Architect's February cover asks, "Fees: How low should you go?" Sent by Connie Holloway
On today's Planet Money:
-- William Isaac says he's the only person in America who has ever nationalized a bank. Isaac, who led the FDIC during the Savings and Loan crisis of the 1980s, doesn't recommend it. (Isaac's WSJ op-ed.)
-- Ever since U.S. Treasury Secretary Tim Geithner gave an interview to Planet Money this week, listeners have debated whether he said anything of substance. Now three economists -- Amir Sufi, Russ Roberts and Simon Johnson -- reveal what they heard.
-- Architect Celeste Lewis runs her own shop in Portland, Ore. She says business has almost dried up, and the end may not be far.
This chart tracks the relationship between household debt and gross domestic product. You'll see two years when Americans' debt becomes 100 percent of GDP -- 1929 and 2007. It's the chart that made Columbia professor David Beim say:
"The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us... We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."
This morning on the radio, Alex Blumberg and Adam Davidson reported on the inevitable pain for ordinary folks of saving the banks.
In the report, Columbia Business School professor points out that U.S. consumer debt rose sharply between 2000 and 2008 (see chart). In 2007, it came to equal gross domestic product -- we owed as much as our entire economy was worth. The last time that happened? 1929. "The problem is us," Beim says.
Evelyn Way heard the report and wrote:
"It is a shame that we were told after 9-11 that it was out patriotic duty to shop and now we are being blamed for not living within our means."
Fridays often bring a flood of economic numbers -- lately, most of them are awful. Today, we also have lots of news.
Economy shrinks at fastest pace in 25 years: The government first estimated the fourth-quarter contraction as an annualized 3.8 percent. Economists expected that to be revised to 5.4. The final number: 6.2. Youch!
Government to take bigger stake in Citigroup: The U.S. will get as much as 36 percent of the corporation, with Citigroup converting up to $25 billion of the government's $45 billion in preferred stock to common stock. This makes Citigroup look better by upping its level of "tangible common equity."
Plus: President Barack Obama has turned in his first budget -- with its $1.75 trillion deficit. The Washington Post calls it "eye-popping." If you're thinking about national debt, you might start with "National Debt for Beginners," a primer from Simon Johnson and James Kwak of Baseline Scenario.
Russ Roberts is no fan of the Obama administration's economic policies. The George Mason professor and Planet Money guest says the stimulus is an outsize answer to a recession with employment still below 8 percent. He says the government ought to let some of the faltering banks fail.
And when he looks at the particulars of the $787 billion stimulus plan, he notes one provision that strikes him as deeply, deeply wrong: an $8,000 tax credit for home buyers. On his blog, Cafe Hayek, Roberts headlined his objection "They never learn."
"This is unbelievable," he told me. "It's like, 'We got into this problem by trying to let people buy houses they couldn't afford -- let's keep it going!' It's an extraordinary thing."
Yesterday we blogged about the economic scenarios the government will be using to "stress test" the banks. Simon Johnson of Baseline Scenario says he finds the government's baseline scenario of 2.1% growth in gross domestic product next year optimistic.
Today the Wall Street Journal considers another scenario, from the Congressional Budget Office. The Journal calls it "rosy." The CBO forecasts that GDP will drop just 2.2% in 2009, followed by 1.5% growth in 2010. By the time 2011 rolls around, the CBO expects major improvement -- 4.2% GDP growth.
In terms of unemployment, the CBO's projection and the stress test's baseline are roughly in line, with each predicting joblessness to rise to more than 8% in 2009 and nearly up to 9% in 2010.
December was a tough time for making a living in the heartland. The Daily Yonderreports that the rural unemployment rate was half a percentage point higher than the urban rate. In the first 12 months of the recession, rural counties lost just under 15,000 jobs, compared to 282,000 in December 2008 alone.
Any given place lost jobs for its own reasons, from the RV shutdown in Elkhart County, Ind., to the houseboat collapse of southeastern Kentucky. And then there's this:
In Deschutes County, Oregon, the unemployment rate has nearly doubled in the past year even as the number of jobs has increased. The problem in the fast-growing area around Bend is that more people are moving into the region than there are jobs being created. "The phenomenon we've seen here is what happens all the time, is they move here without jobs," said Roger Lee with Economic Development for Central Oregon.
In a report for Morning Edition, our own Chana Joffe-Walt traces the austere history -- and anxiety-inducing present -- of four words you'll all recognize:
Do more with less.
We're all hearing that catchphrase these days, the lucky ones of us who are still working after colleagues have been laid off. Joffe-Walt finds that do more with less goes all the way back to America's early days.
You know those Internet ads for help finding a personal slice of the Obama stimulus package? The Big Money's Chadwick Matlin saves you a trip by running down the scam:
All of the blogs tell you to use the free software to get the $12,000 grants. To order that software, the blogs link off-site to a variety of Web sites filled with testimonials about how great their free grant-finding software is. What they don't say is that if you fail to cancel your subscription--a subscription the sites don't reveal exists outside --they'll charge your credit card until you discover their scheme and tell them to stop.
Kalun Lee sends this image from Boston. She writes:
This is a picture I took yesterday of the One Franklin development in the Downtown Crossing neigborhood of Boston. The empty space that you see is what used to be Filene's and Filene's Basement department stores. Filene's Basement is where the "running of the Brides" originated. One Franklin was intended to have luxury condos, retail and offices when it broke ground early last year.
People are debating whether Treasury Secretary Tim Geithner delivered fluff or substance in yesterday's interview with Adam Davidson. Simon Johnson, former chief economist of the IMF and a Planet Money regular, heard this:
The bottom line is that the government will support the credit system a great deal and in many innovative ways, but Treasury will try really hard to avoid FDIC-type takeovers/reprivatizations of large banks. This is quite striking, and presumably the hope is that a big "no nationalization" rally in the price of banks' common equity will turn the tide more generally.
Unemployment claims have hit a 26-year high. Calculated Risk brings the cool charts. Me, I'm taking the news straight up -- thanks to the morning note from High Frequency Economics' Ian Shepherdson:
Jobless claims jumped 36K to 667K, a 26-year high and above the consensus 625K. Last week's claims were revised up 4K to 631K. The consensus forecast of a small dip in claims always looked like wishful thinking. The trend in claims is sharply upwards, reflecting the depth of the recession, and we see no reason for it to peak anytime soon.
U.S. Treasury Secretary Tim Geithner. Win McNamee/Getty Images
On today's Planet Money:
If any single human being stands at the center of the global economic crisis, it's U.S. Treasury Secretary Tim Geithner. This afternoon, Geithner took his hands off the intricate machinery long enough for an interview with Adam Davidson.
As you'll hear in the podcast, the pairing of titan and reporter made for quite a dance.
Bonus: Producer Katia Dunn describes the scene in Geithner's office, where an aide helped to keep the Treasury secretary on message.
The U.S. government has released more information about the stress tests it'll be preforming on the banking system in the coming weeks. The tests will measure a bank's situation against a pair of economic scenarios for the end of 2010 -- "baseline" and "more adverse" -- to see whether it can survive.
In the baseline scenario, the economy is growing at 2.1 percent, unemployment's at 8.8 percent, and housing prices have fallen 4 percent from the end of 2009. In the adverse scenario, those numbers are .5, 10.3 and -7.
The one in the middle. Chris Kleponis/AFP/Getty Images
U.S. Treasury Secretary Tim Geithner's due on the line any minute now, for an interview with Adam Davidson (who'll be fueled by a last-minute dose of fruit salad). We'll break out a key part of it here, then post the full conversation for this afternoon's podcast.
UPDATE: First thought: The secretary said nationalization of the banks would be the wrong approach, but he would not say the word "nationalization."
Joe sends this news, "Spansion ends executive pay cuts as it lays off workers."
The maker of flash memory chips is putting the ax to 3,000 positions. It has dialed back executive pay by 10 percent in October. In a statement, the company said:
"The remaining members of Spansion's management team are more critical than ever to leading the company through a difficult period so that we can preserve the value of the enterprise and create new jobs in the future."
In his "Daily Notes on the Global Economy," Carl B. Weinberg of High Frequency Economics notes Japan's drop in exports last month -- down 45.7 percent from the previous January. The bold and italics are his:
We have never seen anything like this in a major developed market economy.
I'm just catching up to this link from @tyoungs: "France to take controlling stake in merged bank."
Politicians in France generally do not find it difficult to say the word
nationalization." So as two French banks struggle to weather the financial turbulence, Paris has decided to accelerate their merger, take a controlling stake in the combined company and install a management team of its own.
Quite a contrast to the scene on Capitol Hill yesterday, with Fed chairman Ben Bernanke and lawmakers doing the nationalization dance.
Our friend Ian Chillag sent this bit about tanking stock prices. You can now buy a share of the New York Times for less than it costs to pick up the Sunday edition.
Jason sends us this bit of good news from Detroit:
About a month ago you were asking to here from folks that were doing well in this down economy. My wife and I are two of those people. I am currently working at a solar panel manufacturer, and my wife is an elementary school teacher. I was excited to hear Obama's plan roll out last night, as it distinctly called out progression in solar panel manufacturing and incentives for teachers who perform. We have had a great year this past 2008.
For pure political gamesmanship, this was my favorite part.
I don't know what you heard in President Obama's speech last night, but I'm thinking that one was for Main Street. The president spent a lot of time talking about jobs and priorities, but said almost nothing about the details of rescuing the banks:
"You should also know that the money you've deposited in banks across the country is safe; your insurance is secure; and you can rely on the continued operation of our financial system. That is not the source of concern."
For the listeners who want to hear from an economist who doesn't like the stimulus or the bank bailouts, etc., take a look at George Mason professor Russell Roberts' reaction to President Obama's speech.
Federal Reserve chairman Ben Bernanke testified on Capitol Hill today, and afterwards faced some sticky questions from members of the Senate Banking Committee, like this one from Republican Senator Bob Corker of Tennessee:
It seems to me that this has been creating this sort of "dead man walking," sort of zombie-like banking scenario, and while I have been not using these words out around, it seems to me that what you have explained is a creeping nationalism of our banks. I mean, in essence many of them don't have appropriate capital. You are going to stress test them, which means make them reserve up properly, which they should do, and I applaud that. And then you are going to provide the public funding to meet that capital requirement. So I don't like saying things like this, and squirmed a little bit when I was asked about Chairman Dodd's comments about nationalization but in essence this is a form of creeping nationalism, right?
Our friends over at Baseline Scenario have posted another one of their helpful beginners guides, this one deals with a proposed plan to convert taxpayers' holdings in Citigroup from preferred to common stock. The plan is aimed at helping Citi boost its tangible common equity, the value of its common shares. From Baseline Scenario:
Citi wouldn't actually get any new cash from the government, but it would be relieved some of the dividend payments (currently close to $3 billion per year), and of the obligation to buy back the shares in five years. This is a real benefit to the bank's bottom line, and hence to the common shareholders. At the same time, though, Citi would issue new common shares to the government, diluting the existing common shareholders (meaning that they now own a smaller percentage of the bank than before). In theory, the amount by which the shareholders in aggregate are better off should balance the amount of dilution to the existing shareholders.
The government starts its stress tests of the banks this week and some expect TCE to play an important role.
We've heard rumblings from some of you that businesses are using the economic crisis as cover for long-planned layoffs, salary freezes, etc. You've got company.
Captain Chesley "Sully" Sullenberger, the guy who landed his US Airways plane safely in the Hudson River last month, just told the House aviation subcommittee that in recent years his pay has been slashed 40 percent and his pension terminated. AP reports that the cuts came after post-9/11 airline bankruptcies.
"The bankruptcies were used by some as a fishing expedition to get what they could not get in normal times," Sullenberger said.
When my wife and I married 7 years ago, the Canadian dollar was about 68 cents. Last year it was $1.02. We take a trip every year, and now it is back to about 80 cents. What factors influence the price of currency, and what impact does this have on the overall crisis. Is the fact that Canadian banks are doing well going to mean that their dollar will strengthen compared to ours?
In a podcast from mid-January you made a comment about going to a "village somewhere in the Amazon" to find someone who hadn't heard of a subprime mortgage. Well, we were there last week, in the Ecuadorian Amazon basin on the Rio Napo. I asked around. True, no one seemed to know exactly why the U.S. economy had crumpled and taken the rest of the world with it. Even the generic concept of a mortgage seemed unfamiliar to many, not to mention a subprime one.
A friend of mine, freelance writer Erik Baard, stumbled into the story of Bernie Madoff trading records blowing in the wind -- literally.
Erik turned it into a New Yorker Talk of the Town (freelancers, you'll know why this could also fit in our Green Shoots category). He reports that papers were flying all over his Queens neighorhood:
The trades may be fictitious; investigators suspect that Madoff never executed many of the trades that he'd claimed he was making. When you see the slips now, each with the information filled in as if by an electric typewriter, you begin to appreciate how much scut work a fraud of this magnitude would have required. For Madoff to have pulled it off himself, you can imagine that he would have had to fill out fake slips day and night, or to have deployed a Ponzi robot.
I read the news today, and what a crazy pileup. Big corporations like Citigroup, AIG, Chrysler and GM are adding billions to the tab for government intervention. The stock market's back in Smashing Pumpkins land.
Europe is in eight different flavors of crisis. Federal Reserve Chairman Ben Bernanke is set to tell Congress something about the economic mess this morning, as is President Barack Obama tonight.
If you've got good news for our Green Shoots category, please send it. Meanwhile, there's this, from Planet Money regular Simon Johnson of Baseline Scenario, who writes that in many ways the U.S. has already nationalized the banks:
We have state control of finance without, well, much control over banks or anything else . . .
New economic scale in San Francisco. Steve Rhodes/Planet Money Flickr pool
On today's Planet Money:
-- Citigroup spent the weekend in talks with the U.S. government over a plan to convert the taxpayers' holdings from preferred to common stock. Rolf Winkler of Option Armageddon walks guest host Uri Berliner through what that means.
-- Eastern Europe owes banks in Western Europe something like $1.5 trillion. As economies stumble in the former Soviet bloc, those banks have gotten distinctly nervous. Janos Samu of Concorde Securities gives a brief history of Europe's own subprime crisis.
-- Caroline Raye serves as president of Glen Springs Elementary School in Gainesville, Fla. This year, as supplies ran low, her role including funding a request for classroom paper.
How is it that while all aspects of the recession are being mirrored across the border in Canada our banks are feeling none of the pain as yours. My vague understanding is that it had something to do with an unpopular (at the time) decision by former PM Chretien.
Former Prime Minister Jean Chretien would probably like us to see brilliant foresight in his 1998 decision to block two banking mega-mergers at the same time that the U.S. Congress decided to allow investment and commercial banks to merge. The American deal paved the way for such now-troubled giants as JP Morgan Chase and Citigroup.
The Obama administration put the nation's biggest banks on notice Monday that the government could become their biggest shareholder if regulators decide they are not strong enough to weather a deeper-than-expected downturn in the economy.
In an unexpectedly assertive joint statement, the Treasury Department, Federal Reserve and federal bank regulatory agencies announced that the government might end up demanding a direct ownership stake in major banks after they undergo a tough evaluation of their strength, which is to begin shortly.
I've been thinking about starting a category just for sunny news -- because occasionally, there is some. Today, Simon Johnson of Baseline Scenario suggested the name "Green Shoots." And now, economics professor Joe Cavanaugh of Wright State University in Celina, Ohio, has sent the first entry:
You always bring up the bad news but here is a some good news brought on by the recession -- kind of.
15.86 is the percentage change in enrollment at our campus this past year. The enrollment in higher education runs countercyclical so, as has happened in past recessions, the lower GDP the higher our enrollment.
Barbara Baldwin added this picture from Mardi Gras to our Flickr pool. She writes:
The Krewe d'Etat throws a satirical parade - the theme of the parade this year was "The Dictator goes to Broadway", but the economy was a big part of the parade. The title of this float was "Brother Can you Spare a Trillion?" Here's a close up of the top of the float - the fat cats are parachuting, and there's 70 trillion flowing out of a bucket.
After Friday's podcast on President Obama's foreclosure plan: Bill Payne writes:
One of the things I would like Planet Money to address at some point are those who saw this whole mess coming and stayed away from buying a house period. Again and again there is discussion about angry responsible homeowners, but what about angry responsible renters. I have lived in Chicago for 10 years and watched the city flattened and rebuilt lot by lot at an amazing pace.
On Friday, the Department of Justice announced the arrest of Paul Gabriel Amos on charges that he masterminded the theft of $27,167,078 from the Citibank account of the Ethiopian central bank. Officials accuse Amos and his alleged co-conspirators of posing as senior officials from the Ethiopian central bank and ordering that money be wired to their bank accounts.
The DoJ says that Citibank, the second foreign bank to open a branch in Ethiopa, got fooled by faxed documents and cell phone numbers that turned out to be from Nigeria. Allegations say the scheme, which began in September, fell apart when several of the co-conspirators' banks were unable to process the payments and returned them to Citibank.
A Citigroup spokesperson told the Times: "We have worked closely with law enforcement throughout the investigation and are pleased it has resulted in this arrest. Citi constantly reviews and upgrades its physical, electronic and procedural safeguards to detect, prevent and mitigate theft."
On today's Planet Money, a look at President Barack Obama's plan to prevent foreclosures.
-- The president's $275 billion proposal may not be big enough, but it's a necessary part of America's social compact, says economist Robert Shiller of the Case-Shiller Index.
-- The proposal is big enough to make a difference, says Amir Sufi of the University of Chicago Booth School of Business. But it may not be tough enough to make banks or homeowners play.
-- Twitter Questions! Amir Sufi sticks around to answer your 140-character queries about the foreclosure plan.
Bonus: After the jump, the full Twitter Questions session.
The Eastern Caribbean Central Bank said on Friday it was assuming control of the Bank of Antigua, a commercial bank in the Caribbean nation of Antigua and Barbuda controlled by Texas billionaire Allen Stanford. The central bank took the action following "an unusual and substantial withdrawal of funds," the bank said in a written statement.
Bloomberg: "Dodd Says Short-Term Bank Nationalization Might Be Necessary." And Wall Street Journal: "White House Says Banks Shouldn't Be Nationalized"
The stock market is in a tizz over the mixed signals. Washington Post reports:
Some investors are starting to think that maybe the market won't recover until some big financial institutions have been nationalized, said Nigel Galt, chief U.S. Economist at IHS Global Insight. "Clearly you don't want to be holding those stocks if you think those firms are going to get nationalized and the shareholders are going to get wiped out."
Shopping in Belarus. Viktor Drachev/AFP/Getty Images
Dropping terms such as "financial Gotterdammerung" and "monetary Stalingrad," business media around the world today have recently rung a new alarm bell: Eastern Europe's $1.5 trillion of debt is in trouble.
How did things get to this point? We'll have more about this on Monday's podcast. For now, a brief look at a story that seems all too familiar.
In case you missed it, CNBC's Rick Santelli went off about Obama's new plan to help homeowners on the floor of Chicago Board of Trade yesterday. The clip makes a guest appearance on today's podcast, but you can watch it in full above.
Latvia's government has become the latest to collapse in the wake of the world economic crisis. From the Associated Press:
Latvia's center-right coalition government resigned Friday after weeks of instability brought on by the country's economic collapse.
President Valdis Zatlers said he accepted the resignation of Prime Minister Ivars Godmanis and his administration, which had been in power since December 2007. Zatlers said he would begin talks with party leaders Monday to find a new candidate for prime minister.
Twitter pal @engineer27 sends this snapshot from Boca Raton for your Friday lift.
BTW, I'm still tinkering with the idea of a story about the quits rate. One element missing for me has to do with the fear of leaving one job to take another -- say you have an opportunity at another company, but you're afraid the new place will be more likely to lay you off. So you stay put. That's also part of the quits rate, or the decline in it.
A lot of our listeners wanted to share this video with us, including its designer Jonathan Jarvis. He writes:
I wanted to send you this animation I just posted explaining the subprime crisis simply and in a way (that I think) is good-looking and fun to watch. I am sending it to you because listening to your podcasts and the This American Life episodes in no small way inspired and helped me along the way.
Thanks Jonathan! My favorite part -- the depiction of a subprime mortgage (it's at about 7:30).
Papers filed in the U.S. case against UBS contain one particular item that caught the eye of NPR's Avie Schneider. The Swiss bank has agreed to pay $780 million to the U.S. over allegations that it helped American customers skip out on taxes.
Schneider noticed that Exhibit D, a letter telling alleged tax-dodging customers how to close their accounts, urges customers to get straight with the IRS:
We've been interviewing people today about President Obama's foreclosure plan. So far, reaction to it seems to running along two tracks:
First, will it work? Is it aggressive enough to arrest the slide of housing prices and the overall economy? (See Simon Johnson's "Insufficient Boldness.")
Second, should the government be in the business of trying to keep home prices from falling? If the problem is that we had a housing bubble, why try to re-inflate it? (See Patrick.net's "US Housing Crash Continues.")
Still confused by who is who on Wall Street? The cast and crew of CB Fresh have an answer, especially for those of you spent the early '90s developing carpal tunnel syndrome and poor eyesight playing video games for hours on end.
Packed with cartoon violence and toting a warning label for children, it's Wall Street Fighter 4. Watch your favorite investment banks and rating agencies throw "Sonic Bloombergs" at each other as they battle for market dominance.
(Hat tip to the blog Wall Street Fighter, which notes, "Do we have a copyright case against these dudes? Nevermind, this is the awesomest thing I've seen about Wall St. in months!")
In unveiling his plan to stop foreclosures, President Barack Obama said he'd continue to "support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan."
Bankers have a word for the idea of letting judges cut the principal homeowners owe: a cramdown. They hate it, because banks have to eat the loss -- they lend $1 million, say, but will get back only what a judge says the house is now worth.
When I asked bank lobbyist Scott Talbott about the cramdown yesterday, he noted that Congress would first have to change the bankruptcy laws to allow for it. Then he said that the political and economic climate make exactly that change all but inevitable.
Earlier this week, budget carrier JetBlue announced that anyone who loses a job would be allowed to cancel their reservation without penalty. Based on the British carrier Flybe's "redundancy insurance," the program is schedule to run through June 1.
I had a fascinating talk with a government official who will, sadly, have to go unnamed and undescribed.
I wanted to know if the rumors are true and many in government see nationalization of the banks as an inevitability; that several large banks are, basically, insolvent. If the government shuts them down, there is no other bank big enough to buy them all. So, the government has no choice but to own them.
This is, of course, a huge topic in the news. It's a massive transformation of the U.S. government's role in private markets. In short, it's the kind of thing that someone like me--a business reporter--would like to hear a loud, healthy debate about.
-- President Barack Obama unveiled his $75 billion plan to help homeowners avoid foreclosure, and economist Amir Sufi of the University of Chicago hears one word over and over and over.
-- With some of the biggest U.S. banks looking, um, insolvent, we're hearing more talk about nationalizing them. Hey, it worked for the Swedes, right? Leif Pagrotsky, vice chairman of the Swedish central bank, says his nation isn't quite a perfect model for Americans.
-- Paul Krugman won the 2008 Nobel Prize for economics, teaches at Princeton, writes a column for the New York Times, and fields your questions over Twitter.
As I cruised south on I-75 near Cordele, Georgia, billboards like this -- one after another -- caught my attention.
No, I wasn't interested in discount Disney passes. I was interested in asking the staff how business has been. With vacation travel down, I thought they could have some insight, from their perch 300 miles north of Orlando.
Keith Elder lives in Hattiesburg, Miss., and works as a software engineer for an online mortgage broker. Last week, he was driving home from Little Rock, Ark., when he spotted a sign by the side of the road.
"Pre Depression Price Sale," it read. Keith hit the brakes and went back to take a picture, then blogged about it and posted it to Flickr. Since then, more than 130,000 people have seen the image. Yesterday, he told us why he just had to turn around.
Amir Sufi, an economist at the University of Chicago Booth School of Business, sent some quick thoughts about President Obama's new plan for helping homeowners avoid foreclosure. We're aiming to talk to him more this week, for the podcast. For now, he writes:
The primary focus of the plan is to bring down interest payments on mortgages, but the plan does nothing to help reduce mortgage principal. As a result, the Obama administration is relying heavily on the notion that households will continue to pay their mortgage if they have a lower interest payment, even if the value of their home is less than the value of the property. I fear that it won't work.
I've been observing over the last few weeks, as the financial situation worsens, gas increases, etc, that the number of lunches in the company break room fridge are increasing.
Usually, there's only 4-5 lunches inside the company fridge at any given point in the year, and I assume people usually eat out. But lately, it seems that the company fridge is almost always stuffed with people's take home lunches.
My assumption would be that as people's confidence in the economy lowers, the number of "sack lunches" increases, since people don't feel secure spending that $10 on lunch. (Which, economists say is what they *should* be doing to fix the economy, but that's a separate
issue.)
The White House has released an executive summary of the Homeowner Affordability and Stability Plan -- the Main Street bailout that President Obama slated to speak about today in Arizona. Take a gander and report back in the comments, please.
We at Planet Money have been trying to find ways to explain what banks do.
And I realized one reason it's hard is that the only time most people get to play bank is in the game Monopoly. And that is just such a lousy lousy example.
The bank in monopoly is basically a cash register. It doesn't take in deposits, it has no regulator.
The folks at Frontline sent over the first installment of their series on the economic crisis. This one, broken into six chapters for your viewing pleasure, is called Inside the Meltdown. Adam Davidson's in it. Let's roll the film, after the jump.
Japan's finance minister resigned in disgrace Tuesday after slurring his speech and nodding off during the G-7 summit in Rome last weekend in yet another political distraction as the world's No. 2 economy battles an ever-deepening recession.
Finance Minister Shoichi Nakagawa denied he was drunk on the job and blamed his bizarre behavior at a press conference in Italy on cold medicine and jet lag, but friends and foes alike weren't buying his excuse.
We don't watch the stock market all the time, but today it's worth noting: The Dow's approaching its lowest level in a decade.
The New York Times report is a series of punches to the gut -- anxiety over the Treasury's plan to save the banks, plunging global trade, speculation that the IMF will have offer a new round of loans to Hungary and Ukraine. The only Dow stock on the plus side today is Wal-Mart.
The Securities and Exchange Commission has filed a civil complaint against Robert Allen Stanford, head of the Standford Financial Group. The S.E.C. has accused Stanford International Bank Ltd. and its affiliates of "massive and ongoing fraud," alleging that it promised "improbable, if not impossible" returns on certificates of deposits. The New York Times reports:
The S.E.C. accused the bank and its affiliates of falsely stating in marketing materials that client funds were placed in liquid financial instruments, when in fact they were invested in private equity funds and real estate. On Nov. 28, Stanford International Bank quoted a rate of 5.375 percent on a $100,000 three-year CD, compared with rates of less than 3.2 percent at American banks. The bank recently has offered rates of more than 10 percent on five-year CDs, the filing stated.
The S.E.C. says the Stanford operation suffered an estimated $400,000 in losses from investments associated with Bernie Madoff, despite promising investors it had no "direct or indirect" exposure to the alleged Ponzi scheme.
Have you been hearing this idea, from President Obama and others, that Sweden is the model to follow (not exactly what Obama said, but others have)?
I just had a great conversation with Leif Pagrotsky. He's a Swedish politician who was in government when they had their banking crisis. He wrote a great note on how Sweden's experience is not that close to ours.
Some highlights from the talk (which will come to you in the podcast soon):
On Valentine's Day my wife and I embarked on what felt like a personal stimulus package. We used up some gift cards left over from our wedding three years ago. (OK, we also worried some of the companies might go bankrupt.)
But of course it doesn't help the stores. They took the money on their FY 2005 balance sheets when the cards were bought.
Tonight, at 9 Eastern, Frontline kicks off its series on the economic crisis. We got a glimpse of the opening sequence from the first installment, Inside the Meltdown, in Frontline's editing room. It was, you know, terrifying. A minute or so in, producer Michael Kirk hit pause, looked up and said, "Have we got your attention yet?" He'd gotten it.
I think Adam Davidson may even show up somewhere in this one. We'll be screening the movie on the blog tonight, too, in handy chapters.
Adam Davidson and Alex Blumberg just won a George Polk Award for amazing amazingness in radio reporting. It's for the Giant Pool of Money, about the subprime mortgage crisis.
The cool thing is that I'm watching them type out their next big special for This American Life, right this second. (Confidential to listeners: It sounds like they've just now hit the root of the doll house analogy.)
I was recently wandering around one of the most expensive neighborhoods in all of Stockholm - Östermalmstorg. The area is populated by diplomats and foreign dignitaries. Young, new money. Little old ladies in fur coats with their old money. It is the place to be if you have money and want to live in the middle of town. It is quite the place on so many different levels.
It wasn't the population that caught my attention though, but a temporary sign hanging in a jewelry shop: "Tanguld köpes." Translated it means "Tooth gold purchased."
A senior official (that's how reporters were instructed to refer to the person) at Treasury last week described the public-private partnership idea for buying up the toxic assets as an "intellectual breakthrough."
That view doesn't seem to be widely shared on Wall Street, especially since Treasury hasn't given any details. But I can see part of the appeal.
Folks, we're mostly taking President's Day off, but we did get a couple of notes from economists that I thought you'd like to see.
The first, from Simon Johnson, details the collapse of a consensus on what to do about faltering U.S. banks. Johnson's open to ideas, but he's not moving on this:
"The banking lobby has become too powerful, in large part because big banks have balance sheets that are too big relative to the size of the economy. If a bank has total assets of over 10% of GDP, it is obviously too big to fail. Of course, the smart people who run these banks know this and act -- politically and economically -- accordingly."
Which brings me to the second note, from Amir Sufi, also a Planet Money guest. Sufi recommends this Business Week article arguing that banks are undermining efforts to keep homeowners in their homes. You'll notice yet another Planet Money guest is featured, bank lobbyist Scott Talbott.
Sufi writes:
"My take on all of this is that the banking industry has basically shot themselves in the foot over this issue. Even though they should WANT to facilitate renegotiations of mortgages to prevent foreclosures, their lack of foresight has led them to try and stall any meaningful government help in getting around the legal difficulties in writing down principal.
-- That's a ransom note, said Simon Johnson of Baseline Scenario, after reading an analyst's call for the U.S. to pay top dollar for toxic assets -- or else. Johnson and Adam Davidson call up the person who wrote it, Joseph LaVorgna of Deutsche Bank.
-- Adam put himself through a viewing of The International, a supposed thriller. For real edge-of-your-seat cinema, he says, listen to this tale from John Moscow.
Conservative political blogger Andrew Sullivan serves up the right wing today, in a post about GOP opposition to President Obama's stimulus proposal. Italics his:
The GOP has passed what amounts to a spending and tax-cutting and borrowing stimulus package every year since George W. Bush came to office. They have added tens of trillions to future liabilities and they turned a surplus into a trillion dollar deficit - all in a time of growth. They then pick the one moment when demand is collapsing in an alarming spiral to argue that fiscal conservatism is non-negotiable. I mean: seriously.
NPR's numbers guru Robert Benincasa sends this post:
A new briefing paper gives lawmakers yet more tools for solving the financial crisis -- or maybe for endless arguing and limited action. The 10-page report, from the Congressional Research Service, offers a handy list of 26 causes. Each cause comes in a neat one-paragraph thumbnail and includes a punchy counter-argument.
On the housing bubble: "The crisis was triggered by the bubble bursting, as it was bound to do."
Counter-argument: "It is difficult to identify a bubble until it bursts, and Fed actions to suppress the bubble may do more damage to the economy than waiting and responding to the effects of the bubble bursting."
After the jump, argument and counter-argument on "Black Swan Theory."
I saw on the blog recently a post from David about how it's hard for the banks to be able to say what they've done with the money because if you get a check from mom and dad, it goes in your checking account and who knows where the money went specifically. I feel motivated to comment because I have spent my life working for non-profit organizations. We would get various federal, state and local grants and the government would insist that we scrupulously account for how we spent their specific money. It certainly was a pain, but definitely not impossible.
I took a little break from the super-serious job of analyzing the troubled efforts to bring relief to troubled assets. I went to a movie. The International, starring Clive Owen and Naomi Watts, opens today. It's a thriller about an evil bank that controls the world.
It's crap.
It's well shot and paced and the acting's good. But the story truly makes no sense at all. I had a piece on Morning Edition this morning about it.
I got upset--absurdly, ridiculously--because a big Hollywood blockbuster has a faulty business model for banking.
On my 100 Days trip, I'm finding the recession harder and harder to keep up with. While eating at a the Stone Soup Kitchen, a hip coffee shop in south Atlanta, I ran into Jelani Cobb, a U.S. history professor at Spelman College. He talked to me about belt-tightening at the historically black college for women, and about students dropping out for lack of tuition. But knock on wood, he said, his campus had so far been spared actual job cuts.
No sooner did I leave Atlanta Tuesday afternoon than news comes on my car radio that Spelman was cutting jobs -- 35 jobs, the department of education and more.
Rep. Paul Kanjorski has been all over the YouTubes this week talking about an electronic bank run during mid-September's near meltdown. Kanjorski says the Federal Reserve alerted lawmakers to it. His star turn prompted several of you to write with varying versions of:
Is this true?
Portfolio blogger (and Planet Money friend) Felix Salmon has an answer. On the short:
This is all, frankly, fiction, and it's not clear where most of it came from, although maybe Kanjorski's "friends" on Wall Street are the same people as Michael Gray's sources at the New York Post. Thinking back to that crazy week it's easy to get details wrong, especially when you're speaking off the cuff on a call-in show. But let's stop treating it as though there's any substance to it. Please.
Earlier this month, the Council on Foundations released a report detailing the impact of the financial crisis on independent philanthropies. Overall asset values declined by 28 percent.
Another chart, about shifting targets, after the jump.
There's a lot of complaining about how the banks have gotten billions of dollars in taxpayer aid, but lending is still sluggish. People want to know what exactly the banks are doing with all that money.
It's a fair question. But it's legitimately hard to answer.
Say my parents give my wife and me a $50 check for our anniversary. Inevitably I sit down to write a thank-you note and want to explain how I spent it. And I never really know. I threw it in the checking account. So maybe it went to fix the muffler on the car. Maybe I used it when we went out to dinner the other week. Maybe it paid part of the rent, or maybe I'll use it to pay our taxes.
"Sometimes, people seem to be relieved to get off the treadmill and to be given an opportunity to reconsider what they really want out of life. One of the great implications of this turbulence for us is to re-boot our sense of what a truly flourishing human life consists of. The 'CrackBerry' culture is dangerously addictive and switching off from it is notoriously difficult."
For me, layoffs have always involved a least a measure of despair/panic. Maybe it's different in places where people don't have to worry so much about health insurance.
Two bits: First, retail sales stopped their months-long slide and went -- brace yourself -- UP, by one percent. Second, the number of new claims for unemployment benefits dropped a bit, but remained near 26-year high.
Ian Shepherdson of High Frequency Economics sobers everyone up this morning, starting with retail:
The underlying trend in core is still clearly downwards -- the
January core gain has to be set against five straight declines averaging 1.1% -- and there is no reason to expect any recovery soon. The headline relief today is welcome but it is unlikely to last.
Shepherdon's take on unemployment, after the jump.
If you're eager for financial dramas, you got two options right now.
1) The film "The International" (Clive Owen, Naomi Watts, and a preposterous plot.) Our own Adam Davidson went and got an economist to review it for us, which we'll have for you shortly.
2) Tonight CNBC will run a two-hour special called "Collapse" described as "the definitive report on the defining story of our time."
-- When the previous Treasury secretary, Henry Paulson, announced his plans for saving the economy, professor Jeremy Siegel of Wharton gave him an F-. We asked Siegel to grade the performance of the new Treasury secretary, Tim Geithner.
-- Adam Davidson and Alex Blumberg pick apart the Geithner plan, starting with the question of what it really takes to rescue a bank.
Internet billionaire and Dallas Mavericks owner Mark Cuban has his own plan to stimulate the U.S. economy, and he's looking to entrepreneurs for help. Here's the pitch from his blog:
You must post your business plan here on my blog where I expect other people can and will comment on it. I also expect that other people will steal the idea and use it elsewhere. That is the idea. Call this an open source funding environment.
If its a good idea and worth funding, we want it replicated elsewhere. The idea is not just to help you, but to figure out how to help the economy through hard work and ingenuity. If you come up with the idea and get funding, you have a head start. If you execute better than others, you could possibly make money at it. As you will see from the rules below, these are going to be businesses that are mostly driven by sweat equity.
Firewood for sale, but not moving, outside Nashville.
Andrew Visser
Awhile back, a listener named Andrew Visser wrote in from the Nashville area to say he'd noticed a lot of new folks selling firewood from pickups by the side of the road. Andrew said he'd stop by and ask if the newcomers were searching for extra cash in the recession.
Andrew talked to two of them. He reports:
I talked to Jack and Mike. Jack told me he has been selling firewood to make ends meet since he lost his job about 3 months ago, the indefinite lay-off. He said he drives from 45 minutes away to the location (just outside downtown Nashville) to sell his goods. Mike drives from 45 miles out to get here, and has been doing this business for 5-6 years. He (Mike) was selling firewood for the same reasons. No job. He told me that there were a lot of people selling firewood here this year as compared to previous seasons.
Whatever you want to say about those Austrian School economists from George Mason University, they're not afraid to bite. Here's the latest from Don Boudreaux, who talked Planet Money through the plus side of layoffs. Today, he's on about President Obama's move to limit executive pay:
[T]he most egregious problem with this salary cap . . . is that it sets a frightening precedent. Government is now increasingly in the business of determining salaries and deciding whether firms can have private jets. These matters -- salaries and jets -- are lightning rods for public attention. So they are, ipso facto, lightning rods for politicians' attention.
You can bet your grandchildren's share of the national debt, however, that other corporate matters will become lightning rods of attention -- and, hence, objects of self-righteously imposed government restrictions.
Is Bank of America spending oodles of money on advertising? Horrors! Make it stop. Is General Motors planning to install machinery that will displace some workers? Never! Make it stop. Is Chrysler appointing yet another middle-aged straight white male as its president? Racist homophobic chauvinists! Make them appoint a handicapped lesbian of color.
I have an indicator for you. While flying over Singapore's southern port area I noticed hundreds of ships at anchor in the straight. Over dinner, me and some friends hypothesized about why so many vessels, the heavy hitters in commercial transport, are sitting idly near the largest port in the world. We figured they couldn't be just waiting for a spot; such inefficiency would doubtful be visible in a port which moves more volume than any other. The most logical conclusion we could come up with (which isn't saying much) is that they're just on a layover--if you will--enjoying the night life of Singapore before they move on to their next port.
I left the Treasury Department yesterday with lots of questions about how the proposed public-private fund to buy up toxic assets would actually work.
One potential problem: What if the bank has a toxic asset it thinks (hopes) is worth 40 cents on the dollar. But the investors running the fund think there's no way it's worth more than 20 cents. Then no trade, right? The banks are still stuck with it. We haven't fixed the problem.
Economists and auction experts Peter Cramton and Larry Ausubel just posted something laying out how you might set up one of these public-private funds. It's basically a kind of investment bank which is co-owned by private investors and the government. It would purchase the toxic assets through a reverse auction. (Reverse auction stories here and here)
I could also imagine a solution where the government sets up a few of these banks which would compete to buy the assets. I'm not sure either of these gets around the problem outlined above though.
U.S. Treasury Secretary Tim Geithner unveiled his plan for saving the economy Tuesday, or maybe left it in shrouds. So say the headlines -- and yesterday's falling stock market.
"The market is responding to vagueness," economist and Planet Money guest Simon Johnson told TPM Muckraker. "This is not a plan. In the annals of plan-announcing, this is very vague."
After the jump, the YouTube video so many of you want to talk about.
Donald Trump wants you to jump into the crazy real estate market. Actually he wants you to take his class. Well, it's not his class -- it's taught by "Donald Trump's handpicked instructor." The pitch:
"We'll help you by teaching you how to profit from the $700 billion bailout"
The ad, which ran in the Baltimore Sun, doesn't mention how much the full course costs. The (unnamed) instructor is in town this week.
Here's an indicator for you: $1.65. That's the cost of procuring a small coffee at the Harvard Barker Center after the recession made it "impossible" for Harvard to pay for free coffee for faculty or students.
One of my favorite statistics pinged in today, courtesy of the Bureau of Labor Statistics. The BLS released the latest Job Openings and Labor Turnover Survey for December, including the quits rate. "Quits" account for people who leave a job for any reason other than retiring, being fired or dying. Essentially, it measures how willing or able people are to change jobs.
Back in December 2006, quits made up 61 percent of all changes in job status. The BLS says it's goodbye to that: "Quits dropped to only 40 percent of total separations in December 2008, a new series low, as layoffs and discharges increased substantially."
U.S. Treasury Secretary Tim Geithner revealed his strategy for fixing the nation's financial institutions. In a speech today, Geithner listed initiatives designed to ease this essential pair of problems:
Instead of catalyzing recovery, the financial system is working against recovery. And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it.
The Geithner plan includes a so-called bad bank (though he didn't call it that himself), a $500 billion to $1 trillion public-private partnership that would buy up toxic assets from banks and work to sell them off; up to $1 trillion for an increased flow of credit for consumers and businesses through the TALF; and a $50 billion program to ward off foreclosures, details to come.
More charts based on White House data about the impact of the stimulus on each state.
One category of stimulus spending is aimed at improving public schools. I divided the numbers provided in the White House report by the total number of schools in each state, which is provided by the Department of Education.
You see a wide variation from place to place. For example, 3.4 of schools in Minnesota and 18.4 percent of schools in New York will be provided with the "the labs, classrooms and libraries" necessary to ensure competitiveness in the twenty-first century.
Today, U.S. Treasury Sec. Tim Geithner is unveiling his plan for saving the nation's banks. The Washington Post puts the eventual price tag on the various initiatives, including the so-called bad bank, at $1.5 trillion.
After yesterday's podcast about getting tougher on banks, these paragraphs from the New York Times caught my eye:
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.
-- With more than $800 billion in federal spending on tap, Selectman Erik Filkorn says people in his Vermont town are hoping at least some of the economic stimulus money would help rebuild their roads and bridges. Filkorn himself isn't counting on it.
-- On Tuesday, U.S. Treasury Secretary Tim Geithner is expected to unveil the government's latest plan for helping troubled banks. Early reports say it's something of a public/private partnership. Economist Adam Posen of the Peterson Institute says the big problem is that American leaders still aren't flexing enough muscle.
More charts based on White House data about the impact of the stimulus on each state.
Let's start with the percentage of families made eligible for a new American Opportunity Tax Credit. I divided the numbers presented in the White House release by the number of family households indicated on a spreadsheet produced by the Census Bureau. Here, you see a lot of difference among various parts of the country. Nine percent of families in the District of Columbia stood to benefit, compared to only three percent in New Hampshire.
The Congressional Budget Office director's blog posted a surprising bit on its blog last week. The CBO writes that the economic stimulus plan now in Congress would actually shrink the economy -- come 2019, the office says, "by 0.1 percent to 0.3 percent on net." Why?
The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to "crowd out" private investment--thus reducing the stock of private capital and the long-term potential output of the economy.
The negative effect of crowding out could be offset somewhat by a positive long-term effect on the economy of some provsions--such as funding for infrastructure spending, education programs, and investment incentives, which might increase economic output in the long run. CBO estimated that such provisions account for roughly one-quarter of the legislation's budgetary cost. Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output) . . .
The CBO says the stimulus will help in the short run -- big quote after the jump. I'm hoping to look at this more over the next couple of days. Simon Johnson talked us through some of this on Friday. (Thanks to listener Waciuma Wanjohi and NPR's Maria Godoy for the link._
Remember the Wisconsin school districts that were horrified to learn they had invested $200 million in what are now toxic assets? The latest twist is that they are asking lawmakers for TARP money.
my company has been steadily downsizing since the new year--laying off three or four people (of about 150) every few weeks. i am part of a team that originally had two [people]; my co-[worker] was laid off and as a result, i'm finding myself with twice as much work to do. i have a feeling that many workers "left over" after downsizing are experiencing the same thing--they're having to do the work that the laid off workers would have done, in addition to their own jobs. while my company has laid off people, limited the hours we can work daily, and are considering making salary cuts, they don't yet seem to realize that less time and less employees generally means production will slow down. because of this, i and the other "survivors" are doing more work, in less time, and for less money.
I've so been there, and I'm guessing any number of you have, too. Chart proves it.
This week promises to be a great big economic rodeo, with the stimulus bill moving forward-ish in Congress and Treasury Sec. Tim Geithner set to announce the latest, greatest plan for saving the banks.
Simon Johnson and James Kwak ring in today with a look at the latter, on their Baseline Scenario:
Our unsustainable debt-fuelled boom, in other words, produced both the conditions for a major global financial disaster, and a political strengthening of the people who benefited most from the risk-taking and associated compensation packages that made this disaster possible. Ending the financial crisis is relatively straightforward - a forced recapitalization and change of ownership/management in the banking system - although this will not immediately lead to an economic recovery (more on that here). But seen in deeper political terms, decisive action to restructure large banks is almost impossible. Such action would require overcoming perhaps the single strongest interest group in the United States today.
Johnson and Kwak offer strong medicine for doing that: break up the banks until they're no longer too big to fail. Johnson's coming to a Planet Money podcast near you; meanwhile, don't miss his and Kwak's explainer on national debt.
Last week, the White House released preliminary statistics detailing the impact of the stimulus on each state. The data came as raw numbers, such as the number of schools to be modernized. I wanted to see how big an impact each measure promised to have on each state: for example while 23 schools might be substantial in Wyoming, it would hardly be noticed in California. I've posted the data set and visualization on ManyEyes -- click below for analysis and static graphics of the five state-level figures presented in the report.
Folks, we're on our way to tour one of the great centers of power in the entire universe. Barring an unforeseen uncontrollable urge to blog, we'll see you on Monday.
Today on Planet Money:
-- With unemployment at 7.6 percent in January, San Francisco radio station KGO-AM broadcast a special "sell yourself" segment in which people who'd lost jobs got the chance to pitch prospective employers. Host Ronn Owens says calls came in at the rate of six to eight per second.
-- Simon Johnson and James Kwak of Baseline Scenario published a terrific Planet Money primer this week, National Debt for Beginners. On today's show, Johnson talks about the fictitious land of Irresponsibilistan.
-- As the recession deepens, countries are considering fresh limits on trade. The U.S. Congress has been wrestling with a provision to have the stimulus package money governed by a "Buy American" rule, the idea of which raised anger around the globe. Meanwhile, a U.S. protectionist measure that targeted China but meant good news for Cambodia just expired.Rachel Louise Snyder, author of Fugitive Denim, reports it has do with pajamas.
Bloomberg's Rodney Yap runs the layoff numbers for big companies, including by industry and state. My adopted homestate of New York leads with 205,920.
I am interested to know how many other people are still being inundated with credit card offers and even (!!) increasing credit limits without asking for them. I would love to hear if you and others are still being hit up in this climate. A couple of months ago I heard rumblings of "credit cards are next" -- as in next to crumble. I was getting tons of offers then and now still. Point of reference - I am single, 25, just bought a house (30 year fixed FHA 3 percent down), and have good credit and such.
The other week we searched the globe (pretty much in vain) for some place sheltered from the economic storm.
India came up as a major economy that might be somewhat insulated.
Ken Rogoff from Harvard just got back from the World Economic Forum. He attended a party where Indian policymakers and business leaders were relatively cheerful. And it wasn't just because Slumdog Millionaire got nominated for the Academy Awards.
I know you've been asking listeners to send in examples of the economic downturn they encounter in their own lives. Here's one from mine. I'm a PTA mom at an elementary school, Sope Creek Elementary, with one of the best PTA's in the country.
I'm forwarding our latest PTA e-mail, which informs us that we have failed to meet all of our fundraising goals so far this year and have even had to cancel a spring fundraising event because the company we do it with (which frames our children's artwork) has gone out of business.
In addition to this bad news, we've just been told by the superintendent of schools that Cobb County (our school district) will have to increase class sizes next year as a result of a budget shortfall.
A bunch of you have asked why the experts all seem to say the economy has to keep growing. You want to know why we can't find a solid perch and stay there. If you're in that camp, or you're thinking of joining it, I may have found your guy. (Or not: Update in the comments.)
Venture capitalist (or nurture capitalist, as he often says) Woody Tasch is the founder of a new nonprofit called Slow Money. I've been talking to him for a segment I'm working on about an organic farmer who needs money to expand his operation. Tasch's publisher sent over his new book, Slow Money, in which he writes:
Is it really possible to design a market that does not demand growth?
We must dare to ask the question and we must dare to answer it.
The U.S. unemployment numbers for January are in, and my, my, my. We're at 7.6 percent joblessness, up from 7.2 in December.
That's 7.6 percent of the American workforce waking up today with no clear way to provide for themselves and their families, no clear sense of where or when they'll work next, no clear sense of when this will get better or which resume will finally do the trick. The Bureau of Labor Statistics writes, "Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months."
Today, the Bureau of Labor Statistics announced that productivity in the non-farm business sector rose by 3.2% in the fourth quarter of 2008. Sounds like good news? Maybe not.
The reason, as the BLS explains it, is that the total number of hours worked fell faster than the total economic output. Something economist Howard Rosen warned us about when we talked to him about furloughs on the podcast. The above chart is based on BLS data that tracks indices for productivity and compensation (all were 100 in 1992).
The husband and I got one of those rare things -- a childless night on Friday. We live outside of Baltimore and decided to do dinner at a casual dining establishment. I didn't think we'd have any problem getting in, considering how everyone is allegedly cutting back on things like dinner out.
First, we went to Red Robin, where there was an hour wait and the bar was packed. We drove over to Glory Days Grill - same thing. We ended up snagging 2 seats at the bar at a completely full Applebee's. I chatted with the manager and he said they have actually seen business increase since the holidays. They have some value items and specials on the menu, which he said has helped. Who knew??
I am still shocked at how many people have been so angry at me and Alex for our biography of Keynes.
Look: the guy is a complicated and, sometimes, difficult personality. He had some disgusting views. To me, it's obvious that that is worth commenting on. It doesn't automatically disqualify his theories. But it's not irrelevant.
Anyway, many have asked us what they should read to judge the man themselves.
The only choice (as far as I know) is Robert Skidelsky's excellent, lovely, totally readable biography of Keynes.
I think the abridged version (at a hefty 1000+ pages) is fine. No need to read the full 3-volumes unless you really, really want to.
I'd be eager to hear what other people think of the man. The book made me dislike Keynes more than I expected I would. Too snobby, narrow-minded, elitist. Although he was clearly charming at times and brilliant. Others tell me they love the man portrayed in the book.
The Washington Post reports that area unemployment offices are having a hard time keeping up with the growing the number of claims. According to the Post, unemployment insurance claims increased nearly 84 percent statewide from December 2007 to December 2008.
"We know what this means for people. They are out here waiting for their money," said Joseph P. Walsh, acting director of the District's Employment Services Department. "But when you have the kind of unprecedented increases in unemployment insurance claims, your compliance numbers will turn on a dime."
The Washington area isn't the only place having problems. Both Seattle and Michigan recently expanded the hours of their unemployment call centers to meet increased demand. Have you had a problem filing for unemployment lately? Hit the comments please.
Our colleague, David Folkenflik, had a piece on Morning Edition today about what happens to a town when its newspaper shuts down. The future of the media is something we've gotten a lot of questions about and we've looked at the economic angle on the podcast. Folkenflik's story takes a different approach, with a look at the changing way we get our news.
"You lose a sense of community," Pazniokas says. "If everybody is looking at dozens or hundreds of different news sources, you don't have the common point of reference that -- not to be corny -- [is] an important part of democracy and community."
Harvard's Ken Rogoff commented to us recently that when you're in the middle of a recession, it never seems like it will end. We pulled up this story from the New York Times in 1983. Unemployment had risen to 10.8%.
Today's figures showed the impact of a recession that is now the longest since World War II. The average unemployment rate for 1982 was 9.7 percent, the highest since 1941. For December, 12,036,000 people were out of work, up slightly from November and the most since 1933. There were 99,093,000 people working, down just slightly from November.
Susan Strasser sends this picture from the final days at Cub Foods in Madison, Wisconsin. Earlier this year, the supermarket chain's parent company told the Green Bay Press-Gazette it was closing almost 50 of its underpreforming stores nationwide.
Twitter pal @olevia sends news of eminent demise of Frisbee's Market, a Kittery landmark and family business dating back to 1828. The store's owners were forced into Chapter 7 bankruptcy this week, but say they're still hoping "Batman flies in to the rescue," that or a wealthy investor.
-- Hundreds of people lined up for free money in Times Square this week, telling their stories to "Bailout Bill" for a minimum of $50. It's part of a promotion for BailoutBooth.com, a new Web site for our time, or what amounts to an Internet pawn shop, or something.
We keep hearing from economists who say they don't much like the nearly $900 billion stimulus bill now before Congress. Kent Smetters of Wharton says just counting the money involved must have been mind-boggling. Then Steve Fazzari of Washington University calls it a disappointing, if standard, grab bag of programs. Your turn's in the comments.
Bonus: An indicator from an MBA student, after the jump.
Tape: Martha Downey knows what happened to the customers.
This road trip is helping me understand recessionary ripples.
Think about General Motors. One of its many painful decisions involved closing an SUV plant just outside Dayton, Ohio. Gone were a few thousand jobs.
But what about the nearby Dayton Nut & Candy Company, a local business that's been on Main Street in Dayton since 1923? Longtime employee Martha Downey noticed GM workers weren't coming in this holiday season to buy their Christmas nut tins.
Here are a couple of links for your spare time, which may have unexpectedly increased recently:
For map geeks, ProPublica has created a Google Map of the TARP recipients, with a bar graph indicating the amount of funding located at each company's headquarters. Don't bother scrolling around -- as far as we know none of the money has landed in Saudi Arabia or Papua New Guinea!
For history buffs, the New York Times asked three economists to describe the federal government's response to five recessions in the past fifty years.
Finally, for those with a fast Internet connection, I've been playing around recently with economic data on Many Eyes, IBM's visualization engine. Check out a map of negative home equity. I'd love to post reader-generated visualizations -- if you come up with one, drop me an e-mail.
Madoff whistleblower Harry Markopolos testified to a House Financial Services Committee panel today about the alleged fraud he says he uncovered. Markopolos told the committee he tried for nine years to get the Securities and Exchange Commission to investigate Madoff. After calling the SEC "3,500 chickens" Markopolos took one parting shot:
"If you flew the entire S.E.C. staff to Fenway Park, they wouldn't be able to find first base."
Markopolos also said he plans on turning in a $1 billion "mini-Madoff" to the SEC tomorrow, and this time he hopes they'll listen.
If you haven't read mortgage broker Christopher Jared Warren's quit memo, start now.
Warren was the managing broker of Triadunanum Financial. He sounds sorry about the catastrophe. But he's also looking for his next gig, which he gets to after seven pages of analyzing what went wrong. Verbatim:
I am the man for the job, Chris Warren, have the management experience, the banking experience, and could assist in the oversight of the most major transformation of mortgage regulation without changing one guideline and still completely eliminate mortgage fraud and restore confidence in the American dream and the securities that that very dream provides for investors.
Chris Neary checks in from Chicago with this picture of an empty storefront in his neighborhood. He writes:
It's been empty for months.
The weird thing about this empty store front, as you can see, is that the building owner, Realty & Mortgage Co. is making suggestions about what kind of business you might want to start in this spot.
The Treasury Department appears to be backing away from the idea of creating a "bad bank" that would take on the (other) banks' toxic assets.
So how do you save the banks? Senator Charles Schumer says government insurance for the toxic assets is becoming "a favorite choice." In other words, the banks pay the government a bit of money, and if those toxic assets lose value, the government covers some of the losses.
One problem with the bad bank idea was that government would have to figure out what to pay for those toxic assets. But the insurance idea has the same difficulty. Sure you don't have to price the assets, instead you get the equivalent problem of pricing the insurance.
The only "benefits" of an insurance arrangement are: (a) it's much less obvious that the government is giving bank shareholders a gift; and (b) the way Citi and B of A were structured, it wouldn't require a lot of cash from Treasury (and hence from Congress), because most of the guarantee was provided by the Fed.
You can find a lot of cool tidbits from the Bureau of Labor Statistics, but my favorite lately has been the "quits" rate. It tracks exactly what you'd think -- the rate at which workers quit their jobs for any reason besides retirement or death. (Yes, death.)
As of November, the last time they did the tally, the quits rate was at its lowest since the survey began, in 2000. It's now at 1.4 percent.
Which shows what Career Builder is up against in trying to persuade people that it's possible to change. I'm looking for folks who can talk about quitting jobs, either staffers who'd like to or human resources people who've noticed the shift. Hit the comments, please, or get in touch. And thank you kindly.
Maybe you heard about Denny's restaurants giving away free Grand Slam breakfasts today.
Well, my husband and I thought we'd try them for lunch, but there was a long line of people already there, waiting in the snow to get in. We had no desire to join them, but we were already psyched for a lunch out, so we ended up at our local diner, buying a restaurant meal we wouldn't have otherwise. I heard one of the waitresses comment that it was unusually busy for a Tuesday--it made me wonder how many other people went out for meals elsewhere, rather than going home, if they couldn't get into Denny's.
What's so bad about protectionism? As part of the infrastructure spending, the "Buy American" requirement has been added to steel purchases. Since I'm Canadian, this is bad! But beyond that, I've heard from lots of sources that this was a big problem during the depression. Does it just turn into a game where everyone puts up barriers? Could you delve into this further and see if we are starting to see the problem show up this time around?
Alan has pretty much hit the nail on the head. The steel industry got what it wanted in the stimulus bill.
I am working as a maintenance mgr for a rural development/section 8 subsidized and market apartments. Here in Mid-coast Maine. Currently one of our 'investors' is neglecting one particular apartment complex and the apartments are starting to deteriorate. I visited a reclaimed building materials non-profit to see what they had and If I could get the job done with the materials I found there. Talking to the employees they are hanging by a string to stay afloat and even gone without pay (and still working) for some time. This is a store with great stuff, reclaimed but great stuff and they have great deals. They are seeing a dramatic downturn. It goes to show that when the going gets tough people who didn't have the money to shop at a retail hardware store are not going to a reclaimed hardware store either. bummer.
A while back we set up an imaginary boxing match between two economists over whether the stimulus package is a good idea, or a terrible awful one.
Here's round two: The guy in the blood red shorts (Russ Roberts) interviews his sparring partner (Steve Fazzari) on this EconTalk podcast.
They have a great very deep debate about whether its better for people to save or spend that goes beyond the discussions we've had on the podcast. Take a listen.
An open letter to everyone in the finance industry: Stop telling us reporters that you won't talk to us on the record! We are in a massive, global financial crisis brought about, in no small part, because of the complexity and confusion of the finance industry. It is essential that you help us bring clarity to American citizens, taxpayers, voters.
Don't tell us that "the media" gets things wrong. Do a bit of research. Find out which reporters seem to get things right and talk to them. (I, of course, would like you to start with us at Planet Money).
I spent yesterday trying to get someone from the auditing industry to talk to me. Auditing. This is the part of finance devoted to transparency. Nobody would talk on the record. Many people expressed serious concerns about how the fiscal stimulus bill has been written, but nobody would go on the record with those concerns.
-- The $800 billion stimulus bill now before Congress contains a little money for oversight of the spending -- a perhaps very little, reports Adam Davidson.
-- Japan spent the 1990s slogging through the economic doldrums. Economist Adam Posen of the Peterson Institute says the misery could have been cut to three years if policymakers had acted boldly. Posen, author of Japan's Financial Crisis and Its Parallels to U.S. Experience, says the Obama administration needs to get more aggressive with banks.
-- Last week, David Kestenbaumreported on a Finnish ad campaign that's urging folks to spend money in order to help the economy. Opponents of the message have started a Facebook group. Member Anu Partanen checks in. Bonus: A gallery of dueling save/spend ads.
Blue dots are monthly. The black line is the quarterly average.
Alan Cordova/NPR
Today, the Bureau of Economic Analysis released the latest data on personal income and spending. Consumer spending decreased for the sixth in seventh months, which worries economists because it represents approximately 70 percent of economic activity. However, there was one potentially bright spot in the generally grim picture.
The movement to build greener cars hits a roadblock:
In the rush to build the next generation of hybrid or electric cars, a sobering fact confronts both automakers and governments seeking to lower their reliance on foreign oil: almost half of the world's lithium, the mineral needed to power the vehicles, is found here in Bolivia -- a country that may not be willing to surrender it so easily.
The New York Times story is worth it for the pictures alone.
A course catalog from NYU's School of Continuing & Professional Studies came to my house the other day, and the classes offered for career planning really caught my eye. Notice a theme here?
Michael Rothberg sends this indicator, a Craigslist ad from New York City. Headline: "I Will Work for Free!! (Project Manager / Project Architect)."
The ad touts five years of experience with computer-assisted design. And that's not all. "I will work for you for free!" JP writes. "If after 4 weeks you are not completely convinced that I am a great asset to your company you can simply tell me to leave. However, if after 4 weeks you appreciate my hard work, industry knowledge and experience then we will talk about a full time position. It is basically a win-win situation for the both of us."
Adam Davidson is warming up for his live chat with Simon Johnson and Arnold Kling -- and you. The conversation's about whether the U.S. should nationalize the banks. It starts at noon Eastern. Join in!
We're all about to pedal down the street for a meeting with our partner, This American Life. We're working on a series of longer stories, sort of like the one from this weekend, and maybe even bigger.
Check in at noon Eastern for the live chat with Adam Davidson, Simon Johnson and Arnold Kling. The starter question: Should the U.S. nationalize the banks? Get 'em started, will ya?
This week, we're planning to talk a lot about the Obama stimulus plan, starting with today's podcast. We're also planning to dive into the proposal for creating a single "bad bank" to buy up and sell off toxic assets.
Obama administration wrestles with the central problems of launching a bad bank. At issue: How to price the stuff no one wants. Meanwhile, the European Central Bank is planning its own "bad bank."
We asked last week whether you've changed your saving/spending habits. After the jump, a note on this from Ian Shepherdson. Plus: Keynesian report of the week.
