Group of Governors and Heads of Supervision endorses revised liquidity standard for banks

Group of Governors and Heads of Supervision endorses revised liquidity standard for banks
January 6, 2013
http://www.bis.org/press/p130106.htm

The Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, met today to consider the Basel Committee's amendments to the Liquidity Coverage Ratio (LCR) as a minimum standard. It unanimously endorsed them. Today's agreement is a clear commitment to ensure that banks hold sufficient liquid assets to prevent central banks becoming the "lender of first resort".

The GHOS also endorsed a new Charter for the Committee, and discussed the Committee's medium-term work agenda.

The GHOS reaffirmed the LCR as an essential component of the Basel III reforms. It endorsed a package of amendments to the formulation of the LCR announced in 2010. The package has four elements: revisions to the definition of high quality liquid assets (HQLA) and net cash outflows; a timetable for phase-in of the standard; a reaffirmation of the usability of the stock of liquid assets in periods of stress, including during the transition period; and an agreement for the Basel Committee to conduct further work on the interaction between the LCR and the provision of central bank facilities.

A summary description of the agreed LCR is in Annex 1. The changes to the definition of the LCR, developed and agreed by the Basel Committee over the past two years, include an expansion in the range of assets eligible as HQLA and some refinements to the assumed inflow and outflow rates to better reflect actual experience in times of stress. These changes are set out in Annex 2. The full text incorporating these changes will be published on Monday 7 January.

The GHOS agreed that the LCR should be subject to phase-in arrangements which align with those that apply to the Basel III capital adequacy requirements. Specifically, the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.

The GHOS agreed that, during periods of stress it would be entirely appropriate for banks to use their stock of HQLA, thereby falling below the minimum. Moreover, it is the responsibility of bank supervisors to give guidance on usability according to circumstances.

The GHOS also agreed today that, since deposits with central banks are the most - indeed, in some cases, the only - reliable form of liquidity, the interaction between the LCR and the provision of central bank facilities is critically important. The Committee will therefore continue to work on this issue over the next year.

GHOS members endorsed two other areas of further analysis. First, the Committee will continue to develop disclosure requirements for bank liquidity and funding profiles. Second, the Committee will continue to explore the use of market-based indicators of liquidity to supplement the existing measures based on asset classes and credit ratings.

The GHOS discussed and endorsed the Basel Committee's medium-term work agenda. Following the successful agreement of the LCR, the Committee will now press ahead with the review of the Net Stable Funding Ratio. This is a crucial component in the new framework, extending the scope of international agreement to the structure of banks' debt liabilities. This will be a priority for the Basel Committee over the next two years.

Over the next few years, the Basel Committee will also: complete the overhaul of the policy framework currently under way; continue to strengthen the peer review programme established in 2012 to monitor the implementation of reforms in individual jurisdictions; and monitor the impact of, and industry response to, recent and proposed regulatory reforms. During 2012 the Committee has been examining the comparability of model-based internal risk weightings and considering the appropriate balance between the simplicity, comparability and risk sensitivity of the regulatory framework. The GHOS encouraged continuation of this work in 2013 as a matter of priority. Furthermore, the GHOS supported the Committee's intention to promote effective macro- and microprudential supervision.

The GHOS also endorsed a new Charter for the Basel Committee. The new Charter sets out the Committee's objectives and key operating modalities, and is designed to improve understanding of the Committee's activities and decision-making processes.

Finally, the GHOS reiterated the importance of full, timely and consistent implementation of Basel III standards.

Mervyn King, Chairman of the GHOS and Governor of the Bank of England, said, "The Liquidity Coverage Ratio is a key component of the Basel III framework. The agreement reached today is a very significant achievement. For the first time in regulatory history, we have a truly global minimum standard for bank liquidity. Importantly, introducing a phased timetable for the introduction of the LCR, and reaffirming that a bank's stock of liquid assets are usable in times of stress, will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery."

Stefan Ingves, Chairman of the Basel Committee and Governor of the Sveriges Riksbank, noted that "the amendments to the LCR are designed to ensure that it provides a sound minimum standard for bank liquidity - a standard that reflects actual experience during times of stress. The completion of this work will allow the Basel Committee to turn its attention to refining the other component of the new global liquidity standards, the Net Stable Funding Ratio, which remains subject to an observation period ahead of its implementation in 2018."

