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Highlights—October 11, 2008

  • BusinessWeek: High Rate of H-1B Visa Fraud. A study finds that 13% of the visa petitions for U.S. employers to bring in skilled foreign workers are fraudulent. By Moira Herbst. Excerpts: A report released Oct. 8 by the U.S. Citizenship & Immigration Services (USCIS) reveals that 13% of petitions filed for H-1B visas on behalf of employers are fraudulent. Another 8% contain some sort of technical violations. The study, released to members of the U.S. Senate Judiciary Committee, marks the first time the agency, part of the Homeland Security Dept., has documented systematic problems with the controversial program. Technology companies, in particular, have come to rely on the H-1B visa program to bring in skilled foreign workers to fill jobs that employers claim can't be filled with U.S. candidates. Tech companies like Oracle, Microsoft, and Google have pushed to get more visas, claiming that a shortage of skilled workers is hampering U.S. competitiveness. Microsoft Chairman and co-founder Bill Gates has twice testified in front of Congress on the issue.

    Critics say H-1Bs help U.S. companies replace American workers with less costly foreign workers. "The report makes it clear that the H-1B program is rife with abuse and misuse," says Ron Hira, assistant professor of public policy at the Rochester Institute of Technology. "It shows the desperate need for an auditing system." However, both Presidential candidates, Senator Barack Obama (D-Ill.) and Senator John McCain (R-Ariz.), have said they support expanding the program. ...

    The H-1B visa program has become increasingly controversial in recent years as groups such as the Programmers Guild and WashTech, which represent U.S. tech workers, allege it is being abused, resulting in mistreatment of foreign workers, wage depression, and the displacement of U.S. workers. The program was originally set up to allow companies in the U.S. to import the best and brightest in technology, engineering, and other fields when such workers are in short supply in America. But data released this year by the federal government show that offshore outsourcing firms, particularly from India, dominated the list of companies that were awarded H-1B visas to employ workers in the U.S. (BusinessWeek, 3/6/08) in 2007. Indian outsourcers such as Infosys), Wipro, and Tata accounted for nearly 80% of the visa petitions approved last year for the top 10 participants in the program.

    There is also evidence that workers on H-1B visas are being mistreated. In a pending case (BusinessWeek, 1/31/08), H-1B workers for State Farm Insurance allege they were underpaid. Critics say such instances of abuse represent the tip of an iceberg of deeper problems with the visa program. Academics and U.S. tech worker advocates point out the requirement that even employers who abide by the law—for example by paying the required "prevailing wage"—are able to underpay workers . "We shouldn't forget that the major problem with the H-1B program are caused by massive loopholes that allow firms to legally pay below-market wages and force US workers to train foreign replacements," says Hira. "Those wouldn't show up in this investigation because they are entirely legal." Hira says that a bill proposed by Grassley and Senator Dick Durbin's (D-Ill.) bill in 2007, S. 1035, would address both fraud and legal loopholes in the program.

  • New York Times: Accommodations for the Discreetly Superrich. By Alan Feuer. Excerpts: One of the quietest, most private rooms around is the discreetly deluxe Ty Warner Suite, which literally looks down on Manhattan from the 52nd story of the 52-story Four Seasons Hotel at 57 East 57th Street, between Park and Madison Avenues. With its travertine floors, grand piano, health spa and remote-controlled bidet, it is uncontested as the city’s most expensive temporary rental, clocking in at a Bolshevik Revolution-producing price of $30,000 a night. ...

    It would be natural, owing to such debilitating luxury, to assume that the bathroom — and the suite that surrounds it— would attract the spoiled celebrity type, but that, said Mr. Walz, is not the case at all. While he refused to reveal the names of those who stayed there, he did describe them by their jobs — as financiers, C.E.O.’s and international businessmen.

  • Employee Benefits News: Younger workers hurt when boomers can't afford to retire. By Jane White. Excerpts: The first wave of baby boomers is scheduled to retire in 2011 - the same year my daughter graduates from college. Will a big percentage of the 4 million college graduates wind up jobless because my generation's 3.4 million baby boomers can't afford to retire? Even if Barack Obama or John McCain convinces Congress to adopt my proposal of a mandatory 401(k) contribution at 9% of pay, it won't be enough for the baby boomers who are scheduled to head out the door. They will probably need to work for another 10 years to save enough for retirement.

    Employers may wish that they hadn't listened to the consultants who advised them to dump defined benefit pension plans for 401(k) plans, because now they are stuck with a costly workforce that can't afford to retire at age 65.

