Rep. Ron Paul, the Texas Republican and lifelong critic of the Federal Reserve, scored a big win Thursday on Capitol Hill by getting a House panel to pass a bill requiring new reviews of the Fed's interest-rate decisions.
The bill, which is likely to face steep opposition when it goes up for a full House vote, would abolish a longstanding exemption that shielded the Fed from Congressional audits of its monetary policy.
Supporters of the Fed's independence have argued the shields provide crucial insulation from political pressure, which would make it much harder for Fed officials to take unpopular action aimed at heading off inflation.
"If we get the audit and get the books open, make them answer the questions, I am convinced that the American people will be so outraged that then we will have reform of the monetary system," Paul has said.
Senate Majority Leader Harry Reid has released a Senate health reform bill that analysts estimate would cost $849 billion over 10 years, and slash the deficit by $127 billion over the next decade.
Like a bill that passed the House on Nov. 7, the Senate bill aims to cover most Americans, bar insurers from denying coverage to people who are already ill, set up insurance exchanges where people can shop for coverage and fine those who don't have insurance.
It also sets up a government-run insurance plan, expected to enroll about 6 million people. That "public option" remains deeply controversial and is likely to keep most Republicans and conservative Democrats from supporting the bill.
According to the Congressional Budget Office, the bill would reduce the number of uninsured Americans by 31 million people, from about 46 million today. The first procedural vote on the bill could come later this week.
Housing starts fell 10.6 percent last month, following months of gains. The Commerce Department says building permits also tumbled, 4 percent in October, economists had expected a 0.9 percent rise. After hitting a low of 479,000 in April, housing starts began to spring back in June but the last five months they have moved virtually sideways.
It is very unlikely that there will be a strong rebound in housing starts with a record number of vacant housing units.
The vacancy rate has continued to climb even after housing starts fell off a cliff. Initially this was because of a significant number of completions. Also some hidden inventory (like some 2nd homes) have become available for sale or for rent, and lately some households have probably doubled up because of tough economic times.
Year over year, housing starts for October were down 30.7 percent from October 2008. Congress recently extended the $8,000 credit for first-time home buyers in an effort to help the struggling housing market. It's been extended through April of this year.
Speaking in the Great Hall of the People overlooking Tiananmen square, President Obama paid tribute Tuesday to China's economic successes and for what he said was its "critical" role in helping pull the world back from the brink after this year's financial meltdown. But, added Obama, "a growing economy is joined by growing responsibilities."
President Obama is pushing the Chinese to help address several of his economic headaches, including the Chinese currency, which the U.S. and other countries maintain is undervalued and a large cause of the huge trade surpluses China has with many countries.
America's leverage with China has been weakened as China has amassed nearly $800 billion in Treasury securities, making it the U.S.'s largest foreign creditor.
Michael Froman, economic adviser on the National Security Council, said "the 800 billion never came up in conversation."
General Motors Co. is expected to fully repay its $6.7 billion in U.S. government loans by 2011, four years earlier than required. The auto manufacturer reported the news Monday after announcing recent sales exceeded expectations and costs came in lower than expected.
Under the plan, the automaker said it will begin paying the U.S. Treasury Department $1 billion each quarter, beginning at the end of December. The government has given GM a total of $52 billion, including $45.3 billion in exchange for a 61 percent equity stake in the company.
Chief Executive Officer Fritz Henderson cautioned that the earnings numbers don't comply with U.S. accounting standards and cover only the part of the quarter after GM left Chapter 11 bankruptcy protection on July 10. Still, the report was better than many analysts expected.
Happy Friday Planet Money readers. Here are some of the highlights from this morning's business and economic news:
The 16-country Eurozone has officially joined the United States and Japan out of recession, after figures Friday showed its economy grew by 0.4 percent in the third quarter.
The performance was not as strong as many economists had predicted; many thought the region would grow 0.6 percent. Germany's economy grew by 0.7 percent and France's by 0.3 percent. Spain's economy continued to suffer, shrinking 0.3 percent as it reels from the collapse of its property market.
As the U.S. economy rebounds, consumers are buying more but disproportionately from abroad. That led to the biggest jump in the trade deficit in a decade.
The gap grew a larger-than-anticipated 18 percent to $36.5 billion in September, the highest level since January, from a revised $30.8 billion in August, the Commerce Department. Imports surged by the most in 16 years, swamping a gain in exports.
Good Morning. Here are some highlights from the morning's economic news:
Wal-Mart Stores Inc. reported slightly better-than-expected profits of $3.24 billion in its third quarter, a 3.2 percent increase from the $3.14 billion it earned in the same quarter last year.
But the retail giant reported weakness in a crucial area -- sales at stores open at least a year, known as same-store sales, fell 0.4 percent. The retail giant also warned its important fourth-quarter holiday earnings could fall short of Wall Street's estimates.
Intel on Thursday announced a comprehensive agreement with Advance Micro Devices Inc., its biggest rival in the market for computer processors, to end all outstanding legal disputes between the two chipmakers.
The two companies have been suing each other over several issues going back to the 1980's. In 2005, AMD filed suit against Intel alleging that Intel abused its dominant market position to keep its tight grip on the personal-computer industry.
Treasury Secretary Timothy Geithner has the dollar on his mind during his first visit to Japan. In meetings with Japan's prime minister and finance minister, Geithner said he was encouraged by their promises to make sure that Tokyo's "future growth will come more from domestic demand." He also acknowledged signs of growth in China and said reforms there will take time. The Wall Street Journal (subs. req'd) reports:
As Mr. Geithner touted Beijing's efforts to build what he calls a "less export-intensive" economy, he indicated his patience with China's policy of keeping the yuan undervalued against other currencies to boost its exports. That's despite stepped-up calls from Europe and the International Monetary Fund on the Chinese to accept rises in the yuan to cut the nation's trade surplus, which is a major part of global economic imbalances.
"I don't want to say more than what I've said in the past, which is that China has laid out this very broad direction of reforms' to invigorate domestic demand, Mr. Geithner said. "It's a very complicated mix of policy changes. As part of that, they've recognized that it's in their interest over time to move to a move flexible .. exchange rate."
Economic data released today shows that China's economy has recovered more quickly than many other parts of the world. In October, industrial output jumped 16.1 percent and retail sales increased 16.2 percent compared to last year. Exports also declined at their lowest rate this year.
Good Morning Planet Money Readers: Here are some highlights from the morning's business news.
Health economists and some high-profile lawmakers are raising new concerns about the extent of cost-cutting measures in the health bills currently working their way through Congress. At issue: many worry the legislation does too little to clamp down on the current fee-for-service system to pay doctors and hospitals, a main driver of health costs in recent decades. A podcast from last week explores the issue in more depth.
It's possible such concerns could sink health reform as the Senate considers the $1.1 trillion health reform bill that passed the Houes last week. Moderate Democrats have been adament that true cost reform must be part of the bill and momentum is building to include new cost reductions - such as fees on expensive health plans and lump-sum provider payments rather than money for each new patient procedure.
Most of these cost-cutting ideas are vehemently opposed by medical groups and insurance companies, raising more worries that a stand-off in the Senate could go nowhere in the coming days.
The latest move in Kraft Food's push for world domination came this morning, with the food giant launching a $16.3 billion hostile takeover bid for British candy company Cadbury after an initial bid earlier this summer passed without a deal.
Cadbury, which rejected Kraft's $16.7 billion offer in early September, spurned the deal again Monday within minutes.
"Cadbury is an exceptional standalone business," said Roger Carr, chairman of Cadbury, in a statement. "Kraft's offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low growth conglomerate business model."
Kraft must now take its deal, which values each share of Cadbury at $11.95, a 26% premium over Cadbury's share price on the day of Kraft's initial offer in September, directly to shareholders. Kraft has 28 days to draft a proposal to Cadbury's shareholders and 60 days to round up a majority of shareholders to vote the deal through.
(Here are the company's official statements on the bid: Kraft, Cadbury)
The unemployment rate has surpassed 10 percent for the first time since 1983 -- reaching 10.2 percent in October. In September, the unemployment rate was 9.8 percent.
The high figure surprised everyone including economists and market watchers who didn't expect unemployment to pass 10 percent until the spring. According to the Labor Department, employers cut a total of 190,000 jobs in October. This is the 22nd straight month, the U.S. economy has shed jobs.
Nearly 16 million people are still looking for work and of those, 35.6 percent have been the unemployed for six months or longer. President Obama is expected to sign legislation this morning to extend jobless benefits for 14 weeks for people whose benefits are about to expire. In states where the unemployment rate exceeds 8.5 percent, the unemployed will eligible for an additional six weeks on top of the 14. This will be the fourth time jobless benefits have been extended since the recession began.
Good Morning Planet Money readers: For those of us from Boston, it's not the easiest morning but we still congratulate the Yankees on a good win. Moving on, here's the top-line business news out this morning:
The Bank of England voted Thursday to keep pumping cash into the UK economy by 25bn pounds, a sign that it remains worried about the economic outlook despite early signs of a recovery.
As expected, the Bank left interest rates unchanged at 0.5 percent. Later on Thursday, the Frankfurt-based European Central Bank, which sets monetary policy for the 16-nation euro region, left its key rate at a record low 1 percent.
The move to boost spending by pumping more cash into the British economy, known as quantitative easing, was expected by many economists after recent data suggested the country could remain mired in recession for many more months.
Toyota Motor continued the good news in the global car industry this week, announcing it returned to a profit in the latest quarter and cut in half its estimated annual loss.
Good Morning Planet Money readers. Here are some early highlights from the morning financial news:
Good economic news keeps on coming this week. New job losses came in lower last month than expected, bolstering hopes the nascent U.S. economic recovery is for real. Private-sector firms in the U.S. cut 203,000 jobs in October, according to an ADP employment report released this morning.
Although this was slightly more than the 190,000 forecast by analysts, it represents the smallest number of job losses for the survey since July 2008.
Across the pond, German lawmakers and unions reacted strongly against General Motors' surprise decision late Tuesday to keep car brand Opel and abandon its sale to Canada's Magna and Sberbank of Russia. German labor and government officials strongly favored the sale as the option most likely to save German jobs.
German unions have planned protests for tomorrow while Russian prime minister Vladimir Putin said Magna and Sberbank would make a legal analysis of the situation.
Media conglomerate Time Warner Inc. followed Viacom's rosy earnings report on Tuesday and reported a 38 % drop in third-quarter profit, hurt by declines at its AOL and publishing segments. The news is likely going to be considered positive by investors as results beat expectations and the company boosted its full-year earnings forecast.
The company, which also owns the Warner Bros. movie studio and the HBO and Turner cable networks, said it is still on track to spin off its struggling AOL unit.
Meanwhile, gold prices continued their surge , reaching a record on Wednesday, as a weak dollar and India's recent purchase of bullion continued to whet investors' appetite for the precious metal. Gold and other commodity prices have surged recently as investors have moved away from the US dollar.
Good morning everyone. Here are some headlines from this morning's economic and business news:
Warren Buffett's investment arm, Berkshire Hathaway, announced its purchasing the remaining 77% of Burlington Northern Santa Fe it did not already own for $44 billion in cash and stock.
The deal for the nation's second largest railroad is Berkshire's biggest bet ever and is likely to be interpreted as a huge vote of confidence for the ongoing U.S. economic recovery. "Most important of all...it's an all-in wager on the economic future of the United States. I love these bets," Burlington CEO Matt Rose said.
Entertainment giant Viacom announced continued good news by reporting third-quarter profit jumped a better-than-expected 15% on strong movie sales amid continuing declines in advertising and DVD sales.
The company, which includes Paramount Pictures, MTV and Nickelodeon, dodged a bullet this summer when owner Sumner Redstone was able to pay off some of his huge debt load at the last minute -- saving his family's hold on the firm.
Consumer health product giant Johnson & Johnson said it will cut up to 7% of its global workforce as part of an ongoing cost-cutting plan that the company says will save up to $1.7 billion by 2011. The cuts amount to about 8000 jobs.
