Ominous Signs For The Economy
All around I see ominous signs for the U.S. economy. I guess I could live in a state of denial, but that wouldn’t be fair to the realist in me. Besides, Wall Street already has that angle covered. Yesterday, Louise Story wrote in the New York Times:
Some New Yorkers said their neighbors seemed to be in denial.
“I was at a benefit last week, and a major well-known chief executive told me that ‘Everything will be just fine. People will start buying houses again,’” said David Patrick Columbia, who runs the New York Social Diary, a Web site that chronicles Manhattan social life. “Another one blamed everything on the media. He went on about how the media is creating a recession.”
Blamethrowers— death to them all. So what are these ominous signs I speak of? Consider the following:
Pay Day Loan Debt Rising
Yesterday, Reuters reported:
As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by.
While figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called “pay day loans” is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.
“We’re hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments,” said Uriah King, a policy associate at the Center for Responsible Lending (CRL).
Pawn Shops Booming
David Gaffen of the Wall Street Journal’s MarketBeat Blog wrote yesterday:
Apparently, there are two lenders of last resort. The Federal Reserve is one. Pawn shops are another.
Just as the banking giants are accessing the Fed’s discount window, publicly traded Cash America International Inc., a pawn-shop chain, boosted its first-quarter earnings estimate Monday due to stronger-than-expected revenue growth, in part because difficult economic times are hurting consumers’ ability to borrow money.
“Kids” Are Moving Back With The Parents
What kind of “ominous” sign is this, you ask? This has been going on for some time now. Well, read on. According to financial news agency AFX:
Taking shelter with parents isn’t uncommon for young people in their 20s, especially when the job market is poor. But now the slumping economy and the credit crunch are forcing some children to do so later in life — even in middle age.
Financial planners report receiving many calls from parents seeking advice about taking in their grown children following divorces and layoffs.
Kim Foss Erickson, a financial planner in Roseville, Calif., north of Sacramento, said she has never seen older children, even those in their 50s, depending so much on their parents as in the last six months. “This is not like, ‘OK, my son just graduated from college and needs to move back in’ type of thing,” she said. “These are 40- and 50-year-old children of my clients that they’re helping out.”
Casinos Hurting
Viva Las Vegas. According to Thomson Financial yesterday:
Moody’s Investors Service said the slowing US economy is beginning to have a negative impact on casino gaming revenues, increasing the potential for negative rating actions in the country’s gaming sector… 11 US gaming issuers are on review for possible rating downgrade currently and six have a negative outlook… declining disposable income of potential customers and increasing travel costs are lowering overall visitation and spending per visit in many gaming markets.
And last— but not least:
FDIC Boosting Staff For Bank Failures
The Associated Press’ Alan Zibel wrote this afternoon:
Federal bank regulators plan to increase staffing 60 percent in coming months to handle an anticipated surge in troubled financial institutions.
The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency’s chief operating officer, said Tuesday.
“We want to make sure that we’re prepared,” Bovenzi said…
Worried yet?
Source: Techzoogle
Sources:
“With Economy Tied to Wall St., New York Braces for Job Cuts”
Louise Story
New York Times, March 24, 2008
“Housing Crisis Quicksand: ‘Payday Loans’ on Rise”
Reuters, March 24, 2008
“The Pawn-Shop Economy”
David Gaffen
Wall Street Journal (MarketBeat Blog), March 24, 2008
“Last hope in a weak economy? Mom and Dad”
AFX, March 21, 2008
“US gaming sector hit by economic slowdown – Moody’s”
Thomson Financial News, March 24, 2008
“FDIC Plans Staff Boost for Bank Failures”
Alan Zibel,
Associated Press, March 25, 2008
March 28th, 2008 at 8:39 pm
Freedom Means Responsibility
By GEORGE MCGOVERN
March 7, 2008; Page A15
Nearly 16 years ago in these very pages, I wrote that “‘one-size-fits all’ rules for business ignore the reality of the market place.” Today I’m watching some broad rules evolve on individual decisions that are even worse.
Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics, including calls to regulate subprime mortgages.
With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.
There’s no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.
The real question for policy makers is how to protect those worthy borrowers who are struggling, without throwing out a system that works fine for the majority of its users (all of whom have freely chosen to use it). If the tub is more baby than bathwater, we should think twice about dumping everything out.
Health-care paternalism creates another problem that’s rarely mentioned: Many people can’t afford the gold-plated health plans that are the only options available in their states.
Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It’s as if states dictated that you had to buy a Mercedes or no car at all.
Economic paternalism takes its newest form with the campaign against short-term small loans, commonly known as “payday lending.”
With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee — usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.
Anguished at the fact that payday lending isn’t perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who’s familiar with the law of unintended consequences should be able to guess what happens next.
Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it.
Since leaving office I’ve written about public policy from a new perspective: outside looking in. I’ve come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.
Why do we think we are helping adult consumers by taking away their options? We don’t take away cars because we don’t like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don’t operate mindlessly in trying to smooth out every theoretical wrinkle in life.
The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.
Mr. McGovern is a former senator from South Dakota and the 1972 Democratic presidential candidate.
March 28th, 2008 at 11:19 pm
Thanks for the comment grant.
“I’ve come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.”
Wise words from Senator McGovern. Too bad a lot of people let others do the thinking and choosing for them. Just “easier” I guess. Which reminds me of something that Jesse Livermore once said:
“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”
-Jesse Livermore (Famous American stock market investor. 1877-1940)