12/02/2013 archive

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

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Paul Krugman: Better Pay Now

‘Tis the season to be jolly – or, at any rate, to spend a lot of time in shopping malls. It is also, traditionally, a time to reflect on the plight of those less fortunate than oneself – for example, the person on the other side of that cash register.

The last few decades have been tough for many American workers, but especially hard on those employed in retail trade – a category that includes both the sales clerks at your local Walmart and the staff at your local McDonald’s. Despite the lingering effects of the financial crisis, America is a much richer country than it was 40 years ago. But the inflation-adjusted wages of nonsupervisory workers in retail trade – who weren’t particularly well paid to begin with – have fallen almost 30 percent since 1973.

So can anything be done to help these workers, many of whom depend on food stamps – if they can get them – to feed their families, and who depend on Medicaid – again, if they can get it – to provide essential health care? Yes. We can preserve and expand food stamps, not slash the program the way Republicans want. We can make health reform work, despite right-wing efforts to undermine the program.

And we can raise the minimum wage.

New York Times Editorial Board: Debt and Taxes

The debacle of the housing bust is not over. In addition to 10 million borrowers who have already lost their homes, nearly nine million still owe some $500 billion more on their mortgages than their homes are worth and, of them, 2.3 million are in or near foreclosure.

Making matters worse, help is about to get even harder to come by. Unless Congress acts soon, a debt-relief law – the Mortgage Forgiveness Debt Relief Act, enacted in 2007 – will expire at the end of 2013, leaving homeowners without the legal protection they need to manage their overwhelming mortgage debt. [..]

If the relief act is not renewed, the potential tax bill on many such modifications will force hard-pressed homeowners to turn down the help. As a result, the aid will flow to higher-income borrowers who can afford the taxes, leaving lower-income borrowers to face foreclosure.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future

Find the past “On This Day in History” here.

December 2 is the 336th day of the year (337th in leap years) in the Gregorian calendar. There are 29 days remaining until the end of the year.

On this day in 2001, Enron filed for Chapter 11 bankruptcy protection in a New York court, sparking one of the largest corporate scandals in U.S. history.

An energy-trading company based in Houston, Texas, Enron was formed in 1985 as the merger of two gas companies, Houston Natural Gas and Internorth. Under chairman and CEO Kenneth Lay, Enron rose as high as number seven on Fortune magazine’s list of the top 500 U.S. companies. In 2000, the company employed 21,000 people and posted revenue of $111 billion. Over the next year, however, Enron’s stock price began a dramatic slide, dropping from $90.75 in August 2000 to $0.26 by closing on November 30, 2001.

As prices fell, Lay sold large amounts of his Enron stock, while simultaneously encouraging Enron employees to buy more shares and assuring them that the company was on the rebound. Employees saw their retirement savings accounts wiped out as Enron’s stock price continued to plummet. After another energy company, Dynegy, canceled a planned $8.4 billion buy-out in late November, Enron filed for bankruptcy. By the end of the year, Enron’s collapse had cost investors billions of dollars, wiped out some 5,600 jobs and liquidated almost $2.1 billion in pension plans.

Accounting practices

Enron had created offshore entities, units which may be used for planning and avoidance of taxes, raising the profitability of a business. This provided ownership and management with full freedom of currency movement and the anonymity that allowed the company to hide losses. These entities made Enron look more profitable than it actually was, and created a dangerous spiral, in which each quarter, corporate officers would have to perform more and more contorted financial deception to create the illusion of billions in profits while the company was actually losing money. This practice drove up their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stock. The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; however, the investors knew nothing of this. Chief Financial Officer Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders.

In 1999, Enron launched EnronOnline, an Internet-based trading operation, which was used by virtually every energy company in the United States. Enron president and chief operating officer Jeffrey Skilling began advocating a novel idea: the company didn’t really need any “assets.” By pushing the company’s aggressive investment strategy, he helped make Enron the biggest wholesaler of gas and electricity, trading over $27 billion per quarter. The firm’s figures, however, had to be accepted at face value. Under Skilling, Enron adopted mark to market accounting, in which anticipated future profits from any deal were tabulated as if real today. Thus, Enron could record gains from what over time might turn out to be losses, as the company’s fiscal health became secondary to manipulating its stock price on Wall Street during the Tech boom. But when a company’s success is measured by agreeable financial statements emerging from a black box, a term Skilling himself admitted, actual balance sheets prove inconvenient. Indeed, Enron’s unscrupulous actions were often gambles to keep the deception going and so push up the stock price, which was posted daily in the company elevator. An advancing number meant a continued infusion of investor capital on which debt-ridden Enron in large part subsisted. Its fall would collapse the house of cards. Under pressure to maintain the illusion, Skilling verbally attacked Wall Street Analyst Richard Grubman, who questioned Enron’s unusual accounting practice during a recorded conference call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied “Well, thank you very much, we appreciate that . . . asshole.” Though the comment was met with dismay and astonishment by press and public, it became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling’s lack of tact. When asked during his trial, Skilling wholeheartedly admitted that industrial dominance and abuse was a global problem: “Oh yes, yes sure, it is.”

In covering the upcoming vote on the planned North Metro Rail line in Denver, the Denver Post writes:

People and circumstances over the years have tried to change the gritty image of Commerce City. There have been high-end homes on its eastern border and a world-class soccer and concert stadium not far from the city’s oil refineries, and even an attempt to wipe the city’s industrial name off of the map and replace it with the more low-key moniker of Derby. But it may be a stop on the Regional Transportation District’s North Metro Rail Line that brings some shine to the center of the city.

They quote the Commerce City Mayor:

“I’m very optimistic about the commercial opportunities that come with transit-oriented development,” said Commerce City Mayor Sean Ford. “Once rail comes, we can develop around it, and I think it will be highly beneficial.”

… as well as the Adams County Commissioner and Chairman of the North Area Transportation Alliance:

“In our world, the successful communities are going to be the ones who get rail,” said Adams County Commissioner Erik Hansen

And on Tuesday night, the Metro North line was approved, for a 2014 start and 2018 completion, when it had been previously set back to 2044 (an oddly exact date that clearly meant, “not now, but maybe later”):

A spontaneous offer from Graham Contracting in February stepped up the plans for the North Metro line after the company teamed with three other private developers and gave the Regional Transportation District’s board of directors a viable, ambitious construction plan, said RTD spokeswoman Pauletta Tonilas.