Author: WSJ.com: Real Time Economics

Demand for housing still looks weak, even with low mortgage rates and the federal tax credit. Sales of existing and new homes both declined in February. And national builder KB Home reported Tuesday a worse-than-expected loss in the first quarter.

But there are signs that housing is turning. The February blizzards may have delayed some closings. If so, sales should bounce back in milder March. And sales in the second quarter will benefit from buyers rushing to close before the expiration of the tax credit. Even KB Home said it expects a nationwide housing recovery to return the company to profitability in the latter part of the year.

Another — mostly overlooked — sign of stability: home prices have finally stopped falling. And in many cases homes may be undervalued.

Economists at IHS Global Insight, working with PNC Financial Services Group, looked at actual home prices in 300 U.S. metro areas from 1985 through 2009 and calculated theoretical prices given each area’s household income, population densities and any other fundamental housing factors.

Back in 2005, near the height of the housing boom, 137 metro areas had home prices that were overvalued by at least 14%. The most overvalued city was Merced, Calif., where homes commanded a stunning 63% premium. (Put another way, the average buyer spent $815,000 for a home that should have sold for $500,000 based on housing fundamentals.)

During the boom, prices surged because speculators and homebuyers bid up prices on the expectation that someone else would be willing to pay even more. The collapse of housing ended that irrational exuberance.

Housing’s collapse led to the recession, and prices plunged further across the U.S. The economists found that the total U.S. housing market was undervalued by 8.9% at the end of 2009.

But just because some homes look like bargains doesn’t mean prices are going to pop up soon, warns James Diffley, one of the economists who worked on the study.

That’s because the broader economic forces — job losses, tight credit, and mortgage delinquencies — that played out in the recession will hold back price gains over the next two years, says Diffley. In particular, weak labor markets will mean small income gains, limiting how much people can spend on a home.

And supply remains a concern. In February, the inventory of both new and existing unsold homes rose.

Looking out five years — with supply down, the economy expanding and labor markets much tighter — Diffley projects price increases will range between 2% and 5% a year, returning prices to their long-run trend.

A repeat of the boom times is unlikely. “We have been chastened by all that happened,” says Diffley. And the proposed consumer financial protection agency would have oversight over mortgage-related products–supposedly preventing homebuyers from borrowing more than they can afford or taking out risky loans.

Low single-digit gains in home prices will limit increases in household wealth and consumer spending. And builders will have a hard time raising prices on new homes when lower-priced nearly new homes are on the market.

But small increases are far better than the four years of freefalling prices we have just been through.

Treasury Deputy Secretary Neal Wolin brought his own lunch to the U.S. Chamber of Commerce — a knuckle sandwich.

Treasury Deputy Secretary Neal Wolin (AFP/Getty Images)

He repeatedly pounded the Chamber’s lobbying and advertising blitz against the White House’s financial regulatory overhaul, accusing them of being misleading, dishonest, and “backward.”

He delivered his broadside standing on a podium within the U.S. Chamber while some of the group’s officials sat in nearby tables aghast at the pummeling.

“Despite the urgent and undeniable need for reform, the Chamber of Commerce has launched a $3 million advertising campaign against it,” Mr. Wolin said. “That campaign is not designed to improve the House and Senate bills. It is designed to defeat them.”

He said the Chamber “has an obligation to be honest” and invoked the organization’s name at least 16 times.

“As the tea party folks might say, ‘read the bill,’” he said.

After the speech, which received a muted applause, Chamber chief executive Thomas Donohue stood up and called it a “bit of a political speech.” He countered that the White House didn’t object to the Chamber as a “special interest” when the business group supported the stimulus plan or the government’s efforts regarding General Motors.

But “we’re a special interest when we say we want a plan, we want it this year,” Mr. Donohue said. “The constitution is very clear on our right to raise our issues.”

It’s unclear if everyone will settle down, but here’s betting that Mr. Wolin won’t be invited back over for lunch any time soon.

A roundup of economic news from around the Web.

• Paid to Fail: Writing for Project Syndicate Lucian Bebchuk, Alma Cohen and Holger Spamann say that Bear Stearns and Lehman executives made out pretty well. “After Bear Stearns and Lehman Brothers melted down, ushering in a worldwide crisis, media reports largely assumed that the wealth of these firms’ executives was wiped out, together with that of the firms they navigated into disaster. This “standard narrative” led commentators to downplay the role of flawed compensation arrangements and the importance of reforming the structures of executive pay. In our study, “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman Brothers 2000-2008,” we examine this standard narrative and find it to be incorrect. We piece together the cash flows derived by the firms’ top five executives using data from Securities and Exchange Commission filings. We find that, notwithstanding the 2008 collapse of the firms, the bottom lines of those executives for the period 2000-2008 were positive and substantial.
• Libertarians: Bryan Caplan wonders why libertarians who disagree on fundamental issues are still lumped together. “1. People generally misperceive their political opponents as more homogeneous than they really are. On this theory, most libertarians would consider Krugman and Lenin’s political beliefs to be similar. 2. People misperceive non-mainstream political opponents as more homogeneous than they really are. On this theory, the typical Democrat would also see Marx and Lenin’s political beliefs as similar. 3. People mistakenly equate amicable disagreement with fundamental agreement. On this theory, non-libertarians would not lump Cato and Mises Institute people together. 4. There’s no misperception; lumping your opponents together is just a rhetorical tactic to lower their status. On this theory, people wouldn’t equate dissimilar dead belief systems. For example, since the Catholic-Protestant dispute is irrelevant to modern politics, we would readily acknowledge the differences between Luther and Loyola.”
• Inflation Targeting: David Beckworth writes about the effectiveness of inflation targeting. “First, inflation targeting is only effective when [aggregate demand] shocks are the main source of macroeconomic volatility. If [aggregate supply] shocks are also important,then inflation targeting can be destabilizing. Second, a far more effective approach to minimizing macroeconomic volatility is to stabilize [aggregate demand]. In the above scenarios, stabilizing [aggregate demand] growth around a 5% target was all that was needed.”

Compiled by Phil Izzo

Chicago Federal Reserve President Charles Evans on Wednesday countered criticism that the Fed’s aggressive loosening of monetary policy has led to a deluge of funds in developing nations such as China, saying the U.S. response to the financial crisis averted greater damage to the global economy and the fund injections have mostly remained in the U.S.

