Making the Decision to Replace Yourself

This article was originally published by the New York Times on Thursday, Dec. 23, 2010.

In early 2008, Matt Dorey, founder and chief executive of Curve Dental, was at a loss. Three years into building a comprehensive Web-based software package for dentists, he felt the product was ready, but he was not sure how to make Curve a market leader. “The company was getting complicated,” Mr. Dorey said. “I was starting to become conscious of what I didn’t know. It was almost a feeling of loneliness.”

Then he learned of a chief executive, Jim Pack, who was looking for new opportunities after a private equity firm bought his medical-billing software company, AdvancedMD. Mr. Dorey reached out with a LinkedIn invitation. “This was someone I had been following for four years,” he recalled. “He was really open about sharing knowledge and letting us know about the challenges we face. I immediately knew there was nobody better to be the C.E.O. of this company.”

Mr. Dorey enlisted his board and top executives in a monthslong campaign to woo Mr. Pack, who ultimately agreed. Since Mr. Pack took over as chief executive in January 2009, Curve Dental has more than doubled its staff and has introduced its software to the American market, gaining share in more than 40 states and increasing its customer base fivefold. Picking the right replacement, Mr. Dorey said, “was the most important decision I’ve ever made at Curve and probably will ever make.”

Turning over your company to a successor is not to be taken lightly. And in many cases, sticking it out might be the better option, especially if you can delegate those parts of your job that have become unmanageable. But in some instances replacing yourself at the helm makes sense. Based on the experiences of small-business owners, this guide offers suggestions on how to make that decision and accomplish the transition as painlessly as possible.

HOW DO YOU KNOW? Ironically, the qualities that help you succeed as an entrepreneur — relentless optimism, willingness to tackle any challenge, a stubborn belief in yourself and your business — also make it hard to assess your own weaknesses dispassionately. But one individual rarely possesses all the varied skills and experiences needed to take a company from idea to product introduction to sales growth to institutionalizing operations. When you hit your limit, you and your company may benefit from a leader with a fresh set of eyes and a different skill set.


Rough Unemployment Road for Men Could Be Ending

This article was originally published by the Fiscal Times on Thursday, Dec. 23, 2010.

While women fared much better than men throughout the recession, the gap in the unemployment rates between men and women is beginning to narrow as more and more men are going back to work.

By Katherine Reynolds Lewis

Nearly two years after being laid off from his information technology sales job, Alan Yellowitz of Fairfax, Va. finally landed a job. He's making less than half of the $200,000 to $300,000 a year he once earned, but it's enough to keep the lights on, pay the mortgage and feed his family of four. "After 22 months of unemployment, we feel like we can breathe again," said the 47-year-old Yellowitz. "It's still somewhat rough. We’re still digging out of a hole. But getting a regular paycheck every two weeks feels amazing."

Yellowitz was a casualty of what some call the “mancession", more than two years of rampant unemployment that disproportionately hurt men more than women. Men did so poorly because far more of them worked in industries hit hard by the economic downturn – particularly manufacturing, construction and financial services. Women, by contrast, are disproportionately represented in sectors that are more resistant to economic cycles, such as health care and education.

With the recession officially over and the job market slowly improving, long-time unemployed workers like Yellowitz are beginning to find work. While the unemployment rate for men dropped by nearly a full percentage point to 10.6 percent in November from its 11.4 percent high last October, the female unemployment rate is holding steady near its 8.8 percent high of October 2009. Even though the uptick in employment for men is still relatively small the data suggest that the jobs now opening up are going to men more than to women.

"Men's unemployment rose faster and further than women's, but it has since recovered somewhat. In contrast, women's unemployment, while having peaked lower, hasn't actually come down," Betsey Stevenson, the chief economist at the Department of Labor, said in an interview with The Fiscal Times. "It does seem like the recovery has been more beneficial to men at this point. Some of this has to do with where the cuts [were] the deepest and where we [have] been able to add some jobs back."

One important question yet to be answered is whether males are merely bouncing back from the extreme job losses suffered during the Great Recession, or whether we are seeing the long-predicted turning point in the labor market in favor of women. Women hold an edge in the job market in part because they hold the majority of advanced degrees, and some experts believe that employers will hire and promote women to higher levels as a result. Thus far, the average woman still earns less than a comparable man, even when adjusted for hours worked and time out of the labor force.

House Republicans' Latest Fight Against Derivatives Reform

This article was originally published by the Fiscal Times on Thursday, Dec. 16, 2010.

Two House Republican lawmakers want financial regulators to slow down new rules for derivatives trading to avoid the effects on big corporations.

By Katherine Reynolds Lewis

Two key Republican lawmakers urged financial regulators to slow down the progress of new rules for the nearly $500 trillion over-the-counter derivatives market, an early sign that the new Republican House majority aims to delay and scale back the landmark financial regulatory overhaul that President Obama signed into law in July.

"As our economy slowly recovers, we have serious concerns that the Dodd-Frank bill for Wall Street reform will force American companies, which did not cause nor contribute to the financial crisis, to move billions of dollars in capital onto the sidelines to comply with the law," Reps. Spencer Bachus, R.-Ala., and Frank Lucas, R.-Okla., wrote in a letter dated Thursday, Dec. 16, to the heads of the Treasury Department, Securities and Exchange Commission, Federal Reserve Board and Commodity Futures Trading Commission. The two are the incoming chairmen of the House Financial Services and Agriculture Committees, respectively.

The Republicans' strategy is to delay implementation of the Dodd-Frank legislation until 2012, in hopes that a new Republican president and Senate will roll back or repeal the law, said David Min, associate director for financial markets policy at the Center for American Progress.

"They're trying to run out the clock a little bit," Min said. "They will try to delay the process through hearings, through tough letters and proposed legislation, but ultimately the presidency is held by Obama and the Senate is held by Democrats."

Banks Lose with New Derivatives Controls

This article was originally published by the Fiscal Times on Thursday, Dec. 9, 2010.

The Commodity Futures Trading Commission is considering new rules that could move derivatives trading to an exchange or clearinghouse, which would have a big impact on the profits of Wall Street banks.

By Katherine Reynolds Lewis

Federal regulators next week are set to propose new rules for trading over-the-counter derivatives, part of an effort to bring the $450 trillion market under government control for the first time, and shifting the balance of power between centralized exchanges and the world's largest financial institutions.

