What is wrong with the US economy?

[russ_watters]

It's not a lie - it's a matter of definition/interpretation which is subject to subjective/objective assessment.

Clearly they are subject to subjective/objective assessment*, but they are the same word (root), so one person cannot use two different definitions (of the same word) simultaneously. That's an intentional contradiction.

*Caveat: word definitions are not subject to interpretation. The assesment of where the line should be drawn is what is subject to interpretation. You cannot arbitrarily choose to use a word in a different way than everyone else does because it suits a useful purpose for you. Again, that's an intentional deception because in doing so, you know that people will think you mean one thing when you actually mean something else.

The 'poverty line' is certainly an arbitrary boundary, but there are those whose incomes are above the poverty line, but they are still considered to be poor.

So my use is correct in a sense of "a square is a rectangle, but a rectangle is not [necessarily] a square."

Who? (besides you, then) None of the links you provided suggest that there is more than one condition that can be labeled poor. All of the commentaries are simply arguing that the line the government draws is in the wrong place.

A square is indeed a special subset of a rectangle. Poverty is not a subset of poor, "poverty is the state of being poor". If you are poor, you are living in poverty, if you are living in poverty you are poor.

http://dictionary.reference.com/browse/poverty

 

[loseyourname]

No they couldn't be. Less than 1 in 7 could be 1:7.1, 1:7.4, 1:7.3, etc. Fewer than 1 in 6 could be 1:5.8, 1:5.9, 1:5.7, etc.

Oops.

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

 

[Gokul43201]

Oops.

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

Lots of statistics (look at news reports of polling results) are described using simple whole number ratios rather than actual percentages, because apparently, the common person is better able to identify (perhaps, by picturing visually) and make sense of these simple ratios. I'd prefer the straight percentages too!

 

[turbo]

Lot's of statistics (look at news reports of polling results) are described using simple whole number ratios rather than actual percentages, because apparently, the common person is better able to identify (perhaps, by picturing visually) and make sense of these simple ratios. I'd prefer the straight percentages too!

It's puzzling why some people choose to use whole-number ratios. After all, we have a currency system in which coins are valued as a percentage of the dollar, and even little kids understand that a quarter ($0.25) is more valuable than a dime ($0.10). Maybe it's just me, but it sounds more immediate and real to say "12% of US residents live in poverty" instead of "one in eight US residents lives in poverty".

 

[kmarinas86]

The US debt is already consists of a significant portion of the money supply in the US.

http://en.wikipedia.org/wiki/Money_supply
M1 was about $1.4 trillion
M2 about $6.5 trillion
M3 about $9.7 trillion

US debt is $8.6 Trillion or 49% of the Money Supply

A simple solution would be to cut prices of everything by half while demanding people turn half of their money to pay for national debt. Who exactly would get that $8.6 Trillion, and what would it be used for?

The real problem is when the year's interest paid on debt is equal to the year's money supply, it is only then can the money supply attain a zero value. We are far from that.

 

[ShawnD]

A simple solution would be to cut prices of everything by half while demanding people turn half of their money to pay for national debt. Who exactly would get that $8.6 Trillion, and what would it be used for?

The problem is that lowering the money supply in such an extreme manner would cause insane deflation. $10 today is worth $20 tomorrow. Having your dollar suddenly worth twice as much increases your buying power, but it murders your selling power. Just as an example, places like China have a lot of selling power because their money is worth basically nothing to us. If US money doubled in value, US companies wouldn't be able to sell anything outside of the country, which would in turn cause layoffs, trade deficit, high unemployment, and possibly higher crime (because you ain't got no job).

My understanding is that most debt is actually owed to citizens. For example, back in WW2 there were things called "war bonds". When you buy $1000 of war bonds, you're basically giving the government $1000 and in return getting a slip of paper that says "we owe you $1000 plus interest". When this happens, you benefit from giving this $1000 to the government because they will pay interest on that $1000 loan you've given them, it's not really any different from when you borrow money from the bank.
The other kind of debt is when the country borrows money from other countries. This kind of debt is always bad and should be avoided at all cost.

 

[russ_watters]

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

Preaching to the choir there - by now you must know I see most such articles as intentional obfuscations. Using percentages would certainly clarify things and that is precisely what they want to avoid.

 

[russ_watters]

My understanding is that most debt is actually owed to citizens.

The other kind of debt is when the country borrows money from other countries. This kind of debt is always bad and should be avoided at all cost.

These days, the ratio of foreign to domestic is getting pretty high. According to Wik it was 44% in 2004: http://en.wikipedia.org/wiki/United_States_public_debt

Those two kinds of debt work exactly the same way as far as the government is concerned, its just that if foreigners own the t-bills or bonds, they get the profit from them instead of Americans. It isn't harmful, it just isn't as helpful.

 

[Jimmy Snyder]

I think the American economy works all too well. I would define a perfect economy as one in which all resources were being used to their fullest potential. Resources would include factories as well as workers. If there is one piece of idle equipment, or a person who isn't employed, the economy is not what it could be. I'm not too worried about finances as embodied in the question "Who is going to pay for all this?" I counter with the question "Who will pay if we don't do all this?"

When you look at the economy we have now, regardless of whether you find the glass half empty or half full, you find something not quite right. It seems that we produce enormous waste really efficiently. Lacking any real need for a larger economy, and yet constantly increasing efficiency, we are forced to produce more and more junk. I am reminded of Vance Packard's idea that factories should be built on pivots next to cliffs. When the economy is down, you can send the product of the assembly line directly to the city dump. It beats laying people off.

My solution is to encourage kids to stay in school longer and encourage early retirement. This would result in a shorter work life, less stuff, and a smaller, but better economy.

 

[Murray Gauthier]

Re: What is wrong with the US economy?
How about 13 trillion dollars of debt??!(gas is still cheap; instead of buying a 50 thousand dollar car, buy a 20 thousand dollar car and use 30 thousand for fuel and maintenance).

 

[ray b]

FREE TRADE
is not free nore fair
and is hurting the USA
it sounds like a good plan
but has not WORKED
RESULTS are bad
our workers are get less
and the international CORPs more
by sending our jobs to china
but the rich love the result
as they do not care about fair
just the bottom line

 

[Astronuc]

How about this for 'what's wrong with the economy'?

Would you believe the adding 167,000 new jobs in December. But isn't that great news? Apparently not because it means wages would increase with fewer unemployed! But doesn't that mean more workers spending more dollars? This seems rather schizophrenic.

It appears that economists look at wage earners as a 'cost' rather than a source of spending 'revenue' - and this in an economy that it is largerly driven by consumer spending.

National Economy Shows Muscle in Job Growth
http://www.npr.org/templates/story/story.php?storyId=6730804

All Things Considered, January 5, 2007 · The labor market finished strong for 2006, posting an increase of 167,000 jobs for December, the Department of Labor reported Friday.

The unemployment rate held steady at 4.5 percent. For all of 2006, employers added 1.8 million jobs to payrolls. That's a relief. Throughout last year, many economists worried that the cooling real-estate market could hurt job growth and tip the country into recession.

After years of spiraling prices and even bidding wars, the housing boom was over by 2006. In markets around the country, housing prices fell for the first time in more than three decades.

Nigel Gault, U.S. economist for Global Insight, recalls why people were concerned: "Given that performance of the housing market, people would naturally worry [about] what's going to happen to the construction market, and what are the spillover effects going to be on the rest of the economy, consumer spending, etc."

The answer so far: not that much.

Slowdown in Housing

Overall, the job market has proved remarkably resilient. Of course, the slump in housing did take a toll. Residential construction jobs fell sharply, but growth in commercial and heavy construction off-set those losses.

Or this is just an example of a dichotomy - the glass is half full or half empty as jimmysnyder mentioned.

Economic Indicators Point to Solid Job Market
http://www.npr.org/templates/story/story.php?storyId=6727734

 

[russ_watters]

Of course good news for some can be bad news for other. There's even something else implied there that is even a more direct dichotomy - good things can be problems and problems can be good things. Hiring more workers costs money and rising expenses are a bad thing but if you are hiring more workers it is probably because sales are up and rising sales is a good thing. My dad calls that a "good problem". (kinda like twin blonde bikini models are a good problem...)

My solution is to encourage kids to stay in school longer and encourage early retirement. This would result in a shorter work life, less stuff, and a smaller, but better economy.

But I like "stuff"!

That sounds tounge-in-cheek, but what "stuff" are we going to get rid of? My telescope? I don't need it, but I really really like it. Trips to Disney World? ZZ would be really upset about that.

