Thursday, June 25, 2009
Wednesday, June 24, 2009
Yet Warren, who testified to House Financial Services today in defense of the administration’s proposed Consumer Financial Protection Agency, is misdirecting her anger.
As CNN reported today, the Citi plan is not to make its employees richer. Instead the plan swaps bonuses for salary. While it may be strange to most, almost two thirds of compensation for financial industry workers is not in their salary but rather in bonuses. Remember the “golden parachutes?” None of that money was salary.
So the plan is about redirecting the type of payment. Bonuses have been blamed for making traders more likely to take excessive risk and focus on short-term profit. Shifting to salary should reduce those incentives. The plan makes financial analyists more like other workers, and they think less about how their actions contribute to the profit margin in next quarter's report. While theory suggests that employers care most about total compensation, the Citi move indicates that the type of compensation really does impact incentives and should be considered in business decisions.
Friday, June 19, 2009
Those least likey to have health care coverage are the young. Yet even among men aged 20 to 24, the group least likely to be covered, 69 percent have coverage. A successful mandate could increase coverage in this group by no more than 30 percent. While some young people may want health insurance and cannot presently afford it. Young people do face significnatly higher unemployment rates (the rate for men 20-24 was about 10 percent in 2008 and reached over 16 percent in the first quarter of 2009). Given that employers typically sponsor health plans, low labor force particiaption may be a barrier for some. Yet many likely see themselves as healthy and are willing to take a risk by not having health insurance.
Thos who support mandates are most likely to point to the right side of this chart and point out that mandates have worked for older Americans. The coverage rate jumps from the high eighties to almost one hundred percent at age 65, the Medicare claiming age. Yet a Meicare-like option, where younger workers help support fees for older workers though payroll taxes, cannot be replicated upon younger workers—there is no one younger to subsidize them.
Monday, June 15, 2009
A report today by the IMF, concludes with an advisory that the US should not be counted upon to continue as the “global ‘buyer of last resort.’”
This claim is by no means new. Yet coming from a multi-national development institution that has long relied upon the United States to provide a bulk of its funding it takes on new urgency. In particular President Obama pledged a new $100 billion US contribution to the IMF earlier this year. (I commented on the implications of this injection for IMF voting in a previous post.)
Yet it’s unclear which, if any, country is ready to take upon the role the US played in driving global demand. The ideal candidate would be a large growing economy. Yet the biggest players have serious problems. China is known for its high personal savings rate. Plus, as CFR’s Brad Setser pointed out over the weekend much of the current growth in Chinese demand has been focused on domestic production, a trend that is likely to continue as long as the yuan is pegged to a basket of currencies in an attempt to encourage cheap exports.
India’s consumer economy may be more robust but like China it’s found domestic producers for a great many products. Indians may be beginning to drive but don’t expect to see many of them in Fords; they have Tata and other regional players.
When it comes to reliance on US demand, paraphrasing Churchill may be most helpful. It’s the worst system around, except that we have no other to try.
Sunday, June 14, 2009
|Source: Author's calculations, University of Michigan/Reuters Index of Consumer Sentiment, National Bureau of Economic Research Business Cycle Dating|
Tuesday, June 9, 2009
Treasury has announced that it will allow 10 institutions to payback $68 billion in funds obtained via TARP’s Capital Purchase Program (CPP). The move comes as the Administration mounts pressure to limit executive compensation. Last week, Kenneth Feinberg, the man who handled compensation for 9/11 victims' families was reported to be taking a position as a compensation czar. The Wall Street Journal reported the new position as "Special Master for Compensation."
In testimony today, Secretary Geithner said that TARP has been successful but is only one piece of the solution. While calling for a “delicate balance between intervention and allowing market participants latitude to operate,” Geithner did call for a new regulatory structure.
So it's not surprising that the Treasury release did not name the banks that are paying back the funds yet Bloomberg had no problem naming them. In fact, an excited release from JP Morgan Chase touts the firm’s “fortress balance sheet." Firms want everyone to know that they are getting out of TARP. Ironically, when the CPP launched Treasury quickly gave funds to lots of institutions, some who may not have needed it, to obscure the unhealthiest institutions. By the end of 2008, 214 institutions had funds and at present 601 disbursements have been made.
These institutions want both potential employees and investors to know that they are steady enough to get rid of the TARP funds but more importantly they want to signal that they can get out before Congress or the Administration imposes new rules and regulations.
Wednesday, June 3, 2009
Tuesday, June 2, 2009
The figure gives the share of the total disbursements. The data comes from individual allocations, which state the share of their funds going to each type of location. The clear tendency is to spend in urban areas. In fact of the 32 organizations that received funds only three intend to use more than 40 percent of their funds in urban areas. Of course this is only one part of ARRA.