It's not working. (User47 / Planet Money Flickr pool © 2009)

On today's Planet Money:

Congress has been arguing for months now about the best ways to overhaul the American system of financial regulation. It's a tough conversation, because regulation can be bad in a couple of ways.

First, regulation can be ineffective, in which case it fails to prevent the outcomes it was designed to block or causes more problems than it solves. Second, regulation can overreach, in which case it stifles financial innovation.

After newfangled financial products nearly brought down the global economy last fall, you might think it's not so bad to stifle financial innovation. But financial innovation has also led to prosperity. Atlantic writer Mike Konczal and Columbia Business School economist Charles Calomiris argue the case for (and against) Wall Street creativity.

Bonus: Blog comment of the week.

Download the podcast; or subscribe. Intro music: Little Boots' "New in Town." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: The Pros And Cons Of Financial Innovation" >

By Mathew Katz

Consumer prices fell in July by 0.6 percent, according to a report today by Eurostat, the European Union's version of the Bureau of Labor Statistics. That's far greater than initial forecasts of a 0.4 percent drop. According the to report, the drop was largely because of decreased demand in consumer goods and services.

Yesterday an IMF official told the European Community Board that deflation is not an immediate risk but can't be ruled out, either.

Eurostat also released some grim data about unemployment in July: it's up to 9.4 percent, up 0.1 percent from May. That's a 10-year high, though it's a lower number than expected. But what's scary are some of the numbers in the report: in Spain, unemployment is at 18.1 percent. In Estonia, unemployment jumped from 4.6 percent to 17 percent in the past year.

By David Kestenbaum

President Obama just now commented on the new GDP numbers (at annualized rate of -1 percent, the economy is still shrinking but less quickly). Obama called the report "better than expected." And who deserves credit for that? Obama said it was "directly attributable to the Recovery Act."

The Bureau of Economic Affairs, which calculates GDP, agrees the $787 billion stimulus played a role.

That's what you get for spending a lot of money. The Congressional Budget Office writes this month:

"Stimulus legislation and efforts to stabilize the financial markets will push primary spending up to 26 percent of GDP this fiscal year, the highest level since World War II;"

There's still debate over how much effect the stimulus spending has had so far -- much of the money has yet to be parceled out -- and whether another round will be needed. A chunk of the stimulus is in tax relief, which workers see in their regular paychecks. Another $158 billion has been set aside for direct spending around the nation, of which a third has been spent.

Fun time-waster: Recovery.gov, which shows state-by-state projections for jobs saved and money spent, but makes it hard to see how much has been spent overall.

By Mathew Katz

Remember the good old days? When the GDP was going up and most of your friends had a job? Remember relaxing in your relatively prosperity, turning on the TV, and watching fun commercials for all the products you could afford?

Advertisers hope you do.

There's a great article at The Globe and Mail today on advertisers bringing back old commercials in a recession. The goal is to invoke nostalgia for better times through classic ads for comforting, familiar products like ketchup, burgers, and Coke.

By turning to archival footage, companies also hope to remind consumers that their brands have staying power through rough times -- because ketchup is forever.

Does it work? Have you seen any old commercials that made you feel safer, more reassured -- or at least convinced you to go out and buy that product? Any old commercials that you'd love to see on TV again? Let us know in the comments, or on our Twitter feed.

Springfield, Vt.: There goes the clunker. (Vyto Starinskas / AP © 2009)

By David Kestenbaum

As I was listening to the news this morning that the Cash for Clunkers program was out of cash, I wondered for the first time what was actually happening to the clunkers. The idea behind the government program is to take old low-mileage cars off the road and provide a stimulus for the auto industry.

But if we just resell the old cars, or Mexico buys them, it's not really helping the environment. On the other hand, destroying the cars seems like a waste too -- after all, these are cars that still run.

As you might imagine, Cash for Clunkers struck a compromise:

"The CARS Act requires that the trade-in vehicle be crushed or shredded so that it will not be resold for use in the United States or elsewhere as an automobile. The entity crushing or shredding the vehicles in this manner will be allowed to sell some parts of the vehicle prior to crushing or shredding it, but these parts cannot include the engine or the drive train."

That's a lot of disassembly, and it means paying work for the economy. Auto technician John Eichorn tells the local TV station in Peoria:

"It's kind of backwards because we're used to fixing them. But it's kind of fun to destroy them at the same time."

By Laura Conaway

Overall wages and benefits grew by a mere 0.4 percent in the second quarter, the Bureau of Labor Statistics reports. True, it's not a negative number, as we saw with gross domestic product this morning. But that 0.4 percent is unsettling.

It comes as the final number in a year when compensation costs for private industry workers grew by 1.5 percent over the year before. BLS says it's the smallest change in the Employment Cost Index since it began in 1980.

Wages and salaries grew by just 1. 8 percent for the year ending June 2009, compared to 3.1 percent for the year ending June 2008. That means wage gains have been cut in half, and many people are taking home less. "As long as this lasts it is very hard to see
anything but downward pressure on core inflation," writes economist Ian Shepherdson.

By Laura Conaway

In its report today about the shrinking American economy, the Bureau of Economic Analysis notes that people are spending less money -- which of course means they're saving more. From the BEA:

Personal saving -- disposable personal income less personal outlays -- was $566.0 billion in the second quarter, compared with $426.9 billion in the first. The personal saving rate -- saving as a percentage of disposable personal income -- was 5.2 percent in the second quarter, compared with 4.0 percent in the first.

The U.S. personal saving rate has been trending downward for decades, even dipping into the negative as people piled up credit card balances and other types of debt. During this recession, Americans have started to hoard cash again, and you can see that in today's report.

After recent talks with China, U.S. Treasury Secretary Tim Geithner announced a general agreement to spur shopping among Chinese customers and encourage saving among American ones. Looks like he'll have the wind at his back on this one.

By Laura Conaway

The American economy shrank at an annualized rate of 1 percent in the second quarter of 2009, the Bureau of Economic Analysis reports today. Put another way, the growth rate of -1 percent in gross domestic product means the situation is still getting worse, but the plunge is not nearly so steep as it had been.

The economy had been going through an annualized contraction of 6.4 percent in the first quarter of 2009. That contraction of 6.4 percent is the final number for the quarter, released today as a revision upward to a revision downward. Before today's final accounting, the BEA pinned the first quarter number as a contraction of 5.5; shrinking at 6.4 is a fair bit worse.

Today's -1 percent rate is also subject to being revised up or down.

The BEA cites a 5.6 percent rate of increase in federal, state and local spending (stimulus, anyone?) and much smaller decreases in private investment. Consumer spending, which amounts to two-thirds of the economy, fell at rate of 1.2 percent.

Economists in a Bloomberg survey predict the economy will grow by 1.5 percent from July to December.

Bonus: Recession worse than estimated.

By David Kestenbaum

The Treasury Department just released its updated "bad guy list" of suspected terrorists and people we're not allowed to do business with.

Some of the people have more A.K.A.'s than you'd find in a James Bond film -- though that seems mostly due to confusion about how to write an Arabic name for English speakers. Like, is it "Mousab" or "Mossab" or "Mus'ab," or maybe "Mossaab"?

This guy has 46 A.K.A's:

ABD EL-OUADOUD, Abi Mossaab (a.k.a. ABD AL-WADOUB, Abdou Moussa; a.k.a. ABD EL OUADOUD, Abou Mossab; a.k.a. ABD EL OUADOUD, Abou Mousab; a.k.a. ABD-ALWADUD, Abu-Mus'ab; a.k.a. ABDEL ELWADOUD, Abu Mossaab; a.k.a. ABDEL WADOUD...

Continue reading "Treasury Issues A New 'Bad Guy' List, With A Lot Of A.K.A.'s" >

Last year's IMF Spring Meetings in Washington. (IMF / Flickr)

By Mathew Katz

The IMF announced yesterday that it's going to increase its lending to poor nations by $17 billion through 2014, responding to what officials call a "third wave" of the financial crisis which has threatened low-income countries. The IMF is also doubling the amount individual countries can borrow.

Loans from the IMF can be a lifeline for struggling states, but they do come with strings attached. A few economists at the United Nations recently told us all about the havoc that IMF debt can wreak on a poor country. Now the IMF is implementing some of the recommendations from those same economists -- folks like Martin Khor and Joseph Stiglitz -- to make lending fairer.

Continue reading "IMF To Increase Lending To Poor Nations, Provide Easier Terms" >

On average, things are looking better -- if not yet good. (Source: Department of Labor / Planet Money/NPR © 2009)

New claims for unemployment insurance rose by 25,000 last week, seasonally adjusted. The Department of Labor says its formula for calculating the report has come back in line with what's actually happening out there. We've been flying blind for a few weeks now, owing to the auto industry laying off people this spring instead of in July. The DoL says the past few reports have been artificially low.

Continuing claims, still affected by the skewed formula, fell 54,000 to 6.197 million in week ending July 18. That's the lowest level since April. Tune in next week for a clearer view.

Meanwhile, and for whatever it's worth, the four-week moving average continues its very slow descent toward normal, dropping by 8,250. Economist Ian "First to Your Inbox" Shepherdson predicts another rise in the weekly figures next week: "[T]he claims numbers are yet another example of economic data which are less bad than a few months ago but which are still terrible."

