Billions served Jessica Goldstein/NPR
Our colleague Jessica Goldstein sent in this photo of a Washington, D.C., diner trying to cash in on the stimulus thing. I don't think American City Diner is as powerful as the Fed, but the folks there are printing money...
categories: Economic Scene
Monday's podcast included an interview about how much money people should save. Kent Smetters, a professor at the Wharton business school, says the market knows -- and should tell the rest of us. To which listener Jeremy responds:
I think that there's one major thing that Mr. Smetters overlooked in his analysis of why Americans don't save enough, namely the rate at which certain major expenses have risen over the past few years. This is largely based on the work done by Harvard Law professor Elizabeth Warren and her daughter Amelia Warren Tyagi. Their basic thesis is that it takes a lot more money to maintain a middle-class standard of living than it used to.
Namely, the cost of three big things has been rising a lot faster than inflation and wages over the past few years: health care, housing, and college education.
categories: Letters
The price of existing single-family houses continued to fall in January, according to the S&P/Case-Shiller Home Price Indices. They track home prices across 20 major U.S. metropolitan areas.
The index of the 10 biggest cities is down 30.2 percent from its mid-2006 peak; January prices were off 2.5 percent from December. The 20-city index is down 29.1 percent from its peak, and off 2.8 percent in January. Both indices have fallen every month since August 2006.
Bonus: Calculated Risk on house prices and stress testing banks
categories: News
Lonely Cranes at the Los Angeles Port. Paul Page
Today I got this email from Peter Tirschwell, editor of the Journal of Commerce. Peter spends a lot of time at U.S. ports, but his latest visit to the ports of Los Angeles and Long Beach left him spooked. Spooked because it was quiet and calm. These ports handle 40 percent of all U.S. containers moving in international trade. Last February import volumes were down 43 percent from the same month last year. "43 percent!", Peter exclaims.
He writes:
The docks that make up port cargo terminals, where millions of steel containers full of freight are transferred, are normally a death-defying place to be. Even from the seeming safety of a vehicle, the pace of activity all around as yard-hustlers towing 40-foot boxes coming whipping around tall stacks of the containers and eight-story-tall cranes hoist the imposing-looking boxes directly over your head.
categories: Economic Scene
Harvard professor Lucian Bebchuk is proposing a fix for Treasury Secretary Timothy Geithner's plan to deal with toxic assets. In today's Washington Post, Bebchuk argues that the government needs to do more to make private investors compete to take part in the program. He writes:
If the private side were to contribute only 8 percent of the capital, the government should seek to keep the highest fraction of the upside that would be consistent with inducing such participation. To this end, potential private managers would submit bids indicating the minimum share of the fund's upside that each manager would be willing to accept for an 8 percent investment, as well as the size of the fund that the manager would establish if accepted into the program. Treasury officials should then set the share of the upside going to the private side in each of the funds under the program at the lowest level consistent with establishing funds that collectively have the aggregate target capital.
categories: Understanding The Crisis
If you're living in the swath of America from Texas up through the Dakotas, maybe you're seeing the world the way New Geography's Joel Kotkin is. He writes:
[O]nce you get away from the coasts -- where unemployment is skyrocketing and economies collapsing -- you enter what may be best to call the zone of sanity.
The zone starts somewhere in Texas and goes through much of the Great Plains all the way to the Mexican border. It covers a vast region where unemployment is relatively low, foreclosures still rare and much of the economy centers on the production of basic goods like foodstuffs, specialized equipment and energy.
Kotkin pinpoints Kansas City as the new center of paradise, calling it a place where the housing bubble scarcely happened and social stability rules.
categories: Understanding The Crisis
The New York-based Conference Board reported consumer confidence rose slightly in March to 26, from its all-time low of 25.3 in March. A year ago, the index was near 70.
The consumer confidence index measures Americans' take on the current economic situation and their expectations for the future. Those expectations make up 60 percent of the total index, with current conditions accounting for the other 40 percent. The Conference Board surveys 5,000 households every month.
Economist Ian Shepherdson with High Frequency Economics attributes the overall bump to a rise in the the expectations index -- it's up by 1.6 points. That, he says, "has to be seen in the context of the disastrous 6.4-point drop in February."
Economists with the Federal Reserve Bank of New York have studied whether consumer sentiment can influence or predict the direction of our economy. The short answer: yes.
categories: News
World leaders are supposed to be sitting down for a one-day economic summit on Thursday in London, when the G20 meets to consider the global recession. Facing an enormous to-do list, they're also showing signs of a severe split in priorities.
The U.S. and the U.K. want a global stimulus package, with British Prime Minister Gordon Brown calling for a "global new deal." Other European Union members say they're doing enough to stimulate the economy already. They want strict new rules to regulate the financial system. Now French President Nicolas Sarkozy says he won't sign on to any agreement that lacks a strong global regulator.
categories: Morning Report
On today's Planet Money:
-- President Barack Obama has a plan for the American automobile industry, as Chrysler and GM seek more loans from the government. Chrysler plant worker Joe Grassi considers the news that Washington wants his company to partner up with Fiat. Yale Law School professor Jonathan Macey says the government was right to ask GM CEO Rick Wagoner to step down, even if the request was unprecedented. Macey has been calling for Wagoner's ouster for months.
-- If Americans are saving too little and the Japanese are saving too much, how much would be just right? The market knows, says economist Kent Smetters of the Wharton school of business.
Bonus: What you've been reading today, after the jump.
Download the podcast; or subscribe. Intro music: White Rabbits' "Right Where They Left." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
Ireland has been one of the worst-hit economies during this financial crisis, and today the Irish woke up to even more bad news. Standard & Poors, the credit rating agency, has lowered their credit rating. from AAA (the highest rating) to AA+ with a negative outlook.
categories: Europe's Financial Crisis
No mystery man. Roger L. Wollenberg/Getty Images
Who took out GM CEO Rick Wagoner? Detroit Free Press columnist Tom Walsh says he knows. He writes, "Simple math cost Wagoner his job:"
[U]ltimately, when GM's survival was on the line and the Big Banker himself, President Barack Obama, had to decide whether to keep federal loans flowing to GM, the Big Banker didn't find Wagoner's track record reassuring enough.
Walsh says GM has lost $82 billion in the last five years.
categories: Players
Chrysler says it has the framework for a proposed alliance with Fiat, but not a final agreement. The two automakers have until April 30 to meet requirements set by the Obama administration in order to receive $6 billion more in government loans. Bloomberg reports:
The revised accord calls for Fiat to take an initial stake of less than 35 percent and hold no more than 49 percent until after Chrysler repays its U.S. loans, a government official with knowledge of the plans said in an interview late yesterday.
"The risks for Fiat remain limited. They'll have to build a new plan together," said Marco Santino, an auto-industry consultant at A.T. Kearney in Rome. "At this point it's a technicality whether Fiat takes a stake before or after Chrysler's turnaround."
Under the new arrangement, Fiat would assemble engines and vehicles in the U.S., the government official said. The Turin, Italy-based automaker hasn't sold its namesake vehicles in the U.S. since 1983, restricting the company's offerings to luxury models from Ferrari and Maserati.
Requirements set by the Obama adminstration call for Chrysler to convince its debt holders to forgive the "vast majority" of the $8.9 billion it owes, and for the company to reach a deal with the United Auto Workers union over its retiree health-care trust fund.
categories: Oil Economy
Down 2 percent from January to February Margaret Kempner/Brown Brothers Harriman
The New York Stock Exchange just delivered the latest figure for one alternate economic indicator, margin debt at the New York Stock Exchange. This figure tracks how much money people are borrowing to buy stock -- a figure that has been in rapid decline.
Currency analyst Marc Chandler of Brown Brothers Harriman tells us he has been watching for signs across the economy that investors -- individual or corporate -- are getting rid of debt, or deleveraging.
As you can see in the graph, margin debt plunged quickly at the start of the economic crisis. It fell 22 percent from September to October 2008. But from January to February, we saw a decline of 2 percent.
categories: Understanding The Crisis
Forrest sends this picture and letter from San Francisco. He writes:
At the gym, people are talking about having to get to spin class at least 15 min. before it starts to get a bike when the classes used to be half full. These are midday classes, during the week. People continue to chatter about layoffs, but most of us do freelance work. We still have jobs but no work to speak of. We all try to keep busy at the gym. It's the best we've looked in years.
categories: Economic Scene
Amid the news from Detroit this morning, comes word that President Obama has appointed Edward Montgomery, an economist and former Labor Department deputy secretary, to the position of Director of Recovery for Auto Communities and Workers. His job will be to help autoworkers, communities and regions adversely impacted by the failure of the automakers find new jobs, businesses and industries. Sounds like a tough gig. Anyone have any suggestions?
categories: Players
The Obama administration is wading into the auto industry in an amazingly big way. All this time, we've been wondering whether the U.S. government will nationalize banks, and whether the stakes it has taken in banks will result in regulators ordering bank bosses to stay or go or change course.
Set that aside for a moment. The auto industry's hometown paper, the Detroit Free Press, runs today's news this way: "U.S. Shreds Auto Plans." Key bit:
President Barack Obama will give General Motors Corp. 60 days to craft a new survival plan without Chairman and Chief Executive Rick Wagoner, and set a 30-day deadline for Chrysler LLC to either partner with Fiat SpA or shut down.
categories: Morning Report
Simon Johnson, Planet Money pal and Baseline Scenario blogger, has just published an Atlantic Monthly article titled "The Quiet Coup," his take on what the IMF would say to the U.S. if it could. Johnson, a former chief economist at the IMF, writes:
In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertainty--in our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economy--ultimately making the problem much harder to solve. Yet the principal characteristics of the government's response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector.
categories: Recommended Reading
Lincoln Ritter
One more Friday, one more Georgia bank falls. Omni National Bank of Atlanta, a bank that specialized in urban real estate re-development loans, failed this evening. SunTrust Bank, also in Atlanta, will assume its insured deposits.
categories: News
On today's Planet Money:
-- The Treasury Department released a framework for regulating the financial industry this week. The plan calls for creating a systemic risk regulator to manage "certain large, interconnected firms and markets." While we still don't who is going to get the gig, the implications of the decisions they make will affect us for years to come. Adam Davidson lays out some of the possibilities.
-- How you react to the other plan the Treasury Department announced this week, the one to get toxic assets off bank balance sheets, depends a lot on what you think is the problem with the banks in the first place. Is it a solvency or a liquidity crisis? Gregg Berman of Risk Metrics Group explains the difference between the two, using $50 million and an envelope.
-- We've been looking for the bad guys in this financial crisis, but so far we haven't had much luck. Today we go to an expert, Neil Barofsky is the Special Inspector General for the TARP, the man charged with finding out who might be trying to defraud the government out of billions of dollars in bailout money.
Bonus: A letter from the Netherlands, after the jump.
Download the podcast; or subscribe. Intro music: Ida Maria's "Oh My God". Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
We've been getting lots of great comments and questions about how the FDIC seizes failed banks. This weekend we'll get deeper into that process on This American Life, and next week we'll get to some of your questions on the depleting Deposit Insurance Fund.
Today being Friday and all, I am sitting here waiting to see if and where banks will fall. If you check the failed bank list obsessively like me (please don't) you'll start to see some states showing up a lot. Georgia makes the list 8 times in the past 7 months. No other state has seen that many failures since September. Like the Bank of Clark County (from our story), community banks in Georgia got big into the housing and development boom. They rode the wave of profits and now it's coming to an end.
categories: Economic Scene
More today on why the European Union doesn't think much of America's proposal for a global economic stimulus package. As the New York Times reports, countries like Germany spend oogoodles already to prop up income when workers get laid off or have their hours cut. A furloughed German worker gets two-thirds of the old paycheck, and they go skipping off for more training or extra time with the family.
The social safety net keeps personal spending up, so government doesn't have to prime the pump. Or at least that's the argument from EU. There's a good side and a bad one, the Times reports:
Europe's extensive job protections and unemployment benefits are "bad in the upswing, because firms don't dare to hire people, because then they are glued to them," said Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Munich. "In the downswing, it's good if the people are glued to the companies. They keep their jobs. They keep their income. They keep consuming."
categories: Europe's Financial Crisis
We got the following email from our big boss here at NPR, Ellen Weiss.
