11.11.08
Posted in Economics, US News at 12:29 pm by Elissa Gordon
Is Barack Obama really running for Redistributionist-in-Chief as John McCain suggested last Tuesday? Bill Sammon recently posted an article on FOXnews.com implying that McCain’s description might not be that far off. Although Obama denies being a socialist and has somehow managed to come across as a political moderate, Sammon points to Obama’s background and his National Journal Magazine rating of being the most liberal member of the Senate.
Sammon quotes Obama, who commented on his years at Occidental College in his memoir, “Dreams From My Father.” Obama said, “To avoid being mistaken for a sellout, I chose my friends carefully. The more politically active black students. The foreign students. The Chicanos. The Marxist professors and structural feminists.” Marxist professors? That does have an unsettling ring to it, but still, to be fair, Obama’s current stance cannot be entirely judged by his choice of professors in college.
If Sammon would’ve left it at that, this article could’ve been a pretty weak attempt at name calling. But he goes on to discuss the fact that Obama actually chose to launch his political career in the Chicago living room of domestic terrorist Bill Ayers. Ayers, who declared in 2002, “I am a Marxist”, joins Obama in refusing to discuss the meeting. And, of course, there is the black liberation theology of Obama’s anti-American pastor, the controversial Jeremiah Wright. Sammon indicates that this black liberation theology is partly based on Marxism.
While Obama and Ayers both shy away from addressing that 1995 meeting, Obama has referred to Ayers as “just a professor of English in Chicago” and “just a guy who lives down the street.” Obama and Ayers worked together on education reform in Chicago. Hundreds of thousands of dollars went to the Small Schools Workshop under the watchful eye of Obama, chairman of the Chicago Annenberg Challenge. The Small Schools Workshop program was co-directed by Ayers. Calling Obama a socialist based only on his association with Ayers may not be that accurate and Obama supporters are quick to point out that we cannot judge someone based solely on his connections. It is not as though Obama has one or two friends who happen to be socialist, though. Throughout his career, he has deliberately surrounded himself with self-described socialists and Marxists.
Another unsettling issue is that Obama and Biden do not seem to be on the same page concerning socialist statements. Obama told the now infamous Joe “the Plumber” Wurzelbacher that he intends to “spread the wealth around.” Biden directly contradicted Obama when he was asked by a news anchor how Obama avoided being a Marxist if he believed in “spreading the wealth.” Biden replied, “He is not spreading the wealth around. Are you joking? Is this a joke? Or is that a real question? It’s a ridiculous comparison.” Was Biden attempting damage control or did he mean that Obama had changed his mind? These running mates might want to work on their communication skills before making public statements about socialism. Or maybe they should have done that before running together?
I think that Sammon makes a pretty good case here for Obama’s socialist tendencies. You can check out his article, “Obama Affinity to Marxists Dates Back to College Days” and see what you think at http://elections.foxnews.com/2008/10/28/obama-affinity-marxists-dates-college-days/#
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11.10.08
Posted in Economics, Financial Advice, Investing, Taxes at 12:21 pm by Elissa Gordon
Do wealthy people need to pay more income tax? Warren Buffet seems to think that they do, and since he is definitely wealthy, his opinion seems important. Warren Buffet said, “I’m paying the lowest tax rate I’ve ever paid in my life. Now that’s crazy.” So, even Warren Buffet is willing to pay higher taxes. Does this support higher tax advocates?
In his article appropriately titled, “Warren Buffet is Wrong on Taxes”, Brian Sullivan gives an emphatic “no.” While Buffet may pay a lower tax rate than his secretary who makes about $60,000 a year, increasing taxes for the higher income bracket wouldn’t affect him that much anyway. Income tax, by definition, taxes income. Buffet’s money is mainly derived from Berkshire Hathaway stock. Sullivan informs us that Buffet’s tax rate is 17.7%. He pays the 15% tax on capital gains. As this article states, income tax increases will mainly affect those making an ordinary monthly paycheck, not wealthy investors like Buffet.
