How Wall Street boldly saved big exec bonuses

This article is about Wall Street's large firms first being saved by the government and the taxpayer's money and still paying out huge bonuses after the fact. The stipulation was that as long as the banks pay the TARP funds back they are free. With BofA leading the charge and others following, huge bonuses were and still are being paid out even without support of President Obama who called it obscene. However, the real question to contemplate is why these firms are paying it out instead of investing or saving it. Firstly, they are making huge profits now - not even through lending- which is their bread and butter, but through investments and trading. So, if most of their profits are coming from investments, the investment managers should be compensated right? Well the banks think so because they do not want to lose these people or "assets" as some CEO's may think of them. The article describes the whole situation after the 4 major bank CEO's went to Congress to explain their case and get reprimanded for the bonuses: JP Morgan, Goldman Sachs, Bank of America and Morgan Stanley were the banks.

Good News

This article discusses how firms have started to spend more money on public relations as a whole. Spending rose 4% in 2008 and 3% in 2009. Much of this has come in the wake of the global recession. Companies have faced negative press in the wake of government bail-outs and huge company bonuses. This negative press could easily bring down a company. In a capitalist economy, only companies that can stay popular and sell products will survive. Those who cannot will be forced to leave the market.

Staying in a positive light is getting harder. Besides the aforementioned bad press, traditional media is dying out. There are less reporters reporting on business in traditional media. This makes it much harder to get positive stories into the press. In addition, companies need to deal with new media on the Internet that allows people to post whatever they want. Companies must now worry about blogs like this one and take action to fight negative press. This greater need for public relations and media monitoring is surely to continue even when the economy improves. Doing business in the capitalist economy is bound to change very soon.

Dubai trying to get some respect back

This is a good article on cnbc.com which talks about the U.N. possibly relocating to Dubai. After reading this one has to wonder, what are the implications of this to the U.S.? Dubai sure has a lot of empty real estate in those new towers but will New York allow this to happen? I was not aware that New Yorkers were looking down upon the U.N.. I suppose it is a privilege to have it in this country and I hope the global organization stays here.

Iraqi oil may rival Saudi Arabia

Iraq sits on at least 115 billion barrels of proven oil reserves (not including what may be in unexplored desert areas), and is the world's third-largest behind Saudi Arabia and Canada. Today, Iraq produces about 2.4 million barrels a day. By 2017 Iraq is aiming to produce 11.65 million barrels a day. There are major obstacles to overcome that stem from decades of mismanagement, sanctions, and war. This article delves deeper into the current and future challenges Iraq faces in the oil industry.

How the Glazer family have milked debt-ridden United for millions

This is for all of you who follow the other football...this article talks about how one of the world's most famous sport clubs is on the brink of collapse because of debt accumulation by the owners of the club. One of the problems that has been brought up by the Glazer ownership of Manchester United is that England allows foreign ownership of their sport clubs whereas other European clubs, despite operating in the same European Union economic regulations, only allow domestic ownership. This, coupled with the massive debts incurred by Manchester United and fellow football clubs, has led to fears that these 'superclubs' will collapse and destroy a large part of the sport in England.

For those of you who follow English football, these developments could be very disheartening and need to be watched. For those of you who are more interested in American sports, one of the things that have been argued for to control costs in Premier League and other European clubs is the concept of a salary cap. Since the ownership structure in leagues such as the NFL and NHL is more centralized than the virtually anarchic, winner-take-all system in the EPL, a salary cap is more difficult to enforce. How to reconcile the decentralized structure with the need to control costs is also an interesting thought for any system, be it a nation or a group of soccer teams.

Google’s Threat Echoed Everywhere, Except China

This article discusses how Google plans to stop all cooperation with the Chinese Internet censorship program, and is considering shutting down through out the country. The Chinese, however, heard a very censored version of this news.

I thought this was very interesting and especially related to our discussion today in class about economics systems, and how there are so many different ones. This is also an interesting topic about public choice. It would be interesting to see how censored our news is and we might not even know it.

