Bankrupting the Common People

U.S. Census Bureau Report: 40 Million Living in Poverty

September 30, 2009

WSWS - The overall poverty rate in the US rose to 13.2 percent in 2008, as workers across all sectors of the economy became jobless and increasing numbers of families were forced into destitution, according to a new government report. Real median household income also declined by 3.6 percent.

The report released Tuesday, part of the US Census Bureau’s American Community Survey, is the most recent to measure the recession’s impact on working class families and the poor. Based on the changes between 2007 and 2008, the first full year of the recession, its findings do not reflect increases in poverty and joblessness this year as the consequences of the crisis have become even more acute.

The official poverty rate of 13.2 percent in 2008 was up from 12.5 percent in 2007. This figure translates into 39.8 million people in poverty across America. The official poverty level is set at $22,000 annually for a family of four with two children or $12,000 for an individual, an absurdly low threshold. This means that far more people than indicated by the survey do not have adequate resources to pay for food, shelter, medical care and other basic necessities...

Report: 1 in 3 Loan Applications Denied

September 30, 2009

AP - Nearly one in three borrowers who applied for a mortgage last year was denied as lenders kept their standards tight as the mortgage crisis accelerated, the government reported Wednesday.

In its annual look at mortgage practices among lending institutions, Federal Reserve said the denial rate for all home loans was about 32 percent last year — about the same as in 2007, but up from 29 percent in 2006. The denial rates for blacks and Hispanics were more than twice as high as the rate for white borrowers.

The report highlights massive changes in the lending industry after the housing market bust. Overall loan applications were down by a third from a year earlier, and were half the level in 2006.

Loans backed by the Federal Housing Administration soared to 21 percent of all loans made last year from less than 5 percent in both 2005 and 2006.

For black borrowers, more than half of all loans were FHA-insured, more than triple a year earlier. For Hispanics, that number shot up to 45 percent, more than four times as high as in 2007. That was troubling news for consumer advocates.

"I'm hard-pressed to believe that many of those borrowers couldn't have been served by the private sector," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington. "It implies that the industry has shut down in serving this population."

High-priced loans with rates at least 3 percentage points above the rate for prime loans, shrunk to nearly 12 percent of the market from a high of 29 percent in 2006. But that figure mainly reflects unusually low interest rates during the recession, the report said, and understates the disappearance from the market of high-priced subprime loans made to borrowers with poor credit.

Last year, about 17 percent of blacks and 15 percent of Hispanics got high-priced loans, compared with about 7 percent of whites. Even controlling for factors that might widen that discrepancy, there still a gap of almost 8 percentage points between the number of blacks and whites who got high-cost loans.

The mortgage industry says lenders are not discriminating by race, and are making adjustments based on borrowers' risk profile — such as their credit score and the size of their down payments.

"You still have a certain degree of risk-based pricing in the market," said Jay Brinkmann, the Mortgage Bankers Association's chief economist.

Lenders also scaled back dramatically on the amount of so-called "piggyback" mortgages, in which borrowers used second mortgages to avoid making a 20 percent down payment. Those loans have virtually disappeared from the market: Only 98,000 were made last year, down from 1.3 million annually in 2006.

The data, collected from nearly 8,400 lenders, is required under the Home Mortgage Disclosure Act of 1975.

Job Losses, Early Retirements Hurt Social Security

September 27, 2009

Associated Press - Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.

"A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs.

Some have no choice.

Marylyn Kish turns 62 in December, making her eligible for early benefits. She wants to put off applying for Social Security until she is at least 67 because the longer you wait, the larger your monthly check. But she first needs to find a job. Kish lives in tiny Concord Township in Lake County, Ohio, northeast of Cleveland. The region, like many others, has been hit hard by the recession.

She was laid off about a year ago from her job as an office manager at an employment agency and now spends hours each morning scouring job sites on the Internet. Neither she nor her husband, Raymond, has health insurance.

"I want to work," she said. "I have a brain and I want to use it."

Kish is far from alone. The share of U.S. residents in their 60s either working or looking for work has climbed steadily since the mid-1990s, according to data from the Bureau of Labor Statistics. This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago.

Kish said her husband already gets early benefits. She will have to apply, too, if she doesn't soon find a job.

"We won't starve," she said. "But I want more than that. I want to be able to do more than just pay my bills."

Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year.

