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Krugman is very good today.
Bruce Bartlett, the author of "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy," is an angry man. At a recent book forum at the Cato Institute, he declared that the Bush administration is "unconscionable," "irresponsible," "vindictive" and "inept
It's no wonder, then, that one commentator wrote of Mr. Bartlett that "if he were a cartoon character, he would probably look like Donald Duck during one of his famous tirades, with steam pouring out of his ears."Oh, wait. That's not what somebody wrote about Mr. Bartlett. It's what Mr. Bartlett wrote about me in September 2003, when I was saying pretty much what he's saying now.
Human nature being what it is, I don't expect Mr. Bartlett to acknowledge his about-face. Nor do I expect any expressions of remorse from Andrew Sullivan, the conservative Time.com blogger who also spoke at the Cato forum. Mr. Sullivan used to specialize in denouncing the patriotism and character of anyone who dared to criticize President Bush, whom he lionized. Now he himself has become a critic, not just of Mr. Bush's policies, but of his personal qualities, too.
Never mind; better late than never. We should welcome the recent epiphanies by conservative commentators who have finally realized that the Bush administration isn't trustworthy. But we should guard against a conventional wisdom that seems to be taking hold in some quarters, which says there's something praiseworthy about having initially been taken in by Mr. Bush's deceptions, even though the administration's mendacity was obvious from the beginning.
According to this view, if you're a former Bush supporter who now says, as Mr. Bartlett did at the Cato event, that "the administration lies about budget numbers," you're a brave truth-teller. But if you've been saying that since the early days of the Bush administration, you were unpleasantly shrill.
Similarly, if you're a former worshipful admirer of George W. Bush who now says, as Mr. Sullivan did at Cato, that "the people in this administration have no principles," you're taking a courageous stand. If you said the same thing back when Mr. Bush had an 80 percent approval rating, you were blinded by Bush-hatred.
Posted by dan at 08:40 AM
Peter Lattman reports in the Wall Street Journal on the appalling fees that one law firm is trying to collect from bankrupt United Airlines.
Law firm Kirkland & Ellis, bankruptcy counsel to United Airlines parent UAL Corp., filed its final fee application on March 6 for its work on the largest, longest-running airline reorganization in history. Kirkland's total tab, subject to approval by the U.S. Bankruptcy Court in Chicago: $99,807,894.10.The $93.7 million in fees and $6.1 million in expenses cover Kirkland's work from Dec. 9, 2002, through Jan. 20 of this year. According to its filing, more than 300 Kirkland lawyers worked on the bankruptcy.
The amount Chicago-based Kirkland is asking the court to approve is among the largest fees ever generated by a law firm for a single bankruptcy proceeding. New York-based Weil, Gotshal & Manges generated $150 million in the Enron Corp. bankruptcy. The fees reflect the increasing size of companies that have filed for Chapter 11 protection in recent years.
"Bankruptcy fees have increased at a rate of 7% per year from 1998 through 2003, for cases confirmed in those years," says Lynn LoPucki, a bankruptcy professor at UCLA School of Law. "The fees being generated in these large bankruptcies are the biggest fees in history and the courts aren't doing much to control them."
The amount is also the highest of any of the fees being requested by the numerous law firms, investment banks, and other professional-services firms that worked on the bankruptcy. Professional-services firms are asking the court to approve $336.9 million in professional-services fees and expenses, according to Kirkland's filings.
Partner James Sprayregen, widely considered one of the nation's top bankruptcy lawyers, led the Kirkland team. He billed for 4,419 hours of work on the case, generating roughly $3.45 million in fees. That translates into an average billing rate of $782 per hour, which would rank Mr. Sprayregen in the upper echelon of the nation's most expensive attorneys.
"There were many moving pieces and moving parts and as a result the transaction costs of accomplishing the company's objectives were significant, and given what needed to be done the expenditures were reasonable," said Mr. Sprayregen.
United Airlines couldn't be reached for comment.
Mr. Sprayregen's lieutenant on the United matter, Kirkland partner David Seligman, generated $5.5 million in fees, the most of any Kirkland lawyer on the case. He billed 10,231 hours, which averages out to Mr. Seligman working about nine hours a day, seven days a week over the course of the nearly 38-month restructuring.
