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These Workers Packed Lip Gloss and Pandora Charm Bracelets. They Were Labeled “Essential” but Didn’t Feel Safe.

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

This article was produced in partnership with MLK50, which is a member of the ProPublica Local Reporting Network.

MEMPHIS, Tenn. — On her first day at her new warehouse job, Daria Meeks assumed the business would provide face coverings. It didn’t.

She assumed her fellow workers would be spread out to account for the new coronavirus. They weren’t.

There wasn’t even soap in the bathroom.

Instead, on March 28, her first day at PFS, which packages and ships makeup and jewelry, Meeks found herself standing alongside four other new workers at a station the size of a card table as a trainer showed them how to properly tuck tissue paper into gift boxes.

The following day, Meeks, 29, was just two hours into her shift when she heard that a worker had thrown up.

“They said her blood pressure had went up and she was just nauseated, but when we turned around, everybody who was permanent that worked for PFS had on gloves and masks,” Meeks said.

Temporary workers like her weren’t offered either.

Since then, workers have been told twice that coworkers have tested positive for the coronavirus. The first time was April 10 at a warehouse just across the state line in Southaven, Mississippi. The next was April 16 at the warehouse in southeast Memphis where Meeks worked, several temporary and permanent workers told MLK50: Justice Through Journalism and ProPublica.

In interviews, the workers complained of a crowded environment where they shared devices and weren’t provided personal protective equipment. The company has about 500 employees at its four Memphis-area locations, according to the Memphis Business Journal.

In right-to-work states such as Tennessee and Mississippi, where union membership is low, manual laborers have long said they are vulnerable, and workers’ rights advocates say the global pandemic has underscored just how few protections they have.

A spokesman for Tennessee’s Occupational Safety and Health Administration confirmed that the department received an anonymous complaint about PFS in April.

“A few of (sic) people have tested positive for Covid-19 and the company has not taken precaution to prevent employees from contracting the coronavirus,” the complainant wrote. “As of today (04/13/2020) no one have (sic) come to clean or sanitize the building.”

In response, the spokesman said TOSHA sent the company a letter “informing them of measures they may take to help prevent the spread of COVID-19.”

PFS did not answer specific questions about the number of workers infected at its facilities or about specific precautions it takes. Instead the company released a short statement that said PFS “is committed to the safety and well-being of its employees.” It also said it performs temperature checks at the door and supplies workers with masks, gloves and face shields.

But workers said none of these measures were in effect as late as the middle of April, when Shelby County, Tennessee, and DeSoto County, Mississippi, each home to two PFS facilities, were reporting more than 1,600 coronavirus infections and 30 deaths. (As of Friday, there are more than 2,750 infections and 50 deaths in the two counties.) A current employee said the company now provides gloves and masks, but they’re optional, as are the temperature checks.

When Meeks started at PFS, cases in the county were still at a trickle. But she didn’t stick around long.

On her third day at work, workers were split into two groups for lunch, but the break room was still full. “You could barely pull out a chair, that’s how crowded it was,” she said. “Everybody was shoulder to shoulder.”

Meeks said she asked the security guard at the front desk if she could eat her lunch in the empty lobby but was told no.

“I said, this is just not going to work,” said Meeks, who was paid $9 an hour. “You got different people coughing, sneezing, allergies — you never know what’s going on with a person.”

She left during her break and didn’t come back.

Economy Dominated by Low-Wage Industry, Jobs

In cities across the country, workers at Amazon facilities and other warehouses have been infected with COVID-19, as have workers at meatpacking plants nationwide.

What makes Memphis different is the outsized share of the workforce in the logistics industry, which includes warehouses and distribution centers.

The Greater Memphis Chamber of Commerce boasts on its website that the logistics industry employs 1 in 6 workers in the Memphis metro area, a higher share than anywhere else in the country.

The high concentration of these low-wage jobs is a testament to the city’s decades-old campaign to brand itself as “America’s Distribution Center.” Memphis is home to FedEx’s headquarters and its world distribution hub, which is undergoing a $1.5 billion expansion, as well as to Nike’s largest global distribution center, a sprawling 2.8 million-square-foot facility.

According to 2019 data from the U.S. Bureau of Labor Statistics, more than 58,000 workers in the Memphis metro area fill and stock orders, package materials and move materials by hand.

In Memphis, workers at distribution centers for FedEx, Nike and Kroger have tested positive for the coronavirus. The Shelby County Health Department received 64 complaints about businesses between April 1 and April 29, but could not say how many were about warehouses.

Interim guidance from the Centers for Disease Control and Prevention calls for employers to notify workers of positive cases. But it is voluntary. The federal OSHA has no such requirement, and neither does Tennessee’s OSHA.

Although Congress passed the Families First Coronavirus Response Act, which provides two weeks paid sick leave for coronavirus-affected or infected workers, it doesn’t apply to many warehouse and temporary employees, said Laura Padin, senior staff attorney at the Washington-based National Employment Law Project, which advocates for better public policy for workers, particularly low-wage workers.

“The big issue is that it exempts so many employers, especially employers with over 500 employees,” Padin said. “And the vast majority of temp workers and many warehouse workers work for employers with more than 500 employees.”

The coronavirus has disproportionately affected people of color, the very group that makes up the bulk of the warehouse and temporary workforce.

“Black workers make up 12% of the workforce but 26% of temp workers, and Latino workers make up 16% of the workforce but 25% of temp workers,” said Padin, citing Bureau of Labor Statistics data released in 2018.

Add to that the yawning racial wealth gap and low-wage workers like Meeks are in an untenable situation, Padin said.

“They either stay home and they risk their financial security,” Padin said, “or they go to work and risk their lives.”

“You Can Always Go Back”

PFS, a distribution center whose clients include the jewelry brand Pandora, was initially exempt from Memphis’ “Safer At Home” executive order. (Brandon Dill for ProPublica)

With 1.45 million square feet of warehouse space among its four area locations, PFS is the ninth-largest third-party distribution operation in the metro area, according to the Memphis Business Journal’s 2020 Book of Lists. PFS doesn’t sell products under its own name but rather fulfills orders for better-known companies.

Pandora, which is perhaps best known for its charm bracelets, is one of PFS’s clients. “Each item shipped for PANDORA is wrapped in customized, branded, and sometimes seasonal packing materials, making every purchase a gift,” PFS’s website says.

Meeks’ favorite part of her job was taking each customer’s personal message, tucking it into a tiny envelope and then into the gift package.

“When we were sending out these Pandora bracelets and these Chanel gifts, I sat there and read all my cards,” said Meeks, who like all of the workers interviewed for this story, is black. “They were so cute.”

One Pandora customer sent a note to “beloved mother,” Meeks said, and another seemed to be from someone in a long-distance relationship.

“He was like: Even though I’m miles and miles away, I always think about you,” Meeks said. He wrote that he hoped the jewelry would “glitter in your eyes, or something like that.”

The day Meeks quit PFS, she said she called Prestigious Placement, the temporary agency that sent her there, asking for another job.

The temporary agency representative “was like, ‘Well, you can always go back to PFS until we get something else,’ and I was like, ‘No.’”

“She said, ‘Well, we haven’t had anyone to get sick,’” Meeks recalled.

Meeks said she tried to explain that regardless of whether some workers had tested positive, the company wasn’t taking enough steps, in her opinion, to keep current workers safe.

