New reports from Sallie Mae, the Federal Reserve, and banks involved in private loans estimate that students will have $1 trillion in student loan debt by 2015. This is a staggering number whose weight on the economy is better understood when it is compared to outstanding credit card debt. The hard (more…)
It turns out that making a contribution to your individual retirement account (IRA) is pretty hard. Only about 1 in 14 tax filers in North Carolina takes advantage of the opportunity to protect your income from taxes.
This number comes from data that I found through the IRS. Only 7.4 percent of filers made an IRA contribution in 2007. That number includes people who made any kind of contribution to either a ROTH, a SEP, or a traditional IRA. During 2006 and 2007, contributors were allowed to put $4,000 in a Roth if they were under 50, and $5,000 if they were older.
The IRA is one of the two main ways that middle-class households are able to protect their earnings from taxes. The other most common way is through the home mortgage deduction. For the well-off, there are all kinds of vehicles to protect earnings. For people that don’t make that much, there are very few incentives designed to stimulate savings. Individual Development Accounts (IDAs) sometimes provide matching funds to savers, but those are not able to reach a wide portion of the population.
Savings is an important problem facing our country. Until recently, we had a negative savings rate. In fact, during 2006 (for which those 2007 returns were filed), our national savings rate was -0.5 percent! We’re probably doing better now. It is hard to spend when your credit limit has been slashed. A cash economy is a constricted economy, even if the money supply is exploding. By comparison, Business Week has a few estimates on savings rates elsewhere:
In the short-run, our spending can act as its own stimulus. Unfortunately, the long-term repercussions are significant. The lack of available capital in our banking system servers to make sure that we will not reinvest in our businesses. For individuals, it means that many households will have a hard time retiring. The Employee Benefits Research Institute estimates that 63 percent of households that include a person of more than 55 years old have some kind of debt. The average debt among seniors is over $70,000.
The IRA number (share of filers making a contribution) is probably even lower now, as people are now tightening their belts and trying to get through this recession.
The mortgage crisis dominates headlines these days. It is the main focuses of these entries. That said, there is another problematic trend that is somewhat related to poor lending decisions.
I am talking about newspapers. For years, people have been expecting print to succumb to the advantages of electronic news delivery. The differences are dramatic. Newsrooms are probably guilty of not changing with the times. They are somewhat insulated, and their lack of new readers reflects that. Newspaper readership is getting older and older. The obituaries and stock quote listings remain popular for a reason. Circulation reflects the loss of relevance, or the loss of content. Oh, and craigslist didn’t help.
Content is a problem, too. Young people find fewer and fewer reasons to subscribe to a paper. A few years back, when I returned to graduate school, I remember realizing that I was the only person in our cohort who subscribed to a paper. Twenty years ago, a group of late 20 early 30-year olds with a college education and an interest in civic life would have had a different reaction. Most would probably have a paper, some, perhaps two subscriptions. So, the papers weren’t cultivating new readers. Simultaneously, job cuts meant that papers were getting thinner and thinner.
Less content means less readership means less revenue means less content….
Our local paper was sold in 2005. It had been a family operation. Now, it is owned by Paxton. Paxton immediately cut about 15 positions. There is less coverage, less news, less content. They do not have a business reporter on staff. This is always a nail in the coffin. People won’t pay for a product that keeps getting weaker.
Finance has a role in the downfall, nonetheless. A few years back, the newspapers suddenly seized on the idea that they could enhance profitability by achieving new scale, particularly in back office functions. The idea was that circulation could work out of one office, for readers in say, Dayton and Atlanta. Or for readers in Sacramento and Raleigh, I suppose. Except that this was way off the mark. It turned out that newspapers were fundamentally a local enterprise. Surprise! Local reporting, local readers, service from another state. What’s incongruent here? Imagine calling a phone bank in India to put a vacation hold on your paper. Well, that’s sort of what they envisioned.
With the vision of new profits, banks went on a buying spree. You will remember that Knight Ridder was purchased by McClatchy. Times Mirror was purchased by Tribune. Tribune later sold Newsday, acquired in that deal, for $650 million, to Cablevision. Thomson shed its newspapers, selling them to Cox. Lee Enterprises bought Howard. Lee bought Pulitzer. In a smaller deal, Ottaway (since 1970 a part of Dow Jones) sold four papers to Community Newspaper Holdings. The rest of Ottaway became part of News Corp , when in 2007, News Corp bought Dow Jones.
At the time, the public was less concerned about the impact this would have about the ongoing viability of the model. Some did complain about the lack of diversity of opinion. The people at the FCC appeared to have no problem with it. So, there is another similiarity – regulators put their faith in markets, in spite of citizen protest.
These turned out to be awful deals. Tribune, having paid $8 billion for Times Mirror, recently wrote down the value of its acquisition by approximately $3.8 billion. It has filed for bankruptcy protection. Cablevision wrote down about more than half ($402 million) of the value of Newsday. Lee is almost bankrupt as well. In 2008, it took write-downs of $1.4 billion on its recent spending spree, and another $180 million at the end of this year. The list goes on and on.
Where is all of this heading? Well, our civic life is going to suffer. Citizen blogging may have its place, but it is hard to imagine that it will be the same. Where will the revenue streams appear to support the number of reporters (skilled) that print once employed?
Like a lot of Americans, these papers have more debt than they can handle. Many newspapers never should have gotten the financing for these acquisitions. Lee is a classic example – they are still witnessing an operating profit, but debt service is killing them. KPMG may not be willing to certify them as an ongoing concern. We’d still have our papers.
There isn’t going to be a TARP for newspapers, though. They are going to pass on. Non-profits might emerge. Certainly, Poyntner has done a great job in St. Petersburg. We’ll see.
In the wake of Obaba’s Homeowner Affordability and Stability Plan, many people are wondering if throwing a lifeline to borrowers will have its intended impact.
The big banks appear to like the plan. So does Fannie Mae. The market was mixed. Bank stocks fell on the day, but overall, the Dow was about even. The Wall Street Journal’s Editorial Page is already coming out against the idea.
The doubt stems from research that shows that a high percentage of modified loans still end up delinquent, in default, and potentially in foreclosure. John Dugan, Comptroller of the OCC, recently published research that shows that more than half of all loans modified in 2008 ended up in default. The research only covered first lien loans. So, that is some pretty (more…)
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