Congress tasked the Commodity Futures Trading Commission with shedding light on the opaque derivatives markets and bringing the majority of market activity -- possibly 80 or 90 percent -- into clearinghouses and centralized trading facilities. At stake is which market participants will profit and the cost of the new rules. Derivatives, financial contracts whose value is based on the price of an underlying asset such as a commodity, interest rate or currency, have been wildly profitable for Wall Street in recent years. The five largest U.S. dealers reaped an estimated $28 billion in 2009, according to an analysis by Bloomberg News.

Virginia farm supplies D.C. eateries despite animal-care violations

This article was originally published by TBD.com on Thursday, Nov. 18, 2010.

By Katherine Reynolds Lewis

Mie N Yu, Potenza, Zola -- they're all among a movement in Washington culinary circles toward locally grown, all-natural ingredients.

Another thing they have in common: dealings with Black Eagle Farm, a producer in rural Virginia that was found to have violated animal-care statutes and that lost its organic and humane certifications. Last December, a Virginia state veterinary inspector found that many of the animals at the Nelson County farm were emaciated and in need of veterinary care; the farm's working dogs ate raw meat rather than appropriate food; and one hen house contained eight chicken carcasses.

"The place was completely filthy," said Karen Davis, president of United Poultry Concerns, a Machipongo, Va.-based animal rights group that reviewed state records and photographs of the farm. "The company just stopped feeding the birds."

The state investigation was sparked by "numerous complaints" about maltreated dogs, livestock, and poultry on the farm, which is about 45 miles southwest of Charlottesville. A dead goat was tied to a fence, according to the records, and six dogs were allegedly being locked in a trailer full of feces for four days without water, and at least one was dying. The allegations and findings are spelled out in state records obtained through a Freedom of Information Act request by Gina Schaecher, general counsel for the Appalachian Great Pyrenees Rescue, based in Richmond, Va., which tried to rescue dogs on the farm.

Why Your Co-Workers May Hate You

This article was originally published by the Fiscal Times on Friday, Nov. 12, 2010.

It's parents vs. the childless at some workplaces as benefits geared to parents are seen as biased and unfair.

By Katherine Reynolds Lewis

With the holidays approaching, tension is mounting in some workplaces over which employees get time off — and which remain in the office while their co-workers enjoy turkey leftovers and long weekends out of town.

On one side: parents; on the other: childless people. Productivity demands have caused increased stress for all workers who feel they’re doing their job and two others; yet it’s often the child-free employees who pick up the slack because of a co-worker's flexible schedule, holiday plans or maternity leave. In this time of tight budgets and lean staffing the left-behinds are saying “enough.” They flock to online forums like The Childfree Life and STFU Parents to vent about being taken for granted because they have no children.

"You can work all the holidays, you can take the weekend trips, you can work late when your colleagues have to run home for the soccer practice or the recital," said Laura S. Scott, Roanoke, Va.-based author of "Two Is Enough" and founder of The Childless by Choice Project. "There's an assumption that the childfree don't have lives outside of work. There needs to be an acknowledgement that all employees, whether they have children or not, need work-life balance."

The work-life field was born in response to the flood of women entering the workforce in the 1970s, and in recent decades became mainstream as more employers recognized the value of flexible work benefits in attracting top talent. This summer, the Obama administration has spotlighted workplace flexibility through public statements, the first-ever White House summit on the topic and a pilot program giving federal workers greater flexibility.

But as employers compete to appear family friendly to both prospective employees and the government, they risk alienating child-free candidates who worry they will become second class citizens in the workplace. "The best employers provide flexibility equitably," said Ellen Galinsky, president of the Families and Work Institute. "Where the person with a kid might need to take off the day after Thanksgiving, the person without children may have a friend who is ill. None of us are without personal responsibilities."

With young people delaying marriage and child-rearing, and some never having children, there are more child-free people in the workplace. Nearly one-in-five American women will never bear children, double the percent in the 1970s, according to the Pew Research Center. But everyone has parents. In the last year, 42 percent of workers the Families and Work Institute surveyed have had elder care responsibilities, and 49 percent expect to in the future, Galinsky said.

Financial Advisors: New Rules Protect Consumers

This article was originally published by the Fiscal Times on Friday, Nov. 5, 2010

With more than 100 professional designations for financial-services providers, it can be hard to figure out who you can trust with your with your money. New government regulations may change that.

By Katherine Reynolds Lewis

Wondering whether to jump back into the market after the Federal Reserve's plan to pump $600 billion into the economy sent stocks to their highest level since September 2008, but worried about the uncertain outlook? People looking for good financial advice can have a hard time.

There are no federal rules for the training or conduct of someone who hangs a shingle as a financial planner. “Certified” financial service providers include more than 100 professional designations, with acronyms like CFP, CFM, CIMA, CFA, CLU, CPA, EA and PFC, representing everything from a single self-study course to years of education, professional training, continuing education, testing and ethics.

Adela Pena, 63, thought she was being responsible when she took early retirement from a telecommunications company in 1998 and invested a $400,000 lump sum pension payment in an annuity recommended by a financial adviser. She watched the value of her portfolio plummet and the adviser stopped returning phone calls. By 2008, she had only $49,000 left.

“Now all I’m living off is my Social Security and the generosity of my children,” she said in an interview from her San Jose, Calif., home. “It’s not like I spend my money foolishly. My children and I never really went on vacation because I wanted to make sure I had some money in my old age so they wouldn’t have to worry about me.”

New Government Oversight
Now, for the first time, financial planners could be subject to government oversight and broker-dealers could be required to act in their customers’ best interests, after two landmark reviews ordered by Congress in this summer's financial regulatory overhaul. The initiatives could reshape the marketplace for financial and investment advice. Policymakers hope new rules will restore some of the confidence shaken by the global financial crisis and stock market collapse in 2008, and better protect investors for the future.

“If I go to someone who markets himself as a doctor or a lawyer, I know that person has passed an exam and that person is subject to a code of professional conduct,” said Marilyn Mohrman-Gillis, managing director for public policy at the Certified Financial Planner Board of Standards, the organization that grants the CFP designation. “It’s easier to be a financial planner than it is to be a cosmetologist.”

High College Dropout Rate Threatens U.S. Growth

This article was originally published by the Fiscal Times on Tuesday, Oct. 28, 2010

Just over half the students who enter a four-year college complete their degree and even fewer community college students graduate, leaving many without the qualifications they need to land a job.

By Katherine Reynolds Lewis

Millions of first-year college students and their families now paying for the most expensive postsecondary education in U.S. history face a land mine: just 56 percent of those who enroll in a four-year college earn a bachelor’s degree. Those new undergraduates are now reaching the end of the first semester, a critical crossroads between finishing and dropping out.