• Annex 1: Summary description of the LCR (PDF, 2 pages, 42 kb)
• Annex 2: Complete set of agreed changes to the Liquidity Coverage Ratio (PDF, 2 pages, 36 kb)
• Full press release (PDF, 2 pages, 35 kb)
• Charter for the Basel Committee

Listen to the press conference

To listen to introductory remarks from GHOS Chairman Mervyn King and the Basel Committee on Banking Supervision's Chairman Stefan Ingves as well as the question and answer session which followed, please dial +41 58 262 07 00 and enter the following access code: 2641523333.

 
Translations in German, Spanish, French and Italian will be published soon.

We, Too, Are Violent Animals. By Jane Goodall, Richard Wrangham, and Dale Peterson

We, Too, Are Violent Animals. By Jane Goodall, Richard Wrangham, and Dale Peterson
Those who doubt that human aggression is an evolved trait should spend more time with chimpanzees and wolvesThe Wall Street Journal,January 5, 2013, on page C3
http://online.wsj.com/article/SB10001424127887323874204578220002834225378.html

Where does human savagery come from? The animal behaviorist Marc Bekoff, writing in Psychology Today after last month's awful events in Newtown, Conn., echoed a common view: It can't possibly come from nature or evolution. Harsh aggression, he wrote, is "extremely rare" in nonhuman animals, while violence is merely an odd feature of our own species, produced by a few wicked people. If only we could "rewild our hearts," he concluded, we might harness our "inborn goodness and optimism" and thereby return to our "nice, kind, compassionate, empathic" original selves.

If only if it were that simple. Calm and cooperative behavior indeed predominates in most species, but the idea that human aggression is qualitatively different from that of every other species is wrong.

The latest report from the research site that one of us (Jane Goodall) directs in Tanzania gives a quick sense of what a scientist who studies chimpanzees actually sees: "Ferdinand [the alpha male] is rather a brutal ruler, in that he tends to use his teeth rather a lot…a number of the males now have scars on their backs from being nicked or gashed by his canines…The politics in Mitumba [a second chimpanzee community] have also been bad. If we recall that: they all killed alpha-male Vincent when he reappeared injured; then Rudi as his successor probably killed up-and-coming young Ebony to stop him helping his older brother Edgar in challenging him…but to no avail, as Edgar eventually toppled him anyway."

A 2006 paper reviewed evidence from five separate chimpanzee populations in Africa, groups that have all been scientifically monitored for many years. The average "conservatively estimated risk of violent death" was 271 per 100,000 individuals per year. If that seems like a low rate, consider that a chimpanzee's social circle is limited to about 50 friends and close acquaintances. This means that chimpanzees can expect a member of their circle to be murdered once every seven years. Such a rate of violence would be intolerable in human society.

The violence among chimpanzees is impressively humanlike in several ways. Consider primitive human warfare, which has been well documented around the world. Groups of hunter-gatherers who come into contact with militarily superior groups of farmers rapidly abandon war, but where power is more equal, the hostility between societies that speak different languages is almost endless. Under those conditions, hunter-gatherers are remarkably similar to chimpanzees: Killings are mostly carried out by males, the killers tend to act in small gangs attacking vulnerable individuals, and every adult male in the society readily participates. Moreover, with hunter-gatherers as with chimpanzees, the ordinary response to encountering strangers who are vulnerable is to attack them.

Most animals do not exhibit this striking constellation of behaviors, but chimpanzees and humans are not the only species that form coalitions for killing. Other animals that use this strategy to kill their own species include group-living carnivores such as lions, spotted hyenas and wolves. The resulting mortality rate can be high: Among wolves, up to 40% of adults die from attacks by other packs.

Killing among these carnivores shows that ape-sized brains and grasping hands do not account for this unusual violent behavior. Two other features appear to be critical: variable group size and group-held territory. Variable group size means that lone individuals sometimes encounter small, vulnerable parties of neighbors. Having group territory means that by killing neighbors, the group can expand its territory to find extra resources that promote better breeding. In these circumstances, killing makes evolutionary sense—in humans as in chimpanzees and some carnivores.

What makes humans special is not our occasional propensity to kill strangers when we think we can do so safely. Our unique capacity is our skill at engineering peace. Within societies of hunter-gatherers (though only rarely between them), neighboring groups use peacemaking ceremonies to ensure that most of their interactions are friendly. In state-level societies, the state works to maintain a monopoly on violence. Though easily misused in the service of those who govern, the effect is benign when used to quell violence among the governed.

Under everyday conditions, humans are a delightfully peaceful and friendly species. But when tensions mount between groups of ordinary people or in the mind of an unstable individual, emotion can lead to deadly events. There but for the grace of fortune, circumstance and effective social institutions go you and I. Instead of constructing a feel-good fantasy about the innate goodness of most people and all animals, we should strive to better understand ourselves, the good parts along with the bad.

