Thursday, January 19, 2012

I really do want to believe in the economy...

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In the coming up on two years that I have been writing about the economy, jobs, un and underemployment at this little corner of the Intertoobz, I've tried to admit when my predictions have been a bit off. Like here and here where last summer I predicted we would be in a double-dip recession by the end of 2011. While we didn't fall back into recession on the time frame I envisioned, I still see it as quite possible.

I do hope I get to admit being wrong on that. I so very much want to believe the economy is really improving and the jobs picture will brighten but I just can't shake the feeling that it is all smoke and mirrors.

Today, (Thursday, January 19), the report of Initial Jobless Claims for last week came out and once again, the economists are surprised. Via Bloomberg:

Claims plunged by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed today in Washington. The median forecast of 41 economists in a Bloomberg News survey projected 384,000. A Labor Department spokesman said the decrease reflected volatility seen during this time of year. The four-week average, which smoothes out fluctuations, decreased to 379,000 last week from 382,500.


Jobless claims were projected to decrease from 399,000 initially reported for the prior week, according to the Bloomberg survey. Estimates ranged from 363,000 to 405,000. The Labor Department revised the previous week’s figure up to 402,000.
I am not at all surprised that last week's figures were revised upwards as that is the pattern over hte last few months at least. I did not make an official prediction but will admit that I thought this week's number would be back well above 400K. Once again, I do prefer to be wrong on these.

But then I see articles across the Toobz like this from Tuesday from US News (via Yahoo) with the headline "Are We Entering a Jobless Recovery?" and I just want to weep at the incredible combination of stoopid and duplicity to that gives us such a headline. The Great Recession/Lesser Depression is supposed to have ended in June 2009 so we are 2 1/2 years into a "recovery" and US News is just now questioning that it may be jobless?
But there is a downside to the Fed's favorable report and the good news on Wall Street. While the economy is growing, few new jobs are being created. The unemployment rate fell from 9.4 percent in December 2010 to 8.5 percent in December 2011. But without more dramatic job growth, low-skilled workers and the long-term unemployed will continue to have a hard time finding a job.

Economists now fear that the United States is entering what is known as a "jobless recovery," an economic recovery in which few new jobs are created. If economic expansion continues without adding a significant number of jobs, many unemployed workers will simply be left behind with few job prospects.
Unfortunately, the article doesn't get much better as it goes on to lay out standard "Gee, all you need is new training and education for the miracle to occur" when in fact, one of the groups hardest hit has been new college graduates from '08 - '11. Of course, if all we needed were training and skills to take all these jobs that are available, sure seems as if salaries would be rising in those areas with the needed new skills but that has not been happening.

Also from Tuesday was this piece from Reuters:
More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.

In an ominous sign for America's economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts.

Some policymakers worry that a recent spike in credit card usage could mean that people, many of whom are struggling on incomes that have lagged inflation, are taking out new debt just to meet the costs of day-to-day living.

American households "have been spending recently in a way that did not seem in line with income growth. So somehow they've been doing that through perhaps additional credit card usage," Chicago Federal Reserve President Charles Evans said on Friday.
With all due respect to Reuters and the author(s) of this "Insight" piece, this should not be a surprise. We have record people on Unemployment for long term, unemployment that averages $330 per week across the country, people who have exhausted all levels of unemployment compensation yet still have rent or mortgages, utilities bills, and the need to keep themselves and their families alive. Do you have a better option?

Today, Alison Lin at MSNBC was a little closer to reality with this:
The sudden loss of a job has become, if not commonplace over the last years, at least not very surprising.

And yet, many Americans remain unprepared for not having an income. A new survey from Country Financial finds that one-third of Americans would immediately fall behind on their bills if they lost a job and were left with no income.

That’s virtually the same result that Country Financial got the last time they asked the same question, in July of 2009.
But the banksters are at least mostly hitting their Wall Street predictions so it is all good I guess.

Which group lives in the bigger bubble, Wall Street or Beltway Villagers?