The representative said she’d ask the agency’s on-site manager about Meeks’ concerns, but Meeks said that there was no on-site manager present on her second or third day.

Prestigious Placement did not respond to multiple requests for comment for this story.

A local labor leader said Meeks’ experience illustrates the tough situation for temporary workers at warehouses.

“They tend not to have benefits, sick time and insurance and all the things that allow us to keep our whole community safe during a pandemic,” said Jeffrey Lichtenstein, executive secretary of the Memphis Labor Council, a federation of around 40 union locals.

Unlike companies such as Nike and FedEx, which have reputations to protect, the general public doesn’t know who PFS is or what it does, he said. “They have no brand vulnerability,” he said.

With little leverage to exert on businesses, these workers are up against a regional business model that mires them in dead-end, low-wage jobs, Lichtenstein said.

The city’s power brokers, he said, “have a couple of main tenets of their economic philosophy. One, logistics is really, really important, and two, cheap labor is very, very important.”

“Nothing Essential About It”

Memphis Mayor Jim Strickland issued a “Safer At Home” executive order on March 23, mirroring those put in place elsewhere. But the order specifically exempted warehouses and distribution centers from COVID-19 restrictions.

PFS gave workers a letter that cited Strickland’s order and the U.S. Department of Homeland Security’s guidance that “transportation and logistics are deemed a critical infrastructure that must be maintained during the COVID-19 crisis,” according to a copy reviewed by MLK50.

If they were stopped by authorities on the way to work, employees were told, this letter would ease their passage.

PFS told employees that if they were stopped by authorities on their way to work, this letter would ease their passage. The employee’s name has been redacted. (Obtained by ProPublica and MLK50)

Some workers questioned whether the distribution center should be open at all.

“I don’t see nothing essential about it,” said one employee who asked to remain anonymous for fear she’d be fired for talking to a journalist. “It don’t got nothing to do with nurses or health.”

When a worker tested positive at a PFS distribution center in southeast Memphis, the employee, who worked at a Southaven, Mississippi, location about eight miles away, worried that the virus could spread if workers were shuffled between sites.

A manager assured her that workers would stay put, the employee said. But on April 16, a supervisor told workers that two Memphis workers, who had been brought in to the employee’s Southaven facility, had tested positive for the coronavirus.

“I said, ‘Well, since y’all got everybody in here messed up, can’t you call and get everyone in there a COVID-19 test?’” she remembered. “They said if you don’t feel safe, you can go home.”

She can’t risk taking the virus home to a relative, who has chronic illnesses, and she can’t afford not to work. “I’m concerned for my health,” she said. “I don’t want to die.”

Padin, who works with workers’ rights centers across the country, said she’s not aware of much being done by advocates to narrow the list of businesses considered essential. “I do think some of these essential worker orders are quite broad,” she said. “Our sense is that it’s a little arbitrary and just seems to be a result of lobbying.”

She pointed to the success of meat processing plants, which were declared “critical infrastructure” by President Donald Trump despite coronavirus outbreaks that sickened thousands and killed dozens.

Days before Trump’s declaration, meatpacking giant Tyson ran a full-page ad in The New York Times saying “The food supply chain is breaking.”

In Memphis, an amended executive order, signed by the mayor April 21, clarified which distribution centers and warehouses could remain in operation, including ones that handle medical supplies, food and hygiene products.

The order would seem to exclude facilities such as PFS. “Products and services for and in industries that are not otherwise identified in this provision constitute non-essential goods and services,” reads the order, which is set to expire at midnight Tuesday. On Monday, Memphis will move into the first phase of its “Back to Business” plan, which means nonessential businesses can operate with face masks, social distancing in the workplace, and symptom checks.

“No Social Distancing”

Because the turnover in warehouses like PFS is high, the need for a steady flow of labor is paramount. And temp agencies are a major source of employees.

One Memphis mother saw a job posting on Facebook for PFS. A family member’s workplace had closed because of the coronavirus, so the woman rushed to find work to make up for the lost household income. She was hired in late March by Paramount Staffing and sent to a warehouse in Southaven, Mississippi. She wanted to remain anonymous for fear of job retaliation.

From the moment workers entered the building, she said, they were close together. A single-file line funneled workers past several time clocks, one for PFS’s permanent workers and one for each staffing agency with temporary workers there.

“Some people have masks on, some don’t,” said the worker, who earned $9 an hour. Workers weren’t provided any personal protective equipment.

She opted to be a packer, a mostly stationary job, but she had to use a shared tape dispenser to seal boxes and her co-workers were within arm’s reach.

Her other job option was as a picker, but they’re in motion most of the shift, selecting products for individual orders from totes and using a shared scan gun. Pickers send the completed orders to packers.

“It’s basically no social distancing at that warehouse,” she said. “They’re gonna have to work on that.”

About two hours before her shift ended April 10, a manager huddled workers in her area together for an announcement.

“He said, ‘Well, we’re just letting y’all know that we have an employee here who tested positive and we are asking everyone here to leave the building immediately and we will clock y’all out,’” the worker recalled.

The manager instructed them not to touch anything as they left, “just go straight out the door and we will let y’all know when to return,” she recalled.

The warehouse was closed for the next day and reopened the following day.

“It makes me nervous because my health is important to me, but at the same time, it’s like that’s the only thing I can do right now,” she said.

She’s grateful for the job but insists she won’t be there long. “I’m going to try to get in a couple more checks and then I’m going to quit.”

She left about a week ago, but hasn’t found another job yet.

Paramount Staffing, which sent the worker to PFS, relies on the client to provide personal protective equipment to workers, said company president Matthew Schubert.

“My understanding is that they’ve been taking temperatures as employees walk in,” Schubert said, plus performing more frequent cleanings and coaching the workers on social distancing, but he acknowledged he didn’t know when any of those measures began.

“What we want to make sure is that they’re doing everything in their power to follow the CDC guidelines,” said Schubert, who estimates Paramount has 75 to 80 workers at PFS’s area warehouses.

“We’re limited as to what we can and cannot do, because it’s not our facility.”

Both Lichtenstein and Padin say it’s the worksite employer’s responsibility to provide personal protective equipment.

A Perfect Combination: Higher Pay and Less Risk

Just days after Meeks quit PFS, she turned to a different agency and was sent to a Memphis warehouse that labels and ships cleaning products.

Her first day was April 17, and she was impressed by the precautions the employer takes.

Before workers enter the building, Meeks said, their temperatures are taken in a white tent outside. If they don’t have a fever, they get a wristband that is a different color each day.

The company provides masks, gloves and goggles, she said, and there are even kickstands on the bathroom doors, so they can be opened by foot.

Working the third shift means fewer people, Meeks said. “We’re not working close to each other.”

Meeks said she wouldn’t put a price on her health, but at her new job, the risks are lower and the pay higher — up from $9 to $11.50 an hour.

Wendi C. Thomas is the editor of MLK50: Justice Through Journalism. Email her at wendicthomas@mlk50.com and follow her on Twitter at @wendi_c_thomas.

Do you work at a warehouse or distribution center in the Memphis area? MLK50 and ProPublica want to hear from you.





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What Happened When Health Officials Wanted to Close a Meatpacking Plant, but the Governor Said No

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

On Tuesday, March 31, an emergency room doctor at the main hospital in Grand Island, Nebraska, sent an urgent email to the regional health department: “Numerous patients” from the JBS beef packing plant had tested positive for COVID-19. The plant, he feared, was becoming a coronavirus “hot spot.”