The increase in early retirements is hurting Social Security's short-term finances, already strained from the loss of 6.9 million U.S. jobs. Social Security is funded through payroll taxes, which are down because of so many lost jobs.

The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s, when Congress last overhauled Social Security.

Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016 unless Congress acts again to shore up the program. Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund.

President Barack Obama has said he would like to tackle Social Security next year.

"The thing to keep in mind is that it's unlikely we are going to pull out (of the recession) with a strong recovery," said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School. "These deficits may last longer than a year or two."

About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.

The recession is also fueling applications for disability benefits, said Stephen C. Goss, the Social Security Administration's chief actuary. In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year, Goss said.

A lot of people who had been working despite their disabilities are applying for benefits after losing their jobs.

"When there's a bad recession and we lose 6 million jobs, people of all types are going to be part of that," Goss said.

Nancy Rhoades said she dreads applying for disability benefits because of her multiple sclerosis. Rhoades, who lives in Orange, Va., about 75 miles northwest of Richmond, said her illness is physically draining, but she takes pride in working and caring for herself. In June, however, her hours were cut in half — to just 10 a week — at a community services organization. She lost her health benefits, though she is able to buy insurance through work, for about $530 a month.

"I've had to go into my retirement annuity for medical costs," she said.

Her husband, Wayne, turned 62 on Sunday, and has applied for early Social Security benefits. He still works part time.

Nancy Rhoades is just 56, so she won't be eligible for retirement benefits for six more years. She's pretty confident she would qualify for disability benefits, but would rather work.

"You don't think of things like this happening to you," she said. "You want to be in a position to work until retirement, and even after retirement."

Ensign Receives Handwritten Confirmation on Health Care Penalties

September 25, 2009

Politico - Sen. John Ensign (R-Nev.) received a handwritten note Thursday from Joint Committee on Taxation Chief of Staff Tom Barthold confirming the penalty for failing to pay the up to $1,900 fee for not buying health insurance.

Violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty, Barthold wrote on JCT letterhead. He signed it "Sincerely, Thomas A. Barthold."

The note was a follow-up to Ensign's questioning at the markup.

Banks Fight to Kill Proposed Consumer Protection Agency

September 24, 2009

McClatchy Newspapers - If you doubt that U.S. banks long to return to the days of impotent regulation, you need only look at one of the financial sector's top legislative priorities: killing a proposed new agency that would be dedicated solely to protecting consumers' financial interests.

The Obama administration is asking Congress to create a new Consumer Financial Protection Agency to regulate consumer financial products ranging from credit cards to mortgages, and to simplify disclosure about them all.

Though virtually every cause of the nation's recent financial crisis was rooted in weak consumer protection, the U.S. Chamber of Commerce is leading the fight against the proposed agency on grounds that it would make credit less available and more costly. The American Bankers Association, the Independent Community Bankers of America, and the Financial Services Roundtable also oppose the measure.

"We have no argument that regulation failed. Consumer protection is just one of the many areas where it fell down," said David Hirschmann, the president of the U.S. Chamber of Commerce's Center for Capital Markets, which opposes the panel. "It just simply adds a new layer of regulation without fixing . . . our outdated, broken regulatory structure that was a contributing factor in our crisis."

The Chamber said it's spending about $2 million on ads, educational efforts and a grassroots campaign to kill the agency. It said that the grassroots effort has led to more than 23,000 letters sent to Congress to date.

The Center for Responsive Politics said that for the 2010 election cycle, commercial banks have donated almost $3.7 million to lawmakers — 54 percent of it to Republicans. Companies that provide credit have given about $1.4 million, 59 percent to Democrats. Mortgage bankers and brokers have given $581,423.

"Maybe instead of making government BIGGER, we should focus on making government BETTER," reads one Chamber ad.

The Chamber warns that the agency could morph into a monster regulator.

"If you look at this actual bill, the powers are so broad and so ill-defined that the scope of who is covered is incredible. They've managed to create a proposed new regulator for anyone who directly or indirectly provides credit to consumers," Hirschmann said. "If you allow people to give gift cards for your store . . . you've got a new regulator. It's amazingly broad in scope, scale and power."

The administration scoffs at those charges.

"Contrary to some advertisements you may have seen, we have no desire to interfere with Main Street retailers' ability to provide credit to their customers. That argument is to the financial regulation debate what the Death Panel argument is to the health insurance debate," Lawrence Summers, the chief economic adviser to President Barack Obama, said in a recent speech. "We have become convinced that it is essential that consumer financial regulation be carried on by an independent body whose mandate is uniquely and exclusively consumer and investor protection."

