MF Global collapses under euro-zone bets

November 1, 2011 - 10:18AM

Jon Corzine's bid to revive his Wall Street career crashed and burned overnight when his futures brokerage MF Global Holdings Ltd filed for bankruptcy protection following bad bets on euro zone debt.

Corzine, 64, who once ran Goldman Sachs before becoming a U.S. senator and then governor of New Jersey, had been trying to turn the more than 200-year-old MF Global into a mini Goldman by taking on more risky trades.

But once regulators forced it to fully disclose the bets on debt issued by countries including Italy, Portugal and Spain, it rapidly unraveled with no buyers willing to step in.

MF Global's meltdown in less than a week made it the biggest U.S. casualty of Europe's debt crisis, and the seventh-largest bankruptcy by assets in U.S. history.

The company's shares plunged last week as its credit ratings were cut to junk. The Chapter 11 bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier on Monday, a person familiar with the matter said.

Regulators had expressed "grave concerns" about the viability of MF Global, which filed for bankruptcy only after "no viable alternative was available in the limited time leading up to the regulators' deadline," the company's chief operating officer, Bradley Abelow, said in a court filing.

One of the regulators that pressed MF Global, the U.S. Commodity Futures Trading Commission, was unhappy with the brokerage's failure to give it the required data and records. "(T)o date we don't have the information that we should have," a source close to the CFTC told Reuters.

In the end, regulators and markets reacted swiftly to MF Global's troubles, which may have been exacerbated by Corzine's affinity for risk-taking over the course of a career that took him to the top echelons of Wall Street and then into politics.

"They went for what would be a very profitable trade with European sovereign debt that obviously has blown up in their face, and brought the company down," said Dave Westhouse, vice president of Chicago retail broker PTI Securities and Futures.

RIPPLE EFFECTS

The bankruptcy is reminiscent of the collapse of Lehman Brothers in 2008 at the height of the financial crisis. But market participants said the impact from this collapse, far smaller, would likely be contained.

Still, MF Global's 2,870 employees, as well as trading counterparties, were left scrambling and confused on Monday, as MF Global halted its shares but did not file for bankruptcy until well after U.S. markets had opened.

Trading activity in U.S. gold, crude oil and grain futures slowed to a crawl as the bankruptcy forced a chaotic scramble to untangle trading positions.

"Ultimately it will have lost all confidence of its investor base," Michael Epstein, a restructuring adviser with CRG Partners, said of MF Global. "I'm not sure what restructuring it actually does. In some respects, it's a baby Lehman, in effect."

There was also uncertainty over Wall Street's exposure.

JPMorgan Chase & Co's exposure for a $1.2 billion syndicated loan to MF Global is less than $100 million, a source at the bank said. Deutsche Bank is listed in the court filing as a trustee for bondholders with $1 billion of claims. The banks declined to comment.

The impact on the markets should be smaller and nothing like when Lehman failed and hedge funds had money locked up with the firm for months, said Jeff Carter, an independent futures trader in Chicago.

At the Chicago Board of Trade, three traders wearing MF Global jackets were seen leaving prior to the opening of pit trading, and floor sources told Reuters they had been turned away after their security access cards were denied.

Back outside the Manhattan office, one MF Global employee said all he knew about the bankruptcy was what has been on TV. The company's HR department, meanwhile, was busy making calls withdrawing job offers it made in the past few weeks, according to a person familiar with the situation.

"A sale here is potentially the best outcome for employees because the company will continue to operate as opposed to slowly winding down," said Dan McElhinney, the managing director of corporate restructuring for Epiq Systems.

"I think there will be a lot of effort to tee up the sale pretty quickly here."

The New York Federal Reserve terminated MF Global as one of its primary dealers. CME Group Inc, IntercontinentalExchange Inc, Singapore Exchange Ltd and Singapore's central bank, among others, halted the broker's operations in some form except for liquidations.

