Anybody who has watched their investments in a 401k evaporate should eventually come to the realization that The Stock Market is legalized gambling at its sleaziest. While at its onset it appears to be a great system that offers incentives for “Management” to pursue “Investors” it is in reality the ultimate Ponzi scheme whereas the first “Investors” and “Management” receives the highest payout leaving later “Investors”, “Management” and the “working class” anywhere from destitute at worst to working longer hours at lower wages in some of the best case scenarios.
  The high flyers “buy” or “invest” in a company then raid the pension funds, thereby destroying the retirement systems and plans of the older workers pushing these people into a government system called Pension Benefit Guaranty Corporation (which is seriously underfunded by the way). After destroying the pension system, if the returns are not high enough the high flyers start selling off the company piece by piece to get a “better return on their dollar”; this is a tried and true strategy that they (Hedge fund managers and Stock Market manipulators) have been using for years.
  There was a book titled Barbarians at the Gate that came out sometime in the 1980’s that described how the “Moneyed” set went about destroying companies while setting themselves up with “Golden Parachutes”.
  The best and juiciest companies to destroy were/are companies that carried very little to no debt, owned the land and buildings the company sat on, were prudently run, had well funded pension funds and stable work forces: these were/are the easiest “mark” or fish to destroy.
  For the long term blood-letting (destruction) of a company nothing works better than giving “Management” stock; this is the gift that keeps on destroying. Say the “Company” gives the CEO, COO and CFO a combined offering of 100,000 shares (not unheard of) and the “Company” has a quarterly dividend of $1.52 that gives these three individuals $152,000 to split every 3 months or $608,000 a year that is not being used to fund everyone else’s pension or health care or shore up the “Company”. If these three individuals receive 100,000 shares year after year for 5 or 10 years you have a very serious financial drain on the “Company” $1,824,000 by the second year, $9,120,000 paid by the end of year 5 and a whopping total of $33,440,000 paid out after 10 years. This blood-letting will continue year after year until the “Company” goes bankrupt.

  If those 3 individuals stay 10 years and than leave, they or those who inherit their shares will split $6,080,000 yearly forever. Now bring 3 new people in and repeat; that is why the company worker will never get ahead, those working at the company will pay forever or until the company is bankrupt.
  For the “Working Class” this was not taught in your “Economics” class, but that is how the worker becomes a liability to the “Elite”. When the “Company” can no longer afford to feed the “Elite” their dividend check; “Management” has to find a way to maximize profits, one simple method is to off shore jobs. Foreign workers cost less, have little job protection, little to no pension liability and little to no medical coverage so they are not the “actuarial” problem to the dividend check that an American worker is/was and until the American worker is reduced to a third world country employee they will continue to be an accounting problem.
  The next phase after a company has been bled is to get the House, Senate and President (Bush & Obama) to “bail-out” the distressed company; the more “Investors and Management” can rob and pillage the better, then restructure the company in such a way that the workers and government own a hollow shell of the former company that is awash in debt and struggling to avoid an implosion; example Chrysler, a privately held company whose CEO Robert Nardelli was tossed from Home Depot but received a $200,000,000 parachute to go away.
  Most “Working Class Americans” did not realize that they were little more than an “actuarial” or accounting problem to the “big boys” on Wall Street making their multi-million dollar paycheck; you are either an asset or a liability, with most people viewed as a liability, that’s how “Capitalism” works for the rich and shameless (Investors” & “Management”)

Highly Paid Chief Is Paid $210 Million to Go Away
By MARK A. STEIN
New York Times
January 6, 2007

  PAY FIGHT After enduring six years of mounting criticism over his pay package, an imperious management style and a listless stock price, Robert L. Nardelli, the chief executive of Home Depot, resigned abruptly. He left with a severance package worth $210 million. Over six years as chief executive, he had taken home $64 million and was on track to earn hundreds of millions more.
  In a statement, Home Depot said the former chief executive and the company’s board “mutually agreed that Nardelli would leave his position.” It added that Frank Blake, its vice chairman and one of Mr. Nardelli’s lieutenants, would succeed him.

By Michele Matassa Flores
Seattle Times Business Reporter
May 30, 1999, The Seattle Times Co.

  Tom Matthews got a sweet deal when he took over at the financially troubled Washington Water Power, a Spokane energy company now named Avista.
  The former Texaco and Exxon executive was wooed away from his job at a Houston utility a year ago with a $1 million signing bonus.
  And much more.
  His five-year contract also gave him $2 million in stock; a $750,000 annual salary; promises of a $1 million-a-year package to include either stock or stock options; a guaranteed cash bonus of $150,000 his first year and $300,000 his second year; and options to buy 100,000 more shares of stock.
  Total value over five years: at least $12.2 million - more if he succeeds in improving Avista's output enough to raise its stock price.
  Today, the company's profits are still declining and its stock is even lower than it was when Matthews took over.
  Matthews, 55, didn't rank among the top five executives in this year's Seattle Times CEO salary survey. But he did rank eighth, and his pay package reflects at least two important trends:
  The competition for strong executives is leading to ever-greater pay packages because new contracts with key executives are often based on "peer group" averages. Huge stock grants are becoming so routine that they often supplant salaries and bonuses as the bread and butter of an executive's pay package.
  This year's survey covers 80 executives from 76 Northwest public companies with 1998 sales of at least $150 million. Executives are ranked according to total pay including salary, bonuses, stock awards, other incentive pay, stock options exercised and the value of miscellaneous perks such as life insurance and health-club memberships. In previous years, the survey has included companies with sales as low as $100 million, but as the number of successful Northwest companies has grown, the Times has increased its threshold.
  Another remarkable aspect of this year's survey is the number of area billionaires or near-billionaires who don't even appear on the list.

  A few examples: Paul Allen, the Microsoft co-founder, no longer runs a large publicly held company. Steve Ballmer, the No. 2 executive at Microsoft now, doesn't make the list because he isn't a chief executive. And Naveen Jain, whose red-hot Internet company Infospace has given him more than $800 million in stock, is missing because his company generated only $9.4 million in sales last year.
  Overall, the Northwest's top executives made an average of $714,000 in salary and bonus and $1.5 million in total pay in 1998, including the stock options they exercised. Their salary-and-bonus packages rose an average 4.4 percent, but total compensation - largely because of stock grants - jumped 35 percent.
  For every one of the top 10 executives, stock options and other stock grants made up more than half their pay, and for some more than 90 percent.
  Starbucks Chairman Howard Schultz, who tops this year's list with total pay of $18.2 million, made nearly all his money by exercising stock options worth $17 million. And even as he was cashing in those shares, he was accumulating more; his board granted him another half-million shares last year, worth an estimated $31 million as they mature over the next four years (provided the stock rises 10 percent a year).
  Another leader, Washington Mutual's Kerry Killinger, cashed in $3 million in options and made $4.9 million total pay. He, too, received a new block of options, 390,000 shares worth an estimated $20.4 million over three years (provided the stock rises 10 percent a year).
  Stock options also drove the pay package for Cyrus Tsui, chairman of computer-chip maker Lattice Semiconductor, based in Hillsboro, Ore. Tsui cracked the top five for the third-straight year, making $6 million, two-thirds of that by exercising options.
  Even some of the executives who took cuts in their base pay because their companies performed poorly eased the pain by cashing in options.
  The most notable example is Phil Condit of Boeing, whose salary and bonus were cut by 25 percent because of Boeing's production problems and financial losses. Condit cashed in $1.8 million in options to boost his total pay to $3.1 million, down 17 percent from 1997.

  Some executives dropped off the list this year because of mergers and acquisitions.
  Last year's leader, Gerry Cameron of U.S. Bank, was bumped off the list when his company was bought by Minneapolis-based First Bank System. Cameron's $21.1 million in pay last year consisted largely of cash and stock bonuses he made for helping broker the merger. Though the new company took the U.S. Bank name, it's based in Minnesota. Cameron, 60, after serving as chairman of the new company through December, took a pre-arranged retirement and a $1 million annual pension.
  Others who fell off the list because of mergers include the chief executive of Portland-based Fred Meyer, which is being acquired by Cincinnati-based Kroger, and the CEO of Eagle Hardware, which was acquired in April by North Carolina-based Lowe's.

  Poor Steve Ballmer!
  Microsoft’s board gave him “only” 91 percent of his target bonus this past fiscal year, citing declining Windows revenue, slow progress in the Online Services Division and the company’s failure to provide a browser choice screen for some PCs sold in Europe.
  In total, Ballmer received $685,000 in base pay, along with a $620,000 bonus.
  For those of you wondering how the poor man will now pay his bills and support his family: Fret not! Ballmer stands to receive $76.6 million just from the latest quarterly dividend (which equals around $306 million per year) that Microsoft will be paying to shareholders Dec. 13. That’s based on the 333-million or so Microsoft common shares he owns times the 23-cents-per-share dividend.
  (By the way, that dividend is up 3-cents from the previous quarter. That 3-cent difference alone — amounting to nearly $10 million — is more than enough to make up for what Ballmer isn’t receiving in his bonus.)
  So Ballmer runs little risk of losing his spot on Forbes’ list of the richest Americans. The magazine recently placed him at No.19, with an estimated net worth of $15.9 billion.
Janet Tu, jtu@seattletimes.com.

  Tim Cook's unusual move to exempt himself from a new compensation program comes as boards of major companies have been scrutinized for approving excessive compensation for their CEOs.

  Apple Inc. Chief Executive Tim Cook is saying "no thanks" to stock dividends potentially worth $75 million.
  The company said in a regulatory filing that Cook had volunteered to exempt himself from a new compensation program under which Apple employees could collect a dividend on stock grants that have not yet vested.
  The unusual move comes as boards of major companies have faced heightened scrutiny for approving excessive compensation for their CEOs.
  After a year that has seen Apple's reputation tested by controversy over the way its Chinese production partners treated low-paid workers, observers said Cook might have seen an opportunity to bolster the company's image as a socially responsible and progressive force.
  "This strikes me as another important signal Tim Cook is sending that Apple's user-friendly product image is now to be matched by a social-friendly corporate image," said Stephen Davis, a corporate governance professor at the Yale School of Management.
  Cook would have been entitled to a $2.65 quarterly dividend on each of his 1.125 million restricted shares, called restricted stock units or RSUs. The quarterly payments would have added up to $75 million by the time all the shares vest early in the next decade, the company said.
  Apple gave Cook the bulk of his RSUs in a grant last August when he assumed the role of chief executive following the resignation of Steve Jobs. Jobs died two months later after a long battle with cancer.
  At the time, Apple's board awarded Cook 1 million RSUs, half of which vest in 2016 and the other half of which vest in 2021. Under Apple's new program, Cook could have collected dividends on all of those units, but chose not to.
  The choice will leave Apple's chief far from penurious, however. In the last two months, Cook has hauled in $140 million from selling 240,000 vested Apple shares — a bonanza equivalent to 100 times his annual salary of $1.4 million.
  But even that stock sale will seem minuscule if Cook's tenure at Apple lasts until 2021, when he can cash out the last of his 1.25 million Apple RSUs — an opportunity he is unlikely to forgo.
  If Cook sold those shares on the market today, they'd be worth $630 million.

Romney’s Bain made millions as S.C. steelmaker went bankrupt

Myrtle Beach Sun News
Jan. 14, 2012
David Wren

MYRTLE BEACH, S.C. — Boston-based Bain Capital LLC more than doubled its money on GS Industries Inc. — the former parent company of Georgetown Steel — under Mitt Romney's leadership in the 1990s, even as the steel manufacturer went on to cut more than 1,750 jobs, shuttered a division that had been around for 100 years and eventually sank into bankruptcy.
  Bain Capital spent $24.5 million to acquire GS Industries in 1993, according to an investment prospectus for the company that was obtained by the Los Angeles Times and reviewed by McClatchy Newspapers. By the end of that decade, Bain Capital estimated its partners had made $58.4 million off its investment in GS Industries, according to the prospectus.
  Bain Capital's partners also earned multimillion-dollar dividends from GS Industries and annual management fees of about $900,000. But by the time GS Industries filed for bankruptcy protection in 2001, it owed $553.9 million in debts against assets valued at $395.2 million.
  Romney - who founded Bain Capital, one of the earliest leveraged-buyout firms, in 1984 - was in charge of the firm for most of the time it owned GS Industries. Romney left Bain Capital in 1999, two years before the bankruptcy, to run the organizing committee for the Winter Olympics in Salt Lake City, Utah.
  "We were doing well and then Bain Capital bought us and they took everything they could out of the company without making the investments we needed to stay competitive," said James Sanderson, who has been with the mill since 1974 and served as its union president since 1988. "They ran the company into bankruptcy."
  Bain Capital came to own Georgetown Steel after it provided the financing for a management-led buyout of Armco Worldwide Grinding System of Kansas City, Mo., in 1993. The Armco plant was renamed GS Technologies, which merged with Georgetown Industries in 1995 to become GS Industries Inc. At the time, the combined entities - headquartered in Charlotte, N.C. - had $1 billion in revenue and employed 3,800 people worldwide as the largest producer of carbon wire rods in North America.
  Sanderson said Bain Capital replaced longtime managers who had built Georgetown Steel with bean counters looking for ways to cut costs. They demanded increasing financial performance with little idea of how the daily operations were run, he said.
  "They were investors. They weren't steel mill operators," he said.
  Romney has touted his business acumen as an asset in his bid for the Republican Party nomination for president. But he has come under fire from opponents - including other Republican candidates, such as Texas Gov. Rick Perry, who called Romney a "vulture capitalist" - who say Bain Capital preyed on struggling companies and stripped them financially before selling them off or abandoning them in bankruptcy court.
  Bain Capital propped up short-term earnings, Romney opponents say, so the venture capital firm could borrow money that went toward investors' dividends - enriching Bain Capital but leaving the companies with unsustainable debt.
  Romney has fought back, saying his goal at Bain Capital always was to make companies successful over the long term, even if that meant painful cuts along the way. Romney says he was successful more often than not, but that in a free enterprise system, some businesses will not be strong enough to survive.
  Romney's campaign officials in South Carolina could not be reached for comment, but he discussed Bain's investment in GS industries during a Fox News interview last month.
  "The steel industry got in trouble in this country," Romney said. "I think 40 mills went bankrupt the same time (GS Industries) did, in part because of - well, in this case, dumping from places like China into this country. I understand the impact of what happens globally in trade. And businesses, you know, lose and go out of business, and in some cases, lose jobs. It breaks your heart when that happens."
  Jim Jerow, chairman of the Georgetown County Republican Party, said he thinks the attacks on Romney have been unfair.
  "Any business, if they are going to remain competitive, they have to do things sometimes that people don't like, such as reducing staff and cutting costs," Jerow said, adding that Georgetown Steel's biggest problem before its bankruptcy was competition from foreign steel makers who dumped cheap products on the American market.
  "You don't hear any of his critics talk about that," Jerow said. "I guess my question for them would be: What would you have done at the time?"
  Contacted Friday, his campaign emailed this response: “Bain Capital invested in many businesses; while not every business was successful, the firm had an excellent overall track record and created jobs with well-known companies like Staples, Dominos, and Sports Authority. These experiences give Mr. Romney the unique skills and capabilities to do what President Obama has failed to do: focus on job creation and turn around our nation's faltering economy.”   In addition to GS Industries, Bain Capital paid $10 million to buy another South Carolina company - Holson Burnes Group, a photo-album maker based in Gaffney. The prospectus shows Bain Capital's partners made more than twice their investment - earning $22.6 million, according to the prospectus - between 1986 and 1992, when Holson Burnes Group went out of business and 150 people lost their jobs.
  In GS Industries' case, Bain nearly destroyed a Georgetown Steel plant that had provided hundreds of well-paying jobs to Georgetown County residents since the late 1960s, according to Sanderson, who has remained president of the local United Steelworkers union No. 7898 through a pair of bankruptcies, a mill shutdown and its rebirth under Mittal Steel in 2005.
  Less than a year after taking a controlling interest in the Georgetown plant, Bain Capital cut the employees' profit-sharing plan twice - lowering the plan's hourly rate from $5.60 an hour to $1.25 per hour. Most of the workers didn't learn about the cuts until they received their paychecks. The profit-sharing checks eventually disappeared altogether.
  Sanderson, in a September 2000 report in McClatchy Newspapers, called Bain Capital anti-labor and said "they've forced a labor dispute at every location" during contract negotiations.
  Sanderson agrees that China's cheap steel imports on the American marketplace hurt the Georgetown mill's production and profitability.
  "But if (Bain Capital) had only invested in the mill instead of taking everything from it, we would have been able to sustain that (dumping) like we had in the past," he said.
  John Ethridge, a retired Georgetown Steel worker, said Bain Capital "treated us like dirt."
  "They brought a bunch of people in here who thought they knew how to do our job, but they had no idea what they were doing," Ethridge said, adding that needed equipment and plant upgrades were often delayed or ignored.
  Ethridge, who worked at the Georgetown mill for 35 years, said Bain Capital was more interested in how much money it could take from the plant rather than investing anything into it.
  By the time GS Industries filed for bankruptcy protection, the number of employees worldwide had been cut by more than half.
  The Kansas City, Mo., plant felt the brunt of Bain Capital's cuts, according to news reports, with one state legislator accusing the venture capital firm of union-busting during a 1997 strike - the company's first in nearly 40 years - that lasted 10 weeks. A key sticking point in that strike was job security and pension benefits for workers who suspected that Bain Capital was trying to cut operating costs for a quick sale.
  As foreign competition increased and steel prices continued to fall, GS Industries applied for a federal loan in 1999 to help keep the company afloat. But in 2001, before the loan could be used, GS Industries filed for bankruptcy protection, closing down the Kansas City plant that had its origins in the late 1800s.
  "It makes me sick," retired Kansas City steelworker Steve Morrow told the Los Angeles Times last month. Morrow told the newspaper that top managers continued to receive bonuses from Bain Capital even as bankruptcy neared, but not other employees.
  The Georgetown Steel plant was purchased out of bankruptcy for $53 million by Midcoast Industries in 2002, but the mill continued to struggle and filed for bankruptcy protection again in 2003. The steel mill closed with that bankruptcy, putting its more than 450 employees out of work. The former International Steel Group purchased the remains of Georgetown Steel the following year for $18 million and reopened the mill. Then, in 2005, Mittal Steel - now ArcelorMittal - bought ISG, making Georgetown a part of its operations. The Georgetown mill now employs about 300 people.
  Sanderson called the mill's tenure under Bain Capital "bad years ... very bad years" and Ethridge said morale was poor when Romney's firm was calling the shots.