Until the current crisis, responsibility for these consumer protections fell to several separate regulators, who made consumer protection subservient to their core mission of regulating institutions for safety and soundness.

Predatory lending and no-documentation loans helped spawn the housing crisis. Weak oversight by federal regulators allowed mortgage bonds to be sold to investors as the safest of investments when they were far from it.

When economic times got tough last year, banks began padding their balance sheets by socking surprised consumers with new credit card fees that were hidden in contractual fine print.

"In practice, nobody really took it seriously. . . . I think clearly you have had a lot of abuses, and whatever was on the books wasn't being enforced," said Morris Goldstein, a former top official at the International Monetary Fund and a researcher for the Peterson Institute of International Economics. "I think it makes sense to try to wrap it together and give someone the responsibility to deal with the great bulk of it."

Opponents have suggested that the new agency could impede the way businesses operate, but that concern is rejected by Elizabeth Warren, a Harvard University law professor who's long championed creation of such a regulator. Separately, Warren leads a congressional panel that monitors the Treasury Department's bank bailout program.

"The CFPA will provide real oversight over financial institutions and create some basic safety standards. This will make it safer for your local butcher to take out a mortgage or a credit card, but the CFPA is not going to regulate the way he carries out his business," she told McClatchy, referring to a Chamber ad that suggests even local butcher shops would be regulated...

Advocacy groups say that the financial sector's opposition underscores the need to act.

"I don't see why people don't understand that this should be a measure of why to pass it," said Barbara Roper, the director of investor relations for the Consumer Federation of America. "If you assume, as I do, that they fear anything that threatens the way they do their business, their ability to profit through the abuse of their customers, then this (legislation) should be taken seriously."

In this environment, J.P. Morgan Chase and Bank of America announced this week that they'd modify their overdraft fee policies.

Bailout Banks Raise Rates, Fees

April 15, 2009

The Washington Times - Some of the banks that received bailout money from the federal government are raising credit card interest rates and fees, angering consumer groups and drawing the attention of a congressional oversight panel.

Bank of America and McLean-based Capital One Financial are among several major credit card issuers that raised interest rates after receiving bailout funds, according to Consumers Union.

"We periodically review credit risk for individual accounts and may reprice individual accounts based on that review," said Bank of America spokeswoman Betty Riess.

The bank also is raising rates on accounts with an interest rate of 10 percent or less because they are "underpriced relative to current market conditions," she said, adding that those changes only affect about 10 percent of customer accounts.

"Our costs of providing credit have increased significantly," Ms. Riess said.

In addition, the bank has increased cash-advance fees from 3 percent to 4 percent, she said.

"We did notify some customers back in February that their rates would be increasing to reflect the current risk environment," said Pam Girardo, Capital One spokeswoman.

Pam Banks, policy counsel at Consumers Union, said the industry's rate increases create "a situation where taxpayers remain on the hook, sometimes twice, which is patently unfair."

"These companies are getting tens of billions in taxpayer bailout money. Yet, even as they accept TARP [Troubled Assets Relief Program] funds, they are hurting our chances at economic recovery."

Credit card interest rates have risen to a national average of 12.35 percent from 11.38 percent six months ago, according to CreditCards.com.

Caleb Weaver, a spokesman for the congressional oversight panel, said that contrary to a published report, the panel is not conducting a formal probe of the matter.

A financial services industry spokesman said market forces are driving the increases, and with so many credit card issuers to choose from, angry consumers vote with their feet.

"In general, the cost of lending is up because the unemployment rate is 8.5 percent. That risk is built in to the interest rates," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, which represents the 100 largest financial firms in the nation.

"Any connection between fees and TARP money is a non sequitur. TARP was designed to strengthen balance sheets, not to change the competitive landscape," he said.

Don't Miss a Credit Card Payment, or the APR Could Soar

February 15, 2009

Los Angeles Times - Even in the best of times, carrying a balance on your credit card is a risky -- and costly -- proposition. These days, it can be downright foolish, at least if there's a chance you might miss a payment or two.

Millions of cardholders have recently received letters from the likes of Citibank, Bank of America Corp., Wells Fargo & Co. and American Express Co. notifying them that their interest rates are going up, in some cases to 30% if a single payment is missed.