Many Reluctant to Hire Because of New Taxes, Rules

A potential wave of new regulation and higher taxes may be scaring many businesses from hiring, prolonging any rebound in employment, say business groups and economists.

The prospect of increased federal and state regulation and taxes has been particularly disruptive to the hiring plans of small- and medium-sized businesses, which have historically generated about two-thirds of the nation's jobs.

G.M. Plans to Close Saab After Sales Talks Collapse

This article discusses how GM has been struggling to find a buyer for Saab.  The company is trying to find a good buyer that can serve the needs of Saabs loyal customers as well as increase the economies of scale.  I wonder how this will effect Saab owners service costs and parts replacement

Crash and Carry

This article discusses new research regarding the possibility to make steady profits from "carry trade." Carry trade describes a certain foreign exchange trading scheme where borrowing cheaply in a “funding” currency can exploit high interest rates in a “target” currency. This is pertinent because the U.S. dollar has recently become a prime currency for carry trade (due to the recession and America's near-zero rates).

Debtor's Dilemma

With the value of most home mortgages being greater the actual value of their homes, homeowners are deciding on an option to stick with the mortgage payments, or declare a foreclosure. Could mortgages be linked to unemployment? The continual decrease in value of homes and their mortgage holding a higher value then their home is related to homeowners inability to move. Homeowners often move due to job opportunities that have become available. With their inability to move, this affects their ability to choice. Would declaring a foreclosure have more benefits then the long-term costs?

Banking in Venezuela: Fall of the Boligarchs

Hugo Chavez is looking for people to blame as Venezuela declines into a further economic recession. He has jailed several big bankers in an attempt to solve the dilema, however just that was is unknown. If Chavez continues on this path of attacking private banks, he will scare off investment in the future and worsen the economic situation. In addition, his repressive techniques make for an unstable and often violent environment, which studies have shown do not promote growth.

Introducing a Twitter for Credit Card Purchases

Not really sure how this is going to make money and I think it's a little strange that people want to share their credit card purchases.  I wonder how the company insures privacy

Stocks, Oil Advance as Dollar Weakens Before Fed Sets Policy

On December 16th, US and European stocks rose on speculation that the Federal Reserve will announce its plans to sustain a record low interest rates for an extended period. The S&P 500 index went up by 0.6 percent, the European Dow Jones Stoxx 600 index gained for a fifth straight day, Russia’s Micex index jumped 4.2 percent, oil surged above $73 in New York, and copper and gold rose as well. It is very likely that the Fed will keep interest rates low for the next few quarters. It will be known soon whether this will be the Fed’s strategy or not.

Fighting Poverty in Emerging Markets

The article talks about combating poverty in China, India, and Brazil. The author states that in 1981, 84% of China’s population was below the poverty line; while in 2005 the share was just 16%. India did least well, cutting the share below the poverty line from 60% to 42% between 1981 and 2005. This implies an annual reduction of 1.5% a year. Although the three countries did very well in fighting poverty, now they face certain problems. According to the author, India and China now see growing inequality. In India, this is especially affected by the legacy of the caste system. I think that for China now it is natural to see more inequality as it is transitioning to a market economy, which implies a certain level of inequality that may be even called a market failure. However, since the transition is gradual, the negative effects are greatly reduced.

Poll Reveals Trauma of Joblessness in U.S.

This article puts faces to the unemployment numbers that continuously come up on this blog.  The article examines the psychological effects of unemployment on families.

Rusal, an Aluminum Maker, Strikes Restructuring Deal With Creditors

This article by Andrew Kramer talks about the restructuring of the debt of the Russia's aluminium giant - Rusal, which is the remains of the Chernoy's aluminium monopoly. Rusal is the largest aluminum producer in the world, which is struggling under $16.7 billion in debt. Now it has agreed with about 70 banks to restructure its loans and begin repayments when earnings improve. "The deal, apparently on lenient terms for Rusal and its owner, the Russian oligarch Oleg V. Deripaska, also clears the way for Rusal to take the next step back from the brink of bankruptcy: selling 10 percent of the company in an initial public offering this month." The unavoidable question is, whether this initial public offering is going to really improve the situation since from the Russian experience it is unclear, who is going to own these 10 percent?

The article also displays the struggle of the Russian industry, which, as a legacy to the Soviet Union, is extremely inefficient and corrupted. Most of the Russian industrial giants are currently undergoing the same problems, which mostly lie in the systematic deficiencies of the Russian economy.

Obama tells US banks to lend more and not oppose reform

President Obama is telling bankers to lend loans to small and medium sized businesses. Obama also criticized the lobbyist during his meeting that they are trying to stall down his administrations financial services sector's reform and stop trying to block his moves for regulatory reform.

British Airway crews vote to strike

British Airways holiday travelers face the prospect of some holiday season chaos after cabin crew members voted to strike for almost two weeks over Christmas and New Years. This is in response to British Airways introducing cost-cutting measures including a two-year pay freeze and reducing number of crew members on long-haul flights. If this problem isn't resolved in time it will have a huge detrimental affect upon British Airways and it would disrupt many passengers who have already made flight arrangements with British Airways or have connections that must be made. Furthermore, the holiday season is usually a time when airlines are the busiest and there will be huge fiscal implications if British Airways misses out. So to all of you British Airways holiday fliers out there... sucks to be you.

Summers Predicts Job Growth by Spring

President Barack Obama’s top economic advisor, Lawrence Summers, predicted that jobs will start growing again in spring 2010. According to the most recent statistics, there are 15.4 million people who are looking for jobs now. Mr. Summers said that “everyone agrees that the recession is over.” However, everyone believes that the recession is going to be over only when the unemployment rate will return back to its normal level. In addition, President Obama will meet with bank executives this week to encourage them to start lending to consumers. President Obama pointed out that the government bailed out banks to keep them moving and lending money to people. It is time for banks to force themselves to lend money again.

Citigroup Nears Deal to Return Billions in Bailout Funds

Citigroup is the last of the Wall Street banks to exit the government's bailout program. President Obama is meeting with bank executives to speed up the process, in hopes to stimulate lending to small businesses and homeowners. Obama will also address the size and salaries of bank executives (for all banks), an ongoing issue throughout the crisis. Obama's goal is job creation. If big banks begin lending again, small business can fuel our recovery by hiring and rehiring employees. Though Citigroup is close to repayment, the company hasn't posted profits in seven quarters and it is unlikely to happen in 2010 as well.

Abu Dhabi gives Dubai $10bn to help meet pay debts

Abu Dhabi has given the Dubai government $10 bn to bail out the government owned company of Dubai World. The money was needed in Islamic bonds to pay to its investors and the money will help Dubai to meet short term financial commitments. This news will bring all finance markets on track in Dubai as they were negatively affected when the news of Dubai unable to pay back debt was revealed.

Islamic Finance in France

This article is very interesting because it talks about the adoption of Islamic finance principles in the European countries. The reasons for that lie mostly in the opportunity to make profit rather than in cultural motives. For instance, the author states that since the recession started the Islamic finance started to look like an "attractive business," with "worldwide sharia-compliant assets increased by 29% over the past year to $822 billion." However, the introduction of Islamic finance rules in France led to a hot debate in the government, which opposes the whole idea.

Summers Predicts Job Growth by Spring

This is an interesting article for the seniors found in the New York Times! Hopefully by the time we graduate, Mr. Summers' prediction will help us out.

Mr. Summers said that President Obama will be encouraging banks to expand the flow of credit to small businesses, which, in his opinion, is very easy to do. If that plan works, then many people will either be getting their jobs back or new jobs will be opening up. However, on OUR end of things, seniors, we will be fresh out of college with the skills needed to perform the jobs that are open.

Summers said that they are planning to create more jobs by having "every bill passed be a job bill." Obama is planning on spending $50 billion to repair the United States infrastructure.

Although republicans and centrist senators are skeptical about the plan, the Obama office seems upbeat and confident that it will work. Hopefully, for our sake, his plan works and more jobs will be created just in time for graduation!