By Mathew Katz

Goldman Sachs, Deutsche Bank, and Washington Mutual were issued subpoenas by a Senate panel investigating evidence of fraud in the subprime mortgage crisis, the Wall Street Journal reports this morning (subs. req'd). Washington Mutual is now largely owned by JPMorgan Chase, so their subpoena also drags Wall Street's other titan into the mix.

Citing officials familiar with the subpoenas, the Journal said the Senate Permanent Subcommittee on Investigations is trying to find out whether internal memos show that bank executives doubted the financial soundness of the mortgage-backed securities their institutions put together.

The subpoenas will force the banks to hand over hundreds of company e-mails -- even if they don't find show evidence of fraud, they'll provide an interesting snapshot of what executives at the time really knew about those delightful subprime mortgages.

That little blue line is the represents homeowners who've staved off foreclosure by reworking their mortgages. (Center for Responsible Lending)

By Laura Conaway

With homes at risk of foreclosure outpacing loan modifications by seven to one, the Obama administration met with mortgage servicers this week. The servicers promised they would speed up the pace of working out new deals with struggling homeowners.

Now a report in the New York Times suggests that mortgage servicers have an incentive to keep borrowers on the hook when those borrowers can't make their payments on time. From the NYT:

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue -- fees for insurance, appraisals, title searches and legal services.

"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen," said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. "I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."

You might remember a Planet Money visit to Ocwen headquarters in Florida. The company reports it refinances 75 percent of its troubled mortgages, compared to an industry average of 10 percent.

Counting money in Iraq, which Ian Bremmer says is "becoming a good-news story." (Sabah Arar / AFP/Getty Images © 2009)

On today's Planet Money:

Almost a year into the financial crisis, we ask foreign policy analyst Ian Bremmer to take stock of America's position in the world. Bremmer wrote The Fat Tail and leads the risk consulting firm Eurasia Group (Twitter, Facebook). He says that yes, America has lost some of its power.

Bremmer gives two reasons for that. First, he says, other countries have recovered from the crisis more quickly. The second, he says, is that the crisis has forced U.S. leaders to pay more attention to domestic affairs and play a less active role on the global stage.

On the upside, Bremmer says this is a great time to invest in Iraq.

Bonus: Eurasia Group's Global Political Risk Index.

Download the podcast; or subscribe. Intro music: Frankmusik's "Better Off As Two." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: The Latest Recession Casualty? American Power" >

By Mathew Katz

Our investigative reporter friends over at ProPublica are reporting that a number of small and midsize banks that got bailout money have stopped paying quarterly dividends to the government in order to save capital. At least 18 banks have either decided to stop the payments, or have been ordered to by regulators.

What's concerning is that back in March, the Obama administration declared each of these banks "healthy." If these banks are having trouble now, post-bailout, it brings into question whether they could have survived without TARP.

There's another implication to this: not paying your dividends has consequences. After six quarters of not paying, the Treasury has the right to appoint two members to the bank's board of directors.

Check out the full report -- it's interesting stuff.

"There is no Obama Doctrine," says Ian Bremmer. (Saul Loeb / AFP/Getty Images © 2009)

By Laura Conaway

The way Ian Bremmer sees it, America's global influence is on the wane. Bremmer, author of The Fat Tail and president of Eurasia Group (Twitter, Facebook), says the U.S. remains the biggest player but it's showing up less often for games.

That's partly because the financial crisis has forced President Barack Obama to focus more on domestic issues.

"There is no Obama Doctrine, in the way there's been a Bush Doctrine, a Reagan Doctrine, a Carter Doctrine," says Bremmer, who's on the podcast today. "Like them, don't like them, they existed. Obama's foreign policy approach is 'I'm going to deal with it as a risk manager, and I'm going to respond to crises as they pop up."

The problem, Bremmer says, is that when a major situation erupts, people don't know what to expect from Obama. "With Bush, we knew," he says. "We probably didn't like it on many occasions, but we knew. This is going to lead to a lot of 'ad-hocracy' on the part of some of our allies and some of our more strategic competitors around the world."

After the jump, Ian Bremmer writes on Obama's foreign policy.

Continue reading "America's Influence Wanes In The Era Of 'Ad-hocracy'" >

By Mathew Katz

Today, the Federal Reserve released the Beige Book, a regular summary of what each of the different Federal Reserve banks are seeing in their local economic scene. Overall, the Beige Book says the recession has begun to taper off. But toward the bottom of the summary, there's one big, scary money quote:

Boston, Cleveland, Richmond, Chicago, Dallas, and San Francisco cited a range of methods firms are using to limit compensation, including cutting or freezing wages or benefit contributions, deferral of future salary increases, trimming bonuses and travel allowances, reducing hours, temporary shutdowns, periodic furloughs, and unpaid vacations.

No matter how you spin it, companies are trying to pay employees less money. As we've talked about before, falling wages are a key ingredient in deflation. Still, we haven't seen the other factor in deflation: falling prices.

By David Kestenbaum

I was obsessed with this question last summer before the financial crisis. Gas at the pump was suddenly $4 a gallon and economists could not agree why. It drove me crazy -- Really? We don't know why??

I called expert after expert after expert. Some said it was just supply and demand, others blamed speculators. It seemed like a question that should be answerable.

As we noted here, the WSJ reported this week that a new report may point the finger at speculators in the commodities market.

The puzzling thing is that some economists argue that's impossible. Paul Krugman makes the argument pretty clearly here. At the end of the day, actual oil goes from a supplier to a consumer. Speculators don't change that unless they're storing the oil in some secret repository, so the price should eventually be anchored to supply and demand.

I still don't know what to make of the debate.

Continue reading "Why Gas Cost $4 Last Year" >

By Mathew Katz

It's not over yet for Ruth Madoff, the wife of fraudster Bernie Madoff. The trustee liquidating Bernie's business is suing Ruth for $44.8 million, saying that she profited for years off his Ponzi scheme. The trustee, Irving Picard, said that she received at least $23.7 million directly or indirectly from Bernie's firm.

Ruth Madoff's already lost her husband, her glamorous Upper East Side apartment (she's likely downgrading to a one-bedroom!), and most of her property, which the government is selling to repay Bernie's victims. After Bernie's assets were seized, prosecutors allocated $2.5 million to Ruth, but that's likely to dwindle fast as legal fees continue to mount.

In Elkhart County, Ind., RV-maker Jayco has laid off a third of its workers. (Scott Olson / Getty Images © 2009)

By Laura Conaway

The jobless rate was higher this June than the year before in every American metropolitan area, says the Bureau of Labor Statistics.

In a report released today, the BLS finds that 18 of those 372 mets have unemployment of at least 15 percent. Eight of those were in California and five in Michigan.

Elkhart County, Ind., with its devastated RV industry, posted one of the biggest year-over-year increases -- a 10 percent jump to 16.8.

For the lowest rates, head to the Dakotas. Bismark, N.D., rings in at 3.8 percent (up from 3.2) and Rapid City, S.D., at 4.6 (up from 2.6).

Bonus: Find the rate where you're from.

That little blue line is the represents homeowners who've staved off foreclosure by reworking their mortgages. (Center for Responsible Lending)

By Laura Conaway

This chart shows two things, really. First, we can see the scale on which struggling homeowners have managed to keep their homes by getting lenders to rework the mortgages. Second, we can see the scale on which the sheer number of struggling homeowners has risen. The strugglers are outpacing the rescued by a factor of seven.

The Center for Responsible Lending, which produced the chart, is calling on Congress to protect families. The advocacy wants the goverment to the most of the federal Making Home Affordable program, which launched with a goal of reaching 4 million families and has so far gotten only 200,000. Mortgage servicers met with the Obama administration today and promised to speed things up.

The Center is also asking Congress for legal changes that would allow bankruptcy judges to rewrite mortages on principal residences. It's lobbying for the Consumer Financial Protection Agency proposed by the Obama administration. The new agency has faced criticism from Federal Reserve Chair Ben Bernanke and FDIC chair Sheila Bair, some of whose current power would be subsumed by the new regulator.

Planet Money pal Felix Salmon notes an idea from the Center for Responsible Lending's director, Keith Ernst, for a mediation program to work out deals between mortgage services and lenders. Salmon writes:

I fear that Congress is beginning to get reform fatigue, after so many attempted solutions have failed. But that's no reason to stop trying new things -- in fact, it's a good reason to try even harder.

By Laura Conaway

Morning! Three recommended reads and one news item, followed by a fun picture after the jump.

-- If you're trolling for pure juicy reading, start with "How Firms Wooed a U.S. Agency With Billions to Spend," a New York Times story with glamorous names -- Black Rock, Goldman Sachs -- and some great numbers, too, like $1.6 billion.

-- Eliot Spitzer's living all over the American middle class (and the health care overhaul) with "In Sickness and in Wealth," a Slate column about the growing gap between rich and poor in the U.S. and the question of whither the middle class. Call it the question that keeps on giving.

-- Brad Setser takes a long, fruitful walk into the weeds on the new accord between China and the U.S. Yesterday, U.S. Treasury Secretary Tim Geithner announced a new resolve to reduce the trade imbalance by getting Chinese consumers to shop more and Americans to save more. Setser gives you a graduate seminar in this complicated dance.