—Ms. Goodall has directed the scientific study of chimpanzee behavior at Gombe Stream National Park in Tanzania since 1960. Mr. Wrangham is the Ruth Moore Professor of Biological Anthropology at Harvard University. Mr. Peterson is the author of "Jane Goodall: The Woman Who Redefined Man."

Gross inflows, financial booms and crises. By Cesar Calderon and Megumi Kubota

Gross inflows, financial booms and crises. By Cesar Calderon and Megumi Kubota
World Bank Blogs, Wed, Jan 2nd, 2013
http://blogs.worldbank.org/allaboutfinance/gross-inflows-financial-booms-and-crises

Favorable growth prospects and higher asset returns in emerging market economies have been led to a sharp increase in flows of foreign finance in recent years. Massive inflows to the domestic economy may fuel activity in financial markets and — if not properly managed — booms in credit and asset prices may arise (Reinhart and Reinhart, 2009; Mendoza and Terrones, 2008, 2012). In turn, the expansion of credit and overvalued asset prices have been good predictors not only of the current financial crises but also past ones (Schularick and Taylor, 2012; Gourinchas and Obstfeld, 2012).

In a recent paper, Megumi Kubota and I synthesized both strands of the empirical literature and examine whether gross private inflows can predict the incidence of credit booms — and, especially, those financial booms that end up in a systemic banking crises.¹  More specifically, our paper finds that surges gross private capital inflows can help explain the incidence of subsequent credit booms — and, especially those financial booms that are followed by systemic banking crises. When looking at the predictive power of capital flows, we argue that not all types of flows behave alike. We find that gross private other investment (OI) inflows robustly predict the incidence of credit booms — while portfolio investment (PI) has no systematic link and FDI  surges will at best mitigate the probability of credit booms. Consequently, gross private OI inflows are a good predictor of credit booms.

Our paper evaluates the linkages between surges in gross private capital inflows and the incidence of booms in credit markets. In contrast to previous research papers in this literature: (i) we use data on gross inflows rather than net inflows; and, (ii) we use quarterly data for 71 countries from 1975q1 and 2010q4 instead of annual frequency. In this context, we argue that the dynamic behavior of capital flows and credit markets along the business cycle is better captured using quarterly data.² As a result, we can evaluate more precisely the impact on credit booms of (the overall amount and the different types of) financing flows coming from abroad. On the other hand, we are more interested the impact on credit markets of investment inflows coming from foreign investors. Using information on net inflows — especially since the mid-1990s for emerging markets — would not allow us to appropriately differentiate the behavior of foreign investors from that of domestic ones and it may provide misleading inference on the amount of capital supplied from abroad (Forbes and Warnock, 2012).³

Credit booms are identified using two different methodologies: (a) Mendoza and Terrones (2008), and (b) Gourinchas, Valdés and Landarretche (2001) — also applied in Barajas, Dell’Ariccia, and Levchenko (2009). Moreover, we look deeper into credit boom episodes and differentiate bad booms from those that booms that may come along with a soft landing of the economy. In general, the literature finds that credit booms are not always followed by a systemic banking crisis — see Tornell and Westermann (2002) and Barajas et al. (2009). For instance, Calderón and Servén (2011) find that only 4.6 percent of lending booms may end up in a full-blown banking crisis for advanced countries whereas its probability is 8.3 and 4.6 percent for Latin America and the Caribbean (LAC) and non-LAC emerging markets. Those credit booms that end up in an episodes of systemic banking crisis are denoted as “bad” credit booms — see Barajas et al. (2009).

Our panel Probit regression shows that gross private capital inflows are a good predictor of the incidence of credit booms. This result is robust with respect to any sample of countries, any criteria of credit booms and any set of control variables. Next, the probability of credit booms is higher when the surges in capital flows are driven by gross OI inflows and, to a lesser extent, by increases in gross portfolio investment (FPI) inflows. Surges of gross foreign direct investment (FDI) inflows would, at best, reduce the likelihood of credit booms. The main conduit is gross OI bank inflows10 when we unbundle the effect of gross private OI inflows on credit booms. Third, we find that capital flows do explain the incidence of bad credit booms and that the overall impact is significantly positive and greater than the impact on overall credit booms.

Finally, the likelihood of bad credit booms is greater when surges in capital inflows are driven by increases in OI inflows. As a result, the overall positive impact of gross OI inflows significantly predicts an increase in credit booms although the evidence on the impact of gross FDI and FPI inflows is somewhat mixed. So far, the literature has shown that increasing leverage in the financial system and overvalued currencies are the best predictors of financial crisis (Schularick and Taylor, 2012; Gourinchas and Obstfeld, 2012). Moreover, our findings suggest that surges in capital flows (especially, rising cross-border banking flows) are also a good indicator of future financial turmoil.