Some students drop out because of trouble paying the cost — the average college debt upon graduation is a whopping $24,000. Others struggle to hold down a job while also attending college — tuition, room and board at many private universities tops $50,000 a year, and some state schools charges $10,000 a year just for tuition. But more than half of first-year students are simply underprepared for college-level work, said Jeff King, director of the Koehler Center for Teaching Excellence at Texas Christian University, which is developing a tool to identify students who are most at risk of dropping out. “There’s increasing pressure … to prove that after these thousands of dollars that parents are paying for a credential, the students are learning,” King said.

Education policymakers for decades have focused on opening the doors to higher education to more students, without much thought about whether those students are prepared and what happens if they’re not. Now, they’re starting to take action. Over the past decade, the U.S. has fallen from leader to 12th place in the ratio of young people with the equivalent of a bachelor’s degree, well behind Russia, Canada, Korea and Japan.

Study Harder

This article was originally published by Financial Planning magazine in October 2010.

The Dodd-Frank legislation calls for studies of fiduciary duty and financial planning oversight. What they find could change the industry.

By Katherine Reynolds Lewis

The buzz of activity in Washington over financial regulatory reform hasn't died since Congress passed the sweeping Dodd-Frank legislation and President Barack Obama signed it into law on July 21; it's merely moved from the halls of Congress to the regulatory agencies. For planners, the legislation kick-started two major initiatives that could transform the way financial advice is regulated and for the first time subject financial planning to explicit regulatory oversight.

The first is a study by the SEC about the obligations of brokers, dealers and investment advisors toward their clients. This study is likely to result in new rules imposing a fiduciary duty on all professionals who provide personalized investment advice, given SEC Chair Mary Schapiro's support for a uniform fiduciary standard. The second is a study by the Government Accountability Office (GAO) on the oversight of financial planning, which will result in recommendations to Congress of any legislation needed to close regulatory gaps and protect investors. Both studies are due in six months.

"It's very significant. Many major policy initiatives grow from government studies," says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board of Standards. "This regulatory reform bill provides a golden opportunity to start important change in the industry."

Justice quizzed on death penalty

This article was originally published by Gannett News Service and the Jackson Clarion-Ledger on Thursday, Sept. 30, 2010.

By Katherine Reynolds Lewis

WASHINGTON — Mississippi Justice James Graves Jr. clarified his position on the death penalty Wednesday during a Senate hearing on his nomination for a federal judgeship.

Responding to a question from Sen. Jeff Sessions, R-Ala., Graves explained that he joined a dissenting opinion in a capital murder case for reasons related only to claims by the defendant, Anthony Doss, that his attorneys had been ineffective and that he was mentally retarded.

"I take responsibility for joining that opinion, but I have not now nor have I ever subscribed to any point of view that the death penalty was unconstitutional," Graves told members of the Senate Judiciary Committee. "The United States Supreme Court has determined that the death penalty does not constitute cruel and unusual punishment. I would follow the law as handed down by the United States Supreme Court."

Graves, 56, is a nominee for the 5th U.S. Circuit Court of Appeals in New Orleans, which hears appeals from case in Mississippi, Louisiana and Texas.

He pointed to his nine years as a Mississippi justice, during which he voted to affirm convictions and the death penalty in at least a dozen capital punishment cases.

Graves is the only black justice on the court, which he joined in 2001. Before that, he was a Hinds County Circuit judge for 10 years.

He holds a bachelor's degree from Millsaps College and law and master's degrees from Syracuse University.

The Other Real Estate Crisis — Commercial Property

This article was originally published by the Fiscal Times on Saturday, Sept. 18, 2010 and the Washington Post on Sunday, Sept. 19, 2010.

The landmark Mayflower Hotel in Washington, D.C. has been a watering hole for presidents and pundits alike. But like other commercial real estate properties throughout the country affected by the mortgage crisis, the Mayflower is under water.

By Katherine Reynolds Lewis and Jonathan O'Connell

It was dubbed Washington's second best address by Harry S. Truman, and it has hosted events for every presidential inauguration since Calvin Coolidge. Franklin Roosevelt used it as a retreat to work on his 1933 inaugural address. And FBI Director J. Edgar Hoover was a lunchtime regular.

The elegant Renaissance Mayflower Hotel, a Washington landmark since 1925, was considered a hot property when Rockwood Capital of San Francisco acquired it for $260 million in March 2007. Then, practically overnight, the real estate market collapsed and credit evaporated in a historic global financial meltdown. The new hotel owners, saddled with $200 million in debt, watched as the value of the property tumbled. By August, credit agency Realpoint estimated its value at $128 million.

The Mayflower loan was underwater, the plight of hundreds of billions of dollars' worth of commercial properties across the nation that are worth less than their mortgages. If the hotel's owner couldn't find a way to restructure the debt, it could lose the property.

A staggering $1.4 trillion of commercial real estate loans will come due nationwide in the next four years, forcing borrowers such as Rockwood to refinance or default on their obligations. Trouble lingers even at doorsteps in Washington, one of the strongest markets in the country thanks to a broad employment base, a sound infrastructure and a massive government presence.

This is happening at a time when the capacity to absorb such debt has been slashed, following the bankruptcies of financial firms such as Lehman Brothers and the collapse of the commercial mortgage-backed securities issuance down to a tenth of its peak size. The thought of a string of commercial real estate defaults walloping the barely recovering economy and jeopardizing the stability of still-tottering banks is enough to keep analysts up at night.

"It's a very tricky time right now," said Geoffrey DiMeglio, director of consulting at Market Outlook, a consulting firm. "Even in a weak recovery, I don't see employment improving the fundamentals in real estate fast enough to get these properties out of default."

Are There Still Banks Too Big to Fail?

This article was originally published by the Fiscal Times on Friday, Sept. 3, 2010.

Fed Chairman Ben Bernanke told the Financial Crisis Inquiry Commission that federal regulators must be ready to close down the largest banks and financial institutions if they once again threaten to bring down the global financial system.

By Katherine Reynolds Lewis

Two years after Washington had to spend hundreds of billions to bail out much of Wall Street, members of a Financial Crisis Inquiry Commission said Thursday the country still has a problem with financial institutions that are "too big to fail."

Federal officials and most financial experts agree that so-called too-big-to-fail-institutions like AIG and Citigroup helped cause the crisis and were a huge drain on the Treasury and Federal Reserve.

The major financial overhaul legislation pushed through by President Obama this year put in safeguards to try to avoid a repeat of the crisis in which federal officials were forced to decide which firms would go under or be auctioned off and which had to be propped up because of their importance to the financial world. But commissioner Byron Georgiou, a skeptic, noted that the six largest financial groups in 2009 constituted 63 percent of gross domestic product, an increase over the 58 percent of GDP they represented in 2007, at the height of the housing bubble, and both up from a mere 17 percent in 1995.

