farm, handmade furniture from the college crafts workshops, and 10-hour-a-week campus jobs for every student.

Berea’s approach provides an unusual perspective on the growing debate over whether the wealthiest universities are doing enough for the public good to warrant their tax exemption, or simply hoarding money to serve an elite few. As many elite universities scramble to recruit more low-income students, Berea’s no-tuition model has attracted increasing attention.

“Asking whether that’s where our values lead us is a powerful way to consider what our values are,” said Anthony Marx, the president of Amherst College, who considered the possibility of using Amherst’s $1 million-per-student endowment to offer free tuition but concluded that it would make no sense, given Amherst’s more affluent student body and the fact that the college already subsidizes about half the cost of each student’s education.

“We’re not Berea, much as we respect them,” Mr. Marx said, adding there would be no social justification for giving free tuition to students from wealthy families.
Although this year’s market drop is taking its toll, the growth in university endowments in recent years has been spectacular. Harvard’s $35 billion endowment, Yale’s $23 billion, Stanford’s $17 billion and Princeton’s $16 billion put them among the world’s richest institutions.
Such endowments have helped make higher education one of the nation’s crown jewels. As Harvard’s president, Drew Gilpin Faust, said in her spring commencement speech this year, endowments at Harvard and other research universities help fuel scientific advances as government support is eroding, and help drive economic growth and expansion in a difficult economy.

Although most universities have only modest endowments, the wealth of the richest has made them increasingly vulnerable to criticism from parents upset about rising tuition costs, lawmakers pushing them to spend more of their money and policy experts arguing that they should be helping more needy students.

“How much do you need to save for future generations, and at what point are you gouging today’s generation?” said Lynne Munson, of the Center for College Affordability and Productivity in Washington.

In January, the Senate Finance Committee requested detailed endowment and spending data from 136 colleges and universities with endowments of at least $500 million, with a possible eye to forcing them to spend at least 5 percent of their assets each year, as foundations are required to do. Large, tax-free endowments “should mean affordable education for more students, not just a security blanket for colleges,” said Senator Charles E. Grassley, Republican of Iowa, who is reviewing the data.

The commissioner of the Internal Revenue Service’s tax-exempt section said this spring that he wanted his agency to be more aggressive in ensuring that universities made “appropriate use” of their endowments. And officials in Massachusetts are studying a proposal for a 2.5 percent tax on the part of university endowments greater than $1 billion — a threshold exceeded by nine of the state’s universities.

“The endowments have grown to such an astonishing extent that people are asking, if the wealth and the value of the tax exemption are increasing, is the public benefit increasing, as well?” said Evelyn Brody, a tax professor at Chicago-Kent College of Law.

This year, Ms. Brody said, the debate has entered new territory. Traditionally, discussion about endowments has focused on the balance between using the money for the current generation versus saving it for the benefit of future generations.

“Endowment spending has usually been a ‘when’ question, about when the money would be used for a charitable purpose,” she said. “But now, it’s also being viewed as a ‘what’ question. What is the money for? And I think that’s new.”

In part, it is simply a question of itchy fingers. When one sector amasses great wealth, other sectors find it irresistible.

“That’s why Henry VIII dissolved the monasteries in the 16th century,” Ms. Brody said. “In those days, it was real estate, which was not easy to hide. Now it’s the disclosure, which makes the universities’ wealth impossible to hide.”

The mounting scrutiny by lawmakers has already prompted some action. Dozens of wealthy colleges have increased their aid to low- and middle-income students, many substituting grants for loans. Many have announced plans to expand their student bodies, and some are doing broader outreach and working with nearby K-12 schools to improve academic preparation.
Nonetheless, according to 2002 data, only one in 10 of the students at the nation’s most selective institutions come from the bottom 40 percent of the income scale. And the proportion of low-income undergraduates at the nation’s wealthiest colleges has been declining, as measured by the percentage receiving federal Pell Grants, for families with income under about $40,000. At most top colleges, only 8 to 15 percent of students receive Pell grants.

