If Fed Missed This Bubble, Will It See a New One?

Ben Bernanke, the Fed chairman, has said it is difficult “to know in real time if an asset price is appropriate or not.”

Excellent piece by David Leonhardt, economics writer for the New York Times. - MT

By DAVID LEONHARDT

Published: January 5, 2010

The New York Times - If only we’d had more power, we could have kept the financial crisis from getting so bad.

That has been the position of Ben Bernanke, the Federal Reserve chairman, and other regulators. It explains why Mr. Bernanke and the Obama administration are pushing Congress to give the Fed more authority over financial firms.

So let’s consider what an empowered Fed might have done during the housing bubble, based on the words of the people who were running it.

In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

The fact that Mr. Bernanke and other regulators still have not explained why they failed to recognize the last bubble is the weakest link in the Fed’s push for more power. It raises the question: Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?
http://www.nytimes.com/2010/01/06/business/economy/06leonhardt.html

WSJ Top News - Wednesday 1-6-10

Private-sector jobs in the U.S. fell by 84,000 in DecemberPrivate-sector jobs in the U.S. fell by 84,000 in December, the smallest drop since March 2008, and service providers added jobs, according to a national employment report published Wednesday by payroll company Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.
http://online.wsj.com/article/SB126278421347117805.html?mod=WSJ_hps_LEFTWhatsNews

Buffet wades into Kraft-Cadbury Battle
Investor Warren Buffett waded into the rancorous battle for Cadbury PLC, issuing a rebuke of Kraft Foods Inc.'s just-sweetened, nearly $17 billion takeover offer for the British confectionary company.
http://online.wsj.com/article/SB10001424052748703580904574639440907695468.html?mod=WSJ_hps_LEFTWhatsNews 

Retailers discounting down during holiday season
Clothing stores discounted less and sold fewer items last month than a year ago, a combination that undercut sales but likely will translate into higher fourth-quarter profits, according to figures released Tuesday.
Apparel and department stores remain among the weaker retailers, with sales well below pre-recession levels. December clothing sales fell 1.8% and department store sales fell 2.3%, both from the same month a year ago, according to MasterCard Inc.'s SpendingPulse unit.
http://online.wsj.com/article/SB10001424052748703436504574640611592478386.html?mod=WSJ_hps_LEFTWhatsNews

Economists warn that repairs to regulatory system are still needed
ATLANTA -- Wall Street investors may be breathing a sigh of relief as the financial crisis fades, but academic economists gathered here for the annual meeting of the American Economic Association say we're nowhere close to making sure it won't happen again. Over the past few days, economists here highlighted the many ways in which the lessons of the crisis have yet to sink in. Few think the U.S. and other governments have made needed repairs to the financial regulatory system. And some suggest governments' response has increased the chances of a repeat, making the banking system more crisis-prone, putting new strains on institutions such as the Federal Reserve and stretching government finances closer to the breaking point.
http://online.wsj.com/article/SB126274058881517243.html?mod=WSJ_hps_sections_news

New Google Nexus Unveiled
Mobile phones may be almost indispensable to modern life, but they are costly, too–far more than most people realize. These little gadgets pick your pocket while they sit in it, filching many thousands of dollars from you over the years. The Google Nexus, unveiled Tuesday, may mark a healthy step in a better direction.
Other people will focus on the phone's software, hardware, "apps" and the like. I'm more interested in something simpler: How it's sold–direct, unsubsidized and without a contract.
http://online.wsj.com/article/SB10001424052748703436504574640641358732198.html?mod=WSJ_hps_sections_personalfinance

Could Apple's Tablet be a Savior for Print Publications?

The New York Times - Later this month, we all might get a glimpse of that future. According to The Financial Times, Apple has rented a stage at the Yerba Buena Center for the Arts in San Francisco and is expected to make a major product announcement on Tuesday, Jan. 26, where many have speculated that some version of the Apple tablet will be unveiled. The Web site Gizmodo guessed that the device was likely to be called the iSlate, will cost around $800, and won’t hit store shelves until March or possibly April. (And it’s not just Apple: Word of a color tablet device called Courier from Microsoft made a big splash on the site as well, and a company called HTC reportedly has one in the works that uses the Google Chrome operating system. And there are others.)