European clearinghouse LCH.Clearnet declared MF Global in default.

THE ROAD TO BANKRUPTCY

Corzine was trying to transform MF Global from a brokerage that mainly places customers' trades on exchanges into an investment bank that bets with its own capital.

In the past week, the company posted a quarterly loss and its shares fell by two-thirds as investors focused on the euro zone bets and the effect of low interest rates, which hurt profits from its core brokerage operations.

MF Global scrambled through the weekend and into Monday to find buyers for all or parts of the company, while at the same time hiring restructuring and bankruptcy advisers in case nothing could be done.

In the court filing explaining what went wrong, MF Global pointed a finger at regulators. The bankruptcy was hastened by pressure from the CFTC, the Securities and Exchange Commission and the Financial Industry Regulatory Authority, wrote Abelow, the COO.

FINRA ordered that its U.S. broker-dealer unit, called MFGI, boost net capital, and then reveal a $6.3 billion stake in short-term debt from European sovereigns with "troubled economies," he wrote.

Market concerns over such exposures led to MF Global being downgraded to "junk" status by various credit rating agencies, sparking margin calls that threatened liquidity, he added.

"Concerned about the events of the past week, some of MFGI's principal regulators -- the CFTC and the SEC -- expressed their grave concerns about MFGI's viability."

MF Global in the filing did not elaborate on the regulators' concerns or the reasons behind them. The SEC, CFTC and FINRA each declined to comment.

According to a July proxy filing, Corzine would be entitled to $12.1 million in severance, prorated bonus and other benefits upon being terminated without cause. Two other executives would be entitled to more: retail operations chief Randy MacDonald could get $17.9 million, and Abelow could get $13.7 million.

However, federal bankruptcy law may limit any possible severance payouts.

First-day hearings in the case were scheduled for Tuesday at 3 p.m. in U.S. Bankruptcy Court in Manhattan. Among other things, MF Global is expected to seek permission from Judge Martin Glenn to use cash collateral to keep operating its business, court papers show.

CLOCK TICKING

By filing for bankruptcy, MF Global freezes the value of its free-falling notes and gives potential suitors a clearer picture of the losses they would be taking on, said Bill Brandt, CEO of Chicago-based turnaround firm Development Specialists Inc.

If a sale is in the offing, he added, the buyer may be a European bank or sovereign government, as such entities would be particularly keen on stopping the slide and maximizing the value of the notes.

"The real question is how many assets will be left to transfer," said Niamh Alexander, an analyst at Keefe, Bruyette & Woods. "Customers might move very quickly and it may be that every hour that passes shrinks the portfolio of assets that could be transferred" to a buyer, she said.

The bankruptcy is the latest flop for finance-focused private equity fund J.C. Flowers, whose other recent investments include nationalized German bank Hypo Real Estate.

After dividends the private equity firm has received for its preferred shares, J.C. Flowers' net exposure to MF Global is $47.8 million, according to a source familiar with the matter. The firm declined to comment.

MF Global hired boutique investment bank Evercore Partners to help find a buyer, separate sources said last week.

The broker's deeply distressed 6.25 percent notes maturing in 2016 fell 4 cents to 46 on the dollar, according to the Trace, which reports bond trades. The price had earlier fallen as low as 15 cents.

MF Global shares remained halted in New York

Reuters

Read more: http://www.smh.com.au/business/world-business/mf-global-collapses-under-eurozone-bets-20111101-1msqp.html#ixzz1cPA8MyYV

Comments:
How can things go so wrong for the professionals managing Other People's Money?

Consequences must dominate Probabilities

In making decisions under conditions of uncertainty, the consequences must dominate the probabilities. We never know the future.

The intelligent investor must focus not just on getting the analysis right. You must also ensure against loss if your analysis turns out to be wrong - as even the best analyses will be at least some of the time. 