Evans

The Fed’s policy has become part of the broader debate between Washington and Beijing — along with China’s exchange-rate policy — on what both sides should be doing now as the international economy rebounds.

China’s banking regulator said in November low U.S. interest rates had inflated speculative bubbles around the world. Beijing is trying to restrain surging housing prices and credit growth, efforts that would be complicated by funds entering from the U.S.

“Banks in the U.S. have a lot of the liquidity on the balance sheet as excess reserves. Most of this is staying in the U.S.,” Evans said at a news briefing on his first trip to China, when asked about criticism of the Fed’s move to inject liquidity into the financial system by buying assets, such as longer-term Treasurys.

“The U.S. recovery we are beginning to enjoy is in part due to the announcement in March 2009 of large-scale asset purchases. That provided greater clarity for the U.S. and world economy that central banks and government officials were willing to take the actions that were necessary in order to get the economy going so that we could avoid the worst of the contractions that were spreading around the world,” he added.

Evans also repeated that the Fed ought to continue its current accommodative monetary policy, because U.S. inflation is unlikely to rise quickly, especially as bank lending still isn’t picking up. The U.S. economic recovery will likely remain modest, because companies still have spare capacity and are unlikely to ramp up employment soon, meaning that high rates of joblessness will persist. Commercial real estate vacancies are adding to stress for small-sized banks, even though the real-estate sector is beginning to recover, he said.

But he also sought to reassure investors — China, with its vast holdings of U.S. debt, is a major one and has said it worries about the safety of its dollar assets — that the Fed is on guard against inflation risks. “We need to be ready to withdraw the accommodation and recalibrate, I don’t think that’s likely to happen anytime soon. But I certainly want to be prepared to be able to take the action so that we aren’t behind the curve. I don’t think we will be.”

The verbal sparring between Beijing and Washington about whether the yuan should resume rising against the U.S. dollar has intensified in recent months, with critics of China charging that an undervalued yuan gives Chinese exporters an edge in international markets and contributes to economic imbalances.

Some U.S. senators introduced legislation last week that would require the U.S. administration to impose tariffs on nations that fail to deal with misaligned currencies, a move aimed at China. Chinese Premier Wen Jiabao said earlier this month the yuan isn’t undervalued, while Minister of Commerce Chen Deming said Sunday that China won’t “turn a blind eye” if the U.S. imposes sanctions.

Evans said a current account deficit creates “headwinds” for economic growth in the U.S., which would instead benefit from a higher savings rate.

Asked about the risks that the sparring may get out of hand, Evans said: “I’m not very concerned…It’s very hard to pinpoint how those scenarios will play out. You just hope that everybody keeps their eyes on the fundamentals, and the benefits that accrue from all of this. And we’ll be much better off.”

The yen is going to get stronger against the U.S. dollar, and the Japanese government should sit back and relax, according to Eisuke “Mr. Yen” Sakakibara.

The former Japanese vice finance minister for international affairs said Wednesday the Japanese currency is undervalued at its current level of around 90 yen per U.S. dollar.

“If anything, it will appreciate slowly toward 85, but the government should not intervene,” he said at a Credit Suisse sponsored investment conference in Hong Kong.

Mr. Sakakibara, an adviser to the governing DPJ party, earned his sobriquet “Mr. Yen” in the late 1990s when as a government official his public comments often moved currencies. At the time, Japan routinely intervened in foreign exchange markets to depress the yen against the dollar. It has not done so since 2004, despite pressure from exporters who say the strong yen is hurting the economy.

The yen’s recent strength has perplexed investors who figured Japan’s declining population, massive debt and structural economic problems should weigh on the currency. But since the financial crisis, the yen has stayed strong against the dollar and other currencies. It’s 18% more valuable today compared with August 2008 against a trade-weighted basket of currencies as measured by the Bank of Japan.

Mr. Sakakibara said his currency is stronger against the dollar “because the Japanese economy at least in relative terms is less weak than the American economy.” He also touched on other subjects including Japanese deflation, the need for the creation of a European Union style organization for Asia, and China’s worrying asset price-increases.

He called Japan’s deflation “structural,” a result of economic “integration with East Asia.” Japan’s trade with its neighbors has increased in recent years, and Japanese companies have moved production to cheaper labor centers in the region. “Mild deflation is fine,” he said.

“I would not worry that much about deflation. This is not a result of lack of demand, but because of the very close integration with China. Naturally Japanese prices and Japanese wages tend to come down and come closer to those of China,” Mr. Sakakibara said.

He added that the growing trade ties within Asia will require new institutions modeled after the European Union. Intra-Asian trade accounts for 57% to 58% of regional exports, he said, compared with 40% in 1990. He expects it to hit 60% in the coming years. Around 65% of exports in the European Union stays within the trade bloc.

“We are pretty much like Europe, and we need an institution. We need a secretariat to follow up this integration,” Mr. Sakakibara said. The new organization should start with China, Korea and Japan, who should “earmark some portion of foreign reserves,” he said, to the project. Japan and China have in the past proposed competing frameworks for new regional economic organizations. Japan’s proposals have sought to include a wide range of countries from as far away as Australia, India and the U.S., while China’s proposals were more oriented toward strengthening ties with a tighter knit group of countries centered on Southeast Asia.

Mr. Sakakibara was asked about whether China was experiencing dangerous asset bubbles, particularly in its property markets. Despite having lived through Japan’s mother of all asset bubbles in the 1980s, he dismissed worries about China.

“China will continue to grow around 8% to 9% for some years to come, and I don’t think there’s any possibility of the Chinese economy collapsing for the foreseeable future,” he said.

“This is probably the most robust and high-growth economy in the world. Sure, there are some bubbles in China, particularly real-estate bubbles. There may be real-estate bubbles in Hong Kong as well,” he said, motioning to his co-presenter on stage, the head of the Hong Kong Monetary Authority. “Norman Chan can talk about that,” Mr. Sakakibara said.

He called China’s rapid asset-price increases a “necessary byproduct of a high rate of growth, and [Peoples Bank of China] Governor Zhou needs to tackle this bubble without really killing the Chinese economy.”

Mr. Sakakibara reflected on his days in the finance ministry. “I was a player intervening in the currency markets. And I enjoyed it very much,” he said, to a big round of applause.

