Friday, February 08, 2013 2:41:25 PM
Friends of Fraud
By PAUL KRUGMAN
Published: February 3, 2013
Like many advocates of financial reform, I was a bit disappointed in the bill that finally emerged. Dodd-Frank gave regulators the power to rein in many financial excesses; but it was and is less clear that future regulators will use that power. As history shows, the financial industry’s wealth and influence can all too easily turn those who are supposed to serve as watchdogs into lap dogs instead.
There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse. And sure enough, Senate Republicans are going all out in an attempt to kill that bureau.
Why is consumer financial protection necessary? Because fraud and abuse happen.
Don’t say that educated and informed consumers can take care of themselves. For one thing, not all consumers are educated and informed. Edward Gramlich, the Federal Reserve official who warned in vain about the dangers of subprime, famously asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on, “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”
And even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals — a fact of which shady operators are all too aware. To take an area in which the bureau has already done excellent work, how many of us know what’s actually in our credit-card contracts?
Now, you might be tempted to say that while we need protection against financial fraud, there’s no need to create another bureaucracy. Why not leave it up to the regulators we already have? The answer is that existing regulatory agencies are basically concerned with bolstering the banks; as a practical, cultural matter they will always put consumer protection on the back burner — just as they did when they ignored Mr. Gramlich’s warnings about subprime.
So the consumer protection bureau serves a vital function. But as I said, Senate Republicans are trying to kill it.
How can they do that, when the reform is already law and Democrats hold a Senate majority? Here as elsewhere, they’re turning to extortion — threatening to filibuster the appointment of Richard Cordray [ http://www.huffingtonpost.com/2013/02/01/richard-cordray-cfpb_n_2599838.html ], the bureau’s acting head, and thereby leave the bureau unable to function. Mr. Cordray, whose work has drawn praise even from the bankers, is clearly not the issue. Instead, it’s an open attempt to use raw obstructionism to overturn the law.
What Republicans are demanding [ http://www.motherjones.com/mojo/2013/02/gop-filibuster-obamas-consumer-watchdog-pick ], basically, is that the protection bureau lose its independence. They want its actions subjected to a veto by other, bank-centered financial regulators, ensuring that consumers will once again be neglected, and they also want to take away its guaranteed funding, opening it to interest-group pressure. These changes would make the agency more or less worthless — but that, of course, is the point.
How can the G.O.P. be so determined to make America safe for financial fraud, with the 2008 crisis still so fresh in our memory? In part it’s because Republicans are deep in denial about what actually happened to our financial system and economy. On the right, it’s now complete orthodoxy that do-gooder liberals, especially former Representative Barney Frank, somehow caused the financial disaster by forcing helpless bankers to lend to Those People.
In reality, this is a nonsense story that has been extensively refuted [ http://www.ritholtz.com/blog/2011/11/hey-bloomberg-the-data-shows-gses-did-not-cause-financial-meltdown/ ]; I’ve always been struck in particular by the notion that a Congressional Democrat, holding office at a time when Republicans ruled the House with an iron fist, somehow had the mystical power to distort our whole banking system. But it’s a story conservatives much prefer to the awkward reality that their faith in the perfection of free markets was proved false.
And as always, you should follow the money. Historically, the financial sector has given a lot of money [ http://www.opensecrets.org/industries/indus.php?Ind=F ] to both parties, with only a modest Republican lean. In the last election, however, it went all in for Republicans, giving them more than twice as much as it gave to Democrats (and favoring Mitt Romney over the president almost three to one). All this money wasn’t enough to buy an election — but it was, arguably, enough to buy a major political party.
Right now, all the media focus is on the obvious hot issues — immigration, guns, the sequester, and so on. But let’s try not to let this one fall through the cracks: just four years after runaway bankers brought the world economy to its knees, Senate Republicans are using every means at their disposal, violating all the usual norms of politics in the process, in an attempt to give the bankers a chance to do it all over again.
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Related
Bucking Senate, Obama Appoints Consumer Chief (January 5, 2012)
http://www.nytimes.com/2012/01/05/us/politics/richard-cordray-named-consumer-chief-in-recess-appointment.html
Fed Shrugged as Subprime Crisis Spread (December 18, 2007)
http://www.nytimes.com/2007/12/18/business/18subprime.html
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© 2013 The New York Times Company
http://www.nytimes.com/2013/02/04/opinion/krugman-friends-of-fraud.html [with comments]
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In Hard Economy for All Ages, Older Isn’t Better ... It’s Brutal
Susan Zimmerman, 62, has three part-time jobs.
