Thursday, February 26, 2009

What caused the financial Crisis?

Written by: Liwin Troy Lee

The current financial crisis started in September 2008 with the failure of some financial institutions like the Lehman Brothers. The cause was from people who brought homes and could no longer make payments on their subprime mortgage loans. The word "subprime" means loans that start out with low interest rates but after a few years, the interest rate goes up. Subprime loans do not require a lot of verification. For example, the lender does not check if the borrower has a job.

When the home prices were rising and the borrowers had difficulty paying back their loan, they could always sell their home for profit and pay the money back. However, when the home prices were falling, the homeowners would lose their homes to foreclosure. That is the lender takes back the home. As a result, the bank institution who lends the money loses revenue.

Investment firms who created mortgages for lenders bought mortgage-back securities. Mortgage-back securities are bundling of between 1000 to 1500 individual mortgages into one entity. Investment firms also borrowed money to buy bad debts. The use of the borrowed money is called leverage. As a result, when the mortgages went bad, some of these financial institutions went bankrupt. The collapses of companies like the Lehman Brothers caused investors to go into a panic. The impact of this is it caused the stock price to decline.

Many bank and lenders stopped offering loans because they feared that they would no be repaid. Without credit, businesses slowed down and companies laid off workers. Those workers reduce their spending and it hurts other businesses. These workers go to restaurants less and buy less clothes. As a result, those stores lose businesses and they have to lay off workers. This spread throughout the whole economy. Thus, the cause of the financial crisis.


Global Financial Crisis 2008 to 2009

US financial crisis began with Subprime mortgages

What Caused the Economic Crisis of 2008?

Wednesday, February 25, 2009

What happens to Tourist Attractions when there are no Tourists left?

By Stephen Mills; Group1A

Financial crisis, economic slow down, recession, despite how you want to refer to what is happening to the economy in the US everyone is being affected. Among those affected are many tourist towns. Businesses located in tourist areas throughout the United States are facing huge losses in sales and customers for that matter. "We could be handing out $20 bills and we couldn't get people in.” ( p6)

Even the United States' largest tourist attractor is experiencing major losses in income and are facing mass layoffs. Walt Disney World has released a statement explaining large income losses and they will begin layoffs as soon as this week. Large businesses such as Disney are not the only ones to be affected; many small businesses located on the outskirts of these larger tourist attractions are being affected on an even larger scale. One small restaurant located in downtown Orlando gets all their business from tourists coming to visit the amusement parks at Disney. With the slowdown of customers due to the recession the owner of the store has had to drop all their employees hours to part time shifts and pick up the remaining hours herself. "It's killing me, but it's working." (Pom, p10.

On the upside not everyone is under water from this economic slowdown. For instance small towns located on the outskirts of large cities are experiencing higher incomes than ever before. Many small towns near Philadelphia are gaining double digit increases in the percent of customers they are gaining this year due to many families new plan to conserve money by going on weekend trips to local destinations.

Overall the tourist industry in the United States is in dire need to be restructured and consolidated if it wants to survive in this new economy.

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Tuesday, February 24, 2009

The Domino Effect of Financial Crisis

Posted by Yi-Xin Jin (Lily)

The factor that is most concerned by the central banks is the provision of short-term liquidity. Short-term liquidity reduces interest rates but encourages more risky-behavior and investments. When interest rates are low because investors’ perception of risk is ‘underpriced’ then that would just lead to another financial crisis in which people have invested too much money. When investors overlook the cost of the risks, the banks are automatically affected by the credit crunch. As one bank defaults, the ‘contagion’ spreads to other banks, which calls for the central banks to lend money to lift them out the predicament. Central banks take on the “lender of last resort” role because this information is publicly known by the customers of those borrowing banks, causing customer to lose confidence in their own banks. Customers start to lose confidence in their own banks when central banks start intervening. However, central banks guarantee to lend “against good collateral at a penalty rate (Bank of England, p.9)” so that banks could recover themselves from liquidity problems, but the penalty rate is higher than the market’s interest rate.

The other major “safety net” besides “lender of last resort” is the Federal Deposit Insurance Company (FDIC). The FDIC’s role is to “provide ‘insurance’ coverage for consumer bank deposits in case of a bank failure (The Augusta Chronicle).” It offers depositor insurance that is over the normal amount, so that depositors will not be afraid of losing all their money. The FDIC can also “make loans and nationalize banks (Professor Wilkinson).” Their responsibilities include insuring savings, checking, and money market accounts, as well as certificates of deposit (CDs) (The Augusta Chronicle). “For single accounts, a depositor's money is insured for up to $100,000… joint account at the bank, that account is insured for up to $200,000 (The Augusta Chronicle).” This safety net is evidence that regulation can provide consumer confidence which may lead to more deposits in banks and a lesser chance of banks defaulting and another financial crisis.




Repeating History?

By Lauren Cappelli

In today’s society there are many fears that we are headed towards another Great Depression. However, when you look deep into how bad the Great Depression really was, and compare it to today, you will be able to find comfort in the fact that it will not be nearly as bad.

Unemployment is a big cause of concern for many people. Economists believe that unemployment will peak between 8 and 9% during this crisis. This percentage may seem really high but it is nowhere near the 25% that was reached during the Great Depression.

Bank failures have also been a problem in today’s crisis. A handful of banks, such as Wachovia and Merrill Lynch, have gone under but compared to the amount of bank closings during the depression it doesn’t compare. Over 1,000 banks during the Great Depression closed for good. This was nearly 40% of all banks. Today there have been 19 bank failures. The FDIC has been able to find buyers for these distressed banks which cushions the fall.

Another striking statistic that depicts the difference between the Great Depression and today is the Gross National Product. During the Depression, the GNP dropped by 31% as opposed to the close of the 3rd quarter in 2008 where it only fell by .03%

Although economic times are tough in today’s society we can find a little comfort in the fact that America has seen worse. The Great Depression was a very dark period for the United States, but hopefully it can teach us how to not make the same mistakes today.


