Employers cut payrolls by 159,000 in September, the ninth consecutive month that job numbers declined, according to figures released on October 3 by the Department of Labor. September’s losses brought the total payroll decline in 2008 to 760,000, the report said. They also indicated an accelerating pace of job losses, which had averaged 75,000 a month from January through August, according to a statement by Bureau of Labor Statistics Commissioner Keith Hall. Declines among motor vehicle and parts manufacturers totaled 18,000 for the month; “over the past 12 months, employment in this industry has fallen by 140,000,” Hall’s statement said.

The unemployment rate remained at 6.1 percent. That figure does not count those outside the labor force, including 1.6 million persons classified as “marginally attached” to the labor force, a figure 336,000 higher than 12 months earlier, the report said. These are people who have looked for work within the previous 12 months but “are not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 467,000 discouraged workers in September; the number of discouraged workers has increased by 191,000 from a year earlier. Discouraged workers are persons not currently looking for work specifically because they believe no jobs are available for them,” the report said.

A new International Monetary Fund (IMF) Working Paper provides a database of 124 banking crises from 1970 to 2007, and summarizes policy responses to different types of failures. The paper includes a discussion of the “global liquidity crisis of 2007-2008” (pp. 25-30) and compares the current crisis with those in its database.

The working paper notes uncertainty in the policy responses to the crises in the study period: “Choosing the best way of resolving a financial crisis and accelerating economic recovery is far from unproblematic. There has been little agreement on what constitutes best practice or even good practice.”

However, the paper says its “preliminary analysis based on partial correlations indicates that some resolution measures are more effective than others in restoring the banking system to health and containing the fallout on the real economy. Above all, speed appears of the essence. As soon as a large part of the financial system is deemed insolvent and has reached systemic crisis proportions, bank losses should be recognized, the scale of the problem should be established, and steps should be taken to ensure that financial institutions are adequately capitalized.”

By a vote of 228-205, the House of Representatives has voted down the $700 billion Wall Street bailout bill, the Emergency Economic Stabilization Act of 2008 (pdf, 327kb).

UPDATE: The Clerk of the House has posted the roll call vote.

A joint report (pdf, 3.6mb) of an investigation by the Justice Department’s Office of Inspector General and Office of Professional Responsibility described the process by which nine United States Attorneys were dismissed in 2006 as “fundamentally flawed,” and recommended “that counsel specially appointed by the Attorney General work with us to conduct further investigation and ultimately to determine whether the totality of the evidence demonstrates that any criminal offense was committed.”

The report concluded that “Attorney General Alberto Gonzales and Deputy Attorney General Paul McNulty failed to adequately supervise the U.S. Attorney selection and removal process, and they were remarkably unengaged in the process. Instead, Chief of Staff to the Attorney General Kyle Sampson, with very little input from other Department officials, designed, selected, and implemented the removal process, with little supervision or oversight. In addition, after the removals became public the statements provided by the Attorney General and other Department officials about the reasons for the removals were inconsistent, misleading, and inaccurate in many respects.”

Acknowledging that U.S. Attorneys are “selected in part based on the recommendations of state and federal political officials,” the report asserted that once in office, U.S. Attorneys “should leave politics behind and make their prosecutive decisions divorced from partisan political considerations. For Department officials to recommend the removal of U.S. Attorneys even in part because they do or do not have political support undermines the public’s confidence that Department of Justice prosecutive decisions are based on the facts and the law and not on political considerations.”

Instead, however, the investigation “found significant evidence that political partisan considerations were an important factor in the removal of several of the U.S. Attorneys. The most troubling example was David Iglesias, the U.S. Attorney in New Mexico. We concluded that complaints from New Mexico Republican politicians and party activists about Iglesias’s handling of voter fraud and public corruption cases caused his removal, and that the Department removed Iglesias without any inquiry into his handling of the cases.”

The report assigned Gonzales “primary responsibility” for the faulty process and resulting turmoil due to his failure “to exercise appropriate leadership and supervision throughout this entire process.” “This was not a simple personnel matter that should be delegated to subordinate officials – it was an unprecedented removal of a group of high-level Department officials that was certain to raise concerns if not handled properly,” the report said. The investigation “found no evidence that Gonzales, McNulty, or anyone else in the Department carefully evaluated the basis for each U.S. Attorney’s removal or attempted to ensure that there were no improper political reasons for the removals.”

