All Blog Posts from Econwatch

In response to last year's financial crisis, federal regulators offered the nation's banks billions of dollars, arguing they were "too big to fail." Yet that idea is a more serious threat to the nation's economic growth than many realize, Alan Greenspan, former Chairman of the Federal Reserve, said Friday.

"'Too big to fail' is a major problem," Greenspan said at The First Draft of History, a conference in Washington, D.C. "It has a major impact in the way investments are made."

There needs to be a fee or an additional tax, Greenspan said, or some way "to make no institutions too big to fail." Politically, however, he acknowledged that this was very unlikely to happen.

"The problem is when you have institutions too big to fail, it is essentially saying they... cannot compete in the marketplace," he said. "Those institutions' capital... are being financed by national savings. To this extent, it is they and not the more cutting edge technologies getting the capital."

This goes against the very purpose of the financial system, Greenspan said, which is to "direct (the nation's savings) to those physical investments with the greatest promise."

Read full post…

Nearly half of the states in the nation are missing out on more than $3.1 billion in stimulus funds available to assist the unemployed because they have not met the requirements necessary to qualify for the federal aid, USA Today reports.

Labor Department records indicate that 23 states have failed to meet federal requirements for the extra money, the newspaper reports. The National Employment Law Project (NELP) estimates nearly 350,000 unemployed Americans could be benefiting from that money.

The Obama administration has dictated, USA Today reports, that states may receive a third of the unemployment funds they are eligible for after relaxing rules that say for how long a person must be unemployed in order to get benefits. The rest of the money becomes available after a state provides extra money for workers' dependents, part-time workers, people in training programs and for those who quit their jobs because of "compelling family circumstances."

Unemployment claims fell nationwide last week, providing evidence that fewer jobs are being slashed from the economy. In July, the unemployment rate dipped to 9.4 percent, its first decline in 15 months. Still, some economists predict unemployment may not return to healthy levels until 2013.

Read full post…

As folks in Washington and the rest of the country grumble about the depressed job market and underwhelming consumer spending reports, the calls for a second stimulus continue.

"I think that a second one may well be called for," Warren Buffett , the widely respected investor, said Thursday morning on ABC's "Good Morning America."

"Our first stimulus bill... was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in," he said, "as if everybody was putting in enough for their own constituents."

Indeed, new reports show the money from President Obama's $787 billion economic stimulus package is potentially being doled out unevenly. An analysis from the New York Times shows rural areas are receiving a disproportionate amount of funds for transportation projects.

Read full post…

President Obama announced today that his Auto Task Force helped General Motors produce a plan for the company to "move toward profitability" and "start building a larger share of its cars here at home, including fuel-efficient cars."

To many observing the government's control over the auto maker, however, those goals do not necessarily align.

"GM wants to make money, but making green vehicles is a totally different object," said Dan Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute, a free market think tank. "The government has to decide -- do we want it to be a profit maximizing business, or a tool of policy?"

President Obama has made the promotion of a "green" economy one of his top policy priorities, and Congress is facilitating his agenda with a plan to put a price on carbon. The government’s majority share in GM presents an opportunity, some say, for the administration to help an ailing industry while pushing green initiatives. For others, however, the government's obligation to see major car manufacturers through this economic storm means taking a more measured approach to "greening" the auto industry.

"There's two elements to rescuing the American auto industry," said Daniel J. Weiss, director of climate strategy at the liberal Center for American Progress. "There's the short term effort to keep them from drowning, then there's the long term effort of building a boat to get them to where they want to go."

Read full post…

As Democrats and Republicans stand increasingly at odds over measures to help improve the economy, one bill under consideration highlights how critical party loyalty could be in determining policy measures.

Mitt Romney, a likely contender for the 2012 Republican presidential nomination, joined a forum of business advocates in Northern Virginia on Thursday to denounce a union-backed bill, the Employee Free Choice Act, as little more than political payback from Democrats that would worsen the nation's economic footing.

The bill would be "catastrophic for the economy," Romney said. "The impact long term is people start less businesses here. It's not great for the people who start businesses today, but it's even worse for the employees of tomorrow."

The act would make it easier for workers to form a union. Most notably, it would allow workers to automatically form a union if more than a half of them sign a card indicating they want to join one. This method is currently an option for employees so long as their employers approve it; otherwise, workers can form a union through a secret ballot and election process.

Romney on Thursday echoed one of the main complaints of the business community, which has said the increased costs of unionization would drive businesses out of the United States and potentially cripple those left here.

"If you want to start a high tech business, there's no requirement you have to start it in America," Romney said. "That's the risk here."

Read full post…

The Obama administration proudly announced on Monday that the health care industry has made a significant step toward contributing to health care reform by offering to reduce the growth rate of health care costs over 10 years by 1.5 percent a year, or by a total of $2 trillion.

CBSNews.com's Hotsheet asked the administration how curbing the growth of costs--not stopping it--contributes to actual reform. The administration replied that cutting costs is a goal in and of itself. Two trillion dollars is nothing to scoff at, but it helps to keep things in perspective.

Given the rate at which health care costs have skyrocketed for Americans over the past decade, these savings could be a first step toward expanding coverage, some health care advocates say.

Read full post…

The Federal Reserve on Thursday revealed the results of its bank "stress tests," showing that 10 of the nation's 19 largest banks would need more capital to withstand losses and meet the credit needs of their customers in the event of a more severe recession.

Officially know as the Supervisory Capital Assessment Program (SCAP), the stress tests involved a comprehensive assessment by the Federal Reserve and other bank supervisors of the capital held by the 19 largest U.S. bank holding companies. The Fed decided to make the results of the stress test public to restore confidence in these financial institutions.

The following chart shows the additional capital buffer the Fed suggests each bank needs. The 10 banks in need of additional capital have until June 8 to come up with a detailed plan for putting that capital buffer in place, and they must implement the plan by early November.

Read full post…

The top subprime lenders largely blamed for triggering the economic meltdown were owned or financed by the banks now collecting billions in government bailout money, a report released Wednesday shows.

Coming on the same day the Democrat-controlled Senate shot down a bill that would have helped hundreds of thousands of homeowners escape foreclosure through bankruptcy, the report from the Center for Public Integrity also highlights the dramatic increase in political contributions from the financial services sector over the last three presidential cycles.

Read full post…

Taxpayers may never get back billions of dollars lent to Chrysler, according to various reports.

Testifying in bankruptcy court on Monday, one of the top financial advisers overseeing Chrysler's restructuring said the U.S. government may never get back its loans to the company.

Read full post…

Vice President Joe Biden told viewers of NBC's "The Today Show" this morning that, due to the spread of the H1N1 virus, people should avoid unnecessary air travel and that sick travelers should avoid confined spaces like airplanes all together. It may be sound advice for travelers, but the vice president's words could hurt an already-ailing industry.

The World Health Organization raised the level of influenza pandemic alert from phase 4 to phase 5 on Wednesday, yet the organization is not advising any restriction of regular travel or closure of borders. Even so, the airline industry says passenger concerns over the flu could take its toll on business.

James May, president and CEO of the Air Transport Association, sent Mr. Bident a letter today expressing "extreme disappointment" with his comments.

"No responsible officials or healthcare professionals have suggested that people avoid air travel," the letter said. "We need to deal responsibly with the flu threat but, at the same time, while following professional healthcare advice, keep our economy moving forward."

Read full post…