David Kirkpatrick

December 20, 2008

Madoff, Ponzi schemes and the current financial crisis

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 5:20 pm

An entertaining and interesting take by Peter Schiff at Taki’s Magazine.

From the link:

The United States Government runs its own balance sheet based on the Ponzi principal as well. Our national debt always grows and never shrinks. As existing debt matures, proceeds are repaid by issuing new debt. Interest payments on existing debt are also made by selling new debt to investors. The whole scheme depends on an ever growing supply of new lenders, or the willingness of existing lenders, to continue to roll over maturing notes. Of course, as was the case with Madoff, if enough of our creditors want their money back, the music stops playing.

In Madoff’s case, the rug pulling was provided by the huge financial losses suffered by some of his clients in other non-Madoff investments. When enough of these clients looked to sell some of their apparently well-performing Madoff assets to help offset such losses, the scam collapsed. The same thing could befall the United States Government. Now that China and our other creditors are looking to spend some of their U.S. Treasury holdings to stimulate their own economies, look for a similar outcome with even more dire implications.

The main difference is that while Madoff took elaborate steps to conceal his scheme, the U.S. government operates in broad daylight. It truly is amazing how faith in government is so pervasive that many can believe that politicians will succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those unfortunate to have been duped by Madoff and Ponzi, the world is in for a rude awakening.

December 18, 2008

A theory on the financial crisis — a science fiction parable

Filed under: Arts, Business, et.al. — Tags: , , , , , — David Kirkpatrick @ 2:22 pm

I’ve been blogging on the current financial crisis since January 31, 2008, just a few weeks after I started this blog. In a way I’ve been a sideline observer as this process has heated up and become more public.

The Fed has been pretty busy behind the scenes for a while now (at least around two years) attempting to avoid what has become daily lead stories across broadcast and print media. Clearly these moves have been complete failures. I’m sure the Fed and SEC would argue things would be much worse without their interventions and policy tweaks.

I don’t know about that.

What is clear is we are in uncharted territory. And the government bodies in charge of fiscal policy don’t really have a clue what is going on. Credit default swaps, investment derivatives and other exotic high finance tools? Looks like no one really understands them. Not the parties using these tools, not the regulatory agencies charged with monitoring that use and certainly not the average investor whose money has been tied (maybe by a noose around the neck) to machinations of high finance.

Now don’t get me wrong — at some point high finance truly does become almost magical alchemy. It’s no longer balance sheets and stacks of physical money, it’s more arcane incantations, esoteric handshakes and ephemeral figures written on the sands of an imaginary beach.

Given all this, my theory is maybe it really is magic. Since a lot of the highest order finance these days is totally driven by computers and algorithms no single person understands, maybe a native artificial intelligence grew unbeknownst to anyone involved in the industry and is now rising against its masters. 2009 may become the Age of the Machine.

Hey, it’s as good an excuse as anything I’ve heard from Wall Street or DC for this mess. And makes about as much sense.


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December 13, 2008

This financial crisis

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 2:10 pm

Okay, from what I’m reading and what I’m hearing on the street — not Wall Street, but businessmen on the street — is nothing is going to be settled before May or June at best.

Not that things are getting better by then, but nothing will be predictable before then. Let that sink for a second or two. Markets crave certainty. Uncertainty stretching out for that long is not a good thing.

And then there’s this bit of news.

From the link:

It’s quite unsettling to talk to members of Barack Obama’s transition teams these days, especially those who are helping with the economics portfolio. Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse… a lot worse. As in — double digit unemployment without the wiggle factors. Huge declines in aggregate demand. Significant, persistent deficits. That’s one reason why the Obama administration seems to be open to listening to every economist with an idea and is stocking the staff with the leading lights of the field. In one sense, the general level of concern among Obama advisers and transition staffers is reassuring; they get the magnitude of the problems, and they’re not going to assume that, just because the bottom has never dropped out before — certainly not in the lifetimes of most people doing policy these days, the bottom will never drop out.

Where the discussion isn’t going, at least in public,  (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation. To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won’t have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.

December 8, 2008

The financial crisis and math

Yep, it’s a release dump day. For any regular reader who wonders why I’ll post a press release, sometimes without any real additional commentary — you’d be amazed at how much “reporting” at news websites and even print news outlets are nothing more than reworked press releases, often without any new information added.

Years ago when I did daily reporting for LocalBusiness.com as a freelancer I did nothing more than get a release from my editor, try and get an interview with a principal at the company putting the release out there and writing a story within a couple of hours at most.

If I couldn’t secure an interview I’d do the story purely off the release with maybe some info pulled from the company’s website for filler. Rough estimate would be 70% of my stories done for LocalBiz were of this variety.

This is why I present my blog readers unadulterated releases. I give you the entire story as presented by the source. Sure it’s been spun up by the PR writer, but you get the whole picture without me trying to un-spin anything or maybe leaving something out that you’d really enjoy.

With that in mind, here’s a release on this year’s ongoing financial crisis from the mathmatical perspective. Not sure if I totally agree with the first sentence there.

The release:

The crash of 2008: A mathematician’s view

Markets need regulation to stay stable. We have had thirty years of financial deregulation. Now we are seeing chickens coming home to roost. This is the key argument of Professor Nick Bingham, a mathematician at Imperial College London, in an article published today in Significance, the magazine of the Royal Statistical Society.

There is no such thing as laying off risk if no one is able to insure it. Big new risks were taken in extending mortgages to far more people than could handle them, in the search for new markets and new profits. Attempts to insure these by securitisation – aptly described in this case as putting good and bad risks into a blender and selling off the results to whoever would buy them – gave us toxic debt, in vast quantities.

“Once the scale of the problem was unmistakably clear from corporate failure of big names in the financial world, banks stopped lending to each other,” says Bingham. “They couldn’t quantify their own exposure to toxic debt – much of it off balance sheet – so couldn’t trust other banks to be able to quantify theirs. This led to a collapse of confidence, and the credit crunch, which turned a problem in the specialised world of exotic financial derivatives into a crisis in the real world. Once the problem became systemic, government had to step in to bail the system out with vast quantities of public money.”

Professor Bingham suggests that to learn more and predict financial future, we should look to our past, likening the current crisis to the ‘Tulip Mania’ in the Netherlands in 1636 where huge prices were paid for futures in tulips, which then turned out to be as worthless as sub-prime mortgages today.

Even Alan Greenspan, the long-serving former chairman of the US Federal Reserve, admits that mistakes were made in the past. To avoid repeating these mistakes, we need to learn from them. This needs a new mind-set, new policies, and much more proactive regulation.

