tv Nightly Business Report PBS November 22, 2010 6:30pm-7:00pm PST
>> they went into real estate. the entire country went crazy on commercial property development, and also residential construction. >> susie: sounds like the u.s. housing crisis, but no. that's what's landed ireland in hot water. >> tom: we look at who could be next as the celtic nation signs on for billions in aid from the european union. you're watching "nightly business report" for monday, november 22. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
trading today. tom, the f.b.i. raided three hedge fund firms as part of a larger investigation of trading practices on wall street. >> tom: susie, these are high- profile firms managing billions of dollars of investor portfolios. now two firms in connecticut were searched: diamondback capital management and level global investors. the other, loch capital management, is based in boston. the raids come on the heels of a weekend report in the "wall street journal" detailing an insider trading probe that could be bigger in size and scope of the recent galleon group case. according to that report, many hedge funds, consultants, investment bankers and mutual fund traders are being investigated. former s.e.c. enforcement director jacob frenkel says the case comes down to one question. >> are people trading with information of corporations that they are not entitled to have? that's insider trading. the other piece of this
investigation is, are there experts out there who have such a high-level, superior knowledge that they are actually able to help sophisticated investors make more intelligent investment decisions? if that's all it is, then it's not insider trading. >> susie: also weighing on investors today? worries about the european economy. ireland asked for, and got, emergency financial aid from the european union over the weekend. details are still being worked out, but the country's rescue package is estimated at more than $110 billion. this comes just six months after greece got a $137 billion bailout from the e.u. and the international monetary fund. so who's next, and what does this mean for the u.s.? a short while ago i talked with international economist simon johnson, and began by asking him, "will this bailout fix ireland's economic problems?"
>> no, i'm afraid i think this bailout will buy them some time and it will stabilize the european situation a little bit. but it is to the going it to deal with that basic problem which is they have a huge amount of debt and it going to be very hard to grow their way out of this problem. >> susie: now simon what happened in ireland just a few years ago. the economy was booming. american companies were investing there. what went wrong? >> they went into real estate. the entire country went crazy on commercial property development and also residential construction. it's like the kind of thing we saw in this country in nevada, arizona or florida. but that's the entire country in ireland. and as a result the banks became very big. they lent a lot of money. now they have very big bad debt. big debts relative to the size of the economy. the government steps in to save the banks and by doing so created a big problem for government finances. and that's what we're dealing with twod. >> susie: the question everybody wants to know now is who is next. there is talk that portugal and spain are in bad
financial shape. will they need bailouts too? >> well, portugal is going to come under considerable pressure. i think there will be a package for them. spain is more debatable and that's a very hot topic in financial markets today. i think there may also be pressures on the u.k. there could be pressures on the swiss. they have a big banking system relative to the size of their economy and i would not rule out pressures in other parts of the youreau zone also. >> susie: what does this mean for the euro zone, what does it mean for the euro. is this just a bump in the road or more serious long term? >> well, it is a serious problem. i don't think, however, the euro zone will break up. a country like ireland has no incentive to leave the youreau zone, that would make their problems worse with. and a country like germany also doesn't want the weaker countries to be forced out because then the new currency, the deutsche mark or whatever it would be called would appreciate in value a great deal. and that would hurt the german export sectors. so the german, the stronger countries and the irish, greeks, portuguese, weaker
countries want to stay in the euro but i think the european economy will be slow. a lot of austerity. this part of the country will not boom. >> susie: we heard about greece this summer, now ireland and people are wonder wag does all of this mean for the united states and for our economy. is there a spillover? >> well w the direct effect is fairly small it doesn't have a major effect on our trade. it's a little effect and it is a negative effect. and the direct effect on our financial institutions is also at the moment fairly small. however if there is a reassessment of the risks involved in lending to weaker government, particularly weaker governments that don't control their own monetary policy, so that is ireland in the euro zone, it's california or new york in the united states. if the financial markets take a fresh look at the moneyi bond market in the united states-- muni bond market in the u.s., including weak munici 358-- municipalities then we will be caught up in a contagion of expectation, if you like. >> so you are saying the
united states has already gone through one banking crisisment are you saying this grow into chapter 2 of another one? >> no, i don't think we will have a banking crisis out of this. i think we will have a slowdown in our growth. i think we'll have problems for our recovery. and i think our unemployment rate will remain higher and for longer. but i don't think we'll have a second banking crisis. >> susie: all right, all ve serious issues. simon, thank you so much for coming on our program font. -- tonight. >> tom: here are the stories in tonight's n.b.r. newswheel: on wall street, the dow fell 25 points while the nasdaq managed to turn early losses into a 13- point gain. the s&p 500 was off over a point. trading volume starts the week with under a billion shares moving on the big board and 1.8 billion on the nasdaq. the oil industry and uncle sam were totally unprepared. that's the upshot tonight of the latest report from the white house commission investigating b.p.'s gulf oil disaster.