    I don't care what the judges say, age discrimination exists because of economics, not bias. We geezers are expensive. We demand higher wages because we've got years of experience. We run up big medical bills and need pensions that last us a lifetime. ...

    To put it another way, employers that decided to save on pensions by switching to 401(k) plans will now foot the bill for well-compensated, medically expensive baby boomers, rather than their lower-paid, medically cheaper kids. It seems like a penny-wise and pound-foolish strategy to me.

  • New York Times: A Fool’s Paradise. By Bob Herbert. Excerpts: With less than a month left until Election Day, there is still time for the presidential candidates to focus with great intensity on what should be the most important issue of this campaign. It’s not just the economy, stupid — it’s jobs. ...

    With reality now caving in on us — banks and brokerage houses falling like tenpins, a trillion dollars or so in bailout money being added to the nation’s debt burden, families by the hundreds of thousands being driven from their homes by foreclosures — it might make sense to get back to basics. And in the United States, the basic economic component of a sustainable family life is a good job.

    What we haven’t paid close enough attention to for many years (a period in which we’ve been oddly obsessed with the financial lives of the rich and famous) is the fact that there haven’t been enough good paying jobs to sustain what most working Americans view as an adequate standard of living. This is a fundamental flaw in the U.S. economic system.

    With the latest financial meltdown, there has been widespread outrage over the excessive compensation of top corporate executives. Where has everybody been? The rich have been running the table for the better part of the past 30 or 40 years.

    Example: The after-tax income of the top 1 percent of Americans rose 228 percent from the late 1970s through 2005. The story for working families over that same stretch was one of constant struggle to just stay even. As the Pew Charitable Trusts reported last year: “The earnings of men in their 30s have remained surprisingly flat over the past four decades.”

    Disaster was held at bay by the entrance of wives and mothers into the workplace, and by the embrace of colossal amounts of debt for everything from home mortgages, cars, clothing and vacations to food, college tuition and medical expenses. ...

    The economy won’t be saved by bailing out Wall Street and waiting for that day that never comes when the benefits trickle down to ordinary Americans. It won’t be saved until we get serious about putting vast numbers of Americans back to work in jobs that are reasonably secure and pay a sustaining wage.

    And that won’t begin to happen until we roll up our sleeves and begin the immensely hard and expensive work of rebuilding a nation that unconscionably was allowed to slip into a precipitous state of decline. We’ll end up spending trillions for the wars in Iraq and Afghanistan and another trillion, at least, to clean up after the madmen on Wall Street.

News and Opinion Concerning Health Savings Accounts, Medical Costs and Health Care Reform
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  • Wall Street Journal: This Open-Enrollment Season, Beware of Out-of-Pocket Costs. Excerpts: Next year, you'll likely pay more for your workplace health benefits, but you may have to read the fine print to figure out where the bite will come. As companies head into open-enrollment season, when they let employees pick their plans for next year, many firms say they are reluctant to boost health-care premiums too sharply at a time when wages are stagnant. Instead, workers can expect to pay significantly more for such out-of-pocket items as deductibles, co-payments and other fees.

    Employees' charges next year are expected to jump 10.1% from 2008, to an average of $1,880, according to a recent projection by Hewitt Associates, a benefits consulting firm. By contrast, health-care premiums are expected to rise 7.8%, after posting double-digit percentage gains in four of the last five years. In 2008, out-of-pocket costs also increased 10.1%.

  • Henry J. Kaiser Family Foundation: Kaiser Daily Health Policy Report. Lewin Group Analysis Predicts How McCain, Obama Health Care Proposals Would Affect Uninsured U.S. Residents. Excerpt: he health care proposal announced by Republican presidential nominee Sen. John McCain (Ariz.) would reduce the number of uninsured U.S. residents by about 21.1 million by 2010, and the plan announced by Democratic presidential nominee Sen. Barack Obama (Ill.) would reduce the number by about 26.6 million, according to an analysis released on Wednesday by the Lewin Group, the AP/Houston Chronicle reports.
  • New York Times: Top Psychiatrist Didn’t Report Drug Makers’ Pay. By Gardiner Harris. Excerpts: One of the nation’s most influential psychiatrists earned more than $2.8 million in consulting arrangements with drug makers from 2000 to 2007, failed to report at least $1.2 million of that income to his university and violated federal research rules, according to documents provided to Congressional investigators. ...

    The findings suggest that universities are all but incapable of policing their faculty’s conflicts of interest. Almost every major medical school and medical society is now reassessing its relationships with drug and device makers.