I seriously doubt that Buffet would approve of increasing the 15% tax rate on capital gains, so I must agree with Sullivan here. Buffet’s statements about approving a higher tax rate sound quite generous, but perhaps the thoughts of higher income people earning a monthly paycheck would be a better indicator of public opinion.
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11.05.08
Posted in Economics, Financial Advice, Savings at 9:22 am by John Clack
It is a common joke that the only market impervious to the economy is the tavern industry. When times are hard, people will drown their sorrows. When times are good, they celebrate with a drink. Other markets are not so lucky, and when the economy tanks, almost everyone suffers. However, in a cyclical economy with troughs and swells, there are bound to be industries that are counter-cyclical. One popular example is the collections industry. When everyone else is dodging lay-offs, those working as a repossessions agent are working overtime. Other examples might be education and fast food.
Daniel Gross of Newsweek asserts that our values as Americans also have cycles. He says in this week’s issue of the magazine that, relative to the economy, thriftiness is one of the counter-cyclical American values. “When the gross domestic product shrinks and bulls grow mute, Americans are called to rouse themselves from a consumption-induced daze and start saving and investing rather than borrowing and splurging,” writes Gross.
Daniel is right and the market corroborates him. Thrift stores across the nation have been flourishing in the down economy. Pat Binder, a franchisee of the Once Upon a Child resale chain, believes that she has seen a change, not just in the pace of business, but also in her customers’ attitudes. Some customers, putting items up for sale in the store, have become more abrupt in their approach to the business. “I guess they are much more in need of money,” says Binder, “rather than previously, it was just ‘extra.’” Binder says that the increased pace of business is not unique to her St. Louis stores. “Our field operations manager was in town last week and she said she has seen that same thing in all of her stores – she covers several states.”
Goodwill, on the other hand, has been having a difficult time in the economy. Because all of their stock is obtained through donations, Goodwill stores have found that while demand for the merchandise has increased, donations have decreased. In an article for the Charlotte Observer, Bo Hussey, a spokesman for Goodwill, said, “It’s not surprising, given the economy. People are buying fewer things and hanging on to their old stuff longer.”
Thrift has made a comeback in America, but there are many obstacles to sustaining these values, writes Gross. “Credit-card solicitations, ubiquitous casinos, state lotteries and payday lenders,” make saving difficult. He concludes, “For every Warren Buffett, patiently building a down-to-earth fortune by purchasing stocks with hard-earned money, there’s a Donald Trump, impatiently building glitzy over-the-top towers with cash borrowed from others.”
Check out Gross’ full article here: http://www.newsweek.com/id/165641
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11.03.08
Posted in Credit Cards, Debt Relief & Your Credit, Economics, Financial Advice at 10:47 am by Elissa Gordon
With the Federal Reserve cutting interest rates since September of 2007, it seems that credit card rates should be lower, but they’re not. Stacy Bradford’s article, “Cardholders Can’t Catch a Break” published on Yahoo! Finance explains why. Credit card rates are a way for banks to redeem some of the money that they are losing with mortgages. Daniel Ray, editor-in-chief of Creditcards.com said, “In many cases, the credit-card business is still profitable, but over there in the mortgage business it’s hurting, and the companies are looking for ways to make up that money”. The federal funds rate is down 3.25% while the average credit card rate is only down 1.32% to 13.75%. Bradford quotes Curtis Arnold, who says, “Consumers didn’t get anywhere near the relief they should.” Even with the Federal rate cut about two weeks ago, credit card rates are not expected to decline significantly.
If you have a fixed-rate card, as 43% of cardholders do, this may not seem like such a big deal. However, fixed-rate cardholders do not reap the benefits of a lower interest rate. In fact, whenever interest rates fall, banks will often change variable-rate cards to fixed-rate cards to avoid giving the lower rate. Thanks to the credit crunch, credit card issuers are raising rates more for customers with high credit risk. If your credit score is below 730, you fall into that category. Also, as Bradford points out, banks are decreasing credit lines, making it harder for borrowers to maintain a high credit score.