The probability of making at least one mistake at some point in your investing lifetime is virtually 100%, and those odds are entirely out of your control. However, you do have control over the consequences of being wrong.

http://myinvestingnotes.blogspot.com/2008/10/consequences-must-dominate.html

What would you do if you have a million bucks?

Monday October 31, 2011

Monday Starters - By Soo Ewe Jin

WHAT would you do if you have a million bucks? A poor government clerk from Bihar, a remote and poverty-stricken region of northern India, has become the first person to win 50 million rupees (RM3mil) on the popular Indian version of the gameshow Who Wants to be a Millionaire?

Sushil Kumar's win is a classic case of life imitating art as the script is similar to that of the 2008 Oscar-winning film Slumdog Millionaire.

According to the Associated Press, Sushil said he would spend some of his prize money to prepare for India's tough civil service examination, which could lead to a secure and prestigious lifetime job.

He would also buy a new home for his wife, pay off his parents' debts, give his brothers cash to set up small businesses and build a library in Motihari so the children of his village would have access to books and knowledge.

Real life slumdog millionaire: Sushil (left) says thank you with clasped hands as he receives his US$1mil prize from Bollywood actor Amitabh Bachchan during the fifth season of the Indian version of the Who Wants to be a Millionaire? television quiz in Mumbai on Oct 25. Kumar, a computer operator who earns just US$130 a month, has become the first person to win the top prize. — AFP

Everyone loves a story like this. Although people can become instant millionaires by striking the lottery or pulling the lever on a one-armed bandit at a casino, using one's talent at a tension-filled gameshow is more admirable.

And I applaud Sushil for his noble attitude in thinking of others to share in his newfound fortune. Bihar is one of the poorest states of India and its remoter areas, such as Motihari, have been largely untouched by India's phenomenal recent economic growth.

Do you know that there are now at least 39,000 millionaires in Malaysia? According to a recent report by the Credit Suisse Group, 19,000 new millionaires were created over the past 18 months alone.

Meanwhile, the Asia-Pacific Wealth Report 2011 by Merrill Lynch Global Wealth Management and Capgemini, also released recently, revealed that Malaysia's rich prefer splurging on a fancy new set of wheels, luxurious yachts or private jets.

Up to 46% invested their ringgit in luxury collectibles like cars, boats and jets, the highest percentage of any country within the Asia-Pacific region.

Their counterparts down south seem less interesting and still prefer jewellery and luxury watches.

I know that the CEOs who read the business section of this newspaper may consider a million ringgit small change but to most of us, it is a very faraway goal, not something one can possibly achieve as a regular salaried worker.

But we can all dream and I was wondering to myself, what would I do if I suddenly had a million ringgit in hand? I suppose our wishes would coincide very much with our age, status, and ultimately our character.

To those who believe material pursuits equate to real happiness, a shopping spree would be fantastic.

Those who do not focus too much on material things may want to travel around the world and complete their Bucket List, which may also include going on a religious pilgrimage.

I believe that God never gives us more than we can handle, just as He never lets us go through trials and tribulations beyond our capacity to endure.

And that was when I stopped dreaming. Because I know, seriously, I will never be able to handle so much money at any one time. So I shall be content and count my blessings. I hope you will too.

Deputy executive editor Soo Ewe Jin notes that the world's population officially hits seven billion today. No one really knows who is Citizen Seven Billion, of course, but by the time he grows up, millionaires and billionaires will probably be a dime a dozen.

http://biz.thestar.com.my/news/story.asp?file=/2011/10/31/business/9796922&sec=business

What would you do if you have a million bucks?  

My comment:  Do absolutely nothing for the first one year.

The Biggest Unknown Risk of Stock Investing

Published in September 30th, 2011

I have posted a Guest Blog Entry at the Invest It Wisely site called The Biggest Unknown Risk of Stock Investing.

