Tag Archives: Economics reporting
by Liz Hester
It’s been five years since the crisis, and the two leading weekly magazines (or the only two left) have vastly different takes on Wall Street and the coverage.
Let’s take a look, starting with the covers.
Time’s cover was of the Wall Street bull on a white background wearing a party hat complete with confetti. The headline reads “How Wall Street Won: Five Years After the Crash, It Could Happen All Over Again.”
By contrast, Bloomberg Businessweek had a dark portrait of Hank Paulson, former Treasury Secretary, and ran the headline “Five Years From the Brink.” Decidedly darker tone and imagery than the Time cover.
The Time cover story began like this:
Five years on from the financial crisis, the disaster that was Lehman Brothers and its brutal, economy-shredding aftermath can seem a distant memory. We’re out of the Great Recession, and growth is finally back. America’s biggest banks are making record profits. The government is even earning money from its bailouts of institutions like AIG, Fannie Mae and Freddie Mac. The Obama Administration, which is pushing hard to complete the new financial rules mandated by the Dodd-Frank reform act deserves credit for making our financial system safe—or that’s the line being tossed around by current and past members of the crisis team.
But amid all the backslapping, a larger truth is being lost. The financialization of the American economy, a process by which we’ve become inexorably embedded in Wall Street, just keeps rolling on. The biggest banks in the country are larger and more powerful than they were before the crisis, and finance is a greater percentage of our economy than ever. For a measure of this, look no further than the Dow Jones industrial average, which just ditched Alcoa, Hewlett-Packard and retail lender Bank of America in favor of the most high-flying investment bank of all, Goldman Sachs.
Given all this, is your money really any safer over the long haul than it was five years ago? And have we restructured our financial industry in a way that will truly limit the chances of another crisis? The answer is still not an unequivocal yes, because banking is as complex and globally intertwined as ever. U.S. financial institutions remain free to gamble billions on risky derivatives around the world. A crisis in Europe, for instance, could still potentially devastate a U.S. institution that made a bad bet—and send shock waves through other key sectors, like the $2.7 trillion held in U.S. money-market funds, much of which is owned by Main Street investors who believe these funds are just as safe as cash.
Although this scenario isn’t necessarily probable—many U.S. banks have reduced risk and increased capital—it is possible. We’re relying on the banks’ good intentions and self-interest, a strategy that didn’t work out so well before. The truth is, Washington did a great job saving the banking system in ’08 and ’09 with swift bailouts that averted even worse damage to the economy. But swayed too much by aggressive bank lobbying, it has done a terrible job of reregulating the financial industry and reconnecting it to the real economy. Here are five things that are still badly needed to reduce the risks for everyone.
It goes on to list the five issues. The first is fixing too-big-too-fail, in part by finally enacting the Volcker Rule. The story also says that the system should limit the leverage for banks, bring derivatives under better scrutiny and regulation, regulate the so-called “shadow banking system,” and change the culture of the financial industry.
My biggest issue with the cover story was the assumptions it made. It assumes that readers know exactly what happened when during the crisis and that they even completely understand what is meant by the term “shadow banking.” I was in the newsroom in 2008 and I’m not totally sure what Time means by the term.
By contrast, Bloomberg Businessweek’s web site had a great interactive timeline outlining the major events of the collapse. The cover story, which was first person by former Treasury Secretary Paulson, started with an anecdote about Dick Fuld, former head of Lehman Brothers:
People weren’t taking Dick Fuld’s calls the weekend before Sept. 15, because Dick had been in denial for a long time. As the CEO of Lehman Brothers, he had asked the New York Fed and the Treasury weeks earlier to put capital into a pool of nonperforming illiquid mortgages that he wanted to put in a subsidiary he called SpinCo and spin off. We had explained that we had no authority to do that. He thought somehow there was something the government could do to help. How could it be that no one would want to buy his company? He just couldn’t believe it.
