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?

On the financial crisis

Prof. Gitter alerted me to the following interesting read on Steven Levitt's Freakonomics Blog about the current financial turmoil.

Even in Tough times there are people willing to spend on Art

Damien Hirst

Dead cow bounce

Sep 16th 2008
From Economist.com

An auction of works by Damien Hirst belies the turmoil in financial markets

Sotheby's

A VISIBLE show of support from his two main dealers and determined bidding by a mystery telephone buyer, believed to be Russian, helped dispel the gloom surrounding the financial markets. Enthusiastic bidding lifted the first round of Damien Hirst’s marathon two-day sale of new work at Sotheby’s in London on Monday September 15th.

The mystery buyer bid paid £12.8m ($23m including premiums) for ten of the evening’s 56 lots. This part of the auction raised £70.5m, more than was expected for the entire sale. Two further sessions were set for Tuesday.

Jay Jopling, Mr Hirst’s London dealer with whom he has worked for nearly 20 years, and a team from Larry Gagosian, his New York dealer, sat in prominent places in two rows at the centre of the auction room. Their support came despite the fact that they had been cut out altogether from the Sotheby’s auction and only learned about it in May when news of the sale was about to be made public. At the time Mr Gagosian told Frank Dunphy, Mr Hirst’s manager: “It sounds like bad business to me. It’ll be confusing to collectors. It’s a bad move.” A peace pact of sorts was agreed last Wednesday when Mr Dunphy took Mr Gagosian on a personal tour of the sale.

In the event, Mr Gagosian himself decided to travel to Moscow on the night, but one of his New York associates, Stefan Ratibor, was there bidding heavily for the sale’s star lot, “The Golden Calf”, a creamy-coloured bull preserved in formaldehyde, with solid gold horns, hooves and halo. Bidding opened at £6m for the piece, which was estimated to fetch at least £8m. Mr Ratibor dropped out at £8.5m and the calf was sold finally to for £9.2m (£10.3m including premiums)to an anonymous telephone bidder.

The winning bid set an auction record for Mr Hirst, beating the £9.65m that the daughter of the ruler of Qatar, Sheikha al-Mayassa al-Thani, paid last year for “Lullaby Spring”, a huge medicine cabinet made in 2002.

Guests arrived early to ensure they got seats. They included Mark Getty, the grandson of John Paul Getty and the new chairman of London’s National Gallery, Matthew Freud, a PR magnate, Peter Simon, a British retailer and founder of Monsoon and Accessorize, all three members of the Mugrabi family who own already nearly 100 Hirsts, and Sir Norman Rosenthal, a former secretary of the Royal Academy of Arts and one of Mr Hirst’s earliest supporters. Bianca Jagger sat in the front row.

Mr Jopling got the event off to a quick start, bidding £850,000 (£993,250 including premiums) to secure the first lot, a colourful triptych of spun household gloss, butterflies and manufactured diamonds, entitled “Heaven Can Wait”, which was well over the top estimate of £500,000. Mr Jopling also bought three other pieces, a medicine cabinet entitled “The Triumvirate”, that went for the bottom of its estimate, £1.5m (£1.7m with premiums), an oil painting of a photograph of the young Mr Hirst of which there are several copies, and for which he fought with Gagosian’s Mr Ratibor, winning with a bid of £900,000 (£1m with premiums). His best purchase was one of the finest pieces in the sale, a large cruciform vitrine of fish and fish skeletons, entitled “Here Today, Gone Tomorrow”, for which he bid just above the low estimate, £2.6m (£3m including premiums).

The crowded main room, four additional public rooms in Sotheby’s and countless telephone bidders slowed the pace of the sale. The 56 lots took well over two hours to sell, more than twice the expected norm. Only on a few lots was the bidding brisk; for most of the evening, the auctioneer, Oliver Barker, worked hard to squeeze one bid after another from potential buyers.

