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Highlights—March 22, 2008

• Trading Markets: Bank files 11 billion yen suit against IBM Japan. Excerpt: Suruga Bank on Thursday filed a lawsuit against IBM Japan Ltd. demanding 11.1 billion yen in compensation for IBM's alleged failure to fulfill a contract to develop the bank's central computer system. According to the suit, filed with the Tokyo District Court on Thursday, Suruga Bank contracted IBM Japan to develop a new central computer system in September 2004.
• Pensions & Investments: IBM raises the bar with new 401(k) plan. By Mark Bruno. Excerpts: Like scores of other big corporations saddled with unpredictable defined benefit pension burdens, IBM Corp., Armonk, N.Y., elected a few years ago to freeze its traditional pension plans to get more control over its retirement expenses. Like other companies moving away from defined benefit pensions, it elected to make improvements to its 401(k) plan. But that's where the similarities end between IBM and almost every other company that has recently embraced the 401(k) as its primary retirement offering. ...

  “The world of retirement has changed, and we live in a defined contribution world now,” said Karen Salinaro, IBM's vice president of benefits and compensation and one of the architects of what the company calls its “401(k) Plus” plan. “Since our 401(k) was going to be our only retirement plan going forward, we felt we needed to do anything and everything to make it as attractive as possible to our working population.” ...

  While IBM's contributions are hefty, the company expects to realize big long-term savings compared with the cost of maintaining its traditional pension plans. IBM estimates all the changes to its various plans will allow it to reduce worldwide retirement expenses by a total of $2.5 billion to $3 billion by 2010 — substantial savings, even for a company that generated $10.4 billion in income last year off almost $100 billion in revenue. Not to mention the reduction in hassle: IBM's switch to a cash-balance pension plan in the late '90s led to a lawsuit alleging the plan discriminated against older workers, a charge that a federal appellate court rejected in 2006.

  Editor's note: IBM employees and retirees should feel proud that we're doing our part to save the corporation $2.5 to $3 billion in retirement expenses! Let's hope that Lou, Sam, and Randy can use the funds to buy one of these yachts! We wouldn't want "our boys" to have "smaller toys" than other barons of business!

• CNN/Money: IBM lobbied on data, patent issues. Excerpt: IBM Corp. spent $7.8 million in 2007 to lobby on numerous issues, including data privacy and security, identity theft and patent and immigration reforms. The Armonk, N.Y.-based company spent $3.9 million in the second half of 2007 to lobby the federal government, according to a disclosure form posted online Feb. 13 by the Senate's public records office. It also lobbied on electronic personal health records, international tax treaties, defense spending, math and science educational standards, energy issues and other matters.
• CCH® Internet Research Network™: Survey Finds That 55% Of Employers Believe That Employees Favor Higher Salary Over Good Retirement Plan. Excerpts: The vast majority of employers (97%) believe that their employees value health insurance as an important benefit, with 401(k) plans as the next most valued benefit by their employees (82%). Disability insurance, life insurance, and a company-funded defined benefit plan were next in order of employee importance, according to employers (79%, 77%, and 66%, respectively); with long term care coverage noted as the least likely to be perceived as important by employees (39% of employers). ...

  In 2007, more than half of the employers (55%) thought that potential employees would be interested in a higher-than-expected salary coupled with poor retirement benefits, as opposed to excellent retirement benefits coupled with only meeting the potential employee’s minimum salary requirements.

• Plan Sponsor: Pre-retirees Plan to Work Longer to Prepare for Retirement Costs. Excerpts: In a press release, MFS said pre-retirees and retirees alike view unexpected health care expenses (70% and 60%, respectively) and inflation (64% and 50%, respectively) in general as top concerns regarding retirement savings. In line with these concerns, according to the release, pre-retirees expect to work on average a full decade longer than those already in retirement, with nearly half expecting to work early in retirement and one in three working throughout retirement to bolster their savings.

