Author: Megan Carpentier

As if it weren’t difficult enough to avoid being tricked by your credit card company into fees, higher interest rates and variable rates that only ever go up, Andrew Martin and Ron Lieber of The New York Times report on the aggressive campaign by your bank to get you to agree to accept fees even the Fed thinks are outrageous. The best part: They want you to think they’re doing you a favor by charging you!

Before the Fed stepped in — and only because Congress was talking about legislating the practice out of existence — banks were treating debit card transactions differently from checks when an account was overdrawn. Instead of declining the transaction if the account was empty, which is what most people expected would happen, the bank would approve the debit and then charge customers about $35 for each overdraft debit transaction. Sketchier yet, they would often order transactions largest to smallest at the end of a business day to enable them to charge multiple overdrafts: If a customer had $20 in an account and, over the course of the day, used a debit card for $10, $10 and then $25 (expecting only the last charge to be an overdraft), the bank would reorder the transactions to $25, $10 and $10 and then charge the customer $105 in overdraft fees.

Banks made $20 billion off those practices last year alone — covering checks or automatic payments that would otherwise normally bounce, even when a customer doesn’t have overdraft protection, only netted then $12 billion. So the banks are now spending a great deal of time trying to convince their customers to opt into the per-transaction fees.

As Martin and Lieber note (and this author personally experienced), one Chase opt-in notification is designed to scare customers into believing that even their normal overdraft protections will be ended, and that their ATM and debit cards will no longer work properly if they don’t “opt in” to the new overdraft protection.

But in recent weeks, Chase has been fanning special letters out to consumers with an offer that it urges them not to refuse.“Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you,” the message, emblazoned in large red type, warns. “If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with “even in an emergency” underlined for emphasis.

Martin and Lieber describe other hard-sell tactics, like consumers being told that holds on their cards will leave them without any access to money. The banks don’t plan on stopping at one mailing: Consumers who fail to opt into the banks’ new version of overdraft protection — a per-transaction fee of around $35, not that banks will ever call it that — can expect more hyperbolic mailings, personal phone calls and emails. After all, there is $20 billion in customers’ hard-earned money at stake for the banks.

With the advent of new credit card regulations designed to keep credit card companies from engaging in the most predatory practices, the companies are very, very busy trying to find legal ways to keep making money in the exact same ways they always have: with confusing rules, crazy fee structures and unexpected interest rates changes. About the only effective part of the government’s regulation is the requirement that companies disclose when they are doing things to your credit card program that will make them gobs of money at your expense — but even then, their slick marketing teams are designing inserts and disclosure statements to make it all look shiny and happy.

What should you be watching for in your mail (and reverse if you fell for it)?

1. Opt out of opt-ins
Credit card companies — and banks that offer debit cards — aren’t supposed to approve charges if you are over your limit or your account will be overdrawn. Until recently, however, they would automatically allow an over-limit or overdraft charge go through without telling you, but with the extra fees attached to make as much money as possible. In other words, your credit limit wasn’t a limit — it was just an amount after which you would be charged a per-usage fee in the range of $35. Under the new law, you have to explicitly provide permission for them to charge you per-transaction fees for over-limit or overdraft use — so card issuers are asking cardholders to opt in to charges by making their practices seem all about their customers. I mean, you wouldn’t want to suffer the embarrassment of a declined transaction, but the Big Bad Government is going to force them to be mean unless you join in their shiny, happy fee-per-transaction program to spare yourself the humiliation of using a different card or paying cash!

2. Open every envelope, and read every page
Credit card companies aren’t stupid — they know you don’t read your mail. Under the new laws, they only have to inform you within 45 days that they are planning on raising your rates. But they don’t have to send a separate letter, or make it easy to understand! Regular Visa card users are likely used to the little legalese pamphlets that come with their statements, but American Express just prints changes to your terms and agreements on the back of the bill. And, although come August consumers can choose to not accept the terms of a new agreement and pay off the balance under the old terms of the agreement, August isn’t here for another six months. If the lead-up to February’s rule changes are any guide, the months prior to August will race by in a flurry of agreement changes while you don’t yet have the right to do anything about it other than pay off your card and close your account.

3. Don’t forget the fees!
Just like legislators who promise not to raise taxes but end up facing budget shortfalls, credit card companies are making up for revenue losses by raising fees since they’re often not covered by new regulations. From annual fees to paper statement fees to fees for non-usage, credit card companies are getting creative — and they’re hoping you’ll miss the fine print or forget to read your statement.

4. Watch out for the no-longer-fixed interest rate on some cards
It has been a time-honored tradition for banks to push consumers to take out adjustable rate mortgages, but credit card companies are just now getting into the game. Instead of just raising interest rates, they’re converting consumers to adjustable (called “variable”) rate cards from fixed ones. But whereas at least banks give you the impression that your rates might also go down when it adjusts, card issuers are creating cards with rates that only ever increase. The best part about variable rate cards is that, if the rate is pegged to the prime interest rate, they don’t have to notify you in the future when the rates go up. Handy for them, but bad for you.

