Inspiration

ReadyMade, one of my favorite magazines, reimagines the poster art of the (first) Great Depression.

Student Loan Delinquencies Are Up

A small blip, but a taste of things to come.

Loyalty, Like Trust, A Casualty of the Economy

Why would you show commitment to an employer who shows no commitment to you?

In Need of Cash, More Companies Cut 401(k) Match

Amazing Interview With a Chinese Banker

This guy manages $200 billion of investments in American companies and financial institutions--a fraction of the total $2 trillion we're into China for.


"People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners."

There's more. I'm also really interested in what he has to say about how the crazy pay in the US financial system has distorted the labor market both in our country and even in his.

Update: Krugman makes the same point in his column today. "how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?"

What's Next for the Economy?

How about switching from greed, distrust, Ponzi schemes and panic to this simple-sounding goal definition:

"A successful strategy to green the economy involves environmental and social full-cost pricing
of energy and materials inputs, in order to discourage unsustainable patterns of production and
consumption. In general, such a strategy is diametrically opposite to one where companies
compete on price, not quality; externalize social and environmental costs; and seek out the
cheapest inputs of materials and labor. A green economy is an economy that values nature and
people and creates decent, well-paying jobs.

Source: UNEP

What's the Real Payoff?

Chronicle:

"Smart Money magazine decided to rate a limited sampling of 50 colleges based on what it calculates as the ratio between the cost of attending the institution and the average salary earned by a graduate. The results, SmartMoney says, are “pretty jarring,” often showing public colleges as giving students a much better long-term bang for the buck than their better-known private counterparts.

Among the findings, according to SmartMoney, is that the University of Georgia delivers a “payback” nearly three times that of Harvard University, and that the Universities of Delaware and of Rhode Island both outperform every Ivy League institution in the ranking."

Not a surprise to anyone who has experience with higher ed, and also not likely to significantly influence perceptions of true value in higher education.

The Role of Trust in Prosperity

The financial collapse is getting people to think about the human factors and values that underpin our formal economic structures. Anne Applebaum writes in Slate that gigantic frauds like Bernie Madoff's add up to make people far more suspicious and thus make it more difficult to conduct business. I was amused by this line:

"In other cultures—maybe most other cultures—very rich people are suspect by definition. Recently, I met a wealthy Russian and automatically assumed he was the beneficiary of some shady scheme: How else would someone from that part of the world get rich?"

There are plenty of people who automatically distrust / disdain the very rich here in America too, and not without reason.

Her line also put me in mind of a quote I read recently in one of my favorite magazines.

"In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.
Confucius"

Right On

"Debt Free at 50? Something Has to Change." A timely lament from Stamford, CT.

"With all this debt, how can I ever afford to buy a house? Or have children? What about paying for their education? These are things you don't think about so much when you're 18 and signing on the dotted line of the loan disbursement application. ..
The answer is not more loans, or stopgap tax credits, which don't help families who can't afford to pay up front. What we need to unshackle the future generation of this country is for colleges and universities to start charging students less. "

Or...alternatives to college that are more efficient and competitive than the current and higher-quality jobs across the board.

Citizen Jane Politics Interview

Read it here.

CJP: What do you see as the biggest financial/economic challenges facing young women in this time?

Anya: Paying off student loans and credit card debt, while negotiating those early career transitions in a down market. Young women are more likely to be worried about their health insurance too because we’re supposed to go to the doctor twice a year. I just got off the phone with a friend who is worried about losing hers.

Reality Check for Private Colleges

WSJ:
Colleges have something close to a monopoly; they can charge what they like because they have a captive audience. As Robert J. Massa, vice president for enrollment and student life at Dickinson College in Pennsylvania, told the New York Times earlier this month in an article on colleges' current financial strain: "What we've done in higher education is let our dreams and aspirations dictate our cost structure." The silver lining here is that, coupled with the hot breath of recent congressional scrutiny in the form of Iowa Sen. Charles Grassley's demands that universities cease hoarding their endowments, the hardships imposed by the financial crisis are forcing private higher education to reconsider business as usual. Applications to Binghamton University, part of New York's state university system, were up 50% this fall. A similar loss of market share by private colleges is no doubt taking place in other states

The Solidarity Economy

New phrase I just learned.
From the North American Students of Cooperation:
The Solidarity Economy (SE) is an alternative framework for economic development that is grounded in principles of solidarity, equity in all dimensions, participatory democracy, sustainability and pluralism...Many features of existing economies are likely ‘keepers', for example, environmental protections, minimum wage and labor regulations and public education. Other elements of the solidarity economy could be characterized as ‘economic alternatives' such as worker, consumer and housing cooperatives, land trusts, social currencies, community supported agriculture, social investment funds, participatory budgeting, green technologies, and the commons movement. Solidarity economy practices are also powerfully rooted in social and economic justice movements...

(photo: Chavez Coop)

What Will Happen to Obama's Youth Machine?

what do we do now?

The campaign can't decide what to do with this fabulous network of 13 million supporters now that Obama's, like, in charge. Same is true of MoveOn, really. I mean are they just a giant operation to buy television ads and sell stickers?