The next highest fee-generator was Kirkland partner Marc Kieselstein, who billed roughly $4.9 million for nearly 7,200 hours of work. Nonlawyers at Kirkland generated $9.7 million in fees for the firm, with paralegal Gary Vogt billing 6,440 hours, generating $1.4 million in fees.
Of the $6.1 million in expenses that the firm seeks to recoup, $2.63 million were related to copying and binding services.
A few things stand out. First, inflation in bankruptcy work is not--repeat not--under control. Second, under what rationale should the carcass of a company that is reneging on promises to creditors, employees, and retirees pay $782 to any lawyer, no matter how good he is. Everybody else dealing with United has taken a haircut. Third, for $2.63 million, the busted company could have just bought its own copy shop.
Posted by dan at 08:29 AM
Howard Husock's op-ed in the Wall Street Journal about privatizing welfare policy was bizarre in a few ways, but most particularly in the way it reveals the strange obsession many on the right have with reversing the New Deal. The pull quote from the piece reads: "How to put the New Deal behind us."
Here are some sample graphs:
In the era before passage of the Social Security Act in 1935, whose Title V provided for such spending, privately funded agencies yielded the bulk of U.S. social services, augmented by such local public institutions as poorhouses, asylums and orphanages. Nevertheless, such agencies -- and groups like the Child Welfare League of America -- assumed that government services would be at least as good as their private, often religiously inspired predecessors, as well as more universal in reach and standardized in approach, and thus preferable. They did not oppose government social-service spending, and, indeed, were often among its leading advocates.In any event, greater government social service spending was certainly achieved. In terms of quality, however, it is hard to argue that things have worked out the way reformers intended. Consider services for children. Over the past 10 years, 22 to 36 children have died each year under the watch of New York City's Administration for Children and Families. A recent federal review of state child welfare agencies found that not a single state complied fully with federal standards. Then there's Head Start, whose potent name, and the fact that it provides grants to local organizations in every state, has made it immune to budget cuts. Yet a 2005 federal study involving 383 sites and 4,600 children found it led to no gains in math learning, oral comprehension or motivation to learn.
This record of government-provided services plays out today in a dramatically changing environment for philanthropy. In recognition of the wealth of soon-to-retire boomers, the Boston College Center on Wealth and Philanthropy estimates that philanthropic giving will total some $6 trillion between 2003 and 2050. Already, over the past 10 years, there's been an 88% increase in the number of foundations. Over the last decade there has been a 67% growth in the overall number of U.S. nonprofits.
Meanwhile, a wave of capable persons has come forward to establish effective new social service organizations, based on new ideas and with little or no government support. Indeed, it can be argued that we are now in an unprecedented period for the emergence of such people, who have started new types of job training, mentoring and immigrant-assistance efforts. The term "social entrepreneur" -- for those who establish such organizations -- has entered the language and become current on college campuses, where courses and research centers (Harvard, Duke, Stanford) on the topic have been established.
Ah, yes, by all means, let us go back to the age of asylums, orphanages, and poorhouses. The more bizarre aspect of this piece is the wishing that the world could just go back to the way it was before 1932, with its general absence of health insurance, deposit insurance, income insurance, or rural electricity for that matter. I highly doubt the psuedo-intellectuals at places like the Manhattan Institute and the Wall Street Journal editorial page sit around reading the many fine histories about Depression-era America and the age of Franklin D. Roosevelt. But, really, if they're going to rhapsodize about the wonders of the pre New Deal world--and carp about the horrors of the post New Deal world--they should all be strapped into chairs and forced to sit and listen while a tag-team of historians reads aloud from Arthur Schlesinger's Crisis of the Old Order and the Coming of the New Deal.
Or maybe they should just listen to this bit from Garrison Keillor on yesterday's Writer's Almanac, marking the 73rd anniversary of FDR's first inaugural. Roosevelt died a half century ago, but there is still a hard core of people who just can't over the fact that he won, and won, and won again--and that the policies he enacted over the squawks and mewlings of his bitter opponents largely worked. Money quote:
Roosevelt said, "The country needs and ... demands bold, persistent experimentation. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand idly by silently forever while the things to satisfy their needs are within easy reach."
