Obama takes aim at the Greenspan era

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

Markets Fall Sharply, Erasing Election Day Gains

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


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


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

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

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

Russia and the unfolding global recession

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

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

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

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

New Economic Plan?!

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

Socialism, the oil way?

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

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

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

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

China: Rich Country, Poor Country

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

Risky Industries for jobs

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

Stocks likely to recover no matter who's president

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

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

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

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

Gloom Spreads in EU's economies

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

Are We Finally in a Recession?

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

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

Despite Low Gas Prices Auto Sales Suffering

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

Japanese-Brazilians in Japan

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

Inflation in Vietnam seen through ceramics industry

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

Story of 2 Chinese who opposed the Cultural Revolution

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

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

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

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

China's Land Use Policies

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

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

(Article from Time Magazine; November 3, 2008)

What we can learn from the Japanese

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

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

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

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

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

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

Rough Seas ahead

New figure show that even with a small gain in income, Americans are spending less and less, due to the gloomy outlook of the economy. The Commerce Department reported that household in come only had a small 0.2 percent gain, but consumer spending had sharp drop; of 0.3 percent in the month of September. Figures also shows that the U.S economy shrank 0.3 percent during the third quarter. That combined with the current Bush administration hinting to automakers and other industries that they might not be qualified for the government $250 billion stock purchase program. but they could be the benefactor of a separate government purchase program in which the government plans to spend $100billion in purchasing stocks in banks to remove the bad assets on the bank's books, such as bad auto loans.

With consumer confidence dropping fast and hard times ahead, Federal Reserve Chairman Ben Bernanke warned the government that whatever system is set up after the government take over of mortgage giants Fannie Mae and Freddie Mac, that this system much have better safeguards to keep the system functioning in times of stress.

"The boom in subprime mortgage lending was only part of a much broader credit boom characterized by underpricing of risk, excessive leverage and the creation of complex and opaque financial instruments that proved fragile under stress," Bernanke said

With the holiday season coming in stores are bracing for lowest sales. And Economists expects Armenians to further cut spending and it looks like hard times ahead.

India May Actually Benefit in the Long Run

Although high interest rates and resulting higher costs—coupled with high oil prices, decelerating global growth, slowing export markets, depreciation of the rupee and the global financial turmoil—have taken their toll on India's economy the Indian government maintains that the Economy will continue to grow at close to 8%. The Economist Intelligence Unit, is however less optimistic and estimates a growth of close to 6.5% for the next two fiscal years. The article claims that this is not all bad news because although the country’s growth rate will slow down it will still be among the fastest growing economies of the world. Moreover, the article claims that the current global situation is making India’s measured pace of economics reform look “wiser than before.” “At a time when Western countries are frantically nationalizing banking assets, the Indian government's reluctance to sell more than 49% in its state-owned banks—which control some 70% of banking assets—now seems reassuring. In addition, India has not yet introduced full capital-account convertibility, which protects its currency, while its careful control of foreign borrowings by domestic companies limits dependence on the global financial system. Regulators have also periodically introduced curbs to slow the formation of potential asset bubbles, such as higher provisioning and prudential requirements on real-estate lending.” The article claims that once the world moves towards a more stable platform, India is likely to emerge as an attractive destination for investment. Although India has not escaped the global crisis, Indian companies seem to be looking for opportunities in the crisis.

Being from India, I think I somewhat identify with this never say die attitude. Having lived in Mumbai, the commercial capital of India I can well picture how the country is ready to bounce back and make the best of what it has. I think its really interesting that in spite of being caught in the crisis, it is expected that the country may actually benefit in the long run.

Parsing the Google, Yahoo, Microsoft “Global Network Initiative”

The big three U.S. internet giants (Google, Microsoft, Yahoo) have agreed upon a common set of principles to guide their business in nations such as China that restrict free speech and expression.
Members of the Global Network Initiative, which include both companies and well-known human rights organizations such as Human Rights in China, are quick to point out that the initiative isn’t just a set of rules for doing business in China. Unlike the tabled Global Online Freedom Act that would have made it a crime for U.S. companies to turn over personal information to governments in “Internet-restricting countries,” this voluntary initiative applies to doing business everywhere — and works more as a framework to help Internet companies do the due diligence that can help them avoid the ethical lapses for which they’ve been roundly criticized. (In front of Congress last year, Yahoo’s Chief Executive Jerry Yang apologized to the mother of journalist Shi Tao, who was jailed after a unit of the company handed information about him to Chinese authorities in 2004.)