Obamaniacs, guess it's time to pick an issue and fight. You could stay in your neighborhood and help working families resist eviction and foreclosure. You could get all hardcore and organize your fellow young wage slaves working at crap jobs nationwide. (Get paid while you do political activism--until you get fired!) Campus Progress has various national campaigns going on if you're a college student. You could stand in solidarity with fellow vets your age or try to stop the war. Power Vote is doing great stuff on climate change. You could try to help restock your local food bank this winter. Or move to New Orleans and join a network of young professionals trying to reinvent an entire city.

The one thing not to do is wait for some DNC tools or anyone else to tell you what the youth agenda is.

College is Unaffordable: Reactions from Around the Web

Campus Progress: "If we really want to make sure that low-income students can go to school, we need to restructure priorities in higher education. Low-income students may be the most expensive to educate, but they also see the greatest economic mobility increases. That means it’s the best return on an investment."

The Chronicle of Higher Ed: (via Washington Monthly):" colleges could use technology to lower costs and thus student prices, but they won’t until the terms of competition change. "

Yahoo! News: "Historically during downturns, "states make disproportionate cuts in higher education and, in return for the colleges taking them gracefully, allow them to raise tuition," Callan said. "If we handle this recession like we've handled others, we will see that this gets worse."

Peer to Peer Student Lending

"Meredith comments: I’m sure this feels as much like news to you as the official declaration we’re in a recession yesterday. To add insult to injury student loan money is getting harder to come by. My husband and I were talking last night and wondering if direct-to-consumer lending (like Prosper) might eventually step in and play a role. I’ve heard it called the ultimate “patient capital” and seems like as much a safe bet as the markets right now."

There have been attempts to do social/ peer-to-peer student lending, including on Prosper where clubs of alumni were forming to loan to current students of their alma mater. Unfortunately that model is running into some regulatory problems just when students need alternative sources of capital.
In the future, average student loan balances will have to be smaller. I think that's the only sustainable option. Unfortunately that means a lot of dreams deferred until we come up with a more workable higher ed system.

Breaking : College Is Expensive

According to a new report from the National Center for Public Policy and Higher Education:
"published college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families."

When something is unsustainable, it can't go on. I predict that in the recession ever-more families will turn to public colleges, online education, shorter degree programs, overseas education, or even pass up college altogether.

And no shock, the burden falls disproportionately on the poor. How can we have a meritocracy if one year at a public university costs more than half of the income of the poorest fifth of the population?

Money Flows East to West

“In 2007 the United States needed to borrow around $800 billion from the rest of the world; more than $4 billion every working day,” he writes. “China, by contrast, ran a current account surplus of $262 billion, equivalent to more than a quarter of the U.S. deficit. And a remarkably large proportion of that surplus has ended up being lent to the United States. In effect, the People’s Republic China has become banker to the United States of America.”

Overseas College For Less

NY Times:
With higher education fast becoming a global commodity, universities worldwide — many of them in Canada and England — are competing for the same pool of affluent, well-qualified students, and more American students are heading overseas not just for a semester abroad, but for their full degree program.
...This fall, at the National Association for College Admissions Counseling conference in Seattle, where admissions officers from American universities mingle with the counselors who help shape high school students’ college choices, there were representatives from the University of Waikato in New Zealand, Seoul National University in South Korea, Jacobs University Bremen in Germany, the University of Limerick in Ireland, as well as dozens more from Canada and Britain.

St. Andrews of Scotland , Prince Williams' alma mater, charges £11,350 or $16,955 for a US student. Cheap for an experience similar to a top private US university, plus international experience.

Get Ready for the Bursting of the Student Loan Bubble

Indianapolis Star:

"Although the U.S. has experienced economic downturns before, never has one converged with such high levels of student debt.Total borrowing for school has more than doubled to $85 billion in the 2007-2008 school year from $41 billion 10 years earlier, adjusted for inflation, according to the College Board, the research and testing concern."

About 24 percent of that is private loan debt, which has higher interest rates and less flexible repayment conditions, and is not backed by any government guarantee.
Student loan debt, like credit cards, are unsecured. This is a slow-motion disaster waiting to happen.

IPOD Generation

That stands for "Insecure, Pressurised, Over-Taxed and Debt-Ridden" according to the UK's thinktank Reform . "Reform’s work in 2006 and 2007 identified that the balance of taxation and public spending has tilted against young people, so that they now face an unfair burden, without being able to expect many of the benefits; and this at a time when their economic profile is already difficult. They are also faced with increasing levels of debt from higher education, much stronger labour market competition, lower growth in earnings and acute difficulties in getting onto the property ladder."

Generation Debt got a shout-out today in the UK Telegraph in an editorial about the effects of Britain's "borrowing binge" and taxation on young people. While I love the sentiment, most notable to an American eye are the references to government supports and programs that are unheard of here in America, like universal health insurance and "interest-free graduate overdrafts."

What Would a Depression Look Like Today?

A thoughtful, if conjectural, article at the Boston Globe.

"Unlike the 1930s, when food and clothing were far more expensive, today we spend much of our money on healthcare, child care, and education, and we'd see uncomfortable changes in those parts of our lives. The lines wouldn't be outside soup kitchens but at emergency rooms, and rather than itinerant farmers we could see waves of laid-off office workers leaving homes to foreclosure and heading for areas of the country where there's more work - or just a relative with a free room over the garage."