David Maxwell for The New York Times
Arynita Armstrong, 60, at her home in Willis, Tex. She last worked five years ago. "When you're older, they just see gray hair and they write you off," she says.
Michael Stravato for The New York Times
John Agati, 56, lost his job in 2009, and has had part-time jobs.
Chester Higgins Jr./The New York Times
By CATHERINE RAMPELL
Published: February 2, 2013
Young graduates are in debt, out of work and on their parents’ couches [ http://www.nytimes.com/2011/11/17/business/economy/as-graduates-move-back-home-economy-feels-the-pain.html ]. People in their 30s and 40s can’t afford to buy homes or have children. Retirees are earning near-zero interest on their savings [ http://www.nytimes.com/2012/09/11/business/as-low-rates-depress-savers-governments-reap-the-benefits.html?pagewanted=all ].
In the current listless economy, every generation has a claim to having been most injured. But the Labor Department’s latest jobs snapshot and other recent data reports present a strong case for crowning baby boomers as the greatest victims of the recession and its grim aftermath.
These Americans in their 50s and early 60s — those near retirement [ http://topics.nytimes.com/your-money/retirement/index.html ] age who do not yet have access to Medicare [ http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/medicare/index.html ] and Social Security [ http://topics.nytimes.com/top/reference/timestopics/subjects/s/social_security_us/index.html ] — have lost the most earnings power of any age group, with their household incomes 10 percent below what they made when the recovery began three years ago, according to Sentier Research, a data analysis company.
Their retirement savings and home values fell sharply at the worst possible time: just before they needed to cash out. They are supporting both aged parents and unemployed young-adult children, earning them the inauspicious nickname “Generation Squeeze.”
New research suggests that they may die sooner, because their health, income security and mental well-being were battered by recession at a crucial time in their lives. A recent study [ http://www.nber.org/papers/w18361 ] by economists at Wellesley College found that people who lost their jobs in the few years before becoming eligible for Social Security lost up to three years from their life expectancy, largely because they no longer had access to affordable health care.
“If I break my wrist, I lose my house,” said Susan Zimmerman, 62, a freelance writer in Cleveland, of the distress that a medical emergency would wreak upon her finances and her quality of life. None of the three part-time jobs she has cobbled together pay benefits, and she says she is counting the days until she becomes eligible for Medicare.
In the meantime, Ms. Zimmerman has fashioned her own regimen of home remedies — including eating blue cheese instead of taking penicillin and consuming plenty of orange juice, red wine, coffee and whatever else the latest longevity studies recommend — to maintain her health, which she must do if she wants to continue paying the bills.
“I will probably be working until I’m 100,” she said.
As common as that sentiment is, the job market has been especially unkind to older workers.
Unemployment rates for Americans nearing retirement are far lower than those for young people, who are recently out of school, with fewer skills and a shorter work history. But once out of a job, older workers have a much harder time finding another one. Over the last year, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers, according to the Labor Department’s jobs report released on Friday.
The lengthy process is partly because older workers are more likely to have been laid off from industries that are downsizing, like manufacturing. Compared with the rest of the population, older people are also more likely to own their own homes and be less mobile than renters, who can move to new job markets.
Older workers are more likely to have a disability of some sort, perhaps limiting the range of jobs [ http://www.nytimes.com/2011/04/07/business/economy/07disabled.html ] that offer realistic choices. They may also be less inclined, at least initially, to take jobs that pay far less than their old positions.
Displaced boomers also believe they are victims of age discrimination, because employers can easily find a young, energetic worker who will accept lower pay and who can potentially stick around for decades rather than a few years.
“When you’re older, they just see gray hair and they write you off,” said Arynita Armstrong, 60, of Willis, Tex. She has been looking for work for five years since losing her job at a mortgage [ http://topics.nytimes.com/your-money/loans/mortgages/index.html ] company. “They’re afraid to hire you, because they think you’re a health risk. You know, you might make their premiums go up. They think it’ll cost more money to invest in training you than it’s worth it because you might retire in five years.
“Not that they say any of this to your face,” she added.
