Outrages & Insights

Money for nothing at BERC

Things have gone from bad to worse at the Buffalo Economic Renaissance Corp.

Mind you, bad was bad. Loans to One Sunset. Grants to barbershops. Stuff like that.

The agency has descended into a state of paralysis since Mayor Byron Brown announced in February his intention to eliminate BERC and shift its work to the Buffalo Urban Renewal Agency.

You'd think the mayor would have had a plan in place before making the announcement, but he didn't. If you're looking for one now, well, keep looking.

Some board members - appointed independent of the mayor, who serves as chairman - were miffed that Brown didn't consult with them before announcing his intention to disband the agency. While I'm told there was some talk about fighting him, there was no evidence of that Tuesday at a board meeting I attended. Instead, there was a lot of talk about "transition."

It became clear to me as the meeting unfolded, and in several subsequent conversations I had with folks later in the day, that there is no plan in place to manage this transition. BERC President Dennis Penman told board members he and several high ranking members of the Brown administration - including Finance Commissioner Janet Penska - are working on it. But he doesn't expect the merger to be complete until September, maybe October.

In the meantime, BERC has stopped accepting loan applications and stopped making grants. Last month, its loan department did close on two previously approved loans worth $375,000, and there are two more in the pipeline, but that's it. If you call BERC seeking to apply for a loan, you're told "no can do."

Keep in mind that BERC does three basic functions - make loans, give grants and manage real estate. And on two of three fronts, there is precious little work to be done.

Now you might argue that given the agency's track record, this amounts to addition by subtraction. Problem is that all this inaction is costing money.

The agency employs, at last count, 25 people, at a cost of $1.2 million.  This money comes from block grant funds - i.e., money intended to fight poverty - and other money intended to promote economic development.

I asked Penman after the meeting if there was any plan to eliminate staff now that there is so much less to do. I was told no.

Later in the day I spoke to a rank-and-file staff member and asked what folks were doing now that the loan and grant programs have been suspended.

"Nothing," I was told. "Nothing."

Some of the staff in the field are managing to keep themselves busy. But many folks working out of BERC offices in City Hall have a lot of time on their hands.

Great. The economy is in the crapper. Poverty in the city is getting worse. Albany's fiscal crisis can't help but trickle down. Meanwhile, the city's economic development agency isn't doing much more than paying people a lot of money to do a little work.

Then there are the lawyers. Don't get me started on the lawyers. 

BERC has a full-time staff attorney. So does BURA. Nevertheless, the BERC board was told Tuesday of plans to hire outside counsel to deal with the merger of the two agencies.

All this leads to the obvious question: How many lawyers is it going to take to screw in this light bulb?

Answer: Too many.

All this grousing overlooks the larger issue related to the merger of BERC and BURA, one I wrote about when it was announced.

Moreover, while BERC has an independent board that includes members with professional expertise, the BURA board is controlled by the mayor and populated with politicians and staff who work for them.

It's pretty obvious that Brown announced the merger at his State of the City address to make a political splash - big surprise there, huh? - without doing his homework. More than a month later, there's not much progress to show. Then again, he got the spin he wanted at the time of the announcement, and wasn't that really the point?

On a more positive note, I'll close by reporting the mayor actually showed up for the BERC board meeting Tuesday. As I've reported in the past, he hasn't been in line for a perfect attendance sticker. But this time around, the mayor is marked down as "in attendance." Alas, he was tardy, showing up a half-an-hour late and doing little at the meeting aside from introducing a member of his staff. 

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Uncle Sam: Not a good investor

I'm not sure how telling it is, but the Daily Beast has done an interesting analysis of how the largest federal investments in private companies have done over the past six months. 

The verdict: Not so hot.

Actually, kind of crappy.

Says The Beast:

In fairness, it's not like these guys were tasked with being the best money managers they could be. Instead, they were tasked with saving the system.

