April 1, 2023

Push for Yellen To Lead at Fed Gathers Steam

Now, awkwardly, it appears that the president may have to circle back to Ms. Yellen after Mr. Summers withdrew from consideration on Sunday, bowing to the determined opposition of at least five Senate Democrats. On Monday, Ms. Yellen became the front-runner by elimination, officials close to the White House said.

Supporters of Mr. Summers, including many of the president’s closest advisers, had raised some concerns about Ms. Yellen in recent months. Perhaps most potently, they said that institutions benefited from fresh leadership and argued that Ms. Yellen’s crucial role in creating the Fed’s current policies could inhibit her ability to make necessary changes.

Some presidential advisers also argued that Mr. Summers brought crisis management experience and a working knowledge of financial markets that Ms. Yellen lacks — although so did Ben S. Bernanke when President George W. Bush selected him as chairman.

There have been tensions between Ms. Yellen and Daniel Tarullo, a Fed governor with close ties to the president’s economic team who has taken a leading role on issues of regulatory policy. Ms. Yellen also clashed with Gene B. Sperling, head of the National Economic Council, when both were advisers to President Clinton in the 1990s.

Nonetheless, the president’s advisers insisted throughout the summer that Mr. Obama was not averse to Ms. Yellen but simply more comfortable with Mr. Summers, a former Treasury secretary to President Bill Clinton who was Mr. Obama’s chief White House economic adviser through the height of the financial crisis and recession in 2009 and 2010. In those years he formed a bond with Mr. Obama and others in the White House despite a tendency toward arrogance.

Stock markets soared on Monday on the withdrawal of Mr. Summers. Many investors regarded him as less committed to the Fed’s monetary stimulus campaign than Ms. Yellen. In trading, the Dow was up 118 points and interest rates down in a show of increased confidence that the Fed would withdraw more slowly from its efforts to stimulate the economy, including bond purchases.

Ms. Yellen’s supporters waited with a mixture of elation and apprehension for the president’s next step. “Janet Yellen, I hope, will make a terrific Federal Reserve chair,” Senator Elizabeth Warren, a Massachusetts Democrat who was one of those warning the White House against a Summers nomination, said on MSBNC. “The president will make his decision, but I hope that happens.”

Administration officials and supporters acknowledged that the president would enrage his party’s base if he were now to reject Ms. Yellen and forfeit the chance to name the first woman to the most influential economic job in the world. On the other hand, with no obvious alternatives, the choice of Ms. Yellen — which months ago might have been celebrated as historic — is likely to be seen as Mr. Obama’s reluctant capitulation to his party’s left wing.

That prospect, and Mr. Obama’s distaste for being pressured into some action, could prompt him to consider other candidates, several former administration officials said.

The president had already interviewed Donald L. Kohn, a former Fed vice chairman, before Ms. Yellen got the job in 2010 on Mr. Obama’s nomination. For years, Mr. Kohn was among the most influential advisers to former Fed chairman Alan Greenspan and thus would have drawn criticism from Democrats, many of whom blame the Greenspan Fed for an antiregulatory stance that encouraged financial excesses that led to crisis.

Annie Lowrey contributed reporting.

Article source: http://www.nytimes.com/2013/09/17/business/front-runner-not-first-pick-for-fed-post.html?partner=rss&emc=rss

Wal-Mart Hires Former Bush Aide as Chief Image Maker

The company, the nation’s largest retailer, announced on Wednesday that Dan Bartlett, an adviser to President George W. Bush, would be its new executive vice president for corporate affairs, starting in late June.

The vague-sounding role in fact has a wide mandate, overseeing corporate communications, government relations, sustainability and the Wal-Mart Foundation. It is in essence Wal-Mart’s chief image maker.

Mr. Bartlett replaces Leslie Dach, who announced his resignation in March. Mr. Dach, an ex-Clinton aide, helped create Wal-Mart’s sustainability effort, its $4 generic drug program and its healthy food program after years in which Wal-Mart had been battered by politicians and the media.

“What’s happened over the last several years, clearly here in the United States and around the world, it’s become easier to site a Walmart and we have become more accepted by the community,” Mr. Dach said last year, describing the effects of those programs on Wal-Mart’s business.

Under President Bush, Mr. Bartlett oversaw the White House press office and was an adviser on his campaigns for governor and president. More recently, Mr. Bartlett was chief executive of the United States division of Hill Knowlton Strategies, a communications firm.

Nicolle Wallace, a Republican strategist who was White House communications director under Mr. Bartlett, described him as “low-key, very unflappable, he’s the ultimate team player.”

“He was just really excited about being part of a company that, while it has an image and an identity as just a giant corporate leader, it’s also very important in all the communities in which it exists,” she said. At the White House, “he operated at that intersection of public policy and communication and really confidential counsel to the executives.”

While his work in the White House, obviously, focused on a Republican agenda, “in the private sector he’s given advice to people of all political persuasions,” she said.