And because I can:

Monday, January 16, 2012

They were just kids, right Governor Perry?

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I never know for sure what will set off my Harrumph Harrumph meter. Today's candidate is the response by Governor Perry to the video of the Marines urinating on dead bodies in Afghanistan.

"Obviously, 18-, 19-year-olds make stupid mistakes all too often, and that's what's occurred here," Perry said in an appearance on CNN's "State of the Union." He likened the incident to Gen. George S. Patton urinating in the Rhine River and Winston Churchill supposedly doing the same on the Siegfried Line.

"What's really disturbing to me is just, kind of, the over-the-top-rhetoric from this administration and their disdain for the military," said Perry, who has been wooing the military vote as well as evangelicals.

Defense Secretary Leon E. Panetta has called the incident "utterly deplorable" and said those responsible would be "held accountable to the fullest extent.
I guess the Marine Corps is overreacting to the video as well.
It named a lead investigating officer whose job will include deciding what charges, if any, would be brought against the four men, all of whom have been identified, a Marine Corps official told Reuters, speaking on condition of anonymity.

The move came as a top U.S. and NATO commander in Afghanistan ordered troops to "treat the living and the dead with dignity and respect."

"Defiling, desecrating, mocking, photographing or filming for personal use insurgent dead constitutes a grave breach of the (law of armed conflict)," Lieutenant General Curtis Scaparrotti, who heads day-to-day Afghan operations, wrote in a letter to troops dated January 12 and seen by Reuters on Friday.
As was John McCain.

Now, I find the video reprehensible but my guess in the end is the potential punishment will fall along the lines of what Rep. Allen West 'recommends' (via the Weekly Standard):
“The Marines were wrong. Give them a maximum punishment under field grade level Article 15 (non-judicial punishment), place a General Officer level letter of reprimand in their personnel file, and have them in full dress uniform stand before their Battalion, each personally apologize to God, Country, and Corps videotaped and conclude by singing the full US Marine Corps Hymn without a teleprompter.
As one outlet in South Florida points out:
That's the highlight reel from West's email to the Weekly Standard on the matter, and gives his recommendation that the men receive the maximum punishment under Article 15 -- which, assuming the Marines' rank is lower than West's was, would be more punishment than West received for his Iraq incident.
Here's the wiki on West's "Iraq Incident."

West does go a bit off the rails when he brings in the "but they did it first" excuse (also from the Weekly Standard):
I do not recall any self-righteous indignation when our Delta snipers Shugart and Gordon had their bodies dragged through Mogadishu. Neither do I recall media outrage and condemnation of our Blackwater security contractors being killed, their bodies burned, and hung from a bridge in Fallujah.
But the overall purpose of this post is to discuss Rick Perry's response that it is all just "18-, 19-year-olds make stupid mistakes all too often," as if this is a justifiable excuse.

So I went and did a quick check on something. We all know that Texas leads the nation (world?) in executions. I decided to check and see if I could get a WAG at the numbers of young people Texas has executed in Perry's time as governor. Using wiki here and here. Given the length of time it takes from the commission of a crime through trial and sentencing through all the appeals to execution of said sentence, I figured that it is likely that anyone who was in their 20s at the time of execution was most likely 18, 19, 20 years old when they committed their crime. From 2001 - today, I count roughly 26 people who were executed before age 30.

Governor Perry, if crimes committed in your state of Texas by people in their late teens or early 20s justify the death penalty, then it is damn sure that the Marines involved in this incident can take whatever punishment is coming their way, don't you think?

And because I can:

Saturday, January 14, 2012

Capitalists: Venture vs. Vulture

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So there I was, surfing around the intertoobz this morning when I came across this headline at CNN:

Stop vilifying venture capitalists
I have to admit, I was a bit taken aback at the headline as it surely did not reflect anything I had read.