Sent: Thursday, March 26, 2009 7:53 AM
To: PlanetMoney
Subject: Here's my question for you today
Systemic Risk Regulator? Who the heck will that be and would you love or hate having that on your business card?
The treasury department today outlined what it wants to see as the new "rules of the road", financial regulations to make sure we don't drive into a ditch again. The wish list includes a very powerful Systemic Risk Regulator whose job it is to somehow understand the interconnectedness of all things.
I made Ellen the business card above. We welcome your submissions. Whose name should be on it? What slogan? What logo?
categories: Fun With Economics
The employee fridge at a Commerce Department agency. Jon S.
Jon S. sends this little bit of Commerce Department humor from Washington D.C.
categories: Lunch Break
Today the Commerce Department reports that for the second straight month Americans are saving more than 4 percent of their disposable personal income.
The personal savings rate -- disposable personal income less personal outlays -- was $450.7 billion in February, or 4.2 percent. That's down slightly from January, when Americans saved $478.1 billion or 4.4 percent.
Still, the current savings rate is a far cry from just three years ago, when it hit minus 0.5 percent -- its lowest level since 1933. At that time, Americans were, on average, spending all their after-tax earnings plus some money stashed away or on credit.
categories: News
I sent Howard Rosen, who took questions from y'all about employment, this query from a listener:
Given the fact that most women were NOT in the workforce during the Great Depression and now most women ARE in the workforce, how do we compare unemployment rates? One could read it that unemployment in the Great Depression was closer to 70 percent (25% of men and say, 90% of women). Or one could read it that unemployment in the Great Depression was more like 12.5%, (25% of men wanted work and couldn't get it, but that's only 12.5% of the population.) Please help me understand just how bad things are now when compared to the Great Depression.
Rosen's reply, after the jump.
categories: Employment
Kellen writes:
I work for a fortune 500 Company in the financial sector, and today when I went to the break room to get a cup and some ice for the drinks I keep in my office, I notice the cups had changed. Before we had these nice 20oz cups with the company name on them, that had the weird texture on the outside to make sure coffee does not burn your hand, or condensation does not build on the outside, and in return get on your papers on your desk. Today we have Solo cups, you know the red cups that every person that has ever gone to college knows about.
categories: Economic Scene
This confused me; the stock market jumped up yesterday, just as Treasury Secretary Tim Geithner laid out plans for much tighter regulation of Wall Street.
I'm sure there is a more sensible explanation, but I kept thinking how parenting books say kids secretly crave rules and discipline.
I think we really scared ourselves with this crisis.
categories: Economic Scene
The car's for sale in Marks, Mississippi. Sarah Goodyear
I got home to Mississippi with my family last week, for the first time in a couple of years. We covered a bunch of ground in a very short while.
When you grow up in a place like Mississippi, you get used to being last in everything good and first in everything bad. You're the fattest folks, the earliest-dying folks, the least-educated folks. Your schools don't have enough books or chairs. Your schoolmates have babies, sometimes a couple of them.
Given the state of the rest of the world, I expected to find Mississippi in tatters. But a funny thing happened between New York and home.
categories: Standard of Living
The Virgin Megastore in New York's Times Square. Jacob Ganz
I walked by the almost-shuttered Virgin Megastore in Times Square today, which is in the process of counting down its last four days until it closes to become a clothing store for teenagers. When Virgin closes its Union Square Megastore in May, it will leave New York City without a major record store, as far as I can tell.
The death of the record store is an over-covered event, but I couldn't help getting a little pang of sadness when I walked by the store. When was the last time a major industry's format change actually altered the physical marketplace? Trolley cars?
Photos of empty CD racks after the jump.
categories: Economic Scene
The world's major economic players are getting together next week for the G20 summit, and boy, does that sound like fun. China has been calling for a new world currency. The European Union president labeled the Obama stimulus plan "a way to hell."
David sends over James Surowiecki's take on the latter, in this week's New Yorker. Surowiecki writes:
[I]n effect, Europe is refusing to carry its share of the global economic burden and is piggybacking on us. But it's hard to see how things could have turned out otherwise. The U.S. economy, much more than Europe's, is like the proverbial shark: if it doesn't keep moving forward, it dies (or at least creates a lot of misery). In some sense, we need economic growth more than Europe does. It's not surprising that we're going to be the ones who end up paying for it.
categories: Recommended Reading
Members of the media outside the home of former Royal Bank of Scotland boss Sir Fred Goodwin. Jeff J Mitchell/Getty Images
The home of former Royal Bank of Scotland chief executive, Fred Goodwin, was attacked early this morning by an anonymous group threatening more attacks on "criminal bank bosses." Vandals smashed three windows of his home and one window of a car parked in the driveway. The Guardian reports:
Around 5am, emails arrived at the offices of the Edinburgh Evening News, Press Association and other media outlets saying that Goodwin's house "was attacked this morning" and giving the name of the street where he lives.
The email, sent from the address bankbossesarecriminals@mail.com, said: "We are angry that rich people, like him, are paying themselves a huge amount of money, and living in luxury, while ordinary people are made unemployed, destitute and homeless. This is a crime. Bank bosses should be jailed. This is just the beginning."
Goodwin has been at the center of national outrage for receiving a pension worth nearly a million dollars after his bank was propped with over 30 billion in government aid.
Earlier this week, listener Dan G. sent us an indicator about Goodwin. Read his letter after the jump.
categories: Europe's Financial Crisis
The Treasury Department has released new details about its plans for regulation of the financial system. The framework for reform includes creating a single regulator to manage system risk, increasing capital and risk management requirements for systemically important firms, requiring hedge funds above a certain size to register and regulation and oversight of the derivatives market.
The talk of establishing a systemic risk regulator to oversee all financial institutions has gained increased attention in recent weeks, as Congress has focused on the government's involvement in AIG. The Treasury Department says it wants to give "a single entity the ability to supervise, examine, and set prudential requirements for these critical parts of our financial system."
categories: Players
The U.K. economy is unwell. Like the Obama administration, the government of Gordon Brown planned to spend their way out of the crisis. Sharing more similarities with their neighbors across the pond, the U.K. also need to borrow the money to fund their plan.
But yesterday an auction of gilts (the U.K. equivalent of Treasury bills) did not get fully sold. The demand for all the gilts the government wanted investors to buy simply wasn't there. This is not good news for the government. The headlines such as this one on Bloomberg called it a calamity for Brown and a sign investors did not trust his leadership.
Brown's popularity is down to 30 percent, but these headlines may have been a little hasty. The gilts issued were for 40 years. The U.S. government doesn't even sell Treasuries beyond 30 years, so maybe investors just didn't want their money locked up for such a long time. Today's gilt auction in the U.K. was heavily oversubscribed, by three to one. These bonds are due in 2022, so maybe 13 years is not far enough out in the future to spook investors.
categories: Europe's Financial Crisis
Hot: The career books display Lindsey Kraft
Lindsey Kraft writes from the Forest Park Public Library, outside Chicago:
This book display, filled with books on career advice, at the Forest Park Public Library, was empty after a few a days. As soon as I saw it I thought to myself, "Planet Money indicator."
Library usage statistics are up all over the country. We are busier than ever! I guess that's another indicator.
They've noticed the library bump over at our hometown paper, too.
categories: Letters
We mentioned on the podcast that former Fed chairman Paul Volcker will be leading the Obama administration's effort to reform the tax code. Volcker is widely credited with getting the country out of the stagflation mess of the 1970s.
I heard him speak briefly this week at a conference hosted by the Wall Street Journal, on how regulation should change.
I was surprised to hear Volcker (who heads the President's Economic Recovery Advisory Board) argue that we should go slow on reform. Especially given that Obama and democratic leaders are pushing for quick action.
Here's tape of what he said. That's Alan Murray, an editor at the Wall Street Journal, who tells the amusing anecdote at the beginning.
(Weird reporter diary note: For some reason journalists were taken into the room through a back route that led through the hotel kitchen. It was kind of like that scene in the movie Swingers.)
categories: Economic Scene
High Frequency Economics' Ian Shepherdson spots the silver lining in today's job-loss figures. New claims for unemployment benefits rose by 8,000, to 652,000 -- about what people expected. Shepherdson says he'll need a few months' data to be sure, but writes:
The trend in claims is still upwards, though the rate of increase might be slowing.
I'll take it.
categories: Employment
Hans Ohman and Kjell Persson employees of crane and forklift manufacturer HIAB in Sweden. The company just fired 200 people. Hasse Persson/Swedish Radio
On today's Planet Money:
-- We take another look at the Treasury Department's plan to help banks get toxic assets off their books. Adam Davidson breaks down three different theories on whether or not the plan will actually work.
-- Our global recession anger tour takes off -- with stops in China, Sweden and Egypt. In China, NPR correspondent Lisa Lim gives us the view from students and teachers at the China Center for Economic Studies in Shanghai. Sweden comes to us, when Swedish Public Radio reporter Linnea Ericsson stops by the studio to talk layoffs and unions. And from Egypt, Dr. Hani Henry shares the story of Cairo's own Bernie Madoff.
Bonus: Angry in New Zealand, after the jump.
Download the podcast; or subscribe. Intro music: Phoenix's "1901." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
Collection day in San Francisco. Kimra McPherson
Kimra writes from San Francisco:
Over the past couple of days, I've noticed the Washington Mutuals in San Francisco slowly becoming Chases instead. I was in one yesterday that had completely replaced all its signs but still had WaMu deposit slips and the like. Today I caught the sign dismantling in action in the Financial District, as seen by this sad WaMu cube sitting in a dumpster.
categories: Economic Scene
In our conversation about who we should blame for the global financial crisis, quite a few of you have pointed the finger at the repeal of the Glass-Steagall Act, which separated commercial banks from securities firms. Listener Elise Schuster points us to this New York Times article from 1999 recently reposted by BoingBoing. The title of the article is "Congress Passes Wide-Ranging Bill Easing Bank Laws." It reads:
...Consumer groups and civil rights advocates criticized the legislation for being a sop to the nation's biggest financial institutions. They say that it fails to protect the privacy interests of consumers and community lending standards for the disadvantaged and that it will create more problems than it solves.
The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.
categories: Understanding The Crisis
Former Federal Reserve Chairman Paul Volcker has been appointed to head a new tax-code review. The review, set to be completed by December 4, will make recommendations on how to simplify the code and close loopholes.
Budget Director Peter Orszag says the changes could help reduce tax evasion and "corporate welfare." Bloomberg reports:
"There are hundreds of billions of dollars in uncollected taxes each year," Orszag said in a conference call. The Volcker board "will be examining ways of being even more aggressive on reducing the tax gap."
categories: News
We'll be taking a look at global recession outrage on the podcast today with reports from Sweden, Shanghai and Egypt. We've received many letters from listeners around the world telling us who they are angry with, but today we got a letter from a listener in New Zealand, who says people in his country aren't mad at anyone.
Troy writes:
New Zealand has decided not to participate in the "financial crisis". If anything the crisis has helped the NZ economy galvanize. There are a few losers that were around the margins and some hard luck stories, but even the Prime Minister has decided not the participate as illustrated in this WSJ interview.
The real winners have been the exporters. The lower Kiwi dollar has helped pushed exports up. Also, Importers are not hurting as bad as you might think. People are just saving a little more and putting off buy big ticket items. Real estate is down, and will probably fall another 8% until it reaches the classic 3-1 ratio with earnings, but interest rates have stabilized.
Overall, it's been very positive.
categories: Letters
The Commerce Department says that orders for durable goods, manufactured products expected to last more than one year, increased 3.4 percent last month. Economists had expected a 2 percent drop.
The biggest increase, 32.4 percent, came in orders for military aircraft and parts. Demand for heavy machinery, computers and fabricated metal products was also up.
The good news did not come without some gloom however, January's drop in durable-goods orders was worse than originally thought. Orders actually fell 7.3 percent in January.
categories: Green Shoots
Paddy Hirsch who does the great Whiteboard explainer videos for Marketplace wrote in with a helpful critique of our toxic asset theater on the podcast last night. He writes:
"The taxpayer is NOT on the hook for the loan that comes from the "government." That loan is guaranteed by the FDIC, which is funded with dues from member companies, not by the taxpayer."
categories: Corrections
I've been learning a lot about the Federal Deposit Insurance Corporation lately. That's the agency that insures our bank deposits and takes over our failed banks. I've spent time with some of the 600 new staff they are hiring, and we working away at another This American Life/Planet Money collaboration that looks at what actually happens when the FDIC takes over a failed bank.
Still, no matter how much time I spend learning about this stuff, I am taken aback every time Friday rolls around and a few more banks fail. Yes, at least one bank fails almost every week in our country right now. Last Friday there were 3 banks and 2 credit unions. (Read a strange story about one of those credit unions here.) We are now at 20 failures since the start of 2009.
categories: Understanding The Crisis
Seeking Alpha is holding a live chat at 2:30pm Eastern time today on the Treasury Department's new plan to clean up bank balance sheets. They've got a great line up of guests: Felix Salmon, James Kwak, Brad DeLong and Mark Thoma. It should be an interesting conversation. Check it out here.
categories: Recommended Reading
By now we're pretty familiar with the concept of securitized debt, particularly mortgages that were packaged and sold as investments. These, of course, became problematic when the housing bubble burst, mortgage defaults spread, and mortgage-backed securities imploded.
But what about other types of consumer debt that are wrapped up with a bow and traded on the market? Could securitized credit card debt be the next crisis in the making?
U.S. consumer revolving credit debt (including credit cards) has risen 20 percent in the past five years from $799.8 billion in 2004 to $960.4 billion in 2008 according to the Federal Reserve. Preliminary numbers for January 2009 show that figure continued to grow to $961.3 billion.
categories: Understanding The Crisis
The World Trade Organization is predicting that global trade will drop by 9 percent in 2009 -- the biggest drop since the Second World War.
A report from the WTO specifically points to a drop in demand, tightening of credit, and the increasing presence of global supply chains as factors in the downturn. The global economy is expected to shrink by 1 or 2 percent in 2009, and the WTO says "its impact is magnified in trade."
The report says recovery is dependent on proposed fiscal stimulus plans and repairing world's banking system:
Despite the large size of this expected drop in world trade there are still substantial downside risks to the projection. Further adverse developments in financial markets could prolong the current crisis, as could a surge in protection. Recovery could be slower than expected if household consumption does not return to a more normal growth trend soon.
categories: News
We've had a lot of discussion on the blog recently about bonuses. Today Andrew writes to ask: "what's the big deal?"
I feel like either the whole country is nuts, or I am crazy. I see no ethical, moral, or legal reason that the bonus promised to these AIG employees should not be paid. Every justification I have heard expressed is gibberish.
categories: Economic Scene
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are testifying on Capitol Hill today about the government's involvement in AIG. In prepared remarks, Geithner said the government needs to find a way to "unwind a non-bank financial institution like AIG." How does he plan to do that? Take a look:
The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest.
The U.S. government as a conservator or receiver would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution's contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership.
categories: News
Robert writes from Dublin:
I am living in Ireland. We are having an unprecedented economic contraction...in 2009, of around 6.5%. Our banks held no U.S. toxic assets, but we have lots of loans to Irish property developers that have soured badly. Our population is 4 million, and we have put 7 billion euro into our 2 main banks, but it looks like we will need to put in more.
Our budget deficit is going to be over 10% in 2009. Luckily we are in the euro and have some stability from that. Unfortunately, our exchequer was too dependent on property related taxes, great in a boom, but crushing when the bubble pops.
Irish people are not blaming the U.S. subprime for our problems. Our problems are all homegrown, just crystallized by the worldwide crisis. We thought we were different, a unique invention of the brains behind the "celtic tiger", and by borrowing and selling houses to one another we could become very wealthy.
categories: Letters
This sign said 50% for only two days before 70% off sticker was pasted over it at lunch time. Alica Preston/Planet Money Facebook group
On today's Planet Money:
-- The Treasury Department unveiled the details of a public-private investment program to help banks get toxic assets off their books today. The plan calls for using $75 to $100 billion from the TARP, Troubled Assets Relief Program, along with funding from private investors, to buy as much as $500 billion worth of these assets. In another Planet Money Radio Dramatization, David Kestenbaum and Caitlin Kenney explain how it's expected to work.
UPDATE: A clarification on our toxic asset theater.
-- The new program already has its critics, but Columbia Business School professor and former investment banker David Beim isn't one of them. Beim says he thinks it's a good plan for the country.
-- The success of the program has big implications for the Obama Administration and Treasury Secretary Timothy Geithner. U.S. policy analyst Sean West of Eurasia Group tells us how he thinks it will play out, politically.
Bonus: Working together in Park Slope, after the jump.
Download the podcast; or subscribe. Intro music: Eric B. & Rakim's "Paid In Full". Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
WHAT: The Treasury's plan to buy toxic assets from bank, help the banks and open up credit markets. The goal here is to lure investors into partnering with the government and buying up to $1 trillion in toxic assets.
THE PROBLEM: The banks have all these toxic assets they want to get rid. The banks don't want to sell those assets at fire sale prices. Fire sale prices are all that anyone is willing to pay at the moment. So the banks continue to face billion dollar losses and the toxic waste continues to mess up the flow of credit.
WHO: This plan would use the resources of the Treasury, the Federal Reserve and the FDIC (the agency that insures our bank deposits) to make this appeal to investors: help us take us buy these toxic assets and we'll meet you more than halfway. We will match your investment and then we will offer you a cheap loan. Then we will guarantee that loan.
The government hopes with these subsidies private investors will love buying up toxic assets.
categories: Understanding The Crisis
Treasury Secretary Timothy Geithner won't be on Planet Money this afternoon, but he did make an appearance over on CNBC. Here's a bit of what he said:
BURNETT: And the question is, are things a lot worse than we think with the banks, that--or are they, need to take the training wheels off and stop freeloading off the taxpayer?
Sec. GEITHNER: I think you're going to see people start to raise equity again. I think they will.
BURNETT: Soon?
Sec. GEITHNER: Not sure how soon, but I think that'll happen. Again, by helping get these markets for real estate...(unintelligible)...loans going again, if you're helping provide financing to get the securities markets going again, you're going to make it more likely that these guys are able to clean up their balance sheets and raise private equity again. I--it'll come.
Watch video of the interview after the jump.
categories: Players
Stocks are surging today after the Treasury Department's announcement of a new plan to get rid of toxic assets from the banks' balance sheets. But as an article in Bloomberg this morning noted -- stocks may be up, but the bond markets are still depressed.
The average spread between U.S. Treasuries and U.S. financial corporate bond yields was 8.55 percentage points at the end of last week. They reached a record high of 8.81 percent earlier this month (according to the Merrill Lynch U.S. Financial Corporates Index.) This spread is a good indicator of risk aversion, in normal times the spread between Treasuries and investment grade corporate bonds is less than one percent.
categories: Understanding The Crisis
John Konrad says demand for gold is way up. Chana Joffe-Walt/NPR
I stopped by this coin shop in downtown Seattle the other day and met John Konrad. He sells stamps and collectibles but really, Konrad is in it for the love of money. "Real money," he tells me, not that fiat paper stuff you probably think of as money. He's talking about gold.
Konrad says he has never seen demand for gold like this before. He can't get his hands on enough. Customers want to stock up. In normal times at the Stamp and Coin Shop, it's a wait of a day or two for big order. Now it's weeks and Konrad is reluctantly turning business away.
Even young people, he exclaims (defined by Konrad as under 50 years-old), are coming in and asking for gold!
categories: Economic Scene
There was some good news for the battle-scarred housing market today. Sales of previously owned homes shot up over five percent in January, according to the National Association of Realtors. In a statement released this morning, Lawrence Yun chief economist for the NAR credited the jump to bargain hunting first time buyers:
Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February. Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.
The NAR says home prices have fallen sharply this year. The national median existing-home price for all housing was $165,400 in February, down 15.5 percent from a year ago. With prices continuing to fall, the outlook for home sales looks good.
categories: Economic Scene
A sign of the times in Seattle. Photos by Tom O'Brien
Listener Tom O'Brien writes from Seattle about how the death of the Seattle Post-Intelligencer's print edition is changing the city's landscape:
Here is how other media are treating the unsurprising demise of one of our newspapers. Like most Seattleites my biggest question is what will become of the PI Globe, a Seattle landmark for the entirety of my life, and eerily similar to the globe on the roof of the Daily Planet, the paper Clark Kent works for.
The Seattle Times, historically the high brow alternative to the relatively yellow and working class journalism of the PI, ran an elegy.
Bonus: David Folkenflik reports on the Seattle Post-Intelligencer becoming a web only publication.
categories: Letters
Economist Brad DeLong from University of California at Berkeley has a helpful Q&A about the new Treasury plan up on his blog Grasping Reality with Both Hands. DeLong's take is that the plan is a good start, but that more work is needed. He writes:
...Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.
Q: Oh.
A: But all is not lost. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.
categories: Understanding The Crisis
I just got back from the Treasury Department's press briefing on the plan to establish a public-private partnership to buy toxic assets.
You can read the fact sheet on the plan, and Geithner's op-ed from today's Wall Street Journal.
But here are some quotes. Geithner sat at the end of a long table, reporters on either side and at least ten rows deep to the back of the room.
categories: Economic Scene
The news this morning is of course dominated by the Treasury Department's new plan to buy troubled assets or as the government is now calling them "legacy assets." The plan calls for using $75 to $100 billion in TARP capital along with funds from private investors to purchase as much as $500 billion to $1 trillion worth of these loans and securities. The price for the assets will be set by private investors "competing with one another." The New York Times reports:
Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience," the department said. "But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases -- along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.
categories: Morning Report
On today's Planet Money:
-- Alex Blumberg and David Kestenbaum break down the Federal Reserve's plan to inject over $1 trillion into the economy by buying mortgage backed securities and long term Treasury bonds.
-- Industries usually take years or decades to make major changes. That's not the case in today's economic climate. NPR's Frank Langfitt tells us just how fast things are moving in Michigan's auto industry.
-- There are still a lot of questions about toxic assets. How many are there? What are they worth? Who has them? Mike Thompson, a managing director at Standard & Poor's, takes a stab at answering a few of ours. The good news? Some of what we thought was toxic, might not be so bad.
-- The Planet Money team visited Capitol Hill this week to find out how Congress is dealing with the current crisis. Alex Blumberg sat down with California Republican Congressman John Campbell, who made a surprising admission: he's confused.
Bonus: In defense of bonuses, after the jump.
Download the podcast; or subscribe. Intro music: Handsome Furs' "I'm Confused." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
The Congressional Budget Office says it expects the deficit to reach $1.845 trillion this year, if President Obama's current budget proposals are enacted. The most recent estimate is nearly $600 billion more than the CBO predicted just six weeks ago before Congress passed the stimulus package and an omnibus spending bill.
Although the CBO number is higher than the White House's own estimate of $1.75 trillion, House Budget Director Peter Orszag told the Wall Street Journal that a deary economic and fiscal outlook would not keep President Obama from accomplishing his budget goals.
categories: News
We've gotten a lot of questions from you about toxic assets. What does a toxic asset look like? How many there are? And of course: When oh when will they go away?
What does one look like? Here is the documentation for a residential mortgage backed security. It's 402 pages long. This one contains 4,921 mortgage loans, which had a value of $1.18 billion. Here's an evaluation of how this particular asset is doing.
You can find more of these things here.
How many are going bad? Here's a table showing what rating S&P (one of the three major rating agencies) gave some of these things initially, and how much the ratings have fallen. This report summarizes the state of affairs. About 40% have been downgraded.
categories: Understanding The Crisis
Hans writes:
I was at our credit union the other day and one of the employees (I think the manager) told us a story that reflects these hard economic times. He said that in San Francisco there is a bank that saw a huge increase in the amount of coins coming in. Apparently, people were breaking their piggy banks and raiding their coin bottles to turn in at the bank. In fact, the volume got so large that the bank had to bring in truck trailers to put the coins.
categories: Economic Scene
Listener Brad responded to my call for stories of international economic anger. He points our attention to Ukraine where things look really, really bad. Here are a few of the things that are way, way down: the currency, the steel and chemicals exports and jobs. Banks are hoarding cash. People are facing days without heat or water.
Are people angry? Yes. They are gathering for protests, threatening to block roads, calling for their leaders to step down and taking off their clothes in banks.
categories: Europe's Financial Crisis
The Bureau of Labor Statistics has released the latest figures for mass layoffs -- meaning at least 50 people from a single company opening unemployment claims in a five-week period. Last month, there were 2,796 mass layoffs up 542 from January. In total, 295,477 workers lost their jobs in February as a result of these layoffs.
Also on the rise, the total number of people receiving unemployment benefits -- in the week ending March 7, 185,000 more people filed for benefits.
categories: News
A bill to tax the bonuses paid to employees of AIG and other companies that take bailout funds is headed to the Senate. The House overwhelming approved a 90 percent tax on the bonuses yesterday, the Senate proposal calls for a 70 percent tax.
Last night on The Tonight Show, President Obama told Jay Leno he was "stunned" by the AIG bonuses and vowed again to do everything possible to get the bonuses back. Yesterday House Financial Services Committee Chairman Barney Frank proposed legislation to ban bonus payments at companies getting U.S. aid until the government is repaid.
categories: News
...with a lame job.
Read or listen here. Full disclosure: Isaac is my cousin.
categories: Economic Scene
Guy #1: I agree they should take back the AIG bonuses. But they should also take back the salaries of the people at the Securities and Exchange Commission. And Alan Greenspan's salary....
Guy #2: I don't care about the bonuses. I really don't. Maybe because I don't care about money in general. But I just don't feel any moral outrage. And who knows, maybe some of those guys getting bonuses were just doing their jobs, you know 'hey guy: analyze this thing for me' Were they all really in a position to know? You can't blame someone unless they should have known. I'm sure the government's going to get its money back eventually. So who cares?
categories: Economic Scene
Across the street from the AIG offices on Wall St. Caitlin Kenney/NPR
According to the folks behind the website Take Back the Economy, today is a national day of action to demand "more responsible corporate behavior" and "employee free choice and healthcare reform." In New York, that meant a couple hundred protesters chanting and holding signs in front of the offices of Goldman Sachs and AIG.
Caitlin Kenney and I made the trip down from Planet Money HQ in Midtown to check out the action.
categories: Economic Scene
I wish there were an online translator for Fedspeak to English, but until that great day we'll do our best. Here's an explainer for what the Federal Reserve announced yesterday.
Q: What is the Fed doing?
Basically it's going to increase the amount of money out there by a trillion dollars.
Q: How the heck do you do that?
The Fed has the power to create money essentially out of thin air. It does this by buying things (typically treasury bonds) from the market. So the Fed takes the bond, pays for it with money. Voila, the money supply has grown.
categories: Understanding The Crisis
The blogosphere is abuzz today over news that the Federal Reserve plans to inject $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.
Here's the take from Simon Johnson at Baseline Scenario:
The big banks are essentially making themselves Too Politically Toxic To Rescue, and this has potentially bad macroeconomic consequences. So what will Bernanke do?
As he sees the world, there is only one course of action remaining: print money and hope for a moderate degree of inflation. The money part was, of course, the announcement yesterday from the Fed.
categories: News
The Federal Reserve's decision to buy $1 trillion in Treasury bonds and mortgage securities comes at what's called the Zero Bound. The Fed has already lowered its key interest to nearly zero, and now it has to find new ways to get money into the economy to get it moving again.
Looking around for more information on the zero bound, I came across this 2004 paper "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment" written by none other than Federal Reserve Chairman Ben Bernanke. (It's nice to know he's been studying it.) The paper can be a bit dense at times, but it does provide a good analysis of "quantitative easing."
categories: Understanding The Crisis
If you missed Adam Davidson's live chat earlier today, you can check it out here. One of the things Adam addressed was the Fed's decision to inject $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.
Geneva, Switzerland: Could you comment on the Fed injecting $1.2 trillion into the markets? Over in Switzerland, we noticed the dollar fall against the euro and CHF almost immediately upon this announcement. The WP article starts out "The Federal Reserve yesterday escalated its massive campaign to stabilize the economy..."Is this move supposed to be reassuring? To me (non-economist) it just seems desperate, like they are scraping the bottom of their tool chest.
Adam Davidson: I think desperate isn't too far off. The Fed is in a very tough position. Normally, it can respond to a slow economy by lowering interest rates. That encourages borrowing, which tends to make the economy speed up. But the Fed's short term interest rate is at zero. That means it can't go any lower. The Fed's main tool to stimulate the economy is broken. Useless.
categories: News
Listener Chris Boehm dropped this treat into the comments for the latest podcast. It's a video of a TED Conference talk about how social pressures tighten or loosen morality around the idea of cheating. Chris writes:
Dan Ariely, a behavioral economist, gave a TED talk that was just posted on YouTube about "cheating."
He talked about experiments he did, where people were given tokens that they could exchange for money, and how their behavior was different than those who were paid money directly.
He then applied this to the stock market: "What happens when you remove things from money?
"Could it be that people would cheat even more? And what happened to the social environment [sic] where people see other people behave around them?"
categories: Lunch Break
The staff of the International Monetary Fund says the G-20 response to the global banking crisis has so far been lacking. In a note released today, the IMF says bank restructuring measures have not gone far enough because they have "responded to market pressures rather than being based on a full diagnosis of the underlying soundness of institutions and estimating losses."
Even on a national basis, resolution strategies for the banking problems have taken place on a case-by-case basis, rather than as part of an overall assessment of the distress in the financial system. Capital injections were often not accompanied by an assessment of bank viability or by restructuring plans. Moreover, the injection of preferred shares in distressed institutions, while giving the authorities some upside benefit should the institutions recover, did not give governments a way to control or influence the bank's use of public money.
Continue reading "IMF Criticizes Response To Banking Crisis" >
categories: News
More evidence of tough times everywhere. We've been asking for your photos of the recession, and the responses have been amazing. The Boston Globe got in on the action yesterday with a photo gallery that shows foreclosures, closed ports, empty stores and stalled building projects.
It's rough out there. Keep those pictures rolling in.
categories: Economic Scene
Adam will be doing a live chat with the Washington Post this morning to answer your questions about the week's economic news, AIG and who we should blame for the current economic crisis. The live chat starts at 11 a.m. ET. Submit your questions here and follow the debate here.
categories: Inside 'Planet Money'
After writing my post yesterday, I thought of a simpler way to put things:
Until this crisis passes, can we, as a nation, please just agree that Congress, the President and the Treasury Secretary are too busy to waste their time on any problem worth less than, say, $10 billion?
I wanted to put the cutoff at $100 billion, but I do think it's appropriate for those folks to deal with the bailouts of Citi and Bank of America, which are not that high.
But, clearly, with any problem less than $10 billion, the President, members of Congress, and Geithner could say something like this:
categories: Understanding The Crisis
On today's Planet Money:
-- AIG CEO Edward Liddy testified on Capitol Hill today. Congress wants Liddy to hold back $165 million in promised bonuses, but Liddy says he can't. With the American taxpayers holding a nearly 80 percent stake in the company, some are asking -- can't we just force him to do it? Chana Joffe-Walt gets a shareholder's perspective.
-- The anger towards AIG has been dominating the headlines this week, but not everyone is seeing red. Ian Bremmer of Eurasia Group says the government has much bigger fish to fry and that AIG outrage is a luxury we can't afford.
-- We've asked for your input on where to place the blame for the economic crisis. Jacob Ganz checks in on the debate over who deserves more -- Wall Street or Washington.
Bonus: An indicator from New Mexico, after the jump.
Download the podcast; or subscribe. Intro music: Kelly Clarkson's "My Life Would Suck Without You." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
I've reported some tough stories, but this one is really, really hard to get right. Not emotionally. I'm as mad as everyone at these stupid bonuses, but I've been more upset about worse things that I've seen.
It's hard because I think the best perspective is a bit subtle, a bit nuanced, and I don't think there is much acceptance of that now.
I was in Iraq in May and June of 2003. To us reporters on the ground, it was clear the occupation was a full-on disaster, but word hadn't leaked out to the U.S. yet. When I came home on vacation, my friends -- even my lefty, anti-war friends -- were convinced that the occupation was going well. (Nobody believes me these days, but I swear it's true. You probably thought things were going well then.)
categories: Understanding The Crisis
The Toronto Star is getting in on the blame game. Listener Shreve L. from Toronto points us to an article titled "Meet the Canadian whose big idea felled Wall Street." In it, the Star calls Former University of Waterloo statistician David X. Li the man who "supplied the matches" that burned down the American economy -- a reference to Felix Salmon's piece in Wired. Shreve writes:
For the most part the readers who have commented on the article seem to see past the sensational headline, and find the articles nationality based attempt at blame distasteful. But perhaps its true that Canadians are at least a little proud to be included as part of the global catastrophe. Don't forget about us.
categories: Letters
In an op-ed in today's Washington Post, AIG CEO Edward Liddy says he shares the public's anger towards his company and other financial firms. Here's a taste:
I am mindful of the outrage of the American public and of the president's call for a more restrained compensation system. I am also mindful that every decision we make at AIG has consequences for the American taxpayer. We weigh decisions with one priority in mind: Will this action help or hurt our ability to pay money back to the government?
Although we have wound down more than $1 trillion in the portfolio of the AIG Financial Products unit that is at the root of the company's troubles, there remains substantial risk in that portfolio. The financial downside for taxpayers is potentially very large, and that's why we're winding down this business.
categories: Players
Steve Rhodes sends these photos from the last days of Stacey's Bookstore in San Francisco. The store closed yesterday after 85 years in business and 50 years in the same location. The San Francisco Chronicle reported on the closure earlier this month:
Stacey's was always crowded at lunch hour. It was a place to sit, to ask the clerks for advice, or just to look at books. "You know, people don't think of the Financial District as a neighborhood, but it is," said Ingrid Nystrom, the marketing manager at Stacey's, who has run 50 to 100 author events a year there over the past 11 years. "It will be a real loss to the neighborhood. We've had some people crying."
Stacey's had a lot of books on financial topics, and the numbers for the store were grim, Nystrom said. "We sold $4.5 million worth of books last year," she said. "But the place (three stories and a basement) is too big for the number of people."
categories: Economic Scene
In his morning note, Ian Shepherdson of High Frequency Economics keys in on the increase in the consumer price index (CPI). He writes:
The February CPI rose 0.4%, with the core up 0.2%; both increases were a tenth bigger than expected. The headline was boosted by an 8.3% rebound in gasoline prices, a bit less than we expected. Food prices dipped marginally.
In the core, the big surprise was a 0.8% rise in new car and truck prices, the biggest increase since November 04. We can say with confidence that this is not the start of a new upward trend in this incredibly depressed sector. The same is true of clothing prices, up 1.3%. This is a partial reversal of the massive fall discounts, nothing more; the pressure on clothing prices is downwards.
Elsewhere, rents and OER were both very subdued, rising only 0.1%, and lodging costs dropped 1.8%. Headline CPI deflation is still coming, and core disinflation will continue.
categories: News
Forget about an increase in divorce when the economy sours, in Japan marriage is on the rise. Bloomberg reports:
Women the Japanese call "marriage-hunters" are looking to tie the knot as companies from Toyota Motor Corp. to Sony Corp. fire thousands of workers and the nation heads for its biggest annual economic contraction since 1945. Marriages surged to a five-year high of 731,000 in 2008 as wages stagnated and the unemployment rate rose for the first time in six years.
"Financial concerns are a major reason for the increase in marriage-hunting," said Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo. "Women are motivated more than ever to find a financially sound partner."
categories: Fun With Economics
My colleague Joe Palca has the following proposal:
Here's what you do. Announce that the money will be handed out at a public function. Then, print the checks on those oversize posters like they do for the Publisher's Clearinghouse Sweepstakes, so you can see the name of the lucky winner and the amount they received from 100 yards away. Anyone who wants the money has to come up on stage and have his or her picture taken with an irate Timothy Geithner.
I'm guessing many would decide it wasn't worth it. And for those who do, well, at least they'll have provided us with a little entertainment.
categories: Economic Scene
Ariane writes from Paris:
I graduated college last May in the States and I am currently taking "find myself" year in Paris. I support myself by working at an expatriate bar called "the Great Canadian" (I'm from New York). It is a popular sports bar amongst French and English speakers. It is right on the Seine and in view of Notre Dame. With a location like that drinks are on the pricey side. In the last months thanks to a terrible exchange rate with the pound we've lost a lot of our customers and paying 7 euros while watching a rugby match sounds a bit ridiculous. So now the pints are 5 euros. Still expensive, but still.
Tastes a little like deflation.
categories: Letters
Adam and Alex and I spent the day running around Capitol Hill, trying to document what could be the most sweeping regulatory reform efforts the banking industry has seen since the great depression.
The House Financial Services Committee held a hearing on Systemic Risk and how to make sure a future crisis doesn't cascade the way this one has. Barney Frank is hoping to get some sort of major regulatory reform package together in very short order.
categories: Economic Scene
Full disclosure? I grew up in Pittsburgh.
There's my disclaimer, before I tell you things in the Steel City don't seem all that bad these days. As 2008 ended, Pittsburgh made news by bucking recessionary trends. Housing prices in 2008? Up. Wages? Up. Unemployment? Tolerable.
All this created a resilient mood in a city hardened by its own downturn, after steel collapsed in the 80s.
categories: Road Trip
You'd think the law would be one of our more recession-proof trades -- we've been counting on it at my house. At the very least, New York's big firms should have a bunch of Wall Street clients to represent. But it turns out even top 10 firms are starting to pare back.
Layoffs are painful everywhere, but how hard are law firms trying to avoid them? The self-styled "legal tabloid" Above The Law has been chronicling the efforts to cut costs and has noticed that some big firms have found creative solutions. They're offering associates cash (generally in the neighborhood of $75,000) to take a year off from firm life and find an unpaid public interest "internship." Some firms are pushing back start dates on incoming first year associates to January 2010. At least one firm has even offered buyouts.
categories: Employment
We've been talking a lot about anger and blame over here. We're asking people to point fingers and name names.
Which got me wondering if people in other countries are drinking the haterade, too. Are people in China, Finland or Azerbaijan pissed about the global recession? And if so, who do they blame? Is there anywhere in the world where people are not angry?
We're hoping to look outside the U.S. a bit for a little international hater survey. Which countries do you think we should look at? What have you heard about international anger over the crisis? If you live abroad, who are you hearing blamed for this mess? Send us your thoughts.
categories: Inside 'Planet Money'
Better behavior at the dollar store, please Forwarded by Nathan Foote
On Monday's podcast, we heard from Matthew Noah Smith, a Yale philosphy professor who walked us through one way of looking at blame. Smith first got in touch with us when he pitched the idea of including philosophers on Planet Money. He wrote:
[O]ne thing to ask a political philosopher is the following:
"Should we sacrifice any of our moral commitments -- for example, our commitments to justice and free markets -- in the name of ending this crisis sooner?"
categories: Letters
Today the Bureau of Labor and Statistics reported the seasonally adjusted producer price index rose 0.1 percent in February, less than many analysts expected. That means inflation has slowed to a near standstill, as food and energy prices continue to fall.
Nowhere is this trend more apparent than in energy prices, which rose 1.3 percent overall in February. That's much slower than their 3.7 percent pace a month earlier.
categories: Oil Economy
On Monday's podcast, we talked about the outrage over AIG's plans to pay out $165 million in bonuses. The company says they are contractually obligated to pay bonuses, and they have to follow the law. That may be true, but it's likely not the only reason they feel the need to pay up. As Adam mentioned on Monday, some people suspect that the company is concerned about its ability to retain the very people who created the complex financial products that brought them down in the first place. It's an argument Andrew Sorkin fleshes out in today's Dealbook. He writes:
A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave -- the buzz on Wall Street is that some have, and more are ready to -- they might simply turn around and trade against A.I.G.'s book. Why not? They know how bad it is. They built it.
So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.
categories: News
We just got a copy of this: After President Barack Obama's big speech to Congress last month he got a somewhat irate letter.
It came from the American Bankers Association, on behalf of the many small community banks who felt Obama was painting with too wide a brush:
"Mr. President, of the over 8,000 banks in this country, very few ever made a single subprime loan...."
Read it here.
categories: Economic Scene
William writes from Brazil:
I am an American and loyal listener in Porto Alegre, Brazil. The B in the BRIC. Porto Alegre is one of the strongest cities in Brazil economically, and our location, which is closer to Buenos Aires than to Rio, means that we are deeply tied into the Mercosur. Just in case you were curious what things were like here, I thought I would let you know. High-rent stores in the fancier shopping malls are all liquidating. I mean ALL the retail stores. It is incredible. Orders from manufacturers are collapsing and people are starting to get laid off.
categories: Letters
Also, while we're talking about China, take a look at this from the New York Times: "In Downturn, China Sees Path to Growth." The Times reports:
The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development.
categories: China
Ian Shepherdson of High Frequency Economics notes this morning that January housing starts jumped by 22 percent. The 583,000 starts far outpaced economists' expectation of 450,000. Shepherdson's not over the moon about it, but still writes:
The leap in starts was propelled by an 82.3% surge in activity in the multi-family sector, reversing almost all the drop in starts over the previous three months. We see no specific factor that might explain this jump; multi-family starts are always noisy but this is exceptional.
Single-family starts and permits both rose too, by 1.1% and 11.0% respectively, after a run of double-digit declines in recent months. With new home sales still falling and the months supply at a record there is no reason for homebuilding to rise. This is a temporary rebound, not a recovery, though it likely means the post-Lehman crash is over.
Emphasis mine. I like the idea that some part, any part, of the crash might be behind us now.
categories: Green Shoots
On today's Planet Money:
Outrage is building over AIG's plans to hand out millions of dollars in bonuses, after taking nearly $170 billion in government aid. President Obama is urging Treasury Secretary Tim Geithner to do everything he can to stop it. But that's not the only thing making people mad -- others have criticized the insurance giant for paying out billions of bailout dollars to its trading partners, many of them overseas. Adam Davidson tells us where to direct our anger.
Meantime, Chinese Premier Wen Jiabao is expressing some frustration of his own, calling on the U.S. "to honor its promises and to guarantee the safety of China's assets." The country has over $500 billion in U.S. Treasury bills alone, and Brad Setser of the Council on Foreign Relations says they've got a lot to worry about.
Plus: Yale professor Matthew Noah Smith plays the blame game.
Bonus: Seeds of the economic downturn, after the jump.
categories: Planet Money Podcast
Harry Markopolos spent nearly 10 years trying to warn the world about Bernie Madoff. Markopolos, working for a private investment firm, tried to figure out the math on Madoff's investments. When he failed, Markopolos began sending tips to the Securities and Exchange Commission.
How's he feeling now that Madoff is behind bars? Not so great, he told the folks at the Bottom Line, a blog out of Boston's WBUR.
categories: Players
The New Republic's Noam Scheiber has written an extensive profile of Larry Summers, Director of the National Economic Council, and one of Obama's key advisors. The wide-ranging piece covers Summers from his college debate team days through his work on the current stimulus bill. Here is the bit that grabbed me:
In July, when he was still a civilian, Summers argued in the Financial Times that the government should use its "receivership power" over Fannie Mae and Freddie Mac to wipe out holders of regular and preferred stock and certain types of bonds, "conserving cash for the benefit of taxpayers." He said it should run the companies until the financial crisis passed--perhaps a period of several years--before selling off certain components to the private sector. "It is a time for decisive action," Summers wrote.
categories: Players
Bottom's up in Oregon.
Richard spotted this sign at the liquor store in Oregon:
I thought I heard that the liquor industry did well in hard times. Not that simple, I guess. Anyway, it's a regulated industry, and the state is hurting, so there are ripple effects, and it looks like it hit the local liquor store in a big way. They're also talking about a higher beer tax, here in Beervana.
Time to break out the moonshine stills?
The Oregonian reports that state lawmakers cut liquor store commissions to help balance the state budget.
categories: Economic Scene
In a 60 Minutes interview last night, Federal Reserve Chairman Ben Bernanke said he expects the recession to come to an end "probably this year." Bernanke said the banking and financial systems will need to stabilize first, but at the moment he is seeing "green shoots:"
I think all of our efforts, so far -- have produced results. We're buying about $500 billion in -- mortgages -- in package and securities by -- the G.S.E.s, Fannie Mae and Freddie Mac. And -- that seems -- to have brought down mortgage rates significantly. It allows people to refinance. To get out of high rate mortgages. we are seeing progress in -- in the money market mutual funds, and in the business lending area.
categories: Green Shoots
A taste of the economy at Grand Central Bakery in Portland, Ore. Andrew Black/Planet Money Facebook group
Tim sends this indicator from Colorado Springs:
Economic Indicator: 9. Nine months was the amount of time that the new pizza place down the street stayed open. They moved from a really bad location a couple of miles away to a nicer location close to central down-town Colorado Springs. They completely renovated a space and installed all brand new equipment and furnishings. Did everything they could to make it look like a nice new up-scale pizza place. But it never looked like they had much business when I would walk by at lunch time.
categories: Economic Scene
James Kwak, our friend at Baseline Scenario, considered our quest for people to blame in the economic crisis. Kwak writes:
If I had to pick one person or institution, there is only one possibility: [Former Federal Reserve chairman] Alan Greenspan.
Obviously a crisis of the current magnitude requires the participation of many people and institutions. But if you are looking to place blame, you need to focus on people who could have made a difference. Blaming things on "greed" or "greedy people" is silly, because as someone once said, greed is like gravity: you know it exists, and you have to expect to be there. Blaming individual rating agencies, mortgage lenders, investment banks, bank CEOs, etc. also doesn't work. In each case, if that agency/lender/bank/CEO had behaved differently, it would have made no difference. In a competitive market, it would have simply lost market share and been replaced by a less scrupulous competitor (or, in the case of a CEO, he would have been fired).
Greenspan is different, and uniquely important, for a couple of reasons.
categories: Players
On today's Planet Money:
Bernie Madoff woke up in jail today, after pleading guilty to 11 charges stemming from an enormous Ponzi scheme. How enormous? The most recent court documents put the figure at $65 billion. (NPR's Jim Zarroli describes the courthouse scene.)
In another amazing Planet Money Radio Dramatization, Alex Blumberg, Adam Davidson and David Kestenbaum act out a Ponzi scheme of their own.
With a cameo by Harvey Pitt, former chair of the Securities and Exchange Commission, who suggests that the estimate of $65 billion is "badly inflated."
Bonus: Comment of the week, after the jump.
Download the podcast; or subscribe. Intro music: Doves' "Pounding." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
Watch that dollar: Chinese Premier Wen Jiabao Feng Li/Getty Images
Here's what Chinese Premier Wen Jiabao said at a Beijing press conference today:
"We have lent a huge amount of money to the United States. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China's assets."
Here's what China expert Brad Setser, an economist with the Council on Foreign Relations, tells us he heard:
"China is starting to think like a creditor, and it is starting to care about the long-run value of all the money that it has lent to the U.S."
categories: China
U.S. imports and exports continued their slide in January, with the result of narrowing the trade deficit by 9.7 percent.
The numbers are not particularly surprising given the global recession, and a shrinking trade gap can be a good thing. However, there is some eyebrow-raising to be had in the fine print.
categories: News
Jon Stewart's interview with CNBC's Jim Cramer on "The Daily Show" last night is the talk of the "twit-blogs" and the "interscape" this morning.
You may recall that Stewart went after Cramer and his CNBC cohorts last week for giving bad stock tips and missing the big picture in the lead-up to the market's collapse. Last night's TDS was largely given over to an extended conversation between the pair, and Stewart went at Cramer for telling "Mad Money" viewers to take a long view on their investments even as he was aware that the "shenanigans" of heavy-duty investors had turned the market into a minefield.
What did you think? Did Stewart (backed by his studio audience) come off as a bully? Was Cramer's contrition believable or did it come off as staged? Will it change anything about Mad Money? Do you want Cramer as your financial watchdog? The interview as it aired on Comedy Central is above, and you can watch an extended unedited version on The Daily Show website.
categories: Lunch Break
Watching Dave's Fresh Pasta grow. David Strasburger-fac
Dave from Somerville, Mass. writes:
There is a small business around the corner: Dave's Fresh Pasta. They make (you guessed it) fresh pasta to take home and cook, and in the last couple of years sandwiches, and then two years ago they added a liquor license and a small selection of wines and beers.
Now of all times they are more than doubling in size and starting a small grocery. What's up with that? Here's my guess: Our corner of Somerville seems pretty stable so far. Dave's clientele typically also eats out a lot (gourmet food types, plus a mixed lunch crowd) -- they're eating out less often now and being able to pick up nice food to carry home seems like a good deal?
Don't get me wrong -- the idea of being able to walk to the corner for produce or local dairy products warms the cockles of my foodie soul -- but this does look surprising.
Maybe slow local growth is the way to go.
categories: Green Shoots
The empty walls of the London Underground. Gareth Jones
Gareth sends this photo of a Tube station in London, noting that it's "usually full of advertising."
Send your photos and economic indicators to planetmoney@npr.org or add them to our Facebook group.
UPDATE: A listener from London reports that that several Underground stations were poster-free for a few days, but it was not due to a lack of advertising spending. Many stations are undergoing a complete face lift, and after a few days of remodeling the paper posters were replaced with large video screens. Maybe this is a good news indicator after all.
categories: Economic Scene
Madoff arrives at court. Stan Honda/AFP/Getty Images
Bernie Madoff is headed to jail after pleading guilty to charges stemming from a massive Ponzi scheme. NPR reporter Jim Zarroli was at the courthouse today. He checks in with Planet Money to describe the scene and what happens next.
categories: News
Dante Hesse, organic dairy farmer, needs to raise $700,000. NPR
A bunch of you have been asking about economic growth and sustainability. Today on All Things Considered, we hear from an organic dairy farmer who has turned to his customers for help financing a bottling plant in his barn.
In his way, Dante Hesse is part of the new Slow Money movement. It's the brainchild of venture capitalist Woody Tasch, author of Inquiries into the Nature of Slow Money from Chelsea Green.
You can read an excerpt from his book with the story. Here's a nugget from Tasch:
Organized from "markets down" rather than from "the ground up," industrial finance is inherently limited in its ability to nurture the long-term health of community and bioregion. These limits are nowhere more apparent than in the food sector, where financial strategies optimizing the efficient use of capital have resulted in cheap chemical-laden food, depleted and eutrophied aquifers, millions of acres of GMO corn, trillions of food miles, widespread degradation of soil fertility, a dead zone in the Gulf of Mexico, and obesity epidemics side by side with persistent hunger.
categories: Economic Scene
PM contributor Chana Joffe-Walt pointed us to this contest, sponsored by the National Foundation for Credit Counseling. School kids across the country come up with a poster to illustrate the phrase "I'm Going To Be A Millionaire Because I..." It's kind of like a local talent contest version of the weird Feed The Pig ads where people hand money over to a porcine fellow dressed in a pink seersucker suit.
Most of the posters are pretty straightforward -- laying out a plan that might plausibly lead to financial success somewhere down the line. But we like this one best, and would like to encourage the idea that puns are the surest route to riches.
categories: Fun With Economics
Foreclosures spiked by 30 percent last month. All told, 290,631 homeowners got either the news or the boot, depending on how far along in the process they were. The Mortgage Bankers Association calculates that 11.18 percent of all loans was either in foreclosure or at least one payment behind.
The fear now is that the new foreclosures are driven by rising unemployment, and not fallout from the subprime mortgage crisis. New weekly claims rose by 9,000, to 654,000.
categories: News
Cashing it in. Avery Cook
John from Kansas City, Mo. sends this great little puzzler:
For fun, I was playing with an electronic 20 questions game (20Q) and decided to try and use "economy" as the target for the poor little gizmo to guess. It had no idea of my philosophical bent and I tried to cut it a few breaks. As a 'thing', vegetable and mineral don't qualify. Animal ? It has a life of sorts. Does it have legs? Does it stand on two legs? Does it have a tail? Perhaps this could serve as a creative whack to one's head, to get one thinking along a different line...
categories: Fun With Economics
Earlier this month, the FDIC put in place new fees for the banking industry in order to shore up the fund it uses to protect bank deposits. While small bankers were outraged at the new increases, FDIC Chairman Shelia Bair argued that they were necessary to keep the deposit insurance fund from becoming "insolvent this year."
The number of bank closures has skyrocketed this year, already 17 banks have failed in the first months of 2009, compared to just 25 total failures last year. But before the recent crisis, the FDIC was dealing with relatively few collapses. There were no bank failures in 2005 and 2006 and just three in 2007. So where is all the money? Wasn't the FDIC just socking away fees in the last five years in preparation for such a downturn?
categories: News
If you're the kind of person whose appetite for retribution was whetted rather than satisfied by Bernie Madoff's guilty plea this morning, and if the news of the huge jump in foreclosures has you gunning for banks, we've got a little something for you.
"Drag Me To Hell", a new movie by Sam Raimi, the director of the "Spiderman" and "Evil Dead" trilogies. Hell's plot centers around a young bank employee (Alison Lohman) who forecloses on a home owned by a frail old woman. In response, the crone saddles Lohman with a curse that somehow involves demons, flies in the mouth, mud, bearded dudes with accents and Justin Long. Can you think of better punishment?
Somewhat scary trailer after the jump.
categories: Lunch Break
I've studied quantum mechanics. I'm fine with subatomic particles being in multiple places at once. The warping of space-time? Extra dimensions? I'm cool with all that.
But financial accounting? Boy, some strange stuff in there, as I was reminded of yesterday.
categories: Understanding The Crisis
Bret writes:
I'm that guy who's blameless that you guys talked about on your "who's to blame" segment. I put 20% down on my condo when I bought it 2 years ago, I make my mortgage payments, I have credit card debt but it is all at 0% interest and I have at least enough money in a high interest earning (over 4%) checking account to pay off the credit card balance at a moments notice.
categories: Letters
On today's Planet Money:
-- Nationalizing banks wouldn't cripple the economy, says Raghuram Rajan, former IMF chief economist and current University of Chicago professor, but it would be a step too far.
-- This week, Adam Davidson asked for your input on where to place blame for the economic crisis. Martin Wolf of the Financial Times reveals his answer.
-- When store owners run into trouble, they sometimes ask for a break on rent. Oklahoma City real estate guy Jim Parrack of Price Edwards and Co. tells us the trick to fielding requests.
Bonus: Unemployment by state, after the jump.
Download the podcast; or subscribe. Intro music: Ladyhawk's "I Don't Always Know What You're Saying." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
Earlier this week, Jennifer Klein of Jacksonville noticed a sign in a highway median that read, "Tenant Evictions. No Mess. Cheap $$$. Pay With Credit Card."
By the time she went back to take a picture, the sign was gone. Turns out it was for JaxEvictions, a service of Hetsler Mediation and Valuation, Inc. Look, someone's gotta kick those people out, right? Says the website:
"You could pay a lawyer over $1,000 for an eviction, but our prices START AT ONLY $350."
categories: Economic Scene
Today's green shoot comes from Jim who recently moved from Jersey City to San Francisco. He writes:
My planet money indicator is three weeks and one. I recently moved across the country for personal reasons and didn't have a new job lined up before taking the leap and moving here to follow my significant other. 3 weeks after I got here I'd received a great job offer, and it was from the first place I'd interviewed. My new job pays more than the old one and after a month I'm still thrilled with it and confident that I made the right choice. I expect to be employed there for a long time to come.
categories: Green Shoots
In his morning note today, Carl Weinberg of High Frequency Economics writes:
"[T]he U.S. economy. . .seems to be the only one shedding workers faster than GDP is falling."
Which seems to hold a key to understanding what's happening in the American employment scene.
categories: Employment
Yes, Bernie Madoff is heading for a guilty plea, and Citigroup has posted a profit. Let's take a wider view, courtesy of the BBC:
Chinese exports fell 25 percent in February. China's trade surplus went from $39.1 billion in January to $4.8 billion. (Bonus: Calculated Risk dives deep on this.
Norway's Government Pension Fund reminds us of the looming pension crisis, losing $92 billion in 2008.
And in the U.K., the Bank of England is starting its latest attempt to goose the economy, "quantitative easing" -- or what some of you, but not us, call "printing money."
categories: Europe's Financial Crisis
Message in a fortune cookie Christopher T. Hall
Derek from Talent, Ore., applies Joshua Bearman's "Delicious Cake Futures" story, about a lunchroom economy, to the housing market collapse:
Listening to Josh's story from 3rd grade, I realized that for the past few years, I have felt similar as I watched home prices skyrocketing in our area (the Rogue Valley in southern Oregon has the city of Medford, one of the most overvalued markets in 2007 I believe).
I knew people who were buying homes (chocolate-dipped nutter butters) and it felt like with prices headed nowhere but up (abundance everywhere), I would never own a home (scarcity), would always be a renter, and like Josh, I would be doomed to raisins for the rest of my life.
categories: Letters
The news reports that Citigroup closed up 38% today made things seem maybe better than they are. Shares are still worth less than a cup of coffee, because 38% of a small number is still a small number.
Percentages are a fine way to report things for small jumps up and down. But if a stock has dropped 98% from its peak (like Citi has) then even a 98% jump doesn't get you back anywhere close to where you started. (You'd still be out 96 cents on the dollar.)
I dunno, these are strange times. The usual rules of how we report things kind of don't apply.
categories: Economic Scene
No comment.
categories: Fun With Economics
The moves in financial markets can be impossible to figure out. Today, Citigroup was the hero of the stock market, jumping 35 percent, and it helped the Standard and Poor's 500-stock index shoot six percent higher.
And the reason: Citigroup said it was profitable for the first two months of the year. Businesses should be profitable -- right? For Citigroup, this is the first positive piece of news about profits since 2007. It has reported losses for the past five quarters in a row and recently was being talked about as a candidate for nationalization.
categories: Understanding The Crisis
We just visited the Financial Times, where Adam interviewed Martin Wolf about who we should blame for the crisis. The interview will be on tomorrow's podcast along with some discussion of the FT's popular Economists' Forum. For PM readers who've never heard of it, Wolf describes the forum as a place where a number of economists and others gather to share different angles on the current crisis. Today's piece comes from Ricardo Caballero, head of the department of economics at Massachusetts Institute of Technology:
No matter how many inefficient contortions and conversions individual financial institutions may do, until the problem of systemic panic is resolved, it is only a matter of time until the next crisis blows up in our faces. Those that think that solving the problems of one bank, by nationalizing it or otherwise, will restore confidence, fall into an extreme fallacy of composition: What may be the right solution for an isolated case, is not for a systemic problem.
Read the full essay here.
categories: Recommended Reading
The spike marks the crisis. Alan Cordova/NPR
Last October, as credit markets reeled from the bankruptcies of Lehman Brothers and Washington Mutual, the government takeover of AIG and the eleventh-hour acquisition of Merrill Lynch by Bank of America, new data shows that record amounts poured into the U.S. Treasury. The cash came from government and private sources overseas, all seeking to snap up Treasury notes, or T-bills. They spent some $147 billion as the U.S. rushed to finance the bailouts.
categories: Understanding The Crisis
It seems some of us may need a stimulus to return to healthy eating.
Fast-food giant McDonald's said yesterday its U.S. same-store sales increased 6.8 percent in February, excluding the calendar shift from last year's leap year. Worldwide same-store sales grew 5.4 percent by the same measure. McDonald's chalks the U.S. growth up to "the strength of the chicken line-up, the core menu, particularly the Quarter Pounder, as well as beverages and our market-leading breakfast."
Has your appetite for the fast stuff changed with the economic downturn?
categories: Standard of Living
Seen in Soho. Dodd Loomis
Dodd sends this picture from a sample sale in Soho. He writes:
I was dragged by my girlfriend to a kitschy boutique, where people who received "personal invitations" could shop for hip clothing at bottom barrel prices. Well, slap me in the mouth and call me Suzy... this place was bananas. After a 1/2 hour wait just to get in the place, I then had the pleasure of scuffling with over-eager skinny-pants hipsters clutching arms of sweaters, coats & pants for $110 T-shirts and/or $400 sweaters. These people couldn't get it out tha door fast enough. Just buckets of cash being dumped on the register. All I was thinking was "Recession Reshmeshon". I had to snap pictures of fiscal feeding frenzie for proof.
After the jump, a gloomy retail scene.
categories: Letters
The sub-prime flu attacking the world's largest economies has taken another victim. Brazil's GDP data, released this morning, showed the economy shrank nearly 4 percent between September and December 2008, the most since records began in 1996.
But Brazilians might beat their own record in the first quarter of 2009, as a thrifty American consumer and less demand for oil have hit Brazil hard. Overall exports fell 26 percent in the first two months of this year, and they make up one-third of GDP.
categories: South America's Financial Crisis
One of my favorite data points came in today: The "quits rate" dropped .1 percent in January, says the Bureau of Labor statistics. That means fewer people are voluntarily leaving jobs -- whether to sail around the world or to take another gig. In this lay-off economy, it appears, fewer of us are willing to trade seniority in a current job for opportunity in a new one. From the BLS:
The quits rate can serve as a barometer of workers' willingness or ability to change jobs. Although the quits rate was essentially unchanged in January at 1.5 percent, the rate was at the lowest point in the 8-year series.
categories: Employment
We could be looking at the end of banking as we've known it -- at least since 1999. There's been a growing chorus for the repeal of the repeal of the Glass-Steagall Act, a Depression-era law that forced a split between investment and consumer banking. It was overturned in 1999.
Bloomberg News wrote on Monday that President Obama and former Fed Chairman Paul Volcker want to see more regulation for banks. Bloomberg reports that analysts suggest "it will be more costly for some of the banks to remain in the areas they were let into" if the old Glass-Steagall barrier comes back.
Federal Reserve Chairman Ben Bernanke is joining in the chorus.
categories: News
A listener writes from WBUR land:
My economic indicator: 12. That's the number of years it took running his own business before my boss gave in and bought a microwave for the office.
He's always resisted because he doesn't like the smell of warmed food in the office. [O]thers who've been at this architecture firm six years and longer have been eating cold soup and leftovers or eating out more than they'd care to for some time now. He's laid off 40% of the office in the last year (5 people), finally resorted to bringing his own lunch, and realized it would be nice to be able to heat it up.
The bolding is mine.
categories: Letters
Dennis Overbye at the New York Times today asks whether science and Wall Street is really such a good mix.
Some of my former physics colleagues have taken their skills to the world of finance over the years. I think they were surprised there wasn't more math on Wall Street, but also wary of how useful that math would be.
This quote kind of sums things up:
"In physics there may one day be a Theory of Everything; in finance and the social sciences, you're lucky if there is a useable theory of anything."
categories: Economic Scene
We are starting to think about our next big project for NPR and This American Life.
We might do something on who is to blame for the current crisis and we'd like your help.
For many, the answer is obvious. The problem is that there are lots of folks with different obvious answers.
Right now, I'd like to get some input: who do you blame and why?
Here's a list of the people and institutions I hear most often. Please note: I am NOT saying this is my list of who I think should be blamed or that I agree with all of the reasoning. This is just a list of what I hear from others. Some, I think, are probably certainly to blame, others that I've listed are almost certainly not.
Who would you add to this list?
categories: Understanding The Crisis
On today's Planet Money:
-- President Barack Obama has a plan for saving the economy and the environment at the same time. You just have to understand it first. Richard Harris takes us all to school.
-- When Joshua Bearman was a third grader, he got locked out of the lunchroom economy. His classmates piled their jazzed-up, sugarfied, food/not food snacks on the table and traded until the best junk won, while Joshua sat on the sidelines with the sardines and raisins his family sent. Then, one magical day, he dreamed up the delicious cake futures.
-- If you lost your job, and the people you called for help had just laid off 20 percent of their staffs, and a couple of hundred applications turned up nothing, what would you do? If you're intern architect Spencer Lepler, you dial back the job search, just a bit, and prep for that big licensing exam.
Bonus: A philosophical open question, after the jump.
categories: Planet Money Podcast
When he got laid off years ago, Mike Tharp, now a columnist at the Merced Sun-Star (h/t Romenesko), says his prescription for getting back on his feet was two-fold:
On today's podcast, we'll hear from an intern architect who's taking his time to study up for the licensing exam. Me, I've had to go looking for new work a few times, each one a different adventure.
categories: Economic Scene
The World Bank serves up the bad news: The global economy is about to shrink for the first time since World War II. The BBC runs the numbers:
"By the middle of 2009, industrial output could be as much as 15% lower than 2008, while trade may record the biggest decline in 80 years, it said."
World Bank economists say the export-heavy economies of East Asia could take the biggest hit.
categories: News
From the U.K. Telegraph:"Overvalued euro set to plunge 'within months.' Key bit:
In recent days, futures traders in the US have significantly increased their bets that the euro will fall against the dollar. Data released by the Washington-based Commodity Futures Trading Commission on Friday showed that the "net short position" of trades against the euro by hedge funds and speculators almost doubled in the week to March 3 to 19,431 contracts from 10,081 contracts a week earlier.
What's going on?
categories: Europe's Financial Crisis
Benet Wilson posted this indicator to the Planet Money Facebook group:
I am on the email blast list for Icelandair, even though they don't fly out of Baltimore anymore. Considering Iceland's contribution to the global economic meltdown -- which I learned about on Planet Money -- I found their latest blast most interesting. They are trying to spur travel to their bankrupt country by offering a "Stimulus Package."
categories: Economic Scene
We're starting to hear this all over, from people in direct contact with him and from the press: Treasury Secretary Tim Geithner is starting to fry. And really, what mortal in his position wouldn't?
The New York Times today notes that Treasury is having trouble hiring enough people fast enough. One hint we've been getting is that any number of candidates have been disqualified for personal tax trouble. The Times reports:
[A]lmost all the top posts beneath Mr. Geithner are still vacant. Though he has hired about 50 senior advisers -- about half the number he hopes to recruit -- the White House has become so worried about potential tax problems and other issues in the backgrounds of candidates that it has nominated only a handful of people.
categories: Players
Derek from SurveyGizmo writes:
So I almost feel like I might jinx it by telling you this... but our company has not been noticeably hit by the recession. February was a record revenue month for us (in a month with only 28 days). We just signed a lease on a new office because we're busting at the seams. We had two new employees start last week and are planning to hire at least one more immediately, probably a few more this year.
We're not a giant company, so 2-3 jobs is obviously not going to do a lot for the economy, but we believe we can more than double our revenue in the 2009, perhaps even triple it. Also, 2008 was the best financial year I've had personally since 2000.
categories: Green Shoots
On today's Planet Money:
-- U.S. unemployment hit 8.1 percent in February -- unless you count the underemployed, too, in which case it's 14.8. Economist Howard Rosen of the Peterson Institute for International Economics takes your questions about the real picture, COBRA, and which industries might be hit next.
-- Look, the economy is bad. It's even very bad. But if you gaze across the span of history, says economist Ken Rogoff of Harvard, this particular crisis starts to seem not so unusual after all. Rogoff talks about the ideas behind his paper, "This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises."
-- And seriously, the economy could be worse verse. That's what Planet Money editor Jonathan Kern tells us, in his villanelle for the economic crisis.
Bonus: After the jump, extra questions and answers from Howard Rosen, plus the full text of "Villanelle for Uncertain Times" by Jonathan Kern.
categories: Planet Money Podcast
I went looking through the February job loss report from the U.S. Bureau of Labor and Statistics today, which says 31.7 million men and 49.4 million women "not in the labor force" in February for various reasons.
The government doesn't include these sidelined workers in the national unemployment rate. But that doesn't mean many of them wouldn't like a job. In one table, a significant and growing number say they stopped searching for work because of "discouragement over job prospects."
That category includes 281,000 women compared to 450,000 men, everyone who "thinks no work is available, could not find work, [or] lacks schooling or training." It also includes those who reported as "employer thinks too young or old, and other types of discrimination."
categories: News
Folks, we have to concentrate for a bit on cutting today's podcast. It's all about the new jobless numbers, plus a look at where we are in history. Your Twitter questions about unemployment were terrific, and it's been great to watch you helping each other -- and us -- understand the economic picture.
I'll leave you for a while with this Twitter post from @bjhaddad:
Please explain what would happen if the government did/does nothing. Seems like everyone just assumes it will be a disaster.
categories: Questions from You
A quick outtake from our podcast interview with economist Howard Rosen:
"Today we learned that there are 12.5 million people who are unemployed, and we have another 8.6 million people who are working part-time because they cannot find full-time jobs. Now, you're talking about 20 million people in this country who are either unemployed or underemployed. I don't want to freak out people, but the unemployed number, we start talking about 15, 16 percent."
Rosen notes that the government typically revises unemployment figures. For now, the broadest measure of unemployment stands at 14.8 percent.
categories: Understanding The Crisis
race to the top = race to the bottom data source: Bloomberg
Simon Johnson of MIT sent me this chart last night. It shows the price you have to pay if you want insurance against, say, Citigroup defaulting on a bond you might own.
The higher the price, the worse shape the market thinks that company is in.
categories: Understanding The Crisis
Richard sends this indicator from the blog, Confessions of a Community College Dean:
Surest sign of recession: our Admissions staff reports that it's raining men. Culturally, we aren't entirely prepared for this. Just out of curiosity, over the last week and a half I've been keeping informal track of the gender breakdown at the meetings I've had. In every group of ten or more, the men are outnumbered, usually by at least two to one.
categories: Economic Scene
New York Times columnist Paul Krugman today quotes from "a recent interview" with Treasury Secretary Tim Geithner.
Um...I think that might be our interview with him. We've got a call in to Krugman to ask him.
Why can't folks remember our program names?
categories: Inside 'Planet Money'
The U.S. Bureau of Labor Statistics says February unemployment checks in at 8.1 percent up from 7.6 in January. You could look at that as 91.9 percent employment. Or you could look at it like this:
In February, job losses were large and widespread across nearly all major industry sectors.
The new 8.1 percent is the worst since 1983. The numbers from recent months were all just revised, too, in the direction of misery -- but you knew it was bad, right?
categories: Morning Report
State and federal regulators appeared on Capitol Hill today to answer questions about the federal government's bailout of AIG. Things got heated when Banking Committee Chairman Senator Chris Dodd asked Federal Reserve Vice Chairman Donald Kohn to reveal which companies may have benefited from the government's bailout of the insurance giant. Kohn refused:
I would be very concerned that if we started revealing lists of names of people who did transactions with companies who later came in under government protection, got capital that sort of thing, that people just wouldn't want to do transactions with companies.
Watch the full exchange after the jump.
categories: News
The Obama folks were quick to exploit the internet during the campaign.
So why this?
"This site is coming soon"
It's been three weeks now...
categories: Economic Scene
Almost one in every eight U.S. homeowners is now late on the mortgage or actively in foreclosure, reports the Mortgage Bankers Association.
Economist and Planet Money guest Amir Sufi noticed the news and sent us an e-mail with the subject line "Scary." He writes:
"[T]his financial and economic crisis begins and ends with the U.S. housing market. The data from the Mortgage Bankers Association suggests we're still in big trouble.
categories: Understanding The Crisis
Citigroup took the big ride down today, with its shares falling below $1 just before noon Eastern. The lowest so far this Thursday has been 97 cents. A year ago today, Citigroup shares were going for closer to $21.
The trouble with falling below a buck, and staying there, is that the New York Stock Exchange then gets to delist you. On Feb. 26, the NYSE announced it was suspending the rule until June 30 because more than 50 companies had fallen below the $1 mark.