The town’s medical clinics were also reporting a rapid increase in cases among JBS workers. The next day, Dr. Rebecca Steinke, a family medicine doctor at one of the clinics, wrote to the department’s director: “Our message is really that JBS should shut down for 2 weeks and have a solid screening plan before re-opening.”

Teresa Anderson, the regional health director, immediately drafted a letter to the governor.

But during a conference call that Sunday, Gov. Pete Ricketts made it clear that the plant, which produces nearly 1 billion pounds of beef a year and is the town’s largest employer, would not be shut down.

Since then, Nebraska has become one of the fastest-growing hot spots for the novel coronavirus in the United States, and Grand Island has led the way. Cases in the city of 50,000 people have skyrocketed from a few dozen when local health officials first reported their concerns to more than 1,200 this week as the virus spread to workers, their families and the community.

The dismissed warnings in Grand Island, documented in emails that ProPublica obtained under the state’s public records law, show how quickly the virus can spread when politicians overrule local health officials. But on a broader scale, the events unfolding in Nebraska provide an alarming case study of what may come now that President Donald Trump has used the Defense Production Act to try to ensure meat processing plants remain open, severely weakening public health officials’ leverage to stop the spread of the virus in their communities.

Ricketts spokesman Taylor Gage said the governor explained on the call with local officials that the plant would stay open because it was declared an essential industry by the federal government. Two and a half weeks later, as cases were rising among the state’s meatpacking workers, Ricketts, a Republican businessman whose father founded the brokerage TD Ameritrade, held a news conference and said he couldn’t foresee a scenario where he would tell the meatpacking plants to close because of their importance to the nation’s food supply.

“Can you imagine what would happen if people could not go to the store and get food?” he asked. “Think about how mad people were when they couldn’t get paper products.”

“Trust me,” he added, “this would cause civil unrest.”

In the last two weeks, small meatpacking towns across Nebraska have experienced outbreaks, including at a Tyson Foods beef plant in Dakota City, a Costco chicken plant in Fremont and a Smithfield Foods pork plant in Crete. With the governor vowing to keep plants open, the companies have only in recent days decided to close for deep cleanings as cases have grown to staggering levels.

In Grand Island, two hours west of Omaha, the consequences of the governor’s decision came quickly. The CHI Health St. Francis hospital, which has 16 intensive care beds, was soon overwhelmed. At one point in April, it had so many critical patients that it had to call in three different helicopter companies to airlift patients to larger hospitals in Lincoln and Omaha, said Beth Bartlett, the hospital’s vice president for patient care.

JBS workers felt the strain, too. Under pressure to keep the food supply chain flowing, some of the plant’s 3,500 workers, many hailing from Latin America, Somalia and Sudan, said they were told to report for work regardless. In a letter to the governor last week, Nebraska Appleseed, a nonprofit advocacy group, said a JBS worker had been told by his supervisor that if he tested positive, he should come to work anyway and “keep it on the DL” or he’d be fired. Some workers who’d been told to quarantine after being exposed told ProPublica this week that they were called back to work before the 14-day window recommended by the Centers for Disease Control and Prevention — even if they felt sick. One worker in the offal, or entrails, section recently fainted in the plant, they said, but was told he couldn’t go home.

Cameron Bruett, head of corporate affairs for JBS, said the company has worked in partnership with local officials to prevent the spread of the coronavirus and did not influence the governor’s decision to keep the plant open. He pointed to comments made recently by University of Nebraska Medical Center officials who toured the plant, who said JBS has put in place some “best practices,” including installing barriers on the meat cutting line, communicating new precautions in multiple languages and ensuring the proper use of masks.

Bruett said no one is forced to come to work or punished for calling in sick. “Such actions, if true, would be grotesque and a clear violation of our culture,” he said.

The emails obtained by ProPublica show that local health officials have traced 260 cases to the JBS plant. But that was nearly two weeks ago and almost certainly underestimates the total. Anderson, who directs the Central District Health Department, said she hasn’t had enough tests to do targeted testing of JBS employees and is only testing people when they’re symptomatic. In Grand Island and its surrounding county, 32 people have died from the virus. According to workers, at least one of those was a JBS employee.

Across the country, more than 10,000 COVID-19 cases have been linked to meatpacking plants, and at least three dozen workers are known to have died, a ProPublica review of news reports and government health data shows.

While cases in the worst hit urban areas like New York appear to have plateaued, the nation’s meatpacking towns have continued to see spikes. A few large outbreaks have dominated public attention, but COVID-19 cases have popped up in well over 100 plants in mostly rural communities. There the virus’s impact is magnified by the workers’ sometimes cramped living conditions, with multiple generations of immigrant and refugee families often residing together in apartments, houses and trailers.

Before Trump’s order, more than 30 plants had shut down at least briefly to increase cleaning and control the spread among their workforces. The various closures have cut beef and pork production by more than a third compared with last year, causing supply chain disruptions for some supermarkets and fast-food chains.

Some of those closures show the role public health officials have had in the actions of large meatpacking companies like JBS, which has beef, pork and poultry plants in 27 states.

In Colorado, Dr. Mark Wallace of the Weld County Department of Public Health and Environment and state health director Jill Hunsaker Ryan grew worried that that if the coronavirus spread at JBS’ Greeley plant, it would have a “devastating” effect on the community that “would quickly overwhelm the medical resources available in the hospitals.”

Unlike Nebraska, Colorado’s health officials eventually ordered the JBS plant to close. But documents obtained by ProPublica show the protracted debate that came before that decision, with JBS invoking the governor to question the formal closure order. By the time the order was issued, some public officials felt the virus had been given too big a head start.

Like Grand Island, Greeley officials were already hearing by the end of March that hospital emergency rooms were seeing a “high number of JBS employees,” according to an email Wallace sent April 1 to the plant’s occupational health director.

“Their concern, and mine, is far too many employees must be working when sick and spreading infection to others,” Wallace wrote, urging the plant to take additional safety measures.

Three days later, Wallace wrote a more detailed letter to JBS’ human resources director, Chris Gaddis, documenting the virus’s spread and threatening to shut the plant down if it didn’t screen employees and ensure they could work 6 feet apart.

But as days passed, the situation in Greeley didn’t improve.

“Want you to know my colleagues are not reassured by what I’m sharing about measures being implemented,” Wallace wrote to Gaddis. “‘The cat’s out of the bag’ is what all health care providers are saying — too many sick people already, too much spread already, etc.”

After nine days of back-and-forth, JBS agreed to close the plant and Hunsaker Ryan and Wallace issued a formal shutdown order. But negotiations seemed to stretch until the last minute, emails show.

After Hunsaker Ryan sent JBS the order on the afternoon of April 10, Gaddis appeared confused. “It is our understanding from the telephone conversation that the governor did not want this letter sent,” Gaddis wrote. “Please confirm it was properly sent.”

Bruett said the company’s impression was that the governor didn’t feel a formal order “was necessary given our voluntary decision to shut down.” But Conor Cahill, a spokesman for Gov. Jared Polis, said: “Of course the governor wanted the health order sent. The governor has been clear that JBS needs to be more transparent with their staff and the public about the situation at their plant.”

Notified of the shutdown by his staff, Greeley Mayor John Gates wrote in an email, “In my opinion, that should have happened a week ago for the health and safety of their employees.”

