Credit card with a 79.9% interest rat

I have jokingly described credit card companies as the crack dealers of the financial world. In the December 17, 2009 article "Credit card's newest trick: 79.9 percent interest," Associated Press personal finance writer Candice Choi describes a company that charges almost 80% annual interest.

NEW YORK (AP) -- It's no mistake. This credit card's interest rate is 79.9 percent.

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card's credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit -- $75 in the first year for a credit line of $300. But the new law doesn't set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

"It's the highest on the market. It's the highest we've ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.

The terms are eyebrow raising, but First Premier targets people with bad credit who likely can't get approved for cards elsewhere. It's a group that tends to lean heavily on credit too, meaning they'll likely incur the steep financing charges.

So for a $300 balance, a cardholder would pay about $20 a month in interest.

First Premier said the 79.9 APR offer is a test and that it's too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards. The bank said "no final decisions" have been made regarding any rate changes for those cards.

First Premier noted that it needed to "price our product based on the risk associated with this market."

The bank declined to specify how many people were offered the 79.9 APR card.

According to First Premier's Web site, the credit cards are serviced by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.

In a mailing sent to prospective customers in October with the revamped terms, First Premier writes "...you might have less-than-perfect credit and we're OK with that." The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.

The letter also states there are no hidden fees that aren't disclosed in the attached form. That's where the 79.9 percent interest rate and $75 annual fee are listed. There's also $29 penalty if you pay late or go over your $300 credit limit.

Even if First Premier doesn't stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate.

The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers.

The bank typically mails offers to subprime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate.

First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won't issue cards as liberally to those with bad credit.

As harsh as First Premier's terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.

"Even when the cost of credit is astronomical, for people in true emergencies, it's much better than not having access to credit," said Papadimitriou.

Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.

Strengthening the Estate Tax to Strengthen the Country

In the December 17, 2009 Huffington Post editorial "Strengthening the Estate Tax to Strengthen the Country," Bill Gates, Sr. argues for strengthening the estate tax:

For eight years I have spoken to anyone who would listen about the importance of creating a strong estate tax, and there is no more critical time for action to be taken by Congress on this matter than now.

In a few days the Senate will break for their holiday recess and if they do not act the estate tax will disappear in 2010. The House of Representatives recently cast a 225-200 vote in favor of Rep. Earl Pomeroy's estate tax proposal, which makes 2009 estate tax law permanent, with a $3.5 million exemption ($7 million for married couples), and a 45% tax rate. If the Senate agrees, the result will still be a loss of $391 billion over 10 years, although that is better than no tax.

Letting the tax disappear entirely will be even more devastating and will cost upwards of a trillion dollars in lost revenue; revenue that supports vital public systems -- including transportation and energy infrastructure, education and healthcare -- that are the foundation of our broad-based prosperity and economic stability.

This is why I believe we must do more and strengthen this levy, which is our county's only tax on inherited wealth and applies to less than 1 percent of American families. The estate tax raises substantial revenue from those with the greatest capacity to pay.

If abolished or weakened, there are only three ways to make up the resulting shortfall: cut spending, raise taxes on the middle class, or pile it on to the national debt and leave it to our children and grandchildren who will inherit the consequences of the decisions we make now. This why I and thousands of other wealthy individuals have joined a campaign led by United for a Fair Economy to call on Congress to strengthen the estate tax.

A common, and misguided, criticism of the estate tax is that individuals who work hard and save their money should be entitled to pass on the fruits of that labor to their family. I am not against working hard, saving money, or taking care of your family.

However we must acknowledge that the person who accumulates wealth in this country was not able to do that independently. The simple fact of living in America, a country with stable markets and unparalleled opportunity fueled in part by government investment in technology and research (something my family has plenty of firsthand experience of), provide an irreplaceable foundation for success and have created a society which makes it possible for some men, women and their children to live an elegant life.

I attended the University of Washington under the G.I. Bill, and then became a lawyer enjoying a successful career that allowed me to provide well for my family so that they in turn were able to create their own wealth. So I believe that those of us who have benefited so greatly from our country's investment in our lives should be asked to give a portion of our wealth back to invest in opportunities for the future.

Society has a just claim on our fortunes and that claim goes by the name estate tax.

Do the Rich Owe America for Their Fortunes?

In his December 17, 2009 Wall Street Journal blog entry, Robert Frank asks "Do the Rich Owe America for Their Fortunes?":

United For a Fair Economy, the left-leaning policy group, held a press call Tuesday to argue for preserving the estate tax before it temporarily expires in 2010.

During the call, Vanguard-founder Jack Bogle made an interesting argument for why the wealthy should pay the tax. In short, he said the wealthy owe a large part of their fortune to the country and its government.

“I’ve known many people in the financial business, who said I’m really proud because I did it all myself,’” he said. “When someone has the temerity to say that to me, and a lot of people do, the first thing I say is, ‘Isn’t that wonderful. You did it all yourself. I think that’s terrific. I don’t know many people that have done that. But tell me, how did you arrange to be born in the United States of America.’”

He added: “Our birthright has created enormous wealth and stability of property and for us to think that we don’t want to pay our fair share of the costs running this nation when our young citizens, let us not forget, are dying in wars out there trying to protect democracy and the nation we built up, it seems to be quite outrageous.”

Bill Gates Sr., father of the Microsoft founder, made a similar argument. He cited economists who estimate that the nation’s stable market for goods and assets adds 30% to the goods we own.

He said 50% of the annual growth in our economy is a function of new technology — technology often created with government support, since it spends $96 billion a year on research and development.

“The largest and most generous venture capitalist in the universe is Uncle Sam,” he said.
“And it’s clear that those who become wealthy did not do it alone. The people owe something back to society that enables them to create that wealth.”

Do you think the wealthy can truly “make it on their own?” What do they owe the government for their success?

Fed holds rates at record low to fuel recovery

In the December 16, 2009 article "Fed holds rates at record low to fuel recovery," Associated Press economics writer Jeannine Aversa reports the Federal Reserve System will maintain extremely low interest rates to encourage banks to lend more funds in an effort to increase the aggregate demand for newly produced goods and services.

WASHINGTON – The Federal Reserve pledged Wednesday to hold interest rates at a record low to drive down double-digit unemployment and sustain the economic recovery.

The Fed noted that the economy is growing, however slowly. And turning more upbeat, it pointed to a slowing pace of layoffs.

Still, Fed Chairman Ben Bernanke and his colleagues gave no signal that they're considering raising rates anytime soon. They noted that consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.

Against that backdrop, the Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December. And it repeated its pledge, first made in March, to keep rates at "exceptionally low levels" for an "extended period."

In response, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That's its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They're especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

Michael Darda, chief economist at MKM Partners, predicted that rates would stay where they are for most of next year.

