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Five Things You Need to Know: Regulators to the Rescue; Unintended Credit Crunch; Fueling Consumption; Moral Imperative: Spend More Money; Yay for Pimps!


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Regulators to the Rescue

In prepared remarks via satellite to an International Monetary Conference in Cape Town, South Africa, Federal Reserve Chairman Ben Bernanke said the adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected.

  • There was nothing really new about housing in this speech other than an acknowledgement of what we already knew, that the "adjustment" is ongoing.
  • And actually, for a better, more detailed view of housing you can look back at Bernanke's May 17 speech before a conference on bank structure at the Chicago Fed.
  • No, this speech was not about economic policy at all.
  • It was about politics.
  • "[W]e at the Federal Reserve, other regulators, and the Congress are evaluating what actions may be needed to prevent a recurrence of these problems," Bernanke said.
  • "Regulators" were mentioned eight (8) separate times in Bernanke's speech.
  • Sweet.

2. Unintended Credit Crunch

Just last month Federal Reserve Chairman Ben Bernanke noted in his "Bernanke Put" speech that mortgage lenders had developed "new techniques for using [credit scoring] to determine underwriting standards, set interest rates, and manage their risks." Ah yes, the credit score. Hopefully, you have a good credit score. But if not, don't worry, you can just buy one.

  • Through sites like, you can now buy established lines of credit with years of good payment history, according to Fox News.
  • The "good" credit history runs for around $900 for the first credit card spot and you get a discount for additional.
  • Ok, so if you have a good credit score, why would you let someone with a poor credit score be an authorized user on your credit card?
  • Because you get money for it. Also, because the person with the poor score never receives the credit card to use.
  • Ninety percent of the largest U.S. banks base their loan decisions on FICO scores, which currently include authorized user accounts, according to the Associated Press.
  • Fair Isaac (FI) says the next version of its widely used FICO score will no longer consider authorized user accounts, the type of account for sale to help those with poor credit build their scores.
  • There is a larger, more important issue at work here, and one that the Fed and Chairman Bernanke fears the most; namely, an ongoing tightening of credit.
  • There are actually legitimate uses for authorized user accounts: college students on their parents' cards and spouses with little to no credit of their own.
  • Closing down authorized user accounts will ultimately impact the extension of credit and actually slow credit growth.

3. Fueling Consumption

Sixty percent of the world's population exist on less than $2 a day. We realize that sounds like bad news for continued global credit and consumption growth, but according to C.K. Prahalad, the author of a new book, "The Fortune at the Bottom of the Pyramid," the world's four bilion poor people are now regarded as a tremendous growth market for the world's largest corporations.

  • "We have to get away from thinking of the poor as a problem," Prahalad said in a recent presentation in Johannesburg.
  • Prahalad, a business consultant and professor at the University of Michigan, said the purchasing power of poor people seems small expressed in dollar terms, but that purchasing power is significant in emerging market economies.
  • The world's four billion poor are estimated to have $5 trillion of annual purchasing power parity, a measure that tries to translate local buying strength into another currency based on common goods, according to Reuters.
  • Prahalad said the move by big firms is a win-win situation, with companies boosting sales while low-income consumers get access to low-cost, quality goods and new technology.
  • "What I think we need to recognize is the multinational company or the large local company which is providing these services is creating consumption and livelihood simultaneously," said Prahalad.

4. Moral Imperative: Spend More Money


Just read your "Five Things You Need to Know" for [yesterday]. Of interest to me was item #4, "Spend Less Money." As you may know, this exact question was addressed by the Dutch philosopher
Bernard Mandeville. He argued that private vices (such as the consumption of luxury goods) were indeed necessary for the public good.

Have a good day.

Minyan David

MD -

Great point. Although Mandeville is these days most widely recalled as a satirist, all humor and satire by its very nature contains some kernel of truth. In the "Fable of the Bees," the Mandeville work most people are familiar with, and which as you noted was subtitled "private vices, public benefits," some of the examples he discusses with respect to the division of labor were cited Adam Smith in a far more seriously intended economics context.

Mandeville is also credited with anticipating the latter Keynesian concept of the "paradox of thrift." That is, if everyone saves more the expectation would be that the total amount of savings would rise, but according to Keynes total savings will actually remain the same, and only income would fall. Therefore it's not only useful, but actually necessary to denigrate savings and even utilize government intervention in order to promote spending in the economy over savings.

I wonder if "Citizen Anon" had Mandeville in mind when he/she noted "the economy will be affected in a negative, severe way if everyone [stops buying things they don't need], so just you and I should do it"? More likely, it just shows the degree to which Keynsian theory still grips monetary policies and practices today; or, as one might note in a Mandesville-esque manner, the degree to which fashion, packaging and marketing affect ideas as much as products. After all, were that not true, we would be discussing the grip Hayek holds on modern economics, not Keynes.

5. Yay for Pimps!

The Racine Wisconsin Public Library has come up with a "fresh" way to reach young people called the "Pimp My Cart" program. Seriously.

  • As a fresh way to reach young people, the local library has offered teens a chance to give a little flash to the carts that move books around, according to an Associated Press story.
  • Brittney Putzer, 13, who joined about a dozen teens and preteens during the weekend event, told the AP that working on the old carts at the Racine Public Library was better than "sitting at home doing nothing."
  • There were some complaints that the library used the word "pimp" for the program, said Anne Callaghan, the organizer and the children's services librarian.
  • "I don't think you should use an old dictionary to try to defend a modern meaning of a word," Callaghan said.
  • Callaghan is right.
  • We checked an old 2006 dictionary, the Random House Unabridged from last year, and sure enough, they were completely in the dark about this new definition of the word pimp.
    pimp –noun
    1. a person, esp. a man, who solicits customers for a prostitute or a brothel, usually in return for a share of the earnings; pander; procurer.
    2. a despicable person.
    3. Australia and New Zealand. an informer; stool pigeon.
    –verb (used without object)
    4. to act as a pimp.
    –verb (used with object)
    5. to act as a pimp for.
    6. to exploit.
  • Man, that's so old school!
  • See, up in Racine ho's (young children) better recognize the new, modern meaning of the word pimp (a cool thing or person) or they risk feeling the sting (being left out) of a bitch slap (being gently poked fun at) from a strong pimp hand (cute and funny wit).
  • Yeah, it's not like pimps (a man who solicits customers for a prostitute or a brothel, usually in return for a share of the earnings) even exist anymore, right?
  • Oops. Maybe they do.

    American Pimp, a 1999 documentary that examines the pimp subculture in the United States.
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