JPMorgan Chase & Co., the nation's largest issuer of plastic, has begun charging hundreds of thousands of cardholders a $10 monthly fee for having carried large balances for more than a couple years.

Why? In part it's because default rates are rising and banks are dealing with additional risk. But lawmakers and consumer advocates say the higher rates also reflect banks' massive losses from betting wrong on the housing boom, and they're basically sticking credit card customers with the tab.

At a Senate Banking Committee hearing last week, Sen. Christopher J. Dodd (D-Conn.), the committee chairman, said lenders are "gouging" customers to boost their bottom lines.

"The list of questionable actions credit card companies are engaged in is lengthy and disturbing," he said.

At the same time, rising layoffs and tough economic conditions have caused many people to lean more heavily on their plastic -- sometimes too heavily.

Corona resident Louis Martinez, 39, is carrying about $45,000 in debt on eight credit cards. He says it's not that he's been deliberately reckless. Rather, the debt piled up after his wife got sick several years ago and half the family's income disappeared.

"What can you do?" Martinez asked. "You still want to provide for your family."

He said he grows more anxious with each bank letter that arrives warning him of potential interest-rate increases.

"I've never missed a payment," Martinez said. "But with the way things are now, I wonder every day how I'm going to get through the month."

By ratcheting up the pressure on customers, major banks -- some of which have received billions of dollars in bailout cash from taxpayers -- are making it likely that a growing percentage will be forced to either default on their obligations or seek bankruptcy protection.

Last week, letters arrived at the homes of Citibank cardholders throughout California warning that their rates could rise to 29.99% if they miss a single payment -- even for cards with low-low-low introductory rates....

Medicare Hike Would Pinch Seniors

September 9, 2009

Politico - Low inflation and the twists of Medicare law are creating a political nightmare for Congress: millions of elderly left with higher Part B premiums and no annual cost-of-living increase from Social Security.

The White House, already besieged by Afghanistan and health care reform, has sat back thus far, not wanting to get into the fight. But Tuesday saw a behind-the-scenes scramble as House Democrats readied a stop-gap spending bill for the new fiscal year beginning Oct.1.

Annual cost-of-living adjustments for Social Security recipients have been a way of life for decades, but with the bad economy, the consumer price index for 2009 has fallen into negative territory, all but ruling out any benefit increase next year.

At the same time, Part B premiums, which cover the cost of physician services, will grow, triggering a set of provisions in Medicare law that protect about three-quarters of the elderly but then ask the remainder to take a double whammy.

As now forecast, Part B premiums are slated to grow by about 7 percent, from $96.40 to $103 per month. Under normal circumstances, the COLA would help offset this increase, but without the COLA, most of the elderly won’t pay the increase, meaning those who do will be asked to pay more.

Preliminary numbers indicate this could mean Part B premiums as high as $110 to $120 a month, a better than 14 percent increase — effectively cutting into the Social Security checks for these recipients. A big chunk of them are the poorest elderly, already reliant on Medicaid to help pay their bills; the end result of this burden falls on states, already struggling with budget shortfalls....

American Airlines Ending Retiree Health Plan at Year’s End

September 22, 2009

Star-Telegram - American Airlines has sent letters to its retirees, saying it will be ending its Retiree Standard Medical Plan option for non-union employees.

The health insurance plan will be canceled as of Dec. 31, 2009. Instead, retirees will be able to purchase a supplemental Medicare coverage plan. But under the new programs, retirees will have to pay monthly premiums.

According to the letter, retirees had already pre-paid contributions to their retiree medical plan while they were employed by American Airlines. Those who have an outstanding prefunded balance will receive a refund, plus or minus any gains or loss of investments as of Dec. 31, 2009. Spouses who have been previously covered by the retiree medical plan will also lose coverage.

Jerry Uttz, a 70-year-old who retired from American in 2003, said he was shocked when he received the letter yesterday. He is worried that his spouse, who is only 62 and self-employed, might have to go without insurance until she qualifies for Medicare.

"It’s just not right," Uttz said. "You prepay your insurance in the anticipation you will have insurance after you retire and they just decided to cancel it."

An American Airlines spokesman was not available for comment this morning.

America Out of Work: Is Double-Digit Unemployment Here to Stay?

