China's increased technology

In this article, it discusses how China celebrated their nation's first spacewalk.  The article states that it was "mainly aimed at testing China's mastery of the technology."  I thought this was interesting because, as we learned in class, the rapid growth rate in many of the Asian countries was due in main part to an increase in inputs, and not from any technological growth.  But, judging from this article, China is now focusing on increasing their technology, which could mean that they'll experience even higher growth rates.

Washington Mutual taken over by the Government

The U.S. government has taken over Washington Mutual, which is said to be the largest bank seizure in American history. The pieces from Washington Mutual have then been sold to JPMorgan Chase “in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank.”
This is the second time that JPMorgan has acquired pieces of another bank. Earlier in the year, JPMorgan had bought Lehman Brothers and now it has pieces of Washington Mutual. The good part is that this deal will give JPMorgan access to places in the west coast, like California. The bad part is that JPMorgan will also inherit “a big loan portfolio of troubled mortgages and commercial real estate.” It is interesting to note that JPMorgan had offered to buy the entire company earlier this year because Washington Mutual was predicted to go bankrupt.
WaMu is a 119 year old independently running company and was one of Wall Street’s strongest performers. It had offered mortgages and credit cards to lower and middle class consumers (clients that other banks considered risky) and set terms which made it easy for the least creditworthy borrowers to get financing. This way, WaMu had become the sixth-largest bank in the United States till the the housing market began to fall. With rising mortgage payments and higher gas and food bills, WaMu’s losses in its big credit card loan portfolio also increased. This was when JPMorgan made its offer to buy WaMu.
It will be interesting to see how JPMorgan deals with its newfound market reach. Lehman Brothers, Merrill Lynch, American Insurance Group and WaMu were companies that were at least 100 years old, and it will be interesting to see which firm is next on the government’s list to take over and sell due to bankruptcy.

EU car lwas

This is an article about the EU's decision to implement tough Car Emission curbing laws to be put into practice in the next four years. The Article seems to highlight the struggle continuing in various industries concerning climate change, mainly between those that want strict measures now and those that want gradual changes to avoid shock to the Business cycle. If this case is any indication the EU seems to be moving towards more concrete measures and consistent implementation of "green" laws than anything we have seen in the US.

"Taking another road" - Car taxes in China to avoid WTO rules

The Economist has an article about car taxes in China that demonstrates quite well how government intervention affects the market. It talks about several attempts that China uses to reduce cars imports and protect its car industry. After WTO ruled that China’s imposition of a special 25% tariff on imported car parts (if the parts made up more than half of the value of a vehicle) is against WTO rules, China comes up with a new tool: tax against gas-guzzling cars, which “by an amazing coincidence,” are foreign-made cars. This government intervention surely reduces competition in the market, but at the same time it helps its local industry. Needless to say, in that stand point, it’s hard to say if China’s tax is wrong.

Japan to Impose Fiscal Policy to Boost its Economy

Japan, the world's second largest economy after the United States, has played some role in the response to Wall Street's housing-related meltdown. Japan has also, so far, been relatively unscathed by the present financial crisis.

Taro Aso, who has been chosen to be Japan's next Prime Minister, has indicated that his goal is to stimulate the Japanese economy to buoy the global economy. Aso has pledged to reverse a decade of reforms which included shrinking the government and freeing Japan's economy. He has advocated to revive the Japanese economy with increased government spending and tax cuts for businesses and individuals. This is imposing pure fiscal policies.

These measures seem particularly aimed at rural areas where there has been growing discontent because local economies lag behind prosperous cities like Tokyo. Hopefully, this will bring more equality and shorten the gap between the rural and urban economies.

