Friday, May 15, 2009

World Cup Final: Green Shoots vs. Yellow Weeds

The match was on when President Obama spoke of "green shoots" as signs of economic recovery. Nouriel Roubini quickly countered by pointing to "yellow weeds" signaling possible continued recession. In recent days the ball has been more on the Green Shoot's half of the field, with the Yellow Weeds getting somewhat the better of the play in a midfield game. No big scoring opportunities for either team over the past week.

Notably (at least for this observer) the Weeds have been unable to get their game-changing player onto the field: he's Dollar Crisis, the story of the dollar's beleagured status as the world's global reserve currency. In London he appeared for a moment with the May 12 FT story on "America's Triple A rating is at risk". But not in the U.S., where American financial media ignored (suppressed?) his brief appearance. CNBC Europe mentioned him here - but not CNBC U.S., so far as could find at the CNBC site. We've been tracking the fate of the dollar here since March 23. I'm amazed at paucity of coverage of this story in the U.S. Mainstream financial media reject it as mere chatter of the Goldbugs who yearn for a dollar bust and a gold boom. Goldbug are always talking up the immanent collapse of the dollar, yet goldbugs like Jim Willie are well worth following - just take a look at what he said in January of 2008:
The year 2008 will be the year that THINGS JUST PLAIN BREAK. It will be a truly deadly year, unavoidably lethal to the US Economy and especially to the banking sector. Nothing has been repaired. Some tangible solutions will be offered in the next section [of his post], all legitimate in a real world. However, we do NOT live in a real world, but rather in a Fairy Tale world of US Hegemony and Wall Street with a choke hold around the entire system.
Willie is a libertarian investor with a strong populist streak. He is not alone in his thinking and I suspect central bankers keep a close eye on folks like him. If and when the Weeds finally get their man Dollar Crisis onto the field - watch out. Meanwhile, or failing that, here are some notable Shoots vs. Weeds takes on the topic of economic recovery.
  • Nouriel Roubini and his team dig deep and offer a region-by-region global survey in "Green Shoots or Yellow Weeds?" (Forbes 5/14)
  • Maria Bartiromo interviews Nouriel Roubini and Harvard Economist Ken Rogoff in this CNBC video. Roubini sees more Weeds than Shoots; Rogoff too. At 5 min 20 sec note their responses to Maria's question about the possibility of the Obama administration's growth forecast of 4% in 2011. (5/15)
  • The Economist's Special Report on the fat green shoots for international banking looks like yellow weeds in reader comments. (5/14)

  • Samuel Brittan at FT weighs "Green Shoots and Dud Forecasts." (5/15)
  • David Brooks discusses neither Shoots or Weeds but the health care dilemma confronting President Obama: "If you . . . talk to enough experts, you come away with a stark conclusion: There are deep structural forces, both in Medicare and the private insurance market, that have driven the explosion in health costs. It is nearly impossible to put together a majority coalition for a bill that challenges those essential structures. ("Fiscal Suicide Ahead", NYT 5/14)
  • In this entertaining 7-minute video, New York financial consultant Howard Davidowitz demolishes the Shoots story (rhetorically at least - and at least somewhat substantially - listen to his comments on commercial real estate). (Yahoo Finance Tech Ticker 5/15) (Thanks, Yves)
  • Big one for the Green Shoots? Donald Luskin writes that Northwestern University economist Robert J. Gordon, pointing to reduced numbers of "jobless claims" - claims from the unemployed for jobless benefits - says the recession is over. (Smart Money 5/15)
  • Alan Blinder, Princeton economist and former Federal Reserve chairman, likes the Green Shoots but warns against premature tightening of the economy like that of Roosevelt in 1936 that plunged a recovering America back into recession. (NYT 5/16)
  • Martin Wolf of FT casts an influential if cautious vote for Green Shoots and for the future of capitalism (5/19)
World Cup Final? Let's go it one better. Imagine a global civic media contest with an audience of billions participating in a contest of contests to find best solutions to the world's economic plight. This contest could happen today except for resistance from the world's governments and financial elite, who seem to want it not to happen. The technology for it exists: the contest would integrate the resources of American Idol, telephony, a TV channel like Discovery or CNBC and social networks like Facebook, MySpace and Twitter.

Wednesday, May 6, 2009

America's Big Banks: STILL Crazy to Get College Students into Debt After All These Years?

In 1985, American college students graduated with a credit card balance of zero. They didn't have credit cards then. Today, college seniors are graduating with an "average credit card debt of more than $4,100, up from $2,900 almost four years ago," according to Sallie Mae. The origins of this growing mountain of debt go back to the early 1990's and to a single bank, Citibank, which then was on the verge of bankruptcy. As Robert Manning writes, CEO Sandy Weill saved CITI by flooding American college campuses with free frisbees and credit card applications. Given the disastrous outcomes of fast money schemes like this and given also the present life-support status of dinosaur banks like Citi, you'd think they'd no longer be getting people into debt while they're too young to know any better and keeping them there.

Not so. Although the government has forced big banks to give up most of their failed "debt peonage" home mortgage models, as Mike Hudson intriguingly calls them, the government has done nothing to stop these banks from getting college students into debt and keeping them there. Last week I saw for myself that Bank of America CEO Ken Lewis, for one, is playing Weil's "enthrall the students" game aggressively.

