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An Economy Only a Mother Could Love
Tweet Share on Facebook September 10, 2009 Comment (8)So here we are, in the midst of a recovery. Remind me: How is this different from a recession?
Oh, right: Some things are getting worse more slowly than they used to, and other things have gotten so bad that they can't possibly get any worse. And a few things are actually getting better. When economists add it all up, they're tallying the first net gain in more than a year.
On the plus side, corporate profits have picked up and business executives are more optimistic. All that stimulus spending and those aggressive maneuvers by the Federal Reserve are kicking in. So are all the layoffs—in a good way: With fewer workers, companies have enjoyed a surge in productivity. Moody's Economy.com believes the recession that officially started in December 2007 officially ended in August 2009. Hooray! It's over!
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4 Conundrums That Impede Healthcare Reform
Tweet Share on Facebook September 8, 2009 Comment (71)Everybody agrees that something is wrong. Yet it remains remarkably hard to fix our $2 trillion healthcare system.
Part of the reason, obviously, is that a lot is at stake. Healthcare accounts for 16 percent of the economy, a far higher portion than in most other developed nations. Yet even though we pay more, the care we get is hardly better and in some cases worse than what's available elsewhere. President Obama's plans to improve the return on our healthcare dollar would affect the livelihood of millions—some for the better, and some for the worse. That makes healthcare reform an epic political battle.
[See why postal-style healthcare might not be so bad.]
But the sporadic availability and skyrocketing cost of healthcare are inherently vexing problems that have bedeviled reformers for 50 years. Here are a few of the factors that make it so difficult to revamp America's healthcare system:
Exorbitant costs are often hidden. The foremost problem with healthcare is its cost, which is rising at least twice as fast as overall inflation. Healthcare is becoming an unsustainably large part of the economy. Yet many of the people hurt most by this problem are oblivious to it.
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5 Bailouts That Did Some Good
Tweet Share on Facebook September 4, 2009 Comment (8)Is there such a thing as a good bailout? If you're the one getting the money, you might think so. But most Americans haven't received a capital infusion from the U.S. Treasury, and they've grown disgusted with the taxpayer funds lavished on failed banks and other companies that helped cause the worst recession in 80 years.
The massive financial rescue that the government began engineering in September 2008 wasn't an immediate turnoff. But billions in bonuses to executives at firms dependent on corporate welfare, like AIG, Citigroup, and Bank of America, have made "bailout" a dirty word. The furor has obscured the probability that government intervention in the economy, no matter how distasteful, most likely prevented a deeper, longer meltdown and far worse unemployment.
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The 5 Most Regrettable Bailouts
Tweet Share on Facebook September 4, 2009 Comment (15)Has anything good come from $3 trillion worth of bailouts over the last 18 months? To be fair, probably. After Lehman Brothers failed in September 2008 and other Wall Street firms began to founder, urgent government intervention forestalled a deeper financial panic and perhaps even a depression. Instead of talking about a recovery today, we could be facing steep double-digit unemployment and many more months of misery.
But the Year of the Bailout also entailed some disturbing moments, and there may still be unhappy consequences. Here's my list of the worst bailouts:
AIG. Did the Federal Reserve know what it was getting into on Sept. 16, 2008? That's the day AIG would have collapsed if the Fed hadn't issued $85 billion in credit to the huge insurance company in exchange for a 79.9 percent ownership stake. The problem wasn't AIG's insurance units, which constitute most of the firm, but an internal hedge fund, AIG Financial Products, that was basically backing huge gambles with solid insurance assets. When the hedge fund bet wrong on billions in mortgage-backed securities, it imperiled the entire company.
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10 Gaffes by Doomed CEOs
Tweet Share on Facebook September 3, 2009 Comment (28)"When markets are in trouble," wrote John Kenneth Galbraith in 1954, "the phrases are the same: 'The economic situation is fundamentally sound' or simply 'the fundamentals are good.' All who hear these words should know that something is wrong."
The famed economist was writing about the 1929 stock market crash, but Galbraith's insights are as timeless as he intended. Beginning in 2005, there were signs that a supercharged real estate and financial boom were getting out of control. By 2007, the apparatus was starting to overheat, and in 2008, as we all know, the system nearly melted down. Yet right up till the moment the gears seized, many of America's corporate bosses continued to insist that the fundamentals were sound. Here are 10 of the most ignominious reassurances from the Great Recession that began in 2007:
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4 Problems That Could Sink America
Tweet Share on Facebook September 2, 2009 Comment (308)If we're lucky, the recession is winding down, and life will start to feel a bit more comfortable before long. But that doesn't mean things will go back to the way they used to be.
The global recession that began in America's housing market has shaken the world's economic order and possibly knocked the United States down a notch or two. The spendthrift American consumer is out of money. American wages are flat. Despite some hopeful signs, the U.S. economy could muddle along for years.
[See why a housing rebound could take 20 years.]
Meanwhile, actions in China—rather than the United States—may have been the initial trigger for a global economic recovery. Many other nations will grow faster than the United States over the next few years and command an increasing share of the world's resources. "The message to Americans," says Mauro Guillen, an economist at the University of Pennsylvania's Wharton School, "is you need to redouble your efforts to be more competitive."
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How the Bailouts Could Have Gone Better
Tweet Share on Facebook September 1, 2009 Comment (19)Did they work?
With the financial meltdown finally contained and the Year of the Bailout drawing to a close, we can start to make some meaningful assessments about whether hundreds of corporate rescue packages did more harm than good. It's probably fair to say that aggressive government intervention in the economy, starting with the Bear Stearns bailout in March 2008, prevented a deeper collapse and maybe even a depression. But the government also erred on the side of doing too much and propped up some huge, mismanaged companies that would have, and perhaps should have, failed. To gauge the consequences of all the bailouts, I spoke recently with Barry Ritholtz, author of Bailout Nation and CEO of research firm FusionIQ. Excerpts:
Rick Newman
The global economy is mysterious, even scary. Chief Business Correspondent Rick Newman connects the dots. In addition to his writing for U.S. News, Rick is the co-author of two books: Firefight: Inside the Battle to Save the Pentagon on 9/11, and Bury Us Upside Down: The Misty Pilots and the Secret Battle for the Ho Chi Minh Trail.
Read Rick's latest blog entries here.
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