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Business, Finance, Occupation & Industry

Student Loan Burden Could Be a Blow to Economic Recovery

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By 24/7 Wall St.

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Students with large loan burdens, because of the debt taken on for their educations, likely are not buyers of expensive items such as homes and cars. Perhaps all of their debt makes them less attractive candidates for loans. Or, they may believe their obligation will leave them bankrupt.

The results of a study by the New York Fed show what almost everyone with a high school education knows about student loan debt:

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances – making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.

The population of these people is large enough that their troubles could be an economic headwind in the next several years, particularly because so many of them also have been unable to find jobs.

Filed under: 24/7 Wall St. Wire, Economy, Labor

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From: http://www.dailyfinance.com/2013/04/18/student-loan-burden-could-be-a-blow-to-economic-recovery/

Business, Finance, Occupation & Industry

What Is Important in the Financial World (4/18/2013)

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By 24/7 Wall St.

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German Economic Recovery

One German research firm expects the nation’s economy to rebound this year and next. However, the rebound will be very modest. It will not be anywhere near those expected in the United States or China. The European Union’s troubles will be too much of a drag. Ifo says of the German economy:

An upwards tendency re-emerged in the German economy in spring 2013. The situation in the financial markets has eased thanks to subsiding uncertainty regarding the future of the European Monetary Union. The headwind in the world economy has also tailed off somewhat. The institutes expect gross domestic product in Germany to increase by 0.8% this year (68%-projection interval: 0.1% to 1.5%) and by 1.9% next year. The number of unemployed should continue to fall to an annual average of 2.9 million this year and 2.7 million in 2014.

Student Loan Burden

Students with large loan burdens, because of the debt taken on for their educations, likely are not buyers of expensive items such as homes and cars. Perhaps all of their debt makes them less attractive candidates for loans. Or, they may believe their obligation will leave them bankrupt. The results of a study by the New York Fed show what almost everyone with a high school education knows about student loan debt:

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances—making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.

The population of these people is large enough that their troubles could be an economic headwind in the next several years, particularly because so many of them also have been unable to find jobs.

Disappointing Nokia Earnings

Nokia Corp. (NYSE: NOK) had another rough quarter. The numbers show the company still cannot make progress against powerful competition from Apple Inc. (NASDAQ: AAPL) and Samsung. The new Window’s phones from Nokia and Microsoft Corp. (NASDAQ: MSFT) have not sold well, which is a blow to the fortunes of both companies. Microsoft’s success in the PC sector has begun to disappear, leaving mobile as one of the few industries in which it can grow. According to the Nokia earnings announcement:

Nokia Group non-IFRS EPS in Q1 2013 was EUR -0.02; reported EPS was EUR -0.07.
– Nokia Group achieved underlying operating profitability for the third consecutive quarter, with a Q1 non-IFRS operating margin of 3.1%.
– Devices & Services achieved underlying profitability for the second consecutive quarter, with a Q1 non-IFRS operating margin of 0.1%. Devices & Services benefitted from a strong focus on cost as well as the reversal of

From: http://www.dailyfinance.com/2013/04/18/what-is-important-in-the-financial-world-4182013/

Business, Finance, Occupation & Industry

The Economic Aftershocks of Hurricane Sandy

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By Dan Newman, The Motley Fool

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After Hurricane Sandy, there were several opinions that the storm would help boost the economy through spending to rebuild destroyed houses, businesses, transit, and other infrastructure. Fool Jeremy Bowman highlighted why these opinions were extremely wrong:

Economic activity for the sake of economic activity does nothing. If disasters like Sandy actually benefited the economy, then we could just go out and destroy houses on our own. There’s no need to wait for Mother Nature.

Now, a few months after the hurricane, we can sift through more data to see just how the storm affected the economy. And as the rational argument predicted, it did not benefit the economy.

Jobs
First, several thousands of workers lost wages. Take a look at the initial unemployment claims from New York and New Jersey following the October storm:

The Federal Reserve Bank of New York writes, “We estimate that roughly 160,000 initial unemployment claims filed in the two states during the month of November were related to Sandy, causing an unprecedented shock to the regional job market.” The sector hit the hardest, in terms of jobs, was leisure and hospitality. Using the less volatile payroll numbers taken from the second week of November, the New York Fed found that 32,000 jobs were lost; the difference between the numbers was attributed to a portion of the 160,000 filers finding new work or being able to return to their old jobs.

