Beware the Economy: Proceed with Caution

It is the last day of July, a fact that I wish I could avoid, the summer is going by too fast already. August is upon us and it seems I have not gotten to all the things I would like to do. We are definitely hanging closer to home and doing fewer outings. In previous summers, Newsday’s Fun Book was our guide and we went somewhere every day. This summer the children have attended some mini camps here and there so they are having a swell time and they don’t seem to mind spending more time at home.

Right now we are trying to preserve our funds for the uncertainty of the future and aggressively pay down debt, which unfortunately did not come from spending, though I wish it did. Then, I would be able to look around and see all of the nice stuff and at least be enjoying what I am struggling to pay for. Our debt comes from a failed business enterprise so in reality we have nothing to show for it except to acknowledge the experience as a very expensive lesson learned. For years, we scrimped to ensure that we had no debt and plenty of savings so that we could become small business people, deciders of our destiny and maybe even transcend the middle class. All of the money that we could have spent on home improvements is now gone plus a whole lot more. We are now stuck indefinitely with the old 1970’s kitchen, dreadful bathrooms and a myriad of unfinished home improvements that we decided to forego in order to have enough start-up capital for our business. Now we face the long road of reducing our lifestyle and spending in order to tackle that debt. Nevertheless, we are fortunate to have preserved our livelihood.

I think the smartest thing that we or anyone can do now is to proceed with caution until we can figure out what is going on with the economy. Even the economists cannot agree on its status right now. If you follow the stock market, it is clearly evident that the indicators have gone awry; the Dow is posting 200+ gains or losses daily. Market logic seems to be erratic with investors jumpy over every smidgen of good or bad news.. Lately, if any of the financial companies posts billion dollar losses, their stock goes up because they did not lose as much as the street expected. Today, when Exxon Mobil posted the largest quarterly profit ever, $11.8 billion, it was not enough to satisfy earnings expectations and the stock went down over $2. Yes, Wall Street expected Exxon Mobil to have gouged us even more, if that is even possible.

Thankfully, most of us are surviving and adjusting to the new price thresholds for energy and food and we will probably make it through the back-to-school shopping season fairly unscathed. Lucky for me, our school district has been phasing in a uniform policy for Kindergarten - 8th grade. This will reduce our clothing budget significantly. I suspect that the major rough patch for the Northeast will be winter when the heating oil bills kick in and right now it appears that nothing short of a miracle will reduce the tab for the 1st fill-up projected to be at least $1000 for those with the standard 275 gallon tank. Perhaps many will be prepared to absorb the impact of that 1st bill, the problem will be the 2nd and subsequent ones arriving every 4-7 weeks throughout the cold weather season. I know people who are already saving the “oil money”; I have become one of them. We should plan for it so we do not find ourselves with empty pockets at the worst time of year.

Yesterday, the Governor of New York warned of difficult economic times ahead and that the state should re-evaluate its budget and spending in order to head off a financial disaster. We should all take heed. If there is anything we can learn from all the government bailouts, insolvencies and foreclosures is that we all need to be wise about how we spend and save money at least in the short term.

It’s Official: NY State is in a Recession

Kudos to Governor Patterson today for taking a realistic stand on NY’s economic woes before they become completely unmanageable. The Empire State faces tough economic times having suffered serious revenue losses due to the financial crisis on Wall Street. Funny how over the last 2 days, the Dow has increased 451 points. Is there a disconnect here?

I agree with Governor Paterson that we should face facts sooner than later and take the painful steps now to get the state’s financial house in order. Below are excerpts from Governor Patterson’s speech reprinted in the online version of Long Island Business News July 30, 2008.

“When I took office (on March 17, 2008), I was apprised that the New York State budget deficit for next year was $5 billion. I immediately ordered cuts to state spending, but the situation has gotten worse. Tomorrow I will submit a budget plan that places our deficit for next year at $6.4 billion - that is $1.4 billion higher than it was just a few short months ago.

In the beginning of May, our budget director projected our New York State deficit over the next three years at $21.5 billion - that was a record. But things have changed. That number has now erupted to $26.2 billion - a staggering 22 percent increase in less than 90 days.

In June of 2007, the 16 banks that pay the most on taxes to their profits remitted $173 million to our New York State Treasury. This June, just a month ago, they sent us $5 million - a 97 percent decrease. Our economic woes are so severe that I wanted to talk to you personally this evening about where we stand. The fact is: we confront harsh times. Let me be honest: this situation will get worse before it gets better.

