Bits Bucket For December 28, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Anyone out there?
Has anyone noticed all the vacant commercial space.I am in rocklin ca right now and I am seeing lots of empty buildings.Many restaurants are going under.
Does anyone know a way to short commercial real estate via an etf?Any ideas.
What about a way to short treasuries?
Here in Norfolk VA it’s like the investors are trying to bail on all of their commercial property. One of them was interviewed in the paper. He bought a building for some amount, then it turned out it needed to be condemmed. To this day he still wants a number of multiples for the building in it’s condemmed state. It’s leaning, and will require over $1mil in work to correct the lean. It was only purchased 4 or 5 years ago. For sale signs on many commercial properties though. Wishing prices. I know the company I work for laid off 8 a week before Christmas. Another downtown tech company laid off 13 or so. One of the big downtown private companies had layoffs a few months ago. Commercial will struggle. I was thinking about trying to rent some to use as an apartment.
Yes, I see it here in the south and eastern Tampa Bay area of Hillsborough County. For example, some developer put in a shopping center for Sweebay Supermarket to serve a “high-end” development on Tampa Bay called Mira Bay. There’s a lot of retail space there that’s empty, just waiting for candle shops and “high-end” stores to move in. Waiting…waiting…waiting…I think the only other enterprises in the center is a Chinese restaurant with a nail salon next door to it. LOL! It was from this blog that I learned about the Asian restaurant/nail salon combo and dang if it isn’t true. I started looking at the Asian restaurants (includes Chinese, Thai, Japanese) and inevitably they have nail salons next door. Blew my mind.
I must have missed that post. So what IS the connection between Asian restaurants and nail salons?
Ever seen who works in a nail salon?
Don’t knock ‘em. They do the best pedicure money can buy. Hard working folks; not stupid either.
And they’re dying slowly from exposure to all those toxic chemicals.
and Mira Bay in Tampa has quite a bit of foreclosures and undewater adventurers….I don’t think those over extended homeowners have high end merchandise on their mind…I think they are more concerned with keeping the electricity and water on!
I’m not sure how to short commercial RE via an ETF (exchange traded fund). You can short long-term US bonds via several ETF’s and I would recommend checking out the list of negative correlated funds and indexes on this page:
http://www.fasttrack.net/family.asp?Fam=INVERSE
Within the last few weeks most of the short bond funds have hit new all time lows so I guess you can get them cheap. I thought the same thing when the 10yr. went under 3% but resisted the urge to call a bottom and they continued down to 2.10% last week. Well, at that rate the 10 year bond is telling us that the CPI will be falling at a 2% yr. rate for the next 4-5 years. If the US actually does experience out-right deflation for several years where would you put your monetary wealth?
“If the US actually does experience out-right deflation for several years where would you put your monetary wealth?”
Cash? Or better yet, stocks of cash-rich companies.
Ben Graham made some big bucks buying stocks for 2/3 or less than their net working capital (working capital minus ALL liabilities) in the post depression years. Those offerings have mostly dried up, but I expect them to return.
Read “Intellegent Investor” for furthur info.
combotechie,
Can you name one public company that meets that qualification right now? I don’t think it’s possible to determine true net cash positions because they are listed on the balance sheet as “cash equivalent instruments” Mmmm, more hokus-pocus. The problem is that all public companies use two sets of books. One we see in the 10Q and the other they use to report their taxes to the government.
“Can you name one public company that meets that qualification right now?”
No, but I’m not looking. Patience, these things will turn up after the market tanks.
The market bottomed in 1974 but bargains prevailed for years afterward. Expect a replay of sorts as people learn to hate stocks.
I agree.
The people who are DCA into the market at this juncture may have to wait many, many years to break even (no different than current inwesters in aging buildings).
I advocate waiting until the systemic dividend cuts have run their course. The pickin’s will be plenty, and for some time to come; so there is no need to rush into a ‘folio.
Just because some blogger you respect and admire is DCA does not mean you should be doing it.
Just say’n.
I totallly agree. I anticipate that the bottom will be deep _and_ wide, and there is no rush to try to time it “just right”.
Stocks will be dramatically out of favor when we really bottom. All the people I’ve talked to who are down 40% seem to think they should hang on until it rebounds some, then sell. They’re in for more pain.
When they’re finally flushed out, and want out in droves at any price, it will finally be time to do some judicious buying.
All the people I’ve talked to who are down 40% seem to think they should hang on until it rebounds some, then sell.
——————–
Yes, I think there is a lot of “pent-up supply” in all assets. They are waiting for the right price to get out.
Surprisingly, there are a lot of people who think we are at the bottom of a V-shaped recovery. I’m not so sure…
Thanks for the site.Doesn’t it seem treauries are in a major bubble being propped up by the govt trying to keep rates low?How long can this last?
Blue Star - good thread. I’m very late with the kudos because I just returned from a drive on the Interstates that felt like a slo-mo Daytona 500 with a zillion cars in it. Jack Daniels is an awesomely wonderful mellowing agent after such an experience.
My brother-in-law works for a commercial megadeveloper. On Christmas day, I asked him about a mixed use development proposed two blocks away from a Big 10 University here in the midwest. He replied that the city has approved the project, and now all they need is the financing. As if getting the financing is just like typing out a cover page once you’ve finished that Ph.D. thesis. As Leigh would say, you can’t make this stuff up!
Take a look at SRS. I traded it from Aug07-Sept08. Take a long serious look at the 12 month chart before using real money.
If you are able to make sense of this stock please advise. I was trading it circa 80 when the dow and s&p were at 15000 and 1500. It includes stocks such as Simon Property and Avalon group. These stocks are now 50% of their value from last year.
Last I looked SRS was trading circa 58. I bought it circa Jun/Jul at what I thought was a steal 69. Sold it at 92 in Sept. Then watched as it went to circa 200. Now 58? Tough to figure.
Good luck!
Prior comment for Arizonadude on shorting CRE. Sorry, didn’t realize it slid so far down.
Seems like a very specultaive etf.Not sure what is behind the pricing.It was kind of like DUG with oil.One day at 80 next at 40.With srs could it be people are already late to this party?
The problem is that this tracks the inverse daily change of the financial etf. It doesn’t track the longterm change. That sounds subtle, but it means a lot.
If the financial etf that it is tracking stays around the same range for a few days, the double inverse etf will sink slowly. I could probably take a bit and figure out the math, but a simple example will show.
a - etf goes up 10% day one, and down 9.1% day two(back to even)
- inverse goes down 20%, then up 18.2%, with a final value of 94.56% of original
b - etf goes down 9.1% day one then up 10% day two(back to even)
- inverse goes up 18.2% day one, then down 20% day two, with a final value of 94.56% of original
Therefore trading these inverse double weighted etfs is only useful when the etf it is tracking is going down consistently. After a while of staying around the same value, the double inverse will gradually lose value.
http://seekingalpha.com/symbol/tbt
52wk high: 75.00 5/1/08
52wk low: 35.51 12/26/08
Annualized return since inception:
((35.51/75)^(360/214)-1)*100 = -71.6 pct.
Past performance does not guarantee future results.
P.S. Hoz’s investment insights are always appreciated, but I am glad I ignored his suggestion that it was time to short Treasuries. Like many others with a deep understanding of what is happening, he was early.
No kidding! Even hedged, I still lost moneys on the trade. A perfect hedge never makes money. Fortunately I use “exacta math” to calculate odds and never bet on the longshot in this case deflation.
PB, a rule of foreign and American investors is that they always will pick a long shot over a certainty. I pick certainties.
My year end gift to you, the paper that changed my investment world
PROSPECT THEORY: AN ANALYSIS OF DECISION UNDER RISK
Daniel Kahneman; Amos Tversky
Econometrica, Vol. 47, No. 2. (Mar., 1979), pp. 263-292.
This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This
tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses. In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms. An alternative theory of choice is developed, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights. The value function is normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains. Decision weights are generally lower than the corresponding probabilities, except in the range of low probabilities. Overweighting of low probabilities may contribute to the attractiveness of both
insurance and gambling.”
and the newest revised version
Explaining the Favorite-Longshot Bias:
Is it Risk-Love or Misperceptions?
Erik Snowberg Justin Wolfers
Stanford GSB The Wharton School, U.P
The short treasury play sure looks like one at the moment. But I worry about rogue interventions (i.e., what if the SEC declared it illegal to short U.S. Treasuries?).
Good point. There’s always the threat of government intervention which turns a “sure bet” into a losing position. One never knows what crazy ideas are rattling around in the heads of the decision-makers these days…
The treasury does not have to make it illegal to short treasuries, the instability and dysfunction in the treasury markets make it unprofitable for bond houses to loan out the bonds to short. There is no repo market. This is more troubling for the government than anything else that is occurring. Corporate illiquidity has happened before, Government illiquidity is Banana Republic.
One never knows what crazy ideas are rattling around in the heads of the decision-makers these days… I think they said that about the New Dealers way back when, also.
What’s worse: I am quite certain big money is often made by well-connected players at Megabank, Inc who take the other side of “sure thing” bets, then either use market power or political influence to rig the game so the “sure thing” never occurs.
“There is no repo market. ”
Hoz, can you explain why the repo market is dysfunctional? Is it simply a matter of counter-party risk? In other words, concern that the party on the other side of the repurchase will not be around to follow through?
“I think they said that about the New Dealers way back when, also.”
Before or after they made possession of physical gold a crime?
Hoz - thank you for this. It is a scary thread, since it scrapes the edge of what I comprehend and also sounds like the abyss, but I paid for the ride and Ben’s HBB is where I learn what I know - this is great stuff. Ditto PB for your many contributions. If I had a college-age kid, I’d tell him or her to read every word of this blog and save themselves or me a lot of money on tuition.
“What’s worse: I am quite certain big money is often made by well-connected players at Megabank, Inc”
PB et al - I don’t know enough about this stuff to be a useful contributor, but in terms of what I *believe*, PB is spot-on. The game is rigged better than any Las Vegas house could ever have dreamed about. The vast majority of people who think they are investing are just spending their money. It goes away slowly, so they think that tomorrow will be better.
Hoz — Here is a related paper for you to check out in case you have not seen it. I believe it goes far to explaining the flawed belief that “real estate always goes up.”
Inference by Believers in the Law of Small Numbers
Matthew Rabin, Economics Department, University of California, Berkeley
ABSTRACT:
Many people believe in the “Law of Small Numbers,” exaggerating the degree to which a small sample resembles the population from which it is drawn. To model this, I assume that a person exaggerates the likelihood that a short sequence of i.i.d. signals resembles the long-run rate at which those signals are generated. Such a person believes in the “gambler’s fallacy”, thinking early draws of one signal increase the odds of next drawing other signals. When uncertain about the rate, the person over-infers from short sequences of signals, and is prone to think the rate is more extreme than it is.
“Small sample” in the housing market context means six or seven straight years of home prices rising at an unprecedented rate of increase, bolstering the faith of true believers that “real estate always goes up.”
Wonder how all of this possible privatization will go over with the new ‘change’ administration.
Cash-strapped states weigh selling roads, parks…
ST. PAUL, Minn. — Minnesota is deep in the hole financially, but the state still owns a premier golf resort, a sprawling amateur sports complex, a big airport, a major zoo and land holdings the size of the Central American country of Belize.
Valuables like these are in for a closer look as 44 states cope with deficits.
Like families pawning the silver to get through a tight spot, states such as Minnesota, New York, Massachusetts and Illinois are thinking of selling or leasing toll roads, parks, lotteries and other assets to raise desperately needed cash.
Minnesota Gov. Tim Pawlenty has hinted that his January budget proposal will include proposals to privatize some of what the state owns or does. The Republican is looking for cash to help close a $5.27 billion deficit without raising taxes.
GOP lawmakers are pushing to privatize the Minneapolis-St. Paul International Airport and the state lottery. Both steps require a higher authority _ federal legislation in the case of the airport, a voter-approved constitutional amendment for the lottery. But one lawmaker estimated an airport deal could bring in at least $2.5 billion, and the lottery $500 million.
Massachusetts lawmakers are considering putting the Massachusetts Turnpike in private hands. That could bring in upfront money to help with a $1.4 billion deficit, while also saving on highway operating costs.
In New York, Democratic Gov. David Paterson appointed a commission to look into leasing state assets, including the Tappan Zee Bridge north of New York City, the lottery, golf courses, toll roads, parks and beaches. Recommendations are expected next month.
Such projects could be attractive to private investors and public pension funds looking for safe places to put their money in this scary economy, said Leonard Gilroy, a privatization expert with the market-oriented Reason Foundation in Los Angeles.