Posted by dan at 08:12 AM
My latest in Slate, on the Gap's problems.
Posted by dan at 09:16 PM
Excellent article by Lee Hawkins, Jr., in the Wall Street Journal on GM's difficulties marketing to Hispanics in Miami.
In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant car maker's executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.
GM is struggling under a financial burden created by monumental pension and health-care obligations. But it's also having a hard time persuading Americans to buy its cars. One reason: GM's cumbersome and unresponsive bureaucracy, the one that ran the snow ads in Miami, has for years failed to connect with the tastes and expectations of consumers outside the company's Midwestern base.
In Miami, where no GM car is a top seller, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One wooed Miami's mostly Cuban-Hispanic population by showing a woman in a Mexican dress standing in front of the Alamo as GM Saturns raced around her. Another was built on the theme "Breakthrough" -- a word that doesn't have a direct Spanish translation.
Well worth reading the whole piece.
Posted by dan at 08:34 PM
Dan Roberts reports in the Financial Times that the consulting firm McKinsey thinks earnings guidance is bad.
The consultancy, which advises many of corporate America's biggest names, argues that Wall Street's addiction to company forecasts may be doing more harm than good. The conclusions - in a research paper by one of its top corporate finance partners - align with the mood of companies such as Citigroup, Motorola, Intel, Ford and General Motors that now limit how much guidance they give.Tim Koller, a partner in McKinsey's New York office, said: "Because guidance creates short term trading opportunities, it increases rather than decreases volatility. Certain types of hedge funds like it, but then there are some hedge funds who cannot tell you what the company makes."
Yes, because we all know that the companies that don't provide earnings guidance, like, say, Google, aren't volatile at all.
Posted by dan at 08:30 PM
Alan Greenspan has sold his memoir for $8 million. Jeffrey Trachtenberg reports in the Wall Street Journal that "It isn't clear if Mr. Greenspan will work with an outside writer, though [Penguin Press head Anne] Godoff said Mr. Greenspan told her he intends to write the first and final drafts."
Given (a) the investment Penguin has made in this volume; and (b) what we can infer about Greenspan's prose style from his speeches and testimony over the years, I think it's safe to say that middle draft is going to take a good deal of professional work.
So the question is: which ghostwriter or journalist will score a big payday by acting as Greenspan's ghost?
Posted by dan at 05:51 PM
Jesse Eisinger reports in the Wall Street Journal on the end of the boomlet in independent stock research.
Independent stock researcher Mark Roberts last week received the greatest compliment someone in his business can get. A witness in the Enron trial recalled that, as defendant Jeffrey Skilling reviewed a report from Mr. Roberts's Off Wall Street that illuminated multiple questions about the company, he said: "They're on to us."The testimony serves as a good reminder of how important gutsy independent research is. It's perennially in short supply and getting shorter.
That's exactly what was not supposed to happen. In 2003, all the big Wall Street firms agreed to reform a conflict-ridden system in which their analysts pumped the stocks of investment-banking clients. The changes separated the banking business from research and earmarked funds for independent-research firms that cater to retail clients.
Not unexpectedly, individual investors aren't snapping up the free stuff -- who has time for that?
More surprisingly, major institutions have proven unwilling to pony up the big bucks necessary for the really good reports from researchers who aim at a more sophisticated audience. These research outfits also find themselves vulnerable to harassment and intimidation for publishing negative reports, with companies attacking them and their hedge-fund clients. The serially litigious drug maker Biovail and the money-losing Internet retailer Overstock.com have both sued independent firm Gradient Analytics and a collection of hedge funds, claiming they coordinated unfair assaults, charges that the defendants deny.
Faced with all of this, some independents are getting out, and others are seeing their business decline.
Mr. Roberts says business is down about a quarter since an initial burst of interest from established institutional investors after the series of scandals that rocked corporations several years ago. Off Wall Street, the granddaddy of the indies, has been left with more or less its prescandal number of clients. The vast majority are hedge funds that pay tens of thousands of dollars each for an annual subscription. . . .
Among other independent firms, tech-and-telecom firm Precursor is shuttering its research operations to focus on consulting. "There just isn't the growth or opportunity there used to be," says Scott Cleland, head of the firm. Part of the problem, he adds, is the regulatory crackdown on institutional investors funneling a cut of the brokerage commissions they generate to research firms -- paying for their work with so-called soft dollars instead of directly with cash.