They know that this will not fix all of the situations. However, the key idea behind this is to start thinking about the problems before they start to get worse.

Fed Cuts Rates

In lieu of the current economic downturn, the Fed cut interest rates to 1% along with other countries including China and Norway who are cutting their interest rates as well. According to the article "Lower interest rates are usually a powerful tool to boost economic growth, because they reduce the cost of borrowing for businesses and consumers, giving them an incentive to start new projects or spend money. Lower rates also reduce the cost of funds for banks, which theoretically should make them more willing to lend."
However, the Fed is concerned that cutting the interest rates will not boost the economy as it traditionally does. For example, Japan cut interest rates to 0%. Due to the economic crisis and people gearing towards risk adversity "zero percent interest rates failed to revive the economy earlier this decade"

Dear Mr. President

This article interviews seven Nobel laureates and gathers their advice on how they think the next President should go about fixing the economy. The Nobel lareates range from Paul Krugman, Joseph E. Stiglitz and Edmund Phelps. This is a really long article but is very informative and interesting to read.

Dear Mr. President
Advice from seven Nobel laureates on fixing the economy.
By Katie Paul NEWSWEEK
Published Oct 22, 2008

Lessons from a crisis

This article relates directly to what we have been studying in class. It discusses the flaws of free-market capitalism and suggests that it is the reason for the crisis here in the US. I found it really interesting that some believe free markets are a mistake.

Lessons from a crisis
Oct 2nd 2008 PARIS
From The Economist print edition

A globalized economy

It is quite clear that the financial crisis that we are currently in the midst of is also a problem that the rest of the world is having, as well, which really shows how we're in a globalized economy-problems in one country affect a great deal of other countries.  What I think is really cool, though, is how countries are working together to help to fix the crisis.  For instance, in the article Asia, Europe reach consensus on financial crisis, it discusses how countries are doing just that.  There was a two-day Asia-Europe Meeting in Beijing that 43 countries attended, and they issued a statement that, among other things, called for the IMF to help "stabilize struggling banks and shore up flagging stock markets," according to the article.  I think that this shows that as the world becomes further globalized, it becomes increasingly important to connect with other countries during problematic times.

OECD- Governments should avoid the "trap" of over-regulating the market

Klaus Schmidt-Hebbel, chief economist of the OECD said that the world has been saved from another “great depression” by massive state intervention although the governments need to be wary of the “trap” of excessive regulation. Excessive regulation, he said, can do damage by inhibiting future financial innovations, market integration and growth. The economic times quotes him as saying the the world requires better regulation and not just more regulation. Schmidth-Hebbel’s interview the OECD’s keenly-awaited Economic Outlook Report which is due next month. The report will examine the impact of the financial crisis on the real economy and ask what lessons can be drawn from it. In that light then, the article raises two interesting questions:

• Should the unprecedented state intervention of the last two weeks to save banks in Europe and the US be seen as a temporary move by governments as lenders of last resort in line with the lessons of the 1930s Depression?
• Or should it be the start of a reversal of the opening up and deregulation of global markets since the 1980s?

I am interested in seeing what everyone else thinks and what your views are on the same. I personally think it is the first option over the second...may be...?

Andrew Lahde who just closed up $300 mil hedge fund and left, w/ his famous farewell letter

I just heard about this guy, Andrew Lahde and found his letter pretty interesting/crazy/extraordinary >_<. Andrew Lahde is a California-based hedge fund manager who in 2007 earned some fame for achieving return rates in the vicinity of 1000% with his Lahde Capital, based in Santa Monica, California. The fund speculated on increases of U.S. subprime mortgage defaults. He earned a bachelor's degree in finance from Michigan State University and an MBA from UCLA. Basically, what happened is that he earned a lot of money ($300 mil), and then decided to close down the fund about 2 weeks ago. Here is part of his letter:
"What I have learned about the hedge fund business is that I hate it.

I was in this game for the money. The low-hanging fruit, the idiots whose parents paid for prep school, Yale and then the Harvard MBA, who were there for the taking.

These people who were (often) truly not worthy of the education they had received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I will no longer manage money for other people or institutions. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. I have enough of my own wealth to manage. I will let others try to amass nine, 10 or 11-figure net worths.

Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two-week vacation in January during which they will be glued to their Blackberries or other such devices.

What is the point? They will all be forgotten in 50 years anyway. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life. So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the sub-prime debacle."