The secretive Apple has made fools out of predictors in the past, but Kai-Fu Lee, the former head of Google in China, posted an item on his personal blog suggesting the Apple tablet would feature a 10.1-inch multitouch screen with three-dimensional graphics. And it’s worth pointing out that many publishers are building content in the belief that when it comes to the tablet, it’s not if, it’s when.

So, is the Apple tablet a figment of so much Web-borne pixie dust or is it the second coming of the iPhone, a so-called Jesus tablet that can do anything, including saving some embattled print providers from doom?

Cinema Surpassed DVD Sales in 2009

'Harry Potter and the Half-Blood Prince.'

The Wall Street Journal - Last year was the first since 2002 that U.S. consumers spent more money buying movie tickets than buying movies to watch at home, underscoring the changing economics of Hollywood.

According to new data from Adams Media Research, Americans spent $9.87 billion at the box office in 2009, 10% more than in 2008, according to a report Adams plans to release Tuesday. At the same time, sales in the U.S. of feature films on DVD, long a cornerstone of movie studios' business models, plunged 13% to $8.73 billion, including Blu-ray high-definition discs. (Other companies that track box-office receipts include Canada in their North American figures, adding about 7% to the total and pushing the year's gross above $10 billion.)

The figures indicate that studios will likely have to continue looking for ways to survive in a marketplace where they can't count on hefty home-entertainment revenue to offset giant production costs. Those costs often more than eat up the studios' half of the box-office receipts, which are split with theaters.
The ongoing decline in home-entertainment revenue has already fundamentally altered the way studios do business, forcing them to place big financial bets on hoped-for mass-market blockbusters at the expense of features that cost less to make but that also have smaller earnings potential.

In recession, one road led back home

Missoula native Melissa Meyer never expected that she would return home to Montana to rethink her future plans. After graduating Summa Cum Laude from George Washington University, moving home has become an unexpected time out to rethink future plans and the various roads she could take in the coming year.

The Washington Post - Her parents redecorated her bedroom soon after she left for college, as sure as everyone else in this town that Melissa Meyer would not be moving back. They took down the photos of Melissa meeting the Dalai Lama and laughing alongside Joe Biden, placing them in the closet. They packed away dozens of high school honor certificates -- valedictorian, class president, outstanding chemistry student -- and stored them in plastic boxes under the bed.

Melissa had always been too big for this town, her father liked to say. She was editor of the school newspaper, an intern in the U.S. Senate and the only student from Sentinel High School's Class of 2005 to attend college on the East Coast. On her rare visits home from George Washington University, longtime friends liked to tease her: "Hey, Melissa, are you president yet?"

So, how to explain this? Each morning, Melissa wakes up in her old bedroom, scans the foreign decor and thinks: This is the guest room now. I am the guest. I am not supposed to be here.

She graduated magna cum laude from the GW Business School in May, applied for 30 jobs at some of the nation's best-known companies, and it went nowhere. After visiting the campus career center and redesigning her résumé, she applied for 10 more jobs. Still nothing. The lease on her Foggy Bottom apartment expired in June. There was no place to go but home, with a collection of rejection letters and a haunting sense of betrayal. For 23 years, she had advanced down America's path to success -- perfect grades, a $200,000 college degree, a folder overstuffed with business cards -- only to have it dead-end back where she started.
"What was the point?" she asks.

For Melissa, that question is the legacy of the recession as she rises one Tuesday morning in early fall and begins her day with the same routine that defined her adolescence. She rummages through the refrigerator, eats leftovers from a dinner party her parents threw the night before and then retreats upstairs to prepare for a fill-in shift at the same job she held throughout high school. After changing into cowboy boots and a skirt, she borrows her parents' car and drives three minutes to work at Rockin Rudy's, a record store with a peace sign hanging at the entrance.

At Bloomberg, Modest Strategy to Rule the World

Michael R. Bloomberg, right, with Matthew Winkler in 1991. Mr. Winkler has overseen the Bloomberg news operation from its beginning.

The New York Times - PLOPPED in a white leather chair in a small office in Bloomberg L.P.’s Manhattan headquarters, Andrew Lack knows exactly how to articulate the aspirations of this 28-year-old media and technology company.

