Not Everyone is Playing the TARP Game

Banks in Connecticut, once interested in accepting funds from the Trouble Asset Relief Program, are now “questioning whether it’s worth participating in the program.”

Concerns over the undefined terms and changing conditions imposed on those accessing TARP money has made the banks uneasy about such long-term commitments.

President and CEO of Connecticut River Community Bank, William Attridge, said that the fundamental problem with the program is its open-endedness and the reliance on total-compliance from the banks regardless of any future changes.

President Obama and members of Congress “are under public pressure to toughen conditions on the TARP money in order to improve the poor public image.”

The TARP program was originally created with the intent to “revive bank lending” according to Treasury officials. However, with the obscure terms and conditions currently associated with the program, some argue we’ve lost sight of TARP’s original purpose.

With approximately $293.7 billion in TARP funds distributed as of Jan. 23, undefined regulation doesn’t have all banks protesting.

Some smaller bank feel that increased capital will help the banks “continue to steal market shares from larger banks and help offset inevitable weaknesses among borrowers due to the recession.”

It remains to be seen whether or not the Connecticut bankers will take TARP money, but too many unknowns and perceived risks will certainly be factors in its approval.

We Sneezed, They Got Pneumonia

Don’t worry about China taking over the US economy. Despite what all the talking heads on TV and the radio talk shows are saying, there isn’t another country out there that hasn’t been hammered at least as badly as we have by the financial meltdown. The problem with any other country attacking the US dollar, for example, is that they are all holding a lot of US dollars. You probably remember last year they were worried about the fact that we import so many goods that we have big “trade imbalances” – meaning that we buy more of their goods than they buy of ours.

Now remember this: we pay for those imports with dollars. So, again, if the dollar is worth less (or worthless) then they are not going to be getting as much for their imports. Raising the price of their goods, that is, simply charging more dollars won’t do them any good either. We’re in a recession, and Americans are tightening their belts. Demand for imported goods, like demand for all goods except luxury goods, is price sensitive. The more they charge, the less we buy. According to an article on, our belt tightening has ended the “Road to riches for 20 million Chinese poor.”

Furthermore, it’s in the best interest of countries around the world that the US dollar stays strong. The door does swing both ways. According to Jack Willoughby at, “European banks provided three-quarters of the $4.7 trillion in cross-border loans to the Baltic countries, Eastern Europe, Latin America and emerging Asia. Their emerging-markets exposure exceeds that of U.S lenders to all subprime loans.”

To support all of that exposure, the European Central Bank has been obtaining dollars from the U.S. Federal Reserve in currency swaps. The value of these swaps, where dollars are exchanged for other currency at a fixed and renewable exchange rate, went from $0 to $560 billion this year.

And the Federal Reserve printing presses keep rolling along.

Case-Shiller Housing Price Index Chart, December 2008 - The Free Fall Continues

S&P released the December Case-Shiller Housing Price Index data this morning: no market has been spared from the free fall. Steep price declines continue in ultra-bubble regions Las Vegas, Miami, San Diego, Phoenix, and Las Vegas. Even the relatively healthy markets of Charlotte, Dallas, and Atlanta have been sliding since mid-2008. Here's the line chart:

Cleveland is seeing the slowest decline, but that isn't saying much. My pick for healthiest markets? Denver, where prices are still up 25% from the 2000 baseline but still down 5.2% from the most recent upswing in July 2008. And Dallas, down 6.1% from the July 2008 peak and down 8.6% from June 2007. Dallas is up 22.9% since the Jan 2000 baseline.

Follow this link for a bigger version of the chart.

Ten Year loss in the S&P 500 on Par with the Great Depression

In the ten-year stretch from Sept. 1929 to Sept. 1939, spanning the worst years of the Great Depression, the stock market dropped a full 50%, adjusted for inflation. Look out, the current decade (Feb. 17, 1999 to Feb. 17, 2009) appears to yield the same decrease: the Standard & Poor’s 500 stock index is down roughly 50%, also adjusted for inflation.

But this difficult period has not been all skull and cross-bones: six-month certificates of deposit “have yielded a real total return of roughly 12%” and the value of residential homes in large cities has increased 30% over the same period, according to Business Week’s Michael Mandel.

With many investors' savings sitting in once-promising equities, the question of whether to stay in stocks or bail out is on many people’s minds.

Staying in stocks could decrease the value of your investments to the point that they “may never reach their original value, much less show a profit.”

On the flipside, bailing out and going into safer assets says “you are giving up on any potential of an upside” if the market has a big rebound.

The market will always fluctuate and whether your glass is half-empty or half-full, and long term history says more growth is ahead. But as they say on TV, “past returns are no guarantee for future performance.” How much are you willing to bet on the long-term future of the US economy?

Finally... A Rational Approach to GHG Emissions Reduction

Nicholas Stern, a former World Bank economist and author of the seminal “Stern Report,” injected a rare bit of reason into the discussions about global climate change in Cape Town recently. Stern said that if nations acted responsibly they would achieve zero-carbon electricity production and zero-carbon road transport by 2050 - by replacing coal power plants with wind, solar or other energy sources that emit no carbon dioxide, and fossil fuel-burning vehicles with cars running on electric or other clean energy.

What a welcome vision. No hint of social engineering, no litany of activities and lifestyles to be abandoned, but rather a clear implication that technology offers the solution. (And, by the way, it does.). So let’s put an end to all of this talk about behavior modification and instead set about developing the technology that allows people to live as they prefer.


What is the answer to the state of Kentucky?

That was the question posed to character actor and West Irvine, Kentucky native, Harry Dean Stanton, in a recent Esquire interview. “There is no answer to the state of Kentucky,” he said.

And so after the battering Kentucky took during the primary elections we continue to get The Beverly Hillbillies treatment by the media. Particularly memorable was CNN’s “interview” with down and out squatters in Clay County lamenting their hard-knock lot in life. Even some of our own natives, like Stanton I presume, see a lost cause.

The history goes back to the coal mining wars with Lyndon Baines Johnson’s 1964 announcement of the War on Poverty. He was photographed on the front porch of a run-down house in Inez, Ky. For decades, that famous photo has demonstrated the failures of the family on the front porch – and how far we have not come in conquering that scourge.

As Inez banker (and former RNC Chairman) Mike Duncan recently put it, “The War on Poverty did not succeed.”

And, then comes Diane Sawyer, this past Friday on 20/20. Ms. Sawyer, a native of Kentucky has always shown a great interest in “us.” She has come to the mountains and coal fields on several occasions – most recently to develop this story. We trust that her intentions are good – we are certainly proud of her and the achievements of the many famed Kentuckians who have gone on to do great work in Kentucky and elsewhere.

Back home, the reviews of her 20/20 segment are mixed. Facebook postings point out that, while sad and heart wrenching, the truth is what it is. Statistics can lie but they must be heeded. And they are heartbreaking – drugs, obesity and dead ends that lead to a general malaise about how any government or private efforts can ever make a difference.

But there are bigger stories to tell. For one thing, we are not alone. What isn’t covered in all the “Richard Florida creative class” media hype is that lots of communities face the same situation as those in Appalachia. Florida contends that our big cities won’t be successful in the future without an infusion of educated, innovative and creative people. I think the examples of decay are far worse in the gleaming cities of New York City, Boston and others. There are Americans left behind in the urban lands of plenty as well.

The other story is that people in Appalachia are working on it.

I prefer to tell this story - from the bottom of a barrel if necessary until someone pays attention. I hope Ms. Sawyer (or someone) will tell the stories of school test scores that are off the charts in rural Kentucky counties like Clay and Johnson or of what is really happening in Inez, Ky., where a group of natives have moved back to their home in order to make a generational impact.

These well-educated, successful people recently gathered and vowed to rewrite the story of the failed War on Poverty. They’re not asking for a handout or even a hand-up. They’ve already recognized that the problems are theirs and have taken ownership for finding the solutions.

There is an emergent sense that it takes more than a “hollow” to raise a child. It takes a lot of people to bring a future to the mountains.

Unlike Mr. Stanton, I believe we can find the answers to change from within ourselves - in Kentucky or anywhere. We have a responsibility to each other, to our children, to the land and to our past.

I hope our media will tell more stories of people that are taking responsibility for their communities. Nothing is more Appalachian, or American, than a colorful tale of toughness and the spirit to try.

Deconstructing the Meltdown, National Job Losses by Sector

Here's a look at national employment change in the United States over the past 10 years. Nonfarm employment peaked in the US in December of 2007 at 138.1 million jobs. After a record loss of 598,000 jobs in the last month, we're now at 134.5 million. Thats a loss of more than 3.5 million jobs over the past year. Conveniently, 3.5 million jobs is exactly what Obama administration economists plan to create or save with the stimulus package.

If we cut it by sector, recent job losses in manufacturing, construction, and professional and business services are striking. Over this same time period, we've added roughly 4.5 million jobs in education and health and another 2.5 million in government jobs. Perhaps the president is planning to hire those 3.5 million new employees directly?

If we index each sector back to January 1999, we can begin to see the trajectory of each industry over time. For this chart, the height of each line at a given point of time indicates percent growth over the January 1999 level. The heavy black line shows growth for all sectors.

From here, the dot-com bust is obvious, as is the fact that the information sector has not recovered to pre-2000 levels. Information may be even more trouble in the short term, as that sector includes media and publishing.

The construction employment boom began in mid 2003 and eventually reached more that a 20% premium over 1999 before falling back to mid 2003 levels last month.

Manufacturing has fallen precipitously with this bust, we are now seeing marked declines in other goods-supporting industries: wholesale trade and transportation and warehousing.

Again, institutional sectors of Government (up 12%) and eds and meds (up 30%) lead the way. The other fastest growing sector since 1999? Leisure and hospitality. Staycation, anyone?

Nation Has $445 Billion in Unfunded Health Care Benefits, Nebraska Has None

Nebraska was the 37th State to join the Union, is home to the “Cornhuskers,” and currently has a $3.5 billion budget and a $563 million cash reserve.

In this time of economic hardship, the Cornhusker state has no debt, shunning all long-term financial commitments including retirement benefits.

A recent USA Today survey of state financial reports found that the other 49 states combined “have an unfunded obligation of $445 billion” owed for the medical care of retired government workers.

The formula accountants use to compute the financial health of a state government includes medical benefits, debt and pension liability. Medical benefits represent the Pandora’s Box of the three, with civil servants often retiring before Medicare benefits kick in at 65.

In contrast, Nebraska is the “only state that doesn't subsidize the medical care of retired government employees.”

Other states and local governments have debts that range anywhere from New York City’s $60 billion obligation to Los Angeles’ $544 million sum.

Some state and local governments have begun setting aside money to prepare to pay retiree medical costs. Some plan to pay nearly the entire cost, other will contribute a fixed amount, such as “$200 a month or 50% of the health insurance premium.”

In defending Nebraska’s nonexistent retiree health care coverage, Senator Dave Pankonin distills his state’s approach simply: “Nebraska is a fiscally conservative, pay-as-you-go state, and that’s the biggest reason we don’t have this benefit.” Or, he might have added, deficit.

Does a low number of home staters mean everyone has left?

Last week I took a look at the share of US born residents in each state born in their current state of residence. Some on other blogs wondered if a low share of native born in a state meant that everyone has left or if instead that state is a big lure to out-of-staters. Aside from a few outliers, it seems to be the latter. Take a look at this quick analysis: states with a low share of native born tend to have high net inmigration and states with many born in state tend to have high outmigration.

It makes sense that in tougher times (evidenced by net outmigration) those with deeper roots find a reason to stick around - or maybe they are just tied down.

High net inmigration, low native born states tend to be high in natural amenities (read: mountains) or recent boom states in the west - many of which may have capitalized on the exodus from California. Note that North and South Carolina, Georgia, and Tennessee have similar numbers.

Most interesting is the grouping towards the upper right: states with both above average number of those born in state and positive or near positive migration. Could this signal a return of the diaspora to states like Texas, Kentucky, Alabama, Utah, or even Wisconsin and Pennsylvania?

Business Journalists Blew the Story on the Economy

The business sections of newspapers have become doomsayers for the nation. Sensationalistic journalism decries of the failings and crises that have done our economy irreparable harm.

Rewind to a couple of years ago, and the print media was content with profiles of personable CEOs and pages upon pages devoted to the kitschy Mergers and Acquisitions. Where was the hard-hitting reporting that could’ve opened the public’s eyes to the failing economy much sooner?

“I'll attest that business journalists as a rule are as smart, sophisticated, and plugged-in as they seem”, notes former Wall Street Journal reporter Dean Starkman in a recent article for Mother Jones. And yet that army of professional business reporters – an estimated 9,000 or so nationwide in print alone – for all practical purposes missed the biggest story on the beat. Why?”

Starkman suggests the print industry’s own declining financial health may play a role. In the last decade alone, the New York Times profit margins have fallen from 24 percent to a meager 8.5.The newspaper industry’s failing has also resulted in a 25 percent loss of jobs in the business reporting field alone.

He adds that business journalism’s insistence on clinging to outdated formulas could play a role. The focus on consumer-pleasing and personality-driven stories – “not deconstructing balance sheets or figuring out risks” – seems part of the problem.