References
Barajas, A., G. Dell’Ariccia, and A. Levchenko, 2009.  “Credit Booms: the Good, the Bad, and the Ugly.” Washington, DC: IMF, manuscript
Calderón, C., and M. Kubota, 2012. “Gross Inflows Gone Wild: Gross Capital inflows, Credit Booms and Crises.” The World Bank Policy Research Working Paper 6270, December.
Calderón, C., and M. Kubota, 2012. “Sudden stops: Are global and local investors alike?” Journal of International Economics 89(1), 122-142
Calderón, C., and L. Servén, 2011. “Macro-Prudential Policies over the Cycle in Latin America.” Washington, DC: The World Bank, manuscript
Forbes, K.J., and F.E. Warnock, 2012. “Capital Flow Waves: Surges, Stops, Flight, and Retrenchment.” Journal of International Economics 88(2), 235-251
Gourinchas, P.O., and M. Obstfeld, 2012. “Stories of the Twentieth Century for the Twenty-First.” American Economic Journal: Macroeconomics 4(1), 226-265
Gourinchas, P.O., R. Valdes, and O. Landerretche, 2001. “Lending Booms: Latin America and the World.” Economia, Spring Issue, 47-99.
Mendoza, E.G., and M.E. Terrones, 2008. “An anatomy of credit booms: Evidence from macro aggregates and micro data.” NBER Working Paper 14049, May
Mendoza, E.G. and M.E. Terrones, 2012. “An Anatomy of Credit Booms and their Demise,” NBER Working Paper 18379, September.
Reinhart, C.M., and V. Reinhart, 2009. “Capital Flow Bonanzas: An Encompassing View of the Past and Present.” In: Frankel, J.A., and C. Pissarides, Eds., NBER International Seminar on Macroeconomics 2008. Chicago, IL: University of Chicago Press for NBER, pp. 9-62
Rothenberg, A., Warnock, F., 2011. “Sudden flight and true sudden stops.” Review of International Economics 19(3), 509-524.
Schularick, M., and A.M. Taylor, 2012. “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008.” American Economic Review 102(2), 1029–1061

______________________
¹ Read Working Paper.
² Rothenberg and Warnock (2011), Forbes and Warnock (2012) and Calderón and Kubota (2012) already provide a more accurate analysis of extreme movement in (net and gross) capital flows using quarterly data.
³ The “two-way capital flows” phenomena cannot be identified using net inflows.

From "Weiwei-isms." By Ai Weiwei

Selection from "Weiwei-isms," by Ai Weiwei. Edited by Larry Warsh. Princeton University Press, 152 pp, ISBN-13: 978-0691157665

Living in a system under the communist ideology, an artist cannot avoid fighting for freedom of expression. You always have to be aware that art is not only a self-expression but a demonstration of human rights and dignity. To express yourself freely, a right as personal as it is, has always been difficult, given the political situation.—NY Arts, March-April 2008

Tips on surviving the regime: Respect yourself and speak for others. Do one small thing every day to prove the existence of justice.—Twitter, Aug. 6, 2009

Choices after waking up: To be true or to lie? To take action or be brainwashed? To be free or be jailed? —Twitter, Sept. 4, 2009

No outdoor sports can be more elegant than throwing stones at autocracy; no melees can be more exciting than those in cyberspace. —Twitter, March 10, 2010

Nothing can silence me as long as I am alive. I don't give any kind of excuse. If I cannot come out [of China] or I cannot go in [to China] this is not going to change my belief. But when I am there, I am in this condition: I see it, I see people who need help. Then you know, I just want to offer my possibility to help them.—The Paley Center for Media, March 15, 2010

The officials want China to be seen as a cultured, creative nation, but in this anti-liberal political society everything outside the direct control of the state is seen as a potential threat.—CNBC.com, May 12, 2010

During my detention, they kept asking me: Ai Weiwei, what is the reason you have become like this today? My answer is: First, I refuse to forget. My parents, my family, their whole generation and my generation all paid a great deal in the struggle for freedom of speech. Many people died just because of one sentence or even one word. Somebody has to take responsibility for that. —Der Spiegel, Nov. 21, 2011

In a society like this there is no negotiation, no discussion, except to tell you that power can crush you any time they want—not only you, your whole family and all people like you.—Financial Times, Feb. 24, 2012

