(Copyright 2004 Elizabeth Smith)
Wednesday, April 30, 2008
Friedman's Back -- And Talking About Energy
And the gridlock in Washington over energy policy:
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?hp
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?hp
Tuesday, April 29, 2008
Business to Business Phone Book
arrived today, good until November 2008. In it I noticed that my websight of http://www.natgagu.blogspot.com/ (this blog) is listed. So I'm adding the other website to my tag line at the top for those who are looking for a lawyer, and am adding it as a "Label" below. Just for good measure I will repeat it here as a link: www.rule26a1.com
Don't Blame Michael Milken -- I Never Did
Good reading, if only to review the history of Michael Milken:
http://www.nytimes.com/2008/04/29/business/29sorkin.html?hp#
http://www.nytimes.com/2008/04/29/business/29sorkin.html?hp#
Monday, April 28, 2008
Book Review on Clinton's Afterlife -- Bill's, That Is
But even at its most mean-spirited, the book makes a few stingingly substantial claims. “It is surprising how many people who know and like Bill Clinton come to the same sad conclusion,” Ms. Felsenthal writes: “Monica Lewinsky and impeachment are an implacable part of Clinton’s White House legacy, and all the wondrous works in the years ahead may enhance his reputation as an ex-president but not as a president.” In the words of Don Hewitt, the former “60 Minutes” producer and an outspoken source here, Ms. Lewinsky “did more to change the world than Cleopatra.” And had President Clinton not jeopardized his own position and his party’s chances in the 2000 presidential election so recklessly, “there’s not one kid who has died in Iraq who wouldn’t be alive today.”
Sunday, April 27, 2008
What's Happening in Massachusetts re Heating
Heating crisis looms for low-income residents
December 18, 2007
By CHARIS ANDERSON
Standard-Times staff writer
December 18, 2007 6:00 AM
With more than four months left in the home heating season, many low-income residents across the region already have spent their allotment of federal heating assistance and could run out of oil heat next month, local advocates say.
"We just wanted everyone to be aware there could be some dangers out there of people freezing, and our hands are basically tied," said Liz Berube, director of the fuel assistance program at Citizens for Citizens in Fall River. "It's going to be very scary.
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"We wanted to be honest and say, 'We have no additional funding. There's nothing we can do,'" said Ms. Berube said.
The federal Low Income Home Energy Assistance program is designed to help cash-strapped households pay for their home energy costs. In Massachusetts, the current maximum grant is about $850, which includes some supplemental state funds.
The immediate crisis hits people who heat their homes with oil, according to Bruce Morell, executive director of People Acting in Community Endeavors, which administers the federal assistance program in greater New Bedford. While a moratorium for gas and electric utilities went into effect Nov. 15, making it illegal to cut off their customers' heat, there is no such protection for oil customers.
When someone's tank of heating oil runs out, he must pay to have more delivered. If they don't have the payment, they will not receive a delivery, Mr. Morell said.
For households in the Northeast that heat with oil, estimated heating costs for this winter will reach an average of $1,879, a 25 percent increase from last year, according to a report by the Energy Information Administration.
Statewide, the average cost of heating oil as of Dec. 11 was $3.21 a gallon, up from $2.41 at the same time last year.
Below-average temperatures in November and December have made the heating situation more dire.
According to the National Weather Service, November's mean temperature in the Boston area was 43 degrees, two degrees colder than normal. Thus far in December, the average temperature is just 30.2 degrees, nearly seven degrees colder than normal.
"I'm very worried about our oil clients," PACE's Mr. Morell said. "We're working and doing everything we can, tapping every source that we can, to try and help people from freezing."
A fiscal 2008 budget for the program, which would have raised emergency contingency funding for the program by $250 million over last year, passed Congress but was vetoed by President Bush on Nov. 13.
A new omnibus appropriations bill is now before Congress, according to the office of U.S. Sen. John Kerry. Under this bill, the federal heating assistance program would receive $2.6 billion, of which $2 billion would be available immediately. The remaining funds would be placed in an emergency fund.
The bill was expected to pass the House Monday night, according to a release from Sen. Kerry's office, and will then be considered by the Senate.
In the meantime, both federal and state legislators are pushing hard for additional funding sources for the heating assistance program.
Sens. Kerry and Edward Kennedy, D-Mass., along with 22 Senate colleagues, co-sponsored a bill to provide $1 billion in emergency funding for the heating assistance program.
And last month, Gov. Deval Patrick authorized $15 million in state funds to supplement the federal program, which equated to about 50 gallons of oil for PACE's clients, according to Mr. Morell.
"The reality is this is a federal program, and the state doesn't have the resources to solve the problem," he said. "That's not to minimize what (the state) did. Fifteen million dollars is a lot of money, so you can see the magnitude of the problem."
Mark Wolfe, executive director of the National Energy Assistance Directors' Association, agreed that the program — and its funding — should be addressed by the federal government. But in the absence of action on the national level, the states will have to step in with additional funding, he said.
"What choice will they have?" Mr. Wolfe asked. "You can't have people dying. You can't have people freezing to death."
Statewide, the number of people applying for the heating assistance program has increased this year, according to Ms. Berube, and Citizens for Citizens, which administers the program in the Fall River area, continues to see new applicants.
Many of their clients will run out of federal assistance funds by the second week in January, Ms. Berube said, and, unless a budget is passed that increases the program's funding, those clients will not receive any additional money.
Once the funds run out, people will start to make dangerous choices to heat their homes, such as using electric space heaters, according to local advocates, and others will prioritize heating bills over other expenses.
"What these folks do is, they'll stop paying rent; they'll stop buying food; they'll stop buying medication," Mr. Morell said. "They'll do everything they can to stop their household from freezing."
Both PACE and Citizens for Citizens are urging their oil clients to apply for a heating assistance program run by Citizens Energy, a Boston nonprofit organization. Under this program, residents who already qualify for the federal heating assistance program or who are at 60 percent or less of the state's median income will receive a voucher for 100 gallons of heating oil.
But 100 gallons of oil will only buy people a little time, according to local advocates, and a heating crisis still looms.
"The price of oil continues to go up," Mr. Morell said. "It leaves people who have oil for their primary heating source ... in a tremendously difficult situation."
Ms. Berube agreed. "It's just like a domino effect of disaster."
December 18, 2007
By CHARIS ANDERSON
Standard-Times staff writer
December 18, 2007 6:00 AM
With more than four months left in the home heating season, many low-income residents across the region already have spent their allotment of federal heating assistance and could run out of oil heat next month, local advocates say.
"We just wanted everyone to be aware there could be some dangers out there of people freezing, and our hands are basically tied," said Liz Berube, director of the fuel assistance program at Citizens for Citizens in Fall River. "It's going to be very scary.
Most Viewed Stories
"We wanted to be honest and say, 'We have no additional funding. There's nothing we can do,'" said Ms. Berube said.
The federal Low Income Home Energy Assistance program is designed to help cash-strapped households pay for their home energy costs. In Massachusetts, the current maximum grant is about $850, which includes some supplemental state funds.
The immediate crisis hits people who heat their homes with oil, according to Bruce Morell, executive director of People Acting in Community Endeavors, which administers the federal assistance program in greater New Bedford. While a moratorium for gas and electric utilities went into effect Nov. 15, making it illegal to cut off their customers' heat, there is no such protection for oil customers.
When someone's tank of heating oil runs out, he must pay to have more delivered. If they don't have the payment, they will not receive a delivery, Mr. Morell said.
For households in the Northeast that heat with oil, estimated heating costs for this winter will reach an average of $1,879, a 25 percent increase from last year, according to a report by the Energy Information Administration.
Statewide, the average cost of heating oil as of Dec. 11 was $3.21 a gallon, up from $2.41 at the same time last year.
Below-average temperatures in November and December have made the heating situation more dire.
According to the National Weather Service, November's mean temperature in the Boston area was 43 degrees, two degrees colder than normal. Thus far in December, the average temperature is just 30.2 degrees, nearly seven degrees colder than normal.
"I'm very worried about our oil clients," PACE's Mr. Morell said. "We're working and doing everything we can, tapping every source that we can, to try and help people from freezing."
A fiscal 2008 budget for the program, which would have raised emergency contingency funding for the program by $250 million over last year, passed Congress but was vetoed by President Bush on Nov. 13.
A new omnibus appropriations bill is now before Congress, according to the office of U.S. Sen. John Kerry. Under this bill, the federal heating assistance program would receive $2.6 billion, of which $2 billion would be available immediately. The remaining funds would be placed in an emergency fund.
The bill was expected to pass the House Monday night, according to a release from Sen. Kerry's office, and will then be considered by the Senate.
In the meantime, both federal and state legislators are pushing hard for additional funding sources for the heating assistance program.
Sens. Kerry and Edward Kennedy, D-Mass., along with 22 Senate colleagues, co-sponsored a bill to provide $1 billion in emergency funding for the heating assistance program.
And last month, Gov. Deval Patrick authorized $15 million in state funds to supplement the federal program, which equated to about 50 gallons of oil for PACE's clients, according to Mr. Morell.