Bankers complain that the risk models they used predicted problems as dramatic as today’s only every few centuries. “This is like talking about the details of how to steer a boat on a river,” says Bingham, “what matters there is whether or not the river is going to go over a waterfall, like the Niagara Falls.”

 

###

November 19, 2008

States are feeling the financial crisis

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:41 pm

States aren’t recession-proof, but tend to fare better than most other entities — commercial or governmental. Even so things are a little tougher around the fifty right now. Moody’s singles out six states for particular trouble at the moment after being placed on its “negative outlook” — Florida, Kentucky, Nevada, Ohio, Rhode Island, and Wisconsin.

From the link

April marked the first time since December 2001 that Moody’s revised its outlook for the U.S. state-government sector to negative, and last month the ratings agency put out a new report predicting states will face harder times as the effects of the credit crisis and economic downturn continue to set in.

Already states are facing larger-than-normal budget shortfalls, which could mean, among other things, a reduction in services for residents and a greater risk of a credit rating downgrade. New York is looking at a whopping $47 billion deficit over the next four years. California is $3 billion in the hole this year. The National Conference of State Legislatures has even begun appealing for states to get their share of bailout money. (Even cash-strapped cities like Philadelphia and Phoenix are hoping for a piece of the pie.)

Yet, as bad as it looks, Moody’s predicts most states will get through this period without a serious deterioration in their credit quality.

“States are stronger in and of themselves,” said Edith Behr, vice president and senior credit officer at Moody’s. “It has everything to do with being able to reduce expenditures and increase revenues.”

These tools, like raising taxes or cutting spending, are why states generally have higher ratings than corporations. No states’ General Obligation Bonds rank below A1, which is investment grade and only four notches below the triple-A “gilt edged” ranking.

The fact that states can’t declare bankruptcy also supports their relatively strong ratings. That’s one key reason why states have a higher median rating than cities, which can file for bankruptcy protection (as Vallejo, Calif., voted to do in May). What’s good for states when it comes to easing their financial woes can also end up meaning more hardship for their cities as states push expenditures down to the local level.

October 15, 2008

Cato on the financial crisis

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 12:20 am

If you’re looking for a libertarian take on the ongoing financial crisis, here’s the Cato Institute’s full slate of offerings.

From the link:

Global Financial Crisis

The Cato Institute has been following the crisis in financial markets since the very beginning. From the sub prime crisis to Fannie and Freddie to the $700 billion bailout, the recent financial events have given our analysts and experts plenty to talk and write about. We decided to pull together the op-eds, podcasts, reports, and publications from our scholars on this issue, so all these resources can exist in one place. We hope it’s a useful tool for your research.

October 3, 2008

Car loans the latest financial crisis casualty

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 10:42 am

Mortgages have been an issue for a while because of the ongoing subprime troubles, but some other real-world effects of the financial crisis are showing up on “Main Street” to borrow the buzzword of the bailout — car loans are becoming hard to find.

From the WSJ link:

The era of easy auto loans has come skidding to a halt.

Mortgages were among the first consumer products to be hit by the credit-market freeze. Now car loans and leases are drying up as dealers, auto-finance companies and other lenders are having trouble finding money to lend to car buyers. The upshot: Those with less-than-stellar credit are getting shut out of loans, and even some so-called prime borrowers are having trouble getting financing.

“You have to just about be walking on water to get financed,” says Mike Jackson, chief executive of AutoNation Inc., the largest U.S. chain of dealerships. He added that the subprime market is “basically almost closed” but “even with our prime customers, banks are looking for a reason to say no.”

AutoNation dealerships sold 532,862 light-duty cars and trucks last year, and this year, amid the credit crunch, that number could fall by as much as 20%, Mr. Jackson says.

June 17, 2010

Fed clamping down on financial sector

As I’ve written many, many times, I’m no fan of government regulation, but increased oversight is probably necessary in the financial world right now. You can’t blame the sector’s companies for seeking as much profit as possible, but the United States’ — and the world’s for that matter –economy simply can’t handle bad actors that are deemed “too big to fail.

Too big to fail should mean too big to have autonomy. Any financial institution that wants to get out from under the thumb of the Fed ought to have the opportunity to break down into separate, more streamlined units that could fail if the market so determines without taking everyone else out with them.

From the link:

The Federal Reserve is working to beef up oversight of financial companies to better protect the nation from another financial crisis in the future, chairman Ben Bernanke said Wednesday.

June 8, 2010

Looking for the next financial bubble

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 5:50 pm

As far as investment instruments go, bonds aren’t very sexy, but the bond market is shaping up to be the next major financial bubble. Food for thought for anyone currently rethinking investment strategies.

From the link;

Don’t let the lack of fanfare fool you. A projected $380 billion will pour into bond funds this year, more than went into domestic stock funds in the past decade. That’s on top of a record $376 billion last year.

“The bond market is a bubble,” says Robert Froehlich, senior managing director of the Hartford Financial Services Group. “And it’s getting ready to burst.” One major reason: Despite the recent rally in treasury bond prices and slide in yields — due to fears over the European debt crisis — the long-term direction for interest rates is headed higher.

Like all financial manias, this one is being fueled by a combination of fear and greed.

James Stack, a market historian and president of InvesTech Research, notes that many baby boomers who have stampeded into bond funds did so in reaction to their stock losses since the financial crisis began in 2008.

December 5, 2008

The financial meltdown is not slowing

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 12:19 pm

On top of this week’s bleak jobless rate report, not one bit of economic news seems very heartening. I guess the biggest upside (if you can call it that) is the fact everyone finally agrees we are in a recession.

All the head-in-the-sand, la-la-la-la-singers out there are at least facing reality. That’s a start. If they had a bit more contact with “Main Street USA,” a major presidential campaign topic, they’d realized this thing has been going on for a long, long time. The US may not be in a new Depression just yet, but our economy has a lot of Americans in depression.

From the link:

The year-long U.S. recession has taken a turn for the worse recently, two top Federal Reserve policy-makers said on Thursday, raising expectations for aggressive policy action by the central bank as soon as next week.

Separately, Federal Reserve Chairman Ben Bernanke urged more aggressive steps to halt home foreclosures, one of the most visible outcomes of the severe U.S. downturn.

Chicago Federal Reserve Bank President Charles Evans said that the economy is “contracting markedly” as consumer spending sinks and the jobless rate rises, and that a recovery might not be on tap until 2010.

“The outlook has clearly deteriorated” in the past six weeks, Evans told reporters after a speech to the Michigan Bankers Associationin Dearborn.

Evans’ comments were echoed by Atlanta Fed President Dennis Lockhart, who spoke at an energy conference in New Orleans and termed the near-term outlook “not encouraging.”