China might seem quite successful in its controls, but it has only raised the water level. It's like building a dam: It thinks there is more water so it will build higher. But every drop of water is still in there. It doesn't understand how to let the pressure out. It builds up a way to maintain control and push the problem to the next generation. —Guardian, April 15, 2012

I will never leave China, unless I am forced to. Because China is mine. I will not leave something that belongs to me in the hands of people I do not trust.—Reuters, May 29, 2012

Brookings: The Exaggerated Death of the Middle Class

The Exaggerated Death of the Middle Class. By Ron Haskins and Scott Winship
Brookings, December 11, 2012
http://www.brookings.edu/research/opinions/2012/12/11-middle-class-haskins-winship?cid=em_es122712

Excerpts:

The most easily obtained income figures are not the most appropriate ones for assessing changes in living standards; those are also the figures that are often used to reach unwarranted conclusions about “middle class decline.” For example, analysts and pundits often rely on data that do not include all sources of income. Consider data on comprehensive income assembled by Cornell University economist Richard Burkhauser and his colleagues for the period between 1979—the year it supposedly all went wrong for working Americans—and 2007, before the Great Recession.

When Burkhauser looked at market income as reported to the Internal Revenue Service (IRS), the basis for the top 1 percent inequality figures that inspired Occupy Wall Street, he found that incomes for the bottom 60 percent of tax filers stagnated or declined over the nearly three-decade period. Incomes in the middle fifth of tax returns grew by only 2 percent on average, and those in the bottom fifth declined by 33 percent.

Things appeared somewhat better when Burkhauser looked at the definition of income favored by the Census Bureau which, unlike IRS figures, includes government cash payments from programs like Social Security and welfare, and looks at households rather than tax returns.

Still, the income of the middle fifth only rose by 15 percent over the entire three decades, much less than 1 percent per year. The Census Bureau reports that from 2000 to 2010, the income of the middle fifth actually fell by 8 percent. With numbers like these, it’s understandable why so many people think the American middle class is under threat and in decline.

But there are three reasons why even the Census Bureau figures are deceiving. The size of U.S. households, which has been declining, is not taken into account. The figures ignore the net impact on income of government taxes and non-cash transfers like food stamps and health insurance, which benefit the poor and middle class much more than richer households, and the value of health insurance provided by employers is also left out.

Burkhauser and his colleagues show that if these factors are taken into account, the incomes of the bottom fifth of households actually increased by 26 percent, rather than declining by 33 percent. Those of the middle fifth increased by 37 percent, rather than by only 2 percent. There is no disappearing middle class in these data; nor can household income, even at the bottom, be characterized as stagnant, let alone declining. Even after 2000, estimates from the Congressional Budget Office (CBO) show the bottom 60 percent of households got 10 percent richer by 2009, the most recent year available.


Making sense of income trends
Aside from the brighter picture presented by the Burkhauser and CBO analyses, there is a more complicated trend emerging in the United States. Four factors, both inside and outside the market, explain those trends.

The first market factor affecting middle-class income is a longtime trend of low literacy and math achievement in U.S. schools, which partially explains why conventional analyses of income show stagnation and decline. Young Americans entering the job market need skills valuable in a modern economy if they expect to earn a decent wage. Education and technical training are key to acquiring these skills. Yet the achievement test scores of children in literacy and math have been stagnant for more than two decades and are consistently far down the list in international comparisons.

It is true that African American and Hispanic students have closed part of the gap between themselves and Caucasian and Asian students; but the gap between students from economically advantaged families and students from disadvantaged ones has widened substantially—by 30 to 40 percent over the past 25 years.1

In a nation committed to educational equality and economic mobility, the income gap in achievement test scores is deeply problematic. Far from increasing educational equality as an important route to boosting economic opportunity, the American educational system reinforces the advantages that students from middle-class families bring with them to the classroom. Thus, the nation has two education problems that are limiting the income of workers at both the bottom and middle of the distribution: the average student is not learning enough, compared with students from other nations, and students from poor families are falling further and further behind.

It is difficult to see how students with a poor quality of education will be able to support a family comfortably in our technologically advanced economy if they rely exclusively on their earnings.

The second market factor is the increasing share of our economy devoted to health care. According to the Kaiser Foundation, employer-sponsored health insurance premiums for families increased 113 percent between 2001 and 2011. Most economists would say that this money comes directly out of worker wages. In other words, if it weren’t for the remarkable increase in the cost of health care, workers’ wages would be higher. When the portion of market compensation received in the form of health insurance is ignored in conventional analyses, income gains over time are understated.

Turning to non-market factors, marriage and childbearing increasingly distinguish the haves and have-nots.

