U.S. Still 21 Percent Poorer

American households saw their wealth increase at the end of last year, mainly because the healing economy boosted stock portfolios.

The Federal Reserve says household net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. Net worth had risen 4.5 percent in the second quarter of 2009 and an even stronger 5.5 percent in the third quarter.

Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.

Even with the gain, Americans’ net worth would have to rise an additional 21 percent to get back to its pre-recession peak of $65.9 trillion. That shows the vast loss of wealth people have suffered from the worst downturn since the 1930s.

Where is All the Money

“The war against working people should be understood to be a real war…. Specifically in the U.S., which happens to have a highly class-conscious business class…. And they have long seen themselves as fighting a bitter class war, except they don’t want anybody else to know about it.” — Noam Chomsky

As a record amount of U.S. citizens are struggling to get by, many of the largest corporations are experiencing record-breaking profits, and CEOs are receiving record-breaking bonuses. How could this be happening, how did we get to this point?

The Economic Elite have escalated their attack on U.S. workers over the past few years; however, this attack began to build intensity in the 1970s. In 1970, CEOs made $25 for every $1 the average worker made. Due to technological advancements, production and profit levels exploded from 1970 – 2000. With the lion’s share of increased profits going to the CEO’s, this pay ratio dramatically rose to $90 for CEOs to $1 for the average worker.

As ridiculous as that seems, an in-depth study in 2004 on the explosion of CEO pay revealed that, including stock options and other benefits, CEO pay is more accurately $500 to $1.
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Japanese Homeless Housed in Plastic Capsules

Even though it sounds odd at least there is some sort of concerted effort to “House” the homeless as opposed to other places that shall remain un-named!

Japan: Homeless People Living in Plastic Capsule Hotels

Japanese homeless housing unit

For Atsushi Nakanishi, jobless since Christmas, home is a cubicle barely bigger than a coffin — one of dozens of berths stacked two units high in one of central Tokyo’s decrepit “capsule” hotels.

“It’s just a place to crawl into and sleep,” he said, rolling his neck and stroking his black suit — one of just two he owns after discarding the rest of his wardrobe for lack of space. “You get used to it.”

When Capsule Hotel Shinjuku 510 opened nearly two decades ago, Japan was just beginning to pull back from its bubble economy, and the hotel’s tiny plastic cubicles offered a night’s refuge to salarymen who had missed the last train home.

Now, Hotel Shinjuku 510’s capsules, no larger than 6 1/2 feet long by 5 feet wide, and not tall enough to stand up in, have become an affordable option for some people with nowhere else to go as Japan endures its worst recession since World War II.

Once-booming exporters laid off workers en masse in 2009 as the global economic crisis pushed down demand. Many of the newly unemployed, forced from their company-sponsored housing or unable to make rent, have become homeless.

Unemployed get Tapped for Cash

While posting impressive profits in the last two quarters – Wells Fargo’s $3.2 billion, Citigroup’s $3 billion and Chase’s $2.7 billion – U.S. banks have figured out a way to squeeze some extra dollars from those who can least afford it, the unemployed.

Here’s how it works. In the past two years, states have been overwhelmed with unemployment claims. Always eager to serve, America’s banks offered a deal the states couldn’t refuse.

Sign a contract — which won’t cost you a dime — and send us your weekly unemployment funds, the banks said. In return, we’ll issue our VISA or MasterCard debit cards to your laid-off workers, on which we’ll post their benefits electronically.

Thirty states signed on with the usual suspects — Citi, Wells Fargo, JPMorgan Chase, Bank of America — and some smaller ones, too. More states are lining up.

In a stroke, states dropped all their costs for printing and mailing checks. Andrew James, with North Carolina’s Employment Security Commission, told me that in the past year, his state saved a whopping $10 million. During the same time, Nevada saved $800,000, Maryland $400,000 and West Virginia $340,000.

But if the system is good for the states, it’s great for the banks. A February 2009 Associated Press article noted that Missouri’s Central Bank, which won that state’s contract, could reap $6.3 million this year alone.

The banks profit from interest earned on the funds the states deposit with them until the money is posted onto the debit cards. Then there’s the money the banks get from retailers where the unemployed shop with their cards — from 2 percent to 3 percent per transaction.

But such sums are not large enough, it seems. So the banks have figured how to extract more money from the millions of unemployed now using the debit cards. The devil’s in the fees.

Nickel and Diming

The cards can be beneficial to some of the unemployed, like those who otherwise would pay whopping fees to cash checks because they don’t have bank accounts.

And, at first glance, many of the terms seem reasonable enough: Free cash withdrawals from tellers at banks that honor VISA or MasterCard (over 90 percent in the United States) and from ATMs owned by the banks with the contracts (plus one or two others in their networks).

However, in practice, the various fees add up. For example, withdrawals are free — but only to a point. In Maryland, Citicorp gets $1.50 a pop after four free ATM withdrawals a month; in Nevada, Wells Fargo gets $1.25 after two free ones; in Texas, Chase gets $1.50 after only one free withdrawal a week and Missouri’s Central Bank, which offers no free ATM withdrawals, rakes in $1.75 each and every time.