Lastly, all eyes are on the Federal Reserve today as the Federal Open Market Committee begins its two-day meeting. A report in the Financial Times last week set off a firestorm when it suggested that the Fed was reconsidering its policy of low interest rates to bolster the economy. Most onlookers now believe rates will remain low and are likely to comb the Fed's language mostly to see if it may raise rates in coming months. An announcement is expected Wednesday at about 2:15 p.m. EST
Good morning, and have we got news for you on this last Thursday of October.
The American economy grew last quarter. It really did. The Commerce Department reports that gross domestic product -- the sum of all goods and services -- expanded from July to September at an annual rate of 3.5 percent. The new GDP figure comes after four straight quarters of shrinking.
Analysts anticipating some effect from government stimulus spending, including Cash for Clunkers, had predicted growth at a rate of 3.2 percent, Bloomberg reports. Personal consumption, meaning people buying stuff, climbed 3.4 percent. The automobile sector accounted for 1.66 percent of the 3.5 percent rate.
After the jump: Very tiny inflation, plus the latest jobs numbers.
Good morning. Here's what we're reading on a rainy Wednesday in New York:
Orders for durable goods ticked up by 1 percent in September, the Commerce Department reports. The fourth increase in six months is a sign that consumers may be ready to at least consider buying big items like washing machines again.
Government bailouts of banks would be paid for by surviving rivals -- and the management of failing banks would get the boot -- under a plan pushed by the Obama administration and Rep. Barney Frank (D-Mass.). Shareholders at foundering firms would lose out, as would unsecured creditors.
GMAC Financial Services may get as much as $5.6 billion more in aid from the U.S. Treasury as it seeks to pile up enough dollars to meet the capital cushion mandated after government stress tests this year. The government would likely take more stock in the Detroit-based company -- it already owns 35 percent of GMAC, which would become the only firm to get a third round of assistance.
Calculated Risk says there's talk that Congress will extend and expand a tax break for home buyers. Baseline Scenario argues that's a bad idea.
Bill and Melinda Gates tell NPR about their thinking on the economics of global health aid.
Treasury pay czar Kenneth Feinberg cut total compensation in half for the seven bailed-out firms he oversees, but he raised salaries by an average of 14 percent, says the Wall Street Journal (subs. req'd.).
Meanwhile, the European Union has approved a deal to split the nationalized Northern Rock into a "good" bank and a "bad" one. The plan is to sell the good one and let the bad one wind down operations.
Home prices in 20 major American cities rose by 1.2 percent from July to August, according to the latest S&P Case-Shiller increase. That's the fourth consecutive monthly increase. Home values are down 11.3 percent from this time last year and 29.3 percent from their peak.
Meanwhile, James Kwak and Simon Johnson of Baseline Scenario argue that the $8,000 federal tax break for rookie home buyers amounts to throwing "good money after bad." Calculated Risk spots the money quote: "In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads."
AIG's former chief Maurice Greenberg is back and building what one observer calls "AIG Two." Greenberg's raiding his old haunt for talent -- helped by limits on pay at the bailed out insurer.
U.S. newspapers lost an average of 10.6 percent of their circulation from April to September. Gulp.
Good morning, and welcome to Monday's reading list.
This may finally be the week when Rep. Barney Frank (D-Mass.) will introduce legislation for overhauling regulation of the American financial system. At the center would be enhanced power for the government to seize and revamp failing firms and enhanced requirements for "too big to fail" institutions.
Meanwhile, in Europe, the ING says it will separate its banking and insurance businesses, then spin off the latter. The $11.3 billion move is designed to let ING pay back half of its Dutch government bailout and "resolve the uncertainty created by the financial crisis."
The U.S. dollar is still falling, mostly because investors are ready to take risks in the market with their money again instead of diving for the shelter of the greenback.
And the insurance industry is getting ready for a bonanza if Congress goes ahead with an overhaul of the health care system. That now seems likely enough that at the New York Times, Paul Krugman wonders about life "After Reform Passes."
The LA Times casts the insurance industry as looking forward to big wins. In addition to gaining millions of new customers, the paper writes, "there are likely to be no limits on what insurers can charge, while at the same time the plan is expected to limit competition from any new national government insurance plan that lawmakers create."
Good morning, and happy Friday to you. Here's what we're reading:
The Federal Reserve says it will crack down on executive pay at the 28 biggest banking institutions. The Fed hopes to stop bankers and traders from enriching themselves by taking excessive risks.
Simon Johnson hails the Fed's move as a "quite brilliant" means of dealing with the systemic dangers of being too big to fail. (Bonus: Responses from the PR departments of those who'd be regulated.)
By contrast, critics say the White House announcement that it will cut the pay of top earners at seven bailed-out banks amounts to throwing the public a bone. And in any case, Wall Streeters don't like either proposal. People want to work here but they want to be paid fairly," a Bank of America spokesperson told Bloomberg.
On Capitol Hill, Senate Majority Leader Harry Reid (D-Nev.) is pushing for a government-run health plan, the so-called public option, to be included in the health care overhaul legislation. Reid thinks the measure can gather support if it lets states opt out.
The U.K. economy shrank 0.4 percent in the third quarter, a record sixth consecutive negative report. Government analysts had predicted growth of 0.2 percent. So much for that.
Good morning, and welcome to the Thursday reading list.
New claims for unemployment benefits rose last week by 11,000 to 531,000, the Department of Labor reports. That was more than analysts expected. The four-week moving average continued falling, to 532,250 last week from 533,000
Chronic unemployment remains a problem. Today's reports shows signs that more people are exhausting their regular benefits without finding new work. Those rolls dropped by 98,000 to 5.92 million. As of Oct. 3, the number of people on extended unemployment benefits climbed to 3.86 million from 3.83 million.
In other news, Macroblog makes the case that we're in for a jobless recovery. (Hat tip: Calculated Risk.)
President Obama will steer what's left of the $700 billion TARP bailout for bigger banks -- something like $140 billion -- to smaller banks in an effort to jumpstart lending to local businesses. The Obama administration is also directing the seven remaining bailout recipients to slash pay for their top 25 earners.
Ethiopia is asking for $285 million in emergency food aid for 6.2 million people facing famine. Oxfam says that the imported aid helps, but that the country needs longer-term investment in irrigation and well systems to avoid a food crisis every time drought strikes.
Good morning, and welcome to the Wednesday reading list.
In his quarterly report to Congress, Special Investigator General Neil Barofsky says the $700 billion TARP bailout rescued the economy but was conducted with too little transparency and thus created suspicion and anger among ordinary Americans.
If you're wondering about the effects of the U.S. national debt on the economy, check out the New York Times' look at the government borrowing in Japan. Interest payments alone amounted to a fifth of the budget for 2008.
In the U.K., the chancellor of the exchequer says the nation needs to keep borrowing and spending for the sake of the recovery, however counter-intuitive that might seem. A report by the British National Institute of Economic and Social Research says government debt must decrease if taxpayers are to avoid higher taxes and a raised retirement age.
The New York Times asks why no one's listening to economic guru Paul Volcker, who wants to separate investment and commercial banking. Simon Johnson argues that Bank of England governor Mervyn King stands a chance of punching the message home.
Good morning. Here's what we're reading this Tuesday:
The Producer Price Index fell in September by 0.6 percent, which means wholesale goods were going for less last month than in August. Compared to this time last year, companies were paying 4.8 percent less for the same stuff. If you're a producer, that's not such great news. If you're working at the Federal Reserve and you're wary of inflation, today's figure is a green light for a keeping interest rates low.
Housing starts showed signs of sagging. They rose just 0.5 percent from August to September.
Americans need to save more and Asians need to start spending, says Federal Reserve Chairman Ben Bernanke. He says Asia appears to be leading the world out of the recession and warns that continued trade imbalances could send us right back to the brink.
President Obama is set to host a Democratic fundraiser in New York City today, and the big banks that got big bailouts are steering clear of the event and its $30,400 tickets. With a 40 percent hike in bonus pay, Wall Street workers are shelling out bucks for fancy steaks and expensive condominiums.
And the New York Times' Andrew Ross Sorkin unveils his new book on the Lehman Brothers collapse with an excerpt in the paper today.
Good morning, and welcome to the Monday reading list.
The White House is considering ways to create more jobs, including a possible second round of stimulus spending.
Oil prices have hit a new high for 2009, $79.05 a barrel, as "market optimism" overrides the effect of a "massive surplus" of petroleum products.
Another factor in pushing up the price of oil is the U.S. dollar's decline. For American manufacturers, the weaker dollar is good news since it makes their wares cheaper for overseas buyers. Sure enough, domestic producers are reporting stronger exports.
Good morning, and welcome to the Friday news wrap-up.
Bank of America lost $2.24 billion in the third quarter, as defaults rise in its credit card, home loans and insurance lines. Outgoing chief Ken Lewis says he'll go without pay for 2009, though he still stands to get a pension of $53 million and $57million in bank stock.
Rep. Barney Frank's House Financial Services Committee approved new rules on derivatives trading, and carved out an exemption from Consumer Financial Protection Agency exams for 98 percent of the nation's financial institutions.
The federal stimulus program is creating jobs -- mostly in states where employment is already low.
Good morning, and welcome back to Thursday's headlines.
UPDATE: New claims for unemployment benefits fell last week by 33,000, to 521,000, the Department of Labor reports. The four-week moving average continued its decline, falling by 9,000 to 539,750.
Goldman Sachs is reporting profits of $3.19 billion in the third quarter. Citigroup says it made $101 million.
Treasury officials would like more of the big banks to repay their TARP bailout money already, and some of those banks may not want to just yet.
The public option is alive and kicking as Congress considers the next steps in overhauling health care. So is the debate over whether current bills carry stiff enough penalties to persuade uninsured Americans to buy coverage.
UPDATE: Retail sales fell in September from the level in August, when the government's Cash for Clunkers program pushed a wave of buyers into car dealerships. Without that federal stimulus, the Commerce Department reports, sales were down by 1.5 percent from month to month, and down 5.7 percent from September 2008. Sales for the third quarter of 2009 were down 6.6 percent from a year ago.
The Senate Finance Committee on Tuesday approved its $829 billion plan for overhauling U.S. health care. It includes a tax on so-called Cadillac plans and support for health care cooperatives. The measure passed with a lone Republican supporter, Sen. Olympia Snowe of Maine.
Some members of Treasury Secretary Tim Geithner's kitchen cabinet are supplementing their government salaries with millions from big Wall Street firms, Bloomberg reports. Meanwhile, Wall Street pay is on a record pace, the Wall Street Journal reports (sub. requ'd.). For more average Americans, this has been the year of the pay cut.
The Mortgage Bankers Association predicts unemployment will reach 10.2 percent next year even as economic growth continues. Meanwhile, median home prices in Southern California have, miraculously, risen year-over-year.
The stock market continued its upward push after news that China's exports had dropped the least amount in almost a year. The Washington Post's Steven Pearlstein is worried that the market is reinflating old bubbles.
Good morning, and welcome to our Tuesday reading list.
Bank of America says it will give the New York attorney general documents that show the legal advice it got while making a deal to buy Merrill Lynch last year. Insiders say the bank is playing nice as part of a strategy to settle investigations into what it knew about a plan for bonuses at Merrill.
If you've got big bucks parked in secret accounts overseas, you've got until Thursday to let the IRS know or face prosecution for tax evasion.
A couple of hints about how we live now: First, in the category of closed systems, some coal plants that agreed to keep pollutants out of the air are dumping them in the water instead. Second, in the category of supply and demand, the recession has turned the market for chicken upside down, with wings now the expensive part.
Good morning, and happy holiday. We're off for Columbus Day, but we do have one dollop of news for you.
Two American professors are sharing the 2009 Nobel prize for economics. Oliver Williamson of U.C. Berkeley and Elinor Ostrom of Indiana University were cited for their work analyzing economic governance -- the rules of the game.
The Nobel academy noted Williamson's argument that:
"[L]arge private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements
Williamson has argued that it's better to regulate the behavior of large corporations than it is to try limiting their size.
Ostrom is the first woman to win for economics since the prize was founded in 1968. She has spent her career studying the relationships between people and natural resources. From the Nobel academy:
"Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories."
Good morning, and welcome to the latest mixed signs of the times.
