Furloughed federal workers
(Win McNamee/Getty Images)
October 05, 2013

House Passes Bill Allowing Back Pay For Furloughed Workers

Federal workers who were furloughed by a government shutdown will receive back pay once they return to work, if a bill approved by the House of Representatives Saturday meets Senate approval.

The White House has said it favors such a move.

The vote came after the U.S. government began the fifth day of a shutdown that has put 800,000 people out of work. The bill was approved without a vote against it. The Senate is expected to hold its own Saturday session that begins at midday.

The back-pay bill is one of several piecemeal funding measures the House has taken up since the shutdown began. Others include money for "veterans' benefits, nutrition assistance for low-income women and children, and emergency and disaster recovery," as C-SPAN reports.

Update at 12:20 p.m. ET: Funding For Military Religious Services

As NPR's David Welna reports for our Newscast unit, the House also passed a bill that would allow military chaplains to hold services this weekend.

"House Republicans expressed outrage that military chaplains might be prevented from holding services because of the shutdown," David says.

During debate on the measure, Rep. Tim Huelskamp, R-Kan., asked, "Is it really the policy of this administration to make church services illegal? To threaten Catholic priests with jail?"

"Only one House member opposed a resolution allowing the chaplains to do their jobs," David says. "Senate approval is expected for both measures."

If you're wondering, that lone House member is Rep. William Enyart, D-Ill.

The headquarters of Lehman Brothers in Times Square in 2008, the year the financial services firm filed for bankruptcy.
(Hiroko Masuike/Getty Images)
September 12, 2013

5 Years After Financial Crisis, Are Big Banks Still A Threat?

It's been five years since Lehman Brothers collapsed and touched off a banking crisis that is still being felt by the global economy. Today, the banking industry is a lot stronger than it was, but some critics say efforts to reform banking regulations have fallen short of their potential.

The 2008 banking crisis underscored how vulnerable the financial sector had become. Huge institutions like Countrywide were saddled with mountains of bad mortgage and consumer debt. And the losses were magnified by the widespread use of leverage and derivatives such as credit default swaps. Today, says Wayne Abernathy of the American Bankers Association, banks are much healthier and safer.

"The banking industry is so strong today, I don't see any of those risks causing systemic trauma to the economy as we had in the past," he says.

Abernathy says big banks now undergo tough stress tests to make sure they can withstand severe downturns, and they routinely pass the tests. He says banks are also much better capitalized than they were before the recession.

Even if large banks do get in trouble, Abernathy says, rules are now in place to manage their orderly liquidation. Sheila Bair, the former head of the Federal Deposit Insurance Corp., agrees that on balance, banks are probably safer than they were before Lehman. For one thing, she says, the Dodd-Frank financial reform bill put in place a mechanism to unravel big banks without government bailouts.

"Would it be easy? No. Would it be messy? Yes. But it could be done in a way that I do believe would insulate the broader economy from any problems from a large bank failure and impose the losses where they belong — on the shareholders and creditors of that large financial institution, not on taxpayers or other members of the industry," Bair says.

And yet Bair sees Dodd-Frank as a big missed opportunity. Congress left it up to regulators to flesh out the bill's provisions, and the process has become bogged down in a kind of lobbyist feeding frenzy. In an appearance on CNBC this summer, Treasury Secretary Jacob Lew seemed to acknowledge how long reform has taken.

"If we get to the end of this year and we cannot, with an honest straight face, say we've ended [the concept that giant financial firms are too big to fail], we're going to have to look at other options," Lew said.

As this process has dragged on, key reform opportunities have been missed, Bair says. She says there's still too much speculative use of the risky financial instruments such as credit default swaps. Banks still rely too much on short-term debt. And as the London Whale trading fiasco at JPMorgan Chase showed, commercial banks still invest in complex financial instruments using federally insured deposits.

"So I would have to really kind of give reform a mediocre grade. That's not to say nothing has been done. There have been some significant changes, but not nearly what we need," Bair says. "We need transformative changes, not just working it around the edges, and it seems like we've been working it around the edges."