This works, until you run out of things to sell.
It works out until the average American realizes that the states assetts have been sold for pennies on the dollar to politically connected individuals who then screw the people. You want to drive on Turnpike, that will be 20 dollars, busses will have to pay 200 so no escape for mass transit.
Private business that depend on people using these roads should protest the loudest. When you own the conduit you own all the business that needs that conduit. Just ask Microsoft and Enron.
Recently a ?Swiss? construction company made an offer to build a new tunnel here in Norfolk, VA. The terms would be that they need the existing tunnel, and would collect tolls on the new tunnel setup for 50 years. They were talking about tolls that would be as steep as $8 or $10 for trucks. This is a vital part of our road infrastructure. Not to mention what happens when a hurricane evacuation kicks in. Selling infrastructure to foreigners is dumb, and smells of desperation.
Selling infrastructure to foreigners is dumb, and smells of desperation.
————————–
And selling infrastructure to private companies is equally dumb, thought the libertarians might disagree with me on that.
This is a bit similar to how things are (or at least were) done in Hong Kong. If the government wanted a bridge built, they would take bids from competing companies for the opportunity to build the bridge and accept tolls for the next 20-30 years; enough for a reasonable ROI. After the agreed-upon time frame had passed, ownership of the bridge was then permanently transferred to the state.
Or, ask any of the Rockefellers.
“You want to drive on Turnpike, that will be 20 dollars, busses will have to pay 200 so no escape for mass transit.”
Where does it cost $20 to drive on a private road? Here in PA, our (publicly owned) Turnpike tolls are about to be hiked:
http://www.philly.com/inquirer/local/20081205_Pa__Turnpike_tolls_to_increase_25_percent.html
“The increase means the toll for a car traveling the 359-mile turnpike from the Ohio border to the New Jersey border will be $28.45, up from the current $22.75. The same trip for a 40,000-pound, five-axle truck will cost $92.50, up from the current $74.”
…
“[PA Gov.] Rendell sought this year to lease the turnpike to a private, Spanish-U.S. consortium for $12.8 billion, but the legislature refused. Brimmeier hailed that decision yesterday, saying the state would have lost billions by investing the lease payment in current financial markets.”
Some states are in strategic positions where they could charge tolls that would be extremely difficult if not impossible to avoid if applied to current non-toll roads. Ohio is one of them. Charge semi’s crossing the state $500 per trip & the money would roll in. Trucking companies unwilling to pay that would be free to drive through Ontario or West Virginia or detour through Tennessee & Virginia.
Yep. So-called Private-Public Partnerships are predatory capitalism at its worst.
This.
I heard about the strategic positioning done by highly connected individuals in Maryland, in advance of the approval of slot machine legislation.
The inside players are so much more inside and connected than the average person fathoms. The depth of this becomes more apparent to me as I grow older and more experienced.
“This works, until you run out of things to sell.”
+1. AKA heating your home with the furniture.
+1. But worse than heating with the furniture; more like selectively tearing out the structural timbers in the basement that don’t _look_ like they’re really necessary, and burning them.
Once again it is our taxes that built what they want to sell to private companies.
Exactly.
Nothing like letting public money pay for private profits. American “capitalism” at its finest!
I wonder if either one of the commie brothers, Fidel or Paul have any plans of pealing off a few of their billions and handing it out to the poor? Nah…
Raul Castro calls for more work, fewer handouts…
HAVANA (Reuters) - Cuban President Raul Castro called on Saturday for austerity measures including fewer subsidies for workers and stricter management to pull the country out of an economic morass aggravated this year by three hurricanes and the global financial crisis.
He told a year-end meeting of the National Assembly the government would cut official trips abroad by 50 percent and eliminate programs that reward good workers with free vacation trips but cost the government $60 million a year.
“The accounts don’t square up,” he said. “You have to act with realism and adjust the dreams to the true possibilities,” said Castro, who officially replaced his ailing older brother Fidel Castro as president in February.
“Two plus two always equals four, never five,” he said.
Castro implemented reforms when he took office, including opening the sale of computers and cell phones to Cubans and allowing them to go to hotels and stores previously reserved for foreigners.
But he said the country’s economic problems would postpone some changes, including a planned government restructuring.
Castro lamented the economic effects of hurricanes Gustav, Ike and Paloma, which caused $10 billion in damages, and warned that no one can tell how bad world economic problems will get.
Cuba’s import costs have soared while prices for key exports such as nickel have plunged, requiring the communist-run country to impose greater fiscal discipline, said the 77-year-old Castro.
Other government officials told the assembly Cuba’s budget deficit had climbed to 6.7 percent of the gross domestic product as the economy grew at a slower-than-expected rate of 4.3 percent in 2008. They forecast 6 percent growth for 2009.
Before his speech, the assembly voted to raise the age at which workers can retire with a government pension by five years, to 65 for men and 60 for women. Officials said the change was needed because Cuba’s population was aging rapidly due to a declining birth rate and immigration.
Castro said Cuban managers need to demand more from their workers, who receive free education and health care and subsidized food rations but on average earn only $20 a month.
“…said the 77-year-old Castro.”
So here is the SIT-u-ation:
Raul…can load his gun…but can’t figure out an iPhone
Meanwhile back at the cigar factory:
“…Cuban managers need to demand more from their workers, who receive free education and health care and subsidized food rations but on average earn only $20 a month.”
young worker listening to his iPod:
“We’re talking ’bout a revolution, oh yeah hey, hey!”
Ah, someday soon…a Wynn’s casino.
The mafia is going to own that island again in a couple of years, once Communism collapses. Gambling, drug dens, and brothels will be mainstays of the economy.
That will be yet another nail in the coffin of Las Vegas.
We were talking about the demise of Las Vegas here just yesterday.
Actually, think of South Fl real estate.
-
p.s.
Some people are trying yo buy land in Cuba. (long story)
“Cuban President Raul Castro called on Saturday for austerity measures…”
LOL. Something new, right, Raul? It’s about time austerity was introduced in Cuba. Way to go, comrade. Brilliant leadership!
Click-2-Listen
By JEFF OSTROWSKI
Palm Beach Post Staff Writer
Saturday, December 27, 2008
Sitting at a desk in his immaculate house in Palm City, Neil Friedman calmly pulls out a stack of trade confirmations and account statements from Bernard L. Madoff Investment Securities.
The detailed papers show positions in a Standard & Poor’s 100 index fund and such blue-chip stocks as Apple, Google, Hewlett-Packard, Schlumberger, Pfizer and Citigroup.
For three decades, while he worked as an insurance agent and pension plan administrator and then retired to Florida, Friedman received similar statements from Madoff.
During that time, the nest egg of Friedman and his wife, Constance, grew to $4 million. Friedman, 74, felt so comfortable with Madoff, so trusting, that he used no other investment advisers.
“I had everything I owned with him,” Friedman said. “We knew him personally. We were at parties he attended, sat at the same table. I had no reason not to be pleased with him.”
All that changed this month when Madoff’s seemingly successful investment fund collapsed. Prosecutors say Madoff ran a $50 billion Ponzi scheme that duped sophisticated, wealthy investors such as the Friedmans and Larry Leif of suburban Delray Beach.
Leif lost $8 million, his life savings, when Madoff’s scam imploded.
“Dec. 10, I had $8 million,” Leif said. “Dec. 11, I was broke.”
It’s a nit, but do people these days really consider high-flying stocks with stratospheric P/E ratios to be “blue chip?”
That reporter seems to think so, but doesn’t the traditional definition refer to boring dividend-paying stocks with a valuation that can be justified by current business?
Anyone remember the Nifty-Fifty? Or “One Decision stocks?
Those were during my educational days.
’60s hedge fund theory
A select group of stocks would beat the averages. lol Got a lot of suckers in the early Johnson years.
He never actually had that “$8 million”. $8 million was simply the number that showed up on his fradulent account statements. Factor out 30 years of fake impossibly high paper returns and maybe he would have had closer to $2 or $3 million now.
Same goes for other Madoff investors. The amount they think they have lost is exaggerated by the fake exaggerated returns they thought they had earned. The media doesn’t bother trying to mention or explain this nuance, however.
I’m saying that it doesn’t hurt when you lose it all. Just that the actual numbers likely are not right.
Oops, typo. I’m NOT saying that it doesn’t hurt when you lose it all.
They paid taxes on the profits. That is real money that the government will return to the Madoff funds court appointee.
Do they pay taxes if profits was re-invested into the fund? or only if they withdrew?
If people withdrew consistently from the fund, maybe their losses were minimal considering the fund performance was not real.
The people that didn’t withdraw got screwed.
A year ago, one can redeem or liquidate your account with Madoff. He had enough new investors to cover someone who wants to redeem or liquidate. It came unglued this last two months when everybody went to get out of the funds. It was possible to withdraw $8M last year.
Not if everyone wanted to withdraw their $8M last year.
Is there any reason why Madoff didn’t institute withdrawal limitations, like the
other ponzishedgies? And how much longer can these hedgies confiscate account holders property? Avoiding massive sell-offs in the market is one thing, but hiding a ponzi is another.“And how much longer can these hedgies confiscate account holders property?”
Not sure if this is universal, but I believe the contracts hedge funds wrote and to which their investors consented included the right to limit withdrawals.
“the contracts hedge funds wrote and to which their investors consented included the right to limit withdrawals.”
Referred to in an article posted here the other day as “gates.” How apropo as many of them have been locked shut.
“Dec. 10, I had $8 million,” Leif said. “Dec. 11, I was broke.”
You’d have to have a heart of stone to read this tale of woe without laughing.
This stuff we are hearing these days is so surreal, as if it came out of a Fellini film or something.
Shoulda heard the couple on CNBC last night. It’s everybody’s fault except theirs. They never even bothered to keep any of their statements, except the last year or two. Don’t know how much they invested. But since Madoff said they had $1.66 million in their account, that’s what they want.
The Madoff crowd are going to be an interesting bunch to keep track of. They will all want me and you to refund their losses, and no doubt some of the talkin’ heads on MSNBC will take their side of this issue. For some of these people, their only remaining “assets” are now losing value fast. These people need to give up all hope of a bailout and understand that they will soon join the other 98%.
Here is my best advice that I can give these people: Sell the silly trinkets and other such nonsense PRONTO, before it becomes totally worthless. Sell everything. Be the first in the hoc line, not the last. You can not eat this stuff, and it will not keep you warm in the winter. Whatever utility these trinkets had has run its course. IT IS JUST STUFF!
“They will all want me and you to refund their losses”…..
That’s right, and it’ll be based on what Madoff told them they had in their account. Even though it’s all BS.
The couple last night were living in a motorhome and travel, and just lost a deposit on a motor home site in Arizona. He has a pension, so they’re not totally without income, they just don’t have enough to cover their “current expenses.”
Time for a lot of people to start living more modestly.
“bothered?”
I still have tax return backups from forty years ago. Trust not, fear less.
If this is true: “The detailed papers show positions in a Standard & Poor’s 100 index fund and such blue-chip stocks as Apple, Google, Hewlett-Packard, Schlumberger, Pfizer and Citigroup.”
Then wouldn’t this help the defense of the go-between investment houses under allegation they did not perform due diligence before investing with Madoff? if Madoff were supplying phony holdings data, then negligence becomes a weaker case for the client-facing firms who invested with Madoff. Even if blue chips don’t garner the type of returns Madoff claimed to generate, the phony holdings data will at least fog the negligence cases somewhat.
Don’t - doesn’t that argument absolve the go-betweens from due-diligence? No offense, but I doubt that such an argument will fly.
This situation is bound to keep increasing…
Hospitals ill from more bad debt, credit troubles
Hospitals ailing from fewer paying patients, investment losses, tight credit and other ills…
TRENTON, N.J. (AP) — Gainesville’s first community hospital has been on life support since the Shands Healthcare system in northern Florida bought it a dozen years ago.
Now, because of the recession, the plug is being pulled on 80-year-old, money-losing Shands AGH. Next fall, its eight-hospital not-for-profit parent company will shut the 220-bed hospital and shift staff and patients to a newer, bigger teaching hospital nearby as part of an effort to save $65 million over three years across the system.
Like many U.S. hospitals, Shands is being squeezed by tight credit, higher borrowing costs, investment losses and a jump in patients — many recently unemployed or otherwise underinsured — not paying their bills.
All that has begun to trigger more hospital closings — from impoverished Newark, N.J., to wealthy Beverly Hills, Calif. — as well as layoffs, other cost-cutting and scrapping or delaying building projects.
More closings and mergers are on the way, industry consultants predict.
