Tuesday, December 01, 2009

General Motors' CEO Out

By Daniel Costello

After eight turbulent months at the helm of the largest U.S. automaker, chief executive Frederick "Fritz" Henderson is resigning. The company said Tuesday that Chairman Ed Whitacre Jr. will serve as interim CEO.

Henderson succeeded Rick Wagoner last spring after the Obama administration ousted the former CEO amid a government-led reorganization.

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Tuesday, December 01, 2009

Post (Climate) Game Analysis

How Mike Pesca almost (but not quite) wrecked planet earth.

By David Kestenbaum

Yesterday on the podcast we got six NPR reporters and editors together to play a game designed to look at whether the people of the world can come together to make the sacrifices necessary to combat climate change.

As it turned out we did save the planet, but just barely and at the very last possible moment.

This article lays out the basic rules.

NPR sports reporter Mike Pesca was the most selfish (sorry, strategic) player, managing to contribute very little to the global fund while keeping the most money for himself.

Mike was heavily subsidized by our counterterrorism correspondent Dina Temple-Raston who consistently put the planet's welfare before her own.

Here's a spreadsheet of how the game played out. You can see everyone's strategy, including Pesca's remarkable run of zero-contributions in four consecutive rounds.

Roughly what happened is that people donated money in the first round to try to prevent climate change, then tried to see if they could get by with less in the second round, which seemed to anger other participants, who then also lowered their contributions. But in the later rounds as doom approached people started to kick in more and more money. The largest contributions came in the final round.

Here's the original research paper laying out the experiment and a very readable commentary.

The game illustrtes how participants (countries or individuals) have an incentive to drag things out until the last minute, which perhaps helps explains the endless international climate treaty talks.

The research also shows that when there is perceived uncertainty about the consequences (how bad climate change will be) cooperation gets much more difficult.

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Tuesday, December 01, 2009

How Harvard Lost All That Money

By Daniel Costello

The Boston Globe had a terrific story this week looking at just how Harvard came to lose $1.8 billion in its cash accounts (separate from its massive endowment losses) over the past year. The tally could run even higher in the form of interest payments on bonds issued to cover the losses.

The story, by staffer Beth Healy, describes warnings from top officials about how risky some of Harvard's investment choices were becoming in recent years. At the top of the list of those who ignored many of those warnings? Harvard's then President Larry Summers, the former Treasury Secretary and current director of President Obama's National Economic Council and the White House economic team.

According to the story:

"In the Summers years, from 2001 to 2006, nothing was on auto-pilot. He was the unquestioned commander, a dominating personality with the talent to move a balkanized institution like Harvard, but also a man unafflicted, former colleagues say, with self-doubt in matters of finance.

Certainly, when it came to handling Harvard's cash account, the former US Treasury secretary had no doubts. Widely considered one of the most brilliant economists of his generation, Summers pushed to invest 100 percent of Harvard's cash with the endowment and had to be argued down to 80 percent, financial executives say. The cash account grew to $5.1 billion during his tenure, more than the entire endowment of all but a dozen or so colleges and universities."

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Tuesday, December 01, 2009

The Changing U.S. Labor Market

Employment changes in recessions past. (Howard Rosen)

By Caitlin Kenney

Ahead of this week's White House jobs summit, Howard Rosen of the Peterson Institute sent us his thoughts on the current state of employment in the U.S.

He writes:

Current slow growth in job creation is result of recent changes in the US labor market -- a change in the nature of unemployment. Over the last 30 years, despite long-term declines in the unemployment rate, the average duration of unemployment has steadily increased. This signals a shift from temporary layoffs to permanent job losses. The average duration of unemployment is currently the highest in over 40 years, and unemployment is no longer primarily due to cyclical factors; structural factors, e.g. technology change, increased domestic and international competition, have become increasingly important.

Rosen's also got some advice for the government on how to increase employment:

Worker assistance and training programs were beaten down over the last 8 years, and it is difficult to immediately expand them to meet new interest and demand. The administration has significantly increased funding for training, but we need to provide more resources to rebuild capacity, e.g. local career centers, training providers, including community colleges.

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Tuesday, December 01, 2009

Morning Report: Dubai Stocks Fall Again; Japan Worries About Deflation

By Daniel Costello

On Tuesday, investors again rushed to unload shares of Middle East companies expected to bear the brunt of a possible downturn in the region's economy amid Dubai's growing debt crisis. The sell-off came even as the government-owned investment giant, Dubai World, said it is making strides in renegotiating its troubled real-estate debt.