Ten Steps To Recovery

- By Kevin Yu

Here is the possible proposal for resolving the most severe financial crisis:

First: As with the Treasury TARP plan, you need to buy illiquid/toxic assets and take them off the balance sheet of banks and financial institutions to re-liquefy them and allow new credit creation.

Second: In exchange for the purchase of illiquid assets, the government gets preferred shares in the financial institutions that allow it to participate in any future upside.

Third: Even the government injected capitals into banks, banks still need capitals to recover from losses. So we will need to inject further actual public capital in the form of preferred shares in the financial institutions.
Fourth: The existing shareholders of the banks need to take a first-tier loss to minimize the risks for the government share. Start by suspending dividend payments on common shares and possibly even existing preferred shares.

Fifth: Public and private recapitalization of financial institutions unfairly benefits unsecured creditors--all creditors except insured depositors--of such institutions. So, you also need to convert some of this unsecured debt into equity.
Sixth: After this crisis is resolved, the banking and financial system may need lower capital than before so as to avoid new asset and credit bubbles.

Seventh: As with the Resolution Trust Corporation, the assets of bankrupt banks that are allowed to fail go to the HOME for a workout (debt restructuring/reduction).

Eighth: You need a program like the Home Owners' Loan Corporation (HOLC) for debt reduction of the household sector. Households in the U.S. have too much debt than asset.

Ninth: government to avoid a situation where the recapitalization of banks and the resolution of this financial crisis lead to another credit and asset bubble.
Tenth: Start implementing a reform of the regulation and supervision of financial institutions in a world of financial globalization





What is a financial crisis?

By: Allison Franklin

Any time you turn on the television all you hear is talk of a “financial crisis” or “financial meltdown,” but no one ever really takes the time to explain what this really means. The term financial crisis simply means that financial institutions, such as banks lose a large amount of their assets in a short period of time. With this definition, it is evident that this is what is happening in the U.S. economy today. The problem that arises when the banks lose their assets, is that the stock market goes down, which has an adverse impact on investors. Once this happens other business are affected, which in turn affects everyone else as people end up losing their jobs and their assets in the stock market. It is easy to see the spiral effect that develops and why this situation is referred to as a financial crisis. The big question to ask is what caused the banks to lose their assets to begin with? In the current financial crisis, this is due to the fact that banks were lending out too many mortgages to people who could not afford them. This action caused the housing market to grow to quickly and the prices rose dramatically. This market has also been hard hit during this time as people are now not able to get mortgages and foreclosures are on the rise because people are not able to pay for their mortgages. It is quite simple to see how every market is connected and how a change in one has an effect in all other markets. There are many other financial crisis that can be examined as well. The largest and most historic being the Great Depression in 1929.


Monday, February 23, 2009

Economic crisis 'is as bad as they come'

By Carolyn Lochhead
Copy and posted by Yulun Hung

If 30 years of financial crises teach anything - in Scandinavia, Japan, other parts of Asia and Latin America - the worst is not over for the U.S. economy. But that may be the good news.

This time, a tightly interdependent world has entered a synchronized contraction. Pretty much everyone is in trouble, leaving the world without an engine.
"We are in economic terra incognita," said Joseph Grundfest, a finance professor at Stanford University and co-director of the Rock Center on Corporate Governance.
If the averages of previous crises hold, Americans can expect unemployment to reach 11 or 12 percent, housing prices nationally to drop 36 percent, stocks to lose more than half their value, and real output per capita to plunge 9.3 percent, according to economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, who have tracked financial crises back to 14th century England.

"Certainly the averages themselves are pretty discouraging," said Reinhart. "Because this crisis is as bad as they come."

Pessimists observe that Japan's Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan's real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954.

Click here to read more.

Pay on Wall Street plummets to levels akin to Main Street - Federal cap, bonus cuts shrink checks

Posted by Yi-Xin Jin (Lily)

NEW YORK -- With the economy in a meltdown, financial workers everywhere fear layoffs. But even those who keep their jobs might face a far different future than they imagined -- one without the big payouts that have long made Wall Street a beacon for the ambitious and the acquisitive.

Those financial-industry workers still standing after the brutal banking collapses of the past year had to contend with a major slash in bonus pay -- with many losing as much as one-third of their total compensation. Then the Obama administration imposed a pay cap of $500,000 on certain senior executives whose companies receive substantial bailout money.

Are Business Journalists To Blame For The Financial Crisis?

Written by: Philip Delves Broughton
Posted by: Liwin Troy Lee

Parliament's spotlight on the responsibility of business journalists.

If blame were a currency, a lot of people would be rich right now: Wall Street for creating this massive financial hairball, which will take years to unpick; Washington for its failure to act as even a faintly competent guardian of the public interest; mortgage brokers, credit card companies, on and on it goes. But how about we add one more group of people to the list: journalists. Yes, the ink-stained wretches, who are so enjoying the comeuppance of the bankers and yet similarly failed to call out the problems as they mounted. Who doesn't enjoy kicking hacks, after all?

On Tuesday, a parliamentary panel in Britain questioned five of the country's leading business journalists, including the editor of The Financial Times and the BBC's business editor, about their role in the financial crisis. Did they do enough to warn about the crisis before it happened? Why did their reporting not uncover the excesses of the banking industry before 2008? When the crisis eventually broke, did they exaggerate fears, notably during the run on Northern Rock (other-otc: NHRKF.PK - news - people ), which the British government ended up having to nationalize?

Click here to read more

How bad is the economic crisis?