  • Newsweek, courtesy of Physicians for a National Health Program: Vetting McCain's Health Plan. Tax credits would move people out of group plans and into individual policies where the benefits aren’t as good. By Jane Bryant Quinn. Excerpts: If you think that “The Market” — whatever market — always works for the best, you’ll love John McCain’s version of health insurance reform. It uses the tax code to shove you toward individual policies (more “choice!”) and away from comprehensive, employer supported plans. The nonpartisan Tax Policy Center puts the cost of his proposed subsidies at $1.3 trillion over 10 years.

    But a funny thing happens on the way to spending that much money. Almost all of the subsidy goes to people who have health insurance already, says Sherry Glied, a professor of health policy at Columbia University. The Tax Policy Center figures that, after 10 years, the plan cuts the number of uninsured by only 1 million, out of 45.7 million now. Barack Obama’s $1.6 trillion plan would take 34 million off the rolls of the uninsured.

  • New York Times: Health Care Destruction. By Paul Krugman. Excerpts: Most Americans under 65 currently get health insurance through their employers. That’s largely because the tax code favors such insurance: your employer’s contribution to insurance premiums isn’t considered taxable income, as long as the employer’s health plan follows certain rules. In particular, the same plan has to be available to all employees, regardless of the size of their paycheck or the state of their health.

    This system does a fairly effective job of protecting those it reaches, but it leaves many Americans out in the cold. Workers whose employers don’t offer coverage are forced to seek individual health insurance, often in vain. For one thing, insurance companies offering “nongroup” coverage generally refuse to cover anyone with a pre-existing medical condition. And individual insurance is very expensive, because insurers spend large sums weeding out “high-risk” applicants — that is, anyone who seems likely to actually need the insurance. ...

    So what should be done? Barack Obama offers incremental reform: regulation of insurers to prevent discrimination against the less healthy, subsidies to help lower-income families buy insurance, and public insurance plans that compete with the private sector. His plan falls short of universal coverage, but it would sharply reduce the number of uninsured.

    Mr. McCain, on the other hand, wants to blow up the current system, by eliminating the tax break for employer-provided insurance. And he doesn’t offer a workable alternative. Without the tax break, many employers would drop their current health plans. Several recent nonpartisan studies estimate that under the McCain plan around 20 million Americans currently covered by their employers would lose their health insurance. ...

    And in the process of comforting the comfortable while afflicting the afflicted, the McCain plan would also lead to a huge, expensive increase in bureaucracy: insurers selling individual health plans spend 29 percent of the premiums they receive on administration, largely because they employ so many people to screen applicants. This compares with costs of 12 percent for group plans and just 3 percent for Medicare.

    In short, the McCain plan makes no sense at all, unless you have faith that the magic of the marketplace can solve all problems. And Mr. McCain does: a much-quoted article published under his name declares that “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

    I agree: the McCain plan would do for health care what deregulation has done for banking. And I’m terrified.

  • Urban Institute: Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform? By John Holahan and Linda J. Blumberg. Abstract: Senator Barack Obama, along with others, has proposed developing a public plan that would compete with private insurers within an organized health insurance marketplace. The argument is that a public plan would have lower administrative costs and more ability to control provider payment rates. This paper assesses these arguments concluding that there would be administrative cost savings and lower provider payment rates but not as much as is often asserted. Strong private insurers that offer good value for premiums charged would survive. But most important, the amount of real competition in both insurance and hospital markets would be enhanced.
  • New York Times: Business Cool Toward McCain’s Health Coverage Plan. By Kevin Sack. Excerpts: American business, typically a reliable Republican cheerleader, is decidedly lukewarm about Senator John McCain’s proposal to overhaul the health care system by revamping the tax treatment of health benefits, officials with leading trade groups say. The officials, with organizations like the U.S. Chamber of Commerce, the Business Roundtable and the National Federation of Independent Business, predicted in recent interviews that the McCain plan, which eliminates the exclusion of health benefits from income taxes, would accelerate the erosion of employer-sponsored health insurance and do little to reduce the number of uninsured from 45 million. ...

    Over the weekend, Mr. Obama more accurately characterized the McCain plan as a swap but one that would work to the detriment of millions. Middle-class families, he said, would “watch the system they rely on begin to unravel before their eyes.” The business leaders said that was also their fear. Despite steady declines this decade, employers still provide coverage to 62 percent of Americans younger than 65. Surveys show that they want to continue doing so to attract and maintain a productive workforce.