Evaluating Merrill

Barron’s said BAC’s quest to buy Merrill should pay off for them and its investors if it is right about the credit crisis nearing a bottom. The combined company should be able to generate 6%-9% annual revenue growth and 10% eps growth on "the other side" of the financial crisis, Barron's quoted BAC CEO Ken Lewis. Lewis struck the $50 billion in stock deal with Merrill, believing that the U.S. is in a shallow recession and that the credit crisis is approaching a bottom. The report quoted Lewis as saying a true bottom will not emerge until the U.S. housing market begins to stabilize, which he expects in the first half of 2009. If Lewis' assumptions about loan performance and the economy are right, the deal should add to Bank of America's earnings by 2010

Tough times ahead for tech industry

A few posts below, KT highlighted how the art market (the high-end market in particular) is booming despite the economic crisis. This article, on the other hand, shows how the opposite is happening for the technology industry.

Summary: the technology industry will suffer until the end of 2009 (a year almost everyone agrees will bear the brunt of recession). Prices are pressured to rise due to a fall in demand for high-end components found in goods like latest-technology cellphones, although demand for basic products in China and India are sustaining shipment volumes. People prefer to extend leases on office equipment, holding on to personal equipment longer to prevent buying a new product. Despite the success of certain products (think: anything Apple churns out) the market as a whole as a pessimistic outlook. One quote from an executive: “It is one of the worst markets I have seen.” However, producers are looking at hybrid and electric cars as a new market for complement goods, and acknowledge that they make higher returns on capital than on “glamorous,” consumer-based products.

While goods in the high-end market are relatively inelastic, with there being only so many dead formaldehyde-preserved cows in the world, you can always find an alternative if you can’t afford a certain technological good. If you don’t want to buy a new cellphone, you can buy used or a cheaper, basic model. You can also choose not to replace something even if it’s old, as long as it still works. Art remains valuable and even gains value over time – most technological goods depreciate in value the minute they’re bought, rather like cars.

It seems that the window for technological innovation may shrink next year, due to a decrease in super-normal profits to invest with. On the other hand, producers are hoping that the hybrid market will provide them with opportunities, which means they may actively help out in widening the market. That would have environmental and economic benefits. Furthermore, producers say they gain higher returns on capital, so they may redirect their production process and focus on improving capital goods instead of TVs and computers.

Do bailouts set a bad example?

As the government decides once again to bail out another falling company, I can't help but think of what kind example this sets for present and future companies. It reminds me of how my mom always says I should set a good example for my younger sister, and that whenever I do something, she will think it's okay to do that too.

Bailing out companies gives other companies no incentive to be careful and safe in their actions, but instead to take risks because they know they will be taken care of should something go wrong. It's not that I completely disagree with bailing out a failing corporation, it's the countless times the government has said they won't do another bailout, and yet when push comes to shove, they are once again funneling tax-payers money into companies that maybe should have had stricter regulations placed on them in the first place.

I realize the bailout of AIG was more for the people who have their 401K's in the company, and not so much for the people who actually work for AIG, but I can only see it as another prime example of the government making it okay for a company to do whatever it wants, without fear of the consequences

Brazil Increasing its Economic Power

Military dictatorships, unplanned public spending, high rates of corruption and income inequality had always checked the rise of Brazil. After the generals ceded power to a civilian government in 1985, the nation began to ease its hold on economic life. Compared with the other BRICs, Brazil has avoided stewing in nationalistic resentments aimed at others.
Economists predict that offshore finds of oil and gas should push Brazil into the top ten oil exporters in the world a few years from now. It has also been commanding lofty prices for agricultural and other commodities like iron ore and copper. And financial institutions have blessed its debt with the coveted "investment grade" status, confirming Brazil's position as a solid destination for foreign capital. Credit is now far easier to get, and sales of cars, TVs, and cell phones have increased.
Brazil has finally defeated its four digit hyperinflation. They include the world's No. 3 airplane maker, Embraer; oil giant Petrobras; the construction firm Odebrecht; mining concern Vale; steelmaker Gerdau; and beef processor JBS, which has acquired U.S.-based Swift.
Brazil's turnaround is also underwritten by its abundance of natural resources and prowess in agriculture. In a world clamoring for more energy and food, Brazil has plenty of both.
However, Brazil still has a number of challenges. Inadequate education and training mean the number of Brazilian engineers, programmers, and other experts to sustain growth are less. The infrastructure of roads, railways, and ports falls well short of what an economic great power needs. The political initiative to fund and proceed with more economic reform is weak. High taxes and political corruption still hinder the country's rise.
Despite these challenges, doubts over whether Brazil really belonged in the group of big emerging economies known as the BRICs—Brazil, Russia, India, and China—have passed.

