Hello, I am Sam Mishra, and welcome to the weekly podcast from Franconomics.com for the week ending August 10th, 2009. This week, two personalities made headline news in good and bad ways --- first the good… Sonia Sotomayer became the first Hispanic Judge to ascend to the Supreme Court, and then the bad --- NYT reported that Hank Paulson talked to Goldman CEO a record 24 times in the thick of the financial crisis, after getting an Ethics waiver from the White House Legal Department. We will throw more light on this a little later in the podcast, on why Pecora II Investigation into what caused this crisis needs to get started ASAP. Let me also posit an economic and moral philosophical axiom, and I will give the example of a well-known economist, NO, IT IS NOT MILTON FRIEDMAN, to prove the axiom. The axiom is this: where there is a lot of self-interest, corruption sets in. I thought this through during one of my walks by the Charles River. Where there is a lot of self-interest, corruption sets in. I will give the example towards the end of the podcast. And as always, for those amongst you who have complained that downloading these weeklies is sometimes a technical problem, we ARE making the transcripts available on FRANCONOMICS.COM home-page simultaneously, so please read these in case you don’t have a speaker on your computer or what have you. Also, this Friday,  the July Unemployment report came out, so let’s start the podcast with some perspective on the current unemployment rate.


BLS (Bureau of Labor Statistics) Commissioner Keith Hall said this <quote>Nonfarm payroll employment decreased by 247,000 in July, and the unemployment rate was little changed at 9.4 percent. Payroll job losses over the past three months have now averaged 331,000, compared with an average of 645,000 over the prior six months. Employment has fallen by 6.7 million since the start of the recession in December 2007. In July, employment declines continued in many of the major industry sectors.

Construction employment fell by 76,000 over the month, with losses throughout the component industries. Over the past three months, job losses have averaged 73,000 compared with 117,000 over the prior six months. Employment in construction has fallen by 1.4 million since December 2007.

Manufacturing employment also continued to decline, with a loss of 52,000 in July. Factory employment has fallen by 2.0 million since the start of the recession.

The seasonally-adjusted employment estimate for motor vehicles and parts rose over the month (28,000). Because layoffs in auto manufacturing already had been so large, fewer workers than usual were laid off for seasonal shutdowns in July. Thus, the seasonally-adjusted gain does not necessarily indicate improvement in the industry. Employment in motor vehicles and parts manufacturing has been on a long-term decline. The number of jobs in the industry, 661,000, is now half what it was early in 2000.

In July, job losses continued in wholesale trade, transportation and warehousing, and financial activities. However, these industries have lost fewer jobs on average since May than during the prior 6 months. Similarly, job losses have lessened substantially in temporary help services. Employment in leisure and hospitality has been little changed over the past 3 months. Health care employment grew about in line with the trend thus far in 2009.

Average hourly earnings for production and nonsupervisory workers in the private sector were up by 3 cents in July to $18.56. Over the past 12 months, average hourly earnings have risen by 2.5 percent. From June 2008 to June 2009, the Consumer Price Index for Urban Wage Earners and Clerical Workers declined by 1.7 percent.

Turning now to some measures from our household survey, the unemployment rate in July was 9.4 percent, little changed for the second consecutive month. The rate had been 4.9 percent when the recession began. There were 14.5 million unemployed persons in July.

The number of long-term unemployed continued to rise. In July, 5.0 million people had been unemployed for more than 6 months, accounting for one in three unemployed persons.

The employment-population ratio was 59.4 percent in July. The ratio has fallen by 3.3 percentage points since the recession began.

Among the employed, there were 8.8 million persons working part time in July who would have preferred full-time work. After rising sharply last fall and winter, the number of such workers has been little changed for four consecutive months.

In summary, nonfarm payroll employment fell by 247,000 in July, and the unemployment rate was little changed at 9.4 percent.

