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Where Bailout Money Goes to Die
Tweet Share on Facebook July 28, 2009 Comment (11)When CIT Group, a medium-sized lender, faced the threat of bankruptcy recently, it raised an uncomfortable prospect for the officials in Washington managing the bailout of the financial system. CIT got $2.3 billion in bailout funds last year--yet it was still failing. And the government decided not to offer any more help. So if CIT declared bankruptcy, taxpayers would be out their $2.3 billion.
CIT averted bankruptcy, for now, but the brush with insolvency highlighted one of the biggest risks of the entire bailout scheme: that taxpayers won't get their money back. That problem has been overshadowed recently by some good news from firms like Goldman Sachs and JPMorgan Chase, which have paid back loans they got under the government's Troubled Assets Relief Program. So far, 34 companies have returned about $72 billion in TARP funds to the government, according to a bailout tracker maintained by journalism site ProPublica.
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The Trouble With Healthcare Reform, In Numbers
Tweet Share on Facebook July 22, 2009 Comment (43)It will be just like getting a complex diagnosis from the doctor: As President Obama and other political leaders intensify their battle over healthcare reform, they're going to bombard bewildered Americans with jargon about insurance exchanges, play-or-pay rules, and various formulas for tax credits, penalty fees, and income eligibility.
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6 Small Steps Toward a More Normal Economy
Tweet Share on Facebook July 17, 2009 Comment (10)The Great Economic Recovery Hunt has been underway for about half a year, and the quarry bag is still pretty empty. A few optimists have tried to wring hope from fuzzy statistics showing that retail sales or housing starts or some other indicator aren’t as bad as they could be. But with the unemployement rate at 9.5 percent and going higher, that’s been unconvincing.
A recovery that will actually feel like one is probably a year away, at best. But we may finally be seeing signs that some parts of the economy are turning the corner. Here are six:
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8 Industries That Will Sit Out a Recovery
Tweet Share on Facebook July 16, 2009 Comment (63)Sooner or later, the economy's going to turn a corner. Some think it won't be until 2010 or even 2011, since unemployment seems certain to rise for the foreseeable future and fall only slowly after it finally peaks. Others are more optimistic, pointing to evidence of an imminent turnaround. Merrill Lynch, for instance, declared in a recent research note that "the recession is over."
Whenever it happens, a recovery is likely to be sporadic and uneven. Industries that have held up over the last 18 months, like healthcare, education, pharmaceuticals, energy, telecom, and some high-tech sectors, should remain stable places to work. A few industries that have been battered during the recession may actually be poised for a bit of growth, since failed companies and consolidation have left openings that healthy companies can exploit. Some smaller regional banks, for instance, could nab credit-card business from wounded giants like Citigroup and Bank of America. And while billions in government bailouts once signaled the fragility of the financial and insurance industries, they've also helped contain the damage, which could bring back some jobs over the next couple of years.
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Why We Should Cheer Goldman’s Fat Profits
Tweet Share on Facebook July 13, 2009 Comment (21)It’s tempting to feel bitter, isn’t it? Many of us are sucking wind on account of the recession, with the awful sensation that things are going to get worse, not better. And here comes Goldman Sachs, the royalty of Wall Street, racking up a huge $3.4 billion quarterly profit and making plans to pay bonuses that could average well over half a million dollars per employee.
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Why GM Is Ready to Rebound
Tweet Share on Facebook July 10, 2009 Comment (120)It may take awhile to convince car buyers, but General Motors has emerged from bankruptcy with better prospects for a profitable future than virtually any of the automaker's critics predicted a few months ago. Here's why:
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11 Places With a Worse Economy Than Ours
Tweet Share on Facebook July 10, 2009 Comment (42)When times are tough, one thing that tends to raise the spirits is knowing that somebody else has it worse. And as wretched as the U.S. economy seems, it's not as bad as in other regions.
The International Monetary Fund's latest tally of world economic conditions forecasts a 2.6 decline in U.S. economic output for all of 2009, and anemic growth of 0.8 percent in 2010. That's more optimistic than the IMF's prediction from three months ago, but those are still lousy numbers. A weak economy throughout 2010 would mean a bleak employment picture, an agonizingly slow housing recovery, and another year or two likely to feel like a recession, whether it's technically labeled that or not.
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What Obama Must Do Before Stimulus II
Tweet Share on Facebook July 9, 2009 Comment (73)Imagine President Obama addressing the nation on prime-time television and saying, "The government has done enough to bail out the economy. You're all on your own now."
He very well could. The total federal commitment to fiscal stimulus, corporate rescues, homeowner relief, and various other bailouts is nearly $10 trillion (that's $10,000,000,000,000) over who knows how many years. You'd think that might be enough. But the economy is still lousy, unemployment is soaring, and Vice President Joe Biden now says the Obamanauts "misread how bad the economy was" when planning their recovery package earlier this year.
Biden wasn't just flapping his restless mouth. By issuing a quasi mea culpa on the economy, he was starting an official discussion about another round of stimulus spending, which would actually be the third in this recession. (Remember George Bush's $150 billion worth of tax rebates in 2008?) It's obvious that the economy still needs help, and it's the government's job, more or less, to aid its citizens. But there's one kind of stimulus that Obama and virtually every other politician have completely avoided so far: a plea for greater self-reliance.
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Cars Hurt Most by the Recession
Tweet Share on Facebook July 8, 2009 Comment (38)Last summer, when the prospect of a General Motors bankruptcy started to materialize, CEO Rick Wagoner was insistent: A Chapter 11 filing would be ruinous.
He was wrong, but not by a lot. GM and Chrysler are both still in business following unprecedented bankruptcy filings—but only thanks to billions in federal aid and government guarantees backing their products. And the two automakers will look quite different in their new incarnations. At GM, Wagoner is gone. His replacement, Fritz Henderson, has cut half of GM's eight divisions, leaving Chevrolet, Cadillac, Buick, and GMC. Chrysler is now owned by Italian automaker Fiat and desperately awaiting fresh technology and new models needed to become competitive. Many current Chrysler models may simply disappear.
[Slideshow: Cars Hurt Most By the Recession.]
Those are the biggest headlines, but the rest of the auto industry is reeling as well. Overall sales are down about 35 percent from last year, which itself was a bust, thanks to $4 gas and an incipient recession. Toyota, the world's biggest automaker, lost nearly $5 billion last year and might fare no better this year. Other bankruptcies may be on the horizon, with conglomerates in China and India prowling for bargains and Western know-how amid the wreckage. While some familiar brands could vanish, new ones may soon arrive in U.S. dealerships. Warren Buffett, for instance, believes a Chinese firm called BYD is one of the world's most promising electric-car companies—and has invested about $230 million in it.
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Cars Getting a Boost From the Recession
Tweet Share on Facebook July 8, 2009 Comment (28)America might be in a recession, but the auto industry is in a depression.
Car sales so far this year are down 35 percent compared with 2008, and that was a bad year, too, on account of $4 gas and the start of the Great Recession. Auto sales in the United States peaked at nearly 17 million in 2006, and automakers used to consider 14 million in annual sales a bad year. In 2009, automakers will be lucky to sell 10 million vehicles.
[Slideshow: Cars Getting a Boost From the Recession.]
Some of the victims, like recovering bankrupts General Motors and Chrysler, are well known. But stalwart Toyota is struggling, too, along with its youth-oriented Scion division. Niche brands like Saab and Volvo have lost traction. Nissan's Infiniti luxury division is down.
