American Optimism

Many times I've been asked what people in other countries think of the United States and I have always struggled with how to really answer that question without having an hour long conversation. Last night on Bill Maher show NY Times columnist Thomas Friedman answered that question in the most eloquent way that I have heard so far:

Faith in market forces--root cause for current economic turmoil?

As the whole world is concerned about the global slowdown and the leaders of various countries work to weather the recent crisis that sent stocks into a steep decline, billionaire investor George Soros blames the turmoil on the faith in market forces. He believes that “the notion that markets are self-correcting is what led to the massive expansion of debt financing that culminated in sub-prime mortgages that epitomized the easy-money mentality at the root of the disaster.” He added that that this whole notion is built on false conceptions. According to Soros, it is this belief that became the dominant creed and this then led to the globalization of markets, the deregulation of markets and the increased use of leverage and all the financial engineering.
I think Soros’ opinion is a very extreme one. I feel like its not so simple to question the whole concept of markets being self-correcting. I would like to believe that the markets are what have the power and that it is the market forces of demand and supply that guide the economy. I wonder what everyone else has to say about Soros’ stand.

the middle market is doing suprisingly well

So i spoke to my old boss today, who owns a small investment banking boutique firm in Philly, and the news wasn't all bad.. 

The credit crunch and all its related problems have surprisingly affected only the top tier of companies, companies that are huge in relative size and are highly leveraged up. This firm just recently closed two deals, and have been able to secure reasonable financing for these mergers/acquisitions. Ofcourse, these companies are smaller in size, with their estimated value ranging from $30 mm to $200 mm. 

So what I took from this conversation with him was that there is a sizable amount of capital in the market. Private equity firms are flush with new capital, cuz investors have removed chunks of capital from the stock market, and are investing it with these private equity firms, which are not publicly traded, hence not affected by SEC disclosure regulations; maintain a healthy investment portfolio with companies that they directly control, and have enough clout in the banking industry to command good financing rates. 

Its amazing. My boss tells me his business is doing better than ever, while the market tells me that business couldn't be worse. 

Contrary to my prior held belief that as big firms have lower risk and greater access to financing, they are a better investment choice, I now am leaning towards the belief that smaller, better managed firms with private equity investors at their helm are a better investment choice. 

At least in this market, atleast for the next 2 years.. 

Can there be too much information?

In class, we discussed indicative planning and how one example of a market failure is imperfect information.  Indicative planning was a way to remove this imperfect information.  So, economists believe that more information is beneficial to the market economy, because it helps people make more informed decisions.  However, the article Too Much News? makes the argument that there can be too much information.  Currently, a lot of people are spending a great deal of their time reading the news and keeping track of the current state of things, due to the economic crisis, and the article claims that this leads to a decrease in productivity.  I think there is some truth to this.  If people are reading about the stock market all the time, they're going to be constantly changing their portfolios in reaction to the news, which is just going to make the stock market more unstable than it already is.  

Federal Reserve Considers Plan to Buy Companies' Unsecured Debt

What is the Fed's next step? What are they thinking? Will it work? I think those questions have been discussed a lot over the past few weeks. Congress approved a $700 billion bailout package last week. Yet the effort seems not enough to raise consumer confidence. "In the United States, consumers appear to be significantly curbing spending; last month, employers cut more jobs than any month in 5 years."
Next step? Under a proposal being discussed with the Treasury Dept., the Fed could buy vast amounts of unsecured short-term debt that companies rely on to finance their day-to-day activities. In another word, the Fed will almost be lending directly to businesses. The Central Bank would buy unsecured commercial paper, "essentially short-term i.o.u.'s issued by banks, businesses and municipalities," which market has almost been shut down last week.
Will this proposal get approved? and the most important question: Will it be strong enough to convince consumers of a better economy?

Fannie Mae and Freddie Mac must go

One month after the gigantic bailout of Fannie and Freddie, the government is looking past that at the stumbling stock market and poor economy. According to this author, "Nationalization of an industry is easy, privatization is hard." This is in response to history where the government tried to privatize Fannie Mae in 1968, but that didn't turn out as well as planned. The provided Fannie and Freddie to have backing from the government and that enabled them to lower both their costs and capital requirements for a loan.

Now after they both are nationalized now, Bernanke wants to privatize those two giants at a slow rate until they are completely under private control. The author of the article also recommends that the United States take advice from the Russian and Chinese governments on how to privatize a previously nationalized industry, but also to take some advice about how to run a healthy system of financial socialism. Really?? Socialism, are we on the verge of a socialist system?

