Marketplace Scratch Pad

Chop chop

nospam@example.org (Paddy Hirsch) — Fri, 06 Nov 2009 13:31:24 PST

Our weekly podcast, After the Bell, is now available. This week, the White House said its goal is to cut the deficit in half by the end of Obama’s first term.

Is that possible? Scott talks to Diane Lim Rogers.

Diane is well known to the web as the woman behind the popular blog EconomistMom. And by day she’s chief economist at the Concord Coalition, a non-profit, non-partisan group that lobbies for fiscal responsibility by government. They also talk about the need for honesty with the American people.

Music includes Wilco, Blackfoot and Billy Joel. If you’d like After the Bell to download automatically each Friday, click here.

Busta Rhymes

nospam@example.org (Paddy Hirsch) — Fri, 06 Nov 2009 09:43:14 PST

The latest Marketplace Minute is here! Once again, Morning Report host Bill Radke waxes lyrical with this week’s business news. In a poetic 60-seconds: unemployment, GM isn’t selling Opel, Warren Buffett bets on Berkshire Hathaway, Disney’s new Chinese park, and CIT Group goes bust.

U6 and you

nospam@example.org (Paddy Hirsch) — Fri, 06 Nov 2009 09:16:38 PST

By now you’ve probably read the highlights. The economy lost 190,000 jobs in October, sending the percentage of Americans out of work, but looking for jobs, to 10.2%, according to the Bureau of Labor Statistics.

Yes, the trend is positive, in that the pace of job losses is slowing. But many people are focused on what’s called U6. This isn’t a third-rate tribute band, it’s the underemployment rate, and it tracks people who work part-time, and people who’ve given up looking for work altogether. This rate is currently at 17.5%.

Seeking Alpha says the U6 rate is considered by some to be a better gauge of true unemployment than the sugar-coated malarkey peddled by the BLS.

What is concerning about job growth as we exit our current recession is the present level of “underemployment” as compared to the 2001 recession figure. Last month our “underemployment” rate was 17%. The highest it reached in the previous downturn was 10.4%. To put the figures in context, the 2001 recession was the third mildest recession in the post-war period but the decline in employment that continued through late 2003 was the largest in the post-war period.

Peering into the numbers, construction and manufacturing did badly. Manufacturing has lost 2.1 million jobs over the last 2 years. The Consumerist notes the news is most grim if you’re a teenager: 27.6% of teenagers who are looking for work are unable to find it.

But health care looks, well, healthy, The BLS says the health care sector has added 597,000 jobs since the recession began. And the number of temporary workers grew by 34,000 — a significant gain that could indicate employers are beginning to expand their businesses again. Auto manufacturing added 4,600 jobs in October, but you can thank the Cash for Clunkers crack hit for that jump.

What’s the government doing about it? The New York Times reports Congress yesterday anticipated the report by voting overwhelmingly to extend benefits for jobless workers for up to 20 weeks.

Morning reading

nospam@example.org (Paddy Hirsch) — Thu, 05 Nov 2009 20:58:38 PST

Scott Jagow is out today - he’ll be back Monday.

Meanwhile, here’s a little Friday food for thought.

The bear is back

It was only a handful of years ago that people would have laughed if you’d told them Russia was issuing bonds - the country defaulted in 1998 and until recently, all but the most iron-stomached investors have held the country at barge-pole length. But Bloomberg reports Russia is considering going back to the bond market.

“A lot of debtors in 1998 said they’d never touch Russia again, but memory in the bond market is short, so they are all lining up,” said Saleh Daher, the managing director of Boston- based Turan Corp., which owns Russian debt dating back to the Soviet era. “There is a wall of cash looking for investment, in particular in the emerging-market bond world.”

The NY Times reports that any bond issue would be likely to draw keen interest from investors because Russia, the world’s largest energy exporting nation, is in far better shape financially than a decade ago.

But there’s a reason the bear is going back to the well. It’s spending so much on stimulus that even with its oil advantage and its reserves, it could end up running a massive deficit.

Buyer beware.

Game on

What happens to properties when tenant companies close up shop and the owners can’t find anyone to move in or buy? They become playgrounds.

Busy enough with occupied buildings, police and fire crews aren’t able to do much to protect abandoned sites like the Packard plant or people who venture into them … the onus is on building owners anyway, says John Roach, a spokesman.