Budgetary scare tactics?
Be afraid; be very afraid
By David Broder: Oct. 5, 2003

  WASHINGTON - Maybe all the others are wrong. Maybe those in the Bush administration who claim we can grow our way out of these big budget deficits if we just keep cutting taxes to stimulate the economy know something no one else grasps. But if I had to bet my grandchildren's future prosperity on anyone, I would not bet that way,
  I would not be that foolhardy, not when the list of people warning that this nation has embarked on a dangerous and unsustainable fiscal course that will wreck our economy and threaten our international standing includes those who now are frantically signaling us to straighten out our policies before it is too late.
  Some members of Congress of both parties have argued for months, if not years, that the lack of spending restraint, coupled with the penchant for ever larger tax cuts, cannot be allowed to go on. Their cautions have gone unheeded.
  Now they are finding credible allies. David Walker, the comptroller general of the United States, is an appointed official with a 15-year term that gives him complete political security. His staff in the General Accounting Office provides the fullest range of information on government finances. Last month, Walker went to the National Press Club to raise a public alarm where he hoped it would be heard. "Our projected budget deficits," he said, "are not manageable without significant changes in status quo programs, policies, processes and operations."
  Last week, three organizations that had not previously collaborated joined at the Press Club to spell out in specific terms what Walker meant. The Committee for Economic Development, a group of business and education leaders; the Center on Budget and Policy Priorities, a liberal leaning research and advocacy group; and the Concord Coalition, a bipartisan organization focused on sound fiscal policy, issued their first joint statement on fiscal policy. They called the current budgetary situation "the most fiscally irresponsible" in American history.
  Staff members of the three groups said that a realistic picture of the next decade shows it is likely that annual deficits will rise from current levels of $400 billion to more than $600 billion and total $5 trillion between 2004 and 2013 even assuming a quick return to healthy economic growth and lower unemployment.
  Those numbers are incomprehensible. But a better sense of their meaning comes when the groups say that if current policies remain, balancing the budget by 2013 would require raising individual and corporate income taxes by 27 percent, cutting Social Security by 60 percent, cutting defense by 73 percent, or cutting all programs except defense, homeland security, Social Security and Medicare by 40 percent.
  That sounds like scare talk. But the reality is that after 2013, things will get worse. The first of the baby boomers reach retirement age in 2008 and from that point on, Social Security and Medicare payments will explode as the number of claimants rises each year. As Pete Peterson, the Republican former secretary of commerce, told the news conference where this report was presented, anyone who thinks those programs are solidly financed ought to think again.
  “To talk about a Social Security trust fund is a fiscal oxymoron,” he said. “It isn't funded and it can't be trusted.” Rather, the government faces $25 trillion of unfunded entitlement obligations.
  Is this just scare talk? Peterson, a major financier, does not think so. Neither does another panelist, Robert Reischauer, the former head of the Congressional Budget Office. And neither does Robert Rubin, the former Clinton administration treasury secretary who helped design the policies that briefly put the federal budget into surplus and contributed to the economic boom of the late 1990s.
  Rubin said, "There is no question that these (budgetary) conditions pose a very serious threat to our economy."
  The massive borrowing that the government will have to do to finance these deficits will shrink the supply of capital available to the private sector when it needs to expand, and force up interest rates "to substantially higher levels. It is a virtual certainty there will be a day of reckoning."
  Are all of them wrong? I would love to think so. But I hate to bet my grandchildren's future on it as we are doing now.

I WONDER WHY ECONOMISTS THINK THEY ARE SUCH

  In the business section of a newspaper was a comment about economists debating productivity in the economy. The author of the article wrote that “the debate may seem esoteric-but it matters to real people.”
  Not being an elitist I did not understand what he meant so I looked up esoteric, first in a thesaurus where the word is listed as an adjective having a similar meaning as deep. I rephrased the sentence; the debate may seem deep-but it matters to real people.
  It did not seem deep would be a good substitution for esoteric so out came the ol dictionary and I promptly got irate. ESOTRIC 1. Intended for or understood only by a particular group. 2.a. known by a restricted number. b. confined to a small group. 3. Not publicly disclosed; confidential.
  Economists theoretically are supposed to be specialists that deal with production, distribution and consumption. If this “esoteric “ group does not understand some of the problems facing this country maybe they can be enlightened by some of the blue collar workers who have seen factory jobs relocated so investors could get a better return on their dollars. Maybe they could debate whole corporations that manufacture nothing but thrive on shuffling paper around, trying to be a perpetual money machine (perpetual motion machine is impossible in real life, perpetual money machine impossible also). It is just a matter of time before perpetual money machine collapses; does the phrase Japanese market “bubble” ring a bell.

“I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we run into such debt, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy,”
Thomas Jefferson

  Maybe some “enlightened” esoteric individual could explain to me why it is better to pay $1,000,000,000 (billion yes with a “b”) a day interest on the national debt; than to become debt free and use that money, one billion a day or $365,000,000,000 a year to fix our infrastructure, our schools. Do you remember the Gramm-Rudman bill addressing this issue years ago?
  The crude oil consumption in this country is greater then it has ever been. The volume of everything else we are importing is mind boggling. N.A.F.T.A. and G.A.T.T. what an embarrassment to the working class of the United States.
  We are paving over farmland (food one of our best exports) at such an incredible rate that it will not be long before the United States has to import food; Boeing has cut deals left and right to manufacture aircraft parts overseas (airplanes another good export). Lumber mills are closing at an unconscionable rate, yet whole logs are shipped overseas.
  Drugs one of this country’s biggest imports should be viewed as capitalism (laws of supply and demand) at its finest; and the war on drugs (what a joke) could not possible ever be won because of the large number of people (judges, lawyers, police and jailers) who would be unemployed (we do not have the factory jobs to go back to).
  If it is economists who are being referred to as the “real people” “the debate may seem esoteric-but it matters to real people” this would be a slap in the face to all the people who have lost their “production” type jobs due to the greed of Wall Street and the depravity of the accounts who look at the here and now without giving thought to the future. Remember the $20,000,000,000 bailout in Mexico and a multi billion-dollar bailout in Asia.
  I suppose as long as the attitude is I got mine and screw you this country will reap what it sows, which makes the revised pledge of allegiance as applicable today as when it was first written in June 1992.

I pledge allegiance to the flag of a nation that is bankrupt and dying!
Not just financially in this sea of red ink, but morally as well

And to the republic for which it once stood!
Our leaders have sold us the U.S. out 

Which has forsaken God!
Greed, lies, murder, theft, debauchery

Is divisible with special interest groups!
Lobbyists, lawyers, foreign countries 

And miscarriages of justice for all!
A number of judges and legislators seem to have a perverse sense of right and wrong.

  It is truly a shameful state of affairs when one thinks of the sweat and blood shed to create and preserve this great country, but I suppose due to the widespread lack of character, one should expect no better.

  “Those who would trade freedom for security deserve nether freedom nor security”.
Ben Franklin

  Those who would give away the farm do not deserve to eat.

Pension defaults could spread

  WASHINGTON - As the U.S. airline industry defaults on billions of dollars in pension obligations, the federal agency charged with guaranteeing the retirement funds of millions of U.S. workers is growing closer to facing its own financial crunch.

  While the federal government has stepped in to help major domestic airlines deal with dramatically underfunded pension liabilities, it may find itself financially unable to aid other struggling sectors, such as the U.S. auto industry, seeking to relieve themselves of similar burdens.
  A federal judge ruled Tuesday in Chicago that United Airlines can walk away from $6.6 billion worth of unfunded retirement obligations to 119,000 current and former union employees, the largest pension default in U.S. history. See full story.
  "Termination and replacement of the pension plans is something we tried very hard to avoid, but it simply proved unavoidable," said Jake Brace, chief financial officer of UAL Corp. (UALAQ: news, chart, profile) , the parent of United Airlines, after the company posted a wider net loss for the first quarter of the year of $1.1 billion on Wednesday. See full story.
  The Pension Benefits Guarantee Corp., the government agency created in 1975 to bail out domestic companies that default on pension obligations, will pick up the tab for United Airlines' pension plans. The PBGC is funded through an employer premium, essentially a tax on employers that fund defined-pension benefit plans. Read more about PBGC.
  PBGC maintains that U.S. pension plans are underfunded by more than $450 billion, with companies in financial trouble liable for nearly $100 billion of this amount. The $100 billion estimate, however, does not assume defaults by U.S. auto makers.
Bailouts mounting
  The PBGC in February assumed responsibility for $3 billion of U.S. Air's (UAIRQ: news, chart, profile) pension obligations. U.S. Air entered bankruptcy for the second time in 2004.
  Atlanta-based Delta Air Lines Inc. (DAL: news, chart, profile) also warned the market this week that it may face substantial losses in 2005, triggering concerns of another bankruptcy filing in the airline industry. See full story.
  Some analysts have warned that the big auto makers' ability to halt sliding market share in North America amid mounting competition from Japanese auto makers could pose the next major bankruptcy crisis.
  U.S. pension obligations for General Motors Corp.'s (GM: news, chart, profile) at the end of 2004 were $89 billion.
U.S. pension obligations at Ford Motor Co. (F: news, chart, profile) totaled $43 billion at year-end 2004. Of that, $12.3 billion is unfunded, according to the rating agency Standard & Poor's.
  There is also speculation that Delphi Corp. (DPH: news, chart, profile) , a former subsidiary of General Motors that makes automotive parts, may file for Chapter 11 and could seek to dump its pension liabilities. This could cause a ripple effect in which other auto-parts makers would likely file for bankruptcy to remain competitive, according to a UBS research report. The PBGC estimates Delphi's unfunded pension liability at about $5.1 billion.

System meltdown
  The head of the federal benefit system, Bradley Belt, told lawmakers in late April that the PBGC is "under severe stress" following the bankruptcies in the U.S. steel and airline industries, which have led to a record long-term deficit of $23.3 billion at the PBGC.
  Although the number of traditional pension plans paid by employers has fallen over the past two decades, the costs of these plans have grown as companies with aging workforces and rising medical expenses have set aside insufficient assets to pay for the promised benefits.
  The PBGC collects roughly $600 million a year from the private sector, far short of the amount needed to pay the pensions of companies that have fallen on hard times.
  The move by the PBGC to cover United Airlines' pension plans will result in a 40% cut in benefits to these retirees. The PBGC caps annual payouts at $45,600 a year.
  The Bush administration has proposed dramatic changes in how the PBGC is funded that have received a lukewarm reception among lawmakers.
  Currently companies that offer traditional private pension plans pay a flat-rate of $19 per person annually into the PBGC fund, a rate that has not been increased since 1991. The administration would increase this fee to $30 to generate as much as $400 million extra a year in funding and index the rate to growth in workers' wages.

  Administer true justice; show mercy and compassion to one another. Do not oppress the widow or the fatherless, the alien or the poor. In your hearts do not think evil of each other.'
  "But they refused to pay attention; stubbornly they turned their backs and stopped up their ears. They made their hearts as hard as flint and would not listen to the law or to the words that the LORD Almighty had sent by his Spirit through the earlier prophets. So the LORD Almighty was very angry.
  When I called, they did not listen; so when they called, I would not listen

 The death knell for the traditional company pension has been tolling for some time now in the United States. Companies in ailing industries like steel, airlines and auto parts have thrown themselves into bankruptcy and turned over their ruined pension plans to Washington.
  Now, with the recent announcements of pension freezes by some of the cream of corporate America - Verizon, Lockheed Martin, Motorola and, just last week, IBM - the bell is tolling even louder. Even strong, stable companies with the means to operate pension plans are facing longer worker life spans, looming regulatory and accounting changes and, most important, heightened global competition. Some are deciding they either cannot, or will not, keep making the decades-long promises that a pension plan involves.
  IBM was once a standard-bearer for corporate America's compact with its workers, paying for medical expenses, country clubs and lavish Christmas parties for the children. Perhaps most importantly, it rewarded long-serving employees with a guaranteed monthly stipend from retirement until death.
  Most of those perks have long since been scaled back at IBM and elsewhere, but the pension freeze is the latest sign that workers in the United States are, to a much greater extent, on their own. Companies now emphasize 401(k) plans, which leave workers responsible for ensuring that they have adequate funds for retirement and expose them to the vagaries of the financial markets.
  "IBM has, over the last couple of generations, defined an employer's responsibility to its employees," said Peter Capelli, a professor of management at the Wharton School of Business at the University of Pennsylvania. "It paved the way for this kind of swap of loyalty for security."
  Capelli called the switch from a pension plan to a 401(k) program "the most visible manifestation of the shifting of risk onto employees." He added: "People just have to deal with a lot more risk in their lives, because all these things that used to be more or less assured - a job, health care, a pension - are now variable."
  IBM said it was discontinuing its pension plan for competitive reasons, and that it planned to set up an unusually rich 401(k) plan as a replacement. The company is also trying to protect its own financial health and avoid the fate of companies like General Motors that have been burdened by pension costs. Freezing the pension plan can reduce the impact of interest-rate changes, which have made the plan cost much more than expected.
  "It's the prudent, responsible thing to do right now," said J. Randall MacDonald, IBM's senior vice president for human resources. He said the new plan would "far exceed any average benchmark" in its attractiveness.
  Pension advocates said they were dismayed at the sight of rich and powerful companies like IBM and Verizon throwing in the towel on the traditional pension.
  "With Verizon, we're talking about a company at the top of its game," said Karen Friedman, director of policy studies for the Pension Rights Center, an advocacy group in Washington. "They have a huge profit. Their CEO has given himself a huge compensation package. And then they're saying, 'In order to compete, sorry, we have to freeze the pensions.' If companies freeze the pensions, what are employees left with?"
Verizon's chief executive, Ivan Seidenberg, said in December that his company's decision to freeze its pension plan for about 50,000 management employees would make the company more competitive, and also "provide employees a transition to a retirement plan more in line with current trends, allowing employees to have greater accountability in managing their own finances and for companies to offer greater portability through personal savings accounts."
  In a pension freeze, the company stops the growth of its employees' retirement benefits, which normally build up with each additional year of service. When they retire, the employees will still receive the benefits they earned before the freeze.
  Like IBM, Verizon said it would replace its frozen pension plan with a 401(k) plan, also known as a defined-contribution plan. This means the sponsoring employer creates individual savings accounts for workers, withholds money from their paychecks for them to contribute, and sometimes matches some portion of the contributions. But the participating employees are responsible for investing the money themselves. Traditional defined-benefit pensions are backed by a U.S. government guarantee, while defined-contribution plans are not.
  Precisely how many companies have frozen their pension plans is not known. Data collected by the government are old and imperfect, and companies do not always publicize the freezes. But the trend appears to be accelerating.
  As recently as 2003, most of the plans that had been frozen were small ones, with less than 100 participants, according to the Pension Benefit Guaranty Corporation, which insures traditional pensions. The freezes happened most often in troubled industries like steel, textiles and metal fabrication, the guarantor found.
  Only a year ago, when IBM decided to close its pension plan to new employees, it said it was "still committed to defined-benefit pensions."
  But now the company has given its imprimatur to the exodus from traditional pensions. Its pension fund, one of the largest in corporate America, is a pace-setter. Industry surveys suggest that more big, healthy companies are doing what IBM did, or will do so this year and next.
  "There's a little bit of a herd mentality," said Syl Schieber, director of research for Watson Wyatt Worldwide, a large consulting firm that surveyed the nation's 1,000 largest companies and reported a sharp increase in the number of pension freezes in 2004 and 2005. The thinking grows out of boardroom relationships, he said, where leaders of large companies meet, compare notes and discuss whether a strategy tried at one company might also work at another.
  Another factor appears to be impatience with long-running efforts by Congress to tighten the pension rules, Schieber said. Congress has been struggling for three years with the problem of how to make sure companies measure their pension promises accurately - a key to making sure they set aside enough money to make good. But it is likely to be costly for some companies to reserve enough money to meet the new rules.

  “Woe to him who piles up stolen goods and makes himself wealthy by extortion! How long must this go on?'

  Will not your debtors suddenly arise? Will they not wake up and make you tremble? Then you will become their victim.

  Because you have plundered many nations, the peoples who are left will plunder you. For you have shed man's blood; you have destroyed lands and cities and everyone in them.”

Budget surplus must first go toward debt reduction
DAVID S. BRODER/ Jan.7, 1998

  WASHINGTON - No one can accuse official Washington of lacking a sense of humor, not when the politicians and pundits are falling over each other arguing about what to do with the unexpected budget surplus.
  The remarkable discovery that the Treasury took in $2.5 billion more in revenues in the last 12 months than it spent was followed Monday by President Clinton's announcement that he will submit a balanced budget for fiscal 1999. The prospect of a surplus has unleashed a cascade of talk about new tax cuts or more spending (or "investments," as the White House prefers to say).
  Suddenly forgotten is the fact that we have amassed $5.5 trillion in debt, almost four-fifths of it in the 1980s and 1990s, and the last trillion during the supposedly frugal Clinton years.
  Conveniently overlooked, too, are the $14 trillion of unfunded obligations for the retirement and health care benefits of the baby boomer generation, now just 10 years away from starting to impose its unprecedented burdens on its children and grandchildren.
  House Speaker Newt Gingrich, R-Ga., is arguing for cutting taxes "every year" as long as the budget is in the black. President Clinton is proposing "targeted" tax cuts, presumably less costly, but his spokesmen say he is ready to consider going further, if Republicans can show how to pay for expanded largesse.
  All of this suggests that spoon feeding honey to voters in an election year is more appealing to many in Washington than telling the public the truth: After the profligacy of the last two decades, we face years of sucking in our fiscal gut if we are going to be in shape to finance the boomers' golden years without another explosion of debt.
  Clinton deserves credit for recognizing at the very beginning of his presidency that the reckless pattern of previous years could not continue. He and Treasury Secretary Robert E. Rubin (then running economic policy on the White House staff), working closely with Federal Reserve Chairman Alan Greenspan, took the substantial political risk of pushing through a budget in 1993 that set the path toward this intoxicating day of deliverance from deficit financing.
  In 1993, Republicans, to their shame, fought Clinton every step of the way. But when they took control of Congress in 1994, they reversed their stance and applied further pressure toward eliminating the red ink.
  The remarkable run of inflation free economic growth we have been enjoying is something for which both parties can claim credit. But it would be foolish to relax now that a nominal balance is in sight. Keeping that balance is important. It is not, as some say, a meaningless accounting trick. This year, we are spending about $250 billion in interest on the national debt. One out of every seven dollars in taxes goes simply to pay off the bondholders.
  That money is diverted from medical research, military preparedness, upkeep on the national parks and all the other things the federal government does. Those tax dollars truly are being squandered.
  As anyone with a credit card knows, the interest on unpaid debt compounds quickly, which is exactly what has been happening to the country during these reckless years.
  Wise policy would use any budget surplus first to start paying down the national debt, thus capturing the effects of compounding for the benefit of future generations. Every $1 billion taken off the debt in 1998 saves many times that amount in interest payments over the coming decades.
  This nation does not have to wait until the debt is completely eliminated before people begin to enjoy tax cuts or benefits of additional government spending in important areas. As the debt shrinks relative to the size of the overall economy, it becomes less and less of a tax on the current generation. But simple prudence suggests that debt reduction be given priority at least until agreement is reached on how we will finance the inevitable demands of the boomers' retirement and health care needs.
  The bipartisan Medicare commission that is supposed to deal with that part of the problem is still without a chairman and is not due to report until March of 1999.
  No mechanism even exists to force action on the much larger problem of the boomers' demands on Social Security. The White House let it be known last week that Clinton would like to see a start on that process this year, but he has no proposal of his own to put forward at this time on either Medicare or Social Security.
  Squandering the supposed budget surplus on either tax cuts or new government programs would be worse than putting the cart before the horse. It would be this generation saying to the next: We're getting ours, and the hell with you.
(Copyright, 1997, Washington Post Writers Group)
David S. Broder's column appears Wednesday and Sunday on editorial pages of The Times.
 