Posted by: Allison Franklin

Economic crisis 'is as bad as they come'
Carolyn Lochhead, Chronicle Washington Bureau
Sunday, February 22, 2009

If 30 years of financial crises teach anything - in Scandinavia, Japan, other parts of Asia and Latin America - the worst is not over for the U.S. economy. But that may be the good news.
This time, a tightly interdependent world has entered a synchronized contraction. Pretty much everyone is in trouble, leaving the world without an engine.
"We are in economic terra incognita," said Joseph Grundfest, a finance professor at Stanford University and co-director of the Rock Center on Corporate Governance.
If the averages of previous crises hold, Americans can expect unemployment to reach 11 or 12 percent, housing prices nationally to drop 36 percent, stocks to lose more than half their value, and real output per capita to plunge 9.3 percent, according to economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, who have tracked financial crises back to 14th century England.
"Certainly the averages themselves are pretty discouraging," said Reinhart. "Because this crisis is as bad as they come."
Pessimists observe that Japan's Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan's real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954.

To read the full story click here

Sunday, February 22, 2009

Philadelphia Newspapers Seeking Bankruptcy

- By Kevin Yu

The owners of The Philadelphia Inquirer and The Philadelphia Daily News filed for bankruptcy late Sunday night after talks aimed at restructuring their heavy debt load broke down, executives said.

The papers will continue to operate and will remain under local control, said Brian Tierney, publisher of The Inquirer and the leader of a group of local investors who bought the papers in 2006, one of several newspaper deals from that era that have gone bad as the industry’s revenues have plunged.

Philadelphia Newspapers, a subsidiary of Philadelphia Media Holdings, is the entity filed for bankruptcy protection. In a brief interview late on Sunday night, Mr. Tierney said the company would negotiate with its creditors to rework its debt burden.

Click Here to Read More

Gloom persists despite audacious Obama plans

Posted by Lauren Cappelli

WASHINGTON - In sheer size, the economic measures announced by President Barack Obama to address “a crisis unlike we’ve ever known” are remarkable, rivaling and in many cases dwarfing the New Deal programs that Franklin D. Roosevelt famously created to battle the Great Depression.

Winning approval was a political tour-de-force for the new administration.
Yet gloom and uncertainty persist about the plan’s ability to deliver a cure for the economy’s severe ailments.

Stocks plunged to six-year lows this week after the burst of bill signings, bailout announcements and presidential pledges.

And polls show Americans are increasingly worried about losing jobs and not having enough money to pay their bills.

Why the skepticism? Maybe there’s just been too long a run of bad news.

Arthur Hogan, chief market analyst at Wachovia Securities, blames much of the negativity on “the fact that people are so down. They have no confidence in the future.” Republicans complain about wasted money. Some Democratic supporters say the plan won’t help very much very quickly.

Former President Bill Clinton, who gives Obama high marks for straight talk in telling the nation the bad economic news, says his successor might try a more upbeat approach now. “I just want the American people to know that he’s confident that we are going to get out of this and he feels good about the long run,” Clinton said Friday on ABC News’ “Good Morning America.”

For full article click here

Wall Street: All eyes on the banks

Posted by Pin-Yu Liao

All eyes will be on Washington and the banking system this week, right where they've been for months.
The market is likely to take its cue this week from the government and the direction of financial stocks. Reports -- expected to be bearish -- on housing, manufacturing, employment and GDP growth will also be of interest.
Bank stocks and the broader market have been tumbling for the last two weeks, since the U.S. Treasury unveiled a bank bailout plan that was short on specifics. Questions about the ability of the banks to stay afloat amid the 14-month-old and counting recession are what is "overhanging the markets right now, more than anything else," said Timothy Ghriskey, chief investment strategist at Solaris Asset Management.

President Obama's plan on Tax Reductions

By Pin-Yu Liao

President Obama announced that the Treasury will implement tax reductions for employees from their paychecks; 95% of Americans will benefit from this tax cut. Generally the increase for take-home pay will be at least 65 dollars a month.

This tax reduction as part of a $787 economic recovery plan was passed by the Congress in hopes to stimulate consumer spending. Furthermore, $120 billions will be spent on rail and highway projects. President promised that he will come up with strategies to cut the trillion-dollar deficit to rescue the economy. He said, “It will require doing all we can to get exploding deficits under control as our economy begins to recover,” promising to submit a budget that was “sober in its assessments, honest in its accounting” and that “lays out in detail my strategy for investing in what we need, cutting what we don’t and restoring fiscal discipline.”

President Obama will attend the summit on Monday to identify and discuss what his policies are. He will also on Tuesday have a join session with the Congress to release his 2010 budget and talk about his strategies for the financial crisis. Lawmakers, academics and business leaders will join to partake in this discussion and try to solve for this huge amount of deficit.

Economic Artistry

Posted By Stephen Mills; Group1A

Sun., Feb. 22, 2009

WASHINGTON - President Barack Obama moves into a week that will test his political and economic artistry as he pushes forward with plans to spend unprecedented hundreds of billions to rescue the collapsing economy while also promising to cut America's record budget deficit.

The new administration will outline spending cuts to halve the federal budget deficit in four years by cutting Iraq war spending, raising taxes on wealthy Americans and turning efficiency experts loose on government outlays, an administration official said on Saturday.

The economic pincers gripping Obama's presidency will only be compounded by political dislocation. Republicans, especially the most conservative lawmakers and state governors, already are loudly attacking administration spending plans designed to put a floor under the failing economy.

But cutting the budget — a move Obama telegraphed in his weekly message to Americans on Saturday — is sure to stir anger among liberal Democrats who are determined to restore robust government spending on social programs.

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Thursday, February 19, 2009

The consequences of chasing big profits through reckless investments

Posted by Yi-Xin Jin (Lily)

The current crisis is evidence of the reckless investments in highly leverage mortgage-backed securities and derivatives. Niall Ferguson wrote in his article “The Death of Planet Finance”, “The total annual issuance of mortgage-backed securities, including fancy new ‘collateralized debt obligations’ (C.D.O.’s), rose to more than $1 trillion. The volume of ‘derivatives’—contracts such as options and swaps—grew even faster, so that by the end of 2006 their notional value was just over $400 trillion. Before the 1980s, such things were virtually unknown” (Ferguson). Asset backed securities and derivatives have both grown at high rates in the recent years indicating that a lot of mortgages have been lent out, making it more risky for the credit crunch to happen. Despite the risk, investors and highly leverage investment banks still seek highly leveraged projects because of high yields from low interest rates. Various problems have also been occurring in the process of securitization of subprime loans but the real source of the problems lies in the mis-pricing of risk in the financial system.