In Dubai, the main stock index ended down 5.6% to 1,831 points. Elsewhere in the region, Qatar's main stock index tumbled 8.4% to 6,592 points on Monday, the first trading day for the market since Nov. 25.

Global markets have been gyrating since Dubai World stunned investors last week by announcing plans to hold off paying its short-term debt. Emerging markets and Asia were hard hit last week, but bounced back in recent days as investors appeared to decide for now that Dubai's problems will remain contained.

The Dubai financial market will be closed starting Wednesday because of the National Day of the U.A.E. The market will resume Sunday.

In Japan, central bankers appeared to blink in their growing riff with politicians by announcing they would pump short-term funds into the banking system in an effort to jolt the moribund economy and counter resurgent deflation.

At a emergency meeting on Tuesday, the Bank of Japan's board voted to provide $115 billion in short-term loans to commercial banks to bolster liquidity. It's unclear just how effective the relatively small program will be, making the move potentially more symbolic.

Japan's Prime Minister, Yukio Hatoyama, has challenged the Bank of Japan in recent months to ease monetary policy as the country faces renewed deflation fears and its rising currency threatens to wipe out a six-month-old recovery. The yen climbed to a 14-year high against the dollar last week, dealing a blow to Japan's exports as a strong yen makes Japanese goods more expensive abroad.

The move bucks a global trend toward tighter monetary policies in recent months as governments continue to scale back emergency monetary easing and support of super-low interest rates as the global economy rebounds.

Australia on Tuesday raised interest rates by a quarter of a percentage point for a third straight month. The U.S. Federal Reserve said this week it soon may scale back its trillion-dollar portfolio of mortgage-backed securities and start unwinding its massive effort to prop up financial markets over the past year.

And after weeks of corporate brinkmanship, General Electric and French telecommunications company Vivendi have finally agreed to a deal allowing GE to buy Vivendi's 20% stake in NBC Universal. GE needs to buy the minority stake in order to complete its planned sale of its NBC Universal media assets to cable giant Comcast. The Comcast sale is seen as a bellweather deal for valuing A-list broadcasting companies as they suffer continued declines in viewership and advertising.

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Monday, November 30, 2009

Podcast: Fixing Climate Change Is Going To Cost You

How much would pay to save these guys? (Paul J. Richards/AFP/Getty Images)

On today's Planet Money:

Economists see climate change as a tragedy of the commons problem. We benefit by putting carbon into the atmosphere because it means cheap electricity and cheap gasoline. It saves us money in the short term, but eventually if we continue, we'll all suffer.

Nobel prize winner Elinor Ostrom says the answer to fixing rising temperatures has to come from the people not the government. But reducing our carbon emissions is expensive and some economists wonder if we're willing to pay for it. To answer that question, German zoologist, Manfred Milinski come up with a game that tests how much we would be willing to pay now to save the Earth later. Joined by a special group of NPR staff, the Planet Money teams plays his game and gets a surprising result.

After the jump, the self proclaimed "King of Eco Rap," says "stop with the excuses and make a contribution."

Download the podcast; or subscribe. Music: Kayne West's "Heartless." Find us: Twitter/ Facebook/ Flickr.

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Monday, November 30, 2009

Premiums To Remain Stable for Most Under Health Reform

By Daniel Costello

Most Americans would not see much change in the cost of their insurance premiums as a result of the health care legislation pending in Congress, according to a widely awaited budget analysis. But millions of people who buy insurance on their own, rather than through work, could see higher costs, a fact that could become fodder for health reform critics.

The nonpartisan Congressional Budget Office released a study Monday that found the cost of insurance premiums for the nearly 80% of people who receive insurance through work or other group policies would remain stable or slightly fall by 2016, as compared to projections of premium prices under current law.

The majority of the rest of insured Americans who buy so-called "individual insurance" would see an increase between 10 percent to 13 percent, partly because the benefits in their new plans would be richer under the current legislation. With government subsidies proposed under the plan, up to half of them could see as much as 59 percent lower costs than is now the case.

An estimated 16% of Americans have no health coverage today and many would receive insurance under the proposed reform plans.

