May 2010

The 13th Worker

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Remember all of that fuss to pass a tax credit to hire workers?

A new report shows the health insurance tax credit sliding scale causes small businesses to not hire.

The Hill:

Using insurance premium cost projections supplied by the nonpartisan Congressional Budget Office (CBO), the study states that the credit reaches its optimal point at 13 workers, with relief peaking at $36,400 for qualifying business.

After the 13th worker the economics surrounding the credit change, the study says.

For employers with 15 workers, taking on an additional hire will reduce the credit by $1,400. For a company looking to expand from 20 to 21 workers, the credit will shrink by $3,733. And businesses will take a $5,600 reduction on the credit when hiring the 25th worker.

The credit phases out for companies with at least 26 employees.

Ah, the irony. Lucky 13 again. Here is the original hire tax credit:

Latest on China and their Currency Manipulation

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There is a Strategic and Economic Dialogue between the United States and China in Beijing starting Monday. So far we have seen the United States wimp out on truly confronting China on currency manipulation. Both Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner are attending.

Reuters:

U.S. and Chinese officials have stressed that the meeting in Beijing will not be dominated by the yuan.

There are some rumblings by Clinton on the economy:

"In the coming days, officials at the highest levels of our two governments will be discussing issues of economic balance and competition," Clinton said in a speech given in a vast hangar at Shanghai airport, referring to the Beijing meeting.

"Transparency in rule making and standard setting, non-discrimination, fair access to sales to private sector and government purchasers alike, the strong enforcement of intellectual property rights are all vitally important in the 21st century global economy," Clinton told the audience of U.S. and Chinese business executives.

"American companies want to compete in China," she said, standing in front of a Boeing 737. "They want to sell goods made by American workers to Chinese consumers with rising income and increasing demand."

Meanwhile CBS MarketWatch reports:

The White House, Big Oil, and the "American Power Act"

Michael Collins

This analysis looks behind the scenes at how the ban on offshore drilling was lifted and what that had to do with the ultimate prize for big oil, the American Power Act.  It focuses on the current administration.  That in no way implies that the problem originated in January 2009.  The out sized and destructive influence of the oil monopoly has been with us for since the 1870's.

Banning Offshore Drilling

In 1969 a Unocal oil rig off the coast of Santa Barbara, California began leaking oil.  The extent of the leak, damage to wildlife, and the shoreline caused considerable outrage.  The state of California banned offshore drilling shortly after the leak.  In 1980, Congress banned offshore drilling in most federally controlled waters.  President George H.W. Bush reluctantly banned off shore drilling in 1990 for California, Florida, Oregon and Washington and in the North Atlantic.

Bank Failure Friday - just a small one

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Bank Failure Friday has just one reporting this week.

Pinehurt Bank, Minnesota. Cost to the FDIC: $6 million.

The FDIC also released it's quarterly report. A negative $20.7 billion in the deposit insurance fund was considered a positive.

The number of institutions on the FDIC's "Problem List" rose to 775, up from 702 at the end of 2009. In addition, the total assets of "problem" institutions increased during the quarter from $403 billion to $431 billion. These levels are the highest since June 30, 1993, when the number and assets of "problem" institutions totaled 793 and $467 billion, respectively, but the increase in the number of problem banks was the smallest in four quarters. Forty-one institutions failed during the first quarter. Chairman Bair noted that the vast majority of "problem" institutions do not fail.

The Deposit Insurance Fund (DIF) balance improved for the first time in two years. The DIF balance – the net worth of the fund – increased slightly to negative $20.7 billion, from negative $20.9 billion (unaudited) on December 31, 2009. The fund balance reflects a $40.7 billion contingent loss reserve that has been set aside to cover estimated losses. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings. Combining the fund balance with this contingent loss reserve shows total DIF reserves of $20 billion. Total insured deposits increased by 1.3 percent ($70.0 billion) during the first quarter.

State Unemployment Maps for April 2010 - Unemployment decreases in 34 States

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The BLS released state and regional unemployment numbers today as well as information on mass layoffs.

In April, nonfarm payroll employment increased in 38 states and the District of Columbia and decreased in 12 states.

stateunemp0410.jpg

18 states experienced statistically significant increases in employment; 4 states had statistically significant decreases in employment.

In April, 12 states recorded statistically significant unemployment rate decreases

This is actually some reasonably good news for the actual number of jobs increased, which implies less people are simply falling off the rolls and not being counted. Note the different between statistically significant and minor changes, so while the tile sounds great, it's actually only 18 states instead of 34.

What Next on Financial Reform?

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Since the Financial Reform bill passed the Senate, it will now go to conference committee to resolve the differences between the House and Senate versions. The New York Times has a graphic on the two bills, describing some of the differences and what is not in either version of the legislation, spreadsheet style.

Currently we do not know who the conferees are. They will be determined on Monday. Senator Kaufman:

The final Wall Street reform bill can't drift too far from the version passed Thursday night by the Senate, Sen. Ted Kaufman (D-Del.) warned Friday.

While there is no certainty in how conferees from the House and Senate might address differences between their two bills, Kaufman said, substantial changes could endanger the 60-vote majority needed to pass the bill in the upper chamber.

"There isn't a lot of wiggle room in the conference, in terms of changing what's in the Senate bill," Kaufman said Friday morning on CNBC.

Hedge Funds, LBOs and Banksters, oh my!

The other day many of us were exposed to a BBC interview where a business reporter kept repeating the tired old mantra that hedge funds had no involvement with the global economic meltdown.

Oh really?

Then surely, given the opaque nature of these private investment concerns, there would be no surprises forthcoming if they were to be intensively audited by forensic accounting teams together with certified fraud examiners?

And while we're at it, might not the same auditing processes yield interesting results if also directed at those private equity leveraged buyout funds (LBOs) and the major credit derivatives dealers, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup and Bank of America (with Credit Suisse FB, UBS and Deutsche Bank in the mix as well)?

Awhile back, Dr. John L. Goldberg of the University of Sydney, was brought in by the Australian government as a consultant to research the financing behind a number of public-private partnerships concerning Australian toll roads and infrastructure projects.

Now public-private partnerships, where securitizations with the subsequent generation of credit derivatives occur, incorporate the same underlying fundamental financial model as hedge funds, private equity firm LBOs and credit derivatives dealing by major ("too big to fail") banks.

Dr. Goldberg's three principal points, taken from one of his executive summaries, were as follows:

"Paying equity dividends with virtually no cash flow available (CCT)"

An Update on Financial Reform Legislative Shenanigans

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Update: The bill passed, 59-39. Next stop will be the conference committee, where a manager's amendment along with other modifications are possible.

Update: Republicans blocked the Merkley-Levin amendment. The amendment which would have stopped proprietary trading with taxpayers, account holders money. Nasdaq News:

Two of the most anxiously awaited amendments to the U.S. Senate's financial-overhaul bill will not get votes after Republicans maneuvered to kill a controversial plan to sharply curb a lucrative Wall Street trading business.

As the endgame on the bill drew close, Republican leaders convinced U.S. Sen. Sam Brownback (R., Kan.) to withdraw his hot-button amendment that would have excluded auto dealers from oversight by the new consumer watchdog created by the bill.

Brownback's move effectively squashed a second, contentious amendment that had been attached, for strategic reason, to the Brownback amendment. The second amendment--hotly opposed by Wall Street--would have banned most banks from using their own capital to make market bets, so-called proprietary trading.

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