5. Fees earn interest, so keep track of what you’re being charged
When companies charge fees to your account, if you forget to pay a card that you haven’t been using — but which comes with a fee — then the company gets to collect interest on the fee. One subprime card that carries a $75 annual fee for a $300 spending limit doesn’t require consumers to pay the fee to get the card: They simply issue the card with a $75 balance and, if the customer can’t pay it, start charging 59.9 percent interest on the fee. And, since analysts expect that some companies will charge consumers that fail to use their cards, the new fees you didn’t even see coming could come with hefty interest payments added.

As part of his proposed health care reform plan, Obama envisions two new tax increases: one on non-wage income for individuals making over $200,000 a year and families making over $250,000 a year; and another, an additional Medicare assessment, on earned income for the same group. The proposal takes on so-called “high-earning households” as part of Obama’s promise not to increase taxes on the middle class. But the idea that someone earning $199,000 is “middle class” remains laughable to many Americans and to economists.

The political reality is that nearly 80 percent of Americans self-identify as “middle class,” 2 percent identify as “upper class” and 18 percent identify as “lower class.” Only the latter total is likely accurate.

Standard statistical practice is to divide the country into five groups, or quintiles, each representing 20 percent of the population. Median household income in the United States in 2008 was $52,029, which fits squarely in the 3rd quintile, where households range in income from $39,000-$62,725. That’s what the statistical middle class really looks like. If one wanted to encompass the middle of the entire range — which is to say the middle 60 percent of the households in America, including the “lower middle” and “upper middle” classes — the range of middle class could be expanded to those households earning between $20,000 and $100,240 every year. There’s a lot of daylight between the highest earning households in the bottom 80 percent of the population, and individuals earning $200,000 year.

In fact, only 5 percent of the households in America earn more than $180,000 to begin with, so “high earners” comprise something less than 5 percent of the country. Interestingly enough, rank-and-file members of Congress, senators included, will make $174,000 in 2010, putting them just outside the top 5 percent of earners in this country if they aren’t married or their spouses don’t work. The president earns $400,000 a year, meaning he makes more than $100,000 more than the average salary of the top 5 percent of Americans.

By those standards, people making $199,000 a year probably do seem somewhat middle class. That, however, doesn’t mean that they are.

In a long story in Der Spiegel about how currency swaps were used by the governments of the Eurozone to balance their books rather than hedge their bets and how credit default swaps are being used to undermine governments and the euro, the authors note that even as Goldman Sachs and other banks were advising Greece and other governments, they were also making money betting on their failures. Despite this conflict of interest, the authors note the following:

Nevertheless, even the new Greek government, which is breaking with many of the traditions of its predecessors, cannot manage without the US investment bank. Goldman Sachs and Deutsche Bank were among the six banks that placed Greek government bonds worth €8 billion in early February. Perhaps the Greeks were trying to remain on good terms with the two powerful banks. Both were among the most active traders in CDSs, which are often traded on behalf of hedge funds.

Speculation or not, it brings up an interesting point: When the banks interested in making money off of government contracts could benefit equally by betting against a government’s solvency — especially if they don’t get those contracts — their potential influence over governments can only get out of control.

When it comes to President Obama’s 2011 budget, Republicans deplore deficits. They don’t like spending money (even if it’s to help Americans struggling to find work or keep their homes) except when they can extol the virtues of the pork projects the Democrats’ votes help them bring home. But they have a dirty little secret: The self-same deficits give them the political cover they crave to cut government services they don’t personally need, so they don’t mind them that much.

A case in point is scandal-plagued Nevada governor Jim Gibbons, who plans to use his state’s budget deficit to “reinvent” Nevada’s already-meager government.

“We may never have an opportunity like this again,” he said.

The opportunity presenting itself to Gibbons is to slash services in the state. On the chopping block: a college scholarship reserve fund; state workers’ salaries; elementary and secondary education; Medicaid coverage for glasses, hearing aids and dental care; and day care programs for disabled adults. Oh, and he might eliminate some tax deductions for mining companies, which would amount to 25 percent of the cuts in Nevada children’s educational programs.

Anti-tax Republicans often push for tax cuts without concomitant service cuts because cuts in services are far less politically popular, particularly in the good economic times that encourage politicians to enact tax cuts. But it’s not that they are bad at math; they instead just believe that they can “starve the beast” of government by limiting its access to funds. Never mind that “starving the beast” rarely works even when Republicans control the government and that often even Republican governments will actually raise taxes rather than cut needed services — anti-tax Republicans will continue to advocate that cutting taxes is just the first step to cutting unnecessary spending.

