Episode 546: Fear, Negativity And Pawn Shops For The Rich : Planet Money Today on the show: stories about bored traders, a bank that charges customers to deposit money, and pawn shops for the rich.
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Episode 546: Fear, Negativity And Pawn Shops For The Rich

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Episode 546: Fear, Negativity And Pawn Shops For The Rich

Episode 546: Fear, Negativity And Pawn Shops For The Rich

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  • <iframe src="https://www.npr.org/player/embed/321666662/321821264" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


Hello, and Welcome to PLANET MONEY. I'm Jacob Goldstein.


And I'm David Kestenbaum. Today on the show, three radio stories packed into one podcast.

GOLDSTEIN: Stock traders who are bored.

KESTENBAUM: A bank that's offering negative interest rates. Deposit your cash; watch it slowly disappear.

GOLDSTEIN: And a pawn shop for rich people.


KESTENBAUM: First up is a story I did for Morning Edition this week. It's about how boring the stock market has been recently.

GOLDSTEIN: This being Wall Street, there is, of course, a number that measures this thing. It's called the VIX. In normal times, people call it the fear index. But the fear index has sunk to very low levels lately. Here's the story.


KESTENBAUM: The VIX - technically the volatility index - is calculated by a computer somewhere at the Chicago Board Options Exchange. And the number is studied by traders and analysts all over the world.

Who started calling it the fear index?

ROBERT WHALEY: I did (laughter). That was a term I had coined in one of the papers that I had written.

KESTENBAUM: This is Bob Whaley, economist at Vanderbilt University who invented the thing. The math behind it is a little complicated, but the fear index is basically a measure of how much people are willing to pay for an insurance policy - an insurance policy protecting them from drops in the stock market over the next 30 days.

The more worried people are, the more they're willing to pay. During the financial crisis, the fear index, Whaley says, was way, way up at 80.

WHALEY: Right now, it's in the 11 range.

KESTENBAUM: Is that low?

WHALEY: It is. It's been lower, but...

KESTENBAUM: Not often?

WHALEY: Not often, no.

KESTENBAUM: What does it mean?

WHALEY: It means that investors are not particularly worried about anything.

KESTENBAUM: In fact, you could say the fear index is measuring something different these days. It's not measuring fear; it's measuring boredom. The stock market has been just chugging along - going up, but no dramatic spikes, no crashes. Michael Antonelli is a stock trader at Robert W. Baird & Co.

He advises pension funds, foundations, hedge funds. Sometimes, he says, the job is like driving a fast car, changing lanes all the time. This is not one of those times.

MICHAEL ANTONELLI: If you think about our car, we're probably in the right lane, going about 10 miles an hour, you know, listening to some Air Supply on our radio. And so really slow, really quiet markets.

KESTENBAUM: In really crazy times, Antonelli finds himself talking on two phones at once. These days, it is definitely one phone. And sometimes he's talking about what was on "Game Of Thrones" last night. A popular conversation is betting which character is going to get killed next.

ROBERT W BAIRD & CO: Talking markets, it can be difficult because, you know, it was unchanged yesterday, it was unchanged the day before, and it looks like it's going to be unchanged today, you know? That - that's hard, right? It's hard to come up with something that doesn't - something that doesn't bore your client. You don't want to make a phone call if you have nothing to say.

KESTENBAUM: You could say this all is good news - a sign that there are no storms on the horizon. Or you could see the lack of fear as something to fear. Jeff Frankel is an economist at Harvard.

JEFFREY FRANKEL: If you ask me, overall, is it good news or bad news, I guess I would say, overall, I find it a little troubling.

KESTENBAUM: A little troubling that it's so low, that there's so little fear out there?

FRANKEL: Exactly.

KESTENBAUM: Frankel points out the last time the fear index was this low was right before the financial crisis.

FRANKEL: Just to remind ourselves, everybody was very copacetic before the global financial crisis. There are many who think that the whole problem was that people were overly complacent.

KESTENBAUM: There are lots of things you could be worrying about, he says - the Chinese economy, the situation in Ukraine. Maybe there's a bubble building here at home. These days, though, a popular topic in the financial press has been the fear index and how low it is. When people are bored, they have plenty of time to think about why they're bored.


GOLDSTEIN: David, you and I have been talking a little bit about this in the office. And it turns out there are a few different explanations for why the fear index is so low. One of them is just that last month was really quiet. And it turns out the VIX is largely just based on what happened last month.