On Wednesday, the state announced the latest numbers on the JBS outbreak: 280 employees had tested positive for COVID-19, and seven of them had died.

The Grand Island beef plant opened in 1965 in a sugar beet farming area. In recent decades, the plant has drawn immigrants from Mexico and Central America, and more recently refugees from Somalia and Sudan. In a sign of the area’s shifting workforce, Somali residents have opened a mosque in the old El Diamante nightclub and a community center in the former Lucky 7 Saloon next to a Salvadoran restaurant named El Tazumal.

Members of those communities became among the first to hit the area’s medical clinics as the virus began to spread. By the last week in March, the Family Practice of Grand Island, where Steinke works, had opened a special respiratory clinic to handle COVID-19 patients. That week, six of the patients had come from JBS. But over three days from March 30 to April 1, the clinic saw 25 patients that carried JBS insurance, indicating they were either employees or their dependents.

Danny Lemos’ father was one of the first JBS workers to get sick from the virus in late March. The 62-year-old, who’d worked at the plant for a year, had developed a fever and a cough.

“One day, he was laying in the living room on a chair, wrapped up in a blanket, shivering,” Lemos said. “My mom takes his temperature, and he had a temperature of 105 and he was really having trouble breathing.”

His father was rushed to the hospital and put on a ventilator.

Within days, Lemos said he also started having trouble breathing and joined his father in the ICU. Lemos, 39, was put in a medically induced coma and given a 20% chance of living, he said.

Danny Lemos’ father was one of the first JBS workers to contract COVID-19. Lemos, above, contracted it shortly thereafter and was put in a medically induced coma and given a 20% chance of living. (Courtesy of Danny Lemos)

Surprisingly, he said, he eventually recovered and was released from the hospital in late April. His father, Danny Lemos Sr., has been in the hospital for more than a month, most of the time on a ventilator, and is only now starting to recover.

Lemos said JBS should have taken better precautions.

“Shutting down right away, I think, probably would have helped a ton,” he said. “Do I think it would have kept everybody from getting sick? No, because those same people are still going to be out and about in the community. But just being so many people in one building, it was like a ticking time bomb.”

In an interview this week, Steinke said that it was hard to get the message across to JBS that more needed to be done.

“Even if they did not stop or shut down, if they would have put in better protections right from the start,” she said, “we would not have seen such a rapid rise in cases.”

At one point before the governor’s decision, the emails ProPublica obtained show, officials found language on the U.S. Department of Agriculture’s website that said local authorities could close a plant and the USDA would follow those decisions, potentially giving the health district some leverage.

“I guess I will send it to … HR there and maybe he will take us more seriously,” Anderson, the local health director, wrote in an email to the city administrator.

Under Trump’s executive order, that guidance has been reversed: The USDA could try to overrule local decisions if federal officials disagree.

That could pose a risk to the USDA’s own workforce of federal food inspectors, who work inside the plants to ensure the meat is safe to eat. According to the emails, some inspectors at the JBS plant also tested positive. Because inspectors sometimes monitor multiple sites, one inspector noted that she had recently worked in two other plants that have also had outbreaks, potentially spreading the virus within other plants.

“From my perspective,” temporarily closing the JBS plant “would have reduced the transmission,” Anderson said in an interview this week. “But if you shut down a plant and your 3,700 employees have nowhere to go, where are they going to go and how far is the spread going to be outside the plant vs. inside the plant? And if you end up going a month, what happens to their ability to feed their families?”

Anderson said that the “general feeling” she got from the call with the governor was that they needed to do more testing. So after the governor blocked the effort to close the plant, she continued to try to work collaboratively with JBS to encourage more testing of their employees.

In the emails, JBS officials said they were open to testing but repeatedly expressed concern about public disclosure of the results. “We want to make sure that testing is conducted in a way that does not foment fear or panic among our employees or the community,” JBS chief ethics and compliance officer Nicholas White wrote in an email to Anderson on April 15.

A week later, after the number of JBS cases was released by Anderson, Tim Schellpeper, president of the company’s U.S. beef processing operations, emailed her that he was worried about the amount of national attention it was attracting. “Have you given more thought to adding clarity/correction around this in your comments today?” he asked.

As JBS officials fretted about the optics of testing their employees, tensions within the families of the workers mounted. As the number of sick workers grew, the daughter of one worker, Miriam, said she was panicking about what would happen to her mother, who worked on the plant’s kill floor. At the end of every shift, she said, she called her mother to make sure she was okay.

“It was dreadful,” said Miriam, who asked that her last name not be used to protect her mother from retaliation. “It was just kind of living in fear waiting for the day she would have a fever. We knew it was going to happen because she’s a JBS employee. We didn’t think it was preventable anymore.”

Then, one day, she got a call from her mother, telling her that she had developed a fever and was being sent home.

“As she was changing in the locker room, she calls me and you can just hear the fear in her voice,” Miriam said.

Shortly after, her father tested positive for the virus too. Thankfully, she said, both her parents had only mild symptoms and have since recovered. But JBS and the governor should have done more, Miriam said.

“It just seemed like they were kind of careless,” she said. “I think it would have been a smart idea if not to close down the plant, to take more action to help the employees. They’re essential, but they need protection. They need to be kept safe.”

In the meantime, Ricketts has said that his approach of keeping the state “open for business” worked. And at a news conference Friday, he underscored the importance of the meatpacking industry to the state’s economy, proclaiming May as “Beef Month” in Nebraska.





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Emergency Relief Package Yields Increased FDA Funding, OTC Revisions

March 30, 2020 – In addition to providing millions of Americans and many industries with financial support during the coronavirus outbreak, the emergency relief bill passed by Congress and signed into law by President Donald Trump on Friday accrues additional funding for the Food and Drug Administration’s coronavirus efforts and makes important changes to how […]




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Gov. Newsom doesn't see packed stadiums for sporting events anytime soon

California Gov. Gavin Newsom says he doesn't see full stadiums of fans for sports happening amid the coronavirus outbreak until a vaccine is available.




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Yokogawa Releases Plant Resource Manager (PRM) R4.03, a Software Package in the OpreX Asset Management and Integrity Family

Yokogawa Electric Corporation (TOKYO: 6841) announces the November 14 release of Plant Resource Manager (PRM) R4.03, the latest version of a software package in the OpreX Asset Management and Integrity family that facilitates the monitoring and control of plant operations by centralizing the management of large volumes of data from instrumentation and manufacturing equipment. PRM R4.03 features powerful device diagnostic functions that help to optimize plant maintenance and ensure safe operations.




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Yokogawa Releases Exaquantum R3.20 Plant Information Management System, a Software Package in the OpreX Asset Operations and Optimization Family

Yokogawa Electric Corporation (TOKYO: 6841) announces the release of Exaquantum R3.20, an enhanced version of its plant information management system (PIMS) software package in the OpreX Asset Operations and Optimization family.




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Explained: RBI’s Regulatory Package on COVID-19 Decoded: Loan Moratorium to Liquidity Injection

RBI's COVID-19 Regulatory Package: From Repo Rate & CRR Cuts to 3-months moratorium on term loans, RBI Governor Shaktikanta Das announced several measures while addressing the media after the release of Seventh Bi-monthly Monetary Policy Statement 2019-20.





