Global wage growth fell sharply in 2008, and the decline accelerated into the first quarter of 2009, according to new data reported by the International Labour Organization. Based on a sample of 53 countries which provided data, “global growth in average wages declined from 4.3% in 2007 to 1.4% in 2008,” with more than a quarter of countries experiencing “flat or falling monthly wages in real terms,” the ILO said in a new update (pdf, 894kb) to its Global Wage Report.

“The picture on wages is likely to get worse in 2009 – despite the beginning of a possible economic recovery,” the report said. “Compared to the annual average of 2008, the real wages in the first quarter of 2009 fell in more than half of the 35 countries for which recent data is available… The downward trend in wages raises some questions about the extent to which the consumption of workers and their families will be able to sustain aggregate demand for economic production once the effects of government rescue packages peter out.”

A release accompanying the report said the data showed that “both developed and developing countries have strengthened their minimum wages in recent years, reflecting the growing concerns about increasing inequality and low pay. While during past downturns concerns about the impact on labour costs were widespread, in the current crisis, a number of countries have adjusted their minimum wages upwards.” A sample of 86 countries showed that over 2007-08, exactly half “have increased minimum wages in real terms (i.e. by more than inflation figures), while the other half has allowed inflation to erode their real value,” the report said.

The new report is an update to the first Global Wage Report for 2008-09 issued a year ago (Executive Summary, pdf 62kb; full report, pdf 1.8mb). The next full report is due in 2010. The ILO also provides a minimum wages database, and the Global Wage Databases which accompanied both the 2008-09 report and the 2009 update are available as spreadsheets on the website of its Conditions of Work and Employment Programme.

Of the reams of exhibits from SEC Inspector General David Kotz’s investigation of the agency’s failure to uncover Bernard Madoff’s Ponzi scheme, one getting a lot of attention is Exhibit 104 (pdf, 730 kb), notes from Kotz’s June 17, 2009 interview with Madoff. In the italicized excerpts that follow, Madoff sounds as perplexed as everyone else that he wasn’t found out sooner.

Madoff stated that “Everything the SEC did prior to 2006 was a waste of time…”

Regarding two SEC Office of Compliance Inspections and Examinations (OCIE) investigators who questioned him in 2006:

Madoff stated that “they never even looked at my stock records” or did a “box count.” He said he was “astonished” that they didn’t ask for DTC (Depository Trust Company) records, and stated that only a regulator could get those records from DTC, and the SEC would “have to go to DTC.” He added that DTC does not have separate accounts for each customer, but rather, provides a global report, but stated that if they went to DTC, they would’ve seen his market-making position, and that it “would’ve been easy for them to see” the Ponzi scheme. Madoff stated that the SEC could’ve gone to counterparties, and if they had, they “would’ve seen it,” adding, “they didn’t do any of that.” He stated that “it’s the only thing to do,” and clarified, “If you’re looking at a Ponzi scheme, it’s the first thing you do.”

Regarding an investigation by SEC’s Division of Enforcement:

Madoff said it was “amazing to me” that he didn’t get caught during the Enforcement investigation, because they specifically asked him, “Are these securities at DTC?” They further pressed, “What is your account number.” He replied, “646.” Madoff stated that it was “obvious they thought that something was amiss.” He went on to say that when they asked for the DTC account number, “I thought it was the end game, over. Monday morning they’ll call DTC and this will be over… and it never happened.”

He stated that in 2006, it was clear they asked about front-running because there were sweeps of the industry at that time for front-running. But in trying to discover a Ponzi scheme, he stated, “It’s very easy if you want. You must do a third party check. It’s absolutely a must.” He went on to add that “It’s Accounting 101 to look at DTC, do a box count” if you are looking for a Ponzi scheme.

Regarding a more rigorous exam in conducted in 1992:

He said the SEC saw that the trades were real in 1992. When asked if the SEC did in later exams what they did in ‘92, would they have uncovered the Ponzi scheme? Madoff answered, “Absolutely.” He added, “There is no way they can avoid being criticized for not doing that in 2006.”

Regarding new SEC Chairman Mary Schapiro:

Madoff stated that Mary Shapiro (sic) was a “dear friend,” and that she “probably thinks I wish I never knew this guy.”

That June interview must have informed some of the recommendations included in Kotz’s September 29 memorandum (pdf, 5.0mb) reviewing the OCIE examinations.

