Rick Newman
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6 Ways the Recession Will Change Retirement
Continue reading… 7 CommentsThe Great Recession may finally be over, but the shock waves could reverberate for years—and fundamentally change the way we plan for retirement.
After most recessions of the past 75 years, the economy quickly bounced back to prerecession levels, erasing memories of hard times. This time seems different. The twin miseries of a stock market crash and a deep housing bust have eliminated $14 trillion of Americans' net worth since 2007—about $121,000 per household. That's money that millions of people had been hoping to retire on. The recent rebound in the stock market has eased some of the pain, but the decline in home values is likely to continue into next year, to be followed by an indefinite plateau. Some analysts think it could take a decade for homes to reclaim the peak values of 2006—and 20 years in California and Florida.
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How Big Pharma Wins From Healthcare Reform
Continue reading… 12 CommentsAs Congress gets closer to final healthcare-reform legislation, the central question remains murky: Who will foot the bill?
Figures contained in the $856 billion proposal by Democratic Sen. Max Baucus of Montana—which has emerged as the basis for a final compromise between the House and Senate—suggest that key parts of the healthcare industry are getting off easy. The Baucus bill would pay for itself in a number of ways, including taxes on some high-cost insurance plans, Medicare cost reductions, and cuts in federal benefits. It would also raise about $13 billion a year from fees paid by three industries: pharmaceuticals, health insurance, and medical devices.
[See why health insurers make lousy villains.]
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Why CEOs Survive Recession Better Than Others
Continue reading… 15 CommentsIt's good to be CEO, even in a recession. Especially in a recession.
Hewlett-Packard's stock price fell 29 percent in 2008, and the company announced plans to lay off 25,000 workers after it acquired Electronic Data Systems. But CEO Mark Hurd didn't feel the pain. Hurd earned $43 million in 2008, a 73 percent raise from his 2007 pay. Perks included $136,000 worth of personal travel on corporate jets, paid for by shareholders, and $7,472 in travel expenses for Hurd's family, according to an analysis of HP's annual proxy filings by shareholder activist Eric Jackson. Several other top HP executives earning multimillion-dollar pay got double- or triple-digit raises.
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Why Small Businesses See a Gloomy Future
Continue reading… 11 CommentsIf small businesses are the backbone of the U.S. economy—as politicians routinely claim—then we're in worse shape than a lot of people realize.
Most economists, including Federal Reserve Chairman Ben Bernanke, believe the recession is technically over and the economy is growing again. But the news apparently hasn't trickled down to the people who run delicatessens, plumbing outfits, and Web start-ups. A recent survey by the nonprofit Kauffman Foundation found that 68 percent of entrepreneurs do not believe the economy is beginning to recover, and 61 percent think the economy's on the wrong track. Only 13 percent believe a recovery is underway.
[See why we're stuck with one ugly economy.]
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How to Pay CEOs What They’re Worth
Continue reading… 8 CommentsWhen Stanley O'Neal stepped down as CEO of Merrill Lynch in November 2007, the company sent him out the door with $162 million, effectively doubling his earnings from nearly five years as chief executive. Over the next five quarters, Merrill lost more than $30 billion from deals that were largely brokered during O'Neal's tenure. Merrill's stock price was at $44 when O'Neal became CEO, $66 when he left in 2007, and $11 a year after he left, when a hobbled Merrill was taken over by Bank of America. O'Neal publishes his golf scores, but he's never taken responsibility for Merrill's implosion—or offered to return any of his money. And shareholders have no way of demanding it back.
This, of course, is a familiar, if grotesque, Wall Street story. Charles Prince earned nearly $160 million for serving as CEO of Citigroup for four years, even though he left the bank crippled when he departed in 2007. The company's stock price was $47 when he took over in 2003 and $38 when he left in 2007. Today, with Citi a ward of the state thanks to disastrous moves under Prince, the stock wallows at less than $5. Martin Sullivan pulled a similar stunt during three years as CEO of AIG, signing off on derivatives deals that ultimately wrecked the company, brought the global economy down with it, and required an $85 billion taxpayer bailout. Sullivan's reward? $100 million. Nice work if you can get it.