The author concludes the article by saying that one solution is to say goodbye to Fannie and Freddie in order to start the privatization of the secondary mortgage market.

The UK announces Bail out plan

The UK government has announced a package of measures aimed at rescuing the banking system that makes available £400bn ($692bn) of fresh money.
It will initially make extra capital available to eight of the UK's largest banks and building societies in return for preference shares in them.
It is "designed to put the British banking system on a sounder footing", said Prime Minister Gordon Brown.
Some bank shares rose on the news although the main FTSE 100 index fell.

Central Banks cut Interest Rates

Six central banks, including the Bank of England, have cut interest rates by half a percentage point in an effort to steady the faltering global economy. No decision on UK rates had been expected until Thursday - and the move puts the interest rate at 4.5% from 5%. The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank (ECB) trimmed its rate from 4.25% to 3.75%. The unprecedented step failed to cheer world stock markets. The central banks of Canada and Sweden and Switzerland all took similar action in the co-ordinated move. China also cut its rate, but by 0.27 percentage points.

Citigroup and Wells Fargo are fighting over Wachovia

Last week on the news Citigroup was said to be buying Wachovia with the help of the U.S. government. Citigroup had agreed to buy Wachovia's assets for $2.1 billion in a deal which was brokered by the Federal Deposit Insurance Corp. But, then on Friday, Wells Fargo upped the offer by saying they'd buy Wachovia for $15.1 billion and the deal would not require any government support.

This lead Citigroup and Wells Fargo into both state and federal court this weekend in a battle over Wachovia.

Citigroup sued Wachovia, Wells Fargo, and the directors of both companies for interfering with their planned takeover of Wachovia. They're seeking more than $60 billion in damages. The complaint says it's seeking more than $20 billion in compensatory damages and more than $40 billion in punitive damages from Wells Fargo for tortious interference.

Well now new reports are stating that Citigroup, Wachovia, and Wells Fargo have all agreed to a standstill of all formal litigation while a decision is trying to be reached regarding the fate of Wachovia. The standstill agreement will end at noon this Wednesday, unless it gets extended.

Citigroup spokesman Michael Hanrettasaid in a statement, "We are pleased to participate with the Federal Reserve Board in a fair-minded, good faith process to achieve a prompt and successful outcome."

Frederick Cannon, an analyst at Keefe, Bruyette & Woods, said, "If this goes into a protracted legal battle, everybody loses. Wachovia is big enough that it would be a negative for the financial system. Given that situation, we will see a resolution pretty quickly."

For me, I really don't know what to expect from all these buying activities on the market. Does it help the economy or will it lead to the problem of oligopolies?

The Two Faces of Lehman's Fall

The FBI launched a preliminary inquiry into whether Lehman and/or its executives committed fraud by misrepresenting the firm's condition to investors. 

Fed to Pay Interest on Banks' Reserves

German government to the rescue

The financial crisis is now taking major tolls in the European markets. The Wall Street Journal's Market Watch is reporting that the German government found it necessary to step in and provide one of their larger banks, Hypo Real Estate, with a 50 billion euro rescue loan. This seems to be the trend that is happening throughout the world as major banks are seeing their liabilities maturing at a much faster rate then their assets are able to match. With the rescue lines that the governments are supplying, these banks are able to withstand major speculation that investors have. Hypo Real Estate main problem has been a risky investment in their Irish bank, Depfa, a public finance divison. With the major crunch in the credit market, the firm was unable to gain short term loans. It's a major problem throughout the market that firms are not being able to determine the right amount of liquidity needed.

I personally still have mixed feelings on the right way to handle such issues. I understand that if a major bank fails, then it could cause a dominoe effect which has kind of already happened. I just feel that these action are a way of preventing the market from correcting itself.

Should Banks be Allowed to Fail?

This article asks the questions that many people are asking with the economy in the situation it is in: Should the banks be allowed to fail in our economy, and also, what are the reasons for and against bank expansion.
The author analyzes the situation and asks the reader to ponder whether or not the banks should be bailed out in our economic situation. The problem is that the banks have become "too big to fail," because with their failure would come hard-hitting economic consequences for the country. According to the author, the idea is that smaller banks are small for a reason- if they fail a large bank can buy them and take them over. But clearly, there is a serious problem if the bigger banks fail!
This article argues that there are a number of reasons that it is not necessarily desirable to have bigger banks take over smaller banks all the time.