“We want to be the world’s most influential news organization,” says Mr. Lack, who oversees Bloomberg’s television, radio and dot-com endeavors.

Very clear. The most influential. On the planet.

It’s a goal several other Bloomberg executives have already mentioned to a pair of visitors. And when Mr. Lack, 62, a former head of NBC News, hears his guests wonder if something funny is in his company’s coffee — a special sauce that keeps all Bloombergians marching so efficiently and effectively to the same tune — he looks a tad chagrined.

“Oh, my! I don’t want to sound as if I’m on message,” he says, laughing apprehensively while also sending a “help me” look to a Bloomberg spokeswoman nearby.

These days, truth be told, the entire company is on message. That’s because the data behemoth that Michael R. Bloomberg created and named after himself in 1981, long before he became mayor of New York, finally has the reach, resources and appetites to try snaring the mantle of Most Influential — at least in the rarefied world of business news.

After years of being an underdog pushing its troops to be better and faster, Bloomberg now has an upper hand. Publishing giants like Condé Nast, Time Inc. and The New York Times, with their veteran scribes and rich histories, have laid off people and scaled back. Bloomberg may lack the pedigree and gloss of some of its rivals, but it has one thing they don’t right now: money to throw around.

This year alone, Bloomberg, deploying the cash spouting from its data business, has recruited refugees from The Wall Street Journal and Fortune and opened bureaus in places like Ecuador and Abu Dhabi. Its editorial staff (which includes radio, TV and Web site workers) now numbers 2,200, compared with 1,250 journalists at The Times and 1,900 at Dow Jones (a figure that includes the newswires and the Journal staff).

When the 80-year-old BusinessWeek went on the block, Bloomberg opened its wallet and snatched it away from circling private equity firms in October for just $5 million in cash — a relatively small sum that still represents a big change. For the last decade, Bloomberg has barely bothered to venture outside the realm of high finance; its news was produced to help subscribers to its terminals make more money for themselves.

With BusinessWeek, likely to be renamed Bloomberg BusinessWeek, the company is setting its sights on a much broader audience. That includes Main Street readers and, much more important for Bloomberg, senior executives, government leaders and other global movers and shakers. It’s also trying to revamp its Web site and television programming — long neglected inside the company — into services that appeal to people who don’t trade securities for a living.

At a time when most media companies can barely pay for cake at going-away parties, Bloomberg appears to be rolling in dough.

From Treasury, an Invitation to Financial Bloggers

The New York Times - The Treasury Department opened its doors to economic bloggers this month, and the meeting was productive in at least one respect: as John Jansen of the blog Across the Curve concluded, “After meeting them, I feel I cannot refer to them as Timothy Geithner and his minions” anymore.

Mr. Geithner, the Treasury secretary, was among the senior officials who talked with bloggers at an outreach session on Nov. 2. The two-hour round table was held on background, meaning that the bloggers could describe the sessions, but not attribute quotes to specific officials. Lengthy posts about financial system reforms — and the bloggers’ disagreements with the Treasury’s strategies — ensued.

New-media scribes have gradually made their way inside most governmental institutions over the years, but the meeting was the first for bloggers at the Treasury. Tyler Cowen, an economics professor at George Mason University who has written at the Marginal Revolution blog for six years, said it was the first time he had heard from any Treasury official.

Bills Would Set Limits on Financial Companies to Alleviate Risk

President Franklin D. Roosevelt signed the Glass-Steagall Act, passed in 1933, separating commercial and investment banking.

Wall Street Journal  -  Democrats are advancing proposals in Congress designed to limit the size and complexity of financial companies so that any collapse wouldn't damage the broader economy, a sign that lawmakers are responding to anti-Wall Street sentiment by toughening the administration's rewrite of finance rules.

The proposals would allow the government to break up healthy financial companies, and in some cases, would reassert rigid demarcations within finance that were cleared away in 1999, such as barring commercial banking firms and investment banking firms from merging.

