Counterparties: America’s worst long-term trends

By Ben Walsh
June 14, 2012

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In a speech today on the economy, President Obama framed the election as a contest of economic policies. Voting for Romney is a vote for Bush, the argument goes. Given that two-thirds of the public blames Bush for the state of the economy, it’s not a bad one to make.

But Obama will be fighting more than a few long-term trends that he didn’t mention – and that aren’t as obvious as the headline unemployment rate. Last week, a Federal Reserve study showed that the net worth of the median family has fallen to mid-1990s levels. Looking closer at the Fed’s data, Felix thinks “it’s fair to say that the median US household is no richer now than it was 30 years ago”.

For a view of what a long-term lack of growth looks like, Monica Potts chronicles the life of the Christian family, which is trying to make a living in one of the poorest counties in America:

For most of their adult lives, the Christians have made less than $22,113 a year, the poverty line for a family of four. This makes them like a lot of families in Owsley County, where 40 percent of the population lives in poverty and 30 percent lives just above it. More families rely on food stamps than make the national median household income of $49,445.

As more Americans join the ranks of the long-term unemployed, it’s worth reading the story of a 58-year-old man who has been out of work since 2010 and applied for more than 380 jobs. And for those who can get jobs, employment doesn’t always provide that much value. Mark Bittman looks at food service workers and concludes that “we don’t seem to mind or even notice that our servers might be making $2.13 an hour”. – Ben Walsh

On to today’s links:

Primary Sources
The memos Goldman execs use to prepare for meetings with hedge fund managers – DealBook

A surprisingly plausible “end of the world as we know it” – Dani Rodrik

EU Mess
A plain-English guide to Target2 – Felix
Europe’s cross-border banking system is unraveling – and that’s a bigger worry than Greece – WSJ
Spain is now making Ireland’s crippling mistakes – Harvard Business Review
It’s never a good sign when the lender of last resort refuses to buy your bonds – Tim Duy

Grieving father struggles to pay his dead son’s student loans – ProPublica

New Normal
Wealth inequality is even worse than income inequality – Bloomberg View
The Fed’s survey of wealth and income is out: How’d you do? – Dealbreaker

Another Foxconn employee jumps to their death – Techland

Allen Stanford gets 110 years in prison for a $7 billion Ponzi scheme – NYT

Data Points
Reminder: The rise of China is about growth rates, not absolute wealth – Bill Easterly

How JPMorgan’s derivatives bets caused chaos in the the market for blue-chip corporate CDS – Reuters

“Muthuball”: How a Stanford undergrad’s paper could change the NBA – GQ

New Normal
There is something called Underearners Anonymous – WSJ

Old Normal
The plague – yes, THAT plague – is resurfacing in affluent neighborhoods in New Mexico – Yahoo


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Surely the USA’s worst long-term trend is the frequency at which it bombs the c___ out of other countries.

Posted by ottorock | Report as abusive

Yes. Obama has acted like a man elected by the bankers who caused the global financial crisis. He gave grand speeches, then ignores the base that elected him.

I think it is likely Obama will go down. But if he does it will not be a victory for republican ideas. It will be because:

- Not one banker has gone to prison, to say nothing of no charges in four years. Obama’s bald lies that he cares about that are completely obvious. Bill Black had over 1,000 FBI agents for the S&L crisis and this one is many times bigger. Obama put a handful on it – after 3 years in office.

- Obama doubled down on Bush war policies, and it didn’t work.

- The employment rate (a better measure than unemployment) stands near 71% in Obama’s 4th year in office. All anybody hears is baloney out of the white house and continuation of the rubbish unemployment stats that have been that way for years.

Obama didn’t “give’em hell” he bent over and pre-emptively lubricated himself. Obama actually said that you have to give 90% to get your 10%.

Obama will go down in history like Hoover when books are written in 2030. He is a nothing president, a sheep in wolf’s clothing. The best thing that could happen is for him to lose because in the coming four years the economy is going to hit the real rough water.

Posted by BrPH | Report as abusive

And no – Gupta’s prosecution doesn’t count. Gupta was insider trading, not pushing bad loans or selling uncovered securities like AIG – both end of which amounted to massive fraud.

Posted by BrPH | Report as abusive

I feel for Dominick (laid off at 58), and his story may well be typical of the long term unemployed. But I hate to see people position themselves as victims. I have been unemployed twice since turning 50, and I have never had any difficulty finding new employment.

I don’t know who told you that you should stay with one employer and in one job for 20 years or more, but you should shoot them. You should continue in a job as long as you’re learning new things, you’re excited about it, and it has a future. That burden is on you, not your employer.

There are certainly employers who won’t seriously consider you if you’re older. You probably don’t want to work for them anyway, so get over it. My age has never been a barrier as long as I have energy and enthusiasm, and can speak to modern topics and trends in your field.

Take unemployment and food stamps without embarrassment. You have paid taxes all your adult life, and this is your insurance against what you are facing. But remember that it’s a bridge, not a career.

Your mileage may vary, but it’s in your hands. The economy remains somewhat tough, but you can find or make a job. I did that with my last one; the job didn’t exist until I explained the need and how I could fill it.

Posted by Curmudgeon | Report as abusive

I wonder how many people who are long-term unemployed have considered starting their own businesses?

