Bernanke faces press, makes history

This article was originally published by Bankrate.com on Wednesday, April 27, 2011.

By Katherine Reynolds Lewis

Federal Reserve Board Chairman Ben Bernanke made history by facing nearly five dozen reporters in an hour-long press conference, the first ever for the U.S. central bank.

With his usual unruffled delivery, Bernanke answered a dozen and a half questions ranging from the effects of long-term unemployment, the value of the dollar and gas prices to his personal feelings about staring down the media corps.

Bernanke reassured the press, and the public watching via Web cast, that the Fed is closely monitoring all indicators to balance economic growth against the threat of inflation.

"It's very hard to blame the American public for being impatient," he said. "The combination of high unemployment, high gas prices and high foreclosure rates is a terrible combination. ... I am very confident that in the long run, the U.S. will return to being the most productive, fastest-growing and most dynamic economy in the world."http://www.bankrate.com/financing/federal-reserve/bernanke-faces-press-makes-history/

The Fed is watching carefully to see the current "moderate recovery" continue and strengthen, with particular hope that the labor market will improve further. For now, the major concern is to establish a sustained recovery, with inflation being of little immediate threat, he said. The central bank has a dual mission to support employment and keep inflation under control.

Flexible jobs = happy worker bees?

While it's no magic bullet and comes with sacrifices from both sides, more offices across the country are offering flexible working arrangements to increase retention, productivity and morale.

This article was originally published by Fortune.com on Wednesday, April 20, 2011.

By Katherine Reynolds Lewis, contributor

When John Parry, CEO at Solix, Inc., arrives at work at around 7 a.m., the office parking lot already has some 80 cars, a testament to his employees' desire to beat rush hour by shifting their work hours earlier than the typical 9-to-5.

But none of those workers had to apply for a flexible work arrangement or win supervisory approval for a schedule change.

"We don't really care when people come in," explains Parry. "We trust Solix staff with million-dollar funding decisions, so we should trust them to work flexibly."

The Parsippany, N.J.-based process outsourcer is among a growing wave of employers that have discovered how workplaces that accommodate employees' desires for flexibility enjoy superior business results, higher productivity and greater retention.

"You see company after company that says, 'We created a more flexible workplace because the turnover level was really high,'" says Ellen Galinsky, president of the Families and Work Institute, a research and advocacy nonprofit that recently released a report on flexible workplaces in partnership with the Society for Human Resource Management.

Flexibility is almost mandatory in a 24-7 global economy, when people may be called on to work evenings in an emergency or to connect with international colleagues, says Galinsky.

Moreover, with 87% of people surveyed by FWI saying that flexibility would be important in their evaluation of a new job, it's a key element of any human resources package. That's not to say that flexibility is a magic bullet or is universally embraced in corporate America -- a whopping 60% of employees feel they don't have enough time for themselves, according to the institute's research.

Crowdfunding Promoted to Help Small Businesses

This article was originally published by the Fiscal Times on Sunday, April 17, 2011.

By Katherine Reynolds Lewis

Many small businesses are still struggling to raise capital in the wake of the Great Recession, despite a flurry of government and private initiatives.

President Obama launched Startup America to encourage entrepreneurship, stressing that small businesses traditionally have been the engine of job creation, and Federal Reserve Board Chairman Ben Bernanke regularly talks up his concern for small businesses and keep tabs on small business funding.

Now there's an effort to exempt startup businesses from the complex U.S. securities registration and filing requirements when they acquire relatively small amounts of loans and equity.

The founder of Startupexemption.com, Sherwood Neiss, says the proposal would facilitate the growth of crowd funding by letting small businesses offer returns to small investors with less paperwork and expense. Crowd funders network and pool money and other resources, usually via the Internet, to support businesses or causes initiated by other people or organizations.

The financial crisis and slow economic recovery have exacerbated the perennial difficulty small businesses face in raising startup capital, experts say. Banks and institutional lenders cut back dramatically on loans, not only because of their losses in the crisis, but also because regulators forced them to hold more capital. And even under normal circumstances, angel investors and venture capital firms tend to offer only large investments -- beyond the needs of many small businesses.

TARP’s $24 Billion Profit: Some Demand a Recount

This article was originally published by the Fiscal Times on Friday, April 1, 2011.

By Katherine Reynolds Lewis

The Treasury Department is crowing about a new analysis that claims the government’s massive bank bailout in response to the 2008 financial crisis will actually end up turning a profit of nearly $24 billion.

