Political Economy category archive

Dour Bauer:

Eddie Bauer Holdings Inc., the U.S. outdoor-clothing chain, may seek bankruptcy protection as soon as this week, according to five people with knowledge of the discussions. The shares lost half their value.

(snip)

Eddie Bauer had $187.9 million in long-term borrowings and $2.62 million in cash in the quarter that ended April 4, according to a company filing. The company reported a loss of $44.5 million in the first quarter on sales of about $180 million.

If you read below the headlines, many of the bankruptcies are coming, not because of what’s happening today, but because of what happened yesterday–companies contracted oodles of debt figuring that they could just keep refinancing it forever.

Via Andrew Sullivan.

Bank of Lincolnwood, Lincolnwood, Illinois, ain’t no more.

The Nation explores tent cities. A nugget:

While recent media accounts portrayed Tent City’s incarnations as creatures of the recession–reborn Hoovervilles for the laid off and the foreclosed–shantytowns have been a periodic but permanent feature of American urban life for at least the past two decades. They are what connects us to São Paulo, Lagos and Mumbai, physical manifestations of our growing inequality and societal neglect. Seattle saw its first Tent City in 1990. The area now boasts three, one dating back to 2000, another to 2004. Portland’s Tent City (“Dignity Village”) has been around since 2001. No one living there, says resident Gaye Reyes, is recently homeless. In California’s San Joaquin Valley, the City of Fresno last fall began distributing a $2.3 million settlement to homeless people whose property was destroyed when the city repeatedly razed its Tent City between 2004 and 2006, at the apex of the economic boom.

Read the whole thing.

Bloomberg estimates:

Unemployment in the U.S. probably exceeded 9 percent in May for the first time in more than 25 years, underscoring the threat job losses pose for an economic recovery, a government report may show today.

The jobless rate jumped to 9.2 percent, the highest level since 1983, according to the median estimate of 75 economists in a Bloomberg News survey. Employers probably cut 520,000 workers from payrolls, the smallest decrease in seven months.

And a lot of the employment has been temp work.

Moral: A healthy economy can’t be built on financial shenanigans boxes of air. And, remember, this mess was not an accident. It was caused by policies. Republican policies.

Reuters:

Medical bills are involved in more than 60 percent of U.S. personal bankruptcies, an increase of 50 percent in just six years, U.S. researchers reported on Thursday.

More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.

(snip)

About 170 million people get health insurance through an employer but President Barack Obama says soaring healthcare costs are hurting the economy and forcing businesses to drop medical insurance for their workers. . . .

“Nationally, a quarter of firms cancel coverage immediately when an employee suffers a disabling illness; another quarter do so within a year,” the report reads.

Have cake, eat it too (emphasis added):

Typically, he (Barry Bosworth, an economist in Washington at the Brookings Institution–ed.) said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn’t have to claim the income in the United States.

“What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate,” Bosworth said. “Relative to where they are now, the administration’s proposals are less favorable, so there will be some rebalancing on their part.”

This bad:

New Castle County Council (Delaware–ed.) members are joining other county employees and reducing their salaries by 5 percent.

Since they do not have authority to change their own salaries–the law prevents them from voting on their own pay–they say they will accomplish this by returning money to the country treasury.

New unemployment down slightly.

They’re running out of persons to lay off, plus it was a short week:

Initial claims for state unemployment insurance benefits fell 4,000 to a seasonally adjusted 621,000 in the week ended May 30, the Labor Department said. The week covered the Memorial Day holiday, which could have had an impact on the data.

Also, from the same story,

The number of people staying on the benefit rolls after collecting an initial week of aid fell 15,000 to 6.74 million in the week ended May 23, the latest week for which the data is available.

15,000 is 00.2% (in fractions, that’s two thousandths) of 6,740,000. This is grasping at straws statistics.

The only persons the currrent system benefits are the insurance companies, with their armies of faceless bureaucrats charged with figuring out how to deny paying for care.

Americans with job-based health insurance saw their protection from higher out-of-pocket costs erode between 2004 and 2007, especially those who were sick and of modest means, according to a new study.

The majority of people with health insurance, about 160 million Americans, receive it through their jobs.

“American families with employer-based coverage were worse off in 2007 than they were in 2004,” said Jon Gabel, lead author of the study that was published in a June 2 Health Affairs Web exclusive. “This is during a period of time when the economy was expanding.”

Maybe there’s some hope for action against the fine-print Fagins:

Loan sharks are called mobsters. Thieving legitimate lenders are called capitalists — free to impose any terms short of kneecapping on their troubled borrowers. Washington treated capitalist sharks as role models and beloved campaign contributors — that is, until the economy collapsed and debtors (aka voters) emitted a collective scream.

Now, maybe, borrowers might catch a break. There is serious talk in Congress and the White House about creating a Financial Products Safety Commission, charged with protecting consumers and the country from the depredations of irresponsible lending.

The whole thing is worth a read.

In a move with only one modern-day precedent, Gov. Arnold Schwarzenegger and Democratic lawmakers are pressing the Obama administration and members of Congress for federal loan guarantees to help California out of a multibillion-dollar jam.

