Recession Aggression

Bernanke says the recession is "very likely over."

Federal Reserve Chairman Ben Bernanke says the worst recession since the Great Depression is likely over, but UCLA’s quarterly Anderson Forecast is painting a much different picture of California’s economy.

While the state’s high-tech industries are rebounding, California will likely continue to struggle with recession for the next year. The report predicts the state’s staggering unemployment rate will actually jump from 11.9 percent to 12.2 percent before the end of 2009.

In addition to Sacramento’s budget woes, the city of Los Angeles is facing a $405 million deficit, which will likely trigger more government layoffs and furloughs as it tries to avoid running out of money by May.

Why is the world’s eighth largest economy so slow to pull out of this mess? According to the forecast, our reliance on the crippled housing and financial industries is keeping us inside the tunnel even though we can see the light from the other side.

Bernard Madoff was sentenced to 150 years in prison for orchestrating a $65 billion ponzi scheme.

It may be the maximum possible sentence, but is 150 years in prison really sufficient punishment for Bernard Madoff?

After swindling unknowing investors out of hard-earned money in a $65 billion ponzi scheme, it goes without saying that 71-year-old Madoff should – and will – spend the rest of his days behind bars.

The disgraced financier said Monday at his sentencing that he “will live with this pain, this torment, for the rest of my life.”

As he should. Many of Madoff’s victims were robbed of their life savings, which shattered their credit and postponed long-awaited retirement.

According to CBS News, as of June 11, 2009, more than 8,000 investor claims had been filed against Madoff. If Madoff did in fact victimize 8,000 investors, he was only sentenced to one year in prison for roughly every 53 victims. How would you feel if the man who took your life savings was technically spending less than a week in prison for what he'd done to you?

Sure, Madoff's assets have also been seized, but most of his clients will never even begin to recover what he took from them. While there is the obvious question of how people believed this fraudster in the first place, we can’t forget that the former Nasdaq chairman had earned himself quite a prestigious reputation and even had clients such as Steven Spielberg and Sandy Koufax.

It’s hard to determine if the “torment” Madoff feels stems from remorse or is merely devastation over his punishment. One thing is for certain, however: his victims’ tax dollars will be paying for his keep in prison while they struggle to earn back all that he robbed them of.

Something still just isn’t right.

President Obama is meeting with credit card executives.

Many people are still proudly donning Obama gear, displaying bumper stickers on their cars and, of course, personalized “Obamacons” on Facebook. But even if you are still mourning Sen. John McCain’s loss in November, you have to give the president credit for some of the things he’s done in the past few weeks.

The “Making Work Pay” tax credit, which is part of the Obama administration’s economic recovery plan, just went into effect. This mini-stimulus is upping most people’s paychecks about $15 a week, or $60 a month. An extra $720 a year will definitely help many Americans, whether they are barely scraping by, or are in need of basic goods they just couldn’t justify buying until now (thank you for my new kitchen trash can, Mr. President).

Secondly, Obama is proving that he is a man of integrity with his complete intolerance of deception and lies, whether it be on Wall Street or regarding the plastic in your wallet. The president Thursday met with credit card executives to tackle abusive banking practices that include improperly raising fees and interest rates, especially on existing balances.

"The president believes new rules of the road for the credit card industry are needed," Obama senior adviser Valerie Jarrett said.

In fact, a “bill of rights” for consumers is being considered. Can you imagine actually getting somewhere with a customer service representative at your bank because they will be required by law to cooperate?

The recession most certainly isn’t over, and no government official is perfect, but it feels nice to constantly say, “Why didn’t we do this years ago?” about so many decisions that are being made.

Welcome to Cali-fornia, Mr. Grizzly!

It’s nice to know that a $42 billion state budget shortfall isn’t keeping Governor Schwarzenegger from pumping money back into the economy (even if he’s shopping in the wrong state). Apparently unsatisfied with the lack of décor at the state Capitol, the governor recently adorned the hallway outside his office with a 250-pound bronze statue of a grizzly bear.

The grizzly is the official animal of California, but unfortunately, it has been extinct since 1922. The bear is now immortalized, however, thanks to Schwarzenegger, who purchased the sculpture with his own money and even paid to ship the monster back to Sacramento. Before you criticize him for spending money on art during a recession, think of other state leaders such as State Controller John Chiang who planned to use millions of dollars in state money to refurbish the furniture in his office. I’d say the governor has the right to buy a ginormous animal statue with his own money, or anything else for that matter, if he so chooses.