You can google his name and will find a lot of articles talking about him now. I have a thought, which I have been pondering for a while now.. It seems to me that the crisis time gives the rich an opportunity to get richer, while the poor will still get poorer. Isn't that sad? I'm talking about guys who have capital to buy all the assets (houses, stocks, etc) when they are at low prices and can actually hold on to it and wait until the economy gets better and the assets gain much higher values to sell them... Anyhow, I hope you'll tell us what you think about Lahde's letter.

US foreclosure filings up 71 percent in 3Q

The number of homeowners trapped in the foreclosure crisis grew by more than 70 percent in the third quarter of this year compared with the same period in 2007, according to data released Thursday. Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, up 71 percent from a year earlier, said foreclosure listing service RealtyTrac Inc. By the end of the year, RealtyTrac expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.

Six states — California, Florida, Arizona, Ohio, Michigan and Nevada — accounted for more than 60 percent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all U.S. foreclosure filings.

The combination of sinking home values, tighter mortgage lending criteria and an economy that many economists think has already slipped into recession has left hundreds of thousands of homeowners with few options. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan, with the global credit crisis making loans far less available.

It remains to be seen how much the government's intervention will stem the housing crisis. Earlier this month, the Federal Housing Administration launched a program that aims to prevent foreclosures by allowing homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. The bill is projected to help about 400,000 households.

Reference: Yahoo Financial News

France Public Choice could be used in the US?

The France government have set up public bike rental stands in Lyon France. Though this article is not directly about the economy, but its a public choice that France has made, and I personally think its a very good and clever one. One of the users of this public good is quoted as follow in the article:

“Rates are quite low, more or less around 1€ per hour.”
“The first 30 minutes are free - to encourage small commuting and the rotation of the bikes at the numerous stations.”
“Bikes are really heavy but the ride is pretty smooth, they have two drum brakes, 3 internal gear, lights and a small lock.”

Having public bike rentals can solve many of our current problem, First the current energy problem, a bike could be a lot cheaper than driving and the first 30mins in free. One might consider driving into a city because they could drive from spot to spot, but with rental bikes one could just ride the bus to the city and commute with the bike with out worrying about parking, gas etc... There's a lot of positive externalities to this programs also, with more bikes available people will bike more, promoting a healthier life style and possibly save on health care costs for the government. With more people biking as a way of commuting there's less pollution making for cleaner cities. I think this program could be a great idea and see whether our city could follow France's example and start riding and beside who doesn't like riding a bike?

Current commitments and decisions leaves the next president with his hands tied

As Congress passes the $700 billion bail out, and the military commitment overseas for the United States, Howard Fineman sees limited options for the next president. Neither canadaite will "cut and run" on the Iraq war, and internationally countries like Isreal are looking for the U.S to play larger roles. These commitments all costs and money and ss the U.S is running further into debt and with foriegners holding bear $3 trillion government debt it will become harder and harder for the U.S government to leverage money.
This articles should keep the hopeless optimists in check, letting them know even if they selected the right man for the job, either Obama or McCain, the president might not have the power to turn the economy around, this problem might require a long term fix.

3 Oil Countries Face A Reckoning: Fall in Prices Threatens Big Political Visions

I want to bring here another piece of information from the oil industry. As oil prices drop, 3 oil countries: Venezuela, Iran, and Russia are facing a lot of difficulties pursuing their political ambitions. For all three nations, oil money was a means to an "ideological end":
- Venezuela: Its President Hugo Chávez's goal is to build a socialist-inspired state, and suppress opposition. Venezuela used petrodollars to buy Russian weaponry, to win friends in the hemisphere and elsewhere (nations that are also anti-America in a sense), and to create a wide array of social welfare programs. Problems right now with Venezuela: high inflation rate (36%), while heavy government deficit once oil prices fail. "We're in the same situation of people who have lost a limb but can still feel it," said Ricardo Hausmann, a Venezuelan economist who teaches at Harvard University.
- Iran: Another nation that is very dependent on oil money. It has used them in the past four years as a political and economic weapon to defy and undermine the West while promoting its own agenda (spread its influence in Iraq and then the Middle East, promote itself as the leader of the Islamic world and continue its nuclear program) Almost same problem with Venezuela, the inflation rate in Iran is very high (30%). "It's not expected that economics will force Iran to change its underlying ideology-long-term goals. Still, if prices stay depressed for long, it could mean a greater willingness in Tehran to find a compromise on the nuclear issue, and, perhaps, a political shift that left Mr. Ahmadinejad vulnerable in June's presidential election.
- Russia: Russia was willing to use its vast energy reserves to try to reassert the dominance it lost with the Soviet Union's collapse. As we might remember, two months ago when Russia invaded Georgia, almost no nations really do anything. Europe had become dependent on Russia's gas and couldn't afford to mount a strong challenge. Now that Europeans may no longer be as intimidated because of the drop in oil prices, Russia's goal is being threatened.
Almost every country is in the trial process to see what economic system would work. With the oil prices effects, the systems in Venezuela, Iran and Russia will need to try hard to prove whether it is viable.