September 11, 2009

Time - ...The American economy has been shedding jobs much, much faster than Okun's law predicts. According to that rough rule, we should be at about 8.5% unemployment today, not slipping toward 10%. Something new and possibly strange seems to be happening in this recession. Something unpredicted by the experts.

"I don't think," Lawrence Summers [director of the President's National Economic Council] told the Peterson Institute crowd — deviating again from his text — "that anyone fully understands this phenomenon."

And that raises some worrying questions. Will creating jobs be that much slower too? Will double-digit unemployment persist even after we emerge from this recession? Has the idea of full employment rather suddenly become antiquated? Is there something fundamentally broken in the heart of our economy? And if so, how can we fix it?

The speed of America's now historic employment contraction reflects how puzzling this economic slide has been. Recall that the crisis has included assurances from the chairman of the Federal Reserve that it was over when in fact it was just getting started and a confession from a former Fed chairman that much of what he thought was true for decades now appears to be wrong. Nowhere is this bafflement clearer than in the area of employment.

When compiling the "worst case" for stress-testing American banks last winter, policymakers figured the most chilling scenario for unemployment in 2009 was 8.9% — a figure we breezed past in May. From December 2007 to August 2009, the economy jettisoned nearly 7 million jobs, according to the Bureau of Labor Statistics. That's a 5% decrease in the total number of jobs, a drop that hasn't occurred since the end of World War II. The number of long-term unemployed, people who have been out of work for more than 27 weeks, was the highest since the BLS began recording the number in 1948. Jobless figures released Sept. 4 showed a 9.7% unemployment rate, pushing the U.S. — unthinkably — ahead of Europe, with 9.5%.

America now faces the direst employment landscape since the Depression. It's troubling not simply for its sheer scale but also because the labor market, shaped by globalization and technology and financial meltdown, may be fundamentally different from anything we've seen before. And if the result is that we're stuck with persistent 9%-to-11% unemployment for a while — a range whose mathematical congruence with that other 9/11 is impossible to miss — we may be looking at a problem that will define the first term of Barack Obama's presidency the way the original 9/11 defined George W. Bush's.

Like that 9/11, this one demands a careful refiguring of some of the most basic tenets of national policy. And just as the shock of Sept. 11 prompted long-overdue (and still not cemented) reforms in intelligence and defense, the jobs crisis will force us to examine a climate that has been deteriorating for years. The total number of nonfarm jobs in the U.S. economy is about the same now — roughly 131 million — as it was in 1999. And the Federal Reserve is predicting moderate growth at best. That means more than a decade without real employment expansion.

We're a long way from Hoovervilles, of course. But it's not hard to imagine, if we're not careful, a country sprouting listless Obamavilles: idled workers minivanning aimlessly through overleveraged cul-de-sacs with no way to pay their mortgages, no health care, little hope of meaningful work and only the hot comfort of angry politics.

This is why the problem of how America works needs to become the focus of an urgent national debate. The jobs crisis offers an opportunity to think in profound ways about how and why we work, about what makes employment satisfying, about the jobs Americans can and should do best. But the ideas Washington has delivered so far are insufficient. They reflect a pre–9%-11% way of thinking as much as old defense policy reflected a pre-9/11 notion of who our enemies were.

The funding for job creation in the American Recovery and Reinvestment Act was based on an assumed 8.9% unemployment rate. Now 15% is a realistic possibility. And yet we're hearing few interesting ideas about how to enhance America's already groaning unemployment support system as millions of Americans sit idle. Tangled in the debate over health care — and bleeding political capital — the White House may find itself too weak and distracted to deal with the danger of joblessness.

We can't afford to wait. The longer someone is unemployed, the harder it is to get back to work, a fact as true for the nation as it is for you and me. As the Peterson Institute's Jacob Kirkegaard explains,

"It is entirely possible that what started as a cyclical rise in unemployment could end up as an entrenched problem."

Past crises have illustrated that lesson: the longer you wait, the harder it is to contain. This is as true for joblessness as it was for subprime mortgages, al-Qaeda and computer viruses...

Is Your State's Unemployment System in Danger?

August 31, 2009

ProPublica - How does your state's unemployment insurance system stack up? Is it about to go bankrupt? Is it bankrupt already? States with negative balances are in red. Pink states may have to borrow soon.



Read about the states' policies that fed the current crisis. Thanks to a historical compromise, each state has its own unemployment insurance system, and they come in 51 different flavors -- one for each state and Washington, D.C. (Puerto Rice and the Virgin Islands technically make it 53.)

