Back in August, when Standard & Poor's downgraded the U.S. credit rating for the first time in history, from AAA to AA+, the Obama administration was disgruntled and fearful of how such a move would impact economic growth. Once the initial shock of the maneuver passed, however, Washington returned to its business-as-usual mentality. Now, however, it seems that this period will be short-lived, as another downgrade is expected.
According to Bank of America/Merrill Lynch’s Ethan Harris:
We expect a moderate slowdown in the beginning of next year, as two small policy shocks — another debt downgrade and fiscal tightening — hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts.
The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.
Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just as the housing market was starting to collapse. The Securities and Exchange Commission brought forth the civil action against Citigroup, claiming that investors who bought into the deal (which involved, essentially, stuffing portfolios with risky mortgage — related investments, selling it to unsuspecting customers, and then betting against those investments) had been defrauded. The transaction involved a one-billion dollar portfolio of mortgage-related investments, many of which were handpicked for the portfolio by Citigroup without telling investors of its role or that it had made bets that the investments would fall in value. The SEC says that as investors lost millions, Citigroup made $160 million in fees and profits.
Citigroup neither admitted nor denied the SEC's allegations in the settlement. "We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly," Citigroup said in a statement.
The penalty is the largest involving a Wall Street firm accused of misleading investors before the financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. resolved similar charges in June and paid $153.6 million.
The SEC on Wednesday also brought a case against Credit Suisse, which played a smaller role in the transaction, and against one individual at each company.
If Congress fails to pass President Barack Obama’s American Jobs Act, “murder will continue to rise, rape will continue to rise, all crimes will continue to rise,” Vice President Joe Biden told a reporter from Human Events on October 19. This was in keeping with a theme that Biden has been using lately: Because the bill would help keep state and local governments from laying off police officers, and because fewer cops on the beat mean increased crime, to oppose the bill is to favor more crime.
To those who doubt “whether there’s a direct correlation between the reduction in cops and firefighters and the rise in concerns in public safety,” Biden said during an October 18 appearance in Flint, Michigan, “they need look no further than your city.” He continued:
Let’s look at the facts: in 2008, when Flint had 265 sworn officers on their police force, there were 35 murders and 91 rapes in this city. In 2010, when Flint had only 144 police officers, the murder rate climbed to 65 and rapes — just to pick two categories— climbed to 229. In 2011, you now only have 125 shields.
The next day Biden asserted that in Flint “murder rates have doubled in the last year” and “rape was up, three times.” Then he challenged scoffers to “go look at the numbers.”
Glenn Kessler, the Washington Post’s “Fact Checker,” has done precisely that; and the numbers he found just don’t add up to the soaring totals that the Vice President cited.
On Friday the Federal Deposit Insurance Corporation (FDIC) closed and sold off four more banks, bringing the total shuttered this year to 84. The FDIC’s Deposit Insurance Fund paid out $358 million to enable the transactions to take place, with additional losses being borne by the failed banks’ new owners. Through 2010 the FDIC has paid out $76 billion and the total is likely to exceed $100 billion by the end of this year.
The losses resulted from the FDIC making good on the banks’ bad investments, mostly related to real estate, that went sour during the recession. Under current rules, depositors were made whole if their accounts were valued at $250,000 or less.
The banks just closed were Decatur First Bank in Decatur, Georgia; Community Capital Bank in Jonesboro, Georgia; Old Harbor Bank in Clearwater, Florida; and Community Banks of Greenwood, Colorado. The banks picking up the remains included State Bank and Fidelity Bank in Georgia, First United Bancorp in Florida, and Bank Midwest out of Kansas City, Missouri. Georgia now leads the country in failed banks during the recession with a total of 21, while Florida has had 12 banks closed so far. More than 400 banks have been closed by the FDIC since 2007, compared to an average of four bank closings per year prior to the start of the recession.
In moving to combat in-state welfare fraud, Michigan is requiring food stamp recipients to provide information on their assets to determine whether they should continue to qualify for benefits. Under the new rules launched earlier this month, current recipients are obligated to report the values on their homes, vehicles, stocks, bonds, and even lottery winnings. Residents with $5,000 in liquid assets or driving a vehicle worth over $15,000 may no longer qualify for benefits. So far, the state has identified about 15,000 people who could lose their food stamp benefits.