Today, Wal-Mart is facing several reputational issues. It was linked to garments produced at the building in Bangladesh that collapsed last month, killing more than 1,100 workers. Wal-Mart has declined to join other large retailers like HM in a pact to improve safety standards in Bangladesh, instead saying it would pursue its own safety program.

Wal-Mart is being investigated by the Securities and Exchange Commission and the Justice Department on potential violations of the Foreign Corrupt Practices Act, and is also conducting an internal inquiry and compliance review. The New York Times reported last year that executives at the company’s Mexican subsidiary had bribed officials to smooth expansion, and that executives at the company’s headquarters had known about the bribes and declined to take action. In the most recent quarter, Wal-Mart spent $73 million on costs related to those reviews, much higher than the $40 million to $45 million it had expected to spend.

And Wal-Mart has faced issues in its stores, including slower-than-expected sales, problems in keeping shelves stocked and complaints from unions about how it treats workers.

Article source: http://www.nytimes.com/2013/05/23/business/wal-mart-hires-a-new-chief-image-maker.html?partner=rss&emc=rss

Business and Labor Are Said to Near Deal on Immigration

The progress in the talks, which stalled late last week, had members of a bipartisan group of eight senators that has been working on an immigration bill increasingly optimistic that they would be able to introduce comprehensive legislation in the Senate when Congress returns the second week of April.

“We are very close, closer than we’ve ever been,” said Senator Charles E. Schumer, Democrat of New York and a member of the Senate group. “We are very optimistic, but there are a few issues remaining.”

The intense talks, and the willingness of the U.S. Chamber of Commerce and the A.F.L.-C.I.O. —  two groups that have often found themselves deeply divided over the immigration debate —  to try to hammer out an agreement, was an indication of how much the climate has changed on overhauling the nation’s immigration laws.

When President George W. Bush pushed to revamp immigration laws in 2007, the inability of business and labor to agree on a plan for temporary guest workers was among the main reasons that effort failed. But now the two groups have weathered leaks to the news media and other setbacks in a sign of how serious both Democrats and Republicans are about getting a bill on President Obama’s desk by the end of the year.

Some involved in the negotiations remained hopeful that a deal would be reached by the weekend, but the Congressional recess, along with the Good Friday observance, made it difficult to lock all the moving pieces in place, those close to the talks said. And, while the members of the bipartisan group were optimistic, aides cautioned that no deal would be final until all the senators had signed off on every piece of the legislation.

The Chamber of Commerce and the A.F.L.-C.I.O., the nation’s main federation of labor unions, have been in discussions parallel to those of the Senate group, and have already reached a tentative agreement about the size and scope of a temporary guest worker program, which would grant up to 200,000 new visas annually for low-skilled workers. The labor-business talks came close to breaking down last Friday, on the eve of a two-week Congressional recess, over the issue of what the pay levels should be for low-skilled immigrants — often employed at restaurants and hotels or on construction projects — who could be brought in when employers said they faced labor shortages.

One of the last sticking points in the business-labor negotiations has been the specific type of jobs that would be excluded from the program. The nation’s construction unions, officials in the talks said, have persuaded the negotiators to exclude certain higher-skilled jobs, including crane operators and electricians, from the guest worker program.

Eliseo Medina, the secretary-treasurer of the Service Employees International Union and one of labor’s most influential voices on immigration issues, said, “We may be very close to a point where the senators will have an announcement soon.”

The tentative agreement seems to satisfy both groups: The business community is likely to see a number of visas that it considers adequate, while the agreement on wages is likely to please labor because it is not expected to affect the labor market adversely.

“The labor movement has been united in making sure aspiring Americans get a road map to citizenship and that any future flow program doesn’t reduce wages for any local workers,” said Tom Snyder, manager of the A.F.L.-C.I.O.’s Citizenship Now campaign. “And we will succeed on both fronts because politicians have heard immigrant communities loud and clear: citizenship now.”

Still, Randy Johnson, the senior vice president of labor, immigration, and employee benefits at the Chamber of Commerce, cautioned that any official agreement would come from the bipartisan Senate group.

“We advise senators on the Hill how to write the bill and they decide on what bill would make sound legislation,” he said.

According to participants in the conversations, after the business-labor talks came close to breaking down last week, some union officials pressed the labor negotiators to show more flexibility to avoid losing momentum over the guest worker issue. At the same time, some business leaders and Republican lawmakers pressed the Chamber to be more flexible on the guest worker issue so as not to derail the overall immigration overhaul.

Business and labor reached agreement in recent days on the contentious issue of how many guest workers would be admitted each year, several officials said. They said the number would start at 20,000 visas a year and could grow to a maximum of 200,000 annually.

“There is a formula that will allow it to grow and shrink according to economic needs,” said Tamar Jacoby, the president of ImmigrationWorks, a group that represents small businesses on immigrations matters.

She said the formula agreed to was not flexible enough to meet the needs of specific industries in specific places.