“Given their increasing size, do you really believe these institutions would be allowed to fail today?” said Georgiou, a personal injury and financial fraud lawyer. “Are we really in any better shape today to avoid the bailouts that have been so criticized in the last few years?”

Could Lehman Brothers Have Been Saved?

This article was originally published by the Fiscal Times on Thursday, Sept. 2, 2010.

The former CEO of Lehman Brothers testified during one of the final hearings of the commission investigating the U.S. financial crisis that federal regulators prematurely forced the firm into bankruptcy before all other options were exhausted.

By Katherine Reynolds Lewis

Just days before the two-year anniversary of Lehman Brothers' collapse, banking regulators passionately defended their handling of the crisis at a Financial Crisis Inquiry Commission hearing, while the former Lehman CEO insisted the government prematurely forced the firm into bankruptcy before all other options were exhausted.

"Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors," said Richard S. Fuld Jr., the former chairman and chief executive officer. "We had the collateral. We had the capital."

In testimony Thursday, Federal Reserve Chairman Ben Bernanke countered that charge, saying it was impossible for the Fed to rescue Lehman Brothers from bankruptcy in 2008 because the Wall Street firm lacked sufficient collateral to secure a loan. Asked how the Lehman case differed from that of American International Group Inc., which received $182 billion in taxpayer aid, Bernanke said there was a fundamental difference.

AIG, as the biggest insurance company in the U.S., had valuable assets which could back up the Fed's emergency loan, he said. "The Federal Reserve will absolutely be paid back by AIG," Bernanke said.

Whether it would have been possible to save Lehman Brothers is one of the most perplexing questions to emerge from the financial meltdown that led to one of the worst recessions in U.S. history. That question clearly divided the 10 members of the commission, whose questions at each were other almost as pointed as the ones they posed to witnesses, who gave sworn testimony.

The hearings underscored a hard truth: that for all the new laws and pending regulations Congress and the Obama administration have put forth in response to the meltdown, future crises will only be averted if industry professionals and the regulators who oversee them use good judgment and pursue hints of trouble even in the face of rosy conventional wisdom.

Recession Aside, Are We Headed for a Labor Shortage?

This article was originally published by the Fiscal Times on Thursday, Aug. 26, 2010.

Despite one of the worst recessions of modern times, the U.S. economy could face significant labor shortages in the coming months because of a mismatch between the quality of the available labor and the demands of industry.

By Katherine Reynolds Lewis

Alan Yellowitz of Fairfax, Va., has been job hunting since January 2009, when he was laid off from his information technology sales job along with the rest of his department. Competing with hundreds of applicants for every opening, he has clawed his way to the final round of interviews several times — only to fall short of winning the position. "There are so many more people looking for the same jobs," Yellowitz, 47, said in an interview. "It's crazy how companies are picking and choosing. You feel beat up after a while."

Yellowitz — like many of the other 14.6 million unemployed Americans like him — wasn’t supposed to be in this bind, as the oldest Baby Boomers started to retire and the labor supply began to tighten. Nearly 20 years ago, the first in a series of economic reports predicted a dramatic labor shortage as an estimated 76 million Baby Boomers departed the workforce and the smaller cohort of Generation X workers — or Baby Bust — took their place. As recently as this spring, researchers predicted there could be five million more jobs than workers available to fill them by 2018, resulting in $3 trillion of lost U.S. economic output.

"We have this huge bump coming through of older people followed by a dearth of younger people," said lead researcher Barry Bluestone, an economist and dean of the School of Public Policy and Urban Affairs at Northeastern University. "We're going to have a huge labor market shortage."

Huge labor shortage? That’s hard to imagine amid the worst recession in modern times, with unemployment locked at 9.5 percent and many discouraged Americans simply dropping out of the market. One skeptic, Wharton business school professor Peter Cappelli, said. "They've been predicting a labor shortage since the mid-1990's and guess what, it's not happening.”

Yet some evidence suggests there may already be spot shortages of labor, as employers complain about the difficulty of filling open positions and the lack of skilled workers.

New Financial Rules Will Lower Bank Profits

This article was originally published by the Fiscal Times on Friday, July 2, 2010.

The landmark financial overhaul legislation will raise banking industry regulatory costs, lower their profits and limit their use of their own assets in risky investments.

By Katherine Reynolds Lewis

A major overhaul of financial regulations that cleared the House this week will put the banking industry on course for higher regulatory costs, lower profits and a renewed emphasis on more traditional activities like taking deposits and making loans.

The landmark legislation awaiting final action in the Senate later this month stops short of banning banks from investing their own assets, dealing in highly speculative derivatives or investing in hedge funds and private equity firms, as many reformists had urged. But the complex web of new rules in the 2,000-plus-page document will add an estimated $11 billion to the industry’s regulatory costs in the coming years. And it would put a crimp in the industry’s activities and shed more light on their activities with the use of clearinghouses and data repositories.

Rather than marking the finish line in marathon legislative negotiations, the new law's approval is more of a handoff in a relay race. Regulators will receive the baton and a mandate to write dozens of new rules to restrict banks' activities, increase capital requirements, protect consumers from fraud, and impose more oversight to prevent a repeat of the problems that caused the near meltdown of global financial markets and triggered a worldwide recession.

Once the financial industry emerges from the near-term pain of that transition, the new regulatory structure could facilitate measured growth in a new environment with less moneymaking potential but greater transparency and protection from failure, analysts said.

"In the long run the industry will be safer, people will be more confident and the spreads will be narrower," said Robert Litan, vice president for research and policy at the Kauffman Foundation. "The bill is sweeping in nature but a lot of the details have yet to be filled in" by regulators, Litan noted. "We don't know whether that's going to be a heavy touch or light touch."

Scott Brown Blocks Financial Reform Vote

This article was originally published by the Fiscal Times on Wednesday, June 30, 2010.

Freshman Republican Sen. Scott Brown objected to a stiff new banking fee which would cover the $19 billion cost of implementing new financial regulation.

By Katherine Reynolds Lewis

Just as Congress was on the verge of passing the broadest overhaul of financial regulation since the Great Depression — following hundreds of hours of debate over the last year — lawmakers are back at the drawing boards. Freshman Republican Sen. Scott Brown objected to a stiff new banking fee which would cover the $19 billion cost of implementing the new regulation.

