Posts Tagged ‘government’
Monday, October 11th, 2010
Todd Henderson is a University of Chicago law professor; his wife is a physician at the prestigious university’s hospital. Although the family earns more than $250,000 a year, lives in a pricey house in the upscale Kenwood neighborhood, employs a nanny and sends their children to private schools, Henderson is upset with President Barack Obama’s plan to end Bush-era tax cuts on high-income families. Writing recently on the “Truth in the Market” blog, Henderson said that “A quick look at our family budget, which I will happily share with the White House, will show him that, like many Americans, we are just getting by despite seeming to be rich. We aren’t.”
The blog entry, which Henderson hoped would spark a debate about taxes, turned into a firestorm in which he was accused of being out of touch and arrogant. It also kicked off a discussion of what being rich means, especially in an economy where many people are unemployed and hurting financially. Eventually, Henderson deleted the blog entry and says he will no longer contribute to “Truth in the Market”. One of the people angry with Henderson is Michael O’Hare, a professor of public policy at University of California – Berkeley, who said “It’s just rude to be worrying in public about whether you have to fire the maid. That didn’t used to be acceptable behavior, for people who were that much better off than the rest of us to complain about their misfortunes.”
Geoffrey Stone, a former University of Chicago law school dean, offered this criticism, “People are reasonably focused on the view that this is absurd for somebody who lives a relatively privileged life to define himself as not rich because there are people who are richer. The way he wrote it opened him up to that.” Even Nobel Prize-winning New York Times columnist and Princeton economist Paul Krugman got in on the act, calling Henderson the “whining Chicago professor.”
This story leads to the question of exactly what is the definition of being rich? According to the Tax Policy Center, defining rich is a matter of analyzing income distribution. Roberton Williams, senior fellow, said the top three percent of Americans have gross incomes in excess of $250.000. That is the income bracket that President Obama is targeting with the tax increases. As to the Hendersons, Williams said “They are spending what they are making. They don’t feel like there is any fat in the budgets. But the average person would take a look at their budget and say ‘Wow’.”
Tags: Geoffrey Stone, government, Paul Krugman, President Barack Obama, private school, retirement, tax bracket, White House
Posted in Economics, General | No Comments »
Friday, August 7th, 2009
Finally, there’s encouraging news on the economic front. The economy declined just one percent during the second quarter of 2009, a rosier report than was expected. It is the strongest signal so far that the longest recession since the end of World War II is easing its grip.
In a report issued by the Department of Commerce covering the quarter from April through June, the one percent drop in the GDP stands in stark contrast to the 6.4 percent free fall that
characterized the first quarter of 2009. That was the biggest decline in almost 30 years. The economy shrank for four straight quarters for the first time since 1947, evidence of how severely the recession has hurt consumers and companies.
“The recession looks to have largely bottomed in the spring,” said Joel Naroff, president of Naroff Economic Advisors. “Businesses have made most of the adjustments they needed to make, and that will set up the economy to resume growing in the summer.”
Fed Chairman Ben Bernanke believes the recession will end towards the end of the year. The Obama administration’s stimulus program that combines tax cuts with government spending enhanced second quarter economic activity. Economists believe the stimulus will have a greater impact through the second half of the year, and even in 2010.
The job market is expected to remain weak. The current 9.5 percent unemployment rate marks a 26-year high, and the Fed expects it to top 10 percent by year’s end. Companies will remain cautious about hiring until they are convinced that the recession is officially in the past.
Tags: Ben Bernanke, Commerce Department, economy, Fed, Federal Reserve Bank, GDP, government, Obama administration, recession, stimulus package, unemployment rate
Posted in Development, Economics | No Comments »
Tuesday, August 4th, 2009
One European nation has escaped the worldwide financial meltdown and recession. It’s Norway, which saved its money – rather than spent – through the boom years. As a result of frugal financial management, Norwegian housing prices and consumption are on the upswing and interest rates are affordable. Norway’s fiscal responsibility of its income from enormous oil and gas reserves has allowed the Scandinavian nation to build one of the globe’s largest investment funds.
After large deposits of gas and oil were discovered in the mid-1970s, Norway didn’t go on a spending spree, and channeled its revenues into a state investment fund. The government – with very few exceptions – can spend only four percent of those revenues annually. “By the end of this year, I guess we are approaching $400 billion U.S.,” according to Amund Utne, a director general of Norway’s Finance Ministry. Do the math, and that adds up to $400 billion in a nation whose population is 4.5 million.
Beyond its oil and gas revenues, strict banking regulations – tightened after a banking crisis in the early 1990s – shielded Norway from the credit crisis. Norwegian banks made loans wisely and stayed away from exotic investments and financial products over the past decade. “They (the United States) got all the bright guys to make all kinds of fantastic products. Very creative. And it turned out it was maybe not the best solution in the end,” Utne said, with typical Norwegian understatement. “I think Norwegian banks are not as creative. In this situation, it may be good to be somewhat boring.”
Norway also was immune from the housing bubble. According to Bjorn Erik Orskaug of DnB NOR, Norway’s largest bank, “Housing prices are back up. Consumption is up. Banks are lending normally to the household sector and interest rates are staying low.”
Tags: banking, financial crisis, government, housing market, interest rates, investment, investment fund, oil prices, recession
Posted in Economics | No Comments »
Friday, July 17th, 2009
America’s financial capital is now Washington, D.C. With Congress and the White House acting forcefully to stop the bleeding resulting from the worldwide financial crisis, numerous investors and brokers are relocating from New York to Washington because that’s where the action is these days.
One of the nation’s healthiest metropolitan areas, Washington is benefiting from government hiring as the Obama Administration works to strengthen the nation’s financial system. The collapse of prominent investment banking firms such as Lehman Brothers and Bear Stearns has triggered increased scrutiny of large banks and created a need for additional workers with auditing and investment expertise in government regulatory offices.
The government’s deep involvement in the financial sector is bringing in investment that in other times would have gone to Manhattan. German banks, for example, are investing significant dollars in hotels and office buildings.
According to Ramon Kochavi, regional manager of Marcus and Millichap, “The government will grow.” Kochvai foresees declining defense contracting and an expansion of biotech firms under the Obama administration. New R & D firms are opening facilities in Rockville, MD, and along Virginia’s Dulles Corridor to support the National Institutes of Health in Bethesda, MD. Medical services growth is also expected as access to healthcare is a national priority.
Tags: banks, Bear Stearns, biotech firms, Dulles, financial capital, financial system, German banks, government, Healthcare, hotels, investment banking, Lehman Brothers, Manhattan, Marcus and Millichap, MD, medical services, national, National Institutes of Health, New York, Obama administration, office buildings, R&D, Ramon Kochavi, Rockville, Virginia, Washington, Washington DC, White House
Posted in Financing | No Comments »
Thursday, June 25th, 2009
Investment banks are hunkering down 
to preserve capital, primarily because there are grave concerns about current property valuations, says Charles Krawitz, Senior Loan Sales Asset Manager, Fifth Third Bank, in an interview for The Alter Group podcasts on real estate. Banks are reluctant to lend $10 million to a property that might be worth only $8 million, and with good reason. Multifamily housing currently is the least distressed asset class, thanks to Fannie Mae, Freddie Mac and FHA financing that is creating a market for loans on these properties.
Distressed assets fall into three tranches – buildings, loans and securities. According to Charles, if a property is struggling and the cash flow is impaired, there is a commercial lending problem. In a CMBS structure, the loan has been sliced and diced so many times that it’s likely to be toxic and beyond restructuring. Fully 1.8 percent of commercial loans cannot be restructured, and $400 billion in loans are rolling over this year alone. The challenge is to pin down values in a distressed market when there are no comparable sales statistics.
One smart thing that the government has done is expand loans to small businesses through the Small Business Association (SBA). With interest rates so low, this is very beneficial to small businesses, Charles notes. Capital is once again flowing – though not in a tsunami – but that’s very good news. The government will be an equity partner, and it’s likely that certain approved vendors will be part of this program. A lot of questions remain, but it’s a very strong effort on the government’s part.
To listen to Charles Krawitz’s entire interview on the state of investment banking, click here for the podcast.
Tags: bank, buildings, cash flow, Charles Krawitz, CMBS structure, commercial lending, distressed asset, equity partner, Fannie Mae, FHA, FHA financing, Fifth Third Bank, Freddie Mac, government, interest rates, investment banks, loans, market, multifmaily housing, preserve capital, property loan, SBA, securities, Small Business Association, small businesses
Posted in Economics, Financing, Residential | No Comments »
Wednesday, May 20th, 2009
Warren Buffett’s loyal followers are wondering what got into the Oracle of Omaha
when he told CNBC that this is “a great time to be in banking“, praised Wells Fargo’s massive earning power, and said that the government doesn’t need to provide capital to or nationalize banks.
Although some critics dismissed Buffett’s statements as biased because he owns large stakes in Wells Fargo and U.S. Bancorp, he may be dead right.
Buffett was talking about lending, and it’s the “spread” that counts – the difference between the interest rates banks charge for the loans they make and the rate they pay to borrow that money. When the Federal Reserve makes deep interest rate cuts, spreads widen and loans become more profitable. The Fed funds rate is so low right now that Wells Fargo is borrowing cheaply and profiting handsomely on the loans it makes.
Although banks do need to recapitalize, they currently are saving money by cutting dividends paid to investors. Every dollar they make goes into recapitalization. With stricter government oversight, banks are required to operate more efficiently. The irony is that these conditions are almost identical to what helped the nation recover from its last banking crisis during the 1990 – 1991 recession. In fact, the banks 19 years ago were in worse shape than they are today; yet they were not nationalized or put into receivership. Once the Fed cut interest rates, banks’ lending policies became more conservative, and they eventually recovered. The same scenario could play out this time around.
Tags: banking, banking crisis, capital, CNBC, earning power, Fed, Fed funds, Federal Reserve, government, government oversight, lending, loans, nationalize banks, nationalized, Oracle of Omaha, rate cuts, recapitalization, recapitalize, receivership, US Bancorp, Warren Buffett, Wells Fargo
Posted in Economics, Financing, General, Office | No Comments »
Friday, May 15th, 2009
It’s been a long, strange ride, but the nation’s financial system is finally starting what is certain to be an extended healing process. Treasury Secretary Timothy Geithner believes that “the financial system is starting to heal” as he promised to move returned bail-out funds to community banks that need help.
Improved lending circumstances are tempering concerns about systemic risk and reduced leverage at banks, according to Geithner, who noted that “a substantial part of the adjustment process” for the financial sector is now coming to an end.
Several of the larger banks – Goldman Sachs, JP Morgan and Capital One Financial – want to repay the funds they received under the Troubled Asset Relief Program. The Treasury will increase the money community banks can access to five percent of risk-weighted assets from three percent. The government has already invested in preferred stock in 300 smaller banks.
“As in any financial crisis, the damage has been unfair and indiscriminate,” Geithner said. “Ordinary Americans, small business owners and community banks who did the right thing and played by the rules are suffering from the actions of those who took on too much risk.”
Why the optimism? Geithner points to declines in corporate bond spreads, lower risk premiums in inter-bank markets and cheaper default insurance on big banks as evidence that the financial system is healing. “These are welcome signs, but the process of financial recovery and repair is going to take time,” he cautions.
Tags: assets, bank, big banks, Capital One Financial, community banks, corporate bonds, financial crisis, financial recovery, financial system, Goldman Sachs, government, inter-bank markets, JP Morgan, lower risk premiums, reduced leverage, Timothy Geithner, Treasury, Troubled Asset Relief Program
Posted in Development, Economics, Financing, General | No Comments »