My favorite part of this story is that Schwarzenegger apparently has a little Becky Bloomwood in him (for all you “Shopaholic” fans out there). Arnie was apparently taking a stroll down the street in Aspen, Colo., while on a fundraising trip when he spotted the figure and decided to buy it. Essentially, he was spending while he was supposed to be raising money. It’s almost laughable, but as long as the he keeps working to fix the budget, I’d like to be one of the first to welcome Mr. Grizzly to Cal-i-fornia.

General Motors Chairman and CEO Rick Wagoner was asked to step down over the weekend.

The record-high unemployment rate is only expected to keep climbing in coming months, and many Americans who haven’t already lost their jobs are petrified of what the future may bring. But no matter what happens, you can breathe a sigh of relief knowing you’re not “the guy President Obama fired.” Surely, 2009 has not been a major highlight in the life of General Motors Chairman and CEO Rick Wagoner, who was asked to step down by (horror of all horrors) the White House over the weekend. You’ve got to feel somewhat sorry for the guy who just couldn’t hold his company together when everything around it has been falling to pieces as well.

The president wants the auto industry to “fundamentally restructure” itself (apparently from the top down) before more taxpayer money is spent trying to save the troubled “big three.” I think we can all agree that the viability of GM, Ford and Chrysler must be somewhat ascertained before we pump any more money into these failing companies. And Obama really means business. In addition to rejecting the industry’s fix-it plans, the president raised the possibility of “quick” bankruptcies for GM and Chrysler. He even went as far as offering to have the government buy back new-car warranties in the event that the companies go under. I’m glad to see the president making tough – yet very wise – decisions regarding the allocation of stimulus money, but it’s sad to see such iconic companies on governmental life-support. It’s even more upsetting (for so many workers across the country) to know that we’re about to pull the plug.

Czech Prime Minister Mirek Topolanek says Obama's plan is "a road to hell."

The president of the European Union is sharpening his claws and lashing out at President Obama’s plan to “spend our way out” of a recession. Czech Prime Minister Mirek Topolanek Wednesday told the European Parliament that Obama’s $787 billion economic recovery package will actually “undermine the liquidity of the global financial market” and that we're paving "a road to hell."  Meow. Apparently, Topolanek missed the memo about the importance of restoring consumer confidence and unfreezing credit to get the world markets moving properly once again.

This, however, is not the only reason why I hope Obama looks the other way and doesn’t even waste a minute of his time trying to defend himself. You see, Topolanek really isn’t one to talk. After the Czech koruna rallied to become Europe’s highest performing currency at the beginning of the year, he just lost a no-confidence vote in Parliament, which ousted his government and obliterated the Czech Republic's economy.

“The koruna weakened as much as 1 percent to 27.415 per euro today, eroding its 5.8 percent gain in the month since Feb. 24, and dropped 2.8 percent against the dollar in the past two days, the biggest decline among emerging-market currencies,” Bloomberg.com reported this morning.

With all due respect to the Prime Minister, I think we’ll trust our own president on this one.

Controller John Chiang is officially releasing tax refunds.

Every time I glance at my checking account, I secretly pray I’ve been recruited for some crazy reconnaissance mission and will find that my balance has grown a few extra zeros overnight (think Shia LeBeouf in “Eagle Eye” or Joshua Jackson in "The Skulls"). It may sound crazy, but given the current economic climate, the chances of someone pouring Miracle-Gro on my limited funds are probably stronger than the odds of this recession coming to an end in the near future. My bizarre spy delusions have been exacerbated by a series (and I mean A LOT) of costly events, including my cat being diagnosed with a vicious form of breast cancer, for which she is now undergoing expensive – yet very effective – treatment. It seems that everywhere I turn, I owe more than twice as much money as I usually do, which has only made my imagination run wild with ideas about how to pay for everything. I mean, how fun would it be to play James Bond for a day and acquire funds that could not only pay your bills, but be used to bless all of the people out there who REALLY need help? Nothing would make me happier. In times like these, it goes without saying that we all majorly need some zeros added to our account balances.

All of this brings me back to my favorite high school Bible teacher, Mr. Kellner. You see, he was an amazing man of faith who would pray for a pair of shoes and the next thing you know, he’d find some on his front porch. Keeping in mind that God can do anything (key word: “can," not “will”), I’ve even gotten excited to check the mailbox in hopes of an unexpected check arriving, although I usually just end up waving awkwardly at the neighbors while toting an armful of bills and junk mail back to the house.

That is, until today. Upon checking my account this morning, I learned that a little friend named FRANCHISE TAX BD DES: TAX-REFUND ID: XXXXXXXXXX finally came to visit. Mr. Kellner was right, California! God can perform miracles, perhaps most recently exhibited by the issuing of state tax refunds. After the budget fiasco, I certainly wasn’t counting on this money actually showing up in the form of anything other than an IOU this year. It may not be the multiple zeros I was hoping for, but at least it will pay most of my property tax bill next month. When the government finally decides it needs an online journalist for its next mission, we can move on to the cat bills. This is a big enough miracle for today.