Poppa needs some new shoes!

Black Friday is coming, and I’m looking forward to getting some bargains on some quality footwear in the sales. Apparently I’m not alone, except that most Americans seem reluctant to wait that long!

The American public, it would seem, cannot carry on without new shoes. Boots, booties, sneakers, pumps — for the last few months they have all been selling well as the broader economy struggles toward recovery.

Then there’s this quote from Jamie Boucher, a lawyer in Washington: “I think about value much more than perhaps I did before,” said Ms. Boucher. “But you’ve still got to have your shoes.”

You go, girl!

Want to kill some bankers? I thought that would get your attention. Well, a report in, of all places, The American Banker, says there’s an app for that.

The game features cash-hungry bankers attempting to raid the White House for bailout cash and it’s up to the player to stop them. That involves tapping the bankers, allowing you to fling them around, hold them and shake them, and even double tapping to blow them up. Given the pace of the onslaught, however, that is not enough. Players earn gold for each banker they successfully kill, which eventually can be used to purchase and upgrade a sniper, tank, and a satellite laser-wielding Uncle Sam that help fend off the horde of bankers.

Now if only I could get Marketplace to spring for an iPhone.

Milken it

You may think Michael Milken looks a bit like a Borg, but there’s no resisting his logic this time.

In 1980s, people constantly told investors “No one ever lost money by loaning money to a country.” But the U.S. only got 30 cents on the dollar from a sovereign loan to Poland. The loss in sovereign loan totaled $1 trillion in those years, but investors continued to believe these assets aren’t risky. This dramatic example tells us that people in senior positions, such as those in the Fed and run major banks, make statements that are just 100% false.

Absolutely no way I can argue with that.

Just some funny stuff

nospam@example.org (Scott Jagow) — Thu, 05 Nov 2009 13:20:01 PST

I don’t know about you, but The Onion has the ability to make me laugh uncontrollably. If you’d possibly enjoy such an experience, follow along:

This week, I talked about Ford surprising everyone with a $1 billion profit last quarter. Well, they have some momentum now. Just check out the next car to hit the showrooms:

Ford Unveils New Car For Cash-Strapped Buyers: The 1993 Taurus

In case you didn’t hear, United Airlines has a new plan to stack passengers like cordwood, in order to generate more revenue:

According to a press release, the company estimates that the new policy of simply arranging them in a towering mound will allow it to sell approximately 20 times more tickets per flight. In addition, executives claimed they would be able to eliminate the unnecessary cost of in-flight magazines, chairs, seat belts, blankets, bathrooms, headphones, and oxygen masks.

United officials said they conducted a test run in September during which they sent a flight from San Francisco to Denver and really jammed them all in there as hard as they could. Analysts found that 98 percent of them arrived safely at the correct destination, and of those who were lost or damaged, nearly all were eventually located.

Finally, we just learned that Congress has approved $500 billion to build a new monument to Human Folly. Just in time. It’ll be built on a Washington freeway overpass:

The lead architect on the project, Robert Wheeler, told reporters that the monument would be a stirring testament to more than 200,000 years of arrogance, idiocy, and waste. He also confirmed that no fewer than eight different blueprint designs would be clumsily patched together in order to preserve the spirit of indecision and gross incompetence with which mankind has approached the vast majority of its endeavors.

“The face of the building will be covered with recently excavated sections of the Titanic, as well as several faulty pressure valves from the Chernobyl power plant and hundreds of uranium-tipped shell casings from the first Gulf War,” said Wheeler, whose design calls for the monument to be surrounded by dozens of oil derricks pumping night and day into bare dirt. “But the most exciting feature of the memorial, in my opinion, is the giant glowing orb at the top that will symbolize humanity’s needless overuse of energy and will itself use a staggering 12 gigawatts of power per second.”

Enjoy!

I’ll be off tomorrow, but Paddy Hirsch is filling in. I’ll still host my weekly podcast, After the Bell. It’ll roll out sometime tomorrow morning. There’s a good chat in there about the deficit. Talk to you again on Monday. Have a great weekend.