See how your state ranks when it comes to its unemployment system. Fourteen states have simply run out of money to pay benefits and have been forced to borrow from Washington a total of more than $8 billion. That number is almost certain to grow as more states reach the brink. If they are not able to pay that amount back before 2011, which most will not be able to do, they face paying hundreds of millions of dollars in interest.

Meanwhile, many workers are struggling to get by on what the system pays them. Where you live can make all the difference -- workers in the most generous states get twice the average benefits of workers in the stingiest ones. The percentage of unemployed workers who even receive benefits varies greatly by state.

Surge in Homeless Strains Schools

September 6, 2009

New York Times - While current national data are not available, the number of schoolchildren in homeless families appears to have risen by 75 percent to 100 percent in many districts over the last two years, according to Barbara Duffield, policy director of the National Association for the Education of Homeless Children and Youth, an advocacy group.

There were 679,000 homeless students reported in 2006-7, a total that surpassed one million by last spring, Ms. Duffield said.

With schools just returning to session, initial reports point to further rises. In San Antonio, for example, the district has enrolled 1,000 homeless students in the first two weeks of school, twice as many as at the same point last year...

Middle Class Turn to Car Park Handouts

September 6, 2009

Financial Times (Prince George's County, Maryland) - "As they collect unemployment, their resources are diminishing. Many of the families that we're trying to serve are just trying to hang on to their homes, trying to hang on to any assets that they have," says Vicki Escarra, chief executive of Feeding America, which runs a network of 200 food banks across the US.

At the last count, in 2005, Feeding America served 25 million Americans, the majority of whom were not on food stamps.

Last year demand across the U.S. food bank network surged 30 percent. Almost all outlets reported seeing new visitors.

"People who used to donate to the food bank are now coming to the food bank - so imagine the shame," says Shamia Holloway, communications manager at the Capital Area Food Bank in Washington, which supplies food to the Community Ministry and 700 other local agencies. "A lot of these people came from good jobs."

U.S. Unemployment Rate at 9.7 Percent

September 5, 2009

World Socialist Web Site - The unemployment rate in the US rose to 9.7 percent in August, its highest level since 1983, as the economy shed 216,000 jobs. Economists had anticipated a more modest increase in the unemployment rate, to 9.5 percent over the 9.4 recorded in July.

A more realistic gauge of unemployment, one that takes into account those who have been unable to find work for an extended period and those forced to work only part time, rose to 16.8 percent, the highest rate since the government began reporting the figure in 1994.

The US economy has now shed about 7.4 million jobs since the start of the recession. The total number of unemployed workers stands at 14.9 million. Economists believe the official unemployment rate will exceed 10 percent by year's end.

Long-term unemployment is particularly severe. One in three unemployed workers, about five million in all, have been without work for more than six months.

August's unemployment rate among teenagers, 25.5 percent, eclipsed records dating back to 1948. The unemployment rate among recent college graduates, 5.9 percent, is the second highest on record since 1983.

Some commentators were cheered that the pace of job losses slowed in August. In the first quarter, the economy shed an average of nearly 700,000 jobs every month; in the second, about 425,000.

That such a statistic is taken as positive only illustrates the severity of the crisis. To keep up with population growth, the economy would have to add nearly 130,000 jobs per month. Measured in that way, 9.4 million jobs would have to be created to make up for those lost since December 2007.

The construction industry led August’s job losses, trimming its workforce by 65,000. Construction is tied closely to the housing and commercial real estate markets. Under normal economic conditions, it adds jobs throughout the summer months.

Manufacturing was close behind, eliminating 63,000 jobs. Separately, the Commerce Department reported this week that factory orders increased only 1.3 percent in July, far short of economists’ expectations.

The economy shed at least 50,000 “white collar” jobs, 28,000 in the finance industry and 22,000 in professional and business services.

The service sector cut 146,000 jobs. More cuts are on the way, a result of a poor “back-to-school” shopping season. Sales at stores open for more than one year fell two percent in August from last year, according to a study released this week by the International Council of Shopping Centers.

Even government jobs declined by 18,000 in August, an indication of the ineffectiveness of the Obama administration’s stimulus plan. The US Postal Service by itself cut 8,500 positions.