  • Wall Street Journal: McCain Plans Federal Health Cuts. Medicare, Medicaid Spending Would Be Reduced to Offset Proposed Tax Credit. By Laura Meckler. Excerpts: John McCain would pay for his health plan with major reductions to Medicare and Medicaid, a top aide said, in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the government programs. The Republican presidential nominee has said little about the proposed cuts, but they are needed to keep his health-care plan "budget neutral," as he has promised. The McCain campaign hasn't given a specific figure for the cuts, but didn't dispute the analysts' estimate.
  • Washington Post: Health Insurance For All. How the GOP Can Frame the Issue. By Michael Gerson. Excerpts: It is a shame that a discussion of health-care policy has come near the end of the presidential campaign, when the level of discourse is at its lowest. In the midst of assailing John McCain's mental health -- he is diagnosed as both "erratic" and "out of touch" -- Barack Obama and Joe Biden have pressed an attack on McCain's health-care plan that is deceptive in almost every detail.

    McCain has proposed replacing the current government health-care subsidy for employers with a tax credit that would help all individuals and families purchase coverage. Biden terms this the "largest tax increase in the history of America for the middle class." He is off by -- well, by even more than the norm of Biden hyperbole. In fact, the McCain trade-off would result in a significant tax cut for nearly everyone (except those with the highest incomes).

  • Workforce Management: The Problem With Limited Medical Plans. Commentary: Some companies are scrapping their traditional plans altogether and replacing them with these limited offerings for full-time employees. That’s where I see a long-term problem. By Gene Leis. Excerpts: They’re growing. No longer the fringe temporary benefit coverage they once were, limited coverage medical plans have gained enough ground to become a proven tool in the HR arsenal to reduce medical costs. There are now some 30 carriers peddling these offerings, and big-name retailers and restaurants are buying. ...

    With employers spending on average $7,000 in health care costs per employee annually, the prospect of offering coverage for under $2,000 is something that has made limited medical plans a growth product for health insurance companies. As of two years ago, there were more than 1 million holders of these plans, and experts estimate the market to grow as much as 20 percent annually in coming years.

    There is a catch, though. These plans have total annual coverage limits as low as $1,000 but more typically in the $5,000 to $15,000 range. There’s a shell game in how plans define their maximums, but in general, an employee with a stomachache or a broken leg will probably be covered by these plans. If an employee has a heart attack or a bone marrow transplant, he will quickly hit the policy limits, and will owe doctors and hospitals one heck of a lot of money.

    As Phil Wheeler, president of the advocacy group Citizens for Economic Opportunity, told the Hartford Courant newspaper in 2006, "These plans are designed not to be there when you need them. It’s like having an empty fire extinguisher on the wall."

  • Workforce Management: Debit Cards Advance Cash for Health Bills. Financial investment firm Edward Jones helps employees pay unexpected medical bills by advancing cash interest-free from future paychecks. The plan helps calm employees’ fears of not being able to pay for high deductibles. Excerpts:Few employers have wanted to risk advancing interest-free money to help employees pay medical bills. Edward Jones, the St. Louis-based financial investment firm, is one exception. The company in 2006 devised a way to help employees pay unexpected medical bills by advancing cash interest-free from future paychecks. The money would otherwise have been deducted from their paychecks during the course of the year and deposited into individual health savings accounts. The service helped calm employees’ fears of not being able to pay for the high deductible, which is $2,500 for individuals and $5,000 for families in one of the plans the company offers. ...

    Not having enough cash to pay a medical bill has been an unpleasant reality faced by many employees on high-deductible health plans. Though banks have capitalized by offering credit, the prospect of adding to a person’s debt has troubled some employers.

News and Opinion Concerning the U.S. Financial Crisis
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"It is a restatement of laissez-faire-let things take their natural course without government interference. If people manage to become prosperous, good. If they starve, or have no place to live, or no money to pay medical bills, they have only themselves to blame; it is not the responsibility of society. We mustn't make people dependent on government- it is bad for them, the argument goes. Better hunger than dependency, better sickness than dependency."

"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich."

From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.

  • Associated Press, courtesy of the New York Times: Retirement Accounts Have Lost $2 Trillion...So Far. Excerpts: Americans' retirement plans have lost as much as $2 trillion in the past 15 months -- about 20 percent of their value -- Congress' top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers' nest eggs. ...