The Federal Housing Administration, which backs home loans with small down payments, is either at risk of needing a bailout, as a former Fannie Mae executive told Congress yesterday, or is going to make it through, as FHA commissioner David Stevens told them.
The U.S. trade deficit fell just a bit in August, the Commerce Department reports, as exports rose ticked upward and imports ticked downward. On the other hand, retailers sold slightly more in September than in August.
In its October report, Elizabeth Warren's Congressional Oversight Panel questions whether federal efforts to help struggling homeowners avoid foreclosure will help enough people or help them long enough. Treasury issued its own report saying the Making Home Affordable Program is finally on its way and has helped 500,000 mortgage holders so far.
Federal Reserve Chairman Ben Bernanke reassured inflation watchers by signaling that the central bank has a plan for tiptoeing back out of its many market interventions of the past year. The New York Times reports that policymakers at the Fed disagree over when to raise interest rates again.
Where's employment growing? Canada, where employers added 30,600 jobs in September and the jobless rate fell from 8.7 percent to 8.4 percent.
Good morning, and welcome to the Thursday numbers parade.
New claims for unemployment benefits have fallen to the lowest level since January, the Department of Labor reports. In the week ending Oct. 3, some 521,000 people said they'd lost their work, down 33,000 from the week before.
The four-week moving average fell by 9,000 to 539,750. As of Sept. 26, the number of people on regular unemployment insurance fell 72,000 to 6,040,000. The rolls rose again for Emergency Unemployment Compensation, which kicks in when regular benefits run out in states with high joblessness. As of Sept. 19, to 3,321,210 -- an increase of 45,997.
The central story line continues: Fewer people are losing their jobs, and the ones who do are struggling to find new ones.
In other news, the health care bill backed by Sen. Max Baucus (D-MT) would lower the federal deficit by $81 billion over the next decade, the Congressional Budget Office predicts.
The federal deficit hit a record $1.4 trillion in fiscal year 2009, with much of the spending going to rescue the economy.
The failure of the New Frontier Bank in Greeley, Colo., has the federal government paying to feed and milk cows. Seriously.
Good morning -- do you know where your U.S. dollar is?
The relative value of the greenback has been been sliding for seven months now, for a couple of reasons. First, investors are worried that the Federal Reserve's policy of keeping interest rates at record lows will lead to inflation, in which case the U.S. dollar would be worth much less. Second, as the economic crisis drags on, international calls have mounted for a new currency to replace to the dollar as the global first choice.
In a must-read analysis, Simon Johnson argues that the U.S. could arrest the dollar's fall if policymakers chose -- but they don't want to. Why? Because a falling dollar makes U.S. goods cheaper for other nations to buy. Foreign demand is good for American manufacturing, and Johnson says that's good Rust Belt politics for President Obama as the congressional midterms approach.
On a similar note, Congress is considering a tax incentive for employers who actually, you know, hire people.
Also big in the news: Commercial real estate, with office vacancies hitting 16.5 percent and the Federal Reserve worried that banks are setting themselves up for a disastrous wave of loan defaults (WSJ, subs. req'd.).
Good morning. We're reading a lot about climate change today.
The global recession will lead to a three percent drop in greenhouse gas emissions this year, the International Energy Agency says, giving the citizens of Planet Earth a rare chance to get ahead of climate change. The IEA says the world will need to spend $10 trillion on renewable energy and carbon abatement over the next 20 years (WSJ, subs. requ'd).
Meanwhile, a group of economists says that with enough technological advances, the price of radically cutting greenhouse gases could fall to one to three percent of the global economy.
Two on the FDIC: The failed banks list, and what's up with that dwindling insurance fund? And FDIC chairwoman Sheila Bair says creditors should pay more when banks go belly up. Someone has to, right?
Oh, and a big thanks to the Planet Money crowd. The site won a big award over the weekend, making all our mamas so proud. We couldn't have done it without you.
Good morning, and welcome to a day of cautionary tales.
Ken Lewis has announced he's heading for the exit at Bank of America this year. The chairman has been under pressure from just about all sides since BofA's shotgun purchase of Merrill Lynch in 2008, especially over the issue of $3.6 billion in bonuses for Merrill execs just prior to the deal.
The stock market rose 15 percent last quarter, despite fears that stimulus spending from the U.S. government was providing much of the economy's fuel.
The International Monetary Fund has changed its forecast for the global economy. It now says activity will grow by 3.1 percent next year, up from its July prediction of 0.6 percent. In the U.S., the IMF says economic activity will grow by 1.5 percent instead of 0.7 percent. "The current numbers should not fool governments into thinking that the crisis is over," IMF chief economist Olivier Blanchard warned.
The U.S. Commerce Department says the economy was shrinking less last quarter than it originally thought. In the second quarter, gross domestic product appears to have been contracting at an annualized rate of 0.7 percent, instead of at 1 percent. GDP shrank at a yearly rate of 6.4 percent in the first quarter.
The latest payrolls report from ADP suggests that U.S. companies cut 254,000 jobs in September. That's down 44,000 from August. The official unemployment number for September is due from the Bureau of Labor Statistics. Early bets have it rising from 9.7 percent to 9.8 percent.
GM is giving up on selling new cars to Californians in eBay auctions. California dealers suggest the program wasn't a huge hit. A GM spokesperson told the Detroit Free-Press he didn't know how many cars had been sold that way, then added, "We are calling it a success."
Good morning, and welcome to this Tuesday's reading list.
The latest figures on home prices are in, courtesy of the S&P/Case-Shiller index. Home prices rose across the nation from June to July 2009, with the exception of Las Vegas and Seattle. Overall, the index posted a 1.2 percent gain from month to month, the third straight positive report. The big picture, if you can bear to look, shows that in the year ending July 2009 the index fell by 13.3 percent -- hey, it's the smallest drop in 17 months and less than expected.
Looking to replenish its insurance fund, the FDIC is likely the propose that banks prepay three years' worth of fees, the Wall Street Journal reports (subs. req'd.).
Calculated Risk finds an unintended consequence in the federal tax break for first-time homebuyers. A lot of those buyers used to be renters, and their exit from that market may push rents downward. "Extend the tax credit and we might be looking at the core CPI showing deflation," CR writes. "Welcome to the Fed's nightmare."
Simon Johnson proposes a new way out of the G20, IMF tangle -- an Emerging Market Fund, or EMF, for developing countries that deserve more clout.
Good morning, and welcome to our reading list on this relatively quiet Yom Kippur.
Department of Cool Ideas: In Uganda, people without access to the Web can get answers to questions by calling a free, nonprofit service. Question Box, funded by the Bill and Melinda Gates Foundation, operates on the theory that knowledge is not just power but a means of economic development. People seeking information about crop pests or health care can dial up on cell phones, which are a fast-growing tool in Africa.
Department of Politics: Treasury Secretary Tim Geithner appears to have weathered the worst slings and arrows of the economic crisis, the New York Times says, and boy, has he got a lot to look forward to.
Department of Indicators: The latest sign that the Great Recession is ending is that holders of Treasury bonds are about to lose money for the first time in a decade. Last year, investors seeking a safe place to park their money drove the price of Treasurys up by 14 percent. Now that the panic has subsided and investors feel secure enough to take more chances, those bonds aren't worth as much.
The G20 reports progress on IMF reform in Pittsburgh, while Simon Johnson proposes an overhaul for resolving the tension between emerging markets and rich nations.
Twitter appears to be about to raise $100 million, despite having what the New York Times describes as "no discernible revenue." When you're the future, apparently you can get the Benjamins later on.
The U.S. Bureau of Economic Analysis says that 60 percent of metropolitan areas saw economic growth slow down or reverse in 2008. Real GDP growth slowed in 200 of the 366 metropolitan areas the BEA studies. That growth fell from 2.0 percent in 2007 to 0.8 percent in 2008.
New claims for unemployment benefits fell for the third week in a row, the Department of Labor reports. New claims fell by 21,000 to 530,000 last week. The four week moving age also fell by 11,000. Meantime, the number of people claiming Emergency Unemployment Compensation increased by 82,364 for the week ending Sept 5., demonstrating that people remain out of work for longer periods of time.
The government is spending its fiscal stimulus dollars more quickly than expected. Just $1 billion of the $49 billion set aside for states and localities remains. The majority of the money spent so far has focused on extra Medicaid and education funding.
Good morning. Let's start right with your wallet, OK?
Bank of America and JPMorgan Chase have backed off on some of their stiffest overdraft penalties. The banks are wary of a movement in Congress to end the nasty surprise of learning you spent $30 on a cup of coffee -- because you paid with a debit card and your account was overdrawn. The banks' new plans limit the number of overdraft charges in a single day and give consumers a chance to choose overdraft protection.
Treasury Secretary Tim Geithner's due on Capitol Hill today, where he's expected to push for a Consumer Financial Protection Agency.
The Federal Reserve Open Market Committee emerges from a two-day meeting today. Investors want to know the same thing they always want to know, which is whether the Fed will raise interest rates. Answer: Probably not. Watch for an announcement about the economic outlook this afternoon around 2:15 Eastern.
From the Wall Street Journal: "Delayed Foreclosures Stalk Market." Or as Calculated Risk puts it, "The foreclosures are coming. How many and when is the question." The early bet is upwards of three million in the next few years.
If you think you're mad about the state of big banking in America, meet Rep. Edolphus Towns. The New York lawmaker, a Democrat, is demanding answers about what Bank of America knew about losses at Merrill Lynch as it bought the investment firm last year.
Pushing his own plan for regulatory reform, Sen. Chris Dodd (D-Conn.) is digging in for a fight with fellow Dems Rep. Barney Frank of Massachusetts and President Barack Obama. Dodd wants to combine the Federal Reserve, FDIC, Office of Thrift Supervision and Office of the Comptroller of the Currency into one super-regulator, an idea at odds with proposals by the Obama administration and Frank.
Inflation watchers, behold the slack in the American economy. Ahead of the Federal Reserve's meeting this week, the Wall Street Journal visits Bend, Ore., where 29 percent of the homes are vacant (gulp!) and a whole lot of downtown is for rent. Until the economy expands enough to take up that kind of slack (gulp!), the Fed's not likely to raise the benchmark interest rate from its record low of zero to 0.25 percent.
Whole Foods is considering banning personal checks at a few stores out West because they cost too much money to handle and so few people use them. Anyone remember the last time they wrote a check at the store?
The Federal Reserve is considering a new proposal that would give it final approval over policies that set pay for bankers. The Wall Street Journal reports that under the proposal, "the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk." The plan is still far from completion but would not require congressional approval.
The controversial practice of flash trading maybe facing its demise. The SEC has proposed a rule to ban the practice, which uses fast computers that allow traders to see other competitors stock orders a fraction of a second before the market.
John Thain, the former CEO of Merrill Lynch, says he should have gone to Ikea instead of renovating his company's office with a $35,000 commode. Thain spoke about the renovations in a talk at the Wharton Business School where he also defended himself against allegations that he sped up bonuses for Merill employees.
New claims for unemployment benefits fell by 12,000 last week to 545,000, according to the Department of Labor.
A department analyst says the Labor Day holiday may have influenced the larger than expected drop.
The four-week average, dropped to 563,000, but that number is still far above the 325,00 per week that economists consider healthy.
Meantime, the Commerce Department says housing starts rose in August by 1.5 percent. The number is nearly 30 percent below the August 2008 rate, but it's the highest level since November.
The number of building permits also increased 2.7 percent last month.
The core index, all items except food and energy, rose just 0.1 percent last month. The slight increase shows inflation maybe re-entering the economy, but not at the rate some investors were expecting.
Energy prices rose 4.6 percent last month, led by gasoline which climbed 9.1 percent. Food prices rose 0.1 percent, while new vehicle prices fell 1.3 percent.
Retail sales jumped up 2.7 percent last month, thanks to the largest increase in auto sales in nearly eight years. Sales at automobile dealerships and parts stores increased 11 percent, largely due to the government's cash-for clunkers program. Purchases not including automobiles also rose by 1.1 percent.