Bloggers have cookies at the Treasury

nospam@example.org (Scott Jagow) — Thu, 05 Nov 2009 09:11:06 PST

Thought you might like to read about a somewhat strange meeting at the Treasury Department this week. Treasury officials invited eight financial bloggers to come have a chat.

Don’t worry, they didn’t fly them in or anything. A plate of cookies was as far as the government freebies went.

Among the bloggers who attended: Tyler Cowan of Marginal Revolution, Yves Smith of Naked Capitalism, Michael Panzner at Financial Armageddon and Kid Dynamite.

Steve Waldman at Interfluidity had the most captivating write up about it. He says the Treasury officials wanted to clear some things up: the stress tests were real and not negotiated with banks. The regulatory reform proposals are real and will make a big difference. The people at the Treasury are sincere and hard-working, and they care about the public. The Treasury still anticipates some tough going with the economy, but it is prepared to handle what may come. However bad our problems are, Europe is worse off. Things like that.

The bloggers each asked some questions, and some tough ones by the sound of it, but they didn’t get much in the way of real responses from Treasury officials. Here’s what I found most compelling from Waldman’s account:

This is just my impression, and I may be mistaken, but I got the sense that they do this kind of thing frequently, these rolling meetings with some group of people whom it is important to treat as important, but whose conversation they don’t necessarily value all that much — people who are there to be “brought into the tent”…

Twice Treasury officials commented on how uncommon a group we were, how we asked particularly pointed questions or were unusually bright. To borrow a cliché, I’ll bet they say that to all the groups. One official made use of an expletive early in his discussion, which had the effect of making us feel like insiders, like this was not the sort of canned, guarded conversation one might see on CNN.

Another comment from Michael Panzner, writing for The Huffington Post:

The meeting appeared to confirm the strong grip that Wall Street has on the levers of legislative power. In response to a throwaway remark by one of the bloggers present that discussions about the overly large size of the financial sector relative to the real economy were “not politically correct,” one official suggested the reality was just the opposite, and that a substantial majority of the public agreed with that assessment.

If you take that together with the assertion that the Treasury — and, by extension, the Administration — is fully committed to financial reform, as well as the fact that the Democrats dominate Congress, the implication is that other forces — namely, the moneyed interests and their lobbyists — are standing in the way of necessary change. Nothing new there, I guess.

Waldman also picked up on that idea of relationships and how they can distort or influence people. While he valued getting this opportunity to go inside the Treasury, he might not want to go back:

Corruption thrives where there is a tension between institutional and interpersonal ethics. There is “the right thing” in abstract, but there are also very human impulses towards empathy, kindness, and reciprocity that result from relationships with flesh and blood people. That, aside from “cognitive capture”, is why we should be wary of senior Treasury officials spending too much time with (JP Morgan CEO) Jamie Dimon.

It is also why bloggers might think twice about sharing a conference table with masters of the universe, public or private. Although the format of our meeting did not lend itself to forging deep relationships, I was flattered and grateful for the meeting and left with more sympathy for the people I spoke to than I came in with. In other words, I have been corrupted, a little.

Morning Reading

nospam@example.org (Scott Jagow) — Thu, 05 Nov 2009 05:46:34 PST

Good morning. Some interesting items and perspectives this morning, include some rap poetry about a Treasury Secretary:

A higher unemployment rate might be a good thing (Marketplace Morning Report)

Wall Street should be happy the Yanks won the World Series (Dealbook):

In the previous 22 World Series since 1936 in which the Yankees were victorious, the Standard & Poor’s 500-stock index returned an average of 10 percent in the next year, according to the analysis (below) by Richard Peterson, director of credit, markets and risk at S.&P. and, obviously, a great baseball fan. But when the Yankees lost the World Series, stocks fell an average of 13 percent.

The Fed says: Let the bubble blow (Marketwatch) More bubblicious:

The Fed is playing a dangerous game of chicken with investors and with the jobless. Unless it helps let the air out of some of this rally soon, the drubbing the market will take once things do turn could be vicious.

The government has no faith in recovery (Real Clear Markets):

I believe removing such artificial stimulus is needed so the country can immediately begin de-leveraging and to prevent the accumulation of yet more baneful debt. What is truly amazing is how many people on Wall Street are foolish enough to postulate that our problems have been solved. The stock market will not be so easily fooled for much longer.

