Category Archives: Economy

Surprise to Whom?

Every Thursday and Friday it’s the same story, over and over.

New claims for jobless insurance benefits in the United States posted a surprise rise, the Labor Department said Thursday amid concerns unemployment could dampen economic recovery.

Suprise rise to whom?  Unexpected is another word that you will see in these weekly articles when the stats are released.  After two years of rising unemployment, wouldn’t they EXPECT the claims to continue to rise????

In other news, the Fed raised the discount rate as more bad news about inflation was announced.  Stagflation is just around the corner.

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How Bad Is It Still?

Pretty scary stuff.  The guy quoted below is the same person that cleaned up the mess here in Texas back in the late 80’s.

William K. Black was the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri (bio).

Black says that massive fraud is what caused the economic crisis. As one example, he explains that everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors.

Moreover, Black says that the government’s entire strategy in dealing with the economic crisis is a massive cover-up:

[They] don’t want to change the bankers, because if we do, if we put honest people in, who didn’t cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up….

Geithner is … covering up. Just like Paulson did before him….

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed….

Until you get the facts, it’s harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts….

[Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

[Black] Absolutely….

They’re deliberately leaving in place the people that caused the problem, because they don’t want the facts. And this is not new. The Reagan Administration’s central priority, at all times, during the Savings and Loan crisis, was covering up the losses.

[Question] So, you’re saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?That’s right. And it’s particularly a crisis that brings this out, because then the class of the banker says, “You’ve got to keep the information away from the public or everything will collapse.”

 

Watch the interview here.


Keller Sales Tax Collections Crater

Sales Tax revenue for the City of Keller fell 9.3% over last years collections for February and down over 5% year to date.  It’s going to get worse before it gets better.  If this trend continues, revenues will be down almost a million dollars for 2010.

The City balanced last years budget without having to cut salaries or the number of employees by negotiating a better health insurance rate and by moving some money around.  And while sales tax revenues make up a much smaller portion of our general funds budget than other cities (because we have such a small retail base compared to Southlake, Grapevine or even Roanoke), what are the plans for next year?  Will they finally have to cut the staffing levels at City Hall?

For a full report, go here


Geography of a Recession

Video:  County by County Job Losses Since 2007


AA Flight Attendants Hold Mock Strike

I don’t like unions.  I think there was a day and age for them, but they are mostly corrupt and actually hurt their employees rather than help.  I have personally seen unions put companies out of business, just because they could.  My dad posted this button on his blog the other day with the following blurb:

It was war! Red attacked Green (editor’s note:  Green = John Deere) in a fight for supremacy. IH CEO led the attack with terribly incompetent leaders and combined with a union that went on strike (pickets here waved signs proclaiming “We’ll Break IH!”) broke IH.
The audacity of a Union waving signs saying we will break the company that they work for.  Well, they did in fact break the company and the reason I’m in Texas is because of the devastation wrought by that collapse.  I lived in NW Illinois, home of John Deere and IH,and  when the Farmall Plant in Rock Island shut down in 1984, the unemployment rate was nearing 25% in that region of the world.  The former UAW workers who were so boisterous just a few years before were lucky to find a job at a Burger King.  Be careful what you wish for…..
The Airlines are full of companies that have gone out of business because of strikes, but yet here we are in the “Great Resession” of 2009 and the FA Union is arrogant enough to threatan a strike?  What will happen if your strike breaks the company?  Do you not see the writing on the wall? 
Take a look at the AA Mechanics, they went out of their way to improve work rules and what happened?  They still couldn’t compete and are now faced with the closing of the Kansas City Maintanance Facility and four others.  The head of the union didn’t go out grandstanding, he issued a statement saying that he understood and hoped that the economy improved before the deadline for closure next year. 
AA Flight Attendedents are very well paid compared to their counterparts.  Sure, they aren’t paid nearly what they were a few years ago, but those days are over.  They aren’t ever coming back…..ever.  To sit and think that you will be able to force the company into new work rules and better pay when they are losing money faster than the US Mint can print it is stupid.  Be glad you have a job and move on, I know it will never happen, but having personally seen the destruction of a region of the country due a failed company, I do not wish to see it happen again here in DFW.   

 

The flight attendants at American Airlines Inc. are a long way from striking, but the Association of Professional Flight Attendants tried Wednesday to give passengers an idea of what a work stoppage would look like.

The union staged picket lines and a simulated strike at Dallas/Fort Worth International Airport and across the country to show it was serious about getting a better contract.

“This is only a symbolic demonstration,” union president Laura Glading said outside a D/FW terminal. “All American Airlines flights today will operate, and we pledge not to disrupt travel during the holidays. In fact, we encourage the public to fly on American Airlines.”

But if the union and airline don’t make progress during their next round of contract talks in January, Glading said, the union may ask the National Mediation Board to release the union from mediation and start the legal process that could result in a strike.

American and the APFA began talks in mid-2008. American spokeswoman Missy Latham said the two sides have reached agreement on 72 percent of the items up for discussion, while Glading castigated the carrier for not making an offer on wages and benefits.

“The company has been preaching that any new contract must be zero sum, meaning that any improvements must be offset by further concessions,” Glading said. “This is unacceptable.”

Latham said American flight attendants “already receive near industry-leading pay and benefits.”