When older workers do find re-employment, the compensation is usually not up to the level of their previous jobs, according to data from the Heldrich Center for Workforce Development at Rutgers University.
In a survey by the center of older workers who were laid off during the recession, just one in six had found another job, and half of that group had accepted pay cuts. Fourteen percent of the re-employed said the pay in their new job was less than half what they earned in their previous job.
“I just say to myself: ‘Why me? What have I done to deserve this?’ ” said John Agati, 56, of Norwalk, Conn., whose last full-time job, as a merchandise buyer and product developer, ended four years ago when his employer went out of business.
That position paid $90,000, and his résumé lists stints at companies like American Express, Disney and USA Networks. Since being laid off, though, he has worked a series of part-time, low-wage, temporary positions, including selling shoes at Lord & Taylor and making sales calls for a limo company.
The last few years have taken a toll not only on his family’s finances, but also on his feelings of self-worth.
“You just get sad,” Mr. Agati said. “I see people getting up in the morning, going out to their careers and going home. I just wish I was doing that. Some people don’t like their jobs, or they have problems with their jobs, but at least they’re working. I just wish I was in their shoes.”
He said he cannot afford to go back to school, as many younger people without jobs have done. Even if he could afford it, economists say it is unclear whether older workers like him benefit much from more education.
“It just doesn’t make sense to offer retraining for people 55 and older,” said Daniel Hamermesh, an economics professor at the University of Texas in Austin. “Discrimination by age, long-term unemployment, the fact that they’re now at the end of the hiring queue, the lack of time horizon just does not make it sensible to invest in them.”
Many displaced older workers are taking this message to heart and leaving the labor force entirely.
The share of older people applying for Social Security early spiked during the recession as people sought whatever income they could find. The penalty they will pay is permanent, as retirees who take benefits at age 62 — as Ms. Zimmerman did, to help make her mortgage payments — will receive as much as 30 percent less [ http://www.socialsecurity.gov/retire2/retirechart.htm ] in each month’s check for the rest of their lives than they would if they had waited until full retirement age (66 for those born after 1942).
Those not yet eligible for Social Security are increasingly applying for another, comparable kind of income support that often goes to people who expect never to work again: disability benefits. More than one in eight people in their late 50s is now on some form of federal disability insurance [ http://topics.nytimes.com/your-money/insurance/life-and-disability-insurance/index.html ] program, according to Mark Duggan, chairman of the department of business economics and public policy at the University of Pennsylvania’s Wharton School.
The very oldest Americans, of course, were battered by some of the same ill winds that tormented those now nearing retirement, but at least the most senior were cushioned by a more readily available social safety net. More important, in a statistical twist, they may have actually benefited from the financial crisis in the most fundamental way: prolonged lives.
Death rates for people over 65 have historically fallen during recessions, according to a November 2011 study [ http://econ.msu.edu/seminars/docs/uerhealth_2011_dec_2_2011v2.pdf ] by economists at the University of California, Davis. Why? The researchers argue that weak job markets push more workers into accepting relatively undesirable work at nursing homes, leading to better care for residents.
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Related
Ask an Expert: How Does Job Loss Affect Life Expectancy? (February 2, 2013)
http://www.nytimes.com/2013/02/02/booming/how-does-job-loss-affect-life-expectancy.html
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© 2013 The New York Times Company
http://www.nytimes.com/2013/02/03/business/americans-closest-to-retirement-were-hardest-hit-by-recession.html [ http://www.nytimes.com/2013/02/03/business/americans-closest-to-retirement-were-hardest-hit-by-recession.html?pagewanted=all ]
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S&P Analyst Joked of Bringing Down the House Before Crash
The S&P headquarters in New York.
Scott Eells/Bloomberg
By David McLaughlin - Feb 5, 2013 11:01 PM CT
Standard & Poor’s employees sang and danced to a mock song inspired by “Burning Down the House” and joked about the company’s willingness to rate deals “structured by cows” before the 2008 global financial collapse, according to a U.S. government lawsuit.
Two S&P analysts in April 2007 discussed the company’s model for collateralized debt obligations, with one messaging that a deal was “ridiculous” and that S&P “should not be rating it,” according to the complaint filed Feb. 4 in federal court in Los Angeles.
“We rate every deal,” the other replied, prosecutors said. “It could be structured by cows and we would rate it.”