“Employment is expected to weaken further,” Lockhart said. House prices likely will continue to fall, with a further erosion of household wealth, while consumer spending will likely decline at least for the next few months.

If this financial crisis has grabbed your interest, or if you’d like a bit deeper analysis than daily Dow Jones reports and jobless announcements, the New Yorker published “Anatomy of  a Meltdown,”  by John Cassidy in the December 1, 2008 issue. That article can be found here.

It’s a bit long, but it does explain the steps the Fed has been taking for a whole lot longer than the general public understands to try and put “a finger in the dike” as the original strategy was phrased. Obviously that strategy was a non-starter and now we are staring down flat-out corporate socialism in the United States.

I highly recommend spending the time with Cassidy’s breakdown of the current financial crisis. He presents a very thorough timeline of actions taken, failures seen only in hindsight and a national economy still careening out of control.

From the New Yorker link:

The most serious charge against Bernanke and Paulson is that their response to the crisis has been ad hoc and contradictory: they rescued Bear Stearns but allowed Lehman Brothers to fail; for months, they dismissed the danger from the subprime crisis and then suddenly announced that it was grave enough to justify a huge bailout; they said they needed seven hundred billion dollars to buy up distressed mortgage securities and then, in October, used the money to purchase stock in banks instead. Summing up the widespread frustration with Bernanke, Dean Baker, the co-director of the Center for Economic and Policy Research, a liberal think tank in Washington, told me, “He was behind the curve at every stage of the story. He didn’t see the housing bubble until after it burst. Until as late as this summer, he downplayed all the risks involved. In terms of policy, he has not presented a clear view. On a number of occasions, he has pointed in one direction and then turned around and acted differently. I would be surprised if Obama wanted to reappoint him when his term ends”—in January, 2010.

October 11, 2008

Onging finanacial crisis, global and domestic

Probably the biggest news about this financial crisis toward the end of the week — aside from the Dow Jones Industrials historic drop — is how it is affecting the rest of the world. Iceland is concerned about being bankrupted and has already asked Russia for a bailout.

Globalization in all its greatness and weakness can be blamed for this result.

Here’s Thomas P.M. Barnett on that subject:

Arguably, this is the first great, system-perturbing crisis of globalization, because it truly captures all the main players in a way that previous ones did not.

(Thanks to the Daily Dish for posting that link and quote)

Of course here in the United States we’re grappling with a truly confusing set of conditions because: one, we just haven’t faced something like this since the Depression; and two, banking at the investment level has become unintelligible to even the “experts” who follow, and engage in, the industry.

There’s a lot of uncertainty out there and markets really , really hate uncertainty.

And then there’s stories like this from James Fallows. This really hits home on what is going on during this crisis.

From the link:

Three weeks ago, I mentionedthat DayJet, the pioneering air-taxi company, was shutting down not (it claimed) because of overt business problems but because of the impossibility of getting short-term finance. At the time, the credit squeeze might have seemed an excuse for the inevitable diceyness of the air travel business.

But just in the last few days, I’ve heard separately from three friends who run objectively “viable” businesses that they are on the verge of closing permanently, or laying off much of their staff, because they can’t get short-term working capital. One said he was on the verge of having to close a manufacturing facility in the Midwest that, as he put it, “realistically will never open again.” And this is from a group of friends that is heavy on writers, political people, academics, etc rather than a lot of business owners. I have never heard stories like this before. When I was living in northern California during the tech crash early this decade, the story was about the relatively slow deflation of (mostly) unrealistic plans rather than the widespread destruction of enterprises with a future.

My minor point: mainly because they’re so precise and fast-moving, financial-market measures crowd out attention from what we really need to worry about, the imminent destruction of businesses and jobs that “should” survive.

August 31, 2010

Bank lending important to small business

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 1:37 pm

Much more important than expected in terms of financing small business. The total credit freeze when the financial crisis hit hurt everyone, but the ongoing credit crunch on small businesses and entrepreneurs may be a fairly big piece of the slow economic recovery puzzle.

From the link:

Small businesses are more sensitive to the contraction of bank lending than previously thought, and the conventional wisdom about how small businesses finance themselves may be hogwash, according to a new working paper from the National Bureau of Economic Research.

The paper, “The Capital Structure Decisions of New Firms,” found that newly created firms rely heavily on “outside” debt financing, such as owner-backed loans, business bank loans, and business credit lines. The average amount of bank financing is seven times greater than the average amount of
“insider”-financed debt — money from family members and personal networks of the owner. Those groups were previously thought to be the primary providers of fuel for start-ups.

August 20, 2010

Is the US in danger of losing its nanotech hegemony?

Via KurzweilAI.net — Not just yet, but there are a number of countries putting money and other resources into nanotechnology. One place the United States could stand to see a lot of improvement is commercializing the nanotech developments going on right now.

From the link:

U.S. Risks Losing Global Leadership in Nanotech

August 20, 2010 by Editor

The U.S. dominated the rest of the world in nanotech funding and new patents last year, as U.S. government funding, corporate spending, and VC investment in nanotech collectively reached $6.4 billion in 2009. But according to a new report from Lux Research, countries such as China and Russia launched new challenges to U.S. dominance in 2009, while smaller players such as Japan, Germany and South Korea surpassed the United States in terms of commercializing nanotechnology and products.

The report, titled “Ranking the Nations on Nanotech: Hidden Havens and False Threats,” compares nanotech innovation and technology development in 19 countries in order to provide government policymakers, corporate leaders and investors a detailed map of the nanotech’s international development landscape. Overall, the report found global investment in nanotech held steady through the recent financial crisis, drawing $17.6 billion from governments, corporations and investors in 2009, a 1% increase over 2008’s $17.5 billion. Only venture capitalists dialed back their support, cutting investments by 43% relative to 2008.

“Part of what motivated our research was the emerging possibility that ambitious new government funding in Russia and China represented a threat to U.S. dominance in nanotech innovation,” said David Hwang, an Analyst at Lux Research, and the report’s lead author. “But while the field certainly gained momentum in both countries as a result of the increased funding, both countries have economic and intellectual property protection issues that prevent them from being real threats just yet.”

