Saturday, February 28, 2009

In one town, recession helps bridge cultural rift

Emily Maltby writes for CNN Money.

Framingham's immigrants always felt like outsiders. Then the downturn forced the town's planners and entrepreneurs to work together to save imperiled businesses.

FRAMINGHAM, MASS. ( -- The recession has hit Framingham, Mass., like an earthquake, shaking local businesses and thinning their numbers. But the town's merchants have found one silver lining in the economic calamity: It's forcing them to tackle a festering problem.

Culture clashes were easily ignored when the economy was strong. But now, the shops lining Concord Street, Framingham's main artery, can't move forward unless they address the decade-old problems head-on.

Like people all around the U.S., Framingham's residents started feeling the pinch last year, after the housing market began deteriorating. But the town seemed well positioned to ride out the downturn: After being hit hard by the recessions in the early '90s, when Framingham's unemployment rate topped 27%, the town rose from the ashes and restructured its economy. A statewide program to stimulate job creation in distressed areas worked well in Framingham, turning the town into a thriving business center for companies in a range of industries.

With that growth came a boom in foreign immigrants, drawn to Framingham for the economic opportunities it offered. In a town of 65,000, the 2000 census recorded 4,400 Brazil-born residents. Town planners estimate that 15% to 20% of the current local population hails from Brazil.

Many of the immigrants, such as Pablo Maia, established businesses. Maia opened a real estate company in 1999 to serve the growing Brazilian community, and hired 17 employees to help him run it.

By 2007, Framingham's businesses supported more than 45,000 jobs and a payroll of $3 billion. The town headquarters household names like electronics trendsetter Bose, office-supplies giant Staples (SPLS, Fortune 500), and retailer TJX (TJX, Fortune 500), the parent company behind TJ Maxx and Marshalls. Behind them are more than 2,000 small businesses, each with a handful of employees.

The town's economic diversity should make it resilient. But Framingham's ethnic diversity had caused a schism in the community.
9 Framingham stores: How we're coping

Some are supportive of the town's abundance of Brazilian startups. "The immigrants work really hard and help supply the local economy with a variety of businesses, from bakeries to retail to clothing shops," says State Senator Karen Spilka, who represents Massachusetts's 2nd district.

But many longtime residents worried about illegal immigration. Others were concerned that the downtown area was becoming exclusionary, with signs written only in Portuguese and window displays primarily showcasing Brazilian goods.

"There was a definite disconnect between the Brazilians and Americans. It was a culture gap, which just kept widening," recalls Ilma Paixao, a longtime resident of Framingham and native of Brazil who has studied the dynamic of the Brazilian community at MIT's Department of Urban Studies and Planning.

City planners tried to bridge the gap, but had little success.

"My predecessors made countless attempts to organize and mobilize the downtown merchants, and they were constantly met with failure," says Alison Steinfeld, who assumed the position of director of Framingham's Community and Economic Development office less than a year ago. The town held workshops to help the Brazilian community learn English and sessions to assist them with marketing to Americans, but found little interest.

"We didn't know about the meetings," counters Zalca Nubia Gaseta, who has run Party Flowers on Concord Street with her husband Roberto for the past 12 years. "Maybe that's because no Americans came downtown. To them, it was a scary place. We paid our taxes, so we would have liked the education, but we never got any letter or other type of communication - nothing."

There may have been another reason that the town hall meeting rooms were vacant. "The owners were intimidated to come because they felt they'd just be attacked," says Paixao. "They thought it best to pay their taxes, cause no trouble, and keep their heads down." It's the same reason, Paixao says, that many Brazilian business owners rely on their own cash rather than lines of credits from lending institutions.
Layoffs and bankruptcies

That fear wasn't going to go away as long as the economy kept humming. In its own segregated fashion, commerce seemed to be moving forward just fine in Framingham. With the exception of those in the housing industry - such as Maia Realty, which started shedding employees in late 2008 - the businesses on Concord Street didn't yet feel financially pressured.

But as winter settled in, the lack of consumer confidence became apparent. Along the major roads that surround the center of town, large retailers such as Circuit City and Filene's Basement held liquidation sales and prepared to shut down.

Then things got worse. Bose cut its global workforce by 10%. Staples announced that 140 workers would be laid off, including half from its home office. Multicolor, an Ohio company that had a manufacturing facility in Framingham, consolidated its operations into another town and dropped 62 regional employees.

Though Framingham's unemployment rate has remained below the national and state levels, the community is feeling the pain. "We have a solid base," says Senator Spilka. "The economic diversity does help us, [but] we're not recession-proof by any means."

"If you're laid off, you're not buying lunch. It's the multiplier effect in economics. Every dollar works more than once. So as you see layoffs, they will ripple through the community," says Professor Maureen Dunne, who helps run the MetroWest Economic Research Center at Framingham State College's Department of Economics and Business Administration.

That meant bad news for the town's small businesses.

"Small businesses are adaptable, because they can get direct information daily, whereas large businesses have to wait until the end of the month or the end of the quarter for that to happen," explains Dunne. "When restaurants see people aren't coming in Monday through Wednesday, they can move quickly to get them in. They can get feedback immediately by asking customers directly what they want. A lower price? A different menu? Then, they can turn on a heel to address that."

In many towns, that's true. But on Concord Street, it's a little more complicated. Businesses there have had less success implementing new sales tactics in recent months because of the underlying cultural problem. Americans didn't go to the Brazilian stores even when the economy was good. But anecdotal evidence suggests that the Brazilian community - the owners' primary consumer base - is starting to decline in tandem with the economy. The area is not offering them the opportunity it once did.

"A lot of people lost interest and started to go back," says Maia. "It's a rapidly developing country, and there are now many opportunities there today in a way that wasn't the case years ago. So if the economy is bad, they may as well stay in Brazil."

The merchants realized they had a serious problem. Party Flowers owner Gaseta decided to form a business owners' association.

The first meeting was a small gathering in October of eight business owners who wanted to share their concerns. By November, MIT's Paixao had joined the group. In December, Paixao invited Steinfeld to the meeting, which had grown to 25 business owners.

That invitation opened up one of the first direct lines of communications between Framingham's downtown entrepreneurs and the town's business development officers.

"They started talking about what they had to do," recalls Steinfeld. "For the first time I was able to hear what their problems were and to reinforce that the town is here to help."

Paixao realized that, following that meeting, the owners were finally able to understand the power of being involved in Framingham's civic planning.

The annual Christmas tree lighting ceremony was the first event that Town Hall promoted following the inception of the association. "I don't think the business owners would have been open, because they wouldn't have been aware that all these residents came out for that event," says Paixao.

That night, some of the owners set up a table in the Town Hall to hand out fliers, while others manned the stores. "Once we established that communication, they had the opportunity to reach out to a lot of traffic," adds Paixao.

"We're doing whatever we can to help them survive," says Steinfeld. "Unfortunately, we can't make people spend money. But what we can do, to the extent possible, is identify town activities that are happening and notify the merchants so that they can mobilize and take advantage of those consumers."

Marketing and other workshops - a collaborative effort between MIT, the town, and the Small Business Administration's SCORE program - have been well attended, according to Paixao. The owners are reacting by changing their window displays and hiring English-speaking employees.

At the Old Station Steakhouse, for example, the emphasis is on the Brazilian cuisine, but the founders have made a conscious effort to keep the signage in English and Portuguese and offer a buffet with a variety of American comfort food options.

"We want to cater to both the Brazilians and the Americans. If we served just Brazilian food, we would be missing out on a lot of customers," says Early Barbosa, one of the Brazilian founders. He and three other partners pooled their money to get the restaurant established eight months ago without any bank loans.

"And actually, a lot of the time, when the Americans come in and see the Brazilian barbeque, they end up liking it better," he laughs.
Hoping for a stimulus jolt

The 50-member strong association, while building community among the owners - eight non-Brazilian business owners have recently joined - has not yet brought relief to their businesses. Gaseta said that Valentine's Day sales at her shop were half of what they were last year. Still, the fact that she's starting to see more people stopping by keeps her optimistic.

"I realize money is the biggest problem, and I don't care if they don't buy anything," she says. "I just want them to know I'm there and that they can come in to say hi."

The cultural gap isn't closed yet, either. Gaseta's flower business, which also provides services such as photography and video for special events, does 20 Brazilian weddings for every one American wedding. "It's step by step with the Americans, but I have hope things will get better."

Because so many small businesses in Framingham provide products and services to the larger ones, it's going to take major action to get the business dynamic back up to where it was, Spilka believes.

"I'm hoping that with the trickle-down of the stimulus, that will really help to get things moving sooner rather than later," she says.

Economic development officer Steinfeld is also counting on stimulus-funded infrastructure spending to help boost the city's economy.

"We have $8 million worth of improvements scheduled, and hopefully the economic stimulus will help us implement some of those plans to improve circulation, traffic and pedestrian, and beautify the downtown," she says. "We're doing whatever we can to help them survive, because small merchants are critical to the success of the downtown."

The business association will also be doing whatever it can to help its members pull through. After years of strain, Framingham's diverse entrepreneurs and civic planners are finally finding ways to work together on their common problems.

"Obviously everyone would prefer that the recession weren't here, and we want it over as soon as possible," Steinfeld says. "But the way we look at it is now is the time to set the framework, so that whenever the recession starts to ebb, we'll be prepared." To top of page

Friday, February 27, 2009

War on the rich in America

Some folks act like increased taxes are a war on the rich.

