"Temp Work" - Is It A Temporary or Permanent Sign?

Many media outlets have been running stories about the rise of temp work as a good sign that the economy is recovering. Is it? Let's put this into perspective.

Temp or temporary work use to be something companies used to fill occasional administrative work or to augment staff during the busy end of the year shopping season. But over the last decade and especially over the last few years companies have moved to use temp status as a way to avoid having to provide benefits and commit to workers over the long run.

With a shortage of jobs prospects, workers have been willing to take temp work (or even contract work) knowing that it did not provide security or benefits and hoping that something permanent would come around. But the unemployment rate is over 10% and is expected to stay high for years to come (see Fed Reserve chart to the right).

The fact is that after the last business expansion cycle, roughly from 2004 to 2007, companies did not hire back many workers, choosing instead to hire overseas or temp workers. And when the recession picked up momentum, companies shed workers quickly. This had the effect of weakening the balance sheet of many American families who have burned through savings and then gone deeper into debt during the same period.

The American (or any other country's) middle-class driven economy is based on a permanent employment model. Without permanent employment the economy would look more like Mexico where workers plan their consumption from pay check to pay check.

2 of the largest industrialized countries are taking a different approach:

• In Germany the Kurzarbeit program encourages companies to reduce the amount of hours their employees work rather than laying them off (read more: Merkel Says Worst Still Ahead).
• And in Japan the government is looking at curbing the alarming shift from permanent to temporary workers (read more: Japan May Limit Hiring of Temporary Workers).

These actions are in marked contrast to the approach taken by successive U.S. administrations, Democrats or Republicans. The American approach has been to provide some modest unemployment benefits and hope the private sector will start hiring again.

But as the chart above shows, the Fed Reserve doesn't expect many jobs to return even looking out to 2012 pointing to the obvious: American companies will eventually have to hire workers or constraint their own growth but they will either be overseas or will only be temp.

What should the U.S. government do to encourage hiring of permanent workers? Make business tax credits dependent on hiring and keeping on-shore workers. The proof is in the example of several southern U.S. states that have shown tax credits are attractive to luring car mfg. such as BMW and Daimler.

Outsourcing Costs Companies More Money, Say Nobel Laureates

According to the recipients of this year's Nobel Prize in economics, Boeing’s costly, overdue production of its 787 Dreamliner could have been predicted. It is due to outsourcing.

Research conducted over the years by Oliver Williamson and Elinor Ostrom is now accepted by economists as proof that employees can't be viewed as just a financial transaction. Seriously? Yes, this how Williamson and Ostrom earned the Nobel, by showing why outsourcing is not only bad for American jobs it is bad for American business.

So how do you make a decision to outsource work? According to one professor at UC Berkeley “I need to be very sure I can specify what I need in advance and wouldn’t have to ask for changes later” to make outsourcing contracts cost-effective. As anyone who has ever had to manage a project of any duration or complexity knows, that's the $100,000 question for which no one can ever be sure to have an answer. And if that's the central question on whether work should be outsourced well, American business is going to be in a world of hurt. (And you've probably already experienced it if you've ever had a complex question you've tried to ask of an overseas call center.)

BTW, it seems that Boeing's answer to the question is that it needs more control over the complex production process. So it has reversed course canceling contracts and even acquiring some of the companies that were making the jet parts.

Brother, can you spare $17/hour?

Economy watchers use to wonder if this generation of Americans would live as comfortable a middle-class life as did our parents. Forget about this generation (the answer is no) how about the generation before us? In what has yet to be acknowledged by our leaders and the mainstream media, baby boomers (defined as being between 45 and 64 years old) have seen a spectacular erosion in their lifestyle during the past decade - and it's getting worst.

The culprit you would guess is the U.S. recession. Yes that's part of the story. But the bigger contributor, the elephant in the room, is the steady shipping of jobs out of the country every year for almost 20 years.