So, let’s analyze the broad data. If another 250000 Americans now bite the dust of unemployment, how come the official unemployment rate is 9.4%? We have explained it in sufficient detail in our article on Real Unemployment under the Podcasts-dash-Concepts section, but let me explain it using Paul Krugman’s words from his recent blog on this <quote>
First, the jobs number and the unemployment number are based on different surveys — a survey of establishments in the first case, a survey of households in the second. Sometimes employment rises by one measure while falling by the other, although it happens that this month there isn’t much difference in the jobs number. (The establishment survey is considered a more reliable measure of month-to-month job changes.)
Second, how do we measure unemployment? Contrary to what some correspondents think, it doesn’t have anything to do with receipt of unemployment insurance. It comes, instead, from a survey in which people are asked whether they’re working and, if not, whether they’re looking for work. And what this month’s data show is a relatively large rise in the number of people “not in labor force” — neither working nor looking for work. That’s how the unemployment rate can fall even with fewer people working. <unquote>

In case you got confused, for even mighty Dr. Krugman can sometimes be quite confusing, just a clarification, when he says establishments, he refers to employers like Ford and Citi and mom-and-pop stores etc. who employ people. In any case, we will come back to this again in a minute, but let’s first digest the words of the Chair of the JEC, to whom the BLS Commissioner officially reports the unemployment numbers in this country…In response, Chair of the JEC or the Joint … Congresswoman Carolyn Maloney has responded to the latest fall in unemployment from 9.5% to 9.4% in this way: <quote>“Evidence that the stimulus bill is taking hold is starting to emerge. The economy dramatically improved in the 2nd quarter of this year, and the pace of job loss has moderated significantly in recent months. The unemployment rate has stabilized and the trend is toward recovery. I am optimistic that more Americans will be heading back to work as more stimulus projects get underway. <unquote>

Well, folks, more Americans are unemployed, month-over-month, and not headed to work. Also, if the unemployment stabilizes at 9.5% or 9.4% or what have you, as per our Franconomics.com calculation, we are at a real unemployment of 17% or 18%, as some of you might have figured out already. We also have an article titled Real Unemployment under the Podcasts-dash-Concepts section of our website, which also suggests that if you include the underemployed, real-unemployment  is closer to 25%. Which is what? 1 in 4 Americans is unemployed or under-employed. ONE IN FOUR. So, how has the economy dramatically improved? The economic decline has been DRAMATIC, of course. We understand that it is the job of the politicians to keep the asset bubbles like stocks going, but folks, we are not out of the woods. WITH THE DISCLAIMER THAT RECOMMENDATION IS NOT ADVICE, let me give this stock market recommendation. Sell your stocks into these stock market rallies, for we are neck deep in severe unemployment, and another quarter of a million of us became unemployed in July. The economy is still worsening, and that is a fact.


Let’s now look at the revenue numbers and projections from one bellweather company called  Cisco Systems… They make core routers which route internet data traffic world-wide. They also make edge routers, which route internet traffic closer to human access points like the laptops and the blackberries. The technology enthusiasts amongst you might also have heard that they are going to get into the computer server space, which is currently dominated by IBM and HP. So, CISCO predicted this week that revenue will drop for a fourth straight quarter as the recession crimps orders of networking equipment. Internet data traffic is on the rise world-wide, but Cisco predicts that they are not being able to sell their routing equipment, and their revenue is going to shrink again. The reason? Businesses are still cutting back on CAP EX, or capital expenditure. This CAP EX belongs to the I portion of our macro-economic equation C + I + G = GDP. In other words, businesses are laying people off, leading to the rise in unemployment, and not investing into the I component of the C+I+G = GDP equation, which does not help the country boost its GDP. SO THE RECESSION CONTINUES...

Now to the personalities of Sonia Sotomayer, and Hank Paulson. YES, in a long time, I felt happy that I had voted for Obama, because he brought in Sonia Sotomayer, who will be a breath of freash air in Suprim Court Jurisprudence. Also, for the first time in the High Court’s history, a Hispanic has ascended to the Judge Position. Now, this is true reform, for the Hispanics are the lowest of the lows in terms of minorities in this country, they are doing worse than the blacks, if you ask me. At least the blacks have achieved everything, Sports Stardom, Political Power, as in President Obama, Singing Stardom as in Luther Vandross or Michael Jackson or Stevie Wonder or Aretha Franklin or what have you. But what is refreashing here is that Judge Sotomayer has been chosen not because she is a Hispanic or a Woman, but because she is such a great Judge!