  Evil men do not understand justice, but those who seek the LORD understand it fully.

  Better a poor man whose walk is blameless than a rich man whose ways are perverse.

 
Pensions in Peril
The federal agency that insures private pensions has a $23 billion deficit, raising the specter of a taxpayer bailout. Proposals abound, but fixing the problem won't be easy
Phil Davies Staff Writer; June 2005

  Bradley D. Belt must know how the captain of Titanic felt, gazing ahead as his vessel bore down on the iceberg. If only he had a little more time to steer clear of the obstacle ahead—or a way to melt it before the fatal impact.
  Belt heads the Pension Benefit Guaranty Corp., a little-known federal agency that insures defined benefit pension plans, a type of traditional pension common in unionized industries that guarantees workers retirement payments based on years of service and final salary. Roughly 44 million Americans participate in such plans. When an employer can't meet its pension obligations, the PBGC steps in to make good on those pledges, paying retirees monthly benefits up to regulatory limits. In 2004 the quasi-public agency paid out $3 billion in benefits owed on over 3,400 defunct pension plans.
  But lately the actuarial odds have been catching up with the PBGC, casting doubt on its ability to continue serving as a backstop for corporate failure. In 2002 the PBGC's insurance fund for single-employer pension plans had a healthy surplus; at the end of fiscal 2004 the fund was running a $23.3 billion deficit, more than double that of a year earlier. In mid-May, United Airlines received permission from federal bankruptcy court to terminate its four pension plans, setting the stage for the largest pension default in U.S. corporate history. If other airlines seek similar protection, as some predict, “that move would probably swamp the pension agency,” according to the New York Times.
  Since the U.S. economy soured in 2000, the agency has absorbed over $10.6 billion in insurance claims from terminated pension plans, most of them in the steel and airline industries. Those liabilities are inexorably eating away at the PBGC's balance sheet. Despite taking in insurance premiums, and cash and investment income from bankrupt plans it takes over, the PBGC has insufficient assets to cover its obligations—the benefits due to retirees and workers who will retire in coming years. An analysis by the Center on Federal Financial Institutions (COFFI), a nonprofit think tank based in Washington, D.C., shows that if current economic conditions persist, the agency will hit the iceberg—run out of money to pay benefits—in 2021.
  The PBGC's looming insolvency raises the specter of a taxpayer bailout, the salvation of federal deposit insurance in the 1980s. The savings and loan debacle, the biggest public rescue in the history of U.S. financial institutions, cost taxpayers an estimated $175 billion. Determined to avoid the second-biggest taxpayer rescue in history, Executive Director Belt and his predecessor have testified to Congress 10 times in the past three years, asking for a revamping of the pension system. “The defined benefit pension system is beset with a series of structural flaws that undermine benefit security for workers and retirees and leave premium payers and taxpayers at risk of inheriting the unfunded pension promises of failed companies,” Belt told the Senate Committee on Finance in March. “Only if these flaws are addressed will safety and soundness be restored to defined benefit plans.”
  The Bush administration has responded with the first real attempt in 10 years to address the PBGC's financial woes. The Bush proposal would tighten pension funding rules, improve financial disclosure and raise the insurance premiums that companies pay to the PBGC. But the White House plan has run into heavy flak on Capitol Hill and elsewhere. Trade unions and employer groups such as the American Benefits Council, which represents large sponsors of pension plans, argue that new rules could lead companies to abandon defined benefit plans, already an endangered species in the workplace. “We're concerned that the effect of some of the proposals they're making will be to drive more companies out of the system,” said ABC President James A. Klein in an interview.
  Calls to overhaul pension insurance are nothing new, nor is spirited opposition to change by stakeholders in the status quo. Pension insurance has suffered from a systemic lack of market discipline since the PBGC was created 30 years ago. Fraught with moral hazard—the temptation to take less care when someone else pays for your mistakes—the current system gives a free ride to irresponsible employers and imposes an unfair burden on taxpayers. There are economic solutions to the moral hazard problem and the PBGC's growing mountain of debt. Implementing them will severely test the nation's political will.

A game of jeopardy
  The late Sen. Jacob Javits of New York hailed the Employee Retirement Income Security Act as “the greatest development in the life of the American worker since Social Security” when the measure he championed became law in 1974. Inspired by the plight of workers at Studebaker-Packard Corp. after the automaker terminated its pension plan in 1964, ERISA required companies to set aside money for their pension plans. And the act established the PBGC to ensure that workers received what they were promised.
  But ERISA and the PBGC have never worked as well as Javits envisioned. From the beginning, some employers have jeopardized their pension plans by gaming the system, often with the tacit approval of trade unions. Loose funding rules and regulatory loopholes have allowed companies to make inadequate contributions to their pension plans. With few constraints on how pension assets are invested, employers have gambled and lost in the stock market. Other ERISA provisions, such as penalties for exceeding annual caps on tax-deductible contributions to pension plans, discourage well-intentioned companies from building up funding surpluses.
  As a result, the PBGC has run persistent deficits, despite periodic premium hikes and tweaking of funding rules. Corporations have been able to get away with shortchanging their pension plans and playing the stock market in flush economic times; rising stocks increase the value of pension assets, and the high interest rates that often accompany bull markets reduce pension liabilities by letting employers make smaller contributions today to meet pension obligations 10 or 20 years in the future. In the late 1990s many companies with bulging investment portfolios were able to take “funding holidays,” putting no money into their plans. But pension managers have been caught short when the economy falters. During the recession of the early 1990s, the PBGC took over more than 20 large, severely underfunded plans, digging itself a $2.9 billion hole by 1993. Pension underfunding by companies in the single-employer program grew to over $100 billion before the system regained its footing in a revivified stock market later in the decade
 The PBGC found itself in arrears again after the dot-com bubble burst in 2000, pitching the stock market into free fall. This time, the death throes of several large steel makers and airlines added to the load of terminated, poorly funded plans dumped in the agency's lap. LTV Steel, Bethlehem Steel, Kaiser Aluminum, US Airways, United Airlines—all declared bankruptcy and bequeathed pension liabilities to the PBGC. United Airlines' pension plans, collectively only 42 percent funded when they were terminated this year, make the agency liable for approximately $6.6 billion in benefits owed to United active and retired personnel. The PBGC is bracing for more defaults in the debt-ridden airline and auto industries.
  The rash of terminations coincides with the steady erosion of the PBGC's premium base. Looking to cut costs and shift responsibility for retirement financing to the individual employee, thousands of employers switched from defined benefit plans to defined contribution plans in the 1990s, continuing a trend that began 10 years earlier. In 2003 only 20 percent of the private-industry workforce was covered by a traditional pension, down from about 30 percent in 1990. During the same period, worker participation in defined contribution plans such as 401(k)s rose to 40 percent, according to the Bureau of Labor Statistics.

The day of reckoning
  All of this adds up to $23.3 billion in red ink for the PBGC—a shortfall six times greater (in 2004 dollars) than its 1993 deficit. Workers and retirees needn't fear immediately for their pension benefits; because the PBGC has approximately $39 billion in assets today and acquires new assets when pension plans terminate, it will remain cash-flow solvent for another 15 years or so under COFFI's base scenario. But the day of reckoning will come—21 years earlier than Social Security, another social insurance program that has received much more attention and is projected to go broke without reform. If the PBGC were a private insurer, says COFFI President Douglas J. Elliott, it would be shut down. His cash-flow model, based on PBGC data, indicates that in the current pension system a massive cash infusion would be required to erase the deficit and satisfy new claims over the next 75 years.
  “It's simple arithmetic,” Elliott says. “You need to put in $78 billion today in order to take care of the legacy plus additional losses that would occur.” To avoid a cash rescue, the PBGC would have to realize a 10 percent return on its investments—double historical norms—or increase premium revenue by at least $3.5 billion annually. Even if only half of the claims anticipated by PBGC came in, a $56 billion infusion in today's dollars would still be necessary to stave off insolvency. If all major U.S. airlines defaulted on their pension plans, a $100 billion rescue would be required.
  If the PBGC were bailed out, taxpayers would almost certainly do the bailing. Technically, the PBGC is a private insurance pool, entitled to only a $100 million loan from the U.S. Treasury. But the federal government would probably step in if the agency goes bankrupt, just as it came to the rescue of the Federal Savings and Loan Insurance Corp. (FSLIC) in the 1980s. With or without a public rescue, says Elliott, Congress needs to refigure the faulty arithmetic of pension insurance to make employers pay the true cost of the termination risks they impose on the PBGC. “There's clearly an imbalance between the risks and the premiums,” he says. Unless that imbalance is corrected, the PBGC will remain a financially suspect institution incapable of safeguarding the future of millions of baby boomers approaching retirement.

What, me worry?
  Moral hazard is the corrosive force that gnaws at the PBGC's financial foundation, constantly threatening to topple it into debt. This hazard has nothing to do with moral turpitude (thievery, adultery, pyramid schemes, and so on); in economics the term refers to the tendency of people with insurance to expend less effort to avoid risks than they would if they had no insurance. Moral hazard has been an issue for underwriters ever since the first insurance policies were issued after the Great Fire of London. It induces drivers to take less care on icy roads and homeowners to rebuild in earthquake zones.
  A 1993 study of the PBGC by the Congressional Budget Office identified moral hazard as a powerful incentive for employers and labor groups to exercise less care over their pension plans, thereby increasing the risk of defaults. The study's authors, Marvin Phaup and Ron Feldman (now a vice president at the Minneapolis Fed), wrote that operating a pension insurance system is like “playing a strategic game against a large number of rational opponents who—under some circumstances—can gain an advantage by increasing the amount of risk to which other players are exposed.”
  Pension legislation in 1994 reduced the potential for gamesmanship, but companies still face no significant penalties for promising generous benefits to employees, then underfunding their pension plans and taking risks in the stock market—increasing the likelihood that the plans will ultimately fail and become PBGC liabilities.
  The existence of federal pension insurance reduces the incentive for employees to care about the financial health of their defined benefit plans. They and the unions that represent them in collective bargaining know that the PBGC (and implicitly, Uncle Sam) guarantees a high proportion of retirement benefits. For defined benefit plans that terminate in 2005, the PBGC grants employees who retire at 65 a maximum annual stipend of $45,613. That's probably not enough to buy a condo in Florida, but it provides skilled, blue-collar workers a substantial measure of security. Therefore, employees and their unions have less reason to insist that companies fully fund their plans and invest assets wisely. When cash-strapped companies offer workers fatter pensions in lieu of wages or other immediate benefits, unions often go along because the PBGC has pledged to honor those promises, even if the employer deliberately underfunds its pension plans and later goes bankrupt.
  In the early 1990s, for example, bankrupt Trans World Airlines increased pension benefits by more than $100 million in exchange for wage concessions. A decade later, United Airlines sweetened the retirement packages of its pilots and ground workers as it careened toward Chapter 11. “At times in the past,” says Klein of ABC, “it has been convenient for the employer, and the labor union that is compelled to make concessions in wages or health benefits, to make it up in the form of additional promises on the pension side, which the employer then doesn't fund. That's irresponsible, and just exacerbates the problem.”
  Defined benefit pension plans were underfunded to the tune of $450 billion—20 percent of the system's total liabilities—at the end of 2004. Companies, even financially healthy ones, habitually underfund their plans because doing so is cheap and easy. A private insurer would charge higher premiums to policyholders who engage in risky behavior, heightening the prospect of claims. That's why drivers with bad driving records pay more to insure their cars and smokers pay a premium for health insurance. But the PBGC can't effectively penalize risk-taking. By law, the PBGC charges employers a modest “variable” premium for pension underfunding—just $9 per $1,000 of the underfunded amount. And because of convoluted rules limiting tax-deductible contributions, many employers avoid paying any variable premiums. Last year, only 20 percent of underfunding was subject to variable premiums.
  In other words, says Richard Ippolito, a former chief economist for the PBGC, companies that starve their plans don't pay nearly enough for succumbing to moral hazard and imposing additional risk on the system. “If the insurance is properly priced, then there is no moral hazard,” he says. “Well, in the case of PBGC insurance, consider the reality. There really is no charge to speak of to carry underfunding.” Instead, companies that fully fund their plans subsidize risk-taking members of the insurance pool by paying a higher “fixed” premium—a flat charge per pension participant. Since 1974 the fixed premium has increased 19-fold, with the last hike coming in 1991.
  Temporary legislation passed last year to take pension pressure off beleaguered industries has worsened overall levels of underfunding. The Pension Funding Equity Act raised the interest rate used to compute the present value of future benefits—effectively reducing pension liabilities on paper—and gave airlines and steel companies five years to make up funding shortfalls. The PBGC estimates that the measure, due to expire next year, reduces required contributions by an estimated $80 billion over two years.

Risky business
  Besides encouraging underfunding, moral hazard also influences the investment decisions of pension managers. The PBGC doesn't take asset risk into account when it assesses premiums; a company that invests its pension in technology stocks or hedge funds pays the same rate as a company that puts its trust in high-grade corporate bonds or Treasuries. Thus, as long as they don't violate their fiduciary responsibility under ERISA to invest pension assets prudently, employers face no consequences for taking on additional investment risk. Aggressive investment strategies are particularly tempting for struggling companies with underfunded plans. If the gamble pays off, the company can resurrect its pension plan and pocket the balance of the financial gain; if the investment tanks and the pension plan later fails, the PBGC picks up the pieces.
  Some pension experts draw parallels between the risky bets made by pension funds and those indulged in by savings and loan institutions in the 1980s. In the case of S&Ls, blanket protection afforded to creditors by the FSLIC led some troubled thrifts to make speculative, losing investments in commercial real estate and junk bonds. Similarly, in the 1990s embattled employers protected by pension insurance invested heavily in equities, including telecommunications and technology stocks—assets that largely evaporated in the stock market meltdown of 2000.
  A lack of transparency in the pension system exacerbates moral hazard. In open markets, monitoring by customers, investors, regulators and others with skin in the game curbs excessive risk-taking. But in the pension business, “the funding and disclosure rules seem intended to obfuscate economic reality,” Bradley Belt testified to Congress in March. ERISA regulations permit employers to file outdated reports with the PBGC, withhold funding data from investors and pensioners, and “smooth” the market value of pension holdings over several years to make plans appear healthier than they are. Bethlehem Steel, for example, reported that its pension plan was 84 percent funded in 2001, but by the PBGC's reckoning it was only 45 percent funded when it was taken over a year later. Without relevant and timely information, workers, the PBGC and other stakeholders cannot exert pressure on employers to fully fund their plans and invest prudently. (See The Top 50—Revisited.)
  Not all of the PBGC's problems can be laid at the door of moral hazard. Feldman and other analysts have observed that poor insurance management has contributed to the agency's financial losses. One example of purblind oversight by Congress is the PBGC's premium structure. Not only has the agency failed to sufficiently hold employers to account for underfunding; it has also consistently underpriced insurance coverage. A 2002 analysis by Ippolito and Steven Boyce, a senior economist at the PBGC, showed that premium rates amount to only about half of those that would be charged by a private pension insurer. Current fixed and variable premiums set by Congress don't account for market volatility-what financial economists call “beta” risk. When stock returns decline, the value of pension assets inevitably falls and default risk increases—risk that isn't reflected in the premium schedule.

Coming to the rescue
  Belt has called for comprehensive reform of the pension system. He has asked Congress to untangle ERISA's Byzantine funding rules, improve financial disclosure, restructure PBGC premiums to reflect default risk and enhance the agency's standing in bankruptcy proceedings. Other interested parties and observers—industry lobbyists, unions, politicians, financial economists—have weighed in with their own solutions to the PBGC's deficit.
  Not everyone agrees with COFFI that taxpayers will be saddled with the PBGC's debts if Congress stands pat. Some economists view the deficit as transitory, the result of a “perfect storm” of precipitous stock-market declines combined with historically low interest rates and bankruptcies in moribund industries. When the economy fully recovers, this line of reasoning goes, pension plans will become flush with assets again, currently inflated liabilities will shrink and the PBGC's deficit will fade away. “PBGC needs a tune-up, not an overhaul,” writes Christian Weller, senior economist of the Washington, D.C., think tank Center for American Progress, in a paper published last year. “PBGC's losses most likely qualify as extraordinary events that may not happen [again] for a long time, and may partially turn around.”
  Some employee groups go further, hinting at a cabal against workers covered by defined benefit plans. “The underfunding 'crisis' has been overblown, largely for political purposes relating to efforts to secure the enactment of funding relief legislation for certain companies, and in some instances as a pretext for freezing or cutting back on expected future benefits,” declares the Pension Rights Center, an advocacy group for employees and retirees, on its Web site.
  But even those who downplay the PBGC's deficit concede that the pension system has intrinsic weaknesses that threaten the agency's stability whenever the economy stumbles.
  The full spectrum of potential solutions to the PBGC's troubles was on view at a policy forum last November hosted by COFFI. Among the panelists at the Washington, D.C., seminar were Belt, Klein, CBO Director Douglas Holtz-Eakin and Alan Reuther, legislative director of the United Auto Workers. A COFFI report released after the forum lays out 15 policy options for dealing with the PBGC deficit.
  A fear voiced often at the forum is that in attempting to fix pension insurance, lawmakers will destroy the system by inducing employers to wash their hands of defined benefit plans. Rising funding and administrative costs have dampened corporate enthusiasm for traditional pensions. In a 2004 survey by Hewitt Associates LLC, a benefits consulting firm, 20 percent of large employers said they were considering offering employees only a 401(k) or other defined contribution plan. More than one in four companies said they would consider freezing their defined benefit plans—paying benefits already earned but ceasing to accrue any new benefits for existing or future employees. Delta Air Lines froze its pension plan for pilots last November, and Northwest Airlines wants to freeze all of its defined benefit plans. Many unions and policymakers believe that getting tough with companies—by significantly raising premiums to make up the PBGC's deficit, for example—could spell the end for traditional pensions, and for the PBGC.