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Monday, November 30, 2009

Reading Up On The Financial Crisis

By Daniel Costello

Over Thanksgiving, I finally got to reading the latest edition of Foreign Affairs. I'm a huge fan and enough of a nerd that I'm giving a subscription as a holiday gift to a few family and friends. Anyway....

The magazine has a suggested list of the best recent articles and books on the financial crisis. Among the suggestions:

Recent articles:

"The Long Climb: A Special Report on the World Economy." By Simon Cox. Economist, October 3, 2009

"The Origins of the Financial Crisis." By Martin Neil Baily, Robert E. Litan, and Matthew S. Johnson. Initiative on Business and Public Policy at Brookings

The books:

"In Fed We Trust: Ben Bernanke's War on the Great Panic: How the Federal Reserve Became the Fourth Branch of Government," By David Wessel, the terrific Wall Street Journal economics writer.

"The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown. By James R. Barth and John Wiley

Bonus: For Foreign Affairs subscribers, there's a good cover story by Peterson Institute for International Economics director, C. Fred Bergsten, on why Washington must embrace lower deficits, balance the budget and support a falling dollar -- or risk another crisis.

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Monday, November 30, 2009

Analysts Expect Flat Auto Sales

By Daniel Costello

Manufactures are expected to report flat U.S. auto sales for November compared to a year ago, suggesting the worst of the industry's four-year slump may be over. But high unemployment and low consumer confidence remain drags on the industry.

U.S. auto sales in November are expected to come in at 10.5 million units on the annualized rate tracked by the industry, according to a median forecast of 36 industry analysts.

November 2008 sales were 10.4 million units on the annualized rate and October 2009 sales were 10.5 million units.

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Monday, November 30, 2009

Middle East Contagion?

By Daniel Costello

Investors and governments around the world continued to intensely watch Middle Eastern financial centers Monday as stock markets in Dubai and its oil-rich neighbor Abu Dhabi each suffered nearly 10 percent drops. The question now: just how far could the contagion spread?

The crisis began last week when Dubai stunned global investors by announcing that the quasi-sovereign Dubai World would not be able to make payments on time for some of its $60 billion in debt. In recent years, the company invested in many high-profile and risky real estate projects, including artificial islands in the shape of a palm tree, and spent heavily to acquire pricey global assets.

Most experts believe Dubai is not large enough to set off financial repercussions outside the Middle East. Markets in the U.S. and Europe were stable on Monday after taking dips late last week.

But fears remain that investors could flee risky markets altogether in the coming days in search of safer havens for their money regardless of a market's strength. That's essentially what happened last September after the failure of Lehman Brothers heightened worries about most financial institutions and forced global credit markets into a standstill.

One key indicator analysts are watching now is the amount of interest that investors demand to lend money to emerging markets and heavily-indebted countries.

Already, there are signs investors are punishing the riskiest public and private borrowers, as well as global banks with heavy exposure in the Middle East. The cost of borrowing for debt-laden countries in Eastern Europe and Greece and insuring against default for Irish banks has risen in recent days. The development will make it much harder for countries running mounting deficits to pay for bailouts and stimulus packages to turn over their debts in the coming months and years. The shares of HSBC and Standard Chartered, which have lent heavily to Dubai, have fallen sharply.

So far, the largest fallout remains with Middle Eastern companies and governments. The extent to which the United Arab Emirates federation and its wealthiest member-state, Abu Dhabi, which has vast oil reserves, guarantee Dubai's debts could affect how investors view many other local companies previously believed to have the implicit backing of their governments. At a minimum, many observers have essentially called last week the end of Dubai's role as a global financial center.

Ratings agency Moody's Investors Service Inc. said Monday the crisis is unlikely to harm the credit quality of the Abu Dhabi government and the federal government of the United Arab Emirates.

But if the last year has taught us anything, it's that anything can happen. For now, it's more wait and see.

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Monday, November 30, 2009

Hear: Planet Money On This American Life

Angela Porcelli inside her office at the Hunts Point market. (Caitlin Kenney/NPR)

The Hunts Point Market in the Bronx comes alive in the 'middle of the night.' Adam and Chana stopped by to find out who's haggling for oranges at 3 in the morning. Download the story here.

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Monday, November 30, 2009

Dubai Worries Continue; More People, Less Money On Black Friday

By Daniel Costello

Dubai's stock market slumped the most in over a year Monday amid continued concerns about the city-state's credit worthiness after one of its flagship companies asked for a six-month delay in paying creditors on nearly 60 billion U.S. dollars in debt. The company invested in lavish real estate projects, including artificial islands in the shape of a palm tree, and spent heavily to acquire stakes in high-profile global assets.

While oil-rich neighbor Abu Dhabi said it would offer support to Dubai firms on a case by case basis, the shockwaves from the crisis were enough to keep investors skittish after a modest bounce on Friday.

Dubai's main index of stocks closed 7.3 percent lower at 1940 Monday, while Abu Dhabi plunged 8.3 percent to 2668.

More Americans hit the stores during Black Friday and the rest of the holiday-shopping weekend, but they spent less than they did last year, a retail-trade group said Sunday.

The National Retail Federation's survey, conducted over the weekend, found that 195 million shoppers visited stores and Web sites, up from 172 million last year. Shoppers spent an average of $343, down from about $373 a year ago. For the weekend, the total spent was $41.2 billion.

And India's economy continued its rapid expansion in the latest quarter, beating economists' expectations on higher domestic demand, according to data released Monday. The nation's gross domestic product was 7.9 percent higher than a year earlier.

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Wednesday, November 25, 2009

Podcast: The Most Wasteful Time Of Year

All I want for Christmas is... (Brylan/Flickr)

On today's Planet Money:

Economist Joel Waldfogel says giving gifts people don't want isn't just bad for the recipients, it's bad for the economy. According to his research, billions of dollars are wasted each year because of holiday shopping. A professor at Wharton, he has spent years surveying his students about the value of gifts they have received. Based on those surveys, Waldfogel says the spending others do for us produces about 20 percent less satisfaction than the spending we do for ourselves.

Despite the title of his book, Scroogenomics: Why You Shouldn't Buy Presents For The Holidays, Waldfogel says he doesn't want to end gift giving, in fact he enjoys it. He says he just wants us to think harder about who we are buying for and maybe choose a gift card over that reindeer sweater.

Download the podcast; or subscribe. Music: Tom Petty's "Christmas All Over Again." Find us: Twitter/ Facebook/ Flickr.

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Wednesday, November 25, 2009

Toyota Expands High-Profile Recall

By Daniel Costello

The car giant announced that starting in January it will fix or replace pedals in 3.8 million Toyota and Lexus vehicles to prevent runaway acceleration first blamed on improperly installed floor mats.

Toyota launched the voluntary recall one month after a 2009 Lexus ES 350 sped out of control on a San Diego highway, killing off-duty California Highway Patrol Officer Mark Saylor, his wife, Cleofe Lastrella; their daughter Mahala; and Chris Lastrella, Cleofe's brother.

The case has received widespread attention after audio tapes of the final moments were captured as Chris Lastrella made a frantic 911 call describing Saylor's futile efforts to stop the car, which crashed through an embankment and burned.

The recall affects the 2007-2010 Toyota Camry, the 2004-2009 Toyota Prius, the 2005-2010 Toyota Avalon, the 2005-2010 Tacoma, the 2007-2010 Toyota Tundra, the 2007-2010 Lexus ES 350 and the 2006-2010 Lexus IS 250 and IS 350.

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Wednesday, November 25, 2009

Consumers Get On Their Feet, Oil Could Reach $100

By Daniel Costello

US consumer spending rose faster than incomes last month as Americans shrugged off fears about unemployment in favor of holiday shopping, raising hopes that consumers may help sustain the economic recovery.

Separately on Wednesday, data showed that new jobless claims fellto the lowest level in more than a year last week.

Personal consumption expenditures rose by 0.7 percent in October, reversing a drop the prior month. Incomes also rose last month, but at a slower pace than spending, climbing by 0.2 percent.

Crude futures traded higher in reaction to a weaker U.S. dollar, and some analysts expect oil to break the $100 a barrel mark in the coming months.

And the luxury goods market appears to be stabilizing, as Tiffany and other top-line retailers continue to report better-than-expected earnings. The jeweler reported U.S. sales were lower in the third quarter, contributing to a 1 percent profit decline. But results, which topped its own expectations, led Tiffany to raise its full-year forecasts.

Tiffany said the rate of sales decline in the U.S. slowed through the quarter and many countries in Asia and Europe achieved better-than-expected sales.

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