Of course, what a relatively wealthy Republican considers “unnecessary” spending should give many Americans pause. As Glenn Greenwald pointed out this weekend, Republicans are more than happy to preside over the largest expansion of government since World War II if it involves wars or government surveillance. But, as Gibbons proves, they’ll pare down dental care for people who can’t afford health insurance, they’ll “starve the beast” of public education and they’ll make sure low-income people with hearing impairments can’t get hearing aids on the government dime (even if those hearing aids can help them get a job). And then they’ll celebrate the “opportunity” to “reinvent” government.

When Congress passed a major expansion of the State Children’s Health Insurance Program last year intended to enroll four million more children, it did so in a fiscally responsible way: it funded the expansion, over many Republican objections, with an increase in the federal tobacco tax. But a new study suggests the possibility that the very children the government is trying to cover with its SCHIP expansion might be facing problems because of that tax increase.

Professors Stephen Block and Patrick Webb of Tufts University published a study last fall looking at the links between poverty, smoking and childhood malnutrition on the Indonesia island of Java. What they found sounds pretty reasonable, if disheartening: In poor families, funds spent on tobacco often come out of household food budgets.

They found that households of nonsmokers spend on average 75 percent of their budget on food, whereas households in which at least one person smokes allocate 68 percent of their budget to food and 10 percent to cigarettes.“This suggests that 70 percent of the expenditures on tobacco products are financed by a reduction in food expenditures,” the researchers write.

Households with smokers allocate a larger portion of their food budget to rice, a low-nutrient food, whereas those of nonsmokers spent more on high-quality foods, like meats and vegetables.

They also found that preschool children in smoking households tended to be shorter than those in nonsmoking households, a common indicator of malnutrition.

Block and Webb’s findings echoed those of researchers at Berkeley and the World Health Organization, who also found that children of impoverished smokers often paid the price for their parents’ habits.

In the United States, people smoke less as they move up the income scale, meaning that children in households who qualify for SCHIP are disproportionately likely to have parents who smoke. The average state and federal excise tax burden of a pack of cigarettes is $2.35, though the total tax on a pack of cigarettes varies from $5.26 in New York City to $1.08 in South Carolina. While increased cigarette taxes often induce some people to quit and others not to start smoking, the demand for cigarettes remains relatively inelastic because of tobacco’s addictive properties — which is why cigarette taxes are often a boon to state and federal treasuries.

If the researchers at Tufts, Berkeley and the WHO are all right, increasing tobacco taxes could mean that, in some SCHIP-qualifying households where the parents remain smokers, children may suffer as their parents struggle to pay for tobacco and food.

Block and Webb note that one state has a program that has been much more effective at encouraging less-wealthy smokers to quit: Massachusetts.

When Massachusetts began offering next-to-free smoking cessation products in 2006, it hoped to reduce the number of low-income smokers within state lines. New data suggest that it has done so, and fast — by 2008, the proportion of poor smokers in the state dropped from 38 percent to 28 percent, a 30,000-person decrease (but still significantly higher than the rate in the general population, estimated at 21 percent).The program covers almost the entire cost of counseling and prescription drugs for Medicaid participants, capping copayments at $3. Enrollees aged 18 to 64 are eligible for 180 days of drugs and 16 counseling sessions per year. The total cost to the state was $11 million for the first two years.

That’s a total cost of $366.68 per smoker, a cost far outstripped by the cost of health care for smokers. (The Senate health care bill offers a very limited version of Massachusetts’ cessation coverage: Only pregnant women would qualify.)

These statistics indicate that both smokers who are Medicaid-eligible and their children would benefit more from programs that help them quit than from ones intended to make smoking less affordable.

When Joseph Stack III flew a plane into an Austin building housing IRS personnel, he left behind a devastated family and a rambling anti-tax and anti-government manifesto expressing, among many things, his dissatisfaction with a 1986 section of the tax code related to independently contracted software engineers. It was that section of tax code, which even its sponsor and most of the Senate called to repeal, that Stack apparently blamed for his financial problems.

David Cay Johnston of The New York Times notes in his last paragraph that Stack’s actions came a day after the administration announced that it intends to crack down on the misclassification of employees as independent contractors, implicitly connecting the two events. For Stack, who in his manifesto described what he viewed as systemic and persistent harassment by tax authorities, it would not have been difficult to assume that the crackdown was aimed at contractors instead of employers. The reality is that many employers are using the tax code to push their tax burdens onto de facto employees, and to avoid a whole host of laws that require they offer benefits and refrain from discrimination.

(Full disclosure: I worked for an employer on and off for several years that recently became notorious for having engaged in the practice of classifying employees as independent contractors. Being classified as a full-time employee when, indeed, I worked full-time for that employer would have significantly reduced my tax bills and provided me with a series of other benefits that I then lacked. The owner all but eliminated that practice several months after we amicably parted ways.)

According to Courtney Rubin at Inc. Magazine, employers who can classify their employees as independent contractors reap significant financial benefits — as evidenced by the additional $7 billion in tax revenues the administration expects to recover through its enforcement procedures.