"The reality is this is a federal program, and the state doesn't have the resources to solve the problem," he said. "That's not to minimize what (the state) did. Fifteen million dollars is a lot of money, so you can see the magnitude of the problem."
Mark Wolfe, executive director of the National Energy Assistance Directors' Association, agreed that the program — and its funding — should be addressed by the federal government. But in the absence of action on the national level, the states will have to step in with additional funding, he said.
"What choice will they have?" Mr. Wolfe asked. "You can't have people dying. You can't have people freezing to death."
Statewide, the number of people applying for the heating assistance program has increased this year, according to Ms. Berube, and Citizens for Citizens, which administers the program in the Fall River area, continues to see new applicants.
Many of their clients will run out of federal assistance funds by the second week in January, Ms. Berube said, and, unless a budget is passed that increases the program's funding, those clients will not receive any additional money.
Once the funds run out, people will start to make dangerous choices to heat their homes, such as using electric space heaters, according to local advocates, and others will prioritize heating bills over other expenses.
"What these folks do is, they'll stop paying rent; they'll stop buying food; they'll stop buying medication," Mr. Morell said. "They'll do everything they can to stop their household from freezing."
Both PACE and Citizens for Citizens are urging their oil clients to apply for a heating assistance program run by Citizens Energy, a Boston nonprofit organization. Under this program, residents who already qualify for the federal heating assistance program or who are at 60 percent or less of the state's median income will receive a voucher for 100 gallons of heating oil.
But 100 gallons of oil will only buy people a little time, according to local advocates, and a heating crisis still looms.
"The price of oil continues to go up," Mr. Morell said. "It leaves people who have oil for their primary heating source ... in a tremendously difficult situation."
Ms. Berube agreed. "It's just like a domino effect of disaster."
Strickland's Rate Plan for Ohio
This article actually makes some sense. Names in red are as follows: Dave Boehm represents AK Steel which drives everything in southern Ohio, and perhaps all of Ohio; Bill Coley's dad was financial vice president of Globe Metallurgical and Bill is an excellent trial attorney to both Globe and the financial industry. Janine Migdon represented Enron in its early "glory" days in Ohio.
Energy plan won't cut rates
Electricity likely will get costlier
BY MIKE BOYER
One thing critics and advocates of Ohio's new energy plan agree on is that it won't mean lower electric rates for consumers.
A confluence of factors ranging from higher fuel costs, tougher and more expensive environmental rules and regulatory barriers have combined to push electric rates higher in Ohio and nationally.
That's unlikely to change under the compromise plan finally hammered together last week by legislative leaders and Gov. Ted Strickland.
"Higher rates are inevitable," said Alan Schriber, a Wyoming resident and chairman of the Public Utilities Commission of Ohio, which gets new authority to oversee electric rates under the restructuring plan.
Monthly electric bills have risen about 43 percent since September 2005 for Duke Energy's 680,000 Southwest Ohio customers under the so-called rate stabilization plan the new legislation is designed to replace, according to the Ohio Consumers' Counsel, the state's residential-utility advocate before the commission.
Consumers' Counsel's Janine Migden-Ostrander said that while the legislation includes some consumer-friendly features, it won't stem rising electric rates.
"I'm very concerned about the rate impact on consumers," she said.
Said Dave Rinebolt, executive director of Ohio Partners for Affordable Energy: "Are rates going up? Yeah, probably. But energy prices are out of control across the country."
Ohio Partners for Affordable Energy is a low-income advocacy group and a supporter of the legislation that Strickland is expected to sign this week.
"What this legislation does is give us an opportunity to balance the needs of consumers against the utilities," said Rinebolt.
Cincinnati utility lawyer David Boehm, architect of the Ohio manufacturers' utility re-regulation plan that was the basis of Strickland's original proposal, said the new law might not mean lower consumer rates, but "it sets up rates for consumers more favorable than if we went to market-based rates."
The new legislation, which had widespread support from large industrial users and interest groups such as the Ohio Farm Bureau and the Ohio Hospital Association, also:
Restores the commission's authority over electric rates, slowing a decade-old move by the state toward letting market forces determine the generation portion of electric bills (typically more than two-thirds of the total). Deregulation, which took hold in a number of states in the late 1990s, was fueled by the belief that it would trigger competition resulting in lower rates.
State Rep. Bill Coley, R-Liberty Township, a member of the House Public Utilities Committee, argues that deregulation wasn't given the opportunity to work for a number of reasons. He's not convinced restoring PUCO oversight on rates will be better. "In the 1970s, electric prices in the state rose 352 percent and that was under a regulated system," he said.
One advantage of the new law is that it preserves the ability to move to market-based rates if they prove to be a better deal for consumers, he said.
Establishes a road map for the state's electric-rate structure. Uncertainty over whether Ohio would stick with its plan to deregulate electric rates or return to more traditional rate regulation was discouraging new investment in the state's struggling economy, Strickland said. "This is a big deal for Ohio's economic future," he told The Enquirer's editorial board recently, pointing to a decision by a European-American consortium not to locate a $1 billion steel mini-mill in the state because of uncertainty over electric rates.
Creates, for the first time, requirements for utilities to use environmentally friendly renewable energy and implement lower-cost energy efficiency standards. The law, requiring power companies to increase their use of renewable sources such as wind and solar from 0.25 percent of their total generation in 2009 to 12.5 percent by 2025, makes Ohio the 25th state in the nation to adopt such mandatory renewable standards.
The American Wind Energy Association praised Ohio's renewable energy standard, calling it nationally significant.
The legislation "can jump-start ...Ohio's world-class manufacturing infrastructure and world-class skilled manufacturing workforce in wind energy manufacturing," said Randall Swisher, association executive director.
The new law gives the PUCO power to cut electric rates if it determines utilities' profits are excessive. The legislation allows the state's four investor-owned utilities to remain regulated by filing what are called Electric Security Plans with the commission or opt for what's called a market rate option, which allows them to phase-in market-based rates over a five- to 10-year period.
Another pro-consumer provision of the new law, says Migden-Ostrander, ends so-called regulatory transition charges - basically costs the utilities said they couldn't recover when the state moved toward de-regulation.
But Migden-Ostrander said the legislation doesn't ban so-called "side deals," special discounts utilities negotiate with large customers. Critics claim the deals, focus of a high-profile class-action antitrust lawsuit against Duke by several Cincinnati lawyers, are designed to win corporate approval for utility rate hikes and raise rates for other consumers. Duke says deals it has signed with about 20 unidentified corporations are legal and weren't designed to win support for its 2004 rate hike.
Migden-Ostrander, who successfully won the right to examine Duke's contracts in an Ohio Supreme Court case last year, said the new law allows parties in future rate cases to know who has special contracts but won't open those agreements to public scrutiny.
The new law is a setback for several hundred competitive energy suppliers who've moved into the state over the last decade to offer competing service to the incumbent utilities.
"The success or failure of this new energy policy is clearly on the shoulders of the PUCO," said Lynn Olman, a former state representative and chairman of a coalition of competitive energy suppliers.
The law continues energy aggregation, which allows municipalities and other groups to pool their buying power to negotiate for better rates. Olman said the independent marketers he represents plan to continue to be active in the state.
"This is only round one," he said. Once Strickland signs the legislation into law, the commission will begin a process of determining the specific rate-making rules of the new law. The investor-owned utilities are expected to begin filing rate plans for commission approval so they can be in place by Jan 1.
Steve Brash, Duke Energy spokesman, said the utility will file a 10-year regulated rate plan. Last year, Duke said it wanted the state to clarify cost-recovery for new generation so it could decide whether to build a new clean-coal generation plant to fill its need for more electric supplies.
The new law, Brash said. "provides a clearer road map for cost recovery."
Whether the new legislation is better than the deregulation law it replaces remains to be seen, critics say.
"I think it's questionable whether we're better off," said Migden-Ostrander. "We'll have a better idea when we see what the PUCO does in the next year."
Energy plan won't cut rates
Electricity likely will get costlier
BY MIKE BOYER
One thing critics and advocates of Ohio's new energy plan agree on is that it won't mean lower electric rates for consumers.
A confluence of factors ranging from higher fuel costs, tougher and more expensive environmental rules and regulatory barriers have combined to push electric rates higher in Ohio and nationally.
That's unlikely to change under the compromise plan finally hammered together last week by legislative leaders and Gov. Ted Strickland.
"Higher rates are inevitable," said Alan Schriber, a Wyoming resident and chairman of the Public Utilities Commission of Ohio, which gets new authority to oversee electric rates under the restructuring plan.
Monthly electric bills have risen about 43 percent since September 2005 for Duke Energy's 680,000 Southwest Ohio customers under the so-called rate stabilization plan the new legislation is designed to replace, according to the Ohio Consumers' Counsel, the state's residential-utility advocate before the commission.
Consumers' Counsel's Janine Migden-Ostrander said that while the legislation includes some consumer-friendly features, it won't stem rising electric rates.
"I'm very concerned about the rate impact on consumers," she said.
Said Dave Rinebolt, executive director of Ohio Partners for Affordable Energy: "Are rates going up? Yeah, probably. But energy prices are out of control across the country."
