FARAI CHIDEYA, host:
From NPR News, this is News & Notes. I'm Farai Chideya.
Our economic crisis has many ironies. On the one hand, car companies are in deep trouble, and the government can't decide if it's willing to bail them out. On the other hand, gas prices are down below two bucks a gallon in many stations across the country. To give us the economic big picture, we've got Keith Reed, and you can find his wisdom online at Keith Reed's Money Corner. Welcome back.
Mr. KEITH REED (Blogger, Keith Reed's Money Corner): Hey, Farai. How's it going?
CHIDEYA: Things are going good. So let's just talk very briefly about this Bernard Madoff situation. He headed up a high-power stock trading operation. He served as the chairman of NASDAQ, one of the most powerful financial markets and engines in the world exchange markets. He was arrested and charged with this fraud scheme, which could cause losses up to $50 billion - with a B.
Now, there are plenty of super-wealthy victims, but one of the things that's come out is that he's really been able to defraud a lot of philanthropic funds, and this is not a good time for charities to be losing their money. What do you think is the importance of this case, and how important is it that charities are losing money due to fraud?
Mr. REED: It's really a terrible thing right now, Farai. If you think about what happens on the back end at many nonprofits and for many charities - anything ranging from your run-of-the-mill charity that helps the homeless on down to colleges and universities - when money comes in to those institutions, they go back and invest it.
Many of them have endowments, many of them have very, very large endowments that - essentially, that money is not sitting in your everyday checking or savings account. That money is invested in various different vehicles, usually with some investment managers, so that they can continue to generate income that will then fund their future operations.
What happened in this case was that many charities, especially those involved in doing work in the Jewish community in particular, had invested money with Bernard Madoff's firm and of course, those losses are really taking a big toll. Especially when you consider, again, the timing. This is happening at a time when charitable contributions are just dwindling, in some cases, to nothing. People are just not giving the money that they had been giving in previous years, because of the economy.
A lot of people are losing their jobs, a lot of people made their charitable contributions through their jobs, you know, if you go to work and they have a program where you, you know, automatically deduct a certain proportion or percentage of your pay via United Way or some other charity. You can imagine, with all the job losses that we've seen this year, what might be happening to charitable giving. So for much of this endowment money, many of these investment funds coming from charitable foundations being lost to something like a scam, a Ponzi scheme, is really devastating right now.
CHIDEYA: Yeah. We're going to definitely keep moving ahead in looking at this story, just the latest in a series of extremely troubling stories. And let's go to another one. Auto bailout didn't have enough gas to get through the Senate. Now, it needed the support of at least 10 Republicans, came up short. GM and Chrysler have said they might face bankruptcy by the end of March without government help. What is your analysis of the state of play, with the White House saying they might step in and use other funds for a bailout? How are things shaping up for people in these regions?
Mr. REED: Things are bad for people in those regions. I mean, in some instances, things are just going from bad to worse. There really, right now, isn't - there's almost no good economic news, especially if you're in a region - especially in many parts of the Midwest, some parts of the South, where so many jobs are responsible, or are owed to the manufacturing sector, of which automakers in the United States are the biggest part. So that's - this bailout not getting done is really not good news for those people in those regions.
What's happening politically right now is, I mean, you've got a situation where, you know, the Republicans in Congress have come out and essentially said, listen, we are holding the line on this. We don't see any real responsibility coming out of these automakers. We don't know whether, you know - and we might want to force them into bankruptcy. There's a debate going on right now about whether or not a bankruptcy, a forced bankruptcy, some sort of a structured agreement where they agree to file Chapter 11 and restructure themselves, is something that they need to do before they can have any money released to them through any congressional bailout.
And there's some thought now that if this doesn't get done this week, that it might just be left on the table for the Obama administration to come in and deal with after the first of the year. The problem with that being is that the automakers have made it clear that they may not make it to that point if they don't get some sort of a bailout. So there's this stalemate. There's this gamesmanship going on. It looked pretty encouraging at some point that something might get done last week, but then it failed, and no one's really sure if it's going to move forward at this point or not. But really, really, a high-stakes political game with some very severe consequences on the table right now for working families, particularly throughout the Midwest.