-- Pure news: The U.S. Census Bureau reports that new orders for manufactured durable goods -- the big stuff like refrigerators and washing machines -- fell by 2.5 percent last month. The orders had gone up for two straight months. If you take out transportation, new orders increased 1.1 percent. Shipments fell for the eleventh straight month, by .2 percent, and inventories for the sixth straight month, by .9 percent. Think of the declines as air slowly leaking out of a balloon. Economist Ian Shepherdson's take: "Overall, the core picture has stabilized."

If you're reading something great, please add it in the comments.

Thanks to Twitter pal @beckerben for the picture after the jump.

Continue reading "From Durable Goods To China Trade: What We're Reading" >

By Laura Conaway

U.S. Treasury Secretary Tim Geithner just unveiled the results of the Stategic and Economic Dialogue with China. The prepared statement includes commitments to shoring up global financial institutions and regulations and allowing more foreign investment in China. Geithner also writes:

"In the United States, the current account has fallen and private savings rates have risen to historical average levels, and we will take steps to sustain and reinforce these trends.

"...

"China will rebalance towards domestic demand-led growth and increase the share of consumption in GDP."

Translation: China will get its citizens to spend more, and the U.S. will try to close the trade gap and get its citizens to save more. An accompanying fact sheet says China will loosen wallets through measures like "strengthening the social safety net."

The House Financial Services Committee just approved legislation that would allow regulators to ban incentive pay at banks, and allow shareholders to vote on bonuses. The legislation comes after similar measures have been introduced in the U.K. and the European Union. The goal of all of this anti-bonus legislation is to discourage the sort of bonuses that led bankers to take the excessive risks that led to the financial crisis itself. The bill was approved by a 40-28 vote, with most Republicans on the panel voting against it.

Naturally, the legislation wasn't taken too well by the U.S. Chamber of Commerce, the nation's largest business lobby. Its executive director, Tom Quaadman, had this to say:

This legislation would create a command and control regulatory scheme. Employee compensation should be a decision made by appropriate levels of management or the board of directors and based on a variety of factors, including merit and promotion. It moves the government into the role of setting compensation policies for virtually every employee of all financial firms.

An exotic American specialty for sale in Denmark. (Bernd Wunsch / © 2009)

By Caitlin Kenney

Bernd writes:

With your recent and excellent show on fancy food economics, I would like to share this gem from my local supermarket --a can of Spam at the low price of $9.00.

I'm in Denmark and we usually don't get Spam (the brand that is), but here in the capital you can occasionally find real imported American products. They come with a really high price. The local price is 48 Danisk Kroner (dkr) which is roughly the same as $9.00. Part of the story is of course our 25 percent sales tax.

The same supermarket also has U.S. Cherry Coke at $2.87 per can. (Yes, that is 15dkr per can)

By Laura Conaway

Whatever you make of the current debate on overhauling health care in the U.S., the news out of California today is bracing. California Gov. Arnold Schwarzenegger signed a budget package that closes his state's $26 billion funding gap, but not before making a last round of cuts worth $656 million. From AP:

Schwarzenegger made cuts to child welfare, health care for the poor and AIDS prevention. . . . He called the package "the good, the bad and the ugly."

Schwarzenegger said the cuts were necessary to build up the state's reserve fund after the state Assembly blocked a plan to use local transit funds and drill for oil of Santa Barbara.

Before today's cuts, Anthony Wright, executive director of the advocacy group Health Access, called the budget "the biggest rollback of coverage in state budget history," according to the LA Times.

By Mathew Katz

The Conference Board's consumer confidence index dropped today to 46.6 from 49.3. It's the index's second monthly drop in a row, and July's plunge was greater than economists had forecast. This month's reading is not nearly as bad as February's record low of 25.3, but it doesn't line up with some of the better-ish indicators we've been seeing lately.

Still, it does make a certain degree of sense. Brighter GDP forecasts and rising house prices aside, most people base their opinions of the economy on their own income and job security. You're not likely to feel confident in your prospects -- or buy a big-screen TV -- when you're in danger of being laid off. And with the Fed predicting 10 percent unemployment by the year's end, consumers have little reason to be optimistic about their economic situations, or to get out there and spend.

By Laura Conaway

Emily Oster loves a good riddle. The Chicago Booth School of Business professor is part of a growing wave of economists using the dismal science to explain some of life's most stubborn mysteries, including ones that might not seem to have much to do with economics.

In the TED talk above, for example, she applies a cost-benefit analysis to the question of why African men have been slow to change their sexual behavior in the AIDS epidemic.

Now Oster's coming to Planet Money. We're talking to her on Friday for what we hope will be the first in a series of conversations.

Send us your riddles, whether they're explicitly economic or not. Wondering why post offices don't add more self-serve machines? Or why restaurants give you so much free bread but charge for each extra vegetable? This is your chance to get answers.

We'll ask Oster to field a few of your conundrums and present the results in an upcoming podcast.

E-mail us, tweet us, Facebook us, or hit the comments below, please. This'll be fun.

Finally heading in the opposite direction. Data not seasonally adjusted. (Mathew Katz / © 2009)

By Mathew Katz

For the first time in three years, U.S. single-family home prices rose in May, according to today's S&P/Case Shiller Home Price Index. The index tracks changes in the value of the residential real estate market in 20 metropolitan areas across the U.S. In May, the index went up by 0.5 percent. According to a Reuters poll, economists had forecast a 0.5 percent drop in the index.

The seasonally adjusted version of the index shows another drop in housing prices, but it's the smallest drop since 2007.

The stabilization in the index comes right after yesterday's news that sales of new homes are up, even though median prices for new homes fell. Much of the mess we're in started with the bubble in the housing market. Stabilizing home prices will be key to getting us back out again.

By Laura Conaway

Remember those crazy swings in oil prices last year, when the cost of a barrel jumped by $25 in a single day and consumers paid record amounts at the pump? Back then, the Commodity Futures Trading Commission reported it was a matter of supply and demand.

That was back then. Today the Wall Street Journal reports (subs. requ'd.) that the CFTC is planning another report, one that will pin the fluctuation on speculation by oil traders. Bart Chilton, one of four CFTC commissioners, tells the WSJ the original report to Congress was based on "deeply flawed" data. From the WSJ:

Mr. Chilton dissented from the 2008 CFTC report, saying the agency's conclusions didn't go far enough. He expressed doubt about the amount and type of data received, which he called limited and unreliable. "We didn't have all the information we should have," he said. "And we gave it to Congress anyway, and we spun it."

Chilton tells the paper the new report will draw from a wider pool of sources. The CFTC begins hearings today on whether to limit speculation in the commodities market.

"Thou sayest I owe how much to the crown?" (Zoomar / Flickr/Creative Commons

By Laura Conaway

On today's Planet Money:

Drag out those leggings and chain mail armor, folks. We're going medieval, specifically the 12th and 13th centuries.

Before governments had regulators with suits and briefcases, says William and Mary history professor Philip Daileader, they had knights. The Lancelots of real life went around the kingdom forcing people to pay whatever the knights decided they owed. It was a brutal economic approach.

If you think the knights were tough, be thankful you never faced the guild system. It existed to eliminate competition and benefit producers at the expense of consumers. Craftspeople fought each other for control and tried to limit access to the market -- at their own expense, it turned out.

Bonus: After the jump, a sign that they're not hiring.

Download the podcast; or subscribe. Intro music: Lee Fields & The Expressions' "Money I$ King." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: Bloody, Miserable Medieval Economics" >

By Laura Conaway

File under "obvious," I think:

Americans Resigned to Retiring Later, but Unwilling to Sacrifice Current Lifestyle

That's from an ING Direct survey of 10 countries, including 1,052 people in the U.S. ING says 29 percent of Americans report the recession is tanking their romantic relationships, compared to 12 percent of Germans and 23 percent of Canadians. Asked which three things they'd give up last to save money, Americans say they'll cling to their pets and their vehicles -- at 22 percent and 30 percent, respectively, rates that outpace every other country in the survey.

There's a country music song in there, somewhere.

Continue reading "Like A Country Music Song: What Stays, What Goes In A Recession" >

Full stop for this development Rock Hill, South Carolina. (Aimee Ennis / Planet Money Flickr pool © 2009)

Twitter pal Aimee Ennis sends this photo from a stalled subdivision not far from her house. "This would-be development is huge," she writes. "Larger than others I've visited."

If you've got photos for our Half-Built America series, you can e-mail them to us or add them to the Planet Money Flickr pool.

Federal Reserve Chairman Ben Bernanke gets ready to testify before the Senate Banking Committee on July 22. (Chip Somodevilla / Getty Images © 2009)

How much did you ever know about the personal life of Alan Greenspan?

All of a sudden, ordinary folks care about the Federal Reserve -- and the person who runs it. Fed Chairman Ben Bernanke has been all over the news lately, and not just as a policy wonk. In March, he gave a lengthy interview to 60 Minutes, which included a tour of his hometown. Yesterday, he spent an hour answering questions in a town-hall session in Kansas City. Compare that to Greenspan, who gave only one televised interview in his entire run as Fed Chief.

