Richest 2 Percent Own Half the Wealth

The Housing Crash Recession of 2007
The Housing Crash Recession of 2007
By Dean Baker
t r u t h o u t | Columnist
Tuesday 05 December 2006

As we approach the end of 2006, the economy's prospects for next year appear more gloomy with each new piece of economic data. And, just like President Bush in his assessment of the situation in Iraq, the economic forecasters are gradually revising their forecasts downward, as it no longer appears credible to present the rosy pictures that they had been trying to sell.

The trouble began early in the year, when the housing boom that was supposed to continue forever turned into a housing bust. The rate of house price appreciation didn't just slow, as most economists predicted, nor did prices simply flatten in accordance with their revised predictions. House prices began to fall. Nationwide, house prices are now down between 1 percent and 2 percent from their levels at the same point in 2005. (The decline is between 4 percent and 5 percent, if we adjust for inflation.) The price declines in some of the most over-valued areas, like Washington, DC, and parts of Florida and California, have been considerably sharper.

In fact, the price declines are even larger than is shown in the data, because sellers now routinely make payments that are not captured in the contracted price, such as picking up some of the buyer's closing costs or making repairs to the house before the sale. Such practices were unheard of a year ago.

When the downturn in the housing market could no longer be denied, the economic forecasters assured us that the rest of the economy would remain strong. They noted the strength in non-residential construction, strong investment in equipment and software, and of course the resilience of consumers.

This picture is not panning out well either. The non-residential sector experienced a short boom earlier in the year. This should not have been a surprise. The housing boom pulled resources (workers and construction materials) away from the non-residential sector. In some of the areas with the most over-heated housing markets, it wasn't possible to get the workers needed to build stores, offices or other non-residential structures. This meant that when demand in the residential sector eased, resources could switch to meet the pent-up demand in the non-residential sector.

But, it was predictable that this boom would be short-lived. The residential sector is twice as large as the non-residential sector. And there just is not that much pent-up demand. There was serious overbuilding in the office and retail sectors in the late-90s boom, and the continued decline in manufacturing means demand for factory construction is limited. According to the most recent data, construction in the non-residential sector was already falling off by the end of the third quarter.

The boom in equipment and software investment also seems to have disappeared. The latest numbers in this sector have been negative also, suggesting that investment will be at best a very small positive in the economy in the next year.

This leaves us with our resilient consumer. The economic forecasters assure us that strong job growth, coupled with healthy wage growth and falling gas prices, will give consumers the money they need to keep spending.

Well this story does not look very good either. Job growth has actually been slowing over the course of the year, with the private sector adding less than 100,000 jobs on average for the last two months. Falling gas prices are a positive, but since no one had expected gas prices to soar to $3 a gallon, the fact that prices have fallen back to last year's levels does not give consumers that much of a boost. Finally, we are looking at modest real wage growth (at 1 percent annually), but this is not extraordinary and not enough to provide a very large boost to demand.

The more important part of the story for consumers is that they are losing the ability to borrow against their homes. Last year, consumers pulled more than $800 billion in equity out of their homes. Many people bought their homes with little or no money down, and then borrowed against their equity as quickly as their house price rose. Now that house prices have turned down, they have no further equity against which to borrow. This means that these consumers have no choice but to curtail their consumption.

The evidence for this falloff is spreading by the day. Projections of weak holiday sales and slumping car sales top the list. Throw in the reports of rapidly rising rates of mortgage delinquencies and defaults and you get a clear picture of rapidly growing distress.

Of course, with all sources of demand showing weakness, job growth will slump further, and we'll get our classic downward spiral: declining employment, falling income, falling consumption, and then further job loss. The story is not pretty, but unfortunately there is no way to prevent it. This downturn will be especially painful because it is associated with a crash of the housing bubble. This means both that many people will lose their life's savings and also that the recession is likely to be longer lasting than most.

The picture would not have been so dire if economists had been better able to do their job. Unfortunately, economic forecasters seem more interested in happy talk than economic analysis. Not one of the "Blue-Chip 50" forecasters saw the 2001 recession coming. The record seems no better this time around.

Unfortunately, no one ever holds the forecasters accountable. Even though they all missed the last recession, and just about all of them will have missed this recession, the same group will probably still be around to miss the next recession. Some workers, like dishwashers and custodians, teachers and truck drivers, have to meet performance standards. Economic forecasters apparently just have to show up to collect their paychecks.
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Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.

12 Million Suburbanites Live in Poverty
12 Million Suburbanites Live in Poverty
By Stephen Ohlemachera
The Associated Press
Thursday 07 December 2006

Washington - As Americans flee the cities for the suburbs, many are failing to leave poverty behind.

The suburban poor outnumbered their inner-city counterparts for the first time last year, with more than 12 million suburban residents living in poverty, according to a study of the nation's 100 largest metropolitan areas released Thursday.

"Economies are regional now," said Alan Berube, who co-wrote the report for the Brookings Institution, a Washington think tank. "Where you see increases in city poverty, in almost every metropolitan area, you also see increases in suburban poverty."

Nationally, the poverty rate leveled off last year at 12.6 percent after increasing every year since the decade began. It was a period when the country went through a recession and an uneven recovery that is still sputtering in parts of the Northeast and Midwest.

"Looking back at the 1970s, you would have seen cities suffering and suburbs staying the same," said Berube, research director at the Brookings Institution's Metropolitan Policy Program. "But the story is different today."

Berube said several factors are contributing to an increase in suburban poverty:

Suburbs are adding people much faster than cities, making it inevitable that the number of poor people living in suburbs would eventually surpass those living in cities.