At Berea, more than three-quarters of the students receive Pell grants.
Overall, Berea’s statistics speak worlds about the demand for affordable higher education; this year, the college accepted only 22 percent of its applicants. Among those accepted, 85 percent attended Berea, a yield higher than Harvard’s.

Berea can be a haven for the lower-income students at high schools where expensive clothes and fancy homes demarcate the social territory.

“When I first heard about Berea, I didn’t think I wanted to come here,” said Candice Roots, who will be a junior in the fall. “But I visited in my senior year, and as soon as I got here, I knew this was what I wanted. Everybody was like me. You don’t have to have all this money to fit in.”
With its hilly campus, Georgian president’s mansion and old brick buildings, Berea looks much like any elite New England college. But its operating budget is less than half that of Amherst, which has a $1.7 billion endowment and about 100 more students. Faculty pay is much lower, and the student-faculty ratio higher. With no rich parents and no legacy admission slots, fund-raising is far more difficult at Berea.

Lacking tuition, Berea receives 80 percent of its $43 million education and general budget, and about two-thirds of its $55 million operating budget, from the endowment income.
Families bringing a student to a campus interview may stay, free, in a four-bedroom house, complete with flat-screen television and handmade sleigh bed. Students who are single parents have their own residences.

To satisfy the work requirement, some students have jobs in the academic departments, administrative offices and labs, while others are assigned to the college farm, the workshops that make and sell traditional mountain crafts (its handmade brooms, especially, are well-known treasures) or the college-owned hotel, which anchors the town square.
Mr. Marx, in homage, keeps a Berea broom in his Amherst office.

While Mr. Marx is not trying to match Berea’s student population, he is proud of Amherst’s efforts to attract top students from all income brackets. The college has increased the proportion of Pell recipients to nearly 20 percent of its student body, from about 15 percent five years ago, for example. With more than half of Amherst’s students on financial aid, the college announced last year that it would replace loans in all aid packages with grants. A full-time staff member recruits community college graduates as transfer students. Admissions are need-blind, for both American and international applicants.

Although he, like other college presidents, opposes the idea of a required 5 percent payout, Mr. Marx said the current debate over the use of endowments was healthy.
“Congress, the media, the public all have an interest in knowing whether we’re using our resources to make sure the best students have access to the best education,” he said. “They should be asking, are we really affordable? Are we offering the highest quality education? Are we directing graduates to think about their social responsibilities?”

Berea’s president, Larry D. Shinn, also opposes a required 5 percent payout but wants colleges pushed to do more for needy students.

“You see some of these selective liberal arts colleges building new physical education facilities with these huge sheets of glass and these coffee and juice bars, and charging students $40,000 a year, and you have to ask, does this contribute to the public good, or is it just a way for the college to keep up with the Joneses?” Mr. Shinn said. “We are a tax-exempt institution, so I think the public has a right to demand that our educational mission be at the heart of all of our expenditures.”

I had applied to Berea as an international student from India back in 1991. If memory serves me right, I got a nice letter back from them saying that they appreciated my credentials but their policy was to reserve spots for US Citizens ideally from Appalachia. Even back then, Berea had a solid reputation and its model is very unique and ought to be emulated.

Be Patient!


July 23, 2008
Paulson Urges Americans to Be Patient on Economy

Treasury Secretary Henry M. Paulson Jr., said on Tuesday that Americans need to remain patient as the economy works through its problems, and he warned of “continued stresses” in the months ahead before a full recovery can be made.

“Our markets won’t make progress in a straight line, and we should expect additional bumps in the road,” Mr. Paulson said in remarks at the New York Public Library in Midtown Manhattan. “We have been experiencing more bumps recently, and until the housing market stabilizes further we should expect some continued stresses in our financial markets.”

Although Mr. Paulson acknowledged the need for broad reforms of the nation’s existing regulatory structure, he sought to assure Americans that he expects the nation to “work through this period,” and “emerge stronger and better poised for robust growth.”
“The American people have every reason to remain confident that the U.S. banking system is sound,” he said.

Mr. Paulson spoke just a week after the government announced a plan to help prop up Fannie Mae and Freddie Mac, the giant mortgage buyers that were recently at the center of widespread market anxiety. The episode, Mr. Paulson said, made it “all the more apparent” that systemic reforms are necessary.

“Now, more than ever, we need Fannie and Freddie out there, financing mortgages,” he said. “Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions.”

Mr. Paulson said there were currently no plans for the companies to tap any federal money, even though the administration’s proposal calls for extending billions of dollars in credit if necessary. Asked about the effect of the plan on taxpayers, he said the credit lines offered a “flexibility” that “minimizes the likelihood they will be used.”

In his remarks, Mr. Paulson repeated his calls for greater transparency and effective regulation of the financial industry, saying such changes would “add to market stability and mitigate the likelihood that a failing institution can spur a systemic event.”

“We need to get to the point where large, complex financial institutions are not perceived to be too big or too interconnected to fail,” he said. He also singled out certain sophisticated markets — including over-the-counter credit derivatives — as particularly in need of greater oversight.

Mr. Paulson pointed to the recent failure of IndyMac Bancorp as an example of the government’s ability through the Federal Deposit Insurance Corporation to protect depositors when a large bank collapses. “No one has or will lose a penny of insured deposits,” he said. “The F.D.I.C. took over the bank on a Friday, worked effectively over the weekend, and on Monday morning the bank reopened for business as usual.”

In a question-and-answer session after his speech, Mr. Paulson tried to end the appearance on a more positive note. “As I look around the world, I don’t see other industrial nations, developed industrial nations that have better long-term prospects than we do,” he said.

Limited Role Seen for Fed

KING OF PRUSSIA, Pa. (Reuters) — The Federal Reserve has a limited role in a government plan to provide financial support for the ailing mortgage finance companies, Fannie Mae and Freddie Mac, the president of the Philadelphia Federal Reserve, Charles I. Plosser, said Tuesday.

“We were not the lead instigators” in the plan, Mr. Plosser said after a speech to local business leaders. “The Fed is not intentionally seeking to expand its powers.”

Mr. Plosser is a voting member this year on the Fed’s interest rate-setting Federal Open Market Committee and is known to be one of the Fed’s more hawkish members.

So... which large, complex, interconnected institutions is Paulson talking about really? List of suspects are well known.

Monday, July 21, 2008

The Moose Stays in Cash

By William Dirlam

JUL 18— The WallStreet Journal raised its newsstand price to two dollars this week. With Starbuck’s lattes going for five, the price of morning coffee and a paper, for those who want to be both trendy and in the financial know, is now seven dollars. Not Lira, not Pesos, not Yen… Dollars. Seven dollars for coffee and a newspaper! No doughnut. No OJ. No Russian Tea Room atmospherics. Just a stimulant made of beans and a depressant made of wood pulp.
All those government types who’ve been telling us that inflation from food and energy had not passed through to the general economy obviously drink instant and don’t read. Not that I know that much about Starbuck’s or favor the Journal myself. Frankly, I prepare my own coffee and get my written news off the internet. Sometimes the coffee is Starbuck’s, which I buy at Costco. Most times it’s just grocery store fare. I do grind the beans fresh each day now, which I admit to have considered effete when I was young enough to think coffee was hot tap water over a spoonful of Folgers Crystals.

In retrospect, my one visit to Starbuck’s was traumatic enough to make it my last. First off, there were a lot of truly wired people in the place, and their palpable nervousness seemed like it might be contagious. (Are fidget-cooties airborne? I didn’t know.) I also felt like a clueless tourist in Bhutan, entirely unfamiliar with the language and customs. So while I was trying to translate the Franco-Italianate menu and determine which of the hyperactive barristas I should talk to first, I was nearly trampled by a stampeding pack of caffeine-starved customers.
Let’s just say that I was clearly trying everyone’s impatience.