    ''Unlike Wall Street executives, America's families don't have a golden parachute to fall back on,'' said Rep. George Miller, D-Calif., the panel chairman. ''It's clear that their retirement security may be one of the greatest casualties of this financial crisis.'' ...

    A new AARP study found that because of the economic downturn, one in five workers 45 and older has stopped putting money into a 401(k), IRA or other retirement savings account during the past year, and nearly one in four has increased the number of hours he works. More than one-third of these workers have considered delaying retirement, according to the study, which also found that more than half now find it difficult to pay for basic items such as food, gas and medicine. ...

    On the heels of enacting a $700 billion market bailout, lawmakers are searching for ways to help workers who are feeling the ripple effects of the financial crisis. ''What should we be doing to try to find a way to salvage the retirement position of American workers?'' said Rep. Dennis Kucinich, D-Ohio, an opponent of the government rescue plan. Congress, he added, ''rushed to protect Wall Street in hopes that some benefits would trickle down to workers.'' ...

    Falling home values and now the decimation of much of their savings could plunge older Americans into period of austerity not seen in decades, Miller said: ''The fear factor is huge, and they don't see the availability of resources to them to get well.'' Orszag said the situation has little precedent in American history. ''The period that we're experiencing is arguably the greatest collapse in confidence that we've experienced since the Great Depression,'' he said.

  • New York Times: Swedish Spoken Here. By Thomas L. Friedman. Excerpts: Even though the dollar has strengthened a bit lately, we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis — and they are going to need us to be healthy as well. In the process, we are going to become even more intertwined and dependent on the rest of the world.

    Sarah Palin won’t have to worry that she doesn’t know what the Bush doctrine is. No one really knew what it meant. But it had something to do with the unilateral exercise of American power, and the next president’s ability to act unilaterally on anything other than vital national security issues is going to be reduced. As the old saying goes: He who has the gold makes the rules. Well, we no longer have as much gold, and until we get some, we will have to pay more heed to the rules of those who lend us theirs.

    At a time when the U.S. government gets half its borrowings from abroad, at a time when the U.S. household savings rate is hovering around zero and China alone is already holding around $1 trillion in U.S. Treasury notes and Fannie Mae and Freddie Mac bonds — yes, that’s how you got that cheap subprime mortgage — it can’t be any other way.

    Somebody better tell John McCain: We are all Swedes now. Forget about “Live Free or Die.” Until we get our financial act together, our motto is going to be: “Swedish spoken here — or Arabic or Chinese or German ...” ...

    “The next round of capital that comes in from abroad is going to be much more demanding and move into real assets,” argued Jeffrey Garten, professor of trade and finance at the Yale School of Management. “Being a bigger debtor nation means losing even more of our sovereignty. It means conducting our economic policies with an eye toward whether others approve. It means bearing the advice and criticism that we have dispensed ad nauseam to other countries for over half a century. It means far more intensive consultations with other capitals on our fiscal policies and our monetary policies.”

  • New York Times: Meanwhile, in the Economy. Excerpts: After the Senate approved the $700 billion bank bailout, the majority leader, Harry Reid, tried to persuade his colleagues to address another economic calamity before they left town for the long election recess. He urged them to extend unemployment benefits for 800,000 jobless Americans.

    In the face of Republican opposition, the measure failed. Benefits start expiring this week. So much for Main Street. ...

    The Labor Department reported on Friday that 159,000 jobs were lost in September. That is the biggest monthly drop in five years and the ninth straight month of job contraction. It brings total job losses for this year to 760,000. Of the 9.5 million Americans now out of work, two million have been jobless for more than six months. Nearly 6.1 million people are working part time because they cannot find full-time work or because slack business conditions have led to fewer hours — and less pay.