The Future of Reading

According to the NYTimes article (of the same name) more and more kids are turning to video games that allow them to interact with the characters in their books. This kind of idea, parring learning with video games, is one that is going beyond books, "libraries are hosting gaming tournaments, while schools are exploring how to incorporate video games in the classroom".

I think this is a great way to get kids more interested in reading. It seems like everyday more kids are putting down the books, and opting to play video games that teach them only how to "melt off faces" (in guitar hero). By enabling kids to explore the characters in their books through the video game format, I think kids will be more eager to set aside "World of Warcraft" and instead, get read to play “The Maze of Bones", a 10-book mystery series tied to a web-based game, published by the same firm who brought us Harry Potter.

Perhaps this could help increase literacy rates in the US, and create an overall ripple effect on the rest of the economy.

Woman shoots herself, gets home back

A 90 year old woman in Akrom Ohio shot herself in her 101 year old home after being told she was being evicted. Fannie Mae, her morgage company, decided to forgive all her outstanding payments and sign the home over to her outright. She is still in critical from gunshot wounds in the torso. the police note that the company had tried to serve her the eviction notice at least 30 times before the incident (and before the economy crashed), but she was never available or didnt come to the door.

I think its good that they are trying to help an obviously desperate woman by forgiving her debt, but what kind of message does this send to others in a similar situation, that they have to shoot themselves to get their money back? thats a little rediculous, but I think we might see a spike in these kinds of activities as the effects spread.

Lessons for the little guys?

We know what Americans and other industrialized nations have learned from the now global economic crisis, but what about other developing nations that are just trying to escape poverty? what do they learn about the power of markets to completely decimate any progress they have made? As you can imagine, the response is mixed.

"Some countries are already taking the wrong prescriptions from recent events. Honduran President Manuel Zelaya told the U.N. General Assembly last month that the lesson of the crash was "the market's laws were demonic, satisfying only the few." Paraguayan President Fernando Lugo said the "market mechanism" and "immoral speculation" were a mistake. Brazilian President Luiz Inácio Lula da Silva Lula added that speculators have "spawned the anguish of entire peoples" and Brazilians needed "indispensable interventions by state authorities.""

the editorial goes on to say that the study of development economics, which deals with developing economies and how to make them richer, became an area of study after the Great Depression. As such, it has a definite bias towards government intervention, and it may be part of this anti-market reaction. Granted, the market isnt perfect, but this view completely ignores the years of prosperity before and after the New Deal. They just see that governments need to help out sometimes and instead of deciding between "light and heavy regulation", they are choosing between totally free market economics and innovation-stifling state intervention. According to the article, these countries will now start ignoring the entrepreneurs that could help transform their economy in favor of heavy state intervention (which they can't really afford anyway). Another excerpt:

"How much poverty has endured because individual entrepreneurs were shunned in favor of the likes of the $5 billion state-owned Ajaokuta Steel Mill in Nigeria, which never produced a bar of steel? Or because African governments spend their time preparing World Bank-required national Poverty Reduction Strategy Reports instead of freeing space for innovators?

We will never know. But we do know that the free market has a long-run track record of creating prosperity -- even with the occasional crash. The Depression's deceptive intellectual legacy is that development flows from all-knowing states rather than creative individuals. Here's hoping that the backlash to today's crash will not spawn another round of bad economics for the poor."

this isnt the lesson the US wants its less developed allies to learn from our mismanagement.

Germany to save the Country's biggest banks

Germany's finance ministry has agreed a 50bn euro ($70bn; £40bn) plan to save one of the country's biggest banks.The deal, reached with private banks, to save Hypo Real Estate is worth 15m euros more than the first rescue attempt, which fell apart on Saturday.
Germany earlier announced an unlimited guarantee for all private savings, a move followed later by Denmark. Germany's finance ministry said that with the "mutually agreed solution" Hypo Real Estate would be stabilised, and "Germany strengthened as a place to conduct finance in difficult times". Earlier, German Chancellor Angela Merkel moved to reassure German savers that all their deposits would be safe. Similar unilateral guarantees issued by the Irish and Greek governments last week were criticised in Berlin and other European capitals. But after an emergency meeting with the central bank earlier, Ms Merkel said: "We will not allow the distress of one financial institution to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate.