But the time to act is now. We cannot waste any further opportunities. We can’t wait and hope that this problem will resolve itself. If we do, we will lose our opportunity to turn this situation around. These times call for action and today I promise you there will be action. Today I am calling the legislature back for an emergency economic session on Tuesday, August [19th]. “

The Governor has requested that the Legislature work with him to trim another $600 million from this year’s budget in addition to the $630 million in cuts that he has already proposed. He stated that no element of the budget is immune from cuts; a reduction in state workers and a hiring freeze have already been proposed including cuts to school aid. Senator Dean Skelos, the Republican Senator from Long Island and recently appointed Senate Majority Leader, has pledged to protect state education aid. He knows that a decrease in school aid will be a devastating blow to Long Island, where school taxes are among the highest in the nation despite what the state currently distributes to local districts.

Governor Paterson said yesterday “My concern is that people sitting in their homes already know what the pain is…I want to make sure that people in Albany understand as well.” I hope that the Legislators heed to the gravity of the situation and respond in-kind. They must resist the political grandstanding and partisanship that usually impedes their progress and work with the Governor to find efficient and effective long-term solutions or else we will all have to pay more taxes and we know none of us can afford that.

Governor Paterson Sounds Alarm: NY State in Trouble

In May, the NY State Budget Office projected a $5 billion budget gap next year, increasing to $7.7 billion for 2010 and $8.8 billion for 2011. A few weeks ago, Thomas DiNapoli, the state comptroller issued a report showing that 2008 business tax receipts were $453 million below projections. No one seemed particularly worried about these numbers other than to say that the state has to cut spending sooner than later.

Beginning yesterday, Governor Paterson has issued a stern warning of tough times ahead for New York. What else has happened recently to make these numbers appear more sinister? Why the sudden doom and gloom? Something else must be afoot, I guess we'll find out tomorrow.

The Government Has Gone Mad: Blames Record Deficit on Own Failed Policies

The 2009 Budget Deficit is $482 billion, that is nearly ½ trillion dollars. The White House blames it on the faltering economy and the stimulus package.

They are blaming the stimulus package? The very package that was enacted to help boost the economy in the first place.

They are blaming the faltering economy? The mechanisms of its demise were accepted and presided over by this administration.

Then they tell us the deficit is not so bad because it is only 3.3% of GDP compared to the 2004 deficit which was 3.6% of GDP.

This is the rationale that we are given when this Administration inherited a $128 billion surplus in 2001. This is unacceptable. How can we sit by and actually accept this rationale. This is another ½ trillion that we have to BORROW!!! This will push the national deficit to over $10 trillion dollars. We have a bankrupt government propping up Wall Street. Congress just passed a bill that puts us on the hook for billions more to help stem the mortgage crisis and rescue Fannie Mae and Freddie Mac. We citizens should be rioting in the streets. I cannot write anymore, I have a headache from the veins popping in my brain as I absorb the unbelievable madness that is now the US government.

Membership has its Privileges

One of the perks of being elected to a public office is the contacts that you make and the favors that you maneuver around the law for untold future benefit. The benefit of serving the public is the shoe-in job that you get after you leave office. 4 days after leaving the state senate, after resigning from senate leadership and bowing out of his unfinished term, the 79 year old former republican State Senator Joe Bruno becomes CEO of a consulting firm, CMA Consulting. This firm has had ties to State government since it was founded in 1984 with the wife of a republican state senator as principal; a senator that Bruno appointed to the powerful finance committee early in his career. The State favors woman owned businesses when awarding contracts and this company will retain this status by shuffling said wife to a “title-ful” position while Bruno is CEO.

The company has 66 active contracts with more than 20 state agencies according to the Albany Business Review. So, a month ago, when Joe was talking about moving on with his life this is what he was talking about. Why would anyone leave the most powerful Republican job in NY State to take up as CEO of a $42 million a year computer software development company, even if it is the Albany region’s largest company in its field? It all seems fishy to me but that boat has already sailed. No one seems phased by the fact that this company has had the inside track since it was founded. Now it is comfortably surviving on state contracts for its revenue.

Oh why do I not have any good connections? It is perfectly acceptable for politically connected people to form companies or work for companies that make their revenue precisely because of those connections. So shall the world continue to turn much to the detriment of the rest of us poor, unconnected fools.

Short Term Market News Takes Toll; Businesses Need Time to Grow

Things are suddenly worse than they were yesterday and the Dow sunk 283 points because of it. I simply can’t resist the inclination to be facetious these days. In reality, I would prefer that the market stay flat and not make these wild swings on every smidgen of good or bad news. The market cannot seriously justify on a daily basis a swing of 200+ points on good or bad news. This is ridiculous behavior. It is already bad enough that the market runs on a quarterly basis as it is. The companies that made it to the Dow did not merit a place by driving profits on a quarterly basis. This short term basis requires re-organization after re-organization when a company lays off workers or restructures in an attempt to balance the bottom line and show Wall Street good numbers. In fact it has gotten to the point where the market goes up when a company announces layoffs.