I was one of the few people speaking with him, and I told him what was happening: We couldn’t find a buyer, and without one, the government was powerless to save Lehman. He was devastated. You would have to be a CEO to really understand what he was going through. He obviously loved the firm—viewed it as his firm—and to have it go down when you’re at the helm, there can’t be much that’s more devastating than that professionally. But the Lehman Brothers bankruptcy on Sept. 15 was hardly the end of the crisis. It wasn’t the beginning, either. My goal had never been to go to Washington. My first year at Harvard Business School, 1969, I stopped studying. I was a good enough student that I could get by, so I spent most of my time at Wellesley College with Wendy Judge and persuaded her to marry me before the second year. Wendy got a job teaching swimming in Quantico, Virginia, so I got a job at the Pentagon. The only time I had ever worn a suit was to go to church. The only management experience I had was at a summer camp in Colorado. But, remarkably, I worked on my first bailout in those days.
The comparison is hardly fair. But to trump all of that, Businessweek even made a documentary with an Oscar-nominated filmmaker and a Netflix release featuring Paulson. The time, effort and planning is apparent. Businessweek gets Paulson. Businessweek gets a movie premiere.
Time, well, they’re not even adding information to the debate over the legacy. The win on this one clearly goes to Businessweek for comprehensive, complete and interesting stories with important newsmakers.
by Chris Roush
The Associated Press is looking for a reporter to cover the economy out of its Washington bureau, says Brad Foss, an assistant business editor.
This position has a broad mandate: explaining the economy to readers in daily coverage of government and industry reports, and through enterprise stories. The successful candidate must be an aggressive reporter and critical thinker; someone who can cultivate sources, identify economic trends and write authoritative stories with flair and clarity.
Applicants must have a proven knowledge of business and economics and a talent for writing clear and compelling stories with rigorous, thought-provoking analysis.
They must also be highly organized, with the ability to multitask, prioritize and focus on detail and accuracy in a fast-paced environment. The right candidate will be a self-starter and team player. Effective interpersonal skills and solid news judgment are critical. At least three years of experience in business or economics writing is required. The ideal candidate should have a bachelor’s degree or equivalent-level experience.
To apply, go here.
by Chris Roush
Matt Taibbi of Rolling Stone writes that a whistleblower complaint has been filed to the SEC identifying 16 of the world’s biggest banks and hedge funds as the allegedly even-earlier recipients of key economic data from Thomson Reuters. The complaint alleges that this select group of customers received the data anywhere from 10 minutes to an hour ahead of the rest of the markets.
Taibbi reports, “The identity of these 16 firms has not been made public yet, but sources describe the firms as major financial institutions, many of them well-known to the general public. Their inclusion in this case would significantly expand the scope of the scandal.
“Contacted by Rolling Stone today, the SEC declined to comment on the status of the case.
“This is a complicated story and some background is probably necessary to explain what’s going on.
“The case became public thanks to a wrongful termination suit filed in April by a former Thomson Reuters employee named Mark Rosenblum. Rosenblum sold financial data for Thomson Reuters between 2005 and 2012 (he also had previously worked for the firm between 1998 and 2000). During the course of his job, Rosenblum became aware that Thomson Reuters was distributing access to a set of key economic numbers, the University of Michigan Survey of Consumers, in what he thought was an unusual fashion.
“The survey, which gauges how American consumers feel about the economy, is an important indicator that financiers look at when making investment decisions about the U.S. economy. Among other things, the Federal Reserve looks at the Michigan Survey when it determines monetary policy. Any investor who knew the survey results in advance would have an inside advantage over other investors in the market.
“Rosenblum learned that his employers at Thomson Reuters, who had a contract with the University of Michigan to release the data, were releasing the data in three “tiers.”
by Liz Hester
Lawrence Summers, considered by many to be the front-runner to be the new Federal Reserve chairman, isn’t likely to have an easy nomination process if he’s President Obama’s pick.
But Obama knows that his confirmation may be difficult, according to the New York Times story.
As President Obama turned to second-term job openings soon after his re-election, the topic one day in the Oval Office was probably the most important economic decision he would make: Who should succeed the Federal Reserve chairman, Ben S. Bernanke, after 2013?
The president’s preference: His former economic adviser, Lawrence H. Summers.
Mr. Obama, well aware of Mr. Summers’s love-him-or-hate-him reputation and the trouble he could face winning Senate confirmation, reasoned that it was hardly too soon to think about courting senators, even if a final decision on a nominee was nearly a year off. Shifting from his confidants — Treasury Secretary Timothy F. Geithner and the man who soon would succeed him, the White House chief of staff, Jacob J. Lew — the president gave Rob Nabors, then his liaison to Congress, the Summers project.