  According to the survey, existing retirees retired at an average age of 58, with 40% relying on their pension as the primary source of income. Pre-retirees reported expecting to work on average a full ten years (age 68) later than current retirees, with roughly the same number relying on pensions (23%) as on workplace retirement plans (25%). While approximately one-quarter (24%) of today's retirees continue to work or worked early in retirement, nearly half (47%) of pre-retirees expect to continue to work in the early phase of retirement. Of those surveyed, 32% of pre-retirees plan to work throughout their entire retirement as well.

• ComputerWorld: Five reasons why the H-1B visa cap will increase. By Patrick Thibodeau. Excerpts: Two bills were introduced this week to raise the H-1B visa cap. They follow Microsoft Corp. Chairman Bill Gates' visit to Washington and his push for a H-1B cap increase. The opposition faces a daunting task in challenging the push to increase the H-1B visa.

  H-1B proponents in Congress acted quickly to take advantage of the attention Gates brought to the issue. U.S. Rep. Lamar Smith (R-Texas) introduced legislation Friday that would retroactively increase the 2008 visa cap to 195,000, as well as set that level for the fiscal year, 2009, that begins Oct. 1. Gabrielle Giffords (D-Arz.) introduced legislation the same week to increase the cap to 130,000 a year. The current cap is set at 65,000, with an additional 20,000 for holders of advance degrees.

  Here are five reason why opponents face a very difficult, if not impossible task, in stopping a visa cap hike:

• eWeek: User List Renews Calls for H-1B Reform. By Deb Perelman. Excerpts: The annual list of H-1B visas continues to be dominated not by large U.S. tech companies, but by Indian outsourcing firms and U.S.-headquartered service providers that do the majority of their work in India. These are the findings of new data released by U.S. Citizenship and Immigration Services on March 10. Six of the top 10 users of temporary work visas in 2007 were Indian firms, with Bangalore-headquartered Infosys Technologies and Wipro topping the list with 4,559 and 2,567 approved visa petitions, respectively. It's those companies' third year in a row in the two top spots.

  Two companies with U.S. headquarters but that mostly operate in India—Cognizant Technology Systems and UST Global—were also in the top 10.

  Microsoft, with 959 H-1B visa approvals, and Intel, with 369, were the only two widely known U.S. tech companies in the top 10. Though neither company made an appearance on the 2006 top 10 H-1B visa roster—when seven of the top 10 H-1B visa users were Indian service providers—Microsoft has a long history of high use of temporary worker visas. In 2000, Microsoft was the sixth highest user of H-1B visas. ...

  Sen. Chuck Grassley, R-Iowa, who has long been a critic of the temporary worker visa program, asked Homeland Security Secretary Michael Chertoff on March 9 what progress had been made in the reform of the H-1B program, pointing to the heavy use of H-1B visas by non-U.S. companies. "Despite continued fraud and abuse in the H-1B program, I have yet to see one thing from the administration to address the problem," said Grassley in a statement.

  "Everyday we're learning more and more, but it appears that most H-1B visas are going to foreign-based companies. U.S. businesses that need highly skilled workers are getting the short end of the stick." Grassley, along with Sen. Richard J. Durbin, D-Ill., has long been a critic of the H-1B visa program, demanding that federal agencies defend their high H-1B use and proposing a bill that would give U.S. workers first dibs on jobs slated for H-1B visa holders.

• Associated Press, courtesy of Washington Post: Delta to Offer Widespread Buyouts. Excerpts: Faced with a weak economy, dimmer hopes of a merger with Northwest Airlines and record fuel prices that are eating up profits, Delta Air Lines said Tuesday that it would offer voluntary severance payouts to roughly 30,000 employees -- more than half of its workforce -- and cut U.S. capacity by an extra 5 percent. ...