KESTENBAUM: It's not very sophisticated, you know, but this is fear - a human emotion - we're talking about. There is another explanation, though, which is more fundamental and interesting. And it's this idea that markets feel like there is now this safety net underneath everything, basically because of the new role that central banks are playing in the economy since the financial crisis. Michael Antonelli, the trader I talked to, brought this up.

ROBERT W BAIRD & CO: Central banks have come in and kind of almost backstopped the world. Especially in Europe and the U.S., they've said, you know, we will use extraordinary measures to make sure the system continues. And that has sucked some of the risky feeling out of the market.

KESTENBAUM: Meaning they'll somehow prevent anything super-crazy from happening right now?

ROBERT W BAIRD & CO: Yeah, they'll somehow - if something really bad happens, they'll just be there to hold us up.

KESTENBAUM: If you think about it, the Fed did all these crazy things during the financial crisis - created trillions of dollars out of thin air.

GOLDSTEIN: And over in Europe last week, the European Central Bank rolled out yet another novel program - negative interest rates.

KESTENBAUM: Jacob, you did a story about this for All Things Considered. Here it is.


GOLDSTEIN: There is this universe of people who get pretty excited when central banks announce big, new programs.

DAVID BLANCHFLOWER: I did actually say, hallelujah; they've actually got it. And now they're doing the right thing that they should've done some time ago.

GOLDSTEIN: David Blanchflower used to be a central banker in England. Now, he's an economist at Dartmouth. He told me how negative interest rates work. When you put money in the bank, the bank usually pays you interest. But with a negative interest rate, when you put money in the bank, you pay the bank. And the more money you put in, the more you pay.

The European Central Bank is the place where banks in Europe stick their extra money, so negative interest rates mean those banks will have to pay the ECB to hold their money. Blanchflower says the ECB is doing this because it really, really does not want the banks to just leave their money sitting idle.

BLANCHFLOWER: The exact idea is that, if you charge banks, they will take that money and lend it out to people, which will get these economies moving again.

GOLDSTEIN: The economy in many parts of Europe is still a mess. Unemployment is high. Inflation is falling towards zero. And there's actually deflation or falling prices in Greece. And deflation can quickly turn into this economy-crushing spiral. More lending could help prevent that. Businesses get loans and hire people. People have more money in their pockets. They buy more stuff. And you don't have to worry about deflation anymore. But Blanchflower says negative interest rates alone would not be enough to make that happen.

BLANCHFLOWER: It's a very big wish on such a tiny move. The rate before was zero, so now we've gone from zero to -0.1 of a percent.

GOLDSTEIN: In other words, banks that were leaving their money at the ECB at 0 percent will probably be willing to pay a tiny bit to keep leaving their money there. Still, in the world of central banks, symbols really matter. It's the symbolism that made Blanchflower say hallelujah. This move from the ECB sends a message. It says, we, the Central Bank, will do whatever it takes. Mario Draghi the head of the ECB he basically came right out and said this at a press conference.


MARIO DRAGHI: Are we finished? The answer is no. We aren't finished here. If need be, within our mandate, we aren't here.


KESTENBAUM: Central banking sounds so much more exciting when it's done with an Italian accent.

GOLDSTEIN: Yeah, very dramatic, very sophisticated.

KESTENBAUM: The negative interest rate thing got a lot of attention just because it was kind of fun to talk about and sort of crazy. But there was this other program, actually, that got rolled out that was probably more important. It had a less exciting name. What was it?

GOLDSTEIN: You know, I got the acronym. The acronym is TLTRO, which is targeted...

KESTENBAUM: Never mind.

GOLDSTEIN: Yeah, OK. So - but the basic idea is Draghi and the ECB are saying to banks, lend to real businesses. Lend to small businesses in the real economy, and we will lend to you. Basically, they're saying, we want to get this money out into the real world, where it's going to make a difference.

KESTENBAUM: This has been a problem, actually, all over the world - like, small businesses having trouble getting loans. Ashley Milne-Tyte did this story about how some small businesses and some rich people are going to get loans. They're going to pawnshops.

ASHLEY MILNE-TYTE, BYLINE: Reggie Huck (ph) is a model and actor who lives in New York. He's been in cop shows.


REGGIE HUCK: (As character) Freeze. Let me see your hands right now.

MILNE-TYTE: He's been in soap operas, playing a cop.


