Sunday, November 30, 2008

A Shopping Guernica Captures the Moment

CONSUMED Bargain hunters move into a Wal-Mart in Elk City, Okla., at 5 a.m.

The New York Times - From the Great Depression, we remember the bread lines. From the oil shocks of the 1970s, we recall lines of cars snaking from gas stations. And from our current moment, we may come to remember scenes like the one at a Long Island Wal-Mart in the dawn after Thanksgiving, when 2,000 frantic shoppers trampled to death an employee who stood between them and the bargains within.

It was a tragedy, yet it did not feel like an accident. All those people were there, lined up in the cold and darkness, because of sophisticated marketing forces that have produced this day now called Black Friday. They were engaging in early-morning shopping as contact sport. American business has long excelled at creating a sense of shortage amid abundance, an anxiety that one must act now or miss out.

This year, that anxiety comes with special intensity for everyone involved — for shoppers, fully cognizant of the immense strains on the economy, which has made bargains more crucial than ever; for the stores, now grappling with what could be among the weakest holiday seasons on record; and for policy makers around the planet, grappling with how to substitute for the suddenly beleaguered American consumer, whose proclivities for new gadgets and clothing has long been the engine of economic growth from Guangzhou to Guatemala City.

For decades, Americans have been effectively programmed to shop. China, Japan and other foreign powers have provided the wherewithal to purchase their goods by buying staggering quantities of American debt. Financial institutions have scattered credit card offers as if they were takeout menus and turned our houses into A.T.M.’s. Hollywood and Madison Avenue have excelled at persuading us that the holiday season is a time to spend lavishly or risk being found insufficiently appreciative of our loved ones.

What Would Keynes Have Done?

The New York Times - IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.

The situation reverses, Keynesian theory says, only when some event or policy increases aggregate demand. The problem right now is that it is hard to see where that demand might come from.

The economy’s output of goods and services is traditionally divided into four components: consumption, investment, net exports and government purchases. Any expansion in demand has to come from one of these four. But in each case, strong forces are working to keep spending down.

Crowd Tramples Wal-Mart Employee to Death

A day after a worker was trampled to death, shoppers lined up outside a Wal-Mart on Saturday and police cars patrolled the area.

The New York Times - The throng of Wal-Mart shoppers had been building all night, filling sidewalks and stretching across a vast parking lot at the Green Acres Mall in Valley Stream, N.Y. At 3:30 a.m., the Nassau County police had to be called in for crowd control, and an officer with a bullhorn pleaded for order.

Tension grew as the 5 a.m. opening neared. Someone taped up a crude poster: “Blitz Line Starts Here.”

By 4:55, with no police officers in sight, the crowd of more than 2,000 had become a rabble, and could be held back no longer. Fists banged and shoulders pressed on the sliding-glass double doors, which bowed in with the weight of the assault. Six to 10 workers inside tried to push back, but it was hopeless.

Suddenly, witnesses and the police said, the doors shattered, and the shrieking mob surged through in a blind rush for holiday bargains. One worker, Jdimytai Damour, 34, was thrown back onto the black linoleum tiles and trampled in the stampede that streamed over and around him. Others who had stood alongside Mr. Damour trying to hold the doors were also hurled back and run over, witnesses said.

Sunday, November 23, 2008

Stocks Hit New Low on Collapse of Automaker Deal

No deal for the carmakers and other bad news sent the markets tumbling Thursday. The S&P 500 hit an 11 1/2 year low. Stacey Delo reports.

Echoes of the Past

How does the current financial crisis compare to the Great Depression, and has the government learned the lessons of the 1930

Near Fears Arise in Michigan Over Economy

Editors note: This is why the government needs to step in and help the economy and the auto industry. Otherwise, we might as well say goodbye to Ohio and Michigan. - MT

The New York Times - FENNVILLE, Mich. — The bad news keeps coming to Michigan, a state long stuck in recession and at ground zero in the national economic downturn. But unlike in months and years past, there are no exceptions to the despair, not even here among the bucolic resort communities along Lake Michigan.

Sandra Peavley, 54, of Warren, near Detroit, ran out of unemployment last month.

The flailing auto industry is important here, but so is furniture building, tourism, the retail trade and construction — pieces of the economy long buffered from the downturn in Detroit. Now waves of layoffs are sweeping towns around here in wine country and elsewhere across the state, swelling the ranks of the unemployed just as tens of thousands of those already of out of work fear running out of unemployment benefits.

“You just sit and you worry,” said Pat Weber, a construction administrator in Fennville who was laid off more than a year ago. “In the last year, I’ve put in for more than 100 jobs. I stopped counting after 110. It’s just so defeating.”

All around Fennville and its neighbors here in southwest Michigan, front lawns are peppered with for-sale signs and merchants complain about slow days. But while this remains a beautiful place with none of the obvious blight of Detroit on the other side of the state, residents say the hardship beneath the surface is very real.

It is the same story in other parts of Michigan, as the state’s already entrenched recession — in at least its fifth year, according to economic experts — digs deeper as a result of the recent global financial crisis.

