While I Was Out

So we didn't post a blog last week because of the test, so now I have two whole weeks of news to choose from. Obviously, the big economic story is the AIG bonus issue.

"Insurance giant AIG
was given $152 billion in bailout money by the federal government since nearly
collapsing in September. Now the company is planning to take millions of that
money and hand it over to employees in a program that sounds a lot like
bonuses."

In some cases, company workers were promised anywhere between one and four million dollars as part of a retention plan (a "carrot on a stick" for employees to remain with the company). As you can imagine, this has angered many people in Washington as well as many tax payers. Why should a company who was bailed out with public funds--our hard earned tax dollars-- be allowed to be so spend that money so loosely. The argument top AIG managers make is that it needs its top talent in order to run a profitable business and get back on track. The plan is to sell 65% of its business to repay federal loans. Under this light, it makes more sense. If I were a top CEO of AIG, I would want to get out of there too. Especially if the company is going under and a rival company is willing to buy me off. And naturally, AIG will want to keep its best talent because it'll go under for sure without it.

Later in the week, with much pressure from Washington, AIG executives have agreed to return some or all of the bonus money. However, at the same time, Congress was passing a bill that would tax 90% of the bonus money given to executives from bailed out firms.

Obama, who promises that his administration was not responsible for the lack of administration in the use of the bail out money, also promises to put an end to poor use of the money by possibly creating a new agency to oversee bail our spending. But didn't he promise to do that before? I could swear hearing that the spending of this money was going to be tightly monitored and that tax payers had nothing to worry about in terms of where their money was going. However, it's good that action is being taken now instead of months down the road, when the money that was given in bonuses would be untraceable. I do agree with Congress's decision to claim the money given in bonuses. It isn't right for a company that was bailed out using our money to spend it on bonuses--no matter how cleverly they're disguised as retention plans.

Also in the news, on a different note, population analysts have noticed a decrease in migration toward the Sun Belt (Florida, Arizona, Nevada, etc.). These analysts blame the downturn in the economy.

"Census data released Thursday highlight a U.S. population somewhat locked in
place by the severe housing downturn and economic recession, even before the
impact of rippling job layoffs after last September's financial meltdown."

I'm not surprised. In my earlier posts, I mentioned that certain products like T.Vs, cars, and refrigerators are good indicators of the health of the economy. Well, so are migration trends. It costs a lot of money to pick up and move, especially across the country. Many of these people rely on the money from selling their homes. However, since the housing market is so bad and housing prices are so low, sellers aren't getting enough money for their houses to move. While it's a buyer's market, it's difficult to buy a home while you're sitting on one right now. Hopefully, things will get better, but for now, people will have to sit tight in traditional cities. It's not a bad thing, it just shows that people simply can't afford to move.

update from last week (really today though)

In my last post, I talked about Obama's push to reform the mortgage and bankruptcy system. The major argument against this reform is that it would increase the costs for these companies that would transfer to higher interest rates and fees for borrowers. Since last week, however, opposers of the reform have won several concessions.

" Democrats in the Houseagreed to limit the measure to existing loans, to homeowners who sought a loan modification from their lenders before filing for bankruptcy, and to people who can no longer afford to pay their mortgages.
Democrats were forced to put off action on the measure when moderates voiced concerns last week that the bill was still overly broad. They wrote a compromise that requires bankruptcy judges to consider whether banks offered homeowners reasonable loan restructuring deals before they weigh in with their own rewrites.
Borrowers also would have a responsibility to prove that they tried to modify their mortgages with their lenders before seeking help in bankruptcy court."

While I don't like the idea of rewarding people who faulted on their loans, I do like the concessions. I think that making sure those who would benefit from this bill have tried everything else before getting a free pass is a very good thing. It would be unfair to responsible borrowers and home owners to give a free pass without ensuring they did their best not to fault.

Also last week, I talked about Obama's plan to put a down payment on health care reform. In his plan, couples earning $250,000 per year and individuals earning $200,000 per year would have an increase in taxes. These people would also recieve less of a tax deduction for donations.

Many opponents of the plan say that this will really hurt colleges and charities that are already suffering by making it unfavorable to donate.

Obama says that the nation cannot afford to wait on any longer to reform health care. "Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term — rather, it is one of the best ways to reduce them," Obama said.

I'm a big fan of a government run health care system. As the son of two doctors, I understand the need for everyone to have insurance. One in four patients coming into the Emergency Room is unable to pay. And since it is illegal for the ER to refuse treatment, the hospitals take over the costs of providing health care. To me it seems like many people can take advantage of these laws to recieve free health care while the hospitals become less and less able to provide that care. While I don't like the idea of schools recieving less money in the form of donations, I think that any move towards the reform of health care is a good one. My generation is the one that is going to take on the cost of reform and it's only fair for the current generation to help us out, especially since they're the one's who will be recieving the benefits.