Take the story of Joseph Paccione, chronicled in this weekend's paper. Mr. Paccione, aged 55, spent 30 years working for 2 companies as a technology specialist. A year ago he was laid off from his job at Lockheed Martin. His job search yielded only a part-time position making $17 an hour. But he still hoped it would turn into a full-time job - no luck. Mr. Paccione supports a typical American family of 5 and no one in the family has health insurance. (Side note: the debate you may have heard of between whether America needs jobs or health care first is false - American needs both.)

Let me put this into perspective. $17 per hour is $33K per year or about $45K if you factor in benefits, increasingly rare. A full-time worker with Mr. Paccione's IT skills, say in Beijing or Bangalore, costs at least $40K (fully-loaded, as accountants say, with benefits, cost of facilities, training, and recruiting) but that worker is probably younger than 35 and has no family to support. And if you were looking for someone with Mr. Paccione's managerial skill and experience he would be equivalent to the salary Mr. Paccione made at Lockheed Martin. How can I be sure? I have had to make those painful hiring decisions in my career in Silicon Valley.

If you are an employer reading this, would you seriously not consider hiring someone like Mr. Paccione, rather than sending his job offshore? (His temporary job has ended but his manager was so impressed, she is willing to give him a stellar recommendation.)

America has lost its way following the free-market, free-trade pied-pipers. If you think business voices and political leaders (who run for office using business money) have your jobs at heart when they advocate for NAFTA or free trade with Asia, I have a mortgage portfolio to sell you from Lehman Brothers.

And I'm afraid to tell you that the situation is getting worse because not only are white collar, "knowledge-worker" jobs not coming back, the surplus of wealth the middle-class built over the past 50 years is evaporating faster than the polar icecaps due to the big ticket items: energy, health care, education and housing costs. For those of us who grew up hearing stories of the depression (a rarity these days) or of immigrant sacrifices (as I have from my parents), it's time to start paying attention, thrifty days are ahead.

Fed Reserve Bank Comes to the Rescue and Piles on Liabilities

The "Real Time Economics" section in The Wall Street Journal has an overview showing how the assets (and liabilities) of the Fed Reserve Bank have grown since the start of this crisis. These assets no longer have to be marked to market values so there is no way to know what these are worth, but we do know how much cash the Fed let out. This ballooning letting out is what causes inflation.

I've broken out each additional burden the Fed Reserve has taken in separate charts below. Click to enlarge each chart.

Chart 1 - $0


Chart 2- add $48 billion for every day credit lines the Fed gives out


Chart 3 - add $508 billion to buy US treasuries; this is ongoing


Chart 4 - add $56 billion given to federal agencies


Chart 5 - add $237 billion to purchase mortgage-backed securities; new


Chart 6 - add $529 billion, direct lending starts (you notice how this has not happened before)


Chart 7 - repurchase agreements with companies looking for immediate liquidity


Chart 8 - $117 billion for AIG and Bear Stearns


Chart 9 - add $314 billion for central bank liquidity swaps with other central banks


Chart 10 - add $255 billion for more lending to banks


Chart 11 - add $5 billion to start TALF, Secretary Geithner's plan to buy up bad bank debt

Without a roof over our heads - the state of America

The New York Times ran a photo series showing the makeup of homeless encampments sprouting up across the United States. These pictures and descriptions are taken from that series.

The first picture to the left underneath a clear, sunny California sky might look to you like a nice camping trip. The tents all look like they are from REI and then there's the idyllic American River to the left. But this picture is actually of a camp site made up of families and individuals that have only recently become homeless because of the housing crisis that has engulfed the United States.

“They just popped up about 18 months ago. One day it was empty. The next day, there were people living there.” - Paul Stack, operators manager at outreach center

The next photo is of a young woman. According to the article this is Tina Garland, "an out-of-work truck driver, in the kitchen area of the tent she shares with her husband in Sacramento."

Think about this for a moment. She has skills but can't find a job. She is married but her husband is also unemployed. Their only recourse is a tent.

Is this the America we want?