Military use of consumer technology: War games

This article discusses the use of video games in the military. As of recently, video games are becoming very realistic. The military has used this to their advantage when they are recruiting people. More specifically, the military is going to use video-game consoles to build a supercomputer that works as an operating system. This can be used for research and development purposes. Soldiers are also using Apple’s iPod and iPhone applications to
view intelligence information. An iPhone app called Bullet Flight lets snipers calculate range and trajectory for their shots. I am glad that these materialistic things can bring some help to our troops. It is amazing to think of all of these new apps for the iPhone and the future of technology.

Paul Volcker: Think More Boldly

Does financial innovation contribute to economic growth?

That became a hot debate at the Future of Finance Initiative after former Federal Reserve Board Chairman Paul Volcker chastised the largely private-sector group for the timidity of its proposals, and said the ATM was the only financial innovation he can think of that has improved society.

Fixing the Global Financial System

More than a year has passed since an unprecedented crisis pushed the world financial system to the brink.

Yet plans to rebuild that system on more stable footing remain embryonic. Differences among regulators, businesses and governments have slowed reform plans. And hefty bank profits, fed by easy credit and government aid, have drained the sense of urgency.

Which Globalization Will Survive?

Although this article was written last April, it is relevant to the European Union's current environmental discussions in Copenhagen.  Joseph Nye actually came to speak at Ohio Wesleyan last year.

Paul A. Samuelson, Groundbreaking Economist, Dies at 94

This article outlines the many contributions that Paul Samuelson made to the study of economics.  Some of his contributions include being the first American Nobel Laureate in economics, improving the Massachusetts Institute of Technology graduate programs, and explaining Keynesian economics to President Kennedy.  The article is a nice obituary to a renowned economist.

China's President Hu Jintao opens Kazakh gas pipeline

China and Kazakhstan open a gas pipeline and a new relationship with each other. It is an attempt by China to make its resources more secure. It is a 4,3000 miles long natural gas pipeline which does not go through Russia. It cost around $6 bn and completed in two years. This pipeline will help the Asian countries by being less dependant on Russia buying up their supplies.

Secret sauce

This article discusses the source of China's impressive growth and attributes it not just to intensive capital investment, but also tremendous productivity gains. Many believe that China's growth has been due to investment, but research shows that the growth has also been due to more efficient uses of labor and capital.

Productivity was measured using "total factor productivity", which takes into account both labor and capital productivity. From 1990 to 2008, China's productivity grew ~4% annually, while OECD countries (US, Japan, etc) grew about 1%. The main reason for such improvement is China's rapid adoption of technology. Not only is China starting from a very low technological base, but it also strongly encourages foreign investment that brings new technology into the country.

China provides good contrast to the USSR, where despite heavy investment, the economy still collapsed because it did not result in productivity gains.

2.8% drop in lending is largest since 1984

It seems like the monetary policy in theory does not work in real life. Even though the policy rates are historically low, banks reduced the amount of money extended to their customers by $210.4 billion (2.8%) between July and September, cutting back in almost every category and this is the largest drop at least since 1984. "We need to see banks making more loans to their business customers," FDIC Chairman Sheila C. Bair said Tuesday. The government has been trying to impose number of programs, but so far has resisted calls to proceed. The FDIC said that just three new banks were created during the third quarter, the smallest number since World War II.

China's Output Beats Estimates as Export Slide Slows

This article talks about how China will serve as the leader to global recovery. China's production grew more than estimated in November. Consumer prices rose .6 percent, the first increase in 10 months. As more and more countries and companies rely on Chinese production, the global economy grows smaller. China will be the first to recover and will dictate the pace for subsequent countries.

How Many Ways Can You Tax the Rich?

Democrats are looking at different strategies on how to tax rich to pay off the most of the deficit. According to Mr. Obama’s campaign, taxes should be raised on everyone whose income exceeds $200,000. IRS reported that they collected $610 billion in tax revenues from people who made more than $200,000. It is 44 percent of total tax revenue. However, some experts say that it will be not enough, and less rich people should also pay more in taxes. There was a proposition to raise marginal rate to about 55 percent in high-tax states. This level was not seen since the pre-Reagan era. On the other hand, this tax strategy can backfire by offering their rivals a political opening ahead of next year’s midterm elections.

