Deaf to Deficit Warnings

This author of this article is very against the government sector. He argues that government officials are ignoring the increasing deficit and spending more everyday. In the article it is estimated that the ratio of government debt to GDP will be more than 100% by the end of this decade. The author states that when more government jobs are created, the private sector is damaged equally. He blames the slowing of economic growth on the increasing size of the government sector. Since we discussed the relative size of government debt in class, the situation may not be as dire as the author of this article makes it seem.

Three Faces of Market Danger

The article discusses the rebounding economy and the economic outlook for 2010 and the possible risks the market will face. According to the article the market faces three main dangers and they are Earning Risk, Valuation Risk, Policy Risk. The article also states that investors will need to be more diversified than ever in order keep their portfolios safe.

Digging Out of Debt

Deleveraging, or reducing the amount you are borrowing, is the focus of this article. According to the research done, debt as a share of GDP has been increasing for the most part over the past ten years in the countries looked at. The US is one of those countries, with a ratio of just under 300 percent. Deleveraging is an attempt to reduce the amount of overall debt by reducing the amount borrowed. This will not be a fun process, as the article points out that, historically, output shrinks during the first 2 or 3 years of the deleveraging process.

China May Consider One-Time Yuan Gain, Goldman’s O’Neill Says

The article addresses the issue of possible overheating of the Chinese economy. Jim O'Neill, Chief Economist at Goldman Sachs Group Inc, expects China to appreciate its currency by 5% and increase interest rates to cool down the economy. Chinese Economy quickly recovered from the recession and showed a stronger than estimated rebound in the fourth quarter, and the inflation rate shoot up to 1.9% in December. Although the appreciation of the currency to cool down the economy could be done incrementally on the daily basis, Jim O'Neil says Chinese government may allow to implement a bigger one-off move by 5% or more. In addition to change in exchange rates, there is a certain expectation that China will hike interest rates as well.

Earthquake's Economic Repercussions

The catastrophic consequences of the earthquake in Haiti have been plastered all over the news recently. This article discusses how the Haitian people are surviving on even less than before the natural disaster and the steps leadership is taking to help citizens.

Banks have been closed since the earthquake on January 12th. Slowly, banks and money transfer establishments have been reopening but with a limit on the amount of money that can be withdrawn in order to prevent collapse. Haitians are having trouble even getting funds, but if they manage to obtain them, the prices of necessities have tripled. Inflation is this poor country is becoming an increasingly bigger issue.

The economy relies on remittances from family and friends earning wages abroad. With the infrastructure in turmoil, families are unable to get the money they need to survive. The government, not unlike its struggling people, must now use international aid coming in wisely to repair the far-reaching damage of the earthquake.

Obama's Move to Limit 'Reckless Risk' Has Skeptics

This article mainly talks about President Obama’s policy on limiting banks’ 'reckless risks' and expresses people’s doubt about his move. To be specific, the government wants to ban bank holding companies from owning and investing hedge funds and involving in proprietary funds. It also plans to limit consolidation on the financial sector, by curbing on the market share of liabilities at the largest firms. However, the administration’s move is questioned by people. For example, banking executives are perplexed as how his new plan which places new limits on the size and activities of banks would work. At the same time, the mutual fund giant, Josh C. Bogle, also raises question which concerns how much the federal government can actually regulate.

Big Banks, Bad News?

President Obama is now in support of capping bank activity in order to prevent any future widespread government bail outs for the banks. The proposed plan would put restrictions on the scope of activities a bank can be involved in. In addition it would put a cap on the national market share of deposits. Some banks that became bank holding companies would need to choose which route they want to follow--either to remain a bank or to be a investment firm. All of these ideas are meant to protect the people from big banks.

I have a general question to everyone though:
Even with these caps, if the economy keeps growing wouldn't banks inevitably need to act outside the boundaries of the restrictions. Or, if the restrictions are kept in place, would there be a need for more banks arise to meet the demands of growth (and in doing so create an inefficient number of banks operating in the US)?

Statistophobia

This article talks about how several economic indicators can be misleading especially GDP. It tells us that rather than focusing only on the numbers, we should pay special attention to the trends and patterns in the data.

Obama's banking proposals: The impact on Europe

If the US and the UK do go ahead with Mr Obama's proposals and Europe does not, then European banks stand to gain an enormous competitive advantage, analysts say.

Proprietary trading will simply to move to European financial centres such as Geneva and Zurich, according to Mr Randolph.

And if UK banks in particular are broken up, they could be sitting ducks for continental rivals.

"European banks will simply gobble them up," says Mr Maughan.

Markets fall after Obama sets out new bank rules

A response to Presidnet Obama's plan for Banks.

"Mr Obama's proposals appear to be a return to the principles underlying the Glass-Steagall Act.

That law - from the 1930s in the aftermath of the Great Depression - separated commercial and investment banking and was eventually abolished in 1999 under President Bill Clinton."

The industry lobby group for banks suggested Mr Obama was trying to return the US to the past.