So, is there no hope for today’s credit card holders? Bradford concludes her article by suggesting that customers aggressively complain to their credit card companies about undeserved higher rates. Also, you can start shopping around for the lowest interest rate on Cardratings.com, or look for offers from credit unions. If your credit score is at least 730, your interest rate should be around 9%. Some of the highest rate credit cards right now include GM Flexible Earnings, the Wells Fargo Bank Home Rebate Card, the US Bank Visa Platinum Card, Steuben Trust Cash Rewards Visa Platinum, and the Evans National Bank Cash Rewards Visa Platinum Card.
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10.20.08
Posted in Economics, International News, Investing, US Market News at 11:43 am by Elissa Gordon
A recent article by Jacob Weisberg entitled “Name That Economy” suggested that while the United States economy is obviously not an example of laissez-faire capitalism, socialism is also way off the mark when it comes to defining our economy. The US economy must logically be something between these two extremes, but how can we describe it? Weisberg addresses that question in his article.
Weisberg points out that at the beginning of the century, when the US thought about paying the National Debt, Alan Greenspan had an interesting point. If we paid off the national debt, the government surplus would be invested in private assets. That could be a problem. Does that sound like socialism? Would it contradict free market principles?
Greenspan certainly would not want to promote socialism, so he supported the Bush tax cuts. That was a good effort, perhaps, but it did not prevent the previous scenario from taking place. The Paulson plan froze interest rates of some borrowers and involved the Treasury in financial firms, which was exactly what Greenspan did not want to happen.
Capitalism isn’t really an accurate definition of the US economy right now. Maybe modified capitalism would be a good way of putting it. The government is protecting our economy from bad decisions of private finance. Laissez-faire capitalists we are not, but that does not mean that we’re even reluctant socialists. At least, not according to Weisberg.
Really, what you want to call the economy might depend on whether you’re on the right or the left. The right might prefer to call our economic situation socialism, while the left would probably call it corporatism, a merger of state and corporate power. Corporatism could mean that the largest industry is alongside the government, the economic philosophy of Fascist Italy. There are plenty of versions of corporatism. Vladimir Putin calls it authoritarian capitalism. In Latin America and Asia, there is crony capitalism, oil-state plutocracy and kleptocracy. Still, corporatism is an extreme way to describe our economy. Government favoritism of certain companies isn’t tolerated very well, and, as Weisberg says, “concern about moral hazard nearly sank the economy.”
Weisberg seems to be saying that we need to calm down and avoid extreme labels for the economy. He points out that we are not dirigisme, Charles de Gaulle’s approach in France, which means that the government directs certain resources to certain technologies (such as nuclear power). The Chinese model, mercantilism, where government owned enterprises serve the state doesn’t quite fit the bill either. Surely, there must be some term to describe the US economy.
Weisberg suggests that we have a mixed economy, leaning towards a social democracy as in Western Europe. Should we call it regulatory capitalism? Well, we could, because carefully enforcing strict capital requirements is a preventative measure for the future. To understand why this name doesn’t work, we must realize that aggressive financial innovation is pretty much what got us into this mess in the first place. Financial innovation was considered a good thing, but it hasn’t worked out too well. Life-jacket capitalism is probably the best definition of the US economy right now. Weisberg explains that the government must not only regulate the financial system, but also play an important role in guarding the financial market.
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10.18.08
Posted in Economics, Financial Advice, Investing, Stocks and Funds, US Market News at 8:39 am by Elissa Gordon
Linda Stern recently wrote an article for Newsweek entitled, “Making Money in this Market”. During this financial crisis, it’s interesting to look around and see how wealthy investors are reacting. Warren Buffet is still confidently investing. His Berkshire Hathaway company invested $3 billion into General Electric and $5 billion into Goldman Sachs. He said, “You want to be greedy when others are fearful…it’s that simple” and “We’re seeing stocks that are attractive right now.” 
Is it really that simple? Should average investors get busy buying stocks? Well, most investors aren’t exactly in Buffet’s situation. Besides the fact, they probably do not have the resources available that Buffet does. Stern points out that both Goldman and GE are paying him 10% interest on his investments. Her article continues to acknowledge that the average investor can’t invest like Buffet, but they can follow his example in some respects.