Treasury Secretary Timothy Geithner said that while the government’s overriding objective was to “break the back of the financial crisis and save American jobs,” it didn’t hurt that the TARP investments in U.S. banks “delivered a significant profit for taxpayers.”

But whether the government’s Troubled Asset Relief Program will ultimately end up in the black or red is still an open question. And the Obama administration has been slammed by congressional Republicans and some financial experts for restoring Wall Street to profitability through TARP while millions of homeowners continue to struggle with foreclosures and more than 13 million people remain unemployed.

Stripper ‘Consultant’ Strikes Back against Boss

This article was originally published by the Fiscal Times on Thursday, March 31, 2011.

By Katherine Reynolds Lewis

When Ramona Cruz worked as a stripper at three different clubs in Massachusetts, her bosses dictated everything, from her skimpy attire, hair and makeup to the long hours she performed on stage and when she could participate in more lucrative private dances with customers.

Because she was eager for a job, Cruz agreed to work for no wages or benefits, just tips from her customers. Moreover, she had to share part of her tips with the club's other workers. Last fall, Cruz was stunned to learn from a friend that by law she should have been treated as an employee entitled to a minimum wage, overtime and other protections.

Instead, the club owners had gotten around federal and state labor laws for over a decade by classifying her and other exotic dancers as “independent contractors” who were entitled to none of those benefits. Last September, Cruz, 35, the mother of an eight-year-old girl, sued to recover the lost wages, tips and fees she was required to pay to work in the clubs, in three pending class-action suits challenging the classification of strippers as independent contractors.

"You don't feel like an independent contractor because you have to follow all their rules," Cruz, who now works as a home health aide in Boston, told The Fiscal Times. "We had to be there or we got late fees. Whatever they said went."

Unpaid jobs: The new normal?

While businesses are generally wary of the risks of using unpaid labor, companies that have used free workers say it can pay off when done right.

This article was originally published by Fortune.com on Friday, March 25, 2011.

By Katherine Reynolds Lewis

With nearly 14 million unemployed workers in America, many have gotten so desperate that they're willing to work for free. While some businesses are wary of the legal risks and supervision such an arrangement might require, companies that have used free workers say it can pay off when done right.

"People who work for free are far hungrier than anybody who has a salary, so they're going to outperform, they're going to try to please, they're going to be creative," says Kelly Fallis, chief executive of Remote Stylist, a Toronto and New York-based startup that provides Web-based interior design services. "From a cost savings perspective, to get something off the ground, it's huge. Especially if you're a small business."

In the last three years, Fallis has used about 50 unpaid interns for duties in marketing, editorial, advertising, sales, account management and public relations. She's convinced it's the wave of the future in human resources. "Ten years from now, this is going to be the norm," she says.

Economy Grows, But Jobs Don’t

This article was originally published by the Fiscal Times on Thursday, March 24, 2011.

By Katherine Reynolds Lewis

Of all the woes of the Great Recession, one anomaly is the most troubling: How can the economy be growing while unemployment remains so high? The breakdown in the historic relationship between GDP growth and jobs has confounded experts ranging from White House Chief Economist Austan Goolsbee to Cato Institute scholar Mark Calabria.

Under the principle known as Okun's law, named for Arthur M. Okun, an economist who worked for Presidents John F. Kennedy and Lyndon Johnson, a 3 percent increase in U.S. gross domestic product should lead to a 1 percent drop in the unemployment rate. Yet as the U.S. economy rebounds from the latest downturn, the jobless rate remains stubbornly high — as much as 2 percentage points higher than economic theory predicted. Possible explanations include overly cautious employers, a lack of worker mobility and simple measurement error.

New Tax Laws Make Filing a Bureaucratic Nightmare

This article was originally published by the Fiscal Times on Friday, March 18, 2011.

By Katherine Reynolds Lewis

Taxes are never fun, but this year is proving especially painful. Not only did the Internal Revenue Service fail to finalize all its systems and forms until mid-February, some popular tax breaks expired in 2010.

It wasn’t until mid-December that Congress reached a compromise for legislation to extend tax cuts enacted under President George W. Bush that were set to expire at the end of last year. As a result, the IRS wouldn’t accept tax returns filed electronically until mid-February, as it updated its tax guidance, instructions and software, and many tax preparers waited until that point to begin work on clients' returns.