Antidotes to moral hazard
  Several proposals come to grips with moral hazard, reducing the incentive for some companies to indulge in risky behavior at the expense of others. One obvious solution is to impose tougher penalties for underfunding. Raising the variable premium, or collecting a premium on all funding shortfalls, combats moral hazard by shifting the cost of insurance toward companies at greatest risk of defaulting. Higher variable premiums would raise additional revenue for the PBGC, reducing the deficit while leaving companies that choose to fully fund their plans unscathed. But for struggling companies, markedly higher variable premiums could be the final straw. “I don't think there would be a death spiral,” COFFI's Elliott says, “but I do think there's a genuine possibility that many firms will choose to exit the defined benefit system by freezing their plans.”
  Variations of this proposal, modeled on changes to deposit insurance in the wake of the S&L crisis, base variable premiums on investment or credit risk. Financial economists have shown that volatility in the investment returns of pension funds poses a substantial risk to the PBGC. Ippolito and Zvi Bodie, a finance and economics professor at Boston University, have recommended that companies “immunize” their pension plans against stock market downturns by buying long-term bonds, which are better matched to pension liabilities than are stocks. Treasury notes and other high-grade fixed-income securities deliver virtually guaranteed returns at maturity, and if interest rates fall the pension plan reaps a capital gain. Charging equity—heavy plans a higher premium would give firms a powerful incentive to invest in bonds instead. Claims on the PBGC would decline over time, because a less volatile investment portfolio reduces the likelihood of future underfunding.
  Charging higher premiums to companies with dubious credit also makes sense; a creditworthy firm is much less likely to go bankrupt and default on its pension plan than one whose debt has been relegated to junk status. A PBGC analysis found that nearly 90 percent of the companies that dumped large claims on the agency had junk-bond credit ratings for the preceding 10 years. Credit ratings (from Standard & Poor's or Moody's) or measures of debt-to-equity ratios (similar to the methods used to assess risk-based premiums in banking) could be used to judge a firm's creditworthiness.
  Understandably, neither approach has won accolades from business groups. Pension managers favor stocks because in the past they have earned higher returns than bonds, which lowers the cost of funding defined benefit plans. And those returns count as income that boosts the corporate bottom line. As for indexing premiums to credit risk—a key element of the Bush reform plan—Klein of ABC argues that doing so would place an intolerable burden on already weak companies, forcing them to terminate their plans. He contends that a low credit rating isn't always the employer's fault; United and US Airways were brought to their knees by rising fuel costs and the travel slump that followed the 2001 terrorist attacks.
  In banking, deposit insurance reform in the early 1990s mitigated moral hazard by denying full federal protection to uninsured depositors at small institutions. In a similar vein, another approach to reducing the PBGC's exposure disallows or withdraws coverage for benefit increases in severely underfunded plans. Under this plan, a distressed company's proposal to sweeten its pension package in exchange for wage concessions would visibly imperil its workers' retirements. Less protection would force employers to reconsider making unfunded promises, reducing claims payouts if those plans terminate and thereby trimming the deficit. Of course, further limits on pension coverage (early retirees already receive less than the maximum benefit) are likely to be vehemently opposed by employee groups.

Just like starting over
  Rather than reducing the PBGC deficit by reforming pension insurance by degrees, two other proposals aired at the COFFI forum simply wipe it away, forgiving the mistakes of the past and allowing everybody to make a fresh start. In both scenarios, the taxpayer comes to the rescue, pouring $30 billion or more into the PBGC's coffers to cover much of the liability from steel and airline bankruptcies.
  An immediate taxpayer bailout, advocated by the United Auto Workers, would cut the agency's losses before they mushroom further and avoid charging healthy plans a higher fixed premium that could trigger more freezes and terminations down the road. In their 1993 CBO report, Feldman and Phaup broached this as one solution to what was then a much smaller PBGC deficit. The idea still makes sense, Feldman said in an interview—if Congress decides that the defined benefit system is worth saving. “You can't force the people who are solvent to pay for the sins of those who have already failed,” he says. In his view, past and imminent claims from defunct pension plans can be considered a sunk cost that must be wiped from the PBGC's books if the pension system is to remain viable going forward. Once the debts of bankrupt steel, airline and auto companies are paid, premiums and funding rules can be adjusted to properly price pension insurance and keep the PBGC solvent, making future bailouts unnecessary.
  Boyce and Ippolito conclude in their 2002 paper that taxpayers—the de facto underwriters of pension insurance—already subsidize the PBGC because they absorb beta risk when stock assets lose value. This hidden public subsidy amounts to about $1 billion annually. So why should taxpayers hand another subsidy to companies that benefited from artificially cheap insurance, then broke their pension promises? Perhaps because by doing so, they could be relieved of responsibility for pension insurance once and for all.
  Ippolito has proposed bailing out the PBGC with a one-time cash infusion, then privatizing it—converting it into a true self-insurance pool with no possibility of further federal aid. Companies in the pool would set a variable premium that would apply to every dollar of underfunding. Calculated to reflect the true risks of bankruptcy absorbed by the pool, including beta risk, the rate would fluctuate from year to year, depending on business and financial market conditions. After a period of time, firms would be free to leave the pool and shop for coverage from private insurers. In a paper published by the Cato Institute last year, Ippolito suggests that a private entity would prove a more capable insurance underwriter than the federal government.
  “Once taxpayers were removed as ultimate guarantors of the insurance, the plans themselves ... would have an incentive to align premiums with exposure, and plan sponsors would have to face up to the problems that their own underfunding creates,” he writes. This drastic plan—likely to be opposed fiercely by both corporations and employees—would substantially raise premiums for weak companies without the wherewithal to fully fund their pension plans.
  Other proposed salves for the PBGC's wounds include raising flat-rate premiums, tightening funding rules and raising tax-deductible pension funding limits. (For a complete discussion of policy options for dealing with the PBGC deficit, see “PBGC: Policy Options” at COFFI.)

Economics vs. politics
  Any permanent remedy for the PBGC's deficit and the dysfunctions of pension insurance will likely blend several of these approaches in an effort to prevent more plan defaults while significantly boosting the agency's income. As the COFFI policy forum demonstrated, lawmakers have the means to avert a collision with the iceberg threatening the PBGC—not just until the stock market tanks again, but for as long as employers choose to offer defined benefit plans. Countering moral hazard, correctly pricing coverage and ensuring that the pension system's assets match its liabilities are straightforward economics.
  But how and when Congress intervenes on pensioners' behalf will probably be determined more by politics than economics. The challenge for lawmakers, illustrated by the controversy generated by President Bush's reform proposal, is implementing any plan that exacts a significant price from employers and pension participants. Corporations don't want to pour precious revenues into defined benefit plans or pay higher premiums; unions don't want their members' benefits cut back or to give companies another reason to dump their defined benefit plans. Both management and labor are apparently content to have taxpayers stand behind underfunded pension promises. There's a real possibility that their lobbying will reduce any reform bill to a palliative that plays well in the media while sanctioning business as usual. Delta Air Lines and Northwest Airlines, supported by the Air Line Pilots Association, are pushing for legislation that gives them up to 25 years to fully fund their defined benefit plans, even after they're frozen.
  George Benston, a finance professor at Emory University who has studied the S&L crisis, said in an interview that he hopes the agency's house of cards collapses sooner rather than later, before the PBGC deficit grows even larger. The longer moral hazard goes unchecked, he says, the more opportunity employers have to “loot the system,” as some thrifts did while Congress dragged its feet on S&L reform. But both he and Ippolito believe that Congress is likely to repeat history, failing to fix the flaws in pension insurance—with or without assistance from the taxpayer—until either the PBGC deficit swells to S&L proportions or the agency runs out of cash to pay benefits. After all, constituents aren't picketing their employers' offices, complaining about the PBGC deficit. According to COFFI's estimates, retirees in terminated plans will keep receiving benefits for another 15 years—an eternity in politics. Why would a politician risk antagonizing private industry and unions today, when overhauling pension insurance can be postponed to the next election cycle? Meanwhile, mounting deficits in much bigger and more familiar federally backed entitlement programs—Social Security and Medicare—occupy the front burner in Washington.
  “It's kind of discouraging, because the prospects for fixing the problem aren't all that great,” Ippolito says. “The people who are going to be affected in the short term, the corporations and the unions, are going to violently oppose [reform], and the taxpayers who are sitting on the potential bill don't even know the insurance exists. ... It's fairly likely that either nothing is going to be done in the short term, or if something is done, it'll be minimal.”

Bailout bubble is getting ready to burst

  It’s hard to avoid the eerie feeling that the biggest political and economic news of the year ahead will be the failure and toppling economic dominoes of some attempted giant financial bailout.
  South Korea, maybe. Or a triple whammy from Indonesia, Thailand and South Korea. Of course, it could be Japan, which is hurting and too big to be bailed out by any thing but its own resources and fortune.
  Possibly the International Monetary Fund, the global financial bailout mechanism itself, could go belly up if enough Asian nations fail and Congress shuts the U.S. checkbook
  But the pivot may be whether the ultimate problem comes in the biggest bailed out economy of all: the United States of Lockheed and Chrysler, overnight loans from the friendly Federal Reserve, portable peso oxygen tents, commercial bank trans-fusion kits, a capital city with more influence peddlers than Seoul and shady Asian political donors filling the Lincoln bedroom.
  Pejorative as that may sound, if there's a giant global economic bubble out there, the United States has slicked up at least half the glistening soap film. The first bailouts Chrysler and Lock-heed back in the 1970s were relative peanuts.
  The big bubble pipe came out in the 1980s. Part of the action came from tax cuts, deregulation and electronic program trading that helped turn the global financial markets into a 24-hour roulette wheel and "spectronic" Monte Carlo. But a large part also came from what can be called "lobster salad socialism"  the commitment of the major financial nations to bailing out stock markets, central banks and even entire nations that have made unwise investments.
  Small wonder that after nearly two decades of this economic bungee-jumping, many overseas banks, stock markets and Asian cartels started to feel invincible.
  And their colleagues in the United States did, too. Multinational corporations and Texas and Illinois banks got bailed out in the 1970s and early 1980s. By the late 1980s, federal bailout benefits had spread at an eventual cost of hundreds of billions of dollars to run amok savings and loans and commercial banks. The insistence from Washington, of course, was that this was necessary to save Mom and Pop depositors.
  Too often they were $5 million and $30 million Moms and Pops, though, with fancy addresses in Nassau or the Cayman Islands. Without this support, the verdict of the marketplace would have been Hooveresque. One expert pointed out that the share of U.S. bank deposits held by financial institutions rescued by post 1986 federal insurance payouts exceeded the percentage held by banks that actually failed between 1928 and 1933, the Depression nadir!
  Bailouts for U.S. investors took other forms as well. After the stock market crashed in 1987, the Federal Reserve pumped out money to get the indexes back up. Some traders contend that the Fed also bought futures contracts. Then in late 1994, when the Mexican peso crashed, the Clinton administration arranged a multi-billion dollar bailout to save investors in unsafe, high interest Mexican bonds.
  One of the most encouraging Washington developments of the last month, though, is the number of cynical conservatives, liberals and middle-of-the-roaders who are starting to describe this as just what it is: state capitalism, financial mercantilism, socialism or maybe collectivism.
  But most of all, forget the old definitions. Meaningful socialism no longer involves collective ownership of factories. That's smokestack era stuff. The new financial socialism now collectivizes the perils of insolvency, not the means of production.
  If factory socialism 60 years ago worked to redistribute money downward, financial collectivism reduces speculative investment risk and therefore redistributes wealth and income upward.
  Which brings us to the potential politics. The first question, for which there is no clear precedent in financial history, is: How long can market forces be kept at bay as bailout is piled on bailout? It's certainly possible that 1998 will turn out to be the year the bubble pops. If so, it's a good bet that popping party system and income distribution bubbles won't be far behind.
  The ordinary citizenry, in both the United States and Japan, is starting to figure out the abusive political economics involved. One well known presidential contender, for example, recently complained, “The working and middle classes are endlessly conscripted, dunned and sacrificed—to rescue the investing classes." No, not Jesse Jackson or Ralph Nader. Conservative Patrick J. Buchanan.
  Up on Capitol Hill, a senator complained that, for Wall Street, bailouts have been "a heads I win, tails the taxpayer loses" scenario. Sen. Edward M. Kennedy? No, Republican Sen. Lauch Faircloth of North Carolina.
  Three years ago, the American public was lopsidedly opposed to the peso bailout, and the newest data suggest they're no happier to have the United States helping to fund the IMF Asian bailouts. What we may see here is the beginning of a new issue and, possibly, the beginning of the end for bailouts and lobster salad socialism.
  The lobster salad part is beyond debate. One recent story in weekly newsmagazine noted that Wall Street is making so much money that young employees are getting fired for discussing their salaries or boasting about their 50 inch TVs and $3,500 Rolex watches. The Center on Budget and Policy Priorities just released data showing that because of Wall Street and financial sector profits, New York State now has the country's greatest income gap between the rich and the poor.
  This suggests an obvious reform. Instead of taxpayers being saddled with sustaining the IMF and the collectivized costs of insolvency, it would make more sense to privatize these responsibilities to the banking and investment sectors. Part of their riches of the last decade flowed from the taxpayer subsidized bank and S&L bailout. Now, it ought to be payback time.
  Congress can arrange that by ending the current taxpayer based IMF funding in favor of a changeover to what economists call an FTT a small tax on financial transactions (stock, bond, currency or otherwise). By one computation, a tax of one fifth of 1 percent of the value of each transaction in the United States would raise $20 billion to $30 billion a year. The same tax, globally, would raise something like a $100 billion, paid by precisely those people and interests who profit from the IMF's de facto international insurance.
  Of course, there’s a chance that the bubble machine can go on and on. And there's a greater possibility that the bailout brigade can puff and patch their way through 1998. But it's still tempting to conclude that one of the next major issues of U.S. politics is coming up fast. (Editors note: it looks like that nightmare was postponed a few years but has now arrived.)

Kevin Phillips is publisher of American Political Report. Sometime in 1998

  Woe to those who make unjust laws, to those who issue oppressive decrees, to deprive the poor of their rights and withhold justice from the oppressed of my people, making widows their prey and robbing the fatherless.

  What will you do on the day of reckoning, when disaster comes from afar? To whom will you run for help? Where will you leave your riches?

 
Pension disparities draw flack
Swollen retirement packages of company executives contrast with eroding financial security of employees

By Kirstin Downey The Washington Post: April 20, 2003

  As workers' pensions erode, employees, shareholders, unions and lawmakers are paying new attention to the many ways retirement packages for top executives outshine those of their workers.
  Financially ailing Delta Air Lines, for instance, has asked employees to accept pay cuts and pension changes that many oppose. At the same time, it has set aside $25.5 million to create a special fund to guarantee executives' pensions if the airline should be forced to declare bankruptcy, according to corporate filings.
  Sen. John McCain, R Ariz., called the Delta deal "insulting," coming at a time when the foremost recipient of Delta's largess, Chief Executive Leo Mullin, was seeking a multibillion dollar federal aid package for the industry.
  At struggling American Airlines, its unions this past week threatened to rescind pay cut agreements after learning that top officials would get big bonuses if they stayed until 2005 and that a trust fund had been created to protect the executives' retirement pay if American files for bankruptcy. In response to the stir, American officials dropped the bonus plan, but said they would keep the pension agreements in place.
  In recent years, Verizon's top executives boosted their pay and bonuses by tying them to the company's operating income, which was rising from high investment returns racked up by the company's $40 billion pension fund.
  When Verizon stopped doling out cost of living pension adjustments to retirees, 90,000 of them organized a vote last year on a shareholder proposal that executives stop using the pension fund in their bonus computations. They proposed the measure again this year, and Verizon agreed last month to separate the executive compensation structure from the pension fund.
  At Sears, five top executives receive pension credit for two years of service for each year on the job, according to company filings. That boosts their pensions compared with those of rank-and file workers. This proxy season, Sears faces a union backed proposal requiring it obtain shareholder approval for future "extraordinary pension benefits for senior executives" - including ones that give credit for years not worked. The retirement benefits gap between workers and executives is just part of the widening gap in compensation. The average chief executive's pay was 42 times that of the average hourly worker in 1980, according to Business Week. By 2000, CEO compensation was 1,531 times as much as the hourly worker's.
  Pension issues are in the limelight because of the flurry of shareholder proposals at upcoming annual meetings. Also, there is proposed legislation on plans to revive conversions of traditional pension plans to plans that could bring lower benefits, especially for older workers.
  "The workers of America deserve better pension law oversight and protection from their government," Janet Krueger, a 23 year IBM employee from Rochester, Minn., testified at a pension hearing. She said her prospective pension eroded sharply after IBM converted it to a "cash balance" plan in 1999. In a later interview, she complained about the generous pension IBM had constructed for Chief Executive Louis Gerstner during the same period.
  Company officials defend Gerstner's package as a just reward for a job well done. "The IBM board of directors determined Mr. Gerstner's retirement package based on a number of factors, including the company's overall performance during his tenure," spokesman Bill Hughes said.
  During Gerstner's nine year tenure, he said, total stockholder return increased 938 percent.
  The vocal debate also comes at a time when fewer workers are covered by any kind of pension plan, and when those who are have seen their investments in supplemental plans, such as 401(k)s, hammered in the stock market.
  Employment lawyer Lawrence Lorber, who testified for the U.S. Chamber of Commerce at a recent pension-­conversion hearing, said the difference between executive and worker plans reflects "harsh business realities" caused by bad economic conditions, a weak stock market, an aging work force and intense competition. "It's an unfortunate confluence of the need to save money and the need to attract your savior," Lorber said.
  The pension gap is an issue labor organizers believe will resound with workers. A Web site, www.paywatch.org, unveiled last week by the AFL CIO's investment office, highlights the discrepancies. "The difference in treatment is unbelievable," said Richard Trumka, secretary treasurer of the AFL CIO, many of whose member unions are major institutional shareholders through their pension funds.
  Another tactic is pushing shareholder resolutions.
  While inventive ways to embellish executive pension plans have proliferated, new studies show workers' plans are at risk.
  A report by the Employment Benefits Research Institute, a nonprofit group, found that the number of workers covered by any kind of retirement plan has fallen in the past two years, from 60.4 percent of all adult, full time wage and salaried workers   an all time high to 58 percent. Today's worker pensions are often different from the traditional annuity, or defined benefit plan, that offers a fixed monthly income upon retirement.
  Now many pension plans are defined contribution plans, such as 401(k)s.
  These kinds of pensions are problematic for John Rother, policy director at AARP He said 401(k)s "sound good, because you have choice, but suddenly, years later, people wake up to see that none of these changes were as good as the old style pensions would have been."