I can see people cocooning with their old laptops, stealing free wi-fi, blunting out the boredom by mainlining technology. Or, maybe we'd have more trade and barter, more community and creativity, more stuff made out of junk. Rent party anybody?

image: Swoon's Swimming Cities of Switchback Sea

Brian Lehrer Show This Am

I was on the Brian Lehrer show where we fielded tons of calls from people incensed about predatory credit counselors and credit card companies "helping" people in need with expensive new loans, interest rate hikes, and other chicanery. it's enough to make your blood boil.

If you need reputable help, try the National Foundation for Credit Counseling .

For more information on the Credit Cardholders' Bill of Rights look here. It would stop abuses like the "any time for any reason" interest rate hikes, or changing your due date so you get a late charge.

It passed the House in September, sponsored by New York's Rep. Carolyn Maloney. Let's make sure they don't forget about it.

Ivy League for Free?

OnlineUniversities.com is a curious website apparently set up in part to promote for-profit schools such as the U of Phoenix . I am agnostic to negative about that particular cause although I'm getting increasingly interested in quality alternatives to costly university educations--emphasis on quality.
Here is a cool link they sent me: Top 100 Ivy League lectures available for free online.

Update: Wow. ITunes U offers free access to 75,000 audio and video education files from top universities, museums, etc--literally a lifetime of learning.

Save. No, Spend. No, Save

What do they want from us, anyway? Without consumers to lead the charge, an economic recovery will be hard to achieve. And yet everyone agrees that we need to start saving more. So should I buy that coffee maker to stimulate the economy? Or should I save the money in order to “grow” the economy and provide for my own old age? I can’t do both.

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress...In normal times, it’s good to worry about the budget deficit — and fiscal responsibility is a virtue we’ll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice.

Government Bailing Out Private Student Lenders?

As part of Paulson's leave-no-bank-behind rapidly morphing bailout package, the Department of Ed is now extending "relief" to private lenders like Sallie Mae.
"Federal officials say that as much as $60 billion in student loans may be eligible for purchase under the new expansion."

A cheaper and more precisely targeted way of making student loan funds available would be to raise loan amounts on federal direct loans. Instead of providing more corporate subsidies, the government could lend more money to students directly at lower cost.

What's Wrong: A Handy Guide

This is the most amazing infographic I've seen in a while. It comes from Science Magazine.
Personally, I address my life's work to combating apathy, ignorance, denial, and to some extent consumption. What are you going to fight?

The Economy's Down; Heading Back to Class

"After a decade of steady growth, the economic crisis has led to a spike in applications across the City University of New York’s community colleges...The increased demand comes as CUNY is wrestling with how to deal with steep cuts in its budget."

Meanwhile, in the Ivy League, "Prompted by inequalities in American society—or sensing that the economic crisis limits their short-term career opportunities—young people are applying in force to such organizations as Teach for America."


The question is, will better jobs be forthcoming even if people can get the skills?

What Does Obama Mean for Your Money?

The new president's first task is to control expectations for his many supporters, especially among the millions of young people who turned out for him in record numbers.

No, President-Elect Obama won't fix the economy overnight. And you are not getting a jetpack. Or a unicorn.

Among his likely policy proposals, here's what stands out for me in terms of young people's economic future. Keep in mind that we're all in this together--and we're in it for the long haul.

Jobs & The Economy: As if to underscore that he can't forestall the recession single-handedly, stock markets fell today and yesterday. Although he may be able to speed a second economic stimulus package for things like food stamps and unemployment even before the inauguration, longer-term his ideas may be stymied by the downturn.

A very important, swift proposal to rebuild our economy and create jobs by investing in green energy & infrastructure is laid out in detail in the Green Recovery report from the Center for American Progress and similarly in the activist Van Jones' new book The Green Collar Economy: How One Solution Can Fix Our Two Biggest Problems. Even conservative economists like Martin Feldstein back the idea that major federal spending, and quickly, is exactly the ticket to rebound the economy--rather than stimulating it by cutting taxes. Tax cuts aren't that favorable to young people anyway since we tend to be lower earners. Better to take advantage of training programs that can place you in good green collar jobs.

Student loans and Credit Cards: With a stronger majority in Congress, and lots of momentum for reform, it's easy to see Democratic advocates like Carl Levin and Christopher Dodd taking advantage to re-regulate the credit markets, increasing transparency and disclosure on credit cards and limiting fees and marketing to college students. While Obama's planned $4000 refundable tuition tax credit may be delayed due to budget constraints, more generous repayment plans for student loans passed last year--the Public Service Loan Forgiveness and Income Contingent Repayment Programs are likely to be continued and maybe even expanded as the hit to the budget is not as immediate.

Health Care: Unfortunately, the economic squeeze may make it harder for an Obama administration to act swiftly in expanding health insurance coverage, a key pocketbook issue for young people. It's up to all of us to continue pushing him on this issue. Initial proposals that could cost less and cover more under-30-year olds would be to increase federal support of state insurance pools for lower-income single adults, and possibly to support more state laws that require insurance companies to cover young adults through their parents' employers; an imperfect solution but it does increase access.

Proud Of My Country Again

Last night was a truly novel experience.
I was in a bar full of young people cheering, screaming, clapping and crying over our new president. My heart swelled with brand-new emotions--political emotions of pride, inspiration, patriotism and hope. I was in tears throughout his acceptance speech.

Who is this President Obama? He spoke beautifully! He said things didn't just make sense, they were highly intelligent! He was magnanimous in victory! He invoked the greatest moments of America's history, and our most shining patriotic values! He credited the democratic process and the millions of voters throughout the country for his victory, and he asked for our help, and yes, sacrifice, in meeting the difficult challenges ahead!

We took to the streets of Brooklyn where the whooping and hollering were joined by honking, high-fives and hugs, and dancing. I saw the same looks of amazement on everyone's faces that I felt.

This is an incredible day for everyone in America. But for young people who have never known in our adult lives any president except George W. Bush, who is the opposite of the above qualities in every possible way, it's an especially great day, because we helped make it happen.

Young people tripled and quadrupled their turnout in the primaries, providing the margin of victory for Obama in crucial states like Iowa. Rock the Vote alone registered 2.5 million. The news commentators already acknowledged last night that the recurring promise of the youth vote has finally been delivered in this election, as early reports showed record turnout on Election Day as well.

The Millennials, born after 1978, are more diverse, tolerant and progressive than their elders, and we have suffered harshly from the economic policies of the previous administration. We're the largest and fastest-growing group without health care and the second most likely to declare bankruptcy. We're burdened by student loans, credit card debt, and the environmental and economic crises created by our elders. But this is our moment to help change the social compact in America for good. This is our movement.

Yup

"We’re probably entering a period, in other words, in which smart young liberals meet a stone-cold scarcity that they do not seem to recognize or have a plan for.

In an age of transition, the children are left to grapple with the burdens of their elders."

I think some of us do recognize the limits of this age, especially in environmental terms. But our plans are half-formed at best.

Reality-Based Progressivism

It's the end of an era that's lasted my entire adult life.
Our "long national nightmare" of war, economic collapse, and environmental destruction--well, it's far from over. But the leadership that drove us into this brick wall looks to be finally, decisively, on its way out.

For liberals, progressives and Democrats, with political power comes a new responsibility. Instead of railing at the screwups of the other side, we have to lead. We have to come up with solutions that work, and we don't have a lot of room to maneuver, thanks to the unpaid debts we're inheriting.

I think one of the crucial concepts of the new Progressive era is going to be evidence-based policy. This is when policymakers commission lots of comparative research (comparing both states and other countries) and take advantage of natural experiments to determine what really works for things like covering the uninsured, improving educational outcomes for urban kids, making our government more responsive, reducing carbon emissions, and raising retirement savings. It's an approach that unites the work of Roland Freyer, Geoffrey Canada, Cass Sunstein, & James Hansen, to name a few.

At the end of today, we will finally (finally!!) have a national leadership in place that agrees with the basic premise that the government can and should solve problems for people. And obviously we have a lot of problems.
If we focus on what works, we can maybe blunt the ideological hangover from the last eight years, and build an even stronger and more lasting consensus for reality-based progressivism.

PS. By the way, that Onion article is really incredible to read today.
"During the 40-minute speech, Bush also promised to bring an end to the severe war drought that plagued the nation under Clinton, assuring citizens that the U.S. will engage in at least one Gulf War-level armed conflict in the next four years.

"You better believe we're going to mix it up with somebody at some point during my administration," said Bush, who plans a 250 percent boost in military spending. "Unlike my predecessor, I am fully committed to putting soldiers in battle situations. Otherwise, what is the point of even having a military?"

On the economic side, Bush vowed to bring back economic stagnation by implementing substantial tax cuts, which would lead to a recession, which would necessitate a tax hike, which would lead to a drop in consumer spending, which would lead to layoffs, which would deepen the recession even further."

Reinventing Michigan

Last night I spoke to a group of students at Alma College, a small liberal arts college in the very center of Michigan, about the economic crisis and the election. This state, of course, has been one of the canaries in the coal mine of the US economy, and the students were eager to discuss possibilities for change. One young woman, an economics major, said she'd seen foreclosed homes for sale on eBay, one of which, in Saginaw about an hour from the college, apparently went to a Chicago woman for $1.75. We talked about whether they, as new graduates, would be receptive to an opportunity such as Baltimore's 'urban homesteading' program of the 1970s, which sold abandoned houses at nominal prices combined with low-interest construction loans to help people restablize and rehabilitate moribund neighborhoods. (These days, of course, you'd want to put some of the financing towards an energy retrofit). But rather than stay and make a go of it in Michigan, many of them said they were majoring in foreign relations and looking to opportunities in countries like South Africa and South Korea.

The students I sat with at dinner were equally concerned with the environment as well as the economy, which is why it's little surprise most of them opposed the bailout bid of Michigan's largest company, General Motors. "If they can't make efficient cars that people want to buy, then what's the point of propping them up with subsidies?" another econ major pointed out. Based on the experience of a classmate, he suggested the company's Asian subsidiaries might be better at adapting to market realities, including the potential new reality of a price on carbon. I didn't get to ask the opinion of the college's brand-new chef, Chef Dan, who served our salmon and tiramisu. Apparently he had been an engineer at GM for 20 years before taking an early buyout and going to culinary school.