Falling oil prices - OPEC's emergency meeting

As consumer confidence falls and aggregate demand drops, so do oil prices. Oil prices have fallen 40% since its peak of $147 per barrel in Mid-July. "The OPEC basket, a blend of OPEC crudes, dropped through the psychologically important $80-per-barrel level, to $77.38, on Oct. 9." OPEC has called for an emergency meeting in Vienna this November on Oct. 9, but now has just moved its emergency meeting even earlier, to Oct 24th. Public is eager to see whether an output cut will happen, and to what extent it will be. OPEC is a so-called cartel, containing the Saudi Arabia and its Gulf allies, Iran and Venezuela. According to "Behind OPEC's November meeting in Vienna" in the BusinessWeek, Venezuela president has just moved to the Saudi Arabia's side. So now the two main players of this meeting will be the Iranians, who want to have a huge cut (they favor a $100-per-barrel floor prices), and the Saudis, who believe that such a cut is absurd and will make the current economy even worse.
If you are interested, here are a few articles that you can have a look at.


The Economist: OPEC's emergency meeting



The BusinessWeek: Behind OPEC's November meeting in Vienna

To Save or Not to Save

My mom made an interesting comment the other day, about how it was too bad Lehman Brothers didn't fall apart later, so that they could benefit from recieving a bailout from the government, like AIG. What was interesting about her comment, is that, yes AIG did recieve a government bailout, however, the repayment terms of the bailout are so steep, that inevitabley the insurance giant will go bankrupt paying it all back. I know this because my dad, who worked for AIG for 20 years up until this time last year, now works for AIG's former CEO Hank Greenberg, who sent out a letter to the employees of his company CV Starr, explaining the details of AIG's bailout, and how it was bring down the company in the long run. He wishes to save AIG, and proposes new terms for repaying the bailout.

So the real question is, is it worth actually bailing out a company, if it only just prolongs the day they have to close, instead of helping to keep them open indefinately? Or is this the price a firm should pay for reckless behavior

Malaysia reveals plan to prevent slow down

Malaysia has unveiled a number of measures to boost its stock market and attract more foreign investment in expectation of slower growth in 2009.
The government will invest 5bn ringgit (£814.4m; $1.4bn) into a state agency that will invest in undervalued stocks.
Malaysia's stock market has plummeted 37% this year.
The government will also speed up market liberalisation and ease rules concerning foreign investors buying industrial land and property.
Despite the action, Malaysian finance minister Najib Rasak has denied the country is in the grip of a financial crisis.Malaysia is expected to reduce its economic growth forecast of 5.4%. The Malaysian Institute of Economic Research has said the growth rate could fall to 3.4% next year.

In Times of Crisis, Buy Stocks.

Warren Buffett wrote an opinion piece in the NYT with advice that seemed contradictory to what I thought people would do during a major economic crisis with an unstable stock market -- buy more stocks. And not stock in foreign companies, where the money might be 'safer', but American stocks, the value of which are changing wildly every second.

Some of his arguments:

• He follows his own rule of: "Be fearful when others are greedy, and be greedy when others are fearful." When the stock market was at its prime, and investors were reaping billions of dollars of returns, he had his personal account put into secure government bonds. Now when everyone is fearful, that's when he is buying.
  
• People should not overlook the long-term prosperity of sound American companies, despite short-term uncertainty.
  
• "Bad news...lets you buy a slice of America's future at a marked-down price."
• After all that's happened to America in the past century (wars, a depression, an epidemic, etc) the stock market has continued to go up.
  
• People are holding cash right now to feel safe, but they shouldn't because it's a "terrible long-term asset". Especially after the potential inflationary effects of the bailout plan. Instead: equities, equities, equities.

I guess this is a form of long-term speculation but it also sounds like common sense. One's first instinct might be to pull money out of the market while they can before the value declines even further, but the better solution might be to wait out the crisis, and even add to that stock because now it's cheaper.