Citigroup wants to reduce the government's stake in the bank. The Wall Street Journal (sub req'd) reports that executives are working on plans for a multi-billion-dollar stock offering to the public.
Wholesale prices paid to factories, farmers and other producers were up 1.7 percent in August. Energy costs rose 8 percent, led by gasoline.
President Obama is making his way to Wall Street today on the anniversary of the collapse of Lehman Brothers. The president's remarks will focus on efforts to wind down emergency lending initiatives started in the wake of the economic collapse. Also today, the Treasury Department will also release a 33 page document detailing their future plans, called "The Next Phase." (Bonus: The New York Times has an interactive graphic detailing bailout costs to date.)
The U.S. and China have engaged in a tariff battle over tires and chicken. The New York Times reports that China's commerce ministry is now investigating "certain imported automotive products and certain chicken meat products originated from the United States to determine if they were being subsidized or 'dumped' below cost in the Chinese market." The announcement follows President Obama's decision on Friday to levy tariffs of up to 35 percent on tires from China.
Russia's central bank has lowered its main interest rates by a quarter point and is planning future rate cuts. The bank reportedly wants to return the refinance rate to the all-time low of 10 percent in reached in June 2007. Russia's economy is facing a severe slump, the country's output dropped a record 10.9 percent last quarter.
Morgan Stanley's getting a new boss, lawyer James Gorman, in what's being called a "massive cultural shift" away from rewarding the top spots to high-earning investment bankers and traders.
The Wall Street Journal (subs. requ'd.) reports that prosecutors are reportedly set to impanel a grand jury to consider indicting former AIG exec Joseph Cassano, whose AIG Financial Products group nearly caused the insurer to collapse last year.
New claims for unemployment benefits fell by 26,000 last week, to 550,000, the Department of Labor reports. The four-week moving average fell by 2,750, to 570,000.
We're still far outside what economists consider a healthy range of 300,000 to 350,000 new weekly claims. The sheer duration of joblessness is becoming its own factor, driving the overall jobless rate upward even as new claims fall. People who've been laid off face a record-low number of openings and are beginning to exhaust their benefits.
As of August 29, some 6,088,000 million people were collecting unemployment benefits, down from 6,247,000 from the week before. As of August 22, another 3,102,877 people were receiving Emergency Unemployment Compensation, a federally funded program that allows for 33 additional weeks of benefits in high-unemployment states. The emergency benefits rolls grew from 3,029,668 the week before.
Meanwhile, the U.S. trade deficit grew by 16.3 percent to $32 billion from June to July, the Commerce Department reports. If that looks like a big jump, it's because it is -- the biggest percentage jump in a decade, AP reports.
In a sign that consumer demand made something of a rebound, imports grew by 4.7 percent, the biggest increase since at least 1992. Exports also grew, by 2.2 percent. Part of the increase in imports came from rising oil prices, which pushes the dollar value of imports up. Also leading the way were imports of cars and car parts, with a 21.5 percent spike as Cash for Clunkers drew customers into showrooms and factories started production again.
After the jump, more headlines worth your attention.
Good morning. Former Federal Reserve chair Alan Greenspan tells the BBC that a global economic crisis "will happen again". Greenspan says people in prosperous times can't stop themselves from believing that leaner time are inevitable.
Surprising words from the Financial Times, which reports that Goldman Sachs CEO Lloyd Blankfein has attacked some investment banking products for lacking "social utility" -- or as the FT paraphrases it, for being "socially useless."
The New York Times reports that 2.8 million households are carrying interest-only mortgages that will soon become a lot more expensive. The loans looked like a great deal when home values were rising. Now, not so much. As NPR's Chris Arnold reports, the threat of foreclosures remains a big, big problem for banks.
Good morning, and welcome back from the holiday weekend.
The United States falls to second place in the World Economic Forum's new Global Competitiveness report. The WEF says Switzerland moved into first place as the U.S. markets have been looking weaker over the past year. Singapore comes in third.
China is taking steps toward making its yuan an international currency. First up: Offering investors in neighboring countries a chance to buy Chinese government bonds.
A week ahead of the first anniversary of the Lehman Brothers collapse, economists are wondering what the heck happened. Paul Krugman took his gargantuan pass at it over the weekend. Krugman argues that the profession mistook the beauty of mathematical formulas for ground-level truth. Nancy Folbre goes a step further, arguing that economists mistook the market for the economy.
On the ground now: new signs that businesses are feeling mighty enough and confident enough about the future to pursue mergers (even hostile ones).
Bernie Madoff was "astonished" that investigators with the Securities and Exchange Commission failed to uncover his Ponzi scheme after questioning him in 2006, the agency's watchdog reports.
U.K. Prime Minister Gordon Brown is watching the unraveling of that $1 trillion global economic rescue package he brokered at the April meeting of the G20. Countries like Germany are worried that the stimulus plan has them taking on too much debt and risking inflation. Some $200 billion of the agreed-upon money still hasn't come in, including $75 billion pledged by the European Union.
Good morning, especially for BP. The British petroleum group says it has made a "giant" discovery of oil in the Gulf of Mexico southeast of Houston. The Tiber field could go into production in 2014. The Financial Times explains that oil production in the U.S. is especially valuable because you can sell directly to the world's biggest market and because financial and regulatory terms are more reliable.
Overall auto sales hit a 15-month high in August. The biggest winner was Ford, with sales 17.2 percent higher this year than August 2008 -- the Ford Focus was one of the most popular buys in the Cash for Clunkers program. Dragging behind were General Motors and Chrysler. They each sold more last month than in July, but GM's year-over-year numbers were down by 20.1 percent and Chrysler's by 15.4 percent.
The Challenger jobs report shows the employers cut the least number of jobs last month since September 2008. The Bureau of Labor Statistics releases the official August unemployment report on Friday.
The Mortgage Bankers Association is asking Congress to break Freddie Mac and Fannie Mae into several smaller, privately held companies whose securities are backed by the U.S. government.
Morning! Bank of America, which has ranked high on a list of banks that have gotten TARP bailouts and paid nothing back, is moving to repay some $20 billion. That's not money from its $45 billion in Treasury aid, but from supplemental aid when BofA need a nudge to finish buying Merrill Lynch.
The Federal Reserve won a court stay of an order that it release the names of banks who got help from its emergency lending programs. The Fed says revealing the information could cause a run on the banks. James Kwak of Baseline Scenario's not buying it.
Meanwhile, in the latest salvo over banking regulation, FDIC chairwoman Sheila Bair ably defends her turf against the idea of a "super-regulator" who would curb some of the power vested in agencies like hers.
And China's putting the squeeze on exports of rare-earth minerals like terbium. The move forces manufacturers to set up shop in the nation instead of locating production elsewhere.
Good morning and welcome to the last week of summer.
The U.S. taxpayer is turning a profit on some of the bank bailouts. Eight of the biggest banks have paid off their TARP loans, with a $4 billion and average 15 percent annualized return. American Express and Goldman Sachs top the list of bigs with big returns for the common person. Citigroup and Bank of America top the list for bigs that haven't paid back a cent.
Meanwhile, the Wall Street Journal (subs. requ'd.) notes that the FDIC has backed most of the risk on $80 billion as it tries to get solvent banks to buy up the assets of failing ones.
Eurozone prices fell again in August, for the third straight month of negative inflation. The fall was at least slower than it has been, likely because oil prices are falling at much slower clip.
Good morning. Shares of AIG have quadrupled in price over the last four months. Inquiring minds want to know why. Meanwhile the new CEO, Robert Benmosche, tells the Wall Street Journal (subs. requ'd.) he's content to wait up to three years to sell off the insurer's assets and pay back the federal government bailout money that could amount to $173 billion. The U.S. owns 80 percent of the troubled insurer.
A range of 300,000 to 350,000 is considered healthy. (Source: U.S. Department of Labor)
By Laura Conaway
Good morning, or what passes for it.
The U.S. economy was shrinking at annualized rate of 1 percent in the second quarter of this year, the Bureau of Economic Analysis reports today. The bureau confirmed the advance number it gave on July 31 for U.S. gross domestic product, or GDP, which measures all economic activity. That advance figure often changes in later reports, but not this time. In the first quarter, the economy was shrinking at a yearly clip of 6.4 percent.
New seasonally adjusted claims for unemployment insurance fell last week to 570,000, from a revised figure of 580,000 the week before, the Department of Labor reports. This decline ended two straight weeks of rising claims, after six weeks of falling.
The four-week moving average, generally a less volatile number, fell by 4,750 to 566,250. That's 90,000 lower than the peak in April. Economists consider a healthy number of new weekly claims to be between 300,000 and 350,000.
After the jump, the bigger picture on unemployment.
Banks in France have agreed to curb bonuses, with penalties for traders who lose the firms' money after getting big paydays (Wall Street Journal, subs. req'd.). Also, never mind the puny uptick in U.S. consumer confidence yesterday -- a German index of businesses finds confidence rising for the fifth straight month, to levels not seen since before Lehman Brothers collapsed in September. That's what happens when your economy's growing, I guess.
Ford is on the verge of a deal to sell a dormant plant that once made gas guzzlers to a pair of green energy concerns, including a solar panel manufacturer. The Detroit Free Press reports the $1 billion conversion to an alternative energy park could be worth 4,300 jobs in the local economy.
And remember, you can still join in this week's fun of arguing the validity/ridiculousness of the "peak oil" theory, which holds that the world will start running out of oil -- and may already have begun doing just that. Start here, then forge ahead.
Federal Reserve Chairman Ben Bernanke looks set for another go around. (Chip Somodevilla / Getty Images)
By Laura Conaway
The news today is a man: Federal Reserve Chairman Ben Bernanke. The head of the U.S. central bank is being nominated for another four-year term by President Obama. The announcement is expected this morning around 9 a.m. Eastern. Bernanke, whom Obama credits with staving off the Great Depression 2.0, still needs Senate confirmation.
Meanwhile, a court order says the Federal Reserve must name the financial firms it loaned money to during the economic crisis. The decision comes in a Freedom of Information suit by Bloomberg News.
The White House budget office and the Congressional Budget Office release reports this morning that are expected to predict giant federal deficits. The 10-year forecast calls for something like $9 trillion in red ink.
China has gotten the jump on the market for solar energy technology, in part because of Chinese government support for the industry. Chinese companies are planning production in the U.S. They've cut the price of solar panel nearly in half over the last year.
Advisers to GM are urging the automaker to keep its Opel line instead of selling it to the international companies vying for it. The idea is to give GM a larger presence overseas.
Morning! The world's central bankers signaled their intent to keep interest rates low after their annual confab in Wyoming. The bankers say they can keep rates low and spur growth without risking inflation for perhaps a couple more years.
Labor unions, including autoworkers, could benefit from a $10 billion provision tucked into Congressional bills for overhauling health care. The Detroit Free Press reports that the measure "would see the government -- at least temporarily -- pay 80 cents on the dollar to corporate and union insurance plans for claims between $15,000 and $90,000 for retirees age 55 to 64."
And you've got a few hours left before the government's $3 billion Cash for Clunkers program shuts down later today -- if you can find a dealer who's still taking part. The Detroit Free Press says many dealers have given up because of problems getting reimbursed.
If you have a clunker you want to trade in for cash, you better do it this weekend. The Obama administration announced last night that they'll be ending the popular 'Cash for Clunkers' program on Monday evening. The abrupt end comes after dealers complained of long delays in getting rebate money from the government. The administration needed to wind down the program in order to avoid going over their $3 billion budget. Overall, the program seems to have been a successful shot in the arm for the auto industry -- it's generated over 457,000 auto sales so far, and caused some automakers to increase production.
Meanwhile, Starbucks, which has been hit hard by the recession and increased competition, announced that it has raised prices on frappuccinos, macchiatos, and other "complex" drinks by up to 30 cents in some cities. At the same time, they've decreased the price of more basic drinks by 5 to 15 cents each. You know there's something wrong anytime a seemingly-ubiquitous coffee giant makes a price change (and is closing down stores). Perhaps this American institution could use a bailout?