The number of guest workers allowed in would increase as the nation’s unemployment rate fell and the number of job openings increased. A federal commission would also assess the need for guest workers, with an eye to shortages in specific industries and communities.

In the negotiations, business vigorously objected to labor’s push to have employers pay guest workers more than they pay local workers — an idea labor pushed to encourage employers to increase wages and to discourage them from bringing in guest workers.

To settle that dispute, officials said, the two sides agreed that guest workers would be paid the prevailing industry wage previously used in the guest worker program. These officials said that employers who faced a labor shortage even after the national guest worker quota was filled could request a “safety valve” exemption to bring in workers, but with additional administrative hurdles and at a higher wage rate than the prevailing wage.

“Business and labor leaders both agree that we need a system that responds to the needs of our economy, and we are now in a position where they’re both coming together around key reforms that will fix the broken immigration system and move our economy forward,” said John Feinblatt, the chief policy adviser to Mayor Michael R. Bloomberg of New York and the chairman of the Partnership for a New American Economy.

Article source: http://www.nytimes.com/2013/03/30/us/politics/guest-worker-program-low-skilled-immigrants.html?partner=rss&emc=rss

High & Low Finance: Report Lays Out Plan to Reduce Government Role in Home Financing

It is amazing just how few people think it can.

“For the foreseeable future, there is simply not enough capacity on the balance sheets of U.S. banks to allow a reliance on depository institutions as the sole source of liquidity for the mortgage market,” stated a report on the American housing market this week, issued by a group that was filled with members of the housing establishment.

The panel, which included Frank Keating, the president of the American Bankers Association and a former governor of Oklahoma, does not see that as an indictment of the American banking system, which would much rather trade leveraged derivatives than keep a lot of mortgage loans on its books.

“Given the size of the market and capital constraints on lenders, the secondary market for mortgage-backed securities must continue to play a critical role in providing mortgage liquidity,” added the report, issued by a housing commission formed by the Bipartisan Policy Center, a group that was begun by former Senate majority leaders from both parties. The group thinks investors will not be willing to finance enough mortgages — particularly 30-year fixed-rate loans — without a government guarantee.

The report does an excellent job of analyzing the history of the American housing finance system, as well as looking at the government’s efforts over the years to promote and subsidize rental housing. It calls for changes in those policies as well, aimed at assuring that those with very low incomes “are assured access to housing assistance if they need it.”

But those rental proposals are unlikely to lead to legislation any time soon, said Mel Martinez, one of four co-chairmen of the housing panel. Mr. Martinez, a former Republican senator from Florida and housing secretary under President George W. Bush, said in an interview that any proposal calling for spending government money, as this one does, would face tough sledding in Congress.

But he said it was possible that changes in the housing finance system, which is widely criticized on both sides of the aisle, had a better chance of getting approval.

Certainly, one principle enunciated by the panel will get wide support: “The private sector must play a far greater role in bearing housing risk.” But the details show that the panel still thinks sufficient money can be found for housing only if Uncle Sam remains the ultimate guarantor for most home mortgages.

Currently, the government backs about 90 percent of newly issued mortgages, more than ever before. The proportion fell in the years leading up to 2007 as subprime loans proliferated and then soared after that market collapsed.

Since then, the Federal Housing Administration has expanded its role in backing home loans on the low end of the scale. But most mortgages are purchased by either Fannie Mae or Freddie Mac, the government-sponsored enterprises that the government took over after the housing bubble burst.

So-called jumbo mortgages, that is, mortgages too large to qualify for purchase by Fannie or Freddie, account for most of the rest. Some mortgages are put into securitizations that have no government guarantee, but many jumbo mortgages end up being owned by the banks for the long term.

The F.H.A. appears to be more cautious than it used to be. The report notes that last year the average FICO score for an F.H.A. or Department of Veterans Affairs loan was close to 720 on a range of 300 to 850. That is about what the average Fannie Mae and Freddie Mac borrower had in 2001.

The commission, whose other co-chairmen were George J. Mitchell, the former Senate Democratic leader; Christopher S. Bond, a former Republican senator; and Henry Cisneros, who served as housing secretary under President Bill Clinton, wants to preserve the F.H.A., but orient it more to those who need the most help. It would phase out Fannie and Freddie — something that is politically necessary — but replace them with something that sounds sort of similar.

The new organization would be called a “public guarantor.” It would guarantee that investors in mortgage-backed securitizations would not lose money, much as Fannie and Freddie now do. But its responsibility would come after that of a “private credit enhancer,” which sounds like a monoline insurer that would make payments to securitization holders if the underlying mortgages were performing badly. That organization would be regulated by the public guarantor, and only after it goes broke — something that should happen only if housing prices fall more than they did in the recent crisis — would the public guarantor be responsible for making investors whole.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

This article has been revised to reflect the following correction:

Correction: February 28, 2013

An earlier version of this column misstated the potential proportion of new mortgages that Mr. Martinez said he believed would eventually be financed by private capital. It is 40 to 55 percent, not 40 to 50 percent.