When my two-cup $8 order finally came (I’d gone there at a friend’s request) I nearly caused a fist-fight by accidentally picking up another guy’s coffee (which was sitting next to mine) and polluting it with sugar before he could hiss at me that they put all the orders on the counter at once in no particular sequence, and that I had ruined his life. Excuse me, but all the cups look the same on the outside, buddy. Since I’ve rendered your grande-black-quadruple-caff entirely undrinkable, Mr. Type A freakazoid, let me buy you another.

So I netted out at $12 and some serious stress for my two cups of Starbuck’s. Nowadays, I guess it would have been $15. I got off light. Even so, I’ve never gone back.

Given $5 coffees and $2 daily newspapers, it was somewhat comforting to see the latest consumer and producer price indices confirm what most of us have encountered in the real world for the last year. At least we no longer feel as if the govmint is lying to us. That was about the only comforting thing, however.

Inflation is not only alive and well, but, as we’ve noted here for some time, has been bulking up on the monetary steroids coach Ben has been pushing behind the Fed clubhouse. Wholesale prices are up 9% year-over-year, and consumer prices are up 5%. We’ve only just begun.
This week’s market action generally followed the post-bailout relief scenario outlined here last week. Once the Fed, the Treasury, and the SEC made guaranteed safety-net sounds over Fannie and Freddie on Tuesday and Wednesday, the relief sent recent history into reverse. Stocks rallied, interest rates rose, the Dollar gained, and gold backed off, all later in the week— all as predicted.

The only unexpected development was that non-precious metals commodities did not rally along with stocks. Normally stocks rise in anticipation of a stronger economy and this tends to push materials prices higher too. It didn’t happen that way this time (the divergence, in fact, was very stark), which suggests one of two possibilities.

Either the market considered commodities, especially oil (down 11%), short-term overbought going into options expiration and took profits, expecting to get back in synch with stocks in the coming weeks. Or the market saw the rally in stocks as a short-covering exercise instead of a prediction of an all clear in financials and stronger growth ahead, and sold commodities in anticipation of a global recession.

There is ample evidence that the sharp move in equities this week was a government orchestrated short-covering rally, particularly the historic surge in financial stocks. The SEC announced an emergency order banning naked short sales in the financials, and the most shorted sector responded brilliantly. Even though naked shorts were already illegal and have been for a long time, financials (XLF) rocketed 20% higher in three days. It was an historic move for a beaten-down sector, but it showed just how clueless the market remains, both about values in the sector, and about the impact the shifting rules (or confused jawboning) of an increasingly activist government may have on the trading process.

Still, when you look at comparative interest rates, the Fed Funds rate is about half the European rate and less than half Britain’s. Dollars are cheap, but once you own them and throw global inflation into the mix, you realize they are less than worthless. You get rid of them as quickly as you can by buying something, and since commodities are traded in Dollars, they have been a convenient haven. Once global growth slows, however, and you have less need to take delivery of commodities, you shift to precious metals, which are a more permanent store of value.
Fed Funds futures were all over the map this week— going from a 58% bet that the Fed would HIKE rates by 25 basis points before December to a bet that they would CUT rates by 50 basis points, to a bet that there would be no change. Whatever, the Dollar’s outlook is dicey. If anything, all pretense of an inflation-fighting Fed appeared to vanish in the face of an increasingly desperate financial situation.

I’m certainly in no position to second-guess the wisdom of the Fed. I can’t even navigate a Starbucks. I’ve been evaluating the Fed Check, however, for some time now, and it’s forecasting ability still appears robust. If anything, this Fed’s propensity to do the opposite of what the commodity and bond markets are telling it has reinforced my theories about what happens when they act that way. To tell the truth, this Fed has kind of hit us over the head with it.

In retrospect, the Fed missed a chance to cut rates in 2006, and by standing pat, flattened the yield curve, which curbs bank profitability. While that didn’t create the sub-prime banking crisis a year later (Greenspan’s far larger miscues did that), it certainly didn’t strengthen the banks going forward. Then, once the crisis hit, the Fed ignored strong inflation signals in late 2007, and chose to cut rates to protect a weakened banking system. In fairness, it was a damned if you do, damned if you don’t call, but it has led to increasing inflationary pressures, which, if theory holds, won’t be peaking until a year after the cuts stopped— i.e., next spring. Thus, commodities and gold still probably have legs.