“They’ll get swallowed up by somebody else, if they need to exist, and if they don’t, they’ll just close,” said Tuck Crocker, vice president of the health care practice at management consultant BearingPoint.
Most endangered are rural hospitals and urban ones in areas with excess hospital beds and a lot of poor, uninsured patients.
Hospitals, which employ 5 million people, are reporting that donations and investment returns are down, patient visits are flat and profitable diagnostic procedures and elective surgeries are declining as people with inadequate insurance delay care. But those patients are turning up later at ERs, seriously ill, making it tough for hospitals to lay off nurses and doctors.
“But those patients are turning up later at ERs, seriously ill, making it tough for hospitals to lay off nurses and doctors.”
They’ll just end up shutting down. Who needs the headaches?
I got a letter from tri city hospital saying that they no longer will do any tests and I have to go to scripps.
I wonder if they treat frostbite?
The scum in charge of Gainesville I think wanted to close AGH at the outset. It was the community hospital for the native population. They worked there, had their babies there, and chose to go there when they had health problems because of trust. Now it’s going away.
Main Shands is a disaster, especially the emergency room, but even in the rest of the hospital. Workers tell me its chaotic, and several wealthier parents have famously lost children due to stupid (but apparently chronic) mistakes by nurses.
I think my reply got eaten, but the gist of it is that there is more to this story than the economic downturn, and it is a hard, hard thing.
There are two Gainesvilles, and a nasty edge is starting to be exposed.
This was going to be a response to the “church foreclosure” thread from yesterday, but I figured nobody would look at it since it would be on yesterday’s bits bucket…
For a little while I helped with the parking lot team at a big mega church (helped get cars to empty spots on Sunday morning). I thought I was about to die about 2-3 times every Sunday because people were driving so crazy - always made sure I was within diving distance of some soft grass or the hood of a parked car. I think the cars also said a lot about the attenders, tons of brand new 4×4 3/4 and 1 ton diesel trucks with $5-10k in wheel/suspension/engine tunes (this is TX, in CA it’d probably be a bunch of S550s and such). Almost nobody needs that big of a truck no matter what kind of work you’re in. A stripped down 1/2 ton work truck or Ranger will get 99% of jobs done, and with the right setup can tow 8000+ pounds if you need it (which almost no-one does). Now this church was not really one that I can criticize too much, I don’t think they were fleecing the flock or even preaching the wrong message, they just maybe made it all seem too “easy” for lack of a better description.
Also plenty of ’slades, Yukons, BMW’s, MB’s, and Lexi (driven by transplants or wives I guess). Pretty sickening display of consumerism if you ask me. Of course we are all guilty of this to a certain extent (I could liquidate my savings and sell my “fun” car and give to the poor). But just think if those that purchased the unnecessary F-350 for $50k had bought an F-150 for $25k… of course most of them are 100% financed so there was no money to begin with but still.
We are now helping to start a new Methodist church (only ~100 members) and the difference in the parking lot and attitude of the church is dramatic (actually an emphasis on sacrifice and helping the poor). There is only one large truck, and while it does have a 900ft.lb Banks kit on it, the guy that drives it actually uses it to tow our 12,000 lb trailer with all our sound equipment (we meet in a school so have to pack up every week). So I think there are still some good churches out there, maybe more of the smaller and more traditional denominations that never got caught up in the lie of American consumerism.
Organized Religion, being that they are 501 (c) 3’s , are one of the biggest rackets out there. The ones ( almost all of the do) that dispense political advice, should be taxed. It’s a business, foremost.
Then should all the 501c3 nonprofits that meddle in politics be taxed.
You should join my synagogue! Practically nothing but Prius and small cars.
Really? I approve of that. So I can just march up and say “I wanna be a Jew now, and please gimme one a’ them cute caps you got”‘?
‘Cause I’m there, baybee!
Oh, wait–do you guys take animists? I better check on that first.
One more thing, how do you guys feel about bonfires? Bonfires are totally necessary.
And, of course, a whole lot of mead.
Olygal,
Hey read your bible. God loves barbeque! Naturally he can’t eat the stuff but he loves the smell of barbeque. The old jews made bonfires and roasted “burt offerings” for His olefactory pleasure. I don’t think modern congregations do this anymore. That’s a pity.
Read the first few chapters of Leviticus for your edification.
“One more thing, how do you guys feel about bonfires?”
Israel’s been setting off a bunch of big bonfires themselves the last couple days, so I think you’re alright.
“God loves barbeque! Naturally he can’t eat the stuff but he loves the smell of barbeque.”
LOL!!!
That’s freakin _priceless_, Dennis. I never once thought of all the burnt offerings in quite that way.
Awesome. You just made my day.
I think I’m going to start a new denomination; maybe call it Church of the Braised Shoulder. All of our services will be barbecues! I love it!
And yes, Olygal, you can bring mead. Or beer. Which one goes better may depend on how sweet the marinade is at that service.
In fact, on Saturday, NOBODY drives! We all walk.
Other perks:
- Free Jelly Donuts during Chanukkah (we call them Safganiyot)
- Lots of holidays!
Apricot cookies during Purim!
As long as I can have blasphemy burgers thru a hole in a sheet
Good Morning Reuven ( and to all other HBBers)
That Ultra Orthodox Bar Mitzah was a waste of time. Us ladies were seperated from the males with a wood partition (opaque glass on the top), in the back of the building. We could not see any of the ceremony, and could not hear the 13 year old speak. We ate seperate, and we were treated like the blacks once- to the back of the bus. No hugging or shaking hands with the males.
We were close to the kitchen and bathroom, you know, where women belong.
My sil told me most BM’s are not like the Hasidic one I attended yesterday. Truly, the Jewish Taliban (w/o the violence) is my impression. No wonder the most Jews think they are radical. They are a cult, imho.
Oh! If I had known you were a woman, I would have described the service differently!
BTW: Most Jewish congregations in the US don’t separate men and women (mine doesn’t). And the ones that do, for the most part, do it left and right and have a simple rope serving as the mechitzah. What you saw was the extreme.
Did you at least get a Jelly Donut in honor of Chanukkah?
That’s what blew us guests away, big time. All of us have been to Orthodox Jewish weddings, so when we all were told not to enter the main room, and to go back into the slum room (not as nice as the main worship room) we all were offended.
Yeah, most of the seperation of the sexes is done in one room usually.
No Jelly Donuts, but the bakery food was awesome! 1 hour of treadmill time today, for sure.
No issue with me being a lady and yesterday. I found your honesty refreshing, actually. Things my husband will say tongue and cheek!
Agreed, and I have been around Jews all my life. These clowns think they are the “real” Orthodox; of course in some places there are Orthodox female rabbis, so whatever.
Some of them truly are cultists: they belong to Chabad-Lubadovitch. Google them and trips to Israel for some truly scary stories. Lots of them in Boston and New York. They believe some early 20th century Brooklyn rabbi was the Messiah, they proselytize almost as much as those kooky Jews for Jesus, and they give off those sexist/scary/I-lie-for-the-cause vibes of fundy xtian or muslim males.
If you go back through old newspaper articles on the Hassidim in New York, you get the impression of a society of men to oppress women, made all the nastier by their location among the most educated and powerful women in the world. Some of the divorce cases have been truly astounding. Civil authorities generally look the other way, similar to typical attitude towards JW’s sex abuse or Amish child abuse.
Some believe a man is unclean if he touches a woman’s hand. I had a guy carefully pay me at CVS so our skin would not touch. It’s amazing, I would do hundreds of transactions in a day without thinking about it, but I noticed that and it hurt. It’s meant to enforce status even though they cloak it in words like “modesty” and “purity.” Like, hello, I’m gay and my hair was 1cm long at the time. Purity, my pink patootie. Nothing is dirtier than circulated money, anyway. (Except doorknobs, lol.) At Brandeis we used to wonder, if you were a gay seminological student at yeshiva, was it shomer to touch a fellow male student?
gator,
I always thought you were a man!
Seems like so many of us HBBers are women.
“They are a cult, imho.”
Either way, I love shopping at B&H
I am very popular, due to my size, at chair time at weddings.
Don’t you have to pay to join a synagogue?
Whoops, this was supposed to post under Reuven’s comment.
No. At least not mine. Of course, if you start attending regularly, they’ll ask you to become a member. But everyone’s welcome. And this is true for every synagogue I’ve encountered. I frequently attend synagogues when I’m on the road. I just walk in.
I guess I was misinformed. My friend told me once he’d never join his parents one, possibly he was looking for any excuse…
I’ve always been fortunate enough to live in diverse neighborhoods, I always admire worshipers who walk to temple on Saturday.
Reflecting further, the Catholic church often presses a person for “membership,” too frequently mailing home pre-printed donation envelopes, publishing donor rolls, etc. My sister says she has her donation automatically deducted from her checking account!
I prefer give to the poor, both through outright donations and through career choice. Right now I teach preschool in a non-profit institution with a sliding scale fee. I make very little money, but overall am happy with what I have.
That was the point I made in that thread yesterday….get away from the mega churches with their prosperity gospel to see what churches should really be like. A minor critique of said PG was even part of our sermon this morning as well.
Generally speaking, it’s the smaller churches where you’ll find more of the practicing of the preaching, and preaching of more than just prosperity.
I posted this in yesterday’s bits with consideration towards mega churches, prosperity gospel, practice vs preaching etc. I highly recommend the book “Pagan Christianity” by Frank Viola for an “excellent” challenge to most Christian practices today vs what was actually practiced in New Testament times and how it got to where it is today.
AFAIK the entire Christian religion is mostly cut and pasted from previous religions.
As a society I think we would be better off if we could get past the superstitions, but it’s not likely to happen since part of church is to bring in the children to brainwash them. No child under the age of 18 should be allowed in a church.
+1
Another wonderful decision hubby and I made before having our son - spirituality vs religion.
We are both non-practicing Catholics and I wasn’t having any of that!
No offense, I do believe that religion grounds some beings and can be benificial for a moral compass.
We did the baptisism thingy, for our parents. (Hey, he was a baby).
Son is very respectful and spiritual - a lover of nature; kind to animals; loving towards humans.
What more could ya ask for?!
Leigh
er…beneficial.
And another good thing too!
When said son was a bit naughty, mom and son would go pick out a tree together for him to plant (dig the hole).
So he’s especially handy too!
Sometimes I think he was naughty just to shop for a new tree!
Ya just can’t make this stuff up!
Leigh
“…Almost nobody needs that big of a truck no matter what kind of work you’re in. A stripped down 1/2 ton work truck or Ranger will get 99% of jobs done,…”
You know, since it is Christmas…I’m going to alter my mind’s memory as to what happened in 1979 to my ‘49 Studebaker Pickup truck.
(…the difference in the parking lot and attitude of the church is dramatic… (actually an emphasis on sacrifice and helping the poor)
I now believe that Jesus (in disguise) absconded it…then used it to haul building materials for the Crystal Cathedral in Garbage Grove.
Yeah, I’m pretty sure that’s what happen, at least I think so…?
“Charlie Brown you’re such a BLOCKHEAD!”
I bought a nice F-150XLT back in 2001 for cash, and didn’t even pay $25K for it. It’s still running strong. I’m not sure why the urban cowboys think they need anything bigger.
“I’m not sure why the urban cowboys think they need anything bigger.”
Oddly enough, Church parking lots are loaded with PigMobiles not to mention SLOBurbans, TaWhores and Ford Excretions. Whats outrageous is these phonies don’t haul with them. No receiver, no 5th in the bed… nothing. It’s all image for the PigPeople.
A well-known Austrian television journalist named Klaus Emmerich recently got in hot water for racist remarks about US President-elect Barack Obama. He told Austrian public television “I wouldn’t want the Western world directed by a black man.” Anticipating criticism, Emmerich followed up that up with more comments spread throughout the week. Which of the following did he NOT say?
* “When you say that is a racist remark: right, without a doubt”
* “Blacks aren’t as politically civilized”
* Obama “has a devil-like talent to present his rhetoric so effectively”
* Obama is “handsome, young and also suntanned”
I’ll take “handsome, young and also suntanned” for $1,000, alex.
And, going out on a steriotypical limb, surely hung like a stallion. I mean think about it - who’s going to argue with the man when he, borrowing a line from Mel Brooks, exclaims “Allow me to whip this out…..”
Deep Thoughts By Ex
E! rag shot a photograph of him topless.
I was reading google news earlier and saw the tiny picture of what I thought to be our president elect shirtless, so I clicked on it. Sure enough it was him.
The scary part is that camera could have been something else.