Article source: http://www.nytimes.com/2013/03/01/business/report-lays-out-plan-to-reduce-government-role-in-home-financing.html?partner=rss&emc=rss

Today’s Economist: Simon Johnson: Restoring the Legitimacy of the Federal Reserve


Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The Federal Reserve has a legitimacy problem. Fortunately, a potential policy shift is available that offers both the right thing for the Fed to do and a way to please sensible people on both sides of the political spectrum.

As the election season progresses, Republican politicians are increasingly criticizing the monetary policy of Ben Bernanke and his colleagues on the grounds that they are exceeding their authority, particularly by buying assets and trying to lower interest rates in what is known as “quantitative easing.”

Today’s Economist

Perspectives from expert contributors.

There is growing concern in Republican circles that the Fed is tipping the election toward President Obama, and Mitt Romney repeated unambiguously in August that he would not reappoint Mr. Bernanke (a Republican originally appointed by President George W. Bush).

At the same time, a significant number of people on the left of American politics are concerned about how the Fed acted in the period leading up to the crisis of 2008 — blaming it for a significant failure of regulation and supervision — and about how much support it currently provides to big banks.

If the right and the left were ever to come together on this issue, they might enact legal changes that would reduce the independence of the Federal Reserve, making it more subject to Congressional pressures. At the very least, the implicit buffers that protect the Fed from political interference could easily weaken, depending on the outcome of the November election.

The Fed has no special constitutional protection, from either the original Constitution or any subsequent amendment. The Federal Reserve System was created in 1913 by an act of Congress and its mandate, functions and authority have been amended by Congress over the years. Most recently, some small but potentially significant changes were enacted as part of the Dodd-Frank financial legislation in 2010.

The Fed has been unpopular before, most notably when under Paul A. Volcker, its chairman, it tightened monetary policy to bring down inflation in the early 1980s. And some tension is built into the very objectives of the organization. Section 2A of the Federal Reserve Act, as amended, now reads:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.

(This so-called dual mandate came from the Full Employment and Balanced Growth Act of 1978, sometimes known as the Humphrey-Hawkins legislation. This language was not in the Federal Reserve Act of 1913 or the 1946 Employment Act).

Most of the previous political concerns were from the left of the political spectrum and concerned whether the Fed placed too much weight on low inflation and not enough weight on achieving a high level of employment. Strong voices from the left currently assert that Mr. Bernanke’s team should have done more, earlier and faster, to speed the economic recovery.

But now the brunt of the attack comes from the right, where trouble for the Fed has been brewing for some time.

Open season on the Fed was declared last year by Rick Perry, governor of Texas and then a Republican presidential candidate. On the campaign trail in summer 2011, he remarked memorably:

If this guy prints more money between now and the election, I don’t know what you all would do to him in Iowa, but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous — treasonous, in my opinion.

Mr. Perry was picking up on longstanding themes from that part of the Republican right that feels the very existence of the Federal Reserve undermines the Republic. Ron Paul’s book on the subject is titled “End the Fed.” Mr. Paul is sometimes regarded as a fringe figure, but anti-Fed sentiment is no longer a marginal view within the Republican Party – see, for example, the range of voices quoted by Politico last week.

(Mr. Paul’s and, to some extent, Governor Perry’s intellectual predecessor was Wright Patman, a populist Democrat from Texas who served in the House for almost 50 years and was a regular bête noire of Fed chairmen. In one hearing on the Fed’s monetary policy, for example, Mr. Patman opened the session by caustically asking the chairman, Arthur Burns, “Can you give me any reason why you should not be in the penitentiary?” Mr. Patman, it should be noted, was described by the historian Robert Caro as to the left of Lyndon B. Johnson.)

Fortunately there is a way for the Fed to reaffirm its legitimacy: the Board of Governors should strengthen capital requirements for the largest United States banks and other systemically important financial institutions. Ideally it should move policy in a direction that is responsible and that would be welcomed on both sides of the political spectrum.

The best way to do this would be to increase capital requirements for very large banks and other financial institutions that the Fed deems to be systemically important. Both sides of the aisle increasingly show some understanding that higher capital requirements for megabanks would make them generally safer and more resilient in the face of really big unusual shocks — and therefore reduce the degree of public subsidy they receive, implicitly, because they are too big to fail (and therefore able to get support, when needed, from the Fed).

(The Dodd-Frank Act constrained the ability of the Fed to help individual financial institutions, but in my assessment left the door open to various kinds of broader assistance to classes of assets or groups of companies — either through the Fed discount window for lending to banks or through some mechanism to be specified later.)

The recent letter to Mr. Bernanke by Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana — which I wrote about recently — is a perfect example of the emerging cross-partisan consensus. In private, I hear strong voices from right and left echoing the sentiments of this letter.

The megabanks, naturally, are opposed. They contend that higher capital requirements would be bad for the economy. That is a myth, fully exploded by the Stanford professor Anat Admati and her colleagues (if you have not already seen their Web site, you should look at it now.)