Are Democrats looking towards the finish line on their yearlong effort to overhaul Wall Street rules?

Just two days after Senate Banking Committee Chairman Christopher Dodd (D., Conn.) advanced a financial regulation overhaul bill through his panel along party lines, Mr. Dodd will huddle with President Obama and House Financial Services Committee Chairman Barney Frank (D., Mass.) in the White House’s Oval Office.

Mr. Obama has regularly met with lawmakers on the financial rules, but this meeting comes as the White House is pushing much more aggressively to get the rules moved through Congress. A Senate vote could come before the Memorial Day recess.

Senate Democrats will need to win support from at least a handful of Republicans to move the bill through, but they are increasingly convinced they can get the votes.

The House of Representatives passed a bill in December that tracked closely with a White House proposal, and Mr. Dodd has recently reworked his bill to make it mirror many of the Obama administration’s goals. Differences between the House and Senate bill would have to be worked out before any bill could become law.

In a speech that said there’s no urgency to tighten monetary policy any time soon, a key central bank official also asserted her reputation as an inflation fighter.

Dan Francisco Fed President Janet Yellen (Reuters)

“I don’t believe this is yet the time to be tightening monetary policy,” Federal Reserve Bank of San Francisco President Janet Yellen said Tuesday. The current policy of essentially zero-percent interest rates is “accommodative” and “is currently appropriate… because the economy is operating well below its potential and inflation is subdued.”

Yellen’s comments came from the text of a speech prepared for delivery before an event by Town Hall Los Angeles.

In her speech, Yellen sought to counter the worries she is not as strong an inflation fighter as some would like her to be. “I have personally supported an increase in our target for the federal funds rate on 20 different occasions,” Yellen said.

Yellen said in her speech there’s little reason to fear inflation from high government deficits as long as the Federal Reserve remains an independent central bank.

“I’m not alarmed by the current enormous deficits” because they are “transitory and recession-related.” Looking further out, even with the bleak picture facing the government, the price pressure picture need not be dark.

“In advanced countries with independent central banks, government deficits do not cause inflation, either in the short run or in the long run,” Yellen said. “As long as monetary authorities have the freedom to fight inflation without interference, then deficits won’t pull them off course.”

Yellen said that she is expecting at best a gradual recovery and a slow ebb in high levels of unemployment, all of which argues for supportive monetary policy. But she warned that “as recovery takes firm root and economic output moves toward its potential, a time will come when it is appropriate to boost short-term interest rates.”

While Yellen doesn’t currently occupy a voting role on the interest rate setting Federal Open Market Committee, her views on the economy and monetary policy have come under increased scrutiny given that the White House has expressed interest in elevating her to the vice chairman position at the Federal Reserve Board.

The central bank’s current number two, Donald Kohn, is due to step down from the Fed in late June. Kohn has played an instrumental role in the central bank’s unprecedented response to the financial crisis. Economists generally applaud the idea of Yellen as Fed vice chairman, although some have noted that the official, who has been one of the most vociferous advocates for keeping rates very low for an extended period of time, is a decidedly dovish choice for a top central bank leadership position.

The policy maker spoke in the wake of last week’s Fed decision that once again pledged to keep the central bank’s de facto 0% interest rate policy in place for some time to come. Central bankers noted then they see signs of more economic improvement, but with unemployment high and inflation low, they are content to wind down emergency lending efforts now and defer a tightening of monetary policy to some later date. Many economists believe won’t be until late this year, if not next year, before the Fed raises interest rates.

The policy maker’s outlook on the economy jibbed squarely with consensus outlook on the Fed. “My forecast is that moderate growth will continue, inflation will remain subdued, and unemployment will inch down,” Yellen said.

The economy should “gradually” speed up, with growth in the current quarter ranging between 2.5% to 3%, Yellen said. The official expects a rise of around 3.5% for the current year and 4.5% in 2011.

But inflation is unlikely to be a problem, both because of the hard hit the economy has already taken, and how much current and future growth will be under the economy’s potential growth rate.

Yellen said, “I don’t expect the output gap to completely disappear until sometime in 2013,” and, because of this “tremendous” amount of economic slack, “underlying inflation pressures are already very low and trending downward.” Yellen added “if the economy continues to operate below its potential, then core inflation could move lower this year and next.”

Essential to the longer run inflation picture is the state of the job market. “I’m happy to see evidence that the job market is turning around” but “given my moderate growth forecast, I fear that unemployment will stay high for years,” Yellen said. Now at 9.7%, Yellen sees the jobless level edging down to 9.25% by year’s end, before hitting 8% by the close of 2011. The official deemed this “a very disappointing prospect.”

While Yellen believes it will be some time before the Fed starts to unwind it current policies, she did offer some hints about how she’d like to proceed.

She noted that the end of Fed mortgage purchases this month, the main driver in the huge expansion of the Fed balance sheet, are not likely to trouble the economy. “I believe that our program worked” and made mortgages more affordable, and “I am hopeful that mortgages will remain highly affordable even after our purchases cease.”

When it comes to shrinking the Fed balance sheet, Yellen said the Fed faces a “manageable” process in getting its balance sheet smaller. She indicated the first move of a tightening would rest on increases in interest rates.

While Yellen would like the balance sheet to move eventually back to an all Treasurys portfolio, she believes “the FOMC will reduce the size of our balance sheet only gradually over time.” Assets sales are likely to happen only late in the unwinding process, Yellen said.

Productivity soared in the past year (rising 6.9% in the fourth quarter from the same period in 2008) as employers cut jobs and leaned on their remaining workers for greater output. But that could change as the labor-market turmoil weakens some workers’ skills and ultimately leads to greater churn, says a researcher at the Federal Reserve Bank of Cleveland.

The long duration of unemployment — the average is now 30 weeks — can lead workers to lose skills specific to their industry and occupation. That reduces their productivity when they do land jobs, says Cleveland Fed economist Murat Tasci.

“Once these workers do find a job, data show that their new starting wages stay lower than similarly educated workers and that this disparity continues for a long time,” he writes. “Additionally, many workers might be tempted to take up the first job they find after a long spell of unemployment, regardless of how good a match the job is for them. They will also be more likely to change employers when job prospects improve.