President Obama proposed to hike the top two tax brackets. Tax brackets work incrementally. If you are in, say, the now 35% bracket (soon to be hiked to 39.6%), every dollar you make above the limit for that bracket is taxed at 39.6%. Additionally, capital gains taxes are being increased and deductions for charitable contributions and mortgage interest are being decreased.

The mortgage interest deduction, by the way, favors the rich. Americans get a standard deduction of about $5,000 per individual. You take your gross income and subtract the standard deduction, and then your tax brackets apply. People may also itemize deductions, meaning that they'd add up mortgage interest, charitable contributions and other allowable deductions. You can see how the mortgage deduction, then, is regressive - the more house you have, the more you get to deduct.

Either way, Americans making over $250,000 stand to see a tax hike - possibly a significant one. The New York Times has a couple of interviews with some folks who make about or over $250,000.

One guy said that the national situation was dire enough that he'd suck it up.

One guy said "socialism." One woman asked, "I don't believe in giving money to people who can't afford to buy a house. Why should we pay for someone who is irresponsible?" Another woman asked, "I work 10 to 12 hours a day. What is the reward for someone like me to work harder?"

To be fair, $250,000 means quite different things depending on where in the US you are. In New York, Washington DC or Boston, for example, it's not that much money (although it's hard to starve on that much). In addition, Americans pay state and local taxes on top of Federal ones, and they can be quite high. In the Southern states, $250k is quite a bit more, and state and local taxes are lower.

In addition, it is not good to raise taxes in a recession. Progressives should not ignore the fact that tax hikes will reduce personal spending and investment - both of which can prolong recessions.

That said, I have little sympathy for the folks who cry socialism or who try to complain there's some sort of war on the rich. The opportunities to make money in the United States are tremendous. Even in Europe, where the "socialism" canard is more applicable, the opportunities are tremendous. If you think a few percentage points of tax hike somehow takes away your incentive to work, then you don't have to work.

PS: I believe the tax increases are only scheduled to start in 2011 anyway. Granted the US economy may still be in recession, but it's likely to be in better shape than today.

Thursday, February 26, 2009

After abuse, changes in the brain

Benedict Carey reports for the NY Times.

For years, psychiatrists have known that children who are abused or neglected run a high risk of developing mental problems later in life, from anxiety and depression to substance abuse and suicide.

The connection is not surprising, but it raises a crucial scientific question: Does the abuse cause biological changes that may increase the risk for these problems?

Over the past decade or so, researchers at McGill University in Montreal, led by Michael Meaney, have shown that affectionate mothering alters the expression of genes in animals, allowing them to dampen their physiological response to stress. These biological buffers are then passed on to the next generation: rodents and nonhuman primates biologically primed to handle stress tend to be more nurturing to their own offspring, Dr. Meaney and other researchers have found.

Now, for the first time, they have direct evidence that the same system is at work in humans. In a study of people who committed suicide published Sunday in the journal Nature Neuroscience, researchers in Montreal report that people who were abused or neglected as children showed genetic alterations that likely made them more biologically sensitive to stress.

The findings help clarify the biology behind the wounds of a difficult childhood and hint at what constitutes resilience in those able to shake off such wounds.

The study “extends the animal work on the regulation of stress to humans in a dramatic way,” Jaak Panksepp, an adjunct professor at Washington State University who was not involved in the research, wrote in an e-mail message.

He added that the study “suggests pathways that have promoted the psychic pain that makes life intolerable,” and continued, “It’s a wonderful example of how the study of animal models of emotional resilience can lead the way to understanding human vicissitudes.”

In the study, scientists at McGill and the Singapore Institute for Clinical Sciences compared the brains of 12 people who had committed suicide and who had had difficult childhoods with 12 people who had committed suicide and who had not suffered abuse or neglect as children.

The scientists determined the nature of the subjects’ upbringing by doing extensive interviews with next of kin, as well as investigating medical records. The brains are preserved at Douglas Hospital in Montreal as part of the Quebec Suicide Brain Bank, a program founded by McGill researchers to promote suicide studies that receives brain donations from around the province.

When people are under stress, the hormone cortisol circulates widely, putting the body on high alert. One way the brain reduces this physical anxiety is to make receptors on brain cells that help clear the cortisol, inhibiting the distress and protecting neurons from extended exposure to the hormone, which can be damaging.

The researchers found that the genes that code for these receptors were about 40 percent less active in people who had been abused as children than in those who had not. The scientists found the same striking differences between the abused group and the brains of 12 control subjects, who had not been abused and who died from causes other than suicide. “It is good evidence that the same systems are at work in humans that we have seen in other animals,” said Patrick McGowan, a postdoctoral fellow in Dr. Meaney’s lab at McGill and the lead author of the study.

His co-authors, along with Dr. Meaney, were Aya Sasaki, Ana C. D’Alessio, Sergiy Dymov, Benoît Labonté and Moshe Szyf, all of McGill, and Dr. Gustavo Turecki, a McGill researcher who leads the Brain Bank.

Because of individual differences in the genetic machinery that regulates stress response, experts say, many people manage their distress despite awful childhoods. Others may find solace in other people, which helps them regulate the inevitable pain of living a full life.

“The bottom line is that this is a terrific line of work, but there is a very long way to go either to understand the effects of early experience or the causes of mental disorders,” Dr. Steven Hyman, a professor of neurobiology at Harvard, wrote in an e-mail message.

Personal follow up to how we die

First, I'd rather go quickly. I guess that means cancer, although I assume that dying in one's sleep leads to a similar health profile.

To recap, about 20% of Americans die of cancer. Deaths here peak around age 65.

Organ failure kills about 25% of Americans, and peaks around age 75.

Slow decline kills about 40% of Americans, a lot of them beyond age 85.

Other rich countries can expect similar results, except that Americans tend to have a comparatively high rate of chronic diseases. Presumably a lot of these end in death type 2. Better prevention and treatment of chronic diseases should reduce the number of such deaths. America will reform her health care system, and she will better prevent and treat chronic diseases in the future.

Presumably, that leaves more people dying from slow decline. That adds a financial burden to families and individuals. Given that American families are decreasing in average size, that's more burden shared by fewer individuals.

Long term care insurance is still young in the US. You need to buy it early. You need to pick an established name that you're sure will be around for a long time (snide remark: in this financial crisis, who knows how many insurers will go under?).

A large part of LTC financing in the US is done through Medicaid - which is supposed to finance medical and public health services for the poor. The elderly often need to spend their incomes down to qualify for Medicaid. One has to ask if they're crowding out the actual poor, since LTC is expensive.

In aggregate, the US spent around 36.6% of the FY 2006 Medicaid budget on LTC. Hat tip to the Kaiser Foundation's State Health Facts. LTC is not solely used by the elderly - I'm a brain injury survivor and had to use some LTC services - but most of it is. Kaiser's data shows that the US spent 43.7% of Medicaid LTC dollars on nursing homes, which are mostly used by the elderly and 40% of Medicaid LTC dollars on home and community based services, which are mostly used by the elderly.

Medicare is very acute-care oriented. It pays for almost no LTC services (except, I believe, nursing home care shortly after hospital discharge). Yet, since Medicare serves the elderly, it would make sense, organizationally, to put LTC services in Medicare.

The US has not thought of a coherent way to pay for long term care services. It will need to do so. In Singapore, LTC services are paid out of pocket. Family members become caregivers. They also hire maids from countries like Indonesia and the Philippines; Singapore has no minimum wage law, and the maids are paid what some would see as near-slave wages. Singapore's LTC insurance market does not, to my knowledge, exist yet. I'm not sure that's a coherent response, either.

How we die, and how we finance long-term care

From New Old Age, one of the NYT blogs.

Not long ago Dr. Joanne Lynn, a geriatrician who pulls no punches in her frequent critiques of America’s sorry system of end-of-life care, looked out from the dais of a Washington, D.C., ballroom at a sea of middle-aged faces: health policymakers, legislative staff, advocates for the aged and for family caregivers — an audience of experts.

“How many of you expect to die?” she asked.

The audience fell silent, laughed nervously and only then, looking one to the other, slowly raised their hands.

“Would you prefer to be old when it happens?” she then asked.

This time the response was swift and sure, given the alternative.

Then Dr. Lynn, who describes herself as an “old person in training,” offered three options to the room. Who would choose cancer as the way to go? Just a few. Chronic heart failure, or emphysema? A few more.

“So all the rest of you are up for frailty and dementia?” Dr. Lynn asked.

On the screen above the dais, she showed graphs describing the three most common ways that old people die and the trajectory and duration of each scenario. Cancer deaths, which peak at age 65, usually come after many years of good health followed by a few weeks or months of steep decline, according to Dr. Lynn’s data. The 20 percent of Americans who die this way need excellent medical care during the long period of high functioning, she said, and then hospice support for both patient and family during the sprint to death.

Deaths from organ failure, generally heart or lung disease, peak among patients 10 years older, killing about one in four Americans around age 75 after a far bumpier course. These patients’ lives are punctuated by bouts of severe illness alternating with periods of relative stability. At some point rescue attempts fail, and then death is sudden. What these patients and families need, Dr. Lynn said, is consistent disease management to head off crises, aggressive intervention at the first hint of trouble and advance planning for how to manage the final emergency.