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How Healthcare Reform Reveals Bigger U.S. Woes
Continue reading… 3 CommentsABCNews recently invited me to appear on Good Money, one of its online news programs, to discuss an article I wrote called 4 Problems That Could Sink America. The battle over healthcare reform is probably the most pertinent example of how bogus information, selfishness and other shortcomings threaten our prosperity. Here's a video of my discussion with anchor Tanya Rivero:
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Next Obama Reform: Fewer Blue-Ribbon Panels
Continue reading… 4 CommentsIn April 2009, the Milken Institute think tank published a 526-page hardcover tome called The Rise and Fall of the U.S. Mortgage and Credit Markets. In scholarly detail, it describes how the financial markets heated up for most of this decade and then melted down in 2008. Amazon lists a couple of dozen other books that explain how Wall Street wrecked America. That's on top of saturated coverage of the unfolding crisis by the Wall Street Journal, New York Times, and dozens of other news organizations, economists, and historians. And of course Ben Bernanke, Tim Geithner, and their predecessors have had their say via endless hours of congressional hearings.
[Get ready for the miraculous hollow economy!]
But apparently the financial crisis is still something of a mystery, so the government is going to get to the bottom of it all through an official report due to be published in December 2010. You might think that's a typo, and the report is really due in 2009, which at least would be the same year as every other report on the Great Recession. But we're not talking about a tweet here. We're talking about some serious research that's going to require thousands of footnotes in order to refer to all the other reports that came first.
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Coming Soon: The Miraculous Hollow Economy
Continue reading… 4 CommentsEconomic commentators get excited these days if the typical indicator rises by 1 or 2 percent. What about 132 percent?
That's one credible projection for the increase in total net income for the S&P 500 in the fourth quarter of 2009. In any normal year, income growth of 5 or 6 percent would get analysts excited. But 2009 is not a normal year; it's the year after the Year Wall Street Wrecked the Economy. So compared with the fourth quarter of 2008—when the stock market crashed and the economy flirted with a full-blown depression—results in 2009 are going to look remarkable. "We're going to see some mind-boggling growth rates," says Dirk van Dijk, chief equity strategist for Zacks Investment Research, which is forecasting the 132 percent blastoff.
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4 Countries With Better Healthcare Than Ours
Continue reading… 164 CommentsIf the healthcare systems in Canada and Europe are so much worse than ours, somebody ought to tell the Canadians and Europeans.
There's little dispute that the United States has the most expensive healthcare system in the world. Our nation spends about $7,300 per person on healthcare every year, nearly 2.5 times the average for developed countries, which is $2,964, according to the Organization for Economic Cooperation and Development.
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How Obama Overload Threatens the Economy
Continue reading… 52 CommentsOK, I'm convinced: President Obama has a remarkable attention span. Too bad the rest of us can't keep up.
Obama is fond of saying that the government can do several important things at once, and he seems determined to prove it. Unprecedented financial bailouts are still in the works, and $787 billion in stimulus money is just starting to filter into the economy, but that's no reason to sit back and take a breather. A new healthcare reform plan would transform one sixth of the U.S. economy. Obama's "cap-and-trade" plan would be the biggest American response to global warming to date. His financial reform plan would rewrite the rules for Wall Street and transform lending. In his spare time, Obama is recalibrating the nation's two wars, winding down our presence in Iraq while ramping it up in Afghanistan.
Got all that?
[See why we have an economy that only a mother could love.]
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An Economy Only a Mother Could Love
Continue reading… 8 CommentsSo here we are, in the midst of a recovery. Remind me: How is this different from a recession?
Oh, right: Some things are getting worse more slowly than they used to, and other things have gotten so bad that they can't possibly get any worse. And a few things are actually getting better. When economists add it all up, they're tallying the first net gain in more than a year.
On the plus side, corporate profits have picked up and business executives are more optimistic. All that stimulus spending and those aggressive maneuvers by the Federal Reserve are kicking in. So are all the layoffs—in a good way: With fewer workers, companies have enjoyed a surge in productivity. Moody's Economy.com believes the recession that officially started in December 2007 officially ended in August 2009. Hooray! It's over!
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4 Conundrums That Impede Healthcare Reform
Continue reading… 67 CommentsEverybody agrees that something is wrong. Yet it remains remarkably hard to fix our $2 trillion healthcare system.
Part of the reason, obviously, is that a lot is at stake. Healthcare accounts for 16 percent of the economy, a far higher portion than in most other developed nations. Yet even though we pay more, the care we get is hardly better and in some cases worse than what's available elsewhere. President Obama's plans to improve the return on our healthcare dollar would affect the livelihood of millions—some for the better, and some for the worse. That makes healthcare reform an epic political battle.