“Since recruiting for workers and looking for a job consume resources, this excessive labor market churning could be detrimental to overall productivity during the recovery. Consequently, lower job finding rates during the recession could lower the standard of living and slow the rate of employment gains during the recovery.”

The U.S. Federal Reserve announced final rules Tuesday pertaining to how and when fees can be assessed to inactive gift cards.

The rules also require that gift-card issuers provide consumers with the exact terms and conditions, particularly regarding card-expiration dates.

“Concerns have been raised regarding the amount of fees associated with gift cards, the expiration dates of gift cards, and the adequacy of disclosures,” the Fed said. “Consumers who do not use the value of the card within a short period of time may be surprised to find that the card has expired or that dormancy or service fees have reduced the value of the card.”

Under the final rules, three conditions must be met if gift-card issuers want to charge inactivity or service fees. Fees can be applied only if the consumer hasn’t used the card within a one-year period, if there’s no more than one fee charged a month, and if consumers are made aware of such fees.

The Fed’s rules would cover retail gift cards and network-branded gift cards, which are redeemable at any merchant that accepts the card brand.

According to the Fed, the final rules will be effective Aug. 22.

A roundup of economic news from around the Web.

• Capitalism: Bill Easterly says there’s no need to panic, capitalism repeatedly recovers from financial crises. ” I don’t mean to minimize the short run pain that the current financial crisis has caused. It’s horrible. But there is no reason to panic about the long run growth potential looking forward. The obvious rejoinder is Keynes’ “in the long run, we are all dead.” But we can’t ignore that Capitalism already survived repeated financial crises and has made us all vastly better off despite them. So here’s a counter-quote: “In the long run, we are all better off because our dead ancestors stuck with capitalism.””
• Economic Confidence: Gallup’s latest look at economic confidence shows a string of depressed readings. “The Gallup Economic Confidence Index is based on Americans’ answers to two questions — one focusing on views of current economic conditions in the country and the other on the economic outlook. Both measures are in negative territory — meaning that more Americans express negative than positive sentiments on each dimension — and have been since January 2008. The dampened level of overall economic confidence in March comes exclusively from a drop in economic outlook that began in the final week of February and has since held.”
• Supersizing the Last Supper: Reuters reports on a new study that shows portions have been steadily increasing in depictions of the Last Supper. “The study, by a Cornell University professor and his brother who is a Presbyterian minister and a religious studies professor, showed that the sizes of the portions and plates in the artworks, which were painted over the past millennium, have gradually grown by between 23 and 69 percent. This finding suggests that the phenomenon of serving bigger portions on bigger plates, which pushes people to overeat, has also occurred gradually over the same time period, said Brian Wansink, director of the Cornell Food and Brand Lab.”

Compiled by Phil Izzo

Consumers may be emerging from the Great Recession a little more willing to spend these days, but they’re still incredibly price-conscious and making smaller, more frequent purchases rather than loading up on costlier bulk goods.

The bargain hunting is a boon to some retailers, such as deep-discount grocery stores, and a growing problem for others, like big-box department stores. That’s according to a new 2010 “megatrends” study released on Tuesday from New York-based WSL Strategic Retail, a consultancy.

Shoppers are “making more stops to more stores,” said the group’s president, Candace Corlett, and doing far more of their shopping online -– a behavioral shift accelerated by the recession.

Supermarkets such as Kroger or Wegman’s and supercenters like Walmart are still the top two retail “channels” with 64% of Americans shopping there over the past three months. Department stores such as Macy’s slipped to the No. 5 position, just behind dollar stores, which were patroned by some 20% of Americans.

The clear winner in the survey, however, is online shopping, ranked #3 in the findings with nearly half of women –- 47% — shopping online in the last quarter and 24% shopping online each week, up from 10% who did so in 2008. The internet “has become the go-to channel to find the lowest prices and coupons,” according to WSL. Growth in online shopping, dollar stores and “deep-discount” grocery like Sav-a-Lot threaten to diminish the popularity of supercenters like Walmart, said WSL chief executive Wendy Liebmann in the release.

Women are shopping “for ingredients to prepare food…and avoiding the mass merchandiser where they can be tempted to overspend on the wide array” of products, the survey notes.

Almost 70% of Walmart’s “core shoppers,” those with household incomes under $40,000, visited dollar stores in the last three months and a quarter of shoppers are now at such stores each week, WSL says.

In addition, it’s not clear the online shopping offered by retailers like Walmart, Target, Costco or Macy’s is helping those chains partake in the online-shopping boom: such “bricks and clicks” sites had 7% or less of their customers buying from their online sites over the past three months. Meanwhile, Amazon.com, the industry leader in online retail, was visited by 57% of online shoppers during the same period, according to WSL.

“The internet is redefining…choices and significantly impacting every other retail channel,” said Ms. Liebmann.

President Obama and multiple lawmakers weighed in almost immediately on the 13-10 vote in the Senate Banking Committee to advance a plan by Democrats to rewrite financial market rules. Here’s a collection of some of the statements:

President Obama

“By creating a new consumer agency, we will finally set and enforce clear rules of the road across the financial marketplace.  And as this bill moves to the floor in the coming weeks, I will continue to fight to strengthen the bill and against attempts to undermine the independence of this agency.   I will also oppose efforts to add loopholes that could harm consumers or investors, or that allow institutions to avoid oversight that is critical for financial stability.  I urge those in the Senate who support these efforts to resist pressure from those who would preserve the status quo and to stand up for long overdue reform that will protect American families and the long term health of our economy.”

Treasury Secretary Timothy Geithner

“This is a good day for the cause of financial reform.”

Senate Banking Committee Chairman Christopher Dodd (D., Conn.)

“The stakes are too high – and the American people have suffered too greatly – for us to fail in this effort.  And we will not fail.  We will have reform this year.”

Sen. Tim Johnson (D., S.D.)

“This bill is not perfect, and there are certainly items each of us on this Committee would like to see improved as we go to the floor.  I am hopeful that bipartisan conversations will continue on these issues in coming weeks as the bill moves through the full Senate.”

Sen. Charles Schumer (D., N.Y.)

“Two years after excessive risk-taking upended our economy, we have taken a major step to make sure corporations are accountable to their shareholders. We will keep fighting to make sure these key reforms remain in the package as it proceeds to the Senate floor.”

Sen. Bob Menendez (D., N.J.)