Seoul eager for US$80b fund

The US financial crisis was caused due to the credit crunch resulting from subprime mortgage failure. The shortage in credit created problems in the finacial sector, and this overall has been influencing econmies in other countries. Over the past years, Asia and US are closely connected by trade and investments and as the finacial crisis grows, it has been causing problems in Asia.

Major countries in Asia are planing to speed up a US $80 billion currency swap scheme to minimize the effect of the US financial crisis. In May, East Asian finance ministers agreed to create this Asian monetary fund, and about 80% of the fund will be provided by Japan, China and South Korea. This $80 billion fund would be provided to asian countries with financial emergency.

The curency swap scheme is interesting as it is different from how the economies in Asia choose to handle this situation, instead of increasing money supply. A reason for this might be due to the relatively weak currency in majority of the Asian countries.

Europe Races to Shore Up Banks as Crisis Spreads

Most of Europe is now trying to shore up all of its assets while the financial crisis looms over the international markets. Germany is putting a blanket guarantee over its consumer bank deposits, the guarantee was to shore up public confidence showing that the German government would step up in case the already existing deposit plan weren't able to fully compensate the citizens; they arranged a bailout for their largest property lender; and Belgium and Luxembourg arranged for a French lender to take over the operations of one of its biggest financial institutions. Italy launched an emergency capital increase by its banking giant to combat the crisis.

All of these measures came a day after the four largest countries in Europe met in Paris and pledged to protect their financial system. The governments in these European countries are trying to ensure confidence in their citizens that everything is going to be fine in their economies.

However, unlike the U.S. with the multibillion dollar bailout plan, the European countries have abandoned any proposals for unified rules for coping with the crisis because it would be too hard to govern that type of policy. So instead, France, Italy, Germany, and the U.K. have decided to keep each other informed about their policies and actions with regards to bailouts.

Japan close to recession, fear of suicide rises

This article talks about the prospect of a rise in suicide rate in Japan should a recession occur. In Japan it is estimated that about 1 in every 5 women and men has seriously thought of taking their own lives at some point.

It's also interesting how it comments on the breakdown of Japan's lifetime employment habit. "Going to work for a Japanese company used to be like joining a family. You worked there your whole life. But in today's harsher economic climate, that is no longer the case. One in three workers in Japan is now a part-timer, constantly moving from job to job on part-time contracts..." Because of this, job security is not guaranteed, and suicide seems to be one way to get out of financial difficulties. Also, the article talks about a growing elder population not being sufficiently taken care of by social health care that is also prone to suicide.

McCain and Obama Condemn Job Losses

This article shows two president candidates' will to create jobs and boost economy by the various government policy.

McCain- " I will reverse out-of-control spending,.... get the government budget back to balance. I will reform health care to control costs and better serve American families, open markets around the globe for our products, cut taxes, and expand domestic production of energy to eliminate the ability of international oil markets to hold our economy hostage. .....Unlike Sen. Obama, I do not believe we will create one single American job by increasing taxes, going on a massive spending binge, and closing off markets. Our nation cannot afford Sen. Obama’s higher taxes."

Obama- " Instead of Sen. McCain’s plan to give tax breaks to CEOs and companies that ship jobs overseas, I will rebuild the middle-class and create millions of new jobs by investing in infrastructure and renewable energy that will reduce our dependence on oil from the Middle East. I also call on Congress to pass an immediate rescue plan for our middle-class that will provide tax relief, save 1 million jobs, and save our local communities from harmful budget cuts and painful tax increases."

Investors relieved - but nervous

CNN article: Investors relieved - but nervous
This article by CNN brings up the tensions worldwide arising over how the 700 billion dollar bailout will be implemented. Although there has been an agreement on the bailout, the market will not respond immediately, but rather in strides that could create fluctuations throughout the market over time. There has even been some discussion about lowering interest rates to create some stimulation in the economy to keep it level throughout the process.
If there are indeed further fluctuations in the economy while this policy takes place, what can we infer about future levels of the stock market, financial markets, unemployment and other economic factors during this transition period?