Juicy Excerpt: My strong sense is that most investors have not thought through carefully what it means to stick with stocks for the long run. To try to stick with stocks for the long run and fail to do so is the worst of all possible worlds. The possibility of becoming a failed Buy-and-Hold investor is the biggest unknown risk of stock investing.

Juicy Comment #1: I agree that investors should think through these numbers. One problem is that it is extremely difficult to carry out the approach. When P/Es are high it looks like the world has changed and it is by definition following a period where it has been very easy to make money in stocks. 2000 is a perfect example.

Juicy Comment #2: Could you please share the code for your regression analysis? I would like to replicate/critique it.

Juicy Comment #3: I buy when the stock market is down and I buy when it is high. I tend to follow Buffet’s approach.

Juicy Comment #4: Times of high pessimism make for great long-term returns. Times when euphoria is running high means lower future returns.

Juicy Comment #5: So it isn’t buying and holding that you are against it is the common education piece that goes along with it?

http://arichlife.passionsaving.com/2011/09/30/the-biggest-unknown-risk-of-stock-investing/

Read more here:
http://www.investitwisely.com/the-biggest-unknown-risk-of-stock-investing/#comments

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

The making of computers, electrical equipment, machinery, autos and other goods may shift back to the US from China. Photo: AP

By Ambrose Evans-Pritchard, International Business Editor

5:53PM BST 23 Oct 2011

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline - so like the chatter of the late 1980s, when Japan was in vogue - will seem wildly off the mark by then.

Telegraph readers already know about the "shale gas revolution" that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing - breaking rocks with jets of water - will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

"The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d)," said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

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The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

"The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players," said Mr Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, 're-inshoring' is the new fashion.

"Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

"A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

The gap in "productivity-adjusted wages" will narrow from 22pc of US levels in 2005 to 43pc (61pc for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The list of "repatriates" is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.

As Cleveland Fed chief Sandra Pianalto said last week, US manufacturing is "very competitive" at the current dollar exchange rate. Whether intended or not, the Fed's zero rates and $2.3 trillion printing blitz have brought matters to an abrupt head for China.

Fed actions confronted Beijing with a Morton's Fork of ugly choices: revalue the yuan, or hang onto the mercantilist dollar peg and import a US monetary policy that is far too loose for a red-hot economy at the top of the cycle. Either choice erodes China's wage advantage. The Communist Party chose inflation.

Foreign exchange effects are subtle. They take a long to time play out as old plant slowly runs down, and fresh investment goes elsewhere. Yet you can see the damage to Europe from an over-strong euro in foreign direct investment (FDI) data.

Flows into the EU collapsed by 63p from 2007 to 2010 (UNCTAD data), and fell by 77pc in Italy. Flows into the US rose by 5pc.

Volkswagen is investing $4bn in America, led by its Chattanooga Passat plant. Korea's Samsung has begun a $20bn US investment blitz. Meanwhile, Intel, GM, and Caterpillar and other US firms are opting to stay at home rather than invest abroad.

Europe has only itself to blame for the current “hollowing out” of its industrial base. It craved its own reserve currency, without understanding how costly this “exorbitant burden” might prove to be.

China and the rising reserve powers have rotated a large chunk of their $10 trillion stash into EMU bonds to reduce their dollar weighting. The result is a euro too strong for half of EMU.

The European Central Bank has since made matters worse (for Italy, Spain, Portugal, and France) by keeping rates above those of the US, UK, and Japan. That has been a deliberate policy choice. It let real M1 deposits in Italy contract at a 7pc annual rate over the summer. May it live with the consequences.

The trade-weighted dollar has been sliding for a decade, falling 37pc since 2001. This roughly replicates the post-Plaza slide in the late 1980s, which was followed - with a lag - by 3pc of GDP shrinkage in the current account deficit. The US had a surplus by 1991.

Charles Dumas and Diana Choyleva from Lombard Street Research argue that this may happen again in their new book "The American Phoenix".