"We believe the Fed is essentially out of the picture until late 2010 or early 2011," Darda said. The Fed's "optimism was constrained by a long list of caveats," he added.

Noting the stabilized financial markets, the Fed said it expects to wind down several emergency lending programs when they are set to expire next year. That seemed to strike a confident note that the Fed thinks it can gradually lift supports it provided at the height of the financial crisis.

The central bank made no major changes to a program, set to expire in March, to help further drive down mortgage rates.

The Fed in on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It has bought $845 billion so far. It's also on pace to buy $175 billion in debt from those groups under the same deadline. So far, the Fed has bought nearly $156 billion.

Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 4.81 percent, Freddie Mac reported last week. That's down from 5.47 percent last year.

The Fed said it has leeway to hold rates at super-low level because it expects that inflation will remain "subdued for some time."

Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

A government report out Wednesday showed that inflation is in check despite a burst in energy prices. Energy prices, however, are already in retreat.

Bernanke, who's seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.

At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he's prepared to sop up all the money. Some worry that the Fed's cheap-money policies will stoke inflation.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.

The nation's unemployment rate dipped to 10 percent in November, from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won't ramp up hiring until they feel confident the recovery will last.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year.

EU drops Microsoft browser charges

In the December 16, 2009 article "EU drops Microsoft browser charges," Associated Press business writer Aoife White reports:

BRUSSELS – The European Union has dropped long-standing antitrust charges against Microsoft Corp. after the company agreed to give users of the Windows operating system a choice of up to 12 other Web browsers.

Under the terms of the deal with regulators announced Wednesday, Microsoft will avoid further EU fines if it provides a pop-up screen that lets European users — from March — replace Microsoft's Internet Explorer or add another browser such as Mozilla's Firefox or Google's Chrome. Internet Explorer is used by a majority of global internet users.

The deal will also allow computer manufacturers to ship PCs without Internet Explorer in Europe.

Neelie Kroes, the EU's competition commissioner, claimed the deal was an "early Christmas present for more than hundreds of millions of Europeans" who stood to benefit from having "effective and unbiased choice" between Microsoft's Internet Explorer and competing browsers.

"The (European) Commission has resolved a serious competition concern for a key market for the development of the Internet," she told reporters.

"It is as if you went to the supermarket and they only offered you one brand of shampoo on the shelf, and all the other choices are hidden out the back, and not everyone knows about them," she said. "What we are saying today is that all the brands should be on the shelf."

Microsoft general counsel Brad Smith said the company was pleased with "final resolution of several long-standing competition law issues in Europe" and looked forward to building "on the dialogue and trust that has been established between Microsoft and the Commission."

Wednesday's deal comes after more than a decade of EU antitrust action against the world's biggest software company that has already seen it pay euro1.7 billion in fines.

Microsoft is not totally out of the woods yet, as it was warned it can still be fined up to 10 percent of yearly global turnover without regulators having to prove their case if it doesn't stick to this commitment for the next five years.

Kroes confirmed she was still looking at complaints from software rivals that the company wasn't sharing key information that help others make products compatible with Microsoft software.

In January, the EU charged Microsoft with monopoly abuse for tying its browser to the Windows operating system software used on most desktop computers — this, they said, was an "artificial distribution advantage" that rivals didn't have.

Kroes said a lot of Internet content was specially adapted to Internet Explorer. since the browser was present "on virtually every PC in Europe." Other software makers complain that this caused technical problems that made it hard to use other browsers.

The EU said Monday that a pop-up choice screen would eliminate those concerns when it is downloaded as an automatic update to all users of Windows XP, Windows Vista and Windows 7 in Europe who have Internet Explorer set as their default browser. Other users will be asked if they want it.

The choice screen will list the 12 most-widely used Web browsers running on Windows — listing five prominently. Users can pick and download one or several of them, choosing from Apple's Safari, Chrome, Internet Explorer, Firefox, Opera, AOL, Maxthon, K-Meleon, Flock, Avant Browser, Sleipnir and Slim Browser.

Some 100 million computers will likely display the screen by mid-March and around 30 million new computers will show it over the next five years, the EU said.

People can keep Internet Explorer if they want — but they will for the first time be exposed to other browsers, providing a massive new audience to many smaller browser makers.

The choice of browsers will be updated every six months on the basis of several independent sources of market share information.

Microsoft will report back regularly to the European Commission, starting in six month's time, on how the rollout of the screen is going — and could make changes if the EU asks. The EU is also able to review the entire deal at the end of 2011.

Microsoft will also provide more information to help software developers make products compatible with Windows, Windows Server, Office, Exchange and SharePoint and will publish what the EU says is an "improved version" of an offer that Microsoft first made in July.

The EU says it is still investigating whether Microsoft is holding back some of the key data that developers need to make products that work with its software.

Regulators said they welcomed Microsoft's move but that the offer was still "informal" and wouldn't end their probe. But they offered some hope saying they would "carefully monitor the impact" of the deal on the market.

Thomas Vinje, a lawyer for browser company Opera and the European Committee for Interoperable Systems, said it was "not yet clear" that Microsoft's offer would create "a more level competitive playing field where open source software is not subject to Microsoft patent fear uncertainty and doubt."

Vinje helped file the complaints to EU regulators that triggered the investigations into Microsoft's browsers and interoperability sharing.

On The Net
http://www.browserchoice.eu.

Ben Bernanke - TIME magazine's Person of the Year - 2009

In the December 16, 2009 TIME article "Ben Bernanke," Michael Grunwald describes the man who the magazine named Person of the Year for 2009:

A bald man with a gray beard and tired eyes is sitting in his oversize Washington office, talking about the economy. He doesn't have a commanding presence. He isn't a mesmerizing speaker. He has none of the look-at-me swagger or listen-to-me charisma so common among men with oversize Washington offices. His arguments aren't partisan or ideological; they're methodical, grounded in data and the latest academic literature. When he doesn't know something, he doesn't bluster or bluff. He's professorial, which makes sense, because he spent most of his career as a professor.

He is not, in other words, a typical Beltway power broker. He's shy. He doesn't do the D.C. dinner-party circuit; he prefers to eat at home with his wife, who still makes him do the dishes and take out the trash. Then they do crosswords or read. Because Ben Bernanke is a nerd.

He just happens to be the most powerful nerd on the planet.

Bernanke is the 56-year-old chairman of the Federal Reserve, the central bank of the U.S., the most important and least understood force shaping the American — and global — economy. Those green bills featuring dead Presidents are labeled federal reserve note for a reason: the Fed controls the money supply. It is an independent government agency that conducts monetary policy, which means it sets short-term interest rates — which means it has immense influence over inflation, unemployment, the strength of the dollar and the strength of your wallet. And ever since global credit markets began imploding, its mild-mannered chairman has dramatically expanded those powers and reinvented the Fed.