Now, let’s focus on another wonderful personality, another colorful man, ex-goldman-CEO, and ex-treasury secretary Hank Paulson. He made the news --- NYT reported that Mr. Paulson talked to Goldman CEO a record 24 times in the thick of the financial crisis, after getting an Ethics waiver from the White House Legal Department, which allowed him to talk to Goldman, where he was a CEO. Now, what is striking is that on July 16, Congressman Cliff Stearns has grilled him well and good on why Mr. Paulson did not recuse himself when Lehman, a Goldman rival failed, Merrill was bought over, etc. {angry] Why Hank Paulson did not recuse himself in the name of so much conflict of interest, instead of getting the ethics waiver and ultimately helping out the folks in Goldman, his ex-employer.  
From the fumblings of Hank Paulson during this grilling, and you can watch it from the Video Resources section on Franconomics.com, it is clear that a Pecora II needs to be started ASAP. May be Paulson broke the PCA (prompt corrective action) law by not taking these banks, inluding Goldman, into receivership. The Law should hold equal sway, no matter whether someone is a powerful ex-treasury secretary or a road-side thug who mugs people...We will discuss what the Pecora investigation was during the great depression in a subsequent investigation, but you can Google it on the Internet, or Bing it, by typing P-E-C-O-R-A. Also, we would like to salute Congressman Cliff Stearns for that thorough grilling of Paulson, and taking the side of main street foreclosed Americans. What these banks are doing is truly pathetic. Previously, the banks had to pay us 3.5% to 4% on CD and could lend it back to us at 6% mortgage interest. Of course, in between, they started charing the 12% adjustable rates too. Thank god that is gone for now, but it will come back in a different form, unless there is some regulation, on these greedy bankers. But now, what do these banks do. Since the Feds put the fed funds rate at almost zero, the banks can’t pay us 4% interest on the CDs. Now they will pay us only 1.5% on CD, but they will lend us mortgage at 6%. Are we fools? Yes, those of you who are getting into 30 year mortgage rates at 6% fixed, certainly are. And I have gone into real-estate economics in my prior podcasts as to why it is not a good time to buy, even though President Obama said a few months ago that since mortgage rates are down, people should buy new homes. Mortgage rates are not down, and home prices are falling, don’t buy, WAIT.


Now for my economic and moral philosophical axiom,where there is a lot of self-interest, corruption sets in. And the economist I will use as a gunnie pig is a former professor of mine, Simon Johnson. The last I saw him, he was a truly humble man in the class rooms. He is still very strong while calling the spade a spade, as in how banks use only $2 billion to buy toxic waste to the tune of $100 billion. Also,  he wrote a nice article on how the oligarchs, the wall-street insiders, have taken over Washington. The article was called the Quite Coup, and was published in the Atlantic. So, far, so good, right. Then he made a blunder. Few months into the Washington DC circle, and Professor Johnson is now recommending that Geithner would make a good Federal Reserve Chairman, and would be an effective regulator. I wrote back a semi-strong comment to his blog, and you can read it fully in the Blog Entries section of Franconomics.com, but let me give you a gist first of why Geithner will not be good for the main street as a Fed Chairman. First,
A former Asst. Treasury Secretary (albeit from the Regan era when the deregulations really started) has quipped that Geithner works for Goldman Sachs. He may actually go to Goldman after his stint in the Treasury; following the footsteps of Rubin, Summers, etc. who have all gone back to banking from treasurey jobs. Second, we have documented in the "Thoughts" section of our website this. When asked if the CEO of Goldman Sachs should not be sacked for pocketing more that $100 million in yearly compensation, sacking 10% of the company work-force, and later taking $10 billion from the stimulus package, Secretary Geithner said: "It is for the board of Goldman Sachs to decide." . . Third, it was ably pointed out by Professor Black, a former regulator during the S&L crisis and now a professor on Law and Economics …on Bill Moyers journal that Geithner failed to regulate as NY Fed President. Geithner's job as President of NY Fed was to regulate the NY banks, that he did not do so or does not agree that he was ever a regulator shows a lack of responsibility, as was pointed out in that dialog between Bill Moyers and Professor Black. Fifth, Geithner was  assistant to a powerful banker by the name of Rubin during the Clinton era, Rubin was the Treasury Secretary, and Geithner was his assistant. Sixth, Geithner brought forward the pPiP plan, which provided incentives to buyers of toxic waste to lever up 1 to 13, as in spend only a dollar to buy up to 13 dollars worth of toxic waste using pPiP. So, Geithner is pro wall-street, and thus not the fittest man to replace Bernanke. That fellow MIT alum Bernanke has proved incompetent is no doubt, and I will not badmouth the chairman in this podcast, please feel free to read my blog entry, and it will be discussed in sufficient detail in my upcoming book: The 20 Trillion Dolllar Value Drain, How Goldman and Other Banks Robbed America and Why They Will Do it Again. In any case, let’s prove the axiom --- where there is a lot of self-interest, corruption sets in. Now, I may be merely speculating here, but Professor Johnson, by propping up Geithner, is the professor trying to curry favors with the Obama Administration? Is he looking for a powerful job? Professor. We love you for your insights, but when you recommend the Geithners of the world for the chair of the Federal Reserve, you may be risking joining the ranks of the Toxy-Morons, and I am not going to get into the definition of oxy-morons who like toxic waste here... But Hello Professor, please don’t lose your Guru Status to gain some corrupt, political post? Americans are listening to you sir, so please don’t dilute your standards.