"Fight Club" was both exactly right and exactly wrong. No, that coffee table can't define you as a person and if you are letting it, there really is something wrong with you. But that doesn't mean you shouldn't still buy it if you like resting your feet on it at the end of a hard day's work.

Stuff makes us happy and stuff (consumerism) is what drives the economy. We want it and we need it and as long as we don't get carried away by it, booth sides of that coin are a good thing.

 

[gabee]

A note about stuff--unfortunately it's this "stuff" that often sends us in the wrong direction. I hate how this greed for "stuff" (money) is what makes companies ignore the fact that they're irreversibly damaging the environment, and it's why they employ cheap labor wherever it's available. Only when corporations are given tax breaks for adhering to environmental regulations or when they'll get good PR out of it do they appear to change their mind.

It seems inherent in the system that development is the enemy of nature. :/ Just a thought.

 

[ray b]

How about this for 'what's wrong with the economy'?

Would you believe the adding 167,000 new jobs in December. But isn't that great news? Apparently not because it means wages would increase with fewer unemployed! B]

wonder what the avg pay for the "new jobs" are
we lost a lot of higher paying jobs too ""Factories, however, cut 12,000 positions and construction companies eliminated 3,000 jobs - casualties of the souring housing market and the struggling auto industry.""
and ''Leisure and hospitality expanded employment by 31,000 and financial firms added 9,000 new jobs.''
now leisure and hospitality pay is low much lower then a factory job
union auto worker get near 30 an hour and leisure and hospitality pay near minimum rates
so 12,000 x 30= 360,000 per hour vs 31,000 at say 6 = 186,000
and that a GAIN??
looks to me like more 19,000 people working for about 1/2 the pay of the lost jobs

sorry but in the real world of neo-conned control the many earn less
as the better jobs leave for china and fast food workers get the new jobs
and few at the very top earn more as a result of so called ''free trade''

 

[Astronuc]

Right or wrong?

The company underperformed, its stock tanked, but Home Depot's board still gave outgoing chief Robert Nardelli a $210 million severance package.

KAI RYSSDAL: Now here's an interesting item from the day's news. A guy runs a company that underperforms. Underperforms a lot. The stock tanks. Rivals are nipping at the heels. What happens? Well, when Home Depot announced today its CEO was resigning, with the company's blessing, the board gave him $210 million. From New York, Marketplace's Dan Grech reports.

http://marketplace.publicradio.org/shows/2007/01/03/PM200701033.html

I think corporate governance could stand an improvement.


Nardelli's Severance Package Was Pure Highway Robbery - of Investors

Home Depot (NYSE: HD - News) announced the immediate departure of Mr. Robert L. Nardelli, 58 Chairman, Chief Exec. Officer, President and Chairman of Exec. Committee. Shareholders are looking at approximately $210 million to wave good-bye. Apparently Mr. Nardelli will not be sitting on the board as a triumphant retired CEO offering sage advice to those that come after him. The remaining officers and more importantly, members of the board, appear to remain intact. Some of the grey bearded directors have even been asked to stand for re-election. So what has changed or is transpiring? Has the problem really been solved? By the way, the new boss does not have a retailing background. So that problem definitely has not been resolved.

The negotiated settlement, which is almost certainly based, patterned, rooted or influenced on a pre-existing employment agreement, is huge by any standards. $210 million is approximately 20% of last quarter's reported cash flow. $210 million is approximately 2% of last quarter's inventory position. $210 million is approximately $592 per associate (Home Depot's website reports 355,000 associates). $210 million is an incredible amount of money! Most of us would eagerly take the settlement. More than one would have darkly worked to the settlement rather than doing the actual job.

Apparently - some investors are just as outraged by Nardelli's $245 million in total pay over the last five years.

 

[Astronuc]

A sinkhole caused by a broken water main in Brooklyn last year swallowed an S.U.V. Nationally, such incidents have become more frequent.

Gaping Reminders of Aging and Crumbling Pipes

PORTLAND, Ore. — After a sinkhole swallowed a sewer-repair truck here on the day after Christmas, the truck’s crew crawled to safety, muddy and mystified.

Last summer in Irving, Tex., a 2-year-old boy disappeared near a sinkhole. One theory was that he was kidnapped. Another was that he was lost in the sewer system that had broken open and caused the collapse.