Workers who have jobs are being forced to work harder, even as their wages stagnate. Many companies are furloughing employees and eliminating their contributions to pensions and insurance plans.

A new study by the Economic Policy Institute (EPI), “The Recession’s Hidden Costs,” points out that wages, which increased at 4 percent every year between 2006 and 2008, grew at an annualized rate of only .7 percent over the past three months...

U.S. Jobless Soars as Companies Squeeze Workers

September 2, 2009

Times Online - Private employers cut 298,000 American jobs last month, far above economists’ expectations, and squeezed more work out of staff over fewer hours.

The ADP Employer Services report on jobless numbers in August exceeded the 250,000 staff cuts economists had forecast.

Employees who kept their jobs worked even harder over shorter hours, according to the Labor Department today. Revised productivity figures, which show the amount of output per hour of work done, rose by an annual rate of 6.6 per cent in the second quarter, the biggest rise in nearly six years. Labour costs fell by 5.9 per cent as a result of the rise in productivity. It was the largest drop in costs since the second quarter of 2000. The department had estimated last month that second quarter productivity was up by 6.4 per cent and costs down by 5.8 per cent...

The unemployment rate is expected to rise to 9.5 per cent in August, up from 9.4 per cent in July, and hit 10 per cent by year-end. The Labor Department said last month that 247,000 jobs were lost in July. The ADP Employer Services report today revised down the number of jobs lost in July from 371,000 to 360,000.

Orders to US factories rose by 1.3 per cent, according to the Commerce Department. It was the fifth monthly increase in the past six months but lower than economists' expectations of a 2.2 per cent rise. An 18.5 per cent leap in orders for transport-related products such as commercial aricraft and parts was the force behind the rise.
Durable goods, which includes all products expected to last at least three years, were up 5.1 per cent but non-durable goods such as food and petrol were down 1.9 per cent as oil prices fell.

Further good news came from the Institute for Supply Management, which said that its index rose to 52.9 points in August, up from 48.9 in July. It is the first time the index has risen above 50 since January 2008, boosted by the reopening of General Motors' and Chrysler factories that had been shut since the automakers entered bankruptcy protection. A 50-plus reading means that the manufacturing sector is expanding.

U.S. Insurer of Pensions Sees Flood of Red Ink

May 20, 2009

New York Times - The deficit at the federal agency that guarantees pensions for 44 million Americans tripled in the last six months to a record high, reaching $33.5 billion, largely as a result of surging bankruptcies among companies whose pensions it expects it will soon need to take over.

The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday.

Because the agency has $56 billion in assets — most of which is invested in Treasury bonds — it is not facing any prospect of default in the short term, officials said.

“The P.B.G.C. has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” the agency’s acting director, Vince Snowbarger, testified Wednesday at a Senate hearing. “Nevertheless, over the long term, the deficit must be addressed.”

The financial troubles are just a small part of the challenges facing the pension agency, which was created by Congress in 1974 and today is responsible for pension programs covering 1.3 million people. It pays about 640,000 people actual benefits worth about $4.3 billion a year.

The P.B.G.C.’s former director, Charles E. F. Millard, was subpoenaed to testify at the hearing Wednesday. But he cited his constitutional right to avoid self-incrimination and declined to answer any questions.

Mr. Millard, who resigned in January, has been accused by the agency’s inspector general of having inappropriate contact with companies including BlackRock, JPMorgan Chase and Goldman Sachs, all of which competed for and won contracts to help manage $2.5 billion of the agency’s funds. Those contracts will now most likely be canceled.

Employers nationwide with so-called defined-benefit, or traditional, pension plans pay fees to the P.B.G.C. in return for a promise that it will take over their pension plan if a company fails.

On Tuesday, for example, the agency announced that it had assumed the pension plan once run by the Lenox Group, a bankrupt maker of tableware, giftware and collectibles based in Eden Prairie, Minn. Assuming control of pensions for this company’s 4,300 workers will cost the agency an estimated $128 million — the difference between what Lenox had in its pension fund and what the total estimated obligations are.

In the last six months, 93 companies whose pension plans are covered by the agency have filed for bankruptcy, including Chrysler, whose failure alone could cost the agency $2 billion. A bankruptcy by General Motors would make the situation worse. G.M. had 670,000 workers as of late last year in its pension system, whose collapse would cost the agency an estimated $6 billion.

Options to close the $33.5 billion deficit include a federal bailout by taxpayers, a change in insurance premiums it charges employers, or increasing its investment returns.