Obama’s gibberish on jobs (New York Post)

Battered company says no to job cuts (NPR)

Must see: Rap Poetry Ode to a Treasury Secretary (not Geithner):

Subprime student loans, take 2

nospam@example.org (Scott Jagow) — Wed, 04 Nov 2009 13:30:11 PST

Part two of our series on for-profit universities airs tonight. Based on the reaction to the first piece, I’d say this is a hot topic.

Click here to read or listen to last night’s story by Amy Scott and Sharona Coutts. Our partner ProPublica has also published Sharona’s expanded print version of the series. Here’s a link to my post from yesterday.

The first story generated a lot of comments, including quite a few from University of Phoenix students and employees:

“I am a former employee, “Enrollment Counselor” of The University of Phoenix. I would like to express my disgust with the manipulative and exploitative practices in which we were trained.”

“All enrollment counselors go over and over and over the finance responsilblity that the student has. If any enrollment counselors lies about anything they would be fired on the spot. Maybe you should check your facts before writing something you have no-clue about.”

“As an Enrollment Manager for the University of Phoenix, I am always surprised by the level of intelligence or the lack there of by some students. Students are always told that financial aid is consisted of both loans and grants. Give me a break, why the hell would schooling be free. Stupid, absolutely stupid.”

“I am a proud alum of UOPX and I was not pressured into enrolling. I took responsibility to assure the school’s accreditation was up to par and I understood what I was signing upon enrollment. I am thankful for-profit school exist because I cannot attend a traditional university due to my work schedule.”

“I teach at a community college and at a private (non-profit) university in Southern California. I have had many students who were survivors of University of Phoenix and similar institutions, stuck with sizable debts and degrees that are despised by the academic and professional world.”

I hope the focus on the University of Phoenix doesn’t muddle the larger issue here. Phoenix is the biggest of the for-profit schools. It gets the most attention and is facing legal battles over the legality of its policies. Not all for-profit schools have the same reputation. There is a place in education for well-run for-profit, online schools. But many of them do have a big problem with student loan defaults. And that, as Sharona points out at ProPublica, is the big picture:

“Students who default on their student loans have their Social Security benefits intercepted, have their tax returns intercepted, have their wages garnished” and “are ineligible for any other federal benefit program until they arrive at a repayment solution,” said Nassirian, of the association that represents college admission officers. “They are ruined for life.”

Taxpayers don’t suffer because, although the public underwrites the system by providing the loans, the program makes money overall, according to Department of Education estimates.

President Obama wants more people to go to college. But previous administrations wanted more people to own a home, too. And look what happened with that. The president would do well to make sure he know what’s happening out there and why.

Catch part 2 of the series tonight on Marketplace.

Slots or taxes?

nospam@example.org (Scott Jagow) — Wed, 04 Nov 2009 11:57:25 PST

Apparently weary from the recession, the people of Ohio have changed their minds about slot machines. After rejecting casinos four times in the past 19 years, yesterday Ohioans voted to allow them in four cities. Smart thinking?

Some background from Reuters:

Proponents of the measure, which included Penn National Gaming, have said the casinos will create 34,000 jobs, bring $200 million in licensing fees and generate an estimated $651 million annually in revenue for cash-strapped Ohio and its local governments and school districts.

Despite that, it’s hard to see this as a “now” solution for Ohio’s economy. Penn National is building two of the casinos, and they won’t be done until 2012. But the larger question is — are states like problem gamblers? Can they never get enough? Here’s what Rob Walgate, head of an opposition group, had to say:

“Two times since 2000 we’ve expanded gambling in Ohio and we have not hit the revenue projections once,” he said, pointing to the introduction of video Keno games and the Mega-Millions lottery.

Nevertheless, states continue to pile on more forms of gambling, mainly because other states continue to pile on more forms of gambling. Ohio’s neighbor Kentucky failed to approve slots this year, but now that Ohio will has changed its mind, you can bet a few votes in Kentucky will suddenly change. One reaction in a Frankfort, Kentucky paper:

Sen. Julian Carroll, D-Frankfort, said he “detests gaming as a source of revenue,” but it’s the only option besides raising taxes.

Really? Is that true? Is gaming the only option besides raising taxes?