In reading the piece, it starts off in a fairly standard fashion:
From 1984 to 1999, Mitt Romney was in charge at Bain Capital, an investment firm that sought out small and sometimes troubled companies that, with careful management and Bain-provided cash, offered the chance for big profits. Bain, like many venture capital firms, invested in startups with the hope that the profits they made on the successes would outweigh the losses they incurred on the failures.

Venture capital markets are simple things. Two groups of people who want to create new businesses come together. Venture capitalists have money but lack ideas. Entrepreneurs have ideas but lack money. When they get together, they trade and new businesses are born.
Then I realized that the author was not really saying much I could disagree with - other than his implication that Bain Co. was this benign entity only helping entrepreneurs to find the needed funding to bring their ideas to market as wiki defines it.

Today's Boston Globe addresses this in this article.
Mitt Romney has long called himself a venture capitalist, experience he says helps him understand the economy better than other candidates for president. But he spent much more of his career in leveraged buyouts than in the investments in start-up companies known as venture capital.

Romney’s one true venture deal was Staples Inc., the office supply superstore, two years after he started Bain Capital. He wasn’t the first to discover Staples; another Boston venture firm introduced him to Staples founder Tom Stemberg. But Romney did lead the deal in 1986 in classic fashion - at first investing $650,000 in the start-up, then becoming its chief cheerleader and assisting with strategy to expand the seller of paperclips and pens.


With leveraged buyouts, the investment firm purchases a mature company, partially with its money and with debt it transfers to the company. The new owners then usually streamline the business and seek to resell it.

For example, in the same year that Romney invested in Staples, he led the firm in its $200 million acquisition of Accuride, a wheel rim maker that was part of Firestone. Bain put down only $5 million and borrowed the rest, using junk bonds from Drexel Burnham Lambert. Eighteen months later, Bain resold the company and reaped $121 million in its first taste of the big time in the go-go 1980s.

Soon after, Romney steered Bain Capital more toward debt-driven buyouts. There was more money at stake and less risk for Bain than betting on untested technology.
My bold. And there you have it. While maybe starting life as a "venture capital" firm, Bain Co under Romney quickly turned to being Vulture Capitalists using the leveraged buyout.

At this point, I guess I should queue cue the chorus of voices shouting "FREE MARKET! FREE MARKET!"

Point of fact - there is no such thing. The LBO gets to use the debt interest to write down their taxes. By "streamlining" the business, the methods have often included cutting wages and benefits, selling off assets, and dumping pensions onto the taxpayers through the Pension Benefit Guarantee Corp. Dean Baker explains it quite nicely here and here. From the first link:
If private equity firms were successful in making companies more efficient and lowering prices to consumers, then it could lead to more jobs in the economy, even if there were fewer workers directly employed in the firms under its control. (This does not really apply in the current economy, where inefficiency means more workers are employed. This is good in the context of a poorly managed macroeconomy with high unemployment.)

However private equity firms do not profit just by making firms more efficient. Private equity also profits by financial engineering. For example, it is standard practice for private equity firms to load their firms with debt. This means that interest payments, which are tax deductible, are substituted for dividend payments, which are not tax deductible.

Private equity companies also often force firms into bankruptcy to offload debt. This can often include pension obligations, which are then taken over by the Pension Benefit Guarantee Corporation. Insofar as private equity companies are drawing their profit from this sort of financial engineering, it is not providing a benefit to the economy. In fact, it is a direct drain on the productive economy.
So much for the nonexistent "free market." If a firm has to offload their debts and pensions on the taxpayers, there ain't a diddly damn thing free about it.

While I am still trying to figure out how it is possible for the LBO group to incur debt for an entity that they are acquiring (don't you have to actually own something before you can mortgage it?), I'll close this little rant with this article from today's Cincinnati Enquirer headlined "Tax breaks for jobs: Half fall short." A story for another day.

And because I can:

Wednesday, January 11, 2012

Improvement, yes, but not that much improvement

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OK, so you might have noticed a few headlines the last few days talking about how the economy is getting better, unemployment is dropping, and we're all going to win Powerball tonight and retire tomorrow with our sparkly ponies.

