Week 5

My first article this week was called "AIG CEO asks employees to repay some bonus money" and was about Edward Liddy, the AIG CEO, and his sit down in Washington about the 165 million dollars the company, who is receiving unbelievable amounts of bailout money in excess of 180 billion dollars, spread out to 400 of its top employees as bonuses. Liddy flimsily attempted to appease some anger by stating that he had "asked" employees of the company that had received in excess of $100,000 to return at least half of their bonus, but that he would not list the recipients names for safety reasons. Liddy explained that the payouts were necessary to retain top employees with specialized knowledge to dispose 2.7 trillion dollars in complex securities that dragged the insurer down last year. Liddy then claimed they had whittled that amount down to 1.6 trillion, while the Washington POst reported that the work of defusing the most dangerous bets placed by AIG was mostly finished, down to 13 billion. Public rage is apparent on this issue, and Congress is even trying to pass a bill on Thursday to recoup most of the bonus money paid to the AIG executives. New York Attorney General Andrew Cuomo subpoenaed AIG for a list of the recipients.

This article really pissed me off. Hearing that the money that our society works for as whole for the betterment of our nation is being used to fill the pockets of greedy executives who let this giant corporation fall to its knees and beg in the first place is absolutely ridiculous. When you are AIG, and you screw up enough to bring one of the biggest corporations in the world to bankruptcy, how can you honestly believe that you deserve a bonus? Especially 165 million spread over 400 people! Thats more than 400,000 each if distributed evenly. Also, the lackadaisical responses Liddy gave to the subcommittee made it seem as if it wasn't a big deal, like "oops my bad too late now". It's his foul up, their his employees, he should straight up tell them to give the majority of their bonuses back. I'm sure these people work hard for these bonuses but a company has to recognize when they don't the luxury of handing out such sizable payouts, and their employees should understand that. If they value their job, they will stay, if they don't then they leave, it seems to me like AIG is going to collapse sometime in the near future anyway.

My next article was name "Fed says let's Twist again after 48 years" and was about how the Federal Reserve on Wednesday flashed back to a campaign almost 48 years that was named "Operation Twist" as it announced the purchase of $300 billion worth of longer-dated Treasury securities, as well asa $850 billion of mortgage securities, to help curb the deepening recession. The Japanese did this in the 1990's and by the Bank of England in recent weeks. The Fed is trying to boost the mortgage securities and debt market to the tune of 1.45 trillion dollars, and has also aggressively tried to support private credit markets, which is a program that could grow to 1 trillion in size. This combination of monetary, credit, and fiscal easing will hopefully slow the recession in the second quarter and spark modest recovery by year-end. However the risk for inflation is high since all this money is going to be printed, adding a lot of parchment into the economy.

These spending plans are beginning to absolutely blow my mind. The money that is being talked about here is a humongous sum of cash. Multiple trillions of dollars being injected into our economy. Hopefully, all this government spending sends us into an even more prosperous era than we were in before this crisis, because there is going to be a huge amount of national debt to pay off. I have to keep reminding myself that this is our money that these people are playing with, and when the Fed decides to print a trillion more dollars, that effects how much the money in your bank account for your kids is actually worth. This is all very scary stuff, I feel like America is one big social experiment now, with the end either being the discovery of something new and cool, or in the end the chemicals we used end up combining into explosive material and blowing up right in our face.

My last article was called "FedEx profit tumbles on global slump" and was about the huge drop that FedEx took in profit. Reportedly, the package delivery company took a 75 percent drop in its profit due to the recession and gave a low quarterly outlook. In the span of one fiscal year the company has reported that its net income went down from 393 million or 1.26 dollars a share to 97 million, 31 cents a share. Fed Ex is considered a bellwether of U.S. economic activity because when the economy does well, companies and consumers ship more goods; in a recession, package volumes drop. FedEx also has a 14 percent revenue drop to 8.14 billion. The company will be forced to suspend paying matching contributions to its 401 k retirement plan reciepients for a minimum of 1 year, and also gay pay cuts and cut man hours to compensate. 

It seems that the economic windfall is really catching every part of our socioeconomic system now. I fear for the job market for when I get out school, hopefully it will be back to normal by that time. I am just surprised about how much FedEx fell within a couple of quarters. Other than that the article was interesting, I'm now thinking of buying some FedEx stock so when things get going again I can see a quadrupled return.

WEEK4

My first article was called "Near-term outlook for U.S. darkening: Fed officials", and was about the economic outlook for the near future and the actions that the Federal Reserve is taking in response to these dismal projections. The Feds main aim is to stimulate the economy by lowering interest rates without causing a rampant inflationary response that would in turn end up screwing the American people more than helping them. The article had presidents of both the Atlanta Federal Reserve Bank (Dennis Lockhart) and the Dallas Fed (Richard Fisher). Fisher states that he expected the first quarter of 2009 to be roughly equal to the 6.2 percent annual rate of contraction seen in the 2008 fourth quarter, a huge hit on the economy. The projected amount of job loss for last month is 648,000, a number that will increase our unemployment rate from 7.6 percent to 7.9 percent. In response to this the Fed has cut interest rates to almost zero and more than doubled the size of its balance sheet to around $2 trillion through programs to support private lending. Lockhart was more optimistic than Fisher, trusting the power of the Fed to act and effectively stimulate our "enormous potential for growth and prosperity". However, the large expansion of the monetary base could lead to inflation at some point, which in response the Fed would have to tighten monetary policy, the problem is, in order to be effective the Fed would have to tighten monetary policy before signs of recovery were underway in order to work properly, something that no one can really foresee. Business does not expect improvement until late this year or early 2010.

I think it is a great thing that we live in a free country where people like Lockhart and Fisher are able to reasonably inform the American people about the going-on's of essential Federal economic institutions such as the Federal Reserve. The information in this article provided a lot of detail as to how bad the state of our economy is right now, which can be useful information for people wiling to use it wisely. However, I feel like some of our economists and great minds have become too math and data oriented about the market. They seem to underestimate how easily an informed opinion from experts in the economy can persuade an average consumer from one set of actions and behaviors to another. It's about time our politicians and educated elite learn that the market is a very psychological place, with a lot riding on the outlooks of its consumers. President Obama and a lot of Congressmen seem to be inundating the press and in turn the American citizen with news of a devastating economic meltdown, which I feel only serves to discourage consumers from spending and putting money into the market and contribute. I feel like these people need to be reasonable and responsible with the information they deal out, and make sure that what they say has America's best interest in it.

My next article was called "Venezuela sees no further Cargill takeovers" and was about the President of Venezuela,  Hugo Chavez, and his relationship to Cargill, a privately owned U.S. food giant. Chavez follows a pretty socialist doctrine, is staunchly anti-American, and is a good ally of Cuba's. Chavez seized Cargill's rice plant because the company seemingly refused to meet Chavez's demand to produce cheaper rice. He has taken similar action against Venezuela's own top food company Empresas Polar, and threatened to nationalize the company if it did not comply to his demands. Chavez has stated that these seizeurs are temporary, that he does not plan on seizing anymore American companies plants, as long as they comply with his demands. Some economists think that this recent grip that Chavez has taken on the food industry may end up contributing to food shortages. Venezuela is a member of OPEC, and is beginning to feel the effect of tumbling oil prices on their economy, which might be a motive for Chavez's action.

This article was very interesting to read, because it explained a lot to me about Hugo Chavez's personality that I have not really come into contact with before. Previously he was more of a name to me, someone I didn't know much about, but now I feel like I've learned some key components of his personality. Chavez seems combative, and extremely demanding. Three weeks ago he won a referendum allowing him to run for reelection again, something that scares me because it seems to defeat the purpose of having an election. He is a powerful man obviously and with no risk of losing the upcoming election he has less reason to care about the people's opinion, which is the major flaw with dictatorship. However, he has been successful in pulling Venezuela out of some serious poverty and has always been one to help out his nations poor. His success makes me question some of my own political beliefs, maybe sometimes countries in dire need of modernization and implementation of an economic base need a strong, demanding, and controlling leader such as Chavez?

My third article is called "U.S. launches 75 billion mortgage plan to aid homeowners" and talked about Obama 75 billion dollar mortgage plan, which is part of a 275 billion dollar housing stimulus program. The article talked about the trouble the current housing market is in, with about 8.3 million properties underwater at the end of 2008 and widening still. The plan aims to help people facing imminent hardship by offering cash incentives to loan servicers to cut monthly payments on single unit homes up to $729,750 in value. Obama hopes that this program will precent forecloser for struggling borrowers and allow standard refinancings for strong borrowers whose homes values have eroded. The only real positive point of the article is when it talks about how Foreclosure sales and how they have surged in these conditions, since foreclosed homes sell at a discounted price compared to what other people are asking for homes.

This article was informative, but pretty boring. It reiterated the weak housing market which I feel I've heard too much about in the past to care about anymore. Anyway, the plan seems pretty fair to me, giving people in trouble because of this crisis a helping hand to stay afloat while making the market a little more accessible to stronger borrowers who might be looking to refinance because of their own home value decreasing. Hopefully this plan will do something in the short term to help this market from free falling more. Its crazy to think that the housing sector is in its deepest downturn since the Great Depression, a place I really hope we are not going to have to revisit anytime soon.