  One part of the program is for employees who are already eligible for retirement or for those whose ages and years of service add up to at least 60, with 10 or more years of service. The other part of the program is an offer for front-line employees -- such as flight attendants and gate and ticket agents -- with 10 or more years of service and for administrative and management employees with one or more years of service.

• New York Times editorial: Through Bush-Colored Glasses. Excerpts: President Bush admitted on Friday that times are tough. So much for the straight talk. Mr. Bush went on to paint a false picture of the economy. He dismissed virtually every proposal Congress is working on to alleviate the mortgage crisis, sticking to his administration’s inadequate ideas. And despite the rush of serious problems — frozen credit markets, millions of impending mortgage defaults, solvency issues at banks, a plunging dollar — he said that a major source of uncertainty today is whether his tax cuts, scheduled to expire in 2010, would be extended. ...

  Mr. Bush boasted about 52 consecutive months of job growth during his presidency. What matters is the magnitude of growth, not ticks on a calendar. The economic expansion under Mr. Bush — which it is safe to assume is now over — produced job growth of 4.2 percent. That is the worst performance over a business cycle since the government started keeping track in 1945. ...

  Finally, Mr. Bush’s focus on the size of the federal budget deficit ignores that annual government borrowing comes on top of existing debt. Publicly held federal debt will be up by a stunning 76 percent by the end of his presidency. Paying back the money means less to spend on everything else for a very long time.

• New York Times: The B Word. By Paul Krugman. Excerpts: Last week, Robert Rubin, the former Treasury secretary, and John Lipsky, a top official at the International Monetary Fund, both suggested that public funds might be needed to rescue the U.S. financial system. Mr. Lipsky insisted that he wasn’t talking about a bailout. But he was. ...

  So here’s the question we really should be asking: When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess? ...

  As Bear goes, so will go the rest of the financial system. And if history is any guide, the coming taxpayer-financed bailout will end up costing a lot of money.

  The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States. If these numbers shock you, they should. But the big bailout is coming. The only question is how well it will be managed.

• Wall Street Journal: The Buck Stops Where? Excerpt: The Fed's main achievement so far has been to stir a global lack of confidence in the greenback. By every available indicator, investors are fleeing the dollar for other currencies and such traditional safe havens as gold and commodities. Oil has surged to $110 a barrel, up from under $70 as recently as September. Gold is above $1,000 an ounce, up from $700 in September, and food prices are soaring across the board. The euro has hit record heights against the buck, and for the first time the dollar has fallen below the level of the Swiss franc.
• New York Times: Bush Backs Fed’s Actions, but Critics Quickly Find Fault. By Steven Lee Myers. Excerpts: President Bush on Monday welcomed the Federal Reserve’s sweeping intervention in the nation’s financial markets as his administration faced accusations that it had supported the bailout of a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes. ...

  Mr. Bush’s handling of the economy has vaulted to the top of the political agenda, where the White House would clearly it rather not be. He stood accused on one hand of violating his own ideological opposition to government intervention and on the other of not doing enough to protect the nation’s economy from the disarray in the markets.

  “Now that the president has shown his willingness to bail out Wall Street at taxpayer expense, I hope he will drop his opposition to proposals designed to help ordinary homeowners,” Senator Harry Reid, Democrat of Nevada and the majority leader, said in a statement.

• Washington Post: The Street on Welfare. By E.J. Dionne Jr.. Excerpts: Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.

  The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. They have lost "confidence" in each other, you see, because none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another's portfolios.

  So they have stopped investing. The biggest, most respected investment firms threaten to come crashing down. You can't have that. It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are "too big to fail," because they could bring us all down with them.

  Enter the federal government, the institution to which the wealthy are not supposed to pay capital gains or inheritance taxes. Good God, you don't expect these people to trade in their BMWs for Saturns, do you? ...