To uncover the most fertile environments for technology developers, buyers, and investors, Lux Research mapped the nanotech ecosystems of select nations, building on earlier reports published from 2005 through 2008. In addition to tracking fundamentals, such as the number of nanotech publications and patents issued, the report also inventoried direct and indirect spending on nanotech from government, corporate and venture sources. Among its key observations:

  • The U.S. continues to dominate in nanotech development… for now. Last year saw the U.S. lead all other countries in terms of government funding, corporate spending, VC investment, and patent issuances. But its capacity to commercialize those technologies and leverage them to grow the economy is comparatively mediocre. U.S. competitiveness in long-term innovation is also at risk, as the relative number of science and engineering graduates in its population is significantly lower than it is in other countries.
  • Other countries stand to get more bang for their nanotech buck. Japan, Germany, and South Korea continued their impressive trajectories from 2008, earning top spots in publications, patents, government funding, and corporate spending. Compared to the U.S., all three also remain more focused on nanotech and appear more adept at commercializing new technology. The relative magnitude of the technology manufacturing sectors in these three countries are the world’s highest, meaning their economies stand to benefit the most from nanotech commercialization.
  • Russian and Chinese investment in nanotech yields slow progress. While both governments launched generous nanotech investment programs last year, the technology hasn’t gained momentum in either country’s private sector, both of which have a history of skimping on R&D. The relative lack of momentum was further underscored by the abysmal number of new nanotech patents for either country last year.

“Ranking the Nations on Nanotech: Hidden Havens and False Threats,” is part of the Lux Nanomaterials Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research Nanomaterials Journal, and on-demand inquiry with Lux Research analysts.

More info: Lux Research

August 12, 2010

Over 50% of Treasuries held by US investors

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 3:19 pm

For the first time in three years.

From the link:

For the first time since the start of the financial crisis in August 2007, U.S. investors own more Treasuries than foreign holders.

Mutual funds, households and banks have boosted the domestic share of the $8.18 trillion in tradable U.S. debt to 50.2 percent as of May, according to the most recent Treasury Department data. The last time holdings were as high, Federal Reserve Chairman Ben S. Bernanke cut interest rates for the first time between scheduled policy meetings as losses in subprime mortgages spurred a flight from riskier assets.

August 7, 2010

Bush tax cuts find foe in Greenspan

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 10:26 am

Alan Greenspan’s post-Fed chair economic line has been quite different from how he wielded power for almost twenty years. His latest seeming apostasy is to call for repealing the Bush 43 tax cuts. I’ll have to admit I agree with the sphinx here. I’m certainly fiscally conservative, but I’m not fiscally stupid, and I’m certainly not one of those fiscal hardliners (hardheaders?) who would prefer to see the United States go completely bankrupt than to implement a serious monetary policy that matches the facts on the ground.

From the link:

It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

Now Mr. Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

August 3, 2010

From the department of, “no duh” — corporate cash hoarding

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 8:13 pm

Companies are hoarding cash at insanely high levels. Bad for the overall economy and bad for the companies who retain overly large cash reserves as well.

From the link:

It isn’t for a lack of resources. Non-financial companies in the S&P 500 index reported $837 billion in cash at end of March, a hefty 26% increase over the previous year’s $665 billion, according to S&P. These are unusually high levels — companies are holding cash reflecting 10% of their value today. Since 1999, companies on average held cash equal to 6.6% of their value.

In many ways, the record levels reflect the scars of the financial crisis. Chief executives learned the hard way what happens when credit markets freeze, as they did in late 2008 and early 2009. And the country’s relatively grimmer economic forecasts aren’t helping as consumer spending continues to slump. The U.S. Commerce Department reported last week that GDP growth slowed during the second quarter, growing by 2.4% compared to 3.7% the previous quarter.

But while companies try to play it safe by upping their stashes of cash, hoarding does little good in the way of improving the broader economy. What’s more, it could hinder companies from prepping for future growth.

June 1, 2010

The recession and the unemployment benchmark

The question is did the recession push the unemployment benchmark to around seven percent, and if so will the Fed do damage to an already fragile economy by sticking with the previous benchmark of around five percent.

Certainly food for economic thought.

From the link:

Federal Reserve policy makers say full employment means a long-term jobless rate between 5 percent and 5.3 percent. Some of the most influential economists say they’re wrong.

Dean Maki at Barclays Capital, 2006 Nobel Prize-winner Edmund Phelps and Bank of America-Merrill Lynch’s Ethan Harris estimate the worst financial crisis since the Great Depression has pushed the so-called natural rate of unemployment to between 6.3 percent and 7.5 percent. Unless the Fed accepts that more Americans will be permanently out of work, the central bank may spur inflation by waiting too long to raise its benchmark rate from a record low, said Maki, Barclays’ chief U.S. economist and the most accurate forecaster in a December 2009 Bloomberg News survey.

March 5, 2010

Small business loan relief courtesy of Congress

Finally.

From the link:

Added incentives for banks to make Small Business Administration-backed loans will continue through the end of March, thanks to a fresh funding infusion authorized by Congress as part of Tuesday’s bill extending unemployment benefits.

Since early last year, the SBA has waived its fees and offered banks guarantees of up to 90% on the small business loans the agency backs. Created as part of the Recovery Act, the deal sweeteners helped SBA-backed lending rebound from its near collapse in late 2008, in the wake of the financial crisis.

Congress initially authorized the incentives to continue through September of this year, but the measures proved so popular that their funding was quickly exhausted. The SBA has been relying since late November on temporary extensions to keep the incentives running.

The unemployment benefits extension bill — passed by the Senate and signed by President Obama late Tuesday after Sen. Jim Bunning, R-Ky., dropped his objection — allocates $60 million to fund the program’s subsidies for another month.

Just this issue alone illustrates how Bunning’s so-called “principled” roadblock tactic put real short-term hurt on Main Street. Over 100,000 federal employees missed a paycheck because of that asshat’s grandstanding. How would you like to make a mortgage, or other bill, payment late because one Senator wanted to make an inane point about federal spending? Particularly a Senator who offered no fiscal backbone for eight years of profligate federal spending with zero attempt to pay for the outlay under the previous administration.

January 29, 2010

According to the Center on Communication Leadership and Policy …

the government is helping kill commercial news media. It couldn’t possibly be years of stagnant practices and an unwillingness to meet the digital era head on when it had the chance years ago. Oh yeah, I almost forgot to add most commercial news media outlets enjoyed, then expected, unsustainable profit margins and had issues facing that reality as well.

The release:

Financial crisis in news: Government financial support of news media continues steep decline

WASHINGTON, January 28, 2010 — Government financial support that has bolstered this country’s commercial news business since its colonial days is in sharp decline and is likely to fall further, according to a report released today by the University of Southern California’s Center on Communication Leadership & Policy. Because these cutbacks are occurring at the height of the digital revolution, they will have an especially powerful impact on a weakened news industry.

Public Policy and Funding the News is a unique effort to begin examining how involved the government, at all levels, has been in subsidizing news throughout American history to foster an informed citizenry; and what this support has meant for publishers, journalists and news consumers. The report analyzes some of the financial tools that government has used to support the press over the years — from postal rate discounts and tax breaks to public notices and government advertising. The report documents cutbacks across a range of sectors and presents a framework for the consideration of policy options to place the industry on more secure financial footing.