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Plasma membranes are asymmetric in lipid unsaturation, packing and protein shape




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Making the Rescue Package Work: Asset and Equity Purchases

Executive Summary

If the main purpose of the Emergency Economic Stabilization Act of 2008 is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market than the purchased of troubled assets. Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. At this writing, Treasury reportedly is considering ways do this. In this essay, we outline a specific bank recapitalization plan for Treasury to consider.

In particular, Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced. For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion.

Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on taxpayers. The Department will also have to be careful when buying equity in banks. There cannot be an open invitation for bank owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” To avoid this problem, Treasury should work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. The Department also may need to limit the scope of the recapitalization program to larger national banks, if it becomes infeasible to allow smaller banks to participate.

Making the Rescue Package Work: Asset and Equity Purchases [1]

The unprecedented financial rescue plan – technically the Emergency Economic Stabilization Act of 2008 (“EESA,” the “Act”, or the “plan”) -- has now been enacted by the Congress. One of the goals of the plan is to end the immediate panic in inter-bank lending markets, and on this basis several omens are not encouraging.

The Dow Jones stock index has been dropping daily, by large amounts, since EESA was enacted. The TED spread measures the difference between the interest rate on short term Treasury bills and the interest rate banks pay to borrow from each other (the LIBOR) and is a widely accepted measure of perceived risk in the financial sector. For several years this spread had hovered around 50 basis points or half a percentage point, reflecting the fact that lending to other financial institutions was considered almost as safe as buying Treasury bills. However, the spread shot up to 2.4 percentage points in July 2007 as the financial crisis hit, and it fluctuated widely in subsequent months. Following passage of the plan it remains even more elevated than it was last July—it was 3.8 percentage points as of October 7 and broke 4 percent on October 8. Financial institutions simply do not trust each other’s credit worthiness. Some of the market worries, of course, reflect the fragile state of the U.S. and global economies, but clearly the passage of the rescue plan itself has not calmed markets.

A second and related goal for the plan, according to media accounts, is to facilitate the recapitalization of the financial system, but the language of the bill is surprisingly coy about this. While the Act aims to “restore liquidity and stability to the financial system” it also directs the Treasury Secretary to prevent “unjust enrichment of financial institutions participating” in the asset purchase program. It is not yet clear whether Treasury will choose to recapitalize banks through its asset purchases – by buying them at prices above the values to which banks and other sellers have already written them down – or whether Treasury will simply use its purchases to stabilize prices for these securities and thus provide liquidity to the market, even if it may result in additional write-downs of their values (and thus additional reductions in capital).

Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. Of course, in normal times, such authority would be unnecessary because financial institutions would seek to tap private sources of capital first. But these are not normal times, to say the least.

If the main purpose of the plan is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market. Accordingly, we outline here a possible supplementary bank recapitalization plan that we believe Treasury should pursue, at the same time it purchases distressed assets. As this paper is being completed on October 9, 2008, The New York Times reports that the Treasury is now considering such a move. We are encouraged by this and in this essay we provide both a rationale for doing so and some concrete suggestions for how such a direct recapitalization program might work. We do not support further nationalization of the banking system beyond what has already been done but we believe that the crisis has become so severe that the asset purchase plan on its own will not be enough to turn the current situation around. Additional capital is urgently needed and could be supplied by Treasury purchases of minority, non-voting equity stakes, or by warrants.

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion, as we describe below.

Why Do Banks Need More Capital?

Financial institutions make money by borrowing money on favorable terms, that is, at low interest rates, and then lending it out at higher rates or by buying assets that yield higher returns. They may make money in other ways too, but the state of their balance sheets of assets and liabilities is crucial. In order to create a viable financial institution that can accommodate requests by depositors to take money out, someone has to put up capital and typically this comes from the equity in the company. The owners of the company have an incentive to keep this equity capital low and to build a large volume of borrowing and lending off a small base of capital—to increase leverage. This is because the profits earned are divided among the equity owners and the less capital there is, the higher the return on equity.

Governments for many years and in almost all countries have regulations in place setting capital requirements for banks in particular to stop them from taking too much risk in the pursuit of high returns and also protect any fund that insures their deposits against loss (the FDIC in this country). But some of our larger banks in recent years found a way around these rules by establishing “off-balance sheet” entities – Structured Investment Vehicles (“SIVs”) – to purchase mortgage-related and other asset-backed securities that the banks were issuing. In addition, large investment banks significantly increased their leverage in the years running up to the recent crisis, and were able to do so without mandated capital requirements. As a result, when the mortgage crisis hit, our financial system was weaker than was widely believed, and in the case of large banks in particular, than was officially reported.[2]

The mortgage crisis, which first surfaced in 2006 and has escalated rapidly since then, has hit bank balance sheets severely. As banks were forced to recognize losses on the mortgages they held in their portfolio, and especially to write down the values of their mortgage securities to their “market values” (even though the prices in those “markets” reflected relatively few “fire-sale” trades), they suffered reductions of their capital. Furthermore, the large banks that had created SIVs to escape such events found they could not hide from them when the SIVs could no longer roll over the commercial paper they had issued to finance their holdings of mortgage securities. To avoid dumping these securities on the market to satisfy their creditors, the banks took the SIVs back on their balance sheets, only to suffer further losses to their capital.

As we have seen, some of our largest banks – Washington Mutual and Wachovia, to name two – have not been able to survive all of this, and have been forced or are or being forced into the hands of stronger survivors. Other banks have been doing their best to shore up their capital bases by issuing new equity to replace the losses they have absorbed on delinquent loans and declining prices of their asset-backed securities. According to media reports, financial institutions (largely banks) worldwide have suffered over $700 billion in such losses to date, of which they replaced approximately $500 billion by issuing new equity.

But more losses are sure to come; indeed Secretary Paulson has said to expect further bank failures. Earlier this year, the International Monetary Fund projected that losses due to the credit crisis worldwide could hit $1 trillion. The IMF has recently upped that forecast to $1.4 trillion. If anything close to this latest forecast is realized, then many banks – here and abroad – will need to raise even more equity, but in a capital market that is now highly more risk averse than only a few months ago.

It is in this environment that banks have grown much less comfortable dealing with each other, even though they must to keep the financial system running. Every day, some banks have more cash on hand, or reserves, than they need to meet reserve requirements and ordinary demands for liquidity, while others are short of such funds. In the United States, banks thus trade with each other in the Federal Funds market while global banks borrow and lend to each other through the London Interbank market using the LIBOR rate of interest. The Federal Reserve’s main objective of monetary policy is to stabilize the “Fed funds” rate around a target, now just lowered to 1.5%, down from 2% where it has been for some months (and down from 5.25% before subprime mortgage crisis). To do so, the Fed has added a huge amount of liquidity to the financial system, even going so far this week as to buy up commercial paper issued by corporations, an unprecedented step. But the Fed does not and probably cannot control the longer term inter-bank market, in which banks lend to each other typically over a 3-month period.

The steep jump in the 3-month inter-bank lending rate – well over 4 percent – reflects two fundamental facts that EESA is designed to address. One is that banks don’t trust each others’ valuations of the mortgage and possibly other asset-backed securities they are all holding, precisely because the “markets” in those securities are so thin and thus not generating reliable prices. The second problem is that banks either are short of capital themselves, or fear that their counterparties are. No wonder that banks are so unwilling to lend to each other for a period even as short as three months – which in this environment, can seem like an eternity.