"The better answer is to modernise the regulatory framework and not take the industry and the economy back to the 1930s,"

GDP Is Misleading Measure of Wealth, Says Top Economist

Check it out, it is an interesting topic because it view GDP in a different way that we "normally" do.

The author said Gross Domestic Product (GDP) ignores the value of natural ecosystems -- an essential component of wealth. Aquifers, ocean fisheries, tropical forests, estuaries and the atmosphere, should but are not used to estimate nations' wealth.

In this article, the author focus on "GDP", which should be viewed as "national wealth." In fact, GDP does not count the effect of production on environment or include natural capital. "Nature consists of degradable resources", it is neither fixed nor indestructible factor of production. The author suggest the international community needs to routinely estimate the comprehensive wealth of nations which includes natural capital.
Personally, I like this article because it mention about GDP with natural capital, a factor that we often neglect to account in GDP. Having it in GDP helps us know about not only the comprehensive production of countries but also the effect of production on environment.

High court ruling a game-changer for campaign spending

This article is extremely important article to note in the game of politics and the way capitalism will dominate another stage of our lives. Basically the article mentions that business's no longer have restrictions on the amount campaign contributions they can give to any candidate running.

In deeper analysis, this lets capitalism effect more of politics now more than ever. These business will have deep influence over any politician that will decide monetary policy in the United States. For example, AIG and the like can now use their taxpayer-funded loans to finance campaigns for politicians who will vote to de-regulate them and forgive said loans. Needless to say, I thought this article is important enough to be discussed. Any thoughts?

Obama takes fight to banks

President Obama announced today that he is going to be proposing sweeping reforms on banks in Congress. He claims these reforms, which will impose significant limits on the behavior of banks, will stop the sort of actions that led to the financial crisis. Some large banks, such as JP Morgan, may have to be broken up to comply with the proposed regulations. Banks have criticized the proposal, claiming that it is too strict and will not allow banks to operate in an efficient or productive way, while others accuse the proposal of being a political move to counterbalance the election of Senator Scott Brown in Massachussets.

Rates on 30-year mortgages fall to 4.99%

This article discusses how rates on 30 year mortgages have continued to fall over the past three weeks. The rate is currently 4.99%, which is only slightly higher than its all time low of 4.71% in early December. The Federal Reserve has put 1.25 trillion dollars into mortgage backed securities, which is why rates have been decreasing. The Fed has done this in order to make buying a house more affordable and thus help the failing housing market. However, when the Fed stops pumping money in later this year, it is unclear whether mortgage rates will remain at theses historic lows.

A glimpse of good news

Leading Economic Index (LEI) rose in December, giving a glimpse of good news. However, when one looks at unemployment figures for December and current unemployment claims, it would not be unexpected to see LEI decrease in January. I guess we will have to just wait and see.

Obama sees 'much better' US economy this year

President Obama says that despite the bad year we just went through he has good expectations for 2010. He expects our economy to see around 2.8 percent growth after the 2.5 percent decline we had last year. He also mentions that he knows people are frustrated and angry with the current state of our economy but he is urging people to keep their heads up. after facing 10 percent unemployment the presidents popularity has gone down, but he says that the unemployment situation and economic growth are his top two priorities this year. Obama says that 2009 was a bad year but consumer confidence is up and i think we can expect that to help our economy grow a little bit.

Morgan Stanley, Bank of America increase employee pay by billions

Morgan Stanley and Bank of America revealed that they would be issuing increases in employee payouts. Morgan Stanley said that it had spent $14.4 billion for compensation expenses, with the majority coming in the form of end of the year bonuses. With a 31% increase from last year, employees are expected to receive a $235,193 payout. Meanwhile Bank of America’s personal expenses has sky rocketed from $18.4 billion to $31.5 billion. Thus resulting in an average employee salary of $111,000.

Who needs consumer spending

Consumers are likely to play a smaller role in the recovery to the recession than they did following the 2001 recession. Although consumer spending makes up two-thirds of the nation's economic activity, there is still hope that the economy will bounce back without as much help from consumers. Economists estimate a 2% increase in disposable income and consumer spending this year, and expect economic growth of about 3%.

So what, then, will put an end to this recession?

It is argued that business investment and exports will play a key role in boosting the economy. The U.S. is still a significant exporter, with $1.4 trillion worth of goods and services in 2009. Exports now make up 25-30% of U.S. manufacturing shipments and growing twice as fast as the global average. This growth in exports will lead to more jobs and consumer spending in the U.S.

Goldman profits soar on lower pay

NEW YORK (CNNMoney.com) -- Goldman Sachs delivered some of its best results in the firm's history on Thursday, after it drastically reined in pay for thousands of employees.

Hoping to defuse a potential backlash over year-end bonuses, the Wall Street powerhouse said it trimmed its compensation pool to $16.2 billion during the quarter.

That helped boost its fourth-quarter results to $4.9 billion, or $8.20 a share, eclipsing analysts' estimates for a profit of $5.20 a share, according to Thomson Reuters. Profits for 2009 also soared, hitting a new record of $13.4 billion.