Professor Bernanke of Princeton was a leading scholar of the Great Depression. He knew how the passive Fed of the 1930s helped create the calamity — through its stubborn refusal to expand the money supply and its tragic lack of imagination and experimentation. Chairman Bernanke of Washington was determined not to be the Fed chairman who presided over Depression 2.0. So when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed's balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn't just reshape U.S. monetary policy; he led an effort to save the world economy.

No wonder his eyes look tired.

The last Fed chair, Alan Greenspan, inspired an odd cult of personality. Bernanke hoped to return the Fed to dull obscurity. But his aggressive steps to avert doomsday — and his unusually close partnerships with Bush and Obama Treasury Secretaries Henry Paulson and Timothy Geithner — have exposed him and his institution to criticism from all directions. He's Bailout Ben, the patron saint of Wall Street greedheads, or King Ben, the unelected czar of a fourth branch of government. He's soft on inflation, bombarding the country with easy money, or soft on unemployment, ignoring Main Street's cries for even more aggressive action. Bleeding-heart liberals and tea-party reactionaries alike are trying to block his appointment for a second four-year term. Libertarian Congressman Ron Paul is peddling a best seller titled End the Fed. And Congress is considering bills that could strip the Fed of some of its power and independence.

So here he is inside his marble fortress, a technocrat in an ink-stained shirt and an off-the-rack suit, explaining what he's done, where we are and what might happen next.

He knows that the economy is awful, that 10% unemployment is much too high, that Wall Street bankers are greedy ingrates, that Main Street still hurts. Banks are handing out sweet bonuses again but still aren't doing much lending. Technically, the recession is over, but growth has been anemic and heavily reliant on government programs like Cash for Clunkers, not to mention cheap Fed money. "I understand why people are frustrated. I'm frustrated too," Bernanke says. "I'm not one of those people who look at this as some kind of video game. I come from Main Street, from a small town that's really depressed. This is all very real to me."

But Bernanke also knows the economy would be much, much worse if the Fed had not taken such extreme measures to stop the panic. There's a vast difference between 10% and 25% unemployment, between anemic and negative growth. He wishes Americans understood that he helped save the irresponsible giants of Wall Street only to protect ordinary folks on Main Street. He knows better than anyone how financial crises spiral into global disasters, how the grass gets crushed when elephants fall. "We came very, very close to a depression ... The markets were in anaphylactic shock," he told Time during one of three extended interviews. "I'm not happy with where we are, but it's a lot better than where we could be."

Bernanke also has thoughts about the economy's future — and we'll get to them soon. First, though, we should explain why his face is on the cover of this issue. The overriding story of 2009 was the economy — the lousiness of it, and the fact that it wasn't far lousier. It was a year of escalating layoffs, bankruptcies and foreclosures, the "new frugality" and the "new normal." It was also a year of green shoots, a rebounding Dow and a fragile sense that the worst is over. Even the big political stories of 2009 — the struggles of the Democrats; the tea-party takeover of the Republicans; the stimulus; the deficit; GM and Chrysler; the backlash over bailouts and bonuses; the furious debates over health care, energy and financial regulation; the constant drumbeat of jobs, jobs, jobs — were, at heart, stories about the economy. And it's Bernanke's economy.

In 2009, Bernanke hurled unprecedented amounts of money into the banking system in unprecedented ways, while starting to lay the groundwork for the Fed's eventual return to normality. He helped oversee the financial stress tests that finally calmed the markets, while launching a groundbreaking public relations campaign to demystify the Fed. Now that Obama has decided to keep him in his job, he has become a lightning rod in an intense national debate over the Fed as it approaches its second century.

But the main reason Ben Shalom Bernanke is TIME's Person of the Year for 2009 is that he is the most important player guiding the world's most important economy. His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world.

The Man from Main Street

Before George W. Bush brought him to Washington, Bernanke's only political experience was on his local school board. His friends didn't even know he was a Republican. His only leadership experience was chairing Princeton's economics department; he liked to joke that his major decisions involved what type of bagels to order for faculty meetings. Even after he took over the Fed, he never expected all this drama — which is to say he utterly failed to foresee the global financial implosion. But when credit markets disintegrated, he had the ideal background to respond. "It's like a novel," marvels Fed governor Daniel Tarullo. "It was the right man in the right place at the right time." It was as if his entire life had been preparation for this crisis.

Ben Bernanke was the smartest kid in Dillon, S.C., a small farming town on the Little Pee Dee River, which smelled like tobacco. His mother Edna was a teacher; his father Phil was a pharmacist. Ben inherited their love of learning. "He always wanted me to read to him," Edna recalls. "Then one day he said, Hey, I can read myself!'" He skipped first grade. He won the state spelling bee in sixth grade, though he botched edelweiss at the nationals in Washington, presumably because The Sound of Music hadn't made it to Dillon. In high school, he taught himself calculus.

It was the Depression that lured the family to Dillon. Phil's father Jonas Bernanke, an Austro-Hungarian army officer in World War I, had been struggling in the drugstore business in New York City after the stock-market crash of 1929. Credit was tight. Customers were broke. So when he saw an ad for a pharmacy for sale in Dillon, he decided to make a new start in the South. The Jay Bee Drug Co., named for his initials, became a local fixture, an old-fashioned family business on, yes, Main Street.

Today Bernanke tends to romanticize Dillon, emphasizing his Main Street middle-class roots. He says his summer jobs working construction at a hospital and waiting tables at the South of the Border tourist trap helped him appreciate working-class values. But as a kid, he couldn't wait to get out. "Me and Dillon," he sighs. "It's a funny psychodrama." The Bernankes were outsiders, an observant Jewish family in a tight-knit Christian community where social life revolved around church, running one of the few businesses that would extend credit to blacks. Dillon's schools were segregated until Bernanke's senior year, inspiring him to write a Remember the Titans–style novel about an integrated football team when he was a teenager. Once, his house was egged after he ate dinner with a black friend named Kenneth Manning at the local Shoney's.

Really, though, Bernanke wanted out of Dillon not because it was hostile but because it was confining. "It was a provincial Southern town, and anybody with any sense could see that Ben was unbelievably bright," says his old friend Manning, another restless intellect, who attended college and graduate school at Harvard and is now a professor at MIT. As a boy, Ben wrote poetry about a humble but clever snail who outwits a stuck-up rabbit. ("You shouldn't be so proud of speed. It's a very bad habit!") In a culture where the quarterback was king, Bernanke was an awkward geek who played alto sax in the marching band. It was Manning who showed the way out, telling him about Harvard, pestering him to apply. "I didn't want him to waste all that talent," Manning says.