  • The New Yorker: The Choice. Excerpt: Even before taking into account whatever fantastically expensive plan eventually emerges to help rescue the financial system from Wall Street’s long-running pyramid schemes, the economic and fiscal picture is bleak. During the Bush Administration, the national debt, now approaching ten trillion dollars, has nearly doubled. Next year’s federal budget is projected to run a half-trillion-dollar deficit, a precipitous fall from the seven-hundred-billion-dollar surplus that was projected when Bill Clinton left office. Private-sector job creation has been a sixth of what it was under President Clinton. Five million people have fallen into poverty. The number of Americans without health insurance has grown by seven million, while average premiums have nearly doubled. Meanwhile, the principal domestic achievement of the Bush Administration has been to shift the relative burden of taxation from the rich to the rest. For the top one per cent of us, the Bush tax cuts are worth, on average, about a thousand dollars a week; for the bottom fifth, about a dollar and a half. The unfairness will only increase if the painful, yet necessary, effort to rescue the credit markets ends up preventing the rescue of our health-care system, our environment, and our physical, educational, and industrial infrastructure.
  • Christian Science Monitor: Financial crisis: the latest blow to free-market 'dogma. ' Economic woes give plenty of ammunition to economists and lawmakers calling for new regulations and taxes. By David R. Francis. Excerpts: The financial crisis and the trembling United States economy have dealt a hard blow to conservative economic ideology. It's "quite devastating to the conservative idea that the best policy towards markets is to leave them alone and let them self-correct," says Bernard Wasow, a senior fellow at the Century Foundation, a liberal think tank. This is not to say every regulation is right, he adds. There is a middle ground in this area. But when government stays out of the financial markets too much, deregulated financial markets can "go over the cliff and take a good deal of the rest of the economy with them," he says.

    It's "almost impossible now" for conservatives to mouth some of their "dogma," says Paul Waldman, a senior fellow at Media Matters for America, a nonprofit advocacy group set up four years ago to guard against what left-of-center analysts regard as conservative (alias Republican) mythology.

    For instance, there's the thesis that tax cuts heavily targeted at the rich, such as those passed in the first term of President George W. Bush, will trickle down economic benefits to the middle class and poor. Rather, the rich have been getting richer and little extra income has flowed to those under the top 5 percent. ...

    Last month, the Economic Policy Institute, a liberal think tank in Washington, published "Tax-Cut Snake Oil," a 21-page paper by Harvard University's Jeffrey Frankel, who considers himself a "middle-of-the-road" economist. In it, Professor Frankel takes shots at the Laffer Hypothesis, which holds that cutting taxes actually increases tax revenues and creates a surplus by accelerating economic growth.

    This view, notes Frankel, has been discredited by most professional economists. But it has been endorsed by Sen. John McCain, even though disavowed by his policy director, economist Douglas Holtz-Eakin. Frankel details how the major tax cuts of President Ronald Reagan in 1981-83 and the Bush tax cuts both contributed to record federal budget deficits. He offers quotes indicating that both Reagan and Senator McCain endorsed the Laffer theory at some point in time.

  • New York Times: The Reckoning. Taking Hard New Look at a Greenspan Legacy. “Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

    George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

    And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

    One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

  • Jim Hightower: Wall Street's Bank Robbers. Excerpts: Willie Sutton, who said he robbed banks because "That's where the money is," had nothing on Richard Fuld. He's the Wall Street whiz who headed Lehman Brothers and moved the company heavily into gimmicky investment schemes based on risky subprime mortgages. When those home loans began going bad, so did Lehman Brothers – so bad that it collapsed into bankruptcy on September 15.

    That was, of course, disastrous for Lehman's employees and for its shareholders. On paper, Fuld also lost money, for his stock options were vaporized in the crash caused by his own reckless policies. Unlike regular folks, however, the CEO had long enjoyed a fat salary, banking nearly half-a-billion bucks in compensation in the years prior to Lehman's demise. Indeed, last year alone, while his company was teetering, Fuld raked in about $45 million in personal pay. That's more than $20,000 an hour. For failure!

    But what about all those other Wall Street greedheads we're now being forced to bail out? No problem, say the White House and Congress, for our bailout bill contains a populist provision to limit the pay of CEOs who get taxpayer funds. Good idea! But the actual language of the bill has a couple of supersized loopholes punched in the executive pay provision. First, the limit applies only to a few banks that the government will actually take over, not those it simply bails out. Worse, the CEO pay restriction doesn't affect existing pay arrangements. So top honchos who have been wallowing in obscenely-high pay packages, complete with golden parachutes, can continue getting those riches, even as they draw bailout money from you and me.

  • Huffington Post: Turning Disaster Into Opportunity. By Gary Hart. Excerpts: An argument can be made that the current financial disaster offers a future president, Obama in this case, the chance to transform the U.S. economy. A weakened Wall Street and a chastened conservative community are not now in a position to resist thoughtful and sober re-regulation of markets. The Reagan era (actually Nixon-Reagan-Bush) is over and with it the arrogance that laissez faire always presumes.

    But recreation of another Rooseveltian period of 1932 to 1940, with a new set of rules for intricate financial institutions, is not enough. We must transform our economy from one of consumption to one of production, invest much more heavily in new technologies, research, and invention, and start the process of creating a post-carbon economy. The current wreckage must not simply be put back together to recreate the old economy. It must be pushed out of the way to make space for a new, 21st century economy.