[See why postal-style healthcare might not be so bad.]
But the sporadic availability and skyrocketing cost of healthcare are inherently vexing problems that have bedeviled reformers for 50 years. Here are a few of the factors that make it so difficult to revamp America's healthcare system:
Exorbitant costs are often hidden. The foremost problem with healthcare is its cost, which is rising at least twice as fast as overall inflation. Healthcare is becoming an unsustainably large part of the economy. Yet many of the people hurt most by this problem are oblivious to it.
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5 Bailouts That Did Some Good
Continue reading… 7 CommentsIs there such a thing as a good bailout? If you're the one getting the money, you might think so. But most Americans haven't received a capital infusion from the U.S. Treasury, and they've grown disgusted with the taxpayer funds lavished on failed banks and other companies that helped cause the worst recession in 80 years.
The massive financial rescue that the government began engineering in September 2008 wasn't an immediate turnoff. But billions in bonuses to executives at firms dependent on corporate welfare, like AIG, Citigroup, and Bank of America, have made "bailout" a dirty word. The furor has obscured the probability that government intervention in the economy, no matter how distasteful, most likely prevented a deeper, longer meltdown and far worse unemployment.
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The 5 Most Regrettable Bailouts
Continue reading… 15 CommentsHas anything good come from $3 trillion worth of bailouts over the last 18 months? To be fair, probably. After Lehman Brothers failed in September 2008 and other Wall Street firms began to founder, urgent government intervention forestalled a deeper financial panic and perhaps even a depression. Instead of talking about a recovery today, we could be facing steep double-digit unemployment and many more months of misery.
But the Year of the Bailout also entailed some disturbing moments, and there may still be unhappy consequences. Here's my list of the worst bailouts:
AIG. Did the Federal Reserve know what it was getting into on Sept. 16, 2008? That's the day AIG would have collapsed if the Fed hadn't issued $85 billion in credit to the huge insurance company in exchange for a 79.9 percent ownership stake. The problem wasn't AIG's insurance units, which constitute most of the firm, but an internal hedge fund, AIG Financial Products, that was basically backing huge gambles with solid insurance assets. When the hedge fund bet wrong on billions in mortgage-backed securities, it imperiled the entire company.
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10 Gaffes by Doomed CEOs
Continue reading… 27 Comments"When markets are in trouble," wrote John Kenneth Galbraith in 1954, "the phrases are the same: 'The economic situation is fundamentally sound' or simply 'the fundamentals are good.' All who hear these words should know that something is wrong."
The famed economist was writing about the 1929 stock market crash, but Galbraith's insights are as timeless as he intended. Beginning in 2005, there were signs that a supercharged real estate and financial boom were getting out of control. By 2007, the apparatus was starting to overheat, and in 2008, as we all know, the system nearly melted down. Yet right up till the moment the gears seized, many of America's corporate bosses continued to insist that the fundamentals were sound. Here are 10 of the most ignominious reassurances from the Great Recession that began in 2007:
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4 Problems That Could Sink America
Continue reading… 209 CommentsIf we're lucky, the recession is winding down, and life will start to feel a bit more comfortable before long. But that doesn't mean things will go back to the way they used to be.
The global recession that began in America's housing market has shaken the world's economic order and possibly knocked the United States down a notch or two. The spendthrift American consumer is out of money. American wages are flat. Despite some hopeful signs, the U.S. economy could muddle along for years.
[See why a housing rebound could take 20 years.]
Meanwhile, actions in China—rather than the United States—may have been the initial trigger for a global economic recovery. Many other nations will grow faster than the United States over the next few years and command an increasing share of the world's resources. "The message to Americans," says Mauro Guillen, an economist at the University of Pennsylvania's Wharton School, "is you need to redouble your efforts to be more competitive."
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How the Bailouts Could Have Gone Better
Continue reading… 16 CommentsDid they work?
With the financial meltdown finally contained and the Year of the Bailout drawing to a close, we can start to make some meaningful assessments about whether hundreds of corporate rescue packages did more harm than good. It's probably fair to say that aggressive government intervention in the economy, starting with the Bear Stearns bailout in March 2008, prevented a deeper collapse and maybe even a depression. But the government also erred on the side of doing too much and propped up some huge, mismanaged companies that would have, and perhaps should have, failed. To gauge the consequences of all the bailouts, I spoke recently with Barry Ritholtz, author of Bailout Nation and CEO of research firm FusionIQ. Excerpts:
