New Geography

Author: Ian Lausa

  • Not Everyone is Playing the TARP Game

    Banks in Connecticut, once interested in accepting funds from the Trouble Asset Relief Program, are now “questioning whether it’s worth participating in the program.”

    Concerns over the undefined terms and changing conditions imposed on those accessing TARP money has made the banks uneasy about such long-term commitments.

    President and CEO of Connecticut River Community Bank, William Attridge, said that the fundamental problem with the program is its open-endedness and the reliance on total-compliance from the banks regardless of any future changes.

    President Obama and members of Congress “are under public pressure to toughen conditions on the TARP money in order to improve the poor public image.”

    The TARP program was originally created with the intent to “revive bank lending” according to Treasury officials. However, with the obscure terms and conditions currently associated with the program, some argue we’ve lost sight of TARP’s original purpose.

    With approximately $293.7 billion in TARP funds distributed as of Jan. 23, undefined regulation doesn’t have all banks protesting.

    Some smaller bank feel that increased capital will help the banks “continue to steal market shares from larger banks and help offset inevitable weaknesses among borrowers due to the recession.”

    It remains to be seen whether or not the Connecticut bankers will take TARP money, but too many unknowns and perceived risks will certainly be factors in its approval.

  • Ten Year loss in the S&P 500 on Par with the Great Depression

    In the ten-year stretch from Sept. 1929 to Sept. 1939, spanning the worst years of the Great Depression, the stock market dropped a full 50%, adjusted for inflation. Look out, the current decade (Feb. 17, 1999 to Feb. 17, 2009) appears to yield the same decrease: the Standard & Poor’s 500 stock index is down roughly 50%, also adjusted for inflation.

    But this difficult period has not been all skull and cross-bones: six-month certificates of deposit “have yielded a real total return of roughly 12%” and the value of residential homes in large cities has increased 30% over the same period, according to Business Week’s Michael Mandel.

    With many investors’ savings sitting in once-promising equities, the question of whether to stay in stocks or bail out is on many people’s minds.

    Staying in stocks could decrease the value of your investments to the point that they “may never reach their original value, much less show a profit.”

    On the flipside, bailing out and going into safer assets says “you are giving up on any potential of an upside” if the market has a big rebound.

    The market will always fluctuate and whether your glass is half-empty or half-full, and long term history says more growth is ahead. But as they say on TV, “past returns are no guarantee for future performance.” How much are you willing to bet on the long-term future of the US economy?

  • Nation Has $445 Billion in Unfunded Health Care Benefits, Nebraska Has None

    Nebraska was the 37th State to join the Union, is home to the “Cornhuskers,” and currently has a $3.5 billion budget and a $563 million cash reserve.

    In this time of economic hardship, the Cornhusker state has no debt, shunning all long-term financial commitments including retirement benefits.

    A recent USA Today survey of state financial reports found that the other 49 states combined “have an unfunded obligation of $445 billion” owed for the medical care of retired government workers.

    The formula accountants use to compute the financial health of a state government includes medical benefits, debt and pension liability. Medical benefits represent the Pandora’s Box of the three, with civil servants often retiring before Medicare benefits kick in at 65.

    In contrast, Nebraska is the “only state that doesn’t subsidize the medical care of retired government employees.”

    Other states and local governments have debts that range anywhere from New York City’s $60 billion obligation to Los Angeles’ $544 million sum.

    Some state and local governments have begun setting aside money to prepare to pay retiree medical costs. Some plan to pay nearly the entire cost, other will contribute a fixed amount, such as “$200 a month or 50% of the health insurance premium.”

    In defending Nebraska’s nonexistent retiree health care coverage, Senator Dave Pankonin distills his state’s approach simply: “Nebraska is a fiscally conservative, pay-as-you-go state, and that’s the biggest reason we don’t have this benefit.” Or, he might have added, deficit.

  • Business Journalists Blew the Story on the Economy

    The business sections of newspapers have become doomsayers for the nation. Sensationalistic journalism decries of the failings and crises that have done our economy irreparable harm.

    Rewind to a couple of years ago, and the print media was content with profiles of personable CEOs and pages upon pages devoted to the kitschy Mergers and Acquisitions. Where was the hard-hitting reporting that could’ve opened the public’s eyes to the failing economy much sooner?

    “I’ll attest that business journalists as a rule are as smart, sophisticated, and plugged-in as they seem”, notes former Wall Street Journal reporter Dean Starkman in a recent article for Mother Jones. And yet that army of professional business reporters – an estimated 9,000 or so nationwide in print alone – for all practical purposes missed the biggest story on the beat. Why?”

    Starkman suggests the print industry’s own declining financial health may play a role. In the last decade alone, the New York Times profit margins have fallen from 24 percent to a meager 8.5.The newspaper industry’s failing has also resulted in a 25 percent loss of jobs in the business reporting field alone.

    He adds that business journalism’s insistence on clinging to outdated formulas could play a role. The focus on consumer-pleasing and personality-driven stories – “not deconstructing balance sheets or figuring out risks” – seems part of the problem.

  • The U.S. is Inherently Prosperous

    Obama’s $800 billion stimulus bill has both policy makers and the public wondering what the bill will actually manage to stimulate. Yet, somewhat surprisingly, a recent study shows that left to fend for itself, the United States is inherently prosperous.

    The Legatum Prosperity Index recently released a study of the most prosperous nations, measuring economic growth and quality of life. The study found that the U.S. – despite its current economic situation – ranks fourth out of 104 nations.

    The amount of wealth and sense of well-being enjoyed by U.S. citizens is higher than any among large countries, with no other country with more than 100 million inhabitants ranking above the top 10.

    The Index measures nations overall by “how well they foster the practices, institutions, and habits that create competitive economies, stable and free political institutions, and social capital.”

    When looking at prosperity in this fashion, America and its ability to foster both economic and non-economic progress is what puts it so high on the scale. The US still rewards innovation and entrepreneurship to an extent seen in few other countries. This opportunistic culture provides the basis for successful growth of commerce even in an otherwise weak environment.

    The U.S. bests the other top 10 countries on personal income by 40 percent. It scores 38 percent higher than the rest of the world in its ability to “commercialize innovation through patents.”

    On the flip side, the US ranks just 7th in economic competitiveness and below average on promoting international trade and investment. The stimulus bill could offer some jolt to the weak economy, but given access to capital, Americans might prove adept in finding their own path to prosperity.

  • Wall Street Brain Drain May Not Be All Bad

    President Obama’s recent executive compensation plan comes on the heels of the revelation that Wall Street firms awarded over $18 billion in bonuses last year. The plan will create a $500,000 pay cap for executives at companies receiving substantial taxpayer bailout money.

    While the Wall Street salary cap – certainly well intentioned – mirrors public sentiment nationwide, the Masters of the Universe and their friends are not so pleased. Some feel it is a “killer for New York.” Kathryn Wilde of the Partnership for New York argues the lower salaries on Wall Street will lead to a “critical brain drain” in the industry and “lower tax revenues for the city and state.”

    But in the longer run, is this all bad? The so-called “brain drain” of high priced talent – the same folks who got us in trouble in the first place – could be fortuitous if more creative and innovative professionals now arrive on Wall Street. A new breed of Wall Streeter might have the potential to create a sustainable industry rather than the current casino culture. What may be a superficial wound on NYC in the short term may benefit the country as a whole – and even New York – in long run.