New on the Alliance@IBM Site
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  • Job Cuts Status & Comments page
    • Comment 10/03/08: Lots of full time regs in manufacturing in Rochester being asked about going part time. Rumors of layoffs and/or forced to a part time/non-standard work schedule. Time will tell. -homerJ-
    • Comment 10/05/08: Just heard from a friend in SWG that a bunch of 1st line managers were told to find new jobs within 30 days or take the severance package. They have until October 31st. -miss understanding-
    • Comment 10/06/08: With the current economic climate, I do not see how IBM will be able to meet Wall St's earning expectations in the 4th quarter. Financial institutions are hard-hit, and they are major customers of IBM's hardware and software. So, watch out for more job cuts, as our greedy executives will do whatever they can to dress up the numbers. IBM will cut its way to profits. -Anonymous-
    • Comment 10/07/08: To use nautical jargon; when seeing a storm of the magnitude we're seeing now, the old IBM would batten down the hatches and try to get through intact. The goal would be to come out of the downturn positioned to grow quickly and strongly when things turned upward. The new IBM will probably just start throwing things overboard, anything and everything that's not nailed down (by the way, panic is not a strategy). The sad part is that it probably won't make any difference. IBM's stock will rise and fall mostly due to the larger economic conditions and what investors guess the impact will be on IBM. Anything (or anyone) we jettison now is wasted, because it won't make the stock go up, it'll just make us weaker and less well positioned when the economy turns upward. IBM will lay off thousands and it won't make any difference, except to the people who get tossed out the door into a crumbling economy. By the way, one of my long time questions is just how many people total has IBM laid off since 1993? Have we churned the entire US workforce yet (i.e. laid off as many people as we have working now)? -BTV'er-
    • Comment 10/07/08: Employees really disheartened at BTV. 700 employees to be layed off in November is what I've heard. No one is working. Everyone is waiting to be tapped. What a crap company IBM has become. We should have had a Union years ago to protect our jobs. :-( -I.C. Butts-
    • Comment 10/09/08: IBM will continue to make their numbers because of the huge stock buy-backs, acquisitions, and favorable currency exchange rates converting back to dollars. The stock buy-backs artificially bring up Earnings per Share and the Acquisitions artificially bring up revenues. Remember recently IBM earmarked 15 billion dollars twice in a 10 month period to allow a total of 30 billion in stock buy backs. Unfortunately there is not a measurement such as Same Store Sales as in retail to see what IBM's real year to year performance is without the spin. In the past IBM showed gains from funds held within employee retirement programs as part of their operating profit. Will they be showing the losses if these holdings lost money? Finally the currency exchange is not as favorable as it was. It was recently 1.60 Euros to a dollar. Now it is about 1.36 Euros to the dollar.

      IBM executives know they did not really make their objectives despite the spin provided to the public so they will cut costs through layoffs. The problem with massive layoffs to meet the next quarter earning objectives is the jobs do not go away, just the experienced IBM employees. These talented IBM employees that are let go do not come back. There experience and skills leave with them. New hires take many months to get up to speed and when they do, there are more layoffs and the cycle starts again. This lowers IBM employee moral and real productivity with a significant portion of new hires going through massive learning curves. IBM customers do not want to pay high rates to provide IBM employees on-the-job training. -Anonymous-

  • General Visitor's Comment page
  • Pension Comments page
  • Raise and Salary Comments
    • Comment 10/08/08: Salary = $122,000; Band Level = 7 Hours/Week = 40 to 80 (rare) Div Name = 05 Message = In the overall scheme of things I was the outlier at $110,000 for B7 in previous comments. I have since received an "adjustment" up $12,000. I know my coworkers are making the same as all B7's in my practice received this. I personally know a B7 making close to $130k with 2 years of experience. The self reported numbers on this site seem to trend lower than actual averages. -Anon-

      Alliance Reply: If you interpret the information you read in this comment section as trending 'lower', then you must believe that people are lying about how much they make or, you are semi-isolated by your level of salary. Either way, it's possible that you are out of touch with those working in the "trenches".