“It is a common myth that the commercial press in the United States is independent of governmental funding support,” says Geoffrey Cowan who co-authored the report and is USC Annenberg School dean emeritus and director of the Center on Communication Leadership & Policy (CCLP). “There has never been a time in U.S. history when government dollars were not helping to undergird the news business to ensure that healthy journalism is sustained across the country.”

“Certainly, the U.S. has never supported news-gathering the way some European and Asian countries have,” said David Westphal, report co-author, former Washington Editor for McClatchy, current CCLP senior fellow and USC Annenberg executive-in-residence. “The point here is that it’s time all of us, outside and inside the industry, realize that tax dollars support the American news business, and those dollars, which throughout our history have been critical in keeping the news media alive, are now shrinking quickly.”

The late 1960s marked a high-water mark of government support for the news business. The postal service was subsidizing about 75% of the mailing costs for newspapers and magazines, roughly $2 billion in today’s dollars. Today, however, publishers’ mailing discounts for their printed news products are down to 11% or $288 million.

Paid public notices, government-required announcements that give citizens information about important activities, have also been lucrative for newspaper publishers, providing hundreds of millions in revenue to publications ranging from local dailies and weeklies to national newspapers such as The Wall Street Journal.

For example, in a four-week study, researchers found that the government was responsible for the most purchases, by column inches, of ad space in the Journal. And the newspaper wants more: in 2009 they battled Virginia-area papers in a move to get their regional edition certified to print local legal notices.

This public notice income is especially important to weekly and other community newspapers, accounting, in 2000, for 5 to 10 percent of all revenue. But now, proposals are pending in 40 states to allow agencies to shift publication to the Web.

Tax breaks given to news publishers are likely to decline because many are tied to expenditures on paper and ink and cash-strapped states are seeking to find new sources of revenue. Federal and state tax laws forgive more than $900 million annually for newspapers and news magazines, with most of the money coming at the state level.

Some additional excerpts:

  • In 2009, federal, state and local governments spent well over $1 billion to support commercial news publishers
  • The cumulative effect of reducing these government subsidies is not the primary problem afflicting the news business today. At most, government assistance has dropped by a few billion while newspapers alone have lost more than $20 billion in revenue in the last three years. Yet, government support represents a critical element of economic survival.
  • Policymakers cannot afford to be mere spectators while these changes flash by. American government does not work very well if citizens do not have a reliable supply of news and information. What is playing out in the news business is a vital national interest

Public Policy and Funding the News offers a framework to pursue options currently under consideration, including 1) Allowing newspapers to become non-profits; 2) Tax credits for taxpayers who subscribe to newspapers; 3) Expanded federal investment in digital technology and infrastructure, including broadband access; 4) An antitrust law timeout to allow publishers to form a common strategy; and 5)Significant new government funding for public radio and public television.

As policymakers debate these and other proposals, Cowan and Westphal offer the following principles:

  • First and foremost, do no harm. A cycle of powerful innovation is under way. To the extent possible, government should avoid retarding the emergence of new models of newsgathering.
  • Second, the government should help promote innovation, as it did when the Department of Defense funded the research that created the Internet or when NASA funded the creation of satellites that made cable TV and direct radio and TV possible.
  • Third, for commercial media, government-supported mechanisms that are content-neutral – such as copyright protections, postal subsidies and taxes – are preferable to those that call upon the government to fund specific news outlets, publications or programs.

“We live in an era of profound technological change that threatens many forms of news media. We do not favor government policies that keep dying media alive. But we do believe government can help to provide support during this period of transition,” says Westphal.

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A complete copy of the report is available online at http://fundingthenews.org/. The website also features supplemental research papers on eight specific areas: postal rate subsidies, tax policy, broadband expansion, international broadcasting, government funding of public broadcasting, public notice requirements, copyright laws and antitrust regulations. In addition, the authors have collected an online directory of proposals for government intervention and links to public hearings and other activities on these issues.

About the Center on Communication Leadership and Policy

Based at the USC Annenberg School for Communication & Journalism, the Center on Communication Leadership and Policy conducts research and organizes courses, programs, seminars and symposia for scholars, students, policymakers and working professionals to prepare future leaders in journalism, communication and other related fields. CCLP focuses its activities in two areas: 1) The Role of Media in Democracy and 2) Communication Leadership. Current projects include: Public Policy and the Future of News; New Models for News; The Constitution and the Press; Media and Political Discourse; Children’s Media and Ethics; Women and Communication Leadership; and Photographic Empowerment.

December 10, 2009

TARP costs coming in $200B under expectations

Looks like the Obama administration is going to put some toward the deficit and some toward Main Street. Given the facts on the ground, this sounds like fairly conservative fiscal policy to me. Quite a revelation after the last eight years.

From the link:

The government recently announced that the Troubled Asset Relief Program (TARP), established at the height of the financial crisis last year to recapitalize the nation’s banking system, will cost $200 billion less than expected. Obama wants that money redeployed into additional stimulus initiatives: “This gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street,” Obama said Tuesday.

Getting Main Street hiring again is key to job recovery: Small businesses have created 65% of new jobs in the past 15 years, according to government estimates. Obama’s latest set of proposals includes several brand-new measures, as well as extensions of existing stimulus acts.

December 7, 2009

The bank bailout may end up in the black

Who’d a thunk this a year ago?

From the link:

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

Still, the new estimates would lower the administration’s deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

November 24, 2009

Bringing strategic management theory to bear on today’s economy

In surprising news, this release claims the current economy is too complex for macroeconomics. (Psst, it’s not really surprising at all.)

The release:

Strategic management theory offers fresh take on the economic crisis

New research published in Strategic Organization

Los Angeles, London, New Delhi, Singapore and Washington DC (November 24, 2009) – The recent financial crisis and resulting global economic downturn has been the most defining global economic event since the Great Depression. Now research which appears in the November issue of Strategic Organization, published by SAGE, illustrates new ideas and philosophies in economics from strategic management, uncovering the micro-level underpinnings of the macro-level events we witness today.

Macroeconomics experts have used traditional theories to understand the causes of the economic crisis and offer new schemes and ideas for recovery. These discussions about fiscal and monetary policy dominated much of the conversation about the crisis and what to do about it, according to one of the authors Peter Klein, from the Division of Applied Social Sciences, University of Missouri.

Klein and his co-authors argue that macroeconomics is not equipped to offer full solutions to this crisis. Its basic assumption is that factors of production, firms, and industries in the economy are homogeneous and interchangeable. Research in strategic management has consistently shown that the assumption that the economy is made up of homogeneous or interchangeable factors of production is incorrect.

