Category Archives: Economy

Digesting news stories focused on the economy…

Occupying Wall Street

It’s Monday, July 10, 2006, and I’m wearing a dark suit and pantyhose, standing in a sea of dark suits, all nervous and fidgety.  It’s the first time I’ve worn something from the Misses section at TJ Maxx, and it feels like a personal milestone.  Goodbye, Juniors, with your bedazzled t-shirts and l.e.i. jeans with patches on them: I’m a suit n’ pantyhose woman now.  And why wouldn’t I be, here, in midtown Manhattan, standing in the marbled lobby of a $40 billion company on the first day of my summer internship, the first job to pay me more than minimum wage, the first place where I’ve spent a whopping $89 on a suit jacket to still look like a street urchin in a Brooks Brothers catalog.  I’ve made it, Ma, I’ve made it!

As our group of eighty-or-so interns is herded into the auditorium for orientation, we pass through sleek elevator banks hidden by translucent glass panels, the ultimate markers of lobby opulence.  I never thought I’d end up in this kind of fancy place; in fact, my almost-Marxist teenage self would’ve totally pooh-poohed it: “Ugh, so corporate.  Gross.”  But now, sitting in a plush leather chair, facing a gourmet spread, I’m thoroughly ready to drink the hoity corporate Kool-Aid: drink it, guzzle it, pour it into an IV bag and take it intravenously, whatever.  All I know is that I have just one goal now: do well this summer and get a full-time offer, ‘cause this is where I want to be.  Maybe, just maybe, I could work here for the rest of my life.

“Hello, summer analysts,” the HR rep says. “Welcome to Lehman Brothers.”

HILARITY ENSUES

My mom always says that you don’t know what you like until you try it.  This is her rationale for why “trying out” Wall Street would be a good idea (although this doesn’t seem to extend to drugs, skydiving, or black guys).  In truth, I’m totally up for it.  All my friends are working in banks, so Wall Street sort of becomes our white-collar pregnancy pact.  We get the chance to live in New York, make money, and piss it away like spoiled-rotten socialites–what could be better?  Plus, there’s a certain prestige that comes with working on the Street: If you manage to land an internship at one of the big investment banks, you earn 50 douche points for Gryffindor, and everyone at Harvard wants to be Head Douche.

So that’s how I end up at Lehman: eager, young, impressionable, and in search of shits and giggles.

After our week-long orientation, I’m placed in the Equity Research group, reporting to a man who is the spitting image of Mr. Bean (perhaps with less charm).  His second-in-command, and the guy who is in charge of dealing with me, is a big, rotund, former offensive lineman who I call Diabetes, but not to his face.  While they’re nice, well-mannered, aromatic men, I get the feeling that despite my best efforts, giggles will be hard to come by.

Once I start the job, Mr. Bean and Diabetes have this crazy notion that I’m actually interested in what they do.  So they regale me with stories about free cash flows and outsize valuations and setting appropriate price targets for the stocks they cover.  Diabetes gives me a stack of research reports to read, which I use to create a little fort in my cubicle to play Berlin Wall (“Left hand, tear down this wall of annual reports!” “Okay, right hand!” *Crash.* And that’s the end of the game).  I find ways to amuse myself, because while Lehman might have a lot of money (in 2006), it’s severely lacking in personality.  At one point I try to joke around with Mr. Bean: “You’re such a lucky guy, getting to play around with all these models.”  Blank stare.  “Like, financial models.”  Blank stare.  “It was a joke.”  Curt nod.  “Okay, if you need me, I’ll be at my desk, trying to draw a pterodactyl in Windows Paint.”

I have a feeling this will be a long summer.

DEPRESSION HITS

As the weeks go by, I start to understand why bankers have such a high suicide rate.  The job is a depressing combination of number crunching and Powerpoint presentations.  Sometimes the highlight of my day is doing extensive data entry.  Other times, I get the privilege of formatting a chart.  I’m beginning to think that my job can be filled by a seventh-grader with basic typing skills and a knack for bar graphs.

Soon I realize that I can get by with minimal effort as long as I present something that already confirms Mr. Bean’s hypothesis: “You were right again, the lagged NASDAQ index is a better indicator for revenue trades.”  This strategy seems to work well, especially when combined with my flowery new finance vocab.  Still, even though I’m barely working, often eating, and most likely napping in the handicapped stall with the bench in it, I’m in the office past 9 pm every night.  Because despite the Wall Street stranglehold on words like “optimization” and “efficiency”, the mantra of “face time” rules over them all.*

In my last week at Lehman, I’m given an offer to return full-time.  At the start of the summer, I would’ve been ecstatic.  Now, I’m not so sure.  Diabetes takes me out to lunch to discuss “my future at the company.”  His argument is a good one: it’s a great offer, at a prestigious company, in the best city in the world.  But I have spent the last eight weeks painstakingly manufacturing fun in a job I hate.  I know now that no gourmet spread will be able to sway me.

So, I decline my offer.  Two years later, Lehman declares bankruptcy.  I guess it was a good decision.

SHITS AND GIGGLES

I never foresaw the economic crisis that would lead to Lehman’s demise.  As much as I like to think that I psychically predicted this, I simply left because I didn’t enjoy the work.  And since that summer, I’ve been detached from the turmoil that’s surrounded Wall Street.  I can sympathize with both the protestors and the good people I used to work for.  Ultimately, though, I hope that both sides can see that we’re in this slog together: We need our banks to efficiently allocate capital, and we need an informed public to keep it in check. We need enthusiastic young people to work hard and kick out those caught napping in the bathroom.

But no matter how much we compromise, everyone—people and institutions—must recognize the human fallacy that can be the source of our problems: it’s much harder to take a stand on your own, and it’s much easier to blindly follow the crowd.  That’s how I ended up shoveling shrimp cocktails into a TJ Maxx power suit, and that’s how our country got stuck in this current financial mess.

When I was at Lehman, our group published a 100-page research report in August 2006.  In the report, we predicted that one of the stocks we covered would be trading at $32 by next year, based on our sophisticated (financial) models.  Diabetes had wondered if we were being too bullish, so Mr. Bean asked me to compare our target to that of the other banks.  After a thorough Bloomberg inquiry, I found that we were right in line with the Street: all the other big firms (Fidelity, Moody’s, Merrill, etc.) were giving targets within spitting distance of $32.  So we went with it, confident that we were in the ballpark.  Make little ripples, not waves, they say.  All these smart people can’t be wrong, right?

A year later, the purported $32 stock was at $3.

Oops.

————————

*Also, in most big banks, if you work past 8 pm, you can order dinner. If you work past 9, you can get a black car to take you home. So if you’re already there at 7:30, why not stick it out for another half-hour and get some food out of it? Resourcefulness.

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Aliens for World Peace

I feel sorry for humanity sometimes.

tricycleI feel sorry when I hear that a Hispanic woman’s voice should only be used to enforce the “immutable” laws written by 300-year old white men. I feel sorry when I hear the term “world peace,” which now serves solely as a popular chant for beauty queens, and a punchline for stand-up comedians. I feel sorry when a tricycle needs to be locked up on the streets of New York City, because someone is afraid that it will get stolen.

I am sorry for all of these threats to humanity: for our divisive politics, for the wanton hate in the world, and for a tumbling economy that would drive thieves after three-wheelers.

But, I have a solution.  A solution that will boost our economy, bring people together, and elevate our relations with countries around the world:

Bring on the aliens.

Yes, aliens. Imagine flying saucers, little green men, and Joan Rivers’ face.

An alien attack on the White House brought people together in the movie Independence Day

I’m serious here.  It seems that most of the world’s troubles derive from our human nature to seek a common enemy.  So, think about it: The guys running Area 51 call up their alien pals and say, “Come on in!”  Thousands of alien spaceships fly through the hole in the ozone layer created by global warming. These aliens are smart (since they have spaceships) and angry (since they’ve been on a very, very long road trip with no rest stops).

Americans are soon alerted about the alien invasion, and boy, we are afraid. Afraid, and mad, because these damn spaceships are blocking satellite reception for DirecTV.  Harry Reid and Mitch McConnell immediately deliver a joint speech about togetherness in the face of adversity. Sarah Palin enchants us all with a story about how she can see outer space from Alaska. At the same time, a modern-day New Deal is put into place, creating thousands of jobs for ordinary Americans to build alien entrapment plants and spaceship bombers.

A U.N. coalition is quickly formed to fight the aliens, whose spaceships are now flying all over the globe.  Kim Jong Il offers up his arsenal of nukes.  Ahmadinejad  starts pumping oil to support a new military.  And given that America is still the global leader in science, technology, and alien objects (this is where Joan comes in), we are tasked with spearheading the charge.  After a rousing speech by Bill Pullman, Will Smith leads the first group of alien freedom fighters out in space.

Bound together by fear, and a renewed belief in our collective humanity, we shed our ideological differences and stand hand-in-hand with our human neighbors as we watch the fireworks above.

Of course, this is assuming that the aliens actually want to attack us.  Instead, if they are coming in peace, then it would seem rather inhumane to mercilessly eliminate them…  But if aliens can bring us (human) world peace, then I say, bring us the aliens.

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The Working Poor

I recently finished The Working Poor by David Shipler.  This was a monumental occasion on many fronts, since it’s been at least three or four months since I read a book in its entirety.   It was also an incredibly educational, enlightening read:

(From Amazon.com) The Working Poor examines the “forgotten America” where “millions live in the shadow of prosperity, in the twilight between poverty and well-being.”  These are citizens for whom the American Dream is out of reach despite their willingness to work hard.

workingpoorWe always think that if we work hard enough, we should be able to live a comfortable existence.  We may not be rich, but we won’t be living in destitution, either.  But Shipler points out that any one of the following factors can obstruct our socioeconomic mobility upward: poor health and health care, bad decisions (drugs, alcohol), environment (inadequate housing, violence in the community), race and ethnicity, and lack of educational opportunities, just to name a few.  Some of these derailing factors are self-inflicted, some are the results of traumatic events or abuse, some are perpetuated by our institutions, and some are just the results of bad luck.

So what can we do about the working poor?  Should we even care?  After all, we’re already paying taxes to support welfare, Medicaid, and various other anti-poverty initiatives.  But clearly, it’s not enough.  America still lacks several institutions of other developed countries, with universal healthcare being the most cited example.

Issues like universal healthcare and welfare reform are inherently political, and oftentimes the debate will focus on money–how are we paying for this?  But outside of an economic discussion about the inequities of a free market, consider your daily interaction with people who may be struggling near the poverty line.  These are taxi drivers and Wal-Mart greeters, crop pickers and factory workers, men, women, and families who are stuck in a perpetual cycle of anxiety over putting food on the table.

Even if we abide by the utmost conservative principles and say, “Well, they didn’t study hard enough in school”… or, “They made bad decisions to put themselves in their situation”, I believe we still have a self-interest in making sure that these people are decently fed, clothed, and healthy.

Every morning at 8 AM, I take a van to work, as do many of my co-workers who live in New York but work in New Jersey.  The van picks me up in Midtown, drives up along the west side highway, crosses the George Washington bridge into the Jerz, and drops me off at work so that I can pay my rent, buy my groceries, and save some money for the future.  But my future depends daily on the van driver: when we’re speeding over the GW bridge, I am at his mercy.  His mood, his health, his attentiveness: they all affect me.  This is a man who most likely makes less than $12/hour, with minimal or no benefits from his employer.  He probably hears people bitch and moan about their well-paying jobs every day.  Do I want him to be well-fed, to feel like he has something to live for, to keep his job for?  Of course.

gwbridgeAnd if it’s in my self-interest that this man deserves something like healthcare, then what about people who I never see?  What about the people who sew my clothes, pick my vegetables, and fix the roads over which I drive?

So when I pay taxes, I consider it an investment in society, in my security.  I wouldn’t mind paying more in taxes so that my van driver can get adequate healthcare; I don’t see anything wrong with taking a little from the top to make sure that the bottom can have basic needs met.   It may mean that our economic growth shrinks a bit, but I’m willing to sacrifice that for a more stable, less anxious society.  Because Shipler is right: no one who works hard in America deserves to go hungry.

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Bailouts By The Numbers

Got Money?  / You Know It / Take it out your pocket and show it then throw it / This a way / That a way/ This a way / That a way…

citigroup$700 billion: TARP (also known as “stocking stuffer” on Wall Street)

$787 billion: Obama’s new stimulus package

$18-$50+ billion (and rising): Auto industry

$75 billion: Mortgage bailout for 4 million homeowners… ($18,750 per homeowner)

aig$80 billion+ (and more than $150 billion more in guaranteeing its loans): Citigroup

$150 billion+ (and rising): AIG

$400 billion: Fannie and Freddie

Total of just these bailouts: $2.2 trillion

In Comparison:

oprah-rich1$14.3 trillion: GDP of United States ($4.8 trillion: GDP of #2 Japan, $4.2 trillion: GDP of #3 China)

$65 billion: Market cap of Enron in its heyday

megamillions$58 billion: Net worth of Bill Gates

$1.5 billion: Net worth of Oprah

$750 million: The record amount that Obama raised during his run to the White House

 

Madoff’s $50 Billion Disappearing Act

madoff115: Countries with less than $50 billion in GDP (including the Dominican Republic, Kenya, and North Korea)

235: Times you’d have to win the Mega Millions $212 million jackpot

820: Number of Empire State Buildings you could buy, according to a recent appraisal ($61 million)

bentley1,786: Years you could (over)pay A-Rod ($28 million/year)

146,630: Number of new Bentleys you could buy 

Hitting the Fan

$300 billion: Market cap of GE in 2008

$71 billion: Market cap of GE today (around $7 a share)

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With $700B, I’d Like to Buy Belgium, Greece, and Ireland, Please

UPDATED (2/5/09): First, the government decided that “bailout” wasn’t all that PR-savvy, so instead, $700 billion became part of the Troubled Assets Relief Program (TARP). TARP then went to Wall Street, where it funded employee bonuses and baseball stadiums. Instead of creating liquidity in the markets, the Wall Street banks hoarded their TARP money, perhaps to save up for corporate jets, Vegas getaways, or 19th-century credenzas. Now, with a new year, a new president, and a new bailout package, we’re hoping for a different result. With BusinessWeek already deeming the original bailout a “bust“, I’m looking back on what I wrote when the TRAP (sic) was first proposed. After all, with $825 billion or more at stake, a call for prudence may find a receptive audience today.

ORIGINALLY POSTED (9/25/08): By now, most of us know that our economy is struggling. Credit is scarce, banks are teetering, and President Bush finally came out of his batcave on Wednesday to make a sobering speech. Giving a concise summary of how our economy began its precipitous freefall, the President conceded that this doomsday had been building “over a long period of time”… meaning, before his eight years in office.

However, as much as I found myself agreeing with some of the President’s assessments, I could not help but feel disturbed by the hastily-constructed $700 billion rescue plan, and the President’s intentions of pushing it through as soon as possible. Haven’t we heard the same act-now-or-forever-lose-your-peace spiel before (cough, cough: Iraq)? Except this time, instead of peace, we’re losing our houses, our money, and our material possessions. I could not help but be amazed at the President’s staunch conviction: warning of imminent recession and homelessness, he appealed to the same sense of urgency with which he implored Congress to start the war five years ago. “Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold. More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet….Millions of Americans could lose their jobs….And, ultimately, our country could experience a long and painful recession.”

But, isn’t this the administration that gave us the Patriot Act, a trillion dollar oil quest, and an economic stimulus check that was supposed to prevent things like this from happening? Needless to say, the President has not had a favorable track record in times of crisis (or, for that matter, in times of peace). And the impact of this decision has consequences not only for our country now, but globally for years to come. So instead of a call for action, this should be a call for prudence. Instead of asking for our money, the President should be asking for our patience. Economists demand it. Congress needs it. Everyone knows that we can’t prolong the decision on this bailout, but we can’t just pound it out in less time than it takes to buy a ficus from Amazon.com.

In the end, the Bush administration’s proposed $700 billion plan may be the best way to get us out of this turdburger. But if that’s the case, I hope that our lawmakers will have come to their conclusion after setting emotions aside and considering all other options. After all, $700 billion is a lot of money: that’s 778 Big Macs per person, 4 brand new Mac laptops per household, or 833 million Maxim yearly subscriptions for life. And so if this bailout goes through, and Americans are forced to give up either food, computers, or our trashy magazines, whoever wins the upcoming election will have to deal with some pretty angry (and hungry) constituents.

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Auto Industry Bailout: For or Against?

The case AGAINST:

Simple economics: If the Big Three automakers fail, it’s because someone else is doing it faster, better, and cheaper. And that won’t change with a measly $15 bn loan that can barely cover the companies’ monthly billion-dollar losses… As they say, you can’t teach an old dog new tricks. Any bailout will just be delaying the death.

carsTime to restructure: Just as it doesn’t make sense to grow oranges in Minnesota, it may not make sense to mass-produce cars in the US. GM, Ford, and Chrysler all have profitable overseas operations, but they’re getting squeezed here at home with higher costs, tighter regulations, and powerful unions. We’ll have to take the hit sometime, so why waste taxpayer money? It’s time to acknowledge that the economics just cannot support an auto industry in Detroit.

Bailing out a lack of innovation: Finally, Tom Friedman likens an auto industry bailout to funding typewriter companies on the eve of the birth of computers.

The case FOR:

lions_fanLost jobs: If there is no bailout and the Big Three automakers must reduce production, a conservative estimate is that we will lose 453,000 jobs next year; others have said it could be as bad as 2.5 million. What will all these people do next? Watch the Lions go 0-16?

Repaying taxpayers: Letting the car companies fail would lead to less tax revenue from lower incomes and lost jobs–which may end up costing us more than an upfront loan funded by taxpayers. Plus, there’s always the chance that the car companies could take the loan and actually turn things around… meaning we’d get our money back eventually, even if it’s in yen.

Like our economy isn’t crappy enough already… let’s just make it worse. The death of the auto industry would have a ripple effect on the entire economy, just as we saw with letting Lehman fail (bailout of AIG, collapse of WaMu, hello-goodbye of $700 bn). If the Big Three go down, taxpayers may eventually have to jump in and bail out everyone on down in the supply chain, plus insurers, pension guarantors, etc. How long could it take to get out of this? Well, how long have the Lions been in the “re-building” phase? Years and years.

What do you think?

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It’s Beginning to Feel a Lot Like… a Recession

So it’s official: we’re in a recession. On Monday, the mere confirmation that we’re in a recession caused the Dow to drop 680 points. Did we need more proof? The auto industry has been on the verge of collapse for the past few months. Banks are still on life support, trying to raise capital. And yesterday, Harvard announced that its endowment lost 22% of its value in the past four months, or, oh just $8 billion.

And how are our harbingers of corporate America doing?

  • Google (GOOG), which was approaching $700 at the beginning of this year, is now trading at $280
  • General Electric (GE) is currently trading at $18, a ten-year low, and down from $37 since March
  • Goldman Sachs (GS) closed at $199 in May, a mere six months ago; since then, its stock has fallen 65%, now trading at $68

It is not a good time to be checking your 401(k).

It seems like the complete desecration of the stock market has come painfully fast. So, out of curiosity, I looked up some of the other recessions in this century to see if we saw similar declines in the market. According to the gospel of Wikipedia, these are the official recessions since 1929 that have lasted over two years:

  • 2001-03: Bursting of dot-com bubble, September 11, Enron and Worldcom scandals
  • 1980-81: Result of 1979 energy crisis and tight monetary policy to control inflation
  • 1973-75: High oil prices and Vietnam War leading to stagflation

From Google Finance, I looked at a four year period before and after the recession – I’ve also included the largest % declines in the Dow during this time.

recession2000

recession1980s

recession1970s

recessioncurrent1

Some things that jump out:

  • With our current recession, it’s only been a year, and the Dow has already lost 36%, or over 4,800 points. The last time it was this bad, during the 1970s, this pain was spread over two whole years.
  • Bottoming out seems to occur about 1.5 to 2 years after the high point… which means we might still have some time to fall.
  • The good thing is, in all cases, we see the Dow bouncing back a few years after we hit rock bottom… so, if we’re patient, our 401(k)s may recover their losses in a couple years.

Guess I’m waiting until 2011 to buy that flat-screen TV…

Updated (3/11/09): Four months have gone by, and Google and Goldman seem to have recovered nicely… while GE is now trading around $9. Hmm. But not to worry, the General certainly has company: the Dow is now 51% removed from December 2007, versus a mere 36% in December 2008. Again, just by looking at these graphs of the previous recessions, it seems like we’ve got at least two years to go from the peak… By my calculation, it’s looking like December 2009 may be the inflection point where the market will finally bottom out and perhaps start turning up again. With the way things are going now, I’d hope so.

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