This seems like simple PR, helping to sell monetary policy to a very skeptical public during turbulent times. But Daniel Indiviglio over at the Atlantic has an interesting take on Bernanke's sudden jump into the spotlight:

I worry that he has an ulterior motive. He may be responding to Congress' efforts, led by Ron Paul, to attempt to bring greater transparency to the Fed. Bernanke may be trying to quell public anger at the Fed's opaque nature so that it can retain secretive tactics and not really have to answer to anyone. He could be attempting to make nice so voters call off their dogs and let the Fed function as it always has.

There could be one other reason for Bernanke's sudden jump into the limelight, Indiviglio writes: his term is nearly up, and it'll be President Obama's choice whether to reappoint him. The Obama Administration has been all about reaching out directly to the public in their PR efforts -- Indiviglio says Bernanke could just be going with the team to impress his boss so he can keep his job.

By Laura Conaway

Daniel Gross sees the signs. In a Newsweek article titled "The Recession Is Over," he reels off a list of positive-ish numbers from the economy, then adds:

[T]he data point that means the most to our psychological well-being--unemployment--is likely to keep climbing. The loss of 6.5 million jobs since December 2007 has spurred the sharpest rise in the unemployment rate since the 1930s. As manufacturing jobs move overseas and companies struggle to further reduce costs, unemployment--which stands at 9.5 percent--is likely to rise above 10 percent.

Thanks to our national debt and growing workforce, Gross writes, the U.S. economy needs to grow at 1.5 percent a year just to keep up. Notable pessimist Nouriel Roubini tells Gross we're looking at 1 percent growth for a while -- that would take us out of the recession but not out of the woods. Gross:

To a large degree, the U.S. economy must now cope with an era of lower expectations. Road building isn't a recipe for full employment, green technology won't displace fossil fuels in this decade, the benefits of universal broadband may be overblown, and the dysfunctional health-care system won't shift overnight from a headwind to a tailwind. The recession may be over, but there's likely to be plenty of tough slogging ahead.

Anyone want me to file this one under Green Shoots? Just asking.

New home sales were up by 384,000 in June. Click to enlarge.

(Calculated Risk)

By Laura Conaway

The U.S. Census Bureau reports that sales of new homes grew by 384,000, up 11 percent from last month. The median price fell to $206,200, from $221,600 in May. Calculated Risk notes that these are the strongest sales figures since November 2008, the depths of the economics crisis -- and that this is the second lowest total for June sales since the Census Bureau started tracking them in 1963.

The U.S. still has 8.8 months' worth of inventory, meaning that's how long it'll take the real estate market to buy the homes now on offer. Hey, it's down from the record of 12.4 months in January. Calculated Risk writes:

"Months-of-supply for inventory has peaked, and there is some chance that sales of new homes has bottomed for this cycle -- but we won't know for many months. However any recovery in sales will likely be modest because of the huge overhang of existing homes for sale."

The Census Bureau figures focus on single-family homes. If you're living in an area with a lot of condominiums, you can expect that "overhang" to be much worse.

Bonus: Calculated Risk on the gap between new and existing home sales.

Foreign wealth, in U.S. billions, parked at the Federal Reserve. (Brown Brothers Harriman)

By Laura Conaway

China's President Hu Jintao and U.S. President Obama are meeting today and tomorrow for another Strategic and Economic Dialogue. In his opening remarks to the press this morning, Obama addressed the trade gap between the two nations, saying, "[A]s Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation -- because just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods."

What Obama didn't get into just then is Washington's continued charge that Beijing manipulates its currency, letting the yuan stay weaker than the dollar so Americans will continue to buy Chinese goods.

Much has been made of China's lending to the U.S. -- the poor nation lends the richer one money by buying its U.S. Treasury bonds and agency bonds from Fannie Mae and Freddie Mac. China funded the American consumer boom, and it's using the proceeds to industrialize its own economy. At the current pace, economist Brad Setser estimates that China's holdings of U.S. Treasurys should top $1 trillion in about a year.

After the jump, charts!

Continue reading "China Keeps Piling Up U.S. Dollars" >

By Laura Conaway

Queen Elizabeth had a question, the same one many of you have asked: Why did so many economists fail to see the economic crisis coming? The queen got a chance to ask that at one of the discipline's great temples, the London School of Economics.

Duck! The queens wants to know. (Sang Tan / WPA Pool/Getty Images © 2009)

In response, a group of leading economists have written the queen a three-page letter apologizing for a "psychology of denial." They wrote:

Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well. The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction.

The back-and-forth has led to something of a parlor game at the Guardian, which asks, "Can you explain the crisis to the Queen?" Well, can you?

Bonus: American economists see slow recovery.

Gold-plated guys at Goldman Sachs. Chris Hondros/Getty Images

 

On today's Planet Money:

Goldman Sachs carries a certain mystique on Wall Street. The firm is known for hiring the brainiest people and paying them well. A number of its former executive have gone into politics, including former CEO Henry Paulson, who became President Bush's Treasury secretary, and former CEO Robert Rubin, an adviser to Presidents Clinton and Obama.

This week, Goldman finished paying back its $10 billion federal TARP loan -- with taxpayers pocketing a return of 23 percent. The firm also just released a fantastic report on its earnings, with net revenues of $23 billion for the first half of 2009. Goldman is setting aside almost half of that money for paying its 30,000 employees. In rough terms, that amounts to almost $400,000 for each worker.

Lucas Van Praag, a Goldman spokesperson, answers questions about other ways Goldman received government help and why it's rewarding the staff so richly after getting a hand from Uncle Sam.

Plus: The stunning results from our Economic Radio Story Showdown.

Bonus: After the jump, a reader looks at the showdown results and wonders what the heck just happened.

Download the podcast; or subscribe. Intro music: Mark Morrison's "Return of the Mack." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: The Goldman Sachs Interview" >

On today's podcast, we're going to be talking about some of the ways in which the government has aided Goldman Sachs since the beginning of this crisis. That discussion will be available later this afternoon, but in the mean time, we thought we'd give you a chance to get caught up on some light Goldman-related reading.

A lot of you have recommended Matt Taibbi's piece in Rolling Stone last month, The Great American Bubble. Alex Blumberg says he prefers Michael Lewis' piece in the current Vanity Fair, The Man Who Crashed the World.

From CIT's Phoenix office. Click to enlarge. Derrick Bostrom

 

CIT is trying to convince its investors to cash in their bonds early and for less money. The tender offer is part of a last-ditch effort to keep the company from collapsing. Investors who cash out will get $775 plus a $50 early delivery payment for every $1,000 of securities. The deadline's July 31.

A group of the CIT's bondholders offered the lender an emergency $3 billion loan last week, but the terms of that loan don't allow it be used to repay this debt. The company needs to get 90 percent participation from investors in order to stay afloat. Maybe it's time to appeal to a higher power for help -- Santa, are you listening?

(Thanks to listener Derrick Bostrom who found the above document and others in his grandfather's old scrapbook.)

Good times at the London Stock Exchange, bad times for the GDP. carmen_seaby/Flickr

 

The recession may be over in Canada, but things are grim in the U.K. Britain's Office for National Statistics announced today that domestic GDP contracted 5.6 percent in April and June compared to the same period last year. That's the worst annual decline there since the country began keeping records in 1955, and it's the fifth quarter in a row that British GDP has shrunk.

Still, things aren't all bad. The U.K.'s main stock index, the FTSE 100, has been on the rise. The British pound is also recovering against the U.S. dollar, after a sharp drop at the end of last year.

There's often a lag between a market recovery and an overall economic recovery. The situation may look terrible now, but if the stock and currency trend continues, things could be looking up for the Brits. Maybe they'll even see a recovery in their pub numbers.

Today's the day. @mvonherr

 

The minimum wage goes up today, from $6.55 to $7.25. By this time, the economic arguments for and against are so boiled down, they're practically condensed. On the pro side:

The minimum wage hasn't kept pace with inflation and carries less buying power than 40 years ago. // Minimum wage workers tend to spend the money they get, so the raise will move right back through the economy. // The increase affects just under five percent of all employees, so it's not a big deal.

On the con side:

By imposing a minimum wage, the government is setting an artificial price on labor instead of letting the market decide. // Businesses struggling through the recession can't afford to pay their workers more. // Increasing the minimum wage has an inflationary effect, as it causes other wages to rise, too. // Hiking the minimum wage hurts younger workers, the biggest single group at the bottom, and because employers will tend either to trim those jobs or fill them with older, more experienced workers whom they perceive as worth the extra money.

But in all our conversations about the minimum wage, here's the one bit that has stuck with me -- and I'll warn you that it's a weird paradox of a thing:

Continue reading "Minimum Wage Hike Doubles Portion Of Workers At The Bottom" >

Celebrations at the Parliament Hill in Ottawa. alex_ferguson/Flickr

 

The recession is officially over. At least, that's what Canada's central bank is saying. About Canada.

In the Bank Of Canada's latest monetary policy report, it said that Canada's gross domestic product will grow at an annual rate of 1.3 percent this quarter, up from an earlier forecast of a 1 percent contraction.

According to the bank, much of the growth is attributed to higher-than-expected Canadian consumer and business confidence. Still, the bank says total recovery will be slow and fragile. The Canadian economy is still far too interlinked with the American one to completely recover until the U.S. does.