The analysts’ messages are among internal communications cited in the Justice Department’s complaint against S&P and its parent, New York-based McGraw-Hill Cos.
The U.S. claims S&P, driven by a desire to increase revenue and market share, defrauded investors as it issued ratings on mortgage products while ignoring market risks. It rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 to October 2007, the government said.
A 2008 investigation into credit rating companies by the U.S. Securities and Exchange Commission found that that the firms improperly managed conflicts and weighed the risk of losing market share based on their ratings.
Ratings Report
The report on Moody’s Investors Service, S&P and Fitch Ratings cited the discussion about the deal structured by “cows” and quoted an analyst who wrote in an e-mail: “Let’s hope we are all wealthy and retired by the time this house of cards falters.”
According to the U.S. lawsuit, S&P in 2004 was considering a process for changing its rating criteria and reached out to investors and issuers of mortgage securities for their feedback. One executive questioned this practice, saying, “[W]e NEVER poll them as to content or acceptability!”
Employees meanwhile were raising concerns about losing deals to competitors, according to the complaint. One analyst in May 2004 wrote that the company was losing a “huge” deal to a competitor because S&P was more conservative than others, the government said.
“This is so significant that it could have an impact on future deals,” the analyst wrote, according to the complaint. “There’s no way we can get back on this one, but we need to address this now in preparation for future deals.”
Volume, Standards
In 2007, one CDO analyst wrote to a former co-worker: “Does company care about deal volume or sound credit standards?”
E-mails and text messages can give prosecutors insight into the “unvarnished perspective” of company insiders and help them win trials because they’re easier for jurors to understand than more formal documents, said Robert Mintz, a partner at McCarter & English.
“They tend to give jurors a flavor for the general atmosphere inside a company, and that in connection with other documents can often be quite damning,” said Mintz, a former federal prosecutor in New Jersey.
S&P said in a statement that the government’s lawsuit is “meritless” and that at all times the company’s ratings “reflected our current best judgments” about mortgage securities and CDOs.
“Unfortunately, S&P, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected,” the company said.
‘Cherry-Picked’
The reference to a deal “structured by cows” had “nothing to do with RMBS or CDO ratings or any S&P model,” it said, contradicting the complaint. RMBS stands for residential mortgage-backed securities.
“The e-mail excerpts cherry-picked by DOJ have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business,” it said.
Ken Scott, a professor at Stanford Law School, said the government may have a hard time prevailing on its claim that S&P’s practice of making issuers pay for securities ratings contributed to a fraud.
“The allegation in the complaint that S&P concealed this conflict and therefore presumably buyers were unaware of it, that’s total nonsense,” Scott said.
‘Subterranean Influence’
The government will have to present proof not that the conflict of interest had “almost a subterranean influence but that there was actual intent to defraud,” Scott said. The burden of proof, while not as high as in a criminal case, is significant, Scott said, and “whether they can meet that or not will be what the trial is all about.”
Beginning in the fall of 2006 and continuing to about the spring of 2007, one S&P executive regularly expressed frustration to colleagues that she was prevented by other executives from downgrading ratings of subprime mortgage securities because of concern that the company’s business would be affected, the government said.
“This market is a wildly spinning top which is going to end badly,” said another executive in 2006, according to the complaint.
In March 2007, an analyst set wrote lyrics to the tune of “Burning Down the House” by the rock group Talking Heads.
According to the complaint, it began:
“Watch out / Housing market went softer / Cooling down / Strong market is now much weaker / Subprime is boi-ling o-ver / Bringing down the house.”
The government said the analyst later sent a video of himself singing and dancing the first verse “before an audience of laughing S&P co-workers.”
Catherine Mathis, an S&P spokeswoman, called the video “obviously in poor taste.”
“While it may reflect a terrible sense of humor, it in no way reflects the hard work and analysis by the analysts rating securities,” Mathis said yesterday in an interview.
The case is U.S. v. McGraw-Hill, 13-00779, U.S. District Court, Central District of California (Los Angeles).
To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net
©2013 BLOOMBERG L.P.
http://www.bloomberg.com/news/2013-02-05/s-p-analyst-joked-of-bringing-down-the-house-ahead-of-collapse.html [with embedded video reports, and comments]
By PAUL KRUGMAN
Published: February 3, 2013
Like many advocates of financial reform, I was a bit disappointed in the bill that finally emerged. Dodd-Frank gave regulators the power to rein in many financial excesses; but it was and is less clear that future regulators will use that power. As history shows, the financial industry’s wealth and influence can all too easily turn those who are supposed to serve as watchdogs into lap dogs instead.
There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse. And sure enough, Senate Republicans are going all out in an attempt to kill that bureau.
Why is consumer financial protection necessary? Because fraud and abuse happen.
Don’t say that educated and informed consumers can take care of themselves. For one thing, not all consumers are educated and informed. Edward Gramlich, the Federal Reserve official who warned in vain about the dangers of subprime, famously asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on, “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”
And even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals — a fact of which shady operators are all too aware. To take an area in which the bureau has already done excellent work, how many of us know what’s actually in our credit-card contracts?
Now, you might be tempted to say that while we need protection against financial fraud, there’s no need to create another bureaucracy. Why not leave it up to the regulators we already have? The answer is that existing regulatory agencies are basically concerned with bolstering the banks; as a practical, cultural matter they will always put consumer protection on the back burner — just as they did when they ignored Mr. Gramlich’s warnings about subprime.
So the consumer protection bureau serves a vital function. But as I said, Senate Republicans are trying to kill it.
How can they do that, when the reform is already law and Democrats hold a Senate majority? Here as elsewhere, they’re turning to extortion — threatening to filibuster the appointment of Richard Cordray [ http://www.huffingtonpost.com/2013/02/01/richard-cordray-cfpb_n_2599838.html ], the bureau’s acting head, and thereby leave the bureau unable to function. Mr. Cordray, whose work has drawn praise even from the bankers, is clearly not the issue. Instead, it’s an open attempt to use raw obstructionism to overturn the law.
What Republicans are demanding [ http://www.motherjones.com/mojo/2013/02/gop-filibuster-obamas-consumer-watchdog-pick ], basically, is that the protection bureau lose its independence. They want its actions subjected to a veto by other, bank-centered financial regulators, ensuring that consumers will once again be neglected, and they also want to take away its guaranteed funding, opening it to interest-group pressure. These changes would make the agency more or less worthless — but that, of course, is the point.
How can the G.O.P. be so determined to make America safe for financial fraud, with the 2008 crisis still so fresh in our memory? In part it’s because Republicans are deep in denial about what actually happened to our financial system and economy. On the right, it’s now complete orthodoxy that do-gooder liberals, especially former Representative Barney Frank, somehow caused the financial disaster by forcing helpless bankers to lend to Those People.
In reality, this is a nonsense story that has been extensively refuted [ http://www.ritholtz.com/blog/2011/11/hey-bloomberg-the-data-shows-gses-did-not-cause-financial-meltdown/ ]; I’ve always been struck in particular by the notion that a Congressional Democrat, holding office at a time when Republicans ruled the House with an iron fist, somehow had the mystical power to distort our whole banking system. But it’s a story conservatives much prefer to the awkward reality that their faith in the perfection of free markets was proved false.
And as always, you should follow the money. Historically, the financial sector has given a lot of money [ http://www.opensecrets.org/industries/indus.php?Ind=F ] to both parties, with only a modest Republican lean. In the last election, however, it went all in for Republicans, giving them more than twice as much as it gave to Democrats (and favoring Mitt Romney over the president almost three to one). All this money wasn’t enough to buy an election — but it was, arguably, enough to buy a major political party.
Right now, all the media focus is on the obvious hot issues — immigration, guns, the sequester, and so on. But let’s try not to let this one fall through the cracks: just four years after runaway bankers brought the world economy to its knees, Senate Republicans are using every means at their disposal, violating all the usual norms of politics in the process, in an attempt to give the bankers a chance to do it all over again.
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Related
Bucking Senate, Obama Appoints Consumer Chief (January 5, 2012)
http://www.nytimes.com/2012/01/05/us/politics/richard-cordray-named-consumer-chief-in-recess-appointment.html
Fed Shrugged as Subprime Crisis Spread (December 18, 2007)
http://www.nytimes.com/2007/12/18/business/18subprime.html
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© 2013 The New York Times Company
http://www.nytimes.com/2013/02/04/opinion/krugman-friends-of-fraud.html [with comments]
===
In Hard Economy for All Ages, Older Isn’t Better ... It’s Brutal
Susan Zimmerman, 62, has three part-time jobs.