“The bill we passed is a good starting point from which we can work in the full Senate, and I applaud Chairman Dodd for including a number of family protection provisions that I championed. When all is said and done, I expect that we will pass legislation that reins in the type of reckless financial behavior that has cost millions of Americans their jobs, homes and nest eggs.”

Sen. Sherrod Brown (D., Ohio)

“There are those on this committee who will try to delay action for as long as possible. They are hoping the American people will forget the meltdown, forget the bailouts, and forget that Wall Street knowingly gambled away the economic security of millions of middle class families.  Well, Americans aren’t going to forget.  And Congress reports to Americans.  No more meltdowns, no more bailouts. Our nation cannot afford to let Wall Street remain a casino with the odds stacked against everyday Americans. We need rules that ensure Wall Street investors cannot bet the farm in Chillicothe, the home in Cleveland Heights, or the job in Wilmington on a financial bubble that is bound to burst.”

Sen. Jon Tester (D., Mont.) took credit for helping ensure the bill didn’t overwhelm smaller financial companies.

“I do not believe Montana’s community banks and credit unions caused the economic crisis, and I do not believe they should have to pay for the sins of Wall Street.”

Sen. Richard Shelby (R., Ala.)

“Chairman Dodd has made it clear that he intends to move forward without Republican support which is his prerogative.  It is not our intention to turn this mark up into a long march, offering hundreds of amendments that will inevitably be defeated.  We don’t think that would be constructive or productive.  Consequently, we will be opposing the bill at this time.  But, I pledge to the Chairman and my colleagues that I will continue to work with them as this bill approaches floor consideration in hopes of reaching a broad consensus.

Sen. Judd Gregg (R., N.H.)

“In September of 2008, our nation faced the very real possibility of an economic collapse of incalculable proportions.  Unfortunately, Chairman Dodd’s bill does little to protect us against a similar situation in the future.  Far from ending the concept of “too big to fail,” this bill all but codifies it by pre-designating “systemically significant” institutions and providing them an implicit taxpayer guarantee.  The Chairman’s bill fails to address the ongoing crisis and the roles played by lax underwriting, overreliance on credit rating agencies, and government-sponsored enterprises like Fannie Mae and Freddie Mac.  Furthermore, by separating the consumer protection from the safety and soundness mission for individual regulators, the bill actually puts consumers at greater risk.”

Sen. Bob Corker (R., Tenn.)

“It is pretty unbelievable that after two years of hearings on arguably the biggest issue facing our panel in decades, the committee has passed a 1,300 page bill in a 21 minute, partisan markup. I don’t know how you can call that anything but dysfunctional.”

Sen. David Vitter (R., La.)

“Under pressure from the Obama administration, Senator Dodd has offered a bill that will only further entrench the problematic ‘Too Big To Fail’ approach.  By identifying the largest and most systemically risky firms and placing them under the direct supervision of the Fed, Senator Dodd’s bill would create a ‘Too Big To Fail’ club that would promise a government backstop for certain companies.  I worry that the legislation as currently written allows Congress to pick winners and losers in the marketplace, just as it did with TARP.  That’s an approach we must end, not perpetuate.”

Treasury Secretary Tim Geithner has been criticized for looking, sounding and talking like an investment banker, a job he has never had. But Geithner appears to be trying out a new rhetorical approach. In a speech  at the American Enterprise Institute — styled by the Treasury as “a closing argument” in the debate over financial regulatory reform legislation — Geithner rejected the technocratic language that he often favors for a more accessible sermonizing that borrows heavily the cadence of politicians. Has Barack Obama been tutoring him?

A sample:

“When a conservative Republican President – George W. Bush, a President with abiding faith in markets who proposed privatizing social security – is forced by a financial crisis to put Fannie Mae and Freddie Mac into conservatorship, companies that combined –at their peak – represented more than $130 billion in shareholder value;

When a conservative Republican President is forced by failures of financial policy to ask Congress for $700 billion in authority to stabilize the financial system and to invest this taxpayer money into banks that account for three quarters of the entire U.S. banking system;

When a conservative Republican President is forced by a recession, caused by financial failures, to lend billions of dollars to two of our largest auto makers;

When a conservative Republican President is forced to do all that – and he was right to do it – there’s something undeniably wrong with the economy.”

And this:

“Listen less to those whose judgments brought us this crisis. Listen less to those who told us all they were the masters of noble financial innovation and sophisticated risk management. Listen less to those who complain about the burdens of living with smarter regulation or who oppose having to pay a fee for the costs of this or future crises.  Instead, listen to the families and businesses still suffering from this crisis.  Listen to those who borrowed responsibly but today can’t get a loan or can’t refinance their mortgage. Listen to those who lost their jobs and their healthcare and their pension savings. Listen to them.”

How many years worth of jobs has your city lost in the Great Recession? The Brookings Institution has done a tally in this report.

According to the report, the only metro area that has actually gained jobs since the outset of the recession is McAllen, Texas, a border town that has been a huge beneficiary of the North American Free Trade Agreement. McAllen has added 0.7% jobs through the fourth quarter of 2009 from its prerecession peak.

In fact Texas — where rising oil prices and a smaller decline in real-estate prices has left the economy on stronger ground than most of the rest of the country — has six of the top 15 cities for job growth through the Great Recession.

Not surprisingly, perhaps, the worst off cities are rust-belt regions that were on a downward slope long before the great recession hit. Among the worst off metros were those in manufacturing havens Ohio and Michigan.