“He needs to do some work on the Hill,” Mr. Obama said, according to people with knowledge of the meeting. “You need to work with him, Rob.”
Months later, decision time is here, and Mr. Obama still has not settled on Mr. Summers or Janet L. Yellen, the economist he named to be Fed vice chairwoman in 2010.
Yet as that Oval Office exchange shows, the president has long had Mr. Summers in mind — and still has him in mind — to become the world’s most powerful central banker. The relationship is based on an intellectual partnership that dates to the 2008 campaign and was “forged in the crucible of the financial crisis,” as the longtime Obama strategist David Axelrod put it.
The Wall Street Journal named several prominent Democratic senators who are likely to vote against Summers nomination.
At least three Democrats on the Senate Banking Committee are expected to oppose Lawrence Summers if he is nominated to become Federal Reserve chairman, setting up a razor-thin vote to determine who will lead the central bank at a critical moment for its easy-money policies.
Democrats hold a two-vote majority on the 22-member panel, so the loss of three Democrats would make it impossible for Mr. Summers to advance to the full Senate for a confirmation vote without the backing of some the 10 Republicans. No Republican has publicly expressed support so far for any potential White House nominee for Fed chief, giving President Barack Obama little margin for error.
The committee Democrats expected to oppose Mr. Summers are Jeff Merkley of Oregon, Sherrod Brown of Ohio, and Elizabeth Warren of Massachusetts, according to congressional aides. The banking committee is the panel that will hold confirmation hearings on the nominee and vote on whether to send him or her to face a final vote in the 100-member Senate.
“I think he’d have a tough time” getting confirmed in the Senate, said Sen. Mark Begich (D., Alaska), who isn’t on the panel but has suggested he would vote “no” on the Senate floor if Mr. Summers makes it that far. He said the president has the right to nominate the candidate of his choice but “I think this one is problematic.”
Mr. Summers couldn’t be reached for comment.
Mr. Obama has said the candidates he is considering include Mr. Summers, Fed Vice Chairwoman Janet Yellen and former Fed Vice Chairman Donald Kohn. “The president has not made a decision on this nomination, but we are confident that members of the United States Senate will carefully consider his nominee based on that individual’s merits and qualifications,” White House spokeswoman Amy Brundage said.
Mr. Obama will announce his choice for the job sometime after Congress returns from recess on Sept. 9, according to a senior administration official.
No matter whom he ultimately selects, the next chair of the Federal Reserve will still have to navigate the implementation of new laws as well as new financial products. Monetary policy will be top of mind as the economy improves (or not, depending on said policy). Whoever is running the agency will have a lot to navigate. Here’s hoping he or she still has some political capital after the confirmation process is over.
by Liz Hester
The last time I wrote a story about the topic of parsing the Federal Reserve’s signals, it was rightly pointed out that I used stories too early in the day. So, I waited until after newspaper deadlines to look at the coverage in order to be fair. But the media’s focus was also vastly different.
The Bloomberg story ran under the headline “FOMC Minutes Show Broad Support for Tapering Timeline,” highlighting that they’re likely to pull back from stimulus plan this year:
Federal Reserve policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting show.
“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released today in Washington.
“A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,” the minutes show. “Almost all participants confirmed that they were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year.”
Debate among Bernanke and his colleagues over when to taper $85 billion in monthly bond buying has roiled financial markets from Jakarta to Mumbai to New York. Some Fed officials have said the bond purchases, while helping reduce unemployment, are stoking excessive risk taking in assets such as junk bonds and leveraged loans.
“They’ll probably start to taper in September,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion. “They know that that’s widely anticipated, and they haven’t done anything to deflect those expectations.”
The New York Times headline was “No Clarity From Fed on Stimulus, Upsetting Wall St.” and the story focused on the fact that the Fed didn’t spell out its plans clearly, keeping everyone guessing:
The confusion over exactly when the Federal Reserve will begin scaling back its huge economic stimulus efforts only deepened Wednesday, with the release of a summary of the deliberations at the central bank’s last meeting in late July.
There were hints that some members of the divided committee are comfortable with beginning to ease the Fed’s program of buying $85 billion a month in government bonds and mortgage securities as soon as their next meeting in mid-September. But there were also indications that another camp within the policy-setting group favors waiting until December, or even later.
The only thing that was clear is that the Fed intends to keep Wall Street — and the rest of the world — guessing.