Massive Diamond Found in African Mine

This article describes a HUGE diamond that was recently found in Africa (really, look at the picture it's enormous). It says that it is a near-flawless gem approaching 500 carats. The company that found it says that "It has the potential to yield one of the largest flawless D color round polished diamonds in history."

So maybe this is just me being culturally, geographically, and socially ignorant, but how do these impoverished countries not make money off of this? I understand the acual miners might not see any money, as I saw in Blood Diamond the movie (further digging my grave of ignorance) however I'm still lost

OK whats my point? The chief executive guy said that there have been diamonds WORSE than this worth 12 million. The article goes on to say that the diamond mine is owned 70 percent by a presumably American-owned company, and 30 by that government. I'm no mathematician, but thirty percent of 12 million is still a good piece of paper. The demand for diamonds are so high that people can sell them really expensive I suppose, but are these American dealers really making this much bank off the diamonds?! If this were the case I would imagine somebody over there would get smart and figure out that they need to sell them for more. Maybe the diamonds are really more scarce than I imagine. Maybe nobody knows better. But then again, maybe I know nothing on the subject. Somebody help me if you know anything about it.

New world on Wall Street

CNN just broke a story that the last remaining investment banks on Wall Street would be convert into "Bank Holding Companies."

This allows the last two investment banks on Wall Street, Goldman Sachs and Morgan Stanley, to basically become commercial banks which gives them access to the Fed lending window. Also this means that Goldman and Morgan can buy up already existing commercial banks that are struggling due to mortgage crisis. Both of these measures will allow for the firms to access funds which should stop the fears of investors.

I think the move by the Fed is a much better move than to just wait until both firms go under and forcing a Federal buyout. This allows both firms to still be separate from the government but still requires them to become more regulated. Although Wall Street will not be the same, these actions are not the most drastic and are adding an extra level of stability. It will also mean that the failing banks will have more options to turn to for help (as in being consolidated with), which could help to dilute the problems.

I might be completely wrong, so let me know what you think?

Rat Meat - an inferior good in Cambodia

This article found in the Freakonomics blog illustrated an example of inferior goods in Cambodia: rat meat. As inflation is rampant in the country (37%), disposable income is reduced, the poor turned into rat meat as a substitute to more expensive meat. This increase in demand for rat meat has caused its price to rise despite an increase in supply (flooding is causing rats to go to higher grounds --> easier to catch).
Any thoughts on what other kinds of inferior goods could be found to experience the same demand boost in times of crisis? What comes to my mind is bread, vegetables in developing economies. How about in the US? Can you think of goods that could be considered to be inferior? Maybe fast food?

Is It the Dawn of the Reregulation Era?

The following is a summary of an article from Business Week, explaining the current trend of growing government regulation in the US economy. (Click on the title to see the whole article.)

According to the article, since Jimmy Carter was President, the past 30 years were the era of deregulation. The deregulation movement started when Carter signed the Airline Deregulation Act of 1978. Later, as it spread from energy to trucking to telecommunications to financial services, the rallying cry was the same: Less regulation, more growth

However, this 30-year era of deregulation came to a sudden and surprising end on Sept. 16. Late that evening the Federal Reserve extended $85 billion to take an unprecedented 80% stake in American International Group (AIG) in order to save the floundering insurance giant. Less than two weeks earlier, Treasury Secretary Henry M. Paulson Jr. had announced that the federal government was taking over Fannie Mae (FNM) and Freddie Mac (FRE), the colossal mortgage agencies. Suddenly the U.S. financial sector could not survive without government help.

Today’s financial crisis starts to show that deregulation of US-style free market capitalism is losing its power. In areas ranging from food safety to airlines to trade, increased government supervision is becoming acceptable to business as well as to voters.