Robust activity in Goldman's massive trading division earlier in the year helped juice the firm's full-year results, even as trading dramatically slowed down in the final months of the year.

And while revenue within Goldman's traditional investment banking and asset management businesses fell from a year ago, that decline was easily offset by the reduction in employee expenses.

Money spent on salaries, benefits and bonuses in 2009 ended at 38.5% of the firm's total revenue, the lowest level for that ratio since the firm went public in 1999.

David Viniar, Goldman Sachs' chief financial officer, indicated that the move was done largely in response to the recent outcry about compensation from the American public, who helped prop up the firm with taxpayer dollars a little more than a year ago.

There has certainly been much frustration on Capitol Hill as well, with politicians incredulous that financial firms like Goldman Sachs would dare pay outsized bonuses, particularly at a time when millions remain out of work.

"We are not deaf to the calls for restraint and we heard them," Viniar said during a conference call with the media.

Hoping to defuse a potential backlash, the company has taken aggressive action on several fronts in recent months. In December it revoked cash bonuses for its 30-member management committee, as well as contributing $620 million to two charitable organizations the firm oversees.

Viniar said Thursday that the company even went so far as to consult Kenneth Feinberg, the Obama administration's so-called "pay czar" who was tasked with reining in runaway pay plans at U.S. companies that have been bailed out more than once. Goldman Sachs was not one of those seven companies that fell under his authority.

0:00 /3:25Big bank tax blunder

Still, employees at the Wall Street giant will hardly go home empty handed.

Money spent on salaries and bonuses by Goldman were still up nearly 50% from a year ago.

Were that pool of cash divided evenly among Goldman's 32,500 employees, that would come to about $498,461 a person. In 2007, before the crisis hit, pay for the average Goldmanite came out to $661,400.

While the issue of compensation took center stage, the company also found it hard to escape questions about the potential impact of President Obama's proposal to limit the size of U.S. financial institutions.

The new measure, which was also unveiled Thursday morning, would prohibit commercial banks from engaging in trading for their own gain as well as prohibiting banks from owning or investing in hedge funds.

As a company that dabbles in both, Goldman would arguably become subject to such rules. Viniar said it was too early to comment on the proposal, but said these two areas made up just a small portion of the firm's overall revenues.

Goldman Sachs (GS, Fortune 500) shares tumbled more than 5% in mid-afternoon trading Thursday, despite starting the session higher.

Thursday's results from Goldman Sachs punctuate what has been a mixed bag of earnings reports from the nation's top financial firms.

Rival Morgan Stanley (MS, Fortune 500) managed to reverse its losses from a year ago, the company revealed Wednesday, although its results fell short of consensus estimates.

Morgan Stanley also reported a big jump in compensation expenses, but much of that was due to an increase in staff tied to a joint venture with Citigroup.

Both Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) each reported steep losses earlier this week. And while JPMorgan Chase (JPM, Fortune 500) posted a better-than expected profit last Friday, investors were concerned by cautious comments from CEO Jamie Dimon

http://money.cnn.com/2010/01/21/news/companies/goldman_sachs/index.htm

Bernanke Defends Aid to AIG Bailout Averted 'Potentially Calamitous Effects' on Economy; Seeks Full Review

JANUARY 20, 2010

This article is addressing the statement by Fed chairman Ben Bernanke on the central bank’s decision to extend credit to American International Group Inc. The billions of dollars in aid provided to the insurance company are ­stated as a preventative measure to ensure that AIG does not fail and thus help stabilize the US economy:

“‘The Federal Reserve extended this credit to prevent the immediate disorderly failure of the company, an event that likely would have led to a significant intensification of an already severe financial crisis and a further worsening of global economic conditions,’ Mr. Bernanke wrote in the letter to the Government Accountability Office… ”

In response to angry taxpayers, it was stated that this was in the best interest of everyone and financial assistance included taxpayer protection. The Fed also called AIG under new management and requested major stock ownership be handed to the US. It was also stated that the loan will be repaid by September 2013.

In response to the complaints about lack of available information on the AIG loan, Bernanke stated that weekly and monthly reports on financial assistance and details on the AIG loan is published and provided to both the public and congress. The entire scenario raises some questions and has us questioning how informed Americans are about the details of the matter. It’s also interesting why politicians like Darrel Issa, a member of the U.S House of Representatives, is asking for a clearer picture of what really happened from both the fed and the treasury. In his statement he also asks why it took so long for the details to be provided to the public in the first place:

‘“I have asked repeatedly that documents from both the Treasury and the Fed be provided to the oversight committee so that we can gain a full picture of what really happened, who knew what and how is it that the American people were kept in the dark for so long,’ Mr. Issa said. ‘If the Fed is as vested in oversight and transparency as they claim in this letter, they should be quick to provide us with all the support we need to complete this bipartisan investigation.”’

Sources:

http://online.wsj.com/article/SB10001424052748704561004575013783488143998.html?mod=googlenews_wsj