At Harvard, Bernanke discovered that he could no longer get straight A's without studying; self-taught calculus was not ideal preparation for advanced mathematics. He ditched three majors — math, physics and English — before settling on economics. But he quickly became an academic star, eventually graduating summa cum laude and pursuing his doctorate at MIT. "He was substantially the same guy he is today — very quiet, very serious, very, very capable," recalls his MIT adviser, Stanley Fischer, who is now Israel's central banker. "He didn't try to do fancy or complex work just to show off. He wanted to answer real questions." Bernanke went on to teach at Stanford, then received tenure at Princeton when he was only 31, but he was never the kind of smart guy who needed to remind everyone how smart he was. "He came across as modest and unassuming then, and he still does," says Mervyn King, who had an office next to Bernanke's when they were young professors and is now Britain's central banker. "He's always been a scholar's scholar."

Bernanke's life as a scholar was fairly typical. He married a fellow bookworm, Anna, a teacher who is now planning a school for underprivileged kids in Maryland. They have two children, a son in medical school and a daughter who just finished college. Bernanke got sucked into academic politics, chairing his fractious department for six long years. Aside from his bagel-related responsibilities, he helped launch a center for finance studies, recruited top-notch economists and dissuaded them from bludgeoning one another. Anna even persuaded him to serve two terms on the school board, where he helped stop angry antitax activists from stripping funding for education. What was interesting about Bernanke's life as a scholar — especially considering what came next — was his scholarship.

The Depression Buff

Bernanke says his first spark of interest in the Great Depression came as a boy listening to his mother's parents on their porch in Charlotte, N.C., where his grandfather was a kosher butcher. Their family had survived pogroms in Lithuania, but the story that captivated Bernanke involved a town full of shoe factories that closed during the Depression, leaving the community so poor that its children went barefoot. "I kept asking, Why didn't they just open the factories and make the kids shoes?'" he recalls. He would devote his career to questions like that.

Bernanke calls the Depression "the holy grail of macroeconomics," the ultimate intellectual challenge. To understand geology, he says, study earthquakes; to understand the economy, study the Depression. "I don't know why there aren't more Depression buffs," he wrote in a book of essays about the period. "The Depression was an incredibly dramatic episode — an era of stock-market crashes, breadlines, bank runs and wild currency speculation, with the storm clouds of war gathering ominously in the background... For my money, few periods are so replete with human interest."

The first thing any Depression scholar comes to understand is that nothing — not hyperinflation, megadeficits or irked Chinese creditors — is as bad as a full-on Depression. A collapse in the "aggregate demand" for goods and services that makes an economy hum can be irreversible. Businesses fail, so workers lose jobs, so consumer spending declines, so more businesses fail. Depression scholars — including Bernanke — tend to see the Hoover Administration's approach of balancing budgets and tightening belts during the downturn as a tragic mistake. They embrace the Keynesian view that aggressive government action backed by government money is needed to reverse death spirals by restoring confidence and reviving demand. Get people money, and they can buy shoes for their barefoot kids, so shoe factories can reopen and rehire, which gets more people money. "People saw the Depression as a necessary thing — a chance to squeeze out the excesses, get back to Puritan morality," Bernanke says. "That just made things worse." In contrast, the Roosevelt Administration's New Deal stimulus and try-everything attitude made real, albeit uneven, progress against the downturn.

But Bernanke's main academic focus was the central role of monetary policy and the Fed in creating the catastrophe. So let's take a moment for a quick Fed primer. The Fed's central function is its dual mandate to steer the economy toward stable prices and maximum employment through monetary policy. To rev up a weak economy, it can lower interest rates by buying Treasury bonds or other safe securities, essentially printing money and dumping it into the banking system with a mouse click. Loose money can encourage banks to lend and firms to hire. This tends to make people happy but can increase inflation risks and weaken the dollar, which can make markets nervous and destroy the value of savings. Loose money can also provide the fuel for financial explosions by incentivizing wild risk-taking. Conversely, to apply brakes to an overheated economy and guard against inflation and asset bubbles, the Fed can raise interest rates by selling securities and contracting the money supply — as the saying goes, taking away the punch bowl as the party starts.

The Fed is also the nation's lender of last resort during financial panics, the original rationale for its creation in 1913. Traditional banks serve a vital economic function, providing safe places to park savings, then lending out the deposits so that borrowers can buy homes, start businesses and put the money to work. But banks are inherently vulnerable to breakdowns in confidence: when nervous depositors rush to withdraw their cash, even a solvent bank can run low on ready funds, which only intensifies the panic. After J.P. Morgan had to organize a private cash infusion to quell a 1907 panic, financiers persuaded Congress to create a central bank that could lend emergency money to stop runs, so that illiquid but otherwise healthy institutions wouldn't have to shut their doors.

Unfortunately, the Fed's leaders didn't comply after the Great Crash in 1929. Instead of lending freely, they let one-third of the nation's banks fail. Instead of lowering interest rates and expanding the money supply to spur the economy, they raised rates and tightened money, obsessing over inflation and the dollar's strength when they should have worried about deflation and runaway unemployment. Bernanke was deeply influenced by economist Milton Friedman's critiques of the Fed, and after joining its board in 2002, he apologized on its behalf at Friedman's 90th birthday party: "Regarding the Depression: You're right. We did it. But thanks to you, we won't do it again."

Bernanke's research added key nuances to the blame-the-Fed thesis. He showed that the Depression was caused not just by insufficient money sloshing around the system but also by clogged credit channels that prevented that money from flowing toward potentially productive borrowers when too many banks failed. He also outlined a "financial accelerator" effect in which disrupted financial markets increase the cost of credit, which intensifies downturns, which further increases the cost of credit. And he frequently explored the self-fulfilling nature of economic uncertainty, showing how it dissuades employers from hiring, consumers from spending and lenders from lending. The economy, after all, is a confidence game. That's why financial analysts use psychological phrases like "jittery markets" and "economic anxiety." It's no accident that the word credit comes from the Latin word for belief.

"Ben understood more clearly than anyone how a crisis of confidence can create a domino effect," says Liaquat Ahamed, author of Lords of Finance, a vivid history of the misguided central bankers who produced the Depression. It's one of Bernanke's favorite books, except that he wishes he had written it himself; he was working on a similar history for Princeton University Press before he was summoned to Washington in 2002.

His working title was The Age of Delusion.

"Once He Got It, He Really Got It"

Bernanke became a Fed governor at the height of the Age of Greenspan, shortly after Bob Woodward's biography hailing the "Maestro" but before John McCain's quip that if Greenspan died, he should be propped up at the Fed like the corpse in Weekend at Bernie's. Bernanke quickly emerged as a staunch defender of the Greenspan Fed and its loose monetary policies. He suggested that raising interest rates to deflate the dotcom bubble before it popped would have been like using a sledgehammer to perform brain surgery. He delivered a call to arms against deflation, proposing ways the Fed could keep juicing the economy even if rates fell to zero. When he took over the Fed in 2006, after an uneventful eight-month White House stint leading Bush's Council of Economic Advisers, he said his top priority would be continuing Greenspan's policies. "Ben and I have never had a serious disagreement," Greenspan says.