the panel says the industry still is not ready for another oil disaster despite what it learned from the b.p. blow-out. and walmart is upping the ante on black friday. the world's largest retailer will match the price of competitor's ads the day after thanksgiving, but the offer does not apply to online purchases. still ahead, tonight's "beyond the scoreboard" takes us around the track for a look at what indy car racing means for one clothing company. >> susie: call it the "new labor market reality," or perhaps "extreme unemployment." whatever the name, the numbers are staggering. the nation's unemployment rate has remained above 9.5% for 16 months now, the longest stretch since the government started tracking it in 1948. as suzanne pratt reports, it could be years before americans see full employment. >> reporter: it was f.d.r. who
put the concept of full employment on the table in 1944. that's when he said having a job was a basic human right. full employment is often defined as a condition in which everyone who wants work can get it. a veritable labor market nirvana. but full employment does not mean the unemployment rate is zero. that's because there will always be some level of joblessness as people move from one position to another. so, economists say full employment means an unemployment rate probably closer to 4%, 5% or even 6%. whatever it is, right now the u.s. is a long way from it. and some experts question whether we'll see it again. economist joe davis says we will-- eventually. >> there are more americans unemployed as of this morning than there are employed in the entire state of california. so, it's the entire state of california effectively looking for work. so, by that metric it will just take some time before you get
back to more reasonable pre- recessionary job levels. >> reporter: but, business cycle expert lakshman achuthan says the problem is more complicated than replacing the eight million jobs lost in the recession. he says the economy is suffering from structural unemployment, meaning some workers may never get their old jobs back. >> what you have there is big mismatch of the skills that they have to offer. maybe in construction, or in finance or other areas, that might have been related to the bubble industry. the bubble in housing. >> reporter: evidence of that mismatch can be seen in current job market data. of the unemployed, 46% have been without a job for six months or longer. and even worse, 31% have been jobless for a year more. natacha braxton is one of the faces of long-term unemployment. she has been out of work for more than two years, and looks every day for a job in financial services.
>> i get a call back every two weeks or so, you know, and then a second interview. but, then i get a response like they hired someone from within, or whatever the situation is. it's just been really ridiculous, crazy, unbelievable. >> reporter: braxton has been using the jersey city-based employment agency express to help her find a job. the agency's owner, deidra viney, says extreme unemployment is new for her firm, too. >> from our standpoint, it's tough sometimes to place them because now you've got a huge gap in your employment. when i'm sending out their resumes to my clients, they say "so what has she been doing for two years? know what i mean? are her skills fresh?" >> reporter: achuthan believes it will take an extended period of robust economic growth before we'll see significant hiring of the long-term unemployed. that's because firms only invest in retraining when there's no one left to employ. >> we need a long expansion to reduce that. but, we're not going to get
that-- unlikely to get a long expansion. we should prepare for unemployment to be cycling up and down at relatively high levels. much higher than any of us are used to. >> reporter: others, like n.y.u. professor paul wachtel, are more optimistic, saying current high unemployment is not permanent. >> i think over the course of two or three years, the unemployment rate will meander down if not to below 5%, to the 5%, 6% range, which probably-- is in some sense palatable and reasonable. >> reporter: both davis and wachtel also spoke about the resiliency of the u.s. private sector. they say americans have a track record of reinventing ourselves and creating new industries. >> historically it's periods such as these that are actually the most fertile ground for future job growth and future productivity gains. >> the experience of this recession doesn't tell me that underlying characteristic of the american economy and american population has changed.
so, i think things will sort themselves out. >> reporter: while things are getting sorted out, millions of americans remain unemployed. tomorrow we'll take a look at the long-term effects of a high unemployment rate. suzanne pratt, "nightly business report," new york. >> susie: how has unemployment hit your family? we'd like to hear your stories. join the conversation on our blog. you can find it on "nbr" on pbs.org.