“We are committed to continue working with APFA to reach a new contract that recognizes flight attendants’ service and dedication while positioning our company for long-term success by improving productivity,” she said.

Joining Glading on the picket line were the leaders of American’s two other major unions – the Allied Pilots Association, led by president Lloyd Hill, and the Transport Workers Union, led by John Conley, director of the union’s air transport division.

The mock strike Wednesday, the 16th anniversary of the start of the union’s 1993 strike, had flight attendants on designated flights wear red buttons. That was to show that those flights would not have operated if the union had called a selective strike that disrupted some, but not all, flights.

Latham said American’s operations “are running smoothly, and our customers have not been impacted” by the union’s activities Wednesday.

“We appreciate that APFA has encouraged members to come to work, considering any work slowdowns or stoppages sanctioned by the union would be illegal at this point,” she said. “American respects the right of APFA to conduct public demonstrations and distribute information to customers.”


Bad News For the Rangers

Seems like Tom Hicks is putting together a bid to keep the team:

DALLAS — Texas Rangers owner Tom Hicks said Wednesday that he’s putting together his own group of mainly local investors, including team president Nolan Ryan and former Dallas Cowboys quarterback Roger Staubach, in an effort to maintain majority ownership in the club.

Hicks expects at least five groups, including his own, to submit proposals by Friday’s deadline. At that point, Hicks and his staff will analyze the proposals and decide which one makes the most sense to pay down or eliminate debt accrued by Hicks Sports Group.

Any change of ownership, including Hicks’ new group, would have to get the approval of Major League Baseball, the National Hockey League and the 40 lenders of HSG. The reason the NHL is involved is that HSG owns the Stars and the sale affects HSG’s debt.

Hicks said the process of finding a new owner could be completed within the next 45 days.

I have a hard time believing that MLB will approve such a deal, and it is hard to fathom who would invest in HSG when they are so highly leveraged.  How would you feel if you had submitted a proposal only to find out that you were out bid by $1 by the existing owner? 

The more I think about it, the more I think Hicks probably had this planned from the beginning.  Hear me out.  He buys the team and then over the years leverages the hell out of it to buy other interests (i.e. The Liverpool Football Club and Mesquite Rodeo).  Fourty banks, yes FOURTY banks have loaned him money during this time and when the economy and the financial markets collapsed his house of cards crashes.  He has stated for years that he wanted to control the Rangers and Stars for generations, letting his kids run it after he is gone.  He runs out of cash midway through the season, has to get a cash infusion of $15 million from MLB who basically took over the club at that point and he defaulted on his loans to both the Stars and the Rangers.

How do you get out of this mess?  Simple, you take four bids from outside groups, MLB states that it is expecting the bids to be in the $450-$550 range, but that is based on numbers before the financial collapse.  When the bids come in low, you put your own group together, offer a few million more than low bid and basically tell the banks that this is your best offer, take it or leave it.  They settle for 70 cents on the dollar and now instead of losing control of the team, you basically had your investers buy off your debt for 70 cents on the dollar.  You wait until the economy picks up again, the team is on a roll headed to the Playoffs and then you are able to borrow money again to buy out the new investors.

In the mean time, Tom Hicks remains the owner of the Rangers.  I wish he would just go away………


Unemployment to 12%

So says James Pethokoukis:

Gluskin Sheff economist David Rosenberg, formerly of Merrill Lynch, thinks the unemployment rate is going to at least 12 percent, maybe even 13 percent. Optimists, Rosenberg explains, underestimate the incredible damage done to the labor market during this downturn. And even before this downturn, the economy was not generating jobs in huge numbers. If he is right, all political bets are off. I think the Democrats could lose the House and effective control of the Senate.  I think you would also be talking about  the rise of third party and perhaps a challenger to Obama in 2012.

So here is what I gleaned from Rosenberg’s latest report (bold is mine):

1. For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit.

2. During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.

3. Looking at the split, there were 11 million full-time jobs lost (usually we see three million in a garden-variety recession), of which three million were shifted into part-time work.

4.There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.

5. The workweek was sliced this cycle from 33.8 hours to a record low 33.0 hours — the labour input equivalent is another 2.4 million jobs lost. So when you count in hours, it’s as if we lost over 10 million jobs this cycle. Remarkable.

6. The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn) which is nearly a 36% share of the jobless ranks (again, this rarely gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks) duration of unemployment have risen to all-time highs.

7. The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up.

8. Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.

9. The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%. This will undoubtedly be a major political issue, especially in the context of a mid-term elections and the GOP starting to gain some electoral ground.

10. But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began.

11. So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.

12. After all, the recession ended in November 2001 with an unemployment rate at 5.5% and yet the unemployment rate did not peak until June 2003, at 6.3%. The recession ended in March 1991 when the jobless rate was 6.8% and it did not peak until June 1992, at 7.8%. In both cases, the unemployment rate peaked well more than a year after the recession technically ended. The 2001 cycle was a tech capital stock deflation; the 1991 cycle was the Savings & Loan debacle; this past cycle was an asset deflation and credit collapse of epic proportions. And economists think that the unemployment rate is in the process of cresting now? Just remember it is the same consensus community that predicted at the beginning of 2008 that the jobless rate would peak out below 6% this cycle.