While the job levels are evening out over the long term, that short-term joblessness pushed plenty of incomes further into the future than expected. And, as any investor knows, money today is worth more than money tomorrow.

Future labor
In addition to today’s workers, the storm also disrupted tomorrow’s workers. All of New York City’s more than 1,700 public schools were shut down for a week, with more than 80 of the schools forced to wait even longer before admitting students and several others relocated farther away, affecting attendance. A week will probably not have much effect on the actual skills the kids learn, but with youth unemployment already a nagging issue, it doesn’t help.

Real-estate losses
For those who have to rebuild their homes, dealing with insurance claims can be aggravating. But even for those lucky enough to own an undamaged home in affected areas, average prices have declined by 10%. Additionally, new flood maps are requiring buildings to be updated and raised, lest owners face dramatically higher flood-insurance costs in a few years. As the New York Daily News reports, those who don’t comply with new building codes “can expect to pay a steep cost with insurance premiums around $9,500 a year … compared with $1,410 a year for a homeowner whose house is built at the recommended level.” And this means that more money will be paid to cover flood probabilities instead of going to savings, retirement funds, or other goods and services.

Insurance company losses
Even if Hurricane Sandy was a coast away, your insurance …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Exclusive Interview: Why Former AIG CEO Hank Greenberg Sued the Government for $25 Billion

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By Morgan Housel, The Motley Fool

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Hank Greenberg, former chairman and CEO of AIG , sued the government last year for $25 billion, related to the 2008 bailout of the company he founded and built. 

The common response when hearing that AIG‘s old boss is suing the government that saved his company is something between utter disgust and anger. It feels like the ultimate “thanks for nothing” move.

I sat down with Mr. Greenberg last week and asked him to explain the motive for the lawsuit. Here’s what he had to say (transcript follows):

Morgan Housel: You’ve recently been involved in a $25 billion lawsuit against the government, specifically the New York Federal Reserve.

Hank Greenberg: Not involved. We have commenced a lawsuit against the U.S. government.

Morgan Housel: Some people, when they hear about the lawsuit after the AIG bailout, they respond with a sense of shock. What was the purpose of that lawsuit?

Hank Greenberg: Several things. First of all, we have a Constitution in the United States, and there’s a provision against unlawful taking by the government. You can take anything you want, but you have to pay for it.

If you go back into the book and you see it started with Spitzer, it led to management changes and those management changes led to the company becoming deeper and deeper into the need for liquidity, so they sought liquidity from the New York Fed, from the window. They were turned down.

They tried to get a broker-dealer license, which would give them access to the window. They were turned down.

At the very last moment, Hank Paulson, then Secretary of the Treasury, calls Willumstad, who was then the Chairman of AIG and CEO. He says, “There’s only one deal we’re going to give you.” That was $85 billion at 14.5% interest. At the window, if they were borrowing, it would have been 1.5%.

As an aside, they opened the window to the Arab Bank, which was then 26% owned by Libya when Gaddafi was running it, so Libya could get access to the window, but AIG couldn’t.

So “14.5%, $85 billion, and we’re taking 79.5% of the equity of the company,” and incidentally he tells Willumstad, “You’re fired.” Here’s the Secretary of the Treasury, calling a public company CEO and firing him. Is this America? Does the government fire CEOs? I hadn’t heard that before.

He then says to Willumstad, “Sign that agreement” that I just related to you.

He says, “Just fire me. I’m not signing the agreement,” so Paulson sends in his replacement, a guy called Ed Liddy who’s on the Board of Goldman Sachs. He signs the agreement, still as the director of Goldman Sachs and resigns from Goldman Sachs three days later, retroactively. Very unusual, to say the least.

Of the $85 billion that they lent AIG … AIG had about $800 billion of assets. They had plenty of collateral. They didn’t have to take 79.5% of the equity at the time.

Now you’ve got the $85 billion; …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

US consumer debt up in Dec. on student, auto loans

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Americans stepped up borrowing in December to buy cars and attend school. But they cut back sharply on credit card use, continuing a trend that could hold back growth this year.