The Fed has the ability and the opportunity to make a move on capital requirements for systemically important financial institutions — we are currently in a comment period that runs until Oct. 22 on exactly this issue. Higher requirements would make the financial system safer. They would also represent an important step toward rebuilding the political legitimacy of the Federal Reserve System.

Article source: http://economix.blogs.nytimes.com/2012/09/20/restoring-the-legitimacy-of-the-fed/?partner=rss&emc=rss

Your Money: Obama Tax Plan Could Be a Wash for Some High Earners

This week, President Obama once again took aim at what he calls “tax preferences” for these high-income households, proposing two changes that would affect the low six-figure set starting in 2013.

First, he would let former President George W. Bush’s tax cuts expire for higher-income households. Second, he would limit the rate at which high-income taxpayers — married people with over $250,000 in household income filing a joint return and singles with more than $200,000 — can reduce their tax liability to a maximum of 28 percent. This limit would apply to all itemized deductions, among other things, if President Obama gets his way, which would have the effect of causing many people to pay more in taxes.

Forget for a moment that President Obama will almost certainly not get his way, given that even bills to help American victims of natural disasters don’t get a rubber stamp in Congress anymore. And let’s save for another day the debate over whether people with incomes like this deserve any sympathy.

What gets lost in all of the hand-wringing over the proposed tax increases is that many of the people this is aimed at wouldn’t pay a whole lot more. And families who work at it just a bit, using employer-sponsored flexible spending and other accounts to pay for things like day camp and the commuter train and visits to the therapist, could offset that 2013 tax increase and then some.

How could it be that this supposed tax increase won’t amount to much for many people? Thank the alternative minimum tax. Hey, at least it’s good for something.

Consider this hypothetical family and the numbers that would end up on their tax worksheets, as calculated by Joan Trimble, a tax partner at Berdon L.L.P., an accounting and advisory firm in New York City.

The family includes a married, heterosexual couple earning $350,000 combined annually that received no raises from 2011 to 2013, lives in the suburbs of New York City and has two children. They pay $20,000 in real estate taxes each year and $24,000 in annual interest toward their mortgage, make a total of $30,000 in 401(k) contributions and give away $9,000 in charitable contributions in all three years.

Let’s assume that the annual A.M.T. patch continues to occur each year — the patch adjusts the calculation that accounts for inflation to avoid ensnaring even larger numbers of taxpayers. (That assumption is a pretty safe one, though who would have predicted that you could elect to pay no estate taxes in 2010?) With the patch, this couple will pay tax at the A.M.T. rate in 2011 and 2012. Their total federal taxes in each of those years will be $65,604.

If the Bush tax cuts expire in 2013, they’ll no longer be paying the A.M.T. rate. But their income taxes will be only $66,981, just $1,377 more than 2012.

That number does not take into account the president’s proposed 28 percent deduction limit. Ms. Trimble said that there was a lot of debate in tax circles about precisely how it would work in practice.

But if the proposal simply means that you calculate taxable income for 2013 and then pay 28 percent of it, you get $69,633, or just $4,029 more than the family would have paid in 2011 and 2012. (Also, $900 of that increase in 2013 isn’t even attributable to the expiration of the Bush tax cuts or the 28 percent cap; it comes from the recent increase in taxes on higher-net-worth households to pay for Medicare, which goes into effect in 2013.)

So the hit isn’t all that bad. And you can make it go away entirely and then some by finally signing up for (and maxing out your set-asides in) those flexible spending and other accounts for health and dependent care plus public transportation or parking. With these accounts, your employer makes it possible to put aside money before it takes out income taxes (or to make a deposit in a way that qualifies you for a deduction).

Let’s say our hypothetical family was like, oh, a lot of you. This family couldn’t be bothered chasing what seemed like pocket change each month, filling out flexible spending account forms, carrying around debit cards, putting in for reimbursement or worrying about money in the health care account expiring at the end of each year.

In the world of health care flexible spending accounts, for instance, just 23 percent of people who have access to the accounts at employers with more than 500 workers actually sign up, according to Mercer’s 2010 national survey of employer-sponsored health plans.

But come 2013 and the tax increases, the family maximizes all available employee benefits. So they put a total of $5,000, the maximum, in a dependent care account to pay for day camp for the two children. They also set aside a total of $2,500 from their paychecks for the health care costs that insurance doesn’t cover. Since they both use public transportation to get to jobs in the city, they each ask their employers to remove $230 per month (which is the current monthly limit) and load it onto a debit card that they can use to pay for train tickets. Also, one of them has a health insurance plan at work with a high enough deductible that the family is eligible for a health savings account and the deduction that comes with it, so they put in the maximum household amount for 2011, $6,150.

The result of all this maneuvering would be $5,800 less in taxes owed for 2013 than what they would have otherwise paid. That more than makes up for what would have been a $4,029 increase from 2011 to 2013 had they never gotten around to signing up for all of these tax benefits.

