Obama takes aim at the Greenspan era

As Barack Obama was elected as the US president on Tuesday, what will be the most important item in his agenda? As public has observed throughout the President's campaign, investors are certain that tougher rules are coming.
"Overhaul of the government's financial services regulatory structure, consolidation of charter types, tougher liquidity and capital requirements, bankruptcy and credit card reform are all on the table," said William Donovan, a partner at the Venable law firm in Washington and former general counsel of the National Association of Federal Credit Unions.
Obama has proposed an economic stimulus plan that would include money for infrastructure, and he favors reforming the bankruptcy code to help homeowners and make it easier to restructure troubled mortgages.
Obama has also been supportive of infrastructure spending as a way to create jobs -- something that will no doubt take on greater urgency on Friday when the government releases its October employment figures. The report is expected to show 200,000 jobs lost in October, which would make it the weakest month of the year.

Markets Fall Sharply, Erasing Election Day Gains

Despite the recent election, and booms from previous days due to the election hype the stock market fell sharply. Nasdaq dropped 5.5 %, Dow Jones dropped 5%, and Standard & Poor’s 500-stock index fell 5.3 percent. Wall street began to drop after a report showed that activity at the nation’s service industries in October went down in, the drop was the steepest drop since records began in 1997.


"I think anytime you do see a rally like we’ve been having, there will always be a little bit of pullback when people wake up and see things like today’s headline number on nonmanufacturing activity, which was the lowest of all time,” Michael Feroli, an economist at JPMorgan Chase, said. “If there’s data out, there’s going to be bad news out. That will tend to keep market enthusiasm a little bit contained.”"


This article should remind us those we are still feeling much of the election euphoria, it is serious business to fix the economy and it will take more than just "hope"

Nobel Winner Aumann Says Bernanke, Paulson Steps `Not Smart'

Robert J. Aumann, the Israel economist and mathematician who won the 2005 Nobel Prize for his work on conflict and cooperation through game-theory analysis said at a rabbinical conference in Jerusalem on November 1st that he thinks the Federal Reserve and the US government made a wrong, "not smart" move in bailing out big financial institutions.
"The intervention by the regulators to save the U.S. economy will lead to further bankruptcies of banks and insurance companies," said Aumann. "They are only encouraging institutions to take more uncalculated risks."
I think he is right. Some argue that after the government steps in to help "trouble" institutions, these “zombie” or “living dead” institutions will fail sooner or later, and it’s believed that they are even more inclined to take more risks because there is nothing else to lose. Your thoughts?

Russia and the unfolding global recession

The current financial crisis is influencing many countries, and to minimize the global economic downturn, there has been great international bank bailout this year in May. However, some economists believe that Russia can minimize the effect locally and can improve the economy into better shape.

One of the factors that were discussed in this article was change in the infrastructure spending.
With the large infrastructure development program already on its way, it is believed that it can help Russian business. This would further decrease the unemployment as there would be more jobs available. The government is currently considering an investment to improve social infrastructure particularly in health and education, as well as housing stock.

Furthermore, investments in gas and oil development as well as investment in transport and logistics infrastructure would help to improve the energy sector and the heavy industry especially steelmakers and construction outfits.

Overall, it is believed that these changes in the infrastructure with its massive investment would help to increase employment in addition to keeping up the consumption, generating improvements in quality of life for everyday Russians.

New Economic Plan?!

This was one of those emails I recieved through a chain mail system. I figured it was just one of those stupid political emails, bashing one candidate or another, but then I actually read it and it sounded rather interesting. The email is as follows...

I have received this email 3 times this week...it's amazing how cool it is to even dream for a second about this! I think I would like to hear the 'real' reason why this would 'never' work.

Okay I'm in ...Finally a 'plan' that makes sense...If only this was the plan and it worked...
I'm against the $85,000,000,000.00 (Billion) bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 (BILLION) to America in a 'We Deserve It Dividend'.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18 yrs yrs and older.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a 'We Deserve It Dividend'.
Of course, it would NOT be tax free. So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
- Pay off your mortgage - housing crisis solved.
- Repay college loans - what a great boost to new grads
- Put away money for college - it'll be there
- Save in a bank - create money to loan to entrepreneurs.
- Buy a new car - create jobs
- Invest in the market - capital drives growth
- Pay for your parent's medical insurance - health care improves
- Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+, including the folks who lost their jobs at Lehmann Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult US Citizen 18+!

As for AIG - liquidate it. Sell off its parts. Let American General go back to being American General.
- Sell off the real estate.
- Let the private sector bargain hunters cut it up and then clean it up.

Here's the rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can 'never work.'
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
Surely our fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC.

And remember, the plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.



So my question for the blog is this: I realize this plan probably wouldn't work because of inflation, among other things, but why isn't the 60 billion dollar plan not more inflationary than this one???