It looks like foreclosure rates are spiking in areas that were relatively unscathed before, according to a realty data firm called RealtyTrac. Large amounts of foreclosures are popping up Idaho, Oregon, Utah, and Illinois -- places that didn't have the same level of subprime lending as states like California. This time around, it's not just folks who took out bad loans: the culprit now is unemployment and a prolonged recession making it more difficult for people to make mortgage payments.
An update on Guaranty Financial: Reuters reports that a consortium that includes financial services executive Gerald Ford and several private equity firms has put in a bid for the the struggling bank. Reuters' sources also say that there have been a number of other bids. If a deal goes through, we may not be facing another big bank failure after all.
U.S. prosecutors have charged a man with stealing data related to 130 million credit and debit cards -- the largest case of identity theft in American history. Authorities have accused Albert Gonzalez and two other unnamed Russian partners of hacking into retail payment systems for major nationwide chains, like 7-Eleven, and trying to sell the data. According to prosecutors, Gonzalez was once an informant for the Secret Service, helping them track down hackers.
On the auto-industry front, after months of negotiations, GM has signed an agreement to sell Saab Automotive to to Sweden's Koenigsegg Group. Details of the plan haven't been released, but representatives from both companies say they require an injection of cash into Saab from the European Investment Bank. Since the deal requires government money -- at one point Saab pegged the figure at $600 million -- it won't officially go through until it gets approval from the European Commission.
Laura's on a much needed vacation this week, so I'm back at Planet Money HQ to help on the blog.
Last week, we posted a scary chart showing plummeting Japanese wages. This week, there's some good news for Japan -- their recession is over. Japan is the world's second-largest economy, and this recovery comes after four successive quarters of negative GDP growth. Let's hope an increase in wages will come out of this.
Welcome to a gorgeous summer Friday (in New York, at least). Here's what has caught my eye:
Ford seems to be drawing a diagram of Keynesian economics at work. Ford says it will build 18 percent more cars and trucks this quarter to meet demand created by the government's now $3 billion Cash for Clunkers program.
Japan is stuck in neutral, the Economist says, in a great look at what's wrong with one of the world's more important economies. I'll drop a chart of scary Japanese wages after the jump.
Foreclosures are up in Illinois, and this time they're coming for the rich folks. Calculated Risk wonders what the fix might be.
For those who need to catch up on the Colonial Bank debacle, which could become the most expensive FDIC takeover of the year, check out Floyd Norris' column in the New York Times. Norris notes that Colonial met government standards for being "well capitalized" in March. "How could a bank be well capitalized and facing government orders to find more capital?" he asks.
Finally, if this whole health care debate is getting you down, check in with Baseline Scenario. James Kwak unloads about the opposition from American seniors to government care, which they've had since the 1960s. "But hey, it's a democracy, and people don't have to wish for others the benefits they themselves enjoy," he writes.
Call it a mighty .3 percent. France and Germany report their economies were each growing by that much between April and June. Feast on the headline: "France and Germany Exit Recession." The overall eurozone economy was still contracting, a .1 percent. Last quarter, the U.S. economy was shrinking at a pace of 1 percent.
The FDIC has forced Citigroup to hire external consultants who'll decide whether management, including CEO Vikram Pandit, is up to the task.
The Commerce Department says retail sales fell by .1 percent in July. Economists in a Thomson Reuter survey said they'd expected a gain of .7 percent. Auto sales rose by 2.4 percent, its biggest jump in six months and owing largely to the Cash for Clunkers program.
Almost 5 million of America's most polluting cars got left out of Cash for Clunkers, the L.A. Times reports. That's because the classic car lobby persuaded the government to exclude cars made before 1984. Collectors didn't want to see them destroyed, and auto parts dealers didn't want to lose their business.
And major food companies have warned the U.S. Agriculture Department that the nation could run out of sugar (WSJ, sub. req'd.) if it doesn't ease up on import restrictions. The food co's also threatened to jack up prices and lay off workers.
It's easy enough to guess -- or find out -- the price of a gallon of milk or a loaf of bread or even a house. With medical procedures, that's far, far from the case. "It's the wild, wild West when it comes to prices of anything in the U.S. health care system, whether for a doctor visit or for hospital charges," Dartmouth health economist Jonathan S. Skinner tells the New York Times. The Times reports on a new survey by America's Health Insurance Plans, which finds that insurance companies are just as sick as consumers of getting hit with very big bills.
Commercial lender CIT predicts a loss of more than $1.5 billion for the second quarter of 2009, but says its bondholders aren't pushing for bankruptcy.
The Obama administration awarded $20 million in stimulus funding for a program to compress carbon for storage instead of releasing it into the atmosphere. The Washington Post reports that Big Coal is betting its future on just this kind of carbon capture.
Among the numbers we'll be seeing this week is the nonfarm productivity report from the Bureau of Labor Statistics. Due out today, the report gives a sense of how occupied workers have been lately. Economists expect a jump of more than five percent, which is a big deal because the length of the average workweek has been dragging around in record-low territory for a couple of months now. The recent round of corporate earnings reports showed many companies generating profits by laying off workers -- if the remaining workers are growing busier, that offers hope that employers will tiptoe back toward hiring.
Ah, but the news. Big pay for bankers is back, in the form of the oxymoronic "guaranteed bonus." We'll see what the new pay czar, Kenneth Feinberg, says about that.
A new research paper says Americans will spend the next 20 years turning away from sprawl and homeownership and toward filling in those donut cities created by suburban flight.
We're all about the July unemployment numbers, due out at 8:30 today. But there are a few others worth your attention:
The recession appears to be affecting the U.S. birthrate -- since 2007, the nation has seen about 2 percent fewer babies born.
The former head of AIG, Hank Greenberg, has settled with the SEC over charges that he manipulated earnings reports. Neither admitting nor denying wrongdoing, Greenberg agreed to pay $15 million. Meanwhile, AIG clocked a profit of $1.82 billion (WSJ, subs. requ'd.)last quarter, after losing money for six straight quarters. Congratulations, Uncle Sam, which owns 80 percent of the insurer.
Well, well, well. We're at 24 hours and counting down until the July unemployment numbers come out, and here come the guesses.
Meanwhile ... U.S. Treasury Secretary Tim Geithner has moved from cursing out financial regulators in private meetings to openly castigating them for objecting to the administration's plan for overhauling financial regulation. Geithner tells the New York Times that the FDIC and SEC and every-doggone-body else has got to stop with the turf wars and start with accepting the proposal for a new systemic regulator.
James Kwak upsets your morning coffee with his bracing argument "You Do Not Have Health Insurance." Read it. I bet you'll see his point.
The U.S. Senate appears ready to pass a $2 billion extension of the Cash for Clunkers program. The Obama administration is considering using a good bank/bad bank approach to give Fannie Mae and Freddie Mac a clean start. (Links via Calculated Risk.)
Deutsche Bank says nearly half of all homeowners will owe more than their houses are worth by 2011, nearly doubling the number of folks who are underwater.
And finally, a supermarket in the U.K. has upset vegetarians with its plan to generate electricity by burning old meat. In the U.S., some coffee shops are locking up the electrical outlets -- between the laid-off folks bringing in laptops and proprietors needing to save money and turn tables, that's two economic indicators in one.
The U.S. Bureau of Labor Statistics is set to release the unemployment rate for June on Friday.
You can track it ahead of time in the moves by the Obama administration today. Vice President Joe Biden is off to Michigan, where the state unemployment rate of 15.2 percent is way, way worse than the national one of 9.5. If you're looking for the worst rate by metropolitan area, head to Elkhart County, Ind., with 16.8 percent in June. Elkhart County is getting President Barack Obama today.
Meanwhile, junkyards are competing for Clunkers cast off for Cash. New York City says Lehman Brothers owes it $627 million in taxes, dating back to 1996. Economists are raising their predictions for the economic growth in the second half of this year -- a Wall Street Journal (subs. requ'd.) roundup has them generally in the neighborhood of 2 percent to 3 percent.
In the news this morning, the Economy economy and the economy we live in:
-- For the first time since November, the S&P 500 closed above 1,000 Monday, and the TED Spread keeps falling as investors and bankers are breathing a little easier these days. The U.S. Treasury says it will need to borrow $109 billion less than expected in the third quarter because banks have paid back more than $70 billion in TARP money (Wall Street Journal, subs. req'd.). The CEO of Goldman Sachs, Lloyd Blankfein, reportedly told his folks to avoid flashing their bonus cash with big purchases around town. Also, Treasury Secretary Tim Geithner apparently cursed out a bunch of financial types -- including FDIC chair Sheila Bair and SEC chair Mary Schapiro on Friday, telling them he'd had enough of their objections to the Obama administration's proposed overhaul of financial regulations (Wall Street Journal, subs. requ'd.).
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 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.
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.
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.
Recessions have a miserable tendency to curb everyone's ambitions. Four examples:
President Obama's $787 billion economic stimulus plan may not be big enough to offset the loss in jobs, and in any case a disproportionate share of its transit spending is going to rural areas instead of the major metropolitan areas at the heart of the American economy.
California, facing a $26.3 billion deficit, is struggling to pay for all the punishment its lawmakers (and citizen lawmakers) want meted out to criminals. It has turned loose dozens of parole violators with less than 60 days left on their terms.
Welcome to July, and a week of waiting for the latest lab reports on the economy.
The June figures on manufacturing are due in later today, from the Institute on Supply Management. The Wall Street Journal picks apart the consensus forecast -- still shrinking, but more slowly -- and says we've still got inventory to burn before factories crank into gear again.
The Bureau of Labor Statistics releases the June unemployment figure on Thursday. Meanwhile, the private ADP payroll report shows the U.S. job market shedding 473,000 gigs in June. With an average loss of 492,000 jobs a month for the last three months, we're still falling, but more slowly.
In the wake of Bernard Madoff's sentencing yesterday, the AP reports that federal authorities have begun an investigation into ten of Madoff's associates. Up until now, only two people have faced criminal charges -- Madoff himself, and an accountant, David G. Friehling, who is accused of aiding in the fraud. There are no details on who the ten are, but it appears the circle of blame for the massive Ponzi scheme is about to get wider.
Consumer spending rose in May for the first time in three months. The increase came as incomes jumped 1.4 percent. The jump in incomes is partially due to reductions in payroll tax witholding that were part of the stimulus package.
Consumer spending is an important factor in judging the health of the economy because it accounts for 70 percent of total economic activity. Meantime, the savings rate increased to 6.9 percent, the highest level since December 1993.
A bankrupty luxury development in McDonough, Ga. Jessica Nitti
The Census Bureau says sales of new one-family homes fell 0.6 percent last month to an annual rate of 342,000. Sales are down 32.8 percent from the same time last year. New homes for sale in May had been on the market for an average of 11.5 months.
Meantime, orders for durable goods were up 1.8 percent in May. The increase was the third in the last four months. The Commerce Department says machinery had the largest jump, a 7.7 percent increase in new orders from April to May.
The National Association of Realtors says sales of previously owned homes rose 2.4 percent last month. Falling prices and increasing foreclosures are likely the reasons for the jump -- the median home price fell 17 percent last month while foreclosure filings surpassed 300,000.
Tax breaks for first-time buyers are also helping out the market. Of the people who bought homes in May, 29 percent were first-time buyers. President Obama's stimulus plan includes an $8,000 tax credit for people who purchase their first home before December 1.
The economy may not be doing as well as some thought. This morning, the World Bank changed its forecast for global growth to a 2.9 percent decline -- a more gloomy prediction than their previous forecast of a 1.7 percent decline. Essentially, the bank is saying that things are going to get worse before they get better, largely because of shrinking investment into developing nations.
The United Nations General Assembly will be holding a conference on the global recession's impact on these developing nations later this week -- and we'll be there to find out exactly how hard they've been hit and how they hope to recover.
Personal income in the fastest growing state, Hawaii, was up 0.8% while personal income in the next fastest growing state, Virginia, grew 0.3%. Earnings growth in these states was concentrated in the federal civilian and military sectors and was accounted for by first-quarter pay raises as well as some initial hiring for the 2010 Census.
