Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. More Collateral Damage From the Housing Crisis pt 1The fallout of the housing crisis is affecting many more people than just those who purchased a home on dicey terms (or who provided the loan, or now owns the debt). In several posts we will highlight how the current crash has been cause for concern in some unexpected places.Today's New York Times has a story examining how the housing crisis has hit the auto industry. The tightening of the credit markets has closed off the flow of easy financing for prospective car buyers with poor credit histories or others who would, in better times, tap into their home equity lines. Sales of pickups (a contractor favorite) are way down. How bad is it? Sales of new cars are down to their lowest levels since 1995. More loans are going delinquent, leading to higher losses on bad debt and swelling inventories of used cars. Subprime lenders like AmeriCredit project they will loan out just a third as much money in 2008 as they did the year before. "It is a bleak picture, and it all hinges on the availability of financing,” said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. “The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors." Labels: auto industry, collateral damage, consumer debt, mortgage meltdown, subprime crisis, subprime lending Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Former IMF Head Condemns Finance SectorGermany's president and former IMF head Hoerst Koehler has added his voice to the rising condemnation of the financial sector's role in the global economic downturn. Referring to finance markets as a "monster that has to be put back in the closet," Koehler went on to criticize the "irresponsibility" of bankers who, despite the horrific effects of that irresponsibility, receive "bizarrely high salaries." Originally interviewed by the tabloid Stern newspaper, the German business paper Handelsblatt also noted that Koehler must declare his candidacy soon for a second term. Germany has seen a wave of strikes in this calendar year, and labor militancy in Germany may well have contributed to the recent intransigence of the European Central Bank where interest rate cuts are concerned (in other words, the ECB, fearing that German workers in particular are beginning to demand wages that offset inflation, is more reluctant to lower interest rates in the face of economic downturn, unlike the Fed, which doesn't seem to fear US workers' wage demands as much). Too bad Koehler wasn't running for a spot on the European Central Bank's monetary committee....Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Charles Tilly, 1929-2008Professor Charles Tilly, a renowned social scientist, innovative theorist, and prolific author, passed away on April 29.In addition to the NY Times obituary, and a statement from the president of Columbia University, here's a very perceptive personal remembrance from a former student and colleague -- just one of many people who remember him fondly. Dollars & Sense extends our sympathies to his family, including his son Chris, who is a longtime member of the D&S family. Labels: social scientist, social theory, Tilly Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). If You Liked Bear Stearns, You'll Love Fannie Mae/Freddie MacThe New York Times reported today that the two mega government-sponsored mortgage lenders, who have single-handedly kept the US mortgage market from sinking through the quicksand altogether since private mortgage finance dried up in the wake of the subprime crisis (they account for no less than 80% of mortgages bought by investors in the first quarter of 2008), may themselves require enormous taxpayer-financed bailouts if properties they hold continue to decline in value. Fannie and Freddie, who use their unspoken government guarantee to clinch cheap financing (which they do, to a degree, pass on to consumers), buy mortgages from banks and keep some of them on their books, while securitizing and selling the rest off (retaining the liability for repayment if consumers default). For example, Fannie Mae sits on an enormous pile of debt and outstanding loans (nearly $3 trillion), while investments, retained earnings and equity (or "core capital") chalks up at only about $800 billion, while Freddie has about $2 trillion in liabilities and $750 billion in assets. If these some of these loans follow the prevailing trend and continue dropping in value, it is clear that Fannie and Freddie could find themselves facing a serious shortage of capital, especially since they've been doing all in their power to avoid ramping up capital, in order to concentrate on paying off shareholders. Shareholders, remember, were put off by a series of scandals at the agencies, and Fannie and Freddie have been using Congress' desperation to keep the mortgage markets open to extract better terms from Congress (for one thing, Congress increased the cap on mortgages they can buy to $730,000 from $417,000); and now, Fannie and Freddie want Congress to repeal the verylaws Congress made in the wake of the scandals. On top of this, it appears as if the agencies aren't accounting for their losses in conventional ways (i.e. "unrealized" losses don't affect earnings), and that, even worse, according to The Times, that they are betting that the housing market will rebound by 2010. If the crunch lasts longer, say analysts who spoke with the paper, "unexpected" losses could overwhelm reserves. Well, Fannie reported its third straight quarterly loss today, and Freddie reports next week. Meanwhile, the headlines are full of sentiments like "Is the Housing Tsunami Receding?" Labels: Fannie Mae, Fredddie Mac, housing bubble Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Join the Call To Promote Open Economic Debate at Notre DameA group of students at Notre Dame are campaigning to broaden the ideological scope of the economics department there. According to their open letterAt Notre Dame, economics is divided into two separate departments: “The Department of Economics and Econometrics, which is a neoclassical economics department committed to rigorous theoretical and quantitative analysis in teaching and research,” and The Department of Economics and Policy studies, which is committed to “issues relating to socioeconomic justice and ethics,” “openness to alternative methodological approaches,” and the “roles of history and institutions” in the “broader political economy.” It is our fear that, in pursuit of higher department rankings, Notre Dame will sacrifice the latter department in favor of the former. You can read the full letter and sign the petition here. Dollars & Sense covered a similar struggle by undergrads at Harvard a few years ago. Look here for a list of progressive economics teaching resources. And please check out all of D&S's fantastic economics textbooks and readers. Labels: classroom resources, economics debates, heterodox economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dockworkers of the World Unite!In a potent reminder of what organized labor can do, thousands of dockworkers along all 29 West Coast ports took the day off in a coordinated action to protest the U.S. war in Iraq.“We are supporting the troops and telling politicians in Washington that it’s time to end the war in Iraq,” said union President Bob McEllrath. See the full story here. Labels: dock workers, iraq war, labor, labor organizing, strike Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CEOs of America Unite!Kiwitobes has put together an interesting visual representation of overlapping membership on corporate boards among the largest U.S. corporations. This helps provide one explanation for the astronomical sums paid to CEOs and their lackeys (we get to talk like this on May Day). But as economist Arthur MacEwan explained in our magazine a few years back, the gap in pay between those who own the corporations and those who do the work is much greater in the United States than it is in many other countries that similarly have interlocking corporate boards. The rest of the answer, he concludes, has to do with the relative lack of power of U.S. workers.Over many decades, U.S. companies have created a highly unequal corporate structure that relies heavily on management control while limiting workers' authority. Large numbers of bureaucrats work to maintain the U.S. system. While in the United States about 13% of nonfarm employees are managers and administrators, that figure is about 4% in Japan and Germany. So U.S. companies rely on lots of well-paid managers to keep poorly paid workers in line, and the huge salaries of the top executives are simply the tip of an iceberg.Read the full article here. Labels: Arthur MacEwan, ceo pay, Corporate Boards, May Day, wealth inequality, worker rights Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