    • Comment 10/09/08: Salary = 58K after pay remix; Band Level = 7; Job Title = 24A; Years Service = 25; Hours/Week = 45 max according to CLAIM; Div Name = IGS; Location = Boulder; Message = to Alliance reply to -Anon-: I'll say that guy's not in the trenches with the rest of us!!! I'm a B7 and I make less than HALF of what that joker makes. I'm now the only US resource left on my team (Global Services) and I'm just waiting for the phone call from my manager saying I'm the next victim. I just celebrated my 25th anniversary and apparently my age is affecting my memory because I can't remember my last raise (just the cuts due to the pay remix in Feb.) All that stock I've been buying all these years has lost over 20% of its value in the past couple of weeks...... -trench rat-
  • PBC Comments
    • Comment 10/04/08: Doesn't matter what your PBC rating is this year. If IBM wants you out they will throw you out in the trash. Don't be surprised if they suspend the GDP payout for this year. They break every promise implied or not. After all you all let them get away with the paltry, meager salary plan this year that netted most folks a 0% raise.. Why not get a real appraisal in writing supported by a union contract? -anonymous-
    • Comment 10/07/08: Prior Yr PBC = 2; This Yr PBC = 3; This Yr Bonus = 0; Prior Yr Bonus = 1000; Message = You know what? IBM is full of talented people. Other corporations doing similar things know this to be true and would love to have Ex-IBMers on their payrolls. In some cases, they would love to be in your shoes. A "3" does not measure how GOOD you really are. It measures your PASSION for what you’re doing and where you're doing it. I once got a 3... took it as confirmation that I was not happy with IBM's work environment... left IBM... got a 40 percent raise... pushing me past six figures.... doing pretty much similar work in a much happier (...and interestingly enough, smarter more efficient) setting... for much more money. A 3 is a very funny thing.... taken the wrong way, it can destroy your confidence in yourself and lead you down a very bad path to the end of your career as you know it. Taken the right way… it will set you free! Take it the right way, follow your passion, and be happy. You'll be glad you did! I certainly am... ;) -anonymous-
  • International Comments
Vault Message Board Posts
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Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. Some sample posts follow:

  • "Did IBM mis-calculate on Overtime pay?" by "civilliberty". Full excerpt: I have heard from multiple 2nd line managers that I still communicate with that the debanding of the SA's has totally backfired! Upper management, in the ivory towers, had ZERO clue to the actual amount of hours that folks were putting in. There is now case after case after case where SA's are making more on OT than their regular checks! I am hearing grumblings from more than one manager who wants to go back to being a tech, because the pay difference is HUGE! Save those dollars while you can.

    IBM assumed this would be a pay decrease. They are now ramping plans to get more folks into the regions centers (Fishkill - Boulder) and off shore ASAP.. The money wont last, but please stick them for what ever you can get! Pay down your debts so when you do get axed, which you will, your in better shape that you are today.

    Much more grumbling on the PM's I have posted that they would be screwed more than a year ago. This has come to fruition. All 300 of the contractors were axed. They are using freshers from India to do the PM work. These guys are PMI - PMP, but most lack common IT experience (Picture the paper MCSE - Same thing).

    IBM is pushing to the same model as TCS (TaTa) where they will have a skeleton staff on US soil with the core team in low cost GR's.. sad but true. TCS is eating ibm's lunch.. they cannot compete cost wise and customers don't care anymore.. if they can save 50% by going offshore.. they will.

    The good news is some companies are actually insisting on US based jobs.. lets hope that more and more boards become patriotic and realize that they are on screwing the US by offshoring all of their work. Killing off the middle class of America, thru offshoring, will have a negative effect.. lets hope the boards of these companies realize that.

    Good luck to all.. especially the 08A family.. your targeted and forced attrition / corporate snipers have you in their sites. SDM's are being target in the near future as well. Cringley's 350,000 job loss was accurate!... ibm has been back peddling and redoing the plan because of all of the attention. as long as you realize ibm is no longer a career, but a sweatshop to gain experience, your fine. Don't bleed blue... unless you can get a union contract in place. -ExIBM'er-

  • "Just interesting, or telling?" by "Blue_Bystander". Full excerpt: Given the recent bailout of AIG (today WSJ reported it might even increase to $123B) does it strike anyone as interesting that the head of GBS is on the board there? Didn't she win "Consultant of the Year" in some magazine over the past few years? How could this happen?
If you hire good people and treat them well, they will try to do a good job. They will stimulate one another by their vigor and example. They will set a fast pace for themselves. Then if they are well led and occasionally inspired, if they understand what the company is trying to do and know they will share in its sucess, they will contribute in a major way. The customer will get the superior service he is looking for. The result is profit to customers, employees, and to stcckholders. —Thomas J. Watson, Jr., from A Business and Its Beliefs: The Ideas That Helped Build IBM.

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