Socialism, the oil way?

Hugo Chavez did it in Venezuala. He nationalized all the oil companies and started using oil money to distribute public goods and services. It worked, albeit limitedly, till now. The real test is gonna come once oil prices drop to a more naturalized price and stays there for long. No longer will Iran, Russia or Venezuala (this can cliqued, i know) have the same political clout or the adbundant pecuniary source to fund their campaigns and their socialist-isque endeavors. 

This brought me to an interesting debate I had with a fellow student here. What if American oil companies were nationalized. I mean, the government is doing it with banks, buying their stock, providing them with capital and shoring up their financial reserves to "save the economy". Aren't $14 billion dollars in oil profits from just ONE company, i.e. Exxon, worth it? I know, it might not last too long and with the current downward pressure on oil prices, the profits aren't guarenteed at these record levels, but oil companies have historically had great margins and are usually cash generating cows. Who gets to the reap the benefits of this? The "shareholders". Who would they be? Well, executives, their friends, "George Bush", his vested interests(think Haliburton), and every other filthy rich owner who really does not need $500 million to satisfy his most outrageous needs. 

So why is the government and the country so pro-socialism for the bank sector which has milked millions of investors of their money? Why can't they try and buy stock in Exxon, or BP or any of the other oil giants that have and will continue to reap huge profits once the oil demand goes back up. Isn't that long term planning. Instead of a few hundred millionares, we'd have ONE rich rich shareholder, who inturn would share the wealth or the gains, atleast in the most fundemental sense.

I'm not against the bailout. It was necessary. But if we're being socialists, atleast temporary, why not be smart at it? 

China: Rich Country, Poor Country

We learned that China has a large and growing income inequity due to opening to the market economy in selective regions. This Forbes article tells you how China, once centrally planned economy, is changing to the market economy and becoming more open to the world and how severe imbalances China has in its areas of development. I think it's a good summary of what we covered in the class.

Risky Industries for jobs

I thought this was an important article especially for Seniors who will shortly be entering the job market after college. This article mentions six major industries which will (or continue) to take a hit as the year progress's. The housing and finance industries are obviously mentioned as two main markets that will continue to decline and thus suffer job losses. Retail is another industry taking a hit as consumers are purchasing less "non-essential" items in the market. The publishing industry, which includes digital media and broadcasting will be downsizing due to less advertising towards unwilling consumers. Sales for the big three automakers have decreased by 20% and is expected to fall further in the next year. Last the travel industry along with other "leisure activities" will continue to fall and cause further layoffs throughout the country and overseas.
How should the average graduating college student expect to cope with the struggling market? How should graduating students learn to enter the industry they wish to w/o the fear of layoffs or downsizing of companies?

Stocks likely to recover no matter who's president

"Wall Street prefers Republicans, McCain supporters argue. But stocks have done better under Democratic presidents, Obama supporters fire back.

When it comes to the stock market — especially this turbulent market — does it really matter who is elected president?"

Analysts agree that no matter who is the next president neither one will be the cure for the problems that face Wall Street right now. The one thing most analysts agree on is that the only place the stock market can go is up right now. Because of the financial crisis both candidates agendas will be most likely altered to try and combat the crisis and help turn the economy back around.

There is a theory that the stock market has a four year cycle where the year after the election the stock market falls but then continues to rise until the next presidential election, but this is said to be tested by the two terms of our current president. The article points out that this theory is just like the "Super Bowl Indicator" and has no real indication of the outcome of the stock market, based on election year or any other year for that matter.

Gloom Spreads in EU's economies

The Spanish economy has been a strong point for the EU for quite some time with higher than average growth rates. However, for the first time in fifteen years the Spanish economy experienced a downturn and that gave economists some worry that the country is inching ever closer to a recession. This also puts more pressure on the European Central Bank to cut the interest rates to try and prevent the recession. Some economists believe that the onset of the global financial crisis was the reason for Spain's decade long housing boom was brought to a halt and that it is causing the overall downturn of the economy. Not helping the case for Spain to be saved from recession is the fact that inflation has fallen all across Europe and employment has risen.

Are We Finally in a Recession?

Third quarter results have been posted and the economy and he GDP have been declining for three consecutive months since July to September. Technically a recession is defined as 6 consecutive months of negative growth and declining GDP. Amazingly with the current financial crisis and dismal economic environment. Some have already considered the United States to be in a recession according to declining GDP and unemployment figures, but it has not been technically declared so far. Last month GDP fell by 0.3%, which is the sharpest decline in 7 years. Consumer spending has also dropped along with business investment.

