Daniel Indiviglio
Daniel Indiviglio is a blogger and staff editor for the Atlantic Business Channel, where he provides insight, analysis and opinion on the intersection of business, finance, economics and politics. Some of his specific writing interests include: credit markets, regulation, monetary & fiscal policy, taxes, banking, trade, emerging markets and technology. Prior to joining the Atlantic, he wrote for Forbes. Before journalism, Daniel spent several years as an investment banker and consultant for financial services firms. Before that, he graduated from Cornell where he triple majored in economics, philosophy and physics. He resides in the Washington, D.C. metro area.
Recently by Daniel Indiviglio
Nov 6 2009, 4:15PM
Worrying About Bailout Banks' Brain Drain
For the past year, the bailout banks have been complaining that the compensation restraints that came along with their acceptance of government aid would cause their best employees to flee to greener pastures. Although we've begun to see some repots of that, Bloomberg has a more tangible one, explaining who some of the major beneficiaries have been: Barclays and Nomura. I don't think we can be particularly surprised, but should we care?
Nov 6 2009, 2:45PM
Why Did Savings Decline In The Third Quarter?
On Wednesday, I wrote about the odd observation that over the past year workers' hours have decreased while consumption spending has essentially been flat. One thing I noted was that savings have increased over the same period. One commenter, mgoodfel, requested a chart showing that decline. I added one, but in doing so noticed something kind of unexpected: savings suddenly decreased in the third-quarter of this year. What's going on here?
Nov 6 2009, 1:59PM
Guaranteeing Lower Borrowing Costs For Big Banks
As a part of the bank bailout, the government slapped federal guarantees on hundreds of billions of dollars in bonds issued by banks. This was above and beyond the direct capital infusions. The move was meant to calm investor fears in the banks' assets and provide more private capital to the struggling financial institutions. It worked, and they were seen as safer. Investors viewed them as so healthy, in fact, that big banks saved a great deal of money in borrowing costs. But the New York Times reports that a Congressional panel thinks this is a fishy situation. I find that reaction puzzling.
Nov 6 2009, 12:40PM
Fannie Seeks Another $15 Billion In Emergency Capital
Things at government sponsored owned mortgage giant Fannie Mae continued to deteriorate in the third-quarter. As a result, it's requested even more capital from the emergency fund set up by the Treasury. Its bailout's price tag now totals $60 billion, and there's no light at the end of the tunnel.
Nov 6 2009, 11:01AM
Should Stimulus Projects Create Jobs?
Well, yes. The chief purported basis for February's $787 billion stimulus bill was to reduce the ever growing number of Americans unemployed. Back then, it was a mere 7.6% in January. Now it has risen by more than one-third standing at 10.2% in October. An article today in the New York Times explains precisely why so much of the spending has been so ineffective: because it was aimed less at creating jobs and more at satisfying other goals.
Nov 6 2009, 9:25AM
U.S. Unemployment Jumps to 10.2%
U.S. unemployment leaped to 10.2% in October, from 9.8% in September, according to the Bureau of Labor Statistics. The U.S. economy lost 190,000 more jobs during the month, putting the number of unemployed Americans at 15.7 million. The 0.4% surge is highest the since May. Wall Street won't be happy either: it predicted the rate to increase modestly to 9.9%. October's losses push the unemployment rate into double digits for the first time since 1983, as it edges closer to the post-Great Depression high of 10.8% hit in 1982. I went through the report, looking for some glimmer of hope, but came up empty.
Nov 5 2009, 5:17PM
New Fannie Program Allows Troubled Homeowners To Rent
For months, copious bloggers and econo-pundants have suggested that underwater homeowners should be allowed rent their homes instead of foreclosing. Fannie Mae is finally listening. Sort of. It announced a new program today that would allow some struggling borrowers to rent their homes. But anyone interested in this program shouldn't get too excited: it's meant to be a temporary solution. I'll explain some details, and then pose some questions I still see as outstanding.
Nov 5 2009, 4:00PM
Should We Worry About An Asset Bubble?
Earlier this week, Nouriel Roubini had a column in the Financial Times warning that an asset bubble is forming. He asserts that investors are taking advantage of low interest rates and a weak dollar to speculate on assets, driving up prices. I think he's probably right. He worries, then, that this is forming yet another bubble. That might be true as well, but I need a little more convincing that this asset bubble will be as severe as Roubini appears to believe in the U.S.
Nov 5 2009, 2:37PM
Climate Bill Passes Senate Committee Without Republicans Or Baucus
The Senate Environment and Public Works Committee managed to clear their latest cap and trade proposal, which seeks a 20% cut in greenhouse gas emissions by 2020. But it did it so without any Republicans or Senator Max Baucus (D-MT) on board. Of course, Republicans and Democrats not agreeing isn't exactly shocking. But what I do find notable is the Republicans' rationale for not voting: economics.
Nov 5 2009, 12:45PM
October Unemployment Poll
Tomorrow a big economic measure will be announced: the national unemployment rate for October. As we have been doing over the past several months, we'd like to give Atlantic readers the opportunity to weigh in with their predictions for how the labor market fared last month. Vote below!
Nov 5 2009, 12:09PM
What Does Productivity Mean For Unemployment?
Generally, when U.S. workers are more productive that's a really good thing for the economy. It means that a higher GDP will result, as output per work hour will be higher. So this news today from the Bureau of Labor Statistics might sound great:
Nonfarm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009, the U.S. Bureau of Labor Statistics reported today. This was the largest gain in productivity since the third quarter of 2003, when it rose 9.7 percent.
That's a huge jump, but what does it mean in the broader context of unemployment?
Nov 5 2009, 10:29AM
When The Yankees Win, The Stock Market Doesn't
In case you went to bed early and haven't glanced at the sports page, the New York Yankees won their 27th title last night after beating the Philadelphia Phillies in the 6th game of the World Series. That's great news for fans of the Bronx Bombers, but should the market also cheer? According to some analysis from Bloomberg, history shows that stocks might have been better off if the Yanks lost.
Nov 4 2009, 5:52PM
Some Restaurants Wining For Profit
At a time when consumers are cutting back on unnecessary costs, one obvious victim stands out: wine heavily marked up by restaurants. Reuters has a sort of rambling article today about how two major restaurant chains, Morton's Steakhouse and California Pizza Kitchen, are bucking the trend of purchasing less wine and increasing their inventories. As someone who enjoys wine more than he should, I find this strategy interesting from a longer-term perspective, but wonder if restaurants have the right approach to capitalize on its wine-loving customers under current economic conditions.
Nov 4 2009, 3:20PM
Small Business Shielded From Sarbanes
The House Financial Service Committee today approved a measure seeking to stiffen fraud oversight by the Securities and Exchange Commission, so you might be surprised to hear that it watered down one antifraud measure in the process. The bill loosened Sarbanes-Oxley audit requirements for small business. Those regulatory changes were put into effect in 2002, as a response to the Enron and WorldCom debacles. Since then, business generally criticized the measure, saying it results in much higher auditor fees. You can debate whether the fraud protection Sarbanes-Oxley provides is worth the costs it imposes, but that those costs are too high for small business seems hard to dispute.
Nov 4 2009, 1:21PM
How Are Consumers Spending So Much?
Could consumers be spending more than they should be? Such a possibility would go against an often heard complaint by economists that Americans aren't spending enough and consequently exacerbating the recession. This is the basis for the so-called "paradox of thrift," which says that when people save during a recession, it makes matters worse because their lack of spending hurts the economy. While I understand that logic, I've railed against the idea that consumers should be spending more, because they just don't have the money to responsibly spend more. University of Chicago economist Casey B. Mulligan presents a fascinating chart that implies that the common complaint I've noted might be misguided.
Nov 4 2009, 11:27AM
AT&T Sues Verizon Over Map Ad
In what may be an ill-advised move, AT&T has decided to sue Verizon over its television commercial that shows AT&T's 3G data coverage as paltry and Verizon's as robust. But AT&T isn't really disputing that fact. Instead, it's complaining that Verizon is falsely representing the sparse AT&T 3G map as it's more general data coverage map, which would include its slower, non-3G, data speeds. As far as I can see, that's not at all what Verizon is doing.
Nov 4 2009, 10:19AM
What To Expect Today From The Fed
Since yesterday, the Federal Open Market Committee has been meeting. Oh, to be a fly on the wall at the Fed. Instead of the full picture of the Committee's hopes and fears for the economy, their usual several paragraph statement will be released this afternoon for market movers and reporters to overanalyze. As the months progress, these statements should become increasingly interesting, as eventually the Fed will have to begin tightening monetary policy. But I don't expect much of that this month or any indication that it intends to raise interest rates in the near future. At least, I hope.
Nov 3 2009, 5:12PM
A Targeted First-Time Home Buyers' Credit
I just stumbled over a strong argument in the Washington Post against renewing the first-time home buyers' credit, put forth by the Baseline Scenario blog's Simon Johnson and James Kwak. I've argued in favor of the credit but believe it should remain isolated to first-time buyers. Johnson and Kwak have some valid criticisms, but I think there might still be ways to fix the credit and largely shield it from their worries.
Nov 3 2009, 2:47PM
Why Is Britain Only Breaking Up Some Big Banks?
The Atlantic Wire reports that various economists and econo-pundits are applauding Great Britain's decision to break up some of its largest banks, which include Royal Bank of Scotland, Lloyds Banking Group and Northern Rock. I think whether banks should be broken up is a complicated question, probably best considered from antitrust and systemic regulation standpoints. With that said, there's something about Britain's actions here that really bother me: discrimination.
Nov 3 2009, 2:11PM
Overanalyzing Buffett's Burlington Northern Purchase
Each morning, while getting ready for work, I enjoy four egg hard-boiled egg whites, black pepper, a multivitamin and CNBC. Today, their commentators were going on and on about billionaire value investor Warren Buffett's decision to buy up all of Burlington Northern Santa Fe railroad. I couldn't help but picture Buffett like a big kid who just wants a $44 billion train set to play with. But seriously, it's a pretty big acquisition. His rationale? He calls it an "all-in wager on the economic future of the United States." That makes sense, but let's not overanalyze this statement.
Nov 3 2009, 1:24PM
Paying For Access To Your Credit History
The New York Times today has an article about freecreditreports.com. You've probably seen their commercials, which feature actors who sing songs about how bad their life is since their identity was stolen. Though advertised as free, the company's ultimate goal is to lure unsuspecting consumers to pay for its credit monitoring service, so apparently the FTC worries that its tactics are misleading. That may be true, but I have a different concern.
Nov 3 2009, 11:30AM
Goldman's Attempt To Buy Fannie's Tax Credits
Yesterday, the Wall Street Journal reported that Goldman Sachs is attempting to buy tax credits from Fannie Mae, the mortgage giant put into a government conservatorship last year to avoid its failure. Fannie qualifies for lots of government tax credits for its efforts to secure housing for low income Americans. But since turning a profit isn't in the cards for Fannie this year, it can't use the credit to offset taxes: you don't pay taxes on a loss. Goldman Sachs, however, has plenty of profit. So it would love to offset some of its huge tax bill. The Treasury may balk. I have a few thoughts.
Nov 2 2009, 5:47PM
Brookings Debunks Myths About U.S. Opportunity
In an article that appeared this weekend in the Washington Post, a few economics fellows of the Brookings Institution present five myths about U.S. opportunity. I found some of their conclusions pretty surprising -- not from an economics standpoint, but more because scholars from Brookings were making them. Their tone appears to be unusually conservative for a think tank that tends be characterized as left-leaning. The piece makes a lot of sense, and its recommendations are worth noting. Let's consider each myth.
Nov 2 2009, 3:59PM
Chrome And Firefox Up, Internet Explorer Down
Net Applications has released the internet browser usage statistics for October. While changes weren't dramatic, they do seem to indicate a continuing trend: more are using Chrome and Firefox, while fewer are using Microsoft Internet Explorer. Compared to September, Chrome and Firefox are up 0.4% and 0.3%, respectively, while IE is down a little over 1%.
Nov 2 2009, 3:21PM
$500 Billion Of Commercial Real Estate To Mature Soon
There was a Congressional subcommittee hearing today -- in Atlanta. The House Committee on Oversight and Government Reform's Domestic Policy Subcommittee addressed the residential and commercial real estate market in the Georgia metropolis. Sadly, the meeting was not on C-SPAN, but I managed to skim through some of the prepared remarks by more than a dozen witnesses from judges to economists to bankers. I was particularly interested to hear what those testifying had to say about commercial real estate, as I think that market will be one of the big business stories of 2010.
Nov 2 2009, 1:31PM
Manufacturing And Home Sales Bring Good News
Two reports released today on manufacturing and home sales appear to indicate that the U.S. economy may, in fact, be on the mend. Although the third quarter's 3.5% GDP growth appeared to indicate this, subsequent spending and wage data clouded the picture. These reports swing the pendulum back in the positive direction.
Nov 2 2009, 11:42AM
Clorox Profits From H1N1 Fear
Here's an amusing example of economics in action: Clorox's profit is up 23% in the third-quarter. Why would that be? Check out the news blurb from MarketWatch:
The bleach maker said profit was aided by sales of disinfectant wipes to combat the worldwide H1N1 flu virus, shipments of Hidden Valley salad dressing, and lower costs. These gains were offset by soft demand for Glad trash bags and promotional spending.
Let's dissect this, because it's a fascinating explanation of human behavior in action.
Nov 2 2009, 10:48AM
46% Watch DVR With Commercials
I love to use my DVR to fast-forward through commercials. In a one-hour show, I can knock out generally just under 20 minutes of advertisements. That means DVR makes TV watching around 30% more efficient. I can then use the saved time to do something useful or entertaining. According to a New York Times article today, not everyone has the same attitude as I do when it comes to skipping commercials. In fact, nearly half of DVR users let the advertisements play. While I found this shocking at first, I shouldn't have.
Oct 30 2009, 3:35PM
Samsung's Still Killing It
Back in July I noted how well Samsung was doing, despite the difficult economic environment. It's still tearing the cover off the ball. Its third-quarter profit tripled year-over-year. The quarter's net income of $3.1 billion is a new quarterly record for the company. And this all in the midst of one of the worst global recessions in recent memory.
Oct 30 2009, 1:49PM
The Stimulus Saved 650,000 Jobs? I'm Not Impressed.
Any minute now, recovery.gov will have a report that touts 650,000 jobs have been saved or created thus far by February's $787 billion stimulus package. In fact, the White House is already bragging about this on its blog. Am I the only person who's completely unimpressed?
Oct 30 2009, 12:53PM
Fallows On The Kindle-Nook eReader Battle
Over on his blog, The Atlantic's James Fallows has been doing a lot of writing recently about eReaders. Today, he compares and contrasts the Nook and Kindle. His analysis is both useful and interesting. I particularly liked his examination of the potential of each device's business model. Check it out here.
But that post is neither the beginning nor end of his eReader analyses. So be sure to check his blog periodically if you're interested in the subject.
Oct 30 2009, 11:57AM
New York City Still Financial Capital
Bloomberg reports on some poll results I find a little surprising: global financial professionals still pick New York City as the best place for financial services in the near-term. I have hypothesized that the City would fall from its pedestal because Manhattan bankers would pay the price for violating the trust of foreign investors who lost millions on U.S. investments. Moreover, I believed that the massive regulatory constraints that Washington was likely to place on Wall Street could cause it to lose its competitive edge. This poll says otherwise.
Oct 30 2009, 11:15AM
A Bailout For Pensions?
This recession has taken a toll on most investments. Even though the stock market has improved recently, it's no where near its 2007 highs. Real estate prices are also still quite low. Given all of that, it probably comes as no surprise that many pension funds are in a lot of trouble. As you might have guessed, the government wants to help.
Oct 30 2009, 10:09AM
Wages And Spending Disappoint
Anyone still celebrating yesterday's 3.5% U.S. GDP growth estimate for the third-quarter might want to take off their pointy party hats. Some new economic indicators out this morning aren't pretty. Wages are growing at a snail's pace, and consumer spending has fallen off a cliff. This data suggests that the economy might not be in nearly as good shape as the GDP number suggests.
Oct 29 2009, 6:04PM
Bair Criticizes New Regulatory Plan
Earlier, I finished analyzing the House's new plan to control systemic risk (.pdf). In doing so, I explained a few observations and worries. I didn't like how it assesses fees on healthy firms to pay for the resolution of those that fail. I also thought it gives a lot of power to the Treasury Secretary. Furthermore, I wondered why the Oversight Council seems to get so little responsibility. Apparently, I'm not the only one with these criticisms. Federal Deposit Insurance Corporation Chairwoman Sheila Bair agrees.
Oct 29 2009, 5:20PM
First-Time Home Buyer's Credit For Everyone?
It looks like the debate is heating up about whether to keep the $8,000 first-time home buyer's credit that expires at the end of November. I got press release e-mails today from Senate Banking Committee Chairman Christopher Dodd (D-CT) and Treasury Secretary Timothy Geithner both praising the credit's extension. I support the giving the credit a longer life, because I think that if the government is determined to continue to stimulate the economy, then shrinking the vast inventory of houses is a good way to help stabilize the real estate market. But oddly, a home buyer's credit extension might be opened up to far more than just first-time buyers.
Oct 29 2009, 4:15PM
Too Big To Fail, Part VIII: Some Final Words
Before (finally) setting aside the House's financial stability regulatory proposal (.pdf) that I've now spent seven eight posts analyzing, I'd like to provide some summarizing thoughts. (See the end of this post for links to the others.) Like with most drafts of legislation, there's some good, some bad and some ugly.
Oct 29 2009, 2:34PM
Too Big To Fail, Part VII: Resolution Authority
I'm nearly done tackling the financial stability regulation (.pdf) proposed this week by the House Financial Services Committee. Earlier, I wrote about the securitization provision. Yesterday, I covered a variety of topics as well (links at the bottom of this post). This might be my favorite part: the resolution authority. I've been calling for a non-bank financial firm resolution authority for months. I'm shocked to report that Congress didn't do too badly with this plan. Let's dig in.
Oct 29 2009, 11:31AM
Too Big To Fail, Part VI: Securitization Is Dead
Today, I resume my analysis of the Financial Stability Improvement legislation draft (.pdf) released on Tuesday. I wrapped up the "Financial Stability Improvement Act of 2009" portion of this yesterday, after considering the new oversight council, how systemically risky firms will be chosen, what heightened regulation will look like, capital requirements and a future emergency provision. Today, I'll probably just tackle two more sections -- securitization and the resolution authority. Then I'll summarize.
The securitization provision is incredible. If enacted as is it may be the beginning of the end of securitization.
Oct 28 2009, 6:12PM
Too Big To Fail, Part V: More Bailouts?
I'll end the day with one last post on the new Financial Stability Improvement Act of 2009 proposal (.pdf). But this hardly marks the end of my toils with the doc. There are at least a few more issues it addresses that I intend to tackle tomorrow including the resolution authority and securitization. Up to now, I've covered the Council, identifying risky firms, heightened regulation and capital requirements. This one will be quick. I found one section a little peculiar. I understood the spirit of this legislation to ensure that the government wouldn't have to bail out financial firms anymore. One part of the draft appears to contradict this principle.
Oct 28 2009, 5:31PM
Too Big To Fail, Part IV: Capital Requirements
And my trudging through the new Financial Stability Improvement Act of 2009 draft (.pdf) continues. So far today, I've covered the Council, how it identifies risky firms and the kind of heightened regulatory requirements those firms can expect. Next up: capital requirements. Although it offers up few specific quantitative details (that will be left to the Federal Reserve), the document has a lot to say about this subject.
Oct 28 2009, 4:25PM
Too Big To Fail, Part III: Heightened Regulation
I'm still reading through the House's new Financial Stability Improvement Act of 2009 proposal (.pdf). So far, I've looked at the Council and how it will identify firms. Next, I think it's important to look at what new requirements will be imposed on firms found systemically relevant.
Oct 28 2009, 2:56PM
Too Big To Fail, Part II: Who Are The Firms?
As I mentioned in my last post, I am poring over the new proposal (.pdf) out of the House Financial Services Committee to create a new framework for financial stability. Most of that means addressing the too big to fail problem. In this post, I'll specifically analyze how the new regulatory Council will (explained in my previous post) will evaluate which firms are systemically risky.
Oct 28 2009, 12:35PM
Too Big To Fail, Part I: Oversight Council
The new 'too big to fail' legislation is too big to analyze in one post. It would have to be several thousand words. But it's also too important to ignore. I don't think any other regulatory rules enacted will be as important to prevent future financial crises. So I am going to focus most of the day today on reading through the 253-page draft (opens .pdf) released yesterday, titled the Financial Stability Improvement Act of 2009. I'll provide some highlights and analysis from the major sections in separate posts. I'll start with the proposed Financial Services Oversight Council.
Oct 28 2009, 11:00AM
Let GMAC Fail
Oct 27 2009, 5:30PM
Another Way AIG's Bailout Gave Taxpayers A Raw Deal
At this point, I don't think that many doubt that taxpayers are generally not on the better end of the deal when it comes to government bailouts. Still, an article today on Bloomberg accentuates this belief. It explains how the New York Federal Reserve gave banks that had credit default swaps (CDS) with AIG 100% par value to retire the derivatives, essentially ignoring the market value. This is disturbing for a few reasons.
Oct 27 2009, 4:01PM
Washington Gets Serious About Tax Havens
The House Ways and Means Committee and Joint Committee on Taxation today introduced the Foreign Account Tax Compliance Act of 2009. The bill intends to close loopholes that allow foreign assets to be hidden from the Internal Revenue Service. The White House also supports the measure. This new legislation is coincidental to the post I wrote earlier about the IRS ramping up its staff to investigate tax evasion by wealthy individuals. It seems this must be 'make sure the rich pay their taxes' week in Washington. If it passes, this bill would make it more difficult to avoid paying taxes by using fancy offshore trust schemes.
Oct 27 2009, 2:10PM
The WSJ's Odd Mobile Application Strategy
As Megan noted yesterday, the Wall Street Journal is one of the few newspapers that has gained print subscribers this year. That might be surprising, given that it's also one of the few newspapers that also charges for online content. But its latest strategy in demanding a subscription fee for its mobile news reader has me scratching my head. The full details are about as bizarre as the pricing scheme that Derek wrote about back in June by the Daily News of Rhode Island. I get that the Journal likes to get paid for content, but I don't understand why it's charging wsj.com subscribers even more to utilize the mobile app. And the details are even stranger.
Oct 27 2009, 11:50AM
New IRS Unit To Target The Rich
Yesterday, the Internal Revenue Service announced the creation of a new group that will spend its time chasing down wealthy taxpayers who attempt to shelter their earnings and assets from Uncle Sam's reach. Some people might think it's wrong to target high net worth individuals. They might argue that everyone should be treated equally by the IRS. I disagree. I think a new unit with this focus makes perfect sense.
Oct 27 2009, 10:49AM
Obama's Big $3.4 Billion Stimulus Announcement
Today, President Obama will tout $3.4 billion in government grants for projects to improve the nation's infrastructure for electrical transmission. The initiative is a pretty good use of a portion of the $787 stimulus package passed back in February. I just wonder: what took them so long?
Oct 26 2009, 5:09PM
Detroit Defines A Bad Real Estate Market
You might wonder if there's an easy way to identify a really bad real estate market. Detroit can help. How about when you can't auction houses off with a starting bid of $500? Yep, that's pretty bad. We all know that things are truly awful in Detroit, but this answers the question: just how bad?
Oct 26 2009, 3:22PM
Is Insider Trading Okay?
Perhaps one of the most well-known and highly publicized white collar crimes is insider trading. It was the basis for Oliver Stone's famous movie Wall Street. It was even part of what sent America's favorite homemaking expert Martha Stewart to prison.* So it might come as a surprise that some would argue to make insider trading legal. Reasons for doing so were outlined this weekend in a Wall Street Journal op-ed by Donald J. Boudreaux, Professor of Economics at George Mason University. Some of his arguments are quite compelling. I still think, however, the potential harm outweighs the benefits he suggests.
Oct 26 2009, 1:40PM
Dodd: Freeze Credit Card Rates
I just got a press release from the Senate Banking Committee saying that Chairman Christopher Dodd (D-CT) is introducing legislation that would immediately freeze credit card rates on existing balances. Last spring, Congress passed credit card regulation, which prevents banks from arbitrarily raising interest rates. Those rules, however, aren't in full effect until July 2010. As a result, card companies have been using the time cushion provided to jack up interest rates. Such a reaction should be surprising to no one, but the practice of card companies changing rates during this transition period should be permitted.
Oct 26 2009, 12:20PM
What If Your Mortgage Disappears?
It's a borrower's dream: the bank can't find your mortgage paperwork, so it can't prove its ownership of your home. As a result, a judge orders that the debt the bank claims you owe is erased, and the house is yours. While such a scenario seems fantasy, it happened in a federal bankruptcy court this month. Gretchen Morgenson reported on this in the New York Times this weekend. While she speculates that this could mark a new paradigm where borrowers have the advantage over negligent banks, I hope this is more the case of an activist judge that won't be made common practice.
Oct 26 2009, 10:48AM
Will The Stock Market's Rally Endure?
I've long been skeptical of the stock market. That's why, despite the pain that this recession caused the stock market in late 2008 and early 2009, I thought a deep market correction was long overdue. Now, of course, the Dow is soaring above 10,000 again, and life for stock brokers seems much better than it did back in March. But I don't buy it. According to an article on Bloomberg today, neither does economist Andrew Smithers, well-known for predicting the bear market in the early part of this decade.
Oct 23 2009, 4:20PM
Electric Car Will Increase Power Costs
Bloomberg has an article today that explains why California will likely face higher power costs as a result of a boom in plug-in electric cars. Although this is kind of obvious if you think about it for more than 15 seconds, it's still worth noting, because some people might find it initially counterintuitive. Even though electric cars will certainly lower gasoline costs, they will increase electric costs. The point extends well beyond just California as plug-ins become more broadly popular.
Oct 23 2009, 3:45PM
Better Compensation Restraints For Bailout Firms
Over on the Correspondents page, Richard A. Posner has a post about his take on Goldman's huge 2009 bonus pool. The following excerpt got me thinking:
So the argument goes: Without government aid then, no $20 billion-plus in bonuses for Goldman Sachs's employees in 2009? Maybe zero in bonuses, maybe indeed, no Goldman Sachs at all. Against that background, the bonuses seem egregious. It seems that the government drove a bad bargain when it bailed out Goldman, that it should have demanded a big chunk of Goldman's future profits.
How might the government have done better?
Oct 23 2009, 1:55PM
Britain's GDP Continues To Fall
Great Britain's Office for National Statistics announced (opens .pdf) today that the nation's GDP decreased by 0.4% in the third quarter. This marks the sixth straight quarter of contraction. That's the longest period of decline since the Office began keeping records in 1955. Here's what Britain's GDP picture looks like, from the official release:
Oct 23 2009, 12:12PM
Existing Home Sales Soared In September
The National Association of Realtors reported today that existing home sales jumped in September by 9.4% to an annualized rate of 5,570,000, seasonally adjusted. The rest of news regarding September's home sales was also largely positive, with inventory decreasing and prices decreasing less than usual. Does this indicate that we've finally reached the housing bottom? Maybe, but I'm not convinced a new housing sales boom will endure.
Oct 23 2009, 11:00AM
Paying For Hulu
If you enjoy watching TV shows for free on Hulu, then today's news won't make you very happy. News Corp., one of the co-owners of the site, has confirmed the rumor that it intends to start charging fees at some point. New Corp. Chairman Rupert Murdoch is a big fan of pay-for-content experiments, so I'd imagine he's pushing for this model and eager to see it in action. At this point details are still sketchy, because they probably haven't been finalized yet. I'm not convinced that charging for Hulu is the best idea, but if it's determined to go that route, how should they do it?
Oct 22 2009, 5:50PM
More Bad News For The Stuyvesant Town Project
The New York Court of Appeals today dealt another blow to Tishman Speyer Properties and BlackRock Inc. in the Stuyvesant Town-Peter Cooper Village fiasco. The Court ruled the firms are liable for damages to tenants for deregulating their rent while continuing to claim tax credits. Last week, I mentioned what a disaster the venture to convert the large Manhattan housing complex has turned out to be. Today's ruling makes matters even worse for the fate of the project.
Oct 22 2009, 5:20PM
A Synopsis Of Washington's Big Day For Pay
It was banker pay slashing day in the nation's capital. First, we have the final detail out explaining how Obama administration pay czar Kenneth Feinberg will limit compensation for bailout recipients. Separately, but singing in tune, the Federal Reserve released its pay guidelines for its 28 largest banks. I've written rather extensively on compensation limits, and addressed both topics before. The news is pretty much what I've been expecting, but it's worth taking a few minutes to assess how Wall Street compensation changed today.
Oct 22 2009, 1:10PM
First-Time Homebuyer Tax Credit Is Fraudster's Delight
The program that extends a tax credit to first-time home buyers might be propping up more than the housing market. According to a report just released by the Treasury, scammers are benefitting too. The report cites widespread fraud in the program meant to help the ailing housing market to heal more quickly by creating more buyer demand. This is particularly notable right now, since Congress must decide whether to extend the program past November. This report could hurt its chances.
Oct 22 2009, 12:23PM
AT&T's Wireless Customers Increase, But Profit Falls?
Today, AT&T reported that its third-quarter profit fell 1.2%, year-over-year. Yet, a few days ago, Apple reported a record quarter, due in large part to fantastic iPhone sales. I found this confusing. Since AT&T is the only U.S. iPhone service provider, how could its profit have fallen?
Oct 22 2009, 10:44AM
Businesses On Board With Windows 7
Oct 21 2009, 4:45PM
Disney's Keychest Technology
It sounds like Disney is getting into the entertainment technology game in a big way. The Wall Street Journal is reporting on a really cool new venture it's involved in, codename Keychest. It would seek to change the way people purchase entertainment. DVDs and Blu-rays would become obsolete. Here's how it would work:
Oct 21 2009, 3:46PM
Obama Pushes A Small Business Advantage
There are good stimulus measures and poor stimulus measures. The evidence appears to be mounting that many of those in February's $787 spending package were of the latter variety. They're taking too long to bring relief, and their impact is has been muted at best. But today, President Obama announced a stimulus measure that makes a lot of sense. He seeks to provide an incentive to community banks to provide small business loans.
Oct 21 2009, 3:15PM
Why Do We Encourage Corporate Debt?
I'm always pleased to hear genuinely good ideas. In perusing Felix Salmon's Reuters blog this morning, I came across a brilliant one. It's actually one that's being considered by Paul Volcker's tax policy panel. Coincidentally, I wrote about another of Volcker's ideas earlier from a New York Times article, which I wasn't as excited about. The one I like is mentioned by the Wall Street Journal, in an article with an entirely different focus. The particular part that I'm intrigued by would end interest tax deductions for corporations.
Oct 21 2009, 2:25PM
Business Spending Might Be The Answer
Back in August, I posed the question of whether businesses or consumers would lead the recovery. Since unemployment is so high, and it tends to lag other economic improvement, I find it hard to believe consumers will be the answer. But businesses seemed to be cutting back and having trouble of their own. With so many rosy third-quarter earnings reports, and the stock market soaring, the picture today looks different. Business investment appears to be a clearer answer for recovery.
Oct 21 2009, 12:50PM
Another Advantage For Hyundai
About a month ago, I wrote about how well Hyundai is weathering the economic storm, which is particularly severe in the auto space. Its market share is expanding faster than any other carmaker. Other than the fact that it produces cars for cheaper than its rivals, and has recently edged up on the quality ratings rankings, it has another ace in the hole: a weak domestic currency.
Oct 21 2009, 12:10PM
Can China Resurrect Luxury?
I read an article this morning that surprised me, but it shouldn't have. The Wall Street Journal reports that China is increasingly becoming a major player for luxury goods. Earlier this week I wrote about luxury retailers' troubles but better performance recently. It looks like you can add the Chinese to something they're optimistic about.
Oct 21 2009, 10:55AM
Volcker's Quest To Reinstate Glass-Steagall
The New York Times today has an article about former Federal Reserve Chairman Paul Volcker's crusade to bring back the Glass-Steagall Act. Obama isn't listening. The Act used to keep separate commercial and investment banking activities. The Gramm-Leach-Bliley Act of 1999 repealed it. Consequently "full service" banking behemoths like Citigroup and JP Morgan came to be, now allowed to participate in every financial activity imaginable. Many, including Volcker, believe this was a big mistake, and one of the causes of the financial crisis. I don't see it. At all.
Oct 20 2009, 5:42PM
What's Driving Up College Tuition?
Today, the College Board put out its annual report on college tuition trends. You might have thought that, since the economy has been experiencing some deflation, with a year-over-year decrease in the Consumer Price Index of 2.1% from July 2008 to July 2009, tuition and fees should also be decreasing. You'd be wrong. The nominal all-in college price tag, including tuition, fees, room and board, has increased by 4.3% and 5.9% for public and private universities, respectively. Of course, if inflation -- or really deflation for this past year -- is taken into account, those numbers look even worse. With that adjustment, the average price increased by 6.5% and 8.2% for public and private universities, respectively. What's going on here?
Oct 20 2009, 3:30PM
The Pay Czar Wants To Bridge The Gap
I found a statement today made by Obama administration pay czar Kenneth Feinberg extremely odd. According to ABC News, in a speech at a Washington, D.C. conference held by the National Association of Corporate Directors, he said:
I've learned about the incredible gap, the chasm between Wall Street perceptions and Main Street perceptions. It is a formidable chasm that I'm not sure can be bridged, although the law requires me to attempt to bridge that gap.
I think he might want to re-read his job description.
Oct 20 2009, 3:00PM
What Do Verizon's New Anti-iPhone Ads Mean For AT&T?
There's been a lot of press this week about Verizon's new anti-iPhone ads. The most notable is made on behalf of smartphones utilizing Google's new Android operating system. Some find this and other anti-iPhone ads bad, claiming they're ineffective. I hate them for another reason: they might indicate dashed hopes for iPhone users who thought Apple would utilize Verizon as an additional service provider, ending AT&T's exclusivity.
Oct 20 2009, 12:45PM
Banker Bonuses A Boon For NY and NYC
Bloomberg has a piece today that explains who else will benefit from the rise in banker bonuses. Sure, expensive steakhouses and pricey co-ops are celebrating. But another important beneficiary is New York City and state. This money could go a long way in helping the region, which is surely worried about budgets in the wake of this recession.
Oct 20 2009, 11:30AM
Are Bigger Banks Better?
Charles Calomiris thinks so. He's a professor of finance at Columbia Business School who penned an op-ed in today's Wall Street Journal arguing that efforts to shrink banks are misguided. I happen to be quite apprehensive about the notion of blindly breaking up banks. So I agree with Calomiris to a point, but I'm not entirely convinced by his arguments.
Oct 19 2009, 6:05PM
Luxury Spending Dispute
One of my favorite pastimes is noting news articles that appear to directly contradict one another, especially if they're from two big sources. Today I stumbled upon the following two headlines. The first was from Bloomberg on Friday:
Wealthy U.S. Shoppers Boost Spending 29%, Survey Says
This one was on WSJ.com today:
Luxury-Goods Sales Still Soft, Recovery Unlikely Before 2011
So who's right? Well, they both kind of are.
Oct 19 2009, 5:10PM
Obama Administration Announces New Housing Initiative
Back in late September, I wrote about the rumors of an Obama administration program seeking to provide financing and subsidies to promote mortgages to low- to moderate-income families. Today, it finally got around to announcing the project with Housing Finance Agencies (HFA). Reading the press release, my pessimistic analysis from back in September might have been too kind. It sounds like a disaster form all sides.
Oct 19 2009, 3:15PM
Exchanging Other Fees For Interchange
With consumer credit card reform having taken place last spring, businesses want their share of Congress' concern. Their cries are getting louder for action to be taken to limit interchange fees -- the cost imposed on businesses for credit card transactions. The Wall Street Journal has an article on interchange fees today. I can understand why businesses don't want to pay as much, as it's a huge expense. But the only alternative is for the cost to fall on consumers.
Oct 19 2009, 2:25PM
Commercial Mortgage Limits Not Enforced
I have written several times about the problems in the commercial real estate market. Although it differs from the residential mortgage market, it appears to have overheated as well. A Bloomberg article today casts some light on one of the reasons why. Regulators failed to enforce commercial real estate loan limits on banks. Luckily, I think this is a problem easily remedied going forward: enforce regulations!
Oct 19 2009, 12:30PM
Are Fannie And Freddie Worthless?
I just saw this news blurb via Bloomberg:
Keefe, Bruyette & Woods cut the price targets of federally controlled mortgage-finance companies Fannie Mae and Freddie Mac to zero today, saying the government needs to recapitalize the two and wipe out shareholders.
Interesting theory, but I think they underestimate the government's willingness to continue throwing good money after bad.
Oct 19 2009, 11:40AM
The Foreclosure Homeless Problem
This morning, the New York Times has a feature length article about how foreclosures have increased homelessness. Because homelessness is such an irresistible sensationalist topic for most journalists, I'm highly skeptical of most new stories about it. This article, however, did a fair job of mixing human interest stories with some studies done by homeless aid organizations. To the extent that this is a real problem, there might be some simple policy responses that could be considered.
Oct 16 2009, 3:45PM
How To Save The Dollar
The dollar is in something of a pickle these days. On one hand, it would benefit greatly if policymakers moved to close the deficit, increase interest rates and eliminate much of the U.S.'s national debt. On the other hand, the U.S. economy is in no position to stomach any of that in the near future. In the meantime, it looks as though the dollar is going to suffer from an inevitable decline. But what if there was some way to ease the market's fears about its future?
Oct 16 2009, 2:24PM
Obama Administration Worries About Commercial Real Estate
According to a new report, the Obama administration is beginning to sweat over problems in the commercial real estate market:
FOX Business has learned that President Obama has been briefed by his economic team on widespread concerns for commercial real estate loans, an issue many believe could trigger the next banking crisis.
The briefing occurred as many on Wall Street fear commercial mortgage-backed securities, commonly known as CMBS, will be the next set of loans to begin placing stress on banks' balance sheets.
Oct 16 2009, 1:27PM
Ticketmaster-Live Nation Update: DOJ Doesn't Like It Either
Oct 16 2009, 12:48PM
Floridians Attempting To Sue Their Way To Prosperity
I know Derek just wrote about how incredibly awful Florida's foreclosure problem is right now, but I thought I'd add a little more detail to better document its suffering. The real estate market there simply boggles the mind. Unemployment is also continuing to climb. So what are distressed Floridians doing? Suing whoever they can, of course.
Oct 16 2009, 11:16AM
Wal-Mart Takes On Bookstores
Amazon.com might be feeling a little paranoid these days -- it seems like everyone is trying to ruin its efforts to be the chief online book seller. First, we hear that internet behemoth Google is going to try to encroach on up some of its e-books market share. Today we find out that retail giant Wal-Mart hopes to compete with paper book sales through its website. The latter effort is particularly notable, since Wal-Mart's threat would extend well beyond just Amazon, to jeopardize the business of other book retailers.
Oct 16 2009, 10:40AM
New SEC Enforcement COO From... Goldman?
Somewhere Matt Taibbi just had an "Aha!" moment, or an aneurism. Apparently the Goldman-Washington conspiracy continues. Bloomberg reports that the Securities and Exchange Commission, probably the most major Wall Street watchdog, has hired a former Goldman employee to act as the Chief Operating Officer for its enforcement division. All of Madoff's former employees must have already busy.
Oct 15 2009, 5:47PM
Can MySpace Stage A Comeback?
There's an article today in the Wall Street Journal about the challenges facing social networking website MySpace. A modest goal, it seems, is to grow at all, much the less keep pace with its chief competitor Facebook. According to the article, it is trying to refocus its site by appealing to specific entertainment-driven audiences. Is that enough to stop the bleeding?
Oct 15 2009, 4:50PM
What Went Wrong In Stuyvesant Town?
I've noted that commercial real estate is feeling some serious pain these days, and so is New York City. But I'm still rather shocked that the enormous investment to revitalize Manhattan's Peter Cooper Village and Stuyvesant Town complex has been such an epic failure. How badly did the usually savvy Tishman Speyer Properties and BlackRock miscalculate that their cash reserve could be completely depleted by year's end?
Oct 15 2009, 3:20PM
Why Is The Treasury Pressuring Banks To Repay Bailout Cash?
Yesterday, I noted that Wall Street is likely to pay out a record amount of bonuses to its employees. As earnings reports come out, we're seeing some fantastic third quarters from banks like JP Morgan and Goldman Sachs. As a result, it might not seem surprising that the Treasury has begun urging banks to repay their bailout money, if they haven't already. Despite the recent success of some banks, I'm not convinced this is a wise move, and I worry its motivation is more political than practical.
Oct 15 2009, 1:47PM
Emissions And Economics
The Earth Policy Institute has a new update on its site this week that boldly proclaims: "U.S. Headed for Massive Decline in Carbon Emissions." (hat tip: Green, Inc.) I hope it's right! It bases its claim on some emissions data. This shows that over the past two years, carbon emissions in the U.S. have decreased dramatically. Yet, this got me thinking about something else that's decreased significantly over the past two years: economic activity. Is there a correlation?
Oct 15 2009, 12:30PM
Yet Another Social Security Problem
Most people who have some interest in U.S. politics or economics know that Social Security is a ticking time bomb. It seems like every year we hear time line revisions indicating its collapse will be sooner and sooner. Like a bomb, it's also highly volatile. It's one of those problems that everyone knows exists, but given the strength of the senior vote, virtually all politicians are too scared to even attempt to offer legitimate solutions.
But there's a new problem with Social Security, other than the path it's on, which has gotten some press recently. Unlike the larger issue, this one could be easily fixed -- assuming it is a real problem.
Oct 15 2009, 11:15AM
Get Excited For Microsoft Stores!
Have you been clamoring to play with Microsoft Windows 7 on a big screen? Or maybe you've been dying to try out Microsoft Access. Well, your wait is finally over: the Wall Street Journal reports today that Microsoft will be opening retail stores, in a clear nod to the Apple Stores' success. Microsoft is a little late to the game, but could these stores be a success? I just don't see it.
Oct 14 2009, 3:50PM
Wall Street's Record Bonuses Will Be Bigger Than They Appear
Yesterday, I wrote about how Goldman Sachs, in particular, is set to have an amazing year, which will include record bonuses. Today, the Wall Street Journal reports that the same can be said for the rest of Wall Street: its bonus pool will hit a new all-time record. As amazingly as this indicates banks have done, their employees will do even better.
Oct 14 2009, 2:45PM
The VAT's Public Perception
As Derek noted earlier, there's been a lot of talk lately in the wonkosphere about the possibility of a value-added tax (VAT). Liberals love the idea, because it would produce a lot more tax revenue. Conservatives like the idea, because they think it's fairer than a more progressive income tax. But not everybody likes the idea. In fact, everybody overwhelmingly hates it.
Oct 14 2009, 1:17PM
Housing Crisis Worse On The High End
I've written a lot about the plight of the rich in the current recession. Reuters has an article today explaining another way in which they're suffering. Their expensive houses are losing even more value than lower priced homes. That's making matters more troublesome those trying to sell pricey estates.
Oct 14 2009, 11:55AM
Geithner's Aides Have Wall Street Ties. So What?
Bloomberg has an article this morning that reads like a hard-hitting investigative journalism piece. It turns out they've uncovered that some of Treasury Secretary Timothy Geithner's aides earned millions of dollars working for Wall Street banks. Bloomberg might also be shocked to learn that former Treasury Secretary Hank Paulson actually was the CEO of Wall Street behemoth Goldman Sachs, and consequently surrounded himself with his Wall Street kin as well. The fact that Geithner has drawn some talent from Wall Street is not surprising, newsworthy or even bad.
Oct 14 2009, 10:45AM
The Subsidy Problem
Over on the New York Times' Economix blog, University of Chicago Economics Professor Casey B. Mulligan has a good post about how government subsidies go awry. In the piece, he considers the proposed job creation credit for business. It sure sounds like a great idea, until you think about how businesses will actually react to it.
Oct 13 2009, 5:23PM
The Best Kind Of Innovation
There has been a great deal of talk about financial innovation and whether all innovation must tangibly benefit society. I'm doubtful on that criterion, as I think that so long as society isn't negatively affected by that innovation, but someone finds it useful, then its okay with me. Meanwhile, I concede that it's ideal when innovation does clearly benefit society. Although it's not related to finance, in perusing Andrew Sullivan's blog earlier, he notes a new product that fits this lofty archetype perfectly. In Great Britain, a new lip gloss is being sold that contains a date rape drug detection kit. Sullivan calls it "genius," and I agree.
Oct 13 2009, 4:06PM
California's Sensible Mortgage Restraints
Earlier, I wrote about banks' absurd push to bring back interest-only mortgages. Subsequent to that, I read the delightful news that California is coming to its senses regarding mortgage origination. The Los Angeles Times reports that Gov. Schwarzenegger signed a number of new mortgage laws late last night. I'd like to highlight several of these new rules, which I think the entire nation should embrace.
Oct 13 2009, 2:40PM
Goldman Bonuses Astounding But Stylistically Legit
Andrew Ross Sorkin has a good column today about the public anger that will inevitably result when Goldman announces its bonus pool, which he says is estimated to be in the ballpark of $23 billion. He puts the number into perspective and explains that, even though the bonus pool is incredibly large, Goldman's compensation style is pretty much in line with what policymakers are calling for. I think this also illustrates a point I've made before: banks' bonus culture as a target for reform is a waste of Washington's time.
Oct 13 2009, 1:06PM
Banks Pushing Interest-Only Loans, Again?
Bloomberg reports:
Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co.
You might remember interest-only mortgages as one of the classic subprime ploys that blew up in banks' faces. Why are they going back down that road?
Oct 13 2009, 11:50AM
Multinationals Win Battle Over Tax Hike
A little over a month ago, I asked whether President Obama's proposed international tax changes would succeed. Last spring, the administration presented its idea to change tax rules, forcing multinational corporations to pay higher taxes. While the administration liked to characterize these changes as closing loopholes, I disagreed with that assessment, noting that they would seriously hurt U.S. corporations' international competitiveness and overall revenue. According to the Wall Street Journal, multinationals can breathe a sigh of relief, as the Obama administration has shelved the idea -- for now.
Oct 13 2009, 10:52AM
Disney Making Its Stores Magical
The New York Times has a fascinating front page story today about a new strategy by the Walt Disney Company. At a time when most retailers are pulling back, Disney has decided to pour a great deal of money into its retail stores in order to make them an experience that children will beg their parents to be a part of -- like mini-theme parks. They plan to do it by using the Apple Stores as their guide, pumped full of steroids pixie dust.
Oct 9 2009, 4:55PM
Hanging On Bernanke's Every Word
Every once in a while something happens in the market that makes me say, "Huh?" Today was one of those days. Treasury prices plummeted and the dollar strengthened. What caused such a day on Wall Street? Bankers were paying attention to a speech that Federal Reserve Chairman Ben Bernanke gave last night. They were paying a little too much attention if you ask me.
Oct 9 2009, 3:31PM
What Will Fewer Overdraft Fees Mean?
A few weeks back, Derek wrote a post about JP Morgan's and Bank of America's new overdraft rules. They will allow customers to opt out of being able to withdraw more than is in their checking account and not incur the fees that result. Fees for overdraft will also generally be lower. Since banks tend to follow one another, others will likely change their overdraft practices as well. Derek commented that this is excellent news for consumers. I think that's partially right: it's excellent news for some consumers. If you pay attention to the money in your checking account, and never would have attempted to draw more than you have, then it won't help you at all. In fact, when you think about it, these new rules might actually make checking more expensive for most consumers.
Oct 9 2009, 1:18PM
Oranges Further Squeeze Florida
I've been following Florida throughout the recession, partially because its economy is a fascinating example of a disaster, and partially because I've a native of the state with most of my family still down there. If you know anything about Florida, then you probably know that oranges are a pretty big deal down there. Oranges make up one of its biggest industries, so a great orange season could be one small bit of hope for the state, still ailing from its real estate market collapse. Unfortunately, the news today indicates that the orange crop won't help the troubled state. In fact, it will make matters worse.
Oct 9 2009, 12:00PM
Will The FHA Be Next In Line For A Bailout?
Anyone who follows the government's involvement in the mortgage industry with a skeptical eye should find it utterly unsurprising that the Federal Housing Authority (FHA) might be in trouble. The New York Times has an article today indicating that it may go the way of Fannie Mae and Freddie Mac and require a bailout. I think it could go either way, depending on its several factors.
Oct 9 2009, 11:00AM
Trade Gap Narrowing Shows The Value Of A Weak Dollar
Yesterday, I noted that Asia has been taking measures to keep the dollar strong. They have good reason to do so, as a strong dollar makes their goods cheaper, and consequently more attractive, to Americans. That news interacts interestingly with today's trade deficit data release. The U.S. trade gap unexpectedly narrowed in August by 3.6%, as U.S. exports increased, according to the Commerce Department. What's one reason why U.S. exports would increase? Of course, because of the weak dollar.
Oct 8 2009, 3:05PM
SEIU: Ken Lewis Should Not R.I.P.
Last week, many were shocked to hear that Ken Lewis, the embattled CEO of Bank of America, was resigning. Amidst lawsuits and virtually every man, woman and child in the U.S. questioning his judgment, he was surely looking forward to a pleasant retirement. As he wrote his goodbye letter he must have been thinking: you won't have Ken Lewis to kick around anymore. But one of the big labor lobbies, the Service Employees International Union (SEIU) doesn't want Lewis's retirement to be as pleasant as he might have imagined. They want Obama's compensation czar, Kenneth Feinberg, to seize his pension.
Oct 8 2009, 1:36PM
Oops. . . We Rejected Your Application Again
I've written a few times about banks and servicers struggling to modify mortgages for underwater homeowners in accordance with the Obama Administration's foreclosure prevention program. Is it incompetence? Is it a lack of resources? Is it a stubborn refusal to cooperate? In the case of some mortgages owned by now defunct Wachovia, it was something else: a computer glitch. Well that's embarrassing.
Oct 8 2009, 12:30PM
When To Worry About The Dollar
So there's been a lot of talk about the decline of the dollar over the past year. Yet, it's hard to know when you've really got a problem or just a lot of alarmists speaking in unison. (Though a lot of alarmists speaking in unison might be its own problem.) Some news out today might indicate that it's time to worry. How bad has the dollar's slide gotten? So bad that Asian central banks are intervening.
Oct 8 2009, 12:00PM
What's That? Legitimate Competition In Risk Evaluation?
Last month I cheered the news that the National Association of Insurance Commissioners wanted to wean insurance regulators off of the rating agencies. Today, there's more news that I would also like to applaud: one of the chief contenders to evaluate insurance investment risk is BlackRock Inc. The Wall Street Journal reports that the firm is in talks with regulators for job. I'd love to see this happen.
Oct 8 2009, 10:02AM
Britain Balks At Ticketmaster-Live Nation Merger
Ticket distributor Ticketmaster and concert promoter Live Nation have been hoping to merge. Britain's antitrust regulator objected today in a preliminary ruling. It believes the merger would severely limit competition and hurt consumers. I think it's right, and its decision is something of a no-brainer.
Oct 8 2009, 8:55AM
Stop Complaining About Credit
Today, there's yet another article agonizing over the lack of consumer credit activity in the U.S. Like so many other articles, this one from the Wall Street Journal attempts to frighten readers, implying that the economy can't recover if credit doesn't revert back to 2006-like levels. That's nonsense. The article's title reads, "Drought of Credit Hampers Recovery." That's inaccurate. A better title would be, "Drought of Credit Slows Recovery."
Oct 7 2009, 5:15PM
Fannie And Freddie To Prop Up Warehouse Lending
Just a week ago I breathed a sigh of relief hearing the news that government mortgage agencies Fannie Mae and Freddie Mac really appeared to be shrinking. It may have been a case of premature elation. The Wall Street Journal reports that Fannie and Freddie are beginning a new initiative to expand their reach into another aspect of the mortgage market: propping up warehouse lending for smaller banks.
Oct 7 2009, 4:00PM
Fed Doesn't Have To Release Names, Yet
Somehow I missed this news from yesterday, but thought it was still noting today, since I wrote about it back in August. At that time I grappled with the problem of the Federal Reserve being forced to release the names of banks that come to it for emergency loans. While it seems like this information should be made public in theory, in practice it threatens bank stability. The Fed lost a district court lawsuit, consequently requiring it to release those names. But this week a circuit court of appeals granted its request to temporarily postpone that release pending it losing the appeal.
Oct 7 2009, 2:40PM
Derivatives Regulation Misses The Mark
There was a hearing this morning held by the House Financial Services Committee titled, "Reform of the Over-the-Counter Derivative Market: Limiting Risk and Ensuring Fairness." Much of the discussion centered on Committee Chairman Barney Frank's (D-MA) proposal to regulate the derivatives market, which differs in significant ways from that offered by the Obama administration. I worry that proposed derivatives regulation misses the mark on a few levels.
Oct 7 2009, 12:15PM
Fed Worries About Commercial Real Estate
This summer, I noted that the commercial real estate market might be the next to sour. Separately, I mentioned that the Federal Reserve might want to think about that, since it has significant exposure to commercial real estate, given all of its efforts to save the financial industry. News out today indicates that the Fed is finally starting to worry about that market, but for a different reason: because banks aren't. Or at least, their loss reserves don't indicate that they're as concerned as they should be. Could this cause the same sort of financial crisis we saw last year spurred by residential mortgages?
Oct 7 2009, 10:47AM
Clear Channel's Future Looks Murky
The New York Post is reporting that Clear Channel Communications is having trouble getting loans from banks to help pay the interest on its current loans. Clear Channel is by far the largest radio station owner in the U.S. If these problems persist, it's rather difficult to imagine what would happen to radio.
Oct 6 2009, 5:05PM
Regulating Your In-Flight Water
With all the talk of financial regulation recently, it's nice to see things brought back to basics a little with some news about where regulation began: food. Earlier, Megan posted about regulating ground beef. Today there is additional news that airlines will now have to follow new water rules to ensure it's clean for drinking.
Oct 6 2009, 4:00PM
Could Czar's Salary Slashing Rush Repayment By Banks?
Earlier, I noted that Kenneth Feinberg, President Obama's pay czar, is seeking to defer a portion of take home pay for some bailout firm employees. I noted that this would be Feinberg's most aggressive move to date and that those employees will not be amused. There's one thing I forgot to mention: this could also potentially damage financial stability.
Oct 6 2009, 3:00PM
Rental Market Still Taking A Beating
Back in July, I wrote about the decline in rent prices. At that time the vacancy rate had hit a 22-year high. Bloomberg reports that in the third quarter it hit a 23-year high, rising to 7.8%, according to commercial real estate analyst Reis Inc. As I mentioned before, this might be a little surprising if you think that all of those troubled homeowners who face foreclosure will be forced to rent instead. But foreclosures do not appear to be propping up the rental market.
Oct 6 2009, 1:47PM
A Greener, Cheaper Winter
The Energy Information Administration provides some rather wonderful news today. We have something to look forward to this winter other than the holidays. Energy costs and carbon dioxide emissions will both be lower. That's enough to provide pretty much anyone with a little holiday cheer.
Oct 6 2009, 1:02PM
Hedge-Fund Bets On Hyperinflation
Several sources are reporting on hedge fund Hayman Advisors, L.P.'s latest letter to its clients (via The Pragmatic Capitalist), explaining its latest investment strategy. The hedge fund received attention for having made a killing as the housing bubble popped by betting against subprime mortgages in 2007. As a result, many now heed its managers' economic views. Their latest prediction is somewhat controversial: the U.S. may experience hyperinflation.
Oct 6 2009, 11:15AM
Pay Czar Slashing Salaries
I've written several times about the reign of President Obama's Pay Czar, Kenneth Feinberg. He has the rather difficult job of attempting to quell the anger of the masses in cutting pay for employees at firms having received bailout money, without damaging their competitiveness. It probably isn't possible, but it's fun to watch him try. His latest move, reported by the Wall Street Journal, is arguably his most controversial to date. He intends to cut salaries, replacing a portion with deferred stock awards.
Oct 5 2009, 5:30PM
Apple Leaves Chamber, Hot Over Climate
A few weeks ago, I noted an article explaining that yet another major firm was leaving the Chamber of Commerce over its climate change policy. That was a company called PNM Resources, notable because it was a utility company. Pacific Gas & Electric left the week before that. Several other notable companies like Nike and Johnson & Johnson have expressed concern. But none of that is quite as notable as today's news: Apple has been the latest departure from the Chamber. That's a pretty high profile firm to leave the largest business lobbyist.
Oct 5 2009, 4:45PM
Intel Aims For Light Speed
The New York Times' Bits blog has an interesting article about a new technology that Intel will soon be rolling out. It seeks to deliver data more quickly than possible on metal-based cables: at light speed using optical technology. If you've studied any physics, then you know nothing travels faster than light. For years I've been hearing that computers using optics, instead of wires, would ultimately be necessary to increase speed past what's currently possible. Intel is making progress in getting there.
Oct 5 2009, 4:20PM
New York's Tax Revenue Plummets
Things continue to look grim for New York's fiscal picture. Just this weekend I mentioned to someone that I expected the state's tax revenues to fall well short of even its most pessimistic expectations. Some news today confirms that prediction, with income tax revenue trending down 36% so far for 2009 compared to 2008. Could New York soon be the new California?
Oct 5 2009, 2:08PM
Frank: Let's Bail Out Unemployed Homeowners
House Financial Services Chairman Barney Frank (D-MA) today indicated that he would like to see some funds be set aside to help prevent foreclosure for homeowners who have lost their jobs. He indicates that such a bailout would be different from the earlier homeowner bailout, which sought mostly to prevent homeowners with mortgages they could not afford from losing their homes. This time, the borrowers used to be able to pay their mortgage -- before they lost their job. Now facing prolonged unemployment, those Americans' homes are also in jeopardy.
Oct 5 2009, 1:00PM
News Of Recession Focuses On Big Picture, Obviously
There's a new report out today from the Pew Research Center's Project For Excellence In Journalism. (summary here, full report here) It laments the fact that the little guy has been largely ignored by journalists this year in their recession reporting. Instead of worrying about the plight of average Americans, major news outlets have chosen to cover the big stories. To this complaint I can only say, well, yes. Obviously.
Oct 5 2009, 11:20AM
Debt For Equity
The Wall Street has an interesting article today indicating that firms are increasingly issuing unsecured debt for questionable purposes. The most controversial: to issue special dividends to shareholders. Not all debt issuance is bad; some is very strategically important. But issuing more debt to pay your equity investors isn't usually advisable, particularly at a time like this.
Oct 2 2009, 6:03PM
The Cons Of Targeted Advertising
I just read Derek's analysis of Google CEO Eric Schmidt's interview conducted by The Atlantic's James Fallows at the First Draft of History event. One topic that was touched on was keeping media profitable -- something Time Warner CEO Jeff Bewkes also addressed in the interview I blogged. Schmidt noted that targeted advertising, which will be dramatically enhanced through better technology, will help media like magazines enhance their advertising revenue substantially. That got me thinking about targeted advertising. I'm not sure it's completely positive.
Oct 2 2009, 5:03PM
Arbitrary Rating Agencies
Earlier, Megan posted a section from a suggestion from Joe Wiesenthal at Clusterstock on how to fix the rating agencies. He suggests a group of 10 agencies, arbitrarily chosen to rate deals. Since I have some pretty strong opinions about the rating agencies, I thought I might give this proposal some thought.
Oct 2 2009, 4:08PM
The Right Kind Of Regulation
Over the past few weeks, I've been writing a lot about financial regulation. It's one of the favorite topics these days among politicians and policy wonks in Washington. In my various writings, I've advocated several approaches to different sorts of regulation. I'm always a little shocked to see commenters who are angry at the regulatory measures I suggest. My surprise mostly stems from the fact that my views on regulation are pretty mild compared to others I've read in the blogosphere. I thought it might be helpful to explain what I view as the right and wrong kind of regulation.
Oct 2 2009, 2:43PM
What's Bad For Social Security Might Be Good For Employment
Bloomberg had an article that caught my eye this morning. Apparently applications to begin receiving Social Security benefits are up. This is undoubtedly bad news for the Social Security system -- as soon as 2016 benefit payments will begin to exceed the fund's revenues. More people collecting benefits earlier could bring this inevitable result even sooner. The recession appears to be driving this increase in applications. Older Americans who are eligible for Social Security are deciding to retire early or collect some extra money.
Oct 2 2009, 12:39PM
Bewkes On Journalism, Media, Comcast-NBC and The Sopranos
Earlier I blogged an interview of Time Warner CEO Jeff Bewkes at The Atlantic's First Draft of History event. Our own Jeffrey Goldberg conducted the interview, which was amusing and revealing. He talked about Time Warner's view of the magazine business, his thoughts on the potential Comcast-NBC merger and other topics centered on media. He even touched on the final episode of The Sopranos. Check out my analysis here.
Oct 2 2009, 10:20AM
The Richer You Were, The More You Had To Lose
I've written several times now about how adversely this recession has affected the rich. Apparently Forbes' famous list of the richest Americans shows just how badly their fortunes have been hit. This year's article reads like an obituary for the wealth that once was. It also provides some ugly statistics to dig into. It starts:
Oct 2 2009, 9:11AM
Unemployment Increases Modestly To 9.8%
Unemployment continued to climb in September, bringing the official number to 9.8% (seasonally adjusted), according to the Bureau of Labor Statistics. In September 263,000 jobs were lost. That failed to meet consensus expectations, which predicted only 175,000. That number was also worse than last month's decline of 201,000 jobs (which the report also revised from 216,000). This news isn't comforting.
Oct 1 2009, 4:30PM
Re-Remics? Really?
Oct 1 2009, 3:30PM
What Do Geithner, Greenspan, Summers and Schmidt Have In Common?
In case you haven't see the link on the Atlantic.com main page, we're involved in a really cool conference called "The First Draft Of History" over the next two days. It consists of important public figures being interviewed by famous journalists. And it's all streaming live here on our homepage. Megan, Derek, I and other Atlantic bloggers will also be providing analysis of these interviews. Here are a few notable business-related interviews you don't want to miss:
Oct 1 2009, 2:48PM
OCC Report Shows Mortgage Modification Trend And Woes
Yesterday, the Office of the Comptroller of the Currency and Office of Thrift Supervision released a report (opens .pdf) on mortgage metrics for the second quarter of 2009. As you might guess, it was not pretty. But it showed some interesting insights. I found notable the new trend in mortgage modification strategy, and its staggering re-default statistics.
Oct 1 2009, 1:02PM
The Public-Private Toxic Securities Fund Ramping Up
The Treasury's Public-Private Investment Partnership, meant to provide private investors with public financing to purchase toxic securities, is showing signs of life. The private investor participants have so far raised $1.13 billion in capital to use in the program. This is progress, but only mild success. Moreover, the real test still awaits: will anyone want to sell their bad assets?
Oct 1 2009, 12:00PM
September Unemployment Poll
Tomorrow marks the first Friday of the month, which means the prior month's official national unemployment rate will be released by the Bureau of Labor Statistics. As we have over the past few months, we'd love for Atlantic readers to weigh in with their predictions. So vote in the poll after the jump!
Oct 1 2009, 11:01AM
Bernanke Also Wants New Resolution Authority
I just noted Federal Reserve Chairman Ben Bernanke's testimony before the House Financial Services Committee dealing with systemic risk regulation. In his testimony, he also addressed another topic that I've been writing about quite a bit lately: a non-bank resolution authority. Such an agency would work to wind down large financial institutions, much like the Federal Deposit Insurance Corporation does for banks. If such an authority exists, the government will not need to bail out firms that appear too big to fail. I was pleased to hear that Bernanke favors the creation of this new authority.
Oct 1 2009, 10:26AM
Bernanke Sends Mixed Signals For Systemic Risk Regulation
Testifying before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke made a surprising assertion. He said that an oversight council should be in place to regulate the systemic risk of the U.S. financial system, rather than just the Federal Reserve. Some, including the Obama administration, have argued that the Fed alone should have this oversight authority, but the Chairman himself has now stated that he believes otherwise. Sort of. His testimony boils down to a mixed message.
Sep 30 2009, 4:03PM
Rutgers: Full Employment Won't Return Until 2017
Rutgers economists have a new report (opens .pdf) out today with some pretty dire predictions about the U.S. labor market. They explain that since the beginning of the recession, the U.S. has lost 8.6 million jobs through August and will likely end up shedding at least 9.4 million. They then estimate that it will take a very, very long time to get back to our December 2007 unemployment level of 4.9%. Here's the key summarizing point:
Sep 30 2009, 3:01PM
Fannie And Freddie Really Are Shrinking
Bloomberg reports some good news:
Fannie Mae, Freddie Mac and the Federal Home Loan Banks are paying down debt at a record pace, creating a supply void in bond markets that may have saved U.S. taxpayers $3.8 billion and corporations $230 million in borrowing costs.
This has some nice repercussions for the credit markets, but not everyone will be pleased.
Sep 30 2009, 2:11PM
How To Succeed At Failing
In response to my earlier post, commenter Reido writes:
A resolution authority sounds like a very prudent idea, but the high interconnectedness of financial institutions makes me skeptical of its ultimate effectiveness. An institution's creditors are readily identifiable, but the complicated network of dependencies that result from CDSs and CDOs much less so. One default's effect can bounce up and down and all around the system via the holders of relevant CDS. Foreclosures and/or risk of foreclosures of a clump of properties can devalue the relevant CDO regardless of how otherwise isolated the owner is from the underlying market. Given an entity like Lehman Brothers, what failure resolution plan would have worked?
It is incredibly difficult to envision. But let's give it some thought.
Sep 30 2009, 11:37AM
GM Gives Up On eBay
Like most high-profile celebrity relationships, General Motors and eBay's love affair was a short one. The program that began on Aug. 11 will end today. How did it go? The Wall Street Journal reports:
"We thought the program was successful but that this was not the right time," GM sales chief Mark LaNeve said.
Given that a few weeks of the program overlapped with the infamous cash-for-clunkers program, artificially boosting auto demand, this raises the question: when would a better time have been? The little detail we have suggests the program probably wasn't all that successful after all. If it was why end it?
Sep 30 2009, 10:36AM
Eliminating Some, Not All, Risk
Yesterday, I wrote a post about how to attract employees for high quality regulators, or really how to pay for them. In response, a commenter noted that government cannot eliminate risk. I agree with that statement to a point: the government cannot eliminate all risk. Indeed, the government should not eliminate all risk, as an economy where firms don't take risks will have little innovation or growth. But the two aspects of regulation I was referring to really didn't refer to that kind of risk so much as creating a healthy financial system.
Sep 29 2009, 5:47PM
New Pay Rules Could Kill Ailing Banks
Bloomberg has a piece out today that suggests the new pay standards decided on by the G-20 might make it impossible for ailing banks like Citigroup and Bank of America to ever recover the talent they need to compete. In particular, the article laments the loss of banks' ability to utilize multi-year bonus guarantees. This has traditionally been a tool used by investment banks to attract new employees. It is also highly criticized since it rewards bankers on performance not yet realized several years in advance. Could its elimination really matter to banks like Citi and BoA?
Sep 29 2009, 4:25PM
Attracting Brilliant Regulators
Earlier today, I wrote a post suggesting that failure plans and associated fees to cover resolution costs should be required from systemically risky firms. In response to that, one commenter "Diversity" explained the worry that firms will likely try to devise plans to look less risky. I responded that savvy regulators will need to be able to pick apart these plans and see through such attempts. Another commenter, Kenneth Parker, responded:
I also think the industry's employee compensation should get a surtax, and that tax used to fund the regulators. SEC pay should be better than AIG and Goldman's pay.
I'm not sure whether such a surtax makes sense, but this comment definitely raises an important question: how does the government attract brilliant minds up to the arduous task of effective regulation?
Sep 29 2009, 12:56PM
Should New Taxes Fund Future Bailouts?
Over on the New York Times' Economix blog, Harvard economics professor Edward Glaeser has a post urging a tax on systemically risky institutions to solve the too big to fail problem. He believes the tax will reduce the incentive to take excessive risk as well as provide a fund to bail out these institutions if history repeats itself. I think attempting to avoid regulation sets him on the right track, but he misses something key: we should structure an economy where bailouts never occur. I would propose a similar, but different, alternative.
Sep 29 2009, 11:07AM
FDIC To Force Fee Prepayment
Last week, I wrote about the odd possibility that the Federal Deposit Insurance Corporation (FDIC) might seek a bailout from the banks. I said that such a move would be nonsensical, since the FDIC could instead utilize its incredible government borrowing capacity. Well, there's good news and bad news. The good news is recent news reports suggest that bank-funded bailout is off the table. The bad news is a nearly as bizarre an option has taken its place: the FDIC may instead force banks to prepay their depository guarantee fees for the next three years.
Sep 29 2009, 10:02AM
Should Mortgage Securitization Be Saved?
In the latest issue of FinReg21's Lombard Street e-Journal on financial regulation, regular Atlantic Business contributor and economist Arnold Kling has a very good piece arguing that mortgage securitization should be allowed to die, rather than fixed. He provides a fascinating perspective, having worked for Freddie Mac during the 1980s, when much of the securitization innovation was going on. His arguments are strong, and I find many of them quite compelling. Still, I ultimately see things differently.
Sep 28 2009, 3:15PM
35 Billion Reasons The Crisis Has Taught Us Nothing
The Wall Street Journal is reporting today that the Obama administration is on the verge of committing as much as $35 billion in financing and subsidies to provide mortgages to low- to moderate-income families. Hmm... this sounds vaguely familiar. The government subsidizing the mortgage market making credit artificially easy -- oh yeah! That was one of the reasons why the mortgage market overheated, and we fell into a deep financial crisis. Have we learned nothing?
Sep 28 2009, 2:14PM
Regulation: What Is Right Vs. What Is Easy
World Bank President Robert Zoellick delivered an incredibly long speech today at Johns Hopkins University. He talked about the crisis and addressed a number of interesting topics, including regulation, central banks and reserve currencies. He also briefly touched on who he believes should have more power to regulate the financial markets -- and who shouldn't. He favors the Treasury getting this power, instead of the Federal Reserve. I favor an even more balanced approach.
Sep 28 2009, 1:20PM
Natural Unemployment To Increase To 7%?
Economics teaches that there's a natural unemployment rate in any economy. That rate is not zero. It's a supply side economic theory that purports that -- even when everything seems great -- it takes time for unemployed individuals to find new jobs. The more efficient the labor market, the lower the natural rate of unemployment. Traditionally, economists have believed that in the U.S. that rate is around 5%. That's why you rarely see unemployment trend much below that percentage. A few notable economic minds have stated that they believe this recession will permanently raise that percentage to around 7%.
Sep 28 2009, 11:48AM
America's Corporate Symbol, Curbing Obesity, Taxing The Rich And A Fad
A new poll out from 60 Minutes and Vanity Fair (odd coupling, I know) has a bunch of fun insights to how Americans see the world. The poll asks a fair diversity of questions from which company best symbolizes America to the future of Twitter. I found several poll question results particularly noteworthy and, well, amusing.
Sep 28 2009, 10:24AM
How About Some Regulation For Washington?
In the midst of attempting to take copious financial regulatory measures, officials in Washington might be forgetting something very key: regulating themselves. The Wall Street Journal today has one of those articles that I really hate to read. It provides a discouraging update to the news that Countrywide -- formerly the largest U.S. mortgage company -- had a special VIP club, in which some public officials enjoyed benefits not provided to average Americans. This serves as the perfect example of why we should be worried about the too cozy relationship between finance and Washington. But it gets worse.
Sep 25 2009, 6:00PM
G-20 Statement: It Worked.
The G-20 Leaders' Statement is out (opens .pdf). My favorite part is lines 4-5 of the preamble (presented below in their entirety):
4. At that time, our countries agreed to do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital.
5. It worked.
Indeed. So far, at least. I want to give the statement its full due, so I'll tackle it this weekend. But here are a few quick thoughts, based on what I've read so far:
Sep 25 2009, 5:01PM
Will Suppliers Foil The New Chrysler?
The Wall Street Journal reports that suppliers are not at all amused with Chrysler's plans to revamp its vehicles so to transform its brand image. It explains the problem:
Some smaller suppliers that are under financial strain themselves are hesitating because they are unsure whether the vehicles will sell in high enough volumes for them to make money, they said.
If suppliers don't go along, Chrysler might not survive.
Sep 25 2009, 4:32PM
Fed Oversight To Drive Up Interest Rates?
Sep 25 2009, 2:40PM
TARP Funds Battle Heating Up
The now infamous Troubled Asset Relief Program, also known as TARP and more commonly referred to as the bank bailout, is set to expire at the year's end. The legislation that created it, however, stipulates that the Treasury Secretary can request that Congress extends the program. But even if the program isn't extended, the Treasury might try to keep some of its funds, just in case. I have a few thoughts.
Sep 25 2009, 1:14PM
SEC's Rating Agency Reforms Should Be Broadened
Floyd Norris's column today in the NY Times is worth reading. It explains the Securities and Exchange Commission's recent rule change attempting to correct the rating agency problem. It seeks to require information be disseminated to more than just the big three rating agencies for structured debt (like securitization). Norris recognizes that this could lead to insider trading issues, but suggests a great solution -- broaden the dissemination of this information even further.
Sep 25 2009, 12:15PM
How To Compromise On Taxes
Over at Forbes former Reagan and Bush Sr. economist Bruce Bartlett penned an op-ed today. Barlett also worked at think tanks including the Heritage Foundation and the Cato Institute. As a result, the underlying thesis of his piece might be surprising: the U.S. needs to raise taxes. As a tax-hater myself, I also, shockingly, agree. The trick is making that happen, despite partisan politics.
Sep 25 2009, 10:25AM
G-20 To Rely On Peer Pressure
According to leaks on the G-20's progress in Pittsburgh, the major sweeping financial regulatory change the leaders of the world have come up with boils down to a peer review. They might reach a compromise on capital requirements or banker compensation as well. They also decided to let the emerging guys into the party -- G-9 through G-20 will join the G-8 to become part of the permanent council for international economic cooperation. But it's the peer review that I find most noteworthy.
Sep 24 2009, 4:07PM
In Defense Of Securitization (Again)
Over on his blog, Felix Salmon attempts to shoot down the defenders of securitization. He cites the academic debate (also recently commented on by Megan) about whether securitization necessary causes loan quality to deteriorate. Since the academics seem to be in disagreement, Salmon wants to appeal to common sense instead. He says:
Sep 24 2009, 2:28PM
Capital Requirements Gain Controversy
If there's anything that you would think the G-20 would be able to agree on when it meets in Pittsburgh this week, it's capital requirements. Capital levels at banks were insufficient to absorb the losses they incurred over the past two years, leading to the global financial crisis. Indeed, there's widespread agreement among leaders that capital requirements should increase, but a vast disparity about how much. Europeans don't want their banks to maintain levels as high as U.S. officials are calling for.
Sep 24 2009, 1:10PM
Luxury Hotels Add To Commercial Real Estate's Woes
Back in July, I noted how bad expectations were for the other mortgage market -- commercial real estate. In a recession this deep, as businesses fail so do their leases and loans. Bloomberg has a report today about one segment of the commercial real estate market that is doing its part to make matters worse: luxury hotels.
Sep 24 2009, 12:10PM
Consumers Clipping Coupons
I am somewhat embarrassed to admit this, but earlier this week I decided to start a coupon drawer. Growing up my mother had a coupon drawer, so creating one not only made me feel terribly frugal, but also very. . . middle-aged. The horror! Luckily, it looks like I'm not alone. The New York Times has a story today about a coupon renaissance.
Sep 24 2009, 10:55AM
A Brave New GMAC
The Wall Street Journal has an interesting article today about the evolution of GMAC, traditionally the captive finance company for General Motors vehicles. It no longer caters only to GM's business, however. It has expanded beyond the walls of GM dealerships, and cash deposits resulting from its recently acquired status as a bank holding company has breathed new life into its balance sheet.
Sep 23 2009, 4:45PM
FASB Approves Accounting Change To Quicken Tech Profits
The Financial Accounting Standards Board today approved an accounting change that would affect how tech companies recognize revenue related to hardware products that include software. The proposed change passed in a unanimous vote. Up to now, tech companies that sold products like cell phones would recognize the sale over a period of time. This change allows tech firms to record the hardware portion of those profits immediately.
Sep 23 2009, 4:00PM
What's The Point Of Lawyer Job Deferrals?
Bloomberg today has another in a growing glut of articles about how bad the job market is for law students. One common fate of the luckier law students these days is receiving deferred offers from big law firms. Basically, that consists of the firms saying something like: "Listen. We want to hire you, but the economy really stinks, and times are really bad. So here's a chunk of money for you to enjoy for the time being, and you can work for us next year." Maybe I'm missing something, but I just don't see the point.
Sep 23 2009, 2:22PM
The "Shadow" Foreclosure Inventory
Sunday night, I returned from a quick weekend trip to my hometown in South Florida. It was my first time there since early January. Driving around Fort Lauderdale, it became extremely clear just how big a hit its economy has taken as a result of the real estate market's collapse. It's like a different world compared to what it was like just a few years ago: overgrown grass rises above many curbs and sidewalks; homes and businesses sit empty and abandoned; most blocks display multiple "for sale" or "for rent" signs. In speaking to some of my friends and relatives who still live there, I learned that the state's ongoing foreclosure glut has resulted in an interesting phenomenon -- a "shadow" inventory of foreclosures.
Sep 23 2009, 1:02PM
Firms Will Need To Prove They Can Fail
As Derek pointed out earlier, Treasury Secretary Timothy Geithner testified today before the House Financial Services Committee. I was pleasantly surprised to see that half of his prepared testimony involved the too big to fail problem. I was even more delightfully shocked to see that he offered a legitimate, tangible solution that could help with the problem. He suggests that firms will need to explain how they could be resolved in the event of their failure.
Sep 23 2009, 11:45AM
Compensation Didn't Cause The Crisis
Andy Kessler has a good opinion piece in the Wall Street Journal today. In it, he explains why pay controls for Wall Street are a red herring. I've made the same comment, but it's worth looking at some of the points he makes, because I think they're strong arguments. Here's his key point:
Sep 23 2009, 10:45AM
Frank Waters Down Consumer Protection Proposal
House Financial Services Committee Chairman Rep. Barney Frank (D-MA) has reportedly proposed suggested changes to President Obama's proposal for a Consumer Financial Protection Agency (CFPA). Some are significant and would make the CFPA a little less controversial.
Sep 22 2009, 4:17PM
The Dark Side Of Antitrust Regulation
Yesterday, I complained about the problems that too much consolidation can pose. I suggested the solution might be to ramp up and broaden antitrust regulation to consider more than just monopolistic advantage. While I stand by my argument, an article from the BBC today also reminded me about one of the bad aspects of antitrust regulation: it's still regulation. And with regulation generally follows bureaucracy and inefficiency.
Sep 22 2009, 2:15PM
Hyundai Shines Despite Recession
The New York Times has an article today about Hyundai's surprising success in gaining U.S. market share. For years, the South Korean automaker was considered an inferior manufacturer. But recent strides in vehicle quality have changed that perception. This is great news for Hyundai, but pretty disastrous news for the U.S. auto companies struggling to stay afloat.
Sep 22 2009, 1:00PM
Why Would The FDIC Want A Bailout From Banks?
There's some news out today that the Federal Deposit Insurance Corporation (FDIC) might turn the tables on banks and get a bailout from them. I find this prospect very, very confusing, because I can't understand why the FDIC would go to banks to borrow money. Better options exist.
Sep 22 2009, 12:10PM
Life Insurers Struggle
By now, pretty much everybody is familiar with the struggles of AIG. Yet, other insurance companies didn't generally suffer from the same kinds of problems: AIG's troubles came mostly from poorly priced credit-default swaps. Life insurance companies that don't play games with derivatives seemed to be okay. But as an article in the Wall Street Journal today reports, the recession is straining the pure vanilla life insurance business as well.
Sep 22 2009, 10:00AM
Will Net Neutrality Lead To Usage-Based Internet Fees?
Yesterday, Federal Communications Commission (FCC) Chairman Julius Genachowski spoke about his desire to keep the internet free and open. Most of his talk centers on the idea of "net neutrality." The principle broadly states that internet access should be unencumbered. To most consumers, this probably sounds wonderful. To most internet providers, it probably doesn't. They'd rather have control over the data. This is a complicated issue, with lots of moving parts, but I'd like to focus on the principles of net neutrality that Genachowski explains, especially a new one.
Sep 21 2009, 3:57PM
Is A Coming M&A Boom Good News?
Bloomberg has an insightful article today about a coming mergers and acquisitions (M&A) boom. The logic is pretty easy. Firms have been hoarding cash during the crisis. The deep recession has devalued companies. Lower valued firms plus lots of excess cash means lots of M&A as the economy heals. I'm not convinced this is a good thing.
Sep 21 2009, 2:29PM
Fed Denies Treasury Request For Audit
The Federal Reserve and Treasury have been getting very cozy over the past year or so. But the Fed hasn't become so enamored with Geithner Inc. that it's willing to comply with its every whim. That's clear from today's news. Bloomberg reports that the Fed rejected a request from the Treasury to undergo a sort of audit -- a public review of the central bank's structure and governance. This probably shouldn't be surprising, but might intensify the calls of its critics in Congress for greater transparency.
Sep 21 2009, 1:45PM
Should The G-20 Require Banks To Increase Reserves?
The G-20 meets this week in Pittsburgh. One of the central topics of discussion will be financial regulation. The global financial crisis has begun to wane, but most nations are still feeling the sting caused by the meltdown. One topic will likely be banker compensation. Another might be bank capital reserve requirements. The New York Times reports that the European Shadow Financial Regulatory Committee believes the G-20 should increase capital requirements. I don't see how this could do much harm.
Sep 21 2009, 12:30PM
Netflix And Innovation
There's news out today that we've finally got a winner of Netflix's much publicized contest to award $1 million to whatever team of computer scientists could improve its movie recommendation system by at least 10 percent. And not only that -- they liked the results so much that they're holding another contest to better analyze their customers' preferences based on demographics data. I think contests like these are great on several levels.
Sep 21 2009, 10:45AM
Why Is Washington Ignoring The Real Causes Of The Crisis?
Atlantic Correspondent, Richard A. Posner, has another spot-on blog post this morning. He begins by considering whether it's possible the Financial Crisis Inquiry Commission will produce anything of value, and then moves on to explain how current regulatory proposals fail to address the real causes of the financial crisis. I'm not going to quote much of it in what follows, so you probably want to read the entire five-paragraph post here. I agree with it entirely and offer an additional a helping of cynicism.
Sep 18 2009, 4:40PM
Mortgage Modifications Messes Up Market
Back in August, I wrote about a ruling where Countrywide was ordered not to modify certain securitized mortgages eligible under the Treasury's foreclosure prevention program. The court ruled that the program ignored investors' contractual rights. That was a legal issue. But the modification program could have some disastrous consequences from an economic standpoint. Blackrock Chairman Laurence Fink voices this concern in a Bloomberg article today. He worries about how mortgage modification will affect the future of the securitization market for packaged mortgages.
Sep 18 2009, 2:39PM
Making Electric Cars Louder
Generally noisy cars are considered a bad thing, but some believe cars that are too quiet could be even worse. With electric cars poised to sweep the nation in the years to come, this problem may become a real one: virtually silent electric engines provide no auditory warning to pedestrians. This is a particularly serious problem for blind pedestrians who cannot rely on looking both ways. Bloomberg reports that Nissan is consequently taking measures to make its electric cars louder.
Sep 18 2009, 1:02PM
California Targeting The Rating Agencies
Just yesterday, I wrote about how regulators might be starting to question the heavy involvement of rating agencies in the evaluation of bond insurers. A few weeks before that, I wrote about a judge deciding that the First Amendment's guarantee of free speech does not entirely shield the agencies from lawsuits. In July, I wrote a post about why I believe granting rating agencies that First Amendment protection is absurd. According to news out late yesterday, California agrees with me. The state has launched a probe to determine whether the rating agencies broke state law by incorrectly rating various mortgage-backed securities (MBS).
Sep 18 2009, 12:10PM
Fed To Curb Banker Pay?
The Wall Street Journal today is reporting that the Federal Reserve is finalizing a proposal to control banker pay. Wall Street compensation has been an extremely hot topic since the beginning of the financial crisis. Some have complained that the bonus culture widely accepted at banks provides incentives for short-term profits, despite the risk that actions might pose in the long-run. Some bankers and traders getting lofty bonus payments even as their firms were incurring huge losses exacerbated the disdain many Americans felt towards investment banks' compensation practices. Will the Fed change all that?
Sep 18 2009, 11:00AM
Schiff For Senate?
Yesterday on MBNBC's "Morning Joe," financial advisor Peter Schiff formally announced that he is running for the U.S. Senate in Connecticut. Schiff developed something of a cult following as one of the most prominent investment gurus that predicted the financial crisis. His entrance into the race is particularly interesting because, if he gets the Republican nomination, then he would be up against Senate Banking Committee Chairman Christopher Dodd. Watch the announcement after the break.
Sep 17 2009, 6:10PM
Option ARMs To Wreak More Havoc
Lately the housing market is looking a lot better -- at least compared to what it looked like last winter. But option ARMs (adjustable-rate mortgages) may again soon be flexing their muscles and deliver a fresh sucker-punch to the mortgage market. (Sorry, I couldn't resist the terrible pun-induced metaphor.) A new set of ARMs are beginning to reset, and with them a new wave of foreclosures is likely to follow.
Sep 17 2009, 5:40PM
The Stimulus Didn't Work -- Or Did It?
Three economists, John Cogan, John Taylor and Volker Wieland, co-authored an opinion piece in today's Wall Street Journal with a headline boldly proclaiming: "The Stimulus Didn't Work." Their argument essentially says that their neoclassical economic models were right, and those silly Keynesians were wrong. They go through a few empirical data points to show just how little the stimulus did. While I'm sympathetic to most of their reasoning, I worry they're missing something very key about human psychology that should be considered.
Sep 17 2009, 3:30PM
Americans Are $2 Trillion Richer?
News is out today that the net worth of Americans increased by around $2 trillion in the second quarter. Assuming 300 million Americans, that ends up being about $6,667 per capita. Funny, I don't recall my wealth increasing by that much. But maybe that's just because I haven't checked my 401k lately. So what does this statistic really mean in the broader context?
Sep 17 2009, 2:40PM
The Public-Private Investment Program Lives?
The Federal Deposit Insurance Corporation (FDIC) is apparently indicating that (its own) reports of the death of the Public-Private Investment Program (PPIP) are largely exaggerated. In fact, the FDIC has completed a deal to sell some toxic assets through its part of the program. But don't get too excited: the seller of those securities didn't exactly participate by its own free will. It was a bank that the FDIC took over last November. Let's dig in!
Sep 17 2009, 12:15PM
Regulators Consider Reducing Reliance On Rating Agencies
This morning, I read an article that warmed my heart. It looks like at least some regulators are beginning to realize that relying on a government-enforced oligopoly of rating agencies might not be particularly good for investors. The Wall Street Journal reports that when bond insurers are involved in mortgage-backed securities transactions, financial firms with valuation expertise might be looked to rather than the rating agencies. Sounds like a great idea to me.
Sep 17 2009, 10:15AM
More Good News For Securitization
The Wall Street Journal reports another positive sign for the securitization market. JP Morgan completed another credit card-backed transaction without the help of the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). In late June I mentioned that the market for such deals was beginning to open when another deal was completed and upsized. This latest deal shows how much progress has been made since then.
Sep 16 2009, 4:37PM
Will Chicken Feet Prevent A Trade War?
In one of the more unintentionally amusing articles on a serious topic I've read in a while, the New York Times explains why the U.S. might avoid a trade war with China over recent action regarding tire tariffs. China threatened to stop the U.S. from "dumping" poultry in its nation. The Times says that's not likely to happen, because the Chinese won't be able to live without the delicious chicken feet that the U.S. provides.
Sep 16 2009, 4:03PM
Treasury To Shrink Debt Program With Fed
The Treasury said today that it will vastly shrink a program it created during the height of the financial crisis to provide the Federal Reserve with additional liquidity. The program used short-term Treasury debt to create a funding cushion for the Fed. It's curbing the program for two reasons: because the economy is strengthening so the program is less necessary and to slow the inevitable approach to the $12.1 trillion debt ceiling in place. So what effect will this have?
Sep 16 2009, 3:15PM
Should Congress Keep the First-Time Home Buyers Credit?
The New York Times has an article today about the brewing battle for the first-time home buyers' credit. Just yesterday I was talking with someone about the credit, and the importance it has served in stabilizing the housing market. It's set to expire in late November. Congress then has to decide whether to renew it. I think keeping the credit is practically a no-brainer.
Sep 16 2009, 12:16PM
Did Barclays Cheat Lehman?
A year after Lehman's failure, the holding company that serves as the empty shell for the former investment bank is complaining about its deal with Barclays. The British bank acquired many of Lehman's assets and most of its investment banking talent, particularly in the U.S. At the time, the deal seemed risky, since the fate of the financial world was still unknown. I have long believed that it may have been the finest acquisition of any bank during the crisis. What's left of Lehman is now complaining that the deal may have been a little too good.
Sep 16 2009, 10:50AM
Is Obama Ignoring The Reason He Won?
I missed this commentary piece yesterday from Charles Gasparino, for which I thank the newly launched Atlantic Wire for bringing to my attention. In the column, Gasparino says that President Obama is treating the world of finance far easier than he should be, especially since its problems were mostly responsible for his winning the election. I think that this is an important, and striking, point.
Sep 15 2009, 6:12PM
Fed To Keep Buying MBS?
Since the beginning of the financial crisis, the Federal Reserve has been taking numerous actions to keep credit markets flowing. One such action included buying mortgage-backed securities (MBS). Recently, there's been some talk that this particular program could be one of the casualties as the Fed begins to rein in its spending as the economy improves. Today, an article from the Wall Street Journal casts some doubt on that theory.
Sep 15 2009, 5:30PM
Watch The Banks Shrink And Grow Again!
The New York Times has another extremely cool animated timeline of the change in the sizes of large U.S. financial institutions. The graphic is notable for its own sake, since it's so fun to watch. But it's also very functional in showing how the banking industry went from great times, to almost disappearing, to lots of consolidation and grew again.
Sep 15 2009, 5:05PM
Leverage Limits Won't Kill Securitization
Over on his Reuters blog, Felix Salmon has a fantastic assessment of a looming problem for the securitization market brought to light by a Wall Street Journal piece today. The gist of it is that, if leverage requirements are imposed on European banks, then that will have negative consequences for U.S. banks looking to securitize their assets and sell the resulting bonds to those European banks. Salmon essentially asserts that this isn't really a bad thing. I agree.
Sep 15 2009, 1:15PM
When To Worry About Inflation
One of the Atlantic's "Voices," Clive Crook has a post today about an article he wrote for the Financial Times. The article is a response to another by James Surowiecki where he argues that we shouldn't worry about inflation. Crook disagrees; so do I.
Sep 15 2009, 9:52AM
How To Cut Congressional Spending
Late yesterday, I stumbled upon this piece over on Andrew Sullivan's Daily Dish. The post refers to an article written by John Steele Gordon in the The American, the Journal of the American Enterprise Institute. In it, he explores the national debt problem. He does a sort of historical tour of U.S. debt over the past 100 years and attempts to explain why it's grown out of control. His essential conclusion is unsurprising: Congress just can't control itself. He offers three ways to reduce the debt through curbing spending. All are on the right track; none will do the trick.
Sep 14 2009, 4:39PM
AP Poll Shows Grim Sentiment
Earlier, Chris Good explained a Gallup poll's findings that people think that the world looks a lot better now than it did a year ago. Considering at that time we were in the midst of the worst financial crisis in decades, I didn't find those results particularly surprising. What I was more interested in is general consumer sentiment right now. Much to my pleasure, the Associated Press came out with a separate poll today speaking to exactly that point. The news isn't pretty.
Sep 14 2009, 3:20PM
Bragging About The Bailout
I know I just wrote a lengthy piece on a few parts of President Obama's speech in New York today, but there was one other aspect that I had to comment on briefly. In one portion of his speech, the President says how big a success the bailout has been for taxpayers thus far. I was extremely bothered by the tone of this claim. Here's what he says:
Sep 14 2009, 2:26PM
Obama's Regulation Speech Thin On Too Big To Fail
On the one-year anniversary of the fall of Lehman, the President has decided it might be a good idea to visit New York and chastise Wall Street explain to Wall Street the regulation he believes necessary to avoid another financial crisis. But one area of reform where his speech is disappointing thin is dealing with the too big to fail problem. He has only three talking points that begin to touch on this problem. I'm unconvinced any of them will necessarily solve it.
Sep 14 2009, 1:00PM
There Really Is An App For Everything: Even Getting High
The Wall Street Journal's "App Watch" today features a real gem of an iPhone application for anyone living in California who needs their fix of medical marijuana fast. The application provides map pin drops, contact information and ratings of more than 800 medical marijuana dispensaries in California. "iPot" once gain seems to indicate that the sky's the limit for application developer creativity. Or maybe the limit is Apple's fickle approval process.
Sep 14 2009, 10:37AM
Implications Of The China Tire Tariff
Markets are generally unhappy about the news that President Obama recently approved higher tariffs for Chinese-made tires. Such protectionist moves reduce trade, and ultimately, prosperity for both nations involved. The Wall Street Journal's Real Time Economics blog has a nice survey of opinions from several economists'. They range from appropriate to panicked.
Sep 11 2009, 5:00PM
How Traders Influence Prices
Earlier in the week, I wrote a post explaining that cracking down on commodity trader speculation could cause OPEC to gain more power. Commenter Adam asked:
It doesn't seem immediately obvious to me how traders cause higher prices. What's the mechanism that allows oil traders to control and drive-up oil prices? Why would killing a large portion of the oil trading market cause the price of oil to plummet?
I wanted to explain this, in case any other readers had the same question.
Sep 11 2009, 2:30PM
Inflation Isn't The Answer
Over on his blog Matthew Yglesias has a post lauding the idea of intentionally creating moderate inflation, based on a recent policy paper. The idea is that if you let inflation go up moderately for several years, you could alleviate the massive public and private debt burden substantially. For a nation like the U.S. plagued with debt, that sounds like a pretty nice result. The problem, however, are the other consequences that would follow.
Sep 11 2009, 12:30PM
Should UBS Be Held Accountable For Selling Toxic CDOs?
UBS is in some more trouble. A Superior Court judge has ruled that it sold collateralized debt obligations (CDOs) that it knew to be toxic and is liable for damages. The Wall Street Journal reports that the judge believes that UBS had material nonpublic information that was used in the decision to sell the securities to hedge fund Pursuit Partners. I'm not convinced.
Sep 11 2009, 10:39AM
Will GM's Money-Back Guarantee Work?
General Motors has announced a new program attempting to boost consumer confidence in their vehicles. The idea is that you can return the vehicle, no questions asked, up to 60 days after purchase. GM believes that if people give their cars a try, they will see that they are at least as good as those built by other manufacturers. Will this new program matter? (And vote after the jump to let us know if you'd buy a GM car based on the new program.)
Sep 10 2009, 4:25PM
Fannie & Freddie's Guarantee: A Self-Fulfilling Prophecy?
The Government Accountability Office (GAO) has a new report (opens .pdf) out this week analyzing the options for what to do about Fannie Mae and Freddie Mac. The document is rather in-depth, but essentially considers three options:
Reconstitute the enterprises as for-profit corporations with government sponsorship but place additional restrictions on them.
Establish the enterprises as government corporations or agencies.
Privatize or terminate them.
I lean strongly towards the final option. The report presents one amusing, though legitimate, obstacle to it.
Sep 10 2009, 2:00PM
The World Won't Soon Forget The Crisis
Bloomberg appears to be doing a series of articles this week about Lehman's collapse, presumably to sort of commemorate the event's anniversary. Today's piece is particularly interesting. It begins by explaining how the bank's failure sent shockwaves around the world, even in some relatively unexpected ways. I think its stories demonstrate a broader point that I've made in the past: foreign peoples are not likely to trust U.S. banks again for quite some time.
Sep 10 2009, 12:22PM
Should Comcast And Time Warner Merge?
I just stumbled over the following wire story via Reuters:
Citigroup on Thursday said that Comcast and Time Warner Cable should merge, saying there would be a number of benefits to such a deal, including 'robust cost synergies.'
The firm added that a merger between the two would limit bidding wars for future cable assets and counter escalating content costs.
Citi also argued that the regulatory hurdles might be low for such a deal.
And while we're at it, let's merge Target and Wal-mart, Verizon and AT&T, and Microsoft and Apple. Really Citigroup? Really?
Sep 10 2009, 11:30AM
Is Gotham Falling?
A few weeks ago a friend forwarded me an article about the historic New York City restaurant Café des Artistes closing. Today, I read that another famous restaurant Tavern on the Green has filed Chapter 11 bankruptcy. I found the news of both failures shocking, as they were true NYC landmarks. Both of these restaurants were on the high end of the spectrum in price -- even by Manhattan standards. The earlier article explained that many such fancy restaurants are having trouble.
Back in July, I wrote a piece about things going terribly wrong for Manhattan business, but in that case I was talking about pricey retail shops. This time it's restaurants. Is this another sign of the bad economic times or just a trend in varying restaurant tastes?
Sep 10 2009, 9:00AM
Join Facebook And Save On Legal Fees?
I found an amusing article on Bloomberg from yesterday. You can do more on websites like Facebook than just stalk your former high school classmates. Apparently, firms are increasingly using online social networking for a far more useful end: to save money in legal costs. Huh? The reason how might not be immediately obvious, but Bloomberg explains:
Sep 9 2009, 4:45PM
The Bankrupt Rich
A few weeks ago, I wrote a post about how the rich aren't getting richer. This recession is taking a toll on the wealthy as well as the low and middle classes. That fact spurs little sympathy from most, so I doubt another article about the rich's troubles from Bloomberg today will either. Apparently, the real estate crash is causing even the rich to go bankrupt.
Sep 9 2009, 3:29PM
Did Mortgage Modification Efforts Improve In August?
The Treasury released data (opens .pdf) today on its mortgage modification program's progress through August. In July, banks and mortgage servicers came under fire from Washington for not modifying loans quickly enough and preventing more foreclosures. Does political pressure work? Apparently not.
Sep 9 2009, 2:30PM
FDIC Mulls Ending Debt Guarantee Program
News is out today that the Federal Deposit Insurance Corporation is considering ending a program that allowed firms to issue debt that it guarantees. This program was an important part of the equation in stabilizing the markets. According to the Associated Press, there is currently over $300 billion in outstanding debt that was issued through the program. This move is a good sign; the plan is a smart one; and the market's stability should be unaffected.
Sep 9 2009, 1:25PM
Blankfein Part II: Regulation
Earlier, I considered Goldman Sachs CEO Lloyd Blankfein's comments about Wall Street compensation from a speech (opens .pdf) he gave today at a financial conference in Germany. Now I'd like to move onto his thoughts on financial regulation. Despite the sensational aspect of the bonus talk, I believe that the regulation portion is far more important. As I've noted a few times, the cause of the financial crisis had little to do with Wall Street bonuses. So I'm a lot more interested in what Blankfein thinks about regulation. He outlines several suggestions, which I'd like to comment on.
Sep 9 2009, 11:30AM
Goldman CEO: Clawback Compensation
The giant vampire squid speaks. In a financial conference in Germany today, Goldman Sachs CEO Lloyd Blankfein gave a speech (opens .pdf) addressing a number of sensitive issues. In it, he explained what regulation was appropriate for the financial industry and that compensation style should be changed for Wall Street -- even clawed back when appropriate. Some might find Blankfein's comments about bonuses surprising, especially since he's the head of Goldman Sachs. I think most of them aren't, if you read between the lines.
Sep 8 2009, 5:29PM
Judging The Financial Crisis
According to an article from Bloomberg today, judges are increasingly showing their anger towards the financial community by condemning actions that contributed to the crisis. Bloomberg explains that judges' lack of political pressures paired with their life-long term provides them with a unique opportunity to hold banks, bankers and others involved in the crisis accountable. Although I found most of the examples provided unsurprising or even old news, it did cite one important ruling from last week.
Sep 8 2009, 3:41PM
Hollywood Hates Capitalism
According to complementary Reuters articles today, Hollywood appears to have a new foe: capitalism. One article is about Oliver Stone's new film, which portrays socialist Venezuelan President Hugo Chavez as a "champion of the poor" who is "unfairly demonized by the U.S. media." Another article reports on Michael Moore's latest "documentary," where he concludes that "Capitalism is an evil, and you cannot regulate evil." Both films premiered at the Venice film festival this weekend. Sadly, I was not there, so I have seen neither film. But Reuters provides some interesting information about their contents.
Sep 8 2009, 1:50PM
Is OPEC Losing Its Power?
For many years, the Organization of Petroleum-Exporting Countries ("OPEC") had arguably been the most significant influence in oil prices. Although it denies being a cartel, its members collude to control oil supply, which drives prices. In spite of demand shocks, it has managed to generally move prices where it pleases. Yet, not even OPEC's supply manipulation could overcome recent economic disturbances, which caused oil prices to plummet last year. Forbes.com has an interesting article discussing OPEC's influence these days, and examines whether or not its influence may continue to dissipate.
Sep 8 2009, 12:35PM
U.S. Loses Top Competitive Ranking To Switzerland
The World Economic Forum put out a fascinating new report today, which uses a complex index to rank countries' economic competitiveness. The rankings began in 2004, and this report marks the first time that the U.S. has fallen from the top spot -- replaced by Switzerland, which was ranked second last year.* I found it really interesting to see what global economists think about various countries, especially the U.S. given its recent economic troubles.
Sep 8 2009, 10:35AM
Providing The Right To Fail
In today's edition of the New York Times, Andrew Ross Sorkin penned a column lamenting the fact that so little has been done to pass legislation which would give the government the authority to resolve large financial institutions. The ones he's talking about are those which are commonly referred to these days as being "too big to fail." The financial crisis put the government in the awkward position of feeling forced to save these large firms, rather than allow them to fail, given the systemic risk failure posed to the system. While I agree with Sorkin that such legislation is important, I'm not at all surprised we haven't seen it passed.
Sep 4 2009, 4:40PM
Will Obama's International Tax Changes Succeed?
We all know that healthcare is at the top of Congress' agenda when it returns from recess next week. But central to healthcare reform is keeping it budget neutral. Most agree that funding such an endeavor will almost certainly require more tax revenue, as Congress isn't likely to cut spending by trillions to compensate. Few additional sources of tax revenue have been proposed, and even most Democrats are pretty uneasy talking about tax hikes until the economy is in the clear.
But one potential measure was mentioned months ago: changes to how U.S. companies are taxed on revenues from overseas. A few of the central changes in this proposal include limiting multinationals' ability to defer taxes on profit from abroad or claim a tax credit based on overseas taxes already paid. This proposal has business leaders, especially those in the technology industry, very wary.
Sep 4 2009, 2:45PM
Would A Single Financial System Regulator Encourage Consolidation?
Over on Seeking Alpha, there's a blog post by Rahul Prabhakar raising the question of what a single systemic risk regulator might mean for financial services consolidation. The question was brought about through a recent statement by Federal Deposit Insurance Corporation Chairwoman Shiela Bair. She hates the idea of the Fed taking over as the sole systemic risk regulator for financial services firms. So do I. One reason she thinks it's a bad idea appears to be that she thinks this will increase consolidation. That would seem to get the ball rolling in the wrong direction, since too many firms have already grown too large, and consequently have been deemed too big to fail. I think that this is a legitimate worry.
Sep 4 2009, 1:23PM
Broken Nest Eggs Add To The Turmoil
I've written plenty already about today's unemployment report, but there was one aspect I haven't mentioned that I found a bit puzzling. The labor force size (not seasonally adjusted) decreased in August by around 1.4 million people. At the same time there were 12,000 fewer marginally attached workers (includes discouraged), which implies even more people left the workforce who are in no way marginally attached or just discouraged. What happened? Well according to a New York Times story yesterday, it probably isn't because baby boomers are retiring.
Sep 4 2009, 11:55AM
Discouraged Workers And Seasonality
I want to provide a little more detail related to my earlier analysis on this morning's unemployment numbers. I provided a bit of optimism in my prior post, and as Derek noted, some seem to be scoffing. First, don't get me wrong. 9.7% is a heinous unemployment rate. That's the highest number in decades. In fact, it's the highest rate we've seen other than a short period from 1982-1983 since as long as Bureau of Labor Statistics data goes back (to 1948). I don't mean to minimize this. I'm just trying to understand the overall trend. That's where I think you need to consider how seasonality and discouraged workers are affecting the picture.
Sep 4 2009, 9:14AM
Unemployment Leaps To 9.7%
Well, the unemployment picture in August was quite ugly. The official unemployment rate rose from 9.4% in July to 9.7% in August, according to the Bureau of Labor Statistics. Additionally, non-farm payrolls declined by 216,000. 0.3% is the largest jump since May. On the surface it looks quite bad, but let's do a little analysis on what today's unemployment report really says. It might not be quite as bad as it looks.
Sep 3 2009, 5:28PM
Government Discrimination In Student Loans
Over on his Reuters blog, Felix Salmon has a post today pondering the difficulties that some graduates are having dealing with huge amounts of student loan debt. He says that it can sometimes be hard for students to grasp just how much they're borrowing when amounts turn out to be astronomical. I agree. He also provides a good example and concludes that the government should be more selective about who it gives student loans and for how much. This sounds nice in theory, I just don't think it could ever happen.
Sep 3 2009, 3:45PM
Moving, But Can't Sell Your House? Rent It Out
The Wall Street Journal today has a nice piece about a new phenomenon in the U.S. Homeowners are increasingly deciding to become landlords when they need to move but cannot sell their house, given the poor real estate market. The Journal refers to these individuals as sort of "reluctant landlords," since they would far prefer to have just sold their house and been done with it, but the current economic situation doesn't allow it. It even provides "ten tips on renting your house out," for any readers interested in doing so. I think we'll continue to see this phenomenon grow in the short term. That's good, because it's better than the alternative.
Sep 3 2009, 2:30PM
YouTube Mulls Movie Rentals
There's news out today that YouTube might start allowing users to view films through its website for a fee. It's reportedly in talks with a few major movie studios. Traditionally, YouTube has been all about free content, so charging for some video would be a departure from that precedent. Still, I see no reason why this couldn't be a successful venture, in theory -- especially given recent technological developments.
Sep 3 2009, 12:45PM
The iPhone's Bandwidth Problem
I am quite addicted to my iPhone. During non-working, non-sleeping hours, rarely an hour goes by when I don't use it. When idle, non-productive time strikes, like a short train ride, I'm practically glued to it. A New York Times article today makes me feel better: I am not alone. It explains that there's a significant problem with the love affair that people like me have with their iPhones -- we're using up too much bandwidth. That's one of the reasons why AT&T's network seems so bad. I can see two potential solutions to this, one that iPhone users will love, and one they will hate.
Sep 3 2009, 12:00PM
August Unemployment? Place Your Bets!
So it's that time of the month again. As Derek Thompson pointed out earlier, Friday the Bureau of Labor Statistics releases the much-talked-about monthly national unemployment statistics. Naturally, the business team here at the Atlantic hopes to provide some analysis on what those number mean once they are announced. But until then we can only speculate -- just like you. So please do so in the poll below.
Sep 3 2009, 10:57AM
Here Come Higher Capital Requirements
About a week ago, I wrote about how big banks are beginning to ramp their leverage back up again. In it, I noted my surprise that lawmakers hadn't chosen lowering leverage as a major goal for financial regulation. According to complementary articles in the New York Times and Wall Street Journal today, both U.S. and British governments now have higher capital requirements in their crosshairs after all. I find this strategy sensible for several reasons.
Sep 2 2009, 6:30PM
Will In-Flight Wi-Fi Succeed?
If you're like me, then you've been eagerly awaiting the day that all airlines equip their planes with Wi-Fi. But if you're really like me, then you also don't want to pay much for it. The New York Times yesterday explained that this is a serious problem for airlines wanting to ramp up their in-flight Wi-Fi services. Even though all planes offering Wi-Fi seems inevitable with the vast proliferation of the internet, the cost is holding airlines back. I wonder, though, if the problem could be airlines' pricing decisions.
Sep 2 2009, 3:30PM
Swiss Banks Eye U.S. Investments
The U.S. is used to hatred from abroad. But Switzerland, the land of neutrality, hasn't traditionally expressed too much dislike for Americans. Especially so long as investors made Swiss bankers rich by using their nation as a tax haven to avoid paying taxes on U.S. assets. The U.S. government's recent tangle with Swiss bank UBS may have changed all that. Bloomberg is reporting that at least one major Swiss bank wants nothing to do with U.S. assets.
Sep 2 2009, 2:10PM
How Much Will BP's Giant Oil Find Matter?
There's big news today in the oil market. British Petroleum made a huge find in the Gulf of Mexico. It estimates that the new pool beneath the ocean's surface could contain more than 3 billion barrels. That's a lot of oil. While this seems significant, I think the bigger news is the optimism that this might create for future oil exploration.
Sep 2 2009, 1:15PM
Wall Street Derivatives Face Great Wall In China
The Wall Street Journal han article today that is likely to anger Wall Street. And no, it has nothing to do with bonuses, at least not directly. According to the article, China intends to make it very difficult for foreign banks to participate in its derivatives market. That would be a huge blow to the potential profits that foreign banks might hope to make off derivatives in the rapidly growing Chinese market.
Sep 2 2009, 12:30PM
Is 3-D Really The Future?
Megan commented earlier on the news that Sony is jumping on the 3-D bandwagon. After some of its rivals have announced a commitment to making TVs capable of displaying 3-D video, Sony also intends to do so too -- by the end of 2010. If 3-D technology really is the next big thing, then that's a wise move. Megan thinks so. I think she might be right, though I agree that the market embracing the technology could still be quite a ways off.
Sep 2 2009, 11:00AM
Will The G20 Regulate Bank Bonuses?
Until several years ago, when average Americans heard about gigantic banker bonuses, they just shrugged and mumbled, "Wow. Must be nice." Ever since the financial crisis that shrug and mumble has turned into a clenched fish and red-faced yell, "Those crooks!" But that wasn't just the reaction in the U.S.: the anger was global.
That led to the "Group of 20" (G20) nations to agree to find ways to reduce banker bonuses last April. Since that time, some member nations have taken steps to bring down bonuses, while others have been hesitant. Will the G20 set out any global bonus rules later this month when they meet again?
Sep 1 2009, 4:30PM
Is The Dollar Dead?
The financial crisis sparked a great deal of doubt about the United States' prominence as the reigning financial superpower. Those worries partially inspired an article today in the Wall Street Journal. It explains that some very prominent world leaders would like to see the dollar dethroned as the dominant reserve currency for foreign nations. Could this really change?
Sep 1 2009, 4:05PM
Is China The New OPEC For Green Energy?
The NY Times has an interesting article out today about China tightening its grip on rare earth metals. Some of these metals are essential in various types of green energy machinery like wind turbines. China's market share on these rare earth metals is analogous to the Middle East's dominance in oil reserves. In fact, China's share appears to be even greater. That's why, if it decides to limit production, the rest of the world's green energy aspirations might be in trouble.
Sep 1 2009, 12:56PM
Obama Wants Federal Pay Capped
Yesterday, President Obama asked Congress to cap the annual cost-of-living pay increases that federal employees receive at 2%. That's a pretty bold move, considering it would be the lowest increase since 1988, according to USA Today. I'm actually pretty impressed by this move, as it makes sense on many levels.
Sep 1 2009, 11:40AM
Loan Sharks Or A Necessary Evil?
The Wall Street Journal today has an article about loan sharks in Great Britain. It explains how these predatory lenders take advantage of desperate borrowers and charge outrageous interest rates. In one story, a lender charged interest rates of up to 2,437%. He went to jail. But in another example, they talk about a lender who charged a lower 60% annual interest rate. That might seem excessive, or predatory, but it can even happen here in the U.S. -- legally.
Aug 31 2009, 4:45PM
Government Subsidies Have Wall Street Throwing Money Into Wind
Earlier, I wrote about how the government subsidizing the mortgage market through government-sponsored entities Fannie and Freddie contributed to the size and severity of the housing bubble. Today, the Wall Street Journal has an article that explains how Wall Street banks are flocking to yet another industry seeing substantial government subsidies: wind farms. Wall Street is savvy enough to know that it's generally a good idea to take advantage of free money from Uncle Sam. That has them chasing wind.
Aug 31 2009, 3:20PM
A Problem Looming For Mobile Applications
New outlets are reporting today that Samsung is set to open a European mobile application store. As smartphones continue to proliferate, so will mobile applications. But I see a kind of unique problem facing mobile applications to be grappled with in the years to come: compatibility and users being forced to leave apps behind when switching carriers.
Aug 31 2009, 2:20PM
Slowly Backing Away From Fannie And Freddie
There's a nice opinion piece from breakingviews.com in today's edition of the New York Times. Its author, Rob Cyran makes a strong argument for winding down Fannie Mae and Freddie Mac, the two largest government owned companies that purchase mortgages and mortgage-backed securities (MBS), as well as guarantee mortgages. He explains the central problem and the challenge for lawmakers. I think he's right.
Aug 31 2009, 1:15PM
Can AT&T Maintain Its iPhone Exclusivity?
There's a good piece from the Wall Street Journal today that argues AT&T's return on the iPhone has not been not nearly as great as it probably hoped. This in conjunction with additional news that Apple might be almost ready to end AT&T's exclusivity may produce an interesting result: AT&T might not be able to afford to fight to stay the sole U.S. iPhone service provider. If the market opens up, and it probably will, I would expect to see a mass exodus of iPhone users from AT&T.
Aug 31 2009, 11:50AM
Disney Buys Marvel
In one of the most notable acquisitions in some time, Disney announced today that it will acquire Marvel Entertainment. Marvel is best known as a comic book company with a broad portfolio of over 5,000 characters. Some of its most notable comics include Iron Man, Spider-Man, X-Men, Captain America and Fantastic Four. Disney will pay around $4 billion in stock and cash for the firm. Find the official press release here. I listened to the conference call regarding the acquisition this morning and had several thoughts.
Aug 28 2009, 4:00PM
Taxes Around The World
The Economist has a fun daily chart today. It lists personal income tax rates for various countries. As you might guess, the U.S. is towards the bottom of the list. Of course, this chart does not show the entire picture.
Aug 28 2009, 2:00PM
Which Generation Has Cut Spending The Most?
Yesterday, Gallup released the results a new poll. It explains how different generations have pulled back spending since 2008. The results are interesting, though not entirely unsurprising. I think you can learn a lot from the behaviors and attitudes of the different generations by looking at the differences in how they've reined in their spending.
Aug 28 2009, 1:05PM
Should Mutual Funds Give To Charity?
Earlier, I stumbled upon this interesting piece from Forbes. It consists of a group of panelists pontificating about whether or not it's wise for mutual funds to use part of their management fees to donate to charity. The article first provides an introduction to the topic before moving onto panelists. In that intro, it explains the heart of the question:
But then, an investor has to ask--if 50% of the profits are going to charitable causes, why not forgo the charitable giving and cut fees instead?
Aug 28 2009, 11:30AM
Banks Increasing Leverage Again
You know that excess leverage that helped cause the collapse of Bear Sterns, Lehman Brothers and nearly every other investment bank? It's back. Bloomberg reports that big banks are quickly increasing their use of debt to make new investments. We haven't seen as high an increase in leverage since before the recession. I find this trend troubling, though unsurprising.
Aug 28 2009, 9:45AM
Attack Of The ARMs
The New York Times had an article yesterday about adjustable rate mortgages (ARMs), and the threat they pose to recovery. I have noted in the past that prime mortgages are beginning to default as a result of the poor economy. Since ARMs can be prime or subprime, I'd expect to see problems across the spectrum of credit quality regarding these products. ARMs will almost certainly prolong the housing market's problems even when fixed rate mortgages begin to perform better.
Aug 27 2009, 3:40PM
Questioning TiVo's Patents
Digital video recorder (DVR) company TiVo filed lawsuits yesterday against Verizon and AT&T in regard to various aspects of their DVR technology patents. I have long wondered why anyone would bother buying a TiVo when you can get virtually the same service through your cable provider with a DVR box. This partially answers my question: TiVo has patents. And yet, my new Verizon FiOS package has strikingly similar DVR capabilities. Hence, the lawsuit. So I decided to see whether or not I'm convinced that TiVo's patents should hold up in court.*
Aug 27 2009, 1:45PM
Nobody Knows What The Deficit Would Look Like Without Bush
Earlier, my colleague Derek Thompson wrote about Paul Krugman's claim that ugly deficit projections would look far better if Bush had done things differently. I wanted to add a little to Derek's analysis. What I'd like to contribute is some skepticism.
Aug 27 2009, 12:45PM
Has The Great Depression Taught California Nothing?
California's fiscal problems are pretty bad. Some of its residents would probably refer to them as "gnarly." Its economy isn't helping matters. A major casualty of the real estate bubble, its unemployment rate in July was about 12%, according to the Bureau of Labor Statistics. One clearly bad idea when an economy is doing that bad would be to raise taxes. Consequently, California's next move should be obvious: it's raising taxes.
Aug 27 2009, 12:00PM
The Problem With Federal Reserve Transparency
Last week, the Federal Reserve lost a lawsuit. As a result, it is required to disclose the details of loans in some of its lending programs. Currently, this information is kept secret, and the Fed insists it must remain that way. As a result, the Fed is expected to appeal the case. It has already requested a delay on enforcement of the court order. After all, once the cat is out of the bag, it's not really possible to put it back in. I think the question at hand is a difficult one. I've got mixed feelings on which side is right.
Aug 27 2009, 11:00AM
Private Equity Still Constrained From Buying Failed Banks
Back in early July, I complained about the Federal Deposit Insurance Corporation (FDIC) proposing rules too harsh for private equity firms interested in buying failed banks. In a climate like this, the more banks that can be saved without the FDIC needing to resolve them, the better. As a result, I think private equity involvement, while not ideal, is certainly better than the alternative -- lots more failures. This week, the FDIC voted on the final rules. They're better, but still probably not good enough to encourage much private equity firm participation.
Aug 26 2009, 4:00PM
Which Spending Comes First: Business Or Consumer?
Aug 26 2009, 2:40PM
The Secret To Apple's Success
Earlier this week, Bloomberg had an intriguing piece about Apple. The article explained that it may very well be the highest grossing retailer on New York City's posh Fifth Avenue. And that's not just because the economy is so bad -- the statement holds during good times as well. With some boutiques like Chanel and Louis Vuitton earning thousands of dollars on their products and others like Tiffany & Co. or Harry Winston fetching tens and hundreds of thousands on some of its inventory, that's pretty impressive. So what's the secret to Apple's success? Its products provide both form and function.
Aug 26 2009, 1:15PM
Commodities Regulator Needs Money For New Initiatives
Commodities had little to do with the financial crisis. As a result, it might seem surprising that the Commodities Futures Trading Commission, the central U.S. commodities regular, would be looking for vastly more funding. After all, if Washington is going to increase regulation, it should probably do so in the areas hit by the crisis. The Wall Street Journal explains today that new initiatives will create new expenses for the regulator.
Aug 26 2009, 11:45AM
Americans Return Home From London
Bloomberg has an article out today that I found a little surprising. Apparently Americans are increasingly leaving Great Britain to return to the States. The article singles out London's financial industry as one of the major areas losing talent. That might challenge the notion that London will be the financial capital of the world. I'm just not sure what jobs those who flee London's world of finance hope to find in the U.S.
Aug 26 2009, 10:22AM
Subprime Lenders Enjoying Government Cash
The Washington Post has an article today with a headline that's probably meant to anger and shock its readers: "Subprime Lenders Getting U.S. Subsidies, Report Says." It explains that the Center for Public Integrity has found that of the 25 participants in the government's foreclosure prevention program, 21 specialized in servicing or originating subprime mortgages. I wonder if the Center for Public Integrity has a similar study conducted that concluded, during the day in the absence of clouds, the sky is blue.
Aug 25 2009, 1:30PM
40 Percent Tax Increase Needed To Close Deficit
Last week, we got a bit of good news that this year's deficit would only be around $1.6 trillion, as opposed to the earlier estimate of $1.8 trillion. Only $1.6 trillion? If that's good news, then you probably don't want to hear the bad news, but I'm going to tell you anyway: in its Mid-Session Review, the White House Office of Management and Budget today predicts a 10-year deficit projection of over $9 trillion. That's nearly $2 trillion more than the Congressional Budget Office recently estimated (opens .pdf). I thought it might be depressing fun to figure out how much you'd have to increase taxes to eliminate that $9 trillion.
Aug 25 2009, 12:05PM
China Has The Solar Edge
In the New York Times today has an article about China's dominance -- in the solar panel market. Washington has taken action to attempt to ensure that alternative energy would be the one area of manufacturing where the U.S. would lead the world. It looks like those efforts might not make much difference. I don't think that should really surprise anyone.
Aug 25 2009, 10:28AM
Bernanke Reappointed To Second Term
I am pleasantly surprised to see the news this morning that President Obama has decided to give Ben Bernanke a second term as the Federal Reserve Chairman. Bloomberg reports that the President made the announcement today:
Bernanke "has led the Fed through one of the worst financial crises that this nation and the world have ever faced," Obama said in Martha's Vineyard, Massachusetts, with Bernanke at his side. "As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another," Obama said. "But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve."
That's exactly right. His performance, thus far, has been stellar. Though, his job in managing the crisis is far from over.
Aug 24 2009, 1:15PM
Will The Weinstein Company Survive?
In the latest print edition of The Atlantic, Jeffrey Goldberg wrote a piece about director Quentin Tarantino's latest film "Inglourious Basterds." The movie opened this weekend at #1, earning more than $37 million. The film was an important one for the Weinstein Co., its production company. I read last night that the film's success may result in the company avoiding bankruptcy. An article today in the Wall Street Journal says that, even with this weekend's good news, such a fate might be unavoidable.
Aug 24 2009, 11:00AM
It Wasn't The Securitization That Was Irresponsible
The Wall Street Journal this weekend ran another article that frustrates me. It complains that bankers are continuing to try to trick investors into buying garbage in repackaged securitizations. This kind of article bothers me for several reasons, all of which relate to the ignorance that many people share regarding securitization and asset-backed securities.
Aug 21 2009, 1:30PM
The Rich Aren't Getting Richer
Yesterday, I wrote a post in a response to a piece by economist Simon Johnson posted on the New York Times' Economix blog. He argued that the current recession might make income inequality worse, broadening the gap between the rich and everybody else. I argued that, while I agree with logic of his overall thesis, he might be underestimating the effect the recession has had on the rich's wealth. David Leonhardt and Geraldine Fabrikant, also of the NY Times, have provided some support for my argument. They've got a piece out today explaining how adversely the rich have been affected over the past two years.
Aug 21 2009, 11:45AM
State-By-State Unemployment Mixed, Mostly Unchanged
This morning the Bureau of Labor Statistics released its monthly regional and state unemployment report. The July data isn't exactly good news, but the results are somewhat mixed. Compared to June, 26 states reported unemployment rate increases, while 17 states showed decreases and 7 states were unchanged. Unfortunately, that unemployment data does not reflect discouraged workers, as this report does not track that. So it's hard to put this into perspective. But let's go through some highlights.
Aug 21 2009, 10:00AM
The Prime Problem
Yesterday, I reported on the Mortgage Bankers Association's grim report on mortgage delinquencies and foreclosures. In doing so, I mentioned that prime mortgages continue to replace subprime mortgages as the problem. The Wall Street Journal has an article about this today, which includes this really great chart:
Aug 21 2009, 8:30AM
Investors vs Distressed Homeowners
In response to my post yesterday about Countrywide's court loss that will make mortgage modifications harder, one commenter, newdealanne, wrote:
I hate to be a simpleton about this, but am I missing something? The investors took a risk. It didn't go in their favor, or in ours. They toppled our economy. And now the best way out of the mess they helped caused is if we allow the modification and they have to eat their losses. What's the problem here?
I wanted to address this, because she's probably not alone in her belief. I have a few comments.
Aug 20 2009, 5:00PM
58 Million Credit Card Accounts Cut In Just One Year
The Associated Press reports that a new study by credit score producer FICO says that 58 million credit card accounts had their credit limits reduced over the 12-month period ending last April. That's a lot of cutting. The cuts were mostly in the response to the new economic environment that banks saw themselves in thanks to the recession. Is this good news or bad news?
Aug 20 2009, 4:30PM
Will The Recession Make Inequality Worse?
Over on New York Times Economix blog, economist Simon Johnson has an interesting post about a phenomenon he believes might be going on within this recession. He thinks that, since Americans with the most credit are disproportionally affected by this recession, the middle class is likely to suffer worst. As a result, the recession may increase the gap between the rich and the poor. I think he's mostly right, but possibly underestimates the effect that the recession has had on the rich.
Aug 20 2009, 2:54PM
Mortgage Delinquencies Break Record In Q2
Isn't the economy supposed to be improving? First, we heard today's awful news that jobless claims have risen and reversed course. Now we learn that in the second quarter mortgage delinquencies hit a new all time high since the Mortgage Bankers Association started keeping track in 1972. Here's some detail from the MBA's release:
Aug 20 2009, 1:37PM
JetBlue's All-You-Can-Jet Program Sells Out
Last week, I reported on JetBlue's innovative All-You-Can-Jet program, allowing participants to pay $599 and fly as much as they want from September 8th through October 8th. If you were interested in the program, I hope you got your pass already, because it's sold out.
Aug 20 2009, 12:20PM
Jobless Claims Rise Again
You can put that champagne away. The Department of Labor's weekly jobs report isn't good news. Seasonally adjusted jobless claims increased last week by 15,000 from 561,000 to 576,000. And the news gets worse: continuing claims also increased for the prior week ending August 8th by 2,000 to 6,241,000.
Aug 20 2009, 11:16AM
Cutting Home Equity Lines
In more bank lawsuit news, Wells Fargo is being sued due to at least one customer being angry about the bank decreasing his home equity line of credit. These lines of credit are kind of like credit cards, except the amount of credit available is based on the equity you have in your home. Once the housing bubble popped, virtually all banks began reining these credit lines in. As home prices decreased, so did the equity that people thought they had in their homes. The plantiff believes that Wells Fargo went too far.
Aug 20 2009, 10:39AM
Countrywide's Court Loss Complicates Mortgage Modifications
There have been numerous reports about how poorly the Obama administration's mortgage modification program has been doing. I've written a few posts about servicers having trouble cooperating or not wanting to. Another enormous wrench has just been thrown into its gears: now even when banks want to make modifications they might not be able to. A federal court has ruled this week that Countrywide, formerly the largest mortgage company but now owned by Bank of America, cannot hide behind the foreclose prevention legislation if mortgage-backed securities (MBS) investors try to prevent the modification. This is pretty significant news, since so many troubled mortgages are part of MBS.
Aug 19 2009, 5:30PM
Three Thoughts On UBS Outing 4,450 Tax Evaders
Aug 19 2009, 5:00PM
Charles Schwab: Don't Blame Me
I must return one more time to the Journal today to highlight yet another interesting opinion piece by Charles Schwab, the founder and CEO of the popular brokerage house that bears his name. In the column, Schwab complains that banks and brokerage houses like his are being unfairly targeted by excessive government regulation and litigation. He asserts that this will result in a heavy cost to amateur investors and possibly prevent their participation in the market altogether. I mostly agree.
Aug 19 2009, 3:00PM
Really Cool Mobile Device Advertising
I wrote a post not too long ago about the future of advertising. In it, I asserted that the internet was the future of advertising. To be more specific, mobile internet is the future of advertising. And it presents an even greater challenge to advertisers than the regular internet: they have less viewable space to work with and lower connection speeds, at least for the time being. But today, upon perusing the New York Times' iPhone application I saw the coolest mobile phone ad ever. I took some screen shots below.
Aug 19 2009, 1:50PM
Could There Be An iPhone Without AT&T?
In an interesting and well-written opinion piece today published in the Wall Street Journal, Andy Kessler vents his anger with AT&T preventing Apple from allowing the Google Voice application on its iPhone. He thinks it shows that AT&T is threatened by the software because it would render its services obsolete, which would throw some more dirt on the coffin it's trying to get out of. He then presents some interesting ways to reform our national communications policy. I think his general approach is right, but a few of his ideas might not work out.
Aug 19 2009, 11:30AM
Scholes And Merton Call For Broadening Mark-To-Market
Every once in a while, economists worth listening to agree about something important. This week such an occurrence took place through the Financial Times and Bloomberg Radio. Robert Merton and Myron Scholes are two such economists. They, along with Fischer Black, developed the Black-Sholes option pricing model some years ago. Merton and Scholes were awarded the Nobel Prize for economics in 1997 for the method. They both have come out in support of banks providing more transparent, market-based values for all if their assets, also known as marking-to-market.
Aug 19 2009, 10:45AM
Consumers Shouldn't Be Spending
Aug 18 2009, 5:02PM
Bankers, Bonuses And Baseball
Over on his Reuters blog, Felix Salmon has a post today about why he believes banks should not poach talent. He says that, even if you look beyond the claim that social ills might follow bankers getting huge guaranteed bonuses, the practice fails miserably anyway from a business strategy standpoint. I see where he's coming from, but I think we might as well broaden the question in order to look for an alternative.
Aug 18 2009, 3:10PM
Pay Your Bills. That Includes Your Taxes!
The New York Times has an interesting article today about a practice that is more common than most people probably thought. Local governments have been selling back-tax assets to third-party collection agencies. The article portrays this as mostly a bad thing, because these collection agencies are more aggressive than governments would be. I think the only real problem this article uncovers is that the government is vastly inferior to private collectors at getting what it's owed.
Aug 18 2009, 2:15PM
Maybe We Should All Be More Like Vermont
I am a little surprised to see myself write this, but perhaps all states should be more like Vermont -- when it comes to their banks' mortgage origination practices. A fascinating article in today's Wall Street Journal explains that in Vermont, the mortgage industry has felt no pain. But it also didn't see the kind of expansionary growth that now troubled states like California and Florida saw. Vermont's style for mortgage regulation might bother some, but the practices should be common sense for banks anyway.
Aug 18 2009, 12:35PM
Can A Dell Smartphone Succeed?
Apparently Dell is jumping on the smartphone bandwagon. News hit yesterday that they're developing their own smartphone. I think this is an incredibly odd move destined for failure.
Aug 18 2009, 10:55AM
Credit Card Changes Begin, Market Changing Too
Some of the changes required of credit card companies through last spring's credit card legislation begin to take effect this week. Those changes force companies to give customers longer notice when changing the interest rate and to provide more time to pay their bill after it's mailed. A new credit card market is beginning to take shape, based on companies' reactions to the new regulation. The outcome will likely be something Congress didn't expect.
Aug 17 2009, 4:30PM
No Sunshine In Florida
I've been very surprised over the past year how few articles I've seen on how bad things are in Florida. But the New York Times had an article over the weekend about Florida's troubles. Its economy was strongly correlated to the housing boom, so obviously its economy has been decimated by this recession. Things are worse there than even common statistics suggest.
Aug 17 2009, 2:10PM
Why We Should Rejoice As Pensions Shun Stocks
Bloomberg has an article out noting that pension funds are slowly backing away from the stock market. Given last year's stock market collapse, these funds saw huge losses from seemingly safe bets, like highly valued bank stocks. As a result, no one should be too surprised that they still feel the sting and are a little wary about diving back into the stock market. The Wall Street might lament this trend, but I think it's a good thing.
Aug 17 2009, 1:15PM
Reforming The Mortgage Consuming Monsters
The Wall Street Journal contains an interesting analysis piece today explaining several possible ways to reform the government-sponsored entities Fannie Mae and Freddie Mac. Here's the challenge, according to the WSJ:
A reformed hybrid model would need to provide private shareholders with the prospect of returns. But it also can't distort the housing market over the long run and, in times of stress, leave taxpayers footing the bill.
Let's think about the options the article presents.
Aug 17 2009, 12:00PM
Why Economics Failed
Atlantic Correspondent Richard Posner has good piece out this morning about British economists trying to explain to the Queen why economics failed so miserably to predict the financial crisis. He suggests, as many others have, that economists must admit they don't know everything when it comes to business cycles, and should refocus their efforts so to learn from their mistakes here. I think he's right, but I worry it won't help much.
Aug 17 2009, 10:45AM
Fed Extends Program For Loans Based On Asset-Backed Securities
This morning, the Federal Reserve announced that it would extend its Term Asset-Backed Securities Loan Facility (TALF) through March 31, 2010. TALF exists as a way for banks and other issuers to obtain loans backed by a variety of assets including consumer loans, business loans and commercial mortgages (CMBS). Previously, the program was to last until year's end. The Fed essentially added on a quarter. I think TALF is an important program, but wonder if it's wise to continue to extend it.
Aug 14 2009, 3:15PM
The Chinese Like Their Credit Cards Too
A recent article from Reuters seems to imply that American's obsessive love affair with credit cards might not be a problem only the U.S. grapples with. Even the savings-minded Chinese are beginning to see just how much fun it can be to run up credit card bills that you can't pay. Reuters explains:
Aug 14 2009, 2:00PM
Will Toxic Loans Wipe Out Smaller Banks?
An article in Bloomberg today paints a dire picture. It says more than 150 small and mid-sized banks face failure due to having 5% or more of their assets consist of nonperforming loans. If these banks all fail, then Bloomberg is certainly right about troubled times ahead. I'm just not convinced that fate is as likely as the article asserts.
Aug 14 2009, 1:00PM
A (Poor) Argument Against Bernanke
As the debate on whether or not to reappoint Ben Bernanke as the Federal Reserve chairman continues to heat up, I've seen strikingly few reasonable arguments for giving him the boot. I believe his performance very well saved us from a depression, and that the Fed's effectiveness in stabilizing the economy eclipsed even that of former Treasury Secretary Paulson's bank bailout. I also think blaming him for the real estate bubble is nonsense. It was already almost fully inflated by the time he took over for Alan Greenspan in 2006. Nonetheless, a recent opinion piece in the Wall Street Journal argues that Bernanke should take a hike.
Aug 14 2009, 12:00PM
China Mostly Abandons Computer Censorship Plan
Back in June, I wrote a few pieces about China's plans to require all computers sold within its borders to include pre-installed censorship software. At that time, it looked like they were just delaying their efforts, as the software wasn't ready yet. News out today suggests a much broader win for critics of its censorship goals. Instead of requiring the software on all computers, China has decided only to require the software on computers intended for public use, like those located in Internet cafes and schools.
Aug 14 2009, 10:30AM
Big Banks Should Pay For New Regulation
Bloomberg is reporting that the Obama administration is considering paying for their proposed Consumer Financial Protection Agency (CFPA) by imposing new fees on big banks. I'm highly skeptical of a CFPA, but if you are going to have one, this actually sounds like a pretty good idea for how to fund it. Generally, when I find myself agreeing with a government idea, it means I haven't thought about the implications for long enough, so I reserve the right to change my mind on this one. But at this point, this plan seems like a good way to preserve competition.
Aug 13 2009, 4:50PM
Could Plug-In Tax Credits Be Clunkers All Over Again?
I wrote a few posts this week on GM's upcoming Volt plug-in hybrid car. One of the luxuries that GM's will benefit from is a lofty tax credit of $7,500 for the first 200,000 Volts it sells. I thought it might be helpful to explain this credit, explore its implications for taxpayers and put it into perspective.
Aug 13 2009, 4:08PM
JetBlue Offers All-You-Can-Fly Pass For $599
In an interesting new strategy, JetBlue has decided to offer a new pass that allows you to fly on its airline as much as you like for 31 days for only $599. Those 31 days are from September 8th and October 8th (careful not to include Labor Day or Columbus Day weekends, though Rosh Hashanah and Yom Kippur are both in there). The pass is a really interesting idea, but it won't appeal to everyone.
Aug 13 2009, 2:45PM
Not So Sweet: Sugar's Price Is Skyrocketing
The soaring price of sugar has given U.S. food producers a sour feeling. They're warning that a sugar shortage might be in store unless the government lowers trade tariffs on sugar. That would allow them to buy it from overseas for cheaper. I wouldn't count on it.
Aug 13 2009, 11:20AM
Speculating On Carbon
Washington is beginning a pre-emptive strike on speculation in the upcoming carbon-emissions market. Bloomberg reports that the big banks like Goldman and JP Morgan will be restricted from driving the market. Some in Congress are worried about the wild price swings that have been seen in oil and other commodities over the past few decades, for which Wall Street is generally blamed. Preventing bank speculation would remove Wall Street from the equation, but that will also result in some undesirable consequences.
Aug 13 2009, 9:00AM
WTO Opens Up China to U.S. Entertainment Products
In a ruling that the U.S. Trade Office is hailing as groundbreaking, the World Trade Organization (WTO) has decided that China must ease restrictions on the importation and distribution of copyright-intensive products like films, DVDs, music and books. In a complaint that began in April 2007, the U.S. argued that China's restrictions encouraged pirating, hurting U.S. firms that produced these products. I dug into the WTO's report (opens 491 page .pdf) and spoke to U.S. Trade officials to figure out what this ruling really means for U.S. business.
Aug 12 2009, 2:48PM
Fed Leaves Rate Unchanged, Shrugs Off Inflation Worries
As widely expected, the Federal Reserve Open Market Committee decided this week to leave the federal funds rate in the 0% to 0.25% range. And don't expect that to change anytime soon. Its press release said:
Aug 12 2009, 2:20PM
Distressed Homeowners Drive Down Prices 15.6%
The National Association of Realtors (NAR) released some data today about home prices in the second quarter. The news was, in a word, ugly. The national median home price fell 15.6% year-over-year. Yet, home sales were only down 2.9% compared to the second quarter of 2008. Conventional wisdom says that home prices should be correlated to sales, but the decline in prices was much greater. So what's going on here?
Aug 12 2009, 12:38PM
GM's Volt Looks Like A Prius On The Highway
Yesterday, I wrote a piece about GM's upcoming Volt plug-in hybrid. In it, I explained that the new car may appeal to wealthy Americans who want exhibit their love for the environment, but its supposed 230 miles per gallon can't justify its $40,000 price tag from an economic standpoint, unless you plan on driving in excess of 229,000 miles. Atlantic Correspondent Lisa Margonelli has some more bad news: the Volt won't get anywhere near 230 miles per gallon on long trips.
Aug 12 2009, 12:00PM
Fed Faces Losses
Remember back when the Federal Reserve started taking on private debt exposure and swore that it would not incur any major losses? It may have been a little too optimistic. The Wall Street Journal reports that the Fed could face a significant loss from a commercial real estate holding connected to the Bear Sterns sale to JP Morgan last year, with which it helped to facilitate. This is troubling news.
Aug 12 2009, 10:30AM
Why Are Mortgage Applications Down?
The Mortgage Bankers Association reports that mortgage applications for purchasing or refinancing a home were down 3.5% last week. In what seems to be an ocean of positive signs for the economy, this one sounds like a step in the wrong direction. So what's causing the problem? There are several factors at play, but the most significant is mortgage rates.
Aug 11 2009, 1:30PM
Is Ginnie The New Fannie?
The Wall Street Journal has an interesting opinion piece about Ginnie Mae, technically known as the Government National Mortgage Association. Although a traditionally a lesser talked-about government agency that backs mortgages, it has been growing. That might not be great news for taxpayers.
Aug 11 2009, 12:30PM
Poll: The Fed's Rate Decision
Today marks the beginning of the Federal Open Market Committee's August meeting to decide monetary policy. The meetings produce minutes that are carefully reviewed by financial masterminds across the nation. But the biggest decision that everyone looks for is whether they decide to change the federal funds rate. That's the overnight interest rate at which banks lend to each other, through the Federal Reserve. It's directly linked to money supply. Since December, that rate has been set at between 0% and 0.25%. Major market players overwhelmingly believe that the rate will remain unchanged. But what do Atlantic Business readers think? Vote after the jump!
Aug 11 2009, 11:07AM
GM's Volt Offers Amazing Mileage, But At What Cost?
The news outlets are buzzing today with General Motors' announcement that its electric car, the Chevrolet Volt, will get a whopping 230 miles per gallon in the city. Needless to say, owners won't be on a first name basis with their local gas station attendant. The catch, however, is the price. GM expects the car to start at $40,000. I was wondering how many miles you would have to drive in order for that to pay off, so I did a little math.
Aug 11 2009, 10:30AM
Credit Card Bill Of Fewer Rights?
Aug 10 2009, 4:00PM
Firms Are Saving Too
In the midst of an ugly recession, we've been hearing about personal savings skyrocketing to levels not seen for more than a decade. As people become increasingly worried about their economic prospects, they start hoarding cash. That's a rational reaction. The same mentality is driving corporations to build up their treasuries. I believe that's good news.
Aug 10 2009, 2:41PM
Epix Steams Into The Future
Currently, Netflix subscribers have the option of streaming some films on-demand online. But a new cable channel, Epix, hopes to bring online movie streaming to the next level. The channel will function like most other premium TV cable channels, but on steroids. Reuters reports that, since it is owned by companies that take in approximately one-third of Hollywood's film revenue, its subscribers will also have access to a similar proportion of films to stream on-demand through its website, epixHD.com. If it gains popularity, more studios may sign-on, or start other similar services. But will it?
Aug 10 2009, 1:30PM
The Problem With Partisan Economists
This morning, doing my usual scan of the news, I came across an article with a headline including the name of a prominent economist. A chuckled, because the headline was wholly predictable, given the political leanings of this economists. I will not say who this was, but let's refer to this economist as "Pat." Pat happens to be one of the more partisan economists I can think of. Upon reflection, I realized how unfortunate the response I had was.
Aug 10 2009, 12:30PM
Debt, Debt And More Debt
The Wall Street Journal reports that Treasury Secretary Geithner has asked Congress to increase the nation's debt limit past its current cut-off of $12.1 trillion. Given the massive spending by Congress and the President, paired with what's sure to be unusually low tax revenue for 2009, the request is not surprising. What is kind of amusing, however, is the rationale he cites for why the debt needs to increase.
Aug 10 2009, 10:58AM
Explaining Guaranteed Bonuses
The New York Times today has yet another article about the troubles of President Obama's pay czar, Kenneth Feinberg. In it, the Times explains more of the same: that he is going to have an uphill battle in dealing with guaranteed bonuses at the large banks. I've already written several times about Feinberg's challenges in dealing with this problem. I thought it might be helpful, however, to explain guaranteed bonuses, and what banks are thinking in promising enormous sums of money to employees before performance has occurred.
Aug 7 2009, 4:15PM
Another Reason To Hate Protectionism
Most economists agree that protectionism is a pretty bad idea. Just ask former President Herbert Hoover whose Smoot-Hawley trade tariff helped create the Great Depression. Still, it's hard for politicians to learn this lesson, as trying to protect American jobs through legislative measures sounds like a great idea in theory. In practice, that's a different story. We're beginning to see some bad protectionism in action. The stimulus package's "Buy American" provision is making projects harder and associated job growth slower.
Aug 7 2009, 1:00PM
More Bad News For Those With Poor Credit
You can pretty easily imagine the nightmare scenario that too many Americans face in this recession. First, they lost their homes through foreclosure. Then, they lost their jobs too, as a result of the foreclosure-fueled recession. Some consequently had to run up credit card debt that they also couldn't pay. The bad dream gets worse: potential employers are increasingly relying on credit checks for new applicants.
Aug 7 2009, 11:05AM
Chinese Bank Fights A Bubble
A few days ago, I wrote about how difficult it is to combat bubbles. Bubbles are something that all economies have to worry about. Bloomberg today has an article about China's struggle to avoid a real estate bubble. They may be learning from our mistakes. Unlike the banks here, at least one of theirs seems to have a little more foresight.
Aug 7 2009, 10:00AM
Did The Unemployment Rate Really Go Down?
Aug 7 2009, 8:15AM
Toxic Banker Bonuses Aren't So Poisonous
Many have suggested, snidely, that bankers should get what they deserve: their bonuses paid in those toxic securities that they created -- the ones that caused the financial crisis. It seems that Credit Suisse employed some of that much talked-about banker innovation and decided to do exactly that, and so far so good. The Wall Street Journal reports that a fund consisting of toxic securities used for their bonus pool is doing quite well:
Aug 6 2009, 4:45PM
Preventing Another Banking Crisis
The New York Times today has an article about Goldman Sachs. It's been getting a lot of press recently. The Times reports that it's business at usual at Goldman. That leads some to worry, because they feel that lavish bonuses and "risky" practices that promote short-term profit might cause another crisis. I have some issues with that logic.
Aug 6 2009, 4:15PM
Will Healthcare Reform Help The Economy?
After earlier dissecting Larry Summers' claim that the Obama administration is responsible for the economy's improvement, I wanted to address another assertion made in his recent letter (opens .pdf-like document) to Congress. He also outlines the path he believes the country needs to take for future economic prosperity. He says one of those steps is healthcare reform. Let's think about his logic.
Aug 6 2009, 1:10PM
Is Geithner The Next Fed Chairman?
Earlier, I wrote about Obama administration economic advisor Larry Summers' letter (opens .pdf-like document) to Congress. Simon Johnson also wrote about this letter today in an interesting post on the New York Times' Economix blog. After Johnson comments on the letter, he makes a very interesting assertion: Obama will replace Federal Reserve Chairman Ben Bernanke with his own Treasury Secretary Timothy Geithner.
Aug 6 2009, 11:35AM
Poll: July Unemployment
Tomorrow an important economic indicator is announced: July's national unemployment rate. That statistic was 9.5% for June. I thought it would be fun to see where Atlantic readers believe the number will come out tomorrow, so you've got until tomorrow at 8:00am EST to vote. Just how good are Atlantic readers in determining the state of economics? Now's your chance to weigh in! Check out the results of the poll tomorrow and compare them to the number BLS releases. (Vote after the jump!)
Aug 6 2009, 11:00AM
Did Obama Save The Economy?
This morning, I came across a letter (opens .pdf-like document) written by Larry Summers, President Obama's chief economic advisor, to Congress on Tuesday. In the letter, Summers essentially gives the Obama administration the credit for the improvement in the economy and explains what actions are needed to keep the economy strong. I'd like to tackle Summers' explanation of why the Obama administration deserves the credit for the economy's improvement.