Ohio Partners for Affordable Energy is a low-income advocacy group and a supporter of the legislation that Strickland is expected to sign this week.
"What this legislation does is give us an opportunity to balance the needs of consumers against the utilities," said Rinebolt.
Cincinnati utility lawyer David Boehm, architect of the Ohio manufacturers' utility re-regulation plan that was the basis of Strickland's original proposal, said the new law might not mean lower consumer rates, but "it sets up rates for consumers more favorable than if we went to market-based rates."
The new legislation, which had widespread support from large industrial users and interest groups such as the Ohio Farm Bureau and the Ohio Hospital Association, also:
Restores the commission's authority over electric rates, slowing a decade-old move by the state toward letting market forces determine the generation portion of electric bills (typically more than two-thirds of the total). Deregulation, which took hold in a number of states in the late 1990s, was fueled by the belief that it would trigger competition resulting in lower rates.
State Rep. Bill Coley, R-Liberty Township, a member of the House Public Utilities Committee, argues that deregulation wasn't given the opportunity to work for a number of reasons. He's not convinced restoring PUCO oversight on rates will be better. "In the 1970s, electric prices in the state rose 352 percent and that was under a regulated system," he said.
One advantage of the new law is that it preserves the ability to move to market-based rates if they prove to be a better deal for consumers, he said.
Establishes a road map for the state's electric-rate structure. Uncertainty over whether Ohio would stick with its plan to deregulate electric rates or return to more traditional rate regulation was discouraging new investment in the state's struggling economy, Strickland said. "This is a big deal for Ohio's economic future," he told The Enquirer's editorial board recently, pointing to a decision by a European-American consortium not to locate a $1 billion steel mini-mill in the state because of uncertainty over electric rates.
Creates, for the first time, requirements for utilities to use environmentally friendly renewable energy and implement lower-cost energy efficiency standards. The law, requiring power companies to increase their use of renewable sources such as wind and solar from 0.25 percent of their total generation in 2009 to 12.5 percent by 2025, makes Ohio the 25th state in the nation to adopt such mandatory renewable standards.
The American Wind Energy Association praised Ohio's renewable energy standard, calling it nationally significant.
The legislation "can jump-start ...Ohio's world-class manufacturing infrastructure and world-class skilled manufacturing workforce in wind energy manufacturing," said Randall Swisher, association executive director.
The new law gives the PUCO power to cut electric rates if it determines utilities' profits are excessive. The legislation allows the state's four investor-owned utilities to remain regulated by filing what are called Electric Security Plans with the commission or opt for what's called a market rate option, which allows them to phase-in market-based rates over a five- to 10-year period.
Another pro-consumer provision of the new law, says Migden-Ostrander, ends so-called regulatory transition charges - basically costs the utilities said they couldn't recover when the state moved toward de-regulation.
But Migden-Ostrander said the legislation doesn't ban so-called "side deals," special discounts utilities negotiate with large customers. Critics claim the deals, focus of a high-profile class-action antitrust lawsuit against Duke by several Cincinnati lawyers, are designed to win corporate approval for utility rate hikes and raise rates for other consumers. Duke says deals it has signed with about 20 unidentified corporations are legal and weren't designed to win support for its 2004 rate hike.
Migden-Ostrander, who successfully won the right to examine Duke's contracts in an Ohio Supreme Court case last year, said the new law allows parties in future rate cases to know who has special contracts but won't open those agreements to public scrutiny.
The new law is a setback for several hundred competitive energy suppliers who've moved into the state over the last decade to offer competing service to the incumbent utilities.
"The success or failure of this new energy policy is clearly on the shoulders of the PUCO," said Lynn Olman, a former state representative and chairman of a coalition of competitive energy suppliers.
The law continues energy aggregation, which allows municipalities and other groups to pool their buying power to negotiate for better rates. Olman said the independent marketers he represents plan to continue to be active in the state.
"This is only round one," he said. Once Strickland signs the legislation into law, the commission will begin a process of determining the specific rate-making rules of the new law. The investor-owned utilities are expected to begin filing rate plans for commission approval so they can be in place by Jan 1.
Steve Brash, Duke Energy spokesman, said the utility will file a 10-year regulated rate plan. Last year, Duke said it wanted the state to clarify cost-recovery for new generation so it could decide whether to build a new clean-coal generation plant to fill its need for more electric supplies.
The new law, Brash said. "provides a clearer road map for cost recovery."
Whether the new legislation is better than the deregulation law it replaces remains to be seen, critics say.
"I think it's questionable whether we're better off," said Migden-Ostrander. "We'll have a better idea when we see what the PUCO does in the next year."
Saturday, April 26, 2008
What the Bank Should Have Done
January 6, 2003
TO THE CHIEF EXECUTIVE OFFICER OF THE INSTITUTION ADDRESSED:
The purpose of this guidance letter is to clarify the New York State Banking Department’s (the “Department’s”) position on Bank Owned Life Insurance (“BOLI”) programs. This letter also provides general guidance to enhance management oversight of these programs.
Background
BOLI includes all life insurance that a bank owns or has a beneficial interest in. The Department has previously opined that State chartered banks and thrift institutions may invest in BOLI under their “incidental powers,” as set forth in Sections 96(1), 234(1), 234(23) and 383(14) of the Banking Law, as the case may be. A purchase of life insurance must address a legitimate need of the bank for insurance. Purchases of life insurance that have been found to be incidental to banking include insurance taken as 1) security for loans, 2) insurance on borrowers, 3) key-person insurance, and 4) insurance purchased in connection with employee compensation and benefit plans. In general, the purchase of insurance coverage must meet a business need to fall within authorized activities. Life insurance may not be purchased to generate funds for the bank’s normal operating expenses (except in connection with employee compensation and benefit plans), for speculation, or for the primary purpose of providing estate-planning benefits for bank insiders unless it is a part of a reasonable compensation package.
Management Oversight
The safe and sound use of BOLI is dependent upon effective oversight by the board of directors and senior management. The board must understand how BOLI fits into the overall business strategy of the bank. This begins with a comprehensive and documented pre-purchase analysis by the board of directors and senior management which, at a minimum, includes the following considerations:
Determination of the need for insurance
Quantification of the amount of insurance needed
Vendor selection (if a vendor is used)
Carrier selection
Review of available insurance products
Analysis of BOLI benefits
Reasonableness of benefits provided to insured employees (if BOLI results in additional compensation)
Analysis of associated risks and the ability to monitor and manage them.
Evaluation of BOLI alternatives
Documentation of the decision to institute a BOLI program
The use of insurance should be explicitly evaluated in comparison to non-insurance alternatives such as loan reserving, cash compensation, succession planning and ongoing benefit plan expensing. Moreover, non-insurance alternatives should be quantified. Most often a combination of insurance and non-insurance risk management strategies will be optimal.
Besides consideration of non-insurance alternatives, the impact of a BOLI program on capital should also be included. A unique feature of some BOLI programs is that assets (Cash Surrender Value – “CSV”) will accumulate over long periods of time with few anticipated reductions (death benefit payments). For risk-based capital weighting, CSV is assigned a risk weighting of 100%.
The surrender of insurance before maturity (the death of the insured) could result in a loss in value or the imposition of early termination penalties. In addition, the early termination of an entire BOLI program could have an adverse effect on the financial condition of an institution, with significant impact upon its capital position. Purchases of life insurance should be accounted for in accordance with Generally Accepted Accounting Principles, i.e. FASB Technical Bulletin No. 85-4 “Accounting for Purchases of Life Insurance.”
Risk Management of a BOLI Program: Policies, Practices and Procedures
Basic risk management for any BOLI program should minimally include: a) a written statement of business purpose approved by the board of directors; b) quantification of need; c) identification of risks and benefits; d) establishment of authorization and approvals appropriate for the complexity of the program; and, e) requirement for periodic program evaluation. Risks associated with BOLI must not only be assessed at the inception of the program, but continually over the program’s life. Since the risks associated with BOLI can impact the institution’s earnings, capital and liquidity, a BOLI program should be reviewed and assessed by management at least on an annual basis.
This annual review should include analysis provided by external consultants and an independent internal comparison of the risks and returns. The due diligence supporting the purchase and ownership of BOLI should have unique elements tailored to the specific type of insurance coverage. BOLI provides death protection and investment returns. The more comprehensive assessments include an evaluation under a range of assumptions including stress scenarios. The evaluation should identify the most critical variables (investment returns, taxes and interest rates) and extend beyond estimating the cost of insurance to estimates of earnings stability and net worth growth.
Investment results under BOLI contemplate substantial tax benefits arising from interim deferral of taxes on investment income held within the policy and the absence of taxation upon payment of the death benefit. To achieve intended investment results the institution must comply with tax and insurance rules regarding business purpose, insurable interest and lack of investment control. Most often, investment returns will be sub-par without tax considerations. As such, these compliance factors are critical and warrant use of outside legal and tax counsel.
Under some insurance programs, New York State insurance regulations require that employees approve the purchase of life insurance at initiation of coverage and have a notification and terminate right when they leave employment. Procedures that standardize notification and documentation should exist to ensure compliance with these insurance requirements and other applicable laws and regulations. Failure to comply could jeopardize the tax benefits associated with the insurance.