CHIDEYA: I want to talk about a couple of different things that are very critical in their links to the big picture. Two hundred and fifty thousand people employed directly by the Big Three automakers, then there are all these subsidiary companies that produce goods. Of course, there's, you know, any number of repair or upgrade shops, etc., etc., etc. And GM has just announced that it's going to close 20 plants, cutting back production in North America by a third. Sales haven't been this bad in 26 years. What is it doing, you know, to your state, Ohio?
Mr. REED: It's bad for Ohio. I mean, there are - especially in the northern part of the state, in Cleveland, as you get a little bit closer to Detroit, up at the area right along the lake. There's a considerable number of people who have jobs working in plants or in operations that supply the auto industry. Bad news for that business is bad news for those towns. You have to really think about - you know, there are towns in this state and towns across the Midwest where the major industry is still - if not auto making itself, is still something relative to auto making. There are some places where the economies just are not as diverse at all. They've never been diversified at all, like they have been on the coast or in other places, where you've had some manufacturing that went bust years ago.
The auto industry didn't go away at the time that, you know, some other manufacturing operations went away - like textiles, for example. There was a huge textile industry in Massachusetts and in New England for a long time, but that went away so long ago that it gave those cities and towns that relied on that manufacturing base the opportunity to really diversify their job base and their economic base. And that just never happened in some of these places that rely on the automotive industry because the big car makers were still producing and selling cars. Now, that's sort of come home to roost in a lot of these places, and that's why there's so much drama around this bailout. Because there are literally places where, you know, where thousands of people in these small towns stand to lose their jobs, and they don't have anywhere else to turn for another job if these go away.
CHIDEYA: Papers, you know, newspapers, have been a real core for many years of how we think of our civic life. And the news in Detroit may soon be harder to get, literally. The Free Press and the Detroit News are expected to announce some dramatic changes. What's going on?
Mr. REED: What they're considering at this point is whether or not they will cease home delivery of those newspapers, except for the highest circulation days, which are on the weekends. If you've ever worked at or been involved with a newspaper, which I was for many years, you know that those - Thursday, Friday and Saturday are the biggest circulation days for papers on weekdays. Sunday would be the biggest circulation days for any daily newspaper overall.
And what these papers have gotten to a point of saying - of looking at is, hey, look, we don't make that much money. We don't get a lot of revenue from circulation, anyway. Newspapers make the bulk of their money from advertising, not from subscriptions. And when you're losing a ton of advertising revenue, you're not making that back up on the subscription side anyway, and you never were. You've got to figure out some sort of way to make the economics of this work. Well, they haven't been able to do it online, because they don't get as much money for advertising online, and they can't charge people for content. So they've been laying people off, but you can only lay off so many people and still produce a newspaper.
So this is yet another way in which newspapers are shrinking themselves, desperately trying to figure out a way to stay viable as businesses by no longer doing home delivery. They haven't made a decision on this yet, by my guess is, they'll probably do it sometime soon, and it probably, given the economic situation, doesn't look very good for those people who are home-delivery subscribers.
CHIDEYA: All right. We have time for one last topic. Why is gas so cheap? And will this help the economy? Just a little taste.
Mr. REED: Gas is so cheap because demand has gone down. And not just demand in the U.S., but worldwide demand from factories and major producers, major manufacturing sectors over in China, many other places around the world. It has gone down. In some ways, it looks good for us domestically, because we were so sick and tired of paying 3 to $4 a gallon on gas, and you may feel like it's great for that to go in your pocket. But the problem is, is the underlying factor - because that demand has gone down, what does that mean? The demand has gone down because nobody is producing anything.
And this is just a signal of how bad this recession is around the world, is that these factories are shrinking, they're no longer producing, and they don't have the need for gas. One other thing that they don't need is employees. So it's not necessarily the great thing that you think it is, although there may be some short-term, much-needed and long-needed relief for your wallet.
CHIDEYA: All right, Keith. Always great to talk to you. Thank you.
Mr. REED: Thank you, Farai.
CHIDEYA: That was our money guru, Keith Reed. He blogs at Keith Reed's Money Corner. He joined us from the studios of WCPN in Cleveland.
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