  We had already learned the hard way -- in the crash of 1929 and the Depression that followed -- that capitalism is quite capable of running off the rails. Franklin Roosevelt's New Deal was a response to the failure of the geniuses of finance (and their defenders in the economics profession) to realize what was happening or to fix it in time. As the economist John Kenneth Galbraith noted of the era leading up to the Depression, "The threat to men of great dignity, privilege and pretense is not from the radicals they revile; it is from accepting their own myth. Exposure to reality remains the nemesis of the great -- a little understood thing." ...

  In 1996, back when he was a Republican senator from Maine, William Cohen told me: "We have been saying for so long that government is the enemy. Government is the enemy until you need a friend." So now the bailouts begin, and Wall Street usefully might feel a bit of gratitude, perhaps by being willing to have the wealthy foot some of the bill or to acknowledge that while its denizens were getting rich, a lot of Americans were losing jobs and health insurance. I'm waiting.

• New York Times: Socialized Compensation. Excerpts: How can one feel sorry for James Cayne? The potential losses of the chairman and former chief executive of Bear Stearns must rank up there with the biggest in modern history. The value of his stake in Bear Stearns collapsed from about $1 billion a year ago to as little as $14 million at the price JPMorgan Chase offered for the teetering bank on Sunday.

  Still, Mr. Cayne was paid some $40 million in cash between 2004 and 2006, the last year on record, as well as stocks and options. In the past few years, he has sold shares worth millions more. There should be financial accountability for the man who led Bear Stearns as it gorged on dubious subprime securities to boost its profits and share price, helping to set up one of the biggest financial collapses since the savings-and-loan crisis in the 1980s. Some might argue that he should have lost it all.

  But that’s not how it works. The ongoing bailout of the financial system by the Federal Reserve underscores the extent to which financial barons socialize the costs of private bets gone bad. Not a week goes by that the Fed doesn’t inaugurate a new way to provide liquidity — meaning money — to the financial system. Bear Stearns isn’t enormous. It doesn’t take deposits from the public. Yet the Fed believed that letting it implode could unleash a domino effect among other banks, and the Fed provided a $30 billion guarantee for JPMorgan to snap it up.

  Compared to the cold shoulder given to struggling homeowners, the cash and attention lavished by the government on the nation’s financial titans provides telling insight into the priorities of the Bush administration. It’s not simply a matter of fairness, though. The Fed is probably right to be doing all it can think of to avoid worse damage than the economy is already suffering. But if the objective is to encourage prudent banking and keep Wall Street’s wizards from periodically driving financial markets over the cliff, it is imperative to devise a remuneration system for bankers that puts more of their skin in the game. ...

  Bankers operate under a system that provides stellar rewards when the investment strategies do well yet puts a floor on their losses when they go bad. They might have to forgo a bonus if investments turn sour. They might even be fired. Their equity might become worthless — or not, if the Fed feels it must step in. But as a rule, they won’t have to return the money they made in the good days when they were making all the crazy bets that eventually took their banks down.

• Associated Press: Avoid Overcorrecting Economy, Bush Warns. By Terence Hunt. President Bush on Saturday said the government must guard against going too far in trying to fix the troubled economy, cautioning that "one of the worst things you can do is overcorrect." Democrats said Bush was relying on inaction to solve the problem. ...

  "The president continues to convince himself that inaction is the cure-all for the economic problems hurting hardworking Americans," Senate Majority Leader Harry Reid said in a written statement. "But Democrats know that wait-and-see is not a responsible strategy for an economy that is teetering on the brink of recession."

  "Wages and home values are down," Reid said, "but prices for everything from health care to tuition to energy are up. Just this week, oil and gas prices reached record highs while the value of the dollar reached historic lows. I hope the president, who has been slow to acknowledge this problem, joins us in recognizing how urgently we need a solution."

  Bush said he opposed several measures pending on Capitol Hill to deal with the housing crisis. They included proposals to allocate $400 billion to purchase foreclosed-upon and now-abandoned homes, to change the bankruptcy code to allow judges to adjust mortgage rates and to artificially prop up home prices.