Next up is a man sitting on a cot. According to the article, "Doug Brown, a freelance electrical engineer, moved to the shelter at Village of Hope in October after losing his job. He shares his tool shed with another person."

There's a pattern here folks. Skilled people are unable to find jobs. The American economy isn't working and the social safety net isn't able to help us avoid becoming homeless. So what kind of social safety net do we have?



Next up is a photo of a young man in his mid-20s standing by a fire. According to the article, "Daniel Kent, 27, has been living in a encampment called Taco Flats in Fresno for three months after running out of money."

We read in the history books that Americna in the late 1920s and 1930s was dotted with "Hoovervilles," homeless cities named after the presiding man in the White House, President Herbert Hoover. Who among us thought that we would see these kinds of tent cities rise again in our lifetimes?

America's social safety net is ill-prepared to handle the recession we are in. There are some politicians in Washington and in our state capitols that are taking note and hopefully they will put emergency measures in place to rectify this growing problem now. Why do only Wall Street investment firms and banks get bailouts?

This problem is big and getting bigger. And if you think it can't impact you, take another look at those pictures.

Sheila Bair - Ready for the Job

If Tim Geithner does lose support from Republican U.S. Senators (many are already calling for his ouster) the person to replace him as U. S. Secretary of Treasury should be Sheila Bair, current chair of the FDIC.

Her clarity of vision on why we are in this Wall Street created economic quagmire and incredible articulation about how we get out is second to none.

I found her recent testimony to Congress a breadth of fresh air. She is saying look, we know how to clean up and regulate banks at FDIC, Congress gave us authority years go. What has been lacking is the political will to regulate non-banks. And so non-viable financial institutions like Citi Group are hanging around thanks to tax payers while viable banks - which also tend to be smaller - are at a competitive disadvantage.

There is no one in the federal government who is presenting the problem and the solution as clearly as Sheila Bair. She should be in-line to be Secreatary of Treasury and the way to get her in-line is for President Obama to appoint her to one of the deputy posts now vacant.

U.S Govt Tries Again, This Time FDIC Gets Involved

W.C. Fields is supposed to have said: "If at first you don't succeed, try, try again. Then quit. There's no point in being a damn fool about it."

This quote came to mind today as I was reading the new plan announced by the U.S. Treasury of Secretary Tim Geithner to buy what has been dubbed "cash for trash", the trash being mortgage-backed securities.

The new plan now gets the FDIC involved - why jeopardize the stability of the FDIC? The only reasons I can think of are: 1) everyone else is already involved - U.S. Treasury, Fed Reserve, Fannie Mae, and Freddie Mac; and 2) it's a source of new cash, i.e., the FDIC's credit lines with the Treasury which ultimately means more sales of U.S. Treasuries.

But how much more borrowing can the U.S. do?

As President Obama said on "60 Minutes" last night: "The limit is our ability to finance these expenditures through borrowing. . . . If we don't get a handle on this, and also start looking at our long-term deficit projections, at a certain point people will stop buying those Treasury Bills."

Private investors are cheering, sending the U.S. stock indices skywards today. And according to a source quoted in "The New York Times":

"One institutional investor said he was surprised that the government was lending so much of the money, saying that private investors have been willing to buy up pools of mortgage-backed securities with less “leverage” or outside borrowing than the Treasury proposed on Monday."

Now, the investors bidding up the stock market aren't the same ones buying U.S. debt. The stock market investors are happy today because the new plan gives them terrific leverage to make more money. Here's the example the U.S. Treasury gave today:

A pool of bad residential mortgage loans with a face value of, say, $100 is auctioned by the F.D.I.C. Private investors submit bids. In the example, the top bidder, an investor offering $84, wins and purchases the pool. TheF.D.I.C. guarantees loans for $72 of that purchase price. The Treasury then invests in half the $12 equity, the private investor contributes the remaining $6.