Estimates are that companies can hold down labor costs by as much as 30 percent if they use independent contractors, because they don’t have to pay Social Security and Medicare taxes, provide vacation or sick leave, pay for workers’ compensation and unemployment compensation insurance, or worry about minimum wage or overtime provisions. (Employers also get a break on potential legal headaches – among other statutes, independent contractors aren’t protected by Title VII of the Civil Rights Act, which prohibits discrimination.)

Employers save money, and employees get screwed — particular when it comes to tax season, when independent contractors often end up paying 50 percent more in taxes than their colleagues offered “employee” classification. Independent contractors pay both their own Social Security and Medicare taxes as well as the Medicare and Social Security taxes normally paid by employers.

Governments take a hit, too, according to Steven Greenhouse at The New York Times:

Ohio’s attorney general estimates that his state has 92,500 misclassified workers, which has cost the state up to $35 million a year in unemployment insurance taxes, up to $103 million in workers’ compensation premiums and up to $223 million in income tax revenue.“It’s a very significant problem,” said the attorney general, Richard Cordray. “Misclassification is bad for business, government and labor. Law-abiding businesses are in many ways the biggest fans of increased enforcement. Misclassifying can mean a 20 or 30 percent cost difference per worker.”

Misclassified employees might be somewhat bigger fans of increased enforcement, too, unless they are part of the contingent of independent contractors who don’t report all of their income.

Rubin notes that enforcement efforts by a variety of states against this practice have been quite successful for government coffers: Microsoft paid $100 million in 2000 after an investigation; the state of Illinois collected a $328,500 penalty from one contractor last December; and 12,300 investigations in the state of New York in 2009 netted $6 million in taxes and penalties. The investigation also opens up legal possibilities for misclassified workers, who can file lawsuits against their employers to recover lost wages or other damages.

So were these enforcement efforts by the administration — designed to save workers on their taxes and force companies into compliance with labor laws — the final straw that convinced Stack to pay the IRS with his life rather than his money? If it was, either Stack was mistaken about its intent, or worried about being caught having under-reported his income. And the outcome for his family — the death of a loved one — remains the same.

With yesterday’s news that inflation is creeping up, economic cheerleaders were out in force trying to convince Americans that a small rise in inflation is good, if headlines like those in today’s New York Times are any indication. BNP Paribas economist Anna Piretti is even approvingly quoted as cheering for more inflation, since higher consumer prices mean businesses might eventually think about hiring again!

But if they do not pass along those price increases, analysts said, that may worsen their own financial health and prolong unemployment.“If producers see their profits being hurt they will be more reluctant to hire,” Ms. Piretti said.

Mind you, if you exclude energy and food from the producer price index (the inflation rate for industry, instead of consumers), yesterday’s report said producer inflation was up only .3 percent. Consumer inflation was up .2 percent.

Dig deeper into the numbers, though, and The New York Times thinks it’s important that you know that consumer inflation actually sort of went down!

Excluding food and fuel costs, which tend to be volatile, prices fell 0.1 percent — the first decrease since 1982.

Yes, excluding two of the most price-inelastic necessities that even the unemployed are on the hook for — heat and food — inflation’s really down, don’t you see? You should be happy, even though the entirety of price increases came from things you can’t possibly go without. Economists think it’s important that you understand which of your costs didn’t rise:

A decrease in the price of rent, new cars and airline tickets helped offset the jump in energy prices.

Yes, in the midst of a housing crisis that is converting more Americans from homeowners to renters (and increasing vacancy rates), it’s good news that rents remain low, and obviously the decline in the price of new cars and airline fares is more important to Americans than the rise in the cost of food, heat and gasoline.

Of course, if you’re un- or underemployed, increases in the costs of food and fuel are actually probably more important to your daily existence than the cost of airline tickets and new cars that you might not be able to afford. Other statistics show that Americans’ average weekly earnings are down 1.5 percent in the last year, partly because employers are cutting hours and partly because they aren’t offering raises. With economists calling for Americans to suck up further price increases in the hopes that employers will resume hiring rather than rely on further gains in productivity with the same (or lower) staffing levels, there certainly remains a strong case for an effective jobs bill — and it’s a big part of the reason some economists are advocating for wage subsidies rather than more inflation.

It is with great fanfare that President Obama will roll out his new plan to help keep struggling homeowners from going into foreclosure. His $1.5 billion program will provide block grants to states in which housing prices have dropped 20 percent from their all-time highs. Thus, only homeowners in Nevada, California, Arizona, Michigan and Florida will qualify.

Housing finance officials in those states will be able to use their block grants, upon receiving approval from federal officials, to help unemployed homeowners or provide assistance with new home purchases or mortgage modifications.

Speaking of mortgage modifications, the new program being launched today has only 2 percent of the funding given to Obama’s $75 billion mortgage modification program in which banks were supposedly paid to help the very same homeowners stay in their homes. According to reports out this week, that program has only given 20 percent of the nation’s reported 4 million struggling homeowners any assistance, which is probably why this new program is needed in the first place.