New data show the state’s unemployment rate crept up to 9.3 percent, almost three times what it was in 2000, and, along with Rhode Island, the highest in the country. Just last week, Herman Miller Inc., an office furniture company based in Zeeland, Mich., announced that it would eliminate or lay off 400 to 650 workers, many of them in western Michigan. SKD Automotive, an auto parts manufacturer in Jonesville, Mich., where it is the largest employer, indicated it would eliminate 300 jobs.

As a result of the steady job losses that began in the summer of 2000, 1.82 million Michigan residents, or close to 20 percent of the population, are now on some form of public assistance, including food stamps and home heating credits, a record for the state.

“It is really hard not knowing if you aren’t going to be working the next day,” said Wendy Einhardt, 47, who spent 16 years making plastic car parts before being laid off in August in Sebewaing, on Saginaw Bay of Lake Huron. “You worry a lot about what is coming.”

Around the state, home foreclosures are commonplace, the trust fund that pays unemployment benefits is millions of dollars in debt, food banks are struggling and health agencies are reporting an uptick in people with symptoms like anxiety and depression. Suicides were up in recent years, although officials caution against drawing any direct links between deaths and the economy.

In one sign of distress, in the first nine months of this year, some 130,000 Michigan residents who had lost their jobs remained out of work so long that they ran out of regular unemployment benefits. By the middle of this month, 63,000 people (who had already run out of their ordinary maximum benefit — as many as 26 weeks, at as much as $362 a week) also ran out of an extension authorized by Congress.

Without a second extension of benefits, signed by President Bush on Friday, tens of thousands of others had been expected to run out each month.

Wednesday, November 12, 2008

What A GM Bankruptcy Would Mean

What bankruptcy would mean to GM
What bankruptcy would mean to GM

GM Bankruptcy?
GM Bankruptcy?

GM, Teetering on Bankruptcy, Pleads for Federal Bailout

Rick Wagoner, G.M.’s chief, said his company needed help immediately.

Editor's Note: Hard to believe that things are this bad. But if GM does file for bankruptcy, this will send a shock wave through the economy nationally.

The New York Times - DETROIT — Just two months after celebrating its 100th birthday, General Motors is facing the grim prognosis that it may not survive to see another year unless it is rescued by a bailout from the federal government.

Shares in G.M. sank to their lowest point in 65 years, to $2.92, on Tuesday, the day after the company revealed in a federal filing that its “ability to continue as a going concern” is in substantial doubt because it may run out of money by the end of the year.

Its cash cushion has been shrinking by more than $2 billion a month this fall. If that continues, G.M.’s reserves will fall below the minimum of $10 billion in cash it needs to run its global operations by January, the company said in its third-quarter S.E.C. filing.

In that event, G.M. said it might be unable to pay its suppliers, meet its loan covenants or cover health care obligations in its labor contracts. The extent of G.M.’s financial crisis, revealed in greater detail in its filing than it acknowledged before, is proving to be far worse than investors and analysts expected just last week.

Monday, November 10, 2008

The Seeds of Credit Crisis Started at J.P. Morgan

Editor's Note: Interesting piece about a misunderstood subject - the rise of credit derivatives - sophisticated securities that allow the transfer of credit risk. Former WSJ alum Jesse Eisinger tells an interesting story of how these complicated financial securities got their start. - MT

by Jesse Eisinger - Portfolio Magazine - The roots of this year’s financial crisis go back to a small team of bankers at J.P. Morgan in New York. Now, their invention—credit derivatives—has helped bring down Wall Street and has left Morgan with its biggest exposure of all.

Credit derivatives aren’t, of course, solely to blame for the pandemic that has helped bring down Wall Street. They didn’t single-handedly force Bear Stearns and Lehman Brothers to bulk up on toxic debt, dooming them to collapse. But they made the financial world more complex and more opaque. Ultimately, they have exacerbated the market panic, as financial firms and regulators have belatedly come to grips with the enormity of the problems. Merrill Lynch ultimately capitulated to a sale because investors had no confidence that the firm had a handle on what its problems were. When the federal government took over A.I.G. in September, it was largely because of the insurance behemoth’s exposure to credit-default swaps, a type of derivative that flourished in the wake of Demchak and his team’s creations. By mid-September, Treasury Secretary Hank Paulson was forced into proposing the largest bailout in U.S. history. Securities and Exchange Commission chairman Christopher Cox (S.E.C. No Evil, October) called for regulating credit derivatives.

Monday, November 3, 2008

Chinese Dairymen Spiked Milk, Eggs With Toxic Protein

The Wall Street Journal - ZHANGZHUANG, China -- Before melamine-laced milk killed and sickened Chinese babies and led to recalls around the world, the routine spiking of milk with illicit substances was an open secret in China's dairy regions, according to the accounts of farmers and others with knowledge of the industry.

Farmers here in Hebei province say in interviews that "protein powder" of often-uncertain origin has been employed for years as a cheap way to help the milk of undernourished cows fool dairy companies' quality checks. When the big companies caught on, some additive makers switched to toxic melamine -- which mimics protein in lab tests and can cause severe kidney damage -- to evade detection Worries about the extent of contamination in China's food supply took on new urgency this weekend.