Yeah, I ain't holding my breath on any of those things either.

Yes, the economy is getting a little better. Slightly. But not to a level to make an appreciable difference to the millions of long term un and underemployed. As David Dayen noted at FDL News on Friday:

The reason that the unemployment rate was able to tick down, however, is that the labor force participation rate remained unchanged at 64.0%. This low participation rate means that, even with the economy growing and the job market improving, a fair number of able-bodied workers have not rejoined the labor force. When they do, and when the labor force participation rate increases, that will put upward pressure on that topline unemployment rate. And unless everyone came into found money, that’s fated to happen. The employment-population ratio also remained unchanged in December (58.5%), despite the job additions. The average workweek and average pay went up very slightly over the month.
Even if those folks who have given up and left the workforce were to stay away and not return, it will still take years for the current problems to right themselves.

Let's pretend that we stay on the current level of seeing the official unemployment rate drop .2% each month. At the end of 2012, the unemployment rate would be at 6.1%, a number that sounds much better than it has been. But that number would still not be addressing the millions of folks working part time (probably minimum wage) jobs who want full time employment. Nor does it account for all the folks forced into being "independent contractors" or all the college grads from 2008, 2009, 2010, and 2011 still trying to get their first position in their fields.

Just today (Wednesday, January 11), MSNBC had this post with the headline, "Four job seekers for every opening, report shows":
Though hiring picked up in November, job openings shrank by 63,000, to 3.2 million. October’s job openings were revised down by 43,000.

With 13.3 million people unemployed in November, there were about 4.2 job seekers for every job opening, down a notch from the revised October ratio of 4.3-to-1. That is roughly triple the ratio seen before the recession hit in December 2007 but down from a peak of 6.9-to-1 in the summer of 2009.

“As the job-seekers ratio shows, what’s happening is not that millions of workers have become lazy, unskilled, or unproductive; it is that there are not enough jobs available,” said Heidi Shierholz, an economist at the Economic Policy Institute.
The Wall Street Journal had this article on Monday on how "Unemployment Scars Likely to Last for Years" (you can use der Google on that title to get the full article but here's a snippet):
The U.S. job market is showing signs of a sustained recovery. But the country's prolonged struggle with unemployment will leave scars that are likely to remain for years, if not generations.

The latest labor-market snapshot, out Friday, gave cause for continued, if tepid, optimism. U.S. employers added 200,000 jobs in December, and the unemployment rate ticked down to 8.5%, its lowest level since early 2009.

But economists gathered here for the American Economic Association's annual convention took a longer and generally dimmer view. Even if recent progress continues, the recession already has had a lasting effect on a generation of workers. Worse, the crisis has laid bare problems in the U.S. labor market that won't quickly recover when the economy eventually rebounds. And the longer that unemployment remains high, the greater the risk that it will create structural problems that will endure.
But hey! Let's make sure we don't hurt the fee-fees of the Private Equity Vulture Capitalists (NY Times via MSNBC):
The titans of private equity have long feared this moment. As Mitt Romney has established himself as the front-runner for the Republican nomination, not only has his record at Bain Capital come under intense scrutiny and withering attacks — but so has the private equity industry.

Mr. Romney’s opponents are the loudest, accusing such firms of carving up companies and cutting jobs. Newt Gingrich said over the weekend that Bain looted companies and fired employees, and Rick Perry on Tuesday called private equity firms “vultures.” An anti-Romney documentary calls him a “predatory corporate raider.”

The attacks have unnerved many buyout executives — especially those who have long used their fortunes to support the Republican Party. As Mr. Romney’s rivals have sought to turn the primaries into a referendum on his business career, the private equity industry finds itself under fire from those it thought were friends.
Amazing how much whining these people do. Whether they want to emulate Blackbeard or just Gordon Gecko, they've made their choices and should be willing to live with them.

And because I can: