Rusty Law

FDIC Boosts Employment

In 2007, average employment among the nations of the Organization for Economic Cooperation and Development was at its lowest level since 1980; in July 2009, OECD unemployment reached its highest level since World War II at 8.5%.  (Florida of course is enjoying an unemployment rate of more than 11%.)  But the Federal Deposit Insurance Corporation is doing its part for hiring.  

In addition to giving itself a 35% budget raise for 2010, the FDIC is nearly doubling its staff from its employment level in 2006.  With more than the 130 banks which failed in 2009, there is plenty of fallout to go beyond the bailout in 2010, and 1600 new staffers will be there to handle the crisis.  

While the FDIC employee number should rise to about 8,600 this year, that number pales in comparison to the 20,000 employees working during the savings and loan crisis of the 1980’s and ‘90’s in which 747 savings and loan associations failed.  The current bank failure crisis is going to have to become more critical before the FDIC can contribute employment positions at the S&L level.  

Hidden Stimulus Behind Strategic Default

Ten million Americans owe more on their homes than what those homes are worth.  That number is expected to rise to 21 million by the end of this year.  If one fifth of those folks default on their loans, the banks and investors stand to lose as much as they did in the savings and loan crisis of the 1980’s and ‘90’s.  Plus taxpayers would be out more in bailout money, and credit would be trashed for years for borrowers who defaulted, but there is up side.  

Strategic default is not the NFL’s latest way to avoid head injury debate.  A strategic default is when a homeowner simply walks away from a home and its mortgage.  It sounds like a last resort, an act of desperation if refinancing or mortgage modification do not work out.  It does not seem very strategic at all, but strategic default comes with a hidden stimulus for the borrower and the US economy alike:  cash flow.  

If people can right themselves from upside down mortgages and go rent at a lower monthly payment, that puts cash in hands, which could amount to more than the Obama tax breaks over the long term.  Already this money is moving through restaurants and vacation spots.  With money not bogged down in mortgage payments, the US former homeowner can enjoy living it up a bit, while contributing to a trickle-up effect of economic regeneration.  

This is NOT the End

By October 21, 2010 all lawyers will be abolished according to the movie, Back to the Future II.  The CERN may accelerate the apocalypse, though the ancient Mayans have annihilation engraved for 2012.  Right now, though, this is NOT the end of the world.  

Shakespeare has been trying to get rid of lawyers since Henry VI, yet the American Bar Association membership is at about 400,000.  Not everything people say comes true.  Even Nostradamus missed the creation of his own website.  

The unemployment rate is over 11%, which is not the 25% of the Great Depression.  Over 100 banks have failed this year, but we do not have a run on the banks.  Since the creation of the FDIC, money is more secure.  

Leave science and technology to manufacture the end of the world, not the economy, and certainly not the lawyers!  

Have a safe and happy New Year!  

Minding The Store

This year’s His & Her gift from Neiman Marcus is an ICON A5 Sports Aircraft.  It runs on gas or aviation fuel, is designed to take off and land on water as easily as ground, has an MP3 player dashboard dock, and boasts a streamlined two-seat interior, but do not expect that in leather.  

Neimans, once renowned for its fine furs, is looking to cotton pelts and other fabrics to cinch the waistline of its falling sales.  The stores are generally among the most successful retailers per square foot, but they have stepped into $3 billion in debt while waiting for luxury to be the new black again.  

Prada’s got a hobo bag going for $400 less than its average priced tote.  And the crocodile’s cousin may show up as a woolen handbag.  The trend away from high-dollared items appears in other industries as well.  Jack Daniels is turning to premixed products to offset declining revenues.  And Champagne bottling is down 44% by the world’s top Champagne producer.  You may be ringing in the New Year with a toast of Southern Comfort.  

The ICON A5 Sports Aircraft retails at $250,000, but production will not be completed until late 2011.  Maybe economic times will be better by then.  

Cyber Monday Sales

Online versus in line is appealing to consumers, especially those stuck in a snowstorm.  People can navigate a website rather than a phone tree or icy roads, and for retail sales, the consumer can zoom straight to the product instead of wading through the whole mall.  

The Monday after Thanksgiving has been designated “Cyber Monday.”  Online sales tend to be spread over the holiday season instead of being tied to a particular day, as with Black Friday, but Cyber Monday gets its own name anyway, as well as tracking which showed that sales rose by 5% over last year’s figure.  Consumer spending makes up 70% of America’s gross domestic product, and online sales account for 5-7% of retail sales.  

Optimists have cited heavy use of Google as hopeful for the economy because unlike its competitors, Yahoo and AOL, Google carries more consumer ads.  In other words, what is good for Google is good for revolving credit.  Indeed, the number of online shoppers increased 6% Cyber Monday; however, the amount spent per customer decreased 2%, indicating that shoppers are still cash-strapped.  (Consumers spent $102.19 per person online Cyber Monday.)  Maybe they would have spent more if discounts had not dropped by more than 3% from last year.  Still, Americans spent $887 million on November 30.  Now, if we can only get non-revolving credit moving…and maybe the airports and highways along the east coast.  

