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.