Aug 5 2009, 4:40PM
Banks' Talent: Being Big
Earlier today, one of my colleagues here at the Atlantic made a point about something he believes we should learn from the financial crisis. He thinks the free market does not necessarily ensure that the greatest rewards go to the most talented. He made the point in reference to all the talk of high frequency trading, saying that talent had little to do with it, but instead better technology helped reap significant rewards in that case. I think that's partially true, though free marketers might argue that the talent of programmers writing the computer code for trading and the innovation of thinking to engage in high frequency trading in the first place might be responsible for those profits. Still, I agree with his general idea, but would take it a step further: the reason talent sometimes has nothing to do with profit results from barriers to entry.
Aug 5 2009, 3:30PM
We Prefer Bad Customer Service
Over at the New York Times' small business blog, there's an interesting post about why customer service is so bad. Jay Goltz, a small business owner from Chicago, attempts to dissect the problem. He blames a variety of factors ranging from over-educated sales people to the high cost of health insurance. While his theories are interesting and not altogether ridiculous, I have another to offer. We like bad customer service.
Aug 5 2009, 2:30PM
Bubbles Are Hard To Control
I came across this post by Alex Tabarrok today about bubbles (hat tip: Matthew Yglesias). It's got some interesting observations about experiments involving bubbles. The bottom line: bubbles are hard to deal with. They're hard to stop once they're growing. They're hard to prevent in the first place. Still, if there's something Washington can do to prevent them, without harming the economy, I think pretty much everybody agrees that action should be taken.
Aug 5 2009, 1:00PM
Get Used To Those Internet Ads
It's no secret that the current recession has hit media companies hard. It's not only consumer demand for their product that suffers -- advertisers are also cutting budgets. While this has affected some types of media more than others, advertising's contraction has been felt across the broad spectrum. But once the recession ends, where will advertisers go?
Aug 5 2009, 10:40AM
Are The Treasury's Borrowing Costs Going Up?
As Washington's spending continues to outpace tax revenues, so will its debt issuance. Since spending does not appear to be decreasing anytime soon, and tax revenues will have a difficult time increasing during a recession, the national debt will continue to expand. Many have argued that at some point, the buyers of that debt will become uncomfortable with the U.S.'s debt levels. When that happens, they will demand greater yields. But when will that day come? It may have already.
Aug 4 2009, 4:59PM
The Treasury's Success: Being Sneaky
Felix Salmon has a good post today about the Treasury's new report (opens .pdf) that attempts to show the success of its mortgage modification program. He correctly points out that the graph they show is cumulative, which necessarily paints a rosy picture. After all, cumulative graphs can't go down. I thought it might be fun to show what the graph could look like if drawn differently.
Aug 4 2009, 3:10PM
Dark Times Ahead For The U.S. Debt?
Richard Posner has a good piece out this morning where he dissects the question of how the government will solve its debt problem. Since the President has refused to raise taxes on those earning less than $250,000, that leaves few options. After all, the rich might have a lot of money, but even they can't pay off the enormous debt Washington has been racking up over the past decade. Is U.S. insolvency a real possibility?
Aug 4 2009, 12:45PM
Need A Job In Banking? Call Barclays
Aug 4 2009, 11:35AM
The Recession Is Permanent
Anyone who has been laid off during this recession probably does not need any more bad news. Unfortunately, that's exactly what a New York Times article provides today. The Times explains that the loss to a person's career income who has been laid off lasts a lot longer than the duration of the recession. That's a grim reality not only for those who have lost their job, but for the economy on a whole.
Aug 4 2009, 10:35AM
Can't Find A Job After College? Sue!
Many college graduates these days are having a great deal of trouble finding a job in this economy -- just like everyone else. In an interesting, yet ridiculous, twist a young woman has decided to blame her college for her employment troubles. CNN reports that Trina Thompson is suing her college because she did not get a job after graduating. It reports:
Jul 31 2009, 4:50PM
Will Uncle Sam Pay For Your Yoga?
There are so many delicious subtleties that complicate the health care debate. A new study out from the National Institute of Health raises another: alternative medicine. Presumably, procedures like acupuncture and preventative measures like Tai Chi are not at the top of Congress' list of coverage priorities. But alternative medicine continues to grow in popularity. According to NIH, $34 billion was spent, out-of-pocket, on alternative medicine in 2007. How might that impact the healthcare debate?
Jul 31 2009, 1:15PM
Mark-To-Market Is Back: With A Vengeance!
Attention: This may be the single most important piece of news regarding the financial industry you will read this week. Maybe for the whole month. Maybe for the whole year. Okay I'll stop being melodramatic and get right to it. The Financial Accounting Standards Board (FASB) is in the process of making banks very unhappy. In a complete reversal from their revised policy released in April, it is considering vastly tightening mark-to-market requirements to include virtually all securities on a bank's balance sheet. Yes, it even wants the very, very illiquid stuff marked-to-market.
Jul 31 2009, 10:30AM
Banks Feel The Regulation
Jul 31 2009, 8:45AM
And At The Bottom We Shall Stay
David Reilly has a good column out at Bloomberg. He compares the housing bust to a tequila hangover:
After the most acute signs of distress have passed, it still takes a long time before things start to feel normal again.
His point: even if we have hit the bottom, it's going to take a long time to climb back out. He's right.
Jul 30 2009, 4:20PM
It's Still Good To Be A Banker
In his unending crusade to shame Wall Street into submission, New York Attorney General Andrew Cuomo has released a detailed report of bonuses paid for 2008 (link opens rather large .pdf of report). You might recall, it wasn't a very good year for Wall Street -- much like the year that giant asteroid hit the earth wasn't very good for the dinosaurs. But the dinosaurs didn't have Bruce Willis and a team of misfit oil drillers to save the day like Wall Street bankers had Hank Paulson, Ben Bernanke and Congress to bail them out. Cuomo's report shows, despite a year of pure ugly, bankers can still afford to party like it's 2006.
Jul 30 2009, 1:30PM
Are Mortgage Servicers Like Evil Credit Card Companies?
There's an article out today in the New York Times that portrays mortgage servicers in a pretty bad light. How bad? It makes them sound like those nasty credit card companies that Congress not-so-gently scolded recently through some new regulation. The Times asserts that mortgage servicers might be intentionally letting houses go into foreclosure so to collect higher delinquency and foreclosure-related fees.
Jul 30 2009, 11:45AM
From Brooks Brothers Suits To Orange Jumpsuits
It looks like Congress is finally getting around to trying to send those scoundrels to jail. The Wall Street Journal is reporting that a Senate panel is subpoenaing financial institutions to determine whether their investment bankers knew the mortgage-backed securities (MBS) and other toxic assets that they were selling were going to blow up. Their outrage is unsurprising, as those securities were the catalyst for the financial crisis. I think their anger, however, is misdirected. This is just another Congressional witch hunt.
Jul 30 2009, 11:00AM
Time To Buy Stocks?
Bloomberg thinks so. According to their chart of the day, there's a buy signal in the market that has predicted gains averaging 18% for the last 88 years. That signal is when Dow's last price and was at least 10% higher than its average for the prior 200 days. Here's a chart showing what they mean:
Jul 30 2009, 8:45AM
Too Many Derivatives To Fail
The problem of firms being too big to fail became a prominent theme during the economic crisis. After reading a recent article on CFO.com about which firms face most of the risk in derivatives, I think it's easy to see why certain firms failing would be so problematic. In particular, there are five banks that control the vast majority of the derivatives market. Thus, almost by definition, they might be considered too big to fail based on their derivatives alone.
Jul 29 2009, 4:20PM
Frank Threatens Banks With Cramdowns
Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee today threatened banks that they'd better stop foreclosures, or else. Or else what? Or else Congress will pass cramdown legislation -- that's what! That would allow bankruptcy judges to rewrite mortgage contracts to whatever struggling homeowners could afford. I wouldn't count on any follow through to that threat.
Jul 29 2009, 2:45PM
The State Of Charity
Today, I stumbled upon a really fascinating research report on the future of charity created by Barclays Wealth. I got there via a short video clip from Reuters, which turned out to be worth little more than the reference. The Barclays report itself, however, is fantastic. It concludes that we are entering a new age of charity. You can read it here (opens .pdf). I took a few key points away from reading it.
Jul 29 2009, 12:20PM
Apple Says No To Google Voice
Although the Yahoo-Microsoft deal is sure to steal most tech headlines of the day, there's also a little news involving the other two tech giants: Apple and Google. Apple has decided not to allow any applications for its iPhone involving Google Voice, software which provides the ability to receive and place cheap, even international, phone calls. This thickens the plot further given the competition Google will have on its hands going forward.
Jul 29 2009, 11:15AM
Toxic Securities For Everyone
According to a Wall Street Journal report, fund manager BlackRock is creating a mutual fund made up of toxic assets for the general public to buy shares in. The securities in the fund will be purchased by BlackRock through the Treasury's Public-Private Investment Partnership. It could turn out to be a great investment, or it could turn out to be a disaster.
Jul 29 2009, 8:45AM
Get Ready For Yahosoft!
After years of on again, off again negotiations, Yahoo has finally agreed to a 10-year deal with Microsoft. The partnership clearly targets one thing: Google. Each company has had Google in its crosshairs for sometime, and working together may help them gain some ground. Will it work?
Jul 28 2009, 5:32PM
In Arnold's Budget, Only The Strong Survive
California's $85 billion spending compromise is finally complete. Governor Schwarzenegger signed the bill today. In doing so, he chose to unilaterally eliminate some additional parts of the budget through his line-item veto power. Through the Associated Press report of these items, you might think that the Governor hates the weak -- as that's who most of his cuts affect. Let's test this theory.
Jul 28 2009, 2:15PM
Abortion Enters The Healthcare Debate
The Democrats in Congress and the Obama administration are becoming more frustrated with each day that passes. They can't seem to even get the broad strokes of healthcare reform to look appealing enough to pass a bill. That's extremely bad news, given how messy some details will get. The LA Times today notes one such especially ugly detail: abortion.
Jul 28 2009, 12:00PM
Mortgage Modifications Just Don't Work, But Securitization Does
Atlantic Correspondent Richard Posner has another great column out today. In it, he considers several pieces of evidence that all point to the same conclusion: mortgage modifications are not doing a very good job of prevent foreclosure. Recent findings also suggest that securitization might do more good than harm. He smartly notes that Washington probably would have benefited by actually asking some mortgage bankers if their mortgage modification efforts were likely to be effective.
Jul 28 2009, 10:55AM
Congress Could Cap Compensation
Yesterday I wrote about a (poor) proposed method of attempting to curb already promised executive pay for bailout firm employees. In doing so, I created a poll asking readers whether bailout firm employees with contracts in place should still get the full payout promised, specifically if they did not contribute to the causes that led to the crisis. (As I write this, 63% say give them the bonus, 37% say not to.) That sparked several comments raising the point that these firms should have failed, and then those contracts would have been invalid anyway. That's quite right. It's also completely irrelevant.
Jul 27 2009, 3:15PM
Europe Likes Credit Cards Too
The United States has long been portrayed as a kingdom of debt. Its people like to live beyond their means, whether that's through mortgages they can't afford or credit cards run up to the limit. At least that's the common wisdom. The Financial Times, however, reports that things aren't a whole lot better across the pond. Their credit card defaults are also rising and Great Britain's debt to income ratio is actually higher than that of the U.S.
Jul 27 2009, 12:45PM
Bernanke The Politician
Something strange is going on. The Chairman of the Federal Reserve is trying to strike a chord with regular people. Ben Bernanke is taking a different approach to the role of Fed chief and trying to do some damage control at a time when the general public suddenly cares about what the Fed is doing. I'm not sure how I feel about this.
Jul 27 2009, 11:20AM
Too Big To Fail: A Problem For Capitalism
All those firms that the government deemed "too big to fail" are reaping the benefits of their largeness. According to the Wall Street Journal, these firms will have their borrowing costs reduced by billions. After all, when the government guarantees your debt, you will have cheaper funding costs. That's great news for them, but bad news for a capitalist economy.
Jul 27 2009, 8:45AM
How Not To Curb Executive Pay
Jul 24 2009, 2:35PM
The New Financial Capital Of the World: Everywhere
Floyd Norris has a good column out in the New York Times today. He asserts that the era of financial globalization is over, at least for now. I've argued for some time that New York City's status as a major financial center may be one of the causalities of the financial crisis. Even if Washington doesn't manage to over-regulate the financial industry and drive away global business, global financiers might be wary of doing business in the U.S. again after incurring huge losses. This, combined with Norris' argument produces a potential location for the new financial capital of the world: everywhere.
Jul 24 2009, 10:30AM
Pondering The Pound
Yesterday, I read a report from HSBC's economists, via Bloomberg:
HSBC Holdings Plc raised its pound- dollar forecast for the end of 2010, citing the likelihood that the Bank of England will interrupt its asset-buying program next month and raise interest rates before the Federal Reserve.
"We find the idea that the U.K. will raise rates next year but the U.S. will stand pat a very powerful one," the HSBC analysts wrote. "This should be just the event that sees the pound" gain.
Indeed, it would be. But then, this morning I read this news, via Reuters:
Jul 24 2009, 10:00AM
The American Dream Is Half Dead
Jul 23 2009, 6:00PM
Republicans Can Do Financial Regulation Too
I stumbled over a fantastic find this afternoon on Fox Business' website. Apparently they got a hold of the Republicans' proposal for financial regulation. Obviously, Republicans are not known for their regulatory prowess, so I was very interested to see their take. There is some good, some bad and some ugly. I'll break it all down.
Jul 23 2009, 2:30PM
Are Unions Preventing Health Care Legislation?
Over at Slate's The Big Money, J. Lester Feder has a good piece about unions throwing a wrench into health care reform. Unions are against one of the most effective and politically acceptable ways to pay for healthcare -- rolling back the tax break for employer-based health benefits. Feder says President Obama won't allow Congress to consider getting rid of this tax break due to his allegiance to unions.
Jul 23 2009, 1:00PM
Fees For "Far-out Transactions"
President Obama suggested a new kind of financial regulation yesterday. He thinks it might be a good idea to slap fees on what he calls "far-out transactions." No that's not when surfer catches a gnarly wave. He means that money should be paid to the government by banks when they create exotic financial instruments. That way, if those securities go bad, the government will have a bailout fund already in place. It would kind of be like how banks pay an insurance premium for their deposits to the FDIC.
Jul 23 2009, 12:15PM
Maybe Consumers Shouldn't Always Be Confident
Economist Simon Johnson has a post today on the New York Times Economix blog. He argues that banks and their lobbyists should be supporting a Consumer Financial Protection Agency. Such an agency would look at financial products, like wacky subprime mortgages, and determine whether or not they're safe for consumers. It would be kind of like what the FDA does for drugs. I think his assertion is right, but I think the broader public should not support it.
Jul 22 2009, 5:50PM
Goldman Sachs Makes Us All Rich
Jul 22 2009, 4:30PM
The Unemployed Still Have Health Insurance?
Gallup has some new health insurance poll results out today. Perhaps they're just in time for the President to use for his presser tonight. One item from Gallup's report really surprised me. Apparently, the percentage of uninsured has not increased significantly since January 2008. Unemployment has. What gives?
Jul 22 2009, 2:45PM
Treasury Fails To Recommend Meaningful Rating Agency Reform
Yesterday, the Treasury sent some legislation to Congress in an effort to reform rating agencies. Many believe that the rating agencies played a major part in the financial crisis for giving good ratings to bad financial products. In the past, I've recommended some changes. The Treasury's are virtually useless.
Jul 22 2009, 12:30PM
Keep Those Dealerships Closed
Pretty much every aspect of the auto bailout frustrates me. One great frustration is Congress wanting to have its cake and eat it too. The prime example of this is their attitude about dealership closings. Sure, Congress wants the auto companies to succeed. But some lawmakers aren't okay with so many dealerships closing. You can't have it both ways. According to the New York Times, Obama's auto task force head Ron Bloom is trying to persuade Congress to back down and let the dealerships die. At last, the voice of reason.
Jul 22 2009, 10:35AM
Another Black Eye For Credit Card Companies
As if sweeping new regulation wasn't bad enough news for credit card companies, this week things got even worse. Two major arbitration firms have decided they don't want to handle credit card disputes going forward. It's hard to tell whether this is a clear win for consumers, but they probably don't mind.
Jul 21 2009, 5:30PM
Bernanke Swears He Can Do It
Today, Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee in his semiannual appearance required by the Humphrey Hawkins Act. One question on the minds of many -- especially Republicans -- is whether the Federal Reserve can eventually tighten monetary supply to avoid inflation. In fact, Bernanke wrote an op-ed for the Wall Street Journal today addressing an exit strategy to do exactly that. I don't have much doubt that he can do it, but that's different from saying that he will do it.
Jul 21 2009, 2:25PM
A Bull's Chart
Over at Bloomberg, their Chart Of The Day is pretty interesting. While some fear the recession is far from over, this graph suggests that we could be at the start of a tremendous bull market -- just like in the 1980s. Here's the chart:
Jul 21 2009, 1:45PM
Should The Rich Also Pay For Our Retirement?
Recently, we've been hearing a lot about the suggestion that the rich should pay for some form of universal health care. Today, the Wall Street Journal suggests that the rich should also be paying for everybody's retirement -- by the government removing the income ceiling on Social Security taxes. It does so with the bold headline: "Pay of Top Earners Erodes Social Security." That's not exactly right.
Jul 21 2009, 12:20PM
Could Moore's Law Be No More?
Moore's Law describes the trend that the number of transistors on an integrated circuit doubles approximately every two years. The rule was first explained by Gordon Moore, co-founder of Intel, in 1965. It's been accurate ever since, but the Financial Times reports that Moore's Law may soon be broken. The problem is not technology -- it's cost.
Jul 21 2009, 10:40AM
The Recession Even Affects The Dead
The New York Times today has an article about a practice that it claims is growing in popularity due to the bad economy: home burial. And not just for your cat or hamster -- it means for your loved ones. In an example it gives, after a family member passes, the family cleans up the corpse, builds a coffin and buries him on their farm in New Hampshire. This family only spent $250, compared to $6000 for average funeral services. Could this really catch on?
Jul 20 2009, 5:24PM
How Banks Used The Bailout
There's a report out today from Neil Barofsky, the special inspector general overseeing the $700 billion bank bailout (aka "TARP"). He's unhappy with how the banks have been spending the money and calls for better oversight in how the money is spent. According to his report, however, the money seems well spent to me, and I'm not sure what greater oversight would do.
Jul 20 2009, 3:35PM
Happy Minimum Wage Increase Week!
This is an exciting week for the lowest wage earners in the U.S. and teenagers. On Friday, the federal minimum wage rate will jump from $6.55 to $7.25, about a $1,456 increase on an annual basis. Who will it affect? Strikingly few adult full-time workers.
Jul 20 2009, 1:46PM
Business Lobby Still Hates The Employee Free Choice Act
Late last week, news hit that Democrats were striking the "card check" provision from the Employee Free Choice Act (EFCA). This is the infamous provision which sought to prevent secret ballot in union voting. You might think that businesses would now be willing to compromise to allow passage of a watered-down version of the EFCA. You'd be wrong.
Jul 20 2009, 11:35AM
The Other Mortgage Market Is Going Bad
We all watched in horror as the residential mortgage market collapsed over the past few years. Mortgage problems seemed isolated to residential mortgages due to the causes: subprime borrowers, wacky mortgage products, poor underwriting standards and unemployment. That last factor -- unemployment -- has also had drastic effects for the rest of the economy, increasing credit card charge-offs, slowing consumer spending, and now affecting the commercial mortgage market.
Jul 20 2009, 8:45AM
Wal-Mart Responds To My Sustainability Questions
Last week, Wal-Mart announced that it will be creating a new sustainability index. The discount retailer wants its products to get sustainability scores, so that consumers can have greater information to decide which products to purchase. After all, in today's world more matters to some people than price. I applaud the effort, but had several concerns that I outlined in a blog post, the day before their announcement. After that announcement, I sought additional detail regarding those questions. A spokesperson from Wal-Mart responded.
Jul 17 2009, 4:55PM
Say On Pay
In an effort to decrease executive compensation levels, the Obama administration today provided Congress a bill encouraging shareholders to be more involved in determining compensation. The so-called "say on pay" legislation has three concerns: executive pay, golden parachutes and compensation committee independence. It's a nice political move, but I don't think it will amount to much else.
Jul 17 2009, 3:30PM
The Justice Department's Interest In Derivatives
Ever since the news hit this week that the Department of Justice (DOJ) is investigating the derivatives market, I've been trying to figure out why. That resulted in my need to better understand the over-the-counter (OTC) derivatives market. Lucky for me, multiple sources came forward to help out. In fact, anyone who does not have intimate knowledge of the derivatives market, but is interested in learning more, would be well-served to read this piece appearing on Atlantic Business yesterday. Through what I've learned this week, I have finally wrapped my mind around what's going on. DOJ is likely concerned with either price control or market share in the OTC derivatives market, or both.
Jul 17 2009, 12:20PM
The Decline Of Gotham
One of the few locations that seemed to be resilient in the face of the housing crash a year ago was Manhattan. Sure, there had been some layoffs, but the mood was to stay the course and everything would be okay. An article from Bloomberg today reports that things aren't going so well there anymore. Storefront vacancies are climbing and rents dwindling. It seems that the city that never sleeps is getting drowsy.
Jul 17 2009, 10:25AM