The report was critical of McNulty for having had “little involvement in or oversight of the removal process, despite his role as the immediate supervisor of all U.S. Attorneys. McNulty was not even made aware of the removal plan until the fall of 2006. When McNulty learned about the plan, he thought it was a bad idea. However, he deferred to Sampson and did not raise his concerns with regard to the plan itself or, except in a couple of cases, the evaluation of specific U.S. Attorneys to be removed. Rather, he distanced himself from the project, both while it was ongoing and after it was implemented.”

The investigation identified Sampson as the individual “most responsible for creating the removal plan, selecting the U.S. Attorneys to be removed, and implementing the plan,” and concluded that “from start to finish Sampson mishandled the removal process.” The investigation found that Sampson “inappropriately advocated bypassing the Senate confirmation process for replacing U.S. Attorneys through a strategy of ‘gum[ming] this to death’ and ‘run[ning] out the clock’ while appearing to act in good faith.” The report asserted that Sampson “made various misleading statements about the U.S. Attorney removals to the White House, Congress, and other Department officials.”

The report also investigated the role of Monica Goodling, the Justice Department’s liaison to the White House from April 2006 to April 2007. The investigation “concluded that Goodling engaged in misconduct by failing to disclose important information and to correct Department officials who were providing what she knew was misleading information to Congress and the public concerning the extent of the White House’s involvement in the U.S. Attorney removal process, and for providing misleading information to Congress and the Department concerning [Tim] Griffin’s appointment as Interim U.S. Attorney [in the Eastern District of Arkansas].

The report authors expressed confidence that they were able to uncover “most of the facts” pertaining to their investigation, but acknowldeged “gaps” in the investiagation “because of the refusal of certain key witnesses to be interviewed by us, including former White House officials Karl Rove, Harriet Miers, and William Kelley, former Department of Justice White House Liaison Monica Goodling, Senator Pete Domenici, and his Chief of Staff. In addition, the White House would not provide us internal documents related to the removals of the U.S. Attorneys.”

“The most serious allegation that we were not able to fully investigate related to the removal of David Iglesias, the U.S. Attorney for New Mexico, and the allegation that he was removed to influence voter fraud and public corruption prosecutions,” the report said. “We recommend that a counsel specially appointed by the Attorney General assess the facts we have uncovered, work with us to conduct further investigation, and ultimately determine whether the evidence demonstrates that any criminal offense was committed with regard to the removal of Iglesias or any other U.S. Attorney, or the testimony of any witness related to the U.S. Attorney removals.”

UPDATE: Attorney General Michael Mukasey has appointed Nora R. Dannehy, Acting United States Attorney for the District of Connecticut, to conduct further investigation.

Two recent Congressional Research Service (CRS) reports provided some of the background information Congress is considering as it takes up a Treasury Department proposal for a bailout of US financial institutions. The reports are part of a repository of CRS reports made available by Open CRS.

One of the reports – The Cost of Government Financial Interventions, Past and Present – looked at costs and funding sources of three government interventions undertaken prior to September 20, 2008, concerning Bear Stearns, Fannie Mae / Freddie Mac, and AIG. The report said that Fannie Mae, Freddie Mac, and AIG are now “essentially owned by the federal government,” and that eventually “the federal government may very well end up seeing a positive fiscal contribution from the recent interventions, as was the case in some of the past interventions summarized in the tables at the end of this report. The government may also suffer significant losses, as has also occurred in the past.” The report summarizes the terms of each of these three interventions, as well as the results of several previous interventions going back to loan guarantees made to Lockheed in 1971.

The other report – Proposal to Allow Treasury to Buy Mortgage-Related Assets to Address Financial Instability – addressed two draft versions of a plan submitted to Congress by Treasury Secretary Henry Paulson on September 20 and 21. (Although Treasury did not post the text of either draft, the New York Times published the text of the three-page September 20 draft.) The proposal, which included a $700 billion limit on the amount of assets purchased under the plan, would also raise the limit on the federal debt from $10.6 trillion to $11.3 trillion, the report said. With the current national debt at $9.6 trillion, Treasury’s plan could potentially raise that figure to $10.3 trillion if “the full authority of the program were immediately exercsied and funded exclusively with new debt,” the report said.