An exception to this was the mystery purchaser who bought ten lots, paying well above the top estimate for eight. These included twice the top estimate for two of the shiniest pieces on offer, a gold diptych cabinet of manufactured diamonds called “Memories of You/Moments With You”, and three times the top estimate for a large silver-coloured piece in a similar vein entitled “Fragments of Paradise”.

Mr Hirst spent the evening playing snooker, but on being told the sale figures, he pronounced: “I think the market is bigger than anyone knows. I love art and this proves I’m not alone. And the future looks great for everyone.”

"Indian Economy to gorw close to 8% despite global woes"-Prime Minister Manmohan Singh hopes that India will remain the second fastest growing economy

My post last week was regarding the GDP in India that hit 7.9% for the first quarter as a result of high interest rates, high inflation and increased input costs. The report stated that this was the slowest growth observed in the last 3 years. However, I was reading the Economic Times earlier this week and I found it interesting that Indian Prime Minister Manmohan Singh was quoted as saying that inflation, which stood at 12% in late August, is now showing some signs of moderation due to steps taken by the government.
I think the Indian government is working well in order to maintain a high growth rate for the present fiscal year. The government has cut import duties and banned exports of food items, while the Reserve Bank of India (RBI) raised its key lending rate in both June and July to tame inflation. The discount rate at which The RBI repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country's monetary system now stands at a seven-year high of 9 per cent. Will all this effort enable India to maintain high growth rates in spite of the global slowdown? Prime Minister Manmohan Singh sure hope so!
I think it is interesting that the Indian government is expecting growth not to be deterred in spite of being hurt by the global slowdown and the steep rise in the international prices of petroleum.

The Fed Bails Out AIG - Newly Arising Problems?

While Joe Biden - Barack Obama's Vice Presidential running mate claims that U.S. tax rates will be raised, we have to question about whether the government is using their tax dollars the right way.

As we all know, recently the government has agreed to bail out AIG - the world largest insurer - for $85 billion in exchange for a nearly 80 percent stake in the company. The pay back date is set 2 years from now.

Do you think the government is using US citizens' tax dollars efficiently?

AIG made wrong decisions and they have to take their responsiblities. Not to say their budget spending in the recent years were ginormous, they even paid a billion dollar to advertise on the jersey of English soccer club Manchester United 2 years ago. And now the Fed authorized the Federal Reserve Bank of New York to lend up to $85 billion to them.

Will this make inflation increase dramatically as we have too much money on the market?

What about the jobs?

So we all know that Bank of America has taken over Merrill Lynch and that AIG is in shambles right now, almost the Fed for a credit line that is $75 billion dollars strong. What we also know is that as a result of all these acquisitions, failures and merger's alike, numerous jobs will be lost. Only a fraction of those jobs will be recovered in the near future, in the same field, while the rest of the workers will scramble around searching for anything to sustain their existence. 

Here's what I really think would happen. All that talk about jobs going overseas, well, welcome to a real world solution here. Apart from just jobs going overseas to cut back costs even further, what I foresee happening is American people going overseas, in numbers. Considering that almost 50000 jobs have been cut in NY itself, people will go the distance to secure their future. There are many countries all around the world that need experienced, college educated individuals to build up their financial institutions and teach the locals the rules of the game. I honestly feel that many, if not thousands of workers will be placed overseas, in places like Dubai, Shanghai, Delhi, Phillipines, Brazil. Countries and cities that are bustling with needs. These individuals may not get paid the same compensation they get here, but their lifestlyes in those countries will be phenomenal. Great wages, meagre expenses and great education for your kids. Plus, job security and tremendous respect for their expertise and experience. 

If the world is calling, would you answer?

Antitrust Case against Google-Yahoo Deal

The Sept 9, 2008 issue of The Wall Street Journal mentioned that the Justice Department had hired former U.S. antitrust chief and former Walt Disney Vice-Chairman, Sandy Litvack to investigate the antitrust case against the Google-Yahoo deal. According to the deal, Google will sell and place ads on Yahoo pages and both companies will share the revenue from online advertising. Both companies argue that the deal would decrease competition between the two contenders and would benefit advertisers by increasing their access to potential customers.