Families have fewer children, and more U.S. adults are living alone today than in the past. As a result, households on average are better off since there are fewer mouths to feed, regardless of income. At the same time, single parenthood has grown more common, thereby increasing inequality between the poor and the middle class. Female-headed families are more than four times as likely to be in poverty, and children from these families are more likely to have trouble in school as compared with children in married-couple families. The increasing tendency of similarly educated men and women to marry each other also contributes to rising inequality.

The most important non-market factor is the net impact of government taxes and transfer payments on household income. The budget of the U.S. government for 2012 is $3.6 trillion. About 65 percent of that amount is spent on transfer payments to individuals. The biggest transfer payments are: $770 billion for Social Security, $560 billion for Medicare, $262 billion for Medicaid, and nearly $100 billion for nutrition programs. In addition to these federal expenditures, state governments also spend tens of billions of dollars on programs for low-income households. Almost all of the over $1 trillion in state and federal spending on means-tested programs (those that provide benefits only to people below some income cutoff) goes to low-income households.

Thus, taking into account the progressive nature of Social Security and Medicare benefits, the effect of government expenditures is to greatly increase household income at the bottom and reduce economic inequality.

Similarly, federal taxation—and to a lesser extent state taxation—is progressive. Americans in the bottom 40 percent of the income distribution pay negative federal income taxes because the Earned Income Tax Credit and the Child Tax Credit actually pay cash to millions of low-income families with children.

IRS data on incomes incorporate only the small fraction of transfer income that is taxable. Census data includes all cash transfer payments but leaves out non-cash transfers—among which Medicaid and Medicare benefits are the most important—and taxes.

The bottom line is that market income has grown, and government programs have greatly increased the well-being of low-income and middle-class households. The middle class is not shrinking or becoming impoverished. Rather, changes in workers’ skills and employers’ demand for them, along with changes in families’ size and makeup, have caused the incomes of the well-off to climb much faster than the incomes of most Americans.

Rising inequality can occur even as everyone experiences improvement in living standards.

Even so, unless the nation’s education system improves, especially for children from poor families, millions of working Americans will continue to rely on government transfer payments. This signals a real problem. Millions of individuals and families at the bottom and in the middle of the income distribution are dependent on government to enjoy a decent or rising standard of living. While the U.S. middle class may not be shrinking, the trends outlined above make clear why this is no reason for complacency. Today’s form of widespread dependency on government benefits has helped stem a decline in income, but far better would be to have more people earning all or nearly all their income through work. Getting there, though, will require deeper reforms in the structure of the U.S. education system.

---
1 Sean F. Reardon, Wither Opportunity? Rising Inequality and the Uncertain Life Chances of Low-Income Children (New York: Russel Sage Foundation Press, 2001).

Smarter Ways to Discipline Children

Smarter Ways to Discipline Children. By Andrea Petersen
Research Suggests Which Strategies Really Get Children to Behave; How Timeouts Can Work BetterWSJ, December 24, 2012
http://online.wsj.com/article/SB10001424127887323277504578189680452680490.html

When it comes to disciplining her generally well-behaved kids, Heather Henderson has tried all the popular tricks. She's tried taking toys away. (Her boys, ages 4 and 6, never miss them.) She's tried calm explanations about why a particular behavior—like hitting your brother—is wrong. (It doesn't seem to sink in.) And she's tried timeouts. "The older one will scream and yell and bang on walls. He just loses it," says the 41-year-old stay-at-home mother in Syracuse, N.Y.

What can be more effective are techniques that psychologists often use with the most difficult kids, including children with attention deficit hyperactivity disorder and oppositional defiant disorder. Approaches, with names like "parent management training" and "parent-child interaction therapy," are backed up by hundreds of research studies and they work on typical kids, too. But while some of the approaches' components find their way into popular advice books, the tactics remain little known among the general public.

The general strategy is this: Instead of just focusing on what happens when a child acts out, parents should first decide what behaviors they want to see in their kids (cleaning their room, getting ready for school on time, playing nicely with a sibling). Then they praise those behaviors when they see them. "You start praising them and it increases the frequency of good behavior," says Timothy Verduin, clinical assistant professor of child and adolescent psychiatry at the Child Study Center at NYU Langone Medical Center in New York.

This sounds simple, but in real life can be tough. People's brains have a "negativity bias," says Alan E. Kazdin, a professor of psychology and child psychiatry at Yale University and director of the Yale Parenting Center. We pay more attention to when kids misbehave than when they act like angels. Dr. Kazdin recommends at least three or four instances of praise for good behavior for every timeout a kid gets. For young children, praise needs to be effusive and include a hug or some other physical affection, he says.