Albert Meyer, who started a shop called Second Opinion Research three years ago, published his last report last month. Mr. Meyer says he wasn't pressured on his negative stock calls. Instead it was the brutal lifestyle.
Posted by dan at 05:45 PM
Andrew Postelnicu reports in the Financial Times that corporate insiders are dumping shares.
Selling of US stocks by company officers, directors and other insiders last month reached the highest level since just before the bursting of the dotcom bubble, data showed. Thomson Financial said insider selling reached a total of $6.1bn in February, the highest since the $9.1bn record set in February 2000High levels of insider activity are viewed as indicators of turning points in the market, and many investors incorporate the data into their market analysis.
Mark LoPresti, analyst at Thomson, said the data fitted within historical patterns of spikes in insider activity from January to March. He said a further increase in March could be more meaningful because insider activity had generally decreased during this month.
The biggest Wall Street companies saw the highest levels of insider selling, Thomson said, with sellers outnumbering buyers by four to one.
George Muzea, who runs an investment research firm focused on insider activity, concurred with that finding.
"The lack of insider interest in large caps does not bode well for some of the larger indexes, such as the S&P 500," Mr Muzea said. "In our opinion, from an insider perspective, it makes sense to consider . . . S&P 500 for short [calls]." Mr Muzea added that investor sentiment still indicated more bulls than bears in themarket. The reverse had not occurred since October 2002, he said.
Posted by dan at 08:58 AM
Interesting op-ed by Richard Sennett in the Financial Times, which looks to be a precis of his new book: The Culture of the New Capitalism.
In the last generation, wealth has stagnated for workers in the middle of the economy even as those at the top have, famously, become even richer and, an unsung achievement, many poor workers have increased their wealth share. Stagnating wages are the main cause; in the US, for example, the middle quintile is barely better off than it was 15 years ago. Though property values have increased, this asset is hard to access for ordinary income; to gain traction as consumers, mid-level families in the US and Britain have piled up debts, while middle-class Europeans have not done much better.For this slice of society, stagnation has become intertwined with insecurity. Work has taken on a new character in recent decades for people in the middle; its risks are especially evident among those whose fortunes are tied to the "new economy" - cutting-edge, global businesses such as financial services, media and high-tech. They account for no more than 20 per cent of US and 15 per cent of British employment but in them, modern capitalism has concentrated its energies and defined its ideals.
The new economy has reformulated workers' experience of time. Long service and accumulated experience do not earn the rewards that more traditional companies once provided. Instead, cutting-edge businesses want young employees who can work long hours; the "youth premium" works against older employeeswith multiple responsibilities. Dynamic companies have also shortened the time-frame of work itself; jobs are defined as short-lived projects rather than permanent functions. In media, mid-level employees can expect increasingly to work on six or even three-month contracts, if there are contracts at all. Throughout the "new economy", companies are rapidly changing business focus and identity in response to shifting global market conditions.
Meanwhile, time has been transformed throughout the economy as the security net of benefits has torn. Thirty years ago, industrial labourers were menaced when plants went bust; today uncertain pensions and healthcare have become middle-class problems. The risks of space have compounded those of time. A generation ago the work exported to low-wage countries were routine, manual jobs; today, computer programming and architectural engineering can be profitably exported to India, China and Brazil.
Instability can be an opportunity - if you have real wealth to invest, or are young and unattached, or an immigrant exploring cracks in the labour force. If you are dutiful but not brilliant at work, if you have children and a mortgage, if you are worried about old-age hardship, then instability does not equal opportunity. . . .
Though not a dominant employer, the dynamic motor of the new economy controls smaller, local businesses, down to goods in the corner store. More important, the short-term, lean, high-tech company has become the sex symbol of the business world. Mid-level, middle-aged, stable workers detract from the allure: they appear in managerial manuals devoted to the new economy as "ingrown bureaucrats" who are "resistant to change". A company can sex itself up practically by replacing mid-level bureaucracy with technology, by exporting technical work to low-wage countries, or simply by enforcing a work ethos in which all employees are treated as young, unencumbered and driven.