Last year, the agency’s board voted to allow it to shift its investment strategy to put more money into stocks, private equity and real estate, in an effort to reduce the deficit. If that shift had taken place, the losses would most likely have been larger. But only a relatively small amount of the funds have already been shifted to stocks, so the losses on the investment portfolio were responsible for just $3 billion of the jump in the deficit in the last six months.

Senator Herb Kohl, Democrat of Wisconsin and chairman of the Senate Special Committee on Aging, which held the hearing Wednesday, blamed poor supervision by the agency’s board and management, at least in part, for the troubles, adding that he intended to introduce legislation that would expand the board and require it to meet at least four times a year. The board has not met in person since February 2008.

“The role of P.B.G.C. is too crucial to allow its governance to slip through the cracks,” Mr. Kohl said.

Credit Card Defaults: The Next Banking Crisis

February 25, 2009

Kathleen Barnes - I have a stellar credit rating, over 770, never had a late pay, etc. You can imagine how stunned I was when I received a letter from one of my credit card companies telling me that my current interest rate (8.99%) was being raised to 29%! Of course, I do have the option to “opt-out,” pay off my current balance (which is zero) at the current interest rate and then have the card cancelled.

This is happening everywhere, to people with stellar credit ratings and to those who have been a little shaky. Who isn’t a little shaky in these trying times?

It obvious that the banks are worried that people will default on their credit cards, so to prevent that, they are raising the interest rates to the roof. This is exactly the kind of wrong-headedness and moronic thought processes that got the banks into the sub-prime mortgage crisis and which will precipitate the next crisis of massive credit card defaults.

Imagine you have a credit card with a $10,000 balance at 8.99%. You’re paying $100 a month and making slow headway. The bankrate.com calculator says you’ll crawl out from under that debt in seven years.

Now imagine your most wonderful, most loving and understanding credit card company suddenly raises your rates to the stratosphere. You may or may not be given an “opt-in” offer to have your credit shut down, freeze your current interest rate, and have your account closed when the balance is paid.

At 29% interest, you’ll never pay off your debt at the rate of $100 a month because your payments will not even cover the interest. In order to make any headway, your payments will be raised to at least $250 a month. At that rate, it will take you nearly 12 years to erase the debt.

For argument’s sake, let’s continue with the imaginary scenario that you have just been given notice that you are being laid off.

Your top priorities are (and should be) to keep your car, so you can travel to a new job, and your home. Other priorities are obviously food, utilities and medical insurance. Where do those already unaffordable $250 a month credit card payments fall? You’re right: At the bottom of the list.

Your thinking process goes something like this: You need a car to get a new job and that has to the the most important thing in your life. If you default on your credit card, your credit will be in the toilet for seven years, but you’ll still have the necessities of life: car, house, food, etc.

What choice do you think you (and most people) will make? You’ll grit your teeth, default on your credit cards and let your credit rating suffer.

It’s not pretty, but these hard economic choices are being made every day all over the country.

What does this mean for the credit card companies and the big banks that own them?
It doesn’t take an MBA from Wharton to figure out that the $25 million we collectively owe in credit card debt is going to drag down the fearful and greedy banks that are forcing so many to make the difficult decision to default.

And it doesn’t take a crystal ball to see the banks once again crying for a government bailout. And should we give to them? NO WAY!

The banks are precipitating this situation. They started 15 years ago when they started shoving credit cards at us and encouraging us to spend more and more and more. Now they are bring this festering boil to head by raising interest rates to impossible levels.

What should you do if you’ve gotten one of these letters? Accept the opt-in, which will freeze your rates at their current level. Keep your payments current and take the minor hit you’ll have on your credit rating when the account is closed when you have a zero balance. (By the way, you can’t make any new charges on the card if you accept the opt-in.)

What should the government do to stop the next bank crisis before it hits? Congress should immediately pass legislation regulating credit card interest rates for all banks receiving federal bailout money. Retroactive rate increases for customers who are current on their accounts should be prohibited. Higher interest rates on new purchases should be regulated at reasonable levels, say at 15% or less.

Contact your senator and representative today and tell them the banks have to reined in again before they cause a second crisis which could be the killing blow to our economy.

This is usury, pure and simple. Worse yet, these panicked interest rate hikes are certain to become a self-fulfilling prophecy which will ensure more bank failures.