Change in Jobs, by Metro Area

Metro Area	Change from peak to Q4 2009	Change from Q3 2009 to Q4
McAllen-Edinburg-Mission, TX	0.7%	-0.5%
Austin-Round Rock-San Marcos, TX	-0.4%	0.4%
San Antonio-New Braunfels, TX	-0.8%	0.0%
Washington-Arlington-Alexandria, DC-VA-MD-WV	-0.9%	0.2%
El Paso, TX	-1.5%	-0.5%
Rochester, NY	-1.7%	0.4%
Virginia Beach-Norfolk-Newport News, VA-NC	-1.8%	0.4%
Jackson, MS	-1.9%	0.1%
Syracuse, NY	-1.9%	-0.1%
Dallas-Fort Worth-Arlington, TX	-2.1%	0.0%
Little Rock-North Little Rock-Conway, AR	-2.1%	-0.2%
Oklahoma City, OK	-2.4%	-0.4%
Tulsa, OK	-2.4%	-0.2%
Columbus, OH	-2.6%	-0.2%
Des Moines-West Des Moines, IA	-2.6%	-0.8%
Omaha-Council Bluffs, NE-IA	-2.6%	-1.1%
Baton Rouge, LA	-2.7%	-1.3%
Kansas City, MO-KS	-2.7%	-0.5%
Poughkeepsie-Newburgh-Middletown, NY	-2.7%	0.1%
Columbia, SC	-2.8%	-1.1%
Augusta-Richmond County, GA-SC	-2.9%	-0.3%
Charleston-North Charleston-Summerville, SC	-3.0%	0.4%
Pittsburgh, PA	-3.0%	-0.1%
Buffalo-Niagara Falls, NY	-3.1%	-0.2%
Madison, WI	-3.3%	-0.9%
New York-Northern New Jersey-Long Island, NY-NJ-PA	-3.3%	-1.0%
Albany-Schenectady-Troy, NY	-3.4%	-0.5%
Baltimore-Towson, MD	-3.4%	-0.3%
Houston-Sugar Land-Baytown, TX	-3.4%	-0.1%
Raleigh-Cary, NC	-3.4%	0.5%
Worcester, MA	-3.5%	-0.2%
Harrisburg-Carlisle, PA	-3.6%	0.2%
St. Louis, MO-IL	-3.6%	0.1%
Albuquerque, NM	-3.7%	0.1%
Boston-Cambridge-Quincy, MA-NH	-3.8%	-0.2%
Greenville-Mauldin-Easley, SC	-3.8%	-0.5%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	-3.9%	-0.3%
Scranton–Wilkes-Barre, PA	-4.0%	-0.1%
Allentown-Bethlehem-Easton, PA-NJ	-4.1%	-0.2%
Hartford-West Hartford-East Hartford, CT	-4.3%	0.0%
Chattanooga, TN-GA	-4.4%	-0.1%
Louisville-Jefferson County, KY-IN	-4.4%	0.1%
Bakersfield-Delano, CA	-4.5%	-0.1%
Memphis, TN-MS-AR	-4.5%	-1.2%
Richmond, VA	-4.5%	-0.3%
Honolulu, HI	-4.6%	-1.1%
Minneapolis-St. Paul-Bloomington, MN-WI	-4.6%	-0.3%
New Haven-Milford, CT	-4.6%	-0.3%
Seattle-Tacoma-Bellevue, WA	-4.6%	-0.6%
Colorado Springs, CO	-4.7%	-0.3%
Knoxville, TN	-4.7%	-0.5%
San Diego-Carlsbad-San Marcos, CA	-4.7%	0.3%
Fresno, CA	-4.8%	0.5%
Denver-Aurora-Broomfield, CO	-4.9%	-0.4%
Salt Lake City, UT	-4.9%	-0.3%
Springfield, MA	-4.9%	-0.5%
Wichita, KS	-4.9%	-1.1%
Stockton, CA	-5.0%	-0.2%
Cincinnati-Middletown, OH-KY-IN	-5.2%	-0.3%
Indianapolis-Carmel, IN	-5.2%	-0.7%
Portland-South Portland-Biddeford, ME	-5.2%	-1.0%
Bridgeport-Stamford-Norwalk, CT	-5.3%	-0.2%
Ogden-Clearfield, UT	-5.5%	0.3%
Birmingham-Hoover, AL	-5.6%	-1.1%
Los Angeles-Long Beach-Santa Ana, CA	-5.6%	-0.1%
San Francisco-Oakland-Fremont, CA	-5.6%	-0.5%
Akron, OH	-5.7%	-1.0%
San Jose-Sunnyvale-Santa Clara, CA	-5.8%	-0.6%
Nashville-Davidson–Murfreesboro–Franklin, TN	-5.9%	-0.3%
Chicago-Joliet-Naperville, IL-IN-WI	-6.0%	-0.7%
Miami-Fort Lauderdale-Pompano Beach, FL	-6.3%	-0.3%
Provo-Orem, UT	-6.3%	-0.1%
Portland-Vancouver-Hillsboro, OR-WA	-6.6%	-0.6%
Charlotte-Gastonia-Rock Hill, NC-SC	-6.8%	0.2%
Modesto, CA	-6.8%	-1.0%
Tucson, AZ	-6.8%	-0.9%
Grand Rapids-Wyoming, MI	-6.9%	0.0%
Lakeland-Winter Haven, FL	-7.0%	-0.3%
Jacksonville, FL	-7.2%	-0.4%
Cleveland-Elyria-Mentor, OH	-7.3%	-0.2%
Orlando-Kissimmee-Sanford, FL	-7.3%	-0.1%
Oxnard-Thousand Oaks-Ventura, CA	-7.3%	0.0%
Milwaukee-Waukesha-West Allis, WI	-7.4%	-1.0%
Greensboro-High Point, NC	-7.5%	0.0%
Atlanta-Sandy Springs-Marietta, GA	-7.8%	-0.6%
Providence-New Bedford-Fall River, RI-MA	-7.8%	-1.3%
Sacramento–Arden-Arcade–Roseville, CA	-8.4%	-1.1%
Dayton, OH	-8.5%	-1.1%
Tampa-St. Petersburg-Clearwater, FL	-8.9%	-0.9%
Las Vegas-Paradise, NV	-9.8%	-1.8%
Toledo, OH	-9.8%	0.5%
Palm Bay-Melbourne-Titusville, FL	-10.2%	-0.5%
Riverside-San Bernardino-Ontario, CA	-10.5%	-0.1%
Phoenix-Mesa-Glendale, AZ	-10.6%	0.0%
Boise City-Nampa, ID	-10.7%	-0.5%
Youngstown-Warren-Boardman, OH-PA	-11.1%	-1.3%
Bradenton-Sarasota-Venice, FL	-14.4%	-0.2%
Detroit-Warren-Livonia, MI	-15.6%	-0.8%
New Orleans-Metairie-Kenner, LA	-16.4%	0.0%
Cape Coral-Fort Myers, FL	-17.0%	-0.9%

Source: Brookings; Moody’s Economy.com

Right now, there are about five times as many people looking for work as there are jobs to be filled. But by 2018, a new study argues America could be facing the opposite problem — more jobs than there are people to fill them.