Anat Admati, professor at Stanford's business school, goes further. In her book, The Bankers New Clothes: What's Wrong With Banking and What to Do About It, Admati argues that bank capital requirements need to be increased even more than they have been. She says when banks take in deposits from customers, they're essentially borrowing money, and they can turn around and invest almost all of it. She says it's a crazy business model.

"Look, I come from Silicon Valley, and the banks are not unique in taking risks. What's unique is that they take it with so much borrowed money. That's why they're so fragile," Admati says.

Admati says Dodd-Frank may have created a new mechanism to liquidate banks, but if enough big banks fail, the government will still need to bail them out.

"There is no way that these large institutions will go through bankruptcy without affecting the economy. They are so interconnected and they are so global, there will be so many runs and frozen credit within the system, and derivative contracts unraveling and all kinds of things, that the economy will be harmed," Admati says.

But bank industry officials argue that what's hurting the economy is all the regulation taking place. Abernathy of the American Bankers Association says bankers already operate in a much more tightly controlled world than they used to. Not only are global capital requirements higher, they're a lot more complex — with different kinds of assets weighted in confusing ways. He also says U.S. regulators exercise much more control over whether banks can issue a mortgage or business loan than they used to.

"A lot of the new rules that have gone into effect over the past five years take away much of the judgment bankers were allowed to exercise in the past. [It's] much tougher to exercise that judgment now," Abernathy says.

But he says the worst thing about the new environment for bankers is how uncertain it is. Many of the new regulations haven't been written. Others are so new it's not yet clear what impact they'll have. Five years after Lehman collapsed, regulators are still trying to decide what shape the banking world should take, and how to protect the economy from the ravages of another meltdown.


(John Moore/Getty Images)
September 10, 2013

Study Says America's Income Gap Widest Since Great Depression

The gap between the 1 percent and the 99 percent is growing, according to an analysis of IRS figures by an international group of university economists, and it hasn't been so wide since 1928.

The incomes of the very wealthiest 1 percent of Americans increased by 31.4 percent from 2009 to 2012. By contrast, the bottom 99 percent saw their earnings in the same period go up by just 0.4 percent. In 2012, the top 1 percent collected 19.3 percent of all household income and the top 10 percent took home a record 48.2 percent of total earnings, The Associated Press reports.

The result, according to the analysis by economists from the University of California, Berkeley, the Paris School of Economics and Oxford University, who looked at 1913 onward, is the broadest income gap between super-rich and everyone else since just before the Great Depression.

The AP says:

"The top 1 percent of American households had pretax income above $394,000 last year. The top 10 percent had income exceeding $114,000.

"The income figures include wages, pension payments, dividends and capital gains from the sale of stocks and other assets. They do not include so-called transfer payments from government programs such as unemployment benefits and Social Security.

"The gap between rich and poor narrowed after World War II as unions negotiated better pay and benefits and as the government enacted a minimum wage and other policies to help the poor and middle class.

"The top 1 percent's share of income bottomed out at 7.7 percent in 1973 and has risen steadily since the early 1980s, according to the analysis."

August 27, 2013

Inmate Released Early Accused Of Murder

The Associated Press has learned the suspect in a Decatur murder is one of 1,600 Illinois inmates released early as part of the state's revamped good-behavior release program.

Joshua A. Jones is in the Macon County Jail after he was arrested on suspicion of murder for the fatal shooting of 22-year-old Marvin E. Perry on Aug. 17.

Jones served 19 months of a four-year sentence for drug-dealing and left prison May 3, five months early. 

Department of Corrections spokesman Tom Shaer says the rules were followed. It was the 28-year-old's first time in prison.

A top Illinois House member wants to make sure the Department of Corrections followed its own rules in granting Perry early release.

House Majority Leader Barbara Flynn Currie says “there's no fail-safe'' in releasing prison inmates. The Chicago Democrat says even non-violent former prisoners can pick up a gun after returning to the street.

A revised early release plan started last spring.

Gov. Pat Quinn shut down a similar one three years ago after hundreds of violent prisoners were quietly let go within days of arriving at prison.

Currie sponsored the 2012 legislative revamp of early release. She plans to look into the Jones case.

August 13, 2013

Moody's Downgrades University of Illinois

The credit rating agency Moody’s has downgraded the University of Illinois – a move that is a direct response to the state’s unpaid bills and massive pension backlog.