In December, firefighters in Brooklyn rescued a grandmother carrying groceries who fell into a hole that opened beneath her on a sidewalk. And in Hershey, Pa., a damaged storm drain caused a six-foot-deep sinkhole in Chocolate Town Park, nearly sinking the town’s New Year’s Eve celebration.

Local and state officials across the country say thousands of miles of century-old underground water and sewer lines are springing leaks, eroding and — in extreme cases — causing the ground above them to collapse. Though there is no master tally of sinkholes, there is consensus among civil engineers and water experts that things are getting worse.

The Environmental Protection Agency has projected that unless cities invest more to repair and replace their water and sewer systems, nearly half of the water system pipes in the United States will be in poor, very poor or “life elapsed” status by 2020.

“I’m not exaggerating,” said Stephen P. Allbee, a project director in the agency’s water division who helped make the projections. “It’s a really, really big public issue, and it’s going to be with us for a long time.”

Local geology or underground hazards are blamed for many sinkholes: weak limestone in Florida, old mineshafts in Pennsylvania. But increasingly, the authorities say, as America’s cities grow older and basic repairs are put off, when the ground gives way the problem is bad pipes.

The American Society of Civil Engineers has been giving low grades on the US infrastructure for years. Lower taxes mean little or no maintenance in some cases.

 

[edward]

Chrysler is in trouble

DETROIT - DaimlerChrysler Chief Executive Dieter Zetsche, under enormous pressure in Germany to spin off the money-losing Chrysler Group, says all options for the U.S. auto making arm are now on the table.

The surprise statement overshadowed details of Chrysler's three-year, $4.5 billion recovery plan announced Wednesday that includes 13,000 job cuts.

http://www.forbes.com/home/business/2007/02/14/chrysler-for-sale-biz-cz_jm_0214chrysler.html

In recent years there have been numerous companies that have announced recovery plans that include massive job cuts. Is there any evidence that this really works?

In most cases profits go up temporarily and the CEO's get a big pat on the back, but I can not see how job cuts are a permanent solution.
The only industry that can increase profits with a reduced production are the oil companies.

Referring to massive job cuts as recovery plans is all hype. They should be called CEO survival plans.

 

[turbo]

In recent years there have been numerous companies that have announced recovery plans that include massive job cuts. Is there any evidence that this really works?

There is a pervasive attitude in the boardroom and in some political circles that the workforce is a burden - a drag on the profitability of a company. To the contrary, the workforce is absolutely necessary, and a well-trained, skilled labor pool is an asset to be cherished and nurtured. The problems that the big 3 automakers are having are not attributable to the workforce, but to the decision-makers high up in the companies who have let the Japanese and now the Koreans take huge parts of the market with affordable, dependable vehicles that Americans want to buy.

To illustrate this, look at the Marysville plant that Ford closed years ago because it was "not profitable". Honda bought the plant, refurbished it, brought in all new equipment, hired back much of the workforce that Ford had laid off, and started production of the Honda Accord, which soon became the biggest-selling car in the US market. ( Note: Ford managed to take back the sales record with the Taurus, but only by "buying" huge numbers of the Taurus themselves and leasing them dirt-cheap to rental companies. Without those bogus sales, the Accord was still by far the most popular car in the US and in fact had the highest percentage of US-made parts of all US-made cars as well.) When Ford closed the plant at Marysville, they were showing their stock-holders that they were willing to sacrifice innovation, design, reinvestment, and smart marketing in order to boost stock prices in the short term. As long as the CEOs of big companies are compensated with stock options and are compelled to cater to the short-term interests of stock-holders, they will continue to make short-sighted decisions that will guarantee the decline of our economy. The Big 3 are not being hurt by their labor forces - they are being hurt by ignorance, greed in the boardroom and by decision-making processes that have horizons of 1-2 years instead of decades.

 

[Futobingoro]

The efficiency of almost all economic processes grows logistically; i.e. businesses grow more efficient as they increase in size, but the trend reverses past a certain point. There is also the powerful force which drives businesses out of industries they do not a have a comparative advantage in.

The American automobile cuts may be a combination of those and/or other factors.

Gone are the days when Boeing manufactured most of the parts for their aircraft. Contracting parts out (though fraught with some difficulties) has reduced the cost of the aircraft.