It comes down to demographics, argue Barry Bluestone and Mark Melnik of Northeastern University in a study sponsored by the MetLife Foundation and think tank Civic Ventures, with retiring Baby Boomers will leave a huge number job vacancies in their wake.

The two project that by 2018 there will be 14.6 million new nonfarm payroll jobs, plus some additional jobs in farming, family businesses and so on. Meantime, with no change in immigration policy or labor force participation rates, there will only be about 9.6 million workers available to fill those positions, leaving a gap of more than 5 million jobs that are vacant.

For the moment many older workers, having seen their net worth wither, have been hanging on to their jobs. In Southwest Michigan, for example, two nuclear power plants that employ many Baby-Boom generation workers told work force development agency Michigan Works! that they expected slots to open up. Michigan Works! is working on setting a training program for those jobs, but the plants then found that the workers weren’t retiring as quickly as expected.

“We know that there’s going to be a big demand — it’s looming out there,” said Todd Gustafson, executive director at Michigan Works! Southwest Michigan locations. But he doesn’t know when, exactly.

The study’s authors believe that in time, the problem won’t be older workers hanging on to their jobs past retirement age, but older workers not staying in the labor force long enough.

“Not only will there be jobs for these experienced workers to fill, but the nation will absolutely need older workers to step up and take them,” they write.

Conserving fresh water is becoming increasingly important around the globe, a new report from the World Bank’s internal evaluation group says, so the World Bank should encourage countries to charge for water.

“Growing water scarcity is a reality, which the Bank and its partners need to confront by putting more emphasis on the challenging areas of groundwater conservation, pollution reduction, and effective demand management,” writes the evaluation group’s chief, Vinod Thomas.

The Independent Evaluation Group reviews World Bank programs in a manner similar to the way the Government Accountability Office, a Congressional unit, reviews U.S. government programs.

While the evaluation report generally lauds the World Bank’s water projects, it says the Bank has fallen short on cost recovery. Just 15% of the Bank projects that attempted “any cost recovery actually achieved what they set out to do, and only 9% of the projects that attempted full cost recovery were successful,” the evaluation group found. Projects usually try to recover costs by increasing water bills.

The inability to get people to pay higher rates “has raised concerns about sustainability” in water projects, the report further argues.

Sometimes, increasing the water bill backfires. In Tanzania, the report noted, there is widespread acceptance of the idea of paying for water. But so many fees are now being tacked on there was concern “the poor were becoming overtaxed by their benefactors.”

World Bank management published a response that says, essentially, it isn’t as easy as you think to get people anywhere to pay for water. “Achieving full cost recovery in water services delivery is an ultimate goal, which although desirable economically is difficult and rarely achieved in practice,” World Bank management said.

Globally, about 39% of utilities set their rates too low even to cover basic operations and maintenance, the World Bank said. An additional 30% set their rates below the level “required to make any contribution” to paying for capital costs.

Even in high-income countries, World Bank management said, only half of water utilities charge enough to cover operating costs.

The result: “While raising tariffs to recover a greater share of costs… may be economically sound,” World Bank management said, “political constituencies have often prevented tariffs from being increased.” Indeed, the Bank’s management says that some developing countries may have to raise their rates by 90% to fully pay for projects

The Bank says it hasn’t given up and wants projects to recover at least operating costs, but it’s also looking at new water technologies and other options to reduce the cost of water delivery.

A roundup of economic news from around the Web.

• Health-Care Economists: Robert Hahn and Peter Passell jump up from Menzie Chinn’s geographical breakdown of the dueling economist letters on the health-care overhaul. “The line could have as easily been drawn as red-state versus blue-state. None, zip, nada of the Obama 41 is from a university/think tank in a plains state, mountain state or, for that matter, from conservative states including Missouri, Indiana, Kentucky and West Virginia. Liberals might be tempted to conclude that the divide is really determined by professional success: all 41 are identified with institutions that are good-to-great by anyone’s reckoning. But that wouldn’t explain why Columbia, Carnegie-Mellon, Chicago, UCLA, Minnesota, Duke and Cornell all have players on the anti team. The most persuasive explanation is that the organizers of the pro letter were in a hurry, and turned first to colleagues whose positions were known in advance and wouldn’t need persuading. Is it really any surprise that a letter drafted by Henry Aaron (Brookings), David Cutler (Harvard) and Alice Rivlin (Brookings) would be signed by five academics from Harvard, five from Princeton and four from Michigan? Indeed, if there is anything disturbing here, it is how much more concentrated the network of liberal policy works is than the network of their conservative counterparts: The 131 signers of the anti letter are connected to institutions in 33 states. Or maybe conservatives just have more practice with e-mail blasts”
• Financial Overhaul: As Barry Ritholtz notes, now that the health-care legislation is passed Congress can focus on financial reform. Simon Johnson continues to worry about the direction of the legislation. “Mr. Bernanke needs to face some unpleasant realities. Because of the various actions — some unavoidable and some not — it took in saving Too Big To Fail financial institutions during 2008-09, the Federal Reserve is now looked up with grave suspicion by a growing number of people on Capitol Hill. The cherished independence of the Fed is now called into question – and losing this could end up being a huge consequence of the irresponsible behavior and effective blackmail exercised by megabanks – who still say, implicitly, “bail us all out, personally and generously, or the world economy will suffer”. Mr. Volcker sees all this and wants to move preemptively to cap the size of our largest banks. Mr. Bernanke has one last window in which to follow suit (e.g., lobbying Barney Frank could still be effective). In a month it could be too late – the legislative cards are now being dealt. Mr. Bernanke is a brilliant academic and, at this stage, a most experienced policymaker. What is holding him back?”
• Public and Private Wages: On voxeu, Javier J. Pérez and A. Jesús Sánchez look at the influence of public sector wages’ influence on the private sector, using data from the euro zone. “The wage setting of the public sector can delay or spur labour market adjustments in the overall economy, as seen in the recent financial crisis. If public wages do adjust, private sector wages may follow. In the fallout of the financial crisis, most Eurozone countries are now considering fiscal consolidation plans, which hinge heavily on the wage bill of the public sector. Wage moderation to help keep government accounts under control may have an effect on the growth-friendly labour market relations in the private sector.”

Compiled by Phil Izzo

The Lone Star State is in no rush to file taxes.

