Weekly Roundup 2/7/2011

"The Youth Unemployment Bomb"
Peter Coy, Bloomberg Business Week, Feb. 7-13

Synopsis: A thoroughly reported cover story highlights the high youth-unemployment rates in most of the world: 24 percent in the Middle East and North Africa, in the high teens in the United States (18 percent) and most other countries except in Asia. Economies around the world that “can't generate enough jobs to absorb . . . young people” are creating “a lost generation of the disaffected, unemployed, or underemployed.”

Takeaway: With older workers holding on to their jobs, the need will only become more acute for economies to grow and for schools and colleges to better match education to skills needed in the workplace.

Kenneth Jost, Associate Editor

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“Think Again: American Decline”
Gideon Rachman, Foreign Policy, January-February, 2011

The sub-headline delivers the bottom line: “This time it’s for real.” The author, a foreign-affairs specialist for the London-based Financial Times newspaper – much read by members of the global business class – stakes out one side of the newly energized debate about the United States’ place in the emerging world power structure. Rachman’s piece won’t be the last word on the subject. But anyone who argues that America’s No. 1 status remains unchallenged will have to grapple with Rachman’s tough-minded analysis. He deals, for example, with two beliefs that marked late-1990’s views of the new world order. “The first was that economic growth would inevitably -- and fairly swiftly -- lead to democratization,” Rachman writes. “The second was that new democracies would inevitably be more friendly and helpful toward the United States. Neither assumption is working out… .It is now entirely conceivable that when China becomes the world's largest economy -- let us say in 2027 -- it will still be a one-party state run by the Communist Party.”

Peter Katel, Staff Writer

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"FCIC Report Misses Central Issue: Why Was There Demand for Bad Mortgage Loans?"
Thomas Adams and Yves Smith, Huffington Post, Jan. 31, 2011.

Synopsis: Two writers from the always intriguing NakedCapitalism.com financial and economic-analysis blog tackle the unanswered – and often unasked – big question of the financial-market crash: Why on earth was there such apparently high demand for bad mortgages packaged as investments? Their answer: the growing popularity of high-dollar “hedging.” The fancy derivative investments called credit default swaps help investors win big if they buy them as a hedge against underlying investments that fail. Thus, write Adams and Smith, an appetite grew among investors for investment vehicles that were all but guaranteed to fail – since the failures were necessary for the hedged bets to pay off. Thus, they argue, was a burgeoning market for shaky, failure-prone mortgages born.

Takeaway: “For just a small investment in a CDO or CDS, an investor could create huge incentives for mortgage lenders to seek out unqualified borrowers and lend them far too much money.”

Marcia Clemmitt, Staff Writer

For further reading, see "Financial Industry Overhaul" [subscription required] by Marcia Clemmitt, July 30, 2010; and "Mortgage Crisis" [subscription required] by Marcia Clemmitt, Nov. 2, 2007, and updated Aug. 9, 2010.

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“Shaken: Has a Flawed Diagnosis Put Innocent People in Prison?”
Emily Bazelon, The New York Times Magazine, Feb. 6, 2011

Synthesis: In this long and compelling account, Bazelon, a law and media fellow at Yale Law School, explores new questions about shaken-baby syndrome , describing several cases in which caregivers may have been wrongly convicted and imprisoned for child abuse. Convictions have been overturned for several people in the United States and Britain.

Takeaway: “A small but growing number of doctors warn that there can be alternate explanations for the usual triad of symptoms associated with shaken-baby syndrome,” Bazelon writes. Without other evidence of abuse, warns an attorney involved in challenging convictions, people should not be prosecuted in shaken-baby cases. “If the medical community can’t agree about all the conflicting data and research, how is a jury supposed to reach a conclusion that’s beyond a reasonable doubt?” asks Keith Findley, a lawyer for the Wisconsin Innocence Project.

Thomas J. Colin, Contributing Editor