Information from The Associated Press was included in this report.

 
Congress' full-blown retreat from fiscal responsibility
By David S. Broder: Oct.17, 2004

  WASHINGTON - It's not true that people in Washington can't agree about anything. Across the policy spectrum, there's a clear recognition that the present path of budget-making is unsustainable - in fact, ruinous.
  The Concord Coalition, whose leadership includes prominent Republicans, says that with realistic assumptions but no change in policy, the federal debt, Will swell by a staggering $5 trillion in the next 10 years. The liberal Economic Policy Institute says that a "budget train wreck" lies ahead. The nonpartisan Congressional Budget Office warns that it looks as if "substantial reductions in the projected growth of spending or a sizable increase in taxes - or both - will probably be necessary" to avoid fiscal disaster.
  The agreement extends everywhere except where it is most important - to the rivals for the White House and to the members of Congress.
  President Bush and his opponent, Sen. John Kerry, blithely assert that they will cut the budget deficit (a record $413 billion in the current year) - in half within four or five years, but they are purposely vague on how they will do it.
  Meantime, Congress has retreated further and further from any pretense of fiscal responsibility. When they went home to campaign last week, the lawmakers executed what Stan Collender, a prominent budget expert, called a "triple dive." They recessed "having failed to pass the fiscal 2005 budget resolution, all but four of the 13 regular 2005 appropriations and a needed increase in the limit on the national debt," so the Treasury can sell bonds to our creditors.
  "This three-part failure," Collender said, "is the best evidence yet that Congress has become either unwilling or unable to deal with the federal budget. It has abrogated its fiscal responsibilities at every step in this year's debate except when the decisions - like a tax cut were politically easy."
  Tax cuts they can do. With bipartisan majorities, they passed a $143 billion bonanza for corporations of every sort, shortly after extending what the lawmakers were pleased to call a "middleclass" tax cut of $146 billion. You may be surprised to learn, as I was, where that "middle class" tax relief actually goes.
  According to the Center on Budget and Policy Priorities and the Urban Institute-Brookings Institution Tax Policy Center, households in the middle 20 percent of the income scale - the "middle class" - receive only 9 percent of the benefits. Their average saving will be $162. Those in households with incomes from $200,000 to $500,00 will be $2,390 better off.
  It is important to remember that these latest tax cuts are all being financed with borrowed money - money that at some point will have to be paid back. That was the point made by Pete Peterson, the former Nixon administration secretary of commerce, in a terrific piece that business reporter Paul Solman did for PBS' "News Hour with Jim Lehrer" the other night.
  Noting that today's deficits will burden future generations, Peterson said, "The ultimate test of a moral society is the kind of world it leaves to its children. And as I think about the concept that we're slipping our own kids and grandkids a check for our free lunch, I say we're failing the moral test."
  Morality aside, there's the little matter of piling up even more IOUs instead of the savings that will be needed to finance the retirement and health-care costs of the 77 million baby boomers now nearing retirement. That responsibility ought to weigh heavily on every man and woman running for federal office, but it is hard to find a campaign where it is being discussed with any degree of candor and realism.
  It would be nice to pretend that once next month's election is out of the way, the winners will buckle down and address this crisis. But both Collender and Philip Joyce, a George Washington University professor, suggest that the whole budget-making process in Congress may be on the verge of breakdown.
  As Joyce put it, in an article for a forthcoming scholarly journal, "The failure of the Congress to agree on a budget resolution for three recent fiscal years - 1999, 2003 and 2005 - suggests that the budget process may be at a crisis point, and this crisis may be exacerbated by the uncertainty associated with the cost and the duration of the war on terrorism. If a consensus is not reached on a goal for fiscal policy, the budget committees and the budget resolution are in danger of becoming irrelevant."
  This would be a dangerous time to lose the best tool for dealing with our fiscal mess.

  David S. Broder's column appears Sunday on editorial pages of The Times. His e-mail address is davidbroder@washpost.com

  Woe to you who add house to house and join field to field till no space is left and you live alone in the land: Surely the great houses will become desolate, the fine mansions left without occupants.

Outsourcing threatens United States
BOB HERBERT Syndicated columnist: Jan.27, 2004

  NEW YORK - The conference was held discreetly in the Westin New York Hotel in Times Square last week, and by most accounts it was a great success.
  The main objections came from a handful of protesters who stood outside in a brutally cold wind waving signs that said such things as "Stop Sending Jobs Overseas" and "Put America Back to Work." No one paid them much attention.
  The conference was titled "Offshore Outsourcing: Making the Journey Work for Your Corporation." Its goal was to bring executives up to speed on the hot new thing in Corporate America, the shipment of higher-paying white-collar jobs to countries with eager, well-educated and much lower-paid workers.
  “We basically help companies figure out how to offshore I.T. and B.P. functions,” said Atul Vashistha, the chief executive of NeoIT, a California consulting firm, referring to information technology and business process. NeoIT was co-host of the conference.
  Several big-name corporations had representatives at the conference, including Procter & Gamble, Motorola, Cisco Systems and Gateway.
  Because the outsourcing of white-collar jobs is so controversial and politically charged (especially in a presidential election year), there was a marked reluctance among many of the participants to speak publicly about it. But Vashistha showed no reluctance. He was quick to proselytize.
  These campanies understand very clearly that this is a very painful process for their employees and for American jobs in the short term," he said. "But they also recognize that if they don't do this, they will lose more jobs in the future and they won't have an ability to grow in the future."
  He said his firm had helped clients ship about a billion dollars' worth of projects offshore last year.
  Noting that he is an American citizen who was born in India, Vashisdia said he was convinced that outsourcing would prove to be a long-term boon to the U.S. economy as well as the economies of the countries acquiring the exported jobs.
  Whether it becomes a boon to the U.S. economy or not, the trend toward upscale outsourcing is a fact, and it is accelerating. In an important interview with the San Jose Mercury News last month, the chief executive of Intel, Craig Barrett, talked about the integration of India, China and Russia with a combined population approaching 3 billion - into the world's economic infrastructure.
  “I don't think this has fully understood by the United States,” said Barrett. “If you look at India, China and Russia, they all have strong education heritages. Even if you discount 90 percent of the people there as uneducated farmers, you still end up with about 300 million people who are educated. That's bigger than the U.S. work force.”
  He said: “The big change today from what's happened over the last 30 years is that it's no longer just low-cost labor that you are looking at. It's well-educated labor that can do effectively any job that can be done in the United States.”
  In Barretts view, “Unless you are a plumber, or perhaps a newspaper reporter, or one of these jobs which is geographically situated, you can be anywhere in the world and do just about any job.”
  You want a national security issue? Trust me, this threat to the long-term U.S. economy is a big one. Why it's not a thunderous issue in the presidential campaign is beyond me.
  Intel has its headquarters in Silicon Valley. A Mercury News interviewer asked Barrett what the Valley will look like in three years. Barrett said the prospects for job growth were not good. "Companies can still form in Silicon Valley and be competitive around the world,” he said. “Its just that they are not going to create jobs in Silicon Valley.”
  He was then asked, “Aren't we talking about an entire generation of lowered expectations in the United States for what an individual entering the job market will be facing?”
  “It's tough to come to another conclusion than that,” said Barrett. “If you see this increased competition for jobs, the immediate response to competition is lower prices, and that's lower wage rates.”
  We can grapple with this problem now, and try to develop workable solutions. Or we can ignore this fire in the basement of the national economy until it rages out of our control.

Bob Herbert is a columnist with The New York Times. Copyright 2004 New York Times News Service. E-mail: bobherb@nytimes.com

  They encourage each other in evil plans, they talk about hiding their snares; they say, "Who will see them?"

  WASHINGTON - Lost in all the outrage over the corporate accounting scandals is one fact politicians don't like to acknowledge: The auditing problems at American companies cannot rival the bookkeeping shambles of the world's largest enterprise: the U.S. government.
  Exaggerated earnings, disguised liabilities, off budget shenanigans - all are there in the government's ledgers on a scale even the biggest companies could not dream of matching.
  WorldCom Inc. executives brought America's second largest long distance phone company to the brink of bankruptcy after using improper accounting to pad earnings by $3.8 billion.
  Last year, when Congress was faced with a similar need to bolster the bottom line, law makers simply voted to shift the date by which corporations had to make a quarterly tax payment. The result: $33 billion in revenue badly needed to cover the costs of President Bush's big tax cut.
  Although Republicans pushed that particular sleight of hand, both parties over the years have engaged in similar maneuvers to cover shortfalls.
  "If you look at the books of the corporate world, even the fraudulent ones, they are less subject to manipulation than the federal budget is," said former Minnesota Rep. Bill Frenzel, who watched the process up close as the top Republican on the House Budget Committee.
  "Members of Congress get reelected by bringing home roads and armories and university grants and heaven knows what else," Frenzel said. "Every American wants more frugality, but only after they get their road or bridge."
  With such a dynamic, it is no wonder that there has been no outcry over government accounting scandals to match the congressional outrage being expressed over misleading financial reports by U.S. companies.
  On Friday, Bush's Office of Management and Budget offered its own restatement of earnings and expenses. The federal deficit for the current budget year is now projected to be $165 billion, not the $106 billion deficit the administration projected in February.
  The White House also once again cut the projected surplus for the next decade, to $827 billion. That is a far cry from the $5 trillion surplus projection Bush made when he took office, before a recession, a war on terrorism and his $1.35 trillion 10 year tax cut saw $4 trillion of that amount evaporate.
  A deficit for this year would mark a return to red ink after four straight years of surpluses, including a $127 billion surplus a year ago.
  Last year's surplus was proudly hailed by the Bush administration in October. By March, however, the administration released a little-noticed document showing that by another accounting method, last year's surplus was actually a deficit of $514.8 billion.
  The reason for the difference: Under the accrual method of accounting that companies are required to use, expenses are booked when they are incurred, not when the payments are made. The March deficit figure reflected a $389 billion increase in military retirees' health benefits that Congress approved last year and other future year expenses that were added to the deficit side of the ledger.
  The very existence of the alternative accounting document, which the government started in 1998, represents a milestone in the country's history. It's the first time Washington has tried to reconcile its books using real-world accounting standards.
  Unfortunately, the General Accounting Office has not been able to sign off on any of the five annual documents so far, contending that the bookkeeping is still too shoddy to get an auditor's seal of approval.
  The 2001 report featured $17.3 billion in what was described as "unreconciled transactions" money that simply could not be accounted for. GAO Comptroller General David Walter said this discrepancy does not mean the money was stolen, just that the antiquated accounting systems at many government agencies lost track of it.
  Missing from the report's listing of future liabilities is the giant Social Security program. Technically, the Social Security trust fund represents obligations the government owes to itself. The report does warn that unless something is done, ballooning pension and retiree medical costs will swamp the budget in coming decades.
  "The government's budget is just horrendously confusing," said Robert Reischauer, a former head of the Congressional Budget Office. "We've made some progress, but there are many government accounts that are just hopelessly messed up."

  See how the faithful city has become a harlot!

  She once was full of justice; righteousness used to dwell in her-- but now murderers!
 

The $354 billion pension problem
Changes in accounting for retiree benefits could mean harder times ahead even for healthy plans.
October 27, 2005

  NEW YORK (CNN/Money) - General Motors' pension pain could soon spread to hundreds of other companies, even those offering relatively healthy traditional pension plans.
  The numbers involved are huge: the federal agency that insures traditional pensions estimates that companies with plans that are underfunded by at least $50 million collectively need another $354 billion to make good on their promises to employees when they retire. (See correction).

  GM (down $1.98 to $27.19, Research) stock tumbled Thursday after it said the Securities and Exchange Commission was investigating how it accounts for pensions and retiree health care coverage, as well as other parts of the automakers' accounting. (Full story).
  The world's largest automaker says it's one of those companies with healthy pension plans, estimating that at the end of last year its plans had $1.5 billion more than needed to pay promised benefits, despite the company's steep recent losses.
  Still, investors seem worried that the automaker might not be in as good a position as it claims. And experts say as more attention is given to the arcane world of accounting for benefits promised to retirees, other companies could also be hit by those doubts.
  "It seems to be an extreme overreaction," said Mark Vitner, chief economist for Wachovia Securities, about the hit to GM stock, which pressured the broader market Thursday. (Full story).
  "But pension accounting is awfully complicated and it's an awfully big company, so it's not surprising the markets would get a little spooked by it."
  Part of the problem is that the estimates by GM and other companies about the strength of their plans is based on a set of assumptions about things that can't be predicted -- future interest rates and rates of returns on assets going forward, for example, as well as the life expectancy of employees and retirees, and when current employees will retire and start drawing benefits.
  Those are assumptions that typical accounting never has to take into consideration.

More conservative approach
  Experts say even without any changes in the law, outside accounting firms and regulators are likely to get more conservative about those assumptions going forward, which will change the estimates of how pension funds will fare even without any changes in the plan assets or promised benefits.
  Congress is looking at a number of options meant to make employers shore up traditional pension plans.
Already, some estimates using different assumptions show that the GM plans won't have enough funds to pay promised benefits, a status known as underfunded.
  The company's current junk bond status is one of the factors that could change assumptions and accounting rules.
The biggest underfunding estimate would come from a worst-case scenario used by the Pension Benefit Guaranty Corp., the federal agency that backs pension plans in the private sector, which assumes a company will terminate the plans rather than continue to make contributions going forward.
  "Other people can make certain assumptions that could change that (funding) number," GM spokesman Jerry Dubrowski said. "A minor change to one assumption can have a change in the funding status. It doesn't mean their number is any more or less correct. We believe our number is appropriate."
  But those advocating rule changes say they're needed to make retirees' benefits more secure, or to protect taxpayers from having to pay for a savings and loan-type of bailout of the nation's pension plans that some people now fear.
Congress and regulators are looking into what is seen as a growing problem of underfunded plans. According to the PBGC, the plans with the biggest shortfalls are underfunded by an estimated $353.7 billion.
  For all U.S. companies that offer traditional pension the figure is much higher, about $450 billion, an agency spokesman said.

Both sides
  Experts in the field say that both the critics and proponents of the proposed rule changes have good points.
  "There's truth to both sides of the story," said Don Fuerst, worldwide partner at Mercer Human Resource Consulting. "All companies say 'That (plan failure) isn't going to happen to us.' But it's going to happen to some of them. Still it's not going to happen to everybody, so the PBGC numbers are a worst-case scenario."
  Fuerst and other experts say they worry that tougher pension rules could mean even more companies will stop offering traditional pension plans, moving toward plans that place investment risk on the employees and retirees, rather than the companies and pension plans.
  "We want to help companies that have an underfunded plan improve their funding and stay healthy, and not to give them reason to terminate a plan they otherwise want to keep," said James Klein, president of the American Benefits Council, an advocacy group for major employers on health and retirement issues.
  Some of the companies offering plans argue that the proposed changes will make a bad situation worse, forcing companies facing other financial problems to make greater contributions when they are most strapped for cash.
  "The best way to protect a pension plan is make sure the companies have the financial wherewithal to continue to operate," said GM's Dubrowski.

(Correction: An earlier version of this story didn't specify that the $354 billion pension shortfall was for companies with plans underfunded by at least $50 million.)

  They plot injustice and say, "We have devised a perfect plan!" Surely the mind and heart of man are cunning.

Experts: U.S. is spending its way to financial ruin.
National Debt Nov. 1, 2006    $8,015,272,000,177
By Kevin G. Hall
Knight Ridder Newspapers
November 6, 2005

WASHINGTON — Congress this week is likely to trim federal spending and insist with a straight face that government spending is under better control.
  It's not.
  "The facts are not partisan, and they're not ideological," said David Walker, the nation's comptroller general. He should know. He's the nation's chief accountant and signs off on the government's balance sheet. America's fiscal future, he said, "is worse than advertised."
  Even though the White House and Congress pledge to trim $35 billion to $50 billion in spending over five years, that's chicken feed. The government spends more than $2.5 trillion every year. Congress' savings would trim less than half of 1 percent of annual spending.
  Walker, along with budget experts from across the political divide, believe Congress is shifting deck chairs on a sinking financial ship. Lawmakers are making symbolic spending cuts while skirting the real drains on the federal budget.
  In addition, Republicans intend to make tax cuts permanent, which would drain $70 billion in revenues through 2010 — more than the spending cuts Congress is struggling to find.
  And that's only the tip of the iceberg. The real problem is that the government's unfunded liabilities — items that include everything from public debt to promised Medicare and Social Security benefits — are growing at staggering rates.
  Those liabilities totaled $20.4 trillion in 2000. They reached $43.3 trillion by 2004, after President Bush and Congress increased spending and cut taxes.
  When the government next reports these numbers Dec. 15, the total is expected to reach $46 trillion to $50 trillion.
  How much is $50 trillion? About $166,000 for each of the almost 300 million Americans.