Back in the not too distant past, the companies in the Dow had the time to build a business, to grow knowledge and market share organically and to research new products and materials without worrying about whether their quarterly numbers were going to meet Wall Street estimates. 3 months is not enough time to move a business towards profitability or even unprofitability for that matter. So many companies are spinning their wheels these days. They haven’t made a “real” profit in years. Increases in sales are attained through discounting products which in turn requires a corresponding decrease in costs to maintain profits. Workers are doing the equivalent of 3 people’s work because the easiest way to cut costs is either through layoffs or attrition. A company may initially try to fill a vacancy but before long the realization that the work is still getting done with the remaining folk means that after a while no one is hired and no one notices because they are all busy working so hard.

Everyone is so afraid of losing their jobs these days that they are clutching at straws to appear valuable. Then the next round of layoffs arrives and everyone wonders how they can survive without Sally, because she knew everything and knew where everything was. The company continues to limp along scheduling more and more meetings because no one wants to make a decision and set themselves up to be accountable for any actions that may lead to them losing their job. As always the workers on the bottom of the pyramid are cut first since no one in management will vote themselves out of the picture. If you look at many companies today, many of them are top heavy. The reality is if management was reduced by half, most companies would show much better numbers, much more profitability and much more efficiency. But as these over-bloated companies limp along trying to sidestep the street with their accounting sleights of hand, they cannot react dynamically to a changing market. Hence, the likes of Ford and other major companies posting billion dollar losses. How could they be so far off the mark? Don’t they employ business professionals?

When all is said and done, bad management is bad management. Bad management is intensified by the short term thinking currently employed to boost quarterly performance. America needs real companies creating real products and services and being able to present those results in a fair and cohesive manner and maybe the stock doesn’t budge that much for years but it moves on real performance, not phantom deliverables.

Things Are Not As Bad As They Seem

Good News! Congress is close to passing a housing bill to help struggling home owners. It looks like the taxpayer will be bailing out Freddie Mac and Fannie Mae after all. The bailouts are working and the stock market is happy to hear it. The stock market is going up and the Dow has reached the levels that it had 2 years ago. In addition, the consumer is still spending as major food retailers show gains. The price of oil is coming down; I saved 10 cents a gallon over the previous week on my most recent fill-up. Even the federal minimum wage is going up 70 cents tomorrow to $6.55/hr.

Thankfully, I can quit all of my bellyaching about how bad things are, recognize that Phil Gramm was right about us whining, and ignore the federal reserve drumbeat of economic doom and gloom. I was even brave enough to tally our retirement accounts today and they really are not so bad. At least we have the same amount that we had in 2006 in spite of subsequent contributions and here I was dreading the worst.

I need to learn that I have to stop worrying vicariously. I worry about the middle class. I worry that people are not affording what they think they can afford. I worry about my friends and family members whom I believe are being fiscally irresponsible. I need not worry when it is fairly certain now that bad financial behavior will be rewarded. The government is completely ready to bailout whatever financial fiasco we get ourselves into. Here I was struggling to pay down debt and jumping through hoops to preserve my credit score. I need to throw caution to the wind and start acting like everybody else. Good guys and girls always finish last.

Greed is good and I absolutely need to figure out how to get on that bandwagon so I can get my piece of the action. Besides, if I go out there and start spending, it will be great for the economy. In fact, I should stop worrying about finding a job because the government will save us. I need to try on this truth for size, it feels uncomfortable but I’m sure it will stretch after I wear it for a while.

Bank Losses are their Gain and the Consumer's Loss

This from today’s Wall Street Journal Online:

“Five big lenders led by Wachovia and WaMu reported combined quarterly losses of more than $11 billion. But their shares jumped an average of 14% on rising hopes that battered bank stocks have fallen about as low as they can go.”

Add in 10,500 more jobs lost and dividends curtailed as the banks struggle to preserve liquidity and investors are doing the wave sending the Dow up 135 points. Now, I really need a stock market tutorial to understand this logic. Wall street myopia is giving me a headache. Most of the major financial institutions have managed to post numbers that are not as bad as what the street expected and investors are ecstatic. None of these institutions wants to own up to their true exposure to sub-prime mortgages and so they have their financial geniuses massage the numbers making even cataclysmic losses look good. Yet banks have collectively written down more than $300 billion in losses since the beginning of the year in addition to borrowing billions from the fed’s discount window.

Rest assured the banks are hungry for new revenue to stem the losses in the other segments so they are hiking fees and tightening their usury grip on credit card and banking customers. In the last few weeks, my husband and I have received new terms for just about every credit card we own. One of the credit cards that we used to finance our business raised our interest from 7.99% to 19.99% telling us that if we disagreed, we could opt-out and keep our lower rate until the debt was paid but we would have to close the account. We closed the account because we were not going to pay 12% more for money we borrowed at 7.99% just to keep the account open.