The main argument against the deal is that Google controls 70% of online searches, whereas Yahoo only has 20% share of the search market. In comparison, Google usually does a much better job at placing ads online and making money off of it. This could lead Google to persuade Yahoo to sell its share of the search market, therefore giving Google a control of 90% of the search market. This way, Google can monopolize web searches and set higher prices for online advertisers.

Poor State of the Economy Seems to be Global

On Monday, the stock market plummeted in the United States, due in part to the poor state of AIG (whose stock fell 50 percent), and Lehman Brothers Holdings Inc. filing bankruptcy.  The Dow suffered its lowest drop since September of 2001.  It's interesting to note how this poor economy is not just located in the United States.  Countries all over the world are injecting money into their economy (For instance, the European Central Bank injected 30 billion euros to money markets on Monday, and on Tuesday, injected 70 billion euros, according to World markets tumble.)  The Bank of England also pumped more money into England's economy, as well as Japan putting money into theirs.  The financial markets in a great number of countries are suffering; Tokyo's Nikkei 225 index decreased to 11,609.72, a decrease of nearly 5 percent.  Germany's and Russia's economies also suffered.  Did the problems of the US stock market affect these economies?  Or are the problems in the United States a further indication that there is a major problem in the global economy?

PRESIDENT Robert Mugabe and PRIME MINISTER Morgan Tsvangirai

After years of a deadly power struggle between Robert Mugabe and the Zimbabwe African National Union – Patriotic Front (ZANU-PF) and Morgan Tsvangirai and the Movement for Democratic Change (MDC), Zimbabwe, for the time being, is politically at peace.

Today in front of a crowd of 3,000 in Harare's International Conference Centre Mugabe, Tsvangirai, and Mutambara signed an agreement dividing power amongst the factions. Robert Mugabe will be President, leader of the opposition party Morgan Tsvangirai will be Prime Minister and Dr. Arthur Mutambara will be the debuty prime minister.

Some powers of Robert Mugabe as president will be to command the Army and chair the Cabinet of Zimbabwe. The powers of Morgan Tsvangirai as prime minister will be to head Council of Ministers, which handles daily affairs, and will control the police. Of the council, 15 members will be from the ZANU-PF party and 16 will from MDC, including three from deputy prime minister's Dr. Mutambara breakaway faction of the MDC.

In the early years Mugabe's rule the economy was prosperous. According to a 1995 World Bank report, after independence, "Zimbabwe gave priority to human resource investments and support for smallholder agriculture," and as a result, "smallholder agriculture expanded rapidly during the first half of the 1980s and social indicators improved quickly." He was Knighted by the Queen Elizabeth in 1994, and received many honorary degrees from such institutions as the University of Massachusetts, Morehouse College, and National University of Science and Technology.

Upon independence in 1980 it was written in the constitution that in cooperation with the British Government land was to be taken from white owners and returned to blacks. However when the British Government repealed from their original plan to compensate the whites in 1997 Mugabe went ahead anyway in 2000 with the land reform causing great controversy.

While Mugabe meant well by in returning land to the black Africans, he did so hastily without educating them on how to cultivate it. This type of policy is what led to 11million % inflation.

Acquisition of Merrill Lynch by Bank of America

Bank of America has been making major acquisitions every year to solidify its holdings and to stay ahead of the race against other commercial banks like J.P. Morgan and Wells Fargo & Co.

In 2004, it acquired FleetBoston Financial, which strengthened its position as the bank with the largest FDIC-rated deposit market share in the U.S. This left J.P. Morgan (second in line) way behind in the ranking. In 2005, it acquired MBNA, which made Bank of America the leading credit card issuer globally. In 2006, Bank of America acquired the U.S. Trust Company. In 2007, Bank of America acquired ABN AMRO North America and LaSalle Bank Corporation which made it the leading bank in the Northeast and Midwest markets. On July 1, 2008, Bank of America officially acquired Countrywide Financial Corporation, which makes the bank the controller of 25% of the home loan market. And now it acquired Merrill Lynch & Co.