In a “frequently asked questions” section at the end of the report, CRS said that part of the rationale for acting now is that “[t]he juxtaposition of the refusal to intervene on behalf of Lehman Brothers the same week that a bridge loan was extended to AIG has convinced some that the case-by-case approach of recent weeks should be replaced by a more broadly based intervention.” That section also addressed questions about events that triggered the crisis, possible outcomes if no action is taken, and possible benefits of intervention.

A Bureau of Justice Statistics (BJS) survey found that 67 percent of U.S. businesses reported being victims of at least one cybercrime in 2005. Of those detecting cybercrime, 91% suffered losses – measured as system downtime, monetary loss, or both. Of the 7,818 businesses that responded to the survey, 3,247 reported monetary losses totaling $867 million. The most common cybercrimes included spyware, adware, phishing, and spoofing, but the survey also measured reports of embezzlement, cybertheft of intellectual property, breaches of personal data, vandalism, and fraud.

Release of the report came as Congress passed legislation to combat identity theft and other online crimes. H.R. 5938 passed the House by voice vote on September 17 after provisions of the Identity Theft Enforcement and Restitution Act of 2008 were attached to legislation extending Secret Service protection to former vice presidents. The bill gives identity theft victims the ability to seek restitution for the loss of time and money spent restoring credit and remedying the damage caused by identity theft, and makes it a felony to damage 10 or more computers with secret, malicious software regardless of the amount of damage caused by the attack. President Bush is expected to sign the bill.

The federal budget deficit will rise to $407 billion in 2008, substantially higher than the $161 billion deficit in 2007, and is likely to remain above $400 billion over the next two years, according to the September update of the Congressional Budget Office (CBO) Budget and Economic Outlook. The new estimate for 2008 is $51 billion higher than CBO had calculated in March, an increase which is “almost entirely the result of higher spending than projected in the March baseline,” including higher spending for deposit insurance and unemployment benefits, and supplemental appropriations for military operations in Iraq and Afghanistan which were pending in March, the new update said.

Federal spending will rise 8.3 percent over last year “as a result of rapid growth in both discretionary and mandatory spending,” while revenues are likely to decline, the update said. The new projection anticipates a decline in tax revenue of 0.8 percent from last year, largely as a result of tax rebates included in the Economic Stimulus Act of 2008.

Looking at long-term trends, CBO said the budget “remains on an unsustainable path.” Rising health care costs coupled with an aging population will push federal spending on Medicare and Medicaid from 4.6 percent of GDP this year to 6.0 percent of GDP in 2018 – “an increase of 30 percent in just 10 years. Over the same period, spending on Social Security will rise from 4.3 percent of GDP to 5.0 percent.” Those trends are “poised to accelerate” beyond 2018, CBO said.

Indexes of House Prices (Percentage change from previous year) ~ Source: Congressional Budget Office

Citing problems in the housing and financial markets, along with high prices for energy and agricultural commodities, the forecast said that “[r]eal growth of GDP is projected to average below 1 percent (measured at an annual rate) from the last quarter of 2007 through the middle of 2009, before picking up during the second half of 2009. The growth of employment will probably remain weak through the middle of next year, keeping the unemployment rate above 6 percent in the near term. Inflation is expected to moderate later this year as energy and food prices ease back.”

In three scathing reports delivered to Congress on September 10, Department of Interior Inspector General Earl Devaney detailed a “culture of ethical failure” within Interior’s Minerals Management Service (MMS), the agency responsible for collecting oil and gas revenues, and proposed a series of recommendations, including an enhanced ethics program and random drug testing, to address “very serious misconduct.”

One of the reports (pdf, 172kb) concluded that Greg Smith, Program Director of the Royalty-In-Kind (RIK) Program, had received $30,000 in outside employment marketing Geomatrix Consultants, Inc. to “various oil and gas companies, most of whom, because of their business relationships with RIK, were considered prohibited sources.” The report said Smith also “received almost $1,000 in gifts from the oil and gas industry and engaged in sex with two subordinates and drug use with at least one subordinate. When interviewed by the OIG, Smith minimized the drug use and sexual activity. In addition, we learned that he also suggested to other RIK employees that they should lie to OIG investigators.”