Large financial companies, and even some Obama administration officials, are nervously watching the debate. Lobbyists for large financial-services companies, including J. P. Morgan Chase & Co., Bank of America Corp., Prudential Financial Inc., and MetLife Inc. scrambled in recent days to reach out to Capitol Hill aides, people familiar with the matter said.

Why Health Care Bill Is Good For The Economy

U.S. Unemployment Rate Hits 10.2%, Highest in 26 Years

The Labor Picture: October 2009

Unemployment Rate Grew 0.4 percentage points in Oct.

One month change	+0.4 pts
One year change	+3.6 pts

Number of Jobs 12-month change, in thousands

One month change	-0.1%
One year change	-4.0%

Discouraged WorkersNot looking for work because of the economy, in thousands

One month change	+14.4%
One year change	+66.9%

Duration Length of unemployment, in weeks

	Oct.	1 month change	1 year change
Average	26.9	+2.7%	+35.9%
Median	18.7	+8.1%	+76.4%

People With Jobs Percentage of people who are employed

	Oct.	1 month change	1 year change
Employed	58.5%	-0.3 pts.	-3.2 pts.

'Hidden' Unemployment In millions

	Oct.	1 month change	1 year change
Part time, but want full-time	9.3	+1.1%	+35.6%

Avg. Weekly EarningsFor rank-and-file workers

	Oct.	1 month change	1 year change
Average	$617.76	+0.3%	+0.9%

DemographicsTeenagers continue to have the highest unemployment rate.

	Oct.	1 month change	1 year change
White	9.5	+0.5 pts.	+3.5
Black	15.7	+0.3 pts.	+4.4
Hispanic	13.1	+0.4 pts.	+4.3
Teenagers	27.6	+1.7 pts.	+6.9

Education The unemployment rate has risen the most for those with less than a high school diploma.

	Oct.	1 month change	1 year change
Less than high school	15.5	+0.5 pts.	+5.1 pts.
High school	11.2	+0.4 pts.	+4.7 pts.
Some college	9.0	+0.5 pts.	+3.7 pts.
Bachelor's or higher	4.7	-0.2 pts.	+1.6 pts.

Source: Bureau of Labor Statistics.   Chart: The New York Times

As the unemployment rate surged to 10.2 percent in October, reaching double digits for the first time in 26 years, it suddenly seemed possible that the nation might yet confront the worst joblessness since the Great Depression.

Forbes Magazine Plans More Layoffs

The New York Times - Forbes magazine said on Monday that it planned to lay off several staff members from the editorial and business sides, a cost-cutting move in response to decreasing advertising revenue.
The announcement was made in an internal memorandum sent Monday afternoon by Steve Forbes, the company’s chief executive and editor in chief of the magazine. “We — and the entire media world — have been hit hard by both the severe recession and the seismic shifts wrought by the Web,” Mr. Forbes wrote. “Given these dramatic events, further layoffs, unfortunately, are necessary across the entire organization.”
Monie Begley, a Forbes spokeswoman, declined to specify the number of layoffs. She said that some people had been dismissed Monday, and she expected layoffs to continue throughout the week.
The layoffs came after other cuts at Forbes over the last year, including dismissing about 100 employees, having employees take five days of unpaid leave, and ceasing matching contributions to its 401(k) program.
Although circulation has been holding relatively steady at Forbes, with reported circulation at 914,000 for the first six months of this year, according to the Audit Bureau of Circulations, ad pages have not. Ad pages dropped 32.5 percent in the third quarter, according to the Publishers Information Bureau, to just above 300 pages.

Chinese Drywall Found to Differ Chemically

Florida is a center of homeowner complaints that Chinese drywall is causing health problems. A housing development in Boynton Beach, Fla., tries to take advantage of that to bolster its sales.

The New York Times - Federal investigators reported Thursday that imported Chinese drywall that homeowners have linked to health problems and odors had higher levels of some chemicals than its domestic counterparts.

The investigators, however, were unable to link the chemicals, sulfur and strontium, to the health problems and smells in thousands of homes built during the recent housing boom, and said further testing was under way to determine any possible connection.