Although the Supplemental Nutrition Assistance Program (SNAP) — commonly known as food stamps — is administered by the U.S. Department of Agriculture, states distribute the benefits and have the authority to make certain decisions on eligibility. (In Michigan, the program is called the Supplemental Nutrition Assistance Program, [FAP — Food Assistance Program] and is administered by the Department of Human Services [DHS], which has offices in every county of Michigan.) Michigan’s policy change is a shift from the trend for states to request information only on recipients’ income. Texas and Indiana are among other states that consider assets, while Oregon and New York are among those who check only income when determining eligibility for the program. As the U.S. economy has continued to decay, eligibility requirements for food stamps have loosened, with 35 states now having abolished asset tests for food stamp recipients.
The prediction by the Economic Cycle Research Institute (ECRI) that the United States is headed into another recession was greeted by a rise in the stock market from 1,074 on the Standard and Poor’s 500 Index on Tuesday, October 4, to 1,238 on Friday, October 21, a gain of 15 percent in just 13 days.
This sudden rise happened in the face of ECRI’s spokesman Laksman Achuthan’s emphatic forecast that “it’s going to get a lot worse … you haven’t seen anything yet.” Furthermore, Achuthan said that there is nothing policymakers can do about it, that the decline is just going to have to run its course.
Jon Markman, a stock market watcher and skeptic who writes for MarketWatch, asked Achuthan if this time his prediction might be wrong. Achuthan isn’t backing off one bit. Noting that his proprietary blend of various leading economic indicators has never failed in the past, he wasn’t surprised at the market’s rise following his company’s announcement, and said that the rise even confirmed his bearish call.
There are now about 2.6 million federal employees in the United States, including postal workers. Of these, 302,000 work in the D.C. area. With these employees earning over $100,000 a year, that’s more than enough to make metropolitan Washington, D.C., the most prosperous boom town in the United States.
According to the Washington Post’s Federal Eye:
Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.
The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.
The figures demonstrate how the nation’s political and financial classes are prospering as the economy struggles with unemployment above nine percent and thousands of Americans protest in the streets against income disparity, said Kevin Zeese, director of Prosperity Agenda, a Baltimore-based advocacy group trying to narrow the divide between rich and poor.
JBS CEO Art Thompson's weekly video news update for October 24-30, 2011.
At a news conference in Washington yesterday, a group of U.S. solar panel makers accused China of dumping Chinese-made solar panels on the U.S. market and asked the government for protection by raising tariffs on the offenders. Executives from SolarWorld, which makes its panels in Oregon, were at the conference along with both Oregon Senators.
Said SolarWorld President Gordon Brinser, his company “can compete with anyone in the world [but] illegal subsidies in China [are allowing] the Chinese solar industry to come in and gut and own the U.S. solar industry.” Because the alleged dumping has caused prices to decline, it has put several panel makers into financial difficulty, and was a proximate cause of the disintegration of Solyndra. Senator Ron Wyden (D-Ore.) claimed that because of the dumping of panels at below-market prices, “the American solar industry has been collapsing.” Part of the reason is that the Chinese government has been extending low-interest loans to Chinese panel makers, which Wyden called “cheating,” thus allowing them to offer panels for sale below the production costs of U.S. makers.
The group wants the Department of Commerce and the International Trade Commission to impose a duty on all panels imported from China sufficient to bring the price back up to where the U.S. makers can be competitive, and profitable, again.
While high unemployment persists and the U.S. economy remains stubbornly flat, Washington, D.C. now hails as the nation’s wealthiest metropolitan area, according to new data from the Census Bureau. Dethroning Silicon Valley from its royal chair, the hometown of Congress and the White House is flourishing, as the median household income for Washington residents stood at $84,523 in 2010, when the nation’s average household income was $50,046. The data shows that San Jose, home of Apple and Cisco Systems, held an average income of $83,944 in 2010, falling from $84,483 in 2009, and now riding on the coattails of America’s political stronghold.
Federal worker compensation last year averaged $126,369 (including healthcare and other benefits), a more than $3,500 increase from 2009, and as of June, the D.C. area had 170,467 federal employees. According to a Bloomberg analysis, the nearly $35,000 disparity in income largely attributes to a high concentration of lawyers and federal workers whose earnings far exceed $100,000 a year.
The data illustrates how the political elite continues to thrive — while overall poverty in the area remains high — as the U.S. economy remains stagnant and unemployment maintains its 9 percent mark. "There’s a gap that’s isolating Washington from the reality of the rest of the country," asserted Kevin Zeese, director of Prosperity Agenda, an advocacy group in Baltimore. "They just get more and more out of touch."