For one thing, a number of participants at the Federal Open Market Committee raised concerns that economic growth in the second half of the year would prove disappointing, which would tend to encourage them to delay any changes in their current policy,
In June, the Fed’s chairman, Ben S. Bernanke, indicated the stimulus program could be scaled back this year if economic data continued to be relatively positive. But he avoided setting any target dates to begin what many investors refer to as the Fed’s coming “taper.”
The minutes of the meeting did little to clarify the issue. While “a few members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases,” a few others “suggested that it might soon be time to slow somewhat the pace of purchases,” the summary of the July 30-31 meeting said.
Then there was the Wall Street Journal story, which ran under the title “Fed Stays the Course on Bond Buying”:
Federal Reserve officials reaffirmed their plan to try winding down an easy-money program that has charged up global markets but left investors on tenterhooks about when or how aggressively they would move.
Minutes of the Fed’s July 30-31 policy meeting, released Wednesday, suggested officials were on track to start winding down the $85 billion-a-month bond-buying program, possibly as early as September, if the economy strengthens as they expect.
They were, however, a bit more uncertain than in June about whether economic growth would pick up as they forecast and about the gains they were seeing in the job market.
Reflecting the cautiousness shown in the minutes and their own uncertainty about how the economy will perform in the months ahead, some Fed officials have begun talking about making a small move when they do start pulling back on bond buying. “If you’re very uncertain about how strong the improvement in the economy is, and how self-sustaining, then you should move in fairly small increments,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview Wednesday with The Wall Street Journal.
So yet again, the Federal Reserve is leaving investors guessing as to if and when they’ll begin pulling back from the stimulus plan. Looks like journalists are also struggling to determine what’s going to happen.
by Liz Hester
The good news is that banks have been passing their so-called stress tests. The not-so-good news is that those tests may need some improvement. The Federal Reserve continues to push banks to make sure the tests accurately reflect the ability to withstand an economic downturn.
Here’s the story from the Wall Street Journal:
The Federal Reserve said some of the largest U.S. banks are stumbling in efforts to assess their own potential risks and financing needs, raising the possibility that banks could be pushed to increase their capital or curtail dividends and share buybacks to satisfy regulators.
Most large banks have made progress in evaluating and preparing themselves to withstand a severe economic downturn, the Fed said in a study released Monday. But it said there is “still considerable room for advancement” in the so-called stress tests run by some individual firms.
The study didn’t identify any firms by name, but it is a shot across the bow from Fed officials, who have increasingly tied strong capital plans that meet the Fed’s muster to a banks’ ability to reward investors with share buybacks and dividends.
It also is the latest indication of how, five years after the onset of the financial crisis and ensuing government bailout of Wall Street, regulators remain concerned about the behavior of some of the most complex banks and see a need to bolster balance sheets with richer forms of capital.
The Fed’s push is likely to further inflame bank executives, who have complained the Fed’s annual stress tests have become a de facto capital requirement. Industry officials have warned that the ever-higher levels of capital banks are being required to hold could curtail lending to businesses and consumers.
They also have expressed concern that the Fed’s stress tests amount to a “black box” that firms can’t recreate and give the Fed to much flexibility in evaluating their capital plans.
The New York Times pointed out that the tests have created tension since it can determine how much they’re able to pay in dividends and other methods of returning capital to shareholders:
The tests have created tension between the Fed and the banks. One reason is that the tests can determine how much a bank is allowed to pay out in dividends or spend on stock buybacks.
In March, the Fed announced that two out of 18 banks had effectively failed the latest tests. One was BB&T, a regional bank based in Winston-Salem, N.C. The other was Ally Financial, a consumer lender that has struggled to right itself since the financial crisis and still has not fully repaid its bailout money to the government. Also in March, JPMorgan Chase and Goldman Sachs passed the latest tests, but the Fed said their responses contained weaknesses, and the banks were required to resubmit their plans by the end of September.
“We continue to work with the Fed and will resubmit in September,” Goldman Sachs said in a statement.
In its review released on Monday, the Fed appeared most concerned that banks were applying the tests too generally. In other words, banks did not pay enough attention to the risks that were particular to their assets and operations. Banks excluded material that was relevant to the bank’s “idiosyncratic vulnerabilities,” the Fed said.