The third option, death following extended frailty and dementia, is everyone’s worst nightmare, an interminable and humiliating series of losses for the patient, and an exhausting and potentially bankrupting ordeal for the family. Approximately 40 percent of Americans, generally past age 85, follow this course, said Dr. Lynn, and the percentage will grow with improvements in prevention and treatment of cancer, heart disease and pulmonary disease.

These are the elderly who for years on end must depend on the care of loved ones, usually adult daughters, or the kindness of strangers, the aides who care for them at home or in nursing facilities. This was my mother’s fate, and she articulated it with mordant humor: The reward for living past age 85 and avoiding all the killer diseases, she said, is that you get to rot to death instead.

Those suffering from physical frailty, as she was, lose the ability to walk, to dress themselves or to move from bed to wheelchair without a Hoyer lift and the strong backs of aides earning so little that many qualify for food stamps. These patients, often referred to as the old-old, require diapers, spoon-feeding and frequent repositioning in bed to avoid bedsores. Those with dementia, most often Alzheimer’s disease, lose short-term memory, fail to recognize loved ones, get lost without constant supervision and eventually forget how to speak and swallow.

What all of these patients need, Dr. Lynn said, is custodial care, which can easily cost $100,000 a year and is not reimbursed by Medicare. The program was created in 1965 when hardly anyone lived this long.

“We’re doing this so badly because we’ve never been here before,” Dr. Lynn said. “But the care system we’ve got didn’t come down from the mountain. We made it up, and we can make it up better.”

Linking the changes in the United States to global issues

I've been blogging a lot on issues that seem specific to the United States lately. I've always tried to maintain a global focus in the blog, but because I am in the U.S., I tend to get my news from American sources.

However, many of the issues that President Obama is trying to act on will have global consequences.

The US is the most egregious carbon emitter, both per capita and in absolute terms. Countries have no excuse for not acting on their own, no matter how much or how little they contribute to the problem. But American inaction will lead to world inaction. China will not act to contain its emissions if the US does not, and they will soon surpass the US in terms of absolute emissions, with India likely not too far behind. Now, if the US acts, it could easily be that China, India, or both will refuse to do so - but at least then they'll really have no excuse.

Reforming US health care seems at first glance to be a problem only for Americans. However, American drug and medial device companies sell to a global marketplace. Profligate practice patterns in the US have implications for the future of health care spending in other countries. Not all of the new drugs or shiny new gadgets that are developed are necessarily a cost-effective solution to increase health. In fact, most improvements in lifespan in the last century have come from simple public health initiatives like sanitation and vaccinations, rather than drugs and medical devices.

Reforming human rights violations like Guantanamo, and ceasing an aggressive, imperialistic foreign policy are obviously global issues.

I believe that a multipolar world is good. America will become arrogant, xenophobic and complacent if it isn't exposed to competition. However, the fact remains that changes in America have effects elsewhere. I hope, pray and believe that this administration has what it takes to bring change to America - good change.

Americans: suck it up and use recycled toilet paper

Lesile Kaufman for the NY Times:

Americans like their toilet tissue soft: exotic confections that are silken, thick and hot-air-fluffed.

The national obsession with soft paper has driven the growth of brands like Cottonelle Ultra, Quilted Northern Ultra and Charmin Ultra — which in 2008 alone increased its sales by 40 percent in some markets, according to Information Resources, Inc., a marketing research firm.

But fluffiness comes at a price: millions of trees harvested in North America and in Latin American countries, including some percentage of trees from rare old-growth forests in Canada. Although toilet tissue can be made at similar cost from recycled material, it is the fiber taken from standing trees that help give it that plush feel, and most large manufacturers rely on them.

Customers “demand soft and comfortable,” said James Malone, a spokesman for Georgia Pacific, the maker of Quilted Northern. “Recycled fiber cannot do it.”

The country’s soft-tissue habit — call it the Charmin effect — has not escaped the notice of environmentalists, who are increasingly making toilet tissue manufacturers the targets of campaigns. Greenpeace on Monday for the first time issued a national guide for American consumers that rates toilet tissue brands on their environmental soundness. With the recession pushing the price for recycled paper down and Americans showing more willingness to repurpose everything from clothing to tires, environmental groups want more people to switch to recycled toilet tissue.

“No forest of any kind should be used to make toilet paper,” said Dr. Allen Hershkowitz, a senior scientist and waste expert with the Natural Resource Defense Council.

In the United States, which is the largest market worldwide for toilet paper, tissue from 100 percent recycled fibers makes up less than 2 percent of sales for at-home use among conventional and premium brands. Most manufacturers use a combination of trees to make their products. According to RISI, an independent market analysis firm in Bedford, Mass., the pulp from one eucalyptus tree, a commonly used tree, produces as many as 1,000 rolls of toilet tissue. Americans use an average of 23.6 rolls per capita a year.

Other countries are far less picky about toilet tissue. In many European nations, a rough sheet of paper is deemed sufficient. Other countries are also more willing to use toilet tissue made in part or exclusively from recycled paper.

In Europe and Latin America, products with recycled content make up about on average 20 percent of the at-home market, according to experts at the Kimberly Clark Corporation.

Environmental groups say that the percentage is even higher and that they want to nurture similar acceptance here. Through public events and guides to the recycled content of tissue brands, they are hoping that Americans will become as conscious of the environmental effects of their toilet tissue use as they are about light bulbs or other products.

Dr. Hershkowitz is pushing the high-profile groups he consults with, including Major League Baseball, to use only recycled toilet tissue. At the Academy Awards ceremony last Sunday, the gowns were designer originals but the toilet tissue at the Kodak Theater’s restrooms was 100 percent recycled.

Environmentalists are focusing on tissue products for reasons besides the loss of trees. Turning a tree to paper requires more water than turning paper back into fiber, and many brands that use tree pulp use polluting chlorine-based bleach for greater whiteness. In addition, tissue made from recycled paper produces less waste tonnage — almost equaling its weight — that would otherwise go to a landfill.

Still, trees and tree quality remain a contentious issue. Although brands differ, 25 percent to 50 percent of the pulp used to make toilet paper in this country comes from tree farms in South America and the United States. The rest, environmental groups say, comes mostly from old, second-growth forests that serve as important absorbers of carbon dioxide, the main heat-trapping gas linked to global warming. In addition, some of the pulp comes from the last virgin North American forests, which are an irreplaceable habitat for a variety of endangered species, environmental groups say.

Greenpeace, the international conservation organization, contends that Kimberly Clark, the maker of two popular brands, Cottonelle and Scott, has gotten as much as 22 percent of its pulp from producers who cut trees in Canadian boreal forests where some trees are 200 years old.

But Dave Dickson, a spokesman for Kimberly Clark, said that only 14 percent of the wood pulp used by the company came from the boreal forest and that the company contracted only with suppliers who used “certified sustainable forestry practices.”

Lisa Jester, a spokeswoman for Procter & Gamble, the maker of Charmin, points out that the Forest Products Association of Canada says that no more than 0.5 percent of its forest is harvested annually. Still, even the manufacturers concede that the main reason they have not switched to recycled material is that those fibers tend to be shorter than fibers from standing trees. Long fibers can be laid out and fluffed to make softer tissue.

Jerry Baker, vice president of product and technology research for Kimberly Clark, said the company was not philosophically opposed to recycled products and used them for the “away from home” market, which includes restaurants, offices and schools.

But people who buy toilet tissue for their homes — even those who identify themselves as concerned about the environment — are resistant to toilet tissue made from recycled paper.

With a global recession, however, that may be changing. In the past few months, sales of premium toilet paper have plunged 7 percent nationally, said Ali Dibadj, a senior stock analyst with Sanford C. Bernstein & Company, a financial management firm, providing an opening for makers of recycled products.

Marcal, the oldest recycled-paper maker in the country, emerged from bankruptcy under new management last year with a plan to spend $30 million on what is says will be the first national campaign to advertise a toilet tissue’s environmental friendliness. Marcal’s new chief executive, Tim Spring, said the company had seen intense interest in the new product from chains like Walgreens. The company will introduce the new toilet tissue in April, around Earth Day

Mr. Spring said Marcal would be able to price the new tissue below most conventional brands, in part because of the lower cost of recycled material.

“Our idea is that you don’t have to spend extra money to save the Earth,” he said. “And people want to know what happens to the paper they recycle. This will give them closure.”

Wednesday, February 25, 2009

Lenten disciplines: adding stuff rather than refraining

Last Lent, I gave up eating meat. This was to reduce my carbon footprint and to avert cruelty to animals.

I had a really hard time. Ironically, I was especially craving lamb. Jesus, lamb of God, you take away the sins of the world. Munch munch munch. Mmm, lamb.

I still believe in and am deeply concerned about global warming. I also acknowledge that meat animals are not raised humanely.

However, this Lent, I am thinking about adding stuff, rather than giving stuff up. I will refrain from eating excessive amounts of meat at all times. But I think this Lent, I will add social service rather than taking stuff away.

I know Jesus (allegedly) went fasting 40 days and 40 nights before he began his ministry. But the main point of his life was his ministry to the poor. Of course, in this highly global world, ministering to the poor is more complex than in Jesus' day. The Episcopal Public Policy Network gives us some examples of what they have on the agenda:

This year’s EPPN Lenten series will introduce some of the key policy areas that we will focus on in the 111th Congress. With a new President and Congress, the legislative pace promises to be brisk.