The delay was unavoidable because of the late action by Congress, said IRS spokesman Eric Smith. "Some returns could not be actually sent electronically until mid-February."

This year's headaches reflect the increasingly complicated tax code and contentious debate over tax legislation, which leads to last-minute legislation with short-term compromises. In the near term, lawmakers struggling to agree on a budget -- and pare a projected $1.6 trillion deficit -- are in their fifth month of stop-gap measures to keep the government operating. In the long term, they hope to reduce the federal debt and deficit without sending tax rates through the roof or eliminating cherished federal programs.

"We've had so many changes in tax law in the last 18 months that people are genuinely confused about what the rules are," said Joseph McLeod, tax partner in the Raleigh, N.C. office of Cherry, Bekaert & Holland, a certified public accounting firm. "Tax-return preparation has gotten more lengthy, more complicated. It takes more of our time, so we have to bill more at the very point in time when people want to pay less."

Investors Beware: Return to Stocks May Be Too Late

This article was originally published by the Fiscal Times on Monday, March 7, 2011.

By Katherine Reynolds Lewis

Investors are worried about the federal deficit, still-high unemployment and rising oil prices, which are raising the specter of inflation. But they’re buying stocks, afraid of being left out as major indexes rise to their highest levels in nearly three years. They may be too late.

Individuals tend to sell out of the market near the bottom and buy back close to the top — realizing their losses and missing out on potential gains, experts say. After the flash crash in May 2010, massive amounts of money flowed out of stock mutual funds: $82.3 billion in the eight following months, according to Chicago-based research firm Morningstar. The Standard & Poor’s 500 index went on to double from its low in March 2009, the fastest such increase in the index's history.

The financial crisis and Great Recession shook Americans' confidence in the markets, and investors withdrew $216 billion from stock mutual funds from 2007 through 2010, according to Morningstar. "This was fundamentally different from past bear markets," said Morningstar analyst Kevin McDevitt. "There are a lot of people who felt they didn’t want to play this game anymore and felt the whole system was rigged against them." The S&P is still down about 5 percent from the start of 2007.

Sentiment started to change this January, when $15.8 billion flowed into U.S. equity funds, the biggest January since 2004, though small relative to the $3.5 trillion in overall assets held in the funds. A new Wells Fargo-Gallup poll found that retail investors remain wary of investing in stocks, but the market's climb is pulling many back in. The federal budget deficit — tied with unemployment — is the top worry of individual investors, a concern for 71 percent of those surveyed.

"It's shocking to me that the federal budget deficit would rank ahead of energy prices, ahead of access to credit, ahead of the questions that have dominated the media," said David M. Carroll, a senior executive vice president at Wells Fargo. "It's food for thought for our representatives in Washington."

State Debt Crisis: Preview of Federal Pain to Come

This article was originally published by the Fiscal Times on Monday, Feb. 28, 2011.

By Katherine Reynolds Lewis

As Illinois lawmakers wrestle with a $13 billion budget deficit – the equivalent of half the overall budget for the year – they are finding that simply keeping up with the interest payments on the debt is an onerous task. This year’s price tag: a crippling penalty of more than a half-billion dollars on debt issued in 2010.

Nevada, California and Texas are struggling with deficits as large as 44 percent, 29 percent and 32 percent, respectively, and these and other states will feel the impact of rising borrowing costs. So far, the solutions from both Democratic and Republican governors, including proposals for sharp cuts in government workers' benefits and a scaling back of bargaining rights, have sparked protests in Wisconsin and Ohio.

Beyond the grim implications for cash-strapped states, this scenario offers a preview of the pain that might befall the federal government if investors in U.S. Treasuries start to demand a premium because of uncertainty over the federal fiscal situation. Already, the Obama administration's budget proposal for 2012 projects that interest payments on the national debt will quadruple over the next decade, from $207 billion in 2011to $844 billion in 2021. Interest on debt held by the public is estimated to climb from 7.7 percent of total federal outlays in 2011, to 15.8 percent in 2016. If interest rates rise, those debt costs will climb even higher.

"If we don’t get a handle on our fiscal situation, investors will grow more nervous and demand a higher interest rate to buy our debt," said Mark Zandi, chief economist at Moody's Economy.com. "That, combined with deficits, will start to gobble up our budget and resources and ultimately will swamp us, much like rising interest payments swamped a number of European countries."