Leigh
“The scary part is that camera could have been something else.”
Nah, Obama “gave up” that shot; in other words, it was staged, and given to the photographer on purpose.
The photographer and the “long lens” were checked out in advance by the secret service.
This is a side of “change” that I had not anticipated. Looks like he’s going to be a media-whore!
I sure hope so. They said he ran off to the mall with the kids.
I may not agree with his policies or (insert whatever), I do not want him in an unsafe situation.
Better a media wh*re than a target.
Leigh
E! rag shot a photograph of him topless.
The Messiah may be all that and all, but “topless” only applies to women. A guy without a shirt is just shirtless.
Austria is a deeply racist and anti semitic country and the birthplace of little Adolf.
Austria, Switzerland, and Sweden have never owned up to their role in the Holocaust.
The Swiss made off with millions in Holocaust victims’ money.
Austria just sits there in utter denial.
Never forget what these “Aryans” (Ostrogoths) did to the Viennese Jews.
Little Adolf was actually from what is now the Czech Republic, which was under Austrian rule at the time. He may have been part Slav (not proven), and this may have fueled his extreme racism. Under Austrian rule, German was the official language and Czechs were kind of looked down upon. (The Germans of this region were forced out after WWII, kind of a case of “You wanted one volk, one land? You got it.”)
And Ahnold, no?
Austria and Germany is a Conservative Libertarians utopia.
That “handsome, young, and suntanned” line came from Italian PM Silvio Berlesconi IIRC. He was comparing O’bama to himself as being dashing politicos.
Household incomes decline in Monroe County, NY… but hey, at least there’s no bubble there!
http://democratandchronicle.com/article/20081228/NEWS01/812280366
“Government data also show that New York state is losing 55- to 74-year-old residents who are healthy and financially stable, while there is a rising number of people 80 and older, who are often frail and poor, moving to New York.”
They move to states with lower taxes, and then move back for the richer Medicaid benefits when the money is gone.
There were two reasons my parents did not retire in Florida:
1. Real estate
2. Health care
There are probably a lot of retirees already in Florida rethinking no.2, as you’ve pointed out.
My friend’s wife works at an elder-care facility in Baltimore where most of the patient care is paid for by Medicare and Medicaid (meaning, us taxpayers). In the past decade they have had to deal with a huge influx of elderly immigrants, mainly Asian and from the Middle East, whose children brought them into this country - and promised to care for and support them - but who end up being dumped on Medicare and Medicaid. They also collect social security, though they’ve never paid a dime into the system.
Thank you Republicrats for our immigration policies, and to all the dupes who keep returning you to office despite your massive screwing of the US taxpayer and our future generations.
Briefly, very briefly, I had a job as a workers’ comp claims adjuster. One of the scams being employed then was to immigrate, get a job, hurt your back, and collect until it was time to go on SS. This was NY which has very generous comp allowances.
I didn’t have the heart to deal with the fraud, the lawyers and also some of the people who were truly, severely injured and wrecked for life. Volunteering for the layoff was one of the best things I ever did for my soul.
Holy smokes a 140K @ 18%! I am sure this girl is not alone, all this for a degree in photography. Nothing against photography, but damn! She may be better off than the thousands of art history majors running around out there though.
Student loans turn into crushing burden for unwary borrowers…
Natalie Hickey left her small hometown in Ohio six years ago and aimed her beat-up Dodge Intrepid for the West Coast. Four years later, she realized a long-held dream and graduated with a bachelor’s degree in photography from Brooks Institute in Santa Barbara.
She also picked up $140,000 in student debt, some of it at interest rates as high as 18%. Her monthly payments are roughly $1,700, more than her rent and car payment combined.
“I don’t have all this debt because I was buying stuff,” said Hickey, who now lives in Texas. “I was just trying to pay tuition, living on ramen noodles and doing everything as cheaply as I could.”
Hickey got caught in an increasingly common trap in the nation’s $85-billion student loan market. She borrowed heavily, presuming that all her debt was part of the federal student loan program.
But most of the money she borrowed was actually in private loans, the fastest-growing segment of the student loan market. Private loans have no relation to the federal loan program, with one exception: In many cases, they are offered by the same for-profit companies that provide federally funded student loans.
As a result, some students who think they are getting a federal loan find out later that they hold a private loan. The difference can be costly.
Whereas federally guaranteed loans have fixed interest rates, currently either 6% or 6.8%, private loans are more like credit card debt. Interest rates aren’t fixed and often run 15% or more, not counting fees.
Most students have little experience in taking out loans, yet the federal government doesn’t require lenders to disclose the total cost of a student loan and other terms upfront — before signing — as it does for car loans and mortgages.
“Students are in the cross hairs, being bombarded by very sophisticated and, to some extent, ethically marginal lenders,” said Rep. George Miller (D-Martinez), who sponsored legislation passed this year that will require lenders to provide more disclosures on fees. “My fear is that we are developing a predatory market, just like we have had in mortgages.”
About $15 billion in private student loans are expected to be funded this year, a 900% increase from a decade ago, according to the nonprofit College Board. Private loans are growing faster than federally guaranteed loans, which rose 59% over the same period, in part because of limits on how much students can borrow with the government’s backing.
Four years at a public university, including room and board, costs an average of $57,332, according to the College Board. The average tab for a private university is $136,528. Yet the maximum that can be borrowed under the federal loan program is $31,000.
High-cost private loans fill that gap. One result is that students now average nearly $20,000 in debt by the time they graduate, twice as much as a decade ago.
“There is an alignment of interests that lead students to take out larger and larger amounts of debt,” said Luke Swarthout, a former higher education advocate at the U.S. Public Interest Research Group in Washington.
If its a private student loan can you default on it? I know you can not default on federal student loans but do private fall in a different category?
I believe all of these “student loans” are either issued by Sallie Mae or insured by Sallie Mae. Thus no, one cannot default on a student loan.
A lot of these “soft” degree folks are finding out that us boring types, that got degrees in Nursing, Engineering, Accounting, or other “practical” majors, were actually learning an important skill. Hey, I like photography too (and I’m good at it), but dream jobs are hard to find.
Brooks Institute in Santa Barbara was under investigation (2007 or 08) for false claims of employment placement and opportunities, if I recall correctly.
Hopefully this will end very badly for college professors and other wasteful over educated spendthrifts.
There is no reason to spend that kind of money for any general kind of college degree. Heck they could make colleges full time for 3 years to save tons of money
But We really need quick fast intensive training courses 6 months to a 1 year that all of us take every 5-10 years to change careers and keep employed. Paid for by Unemployment or cheap loans
We also must demand our schools have mandatory financial education to graduate high school and College….imagine that a high school or college graduate would know how to read a apartment rental or car lease….and not do anything stupid to get sued.
——————————–
Four years at a public university, including room and board, costs an average of $57,332, according to the College Board. The average tab for a private university is $136,528
aNYCdj said
“But We really need quick fast intensive training courses 6 months to a 1 year that all of us take every 5-10 years to change careers and keep employed. Paid for by Unemployment or cheap loans”
I concur 110%. Evidently, you live in the real world and have a pragmatic view of our times. Nice to read your post, as always.
Tuition prices are in fantasy mode, just like houses. It’s just nonsense.
I once ran this rant by a social science professor at a state funded institution. The answer? “WHO SAYS A HIGHER EDUCATION HAS TO BE CHEAP?!” Well, I suppose if they (the spouse is a lawyer or something) are going to keep their luxury mobiles and Mcrapper then SOMEBODY has to pay for it.
This is at a public institution, with open enrollment. The college president and admissions administrator will never own up to it, but this outfit fills empty seats with ACT scores of as low as “4″.
Every time the college president goes to the state capitol he has to justify the state funding of his institution with a headcount that is greater than the previous year’s headcount. So it is no longer all about a “Higher Education.” It is all about the money. Keeping kids in school that perhaps do not need to be there, and institutions open that perhaps need to be closed.
If, for example, the state legislature decided this school is not needed, where else could this college president go to match his $300k salary, plus retirement and other bennies?
Well, I gotta stop you right there. I used to work for the Dean’s Office in the College of Engineering, and I had access to a lot of grant and payroll information neccesary for reports given to agencies funding research. The Universit of Texas professors do not make 300k a year. You are just delutional!! An associate engineer professor (not-tenured) proffesors in engineering can earn anywhere between 80 to 100k. As they get tenured, that money goes up, but I NEVER NEVER saw anything close to 300k.
He was talking about the college president, not the profs, when referring to the 300K salary.
Can’t she just file for bankruptcy and not have this hanging over her head? With a federal loan, it chases after you forever, right?
Student loans, and the whole college system, is corrupt. I see a lot of kids graduating with $50-100k in loans, and a questionable education. In the past, kids have always shrugged it off thinking they will get a great job and pay the loans off painlessly. Can you imagine their surprise when they get out and there are no jobs? I graduated with no debt in 1980, but it took me five years to do it. I’ve insisted that my kids do the same thing. Graduating with hugh debt only makes you a slave to the system-you always need to work for money rather than to satisfy your interests. I’m hoping students will wake up soon and rise up to hold colleges accountable. I can’t say how much of my education was a waste-learning old outdated concepts from tired, overpayed professors- as most of what I know was learned in the working world by real people.
I also learned real good to write and spell.
Right - “overpayed” it is
At least you didn’t use could of
“hugh” = huge, I suppose. That one drives me nuts because “Hugh” is actually a man’s name, but not a word in the English language…
I put myself through college in the 1960s. Had no debt when I graduated with a Masters in Environmental Engineering. I did take a year out to work as an electronic technician in the aerospace industry, and worked weekends as a janitor while in college. As a technician, I made more than an entry level electrical engineer. I could not do college now, or maybe I could if I took more years to get through and worked at a well paying trade such as an automatic transmission mechanic, or a wastewater treatment plant operator (this would work well for part time, and there is a real need for young folks in this trade). However, I do remember a professor who did a study and determined that for every dollar spent by the state on a student at a junior college, the state got back $4 in increased taxes over time. Come to think about it, my brother the transmission mechanic made more money than I did, so why go to college in the first place. I worked for the State at the time and made 30% less than an engineer in private industry, but I do get a pension, having put $500 per month in today’s money in for 38 years, which the State more than matched or not depending on the stock market and the success of investments by the Public Employees Retirement System.
-17B
I work with two education majors who are unable to find permanent full-time work as teachers. I also know a nanny who is in the same position. In my son’s school, one of the aides is also a certified teacher who took the only school job she could find. All of these people are doing jobs that require at most an associate’s degree, and with the case of the nanny, common sense, not education, is the main requirement.
The teacher shortage, much like the librarian shortage, is a complete fabrication.
Add the IT “shortage” as well.
Pure fiction.
After retiring from the U.S.A.F. there was a big push for former military to teacher program recruitment.
I slipped my toes into the water by volunteering in my son’s high school.
Jeez Louise! I concluded they wanted to recruit us for our disciplined ways, hoping it may magically transfer to these little dahlings. (OK-perhaps a false assumption).
My son went throught Jr ROTC and band (his choice) and I home schooled.
Best decision. Ever!
Leigh
Dang it - my fingers move faster than my thoughts.
My son wanted to participate in Jr. ROTC and band and I home schooled through high school courses.
Maybe I should drink some coffee?
*shakes rocks for brain of head*
Leigh
“Four years at a public university, including room and board, costs an average of $57,332, according to the College Board. The average tab for a private university is $136,528. Yet the maximum that can be borrowed under the federal loan program is $31,000. High-cost private loans fill that gap.”
How much like housing — could they really charge that much without the funny money? And did they expect the mass rich and foreign students to fill out the enrollment?
And how about parents saving for their kid’s eduation? Will those who did end up bailing out those who didn’t?
The cost of public college is set to soar to offset state fiscal crises. Heck, given the relative political value of older and younger generations, you might see states trying to make a profit on the universities to subsidize debts and pensions elsewhere.
The private colleges are out of their minds. I know because I’ve exchanged letters with alma mater over the years, promising to donate if they would just hold their tuition increases to the rate of inflation. What I got back is justifications for continuing to raise tuition and fees faster than income growth, to keep up with their peers. They need a bigger endowment, they would say, identifying as their peers schools with big endowments.
Note how all those making out — top executives, private higher education, home sellers, etc. — only compare with their “peers,” not with the rest of us. The serfs are irrelevant.
I know, I know… Shrub is the only US president with a Bastards of Business degree.