Americans unemployment aid rose to 3.7 million, the highest in almost 5 years. European consumer confidence has also declined, driving U.S unemployment even higher. The federal reserve also lowered its interest rates by 0.5% to promote business lending of credit. Even after the government gave business 700 billion dollars, they are not doing anything but holding onto the money. Keeping the interest rates low will not help his situation, banks will barely make a profit off of such low interest rates and have more incentive to hold onto the money. This is exactly the opposite of what the government intended for the bailout plan, the months ahead will be dismal for the U.S economy. Other countries around the world are experiencing the effects of the declining U.S economy, the question is now how do we turn things around. The bailout plan seems to have had little effect so far, so what is next? how are we going to increase consumer confidence and get the U.S economy back on track?

Despite Low Gas Prices Auto Sales Suffering

Auto sales are said to be the lowest now since the early 1980's. October will mark the 12th consecutive month of sales declining. Sales for October are expected to be down 30%, due to weak consumer confidence and tight credit. Sales had already been doing poor before the credit crunch because of high gas prices and deflated home values. Manufactures have been taking desperate measures to keep sales afloat. Toyota launched a zero percent financing on most all its models and Honda keep sales up with employee pricing. Even though gas prices have been falling rapidly, sales have not seem a significant increase. George Pipas, Ford's US sales analyst says that gas prices are no longer peoples main concern, "They're worried about jobs, their homes, and rising health care costs." Demand on small cars has stayed high despite low gas prices, but profits on these models is small.
The fact that people are not going out and suddenly buying new cars because of lowering gas prices does not surprise me. Most realize that oil prices are bound to increase again and will be back to $4.00 a gallon in no time. Also like Pipas stated, people have bigger concerns right now and cannot afford a new car right now.

Japanese-Brazilians in Japan

Japan's labor shortage might force Japan to open its door to immigrant workers from other countries. This article talks about how Japan is coping with these "outsiders". It is exemplary of yet another case of globalization, of greater labor mobility and the challenges it entails.

Inflation in Vietnam seen through ceramics industry

This series of photos illustrates how inflation affected the Vietnamese economy, in particular ceramics, a type of goods that yields export gains. The rise in costs of raw materials has made the final product more expensive. Consumers and export sector of ceramics get hurt. The real estate boom affected ceramics production indirectly, as brick price increased.

Story of 2 Chinese who opposed the Cultural Revolution

This New York Times article told the tale of two Chinese women who suffered due to their opposition to the Cultural Revolution: Nie Yuanzi and Wang Rongfen. I think it is very interesting as it gives us a portrayal of a segment of what happened in revolutionary China in the 60s and 70s.

Interestingly, Nie was the one who helped fuel the frenzy of the revolution by writing a poster attacking Mao's political rivals in the CCP. She was appointed the leader of Mao's Red Guards (student activists that carried out the revolution against "counter-revolutionary" elements), but she realized that the Cultural Revolution was getting out of control and finally opposed it.

"Looking back, she insists that she had no idea that the poster she made would have such terrible consequences. "I didn't know we were heading toward disaster," she said, describing herself as a party loyalist who executed orders. "Once I understood, I stopped following them. I opposed them, and for that I was punished."" She was jailed for 17 years.

Wang Rongfen wrote a letter criticizing Mao's Cultural Revolution. "The letter, which has never been published, earned her a life sentence, which was lifted after 12½ years, following Mao's death in 1976, which also spelled the end of the Cultural Revolution."

China's Land Use Policies

The Communist Party in China has announced a new land use policy. The plan is an attempt to jump start the agricultural sector that is still hurting by the old collectivization policies of Mao Zedong. The goal is to help the agricultural sector of the economy, which has mostly been bypassed by the recent economic boom.

Currently, farmers retain the proceeds from their crop sales, but do not own the land. Under the new plan, farmers will be able to lease, swap, subcontract, and transfer land use rights. Government officials hope that this new plan will double the disposable income of over 73o million residents to more than $1,200 by 2020.

(Article from Time Magazine; November 3, 2008)

What we can learn from the Japanese

The head of the Société Générale Asset Management Japan Core Alpha team commented on how the past can inform the future.

Almost 20 years ago Japan entered a protracted financial crisis, bear market and economic downturn. What lessons does that experience hold as the West struggles with a financial crisis?

The specifics of every banking crisis vary by country and by cycle, but the general forces are the same. When expanding gearing gives way to contracting debt, the stage is set for a liquidity crisis.

Three kinds of adjustment are needed before stability can return. First, asset values must discount the credit- constrained world. That is already happening with a vengeance, but take care not to assume too quickly that the process is complete.

Second, the banking sector needs to write off bad debts, consolidate (a polite way of saying shrink), and rebuild its capital base. In banking terms, completing the MUFG merger in October 2005 marked the end of the crisis.

Third, the real economy must also adjust to the new credit constraints. In Japan’s case, car sales, land prices, bank lending and the household spending index have, like share prices, returned to the levels of the early 1980s.