My current hometown, Hoboken, N.J., has been dealing with the recession much like the rest of the country. I've watched small stores and major chains alike close up shop and disappear. A few months ago there were so many empty spaces on our unofficial main street, Washington, that the city's mayoral candidates set up their offices there.

The two leading mayoral candidates, Dawn Zimmer and Peter Cammarano, both promised to reduce the "crushing tax burden," and the talk of the town was how they would do that. The election was so tight it was decided by just 161 votes.

Maybe Cammarano would come through on his pledge to lower taxes, balance the budget, create a "glove-box guide" for small businesses and push to "hold developers accountable, ensuring that they are delivering what is promised."

This morning the headlines told a very different story: "Cammarano Arrested." Hoboken's freshly inaugurated mayor has been accused of taking $25,000 in bribes in return for promises to speed up the zoning approval for a proposed development. Mayor Cammarano was arrested along with the mayors of Seacaucus and Ridgefield, the Jersey City deptuy mayor, council president, two state assemblymen other public figures and five rabbis as part of a federal corruption and money laundering probe.

Continue reading "Scandal In Hoboken: A Crazy Case In My Hometown" >

Goldman Sachs, which received $10 billion in government assistance under TARP, is now officially standing on its own again. It paid back the $10 billion with interest, and has now bought back the stock warrants the government had been holding.

The Congressional Oversight Panel had raised concerns the government was selling those warrants too cheaply, which could cost taxpayers $2.7 billion if things didn't change.

Elizabeth Warren, who chairs the panel says that this time, the price was fair.

Linus Wilson, a finance professor at the University of Louisiana, wrote us with his own numbers:

Continue reading "Goldman Gets Out Of TARP -- And Taxpayers Made Money" >

Half the time, less than half the money. @scottyhendo/twitpic

 

This picture comes to us from @scotthendo via aeikenberry. Could the hours on the treadmill have been cut down because of the recesssion?

I called up the charity-walker in the picture, and it turns out that the sign was mostly a joke. David Schoenenberger of Carmel, Ind., tried to walk for 24 hours straight last year to raise money for March of Dimes. It proved too exhausting, so he committed only to 12 this year.

Still, he says the recession hurt his fund raising -- last year, he pulled in $650, this year only about $200.

"People want to give," he said. "But places that gave 30, 40, 50 dollars last year, gave five this year."

Click for a larger version

 

The folks at the Bureau of Labor Statistics have released their County Employment and Wages Summary, and it looks like good news for people living in the city of St. Louis. According to BLS, from 2007 to 2008, average weekly wages in that city (which confusingly is also a county) rose from $962 to $1,508 -- a whopping 56.8 percent. That's a gigantic jump compared to the rest of the country. The next-highest wage increase, in Clayton, Ga., is only 9.9 percent, and the U.S. average rose only 2.2 percent.

But city officials call the number a recession-induced aberration. The bump came because several area companies, notably brewer Anheuser-Busch, downsized and offered thousands of laid-off workers a series of buyouts and severance packages.

Continue reading "Wages Spike In St. Louis. But Look Again." >

Trending downward? Not necessarily. Department of Labor

 

New claims for jobless benefits rose last week, to 554,000 from 524,000. The Department of Labor revised the number from the week before upward by 2,000.

It's hard telling what to make of the numbers just yet. The Department of Labor says it can't properly figure the total of new claims because of unusual conditions in the job market.

Continue reading "New Jobless Claims Rise Again -- Formula Still Skewed" >

Another major company is reporting its revenue is down but its profits are up. Ford checks in today with a second quarter report that shows $2.3 billion in profit, a world apart from last year's second-quarter loss of $8.7 billion.

Ford's overall revenues fell $38.6 billion to $27.2 billion. The company credits the improved bottom line to a timely restructuring of its debt.

The talk at my New York City breakfast table this morning was all about air-conditioning, and specifically our family's choice to see how long we can go this summer without it. Call it our concession to the recession, but it probably has as much to do with the hassle of wrangling the window units into place during a season that just hasn't been that hot.

And we're not alone. People in hot places like the Deep South are saving money by giving up the A.C., the New York Times reports:

Genma Holmes, a 42-year-old mother of three in Nashville, and her husband, Roger, declared their suburban ranch house a no-air-conditioning zone last summer as surging gas prices ate into the profits of their pest control business. Their children -- now ages 17, 18, and 23 -- were not amused, given that average summer temperatures in Nashville are in the high 80s with around 90 percent humidity.

"They didn't look at it from our economic point of view," said Ms. Holmes, who ripped the thermostat from the wall after her offspring repeatedly turned on the central air while their parents were out. "They thought we were doing something to them personally. They thought mom and dad were going through some kind of midlife crisis, like when we recycled before everyone started doing it."

Adam Davidson and Chana Joffe-Walt gear up for the competition. David Kestenbaum/NPR

 

Welcome to the second half of Planet Money's utterly amazing, absolutely cut-throat, winner-take-all, first-but-probably-not-last-ever Economic Radio Story Competition.

A couple of weeks ago, we sent Planet Money reporters Adam Davidson, Chana Joffe-Walt and David Kestenbaum to New York's Fancy Food Show with a (very) special challenge: Bring back all the sound you'll need for the best economics story you can find, in an hour.

We're calling on you, the listeners, to pick a winner. After the jump, you'll find each story and the poll. If you're looking for a voter's guide, check the comments from the original Planet Money podcast.

Voting closes on Thursday at midnight Eastern. We'll announce the results on Friday's podcast.

Continue reading "Vote: Our Economic Radio Story Competition Needs You" >

Yes, but when? Steve Rhodes/Planet Money Flickr pool

 

On today's Planet Money:

The rational school of economics holds that markets make sense. Sure, some people and businesses trade on raw, crazy emotions, but the mistakes cancel each other out. In the end, the rational school argues, market prices make sense.

And then there's real life. Anyone who has spent any time looking at the stock market has to think there's at least a decent chance the whole thing is crazy -- prices pinging around, investors making crazy bets, regulators trying to figure out who's flouting the byzantine rules.

Justin Fox, a writer for Time and author of The Myth of the Rational Market, talks about teddy bears, bubbles and Alan Greenspan.

Bonus: An hourly rate for "hassle?"

Download the podcast; or subscribe. Intro music: The Dismemberment Plan's "Back And Forth." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: Myth Of Rational Markets" >

Closed in Burlington, Mass. Louis Abate/ Flickr/ Creative Commons

 

This is corporate earnings season, the time when publicly traded companies let the world know how they're doing. For Morgan Stanley and Whirlpool, the new hasn't been great. For Apple and Southwest Airlines, the numbers were better than expected.

Among the winners and losers is a string of curious cases, companies that report their profits are up even though their revenues are down. Coca-Cola, for one, said quarterly profits are up 43 percent from last year -- even as sales are down 9 percent. And then there's Starbucks, which went from a $6.7 million loss last year to a gain of $151.5 million -- though revenue fell by 6.6 percent.

How's that possible? In a word(ish): cost-cutting.

After the jump, a closer look -- with charts!

Continue reading "Revenue's Down, Profit's Up. How's That Work?" >

What was once the Conquerer Pub in Shoreditch, London. Ewan-M/Flickr

 

This could be the greatest tragedy of the recession for the U.K.: Humble British pubs -- the kind of place Britons can go for a relaxing pint (or five) and chips on the way home from work -- are closing at a rate of 52 a week, according to the British Beer and Pub Association. That's 2,377 pubs closed, and about 24,000 jobs lost in the past year.

The association's report also says that local pubs were the hardest hit, especially due to the economic downturn. Interestingly, the key to survival seems to be selling food: pubs that focus more on selling food are only closing at a rate of one a week.

But it isn't only the recession to blame. Industry representatives said that 20 percent increase in the U.K.'s beer tax (which is set to rise), as well as increased regulation (such as the recent pub smoking ban).

The pub is ingrained in the British sense of identity -- so much so that two MPs from the All Party Parliamentary Save the Pub Group tabled a motion in House of Commons urging banks to lend to beleaguered pubs, and encouraging fellow lawmakers to "support their local pubs."

The recession is destroying British pubs, changing how we bury our dead, and ending Sunday in France. It seems like fallout from the downturn is making fundamental changes to our very culture -- on both sides of the Atlantic.

Click for a larger version Huffington Post

 

If this recession truly is unparalleled, it means that we likely need new metrics to understand it. The Huffington Post went about making one, combining indicators to create a new "Real Misery Index."

The original misery index is an economic indicator, created by economist Arthur Ocun and often invoked by Jimmy Carter. It's calculated by adding two nasty economic numbers -- the inflation rate and the unemployment rate.

Continue reading "HuffPo's New Level Of Misery" >

Two pieces on a recession indicator that there's just no escaping:

First, in the category of glass half-full, "Home Burials Offer an Intimate Alternative." Grieving families tell the New York Times it's more intimate to lay someone to rest in the backyard, and cheaper. "I think with our economy being the way that it currently is, and it's getting worse, that many people who may not have chosen to do these types of things may be forced to because of the finances," said Verlene McLemore, of Detroit, who held a home funeral for her son, Dean, in 2007.