Strategic management theory—with its emphasis on heterogeneously distributed and rather immobile and inelastic resources and capabilities—is ready to open the debate to new ideas for the recovery.

The idea that resources, firms, and industries are different from each other, that capital and labor are specialized for particular projects and activities, and that people (human capital), are distinct, is constantly encountered in strategic management theory and practice. That macroeconomic models assume factors of production in an economy are homogeneous is interesting, the authors point out, because this assumption creates problems for macroeconomics in both explaining the current crisis, and in deriving solutions.

The Bush Administration bailout and stimulus program in 2008 and continuing through the Obama Administration in 2009 represent a complex mixture of programs, designed to rescue failing banks, strengthen the financial sector, and appear to help homeowners. The same programs have been copied in the European Community throughout 2008.

The Obama Administration’s American Recovery and Reinvestment Act included both stimulus and infrastructure spending. The latter was designed to target particular industries, regions, technologies, and business practices for government support and to provide incentives for particular kinds of business and consumer behavior (e.g., to invest in new “green industries”. The EU plan copied this two-step approach on a smaller scale).

The article focuses on the macroeconomic stimulus itself, and—particularly in the US—the financial-sector bailout measures that followed. Treasury Secretary Henry Paulson told Congress in September 2008 that radical steps were needed “to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy.”

The US government’s restructuring plans for the financial and automobile industries, and potentially for other sectors are likely to run into problems due to their basis in macroeconomic principles, the authors warn.

What should governments do during an economic downturn? The authors believe it is critical to avoid policies that generate poor investment in the first place. They argue strongly that basic heterogeneity of individuals, fiirms, industries, and regions cast doubt on the macroeconomic stimulus policies governments currently preach.

The authors discuss how just as strategic management theory has much to offer in understanding the crisis, the crisis has also thrown certain important weaknesses in current strategic management theory into sharp relief. Strategic management theory must extend its focus on heterogeneous capabilities to include the capabilities to handle major, anticipated shocks. Resourceful entrepreneurs and business managers urgently need us to do so, the authors state.

Adapting to external change is an important theme in strategic management research. Performance depends not only on resources and capabilities involved in production and market exchange, but also on the ability of business to influence political decision makers. In this climate, entrepreneurs may need to become skilled political lobbyists, taking advantage, and influencing the direction of the political debate.

Strategic management scholars have much to offer, and they must now engage in meaningful debate on how management theory can help resolve the current crisis, because the future, both immediate and long term, is at stake.

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Heterogeneous Resources and the Financial Crisis: Implications of Strategic Management Theory by Rajshree Agarwal, Jay B. Barney, Nicolai J. Foss and Peter G. Klein is published today in Strategic Organization, published by SAGE. The article will be free online for a limited period fromhttp://soq.sagepub.com/cgi/reprint/7/4/467

SAGE is a leading international publisher of journals, books, and electronic media for academic, educational, and professional markets. Since 1965, SAGE has helped inform and educate a global community of scholars, practitioners, researchers, and students spanning a wide range of subject areas including business, humanities, social sciences, and science, technology and medicine. An independent company, SAGE has principal offices in Los Angeles, London, New Delhi, Singapore and Washington DC. www.sagepublications.com

October 22, 2009

Solar costs are dropping

Interesting news from the Lawrence Berkeley National Laboratory.

The release:

Installed cost of solar photovoltaic systems in the US fell in 2008

Researchers at the Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) released a new study on the installed costs of solar photovoltaic (PV) power systems in the U.S., showing that the average cost of these systems declined by more than 30 percent from 1998 to 2008. Within the last year of this period, costs fell by more than 4 percent.

The number of solar PV systems in the U.S. has been growing at a rapid rate in recent years, as governments at the national, state, and local levels have offered various incentives to expand the solar market. With this growth comes a greater need to track and understand trends in the installed cost of PV.

“A goal of government incentive programs is to help drive the cost of PV systems lower. One purpose of this study is to provide reliable information about the costs of installed systems over time,” says report co-author Ryan Wiser.

According to the report, the most recent decline in costs is primarily the result of a decrease in PV module costs. “The reduction in installed costs from 2007 to 2008 marks an important departure from the trend of the preceding three years, during which costs remained flat as rapidly expanding U.S. and global PV markets put upward pressure on both module prices and non-module costs. This dynamic began to shift in 2008, as expanded manufacturing capacity in the solar industry, in combination with the global financial crisis, led to a decline in wholesale module prices,” states the report, which was written by Wiser, Galen Barbose, Carla Peterman, and Naim Darghouth of Berkeley Lab’s Environmental Energy Technologies Division.

In contrast, cost reductions from 1998 through 2007 were largely due to a decline in non-module costs, such as the cost of labor, marketing, overhead, inverters, and the balance of systems.

The study—the second in an ongoing series that tracks the installed cost of PV—examined 52,000 grid-connected PV systems installed between 1998 and 2008 in 16 states. It found that average installed costs, in terms of real 2008 dollars, declined from $10.80 per watt (W) in 1998 to $7.50/W in 2008, equivalent to an average annual reduction of $0.30/W, or 3.6 percent per year in real dollars.

Costs Differ by Region and Type of System

Other information about differences in costs by region and by installation type emerged from the study. The cost reduction over time was largest for smaller PV systems, such as those used to power individual households. Also, installed costs show significant economies of scale—small residential PV systems completed in 2008 that were less than 2 kilowatts (kW) in size averaged $9.20/W, while large commercial systems in the range of 500 to 750 kW averaged $6.50/W.

Installed costs were also found to vary widely across states. Among systems completed in 2008 and less than 10 kW in size, average costs range from a low of $7.30/W in Arizona, followed by California, which had average installed costs of $8.20/W, to a high of $9.90/W in Pennsylvania and Ohio. Based on these data, and on installed cost data from the sizable German and Japanese PV markets, the authors suggest that PV costs can be driven lower through large-scale deployment programs.

The study also found that the new construction market offers cost advantages for residential PV systems. Among small residential PV systems in California completed in 2008, those systems installed in residential new construction cost $0.80/W less than comparably-sized systems installed in rooftop retrofit applications.

Cash Incentives Declined

The study also found that the average size of direct cash incentives provided by state and local PV incentive programs declined over the 1998-2008 study period. Other sources of incentives, however, such as federal investment tax credits (ITCs), have become more significant. For commercial PV systems, the average combined after-tax value of federal and state ITCs, plus direct cash incentives provided by state and local incentive programs, was $4.00/W in 2008, down slightly from its peak in 2006 but still a near-record-high. Total after-tax incentives for residential systems, on the other hand, were at an historic low in 2008, averaging $2.90/W, their lowest level within the 11-year study period.