• New York Times: Partying Like It’s 1929. By Paul Krugman. Excerpts: If Ben Bernanke manages to save the financial system from collapse, he will — rightly — be praised for his heroic efforts. But what we should be asking is: How did we get here? Why does the financial system need salvation? Why do mild-mannered economists have to become superheroes?

  The answer, at a fundamental level, is that we’re paying the price for willful amnesia. We chose to forget what happened in the 1930s — and having refused to learn from history, we’re repeating it.

• Senator Bernie Sanders: Scary Times. Excerpts: “In my state of Vermont and all over the country, people are nervous about the economy. You look at $4 plus for home heating oil, the high price of gasoline at the pump, the cost of health care soaring, more and more people losing their health insurance and now you’re seeing what some people suggest might be an international financial meltdown. These are scary times. What the people want is the government to respond to protect their jobs and to protect their standard of living,” Senator Bernie Sanders said on CNBC’s Kudlow & Company.

  Sanders also commented on the mixed message from the White House, where President Bush welcomed the Federal Reserve’s intervention in the nation’s financial markets but faced accusations that it is bailing out Wall Street while doing little to address the hardships of Americans facing foreclosures on their homes. “Mr. Bush is saying, no, we should not be involved in trying to salvage homes for working families. We can’t help them with lower interest rates. Oh yeah, but I guess it is okay, after telling us a few days ago that we should not overreact, it’s okay to put millions of dollars into bailing out large investment houses. There’s a bit of an inconsistency there that has people scratching their head,” Sanders said.

• The Huffington Post: An Empire of Debt -- Collapsing Under Its Own Weight. By Hale "Bonddad" Stewart. Excerpts: Over at the Washington Note, Steve Clemons linked to a 2003 article titled "The Debtors Empire." What I find incredible about this article written almost four and a half years ago is how prescient its observations are today.

  Isn't it just a little twisted that the United States, the world's richest country, is on track to borrow more than $500 billion from abroad this year? Isn't it even stranger that this borrowing includes sizable chunks from countries such as India and China, many of whose 2.3 billion people live on less than a dollar or two a day? ...

  But whatever the reasons, and they are admittedly complex, isn't it still a bit nutty that the world's richest country has become by far the world's biggest borrower, with a net debt to the rest of the world (assets minus liabilities) of more than $2 trillion? The Romans would be jealous: They went to a lot of trouble to extract taxes from their empire; the world just gives money to the United States.

• Jim Hightower: Grassroots Economic Policy. Excerpts: Economists have this to say to those of you who see your family’s economic fortunes on the decline: “Don’t be so glum, chum!” In a recent poll, only 19 percent of Americans said that our country is headed in the right direction, and a majority is pessimistic about the nation’s economy. This seems to baffle such high-powered thinkers as Alan Binder, a former member of the Federal Reserve board and consultant to some top Washington pols. Guru Binder has declared that “people are more sour about the economy than the data would seem to warrant.”

  Could someone buy this guy a clue? The problem with data, Mr. Binder, is that we can’t eat it, gas up our cars with it, or put it in the bank. Yes, the numbers might convince highly-paid eggheads like you that America has been booming. However, the incomes of the workaday majority of Americans have not even kept up with inflation. It’s not anxiety that’s fueling people’s glumness – it’s reality.

  Binder should chauffeur out to just about any working class neighborhood in America, where he’d get an earful of reality. For example, Shari Joos, a 45-year-old mother of four living in Southeast, Ohio, would love to give the economist some data.

  As she told the New York Times, she and her husband were pulling down $30,000 a year – until he got laid off from his factory job. Ms. Joos now works from 9:30 am to 1 pm at a school cafeteria, then drives to a Wal-Mart to put in a 2-10 pm shift at the deli counter. Her husband did find another job – driving a forklift for Wal-Mart. It pays less than he was making, plus it’s an hour’s drive from home, so the gas cost eats up his paycheck.