>> tom: news of the insider trading investigation and the irish bailout really made for a mixed day for stocks. let's take a look at tonight's "market focus." we'll look for some green on the screen first. the tech sector was one place able to attract more buyers than sellers. and after the close, the biggest computer maker in the world, hewlett-packard, released its latest quarterly results. earnings beat the street for h.p. by six cents per share. its biggest unit was its services business, followed by its printers. the firm's outlook also came in better than estimates. for the next quarter. shares of h-p-q came into this report on an upswing, rallying almost 2% today. shares have yet to recover a price last seen before mark hurd was fired as c.e.o. in august.
the stock added another 3% after the close tonight. a dow component, clearly one to watch tomorrow. the tech leader today was novell, a networking software maker. a long takeover effort may be coming to an end. novell stock popped in march on a take-over bid valued at $5.75 per share. today, novell agreed to be bought for $6.10 per share by a trio of private equity investors. flash memory maker sandisk is at a three-month high, rallying on stronger-than-usual volume. investment firm robert baird upgraded shares to out-perform based on better pricing for memory. in 2011. financial stocks were the weakest sector, led by a regional bank, a banking giant and a mutual fund manager. milwaukee-based m&i dropped to another 52-week low. the 3% drop in goldman sachs meantime takes it to a one-month low. as part of the wide-ranging insider trading investigations, the "wall street journal" reports federal prosecutors are looking if goldman leaked deal
information to certain investors. goldman didn't comment. mutual fund firm janus capital fell 3%. some other merger talk, including coal miner massey energy. shares are about $4 below where they were trading before a deadly mine explosion in april that killed 29. the company's board has been reviewing strategic plans and there's growing anticipation it may include a sale. shares of m-e-e added 3% today. health insurer humana jumped 4% following its $790 million buyout of a privately held medical services firm. the buyout is the first for humana in that business. best buy is pretty confident its stores will be busy on black friday, and beyond. the firm expects holiday sales will be better than last year. shares of b-b-y jumped 3% on that optimism. if the stock hits $45, it would be its highest price since may. and just in time for the holidays, netflix is increasing prices. fees are going up for its online service and mail service.
also, netflix introduced its first internet-only movie plan. shares rocketed 9% to a new all- time high. $188 and change. and that's tonight's "market focus." >> tom: if i say "izod" and you think "race car," and not "1980s preppy clothing," then izod's millions spent sponsoring open- wheel car races like the indianapolis 500 has done its job-- possibly for shareholders too. tonight's "beyond the scoreboard," our look at the business of sports, begins on
the racetrack. rick horrow is a sports business analyst and c.e.o. of horrow sports ventures. always good to see you, welcome back. >> good evening. >> tom: the izod indy car series. they have had this title for about a year. what is a polo shirt company doing with open wheel racing. >> market people tell you you have to think outside the box. this is thinking outside the shirt. and they decided to create a process to generate considerable awareness and activation and return on investment. you'll see those numbers and it has been a very, very significant benefit for them. >> tom: let's find out how significant this comes from i zod's parent company -- izod's parent company. van hughesen. digital impressions up. there is that roi, return on investment, bottom line up 350%. clearly something is working for izod. >> those numbers are pretty significant but it is important for the industry. we finished the nascar championship and open wheel racing a distant second. they've defined a match that
was big to bring them to the next level. izod and the indy car league is a good match. >> tom: phillip van heusen parent company of izod is benefitting from that and other trends, stock price up. different racing, horse races used to be the sport of kings but had a tough time. what happy is-- shape is this industry in. >> which got a great movie with secretariat, the kentucky derby and triple crown, five weeks of the year. what about the other 47. new swrersee looks at the right way. the meadowlands, big tracks there. they said let's consolidate, maybe shut them down, privatize. they are losing $17 million a year in the answer is maybe these raceinos. >> tom: combination race track, casino, church hill downs the best known household name with horse racing. ticker chdn. up 10% in the past if months. half refts news from horse racing but growing percentage, 25% from gaming. is this a business model