The capital shortage in the banking system, in particular, has severe implications for the rest of the economy. An institution that is short of capital is forced to cut back on its lending and this shows up in denials of lines of credit to companies and reductions in credit limits for consumers. Households cut back on spending; it is difficult to get a mortgage or a car loan; and companies reduce investment and curtail operations. And as we learn in any college course on banking, the impact of a loss of capital on bank lending can be multiplied. Each dollar of bank capital supports roughly ten dollars of overall lending in the economy. Each dollar of lost capital thus can result in ten dollars of lending contraction. The impact of an economy-wide bank contraction can be devastating for Main Street. The Great Depression was greatly exacerbated by the collapse of banks. The long stagnation in Japan was in large part the result of a failure to recapitalize the banks.

How bad is the current problem? We do not know how many banks, insurance companies or other financial institutions are in a weakened state, or perhaps even more important, may become weakened as the overall economy deteriorates. The official data published so far don’t really help on this score. The FDIC compiles information on the number and collective assets held by “problem banks,” or those in danger in failing. As of the second quarter of 2008, there were 117 such banks with assets of $78 billion up from 90 in the second quarter with assets of $28 billion., These figures did not include Washington Mutual, which would have failed had it not been bought by J.P. Morgan, or Wachovia, which at this writing, looks like it will be acquired by Wells Fargo (but also was in danger of failing without being acquired by someone). Together these banks hold more than $500 billion in customer deposits. Furthermore, according to recent media reports, even some large insurance companies (beyond AIG) may be having capital problems, having suffered large losses on the securities they hold in reserve to meet future claims.

Can the Asset Purchase Plan Succeed in Recapitalizing the Banks?

In principle, there are two ways in which the original Treasury asset purchase plan would recapitalize the banks. The first method is premised on the view that private markets are unwilling to supply capital to the banks because investors do not know how much their assets are worth. The Treasury, it is argued, would use its asset purchase plan as a way of revealing the prices of the assets and once that information is known, the banks will be able to raise new capital again from private markets. But better pricing will only attract capital if there are investors out there who are willing to supply it. Given the dramatic downturn in equities markets, finding such willing investors will be difficult, to say the least. Those investors that provided capital to banks early on in the crisis have been hit hard by the subsequent decline in equity prices and are reluctant to get burned again. When Bank of America said it would raise $10 billion from the markets, for example, its stock price fell sharply, suggesting there is a lot of market resistance to be overcome before private investors are willing to recapitalize the banking system.

Second, in principle, Treasury could recapitalize the banks by buying distressed assets at prices above those at which the securities are currently carried on the books of the institutions that sell them (original book or purchase value minus any write-offs).[3] In this case, the bank would be able to report a capital gain from its sale to the Treasury, a gain that would reverse, at least in part, the capital losses it had taken in the past and thereby add to its capital.

Treasury has said it will use reverse auctions[4] when it buys assets, and it is possible that the Department will be able to construct some auctions that will enable some holders of troubled assets to sell them to the Treasury at prices that earn a capital gain. But we are somewhat skeptical how many securities will fall into this category. For one thing, asset-backed securities are not homogenous, like traditional equity or bonds. In addition, it would be surprising in the current environment if reverse auctions would reveal prices that are above the written-down values of many of these securities. After all, an auction does not necessarily produce valuations that reflect the “hold to maturity” price rather than the “liquidation” price for the securities, as Fed Chairman Ben Bernanke suggested the purchase plan would accomplish.

Accordingly, we strongly suspect that Treasury will have to purchase many securities in one-on-one deals rather than through auctions. But in doing this, it may be both legally and politically difficult for the Treasury to pay prices in negotiations that are above the valuations banks or other sellers already have given them. Section 101 (e) of EESA specifically requires the Treasury Secretary “to take such steps as may be necessary to prevent unjust enrichment” of participating financial institutions, and Congress could construe such language to preclude such sales.[5] Furthermore, even if there were not a specific prohibition in the EESA, Treasury may wish to avoid the public criticism it would face if it purchased assets at prices that would allow participating institutions to book gains. And, in the case of sales at prices below the explicit or implicit price of the securities carried on an institution’s books, the sales will trigger further accounting losses and thus additional deductions from reported capital.

In short, we are not at all confident that the Treasury’s planned purchases of troubled securities, by themselves, will do much to recapitalize the banking system. This does not mean that the planned asset purchases will not deliver some needed help. Although at this writing the inter-bank lending market remains frozen even though EESA has been enacted and signed into law, one reason why banks and others may not yet have confidence that it will lead to a thaw in credit markets is that the guidelines for the asset purchases have not yet been issued. Once these guidelines are announced and the purchases begin, and the markets start to see real results, it is possible that some of the missing trust in the banking system will come back.[6]

However, Treasury may not need to spend, and for reasons elaborated below we do not believe it should spend, anywhere near the full $700 billion, or perhaps even most of the initial $350 billion tranche in borrowing authority, to liquefy the markets for mortgage and other asset-backed securities. EESA requires Treasury to publish (within two days) information about each of these purchases. We urge the Department to include in such publications (presumably on its website) regular data on the defaults and delinquencies to date of the loans underlying each batch of securities it purchases. Such information should enable financial institutions that are still holding similar securities not only to price them more accurately, but also to give market participants enough confidence to begin trading these securities without further Treasury purchases.

Husbanding its resources should be a prime objective for Treasury. In conducting its purchases of troubled assets, it should target first those asset categories that are the most illiquid. The main objective always should be jump-starting private sector activity or at least bringing greater clarity to the pricing of particular classes of securities. There is no need for Treasury, therefore, to make repeat purchases of similar securities (such as collateralized debt obligations issued within several months of each other, structured in roughly a similar way). Rather, the aim should be to make a market in as many different asset categories as are reasonably necessary to provide guidance to market participants, no more, no less.

Yet no one can be confident at this point that asset purchases alone will give banks sufficient confidence to begin dealing with each other at much lower interest rates. If the asset purchases do the trick, fine. But if they don’t, Treasury should make sure it has enough financial ammunition to pursue a second, more direct, strategy for restoring banks’ confidence – the direct bank recapitalization strategy to which we now turn.

Recapitalizing the Financial System Directly

Having the government put capital into financial institutions directly is not a new idea. It is the approach followed in this crisis for Fannie and Freddie and has been used in other countries. Sweden recapitalized its banks by adding capital to them during its crisis in the 1980s. Most recently, the British government has announced a sweeping bank recapitalization amidst the current crisis. And of more relevance to the U.S. situation, Congress specifically added authority in EESA for Treasury to make direct capital injections into banks.

In recent days, Treasury Secretary Paulson has acknowledged that the Department may take advantage of this authority and thus use some of its funds to buy equity in troubled banks. This is a welcome development. Even if Treasury’s asset purchase program restores confidence in the pricing of troubled securities, many banks still believe that many other banks lack sufficient capital, and thus can still be reluctant to lend to them. The fact that the FDIC stands ready (especially with its new unlimited line of credit at the Treasury) to assist acquiring banks in taking over failing banks is probably not sufficient, even with a successful Treasury asset purchase program, to provide this confidence. Bank lenders to failed banks can still lose money in such transactions, or at the very least may have difficulty accessing their funds for some period, at times when all banks seem to want or need as much liquidity as they can get.