The preliminary findings are part of a larger study by federal agencies, including the Consumer Product Safety Commission and the Environmental Protection Agency, into complaints from nearly 2,000 homeowners that their recently built homes emit odors and cause nosebleeds and respiratory problems. The owners also say their electrical appliances have failed and their wiring has corroded. It has been estimated that more than 60,000 homes could have the imported drywall. Large amounts of Chinese drywall were imported over the last few years when domestic supplies ran short. An estimated seven million sheets made in China were used as a substitute. Most of the complaints come from Florida, Virginia and Louisiana, where the widespread destruction after hurricanes lead to rapid rebuilding of damaged homes.

Gloom Spreads on Economy, but GOP Doesn't Gain

Americans are growing increasingly pessimistic about the economy after a mild upswing of attitudes in September. But Republicans haven't been able to profit politically from the economic gloom, according to a new Wall Street Journal/NBC News poll.

The survey found a country in a decidedly negative mood, nearly a year after the election of President Barack Obama. For the first time during the Obama presidency, a majority of Americans sees the country as being on the wrong track.

Fifty-eight percent of those polled say the economic slide still has a ways to go, up from 52% in September and back to the level of pessimism expressed in July. Only 29% said the economy had "pretty much hit bottom," down from 35% last month.

But a dark national view of how everybody in Washington is conducting the public's business appears to be preventing Republicans from benefiting from concerns about the direction of the country or the Democrat-led government's handling of the economy, as the minority party often does.

In fact, disapproval of the Republican Party actually has ticked upward, along with the public's general pessimism. Asked which political party should control Congress after next year's midterm elections, Democrats now hold a clear edge over the GOP, 46% to 38%, a month after the Republicans were nearly as popular. In September, the Democratic edge was 43% to 40%.

U.S. Considers Reining In ‘Too Big to Fail’ Institutions

A protester in March of 2008 framed the question that Barney Frank, chairman of the House Financial Services Committee, and Treasury Secretary Timothy F. Geithner will try to answer this week with proposals to tighten regulation.


 New York Times - WASHINGTON — Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year — how to deal with institutions that are so big that the government has no choice but to rescue them when they get in trouble. The White House plan as outlined so far would already make it much more costly to be a large financial company whose failure would put the financial system and the economy at risk. It would force such institutions to hold more money in reserve and make it harder for them to borrow too heavily against their assets.
Setting up the equivalent of living wills for corporations, that plan would require that they come up with their own procedure to be disentangled in the event of a crisis, a plan that administration officials say ought to be made public in advance.

Still on the Job, but Making Only Half As Much

Good example why the economy is likely to sit slow or no growth mode for a long time. Lots of people don't have jobs. Those who do have jobs are earning less. Louis Uchitell talks about how pay cuts are more common than at any time since the Great Depression. - MT

The New York Times - MECHANICSVILLE, Va. — The dark blue captain’s hat, with its golden oak-leaf clusters, sits atop a bookcase in Bryan Lawlor’s home, out of reach of the children. The uniform their father wears still displays the four stripes of a commercial airline captain, but the hat stays home. The rules forbid that extra display of authority, now that Mr. Lawlor has been downgraded to first officer.

He is now in the co-pilot’s seat in the 50-seat commuter jets he flies, not for any failure in skill. He wears his captain’s stripes, he explains, to make that point. But with air travel down, his employer cut costs by downgrading 130 captains, those with the lowest seniority, to first officers, automatically cutting the wage of each by roughly 50 percent — to $34,000 in Mr. Lawlor’s case.

The demotion, the loss of command, the cut in pay to less than his wife, Tracy, makes as a fourth-grade teacher, have diminished Mr. Lawlor, 34, in his own eyes. He still thinks he will return to being the family’s principal breadwinner, although as the months pass he worries more. “I don’t want to be a 50-year-old pilot earning $40,000 a year,” he said, adding that his wife does not want to be married to a pilot with so little earning power.

In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression.

State workers in Georgia are taking home smaller paychecks. So are the tens of thousands of employees in California’s public university system. The steel company Nucor and the technology giant Hewlett-Packard have embraced the practice. So have several airlines and many small businesses.

The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession.

“What this means,” said Thomas J. Nardone, an assistant commissioner at the bureau, “is that the amount of money people are paid has taken a big hit; not just those who have lost their jobs, but those who are still employed.”