It hit me as I entered the lobby of the north suburban Chicago community college where I teach. There it was: two gaily festooned tables chock full of free goodies - frisbees, coffee mugs, key chains - all decked out in banners and streamers in bright Bank-of-America red and white. Two non-white salesmen (matching the non-white majority of the college student body) manned the tables. Me being me, I walked up and jovially asked if I could get a credit card. One of the BofA guys sidled up and in a sugary voice whispered in my ear, "And how would you like a mortgage?"

I laughed and asked if BofA prepares students to be financially responsible. Soon my hands were full of booklets and brochures, one quite helpful on this point. Yet in my very next class, a student turned in an eye-opening paper on student credit card use. It drew from a Chicago Tribune article based on a recent Sallie Mae study of student credit card use. Key findings of the study? Here they are, verbatim. Read 'em and weep. Sallie Mae says that
In this time of credit crunch and economic downturn, college students are relying on credit cards more than ever before. Nearly every indicator measured in spring 2008 showed an increase in credit card usage since the last study was conducted in fall 2004. Eighty-four percent of undergraduates had at least one credit card, up from 76 percent in 2004, the last time the study was conducted. The average number of cards has grown to 4.6, and half of college students had four or more cards.
  • Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.
By year in college, credit card usage and debt also is increasing across all categories—credit card ownership, average balance, median balance, those carrying any balance, and those carrying high balances.
  • Since 2004, students who arrived on campus as freshmen with a credit card already in-hand have increased from 23 percent to 39 percent.
  • In spring of 2008, only 15 percent of freshmen had a zero balance, down dramatically from 69 percent in the fall of 2004. The median debt freshmen carried was $939, nearly triple the $373 in 2004.
  • Seniors graduated with an average credit card debt of more than $4,100, up from $2,900 almost four years ago. Close to one-fifth of seniors carried balances greater than $7,000.
Nine in 10 undergraduates reported paying for direct education expenses with credit cards—and the average amount they charged more than doubled since the last study.
  • Ninety-two percent of undergraduate credit cardholders charged textbooks, school supplies, or other direct education expenses, up from 85 percent when the study was last conducted, in 2004.
  • Nearly one-third (30%) put tuition on their credit card, an increase from 24 percent in the previous study.
  • Students who used credit cards to pay for direct education expenses estimated charging $2,200, more than double 2004’s average of $942.
  • The most common education expenses charged were textbooks (76%), school supplies (75%), and commuter costs (54%).
  • Food (84%), clothing (70%), and cosmetics (69%) ranked at the top of other expenses charged.
Many college students seem to use credit cards to live beyond their means—not just for convenience—and more than three-quarters incurred finance charges by carrying a monthly balance.
  • Sixty percent experienced surprise at how high their balance had reached, and 40 percent said they have charged items knowing they didn’t have the money to pay the bill.
  • Only 17 percent said they regularly paid off all cards each month, and another 1 percent had parents, a spouse, or other family members paying the bill. The remaining 82 percent carried balances and thus incurred finance charges each month.
One-third of students rarely or never discussed credit card use with parents, and nearly all undergraduates would like more information on financial management topics.
  • Two-thirds of survey respondents said they had frequently or sometimes discussed credit card use with their parents. The remaining one-third who had never or only rarely discussed credit cards with parents were more likely to pay for tuition with a credit card and were more likely to be surprised at their credit card balancewhen they received the invoice.
  • Eighty-four percent of undergraduates indicated they needed more education on financial management topics. In fact, 64 percent would have liked to receive information in high school and 40 percent as college freshmen.
Question for President Obama: in light of these findings, what is your administration doing to keep American college students from being further exploited by the very banks whose business models crippled the global economy and whose non-exploitative conduct your administration insists is critical to recovery? And more important, what is your administration doing to make college more affordable for all qualified American students? (Here's how civic media can empower college students and others to address and help solve the problem.)

This morning I see that BofA stock is rising in early trading"amid reports that it needs $34 billion in new capital." Who's got the barf bag? For students, the Tribune article has these tips:
Several student credit cards have interest rates of 14.99 percent for those with good credit, according to the Web site Federal Stafford loans have interest rates of 6.8 percent. Private-school loan rates average about 8 percent, according to

Monday, May 4, 2009

May 4: Could the Storm Be Winding Down? Is Obama's "Glimmer of Hope" More than Just a Glimmer?

Let's look at the upside for a change. Lot's people are saying the worst may be over. The chorus is growing. Even my trader buddy Big Bill is thinking that the market rally could extend past summer and through the December holiday season.
  • Warren Buffet on the topic of government actions to save the economy says "Overall I commend the actions that were taken. To expect perfection from people working 20 hour days and getting hit by new and sometimes bad information - when you’re getting punched from all sides - you’re not gonna do everything perfectly. I think overall they did a very good job…" (5/2)
  • Albert Bozzo at CNBC says a small but growing number of economists is saying that the "US Economy Could Recover Much Sooner Than Expected" (5/4)
  • Even Nouriel Roubini seems to be moderating his gloomy views somewhat (4/27)
  • Global Markets are hitting seven month highs (Reuters 5/4)
  • This John Authers video shows that markets are rising globally due to faith in China's economic upturn (FT 5/4).
  • Ben Bernanke testifies that the U.S. "may be stabilizing" (FT 5/5)
  • Libor rates fall to historic lows (FT 5/5).
  • Martin Wolf endorses Obama's (and FDR'S) pragmatic conservatism and the stress tests - with reservations (FT 5/12)
This list is just underway. SEND LINKS! (Good ones are not easy to find.)