So for just $6, private investors will leverage $100 with backing from the tax payers. The only thing they have to lose is $6 but if that $100 loan package goes up in value to say $110, they benefit from $10 in profit. Of course some will go down too. But let's say it's 1/2 down, 1/2 up so that's $4 profit in this exmaple between the two, won't the govt get some of the upside? Well, AIG, Bank of America and other s paid out big bonuses but did they repay any of it to U.S. taxpayers? No. So the likelihood of any of the upside being shared is pretty low.

Does AIG Really Pay for Performance?

Excellent piece by David Leonhardt today unravels the myth of executive performance-based pay.

David writes about retention bonuses at AIG:

"Most amazingly, the A.I.G. bonuses haven’t even accomplished their stated goal. Andrew Cuomo, New York’s attorney general, said Tuesday that 52 employees who received bonuses had since left A.I.G."

As there is more sunlight coming in, long held beliefs about executive compensation are falling down around us. As I recently wrote about Silicon Valley, the 2-tier system of compensation that has sprung up in a weak IPO jackpot market (always illusory for rank and file employees) where bonuses are used to inflate compensation is taking a hit in this recession. Whether it survives depends on how and when shareholders and analysts weigh in.

Senator Grassley Offers Way Out for AIG Executives

U.S. Senator Grassley in an interview with an Iowa radio station Monday night said of the AIG executives that he'd:

"feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, 'I'm sorry,' and then either do one of two things: resign or go commit suicide." - Senator Grassley

Well, at least this is a start. Up to now all we've heard from our politicians in Washington is: it's a contractual thing, you wouldn't understand.

More on bonuses: Citi Chief takes $38.2 million in 2008

This just in from "The New York Times:

"Citigroup gave Vikram S. Pandit, its chief executive, a compensation package valued at more than $38.2 million for 2008, even as the bank posted five consecutive quarters of multibillion-dollar losses and turned to the government three times for help."

That's almost 1/4 of the amount AIG is paying to its discredited executives.

Are you in shock? Well, you should be. Let President Obama know how you feel: http://www.whitehouse.gov/contact

U.S. Treasury Lost Track of 33% of TARP Bailout

According to the chairwoman of the Congressional Oversight Panel created for TARP, Secretary Paulson gave away 1 out of every 3 dollars to Wall Street banks with no record and no plans of getting any of it back.

Listen to the full interview with panel chairwoman Elizabeth Warren; it might set your hair on fire, but it also just might get you worked up enough to demand accountability from Congress and the President.

AIG to pay $100 million bonuses

[Correction on 3/15/09 - the total amount of bonuses as reported in the media went up by $65 million.]


Just as I finished a post on Robert Rubin's comments at a conference this past week about bonuses I read this headline on "The New York Times" Web site:

AIG to Pay $100 Million in Bonuses After Huge Bailout

What's more, according to the article, the bonuses will be paid to executives in the same business unit that brought the company to the brink of collapse last year.

U.S. taxpayers have already given $180 billion to save AIG, I guess in comparison to that $100 million is small potatoes.

Robert Rubin: "bonus was something of a misnomer" (an insider's view on bonuses)

Speaking at an economic conference this past week, Robert Rubin the former U.S. Treasury Secretary and chairman of Citi Group, responded to a question about whether Wall Street bonuses had contributed to the financial instabilities by saying this:

"Bonus was something of a misnomer." - Robert Rubin

Huh?

While I don't have the full transcript of his remarks, this notion that the term "bonus" is not properly understood is a concept making the rounds in CEO circles.

I recently heard it said that Silicon Valley executives needed to preserve bonuses while cutting salaries, retirement benefits, and even jobs.

What's going on here is a 2-tier system of compensation. Companies can hide true executive and high-earner compensation by calling it bonus. But now that bonuses are being called out on the evening news and the public sentiment has soured, companies are scrambling to defend bonuses as not something extra, tied to financial performance, but as part of expected compensation.

In the case of Robert Rubin, he earned $126 million during his time as chairman of Citi Group. During this time he presided over the spectacular fall of the bank that is holding on only thanks to U.S. taxpayers. Citi can defend his compensation by saying it was not tied to financial performance of the bank but instead based on Mr. Rubin's performance.