Meanwhile, R. Allen Stanford, who is under investigation for an alleged $8 billion dollar ponzi scheme, surrendered to the FBI yesterday outside of his girlfriend's home. He's set to appear in court today. Up until now, the only person from Stanford Group Co. to face criminal charges is his chief investment officer, Laura Pendergest-Holt.
Housing continues its slow climb back to normal. The U.S. Census Bureau and the Commerce Department report building permits were up in May by 4 percent over April, though still down 47 percent from the year before.
Housing starts were up 17.2 percent last month, though down 45.2 percent from the year before.
The U.S. still has way too much unused housing, but hey, we got ahead of April. "The inventory overhang means any recovery in building will be very muted for an extended period, but at least the very worst is over," writes Ian Shepherdson of High Frequency Economics, who's usually first to land in the Planet Money inbox.
In suburban Arizona, false alarms in abandoned houses are giving local fire departments fits. From ABC 15:
"Neighbors can hear the alarm so they call us, but when we get up to the home, it's vacant, locked up and we're unable to access them," said Kevin Pool, assistant chief with the Surprise Fire Department.
There's nothing to do but wait until the batteries run out.
Meanwhile, Paul Krugman has some advice for the folks warning about inflation and calling for President Obama to step back from stimulating the economy: Not yet. Krugman writes:
It's much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.
In Detroit, the Supreme Court's hold on the bankruptcy sale of Chrysler to Fiat looks like a "bump in the road" or maybe a "television time-out in the last 30 seconds of a basketball game."
The hometown paper says Justice Ruth Bader Ginsburg, who issued an order Monday holding up the sale and who typically fields appeals from the bankruptcy court in New York, could still decide the matter herself.
In Indiana, home of the pension funds seeking to block the Chrysler sale, the state treasurer tells the Indianapolis Star why he's fighting over $6 million. Richard Mourdock says, "If the changes that the federal government has made indiscriminately go through, the capital markets of the United States are at risk."
Meanwhile, the New York Times goes all-out on economic tensions inside the European Union. It's worth a read, and never mind that odd lead photo of the mom with her hand over her baby's face.
On days like this, I love to read the hometown paper. Detroit's Free Press is filled with the hard news and the soft love as it covers General Motors' move into bankruptcy. My favorite bit, from the editorial page:
There's a clear message -- no, let's call it a mandate -- for Michigan in these events that are rocking the state's economic foundations. Nothing stays the same through this kind of process. Hard choices have to be made. Survival can be a powerful motivator.
Survival can be a powerful motivator. That's my new mantra, with the banks under TARP eyeing the exit, EU unemployment hitting 9.2 percent, and Tim Geithner grinning and bearing it in Beijing.
Judge Arthur Gonzalez has cleared the way for Chrysler's move out of bankruptcy by approving its new incarnation as a company owned by Fiat, UAW retirees, the Canadian public and U.S. taxpayers. As the Detroit Free Press reports, at least $4 billion of the $8.9 billion in U.S. federal aid so far will not be repaid.
Meawnhile, GM has filed for bankruptcy. From the DFP:
The U.S. government has promised to shepherd GM through Chapter 11 in a plan that will see the company sell off its good assets to a new GM, while the less desirable assets are expected to remain in bankruptcy to be liquidated. The U.S. Treasury plans to provide an additional $30 billion to finance GM during its bankruptcy.
That will bring the total amount of federal money lent to GM to around $50 billion.
The Wall Street Journal greeted us with a roundup of the world's shrinking economies. In the first quarter, the U.S. was falling at 6.3 percent, Germany at 14.4, Japan at 15.2, and Mexico at 21.5. With America's biggest trading partners in that kind of swoon, it's no wonder the recession just keeps dragging on.
Layoffs continue to pile up, if more slowly. The Department of Labor reports 631,000 new claims in the week ending May 16, down 12,000 from the revised figure the week before. That means some 6,662,000 are drawing unemployment benefits. Economist Ian Shepherdson of High Frequency Economics notes that last week's numbers were revised upward, which suggests that "the underlying pace of claims is not slowing as much as appeared to be the case a few weeks ago."
Whatever the numbers, there's a whole lot of hurt out there. Glenn writes:
Shoppers spent 11.4 percent less in April 2009 than in April 2008, and .4 percent less than they had in March, the Census Bureau reports. As a category, retail and food fell 10.1 percent from last year.
Which brings us to the news from San Jose. From the AP:
An office worker cleaning a fridge full of rotten food created a smell so noxious that it sent seven co-workers to the hospital and made many others ill.
Firefighters had to evacuate the AT&T building in downtown San Jose on Tuesday after the fumes led someone to call 911. A hazmat team was called in. What crews found was an unplugged refrigerator crammed with moldy food.
Here's our question: Were more people bringing lunch to work and trying to save on buying food out? But if that's true, then why were so many lunches left to rot?
As it prepares to release the results of its stress tests tomorrow, the government has told Bank of America it needs $33.9 billion more in capital -- money it could either raise privately or derive from converting the preferred shares Uncle Sam holds now into common voting stock. Citigroup's reportedly on the hook for about $10 billion -- the smaller number comes in part because Citigroup already plans to swap the stock around. Reuters says the deals not done yet:
Citigroup may need less if regulators accept its arguments about its financial health.
Earlier this week, Brad DeLong won the prize for clarity on that point:
The banks should not be negotiating with the government over this.
From the auto industry's hometown paper: "Chrysler bankruptcy slams state." Whatever the company's long-term viability, reports the Detroit Free Press, in the short run "pain rained down on metro Detroit." Like this:
Three metro Detroit plants -- Sterling Heights, Detroit Axle and Conner Assembly -- are to close by December 2010, along with three other U.S. plants. While Obama billed it as a "surgical" bankruptcy, stamping plants in Sterling Heights and Warren shut down Thursday afternoon because suppliers stopped shipping parts out of fear they won't be paid.
Chysler plans to close all its American plants for 60 days, starting Monday, while it gets reorganized.
This comes as the Treasury's stress test results are approaching their due date next week. Bloomberg reports that the extra capital could come converting the preferred stock the U.S. already owns in banks into common shares. It's a strategy that economist Simon Johnson told us amounts to an accounting trick, since it doesn't actually create more money.
Converting preferred shares to common ones does shift the government's position, though, from that of a lender to that of an owner, and in some cases a majority owner. Common shares come with voting rights, for one thing. Also, the owners of common shares wait much further down the line of folks to be paid if the company (or bank) goes kaput.
With Congress signaling that it's unlikely to fork over more millions for bank bailouts, troubled banks may have no choice but to seek new private investors and/or convert the government's shares. Once the government's in the position of common stockholder, one question will be whether it could afford to let a bank fail -- since the taxpayer would be at the same risk of losing money as any common stockholder in any bank.
People, people, let's not freak out over this swine flu thing, OK? Being prepared is one thing, but panic is just not helpful.
"Everyone is running around like a chicken without head," writes Carl Weinberg of High Frequency Economics. "The writing of economic analysts on bird flu bordered on science fiction. . . as does more recent analysis of a flu pandemic."
Weinberg cites a World Bank paper on the H1N1 that says a pandemic could kill 71 million people. But we're here for the money: The paper says a pandemic could pull $3 trillion from the global economy -- just under 5 percent. Weinberg writes: "The report astutely notes that losses of that magnitude would throw the economy into a depression. With advice like that from the World Bank, no wonder the financial markets have swooned at the first sign of the disease. (Emphasis his.)
To help you make sense of the outbreak, NPR has launched a blog called Flu Shots.
General Motors is likely to close most of its U.S. factories for up to nine weeks this summer. The automaker typically closes its plants for two weeks during the summer months. This time NPR reporter Frank Langfitt says the long break has to do with overwhelming inventory. "They don't want to keep pumping out products people aren't buying and...filling up those dealer parking lots," Langfitt told Morning Edition.
While GM has not said which plants will shut down, the Detroit Free Press reports that workers at a plant in Orion, Michigan ,which makes the Pontiac G6 and Chevy Malibu, have been told the factory will closed for May and half of June. As for what will happen to GM workers, the Free Press says UAW workers will receive state unemployment benefits and "company supplemental pay that roughly equals about 70% of their gross pay."
Some days, it's hard telling whether you're being more responsible by looking at the news or away from it. Police say David Kellermann, the 41-year-old chief financial officer of Freddie Mac, killed himself in the basement of his Virginia home this morning. And investigators in Maryland now say the strain of debt and foreclosure may have played a role in a father's killing of himself, his wife and their three children last week.
If you prefer the news in numbers, take two: The IMF estimates that banks and other financial institutions worldwide will lose a total of $ 4.1 trillion in the financial crisis, against the $1.1 trillion the G20 pledged for the recovery.
Or, you could consider the opportunities a little farther afield.
This is why we need print newspapers. On page one of the New York Times business section today, Floyd Norris swims around in the question of why the good-hearted bankers of Goldman Sachs feel so unloved -- might have something to do with that $1.8 billion profit they just posted after receiving $10 billion in TARP money and another $28 billion borrowed with a guarantee from the FDIC, he writes.
Not to mention the $13 billion the firm got from AIG, out of the insurer's bailout funds.
I let my eye wander over to the lower right of the page, for this headline: "AIG Chief Has Millions in Goldman." Edward M. Liddy holds $3 million in Goldman stock, which the paper says he got for serving on the bank's board and audit committee until he took the AIG job in September. His press person told the Times that the stake represents:
"a small percentage of his total net worth."
I think that's supposed to make the public feel better about it. I think.
The Obama administration's new idea gives you a chance to get in on the action: bailout bonds. The New York Times reports that they'd be sort of like the war bonds:
The idea is that these investments, akin to mutual funds that buy stocks and bonds, would give ordinary Americans a chance to profit from the bailouts that are being financed by their tax dollars. But there is another, deeply political motivation as well: to quiet accusations that all of these giant bailouts will benefit only Wall Street plutocrats.
Plus: Unemployment claims hit an all-time high, and Warren Buffet's Berkshire Hathaway gets downgraded.
Some days I feel optimistic about the economy, and others I suffer a sinking sense that we're in for a very long haul. Today, at my breakfast table, I met both in one newspaper. From the New York Times, a pair of headlines:
-- Economy Falling Years Behind Full Speed, in which we learn that in the last recession of this scale, 1981-82, the U.S. took seven years to regain all the ground lost.
It's the last part that sticks with me, I guess. We've been hearing it most directly from economist Howard Rosen, who says he's worried about what happens after the downturn levels out or reverses. Will we see a jobless recovery, as we did in after the 2001 recession? For Rosen, the sheer scale of unemployment -- and underemployment -- matters.
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.
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.
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.
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?
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.
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.
Fridays often bring a flood of economic numbers -- lately, most of them are awful. Today, we also have lots of news.
Economy shrinks at fastest pace in 25 years: The government first estimated the fourth-quarter contraction as an annualized 3.8 percent. Economists expected that to be revised to 5.4. The final number: 6.2. Youch!
Government to take bigger stake in Citigroup: The U.S. will get as much as 36 percent of the corporation, with Citigroup converting up to $25 billion of the government's $45 billion in preferred stock to common stock. This makes Citigroup look better by upping its level of "tangible common equity."
Plus: President Barack Obama has turned in his first budget -- with its $1.75 trillion deficit. The Washington Post calls it "eye-popping." If you're thinking about national debt, you might start with "National Debt for Beginners," a primer from Simon Johnson and James Kwak of Baseline Scenario.
Unemployment claims have hit a 26-year high. Calculated Risk brings the cool charts. Me, I'm taking the news straight up -- thanks to the morning note from High Frequency Economics' Ian Shepherdson:
Jobless claims jumped 36K to 667K, a 26-year high and above the consensus 625K. Last week's claims were revised up 4K to 631K. The consensus forecast of a small dip in claims always looked like wishful thinking. The trend in claims is sharply upwards, reflecting the depth of the recession, and we see no reason for it to peak anytime soon.
For pure political gamesmanship, this was my favorite part.
I don't know what you heard in President Obama's speech last night, but I'm thinking that one was for Main Street. The president spent a lot of time talking about jobs and priorities, but said almost nothing about the details of rescuing the banks:
"You should also know that the money you've deposited in banks across the country is safe; your insurance is secure; and you can rely on the continued operation of our financial system. That is not the source of concern."