Sadly, though, it looks like the judgment of the market is that some of the companies they thought worthy our largesse were destined for the scrap heap in any event.

Let’s break it down. If you look at infusions of taxpayer money of $5 billion or more since last October, you will find that, on balance, Uncle Sam is a terrible investor. That’s a total of $268.1 billion invested.

As of Friday’s close, our portfolio was worth just $202.4 billion. We’re out almost $66 billion in six months. On an annualized basis, that’s a 32.2 percent loss. Putting all that money into a plain-vanilla S&P 500 index fund would have lost us just 4.4 percent during that time.

Elsewhere on the bailout front, New York Times columnist Paul Krugman has emerged as a leading critic to the federal approach. He started when Dubya was still in office and hasn't eased up on Obama. Check out Krugman's blog. 

Break the banks or go bust

Like many of you, I've read a lot about the ongoing financial meltdown in the hopes of gaining an understanding of what is a decidedly complicated situation. This month's issue of Atlantic has one of the best pieces I've come across, in part because it describes what it is we need to do to get us out of this mess.

Ultimately, it's not about derivatives or bonuses or regulations. It's about politics, says the author, Simon Johnson.

The lead-in to the story summarizes matters quite nicely:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government - a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time.

This is not a short story - the printout runs 11 pages - but it is worth the investment of time.

Wrote Johnson:

Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks.

Johnson offers some eye-opening statistics:

• Until the mid-80s, the financial sector never accounted for more than 16 percent of domestic corporate profits. By this decade, they had soared to 41 percent.

• Average compensation in the financial sector ranged from 99 to 108 percent of the private sector in the '50s, '60s and '70s. It took off in the '80s and by 2007 hit 181 percent.

• Wall Street paid out $18 billion in bonuses last year, amounting to 13.5 cents for every dollar of federal assistance, not that it was quid pro quo.

Johnson argues that Obama and company have got to play real hardball and break the political power of the bankers and others who have gotten us into this mess. And the public outrage notwithstanding, he said the bankers have gained, not lost power since the crisis began.

Johnson maintains that, absent a disarming of big finance, the nation is in for a continuation of shell games, band-aid solutions and worsening economic conditions. Hence, the need for change.

The power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

An interesting, understandable and compelling read.

Chuck Schumer speaks volumes

Senators sometimes say the darndest things.

Chuck Schumer had this to say yesterday on the Senate floor regarding inserts into the stimulus bill.

"Let me say this to all of the chattering class that so much focuses on those little, tiny, yes, porky amendments: the American people really don't care."

Those are 27 words that say a lot.

Here's more in a New York Post story.

By the way, the YouTube clip above had 150,000 hits by 2:15 p.m. today. Who says the revolution will not be televised?

 

Best -- and worst -- bang for stimulus buck

What's the best way to jump start the economy? That is, how to best fashion a stimulus package that's going to cost taxpayers upwards of $1 trillion at the rate Congress is going?

Let me share some data and two points of view, one establishment, one populist.

First, let's hear from Mark Zandi, chief economist for Moody's economics..com. His testimony before Congress last month included this assessment of the "bang for buck" of assorted elements of the stimulus package.

Spending Increases

Temporary Increase in Food Stamps $1.73
Extending Unemployment Insurance Benefits $1.63
Increased Infrastructure Spending $1.59
General Aid to State Governments $1.38

Temporary Tax Cuts

Payroll Tax Holiday $1.28
Across the Board Tax Cut $1.03
Accelerated Depreciation $0.25

Permanent Tax Cuts

Extend Alternative Minimum Tax Patch $0.49
Make Dividend and Capital Gains Tax Cuts Permanent $0.38
Make Bush Income Tax Cuts Permanent $0.31
Cut in Corporate Tax Rate $0.30

Other Tax Cuts

Refundable Lump-Sum Tax Rebate $1.22
Nonrefundable Lump-Sum Tax Rebate  $1.01

In a nutshell, the best stimulus involves giving money to the down-and-out. Cutting taxes for corporations and the rich provides much less oomph.