Entrepreneurs struggle to hang on

Many small businesses are seeing hard times get even harder over the last few weeks. With credit markets tightening up, and even failing, small businesses are having an incredibly hard time getting loans to pay for goods, employees, or trying to expand. In August, (before the most recent crisis) 67% of businesses said that they have felt some effects from the credit crunch, up from 55% in February. The article talks to a handful of businesses from across the country reporting on the problems they have been facing as a small business owner.
After reading this article, and relating it to class there could be major negative effects of this. We have talked several times about how important new ideas and innovations are to our economy for continuous growth and efficient. If credit is harder to get for entrepreneurs, the ideas and innovations that someone might have and want to pursue could be difficult to get off the ground. Some of these ideas are the ones that change industries positively and help growth in the economy.

"US government shows responsibility is tackling financial crisis"--Barroso

Some of the world biggest economies have welcomed the US lawmakers’ approval of the 700 billion dollar bail out. China, together with the EU member countries feels that the US law makers have shown responsibility in tackling the financial crisis.

I think its interesting how so many countries are tied to the US and how the situation in the US affects so many countries on so many levels. I am interested in seeing how much this bail out plan is going to help bring back to economy to where it used to be and in how much time.

Apple is under pressure to shut down iTunes?

Apple could shut down the iTunes Store, the world's biggest online music store, if a ruling expected Thursday forces the company to pay more to music makers for each downloaded track.

The Copyright Royalty Board (CRB) in Washington, D.C., will decide whether to grant the request of American music publishers to increase "mechanical" royalty rates on songs bought from online music stores such as iTunes.

The National Music Publishers' Association, which represents the interests of music makers and songwriters in the U.S., wants rates to be increased 9 cents to 15 cents, which represents a 66 percent rise.

Apple has vehemently opposed the move. In a statement to the ruling body in 2008, the company threatened to shut down iTunes rather than raise the price of songs in order to afford the higher royalty rates.

"If [iTunes] was forced to absorb any increase in the ... royalty rate, the result would be to significantly increase the likelihood of the store operating at a financial loss — which is no alternative at all," iTunes vice president Eddy Cue said.

According to another article, recently Apple has sold more than 4.5 billion songs through iTunes in under 2 years, and that adds up to more than $4 billion revenue in sales. My question is if I-Tunes shut down, will it just increase the load of people downloading music off the internet and decrease sales, which doesn't help the economy at all?

Source

Senate passes revised bailout Bill

The Senate has passed a revised version of the bailout (technically not a bailout) bill after the original one lost in the Congress. It passed 74 to 25 votes on Wednesday night. This revised bill has all the same features as the one that failed in the House along with some additions. These additions include: the amount that average citizens deposits are insured for in a bank when up to $250,000 from $100,000. This helps small businesses because people become less likely to take their money out of the bank, this way small businesses can borrow that money. New tax breaks for both people and business the total reduction in taxes is $110 billion. Many are optimistic it will pass the House on Wednesday.

Japan Posts a Rare Deficit

For the first time since November 1982, Japan posted a trade deficit. This has increased worries that Japan is headed for a recession. As we talked about in class, Japan is a country that saves a lot and consumes very little which explains there constant trade surplus. So what is to blame for the change in the Japanese economy. An article published on the BBC website points to many different factors. Japan is not a resource rich country and with the rise in prices of natural resources such as oil, coal, and natural gas, has caused an increase in the imports of Japan. Also, Japan has suffered from a decrease in exports do to the down turn in the international economy. The U.S. is a major importer of Japanese goods and the demand for products has gone down especially in the area of automobiles where there has been a 21% decrease in exports. With demand already low in Japan and a worsening economic system in Europe as well which has decreased there imports, Japan very well may be headed for recession.

Early Vote Tensions

Tensions have already started brewing over early vote in the in the highly influential swing state of Ohio. Early vote started today in several states including other swing states like Michigan and Florida.

The Ohio Republican Party for weeks now has accused Brunner of interpreting the early voting law to benefit her own party by allowing same-day registering and voting. Republicans argued that Ohio law requires voters to be registered for 30 days before they cast an absentee ballot.Secretary of State Jennifer Brunner, a Democrat, was backed by the state Supreme Court and two federal judges, to allow new voters to register and cast an absentee ballot on the same day from Tuesday through Oct. 6.

The Republican dominated Ohio Supreme Court ruled Monday what Brunner was doing was constitutional. The decision was backed by a federal judge in Cleveland. Another federal judge in Columbus declined to rule, deferring to the state Supreme Court's decision.

On Tuesday, the Ohio Republican Party suggested the 6th U.S. Circuit Court of Appeals in Cincinnati to either stop same-day voting or at least require the state's top election officials to separate the ballots that were carried out with a registration so they can be verified. Secretary of State Brunner already instructed election officials to segregate and and verify the registrations of those who cast their ballots and registered on the same day, before they are counted.