For the listeners who want to hear from an economist who doesn't like the stimulus or the bank bailouts, etc., take a look at George Mason professor Russell Roberts' reaction to President Obama's speech.
I read the news today, and what a crazy pileup. Big corporations like Citigroup, AIG, Chrysler and GM are adding billions to the tab for government intervention. The stock market's back in Smashing Pumpkins land.
Europe is in eight different flavors of crisis. Federal Reserve Chairman Ben Bernanke is set to tell Congress something about the economic mess this morning, as is President Barack Obama tonight.
If you've got good news for our Green Shoots category, please send it. Meanwhile, there's this, from Planet Money regular Simon Johnson of Baseline Scenario, who writes that in many ways the U.S. has already nationalized the banks:
We have state control of finance without, well, much control over banks or anything else . . .
The White House has released an executive summary of the Homeowner Affordability and Stability Plan -- the Main Street bailout that President Obama slated to speak about today in Arizona. Take a gander and report back in the comments, please.
Folks, we're mostly taking President's Day off, but we did get a couple of notes from economists that I thought you'd like to see.
The first, from Simon Johnson, details the collapse of a consensus on what to do about faltering U.S. banks. Johnson's open to ideas, but he's not moving on this:
"The banking lobby has become too powerful, in large part because big banks have balance sheets that are too big relative to the size of the economy. If a bank has total assets of over 10% of GDP, it is obviously too big to fail. Of course, the smart people who run these banks know this and act -- politically and economically -- accordingly."
Which brings me to the second note, from Amir Sufi, also a Planet Money guest. Sufi recommends this Business Week article arguing that banks are undermining efforts to keep homeowners in their homes. You'll notice yet another Planet Money guest is featured, bank lobbyist Scott Talbott.
Sufi writes:
"My take on all of this is that the banking industry has basically shot themselves in the foot over this issue. Even though they should WANT to facilitate renegotiations of mortgages to prevent foreclosures, their lack of foresight has led them to try and stall any meaningful government help in getting around the legal difficulties in writing down principal.
Two bits: First, retail sales stopped their months-long slide and went -- brace yourself -- UP, by one percent. Second, the number of new claims for unemployment benefits dropped a bit, but remained near 26-year high.
Ian Shepherdson of High Frequency Economics sobers everyone up this morning, starting with retail:
The underlying trend in core is still clearly downwards -- the
January core gain has to be set against five straight declines averaging 1.1% -- and there is no reason to expect any recovery soon. The headline relief today is welcome but it is unlikely to last.
Shepherdon's take on unemployment, after the jump.
U.S. Treasury Secretary Tim Geithner unveiled his plan for saving the economy Tuesday, or maybe left it in shrouds. So say the headlines -- and yesterday's falling stock market.
"The market is responding to vagueness," economist and Planet Money guest Simon Johnson told TPM Muckraker. "This is not a plan. In the annals of plan-announcing, this is very vague."
After the jump, the YouTube video so many of you want to talk about.
Today, U.S. Treasury Sec. Tim Geithner is unveiling his plan for saving the nation's banks. The Washington Post puts the eventual price tag on the various initiatives, including the so-called bad bank, at $1.5 trillion.
After yesterday's podcast about getting tougher on banks, these paragraphs from the New York Times caught my eye:
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.
The U.S. unemployment numbers for January are in, and my, my, my. We're at 7.6 percent joblessness, up from 7.2 in December.
That's 7.6 percent of the American workforce waking up today with no clear way to provide for themselves and their families, no clear sense of where or when they'll work next, no clear sense of when this will get better or which resume will finally do the trick. The Bureau of Labor Statistics writes, "Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months."
This week, we're planning to talk a lot about the Obama stimulus plan, starting with today's podcast. We're also planning to dive into the proposal for creating a single "bad bank" to buy up and sell off toxic assets.
Obama administration wrestles with the central problems of launching a bad bank. At issue: How to price the stuff no one wants. Meanwhile, the European Central Bank is planning its own "bad bank."
We asked last week whether you've changed your saving/spending habits. After the jump, a note on this from Ian Shepherdson. Plus: Keynesian report of the week.
Today's Planet Money is brought to you by the number 3.8.
That's the annualized percentage rate by which the American economy shrank in the last three months of 2008. Gross domestic product, or GDP, fell by less than expected in the fourth quarter. GDP is the sum of all the goods and services produced in this country -- as Adam Davidson likes to say, every cup of coffee bought and every house sold and every last widget made.
The new job loss numbers are in -- Ian Shepherdson of High Frequency Economics says the weekly figures are shifting, with something like 588,000 new claims for unemployment benefits last week. Shepherdson notes that 4,776,000 people are getting benefits, a new record, as hiring slows and layoffs increase:
The net result of this is soaring unemployment, and we see no chance of this picture changing in the foreseeable future. We expect net job losses of about 3 million through the first half of this year.
Calculated Risk says the U.S. situation is already as bad as it was in the 1990-91 recession.
At the World Economic Forum in Davos, global leaders are blaming the U.S. for the economic crisis. And Democrats in the House of Representatives muscled the economic stimulus bill through, which now goes to the Senate as an $819 billion package.
Big layoffs make big news. American corporations cut jobs on the order of 60,000 yesterday -- one estimate put the global figure at 75,000.
The question now is what those layoffs mean in terms of the overall economy. Yes, those are scary numbers. Yes, economists expect unemployment to rise and keep rising. But the economy creates and sheds jobs all the time. Do this week's mass layoffs wreck the curve?
One place to start understanding what economists call "churn" is with the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey -- aptly shortened as JOLT.
The news out of Reykjavik is a whopper: Iceland's prime minister says the government has collapsed. Since the economy there tanked, Icelandic protesters have taken to the streets over spikes in unemployment and prices. Hey, the Belgians went first.
Elsewhere, Britain talks recession, economists say things are getting worse, and Washington wonders about nationalizing the banks.
The Wall Street Journal says, "Earnings gloom sinks stocks." Economist Nouriel Roubini says slowing demand from China will force stock prices down all over the world.
Layoffs are piling up, with cuts at major outfits like Microsoft, Intel and Digg. Still very little news about what a union official calls nearly 3,000 layoffs at IBM, which posted a 12 percent jump in profits this week. You can peek in on the layoffs in real time on the union website.
This morning, I'm turning the mic over to Ian Shepherdson, chief U.S. economist at High Frequency Economics. Shepherdson sends two notes today. (Bonus note on deflation after the jump.)
On weekly unemployment numbers, he writes:
Jobless claims jumped by 62K to 589K, well above the consensus 543K and matching the cycle peak recorded in the week of December 20. Last week's claims were revised up by 3K. . .The labor market remains a disaster area.
Way back in the fall, economist Raghu Rajan warned us that the federal government could spend a ton of money on the bailout and yet still not spend enough to fix the problem. In today's headlines, news that two big recipients of government capital are still on the ropes. From the Wall Street Journal:
Stocks opened higher on Friday as the U.S. government injected $20 billion into Bank of America and guaranteed losses on over $400 billion in assets of both Bank of America and Citigroup.
In October, Uncle Sam invested $45 billion in Citigroup and $25 billion in Bank of America. Meanwhile, the European Central Bank just slashed the benchmark interest rate to its lowest level ever (sound familiar?) and Floyd Norris says the cheaper rate, Stateside, just might be showing signs of working.
After speaking publicly at the London School of Economics on Tuesday-- his first speech since the Fed's decision to lower rates to 0.25% in December -- Federal Reserve chairman Ben Bernanke held a 20-minute question and answer session that is available online.
Twitter listener @saalon starts us off today: The TED spread has fallen below one! This key measure of anxiety among banks crept toward the unholy height of five during the worst of the economic crisis last fall. Now, it has finally re-entered the safer zone of sub-one. It's at .98 -- the widget on our right rail should catch up soon. Meanwhile, open the bubbly, I guess.
A new report on unemployment tops the news today. The jobless rate has hit 7.2 percent, the highest since January 1993. Looking for a bright spot? Better squint.
"[T]he only possible glimmer of light is that the maximum rate of fall of payrolls is hopefully not far off," writes Ian Shepherdson of High Frequency Economics.
Joe sends this story about China cutting back on buying U.S. debt.
Thomas Beckett suggests 3 as an economic indicator, as in the number of U.S. states that suffered a crash in their electronic unemployment claims systems.
And Brent passes along this list from the Twitter feed The Media is Dying -- it's the top 10 messiest layoffs of 2008.
A big headline this morning : U.S. Auto Sales Fell 36% last month. I think headlines like that are a little unfair. It's a 36% drop when compared to last December. That's a smart comparison in steadier times. But auto sales were just as bad last month, down 36.7% compared to a year before. So are we going to keep writing headlines for the next ten months saying "Auto Sales Down 30%"?
And here's an economic indicator for you; there's less mail flowing through the U.S. Postal system.
Meanwhile, the auto repair business in Branson, Missouri is thriving.
The Planet Money minds are gathering here in DC today so we won't be tending the blog, but check back this evening -- we have a good podcast for you that includes our first ever Planet Money book review, which I'm sure will not be the usual affair since Mike Pesca did it.
Michael Lewis and David Einhorn have fired up a major op-ed in the New York Times: "The End of the Financial World as We Know It." It's long. Pour yourself a cup of coffee and dig in -- I want to know what you think of it. Here's the opening:
Americans enter the New Year in a strange new role: financial lunatics. We've been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet's college graduates seemed to want nothing more out of life than a job on Wall Street.
This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don't know what they are doing with money, who does?
Next in the line to seek government intervention: America's steel industry. The nation's steel mills stand to benefit from the incoming Obama administration's stimulus package, especially if that package includes the promised infrastructure upgrades. Industry leaders told the New York Times they want a "buy America" clause in "every provision."
In the more locally minded Wheeling, W.V., Intelligencer, the industry's request sounds more starkly protectionist. What they want is "American-made only," one United Steelworkers union official said. John Saunders told the paper that the fate of Wheeling businesses is at stake.
"We can't put a stimulus package in that will create opportunity for imports," he said. "If we could get this language, it could be the biggest shot in the arm we've had in years for Wheeling Nisshin and Wheeling Corrugating."
Good morning from the holiday crew at Planet Money. Adam and I are enjoying the peace and quiet, we think. Jonathan Kern, our genius radio editor, sends a link from the Washington Post:
The economists we talk to have been warning us about this, saying that governments might decide to protect their own factories at great risk to the world economy. Meanwhile, I woke up this morning to news I already knew, thanks to the whole Planet Money crowd: Businesses are trimming costs by slicing wages, 401k contributions, and work hours. From the New York Times:
The big news happened moments ago. President Bush announced that the government will loan automakers $17.4 billion. "The time to make hard decisions to become viable is now, or the only option will be bankruptcy," he said.
The loans have strings attached, and the companies have to come up with the restructuring plan by March 31. Note that $17.4 billion is about all that's left of the $350 billion Treasury has been authorized to spend. Time to go back for the rest of that $700 billion.
Remember we promised you we'd find out how the stock injection idea got into big bailout bill? (Adam got a mysterious late night phone call at the time telling him it was in there.) Well, we'll have the answer for you on the podcast today.
Most of the Planet Money folks are in meetings, but we'll be talking to you soon.
I'll drop more news after the jump, but first, the banner headline. From the New York Times: Fed cuts key rate to a record low. First sentence:
The Federal Reserve entered a new era on Tuesday, lowering its benchmark interest rate virtually to zero and declaring that it would now fight the recession by pumping out vast amounts of money to businesses and consumers through an expanding array of new lending programs.
We aim to talk a lot more about this on today's podcast.
Demographers like to refer to my cohort as Generation X. But anymore, when we talk about our growing up, my friends and I sound like Generation Recession. We grew up in the 1970s malaise. We graduated into the early 1990s contraction. And now we're looking at a wave of layoffs just when we're hitting the prime of our careers.
Because it's on my mind, I'll start the morning headlines with a Houston Chronicle story about school kids moving because their families have hit hard times. I'm guessing I'm not the only who has so been there.