The fact that Obama thinks he can help a large number of homeowners in the five hardest-hit states with the very mortgage issues a program that cost 50 times as much was designed to resolve means either that the first program didn’t need that much money or that the banks who profited from it didn’t use their profits to help any American not employed by a bank.

Recent media reports that Citigroup had discovered a potential way around regulations forbidding it from abusive rate hikes sparked more than a public outcry; it convinced Citi’s competitors to follow suit. Since the regulations are set to take effect Monday, card companies are scrambling to inform customers about the changes to their credit card agreements in order to keep bilking them in exactly the way the law was designed to prevent.

Congressional oversight committee chairwoman Elizabeth Warren told reporters today that the government’s hands are tied without the consumer protection agency for which Sen. Chris Dodd (D-Conn.) has sought a Republican backer, to no avail.

“[The Credit Card Accountability, Responsibility, and Disclosure Act] is a good first step but it isn’t enough alone,” said Warren on a conference call with reporters hosted by the U.S. Public Interest Research Group. “The credit card industry and the entire consumer credit industry is broken. We need an agency, a cop on the beat that is flexible and responsive.”

Unfortunately, too many senators seemingly disagree with her.

Ed Mierzwinski of the U.S. Public Interest Research Group does not. He thinks the fact that the Fed refused to take tough action against credit card companies’ regulatory evasions last year indicates they don’t have consumers’ best interests at heart and never will.

“The Fed could have had a broader anti-evasion provisions as well, which we all asked for in our comments and didn’t get,” said Mierzwinski. “The Fed gave us obvious protections against a couple of provisions but they should have given us a big hammer and they didn’t.”

But with the folks at the Fed seemingly set to cede some authority to the Treasury Department over banks as part of the larger financial oversight council, don’t bet on them agreeing to give authority to a new agency just because some people think consumers deserve protection. That’s not their job, and they prefer that it not be anyone else’s, either.

Simple answer: because the deeper the Europeans dig, the more member countries get covered in the same dirt. Italy did it with JPMorgan Chase, their municipalities did it with whomever they could, France did it but already got caught and reports today indicate that Belgium did it, too. Spain, which is facing its own potential debt crisis, may indeed be the only country in Europe that wasn’t approached about engaging in currency swaps to mask its debts, though it’s hard to believe investors weren’t willing to pump something into Spain’s burgeoning economy.

So despite calls by experts like Simon Johnson for more regulation of trades and even for the blacklisting of Goldman Sachs in Europe or in sovereign debt markets generally, European countries have a disincentive to do more than point fingers and talk about how it’s all Goldman’s fault. They’ve all been dancing with the debt-masking devil, be it at Goldman or elsewhere. If they kick Goldman off the floor, it’ll be easy enough to find a new partner, and if they make the dance illegal, it’s their public balance sheets that will suffer — and their politicians’ butts on the line. It’s not just Goldman whose hands will end up tied: EU member countries will end up tying their own hands as well, and everyone knows politicians hate to be left with nothing but transparency and honesty.

If the news about increasing unemployment, the failure of the stimulus to address disproportionate unemployment among African-Americans or the “shovel-ready projects” that have been the least effect part of the stimulus makes you wonder if there really are any short-term solutions to address unemployment in this country, economists Bred DeLong, Alan Blinder and Larry Katz might have a ray of hope for you to cling to. They sent a letter to Congress, signed by a boatload of their colleagues, calling for wage subsidies to spur hiring.

In it, they ask Congress to offer firms a temporary, incremental tax credit for hiring new workers, saying that it will cause companies to hire people faster than they otherwise would. They want it targeted to firms that are growing, to maximize its effectiveness, and widely publicized, to maximize its utilization. The hope is that, unlike public construction projects, which take a long time to get to the hiring stage, a wage subsidy can quickly get unemployed Americans back to work and spur consumer spending, which would cause companies to hire more workers to meet demand, thus having an amplified effect relatively quickly.

Here’s the full letter and list of signatories, which includes Robert Reich and Joseph Stiglitz:

February 18, 2010

The. Hon Nancy Pelosi
Speaker of the House of Representatives
United States Capitol
Washington, DC 20515

The Hon. John Boehner
Minority Leader of the House of Representatives
United States Capitol
Washington, DC 20515

The Hon. Harry Reid
Majority Leader of the Senate
United States Capitol
Washington, DC 20515

The Hon. Mitch McConnell
Minority Leader of the Senate
United States Capitol
Washington, DC 20515

Dear Speaker Pelosi, and Messrs. Boehner, Reid, and McConnell:

A great number of different policy actions–including the American Recovery and Reinvestment Act, the financial rescue, and the extraordinary monetary policy measures taken by the Federal Reserve–have in their sum played an important role in changing the trajectory of the economy from one of terrible decline to one of growth.  But with the latest unemployment rate at 9.7 percent, it is clear that additional emergency policy measures to jump-start job creation are still warranted.