I found it interesting that on the same day that Ohio approved casinos, voters in Maine and Washington turned down spending limits on their state governments. And many other states approved additional spending with bond issues. More from Reuters:

Despite economic hard times, voters approved some of the biggest debt issues, according to local election offices and governments…

“Rejection of spending limits in Maine and Washington hint that voters may not be overly concerned with growth in government spending, despite a huge expansion in federal spending over the last year,” said a report by Ballotwatch, based at the University of Southern California’s Initiative & Referendum Institute.

Your thoughts?

Bubbliciousness

nospam@example.org (Scott Jagow) — Wed, 04 Nov 2009 10:03:19 PST

With the Federal Reserve meeting today and Congress poised to extend the home buyer’s tax credit, many forms of the word “bubble” were tossed about at our morning meeting.

You’ll hear more on Marketplace tonight, but here are some things to consider:

Not only is Congress likely to extend the $8,000 first time home buyers tax credit, it’s being expanded to include non-firsters. From the New York Times:

The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.

The current limits are $75,000 for individuals, $150,000 for families. The new ones are $125,000 for individuals, $225,000 for families.

If a goal of this credit to help reduce housing stock on the market, does it make sense to offer it to people who’ve owned a home for 5 years? To take advantage of the credit, they’ll have to sell one home to buy another. Plus, is a 2% credit on the value of a purchase going to motivate most people? Interest rates are low. Home prices are low. Why is this necessary?

Another important sentence from the Times story, emphasis mine:

It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.

Let’s move on to FHA loans, with their measly 3.5% down requirement and “flexible” credit score standards. According to NPR, FHA loans are now responsible for a third of all new mortgages. That’s 10 times what it was a few years ago. NPR’s story this morning said the FHA is focused on lenders who might be taking advantage of the government’s generosity. Check this out:

The days of “if you can breathe, you can get a loan” are over. But it might be hard to tell from watching some of the ads out there.

In one ad from a company called Premium Capital Funding LLC, also known as Topdot Mortgage, a pitchman says, “We’re authorized by the federal government to offer FHA loans to homeowners with less than perfect credit … and your credit score may not even be a factor.”

According to housing administration data, Topdot’s loans issued over the past two years have defaulted at nearly 2 1/2 times the national average. In some cases, the borrowers never made a single payment.

FHA Commissioner David Stevens says a rate like that is “very bad.”

Yes, it is.

This discussion wouldn’t be complete without mentioning the Federal Reserve, and all the free money it has made available to Wall Street. That money has poured into stocks, commodities and real estate overseas. With the Fed keeping interest rates low, investors are borrowing dollars and investing in countries with higher interest rates. Today on CNBC, economist Nouriel Roubini predicted this will all end badly when the dollar snaps back:

“Eventually there’s going to be an end to this carry trade,” he said in an interview. “When that snapback of the dollar is going occur it’s not going to be 2 percent or 3 percent, it’s going to be more like 25 or 20 percent. And then everybody will have to close their shorts on the dollar, they’ll have to sell these risky assets across the world and you could have this huge asset bubble going into an asset bust.”

All of this seems to add up to — people are doing exactly the same things that created the last bubble. Borrowing over their heads, over-leveraging, taking advantage of free money from the government or lax credit requirements. But maybe there’s another way to look at this. I’d love to hear it. In the meantime, I’m gonna run and get a pack of gum. For some strange reason, I’m craving it.

Morning Reading

nospam@example.org (Scott Jagow) — Wed, 04 Nov 2009 05:58:29 PST

Good morning. Here a few things I’ve seen so far:

A tired story: Business vs Labor (Washington Post) Per our discussion about Ford the other day:

To most of Ford’s unionized auto workers, the results were a signal that after years of layoffs, pay freezes and benefit cuts, the latest concessions negotiated by union leaders were unnecessary. As they saw it, Ford’s sales turnaround confirmed their long-held belief that all that was required to make Ford competitive again was for its overpaid executives to come up with cars that Americans wanted to buy.

The workers are right about the cars, of course, but dead wrong on the issue of Ford’s financial viability. Ford will now be forced to compete at a cost disadvantage not only to foreign producers, but to GM and Chrysler, whose workers accepted steep concessions as part of their government bailouts.

The stock market’s still a good predictor (WSJ/Smart Money)

Actually, it’s not (Slate):

The rising U.S. stock market and a weak, slow-growing U.S. consumer sector aren’t really in contradiction. Given the large-scale trends transforming the global economy—and the role of large U.S. companies in it—it may be possible to have a sustainable rally in American stocks without a sustainable rally by American consumers.

The best of the worst is behind us (Minyanville)

The Madoff story is far from over (PBS NewsHour)

Poor Charlotte

nospam@example.org (Scott Jagow) — Tue, 03 Nov 2009 13:47:17 PST

Bank of America has reportedly expanded its CEO search to include executives who would rather live in New York City than Charlotte, NC. It could portend Charlotte losing a second major banking headquarters in a very short time. Does someone have it out for my former town?

There’s no indication that the headquarters would move, but I suspect it’ll be considered. B of A opened a two million square foot building overlooking New York’s Bryant Park just this year. And Bloomberg reports that the top CEO candidates would prefer the Big Apple:

“It does reflect well on the board that they’re not going to let the headquarters location limit their selection in terms of CEOs,” said Thomas Brown, CEO of New York-based hedge fund Second Curve Capital. “There aren’t too many people around the world who think that Charlotte is a major financial center.”

Especially not people who run a New York-based hedge fund. But until last year, two of the four biggest banks were headquartered in Charlotte. Then, San Francisco-based Wells Fargo bought Wachovia, in a government brokered deal. The government also pushed B of A into owning Merrill Lynch, which is based in New York. Plus, the government’s hand in executive pay might be a reason for B of A expanding its search. From Daily Finance:

The search for a new CEO is made especially difficult due to government oversight of executive pay at BofA, one of seven financial-services companies that received bailout money under the federal government’s Troubled Asset Relief Program. Unable to offer its new candidate a big paycheck, BofA’s board has been stripped of one of its key recruiting tools.

Wait a second. Is it the federal government that’s trying to destroy Charlotte?

Seriously, New York needs another bank like the Yankees need another World Series title. From Crain’s New York:

While a transfer of BofA’s headquarters would likely result in only a few hundred new corporate jobs—far too few to make a dent in the tens of thousands of financial jobs lost in New York over the past two years—a move would bring other benefits.

For example, charitable giving from the bank would likely increase locally. Pam McDonough, a former Illinois state official who helped lure Boeing to Chicago, said the aircraft manufacturer quickly became a leading benefactor of Chicago’s public schools shortly after it moved. She added that it helped Chicago’s image to be seen in the place where globally-focused Boeing executives chose to work.

Meanwhile, a nice city like Charlotte would lose out on that stuff.

Then again, Charlotte, after all we’ve been through with the banks, maybe your attitude should be: New York, take them. Please.

Subprime student loans?

nospam@example.org (Scott Jagow) — Tue, 03 Nov 2009 12:20:59 PST

Make sure you catch Marketplace tonight. We’re airing the first of two stories on for-profit colleges like the University of Phoenix. These schools make most of their money from taxpayer-backed loans to students. So it’s easy to see why the schools might want to sign up as many students as possible. And of course, that leads to problems.

The University of Phoenix was sued by two former employees who claim the school violated a federal ban on giving incentives to counselors for recruiting more students. The suit was filed several years ago but remains unsettled. More on it:

The complaint alleges that the school urges counselors to enroll students without determining their academic qualifications to attend university. The complaint further alleges that University of Phoenix executives brag about deceiving the Federal government by creating “smoke and mirrors” so the university may “fly under the radar” of the incentive compensation ban.

Last year, 86% of the University of Phoenix’s $3 billion in revenue came from federal loans made to its students. But many of those students can’t or don’t pay the money back. Many of them don’t even graduate. One congressman has said this kind of thing looks “a lot like subprime student loans.”

Marketplace and ProPublica teamed up to look into the issue.

In the story that airs tonight, we hear from student Michelle Rambo. When Rambo signed up at the University of Phoenix, she says she was told she qualified for a grant and wouldn’t have to pay anything for her education. Reporter Amy Scott tells us what happened later:

SCOTT
She was almost finished with her associate degree when a school counselor called about moving her on to a bachelor’s program.

RAMBO
And one of the questions that she asked me completely stopped the whole conversation. She had asked me, so what kind of loan do you have?