Economic Paradigm Shift

Science and economics are the same species when we discuss “survival of the fittest” and “market selection,” using biological phrases to describe economic phenomena.  While economic testing may not take place in the rigors of a sterile environment, these phrases are useful descriptions, and it seems we are ready to borrow another term from the science glossary:  “paradigm shift.”  I shift paradigms without a clutch.  Thomas Kuhn wrote about paradigm shift in the 1960’s.  Of course he was applying his idea to scientific theory where “is” does not imply “ought,” just like in economics.  

With great crisis comes great change; however, according to Kuhn, a paradigm shift will not occur as a response to crisis unless another theory is available.  Congress and the Federal Reserve meet to forge just such a new paradigm; meanwhile, we can look to the skies.  Economic forecasts are as reliable as the weather:  when it rains, it pours, no matter what the report said.  

Burst v. Bust

“Boom” used to be a good word, meaning an increase in economic prosperity, but Fed Chairman Ben Bernanke recently said booms were “perhaps the most difficult problem for monetary policy this decade.”  Thus too much money becomes not so desirable.  

To burst or to bust, that is the question Congress and the Federal Reserve wrestle regarding financial bubbles.  The Fed’s traditional laissez-fare has become bad fare.  Will the new regulations mount the Fed on pins and needles, ready to hem the economy while stuffing its pincushion with ammunition against future bubbles?  Or will the new economy be nudged along with interest rate control?  

Beyond the bubble, the downside to adding oversight to the Federal Reserve is increasing reaction time to market circumstances, and introducing a pox of politics to interest rates.  Interest rates in this issue—everyone is interested!  

Either way, Ben Bernanke’s bust is rendered in gold value.  

Bank of America Emerges from TARP

It is not April 15, but Bank of America is ready to pay Uncle Sam.  These are not taxes, though; this is the $45 billion loan Bank of America received through the Troubled Asset Relief Program or TARP.  

Prior to mergers and acquisitions, Bank of America was the Bank of Italy (country of the cradle of banking) and was founded in San Francisco in 1904 by A. P. Giannini.  It dominated banking in the United States and has gone through many changes to be nearly unrecognizable except by its namesake.  Regardless, when it recently became too big to fail, the Federal Reserve bailed it out first with $25 billion in October 2008, then an additional $20 billion in January when Bank of America took over the Merill Lynch mob.    

Bank of America will be the first of seven companies owing big money to the Fed to peek out from underneath the TARP.  The bank’s action should prompt the other six to repay the government with a debt of gratitude and at a good rate of return.  

Once the debt is repaid, Bank of America executives can enjoy their lunch out from underneath the bailout stigma.  Without compensation restrictions, they anticipate an easier time recruiting and retaining key personnel.  

Not everyone is ready to repay his or her loan.  If you are seeking shelter in a foreclosure case, and you are not a billion-dollar bank, you may wish to consider a legal defense or other legal options to help you get back on firm financial footing.  Put a foundation in place which you can stand on, and rebuild your assets.  I encourage you to seek your options.  No one should go through foreclosure alone.  

Blame Game

Congress blames the Federal Reserve the Fed blames Congress for the lending crisis.  It is going to take a lot of cooperation, though, no matter whose fault it is.  

Keith Griffin said the cat did it.  He claimed that he left the room while waiting for music to download onto his computer, and that is when the cat jumped on his keyboard.  The cat allegedly played cat and mouse to navigate to a secret underground website for child pornography.  Apparently the cat dragged in over 1,000 images.  Griffin must have an extensive music collection on his hard drive.  While Internet resources vary on words per minute a dog can type, this cat’s clicks per minute exceeded the reasonable consideration of the court.  

There may be no easy way out of our financial fiasco, but on the smaller scale, “It’s not my fault,” does not always cut it for the sympathy of the court, or for anybody else.  

Rich Man, Poor Man, Paradigm Shift

Edison did not have an iPhone.  Nor did he have a house in foreclosure and his bank account swamped in credit card debt.  In short, he does not meet the standard profile of today’s average American.  

Thomas Edison literally lit the modern era of technology with the light bulb and all sorts of other inventions.  He did not have the best testing capabilities for his ideas and computer modeling was not available, but he had a tremendous capacity for tinkering.  Such tinkering has been rediscovered in colleges across the country with a rise in the enrollment for mechanical engineering over computer engineering.  

High tech tools and materials have taken a back seat to a hands-on approach to education in this current economic crisis, giving rise to the value of tangible applications over abstractions.  Computers are integral to modern machining, but “hackerspaces” are carrying screw drivers and wrenches as well as keyboards.  

The down economy has reopened mechanical aptitude, perhaps placing “tinker” back at the top of the list of job possibilities, and re-sublimating “lawyer” right after “thief.”