Banks thought that the house market would keep rising, bringing in more profits without realizing how quickly the mortgages matured. This mis-pricing of risk created a maturity mismatch between the purchased assets and the liabilities that funded these assets in the banking sector. Since most investors preferred assets with short maturities, banks tried to increase profitability by creating off-balance sheet vehicles that would allow them to borrow short and lend long. The process of converting short-term liabilities into long-term assets made banks vulnerable because of the uncertainties in customer demand for repayment and the difficulty in raising new liquid assets.


Monday, February 16, 2009

In Asia, Clinton to Seek Alliance on Financial Crisis

By Jay Solomon

Copy and posted by Yulun Hung

ELMENDORF AIR FORCE BASE, Alaska -- Secretary of State Hillary Clinton, en route to Japan, said she will seek to develop a strong coordinated response to the global financial crisis between the U.S. and Asia's economic powers during her four-nation regional tour.

Mrs. Clinton cited, in particular, China's "robust stimulus plan" as the type of action the Obama administration is hoping to see from Asian nations in an effort to reenergize the global financial system.
"I will be discussing with [Asian countries] the approaches that they'll be taking" to stimulate their economies "and seeking greater cooperation," Mrs. Clinton told reporters aboard en route to Alaska from Washington. "The Chinese have a very robust stimulus plan…They are taking internal steps."

Click here to read more.

Taming the Beast

Copy and Posted by Yi Xin Jin (Lily)

We’re now in the midst of an epic financial crisis, which ought to be at the center of the election debate. But it isn’t.

Now, I don’t expect presidential campaigns to have all the answers to our current crisis — even financial experts are scrambling to keep up with events. But I do think we’re entitled to more answers, and in particular a clearer commitment to financial reform, than we’re getting so far.

In truth, I don’t expect much from John McCain, who has both admitted not knowing much about economics and denied having ever said that. Anyway, lately he’s been busy demonstrating that he doesn’t know much about the Middle East, either.

How big is the financial crisis?

Posted by: Allison Franklin

Financial crisis bigger threat than Al Qaeda, says US intelligence czar
Aziz Haniffa in Washington, DC

February 15, 2009 23:07 IST
The plunging global economy is an even bigger threat to the United States' national security than the al Qaeda terrorist network or proliferation of weapons of mass destruction, according to America's new intelligence czar.
Retired Admiral Dennis Blair, the Obama administration's Director of National Intelligence, in his first appearance before the US Congress, stated, "The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications."
Traditionally, US intelligence chiefs always preface their opening remarks with either terrorist or nuclear proliferation threats, but Blair's first sentences in his testimony before the US Senate Select Committee on Intelligence was about the economy.
Blair said, "The crisis has been going on for over a year, and economists are divided over whether and when we could hit bottom. Some even fear that the recession could further deepen and reach the level of the Great Depression."
"Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability, and high levels of violent extremism," he said.
"Though we don't know its eventual scale, it already looms as the most serious global and economic and financial crisis in decades," he added.
Blair pointed out, "Industrialised countries are already in recession and growth in emerging market countries, previously thought to be immune from industrialised countries' crises, has also faltered, and many are in recession as well."

To read the full story click here

Japan economy shrinks at fastest rate in 35 years

Posted by Lauren Cappelli

TOKYO (AP) - Strangled by the collapse in global export demand, Japan's economy shrank at its fastest rate in 35 years in the fourth quarter and shows no signs of reversing course anytime soon.

Japan's gross domestic product contracted 3.3 percent from the previous quarter, or an annual pace of 12.7 percent, in the October-December period, the government said Monday.
That was worse than expected and the steepest slide for Japan since the oil shock in 1974. It is more than triple the 3.8 percent annualized contraction in the U.S. in the same quarter.

"There is no question that this is the worst economic crisis since the end of World War II," said Economy Minister Kaoru Yosano. "The outcome clearly shows that Japan's export-dependent economy has been severely hit."

Chief Cabinet Secretary Takeo Kawamura went further, calling the economic downturn a once-in-a-century calamity.

For full article click here

Toyota trims production further

The automaker says it may reduce hours at North American plants to cope with 'the worst automotive slump in decades.'

By Ben Rooney, staff writer
Posted by: Liwin Troy Lee

NEW YORK ( -- Toyota Motor Corp. is taking additional steps to scale back production at its North American plants, the automaker said Thursday, in anticipation of worsening auto sales.

Toyota said it will schedule additional "non-production days" in April at certain plants. The company has production facilities in Kentucky, California, Indiana and Texas.

Additionally, there is a "strong possibility" that Toyota will shorten work weeks at certain plants to 72 hours from 80 hours, a program the company calls "work sharing."

"This philosophy of shared sacrifice is the best approach for us, and hopefully will make us a stronger company in the long term," said Jim Wiseman, a Toyota spokesman, in a statement.

Click here to read more

Sunday, February 15, 2009

Job Losses Pose a Threat to Stability Worldwide

- By Kevin Yu
From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.

Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.

High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.

Last month, the government of Iceland, whose economy is expected to contract 10 percent this year, collapsed and the prime minister moved up national elections after weeks of protests by Icelanders angered by soaring unemployment and rising prices.

Economic Crisis going Global

Posted By Stephen Mills; Group1A

By Tomoko A. Hosaka, Associated Press Writer

TOKYO — Japan's economy contracted in the fourth quarter at the fastest pace in 35 years as a collapse in global demand battered the world's second-largest economy.

Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7% in the October-December period, the government said Monday.

The result represents the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8% in the U.S. and 1.2% in the euro zone. A survey of economists by Kyodo news agency had projected an 11.6% contraction.