HUCK: (As character) Sorry to be a buzz-kill, but you're under arrest.

MILNE-TYTE: On paper, his finances look good. He owns some buildings in Philadelphia. He has a stake in a family business. He has plenty of assets. But that wealth didn't help him when he was finishing up production on his first movie.

HUCK: I needed to raise around $75,000 very quickly. And I didn't have the cash to throw into it.

MILNE-TYTE: It's a romantic comedy set in Brooklyn. He needed to do reshoots, pay for some music, all before the deadline to enter this year's film festivals. So he looks around. He does not have the money in his bank account. He does not want to sell his real estate. He doesn't have time to apply for a loan.

HUCK: I needed the money, like, literally within, like, a week.

MILNE-TYTE: A friend told him about a guy.

BABA BLUMKIN: My name is Baba Blumkin. I work for New York Loan Company.

MILNE-TYTE: The sign outside says pawnshop to the stars. It is not dark. It is not seedy. It's an office building in New York's Diamond District with plush carpeting and a display case filled with jewels. This is where Reggie Huck showed up carrying two of his most portable prized possessions - watches - a Patek Philippe and a Rolex. Together, they're worth about $200,000.

HUCK: I brought those in. God, look, I'm, like, sweating now talking about it. I brought them in and, you know, and they assessed them and...

MILNE-TYTE: And they offered $75,000, with a catch, of course. This is a high-interest loan - 48 percent a year. That works out to almost $3,000 a month in interest. Reggie took the deal.

HUCK: I needed to finish this film. A few months later, he paid off the loan and got his watches back. Baba Blumkin says this is a pretty typical transaction for a high-end pawnshop. He used to work in their sister store, Beverly Loan in Beverly Hills.

He says wealthy people, stars, they're just like us. Even with all the real estate and stocks and bonds and jewelry, sometimes there's no liquid cash at the end of the month. He's given loans on diamond necklaces, rare paintings - Sehgals, Monets - gold statuettes.

BLUMKIN: Probably the most interesting piece of entertainment memorabilia I've ever done was an Academy Award to one of the most iconic movies of all time.

MILNE-TYTE: Which film?

BLUMKIN: A good one.

MILNE-TYTE: He is discreet. As for what drives the rich to desperate measures, I spoke to one guy who had his kids' tuition bills arrive at once - Harvard and Columbia. He pawned a Picasso sketch. But these days, the high-end pawnshops are seeing a lot of business people.

It's been harder for small businesses to get loans. And at a pawnshop, there's no credit check, so you're not leaving a paper trail. No one else has to know you're in a bind. Debra Johnson ran a consulting business in New York until recently. Last year, some of her clients stopped paying her.

DEBRA JOHNSON: I was running out of money, and I was just like, OK, Debra, now is the time for action. And I needed extra cash to just make sure that I could keep a roof over my head and maintain my credit.

MILNE-TYTE: She didn't even have to know a guy. She saw an ad on TV for another high-end pawn shop.


UNIDENTIFIED MAN: Introducing Borrow, the new way to secure a loan. Borrow money using assets you already own, like luxury watches, jewelry, art, cars, antiques.

MILNE-TYTE: She had two watches. She brought them to Borrow's offices in Manhattan. Her loan offer was about six and a half thousand dollars. Johnson says everyone was nice, very professional. But no matter how high-end the experience, it was hard knowing it had come to this.

JOHNSON: I don't know that I'm capable of putting words to the fear and the terror because it just feels like everything is coming crashing down.

MILNE-TYTE: She doesn't know if she'll be able to pay back the loan and ever see her watch again. And this is where a high-end pawnshop is the exact same as a pawnshop on the corner. If you don't pay back the loan, your item will be sold. At New York Loan, Baba Blumkin shows me a beautiful diamond necklace from the early '60s, the kind Elizabeth Taylor might have coveted.

BLUMKIN: Would retail for over $100,000 and we would sell it for $65,000.

MILNE-TYTE: Perfect for walking the red carpet. And should the buyer fall on hard times, they could always bring it back for cash.


KESTENBAUM: Our show today was produced by Thea Bennen (ph) and Viet Lay (ph).

GOLDSTEIN: You can e-mail us at planetmoney@npr.org. If you're looking for something else to listen to, check out Pop Culture Happy Hour. You can find out more about it at npr.org or on iTunes.

KESTENBAUM: I'm David Kestenbaum.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.


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