Recommendation 27:
For significant issues such as whether trades have been executed and who has custody of assets, in the absence of third party (counterparties, custodians, etc.) documentation, the Office of Compliance Inspections and Examinations (“OCIE”) examiners should not simply rely on representations of BD (broker-dealer) or IA (investment adviser) personnel but should contact third parties directly. OCIE should provide guidance or training that clarifies for examiners circumstances that require such contact with third parties.

Recommendation 28:
The Office of Compliance Inspections and Examinations examination staff should be required to verify a test sample of trading or balance data with counterparties and other independent third parties such as Financial Industry Regulatory Authority, Depository Trust Company, or National Securities Clearing Corporation whenever there are specific allegations of fraud involved in an examination.

The White House released the first batch of visitor records under a new policy announced in September. According to the policy, all records of visitors after September 15, 2009, except for those of a few “particularly sensitive” or “purely personal” guests, will be released after a 90 to 120 day time lag, and the White House said those records will begin to appear in December.

But this batch of records is for earlier visits, those occurring before September 15, for which records will only be made available in response to specific requests. The release explains that, with up to 100,000 visitors a month, those requests have turned up some “false positives,” such as William Ayers (not that William Ayers), a Michael Jordan or two, and several Michael Moores.

Competition for higher rankings plays a greater role than accreditation standards in driving up the cost of law school, the Government Accountability Office concluded in a report for Congress. The GAO study found that:

“changes in the approach to legal education have affected cost, particularly in the areas of faculty and staff. These changes include:
~ increased emphasis on hands-on clinical experiences, and smaller skills-based courses;
~ increased diversity of course offerings – e.g., international law and environmental law; and
~ increased student support – e.g., academic support, career services, and admissions support.”

Accreditation standards, by comparison, were “not a major driver” of higher costs, the study found. “Officials from more than half of the ABA-accredited schools we spoke with stated they would meet or exceed some ABA accreditation standards even if they were not required,” the report said. “School officials noted that the standards often follow market trends and changing approaches to legal education.”

“Officials at most of the ABA-accredited law schools we spoke with and student representatives reported that schools compete to attract students and faculty and to increase their US News and World Report ranking. This competition has had an impact on cost because:
~ Rankings are determined in part by such cost-related factors as per student expenditures, student-faculty ratio, and library resources.
~ According to law school officials, schools offer clinics and diverse elective courses to compete for students.
~ To attract the best faculty, school officials reported that they may offer higher salaries.”

The GAO study was first called for in a 2007 bill that sought to address the impact of heavy law school debt on the recruitment of new staff for prosecutor and public defender offices. In the Senate report for the bill, Senators Jon Kyl (R-AZ) and Orrin Hatch (R-UT) argued that the American Bar Association’s accreditation requirements were partly to blame for the onerous law school debt responsible for that recruitment gap. “For example, accreditation standards effectively raise faculty salaries; limit faculty teaching loads; require high numbers of full-time faculty rather than cheaper part-time adjuncts; and require expensive physical facilities and library collections,” they wrote. “The requirements probably cause law schools’ costs to more than double, increasing them by more than $12,000 per year, with many schools then passing the increased costs along to students by raising tuition.”

While that legislation never passed, the mandate for the GAO study was subsequently included in last year’s Higher Education Opportunity Act (PL 110-315).

The GAO study also investigated what factors, including accreditation, might affect minority access to law school. The study found that officials at most law schools “do not cite ABA accreditation standards as having an impact on minority access at their schools.”

African Americans represented a declining share of law school enrollments, from 7.5 percent in 1994-1995 to 6.5 percent in 2006-2007, while the share of Hispanics increased from 5.2 percent to 7.5 percent and the share of Asians and Pacific Islanders increased from 5.4 percent to 7.8 percent over the same period, according to Department of Education data reported in the study. “Most law school officials, students, and minority student group representatives we interviewed focused on issues such as differences in LSAT scores, academic preparation, and professional contacts, rather than accreditation standards, to explain minority access issues,” the report said.

The Congressional Budget Office, working with the Joint Committee on Taxation (JCT), has run the numbers on HR 3962, the Affordable Health Care for America Act. While acknowledging “substantial uncertainty” in its projections of the bill’s budgetary impact, CBO said in its preliminary analysis that the bill would cost just under $900 billion over 10 years, reduce the federal budget deficit by $104 billion over that period, and raise the percentage of nonelderly legal residents with insurance coverage from 83 percent to 96 percent.