Or, in his words:

"The most efficacious spending includes extending unemployment insurance benefits, expanding the food stamp program, and increasing aid to hard-pressed state and local governments. Increasing infrastructure spending would also greatly boost the economy, particularly in the current downturn, as the economy's problems are expected to last for an extended period and most of the money will be spent on hiring workers and on materials and equipment produced domestically."

Elsewhere in his testimony, he said housing prices have dropped 20 percent and stock prices 40 percent over the past year. Ouch.

OK, on to the populist perspective and a Democracy Now! interview with David Cay Johnston, the retired Pulitzer Prize-winning tax reporter from the New York Times who lives in Rochester and spends part of his time teaching at Syracuse University when he's not writing award-winning books.

He's on board with the concept of targeting money for infrastructure and the unemployed. The most startling part of the interview was this:

"If you add up all of the bailouts that the Bush administration did in the fall, the investments, the spending and the guarantees, it’s over $8 trillion. How much money is that? It is more than all of the income taxes paid by all Americans for the entire eight years of the Bush administration."

It's also more than eight times the size of the stimulus package now before Congress.  

Johnston has a story in this month's issue of Mother Jones entitled "Fiscal Therapy" that is worth a read. Here's a taste of what he has to say:

The cost of cleaning up the current mess will be a huge drag on the economy in the near term. But we are, at last, at a turning point; we have a chance to end the socialism for the rich that put us into this hole.

How? By, in effect, reverse engineering the debacle. Rewriting tax laws and financial regulations has been the principal vehicle for turning government into a subsidy system for the deep-pocketed and well motivated. It can work in reverse as well.

President-elect Obama has offered some interesting ideas to make the tax code more fair — but by and large, his proposals amount to tinkering around the edges, not the kind of serious restructuring previous presidents, most notably Reagan, undertook.

Here's another way to go. We can start by eliminating some of the most spectacular tax giveaways and move on to doable, efficient steps toward shoring up our biggest asset — not stocks, bonds, or houses, but people. Best of all, much of this won't cost a penny; in fact, it will raise billions for the big tasks ahead.

He goes on to offer a 14-point plan that's a thought-provoking read.

Cops, bailouts and rock 'n' roll

A little bit of this, a little bit of that for a Wednesday.

The Washington Post reports that banks getting federal bailout money have curtailed their lending more than those who haven't accepted government help.

Reports The Post:

Some of the first banks to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops in lending.

Hey, isn't this supposed to be the other way around?

M&T Bank, the largest locally based lender, fared a little better than the industry as a whole in the final  quarter of last year.

Jonathan Epstein, our banking reporter, tells me that compared with the final quarter or 2007, M&T's average business loans in the same period last year grew 9 percent annualized, while commercial real estate loans rose 2 percent and consumer loans fell by 2 percent.

M&T received $600 million in bailout funds in December. It will be interesting to see what its lending practices look like in the coming months.

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My colleague Phil Fairbanks had an eye-opening story the other day about the surging cost of providing health insurance for retired government workers in Western New York. Essentially, the liability has grown to $3.7 billion and local governments and school districts aren't putting away nearly enough money to cover it.

If they were, local budgets would be staggered, especially in Buffalo. If they were keeping pace with their obligations, City Hall and the Board of Education would be socking away $163 million a year. They're only putting aside $62.5 million, however, which tells me the day of reckoning is going to be awfully ugly.

But the way politics operate in this town, those now in office figure the bill won't come due until they're safely retired -- on a cushy state pension, no doubt.

This is how out of control the costs are -- fully funding its liability for providing retirees with insurance would eat up about one of every seven dollars the school district now spends.

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Let me get this right. Get held up in your home in the middle of the night by a guy who points a shotgun at your head and you're hard-pressed to get your place fingerprinted, or more than an interview or two with a detective. But let someone send out some nasty e-mails and the police will come storming in like the Army on Normandy beach. At least when the victim is the mayor.

