Posts Tagged ‘Economy’

New York real estate developer and reality-TV star Donald Trump is hoping to persuade a court that the current recession should let him defer repayment of $334 million for a construction loan that was due November 7.

Before the sub-prime mortgage meltdown, Trump broke ground on the 92-story Trump International Hotel and Tower in Chicago. The tower, which will contain 339 hotel rooms and 485 condominiums, will be the country’s second-tallest building, after Chicago’s Sears Tower, when it’s completed next year. To finance the project, Trump secured a $640 million construction loan in 2005 from a group of lenders headed by Deutsche Bank AG. In his lawsuit filed against Deutsche Bank, Trump seeks to extend the loan indefinitely because the economic crisis is a “once-in-a-lifetime credit tsunami.”

Trump is relying on a “force majeure” clause in the loan agreement that would allow him, as the borrower, to delay completion of the skyscraper if riots, floods, strikes or “any other event or circumstance not within the reasonable control of the borrower” create obstacles. According to a New York Times story, Trump said the current economic downturn is not within his control as a borrower and that he should thus be able to defer payment of the loan until some time after the financial crisis ends.

Deutsche Bank claims Trump owes it $40 million that he personally guaranteed and is seeking to have Trump’s lawsuit dismissed.

If there’s one bottom line the sub-prime mortgage crisis has hopefully taught us, it’s that both lenders and borrowers alike must accept responsibility for their actions.

Do you think Trump’s “financial crisis” argument holds water? If so, what’s the difference between his circumstances and those of millions of squeezed homeowners who can no longer afford to pay their mortgage loans?

Last month, the number crunchers at Merrill Lynch released their risk analysis of more than 60 national economies to identify the least vulnerable global economies ⎯ and the most vulnerable.

Guess what? We made the list. Just not the one you might have hoped for.

“Over-leveraged financial systems, too much external debt and rotten balance of payments positions have put many of the world’s developed economies at greater risk than the emerging ones,” a Smart Money writer explained.

Most at Risk
Australia
Switzerland
Korea
Romania
Hungary
Sweden
Bulgaria
Euro Area
UK
US

And here, in the eyes of Merrill Lynch economists, are the world’s safest economies:

Least at Risk
Nigeria
Mexico
Philippines
Colombia
Egypt
Oman
Indonesia
Peru
China
Russia

A mushrooming federal deficit and continued bank bailouts can’t help. President-elect Barack Obama has already made it clear that restoring economic vitality has to come before any focus on reining in the federal deficit.

But the ballooning deficit could have other repercussions. According to a Bloomberg report, investors abroad may demand more compensation for providing loans to the U.S. government. And while the bailouts show that the U.S. government isn’t going to sit idly by, they also magnify the fragile nature of our financial system.

Says Nobel Prize-winning economist Joseph Stiglitz, “Over the past decade, the nation has been borrowing massively abroad ⎯ some $739 billion in 2007 alone. And it is easy to see why: With the government running up huge debts, and with Americans’ household savings close to zero, there was nowhere else to turn. America has been living on borrowed money and borrowed time, and the day of reckoning had to come.… We’ve had to go begging to the sovereign wealth funds ⎯ the excess wealth that other governments have accumulated and can invest outside their borders. We recoil at the idea of our government running a bank. But we seem to accept the notion of foreign governments owning a major share in some of our iconic American banks, institutions that are critical to our economy.”

Clearly, Stiglitz is not one to mince words. But while we’re all uber-focused on getting our financial households in order, it’s become obvious that those running our country need to do the same.

How can we sort out this mess?

Being a personal finance writer means reading and writing about the state of the economy on a daily basis, at a time when there’s not a whole lot of good news out there. Inflation fears one month, deflation the next. Falling prices following closely on the heels of rising prices. Rescue plans in assorted flavors. Jaw-dropping budget deficits. Job losses, foreclosures and debt. And the many incredibly resourceful ways Americans are cutting back or doing without.

Most days you can count on me to be outraged over well-compensated bank and insurance executives getting taxpayer-funded handouts, scared about what lies ahead and certainly depressed about my withering 401(k) balance.

There’s always a survey to tell us how we’re thinking, and now there’s a new one by the Pew Research Center that tells me that what I’m feeling is remarkably in sync with the rest of the country. According to the results of a November survey released yesterday, pollsters have ranked the emotions Americans most frequently feel in the pit of their stomachs when they read the latest economic news:

Angry (49%)
Scared (43%)
Confused (37%)
Depressed (35%)

And, inexplicably, 30% are feeling “optimistic.” Huh?

Perhaps not surprisingly, people age 65 and older are more likely than any other age group to feel angry when watching the evening news report. I guess they’re thinking that the secure and worry-free retirement they worked so hard for is slipping from their grasp, and, being past normal working age, there’s not much they can do about it now.

What’s going on in your mind when you tune in to your local news report?

Yesterday, I hit you with the bad news ⎯ much higher oil and natural gas prices on the immediate horizon and for the foreseeable future, as anticipated by the International Energy Agency (IEA).

Today, I’ll balance that wallop of dreariness with a dose of optimism. Former U.S. Vice President and Nobel Peace Prize co-recipient Al Gore, in a Sunday New York Times op-ed piece, outlined his five-step plan to repower America.

According to Gore, “[T]he bold steps that are needed to solve the climate crisis are exactly the same steps that ought to be taken in order to solve the economic crisis and the energy security crisis.”

Gore advocates making a significant strategic investment that creates jobs by replacing 19th-century energy technologies that are dependent on finite, polluting, carbon-based fuels with 21st-century technologies that use forever-free fuels like the sun, wind and the natural heat of the earth. In a nutshell, here’s what he suggests to respond simultaneously to the energy and global climate crises:

1. Make massive investments in incentives to build geothermal plants, solar thermal plants in southwestern deserts, and wind farms in the Texas-to-Dakotas corridor, all of which could produce significant amounts of electricity.

2. Construct a unified, national smart grid to transport renewable electricity from the rural areas where it’s generated to the urban areas where it’s mostly used.

3. Help the nation’s automobile industry (all of it, not just the Big 3 automakers) convert quickly to plug-in hybrids that can run on renewable electricity.

4. Retrofit buildings with better insulation and energy-efficient windows and lighting.

5. Establish a price for carbon in the United States, and replace the Kyoto treaty next year with a better treaty that caps global carbon dioxide emissions.

Even if you’re more worried about your finances than the planet, it’s hard to argue with this country’s need to wean itself off oil and other finite natural resources. In the long term, high energy prices will continue to hamstring family finances, as gas for our vehicles and oil and natural gas to heat our homes consume a disproportionate share of household income, leaving less for housing, food and other necessities.

Energy sustains our economy, and the impact of high energy prices will continue to reverberate, not only in our personal households, but in our local communities, states and national government, too.

Is Al Gore’s five-step plan doable, in your opinion?