There are a few caveats to keep in mind here. Your employer needs to offer the plans in the first place for you to take advantage of them. Big companies tend to offer most of them, but smaller ones may not offer any.

The Bureau of Labor Statistics reports that among individual civilian workers who took home more than $81,806 in 2010 (which would put them in the 90th percentile of earnings), 22 percent had access to a health savings account, 64 percent had access to a health care flexible spending account and 61 percent could participate in a dependent care account. If your employer doesn’t offer all of these benefits, get your fellow workers together and lobby hard for adding the plans.

Then there is the possibility that the rules for these tax deals might themselves change. The contribution limit for flexible spending accounts will be $2,500 in 2013, lower than it has been in the past. If you think more pain is coming in this area, then start maxing out these accounts in 2012 and not 2013.

Also retirees with high incomes who lack these employer accounts probably wouldn’t be able to offset the tax increase in 2013 and could be hurt further by the president’s proposed tax changes, depending on what sort of investment income they have and how it ends up being taxed.

In the meantime, try to look at the bright side. The president’s plan could still let you deduct the mortgage interest on your lakeside second home, within reason. Your contribution to Harvard’s $32 billion endowment will still be tax-deductible. Same thing for, say, a fancy church or synagogue in all of the bucolic suburban hamlets in the land. While you’re at it, don’t forget to thank the tax gods for 20 years of tax-free earnings in 529 college savings accounts, no matter how rich you already are.

And if all you’d have to do to reduce your 2013 tax bill is set up accounts to reimburse yourself for things that you’re spending money on anyway? Well, anyone who even remotely resembles our hypothetical couple and complains about these few extra steps doesn’t know what real tax pain actually feels like.

Article source: http://feeds.nytimes.com/click.phdo?i=564894f79e63c3dea8afeb3f94c21e39

In Solyndra Loan Guarantees, White House Intervention Is Questioned

But at a subcommittee hearing, officials of the Energy Department’s loan office and the White House budget office defended their decisions, which they said were carefully reviewed and not politically inspired.

The collapse of the deal has turned what was once portrayed by some as a shining example of the promise of federal subsidies to stimulate economic growth through green jobs into a grim lesson in what others call the futility of federal meddling in the marketplace.

The subcommittee’s Republican staff members, in a memorandum issued at the hearing, said that e-mails among White House staff “raise questions as to whether the Solyndra loan guarantee was pushed to approval before it was ready in order for the Administration to highlight the stimulus, and whether additional time might have resulted in stronger mitigation of the risks presented by the deal.” The e-mails were first disclosed in The Washington Post and on the Web site of ABC News.

While President Obama has made fostering the green energy sector a hallmark of his policies since coming into office, his Energy Department has repeatedly asserted that Solyndra, based in Fremont, Calif., was well on its way to getting a loan guarantee during the closing years of President George W. Bush’s administration.

“In fact, by the time the Obama administration took office in late January 2009, the loan programs staff had already established a goal of, and timeline for, issuing the company a conditional loan guarantee commitment in March 2009,” Jonathan Silver, executive director of energy loan programs, said in prepared testimony. Financed through the stimulus package that had just passed Congress, it was the first loan guarantee issued by the Energy Department under a program created by a 2005 energy law.

But Representative Cliff Stearns, a Florida Republican who is the chairman of the Energy and Commerce subcommittee on oversight and investigations, said Mr. Silver was wrong to claim “that Solyndra was a train ready to leave the station when Mr. Obama took office.” He said that in the last days of the Bush administration, an Energy Department committee unanimously rejected the request for a loan guarantee, calling it premature.

“Only after the Obama administration took control, and the stimulus passed, was the Solyndra deal pushed through,” Mr. Stearns said.

The Energy Department, in an e-mail with the subject “facts vs. fiction,” immediately disputed that account. Its review committee “did not reject the application,” wrote Dan Leistikow, the agency spokesman. “It noted that the project ‘appears to have merit’ and simply remanded the application without prejudice so that work could continue.”

Much of the early minutes of the hearing was taken up with assigning political blame. Mr. Stearns chastised the Democratic minority for having voted against having the committee subpoena documents concerning the deal.

“It should not take a financial restructuring, bankruptcy and an F.B.I. raid for my colleagues on the other side of the aisle to put politics aside and join us in our efforts,” he said. The F.B.I. seized documents at the company several days ago.

But the ranking Democratic member, Representative Diana DeGette of Colorado, said, “It should be clear to everyone in this room that solar energy development is not a Democratic or Republican issue — it is an issue of security American energy innovation for decades to come.”

The Solyndra loan guarantee was the Obama administration’s first. The administration, seeking to forge a “clean energy” economy and provide jobs in the face of a growing recession, picked the project partly because it was what government officials were then fond of calling “shovel ready.”

But Representative Michael C. Burgess, a Republican of Texas, said in an opening statement, “It appears the shovel that this project was ready for was to bury it somewhere.”