In addition, when BOLI is part of a management compensation program, documentation should support the absolute and relative appropriateness of the amounts, and should be reported to the board of directors or a designated committee thereof. The transfer of economic value (cash surrender value and death benefits) to management is a particularly sensitive matter and should be disclosed to shareholders.
Compliance and “appropriateness” are key factors that help ensure a BOLI program does not adversely affect an institution’s reputation. Programs should be transparent to shareholders and employees, and be simple to explain. Benefits should cover a broad rather than limited group, with the insured group matching as closely as possible the beneficiary group.
Monitoring
Besides the evaluation of compliance, reputational and legal risks, credit and liquidity risks need to be considered. For credit risk, the institution should perform a credit analysis on selected carriers consistent with safe and sound banking practices for commercial lending. Although CSV does not fall within the definition of a credit exposure, it should be added to other extensions of credit (loans, etc.) to determine the aggregate exposure to a single insurance company.
Concentrations
Concentrations need to be assessed. A concentration is considered to exist when more than 25% of an institution’s total capital is at risk in one industry or group of related entities. Each institution should carefully evaluate its overall investment in life insurance (CSV) to determine an appropriate aggregate level. Institutions should not automatically assume that a concentration level as high as 25% is justified.
Individual Limitations
CSV may be supported by the general assets (general account) or segregated assets (separate account) of an insurance company. In order to provide effective security, a separate account must satisfy the following three conditions: 1) availability of a legal opinion providing support that the insurance obligation is, in fact, a separate account; 2) availability of a legal opinion confirming that relevant state insurance law provides policyholders with a preference to separate account assets; and, 3) the presence of a recent valuation establishing that the separate account assets equal or exceed the related separate account policy liabilities.
It is the Department's position that a maximum of 15% of total capital is appropriate as a single exposure limit to any one insurance company when the CSV is held in a general account. CSV due from any one insurance company may equal, but not exceed, 25% of total capital provided that the amount in excess of 15% of capital is fully supported by assets (based on market value) held in a separate account.
If a bank's BOLI program currently exceeds these recommended limitations, the bank is expected to develop and present to the Department a plan outlining the steps to be taken to bring the program within these guidelines.
Restrictions
Banks may purchase separate account insurance products that hold equity securities only for the purpose of hedging their obligations under employee compensation and benefit plans (i.e. where the amount of a deferred compensation obligation is measured by the value of a stock market index). Documentation must support the designation and effectiveness of the hedge. At a minimum, this includes: analyzing the correlation between the liability and the equity securities; analyzing the expected returns for the securities and current and projected asset and liability balances; measuring hedge effectiveness and establishing a target hedge effectiveness ratio; and, analyzing and reporting the effect of the hedge on the bank’s income statement and capital ratios.
If the insurance cannot be characterized as an effective hedging transaction, the presence of equity securities in a separate account would not be permitted. The holding of a bank’s own stock is not permissible under any circumstance.
It should be noted that under recently passed Sarbanes-Oxley legislation, some types of split dollar life insurance are potentially prohibited. Institutions should check with their legal and tax advisors to determine if modifications to their plans are necessary.
Regulatory Oversight
Department examiners, as part of their overall supervisory examinations, will review an institution’s BOLI program. Examiners will focus on reviewing: a) written policies and procedures approved by the board of directors; b) periodic risk assessment of the program; c) compliance with applicable New York State Insurance Department rules; d) compliance with Department guidelines regarding concentrations to an individual insurance company or in aggregate insurance products; and, e) transparency of disclosure of executive compensation utilizing the BOLI program.
Questions concerning the topics discussed in this letter should be directed to:
Mr. James SchmidbauerSupervising Risk Management SpecialistDivision of Market RegulationNew York State Banking DepartmentOne State StreetNew York, New York 10004-1417Telephone: (212) 709-1539Facsimile: (212) 709-1634E-mail address: James.Schmidbauer@banking.state.ny.us
Very truly yours,
Elizabeth McCaulSuperintendent of Banks
Home Search Site Map Industry Letters: General Mortgage Banking
TO THE CHIEF EXECUTIVE OFFICER OF THE INSTITUTION ADDRESSED:
The purpose of this guidance letter is to clarify the New York State Banking Department’s (the “Department’s”) position on Bank Owned Life Insurance (“BOLI”) programs. This letter also provides general guidance to enhance management oversight of these programs.
Background
BOLI includes all life insurance that a bank owns or has a beneficial interest in. The Department has previously opined that State chartered banks and thrift institutions may invest in BOLI under their “incidental powers,” as set forth in Sections 96(1), 234(1), 234(23) and 383(14) of the Banking Law, as the case may be. A purchase of life insurance must address a legitimate need of the bank for insurance. Purchases of life insurance that have been found to be incidental to banking include insurance taken as 1) security for loans, 2) insurance on borrowers, 3) key-person insurance, and 4) insurance purchased in connection with employee compensation and benefit plans. In general, the purchase of insurance coverage must meet a business need to fall within authorized activities. Life insurance may not be purchased to generate funds for the bank’s normal operating expenses (except in connection with employee compensation and benefit plans), for speculation, or for the primary purpose of providing estate-planning benefits for bank insiders unless it is a part of a reasonable compensation package.
Management Oversight
The safe and sound use of BOLI is dependent upon effective oversight by the board of directors and senior management. The board must understand how BOLI fits into the overall business strategy of the bank. This begins with a comprehensive and documented pre-purchase analysis by the board of directors and senior management which, at a minimum, includes the following considerations:
Determination of the need for insurance
Quantification of the amount of insurance needed
Vendor selection (if a vendor is used)
Carrier selection
Review of available insurance products
Analysis of BOLI benefits
Reasonableness of benefits provided to insured employees (if BOLI results in additional compensation)
Analysis of associated risks and the ability to monitor and manage them.
Evaluation of BOLI alternatives
Documentation of the decision to institute a BOLI program
The use of insurance should be explicitly evaluated in comparison to non-insurance alternatives such as loan reserving, cash compensation, succession planning and ongoing benefit plan expensing. Moreover, non-insurance alternatives should be quantified. Most often a combination of insurance and non-insurance risk management strategies will be optimal.
Besides consideration of non-insurance alternatives, the impact of a BOLI program on capital should also be included. A unique feature of some BOLI programs is that assets (Cash Surrender Value – “CSV”) will accumulate over long periods of time with few anticipated reductions (death benefit payments). For risk-based capital weighting, CSV is assigned a risk weighting of 100%.
The surrender of insurance before maturity (the death of the insured) could result in a loss in value or the imposition of early termination penalties. In addition, the early termination of an entire BOLI program could have an adverse effect on the financial condition of an institution, with significant impact upon its capital position. Purchases of life insurance should be accounted for in accordance with Generally Accepted Accounting Principles, i.e. FASB Technical Bulletin No. 85-4 “Accounting for Purchases of Life Insurance.”
Risk Management of a BOLI Program: Policies, Practices and Procedures
Basic risk management for any BOLI program should minimally include: a) a written statement of business purpose approved by the board of directors; b) quantification of need; c) identification of risks and benefits; d) establishment of authorization and approvals appropriate for the complexity of the program; and, e) requirement for periodic program evaluation. Risks associated with BOLI must not only be assessed at the inception of the program, but continually over the program’s life. Since the risks associated with BOLI can impact the institution’s earnings, capital and liquidity, a BOLI program should be reviewed and assessed by management at least on an annual basis.
This annual review should include analysis provided by external consultants and an independent internal comparison of the risks and returns. The due diligence supporting the purchase and ownership of BOLI should have unique elements tailored to the specific type of insurance coverage. BOLI provides death protection and investment returns. The more comprehensive assessments include an evaluation under a range of assumptions including stress scenarios. The evaluation should identify the most critical variables (investment returns, taxes and interest rates) and extend beyond estimating the cost of insurance to estimates of earnings stability and net worth growth.
Investment results under BOLI contemplate substantial tax benefits arising from interim deferral of taxes on investment income held within the policy and the absence of taxation upon payment of the death benefit. To achieve intended investment results the institution must comply with tax and insurance rules regarding business purpose, insurable interest and lack of investment control. Most often, investment returns will be sub-par without tax considerations. As such, these compliance factors are critical and warrant use of outside legal and tax counsel.
Under some insurance programs, New York State insurance regulations require that employees approve the purchase of life insurance at initiation of coverage and have a notification and terminate right when they leave employment. Procedures that standardize notification and documentation should exist to ensure compliance with these insurance requirements and other applicable laws and regulations. Failure to comply could jeopardize the tax benefits associated with the insurance.
In addition, when BOLI is part of a management compensation program, documentation should support the absolute and relative appropriateness of the amounts, and should be reported to the board of directors or a designated committee thereof. The transfer of economic value (cash surrender value and death benefits) to management is a particularly sensitive matter and should be disclosed to shareholders.
Compliance and “appropriateness” are key factors that help ensure a BOLI program does not adversely affect an institution’s reputation. Programs should be transparent to shareholders and employees, and be simple to explain. Benefits should cover a broad rather than limited group, with the insured group matching as closely as possible the beneficiary group.