* Becoming Healers of our Suffering Earth -- focusing on climate change and what we can do individually and as a church
* Securing Economic Justice in a Global Crisis -- focusing on the economic crisis affecting our neediest neighbors
* Making Foreign Aid Work Better -- focusing on ways we can improve foreign aid in our continuing efforts to achieve the MDGs
* Promoting Health Care for All -- focusing on the health care crisis in our country
* Reforming Immigration Policy -- focusing on the issues of immigration and how we respond as people of faith
* Reconciling with our American Indian Family – focusing on preserving cultural and economic resources of American Indians and Native Alaskans

As Isaiah 58:9-12 says:

If you remove the yoke from among you,
the pointing of the finger, the speaking of evil,
if you offer your food to the hungry
and satisfy the needs of the afflicted,
then your light shall rise in the darkness
and your gloom be like the noonday.
The LORD will guide you continually,
and satisfy your needs in parched places,
and make your bones strong;
and you shall be like a watered garden,
like a spring of water,
whose waters never fail.
Your ancient ruins shall be rebuilt;
you shall raise up the foundations of many generations;
you shall be called the repairer of the breach,
the restorer of streets to live in.

Tuesday, February 24, 2009

The economic stimulus plan provides $150 million for food banks. Advocates for the hungry say it can't arrive soon enough.

Daniel Taylor of CNN Money profiles a food bank in New York City. The US stimulus plan provides $150 million for food programs. Is it enough?

NEW YORK ( -- For Jesse Taylor, the debate over the federal stimulus plan wasn't about politicians trying to score points or economists parsing the unemployment rate.

It was about the growing ranks of hungry people lining up outside his Harlem food pantry.

"We're in the midst of a perfect storm: We've received budget cuts, we've seen an increase in the number of people coming in, and we've seen the cost of food going up," said Taylor, senior director of Community Kitchen, a food pantry and soup kitchen run by the New York City Food Bank.

On a recent cold morning, the unassuming and friendly Taylor greeted members of the community -- some of whom he has come to know by name -- waiting to enter the pantry for a bundle of groceries.

"We definitely need to bail out the hungry," Taylor said.

The $787 billion economic stimulus plan signed by President Obama on Feb. 17 allocates $150 million to the U.S. Department of Agriculture's Emergency Food Assistance Program.

The 28-year old program, known as TEFAP, sends shipments of federally purchased food to states, which in turn gets the food in the hands of large food banks. The food banks then allocate the food to soup kitchens and pantries that serve people in need.

The $150 million for TEFAP provided by stimulus about doubles the amount of money allotted to the program in 2009, and the funds will be distributed starting soon, according to the USDA. But with the economic situation still deteriorating, people on the front lines of the nation's hunger problem worry that it's not enough.

"It's a great first step, and we're grateful to the administration for putting those funds into TEFAP," said Taylor, whose parent agency is set to receive about $6 million more in food this year because of the stimulus package. "But it's not enough to cover all the people coming in and requesting emergency food assistance."

The $150 million is half of what Feeding America, a network of more than 200 food banks that advocates in Washington for food assistance programs, sought from Congress. Feeding America said its member food banks are reporting a 30% increase in the number of people seeking assistance over a year ago, and 72% of food banks have been unable to adequately meet demand.

New York Gov. David Patterson's office estimates that 3.5 million New Yorkers will require some form of food assistance in 2009. New York City Food Bank, the largest in the country, said that 2 million of those people will have never accessed food assistance programs in the past.

One such person is Rosetta Stokes, a former postal worker who retired 10 years ago due to a disability. She had managed to get by on her disability payments until now. Thursday was her first day at a soup kitchen.

"I do have my disability, but it doesn't seem like it's lasting. Food prices are rising and sizes are getting smaller," said Stokes, who called her grits and eggs served up by the Community Kitchen staff "a blessing."

"Everything's just gotten overwhelming," she added. "Every day it's something like, 'Wow, I can't do ... what I was doing yesterday.' "
Rising prices worry advocates

People seeking emergency food have cited unemployment and soaring food prices as the leading causes of their need. Food costs rose 5.9% last year, and staple foods like corn, wheat and other grains have grown even more expensive.

"Food is the most elastic expenditure in a household's budget," said Maura Daley, vice president of government relations and advocacy and Feeding America. "Food prices are still rising, so it's hard to predict how quickly we'll see relief."

Even though the stimulus plan plans to alleviate hunger by allocating $20 billion to food stamp programs, rising food prices could still put a dagger into those plans.

"They helped us by raising the food stamps, but the food [costs] have gone higher," said Carmen Quinones, a foster mother in Harlem, who has been coming to the Community Kitchen's food pantry for two months.

"You still have to come out of pocket to make ends meet at the end of the month," said Quinones. "Hopefully this stimulus package will provide more funds for us and more jobs. That's what it's all about - creating jobs and getting people off the system."
Stimulus: A good start

Some experts are optimistic that the recovery plan's aim of creating or saving 3.5 million jobs over the next two years will indirectly help the hunger situation.

"The more preventative work we can do, obviously the better," said Aine Duggan, vice president of government relations at the New York City Food Bank. "The more jobs we create at this time, then the less people we'll see turning to emergency food programs."

Still, Duggan said organizations that work with the huger issue are readying themselves for even greater demand for food banks' services in 2009 than in 2008. She expects resources to be stretched thin but said the stimulus money will help.

"The message with the economic stimulus bill is there isn't a silver bullet here. There is no way to fix the entire problem with one bill," Duggan said. "But we can certainly provide assistance to people who are most in need - at least in a temporary way."

Monday, February 23, 2009

AIG in talks with U.S. for more funds, GM thinks bankruptcy may cost more than government aid

CNN Money reports that AIG is in talks to seek additional funds from the US Treasury. AIG is essentially nationalized. It has a loan on fairly strict terms from the US Treasury. It has already sought two rounds of funding. In addition to giving the US government an 80% ownership stake, the first loan carried terms that basically meant AIG would have to sell off a large proportion, and possibly most, of its assets to pay off the Treasury. The terms were made somewhat less stringent, if I recall correctly, in round 2, because AIG was having trouble selling assets.

AIG is systemically important. Putting AIG into liquidation could cause damage to other financial firms for various reasons. AIG was a trading counterparty for various instruments, for example. The US is not likely to let it fail, which would strain the credit markets probably beyond relief. However, I believe that round 3 should mean the company is formally put into conservatorship and forced to run off existing business. That's essentially a controlled liquidation. Equity and debt owners, aside from the US government, should be given whatever is left after all the dust settles. I'm not sure if that's legally possible, but I think that outcome ensures the least amount of injustice. Disclosure: I used to own AIG stock. Obviously I lost money on that.

Next, GM and Chryslersaid several days ago that a new loan from the US government would save it. They claimed it would be cheaper than the company going into bankruptcy.

If the company were liquidated, the effects would be disastrous. I don't see any reason to disagree over that. Jobs would be lost, supply chain companies would go under. Assuming Ford did not also go under, their supply chain would be severely disrupted. GM and/or Chrsyler could reorganize in bankruptcy, but GM claims it would need $100 billion in debtor in possession (DIP) financing from the US government to make it out of bankruptcy.

DIP financing means the government gives them a loan when in bankruptcy to get them out. The government is first creditor, meaning that if they fail, the government gets paid first. In a chapter 11 reorganization, the bankruptcy court has authority to renegotiate by fiat just about all of the company's labor, supplier and creditor contracts. Given how some parties won't budge otherwise, some folks have said that maybe GM should just file. Others have said that it's going to be very costly to the government and that buyers won't buy cars from an automaker in bankruptcy.

However, a different NYT article quotes a New York University business professor who said he thought GM would only need $50bn in DIP financing. He said that the companies could be overstating the potential cost as a scare tactic.

In both these cases, the US government must weigh the damage caused by letting the automakers liquidate with the cost of propping them up. A CNN Money article contends that there is no easy way to fix Detroit's troubles. Aside from letting them reorganize in bankruptcy or loaning them whatever funds they need (which are likely to be far more than the companies claim), one other choice is to let Chrysler die and prop GM and/or Ford up, or force Chrysler to merge with GM. Another option I can think of is the one I suggested for AIG: put them into conservatorship. Prop them up temporarily and liquidate them as the economy recovers.

Edit: Across the pond, the UK is facing a similar situation with the Royal Bank of Scotland, which made too many aggressive acquisitions in the good years.

Comments on the US Budget

CSPAN just showed the opening remarks at the start of President Obama's budget summit. For those of you who don't know, the US has a budget crisis. Right now, national debt is about 16% of GDP. By mid century, it could be as much as 300% if nothing is done now.

Two of three speakers mentioned that the number one problem for the US budget is increases in healthcare spending. The majority of those increases come from growth in per-capital medical expenditures. In other words, people are using more and/or more expensive technology and procedures. It would be nice if this caused all Americans to live healthily to 100 and die in their beds of old age, but in fact the US has poorer health outcomes than most Western nations. The time for reform is right now.

In addition, President Obama remarked that the Bush administration budgeted zero dollars for the Iraq war. All appropriations for the war were conducted in a supplementary bill. This was massively dishonest, because it masked war spending from the regular budgeting process. If the war had been in the regular budget, policymakers would have to directly balance those costs against, say, the costs of tax cuts for the rich, or health and other entitlement spending. They did not. The Bush administration also relied on a number of short-term fixes that hid the true cost of certain provisions (e.g. the Alternative Minimum Tax).

It's change or die time for the US.

Sunday, February 22, 2009

Our relation to crap part 3: What happens to the economy when consumers don't spend enough

The New York Times has an article on Japanese consumers, the frugal habits they formed after Japan's recession in the 1990s, and the effect on the economy.