Living a thrifty lifestyle, investing in solid businesses with low debt and recognizable brand names and being patient while waiting for your investments to pay off are some of Stern’s suggestions for those using Buffet as a model. Also, being careful of fees and investing in Asia are good ideas. Finally, if you do not think you can read the market like Buffet, then why not just invest in Berkshire Hathaway, Buffet’s company?
Stern’s portrayal of Buffet suggests that he is “betting on the market to rebound.” Simple rules of business cycles mean that sometime in the future, financial health will return and Buffet, as well as those who follow his example, will be all the wealthier. This market rebound could take a while, so remember that you need to be able to afford a long term investment. Of course, if Paulson chooses to use taxpayer funds to buy Goldman and GE mortgage-backed securities, then Buffet will profit. Buffet anticipated a government bailout before investing that $5 billion into Goldman Sachs. Buffet’s general example is probably a good one for the average investor, especially the general thrifty lifestyle advice that Stern highlighted.
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10.17.08
Posted in Debt Relief & Your Credit, Economics, Financial Advice, Investing, Stocks and Funds, US Market News at 1:47 pm by Elissa Gordon
Margaret Chen, director of the World Health Organization recently said, “We should not be surprised or underestimate the turbulence and likely consequences of the current financial crisis.” Benedetto Saraceno, the director of mental and neurological disorder at WHO explains that, “there is clear evidence that suicide is linked to financial disasters. I am not talking about the millionaire jumping out the window, but about poor people.”
Donna Fuscaldo recently wrote an article appearing on Fox Business about the mental effects of the financial crisis on American citizens. During the Great Depression, Chen mentions that executives were known to have jumped from buildings if they were in financial distress. As a side note, stories of executives leaping from buildings during the Great Crash of 1929 have become somewhat legendary. In fact, however, only four of the 100 suicides/suicide attempts reported in the New York times between Black Thursday and the end of 1929 were crash related jumps (http://www.slate.com/id/2200633/). At any rate, we aren’t seeing many Wall Street related suicides right now, but as Saraceno says, poor people may be more mentally disturbed than wealthy investors. Chen gives a few examples of poverty stricken individuals who have committed acts of violence supposedly related to their financial situation.
A 53-year-old woman facing foreclosure in Ohio recently threatened her mortgage company with suicide, and followed through on her threat upon the auction of her foreclosed home. Similarly, a 90-year-old woman from Ohio shot herself when given a foreclosure notice by deputies and was admitted to a local hospital. In Los Angeles, a 45-year-old man, allegedly upset about his financial problems shot and killed not only himself, but also his wife, three sons, and his mother-in-law.
These incidents are disturbing and point to the need for people to find hope in something besides money. Admittedly, a hard thing to do when your home is foreclosed, but times of hardship like these are times for Americans and families to pull together and take care of each other. Being overwhelmed by your financial situation is tempting, but, as these tragic stories show, it’s important to keep things in perspective.
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10.16.08
Posted in Economics, Financial Advice, Investing, Savings, Stocks and Funds, US Market News at 6:34 pm by John Clack
Ron Weiner, a certified financial planner, was recently quoted in an article from tradingmarkets.com. “Everyone knows you buy low and sell high. Everyone knows you’re in it for the long haul. But that goes out the window in a time of crisis.”
While many analysts predict a bottom may be close, Americans are turning a deaf ear. Many analysts have called the game before, but the market just kept dropping.
Is it too late to get out if you haven’t gotten out already? Maybe, but the better question might be, “Is it too early to get out.” Once the market turns around it, the DOW might not skyrocket to 13,000, but it will certainly have undeserved losses to recover. Companies that were undervalued in the willy-nilly selling of the last two weeks could also be restored in a matter of weeks.
All of the analysts are saying it, “Now is the time to buy,” not sell. In a WSJ article from October 8, James Stewart shared his philosophy of buying after 10% declines and selling after 25% gains. He said, “There’s no point bemoaning any failure to act when times were good. The important thing is to take advantage of opportunities now.”
Weiner says that now is the time to set the financial house in order. His advice is to take the time now to find good advice, diversify, and assess risk.