A well-designed temporary and incremental hiring tax credit is a cost-effective way to create jobs, and could work well in the current environment.  At a time when GDP is beginning to rise and demand is starting to return, private firms are likely to respond to such a tax incentive by hiring sooner and more aggressively than they otherwise would have done.  Such a credit could thus help put Americans back to work more quickly than otherwise.  And by targeting firms that are growing, such a tax credit supports the businesses most likely to lead the recovery of employment.

There are many ways to design an effective hiring tax credit, but in general the beneficial effects will be greater the stronger the hiring incentives and the lower the administrative burdens placed on firms.  It is critical that such a tax credit be put into place quickly and that it is publicized widely.  Firms will begin to accelerate hiring only when know they can count on such tax relief.

We judge that a well-designed hiring tax credit is a well-targeted and economically sound strategy for aiding job creation at this phase of the recovery, and so we support a well-designed hiring tax credit.

In our personal capacities, we are sincerely yours,

Mark Zandi
Justin Wolfers
Laura Tyson
Mark Thoma
Peter Temin

Joseph Stiglitz
Betsey Stevenson
Isabel Sawhill
Dani Rodrik
Robert Reich

Richard Portes
Larry Katz
Barry Eichengreen
Peter Diamond
Brad DeLong

David Cutler
Robert Cumby
Tyler Cowen
Menzie Chinn
Alan Blinder

George Akerlof

While economists insist the worst of the economic crisis us behind us (unless you’re in Greece) and the administration celebrated the success of the year-old stimulus package yesterday, many Americans aren’t reaping the benefits of the recovery they keep hearing has arrived. Today’s news shows that — yet again — for the average American, the picture isn’t getting any rosier.

1. More people than expected lost their jobs last week
New Labor Department statistics show that an additional 31,000 people signed up for unemployment benefits last week. That means that in the last four weeks, nearly half a million more Americans joined their 8.4 million fellow citizens as victims of the recession that’s supposedly over. And those numbers don’t even reflect the 100,000 jobs economists think the massive snowstorms may have cost the economy in February.

2. Even though the economy sucks and interest rates are low, inflation is creeping up
Although the Fed has been keeping interest rates low and, what with massive unemployment, no one can afford to buy that much anyway, the inflation and wholesale rates went up twice as much as economists expected. So, not that Americans have money to spend — which is the only reason that inflation isn’t even higher — but companies are already chomping at the bit to raise their prices and improve their profit margins. For those Americans whose budgets are already stretched to the breaking point, inflation just means the necessities that they are buying may soon cost noticeably more.

3. Rich people paid way less in taxes than you last year
Just in time for tax season comes the news that even as many Americans struggled to keep their jobs and many struggled to pay their tax obligations once they lost their jobs, the rich got to keep more of their not-so-hard-earned money than anyone. The 400 households with the most income in 2007 paid an effective tax rate of 20 percent, due to Bush’s tax cut on capital gains (the profit earned from buying something that you later sell for more money). That effective rate is less than the regular tax rate paid by someone making $34,000 a year in 2009. Naturally, the capital gains tax cut remained in effect in 2009 and, with the wealthy barely facing any unemployment and continuing to earn money hand over fist, their tax bills aren’t likely to be any higher come April 15. Meanwhile, the Republicans who cut the taxes that allowed the super-wealthy to pay an effective tax rate of 20 percent are complaining about the deficit created by Obama’s 2010 budget and stimulus programs designed to improve the economy and get people back to work.

4. Your health insurance premiums are going up — way up
A new report issued by the Department of Health and Human Services notes that insurance companies are raising premiums for 2010 at rates of up to 56 percent in some places. While Congress was considering health care reform last year that would have regulated the industry more stringently, rate increases remained low for what appears now to have been public relations reasons. But now that any comprehensive reforms are off the table and what’s left seems increasing unlikely to pass regardless, insurance companies plan to make up for their mediocre profit increases last year with a gangbuster year in 2010. In the meantime, the 10 percent of Americans who are unemployed (and many more who are underemployed) seem likely to add to the ranks of the country’s 47 million uninsured — unless health care does pass, in which case they’ll be required to buy the increasingly unaffordable health insurance pedaled by this nation’s bloodsucking insurance companies.

5. The foreclosure crisis isn’t over, and the mortgage modification isn’t really working
The mortgage crisis that spurred so many foreclosures might be over, but the foreclosure crisis is not. Economists expect a surge in foreclosures and short sales this year, and the government’s supposed hedge against such eventualities — its $75 billion mortgage modification program — isn’t helping except “at the margins.” Almost 300,000 more homeowners became eligible for permanent mortgage modifications in December and January, but only about half of those homeowners were offered them — and 500,000 are about to be bounced because of supposed paperwork problems, which is the major reason banks have found to exclude homeowners from participating since the program’s inception. In fact, the newest figures show that only about 20 percent of the 4 million eligible homeowners have gotten permanent modifications to date. But that warning may come too late for many homeowners: The deadline for fixing the paperwork they might not have even known was considered incomplete was January 31.