For the last 10 years, my research team has been studying how people in the middle cope with these pressures. As befits adults, people with paunches are ambivalent. On one hand, they believe in the new work ethos: business should be dynamic and lean; in publicly-traded companies, mid-level employees recognise the shareholder pressures on their bosses. On the other hand, they see their own income stagnation as unfair. If the company does not value their commitment, why should they feel loyalty to it?
Many discussions of "work-life balance" focus on the lengthening time employees now spend on the job; in Britain, the European champion, working and commuting is edging up to 11 hours daily. The people we interviewed have found various effective ways to deal with these family-time deficits; they encounter more trouble managing the unreliability of work as a source of family support. That both men and women worry about failing their families was a key finding - this spectre once haunted manual labourers but has now migrated to the middle-class. Manual labourers had strong unions to turn to; white-collar unions are weak or non-existent in the new economy.
People in the middle, both young and old, grasp at the idea that "skills" will somehow defend them against the risks of the modern workplace. Yet, young people know that the education system turns out many more qualified graduates than there are jobs. And middle-aged people grasp at the idea of retraining themselves even though they know employers are likely to prefer freshly-trained workers at home or workers pre-trained abroad. Nothing was more grinding, to me, than listening to people my age talk of "re-inventing" themselves to be more competitive, mouthing clichés they barely believed.
Posted by dan at 08:53 AM
Louis Galambos, the eminent business historian, has a good op-ed in the Wall Street Journal today on the challenges of writing business history:
"What did you learn about business in the history courses you took in your college or university? Not much, I suspect. Not if you're thinking about the kind of business you do every day, the company you work for, and the people with whom you work. You may have learned a bit about the Robber Barons of the late 19th century. Or the antitrust cases of the 20th century, the business frauds uncovered by the Great Depression of the 1930s, or, if you were really lucky, the insider trading of the 1980s.What you wouldn't have learned is how the U.S. became the world's leading industrial power in the late 19th century, and why the nation has been able, through the following decades, to keep its position as the world's most successful economy. Ever! Through scandals, depressions, wars and great waves of international competition -- through the first, second and third industrial revolutions -- the American business system has remained flexible, efficient and, above all, innovative.
That story -- one that weaves together bankruptcies, frauds, booms and busts with stunning breakthroughs and ultimate success -- should have a central role in American history, and that's the challenge that makes it exciting to write the history of American business. That's what I decided almost 50 years ago. I'm still excited about it today.
It's not always an easy field for serious scholarship. You can't just truck off to the National Archives or the Library of Congress and find the documents you need to write a reliable account of business strategies, structures, decisions and operations, or their impact on the American or the world economy. The National Archives and the Library of Congress have wonderful resources. But very often the business historian needs to work with a company or an individual executive to get access to essential records and opportunities for interviews. . . .
So it's not an easy task to write business history from the inside out. You can, for instance, get stuck in corporate infighting that doesn't really interest you. You can run into a legal department that senses risk in every sentence and wants to cross out every word that isn't one of the corporate platitudes that abound in annual reports. If you're not successful in negotiating these hazards, you may find your finished work tucked in a drawer. Forever. That can be a fatal blow to an assistant professor striving to get tenure (and they all strive for tenure).There are other, more subtle problems in writing business history. For one thing, you probably won't have anyone to talk to in your history department. The academy -- unlike the country -- is overwhelmingly liberal or left/radical and most faculty members don't really want to understand any aspect of business. That's why the history course you took may have mounted a critique of the "consumer culture," attacking capitalism because it's so productive of the goods and services that people want. Does that now seem absurd? Of course! But this clever line of reasoning enabled the professoriate to be just as negative about a business system that was successful as they were about one that was mired in depression. This was the academic version of Catch-22.
My personal response to being ignored was to organize an Institute for Applied Economics and the Study of Business Enterprise so that the two or three of us at Johns Hopkins who are really interested in the world of business can invite speakers and generate a regional dialogue that involves General Electric as well as Enron, that pays as much attention to IBM when it floated to the top of the industry as when it was sinking. The institute explores the unending American effort to balance the need for innovation and efficiency with the powerful desire of all societies for equity and economic security. The best sign that our political economy has done a good job of achieving this balance is that very few of us are completely happy with the outcome. Democratic capitalism works because it generates compromises and facilitates change.