It also marks the third straight quarter of decline after the GDP fell 1.8% in the July-September period.

Fourth-quarter GDP fell 3.3% from the previous three-month period, and for 2008, it contracted 0.7% — the first decline in nine years, according to the Cabinet Office.

Obama Pieces Together Economic Plan

By Xavier Guerrero

President-elect Barack Obama says his proposed stimulus package could create enough jobs to swallow up last year's 2.6 million job losses. In his weekly address, Obama says his administration will create jobs and help those who've lost theirs

Stimulus package passes, what now?

By Xavier Guerrero

The stimulus package was finally passed after much debate and delegation in the Senate. Obama's original budget, which at one point got up to $890 billion dollars for the package, ended up at $787 billion dollars. Although Obama's options have now been limited because of the reduction on the expected budget, he now takes the offensive on making the stimulus package work.

Since Obama inherited the financial crisis, he now has to keep working on some of the previous plans that were put into play in the Bush administration, for example, the financial bailout of $700 billion dollars that occured in 2008. Obama is now going to take up on step 2 of that financial bailout; he plans on leveraging the second portion of the bailout money into a program that could result in $2 trillion in government and private sector cash infusions to help banks and investment houses clear away some of their so-called "toxic" holdings and thereby spur lending. The part of his plan to help homeowners facing foreclosure is designed not only as succor to the public but to boost confidence in the financial community.

Obama is currently focused on taking the money out of Washington and into the economy.
For more information, click here.


Saturday, February 14, 2009

Senate passes $787 billion stimulus bill

Posted by Pin-Yu Liao

It's a done deal. Still controversial, but a done deal.
The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.
The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.

Click here to read more.

Banks Halt Foreclosures

By Pin-Yu Liao

President Obama spoke about his structured a plan on spending 80 billions to halt foreclosures in Arizona, one of the states which have the most to deal with foreclosure issue. The government and banks have been cooperating to create a rescue package of foreclosure suspension to save the borrowers.
As a result, JPMorgan Chase, Morgan Stanley and Bank of America are discontinuing foreclosures from February 12, 2009 through March 6, 2009. Citi is suspending foreclosure on an extension to March 13
More than 2.3 million homeowners went through foreclosure proceedings last year, an 81% increase from 2007, and analysts estimated that there may be 10 million more people suffering from foreclosure in the coming years.
Meetings between Treasury Secretary Tim Geithner and banks have been held to discuss the details of foreclosing-halting proposals such as those homeowners to take an affordability test and experience a re-appraisal if they do meet the criteria for a government subsidy. Regulators are thinking of more efficient ways make easier for borrowers in default. In November, Citi established Homeownership Assistance Program, which aided 500,000 Citi borrowers with mortgages. The requirements to enroll in this plan are that borrowers needed to have "sufficient income" and be making effort to repay their loans.


Friday, February 13, 2009

Trends In College Spending

Posted by: Lisa Crowley


Education Top Priority

Posted by: Lisa Crowley

Where should all of the money go?

President Barack Obama just recently passed a tax-and-spending bill of $819 billion. From this amount $125 billion is set aside for education. This is a sustainable amount seeing as the Federal government doesn’t usually get involved and leaves it to the local and state government. It is said that $20 billion is allocated for school and college renovations. As the economy is seeing layoffs the government is proposing another $79 billion to the states to help them avoid educational related layoffs. In addition, more than $2 billion would go to the Head Start program, which helps children in under developed areas stay on track, $13 billion to supplemental funding for high-poverty areas, and another $13 billion for special-education programs.

In addition to this $125 to improve the schools, Obama just passed a bill that will increase the States Children’s Health Insurance Program (SCHIP). The bill increases the coverage for only children’s health care to an additional 4 million which is on top of the 7 million already covered. What is the cost? Just $33 billion over 4 ½ years.

Obama is tackling the economic recession in many different directions so what is he doing about the housing market?

Obama has supposedly set aside between $50 billion and $100 billion to fight the foreclosures. However, they do not have a plan yet to stop the housing market from further downfall. It is a very complicated situation and they want to make sure they are putting the money in the hands that need it the most and can use it in the best way. A possible plan is making the mortgages cheaper and lowering the interest rates so homeowners will not foreclose. Also if an institution receives any funding from the program they will have to develop a foreclosure prevention program.

There is a lot of money being conjured up out of nowhere to rebuild the economy. I just thought that it was interest the amount of money that got passed for the education, $125 billion, and the money being set aside for foreclosures, $100 billion. The housing market and the sub prime mortgages is a main reason how the economy became today and there is more money improving the school right now. The housing is more prevalent issue at hand and more money should be allocated there than trying to fix up the buildings.


Wednesday, February 11, 2009

Big Bonuses for Wall Street

Post by: Lily Chung

Wall Street has always been known to pay incredible amounts of bonuses to their employees and that is still true during this time of financial crisis. Even after 2008, which was filled with one bad occurrence after another, the bonuses were still on schedule. It has been a big controversy over how Wall Street was still able to pay out bonuses, especially when there had been multi-billion dollar bailouts for some of the most prominent names in business. "Some bankers took home millions last year even as their employers lost billions."

Investigations have been going on to figure out whether the bonuses were being paid with taxpayers money. Obama has expressed strong feelings towards punishment for those that have used bailout money or taxpayers money to pay bonuses. Citigroup had to cancel their plans to buy a $50 million corporate jet.

During a time of financial crisis, which resulted in thousands of jobs cut, companies were still able to pay their employees bonuses. But in the companies defense because of the job losses, 'there are fewer people sharing the small pot'.

What Red Ink? Wall Street Paid Hefty Bonuses
DiNapoli: Wall Street Bonuses Fell 44% in 2008
Despite Turmoil, Wall Street Bonuses Survive

Airlines in Financial Crisis

Copied and Pasted by: Lily Chung

Airlines around the globe are in their most widespread financial crisis since World War II, the world's largest aviation trade group said Thursday.