The drop in total after-tax incentives for both commercial and residential PV from 2007 to 2008 more than offset the cost reduction over this period, leading to a slight rise in the net installed cost, or the installed cost facing a customer after receipt of financial incentives. For residential PV, net installed costs in 2008 averaged $5.40/W, up 1% from the previous year. Net installed costs for commercial PV averaged $4.20/W, a 5% rise from 2007.

###

The report “Tracking the Sun II: The Installed Cost of Photovoltaics in the U.S. from 1998�,” by Ryan Wiser, Galen Barbose, Carla Peterman, and Naim Darghouth may be downloaded from http://eetd.lbl.gov/ea/emp/re-pubs.html. The research was supported by funding from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (Solar Energy Technologies Program) and by the Clean Energy States Alliance.

Berkeley Lab is a U.S. Department of Energy national laboratory located in Berkeley, California. It conducts unclassified scientific research and is managed by the University of California. Visit our website at http://www.lbl.gov.

August 19, 2009

Auctioning accounts receivable

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 4:01 pm

An interesting source of cash for small business during this ongoing credit crunch.

From the link:

Cash flow has become a leading concern for small firms as banks reduce credit lines, shorten maturities and raise rates, according to a May study by the Credit Research Foundation. Among the companies surveyed, 45% said the financial crisis was straining their access to working capital. Almost 70% reported a slowdown in customer payments, and 61% said their top priority was to boost cash flow by getting clients to pay what they owe faster.

The Receivables Exchange (TRE), which runs an online auction market for accounts receivable, is benefiting from these trends. More companies have been turning to the two-year-old firm to raise money as traditional credit sources dry up.

“We take the most liquid of the assets on the balance sheet that they can modify and allow those to trade on a transparent, standardized exchange,” says Nicolas Perkin, president of the New Orleans-based company

August 18, 2009

Study finds foreclosure leads to depression

This isn’t a topic to make light of, but a study finding people whose homes have been foreclosed on show signs of clinical depression should suprise no one.

It does point out the larger picture that the toll of this ongoing economic downturn/recession/financial crisis goes far beyond the economics.

The release:

More than 1/3 of homeowners in foreclosure suffer from major depression, Penn study shows

Findings reveal looming health crisis tied to nation’s housing woes

(PHILADELPHIA) – The nation’s home foreclosure epidemic may be taking its toll on Americans’ health as well as their wallets. Nearly half of people studied while undergoing foreclosure reported depressive symptoms, and 37 percent met screening criteria for major depression, according to new University of Pennsylvania School of Medicine research published online this week in the American Journal of Public Health. Many also reported an inability to afford prescription drugs, and skipping meals. The authors say their findings should serve as a call for policy makers to tie health interventions into their response to the nation’s ongoing housing crisis.

“The foreclosure crisis is also a health crisis,” says lead author Craig E. Pollack, MD, MHS, who conducted the research while working as an internist and Robert Wood Johnson Foundation Clinical Scholar at Penn. “We need to do more to ensure that if people lose their homes, they don’t also lose their health.”

In addition to the high number of participants reporting depression symptoms, the study of 250 Philadelphia homeowners undergoing foreclosure also shed light on other health care problems that may be spurred by difficulties keeping up with housing costs. The study participants were recruited with the Consumer Credit Counseling Service of Delaware Valley, a non-profit, U.S. Housing and Urban Development-approved mortgage counselor. The authors found that compared to a sample of residents in the general public, those in foreclosure were more likely to be uninsured (22 percent compared to 8 percent), though similar health problems were seen among both the insured and uninsured. Nearly 60 percent reported that they had skipped or delayed meals because they couldn’t afford food, and people undergoing foreclosure were also more likely to have forgone filling a prescription because of the expense during the preceding year (48 percent vs. 15 percent). The study also revealed that for 9 percent of respondents, a medical condition in their family was the primary reason for the home foreclosure, and more than a quarter of those surveyed said they had significant unpaid medical bills.

Because the financial hardships of foreclosure may lead homeowners to cut back on health care spending that they consider “discretionary” – preventive care visits, healthy foods or drugs for chronic conditions like hypertension – Pollack theorizes that the prolonged period of time that most homeowners spend in foreclosure could have a serious effect on health outcomes. In addition, the stress of undergoing foreclosure may exacerbate health-undermining behaviors. Among the participants who smoke, for instance, 65 percent said they had been smoking more since they received notice of foreclosure.

The “exceptionally high” rate of depressive symptoms found in the study is especially concerning, Pollack says, compared to previous research showing that only about 12.8 percent of people living in poverty meet criteria for major depressive disorder.

“When people purchase homes, they are buying a piece of the American Dream,” says co-author Julia Lynch, PhD, the Janice and Julian Bers Assistant Professor in the Social Sciences in Penn’s department of political science. “Losing a home can be especially devastating because it means the loss of this dream. When this happens, there is reason to worry not only about the health of the home owner but also that of family members and the broader community they live in.”

The authors say that the data collected in Philadelphia may be only the tip of the iceberg when compared to other cities that have experienced a sharp spike in housing foreclosures. Although foreclosure filings nearly doubled between 2007 and 2008 in Philadelphia, other large cities have higher unemployment and foreclosure rates.

To combat the health problems revealed in the study, Pollack and Lynch suggest that health care workers and mortgage counseling agencies coordinate their efforts to help people at risk of foreclosure access both medical and housing help. Doctors, they suggest, should ask their patients about their housing situation and steer them towards mortgage relief resources. Mortgage counselors, meanwhile, can provide information about how to access safety net health care, enroll in public insurance programs like SCHIP or Medicaid, or apply for nutritional assistance programs for pregnant and nursing mothers and their children. The implications for policy, too, are vast.

“This study raises the stakes of the housing crisis,” Pollack says. “The policy push to get people into mortgage counseling should be combined with health outreach in order to fully help people during this tremendously difficult period in their lives.”

 

###

 

PENN Medicine is a $3.6 billion enterprise dedicated to the related missions of medical education, biomedical research, and excellence in patient care. PENN Medicine consists of the University of Pennsylvania School of Medicine (founded in 1765 as the nation’s first medical school) and the University of Pennsylvania Health System.

Penn’s School of Medicine is currently ranked #3 in the nation in U.S.News & World Report’s survey of top research-oriented medical schools; and, according to the National Institutes of Health, received over $366 million in NIH grants (excluding contracts) in the 2008 fiscal year. Supporting 1,700 fulltime faculty and 700 students, the School of Medicine is recognized worldwide for its superior education and training of the next generation of physician-scientists and leaders of academic medicine.