Posted by dan at 08:36 AM
Carl Hulse reports in the New York Times on a super-secret plan by some unnamed House Reupblicans to recommend massive cuts in Medicare, Medicaid, etc.
With Congress heading into a politically perilous budget season, influential House conservatives plan this week to propose an austere alternative spending plan that would pare more than $650 billion over five years, balance the budget and drastically shrink three cabinet agencies.The legislation, part of a push by some Republicans to re-establish themselves as champions of fiscal restraint, was taking shape as President Bush struck a similar theme on Monday by asking Congress to grant him line-item veto power to eliminate federal spending that he might judge wasteful.
"We can't be all things to all people when it comes to spending the taxpayers' money," Mr. Bush said at a ceremony installing a new chairman of the Council of Economic Advisers.
But House conservative leaders would go far beyond the president's own budget proposal, illustrating the difficulty the White House and the Republican leadership have had in persuading the caucus to speak with one voice on the matter.
Senior aides say the conservatives' plan would wring about $350 billion from Medicare, Medicaid and other social programs and save $300 billion partly through a major reorganization of the Education, Commerce and Energy Departments.
"We are putting our money where our mouth is," said one of the officials, who would discuss the proposal only without being identified because it was still being prepared for release Wednesday by leaders of the Republican Study Committee.
The officials said it was particularly important for conservatives to lay down a marker because the Senate is facing an imminent vote on whether to increase the statutory debt limit, which will remind the public of the increasing deficits under the Bush administration.
They want to save $300 billion over five years through a "major reorganization" of the Energy, Commerce, and Education departments? That must be some reorganization. Look at the tables from the most recent budget. In 2006, the Commerce Department had a budget of $6.4 billion, the Energy Department had a budget of $23.5 billion, and the Education Department had a budget of $56.5 billion. Together, spending on the three adds up to $86.4 billion. If you held that figure steady for five years, that would come to $432 billion. So to get $300 billion out of savings in five years from those units, budgeteers would have to cut 70% of the anticipated spending on the three departments.
Posted by dan at 08:18 AM
My latest in Slate. The new AT&T, a lot like the old AT&T.
Posted by dan at 08:13 AM
Business Week has a good cover package on the flow of cash from the U.S. to Dubai and elsewhere in the Gulf.
Posted by dan at 09:49 AM
Bids are due this week for Knight-Ridder, the newspaper company that put itself up for sale at the behest of investors. The stock closed Friday at 62 and change. And over the weekend, the press tried to downplay expectations.
Joseph Hallinan and Henny Sender reported in the Wall Street Journal on Saturday:
If the bids are high -- above $70 a share or so, for a total of about $4.7 billion -- it would signal that Wall Street hasn't given up on the newspaper industry and its future. More deals and industry consolidation could follow. If the bids come in much lower, though, Knight Ridder could say no thanks, potentially sending prices of newspaper stocks tumbling.Knight Ridder may be a tough sell. Several of its big-city papers, notably the Philadelphia Inquirer and the San Jose Mercury News, are perennial profit laggards and face potentially thorny union negotiations. . . .
Still, newspapers, which are strong cash generators but have been losing readers and advertisers to the Internet, are getting a generally cool reception from investors, including the private-equity firms that are among the expected bidders. Private-equity firms often buy troubled companies, sometimes taking public ones private, with an eye toward reselling them whole or piecemeal later.
"The profile of most newspapers is like an oil well; they are running dry," says a senior executive at a big private-equity firm.
And on Saturday, the Financial Times, citing sources familiar with the situation, reported that one group of deep-pocketed potential bidders has apparently lost interest.
"Kohlberg Kravis Roberts, Providence Equity Partners, and Blackstone Group, which were debating whether to make a joint bid for Knight Ridder. . . have stopped moving forward with their effort, the sources said."
Posted by dan at 09:21 AM
The proprietors of American Media aren't the only magnates in tabloid hell. David Carr reports in the New York Times on Mortimer Zuckerman's challenges with the Daily News. Bonus points to the headline writer for the Philip Roth reference!