David Maxwell for The New York Times
Arynita Armstrong, 60, at her home in Willis, Tex. She last worked five years ago. "When you're older, they just see gray hair and they write you off," she says.
Michael Stravato for The New York Times
John Agati, 56, lost his job in 2009, and has had part-time jobs.
Chester Higgins Jr./The New York Times
By CATHERINE RAMPELL
Published: February 2, 2013
Young graduates are in debt, out of work and on their parents’ couches [ http://www.nytimes.com/2011/11/17/business/economy/as-graduates-move-back-home-economy-feels-the-pain.html ]. People in their 30s and 40s can’t afford to buy homes or have children. Retirees are earning near-zero interest on their savings [ http://www.nytimes.com/2012/09/11/business/as-low-rates-depress-savers-governments-reap-the-benefits.html?pagewanted=all ].
In the current listless economy, every generation has a claim to having been most injured. But the Labor Department’s latest jobs snapshot and other recent data reports present a strong case for crowning baby boomers as the greatest victims of the recession and its grim aftermath.
These Americans in their 50s and early 60s — those near retirement [ http://topics.nytimes.com/your-money/retirement/index.html ] age who do not yet have access to Medicare [ http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/medicare/index.html ] and Social Security [ http://topics.nytimes.com/top/reference/timestopics/subjects/s/social_security_us/index.html ] — have lost the most earnings power of any age group, with their household incomes 10 percent below what they made when the recovery began three years ago, according to Sentier Research, a data analysis company.
Their retirement savings and home values fell sharply at the worst possible time: just before they needed to cash out. They are supporting both aged parents and unemployed young-adult children, earning them the inauspicious nickname “Generation Squeeze.”
New research suggests that they may die sooner, because their health, income security and mental well-being were battered by recession at a crucial time in their lives. A recent study [ http://www.nber.org/papers/w18361 ] by economists at Wellesley College found that people who lost their jobs in the few years before becoming eligible for Social Security lost up to three years from their life expectancy, largely because they no longer had access to affordable health care.
“If I break my wrist, I lose my house,” said Susan Zimmerman, 62, a freelance writer in Cleveland, of the distress that a medical emergency would wreak upon her finances and her quality of life. None of the three part-time jobs she has cobbled together pay benefits, and she says she is counting the days until she becomes eligible for Medicare.
In the meantime, Ms. Zimmerman has fashioned her own regimen of home remedies — including eating blue cheese instead of taking penicillin and consuming plenty of orange juice, red wine, coffee and whatever else the latest longevity studies recommend — to maintain her health, which she must do if she wants to continue paying the bills.
“I will probably be working until I’m 100,” she said.
As common as that sentiment is, the job market has been especially unkind to older workers.
Unemployment rates for Americans nearing retirement are far lower than those for young people, who are recently out of school, with fewer skills and a shorter work history. But once out of a job, older workers have a much harder time finding another one. Over the last year, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers, according to the Labor Department’s jobs report released on Friday.
The lengthy process is partly because older workers are more likely to have been laid off from industries that are downsizing, like manufacturing. Compared with the rest of the population, older people are also more likely to own their own homes and be less mobile than renters, who can move to new job markets.
Older workers are more likely to have a disability of some sort, perhaps limiting the range of jobs [ http://www.nytimes.com/2011/04/07/business/economy/07disabled.html ] that offer realistic choices. They may also be less inclined, at least initially, to take jobs that pay far less than their old positions.
Displaced boomers also believe they are victims of age discrimination, because employers can easily find a young, energetic worker who will accept lower pay and who can potentially stick around for decades rather than a few years.
“When you’re older, they just see gray hair and they write you off,” said Arynita Armstrong, 60, of Willis, Tex. She has been looking for work for five years since losing her job at a mortgage [ http://topics.nytimes.com/your-money/loans/mortgages/index.html ] company. “They’re afraid to hire you, because they think you’re a health risk. You know, you might make their premiums go up. They think it’ll cost more money to invest in training you than it’s worth it because you might retire in five years.
“Not that they say any of this to your face,” she added.
When older workers do find re-employment, the compensation is usually not up to the level of their previous jobs, according to data from the Heldrich Center for Workforce Development at Rutgers University.
In a survey by the center of older workers who were laid off during the recession, just one in six had found another job, and half of that group had accepted pay cuts. Fourteen percent of the re-employed said the pay in their new job was less than half what they earned in their previous job.
“I just say to myself: ‘Why me? What have I done to deserve this?’ ” said John Agati, 56, of Norwalk, Conn., whose last full-time job, as a merchandise buyer and product developer, ended four years ago when his employer went out of business.
That position paid $90,000, and his résumé lists stints at companies like American Express, Disney and USA Networks. Since being laid off, though, he has worked a series of part-time, low-wage, temporary positions, including selling shoes at Lord & Taylor and making sales calls for a limo company.
The last few years have taken a toll not only on his family’s finances, but also on his feelings of self-worth.
“You just get sad,” Mr. Agati said. “I see people getting up in the morning, going out to their careers and going home. I just wish I was doing that. Some people don’t like their jobs, or they have problems with their jobs, but at least they’re working. I just wish I was in their shoes.”
He said he cannot afford to go back to school, as many younger people without jobs have done. Even if he could afford it, economists say it is unclear whether older workers like him benefit much from more education.
“It just doesn’t make sense to offer retraining for people 55 and older,” said Daniel Hamermesh, an economics professor at the University of Texas in Austin. “Discrimination by age, long-term unemployment, the fact that they’re now at the end of the hiring queue, the lack of time horizon just does not make it sensible to invest in them.”
Many displaced older workers are taking this message to heart and leaving the labor force entirely.
The share of older people applying for Social Security early spiked during the recession as people sought whatever income they could find. The penalty they will pay is permanent, as retirees who take benefits at age 62 — as Ms. Zimmerman did, to help make her mortgage payments — will receive as much as 30 percent less [ http://www.socialsecurity.gov/retire2/retirechart.htm ] in each month’s check for the rest of their lives than they would if they had waited until full retirement age (66 for those born after 1942).
Those not yet eligible for Social Security are increasingly applying for another, comparable kind of income support that often goes to people who expect never to work again: disability benefits. More than one in eight people in their late 50s is now on some form of federal disability insurance [ http://topics.nytimes.com/your-money/insurance/life-and-disability-insurance/index.html ] program, according to Mark Duggan, chairman of the department of business economics and public policy at the University of Pennsylvania’s Wharton School.
The very oldest Americans, of course, were battered by some of the same ill winds that tormented those now nearing retirement, but at least the most senior were cushioned by a more readily available social safety net. More important, in a statistical twist, they may have actually benefited from the financial crisis in the most fundamental way: prolonged lives.
Death rates for people over 65 have historically fallen during recessions, according to a November 2011 study [ http://econ.msu.edu/seminars/docs/uerhealth_2011_dec_2_2011v2.pdf ] by economists at the University of California, Davis. Why? The researchers argue that weak job markets push more workers into accepting relatively undesirable work at nursing homes, leading to better care for residents.
*
Related
Ask an Expert: How Does Job Loss Affect Life Expectancy? (February 2, 2013)
http://www.nytimes.com/2013/02/02/booming/how-does-job-loss-affect-life-expectancy.html
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© 2013 The New York Times Company
http://www.nytimes.com/2013/02/03/business/americans-closest-to-retirement-were-hardest-hit-by-recession.html [ http://www.nytimes.com/2013/02/03/business/americans-closest-to-retirement-were-hardest-hit-by-recession.html?pagewanted=all ]
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S&P Analyst Joked of Bringing Down the House Before Crash
The S&P headquarters in New York.
Scott Eells/Bloomberg
By David McLaughlin - Feb 5, 2013 11:01 PM CT
Standard & Poor’s employees sang and danced to a mock song inspired by “Burning Down the House” and joked about the company’s willingness to rate deals “structured by cows” before the 2008 global financial collapse, according to a U.S. government lawsuit.
Two S&P analysts in April 2007 discussed the company’s model for collateralized debt obligations, with one messaging that a deal was “ridiculous” and that S&P “should not be rating it,” according to the complaint filed Feb. 4 in federal court in Los Angeles.
“We rate every deal,” the other replied, prosecutors said. “It could be structured by cows and we would rate it.”
The analysts’ messages are among internal communications cited in the Justice Department’s complaint against S&P and its parent, New York-based McGraw-Hill Cos.
The U.S. claims S&P, driven by a desire to increase revenue and market share, defrauded investors as it issued ratings on mortgage products while ignoring market risks. It rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 to October 2007, the government said.
A 2008 investigation into credit rating companies by the U.S. Securities and Exchange Commission found that that the firms improperly managed conflicts and weighed the risk of losing market share based on their ratings.
Ratings Report
The report on Moody’s Investors Service, S&P and Fitch Ratings cited the discussion about the deal structured by “cows” and quoted an analyst who wrote in an e-mail: “Let’s hope we are all wealthy and retired by the time this house of cards falters.”
According to the U.S. lawsuit, S&P in 2004 was considering a process for changing its rating criteria and reached out to investors and issuers of mortgage securities for their feedback. One executive questioned this practice, saying, “[W]e NEVER poll them as to content or acceptability!”
Employees meanwhile were raising concerns about losing deals to competitors, according to the complaint. One analyst in May 2004 wrote that the company was losing a “huge” deal to a competitor because S&P was more conservative than others, the government said.
“This is so significant that it could have an impact on future deals,” the analyst wrote, according to the complaint. “There’s no way we can get back on this one, but we need to address this now in preparation for future deals.”
Volume, Standards
In 2007, one CDO analyst wrote to a former co-worker: “Does company care about deal volume or sound credit standards?”
E-mails and text messages can give prosecutors insight into the “unvarnished perspective” of company insiders and help them win trials because they’re easier for jurors to understand than more formal documents, said Robert Mintz, a partner at McCarter & English.
“They tend to give jurors a flavor for the general atmosphere inside a company, and that in connection with other documents can often be quite damning,” said Mintz, a former federal prosecutor in New Jersey.
S&P said in a statement that the government’s lawsuit is “meritless” and that at all times the company’s ratings “reflected our current best judgments” about mortgage securities and CDOs.
“Unfortunately, S&P, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected,” the company said.
‘Cherry-Picked’
The reference to a deal “structured by cows” had “nothing to do with RMBS or CDO ratings or any S&P model,” it said, contradicting the complaint. RMBS stands for residential mortgage-backed securities.
“The e-mail excerpts cherry-picked by DOJ have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business,” it said.
Ken Scott, a professor at Stanford Law School, said the government may have a hard time prevailing on its claim that S&P’s practice of making issuers pay for securities ratings contributed to a fraud.
“The allegation in the complaint that S&P concealed this conflict and therefore presumably buyers were unaware of it, that’s total nonsense,” Scott said.
‘Subterranean Influence’
The government will have to present proof not that the conflict of interest had “almost a subterranean influence but that there was actual intent to defraud,” Scott said. The burden of proof, while not as high as in a criminal case, is significant, Scott said, and “whether they can meet that or not will be what the trial is all about.”
Beginning in the fall of 2006 and continuing to about the spring of 2007, one S&P executive regularly expressed frustration to colleagues that she was prevented by other executives from downgrading ratings of subprime mortgage securities because of concern that the company’s business would be affected, the government said.
“This market is a wildly spinning top which is going to end badly,” said another executive in 2006, according to the complaint.
In March 2007, an analyst set wrote lyrics to the tune of “Burning Down the House” by the rock group Talking Heads.
According to the complaint, it began:
“Watch out / Housing market went softer / Cooling down / Strong market is now much weaker / Subprime is boi-ling o-ver / Bringing down the house.”
The government said the analyst later sent a video of himself singing and dancing the first verse “before an audience of laughing S&P co-workers.”
Catherine Mathis, an S&P spokeswoman, called the video “obviously in poor taste.”
“While it may reflect a terrible sense of humor, it in no way reflects the hard work and analysis by the analysts rating securities,” Mathis said yesterday in an interview.
The case is U.S. v. McGraw-Hill, 13-00779, U.S. District Court, Central District of California (Los Angeles).
To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net
©2013 BLOOMBERG L.P.
http://www.bloomberg.com/news/2013-02-05/s-p-analyst-joked-of-bringing-down-the-house-ahead-of-collapse.html [with embedded video reports, and comments]
Greensburg, KS - 5/4/07
"Eternal vigilance is the price of Liberty."
from John Philpot Curran, Speech
upon the Right of Election, 1790
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