In fact, Bernanke did make subtle changes, pushing for more transparency and clarity, speaking last instead of first at rate-setting meetings to avoid imposing his views. And while Greenspan had been laissez-faire about the Fed's oversight responsibilities, Bernanke pushed through long-overdue subprime-lending reforms in 2007. Still, Bernanke was as clueless as Greenspan about the coming storm. He dismissed warnings of a housing bubble. He insisted that economic fundamentals remained strong. In March 2007, he assured Congress that "the problems in the subprime market seem likely to be contained." The day before the global crisis erupted with a run on a French bank, the Fed was still saying its primary concern was inflation. "Bernanke had no idea what was going on," a foreign central banker tells Time. "Once he got it, he really got it, and he acted swiftly and decisively. But wow! It took a while."

Bernanke concedes that he failed to anticipate how fragile such an overleveraged and interconnected system could be, how fear about a $1 trillion subprime mess could paralyze a $60 trillion global economy, how overnight-lending markets that got banks and corporations through the day could seize up overnight. He didn't share Greenspan's ideological faith that markets always know best, but he was surprised how spectacularly financial firms misjudged risk in their own portfolios, how collateralized debt obligations, credit-default swaps and other exotic financial weapons of mass destruction blew up in their faces. "None of us appreciated what a jury-rigged thing the financial system had become," he says. And while the Fed clearly blew its supervision of bank holding companies like Citigroup, it wasn't responsible for investment banks like Bear Stearns and Lehman Brothers, the housing enterprises Fannie Mae and Freddie Mac or the other untraditional financial contraptions whose troubles drove the crisis. The Fed was not in charge of monitoring risks to the entire system either. No one was. "Of course there were things we could have done better," he says, "but this was a perfect storm."

Once Bernanke realized a disaster was unfolding, he made a conscious effort to project calm, even when he was working seven days a week and all hours of the night, even when the Wall Street types around him were screaming and cursing like stressed-out sailors. "He decided he wouldn't be a deer in the headlights and wouldn't let the world blow up," recalls Columbia University economist Frederic Mishkin, who was on the Fed board at the time. He also made a conscious decision to avoid the mistakes made by the bankers of the 1930s — not only their stingy refusals to supply cash but also their inflexible inside-the-box thinking. He hung their picture on his office wall. He held "blue sky" brainstorming sessions to solicit unorthodox ideas. An obscure legal provision gave the Fed broad latitude in "unusual and exigent circumstances," and he did whatever it took. "In exceptional circumstances," says European Central Bank president Jean-Claude Trichet, "he has done exceptional things."

"A War of Necessity"

Today the second-guessers are running wild. Why didn't the Fed stop bailed-out companies from handing out lucrative dividends and bonuses? Why pay off AIG's creditors in full? Why save Bear Stearns but not Lehman Brothers? "It's the price of success: people start to think you're omnipotent," Bernanke says. "We say we didn't have the authority, and it's Oh, you're the Fed. You could've come up with something.'"

The Fed has become the new Trilateral Commission; no conspiracy theory is too far-fetched. There's a vivid example on YouTube, a video titled "Florida Congressman Alan Grayson Laughs in Ben Bernanke's Face — Priceless!" The rabble-rousing Democrat, wearing a shiny tie festooned with dollar bills, grills Bernanke (and mispronounces his name) about $553 billion worth of currency swaps the Fed made with foreign central banks that ran low on dollars during the credit crunch. This was textbook central banking: pumping liquidity into markets during a panic. The swaps were safe, interest-bearing loans and didn't cost taxpayers a dime. But Grayson seems to think he's uncovered a nefarious handout to shadowy foreigners. The laughter comes after he sneers that the dollar rose 20% during these swaps and asks if that's a coincidence. Bernanke pauses, then replies, "Yes."

Ha-ha. Bernanke is right. The dollar strengthened because panicky investors were desperate for safe assets; that's why the swaps were so desperately needed. Unfortunately, YouTube doesn't provide Fed-to-English subtitles.

Bernanke has tried harder than any previous Fed chairman to explain his actions to the public, holding town-hall meetings, writing Op-Eds, even granting a few interviews. He has testified before Congress 13 times this year, and unlike the intentionally incomprehensible Greenspan, he has tried to be clear. But this is confusing stuff, and the Fed's by-any-means-necessary approach to the crisis has made it a juicy target. "We were the most aggressive central bank in the history of the world," says Fed governor and Bernanke confidant Kevin Warsh. The Fed used its magic money to shovel out more than $1.6 trillion worth of unconventional loans and is now buying over $1.7 trillion worth of unconventional assets. Here are some of the ways it has broken new ground:

The Zero Option. There was nothing unusual about lowering interest rates to boost a shaky economy, but in December 2008, Bernanke became the first Fed chairman to drop rates as low as they could go. "People always talk about central banks taking away the punch bowl, but when demand was falling so rapidly, Ben had to put the punch bowl on the table and say, Let's party!'" explains King, the governor of the Bank of England. A year later, rates remain near zero, for maximum monetary stimulus, and the Fed's rate-setting committee has signaled they will stay there for the foreseeable future.

Worldwide Outreach. Bernanke's pragmatic, plainspoken, data-driven approach has been a hit with his fellow central bankers, which has helped his efforts to forge a new global approach to global finance. "In our world, what counts are the fundamentals, and there's no show-off with him," Trichet says. Bernanke is in constant contact with Trichet, King and other key foreign players, and at one point he coordinated a six-nation rate cut to try to calm gyrating markets — another first.

The New Credit Channels. Bernanke has taken his research to heart, providing not just more money but targeted money, thawing out frozen credit markets and debuting seven blue-sky lending programs. When investors stopped buying the corporate paper that firms sell in overnight markets to meet their payroll, the Fed stepped in to buy it. When financing for securities backed by car loans, student loans, credit cards and mortgages dried up, the Fed opened new spigots to keep those markets open as well. This is one way the Fed's aid to Wall Street directly assisted Main Street, helping finance an estimated 3.3 million household loans, 100 million credit cards and 480,000 small-business loans. Bernanke took heat for substituting public for private credit, but it worked, because most of those private markets are functioning again. The emergency programs are all scheduled to wind down by June, and more than 80% of the loans have already been repaid, quietly returning billions of dollars in profits to taxpayers.