TOKYO — As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

The Takigasaki family in the Tokyo suburb of Nakano goes further to save a yen or two. Although the family has a comfortable nest egg, Hiroko Takigasaki carefully rations her vegetables. When she goes through too many in a given week, she reverts to her cost-saving standby: cabbage stew.

“You can make almost anything with some cabbage, and perhaps some potato,” says Mrs. Takigasaki, 49, who works part time at a home for people with disabilities.

Her husband has a well-paying job with the electronics giant Fujitsu, but “I don’t know when the ax will drop,” she says. “Really, we need to save much, much more.”

The article goes on to say that Japan's economy is heavily dependent on exports, which enabled them to make a partial recovery in the early part of the 2000s. Their domestic spending grew very little in the early 2000s.

This has implications for the future in Western countries. A rising tide lifts all boats. From the perspective of the economy, we shouldn't get into a situation where people are spending too little. On the other hand, I think Jesus would frown on us spending too much on needless crap - this is the guy who said sell everything you have and give to the poor, only then will you enter the Kingdom. How we balance the two is beyond my pay grade but we need to find a way.

Ekklesia: It's easy to condemn the crazies

Ekklesia, a progressive Christian think tank in the UK comments on Fred Phelps' intended visit to the UK, and of the joint statement by several conservative Christian groups in the UK condemning Phelps' actions.

For those who don't know, Fred Phelps is pastor of the Westboro Baptist Church. Their theology can be summed up thusly: God Hates Fags - their exact words. Many or perhaps most Westboro members are Phelps' relatives.

Westboro Baptist Church is, not to mince words, evil. They are beyond redemption by all but God. However, they also aren't the problem.

Bartley commented: “It is welcome that a number of churches and evangelical groups have made a public statement and joined the many others who are opposing Westboro Baptist church-style hate speech. But it is relatively easy to issue statements against extremists, distance oneself, and condemn them. It is more challenging, and uncomfortable, to acknowledge what one might have in common with those we find abhorrent. But that is what the message at the heart of the Christian faith requires."

He continued: “This is the real challenge that Westboro Baptist church presents. And among those who have condemned Westboro are some who preach rejection of faithful gay relationships, who deny their baptism and Christian ministry, and who refuse their wisdom. Some have attempted to negotiate opt-outs from equalities legislation so they can themselves discriminate against lesbian and gay people in employment and in the provision of goods and services. The Evangelical Alliance in particular removed the Courage Trust from its membership when the Trust made a Christian commitment to affirming lesbian and gay people.

Concluded Bartley: “The six churches and groups have said with one voice: ‘We believe that God loves all, irrespective of sexual orientation’. We invite them to reflect these words in their actions.”

Friday, February 20, 2009

Bob Greenstein: Should Progressives Shun the Economic Recovery Package?

Bob Greenstein, the director of a liberal U.S. think tank, writes a blog post on the Huffington Post defending the US stimulus bill, which he believes was generally well-crafted.

Some of my fellow progressives have expressed disappointment with the economic recovery package that President Obama just signed into law. Forgive me, but I don't share it. I view the package as an outstanding piece of legislation - all the more remarkable when you consider that it came less than 30 days after the new administration took office.

The critics basically say that it's a missed opportunity because it doesn't presage a new era of public investment akin to the New Deal.

This charge misses the fact that many of the New Deal's transformational polices did not come in one early legislative package. Rather, they took several years to craft and enact. Social Security, unemployment insurance, and the National Labor Relations Act that opened the door to labor organizing by big industrial unions didn't come until President Roosevelt's third year, as part of what historians call the "Second New Deal."

In fact, one of FDR's first initiatives to address the Depression -- the National Recovery Act --got the economics wrong by essentially creating cartels to fix prices at higher levels than the market would otherwise bear and pricing goods out of many consumers' reach. Obama's recovery package gets far higher marks on this score by putting money in the hands of people who will spend it, thereby stimulating the economy.

Moreover, the new law puts building blocks in place to make progress on some of the toughest problems of our time -- soaring health care costs and global warming -- by investing considerably more than in the past in comparative effectiveness research, health information technology, new energy technology, and energy efficiency. We will need to do more on these fronts, but the measures in the law provide a good starting point.

Even when acknowledging these investments, some critics say the package should have been bigger. Perhaps. But, the law's allocations for road and bridge building, energy efficiency investment, and the like pretty much hit the limits of what the government can spend well in the next couple of years. Had the package grown, the growth probably would have come in low bang-for-the-buck tax cuts, some of which were dropped when the package shrunk in size in order to secure the needed Senate votes for passage.

In its final form, the package largely reflected the central goal of Obama and his economic transition team as they crafted its main elements in November and December -- to finance high bang-for-the-buck stimulus measures to address the economic emergency. In so doing, the package stands some misguided policies of recent decades on their head.

For example, the plan recognizes that in a deep recession like this one, stemming job loss entails creating more demand for the goods and services that businesses produce -- and that the most effective ways to do that are to put money in the hands of hard-pressed low- and moderate-income families that will spend it (rather than save it) and to prop up public-sector spending for services that benefit the public. The new law does both in spades.

Its tax cuts are quite progressive, even after accounting for its relief from the Alternative Minimum Tax (which mainly benefits people with incomes over $200,000). In fact, the law's tax cuts alone will lift 2.3 million low-income working Americans, including 1 million children, out of poverty --and that's before factoring in the law's strong and highly stimulative unemployment insurance and food stamp provisions.

The law also provides strong fiscal relief to help states moderate the depth of their own budget cuts, tax increases, and lay-offs that would further injure the economy and squeeze the recession's victims.

Furthermore, the law downplays general business tax cuts, which don't work well in a recession. Firms won't retain or hire workers because they get a tax cut if no one will buy the goods and services that the workers would produce. Contrary to widespread impressions among some progressives, only 1 percent of the package goes for general business tax cuts. (There are additional business-related tax cuts for activities such as alternative energy development.)

To be sure, the law is not perfect. It should not have included the Alternative Minimum Tax relief, and it should have included more for state fiscal relief, school construction, and health care coverage for low-income laid-off workers. Unfortunately, these shortcomings were the price of securing the necessary 60 votes in the Senate.

But, compare this package to those enacted during past major recessions, even after months of work. I've been in Washington for 36 years and have witnessed at least four previous downturns. This is by far the best designed recovery package of the last third of the century, and probably the best one over a much longer period.

Robert Greenstein is Executive Director of the Center on Budget and Policy Priorities.

Meanwhile, a conservative group mentions Jesus in an ad attacking the spending. Jesus said: Thou shalt not spend!

Wednesday, February 18, 2009

Buying Their Freedom: The Roots of Black Wealth Accumulation

DiversityInc gives a snapshot of how African-American slaves bought their freedom - an ironic way of putting it, because freedom is a human right. The article also gets at provisions at the time that restricted free African-Americans from owning property or placed additional taxes on them. This would have inhibited their ability to accumulate wealth.

The history of people of African descent in the United States is much more than a history of slavery and oppression. For one thing, during the slavery era, about 10 percent of all Africans or African descendents in the United States were free.

To be sure, their freedom was constrained. In some cities and states, they had to register with courts and put up substantial bonds "for their protection" as part of "Black code" laws.

In others, the fact that they were descendents of Africans made it more challenging for them to own and maintain property or to have access to the benefits their fellow citizens had. They were sometimes taxed and there were many attempts to sell free African people into slavery. But amidst all of this, they prevailed.

In a country whose foundations are intertwined with the brutality of slavery, it is interesting to contemplate the reality of the free African American and ask, indeed, how these folks became free.

Some were manumitted as a result of war service or other heroism. Some were freed upon the deaths of their masters. Some, children of their masters, were freed and sent to the North. And some, regardless of whether they were children of their masters, bought their own freedom.

Even as I write the words "bought their own freedom," I cringe at the oxymoronic nature of the phrase. How does one purchase one's own freedom, or, to be more accurate, buy herself? How does a slave enter into an enforceable contract with a master, someone who "owns" him or her? How does a slave believe the terms of the contract will be honored? Is it faith, naiveté, fierceness or a combination of the three? What makes a slave decide to buy herself instead of running off and freeing herself another way?

There has been little study of slaves who bought their freedom. From oral histories, we know slaves were often able to hire themselves out during their free time, and that their masters took a portion of their wages, leaving the remainder for them to save or to spend.

Enslaved women frequently hired themselves out as laundresses, and men, skilled in the crafts, as welders, carpenters or common laborers. Small farmers didn't have the advantage of the free labor of slaves, but they could frequently hire slave labor from neighboring large farmers.

The Story of Free Frank

We are fortunate to have the history of Francis "Free Frank" McWorter, painstakingly documented by his great-great-granddaughter, Dr. Juliet E.K. Walker of the University of Texas.

Free Frank was born in 1777 in South Carolina to an enslaved woman, Juda, and a planter, George McWhorter. When McWhorter moved to Kentucky, he took Frank to help him manage and build his landholdings. He also leased his son, Frank, to his neighbors.

As a leased worker, Frank was able to save and also to develop his business skills. He used his savings to create a saltpeter mining and production operation, and with the money he earned from that manufacture, especially during the War of 1812, he purchased his freedom, as well as that of his wife, Lucy, and of 16 other family members. Along the way, he dropped the "H" from his last name, distinguishing himself from his master and former owner, George McWhorter.