J.P. Morgan has always been the leading contender of Bank of America when it comes to commercial banking. Since Bear Stearns Co. was bought out by J.P. Morgan for only $2 a share, I wonder if one of the reasons for Bank of America to acquire Merrill Lynch & Co. is to maintain its position against J.P. Morgan. Acquisition of Merrill Lynch now makes Bank of America the largest financial services business in the world and also allows access for Bank of America to engage with emerging markets outside the U.S. such as India.

So, is it presently more beneficial to be a commercial bank like Bank of America and J.P Morgan, or to be an investment firm? Following the acquisition of Bears Stearns, the Federal Reserve made a cut in its discount rate (the rate at which banks borrow money from the Fed) from 3.50% to 3.25%. The collapse of Lehman Brothers and acquisition of Merrill Lynch would further heighten the anxiety in U.S. financial markets, and could worsen the credit crunch.

Goldman Sachs and Morgan Stanley are now the only two remaining independent broke-dealers left in the country. With the bankruptcy of Lehman Brothers, and the acquisition of renowned independent firms like Bear Stearns Co. by J.P. Morgan and Merrill Lynch by Bank of America, it will be interesting to see how Goldman Sachs and Morgan Stanley hold up this year.

Poor veggie sorting leads to outbreak

The largest outbreak of food borne illness in a decade for the United States may have been caused by poor vegetable sorting in Mexico. Neither Mexico or the United States have safety requirements for farms or processing plants. Even though many Mexican producers grow vegetables under strict sanitary procedures for exporting to the US, many don't, and it simply takes an online registration for any Mexican company to export produce to the US.
The US FDA only conducts spot check on less than 1% of all imports, leaving it up to grocery's and restaurants to check their already purchased goods to decide if their ok for use. Some Mexican producers hire private companies to check the producers own sanitation standards. Few groceries will only buy from producers who have done this, but there is no public record of the groceries who do. All of this makes it extremely hard for consumers to have any idea if the goods they are buying or eating have come from and if any sanitation was used in the process. It seems that at the very least public record of what groceries buy from inspected producers would give the consumer some background on the food and could avoid outbreaks like this.

Speculation in Fuel prices: Southwest is right on the money!

Southwest Airlines success in using simple and complex investment techniques has, for almost a decade now, enabled it to lock in prices it pays for large amounts of jet fuel, months and even years ahead of time. This investment strategy has protected U.S.A's leading discount carrier from run ups in crude oil prices by dramatically cutting down its fuel expenses.When all other airlines were estimated at paying close to $4 a gallon, Southwest was estimated at paying only close to about $2.
Airlines assume a considerable amount of risk when they hedge jet fuel purchases. It is also possible that sometimes they end up paying more than the spot market price for contracted fuel. Had oil prices collapsed in the past year, Southwest's hedges could have cost them large sums of money.
I just thought this was really interesting since just the other day we were talking about speculation and its effects on the market.

Lehman Bank Failure

This is an article from the BBC about the possible collapse of Lehman bank, which has suffered it's worst quarterly return in history and is trying desperately to shake things up to inspire confidence with what appears to be little success. What I find interesting is how much this crisis, like so many other financial problems of recent past, seems to be based entirely on perception and confidence instead of actual results or business practices at least in the short run. Stories of incredible corruption or questionable ethics appear time and time again and people ask how this keeps happening, and the answer seems to be that if things look good, they are for the most part taken at face value. Isn't there some way to regulate these massive companies that have an undeniable effect on public welfare and confidence when they go up in smoke? Or are they too ingrained in the political system itself to achieve any sort of unbiased third party observation?

You feeling Frogish? Leap: the rarest tree frog in the WORLD found.