The switch in advantage to the US is relative. It does not imply a healthy US recovery. The global depression will grind on as much of the Western world tightens fiscal policy and slowly purges debt, and as China deflates its credit bubble.

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 - and therefore the ability to outgrow debt - in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.

Europe's EMU soap opera has shown why it matters that America is a genuine nation, forged by shared language and the ancestral chords of memory over two centuries, with institutions that ultimately work and a real central bank able to back-stop the system.

The 21st Century may be American after all, just like the last.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8844646/World-power-swings-back-to-America.html

Fit to fat: personal trainer piles it on

Fitness fanatic gains over a quarter of his body weight in fat to understand his client's struggles.

Fit to fat: personal trainer piles it on

Fit to fat: personal trainer piles it on

Fitness fanatic gains over a quarter of his body weight in fat to understand his client's struggles.

ins over a quarter of his body weight in fat to understand his client's struggles.

Be fair to AP Land minority shareholders

Tuesday October 25, 2011

Commrnt by Rita Benoy Bushon

SHAREHOLDERS of Asia Pacific Land Bhd (AP Land) will convene in an EGM today to vote on a proposal first announced on Jan 11 this year: that substantial shareholder Low Chuan Holdings Sdn Bhd (the family-owned company that started AP Land half a century ago, and which is related to three of the executive directors), proposed to acquire the entire company, including all of the assets and liabilities.

The offer price is 45 sen. This is an 8% premium to its closing price of 41.5 sen before the announcement was made, but a 57% discount to the adjusted audited net assets per AP Land share as at Dec 31, 2010.

Notably, only a simple majority (or 50% plus one share) of non-interested shareholders' approval is required for the proposed privatisation, since the offer came before the amendments to the listing requirements (which raised the threshold for shareholder approval to 75%, where a listed company is disposing all, or substantially all, of its assets, resulting in it being no longer suitable for continued listing on Bursa Malaysia). Thus, it has been more than six months since the company's announcement and the 75% Rule kicking in.

When we first responded to this proposal, we noted that many reasons could exist for the deep discount to the company's net tangible assets (NTA), including the fact that much of the value of its assets, mostly backed by landbank, has not been unlocked, and that the company has not enjoyed a stable history of profits since it has lost money in seven of the last 10 years. Nor has it paid any dividends in this period.

Since then, other related views have been sought, including that of the non-interested directors, audit committee, and independent advisers.

First, the non-interested directors. Their opinion was that the proposed disposal was fair and reasonable, after taking into consideration the advice of the principal and independent advisers.

From a financial point of view, the audit committee thought otherwise, since the offer price was at a discount to NTA and would result in a loss on disposal. However, they added that there was an element of reasonableness, after taking into consideration the company's historical market price and trading volume, the trading multiples of other comparable listed property companies and comparative premiums offered in previously similar transactions on Bursa.

Lastly, MIDF Amanah Investment Bank Bhd, the independent adviser, said the proposed disposal was not fair, mainly because of the discount to NTA, though it was reasonable for reasons similar to that stated by the audit committee.

What do we think? Our answer comes in the form of several observations:

● Revenue at AP Land is on a healthy growth trend: rising every year since 2006, and in fact more than doubling to RM125mil in FY2011. Our calculations show revenue growth at an average compounded rate of 67.58% per annum.

● That it has a sizable and well-connected landbank in Rawang. AP Land has 492ha in an area where other major and established developers have already built their own projects; is suitably near to retail chains and will enjoy improved road connectivity with the recent opening of LATAR expressway, as well as the possible direct linkage to LATAR via Bandar Tasik Puteri.

● That AP Land might well have stable income from its oil palm plantations in East Kalimantan. It has a total of about 9,130ha as shown in the circular to shareholders against about 12,800ha shown in the company's FY2010 annual report.