Under the tests, the banks have to assume weakness in the economy and turmoil in the markets, and then calculate the losses they would suffer under such conditions. The banks then subtract those losses from capital, the financial buffer they maintain to absorb losses. If the assumed losses cause capital to fall below a regulatory threshold, the banks effectively fail the test.
Bloomberg reported the details of how banks were putting together their stress tests and how they evaluate capital:
Areas where some banking companies “continue to fall short of leading practice” include not being able to show how risks were accounted for and using stress scenarios and modeling techniques that didn’t account for a bank’s particular risks. The Fed was critical of banks that generated projections for loss, revenue or expenses with approaches “that were not robust, transparent, and/or repeatable, or that did not fully capture the impact of stressed conditions.”
The Fed criticized “capital policies that did not clearly articulate” a banking company’s goals and targets and “did not provide analytical support for how these goals and targets were determined to be appropriate.” It also found examples of “less-than-robust governance or controls around the capital planning process, including around fundamental risk-identification.”
Banks this year also were required to submit their own stress test to the Fed, which supervisors reviewed to ensure the institutions understood their particular risks and vulnerabilities.
“The range of observed practice for developing” bank holding company “stress scenarios was broad,” the report said.
Banks with credible stress tests demonstrated a clear link between an adverse event and the company’s outlook. Banks with less credible tests weren’t as clear about how their regional or industry concentrations were linked to “relevant geographic or industry variables,” the report said.
The original round of tests in 2009 went a long way to stabilize the market and offer some confidence in the banks after the financial crisis. Now, the tests continue to point out shortcomings at several of the banks, which likely isn’t helping sentiment. The big question is whether investors are paying attention to these or if they’re blowing them off since the economy is looking better.
by Chris Roush
The Atlantic is beginning a series of videos called “Economics in Plain English,” writes Derek Thompson of its business news staff.
Thompson writes, “We sifted through more than 300 submissions, which ranged from the super-serious (‘explain monetary policy’s effect on long-term interest rates’) to the super-not-serious (‘why are cupcakes cheaper than Banh Mi sandwiches?’).
“We’ve picked our six favorites across a wide range — from highbrow to lowbrow, trivial to weighty, practical to theoretical — and filmed three-minute videos answering each question in a way we hope is not just watchable and not just informative (although hopefully both of those things) but also just plain fun.
2) Are bottomless drinks actually a good business?
3) Are the machines taking our jobs, and should we be scared?
4) Are the rich hoarding the economic pie?
5) What’s the difference between fiscal policy and monetary policy?
… and, finally, because it seemed like an absurd challenge:
6) What is money?
“Some of these topics naturally lend themselves to a bit more fun than others. We’ll take any excuse to talk business over bottomless mimosas (#2) or visit a northeast D.C. pie shop to discuss income inequality (#4). On the other hand, comparing the effect of tax-based stimulus to quantitative easing (#5) in an accurate and amusing way was a slightly different challenge.”
Read more here.
by Liz Hester
Given the many different economic stories out previewing the week, it’s hard to know what to think. Gauging sentiment as investors and money managers sort through the stories remains important, especially as many of the stories point the economy is moving in different directions.
The Wall Street Journal piece talked about the decline in the value of the dollar as people begin to reexamine the strength of the U.S. economy:
The dollar is stumbling as investors begin to question the relative strength of the U.S. economic recovery, which had powered a rally in the greenback in the first half of 2013.
The WSJ Dollar Index, a gauge of the dollar’s exchange rate against seven of the world’s most heavily traded currencies, is down 4% in the past month and hit a seven-week low on Friday. Before the selloff, which began after the dollar hit a three-year high in early July, the U.S. currency was up 8.3% for the year.
Driving the reversal: a shift in views on when the Federal Reserve might start reining in some easy-money policies that are a legacy of the financial crisis, many fund managers say.
Many investors had piled into the dollar earlier this year on the belief that robust growth in the U.S. would lead the Fed to scale back its bond-purchase program, which has been pumping $85 billion into the economy each month, in the fall.
Not only would a receding flood of dollars raise the greenback’s value, the positive signal it would send about the U.S. economy would give the dollar additional fuel by attracting money flows from outside the U.S., analysts say.