Mike Beebe did a takeout in Sunday's paper which does nothing to alleviate concerns that the "investigation" into the actions of Syaed Ali was a misuse of police powers by an administration that housing activist Aaron Bartley has previously described as suffering from "clinical paranoia."

Reported Mike:

The issue won’t go away in City Hall, where the debate is whether there truly was a concern for the mayor’s security, or if it was just a ham-handed effort to silence a critic of the mayor.

For good reason.

Why did the police haul away belongings that could not have had anything to do with the investigation, including "his mother’s purse, his father’s and brother’s business records, and at least $750 in emergency cash. (Ali) said they also took his personal deodorant, shaving cream and nail clippers."

And why have they not returned anything they took, some three months after the raid? I mean, are the nail clippers considered a potential weapon of mass destruction?

And why did police press Ali for information that could implicate a couple of the mayor's perceived rivals? It wouldn't have anything to do with the intention of one of them to run for mayor this year, would it?

Why are the mayor and his police commissioner hiding behind their flaks?

Why, why, why?

Seems to me these are questions best answered by our new DA, Frank Sedita. His last name is Sedita, not Clark, right?

I mean, there's something happening here. What it is ain't exactly clear.

 

Stimulus becoming another word for waste

Last week, Barack Obama said it was "shameful" that Wall Street executives taking billions in federal bailouts were turing around and using some of the money for top-dollar bonuses.

But in the brazen department, Wall Street has nothing on Chuck Schumer and the rest of the Congressional Democrats.

It seems they slid a big slice of pork into the economic stimulus bill -- $2.43 billion over the next two years to make up for a potential loss in state aid to schools in New York state. That would come on top of additional aid included elsewhere in the stimulus package aimed at building schools and helping special education and underachieving students.

What does the $2.43 billion have to do with jump-starting the economy, you ask?

Absolutely nothing.

The same can be said about too much of the $700 billion, $800 billion, do I hear $900 billion? stimulus package approved by the House last week and awaiting Senate action.

Doug Turner nails it in his column today.

The bailout would shield New York’s bloated local and state governments, the teachers unions, other public employees and hospital workers from serious financial sacrifices in this recession, or depression.

Because of crushing state and local taxes imposed by their demands over the years, upstate ceased to be a “producer” economy — a place where new private-sector investments create payrolls and wealth.

Everybody said the stimulus would come from building and repairing roads and bridges.

There is disagreement over exactly how much in the House bill would go to the states for infrastructure. The reality is a pathetic 5 percent or 6 percent of the total.

Nationally, money for local and state government-worker bailouts is $80 billion — double the amount for infrastructure — a chilling index of the grip their unions have on Congress and President Obama.

New York State’s share of the funds going to roads, bridges and tunnels is pitiful: Less than $4 billion. E.J. McMahon, of the Albany think tank Empire Center, compares that with the needs outlined in the five-year plan of the state Department of Transportation and the Metropolitan Transportation Authority: $50 billion.

Let me repeat what Doug just said: the stimulus package would spend twice as much propping up state and local government as it would rebuilding infrastructure.

In other words, it's a form of welfare for state and local governments. Welfare, I might add, that adds to the ballooning national debt.

If the Dems are anxious to keep teachers on the job, and their paychecks circulating in the economy, perhaps they can get behind pension reforms proposed by Gov. Paterson that would require teachers to work later in life than 55 before they're entitled to a full pension.  

Making sense of the stimulus

The stimulus package - through the House, awaiting Senate action - isn't playing to very good reviews.

For starters, here's a critique  of the stimulus package by conservative economist Martin Feldstein. He doesn't like it, but his rationale is not knee-jerk GOP think.

The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit.

David Brooks, another right-of-center perspective, has this to say in the New York Times.