But what exactly did Mr. Rubin do to earn $126 million or an average of $12.6 million per year? In his own words:

“By the time I finished at Treasury, I decided I never wanted operating responsibility again.” - Robert Rubin

So if Mr. Rubin didn't have operational responsibility as chairman of Citi, what exactly did he do to earn millions?

After Mr. Rubin's comments this past week, maybe now we know how he can justify earning that kind of money. In his mind it has nothing to do with performance, rather it is an entitlement if you are a Wall Street banker.

2 Views on the Future of the U.S. Economy

View 1:

• "There are going to be fewer stores, fewer factories, fewer financial services operations." - John E. Silvia, chief economist at Wachovia
  

• "There’s been no place to hide.” - Stuart Hoffman, chief economist at PNC Financial

View 2:

• "This country has never responded to a crisis by sitting on the sidelines and hoping for the best.” - President Obama

• "You’ve got to use this moment to retrain for jobs.”- Andrew Stettner, National Employment Law Project

These quotes, all from an NYT.com article today, clearly show the choice we have. We are at a fork in the road. The economists and financial pundits of the boom years never thought the good days would end. Now that recession winds are blowing, all that is offered is doom and gloom.

Others such as President Obama and Andrew Stettner are painting a different view. Which will you choose?

If you are wondering what today's 651,000 job loss #s means for you, it depends on your view of the world. A crisis offers opportunity to those who look for it. This is not the time to be thinking like the economists, now is the time to get retrained and benefit from the retooling that is going on in the American economy.

[chart from NYT.com]

Merrill's Million Dollar Men

While the investment bank Merrill Lynch was drowning in losses last year and looking for a savior to avert going out of business altogether (Bank of American eventually bought them), the following received million dollar bonuses:

[source: "The Wall Street Journal"]

• Thomas Montag: He was handed a $39.4 million pay package and Merrill stock awards valued at approximately $50 million. The stock awards were issued to replace stock he held in Goldman Sachs Group Inc., his previous employer.
• Andrea Orcel: He got $33.8 million in 2008. His 2007 package included a special $12 million bonus for advising Royal Bank of Scotland Group PLC and other acquirers of ABN Amro Holdings NV, a now-troubled deal.
• Peter Kraus: Given a $29.4 million contract and Merrill stock to replace his holdings in Goldman, where he used to work.
  
• David Gu: He made $18.7 million in 2008, down from $19.8 million in 2007.
• David Goodman: Merrill paid him $16.5 million in 2007 and another $16.5 million in 2008.

If you're wondering where your pay package is, contact your U.S. Representative or Senator.

U.S. taxpayer’s bailout of AIG: $180 billion

Today the U.S. Treasury announced that it is giving another $30 billion to the world's largest insurance company AIG.

Today AIG also had an announcement: a quarterly net loss of $61.66 billion.

Total amount now given to AIG: $180 billion.

The AIG funding eclipses the $50 billion that Citigroup has received from the U.S. Treasury, and the $45 billion that Bank of America has received.

From "The Wall Street Journal":

"The new deal, the government's fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan. Now the government is relaxing loan terms by wiping out interest in hopes of preserving AIG's value over a longer period."

In other words, the U. S. government is very afraid of AIG collapsing.

Meanwhile in other news, AIG's ex-CEO sued the company today.

Stock Market Keeps Falling and Falling

All U.S. stock market indices fell again today. The Dow is now well below 7,000, down more than 50% off its all time high. Lots of "smart" talking heads on TV are wondering about how low it can go.

Let's look back to 1929. The chart to the right shows that after hitting a peak on Sept 3, 1929, the stock market did not bottom out until June 1932, some 30 months later. When the carnage stopped, the S&P was off by more than -80%.

How low will the stock market go this time around? We're about 17 months into this bear or down market (peak in October, 9 2007) so we may not know for some time to come.