“…In school, the young Edison’s mind often wandered, and his teacher, the Reverend Engle, was overheard calling him “addled.” This ended Edison’s three months of official schooling. Edison recalled later, “My mother was the making of me. She was so true, so sure of me; and I felt I had something to live for, someone I must not disappoint.” His mother then home schooled him”
http://en.wikipedia.org/wiki/Thomas_Edison
Think I’ll design a… HBB/Google “Certificate of Continued Learning”
Ben can sign them for $25.00 per topic
“There is an alignment of interests that lead students to take out larger and larger amounts of debt,”
A clue: Administration salaries & work retreats for the afore mentioned.
“There is an alignment of interests that lead students to take out larger and larger amounts of debt,”
Clue #2: Class book “requirements” & dollar costs $$$$$ needed to obtain such books.
Well, I just graduated from college, and I can honestly tell you I wasted about a whole year in BS courses that were completely unrelated to my degree. I went to school to become an engineer. Even though some people argue we need ‘well-rounded’ professionales, I really hated wasting my time taking US history I, II, Psychology, Music, Sociology, US politics, TX politics, etc. Those core courses are such a waste of time for someone like me. That kind of stuff should be ‘taught’ in high school and middle school, not college unless your degree is directly related to that.
It’s like they want you to take those courses just to take the money from you because those courses are normally taught in a huge classroom with 100+ students and a TA (cause the professor is too busy doing his ‘research’)
I am back in school (after 1/4 century) in pursuit of a bachelors in engineering and I am totally enjoying these very interesting non-related courses. Different strokes for different folks.
Did the same after a 35 year career in advertising.
The most useful skill you can learn in school is communication. I couldn’t believe how many soon-to-be college grads couldn’t construct a sentence–let alone, a paragraph.
If you can’t read (comprehend) or write, you aren’t going to be successful at anything. And thank goodness schools still require basic knowledge in Psychology, Music, Sociology, US politics. Otherwise, what kind of one-dimensional society would we have?
Sad that kids have so little interest in the things that make us human.
Brett,
to be honest, you won’t need anything they taught you in college at your profession. The point of the college education is not to give you certain hard skills, but to make you a good thinker and communicator.
Decades of grinding, soul-crushing cubicle work will give you all the skills you’ll ever need, don’t get too hung up on those.
Perhaps a “college education” is not about money or earning potential? Perhaps it is about the experience itself– and in a very real sense here, you get what you pay for…whether up front in cash, or now, apparently, for the rest of your life as you pay off your loans.
There are three tiers of employment:
Labor, which involves working with materials.
Skilled services, which involves working with people (and is generally the most remunerative.)
And creative, which involves working with ideas.
The first two require training.
The third requires family money, and is why colleges and universities were founded in the first place…so rich scions could advance the human dialectic. These students of all ages were not expected to “make a living,” they were expected to advance dynasties.
Nycdj is correct. College as we think of it in America is NOT for everyone who wants it. Trade schools; whether for nursing and engineering, or for computer repair and veterinary assistant are now lumped in with a curriculum of the mind, and as a result cost a bloody fortune for those who expect their schooling to provide them a means of making a living.
As today’s grads are discovering; don’t count on it.
Some trades do not need formal education, just an entry into a shop where you learn the trade as you go and gradually earn more money as you become educated in the trade. The is the case with becoming a automobile mechanic, or a domestic water, or wastewater treatment operator. However, you do have to make an honest effort to get educated in the trade while on the job, to actually take some of the technical manuals home and study them.
Ummm, what trades? Does the US make anything anymore? And wasn’t construction the last hope for males to make a decent living without going to college? How many automechanics and plumbers can the US employ? And even these are still service industries, not producing anything tangible.
I think we’re going to see a lot more pressure for young people to enter the military to become cannon fodder. The final outsourcing.
OJT is almost dead and means almost nothing on a resume. Certs at the very least are what matters. But it’s getting to the point that you will need a cert just be a janitor. HAZMAT, hygiene and current sanitation and all that, don’t ya know?
No joke.
ahansen, I really agree with you. I’d like to add that a generation ago, you usually could put yourself through school without borrowing (although I feel like most kids should be encouraged to consider cheaper local schools).
I am much more careful with money than my parents were, and I never took the years off after college to “find myself” and tootle around India and Europe like they did, but it took me 8 years to pay off my debt and begin saving, whereas it took them a year. And I did work throughout college. There is a much greater divide between classes, if going to the “right” college is out of the reach of some (which has been papered over with available debt). It’s quite Victorian, not very American-dream.
There is something crooked about 17, 18-year olds being sold massive debtloads for something (a higher education) which they’ve been taught is “good” (not to mention the whole “if you dream hard enough, you can do anything” storyline). That you can default on a credit card binge and a mansion bought with an ARM but cannot default on an education you purchased, boggles me.
NB, in case that sounded too generational, lots of parents do the borrowing to send their kids to school, I realize. Sad to risk your home or retirement for a bachelor’s.
It would be good if it were mandatory for high school graduates to take a year off after high school for public service or time in the workforce. It is a rare 18-year old who really knows themselves or what they want to do, so pretty dangerous to borrow $100,000 for a general arts or science degree!
So true!
When my mom was a young girl in Austria, students were tested at around age 14 to determine their strengths. Some were sent off to a college-prep program while others were sent to various trade schools and apprentice programs.
Imagine actually being a skilled, journeyman worker/craftsman, and being able to earn a living after “high school”.
We waste a tremendous amount of money and energy in this country when we try to funnel everyone into the same functions (everyone to college, or else you’re a loser!).
We need to re-establish respect for blue collar work (you know, the people who actually produce things), and stop trying to get everyone into college so they can major in History or English and then wait tables after they graduate.
apprentice program = apprenticeship program
“There is something crooked about 17, 18-year olds being sold massive debtloads for something (a higher education) which they’ve been taught is “good” (not to mention the whole “if you dream hard enough, you can do anything” storyline). That you can default on a credit card binge and a mansion bought with an ARM but cannot default on an education you purchased, boggles me.”
Unfortunately, it’s not crooked, however impossible that seems. It’s the state of our country, which is run by greedy bankers and pols, and big business as a whole, who suck every penny possible out of every last man, woman, and child.
Ella,
Not sure how old your ‘rents are, but if they were children of the 60’s I can bet you that the reason they took a couple of years off to “find themselves” in Europe, Asia, etc. was because the US job market and prospects of ever owning a house here were as dismal for new grads in the early 70’s as they are for new graduates today. The economy was a mess and we despaired of ever finding a place in the society that OUR parents had created and now controlled. (LBJ? Dick Nixon, anyone?) Moreover, they expected us to travel halfway around the world and kill people we personally had something of an affinity for…poor disaffected persons who like us were trying to throw off the yoke of their oppressive and opportunistic governments. “No VietCong ever called me “nigger’” rang true for a lot of us.
And yet, eventually our time came, we found jobs and bought houses, and sure enough, we managed to fugue it up at least as well as our parents had. (See GWB.)
We did finally eliminate the draft, but many of us went into a year or three of public service anyway at little or no pay, living communally, until we assimilated. (Peace Corps, VISTA, TreePeople, etc.) I expect a lot of 20-somethings will be doing the same thing in the upcoming twenty-teens.
Patience, Ms. Ella. Your time to screw things up royally will come, too. It always does….
“That you can default on a credit card binge and a mansion bought with an ARM but cannot default on an education you purchased, boggles me.”
Maybe the lenders should be allowed to repo degrees.
It seems to me there is a variety of colleges and trade schools offering infinite choices of education. I don’t think it should be standardized and/or tied to earning potential only. The cost of higher ed has gone up proportionally to the use and availability of student loans IMHO. My kid goes to a college that most here it seems would think is a total waste of time - a great books school where they learn everything from the great works. If nothing else, she’ll have a fabulous library instead of piles of textbooks. No loans or debts - she gets 3/4 of tuition through scholarship and extended family helps with the rest. She has small part time job on campus and works summer for spending money. This college is a full time job and more - no sliding by. We have need as a society for a variety of intellects and talents.
The Glass Bead Game.
Engineering isn’t a trade school kind of disipline. It is heavily math and science based, depending on the type of Engineering. Engineers are thinkers, problem solvers, and creativity is important, so don’t lump them into the trades. Becoming a tech might be a trade, but Engineering is a brainy profession.
In all do respect, that was clueless.
College is a business.
I hope people wake up to that fact. They push majors like art history and communications because it makes money for them, not because it provides any real benefit for the student.
I blame the students to a minor degere too - everyone deep down knows that the technical degrees provide the money right out of school, but not everyone is capable of a technical degree. If you do a liberal arts degree, you better be prepared to go to graduate school. If you just do a liberal arts degree, then unfortunately, you are a glorified high school graduate and will get employment appropriately. But - an undergraduate liberal arts degree will provide some marginal benefit over just a high school diploma. It provides a bit of prestige and status too.
“If you just do a liberal arts degree, then unfortunately, you are a glorified high school graduate and will get employment appropriately.”
Bullcrap. Quality people find quality jobs. Not everyone aspires to be a corporate drone.
Btw, I see you’ve taken your own advice. Your writing is atrocious.
They have a ‘tricked out’ bathroom and everything! Wow Bruce Jenner even took a crap there, who wouldn’t want it…
Is it even possible to keep up with the Kardashians, as the E! network show wants us to? Now those “krazy” Kardashians have listed their Hidden Hills home for sale at $3,395,000 — the very house where the reality TV show is filmed.
http://www.latimes.com/classified/realestate/news/la-hm-hotprop27-2008dec27,0,2448001.story
Maybe they’ll throw in a few sex tapes at closing.
My Favorite New Year’s Eve — So Far
By GEORGE BURNS
Published: December 27, 2008
Originally published on December 31, 1988.
“…About half a hour later I said, “Gracie, isn’t this great?” She said, “Yeah, but let’s go over and see what the old gang is doing.” I guess she’d had enough of my romantic technique.
The party was roaring when we got there. As usual, each person was taking the opportunity to perform. I walked to the piano and said: “I have an announcement to make. Gracie and I are going to get married next week.”
The room was absolutely silent. Finally Jack Benny asked, “Natty, does that mean you’re going to sing tonight?”
“Not tonight,” I said, and immediately everyone started cheering….”
http://www.nytimes.com/2008/12/27/opinion/31classic-burns.html
That’s beautiful.
See, not all marriages end up in a bad place. I think they had one of the loveliest marriages in Hollywood.
Saturday in Ottowa with late twenties son of my gf and the son’s SO. Both working hard at low level (clerk) jobs. Things are kind of screwed up in the city due to a prolonged bus strike, but some shifts in attitude are apparent.
The local TV station ran a spot interviewing shoppers on Christmas. Most said they cut spending on gifts by 50%.
The young man said traffic was good in the clothing store he works at during the week before Christmas, however his actual sales were less than they were just two months ago.
The girl’s father bought a modest flip in a nice neighborhood and realizes that he “can’t sell it now”. Renting it to the kids (at above market rate).
No talk of how immune to US trouble CA is, this year. Huge change.
I had my fill of listening to the generational anger. Boomers just need to get out of the way so that young people can have the good jobs. Apparently, Boomers from the US are invisible amongst Canadians.
I think generational anger is only going to increase, even if it’s not fair. It does make me ill that some of my boomer relatives feel entitled to retire on their homes (no savings) which I hear as “you can pay for my retirement, young whippersnapper.” But, it’s not like I don’t know people my own age who feel equally entitled and plan to retire on the youth of tomorrow. The difference is that they are already paying too much for the mortgage they took on, buying high to sell high, as opposed to buying cheap, selling dear.
I sometimes wonder if it is compounded by the “endless youth, easy living” image of boomers. I can’t relate to the “Big Chill” experience at all. “Barbarian Invasions” by Denys Arcand captured the generational divide well to me. The younger man works for oil, successful in the private sector, “corrupted” in the eyes of his father; his father, a lifetime progressive socialist professor (the hippie Canadian kind, not a 100% communist) who is dedicated to the idea of socialized medicine, is ill and is not getting the specialized treatment he needs in a Canadian hospital. He does not want to accept specialized private treatment in an American hospital, which his son could afford, and they have a stand-off. Later, the older man confronts some of the ideas of his youth, for example how he glamorized socialist revolution, now realizing some of the regimes he admired were corrupt and oppressive. But he is still frustrated in his son’s lack of socially idealistic goals, while at the same time being forced to recognize the capability his son has to directly solve a problem.
I am not making it sound very fascinating, but I found it touched on a lot of good points. I sympathized with both characters, as I get very frustrated with 60s radical naivete, feel it’s leach-y and childish, and don’t want to be weighed down by it, but I also feel dedicated to the idea of a social safety net and mistrust the free market to solve all problems (just some).
