August 14, 2022

Economix: Podcast: Sovereign Debt, Phone Hacking and Law Schools

There has been a flurry of headline-grabbing developments in the slow-moving financial and fiscal crises on both sides of the Atlantic.

In Europe, Italy’s cost of borrowing rose to the highest level in many months, as traders worried that Greece’s financial problems might not be contained. In the new Weekend Business podcast, Floyd Norris, chief financial correspondent for The Times, says that while the problems in Europe have roiled the markets, a major financial issue in the United States so far has not. That is the inability of Congress and the White House to agree on an increase in the debt ceiling of the United States. If such an agreement is not in place by Aug. 2, the Treasury secretary has warned that the government could default on its debt, with catastrophic consequences.

So far at least, Treasury yields remain extremely low and prices, which move in the opposite direction, are quite high, a sign that the markets are convinced that this crisis is a nonevent. We shall soon see whether this is true, Mr. Norris says. Other problems — the weakness of the United States economy, high unemployment, and a large and growing debt load — are also looming. For the moment, though, a benign summertime mood has prevailed, and domestic stock and bond markets have remained relatively calm.

In another portion of the podcast, I chat with Mr. Norris about the phone-hacking and bribery scandal that has shaken the Murdoch media empire. It has already led to the shuttering of one newspaper, numerous arrests, top-level executive changes and investigations in London and in New York.

The business of legal education in the United States is the focus of a cover article by David Segal in Sunday Business. In a podcast conversation with David Gillen, Mr. Segal says many law schools have sharply increased their fees, enrollment and capital spending, even as the job market for law school graduates has shrunk.

And in the Economic View column, the economist Richard Thaler revisits the annuity puzzle — the unpopularity of annuities despite their economic advantages. Traditional pensions are a form of annuities, but as working people shift to defined-benefit plans like 401(k)’s, they are faced with a bewildering set of options upon retirement. Yet few of them choose to buy annuities.

As he says in a podcast conversation, Social Security is a form of annuity — and he suggests that by delaying the receipt of benefit checks, people can greatly increase their monthly payouts. This may simplify financial planning. It’s advantageous, of course, only if you live long enough for your increased monthly benefits to offset the loss of the checks you are voluntarily giving up. Social Security could also be modified to allow recipients to “top off” their benefits by purchasing larger annuities, Mr. Thaler suggests.

I also discuss a contest between vice and virtue in mutual fund performance, the subject of my Strategies column in Sunday Business. The second-best performer among all general domestic mutual funds in the second quarter was the Vice fund, which focuses on tobacco, alcohol, gambling and military companies. The best performer, though, was the Virtus Small-Cap Sustainable Growth fund. Virtus is a Latin word for virtue. How virtuous is the Virtus fund? There are some answers in the podcast and in the column.

You can find specific segments of the podcast at these junctures: Floyd Norris on financial crises (38:52); news headlines (28:33); law schools (25:42); the Murdoch empire (18:39); Richard Thaler (11:38); mutual funds and the week ahead (3:57).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

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