UPDATE, after nudge from: @StreetsofM:
Citigroup's turn at "breaking the buck" is a whole different matter from what happened when money markets did it in September 2008.
categories: News
Ford Motor Company has said it doesn't need loans from the government.
But that doesn't mean all is well. The company is offering to pay off some of its bonds. But people who bought those bonds won't be getting back anything like the full face value.
Here's the table detailing the offer. In most cases it amounts to 27 cents on the dollar.
Would you take Ford up on the offer?
categories: Economic Scene
Melissa Hanson writes:
My Planet Money indicator: 0% chance of losing my job at this moment.I'm busier now that before this whole thing started. I work in marketing at a retail real estate company in midtown Manhattan. Basically, they find tenants to rent retail spaces or find spaces for retail tenants.
As you can imagine, with all the retailers going out of business, spaces are rapidly becoming available. My job is to create materials to market these spaces. It's busier than ever now.
categories: Green Shoots
Just this Tuesday GM was blogging against bankruptcy, writing on its FastLane that " 'clearing the decks' sounds refreshing, the reality would be anything but....The deck in question turns out to be one that millions of ordinary Americans stand on."
Well, well, well. General Motors Corp today says its auditors have raised "substantial doubt" about whether the automaker can avoid bankruptcy. The company needs to stop losing money and stop burning so much cash.
GM has borrowed $13 billion from the federal government and seeks a total of $30 billion.
categories: News
The revised numbers for American productivity are in. For the fourth quarter of 2008, the Bureau of Labor Statistics had calculated that nonfarm productivity -- the total output divided by the total hours worked -- grew by 3.2 percent. Instead, folks, it shrank, by .4 percent.
"So much for the surprising strength in productivity late last year; the only bit of good news from Q4 is gone," writes economist Ian Shepherdson. Output and hours worked are in unsettling territory, ground not crossed since the recessions of the 1970s and '80s.
More noise out there about unemployment numbers. February's figure is due out tomorrow. Weekly new claims were down 31,000, to 639,000. It's all just buzzing until we get the figure Friday morning.
categories: Morning Report
On today's Planet Money:
-- President Barack Obama says the $787 billion economic stimulus plan will create jobs and help pull the country out of the recession. The exact amount of lift depends on a concept economists call "velocity." Ian Shepherdson of High-Frequency Economics catches up.
-- The Obama administration has repeatedly called nationalizing the banks the wrong approach. U.S. policy analyst Sean West of Eurasia Group says the White House is still leaving the door open to that option, but quietly.
-- Jason Bailey is living the good life in Greater Detroit. Seriously, he's got it lined up.
Download the podcast; or subscribe. Intro music: Irene Cara's "Fame." Find us: Twitter/ Facebook/ Flickr
categories: Planet Money Podcast
Planet Money went to Capitol Hill today -- or at least, its stories did. Check out this exchange between Sen. Max Baucus and Treasury Secretary Tim Geithner.
categories: Inside 'Planet Money'
I'm reading through the Obama administration's new foreclosure plan. In addition to the word "responsible" showing up a lot, I'm seeing hints of political strategy -- like this one:
"The Home Affordable Modification program has a simple goal: reduce the amount homeowners owe per month to sustainable levels to stabilize communities."
The boldface there is mine. The Treasury Department says a single foreclosure pushes nearby home values down by as much 9 percent.
categories: Politics
Ever gotten one of those calls, the one where they say, "Can you come down to HR?"
(Video made by bickerman on Xtranormal: Text-to-Movie)
categories: Lunch Break
Robert Hart sends this picture of the Rhode Island Mall in Warwick. He writes:
My local mall in Rhode Island, which I haven't visted in about a year, has only five stores left in it. I was talking to the employees in several stores and they all thanked me for stopping by. I saw many vacant storefronts with signs saying, closing in Feb 2009 which were vacant. There is a Sears that has everything on sale, a Walmart and a Kohl's left. I think it was in decline due to Providence Place Mall, but this recession is killing it. Walking inside felt almost post apocalyptic, it was scary.
categories: Economic Scene
My friend Owen (inspired by the above comic) started poking around on the simple english version of Wikipedia for various economic terms.
It's like the Wikipedia you know and love, except that all the definitions are supposed to only use the most common 1,000 words in the English language. It's intended for people around the world who are just learning the language. But it has the happy side effect of eliminating all that awful economic jargon.
Owen particularly liked the entry on money, which begins:
"Besides being easier to carry than cows, using money had many other advantages. Money is easier to divide than many trade goods. If someone own cows, and wants to trade for only "half a cow's worth" of wheat, he probably does not want to cut his cow in half. But if he sells his cow for money, and buys wheat with money, he can get exactly the amount he wants."
He laments there is no entry for collateralized debt obligation. Anyone want to take a whack at it?
categories: Fun With Economics
@aimeesblog sends a great article from Bloomberg: Hidden Pension Fiasco May Foment Another $1 Trillion Bailout.
Pension funds are major investors -- returns from the market are a key part of the model. The funds have been leaning on long-term stock market returns of 8 percent or more, but in reality getting closer to 3 percent, or less. From Bloomberg:
"It's pitiful, isn't it?" says Frederick "Shad" Rowe, a member of the Texas Pension Review Board, which monitors state and local government pension funds. "My experience has been that pension funds misfire from every direction. They overstate expected returns and understate future costs. The combination is debilitating over time."
Guess who gets to help when the pension funds come up short?
categories: Recommended Reading
President Barack Obama told reporters yesterday that stocks are starting to look enticing again:
"[W]hat you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is potentially a good deal, if you have a long-term perspective on it."
The Wall Street Journal has the best take I've seen on why sitting presidents usually steer clear of talking about the Dow:
categories: Players
February sales figures are out from Ford and Toyota, and the numbers don't look good. Ford is reporting a 48% drop in sales compared to the same time last year, and Toyota reports a 37% drop.
These numbers are bad enough, but take a look at Ford's production plans. The company says it plans to produce just 425,000 vehicles in the second quarter of 2009, compared to 685,000 vehicles in 2008 and 770,000 vehicles in 2007.
There is some bright news in the automotive world, however.
categories: News
Eric takes the open mic:
[L]ast year around this time, I started to think about changing careers. One of the reason is that I've been at my current job for 8+ years and finally came to the realization that this was not what I wanted to do. I wanted to go into the graphic/web design field. After a few months, of researching and putting together my portfolio(I have the skills, but lack the real world experience), I finally started job hunting. I landed a few interviews but nothing happened. Then October hit and jobs just seized to exist.
categories: Letters
A GM "news relations" director blogs today against taking bankruptcy:
[W]hile "clearing the decks" sounds refreshing, the reality would be anything but. The bankruptcy process would bring financial hardship to millions who rely on GM -- and upon whom GM relies.
The link comes from another GM flack, which serves to make it all seem that much more circular.
categories: News
Andrew Sullivan goes eight flavors of nope on U.S. Treasury boss Tim Geithner, who's still working out the details of the public-private partnership to save banks:
I'm a pretty sympathetic Obama supporter. I'd like to know what the Treasury secretary actually proposes with respect to the banking crisis. Is that really too much to ask? Maybe he'll tell us today. Who knows? He should be a critical force in explaining the government's economic policies, and yet he seems incapable of conveying anything to the American public whom he serves. He came across in his debut as a terrified intern who hadn't mastered his brief. And his political presence since has been pathetic.
categories: Players
Where have all the Hummers gone? Dale Schaafsma
Dale sends this picture of Hummer dealership in Lisle, IL. He writes:
A friend of mine goes to the Dodge dealer next door and stopped in for a repair. Apparently the shop has the only Hummers, but they can't get parts to repair them. The story is that the owner of both the Dodge & Hummer dealers has all but shutdown the Hummer side. Since he does not have a GM brand dealer he owns, he cannot get parts from GM (I presume they're not shipping anything to him as he hasn't ordered any Hummers). I'm left wondering if he sold off the inventory to individuals or another dealer?
categories: Economic Scene
On Friday, the Bureau of Economic Analysis announced
a sharp decline in real gross domestic product -- the sum of all goods and services sold in the United States, adjusted for inflation.
The BEA's big number was -6.2 percent, which is the amount the U.S. economy would have declined if it had sustained four quarters identical to the last one. Annualized percentage rates are a standard convention in finance; even when they describe a period of time other than a full year, economists and bankers prefer knowing that all percentage rates express annual projections.
GDP is calculated by adding four numbers: (1) consumption, (2) gross investment, (3) government spending and (4) net exports.
categories: Understanding The Crisis
On today's Planet Money:
-- Quick: If anyone had asked you six months which company Americans should save first in an economic crisis, would you have named AIG? As of today, taxpayers are on the hook for well over $100 billion to prop up the ailing insurer. But what if the U.S. hadn't decided to rescue AIG? Gregg Berman of Risk Metrics considers an alternate scenario.
-- Our favorite economic indicator, the TED spread, has lately lost some of its luster. It's been stuck in the neighborhood of one, and yet the economic crisis drags on. Now we're starting a search for new indicators with one from currency strategist of Marc Chandler of Brown Brothers Harriman: margin debt at the New York Stock Exchange.
Bonus: A TED spread question, after the jump.
categories: Planet Money Podcast
Margin Debt at the NYSE courtesy of Margaret Kempner at Brown Brothers Harriman
If you think of the current economic crisis as the result of people and businesses borrowing too much, then you can think of the cure as getting rid of that debt. That's the view from Marc Chandler, currency strategist at Brown Brothers Harriman.
categories: Understanding The Crisis
GQ "Men + Money" columnist Joel Lovell has a refreshingly honest column in the Washington Post today about how difficult it is right now to give financial advice. He writes:
Should you jump into the market now and buy low? Should you keep everything in cash for the next year or two or five? Should you invest in China or natural gas or gold? Beats me. I've been writing this column for about a year and a half, so I've done my research, talked to a bunch of investment analysts and made an effort to understand what's going on now and where we might be headed. But really, I can't begin to claim to know.
categories: Recommended Reading
Inspired by Friday's indicator from architect Celeste Lewis, Jon from Southern California sends one of his own:
My wife runs a small wedding and event coordinating business in Southern California. We would annually spend about $5-10K for marketing efforts, including last year and we would typically do 4-6 weddings at least a year, with a budget range of $35-85k.
For us, it started to slow down last summer, we went from 2-4 inquiries a month, to maybe one legitimate inquiry or referral by September. (an average year would see 25-35 inquiries, and 4-6 bookings). Since the first of October, her company has not had a single inquiry for full wedding coordination (where she works on the project for 6 months to a year doing pretty much everything for the client), which is really what her business specializes in.
categories: Economic Scene
The news this morning ranges from a Dow that fell below 7,000 for the first time since 1997 to an Eastern European financial crisis that just won't quit.
But the big, big, big news is all AIG. The numbers are U-G-L-Y: The insurer reports a loss of $61.7 billion in the fourth quarter of 2008, the worst loss in corporate history. Fearing a devastating domino effect, the Federal Reserve and the Treasury have announced $30 billion at the ready to prevent the end of the world as we know it.
Yesterday, I talked to someone I know who works at the Fed. This person recommended Joe Nocera's column Saturday in the New York Times. Look, the person said, the Federal Reserve is still confident that it can get ahead of the overall financial crisis, though it will cost an amazing amount of money. And yes, the Fed staffer said, the situation with AIG should make everyone mad. Nocera may have put it best:
Other firms used many of the same shady techniques as A.I.G., but none did them on such a broad scale and with such utter recklessness. And yet -- and this is the part that should make your blood boil -- the company is being kept alive precisely because it behaved so badly.
categories: Morning Report
I love that our interview with Treasury Secretary Tim Geithner has its own life as an object of analysis.
Steve Waldman has an interesting take.
I felt sorry, at a personal level, for our Treasury Secretary, a very smart man imprisoned in a series of talking points, desperately afraid of the consequences of holding an honest conversation.
Mr. Geither's unspoken assumption is that fixing our financial system implies ensuring that incumbent troubled financial institutions are "strong". But that's not right. Our financial system is composed, in part, of financial institutions, but it is supposed to be larger and more robust than any specific firm.
Our friends at Baseline Scenario had more thoughts, these from James Kwak.
categories: Understanding The Crisis
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