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» PERSONAL INCOME PLUNGES IN JANUARY, SPENDING UP By Mark Lieberman, Economist for the Five Star Institute Personal income dropped $505.5 billion, or 3.6 percent, and disposable personal income (DPI) fell $491.4 billion, or 4.0 percent, in January, the Bureau of Economic Analysis (BEA) reported in March. Personal consumption expenditures (PCE) increased $18.2 billion, or 0.2 percent in January. In December, personal income increased $353.4 billion, or 2.6 percent. DPI increased $325.7 billion, or 2.7 percent, and PCE increased $14.8 billion, or 0.1 percent, based on revised estimates. The income drop was steeper than the 2.1 percent decline economists had expected. December's income had been artificially inflated by special corporate dividend payouts in anticipation of changes in individual income tax rates, which were tied into negotiations to avoid the "fiscal cliff." At the same time, January's disposable income reflected the expiration of the two-year payroll tax holiday. The increase in spending was in line with economists' forecasts. In January, dividend payments fell $362 billion, or 34.8 percent. At the same time, though, wages and salaries dropped $43 billion, all in the private sector. Government transfer payments—including Social Security payments and unemployment insurance compensation— rose $6.7 billion, half of which was Social Security as new cost-of-living adjustments kicked in January 1. The $18 billion monthly increase in personal spending was slightly higher than the $15 billion jump in December. Virtually all of the increase in spending came for services, which rose $28 billion. Purchase of non-durable goods in January was flat compared to December, and the purchase of durable goods— usually a sign of confidence because those purchases are funded by borrowing—fell $10 billion. Personal interest payments (non-real-estaterelated) rose $3.6 billion in January, the first month-over-month increase since September, largely because of December durables purchases. As spending grew faster than income in January, personal savings fell from $797 billion in December to $284 billion in January, and the savings rate declined to 2.4 percent from 6.4 percent. Inflation, as measured by personal consumption expenditures—considered the Federal Reserve's favored gauge—remained tame, dropping to a 1.2 percent year-over-year increase, down from 1.4 percent in December. VISIT US ONLINE @ DSNEWS.COM OFFICIALS DEBATE EXECUTIVE PAY FOR BAILED-OUT FIRMS A recent report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) stated Treasury has not appropriately limited compensation for executives at companies bailed out by TARP. A House subcommittee held a hearing on the matter shortly after the report's release. House representatives heard from Special Inspector General Christy Romero and Patricia Geoghegan, the current special master for TARP executive compensation at the Treasury, also known as the "pay czar." "While taxpayers struggle to overcome the recent financial crisis and look to the U.S. government to put a lid on compensation for executive firms whose missteps nearly crippled the U.S. financial system, the Treasury continues to allow excessive executive pay," Romero stated in her testimony. Romero pointed to flaws in the special master's approval process for executive compensation packages and decried the special master for not following recommendations from her office or the guidelines set forth by Treasury. Kenneth R. Feinberg, who previously served as special master, outlined his compensation guidelines, "Base cash salaries should rarely exceed $500,000, and only then for good cause shown, and should be, in many cases, well under $500,000." However, both Feinberg and Geoghegan have continued to approve executive pay packages that far exceed this amount. The special master previously approved executive pay at seven companies. Today, the office is responsible for just two companies—Ally Financial and General Motors Co. Most recently, the special master approved compensation packages exceeding $500,000 for 23 executives at Ally and General Motors. Romero also complained the Special Master "did not independently analyze the basis for awarding cash salaries greater than $500,000" but instead relied heavily on justification from the companies themselves. "Despite SIGTARP's previous warning that Treasury lacked robust criteria, policies, and procedures to ensure that Treasury's guidelines to curb excessive pay are met, the Treasury made no meaningful reform to its processes," Romero stated. Geoghegan defended her office, insisting she and her staff collect and review "comprehensive submissions from the exceptional assistance companies." "In reviewing these submissions, we analyze market data to determine what constitutes competitive marketplace compensation," she said in her testimony. She explained her guidelines stipulate that pay is not greater than the compensation offered to similar executives at similar companies and that pay packages are heavily stock-based to ensure a vested interest in the long-term performance of the company. Rep. Jim Jordan (R-Ohio) reiterated Romero's concern, stating emphatically, "You take information from the very companies you're supposed to be overseeing" and complained that the special master approves "almost every compensation package [the companies] ask for." On the other side of the aisle, Rep. Matt Cartwright (D-Pennsylvania) argued that the $500,000 guideline is not a law. "You have to pay people that run companies an awful lot of money," he said. "Everybody knows that." He argued that with 93 percent of TARP funds already returned, the program has been "a success story." Cartwright and Geoghegan pointed out that the individuals currently holding executive positions at the companies in question were not in those positions leading up to the financial crisis. Jordan countered that "the standard still applies." The guidelines do not include concessions for newly-hired executives. 47

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