How to Beat "Card Bind"; Try Credit Unions

I'm quoted in a Wall Street Journal article.

"Applying and getting denied for too many cards can actually hurt your credit score. "Don't do what I did," Ms. Kamenetz says. "Don't start applying for cards without a strategy. You aren't going to get the cards you want right away."

The Filene Research Institute, which has had me as a guest speaker, is spotlighted in a Time story saying community banking institutions like credit unions are looking pretty spiffy in light of the financial crisis.

Tax & Spend, Work & Rest

A commenter writes:
"don't highly progressive taxes discourage work? why work harder if its going to be taxed at ~45%? (fed,state, muni, soc. sec.) this is at the root of why so many upper-middle class folks feel so poor, they are paid better, and many of them work much harder to earn this higher wage, but come april 15th much of this is taken away. after you consider all the extra time/effort they spent earning the money, they may have been better off not working to earn that extra marginal dollar."

The recent performance of European economies shows that with a robust social safety net, people will pay higher taxes and be productive too.

And actually, I'm in favor of upper middle class and richer Americans working fewer hours, buying less stupid crap, and emitting fewer carbon emissions. We need a new paradigm of productivity that involves the concept of ENOUGH.

Joe the Plumber--Or Is $250,000 Enough to Feel Successful?

The "Joe the Plumber" who became famous for 15 minutes during last night's final presidential debate may have been a Republican plant. He's not a licensed plumber and his name ain't Joe.

But I think the debate over him actually showcased a genuine philosophical difference between Republicans and Democrats about taxation and individual wealth.

Joe has made a lot of money and he wants to expand his business and employ more people. He doesn't want to be punished for his success with tax increases. Obama replied, "It's not that I want to punish your success. I just want to make sure that everybody who is behind you - that they've got a chance at success, too," and he ended with an exhortation to "spread the wealth." This is a statement that was mocked by McCain as being "redistribution of wealth."

No matter how much Obama keeps saying he's going to cut taxes on 95% of Americans (which is definitely a bit of a pander, I have to say), that particular part of his proposal doesn't seem to resonate with a lot of people. On the one hand, the struggling, working class lady profiled in The New Yorker last week just didn't believe that Obama could raise enough money to right the disastrous budget by increasing taxes ONLY on the top 2%, even though that 2% currently earns one-eighth of the national income.

"“How many people do you know who make two hundred and fifty thousand dollars?" ...
The circumstances of Snodgrass’s life made it impossible for her to imagine that there could possibly be enough taxable money in Obama’s upper-income category—which meant that he was being dishonest, and that she would eventually be the one to pay."

On the other hand, a law student who came up to me at Hofstra the other day had the opposite problem supporting Obama's plan. He happens to know quite a few people who make $250K. In fact, he aspires to make that much himself in a few years. "Who's looking out for the young professionals?" he asked me. Well dude... young white men with law degrees are not first in line for anyone's sympathy in hard times. Even when they have $150K in student loan debt and may never be able to buy a house.

One significant obstacle we face in this country is that the poor people feel poor, and the rich people feel even poorer. In fact, here in New York City, people who make more than $200,000 a year are the MOST likely to say that they feel that they're falling behind economically. It seems crazy, but that's because inequality and income distribution has gotten so skewed over the past 25 years that the richer you got the more people just above you were making, and their income was growing faster than yours was. It's all relative.

The way out of the madness is, precisely, the redistribution of wealth--aggressive, progressive taxes on income and especially on investments and wealth, to bring these two ends of the spectrum closer together, and to create a social safety net and more economic security for everyone. I intend to vote that way and to support that even when (if) I nudge into the bracket where it becomes against my own narrow economic self-interest to do so. In fact, I don't think it is even against my self-interest. I don't ever want to live in a country, or live a life, where $250,000 a year doesn't feel like enough.

Brian Lehrer Show Broadcasting Live from Hofstra U

Listen in tomorrow morning starting at 11 am EST for a student's-eye view of the election at the site of the last presidential debate, with live commentary from me, Michael Dannenberg of the New America Foundation's Education Policy Program, and Hofstra's provost.

Reality Check for Some Teens

I truly don't believe that they're all this way, but the Times says the times are tough for kids who expect a designer bag in return for math grades.


“The sooner we have these conversations in the family and as a society,” said Dr. Manning, the economist [author of Credit Card Nation], “the sooner we can focus on core values, and have a more realistic dialogue about the meaning of happiness and money.”

The Clock is Ticking

"Key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression."

The Bear Was Right

Nouriel Roubini, the economist who predicted everything that's happening now back in February, had this to say yesterday:

"The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof."

"The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity... excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression."

... At this point severe damage is done and one cannot rule out a systemic collapse and a global depression."

