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A Different Kind Of Credit Crunch

Friday, October 9th, 2009

Pay now or pay later? In a bad economy, more consumers are choosing to feel the effects of their spending right away.

  • In a significant shift in credit-happy American spending habits, people are beginning to use their debit cards more than their credit cards to pay for purchases.
  • The recession has most consumers trying to curb their spending, which the immediate monetary loss of a debit card transaction can make easier. People are also shopping less for the big-ticket items that are usually paid for with credit, but they continue to use debit for everyday purchases such as groceries.
  • The drop in credit card transactions may also have something to do with recent legislation, which had the effect of credit card companies lowering limits and raising fees – and making themselves less attractive to the struggling shopper.

Facts & Figures

  • According to the Federal Reserve, total revolving credit went down $6.1 billion in July.
  • Both Visa and Mastercard saw debit card transactions increase and credit transactions decrease in the first part of 2009.
  • In the past 15 years, debit card transactions have grown to represent more than 50% of all non-cash transactions.

Best Quote

“People are managing their money in a different way. You clearly have a situation where those people who have jobs are exhibiting recession anxiety and they are making more debit transactions.” – David Robertson, the Nilson Report (which tracks credit card industry)

Verizon And AT&T Let The Competition In

Wednesday, October 7th, 2009

But will a more liberal network usage policy strain limited bandwidth resources?

  • With new FCC regulations looming, two of the telecom industry’s leaders announced on Tuesday that they would reduce restrictions currently in place on users of their cellular networks.
  • AT&T will now allow users to access Skype on the 3G network to make cheaper international phone calls, and Verizon plans to collaborate with Google to produce new cell phones that will be open to any mobile application.
  • Proponents of net neutrality recently found a voice in the FCC chairman, who argues that it is unfair for a company to restrict or filter Internet access for paying customers to advance its own interests.

Facts & Figures

  • Verizon is the nation’s largest cell phone company.
  • This announcement was made just one day before an important speech at a wireless conference by FCC Chairman Julius Genachowski.
  • Analysts say Verizon already has a more open network policy than most other telecom companies.

Best Quote

“The timing is nice. It is the carriers saying, ‘Okay, we are responding’ and answering the market needs while also trying to stay within the guardrails that appear to be going up at the FCC.” – Mike McGuire, Vice President of Research at Gartner

Mayors Take Climate Change Into Their Own Hands

Wednesday, October 7th, 2009

What do you do when your state’s ski resorts are firing their employees due to lack of snow, and the federal government doesn’t seem to care?

  • On Friday, Greg Nickels, President of the U.S. Conference of Mayors, announced that 1,000 mayors around the country had signed on to an agreement to reduce greenhouse gas emissions in their cities in keeping with the Kyoto protocols, an international agreement designed to combat global warming.
  • With most of the nation’s population and economy concentrated in cities, mayors felt it was their duty to step in to reduce emissions where the federal government fell short. The U.S. government has not yet signed on to the Kyoto protocols.
  • In addition to reducing emissions in their own cities, the group of mayors also lobbies Congress for grants and funding for greenhouse-gas-reducing projects, and advocates for a nationwide reduction in greenhouse gas emissions by 7% of the 1990 level by 2012.

Facts & Figures

  • The city of Cleveland has converted to 25% renewable energy.
  • Boston has increased its use of solar power by 300%
  • Los Angeles met the 7% Kyoto target for emissions reduction four years early in 2008; Seattle reduced its 1990-level emissions by 8% three years earlier than that, in 2005.

Best Quote

“I am signing up because this is too important an issue for us to stand on the sideline. This is not a group without diversity, it’s not a group that agrees on everything, but it is a group that is completely united and committed to this one issue.” – Scott Smith, Mayor of Mesa, AZ

Baseball’s Wealthiest Team Shares Profit With NYC

Wednesday, October 7th, 2009

When you get taken out to the ballgame in New York City, the local economy gets a serious boost…

  • In the first playoff season to visit the new Yankee Stadium in the Bronx, the New York City Economic Development Corporation estimates that each home game played in the 2009 postseason will bring $6.7 million in income to New York businesses.
  • The estimate takes into account money spent by visitors to the city who patronize hotels, restaurants, and transportation services. In addition, employees in and around Yankee Stadium will take home a total of about $900,000 after every game.
  • Does the economic benefit of these games outweigh the enormous costs of building a new stadium and all its related transportation and infrastructure changes? Not everyone is so sure. One Westchester State Assemblyman says the economic and employment benefits are not enough to justify the low-cost financing that was made available to the team for stadium construction.

