President-elect Barack Obama picks Paul Volcker to lead the Economic Recovery Advisory Board. Meanwhile, Adam Davidson buys a hot dog. It's all part of our continuing coverage of the economic crisis and the nature of money.
Note: Happy Thanksgiving! We'll blog a little over the next couple of days, then be back podcasting on Monday.
-- Ammon Shea, author of Reading the OED, defines "money." Literally.
-- Adam Davidson takes former Treasury Under Secretary Peter Fisher out for street food, plus a mindblowing curbside chat on which kind of money is what.
Five key spaces in President-elect Obama's economic team were filled last weekend, ending speculation (financial and otherwise) about some of the faces he will see in the Roosevelt Room and in the hallways of the West Wing. But who are these people, and what exactly are their jobs?
What's the difference between deflation and a depression? Is this just wordsmithing so everyone doesn't freak more than usual or is there a genuine factual or concrete economic difference?
Dion, you're so in luck. Economist Amir Sufi rings in today with an answer. It's after the jump.
At least part of it is. As we noted earlier, the Treasury department is insuring (already very safe) money market mutual funds. Treasury just gave me the numbers. They have pulled in $332 million in insurance premiums, and haven't had to pay anything out.
"We've made money on it so far," says Jennifer Zuccarelli, a spokesperson for the Treasury Department.
As one of you pointed out in the comments section, and as Treasury readily admits, there is a footnote here.
Robert, now of Ames, Iowa, sends this about job prospects in the Dakotas:
I saw your post on unemployment rates today and, unlike Shayne in Houma, I was frankly not surprised to see South Dakota's two major cities atop the list. I grew up in Rapid City, and most of my family still lives there or in Sioux Falls, and I know the state well. I am in college in Iowa now, and I think that if I were to go back to look for a job when I finish, I might well be able to find one.
I grew up in Houma, Louisiana left to go to college and graduate school. I was surprised to see it as one of CNN's best cities to get a job! After about five seconds of thinking about it, one word came to mind: Katrina.
CNN published a list today of the 25 best cities for getting a job. North and South Dakota are living all over it.
If you're out there in Sioux Falls, Bismarck, etc., sing out. Also, if you know where Houma (rhymes with diploma) is without looking it up, hit the comments and tell us about the job market.
Let's consider Greenland for a moment. Currency strategist Mark Chandler did, in a note just now from Brown Brothers Harriman. Chandler writes:
Some 39,000 inhabitants of Greenland will go to the polls today and are expected to approve of great autonomy from Denmark and may lay the ground work for independence ultimately. Currently, Denmark would have to consent to Greenland's independence.
There will likely be an economic price for Greenland's independence. Subsidies from Denmark account for roughly half Greenland's public spending or DKK3.2 bln. Most of the political parties in Greenland support greater autonomy, except the Democrats the 4th largest party on grounds that the costs for running a government could be twice the current budget of roughly DKK305 mln (~$52 mln).
The conceit is that Greenland would be a commodity economy.
Treasury Secretary Henry Paulson has unveiled the federal government's next round of moves to get credit flowing again, save the economy and make the nation safe for Thanksgiving. The newest plan calls for the Federal Reserve to soak up $600 billion of mortgage-backed assets and $200 billion in consumer debt.
Paulson said the program is just a starting point: "It is going to take awhile to get this program up and going, and then it can be increased over time."
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.
Thomas Jefferson 1802
Now, I think this is a bit of a cheap shot. And it's unfair--I mean, in the 206 years since he said this, banks have contributed way more to US wealth than the bits of trouble they've caused. Jefferson wanted this to be an Agrarian nation. We now know that means a poor nation. I feel like I've always been on Hamilton's side of the Jefferson-Hamilton fights over the future of the US economy. Well, I think I am, I don't really know enough to make such a big statement.
But, hey, it's a great quote and perfect and I just couldn't resist.
Our friend and economist house caller, Simon Johnson (along with Peter Boone and James Kwak), has a great post today on his site with some suggestions for how the government might handle this crisis better.
His post has an awful lot in it. What I like most is the suggestion that the Treasury Department tell us clearly what they are planning to do and why they are planning to do it. What sorts of banks will be rescued without question, which ones don't need full-out rescuing but can get that precious stock injection.
If I were investing in banks, I would have no idea what to think. Do I buy some bank stock with no way of knowing if they might collapse tomorrow or if the government might swoop in and help them up? Or maybe the government will choose some totally different approach all of a sudden?
We spend a lot of time worrying about money, working for money, spending money, saving money -- but what, exactly, is money? Where does it come from? Where does it go? Today, we begin a series that we hope will answer those questions (and, you know, more).
-- Eric Rauchway, author of a new history of the Great Depression, looks at President-elect Obama's pick for Treasury secretary, Timothy Geithner.
-- Niall Ferguson, author of The Ascent of Money, defines money in a rather surprising way.
I heard a lot about deflation and prices declining during this economic crisis. But I have been struck in the past 2-3 weeks to see how much prices have gone up on snack foods, fast food, and all food at the grocery store.
I hadn't noticed, but then I don't do the grocery shopping at my house. One report I found says prices for packaged food will likely keep going up, but that manufacturers only have so much leeway before customers stop buying. Anyone else seeing higher prices for food just lately?
Gudrun Jonsdottir, a 36-year-old office worker, said: "I've just had enough of this whole thing. I don't trust the government, I don't trust the banks, I don't trust the political parties, and I don't trust the IMF.
Chana Joffe-Walt checks in with a radio story today about currency traders in San Francisco. Where you see chaos, they see money. The guy above, Simon Fowles, juggles screens all day. He says:
"I just bought a million pounds here," he says, mousing around on his computer screen. "Just put your price action in, hit your level and you're done."
The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
I found myself outside a Linens 'n Things store this weekend which is having a "GOING OUT OF BUSINESS SALE!"
These days that doesn't make me think about buying towels. It makes me wonder about who they owe money to, what went wrong with their business.
Helpfully one of the sale signs included this: "By order of the U.S. Bankruptcy court case 08-10832"
I just pulled up the records. They owe places like The Cambridge Towel Corporation. But also Credit Suisse Loan Funding LLC, which I would imagine is the bigger bill.
Back in May, Linens n' Things thought it could come out of bankruptcy but that didn't work out. They're hoping to sell $1 billion worth of merchandise in the liquidation.
Back in May, economist Christina Romer couldn't buy a teaspoon of sugar from Harvard University. She and her husband, David Romer, were on their way to getting tenured positions at the Ivy -- a move that would have pulled them out of U.C. Berkeley and into the East Coast establishment.
And then it all fell apart, when Harvard president Drew Faust vetoed the tenure offering without explanation. Harvard faculty expressed disappointment. The Berkeley crew said they were delighted that Romer would still be around.
Fast-forward to the incoming Obama administration, which reportedly just picked Romer to lead its Council of Economic Advisers.
Well. (And thanks to Planet Money's own project manager, radio guru Cadi Simon, for pointing this one out.)
Rod & Lorrie write to share a bit of good news from California:
Like many Americans we have essentially slammed on the brakes for all discretionary spending in the past couple of months. We had placed an order for a solar array for our home in July. Not because it was an attractive financial investment, but because we felt it was the right thing to do at this time. By late September we were wondering about our timing. By the first week in October we realized that such a large discretionary investment was not a good thing at this time, especially given that I had retired early two years ago and my formerly reliable 401k investments were taking a huge beating. We started the process to cancel our order and take our lumps.
Then we received help and encouragement from a most unexpected source, H.R. 1424, the Emergency Economic Stabilization Act of 2008. As the fight to pass this bill was played out on our television screen and on our radio while the nation held it's breath, who would have guessed that some of those obscure adders to the bailout package would directly help someone other than AIG and the big banks?
This was the scene at the DC train station. The woman handing out Lyndon LaRouche flyers said he was the only one who really understood the economy because he had studied the work of mathematician Bernhard Riemann. She said the economy followed laws and equations, like physics.
Is it just me, or is the rescue plan for Citigroup essentially a case of Plan A meets Plan B, then bails out major financial institution?
The rescue package calls for regulators to back $306 billion in risky assets on Citigroup's balance sheet -- an amount not quite half of the original $700 billion Congress approved for buying up toxic mortgage-backed securities. Let's call that Plan A, or at least a rather loud echo of it.
Reports say Timothy Geithner has been tapped as the next U.S. Treasury secretary. How big of a mess might he face? We asked one of the original Cassandras, and the answer is so not pretty.
-- Christine Walravens asks whether the recession will help slow down climate change. Oil Drum contributor Gail Tverberg says yes, but . . .
-- Peter Schiff was right -- that's the message on YouTube. The president of Euro Pacific Capital and frequent TV commentator spent the past few years telling anyone who'd listen that America was heading for a recession. Now he tells us what he expects next.
-- NPR editor Uri Berliner looks at the example of Schiff and considers whether the network saw the crisis coming.
I'm working on a segment about layoffs, and I just stumbled across the Mass Layoff Statistics program. It's part of the federal Bureau of Labor Statistics. A mass layoff is when 50 people or more lose their jobs at a single company in a five-week period.
In October, the nation saw 2,140 mass layoffs -- down from 2,269 in September. Any bets on November? (Helpful chart.)
Alex Farach sends us this flyer from Pembroke Pines, Florida. No your eyes aren't playing tricks on you, it really says: "Buy a new Dodge Ram and get a second new Dodge Ram at no additional cost." Yes, Alex, we agree -- this is nuts.
Yesterday shares of Goldman Sachs closed at the lowest price since the company went public in 1999. The company's shares hit a high of $247.97 on Oct. 31, 2007, on Thursday they sold for $52.36.
My hometown paper serves this up: "Economic Rut Doesn't Faze State's Hunters." In which Joe Johnson says: "It's a way of life. I grew up hunting. I've hunted all my life and I'll die hunting. It might cost a little more but I'm going to hunt."
Missisippi's gun season opens Saturday. Growing up, I always thought of hunting and fishing -- along with gardening -- as ways to help feed the family. I think my grandparents still feel the same.
Now it seems wildlife officials have been worried that gas prices would keep hunters at home, and stop them from playing their expected role in the local ecology. "We can't afford a big decrease in harvest," said Chad Dacus, deer project coordinator for the Mississippi Department of Wildlife, Fisheries and Parks. "We've got some lands where we need harvest increases or face (a habitat crash)."
Imagine you're the CEO of a major auto manufacturer in danger of going bankrupt, countless jobs and arguably the financial health of the U.S. could hang in the balance.
Your day is packed packed packed with emergency meetings and phone calls, some just five minutes long. You're not sleeping.
You have to go to Washington, D.C., to ask Congress for help.
Your company, like many other much smaller companies owns a corporate jet which you've used for years.
Do you really book a flight instead on a commercial airline? Wait in line for hours, risk flight delays? Is that really the best use of your time? And if you book that flight, won't lawmakers just say it's a cheap ploy?
The lobster market's down. Hey, a marketing opportunity! Take it from Lobster Gram:
Due to the sluggish economy, the lobster market is suffering, and the lobstermen need our help! Lobster Gram is pleased to present this BAILOUT BLOWOUT to help get the lobster economy back on its feet! FOR A LIMITED TIME ONLY -- SAVE UP TO 50% when you purchase our namesake package, the original Lobster Gram!
I don't blame Lobster Gram for trying. But somehow, I don't think the half million people who made their first unemployment claims last week are going to be lining up for crustaceans at any price -- to say nothing of the millions more who are worried they'll get the ax next.
Even the Saudi Arabian Warren Buffett didn't help Citi much -- will being 50,000 employees lighter?
JP Morgan announced Thursday that it would be cutting 3,000 positions in their investment banking division. Combined with Citigroup'sannouncement of a 20% cut earlier this week, it sent shock waves through the equity markets (not to mention the MBA job market) -- even a vote of confidence by the Saudi Arabian Warren Buffett could not stem the decline.
An auto worker gets an update on his retirement account.
Spencer Platt/Getty Images
Today on Planet Money:
A bipartisan group of Congressional leaders say they've reached a compromise on bailing out the auto industry. Another group, Democratic leaders, says Detroit must present Congress with a plan by Dec. 2 -- in which case they'll consider voting on it.
-- Adam Davidson reveals what's troubling him about the stock market.
-- David Cole of the Center for Automotive Research looks at the standoff between Detroit and Congress. Cole also explains why the Big Three CEO's used private jets to reach Washington, D.C.
Download the podcast; or subscribe. Intro music: The Killers's "Human." Follow our Twitter feed. Join our Facebook group.
Got this today from Robert Benincasa, NPR's new data guru:
A World Bank Group blogger has invited his readers to use the bank's data tools to run a reality check on members of the G-20 and their post-summit embrace of entrepreneurship and market principles.
Ryan Hahn of the Bank's "Doing Business" blog pointed to several World Bank resources, including its fun interactive "Business Planet" data-mapping mashup.
Today, a listener named Jennifer asks whether the auto industry is less important to the nation's economic health than the financial industry. Dan Costello ran down the numbers yesterday. As for the rest, I'll let Jennifer start us off:
Lawmakers seem very reluctant to bail out the auto industry. They were not very hesitant to bail out banks and investment firms, though. I'm wondering, why this difference? . . . Part of me even wondered if it was a classist issue. Millions of jobs would be affected directly or indirectly by an auto industry collapse, but many of them are blue collar jobs. (Certainly white collar jobs would be affected too, of course, but there aren't many blue collar jobs in the banking industry!)
As we mentioned in a recent podcast, the one place U.S. automakers seem to be doing well is overseas, in the developing world.
"Sales were especially strong in key South America markets, including Brazil, Chile, Ecuador and Peru, each setting all-time GM quarterly sales records," according to General Motors' most recent financial report.
Last year I spent a semester in Cambodia (photo above) navigating the rivers of motorbikes that clog the streets. Only one of my students, Sambath, had ever driven a car. I asked him, "But don't you like the motorbikes better? You can get around the traffic so much more easily! The cars just get stuck!"
He didn't care. He told me he was happy as a clam sitting in the car, listening to music, watching the silent chaos around him though the windows. It didn't matter if he wasn't moving. He wanted a car.
Morning Edition this week looked at whether folks like Sambath might be the auto industry's salvation.
You can also hear about Sambath and his classmates' attempts to put out a news program including a report about prostitution that the university wasn't too happy about.
For your reading pleasure, this from The Big Money: Deflation Fears Suck Air out of Markets. Their take is that the drop-off in consumer spending is leading to a fall in prices, which is causing the stock market to make like a rock in midair and fall.
We've got a slightly different take on what's causing the market swoon -- yes, deflation, deflation, deflation -- but a little something else, too. Adam's prepping tape for it on the podcast today.
I work in Tulsa, Oklahoma which has many small independent oil & gas companies. Most independents here drill nearby in Oklahoma and north Texas for natural gas and a minor amount of oil (from a global perspective) in the basins we work. We are not really an oil economy -- we are gas driven as is much of the US exploration and production. The news from our small piece of the oil patch is that many companies here have stopped drilling because oil & gas are uneconomic. A drilling rig employs maybe 40 people as it runs 24 hours a day 365 days a year. Plus each rig has maintenance and materials associated with it like welders, drilling mud, pipe vendors, etcetera, all of whom are now idle. This obviously has a ripple effect on the local economy here. In addition, I think people tend to forget that oil & gas drilling is one of the few places left in the US that is manufacturing. Oil and gas are the commodity, but the creation of an oil well is a manufacturing process which in the end creates a product that will produce (hopefully) oil and gas. So this is not a job going to China. Perhaps as many as a hundred rigs have been laid down in the last moth or so.
Our friend and Economic House Caller, Simon Johnson, has a disturbing piece on the Wall Street Journal site, about how the financial crisis is far from over. Headline: the U.S. government has no good options but can choose from the least lousy.
Morning! We're planning to talk in-depth about what's driving the stock market down, but for now, let's just say it's going down, miserably down. Other goodies:
The bad news out there hits home, with the stock market falling below 8,000 and credit market indicators still in tough territory. Meanwhile, U.S. officials are now deciding which banks should get a potentially life-saving injection of public capital, and which shouldn't.
-- Charles Peabody of Portales Partners says the government is "playing God" with the banks -- and maybe playing politics, too.
-- Listener Ryan Stotland sends a song for the crisis. He recorded "A Central Banker's Dilemma." Because, you know, why not?
Download the podcast; or subscribe. Intro music today: The Astroturf's "A Central Banker's Dilemma." Opening news clip from Rep. Barney Frank, on Morning Edition. Follow our Twitter feed. Join our Facebook group.
The Dow's down 430 points. It's all relative of course, but it's bad. From the AP:
Wall Street hit levels not seen since 2003, with the Dow Jones industrial average falling below the 8,000 mark, as the fate of Detroit's Big Three automakers and the economy disheartened investors.
Chrysler has worked out at least some contingency plans in case it has to file for bankruptcy protection in the coming months. But General Motors and Ford? Not so much, the chief executives of the big Three auto makers said earlier today in testimony to Congress.
I'm an opera singer in Chicago, covering the title role in "Lulu" with the Lyric Opera of Chicago, and I thought you might like to know about a line in the show that's been getting enormous laughs.
Act 3, scene 1 of the opera takes place at a party where everyone's talking about shares in the Jungfrau Railway company. Everyone owns or wants them, as they're going up and up. There's an exchange between a bank director and a mother at the party.
Mutter: "Meine samtlichen Ersparnisse bestehn jetzt aus Jungfrau- Aktien. Wenn das nicht gluckt, Herr Generaldirektor, dann kratze ich Ihnen die Augen aus," which she delivers with a laugh. It means: "My entire savings are in Jungfrau shares now. If this doesn't succeed, Mr. Bank Director, then I'll scratch your eyes out!"
Listener Roger Kerr and many others want to know what is at stake in a potential bailout of the Big Three automakers. Specifically, Kerr wants to know:
How many employees of those companies, of their suppliers, and of all the other
businesses which would be affected downstream, will lose their jobs as a
result?
Daniel Gross at Slate has the scoop on Harvard's gargantuan investment portfolio -- or, more properly, its less-gargantuan-than-before investment portfolio.
The school bet on emerging markets like Brazil and on commodity prices remaining high. Oops.
We're getting a lot of mail today from people wanting to talk about the American auto industry. Leaders of General Motors, Ford and Chrysler asked Congress yesterday for a rescue or loan or bailout, whatever you want to call $25 billion in financing from Uncle Sam. Their request is drawing a fair bit of flack in the press, like this op-ed from Michigan luminary Mitt Romney.
One of Detroit's big problems is that it's paying a ton for employee benefits like retirement funds and health insurance. Listener Jesse Knaak writes:
Instead of a handout why doesn't the federal government take on the responsibility of the medical care for the union retirees? If that debt obligation is taken off the books it would allow some breathing room for restructuring.
From Google Trends, take a look at the spike in searches for the word "deflation" in recent months.
Meanwhile, the Consumer Price Index plunged a record 1% in October, largely on lower energy costs.
Wall Street analysts were expecting an 0.8 percent decline and it was the biggest drop since the U.S. Labor Department began collecting monthly data in 1947.
Slate's Big Money website has put together a video explainer for those who want to understand bonds a bit more but don't want to fall asleep. It's done in a Schoolhouse Rock style, which should make sense to anyone over the age of 30.
Am I wrong? Did Generation Y grow up on Schoolhouse Rock too?
The Chinese say they're paying for America's financial crisis.
NPR
Today on Planet Money:
French President Nicolas Sarkozy is hailing the G-20's declaration that credit ratings agency be regulated as a major victory. But professor of banking, Joseph Mason, says he thinks it's just more of the same. Plus: Laura is back from China with a conversation about capitalism.
-- Louisiana State University banking professor Joseph Mason says credit ratings agencies have become arbiters of risk and need more monitoring.
-- A journalist in China calls capitalism a mixed bag.
Download the podcast; or subscribe. Intro music today: Daryl Hall and John Oates' "Rich Girl." Get the opening clip in full. Follow our Twitter feed. Join our Facebook group.
For those who have been kept up at night wondering what new regulations of the global financial market should and could look like, here's a blog post for you.
We hear a lot about regulation these days. It's a complex topic and everyone seems to have an opinion. Some ideas are just plain noise while others could end up formulating the basis of some of the biggest changes to the global economic system in a half century. At this point, it's impossible to know which is which.
Take a read. We plan to offer up a bunch of similar posts about possible new financial regulations in the coming weeks. And, of course, feel free to give us some of your thoughts too.
Credit Anecdote: Applied for and received financing for an Apple laptop with 90 days interest free. A whole $3k approved. Wow!
Which is a quite different story from the one Michael shares, about American Express closing a certain type of business account -- not just his, but all of them. He sends photo evidence.
Keep these reports from the economy coming, please. You're living it.
I just got back from a week in China, and have I ever got tape for you. For now, let me just say that the weirdest day I spent ended with this taxidermy rooster. The artist who made it, Kohei Nawa, wants us to consider and reconsider what we think is real -- for me, a perfect metaphor for the planet's rapidly changing economy.
More on the rooster later, I promise.
Also, I've thrown a few photos from the trip into the Planet Money Flickr pool. Come play. We need your pictures of this economy, in all the ways you see it.
The Washington Post has the first of a two-day series on the evolution of Treasury Secretary Hank Paulson from a free marketeer to one of the most famous market interventionist of the early 21st century.
Among the best tidbits: It was Paulson who first suggested the Securities and Exchange Commission temporarily ban short selling of financial stocks this fall.
The folks over at Wall Street Fighter have compiled a great collection of pictures of Treasury Secretary Hank Paulson. Some of them are definitely Photoshopped, but they are all equally hilarious.
With home prices tumbling across the country, it's not surprising that home builders aren't feeling so hot.
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the confidence of home builders, dropped five points this month to 9. It started the year at 19. The November number is the lowest since the index was started in January 1985.
Chairman of the Federal Reserve, Ben Bernanke and Treasury Secretary Henry Paulson told a Congressional panel this morning that the economic crises remains severe and hinted the Feds may need more money on top of the recent $700 billion bailout plan to fix it.
If we have learned anything throughout this year," Mr. Paulson said, "we have learned that this financial crisis is unpredictable and difficult to counteract."
Could we soon reach a trillion dollars?
Update: link to the speakers' prepared testimonies below.
Late yesterday, our Planet Money colleague, Alan Cordova, went to hear J.P. Morgan honcho Jamie Dimon speak at Columbia Business School - Alan's alma mater.
Alan reports that Dimon was more direct about the ins and outs of the credit crisis than he expected from such a high-profile Wall Street CEO.
Here are some of Alan's takes from the hour-long talk:
-- On who's to blame for the current crisis: For one, Dimon said banks have been roundly blamed for the credit crisis, but the ordinary consumer is partially at fault. He noted there was a 30% rate of fraud on subprime mortgage applications in the past few years, and individuals made investment decisions that were bad under any market conditions. More specifically, blame does not lie exclusively with the American banks -- European banks were twice as levered, and they were under no compulsion to buy the subprime products.
With so many homeowners facing foreclosure, a lot of you have been asking about what effect that's having on PMI, private mortgage insurance. We get the answer from a insurance expert.
-- Listener Holly Yoders wants to know what happened to all the private mortgage premiums that were paid on mortgage loans with less than 20% down.
-- Economist Hampton Finer of the New York State Insurance Department says private mortgage insurance is going to be of limited help to banks.
JD from Witchita, Kansas, wrote in to ask how many people in the U.S. have mortgages and how many of them are adjustable rate mortgages, the kind of loans where the interest rate on the note is periodically adjusted based on a variety of indices.
The other day you had an engineer who asked about his abillity to sell his house after he graduated from school. An economist responded to his question. What caught my attention was the statement the economist asked the caller. "Do you have and Adjustble Rate Mortage?" The economist answered his own question by saying "Of course you do as do I and most everyone else." My question to you is just how many people have ARM's?
This floors me. I don't understand how so many people could be caught up in this unless they didn't know what they were getting into.
Many of you have written to us about the SEC charging Internet billionaire and Dallas Mavericks owner Mark Cuban with insider trading. Cuban was a guest on our podcast last month.
The government alleges that in June 2004 Cuban sold 600,000 shares of Canadian search engine company Mamma.com after he learned it would be making a stock offering. The management of Mamma.com invited Cuban to take part in the stock offering after he agreed to keep it a secret, according to the SEC.
The charge is a civil complaint, not a criminal one. Here's a link to the court filing.
Citigroup Inc., the largest bank in America, announced this morning that it is axing 53,000 more jobs in the coming months as the banking giant struggles to steady itself after suffering massive losses from deteriorating debt.
The company said total headcount is being reduced by 20% from its peak of 375,000 at the end of 2007; the company had already announced in October that it was eliminating about 22,000 jobs from those levels.
Of course, this has a lot to do with the credit crisis. But Citi's chief Vikram Pandit has had plenty of skeptics long before this summer's market meltdown. Since Pandit took over a year ago, the company has lost 70% of its market capitalization -- making it worth less than many companies few people out there have heard of. That's not "Living Richly" as the company's ubiquitous ad campaign says.
We're lucky that we don't work for one of the Big Three, but for a Japanese brand that is actually manufactured in Ohio, Kentucky and Tennessee. Something many Americans don't realize when talking about the car industry, is that it's not simply Detroit. Honda, Toyota, Isuzu, and Subaru all have factories here in the US that employee hundreds of thousands of Americans- manufacturing parts, assembling cars, shipping cars to points all over the world, and the dealerships that employ people to sell and maintain those vehicles. My Japanese badged SUV was made in Indiana.
Sales in our particular dealership are down about half of what they were a year ago, and that is when the crises had already started. Our dealership is not alone- everyone in the area is in the same boat. Credit is hard to get now, so people that typically finance a car are holding onto their older vehicle. We've seen more cash deals in the last six months than in the last six years. People that are holding onto their older vehicles are tending not to get them serviced, especially with the holiday season coming up. The store is preternaturally quiet, and it's unsettling, like being in a classroom after the kids have all gone home.
A lot of the details are 'to-be-figured-out-later.' The pledges include one for greater transparency, and oversight of ratings agencies.
There is a short list of specific items to be completed by March 31, 2009 including the establishment of a supervisory group to monitor "all major cross-border financial institutions."
French President Nicolas Sarkozy said "2008 will go down in history as the year in which the world understood that we are fairly and squarely in the 21st century." (I went to his press conference at the posh Willard Hotel - that's the view from the back of the room above. Some, presumably French, chefs from the kitchen snuck in to try to get a glimpse of the guy.)
Where was I?
Oh, the leaders said they thought economic stimulus (building new roads, mailing out checks.. that sort of thing) were a good idea. But Jose Manuel Barroso, President of the European Commission said each country would have to decide what was right.
"Some countries have more room for maneuver, have more ability to do this." Barroso said, pointing out that things are bad enough that some European countries are getting assistance from the International Monetary Fund.
It's billed as a World Summit, but not everyone is allowed in.
During a break today I walked the 15 block perimeter around the National Building Museum where the world leaders were meeting to discuss the financial crisis.
There was a jogger running laps, and lots of police. But almost no activists. I ran into a small Rawandan group protesting the arrest of Rose Kabuye.
Bosco Munga, a really tall guy who lives in the DC area said the group didn't have an economic agenda per se. But he wished Africa had somehow been included in the G-20 talks today.
"It doesn't have to be G-this, or G-that," he said. "We don't have the African Union here... if we're going to be included as part of the world economy, we should have groupings that represent us."
Ok, so you have world leaders coming over to visit. Who sits next to whom? Do you go alphabetically? By GDP? Left-handed folks next to left-handed?
See the chart above.
I can't really figure out a logic to it. There's the EU corner in the lower left. My colleague points out oil rivals Indonesia and Saudi Arabia are next to each other, and the UN and IMF folks who might not get along also are bumping elbows.
The press were originally told to expect a morning public Plenary Session where the world leaders would be making pre-prepared statements. That apparently got scrapped, probably not a bad idea.
German Chancellor Angela Merkel told reporters the leaders are working on a list of 50 things that would be implemented before the end of March.
Pool Report #3
Nov. 15, 2008
At opening of G-20 session
Bush sat with Treasury Secretary Paulson to his right and world leaders around a large, circular table. Bush took on and off glasses and again appeared in an upbeat mood. Photos taken. No statement. Pool moved out.
The holiday shopping season is just weeks away, but it doesn't look good for retailers. Retail sales fell by 2.8% last month, the largest drop off on record. But not everyone is worried. Finance professor, John Cochrane, says he doesn't understand what all the fuss is about.
-- John Cochrane says the world hasn't fallen off a cliff...yet.
One wonders about the prospects for reforming the world's financial architecture, if the G-20 folks cannot agree on a press conference schedule.
We just got a list of where the various world leaders will be giving reaction for the cameras after the big financial summit here this weekend.
And they are all over the place. The French are at the Willard Hotel, the Brits are going to be at the ambassador's house and South Korea at the Paloma Hotel.
Do they expect reporters to sprint from one to another as if this were some sort of hash run?
We asked Planet Money readers yesterday a most serious and important question: who out there has office bets going on about how low the Dow will go?
Never ones to let us down, you quickly sent us your responses and even some evidence.
Exempli Gratia: here is a pic of an "anonymous" office pool that wanted to share their wagers but asked not to be indentified. "SM" is predicting a bottom of 5500. Yikes! Let's hope they don't win the bet.
Can you explain this statement that the CDO "expert" made to Eisman: "I love guys like you who short my market. Without you, I don't have anything to buy."
Ditto for Russel:
I too cannot figure out how shorting the CDO market was, in effect, propping it up.
Ok, here's my stab at it:
Eisman was trying to find a way to bet that the housing market would crash. One of the ways he did this was by buying insurance on subprime mortgages, through something called a credit default swap.
The White House is adding a new player to the bailout team. Neil M. Barofsky, of New York, has been nominated to be the Special Inspector General for the Troubled Asset Relief Program
Barofsky is currently an Assistant United States Attorney for the Southern District of New York and Chief of the Mortgage Fraud Group. Before that he worked as a lead prosecutor in the Southern District's Securities Fraud Unit.
It's his job to "conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary of the Treasury."
Four top Citigroup executives, including chief executive Vikram Pandit, bought 1.3 million shares of their company yesterday as the firm's stock slid to a 12-year low.
Courtesy Paul Kalas, University of California, Berkeley
We have our first image of an alien world.
If the folks there are also monitoring us, we probably look pretty good. The Fomalhaut solar system is 25 light years away, so they would seeing Earth in 1983.
Third quarter GDP numbers in Europe are out and guess whose economy stormed to the top of the pack? In a surprise, it's France. While Germany and Italy are already in recessions and Britain isn't far behind, France posted an anemic but respectable 0.1 percent growth rate.
Treasury Secretary Henry Paulson talked to us yesterday. Well us, meaning NPR, specifically Robert Siegel on All Things Considered.
Robert asking him for an example, demonstrating that the bailout was having some effect. Paulson said it wasn't so much what had happened, as what had not happened.
"I believe the banking system has been stabilized, no one is asking themselves anymore is there some major institution that might fail and we would not be able to do anything about it. So I think that is a positive."
But could there be another major failure?
"I gotta tell you, I think our major institutions have been stabilized," Paulson said. "I believe that very strongly."
Hedge fund managers say they'll share their numbers with SEC, but not with the public. And indications of the economic downturn are all around, as Washington gears up for the G20 summit.
-- Kumi Naidoo, co-chair of the Global Call to Action against Poverty is in town to guarantee the world's poorer countries won't be left out at the G20 meeting.
Download the podcast; or subscribe. Intro music today: TV on the Radio's "Love Dog." Get the opening clip in full. Follow our Twitter feed. Join our Facebook group.
I have a sign of the diminishing job market. I work at a movie theater, and despite the news saying that the film industry is the one business model that is recession-proof, we've found out recently that our movie theaters are not. As far as we can tell, there haven't been any sizable declines in our number of customers, yet we are being mandated to cut hours like crazy. I'm not sure if the higher ups see something we can't see, or if they are simply preparing for a future that might not be so bright, but it hurts. Showtimes are being cut back (fewer weekday matinee shows) and we are expected to do the same amount of work with much fewer staff members. Of course, we still have the same number of employees, because the company doesn't want to lay anyone off and have to pay unemployment, so many of us are now trying to live off 15-20 hours a week. Nobody has quit yet, and I believe this is because of the complete lack of available jobs out there, even at the minimum wage level.
Planet Money contributor Chana Jaffe-Walt is visiting from Seattle this week. She sends this dispatch from her reporting:
Despite looking like a 17-year-old valedictorian, Barry Silbert, 32, has been working hard on a new company that he hopes will be the place to buy and trade toxic assets. He wants his company, SecondMarket to be sort of a consignment store for CDOs and mortgage backed securities. A place where sellers can unload their junk and buyers can bid for it.
Silbert was hoping the government would be one of those buyers, but yesterday, he learned that the Toxic Asset Relief Plan will no longer be relieving assets. Now he has an enormous downtown Manhattan office, a growing staff and complex new software for trading toxic assets. Lots of banks and financial institutions still really want to get rid of this junk. The question is how low they'll go and if anyone out there will be willing to buy it.
Which sort of leaves us back where we started, doesn't it?
One of the jokes at newspapers these days is that flat is the new up when it comes to advertising. If only....
I had to talk to a journalism class the other night about the future of journalism. One asked where I thought newspapers would be in ten years. I told them that after spending over a decade at them, I decided it was time to pour out the water in my optimisitic glass and look at the hard trurth: I don't think many of them will be here in five years no matter ten. It wasn't upbeat but it was honest.
Now, some industry watchers are anticipating a 40% decline in advertising during this economic cycle. On top of the industries other long term woes - and many newspaper companies high debt ratios - I just don't see how a list of bankruptcies aren't coming soon. Sad news all around.
The Dow has fallen below 8000, after giving up early gains on downbeat news from Intel Corp. and Wal-Mart Stores Inc. Admit it: who has an office pool over how low the Dow can go?
Not everyone likes historian Niall Ferguson . I get it. Saying the Harvard prof is a self-promoter is like saying Hank "King Henry" Paulson appears a bit unsure of how to deal with the financial crisis this week. There's understatement and then there's understatement.
Despite that, I'm a fan. One plug: "The War of the World: Twentieth Century Conflict and the Descent of the West" is a really good book.
Here's his historical take on the recent economic downturn in Vanity Fair this month.
Here's another exploring whether the current financial crisis means the global balance of power is shifting for good. In short, it looks at whether the relationship between China and America - ok, a term he annoyingly termed as "Chimerica" several years ago -- is likely to move in China's favor.
Some bean counters are taking on the Herculean task of trying to figure out just how much money the financial sector has lost in the current crisis. As of now, it appears to be at least one trillion dollars. That's a lot of zeroes.
Two economists we've been talking to took issue with Henry Paulson's announcement yesterday that he was giving up on Plan A, which was to buy up the mortgage backed securities that he once described as clogging up the financial system.
Larry Ausubel and Peter Cramton at the University of Maryland have a long history designing the kinds of auctions that might have been used to purchase them.
Cramton writes in an email that the auction would have been better than the current plan, which amounts to hand picking which banks live or die:
We get your questions answered. A lawyer explains how a General Motors bankruptcy would work, and a corporate tax expert breaks down a significant change in the tax code.
-- Bankruptcy attorney Steve Jakubowski says Chapter 11 won't work for GM.
-- Corporate tax law expert Robert Willens adds up the windfall from a one-line change in the tax code.
Listener Graydon Gordian has a question about our good ol' friend, the TED spread:
So instead of looking at the stock market you consistently use the TED spread as an indicator of current economic conditions and the reasons you've given for doing so seem very legitimate.
But I have never heard you discuss what might be limited or problematic about using the TED spread. Are there any common criticisms the indicator receives?
James King sends this, from Portfolio: "The End of Wall Street's Boom." It's a fascinating article, written by Michael Lewis of Liar's Poker fame, about a few of the guys who actually saw this financial disaster coming and bet on everything falling apart, Steve Eisman and his colleagues at the hedge fund FrontPoint. Head trader Danny Moses describes the feeling of realizing they were right:
As we sat there, we were weirdly calm," Moses says. "We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed." Eisman was appalled. "Look," he said. "I'm short. I don't want the country to go into a depression. I just want it to ******* deleverage." He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it.
To boost their bottom line, banks are boosting their customers fees in all sorts of new ways. Many have jacked up ATM, overdraft and bounced check fees. Banks are likely to boost minimum account balance limits requirements. Plus, all these mergers taxpayers funds are helping support are likely to lead to even higher fees.
Treasury Secretary Henry Paulson and the Bush Administration are likely in for more criticism that they lack a cohesive plan to deal with the financial crisis. Why? This morning, the Treasury Department said the $700 billion rescue plan would not be used to purchase banks' troubled assets as originally planned.
Yes, banks are going to get some of that cash directly injected to their balance sheets. But Paulson now says a new goal for the program is to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.
Mr. Paulson says almost half of the nation's consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets had "for all practical purposes ground to a halt" and needed support.
As Democratic Congressional leaders reportedly are drawing up a multi-billion Detroit bailout plan, here's a interesting CNBC video discussion on how the shape of $700 bailout plans appears to be changing rapidly -- and the total amount may rise much higher when all is said and done.
We're all about the auto industry. President-elect Barack Obama wants to save them, but others aren't sure it's a good idea. We look into the problems at General Motors and hear from a listener on the ground in Detroit.
-- Kimberly Rodriguez, an economist with Grant Thorton LLP, says the U.S. automotive industry needs to survive.
-- Economist House Call! An auto worker in Detroit is nervous about the industry's future. Simon Johnson tells him to sit tight, for the moment.
I've spent most of the last ten years as a healthcare reporter. What I've learned is that the system is so much more complex (in both good and absurd ways) than lawmakers and other "experts" try to make it sound in silly Congressional floor speeches and cable sound bites.
This is short and leaves a lot of nuance out, but here's a brief You Tube video titled "Why is Healthcare So Expensive." It's the third most watched clip today.
One beef I have is the part about supporting malpractice reform. I genuinely apologize for the shameless plug, but I did a story last year on California's malpractice reform, which is considered the most influential reform in the country. Like many things, the devil is in the details. That goes double for malpractice reform.
Whenever Europeans teased us in recent years about the U.S.'s tattered image abroad, at least we were able to say we have jobs.
In the last 15 years, the U.S. jobless rate has never exceeded 7% and averaged 5.1%. Some European countries like Germany never had a jobless rate below 7% during that time. Oh how things have changed.
How soon before we match the historically high unemployment rates across Europe?
Richard Posner, one of most cited legal scholars alive, has a new post on the blog he co-writes with Nobel laureate Gary Becker . It's his take on the silver lining of economic downturns.
On the surface, it reads a bit like an ode to Phil Gramm and his ilk who scoff at our nation of whiners. It's actually more of a plain-old market defense of why it's better to go through the pain now rather than delay it for an inevitable future. He does, however, support a tax increase right now.
Take a look and let us know what you think.
Here's a brief excerpt:
A depression increases the efficiency with which both labor and capital inputs are used by business, because it creates an occasion for reducing slack.One might think that a firm that has slack in good times will have as much incentive to reduce it as it would in bad times; slack (failing to maximize profits) is an opportunity cost, which in economics has the same motivational effect as an out-of-pocket expense. But firms are organizations, and organizations experience agency costs, which are more difficult to control in good times than in bad. If a firm's profits are growing, it is easier for the firm's executives to skim some of the profits, pocketing them in the form of excessive compensation or perquisites, than when the firm is shrinking. In the former case, stockholders will be doing well, so the pressure they exert through the board of directors to minimize the extraction of rents by executives and other employees will be less intense than when the firm is at risk of collapse. When the depression ends, the firm will have lower average costs, though they will drift upwards as the firm re-grows.
Now that an automaker bailout seems to be gathering serious steam in Washington, this seems to be a good time to get all sorts of opinions about whether taxpayers will benefit under a Detroit handout.
It's not easy getting good numbers on wages in the auto industry. University of Michigan professor Mark Perry has tried to come up with some. Here's his estimate of the average hourly compensation for employees at the Big Three, which includes hourly pay plus benefits. GM, Ford and Chrysler: $73.20; Toyota: $48; workers in other industries: $28-47.
Perry believes it's better if we let the market take its course and allow foreign car makers who have an industry price advantage to essentially take control of the global auto market.
Here's a vote for the other side. Their take: the auto industry has such a huge impact on the overall economy due to the large number of actors involved in producing, selling and maintaining a car that there is no other choice but to help the U.S. auto industry get off life support.
I heard in the podcast and read in Bloomberg that GM stocks fell to a minimum of 59 years... what does this really mean? Does it mean that the company worths the same it was worth 59 years ago, if someone was to buy it today? That all the value they accumulated in the last 59 years went down the drain? How can a company recover from such a drop in a short period time (I mean, without waiting another 59 years)?
It's hard to overstate how badly this American icon has stumbled of late. The automaker's shares have lost nearly half their value in the past week, giving the company a market value of $1.6 billion, below the $2.0 billion that many investors consider to be the ceiling for small-capitalization stocks. Ouch.
The company is worth less than it was nearly since its was founded a century ago. In 1929, its market capitalization was $4 billion. At the start of this decade, its market cap was $66 billion. Whether GM will have any market value by the end of the year remains an open question: the company's executives have reportedly told lawmakers that GM needs federal cash in order to avoid filing bankruptcy as soon as later this year.
Simon Johnson and his colleagues over at Baseline Scenario have a guest post on the Wall Street Journal's Real Time Economics blog today. It's their own letter to president-elect Barack Obama.
1. Take advantage of competition. The US has some of the best run companies in the world. Ordinarily, the stronger companies acquire and restructure the weaker, and the weakest fail. There may be a difficult process of restructuring and consolidation in many sectors, but it would be a mistake to provide government support that will only delay necessary changes. In particular, support for auto companies can only be justified if it will produce a stronger, globally competitive, more fuel-efficient auto industry. Affected workers should be supported with money (extended unemployment benefits and a better health care safety net) and job retraining assistance. But the private sector should sort out the winners and the losers.
2. Scale up investments in education, with an emphasis on spreading technology-related skills through the population. There should be a massive expansion in community colleges, focusing on people who only completed high school; our major engineering schools should be challenged to take on this task directly. The "high school only" vs. "completed college" productivity and income divide in the US needs to be closed, for both equity and efficiency reasons. This will ensure competitiveness in tomorrow's global economy.
ProPublica, the new New York-based investigative non-profit, has a joint story with the Los Angeles Times this morning that is quite interesting.
According to confidential documents obtained by ProPublica, Goldman Sachs has been playing both sides of the coin with California taxpayers' money. On the one hand, it was making millions from fees selling California bonds.
At the same time, it appears to have been making lots of cash advising people on how to profit from California's deepening financial misery and helping push down the price of those bonds and increase the interest rate California pays on its debt.
Nothing illegal to all that. But it's not exactly the kind of financial advisor you want to bring home to Mom.
Here's an excerpt:
Goldman, Sachs & Co. urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds.
The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California's deepening financial misery. In Sacramento, officials said they were concerned that Goldman's strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.
"It could exaggerate people's worries about our credit," said Paul Rosenstiel, head of the public finance division of the treasurer's office.
The long-maligned U.S. dollar has made some of its sharpest gains against foreign currencies in decades as a global economic slowdown is spurring demand for the greenback.
Here's an interesting brief on why it's happening and why a strong dollar is likely here for a while.
Richard Fuld, CEO of Lehman Brothers, is liquidating part of his art holdings. And he's doing it in a very investment-banker way.
Sarah Thornton author of the new book Seven Days in the Art Worldtells Morning Edition that Fuld's wife arranged to put a collection of 16 drawings up for auction, including at least one work by Willem de Koonig.
"The Fuld's negotiated a guarantee in July of in the region of - rumor has it - of $20 million" she says, meaning that even if none of the drawings sell, the Fuld's still get that minimum amount.
In the financial world, that would be called a put option.
Thornton says Francis Bacon's paintings of popes are very popular with the billionaires these days. She says they seem to sum up what it must feel like to be a hedge fund manager today.
The federal government is throwing billions more at AIG, and the insurance giant isn't the only one in need of help; the Big Three want a loan of their own. Plus: China has its own solution to deal with the struggling economy: a $586 billion stimulus package.
-- Simon Johnson talks about how China plans to spend the money.
-- Laura checks in with an audio postcard from the streets of Beijing.
Listener Eduardo Bortoni asks two good questions. The first has to do with CDOs:
1) Why is it still difficult to price CDOs? Aren't they supposed to be generating cash every month due to the income streams in the the "things" in them? Shouldn't this provide a clue to it's intrinsic value?
Eduardo is asking about these complicated bond-like things that are at the center of the financial crisis: CDOs. These are called Toxic Assets, or Toxic Waste and are so unloved and unwanted that nobody will buy them even at firesale prices of a dime on the dollar.
Eduardo notes, correctly, that many of these CDOs are paying off money every month. Doesn't anybody want that money? Should they be willing to pay something for them? Then why aren't they moving?
The answer is complex and lies at the heart of this crisis.
Bob Bonifacio started working in the mortgage industry about 11 years ago. He writes:
I landed a job (much quicker than I had anticipated) at another broker financing home improvement loans for a pool builder. These loans were often exotic and risky endeavors, they only required minimal documentation (if any at all) and the lenders appeared to have no regard for their position's safety. If a person owed 200k on a 200k house, they would lend dollar for dollar OVER the value of the house to complete a pool installation which could range anywhere from 15-20k to 60-80k. Risky, I thought, but shoot these are big time companies lending serious money they must've done their homework. After about a year I moved into what I perceived to be the cleaner and better path in the mortgage industry; I accepted a position as an account manager / underwriter for a lender. The lender was known for it's extremely aggressive underwriting guidelines and seemingly endless creativity in devising new and elaborate ways of structuring loans.
The stimulus package, of which 100 billion yuan is earmarked for this quarter, will be spent on low-rent housing, roads, railways and airports and infrastructure in rural areas. The funds, equivalent to almost a fifth of China's gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said yesterday on its web site.
Barack Obama gave his first news conference as president-elect today. In case you missed it, check out the video here.
Obama appeared with so many advisors that even we had a hard time figuring out who they all were. So our challenge to you is: How many of Obama's advisors can you identify in the photo?
This is for a possible total of 18 points. Answers after the jump. No peeking.
We don't know who the third from right is or the second from left. Can you help us?
Lydia Wagner sends this photo from a jewelry store near her office in San Francisco. She says:
I'm not an expensive jewelry kind of person so I don't shop there. It just surprised me to see such a high-end place advertise in what could be called a low-end way.
In case you can't read the sign, here's what it says:
**** Jewelers over the last 95 years has made friends with many large jewelry manufacturers. During this extremely slow economic time some manufacturers are clearing out overstock unique and classic jewelry at well below market prices. You, our friends and customers, will get a bargain and the manufacturers raise some needed capital. A Win! Win! situation for everyone.
Keep sending those pictures. We love to see them. Upload them to our Facebook page, send us an email (planetmoney@npr.og), or added them to the newly created Planet Money Flickr group.
Planet Money listener and reader Eric Sipple has a question about how the U.S. jobless rate is calculated. It's a timely one: this morning, we found out the jobless rate spiked to 6.5%, its highest level in 14 years.
How is the U.S. Jobless rate calculated? Is this based entirely on who is collecting unemployment insurance, or is there a more complicated calculation that takes place? When we say 1 in 10 Americans are out of work, are we saying 1 in 10 Americans who previously were working are out, or 1 in 10 total Americans?
In short, the unemployment rate tells you the percent of the labor force that is unemployed. But like many people, Eric wonders if the number is based on the number of people filing for unemployment insurance. Unfortunately, that wouldn't work because some people who have run out of unemployment benefits could still be unemployed, undercutting the actual unemployment number.
This probably says a lot about how boring and nerdy I can be at times, but I watched a recent 90-minute presentation by a number of Harvard economic heavy hitters last night. (It's also available on the school's Web site.)
It's actually fascinating and the panelists kept the discussion in terms all of us can understand. The panel includes Harvard Business School's dean, Jay Light; bankruptcy expert Elizabeth Warren; and Nobel prize winner Robert Merton.
You can watch the whole thing or move around during the talk. Take a look.
Planet Money intern Alan Cordova has this dispatch about the auto industry in Detroit today:
The news out of Detroit was as bleak as the weather today. Quarterly earnings reports released by General Motors and Ford showed major losses in the third quarter ($2.5 billion for GM and $129 million for Ford.) While the losses are nothing to sneeze at, it may be more helpful to look at how much cash the companies have on hand. That's even bleaker.
In the third quarter, Ford reported that it had spent $7.7 billion in cash, with GM close behind at $6.9 billion. Both companies warned that they could run out of cash in 2009.
I'm off to China today. Just this second I'm sitting in the Newark airport with 400 renminbi and a bite-sized Kit Kat in my pocket. The old greenback's not buying what it used to -- until just lately, a dollar got you seven or eight RMB. Just now, I got more like five RMB and change.
Also, I stopped in at the airport bookstore to buy little gifts for my hosts. I was hoping to get a few small I [Heart] New York pins, but they were all made in China and schlepping them back just seemed too absurd.
Our friend David Martin started an interesting thread on his Facebook group asking people who they would nominate to be Obama's Treasury Secretary. We thought it was such a great idea that we wanted to hear more. So tell us, which man or woman do you think deserves the job and why?
Our pal, Amir Sufi, at the University of Chicago School of Business (which got an eye-popping $300 million gift this morning from alumnus David Booth and will, natch, be renamed the University of Chicago Booth School of Business) sent over a copy of his recent research on the role politics is playing in the ever-expanding federal bailout plan.
Sufi and some colleagues have already run the numbers on politicians' voting records for both recent economic bailout packages, and their findings won't ease concerns about misspent billions.
Employers shed another 240,000 jobs in October, the government reported Friday morning, the 10th consecutive monthly decline led by higher than expected drop offs in the manufacturing and services sectors. The economy has now lost 1.18 million jobs since January and the unemployment rate rose to 6.5% in October, the highest level seen since March 1994.
Here's some historical data to compare all of this.
A look at the unemployment rate going back several decades
And here's a look at current state unemployment rates and some historial highs and lows.
It isn't one of our normal Planet Money indicators, but today we're looking at the CommSec iPod index. The index determines whether a currency is under or overvalued by comparing the cost of one product worldwide. Similar to the Big Mac index, it's based on the theory that if exchange rates are working properly, the same product should cost about the same worldwide.
According to the latest index, the cheapest place in the world to buy an iPod 8gb nano music player right now is Australia, where it costs $131.95 US dollars. The reason for the low price: the country's currency has been declining steadily, 27% in the past three months.
So how do other countries stack up? The iPod costs $149 here in the United States and $189.51 in China. The most expensive country place to buy it right now is Argentina, where it will run you $353.20. Check out the full index here.
The Treasury Department gave its first report to Congress on the bailout this week. We find out where the money is going and what's next. Plus: A look at what happens when big corporations make friends with one political party and another party comes into power.
-- Treasury spokesperson Jennifer Zuccarelli gives us a status update on the bailout.
-- Finance professor Michael Weisbach tells us how the political affiliations of a company's bard of directors affect its stock prices.
Nonfarm productivity went up last quarter, by 1.1 percent. The statistic measures the making of stuff that isn't grown or raised. The Wall Street Journal says this proves the economy is "resilient."
The problem is that productivity growth last quarter was achieved because hours worked fell at a faster pace, 2.7%, than business output, which contracted 1.7%. In other words, companies shed labor faster than the economy shed output.
In other words, the workforce looks more productive because it included fewer people. Workers just turned it up a notch. (Feel like you're doing a job and a half? That's the feeling.)
Blackstone adds that the trend makes employers that much more likely to off lay additional people.
I'm guessing this isn't going to go over so well on Main Street.
Now that the Justice Department is investigating companies involved in the financial meltdown, executives around the country are rushing to hire defense lawyers. And guess who is likely paying for many of those lawyers?
One of the big potential Justice targets are executives at mortgage giants Fannie Mae and Freddie Mac. And...drum roll please...when the government took over Fannie and Freddie, taxpayers inherited more than just bad debts. They may also be on the hook for tens of millions of dollars in legal fees for the companies' current and former executives.
Dwayne Callender from Laurelton, N.Y. has a question that we continue to get quite a bit.
Why is the money used in the bailout not going directly to people when they keep hearing stories about declines in consumer spending and the slumping housing market. To summarize, why can't the government give money directly to citizens to combat the impending deflationary cycle? This would also assume that the money or rebate given to households would be in the form of a debit card to encourage spending and avoid saving it in a bank account. This would prevent some of the issues raised when stimulus checks were issued and some people such as myself just put the money into a savings account. Also I never quite saw what the final estimate was on the cost of the original stimulus package (around $150-$200 million if I remember correctly) for what was essentially a brief shot in the arm.
Now that Alan Greenspan-bashing is so in vogue, it seems as good a moment as any to make a contrary point or two.
And here to help us with that is the libertarian Cato Institute, which has a new paper out on why Greenspan isn't the bad guy everyone is making him out to be. Pah-lease, they say, to criticism that the famed Fed chairman carried on too expansionary a monetary policy that led to our current crises. (By the way, an economist I talked to yesterday called this "The Great Recession." I thought that was very catchy, if very scary.)
Considering Cato has called for abolishing the Fed for years, you have to love it when they are left to defend the Fed.
On yesterday's podcast, we talked about LIBOR, the London interbank offered rate. A measure of the interest banks charge each other for loans, LIBOR has lately been falling.
Yet when we asked money trader Will Aston-Reese about it for the podcast yesterday, he told us that despite lowered interest rate, he's still seeing precious little lending between banks. Which prompted Gordon Wilson to send us what looks at first like an entry for the Planet Money Glossary:
LIBOR = The rate at which banks will still not lend each other money...
The New Republic has an interesting piece on the current horse racing over who the next Treasury Secretary might be.
Word in Washington is the race is likely between several well-respected but very different financial heavy hitters.
"According to people familiar with the situation," the smart money right now is that President-elect Obama is leaning toward Tim Geithner, the 48-year-old boy-man who has headed up the Federal Reserve Bank of New York since 2003. He's smart and known as a cool cucumber. In a No Drama-Obama administration, that may give him the edge.
Still, Geither's mentor and former Treasury Secretary under President Clinton, Larry Summers, is clearly still in the race. You remember Summers: he stepped down in 2006 after a turbulent and clumsy tenor as president of Harvard University. One highlight: he said innate differences between men and women might be one reason fewer women succeed in science and math careers.
Americans picked their next president. As the transition began, Planet Money listeners drew up lists of ideas for how Barack Obama should approach the economy. Plus: Obama finds a home in the suburbs.
-- Money trader Will Aston-Reese scratches his head over the mystifying credit crisis.
--Urban planner Robert Lang, of Virginia Tech's Metropolitan Institute, argues the presidential race turned in part on economic hardship in the mushrooming neighborhoods outside cities.
(NOTE: Technical troubles beyond our control caused this podcast to get shortened in iTunes. The full 16-minute version is now available. Just hit "refresh" in iTunes.)
Download the podcast; or subscribe. Intro music today: Lady Gaga's "Just Dance." Get the opening clip in full. Follow our Twitter feed. Join our Facebook group.
NPR's stats genius Robert Benincasa sends this analysis of the presidential election. In a nutshell: Suburbanites felt the pain of the failing housing market -- they felt it, and they went for the Democrat promising change.
We'll have more on the podcast today. For now, Benincasa:
The closely watched rate at which banks lend money to each other -- known as the London interbank offered rate, or LIBOR -- fell on Wednesday to its lowest level in almost four years, indicating severe strains in the money market continue to ease. That's important for everyone because the LIBOR is the rate used to calculate interest on trillions of dollars of home mortgages, student loans and credit cards.
The interest rate for three-month loans fell to 2.51 percent today, from 4.82 percent on Oct. 10. It's the 16th straight daily decline. The LIBOR hasn't been as low since the failure of Lehman Brothers Holdings Inc. on Sept. 15.
Yes, things remain very very scary. But a little good news never hurts....
The reason I decided to write today is because today is the first day where I have really been hit hard by the crisis. I mean of course prior to today I had cut back on shopping and been in serious discussions with my significant other about how to cut household expenses. I've been online reading blogs about "no-spend" years for inspiration and so on. But still I think the fear was very small compared to what I felt when I got a phone call from my Mom today telling me that my father got laid off today.
There's a local restaurant here in Goshen, IN called [...] that my coworkers and I frequent. Typically we're seated fairly quickly, though it's busy enough that lunch always takes awhile. Today we went and were confounded, because instead of someone to seat us and a server, there was one lady up front taking orders and one waitress delivering food.
Because of the economy they got rid of servers and seaters, and now sell food a la carte. You place and pay for your order up front, then sit down with a number card waiting for someone to bring out your food. You get your own drinks. They also switched to baskets from plates, so you get less of things like french fries. And there are fewer items on the menu, and the meal deals are gone.
Counting up employees, around 11:30 I saw the order taker and one waitress, which is down from a greeter and 4 waiters over lunch in better times. I assume there was a cook wandering around somewhere, still.
America was going to get a new president, and now we know that new president is Democrat Barack Obama.
The 44th president-elect has a whole lot on his plate, including the administration of the $700 billion TARP bailout, the precipitous drop in consumer spending, increasing layoffs in the workplace, an automobile industry in tatters, and an economy that now appears headed not just for two consecutive quarters of shrinking (recession?) but for deflation -- one of economists' worst nightmares.
Consider this your place to sound off on what incoming President Obama should do. What do you think his economic and fiscal priorities should be? What programs or strategies would you favor over others? Would you cut spending or raise taxes, or both? What spending would you cut, and whom would you tax more?
Hit the comments, please. We'll be looking for people to share their ideas on the podcast today. (The audio is in. Click for it, or subscribe to the podcast.)
John Francis "Jack" Welch, Jr., the famed former chairman of General Electric, has a interesting column with his wife Suzy on BusinessWeek.com this morning. It's a "what can business leaders learn from the campaign" column. In short, work hard, don't make mistakes, pick your friends wisely and your enemies even more wisely. Makes sense.
If that doesn't interest you enough: Welch was a big John McCain supporter and I always think it's fun to see how people who so loudly endorse one candidate navigate the day after their side doesn't win. Should be an interesting parlour game to play in the next few days.
We're going to be talking deflation on the podcast today, as in "How in the world could falling prices be so bad for you?"
Meanwhile, Jason writes:
I came across an old article that I thought might be useful for you.
It describes the economy of a WWII POW camp, and how a market quickly emerged for trading rations. Cigarettes became the currency, but the most useful thing is that while the camp economy basically had all the features of a huge international one, it was quite simple, with very few inputs, which makes it easy to understand. They went through periods of inflation and deflation, set up a basic futures market, etc.
While the world waits for some election or other to finish up, a few key pricetags in the American economy continue quietly falling. Deflation means lower prices for you -- and what could be so wrong with that? Um, a lot.
-- Jay Sachdev takes a break from getting out the vote in Nevada to ask why everyone's so afraid of deflation.
-- Maria Fiorini Ramirez says it's because inflation is so much easier to fix. With deflation, you're just rolling money downhill.
Here's a few pieces on whether now is a good time to really soak the rich. No matter who's right, my take is the devil is always in the details, especially at a time like now. Here's a few competing views.
Here's one from Investor's Business Daily. The line about how the poor are poor because "of family breakdown, low skills, destructive personal habits and plain bad luck" seems just a wee bit harsh. But the author does have a few interesting points buried in there.
Here's one more view from the conservative Heritage Foundation. I think the title "Soak the Rich and We All Get Wet" is kind of catchy but not the most thorough argument I've come across.
Listener Aloke Prasad asks a good question about our project with the New York Times:
I saw Adam and Charles on the NewsHour with Jim Lehrer show.
They kept mentioning that the school district purchased "toxic" asset called CDO. I think they meant CDS (credit default swap) and not CDO (Collateralized debt obligation).
No matter who wins today's elections, it's likely taxes are going up sometime soon. But how much?
Over at Intrade, you can bet on the future tax rate. Currently, the implied probability of a hike in the top income rate in 2009 is about two-thirds. That's a pretty big consensus and it surprised me.
We're all about economic disasters, up close and far away.
-- Andy Washkowitz sends photo evidence of the economy from his neighborhood, where things maybe aren't what they used to be.
-- Only a few months ago, the International Monetary was laying off people, says former chief economist Simon Johnson. Now the IMF is scrambling to save the economies of the world
-- Planet Money teams with the New York Times to present a major story about school districts that bought some of the worst stuff on Wall Street. Charles Duhigg and Adam Davidson unveil the first installment. (NYT/NPR)
We're not just doing sound and letters anymore. Adam Davidson is set to appear on NewsHour with Jim Lehrer this very night.
Adam will be joined by Charles Duhigg of the New York Times to talk about a story we're been collaborating. It has to do with five school districts in Wisconsin that borrowed a bunch of money in order to invest it. What they invested in turned out not to be so safe. (NYT/NPR)
At the nudging of economist Simon Johnson, I went looking today for economic indicators in America's hospital emergency rooms. Johnson had been told by a couple of doctors that ER visits had dropped off in September -- not what you'd expect to see in hard times.
And, according to the notes I'm getting, not what you're seeing. The American College of Emergency Room Physicians was kind enough to ask the doctors on its mailing list what they're seeing out there. The answer is lots of visits, and lots of heartache. A doctor in Los Angeles writes:
Footnote: The website 538 does what -- as a former physicist -- I've always wanted to see leading up to an election. The folks there take the latest poll data and use it to simulate lots of elections. So when a state is a toss-up, for instance, you literally flip a coin. Right now McCain has to win a lot of coin tosses in a row. The site puts the odds of Obama victory at 96 percent.
At least that's what I think they're doing. Lots of caveats, but a fun experiment.
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
Stocks are starting November on a wobbly note and have been bouncing around all day. The reason for today's peripatetic market performance is newly released manufacturing data for last month.
According to the Institute for Supply Management, its measure of U.S. manufacturing activity fell to its lowest level in 26 years last month as credit conditions tightened and as disruptions remained from Hurricane Ike. The trade group reported that its index of manufacturing activity fell to 38.9 in October from 43.5 in September. It was the weakest reading since September 1982 and well below the 41.5 economists had predicted.
One bit of good news today: constuction spending fell less than expected as continued weakness in residential housing was off set by a stronger than expected performances in the non-residential market.
Reader Chris Mills has a question, which he sent to us late yesterday while on his honeymoon in Fiji. We realize Planet Money is fun and these are confusing times worthy of time-intensive consideration. Still, we can't help but want to offer up some advice in addition to answering his question. To wit:
"Chris, try and keep the computer time to a minimum this week. Seems only right."
Here's Chris' question:
"Everyone keeps talking about treasury bonds and how they are the safest investment. We've been seeing rates very low, even negative. How are we so sure these bonds are so safe? How do we know that there won't be a time that these can't be repaid? Doesn't there come a point where the government could just sell too many of these? I know the Fed can always print money, but I wondered if you could explain to me what makes the security of treasury bonds such a fact?"
Listener Vijay Ravindran sends this photo of a Monopoly board he and his wife Vibha adapted for game night this weekend. The couple overlaid new property names and created new Chance and Community Chest text -- "You made money off an unexpected CDS, collect $100" -- and called it Bailout Monopoly. Vijay writes:
I created sub-groupings of Bailout related topics for each property set, and also ranked them from worst (AIG and Bear Sterns for Baltic and Mediterranean) to best (B of A and JP Morgan Chase for Boardwalk and Park Place).
U.S. holiday sales could be even worse than Christmas bears have been predicting.
Rating giant Moody's -- of course not the most trusted name on Wall or Main Street after its blind endorsements of many shaky investment vehicles in recent years -- said it has grown more pessimistic about holiday retails sales because it believes spending this year will prove even weaker than many expect. Let's hope for a December surprise.
The U.S. unemployment rate was 6.1percent in September. Everyone expects that number to keep rising, but few agree on how much. The biggest pessimists worry one out of 10 Americans could be out of work in the near future. That would be baaaad.
The jobless rate hit just under 9 percent in the 1974 recession and hit 10.2 percent in 1982. That level is higher than it had been since WWII and has never been surpassed since then.
Here's a breakdown of how the jobless rate could really climb, industry by industry. Hard to believe how upbeat the economy looked just a year ago.
Here's a really interesting story by a former colleague of mine at the LA Times, Don Lee.
(By the way, it was leaked late yesterday that the paper is essentially closing its once mighty 50-plus reporter Washington bureau, which is a terrible journalistic crime. The news upset so many people at the paper and is a huge loss for journalism. But I digress.)
The story of note takes a look at how tens of thousands of factories in China are shutting down, some by owners who are literally just walking out the door.
L. Gordon Crovitz, the former Wall Street Journal publisher who Mr. Murdoch booted soon after buying the paper, writes an occasionally interesting column for the paper's opinion pages called "Information Age."
Today, he writes about a recent interview with Harry Markowitz, a Nobel Prize winner who came up with a popular but controversial theory of how to diversify investment portfolios that reduce risk and maximize return.
Since the recent financial storm has a lot to do with investors who allowed just a wee bit too much risk into their investment wallets, some wisdom from Markowitz is probably worth consideration right about now.
I'd read that Tesla, the Silicon Valley company making electric sports cars, had laid off a fifth of its staff. I didn't know why.
Business Week made the phone call. The answer? Tesla tells the magazine it's the credit crunch.
When I profiled Elon Musk, the multi-multi-millionare who is backing the effort, he told me his dream was for Tesla to become the next big American car manufacturer.
Tesla now faces the challenge of the Chevy Volt, and cheaper gas prices, but Musk still talks that way. "Our sedan will crush everything out there," he told Business Week.
The sports cars are just hitting the road, and cost about $100,000. Don't have the cash? You can take radio ride in one here.
As part of that great big project we've been hinting about, Planet Money's Adam Davidson joins the New York Times' Charles Duhigg on Weekend Edition Sunday today.
They'll be unveiling a major report in the New York Times about five school districts in Wisconsin that put $200 million into bonds that went severely, severely wrong. School board members say they believed the investment went into safe corporate bonds. Their portfolios have now lost more than 90 percent, and the districts are suing to get their money back.
The deal has bad implications for other public interests, like the New York City transit system. It's a huge story, and we'll be covering it all week.