SCOTT
Rambo thought she didn’t have a loan.

But when she enrolled, she signed what she thought was a form inquiring about federal aid. Turns out it was an application for loans that’ll cost her $18,000 when she graduates.

RAMBO
It was scary. It still is scary. I’m still scared. I still don’t know what I’m going to do yet.

Tomorrow night’s story features a former University of Phoenix employee who explains some of the high-pressure sales tactics he was told to use:

BURKE
One of the things we would be told to do is call up a student who was on the fence and say, all right, I’ve only got one seat left. I need to know right now if you need me to save this for you. Well, that wasn’t true.

SCOTT
In the training session, Burke says staff asked the manager what to do if that student showed up for class and there were only six or seven people there.

BURKE
And the manager said, well you tell them that the class got so full that we had to split it. Scott: So you were basically told to lie? Burke: Yeah. We were told to lie.

Marketplace and ProPublica interviewed five ex-employees and a dozen students, plus the president of the University of Phoenix, among others.

It’s highly recommended listening, and of course, if you miss the on-air stories, they’ll be available here at Marketplace.org.

Buffett's new train set

nospam@example.org (Scott Jagow) — Tue, 03 Nov 2009 09:41:49 PST

Warren Buffett just turned 79, but to quote a great line from the Washington Post, he invests “like an 8-year-old boy in the 1950’s.” Coca-Cola, Dairy Queen, candy, chewing gum and now a choo-choo set. But seriously, what does his purchase of Burlington Northern Santa Fe tell us about the economy?

Buffett already owns 23% of BNSF, but in Berkshire Hathaway’s biggest deal ever, he’s buying the rest. Here’s what Buffett said on CNBC this morning:

Rails last year moved 40 percent, more than 40 percent, over the country. They moved more than all those trucks, just the four big railroads. It’s a very effective way of moving goods. I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It’s a bet on the country, basically.”

It might also be a bet that energy prices are going higher. From Bloomberg:

“As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.”

Finally, the BNSF deal might be a bet on China. From the Washington Post’s Economy Watch:

China craves the coal and other raw materials that the U.S. produces. Those commodities fuel the great economic engine that is China, which is the factory to the world. U.S. coal and goods are sent via rail to Pacific ports and then shipped to China. With his round-out purchase of Burlington Northern, Buffett thinks China will continue to be strong.

By the way, Buffett also announced a stock splitting plan. Berkshire’s class B shares would go from $3,000 a piece to only $65 a share!

Of course, class A shares are still priced at just under $100,000. Each.

You be a good boy, Johnny

nospam@example.org (Scott Jagow) — Tue, 03 Nov 2009 09:02:56 PST

The US isn’t the only government that continues to shovel money into banks. Today, Britain agreed to infuse two of its financial institutions with another $51 billion. The British government now owns 84% of RBS. Eighty-four percent.

From Bloomberg:

The Treasury will inject 25.5 billion pounds ($42 billion) of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising…

“There is now a very fine line between RBS being nationalized,” said Danny Gabay, director of Fathom Consulting in London and a former Bank of England economist.

Where is this line you speak of?

In exchange for de-facto nationalization, RBS has agreed not to pay cash bonuses to bankers making more than $63,000 this year. Lloyd’s, too. This year’s bonuses will be deferred until 2012. The Bank of England says banks also need to “radically simplify their structures and provide more information about what funds they would use in an emergency.” More:

“We don’t want to demonize people in banking,” City Minister Paul Myners said in an interview with BBC television today, adding that most people in banking are not highly paid. “But at the top of banking, we’re going to bear down on remuneration.”

“We will be extensively using deferral mechanisms and using shares as part of over bonus delivery this year and indeed not paying cash, as was the case last year,” RBS’s Hester said in a conference call with journalists today. However, the surest way for the taxpayer never to see value for its support is if RBS is unable to have good people.”

That argument never gets old…

This situation reminds me of a kid I knew in school. He was always getting in trouble, and his parents would always tell him he needed to clean up his act. Make sure we know where you are and what you’re doing (provide more information). Then, he’d get in trouble again, and they’d say the same thing. But they never punished him or stopped giving him money.

When he turned 16, Johnny got in trouble again. What did his parents do?

They bought him a car and told him to be careful.