The International Air Transport Association (IATA), which represents 230 airlines worldwide, reported that December's international air passenger traffic fell 4.6% year-over-year, and only about 74% of plane seats were sold. International air cargo volume fell an unprecedented 22.6% year-over-year, a sign of plummeting consumer spending.

"There is no clearer description of the slowdown in world trade," said Giovanni Bisignani, the association's CEO.

Click here for full article

How Do We Know If The Stimulus Package Works?

President Obama's $838 billion economic stimulus plan was recently approved by the Senate. But the questions that now has everyone going crazy is, "Will it work?" and if so, "How do we know its working?

This Businessweek article tackles the issues.

Get your thinking caps on.


Financial Crisis and College

By JieYing Peng

When the economy was booming, billionaire colleges such as Harvard and MIT use their large endowments and spent binges on faculty, buildings, and scholarships. Now, they are experiencing the sharpest budget cuts. The college endowments fell 23 percent in 2008 and they are expecting to lose more in 2009. The decline is almost twice as big as any year since 1974. The challenge for colleges with declining endowments is that many of the faculty they hired now have tenure, all those new buildings still need heating, and financial aid demand is rising. College staff cuts are inevitable because of the shortage of funding.

The current economic crisis that affected investments, pensions, and savings plummeting has also put a dent in college tuition funds. High school seniors not only have to worry about getting into the dream universities, but also have to worry about how their family will afford it if they get in. Many parents are worried that they would not have enough money for their children to go to college because of the sudden decline in investments and the college savings plan has shrunk dramatically. The volatility of the stock market has impacted all 529 plans. Parents may be forced to take out loans.


Economic Aftershock?

By Wes Goodman

Feb. 11 (Bloomberg) -- Pacific Investment Management Co., which runs the world’s biggest bond fund, said the global economy faces a “second wave” of turmoil unless governments adopt larger spending plans.

“The economic setback is still in its early stages,” Koyo Ozeki, head of Asia-Pacific credit research at Pimco’s Tokyo office, wrote in a report published today on the company’s Web site. “Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months.”

Full Article:

Copied and Posted by Ryan Johnson

Tuesday, February 10, 2009

Government Rescue the Financial Crisis

By Chaoran Hu
When the economy is going all the way down to the bottom during the economy recession, the market cannot save itself. At this point of time, government plays an important role in rescuing the economy. People are more likely to forget the importance of the government. One of the questions raised are that how dependent we are on government to minimize the considerable risks and dangers of a free market economy? A free market is beneficial to all the investors and citizens as long as the market is going on a healthy track. Once there occurs economy recession, the government has to interference to retrieve the economic system.

Without the help of government, the free market will be a mess, and the consequence would be unpalatable for most people. Even though, government is one of the victims in the financial crisis, it still has reduced the problems and risks of a market economy for a recovery. For instance, the unemployment insurance, Medicare and Medicaid, food stamps and drug regulation helps to recover the market during the economy recession.

Obviously, the American economy cannot survive without the regulation of the government laws and policies. And we are all better off for it, even though it sometimes can’t always regulate and ensure a healthy market.


Monday, February 9, 2009

Obama's Plan Helps The Financial Stability

While the cost of a setting up a government-run "bad bank" has appeared daunting, Geithner is likely to offer incentives to lure private investors to buy distressed assets.
"It can't all be private capital," Lawrence Summers, the head of the White House National Economic Council, told Fox News television on Sunday. "But with the right kinds of government guarantees, with the right kinds of financing ... with the right strategic approaches, Secretary Geithner believes that we can bring in substantial private capital."
A source familiar with the administration's thinking said a "bad bank" financed in part by private equity was indeed under discussion. To lure private investors, the bank could be allowed to issue debt backed by the Federal Deposit Insurance Corp, the source said.
The "bad bank" would provide a repository that would take assets off bank balances sheets, hopefully making it easier for them to attract private capital and increase lending. The assets could be held for several years until economic conditions improve.

Posted by Chaoran Hu


National Leaders Letting Rookies Take the Show

by Ryan Johnson

America just recently had its routine election, but still we have switched from one approach to the global economic crisis to another. Thankfully this switch was not done out of desperate measures, but several countries in the EU can't say the same. 

As I mentioned last week, Iceland was the first to throw in the towel and appoint new leadership for a suffering country. Now Germany has followed with the resignation of its economy minister Michael Glos. Chancellor Angela Merkel says that this was a "political headache" and was upset that the country's economic controllers were being reevaluated in the midst of an economic crisis.

Several countries in the EU have different takes on how to go about fixing the global economy and their own, be it tax cuts or ambitious stimulus packages. Some countries are pushing for trade barriers, in order to protect jobs within the country. The Czech presidency strongly believes that these barriers need to be kept away simply for the survival of many European economies, and is consequently asking for an emergency meeting with many EU leaders at the end of the month. 

Israel seems to be another prime candidate for resignation based on its economy alone. Obama points out that it was not America who dug Israel's economic trench, but rather Israel for all their tax cuts and capping deficits, etc, their crisis would "not be so painful."

Sunday, February 8, 2009

The bailouts – who will get the money?

By: Li Bin Chen

Bailouts fund from the government are only used toward United States based company. In the auto industry, the companies that qualify for the bailout fund are Chrysler, Ford, and General Motors. One irony of this rule is that Toyota and Subaru are United States’ largest employer of the auto industry and they do not qualify. In today’s globalize world, it is hard to draw a line whether the company is U.S based or from a foreign country. The owner of the company may be from multi-national making it hard to make a judgment so most of the separation will go back to the origin of the company.

Is it fair that some company will get the bailout fund while others will not even if those companies contribute to the larger portion of America’s employment? While every auto-producing nation is engage in an auto bailout, Germany presents a different view. Germany has yet to engage in a bailout because they believe it will only lead to distortion and protectionism and that market will take care of itself.