The Buying Binge. Bernanke wasn't kidding in 2002 when he claimed the Fed would still have ammunition to stimulate the economy if interest rates ever hit zero. This year he's gone on an astonishing shopping spree with conjured money, including a $1.25 trillion foray into mortgage-backed securities that represents an unprecedented intervention into a specific economic sector. The Fed has not only injected more liquidity into the economy but has directed it at the battered housing market, helping slash mortgage rates to their lowest levels since the 1940s. (The Bernankes recently refinanced their Capitol Hill townhouse after their adjustable-rate mortgage exploded, switching to a 30-year fixed rate of about 5%.) The Fed plans to stop buying next spring, but it's not clear when it will start thinning its bloated balance sheet. (Watch the video "Why TIME Chose Ben Bernanke.")

The Rescue Missions. Bernanke has received the most attention — and flak — for his work with Paulson and Geithner to save financial giants from modern-day runs. The Fed financed a private takeover of Bear Stearns, assisted public takeovers of Fannie and Freddie, helped Bank of America swallow Merrill Lynch, tried unsuccessfully to prevent the globe-rattling demise of Lehman Brothers and engineered the epically distasteful bailout of the notorious AIG. Bernanke also helped lead the charge for the $700 billion Troubled Asset Relief Program (TARP), touting it as the only alternative to megadisaster.

None of this was pretty, and reasonable people can disagree about the judgment calls. The Fed is supposed to lend only against safe collateral; the Bear and AIG deals clearly crossed the Rubicon into risk. Letting Lehman fail nearly croaked the global economy. Saving AIG — an insurance company! — the next day seemed strangely inconsistent. Maybe the Fed could have devised a way to restrict bonuses at rescued firms while giving creditors haircuts. Maybe TARP could have required bailed-out banks to lend more. Certainly, all the interventions created moral hazard, sending a perverse message that "too big to fail" financial firms will be rescued no matter how badly they screw up, encouraging Wall Street traders to start gorging on risk again.

But that's what happens in panics when leaders actually try to preserve the financial system. The central bankers of the 1930s avoided moral hazard but betrayed the world. Bank runs are even scarier now that they don't require an actual run on an actual bank. Billions of dollars can be withdrawn with a keystroke, and all sorts of nonbank players are now dangerously intertwined with financial markets. Bernanke had to act, and it's not clear how the Fed could have saved Lehman without a buyer or administered haircuts to AIG's creditors without a bankruptcy judge. In June, Bernanke was savaged on Capitol Hill for supposedly pressuring Bank of America to buy Merrill; by December, Bank of America was healthy enough to repay its $45 billion in TARP aid. In fact, all but one of the 19 financial behemoths subjected to stress tests have received decent bills of health, and taxpayers are on track to profit from TARP's wildly unpopular bank bailouts. Bernanke says major financial crises generally cost nations 5% to 20% of their national output. This panic seems likely to cost the U.S. a fraction of 1%. "How much would you pay to avoid a second Depression?" he asks. "I mean, this is a pretty good return on investment."

Now that the fire is out, it's easy to attack the firefighters for getting the furniture wet or holding their hoses improperly. "The fire metaphor doesn't even do it. The Fed is more like the Pentagon," says Geithner. "It defends the freedom and security of Americans from existential threats ... This wasn't a war of choice. It was a war of necessity." And they won.

"There Aren't Easy Solutions"

But it's hard to tell in places like Dillon, where unemployment is now over 17%. Bernanke's childhood home went into foreclosure; his junior high is so dilapidated that Obama repeatedly cited it as a symbol of hard times after a 2008 campaign visit. A Dillon student was an honored guest at his first speech to Congress, but recently moved away after her mother lost her job as a welder.

Bernanke declared in September that the recession was ending, but he says it might feel like a recession for quite a while. Unemployment is a so-called lagging indicator, partly because beat-up businesses tend to be gun-shy about hiring after a downturn and partly because it takes modest growth just to absorb new workers and keep the jobless rate constant. The Fed is forecasting slightly stronger growth for the next few years, but it still expects 7% unemployment as late as 2012. "I shudder to think what the world would be like if Ben hadn't been running the Fed," former Secretary Paulson says. "It's just hard to explain that yes, we're in deep doo-doo, but we would have been in much deeper doo-doo."

Is there anything to be done? The Fed can't lower interest rates below zero, but liberals like New York Times columnist Paul Krugman — a Nobel-winning economist who was recruited to the Princeton faculty by Bernanke — are clamoring for even more action to rev the economy. At the same time, inflation hawks in the blogosphere, Congress and even the Fed's rate-setting committee are warning of new asset bubbles, soaring consumer prices and a collapse of the dollar if Bernanke doesn't reverse course and start tightening the money supply soon.

So here he is again, chatting in his grand office with the Rauschenberg on the wall and the economic ur-texts on the shelves. He chooses his words carefully. He knows they move markets. He's also awaiting confirmation by the Senate; socialist Bernie Sanders and ultraconservative Jim DeMint are both holding it up, so he doesn't want to make waves. But while he doesn't put it quite this bluntly, he implicitly makes a case for doing nothing, for waiting to see how the recovery plays out. He suggests that pumping more money into banks that are already flush with reserves could be like pushing on a string, increasing liquidity but not lending. For now, the Fed is merely instructing its supervisors to lend more. The days of whatever it takes are apparently over. "The additional steps aren't as obvious or clear as the ones we've already taken," Bernanke says. "It's an enormous problem. There aren't easy solutions."

Is he saying it's up to Congress to keep jamming on the accelerator with another fiscal stimulus? Well, no. Bernanke supported the $787 billion stimulus last winter, but when asked about a second, he repeatedly refused to bite, saying only that no matter what Congress does, it needs to produce a credible plan to reduce long-term deficits. Basically, he'd like us to make do with the money we've got — no additional borrowing or printing. What he wants Congress to do is reform the system so that big firms can be allowed to fail without risking an apocalypse.

Bernanke seems trapped by the psychology of the markets. He sees little evidence of rising prices, and he's clearly irritated by pundits who always seem to see inflation around the next corner, a mentality that reminds him of the misguided central bankers on his wall. And yet he knows he can't be seen as weak on inflation, any more than the Pentagon can be seen as weak on terrorism, because markets could go haywire. There's never been this much cash in the financial jet stream, and the Fed's virtual takeover of the mortgage-finance market will be tricky to unwind without spooking stock and real estate markets. Bernanke seems concerned that deeper deficits could rattle bond markets, pushing up long-term interest rates and potentially triggering a double-dip recession. He's got to worry about currency traders too; the Chinese and other holders of U.S. debt could lose confidence and start a run on the dollar that could shake up the world, or a Dubai-style default hysteria could start a run to the dollar that could cripple U.S. exports.

Meanwhile, the financial system remains vulnerable to another meltdown. The House passed a financial-reform bill on Dec. 11 without a single Republican vote, but action is not imminent in the bitterly divided Senate. So there is still no big-picture regulator to monitor systemic risk, and "too big to fail" firms are still free to use borrowed money to place wild bets with confidence that the government will ride to their rescue. Now they're lobbying frantically to block stronger capital requirements, leverage restrictions and other efforts to rein in their compulsive gambling.

