Horizon, Host: Ted Simons

March 24, 2008


Host: Ted Simons

Economy

  |   Video
  • Developer Elliot Pollack discusses the state of the local economy.
Guests:
  • Elliot Pollack - Elliot D. Pollack and Company
Category: Business/Economy

View Transcript
Ted Simons:
Good evening and welcome to Horizon. I'm Ted Simons. Gas prices are rising. Food prices are rising. And home values are falling. Just as inflation concerns and recession fears linger, all prompting the FED to take drastic measures. Joining us now to put all of this into perspective, from Elliot D. Pollack and Company, Elliot Pollack. Good to see you Elliot.

Elliot Pollack:
Good to be here. Thanks.

Ted Simons:
The credit crisis: getting a lot of headlines; getting a lot of concerns. How serious is this?

Elliot Pollack:
Very serious. It's probably the most serious credit situation we've had since the 30s, quite frankly. It has obviously spread from the housing and the junk bond sectors to the business sector, and it's probably going to move into the consumer sector. So not only can you not get a mortgage or it's more difficult to get a mortgage, but businesses will have a tougher time getting loans and so will consumers. That's all happening at a time when consumers are being squeezed, as you put it, because prices are going up and because we're now losing jobs nationally. So incomes won't be going up as much so it's going to be a very difficult period.

Ted Simons:
Those who aren't getting loans right now are having problems getting loans. Are these people who should have problems getting loans?

Elliot Pollack:
For the most part, yes. But what has happened is we've gone from one extreme to another. Three years ago if you breathed you could get a loan. They were called "ninja loan," no assets, no job, no income. Now you've gone the other direction, where even people who are qualified are having trouble and have to prove a lot more of their income than they used to historically. But we've probably cut out 25\% of the market that never should have had loans to begin with.

Ted Simons:
Did the economy in general, the credit crisis in particular, hit bottom with Bear Stearns?

Elliot Pollack:
No. Bear Stearns is the tip of the iceberg. And the FED did the right thing by bailing it out. Bear Stearns is delivered 30-to-1. If you mark their assets to market they're technically out of business. Morgan Stanley is 26-to-1 and Goldman Sachs is probably 27-to-1. All very highly leveraged. A typical bank is maybe 10 or 12-to-1 in terms of their assets to their equity. So it only takes a small change in the value of their assets which are these mortgage-backed securities, to really cause a lot of trouble.

Ted Simons:
You mentioned the FED did the right thing in rescuing or bailing out whatever term you want to use regarding Bear Stearns. Did the right thing -- Is it really the only thing the FED could have done.

Elliot Pollack:
Well, the FED has done stupid things in the past. For example, the good news is Bernanke is a student of history. He realizes one of the major mistakes in American history was when the FED tightened the money supply between 1929 and 1933. The money supply actually declined by a third between 1929 and 1933. He does not want that mistake repeated. He doesn't want runs on banks; he doesn't want things to snowball. So he's doing everything he can to provide liquidity to banks so they will stay afloat and will provide loans to the consumers and business sector of this economy. He didn't want to chance that a Bear Stearns caused a snowballing effect on the other major mortgage bankers in the country thereby cutting off credit to a lot of companies that needed to survive.

Ted Simons:
Interconnectedness obviously a factor here. But there are some who are saying some of these banks, some of these investment firms -- maybe they shouldn't be kept afloat and the FED did the wrong thing in rewarding risky behavior.

Elliot Pollack:
They have an argument. In just like those people who argue that homeowners who basically bought when they shouldn't have shouldn't be bailed out. But long and the short of it is, it's a question of which is the least of the evils? And the least of the evils is still keeping the economy afloat even if it means that some people don't get hurt as much as they should. But I will tell you, Bear Stearns stockholders clearly got hurt. Because all they had to lose was another $2. Because that's what it sold for. But the rest of the economy could have suffered had the Bear Stearns collapsed and it caused -- it brought into question the viability of other mortgage bankers.

Ted Simons:
Should some of these larger banks and larger investment firms, security firms, the real big ones, the ones that are looking like they're having some problems right now, should they be split up?

Elliot Pollack:
I don't think that's the problem. I think the problem is the government regulations themselves. Historically especially after the depression we learned enough so that if there was a bad period of time and banks had assets that they planned on holding for maturity, nobody made them mark them way down in price. Now you have mark to market accounting which is forcing them to write down things that they shouldn't have to write down. How do you know what these mortgage-backed securities are worth? If you sell them one at a time or if you sell them all at once you'll get different prices. How do you know what a house is worth? You know that right now you can't sell it. Should they be made to write it down to a very low level? I mean, there are so many questions. And if they're made to write it down it will wipe out their capital and they'll be out of business, much like the S&L's were. It's the type of thing where the trick is to do this in moderation, keep the economy afloat until the market clears. The market for all these assets will clear. It's going to take three or four years but it will clear. Anything the government does in the interim will just make the problem worse.