According to parent management training, when a child does mess up, parents should use mild negative consequences (a short timeout or a verbal reprimand without shouting).

Giving a child consequences runs counter to some popular advice that parents should only praise their kids. But reprimands and negative nonverbal responses like stern looks, timeouts and taking away privileges led to greater compliance by kids according to a review article published this month in the journal Clinical Child and Family Psychology Review.

"There's a lot of fear around punishment out there," says Daniela J. Owen, a clinical psychologist at the San Francisco Bay area Center for Cognitive Therapy in Oakland, Calif. and the lead author of the study. "Children benefit from boundaries and limits." The study found that praise and positive nonverbal responses like hugs and rewards like ice cream or stickers, however, didn't lead to greater compliance in the short term. "If your child is cleaning up and he puts a block in the box and you say 'great job,' it doesn't mean the child is likely to put another block in the box," says Dr. Owen.

But in the long run, regular praise does make a child more likely to comply, possibly because the consistent praise strengthens the parent-child relationship overall, Dr. Owen says. The article reviewed 41 studies looking at discipline strategies and child compliance.

Parents who look for discipline guidance often find conflicting advice from the avalanche of books and mommy blogs and the growing number of so-called parent coaches. (In 2011, 3,520 parenting books were published or distributed in the U.S., up from 2,774 in 2007, according to Bowker Books In Print database.)

"Many of the things that are recommended we know now to be wrong," says Dr. Kazdin, a leading expert on parent management training. "It is the equivalent of telling people to smoke a lot for their health."

Parents often torpedo their discipline efforts by giving vague, conditional commands and not giving kids enough time to comply with them, says Dr. Verduin, who practices parent-child interaction therapy. When crossing the street, "A bad command would be, 'be careful.' A good command would be 'hold my hand,' " he says. He also instructs parents to count to five to themselves after giving a child a directive, like, for example, "Put on your coat." "Most parents wait a second or two," he says, before making another command, which can easily devolve into yelling and threats.

The techniques are applicable to all ages, but psychologists note that starting early is better. Once kids hit about 10 or 11, discipline gets a lot harder. "Parents don't have as much leverage" with tweens and teens, says Dr. Verduin. "Kids don't care as much what the parents think about them."

Some parents try and reason with young children, which Dr. Kazdin says is bound to fail to change a kid's behavior. Reason doesn't change behavior, which is why stop-smoking messages don't usually work, Dr. Kazdin says. Overly harsh punishments also fail. "One of the side effects of punishment is noncompliance and aggression," he says.

Spanking, in particular, has been linked to aggressive behavior in kids and anger problems and increased marital conflict later on in adulthood. Still, 26% of parents "often" or "sometimes" spank their 19-to-35-month-old children, according to a 2004 study in the journal Pediatrics, which analyzed survey data collected by the federal government from 2,068 parents of young children.

At the Yale Parenting Center, psychologists have found that getting kids to "practice" temper tantrums can lessen their frequency and intensity. Dr. Kazdin recommends that parents have their kids "practice" once or twice a day. Gradually, ask the child to delete certain unwanted behaviors from the tantrum, like kicking or screaming. Then effusively praise those diluted tantrums. Soon, for most children, "the real tantrums start to change," he says. "From one to three weeks, they are kind of over." As for whining, Dr. Kazin recommends whining right along with your child. "It changes the stimulus. You will likely end up laughing," he says.

Researchers noted that not every technique is effective for every child. Some parents find other creative solutions that work for their kids.

Karen Pesapane has found yelling "pillow fight," when her two kids are arguing can put a halt to the bickering. "Their sour attitudes change almost immediately into silliness and I inevitably become their favorite target," said Ms. Pesapane, a 34-year-old from Silver Spring, Md., who works in fundraising for a nonprofit and has a daughter 10, and a son, 6.

Dayna Even has found spending one hour a day fully focused on her 6-year-old son, Maximilian, means "he's less likely to act out, he's more likely to play independently and less likely to interrupt adults," says the 51-year-old writer and tutor in Kailua, Hawaii.

Parents need to take a child's age into account. Benjamin Siegel, professor of pediatrics at the Boston University School of Medicine notes that it isn't until about age 3 that children can really start to understand and follow rules. Dr. Siegel is the chair of the American Academy of Pediatrics' committee that is currently reworking the organization's guidelines on discipline, last updated in 1998.