In a Wall Street Journal article differentiating the economic climate of the early ‘30s and that of today, Karen Blumenthal said that she sees a far more sturdy market today. The key to survival today might have worked back then though. “Live within your means. Reduce our debt. Keep saving – and investing. When the cycle turns, and it will, you’ll be glad you did.”
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10.14.08
Posted in Energy, Going Green, International News, US News at 12:21 pm by Elissa Gordon
Fareed Zakaria from Newsweek recently interviewed Representative Bart Gordon from Tennessee. Gordon has proposed a new government entity, the Advanced Research Projects Agency-Energy; this entity would invest in new technology in regards to alternative energy. This energy research would be modeled after the Defense Advanced Research Projects Agency (DARPA), the organization which was founded in response to the surprise Sputnik launch in 1958 and gave us the internet. As Zakaria points out, it’s been awhile since the government has sponsored programs like the Apollo Space Mission, or the Manhattan Project. Is the private sector doing enough to research alternative energy, or is it time for the government to step in and take over?
Representative Gordon thinks that the government needs to be working on this problem. Alternative energy is a national concern, and in his opinion, the private sector is just not doing enough to work on it. Yes, there is Silicon Valley, but Gordon points out that they are working more on existing technology than they are on the basic research that he believes is necessary. Also, neither Silicon Valley nor any private investor can pull in the people and resources that the government can.
Even if ARPA-E began researching alternative energy right now, would the United States be able to catch up to other countries in regards to this research? Zakaria points out that Abu Dhabi has allocated $15 billion to work on a similar project, while Gordon’s allocation is $15 million. The European Union has much stronger requirements than the United States in regards to alternative energy use. Gordon thinks that we could still catch up to the rest of the world; he said that we are on “the cusp of a Sputnik moment”. With proper funding, new breakthroughs could be made that would change the way that we use alternative energy. Gordon suggests taking the $20 billion over ten years used for tax breaks for oil companies and using it to fund this research.
Representative Gordon is a Democrat, but insists that this is a nonpartisan issue. The legislation has bipartisan support. Modeling ARPA-E after DARPA makes sense as DARPA has been successful in its research projects. But the government has been the primary customer for DARPA’s technologies. This would not be the case with ARPA-E, whose primary consumers would have to be in the private sector. Whether or not this would affect the use of DARPA as a model will be interesting if this plan materializes.
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Posted in Economics, Energy, Gas Prices, International News, Oil Prices, US Market News at 11:16 am by John Clack
Those who thought that Americans could never curb their oil appetite were wrong. While GM forlornly shops their Hummer brand to a disinterested market, drivers have cut their oil consumption by nearly 5% from 2007. When it comes to declining oil prices, Americans pushing back from the table of world oil have likely been a force unto themselves. Europe and the East have also contributed significantly – especially in recent weeks as the economic turmoil in the United States rolls out into the world at large.
Oil consumption, once thought to be on an interminable upwards trajectory, has begun to prove itself more malleable and vulnerable to economic forces. In 2005, as gas prices set new records, some congressmen were calling for windfall taxes on oil companies. Such calls are less common these days as consumption has proved itself very responsive to price. Some stalwarts push the windfall tax anyway.
As the world economy has spiraled over the past few months, oil demand has followed. Estimates predict it will continue to decline. The price of a barrel of oil has declined to levels close to last year’s, down 40% from its peak. Over the weekend it slipped below $80 a barrel. Second and third world countries have also posted large declines in oil consumption. Japan’s demand fell 8.4 percent in August alone.
Nobody is forgetting that the downward forces on oil prices are reflections of a hurting economy. Tom Kloz, publisher of the Oil Price Information Service in Wall, New Jersey, recently said in an AP article, “I don’t think you can get excited when the reason for the lower prices is recession. After people look at their 401k statement, $3 gas isn’t going to look that great.”
Things could get more difficult. OPEC may curb oil production if demand falls too far. Should that happen, falling oil prices would likely be stayed, forcing Americans to buy more expensive gas with funds from their wounded portfolios.
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