Monitoring
Besides the evaluation of compliance, reputational and legal risks, credit and liquidity risks need to be considered. For credit risk, the institution should perform a credit analysis on selected carriers consistent with safe and sound banking practices for commercial lending. Although CSV does not fall within the definition of a credit exposure, it should be added to other extensions of credit (loans, etc.) to determine the aggregate exposure to a single insurance company.
Concentrations
Concentrations need to be assessed. A concentration is considered to exist when more than 25% of an institution’s total capital is at risk in one industry or group of related entities. Each institution should carefully evaluate its overall investment in life insurance (CSV) to determine an appropriate aggregate level. Institutions should not automatically assume that a concentration level as high as 25% is justified.
Individual Limitations
CSV may be supported by the general assets (general account) or segregated assets (separate account) of an insurance company. In order to provide effective security, a separate account must satisfy the following three conditions: 1) availability of a legal opinion providing support that the insurance obligation is, in fact, a separate account; 2) availability of a legal opinion confirming that relevant state insurance law provides policyholders with a preference to separate account assets; and, 3) the presence of a recent valuation establishing that the separate account assets equal or exceed the related separate account policy liabilities.
It is the Department's position that a maximum of 15% of total capital is appropriate as a single exposure limit to any one insurance company when the CSV is held in a general account. CSV due from any one insurance company may equal, but not exceed, 25% of total capital provided that the amount in excess of 15% of capital is fully supported by assets (based on market value) held in a separate account.
If a bank's BOLI program currently exceeds these recommended limitations, the bank is expected to develop and present to the Department a plan outlining the steps to be taken to bring the program within these guidelines.
Restrictions
Banks may purchase separate account insurance products that hold equity securities only for the purpose of hedging their obligations under employee compensation and benefit plans (i.e. where the amount of a deferred compensation obligation is measured by the value of a stock market index). Documentation must support the designation and effectiveness of the hedge. At a minimum, this includes: analyzing the correlation between the liability and the equity securities; analyzing the expected returns for the securities and current and projected asset and liability balances; measuring hedge effectiveness and establishing a target hedge effectiveness ratio; and, analyzing and reporting the effect of the hedge on the bank’s income statement and capital ratios.
If the insurance cannot be characterized as an effective hedging transaction, the presence of equity securities in a separate account would not be permitted. The holding of a bank’s own stock is not permissible under any circumstance.
It should be noted that under recently passed Sarbanes-Oxley legislation, some types of split dollar life insurance are potentially prohibited. Institutions should check with their legal and tax advisors to determine if modifications to their plans are necessary.
Regulatory Oversight
Department examiners, as part of their overall supervisory examinations, will review an institution’s BOLI program. Examiners will focus on reviewing: a) written policies and procedures approved by the board of directors; b) periodic risk assessment of the program; c) compliance with applicable New York State Insurance Department rules; d) compliance with Department guidelines regarding concentrations to an individual insurance company or in aggregate insurance products; and, e) transparency of disclosure of executive compensation utilizing the BOLI program.
Questions concerning the topics discussed in this letter should be directed to:
Mr. James SchmidbauerSupervising Risk Management SpecialistDivision of Market RegulationNew York State Banking DepartmentOne State StreetNew York, New York 10004-1417Telephone: (212) 709-1539Facsimile: (212) 709-1634E-mail address: James.Schmidbauer@banking.state.ny.us
Very truly yours,
Elizabeth McCaulSuperintendent of Banks
Home Search Site Map Industry Letters: General Mortgage Banking
Astounding VII
Let's just give someone else $600 million without any checks and balances and then sue them when they say it's all worthless. And this money was for our employees' retirement benefits!
From Upcoming Sunday Review of Books
and a review of the new book by Amis:
"You get the feeling, reading these pages, that for his side Amis will say almost anything, because being noticed is as important to him as being right."
"You get the feeling, reading these pages, that for his side Amis will say almost anything, because being noticed is as important to him as being right."
Dick Cavett Today
On Petraeus and why he wears so many ribbons to appear in front of Congress:
http://cavett.blogs.nytimes.com/2008/04/25/petraeus-custer-and-you/index.html?hp
http://cavett.blogs.nytimes.com/2008/04/25/petraeus-custer-and-you/index.html?hp
Got a "Win" From Supreme Court Justice
Stevens on April 23, 2008. Found out about it yesterday. An extension to June 26th to file a Petition for Certiorari. This brings more in line the entire case, as I argue another part of the case before a panel of the Sixth Circuit this coming Friday.
Friday, April 25, 2008
Oh Oh, It Was Bound to Happen
I was wondering how the Northeast survived the winter's high cost of heating oil:
http://www.nytimes.com/2008/04/25/us/25heating.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1209114383-hSYydTGoq4bAhyu5WJv74g
http://www.nytimes.com/2008/04/25/us/25heating.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1209114383-hSYydTGoq4bAhyu5WJv74g
Thursday, April 24, 2008
Wait a Minute -- Biofuels Are Not the Problem
Roger Cohn in today's New York Times, puts things in perspective:
http://www.nytimes.com/2008/04/24/opinion/24cohen.html?_r=1&hp&oref=slogin
http://www.nytimes.com/2008/04/24/opinion/24cohen.html?_r=1&hp&oref=slogin
Wednesday, April 23, 2008
Give Cramer His Due
His core selections last April are up 76%, environmentally-friendly stocks. Without First Solar they are up 35%!
Astounding -- A New Complaint in Federal Court
shows the complexity and stupidity of a $600 million blind "investment"
Fifth Third made in a derivative run by Citicorp through Transamerica Life Insurance Company.
Fifth Third made in a derivative run by Citicorp through Transamerica Life Insurance Company.
This is just the tip of the iceberg of what's ahead around the world, lawsuits like this.
Who's to Blame For Subprime Mess?
Very, very complete. So much so that I have only read the first page of many in this upcoming Magazine Article for next Sunday:
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html
Tuesday, April 22, 2008
A Good Explanation re Sales of Stock by P&G Executives
Monday, March 31, 2008
Does P&G owe back taxes in Russia; a clarification
This story came up in my Google alert on P&G this morning. According to the Moscow Times, officials in Russia hit the company with a $28 million tax bill for what the government says is unpaid taxes on royalties. Not a huge amount for a company the size of Procter but interesting given Russia is a pretty big growth market for Procter (something I plan on addressing in a story pretty soon).Now for a clarification: a few weeks ago I posted about Procter executives exercising stock options and I pointed out that in its SEC filings showed that many of them were selling shares at the same time they were buying, and it looked like they were essentially selling old shares to cover the cost of buying the new ones.I had a meeting with Procter's CFO Clayt Daley this morning and found out that's not exactly how it works. The deal is this: the shares executives get when they exercise stock options typically come at a discount, for example, A.G. Lafley might be given "options" to buy 5,000 shares for $25 apiece, while P&G shares might be trading for double that. It's a good deal, but Lafley still has to pay the government taxes on the other $25 for each share. So Procter allows its executives to sell enough shares to pay those taxes, and that's what was happening at the time I posted about it.
posted by Keith T. Reed at 2:58 PM 2 comments links to this post
Does P&G owe back taxes in Russia; a clarification
This story came up in my Google alert on P&G this morning. According to the Moscow Times, officials in Russia hit the company with a $28 million tax bill for what the government says is unpaid taxes on royalties. Not a huge amount for a company the size of Procter but interesting given Russia is a pretty big growth market for Procter (something I plan on addressing in a story pretty soon).Now for a clarification: a few weeks ago I posted about Procter executives exercising stock options and I pointed out that in its SEC filings showed that many of them were selling shares at the same time they were buying, and it looked like they were essentially selling old shares to cover the cost of buying the new ones.I had a meeting with Procter's CFO Clayt Daley this morning and found out that's not exactly how it works. The deal is this: the shares executives get when they exercise stock options typically come at a discount, for example, A.G. Lafley might be given "options" to buy 5,000 shares for $25 apiece, while P&G shares might be trading for double that. It's a good deal, but Lafley still has to pay the government taxes on the other $25 for each share. So Procter allows its executives to sell enough shares to pay those taxes, and that's what was happening at the time I posted about it.
posted by Keith T. Reed at 2:58 PM 2 comments links to this post
There's a Reason Why We Have Banks...
Except for a few sectors like energy, you can forget about making money in the stock market for a few years:
http://www.nytimes.com/2008/04/22/business/22bank.html
http://www.nytimes.com/2008/04/22/business/22bank.html
Monday, April 21, 2008
Farmers etc.
Fred Grieder has been farming for 30 years on 1,500 acres near Bloomington, in central Illinois. That has meant 30 years of long days plowing, planting, fertilizing, and hoping that nothing happens to damage his crop.
The Food ChainWithering Staple
Articles in this series are examining growing demands on, and changes in, the world’s production of food.Previous Articles in the Series »
“It can be 12 hours or 20 hours, depending,” Mr. Grieder said.