There are a couple of ironies in all this that should be mentioned. One is the most obvious, which is that the more government screws up, the more power it feels it needs to rectify the situation. I mean, do we really need to give Bozo bigger, redder shoes? Two days of Congress, Fed, Treasury, and SEC on the tube was an ego boost for them, I’m sure, and for me too (although it was an “eyes-glaze-over” type e.g.o. thing for me). But apart from face-time in an election year, what did they accomplish? I’m still waiting.

The second irony is mostly hypothetical. If the Fed acted in concert with bond and commodity markets to dampen swings, instead of in opposition, it would be more effective in stabilizing growth and inflation. That would reduce market volatility, but make both forecasting and trading more difficult. So while the American in me would like to see them get it right, the Moose in me isn’t so sure. If they weren’t messing up the markets so obviously all the time, I might not know what to make of it.

Trading aside, I do think a more compliant Fed would bring back investing. This past week alone is ample evidence that the investor has fled our markets. Stocks plunging 20% one Friday, and then surging 20% by the next is more like manic depression than planning for the future, which is what investing is supposed to be all about. There are enough exogenous forces (weather, terrorism, war, cartels, earthquakes, etc.) pumping uncertainty into our markets without our government magnifying their impact.

As for this week’s signal, several very perceptive Moosaholics have asked why, with cash in first place and GLD in second, given that GLD is POS short and medium term, that it is not the current choice. The reason is author discretion, and indecision. (If you think you hear a feint “puck, puck, puck”, that is the chicken on my keyboard.) Let me explain.
When I first developed the model, there was no gold (GLD), only gold shares (ASA), which behave very differently from bullion-- more like stocks than a commodity. So when the Fed Check, as it does now, said “avoid equities”, I would avoid gold shares. No brainer.

When I substituted bullion for gold shares a couple of years ago, although I did not have enough back data to check my assumption, I reasoned that GLD should be exempt from the Fed Check's occasional blanket aversion to stocks and bonds (promises) because it was a hard asset (reality).
As it turned out, bullion has occasionally gone down (25% of the time) when the Fed Check was predicting paper would. It seems that when stocks go to hell in a hand-basket, people sometimes sell the good stuff to cover or raise cash. The baby can get thrown out with the bathwater. That said, GLD recently gave the Moose a preliminary buy signal (three weeks ago), pre-banking crisis. Longer term, it should be headed up.

The model generates a “confidence number” for each asset, however, based on the tape, the market, and the Fed, and GLD’s remains just below a “Confirmed Buy”. Now I'm waiting for a price pullback since, as the Bear Stearns case suggested, gold retreats once a "crisis" is averted. I'm not sure this latest Fannie-Freddie credit crisis has been averted, but if the market thinks it has, gold should correct as stocks rally. In a week or two, GLD may be a buy.

There’s a reason the banking crisis broke a year ago. It’s because this is when the banks release their quarterly statements after the spring real estate mortgage season, when all the 1, 3 and 5 year ARMs roll over, or as we’ve seen lately, go belly-up. This year, we’ve gotten some numbers that stink, but our noses expected worse. We still have another week, though. The better the banks report next week, the stiffer the correction in gold. Since Citibank got a standing O for “only” losing 2.5 billion this week, the bar defining success is obviously set pretty low (underground). Might as well wait.

The thing is, when I get too fancy (and the above reasoning is fancier than a gigolo in room full of dowager aunts), I usually find I’ve been too smart by half.

Nevertheless, another week in cash. Worst that can happen is we miss out on the chaos. In my view, a small price to keep one’s pants dry.

Some of the funniest commentary from Bill yet. The gigolo analogy is classic. I have commented on Bill's methodology & website previously and reiterate that it is one of the best. Thank you Bill for all that you do.