[Chart: NYT.com]

Citi Bank Complaint: U.S. Govt is Too Strict On Us

After running the bank into the ground (see chart at the right for losses incurred over the past 5 quarters), Citi bank executives are complaining that the U.S. government is being too strict on them under the terms of the tax payer funded bailout.

This is like the kid who burns down his parent's home (and the entire block) and then complains when they take the matches away.

Citi's CEO, Mr. Pandit, has apparently met with everyone from
President Obama's National Economic Adviser to U.S. Representative from Manhattan looking for some sympathy.

But there still seems to be some who are having fun at all of this carnage. The Wall Street Journal reports:

" The scrutiny has Citigroup executives second-guessing everything, right down to the fresh-baked cookies offered at a recent corporate retreat in Armonk, N.Y."

Some of these bank executives just don't understand what they've done and how their actions have impacted our lives..

Blue Print for the Future from President Obama

A little detour with this post to talk about President Obama's speech to the country last night.

Last night the President addressed the country and spoke clearly about what ails us and put the economic problems into perspective:

"The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank."

By giving context he helped us all understand that there are multiple challenges and they must be addressed in parallel, not one at at time.

The example that comes to mind is from my college days. All students know that they cannot focus on just one class. No matter how much trouble that once class is giving you, you have to also study and prepare for the others . . . if you want to graduate.

And thinking about the future is important because investors and entrepreneurs will not take risks and resume normal economic activity if they cannot look beyond the immediate crisis.

This is a psychological effect - and it is real. There is nothing worse (or better) about U.S. business today than before we started to hear about sub-prime mortgages and credit default swaps back in October 2008. What's changed is that more information is available and it has spooked all of us.

Another U.S. President showed us once again last night that the only thing we have to fear is fear itself.

He continued, outlining a 3-part plan that will solve 3 big challenges the U.S. has put off for decades. He called it a "blueprint for the future":

1. On Energy - "We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before."
2. On Health Care - "The cost of health care eats up more and more of our savings each year, yet we keep delaying reform."
3. On Education - "Our children will compete for jobs in a global economy that too many of our schools do not prepare them for."

Once again we have a President of the U.S. that is giving some hope that a better future is both possible and is already in the works.

Consumer Confidence All-time Low, Stocks Rise Sharply

American consumer confidence hit a historic low today. Or at least so says a survey.

(Background: The Conference Board reported today that its February consumer confidence index fell to a historic low. The survey is based on a sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS, a very large Dutch media company.)

How low is confidence? The # cited in the survey is 25, in 1985 it was 100.

Another survey of sorts, the stock market, rose sharply this afternoon. The Dow Jones Industrial Average rose 3.5% (and climbing) as of around 3pm Eastern Time (US). Yes, that's a huge turnaround from yesterday.

Was there any other news? Yes, one thing, Fed Reserve Chairman Bernanke said he doesn't think banks should be nationalized even though the biggest among them (Citi and Bank of America) are worth less than the billions the U.S. government gave them as part of the TARP plan.

Mr. Bernanke had no other solution to offer.

So what's going on here? Answer: no one really know. Sure there will be a lot of talking (heads) on CNBC and Bloomberg and headlines in tomorrow's newspapers about the stock market rebound, but there really is no reason for enthusiasm. The insolvent banks are still insolvent and there is no solution on how to make them healthier.

“The measures taken by the Federal Reserve, other U.S. government entities, and foreign governments since September have helped to restore a degree of stability to some financial markets.” - Mr. Bernanke

With what can only be called "irrational exuberance" Mr. Bernanke's comments seems to be following in the footsteps of his predecessor - blind belief in the ability for things to work themselves out.

Still Holding Stocks? Financial Advisers Now Say Selling Not Bad Idea

"But if you see your portfolio shrinking, there comes a point somewhere between comfortable retirement and needing to eat dog food where your circumstances tell you to stop the bleeding."

- Quoted in in SF Chronicle business column

After years and years of telling average investors to stay in the market, the financial advising community has now started to change its tune. It's a little late for that.