With Obama’s much-vaunted mortgage modification program all but deemed a failure — one million applications have resulted in 31,000 modifications in the $75 billion program — the administration is set to embark on a new phase in its project to resolve the ongoing mortgage crisis. That phase involves providing banks with financial incentives to allow you to sell your house for less than the value of your mortgage and move one.

One real estate broker is already calling 2010 “the year of the short sale,” an industry term for selling something for far less than you paid for it. Banks save 20 percent over foreclosing on a house, between legal costs and the likelihood that a foreclosed-upon-house will sell for less than the mortgaged value, while homeowners agree to forfeit their homes rather than go through foreclosure and end up broke and out of a house anyway.

The Obama administration plans to offer $3,500 incentives to sell short in order to speed up the process of putting distressed homes on the market, and a Citigroup pilot program will give homeowners a whole grand to get out of their houses so Citigroup can sell them. Banks are pushing the short-sale incentives because of the “largely ineffective loan modification plans,” made ineffective by banks’ unwillingness to do more than temporary modifications or to approve applications. Apparently, rather than enforce the rules of the $75 billion program currently in effect, the administration has decided it’s easier just to let the banks sell the houses and get on with this economic recovery they say is already here.

Barack Obama might not ever say that we live in a post-racial society, but his election was heralded by many as the beginning of an American era not bedeviled by historical racial disparities. When asked last year about race-based affirmative action programs, Obama suggested that class might be as, if not more, important a factor than race. His policies on a range of issues from college affordability to the recently announced anti-obesity initiative showcase his commitment to working on issues of importance to the African-American community without framing them as specifically “black” issues. But when it comes to the economy, recent data suggest that just focusing on class might not be enough to lift many African-Americans out of poverty.

Dr. Boyce Watkins at theGrio lists some of the disheartening statistics about the disproportionate effect the recession has had on African-Americans.

In January 2009, black unemployment was 72 percent higher than white unemployment (7.8 percent to 13.4 percent) according to the Bureau of Labor Statistics. In January 2010, that difference has risen to 80 percent (9.6 percent to 17.3 percent). The white unemployment rate rose by 1.8 percent during 2009, while the black unemployment rate rose by more than twice as much, 3.9 percent. While we know that black men have it worse than black women when it comes to employment levels, black female unemployment grew by more than four times that of white women (4 percent to .9 percent). All the while, black men are sitting on an unemployment rate of 19.5 percent, a 3.7 percent rise since the start of the year…Black teen unemployment is 80 percent higher than that of white teens (43.5 percent to 24.1 percent), presenting another serious long-term problem.

The stimulus package was meant to target groups — like construction workers, who are predominately male — who were disproportionately affected by the economic downturn. And yet African-American workers continue to lose their jobs and remain jobless at a disproportionate rate.

Titania Kumeh at Mother Jones knows why: The stimulus isn’t helping African-Americans in part because it isn’t helping the urban poor. She cites a new report by the Kirwan Institute for the Study of Race and Ethnicity that shows that because the stimulus wasn’t targeted at African-Americans and didn’t address some of the unique barriers faced by African-American communities, it simply isn’t working as effectively for African-Americans as it is for the rest of the country. Worse yet, because the stimulus monitoring system isn’t designed to track outcomes by gender or race, there’s virtually no way for the government to notice, except in retrospect as it examines unemployment data broken down by race.

What does this say for the rest of Obama’s initiatives? It indicates that leaving race out of the conversation or the solutions will do little more than make the issues more palatable to those who oppose affirmative action. It also shows that the roots of economic disparity might well differ based on race, and might require different solutions based on race — or else the historical status quos, like African-American unemployment being stuck above 10 percent, will remain.

Louis Uchitelle of The New York Times got many of the financial industry’s former (and current) titans to speak on the record about their support of the Volcker rule, and why it would be good for the banking industry and America. What he didn’t mention is that their support of the Volcker rule comes with a rather large criticism of their successors.

Uchitelle talked to George Soros, former Vanguard executive John Bogle, former Reagan Treasury Secretary Nicholas Brady, former Citigroup co-chairman John Reed and George W. Bush SEC chair William Donaldson about the Volcker rule and increased regulatory oversight that would, at a minimum, turn back the regulatory clocks to their heydays. To a man, they all support increased regulation over the banks and the Volcker rule, which would prohibit banks from making speculatory investments with depositor funds.

What’s really interesting, though, is all those men made a great deal of their money in the regulatory environment to which they are suggesting America return, and in which the financial titans of today swear they couldn’t possibly make any money. One could speculate that the guys who made their money while subject to regulation think that the current bankers, who argue they couldn’t make any money if regulated, are simply bad at their jobs. A massive, world-wide financial crisis caused by unregulated speculation might bear out that hypothesis.