After melamine was discovered in eggs in Hong Kong and mainland China, Beijing called for a nationwide crackdown to stop the contamination of animal feed, which authorities believe is the source of the melamine in eggs. The Agriculture Ministry said it has found melamine in 2.4% of the feed it has checked since mid-September, and has destroyed or confiscated more than 3,600 tons. The ministry called on local officials to "resolutely crush the dark dens" making and selling melamine for feed, saying it had found 238 and was investigating 278 more.

Melamine in feed hasn't led to the same kind of high concentrations of the chemical in eggs that were found when it was directly poured into milk -- thousands of parts per million in some cases. But amounts found in eggs have been above the safety standard China and several other countries established of 2.5 parts per million.

Egg sales are down, as is demand for chicken, and some farmers have begun slaughtering chickens they can no longer use. State media criticized food companies and government consumer-protection watchdogs for the lapses, as Beijing's response showed its alarm about a broadening threat to public confidence in food safety. Meanwhile, local officials in some areas were inspecting meat and considering widening the checks to farm-raised fish.

Saturday, November 1, 2008

Call it the economy - French flock to Big Macs

Bloomberg News - It's lunchtime in Paris, and the packed restaurant has neither checkered tablecloths nor carafes of red wine. It's a McDonald's, and the French are lovin' it.

While rising prices and record low consumer confidence drive the French to throw their culinary pride to the wind and embrace le Big Mac, traditional bistros are hurting. About 3,000 independent French restaurants filed for bankruptcy in the first half of the year, a record 27 percent more than a year earlier, according to Paris-based statistics office Insee.

Meanwhile, France has cemented its position as McDonald's Corp.'s biggest earner outside the U.S., accounting for 13 percent of total sales.

"A hamburger patty and fries in a bistro around the corner from my office costs almost twice as much," said Alexandre Cavanel, a 27-year-old computer programmer, as he tucked into his 8-euro ($10.70) double-cheeseburger menu meal with colleagues at a McDonald's in Paris' Opera district.

McDonald's, accused by Jose Bove, an activist farmer who ran last year for president, of serving malbouffe, or junk food, said revenue in France will increase 12 percent this year.

In contrast, the fate of traditional French restaurants might worsen as a slumping economy drives more people to swap offerings such as duck dish confit de canard and blanquette of veal for hamburgers and fries, economists said.

France might have slipped into its first recession in more than 15 years in the third quarter, Insee said. Consumer spending will stagnate for the rest of 2008 as employment and the real-estate market deteriorate and credit for new investment dries up, the statistics office said.

"Clearly, the current economic environment speaks in favor of cheaper products," said Dominique Barbet, an economist at BNP Paribas SA in Paris.

Many French restaurateurs and cafe owners are concerned that rising prices and growing unemployment, combined with the global financial crisis, will stop people from dining out in one of the world's most pervasive restaurant cultures.

Hollywood casts business titans as villians

Michael Douglas stars as Gordon Gekko in 1990 hit movie "Wall Street." Hollywood now plans a new group of films and TV shows highlighting business excesses, including a sequel to Wall Street.
Hollywood has found its next bad guy.

Bloomberg News - Welcome back, Gordon Gekko.

Film and television studios are rushing to tap America's fixation with the financial crisis and anger at the Wall Street executives blamed for it.

News Corp.'s 20th Century Fox is making a sequel to Wall Street, where Michael Douglas's Gekko proclaimed, "Greed is good." NBC's Law & Order is building episodes around financial themes. The General Electric Co. division also is developing a one-hour series called Outrageous Behavior, a battle of the sexes set in Wall Street.

"Our development is tied to what is relevant in today's world," Teri Weinberg, NBC Entertainment's executive vice president overseeing comedy and drama programming, said in an e- mail. "We hope to exemplify the foolishness of the human condition in the world of finance."

Time Warner Inc. has slated Confessions of a Wall Street Shoeshine Boy for 2009. The movie follows a reporter who uncovers corporate criminals by befriending the man who polishes their wingtips, according to Inc. The New York-based media company will release The Wolf of Wall Street in 2010, based on the autobiography of a stockbroker involved in a 1990s securities fraud, IMDB said.

"These films may be timed just right to take advantage of the wave of interest" in Wall Street and the economy, said Paul Dergarabedian, president of box-office tracker Media By Numbers in Encino, Calif. "One of these movies may hope to be the next Wall Street."

As of Oct. 14, demand for the two-decade-old film at Netflix Inc., the mail-order movie service, had increased 11 percent since Sept. 1, according to Steve Swasey, a company spokesman.

The original Wall Street ends with police collecting evidence on Gekko for securities violations. The sequel follows the character after he emerges from prison, according to the trade magazine Variety. Douglas may reprise his role as Gekko, the magazine reported.

The rush to exploit the crisis may lead to films lacking nuance and depth of character, said Stanley Weiser, who co-wrote the original Wall Street and wrote W., the film about George W. Bush that opened on Oct. 17.


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