Twenty-Somethings On Top for Once

I talked about this in a Yahoo! Finance column back in February: The recession is going to be harsh for everyone. Yet younger people are relatively well positioned to weather the downturn.
From Newsweek:

If you ' re in your 20s, congratulations! It's not nice to rejoice in the misery of others, but if you're just starting out on your financial path, you are in a position to cash in on the crisis. "If you're 25, this is a great opportunity, you'll be buying in at a low in the market," says Steven Thalheimer, a Silver Spring, Maryland, financial planner. In addition to your workplace 401(k), plow as much as you can afford (up to $5,000 this year) into a Roth IRA. That money will accumulate tax-free until you need it for retirement. Save as much as possible for a home down payment, too. Under the new tighter lending practices, you'll need one to get into a house, and it's a good time to start house hunting. You'll be able to get into many real-estate markets at 2002 prices. Resist debt, and use as little of your money as you can for everyday life, so you can plow as much as you can into your retirement accounts, investments like diversified stock market funds and a home.

"They All Feel Poor."

NYT:
"...in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply...When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. Many economists, who began the third quarter expecting modest growth, now believe the cutbacks are so severe that the overall economy did not expand either, and they warn that a consumer-led recession could be more severe than the relatively mild one earlier this decade."

A consumer-led recession?! Let's pin this one right on the backs of the American people, why don't we? Whether it's the mom trading down from sugary brand-name cereal to generic 'Os, or me taking the subway instead of a cab--it's our fault we're in this situation. Whiners!

Or maybe people "feel poor" because they've been living outside their means for a decade and a half. And the funny thing about an unsustainable level of debt-financed spending is that at some point it has to end.

Tuesday Night: Debate Watch Party New York

Register Here: Debate Watch Party 2008 New York

"According to the generation, so goes the leader." (Talmud Bavli, Arakhin 7a)

On October 7th, 2008 millions of viewers will tune into the second U.S. Presidential Debate. Where will you be? Join us at Galapagos Art Space in DUMBO, Brooklyn for one of six Presidential Election Debate Watch Parties across the country. We'll be coming together 200 strong from the NY area - and over 1000 strong across the nation - to hear Democracy roar on the big screen.

Entrance to the event is FREE.

Michelle Collins, writer and comedian for VH1's Best Week Ever, will emcee the event, which will include:

* Pre-debate issues discussion with journalists including Anya Kamenetz (author of Generation Debt), and Jonathan Tepperman (Assistant Managing Editor, Newsweek International) with others...
* Election trivia
* Information about local social justice opportunities
* Voter registration tables
* Free snacks
* Specially mixed Rosh Hashanah cocktail and more!

October 7, 2008
7:00p.m. to 11:00p.m.
Galapagos Art Space DUMBO
16 Main Street
Brooklyn, NY

Hear me on NPR's Planet Money Podcast

Answering a student loan question..

The Beast that Swallows its Young

Here's A Crazy Idea: Bail Out People, Not Banks

I am loving the Washington Post's coverage of this crisis so far.
I think other people have proposed this solution too: The underlying problem with the banking system is all these bad securities based on mortgages that people can't pay off. So...instead of giving all this money to the bankers, why not have the federal government pay off the bad mortgages?

In the 1930s, the Home Owners Loan Corp. reissued mortgages to one-quarter of American homeowners.

A new HOLC could pay off these distressed mortgages and give people 30-year, fixed-rate, low-interest loans instead. So it's not like they're walking away from their obligations.

"Like the administration's proposal, this plan would result in the government owning assets. But these assets would be real estate, not complex derivatives whose true value would take weeks to discern. Homeowners would become partners with the government in resolving the crisis."

The Spirit of Money

I have been following the news of financial crisis just like everyone else this past week, trying to keep up and make sense of it all.

Two basic points have emerged from talking with people who have a closeup view of the situation:
One is that money just can't stand still. What everyone's afraid of right now is a credit freeze where people are afraid to lend to each other. A money market fund, in fact, the company that INVENTED the money market fund--a low-yield investment vehicle based on very short-term securities, which was until now considered as safe as cash--"broke the buck" because of Lehman Bros.' bankruptcy, and it had to freeze withdrawals as well. Overall holdings of money market funds had risen more than 10 percent this year because nervous investors were taking their money "out of the market"--but now they find that the money funds aren't truly safe either.
It's enough to freak anyone out. If you hold your money in paper (cash), it loses value at the rate of inflation. If you deposit it in a bank, you still probably won't beat inflation, plus the bank could fail, but at least you're insured up to $100,000 by the FDIC. If you buy gold? Well, gold's gone up a hell of a lot this decade.
Other than chaotic bear markets like this one, the responsible thing to do has always been to put your money, any savings you don't need right away, to "work" for you in the market, which people now realize basically means lending it out at interest.

You have to risk something, but as the money market incident shows, we don't really always understand what the risk is. Neither did the experts.

Which leads to the other point: our entire system of money is based on social trust. Why is it that the federal government can come up with the cash to bail out the financial system? Well, the federal government can borrow money at extremely low rates--in fact, at one point last week people were practically PAYING the government to hold onto their money (Treasury bond yields went to near zero).
Why can the government borrow at such low rates? Because people around the world believe that the government will make good on its debts. How will it make good on its debts? American taxpayers will keep paying their taxes. How do we know people will keep paying their taxes? Because this country's been going along with the rule of law for about 300 years now, and at least within our borders, the law means something. Contracts mean something. Promises mean something. That's what it's all based on.

So, how much do you trust the people in charge right now?

For Marci and Doug...And Everybody Else

Thanks to Colby Community College for an unusually warm welcome last night. Here's some of the resources I mentioned:

Qvisory.org is a nonprofit providing information and advocacy for Generation Debt.