Frank McWorter founded the town of New Philadelphia, Ill., in 1836. That interracial town was the first plotted and registered by an African American. It is likely he moved to Illinois from Kentucky because of the oppressive conditions people of African descent experienced in Kentucky.

When he moved to Illinois, he left several family members behind and returned to Kentucky over the years to purchase them. Every time he returned, he put his life in danger, as slave trackers had no scruples about capturing and selling free African Americans as well as slaves. But he returned time and again, spending a total of $15,000 to free his relatives.

Free Frank died in 1854. His descendents used the money he left to free seven more relatives.

New Philadelphia was abandoned by 1885, and the town is now farmland. It was placed on the National Register of Historic Places in 2005. Free Frank's grave was included in the National Register in 1988. A great-great-granddaughter, Shirley McWorter-Moss, presented a life-size bronze bust of Free Frank to the Abraham Lincoln Presidential Library in 2008. Plans are underway to restore New Philadelphia.

Photos and information are available at

The Free Frank story is a tribute to the entrepreneurial spirit embraced by some enslaved people who were determined to negotiate their freedom, and that of their families, in an oppressive, capitalist system. Free Frank was exceptional, but he was not the only exception to the more common reality of enslavement for African descendents in the United States.

His resilience, like that of the women who washed clothes to amass pennies to buy their freedom, is a close cousin to the rebellion of the runaway slaves, a cousin to the everyday courage exhibited by those free men and women who posted bonds and built businesses in a country where the color of their skin meant that whether they were slave or free, their lives would be more difficult than those of their white counterparts.

Free Frank could neither read nor write. We know his story because his descendents have passionately committed to telling it. There are perhaps thousands of stories like the Free Frank story, thousands of stories of slave entrepreneurs who bought their freedom and went on to amass wealth, even in the face of oppressive capitalism.

These are stories that deserve to be told, to illustrate the diversity in African-American history, and also to pay tribute to the spirit of those people who were determined to clear the hurdles that both slavery and capitalism imposed.

The opinions expressed herein are solely those of the author, Dr. Julianne Malveaux, president of Bennett College for Women.

Tuesday, February 17, 2009

Is America ready to quit coal?

The New York Times asks if the US is ready to quit coal.

Last May, protesters took over James E. Rogers’s front lawn in Charlotte, N.C., unfurling banners declaring “No new coal” and erecting a makeshift “green power plant” — which, they said in a press release, was fueled by “the previously unexplored energy source known as hot air, which has been found in large concentrations” at his home.

And so it goes for Mr. Rogers, the chief executive of Duke Energy. For three years, environmentalists have been battling to stop his company from building a large coal-fired power plant in southwestern North Carolina. They say it will spew six million tons of carbon dioxide into the atmosphere annually, in addition to producing toxic gases and mountains of fly ash similar to the muck that engulfed a Tennessee community recently.


With concerns over climate change intensifying, electricity generation from coal, once reliably cheap, looks increasingly expensive in the face of the all-but-certain prospect of regulations that would impose significant costs on companies that emit large amounts of carbon dioxide and other greenhouse gases.

As a result, utilities’ plans for new coal plants are being turned down left and right. In the last two-and-a-half years, plans for 83 plants in the United States have either been voluntarily withdrawn or denied permits by state regulators. The roughly 600 coal-fired power plants in the United States are responsible for almost one-third of the country’s total carbon emissions, but they are distinctly at odds with a growing outlook that embraces clean energy.


“If you care about being a leader on solving global warming problems, you don’t build new coal plants, especially ones that don’t have a way to capture carbon,” said Stephen A. Smith, executive director of the Southeastern Alliance for Clean Energy. (Mr. Smith’s group was not involved in the decorating of the Duke executive’s lawn. That was the handiwork of a small group called Rising Tide, in Asheville.)

This green chorus also includes Al Gore, the former vice president, Eric E. Schmidt, the chief executive of Google, and Harry Reid, the Senate majority leader, who has called for a moratorium on new coal plants.

Mr. Reid and other Democratic leaders in Congress, emboldened by support from the Obama administration, have promised climate change legislation by the end of the year. While the exact outlines are yet to be determined, lawmakers are discussing plans to force companies to reduce carbon emissions or be required to pay some form of penalty.

Some conservatives in Congress, and the coal industry itself, say the clean energy push is an affordable luxury — and a pet cause — for people in states that don’t have to rely primarily on coal to produce electricity.

“The costs for those customers in the heartland who get more of their electricity from coal, not only residential but commercial customers, could be significantly higher, at a time when we can least afford it,” says Jim Owen, spokesman for the Edison Electric Institute, which represents electric utilities. “So we want to make sure that a climate change program is properly designed.”

Moreover, getting more and more of our energy from squeaky-clean sources like wind, solar and biomass sounds like a great idea, but whether renewables can keep the lights on and our iPods charged remains an open question.

THE coal industry is aware of all of these issues and is fighting back. An industry-financed group called the American Coalition for Clean Coal Electricity spent $38 million last year informing Americans, via TV and newspaper ads, that coal is the source of 50 percent of their electricity, that it is an abundant domestic resource and, most importantly, that there is the promise of “clean,” or carbon-free, coal. This argument is what Mr. Kennedy’s group calls “the dirty lie.”

Nevertheless, the industry sees clean coal technologies as its best hope for joining the ranks of green power. The problem is that the technology, called carbon capture and storage, is still being developed and could make electricity generated by coal more expensive than power from other sources.

“There are 16 gigawatts of new coal-fired generation coming online in the next few years,” said Kevin Book, an energy policy analyst at FBR Capital Markets. “They may well be the last plants.”

Mr. Rogers, 61, may adhere to the pro-coal sentiments of many of his peers, but he is hardly a typical captain of the energy industry. Five years ago, he began advocating for climate change legislation at a time when some companies were still saying human activity had nothing to do with global warming. Mr. Rogers, a native of Birmingham, Ala., considers himself an environmentalist and calls his decision to move forward with the new plant, made shortly after he became chief of Duke in April 2006, a difficult one.

The estimated 240 million tons of carbon dioxide that will be generated over the 40-year life of the plant, known as Cliffside, will probably never be captured, when or if such technology becomes viable. Most proposals to capture gas involve injecting it deep into the earth. But in North and South Carolina, where Duke operates, the underground rock is too porous to contain any gas.

“There’s always been a tension between affordability and clean,” Mr. Rogers said in mid-January, sipping a cappuccino on his way to a meeting in Washington with Carol M. Browner, the White House coordinator of energy and climate policy. “Ultimately we need to be able to meet the energy needs of our customers. That’s my biggest obligation.”

Fulfilling that responsibility through renewable energy wasn’t an option, he said. Duke, which gets 71 percent of its electricity from coal, has only recently delved into solar energy, promising to buy the entire output of a large solar farm in North Carolina and it is seeking final approval to put solar panels on rooftops at hundreds of customer sites. Its first purchase from a wind farm has started flowing to customers in Indiana. All that combined, though, will give Duke only 124 megawatts of energy, compared with 800 planned from Cliffside.

Hoping to mitigate some of the environmental impact of Cliffside, Mr. Rogers has promised to shut down more than an equal amount of older, more polluting power plants by 2018.


For their part, nearly all utility companies yearn for the day when coal isn’t a dirty word and when plants can capture and store their carbon dioxide. No one is a bigger cheerleader for this idea than Mr. Morris of American Electric.

This fall, the 150-foot smokestack at the company’s Mountaineer coal plant in New Haven, W.Va., will be outfitted with technology that uses chilled ammonia to trap carbon dioxide. The greenhouse gas will then be turned into a liquid and injected into the ground. It will be the first such project that will both capture and store carbon from an existing plant, and Mr. Morris is wildly optimistic. “At the end of the day we will develop this technology,” he says.

But Mr. Morris’s plans, as ambitious as they are, say a lot about just how far away “clean coal” is. Of the 8.5 million metric tons of carbon dioxide emitted annually by the Mountaineer plant, only 100,000 to 300,000 will be removed with the new technology. And American Electric and the maker of the technology, Alstom, are spending $100 million on the initiative — a daunting expense for some producers.

Then there is the cost of doing the carbon removal, which Mr. Book, of FBR Capital Markets, estimates would more than double the price of electricity generated from coal, possibly making it too expensive relative to other sources. “The economic case isn’t there for private companies to do it,” he says. “The government is going to have to fund it.”

A podcast by Inside Renewable Energy discusses the Netherlands. In the podcast, French utility EON reveals that their carbon capture technology demonstration costs €40 per captured ton of CO2. They hope to get it down to €20 per ton of CO2 within 5 years. The demonstration captured 250kg of CO2 per hour, whereas the 1 GW plant put out several tens of tons per hour. The discussion on carbon capture technology starts at 9:30. The cost figures come out around 12:00.

McKinsey and Co, a respected international business consulting firm, projects that CCS should cost around €30-45 per ton of CO2 captured in 2030 on a commercial scale. McKinsey expects carbon emissions to cost €30-48 per ton, which would make CCS projects self-sustaining. Keep in mind that costs for individual projects can vary considerably from this range due to unique characteristics. Captured CO2 has to be stored, and McKinsey pointed to transport costs for this CO2 as one variable. Transporting captured CO2 over 200km added €10 per ton to the cost. I haven't perused their full report yet, so I can't say how much CCS would add to our electricity costs.