But Mr. Grieder’s days on the farm in Carlock, Ill., are getting even longer. He now has to keep a closer eye on the derivatives markets in Chicago, trying to hedge his risks so that he knows how much he will be paid in the future for crops he is planting now. And the financial tools he uses to make such bets are getting more expensive and less reliable.
In what little free time he has, Mr. Grieder attends Illinois Farm Bureau meetings to join other frustrated farmers who are lobbying officials in Chicago and Washington to fix a system that was designed half a century ago to reduce uncertainty for food producers but is now increasing it.
Mr. Grieder, 49, is shy about complaining amid so much prosperity. Prices for his crops are soaring on the updraft of growing worldwide demand, and a weak dollar is making those crops more competitive in global markets.
But today’s crop prices are not just much higher, they also are much more volatile. For example, a widely used measure of volatility showed that traders in March expected wheat prices to swing up or down by more than 72 percent in the coming year, three times the average volatility for that month and the highest level since at least 1980. The price swing expected in March for soybeans was three times its monthly average, and the expected volatility in corn prices was twice its monthly average.
Those wild swings in expected prices are damaging the mechanisms — like futures contracts and options — that in the past have cushioned the jolts of farming, turning already-busy farmers into reluctant day-traders and part-time lobbyists.
One measure of the farming industry’s frustration is the overflow crowd expected at a public forum on Tuesday at the Commodity Futures Trading Commission in Washington. Interest is so high that the commission, for the first time ever, will provide a Webcast of the forum, which it says is being held to gather information about whether key markets for hedging the price of crops “are properly performing their risk management and price discovery roles.” The Webcast link is available on the commission’s Web site, www.cftc.gov.
The additional costs that stem from volatility in grain prices — higher crop insurance premiums, for example — are not just a problem for farmers. “Eventually, those costs are going to come out of the pockets of the American consumer,” said William P. Jackson, general manager of AGRIServices, a grain-elevator complex on the Missouri River.
Prices of broad commodity indexes have climbed as much as 40 percent in the last year and grain prices have gained even more — about 65 percent for corn, 91 percent for soybeans and more than 100 percent for some types of wheat. This price boom has attracted a torrent of new investment from Wall Street, estimated to be as much as $300 billion.
Whether new investors are causing the market’s problems or keeping them from getting worse is in dispute. But there is no question that the grain markets are now experiencing levels of volatility that are running well above the average levels over the last quarter-century.
Mr. Grieder’s crop insurance premiums rise with the volatility. So does the cost of trading in options, which is the financial tool he has used to hedge against falling prices. Some grain elevators are coping with the volatility and hedging problems by refusing to buy crops in advance, foreclosing the most common way farmers lock in prices.
“The system is really beginning to break down,” Mr. Grieder said. “When you see elevators start pulling their bids for your crop, that tells me we’ve got a real problem.”
Until recently, that system had worked well for generations. Since 1959, grain producers have been able to hedge the price of their wheat, corn and soybean crops on the Chicago Board of Trade through the use of futures contracts, which are agreements to buy or sell a specific amount of a commodity for a fixed price on some future date.
More recently, the exchange has offered another tool: options on those futures contracts, which allow option holders to carry out the futures trade, but do not require that they do so. Trading in options is not as effective a hedge, farmers say, but it does not require them to put up as much cash as required to trade futures.
These tools have long provided a way to lock in the price of a crop as it is planted, eliminating the risk that prices will drop before it is harvested. With these hedging tools, grain elevators could afford to buy crops from farmers in advance, sometimes a year or more before the harvest.
But that was yesterday. It simply is not working that way today.
Futures, for example, are less reliable. They work as a hedge only if they fall due at a price that roughly matches prices in the cash market, where the grain is actually sold. Increasingly — for disputed reasons — grain futures are expiring at prices well above the cash-market price.
When that happens, farmers or elevator owners wind up owing more on their futures hedge than the crops are worth in the cash market. Such anomalies create uncertainty about which price accurately reflects supply and demand — a critical issue, since the C.B.O.T. futures price is the benchmark for grain prices around the world.
“I can’t honestly sit here and tell you who is determining the price of grain,” said Christopher Hausman, a farmer in Pesotum, Ill. “I’ve lost confidence in the Chicago Board of Trade.”
“We know that the current global environment is creating challenges for many of the traditional users of our markets, and we are very concerned,” said David D. Lehman, director of commodity research and product development for the C.B.O.T.’s owner, the CME Group. “But there are a lot of things that are changing and there is no silver bullet, in terms of a solution.”
Many farmers and people in related businesses blame the tidal wave of investment pouring in from hedge funds, pension funds and index funds for the faulty futures contracts and rising volatility. . But those institutional investors’ money actually adds liquidity to the market, which in theory should reduce price volatility, Mr. Lehman noted.
In any case, at current levels of volatility, options trading becomes riskier, and therefore more expensive — too expensive for many farmers like Mr. Grieder, who now has to hedge with the recently less reliable futures contracts.
That exposes him to the risk of having to put up more cash — to maintain his price protection — whenever a weather threat, shipping disruption or a fresh surge of money from Wall Street suddenly pushes up grain prices.
“If you’ve got 50,000 bushels hedged and the market moves up 20 cents, that would be a $10,000 day,” he said. “If you only had $10,000 in your margin account, you’d have to sit down and write a check. You can see $10,000 disappear overnight.”
On an unusual day, he said, he might get four phone calls a day from his broker seeking additional margin. “But usually, the margin calls come in the mail, in a little blue envelope,” he said. “You don’t have to open it to know what it is.”
When it arrives, he sometimes has to rely on his bank to advance him the margin he needs to keep those hedges in place — a worrisome requirement even for a successful farmer in an economy already beset by a credit squeeze.
“The nightmare scenario is when you have to make margin and you’re looking out your back door and seeing, maybe, a crop problem,” he said. “Everybody has a story about a guy they know getting blown out of his hedge” by unmet margin calls.
Farmers used to leave the market-watching to traders who work for big grain elevator companies. But with some of those companies now refusing to buy crops in advance because hedging has become so expensive and uncertain, farmers have to follow and trade in those markets themselves.
“This is something the farmer didn’t have to worry about before,” said Curt Kimmel, a commodity broker at Bates Commodities, the advisory service Mr. Grieder uses. “It’s a cruel and unforgiving market.”
John Fletcher, a grain elevator operator in Marshall, Mo., started pressing the C.B.O.T. to address the flaws of futures contracts almost two years ago — even before his futures hedge on a million bushels of soybeans failed to fully protect him last September, hitting him with a cash loss of $940,000.
Mr. Fletcher does not blame the big institutional investors stampeding into the market. “But they have contributed to the problem by making these markets so much larger — so large that they have outgrown their delivery system,” he said. “And that has detached the futures market from the cash market.”
Frustrated over the flawed futures contract, Mr. Fletcher is voting with his feet. Last year, he entered into a contract with A.I.G. Financial Products, a leading sponsor of commodity index funds, which allows him and the index fund to hedge their risks without using the C.B.O.T.
Instead of using futures or options, A.I.G. simply buys the commodity directly from Mr. Fletcher, who stores it for a fee and buys it back six months later. His storage fee is lower than the one built into the C.B.O.T. contract, so A.I.G. pays less for its stake in the market. And he has a hedge he can rely on.
“I did a deal with them for corn a year ago, and this year I’m doing a deal on soybeans,” he said.
But private deals like these do not provide pricing data to other farmers and to the rest of the food industry that has long relied on the Chicago Board of Trade as the best measure of supply and demand. If such bilateral contracts become more common, it will be harder for everyone in the industry to anticipate costs and potential profits — which could also push prices up.
This growing uncertainty about prices and hedging “just makes the market less efficient,” said Jeffrey Hainline, president of Advance Trading, an agricultural advisory and brokerage service in Bloomington, Ill. “And anything that makes these markets less efficient increases the cost of food.”
Robert E. Young 2d, chief economist for the American Farm Bureau Federation, has held meetings on this topic around the Farm Belt over the last month and has gotten an earful from distressed food producers and elevator owners, he said.
Interview Las Week on NPR -- Kevin Phillips, Author of "Bad Money"
Although my computer is not loading it, here is the lead-in:
http://www.npr.org/templates/story/story.php?storyId=89642189
http://www.npr.org/templates/story/story.php?storyId=89642189
"Bad Money" by Kevin Phillips
By BARRY GEWEN
Published: April 21, 2008
At a time when the Cassandras of finance are looking like realists, there is no gloomier prophet than Kevin Phillips. The author of 13 previous books including at least one classic, “The Emerging Republican Majority,” Mr. Phillips sees a perfect economic storm coming. The final pages of his bleak new book, “Bad Money,” tell of an “unprecedented” number of Americans planning to leave the country or thinking about it. Readers of “Bad Money” may come away with a similar impulse to flee.
By Kevin Phillips
239 pp. Viking. $25.95.
Mr. Phillips begins with an overview of the current debt debacle. The 1980s were the start of “three profligate decades,” when the expansion of mortgage credit and the invention of financial instruments like collateralized debt obligations (C.D.O.’s) led to an orgy of leveraging and irresponsible speculation. The Federal Reserve kept the bubble afloat with easy money, while regulators and ratings agencies looked the other way.