Ted Simons:
Real quickly though: Is that not an argument for fixing the car only after it runs off the road?

Elliot Pollack:
Well, no. The question is it's running off the road now, and do you steer it into a tree to stop it or do you let it coast to a halt?

Ted Simons:
Interesting. Inflation another concern. I know the FED continues to cut rates. Conventional thinking is the more you cut rates the more you heat up the economy, the more prices go up. Is that conventional thinking out the window right now?

Elliot Pollack:
Yes. I don't think there's a risk in the world of the economy overheating. In fact, the risks are on the other side right now. Inflation is a problem. I think it will moderate as demand moderates. A lot of it's oil, a lot it's food which is the biofuels -- the consumer price index is a series of goodies including a lot of high tech goods, TV's, autos, stereo systems -- things that have been declining in value. Unfortunately for the average consumer its food and fuel and utility bills and things he needs to pay every day that have been going up. So the real rate of inflation is higher for the average guy than the consumer price index rate.

Ted Simons:
Interesting. Recession. Are we in one?

Elliot Pollack:
If we're not, we will be shortly.

Ted Simons:
If we're in one shortly, is there a threat of double dip recession, where there's a quick recovery and all of a sudden we're back down again?

Elliot Pollack:
There will either be a double dip or this will be prolonged. We will not get out of this quickly and the recovery will not be a �V' it will be a �U'. The biggest problem beside the credit crunch is that the average consumer has very little in the way of traditional savings, has a lot of debt. During the �90s he offset it with stock market profits. During the start of this decade he used his house as a credit card to offset it. Now there's no other asset class to do that. So the only thing he can do is pay off debt and increase his savings and that means spend less. And that's what will keep us basically bouncing along the bottom for awhile.

Ted Simons:
Interesting as well. Now, for folks with a �For Sale' sign in their front yard and they can't get anyone to even look at the doggone place, what are you telling them?

Elliot Pollack:
I'm telling them two things. One, it's a difficult time. If you can, hold on and in five years this will be a bad memory. But it's going to take awhile. Two, if you must sell your house get ahead of the market. If the market is at one level you better be under it by 10 or $20,000 because otherwise you're not going to get any takers.

Ted Simons:
Wow. All right. Elliott, thank you so much for joining us. We appreciate it.

Elliot Pollack:
Thank you.

One on One

  |   Video
  • state House Republican Spokesman Barrett Marson and State Democratic Party Communications Director Emily Bittner debate the issues in our weekly segment in which two political pundits go head-to-head on state politics.
Guests:
  • Barrett Marson - Spokesman, State House Republicans
  • Emily Bitner - Communications Director, Arizona Democratic Party


View Transcript
Ted Simons:
Now for our regular Monday feature focusing on issues of concern to those watching the state legislature and upcoming elections two political types go one-on-one. Tonight Barrett Marson, the State House Republican spokesman goes head-to-head with Emily Bitner, the Arizona Democratic Party's Communications Director.

Barrett Marson:
Good evening, Emily. It's great to have you here today. You know, three weeks has gone by since the show last aired. And a lot of things have been done at the legislature to address the state's budget crisis. The biggest problem we're facing right now. Legislature sent two bills to the governor of which she promptly vetoed both of them. That would have substantially assisted Arizona in dealing with the budget crisis. Both the hiring freeze and the excess spending freeze. Both those bills were necessary. And for some odd reason the governor vetoed them.

Emily Bitner:
Well, Barrett, there doesn't seem anything odd about her veto to me. I mean, the governor has presented a plan for managing the budget shortfall as early as September of last year. She gave the legislature a budget in January. Wait, wait Barrett. Then the legislature sat for seven weeks debating about guns in schools, maybe guns in bars, gay marriage. Didn't do anything about the budget. And then sent the governor a bill on a hiring freeze that would have gone into effect after the budget went into effect.

Barrett Marson:
That's only because Democrats in the senate did not support -- only one Democrat in the Senate had the gall to go against the governor. The problem is her "hiring freeze" in September wasn't. And when you still had the state hiring for gardeners, for communications people at the lottery, and a whole host of jobs, her alleged "hiring freeze" wasn't a hiring freeze at all. The legislature said --

Emily Bitner:
I think the governor certainly has taken a look at that hiring freeze and continued to move that hiring freeze forward in a way --

Barrett Marson:
Continued? It was only after the house passed the hiring freeze with bipartisan support that she ramped up her hiring freeze to make it a little bit more real. But it was only that action.