They’ve created a sprawling, undisciplined smorgasbord, which has spun off a series of unintended consequences. First, by trying to do everything all it once, the bill does nothing well. The money spent on long-term domestic programs means there may not be enough to jolt the economy now (about $290 billion in spending is pushed off into 2011 and later). The money spent on stimulus, meanwhile, means there’s not enough to truly reform domestic programs like health technology, schools and infrastructure. The measure mostly pumps more money into old arrangements.

The Wall Street Journal details how pork has made its way into the legislation.

The economic stimulus plan could include dozens of special-interest provisions pushed by lawmakers to help constituents such as the South Florida yacht-repair industry, Manhattan subway riders and California wine makers.

President Barack Obama wanted to keep the package free of such narrow provisions, partly to hold down the cost of the plan. But the business-as-usual process for handling the legislation on Capitol Hill is swelling its price tag to nearly $900 billion and giving Mr. Obama a refresher course on the congressional sausage-making process.

Many of the special-interest projects were included in a version of the stimulus plan that passed the House on Wednesday. In the Senate, lobbying groups from the agriculture to timber industries are working with home-state senators to add their pet items to the Senate version of the bill, which is set to be debated on the floor next week.

But it's not just conservatives who are less than enthused.

This Washington Post story details how some Democrats are grumbling.

In testimony before the House Budget Committee (Tuesday), Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.

"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."

The New York Times has a couple of analytical pieces here and here. There is some qualified good news it what they have to say.

Says Times columnist David Leonhardt:

The package really is stimulus. It will quickly give money to the people who have been hardest hit by the recession and who, not coincidentally, will be most likely to spend that money soon. The spending also has a chance to do some long-term good, by paying for the computerization of medical records, the weatherization of homes and other such investments.

By my count, the current package has just one major flaw. It could do a lot more to change how the government spends its money. It doesn’t have nearly the amount of the fresh, reformist thinking as Mr. Obama’s campaign speeches and proposals did. Instead, the bill is mostly a stew of spending on existing programs, whatever their warts may be.

The Times has a topics page that's a good way of tracking developments.

Read on, Wayne. You, too, Garth.

 

 

U.S. economy better - and worse - than you think

But before I get to that, let me tick you off with this piece of news.

The American International Group, aka AIG, recipients of $150 billion in federal bailout funds, has paid some 4,200 employees at least $169 million in "retention pay," in an effort to keep them from leaving for another job. (Like there are other jobs for these people?)

That works out to an average of a little more than $147,000 per employee. Payments are running as high as $4 million per.

No word on whether any of these folks were among the executives AIG spent $440,000 on for a weekend retreat shortly after crying poor and taking Uncle Sam's money.

And people are squawking about auto worker pay?

Now, back to your regularly scheduled outrage. Actually, more of an insight.

The New York Times has had a couple of especially good stories on the bailout. First the bad news.

Most banks getting bailout money aren't using it to lend and simulate the economy. The headline to the story says it all: Bailout Is a Windfall to Banks, if Not to Borrowers.

Reported The Times:

Congress approved the $700 billion rescue plan with the idea that banks would help struggling borrowers and increase lending to stimulate the economy, and many lawmakers want to know how the first half of that money has been spent before approving the second half. But many banks that have received bailout money so far are reluctant to lend ...

Individually, banks that received some of the first $350 billion from the Treasury’s Troubled Asset Relief Program, or TARP, have offered few public details about how they plan to spend the money, and they are not required to disclose what they do with it. But in conversations behind closed doors with investment analysts, some bankers have been candid about their intentions.

Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

In another story, a Times analysis of economic data finds that things are not as bad as they were in 1982.  

The economy is not yet as bad as it was in the early 1980s. It’s not even that close to being as bad. The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today.

The recession of the early 1980s doesn’t have a catchy name, and almost half of Americans are too young to have any real memory of it. But it was terrible — qualitatively different from the mild recessions of 1990-91 and 2001.

All this may be of little comfort, but it does add some perspective.