The story goes on to cite the Federal bailout of New York City as a comparison.

This situation illustrates the internal contradictions (as Marx would have said) of Republican Economic Theory. Republicans have rendered raising taxes almost impossible in Cali. At the same time, they rendered cutting services almost impossible. For a long time, thanks to Republicanism, Californians have been thinking they can get something for nothing–more expensive government services (it’s called the Price Index) without paying for them.

Before you scream welfare queens, consider that schools and corrections are almost half of the total.

(Note that I am not arguing for any particular tax policy. Far be it from me to offer any solutions.)

I am merely pointing out another example that the Republican theory that cutting taxes is the economic 42, the answer to life, the universe, and everything, is just so much hooey. It is the camouflage for the Party’s mission of making the rich richer and the poor poorer.

Everything has a price.

Taxes are the price of living in a civilized society.

Running out of persons to lay off:

A separate report from the Labor Department showed initial claims for state unemployment insurance dropped by 13,000 to a seasonally adjusted 623,000 in the week ended May 23, falling for a second straight week.

However, the number of people staying on benefit rolls after drawing an initial week of aid increased 110,000 to a higher-than-forecast 6.79 million in the week ended May 16.

On a possibly brighter note, the same story reports that April durable goods orders were up slightly.

I say “possibly” because these preliminary figures, including the unemployment figures, are often revised a month later–usually in the wrong direction. Follow the link to see what happened to the March durable goods estimate.

Fundamental to this whole mess is thinking of one’s primary residence, not as a place to live, but as an investment. That’s gambling with the grocery money.

Home prices in 20 major metropolitan areas fell more than forecast in March as foreclosures surged, threatening to extend the housing slump.

The S&P/Case-Shiller home-price index decreased 18.7 percent from March 2008, matching the drop in the year ended in February. The measure declined 19 percent in January, the most since data began in 2001.

Record foreclosures are depressing the value of other properties, contributing to a slump in household wealth that is hurting consumer spending and the economy. Still, falling prices and mortgage rates have made homes more affordable, helping to stem the slide in sales, which will eventually help prices stabilize.

Douglas A. McIntyre, writing at 24/7, considers the claim that the S&P data is so old (two months) as to be meaningless:

But, the numbers from March are like canned vegetables. It takes them a long time to spoil. That point was driven home by a study Fitch, the credit ratings agency, is preparing that shows “that between 65% and 75% of modified subprime loans will fall 60-days or more delinquent within 12 months of the loan change.” In other words, even if homeowners are given a second chance to keep their homes and enjoy lower monthly payments, they are prepared to walk away.

The market is looking for ways to claim that housing is finding a bottom and that it is possible that a recovery in home prices in in the wings. While there may be some pick-up in sales in the most depressed markets including Nevada and Florida, there is no sign that prices are rising. Clever buyers are moving in to buy homes in foreclosure, but the prices of these houses are so low that their sales may actually bring down the average price of the homes being sold in those markets.

Bonddad has a great series up about the Federal budget.

As is typical of his posts, there’re lots of facts and almost no editorializing.

Part One.

Part Two.

Part Three.

One thing his statistics show is that, despite the caterwauling, Social Security spending is not a big issue; it’s held pretty steady as a percentage of expenditure.

Medical spending–Medicare and Medicaid–that’s another thing.

He doesn’t editorialize, but I do. We need single payer.

More Americans than forecast filed claims for unemployment insurance last week, and the total number of workers receiving benefits rose to a record, signs the job market continues to weaken even as the economic slump eases.

Initial jobless claims fell by 12,000 to 631,000 in the week ended May 16, from a revised 643,000 the prior week that was higher than initially estimated, the Labor Department said today in Washington. The total number of people collecting benefits rose to 6.66 million, a record reading for a 16th straight week, and a sign companies are still not hiring.

Notice how the revised figures are usually higher than the initial estimates?

They are in the fields where all those unbuilt houses aren’t (not that I’m a big fan of filling fields with houses, but, even so):

Housing starts fell 12.8 percent to an annual rate of 458,000 units last month, the lowest on records dating to January 1959, the Commerce Department said.

The drop reflected a 46.1 percent plunge in groundbreaking activity for multi-family units and suggested homebuilding remains a drag on the economy. Starts for single-family homes, however, rose 2.8 percent, a second straight gain that showed the worst-hit part of the market was stabilizing.

I question whether housing is a drag on the economy. Rather, I think the economy is a drag on housing.

And Wall Street Banks are the deadweight in the drag.

Graph via Andrew Sullivan.

Outfits that depend on volutary contributions, such as churches, are hurting these days.

And the hurt has unexpected side effects. In Virginia:

God may provide, but the state may not when it comes to unemployment benefits for employees laid off by churches, synagogues and religious groups.

(snip)

It was a hard way to learn that under Virginia law, tax exemptions for religious organizations include freedom from paying unemployment taxes. The groups still must pay Social Security and withholding taxes.

SAHW (Stay at home workers):

After hitting a three-month low in the prior week, first-time claims for state unemployment benefits rose due to layoffs in the auto sector, the Labor Department reported Thursday. The number of initial claims in the week ending May 9 rose 32,000 to 637,000.