Banks don’t have to physically bring out the hammer to break our knees. We all face 30% interest rates and whopping fees if we make even one mistake on any of our cards. That hiccup will ripple through our credit reports so fast sending the interest rates on all of our other debt through the stratosphere. We used to blame the poor sod who willingly went to the loan shark and put his knees in jeopardy. Now we are all feeding at the same trough. Have we forgotten how impossible it is to pay back debt with a 30% interest rate when you can’t roll it back into a low interest home equity product? Apparently so.

Calling All Consumers; Only You Can Save the Economy

Consumer Spending is 70% of GDP. Basically, America has no economy unless the consumer spends. If you read me, you know this irks me to no end as I do not like this house of cards economy based on debt. Nevertheless, this is the economy we have right now and unfortunately spending is slowing as the consumer has run out sources of funds. Technically, the consumer ran out of funds years ago. Real wages have not kept pace with inflation for quite a while now. Discretionary income has been under siege since the turn of the century. For better or for worse, we did not notice too much because 2002 ushered in the era of cheap money.

The fed reduction of the discount rate to a mere 1% and investors looking for a safer bet, after shying away from a deflated stock market due to the technology bust, combined with a whole host of factors to create the perfect storm; the housing boom. Lots of cheap money flooded the market. People afraid of being priced out of the housing market jumped in despite their incomes, speculators helped fuel the flames of demand and the inflation in house prices was a baby boomers dream. We bought, we sold, we invested, we cashed out and we spent and spent and spent. Suddenly we all had a lot to spend and when we spent too much on our credit cards, we rolled it all over into a new mortgage, or tapped more funds through another cash-out refinance, a larger home equity line of credit or a home equity loan. Everyone was on the same page; we all could keep up with the Joneses. And, all of this was a great boost to the economy...until it all crashed, as we all know too well for here we are.

So, where will the debt-laden consumer get the funds to keep spending now that food and energy costs have dramatically increased and many are defaulting on their mortgages and credit cards? Never fear, retailers will always find a way: “No money down, no interest til 2013” and a myriad of other incentives will connive us to keep spending. We have July back to school sales, a full 6 weeks before school starts, enticing us to come in now for school supplies for 5 cents, 25 cents and the like. We have the $2.99 gas for life specials to reel us in to purchase a new car and the free shipping and other perks to keep us buying online. The credit card companies need earnings, American Express’ stock fell today because even the 'premier' credit card borrower is becoming delinquent.

We had one stimulus package, we complied and spent those checks, and now some politicians are calling for another one. After all, the government and its entities have spent billions bailing out the financial institutions when the true economic bailout is aid to the consumer isn’t it. Hmmmmm.

TGIF...

...And not a moment to soon. Today I put the news to rest and focused on the incoming family ready to have some good old fashioned Long Island fun. It was a long day of preparations; somehow the house is never ready for guests. They arrived to home-made sangria and a delicious meal featuring fresh vegetables, seafood, whole grain pasta and whole grain bread. Thankfully, most of my family eats well and are conscious of avoiding high fructose corn syrup, packaged foods, white flour based products and fast food.

I am always happy to see my mom and siblings. My mom is happy to enjoy the time with her grandchildren as much as they do with each other. We stay up too late and wake up too early but we always have the energy to roll out to the beach. That is the one of the true beauties of living in Suffolk County, the vacation makes itself, you only have to show up.

Oh Happy Day?

2 Days. 483 points. Today Investors were skipping down Wall Street whistling. The market is up over 200 points singing “doowah diddy diddy…” Thankfully, they will remember none of this in the morning when they face down the reality of Merrill Lynch’s, Google’s and Microsoft’s numbers. Alas, I can’t seem to turn away from the current financial drama, such a scintillating tale of economic woe unfolding at the pace of a John Grisham novel, a real page turner. Now, if we pile on new developments occurring in my other favorite topic, public sector benefits and taxation, then we truly have a most entertaining day. Today I read that there is a real prospect of Governor Paterson signing a new round of bills to boost, yes boost, the already outrageous benefits of fire and police officers.

This from the editorial section of today’s Newsday;

“The bills would prohibit the reduction of state retiree health benefits; lift limits on disability pensions for fire and police officers who suffer heart attacks off-duty; and allow fire or police officers to join the other force after retiring, making them eligible for two full pensions…”

Am I reading this correctly? I thought we had a fight on in Albany to reduce taxes in NY State and these types of bills do just the opposite. What will happen to our taxes in the future when these pension checks come due? Our legislators found the time to send these types of bills to the Governor when we are mired in economic uncertainty. Once again, I shake my head.

The editorial urges Governor Patterson to veto the greed because “pension costs are busting government budgets and burdening private-sector workers whose benefits are far less generous.” Took the words right out of my mouth. There is a real concern that Paterson may support the bill because not only is the Governor a huge friend of big labor but his father, Basil Paterson, is a bigger friend of labor; his law firm is a lobbyist for public sector labor unions. Connections have an awful way of connecting the powerful to something that stinks. Let’s hope that rationality prevails.

Inflation: Good, Bad or Indifferent?

The slowing economy and rising inflation fears finally caught up with the oil traders/speculators driving the price per barrel down significantly for the past two days. Then one bank posts mediocre numbers but announces that it will increase its dividend and the market rallies up 276 points. Yet I can’t find any commentary that refers to this unhinged market shift as being unusual.

Today, inflation reared its ugly head, despite all of the government machinations of the numbers, telling us something that the consumer already knew; food and energy costs have skyrocketed. Now it appears, the bark of inflation is worse than its bite. Fears of inflation usually cause the market to plummet; yesterday’s fears bought down the cost of oil, a huge factor in helping the market to rally today. One would expect actual inflation, as reported today, to exacerbate the downward trend but apparently reality has no affect on the market; actual inflation was dismissed entirely today replaced by one faint glimmer of hope from one financial institution. Is your head spinning yet?

After the increasingly bad news of the last 3 days, investors, it seems, were chomping at the bit for any good news to the point where they disregarded the usual fear-inducing indicators. Hello! Even Bernanke was crying doom and gloom yesterday. Today on NPR they were talking about economic indicators and that we are in “uncharted waters.” No one knows what to think on a daily basis. Welcome to the current stock market where every day is like ground-hog day; there is no memory of yesterday, there is no forethought for tomorrow.

Summertime and the Living...

Today I was thinking about summer and how much I love the summer and how much I love summer on Long Island. So, as the financial markets hit hurricane territory with another round of treasury-funded bailouts and billions more in loans to struggling financials, I was going to focus on enjoying the summer. Yet how can I ignore that since March, with the government bailout of Bear Stearns, the treasury has been putting out financial fires and plugging leaks with ever-increasing loans to the financial markets. And can it stop? No. Consider that Fannie Mae and Freddie Mac guarantee and/or insure up to $5 trillion dollars in domestic mortgages. They cannot fail, not over the Treasury's dead body anyhow.

I started this week talking about one of my favorite events of the summer on Long Island so I was going to push the financial turmoil aside and not dwell on the doom and gloom, as I am wont to do. Alas, I cannot dismiss the nagging question, "Where is the money coming from? The U.S. is nearly $10 trillion in debt and it has been running on deficit spending for years. Do U.S. residents not realize that we make up the shortfall by borrowing, much of the funds coming from foreign governments and institutions? The treasury technically does not have the money to be the puppet master; propping up the economy with rebate checks, propping up the financial markets with loans, propping up the housing market with tax breaks and lest we forget, the ever escalating tab for the Iraq War. In addition, the Treasury has already borrowed the entire trillion dollar Social Security surplus and needs to repay Social Security when its current funds dwindle beyond sustenance amount. Lastly, all of this occurred amidst enormous tax-cuts but I digress…

Today was a simple meander through eastern Suffolk County within reasonable driving distance. We were looking for closer destinations where we could enjoy ourselves since in previous years we had no economic concern for our far flung destinations. To the tip of the North Fork, the South Fork, the North Shore, the South Shore and the in-between, we simply named it and we went. So we have to set our sights within reason not only to economize but also to conserve gasoline. We decided to check out a few bayside villages/hamlets that we had previously skipped over in our quest to visit the even more glorious. We enjoyed the views of the bay and the biggest bonus for the children, plenty of playgrounds on the water. Top that off with some home-made ice-cream and we thoroughly enjoyed our dollar-wise weather-wise perfect day.

Rock Me Amadeus!

For the 31st year, the Islip Arts Council brought the NY Philharmonic to Heckscher State Park to present a free concert under the stars followed by fireworks by Grucci. This concert is such a treat and I enjoyed every minute of it. The weather was perfect Saturday night, the crowd of at least 50,000 was well behaved and the ladies rocked. It was a pleasure to see a female conductor, Xian Zhang, the Philharmonic’s Associate Conductor and two female soloists, Michelle Kim and Sheryl Staples, performing Bach’s Concerto for Two Violins in D minor. The concert was lively and reflective - beginning with Mozart's Divertimento in D major and finishing with Elgar’s 14-movement Enigma Variations (played without pause) - the notes wafting through the bay breeze stirring up the magical quality that let's you quickly forget the world and become one with the universe.

Of course, the stars of the party are the magnificent spreads that people bring. Some of these picnics are incredible, the thought and planning that go into them make you promise yourself each year to improve your own or be put to shame. And of course, the wine flows freely all around. No event like this Is complete without the fireworks and this year they were spectacular; the sky was clear and the fireworks were right above you in the sky which you don’t always get to experience. We watched in awe as the fireworks completely filled the sky and appeared to rain down upon us. It was glorious. Ah yes, it was definitely worth the trip.

Countrywide Cousin IndyMac Bancorp Belly Up

Today, Freddie Mac and Fannie Mae assured the government that they are adequately capitalized and that talks of a bailout are premature. Thank goodness because America had the 2nd largest bank failure in history to deal with today. Federal regulators from the OTC (Office of Thrift Supervision) have shut down IndyMac Bancorp and the FDIC (Federal Deposit Insurance Corp.) will be running it as of Monday.

Of course we know what this means, if you have more than $100,000 deposited with IndyMac, you are in trouble because as we all should know, FDIC only insures a maximum of deposits up to $100,000 per depositor per banking institution. Of course every time a bank fails, experts remind us not to deposit more than $100,000 with any one bank just in case, but we do it anyway. IndyMac customers are in for the shock of their lives on Monday. Of course, we don't have all of the details and certainly have no idea how many people on Long Island will be affected.

IndyMac, based in California, was started in 1985 by no other than Angelo Mozilo and David Loeb, the founders of Countrywide Financial. Go Figure! Their greed has now multiplied into two huge financial bombs. IndyMac suffered nearly $1 billion in losses due to its primary business in sub-prime mortgages, many of which they were unable to sell to the likes of Freddie and Fannie. In addition, our very own Senator, Chuck Schumer helped to fan the flames of IndyMac's demise. In the last few weeks, after he voiced concerns about IndyMac's shaky operations, depositors withdraw over $1 billion leaving IndyMac with a lack of capital to sustain operations.

Once the FDIC depletes much of its cash on hand for the bailout, where will it get more funds from, o' taxpayers? Alas, I shake my head.

Are We Really “A Nation of Whiners?”

In an interview with the Washington Times, Phil Gramm, a former Texas senator who is now vice chairman of the giant Swiss Bank, UBS and John McCain’s top economic advisor, made the following comments:

"Misery sells newspapers," Mr. Gramm said. "Thank God the economy is not as bad as you read in the newspaper every day."

"You've heard of mental depression; this is a mental recession," he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices...we may have a recession; we haven't had one yet."

"We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline…despite a major export boom that is the primary reason that growth continues in the economy, he said.”

Let me try to understand these comments. Phil Gramm after all, has a Ph.D in Economics and was a professor of economics for 12 years so he is an expert. As you know, I keep asking if things are really as bad as they seem since I can’t get a good read on the economic and financial reports that are regularly published by the government and the think tanks. I can’t get a good read from the stock market because it is making such huge swings these days I have whiplash. I can’t get a good read because I can’t find enough published dialogue among the middle class on Long Island that gives me a good measure of how people are managing financially. I can’t get a good read since I really do not know that many people and have no relatives here so I don’t have enough first-hand knowledge besides the few grumblings here and there.

It is true the numbers don’t point exactly to recession but we do not know the integrity of those numbers though they do indicate that the economy is scraping bottom. It is also true that recessions cannot be defined until the economy is already in one. It is also true that foreign exports have been our saving grace though no one states overtly that the declining dollar makes American goods a bargain overseas. it is also true that my town is now behind on completing its final tax rolls ordinarily due July 1^st and that they are “nowhere near done” per a representative from the Assessors office because so many residents have petitioned to reduce their property taxes, myself included as you know.

Perhaps Dr. Gramm having been a Senator for 17 years and serving on the Senate Banking Committee and having left office in 2002 and now vice chairman of a Swiss Bank may not realize that he makes a ton of money not working for an American company. That money and his connections make it difficult for him to feel any financial pain in this economy. After all, there is another truth the numbers show, the rich got richer, the middle class got squeezed and the poor got poorer.

Rumor on the street has it that taxpayers may have to come to the rescue of Freddie Mac and Fannie Mae, the quasi-government mortgage finance companies, because their billions in losses may affect their ability to continue to purchase mortgages in the secondary market (from commercial lenders). Together they finance trillions in domestic mortgages by selling mortgage-backed bonds to investors, mostly foreign institutions and governments. Since the American government and the taxpayers are already trillions in debt, the money to bail out Freddie and Fannie will have to come from the sale of even more treasury bonds also sold to investors, mostly foreign institutions and governments. I suppose we should ask Dr. Gramm, the economics professor, what he thinks about that.

Econometrics: When Even the Cheap Clothing Store Cannot Survive

Steve and Barry’s filed for Chapter 11 bankruptcy protection today. It seems that their margins were too slim to survive the retail downturn and they were unable to gain new lines of credit. They are well noted for being a born and bred Long Island company though only 4 out of 276 stores are located on Long Island. Steve and Barry’s were out to change the retail world providing fashionable clothes at inexpensive prices. They claimed to have found the secret to making it happen even signing up sports stars and celebrities to "create" affordable lines of clothing. Clothing was initially sold at $8.98 or less but they planned to add clothing lines priced up to $19.98 as they increased celebrity branding.