Anyway, I feel like debt has papered over a lot of divides and there is bound to be clashes between groups when it’s not able to ease the strain so much. A clash between young and old will be one.
I think generational anger is only going to increase, even if it’s not fair.
What’s not fair about it? How are kids born in the last decade supposed to feel about the mess and the staggering debt they’re inheriting from their heedless elders? If their generation decides that euthanasia is a much cheaper and efficient solution to all those aging boomers, who royally screwed succeeding generations without a care, I can’t say that there wouldn’t be some justification for cold-bloodedness on the part of the younger generations. Ditto for the day-care, latch-key, Nintendo generation - they may not be in a very forgiving mood toward parents, for whom taking care of the children they brought into this world was far less important than keeping up with the Jones’s.
“It does make me ill that some of my boomer relatives feel entitled to retire on their homes (no savings) which I hear as “you can pay for my retirement, young whippersnapper.””
These delusional boomers are waking up in a hurry, though some seem to need a 2×4 to the cranium to snap them out of the fact that the bubble burst. Just a few days ago, I ran across a FSBO on craigslist post for a very modest home on 10 acres in western, WA, far, far away from any well paying jobs. The asking price was $540k, which is absolutely absurd. Sure, it’s on 10 acres, but let’s remember that this same place would sell for under $200k less than 10 years ago. 10 acres could be had back then for less than $50k.
So, I sent him an e-mail, nothing rude, which basically said: “$540k?! The bubble burst, it’s over.” Well, he googled my name, and found a lot of my blog posts, etc. (an obvious sign that my short note had really gotten to him). With a few mild insults here and there, he basically said that he’ll “get his price next year, but doesn’t NEED to sell”. He’s mid to late 60’s and looking to retire to warmer climes. It’s lost on him that the kind of people who could afford such a high priced place, are looking for something much nicer. He’s off his rocker.
Well, he googled my name, and found a lot of my blog posts, etc. (an obvious sign that my short note had really gotten to him).
———————
That’s scary.
My big generational concern is that the boomers will simply not be able to retire, gen x’ers will fall far short of their peak earning potential and millennials will end up in entry-level jobs without benefits for the duration of their careers. I picture our economy and our society stagnating on many levels.
Dont’ tell me that. I am Gen-Y, and almost everyone I work with are baby boomers (and a few Gen-X people). Over the past few weeks, I have been thinking about being laid-off, and the idea scares me to death. It’s so unfair that people like us are getting f*cked over by irresponsible individuals.
It’s never a convenient time to get laid off, no matter how old or young you are. Although I’ve heard it’s no picnic if you get to stay either. Between us my husband and I have been laid off a total of six times. The last one destroyed most of our wealth, not to mention the huge emotional toll extracted.
Right now we have a problem with declining enrollment where I work and I figure it might be only a matter of time before I’m laid off, I’ve already had my hours reduced and am actually down a full day now.
“My big generational concern is that the boomers will simply not be able to retire, gen x’ers will fall far short of their peak earning potential and millennials will end up in entry-level jobs without benefits for the duration of their careers. I picture our economy and our society stagnating on many levels.”
Remember higher paid senior workers will often get let go in favor of cheaper replacments who are often younger
Been there…got the T-shirt.
Lots of age discrimination exists in corporate america today. The lawyers have just gotten cleverer in disguising it.
Being a boomer, I’m just as disgusted as you younger folks at what’s happened to this country. But at some point, the torch has to get passed to the younger generation. It takes energy to fight oppression, and boomers are just too damn old.
Revolutions are expressions of youth. The boomers had theirs. The problem is: we’ve been ripe for another since the Reagan years, and succeeding generations haven’t stepped up to the plate. Is that the boomers fault?
Oh dear, here we go again.
Yes, the avg American is not very bright, but the real problem is not the “boomers” or any generation. Did they control Wall St.? Of course not. The super rich elite do. Did they control the gov.? No, it’s the lobbyists, isn’t it? Do you see the trend here?
It’s the oldest power game in the book. Divide the very people you are screwing over so they blame each other and never realize you just robbed them blind. Whether by class, age or race, (or all of the above at once) it’s effective and time tested.
“Caveat emptor” are words to live by, but when the game is rigged, no amount of diligence will make a difference.
Good post, eco!
The Power of Yes - Wamu’s boiler room operation
http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1&hp
“…he was attuned to Wall Street’s hunger for growth. Between late 1996 and early 2002, he transformed WaMu into the nation’s sixth-largest bank through a series of acquisitions.”
B@stards! They gobbled up my Great Western…then they gobbled up my Home Savings & loan…such quaint offices & pleasant service…GONE!
“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.” — Kerry K. Killinger, chief executive of Washington Mutual, 2003
That’s right. We now call you bankrupt.
“…you’re not going to call us a bank.”
Truer words ne’r spoken….
+10000
Oh it makes me angry. Being responsible and hoping to buy a suitable dwelling eventually. I don’t even have words for these people. They were not boomers for sure.
And shame on NYT, for taking so long writing this.
“We should have a recession,” [John] Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”
Does this infer that “Joe-the-plumber” should consider politics?
The correct word is “imply” or “suggest,” and the answer is “no.” However, YOU may infer from the statement that Joe the Plumber should consider politics.
From the OED:
“imply >verb (implies, implied) 1 indicate by suggestion rather than explicit reference. 2 (of a fact or occurrence) suggest as a logical consequence. -USAGE The words imply and infer do not mean the same thing. Imply is used with a speaker as its subject, as in he implied that the General had been a traitor, and indicates that the speaker is suggesting something though not making an explicit statement. Infer is used in sentences such as we inferred from his words that the General had been a traitor, and indicates that something in the speaker’s words enabled the listeners to deduce that the man was a traitor. -ORIGIN originally in the sense ‘entangle’: from Old French emplier, from Latin implicare ‘fold in, involve’.”
Reference librarians are hoot!
‘Socrates argued that a statue inferred the existence of a sculptor”
The sentence is still wrong. Socrates inferred the existence of a sculptor from a statue. Socrates argued that a statue implied, suggested, or indicated the existence of a sculptor.
Where did you get your sample? From someone who uses “comprises” for “composes,” or “that” for “which,” or “lay” for “lie?” Or how about “disrespect” (a dead Middle English term) for “belittle?” Harking back to ancient usages doesn’t work (methinks).
harkening back = harking back (but, both apparently from the same source).
no, it was one of those fancy statues made by Daedalus!
If the recession don’t fit, you must acquit.
Home prices were very high. As a result, buyers had to use crazy loans to buy them. Now, these crazy loans are souring and foreclosures are soaring. So, the only way to fix the problem is to increase home prices again.
This is a sample of the crazy logic some policy makers are adopting.
There was this insane belief that even folks like Obama and McCain espoused, that the key to affordable housing was ever-rising house prices.
Make no mistake, what we are witnessing is epic. The inner party paved the road to serfdom using promises of never ending asset price increases, wealth, and prosperity. The proles are revolting, however. They are walking-away. Renewed, the inner party promises more roads, bridges too….
Well said.
I have heard no top economic policy makers comment on the absurd notion that stimulating housing demand somehow will directly lead to affordable housing prices. The irony is that an excess of demand-side stimulus has resulted in an epic housing bust, including a rapid return to affordability.
The predictable policy response: Use federal tax dollars to prop up home prices before they become excessively affordable.
The NYTimes has an article today about the huge inventory of homes in the NY area.
And it included, in passing, this interesting tidbit:
Mr. Otteau cited a new study from Virginia Tech projecting that a nationwide surplus of 22 million suburban homes on lots larger than a sixth of an acre will be languishing on the market by 2025.
Many of us here predicted that some of the new McMansion communities will be boarded up slums…now there are studies that may support that. (People are: having fewer children; starting to notice heating/cooling cost; starting to realize that isolated communities where jobs/shopping aren’t convenient are a PITA)
I read that as saying people will want **smaller** lots in the future, and will move away from homes on lots that are larger than 1/6 of an acre.
That makes no sense, IMHO. The inventory of nice homes on larger lots is decreasing relative to total inventory of homes. That would make them rarer and more valuable, no?
Also, they are not encumbered by expensive nazi HOAs and (in California) Mello-Roos fees.
While large homes on small lots languish around here, the smaller homes on larger lots are a hot item, and sell rather quickly…for a premium.
Just had a thought:
There is a new Clint Eastwood movie out about taking justice into ones own hands. Gangs taking over the streets, Clint takes back the streets, one man standing up to a corruption.
In the past, we had Dirty Harry and Charles Bronson in movies about the common man fed up with the status quo and taking justice into his own hands. These movies were very popular in the past.
I was too young to recall the economic environment, but do recall enjoying the movies.
Were these past movies popular because of the theme and economic environment and is this new Clint Eastwood movie a comment on the progression of the current economy (like in the past)?
Saw the trailer. It looks entertaining, but it is good to keep in perspective that movies about an aging Clint Eastwood single-handedly defeating gangs of thugs are pure fantasy.
Go easy on Clint Eastwood. He might be my favorite actor of all time. Of course one can’t go wrong with the likes of DeNiro, Nicholson, or Pacino, either.
I like Clint Eastwood very much myself, but that does not mean that his movie plots should be taken as anything other than a stylized depiction of reality.
Actually, he does get rid of the gang - but not in a way many people would want to.
A very good movie. I recommend it highly!
Notice they’d have to cast a dinosaur like Clint in this tough-guy-who-ain’t-going-to-take-it-anymore role, since today’s metrosexual leading men would be totally non-credible in that role.
“I was too young to recall the economic environment, but do recall enjoying the movies.”
In CA back in the Rose Bird days you could kill someone, and *maybe* do a nickle in Chino.
With most police forces being far more inclined to pursue revenue-raising activities like ticketing speeders than actually tackling the criminal element, I can see a lot more fed-up, pissed-off people snapping and taking the law into their own hands rather than accept victimization of themselves or family members.
Some posters here recognized the onset of financial panic back in the Summer of 2007.
Financial crisis of ‘08 among the worst ever
SDSU economist: Breadth of it may be unprecedented
By Dean Calbreath
2:00 a.m. December 28, 2008
History books are sure to take note of 2008 – and not just because of the epic presidential election.
The Great American Mortgage Crisis of 2008 will go down as one of the nation’s worst financial disasters, joining a roster that includes the Panic of 1893, the Bankers’ Panic of 1907, the Oil Crisis of 1973 and – most notorious of all – the Crash of 1929.
Stanford University finance professor James Van Horne can think of 16 other times in U.S. history when the country has faced this type of credit crisis, ranging from the Panic of 1819 when unemployment in some East Coast cities soared as high as 75 percent, to the 2001-02 recession when the popping of the dot-com bubble and the Sept. 11 terrorist attacks led to massive layoffs and a “jobless recovery.”
All of those crises were preceded by speculative bubbles, typically fueled by low-interest, “easy” money as well as decentralization or deregulation of the financial system. And nearly all of them were followed by long periods of recession or depression, typically lasting five to seven years.
Where will 2008 fit into that list?
“It’s hard to judge the crises in the 19th century because they did not keep thorough economic records. But this is definitely the most severe correction since the 1930s,” Van Horne said.
…
Van Horne compares the recent lack of regulation to the late 1800s. That atmosphere culminated in the Bankers’ Panic in 1907, a severe Wall Street crash that prompted the creation of the Federal Reserve and the modern system of financial regulations.
The speculative bubbles that caused credit crises in the past included railroads in the late 1800s, electronics and autos in the 1920s and high-tech and Internet startups in the late 1990s. But one investment has been common to almost every crisis: real estate.
How could the author leave out the Savings & Loan disaster?
Dean Calbreath:
Madoff is a bit player compared to Wall Street
2:00 a.m. December 28, 2008
…
Some commentators have recently taken to blaming the small fry for our troubles. They blame the economic crisis on government programs to help the poor buy homes or on individuals who refinanced their homes with risky mortgages to buy SUVs and flat-screen TVs.
There’s an element of truth to some of that criticism, but picking on the small fry does nothing to explain the immense financial debacle that now faces us. The reason this is a multitrillion-dollar worldwide crisis instead of a multibillion-dollar home crisis is the Ponzi-like investment derivatives that were peddled by Wall Street’s leading investment banks.
The difference between Madoff and the Wall Street investment banks is that instead of arresting the perpetrators and throwing them into jail – or even confining them to Madoffian house arrest – we have spent hundreds of billions of taxpayer dollars to keep them afloat. We have allowed many of the Wall Street firms to keep the expensive array of salaries, bonuses and perks that benefit the architects and purveyors of the mortgage scheme.