DHL Pullout Sends Ohioans to Food Lines

The German global shipper, DHL, is shuttering the Airborne Express operations it purchased in 2003 (source: Wikipedia). The impact to the community is devastating.

The DHL and Wilmington Ohio story was profiled by 60 Minutes.

Other multinational corporations are or will be doing the same in the months ahead. Because of trade pacts such as NAFTA there are limited to no protections for workers.

Here's a quote from a former DHL worker from the 60 Minutes site:

"Most DHL employees are contracted (75-80%) Most of us didnt get sevrence [sic] packages or any help when we got laid off. We didnt get help at having and opppertunity [sic] to have some one come in and help us into another trasition [sic] to another job. We worked for years, like myself, 8+ years with no holiday pay,no insurance,abd [sic] working on a salary. Most people would ask why stay at a job with no benefits,etc?? Because we loved what we did." - Posted by needwork2 Jan 28, 2009

There is a project co-sponsored by Ohio State University and The Times-Gazette that will track the impact of this closing. To share your story contact them at: southernohiovoices@gmail.com.

[Image: Skip Peterson/Associated Press)

Will the Stimulus Bill Create Jobs?

"Technology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant."

- Saul Hansell, Bits columns, New York Times

Saul's quote is from an article he wrote on whether the money going into rural broadband building as part of the $787 billion stimulus package will create jobs.

I think the answer depends on smart industrial policy - something the U.S. does not have and is the only industrial country that does not. It was not always the case.

U.S. industrial policy at one time built the telephone system, Social Security system, interstate highway system and Internet superhighway. It is also what the U.K. recently announced as part of "Digital Britain". And what France announced in bailing out its domestic car makers. The reason the U.S. doesn't have a smart industrial policy is because of almost 3 decades of unbridled free market economics also know as Reaganomics.

Free market economics as practiced by the U.S. is now dead. It has ruined the global economy thrown millions out of work and destroyed prosperity. All hope now rests on the Obama government or more accurately on Obama himself. His job is to convince Americans that a new way must be charted. It will not be easy. He is off to a good start.

As I'm writing this blog the U.S. stock market fell in intra-day trading to the 7200 level today. That's 7,000 points off the 14,165 all time high reached on October 9, 2007. Lot's of people have made money during this fall; their names end with with "Madoff" and "Stanford".

[See chart above.]

Speculators have existed from the days of the Silk Road. But today crooks and their accomplices have caused more harm to the lives of millions of people than any natural disaster. It doesn't have to be this way.

A smart policy about how to spend the $787 billion can direct money into job creation and arrest job loss. Governments as far away as France, China and Singapore know how to do this. Surely we can too.

The stimulus money can create jobs, but it needs a smarter more well-coordinated industrial policy to accompany it.

Obama Gets Real About Money for Homeowners

It's understandable if you were puzzled after reading the stories about the $787 billion stimulus bill signed into law by President Obama. You might have been thinking "where's the beef?"

Simply put, that plan is not for you. And by you I mean middle class Internet readers. The $787 billion plan is for folks who are in dire need of a safety net. They've lost their job, health care insurance and home. The $787 billion plan offers monetary help to the most vulnerable.

But today President Obama announced a new plan which applies to middle class, home-owning America. Today's $75 billion plan is intended to prevent home owners from sliding into foreclosure.

The plan has 3 components:

1) Get your home refinanced. If you are making payments on a home that is worth less than the value of the home, and the load is owned or guaranteed by Fannie Mae or Freddie Mac, you can get it refinanced.

Example: 30-year fixed rate mortgage of $207,000 with an
interest rate of 6.50% on a house worth $260,000 at the time. Today, $200,000 is remaining on the mortgage. But the value of that home has
fallen 15 percent to $221,000. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2) Stay in your home, stay out of foreclosure. The plan helps people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners.

Example: Household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400.

3) Stabilize the residential mortgage market. $200 billion of additional financial backing was announced for Fannie Mae and Freddie Mac so that they remain solvent.