A number of you have asked about the situation in South Korea, so we'll start there today. And where do we end? With job cuts in West Virginia, after the jump.
Morning, everyone. Those of you who've been asking about the "uptick rule," pay particular attention to the second headline. The rest of you, bad news starts at the top and continues after the jump.
Another Monday, another round of news, plus a deeper look at the Crisis from Simon Johnson's crew at Baseline Scenario. (Hat tip of the day goes to @saalon.)
From Baseline Scenario: What's causing the crisis? (Part 1, part 2)
For Americans feeling secure enough to contemplate buying a home, Uncle Sam is considering a plan to drop the interest rate on 30-year mortgages by a full point. Excited? Mortgage brokers certainly are.
With loans available at 4.5 percent, "it would be a dream come true," Silicon Valley mortgage broker Cathy Warshawsky tells the San Jose Mercury News.
Details in the linkfest, after the jump, with more to come on the podcast later today.
This is one of those days when you could spend several hours just swimming around in the headlines from the Wall Street Journal. There's a lot going on, you know?
Is it just me, or is the rescue plan for Citigroup essentially a case of Plan A meets Plan B, then bails out major financial institution?
The rescue package calls for regulators to back $306 billion in risky assets on Citigroup's balance sheet -- an amount not quite half of the original $700 billion Congress approved for buying up toxic mortgage-backed securities. Let's call that Plan A, or at least a rather loud echo of it.
Morning! We're planning to talk in-depth about what's driving the stock market down, but for now, let's just say it's going down, miserably down. Other goodies:
Four top Citigroup executives, including chief executive Vikram Pandit, bought 1.3 million shares of their company yesterday as the firm's stock slid to a 12-year low.
ProPublica, the new New York-based investigative non-profit, has a joint story with the Los Angeles Times this morning that is quite interesting.
According to confidential documents obtained by ProPublica, Goldman Sachs has been playing both sides of the coin with California taxpayers' money. On the one hand, it was making millions from fees selling California bonds.
At the same time, it appears to have been making lots of cash advising people on how to profit from California's deepening financial misery and helping push down the price of those bonds and increase the interest rate California pays on its debt.
Nothing illegal to all that. But it's not exactly the kind of financial advisor you want to bring home to Mom.
Here's an excerpt:
Goldman, Sachs & Co. urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds.
The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California's deepening financial misery. In Sacramento, officials said they were concerned that Goldman's strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.
"It could exaggerate people's worries about our credit," said Paul Rosenstiel, head of the public finance division of the treasurer's office.
It isn't one of our normal Planet Money indicators, but today we're looking at the CommSec iPod index. The index determines whether a currency is under or overvalued by comparing the cost of one product worldwide. Similar to the Big Mac index, it's based on the theory that if exchange rates are working properly, the same product should cost about the same worldwide.
According to the latest index, the cheapest place in the world to buy an iPod 8gb nano music player right now is Australia, where it costs $131.95 US dollars. The reason for the low price: the country's currency has been declining steadily, 27% in the past three months.
So how do other countries stack up? The iPod costs $149 here in the United States and $189.51 in China. The most expensive country place to buy it right now is Argentina, where it will run you $353.20. Check out the full index here.
John Francis "Jack" Welch, Jr., the famed former chairman of General Electric, has a interesting column with his wife Suzy on BusinessWeek.com this morning. It's a "what can business leaders learn from the campaign" column. In short, work hard, don't make mistakes, pick your friends wisely and your enemies even more wisely. Makes sense.
If that doesn't interest you enough: Welch was a big John McCain supporter and I always think it's fun to see how people who so loudly endorse one candidate navigate the day after their side doesn't win. Should be an interesting parlour game to play in the next few days.
The big, big news is the latest numbers on the U.S. economy. An initial report on the gross domestic product shows the economy shrank by 0.3 percent in the third quarter.
Economists had expected a decline closer to 0.5 percent. But they also think the economy is still shrinking. When the economy contracts for two quarters in a row, then you're not just worried about being in a recession -- because you're probably really technically in a recession.
Another bit: AIG's collapse is making life miserable for transit authorities around the nation, including in Washington, D.C.
The Federal Reserve appears ready to cut the interest rate again, maybe to 1 percent. Does that make anyone else nervous?
China just cut its rates, too, for the third time in two months, Bloomberg reports. Chinese leaders are trying to stave off a slowdown in exports and production.
Hungary got the first of what's expected to be a series of bailout loans from the International Monetary Fund. Hungary got $25.2 billion overall, with $15.7 billion of that coming straight from the IMF. The rest is coming from the European Union and the World Bank.
Latin American economies are in a freak over an Argentianian proposal to nationalize private pension funds. The idea of the government taking over individuals' investments in order to fluff up its own balance sheet has regional stocks and currencies plunging.
OK, OK. We'll have a global recession. That's what economists are saying is on the way.
Meanwhile, credit card companies are shortening the leash on customers. With job losses growing and people defaulting on payments, the plastic money crew is going into a defensive crouch. But you knew that from the podcast, right?
The TED spread's at 2.78 -- that's a tick or two up. This key measure of banks' willingness to lend to each other has been parked in the neighborhood of 2.7 for days now.
If you're wondering where the prosperity went, try Batesville, MS, where you say "recession" and they say "Do what?" That's the news from my hometown paper.
We're lining up someone to walk us through the horror show that is the world of emerging markets. In essence, countries that were on the brink of making are now simply on the brink.
Hungary, Argentina, Korea, China -- the list of places where stocks and/or currency have plummeted is getting longer. India's calling for action, and now. Chinese leaders say they're working overtime. Even the oil-rich Gulf States are feeling it, as the price of a barrel of crude goes south.
The currency team at Brown Brothers Harriman points to this story in the Daily Telegraph. It's maybe steep going, but full of material we all need to get a grip on. Here's the gloss from Brown Brothers Harriman's morning note:
Despite the finger pointing from Europe as to how irresponsible the US has been (see UK PM Brown's recent speech), there is a crisis brewing of their own making that may turn out to more destabilizing than the US sub-prime fiasco.
You read that right: They're saying the trouble in the economic hinterlands has more potential to unhinge the global economic system than did/does the American mortgage crisis.
Meanwhile, we're starting to see the names of banks approved for a slice of the U.S. government's capital injection plan. The idea is for the Treasury to buy an equity stake -- read: stocks -- in banks it believes can survive the crisis but would benefit from an increase in capital. We'll aim to include more on this in today's podcast. After the jump, the list so far:
Today I got scared. I was making family breakfast and listening to WNYC, when the newscaster suddenly skipped a beat. The guy sounded like he was reading from a note someone had scrawled and handed to him on-air.
The news: The U.S. Federal Reserve cut interest rates by half a point, as did other central banks around the world.
Meanwhile, Stateside, the Dow Jones Industrial Average plunged below 10,000. Investors don't like what they're seeing over there.
The news in trading comes even as the U.S. Federal Reserve announced it's riding to the rescue of the credit and commercial paper markets (the what?). Under the Troubled Asset Relief Program, or TARP, or the bailout, the U.S. aims to buy up bad loans that are sinking banks' balance sheets; that could keep more firms from going under. With the moves into the short-term lending world of commercial paper, regulators are trying to get the clogged pipes of the workaday financial system moving again.
We're aiming to talk more about this later, in the podcast.
The U.S. Senate is scheduled to vote today on its version of the $700 billion bailout plan rejected by the House of Representatives on Monday. The Senate's take includes tax breaks for businesses and individuals, plus more federal insurance for bank accounts.
One of my favorite financial notes landed this morning, a breath of calm amid the nuttiness. The currency group at Brown Brothers Harriman writes that the dollar is holding tough:
Several factors are contributing to US dollar strength. Problems in the financial sector are spreading to Europe with three European central banks injecting money into the Belgian financial company, Dexia, today. The deleveraging process appears to be continuing and finally, while politics make the implementation of the US rescue package messy, there is still movement toward a resolution.
In other words, trouble in Europe makes the dollar look relatively good. And economists are still hopeful that Congress will find a way to rescue Wall Street.
Congressional leaders say they've reached a deal on the $700 billion Wall Street bailout. The full body is expected to vote on the proposal today -- with dissenters on both sides of the aisle continuing to call it a gutting of the free market and a gift to the financial wizards who got the economy into this mess.
Led by Sen. Richard Shelby of Alabama, Congressional Republicans are lining up against the White House's proposed $700 billion bailout of Wall Street. Shelby told reporters he thinks the bill is "flawed from the beginning."
Meanwhile, after weeks of wobbling, Washington Mutual has finally fallen over. The federal government seized the bank and sold its assets to JP Morgan Chase for $2 billion. It's the largest federal bank failure in American history. The sale to JPMC saves taxpayers from footing the bill.
One of the huge mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain's campaign manager, according to a report in the New York Times today.
The paper says "the disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years."
Both Mr. McCain, the Republican presidential candidate, and Democratic nominee Barack Obama have been slamming the two companies and the hordes of lobbyists that helped them stave off regulation and buy up so many risky mortgages in recent years.
Both also have donors and advisers who are tied to the companies.
No less than Warren Edward Buffett, the "Oracle of Omaha" and one of the world's richest men, signaled faith in the financial markets Tuesday by investing $5 billion in Goldman Sachs, the embattled Wall Street titan.
Buffett is known for his frugality - he still lives in the same Nebraska house he has for decades and strictly adheres to an investment strategy known as value investing that essentially means he only buys when he thinks a stock is fundamentally cheap.
Considering only months ago, Buffett reportedly called the current financial correction "poetic justice," his bet on Goldman is good news for the market indeed.
All eyes will be on how Goldman and Morgan shares do when the stock market opens.
Treasury Sec. Henry Paulson (on the left above) and Federal Reserve chairman Ben Bernanke (at right) are getting grilled right now by the Senate Banking Committee on their proposed $700 billion Wall Street bailout, and things aren't going exactly smoothly.
While lawmakers seemed resigned to the fact that some bill will pass, and pass quickly, politicos on both sides of the aisle aren't hiding their anger about how we all got into this mess or the Bush Administration's power grab solution to it. Watch it live on CSPAN .
Sen. Chris Dodd, Democrat of Connecticut, argued the "economic maelstrom" was caused by a combination of "private greed and public regulatory neglect." He said:
"We all recognize the gravity of the situation."
Seated a few feet from Paulson and Bernanke, Republican Sen. Richard C. Shelby of Alabama spoke bluntly:
"I have long opposed government bailouts for individuals and corporate American alike."
The good news: Financial markets appeared somewhat more upbeat today, with stocks showing a partial rebound from a huge sell-off yesterday.
Mortgage rates are falling, now that the federal government is rescuing Fannie Mae and Freddie Mac. The average 30-year loan is now .3 percent cheaper, and may get cheaper still.
That's not the only number heading south. The estimable minds over at Calculated Risk say the value of homes -- and for buyers, the sale price -- should continue to slide. Calculated Risk sees a correction of another 15 to 30 percent on the way. Why? Simple supply and demand. Over the last six years, the site says:
[m]onths of supply increased to 11.2 months. A normal range is 5 to maybe 8 months. Until the months of supply decreases to the normal range, prices will continue to fall.
A column of Russian tanks leaves South Ossetian capital Tskhinvali on Aug. 21.
Kazbek Basaev/AFP/Getty Images
If you're watching the Russian tanks moving around in Georgia and the NATO ships sailing into the Black Sea, you're maybe thinking, hey, this has got to be bad news for the world economy.
And maybe it will turn out to be.
But if you're Marc Chandler, the global head of currency strategy at Brown Brothers Harriman, the picture's not looking so bad. "I'd say there's two impacts," he tells us. "Slim and none."
Over the past week, the Russian ruble has fallen .75% against the dollar -- no big deal, Chandler says. For a better measure, he says you should consider other currencies in the region, like the Hungarian forint and the Czech koruna. Over the same period, the forint's down 2% against the dollar, the koruna 1.3%.
That's largely because the ruble isn't well-integrated in the global economy. Compared to the dollar and the euro, Chandler says, Russia tends to stand alone. For now, he calls the conflict between Russia and Georgia a political story, not an economic one.