 This imbalance between what government takes in and what it spends is the federal budget deficit. It totaled $319 billion in fiscal 2005, which ended Sept. 30.
  To bridge that shortfall, the government takes on additional debt, 46 percent of it now held by foreigners, especially the governments of Japan and China.
  The gross national debt is now more than $8 trillion. The government owes itself much of that in accounts such as the highway trust fund. When IOUs in those accounts come due, the government just issues itself some more debt.
  The net national debt — the amount that must be financed by borrowing in capital markets, which affects interest rates and the economy — is a mind-boggling $4.6 trillion.
  "Unless the situation is reversed, at some point, these budget trends will cause serious economic disruptions," Federal Reserve Chairman Alan Greenspan told Congress' Joint Economic Committee on Thursday.
  Think of America's financial future this way: A large family goes to a restaurant and stuffs itself on a full-course meal with drinks and dessert. The waitress then hands the bill to the babbling infant in a high chair. Budget deficits make today more enjoyable, but future generations of Americans will have to pay the bills.
  Most economists, including Greenspan, believe American taxpayers won't be able to pay for the retirement and health-care promises that the government has made to the baby-boom generation — those born between 1946 and 1964 — which begins retiring in 2008.
  "We owe it to those who will retire over the next couple of decades to promise only what the government can deliver," Greenspan said Thursday.
  Undisciplined government spending has done the unthinkable: It's united experts from two rival think tanks with great influence in Washington — the left-leaning Brookings Institution and the conservative Heritage Foundation. Both accuse Congress and the White House of a "leadership deficit," punting when it should be tackling issues affecting the nation's financial future.
  "It's very obvious that something has to give. It's as simple as that," said Stuart Butler, vice president of economic policy for the Heritage Foundation.
  Congress is struggling over modest proposals — such as whether to nick all spending by 2 percent across the board, trim Medicaid, pinch food stamps and farm subsidies — but ignoring big-ticket spending on tax cuts, defense, homeland security, Medicare and Social Security.
  Douglas Holtz-Eakin, director of the nonpartisan Congressional Budget Office (CBO), said current congressional efforts to trim spending won't make much difference.
  "It doesn't change our outlook substantially at all over the long haul," said Holtz-Eakin, who formerly worked for Bush.
  "The most important thing about the number this year is not the number, but doing it."
  Congress shows no interest in halting a Medicare drug benefit scheduled to take effect next year. It will cost $700 billion over 10 years, and more after. It's one reason why spending on Medicare, the health-care program for the elderly and disabled, is projected to explode.
  Medicare benefits promised to 40 million seniors will cost $2.7 trillion more over the next 10 years than what it costs now, according to Heritage Foundation economists.
  Left unchanged, Medicare promises will cost $30 trillion over 75 years. That would consume all federal revenues, leaving nothing for national defense — or anything else.
  "It's like falling off a 30-story building. For the first 20, it doesn't seem so bad," Heritage's Butler said.
  Congress displays no appetite for curbing the biggest expenses in the federal budget — automatic "entitlement" spending, especially Social Security and Medicare.
  In 1985, spending on such entitlements took 45 percent of the federal budget. It now takes 56 percent. A decade from now, it will take 62 percent, according to the CBO.
  It gets worse from there, as the first wave of boomers reaches full retirement age in 2011.
  "If there's one thing that could bankrupt the country, it's health care," Comptroller General Walker said.
  But it's not just health care and retirement, not just war and homeland security. Congress is spending lavishly on everything, said Brian Riedl, Heritage's top budget analyst.
  Spending has grown twice as rapidly under Bush than it had under Clinton. Remove defense and homeland security costs and spending still jumped 22 percent.
  "Everything is going up well past inflation" rates, Riedl said.
  Since 2001, spending on education is up more than 100 percent, international programs 94 percent and housing and commerce up 86 percent.
  "We need a spending cap that helps lawmakers say no," Riedl said. He pointed to the 1990 agreement between Congress and the first President Bush called Pay-Go, which capped discretionary spending and required new spending to be offset with cuts elsewhere.
  Sen. Kent Conrad, D-N.D., the ranking Democrat on the Senate Budget Committee, recently introduced an amendment to return to Pay-Go. "There is an old-fashioned idea," he said on the Senate floor.
  "Pay for it."

How can this be? Republicans embrace once-hated deficits
By Michael Kinsley: Dec. 30, 2002: Special to The Washington Post.

“You and I as individuals can, by borrowing, live beyond, our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?”

-Ronald Reagan’s First Inaugural Address 1981

“Glenn Hubbard, chairman of the White House's Council of Economic Advisers… derides the current fixation’ with budget deficits, and labels as ‘nonsense’ and Rubinomics' the view espoused by former Clinton Treasury Secretary Robert Rubin that higher deficits lead to lower growth."

- The Wall Street Journal, Dec. 17

  How in the world did this happen? Once upon a time, federal government deficits were denounced by St. Ronald as a focus of evil barely less threatening than communism itself. Now that concern is mocked by a Republican White House as the nonsensical “fixation” of a previous Democratic administration. In recent weeks the term “Rebinomics” has spread through the press like a rash promoted by people who apparently believe the best way to discredit anything is to associate it with Bill Clinton.
    They are not deterred by the inconvenient fact that the economy did rather well under Clinton and Rubin better than under either of the Bushes or Reagan himself. Even more astonishing is that the Republican propaganda machine is trying to stamp “Clinton” all over one of the cornerstones of Reaganism.
  In fact, the coming White House campaign for changes in the tax code is starting to look like a world class weird combination of extreme frankness and extreme fantasy. For a quarter century, Democrats have been saying that Republican tax cuts favor the rich, and Republicans have been indignantly denying it. Now prominent Republicans are saying. Heck, yes, were out to shift the tax burden from the very affluent to the middle class.
  R. Glenn Hubbard, chairman of the president's Council of Economic Advisers, has declared that rich folks deserve a break and ordinary folks deserve to pay for it. In an administration in which economic advisers are fired merely for wearing a bad tie while loyally mouthing the party line in perfect iambic pentameter, Hubbard is still in good odor. So this bolt of honesty is apparently intentional.
  There is an honest element in the new party line about deficits, too. At least the Republicans no longer are pretending that deficits, if they happen to occur, are detritus left behind by the previous administration, like those McDonald’s wrappers behind the dresser in the Lincoln Bedroom. Instead, Republicans embrace the coming deficits as their own and pooh-pooh any desire for a balanced budget as some kind of liberal Democratic folly. But this is breathtakingly dishonest on three levels.
  First is the utter contradiction between the new “deficits don’t matter" line and what Republicans have said they stood for over decades. Nothing is wrong with changing your mind. But if you decide that a core value in your political philosophy is misguided, you should say so before launching a campaign of ridicule against those who believe what you believed until the day before yesterday.
  Even if Republicans hadn’t been demonizing deficits for decades, their deficits-don’t-matter line would contradict other allegedly core party beliefs.
  That is the second level of dishonesty. The explanation of why deficits don’t matter goes something like this: When the government spends more than it takes in and borrows the difference, this has two potential effects. The borrowing reduces the amount of capital available for private investment, raises interest rates and makes us poorer. But the extra spending or lower taxes stimulate economic activity and make us richer. The question is: Which effect is bigger?
  A battle of empirical studies is going on about whether deficits actually raise interest rates. And maybe they don’t but only if the law of supply and demand and other tenets of free market capitalism have been repealed, which is an odd position for Republicans to take. Meanwhile the short term stimulus is a classic “Keynesian” strategy  a word Republicans usually can’t even pronounce without a sneer.
  Keynes argued that modern economies have a tendency for inadequate demand that can produce a self feeding spiral into recession or worse, and that government, deficits can be used as weapons against this danger. Republicans have gone from mocking that idea to parodying it. There hasn’t been a moment since 1980 when Republicans thought it was the wrong time for a fiscal stimulus in the form of a tax cut. They were right to eschew Keynesianism - one taste, and they became addicts.
  But if government borrowing never hurts the economy and if taxes always do, why torture ourselves with taxes all? Why not borrow the whole cost government? If you suspect that won’t work, you’re right but if those who anathemize “Rubinomics” have a theory of when deficits can become too big they haven’t shared it. Meanwhile, we have the evidence of our own eyes that Clinton and Rubin delivered levels of job creation, investment and economic growth that this administration would be thrilled to duplicate. And “Rubinomics” did it without the shots of short term stimulus Bush is demanding.
  Thus the third level of dishonesty in the newfound Republican fondness for deficits: It conflicts with obvious reality. But I suppose that’s a minor consideration.

Michael Kinsley is the editor of Slate, an online magazine.

Colgate Executives Get Thousands for Perks
Colgate Executives Get $11,500 a Year for Pet Sitters, Karate Lessons, Other Perks
The Associated PressNEW YORK Dec 8, 2004

  Colgate-Palmolive Co., which announced Tuesday it is eliminating 4,400 jobs, disclosed in a regulatory filing that many of its top executives and officers are given allowances of up to $11,500 a year to spend on anything from pet sitters to running shoes to karate lessons to movie rentals.

  The plan, called "Above and Beyond," was detailed in the consumer product company's quarterly filing in November with the Securities and Exchange Commission. The program has been in place since 1986 and covers 800 executives.
  Under the plan, executives and officers can ask for reimbursement for exercise equipment, such as rowing or skiing machines, instructional videos, grooming and boarding services for pets, pet walking services and sitters, and veterinarian fees and visits.
  Twenty top officers are each eligible for an $11,500 yearly allowance. Between 110 and 120 vice presidents are eligible for $10,000 allowances and 650 executives are eligible for allowances of either $2,000 or $4,000, depending on their rank. Not every eligible executive uses their allowance, the company said.
  The Associated Press came across the program while searching SEC filings from thousands of companies for information about compensation for the use of personal trainers and other perks. Few companies detailed programs as extensive as that of Colgate. A story was prepared on Monday, before the corporate restructuring was announced, but the AP held it for a day while waiting for the company's response.
  "Colgate has consistently tried to be fair and very modest in this distribution of any perquisites," said a company spokesman who asked not to be named. "A total of 800 people in the 'Above and Beyond' program have access to a modest, fixed stipend that can be used for home computers, baby sitters, fitness training, tax assistance and other benefits that can make their lives somewhat easier."
  The plan replaced previous benefits that were unfairly distributed and, in some cases, excessive, the spokesman said. "This perquisite program, by design, puts Colgate well below the median for perquisite programs among a very large comparative group," he said.
  Colgate, which makes Colgate toothpaste, Softsoap and Ajax cleaner, said it is cutting 12 percent of its work force and closing one third of its factories to improve profits by reducing manufacturing.
  The company had $9.9 billion in sales last year and paid its top five executives $23.3 million in cash and stock, plus another $9.1 million in stock options. The company's highest paid executive, chairman and CEO Reuben Mark, made $10.4 million in salary, bonus and stock awards.
  Some other expenses covered by the "Above and Beyond" plan, according to the SEC filing:
  Equipment and special clothes for fishing, boating, hiking, golf, running and yoga; music, golf, tennis and self-defense lessons; opera, ballet, museum, concert and sporting event tickets for the executive and the executive's immediate family; movie tickets and video purchases or rentals
  Membership for tennis, swimming, racquetball clubs or local YMCA-YWCAs and fitness centers. The company will also pay locker fees, court rentals and personal trainer fees.
  Housekeeping, house painting, snow removal, swimming pool care, landscaping, gutter cleaning and chimney sweeping bills are covered because "routine household chores can consume precious personal and family time," according to the filing.
  "To recognize the long hours spent in the office required by the responsibilities of your position," the plan covers personally selected artwork and desk accessories for the office, but executives are responsible for insuring those purchases.

While Procter & Gamble is confident of continued strong growth, Colgate-Palmolive plans to close a third of its factories in the next four years
NY TIMES NEWS SERVICE  Dec 11, 2004 

  Procter & Gamble used a presentation for investors on Thursday to champion its recent performance, in sharp contrast to a gathering held this week by Colgate-Palmolive, which announced it was regrouping after disappointing results.
  But beneath the surface the two companies share some similarities, both in the challenges they are confronting in the consumer products industry and the strategies they are using to surmount them.
  Alan Lafley, Procter's chairman and chief executive, who has led the company's turnaround since taking the helm four years ago, said that his plan emphasizing "balanced growth" continues to work.
  "We're confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain strong growth," he said.
  But even with top-line success, Procter said operating profit margins were expected to improve only "modestly," and it did not raise its quarterly or annual earnings goals.
  Rising commodity costs led the company, meanwhile, to raise the price of some Folgers coffee products by 14 percent on Thursday. It has also raised prices about 5 percent on some tissue and pet food goods this year.
  "We have made tough interventions that are needed to restore the health of our business," said Clayton Daley, Procter's chief financial officer, who did not rule out increases on more products.
  Earlier in the week, Reuben Mark, Colgate's chairman and chief executive, expressed a similar determination to take action amid the sobering news of a sweeping reorganization.
  During a conference call with investors on Tuesday, he said Colgate would close about one-third of its 78 factories and eliminate 12 percent of its work force worldwide over the next four years. The changes should help Colgate improve its profitability, and he said the company would devote much of the cost savings to increasing sales.
  Investors appeared to like what both companies said. Shares of Procter climbed US$1.35, or 2.45 percent, on Thursday to US$56.38, while Colgate rose US$0.70, or 1.4 percent, to US$50.25.
  The consumer products industry is entering a challenging period, however, and analysts say no company is immune. Price pressure is growing as retail giants like Wal-Mart push for low prices and carry cheaper private-label brands. Rising commodity prices add to production costs. On top of that, intense competition is causing companies to spend more on advertising just to retain the market share they already have.
  "The market doesn't fully appreciate the challenges ahead," said William Steele, a household goods analyst for Banc of America Securities.
  "Companies like to tap you on the shoulder before they slap you in the face, and Unilever and Colgate were tapping people on the shoulder when they issued profit warnings this fall," Steele said.
  Even with its recent success, he said, Procter has been sacrificing some profit margin to maintain strong top-line growth.
  Having improved their balance sheets and operations, the road ahead for Colgate and Procter is very much the same: trying to drive revenue growth by introducing innovative products and capturing new customers, particularly those in fast-growing markets like China, Latin America and Eastern Europe.

Companies ending retiree coverage
Health-care problem will grow, experts warn
By Vincent J. Schodolski Chicago Tribune: Feb. 24, 2004

  LOS ANGELES - Tommy Johnson remembers the day when he opened the letter from his former employer.
  "It was a year ago that I got the letter from AT&T," the retired computer engineer recalled. "It was nice. Just before Christmas."
  The letter informed Johnson that the company-paid health-insurance benefits that he and his wife had been guaranteed when he retired after 34 years with the company were being canceled. The company informed Johnson, then 60,that continued coverage would cost him $411 a month.
  "The only choice I've got is to pay the $411, or else there would be no insurance for me and my wife," he said.
  Millions of Americans find themselves in the same situation as corporations seek to control costs by ending or curtailing medical coverage for retirees. Experts warn that continued increases in health-care costs and the looming retirement of baby boomers ensures that the problem will grow.
  "It is an enormous issue and getting bigger," said David Martin, a management professor at American University.
  A study released this month by the U.S. Centers for Medicare & Medicaid Services, a federal agency, projected that annual spending on health-care services in the United States will rise from the current $1.8 trillion to $3.4 trillion by 2013.
  In an annual study released in January by the Kaiser Family, Foundation, 71 percent of 408 corporations surveyed said they had required retired workers to pay a bigger share of health-care insurance premiums last year. Nearly 10 percent of the companies said they had eliminated such benefits in the past year, and 20 percent said they would probably eliminate the benefits by 2007.
  Among the major corporations that have reduced or eliminated health-care benefits for retired workers are UAL, the parent company for United Airlines; Bethlehem Steel and Tribune Co., the parent company of the Chicago Tribune.
  The benefits problem is especially acute for people who retire before 65. Too young for Medicare benefits, they face the prospect of paying hundreds of dollars a month in premiums.
  Even after they reach 65, Medicare has its shortcomings and most people are forced to buy supplemental coverage.
  For Johnson, the $411 monthly premium is a major expense for someone receiving a monthly pension of $1,457. He and his wife, who live in Birmingham, Ala., have no coverage for glasses and are limited to two dental visits a year paid for by the insurance company.
  Richard Diaz, a retired steelworker who lives in East Chicago, Ind., lost health-care benefits when LTV Steel, his employer for 36 years, filed for bankruptcy.
  He retired at 58 because of respiratory problems brought on by exposure to asbestos, he said. To save money, Diaz sold his house to his daughter and now lives with her, paying her a small rent.
  He was able to get early Medicare coverage, but his wife, Nancy, has no coverage.
  Experts say there is no easy way out of this problem.
  "The bottom line is that if we had national health-care coverage, the problem would be solved," said Dianna Porter, director of policy for the Alliance for Retired Americans, an organization that represents mainly retired union workers.
  But that is unlikely to happen, said David certner’ director of federal affairs for AARP.
  "We need to start making changes in the way we control our costs," he said.
  He suggested that the government rethink how people in long-term health facilities are cared for, and that doctors be urged to review the amount of medicine prescribed to the elderly.
  Such suggestions offer little comfort to people like Tommy Johnson.
  "We retired under the assumption that that health-care insurance would continue," he said. "I don't want to sound like a crank, but these companies should be forced to stand by what they said."

Runaway US debt spells tough times ahead
By Adam Porter in Perpignan, France: 18 January 2005

  They say there is no such thing as a free lunch. Or even a free vote. Having cast their ballot in the recent US elections, it is the US public who may now be about to pay the price for their politicians.
  Whether or not Joe Schmo USA voted for President Bush or his challenger John Kerry, there was a widespread feeling in the markets that either candidate would unwind the flagging US economy in 2005.
Those who would be hurt the most would be the American middle-income earners. It now appears that this premise may be starting to come true.
  The US Federal Reserve is the central bank of the US. The chairman Alan Greenspan has presided over monetary policy which has cut interest rates, making credit cheaper, until very recently.
  It also presided over tax cuts. It has also run up enormous debt. This was to introduce cash, or "liquidity", into the US economy after the stock-market crash of 2000-2002.

Widening debt
  The record government debt is also a method of increasing cash flow in the US economy. The current administration has raised its own "debt ceiling" to $8 trillion 184 billion.
  In December of 2004 the US national debt widened to a monthly record of $60 billion. Way over the projected $600 billion annual debt for 2005.
  Europe, Japan and others now touches those countries GDPs. In other words the US is paying other countries as much as they earn by working, in order to prop up its economy.
  As a result this cheap cash, tax cuts and easy credit has fueled a boom in house price, commodity and asset. In turn, as wages fail to keep pace, US (and many other industrialized countries) consumers have incurred even greater levels of debt.
  Lower wage earners and reckless spenders have taken on even more, buoyed up psychologically by their rising house price.

Sharper rises
  Debt-induced spending is incredibly strong in the US right now. Americans increased their spending by $57.8 billion more than they earned in the third quarter (Q3) of 2004. Those without assets have simply been chopped off into the economic wilderness.
But since June the Federal Reserve has started to raise rates, currently at 2.25%. More worryingly, for the first time in years, it has openly and plainly hinted that sharper, harder rises are in store.
  Stephen Roach of Morgan Stanley in New York says "this spells tough times ahead for the asset-dependent US economy. That's especially the case for the income-short, saving-depleted American consumer".
  Commentators who have favoured the Fed's actions point to the "historically low" level of interest rates. As low as 1% in June 2004, the lowest rates for 46 years. Others say people on cheap credit have been fooled.

'Open-ended profligacy'
  If base rates of interest rise from 1% to 3%, they will still be "historically low". But the reality is that the level of repayments for the public will have trebled. In the case of the US, that is a public which, on average, is already in debt.
  "Lacking in wage-income generated purchasing power, US households have relied on a combination of aggressive tax cuts and equity extraction from now-overvalued homes to support their open-ended profligacy," says Roach.
  "Both of those sources of support seem destined to dry up.The odds of any additional near-term fiscal stimulus are low."
And this in an economy where consumer spending (Q3 2004) is now an amazing 89.2% of total GDP. So, in order to retain business profits, rate cuts were the order of the day, until last June. The rate cuts fueled consumer spending and business loans.

Bloated costs
  As well as this, the Bush administration has followed a policy of allowing "the market" to set the rate for the dollar, meaning it has fallen dramatically, despite a small recent rally.
  This was also supposed to aid US businesses, making exports cheaper and imports more expensive.
  However, US manufacturing has shrunk under bloated costs and fierce global competition. As a result imports of goods have not dropped. Instead imports, now more expensive, have carried on roughly as before.
  This has created inflationary pressures, hurting powerful business interests. Especially in the case of those who operate on low margins and high turnover such as K-Mart, Wal-Mart and others.