Excerpts from CBO’s blog post:

“According to CBO and JCT’s assessment, enacting H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the 2010–2019 period…

The estimate includes a projected net cost of $894 billion over 10 years for the proposed expansions in insurance coverage…

Over the 2010–2019 period, the net cost of the coverage expansions would be more than offset by the combination of other spending changes, which CBO estimates would save $426 billion, and receipts resulting from the income tax surcharge on high-income individuals and other provisions, which JCT and CBO estimate would increase federal revenues by $572 billion over that period.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 36 million, leaving about 18 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under H.R. 3962, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 96 percent.”

CBO said it expected the bill would continue to reduce budget deficits “slightly” over the second decade after enactment, but cautioned that those long-term projections “assume that the provisions of HR 3962 are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the ‘sustainable growth rate’ mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress.”

…well, according to the OIGs. But a recent report on behalf of the Council of the Inspectors General on Integrity and Efficiency (CIGIE) makes a persuasive case for the argument that resources invested in the 69 federal Offices of Inspector General earn a solid return for taxpayers.

The Inspector General community’s annual report (pdf, 3.3mb), prepared for the CIGIE by the OIGs of the Federal Deposit Insurance Corporation and Federal Communications Commission, provided this summary of the work of the OIGs in fiscal year 2008:

$14.2 billion in potential savings from audit recommendations;
$4.4 billion in potential savings from investigative receivables and recoveries;
6,647 indictments and criminal informations;
6,866 successful prosecutions;
1,206 successful civil actions;
4,986 suspensions or debarments;
5,712 personnel actions;
337,916 hotline complaints processed;
6,935 audit, inspection, and evaluation reports issued; and
32,143 investigations closed

The CIGIE was established by the Inspector General Reform Act of 2008, which also strengthened the independence of the OIGs and set rules on compensation and transparency. The Global Legal Information Network, provided by the Law Library of Congress, has posted a summary of the law’s provisions.

Gross domestic product rose 3.5 percent in the third quarter, according to data reported today by the Commerce Department. The figures marked the first return to growth in the US economy after four consecutive quarters of contraction. Today’s “advance” estimate is the first release of data on third quarter growth, and will be revised based on more comprehensive data in subsequent estimates on November 24 and December 22.

Source: Bureau of Economic Analysis (BEA)

The Federal Communications Commission voted unanimously on October 22 to begin a rulemaking process to codify principles that would require Internet Service Providers to treat all Internet traffic equally. The Notice of Proposed Rulemaking (pdf, 694kb) sets out an extensive background on the issue and includes statements by each of the five commissioners. See Appendix A on page 65 for the draft rules.

An FCC press release (pdf, 70kb) summarized the effect of the proposed rules:

Under the draft proposed rules, subject to reasonable network management, a provider of broadband Internet access service:
1. would not be allowed to prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet;
2. would not be allowed to prevent any of its users from running the lawful applications or using the lawful services of the user’s choice;
3. would not be allowed to prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network;
4. would not be allowed to deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers, and content providers;
5. would be required to treat lawful content, applications, and services in a nondiscriminatory manner; and
6. would be required to disclose such information concerning network management and other practices as is reasonably required for users and content, application, and service providers to enjoy the protections specified in this rulemaking.

In his statement, FCC Chairman Julius Genachowski defined the problem facing the Commission:

“The heart of the problem is that, taken together, we face the dangerous combination of an uncertain legal framework with ongoing as well as emerging challenges to a free and open Internet. Given the potentially huge consequences of having the open Internet diminished through inaction, the time is now to move forward with consideration of fair and reasonable rules of the road, rules that would be enforceable and implemented on a case-by-case basis. Indeed, it would be a serious failure of responsibility not to consider such rules, for that would be gambling with the most important technological innovation of our time.”