Jeffrey D. Zients, deputy director for management at the White House budget office, said that before the loan was finally approved in September 2009, its terms and the risks involved were carefully reviewed, with the energy loan office answering detailed queries from the budget office, and with advice from a credit rating agency, engineers and market analysts.

Jay Carney, the White House spokesman, said that the e-mails that the committee disclosed had “nothing to do with anything besides the need to get an answer to make a scheduling decision.” The company’s groundbreaking event, for its second solar panel manufacturing plant, was held on Sept. 4, 2009, with Energy Secretary Steven Chu attending and Mr. Biden speaking via satellite hookup.

At the hearing on Wednesday, skeptical Republicans pointed out that the Energy Department was likely to award billions more in loan guarantees soon, and questioned its ability to pick winners.

Mr. Zients said that under the Bush and Obama administrations, the energy loan program has closed 18 loan guarantees and made conditional commitments for another 18, including not only many solar projects, but also others for wind and geothermal energy. “We have reason to be optimistic that the portfolio as a whole will perform,” he said of the other loans.

Article source: http://feeds.nytimes.com/click.phdo?i=f54511982feeb3d2963122882be134f6

DealBook: Insider Trading Cases Stain Hedge Fund Manager’s Reputation

Minh Uong/The New York Times

Steven A. Cohen, the once-secretive billionaire hedge fund manager, is suddenly everywhere.

On Monday, Mr. Cohen and his wife attended the Metropolitan Museum of Art’s annual Costume Institute gala, where they rubbed elbows with the rock star Mick Jagger and the quarterback Tom Brady. On Wednesday, he is scheduled to speak, before former President George W. Bush, at a prominent hedge fund conference in Las Vegas. Earlier this year, he made his first trip to Davos, Switzerland, for the World Economic Forum, where he could be seen dancing the night away at a private party.

And Mr. Cohen is bidding to buy a large stake in the New York Mets from the team’s owners.

Behind the scenes, life has not been nearly so fun.

Federal prosecutors are examining trades made in an account run by Mr. Cohen at SAC Capital Advisors, his hedge fund in Stamford, Conn., that manages about $12 billion, according to a government filing. The trades were suggested by two SAC portfolio managers who have pleaded guilty to insider trading-related crimes. The charges are part of a vast investigation into insider trading at hedge funds by the United States attorney in Manhattan that has resulted in criminal cases against at least 47 people over the last two years.

Meanwhile, Senator Charles E. Grassley, Republican of Iowa, asked the Financial Industry Regulatory Authority in a letter on April 26 to provide information on “potential scope of suspicious trading activity” at SAC.

For years, Mr. Cohen’s firm has been beset by persistent whispers of a cowboy culture that often walked up to the line, if not over it, while generating stupefying returns, minting scores of millionaire traders and making Mr. Cohen a billionaire many times over.

Earlier this year, those whispers became louder when one of the SAC portfolio managers, Noah Freeman, admitted trading on illegal tips about publicly traded companies while working for Mr. Cohen and agreed to cooperate with the government’s investigation, leading to questions about whether Mr. Cohen himself and the firm could become ensnared.

Donald LongueuilRick Maiman/Bloomberg News Donald Longueuil, a former portfolio manager at SAC Capital, who pleaded to insider trading charges.

The other SAC portfolio manager, Donald Longueuil, pleaded guilty last week.

“The striking thing about SAC has always been its extraordinary performance in the absence of any identifiable special sauce,” said Sebastian Mallaby, the author of “More Money Than God,” a book published last year on the history of hedge funds. “Charges like these cast doubt on the legitimacy of the fund’s investment process.”

Neither SAC nor Mr. Cohen has been accused of any criminal wrongdoing and the firm is cooperating with the government’s investigation. The government’s interest in Mr. Cohen’s trades was reported earlier by The Wall Street Journal.

Unlike many hedge funds that are controlled by one portfolio manager who makes all the investment decisions, SAC is decentralized; 142 small teams are each given control over hundred of millions of dollars to invest. Mr. Cohen attracts talented, ambitious traders because he offers to pay each team as if they run their own fund — without having to raise money and run a business.

“He’s giving them a lot of autonomy — that’s the pitch,” said a former employee who asked for anonymity because he did not want to harm his relationship with Mr. Cohen. “Do I think the fish stinks at the head of SAC? No. But does the business model make it challenging to keep bad people from doing bad things? Yes.”

The firm’s unusual balkanized structure could ultimately insulate Mr. Cohen from any insider trading allegations. Most of the firm’s traders invest on their own with little direct input from Mr. Cohen, who manages less than 10 percent of the fund’s capital. The two SAC portfolio managers who pleaded guilty to insider trading worked in two different satellite offices — Boston and Manhattan — and had little contact with Mr. Cohen in the two years they worked at the firm.