that has long-lasting, long last work. >> if the horse racing industry is floundering to mix an animal metaphor the bottom line of it all is there is space here and 4500 slot machine as proved for aqueduct, that is a money licence to steal. in essence, $60 million to subsidize the industry and that is important. >> tom: let's talk about minor league baseball. a lot of name changes, moving away from the big league affiliations at least in terms of name, your hometown jupiter hammerheads mine quad city river bachb datas. attendance after growing over the past previous four years fell off back in 2009. has continued to fall on hard times. what shape is minor league baseball in. >> mixed. a little hard times may be overstating, 1.6% reduction in attendance but let's remember the obvious which is about 42 million people come every year. it's fun, family, affordable entertainment. >> what about losing that major league name affiliation. does that hurt business. >> a lot of the teams are
worth other 20 million they have to scrimp for every penny and sometimes yankees and royals want to hang on. different results. the team that lead minor league baseball in attendance lehi valley, what is the nick name. >> i don't know. >> you don't know, quite clearly, the iron pigs. >> tom: we'll leave it there with rick har roe, c.e.o. of har roe sports ventures. >> susie: here's what we're watching for tomorrow: revisions to third-quarter g.d.p. analysts are looking for a slight boost to the original 2% projection. we'll also see the minutes from the federal reserve's policy meeting earlier this month. and as we race toward black friday, tomorrow's "word on the street" ranks sporting goods retailers like foot locker and finish line. another problem tonight for the housing industry: shadow inventory. those are homes owned by banks, but not yet on the market. that inventory is now up 10% from a year ago. property information provider
core logic says, as of august, there were just over two million shadow units. that's eight months of would-be sales. add it to the number of listed homes, and 23 months of inventory are in the pipeline. now a healthy housing market has only six. core logic chief economist mark fleming says it'll take years for those shadow properties to work through the system. >> the impact on the housing market will be felt like a lead weight over the next couple of years, and the size of the lead weight will definitely be a function of how quickly houses or borrowers can be moved from delinquent into foreclosure and into r.e.o. status. >> susie: core logic says the shadow inventory is highest in places like miami, long island, new york, chicago and atlanta.
>> susie: as a nation, we're swimming in a sea of red ink. to fix it, the president's deficit commission is recommending steep budget cuts and surprisingly, some incentives to encourage saving and investing. tonight's commentator thinks the commission is on to something. he's glenn hubbard, dean at columbia university's graduate school of business and former chairman of the council of economic advisers under president george w. bush. >> given the furor from all sides, one would be tempted to think that the recent deficit reduction proposal from erskine bowles and alan simpson offers a good marker for debate. it does. we are in a difficult situation in large part because we have
designed entitlements for a welfare state we cannot afford. and we have used the tax code as a vehicle for special-purpose spending that weakens both the efficiency and fairness of our tax system. the nation's economic and fiscal challenges require a refocusing of economic activity-- less reliance on current consumption and more on investment and exports. accomplishing that shift requires a tax code that enhances incentives for saving and for investment in productive capital. with only a few flaws, the plan does that. the proposal takes a bold step: significantly reduce marginal tax rates for households. this cut in rates-- with salutary effects for work, saving, and investment-- are made possible by limiting deductions and taxing currently excluded employer-provided health care subsidies. the proposal would cut the high u.s. corporate income tax, a tax that holds back both investment and wages. the plan lays bare the claim that cuts in marginal tax rates
must be tax cuts for the rich. limits on deductions and cutbacks in entitlement benefit generosity for upper-income households render the plan progressive and pro-growth. two cheers for this marker. president obama? i'm glenn hubbard. >> tom: that's "nightly business report" for monday, november 22. i'm tom hudson. good night everyone, and good night to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.