ACTION ITEMS:

To the Obama Administration: You can’t blame businesses for laying people off and not investing in CAP EX. Please boost the G portion by investing in core infrastructure. Even if Larry Summers hates construction, please invest in more efficient Internet Super-Highways side by side our national high-ways. I did cross-country from California to Washington DC a few months ago, and was shocked to see that no rest area except one had Wi-Fi. I always had to go to a Starbucks to log on to the Internet. Now, if we not only boost the wi-fi in rest areas, but also hard-wired PCs or computers connected to the Internet as a public service Internet booth in the rest areas nationwide, it will create massive employment. If you are falling short of cash, please pull back the Goldman Bonus of 2007 and 2008 by taxing it at 100% and use it to invest in these construction projects.

To the American Consumer: The Government is Full of Wall-Street Insiders, who will try their best to jack up the stock market. But markets do not go up, up, up. The go Up, Down, Up, Down. Let me use a disclaimer first to protect myself: RECOMMENDATION IS NOT ADVICE. Now, I recommend that you sell your stock into the rallies, specially on those for which you are making money. Personally, I don’t sell stocks which are making losses, I hold on. Also, for non-retirement accounts, where you have to pay capital gains tAX, SELLING stock after holding them for a while ensures you pay lower taxes. Also, lobby with your congressman to get the Pecora II started as soon as possible.

To The Congressmen: Keep the jack-hammer on the Hank Paulsons and the Libby’s of the world. Please bring on the Pecora II ASAP, and please make it a hard grind on the people who participated in the 20 trillion dollar value drain, as in robbing the poor, gullible, foreclosed, unemployed or under-employed American. As a first step, please put Goldman under the comp czar’s scrutiny by passing legislature, and please consider pulling back the Goldman bonus by taxing it at 100% for prior years like 2007 and 2008.   

This brings us to the end of the podcast. Since we want to do something about the homeless, we put it up as our thought of the day on FRANCONOMICS.COM.  It is titled, "Would you like Milk With That?" It goes like this <quote>
How can you help the homeless? First of all, don't give them any money. They will immediately invest it in alcohol, a wasting asset in more ways than one. As per one body of research, an average homeless man consumes sixteen drinks a day; and if you put him in a shelter, he still drinks, but only eleven drinks per day!

So, how can you help the homeless? Well, give them cookies (and if you can be brave, ask them: Would You Like Milk With That?) or fruits. If for some reason you are afraid of approaching the homeless, or if you have always avoided them all your life, here is how you can have impact. Keep some cookies or fruits in your car. When you see a homeless man asking for money on the streets, pass him on the cookies or a fruit.

So, why should you help the homeless? This economy will get worse before it gets better. With foreclosures mounting and jobs shrinking, more people are joining the ranks of the homeless everyday. With bank bailouts taxing the taxpayers' purse-strings, who will help the homeless? Not the US Treasury, and not the Federal Reserve! So, help a homeless today. Have some impact on the society you live and breathe in! Do something good. Feel something real. <unquote> Ok, We sign off now.  Until next week, stay well, take care of yourself, take care of your family, take care of the lonely, the homeless, the ones who are suffering, the ones who are in duress. See you all later. Bye.