In total five lawsuits have been filed against Ohio's secretary of state in September alone.

There were problems prior to just now "but four years ago, the secretary of state was also a co-chair for George Bush's Ohio campaign". Brunner points out.

Law professor Dan Tokaji of Ohio State says it is "not such a bad thing to clarify the rules in advance of the elections". I guess he is right. Better than on the final day.

Another law suit was based on return mail. The problem here is that in most lower-income neighborhoods the mailing system is very unreliable. Then in 2004, Republicans challenged 35,000 voters based on returned mail. John McClelland of the Ohio GOP declined to be interviewed for this story, saying they "don't discuss political strategy". Did he just implicitly state that it is strategy for the Republican party to find ways to not allow citizens to vote?

here is a link to other Republican strategy to not let people vote.
http://michiganmessenger.com/4076/lose-your-house-lose-your-vote

http://michiganmessenger.com/4231/republicans-recant-plans-to-foreclose-voters-but-admit-other-strategies

Bailout a no go

The $700 billion bailout rescue plan was rejected by the House of Representatives 228 to 205 votes. 140 Democrats voted for it while 95 voted against it. Only 65 Republicans voted in favor while 133 voted against. President George W Bush said he was "very disappointed" by the vote's result as the marked dropped another 770 points. Treasury Secretary Henry Paulson said he will continue be work with congressional leaders to get something done "as quickly as possible". Since the vote several things happened around the world:

• Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities
• Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival
• The UK government announced it was nationalising the Bradford & Bingley bank
• Global shares fell sharply - France's key index lost 5%, Germany's main market dropped 4% while US shares plunged after the vote result was announced.

UK Prime Minister Gordon Brown said he was disappointed by the vote's failure and would do everything he could to protect the British economy.

This is kind of weird that the Democrats are so gun-hoe about a bill proposed by GEORGE BUSH and it fails because of the Republicans. I don't know how partisan things are, when Bush invited the lawmakers to that meeting in the White House everything seemed to be going smoothly. Then yesterday Speaker Pelosi seemed so optimistic. Now there is so much finger pointing I don't even thing Congress knows what to do next. You have "big government" Democrats supporting a GOVERNMENT bailout plan proposed by a "trickle-down economics deregulation" president but fails because HIS party Republicans don't want to reward greedy behavior of men who financed many of their campaigns. Man. I don't know what you call it.

In terms of the presidential candidates it seems John McCain is attacking Barack Obama on not being decisive enough and suspending his campaign to get the job done. I don't know that Barack has blamed McCain yet, all I find on his response is telling the American people to remain calm. I do not think that it is, but if anything it's John McCain's fault. Wasn't it he the one who dramatically suspended his campaign and raced back to Washington to focus on the crisis and negotiate the plan? Well at the end of the day it's because of his own party that it doesn't pass. The man does all this and couldn't even convince his OWN party!
But I really don't want to blame anyone because who am I to do that.

I do think though those Republicans who voted it down need to come up with an idea of their own though, not just let Nancy, Republican whip Roy Blunt, most the Democrats and some Republicans do all the work and then vote it down. Also I am not sure if some of the Republicans who voted down the plan have a valid reason. Congressman Jeb Hensarling we would be "headed down and slippery slope to socialism". That is all find a dandy you like capitalism and de-regulation, but if the market crashes because of your paranoia that's not good either. Congressmen Ted Poe didn't want the average- Joe to pay for the greedy wall-street. That is the best reason yet, however I hope he understands that if Joe's taxes doesn't bailout Wall Street and then things get worse, everyone including Joe looses. And a lot more than he would have paid in taxes. Maybe this is naive, but I'd like to think that we are bailing out Wall Street because it could ruin all the other sectors of the economy not just cause it's Wall Street the "fat-cats". Other Republicans including congressman Eric Cantor said they were prepared to vote "yes" until Nancy Pelosi gave a very divisive partisan speech right before the vote. You don't vote based on if a speech someone gives rubs you the wrong way. You vote based on the ideas and policies presented.

Bernanke Moves Closer to Rate Cut as Risks Intensify

By Scott Lanman and Craig Torres

Sept. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week.

The ``intensification'' of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending ``sluggish at best,'' Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on ``grave threats'' to the banking system.

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.