Moody's Investors Service lowered the U of I’s ratings on more than one a half billion dollars in debt.

University spokesman Tom Hardy said it is unclear how the downgrade will affect the sale of bonds to renovate certain facilities, like the hospital on the Chicago campus.

“We’re going to put off that sale for another week or two until we get that final rating,” Hardy said. “That would be the same later this year, early next year for the (State Farm Center) renovation financing package, and so whatever the market dictates at a given time is what we’ll have to work with.”

Moody’s said it is unlikely the U of I would see its rating go up given the magnitude of the state's financial problems. However, the rating agency did credit the university for attracting a large number of students, which will help the U of I offset state funding pressure by bringing in more tuition revenue.

Altogether, Moody’s downgraded seven public universities in the state, with Northern Illinois being the only school to maintain its debt rating.

July 25, 2013

Could Other Illinois Schools Face CPS Pension Problems?

Chicago Public Schools continues to face severe budget problems. As a result, it's laying off staff and cutting programs, and part of the reason for those reductions has to do with the district’s pension obligations.

It has raised the question: Why do some Illinois lawmakers look at Chicago Public Schools’ pension structure as the model for every other school in Illinois?

In this year alone, Chicago Public Schools says it’s $1 billion in debt.

To give you an idea of what that means for schools, here’s how Guadalupe Rivera at Morrill Elementary School on the southwest side of Chicago says her school could be affected.

+They used to have four teaching assistant positions and two special education teaching positions and those had to be cut   

+Programs used to help students who were struggling. They would help differentiate instruction,” Rivera said. “They helped English language learners as well.

+Students have to pay a $50 fee to join sports. And it’s $50 each sport.

And Rivera said the list goes on.

Cuts like these are being proposed at schools all around the city. The school system said these cuts are happening for a few reasons. Peter Rogers, the chief financial officer, said the main reason is because the district owes an added $400 million just for its retirement system this year.

“The biggest factor in terms of increase year-over-year, is without a doubt, far and away, the pension fund required increase and it will continue to do so over the next several years,” Rogers said earlier this week.

In May, the district tried to temporarily delay paying the whole $400 million in one budget cycle. But to do that, it needed the ok from Illinois lawmakers in Springfield.

And that didn’t go so well.

At the time, State Rep. Dennis Reboletti (R-Addison), said he’d seen the district ask for similar measures in the past.

“You talk about the definition of insanity is doing the same thing over and over again, expecting a different result. This pension holiday will probably work better than all the previous pension holidays,” he said sarcastically on the House floor.

The bill failed, meaning Chicago Public Schools has to pay that extra $400 million into its pensions.

Yet two of the most powerful lawmakers in Springfield continue to push to make Chicago’s pension structure the model for every other school in the state. Chicago contributes to its own pensions. But the state pays for suburban and downstate schools.

And lawmakers like House Speaker Michael Madigan (D-Chicago), say it’s high time those schools pay for their own teachers’ pensions.

Madigan even has a phrase he likes to call it: the “free lunch.” Madigan has said it’s bad management to have the state pay for teachers’ pensions when the school districts can set the retirement benefits, nd Senate President John Cullerton (D-Chicago) is on the same page.

“We have to pay, because of some anomaly in the law, for all of the suburban and downstate teachers, all the university employees and all the community college employees,” Cullerton recently said. “That’s the state’s obligation. No other state has that. And the reason why we fell behind in making these payments is because the bill is so high.”

But while Cullerton is pitching that all school districts should pay for their pensions, he’s also proposing that the state help Chicago’s schools with its pension obligations, that extra $400 million that’s being partly blamed for causing all the cuts.

“All these cuts that you’re hearing about in these schools, that’s directly related to the Chicago teachers’ pension crisis and we really have to focus on that, even, arguably, even before we do the state pension funds,” Cullerton said.

The situation makes the superintendent of west suburban Elmhurst District 205, Dave Pruneau, look at Chicago’s pension difficulties as a cautionary tale for every other school in the state if pension costs eventually get shifted to the districts.

“They’re going through a lot of - (it’s) kind of a precursor of where we might be in a lot of districts in Illinois in the next few years,” Pruneau said.