It seemed logical to expect that Steve and Barry’s were poised to reap the benefits of selling inexpensive clothes just when everybody needed them though they are not the only ones with the concept. Others such as Century 21 Department Stores and H & M are specialty stores in the discount fashion sector though they do not have a fixed price range or exclusive clothing lines like Steve and Barry’s. I half-expected the tweens and teens to be grudgingly dragged to Steve and Barry's by their overextended mothers who adamantly refused to continue to pay the outrageously inflated prices at Hollister or Abercrombie.

In fact, I visited Steve and Barry’s last week in my quest to find myself some affordable summer clothing. Alas, the clothing was a tad too trendy for this middle aged lady even though they claim to have clothing for the whole family. I did try a few things on then promptly ran out of the dressing room and out of the store realizing that the style and fit of Steve and Barry’s clothes were definitely not going to flatter this body.

The current economy keeps shaking out surprises. Companies that you expect to do well are in the toilet. Many of the stalwarts of the Dow Jones Industrial average are in financial trouble. The Dow can swing up over 100 points on one day and lose over 200 points the next. I don’t care what any of the pundits say, all I know is that this is not how financial markets are supposed to behave. Nevertheless, the future is anyone’s guess for Steve and Barry’s. The rumor mill is spewing speculation ranging from the closing of 100 stores to total and utter liquidation. It is possible that Steve and Barry’s can emerge from Chapter 11 a much smaller enterprise and with their core mission intact but right now it appears that their enterprise may be too broken to glue any of the pieces back together.

Summertime Accidents

It's summer on Long Island and I am enjoying it as usual albeit a little closer to home. Alas, when you pick up the paper, the daily headlines of children drowning and teens’ dying in car crashes touches every one of us completely. Early this morning a 14 yr old girl died while traveling in a car driven by an 18 yr old. Two other teenagers in the car were 14 and 15 years old. I am not sure if I am missing something but why are there 4 young people driving around in a car at 2:30 in the morning? I am the first to acknowledge that you cannot protect every child from every thing though we try. Accidents happen despite our best intentions and precautions.

Long Island is a suburb based on the automobile, public transportation, though available, is hardly reliable or convenient. Most of us have to drive to the train station and unless your endpoint is NYC or the boroughs, you are pretty stuck once you arrive at any train station on Long Island. Our automobile-based suburb is designed with maximum access to NYC with a disproportionate amount of east-west roads and trains and few express north-south roads and no north-south trains. Traveling from the north shore to the south shore is a fairly time-consuming feat and not many of my neighbors ever undertake the journey. About as far north as most people travel from the south shore is mainly to gain access to the Long Island Expressway which is squarely in the middle of the island.

Needless to say, our children have no choice but to drive if they want access to their friends. Many parents value any break from chauffeur duty especially when they have teenagers. There are many things to worry about when you have teenagers and their safety is sometimes difficult to control. Many are getting into vehicles with an inexperienced driver and multiple passengers, a recipe for disaster as the pages of Newsday so deftly illustrate. There is a reason why we have to look after our children until they are 18. And summer or no summer, they do not need to be driving around in a car full of friends at 2:30 in the morning.

Circling the Drain...

...that's what the news feels like these days; all the headlines, the stock market, the presidential election race, the housing market, the gas prices, the credit markets, the weather disasters, Long Island. There has to be some good news out there because everyone around me is faking it. Times are tough and everyone is ducking their head in the sand; nobody thinks we can fix America. Thank goodness for the celebrity dysfunction, without which there would be no news to distract us. So A-Rod is getting divorced, Madonna is involved in it somehow, maybe she is getting a divorce, maybe she is not, Christie Brinkley is airing her dirty laundry in court. It's a perfect spectacle!

Happy July 4th!

Nationalism is good for a country especially when all of the citizens have equal access to the benefits of citizenship. America has had a very difficult and uneasy relationship with its minority citizens. American Indians have been displaced and ensconced on Reservations. Japanese-Americans were interned in concentration camps during World War II. African-Americans gained full legal rights of citizenship in the 1960s. Hispanics are lumped into one group of illegal citizenry threatening the very fiber of our workforce and borders though many are rightfully Americans. Arab-Americans are treated as suspect within the larger War on Terror. The list goes on.

America has the potential for more inclusion. Many strides have been made especially over the past 40 years. Every single person came to America originally for one thing, the chance of economic opportunity and prosperity. Few countries offer that option to most of their citizens without barriers of class or societal order. For this we should be grateful.

Happy Birthday America!

No Surprise: Cablevision Execs Get Paid

Long island Business News has just published its annual list of the 100 highest paid executives of public companies on Long Island by total compensation. Total compensation includes basic salary, stock awards, stock options, bonuses, incentives and other perks.