A tiny tree frog by the not so tiny name, Isthmohyla rivularis, was found in Costa Rica's Monteverde Cloud Forest Preserve the other day. Scientist thought the species had become extinct after not seeing it for 20 years, until last year a University of Manchester researcher caught a glimpse of a male. Now that both sexes have been found scientists can deduce that they frogs have been procreating where other frogs have been unable. Scientist have been coming out every night for years hoping to catch the female while she lays her eggs, then it finally paid off. Andrew Gray, a herpetologist, marked this moment as "the highlight of the whole of my career".

I would like to see how the rarity of this species plays out for further conservation efforts.

Palin: Gaffe No. 1...

Gov. Palin of Alaska made her first miss-statement (not counting all the lies) on the campaign trail Monday Sept 8. The former Miss Alaska second runner-up was in Colorado Springs speaking about the recent government takeovers of Fannie Mae and Freddie Mac. She said they had "gotten too big and too expensive to the taxpayers." What she tried to do was link two big entities to the government and say that she will reduce government. Of course we know that the companies were never state owned privately.

This is pretty big. It's definitely possible the Obama campaign will make a commercial about this in due time. The Governor hasn't introduced herself as someone who is knowledgeable enough to be able to "misspeak" from time to time. All she has done is talk about herself and Barack Obama, not stating much truth about either.

Microsoft - Is it a monopoly? Question of antitrust laws violation.

Today we discussed in class about market failures and mentioned a little bit about monopoly and antitrust laws. One of the examples is Microsoft (MS). This giant computer corporation has actually been hit hard for various antitrust violations. The two biggest cases (and is still going on) are the United States v. MS and European Commission v. MS. The cases have lasted for a pretty long period of time. MS was actually ruled to share information (with rival software companies in Europe) and recently “lost its appeal against a record of 497 million euro fine imposed by the European Commission” (according to BBC on Sept 17, 2007)

European Commission v. MS and the decision in 2004

European Commission v. MS and the Decision of Appeal in 2007


the United States v. MS, current case

Large companies are subject to criticism at all time. And we can easily see that MS is one of the great examples.

Fed's Fisher Sees 50% Chance Inflation Will Increase

By Steve Matthews and Margot Habiby

Sept. 4 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said there's a 50 percent chance inflation will accelerate even amid slowing economic growth.

The Fed confronts ``even odds'' that ``the inflationary scare we experienced of late infiltrates the mindset of consumers and business operators,'' Fisher said in a speech in Houston. ``The jury is out on whether lesser momentum will be sufficient to translate into relief on the price front.''

Financial Crisis Isn't Over Yet, Nobel Economist Granger Says

Financial Crisis Isn't Over Yet, Nobel Economist Granger Says

By Fergal O'Brien

Sept. 8 (Bloomberg) -- The U.S. financial crisis isn't over a year after it began, and more institutions will probably report losses tied to the collapse of the subprime-mortgage market, Nobel prize-winning economist Clive Granger said.

``The amount of repackaged mortgage debt is much bigger than anyone realized,'' Granger said yesterday by telephone from Tralee in southwestern Ireland, where he is attending a conference. ``Every month, we think that's it and then we find some more, so I have no idea how big the problem is.''

To market, to market

The BBC ran an interesting opinion article relating back to what we have been discussing in class. Basically the author was bringing up the joke of "how many economist does it take to change a light bulb?" The answer to the joke is "none; that the market will take care of it." What the author was trying to illustrate is that this may not be the case or at least everyone should not have blind faith in this idea. She goes on to discussion specific circumstances where the market had failed the public in Britain.

The issue I have with the article is that the author tries to relate all economic issues due to a few private corporation failures. I feel that the issue is not necessarily the blind belief that free markets will solve everything, but that there was not enough competition to force efficiency. I do agree that blind support in free markets is not healthy, I just do not agree with the examples she uses to support her ideas.