"It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis," Brown, R-Mass., wrote to the Democratic lawmakers shepherding the legislation through Congress. "Costs would be passed on to the millions of American consumers and small businesses who rely on major U.S. financial institutions for their checking, ATM, loans or other services."

Brown's constituents include the country's largest mutual funds, such as Fidelity Investments and State Street Corp., which objected to paying a fee when it was excesses in the banking industry at the heart of the financial crisis that sparked a worldwide recession.

Why Do Dads Lie?

This article was originally published by Slate on Thursday, June 17, 2010.

Why do dads lie on surveys about fatherhood? And why their lying is socially significant.

By Katherine Reynolds Lewis

A new Boston College study makes the modern American dad look positively Swedish in his dedication to his children and his zeal to participate equally in raising them. The yearlong qualitative study of 33 first-time fathers, released yesterday, found that they viewed themselves as sharing family responsibilities 50-50 with their wives and claimed to devote an average of 3.3 hours each workday to child care. The new dads openly gushed about the way parenthood had changed their priorities and career aspirations. "I love being a father so much more than I thought I would," said one study participant about his new baby girl. "The highlight of my day is in the morning when I hear her start to wake up and I can just go in there and pick her up."

Could that be true? Has the American father adapted so quickly to modern feminist demands? The researchers themselves were somewhat suspicious. After all, the most recent large-scale, benchmark studies on time use found that fathers spend significantly less time on child care than mothers. The Families and Work Institute, for instance, puts fathers at three hours and mothers at 3.8 hours with kids under 13, while Census Bureau time-use surveys found that married men spend about 1.2 hours per weekday caring for children under age 6, while married women spend 2.6 hours on the same activity. (For both benchmark surveys, the most recent year available is 2008.)

The answer, it turns out, is that the men in the Boston College study were probably lying about how they spend their time. But that's no reason to be disappointed. The Boston study relied upon in-depth interviews with men after the fact. Time-use studies involve questions about the previous day's behavior. With in-depth interviews, researchers expect subjects to have imperfect recall or exaggerate behaviors they perceive as being socially desirable—weight loss and breastfeeding are classic examples. But the direction in which they lie is socially significant. Thirty years ago, dads claimed to spend less time with their children than they actually did, since child-rearing was considered women's work. Now they are lying in the opposite direction, which suggests that they perceive doing half of the parenting to be a manly affair.

Obama's King of Cool

This article was originally published by the Fiscal Times on Monday, June 14, 2010.

Obama's performance czar, Jeff Zients, seeks to streamline the bureaucracy and make it cool to work for the government.

By Katherine Reynolds Lewis

Just a week after Jeffrey D. Zients assumed his first management job 18 years ago, he slashed the size of his staff from six to two and replaced one of the remaining individuals. The ambitious 25-year-old was on a fast track at a Washington consulting firm, and he knew he needed the right people in place as quickly as possible.

But when he took over as President Obama's first-ever government performance officer a year ago, there was no way Zients could replicate that quick start. That's because it takes on average five months to hire a worker under the convoluted federal hiring process

"I knew there was no way we would be able to meet the president's challenge to make government service cool again and at the same time have such a broken hiring process that, for the most part, did not have senior leaders spending the appropriate amount of time on people," recalled Zients, a trim 43-year-old who is graying around the temples.

What he did next tells a lot about how Zients attacks a problem: He quickly enlisted Housing Secretary Shaun Donovan to launch a pilot project at his agency to try to dramatically reduce the time it takes to bring a new worker on board. First, department officials mapped the convoluted hiring process, identified logjams and cut out redundancies, which reduced the number of steps from 40 to only 14. Then, they trained hiring managers on techniques for getting involved much earlier and identifying job candidates with the right skills. Finally, they tracked each step in the process to see how close managers were to hitting the time allotted for each stage.

Six months later, the experiment succeeded in reducing the hiring process from an average of 139 days to a mere 77. When Office of Personnel Management Director John Berry and Zients rolled out hiring reform for the entire government in May, they were able to point to this success as evidence that the changes would work.

"Organizations often spend too much time thinking about and planning and preparing for change management," Zients said during a recent interview with The Fiscal Times, over mugs of hot tea from his wife's native South Africa. "The best way to change is to begin to change, and then to celebrate those early wins. That builds a natural momentum."

Banking Bill Leaves Huge Gaps in Financial Reform

This article was originally published by the Fiscal Times on Monday, May 24, 2010.

Financial regulation legislation silent on key issues.

By Katherine Reynolds Lewis

The Senate's action last week to discourage high-risk behavior and regulatory failures has been hailed as the most sweeping reform of the banking and financial system since the 1930s, yet the landmark legislation leaves huge gaps in addressing the causes of the 2008 financial crisis, according to analysts and experts.

Most notably, the Senate-passed bill doesn't address the future of Fannie Mae and Freddie Mac, the mortgage giants at the center of the credit market collapse, which hold $5.5 trillion of residential housing loans, about three-quarters of the market. Nor does the massive, 1,500-page bill establish comprehensive regulation of insurance companies, such as American International Group. Instead, the bill would create an insurance office at the Treasury Department merely to collect data from state insurance regulators.

Obama Administration Speeds Up Hiring

This article was originally published by the Fiscal Times on Tuesday, May 11, 2010.

The Obama administration has ordered sweeping changes to speed up the federal hiring process and to make it less frustrating to apply for a job.

By Katherine Reynolds Lewis

The Obama administration implemented sweeping changes to the federal hiring process Tuesday to make it easier and faster to hire new government employees. Following years of complaints that federal hiring practices were hopelessly mired in red tape and bureaucratic delays, the change is expected to reduce by half the time it takes to fill vacancies and enhance the government’s ability to compete with the private sector for strong talent.

Under the old method, the hiring process took an average of five months, with as many as 40 individual steps and 19 signatures needed, said John Berry, director of the Office of Personnel Management, in unveiling the changes. The overhaul eliminates required knowledge skills assessment essays, which will allow people to apply for a job with a simple cover letter and resume, saving millions of hours and getting rid of cumbersome paperwork. "This initiative is the biggest step forward for fixing federal hiring in over three decades," Berry said. "It will substantially reduce the time and aggravation it takes to find and hire the best. When we've achieved that goal, all of government will work better."

Each year, the federal government adds about 330,000 employees to its 2 million person workforce, through a process that has long been criticized as byzantine and cumbersome by lawmakers, according to the Government Accountability Office and academics. Streamlining hiring will save time and money, and result in better talent, Berry told an audience of government employees, managers and journalists.