And in the category of glass half-empty, "More bodies go unclaimed as families can't afford funeral costs." The Los Angeles County coroner's office handles murder victims and suspicious deaths, and it's reporting that 36 percent more cremations were done at taxpayers' expense. At the county morgue, which handles cremation of indigents, the spike is 25 percent. "The families just tell us flat-out they don't have the money to do a funeral," Lt. David Smith, a coroner's investigator, tells the LA Times.

(Thanks, @reneerico, for the LA link.)

Just got this email from Eswar Prasad at Cornell and the Brookings Institution:

On the subject we talked about a couple of weeks ago, IMF just approved allocation of $250 billion worth of SDRs to give the global economy a shot in the arm. Quite interesting to have a global institution create money out of thin air !

SDR's are "Special Drawing Rights" issued by the International Monetary Fund. A country can exchange its SDR's for currency, dollars or whatever it needs. Since SDR's are backed by the world's governments and their central banks, new SDR's effectively expand the global money supply.

At least I think that's how it works.

Here's the IMF press release, and our story about whether SDR's might one dayunseat the dollar as the world's reserve currency.

Alex says his Planet Money indicator is 39. He writes:

That's the number of results when I searched the phrase "fell less than expected" in Google News this morning, for articles in the last 30 days. Expanding the search to the last four months, the results are 148. And charting the number of times this phrase appears since the beginning of the year, there's a noticeable spike in April.

My interest in this piqued when I read a few stories today of Ben Bernanke saying the economy is stabilizing. The articles themselves had a lot of grim news, particularly about the job market. But the headlines were mostly optimistic. It reminded me that last week, as the stock market rose, I read the phrase "fell less than expected" repeatedly in financial news.

Continue reading "Indicator: 'Less Than Expected'" >

Elizabeth Warren, chair of the Congressional Oversight Panel, has been defending the creation of a Consumer Financial Protection Agency a lot lately. Yesterday, she released a YouTube video (above) outlining her arguments for why we need one. Today, she addresses what she calls myths about the agency on Baseline Scenario. She writes:

The CFPA will not limit consumer choice. Instead, it will focus on putting consumers in a position to make choices for themselves by streamlining regulations, making disclosures smarter, and making financial products easier to understand and compare. The Agency will promote plain vanilla contracts--short, easy to read mortgages and credit card agreements. The key principle behind the new agency is that disclosure that runs on for pages is not real disclosure--it's just a way to hide more tricks. Real disclosure means that a lender has to be able to explain what it is selling so that the customer can read it and understand it. Once consumers can understand the risk and costs of various products -- and can compare those products quickly and cheaply -- the market will innovate around their preferences.

Fed Chairman Ben Bernanke testified before the House Financial Services committee this morning -- his semiannual report on the economy. Bernanke's testimony was cautiously optimistic as he described "better conditions in financial markets" and "some improvement in economic prospects."

During his testimony, he also spoke in detail about the Fed's plans for combating inflation. He said:

Perhaps the most important such tool is the authority that the Congress granted the Federal Reserve last fall to pay interest on balances held at the Fed by depository institutions. Raising the rate of interest paid on reserve balances will give us substantial leverage over the federal funds rate and other short-term market interest rates, because banks generally will not supply funds to the market at an interest rate significantly lower than they can earn risk free by holding balances at the Federal Reserve.

Continue reading "Fed: 'Devoting Considerable Attention' To Inflation" >

As noted on the podcast yesterday, CIT Group, the company that's in the news, that you may never have heard of before, does make loans to lots of places you have heard of, including the individual operators of Dunkin' Donuts stores.

CIT asked for government assistance, arguing its failure could precipitate a crisis for as many as 300,000 retailers.

Dunkin' Donuts doesn't seem to count itself among them...

Continue reading "More On That Donut 'Crisis'" >

Some people look back at the start of the crisis and wonder how things would have played out if the government had decided to save Lehman Brothers. Lehman's failure fed a chain reaction that essentially froze the credit markets.

So why didn't Treasury save Lehman? Then Secretary Henry Paulson has said the government tried to broker a deal but couldn't, and was worried that another bailout would present a real moral hazard, encouraging even riskier behavior down the road.

Lawrence McDonald, a vice president at Lehman, has a different take. McDonald has a new book out which lays the blame at the foot of a handful of Lehman executives, particularly CEO Richard Fuld.

McDonald, on Morning Edition today, described a meeting between Fuld and Treasury Secretary Henry Paulson in the spring of 2008.

Mr. Fuld said something along the lines to the Treasury secretary: He said 'You know I've been in my seat a lot longer than you were in yours at Goldman Sachs, Don't tell me how to do things. I'll do things at my speed.' And I think right there, Lehman's fate might have been sealed.

The book's title: "A Colossal Faiure of Common Sense."

CIT, in happier times. Click to enlarge. Derrick Bostrom

 

On today's Planet Money:

It looks like business lender CIT will be saved from bankruptcy by a $3 billion loan from its bondholders. The bondholders decided to step forward with the offer after the Treasury Department and the FDIC turned down the company's bids for help -- apparently the government decided this institution was not too big too fail. Bill Dunkelberg, chief economist with the National Federation of Independent Business, explains how CIT got into trouble in the first place.

While details of the deal are still being worked out, there is no guarantee the plan won't fall apart. A collapse of CIT could spell disaster for many of the nation's retailers who depend on the company for financing. National chains like Dunkin' Donuts are clients, and the company has even touted its aid to donut franchisees. Planet Money intern Matt Katz hit the streets of New York to find out what a world without donuts would look like.

Bonus: A CIT scrapbook, including pictures of popular hairstyles at the company.

Download the podcast; or subscribe. Intro music: Pearl Jam's "The Fixer." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: A World Without Donuts " >

Many of the banks that received TARP aid used it improperly, according to a report released today by the special inspector general charged with overseeing the program. In the report, special inspector general, Neil Barosky, found that 110 banks used the money not only to lend, but also to repay debts, make investments and even buy other buy other banks.

The report also blasted the Treasury Department for not providing taxpayers with more transparency and reiterated its call for the the department to require detailed reports about the use of TARP funds. From the report:

Treasury's reasons for refusing to adopt this recommendation have been squarely refuted by SIGTARP's audit results and are belied by Treasury own inclusion of use of funds provisions in its agreements with AIG, Bank of America and Citigroup. Further, the claim that the information provided by banks is "unreliable" is contradicted both by the threat of criminal penalty should a bank be untruthful to Treasury, and Treasury's reliance on self-reporting throughout its compliance regime. Imposition of a condition designed to foster basic transparency should not be used as a punitive measure required only of those institutions that are compelled to seek extraordinary assistance, but rather should be an integral feature of TARP as a whole.

Continue reading "Trouble With TARP" >

MaryEllen writes:

The other day, I heard something that related back to one of your shows on financial tools, that I thought would be of interest. I really hadn't heard of anything like this before, but I'm sure it happens all the time.

My fiancee's sister recently asked him for a loan to buy a trailer. I know that his sister and her husband both work hard and are very frugal with their money. It surprised me that they didn't have $5,000 saved up. My fiancee explained that the reason they didn't have the cash on hand was because they had just wired their money to a bank in Mexico. He said that they get a higher interest rate there than any savings account they would have here.

Continue reading "'The Bank of Rodolfo'" >

Willem Buiter, Professor at the London School of Economics and Political Science, has a great critique of the Federal Reserve over at the Financial Times. Buiter says the Obama administration's plans to enhance the Fed's powers and turn it into the country's systemic risk regulator spells trouble. He writes:

If the same institution, the central bank, has to be in charge of both normal monetary policy and systemic risk regulation (albeit jointly with the Treasury for the systemic risk role), there is no elegant, first-best solution. Either monetary policy will be driven by politicians whose macroeconomics is limited to a partial understanding of the Keynesian cross and whose monetary policy views can be summarized by the proposition that the have never seen an official policy rate so low they would not want it even lower, or the central bank continues to act as an off-budget, off-balance sheet special purpose vehicle of the Treasury.

Buiter isn't the only one calling for greater independence at the Fed. Over 350 economists signed a petition, which was sent to Congress today, urging lawmakers to "reaffirm their support for and defend the independence of the Federal Reserve System."

Back in October, while Americans were terrified that their economy was on the brink of collapse, Iceland's actually did. The country's three main commercial banks all failed within one week.

Now, Iceland's new government has revealed a deal that will rebuild banks, to the tune of $270 billion Icelandic kroner, or about $2.1 billion. Under the deal, the government will issue bonds to new banks, Islandsbanki, New Kaupthing and New Landsbanki, which are being built from the good assets of their failed predecessors.

There is, however, just one tiny roadblock in the way of Iceland's journey to economy recovery -- $60 billion owed to foreign creditors. Iceland is depending on $5.1 billion loan from the International Monetary Fund to facilitate its financial recovery, but the government can't receive the full amount until the creditor claims are settled.

Continue reading "'New' Banks For Iceland" >

If you're the boss of a for-profit company, you want to make as much money as possible and keep your staff productive. One seemingly obvious way to motivate staff would be to pay people for better performance. Performance pay is being discussed in schools and on Wall Street and on Planet Money. But here's one argument against it. Answer these questions:

Are you more productive than your average co-worker?
Are you a better than the average driver?
Are you more intelligent than the average American?

Said yes to all three? Most people do.