The top four on the list, all executives at Cablevision including founder, Charles Dolan and current CEO (and son), James Dolan earned a combined total of $74 million in 2007. James Dolan easily topped the list with a total compensation of $24 million (of which $1.8 million is basic salary) and number 4 on the list earned $14.7 million. I point this out because the earnings drop significantly when you get to number 5 on the list, John Swainson, CEO of CA, Inc (formerly Computer Associates) who earned $8.5 million. Cablevision is a virtual monopoly on Long Island. My family is into cablevision for a hefty sum each month for cable television, internet, and VOIP services, much to our chagrin, so the compensation is not surprising.

I couldn’t help but search out the women on the list. The highest paid woman, Nancy Cooper, Chief Financial Officer of CA earned a total compensation of $2.4 million, the 5^th highest paid at CA and number 28 on the list. It is interesting to note that her fellow male senior executives not only were paid more but have basic salaries starting at $500k. Her basic salary is $314k. Only 3 other women made the list, ranked at 82, 91 and 98; two from Pall Corp, Lisa McDermott, CFO and Treasurer and Mary Ann Bartlett, SVP and General Counsel and M. Catherine Morris of Arrow Electronics, Inc. each with a total compensation of less than $1 million. I am not sure if I should cheer because they are there or sneer because there are only 4 and they made significantly less money than their male counterparts overall.

It is impossible to ascertain the number of minorities, if any, that are on the list. I will have to divine this information from deeper research. Long Island is a diverse community and should have a fair representation of diversity in the highly-paid executive sphere, I hope.

Long Island's Economic Future is at Stake

Everywhere I look these days, the call for change is being made loud and clear on Long Island.

“Long Islanders have to make some pretty difficult decisions soon about how we will tax ourselves for the government services we receive. It will take backbone because elected leaders traditionally lead only when they have a public to follow them. So we can’t dawdle, since the region is running out of time. Long Island is aging rapidly, and the next 17 years will bring demographic changes that, if unchecked, will dramatically impact the regional workforce, and possibly the economic sustainability of the regional economy.”

Quote from Martin Cantor, director of the Long Island Economic and Social Policy Institute at Dowling College writing in the Long Island Business News, June 27, 2008.

“Findings confirm that Long Island’s economic engine is no longer turning out the same number of high-paying jobs as it has in previous decades. According to Nancy Rauch Douzinas, President of the Rauch Foundation, “Long Island needs new business to grow. New businesses need workers. Workers need affordable housing options. Economic growth and affordable housing are, by necessity, linked. We are not going to have one without the other.”

Quote from The Long Island Index 2008 report, a project spearheaded by Nancy Douzinas, president of the Rauch Foundation that publishes important economic data on the Long Island region.

The Index further reports “the willingness of Long Islanders to live, work, and shop in downtown locations. Solid majorities support inclusionary housing as well as increased density and more rental apartments in downtown areas.”

New organizations are forming and old ones are re-surging in an effort to get more citizens involved in the fight to reduce property taxes. Nassau County Executive Tom Suozzi’s commission has sent its report to Albany recommending a 4% cap on school budget increases in effort to rein in spending. It is not a perfect proposal but it is a start.

We live in our provincial worlds talking amongst ourselves but not enough of us are forming a Island-wide public effort to actually get something done. Most of us are so busy trying to survive our suburban world that several decades have already past without any real changes to the current system making it hard for most Long Islanders to accept that this time the warnings are real.

Martin Cantor wrapped up his article "let’s stop the foolishness and demand real solutions." I agree.

Starbucks Wake Up Call

Starbucks, the epitome of coffee indulgence, is scaling back, closing 600 company-owned stores that are underperforming. Most of these stores have been open for less than 2 years. How quickly the tide turns. I have to admit, I was a Starbucks fan back when I was single and flush with cash. Starbucks introduced many of us to a better cup of coffee and there was no going back for me. I gave it up a few years ago, opting to make my own espresso at home and to frequent Starbucks only on special occasions because it is an expensive cup of coffee. I am surprised that Starbucks overbuilt by that many stores considering that their competition had intensified by 2006. Bad management happens all the time, doesn’t it? Then again, Americans were still living large in 2006 and happily willing to pay for a higher-end lifestyle, bigger homes, fancy kitchens and of course, fancy coffee.

Starbucks wasn’t the only one expanding though. In the same 2 years, I have seen a marked increase in the number of Dunkin' Donuts/Baskin Robbins combination stores here in Suffolk County. They were ready and waiting just when many of us started to be priced out by Starbucks. When Dunkin' Donuts started to add its own versions of espresso-based coffees, it was a cheaper alternative to Starbucks for the wallet-conscious but lately it seems to be getting pricey as well.

No matter how diligent we are, there are still plenty of mornings when we are running late or have an early appointment and towing groggy children when we are simply going to have to buy a cup of coffee. That rich Starbucks taste has forever spoiled me and though I am always trying to find a cheaper alternative, it is difficult for me to settle for the regular stuff, no matter how hard I try.