However, disappointing economic data, mainly weaker-than-expected jobs growth and tepid retail sales, have prompted some currency investors to back away from bullish dollar bets that were based on the Fed reducing—or “tapering”—bond purchases in September, well before other major central banks would be ready to start tightening monetary policy.
It turns out that investors have some grounds for questioning the strength of the U.S. economy. The New York Times wrote a story outlining how corporations are doing better, but workers aren’t benefiting:
AMERICAN companies are more profitable than ever — and more profitable than we thought they were before the government revised the national income accounts last week. Wage earners are making less than we thought, in part because the government now thinks it was overestimating the amount of income not reported by taxpayers.
The major change in the latest comprehensive revision of the national income and product accounts — known as NIPA to statistics aficionados — is to treat research and development spending as an investment, similar to the way the purchase of a new machine tool would be treated by a manufacturer, rather than as an expense. That investment is then written down over a number of years.
The result is to make the size of the economy, the gross domestic product, look bigger, and to appear to be growing faster, in years when new research spending is greater than the amount being written down from previous years. For the same reason, corporate profits also look better in those years.
A lot of money is spent on research and development. Nicole Mayerhauser, the chief of the national income and wealth division of the Bureau of Economic Analysis, which compiles the figures, said that in 2012 the total was $418 billion, about one-third of which was spent by governments. That amounted to about 2.6 percent of G.D.P.
The other major conceptual change deals with pensions. Until now, corporate and government contributions to pension plans were counted as personal income only when the contributions were made. Under the revision, the government estimates how much should have been contributed to meet the promises made to workers, and counts that amount, whether it is higher or lower than the amount actually put into the pension plan. That causes personal income to appear larger in years when pension contributions are lower than they should be.
So, on paper, people look like they’re making more, but that isn’t directly translating into dollars they can spend. Then, there’s the problem of inflation, which Bloomberg says is likely to be the highest in 10 weeks:
Treasury market inflation expectations climbed to the highest level in 10 weeks before reports economists said will show costs rose in July, while holding within the Federal Reserve’s target.
The Fed’s measure of traders’ forecasts for prices in the economy for the period from 2018 to 2023, known as the five-year forward break-even rate, rose to 2.73 percent, the most since May 28. It has advanced from this year’s low of 2.33 percent in June. The average over the past decade is 2.75 percent. Long-term Treasures, those most sensitive to inflation, are the world’s worst-performing bonds over the past year.
“The market’s pricing in an ongoing recovery,” in the economy, said Peter Jolly, the Sydney-based head of market research for National Australia Bank Ltd., the nation’s biggest bank as measured by assets. “Treasuries will underperform. For now, inflation is pretty benign.”
There is some good news. Reuters posted a story saying that new economic data from Europe could signal the end of the recession:
A tentative view that the global economy is emerging from its lull could harden into conventional wisdom by the end of this week if, as expected, data show the euro zone’s lengthy recession has ended.
While Europe is still the world’s biggest trading region, some of its recent major exports – financial market panic, banking scares and political uncertainty – have dragged on the world economy over the last three years.
There are now signs of a nascent recovery, led by Germany and perhaps Britain.
Wednesday’s data are expected to show the euro zone economy grew 0.2 percent in the second quarter, according to a Reuters poll. That would mark an end to the recession that took hold in late 2011.
That won’t change the U.S. position as the main engine of economic growth in the world, at least until next year, with Chinese growth still slowing and India wracked by a currency in free-fall.
But even the smallest sign of a recovery in Europe augurs well for the rest of the year.
I’m choosing purposely to end on this positive note. Here’s hoping the data come out in the same direction.
by Chris Roush
The Federal Bureau of Investigation has discovered vulnerabilities in the government’s system for preventing market-moving economic reports from leaking to traders before public release, reports Brody Mullins and Devlin Barrett of The Wall Street Journal.
Mullins and Barrett write, “The black boxes are key to the government’s control of the data. Media firms in the business of reporting economic data are required to connect their computers to the black boxes, which operate like a trapdoor, releasing articles and data streams when the embargoes lift. In theory, all the data should be released at the same time.
“The investigative report, which was completed in May and obtained through an open-records request, indicates that the FBI’s concerns are based on testing of black boxes at its Quantico, Va. facilities. The report didn’t say whether the FBI knows of any specific instance in which anyone knowingly exploited the weaknesses. Many of the technical flaws involve different ways in which the black boxes can be bypassed.
