Economic News Round-Up

Scranton, PA, Cuts Worker Pay to Minimum Wage

Unions representing civil servants in Scranton, Pa., filed suit Tuesday after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford. Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour, according to the Scranton Times-Tribune.

The lawsuits against Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing.

Bloomberg Interview with Warren Buffet   He says Euro will fail without rule changes in European banking: "It can't survive with the present rules - that's what they're learning. So the question is, can seventeen countries get together in a way to essentially re-do something in some fundamental ways that require much closer cooperation when they're individual conditions are so different." On the Supreme Court Health Care Ruling: "A lot of businessmen complain about corporate taxes. Corporate taxes are less than 2% of GDP. So if you eliminated all of corporate taxes, you've got seven points against you on health care. It's the tapeworm essentially of the American economy and we've not dealt with that yet. Obamacare is a step in the right direction." Many More Quotes from Buffett on CNBC Robert Reich explains the LIBOR scandal

. . . We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough. But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them . . . . . . Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about. Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow. So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.) But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement. In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun. ~ more at link~ 

London Whale Leaving JP Morgan

Bruno Iksil, the JPMorgan Chase trader known as the "London Whale" has left the bank in the wake of a trading scandal, a person familiar with the situation said. Iksil's departure had been widely expected after he became the focus of attention in the trading scandal, because of the huge positions he took in credit markets. Achilles Macris, who headed CIO in Europe, and a third colleague, Martin Javier-Artajo, were also no longer listed in the company's internal employment database as of Thursday, the Wall Street Journal reported earlier on Friday.

JP Morgan's Profits Fell 8.9%

Overall, the bank's second-quarter earnings fell 8.7% from the year-ago quarter, as the bank saw a 16% decline in revenue. J.P. Morgan has been in the spotlight since early April as its outsized, complex trades on derivatives tied to corporate bonds came under intense scrutiny. The Justice Department and the Securities and Exchange Commission are investigating the trading loss, which has played into the Washington political and policy battle over the shape of financial overhaul. Just prior to releasing its results early Friday, the bank said it would reduce its previously reported first-quarter profit by 8.5%, or $459 million, on valuations of certain positions in the chief investment office's synthetic credit portfolio. It said there was "a material weakness" in its internal control over financial reporting for the first quarter, and its internal review is continuing.