Posts Tagged ‘debt’
Monday, April 25th, 2011
College graduates with advanced degrees are working as bartenders and baristas. It’s called mal-employment and currently impacts approximately 1.94 million graduates under the age of 30, according data compiled by Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. Sum said mal-employment has significantly increased over the past 10 years, making it the biggest challenge facing college graduates today. In 2000, approximately 75 percent of college graduates had jobs that required a college degree. Today that’s closer to 60 percent. Though the economy is growing and new jobs are being created, June graduates are not likely to see major improvements. Nearly 1.7 million students are expected to graduate this spring with a bachelor’s degree and 687,000 with a masters, according to the U.S. Department of Education. “We are doing a great disservice by not admitting how bad it is for young people (to get a job),” Sum said.
Consider the plight of Gowri Chandra, a 2009 graduate of Brown University with a degree in comparative literature. She works as a part-time administrative assistant doing data entry for $10.75 an hour and owes approximately $80,000 in student loans. According to Chandra, “I’ve applied for 400 jobs at least, and probably closer to 500. I’ve had about six or seven interviews. Even though my degree is in comparative literature I also did a lot of coursework in psychology and education and so I would really like to merge those two — teaching kids in a nonprofit setting. The process of looking for work has really made me hone in on what exactly I want to do. I’ve learned a lot about myself and a lot about I guess where my self-esteem comes from. I’ve realized that a lot of my self-esteem has come from my education or my credentials or my profession. And I’ve kind of been working on feeling good about myself even if I don’t have a job, feeling like I’m a worthwhile and intelligent and capable person even though I’m underemployed.”
Mal-employment is not a new phenomenon. Typically, there is an expectation that young people lacking experience will have to work their way up from an entry-level job. Of late the situation seems to be worsening. In 1980, approximately 30 percent of college graduates were mal-employed, while the current rate is estimated to be as many as 50 percent. It’s tempting to assume that this rate will fall with unemployment, but these workers are not sure to be out of the woods even if they eventually get jobs they were educated for. According to a Yale study, even after 17 years, mal-employed people earn 10 percent less than their peers.
Sum notes at the start of 2011, there were twice as many four-year college graduates working as waiters and bartenders as engineers. The problem isn’t about college graduates getting their hands dirty. To be more precise, the issue is that people who paid for a college education aren’t getting the expected return on investment – and may never get it. Then, there is the matter of debt. A typical college student graduates with more than $4,000 in credit card debt and $24,000 in student loan debt. A 2009 survey of workers aged 22- to- 33 reported that they are carrying an average of more than three credit cards, 20 percent have an outstanding balance of more than $10,000, and 25 percent believe they will never pay off credit card debt in their lifetimes.
Tags: Brown University, Center for Labor Market Studies, College graduates, debt, Department of Education, jobs, Mal-employed, McJob, Northeastern University, Student loans, Underemployment, Yale
Posted in Economics, General | No Comments »
Monday, January 17th, 2011
Treasuries were little changed after the minutes of the Federal Reserve’s last meeting confirmed that policymakers believe that economic growth is gaining traction. Fed officials, however, believe that the economic gains were “not sufficient” to curtail their plans to buy $600 billion in U.S. debt to encourage employment in a stimulus strategy called quantitative easing (QE2 for those with a sense of humor).
“In general, Fed policymakers think the economic recovery is gaining a little bit of momentum, although the pace is a little bit slow,” said Alex Li, a New York-based interest-rate strategist at Deutsche Bank AG. “There are certainly some concerns about the economy gaining momentum — concerns from Treasury investors. That added a bearish tone to the Treasuries market.”
Five-year note yields rose one basis point, or 0.01 percentage point, to 2.01 percent in New York, according to BGCantor Market Data. Ten-year note yields were slightly changed at 3.33 percent after rising to 3.37 percent. “The Fed will have to see good growth for more than a one- or two-month period to alter their views on QE2,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “They have a high threshold.”
The nation added 140,000 jobs in December, after a rise of 39,000 in November, according to the median forecast in a Bloomberg News survey of 74 economists. Orders at American manufacturers unexpectedly rose 0.7 percent in November, after falling 0.9 percent in October, according to data from the Commerce Department.
The $858 billion bill that President Barack Obama signed December 17 extending tax cuts for two years prompted speculation that federal borrowing needs to stay stable or increase.
The Fed is buying U.S. debt every day this week in the quantitative easing program. In fact, it purchased $1.62 billion worth of Treasury Inflation Protected Securities that mature between July of 2012 and February of 2040.
Tags: Bank of Nova Scotia, Bearish, BGCantor, Bloomberg News, Charles Comiskey, debt, Department of Commerce, Deutsche Bank AG, Federal Open Market Committee, Federal Reserve Recovery, President Barack Obama, Quantitative easing, Treasuries, Treasury Inflation Protected Securities
Posted in Economics, General | No Comments »
Tuesday, October 26th, 2010
Mortgage rates have hit a record low. According to Freddie Mac, rates for 30-year mortgages fell to 4.27 percent from 4.32 percent in just one week. At the same time, safe-haven government debt is more appealing to investors than ever, according to a Freddie Mac survey. The low rates may be a sign that housing sales will pick up since they slumped after the first-time homebuyer tax credit expired last spring. Rates for 15-year fixed mortgages averaged 3.72 percent, the lowest level since Freddie Mac began tracking these loans in 1971. In another bit of news, home prices rose 3.2 percent in July from the previous month, the smallest gain since March, according to a report from S&P/Case-Shiller.
“The 12-month growth rate in the core price index for personal consumption, which the Federal Reserve closely tracks, has been drifting lower over the past six months ending in August and suggests inflation is running at a tepid pace at best,” Frank Nothaft, Freddie Mac vice president and chief economist, said. “This allowed mortgage rates to ease to new or near record lows this week,” he said.
Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch, believes that potential homebuyers are staying on the sidelines despite enhanced affordability resulting from record low mortgage rates. “The missing link is confidence — consumers are still worried about future income prospects given high unemployment rates and many believe home prices will fall further,” she said. “In addition, credit conditions remain tight, making it difficult to get financing. Mortgage rates are only one input into the decision to purchase a home, and seemingly subordinate to current and expected income.”
Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, FL, offers another perspective. “You’re going to get some people enticed to buy new homes,” he said. “But people are still a bit shell-shocked by the downturn in prices and they’re going to be a lot more careful than they were before.”
Tags: debt, Freddie Mac, home buyer, Mortgage Bankers Association, mortgage rates, mortgage-backed securities, tax credits, US Treasuries
Posted in Economics, Financing, General, Residential | No Comments »
Thursday, July 22nd, 2010
Debt-laden European governments seeking ways to raise money are considering the possibility of selling public properties such as office buildings. Countries considering selling assets include Germany, the U.K., France and Greece, all of which were hit hard by the global banking crisis.
“It is clear that several European governments are looking to secure disposals on a large scale,” noted Richard Holberton, a CB Richard Ellis director. Although Holberton says it’s not clear what effect these sales would have on government funds, “their impact on real estate markets could be a lot more significant.” Government-owned assets comprised between two and 2 ½ percent of all European public sales since 2006. That could double this year, according to CBRE, and could account for four percent of the €100 billion — $125 billion – that will be sold this year.
Although some properties are expected to attract significant purchaser interest, some government buildings won’t sell so easily. Surplus office buildings could be in undesirable locations, for example. Prime assets that are still occupied by government offices will have far more appeal to investors. “Where assets are well located, of good quality, and continue to produce income from occupation by a public-sector tenant, this generates an income stream that is attractive to investors,” Holberton said.
Tags: CB Richard Ellis, debt, Europe, France, Germany, Global banking crisis, Greece, UK
Posted in Development, Economics, Office | No Comments »
Wednesday, June 23rd, 2010
Federal Reserve Chairman Ben Bernanke is warning that – even as the nation struggles to recover from the worst recession in 75 years – Congress must deal with an “unsustainable” level of debt. “Our nation’s fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession,” Bernanke said in testimony before the House Budget Committee.
Although Bernanke admits that the deficit was a necessary evil designed to bring the nation out of a deep recession, it has to be addressed in the long term because of the European debt crisis. The budget deficit gap will narrow as the economy improves and stimulus programs are phased out. The Fed chairman still sees several drags on the economy. First and foremost is the jobless rate, which stands at 9.7 percent nationally, as well as the housing market that is plagued by foreclosures and short sales – of which 4.5 million are expected this year. The good news is that the Fed’s recently updated Beige Book found that consumer and business spending are up slightly. There is limited growth in the manufacturing, non-financial services and transportation sectors.
The housing market is expected to remain flat, thanks to the expiration of government-funded subsidies. According to the Mortgage Bankers Association, the number of people applying for mortgages has fallen to its lowest level in 13 years. Tourism also is down, partly because of the Gulf of Mexico oil spill. Inflation also is low, making it probable that the Fed will keep the benchmark U.S. interest rate close to zero.
Tags: Beige Book, Ben Bernanke, benchmark lending rate, congress, debt, deficit, European debt crisis, Federal Reserve, foreclosure, Great Recession, Gulf of Mexico, House Budget Committee, inflation, Mortgage Bankers Association, oil spill, tourism
Posted in Economics | No Comments »
Thursday, July 16th, 2009
At a time when real estate assets are moving slowly, other areas are being eyed for opportunity plays. Bond salesman Thomas Ricketts had just about closed his bidding group’s purchase of the Chicago Cubs from the Chicago Tribune. Documents relating to the fully financed transaction were sent to Major League Baseball over the 4th of July weekend in a deal said to be worth between $850 million and $900 million.
The Tribune, which is under Chapter 11 bankruptcy protection, jump started the Ricketts family by renewing negotiations with rival bidders after the deal stalled over a disagreement about the value of the Cubs’ broadcast contracts. Major League Baseball, the Cubs’ creditors and the Delaware judge overseeing the Tribune’s bankruptcy case still must sign off on the sale.
Then, New York investor and former Chicagoan Mark Utay threw a monkey wrench into the Ricketts deal. Utay, who is a managing partner with Clarion Capital Partners, LLC, is said to be offering a higher – though undisclosed – amount of money for the Cubs, though with less upfront cash than the Ricketts deal.
The Ricketts bid features an estimated $450 million financed with debt, with the remainder paid in cash by the Ricketts family, who are the founders of TD Ameritrade, Inc. The Tribune wants the sale to be partially financed with debt to limit its exposure to capital gains taxes. Once the final details are worked out, the Tribune will retain a five percent stake in the Cubs. Wrigley Field and a 25 percent stake in Comcast SportsNet are included in the package.
“I don’t think it’s completely over yet,” said a source close to the negotiations, who asked not to be identified because the sale process is continuing. “By the same token, Ricketts has a real edge here.” A Major League Baseball source and a second individual familiar with the sales process said the draft agreement with Ricketts has been submitted for league review. Nothing has been sent in for Utay, according to the league source. Both sources said the Tribune is telling the Ricketts family that only its bid will be submitted to the court and Major League Baseball.
Just this week, the Tribune threw a curveball by suggesting that it might take the Cubs through a fast, pre-packaged bankruptcy that would protect its future owner from its creditors.
Tags: Chapter 11 bankruptcy protection, Chicago, Chicago Cubs, Chicago Tribune, Clarion Capital Partners LLC, Comcast SportsNet, Cubs' creditors, debt, Delaware judge, Illinois, Major League Baseball, Mark Utay, New York investor, real estate assets, Ricketts family, TD Ameritrade Inc, Thomas Ricketts, Tribune's bankruptcy, Wrigley Field
Posted in General | No Comments »
Monday, July 6th, 2009
Don’t look for the country’s commercial real estate market to improve any time soon. In fact, expect it to continue to get worse for the next year or so. That was the conclusion from a panel at the National Association of Real Estate Editors journalism conference in Washington, D.C., that addressed the question: “Commercial Real Estate in the Obama Era: Next Domino to Fall?”
“The (other) shoe has dropped,” NAREIT president Steve Wechsler said of commercial real estate. While the public commercial real estate market of publicly traded REITs likely hit bottom in March, the remaining 90 percent of the market that is private won’t bottom out until next year.
The $6 trillion property market is split evenly between debt and equity, thanks to the explosion of securitization that occurred in the 10 years prior to the current credit crisis, said Chip Rodgers, Jr., a senior vice president of the Real Estate Roundtable. At the end of 2008, the commercial real estate industry had $3.5 trillion of outstanding debt. Ten years ago, the industry’s outstanding debt was $1.3 trillion.
Washington-based Real Estate Roundtable has a plan to help end the crisis that’s paralyzed practically all speculative development on the commercial side.
First, Rodgers said, the Term Asset-Backed Loan Facility (TALF) program needs to be expanded to include commercial mortgage based securities. Rodgers expects this to restart the securitization market.
Second, the United States needs to repeal or change tax laws that have curtailed foreign investment. Changing the laws will attract new capital to the market.
Also, accounting rules and regulations need to be amended to ensure they do not create “a pro-cyclical impact on credit capacity,” Rodgers said. And, banks that have existing cash flow need to be encouraged to extend loans.
The panel’s third member, Jamie Woodwell, a commercial real estate researcher at the Mortgage Bankers Association, said the current real estate recession differs from the 2001 recession. In 2001, the dot-com bust results in large amounts of office vacancies while the retail market remained relatively stable. Vacancy rates in office were closely tied to the country’s unemployment numbers.
“This time around,” Woodwell said, retail is more closely following unemployment numbers and being hit harder than the office market. “More firms still have (office) leases in place,” he said.
But things will change, Woodwell said. “Real estate is a very cyclical business, especially now.”
Our guest blogger is Tony Wilbert. He is owner of Wilbert News Strategies, a public relations firm specializing in real estate. Prior to moving into PR, Wilbert covered real estate at several newspapers and served as editor of National Real Estate Investor.
Tags: cash flow, Chip Rodgers Jr, commercial real estate, credit capacity, credit crisis, debt, dot-com bust, equity, journalism, journalism conference, Mortgage Bankers Association, NAREIT, National Association of Real Estate Editors, new capital, Obama Era, office vacancies, real estate market, real estate recession, Real Estate Roundtable, REITS, retail market, securitization market, Steve Wechsler, TALF, tax laws, Term Asset-Backed Loan Facility, unemployment, Washington DC
Posted in Development, Industrial, Office | No Comments »
Wednesday, July 1st, 2009
The tragic death of the “King of Pop” provides an interesting insight into how hedge funds and private equity groups buy loans in anticipation of future earnings. Michael Jackson made real money during his 40 years as an entertainer; unfortunately, he also lost a lot of money, especially over the last 10 years.
Reports are that Jackson died $500 million in debt. The crushing debt-service payments – combined with losses totaling millions, due to bad investments and money spent to finance his lifestyle – wiped out his fortune and he ended up in hot water with private equity creditors (it should be noted that Jackson was an extraordinary philanthropist, donating $300 million to a multitude of charities during his career.)
In 2003, Fortress Investment Group purchased some of Jackson’s loans from the Bank of America. Jackson’s failure to repay caused Fortress to threaten to call in the loans. Citigroup rode to the rescue and refinanced $300 million of Jackson’s debt. After he fell behind on payments, Fortress moved to foreclose on the Neverland Ranch. Yet another potential savior – Colony Capital – purchased his loans from Fortress and created a joint venture with Jackson to purchase Neverland for $22 million and renovate it for sale. Colony was also backing Jackson’s 50-concert London comeback which had $85 million in sold-out ticket sales at the time of his death. Clearly, Jackson’s brand was perceived to be so valuable (he sold 750 million albums during his career) that the assumption of risk was deemed to be worth it.
Tags: bad investments, Bank of America, brand, charities, Citigroup, Colony, Colony Capital, debt, entertainer, finance, foreclosure, foreign capital, Fortress, Fortress Investment Group, hedge funds, Jackson comeback, joint venture, King of Pop, London comeback, Michael Jackson, millions, money, Neverland Ranch, physician, private equity creditors, refinanced, renovation, risk, tragic death
Posted in Economics, General | 1 Comment »
Tuesday, April 21st, 2009
The Obama administration has proposed the most comprehensive overhaul of the nation’s financial industry since the Great Depression. The measures, as outlined by Secretary of the Treasury Timothy Geithner, 
will require regulation of hedge funds for the first time and give government wide-ranging powers to seize and take apart companies that are perceived as threats to the overall economy. The proposals are strong medicine indeed.
The measures, which require Congressional approval, are structured to entice private buyers by offering the similar supercharged leverage that prevailed during the financial boom-but one where oversight is de rigueur. While the private sector is cutting back on its debt, the government believes that providing inexpensive financing is the best way to free up the market for illiquid debt.
The proposals give the Federal Reserve the authority to oversee the nation’s economy for signs of “systemic risk”. The legislation will include significantly stronger requirements regarding the cash reserves and assets that institutions must have on hand to endure economic downturns. Hedge funds, private-equity firms, derivatives and other private investment funds will be required to register with the Securities and Exchange Commission and will be subject to strict regulation. Additionally, the government will establish a central clearinghouse to closely monitor trades in these markets. Lastly, the administration will develop stricter requirements for money market funds so withdrawals don’t threaten the broader financial system.
Harsh medicine indeed, but the old system failed us all. Secretary Geithner sees his proposals as a price worth paying to clean out banks’ balance sheets. If the plan fails, it will be because banks were not willing to risk of taking a write-down and depleting precious capital.
Tags: assets, capital, cash reserves, Congressional approval, debt, economy, Federal Reserve, financial boom, financial industry, financial system, Great Depression, hedge funds, money market funds, Obama, Obama administration, private-equity firms, Secretary Geithner, Securities and Exchange Commission, systemic risk, Timothy Geithner
Posted in Development, Economics, Financing, General | No Comments »
Thursday, March 20th, 2008
With all of the bad news about the housing market and the impact of sub-prime loans, its worth putting this in a historical context. The U.S. mortgage market totals $12 trillion. Of that, $2.4 trillion is sub-prime loans. Of this 20% of the debt will go bad — about $400 billion. That equates to 3% of our GDP which is a striking number but less than half of the impact that the S&L crisis of the 1980s. What’s more significant is the indirect cost of subprime. For those of us in commercial real estate, sub-prime is important because of the commingling of commercial and residential mortgages by the CMBS market (60% of CMBS loans were interest only) which caused that market to decline by 50%. Even though, subprime was contained to residential, Wall Street’s appetite for real estate in general was dulled by these movements (even AAA rated mortgage bonds were hit). So, the impact of subprime has been to affect the risk profile and pricing — for one increasing equity requirements for commercial loans from 10% to 35%.
Tags: CMBS, commercial loans, commercial real estate, debt, GDP, sub-prime, US mortgage market
Posted in Financing | No Comments »