Facts & Figures

  • The NYC Economic Development Corporation estimate assumes each postseason game will bring in 16,850 NYC residents, 27,500 residents of the NY/NJ/CT metropolitan area, 6,000 visitors from outside this area, 300 media from outside the area, and 200 players and affiliates.
  • Counting $5.2 million in “indirect economic impact” brings the total benefit to New York City to $11.9 million.
  • The new Yankee Stadium cost $1.5 billion and was largely financed by tax-exempt bonds that will eventually be repaid by the team.

Best Quote

“There is a modicum of economic advantage. The visiting teams travel with their press corps and entourage, some people will travel to New York, stay overnight and spend money on hotels and restaurants.’’ – Andrew Zimbalist, Professor of Economics at Smith College

Ultrahigh-Net-Worth Families Reflect On The Recession

Monday, October 5th, 2009

A gathering of advisors to high-net-worth families reveals ongoing insecurity about more than just the market…

  • Reeling from the losses of the recession, wealthy families are expressing concern about what their changing financial positions will do to their family dynamics.
  • The success of family dynasties depends largely on each member managing the shared assets with a similar set of values and goals. But the sudden stock market crash brought to light hidden frictions and diverging interests in many families.
  • One particular point of anxiety is in commercial real estate. With the market so volatile and typical investors suddenly going through kind of financial-existential crisis, the old practice of buying up cheap real estate during down times just isn’t happening. What that means for the rest of the world remains to be seen.

Facts & Figures

  • According to a survey of 108 “ultrahigh-net-worth families,” 45% said their first concern these days is the economy and financial markets.
  • Other top concerns included government intervention in the markets and a commercial real estate crash.

Best Quote

“These families have recognized that autopilot is not a good strategy.” – Amelia Renkert-Thomas, Lawyer

Plunging Prices Follow The Crash

Monday, October 5th, 2009

Times are good for bargain-hunters, but a price-slashing culture could be disastrous for retailers and their employees.

  • Prices around the country are dropping in a retail campaign to win back buyers who put their wallets away when the stock market crashed and thriftiness became the norm.
  • Shoppers are staying away primarily because they’re broke, but also because the consumer culture has changed since 2007: conspicuous consumption just isn’t as okay as it used to be.
  • Because consumers are now holding out for the discounts they know desperate retailers will offer, companies are forced to cut prices even as their profit margins shrink. Lower prices mean lower profits, which often translates to hiring freezes and layoffs. This is the same cycle that affects the Japanese economy, which has been battling deflation for decades.

Facts & Figures

  • 70% of the U.S. economy is made up of consumer spending, but following the stock market crash in 2008, total household wealth decreased by 11% in less than six months.
  • On average, prices have decreased by about 20% in the hotel industry and more than 30% in the real estate market.
  • The Consumer Price Index dropped 1.5% between September 2008 and September 2009 – the largest decrease since 1950.

Best Quote

“This is the new normal. We aren’t going back.” – Donald Keprta, President of Dominick’s (a supermarket chain in the Midwest)

Doing Homework With No Home

Monday, October 5th, 2009

The federal government tried to look out for homeless students by requiring certain allowances be made to keep them in school. But in a bad economy, who should foot the bill for this crucial assistance?

  • In the wake of the recession, the number of homeless children enrolled in public schools has surged. The trickle-down effects of layoffs and foreclosures have begun to strain the resources of public school districts as they struggle to keep kids enrolled while their families deal with financial ruin.
  • Federal law requires that a special liaison to the homeless be appointed in every school district. In addition, districts must immediately place any student that enrolls without requiring proof of residence, and they must allow students to remain enrolled at the same school even when their families are forced to move.
  • Assistance can include special car or bus services and even special administrative positions created just to manage the school-related obstacles transient children face. Some of the cost of these services is absorbed by grants and federal aid, but still they present budget issues which are sometimes visited upon local taxpayers.