Mint.com is a free online money management and budgeting tool. Geezeo is another one.

SmartyPig is a way to start saving online at a pretty good rate (3.9% APR) and to get help from family and friends.

Save Now or Die Trying is a book by Mark Bruno about retirement planning for young people. Here's a Yahoo! column I wrote about the book.

Annualcreditreport.com is THE site to get your free credit report as required by law, to take a look at what old debts you may have and start to get them in order. You can look up all your old student loans here.

The Freelancers Union provides health insurance programs and other resources for freelancers.

If you need to consolidate a student loan, try a Direct Consolidation Loan. To understand the new Income Based Repayment programs that make student loan payments more affordable, go here.

"End of Capitalism as We Know It", Heroes

I've never seen the show, but for those of you who are fans of "Heroes," NY Times television critic Alessandra Stanley offers a fascinating (to me, anyway) analysis:

"Young people today can’t repay their college loans; they can’t afford apartment rents, let alone mortgages; their Social Security is being sucked up by their elders; and H.I.V. left them out of the sexual revolution: what was once free love is now a viral minefield. It’s a plight lamented in books like “Generation Debt” and even in ads for Freecreditreport.com that showcase debt-crippled lads gamely doing menial work as they warn others about the dangers of letting bills pile up. (“They monitor your credit and send you e-mail alerts/So you don’t end up selling fish to tourists in T-shirts.”)

“Heroes” gives its fans cathartic validation: You inherited a screwed-up world, and it’s not your fault."

I don't think I've ever written about being upset that we missed the sexual revolution, but that's cool.

In other news, here's a simple, amusing analysis of "the end of capitalism as we've known it":

"Besides the existing regulations, look for a slew of new rules to hit the Street, starting with more transparent accounting.

The regulators will want to see how much leverage these firms employ and their sources of funding, to name two items at the top of their list. Off-balance-sheet activities will come under the regulators' magnifying glasses as well."

Destructive Growth

Steven Pearlstein of the Washington Post:

" What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen...In the end, however, there is only so much the government can borrow and so much the government can do. The only other choice is for Americans to finally put their spending in line with their incomes and their need for long-term savings. For any one household, that sounds like a good idea. But if everyone cuts back at roughly the same time, a recession is almost inevitable."

The categorical imperative, the writer reminds us, doesn't hold when it comes to saving and spending. If everyone lives within their means, that's bad for growth--which is the American dream, as we've historically defined it.

However, let's take a step back. As more and more people are finally, traumatically, being forced to realize, the single-minded pursuit of MORE bad for children and other living things. It's bad for families to spend more than they make and to forgo savings in favor of momentary pleasures. It's bad for other living things because in our current economy, economic growth is based on unsustainable practices of resource extraction, of fossil fuels and every other natural resource.

I hope I'm not a bad citizen if I'm more worried about the survival of our civilization than about the health of the US economy--more worried about a Cretaceous-level mass extinction than about a Depression-level financial crisis. The best experts tell us that both are at stake here.

Crises create opportunities. The opportunity here is to create a sustainable economy. Growth as we know it (drill, baby, drill! Drive up that S&P 500!) has to be replaced by truly intelligent design and sustainable development.

Investment Advice: Don't Panic, and Don't Listen to Advice

Gawker has a good bit of media criticism posted today on how the big business magazines, in relatively recent issues, touted stock in AIG, Merrill, and Lehman Brothers. (Nationalized, fire sale, and bankruptcy, in case you haven't been following the news.)

This goes to reinforce the idea that it's not so smart to read magazines for stock tips. I am really glad that the business magazine I work for doesn't tout stocks, because the whole idea is irresponsible. The typical small investor like you and me, trying to grow her nest egg, shouldn't even be buying individual stocks, or really, even mutual funds. The smart long term investment is low cost index funds--period.

On the other hand, I've heard from friends and acquaintances that they are panicked by what's going on and want to get out of the market altogether. This is understandable, but it's also the wrong idea. I'm not even going to check my performance for the next few weeks, although I am reallocating investments to make sure I'm diversified.

The secret to successful wealth building is to live beneath your means, save, diversify, buy, and hold. You definitely want a solid rainy day fund in CDs and FDIC-insured savings accounts (AKA cash), but if your retirement is more than 20 years off, it should be a small proportion of your total assets. You have to stay in the game or you'll miss the comeback.

What are the fundamentals of an economy?

John McCain earlier today: "Our economy, I think, is still -- the fundamentals of our economy are strong, but these are very, very difficult times,'' McCain said."

Leonard on Salon.com sharply points out that this is effectively nonsense. "Unemployment is at a five-year high, consumer spending is predicted to decline this fiscal quarter for the first time in 17 years, and we are currently undergoing the worst housing bust since the Great Depression."

Gas prices. Health care costs. Wall Street nightmares. Our ailing infrastructure and our limping cities.
Our shrinking manufacturing base and the implosion of Detroit. Looming consumer debt.
If you're talking about actual economic fundamentals, the immediate nuts and bolts of building prosperity, the picture is very, very, very dim.

However! While he is not my choice for president, I think McCain's statement has a little kernel of validity.