Amazingly, the one reform that has attracted bipartisan support on Capitol Hill has been a crusade to rein in the Fed. The House passed a measure allowing congressional audits of monetary policy, which Bernanke believes would shatter the Fed's independence and immerse its rate-setting in politics. He's also fighting proposals to identify Fed borrowers, pointing out that during the Depression, borrowers turned down Reconstruction Finance Corporation dollars to avoid the stigma of disclosure. There is broad support for stripping the Fed of its consumer-protection functions, and the leading Senate bill would eliminate its regulatory functions as well. At his recent confirmation hearing, Bernanke endured hours of nitpicking and abuse. "Obviously, I haven't succeeded in defusing the political concerns about the Fed," Bernanke says with a wan smile.

Let's cut the guy some slack.

It's no consolation to the 1 in 6 Americans who is underemployed, the 1 in 7 homeowners with a delinquent mortgage or the 1 in 8 families on food stamps, but there would be far more joblessness, foreclosures and hunger were it not for Ben Bernanke. He didn't study economics to get rich — he and his wife still share a Ford Focus that's not quite paid off — and he didn't go to Washington to get a security detail. Instead, he truly believes the Keynesian notion that economists ought to be as useful as dentists. In a time of rabid partisanship, it's a tribute to Bernanke's basic desire to try to do the right thing that Obama aides don't seem worried about handing a Republican the keys to the economy for the next four years.

As the terrifying memories of free-falling markets fade, Bernanke has become a political victim of his apolitical success. His boldness in the crisis feels like yesterday's news. But if he's adopting a less aggressive approach to guiding a weak economy around skittish markets, it's not because he's timid, stupid or indifferent to Main Street. He's earned the benefit of the doubt. It's now up to our dysfunctional political system to let him do his job — and to fix the financial system so that he never has to save the world again.

Democrats: Estate Tax Repeal to Be Short-Lived

In the December 16, 2009 article "Democrats: Estate Tax Repeal to Be Short-Lived," Associated Press writer Stephen Ohlemacher reports that the repeal of the estate tax for 2010 may not be renewed beyond it.

WASHINGTON

Heirs who come into big money after the federal estate tax expires at the end of the month might want to hold off spending it.

The Senate rejected a bill Wednesday to extend the estate tax for two months while lawmakers work on a more permanent solution. Majority Democrats, however, vowed to come back from their holiday break early next year and pass an extension, and several key lawmakers said they would make the tax retroactive to the start of the year.

The uncertainty is already causing problems for tax planners.

"You certainly have clients who may have a few months to live, and they need to get their affairs in order," said Charles Schultz, director of private wealth and tax advisory services at the accounting firm RSM McGladrey. "It makes it difficult to plan."

This year, the inheritance tax is 45 percent on estates larger than $3.5 million. Estates smaller than $3.5 million are exempt from the tax, and married couples, with a little estate planning, can exempt a total of $7 million. That leaves less than 1 percent of all estates subject to the tax.

Under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher 55 percent rate. However, during the year without an estate tax, many estates would be subject to a 15 percent capital gains tax that they now avoid.

Sen. Max Baucus, D-Mont., called it "the yo-yo effect."

"It is an outrage," Baucus said, "that the Congress allows estate taxes to change so much."

Baucus, who chairs the tax-writing Senate Finance Committee, proposed a two-year extension of the current estate tax while lawmakers "get our act together to determine what estate tax law should be." But under Senate rules, lawmakers couldn't take up the bill unless all senators agreed.

Senate Republican Leader Mitch McConnell of Kentucky objected, saying he wanted to extend the tax at a lower rate that would exempt more estates from the tax. McConnell proposed a 35 percent estate tax that exempted estates smaller than $5 million, in line with language the Senate adopted in drawing up a budget deal last spring.

"There's nothing that outrages the American people more than the thought that they will have to visit the IRS and the undertaker on the same day," McConnell said.

Baucus balked at McConnell's offer but said lawmakers will act early next year to deny heirs of multimillionaires an inheritance tax holiday in 2010.

The quirk in the law, in which the estate tax would disappear for only a year, came out of a series of tax cuts enacted in 2001. Many Republicans, who controlled Congress at the time, wanted to permanently repeal the estate tax then. But they settled on a gradual reduction, with a one-year repeal, to reduce the impact on the federal budget deficit.

"This chicanery has created a nightmare for families trying to plan their affairs," said Senate Majority Leader Harry Reid, D-Nev.

Two weeks ago, the House passed an indefinite extension of the estate tax at the 2009 rates. Since then, House Democrats have proposed a variety of shorter extensions, ranging from two months to a year. The Senate, however, has not been able to come up with enough votes to support any of the proposals.

"I have every confidence it will be fixed early next year," said Rep. Earl Pomeroy, D-N.D., who wrote the House-passed bill extending the 45 percent inheritance tax rate.

Consumer Price Index News Release

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The latest Consumer Price Index news release
(http://www.bls.gov/news.release/pdf/cpi.pdf)
was issued today by the Bureau of Labor Statistics. Highlights are below.
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On a seasonally adjusted basis, the CPI-U increased 0.4
percent in November after rising 0.3 percent in October. The
index for all items less food and energy was unchanged in
November after increasing 0.2 percent in October.

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News releases archives:
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To subscribe or unsubscribe to BLS news releases
please visit http://www.bls.gov/bls/list.htm
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Producer Price Index News Release

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The latest Producer Price Index news release
(http://www.bls.gov/news.release/pdf/ppi.pdf)
was issued today by the Bureau of Labor Statistics. Highlights are below.
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The Producer Price Index for Finished Goods rose 1.8 percent in November, seasonally adjusted.
This increase followed a 0.3-percent advance in October and a 0.6-percent decrease in
September. The index for finished goods less foods and energy rose 0.5 percent in November.

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News releases archives:
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For help, email news_service@bls.gov
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The American Family Business Foundation advocates the elimination of estate taxes.

The American Family Business Foundation maintains the Estate Tax Truth website to advocate the elimination of the estate tax, which the site explains as "a tax of 45% applied to all assets in excess of $3.5 million."

But as reported in Internal Revenue Service publication 950, "The estate tax has been repealed for 2010."

Many of the arguments against the the estate tax apply to many forms of taxation. This group would have a more compelling case if they proposed a solution to government funding difficulties, rather than worsening the problem.

Remember that government revenues lost from reduced taxes on the wealthy need to be offset by increased taxes on the rest of us or on future generations.

Obama pushes bankers to increase lending to boost economy

Economists who believe the government should actively manage the economy to buffer the depth and length of economic downturns say that expansionary monetary policy is appropriate for combating a recession. This is accomplished when commercial banks increase the amount of money created when they increase their lending. More loans encourage increased spending which is turn increases the aggregate demand for newly produced goods and services and boosts employment as businesses increase output.