How might such a capital injection program work? Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced, as has been suggested by former St. Louis Federal Reserve Bank President William Poole.[7] For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

The Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on the taxpayers. The Department also will have to be careful when buying equity in banks, especially if it decides to go for a broad, nationwide program. There cannot be an open invitation for owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” This problem suggests that Treasury would need to work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. Treasury also may need to limit the scope of the program to larger banks, if it becomes infeasible to allow smaller banks to participate.

We presume that Treasury did not initially embrace the idea of a more systematic recapitalization of the banking system out of concern not to have any further government involvement in the banking system, especially on the heels of the Fannie/Freddie conservatorship and the Fed’s rescue of AIG. That Treasury is now considering direct capital injections indicates that this may no longer be a concern. In our view, limiting Treasury’s purchases to non-voting stock in any event would address this concern directly.

Conclusion

Ben Bernanke has compared the current financial crisis to a heart attack in the economy. For some heart attacks, it is enough to administer drugs and change diet and exercise habits. But in acute cases, major surgery is needed and the current crisis is in the acute phase. Direct surgery in the form of capital injected into financial institutions, along with direct asset purchases, should help calm the inter-banking lending market.

Based on recent monthly data it appears that GDP started to fall in mid-year and the economy is moving into recession so the proposals made here will not change that. Nor can the proposals compel banks to make loans to their traditional customers – consumers and businesses – in the current climate of fear. But Treasury can do something to mitigate that fear and thus, along with the recent further easing of monetary policy, likely additional fiscal stimulus and further homeowner relief, the Department will help reduce the severity of the current recession if it uses all the tools in its financial arsenal.



[1] Note: This is the second essay in a series on the financial crisis and how to respond. For the first essay, see http://www.brookings.edu/papers/2008/0922_fixing_finance_baily_litan.aspx

[2] The government’s reported bank capital ratios, for example, did not take account of the off-balance sheet assets and liabilities of the SIVs, which large banks later had to take back on their balance sheets directly.

[3] Some institutions holding these securities may not have fully marked them to “market” under current accounting rules, but instead simply have added to their reserves for possible future losses to reflect the likelihood of such write-downs. In the lattercase, the securities may implicitly be marked down by a percentage reflecting the loan loss reserve attributable to them. If this latter percentage is not publicly stated, Treasury may require participating institutions to break it out for the Department as a condition for participating in the program (and if the Department does not do this, it may be compelled to do so either by the Executive branch Oversight authority or the Congressional oversight committee established under the Act).

[4] A regular auction is where the seller puts an item out on the market and then potential buyers bid for it. The seller then takes the highest price. In a reverse auction, the buyer puts out a notice of what item he or she wants to buy and then sellers compete to supply this item. The buyer then chooses the lowest price. Reverse auctions are the way a lot of private companies and government entities manage their procurement processes.

[5] The rest of this subsection includes as an example of such unjust enrichment the sale of a troubled asset to the Treasury at a higher price than what the seller paid to acquire it. But this language is not exclusive. Congress, the public or the media could construe unjust enrichment also to include sales of securities at prices above those implicitly or explicitly carried by the institution on its books.

[6] The Treasury asset purchase plan would also a provide a valuable service by speeding the de-leveraging process. As we described earlier, banks are leveraged and hold capital that is only a fraction of their assets or liabilities. When they take a hit to their capital base, they must either replenish the capital or scale back their balance sheets. When it became impossible to sell the assets except at fire-sale prices, they were not able to do this. Selling the asset to the Treasury will help them scale down. To get bank lending going again, however, we want them to be able to make new lending, not to just scale back.

[7] Speech made at the National Association of Business Economists conference, Washington DC, October 6, 2008.

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Unpacking the China-Russia ‘alliance’

The United States appears to be settling in for a protracted period of great power military competition. Ever since Russia seized Crimea and militarily intervened in Ukraine, and as China moved onto islands across the South China Sea while claiming almost all surrounding waterways, American defense officials determined that rogue states and terrorist organizations should…

       




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Inclusion in India: Unpacking the 2015 FDIP Report and Scorecard


Editor’s Note: The Center for Technology Innovation released the 2015 Financial and Digital Inclusion Project (FDIP) Report on August 26th. TechTank has previously covered the FDIP launch event and outlined the report’s overall findings. Over the next two months, TechTank will take a closer look at the report’s findings by country and by region, beginning with today’s post on India. 

With about 21 percent of the world’s entire unbanked adult population residing in India as of 2014, the country has tremendous opportunities for growth in terms of advancing access to and use of formal financial services.

In the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, we detail the progress achieved and possibilities remaining for India’s financial services ecosystem as it moves from a heavy reliance on cash to an array of traditional and digital financial services offered by diverse financial providers.

As noted in the 2015 FDIP Report, government-led initiatives to promote financial inclusion have advanced access to financial services in India. Ownership of formal financial institution and mobile money accounts among adults in India increased about 18 percentage points between 2011 and 2014. Recent regulatory changes and public and private sector initiatives are expected to further promote use of these services.

In this post, we unpack the four components of the 2015 FDIP Scorecard — country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services — to highlight India’s achievements and possible next steps toward greater financial inclusion.

Country commitment: An unprecedented year with no sign of slowing

India’s national-level commitment to promoting financial inclusion earned it a “country commitment” score of 100 percent. A historic government initiative helped India garner a top score: In August 2014, Prime Minister Narendra Modi launched the “Pradhan Mantri Jan-Dhan Yojana,” the Prime Minister’s People’s Wealth Scheme (PMJDY). This effort — arguably the largest financial inclusion initiative in the world — “envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility,” in addition to providing beneficiaries with an RuPay debit card.

As part of this effort, the program aimed to provide 75 million unbanked adults in India with accounts by late January 2015. As of September 2015, about 180 million accounts had been opened; about 44 percent of these accounts did not carry a balance, down from about 76 percent in September 2014.

The PMJDY initiative is a component of the JAM Trinity, or “Jan-Dhan, Aadhaar and Mobile.” Under this approach, government transfers (also known as Direct Benefit Transfers, or DBT) will be channeled through bank accounts provided under Jan-Dhan, Aadhaar identification numbers or biometric IDs, and mobile phone numbers.

The Pratyaksh Hanstantrit Labh (PaHaL) program is a major DBT initiative in which subsidies for liquefied petroleum gas can be linked to an Aadhaar number that is connected to a bank account or the consumer’s bank details. As of July 2015, about $2 billion had been channeled to beneficiaries in 130 million households across the country.

Mobile capacity: Ample opportunity for digital services, but limited awareness and use

India received 16th place (out of the 21 countries considered) in the 2015 FDIP Report and Scorecard’s mobile capacity ranking. India’s mobile money landscape features an extensive array of services, and the licensing of new payments banks (discussed below) may drive the entry of new players and products that can improve low levels of awareness and adoption of digital financial services.

An InterMedia survey conducted from September to December 2014 found that while 86 percent of adults owned or could borrow a mobile phone, only about 13 percent of adults were aware of mobile money. Awareness of mobile money is increasing — the 13 percent figure is double that of the first wave of the survey, which concluded in January 2014 — but uptake remains low. The Global Financial Inclusion (Global Findex) database found only 2 percent of adults in India had a mobile money account in 2014.

Implementing interoperability across mobile money offerings, increasing 3G network coverage by population, and enhancing unique mobile subscribership could boost India’s mobile capacity score in future editions of the FDIP report.