We still have a growing population, a world class higher education system, a democratic, entrepreneurial society, and a wealth of natural resources like agricultural land and water. These leave us better positioned than many other nations out there, including the BRICs who are supposed to be the new superpowers, to face down the scary 21st century global economic threats of massive social unrest and global warming.
We need much better approaches to managing our human capital and our natural resources over the next decade. We need a better social safety net, improved education policies, and sustainability measures, aka the new carbon economy. This will determine whether America will see renewed prosperity or will muddle through a "long emergency" of breakdown and even chaos.

Washington Post on Ideology Meets Reality : Market Intervention Time!

The government now finds itself hip-deep in the direct management of the financial system, rescuing four of the country's biggest financial institutions -- Bear Stearns, Fannie Mae, Freddie Mac and now Lehman Brothers -- from the harsh discipline of markets and the consequences of their own misjudgments. ...
As with the Great Depression, it has taken a full-blown financial crisis to shake the faith that free markets will always deliver better outcomes than politicians and bureaucrats.

Spend It While You're Young?

Over the past year my husband and I have been working to get our finances more coordinated. We had an initial free consultation with a financial planner, which gave us confidence that we're doing a pretty good job living within our means. And the other night, with our big vacation over and summer ending, we sat down together to take a fine-toothed comb to our everyday expenses, using Mint.com (which I joined over a year ago) and Citibank's online statements.

It was a surprise! I'm a pretty good saver, both for retirement and rainy-day savings, but I actually spend a lot more than I realized. Specifically, since I started my first regular job in January, I've increased my spending quite a bit on health and personal care--things like yoga classes to deal with stress. I also spend a bundle on groceries--far more than on restaurants. (Hello, Whole Paycheck). Adam's biggest item after rent was travel.

We're going to keep checking in over the next few months so we can develop a really good budget, and in the meantime, I'll be keeping an eye on expenses. (For example, I'll be making more trips to the municipal gym, which costs just $37.50 for six months unlimited, and fewer yoga classes at $14-18 a pop). But the best news we both got from doing this exercise was that our spending is pretty much in line with our stated values. We value experiences (a pedicure with Mom, a ski trip with friends) over stuff.

According to Slate, research shows that spending money on the good things in life when you're young and healthy makes you happier than when you're old and/or sick. I believe in living within my means, but I don't want to feel deprived.

" If money isn't going to bring you as much happiness in your old age, that's further reason not to oversave. If you've always wanted to samba till dawn in Rio or see Angkor Wat at sunrise, do it now, when you're healthy and you know you'll still enjoy it."

Roubini: The Decline of the American Empire

I could not agree more.

1) Military overstretch
2) Rise of other powers (see above)
3) "Third, and more important, the US squandered its economic and financial power by running reckless economic policies, especially its twin fiscal and current account deficits."
"By now the US is the biggest net borrower in the world – running current account deficits still in the 700 billion dollars range – and the biggest net debtor in the world with its foreign liabilities now over 2.5 trillion dollars."
"the last time the US was running large twin deficits in the 1980s the main financers of these deficits were the friends and allies of the US, i.e Japan, Germany and Europe as the US external deficit was against these economies. Today instead the economic powers financing the US twin deficits are the strategic rivals of the US – China and Russia – and unstable petro-states, i.e Saudi Arabia, the Gulf States and other shaky petro-states."

The Winter of the Perma-bear

Excellent profile in the NYT mag of the one guy who predicted how bad this recession would be.

“Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

(Nouriel Roubini. Here's his blog, I have to start reading it.)

Carmen Wong Ulrich Isn't Me...

And she didn't steal my book title. Well, she did, kind of. But no hard feelings.
People often ask me what's the deal--why are there 2 books that came out around the same time, with the same title?? Basically what happened was this. Back in spring 2004 I was contributing to a yearlong feature series in the Village Voice called "Generation Debt: The New Economics of Being Young." My editor was one of the first who came up with the phrase, as far as I can tell.

A few months into the series, my editor and I were taken out to lunch by an editor at Warner Business Books. He informed us that he was working on a personal finance book by a young writer from Money magazine aimed at young people, and did we want to contribute forewords, sidebars, etc. to the book?
My editor and I both said no. We were more interested in the political, economic, and cultural implications of the Generation Debt idea, than in personal finance (aka service journalism).
Well, the Warner Business guy came back and said, that's fine. But we're using your title anyway. And no, they didn't have to pay the editor, the Voice, or me for the use of the phrase "Generation Debt."

Just a few months later, I got approached by an editor who was interested in having me write the book that I wanted to write, about the political, economic, and cultural aspects of Generation Debt. I sold the book under the title "Class Dismissed," but despite the fact that there was another "Generation Debt" book coming out, Riverhead decided that the books were dissimilar enough, and that the title was the best possible title for my book.

So what happened? Well, both books sold ok. They were often reviewed together. Now Carmen has a personal finance TV show on CNBC. I have dabbled in personal finance, and in TV, but I have found I am ultimately much happier as a straight up journalist and an occasional political and social commentator, especially on youth issues and on economic issues as they affect people like you and me.

New Yahoo Column: Last Minute Student Loan

Can you still get a student loan for the fall semester? The answer is yes, but it's going to take some work.