The University of Pennsylvania Health System (UPHS) includes its flagship hospital, the Hospital of the University of Pennsylvania, rated one of the nation’s top ten “Honor Roll” hospitals by U.S.News & World Report; Pennsylvania Hospital, the nation’s first hospital; and Penn Presbyterian Medical Center, named one of the nation’s “100 Top Hospitals” for cardiovascular care by Thomson Reuters. In addition UPHS includes a primary-care provider network; a faculty practice plan; home care, hospice, and nursing home; three multispecialty satellite facilities; as well as the Penn Medicine at Rittenhouse campus, which offers comprehensive inpatient rehabilitation facilities and outpatient services in multiple specialties.

August 13, 2009

Foreclosures still on rise

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 3:54 pm

No good news from the housing sector. This is one area where there will be dissonance between the facts on the ground affecting real people and the economic pundits who tout the ongoing (real, but very slow) recovery from the financial crisis.

From the link:

The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage.

Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee’s sale. That’s the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

June 4, 2009

Economic indicators not behaving

News stories like this perfectly illustrate why I remain skeptical of any rosy near-term predictions. I honestly think the media is doing the general public a great disservice with the “doom,” “doom,” “doom” and then, “it’s all going to be great!,” followed soon after with, “alas, woe is us.” The news cycles leave people tired, confused and probably distrustful of most things they hear.

The fact is we remain in fairly uncharted territory and even though things are looking a little better in that everything is no longer in a free fall, many things can happen to really crater the global economy. Let’s just say we are not on solid footing by any measure right now. Any report to the contrary is just blowing smoke.

Instead of worrying over all this bipolar news, the best bet is to keep the stiff upper lip, chin up approach and just stay alert to the facts and conditions on the ground.

From the link:

The nation’s service sector shrank in May at the slowest pace since late last year. And factory orders rose in April. But the improvements fell short of economists’ expectations and disappointed investors, who sent stocks lower.

Economic reports earlier this week on home sales and manufacturing had been encouraging, but Wednesday’s figures sent a reminder that the economy remains sluggish.

“People assumed it was safe to go back outdoors, but it’s still raining,” said David Wyss, chief economist at Standard & Poor’s. “It’s just not raining quite as hard.”

The Institute for Supply Management said its services index registered 44 in May, up slightly from 43.7 in April. It was the highest reading since October. Service industries such as retailers, financial services, transportation and health care make up about 70 percent of U.S. economic activity.

But the ISM figure marked its eighth straight monthly decline, and it fell slightly below economists’ expectations. Any reading below 50 indicates the services sector is shrinking. The last time the index was at 50 or higher was in September.

Separately, the government reported that orders to U.S. factories rose 0.7 percent in April, the second increase in three months.

But the Commerce Department’s report fell short of analysts’ expectations. And the government also marked down the March figure to a 1.9 percent drop, from the 0.9 percent decline previously reported.

Wall Street fell after the disappointing figures were released. The Dow Jones industrial average dropped more than 65 points to 8,675.24. Broader averages also declined.

Federal Reserve Chairman Ben Bernanke, meanwhile, said Wednesday that the economy will begin growing later this year, but the improvement will be slight.

“We expect that the recovery will only gradually gain momentum,” he told lawmakers. “Businesses are likely to be cautious about hiring, and the unemployment rate is likely to rise for a time, even after economic growth resumes.”

The current recession, the longest since World War II, began after the bursting of the housing bubble led to a financial crisis last fall. Economists say recoveries after such crises tend to be slower, as credit remains tight even after growth returns.

May 28, 2009

How this downturn stacks up

Filed under: Business — Tags: , , , — David Kirkpatrick @ 3:17 pm

I’ve done plenty of blogging on the financial crisis/economic downturn/recession/possible depression, and lately I’ve been pushing back a little at what I see as overly optimistic short-term outlooks.

This thing is far from over, but in the interest of fairness this chart provides a little perspective. Things are rough — as in as bad as has been seen in around fifty years — but no where near the Great Depression. And I do think the worst of bleeding has been staunched so it’s really unlikely we to those depths.

From the second link:

Six Downturns

The Great Depression was an unspeakably bad time for the U.S. economy.  I know that sounds obvious, but it seems necessary to say given all the recent rhetoric about “the worst economy since the Great Depression.”

Our economy has indeed been in terrible shape lately, with millions of families struggling with falling incomes, job losses, home foreclosures, and plummeting wealth.  The current recession is severe by any reasonable metric.  But it still pales in comparison to the Great Depression.

(Hat tip: the Daily Dish)

April 16, 2009

Fed sees light at the end of tunnel

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 3:11 pm

The latest beige book report goes for optimism. I’m guessing they’re more just satisfied things aren’t spiraling even further down as opposed to seeing anything worth getting excited about. But I’ve been pretty contrarian about this financial crisis going back to the first days of this blog.

From the first link:

The Fed’s “Beige Book,” which offers an anecdotal look at economic activity in its 12 districts, said that “overall economic activity contracted further or remained weak,” noting that areas such as manufacturing were still depressed.

But the report said that five of the districts “noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”

The positives may have been the “green shoots” that Fed Chairman Ben Bernanke referred to recently when saying he saw some signs of life in the economy.

It was “consistent with the recent data that have shown improvement in some sectors of the economy, particularly consumption and housing,” said Michelle Meyer of Barclays Capital.

“While downward pressure continues, the pace of the declines may be easing up, somewhat. Not a major surprise in light of the data we’ve seen for March, but noteworthy nonetheless,” said Ian Lyngen of RBS Securities. “That said, the overall picture remains negative for the U.S. economic outlook — home prices continuing to decline and credit remaining ‘very tight’ throughout the country.”

In finance, the Beige Book said “bankers reported tight credit conditions, rising delinquencies and some deterioration of loan quality.”

Though the report said home prices and construction were largely falling, “better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts.”

April 9, 2009

Yet another Ponzi scheme

Wow, it seems Ponzi schemes have been alive and well across our land and it took a financial crisis to expose those critters to legal trouble.

From the link:

In the latest in a string of alleged Ponzi schemes, civil fraud charges have been filed against a Colorado investment manager who operated a $20 million operation that allegedly victimized dozens of investors in at least three states.

Shawn Merriman, 46, used some of his investors’ funds for personal expenses, including purchases of Rembrandt masterpieces worth millions of dollars and other artwork, according to a lawsuit announced Wednesday by the Securities and Exchange Commission.

Operating through Market Street Advisors, an Aurora-based firm he owned, Merriman allegedly promised investors annual returns as high as 20% from stock trading. He lost about $400,000 through aggressive investments by the initial investment fund he launched in 1995, the SEC said.

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