By 2007 total indebtedness was three times the size of the gross domestic product, a ratio that surpassed the record set in the years of the Great Depression. From 2001 to 2007 alone, domestic financial debt grew to $14.5 trillion from $8.5 trillion, and home mortgage debt ballooned to almost $10 trillion from $4.9 trillion, an increase of 102 percent. A crisis in the mortgage market in August 2007 brought the party to an end. Since then we have been living in a twilight zone of what a security analyst quoted in the book calls “one of the slowest-moving train wrecks we’ve seen.”
The second component of the perfect storm is the upheaval in the oil industry. Domestic production peaked in 1971, and there are signs that production worldwide is also peaking. (Mr. Phillips cites experts who believe it already has.) And with the emergence of new economic powers like China and India, demand has risen dramatically and prices have been climbing steadily; by 2004 a rapidly growing China had become the second largest oil consumer, after the United States. Despite the bad news at the gas pump, however, America has actually been getting a cost break, because the major suppliers price their oil in dollars. But with the dollar falling, OPEC has been talking about moving into other currencies. Were that to happen, “the effects,” Mr. Phillips says tersely, “could be painful.”
Finally, Mr. Phillips turns to what he terms America’s “calcified” political system. We may need new regulations to deal with the debt mess, along with an energy policy to address the changing world of oil, but Washington, he says, has become dedicated to “the politics of evasion,” reluctant to pass dramatic reforms or to call for sacrifice from the public. Democrats and Republicans alike are so entrenched, so dependent on campaign money and special interests, that “the notion of a breath of fresh air has become almost a contradiction in terms.” Instead of a “vital center” in Washington, we now have a “venal center.” Mr. Phillips holds out little hope of improvement from a new president; he doubts that any administration could do much, even though “the crisis is no longer in the future, but upon us.”
Is such pessimism justified? Mr. Phillips says he is making no predictions, but that’s not quite true. Throughout his book he tends to lean on the darkest analyses, though others might be less grim. And as readers of his earlier books know, he has a penchant for seeing parallels between the current situation in the United States and the declines of 17th-century Spain, the 18th-century Dutch Republic and early-19th-century Britain.
But historical comparisons are always dangerous playthings (remember all those foreign-policy analogies to Munich?): you necessarily have to cherry-pick eras and evidence from history’s panorama. Perhaps there are similarities in the financial arrangements of monarchical Spain and democratic America, as Mr. Phillips says, but the differences between the two societies are far greater. It’s hard not to feel that Mr. Phillips’s argument has been shaped not only by his facts but also by his temperament.
Still, even if his pessimism doesn’t seem wholly warranted, a sense of foreboding surely is, which is why his warnings have to be taken seriously. Mr. Phillips writes that the inventors and marketers of the new financial instruments didn’t entirely understand them. An executive of Fidelity International says a panicky feeling has set in on Wall Street because no one knows where the risks really are. The finance minister of France observes that investments may have reached such a level of complexity that no one can assess them. And Charles R. Morris, in his own gloomy book, “The Trillion Dollar Meltdown,” reports that even Citigroup’s chief financial officer “did not know how to value his holdings.”
The screenwriter William Goldman once declared that in Hollywood “nobody knows anything.” When Wall Street begins to resemble the American Dream Factory, it’s a safe bet that something has gone terribly wrong.
Barry Gewen is an editor at The New York Times Book Review.
Published: April 21, 2008
At a time when the Cassandras of finance are looking like realists, there is no gloomier prophet than Kevin Phillips. The author of 13 previous books including at least one classic, “The Emerging Republican Majority,” Mr. Phillips sees a perfect economic storm coming. The final pages of his bleak new book, “Bad Money,” tell of an “unprecedented” number of Americans planning to leave the country or thinking about it. Readers of “Bad Money” may come away with a similar impulse to flee.
By Kevin Phillips
239 pp. Viking. $25.95.
Mr. Phillips begins with an overview of the current debt debacle. The 1980s were the start of “three profligate decades,” when the expansion of mortgage credit and the invention of financial instruments like collateralized debt obligations (C.D.O.’s) led to an orgy of leveraging and irresponsible speculation. The Federal Reserve kept the bubble afloat with easy money, while regulators and ratings agencies looked the other way.
By 2007 total indebtedness was three times the size of the gross domestic product, a ratio that surpassed the record set in the years of the Great Depression. From 2001 to 2007 alone, domestic financial debt grew to $14.5 trillion from $8.5 trillion, and home mortgage debt ballooned to almost $10 trillion from $4.9 trillion, an increase of 102 percent. A crisis in the mortgage market in August 2007 brought the party to an end. Since then we have been living in a twilight zone of what a security analyst quoted in the book calls “one of the slowest-moving train wrecks we’ve seen.”
The second component of the perfect storm is the upheaval in the oil industry. Domestic production peaked in 1971, and there are signs that production worldwide is also peaking. (Mr. Phillips cites experts who believe it already has.) And with the emergence of new economic powers like China and India, demand has risen dramatically and prices have been climbing steadily; by 2004 a rapidly growing China had become the second largest oil consumer, after the United States. Despite the bad news at the gas pump, however, America has actually been getting a cost break, because the major suppliers price their oil in dollars. But with the dollar falling, OPEC has been talking about moving into other currencies. Were that to happen, “the effects,” Mr. Phillips says tersely, “could be painful.”
Finally, Mr. Phillips turns to what he terms America’s “calcified” political system. We may need new regulations to deal with the debt mess, along with an energy policy to address the changing world of oil, but Washington, he says, has become dedicated to “the politics of evasion,” reluctant to pass dramatic reforms or to call for sacrifice from the public. Democrats and Republicans alike are so entrenched, so dependent on campaign money and special interests, that “the notion of a breath of fresh air has become almost a contradiction in terms.” Instead of a “vital center” in Washington, we now have a “venal center.” Mr. Phillips holds out little hope of improvement from a new president; he doubts that any administration could do much, even though “the crisis is no longer in the future, but upon us.”
Is such pessimism justified? Mr. Phillips says he is making no predictions, but that’s not quite true. Throughout his book he tends to lean on the darkest analyses, though others might be less grim. And as readers of his earlier books know, he has a penchant for seeing parallels between the current situation in the United States and the declines of 17th-century Spain, the 18th-century Dutch Republic and early-19th-century Britain.
But historical comparisons are always dangerous playthings (remember all those foreign-policy analogies to Munich?): you necessarily have to cherry-pick eras and evidence from history’s panorama. Perhaps there are similarities in the financial arrangements of monarchical Spain and democratic America, as Mr. Phillips says, but the differences between the two societies are far greater. It’s hard not to feel that Mr. Phillips’s argument has been shaped not only by his facts but also by his temperament.
Still, even if his pessimism doesn’t seem wholly warranted, a sense of foreboding surely is, which is why his warnings have to be taken seriously. Mr. Phillips writes that the inventors and marketers of the new financial instruments didn’t entirely understand them. An executive of Fidelity International says a panicky feeling has set in on Wall Street because no one knows where the risks really are. The finance minister of France observes that investments may have reached such a level of complexity that no one can assess them. And Charles R. Morris, in his own gloomy book, “The Trillion Dollar Meltdown,” reports that even Citigroup’s chief financial officer “did not know how to value his holdings.”
The screenwriter William Goldman once declared that in Hollywood “nobody knows anything.” When Wall Street begins to resemble the American Dream Factory, it’s a safe bet that something has gone terribly wrong.
Barry Gewen is an editor at The New York Times Book Review.
Here's a Book I Want to Buy
As it mimicks exactly what I, and apparantly a lot of Americans, feel:
http://www.nytimes.com/2008/04/21/books/21gewen.html?_r=1&scp=2&sq=books&st=nyt&oref=slogin
http://www.nytimes.com/2008/04/21/books/21gewen.html?_r=1&scp=2&sq=books&st=nyt&oref=slogin
Sunday, April 20, 2008
Milton Friedman Discussion
A reprise of his life and influence.
http://www.nytimes.com/2008/04/13/weekinreview/13goodman.html?scp=19&sq=&st=nyt
http://www.nytimes.com/2008/04/13/weekinreview/13goodman.html?scp=19&sq=&st=nyt
The Very Best Dinner Party
Very entertaining with lots of ideas.
http://query.nytimes.com/gst/fullpage.html?res=9F06E2DB1631F931A35752C1A9659C8B63&sec=&spon=&pagewanted=1#
The Media
Copyright 2008 F. Bruce Abel
Ever since I listened to WLW's Bob Trumpy talk privately I realized that the sine qua non of radio and TV is to entertain. So take outrageous positions. Ask dopey questions at a debate.
What does the listener get? Garbage, and distorted looks at the candidate. More important, what does he not get? What the candidate thinks on serious issues.
On the other hand it's too early to get the latter. Give them room to breathe! And learn.
Ever since I listened to WLW's Bob Trumpy talk privately I realized that the sine qua non of radio and TV is to entertain. So take outrageous positions. Ask dopey questions at a debate.
What does the listener get? Garbage, and distorted looks at the candidate. More important, what does he not get? What the candidate thinks on serious issues.