But will the bailouts work? It might work, but there’s no guarantee. The government is trying to tackle a systemic financial crisis with a system wide purchasing of problem assets. By removing uncertainty about impending mortgage-related losses, the government hopes to bring confident into the markets and encourage the banks to keep lending and get new infusions of private capital.


In Bank Aid Plan, a Wall Street Focus

Posted by JieYing Peng

Wall Street helped produce the global financial and economic crisis. Now, as the Obama Administration prepares to unveil a revised bailout plan for the banking system, policy makers hope Wall Street can be part of the solution.

Running Out of Money

Posted by: Lisa Crowley

$10 Trillion in debt

Posted by: Lisa Crowley

Where does the money come from to fund the national debt?

The clock is ticking for the national debt. As the seconds go on our government is racking up an enormous bill that they are unable to pay off, and for the short term you want that. I have always wondered where the government gets the money to spend on the programs to enhance and maintain the society we live in. They mostly get there money from themselves, as a matter of fact over 40% of our debt is owed to the Federal Reserve, while foreign investment makes up 22%. Currently our national debt is 10 trillion dollars and from that we owe 400 billion dollars to ourselves. If we were to just start printing off money so we would no longer be in debt, then our money would become inflated and our economy would spiral further into a recession; therefore it is better for the government to slowly get rid of the debt not creating inflation.

So how do we solve this problem?

There is no easy solution to this problem because while we keep our debt, the tax payers are wasting there money on paying off the interest. One possible solution is having the private sector create a competing currency until the U.S. is able to bring there currency back to a stable level.

Anyway you look at it, our debt has been rising since 1961.


Thursday, February 5, 2009

The jobs problem you don't know about

By: Li Bin Chen

NEW YORK ( -- January was one of the worst months for layoffs ever, with nearly a quarter million job cut announcements grabbing headlines.

But the real problem in the U.S. labor market today isn't layoffs. It's a hiring freeze that is gripping most work places -- and has not gotten nearly as much attention as the job cuts.

"The hiring rate has caved. That's why the job market is as bad as it is," said Mark Zandi, chief economist with Moody's "Given this low hiring rate, unemployment would still rise even if layoffs were falling."

The government's key employment report, due Friday morning, doesn't detail hiring and job openings. It instead gives overall change in the number of workers on U.S. payrolls.

Click For Full Article

Wednesday, February 4, 2009

Financial Crisis and Job Losses

by JieYing Peng

At least 85,000 people lost their jobs in a single day Monday as the bad financial crisis hit more workers around the world. Companies suddenly cut a large amount of jobs because of the sign of the deepening social impact of the crisis. This also gives pressure on US President Barack Obama as he pushes a stimulus plan for US economy.

These job cuts came from some of the biggest US corporate names including Pfizer, GM, Caterpiller and Sprint Nextel, and Panasonic. Obama said, “These are not just numbers on a page. As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold. We owe it to each of them and to every single American to act with a sense of urgency and common purpose. We can't afford distractions and we cannot afford delays”.

Panasonic Corp., the electronics giant known for flat-screen TVs as well as digital cameras, announced today that it would cut15000 jobs and close 27 plants worldwide.
US financial crisis has spread across the world and the company’s outlook of the business environment has been extremely uncertain.


Market evolves with changing economy

Copied and Posted by Ryan Johnson

NewMarket Technology, Inc. (PINKSHEETS: NMKT) today released a white paper written by the Company's CEO, Philip M. Verges. The paper, mentioned in the Company's recent Virtual Town Hall, discusses the evolution of the economy during the global financial crisis. The primary purpose of the paper is to highlight the underlying strengths within the domestic and global economy that have been overlooked by the financial industry.

The paper discusses the growth of market segmentation, as small businesses have grown to fill both the ever increasing diversity of consumer demands, and the demands of large businesses seeking to outsource to reduce costs. Today, the majority of the global GDP comes from the small business sector while Wall Street continues to invest in the declining fortune of the Fortune 500. Per the paper, the financial markets will shift away from a concentration on long-term capital appreciation in mega corporations and overleveraged debt transactions. Alternatively, as the paper discusses, a New Wall Street must move toward shorter horizon milestone investments in multiple small businesses task organized to deliver segmented market solutions.

Full Article:

White House Unveils New Executive Compensation Restrictions

By Henry J. Pulizzi

Amid populist outrage over Wall Street excess, U.S. President Barack Obama unveiled compensation rules for financial institutions that accept government assistance, saying it is "in bad taste" and bad strategy for banks to give executives lavish pay packages during an economic crisis.
The new rules also touch on firms that participate in "generally available capital access programs," such as the Treasury's Capital Purchase Program. Senior executives at those banks will be subject to the $500,000 compensation cap, though the cap can be waived after full public disclosure and a shareholder vote. Under current rules, the firms were required to review and certify that their top five executives' compensation arrangements did not encourage excessive and unnecessary risk-taking.
Obama also continued his push for the economic recovery package being considered by the Senate this week, warning that a failure to act quickly could "turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future."

Posted by Chaoran Hu

For Full Article:

Government acts as hero and villain in the financial crisis

Written by Chaoran Hu

Since the economic recession, government has sent out a $700 billion bailout package to boost the economy. When the news that Obama was going to establish a “bad debt bank” to absorb the debt from banks, the economy climbed right after the news was came out. As we can see, all the up and down of DOW and Nasdaq are relatively related to the act from government. Another guess from the government is to nationalize the banks. However, this guess is not reliable because of the shortage of money. At that point, the stock gains as this guess was confirmed by Obama government.
While tracing back to the “Bush Administration”, the idea created by bush about the “ownership of society”. This idea means that home ownership is best for all the Americans. He claimed that market works best without the interference from the government. During that time, the housing prices rise. And the policies are good to the first-time and low-income buyers. As time goes by, these advantages gradually become bubble. As we can see, government is one of the biggest factors in the financial crisis. It is a double side sword in this economy recession. In another words, government is either hero, or villain in this battle. No matter government will win or not, it will eventually affect itself.