A case study in the dangers of the Law of the Sea Treaty

Lawless at Sea. WSJ Editorial
A case study in the dangers of the Law of the Sea Treaty.
The Wall Street Journal, December 24, 2012, on page A12
http://online.wsj.com/article/SB10001424127887324407504578187523862827016.html

The curious case of the U.S. hedge fund, the Argentine ship and Ghana is getting curiouser, and now it has taken a turn against national sovereignty. That's the only reasonable conclusion after a bizarre ruling this month from the International Tribunal for the Law of the Sea in Hamburg.

The tribunal—who knew it existed?—ordered the Republic of Ghana to overrule a decision of its own judiciary that had enforced a U.S. court judgment. The Hamburg court is the misbegotten child of the 1982 United Nations Convention on the Law of the Sea. Sold as a treaty to ensure the free movement of people and goods on the high seas, it was rejected by Ronald Reagan as an effort to control and redistribute the resources of the world's oceans.

The U.S. never has ratified the treaty, despite a push by President Obama, and now the solons of Hamburg have demonstrated the wisdom of that decision. While debates on the treaty have centered around the powers a country might enjoy hundreds of miles off its coast, many analysts have simply assumed that nations would still exercise control over the waters just offshore.

Now the Hamburg court has trampled local law in a case involving a ship sitting in port, and every country is now on notice that a Hamburg court is claiming authority over its internal waters.

Specifically, Hamburg ordered Ghana to release a sailing ship owned by the Argentine navy. On October 2, a subsidiary of U.S. investment fund Elliott Management persuaded a Ghanaian judge to order the seizure of the vessel. The old-fashioned schooner, used to train cadets, was on a tour of West Africa.

U.S. hedge funds don't normally seize naval ships, but in this case Elliott and the Ghanaian court are on solid ground. Elliott owns Argentine bonds on which Buenos Aires has been refusing to pay since its 2001 default. Elliott argues that a contract is a contract, and a federal court in New York agrees. Argentina had freely decided to issue its debt in U.S. capital markets and had agreed in its bond contracts to waive the sovereign immunity that would normally prevent lenders from seizing things like three-masted frigates.

To his credit, Judge Richard Adjei-Frimpong of Ghana's commercial court noted that Argentina had specifically waived its immunity when borrowing the money and that under Ghanaian law the ship could therefore be attached by creditors with a valid U.S. judgment registered in Ghana. He ordered the ship held at port until Buenos Aires starts following the orders of the U.S. court.

But in its recent ruling, which ordered Ghana to release the ship by December 22, the Hamburg court claimed that international law requires immunity for the Argentine "warship," as if Argentina never waived immunity and as if this is an actual warship. On Wednesday, Ghana released the vessel, and the ship set sail from the port of Tema for its trans-Atlantic voyage.

So here we have a case in which a small African nation admirably tried to adhere to the rule of law. Yet it was bullied by a global tribunal serving the ends of Argentina, which has brazenly violated the law in refusing to pay its debts and defying Ghana's court order. The next time the Senate moves to ratify the Law of the Sea Treaty, Ghana should be exhibit A for opponents.

Novel Drug Approvals Strong in 2012

Novel Drug Approvals Strong in 2012
Dec 21, 2012
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=208

Over the past year, biopharmaceutical researchers' work has continued to yield innovative treatments to improve the lives of patients. In fiscal year (FY) 2012 (October 1, 2011 – September 30, 2012), the U.S. Food and Drug Administration (FDA) approved 35 new medicines, keeping pace with the previous fiscal year’s approvals and representing one of the highest levels of FDA approvals in recent years.^[i] For the calendar year FDA is on track to approve more new medicines than any year since 2004.^[ii]

A recent report from the FDA highlights the groundbreaking medicines to treat diseases ranging from the very common to the most rare. Some are the first treatment option available for a condition, others improve care for treatable diseases.

Notable approvals in FY 2012 include:

• A breakthrough personalized medicine for a rare form of cystic fibrosis;
• The first approved human cord blood product;
• A total of ten drugs to treat cancer, including the first treatments for advanced basal cell carcinoma and myelofibrosis and a targeted therapy for HER2-positive metastatic breast cancer;
• Nine treatments for rare diseases; and
• Important new therapies for HIV, macular degeneration, and meningitis.

The number of new drugs approved this year reflects the continuing commitment of the biomedical research community – from biopharmaceutical companies to academia to government researchers to patient groups – to advance basic science and translate that knowledge into novel treatments that will advance our understanding of disease and improve patient outcomes.

Building on these noteworthy approvals, we look to the new year where continued innovation is needed to leverage our growing understanding of the underpinnings of human disease and to harness the power of scientific research tools to discover and develop new medicines.

To learn more about the more than 3,200 new medicines in development visit http://www.innovation.org/index.cfm/FutureOfInnovation/NewMedicinesinDevelopment.