"Mounting deficits and debt are placing enormous pressure on government spending. At the same time, trust in government is on the decline," said Jeffrey Zients, Obama's chief performance officer, noting that only 22 percent of Americans trust the government -- a half-century low. "To make sure every tax dollar is spent wisely, we have to get the right people."

In addition to throwing out the knowledge essays, Berry said the changes will:

  • Eliminate the "rule of three," which limited hiring managers to evaluating the top three applicants for a position.
  • Implement "shared registers" so that different divisions of the same agency can view the same applicants' qualifications, rather than having to start the hiring process anew.
  • Cut in half the average length of time to make a hire, to about 80 days. In some agencies, it can take up to 200 days to process a hire, and 140 days is not uncommon.
  • Simplify the lengthy descriptions of open positions to three pages in plain English.

Controversy Dogs Efforts to Regulate Derivatives

This article was originally published by the Fiscal Times on Wednesday, May 5, 2010.

Efforts to regulate financial derivatives trigger memories of a failed effort during the Clinton administration to impose regulations.

By Katherine Reynolds Lewis

As the Senate negotiates sweeping changes to financial regulations, some policy experts are flashing back to the late 1990s, when a Clinton administration appointee named Brooksley Born explored oversight of complex financial contracts known as over-the-counter derivatives.

Born, an attorney, chaired the Commodity Futures Trading Commission. Her efforts to shed light on and regulate the opaque world of derivatives quickly died in the face of vehement opposition from then-Federal Reserve Board chairman Alan Greenspan, Treasury secretary Robert Rubin, powerful members of Congress, and Wall Street executives who opposed increased market regulation.

Now that credit default swaps and mortgage-based derivatives have been implicated in the near collapse of the international financial markets, it's only natural to wonder what the world would have looked like if Born and the CFTC had succeeded in bringing transparency to the $600 trillion derivatives market — or even imposing capital and margin requirements.

"It would've prevented the meltdown because there would've been too much information that would have countered the theory that housing prices would always go up," said Michael Greenberger, who was director of the division of trading and markets at Born's CFTC. "If regulators had seen the gambling, they would've seen that the risk was being repeated by multiple institutions."

Senate Showdown Over Too Big to Fail

This article was originally published by the Fiscal Times on Sunday, April 18, 2010

Democrats and Republicans disagree on the methods to prevent future emergency bailouts.

By Katherine Reynolds Lewis

In the wake of a major government fraud case against Goldman Sachs, the Obama administration and Senate Democrats are poised to forge a consensus this week on a sweeping overhaul of financial regulations. Treasury Secretary Timothy F. Geithner declared yesterday on NBC's "Meet the Press" that Democrats and some Republicans "are very close on this," and suggested that the Securities and Exchange Commission's civil suit last week, charging Goldman Sachs with selling investors a subprime mortgage investment designed to lose value, might provide added impetus for the financial regulatory legislation.

As Senate leaders and the White House attempt to push legislation that responds to the lessons of the global financial crisis, perhaps the single most important question will be whether they can successfully address the potential damage from financial institutions deemed "too big to fail."

It was the collapse of Lehman Brothers and near-death of American International Group (AIG) and other major banks and institutions that prompted unprecedented government intervention in the financial markets in the fall of 2008. As Senate negotiators and the administration exchange ideas this week on the final shape of a financial regulatory reform package, Democrats and Republicans agree on the essential goal of preventing future emergency bailouts, but they disagree markedly on the methods.

The Return

This story was originally published by the Washington Post Magazine on Sunday, April 4, 2010, in conjunction with an online discussion.

A stay at home mom attempts to go back to work after nearly two decades. Can she revive her career?

By Katherine Reynolds Lewis

Amy Beckett put away her reading glasses and file folder and stood up.

It was time. It was almost past time.

She tossed the empty paper cup into the trash and swung open the door to leave the deli on Rhode Island Avenue NW. As Beckett walked into an upscale office lobby, her scarf slipped from around her neck and drifted to the ground. She scooped it up and shoved it into her shoulder bag. She didn't want to arrive late for the job interview.

She handed the security guard a photo ID. Once in the elevator, she looked up at the ceiling and exhaled noisily. "I'm never doing this again," she said, closing her jade-colored eyes for a moment. At the seventh floor, she opened the heavy wooden door to Suite 713, identified in gold lettering as the Law Offices of Stephen H. Marcus. The suite's unique double doors, parquet floor and crown molding signaled its former life as the ticket office for EL AL Airlines. The receptionist looked up from her desk with a smile. She took Beckett's business card and said it would be a few moments until Marcus finished with a client.

With her back straight in a modern brown chair by the door, Beckett folded her hands over the bag on her knees and waited. It was March of last year, three days after she had turned 52 and 17 years since she'd last held a job.

Sue the debt collector

This article was originally published by MSN Money, on Monday, March 29, 2010

Federal law sets clear limits on what debt collectors can do. If their tactics go beyond those limits, you can win money -- and it's a surprisingly easy process.

By Katherine Reynolds Lewis

If you're overdue on your bills, you may know all too well the headaches of phone calls, letters and threats from creditors.

Now some debtors are hitting back by suing when debt collectors violate their rights.

"People will take a lot of crap until it gets to the point where they're so desperate they feel they have nothing to lose by fighting back," said Steven Katz of Tucson, Ariz. Katz is the founder of Debtorboards, where consumers post their frustrations and successes with the collection industry.

Suing is a surprisingly easy process. Federal law lets individuals receive $1,000 for each abuse of their rights, plus any damages or attorney fees. Sometimes, a single phone call from a collector involves multiple violations.

Consumer Financial Protection Plan Divides Congress

This article was originally published by the Fiscal Times on Thursday, March 25, 2010.

Democrats want a watchdog to protect consumers from reckless practices, but Republicans say regulation would be costly and inefficient.

By Katherine Reynolds Lewis

When it comes to overhauling financial regulations, Democrats and Republicans have much to fight over: how best to rein in the derivatives market, establish bank takeover procedures, curb executive pay and end government bailouts of mismanaged institutions deemed "too big to fail."

But as the Senate prepares to debate a bill next month aimed at preventing the behavior that led to one of the worst financial crises in U.S. history, perhaps the most contentious measure is one that would create a regulator devoted to protecting consumers from unscrupulous or reckless practices.

President Obama and House and Senate Democratic leaders believe the proposal is a no-brainer. Unless an independent regulator is looking out for consumers, they say, any financial regulatory reform will fail to prevent the kind of risky behavior and predatory business practices that fostered the 2008 financial meltdown.

Treasury Nominee Languishes in the Senate

This article was originally published by the Fiscal Times on Thursday, March 4, 2010.