Emily Bitner:
Well, I think the governor has done a tremendous job managing the budget shortfall as we learn new information about what the revenue numbers actually are.

Barrett Marson:
Emily, I would love for you to tell me one area that the governor has reduced spending. She has refused time and again to publicly state where the money -- where she has not spent money. In fact, as Dean Martin said, the money is going out just as fast as it was from day one.

Emily Bitner:
I think Dean Martin was accurately characterized as a little bit Chicken Little about the situation. The governor has managed our budget for the last six years and has done so tremendously successfully. In fact, she inherited budget deficits when she first became governor in 2002. And so the governor has I think done a very tremendous job of making sure that those cuts are in place.

Barrett Marson:
But what cuts are the? You don't know. I don't know. The speaker doesn't know. My boss the Speaker of the House does not know because the governor has not been willing to share where it is that she has cut state government. We don't know any of that.

Emily Bitner:
Barrett, I think that the governor has spoken eloquently and as length about the ways she's worked to make the government far more efficient. For instance, her efficiency review panel has saved us all $1 billion.

Barrett Marson:
Don't even start with me on the efficiency review panel. The only thing she can point to is fish and game people staying in tents instead of getting hotel rooms.

Emily Bitner:
Somehow that doesn't add up to $1 billion to me, Barrett. And it's $1 billion.

Barrett Marson:
Here's the problem. The governor has proposed a pay day loan system for Arizona. So we will have a pay day loan here for hundreds of millions of dollars over the next -- until 2014 we'll be paying $500 million a year just in interest payments.

Emily Bitner:
You know, Barrett, it's so interesting to me that you bring that up. I think it's really fascinating. One of the things I wanted to talk to you about was to give the Speaker some credit. One of the sticking points on the budget lately has been school bonding. I think that's what you're talking about when you're talking about interest rates. I think school bonding is an issue that all of us are paying close attention to. It's sort of a wonky issue where you pay for a building over the life of that building. It's a capital financing issue. It's what we do with Rhodes, it's what we do with every other government building; almost every other state in the country does it. Now, where I wanted to give the Speaker some credit is that his experience with interest rates is largely as a predatory lender charging his customers 500\%. So I can see why it would have been difficult for him to grasp the concept -- hang on. Let me finish. [overlapping speakers]

Barrett Marson:
Clearly that is not true.

Emily Bitner:
Let me finish. I can see how it would be difficult for him to grasp the state bonding to build schools at 5\%. So I have to give him some credit for coming around on the math.

Barrett Marson:
Clearly, Emily, that is not even close to the truth. But I will let the -- won't let the truth get in the way of your funny joke. But that's not the truth.

Emily Bitner:
Feel free to ask the families who he put into bankruptcy after they had medical bills.

Barrett Marson:
He put no families into bankruptcy, I hate to tell you. He makes car loans; he's not a "predatory lender."

Emily Bitner:
He makes car loans at 500\% and has put families into bankruptcy when they're suffering from cancer.

Barrett Marson:
You get me that paperwork, Emily.

Emily Bitner:
It's on my desk.

Barrett Marson:
Okay. Anyway, another issue that appears the Democrats were on the wrong side is CPS. The legislature has been working to get CPS building to open up CPS records, make sure that they are more accountable to the public who pays for them. And Democrats have been voting against some of the bills, including one of the bigger ones: the idea of having CPS case records open when there is a death or near death of a child. And it's inexplicable to me how the public shouldn't see how CPS acted when there was a death of a child or near death.

Emily Bitner:
Barrett, let me say that first of all I'm someone who has personally volunteered in the foster care system and have mentored foster kids. So I have seen the devastation that substance abuse creates in families, and I have seen just how overstretched or understretched our CPS case workers are. I think that Democrats have, typically speaking, been on the forefront of expanding our CPS system, of making sure there are enough case workers to adequately deal with the problems that we have, while Republicans have stood in the way of those very reforms. And on top of -- let me finish.

Barrett Marson:
Adding money is not a reform. Adding money is adding money.

Emily Bitner:
We haven't added nearly enough case workers.