On the other hand it's too early to get the latter. Give them room to breathe! And learn.
Rich Today in Full
By FRANK RICH
Published: April 20, 2008
“THE crowd is turning on me,” said Charles Gibson, the ABC anchor, when the audience jeered him in the final moments of Wednesday night’s face-off between Hillary Clinton and Barack Obama.
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I can’t remember a debate in which the only memorable moment was the audience’s heckling of a moderator. Then again, I can’t remember a debate that became such an instant national gag, earning reviews more appropriate to a slasher movie like “Prom Night” than a civic event held in Philadelphia’s National Constitution Center:
“Shoddy, despicable!” — The Washington Post
“A tawdry affair!” — The Boston Globe
“A televised train wreck!” — The Philadelphia Daily News
And those were the polite ones. Let’s not even go to the blogosphere.
Of course, Obama fans were angry because of the barrage of McCarthyesque guilt-by-association charges against their candidate, portraying him as a fellow traveler of bomb-throwing, America-hating, flag-denigrating terrorists. The debate’s co-moderator, George Stephanopoulos, second to no journalist in his firsthand knowledge of the Clinton White House, could have easily rectified the imbalance. All he had to do was draw on his expertise to ask similar questions about Bill Clinton’s check-bearing business and foundation associates circling a potential new Clinton administration. He did not.
But viewers of all political persuasions were affronted by the moderators’ failure to ask about the mortgage crisis, health care, the environment, torture, education, China policy, the pending G.I. bill to aid veterans, or the war we’re losing in Afghanistan. Those minutes were devoted not just to recycling the Rev. Jeremiah Wright, Bosnian sniper fire and another lame question about a possible “dream ticket” but to the unseemly number of intrusive commercials and network promos that prompted the jeering at the end. The trashiest ads often bumped directly into an ABC announcer’s periodic recitations of quotations from the Constitution. Such defacing of American values is to be expected, I guess, from a network whose debate moderators refuse to wear flag pins.
Ludicrous as the whole spectacle was, ABC would not have been so widely pilloried had it not tapped into a larger national discontent with news media fatuousness. The debate didn’t happen in a vacuum; it was the culmination of the orgy of press hysteria over Mr. Obama’s remarks about “bitter” small-town voters. For nearly a week, you couldn’t change channels without hearing how Mr. Obama had destroyed his campaign with this single slip at a San Francisco fund-raiser. By Wednesday night, the public was overdosing.
Mr. Obama did sound condescending, an unappealing trait that was even more naked in his “You’re likable enough, Hillary” gibe many debates ago. But the overreaction to this latest gaffe backfired on the media more than it damaged him. For all the racket about “Bittergate” — and breathless intimations of imminent poll swings and superdelegate stampedes — the earth did not move. The polls hardly budged, and superdelegates continued to migrate mainly in Mr. Obama’s direction.
Thus did another overhyped 2008 story line go embarrassingly bust, like such predecessors as the death of the John McCain campaign and the organizational and financial invincibility of the Clinton political machine against a rookie senator from Illinois. Not the least of the reasons that the Beltway has gotten so much wrong this year is that it believes that 2008 is still 1988. It sees the country in its own image — static — instead of as a dynamic society whose culture and demographics are changing by the day.
In this one-size-fits-all analysis, Mr. Obama must be the new Dukakis, sure to be rejected by white guys easily manipulated by Lee Atwater-style campaigns exploiting race and class. But some voters who lived through 1988 have changed, and quite a few others are dead. In 2008, they are supplanted in part by an energized African-American electorate and the young voters of all economic strata who fueled the Obama movement that many pundits didn’t take seriously before Iowa. And that some still don’t. Cokie Roberts of ABC predicted in February that young voters probably won’t show up in November because “they never have before” and “they’ll be tired.”
However out of touch Mr. Obama is with “ordinary Americans,” many Americans, ordinary and not, have concluded that the talking heads blathering about blue-collar men, religion, guns and those incomprehensible “YouTube young people” are even more condescending and out of touch. When a Washington doyenne like Mary Matalin, freighted with jewelry, starts railing about elitists on “Meet the Press,” as she did last Sunday, it’s pure farce. It’s typical of the syndrome that the man who plays a raging populist on CNN, Lou Dobbs, dismissed Mr. Obama last week by saying “we don’t need another Ivy League-educated knucklehead.” Mr. Dobbs must know whereof he speaks, since he’s Harvard ’67.
The most revealing moment in Wednesday’s debate was a striking example of this media-populace disconnect. In Mr. Gibson’s only passionate query of the night, he tried to strong-arm both Democrats into forgoing any increases in the capital gains tax. The capital gains tax! That’s just the priority Americans are focusing on as they lose their houses and jobs, and as gas prices reach $4 a gallon (a subject that merited only a brief mention, in a lightning round of final questions). And this in a debate that took place on the same day we learned that the top 50 hedge fund managers made a total of $29 billion in 2007, some of them by betting against the mortgage market.
At least Mr. Gibson is consistent. In the ABC debate in January, he upbraided Mrs. Clinton by suggesting that a typical New Hampshire “family of two professors” with a joint income “in the $200,000 category” would be unjustly penalized by her plan to roll back the Bush tax cuts for the wealthiest Americans. He seemed oblivious not merely to typical academic salaries but to the fact that his hypothetical household would be among America’s wealthiest (only 3.4 percent earn more).
Next to such knuckleheaded obtuseness, Mr. Obama’s pratfall may strike many voters as a misdemeanor. He was probably rescued as well by the typical Clinton campaign overkill that followed his mistake. Not content merely to piously feign shock about Mr. Obama’s San Francisco soliloquy (and the operative political buzzword here is San Francisco, which stands for you-know-what), Mrs. Clinton couldn’t resist presenting herself as an unambiguously macho, beer-swilling hunting enthusiast. This is as condescending as it gets, topping even Mitt Romney’s last-ditch effort to repackage himself to laid-off union workers as the love child of Joe Hill and Norma Rae.
The video of Mrs. Clinton knocking back drinks in an Indiana bar drowned out the scratchy audio of Mr. Obama’s wispy words in San Francisco. Her campaign didn’t seem to recognize that among the many consequences of the Bush backlash is a revulsion against such play acting. Americans belatedly learned the hard way that the brush-clearing cowboy of the Crawford “ranch” (it’s a country house, not a working ranch) was in reality an entitled Andover-Yale-Harvard oil brat whose arrogance has left us where we are now. Voters don’t want a rerun from a Wellesley-Yale alumna who served on the board of Wal-Mart.
Privileged though they are, Mrs. Clinton and Mr. Obama do want to shape policy to help the less well-heeled. Mr. McCain, who had a far more elite upbringing than either of them and whose wife’s estimated fortune exceeds the Clintons’, is not just condescending to working Americans but trying to hoodwink them. Next week, in a replay of the 2000 Bush campaign’s “compassionate conservative” photo ops among black schoolchildren, he will show he’s a “different kind of Republican” by visiting what he calls the “forgotten” America of Alabama’s “black belt” and the old steel town of Youngstown, Ohio. What he wants voters to forget is the inequity of his new economic plan.
That plan’s incoherent smorgasbord of items includes a cut from 35 percent to 25 percent in the corporate tax rate. For noncorporate taxpayers, Mr. McCain offers such thin gruel as a battle against federal pork (the notorious Alaskan “bridge to nowhere,” earmarked for $223 million in federal highway money, costs less than a day of the war in Iraq) and a temporary suspension of the federal gas tax (a saving of some $2.75 per 15-gallon tank). Now there’s a reason for voters to be bitter — assuming bloviators start publicizing and parsing Mr. McCain’s words as relentlessly as they do the Democrats’.
That may be a big assumption. At an Associated Press luncheon for newspaper editors in Washington last week, Mr. McCain was given a standing ovation. (The other candidate who appeared, Mr. Obama, was not.) Cindy McCain, whose tax returns remain under wraps, has not received remotely the same scrutiny as Michelle Obama and Bill Clinton, except for her plagiarized recipes. The most damning proof of the press’s tilt toward Mr. McCain, though, is the lack of clamor for his complete health records, especially in the wake of his baffling serial factual confusions about Iraq, his No. 1 issue.
But that remains on hold while we resolve whether Mr. Obama lost Wednesday’s debate with his defensive stumbling, or whether Mrs. Clinton lost it with her ceaseless parroting of right-wing attacks. The unequivocally good news is that ABC’s debacle had the largest audience of any debate in this campaign. That’s a lot of viewers who are now mad as hell and won’t take it anymore.
Rich is, Well, Rich and Wonderful
On the "press" and the last debate Wednesday night.
http://www.nytimes.com/2008/04/20/opinion/20rich.html?_r=1&hp&oref=slogin
http://www.nytimes.com/2008/04/20/opinion/20rich.html?_r=1&hp&oref=slogin
Saturday, April 19, 2008
Prize-Winning Birthday Invitation
Barefoot Advertising Company
Cincinnati, Ohio
Doug Worple, President
Done by Jodie.jpg)
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Cincinnati, Ohio
Doug Worple, President
Done by Jodie
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Green.jpg)
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