As we slide toward the April 15 tax filing deadline, Intuit Inc., makers of Turbo Tax software, has released data about which U.S. cities are waiting the longest to file tax returns. Houston is on top, with Chicago and New York trailing behind in second and third place respectively. Three out of the 10 cities that procrastinate are from Texas and three are from California. And only one of the cities, New York, is on the East Coast.

The data is culled from the 20 million 2008 tax returns filed with TurboTax in April 2009. Here’s the list, with last year’s ranking noted in parentheses.

1. Houston, Texas (last year, #2)

2. Chicago, Ill. (#4)

3. New York, N.Y. (#3)

4. Austin, Texas (#11)

5. San Francisco, Calif. (#1)

6. Seattle, Wash. (#7)

7. San Diego, Calif. (#5)

8. Los Angeles, Calif. (#8)

9. Dallas, Texas (#9)

10. Las Vegas, Nev. (#10)

Phoenix, Ariz., dropped out of the top ten this year, coming in thirteenth. This phenomenon of states dropping significantly could be caused either by fewer people filing overall, or because unemployment is higher, therefore more taxpayers are eager to receive their refunds more quickly, says Bob Meighan, the vice president of Turbo Tax. Some 80% of filers receive a refund and the average refund is around $2,700, he says.

Another factor that Mr. Meighan says can impact when people filing: weather. Natural disasters can delay returns for cities. As for Houston being number one this year, “I have no idea,” says Mr. Meighan.

TurboTax uses the data to coordinate staffing their call centers. In spite of their best attempts, there’s always a significant surge of traffic during the final hours of tax day. “Basically 75% of our infrastructure is built to accommodate one day of the year,” Mr. Meighan says.

Filing late can have downsides, other than the obvious, not receiving one’s tax return more quickly. It leaves taxpayers less time to ask questions about returns, clogs customer service lines and drives accountants crazy.

However, taxpayers can file for an extension till October 15. That’s Mr. Meighan’s plan.

“I’m too busy helping out with other people’s returns,” he says. “It’s the last thing I want to think about.”

Read more about taxes.

The conversation between Alan Greenspan and some of then nation’s most prominent economists at the Brookings Panel on Economic Activity on Friday was deemed “not for attribution” by the organizers. But Greg Mankiw, the Harvard economist, has posted his response to Greenspan on his web site. You can read it here.

He largely agrees with Greenspan, but differs on one key point: “The issue concerns the importance of leverage to the viability of a financial intermediary, Mankiw says. “Alan proposes raising capital requirements and reducing leverage, but he suggests that there are limits to how much we can do so. If we reduce leverage too much, he argues, financial intermediaries will be not be sufficiently profitable to remain viable. He offers some back-of-the-envelope calculations that purport to show how much leverage the financial system needs to stay afloat.”

“I think it is possible to imagine a bank with almost no leverage at all. Suppose we were to require banks to hold 100 percent reserves against demand deposits. And suppose that all bank loans had to be financed 100 percent with bank capital. A bank would, in essence, be a marriage of a super-safe money market mutual fund with an unlevered finance company. (This system is, I believe, similar to what is sometimes called “narrow banking.”) It seems to me that a banking system operating under such strict regulations could well perform the crucial economic function of financial intermediation. No leverage would be required.”

“One thing such a system would do is forgo the “maturity transformation” function of the current financial system. That is, many banks and other intermediaries now borrow short and lend long. The issue I am wrestling with is whether this maturity transformation is a crucial feature of a successful financial system. The resulting maturity mismatch seems to be a central element of banking panics and financial crises. The open question in my mind is what value it has and whether the benefits of our current highly leveraged financial system exceed the all-too-obvious costs.”

The Federal Reserve might be facing the irrelevancy of one of its key emergency lending tools.

On Friday an appeals court rejected the Fed’s argument that disclosing borrower names and collateral information for its emergency lending facilities compromises their effectiveness. The programs in question most notably include the discount window. The Fed had been sued by Bloomberg LP’s news division and Fox News Network LLC’s Fox Business Network for this information. Fox is owned by News Corp., which also owns Dow Jones, publisher of this Web site.

The Fed contended that more disclosure would drive away future borrowers, with institutions fearing public knowledge of their emergency loans would be a signal to markets of their weakness. While the fight was over what the Fed has already done, central bankers are worried about what all this means for the future.

Many economists agree with the Fed’s view. That said, the Fed’s increased public profile, arising from its lead role in fighting the financial fires of recent years, has made openness in its activities a similarly important goal.

With most of the Fed’s emergency tools wound down, the main issue is what happens with the discount window. It exists to make collateralized loans to deposit-taking banks, and it is a venerable tool in the central bank arsenal. The discount window was the first line of defense as the financial crisis began to take hold in late 2007, and it was later joined by a smorgasbord of other programs aimed at aiding firms across the spectrum.

In normal times the discount window sees almost no borrowing, but starting in early 2008 borrowings rose sharply and at an unprecedented rate, rising as high as $400 billion in late 2009, before moving lower as financial conditions mended and the Fed put in place other emergency lending facilities. As of March 17, discount window borrowing had ebbed to $11 billion.

The Fed fears that if in the future it is forced to reveal the name of borrowers, the discount window would simply go untapped. Given that this facility is the primary way banks can get at liquidity in a pinch, central bankers could find it harder to mitigate the next financial crisis, especially a fast-moving one.

For now, the Fed is considering its options. “We are reviewing the decision and considering our options for reconsideration or appeal,” a spokesman said.

In recent remarks officials have even tried to find a way to square the public and media interest in central bank transparency against the desire for effective emergency lending tools.

Fed Chairman Ben Bernanke told Congress in late February that “we are also prepared to support legislation that would require the release of the identities of the firms that participated in each special facility after an appropriate delay.” The central bank chief wants to ensure that any disclosure of emergency borrowing, via the discount window or through another program, isn’t interpreted to reflect poorly on the current state of the bank that drew the credit.

For now, there isn’t much clarity about the discount window’s future, especially with the legal fight likely to continue. But some economists are worried.

“If the anonymity is removed, that will create a much larger obstacle or hurdle for firms that would potentially use it,” said Carl Riccadonna, economist with Deutsche Bank. Disclosing the names “will impair the Fed’s ability to deal with financial institutions and provide support to the financial system.”