Japan Stocks Jump on Treasury Bailout; Mitsubishi Gains on Oil

While European and American financial titans have teetered and collapsed, Japan’s giant banking groups have stood relatively unscathed. The growing global credit crisis, which threatens companies and consumers elsewhere, has yet to appear here, where the problem for years has been that the nation’s banks have too much cash, not too little. And while the United States Federal Reserve seems to be shoring up the entire American financial sector, the last time this central bank intervened in markets, it did so in dollars instead of yen — to help international markets.

Economists and bankers say Japan is able to keep itself apart for a very simple reason: it has enough cash to finance its own needs.

The country sits on a $14 trillion pile of household savings, the product of decades of trade surpluses and frugal lifestyles. This has allowed Japan to finance its immense $8.1 trillion fiscal deficit and still have enough money left over to be the world’s largest creditor nation for the last 17 years.

Swedish Government Plans Narrower 2009 Surplus as Economy Slows

Sweden is experiencing higher unemployment and as a result the Swedish government has in it’s latest budge predicted a smaller surplus and possible deficit by 2010. The government has been aggressively cutting taxes to the labor force and to corporations in hopes that this will increase employment and stimulate consumption. 32 billion kronor ($ 4.8 billion) has been allocated to facilitate the tax breaks and increase research and promote infrastructure within the Scandinavian nation. Special Tax breaks to companies who employ those under 25 or over 65 have been instituted to lower unemployment and decrease the number of people living solely off of government programs. Similar tax breaks have been offered to employers of immigrant workers. With these tax breaks the Swedish government hopes to decrease government debt and increase GDP.

700B Dollar Bailout

NEW YORK (CNNMoney.com) -- The Bush administration has filled in one big unknown about its proposed bailout of the banking system - the price tag.
According to the administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The cost: While the proposal calls for the purchase of as much as $700 billion of bad loans, it's unknown what taxpayers would ultimately pay for the bailout.

The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain..."

Although it is still not clear as posted above who will end up making up for the 700 billion dollar bailout, I feel it will eventually trickle down to the tax payers. Illiquid mortgage cannot be precisely valued but we cannot expect such a expensive bailout to occur without some eventual cost to the people. Are there any further thoughts as to the aftermath for such a great expenditure?

The United States proposes an international rescue plan

The US Treasury is proposing a fund worth up to $700bn (£382bn) to buy back much of the bad debt held by banks and other financial institutions.

The fund would aim to sell off these mortgage-related debts in the future. The US treasury, however is prepared only to buy bad debt from international banks largely involved in the United States. Some members of Congress have negative feelings towards the bail out plan. They are not too sure about the tax payers taking on the responsibility for paying billions of dollars towards bad debt. However, President Bush has argued that this plan is better for the public than the alternative of job losses and diminished pensions.

Binge Drinking to save Social Security??

Heres an interesting twist on the SS debate I found in the Freakonomics blog.
Exerpt:
"A 2004 study by Frank Sloan and Jan Ostermann at Duke University found that heavy drinkers contribute slightly more to Social Security, through their higher average lifetime earnings, than nondrinkers do. What’s more, since alcohol abusers tend to die sooner than moderate or nondrinkers, they draw less money, over time, from the Social Security trust fund.
Their conclusion: the elimination of heavy drinking (three or more drinks a day) from each successive group of American 25-year-olds would cost the Social Security trust fund $3 billion over the cohort’s lifetime. "

Its interesting to think that something that society frowns upon is something that is also inadvertently helping to keep one of America's biggest welfare institutions financially solvent! I wonder if this applies to drug use as well...kind of ridiculous.

Another Exerpt, which is open for debate:
"On another note, one of the puzzling underlying findings in this paper is the relationship between moderate alcohol consumption and increased lifetime earnings. For men and women alike, people who report downing two or fewer drinks a day earn slightly more than teetotalers do, on average. Heavy alcohol use tends to negatively impact earnings, as you might imagine, but not as much as abstinence. Sloan and Ostermann aren’t clear on the mechanics of this relationship, but the science seems solid.
Does drinking lead to higher earnings, or vice versa?"

any thoughts?