The poverty rate in large cities (18.8 percent) is still higher than it is in the suburbs (9.4 percent). But the overall number of people living in poverty is higher in the suburbs in part because of population growth.

America's suburbs are becoming more diverse, racially and economically. "There's poverty really everywhere in metropolitan areas because there are low-wage jobs everywhere," Berube said.

Recent immigrants are increasingly bypassing cities and moving directly to suburbs, especially in the South and West. Those immigrants, on average, have lower incomes than people born in the United States.
Berube and research analyst Elizabeth Kneebone studied poverty figures for the 100 largest metropolitan areas, measuring changes from 1999 to 2005, the most recent data available. In 1999, the number of poor people living in cities and suburbs was roughly even, at about 10.3 million apiece, according to the report.

Last year, the suburban poor outnumbered their urban counterparts by about 1.2 million.

The federal government defined the poverty level as $15,577 for a family of three in 2005.

"Traditionally, cities have been viewed as home to poor populations, surrounded by middle- and upper-income suburbs," the report said. "This 'tipping' of poor populations to the suburbs represents a signal development that upends historical notions about who lives in cities and suburbs."

Marc H. Morial, president and CEO of the National Urban League, said many of the same social and economic problems that have plagued cities for years are now affecting suburbs: struggling schools, rising crime and low-paying jobs.

"I call it the urbanization of the suburbs," Morial said.

"I hope this says to people that the way to confront poverty is not to wall it off and concentrate it," Morial said. "You really need policies to eliminate it."

Cleveland was the city with the highest poverty rate last year, at 32.4 percent, while San Jose had the lowest, at 9.7 percent.

Suburban McAllen, Texas, at the southern tip of the state, was the suburb with the highest poverty rate last year, at 43.9 percent, while suburban Des Moines, Iowa, had the lowest, at 3.7 percent.

On the Net

The report, including data for the 100 largest metro areas: http://www.brookings.edu/metro/pubs/20061130_suburbanpoverty.pdf.

Thanks for posting these stories, BBB. I just wanted to let you know that I read them and you are not posting in vain.

Gus
Thanks, Gus. Good to know at least one curious person reads my stuff.

BBB

two

Joe


My cup runneth over.

BBB

Pfizer's McKinnell to get $180M package
Well, isn't he precious while millions of people can't afford their drugs to get them well. ---BBB

Pfizer's McKinnell to get $180M package
By ELLEN SIMON, AP Business Writer
Thu Dec 21, 2006

Pfizer Inc.'s former chief executive, Henry A. McKinnell, who was forced into an early retirement in part because of investor anger about his rich retirement benefits, will get every penny of it and more, a new regulatory filing shows.

McKinnell's package, which the company disclosed in a filing with the Securities and Exchange Commission Thursday, totals more than $180 million. It includes an estimated $82.3 million in pension benefits, $77.9 million in deferred compensation, and cash and stock totaling more than $20.7 million.

The total value could grow to almost $200 million if McKinnell gets a $18.3 million stock award, but that is contingent on the future performance of the stock of the world's largest drugmaker.

The company said McKinnell's departure "contractually obligated" it under his employment agreement to provide McKinnell with certain severance payments and benefits.

The deferred pension sum includes $67 million of his own money from prior compensation he chose to set aside, the company said in the filing.

Beyond that, Pfizer will pay a lump sum severance of $11.9 million and will fully vest stock grants worth $5.8 million, according to the filing. He also will receive $2.2 million for 2005 bonus payments, $305,644 for unused vacation time and $576,573 for benefits he would have received had he stayed at the drugmaker.

The package also provides him with an annual pension of $6.6 million until he dies. Pfizer estimated the pension's lump-sum value to be $82.3 million.

McKinnell vacated the CEO spot in July, 19 months before he was scheduled to step down, under pressure from investors angered about his retirement package and a drop of as much as 40 percent in the company's stock price during his five years in charge.

For some investors, already angry over the stock's slide, McKinnell's retirement package was a flash point. At Pfizer's April annual meeting in Lincoln, Neb., a plane flew overhead trailing a banner that said, "Give it back, Hank!" Two proxy advisory companies had called for removal of board members and the AFL-CIO led a protest against the retirement package. The board members were re-elected, however.

McKinnell earned $5.97 million in salary and bonus in 2005. When the company's proxy was filed with the Securities and Exchange Commission in March, his total compensation for the year was valued at $15.88 million, including salary, bonus, stock options, stock grants and benefits. The value of options and stock varies with the share price.

McKinnell's perquisites in 2005 included $8,500 in financial counseling, $65,120 for use of a car and driver and $43,855 for personal use of company aircraft, according to the proxy.

New Chief Executive Jeffrey B. Kindler also became chairman Tuesday, replacing McKinnell, who was not slated to leave until February.

Pfizer declined to make McKinnell available Thursday, and a spokesman emphasized the differences between McKinnell's pay package and Kindler's.

Kindler has no contract, has a much lower annual salary than McKinnell and has more pay tied to the stock's performance, according to spokesman Paul Fitzhenry.

Those differences may not be enough to quench shareholder's anger.

"It's a very big package and I'm sure it's going to raise investor concerns, however, it's contractual," said Charles Elson, chair of the Weinberg Center for Corporate Governance at the University of Delaware. "The question is not that they've paid it, but why, initially, such a contract was entered into."

The company, which has pledged to cut $4 billion in costs by 2008, is expected to undergo a radical shake up. Pfizer said in late November that it would look for even deeper cuts. Then it suddenly halted development of cholesterol drug torcetrapib because of safety concerns. The company had spent $800 million developing torcetrapib and hoped it would be a blockbuster.

Pfizer shares fell 14 cents to $26.07 Thursday on the New York Stock Exchange.