The Chinese military has actually shrunk considerably since the late 1970s, and is now a "leaner, meaner" force. Ostensibly, this was done to increase the efficiency of what had been described as a cumbersome military.

I consider both of those changes valid.

 

[edward]

The efficiency of almost all economic processes grows logistically; i.e. businesses grow more efficient as they increase in size, but the trend reverses past a certain point. There is also the powerful force which drives businesses out of industries they do not a have a comparative advantage in.

But this does not explain why Daimler is doing fine and Chrysler is not. It has more to do with the rapidly fluctuating price of gasoline and the inability of companies to adjust to that change. The fact that the price of gasoline has always been high in Europe may be in Daimler's favor.

Last year when gas was $3.00 per gallon in the USA hybrid vehicles were selling at a premium, ie above msrp. This year even Toyota has an unsold surplus of hybrids.

Gone are the days when Boeing manufactured most of the parts for their aircraft. Contracting parts out (though fraught with some difficulties) has reduced the cost of the aircraft.

The auto industry is outsourcing.

“We are willing to import with the focus on being competitive,” said Tom LaSorda, Chrysler head during the Beijing International Automotive Exhibition. LaSorda also stated that within 6-12 months, Chrysler would point out cost reductions averaging $1,000 per vehicle, a portion of which comes from outsourcing.

And we can't blame it all on the cost of labor. Both Chrysler and Ford have sprawling factories in Mexico. Chrysler's HEMI engine is even made in Mexico.

 

[Astronuc]

The Hershey Company, maker of Hershey's chocolates, has announced that the company will cut its workforce by 1500 (11.5% of that work force), and open a plant in Mexico, possibly Monterrey.

HARRISBURG, Pa. - The Hershey Co., whose name has been synonymous with U.S. candymaking for more than a century, is moving a bigger chunk of its production to Mexico. A day after Valentine sweethearts across the country enjoyed bags of Hershey Kisses, the company on Thursday announced a restructuring plan that will scale back its work force by 1,500 jobs and force some plants to close.

http://news.yahoo.com/s/ap/20070215/ap_on_bi_ge/hershey_restructuring_8

Meanwhile -

- Industrial output falls 0.5 pct. in Jan.

- Housing sales drop in 40 states

 

[ShawnD]

But this does not explain why Daimler is doing fine and Chrysler is not.

Daimler is doing ok because it's generally accepted that Mercedes vehicles are posh and somewhat trustworthy despite the recent quality problems. Chrysler is notorious for making crappy vehicles that cannot be fixed no matter how many times you take them in. Just do a google search for "<company> quality" and see what the first result is, not including pages owned by that company.
Chrysler - "The Truth Behind Chrysler"
Mercedes - "Mercedes, Quality Dropping, Loses Market Share to BMW, Lexus"
Dell Computers - "Dell Quality Control Sucks"
Nissan - "Nissan quality improving, according to J.D. Power"

Interesting.

 

[edward]

Quality is very important and it is the responsiblility of mangement. A CEO can cut corners on quality until sales are down. Then he can fire thousands of workers upping temporary profit and use the opportunity to cash in on his stock options.

 

[russ_watters]

And we can't blame it all on the cost of labor. Both Chrysler and Ford have sprawling factories in Mexico. Chrysler's HEMI engine is even made in Mexico.

That's missing the point. The killer labor cost isn't the current employees, it's the past employees getting pensions and healthcare from underfunded pension funds. That is what makes American cars more expensive than competing foreign cars.

 

[Plastic Photon]

The Gawhar oil field is losing its flow rate up the well-bores, more oil is being burnt to get the oil, raise price, everyone pays.

 

[Astronuc]

The good news - Unemployment Rate Declined in Feb.
http://www.nytimes.com/2007/03/10/business/10econ.web.html?hp - NYTimes, March 10, 2007

Businesses added jobs at a steady pace last month, the government reported today, in the latest sign that the job market is holding up despite other signs of economic weakness.

The Labor Department reported that total nonfarm employment rose in February by 97,000 — slightly more than analysts were expecting. It also revised up previous estimates for employment in January in December to reflect an additional 55,000 jobs.

At the same time, the national unemployment rate fell back to 4.5 percent from 4.6 percent.