Job Outlook for 2009 Not Hot

This is the first year in five that the projected increase in hiring of new graduates has not been in the double digits.

In Congress, Concern Over Bailouts

After the events of the current week, where a few key financial firms failed and the government started a rescue plan for the others that had already failed, Paulson said that the government needs to access $700 billion in taxpayers funds to buy the bad debt from these firms to make the United States financial system work properly again. Both parties had their questions about the plans, the Democrats said that yes there was a need for urgency but they want oversight on how the money is spent, but the Republicans agree with the oversight but they want the Treasury to guarantee that some of the funds will be repaid. This is considered as the "mother of all bailouts" by one lawmaker as the Bush adminstration insisted that Congress act quickly to pass the plan and put it into action. Paulson said that the nation's outdated regulatory system for financial markets must be overhauled but the first job is to get the rescue package through Congress and then deal with a comprehensive regulatory overhaul next year. In addition to this plan, Paulson said that the Treasury plans to recoup some of the money when the housing market rebounds along with the mortgage assets.

Trouble for Nestle

Almost 13,000 Chinese children were reportedly contaminated from a Nestle made formula. The number of cases has more than doubled since the original report of sickness on Sept. 12. Reports of sickness have also spread beyond mainland China and four children have died.
Traces of melamine have been found in the powder formula. This chemical is commonly used in wood finishes and adhesives. The Chinese government has stopped sales of the Nestle product and ordered a recall.
Nestle, however, is disputing the findings. Nestle released a statement saying, "Following press reports in Hong Kong earlier today claiming that traces of melamine had been found in a Nestle growing up milk, Nestle is confident that none of its products in China is made from milk adulterated with melamine...The Hong Kong Government's Food and Environmental Health Department has just released a report declaring that NESLAC Gold 1+, which was mentioned in the media reports, is safe and that no melamine was detected in the product."
Pet food contaminated with melamine from China caused the deaths of thousands of U.S. pets. The outbreak is being taken seriously and so far 18 people have been arrested.

Gas prices down 10 cents in 4 days

Gas prices rose 18 cents in the eight days after Hurricane Ike; however, prices declined 2 cents, making that the forth decline in a row since then. Since hurricanes Ike and Gustav gas prices have been moving higher. There have been more than thirty refineries (that convert crude oil to gasoline) have shut down or are only partially running in the Gulf since the storms. Also, Texas and Louisiana crude pipelines have been affected. Thankfully they have started to operate again and have been restoring supply of gas to retailers and lowering consumer prices.
The lowering oil prices have also helped to decrease the cost of retail gas. Since July crude has been moving lower, losing more that 1/3 of its value. A record of $150 was reached only two months ago. However, oil prices raised back to above $104 per barrel on Friday. The good news is that people are optimistic that the government's rescue plans will help with the credit crises affecting the United State's economy.

Asian Economies Fear Ripple Effects from U.S Financial Troubles

Asian economies are keeping a watchful eye over Wall Street due to the recent struggles in the financial sector. Businesses all over Asia are starting to wonder how the U.S troubles will effect them. Even before the past weeks events larger Asian economies like Japan, China, and South Korea were starting to feel the effects of the slow down occurring in the United States and European Markets.

Asian economies still have a large dependence on western markets and the recent struggles have weakened exports. Western banks are struggling with billions of dollars in bad loans and mortgages accumulated from foreclosures. This has caused lending to tighten dramatically around the world. Global markets are still weary after witnessing one of the worst weeks in U.S financial history. Insurer AIG inc. was bailed out by the federal reserve, Lehman Brothers Holdings Inc. filed for bankruptcy, and Bank of America bought Merrill Lynch & Co.

Many are bracing themselves for a struggle in 2009. Chinese exporters are already seeing decreased demand from American markets. There has also been a large decline in consumption and investment in Asia. Many businesses in Asia are starting to turn their focus to domestic markets to offset the global crisis.

Is the worst over? Or is this just the beginning of a worldwide financial meltdown?