As was reported last week, the financial firms that are getting federal bailouts paid their 600 top executives nearly $1.6 billion last year – an average of $2.5 million apiece, though some individuals made more than $50 million. That’s a lot more than you can get running a small-time con.
In the new year, there will undoubtedly be further arrests on Wall Street and more high-flying bankers being pushed into house arrest in their uptown penthouses or their mansions in the Hamptons. But even if a handful of perpetrators go to jail, that may not be enough to rectify the Ponzi scheme. Instead, what is needed is an overhaul of Wall Street, from top to bottom.
We’ve had an opportunity to do so over the past year, when the nation’s biggest financial firms began coming cap in hand to the federal government, seeking bailouts.
We could have required that the people who were responsible for this debacle be fired, demoted or stripped of much of their salary. We could have done more to ensure that the banks that were given money to revive the frozen credit market actually loaned the money out instead of hoarding it in their coffers. But the Bush administration declined to take such steps.
When other nations, like Sweden and England, bailed out their financial institutions, they demanded seats on the boards so they could oversee how the money was spent. This, too, is something the administration refused to do.
Wall Street, of course, would never have been able to accomplish what it did without the purposefully lax attitude among the “watchdogs” at the Federal Reserve, Securities and Exchange Commission, Treasury Department and Congress.
Over the past decade, Washington has steadily stripped away regulations that were designed to prevent such financial shenanigans – including some that were written during the Great Depression, by people who knew firsthand what could happen when the financial system was not sufficiently reined in.
The Crash of 1929 was preceded by an explosion of unregulated investment houses that essentially placed bets on the direction of various investments. During the New Deal, the Roosevelt administration outlawed those speculative investments. But those regulations were lifted eight years ago, laying the groundwork for the bubble in derivatives.
“There has been all kinds of excessive deregulation and incompetence,” said Dan Seiver, an economist at San Diego State University.
That was a perfect summary of what has happened.
There’s an element of truth to some of that criticism, but picking on the small fry does nothing to explain the immense financial debacle that now faces us. The reason this is a multitrillion-dollar worldwide crisis instead of a multibillion-dollar home crisis is the Ponzi-like investment derivatives that were peddled by Wall Street’s leading investment banks.
ie it wasn’t GSE’s, low interest rates, joe 6pack flipper, ect. The root cause was the Ponzi-like investment derivatives and (I think left out) the rating agencies.
Shhh. Don’t say that too loud. Common wisdom is that is was the “po’ folks.”
+1
Here is an excellent and terrifying WSJ online video report on Iceland’s financial collapse. Iceland’s role in the 2008 panic is parallel to Thailand’s in the 1998 panic.
Link:
The three guys at the end lol. Icelanders still have their sense of humor.
Why could Iceland not open the printing presses like US though?
Just guessing here, but thinking it might be because the Icelandic Krona is not the world’s reserve currency.
Sad. And what a grey, dark, cold-looking place to live! Brrrrrrrrrr!!!
http://news.yahoo.com/s/ap/20081228/ap_on_re_mi_ea/ml_israel_palestinians;_ylt=Aj2vwEcZl3OO5jeMUzKcLWtvaA8F
This is going to inflame the entire Arab world against Israel, and against the US. The potential for another Mid-East conflagration is something we should all be thinking about.
Maybe the “entire Arab world” (99.998% peaceful muslims, I hear) will have another “6 day war,” or a “21 day war”, or even try and see if they can reprise losing the world’s fourth largest army in another “60 day war”. Frankly, I would like to see the “entire Arab world” somehow become faintly competant at organized warfare. Then they could stop with the asymetrical warfare against civilians and really get themselves some virgins type glory. They’ve been a military joke for literally hundreds of years now.
They don’t seem to be worried about starting a 45 minute war, though. That’s the one I’d worry about, were I an arrested culture.
‘they could stop with the asymetrical warfare’
I suggest you google Boyds fourth generation warfare.
What makes you think “99.998%” of Muslims are peaceful? The track record of that particular religon of conquest and brutal repression speaks for itself. And what about the polls that consistently show a majority of Muslims are sympathetic to Osama bin Ladin and apologists, at best, for terror against infidels?
Nearly 100% of that 99.998% would love nothing more than to drive Israel into the sea.
Peaceful as long as it’s on their terms.
No kidding. The peace of the grave for all of Allah’s enemies or those who won’t convert.
Economic View
Bailout of Long-Term Capital: A Bad Precedent?
By TYLER COWEN
Published: December 26, 2008
THE financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.
…
At the time, it may have seemed that regulators did the right thing. The bailout did not require upfront money from the government, and the world avoided an even bigger financial crisis. Today, however, that ad hoc intervention by the government no longer looks so wise. With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.
…
The major creditors of the fund included Bear Stearns, Merrill Lynch and Lehman Brothers, all of which went on to lend and invest recklessly and, to one degree or another, pay the consequences. But 1998 should have been the time to send a credible warning that bad loans to overleveraged institutions would mean losses, and that neither the Fed nor the Treasury would make these losses good.
How will myriads of told and untold interventions conducted since August 2007 look through the lens of history’s rear-view mirror?
That is very scary to me. If LTCM is a bad precedent, that what will today’s bailout look like?
Equally ad hoc, but much bigger.
The long-run is becoming ever shorter.
‘While there are some advantages to leaving discretion in regulators’ hands, this hasn’t worked out very well. It has become increasingly apparent that the market doesn’t know what to expect and that many financial institutions are sitting on the sidelines, waiting to see what regulators will do next. Regulatory uncertainty is stifling the ability of financial markets to engineer at least a partial recovery.
John Maynard Keynes famously proclaimed that “in the long run we are all dead.” From the vantage point of 1998, today is indeed the “long run.”
We’re not quite dead, but we are seriously ailing. As we look ahead, we may be tempted again to put off the hard choices. But perhaps the next “long run,” too, is no more than 10 years away. If we take the Keynesian maxim too seriously, and focus only on the short run, our prospects will be grim indeed.’
All signs I can see indicate that The Plan is to put off the hard choices as often as necessary to ensure that somebody else has to deal with them in the long run.
“All signs I can see indicate that The Plan is to put off the hard choices as often as necessary to ensure that somebody else has to deal with them in the long run.”
yes I think you’re right
Agree.
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/27/AR2008122701215.html?hpid=sec-politics
Subprime artificially boosted home ownership for “disadvantaged minorities” in California, but this “progress” was illusory.
Each of the houses sold to an African American served to narrow the gap between white and black wealth.
True liberal-speak at its best. No wonder Barney Frank and Chris Dodd were such fervent believers in social engineering through sub-prime. Only the Post never bothers to explain how taking on irresponsible levels of debt through creative financing serves to “narrow the gap” between white and black wealth. But in the Post’s Orwellian Newspeak, debt IS wealth.
You expected better from the Post??
I have nothing but contempt for the Post and most of its writers. It warms my heart to see them losing circulation month after month, as people are seeing right through the lies and propaganda packaged as “news.”
Why do MSM gloomsters constantly lament “falling home prices”? Why can’t they just once take the optimistic perspective and report on “increasing affordability”?
Manufacturing, Home Prices Probably Sank: U.S. Economy Preview
By Bob Willis
Dec. 28 (Bloomberg) — Manufacturing in the U.S. probably shrank at the fastest pace since 1980 as the deepening global recession forced customers in North America, Europe and Asia to cut back, economists said before reports this week.
The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading in almost three decades, according to the median estimate of economists surveyed by Bloomberg News. A separate report may show the record drop in home prices accelerated in October.
The real-estate crash has reverberated throughout the world as credit markets seized up, choking off demand for everything from cars and trucks to computers and appliances.
…
Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009. The National Bureau of Economic Research on Dec. 1 announced the U.S. fell into a recession a year ago.
The decline in property values that is at the root of the credit crunch probably deepened, another report due on Dec. 30 may show.
The S&P/Case-Shiller index for the 20 largest metropolitan areas will show that home prices fell 17.8 percent in October from a year earlier, the biggest decline since record keeping began in 2001.
Falling home prices make it harder for homeowners to refinance, leading to a surge in foreclosures and weaker consumer spending. Declining stock and home values caused household net worth to drop by a record $2.8 trillion in the third quarter, according to the Fed.
According to Radar Logic data, the 28-day moving average in price per square foot of Manhattan condos peaked on 27-May-08 at a level of $1,203.90 and had dropped back by all of $13.98 (1.16 percent) to $1,189.92 as of 24-Oct-08. I am quite surprised that an epic crash on Wall Street has had such limited price impact on residential housing. Is it possible that Manhattan condo prices have reached a permanently high plateau?
No, it is not possible. Manhattan is up to a 12-month inventory now, and price declines always hit co-ops first.
Here’s a good one:
Her plan is to donate her nearly 2,200-square-foot, four-bedroom, 2.5-bath house to a nonprofit, that, in turn, will give away the house in a drawing planned for March 7.
...
The foundation’s target is to have at least 5,000 of those $100 donations to go ahead with the drawing. Of the $500,000 raised, $350,000 will go to Gray to pay off her home loan and some credit card and student loans.
...
The house cost Gray $256,000 in 2007, including upgrades. It was appraised four months ago at about $280,000, she said. According to the Maricopa County Assessor’s Office, the home is valued at $231,500 for 2008.
So generous Heather donates roughly $250,000 in mortgage debt to a worthy cause and all she asks for in return is that the charity pay off an additional $100,000 in other debt. Heart of gold.
Note the market value of this house is probably well under $200,000 now despite the supposed appraisal and the charity is paying $350,000 for this “donation”.
Sorry about the formatting.
Made it seem more real, somehow. Like a case summary in a hard boiled detective’s files.
Hoz’s beloved Packers prevail.
Global liquidity tornado continues…
Financial Times
Emerging economies face rush for credit
By David Oakley in London
Published: December 28 2008 18:27 | Last updated: December 28 2008 18:27
Record volumes of government bonds from the industrialised nations – intended to reverse what could be the worst recession since the Great Depression – threaten to curb access to credit markets by emerging economies.
Analysts warn that emerging market borrowers could be crowded out of the credit markets by $3,000bn of government bonds expected to be issued by the big developed economies in 2009 – three times more than in 2008. The US alone is expected to issue about $2,000bn next year.
Financial Times
Steel output set for worst drop in more than 60 years
By Peter Marsh in London
Published: December 28 2008 18:09 | Last updated: December 28 2008 18:09
The steel business faces a fall in production in 2009 of at least 10 per cent, analysts say. This would be the biggest year-on-year fall for more than 60 years.
According to the gloomiest projections, it could be at least four years before output returns to the levels of 2007.
With supply destruction like that, perhaps it’s time to go long steel?
Better luck next year, MarketWatchers.
WEEKEND EDITION
Ten investment ideas for 2009
How to protect your portfolio and ride out the recession
By Jonathan Burton, MarketWatch
Last update: 3:46 p.m. EST Dec. 26, 2008
SAN FRANCISCO (MarketWatch) — Investors can be forgiven for losing faith in the financial markets. Only a year ago there was reason to believe there was light at the end of the tunnel. In truth, it was an oncoming train.
Now we face the worst economic times since the Great Depression. The coming year will bring more job losses, bankruptcies, foreclosures, cutbacks. Consumers and companies will spend less, dig out of debt, save what they can. The incoming administration of President-elect Barack Obama will try to do its part — keeping interest rates low, funding job-creating projects and printing money to stimulate the contracting economy.
Recovery will take not months, but probably years. The age of austerity has replaced the age of avarice, and we will have to adjust purse strings and investment portfolios accordingly.
A sea change in the global markets was evident more than a year ago when MarketWatch reported on 10 investing ideas for 2008. Recession was on the horizon, and a defensive stance was in order.
Yet few experts spotted the economic tidal wave that has destroyed so much wealth. Most of the investment strategies that MarketWatch’s suggested last year were taken to the woodshed with just about everything else.
http://www.gold-eagle.com/editorials_01/seymour062001.html
I never get tired of posting this. The “experts” of 1929 were as clueless, or dishonest, as their counterparts in 2008.
Thanks Sammy, that is a classic.
So many of these quotes sound just like Hank Paulson’s announcement last month that the financial sector “has been stabilized”.
Number 20 is especially troubling. I did not know that occured.
“[J]ust about everything else” other than the barbarous relic, that is.
Annus Horribilis
Wall Street Journal
* INVESTING
* DECEMBER 28, 2008
Say Goodbye and Good Riddance to 2008…
By CRAIG KARMIN
It was a year when the most dire financial predictions finally came true.