Workers’ average hourly earnings continued to rise at a strong pace. The average employee in a nonmanagerial job earned 4.1 percent more in February than year earlier. Hourly pay jumped to $17.16 from $16.49 in February 2006.

The not so good news -

Violent Crime in Cities Shows Sharp Surge - NYTimes, March 9, 2007
http://www.nytimes.com/2007/03/09/us/09crime.html?hp

Violent crime rose by double-digit percentages in cities across the country over the last two years, reversing the declines of the mid-to-late 1990s, according to a new report by a prominent national law enforcement association.

While overall crime has been declining nationwide, police officials have been warning of a rise in murder, robbery and gun assaults since late 2005, particularly in midsize cities and the Midwest. Now, they say, two years of data indicates that the spike is more than an aberration.

“There are pockets of crime in this country that are astounding,” said Chuck Wexler, the executive director of the Police Executive Research Forum, which is releasing the report on Friday. “It’s gone under the radar screen, but it’s not if you’re living on the north side of Minneapolis or the south side of Los Angeles or in Dorchester, Mass.”

Local police departments blame several factors: the spread of methamphetamine use in some Midwestern and Western cities, gangs, high poverty and a record number of people being released from prison. But the biggest theme, they say, is easy access to guns and a willingness, even an eagerness, to settle disputes with them, particularly among young people.

We need guns . . . to protect us from other people with guns?

People being released from prison have a difficult time getting jobs or maintaining employment, so ostensibly, they must go back to doing whatever is necessary to get by, and that often means illicit activity, which is what got them into prison in the first place.

The benefits of the so-called 'strong' economy are unevenly distributed, and that necessarily means some a doing very well while many more are doing poorly.

 

[Astronuc]

Crisis Looms in Market for Mortgages
http://www.nytimes.com/2007/03/11/business/11mortgage.html

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

This is a significant problem in the financial sector of the US economy. People are issuing sloppy or in some cases false research. They aren't scrutinizing the data, and therefore some/much research lacks integrity.

For the most part - this matter mainly pertains to sub-prime mortgages, but it will affect those with ARMs and home-equity loans.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.

Hanging in the balance is the nation’s housing market, which has been a big driver of the economy. Fewer lenders means many potential homebuyers will find it more difficult to get credit, while hundreds of thousands of homes will go up for sale as borrowers default, further swamping a stalled market.

. . . continued

Well, depending on how bad the situation is, it could precipitate a mini-crash. Not that a crash will occur, but don't be surprised if it does.

BTW -

One by one, American industries are finding more fertile ground overseas. In industries from textiles, steel, and automobiles to high-tech electronics and software design, America no longer reigns supreme. And now some worry that America's crown jewel, Wall Street, is on its way out, too.

from Is Wall Street Losing Its Luster?
Markets abroad are making inroads
http://www.usnews.com/usnews/biztech/articles/070304/12wall.htm

Of course, a favorite mantra of business is - "we are overregulated". But then recent scandals involving Enron, Worldcom, Global Crossing, Adelphia, . . . . show that corporations are not over-regulated, but perhaps poorly regulated, and certainly deficient with respect to self-regulation.

 

[Astronuc]

DOW INDUSTRIALS FALL MORE THAN 240 POINTS; DOW, NASDAQ, S&P EACH LOSE 2%

U.S. stocks fall sharply as subprime bites again
www.marketwatch.com

NEW YORK (MarketWatch) -- U.S. stocks sank on Tuesday, sending the Dow Jones Industrial Average down by 200 points, as the rising tide of problems in the subprime mortgage market spurred fear of contagion across the whole financial sector, while weaker-than-expected retail sales confirmed a slowing economic outlook.

The market is gripped by "subprime contagion," said Peter Boockvar, equity strategist at Miller Tabak. "These are the same problems that have been weighing on the market for the last couple of weeks," he said, referring to the downtrend seen ever since the Dow fell 415 points exactly two weeks ago.

. . . .

Tuesday's Personal Finance stories
By MarketWatch
Last Update: 2:30 PM ET Mar 13, 2007

The housing market has been sinking for months, and despite some analysts' contention that things have bottomed out there is much fallout yet to rain down. The latest mortgage-foreclosure and delinquency numbers from the Mortgage Bankers Association show just how radioactive that fallout may be.

Many more homeowners are paying their mortgages late, and the percentage of mortgage loans that entered the foreclosure process hit a record high in the fourth quarter. Although the bulk of the trouble is coming from subprime and government-insured borrowers, the increase in late payments was across the board.

