Articles from 08/10/08 to 08/16/08

I’m a planner. Always have been, probably always will be. Case in point: My wedding is in two weeks, and already I’m scheming as to where my future husband and I might “settle down.”

I know, I know, let’s worry about saying the “I Dos” first, right? Cut me some slack. Dreaming up our future abode is infinitely more fun than making seating charts.

But in all seriousness, when it comes to thinking about where I want to be, I’m really torn. On the one hand, I want that suburban idyll: a lovely house on a peaceful stretch of road that greets you like a hug at the end of a long day. But on the other, I adore the convenience of the city, in particular my access to the public transportation system, which means my fiancé and I can get by with only one car.

In doing research for tonight's Zipcar story, I found that I’m not alone. High gas prices and constrained energy supplies have made the suburban sprawl of the last few decades untenable. We will have to change the way we think about transportation to deal with modern realities.

I’ll be the first to admit that "Working for Balance" series is personal. Like most working parents, I struggle to balance my work and family responsibilities. I love my job. I also love my kids, and I want to be an active participant in their lives. In researching this series, I learned this work/family life struggle is common for most working parents.

The first piece in the series focuses on stress in the workplace. I was shocked by how low this is on the radar screen at most companies. According to the American Institute of Stress, worker stress costs American industry more than $300 billion dollars a year. And given that New York is the financial capital of the world, I expected to find lots of programs to address stress. But that is not the case. Part of the reason I profiled Virginia-based The Motley Fool, is I liked the firm’s goal of having an anti-stress culture. They also recognize that there’s no one-size-fits-all method to stress reduction.

Some industry experts think the auction rates securities settlements have the potential to cost Wall Street brokerage firms more in penalties than (1) the $5 billion in sanctions for mutual fund abuses in 2003, and (2) the $1.4 Billion for biased analyst research, also in 2003.

So why are Wall Street firms so quick to settle this time?

Securities Attorney Jake Zamansky says they want to avoid the release of highly embarrassing emails -- proving these investments were touted as a cash alternative by people who knew they were risky.

And while I have no doubt deception did occur, I also wonder if investors in these securities bear some responsibility -- for not doing appropriate due diligence.

I call your attention the SEC’s settlement with 15 Broker-Dealer firms back in 2006.

Tonight's Bill of Health takes a look at hospitals and the load of "bad debt" that many are carrying around. Bad debt is typically defined by hospitals as medical services they've provided to patients that those patients choose not to pay for. And bad debt is usually considered separate from "charity care," which is defined as medical service provided to patients with no ability to repay the bill at all. According to the American Hospital Association (AHA), hospitals wrote off about $31 billion in 2006 (the most recent year for which data is available). The AHA also reports that the level of bad debt jumped about 70 percent from 1996 to 2006.

It shouldn't be any surprise that hospitals are turning to technology and a rethinking of some operations in an effort to chip away at the problem. Executives and industry leaders tell us that more hospitals are trying to make the dollar-figures clear to patients BEFORE elective surgeries and other scheduled procedures are performed. And more hospitals are starting to employ software programs, such as TransUnion's "Revenue Manager" system for hospitals, to check credit histories and assess an individual's "ability to pay."

Last night, I reported some banks are growing concerned that regulators are over-reacting to market woes and forcing them to revalue good loans. Here is the entire comment from the Office of the Comptroller of the Currency on that story:

With regard to your question about over-reacting, the Comptroller acknowledged previous mistakes by examiners during the past economic downturn from which we learned from our mistakes, but now it is important for bank management to identify issues early and make appropriate judgment now that the economy has turned. The Comptroller specifically said their will be no cookie-cutter approach, but the OCC will supervise each bank individually and any recommendations will be made to their unique situation. However, bankers must acknowledge that the economy has changed and take appropriate action early to minimize long term problems and begin frank discussions with examiners early about their current condition rather than trying to hide issues. The Comptroller acknowledged that these discussions can be tough and what is unique to the OCC, the OCC has an independent Ombudsman if differences can not be resolved. Overall, early action by bankers of acknowledging the current economic cycle and reacting quickly to this reality, as well as having frank discussions with examiners, and the OCC having balanced supervision will work best during this economic cycle.

See attached speech by the Comptroller on the subject which reflects current thinking on the matter.
www.occ.gov/ftp/release/2008-44a.pdf

Tonight's story looks at the role of pawnshops in providing loans to credit-starved Americans – a role that is expanding during these slow economic times. Pawnshops have experienced a surge in loan volumes as people find they need to borrow "a little extra" to make it to the end of the month.

The evolution of the pawnbroker industry continues to amaze many people. I can recall doing a story in the late 1990's for NBR when major pawnshop chains like Cash America and First Cash started their aggressive expansions. In the years since, pawnshops have dug an interesting niche for themselves, and the major chains are distancing themselves from the seedy reputation that's dogged the industry for years.

Economics is all about numbers. How high are interest rates? What is the value of the dollar against the euro? Will the August jobless rate be higher than the July rate? But, behind those numbers are the faces. Recently I saw some of the faces behind the numbers.

Rising unemployment, high food costs, and foreclosures are bringing a growing number of Americans to food pantries. Last week more than 200 people turned out for bundles of food at the Chicago Christian Industrial League. Executive Director Judy McIntyre estimates about 40% of the people who turned out that day were first-time visitors. The League's pantry is in a lower income area of Chicago, but food banks in middle income suburbs are also reporting increased demand for their services. Some fear demand for food will continue to increase through the end of the year.

Which headline do you believe:

66% of American corporations pay no federal taxes.

Or

75% of big U.S. companies pay lion’s share of the federal corporate income tax.

Actually, both are true.

How can this be?

Well, big companies pay a lot more in taxes than small companies. That makes sense. In fact, almost 90% of federal corporate income tax is paid by companies with over half a billion dollars in assets.

At the same time, many small companies do not pay taxes because they are small or are start ups. Also, many big companies -- think GM -- don’t pay taxes because they don’t make any money.

Believe it or not, it's still debatable to some expert prognosticators whether the economy is in recession. That's because we still haven't had 2 straight quarters of negative GDP...which is the simplified and official definition of a recession. To me, like the old saying goes "if it walks like a duck, talks like a duck..." I think time is better off spent debating when the other R-word, as in recovery, is likely to happen. Here opinions really are all over the map. The third quarter of this year (which we are already half way through) looks unlikely. Many are growing skeptical of a fourth quarter rebound, too. And, so the argument heads squarely into 2009. Experts (a.k.a those paid really big bucks to guess) tell me visibility on next year is just awful. That's just another way of saying no one really knows. Care to make your own forecast on when the recovery might show up?

The market for commercial mortgage backed securities (CMBS) is dead. And some doubt it will really ever come back. For now, banks, insurance companies, and private sources of funding are making up the difference. But banks are up against capital requirements and don’t want to take more risk on their balance sheets now. Insurance companies face similar issues.

Experts say the market will have to change before liquidity comes back to the mortgage market for both commercial and residential.

Structurally, there will have to be changes in how deals are put together. Investment banks will likely have to put more “skin in the game” to have a successful security.