U.S. President Barack Obama chastised commercial banks for failing to lend sufficient funds to the public despite efforts by the Federal Reserve to lower interest rates and encourage more loans.

In the December 14, 2009 McClatchy article "Obama pushes bankers to increase lending to boost economy," Steven Thomma explains why President Obama wants bankers to increase loans.

WASHINGTON — President Barack Obama gave the nation's top bankers an earful Monday, telling them in no uncertain terms that it's time for them to start lending again to help boost the economy after being bailed out themselves by the nation's taxpayers.

Although aides called the meeting "positive and constructive," there was little doubt that Obama summoned the bankers to the White House for a high-profile dressing down, pitting the power of the presidential bully pulpit against them.

Beyond pressing them to pump more cash into the economy through new loans, he also told them he'll fight them and their lobbyists if they try to block tough new regulation of their industry, and that they need to do more to rein in exorbitant pay.

"My main message in today's meeting was very simple: that America's banks received extraordinary assistance from American taxpayers to rebuild their industry and now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy," the president said after the meeting.

He acknowledged that some of the drop in lending is due to banks and regulators not wanting to repeat the kinds of high-risk loans that helped cause the financial collapse. He also noted that regulators are requiring banks to increase the amount of cash they keep in reserve.

"No one wants banks making the kinds of risky loans that got us into this situation in the first place," he said.

Nonetheless, he pressed them to "explore every responsible way" to boost lending, which has dropped for five consecutive quarters.

When bankers told Obama they were taking a second look at some potential loans to small businesses, he urged them to go farther. "Go back and take a third and fourth look," he said.

Richard Davis , the chairman and CEO of US Bancorp , said outside the White House that bankers weren't hoarding cash just to boost earnings.

The problem, he said, is that many Americans and businesses are less creditworthy than they were before the recession.

"You don't want us to make loans that aren't strong and well suited" to the borrower, he said.

Republicans called it hypocritical for Obama to press bankers to make more loans.

"It's not every day the leader of the free world blames you for a problem and then tells you to do the exact same thing that caused the problem," said Rep. Tom Price , R- Ga. , the chairman of the Republican Study Committee.

Obama also lobbied for his proposed sweeping overhaul of the nation's financial regulations, challenging the bankers to justify their public support for change in light of their intensive lobbying in Congress to defeat his proposals.

"The industry has lobbied vigorously against some of them, some of these reforms on Capitol Hill ," the president said.

"I made very clear that I have no intention of letting their lobbyists thwart reforms necessary to protect the American people. If they wish to fight common-sense consumer protections, that's a fight I'm more than willing to have."

Obama also noted that many banks have shifted from paying bonuses in cash to paying them in stock that's available only after several years. "But," he said, "they certainly could be doing more on this front as well."

The group included:
— Ken Chenault , the president and CEO of American Express .
— Davis of US Bancorp .
— Jamie Dimon , the chairman and CEO of JPMorgan Chase .
— Richard Fairbank , the chairman and CEO of Capital One.
— Bob Kelly , the chairman and CEO of Bank of New York Mellon .
— Ken Lewis , the president and CEO of Bank of America .
— Ron Logue , the chairman and CEO of State Street Bank .
— Gregory Palm , the executive vice president and chief counsel of Goldman Sachs .
— Jim Rohr , the chairman and CEO of PNC.
— John Stumpf , the president and CEO of Wells Fargo .

Some CEOs participated via conference call, unable to attend because of bad weather. They included Lloyd Blankfein , the chairman and CEO of Goldman Sachs , John Mack , the chairman and CEO of Morgan Stanley , and Dick Parsons , the chairman of Citigroup .

Mort Zuckerman: Keep Congress Away From the Federal Reserve

Mort Zuckerman: Keep Congress Away From the Federal Reserve

Wealthy Individuals Call On Congress to Strengthen Estate Tax

The December 14, 2010 press release "Wealthy Individuals Call On Congress to Strengthen Estate Tax Before Holiday Recess" by the advocacy group United for a Fair Economy announces a teleconference in which Bill Gates,Sr. and others argue for strengthening the estate tax:

BOSTON, Dec. 14 /PRNewswire-USNewswire/ -- As Congress prepares for the holiday recess, a group of wealthy individuals together with a national labor union, organized by United for a Fair Economy, are calling on the Senate to act before the break to strengthen the Federal Estate Tax. The tax will disappear for one year in 2010 unless Congress takes immediate action to either pass a one-year extension or a permanent estate tax. The U.S. House recently passed a bill that would permanently set the exemption level at $3.5 million per person ($7 million per couple), which would cost $234 billion over 10 years.

WHAT Teleconference: Need for strong Estate Tax

WHO William H. Gates, Sr., Co-Chair of the Bill and Melinda Gates Foundation

John C. Bogle, founder and retired CEO of The Vanguard Group

Richard Rockefeller, MD, family physician, Chair of the Board of Rockefeller Brothers Fund and great-grandson of John D.Rockefeller

Anna Burger, Secretary/Treasurer of Service Employees International Union (SEIU)

Lee Farris, Estate Tax Policy Coordinator, United for a Fair Economy

CALL-IN NUMBER 800-681-9883, Conference ID: 47047686

WHEN Tuesday, December 15, 11:00 am (1 hour)

SOURCE United for a Fair Economy

Absurd Opposition to the Death Tax

Wealthy members of U.S. society have succeeded in shifting the tax burden from themselves to the middle class by a careful choice of words. An estate tax is only paid when large estates are passed to heirs. However, in renaming it as the death tax, many poor and middle-class voters support its repeal. In the process, the government loses revenue that is typically offset by increases in other taxes and fees, the burden of which falls disproportionately on the middle-class and poor.

It is astounding how people vote against their current self-interest because of an illusory perceived future benefit.

Obama economic adviser pitches job stimulus

According to the December 13, 2009 article "Obama economic adviser pitches job stimulus," an "Obama aide says it would be 'suicide' for government to tackle deficit without regard to jobs."

WASHINGTON (AP) -- A White House economic adviser says it would be "suicide" for the government to focus exclusively on the deficit when the economy is sorely in need of jobs.

Christina Romer says money freed up from the repayment of financial bailout funds gives the government the leeway to boost try to employment while seeking to control the deficit over the longer term.

She says "no one is talking about raising taxes" during a recession to pay for the proposed new stimulus plan.

Romer, who heads the White House Council of Economic Advisers, was asked Sunday on NBC's "Meet the Press" whether the recession was over, She said it might be over in official terms, but that it's not truly over until unemployment goes back down to normal levels, in the range of 5 percent.

The jobless rate now is 10 percent.