US House of Representatives backs financial reform bill

President Obama makes financial reform one of his main goals. The bill will be focusing on creating new monitor consumer banking transactions that will give the govt. authority to stop economically threatening companies. it will pull down the companies which ensures shareholders and unsecured creditors and not taxpayers preventing from losses. President Obama is blaming the Wall Street and govt failures for financial crisis. Senate have to pass the bill before the President signs it.

Iraq oil development rights contracts awarded

UK's Shell and Malaysia' s Petronas won the bid to have the right to develop Iraqi oil field Majnoon. Majnoon reserves has 13 billion barrels of oil but currently they are producing just 46,000 barrels per day. Shell and Petronas pledge to increase the output by 1.8 million barrels per day. There are potential benefits for Iraq as it daily output is about 2.4 million barrells but it may triple over the next couple of years. This will also help Iraq in improving their economy.

EU agrees climate pledge that may boost Copenhagen

EU leaders agree on paying $10 bn to help developing countries in adjusting to climate change policies over the next 3 years. The EU members have promised to reduce their greenhouse gas emission up to 20% and are willing to reduce upto 30% if other nations are willing to do so. Financial matters are being discussed as well in the meeting. EU leaders is suggesting the IMF to implement a global tax on financial transactions so the banks do not take excessive risks that could lead to another financial crisis called a "Tobin tax". More EU countries like France and the UK are pushing it than the U.S.

Losing its shine

IT IS not unusual in Japan for corporate leaders to make semi-ritualised displays of humility. But when Akio Toyoda, president of Toyota Motor Corporation since June and grandson of the firm’s founder, addressed an audience of Japanese journalists in October his words shocked the world’s car industry. Mr Toyoda had been reading “How the Mighty Fall”, a book by Jim Collins, an American management guru. In it, Mr Collins (best known for an earlier, more upbeat work, “Good to Great”) describes the five stages through which a proud and thriving company passes on its way to becoming a basket-case. First comes hubris born of success; second, the undisciplined pursuit of more; third, denial of risk and peril; fourth, grasping for salvation; and last, capitulation to irrelevance or death.

Recession's latest victim: U.S. innovation

U.S. innovation slowed this year for the first time in 13 years as the recession cut into budgets, and costs to protect inventions rose. The number of patent filings in the United States fell 2.3% in 2009 to 485,500 from 496,886 last year, according to a preliminary estimate by the U.S. Patent and Trademark Office. That makes 2009 the first year since 1996 in which businesses and inventors filed fewer patents year over year. At the same time, U.S. patents issued to inventors and businesses in foreign nations jumped 6.3% for the year. This should be a large concern for us considering that part of the demise of most of the failed economic systems we have learned was a lack of innovation and technological advancements.

Hard Times

This article discusses how Irish finance minister, Brian Lenihan, in effect cut the pay of public-sector workers earlier this year by introducing a special 7% pension levy. To add to this, his 2010 budget will inflict even more pain by imposing steep pay cuts on public employees. These pay cuts came as a result of a sharp economic contraction in Ireland. GDP is projected to decline by 7.5% in 2009 and a further 1.3% in 2010.

Is a bonus tax in our future?

The United Kingdom this week slapped a 50% tax on bankers' bonuses above about $40,000. The one-time tax will be paid by all banks with employees in the country. France pledged it would adopt the same policy, while Germany's chancellor called the idea "charming". Still, the bonus tax seems like a long shot on this side of the Atlantic, where bankers wield immense power. But when Wall Street starts handing out giant year-end paychecks at a time of 10% unemployment, all the campaign donations in the world may not keep legislators facing tough re-election fights from turning on their banker chums. It is an interesting proposition after Goldman Sachs announced that their top 30 executives will not be receiving cash bonuses, but if foreclosures and unemployment remain uncomfortably high, ideas like a bonus tax could gain steam.