Consumer borrowing rose $14.6 billion in December from November to a total of $2.78 trillion, the Federal Reserve said Thursday. That’s the highest level on record.

The increase was driven entirely by gains in student and auto loans. Borrowing in the category that measures those loans increased $18.2 billion, the biggest monthly gain since November 2001.

But credit card debt fell $3.6 billion. Americans have been relying less on credit cards since the Great Recession. Total credit card debt has fallen roughly 17 percent since the July 2008.

The December decline could also be a signal that consumers were worried in December about tax increases that kicked in last month and are reducing take-home pay.

While credit card debt has fallen since the recession, student loan debt has surged. It has risen 63 percent since mid-2008 to total $956 billion as of September of 2012, according to quarterly data compiled by the Federal Reserve Bank of New York.

The increase partly reflects high unemployment, which has led many Americans to seek better education and skills in a more competitive labor market.

Auto loan debt is slightly lower than its level in mid-2008. But it has risen roughly 9.4 percent since mid-2010 to total $750 billion as of September, according to the New York Fed report. U.S. automakers are coming off their best year for sales in five years, helped by extremely low interest rates that have encouraged more borrowing.

Analysts say credit card debt to stay weak this year, which could slow consumer spending and hold back economic growth.

Congress and the White House reached an agreement last month to prevent income taxes from rising on most Americans. But the deal did not extend a temporary cut in Social Security taxes, which expired on Jan. 1. The two percentage point increase means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

Most economists expect the tax increase could trim the …read more
Source: FULL ARTICLE at Fox US News

News, Politics, Government

The Germans Want Their Gold Reserves Back in Germany

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By Robert Lenzner, Forbes Staff The startling news that Germany is repatriating its gold reserves from the United States and France has got precious metals speculators worried that this is the first major sign that trust between central banks across the globe could be deteriorating. After all there is much anxiety in financial capitols about the future of the Euro as well as the feeling that the almost constant printing of new dollars to keep America running portends a terrible crisis down the road. And that crisis in the value of paper money makes physical possession of gold a no brainer. Gold, after all, has moved up every year for the last 5 years, from $900 an ounce to $1800 an ounce before slipping under $1700 an ounce. Germany has also reversed its 2011 policy of keeping gold abroad to ease the raising of foreign currency. Nativism and the uncertainty of Europe‘s monetary stability warranted getting the gold back. Still, the hobgoblins of internal finance can produce any nightmare they like. In what many may perceive as an emotional outburst, Tyler Durden, the outspoken, gutsy blogger from Zerohedge, called the German move “a momentous development, one which may signify that … the central banks don’t have faith in one another.” A rather strong statement in the light of German public opinion reckoning that the gold is much safer in the Bundesbank than at the New York Federal Reserve, where the vaults could become flooded by the next Sandy. You should know that the Germans felt their gold was safer in New York than in a place where it could be seized by the Soviet Union, if they had ever invaded. Still, it is momentous that the New York Fed has the largest known depositary of monetary gold– some 23% of the globe’s gold bars, including half the hoard of the Netherlands and considerable holdings from other nations. Germany will feel a lot more secure counting its own gold bards, rather than depending on an audit from the central banks of France and the U.S. Mark it down as the strongest European power flexing its perfect right– and setting off a wave of speculation. Are foreign gold reserves safe in New York– or could they be expropriated? Very doubtful. Could the the New York Fed be lending out gold bars as security for sovereign loans? I reckon that’s illegal. But, unless the US gets its fiscal ship in shape, there could very well be more repatriation of gold back to the homeland. Which would be at the very least another bruise for the psyche of the most powerful nation in the world. You should know that several gold hoarders I know own certificates from Swiss cantonal banks that can be converted into gold bards at any time– and any time has been the motivation for those private vaults in havens like Switzerland— just in case of a terrible emergency. “Never underestimate how far any government will go in time of crisis,” gold guru emailed me today. After all, the US outlawed ownership of gold for 40 years. Germany decided it was safer to secure its gold at home” rather than depend on unpleasant surprises down the road.
Source: FULL ARTICLE at Forbes Latest