Pruneau said his school district has seen about $6 million in cuts in the past three years. Those reductions have mostly been administrative, but if the district has to gradually start finding money for its teachers pensions, those cuts could start moving into the classroom.

Pruneau pitched the idea of capping how much pension costs suburban and downstate schools should have to pick up.  But regardless of what is eventually decided, whether Elmhurst starts paying for its teachers pensions or not, Pruneau said he’s already seen a consequence of the ongoing debate.

“It’s very tough right now beyond a one or two-year window to plan long-term because you just don’t know what’s happening on the revenue side with the state,” he said.

Pruneau said that means some capital projects on his wish list won’t be going anywhere any time soon.

Something every other school in the state could be seeing.

This 'curbside' delivery would remain, but 'door-to-door' service would end under a new proposal.
(David Goldman/AP)
July 25, 2013

House Republicans Back End To Doorside Mail Service

The days of reaching from the front door to the mailbox could be numbered if a new congressional plan to save the Postal Service goes ahead.

The proposal, approved by a House committee on Wednesday, would end door-to-door delivery by 2022. Instead, postal carriers would limit their deliveries to curbside – meaning boxes at the end of driveways — or to cluster boxes, a staple of many apartment complexes.

The plan, which passed on a straight party-line vote of the House Oversight and Government Reform Committee, is part of broader legislation sponsored by the committee's chairman, California Republican Darrell Issa. It aims to cut up to $4.5 billion a year from the budget of the Postal Service, which lost $16 billion last year.

Proponents still have to deliver the votes in the full House as well as the Democratic-controlled Senate if the plan, which would also eliminate Saturday delivery and remove no-layoff clauses from future union contracts, is to go ahead.

And it's not like changes to mail service have proved an easy sell in the past, despite the Postal Service's money woes. As much as lawmakers love to bash the service for perceived inefficiency, the idea of ending Saturday delivery was turned down in March. A proposal last year to close down rural post offices was also returned to sender.

Ahead of the vote on the latest measure, Issa said the proposal is a "balanced approach to saving the Postal Service means allowing USPS to adapt to America's changing use of mail."

The Republican says about one-in-three customers – about 30 million – currently have door-to-door delivery, which he says costs about $350 per customer each year, as opposed to $224 for curbside and $160 for cluster box delivery.

USPS spokeswoman Sue Brennan says the shift toward centralized delivery "would allow the Postal Service to deliver mail to more addresses in less time, doing so is not included in our five-year plan."

Democratic Sen. Thomas R. Carper of Delaware, chairman of the Senate committee that oversees the Postal Service, said in a statement that he plans to introduce a Senate bill soon. "While we differ in our approach in some areas, Chairman Issa and I are united in our commitment to restoring the Postal Service to solvency."

The AP writes that the change to curbside and cluster box delivery would codify an already existing trend. USPS, it says:

"... has been moving toward curbside and cluster box delivery in new residential developments since the 1970s. The Postal Service in April began deciding whether to provide such delivery for people moving into newly built homes rather than letting the developers decide."

Ben Bernanke
(Alex Wong/Getty Images)
July 17, 2013

Bernanke: Fed's Monetary Policies Not On 'A Preset Course'

In testimony before the House Committee on Financial Services, Federal Reserve Chairman Ben Bernanke said that when and how the Fed winds down its stimulus programs will depend on economic conditions.

Here's the key passage from Bernanke's prepared remarks:

"I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions—which have tightened recently—were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability."

As The Wall Street Journal reads it, Bernanke is making a "dovish tilt toward easy money."

In English, what you need to know is that Bernanke worried investors in May when he said the Federal Reserve could begin rolling back its $85 billion per month bond purchases after the next few meetings. CNBC reports that today's testimony soothes the markets because it echoes what Bernanke said last week — that the Fed could continue its bond-buying program until mid-2014.

As Bloomberg puts its:

"The Fed chairman's remarks highlight the Federal Open Market Committee's desire to assure that the economy and labor markets have sufficient momentum before reducing its $85 billion in monthly bond purchases. An increase in borrowing costs since the chairman first started discussing tapering purchases threatens to slow the four-year expansion."

Bernanke's full remarks are on the Fed website.

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