Rubble & Dust Marks the End at Shea, Citi Stands in the Wake

After 45 years Shea Stadium came down in New York City today. In it's place is "Citi Field". . . at least for the time being.

I had a special connection with Shea - I saw my first baseball game there in the early 1980s.

Citi in its current incarnation was created by Sandy Weill in 1999. Who thinks it will be around for another 35 years?

[Image from NYT.com]

Greenspan: Nationalize the Banks . . . US Auto Next?

“I understand that once in a hundred years this is what you do.” (Read more.)

- Alan Greenspan, former U.S. Federal Reserve Chairman

OK, read that one more time.

Folks, we have entered a new era. The problems US banks created are so big that no amount of throwing money at the problem is helping. And we're talking about a lot of money being thrown, $8.5 trillion and counting.

If we're going to nationalize the banks, then why not US car companies who are threatening to layoff 25,000 American workers? I think the French got it right in setting a zero layoff policy in return for government funds. When are American voters going to wise up?

“Renault and PSA have also committed not to close any production sites for the duration of their loan and to do whatever they can to avoid layoffs.”
- French President Nicolas Sarkozy

U.S. Treasury Says Banks Refuse to Increase Lending

Some of the largest recipients of aid from the government's $700 billion financial-rescue plan didn't increase lending to consumers and businesses in the last three months of 2008, the Treasury Department said.

Read more.

The Lost (Bush) Decade

"The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001."

- Paul Krugman, Nobel Laureate

Read more.

"Buy American" is Good for America

I use to think that the "buy American" chant was just uniformed jingoism. But I've come to see the nuance and to see that it might just be the thing to save American jobs.

Some history: I remember all through the 1980s American commentators and so-called economic experts were decrying Japanese auto makers as taking away American jobs. They had worked workers all across the country into a frenzy and in Detroit it led to the death of an Asian-American who happened to be on the wrong street that day.

Japan of course wasn't the problem. Japanese auto makers were taking what they had learned from Americans and were putting it into practice, something Americans themselves weren't doing all through the 1980s. Instead we were practicing Reganomics, now discredited except for some ultra right-wingers.

These commentators were wrong then and they are wrong now to oppose it. "Buy American" wasn't the answer to our problems back then, our lack of productivity and investment was, but "buy American" might just be the right thing today.

I'm of course taking about the "buy American" clause that is part of the economic recovery (or stimulus) package being debated in Congress right now.

What has changed is that our decades-long experiment with free trade has revealed one undeniable truth: the U.S. market is second to none and every country needs to sell to Americans to grow their own economy. Ask any non-U.S. CEO and they'll tell you that in order to be successful today, you have to sell in the U.S. Or just go look at the monthly trade imbalance; we buy more from others than we sell to them.

So why are editorial pages, such as my home town paper the "SF Chronicle" railing against the "buy American" provision in the bill? Because they represent the mouthpiece of American business and American CEOs want access to any and all markets for cheap labor and to sell services. These same CEOs aren't concerned with creating American jobs.

If our own government doesn't "buy American" goods and services then we have no hope of reversing the trend of Amercian CEOs throwing Americans out of work.

BlackBerry Executives Caught with Thumbs in the Till

This just in: CEO fraud from Canada. According to "The Wall Street Journal":

"Research In Motion Ltd.'s co-CEOs and other executives have agreed to pay nearly $75 million to settle charges tied to their role in stock-option backdating at the BlackBerry maker."

Is is any consolation knowing that financial embezzlement is not the exclusive purview of U.S. CEOs?

Treasury Department paid $254 billion for $176 billion of assets

Today Elizabeth Warren, chairwoman of the Congressional Oversight Panel examining the Troubled Asset Relief Program, or TARP, testified with some bad news for taxpayers: “Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value."

But that's good news for Wall Street firms. Now we know how they managed to pay out billions in bonuses.

“In the rush to do something, it isn’t always justified or wise simply to do anything."
- Elizabeth Warren commenting on the $76 billion gone missing.