Posted by dan at 08:48 AM
Geri Smith reports in Business Week on Mexico's rapidly growing middle class. Money graphs:
American conceptions of Mexico usually focus on the country's poverty and the endless flow of illegal immigrants to the U.S. But another Mexico is starting to emerge: a middle-class nation where millions have access to mortgages, solid jobs provide security, and a class of strivers saves to put its kids through college (page 52). This has the makings of a much more stable Mexico, and a much more lucrative market for U.S. companies. "We're very interested in the Mexican middle class," says Edmundo Vallejo, chief executive of GE Latin America, a big provider of consumer finance.The ranks of that middle class, or those making between $7,200 and $50,000 a year, have swelled to record levels of around 10 million families. That's equal to nearly 40% of all Mexican households, vs. 30% just a few years ago. It helps that for almost a decade now, wages have been rising faster than inflation. In addition, women are having fewer children, and more of them are joining the workforce, giving households more money to spend and save.
Homeownership is the other key factor in Mexico's transformation, because it allows families to build equity, establish credit histories, and move up the economic ladder. The country is in the grips of a housing boom that is reminiscent of America's post-World War II expansion. A record 560,000 new mortgage-financed homes were built last year, almost double the number in 2000, and 750,000 more are expected for 2006.
Posted by dan at 05:22 PM
The slow-motion bankrupting of the auto industry continues apace. The latest to file: auto parts company Dana Corp.
Posted by dan at 04:58 PM
Now come allegations that the Bush administration's fiscal policy is illegal. David Rogers reports in the Wall Street Journal:
A White House proposal to cancel funding approved by Congress led federal agencies to illegally withhold more than $471 million for a dozen programs last year, according to Comptroller General David Walker.Mr. Walker's findings come as President Bush has proposed similar "cancellations" of about $1.5 billion from prior appropriations, generating savings to offset new spending Mr. Bush wants in fiscal 2007, beginning Oct. 1.
While the funds were finally released in late December, the incident is sure to aggravate concerns in both parties that the White House is trying to weaken Congress's grip on the federal purse.
Mr. Bush's long-term fiscal strategy rests heavily on his ability to impose cuts on nondefense spending, and new data released late Friday by the Congressional Budget Office estimate that the president assumes $170 billion in five-year savings from this sector alone.
Adding to the pressure are the mounting costs of emergency spending for military operations in Iraq and Afghanistan. And there is a growing competition between finding funds to equip U.S. troops versus the resources needed to train and support security forces for the new Baghdad and Kabul governments. . . . .
For the past three decades, the rules of the budget road in Congress have been grounded in the 1974 Impoundment Control Act, which was adopted after years of fighting between lawmakers and President Nixon over his practice of unilaterally impounding funds appropriated by Congress. Under the law, future presidents were empowered to propose rescissions and withhold funds for 45 days while Congress considers the proposed cuts. If lawmakers don't approve the reduction, the money must be released.
Mr. Walker's account makes clear that didn't happen last year after Mr. Bush proposed in October to cancel funding to help offset the cost of recovery funds for the Gulf Coast in the wake of Hurricane Katrina. The comptroller, who oversees the Government Accountability Office and is charged with monitoring impoundment issues, said that agencies withheld $471.4 million from a variety of defense, labor, agriculture, and environmental programs for as long as two months as the White House maintained that none of the "cancellations" came under the Impoundment Control Act.
Findings of such illegal impoundments are relatively rare. GAO officials pointed to a ruling in 2002 when the Bush administration withheld funds for a Homeland Security program; the rationale was to spend more slowly to achieve efficiencies. In the recent cases, the goal is more to kill the appropriations.
"Agencies may only withhold budget authority from obligation if the president has first transmitted a rescission proposal in a special message to Congress," Mr. Walker wrote to Joshua Bolten, director of the Office of Management and Budget. "Because the president's Oct. 28 proposal was not, according to your staff, a special message, the agencies we identified impounded budget authority in violation of the Impoundment Control Act."
Mr. Bolten's spokesman said that OMB staff never advised agencies to withhold funds and that the administration has specifically instructed agencies "not to improperly withhold funding in the case of cancellations." He added that "OMB is currently reminding agencies of that and we're looking into the instances" cited by Mr. Walker.
Posted by dan at 04:55 PM