Then again, it may be only a certain number of people that have that much optimism and can afford to buy stock and wait for an unknown time before seeing any returns. Most people have immediate bills and loans to pay off and they need as much cash as they can get now.

In any case, Buffett sounds optimistic about the future (American optimism?), which may instill confidence amongst investors and the American public. (Well, probably the global public because of globalization and all). And I guess when one of the world's richest men tells you what he's doing with his own money at this time of crisis, you'd be silly not to at least consider what he has to say.

Japan's current account surplus halves in August

Asia's largest economy posted a surplus of 988.8 billion yen (9.7 billion dollars) in its current account, the broadest measure of trade in goods and services, down 52.5 percent from a year earlier.
Japan's economy suffered its worst contraction in seven years in the second quarter of this year and there are fears that it is now in a recession.

China's economic growth rate slows down

The country's economic growth rate has fallen for the third quarter in succession. Its current growth rate is 9%, as compared to the previous 10.1% over the previous quarter. The Chinese government has started some measures to prevent the economy from plummeting. These included changing its focus from preventing the overheating of the economy and preventing structural inflation to the "preserving growth" and "controlling" inflation. Inflation is kept under control. The National Bureau of Statistics also announced that consumer price inflation had cooled to a 15-month low of 4.6% in September. In February, the inflation rate had hit a 12-year-peak of 8.7%.

Automakers Hit Hard

Chrysler has reduced construction of vehicles. They are now only producing Jeeps and minivans. The company has already cut over 64,000 jobs. Now the Chrysler CEO is talking to the GM CEO to make a deal.

The marriage of the companies would be beneficial for both sides. Chrysler owner Cerberus Capital Management no longer wants to be in the business. And GM CEO is in desperate need for credit. The GM is facing is keeping enough funds while the market rebounds.

2009 is projected to be an even worse year for automakers and analysts have lowered their prediction to only 13 million vehicles being sold in the US; this is a 3 million vehicle drop from 2007.

Joe the Plumber is Safe

Throughout the debates John McCain has been claiming Obama's tax increase would hinder small businesses. However, according to CNNmoney McCain is using too narrow a definition for small business and does not have his numbers right.

Out of 34.7 million small businesses only 479,000 would have an increase. This number is less than two percent. Also, the term small business is a very broad term. McCain and Obama file as a business because of their book royalties, but neither own a business.

Only the upper two brackets would face a tax increase. Small business owners who bring in an income above 150,000 dollars as a single filer would pay a little less than 2,000 dollars more each year. The bracket would move from 33% to 35%.

Therefore, Joe the Plumber can start his business and sleep easy at night about taxes.

Cities Slash Services

This article goes into detail on why some cities are cutting services. Between the suffering economy and the mortgage crisis, cities are being forced to cut expenses because of lower tax revenues and investment returns lacking. Problems in the economy today are forcing changes some would not expect. In Oakland, California the public library is cutting programs for the elderly and disabled, bookmobile, and literacy programs. Cities in the Midwest can expect more snow on the roads this winter because a spike in road salt prices. In Aspen, Colorado the city is delaying the construction of a $360,000 foam pit for snowboarders practicing tricks in the city gym. In Phoenix, the city will not be able to afford trimming of all palm trees, and will limit trimming only on major roads.
In response to hard times, cities are also trying ways to generate more revenue or saving their money. New Jersey governor, Jon Corzine, is telling cities to start combining some of their services or they will be penalized by a reduction in state aid. In Chicago the city is giving workers 3 more unpaid days off work, which is said to save 20 million. New York is considering selling ads on the sides of garbage trucks and street sweepers to raise money.
I think its too bad that our poor economy is going to affect people in ways they may have not considered. Changes are defiantly being made, and some of them good. It is a good thing that cities are opening their eyes and looking for ways to be more efficient and alternate ways to generate revenue.

China 'can be engine of growth'

The American economic crisis was transmitted to the world through global financial markets, and many economies of different countries has been largely influenced. Resolving this crisis, according to Linda Yueh, will require rebalancing the global economy.

As China has $2 trillion in foreign exchange reserve, it has become a significant source of global savings. Even though the econmic crisis has slowed down China's economic growth, it is definately in a position to help with the credit crunch in the West as well as serve as an engine of growth.

Western goverments must borrow to help with the crisis, as increasing taxes is not advisible in a downturn. Borrowing large funds would mean an increas in future taxes and interest rates (contractionary policy), which could hinder econmic growth. Instead of borrowing from China and other countries, it would be much more helpful if the soverign wealth funds of these countries invest directly in western markets.