“The report focused primarily on a short-lived probe of Bloomberg L.P., which was exonerated of any wrongdoing. The Bloomberg issue began in May 2012 when the media firm installed new devices in the Commerce Department to speed up delivery of data to subscribers, according to the Commerce report.
“In its own testing, Bloomberg found it could get around the black box in several ways, such as sending data using different electrical current.
“Bloomberg reported the flaws to the Commerce Department last summer and didn’t use the devices in any data releases, Bloomberg told investigators, according to the report. After Bloomberg alerted the department, the FBI conducted a “consensual seizure” of its computers for testing.”
Read more here.
by Liz Hester
The new health care laws are putting pressure on unions and municipalities to trim prices in anticipation of higher costs down the line, according to a New York Times story:
Cities and towns across the country are pushing municipal unions to accept cheaper health benefits in anticipation of a component of the Affordable Care Act that will tax expensive plans starting in 2018.
The so-called Cadillac tax was inserted into the Affordable Care Act at the advice of economists who argued that expensive health insurance with the employee bearing little cost made people insensitive to the cost of care. In public employment, though, where benefits are arrived at through bargaining with powerful unions, switching to cheaper plans will not be easy.
Cities including New York and Boston, and school districts from Westchester County, N.Y., to Orange County, Calif., are warning unions that if they cannot figure out how to rein in health care costs now, the price when the tax goes into effect will be steep, threatening raises and even jobs.
“Every municipality with a generous health care plan is doing the math on this,” said J. D. Piro, a health care lawyer at a human resources consultancy, Aon Hewitt.
But some prominent liberals express frustration at seeing the tax used against unions in negotiations.
The Associated Press (via the Washington Post) reported that some Democratic governors are concerned about putting the law in place:
Democratic governors say they are nervous about getting the new federal health care law implemented but add they will be better positioned in next year’s elections than many of their Republican counterparts who have resisted the far-reaching and politically polarizing measure.
Several of the 12 Democratic governors shared that sense of nervousness-veiled-by-optimism at the National Governors Association meeting Saturday in Milwaukee.
“There’s some angst, and you can see that from the decision the administration made a couple weeks ago,” said Delaware Gov. Jack Markell. “There’s a lot of work to do.”
By next Jan. 1, most people will be required to have insurance. States have to set up exchanges by Oct. 1, when uninsured individuals can start buying subsidized private health coverage that would go into effect Jan 1, and businesses with more than 50 employees working 30 or more hours a week were supposed to offer affordable health care to their workers or risk a series of escalating tax penalties.
But businesses said they needed more time, and on July 2, President Barack Obama’s administration abruptly extended the deadline one year — to Jan. 1, 2015.
That caused some Democrats in Congress to worry the program would not be ready on time, as states are building online platforms for their residents to use to comply with the law. Although the U.S. Supreme Court upheld the Affordable Care Act in June 2012, the Republican-controlled House has voted 40 times since Obama signed the law in 2010 to repeal, defund or scale it back, most recently Friday.
There are signs that the health care industry is struggling as well. MarketWatch reported that hiring is slowing:
Health-care providers are under more pressure in 2013 to freeze or reduce the number of employees, partly because of new federal regulations, according to survey of executives at U.S. service companies.
Critics of “Obamacare” have long warned the health-care law would cause businesses to hire fewer employees or shift to more part-time work to save money. And anecdotal evidence suggests it’s already happening at smaller companies.
One industry to watch carefully is health care itself, it turns out. “Sequestration and health-care reform causing uncertainty and lower revenues,” an executive at a health care and social assistance provider told the Institute for Supply Management in July. “Lower revenue due to health-care reform, causing pressure to cut costs and headcount,” an industry executive said in June.
Similar comments were reported by ISM in its reports for January, April and May. Health-care executives have reportedly cut jobs in four of the first seven months of 2013, according to the ISM survey.
Official U.S. employment data do not show an outright decline in health-care jobs, but current hiring trends are on track to be the lowest since 1990, the first year for which government records are available. From January to July, health care added an average of 15,700 jobs a month, according to the Labor Department.
The pressure to lower costs across the board impacts cities, businesses, and the industry itself. What isn’t apparent from these stories is if any of the attempts to cut costs will be passed to consumers. Either way there’s a lot to write about as people shift through implementing the law.