AIG wants to give $165 million of its more than $170 billion in bailout funds to executives.

AIG’s decision to use $165 million in bailout funds for executive bonuses makes most people, including Federal Reserve Chairman Ben Bernanke, wonder why the government bailed out the insurance giant in the first place.
 
CEO Edward Liddy says “AIG’s hands are tied” and that the company must honor contractual agreements regarding executive pay that were finalized before the company received government funds. It’s amazing that Mr. Liddy thinks ANYONE at AIG should receive any sort of bonus after the government shelled out $170 billion just to save the troubled company. Taxpayers already own 80 percent of AIG, and now we're learning that our hard-earned money is going to the people who made bad bets and brought it down in the first place. It’s time for the executives to forget their bonuses and thank the rest of the country for helping them keep their jobs.

Thankfully, President Obama Monday said that his administration will “pursue every legal avenue” to stop the $165 million in bonuses from going out. To his credit, the president has already gotten the company to cut bonuses by 30 percent, but why didn’t the government regulate the bailout money more closely in the first place? People across the country are gladly taking pay cuts to keep co-workers employed, and it's embarrassing that companies receiving bailout money haven't followed suit.

June Reyno chained herself to her foreclosed home last year.

Who isn’t angry at greedy lenders who irresponsibly locked borrowers into home loans knowing they wouldn’t be able to afford the payments? The demise of our economy can easily be traced back to deceptive subprime mortgages, but homeowners also need to take responsibility for their actions.

You might remember June Reyno, a Mira Mesa woman who made headlines a few months back for chaining herself to her foreclosed home and refusing to leave. Reyno, who took hundreds of thousands of dollars of equity out of the home, is back in the news for breaking a window and reentering her property (someone else’s property now, actually) after the sheriff came by to evict her. Despite losing every court fight thus far, Reyno blames her situation on a mortgage broker who, she says, gave her bad advice.

As silly as Reyno’s as tactics may seem, I think we can all empathize with her on some level. It would feel good to let out all of our aggression and blame financial problems on credit card companies, mortgage lenders and failing banks. To say there are unfair lending practices is like pointing out that the sky is blue, but at the end of the day, mortgage companies aren’t the ones taking out home equity lines of credit. Similarly, banks don’t force customers to max out their credit cards.

Our aspirations to fulfill the American Dream have left many of us with a bunch of stuff we don’t need and more debt than we can ever hope to pay back. Taking out hundreds of thousands of dollars in home equity lines of credit is never a good idea, unless you’re using it to pay off high-interest debt and you are certain you will be able to pay your new mortgage. We also need to thoroughly research the "big" financial decisions in life and remember that if something sounds too good to be true, it probably is.

I wish Ms. Reyno luck, but I don’t think the new owner of her home is going to be to happy that they already have a tenant.

 

From neighborhood staples closing their doors to investors seriously questioning the viability of companies that have already received billions of dollars in bailout funds, the economy continues to slide on a daily basis. A dismal report released by General Motors Corp.’s auditors just this morning questioned the company’s ability to survive $82 billion in losses over the past three years.

"There is no assurance that the global automobile market will recover or that it will not suffer a significant further downturn," the company wrote.

It’s no surprise that this news, as well as concerns about China’s economy, caused the Dow to drop 200 points this morning. Analysts are already predicting that it may fall to the unfathomable low of 4,000 points in the future, but then again, 6,000 points seemed impossible less than two years ago when numbers rose above 14,000 for the first time. But how concerned should we be each time the market falters?

Carol Costello just did an informative story on how our fixation with the stock market may be misguided. Sure, your 401K may be in critical condition, but psychologist Dr. Joy Browne asks all of us an interesting question: Did you become a multi-millionaire when the Dow hit 14,000 in 2007? Probably not. Browne says that if you have a job and pay your mortgage, the crashing Dow is not likely to drain your bank account. Similarly, analysts say that while the market is a key indicator about the state of our economy, we shouldn’t be obsessing each time it ebbs and flows. While I think Browne’s argument may be a little insensitive to folks who are unemployed and/or are nearing retirement with what little is left of their 401Ks, simply worrying about your finances isn’t going to add a penny to your bank account. Why not come up plans that will make your money go further instead of panicking? You can even get started tonight by tuning into CBS 2 at 11 p.m., when one of America’s top money-managing experts will teach you how to grow your money in these tough economic times.