Aso, Brown Efforts to Save Themselves May Help Bush

I thought this article was interesting, it takes a look at how other countries we have talked about in class are being impacted from the credit crisis here in the US, and how those countries are dealing with it.

By Rich Miller and Simon Kennedy

Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.

Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.

Delta to Add First-Class Seats to Shuttle Flights

I know I just posted something, but I found this article quite interesting, even if it's not particularly groundbreaking.

Delta has decided to add first class seating to its East Coast shuttles*, charging $100-$250 more for first class. This means that VIPs no longer have to battle mere commoners for seats. Instead, they only have to fight with about 14 people for choice seats. US Airways has already implemented this.

I can see positives with this decision. One positive: it’s finally a source of revenue for airlines that offers something back to the consumer. Instead of “There will be a small fee for check-in baggage/priority seating/meals/cocktails/a bottle of water,” it’s “We’ll make the fares tons more expensive and not apologize for it, but it's worth it.” They’re targeting a market with relatively inelastic demand for seats. If someone has to get to Boston urgently, an extra 100-250 is not so much. Also, since frequent fliers get complimentary upgrades, it may encourage brand loyalty.

There are some negatives too, though I can’t think of as many. It could make certain consumers acutely aware of class and entitlement, so that if they don’t get a first-class seat, they may feel resentment at having to sit in coach when it was the norm before. And there may be companies for whom an extra 100-250 all the time is a big deal, and if they have no choice they will see traveling costs add up.

How can struggling airlines best earn revenue? Should non-budget airlines follow the budget route and keep charging for the little services, or should they bring back partitions and earn revenue by catering to those who can (ironically) afford to have those services for free? Should United and American follow suit?

*I first read this in the NYTimes, but if you don't have an account you can find a similar but more brief article here.

Al-Qaeda stronger than ever?

According to a BBC World Service Poll, since George W. Bush's 'War on Terror', 30% people believe Al-Qaeda stronger has become stronger. Only 22% say Al-Qaeda is weaker while 29% of the polled adults polled believe the war has had no effect on Al-Qaeda. 4% of the people polled had never heard of Al-Qaeda, and 15% are not sure if the War on Terror has made it stronger. 21 of the 23 countries surveyed held poor veiws on Al-Qaeda except Egypt and Pakistan. Around 60% of Egyptians said they had either a positive or mixed view, while in Pakistan, where much of the battle against al-Qaeda is being fought, just 19% said they had a negative view of Osama Bin Laden's organisation. Clearly indicating this war is not winning the hearts and minds of the most important citizens involved.

Some 24,000 adults across 23 countries were polled for the BBC World Service between 8 July and 12 September.

Vietnam death toll rises

Typhoon Hagupit, one of the worst of the season, has just hit Vietnam killing 32 people so far. The damage is still indeterminable, of the storm that has already struck China and the Phillipines. Police and soldiers were sent into the most vulnerable areas of North Vietnam to evacuate as many as possible. Hagupit, which means "lashing" in Filipino, killed at least eight people in the Philippines and at least 17 in China where it triggered a huge storm tide. The Red River near the capital Hanoi was expected to reach dangerously high levels on Sunday (today), rising to 8.6 metres (28 ft).

I had a chance to visit Hanoi and northern Vietnam in June of this year and I remember people talking about this typhoon season was supposed to be as bad as any season in the past years. When I was in Japan we got some of the weaker ends of the typhoons in July.

Falling Oil Prices: Good News or Bad?

Oil prices have been decreasing from the record-high of $150 this summer, as Caity’s post from last week mentioned (Gas prices down 10 cents in 4 days). This article further elaborates on the potential impact of falling prices. You’d think falling oil prices would be met with cheers all around, and maybe that’s a good thing. But for the US economy as a whole, are falling prices something to worry about?

The article argues that the decline actually reflects lower consumer demand and indicates that an economic recession is right around the corner, if not at our doorstep. With recession comes less jobs, which will further pressure demand. Americans are driving 4% less than the previous year, and are using 2% less energy. The economy – the industrial sector in particular – suffered huge blows from the recent crude-price surge. After slashing output and jobs, and shifting production focus from oil guzzlers to smaller cars, companies like General Motor might view a fall in gas prices to be like trying to stick a Band-Aid on a sinkhole – too little, too late. Those jobs are gone. The market that made them money (trucks, etc) is floundering.

Also, because people are starting to realize they can’t keep living beyond their means due to a shrinking credit window, they’re not going to demand SUVs and trucks just because gas is cheaper. They’re not going to be demanding much of anything, actually. However, the article ends on a (slightly) optimistic note, saying that oil prices may continue to fall, and fall hard. This may alleviate some of the pressure on the average American wallet, and allow people to spend, save, or repay debts.

Are falling oil prices enough to offset some of the impacts of an economic recession? I think probably not to a great extent. But it’s something that will help out the everyday population, which I think is significant. It’s something that will alleviate some of the stress placed on households, small businesses, and anyone who is waiting for the trickles of a $700 billion bailout to reach them. Oil prices – along with Wall Street’s wake-up call – may provide America with an opportunity for a breather: to stop, sit back, evaluate spending habits and reliance on credit, and prepare for a very possible recession.

Equador's Symbol for Change

President Rafael Correa, a 45 year old US trained economist, is introducing a 444-article plan for the future to his country of Ecuador. Some of the most contraversal are

• The state to tighten control of vital industries such as oil, mining and telecommunications and reduce monopolies
• Some foreign loans to be declared illegitimate, which could allow the government to stop debt repayments
• The state allowed to expropriate and redistribute idle farm land and ban large land-holdings
• The president allowed to stand for a second four-year term in office
• Free health care for older citizens
• Civil marriage for gay partner

He is very popular amongst the lower income and indigenous communities. The problem with that is most of the people who's support he needs are already too disenfranchised with the political system they might not even vote. His objectors come from business owners who are worried about their investments. Some say with this the president will have too much power, others say he is just a puppet of Venezuelan President Hugo Chavez. This fight for the middle class versus the elite is definitely analogous to the presidential campaign now.

Kgalema Motlanthe sworn in as President of South Africa

Kgalema Motlanthe was recently sworn as president of South Africa after the recent resignation of Thabo Mbeki. Thabo Mbeki's resignation came right after his mediating the talks of the Zimbabwe heads of states. He was very much criticized for his private talks there but they ended up paying off after all. Not paying off enough however, to help his standing at home and still was forced to resign based on failed domestic policies.

Kgalema Motlanthe, who secured 269 of 360 votes by parliment members, will seek to do some mediating and tension cessation of his own while in office. He will lead a very divided party in the ANC (since Mbeki's resignation, 11 cabinet members resigned) and also have to ease tensions between supporters of Mbeki and his rival Jacob Zuma.

It seems as though S Africa would like to travel back to it's routes in choosing Kgalema Motlanthe, not in the sense of age (Motlanthe is younger), but struggle. Thabo Mbeki was a more rigid, and an acedemic, at times seeming out of touch with the everyday S African. His economic policies are indicative of that as he favors heavy deregulation. Motlanthe did not go abroad to become educated and spent 10 years on Robben Island. He only has a year as interim president, until Jacob Zuma is expected to take office, but he may be able to revive S Africa and the ANC with it.

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?

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.