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The jobs number today of 243,000 new jobs was great news, beating expectations, and bringing with it strong underlying data of increased hours worked, increased earnings and a drop in the average weeks of unemployment.

The asterisk to the report this month was a significant set of population revisions that happened over the past year, and concerns over people dropping out of the workforce.  As we outlined in our white paper, the labor force participation rate has become a major concern during the recovery, and this month was no exception.  The participation rate plummeted from 64 percent to 63.7 percent.

Demographic projections expect that participation rate to be at 65.3 percent.  If that full participation rate is the goal, our economy is “missing” 3.8 million workers, up from the 3.4 million we noted in the white paper.  The unemployment rate in that context has not budged at 10.4 percent.

Taking into account the population revisions of the past year, we now have a better view of the drop in the unemployment rate from 9.1 percent to 8.3 percent.  If the participation rate last January (64.2 percent) were the participation rate today, the unemployment rate would be 8.9 percent, instead of 8.3 percent, so most of the shift of the past year is due not to the improvement in the labor market, but the continued drop in participation in the labor force.

What does all of this tell us?  We know today the same thing we knew yesterday: the jobs trends are moving on the right direction, and they need to move in that direction faster.

If the participation rate does level off at its current rate, the President needs 231,000 jobs per month to get below 8 percent unemployment by Election Day.  If the participation rate continues its downward slide, that number would be much lower, but wouldn’t necessarily be good news.

The red flag all these numbers raise is the real risk of a structural problem in the labor force right now.  It is possible that we are now seeing the scars of three years of weak jobs numbers, with a significant portion of Americans falling into an “unemployable” category, the effects of which may last for years to come.

Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House.  Prior to joining HPS, Matt worked for McKinsey and Company.  He holds an MBA from MIT’s Sloan School of Management and a degree in economics from Dartmouth College.

For further analysis, Matt McDonald’s corresponding Client Note “Good News, At Last*” is available here.

By Tucker Warren, (202) 822-1205, twarren@hamiltonps.com 

In his State of the Union address last week, President Obama announced the creation of the Residential Mortgage-Backed Securities Working Group, a new task force intended to, in the Presidents words, “expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.” The President hopes this aggressive new effort will demonstrate a commitment to holding bankers accountable that will rally voters angry about Wall Street excess.  Questions remain however, about what the working group can ultimately accomplish that the array of commissions and task forces previously created to address the financial crisis would not have otherwise.

Why It Was Created

The motivation for creating the working group is probably as strongly rooted in the political dynamics of an election year as it is in law enforcement objectives. President Obama has faced growing criticism from the political left who find his efforts to rein in Wall Street woefully lacking. A recent HPS/YouGov poll found that the top two policy goals of Democratic voters are taxing the rich and regulating Wall Street. As illustrated by the larger themes of his recent State of the Union Address, the President has taken an increasingly populist course of late in an attempt to bolster flagging support from his base. The President’s mortgage fraud working group is in keeping with this broader populist turn.

As a tool to investigate and prosecute mortgage industry misdeeds, the new working group appears largely redundant. Since the 2008 financial crisis, multi-year investigations by the Senate Permanent Subcommittee on Investigations (PSI) and the Financial Crisis Inquiry Commission (FCIC) have compiled millions of documents, heard hundreds of witnesses, and held more than 20 days of public hearings.

A number of task forces have been established over the last three years, some of which are nearly indistinguishable from the working group. For example, in 2009 President Obama created the Financial Fraud Enforcement Task Force (FFETF) to coordinate federal and state efforts to prosecute mortgage fraud among other things.

In 2010, when the FCIC asked the Department of Justice (DOJ) about including state securities regulators and attorneys general in its fraud enforcement efforts, it said that the FBI’s Mortgage Fraud Task Force and Working Groups had “expanded the jurisdictional boundaries for law enforcement” and that “working together, the law enforcement agencies could share not only intelligence but had the ability to prosecute cases across state and federal prosecutive jurisdictions.” [Full Reply]

Despite these efforts, there has not been a single prosecution of a high-ranking Wall Street executive or major financial firm. As President Obama explained in a December 9, 2011 interview with Steve Kroft of 60 Minutes, “some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.” That fact remains unchanged.