While he awaits Senate confirmation, acting Treasury assistant secretary for tax policy Michael Mundaca has seen his job dwindle from a meaty policy role to a more technical position.

By Katherine Reynolds Lewis

Last fall, President Obama picked Michael F. Mundaca, a talented legal mind and political pragmatist, as assistant treasury secretary for tax policy. Former colleagues praised him as a gifted team builder, and many assumed Mundaca would play a central role in overhauling the tax code.

"His skill set is right in the sweet spot of where the activity is going to be," said Mark Weinberger, global vice chairman at Ernst & Young, who held the same spot during the Bush administration and worked with Mundaca at Ernst & Young.

Yet five months later, Mundaca is still waiting for the Senate to confirm his nomination and the administration's agenda doesn't include broad tax reform.

While he serves as acting assistant secretary and a senior advisor on tax policy at the Treasury, his job has dwindled from the meaty policy role seen in previous administrations to a more technical position of defending and implementing policy decisions that are largely made in the White House, according to Treasury observers.

Greece Debt Concern Whipsaws U.S. Dollar

This article was originally published by the Fiscal Times on Friday, Feb. 19, 2010.

When European economies suffer turmoil, the dollar is considered the only safe haven

By Katherine Reynolds Lewis

As European policymakers scramble to resolve fiscal problems in Greece, the fast-changing news about the country's sovereign debt crisis has raised havoc on the value of the euro — and the dollar.

When the situation looked particularly grim, currency traders dumped euros and scooped up U.S. dollars. When things seemed to improve a little, traders bought euros and the U.S. currency weakened again, as was the case this week. Get used to this back and forth, experts say.

"Over the course of the year we're going to see phenomenal volatility," predicted TJ Marta, chief market strategist at Marta on the Markets, a research firm based in Scotch Plains, N.J.

But the ebbs and flows of markets can't obscure the underlying truth that while the United States is on a projected course of massive budget deficits for years to come, the dollar remains the reserve currency for the world. As much as Chinese and other investors may disapprove of U.S. fiscal policies, they don't have a lot of alternatives — either to dollars when it comes to a reserve currency or U.S. Treasury bonds when it comes to a safe investment.

Treasury Reaps Big Returns on TARP Investments

This article was originally published by the Fiscal Times on Thursday, Feb. 11, 2010.

The numbers quell criticism that the bailout would be too costly to taxpayers.

By Katherine Reynolds Lewis

The Treasury has recouped nearly a third of the $545 billion it invested to help rescue U.S. financial institutions and in some cases has reaped substantial returns on those investments.



The strong showing is preliminary, as much of the government’s investment in banks is still outstanding. But it contrasts sharply with widespread criticism that the government bailout of Wall Street was excessive and costly to taxpayers.

The Treasury, for example, made a nearly 24 percent return on its investment in American Express Co., 20 percent on its rescue of Goldman Sachs Group and nearly 17 percent from Morgan Stanley Group, according to an analysis of Treasury data prepared by Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette and an expert on the government’s response to the financial crisis.

Overall, the Treasury has realized more than $15 billion in dividends and equity growth in its investments in the once-troubled financial institutions, according to Treasury Department figures.

"The perception that most of the public had, that this was money poured down a rat hole, was always wrong," said Douglas J. Elliott, a fellow at the Brookings Institution. "We've gotten more back than we expected because the financial sector and even the economy turned around a lot faster than we thought."

The Troubled Asset Relief Program (TARP), enacted in 2008 at the height of the sub-prime mortgage financial crisis, allowed the government to intervene and stabilize many tottering banks and financial institutions by infusing cash when private capital markets dried up. Critics decried the government bailout as an excessive rescue of Wall Street fat cats at the expense of taxpayers and other sectors of the economy, and the Treasury's handling of the program remains a major point of contention on Capitol Hill.

To be sure, the government's $70 billion investment in American International Group (AIG) and the $85 billion spent to bail out General Motors Corp. and Chrysler Group LLC are unlikely ever to turn a profit, leaving the overall TARP program in the hole. Moreover, the healthiest banks repaid TARP first, so that bank investments that remain in the program aren't likely to be as profitable. The combination of an improving economy and limits on executive compensation for TARP recipients has encouraged banks to repay the funds as soon as they are financially able, even when it means taking a loss.

"The fact that we're talking about positive returns is a sign that things have stabilized more than people thought possible, particularly in late '08 or early '09," said David Min, associate director for financial markets policy at the Center for American Progress. "To do a victory lap now would be making the same mistake many banks made, which is focusing on the short term at the expense of long-term health."

The revenue flowing into the TARP program is so robust that President Barack Obama proposed using some funds to make small business loans. "I'm proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat," Obama said in his State of the Union address last month.

This scenario would have seemed unimaginable to many in the fall of 2008, when the world financial markets seemed one nervous trader away from collapse, and the government hurriedly put together the TARP program, initially estimated to cost $700 billion but more recently pegged by Treasury at $545 billion, thanks in part to faster-than-expected improvement in the financial sector.

Recent news reports highlighted the Federal Reserve's most profitable year ever in 2009, as the central bank earned $45 billion on its loans and trading of securities. The Treasury earnings are different, coming directly from the government rescue of the financial sector.

Currently, the bulk of the government's TARP investments falls into seven programs. In descending order of dollar value, they are the Capital Purchase Program (CPP), the auto industry financing program, the AIG bailout, the consumer and business lending initiative, the Home Affordable Modification Program, the Targeted Investment Program (TIP), which is now fully repaid, and the public-private investment program.

So far, Treasury has been repaid $161.9 billion of its initial investments through CPP and TIP, the two TARP vehicles for investing in banks. On top of that, the Treasury has received a return on bank investments of $11.3 billion in dividends and $4 billion in stock warrant proceeds, for a total of $15.3 billion, according to figures the Treasury makes available.

Under the CPP, Treasury bought $205 billion of preferred shares in more than 500 financial institutions, which pay a five percent dividend for the first five years and nine percent a year thereafter. The government also received warrants, which give Treasury the right to buy common stock at a set price. Thus, Treasury receives three forms of revenue from banks participating in this program: (1) repayment of the initial investment, (2) dividends and (3) proceeds from warrant auctions or stock sales, after first redeeming the warrants for stock.

Treasury received a 12 percent rate of return on an annualized basis from the 10 major financial institutions under CPP that have repaid the government and have no outstanding stock warrants, according to an analysis performed for The Fiscal Times by Wilson.