Now not everyone has the skills or drive to do so, but it’s often a much better option than sending out endless resumes…

Posted by mfw13 | Report as abusive

About this –

Grieving father struggles to pay his dead son’s student loans – ProPublica”

Well, the kid is dead, but padre did sign on the loans, so …. But why be hard-hearted?

Took me longer to work my way through through u/g & law/s, and I didn’t get to enjoy the kind of college life that kids like his did when he burned through damn near $200k for a music degree, so me and others who graduated debt-free – we’ll pick up the tab for your departed nino, amigo.

OBTW: learning English might improve your earning power, pops. Just sayin’ ….

Posted by MrRFox | Report as abusive

MrRFox, while a good number of students work their way through college or have daddy pay, many require loans, and what this story does is add another facet to the ever growing bubble that is student debt.

Why was such a large loan given to someone who likely cannot repay, given the field of studies? How could a co-signer sign with that low an income, if the student was already considered a risk.

A Federal one was waived, one was for 7k and yet another with a shady financial service was $160k. How wasthe student given 3loans, given the risk?

Why does noone know who owns the loan? Doesn’t this all have an air of familiarity?

Also the grieving family should be given some respect for having lost their son, not flippant/arrogant remarks about their ethnicity, first language or their own low income status.

Posted by youniquelikeme | Report as abusive

@YouN – lovely post – just the right combo of bleeding-heart and smug, politically correct, superiority. One couldn’t help but be taken by this part –

“Doesn’t this all have an air of familiarity?”

It sure as hell does – the prudent and responsible picking up the tabs for the self-indulgent cadres of irresponsible who’ve insinuated themselves into our lives; it’s depressingly familiar. I know – the poor and the immigrant are inherently more virtuous than the WASPy White Boys (particularly the self-supporting ones of modest means – what self-satisfied pricks they are) – it’s just that the “flippant/arrogant” side of me demands to be heard sometimes. My apologies.

Posted by MrRFox | Report as abusive

Thanks Fox, but I never said they were virtuous… nice try. I said they should never have been put on the hook for such loans and if in fact, the taxpayer is eventually on the hook that is also wrong.

I would think anyone who understands the current debt crisis would be prone to liken this to the sub-prime mortgage mess, as the loans should never have been made in the first place. THAT should be the concern if there is taxpayer liability. (And surely you must have proof of that being this case has insinuated itself into your life)

Your twisting of my comments to put words in my mouth is beyond obnoxious. I also paid my dues and never took a dime from anyone or a loan, but manage to have sympathy for a man who lost his son. My heart isn’t bleeding, but I am thankful I at least have one.

Posted by youniquelikeme | Report as abusive

younique, there is minimal risk in giving a $160k loan to a lower-income individual if that loan enjoys bankruptcy protection. (This case is a perfect example of why that clause is so insidious.) Besides, he might have made a respectable income in music. We just don’t know. Hard to judge the case without facts.

MrRFox, I am perhaps a little closer to this kind of situation than you? Some of our students are from immigrant households. They still have dreams — our goal is to find a way for them to reach those dreams (hopefully) without falling into this kind of trap.

The simplest solution would have been a $200k term life insurance policy. Cheap for somebody that age. Might be a good idea to make banks price that into the loans.

Posted by TFF | Report as abusive

Fox, you are a wily racist (the young man who died has a name… it was freddy) but you haven’t yet told us just how this young man’s death and his student loan will somehow become your responsibility.

Unlike most kinds of debt, private student loans are not dischargeable through bankruptcy, so all you are doing is showing your skinhead/troll underbelly and yes you are guilty as charged.

Posted by youniquelikeme | Report as abusive

@YouN – Wily, Racist, Skinhead, Troll here.

I’m one of the unfortunate 53% who actually pays federal income tax. Guess you’re one of the luck ones who doesn’t. Me and my ilk are on the hook for that portion of Freddy’s lavish romp through music school that was funded by direct federal loans. We also are priviliged to cover that portion of his private loans – the biggest part of the package – that were federally insured. Not clear from the article just exactly what that amount is – ProPublica couldn’t find time or space to mention that little detail – but whatever it is, me and other taxpayers will be picking that part up too.

The uninsured portion – nobody has to eat that loss. All that cash came straight from money-heaven.

OBTW: you forgot one further epithet to hurl my way, and pin on all of us White Trash who worked and paid our own ways through school – Chump.

Posted by MrRFox | Report as abusive

@TFF and others – I once knew a very good musician who couldn’t make a living at it and subsequently became a brilliant electrial engineer. He told me that if you haven’t dropped out by your junior year because you’re making that good living as a musician, then all you’re ever going to do is teach high school. This message often doesn’t reach those who invest $100K or more in an education in large part because the college is getting their money to keep you on as long as possible. That is the real tragedy here. We trust our educators when they have conflicts up the wazoo.

Posted by Curmudgeon | Report as abusive

Understood, Curmudgeon, but you can successfully pay back $200k in student loans on a high school music teacher’s salary. (That is very different from saying it is a good investment.)

I agree that the system of private student loans desperately needs reform. We can begin by stripping them of bankruptcy protection.

Posted by TFF | Report as abusive