Continue reading "Our Egos Vs. Performance Pay " >

The big news this morning is that business lender CIT group will stave off bankruptcy through a deal reached with their bondholders. The company was reportedly offered a $3 billion emergency loan from a small group of them. CIT had reached out to federal regulators for additional bailout funds last week and was denied. According to Bloomberg, the company had said their collapse would put 760 manufacturing clients at risk of failure and "precipitate a crisis" for as many as 300,000 retailers.

Continue reading "Bondholders Come To Rescue CIT" >

Real estate agents make more money each time they sell one of these. TheTruthAbout/Flickr

 

On today's Planet Money:

-- We asked you to share your stories about how you get paid. Today we hear from real estate agent Rachel Nelson, who says she likes working on commission, and mechanic Raymond McMormick who pays his staff using a piece rate system.

-- Robert Frank, author of the Economic Naturalist's Field Guide, lays out the benefits and problems of merit based pay using the Planet Money Staff as an example.

Bonus: An indicator from the dairy aisle.

Download the podcast; or subscribe. Intro music: Matt & Kim's "Daylight." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: How We Get Paid " >

The New York Times reports that some French workers have kidnapped their bosses, and others are threatening to blow up their own factories (a bluff, they admit) if employers won't negotiate with them. (The photo in the paper showed workers playing ping-pong.)

The threats reminded me of another story
about how French farmers in the 1980's reacted to the visitors who proposed putting a nuclear waste dump near their town -- the farmers marched the guests out of town with pitchforks.

My Climate is Better Than Yours. From "Principles of Human Geography", 1922

 

This morning we aired a story about new research by economists at MIT indicating that poor countries take a hit to their GDP in years where the average temperature is higher than normal.

The results are surprising in part because this is an idea that seemed too simple to be true. It dates back hundreds of years as a possible explanation for why hot countries tend to be poorer than those in cooler climates.

Above is an excerpt from the 1922 book "Principles of Human Geography" which I don't think would hold up to modern scientific standards. It's kind of a grand-unified-theory of how climate dictates everything.

"In an invigorating climate it is also easier to be honest and sober and self-controlled than in a more enervating one."

Continue reading "Does Hot Weather Hurt The Economy?" >

Three inches of manila rope. Cost: $0.05. Jesse Johnson

 

We sent Planet Money intern Matt Katz out around Manhattan today to look for things that cost 5 cents or less. Before Matt left, some of our Twitter crowd suggested the hardware store might be a good place to look. Listener Jesse Johnson thought the same thing, but says it wasn't as easy as he expected. He writes:

When I saw your request for photos of items you could buy for five cents, I had to jump at the opportunity.

As a teenager not too long ago, I worked as an associate for my local hardware store. I keenly remember frequent sub-dollar totals at the register and thought the assignment would be a breeze -- boy was I in for a surprise. After strolling aimlessly isle by isle, I was unable to locate a single screw, washer, nut or bolt for less than seven cents. Dismayed I took a trip to the bulk section and found the cheapest rope was sold for twenty cents a foot. For your consideration, I submit a photo of three inches of quarter inch manila rope.

Continue reading "What Five Cents Won't Buy You" >

Earlier this week, Adam Davidson told us the earnings reports to watch this week would come from weaker financial institutions like Bank of America and Citibank. Now that these numbers have been released, we're left wondering what to make of them.

While it's clear that some banks are moving out of danger zone, overall the banking system as a whole is still struggling. Yes, banks are posting profits, but their numbers are nowhere near 2008 levels. Bank of America CEO Ken Lewis acknowledged these difficulties when he announced his bank's latest figures: "Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010."

Continue reading "Banks' Biggest Fear? You. " >

Construction crews return to Phoenix, Ariz. Matthew Gindlesperger

 

Matthew Grindlesperger sends this from Phoenix, Ariz. He writes:

Are those green shoots for real? The attached pictures are of a housing development that is back building houses here in the Phoenix area. The original developer lost the property in foreclosure. The new developer bought the property, I don't know if they changed the floor plans. I was told all the houses being build are under contract not spec homes.

By the way, they just raised the prices. The sign used to say from "from the 180"s".

According to the latest figures from the Commerce Department, it looks like Matthew's green shoots are for real. Housing starts in the U.S. rose last month by 3.6 percent. It's the highest level since November and a marked improvement from what analysts had been expecting. Building permits also increased in June to 8.7 percent, a sign that builders' confidence is returning.

UPDATE: We'll be airing parts of these stories on All Things Considered next week. Until then, we'll keep the polls open.

Don't miss your chance to vote for the winner of the Top Planet Money Project Iron Radio Chef Challenge. We'll be closing the polls on Friday July 17, at 1 PM ET.

Full disclosure: this is how I decorate my desk. Mathew Katz

 

By now, you've probably already heard about the big Canadian news of the week: Tim Hortons, the venerable Canadian coffee-and-donuts-shop, expanded into New York City, opening 12 locations in Manhattan and Brooklyn on Monday. More locations are coming to the city in August.

It may seem like a risky move: gambling an entire franchise's success in the U.S. by suddenly opening up in the country's most high-profile market during a recession when Americans are hesitant to spend, but it might be smart one. We've already written about the slow Canadian takeover of the American economy. Tim Hortons' expansion represents something bigger -- a move by some businesses -- not just Canadian ones -- to take advantage of the recession in a bid against much-larger, well-established competitors.

Continue reading "The Tim Hortons Economy" >

As the European Union considers new regulations and fines meant to curb bonuses for excessive risk-taking, the U.K. government has its own strategy.

Prime Minister Gordon Brown said today that his government plans to force banks to hold back half of all bonuses for senior traders and executives for up to five years. He also said the Financial Services Authority, which regulates banks, is working on plans that would allow it to force banks to hold more capital if the FSA is unhappy with its bonus structure.

Continue reading "UK Moves To Withhold Bonuses" >

The 1948 vision of free enterprise.

The National Bureau of Statistics of China says the country is on track to hit 8 percent GDP growth this year. According to the NBS, the economy grew by 7.9 percent in the second quarter of this year compared to the same time last year. The year over year increase is 7.1 percent.

The government credits the growth to a number of factors including increased industrial production, higher incomes among urban and rural residents and improved retail sales. Retail sales reportedly increased by 15 percent in the first six months of the year, thanks to government incentives like rebates.

Continue reading "China Reports GDP Growth Up Near 8 Percent " >

Seen in Long Beach, Calif. Jessica Sweeney/Planet Money Flickr pool

 

Jessica Sweeney was one of the first to respond to Planet Money's five cents or less challenge with these photos from the Long Beach Deport for Creative Use. She writes:

I found a number of items at "The Long Beach Depot for Creative Reuse", in Long Beach, CA. In fact, it's a seriously fun place to hang out! I've met folks there who will buy 5-cent doobobs for their children, and they leave happier than clams. As you can see, it's a multimedia art supply store, but it carries things that are fun for all, as well as showing off some of the finished products from local artists.

Continue reading "What One Penny Will Buy You " >

The big news this morning is JP Morgan's higher-than-expected profits. But discount broker Charles Schwab also released its earnings today, and they're a bit more sobering: the bank posted profits of $205 million, down 31 percent from last year's $295 million.

The news comes as the troubled firm has entered restructuring, citing low interest rates and stock prices amid the recession. The company also turned down TARP funding.

Charles Schwab is known for offering brokerage services with lower commissions and fees -- meaning it makes it easier for the little guy to access the market, largely via telephone or the web. Juggernauts like Goldman and JP Morgan may be posting large profits, but it could mean more to average Americans to see more accessible institutions -- the ones they deal with every day-- recover.

The Department of Labor says new claims for jobless benefits fell last week to the lowest level since January. Applications for unemployment were at 522,00, analysts had expected a number closer to about 575,000. The number may look like good news on the face, but as we told you last week there are problems with these seasonally adjusted figures. Based on seasonal trends, the department expected a large number of layoffs in the automotive sector and elsewhere in manufacturing -- these temporary layoffs usually occur during the summer months. This year these industries have already lost so many jobs that claims rose by much less than expected, creating this large drop. The unadjusted figures actually showed that new claims rose by 86,389 last week.

Continue reading "Fewer Jobless Claims: Not Necessarily Good News " >

Adam and Chana gear up for the competition. David Kestenbaum/NPR

 

On today's Planet Money:

A very special radio competition. We sent Adam Davidson, Chana Joffe-Walt and David Kestenbaum to New York's Fancy Food Show and challenged them to bring back the best economics stories they could find. Listen to their stories, hear our panel of celebrity judges weigh in and then decide who you think should be the winner.

Bonus: Listen to each story individually and vote for the winner, after the jump.

Download the podcast; or subscribe. Intro music: Flying Lizards' "Money." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: Fancy Food Economics" >

Officials at the Federal Reserve think that unemployment could hit 10 percent later this year. The forecast comes out of the the Fed's June 24th meeting. Minutes from that meeting were just released today. From the minutes:

The large number of people working part time for economic reasons and the prevalence of permanent job reductions rather than temporary layoffs suggested that labor market conditions were even more difficult than indicated by the unemployment rate.

Members of the Federal Reserve predict an unemployment rate of 9.8 to 10.1 percent for 2009. In April, those same officials predicted a 9.2 to 9.6 unemployment rate for the year. According the Bureau of Labor Statistics, the unemployment currently stands at 9.5 percent.