Mr. Cohen, 54, who grew up in Great Neck, N.Y., on Long Island, spends most of his day either at his desk in the middle of an expansive trading floor in what feels like a domed football stadium or in his corner office, where he has an array of therapeutic devices for his bad back, including a massage table. From his desk, filled with computer screens, he manages his own portfolio, focusing primarily on health care, energy and industrial stocks. (He rarely trades technology stocks, which are the center of the government’s vast investigation into insider trading at hedge funds.) He also monitors the firm’s trading and with the flick of a switch can be piped in by video to any trader’s desk to ask questions about a particular position.

Former SAC employees describe a firm that preaches ethics and integrity, but also is a sink-or-swim culture where traders can be summarily dismissed for poor performance. Mr. Cohen, who was once known to berate his employees in middle of the trading floor, imposes what he calls a “down and out” number for portfolio managers. That is, if the portfolio managers lose a certain amount of money, they risk being jettisoned from the firm.

Mr. Cohen will increase or decrease the money each team manages depending on their performance. If a trading team is generating strong returns, Mr. Cohen will often give them more money to manage. Groups that are floundering can see their allotment cut back.

SAC portfolio managers are known for relentlessly pressing sources for information about companies in the hopes of building what they call a “mosaic” to gain an investment edge. They have incentives to share their best ideas with Mr. Cohen, and if they want to do so, they must fill out an electronic form explaining the investment and the thesis behind it. Each Sunday afternoon, Mr. Cohen speaks to his senior staff to grill them about their investment plans, but the majority of the firm’s daily trades are made without consulting him.

Teams are paid a percentage of the profits that they generate for SAC, which, including its borrowings from banks, has a staggering $39 billion in total buying power. The more money a team manages, the greater that team’s potential compensation. Top traders can earn tens of millions of dollars annually.

“It’s a Darwinian and pressure-packed culture with ridiculous amounts of money at stake,” said another former employee, who asked for anonymity because he did not want to spoil relationships at the firm.

In a letter sent to his investors in February when the two former portfolio mangers were arrested, Mr. Cohen wrote, “If the government allegations are true, these former employees’ actions are egregious violations of our policies and ethical standards and inconsistent with our culture of compliance. Any wrongdoing that might have been committed by an individual or individuals is not reflective of our organization or the integrity of our more than 850 employees.”

In the last several years, SAC has put in place a compliance program to monitor the firm’s activities and has had lawyers including Harvey L. Pitt, the former chairman of the Securities and Exchange Commission , speak to the company’s employees.

“Listen, we’ve beefed up our compliance,” Mr. Cohen told Vanity Fair magazine last year. Still, he allowed, “This was a learning process.”

He explained that, back in the 1990s, “you have to remember, we were smaller. Things were different then.”

The firm has been under a cloud since a former employee, Richard Choo-Beng Lee, pleaded guilty in 2009 to insider trading and began helping the government in its investigation. The crimes he confessed to were committed after he left SAC, but he agreed to provide information about his five years at the firm, which ended in 2004.

The United States attorney in Manhattan has twice issued subpoenas to SAC requesting the firm’s trading records. And late last year, F.B.I. agents raided two large hedge funds owned by former top SAC traders.

Mr. Cohen has declined to comment about the insider trading investigation. There have also been at least two other instances of federal authorities citing illegal trading by traders with connections to SAC.

In 2009 federal prosecutors criminally charged an investment banker with providing illegal tips about merger and acquisition deals to an unnamed hedge fund analyst who traded on the information. The analyst, who generated $3.5 million in profits for his firm, was Jonathan Hollander, a former SAC employee, according to a person with direct knowledge of the case, who would not speak publicly about it.

Mr. Hollander’s lawyer, Aitan D. Goelman, declined to comment. The government dismissed the complaint against the investment banker and has not charged Mr. Hollander with any wrongdoing.

Earlier this year, the Securities and Exchange Commission filed civil insider trading charges against Robert Feinblatt, who started his own hedge fund after leaving SAC in 2002. Mr. Feinblatt did not return telephone calls seeking comment.

Amid the distractions, Mr. Cohen continues to counter the long-held stereotype that he is a cagey hedge fund manager who never leaves his trading lair. He and his wife have stepped up his philanthropy, recently donating $50 million to finance the Cohen Children’s Medical Center on Long Island. He frequently appears at art shows, where he looks to add to a world-class collection of paintings by artists including Pablo Picasso and Andy Warhol.

Before a packed banquet room at the Waldorf Astoria hotel, Mr. Cohen recently sat for an hourlong interview at an investment conference sponsored by a Wall Street research firm.

The interviewer was a fellow hedge fund titan, Paul Tudor Jones, who refrained from asking questions about the government’s insider trading charges.

Instead, he asked Mr. Cohen about his market outlook.

“Underneath stocks are exploding, and everything I’m seeing today looks bullish,” he said. “I’m not going to get negative just for the sake of being negative.”

Article source: http://dealbook.nytimes.com/2011/05/06/insider-trading-cases-stain-fund-managers-reputation/?partner=rss&emc=rss