Monday, February 16, 2009

Businessweek: A few things for Obama's auto task force

From David Welch of Businessweek.

It appears now that there may not be a car czar after all. Instead the Obama Administration may set up a task force which reports to both Treasury Secretary Timothy Geithner and Lawrence Summers, chief of the National Economic Council, says the Wall Street Journal. That’s probably a good thing if it results in less bureaucracy. Plus, Treasury doles out the money that Detroit wants to borrow. So Geithner should play a key role.

Whoever the Obama Administration has overseeing the bailout and the restructuring plans that General Motors and Chrysler plan to put forth tomorrow, the task force needs people who really understand the complexity of the auto industry and the problems facing the domestic car companies. In November and December, members of Congress and various experts who testified in Washington threw out a lot of bad information. Let’s hope the people on this task force actually know something. Here are a few things they should be aware of as they assess the situation in Detroit:

1. Despite what the green wing of the Democratic party says, the Japanese do not make the hybrids that consumers crave. They make the hybrids that a small minority craves. Despite record gasoline prices last summer, hybrids are still less than 5% of the market. We don’t need to mandate more hybrids unless we mandate a gasoline tax that makes consumers want them.

2. Some southern Republicans think this is all the UAW’s fault. Not so. Wages are pretty competitive. The JOBS bank (that paid layoff clause that everyone hates) is on its way out. The union does need to give on its rigid work rules and its gold-plated healthcare deal. But you don’t save Detroit solely on the UAW’s back.

3. Some of GM’s bondholders will get hurt in a cram down of the debt to 30% of its value. But many of them also bought these notes at 15% to 25% of their face value. Treasury should assess how many of these bondholders will really lose something by taking 30% and equity in GM and use muscle to get them to play ball.

4. Watch GM and its plan to dump brands very closely. This company is culturally incremental. Without holding them to disposing of the brands, GM could hangdesign and onto some of them for years. That will sap billions of dollars in marketing and product development to peddle Saturns, Pontiacs, Saabs and Hummers that few buyers want.

5. It’s the retirees, stupid. That’s one of the biggest culprits when it comes to eating cash and profits. Pension and healthcare costs have been a big problem at GM for a long time. Management and the union are trying to set up a fund to pay for more than $50 billion in long-term retiree healthcare liabilities. They could make that easier to manage if they jacked up premiums and co-pays to equal 29% of total medical costs like the rest of us pay. The UAW pays less than 10%. Social safety nets in Japan and Europe keep their automakers out of the benefits trap.

6. Get credit moving. Obvious, I know. But nothing has managed to ease up lending much yet.

There’s my two cents. We’ll see who is on this task force and what they will do. Hopefully, there will be some sensible people looking at all of the problems and coming up with practical solutions.

I find myself in agreement. Point number 5 is troubling in that the US does not have a national health care arrangement. The automakers had arranged to fund the VEBA (the health care trust they designed with the UAW) in cash, but that was just before things really hit the fan.

Switzerland and the Netherlands operate private insurance-based systems that cover 99+% of their citizens, as detailed in a report by the Commonwealth Fund, a US health policy think tank. Both countries mandate a core set of benefits, although individuals may purchase supplemental insurance policies that cover non-core benefits (i.e. a lot of specialist care). This is one route the US should investigate.

Church of England: legislation to allow women bishops is passing its final hurdle

It appears that the Church of England is taking the final steps on the road to consecrating female bishops. This is slightly ironic in a church whose mother country has had female heads of state (several Queens and one Prime Minister, albeit Margaret was a right-wing maniac) before.

LEGISLATION to bring in women bishops passed its first hurdle in General Synod when it was carried by a majority of about two-thirds during a debate on Wednesday morning.

The Bishop of Manchester, the Rt Revd Nigel McCulloch, who chairs the legislative drafting group which drew up the proposals, moved that the Measure be considered for revision in committee.

He said that the debate marked a new stage in the process, and that “it is open season once again, and every­thing is reviewable”. He also spoke of the difficulty faced by the drafting group in trying to strike a balance between pre­scription and flexibility.

He said the final code of practice would come from the House of Bishops, and warned that there would be searching and unwelcome dilemmas over the next 18 months. “Let none of us expect others to set aside convictions that they hold as deeply as our own. Instead, let each ask what it might mean for each of us to go the extra mile for our brothers and sisters in Christ.”

Christina Rees, from the group Women and the Church, expressed concerns over the proposal for specially nom­inated suffragan sees, and questioned the relationship these bishops would have with the House of Bishops. She suggested that aspects of the provisions perpetuated the idea of a woman being a “flawed creation”.

The Bishop of Beverley, the Rt Revd Martyn Jarrett, urged Synod to reject the proposals. He said the legislation failed to solve the central problem of jur­is­diction, and that no code of practice could compel a priest holding traditionalist views to come under a bishop they could not re­gard as a true father in God.

The Archbishop of Canterbury explained that he abstained from the vote in the July Synod because he felt the Measure did not make adequate provision for those who opposed women bishops, and that he wanted to back something that was good news for everyone.

The Bishop of Norwich, the Rt Revd Graham James, criticised the draft legislation, which he said left episcopacy “damaged and fractured”. He was pessimistic about being able to find a satisfactory way forward, and said that op­ponents would not find the proposals sat­isfactory and might well leave for another Communion, leav­ing the Church “pressed into deeper schism”.

More than 80 Synod mem­bers requested to speak during the debate, but many did not get the chance.

After a final summary by Bishop McCulloch, the motion that the draft Bishops and Priests (Consecration and Ordination of Women) be con­sidered for revision in com­mittee passed by 281 votes to 114, with 13 abstentions.

The linked Draft Amend­ing Canon No. 30, which will alter legislation from the 17th cen­tury, also passed com­fort­ably, by 309 votes to 79, with 14 abstentions.

Sunday, February 15, 2009

Happy (belated) Darwin Day!

I missed this, but Darwin Day falls on Feb 12. From

Darwin Day is a global celebration of science and reason held on or around Feb. 12, the birthday anniversary of evolutionary biologist Charles Darwin. This year marks the 200th anniversary of Charles Darwin's birth.

Growing up, I heard some religious leaders loudly proclaim that Christians shouldn't believe in evolution. Some folks - thankfully a minority - still do. They don't realize that a religion that refuses to engage with scientific scrutiny is a religion that is already dead.

How banks are making foreclosures worse

Businessweek has a long article on how banks are making foreclosures worse.

The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won't spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan—whatever its details—can't possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn't shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell BusinessWeek . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM), would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

In public, financial institutions insist they've done their best to prevent foreclosures. Most argue that giving bankruptcy courts increased clout, known as cramdown authority, would reward irresponsible borrowers and result in higher borrowing costs. "What we're trying to do now is target the bill to make it as narrow as possible," says Scott Talbott, a lobbyist for the Financial Services Roundtable. On the defensive, the industry nevertheless benefits from one strain of popular opinion that home buyers who took on risky mortgages—even if the industry pushed those loans—don't deserve to be rescued.

However the skirmish ends, the industry's contention that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. "The industry still has not stepped up to the volume of the problem," Preston says. One program, Hope for Homeowners—which Bush officials and banks promised last fall would shield 400,000 families from foreclosure—has so far produced only 25 refinanced loans.

Meanwhile, an already glutted market sinks beneath the weight of more foreclosed homes. Borrowers whose equity has evaporated have nothing to tap into if the recession costs them their jobs. Some lawmakers and regulators are calling for a foreclosure moratorium. "People are falling through the cracks," Preston says. "That's bad for communities, bad for the individuals losing their homes, and bad for investors."

In early 2007, as overextended borrowers began to default on too-good-to-be-true subprime mortgages, housing experts sounded an alarm heard throughout Washington. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, wanted to push a bill requiring banks to modify loans whose enticingly low "teaser" interest rates soon give way to tougher terms. But he knew that with Republicans strongly opposed, he lacked the muscle, according to Senate aides. So Dodd did what politicians often do. He convened a talkfest: the Homeownership Preservation Summit.

A who's who of banking executives gathered on Apr. 18, 2007, behind closed doors in an ornate hearing room in the marble-faced Dirksen Senate Office Building. Dodd told them they needed to get out in front of the foreclosure fiasco by adjusting loan terms so borrowers would continue to make some payments, rather than stopping altogether. Foreclosure proceedings typically cost banks about 50% of a property's value. That's assuming the home can be resold—not a certainty when empty houses multiply in a neighborhood. "What are you doing?" Dodd asked the executives. "What do you need me to do to help you modify loans?"

Some from the industry denied a foreclosure problem existed, including Sandor E. Samuels, at the time chief legal officer of subprime giant Countrywide Financial. They vowed to continue selling loans with enticing introductory rates as well as those requiring minimal evidence of borrowers' income. "We are going to keep making these loans until the last second they are legal," Samuels later told a fellow participant.

On May 2, 2007, Dodd's office issued a "Statement of Principles" stemming from the summit. It outlined seven vaguely worded industry aspirations, such as making "early contact" with strapped borrowers and offering modifications that could include lowering loan balances. The principles had no effect, some summit participants now concede.

Much of Dodd's attention shifted to his campaign for the Democratic Presidential nomination. Senate Banking Committee spokeswoman Kate Szostak says Dodd aggressively pursued the foreclosure issue, but "both the industry and the Bush Administration refused to heed his warnings." The lawmaker accepted $5.9 million in contributions from the financial-services industry in 2007 and 2008.