Treasury made 23.4 percent on American Express, 20 percent on Goldman Sachs, 16.8 percent on Morgan Stanley, 11.1 percent on Northern Trust Corp., 10.2 percent on Bank of New York Mellon Corp., 9.2 percent on State Street Corp., 8.8 percent on U.S. Bancorp, 7.8 percent on BB&T Corp., 6.7 percent on Capital One Financial Corp. and 6.4 percent on JP Morgan Chase & Co., according to Wilson’s analysis.

In December, Wells Fargo & Co. repaid its $25 billion CPP investment, on top of $2.7 billion in dividends, and Bank of America Corp. repaid the $45 billion it received through CPP and TIP, after paying $1.4 billion in dividends. Wells Fargo is likely to repurchase its warrants for roughly $910 million, and the Bank of America warrants should fetch approximately $1.3 billion at auction, Wilson estimated. Adding those estimates to the total proceeds would boost Treasury's profits to about $17.5 billion.

"We're doing better than expected because many of the banks repaid TARP sooner than expected," Wilson said. "Whenever anyone pays you back in full with interest, you're never going to lose money."

The Treasury has recouped nearly a third of the $545 billion it invested to help rescue U.S. financial institutions and in some cases has reaped substantial returns on those investments.

The strong showing is preliminary, as much of the government’s investment in banks is still outstanding. But it contrasts sharply with widespread criticism that the government bailout of Wall Street was excessive and costly to taxpayers.

The Treasury, for example, made a nearly 24 percent return on its investment in American Express Co., 20 percent on its rescue of Goldman Sachs Group and nearly 17 percent from Morgan Stanley Group, according to an analysis of Treasury data prepared by Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette and an expert on the government’s response to the financial crisis.

Overall, the Treasury has realized more than $15 billion in dividends and equity growth in its investments in the once-troubled financial institutions, according to Treasury Department figures.

"The perception that most of the public had, that this was money poured down a rat hole, was always wrong," said Douglas J. Elliott, a fellow at the Brookings Institution. "We've gotten more back than we expected because the financial sector and even the economy turned around a lot faster than we thought."

The Troubled Asset Relief Program (TARP), enacted in 2008 at the height of the sub-prime mortgage financial crisis, allowed the government to intervene and stabilize many tottering banks and financial institutions by infusing cash when private capital markets dried up. Critics decried the government bailout as an excessive rescue of Wall Street fat cats at the expense of taxpayers and other sectors of the economy, and the Treasury's handling of the program remains a major point of contention on Capitol Hill.

To be sure, the government's $70 billion investment in American International Group (AIG) and the $85 billion spent to bail out General Motors Corp. and Chrysler Group LLC are unlikely ever to turn a profit, leaving the overall TARP program in the hole. Moreover, the healthiest banks repaid TARP first, so that bank investments that remain in the program aren't likely to be as profitable. The combination of an improving economy and limits on executive compensation for TARP recipients has encouraged banks to repay the funds as soon as they are financially able, even when it means taking a loss.

"The fact that we're talking about positive returns is a sign that things have stabilized more than people thought possible, particularly in late '08 or early '09," said David Min, associate director for financial markets policy at the Center for American Progress. "To do a victory lap now would be making the same mistake many banks made, which is focusing on the short term at the expense of long-term health."

The revenue flowing into the TARP program is so robust that President Barack Obama proposed using some funds to make small business loans. "I'm proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat," Obama said in his State of the Union address last month.

This scenario would have seemed unimaginable to many in the fall of 2008, when the world financial markets seemed one nervous trader away from collapse, and the government hurriedly put together the TARP program, initially estimated to cost $700 billion but more recently pegged by Treasury at $545 billion, thanks in part to faster-than-expected improvement in the financial sector.

Recent news reports highlighted the Federal Reserve's most profitable year ever in 2009, as the central bank earned $45 billion on its loans and trading of securities. The Treasury earnings are different, coming directly from the government rescue of the financial sector.

Currently, the bulk of the government's TARP investments falls into seven programs. In descending order of dollar value, they are the Capital Purchase Program (CPP), the auto industry financing program, the AIG bailout, the consumer and business lending initiative, the Home Affordable Modification Program, the Targeted Investment Program (TIP), which is now fully repaid, and the public-private investment program.

So far, Treasury has been repaid $161.9 billion of its initial investments through CPP and TIP, the two TARP vehicles for investing in banks. On top of that, the Treasury has received a return on bank investments of $11.3 billion in dividends and $4 billion in stock warrant proceeds, for a total of $15.3 billion, according to figures the Treasury makes available.

Under the CPP, Treasury bought $205 billion of preferred shares in more than 500 financial institutions, which pay a five percent dividend for the first five years and nine percent a year thereafter. The government also received warrants, which give Treasury the right to buy common stock at a set price. Thus, Treasury receives three forms of revenue from banks participating in this program: (1) repayment of the initial investment, (2) dividends and (3) proceeds from warrant auctions or stock sales, after first redeeming the warrants for stock.

Treasury received a 12 percent rate of return on an annualized basis from the 10 major financial institutions under CPP that have repaid the government and have no outstanding stock warrants, according to an analysis performed for The Fiscal Times by Wilson.

Treasury made 23.4 percent on American Express, 20 percent on Goldman Sachs, 16.8 percent on Morgan Stanley, 11.1 percent on Northern Trust Corp., 10.2 percent on Bank of New York Mellon Corp., 9.2 percent on State Street Corp., 8.8 percent on U.S. Bancorp, 7.8 percent on BB&T Corp., 6.7 percent on Capital One Financial Corp. and 6.4 percent on JP Morgan Chase & Co., according to Wilson’s analysis.

In December, Wells Fargo & Co. repaid its $25 billion CPP investment, on top of $2.7 billion in dividends, and Bank of America Corp. repaid the $45 billion it received through CPP and TIP, after paying $1.4 billion in dividends. Wells Fargo is likely to repurchase its warrants for roughly $910 million, and the Bank of America warrants should fetch approximately $1.3 billion at auction, Wilson estimated. Adding those estimates to the total proceeds would boost Treasury's profits to about $17.5 billion.

"We're doing better than expected because many of the banks repaid TARP sooner than expected," Wilson said. "Whenever anyone pays you back in full with interest, you're never going to lose money."

Congress Takes a Knife to Obama's Budget


This article was originally published by the Fiscal Times on Thursday, Feb. 11, 2010.

By Katherine Reynolds Lewis and Elaine S. Povich

A week after President Barack Obama unveiled his $3.8 trillion budget, a deeply divided Congress is using the proposal's perceived weaknesses as a starting point for carving up and rewriting the document.