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Five Things Podcast, the Transcript: Need... More... Bailouts!


It's just like the Five Things You Need to Know Podcast, only quieter.


Cory Bortnicker: Welcome to 5 Things You Need To Know: The Podcast. I'm Cory Bortnicker, and joining me is Minyanville Executive Editor, Kevin Depew.

Kevin Depew: Hi, Cory.

Cory Bortnicker: First things first. Let's talk about the bailout a little bit. There was an article in The Wall Street Journal earlier this week on the need for additional bail-out funds. What can you tell us about that?

Kevin Depew: Well, The Wall Street Journal article was interesting to me because it indicated that Treasury Secretary Henry Paulson will probably have to go back to Congress and ask for more money. Because, really, the number of firms going to the Treasury trying to access the TARP program -- which is the bailout fund, initially $700 billion -- is increasing. It's been beyond what they expected.

American Express (AXP) was the latest company to convert to an actual bank. And the reason they did that was because it gives them access to Federal Reserve funds and to the TARP program.

The Treasury right now has distributed about $350 billion, half of the TARP program so far. They distributed all but 60 billion of that, and so they have another $350 billion to go. But it's increasingly clear that there is just too much demand from everybody, from General Motors (GM) -- which, at one point, wanted to try to convert to some kind of bank holding company through their GMAC arm -- and you have another company, for example, just the other day, General Growth Properties (GGP), which is a real estate investment trust that operates shopping malls. They indicated that they, somehow, wanted to become a company that was eligible for the TARP program.

So all these companies are elbowing their way up to the trough, trying to get access to government funds. And Congress really has a choice. They can either approve more money, because almost certainly, once the new administration takes over there's going to be a Treasury Secretary going back to Congress asking for more money, or they're going to have to end the bailouts.

And the first step is probably going to be with GM very soon, because GM -- it's questionable whether they can survive until the end of the year. I think today there was some news breaking at the time we're doing this that perhaps Congress is going to give them $25 billion. That's not nearly enough money. That's just going to prolong the pain.

Cory Bortnicker: Okay. Let's move on to our second topic today and talk a little bit about a symptom of what's going on, and that is the slowdown in gambling in Atlantic City, which I think is particularly depressing, because if you've ever been to Atlantic City, it's already a kind of depressing place. So this is even more depressing news. What's going on here?

Kevin Depew: It's depression on top of depression.

Cory Bortnicker: Right.

Kevin Depew: The depressed people there are trying to rebuild their 401(k)s, presumably, or whatever they're doing, gambling their money away. There are fewer of those people because, you know, gambling is the front line of consumer discretionary spending.

Just the same way as companies such as Circuit City (CC) and Best Buy (BBY) have reported sharp slowdowns in consumer spending. Casinos are really at the front line. Casino revenue in Atlantic City dropped nearly 10 percent in October, and that was after September's record 15 percent decline. Table game revenue is going down. I think there were 9 out of the 11 casino properties in Atlantic City posting gambling revenue declines. In fact, the situation is so bad that the City Council there has voted to lift a smoking ban, which casino operators are, of course, blaming for some of the slowdown. But, having been to Atlantic City, I disagree. So we'll see.

Cory Bortnicker: Yeah, absolutely. You mentioned Circuit City. That kind of segues into our third topic today. There was another article in The Wall Street Journal this week that was talking about Circuit City in terms of unemployment and joblessness. In the article it said that retail is no longer going to be the fall-back job for people who have lost their jobs. What does this mean for us in the big picture?

Kevin Depew: Well, I have to raise my hand that at some point in my life I've been guilty of thinking, "you know what, if this job, whatever it is at the time, doesn't pan out, I can always get a job in retail." I worked retail while I was in college at -- I think the department store was called Lazurus, which was later operated by Federated (FD) at some point.

But, anyway, that's kind of the thinking that a lot of people have is that, worst case, I can always go back working a retail job or try to get a part-time retail job. The holiday season is a time where a lot of college students anticipate being able to work part time for retailers because they normally see a surge in demand.

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