After years when the housing bubble inflated, American credit-card debt soared and global stock markets set record highs, everything was brought back to earth in 2008.
The Dow Jones Industrial Average, off 36% year to date, is on pace for its worst return in 77 years. European stocks have done even worse, and once-high-flying emerging markets lost nearly half their value over one four-month period this year.
That left panicky investors with few secure options, other than retreating to the safety of U.S. government debt, where one-month notes sold in December yielded essentially nothing. Also this month, the National Bureau of Economic Research declared what many business executives and consumers already felt intuitively: The U.S. is mired in a recession, which the NBER says began in December 2007.
…
Several forecasters are now suggesting the U.S. is in the midst of the worst economic downturn since the Great Depression. But even if the overall prognosis is for more belt-tightening, job losses and bankruptcies, there’s at least some reason for hope buried underneath much of the obvious gloom.
Start with the U.S. economy. In November, the U.S. lost more than half a million jobs — the largest one-month drop since 1974, which brought total job losses this year to nearly two million.
Economists say with near certainty that the U.S. is in the most protracted recession since the end of World War II. The country also faces the worst housing market in generations. One out of every 10 mortgage holders is in arrears or has had his or her home repossessed.
That left panicky investors with few secure options, other than retreating to the safety of U.S. government debt, where one-month notes sold in December yielded essentially nothing.
That’s odd; if I don’t get a yield, I might as well get something that no one can print. Hmm, let’s see, what would that be?
“But even if the overall prognosis is for more belt-tightening, job losses and bankruptcies, there’s at least some reason for hope …”
Which is never exactly detailed in the rest of the article, is it?
JibJab — 2008 Year in Review
This has some funny lines, such as:
“…McCain has many houses,
but none of them are white…”
Big winners of the past were losers in 2008
Ellen Simon, Associated Press
Friday, December 26, 2008
As 2008 ends, you may feel like the year’s biggest loser is you.
If you have a job, it probably feels shaky. If you have a 401(k), you can’t bear to open the statements. If you bought a house in the past five years, you feel like a sucker - unless you were the winning bidder at a foreclosure auction.
It’s cold comfort to know that the financial crash upended everyone - calloused Maine lobstermen, French-manicured San Diego real estate brokers and Rolex-wearing Greenwich hedge fund managers.
…
Many of the biggest winners of the past lost their shirts in 2008.
The kings of Wall Street watched as their banks either disappeared through mergers or bankruptcy or received injections of tax dollars to stay alive. The congressmen who once hung on Alan Greenspan’s every indecipherable utterance turned hostile, as the once-revered oracle was reassessed and found to be an oaf. Investors who had trusted Bernard Madoff with $50 billion saw the money manager who had given them steady returns for decades admit it was all a Ponzi scheme.
The financial hurricane made the winners stand out even more.
…
Some winners and losers don’t bear explanation - renters win, owners lose; retirees with old-fashioned pensions win - for the time being - while those with 401(k) plans lose. Florida, California and Nevada lose on home price depreciation, Michigan and Ohio lose on jobs, and nearly every state seems likely to lose tax revenue.
The year’s many losers and scant winners are below, listed by group:
Losers: gamblers
…
Losers: Pollyannas
…
Winners: Cassandras
Houses of Pain
When did declining home prices become politically intolerable?
Tim Cavanaugh | January 2009 Print Edition
Your house isn’t worth as much as you’d like it to be.
That’s probably no surprise right now. Maybe it’s unkind to rub it in. But a harsh appraisal has been one simple bit of reality to hold onto amid the frenzied, hysterical, high-pitched panic that seized leaders of government, business, and finance throughout 2008. In less than a year, vast swaths of American finance have been effectively nationalized, and the “Washington consensus” of more-or-less free market economics has come under the kinds of attacks not seen in a generation.
Why did this happen? Because your house was overvalued. It probably still is. But the watchmen of capitalism have chosen this time to act on a strange new form of economics. According to the new thinking, the value of an asset—even or especially an asset universally viewed as overpriced—must not be allowed to decline. This kind of economic intelligent design, endorsed by Republican and Democrat alike, even holds that a price decline cannot be a rational outcome in a competitive environment. Rather, it must be evidence of “market failure.”
Asking prices for homes since the June 2006 real estate peak have declined about 15 percent, according to the Office of Federal Housing Enterprise Oversight. Other indexes put the decline closer to 20 percent. The panic of the nation’s elite, however, has been a gauche and amateurish 100 percent. At the beginning of 2008, the financial market was doing largely what it was supposed to do: reflecting changes in economic conditions, weeding out bad borrowers and lenders alike, rewarding the patient, punishing the rash, learning from error. But the cascading bailouts of investment banks, insurance companies, government-sponsored enterprises (GSEs), and commercial banks have replaced that relatively hands-free process with a new system in which decision making is centralized, reality is made to conform to political perception, irresponsible behavior is rewarded, and Washington technocrats decide who gets free money and how much houses should cost.
The federal economic seizure of 2008 is the most serious challenge to free enterprise since the Soviet era. It is far more grave than the Dow Jones Industrial Average’s 40 percent decline from its October 2007 peak of 14,164 points, or the extinction of Wall Street’s five largest investment banks. The bailout throws good money after bad in the credit markets, paves the way for every too-big-to-fail institution in the country to dump its bad luck and bad decisions on taxpayers, and turns “moral hazard” from an academic term into the prevailing economic paradigm. No surprise, then, that big-government liberals such as Slate Editor Jacob Weisberg are using the crisis to celebrate “the end of libertarianism.”
…
Excellent article. Very well said.
absolutely, a gloomy bits.
I’m going back to my make believe world.
What do you have against the Packers?
Wall Street Journal
* BUSINESS
* DECEMBER 29, 2008
The Weekend That Wall Street Died
Ties That Long United Strongest Firms Unraveled as Lehman Sank Toward Failure
By SUSANNE CRAIG, JEFFREY MCCRACKEN, AARON LUCCHETTI and KATE KELLY
With his investment bank facing a near-certain failure, Lehman Brothers Holdings Inc.’s chief executive officer, Richard Fuld Jr., placed yet another phone call to the man he thought could save him.
Mr. Fuld was already effectively out of options by the afternoon of Sunday, Sept. 14. The U.S. government said it wouldn’t fund a bailout for Lehman, the country’s oldest investment bank.
…
Desperate to avoid steering his 25,000-person company into bankruptcy proceedings, Mr. Fuld dialed the Charlotte, N.C., home of Bank of America Chairman Kenneth D. Lewis. His calls so far that weekend had gone unreturned. This time, Mr. Lewis’s wife, Donna, again picked up, and told the boss of Lehman Brothers: If Mr. Lewis wanted to call back, he would call back.
Mr. Fuld paused, then apologized for bothering her. “I am so sorry,” he said.
His lament could also have been for the investment banking model that had come to embody the words “Wall Street.” Within hours of his call, Lehman announced it would file for bankruptcy protection. Within a week, Wall Street as it was known — loosely regulated, daringly risky and lavishly rewarded — was dead.
I met a girl who sang the blues
And I asked her for some happy news,
But she just smiled and turned away.
I went down to the sacred store
Where I’d heard the music years before,
But the man there said the music wouldn’t play.
And in the streets: the children screamed,
The lovers cried, and the poets dreamed.
But not a word was spoken;
The church bells all were broken.
And the three men I admire most:
The father, son, and the holy ghost,
They caught the last train for the coast
The day the music died.
And they were singing,
“bye-bye, Miss American Pie.”
Drove my Chevy to the levee,
But the levee was dry.
And them good old boys were drinkin’ whiskey and rye
Singin’, “this’ll be the day that I die.
“this’ll be the day that I die.”
Wall Street Journal
* THE WEEK AHEAD
* DECEMBER 28, 2008, 7:27 P.M. ET
HOME PRICES
Index Likely to Show Further Fallout From Burst Bubble
By BRENDA CRONIN
A report on home prices out Tuesday is likely to give the incoming Obama administration ammunition to push for additional relief for the housing sector.
The S&P/Case-Shiller index of home prices is expected to reflect the continuing toll exacted by the deflating housing bubble. Plunging home prices and foreclosures were followed by tight credit, soaring unemployment and tumbling exports in contributing to the year-old U.S. recession. Sinking home values are straining the balance sheets of banks that hold mortgages or mortgage-related assets. Credit markets and the overall economy are unlikely to recover fully until home prices hit bottom.
In the most recent report, for September, the Case-Shiller 20-city composite home-price index fell 17.4% from a year earlier and 1.8% from the previous month. The index, which measures prices of single-family homes in 20 metropolitan areas, is based on a three-month moving average.
“We’ve had to repeatedly move our price forecast down and down,” said Abiel Reinhart of J.P. Morgan Chase. “There’s no sign yet of home prices leveling off or even the rate of decline decelerating.” J.P. Morgan estimates that the October year-over-year drop will be 18.2% and the monthly decline from September will be 2.2%.
A one-month decline of 2.2 pct occurs at an annualized rate of
((1-2.2/100)^12-1)*100 = -23.4 pct.
The rate of decline in the national U.S. housing market is accelerating.
Credit markets and the overall economy are unlikely to recover fully until home prices hit bottom.
—————————
Wrong. Credit markets and the overall economy are unlikely to recover fully until **excessive debt has been destroyed.**
Crowded weekend in Flagstaff. I was told all hotels full across the area. No Recession canceled for sking. I let the kids slide down the small hill at NAU didn’t even want to get in the traffic to Snow Bowl
I used to ski but now with kids and the inflation in the cost of sking !
Lots of our Southern Neighbors up in the area I guess sking ? Shopping ?
Things may appear bad for the moment, but not quite this bad!
Wall Street Journal
* DECEMBER 29, 2008
As if Things Weren’t Bad Enough, Russian Professor Predicts End of U.S.
In Moscow, Igor Panarin’s Forecasts Are All the Rage; America ‘Disintegrates’ in 2010
By ANDREW OSBORN
MOSCOW — For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument — that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. — very seriously. Now he’s found an eager audience: Russian state media.
In recent weeks, he’s been interviewed as much as twice a day about his predictions. “It’s a record,” says Prof. Panarin. “But I think the attention is going to grow even stronger.”
Prof. Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry’s academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.
Wall Street Journal
* BUSINESS
* DECEMBER 29, 2008
Lehman’s Chaotic Bankruptcy Filing Destroyed Billions in Value
By JEFFREY MCCRACKEN
As much as $75 billion of Lehman Brothers Holdings Inc. value was destroyed by the unplanned and chaotic form of the firm’s bankruptcy filing in September, according to an internal analysis by the company’s restructuring advisers.
A less-hurried Chapter 11 bankruptcy filing likely would have preserved tens of billions of dollars of value, according to a three-month study by the advisory firm, Alvarez & Marsal. An orderly filing would have enabled Lehman to sell some assets outside of federal bankruptcy-court protection, and would have given it time to try to unwind its derivatives portfolio in a way that might have preserved value, the study says.
It is too early to say how much Lehman creditors will recover in the bankruptcy process. Unsecured creditors have asserted in court filings that they are owed about $200 billion. The bond market is projecting a recovery of about $20 billion, or about 10 cents on the dollar, for these creditors.
Lehman’s large unsecured creditors include the federal government’s pension-insurance arm, the Pension Benefit Guaranty Corp. The group also includes the Bank of New York, as trustee for the bondholders, and the German government’s depositor-insurance arm.
“While I have no position on whether or not the federal government should have provided further assistance to Lehman, once the decision was made not to provide further assistance, an orderly wind-down plan should have been pursued. It was an unconscionable waste of value,” said Bryan Marsal, co-chief executive of the advisory firm who now serves as Lehman’s chief restructuring officer.
Wall Street Journal
* LETTERS
* DECEMBER 28, 2008, 9:34 P.M. ET
Monetary Policy Ain’t What It Was
Regarding your editorial “Bernanke Goes All In” (Dec. 17): Federal Reserve Chairman Ben Bernanke assumes that monetary policy works today as it did in Andrew Jackson’s time. In Jackson’s day the majority of Americans were farmers who were in debt to finance their crops. Easy money benefited these farmers.
Today easy money does not benefit the majority of Americans. Easy money does not lower consumer rates significantly. Easy money actually hurts the consumer by lowering the rates on the savings vehicles available to the unsophisticated.
Today easy money benefits the financial class (the “rich”). They have access to the large amounts of cheap money not available to the consumer. Because easy money benefits the financially sophisticated, it has caused, in part, the increasing income disparity in America. Sustainable increases in consumer spending will not be forthcoming until the financial health of the consumer is improved.