If the bank offering the debit card doesn’t have an ATM in a neighborhood or small town, it’s even worse: Card-holders must use out-of-network ATMs, which spell double trouble. A first fee goes to the bank with the contract — Chase charges $2.75 in West Virginia and Wells Fargo gets $1.25 in Nevada.

A second fee — from $2 to $4 — goes to the out-of-network bank that owns the ATM, if the recipient doesn’t have an account there. Thus, one withdrawal can cost over $5. These expenses can mushroom, since recipients use ATMs six to 10 times a month, according to the AP article.

Penalties for transactions denied due to insufficient funds, whether at ATMs or stores, are another costly affront: $1.50 in West Virginia and Michigan, and $1 in Texas — though the banks, which use electronic systems — needn’t process anything. Only a few plans, as in Kansas, charge nothing.

To avoid penalties, the jobless must find out how much money is on their cards. But here’s another catch: In Nevada, they get one free ATM balance inquiry a month. After that, the price tag is 50 cents a throw. In Michigan, it’s $1 for every one after the first (per week). In Texas, inquiries are free at Chase ATMs, but 50 cents at all others.

So it’s a costly Catch-22. To avoid fees for declined transactions, the jobless must pay to know what’s on the card, to ensure that a purchase or other transaction won’t exceed the total.

Lost Cards

If a card is lost, tack on more. A few banks give the first one gratis, but the next cost $5 each (in Kansas and Maryland) or $7.50 (in Michigan). In North Carolina, Comerica gets $5, period — no freebies allowed.

Most banks charge nothing for cash withdrawn inside, from tellers, but some levy fees after the first visit in a week or month: $5 in Texas and $4 in Michigan.

The promise that retailers will give free cash-backs to debit-card users often is another myth.

In Berkeley Springs, West Virginia, the one hardware store in town doesn’t give cash back. Nor do the two gas stations. The 7-11 turns over $10 tops.

Food Lion allows up to $100 per purchase — but as the customer service rep told me, “Only if we have the cash.” And, most stores (even in big cities) don’t in the early morning or at night.

Could the debit-card terms change and the plans still work — for the banks, states and unemployed?

Judi Conti, at the National Employment Law Project, says the states could easily negotiate better deals to reduce the fees. Also, recipients should be able to decide if they want their payments in checks, direct deposits to their bank accounts – which carry no fees at all – or debit cards.

“The banks,” she contends, “could do this and still make an honest profit.”

At present, a few states offer direct deposits — but most don’t. The Workforce West Virginia spokesman told me his state was going to start this “sometime soon.” When? It’s not yet decided.

For now, those without jobs who are trying to stretch every dollar from unemployment insurance are finding the banks eager to nibble away at even those modest sums.

China’s Corporate Shopping Spree

With Chinese companies trying to gobble up western firms and brands (like Hummer) by taking advantage of the global financial crisis, there are many who wonder if China will some day dominate the western corporate world.

This fear of Chinese companies driving world stock prices in future has been partly triggered by Beijing, which is pushing local companies to buy up assets overseas. The government has also set aside $200 billion for buying foreign corporate assets.

The image of a dragon dominating the western skies has led to frequent political resistance to Chinese takeovers, starting with the 2005 blocking of an attempt to acquire US oil giant Unicol. In a similar situation in Australia, a Chinese miner was not allowed to invest $19 billion in mining giant Rio Tinto.

Should this fear exist? Perhaps not. A less publicized fact is that 70 per cent of acquisition attempts made by Chinese firms on foreign soil have come a cropper. Experts at a recent CEO Forum in Beijing pointed out several reasons for such failures. The perception of China in the West and the narrow worldview of Chinese firms – nursed as they are in a controlled economy – are two important reasons.

Most experts in mergers and acquisition think it is difficult to make a merger successful if it is driven merely by the low price of shares of the target company. Speakers at the forum advised Chinese companies to first consider whether they were ready to handle the cultural transition, technological upgrades and the new market environment before they struck share purchase deals.

A major problem for Chinese firms is the absence of managerial and technical talent to handle new situations caused by buying western companies.

China is in a peculiar situation. A country, which fights to retain its position as a developing nation, is overflowing with money for foreign takeovers. But it lacks many of those very qualities that turned many western companies into successful international brands. This does not mean China will slacken its efforts to acquire businesses the world over. The recent advice from Hu Jintao asking Barrack Obama to eschew protectionism in business is significant. Protectionism will obviously hurt China’s internationalization program, which includes the dream of making the Yuan a global currency.

India Inc need not worry because China is looking West for a set of four reasons that do not apply to most parts of Asia (barring Japan) – advanced technology, western markets, training executives to be global players and political leverage.

Then there is Beijing’s insatiable hunger for natural resources like oil, which is why it targets both the developed and underdeveloped world. Such investments include PetroChina’s deal to buy 45.5 per cent of Singapore Petroleum Co. and an investment of $1.39 billion by China Minmetals Non-ferrous Metals Co in Oz Minerals of Australia. This is one reason why countries in Africa, central Asia and south Asia have inched closer to China.