The two Republican members of the commission, Meredith Attwell Baker and Robert McDowell, voted to move forward with the rulemaking process but issued statements dissenting in part from the Notice. Commissioner Baker wrote,

“I dissent in part today because, as a threshold matter, I am not convinced that there is a sufficient record to establish that a problem exists that should be addressed by Commission rules. As I have said previously, we should not adopt regulations to address anecdotes where there is no fact-based evidence that persuasively demonstrates the presence of a problem… I also think that important questions are outstanding about our legal authority to regulate broadband Internet access services that we need to explore. We need to better understand the law, engineering, and economics. Before imposing new rules, we need to carefully think through all potential unintended consequences that could harm consumers by increasing prices, impeding innovation, eliminating choices, and/or reducing quality of service.”

The FCC will take public comments on the proposed rules until January 14, 2010, and reply comments will be due March 5, 2010 (see “Comment Filing Procedures,” p. 62). Those wishing to file comments are instructed to refer to GN Docket No. 09-191 and WC Docket No. 07-52. Ars Technica has provided news about the recent upgrade of the FCC’s Electronic Comment Filing System that will be helpful whether you wish to file comments or peruse the comments of others.

The FCC said public comments on this Notice will also be taken on the OpenInternet Blog and at http://openinternet.ideascale.com/. The Notice explains that while the OpenInternet blog permits persons to comment anonymously, “anonymous comments will not be part of the record in this proceeding and accordingly will not be relied on by the Commission in reaching its conclusions in this rulemaking… Should posters provide identifying information, they should be aware that although such information will not be posted on the blog, it will be publicly available for inspection upon request.”

Afghanistan’s Independent Election Commission (IEC) has set a November 7 runoff to settle the disputed August 20 presidential election. The order came at the direction of the UN-backed Electoral Complaints Commission (ECC) after that body invalidated first round ballots from 210 polling stations (pdf, 64kb), one day after reaching its ballot audit decisions. The ballot recount, ordered by the ECC in September, dropped President Hamid Karzai’s vote tally below 50 percent, triggering an automatic runoff under Afghanistan’s electoral law (pdf, 78kb).

UN Secretary-General Ban Ki-moon said in a statement that the IEC and the ECC “have worked closely to ensure strict adherence to the Constitution and the Electoral Law of Afghanistan. The United Nations has supported the work of these institutions in their efforts to ensure that all valid votes cast in the elections of 20 August 2009 were taken into account and that the voice of the Afghan people was clearly heard.” He pledged that the UN “will do its utmost for the conduct of the second round of elections scheduled for 7 November 2009 in a free, fair, transparent and secure environment.”

A Congressional Research Service report, updated on October 1, summarized the August 20 vote and some of the implications for Afghan politics and US policy. The report said that allegations of fraud in the August 20 polling “have reportedly been a major factor in a high level US strategy reevaluation because of the centrality of a credible, legitimate partner Afghan government to US strategy.”

The Recovery Accountability and Transparency Board issued its first release of data from recipients of stimulus bill funds on October 15. About a third of the stimulus spending under the American Recovery and Reinvestment Act enacted in February comes in the form of contracts, grants, and loans. The bill requires recipients of these funds to file reports on how the funds were used. The data indicated that a total of about 30,000 jobs were created or saved by the contracts reported in the release.

The Coalition for an Accountable Recovery (CAR) praised the transparency steps taken under the Recovery Act but said the reporting tools employed in the first data release need to be improved. Gary Bass, executive director of coalition partner OMB Watch, said in a press release that the Recovery Act “is proving to be the most transparent federal spending law ever enacted… It is a watershed because the Obama administration has successfully created a new reporting system that requires recipients of Recovery Act funds to report in a timely manner how they are using federal resources. Unfortunately, the Recovery.gov website is an ineffective and inadequate tool for understanding the very small share of Recovery Act dollars reported today.”

The CAR release cited a raft of problems in the first data release, including inadequate search and download functionality, data quality problems, troublesome navigation, and poor explanation. “While acknowledging the significant precedent set by today’s data release, the Coalition expects significant improvements will be made to the Recovery.gov website before the recipient data about grants and loans are released on Oct. 30.”

In a preview (pdf, 60kb) of the October 15 release posted earlier in the week, CAR explained that the first release of data “equals only a tiny sliver of the total funds expended during the first quarter of the Act. So whatever jobs figures come out will also undoubtedly be a tiny sliver of the Recovery Act’s total jobs impact. The recipient reporting data that will be published on Recovery.gov will only cover spending on grants, contracts and loans. Recipient reports for the other spending categories – entitlements and tax breaks – are not required.” The preview said the scope of data reported on October 30 “will be far broader and more representative.”