Scared over supply
  Secondly is China itself. The Chinese yuan, has been "pegged" to the dollar by the Chinese government. As a result Chinese imports have remained unaffected by the dollar's fall.
  This has indeed fueled investment in manufacturing capacity and jobs. But in China, not in the US.
  Any reduction in consumer spending in the US may also trigger an end to surplus manufacturing demand in Asia. Europe will also be similarly hit as its exports to the US dry up.
  The final problem has been the rise in oil prices above $40. Market makers have been scared over the tightness of supply versus demand. Previously around 4% of oil supply was in excess of what was needed.
  That is now down to around 0.5%. Meaning there are is no room for slip-ups. The war in Iraq has also spooked many analysts. They see the war as a desire by the US to command "energy security" by force.
  As well as this has been the now oft-raised subject of "oil depletion" or its more media-friendly title of "peak oil". This is the discussion within the oil industry of exactly when world oil production will reach its maximum point before starting to decline.

Game over
  This has also contributed to higher oil costs and further knock on increase in food and commodity prices. Most of which are only now starting to occur.
  All these fiscal demands cut into US pockets. The result is an indebted US public is facing higher, not lower, costs of living.  The higher costs of fuel, commodities and real estate means that in turn the Fed may well be forced to raise rates, and fast.
  As Roach says, "a sharp increase in US interest rates spells game over for a now-over-extended US housing market. The asset economy has gone to excess, and it is high time to face the endgame, before it's too late".

This nation's path to fiscal ruin
David S. Broder
April 13, 2006

WASHINGTON — The interview with Rep. Jim Cooper of Tennessee was scheduled for April 7, the final day that Congress would be in session before taking another vacation, this one a two-week break. It was expected to be a busy day in the House, with final floor debate on the budget resolution that would set the nation's fiscal policy for the coming year.
  But the House Republican leaders pulled the bill, having failed to negotiate agreement on their side of the aisle between conservatives pressing for spending cuts and moderates trying to protect health and education programs.
  So Cooper, a conservative Democrat, had plenty of time to talk about one of the most secretive documents in Washington — the official Financial Report of the United States Government.
  Cooper, a member of the Budget Committee, had referred to the document several times during that panel's truncated debate on the budget resolution. Like many of the others in the room — including the legislators — I had no idea what he was talking about. So I went to inquire.
  Turns out, there was an excuse for the widespread ignorance. The report had been completed early last December but was issued on Dec. 15. The Treasury Department, which compiled it, did not even put out a press release announcing its existence. Cooper said the total press run was 1,000 copies, and they have now become such rarities that he suggested I could probably take the one he procured for me and put it up for auction on eBay.
  You might think that the subject matter is as sensitive as the National Intelligence Estimate that President Bush declassified in order to discredit Joe Wilson.
  And it is. The cover letter in the report from Treasury Secretary John Snow contains the bad news. Whereas the budget deficit for fiscal 2005 was officially given as $319 billion, "the government's accrual-based net operating cost ... was $760 billion in 2005."
  That $760 billion is the real difference between the money the government received and the obligations it added in the last year — in other words, the unfunded costs being passed on to our children and grandchildren.
  For years, the federal budget has been stated in cash terms, not the accrual accounting method that Cooper said has been in use for five centuries and now mandated for all private corporations. The difference, as he explained it, is this:
  If you go to Target and buy an item for cash, it's felt in your wallet immediately. If you buy the same item on a credit card, unless you are using accrual accounting, it is disguised until the bill arrives.
  The U.S. government has been running up bills — notably the promises of pensions and health care benefits for military veterans and millions of other retirees — without putting the obligations on the books.
  That is what is really scary about the Financial Report. It contains page after page of graphs showing the probable future course of income and expenditures for Social Security and Medicare. In each chart, the dotted line for spending climbs far faster than the solid line for revenues. Beginning a decade from now, the shortfalls explode in what Cooper calls "a perfect storm" of fiscal ruin.
  Cooper is not alone in this worry. David Walker, the head of the Government Accountability Office, the official bookkeeper for Congress, said at a briefing last week that the $760 billion accrual deficit "amounts to $156,000 of debt for every man, woman and child in America. For a family, it's like having a $750,000 mortgage — and no house."
  Walker, who has been traveling the country trying to spread the alarm, said flatly that if the tax cuts now in effect are made permanent, as President Bush is requesting, and spending continues to rise at the current rate, "the system blows up. More than half our debt is now financed by foreign countries, and they will exact a price."
  Digging out of this mess "will take 20 years," Walker said, but the first step is simply to reassert the budget controls — spending caps and a "pay-go" rule that requires offsets for any new tax cuts or spending increases.
  The Republicans who let those lapse in 2002 refused once again this year to put them back in the budget resolution.
  The message is clear: Congress today is balking at even minimal actions needed to get a grip on the budget. The long-term problem is far tougher, and will require more leadership and courage than can be found today.

David S. Broder's column appears regularly on editorial pages of The Times. His e-mail address is davidbroder@washpost.com

Social Security promise not kept at cost of $1.8 trillion
BY DAVID CAY JOHNSTON
The New York Times: Feb. 29, 2004

  A historical element was forgotten in the rush of news surrounding Federal Reserve Chairman Alan Greenspan's opinion voiced last week that Social Security benefits are going to have to be cut.
  It dates back 21 years to events that catapulted Greenspan into national prominence and led to his becoming Fed chairman.
  Since 1983, American workers have been paying more into Social Security than it has paid out in benefits, about $1.8 trillion more, so far. This year Americans will pay about 50 percent more in Social Security taxes than the government will pay out in benefits.
  Those higher taxes were imposed at the urging of Greenspan, who was chairman of a bipartisan commission that in 1983 said that one way to make sure Social Security remains solvent once the baby boomers reached retirement age was to tax the them in advance.
  On Greenspan's recommendation, Social Security was converted from a pay-as-you-go system to one in which taxes are collected in advance. After Congress adopted the plan, Greenspan rose to become chairman of the Fed.
  So what has happened to that $1.8 trillion? The advance payments have all been spent.
  Congress did not lock away the Social Security surplus, as many Americans believe. Instead, it borrowed the surplus, replacing the cash with Treasury notes, and spent the loan proceeds paying the ordinary expenses of running the federal government.
  Only twice, in 1999 and 2000, has Congress balanced the federal budget without borrowing from the surplus.

Senator's candor out of style
Sunday, May 14, 2006
David S. Broder / Syndicated columnist

  WASHINGTON — The hardest question any Washington reporter faces these days, whenever talking with voters outside the capital, is simply: Can I believe anything I'm told by those politicians in Washington — or by the press?
  The cynicism in the public is thick enough to cut.
  That is what makes it newsworthy when a public official, speaking on the record, sets forth a view that is as blunt and uncomfortable as it is politically unpalatable.
  Without further ado, let me then quote extensively from a speech delivered May 3 on the floor of the Senate by George Voinovich, a Republican from Ohio — a speech which, by the way, drew almost no comment from his colleagues or from the apparently benumbed press corps.
  Voinovich began by pointing out that when he came to the Senate in 1999, "the national debt stood at $5.6 trillion. Today ... the national debt stands at $8.4 trillion ... an increase in the national debt of about 50 percent."
  Bad as that is, he said, worse is to come. "The retirement of the baby-boom generation will put unprecedented strains on the federal government. ... According to the reports from Medicare and Social Security trustees, the trust funds for these programs will be exhausted even earlier than previously thought. ... If we leave reform of entitlement programs for future Congresses to solve, as well as a mountain of debt to pay off, it will have devastating consequences on the economy and on our children and grandchildren."
  Voinovich, as mayor of Cleveland and as governor of Ohio, faced deficits and dealt with them by trimming spending and raising revenues. It was from that experience that he cautioned colleagues who think there is an easier way.
  "Some members believe that the solution is to grow the economy out of the problem, that by cutting taxes permanently, the economy will eventually raise enough revenue to offset any current losses to the U.S. Treasury. I respectfully disagree with that assertion. ... In November 2005, former Federal Reserve Chairman Alan Greenspan testified before the Joint Economic Committee and told Congress: 'We should not be cutting taxes by borrowing.' ... Instead of making the tax cuts permanent, we should be leveling with the American people about the fiscally shaky ground we are on."
  Voinovich said that while the government is not coming close to paying its current bills, it is also not meeting its obligations to the future. Investment in transportation and infrastructure and in training the next generation of workers is far below the levels needed to maintain America's competitive position in the world economy.
  Voinovich finished with these words: "I have to say this, and I know it is controversial, but if you look at the extraordinary costs that we had with the war and homeland security and Katrina, the logical thing that one would think about is to ask for a temporary tax increase to pay for them. Did you hear that? Ask for a temporary tax to pay for it, instead of saying we will let our kids take care of it; we will let our grandchildren take care of it.
  "No, we are not doing it. The people who are sacrificing today in this country are the ones who have lost men and women in our wars. The people who have sacrificed today are the ones who have come back without their arms and legs — thousands of them. ...
  "The question I ask is, what sacrifice are we making? Anyone in the know who is watching us has to wonder about our character, our intellectual honesty, our concern about our national security, our nation's competitiveness in the global marketplace now and in the future and, last but not least, our don't-give-a-darn attitude about the standard of living and quality of life of our children and grandchildren.
  "The question is, are we willing to be honest with ourselves and the American people and make these tough decisions?"
  The answer from Congress was to pass a two-year extension of the Bush tax cuts for capital gains and dividends — a $70 billion package that mainly benefits those with annual incomes over $200,000.
  Voinovich was one of the few Republicans who joined Democrats in opposing the budget-buster. His candor is, unfortunately, not contagious.

David S. Broder's column appears Sunday on editorial pages of The Times. His e-mail address is davidbroder@washpost.com
2006, Washington Post Writers Group

Watchdog sounds deficit alarm
GAO chief warns that it's 'not manageable'
BY MARILYN GEEWAX: Cox News Service Sept. 18, 2003

WASHINGTON - The federal governments budget is in far worse shape than most Americans realize, and the fiscal hole is deepening, the head of Congress' non-partisan watchdog agency said yesterday.
  "Our projected budget deficits are not manageable without significant changes" in taxes or spending, U.S. Comptroller General David Walker said in a speech to the National Press Club. 'We cannot simply grow our way out of this problem."
  After four straight years of budget surpluses through 2001, the government returned to deficit spending in 2002. The Congressional Budget Office said last month that the federal deficit would hit $480 billion next year, far exceeding the previous dollar-amount record of $290 billion, set in 1992.
  The CBO also predicted the annual budget shortfalls would total $2.3 trillion through 2011, a stunning reversal from the 10-year, $5.6 trillion surplus the CBO forecast in 2001.
  But Walker, who heads the General Accounting Office, said even those daunting figures do not convey the scope of the problem because conventional government accounting leaves out the impact of promised benefits for veterans' health, Social Security, Medicare and other programs.
  “These additional amounts total tens of trillions of dollars," he said. They are likely to exceed $100,000 in additional burden for every man, woman and child in America today, and these amounts are growing every day,'' he said.
  Walker said he is a non-partisan auditor whose job is to "state the facts and speak truth" about the nation's bookkeeping. Current accounting systems fail to adequately reflect just how severe the government’s fiscal problems are, he said.
  "The time has come for all responsible parties to recognize reality," he said. "Our nation has a major long term fiscal challenge that is not going away."
  Walker's assessment of the budget deficit is far grimmer than then Bush administration's. White House officials have stressed the importance of cutting taxes, while calling the deficit a manageable and relatively minor problem.
  Walker vigorously disagreed. "The 'bottom line' is, there is little question that deficits do matter, especially if they are large, structural and recurring in nature," he said. "The days of surpluses are gone and our current and projected budget situation has worsened significantly."
  President Bush has tied the rise of government borrowing during his term to the recession, the wars in Afghanistan and Iraq and higher domestic security spending, not to the tax reductions he championed.
  But Walker, a former Reagan administration official, said Bush's explanations don't add up.
  "It's true that deficits are understandable and sometimes necessary in times of recession and/or war," he said. "However, while it may not seem like it to those who are out of work or underemployed, we have not been in a recession for almost two years."
  Moreover, the projected deficits "far exceed the costs associated with Iraq, the global war against terrorism and any incremental homeland security costs," he said. "It is time to admit we are in a fiscal hole and to stop digging."
  White House spokeswoman Claire Buchan said "The president believes that returning the budget to balance is an important priority." However, Bush must focus right now on "economic security and waging the war terrorism."
  "Those priorities are more important at this point," she said.
  Buchan said tax cuts have been needed because "Its important that we make every effort to grow the economy because a growing economy will help reduce the budget deficit.”
  Stephen Moore, president of the tax-cut advocacy group called the Club for Growth, said Congress’ focus should be on reducing spending.
  Moore said economic growth will boost government revenues and that "tax cuts are an important part of getting the economy going again." At the same time, "we need to do something about this stampeding growth in spending," he said.
  Walker said Congress must make tough choices about both taxes and spending.
  On Capitol Hill and on the campaign trail, Democrats have seized upon the rising deficit to criticize Bush for his support for massive tax cuts in 2001 and 2003.
  Before becoming the comptroller general in 1998, Walker was a partner and managing director in the Atlanta office of Arthur Andersen LLP That accounting firm unraveled in 2002 in the wake of auditing scandals involving its clients Enron Corp. and WorldCom Inc.
  Walker drew some parallels between the nation's accounting problems and those that engulfed a number of U.S. companies in recent years
  "The recent accountability failures in the private sector serve to reenforce the importance of proper accounting and reporting practices," he said. "It is critically important that such failures not be allowed to occur in the public sector."
  Walker was appointed by President Clinton, and approved by the Republican-controlled Senate. During the Reagan administration, he served as an assistant secretary of labor.
  He says that currently, he is neither a Democrat nor a Republican.
  The comptroller general serves a 15-year term and enjoys an exceptional degree of independence.  
  Thomas Mann, a senior fellow at the Brookings Institution, a left-leaning think tank, said it is "perfectly appropriate" for the comptroller to speak out about the deficit. "Every, serious policy person recognizes we, now face very serious medium and long term deficit problems," he said.

Now this is tax reform
By Don Campbell; Jan.5, 2005

  When George W. Bush started talking about simplifying the federal tax code three years ago, I predicted in this space that the tax code would be longer the day he left the White House than when he took office. He subsequently pushed through two major tax cuts that made the tax code even longer and more complicated.
  Since this is the season for forecasts and resolutions, I'll confidently renew that prediction even though Bush will have four more years to carry out his pledge. And I'll invite all Americans who are fed up with the system to join me in making this (belated) New Year's resolution: I will never, ever, believe politicians who say they are serious about tax simplification. They'll never get serious unless taxpayers make them feel the heat. Now is the time to do just that.

'Study' isn't action
  Bush may believe his own rhetoric about tax reform, but his actions belie that. With re-election behind him, he's naming a panel to "study" tax reform, which is the oldest dodge in the book. And he reportedly has already ruled out eliminating the kinds of tax preferences — such as deductions for mortgage interest and charitable giving — that would lead to meaningful reform.
  Meanwhile, with the tax code and supporting regulations now consuming some 9 million words and more than 60,000 pages, Bush is looking for new ways to use the tax code to encourage investment — all at the expense of simplicity.
  Everybody likes to gripe about how maddeningly complex the tax code is, but few people are willing to give up the loopholes that make it that way. I sometimes wonder whether I'm the only person in America who is serious about tax simplification — I am certainly the only person I know who is.
  Bush should pledge to return the tax code to the simple function for which it was originally intended: collecting revenue to run the government. For individuals, that would mean a graduated tax on gross income with no deductions, no exemptions, no credits — no exceptions. For example, if you earned $78,422 in wages and investment income, you'd be taxed on $78,422.  That simple. Obviously, your tax rate would be lower than if it were based on taxable income, as it is currently calculated.
  The tax code I envision would have only three sections and would be no more than a couple hundred words long. In fact, the first section would comprise just five words: "All income shall be taxed." The second section would define income as anything of monetary value accrued each year: salary, wages, commissions, pension benefits, capital gains, dividends, interest, lottery winnings, prizes, gifts, inheritances, etc. The third section would set the tax rates and be updated annually.
  This is a radical notion only if you believe that the primary purpose of the tax code is to manipulate the economy and achieve certain social objectives. But you can't have both simplicity and scores of deductions aimed at every segment of society and every lifestyle decision.
  Two basic principles would govern my plan: Everyone with an income would pay taxes, because everyone with an income should share in the cost of government. But the amount would be based on ability to pay. The principle of progressive taxation is sound. The reason a flat tax or national sales tax will never fly is that — without the same burdensome exemptions and deductions built into the income tax — either would penalize the working poor and the middle class. There's no point in trading one complicated scheme for another.
  The tax I envision would start at 1% or 2% for those making less than $10,000 a year, and then increase gradually in increments of $10,000 to $15,000 to some level, perhaps $250,000, above which all gross income would be taxed at a rate of 20%-25% — to raise roughly the same revenue that the loophole-riddled system now collects.

Needed disruptions
  The critics will say such a change would disrupt the economy — and they're right. Buggy manufacturers said the same thing when the automobile was invented. It would be tough on CPAs and tax lawyers and charities. The home-building and real estate industries, which depend on the mortgage deduction to fuel demand for ever-bigger houses, would take a hit. Wall Street, which depends on tax preferences to promote investing, would face a period of adjustment, as would many government agencies, which depend on tax-free bonds for capital projects.
  But imagine how much simpler life would be if we didn't base so many decisions on their tax consequences and then have to make sense of them on April 15. What if everyone — married, single, parent, childless, homeowner, renter, investor, borrower — were treated the same way by the tax code?
  My wife and I claim tens of thousands of dollars a year in deductions and exemptions to cover our kids, a large mortgage, a confiscatory real estate tax, charitable giving and other items. I would give up all of those tax breaks in a heartbeat for a simple one-page tax form that taxed all income and left me with a tax bill comparable to what I pay now. One that I could figure out in about five minutes.
  There must be other Americans who feel the same way, although Bush apparently is not one of them.

Don Campbell, a member of USA TODAY's board of contributors, lives in Atlanta.

Who Will Pay the US Debt
Wednesday, 27 September 2006
By Dr. Abbas Bakhtiar

   Some months back, I wrote an article “the Coming Financial Crises” as a warning to the American people about the US debt, budget and trade deficit. Since then the situation has continued to worsen and no-one it seems is willing to address this important issue.

  When George W. Bush became president in 2001, the United States’ public debt was 5.8 trillion dollars. Today the public debt stands at 8.3 trillion dollars ^{[1 ]}. Of this over amount, $2.2 trillion dollars is held by foreigners ^{[2 ]}. United States has a GDP of 12.4 trillion dollars. This gives U.S. a Debt/GDP ratio of 66%, placing it in 35th place (out of 113) on the ranking of the Debtor Nations ^{[3 ]}. The current account deficit of over 7 per cent has long passed its danger levels of 4-5 per cent. In 2005 the U.S. government paid $325 billion dollars in interest payments.

  Added to this are the future obligations such as Medicare $30 Trillion dollars, Social Security: $12.7 Trillion dollars, Federal debt: +$4.3 trillion dollars, Federal and Military pensions $3.9 trillion dollars and other debts of $2.2 trillion dollars. These obligations amount to $53 trillion dollars will become due in 2008 when over 78 million baby boomers begin to retire. ^{[4 ]}

  It seems that these astronomical sums worry only a few in the academia for the politicians, the Wall Street experts and the media constantly talk about the continuing good times and/or a controlled cooling down of the economy. This simply doesn’t add-up. Who are they fooling and why?

  The fact is that those in power do not want to be blamed for this mess. Bush can not in all honesty justify his huge tax-cut to the rich in the face of these economic imbalances, nor can he explain the necessity of spending so much on such things as his elective War in Iraq. The long-term cost of the Iraq war is estimated to be between $1 to $2 trillion dollars ^{[5 ]}. He is also thinking about starting another war with Iran that will be even more costly than the Iraq and Afghanistan wars. How is he going to justify his fiscal irresponsibility if it came out that there was no money for pensioners or social security?

  A pertinent question to ask would be why the opposition party is not informing the public about the economic crisis facing the US. The simple answer is that the opposition does not want to ruin it’s chances of being elected. It is unlikely that voters would cast their ballot in favour of a candidate/party who is going to increase taxes and cut social spending. Also the current political system is such that anyone that goes against the rich and the special interest groups will not receive the necessary funds for his/her election campaign.

  If we look at the election results we see that money plays a central and important role in determining the outcome; in other words, money talks.

  Money talked with a roaring voice in the 2002 midterm elections, according to a post-election analysis by the non-partisan Center for Responsive Politics. Just under 95 percent of U.S. House races and 76 percent of Senate races were won by the candidate who spent the most money, the Center found. That translates into 413 of 435 House races and 26 of 34 Senate races. The findings are based on candidates' final reports for the 2002 election cycle filed with the Federal Election Commission. ^{[6 ]}

  Running for a seat in the Senate or the congress is prohibitively expensive. Running for president is even more expensive than the senate or the congress. The actual costs are immense. For example in 1992, the two political parties spent $220 million dollars on behalf of their presidential candidates. The total cost with government’s contributions etc, was $550 million dollars.

“The costs of electing a president -- some $550 million -- represent about one-sixth of the nation's $3.2 billion ($3.200 million) political campaign bill in 1992. The remaining funds were spent to nominate and elect candidates for Congress ($678 million), to nominate and elect hundreds of thousands of state and local officials ($865 million), and to pay the costs of state and local ballot issue campaigns and administrative, fund-raising and other expenses of party and non-party political committees.”^{[7 ]}

  But where did all this money come from and why? Some money was provided by people like you and me with donations of maximum of $1000. But just to cover the presidential election we would need 200000 people each sending in $1000 to the party headquarters.  We know of course that this wasn’t the case. It was the special interest groups and the lobbyists that provided a substantial contribution to each candidate’s campaign costs. Of course the rich (owners of corporations etc) can not contribute directly, so they contribute to Political Actions Committees (PACs) which in turn make donations directly to candidates.

  As can be seen this system is skewed in favour of the candidates with money. Those candidates are in turn beholden to their party and PACs, making them dependent on the rich and powerful for finances. In the end, the candidate has to consider the interest of these powerful groups before making any decision. That is why sometimes one sees different administrations adapting policies that are against the long-term interest of the nation without any meaningful protest by the people’s representatives in the congress or the Senate.

  The current economic crisis was not created by this administration alone (although they contributed greatly to it) and can not be solved by the next president either. It will require a long and painful change in the spending habits of the people, a marked reduction in their economic expectations, and a better and more equitable distribution of wealth and income. But most importantly, it requires a restructuring of the current election system and it’s financing. But until then (if that day ever comes), the government has to somehow pay the debt, reduce its expenditure and substantially increase taxes. No matter how one looks at it, the majority of the people will feel the coming financial hardship.

The Economic Situation of the Americans

  For the country the solution is simple enough (on paper): reduce expenditure and increase income. This is usually done by cutting some of social services and benefits on the expense side and increase the income by increasing the taxes. Of course this doesn’t have to be simultaneous. But considering the size of the budget deficit, trade deficit and the coming obligations, a combination of both will be necessary.

  But we know that any reduction in services will impact the living standard of those relying on those services. A reduction in welfare support will affect not only the recipients but also their dependants. A reduction in healthcare services will affect a large number of people and again their dependants. Of course any reduction in social spending by the governments will have a minimum impact on the wealthy. They seldom use government services such as healthcare or subsidies. Yes they use the courts and roads and the police, etc, but all-in-all the effect of social expenditure cuts on their lives will be minimal.

  Furthermore, an increase in taxes will impact various groups differently. For example, any increase in taxes will either not affect or minimally concern those 23 million households that earn close to $15000 dollars per year or less. However the working poor and especially the debt laden middle classes will be hard pressed to cope.

  To get a proper understanding of the people’s economy and their ability to cope with any reduction in services or a substantial increase in taxes, we shall look at the population as presented by congressional budget office. Please note that the poverty threshold for 2004 was set at $19,307 dollars for a family of 4.

  The table above reports values both for the entire population and for quintiles (quintile = 20%) of the income distribution. The Quintiles are supposed to contain equal numbers of people, but because households vary in size, the quintiles provided by the Congressional Budget Office generally contain unequal numbers of households.

  According to this table, in 2003, the bottom quintile or 23 million households earned $14800 per year while the top quintile or 22.8 million household had an income of $184500.

a. The Lowest Quintile

  According to the US Census Bureau, from 2000 to 2004 the number of people living in poverty in United States increased by 5.4 million people, going from 31,6 million to 37.0 million ^{[8 ]}; of which 36% or over 13 million were children ^{[9 ]}.According to Martha Burt, principal research associate in the Urban Institute's Center on Labor, Human Services and Population, during a year about 10% of these people or close to 3.7 million people will experience homelessness.

  These 37 million people are at the bottom of the society and to a large extent ignored by others, even the government. The government has tried to reduce it’s expenditure by restricting access to social benefits and in some cases, by requiring the poor to work.

For example, the new law passed in 2006 requires that welfare recipients work for at least 30 hours per week, 20 hours of which must be in approved activities such as public or private jobs, training related to a job, vocational training, job search, community service, or providing day care for persons performing community service.

  This rule and others like it are created to reduce the budget deficit rather than helping the poor. For example this rule was included in a $39 billion budget-cutting bill that Bush signed in February 2006. What Bush and others seem to have forgotten is that if a single parent is forced to go to work, who is going to look after the children. According to the U.S. Census Bureau, in 2005, there were close to 4 million poor Female householders with no husbands present. If these mothers were to go to work, who is going to look after the children? Naturally if the law requires that a welfare recipient should work, the burden of enforcing the rule is put on the state authorities. They are the ones that have to pay for the child care services.

  According to Arizona Republic, “State welfare officials are concerned that the new requirements will be costly to the states. The Bush administration provided an additional $500 million for child care over the five-year program, a fraction of the $4 billion that the nonpartisan Congressional Budget Office said was necessary for parents to meet the new work requirements” ^{[10 ]}.

  The proponents of the work-for-welfare scheme argue that this will help the poor by weaning them off the system and thereby making them more self-reliant. But assuming that it was possible for all these people to find full-time work, they still would be living in poverty, since the actual value (purchasing power) of the minimum wage is at its lowest level since 1955. Two working adults, let alone a single parent, can not afford to pay for housing, child care, health care and transportation with working for minimum wage.

  According to Economic Policy Institute “today, the minimum wage is 31% of the average hourly wage of American workers, the lowest level since the end of World War II” ^{[11 ]}. It is clear that the poor will have severe problems in alleviating their economic condition by simply working for minimum wage. If they work hard they may be able to join the working poor.

  The government can only reduce services to the poor. It can not raise any money in from of taxes from this group.

b. The Second Quintile

  The working poor families are those families that earn $34000 per year. According to a 2005 report by the Urban Institute, over 13 million families including 26.5 million children are living at the edge of the poverty (median income = $38000). According to this study “many children today are growing up in families with low incomes and with a parent working a substantial amount. The picture we have drawn here is one of low-income families with relatively high work effort at low wages, with jobs that often do not provide basic benefits, and with expenses roughly in line with their incomes. A subset of these families is experiencing material hardships related to food, housing, and health care, and many children in these families are not doing well on a range of measures. The economic circumstances of low-income families in part reflect their lower levels of educational attainment and poorer health (which could itself be a consequence of economic circumstances) than those families on the next rung up the economic ladder” ^{[12 ]}.

  Any increases in taxes or reduction in services will push (in reality) most of these people into the first quintile.

c. The Middle and Fourth Quintile

  There is no agreed upon definition of Middle Class. Some such as Washington post consider those that earn from $40000 to $90000 ^{[13 ]} to belong to the middle class, while others consider any family that have an income of $20000 to $90000 as middle class. Here since we use the Congressional Budget Office’s quintile system, we combine the middle and fourth quintile to define our middle class group. Then according to this classification a middle class family is a family whose income is between $51900 and $77300 per year.

  The middle class is considered the backbone of the consumer society. Their health and wealth is extremely important to the economy. They tend to be better educated than the lower quintiles, healthier and more politically engaged. Their size and economic health determines the prosperity of the nation.

  When one looks at the income of a middle class family one would expect that at least this group would be in a good financial position. But all the reports point to the contrary.

The middle class is squeezed from all sides. The costs of housing, healthcare, transportation and education for the kids, have skyrocketed; making it exceedingly difficult to make ends meet.

  According to the Department of Housing and Urban Development (HUD), "affordable housing" should cost less than 30% of a family's income, either in rent or a monthly mortgage. Yet many middle class families have to pay much more of their disposable income for housing. “From the end of 1994 to the end of 2004, housing prices rose 46 percent faster than overall inflation. In the period of a weak labor market, from March 2001 through the end of 2004, housing prices outpaced overall inflation by 25 percent” ^{[14 ]}. Many people own only the home that they live in. The rising house prices don’t really help these people, except in allowing them to re-mortgage their homes to raise extra loans; which eventually they have to pay back. If they sell their homes and move to a cheaper neighborhood, they can earn a good profit, but almost no-one does that. So if majority of the middle class only own the homes that they live in, the rising house prices do not really help them. On the contrary it creates the illusion of wealth, encouraging these people to borrow more and spend more. Eventually these loans have to be paid back, and when that time comes, most people find it hard to manage.

  Do the middle class families face more hardship now that they did before? According to Harvard Law School Professor Elizabeth Warren they do. According to her “more and more families today are sending both parents into the workforce – it has become the norm, it is what we now expect. The overwhelming majority of us do it because we think it will make our families more secure. But that's not how things have worked out. By the end of this decade, one in seven families with children will go bankrupt. Having a child is now the single best predictor of bankruptcy, and this holds true even for families with two incomes.

  So we looked at the data for two-income families today earning an average income. What we found was that, while those families certainly make more money than a one-income family did a generation ago, by the time they pay for the basics -- an average home, a health insurance policy, a second car to get Mom to work, child care, and taxes -- that family actually has less money left over at the end of the month to show for it. We tend to assume with two incomes you're doubly secure. But if you count on every penny of both of those incomes, which most families today do, then you're in big trouble if either income goes away. And obviously, if you have two people in the workforce, you have double the chance that someone will get laid off, or double the chance that someone could get too sick to work. When that happens, two-income families really get into trouble, and that's how a lot of families quickly go bankrupt” ^{[15 ]}.

  This group (i.e. the middle class) will be the one that will be the hardest hit of all groups. They will see their disposable income reduced substantially. On one side they will have to pay higher taxes, while they have to pay more for government services that were previously either free or subsidized. Many will have difficulty paying their debts (mortgages, etc) and will have to reduce their living standard substantially to stay solvent.

d. The Highest Quintile

  The highest quintile represents the top earners of the society. But it would be wrong to look at the average income of this group as the representative income for the whole group, because, unlike the other quintile, there is a very large difference between the top 1% and the rest of the group. According to the Congressional Budget Office (CBI), in 2003, the top 1% had an average income of $1,022,400 while the top 10% earned a quarter of the top earners or $260,000. In any other quintile, if you divide the average by 4, the resulting figure would be in a lower quintile. So here we shall look at the data provided by CBI for the top 16%.

  In the past few decades we have seen a huge increase in inequality in America. According to the Economic Policy Institute, a Washington think-tank, between 1979 and 2000 the real income of households in the lowest fifth (the bottom 20% of earners) grew by 6.4%, while that of households in the top fifth grew by 70%. The family income of the top 1% grew by 184%—and that of the top 0.1% or 0.01% grew even faster. Back in 1979 the average income of the top 1% was 133 times that of the bottom 20%; by 2000 the income of the top 1% had risen to 189 times that of the bottom fifth.  “Once all income sources are taken into account, including capital gains, the extent of income concentration at the end of the last business cycle was remarkably high by historical standards. Using newly available income data that goes all the way back to 1913, income in 2000 was only slightly less concentrated among the top 1% of households than during the run-up to the Great Depression, which was the worst period of uneven income concentration in the last century. In 2000, the top 1% held 21.7% of total income, compared to 22.5% in 1929” ^{[16 ]}. Since 2000 the inequality has only increased. According to Center on Budget and Policy Priorities (CBPP), the after-tax income of the rich has been increasing at an alarming rate. From 1979 to 2002 the after-tax income of the top 1% increased by 111% while 96% saw a very modest increase; with the poor and the working poor seeing only 5% and 12% increase in their disposable income.

  The inequality in income has been made worse by President Bush’s tax-cuts for the rich. Gene Sperling the former President Bill Clinton's top economic adviser, in an article in Bloomberg, condemned the tax cuts, arguing that:

  “While some middle-class tax relief -- and additional temporary tax cuts to stimulate the economy after the recession of 2001 -- was warranted, it is hard to justify the enormous windfall that President George W. Bush is seeking to bestow permanently on the very Americans who have been doing so much better than 99 percent of the rest of the populace.

  Analysis of new Internal Revenue Service data by New York Times tax reporter David Cay Johnston found that those making $1 million a year collect 43 percent of all the new investment tax cuts. Those making more than $10 million have collected about $500,000 in tax relief -- a take he says will likely climb in the years to come.

  The fiscal impact is just as striking. If the president's tax cuts are made permanent in the next decade, the top 1 percent of earners (who make about $400,000 today) will collect more than $1 trillion in new tax cuts. Those making more than $200,000 in today's dollars will take in a whopping 40 percent of all the recent tax relief during the next decade” ^{[17 ]}.

Who Will Pay the Piper

  It is said that if you owe the bank $1000 dollars you are in trouble, but if you owe the bank $10 million dollar, the bank is trouble. Some politicians and economists like to use this example to brush-off this enormous problem. Their argument is to a certain extend valid. China and other emerging countries need US market for their goods; but how long will they continue financing a mushrooming trade and budget deficit. Somewhere along the way they would want their money back.

  How about the pensioners? Who is going to pay for their pensions? Who is going to pay for health care, social security, unemployment benefits, maintenance of the infrastructure such as roads and bridges? We can argue that Chinese, Arabs, and others are willing to finance the trade deficit; but we can not expect them to pay for the American pensions or maintenance of the US infrastructure. According to the latest report (2005) by the American Society of Civil Engineers, US government needs to invest $1.6 trillion dollars to keep the system from falling apart^{[18 ]}. This figure excludes the security costs. The truth is that at the end of the day it is the American people that have to pay. This will be in the form of higher taxes and reduced governmental services. In other words lower living standards.

  The poor and the working poor do not have anything to give. Their contribution will be in form of statistics. The number of people living bellow poverty line will increase. They will suffer because they rely on many services that will be cut or reduced. The rich will always find some loop-hole to avoid paying the major part their share. Even if their wealth is reduced by 10%, they will see no hardship. This leaves us with the Middle class. This group will be hit the hardest. They will see their taxes and expenses increase simultaneously. A good portion will have to live on far less than they are used to. Many will work longer hours just to stay solvent. Many may also join the working poor. It all may sound rather apocalyptic but the numbers do not lie. Politicians may avoid this problem for now, but sooner or later someone has to pay the piper.

FOOTNOTES:

1. Bureau of the Public Debt, “The Debt To the Penny”

2. Hodges Michael, Grand Father Economic Report Series

3. CIA Word Factbook, “Rank Order - Public debt”, 16 May, 2006

4. USA Today, “The looming national benefit crisis”, 5 October 2004

5. Bilms Linda, and Stiglitz Joseph E., “The Economic Costs of the Iraq War: An Appraisal Three Years After The Beginning of The Conflict”, Harvard University

6. Opensecrets.org: The Center for Responsive Politics, “MONEY IS THE VICTOR IN 2002 MIDTERM ELECTIONS” November 6, 2002

7. USINFO.STATE.GOV: International Information Program, “FINANCING PRESIDENTIAL ELECTION CAMPAIGNS”, USIA Electronic Journals, Vol. 1, No. 13, September 1996

8. US Census Bureau,2005 Annual Social and Economic Supplement (ASEC), the source of official poverty estimates.

9. National Coalition for the Homeless, “Why people are homeless”, 2201 P. St. NW ❜ Washington, DC 20037, June 2006.

10. Arizona Republic, “300,000 more must work under welfare plan”, Jun. 28, 2006

11. Economic Policy Institute, “Minimum Wage- Facts at a glance”, July 2006

12. Gregory Acs and Pamela Loprest, “Low-Income Working Families”, The Urban Institute, 2100 M Street, NW ,Washington, DC 20037. September 2005

13. Washington Post, “What is middle class? ”, November 30, 2003

14. Christian Weller, “For Middle-Class Families, Dream of Own House Drowns in a Sea of Debt”, Centre for American Progress, May 2005

15. Mother Jones, “The Two-Income Trap”, November 08 , 2004

16. Economic Policy Institute, “The State of Working America 2004-05”, Cornell University Press edition , January 31, 2005

17. Bloomberg.com, “A Disappointing Decade for Reducing Inequality: Gene Sperling”, April 12, 2006

18. American Society of Civil Engineers, “Report Card for America’s Infrastructure” 2005

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Dr. Abbas Bakhtiar lives in Norway. He is a consultant and a contributing writer for many online journals. He's a former associate professor of Nordland University, Norway.