Facts & Figures

  • Since 2007, according to the Association for the Education of Homeless Children and Youth, the number of homeless children seems to have increased by 75-100% in many school districts.
  • In the 2006-2007 school year, there were 679,000 homeless students reported. In spring of 2009, there were more than 1 million.
  • A school district in San Antonio saw the number of homeless students double this year to 1,000 in the first two weeks of school alone.

Best Quote

“We see 8-year-olds telling Mom not to worry, don’t cry.” – Bill Murdock, Chief Executive of Eblen-Kimmel Charities

World Leaders Share The Wealth… And The Responsibility

Friday, October 2nd, 2009

Group of 8 nations made the mess, so why are 12 poorer countries so eager to help them clean up?

  • In an effort to diversify the group and include the perspectives of increasingly powerful economies like those of India and China, the Group of 7 (recently a Group of 8) has decided to permanently expand to become the Group of 20.
  • The financial crisis made it clear that global economic decision-making power could not be concentrated in the hands of a small group of relatively similar, largely Western economies.
  • It’s not clear whether the new, larger economic forum will actually address issues of concern to the less wealthy new members (notably around international trade issues), or continue to focus on the crises and economic issues most relevant to the “old boys’ club.”

Facts & Figures

  • The Group of 7 was comprised of the United States, Britain, Canada, France, Germany, Italy and Japan for more than 30 years. The addition of Russia in the 1990s made it a Group of 8.
  • The new Group of 20 is actually made up of 19 countries plus the European Union.
  • Besides the EU, the new member nations are: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, and Turkey.

Best Quote

“Leaders of the G-20 nations have an opportunity to clarify that legitimate government actions, like trade enforcement, are not acts of protectionism.” – Sherrod Brown, Democratic Ohio Senator

What Does It Mean When Multi-Millionaires Choose The Ford Focus Over The Benz?

Friday, October 2nd, 2009
Have they learned from the past, or simply become terrified of risk?
  • As the financial panic turned a year old this September, a surge of ultra-high-net-worth investors have taken to budgeting their money. They’re spending less on luxury goods, they’re cautious and more involved in their investing, and they’re targeting their giving more.
  • The trend illustrates how attitudes about wealth have shifted during the economic crisis, making even the richest of the rich more aware of how they spend, grow, and give their money.
  • What does this mean for the future? It depends on whether this trend means the wealthy are becoming more conscious and thoughtful about managing their money or if they’ve just become scared of losing any more.

Facts & Figures

  • The Boston Consulting Group predicted that worldwide, wealth would not return to pre-2007-crisis levels until 2013.
  • It also found that the number of millionaires was down 18% overall.
  • The report found that across the board, clients of wealth management firms had lost trust in their advisers.

Best Quote

“For many of them, it [the economic crisis] was a loss of confidence in themselves as well as in the markets.” – Nancy Rooney, Head of the Northeast Investment Business for J.P. Morgan Private Wealth Management

The Doctor Who Saved More Lives Than Anyone In History

Friday, October 2nd, 2009

Dr. Borlaug saved millions of people from dying of hunger, so how is it possible that 1 billion people will still go hungry this year?

  • The life of Green Revolution leader Dr. Norman Borlaug was celebrated this week after his recent death at the age of 95. His work to feed the hungry is credited with having saved more lives than any other person in history.
  • The systemic reasons for hunger can be directly linked to the production and dissemination of grain. America’s export of grain to poor nations has interfered with their ability to develop independent and strong local economies.
  • Sub-Saharan Africa has been particularly hard hit by its inability to replicate key aspects of the Green Revolution, such as irrigation.

Facts & Figures

  • More than one billion people will suffer from hunger this year.
  • In July, President Obama and other Western leaders pledged $20 billion for agricultural development in poor countries.
  • Due to an exploding population in Africa, a severe drought threatens the lives of millions of people.

Best Quote

“World peace will not be built on empty stomachs or human misery. It is within America’s technical and financial power to help end this human tragedy and injustice, if set our hearts and minds to the task.” – Dr. Norman Borlaug

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