● That the independent adviser's suggestion that share trading is illiquid may not reflect its shareholding structure: the FY2010 annual report and the independent adviser's circular show that the free float of shares is 66% of the total shares issued (excluding treasury shares) and that all the free float shares are held by minority shareholders.

● That management and the board have not been able to create value for shareholders for at least the last decade. AP Land's share price has traded below the offer price of 45 sen per share except for the period between early 2007 to early 2008.

Volatile market

Smaller property companies will often suffer from a poor valuation. Diminished liquidity (often exacerbated by a dominant shareholder) and a crowded property sector with little to distinguish one from the other has contributed to the situation.

Moreover, many of these property companies have not attained the minimum market capitalisation needed by institutional funds to invest. What's more, sentiment in the property market has been inextricably linked to the fortunes of the stock market which is very volatile currently.

Our only response, as always, is to be fair.

Minority investors, who are the same men and women who believed the story of the major shareholders. Thus it is only right that major owners do right when the time comes to part.

Our advice to minority shareholders of AP Land is vote wisely. With your small but influential ownership (10 lots and less) you already make up 90% of the total number of shareholders. Most of the 66% of shareholders eligible to vote on the proposed disposal are minority retail shareholders. (Please refer to our detailed analysis at www. mswg.org.my )

●The writer is chief executive officer of Minority Shareholder Watchdog Group.

http://biz.thestar.com.my/news/story.asp?file=/2011/10/25/business/9762404

Dutch Lady

Dutch Lady Milk Industries Berhad Company Snapshot

Business Description:

Dutch Lady Milk Industries Berhad operates in the Dry, condensed, evaporated products sector. Dutch Lady Milk Industries Berhad is engaged in manufacturing and distributing of a range of dairy products and fruit juice drinks, such as specialised powders for infant and growing children, liquid milk in different packaging formats and yoghurts. The Company markets these products under various brand names, such as Dutch Lady, Frisolac, Friso, Completa and Joy. During the year ended December 31, 2010, the Company launched Dutch Lady Growing-up Milk 6+, a milk powder. During 2010, the Company launched Dutch Lady UHT Kid and School. Dutch Lady Kid is formulated for the nutritional needs of children of ages 1 to 6 years old, in a 125 millilitres tetra pack. Dutch Lady School is for children of ages 6 to 12 years old in 200 millilitres tetra packs.

Market Watch

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
18-Aug-11		31-Dec-11		2	30-Jun-11		200,892		27,775		43.40		-
18-May-11		31-Dec-11		1	31-Mar-11		196,643		28,338		44.28		-
25-Feb-11		31-Dec-10		4	31-Dec-10		161,833		10,835		16.93		-
29-Nov-10		31-Dec-10		3	30-Sep-10		186,715		13,322		20.82		-

ttm-EPS = 125.43 sen

At $19.00, its ttm-PE = 15 x

Estimated EPS for this year = 160 sen

Projected PE = 12x

LFY EPS = 99.82 sen

LFY DPS = 72.50 sen

DY = 72.50/1900 = 3.8%

Stock Data: Recent Stock Performance:

Current Price (10/21/2011): 19.00
(Figures in Malaysian Ringgits)
1 Week 0.0% 13 Weeks 5.4%

4 Weeks -1.0% 52 Weeks 4.7%


Dutch Lady Milk Industries Berhad Key Data:

Ticker: DBMS Country: MALAYSIA

Exchanges: KUL Major Industry: Food & Beverages

Sub Industry: Dairy Products

2010 Sales 710,588,000
(Year Ending Jan 2011). Employees: 570

Currency: Malaysian Ringgits Market Cap: 1,216,000,000

Fiscal Yr Ends: December Shares Outstanding: 64,000,000

Share Type: Ordinary Closely Held Shares: 46,958,300

First look at US pay data, it’s awful

OCT 19, 2011 

EMPLOYMENT | WAGES

Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks, which the U.S. government posted on the Internet on Wednesday.

The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful.