Cigarette Tax Controversy

According to this article, the government plans to hike up the taxes on cigarettes near the end of this month. It explains that more than twelve states are involved in this tax raising controversy, and from the officials interviewed, none seem too guilty about it. Essentially, the attitude from the top down seems to be "if you don't want to pay the tax, don't smoke." The acticle describes this situation of the tax raising a win-win because teenagers are less likely to start smoking and older adults are more likely to quit. Apparently the officials in charge are raising the taxes on cigarettes in order to lower their deficits and bring in money whatever way they can. In this case: taxing cigarettes.

I would imagine if I were a smoker I would be none too pleased about this proposition, while the article somewhat fails to mention the opposition side. I can see the consumer-side uproar coming from a mile away, most likely to no avail. However, coming from the bias of a non-smoker, I feel as if this is a relatively harmless tax raise. The number of people who will be seriously crippled economically by this tax seem minimal to me. Plus, smoking is bad for you- I feel as if thats rather undisputible. If a tax is to be placed on a good that is rather seriously harmful to the consumer, I feel as if that is not an increase worthy of an outrage. After all, I highly doubt smokers are willing to dump crates of cigarettes in Boston Harbor.

Women in a Weak Economy

Are men or women more sensitive to a weak economy? This article suggests that women feel more economically insecure during shaky economic times, whereas this article claims that inflation has more of a negative impact on women’s health than men’s health. (Note that the first article refers to the US, and the second to Australia).

Among the reasons given: women feel that bad economic times are tougher due to gender pay inequality and the pressure to support their families, and -- as the main purchasers of everyday goods and usually the ones responsible for household budgeting -- women are more sensitive to the rising costs of goods which thus affects their health.

Conversely, more men are confident about their economic security (44% compared with women’s 33%). However, some of it might be a “false sense of security,” with men believing their purchasing power is consistent or steadily increasing – at least until they suddenly realize their dinner bill is more expensive than it used to be.

Not to say that men are oblivious to the state of the economy, especially when it’s in bad shape. But I think with women still tending to do most of the grocery shopping, driving to the mall, and paying the bills, they are constantly surrounded by reminders of prices going up and it makes sense that they worry whether the money they have will be enough. You could argue that this is a generalization though.

It’s interesting to observe the impact of a weak economy on women specifically, but one also has to consider the role of women’s race and social class. And whether the woman is working, raising children, single, or all three. And whether or not health insurance is available to them. Presidential candidates would do well to address these issues, because women will be heavily considering their policies on more spending on childcare, education, and promoting job equity in the upcoming elections.

(By the way, please ignore the line in the second article that goes, “The key to women’s happiness is a bigger [shopping cart].” Wow, really? Women are happiest when we have more stuff? I love shopping as much as the next girl, but I thought you could only say that --without being called a sexist pig -- on Sex and the City. Then again, maybe it says something about an economy propelled by consumerism…?)

OPEC Considers Cutting Production

On July 11th, crude oil hit an all time high price at nearly $150 a barrel. Since then, the price per barrel has dropped nearly $40. Becasue of this decrease in price, certain members of OPEC are calling for a decrease in production to increase the price. Iran and Venezuela, the second and third highest producing members, are both calling for the cut-back. Venezuela is also calling for a price floor at $100 a barrel. Unfortunately for them, the leading producer of oil in the world, and the main member of OPEC, Saudi Arabia, disagrees. They currently believe that production should remain constant, even if that means prices to continue to fall. They also are calling for a price floor of $80. OPEC will have a meeting Tuesday in Vienna to discuss these possible cut-backs.

Some statistics-
Even with the price falling, oil prices are still 14% higher than last year, and are four times as much as they were five years ago.

Government takes control of Freddie Mac and Fannie Mae

With the financial market in trouble the government decided they needed to step in to help out. They concluded that a failure in these two markets would greatly affect the American population in their ability to take out home loans, auto loans, and other consumer credit. Not only would a failure in these two markets hurt American but also all over the world since they are such a vital part of the United States financial market, which is supposed to be fairly secure. The two loan giants "own or guarantee about $5 trillion in home loans, about half the nation's total." This was announced Sunday by the Bush administration and they also noted that all of the executives and board or directors have been replaced for both Freddie Mac and Fannie Mae