Regulatory environment: Opening up the playing field to non-bank entities

India tied for 7th place on the regulatory environment component of the 2015 Scorecard. The country’s recent shift to a more open financial landscape contributed to its strong score, although more time is needed to see how recent regulations will be operationalized.

India has traditionally maintained tight restrictions with respect to which entities are involved in financial service provision. Non-banks could manage an agent network on behalf of a bank as business correspondents or issue “semi-closed” wallets that did not permit customers to withdraw funds without transferring them to a full-service bank account. These restrictions likely contributed to the country’s slow and limited adoption of mobile money services.

However, 2014 brought significant changes to India’s regulatory landscape. The Reserve Bank of India’s November 2014 Payments Banks guidelines were heralded as a major step forward for increasing diversity in the financial services ecosystem. These guidelines marked a significant shift from India’s “bank-led” approach by providing opportunities for non-banks such as mobile network operators to leverage their distribution expertise to advance financial access and use among underserved groups.

While these institutions cannot offer credit, they can distribute credit on behalf of a financial services provider. They may also distribute insurance and pension products, in addition to offering interest-bearing deposit accounts.

We noted in the 2015 FDIP Report that timely approval of license applications for prospective payments banks, particularly mobile network operators, would be a valuable next step for India’s financial inclusion path. In August 2015, the Reserve Bank of India approved 11 applicants, including five mobile network operators, to launch payments banks within the next 18 months. As noted in Quartz India, the “underlying objective is to use these new banks to push for greater financial inclusion.” India has also made strides in terms of establishing proportionate “know-your-customer” requirements for financial entities, including payments banks.

While India has made significant progress in terms of promoting a more enabling regulatory environment, room for improvement remains. For example, concerns have been raised regarding the low commission rate for banks distributing DBT, with many experts noting that a higher commission would enhance the ability of these banks to operate sustainably.

Adoption: Access is improving, but promoting use is key

India ranked 9th for the adoption component of the 2015 Scorecard. Recent studies have demonstrated that adoption of formal financial services among traditionally underserved groups is improving. For example, InterMedia surveys conducted in October 2013 to January 2014 and September to December 2014 found that the most significant increase in bank account ownership was among women, particularly women living below the poverty line. Still, further work is needed to close the gender gap in account ownership.

As noted above, adoption of digital financial services such as mobile money is minimal compared with traditional bank accounts (0.3 percent compared with 55 percent, according to the September to December 2014 InterMedia survey); nonetheless, we believe that the introduction of payments banks, combined with government efforts to digitize transfers, will facilitate greater adoption of digital financial services.

While PMJDY has successfully promoted ownership of bank accounts, incentivizing use of these services is critical for achieving true financial inclusion. Dormancy rates in India are high — about 43 percent of accounts had not been deposited into or withdrawn from in the previous 12 months, according to the 2014 Global Findex.

More time may be needed for individuals to understand how their new accounts function and, equally importantly, how their new accounts are relevant to their daily lives. A February 2015 survey designed by India’s Ministry of Finance, MicroSave, and the Bill & Melinda Gates Foundation found about 86 percent of PMJDY account holders reported the account was their first bank account. While this survey is not nationally representative, it provides some context as to why efforts to promote trust in and understanding of these new accounts will be key to the success of the program.

An opportunity for promoting adoption of digital financial services was highlighted during the public launch of the 2015 Report and Scorecard: As of June 2015, it was estimated that fewer than 6 percent of merchants in India accepted digital payments. The U.S. government is partnering with the government of India to promote the shift to digitizing transactions, including at merchants.

The next annual FDIP Report will examine the outcomes of such initiatives as we assess India’s progress toward greater financial inclusion. Suggestions and other comments regarding the FDIP Report and Scorecard are welcomed at FDIPComments@brookings.edu.

Authors

Image Source: © Mansi Thapliyal / Reuters
       




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On April 16, 2020, Tanvi Madan unpacked how India’s relation with China changed under Narendra Modi and Xi Jinping via teleconference with the Asia Society Switzerland

On April 16, 2020, Tanvi Madan unpacked how India's relation with China changed under Narendra Modi and Xi Jinping via teleconference with the Asia Society Switzerland.

       




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Wolves and wolf packs


The horrible tragedy in Orlando is rightly focusing attention on the threat posed by lone wolf terrorists—that is, radicalized individuals or couples who carry out attacks like those in Boston, San Bernardino, and Orlando. Yet there is a greater threat to the national well-being from small groups of terrorists, we can call them wolf packs, that could bring much greater carnage. If America's Muslim community is scapegoated and ostracized, the wolf pack threat will grow.

The idea of lone wolf attacks goes back well before the emergence of the self-styled Islamic State two years ago. The New Mexico-born radical Anwar al Awlaki urged individual Muslim Americans to carry out mass casualty attacks years ago. His English-language web magazine “Inspire” was the vehicle for self-radicalized extremists to learn how to make bombs and conduct violent jihad. The Fort Hood shooter was his disciple. Awlaki's message is still virulent despite his death by drone in Yemen in 2011.

More recently, Hamza bin Laden, the son of al-Qaida's founder, has issued two messages from his hide-out in Pakistan urging lone wolf attacks in Europe, America and Israel. The first came out a year ago and included the endorsement of Ayman Zawahiri. The second came out last month.

The Orlando shooter paid little attention apparently to the differences between radical Islamic organizations. He reportedly praised the Shiite Hezbollah, Sunni al-Qaida, and the Islamic State. The message of jihad is so pervasive now that has become a part of the global dialogue.

As deadly as the Orlando shooting was, it is not hard to envision worse given the horrific attacks in Paris and Brussels this year. Organized conspiracies of a relatively small number of extremists prepared to die in their attacks can do far more damage than individuals or couples.

Organized conspiracies of a relatively small number of extremists prepared to die in their attacks can do far more damage than individuals or couples.

The role model of a wolf pack attack was the November 26, 2008 attack in Mumbai. A pack of ten well-armed and trained Pakistani terrorists attacked simultaneously and sequentially luxury hotels, fancy restaurants, a train station, and a Jewish hostel. Westerners and Israelis were singled out for attack but the majority of victims were innocent Indians. The operation even had a secure command post back in Pakistan where the terrorist handlers from Lashkar e-Tayyeba and Pakistani intelligence coordinated the plot by cell phones.

The Paris attacks imitated many of the Mumbai tactics and added suicide vests to the mix. The Islamic State took the Mumbai model to Europe. It no longer required a foreign base like Pakistan, the conspiracy operated in the depressed Islamic slums of Brussels and Paris where the security services had few sources. 

The closest to a wolf pack attack in the United States was an al-Qaida plot in 2009 to attack the New York City subway system. That was foiled because our intelligence services detected the conspiracy. 

Islamophobia is the path to more catastrophic violence.

By definition, conspiracies involving even small numbers of plotters are easier to detect than lone wolves. The first line of detection is the local Muslim community where the plot is hatched. When local communities become angry pockets separated from the rest of the nation, it is much harder to find and foil conspiracies. In Europe, unfortunately, there are many such disaffected Islamic communities. America doesn't have them, at least not yet.

That fastest and surest route to wolf pack conspiracies in America is to scapegoat all Muslims and create an angry jihadist sub-culture. That is why calls for prohibiting Muslim travel to America are so dangerous and counter-productive. It will inevitably create a backlash. Islamophobia is the path to more catastrophic violence.

Authors

        




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