These are important and powerful figures. Maybe the reason the government does not announce their release — and so far I am the only journalist who writes about them each year — is the data show how the United States smolders while Washington fiddles.

There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by 20 percent over 2009.

The median paycheck — half made more, half less — fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.

The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

More significantly, the number of people with any work has fallen by 5.2 million since 2007, when the worst recession since the Great Depression began, with a massive taxpayer bailout of Wall Street following in late 2008.

This means 3.3 percent of people who had a job in 2007, or one in every 33 30, went all of 2010 without earning a dollar. (Update: the original version of this column used the wrong ratio.)

In addition to the 5.2 million people who no longer have any work add roughly 4.5 million people who, due to population growth, would normally join the workforce in three years and you have close to 10 million workers who did not find even an hour of paid work in 2010.

SIX TRILLION DOLLARS
These figures come from the Medicare tax database at the Social Security Administration, which processes every W-2 wage form. All wages, salaries, bonuses, independent contractor net income and other compensation for services subject to the Medicare tax are added up to the penny.

In 2010 total wages and salaries came to $6,009,831,055,912.11.

That’s a bit more than $6 trillion. Adjusted for inflation, that is less than each of the previous four years and almost identical to 2005, when the U.S. population was 4.2 percent smaller.

While median pay — the halfway point on the salary ladder declined, average pay rose because of continuing increases at the top. Average pay was $39,959 last year, up $46 — or less than a buck a week — compared with 2009. Average pay peaked in 2007 at $40,764, which is $15 a week more than average weekly wage income in 2010.

The number of workers making $1 million or more rose to almost 94,000 from 78,000 in 2009. However, that was still below some earlier years, including 2007, when more than 110,000 workers made more than $1 million each.
At the very top, the number of workers making more than $50 million rose in 2010 to 81, up from 72 the year before. But average pay in this group declined $4.5 million to $79.6 million.

What these figures tell us is that there was a reason voters responded in the fall of 2010 to the Republican promise that if given control of Congress they would focus on one thing: jobs.

But while Republicans were swept into the majority in the House of Representatives, that promise has been ignored.
Not only has no jobs bill been enacted since January, but the House will not even bring up for a vote the jobs bill sponsored by President Obama. His bill is far from perfect, but where is the promised Republican legislation to get people back to work?

Instead of jobs, the focus on Capitol Hill is on tax cuts for corporations with untaxed profits held offshore, on continuing the temporary Bush administration tax cuts — especially for those making $1 million or more – and on cutting federal spending, which mean destroying more jobs in the short run.

At the same time, nonfinancial companies are sitting on more than $2 trillion of cash — nearly $7,000 per American — with no place to invest it profitably. This money cannot even be invested to earn the rate of inflation.
All this capital is sitting on the sidelines waiting for profitable opportunities to be invested, which will not and cannot happen until more people have jobs and wages rise, creating increased demand for goods and services.

More of the same approach we have had for most of the last three decades and all of the last ten years is not going to increase demand, create more jobs or enable overall prosperity. In the long run, continuing current policies will make even the richest among us less well off than they would be in a robust economy with government policies that foster job creation and the capital investment that grows from increased demand.

On top of this are the societal problems caused by something the United States has never experienced before, except during the Depression — chronic, long-term unemployment.

Having millions who want work go years without a single day on a payroll is more than just a waste of talent and time. It also can change social attitudes about work and not for the better.

The data show why protests like Occupy Wall Street have so quickly gained momentum around the country, as people who cannot find work try to focus the federal government on creating jobs and dealing with the banking sector that many demonstrators blame for the lack of jobs.

Will official Washington look at the numbers and change course? Or do voters need to change their elected representatives if they want to put America back on a path to widespread prosperity?
(Editing by Kevin Drawbaugh)

http://blogs.reuters.com/david-cay-johnston/2011/10/19/first-look-at-us-pay-data-its-awful/