Certainly the pursuit of any criminal and civil wrongdoing is appropriate and an investigative task force that includes the caliber of people involved in the working group must be taken seriously. Nevertheless, it is hard to see that this effort differs substantially from previous initiatives. Neither the evidence nor the people involved have changed. The only thing that has changed is the calendar.  It is now 2012, an election year.

What to Expect

The inclusion of New York Attorney General Eric Schneiderman, known for his “tough guy” reputation and aggressive efforts to win $25 billion in fines from banks, has created high expectations for the working group. The lofty expectations can in part be attributed to the potential application of state laws such as the Martin Act, a New York state law that offers more flexibility than federal securities law and exceeds the legal powers given to regulators in other states.

The application of state laws and the political climate in Washington may very well give the public the trial it has been yearning for. But the volume of information produced by previous investigations combined with the fact that federal and state authorities have been coordinating efforts since 2009 may mean that there is little legal basis for criminal prosecutions of mortgage industry executives. Reflecting President Obama’s comments on “60 Minutes,” Attorney General Eric Holder’s statement on Friday announcing the task force cautioned, “behavior that is unethical or reckless may not necessarily be criminal.”

In setting expectations for the Residential Mortgage-Backed Securities Working Group, one should consider that commissions and task forces in Washington have generally succeeded in making valuable contributions to the public dialogue, but have fallen short of the public’s lofty expectations.

Tucker Warren is a Managing Director at Hamilton Place Strategies and former Communications Director at the Financial Crisis Inquiry Commission. Hamilton Place Strategies’ clients include members of the financial services industry.

In lieu of our usual client note, this month, we are releasing a white paper previewing the year ahead for jobs and politics.

Key findings:

• There are over 3 million “missing” workers who should be in the labor force, but are not.
• If labor force participation were in line with demographic projections, the unemployment rate would be above 10 percent.
• The possibility of large numbers of people reentering the labor force makes it very difficult for the unemployment rate to fall below 8 percent by Election Day.

Briefings

In conjunction with this report, HPS is conducting a limited number of briefings on the analysis. If you are interested in scheduling a briefing, you can contact HPS at: (202) 822-1205.

Report

For unemployment projections and estimates of job growth to get unemployment down, you can access the full white paper here: http://bit.ly/xKWF0t

Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House.  Prior to joining HPS, Matt worked for McKinsey and Company.  He holds an MBA from MIT’s Sloan School of Management and a degree in economics from Dartmouth College.

Prior to joining HPS, Silverstein worked as an attorney at the law firm of Steptoe and Johnson and as a management consultant at the Boston Consulting Group. Earlier in his career, he served as the press secretary for former Democratic Congressman Tim Roemer of Indiana and as a producer for MSNBC’s Hardball with Chris Matthews.

“Rusty is a perfect fit for Hamilton Place Strategies,” said Managing Partner Tony Fratto. “His rare mix of high-level experience in law, business, and communications will provide unique and valuable insight to our clients.”

Silverstein received his bachelor’s degree in Government from Harvard College and his law degree from Harvard Law School. He is a native of Phoenix, Arizona and lives in Washington, DC with his wife, Julie, and their two children.

HPS works closely with clients and their attorneys to execute communications plans that support and reinforce a client’s legal strategy. This includes managing communications with journalists to ensure that the crisis is reported fairly and accurately, working with attorneys to ensure that the news media and public properly interpret legal statements and filings, and promoting the legal theory of the case in the public debate.

As attorneys, former presidential and congressional advisers, and consultants to Fortune 500 executives, the HPS Legal Crisis Communications practice team has responded to all manner of legal, political, and business crises. Whether it involves complex litigation, criminal investigations, or regulatory and legislative challenges, HPS is uniquely qualified to work on all legal crisis communications issues. Our professionals have expertise in financial regulations, government contracting, the Foreign Corrupt Practices Act, the Committee for Foreign Investment in the United States (CIFIUS), Congressional investigations, and many other areas.