In an early roll-out of what is likely to be part of the financial industry’s regulation-busting public relations strategy, JPMorgan Chase analysts issued a report stating that any government efforts to prevent future financial meltdowns will cost them money. Naturally, they have no intention of losing a cent of the profits they planned to make by being undercapitalized and engaging in trading activities to the detriment of their depositors, nor will they pay a cent more in taxes to cover the losses to taxpayers for the various bailouts.

So how do the banks plan on covering the cost of making themselves stable and taxpayers whole? Why, by raising fees, of course!

“In order to return to similar levels of profitability as per current forecasts, we estimate that pricing on all products (retail banking, commercial banking and investment banking) would have to go up by 33 percent,” [JPMorgan head of research Nick] O’Donohoe said.

Despite the fact that the biggest proposed tax doesn’t come anywhere near one-third of profits, despite the fact that “increased capitalization” only means they need to have enough money around to prevent abject failure, and despite the fact that, in the days before banks were allowed to engage in both retail and investment banking, fees for services were actually lower, those legal changes will result in a one-third fee increase for customers.

It sounds like banks are just trying to use the specter of fee increases to scare consumers out of wanting reform — and, if that doesn’t work, they’ll use those increases to fund even higher profits than they would have generated without regulation. No wonder nobody trusts their bank anymore.

If last week’s call by Chinese military officials to dump U.S. Treasury bonds over the recent agreement to sell arms to Taiwan seemed haphazardly designed to strike fear into the hearts of U.S. government officials and strangely timed, you were probably right. It turns out that, in fact, China dumped those bonds last December.

The Financial Times reports that China dumped $34.2 billion in Treasuries in the month of December alone, which was enough to make China only the second-largest holder of U.S. government debt for the first time since September 2008. Of course, the Treasury Department didn’t have those figures on hand when Chinese military officials got busy posturing to the media over Taiwan.

Given the burgeoning Greek crisis and its potential downstream effects on Euro-denominated government debt, most analysts don’t expect another huge sell-off of Treasuries by China. But the more they can threaten it to get their way on foreign policy issues — see also, China policy under the Bush Administration — the more they’ll keep trying it.

The Spanish National Intelligence Center is, by its own admission, tasked with:

Providing the Prime Minister and the Government of Spain with information, analysis, studies or proposals that allow for the prevention and avoidance of any danger, threat or aggression against the independence or territorial integrity of Spain, its national interests and the stability of its institutions and the rule of law.

Der Spiegel reports that, as part of that mission, the agency is now investigating whether what it terms the “Anglo-Saxon media” (or English-language press) is conspiring to undermine the Spanish economy as part of its reporting on the potential downstream results of a Greek default. Although Spain isn’t facing the same debt crisis as Greece, it does have 19 percent unemployment, an over-reliance on construction for GDP growth and, reportedly, a mass of government debts not unlike Greece.

Citing unnamed sources, El Pais said the National Intelligence Center (CNI) was investigating “whether investors’ attacks and the aggressiveness of some Anglo-Saxon media are driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign.”

The Financial Times and The Economist are considered particularly critical of Spanish Prime Minister Jose Luis Rodriguez Zapatero’s economic policies, and last week, Infrastructure Minister Jose Blanco all but specifically accused those publications of fomenting concern about Spain’s financial stability to allow others to profit. But last year, when John McCain called Zapatero someone who would “want to harm the United States,” no such investigations were started. Perhaps rather than investigating McCain, the Spanish decided to learn a lesson from his running mate and accuse the media of causing all their problems.

If you were wondering what security and investment firms spent $93 million lobbying about last year, look no further than today’s New York Times, in which Tara Siegel Bernard reveals that they are lobbying for the right to give you bad financial advice as long as it makes them money.

At issue is whether brokers should be required to put their clients’ interest first — what is known as fiduciary duty. The professionals known as investment advisers already hold to that standard. But brokers at firms like Merrill Lynch and Morgan Stanley Smith Barney, or those who sell variable annuities, are often held to a lesser standard, one that requires them only to steer their clients to investments that are considered “suitable.” Those investments may be lucrative for the broker at the clients’ expense.

Their lobbyists are spending money to kill a requirement that brokers steer their own clients to transactions in the best interests of the clients rather than the broker — because, apparently, that’s not what they are actually doing. It’s like those cartoon Charles Schwab commercials were telling you the truth!

The financial reform bill promoted by Sen. Chris Dodd (D-Conn.) would eliminate a decades-old exemption that allows brokers to claim that they aren’t financial advisers — and thus required to provide advice in the clients’ best interests — as long as they aren’t getting paid for the advice. So, if your broker gives you advice of what to buy, but he’s only paid for the act of buying it, your interests never have to come first. Brokers, naturally, prefer the House legislation which allows them to continue to sell you bad investments as long as they tell you first that you ought to make better ones.

Insurance companies, by the way, want to be left out of that regulation all together, because they’re not even interested in steering their clients to “suitable” insurance products. As far as they’re concerned, “Buyer Beware” is a good enough standard.