Asked about his role at the summit, Samuels confirmed in an e-mail that he "did speak—formally and informally—about the performance" of subprime loans. But he declined to elaborate. He now works as a top in-house lawyer for Bank of America, which acquired Countrywide in July 2008.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs (GS) in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.

By mid-2007, Bush Administration officials were deeply worried about the financial industry's unwillingness to confront the growing catastrophe. Even banking lobbyists say they realized that their clients had lapsed into denial. The K Street representatives agreed that Treasury Secretary Henry Paulson needed to step in, says Erick R. Gustafson, then the chief lobbyist for the Mortgage Bankers Assn. "It was like an intervention," he says. "We had to get Treasury involved to get the banks to give us information."

That summer, Paulson, a former CEO of Goldman Sachs, summoned industry executives to the Cash Room, one of Treasury's most elegant venues. There, beneath replica gaslight chandeliers, Neel T. Kashkari, a junior Goldman banker whom Paulson had brought to Treasury, urged industry leaders to move swiftly to keep more consumers from losing their homes. Bankers know how to adjust interest rates, extend loan durations, and, if necessary, lower principal, said Kashkari, who has temporarily remained in his post. A couple of months later, Paulson summoned the executives again, this time to his conference room. "We told them we need to get over the goal line," recalls a former top Treasury official. "Cajoling is a euphemism for what we did. We pounded them."

One product of the Treasury conclaves was the Hope Now Alliance, a government-endorsed private sector organization announced by Paulson on Oct. 10, 2007. Lenders promised to cooperate with nonprofit credit counselors who would help borrowers prevent defaults. Faith Schwartz, a former subprime mortgage executive, was put in charge.

The alliance got off to a shaky start. An early press release contended that there had been more foreclosures nationally than the Mortgage Bankers Assn. was conceding at the time. "We looked like the Keystone Kops," says an industry lobbyist. Soon it became apparent that the program was primarily a public-relations effort, the lobbyist says. "Hope Now is really just a vehicle for collecting and marketing information to the Treasury, people on the Hill, and the news media."

In a press release last Dec. 22, Hope Now said it had prevented 2.2 million foreclosures in 2008 by arranging for borrowers to catch up on delinquent payments and, in some cases, easing terms. But the data don't reveal how many borrowers are falling back into default because many modifications don't, in fact, reduce monthly payments. The alliance doesn't receive this information from banks, says Schwartz.

There's reason for skepticism. Federal banking regulators reported in December 2008 that fully 53% of consumers receiving loan modifications were again delinquent on their mortgages after six months. Alan M. White, a law professor at Valparaiso University, says the redefault rates are high because modifications often lead to higher rather than lower payments. An analysis White did of a sample of 21,219 largely subprime mortgages modified in November 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers' monthly bills.

Consider the case of Ocbaselassie Kelete, a 41-year-old immigrant from Eritrea who called Hope Now last fall. Kelete, a naturalized U.S. citizen, bought a $540,000 townhouse in Hayward, Calif., in November 2006 with no down payment and 100% financing from First Franklin Financial, a subprime unit of Merrill Lynch. At the time, he and his wife earned $108,000 a year from his two jobs, with a pharmacy and an office-cleaning service, and hers as a janitor. Kelete says First Franklin and his realtor convinced him that he could afford a pair of mortgages, one with a 7.5% initial rate that would rise after three years, and a second with a fixed 12% rate. His monthly payment would total $3,600.


"The realtor said, 'Just make sacrifices for two years. Home prices will go up, and you can refinance at a lower rate,' " Kelete recalls. He regrets signing a mortgage he couldn't afford—a mistake many people made during the subprime craze. Home prices didn't go up. He lost his office-cleaning job. First Franklin modified his loans, but added on property taxes it had failed to collect earlier. Kelete's monthly bill rose to $3,900. In October 2008, he called Hope Now. A counselor set up a conference call with First Franklin. The lender's representative said Kelete should get another job or give up the house, the borrower says. Kelete responded that he'd already lost his second job cleaning offices and couldn't find another in a faltering California economy. "Why don't you work with me?" he asked First Franklin. The lender declined. The Hope Now counselor said there was nothing more to do. "Foreclosure is the only future I see," Kelete says. A spokesman for BofA, which acquired Merrill in December, declined to comment, citing the borrower's privacy. After BusinessWeek's inquiries, however, First Franklin contacted Kelete about lowering his monthly payments.

Hope Now's Schwartz acknowledges she is fighting an uphill battle. By her calculation, 45% of the borrowers her organization advises still end up in foreclosure. "If I seem frustrated," she says, "it's because we are dealing with nothing but an exploding problem." She has a full-time staff of four in Washington; 500 counselors participate in the industry-funded hotline. "You shouldn't take it lightly, what we have achieved," Schwartz says. She bristles at suggestions that the statistics she disseminates are misleading. "I print what I know," she says, noting that some of her bank members aren't forthcoming about loan modifications. "It's like herding and juggling cats."

By early 2008 it was obvious that Hope Now wasn't halting a significant percentage of foreclosures. Democrats in Congress began gathering ideas for a government-sponsored remedy. Many of those ideas came from the industry. Lobbyists and congressional aides referred to one concept as "the Credit Suisse plan." Another, "the Bank of America plan," would allow borrowers to refinance mortgages with loans guaranteed by the Federal Housing Administration. Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, had solicited BofA's advice via an old Boston acquaintance, Anne Finucane, the bank's chief marketing executive and a politically active Democrat. He assigned several aides, including Michael M. Paese and Rick Delfin, to work out the details.

Francis Creighton, a Democratic former staff member on the Financial Services panel who had gone to work as a lobbyist for the Mortgage Bankers Assn., negotiated with Paese and Delfin. Creighton's Republican colleague Gustafson huddled with aides to such GOP lawmakers as Representative Spencer Bachus and Senator Richard Shelby, both of Alabama.

Before long, the anti-foreclosure provisions were being altered in ways the industry favored. Shelby, the ranking Republican on the Senate Banking Committee, along with other Republicans insisted on the pro-industry language in exchange for their support, aides say.

In the end, the program included stiff up-front and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value—all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.

Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE). At the Mortgage Bankers Assn., lobbyists gathered in Gustafson's corner office to lift plastic cups of wine in celebration.

Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details.

Shelby, for his part, never expected Hope for Homeowners to accomplish much, according to Republican Senate aides. He agreed to it to gain Dodd's support for greater regulation of Fannie and Freddie—and only when assured the program wouldn't drain tax dollars. "My consistent aim throughout this crisis has been to protect the American taxpayer," Shelby told BusinessWeek in a statement. He accepted $565,000 in contributions from the financial-services industry in 2007-2008.

Frank, whose industry contributions totaled $948,000 over the same period, says he became skeptical Hope for Homeowners could achieve its initial goal of helping 1 million people. But he expected much more progress than the mere 25 refinancings that have occurred so far, according to HUD. He blames Republicans and the industry for undercutting his legislation. "I didn't have the votes to do more," he says.

The Massachusetts liberal hasn't given up hope of repairing Hope for Homeowners. He is working on changes that would cut borrowers' up-front fees and provide bonus money for mortgage servicers that agree to participate in the voluntary program. Frank aides Paese and Delfin aren't assisting with the fixes: They have left their congressional staff positions for lobbying jobs with the Securities Industry & Financial Markets Assn. in Washington. They say they are observing the one-year federal ban on speaking with their former boss about business they did on the Hill.

In the first days of 2009 it appeared that progress might be possible on a different front. A slumping Citigroup came back to the Treasury Dept. for a second round of bailout money. Bowing to pressure from regulators, Citi broke ranks with its rivals and dropped its opposition to bankruptcy cramdown.

Senator Dick Durbin (D-Ill.), who since 2007 had led unsuccessful efforts in Congress to give bankruptcy judges authority to modify home loans, dispatched his senior economic policy adviser, Brad J. McConnell, to talk with lobbyists for JPMorgan Chase and Bank of America. "Each agreed to take [the idea] back to their folks to see what they could do," says a person familiar with the talks. Citi's concession, the imminent Obama inauguration, and intensifying public hostility toward big banks contributed to an atmosphere Democrats assumed would be conducive to compromise.

By the time McConnell talked to the JPMorgan and BofA representatives the next day, however, "they had gone on full defense mode and started to complain about how lousy a deal Citi had struck," says the person familiar with the exchanges. Bank opposition, Durbin says, "was very shortsighted in light of the mess they have created in our economy."

In the following weeks, banking lobbyists launched a renewed attack on the cramdown legislation, enlisting as an ally Republican Representative Lamar Smith of Texas, among others. Apart from Citi, "the industry remains united in that bankruptcy cramdown would destabilize the market" by creating widespread uncertainty about the value of numerous troubled mortgages, says Steve O'Connor, senior vice-president for government relations at the Mortgage Bankers Assn. His group is distributing talking points to key congressional aides laying out reasons why "Congress should defeat bankruptcy reform legislation." These include the argument that if lenders can't be confident that loan terms will survive, they will raise rates and reject riskier borrowers. Industry lobbyists are organizing home state bankers to pressure moderate Democrats they hope will be receptive to limiting the kinds of loans eligible for cramdown. One target: Senator Evan Bayh of Indiana.

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the Smiths' privacy. After BusinessWeek's questions, though, Countrywide called them to discuss cutting their payments.

"We knew when we bought that the payments would be a stretch," says Stefanie. She regrets assuming they would be able to refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a mortgage we can afford."