A second report (pdf, 193kb) focusing on the RIK program concluded that from 2002 to 2006, “19 RIK marketers and other RIK employees – approximately 1/3 of the entire RIK staff – had socialized with, and had received a wide array of gifts from, oil and gas companies with whom the employees were conducting official business. With respect to eight specific RIK employees, these gifts exceeded the allowable limits.” In a cover memo accompanying all three reports, Devaney described a “culture of substance abuse and promiscuity in the RIK program” and noted that “[s]exual relationships with prohibited sources cannot, by definition, be arms-length.”

The third report (pdf, 171kb) concluded that Lucy Denett, Associate Director of Minerals Revenue Management (MRM), “had acted together with her Special Assistant, Jimmy Mayberry, to create a lucrative contract for Mayberry” upon his retirement from MMS. “Moreover, we determined that Mayberry actually drafted the Statement of Work for the contract while he was still employed by MMS and that former MMS Deputy Associate Director Milton Dial participated personally and substantially in awarding the contract to Mayberry.” The report said the case “is being referred to the Department of Justice (DOJ) for whatever action it deems appropriate.”

The Devaney memo said that “[t]he single-most serious problem our investigations revealed is a pervasive culture of exclusivity, exempt from the rules that govern all other employees of the Federal Government.” The investigations, Devaney wrote, uncovered “a relatively small group of individuals wholly lacking in acceptance of or adherence to government ethical standards; management that through passive neglect, at best, or purposeful ignorance, at worst, was blind to easily discernible misconduct; and a program that had aggressive goals and admirable ideals, but was launched without the necessary internal controls in place to ensure conformity with one of its most important principles: ‘Maintain the highest ethical and professional standards.’”

The Treasury Department announced an agreement on September 7 to place the two giant government-sponsored enterprises (GSEs) in the United States mortgage market, Fannie Mae and Freddie Mac, into conservatorship. Treasury’s online release of the announcement includes links to several sources of additional information, including a Fact Sheet (pdf, 42.7kb) spelling out terms of the agreement. Among those terms is that “[t]he agreements are contracts between the Department of the Treasury and each GSE. They are indefinite in duration and have a capacity of $100 billion each, an amount chosen to demonstrate a strong commitment to the GSEs’ creditors and mortgage backed security holders.” Another Fact Sheet (pdf, 38.9kb) describes the conservatorship process.

In July, the Congressional Budget Office (CBO) released its estimate (pdf, 591.kb) that placing the GSEs in conservatorship would likely cost the federal government approximately $25 billion over fiscal years 2009-2010, but that there was a nearly five percent chance that the cost could be upwards of $100 billion.

The Congressional Research Service (CRS) has provided information for congressional policymakers on the current conflict between Russia and Georgia in two reports: a new report, Russia-Georgia Conflict in South Ossetia: Context and Implications for U.S. Interests (pdf, 166kb), and an update of a previous report, Armenia, Azerbaijan, and Georgia: Political Developments and Implications for U.S. Interests (pdf, 278kb). Both were released on August 13, less than a week after military conflict between Russian and Georgian forces broke out in South Ossetia. The reports are part of an online collection of CRS Reports obtained by the Thurgood Marshall Law Library at the University of Maryland School of Law.

The new report on the Russia-Georgia conflict provided information on the background of the conflict, including the establishment of Russian, Georgian, and Ossetian peacekeeping units in South Ossetia in 1992, conflicting referenda in South Ossetia on its future status conducted in 2007, and a Russian military exercise in July 2008 which “proved to be a rehearsal for Russian actions in Georgia a few weeks later.”

The report summarized the view of “some observers” that the fighting has been harmful to both Russia and Georgia. The fighting “appears to have hardened anti-Georgian attitudes in both South Ossetia and Abkhazia, making the possibility of re-integration with Georgia more remote,” while Russia’s “seemingly disproportionate military campaign appears to have harmed its image as a reliable and peaceable member of the international community.” The report also provided a summary of US and international responses to the fighting.

The updated report on Armenia, Azerbaijan, and Georgia provided more extensive background discussion of US interests in the South Caucasus region, including a review of Russian involvement in the region, and of obstacles to stability in South Ossetia, Abkhazia, and Nagorno Karabakh. The report concludes with a review of pertinent legislation from the 110th Congress.