CEO Pay Curbs Could Extend The Crisis

This article interestingly explains that forcing financial companies to curb CEO's pay for government assistance may actually extend the crisis because they may not take the offer.

What’s the danger in the reported Obama plan? The most common argument is that excessive restrictions on what top executives earn could drive away talent from the companies that perhaps need a bailout the most. Why take a job at a place that’s in need of a turnaround if there’s little reward at the end of the day?

In addition, tight executive pay limits threaten to draw a bright line between healthy banks and non-healthy banks, causing investors to flee the latter group.

However, if the executive compensation limits are too strict, banks that are in desperate need of taxpayer cash just to stay afloat might be the only ones to accept TARP funding.

By Brian Wingfield

Read More: Forbes

Posted by Jemar Souza

Consumer Spending Continues To Drop

Consumers in December scaled back on spending for the sixth month in a row -- even though they had slightly more to spend -- in a sign that Americans remained nervous about the future.

As the economy spiraled downward at the end of 2008 and contracted at the fastest pace in more than 20 years, consumers retreated, spending $102.4 billion, or 1 percent, less than the month before, Commerce Department data issued yesterday showed. The savings rate rose to 3.6 percent from 2.8 percent.

Read More: Washington Post

Posted by Jemar Souza

Tuesday, February 3, 2009

Less Money Earned, more money saved

Written by: KATE SNOW

It wasn't all that long ago that Americans lined up around the block to buy a $600 i-Phone. Hummers crowded the highway. Consumers in this country were spending more than they earned.

Retailers are offering bang-for-your-buck deals as shoppers hunt for bargains and look for the greatest value.

How times have changed.

In just a matter of months, consumers went from a negative savings rate to saving an estimated 5 percent of their incomes. It may not sound huge, but in economic terms, that's a dramatic change in behavior.
"Consumers have been spending beyond their income for 25 years," said Mark Zandi, chief economist at Moody's "They could do it, because they could borrow and also because their nest eggs were getting bigger, because of rising stock and house prices. That's over."
The third quarter of 2008 saw the worst drop in consumer spending since 1980. And consumer confidence is abysmal. This week's ABC Consumer Comfort Index finds 94 percent of Americans say the economy is in bad shape, matching the record high in 23 years of weekly polls. Only 26 percent of Americans polled call this a good time to spend money.

And it's not just those who are unemployed who aren't spending. It's people with steady jobs too.
Chris and Beth Gilbert have an old stone home on a treelined street in Doylestown, Pa. They both have stable jobs working for their family car dealership business. But even they are cutting back.

"We are petrified. Absolutely petrified with what is going to happen," said Beth Gilbert.
"We are both in the car business, and the prediction for the car business is not getting any better," Chris Gilbert said.
The Gilberts have made up a new family budget, with fewer pizza nights, and no annual ski trip. The frugality at every income level sets off a brutal chain: The cutback in spending is killing retailers, who in turn cut orders, forcing their suppliers to cut jobs, sinking the economy deeper into a recession.

Posted by : Stephanie King

For full article : click here

Monday, February 2, 2009

Job cuts - continue

By Li Bin chen

United States is going through a serious financial and economic crisis. The crisis had gone so severe that there are millions of jobs being cut. As of November, 2008, employers overall have announced job cuts of over 110,000 employees. With this amount of job cuts, current employees are uncertain of their future with unemployment rate keep climbing. It becomes hard for people to have a lot of optimism regarding this labor market. To response to the crisis, U.S. President Barack Obama's spokesman, Robert Gibbs, told reporters that the president "would do everything in his power to ensure the financial system does not collapse". That is why President Obama introduces his stimulus plan for the hope that it will boost up the economy by increasing consumption.

As the turmoil of U.S financial system spread globally, global recession got worse; companies are required to cut back on their employees in order to lower their cost structure. This is a period that determines which firm will survive and which firm will be eliminate. That is why during the past year, there had been a lot of merger and acquisition happening where large firms are trying to stabilize their foundation. This is a true example of survival of the fittest.

Despite U.S government injecting massive amount of government funds into the U.S banking systems, other major U.S industry and major industrialized countries, the economic crisis is spreading rapidly from the financial sector to the broader economy and affecting basic production. With consumer saving their money and withdrawal from investment, weak earnings were report from major firms around the globe. Massive job cuts were occurring as United States is entering what some economist had call the recession stage while other more pessimistic economic said the United Stated had entered into a depression with unemployment rate continue to rise. This is the highest unemployment rate United States had ever experience since the Great Depression.


Not Everyone Is A Follower

by Ryan Johnson

In the midst of the recession, certain industries have been turned towards as a favorable use of time and money. The auto industry and real estate prices are taking the hit, but the entertainment business hasn't suffered a bit. 

Netflix is an example of a company going against global trends. People can still lose themselves in a movie, and Netflix has actually acquired more subscriptions since the economy plummeted. Video games are another source of entertainment that people have turned to. Both of these options are relatively inexpensive when compared to alternatives like bowling. 

The superbowl ads this year weren't any tamer than previous years. There were still a handful of car commercials, despite their failing market. Personally, I thought the Audi car commercial was one of the strongest ones shown, but that gives me no indicator on how they are faring against their competitors right now or in general. 

When people watch these frightening movies, they become wrapped up in it. The experience disconnects them from reality to some extent, and you can't compare The Dark Knight to spending a vacation at Disney World financially. So what does it take to hit the movie industry where it hurts?


Sunday, February 1, 2009

Restoring Middle Class Essential to Economic Growth

Posted by JieYing Peng

WASHINGTON--(BUSINESS WIRE)--“Today’s formation of the White House Task Force on the Middle Class is a critical step in revitalizing the engine of the American economy. This task force is about ensuring that the issues facing working families are at the top of our nation’s agenda.

“President Obama has made it clear that he truly understands the challenges working families face, that we have to level the economic playing field, and that he is committed to using all of the levers of government to restore and expand our nation’s middle class.