Barrett Marson:
We have added hundreds of case workers at the governor's request. [overlapping speakers]

Emily Bitner:
Will you let me finish, Barrett? Will you let me finish? Thank you. It's an issue of having the people on the ground who can deal with the cases. And I think Democrats have been on the forefront of making sure that those resources exist. Now, to talk about the specific bills that exist now, I think that there are still negotiations going on about those bills. And from -- before the governor will sign them. And from what I understand about those bills is everybody wants the system to work better for kids. Everybody wants to make sure kids are protected. The argument that seems to be taking place over these bills is an argument of when things happen, of the sequence of when things happen, of who talks to who exactly when, of whether it's a county attorney or a judge who has the authority over these, releasing these records. But I think that just in general people really want to see kids better protected. And Democrats have been pushing for that while Republicans have been, as usual, standing in the way.

Barrett Marson:
Unfortunately again don't let the facts get in the way, Emily, please. That would be wrong to let facts about this get in the way. You have seen Republicans both vote for increased money for CPS case workers, increased pay for CPS case workers.

Emily Bitner:
I think that's only under pressure from the governor.

Barrett Marson:
But now there's reforms to actually ensure that there's accountability in the system. When CPS case workers are dating the people that they should be -- that they have been investigating, when CPS case workers aren't doing the just normal things like looking in files, court records, things like that, that needs to be done. We have had to legislate that because CPS isn't doing that.

Emily Bitner:
Obviously those things need to be done. I think the conversation that we're having is talking about what the most appropriate way to get there is without jeopardizing federal funding for CPS, I think that's what some of the Democrats' objection is. And I will continue to say it's the governor who has pushed and pushed and pushed for CPS reform, dragged the Republican caucus along with her. And the governor who is the first to say that CPS should be working far more closely with law enforcement, that there should be much more communication about these cases. I think if you ask any Arizonan, "Who is trying their hardest to protect children?" they would answer Janet Napolitano.on a future edition of Horizon.

sky Song

  |   Video
  • skySong, Arizona State University�s high-tech business center, officially opens this week. Julia Rosen, ASU Associate Vice President of Innovation and Entrepreneurship at SkySong, will tell us about the facility.
Guests:
  • Julia Rosen - Associate Vice President,Innovation and Entrepreneurship, Arizona State University
Category: Business/Economy

View Transcript
Ted Simons:
Arizona State University's Skysong officially opens this week. It marks the completion of the first 157,000 square foot building at the corner of McDowell and Scottsdale road in Scottsdale, at the site of the old Los Arcos mall. ASU calls the project an innovation and international business center, with 20 global businesses already in partnership with Skysong. Skysong will also house 10 ASU sites, and will include residential and retail space. It will feature a huge tent structure when completed. I'll talk to a Skysong official about the project, but first Mike Sauceda tells us about one of the tenants in the new building.

Bashire Manji:
It shows up as being one of the top two or three spots in the natural search spaces in the search there that this consumer ran for a restaurant in south end.

Mike Sauceda:
Local Life USA CEO Bashire Manji demonstrates his company's web search engine, which provides a sort of an internet yellow pages for local businesses totally free of pop-ups.

Bashire Manji:
Local Life really is a combination of a local directory, combined with local services that we offer to small to medium-sized businesses in order for them to link to that directory. In the U.S., what that means basically is that we're going to be creating well over 2,000 direct rest to cover each and every city, each and every town, each and every zip code you can think of, providing each community with their specific directory where by the directory would have all of that information about the business, the community, everything there that an individual would need to know about that local community when they do a local search.

Mike Sauceda:
Local Life is bringing it's concept to the U.S. the company comes here after years of success in the UK with revenues coming from companies buying into the service and from web design. Local Life gives businesses a top spot on search engines. When the company decided to move into the U.S. market it looked at four different possible locations: Miami, San Francisco, New York and the Phoenix area. Once Local Life picked out the Valley it searched out various locations before picking Skysong at Scottsdale and McDowell.

Bashire Manji:
The capability that ASU brought to the table through the opening up of the academics area to us, the ability for us to tap into the students, and then coming here to Skysong and looking at this facility and what this facility had to offer and the capabilities that this facility had to offer, all these things really drove us to that decision, all of the management saying, "Believe gentlemen, this is it. This is going to be our home." Possibly not just a home for the U.S. office but we are to be looking at this as the home for the global offices here.

Mike Sauceda:
Besides the advantages of being connected with ASU, Manji says there will be advantages with having other high tech companies at Skysong. By May Local Life should have about 30 employees and temporary offices on the second floor with the company planning to move to the fourth floor. Manji says the number of employees could eventually grow to 4,000. Whatever the number, those employees will have a very modern looking building to work in with a cafe in the middle of the second floor, clocks with times from around the world reflecting the countries with companies in Skysong and the latest technology available to them, like video conferencing in the conference rooms.