On a more positive note, the Fed did predict that unemployment is likely to decline next year. They also raised their prediction for GDP growth, saying the U.S. economy would grow up to 3.3 percent in 2010, and 4.6 percent in 2011.

Last week, we told you about a House bill that will force GM and Chrysler to bring back over 2,000 dealerships that were scheduled to close or have been closed. Well, yesterday dozens of dealers went to Capitol Hill to lobby Congress to support the bill. The dealers said that many of the dealerships were closed down for arbitrary reasons -- and some even claim that they were targeted.

So far their efforts seem to be working -- over 240 House members have signed onto the bill, according to supporters.

The automakers of course hate the bill. They say the main reason they have cut down the number of dealerships is to improve profits. General Motors says it could save $2.5 billion annually by cutting dealers. The company says it spends that money on sales incentives, advertising and other programs that support dealers.

Seen in Lakewood, Wash. u.dweller/Planet Money Flickr pool

 

Flickr user u.dweller sends the photo above. She writes: "This is my idea of a green shoot." It's been just over a year since IndyMac failed and was seized by federal regulators.

Tom Sawyer's very own economic indicator. Musebrarian/flickr

 

Some positive news from the folks over at the Globe and Mail. According to one little-known economic indicator, the white paint index, we're on the way to recovery.

Economists track the price of a key ingredient in white paint, titanium dioxide. The price of titanium dioxide took a huge plunge back in January, and companies that make white paint have been cutting back production because of the recession. Over the past three months, the price has been falling, but at a progressively slower pace. Titanium dioxide prices fell 4.6 percent over the year in June, compared to a 5.1 percent drop for the year in May. Economists think that the price of white paint will begin to rise within the coming months, going along with a broader economic recovery.

Continue reading "The White Paint Recovery" >

Matt from Manhattan writes:

Let me tell you about how paramedics get paid at my hospital. We're a non-union shop, and we nominally do in fact get paid for performance -- but for the most trivial, stupid things. For example, we get performance reviews on our appearance, attendance and paperwork.

Do we get rewarded for providing good patient care, for saving lives? NEGATIVE. I could be killing people right and left, but so long as my paperwork is in order, I'm a fantastic employee in the hospital's eye.

Continue reading "Compensation: Paramedics " >

The new inflation numbers are out. Labor Department says the consumer price index rose 0.7% in June. The BLS says the increase was mostly due to rising gasoline prices.

But it's not all gas. Bloomberg has this to add:

General Mills, the Minneapolis-based maker of Cheerios and Hamburger Helper, raised prices in fiscal 2009 by 8 percent to counter higher commodity expenses, Chief Financial Officer Don Mulligan said in a telephone interview.

Some economists are still worried about deflation, which can be harder to stop than inflation. They'd like to see a healthy 2 or 3% increase in prices.

Yesterday's news that Goldman Sachs made an impressive $2.72 billion profit last quarter raises some awkward questions for the government. Goldman took $10 billion in TARP money from the government. Goldman benefited from the bailout of AIG. And now, you say, it looks like it's going to pay huge bonuses to its already handsomely paid employees?

There is a bright side for the taxpayers here.

Continue reading "Good For Goldman Sachs, And You" >

How often do you use these? Frederic Poirot/Flickr

 

We're working on a story about small change here at Planet Money, and we need your help. We want to know how many things you can buy, today, in the U.S. for five cents or less. That means total cost equal to or under $0.05. Send us a picture (that shows the price) and a story (if you like) to planetmoney@npr.org or add them to our Flickr pool or Facebook group.

SEC Chairman Mary Schapiro says her agency is taking steps to strengthen "the integrity of the credit ratings process." In testimony before the House Financial Services subcommittee today, Schapiro said she has designated a special group of staff to "conduct routine, special and cause examinations of the ratings agencies to review their activities and NRSRO compliance."

Schapiro also said she is considering possible new regulations to prevent debt issuers from "shopping" for the best credit rating. One approach could be requiring companies that issue debt to release preliminary ratings before a firm is hired to give a final ranking.

Credit ratings agencies like Standard and Poors, Moody's and Fitch have been criticized for assigning mortgage backed securities and other derivatives their top triple-A ratings. To hear more about what went wrong with these rating agencies, listen to this story from David Kestenbaum and Alex Blumberg.

This pretty amazing AIG commercial is making the rounds at Planet Money. Not sure I'd call it "playing it safe" but we certainly have written lots about AIG!

BONUS: More AIG commercials.

Just read through the details of the latest report of the Congressional Oversight Panel, chaired by Elizabeth Warren and charged with overseeing the TARP program.

The Panel concludes that tax-payers could lose out on $2.7 billion if the Treasury Department doesn't change how it values those warrants it got when it bailed out the banks.

The warrants were a way to let taxpayers share in the gains if the bank's stock price improves. The banks, however, are now eager to get out of TARP so Treasury has been selling the warrants back to them.

By the panel's calculations, the Treasury has been undercharging for them by as much as 66 percent.

Continue reading "Warren Questions Warrants" >

The end of leisurely Sundays at the cafe? killermonkeys/flickr

 

As the French celebrate their revolution on Bastille Day, the government is set to debate another huge change for French society: allowing more work on Sunday.

As it stands now, Sundays are a mandatory day off. There are some loopholes to this, but for the most part, shops are closed. The new law would allow stores in France's large cities to be open on Sundays, and employees who agree to work would be paid double overtime. Not a bad deal.

Continue reading "The End of Sunday In France? " >

The Wall Street Journal (sub req'd) is reporting that U.S. officials are in "advanced talks" about providing government aid for CIT Group, a lender to small and midsize businesses. The Obama administration is reportedly concerned about how a possible bankruptcy would further damage businesses who are struggling to get credit.

Simon Johnson of Baseline Scenario says a possible bailout has implications for the future of "too big to fail." Johnson writes:

At the end of 2008, CIT had total assets around $80bn, which was about 1/10th the size of Goldman (and about 1/25th the size of Citigroup) and puts it just outside the top 20 publicly traded financial services company. Presumably, it just missed the cut for inclusion in the government's recent "stress tests".

Continue reading "Saving CIT" >

Shawn writes:

Since the age of 21, I had worked in the building trades as a pipe and duct insulator out of local #16 San Francisco. In Jan of 2004, my friend opened a mortgage bank and offered me a career change. I knew absolutely nothing about this industry but immediately fell in love with it. I started out working at the lock desk and eventually became head of secondary marketing, as well as account executive to outside retail branches. Then the summer of 2007 hit. There were multiple pay cuts as well as the loss of monthly bonuses.

After 3 years of learning a fascinating business that was giving me a good living, I found myself facing the reality that I may have to go back to being a labor man. By Oct 2008, I could not weather the storm any longer and went back to my union. Here is the good part, I hooked back up with the same superintendent that I had worked for and started working immediately. In fact, I have been working a lot of overtime with more on the way.

Continue reading "Returning To A Trade " >

Goldman Sachs' released its earnings report this morning, and the news is good for Goldman.

They earned a second-quarter profit of $3.44 billion or $4.93 a share, beating out analysts' forecasts of a $2 billion profit. The report shows a huge rebound from where Goldman was in the final quarter of 2008, when it posted a loss and accepted $10 billion in TARP aid. The firm paid that money back last month, freeing itself from many of the restrictions associated with government assistance.

In Lyndhurst, N.J., "a thriving bake shop for so many years." Brooklyn Bridge Baby/Planet Money Flickr pool

 

On today's Planet Money:

-- As U.S. job losses mount, so do calls for another round of economic stimulus spending by the federal government. So far, President Obama says it's not needed. Stay tuned, says Eurasia Group's U.S. policy analyst Sean West. He argues that Democrats now own the economy, which means the administration will have to take some kind of action to get things going again. It's just that they might not call it a stimulus plan.

-- Sen. Kent Conrad (D-ND) wants to know exactly what caused the economy calamity we're now living through. Conrad sponsored legislation to create the Financial Crisis Inquiry Commission, a panel with economic experts and no elected officials, to study the matter. The group returns with its findings ... in 2010.

Bonus: Christmas in July, and not in a merry way, either.

Download the podcast; or subscribe. Intro music: Giant Drag's "This Isn't It." Find us: Twitter/ Facebook/ Flickr.

Continue reading "Hear: Don't Call It A Stimulus" >

The federal deficit topped $1 trillion for the first time today, just nine months into the budget year. If you're itching to understand that, check Simon Johnson and James Kwak's "National Debt For Beginners."

Johnson and Kwak, of Baseline Scenario, help you sort through the questions of what national debt means, whether it's OK, and if so, how much.

I just met with a staffer from the Japanese Embassy to talk about climate change. Japan, despite being the location for the historic Kyoto accord, has had a hard time making good on the pledge it signed there.

Under the accord, Japan agreed to cut emissions to 6 percent below 1990 levels. Emissions instead are up 8.7 percent.

To be fair, Japan already has pretty low emissions per GDP. Cars and houses tend to be small there, and about a third of the country's power comes from nuclear. So reducing emissions will be challenging.

Continue reading "Japan Weighs Climate Economics" >

Click for a larger version

 

Back in February, President Obama said that he would consider the $787 billion economic stimulus successful if it creates or saves 4 million jobs.