The scary thing is that these increase came when the state of the economy overall was fairly healthy. Job creation and income generation were good in the fourth quarter and interest rates remained low. If homeowners can't cope under those conditions, what is going to happen if the economy, as some predict, sinks into a real recession?

The economy is NOT overall healthy - it is overleveraged. Like internal bleeding and an insidious form of asymptomatic cancer - the patient is ill - and it seems many who should know better - don't.

MarketWatch - REAL ESTATE

New foreclosures at record high

Many more U.S. homeowners were unable to keep up with their mortgage payments in the fourth quarter, the Mortgage Bankers Association said Tuesday, with the rate of homes entering the foreclosure process hitting a record 0.54% and the delinquency rate on U.S. home loans leaping to 4.95% from 4.67% three months earlier. . . . . . more at MarketWatch

Tighter lending standards expected to hit sales, exacerbate inventory glut

Although it's difficult to gauge home builders' direct exposure to the imploding market for subprime loans, none is likely to be immune to the ripple effects resulting from tighter mortgage-lending standards whether they sell to first-time buyers or in the high-end luxury market. . . . . . more at MarketWatch

At a mortgage lender, rapid rise, faster fall

Ruthie Hillery was struggling to make the $952 monthly mortgage payment for her three-bedroom home in Pittsburg, Calif., last summer when a mortgage broker persuaded the 70-year-old to refinance into a "senior citizen's" loan from New Century Financial Corp. that she thought would eliminate the need to make any payments for several years, according to her lawyer. Instead, the $336,000 adjustable-rate loan started out with payments of $2,200 a month, more than double her income. In December, Hillery received notice that New Century intended to foreclose on the property. Then, earlier this month, after a formal demand by the lawyer, New Century agreed to refund all its fees and cancel the loan once Hillery gets refinancing elsewhere. The lawyer, Alan Ramos, says the loan never should have been made. "You have a loan application where the income section is blank," Ramos says. "How does it even get past the first person who looks at it?"

. . . . . more at MarketWatch

These are indications that the economy is fundamentally unsound!

 

[Astronuc]

Houses cheaper than cars in Detroit!
http://news.yahoo.com/s/nm/20070319/ts_nm/usa_subprime_detroit_dc

DETROIT (Reuters) - With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

. . . .

Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

. . . .

The economy is certainly uneven.

As for the GDP, if that amount includes financial transactions and transactions based on credit, then it greatly overstates the health of the economy.

 

[edward]

Here is a sign of the times:

Over the last year, the seasonally adjusted rate of new foreclosures increased 12 basis points overall, six basis points for prime loans, 53 basis points for subprime loans, 2 basis points for FHA loans and was unchanged for VA loans.

http://www.mortgagenewsdaily.com/3192007_Delinquencies.asp

Yet there are still companies pushing subprime loans.

 

[Astronuc]

Dissecting a $3 Trillion Federal Budget Plan
http://www.npr.org/templates/story/story.php?storyId=9204350

Morning Edition, March 29, 2007 · A vote is expected Thursday in the House of Representatives on a guideline for next year's $3 trillion federal budget. The Senate passed its version last week. The resolution outlines how to spend hundreds of billions of dollars in tax money on Social Security, Medicare, the military and all other government services.

The federal budget is growing at about 3 times the rate of the US economy, and that means that the tax revenue is falling behind. If Bush is projecting a balanced budget under current trends, he is sadly delusional. Well, we already know that.

Rise and Fall of Subprime Lenders Began on Wall St.
http://www.npr.org/templates/story/story.php?storyId=9248739
by Jim Zarroli

All Things Considered, March 30, 2007 · It all started last November, when a relatively small lender — called Own-It Mortgage Solutions — defaulted on its loans to JP Morgan Chase & Co. Since then, more than 24 subprime lenders have folded, victims of rising default rates — but also of rising suspicions that the entire subprime market is teetering.

One of the nation's biggest subprime lenders, New Century Financial, is expected to file for bankruptcy any day now.

Like a lot of lenders in the subprime market, New Century specialized in zero-down and no-interest loans, which cater to people with credit problems. For years, the company was able to prosper because of the financial support of much bigger Wall Street banks.

But as the housing market has slowed, and regulations have tightened, that support has quickly dried up.

Subprime lending has long been the forgotten, low-rent corner of the mortgage business, touched by a down-market taint. But the image is deceiving, industry analysts say: Subprime lending is based on the support of Wall Street's old-line banking establishment.

Could this be the proverbial hole in the dyke of the US economy? Are there other holes?

 

[Astronuc]

Citigroup, the global banking giant, said Tuesday it would eliminate or reassign more than 26,500 jobs as part of a sweeping overhaul to cut costs and streamline operations. The announcement, which followed a companywide review led by Citi chief operating officer Robert Druskin, detailed plans for more than 17,000 layoffs, with the first pink slips coming this week. In addition, about 9,500 jobs will be moved to locations overseas or around the United States where the cost of doing business is lower. About 1,600 jobs will be eliminated in New York, where Citigroup currently has about 27,000 employees. All five of Citi's major business divisions will face cuts.

from NYTimes Dealbook

Citigroup press release
http://www.citigroup.com/citigroup/press/2007/070411a.htm

Projected Savings of Approximately $2.1 Billion in 2007,
Growing to $4.6 Billion in 2009

itigroup Job Cuts Aimed at Pleasing Shareholders
http://www.npr.org/templates/story/story.php?storyId=9514645
by Jim Zarroli and Steve Inskeep

Morning Edition, April 11, 2007 · Citigroup, the world's largest financial services company, says it will eliminate about five percent of its workforce. That's about 17,000 jobs.

It's part of an effort to increase profits and appease shareholders, who have been unhappy about the company's financial performance. Citigroup projects savings of $9 billion over three years from the reorganization

.

Citigroup Restructures, Eyes Outsourcing to India
http://www.npr.org/templates/story/story.php?storyId=9182470

Day to Day, March 28, 2007 · Citigroup may cut 15,000 jobs as part of a restructuring plan involving the out-sourcing to India of mid- and upper-level jobs in research, investment banking and credit analysis.

Meanwhile - more good news

Legacy of Subprime Lending Hits Midwest Hard
http://www.npr.org/templates/story/story.php?storyId=9501425

All Things Considered, April 10, 2007 · Minneapolis is one of the many places seeing increases in home foreclosures. From 2005 to 2006, foreclosure rates nearly doubled there. Michele Norris talks with Jim Davnie, a state representative for south Minneapolis, about the effects of subprime lending on neighborhoods he represents.


Foreclosures May Weaken Home Prices, Spending
http://www.npr.org/templates/story/story.php?storyId=9501422

All Things Considered, April 10, 2007 · On a national level, rising subprime mortgage foreclosures are sure to have a ripple effect. What the effect will be is a matter for debate — but at least one analyst thinks we've only seen the tip of the iceberg.

Professor Cathy Lesser Mansfield of Drake University Law School has studied default and foreclosure rates in the subprime mortgage industry. Mansfeld tells Michele Norris that she expects more foreclosures and defaults on loans to have a ripple effect on home values in affected neighborhoods — and on the ability of families to pay for other basic needs.

Subprime loans are made to people with less-than-perfect credit. Often, the loans don't require down payments. Some lenders don't even do background checks to verify income. The subprime industry grew enormously in recent years, from $35 billion dollars in the mid-1990s to $625 billion in 2005.

As loan interest rates began to rise — as they have for the last couple of years — many homeowners found they could not keep up with their mortgage payments.

Some two dozen lenders have shut down operations. One of the largest — the New Century Financial Corporation — filed for bankruptcy this month.

And some people do see a bright side to all of this - less expensive homes for those who can afford them. Silly me worries about the lives disrupted and the families stressed out over losing their homes.

 

[drankin]

The blame is two-fold. Folks buying homes they can barely afford in the first place and banks loaning money to folks knowing their income vs debt ratio is on the red line. You can't blame the bank so much as you blame those that borrow beyond their means. Basically, don't buy more house than you need.

As far as work going over-seas, we need legislation that forces work to be kept in our borders. And I would support higher tariffs on produts coming into the US as well.

 

[Gokul43201]

As far as work going over-seas, we need legislation that forces work to be kept in our borders. And I would support higher tariffs on produts coming into the US as well.

You don't think an isolationist/protectionist policy might lead to a loss of competitive edge and hence, a relative decline in quality of life?