Bashire Manji:
What better way to be able to do it right out of our offices right here at Skysong, have this conference room available to us in addition to other facilities and to be able to have online all our team managers from the UK as well as the key managers from France discussing our global planning. The support that we receive really from Skysong, from ASU, is really very promising. And we're just excited as heck to be here and be a part of Skysong.

Ted Simons:
Here now to tell us more about Skysong is Julia Rosen, Associate Vice President of Innovation and Entrepreneurship at ASU. Julia, good to have you here.

Julia Rosen:
Thank you.

Ted Simons:
We just saw one company all set to go there at Skysong. How many companies overall do you think will be there?

Julia Rosen:
It's hard to tell who will be there when the project is finished in 2015. But right now we're working with 27 companies, 20 companies from abroad and seven from the U.S.

Ted Simons:
And these are established companies, startups, a little bit of both?

Julia Rosen:
A little bit of both. We work with a number of entrepreneurs around the world that have product and sales in their home country and are interested in accessing the U.S. market but do not yet have a way to do so. Skysong is essentially their soft landing into accessing the U.S. market. We also have larger companies such as Canon that is leasing quite a bit of space at Skysong.

Ted Simons:
There does seem to be an emphasis on the international businesses there.

Julia Rosen:
Absolutely. When we first started developing this project, we realized that in addition to revitalizing southern Scottsdale and providing an important place for ASU's entrepreneurial units to more productively engage with the outside world, we wanted to also build a missing piece of Arizona's infrastructure that was a global portal it, brings companies from around the world to locate at Skysong, but also provides the place for local entrepreneurs to convene.

Ted Simons:
Can you talk about the recruiting process? How is a company like the one we just saw, how were they recruited?

Julia Rosen:
They were actually recruited by the Greater Phoenix Economic Council. We worked very closely GPAC, with the city of Scottsdale, with our partners at the Arizona Department of Commerce, as well as folks throughout ASU, that have very powerful connections globally.

Ted Simons:
Okay. There will be retail at Skysong?

Julia Rosen:
Absolutely. Skysong will be a true mixed-use community. So we'll have cafes and book stores and restaurants. We'll have residential units, open space, a large shade structure with water features that will really be a place where people can work, live and play.

Ted Simons:
I want to go back to the idea of convergence and these businesses working together. Talk about that dynamic there and how that would work.

Julia Rosen:
We're focusing on three main industry sectors: information & communication technology, sustainable technologies and educational technologies. Within each of these factors we have a number of companies large and small not only interested in engaging with each other but engaging with ASU units that can help them develop new research, can help provide new employees to them and can just help them become more productive and increase their sales in the United States.

Ted Simons:
Talk about how ASU offers a chance for some of these companies to get involved in research.

Julia Rosen:
Well, we have specific staff members actually that work with the companies and really analyze each company on a case-by-case basis, tries to understand their hiring needs, do they need student interns, what kinds of research are they interested in, are they interested in technology venturing, are they interested in customized executive education. So our staff goes back into the university and connects them with the appropriate units and then follows back up to make sure that ASU is in fact delivering as much as we can to these companies so that they will be successful and expand their presence in Arizona.

Ted Simons:
So you've got the students coming in to help out and learn and the companies taking advantage of the students in terms of teaching and getting product.

Julia Rosen:
Absolutely. And it's really important for our students to be able to work in these companies. Traditionally a lot of career service is focused on work experience in large companies, and our students are getting the ability to work not only with small, fast-growing enterprises, but those with a global flavor.

Ted Simons:
For those who don't live near the old Los Arcos, maybe live across town or whatever, what does Skysong mean to them?

Julia Rosen:
We hope Skysong will not only be an amenity for the state and for the region, but will really be a place where neighbors can come and take a walk down the shaded boulevards, play in the water fountain, take advantage of the open space, have a cup of coffee there, in addition to hosting community meetings. We're working very closely with the schools, actually, to conduct a number of different student and faculty and administrator events over the summer at Skysong.

Ted Simons:
Got to ask you about that sail. What's it made of and is it going to hold up if the monsoon hits?

Julia Rosen:
Our development partners absolutely assure us this structure has been battle tested in the Middle East where conditions are at least as difficult as they are in Arizona. And so we are very optimistic it will be just fine.

Ted Simons:
And it will be up in time for the monsoons to end, I would imagine. Probably this fall sometime?

Julia Rosen:
We're hoping after the monsoons.

Ted Simons:
All right. Julia, thank you so much for joining us.

Julia Rosen:
Thanks so much.

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